The Raiffeisen Group had an extremely successful financial year. The Group generated a Group profit of CHF 917 million thanks to an increase in income from the core business, strong performance from the financial markets and high income from the sale of participations, offset only by a moderate increase in expenditure. This excellent result came about from a combination of strong earnings and extraordinary income of CHF 119 million, generated mainly from the sale of participations. Besides reporting excellent financials for 2017, Raiffeisen also successfully implemented its strategic plans. The first wave of Raiffeisen banks migrated to a new, Avaloq-based core banking system at the turn of the year. Notenstein La Roche Private Bank Ltd implemented a new core banking system, also based on Avaloq, in October 2017. The Raiffeisen Group made further headway on the digitisation front in 2017. For example, Raiffeisen established the "lokalhelden.ch" crowdfunding platform, refined the "RaiffeisenCasa" real estate platform, created an additional communication channel with the new "Raiffeisen Piazza" app and launched "Raiffeisen TWINT" as a new channel for mobile payments. In addition, the Raiffeisen Group streamlined its Group structure by adopting a new cooperation strategy and selling the aforementioned equity participations.
Performance of income items
Group profit was so high because of the Group's excellent performance in operating income, which increased over CHF 201 million (+6.5%) to a record CHF 3.31 billion. All income items increased compared to the previous year. Although interest margins suffered from unremittingly low interest rates, interest income increased thanks to the growth in volume. Commission and service income was buoyed up by a favourable market environment and continued high growth in the service business. The biggest income driver was other results from ordinary activities, which increased CHF 143 million. Nearly CHF 90 million of the increase came from capitalising project expenditure for the new core banking systems at the Raiffeisen banks and at Notenstein La Roche Private Bank Ltd. The remaining increase consisted of higher income from participations and higher income from the sale of financial investments.
Operating expenses increased more moderately than in the past. They rose CHF 26 million, or 1.3% to CHF 2.013 billion. This below-average increase was partly due to the absence of costs from Asset Management, which was sold in the previous year, and partly due to general cost discipline. The project expenditure for the new core banking systems, which was recorded under operating expenses, was capitalised via "Other ordinary income" in tangible fixed assets and therefore recognised as assets. Once the systems go live, the realisation costs will reduce Group profits through higher amortisation over the next ten years.
Cost/income ratio trend
"Value adjustment on participations and depreciation and amortisation of tangible fixed assets and intangible assets" decreased CHF 72 million to CHF 188 million. In the previous year, this item was impacted by a value adjustment of CHF 69 million for the Leonteq participation. The Group's operating result broke through the one-billion-franc barrier for the first time to reach CHF 1,108 billion (+CHF 254 million or +29.7%).
Extraordinary income came to CHF 119 million, mainly due to income from the disposal of equity participations in Helvetia Holding Ltd and Avaloq Group AG. Thanks to the good result, the Group has set aside CHF 80 million in reserves for general banking risks for the first time. These reserves serve as an additional financial cushion for the Group. Another consequence of the Group's strong business performance is its high tax expense of CHF 233 million. Nevertheless, Group profit reached CHF 917 million (+CHF 163 million or +21.6%), clearly surpassing the CHF 808 million in profit generated in 2015.
The Raiffeisen Group is highly satisfied with the result from its operating activities. Business volume and operating result increased on a broad basis throughout the entire country.
Strong financial market performance also helped drive this excellent result in the year under review. Unlike previous years, there were no negative extraordinary items, such as major value adjustments or write-downs.
The balance sheet business also performed very well. Mortgage loans increased CHF 7.2 billion, putting the total portfolio at CHF 172.6 billion. Client assets under management went up as well, rising CHF 6.8 billion to CHF 209.6 billion. In the retail business, clients showed a clear preference for transferring funds from bank accounts to custody accounts. Notenstein La Roche Private Bank Ltd's focus on the Swiss market and a few select international target markets is reflected in the performance of the assets under its management. Notenstein La Roche Private Bank successfully sold its Eastern Europe portfolio in the fourth quarter, leading to an outflow of CHF 2.1 billion in assets under management.
On 27 February 2018, the Zurich III Public Prosecutor's Office notified Raiffeisen Switzerland that it had instituted criminal proceedings against Dr Pierin Vincenz, the former Chairman of the Executive Board of Raiffeisen Switzerland. He has been charged with acting in bad faith in connection with Aduno and Investnet. Raiffeisen Switzerland has joined the proceedings as a private complainant and has additionally filed a criminal complaint against Dr Pierin Vincenz and other potentially involved individuals. However, these actions have no effect on the current annual financial statements.