Banks. Raiffeisen Bank International AG. Austria. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 Austria Full Rating Report Ratings Foreign Currency Long-Term IDR Short-Term IDR A F1 Viability Rating bbb Support Rating 1 Support Rating Floor A Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA Outlooks Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Stable Foreign-Currency IDR Sovereign Long-Term Stable Local-Currency IDR Financial Data 1H Total assets (USDm) 170, ,045 Total assets (EURm) 130, ,116 Total equity (EURm) 7,928 8,373 Fitch core capital (EURm) 6,161 6,598 Operating profit (EURm) 475 1,020 Net income (EURm) Comprehen. income (EURm) Pre-impairment operating ROAE (%) Operating ROAA (%) Operating ROAE (%) LICs/average loans (%) (Impaired loans loan loss reserves)/equity (%) Loans/deposits (%) Fitch core capital ratio (%) Tier 1 ratio (%) Tangible common equity/ tangible assets (%) Related Research Peer Review: Major Austrian Banks (September 2013) Analysts Christian Kuendig christian.kuendig@fitchratings.com Patrick Rioual patrick.rioual@fitchratings.com Key Rating Drivers Support-Driven IDRs: s (RBI) Issuer Default Ratings (IDRs) reflect Fitch Ratings view that, as an integral part of Austria s largest banking group, Raiffeisen Banking Group (RBG), support from the Austrian authorities would be very likely if needed. Listed in Vienna, RBI is 78.5% owned by Raiffeisen Zentralbank Oesterreich AG (RZB), RBG s central institution, and is a member of RBG s mutual support scheme. The vast majority of its business and diversified risk exposure is spread across 17 Central and Eastern European (CEE) countries, while its franchise in Austria is limited to large corporates. Below-Average Capitalisation Constrains VR: RBI s Viability Rating (VR) reflects the bank s diversified franchise across CEE, sound domestic corporate franchise and resilient profitability. However, it also takes into account RBI s deteriorating asset quality and, most notably, its core capitalisation, which is weaker than that of most of its domestic and foreign peers. Increasing Reliance on Russia: The VR also takes into account RBI s increasing reliance on its sizeable Russian subsidiary, which accounted for 21% of gross revenues and 40% of pretax profit in 1H13. Fitch expects RBI s earnings diversification to improve once other CEE markets recover. Its recent large acquisition in Poland should also help to reduce this reliance. Adequate Profitability: Higher business volumes resulted in steady operating profit in 1H13 despite increased operating expenses and high loan impairment charges (LICs). Fitch expects a gradual recovery in several CEE markets, which should support RBI s mid-term performance. Significant cost-cutting measures announced in 3Q13 should provide some additional relief. Asset Quality Stabilisation: After a sharp deterioration in 2012, RBI s asset quality weakened more moderately in 1H13, largely due to improvements in Russia. Fitch expects its impaired loan ratios to peak in most major markets in 4Q13 or Following a slight increase to 69% at end-1h13, the bank s coverage ratio now compares favourably with those of its direct peers. Large Share of Non-Core Capital: Fitch views RBI s core capitalisation as below-average due to its high share of participation capital, which we categorise as non-core and which will be gradually phased out under Basel III. RBI s management has been considering a capital increase to replace it for some time but has yet to announce concrete measures. The envisaged cost and risk-weighted assets (RWA) optimisation would provide some relief but could be insufficient to rebuild the bank s capital to a level comparable with its direct peers. Rating Sensitivities Weakening Systemic Support: A weakened ability of the Austrian authorities to support RBI (signalled by a lower sovereign rating) or a change in Fitch s view on the government s willingness to provide support could lead to a downgrade of RBI s Support Rating Floor and IDRs. Institutional support from RBG could potentially mitigate this to some extent. Setbacks in CEE: A delayed recovery in CEE or a deteriorating operating environment in Russia could significantly affect RBI s asset quality and profitability, putting pressure on its VR. Stronger Core Capitalisation: Replacing the bank s EUR2.5bn participation capital by issuing new shares would materially improve RBI s core capitalisation, bringing it into line with levels at direct domestic and foreign peers. This could lead to an upgrade of the VR if, at the same time, the operating environment in CEE improves as expected. 21

2 Figure 1 RBG s Key Data (End- 2012) Main subsidiary of Austria s Loans (EURbn) Deposits (EURbn) Tier 1 ratio (%) Staff ( 000) Branches ( 000) RBG RZB RBI Austria CEE Total n.p n.p. n.p n.m. 3 n.p.: non-public; n.m.: not meaningful Source: RBI Figure 2 largest banking group Leading player in CEE, including south-east Europe (SEE) and the Commonwealth of Independent States (CIS) New CEO likely to make only limited strategic adjustments Resilient earnings, adequate profitability through the cycle High earnings reliance on Russia limits earnings diversification LICs to remain high in 1H14 but may improve in 2H14 Pre-tax Profit by Region End-H113 Group markets 9% CIS Other 11% Group corporates 14% Source: RBI CE 8% Related Criteria SEE 18% Russia 40% Global Financial Institutions Rating Criteria (August 2012) Profile RBI is the result of the merger in 2010 of RZB s former CEE subsidiary, Raiffeisen International Bank-Holding AG, with the bulk of RZB s corporate and investment banking business. With 15 banking and various non-banking subsidiaries in most countries in CEE, RBI is, alongside UniCredit S.p.A. (BBB+/Negative; essentially through its CEE sub-holding, UniCredit Bank Austria AG, A/Stable), one of the leading western European banks in the region. Originally predominately a corporate lender, it is developing retail and consumer lending across CEE. RBG, a cooperative group, is Austria s largest banking group, with c.30% of domestic deposits at end-2012 and a three-tier structure: 494 local, small, retail-focused Raiffeisenbanks; eight mid-sized Raiffeisenlandesbanks (RLBs; regional central institutions owned by the Raiffeisenbanks); and RZB, the nationwide central institution 89.86%-owned by the RLBs. We expect RZB to retain a majority stake in RBI, even though raising capital from third parties to replace RBI s participation capital could potentially significantly dilute RZB s stake. RBG s cohesion is increasing, even though the Raiffeisenbanks still operate independently from each other. The cross-support mechanism (Raiffeisen-Kundengarantiegemeinschaft Österreich; see Annex) in place since 2000 covered 92% of RBG s client deposits at end RBI operates three segments: CEE (corporate and retail banking, 63% of total assets); Group Corporates (15%), which serves Austria s top 1,000 companies and includes a niche Asian operation; and Group Markets (15%), which consists of corporate treasury sales and ECM/DCM in CEE and Austria. We view the replacement of RBI s long-standing CEO in May 2013 by its deputy hitherto responsible for corporate banking as rating-neutral as this is unlikely to have major strategic implications. Capital strengthening and cost control will be key priorities. While disposals of peripheral activities will be considered, the bank s focus on key CEE markets will be maintained. Performance RBI s profitability has been adequate and resilient throughout the financial crisis despite the continued volatile environment in several CEE markets. Its diversification across CEE (geographical, by segment and industry) and its sound domestic corporate franchise have been key drivers of this resilience. Nonetheless, the bank s reliance on Russia has been increasing recently; in 1H13, Russia was responsible for 21% of revenues and 40% of pre-tax profit. We expect RBI s performance to remain adequate in 2H13 and 2014 after a sound operating RoE of 12% in 1H13. Fitch expects the eurozone s economic conditions to somewhat improve in the medium term. This should benefit the many CEE economies that are strongly driven by exports to the eurozone, which should further support RBI s volume growth and profitability. RBI s net interest margin (NIM), which has historically been narrower than its peers due to its sizeable low-margin interbank business, increased materially in 1H13, driving net interest income (NII) up to EUR1.8bn (72% of operating revenue). Deposit repricing was responsible for 40% of the NII increase, followed by higher interest income on liquid assets. This was sufficient to compensate for the negative pressure from shrinking customer exposures, caused by weaker demand in Poland and adverse FX movements. Net fee income largely relates to, and moves in line with, lending and transaction-based businesses. Driven by the consolidation of its Polish subsidiary Polbank, higher fees in Hungary following the introduction of the financial transaction tax, and higher business volume in all segments, the bank reported a 9% yoy increase in net fee income in 1H13. RBI s remaining operating revenues mainly relate to net trading income, the marking-to-market of derivatives and gains/losses from financial investments, and tend to be fairly volatile. Net 2

3 Figure 3 Revenues by Region End-H113 CIS other 11% Group corporates 11% Russia 21% Source: RBI Group markets 7% CE 27% SEE 23% trading income decreased sharply in 1H13, driven by valuation losses on securities, lower proceeds from equities, and declining income from FX transactions. Operating income was also affected by bank levies in Austria (EUR51m in 1H13), Hungary (EUR40m for the full year 2013) and Slovakia (EUR17m). Total bank levies should be close to EUR180m in The foreign lending relief programme in Hungary (government-forced conversion of FX-denominated loans to forint) could lead to additional charges for RBI although its Hungarian exposure is moderate. RBI generally manages its cost base efficiently, and the new CEO is targeting a fairly ambitious cost reduction. Nonetheless, significant growth in Russia and the first-time full consolidation of Polbank increased its cost/income ratio by a material 900bp to 63% in 1H13. We expect the ratio to drop below 60% once the expansion in Russia (branch openings, new IT systems, headcount additions) is completed and synergies from the Polbank integration materialise. LICs increased by 17% yoy to a high EUR469m in 1H13, largely driven by corporate lending and the increase of the coverage ratio by 115bp to 69%. At end-3q13, RBI announced a 10% yoy expected increase in LICs for 2013, largely due to one-off items and higher-than-expected charges on corporate clients recorded in 1H13. Despite the latter, net LICs/pre-impairment operating profit remained close to 50% in 1H13, providing acceptable financial flexibility. The halved net income in 1H13 yoy despite the improved operating profit was largely due to the absence of exceptional effects in the period, such as gains from the disposal of bonds and the buyback of hybrid instruments, which resulted in a one-off gain of EUR272m in 1H12. CEE and large corporate credit risk is the main source of risk Good granularity, geographical and industry diversification Sizeable share of FX loans Impaired loan ratio stabilised in 1H13; impaired loan volume likely to stabilise in the near term Risk Management RBI s risk management functions, policies and systems are generally centralised, as is its management of credit risk from financial institutions (FIs). RZB sets economic capital allocation targets, monitors compliance with risk policies and is represented on various RBI risk committees (eg, for large credit extensions). In CEE, the level of delegation of risk authority depends on the entities size and is generally moderate compared to peers. The internal auditors control the appropriateness of CEE operations systems and policies every other year. RBI s main risk steering tool is an economic capital model (99.95% confidence level, one-year horizon, A+ target rating). Credit risk, the main source of risk, accounted for 66% of total economic capital (including a 5% buffer) at end-2012, and market risk for a moderate 8.5%. For RWA calculation, RBI is rolling out the foundation internal ratings-based (IRB) approach to all its subsidiaries. At end-1h13, 56% of credit risk was calculated using the IRB approach, up from 50% at end At end-2012, 82% of RWA related to credit risk, 5% to market risk, 1% to FX risk and 12% to operational risk. When compared to end-2012, RWA remained stable. Figure 4 Risk Breakdown (End-2012) Per type of risk Operational 8% Market 9% Other 10% Liquidity 2% Credit (sovereign) 10% Source: RBI Risk buffer 5% Credit (FI) 3% Credit (corporate) 26% Credit (retail) 27% Credit Risk RBI s credit risk is adequately diversified by geography, segment and industry. Russia, Poland and Slovakia are the largest CEE country exposures. Corporates account for two-thirds of nominal loan exposures, followed by retail clients (29%), SMEs (4%) and sovereigns (2%). In economic capital terms, 40% of credit risk relates to corporates, 40% to retail clients, 5% to FIs and 15% to sovereigns. Corporate loans are well spread across wholesale/retail trade (24%), manufacturing (21%) and real estate/construction (19%). Mortgage loans dominate the retail segment (67%), followed by unsecured personal loans (24%) and car/credit cards loans (18%). Credit exposure to FIs in CEE is negligible. Exposure to non-investment-grade sovereigns (mostly CEE) was c.eur9bn or a significant 94% of Tier 1 capital at end-1h13, largely related to local regulatory reserves and liquidity requirements, thus offering limited scope for reduction. Weaker demand continued to lower RBI s credit exposure by 3% yoy to EUR165bn in 1H13. Boosted in 2012 by the acquisition of Polbank, the share of FX loans decreased slightly to 34% of total loans at end-1h13. The decrease of Swiss franc (47% of FX loans) and US dollar (11%) 3

4 lending was largely offset by rising lending in euros (41%). FX lending is particularly prevalent in Hungary, Poland and Croatia (see Figure 6). Single-name concentrations have somewhat decreased to acceptable levels in recent years, and the 20 largest credit exposures had sound internal ratings at end Collateralisation levels are also adequate and in line with peers. Figure 5 Geographic Risk Breakdown (End-2012) Russia 13% SEE 19% Source: RBI CIS 9% Rest of the World 3% CE 37% Austria 19% Asset Quality RBI s impaired loan level should stabilise in the medium term, albeit not uniformly across CEE: moderate improvements in Central Europe and Russia should offset further deterioration in SEE, while downside remains notable in Croatia, Hungary and Romania. Asset quality could start to stabilise in 4Q13 after the overall impaired loan ratio deteriorated by a moderate 25bp to 10% in 1H13. This was largely due to shrinking corporate loans, which increased the segment s impaired loan ratio by 30bp to 9%, outweighing the retail segment s modest (10bp) improvement to 11%. RBI s higher CEE exposure than its peers explains its higher impaired loan ratio. The bank further improved its impaired loan coverage to 69% at end-1h13 (64% and 73% in the corporate and retail segments respectively). Coverage ratios are strongest in Russia (above 100%) and Poland. Despite a sizeable corporate loan book, impaired loans tend to be fairly granular. RBI s key current asset quality issues arise from Ukraine, Hungary and Bulgaria. While down by 347bp yoy, the impaired loan ratio in Ukraine was still an extraordinarily high 34% at end- 1H13. The situation remained broadly stable in Hungary. In both countries, RBI is trying to improve asset quality by focusing on export-driven companies. In Bulgaria, the impaired loan ratio increased by 172bp to a very high 19% despite the ongoing strengthening of underwriting criteria. In Russia, the bank is focusing increasingly on consumer and credit card lending, which Fitch expects to translate into higher impaired loans over time. Figure 6 Asset Quality At End-1H13 CZE HUN POL SVK SVN ALB BIH BGR HRV KOS ROM SER RUS BLR UKR Corp Markets Total Loans (EURbn) O/w corporates (%) O/w retail (%) O/w FX (%) n.p. n.p. n.p. Impaired loan ratio (%) Coverage ratio (%) n.p.: non-public Source: RBI, Fitch Market Risk RBI s moderate market risk exposure largely relates to FX risk from its CEE subsidiaries, whose book values and expected profits are only partially hedged. Market risk also relates to a lesser degree to the banking book s structural interest rate risk. Higher volatility in emerging markets, following concerns that the Fed s quantitative easing programme could be tapered by end-2013, increased market risk (as measured by value-at-risk (VaR)) at the end of 1H13. RBI s trading book and banking book VaR to calculate market risk capital requirements are both calculated based on a one-day holding period, a 99% confidence level and 500 days of historical data. Daily VaR stress-tests use a combination of historical and Monte Carlo simulations, and the model is regularly back-tested. In 1H13, RBI s maximum one-day VaR (post-diversification) was an acceptable 1.8% of FCC. FX risk (1.3% of FCC) is the main VaR driver, followed by credit spread risk (0.8%) and interest rate risk (0.5%). Sensitivity to interest rate shifts is moderate. A simultaneous upward parallel shift of the yield curve by 1bp in all currencies would have a moderate 2bp impact on FCC (ie, a 2% impact on FCC from a 100bp parallel shift, assuming a linear relationship). Interest risk is higher for Swiss 4

5 franc and US dollar rates in the banking book and for euro rates in the trading book. Solid customer deposit franchise throughout CEE Significantly cut net CEE funding needs by raising local deposits Figure 7 Funding Structure End-1H13 (EURbn) (%) a Bank deposits O/w Austrian O/w foreign Client deposits O/w Austrian 6 5 O/w foreign Debt securities O/w to retail clients 2 2 O/w maturing in 6 5 2H13 and 2014 Sub debt 4 3 O/w Tier Total non-equity a As % of total non-equity funding Source: RBI; Fitch Figure 8 CEE Funding Gap End-1H13 LDR (%) a Gap b Czech Rep Hungary Poland Slovakia Slovenia Albania Bosnia Bulgaria Croatia Kosovo 92 0 Romania Serbia Russia Belarus Ukraine Total CEE -5.0 a Loans/deposits ratio b Deposits minus loans in EURbn Source: RBI, Fitch Large share of participation capital; non Basel III-eligible from 2018 Below-average FCC ratio excludes non-core participation capital Improving core capitalisation is key management priority; capital increase is a likely option Operational Risk RBI s operational risk largely relates to its extensive branch network in CEE. It uses Basel II s standardised approach to measure operational risk, has defined key risk indicators and has implemented an early warning system. Funding and Liquidity RBI s funding and liquidity are adequate. Stable client deposits funded 51% of its balance sheet and 87% of net loans at end-1h13. Despite a decline in recent years, reliance on wholesale funding (interbank and bonds) remains significant but maturities are well distributed. At end- 1H13, EUR2bn of bonds were due in 2H13, EUR4bn in 2014 and EUR2bn in 2015, and the bank had already realised half of its funding plan of EUR6bn for Deposits from RBI s large corporate business used to be its main funding source. However, its retail expansion and the recent Polbank acquisition have resulted in a more balanced contribution of corporate and retail deposits, which accounted for 48% and 42% of total client deposits respectively at end-1h13, while SMEs accounted for 6%. Reflecting its CEE focus, fairly diversified foreign deposits dominate RBI s total (91% of total deposits at end-1h13, of which Russia 16%, Slovakia 11%, Poland 11%, the Czech Republic 9% and Hungary 7%). RBI still relies on wholesale investors to fund part of its CEE assets. Yet it has significantly cut its CEE funding gap to EUR5bn at end-1h13 by raising local deposits, and some CEE subsidiaries, including Slovakia and Russia, are now largely self-funded. Given the emphasis on locally sourced funding, most of RBI s CEE subsidiaries comply with the Austrian regulators guidelines (introduced in early 2012) to keep the subsidiaries loans to local stable funding ratio (LLSFR) 1 below 110%. Only Slovenia exceeded the 110% threshold at end-2012, but the small Slovenian client assets of EUR1bn account for just 1% of RBI s total assets; ie, below the formerly applied 2.5% threshold. RBI manages its subsidiaries liquidity centrally, with internal limits and positive short-term liquidity required from each entity. It recently started to optimise its liquidity by raising the liquidity gap (now defined as up to one week; EUR17bn total, 15% increase since end-2012) and lowering the one-year gap (EUR12bn, +11%), which positively affected margins. RZB s sizeable counterbalancing capacity (with unencumbered central bank eligible assets of EUR17.8bn at end-1h13) also supports RBI s liquidity. Capital RBI s core capitalisation lags its domestic and international peers and is a key rating constraint. Its EUR2.5bn participation capital received in 2009 (EUR1.75bn from the Austrian state, EUR750m from private investors) will gradually lose its regulatory core status under CRD IV, in line with the European parliament s decision in 2Q13. Thus, it will no longer be eligible as Tier 1 capital from end In line with CRD IV, we view the participation capital as non-core, hybrid capital, resulting in an FCC ratio of 7.4% at end-1h13, which is low for RBI s risk profile and VR. RBI s Basel III leverage ratio was an adequate 5.5% at end-1h13. Excluding the participation capital, the ratio would fall to 3.6%, which is acceptable but close to the minimum of 3%. The bank s capital ratios are sensitive to FX volatility (devaluations in Poland and Russia reduced its Tier 1 ratio by 30bp in 1H13) despite the partial hedging of its non-euro capital investments. 1 Defined as the ratio of total loans to non-banks (net of provisions) to the sum of deposits from nonbanks, funding from supranational institutions, capital from third parties, and securities with an original maturity of at least one year issued to investors outside the bank s consolidated group. 5

6 Figure 9 Capital Structure End-1H13 (EURbn) Core tier 1 capital 6.10 Hybrid capital 0.44 Private participation 0.75 capital Government 1.75 participation capital Tier 2 capital 3.22 Total RWA 82.8 O/w credit 67.8 O/w market 4.7 O/w operational 10,3 The Austrian supervisor restricts any repayment of participation capital in the absence of compensatory measures to ensure that the current capital level is maintained. Fitch forecasts mid-term economic recovery in Austria and CEE. While this should support RBI s internal capital generation, it is unlikely to fully offset the participation capital s gradual phase-out. Therefore, RBI will probably need to emulate its Austrian competitor Erste Group, which raised capital from the market by issuing new shares before it fully repaid its participation capital in 3Q13. RBI s management has repeatedly stated that a capital increase is a strategic option alongside stricter cost control and RWA optimisation. As RZB intends to maintain a majority stake, RBI is likely to await a recovery of its share price to proceed with a capital increase. (%) Fitch core capital 7.4 Core tier Tier Source: RBI; Fitch 6

7 Annex: Group Structure and Support Mechanism RBG established a legally binding cross-guarantee support mechanism in the early 2000s. Its pre-existing scheme remains in place but has been enhanced by an ultimate payment guarantee through the creation of a fund (Raiffeisen-Kundengarantiegemeinschaft Österreich; RKÖ). The Austrian regional cross-guarantee systems are also part of RKÖ, with the exception of the regions of Salzburg and Carinthia. Consequently, 82% of RBG s banks including RBI are members of the guarantee scheme, which covers 94% of RBG s deposits. Figure 10 Raiffeisen Banking Group, RZB AG and RBI Simplified Organisational Chart 1.7m Members (Mainly Private Individuals in Austria) ZAO Raiffeisenbank Moscow (100%) Raiffeisen Bank Aval JSC Kiev (96.2%) Raiffeisen Banking Group (RBG) 494 Austrian Raiffeisen Banks (Around 2,200 Domestic Branches) 8 Regional Raiffeisen Banks (Raiffeisenlandesbanken) and Zveza Bank (Klagenfurt) Raiffeisen Zentralbank Oesterreich AG (RZB AG) Raiffeisen Bank Zrt. Budapest (100%) Raiffeisenbank a.s. Prague (75%) Tatra banka a.s. Bratislava (78.8%) Raiffeisen Bank Polska S.A. Warsaw (100%) Raiffeisen Bank S.A. Bucharest (99.5%) Raiffeisenbank (Bulgaria) EAD Sofia (100%) Raiffeisen Bank d.d. Bosna I Herce. (97.0%) Raiffeisen Bank Sh.a. Tirana (100%) Raiffeisen banka a.d. Belgrade (100%) Raiffeisen Banka d.d. Maribor/ Slovenia (99.3%) 78.5% Raiffeisen Bank International AG Raiffeisenbank Austria d.d. Zagreb (75%) Priorbank JSC Minsk (87.7%) Other subsidiaries in CEE and elsewhere Source: Transaction documents 7

8 Figure 11 RBI Peer Group Comparison RBI (A/Stable/bbb) UniCredit Bank Austria AG (A/Stable/bbb+) Erste Group Bank AG (A/Stable/a ) 1H H H Income Statement (EURm) Net interest income 1,836 3,472 2,220 4,403 2,419 5,219 Net fee income 785 1, , ,721 Total non-interest operating income 725 1,820 1,303 2, ,818 Personal expenses ,001 1,972 1,127 2,284 Other operating expenses 802 1, , ,473 Pre-impairment operating profit 944 2,028 1,688 2,477 1,225 3,296 Loan impairment charge (LIC) 469 1, , ,980 Operating profit 475 1, , ,316 Net income Balance Sheet (EURbn) Total assets Total customer loans Impaired loans Loan loss reserve Total customer deposits Total long-term Debt Total equity Fitch core capital Performance Ratios (%) Cost/income Pre-impairment net interest margin Pre-impairment operating profit/equity Pre-impairment operating profit/assets LIC/pre-impairment operating profit Operating profit/equity Operating profit/assets Asset Quality Ratios (%) Impaired loans/total loans Reserves for impaired loans/impaired loans Loan impairment charges/gross loans (Impaired loans-loan loss reserves)/equity Funding and Liquidity Ratios (%) Total loans/client deposits Client deposits/total funding excl. derivatives Capitalisation Ratios (%) FCC/risk-weighted assets Tier 1 ratio Tangible common equity/tangible assets Equity/assets Source: Banks financial statements, Fitch 8

9 Income Statement 30 Jun Dec Dec Dec Dec 2009 Interim Year End Year End Year End Year End EURm EURm EURm EURm EURm Unaudited Unqualified Unqualified Unqualified Unqualified 1. Interest Income on Loans 2,319 5,092 4,744 4,572 4, Other Interest Income 733 1,387 1,871 1,793 1, Dividend Income n.a. 0 n.a. n.a. n.a. 4. Gross Interest and Dividend Income 3,052 6,479 6,615 6,365 5, Interest Expense on Customer Deposits 694 1,633 1,411 1,251 1, Other Interest Expense 522 1,374 1,537 1,536 1, Total Interest Expense 1,216 3,007 2,947 2,787 2, Net Interest Income 1,836 3,472 3,667 3,578 2, Net Gains (Losses) on Trading and Derivatives (47) Net Gains (Losses) on Other Securities 30 n.a. n.a. n.a Net Gains (Losses) on Assets at FV through Income Statement (141) Net Insurance Income n.a. n.a. n.a. n.a. n.a. 13. Net Fees and Commissions 785 1,516 1,490 1,491 1, Other Operating Income (77) (102) (232) Total Non-Interest Operating Income 725 1,820 1,893 1,878 1, Personnel Expenses 815 1,606 1,540 1,453 1, Other Operating Expenses 802 1,658 1,581 1,527 1, Total Non-Interest Expenses 1,617 3,264 3,120 2,980 2, Equity-accounted Profit/ Loss - Operating n.a. n.a. n.a. n.a. n.a. 20. Pre-Impairment Operating Profit 944 2,028 2,440 2,477 2, Loan Impairment Charge 469 1,009 1,064 1,194 1, Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. n.a. 23. Operating Profit 475 1,020 1,376 1, Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. n.a. 25. Non-recurring Income 1 n.a. n.a. n.a. n.a. 26. Non-recurring Expense 9 n.a. n.a. n.a. n.a. 27. Change in Fair Value of Own Debt n.a. n.a. n.a. n.a. n.a. 28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. n.a. 29. Pre-tax Profit 467 1,020 1,376 1, Tax expense Profit/Loss from Discontinued Operations n.a. 12 (3) 5 n.a. 32. Net Income , Change in Value of AFS Investments (34) (147) Revaluation of Fixed Assets n.a. n.a. n.a. n.a. n.a. 35. Currency Translation Differences (261) 167 (350) 180 (249) 36. Remaining OCI Gains/(losses) Fitch Comprehensive Income , Memo: Profit Allocation to Non-controlling Interests n.a Memo: Net Income after Allocation to Non-controlling Interests , Memo: Common Dividends Relating to the Period Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. n.a. 9

10 Balance Sheet 30 Jun Dec Dec Dec Dec 2009 Interim Year End Year End Year End Year End EURm EURm EURm EURm EURm Assets A. Loans 1. Residential Mortgage Loans n.a. 21,018 17,944 16,888 17, Other Mortgage Loans n.a. n.a. n.a. n.a. n.a. 3. Other Consumer/ Retail Loans 26,588 n.a. n.a. n.a. n.a. 4. Corporate & Commercial Loans 53,597 n.a. n.a. n.a. n.a. 5. Other Loans ,325 63,632 58,769 32, Less: Reserves for Impaired Loans/ NPLs 5,615 5,484 4,826 4,501 3, Net Loans 75,137 77,859 76,751 71,156 47, Gross Loans 80,752 83,343 81,576 75,657 50, Memo: Impaired Loans included above 8,137 8,183 7,056 6,390 4, Memo: Loans at Fair Value included above n.a. n.a. n.a. n.a. n.a. B. Other Earning Assets 1. Loans and Advances to Banks 17,510 22,166 25,520 21,277 10, Reverse Repos and Cash Collateral 5,140 n.a. n.a. n.a. n.a. 3. Trading Securities and at FV through Income 3,673 2,997 3,324 4,444 3, Derivatives 4,998 8,221 8,698 5, Available for Sale Securities n.a. 13,356 16,535 19,631 7, Held to Maturity Securities n.a. n.a. n.a. n.a. n.a. 7. At-equity Investments in Associates Other Securities 14,397 n.a. n.a. n.a. n.a. 9. Total Securities 28,213 24,579 28,562 29,192 11, Memo: Government Securities included Above n.a. 12,193 12,852 18,131 8, Memo: Total Securities Pledged n.a. n.a. n.a. n.a. n.a. 12. Investments in Property n.a. 13. Insurance Assets n.a. n.a. n.a. n.a. n.a. 14. Other Earning Assets Total Earning Assets 121, , , ,739 69,059 C. Non-Earning Assets 1. Cash and Due From Banks 4,451 6,557 11,402 4,807 4, Memo: Mandatory Reserves included above n.a. n.a. n.a. n.a. n.a. 3. Foreclosed Real Estate n.a. n.a. n.a. n.a. n.a. 4. Fixed Assets 1,414 1,447 1,391 1,341 1, Goodwill Other Intangibles Current Tax Assets Deferred Tax Assets Discontinued Operations n.a. 10. Other Assets 1,416 1,468 1,730 1, Total Assets 130, , , ,173 76,275 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 66,502 30,046 27,472 23,781 17, Customer Deposits - Savings n.a. 2,247 1,281 1,470 1, Customer Deposits - Term n.a. 34,005 37,994 32,382 24, Total Customer Deposits 66,502 66,297 66,747 57,633 42, Deposits from Banks 26,362 30,186 37,992 33,659 20, Repos and Cash Collateral 1,206 n.a. n.a. n.a. n.a. 7. Other Deposits and Short-term Borrowings n.a. n.a. n.a. n.a. n.a. 8. Total Deposits, Money Market and Short-term Funding 94,070 96, ,739 91,292 62, Senior Debt Maturing after 1 Year 12,035 13,290 14,367 9,960 2, Subordinated Borrowing 3,401 3,487 3,332 3,182 1, Other Funding n.a. n.a. n.a. 6,596 n.a. 12. Total Long Term Funding 15,436 16,777 17,699 19,737 3, Derivatives 5,323 7,919 9,198 5, Trading Liabilities 1,221 1,377 1,309 1,211 n.a. 15. Total Funding 116, , , ,035 67,290 E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. n.a. n.a. n.a. 2. Credit impairment reserves n.a. n.a. n.a. n.a. n.a. 3. Reserves for Pensions and Other Current Tax Liabilities 64 n.a. n.a. n.a. n.a. 5. Deferred Tax Liabilities 23 n.a. n.a. n.a. n.a. 6. Other Deferred Liabilities Discontinued Operations n.a. n.a. n.a. n.a. n.a. 8. Insurance Liabilities n.a. n.a. n.a. n.a. n.a. 9. Other Liabilities 2,447 1,246 1,327 1, Total Liabilities 119, , , ,950 68,106 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt , Pref. Shares and Hybrid Capital accounted for as Equity 2,500 2,500 2,500 2, G. Equity 1. Common Equity 7,240 7,654 7,293 6,628 5, Non-controlling Interest ,143 1, Securities Revaluation Reserves n.a. n.a. n.a. 10 n.a. 4. Foreign Exchange Revaluation Reserves n.a. n.a. n.a. 180 n.a. 5. Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. n.a. 20 n.a. 6. Total Equity 7,928 8,373 8,436 7,904 6, Total Liabilities and Equity 130, , , ,173 76, Memo: Fitch Core Capital 6,161 6,598 7,012 6,414 5, Memo: Fitch Eligible Capital n.a. n.a. n.a. n.a. n.a. 10

11 Summary Analytics 30 Jun Dec Dec Dec Dec 2009 Interim Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans Interest Expense on Customer Deposits/ Average Customer Deposits Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity Operating Profit/ Average Total Assets Taxes/ Pre-tax Profit Pre-Impairment Operating Profit / Risk Weighted Assets Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity Net Income/ Average Total Assets Fitch Comprehensive Income/ Average Total Equity Fitch Comprehensive Income/ Average Total Assets Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. n.a. 6. Net Income/ Risk Weighted Assets Fitch Comprehensive Income/ Risk Weighted Assets D. Capitalization 1. Fitch Core Capital/Weighted Risks Fitch Eligible Capital/ Weighted Risks n.a. n.a. n.a. n.a. n.a. 3. Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income Cash Dividend Paid & Declared/ Fitch Comprehensive Income 3, Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. n.a. 11. Net Income - Cash Dividends/ Total Equity (4.43) E. Loan Quality 1. Growth of Total Assets (4.27) (7.39) (10.68) 2. Growth of Gross Loans (3.11) (12.76) 3. Impaired Loans(NPLs)/ Gross Loans Reserves for Impaired Loans/ Gross loans Reserves for Impaired Loans/ Impaired Loans Impaired Loans less Reserves for Imp Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans n.a. n.a. n.a n.a. 9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Asse F. Funding 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding excl Derivatives

12 Reference Data 30 Jun Dec Dec Dec Dec 2009 Interim Year End Year End Year End Year End EURm EURm EURm EURm EURm A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. n.a. n.a. n.a. 2. Other off-balance sheet exposure to securitizations n.a. n.a. n.a. n.a. n.a. 3. Guarantees 8,376 8,882 10,117 8,929 4, Acceptances and documentary credits reported off-balance sheet 2,558 2,770 3,116 2, Committed Credit Lines 10,734 10,609 12,625 11,993 5, Other Contingent Liabilities Total Business Volume 152, , , ,021 86, Memo: Total Weighted Risks 82,763 82,822 95,302 94,794 64, Fitch Adjustments to Weighted Risks. n.a. n.a. n.a. n.a. n.a. 10. Fitch Adjusted Weighted Risks 82,763 82,822 95,302 94,794 64,065 B. Average Balance Sheet Average Loans 81,833 83,211 79,009 56,322 53,884 Average Earning Assets 122, , ,392 80,327 70,799 Average Assets 132, , ,709 87,703 79,388 Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. n.a. Average Interest-Bearing Liabilities 118, , ,077 77,847 71,515 Average Common equity 7,579 7,617 6,934 6,231 5,044 Average Equity 8,287 8,554 8,068 7,298 6,442 Average Customer Deposits 66,517 68,749 63,561 45,862 42,521 C. Maturities Asset Maturities: Loans & Advances < 3 months n.a. 23,015 22,864 19,426 11,809 Loans & Advances 3-12 Months n.a. 14,093 14,023 13,704 9,683 Loans and Advances 1-5 Years n.a. 27,418 28,383 26,393 15,509 Loans & Advances > 5 years n.a. 18,818 16,306 16,133 13,514 Debt Securities < 3 Months n.a. n.a. n.a. n.a. n.a. Debt Securities 3-12 Months n.a. n.a. n.a. n.a. n.a. Debt Securities 1-5 Years n.a. n.a. n.a. n.a. n.a. Debt Securities > 5 Years n.a. n.a. n.a. n.a. n.a. Interbank < 3 Months n.a. 17,363 20,385 16,406 9,685 Interbank 3-12 Months n.a. 2,294 2,247 2, Interbank 1-5 Years n.a. 1,574 2,075 2, Interbank > 5 Years n.a , Liability Maturities: Retail Deposits < 3 months n.a. 49,384 49,012 43,798 33,246 Retail Deposits 3-12 Months n.a. 10,858 11,201 8,648 6,892 Retail Deposits 1-5 Years n.a. 3,750 4,303 3,116 2,330 Retail Deposits > 5 Years n.a. 2,305 2,232 2, Other Deposits < 3 Months n.a. n.a. n.a. n.a. 3,145 Other Deposits 3-12 Months n.a. n.a. n.a. n.a. n.a. Other Deposits 1-5 Years n.a. n.a. n.a. n.a. n.a. Other Deposits > 5 Years n.a. n.a. n.a. n.a. n.a. Interbank < 3 Months n.a. 17,056 22,671 16, Interbank 3-12 Months n.a. 2,800 4,180 6,291 5,474 Interbank 1-5 Years n.a. 7,979 8,770 7,954 10,041 Interbank > 5 Years n.a. 2,351 2,371 2, Senior Debt Maturing < 3 months n.a. n.a. n.a. n.a. n.a. Senior Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. n.a. Senior Debt Maturing 1-5 Years n.a. n.a. n.a. n.a. n.a. Senior Debt Maturing > 5 Years n.a. n.a. n.a. n.a. n.a. Total Senior Debt on Balance Sheet n.a. n.a. n.a. n.a. n.a. Fair Value Portion of Senior Debt n.a. n.a. n.a. n.a. n.a. Covered Bonds n.a. n.a. n.a. n.a. n.a. Subordinated Debt Maturing < 3 months n.a. n.a. n.a. n.a. n.a. Subordinated Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. n.a. Subordinated Debt Maturing 1-5 Year n.a. n.a. n.a. n.a. n.a. Subordinated Debt Maturing > 5 Years n.a. n.a. n.a. n.a. n.a. Total Subordinated Debt on Balance Sheet 3,401 3,487 3,332 3,182 1,301 Fair Value Portion of Subordinated Debt n.a. n.a. n.a. n.a. n.a. D. Equity Reconciliation 1. Equity 7,928 8,373 8,436 7,904 6, Add: Pref. Shares and Hybrid Capital accounted for as Equity 2,500 2,500 2,500 2, Add: Other Adjustments n.a. n.a. n.a. n.a. n.a. 4. Published Equity 10,428 10,873 10,936 n.a. 7,000 E. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 7,928 8,373 8,436 7,904 6, Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodwill Other intangibles Deferred tax assets deduction Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 6,161 6,598 7,012 6,414 5,349 12

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