Raiffeisen Bank International AG (WBO:RBI, Financial) is a prominent corporate and investment bank in Austria and a universal banking group throughout Central and Eastern Europe. It established its first subsidiary bank in Hungary in 1986, so it was already operating in CEE before the region underwent a political transition and the Iron Curtain fell. The bank has, therefore, had more than 30 years of experience in the banking industry in the region.
Varied services
RBI offers financial services to individuals, businesses, banks, and other institutional clients. To support its business operations, it maintains representative offices and service branches in a few Western European and Asian regions. The CEE region continues to be RBI's primary priority due to its substantially greater growth rates than Western Europe and hence more tempting potential profits. With 1,597 business outlets, primarily in CEE, RBI serves 17.7 million consumers through its 44,705 workers.
Unordinary 2022
The year 2022 was turbulent. In terms of macroeconomics and geopolitics, it proved to be a turning point for Europe and all the markets the RBI operates in. Due to the conflict in Ukraine and its effects on the area, RBI announced in March 2022 that it would evaluate its strategic options in Russia, including a planned exit from Raiffeisenbank. In the Q1 call, CEO Johann said," We have spent the past year exploring various options, and our focus today is on two of these, namely a sale or a spinoff. In either case, the result would be full deconsolidation of our Russian subsidiary from the Group."
Impressive performance
According to Q1 2023 results, the net interest margin is constant at 2.23%, excluding Russia/Belarus (down 10 basis points to 2.75% excluding Russia/Belarus). Net fee and commission income, excluding Russia and Belarus, fell primarily due to seasonality (volumes and bonuses) in clearing, settlement, and payment services. In addition, excluding income from Russia and Belarus, the company recorded a consolidated profit of €330 million (up 106% Q-o-Q).
Efficient management
With 27 years of extensive banking experience, Johann Strobl served as the bank's CEO. The RBI AG Management Board manages the business on its initiative, focusing on future-oriented business management aligned with modern, sustainable business principles. The management board constantly seeks to advance the company's goals while considering the needs of customers, shareholders, and employees.
Keeping up with peers
The banking sector in Austria is facing a challenging environment due to the macro and micro economic conditions, and such conditions increase the competition within the industry. With the highest density of banks in Europe, Austria has around 600 banks with 3600 branches, according to a report by expatica.
RBI, through its subsidiary banks in various countries, provides a range of financial services to 17.7 million customers, with 1597 business outlets. Some of the largest and most influential banks in Austria, along with RBI, are UniCredit SpA (MIL:UCG, Financial), Erste Group Bank AG. (WBO:EBS, Financial), Bawag Group AG (WBO:BG, Financial) and Oberbank AG (WBO:OBS, Financial).
UniCredit is a central European banking and financial services group with a significant presence in Central and Eastern Europe. It operates through various regional subsidiary banks, making it a direct competitor to RBI. With 3,175 Branches, it catered to 15 million customers around the world by the end of 2022 as per the 2022 annual report.
Erste Group Bank is another prominent banking group based in Central and Eastern Europe. It also operates through its subsidiary banks in several regional countries and offers similar financial services as RBI. It has 16 million customers and 2,013 branches, according to the company's website.
BAWAG P.S.K. is a well-established Austrian banking institution providing retail and corporate banking services. It has a customer base of 2.1 million across the markets, focusing on Austria, Germany, Switzerland, Netherlands, Western Europe and the United States. Currently, it operates with 72 branches across Austria and Germany for transactional and advisory banking customers and small-business banking customers, as per the 2022 annual report.
OberBank is a regional bank headquartered in Linz, Austria. It primarily serves customers in Austria, Germany and the Czech Republic. Oberbank offers a range of banking services, including retail and corporate banking. With approximately 58,000 corporate and business customers and approximately 281,000 retail customers, it has 180 Branches as of December 2022.
The below diagram represents the total assets of the banks.
Valuations
As per Gurufocus, RBI’s PE ratio stands at 1.32 and P/B ratio at 0.27. The MSCI Europe Banks Index (EUR), a barometer of 26 bank stocks across Europe, trades on an average forward Price Earnings (PE) ratio of 6.48 times and a Price-To-Book (P/B) ratio of 0.61. Both of them are higher than the RBI ratios.
During the past 13 years, RBI’s highest ROE % was 22.60%, and the median was 7.96%. RBI's ROE % is ranked better than 93.8% of 1436 companies in the Banks industry. Industry Median is 10.56, while RBI has 18.7 ROE.
The dividend yield of RBI is 8.08%, while Industry Median is 4.26. Its EV to revenue ratio is -4.3, which is better than 93.41% of 1420 companies in the Banks industry, with the industry average of 2.22
Vision 2025
According to RBI's Vision 2025, the company desires to be the most reputable financial services provider in the nations where it conducts its business that year. They believe this accomplishment (RBI's mission) will make customers' lives easier through ongoing innovation and a superior customer experience. The four strategic pillars that continue to direct RBI's development and its path to achieving Vision 2025 are growth, digital transformation, cost discipline, and sustainability.
Focusing on the core
RBI believes that Central and Southeastern Europe still have a bright future and room to expand. Its strategy is to keep concentrating on the markets with a chance to strengthen its position. This strategic focus allowed RBI to improve its market position in crucial core markets, further aided by the smooth closing of its two acquisitions in Serbia and the Czech Republic.
In addition, RBI completed the sale of its Bulgarian subsidiary bank to KBC Bank in July 2022 and proved the group's capability of making careful sales to support RBI's strong capital position and reallocating surplus capital to support growth in its core markets.
Furthermore, considering the Russian plans, the bank is undergoing quite a bit of restructuring to focus on its core markets. RBI has a good ROE trend and has seen a solid net interest margin. The bank’s standard equity tier 1 ratio stands at 16%, which is quite strong and at the same level as the last year. The estimated values still seem reasonable despite the lower ratios after restructuring related to Russian business.
Also, the bank pays good dividends, yielding 8.1%.
While RBI sails through the harsh weather, expectations say the bank will become less scathed.
Disclaimer/Disclosure
We have a beneficial long-term position in the shares of Raiffeisen Bank International AG either, through stock ownership, derivatives or other instruments. We wrote this article to express our opinions and are not receiving compensation from any individual or entity for it.
It would be best if you did not treat any opinion expressed in this article as a specific inducement to make a particular investment or follow a particular strategy but only as an expression of our opinion. This is not investment advice. Before you invest in anything you read in our articles or those of other people offering investment advice online, research to verify the soundness of what you have read. Please consult your investment advisor before making any decisions.
