Income from operating activities
As mentioned above, all income items increased compared to the previous year. The Group saw the strongest growth in commission and service income and in other results from ordinary activities. Operating income reached CHF 3.31 billion – a record that will be hard to beat, at least in the near future. Operating business will continue to grow, but the capitalised amounts included in other results from ordinary activities will not return to the current year's level because the rollout of the core banking system will be completed in 2018.
Interest operations achieved a solid performance despite the difficult circumstances. The gross result from interest operations rose CHF 21 million (+0.9%) to CHF 2.251 billion. The interest environment remained challenging: the interest margin shed another 4 basis points to 1.02%. Little leeway remained for setting interest rates. While net interest income in the retail business increased, net income from centralised liquidity maintenance and hedging was lower than in the previous year. Raiffeisen continues to refrain from passing on negative interest rates to private clients. The current low-interest phase has affected all banks and prompted fierce competition. Indeed, competition has intensified as insurance companies, pension funds and other financial services providers enter the mortgage business. The Raiffeisen banks and Raiffeisen Switzerland's branches have resisted this downward trend. Between their successful work with clients, local presence and knowledge of market conditions, they recorded significant growth in business volume that resulted in this solid growth in interest operations.
The Item "Changes in value adjustments for default risks and losses from interest operations" decreased CHF 8 million to only CHF 2 million. Larger value adjustments were released to profit or loss in the current year than in the previous year. As a consequence, the net result from interest operations rose CHF 29 million to CHF 2.248 billion.
Supported by strong financial market performance, favourable net cash inflow and high-volume growth in the service business, the result from commission business and services (note 22) improved significantly, gaining CHF 28 million to reach CHF 494 million. It should be noted that last year's result included net income of CHF 23 million from the sale of one of the Group companies, Vescore Ltd. Much of the increase in securities trading and investment activities is attributable to strong income from brokerage fees. However, higher volumes were also responsible for the increase in portfolio-based income. In other services, growth was concentrated in income from payment transactions.
Commission income from securities trading and investment activities increased CHF 67 million while commission expense went up CHF 62 million; however, it should be noted that all commissions related to issuing structured products are reported in gross terms for the financial year. In the previous year, individual commission components were reported on a net basis because the sales process was structured differently at that time.
The result from trading activities increased slightly (+CHF 2 million to CHF 230 million) (note 23.1/23.2), largely as a result of foreign exchange, notes and coins trading. The Group's results from equities trading were also solid. Trading in interest products, however, proved to be more difficult in the year under review.
As mentioned in another section, the capitalisation of a total of CHF 199 million (previous year: CHF 111 million) led to a significant increase in "Other results from ordinary activities" to CHF 337 million. Due to the sale of a large portfolio of financial investments, "Result from the disposal of financial investments" increased a significant CHF 24 million as well. The increase in "Income from participations" (+CHF 22 million) was mainly due to using the equity method to measure participations, which produced higher valuations.
The increase in operating expenses was more moderate than in the previous year. The increase of CHF 26 million (previous year: +CHF 100 million) to CHF 2.013 billion pushed expenses above the two-billion-franc mark for the very first time. The Group does not expect expenses to rise any further next year as the new core banking system should be completely rolled out at the Raiffeisen banks by the end of 2018. The cost/income ratio went down significantly, from 63.9% to 60.8%, as operating income rose considerably, but operating expenses only increased slightly.
Personnel expenses (note 26) increased CHF 14 million (+1.0%) to CHF 1,395 million. The largest increase was seen in ancillary personnel expenses for temporary staff to support projects. In the retail business (Raiffeisen banks and Raiffeisen Switzerland branches), the number of full-time positions went up 98. The number of full-time positions at the Group level increased 136 to 9,411 full-time positions.
Change in personnel expenses and personnel expenses per full-time equivalent
General and administrative expenses
The rise in general and administrative expenses (note 27) was similarly moderate. This item went up CHF 12 million (+1.9%) to CHF 618 million. The cost increase pertained to other operating expenses. Costs for consulting services, which are heavily project-driven, rose sharply to reach a high of more than CHF 65 million in the current year.
Raiffeisen Group capital investment 2013–2017, by category
Raiffeisen Group capital investment 2013–2017, by region
Value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets
This item decreased sharply year-on-year, falling CHF 72 million to CHF 188 million. The decline was mainly attributable to the need to recognise value adjustments totalling CHF 69 million for the Leonteq participation in the previous year. Amortisation of goodwill and other intangible assets remained steady at CHF 41 million in 2017. Depreciation of tangible fixed assets stood at CHF 141 million, or slightly less than in the previous year. Due to the rollout of the new core banking system at Notenstein La Roche Private Bank Ltd, the first depreciation charge was recognised according to plan in the fourth quarter of the current year. The new banking platform will be amortised over a period of ten years.
Changes to provisions and other value adjustments, and losses
Losses not related to lending activity were CHF 2.2 million (previous year: CHF 1.5 million). Allocations and releases of provisions and other value adjustments produced a net release of CHF 2.7 million. Relatively large items in the restructuring provisions for Notenstein La Roche Private Bank Ltd and Raiffeisen Switzerland were released to profit or loss. On balance, this produced income of CHF 0.5 million, that is, a reduction in expenses for this item. In the previous year, this item contained expenses of CHF 6 million for various reasons, including net new provisioning for restructuring.
Extraordinary income and expenses
The Group benefited more from sales of participations in the current year than in the previous year. It received CHF 104 million in income from selling the participations in Helvetia Holding Ltd and Avaloq Group AG. Consequently, extraordinary income (note 28) reached CHF 119 million (+CHF 44 million).
As a result of the Group's excellent business performance, taxes (note 29) rose a significant CHF 60 million to CHF 233 million. This includes CHF 177 million in expenses for current taxes incurred by the individual companies. Provisions for deferred taxes had to be increased CHF 56 million.