Dr Herbert Stepic, CEO of Raiffeisen Bank International, says upcoming legislation could give competitors the upper hand and force the bank out of the EU.

Raiffeisen Bank International would have to consider leaving Austria and relocating outside the EU if bank regulations resulted in an unlevel playing field, says its CEO, Dr Herbert Stepic. His greatest concern is over bonus payments, as he feels Raiffeisen is being lumped together with the big international investment banks, even though it was not exposed to the same kind of toxic assets when the crisis hit. The bank has a major part of its operations in central and eastern Europe.

"How can I compete in non-EU countries if I have to follow the EU regulations that don't apply to my competitors in those markets?" he asks.

"As all the plans we have seen so far are not the final ones, we haven't dared to even talk about it [leaving Austria and the EU]. But if we find that the regulations are making the competition unfair and it means there is no longer a level playing field then, of course, we also have to consider that."

Apart from regulations on bonuses, Mr Stepic is also concerned about proposals to reduce the counting of the capital of minority interests towards the total capital.

"This was a huge danger for our organisation because, of course, we have minority investors in our central and eastern European banks, and those minority capital investments would not have been counted. That would have cost us a fortune in additional capital requirements.

"However, the latest proposition is much better because it recognises minority interests, except we will still lose the difference between the regulatory requirement and the economic capital. We are still fighting for that because we don't see why one person's capital is less important than another person's."

Crisis management

With 15 banks and many other subsidiaries in 17 countries in central and eastern Europe, the crisis hit Raiffeisen hard. Non-performing loans rose from levels of between 2% and 2.5% to 8.8% at the end of September. But Mr Stepic says nothing has changed his view that emerging markets are still the right place to be invested because of the growth prospects. He says the bank's risk management processes have been transformed to make the bank less vulnerable to volatility. In addition, the restructuring of the group -

Raiffeisen International has been merged with its unlisted Austrian parent to create Raiffeisen Bank International - better positions the bank to take advantage of growth opportunities by supplying the high quality and sophisticated financial products created in Vienna out to the subsidiaries in the region.

Producing synergies
"We wanted to make use of the powerhouse that exists in Vienna, with its know-how on the production side. Due to the fact that [the] RZB [Group] has been servicing the largest corporates both in Austria and internationally, the know-how in Vienna is of the highest standard. On the other side, we had a huge distribution network with 3000 branches in 17 countries. This we have now vertically integrated," he says.

The merger has also removed a management layer and is expected to produce synergies of between €100m and €115m. "But these [the cost savings] were not the major goal of the merger. The major goal was to make the organisation much more effective in both its market approach and in terms of access to capital markets. This was a foremost objective because, in the past, only Raiffeisen International was able to tap the equity markets, whereas all the funding had to go through RZB. That was sometimes difficult or expensive. Now the funding gets cheaper and everything is done out of one entity, with better coordination between debt and equity investors."

Dr Herbert Stepic is CEO of Raiffeisen Bank International

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