Raiffeisen Bank International AG · Risk profiles across group members differ, given each bank's independent risk strategy. Somewhat mitigating this is the scope for risk monitoring,

Raiffeisen Bank International AG

Primary Credit Analyst:

Harm Semder, Frankfurt (49) 69-33-999-158; [email protected]

Secondary Contacts:

Anna Lozmann, Frankfurt (49) 69-33-999-166; [email protected]

Gabriel Zwicklhuber, Frankfurt + 49(0)6933999169; [email protected]

Table Of Contents

Major Rating Factors

Outlook

Rationale

Related Criteria

Related Research

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 29, 2020 1


SACP a-

Anchor bbb+

Business

PositionAdequate 0

Capital and

EarningsAdequate 0

Risk Position Adequate 0

FundingAbove

Average

+1

Liquidity Strong

+ Support 0

ALACSupport 0

GRE Support 0

GroupSupport 0

SovereignSupport 0

+AdditionalFactors 0

Issuer Credit Rating

A-/Negative/A-2

Major Rating Factors

Strengths: Weaknesses:

• Core member of the Raiffeisen Banking Group (RBG)

and its solid institutional protection scheme

• Strong competitive positions in Austria, Central and

Eastern Europe (CEE), Southeastern Europe (SEE),

and Russia in retail and commercial banking

operations

• Above-average funding profile and strong liquidity,

owing to the group's strong retail deposit franchise

in each of its main local markets

• Materially weakened operating conditions amid the

coronavirus pandemic, and vulnerability to

developments in Russia, CEE, and SEE

• RBG's slower pace to adapt to changes in the

operating environment than its main peers because

of the complex group structure

• Tight margins in a highly competitive business in

Austria and low efficiency of domestic operations


Outlook: Negative

The negative outlook on Raiffeisen Bank International AG (RBI) reflects S&P Global Ratings' view that RBG faces

several downside risks in the coming 12-24 months, including weakened operating conditions amid the pandemic.

Downside scenario

We could lower our rating on RBI within the next 12-24 months if the operating environment deteriorates further,

leading to a more material setback to RBG's profitability and asset quality, in particular, if the bank were to post

higher losses or we observe increased asset-quality problems in one of its main operating markets. Pronounced

credit losses and weaker earnings in higher-risk regions, which could result in a material effect on capitalization,

could also trigger a downgrade. Similarly, we could lower the rating if the group pursues an aggressive expansion

strategy abroad, or cannot improve the efficiency of the domestic operations over the next two years to better

defend profitability in a cyclical downturn.

Upside scenario

We could revise the outlook to stable over the next 24 months if global economic conditions improved sustainably,

including stable economic and industry risk trends for the Austrian banking industry and the main markets where

RBI operates. RBG would also need to demonstrate resilience against difficult markets and further improvements in

risk metrics, efficiency, and profitability for us to consider a positive rating action.

Rationale

RBG entered the recession having strengthened its financial and liquidity profile through years of stable performance,

solid growth, and improving risk metrics. We expect that RBI will remain core for RBG's strategy, whose consolidated

creditworthiness (group credit profile; GCP) draws on local Raiffeisen banks' strong domestic retail positions and RBI's

strong competitive positions in corporate business in Austria; and in retail and corporate business in CEE, SEE, and

Russia. We regard the group as a cohesive economic entity and expect solidarity support among member banks in a

crisis.

The abruptly changed economic environment since February, owing to the impact of COVID-19, renders

medium-term forecasts weaker than we previously envisaged. Specifically, we expect RBG's earnings, asset quality,

and capitalization to be negatively affected into 2021, which triggered our recent outlook revision to negative (for more

information, see "Austria-Based Raiffeisen Bank International Outlook Revised To Negative On Deepening COVID-19

Risks; Ratings Affirmed," published April 29, 2020, on RatingsDirect).

Still, in our base-case scenario, we believe the group will demonstrate relative resilience amid difficult markets and its

profitability will sufficiently buffer our expected risk costs of about 90 basis points (bps). This should allow the group to

remain solidly profitable in 2020 and 2021, and preserve its risk-adjusted capital (RAC) ratio, our measure of a bank's

capitalization, at adequate levels of above 8.0% over the next 12-24 months, compared with 9.5% at year-end 2019. At

the same time, RBG benefits from a stronger funding and liquidity profile than many peers thanks to its strong and

stable deposit franchise. We expect this keep the group's need to tap volatile and challenging wholesale funding

markets manageable. Also, we don't expect significant deposit outflows through the pandemic.



Anchor: Economic risks in the domestic and international operations and industry risk in Austria

The 'bbb+' anchor for RBG is one notch lower than that of a purely Austrian group and draws on our view of the

weighted-average economic risk in countries the group is exposed to. This is based on the distribution of exposure at

default for RBG's customer loan portfolio at year-end 2019, spanning Austria (58%), Czech Republic (7%), Germany

(6%), Slovakia (5%), and Russia (5%), with the rest split across Europe. The resulting weighted-average economic risk

score is '3.3' on a scale of 1-10 ('1' is the lowest risk and '10' is the highest).

Of the key countries and regions listed above, we see a negative trend in Austria and Germany. However, a downward

revision of the economic risk score for these markets by one category would not directly result in a lower anchor. We

also do not anticipate any material shifts in RBG's operations over the next two years because the group has

accomplished the restructuring of its foreign operations. Reflecting RBG's higher risk from its geographic footprint than

from purely domestic banks, we expect the anchor to remain lower than that of a purely Austrian bank. We expect

growth in higher risk markets will remain strong, but not enough to materially change the overall risk profile.

We base our assessment of RBG's industry risk solely on that of Austria, which is the group's domicile and the

jurisdiction responsible for the regulation of the group. We view the Austrian banking industry risk trend as stable.

Austrian banks face similar challenges as their global peers including business model optimization, ensuring sufficient

and sustainable profitability, leveraging the benefits of the digital era, and introducing measures to avoid disruption

and franchise damage from cyber-attacks and customer data mismanagement. We expect that COVID-19-related

damage to the banking system will remain contained. Despite the one-off deterioration of the sector's performance,

overall sector stability is unlikely to deteriorate, given banks comfortable capital and provisions, as well as massive

government programs; large-scale, short-term work contracts; and the social benefits system, which are likely to

absorb or prevent material adverse effects on the banking system. Looking beyond the pandemic, we believe enhanced

focus on efficiency and profitability and recent de-risking will contribute to system stability over the cycle.

Table 1

Raiffeisen Banking Group Austria--Key Figures

--Fiscal year ended Dec. 31--

(Mil. €) 2019 2018 2017 2016 2015

Adjusted assets 318,865 298,860 285,052 278,909 278,847

Customer loans (gross) 222,199 190,566 192,166 186,955 185,187

Adjusted common equity 25,115 22,658 19,875 18,720 18,132

Operating revenues 9,887 9,197 8,856 8,701 9,217

Noninterest expenses 6,396 5,435 5,888 5,881 5,997

Core earnings 2,582 2,299 2,016 1,649 1,442

Business position: Largest banking group in Austria, with a strong footprint in CEE, SEE, and Russia

We expect RBG's business position to remain in line with an average bank in Austria and other countries with similar

industry risk environments (such as Germany, France, Belgium, and the Nordics). We primarily take into account our

expectation that RBG defends its solid domestic market share in retail and corporate banking, particularly from the

dominant and stable client base in the lower-tier Raiffeisen banks. We also acknowledge RBI's strong competitive

position and higher margin businesses in its various core countries in CEE, SEE, and Russia, which is somewhat



balanced by higher economic, industry, and political risk.

RBG's three-tier structure (see chart 1) comprises:

• Tier 1: 369 independent Raiffeisen banks;

• Tier 2: Eight independent regional Raiffeisen banks; and

• Tier 3: Its central institution, RBI, including its foreign subsidiaries.

Chart 1

In the medium term, we anticipate that RBG will not make significant changes to its complex group structure to better

draw on its profound market positions. Member banks of RBG enjoy high operational independence and there is by

design only very limited joint management and steering concepts, tools, and processes. The setup is furthermore

complicated because of the specifics of the ownership shares and structure, diverging expectations of different

shareholders on different group banks, and the high number of subsidiaries in many countries. In our view, these

characteristics, together with lack of sufficient financial transparency in consolidated reporting disclosure (both

externally and internally), hinder the group from fully leveraging its strong customer franchise and gaining benefits

from economies of scale. This also applies to the efficient rollout of new technologies across the group, which we

believe the decentralized structure impedes. However, we positively note that RBI is increasingly taking the lead and



sharing advanced technologies also toward Tier 1 and Tier 2 banks.

In our view, the group remains behind in terms of efficiency and speed of reaction to a changing operating

environment compared with many of its foreign and domestic large peers (see chart 2). We expect no material changes

to RBG's business position in the near future, because the group would require a deep organizational restructuring to

gain the higher-than-market-average business position that we often see when looking at countries' leading banking

groups globally.

Chart 2

At the same time, we continue to regard RBG as a cohesive economic group and expect solidarity support among

member banks in a crisis. The institutional protection schemes on the local and federal level cover only selected parts

of RBG. However, each domestic member is covered by one of the two schemes, which we believe safeguards the

group's overall cohesiveness at a level that enables us to see it as one risk unit. Given the support structures, we don't

think that the cooperative banks don't fully own RBI as limiting our credit assessment.

Tier 1 and 2 banks are predominantly active in Austria, with RBI being the group's gateway to the extended home

markets in CEE, SEE, and Russia. The group has one of the densest and most diverse banking networks in the region,

serving about 17 million customers in 14 countries. This geographic diversification enables the group to generate

sufficient revenue over the cycle, as demonstrated during the previous financial crisis. In Austria, the group has a



market share in customer deposits of above 30%; through RBI, it also holds top-five market positions in 11 of 13 CEE

markets, with a focus on standard retail and corporate banking activities (see charts 3 and 4).

Chart 3



Chart 4

The balance of a relatively granular portfolio of corporate and retail lending in Austria with foreign operations provides

diversification benefits and business position strength compared with those of many peers operating in environments

with similar risk.

RBI's investment banking activities are minor and do not contribute materially to the group's overall results. RBG's

focus on traditional banking adds to the stability of the results, but results in a high reliance on interest income

generation and sensitivity to low interest rates. In addition, the group relies somewhat on its equity investments.

Table 2

Raiffeisen Banking Group Austria--Business Position

--Fiscal year ended Dec. 31 --

(%) 2019 2018 2017 2016 2015

Return on average equity 13.26 13.50 13.48 10.63 11.16

Capital and earnings: Sufficient capital buffers amid unfolding COVID-19 risk

We expect that RBG's capitalization will remain a neutral rating factor anticipating manageable dilutions in light of

significantly worsened global economic conditions in 2020. This primarily rests on our projection that RBG's RAC ratio

will be within the 8.5%-9.0% range over the next two years, down from RBG's 9.5% RAC ratio at year-end 2019 and



9.3% in 2018.

As a group, RBG is not required to adhere to the regulatory capital ratios. Those apply only to single group members.

There are no group members operating at a low margin to the minimum regulatory ratios and we expect that

increasing regulatory capital requirements will generally keep pushing the group to have stronger capitalization over

the medium term. However, RBG's estimation of the Tier 1 regulatory capital ratio of 12.6% at end-2019 is materially

below the peer average. RBI's subgroup 14.5% (including interim profit) as of March 2020 is stronger, but also remains

below that of many peers.

Our RAC ratio projection amid uncertainties from the pandemic reflects our current base-case assumptions on higher

risk-weighted asset growth, lower earnings assumptions, higher nonperforming loans, and negative rating migrations of

its credit and securities portfolio. Key elements of our projection include the following assumptions:

• We assume strong credit growth in 2020, although falling in 2021 and 2022.

• We think that pre-provision income could fall from one-quarter to one-third in 2020 owing to a fall in the net interest

margin and various pressures on other operating income, notwithstanding some savings on discretional

expenditure. We assume a modest rebound in 2021 and 2022.

• We forecast potential loan loss rate of 90-100 bps in 2020, which is somewhat above the guided 75 bps for RBI

subgroup. We base our estimate by applying S&P Global Ratings' published credit loss estimates across RBG's key

geographies. In 2021 and 2022, we assume the loss rate will drop 25-30 bps per year.

• We conservatively assume a typical level of shareholder distributions for 2020 because the decision of a dividend

payout was postponed, but not yet suspended.

Accordingly, we project RBG's three-year average earnings buffer, which measures the capacity for a bank's earnings

to cover normalized losses, is possibly halved from the 40-50 bps in previous year, which remains low relative to

also-depressed earnings for the largest European banks (see charts 5-7).



Chart 5



Chart 6



Chart 7

Table 3

Raiffeisen Banking Group Austria--Capital And Earnings


(%) 2019 2018 2017 2016 2015

S&P RAC ratio before diversification 9.47 9.32 8.67 8.24 7.4

S&P RAC ratio after diversification 9.43 9.15 8.68 9.00 8.61

Adjusted common equity/total adjusted capital 95.67 95.23 100 100 100

Net interest income/operating revenues 60.03 68.04 66.36 68.13 68.63

Fee income/operating revenues 28.24 24.46 30.39 29.12 27.67

Market-sensitive income/operating revenues 4.01 3.88 1.17 2.71 1.55

Noninterest expenses/operating revenues 64.69 63.55 66.49 67.59 65.06

Preprovision operating income/average assets 1.13 1.06 1.05 1.01 1.14

Core earnings/average managed assets 0.83 0.79 0.71 0.59 0.51



Table 4

Raiffeisen Banking Group Austria--Risk-Adjusted Capital Framework Data

(Mil. €) Exposure*

Basel III

RWA

Average Basel

III RW(%)

S&P Global

Ratings RWA

Average S&P

Global Ratings

RW (%)

Credit risk

Government and central banks 70,935 5,568 8 11,236 16

Of which regional governments and local

authorities

9,126 466 5 562 6

Institutions and CCPs 30,288 4,185 14 7,755 26

Corporate 105,488 81,682 77 103,108 98

Retail 114,961 56,643 49 60,424 53

Of which mortgage 72,399 29,579 41 22,072 30

Securitization§ 202 303 150 1,178 582

Other assets 19,454 13,191 68 20,854 107

Total credit risk 341,330 161,572 47 204,555 60

Credit valuation adjustment

Total credit valuation adjustment -- 888 -- 0 --

Market Risk

Equity in the banking book 5,854 6,883 118 53,046 906

Trading book market risk -- 4,364 -- 7,093 --

Total market risk -- 11,247 -- 60,139 --

Operational risk

Total operational risk -- 15,594 -- 12,462 --

Exposure

Basel III

RWA

Average Basel

II RW (%)

S&P Global

Ratings RWA

% of S&P Global

Ratings RWA

Diversification adjustments

RWA before diversification -- 192,633 -- 277,156 100

Total diversification/concentration

adjustments

-- -- -- 1,119 0

RWA after diversification -- 192,633 -- 278,275 100

Tier 1

capital Tier 1 ratio (%)

Total adjusted

capital

S&P Global

Ratings RAC ratio

(%)

Capital ratio

Capital ratio before adjustments 24,275 12.6 26,252 9.5

Capital ratio after adjustments 24,275 12.6 26,252 9.4

*Exposure at default. Securitization Exposure includes the securitization tranches deducted from capital in the regulatory framework. Exposure

and S&P Global Ratings’ risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. Adjustments

to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). CCP--Central clearing counterparty.

RWA--Risk-weighted assets. RW--Risk weight. RAC--Risk-adjusted capital. Sources: Company data as of Dec. 31, 2019; S&P Global Ratings.

Risk position: Operation in higher-risk countries balanced by sound risk management

Despite very difficult markets, we expect that RBG's risk profile will remain a neutral rating factor and in line with that

of its main peers. We anticipate that the group is generally more sensitive to adverse scenarios than most of its peers,



reflecting higher focus on operations in higher risk countries. In our opinion this is balanced by RBG's materially lower

domestic credit risk profile, group-wide prudent risk management, and continued focus on asset quality improvement.

Still, we expect asset quality to remain under severe pressure the longer that COVID-19 affects the main markets

where RBG operates, as indicated by our much increased loan loss rate assumptions for 2020.

Positively, the group's combined loan book has only low single-name and sector concentrations. The independent Tier

1 and 2 banks generally only operate in their own regions and are constrained by their own limits on single exposures.

As a result, the group's concentration by single names mostly reflects RBI's large loans.

Negatively, our RAC ratio cannot fully capture the complexity of RBG's business model, spread across different

countries and different independent tiers. Activities in higher-risk foreign markets expose the group not only to credit

risk, but also to substantial market, operational and geopolitical risks.

Furthermore, RBG's structure results in relative complexity in the monitoring of the consolidated group risk profile.

Risk profiles across group members differ, given each bank's independent risk strategy. Somewhat mitigating this is the

scope for risk monitoring, which is broadly influenced by the joint risk unit. Within several consolidated

risk-monitoring schemes, member banks provide a set of data regularly to the respective risk-monitoring units.

Monitoring, however, as we understand, largely relates to a small set of metrics.

RBG's NPLs represented 3.0% of the customer loan book at year-end 2019 (see chart 8), which is weaker than the peer

average of banking groups operating in similar economic risk environments. However, this proportion is driven by the

Austrian part of the operations, and we think that it is not a reflection of poorer asset quality, but more the result of a

different managerial approach (with longer, but effective, own work-out of impaired loans).



Chart 8

Table 5

Raiffeisen Banking Group Austria--Risk Position


(Mil. €) 2019 2018 2017 2016 2015

Growth in customer loans 16.60 (0.83) 2.79 0.95 (2.78)

Total managed assets/adjusted common equity (x) 12.73 13.22 14.39 14.94 15.42

New loan loss provisions/average customer loans 0.10 0.09 0.21 0.36 0.73

Gross nonperforming assets/customer loans + other real estate owned 2.98 5.45 5.22 7.00 6.33

Loan loss reserves/gross nonperforming assets 66.86 44.43 49.34 57.44 84.38

Funding and liquidity: Stable and granular customer deposits and ample liquidity at the group leveland main operating subsidiaries

We expect RBG to maintain its combined rating strength of a stronger funding position and liquidity compared with

many banks globally. The group's stability in and through the cycle tested retail funding base in Austria, and its main

foreign operating markets and its moderate reliance on wholesale funding, are particular strengths. We expect that

RBG's mutual support mechanism and strong reputation will continue to boost customer confidence and stability of

deposits in adverse conditions, such as the current one. This is underpinned by sizable surplus funding of the majority

of local Raiffeisen banks. These banks' funding comes chiefly from the deposits of retail and smaller corporations, and



they typically display loan-to-deposit ratios well below 100%, supported by a strong franchise and broad branch

network. Combined with the self-sufficiency of most of the foreign operations, this drove RBG's consolidated

loan-to-deposit ratio to a strong 91% as of year-end 2019, the lowest among its peer group.

Also, solidarity among the banks in RBG adds stability to the members' funding profiles. We do not believe short-term

bank deposits from intragroup banks are available stable funding for calculation purposes. Therefore, the group's stable

funding ratio of 113% in 2019 does not fully capture ongoing group support from RBG placing excess liquidity from

client deposits at Tier 1 banks with RBI. We expect RBG to continue benefiting from the solid reputation of both its

Austrian and foreign operations, which contributes to the gradual increase of the deposit base and better deposit

pricing power than many competitors.

The group's reliance on wholesale funding (defined as interbank, unsecured, and secured issues) is much lower than

the peer average, which supports our funding assessment. Wholesale funding maturing in the next 12 months only

accounts for 6.4% of RBG's total funding base, which is why we expect new market funding needs for 2020 to be very

manageable, even in a volatile funding environment. RBI has demonstrated its ability to access wholesale markets and

make private placements through the cycle.

RBG's consolidated liquidity metrics indicate that liquidity is a distinct strength for the group. We estimate the ratio of

net broad liquid assets to short-term customer deposits at around 39% as of year-end 2019. This ratio measures liquid

asset coverage of deposits. We place particular emphasis on this ratio because of the bank's modest short-term

wholesale funding relative to peers. As a result, its coverage of short-term wholesale funding by broad liquid assets is

routinely above 3.5x, compared with the 1x-2x ratios among many other large European banks.

In our view, the group's strong consolidated liquidity ratios are also being replicated at the main operating entities. We

believe RBG's main network banks can manage potential liquidity stresses, which we consider a critical factor given

the restrictions we see on intragroup liquidity transfers. In our view, group members' liquidity coverage would enable

them to withstand a lack of access to wholesale funding for more than 12 months, as well as moderate reductions in

customer deposits.



Chart 9

Table 6

Raiffeisen Banking Group Austria--Funding And Liquidity


(%) 2019 2018 2017 2016 2015

Core deposits/funding base 87.72 89.93 78.35 77.07 74.11

Customer loans (net)/customer deposits 90.49 80.69 94.9 94.73 96.15

Long term funding ratio 94.15 94.75 90.59 91.05 88.92

Stable funding ratio 113.49 114.41 104.84 105.18 103.3

Short-term wholesale funding/funding base 6.42 5.74 10.17 9.65 11.91

Broad liquid assets/short-term wholesale funding (x) 3.81 4.42 1.95 2.09 1.75

Net broad liquid assets/short-term customer deposits 38.89 44.47 15.41 17.08 15.11

Short-term wholesale funding/total wholesale funding 50.61 54.65 46.98 42.09 46.00

Support: Group support drives the ratings on RBI

RBI is the group's central institution. We view its role as core for the group's strategy for which under all foreseeable

circumstances RBI will benefit from the group's support mechanisms if needed. The robust group relationship

underpins our approach of equalizing our ratings on RBI with the 'a-' GCP on RBG. We anticipate that this approach

will continue to lead to a higher rating outcome than our stand-alone assessment of RBI, even if it is supported by



material bail-in buffer accumulation in the next four years. Nevertheless, we could adjust this approach if uplift under

our ALAC methodology to our view of RBI's stand-alone intrinsic strength led to a higher rating than one based on

group support.

Our ratings on RBI are based on the group's aggregate creditworthiness, since we consider member banks to be a

group of integrated institutions, although they are legally independent. Our view primarily reflects the groupwide

cross-guarantee scheme, and the institutional protection scheme at the national level, including group-based

regulatory oversight.

Our 'a-' assessment of the GCP includes no uplift for external support, for two reasons:

• As for most other European markets, we now see the prospects for extraordinary government support as uncertain

in Austria, given the move to use the new bank resolution framework to deal with failing banks and constraints on

the conditions under which taxpayer support can be provided.

• We do not anticipate a bail-in-led resolution strategy that would seek to avoid the default of senior liabilities across

RBG group entities.

While we still lack details on the resolution process for the group, our base-case expectation is that RBI would follow a

separate resolution path, and that RBG's cross-guarantee mechanism effectively ceases to exist once the regulator

deems a member likely to default.

We understand that regulators would apply resolution tools to some of the individual institutions within RBG, but not

to the group as a whole. For individual cooperative banks, it seems unlikely that they would be subject to a

well-defined bail-in resolution process, given their small size, limited complexity, and low systemic importance as

stand-alone entities. By contrast, as a systemic banking institution in Austria, we expect that resolution authorities

would want to pursue a bail-in-led resolution strategy for RBI that could avoid a default on its senior obligations. The

preferred resolution strategy on RBI and its material subsidiaries across CEE is a multiple point-of-entry (MPE)

approach, which was confirmed by a joint decision of the relevant authorities.

We expect RBI and its subgroup entities to increase their bail-in buffers in line with their binding minimum

requirement for own funds and eligible liabilities (MREL) requirements over the next years. However, we believe the

Austrian parent company will initially issue most external MREL and downstream the funds to its material operating

subsidiaries in CEE, which means the effective introduction of the MPE approach will occur in the medium, rather than

the near, term.

Taking into account RBI's planned ramp up of MREL capacity, we consider it unlikely that a rating view based on

RBI's own creditworthiness plus uplift in recognition for those bail-in buffers would lead to a higher rating outcome

than the current group support-based outcome.

Additional rating factors: None.

No additional factors affect the ratings.



Environmental, social, and governance

We see ESG credit factors for RBG as broadly in line with those of the industry and Austrian peers. As a large

commercial banking group operating in multiple jurisdictions, RBI has robust control practices, unified risk culture,

adequate underwriting, know-your-customer practices, and sanction controls in its operating markets. Positively, this

prevented major incidents and significant litigation recently. Nevertheless, we consider the group more exposed to tail

risks given its exposure to higher risk countries such as Russia.

RBG's decentralized nature constrains the group's decision making processes and capabilities to manage change and

innovation throughout the whole group. For that reason, we regard RBI's corporate governance as well advanced,

while the remainder of the group lags somewhat behind. This puts the group at a disadvantage compared to other

large banking groups.

Social and environmental factors are for RBG in line with peers. The bank is the largest green bond issuer in Austria

with a green bond asset portfolio of €2.3 billion, mainly related to mitigating climate change, and has so far issued two

green bond benchmarks with a total volume of €1.25 billion. The bank is exposed to transition risks in its retail and

corporate portfolio, as environment legislation and norms evolve. But we believe it is relatively well positioned for the

greening of its portfolio.

Subordinated and hybrid issue ratings

The ratings on the subordinated and hybrid issues reflect our analysis of the instruments and our 'A-' issuer credit

rating on RBI.

In most cases, when rating subordinated and hybrid instruments, we notch down from the issuer SACP, because we

believe that this approach better reflects the instruments' risks. However, for RBI, we use our issuer credit rating as the

starting point for the notching, because we believe that RBG's group support will extend to RBI's subordinated and

hybrid issues.

The rating triggers for the hybrid instruments are the same as for the issuer credit rating. This rating approach will

remain unless we come to believe that group support is unlikely to be available for RBI's subordinated and hybrid

instruments. In that case, we would do an SACP analysis for RBI and notch down from RBI's SACP to derive the

ratings on the subordinated and hybrid instruments.

Additional Tier 1 hybrid instruments

At 'BB+', the issue rating stands four notches below the issuer credit rating. We derive this four-notch difference as

follows:

• One notch because the notes are contractually subordinated;

• Two notches as the notes have Tier 1 regulatory capital status; and

• One notch because the notes include a mandatory contingent capital clause that could lead to the full or partial

temporary write-down of the principal amount.

The instrument has the mandatory write-down, linked to a regulatory common equity Tier 1 (CET1) ratio of 5.125% of

the consolidated RBI or the issuer level. We treat this mandatory trigger as a "nonviability" trigger and don't apply



additional notching to this instrument. The reason for this is that Basel III requirements and market expectations will

likely require many banks to operate with significantly higher capital than a CET1 ratio of 5.125% implies.

We classify the notes as having intermediary equity content. This reflects our understanding that the notes are

perpetual, regulatory Tier 1 capital instruments that have no step-up. The payment of coupons is discretionary and the

notes can additionally absorb losses on a going-concern basis through the write-down feature and the nonpayment of

coupons.

Chart 10

Related Criteria

• General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019

• General Criteria: Group Rating Methodology, July 1, 2019

• Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017

• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

• Criteria | Financial Institutions | Banks: Bank Rating Methodology And Assumptions: Additional Loss-Absorbing

Capacity, April 27, 2015

• Criteria | Financial Institutions | Banks: Quantitative Metrics For Rating Banks Globally: Methodology And

Assumptions, July 17, 2013

• Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And



Assumptions, Nov. 9, 2011

• Criteria | Financial Institutions | Banks: Banks: Rating Methodology And Assumptions, Nov. 9, 2011

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related Research

• How COVID-19 Risks Prompted European Bank Rating Actions, April 29, 2020

• Austria-Based Raiffeisen Bank International Outlook Revised To Negative On Deepening COVID-19 Risks; Ratings

Affirmed, April 29, 2020

• Outlook Revisions On Several Austrian Banks On Deepening COVID-19 Downside Risks, April 29, 2020

• Austria-Based Raiffeisen Bank International Upgraded To 'A-' On Stronger Financial Profile; Outlook Stable, March

3, 2020

• Tech Disruption In Retail Banking: Austrian Banks' Bricks And Clicks Model Still Does The Trick, Jan. 29, 2020

Anchor Matrix

Industry

Risk

Economic Risk

1 2 3 4 5 6 7 8 9 10

1 a a a- bbb+ bbb+ bbb - - - -

2 a a- a- bbb+ bbb bbb bbb- - - -

3 a- a- bbb+ bbb+ bbb bbb- bbb- bb+ - -

4 bbb+ bbb+ bbb+ bbb bbb bbb- bb+ bb bb -

5 bbb+ bbb bbb bbb bbb- bbb- bb+ bb bb- b+

6 bbb bbb bbb- bbb- bbb- bb+ bb bb bb- b+

7 - bbb- bbb- bb+ bb+ bb bb bb- b+ b+

8 - - bb+ bb bb bb bb- bb- b+ b

9 - - - bb bb- bb- b+ b+ b+ b

10 - - - - b+ b+ b+ b b b-

Ratings Detail (As Of July 29, 2020)*


Issuer Credit Rating A-/Negative/A-2

Junior Subordinated BB+

Senior Unsecured A-

Short-Term Debt A-2

Subordinated BBB

Issuer Credit Ratings History

29-Apr-2020 A-/Negative/A-2

03-Mar-2020 A-/Stable/A-2

30-May-2017 BBB+/Positive/A-2



Ratings Detail (As Of July 29, 2020)*(cont.)

26-Jan-2017 BBB+/Negative/A-2

02-Jun-2016 BBB/Developing/A-2

Sovereign Rating

Austria AA+/Stable/A-1+

*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable

across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and

debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.

Additional Contact:

Financial Institutions Ratings Europe; [email protected]




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Documents

Raiffeisen Bank International AG · Risk profiles across group members differ, given each bank's independent risk strategy. Somewhat mitigating this is the scope for risk monitoring,