Total assets decreased a slight CHF 2.4 billion to CHF 225.3 billion. While client positions in the retail business rose by an amount comparable to the previous year, interbank positions on both the asset and the liability side declined significantly. In previous periods, these balance sheet categories contained large volumes of unsettled interbank transactions that were due to be settled on the settlement date (generally two days later). This effect occurs wherever transactions are accounted for using the trade date principle, not the settlement date principle. Unsettled transactions were kept low at year-end in anticipation of the migration to the new core banking system. This reduced total assets.
Amounts due and liabilities with regard to banks
Amounts due from banks decreased CHF 6.1 billion year-on-year to CHF 2.2 billion. Amounts due to banks also shrank CHF 6.1 billion to CHF 6.5 billion. The decrease is partly due to the effect of migrating to the new core banking system and to the application of the book balance principle. On a current balance basis, receivables from other banks changed very little year-on-year.
Amounts due and liabilities from securities financing transactions
Liabilities from securities financing transactions increased CHF 725 million to CHF 2.9 billion. These are repo transactions in which money is borrowed against collateral. The purpose of these transactions is to manage sight deposits held with the SNB. Amounts due from securities financing transactions were CHF 5 million.
Loans to clients
Loans to clients have been growing for years, and 2018 was no exception. This item rose CHF 7.2 billion (previous year: CHF 7.1 billion), or 4%, to CHF 187.7 billion. Mortgage loans (+CHF 6.9 billion) and other amounts due from customers (+CHF 219 million) increased. Raiffeisen grew its mortgage holdings somewhat faster than the Swiss mortgage market and so expanded its share of the domestic mortgage market from 17.5% to 17.6%. The corporate client business developed encouragingly in terms of loans to customers, rising by 928 million or 67.3% to CHF 2.3 billion.
Raiffeisen's growth in loans to clients was spread across a broad geographical range with no discernible concentrations in individual regions. Residential property made up around 88% of the mortgage loans while the second-largest category, commercial property, accounted for 8%. The remainder was distributed among agricultural and other property.
Value adjustments on default risks increased CHF 51 million to CHF 259 million in 2018 due to the conservative valuation of positions held by KMU Capital AG. KMU Capital was responsible for CHF 45 million of this increase. In contrast, value adjustments declined at the Raiffeisen banks, which had a total credit volume of CHF 174.3 billion. At Group level, the ratio of value adjustments to loans to clients stood at 0.138% (previous year: 0.115%). This figure drops to 0.111% if only the Raiffeisen banks and branches are considered.
Trading portfolio assets
Trading portfolio assets (note 3.1) decreased CHF 424 million to CHF 3.5 billion. While the trading portfolio of precious metals grew, the portfolio of debt and equity securities shrank. The reduction in debt securities is attributable to tactical considerations and a slight decrease in structured products. The bonds in the trading portfolio hedge the interest rate risk inherent in the bond components of structured products. The capital adequacy requirements for market risks in the trading book are detailed in the "Market risk" section of the notes to the annual financial statements.
Securities holdings classified as financial investments (notes 5.1 and 5.2), which mainly consist of investment-grade bonds, are managed in accordance with statutory liquidity requirements and internal liquidity targets. The book value dropped, falling CHF 981 million to CHF 6.6 billion, as a result of the sale of Notenstein La Roche Private Bank Ltd.
Despite the fundamental demerger strategy, the book value of non-consolidated participations (note 6) increased by CHF 33 million to CHF 683 million. The sale of Notenstein La Roche Private Bank Ltd resulted in a decrease in participations of CHF 24 million. However, this disposal was more than offset by other effects. The capital increase at Leonteq AG increased Raiffeisen's stake by CHF 36 million. In addition, in 2018 the investments accounted for using the equity method were revalued by CHF 15 million.
Tangible fixed assets
The book value of tangible fixed assets (note 8) went up less in 2018 than in 2017, increasing CHF 131 million (previous year: CHF 203 million). The slower rate of growth was caused by a drop in capitalisable project expenses. Overall, project costs of CHF 108 million (previous year: CHF 199 million) were capitalised in the current year. Year-on-year increases were recorded in the other asset categories, particularly in other real estate.
Intangible assets (note 9) shrank considerably due to the demerger strategy. They decreased CHF 318 million, or 85.5%, to CHF 54 million. The sale of Notenstein La Roche Private Bank Ltd lowered goodwill by CHF 174 million. Owing to the fact that Investnet AG does not belong to the Raiffeisen Group and as a result of a conservative valuation of the KMU Capital Group, a further sum of CHF 55 million was obtained from lowered goodwill, disposals and goodwill depreciation. Mark-to-market accounting for the goodwill on Leonteq Ltd resulted in an extraordinary write-down of CHF 57 million. The remaining depreciation was mainly the result of regular goodwill amortisation.
Liabilities from customer deposits
Customer deposits increased CHF 1.6 billion, or 1.%, to CHF 165.7 billion compared with the previous year. However, the mid-year sale of Notenstein La Roche Private Bank Ltd resulted in a decrease of CHF 2.8 billion. A like-for-like comparison without the private bank's holdings would show that customer deposits increased CHF 4.7 billion, or 2.9%. This increase is still down year-on-year but can be explained by the continued increase in transfers from bank accounts to securities holdings in the current year. It should be noted that growth in customer deposits slowed down in Switzerland as a whole. Nevertheless, Raiffeisen did well compared to the broader market.
Liabilities from other financial instruments at fair value
Structured products are issued by Raiffeisen Switzerland and Raiffeisen Switzerland B.V. Amsterdam. Structured products issued in Amsterdam are marked to market and reported in this balance sheet item. Holdings of these structured investment solutions decreased CHF 280 million year-on-year to CHF 2.3 billion (note 13).
The accounting treatment varies for structured products issued by Raiffeisen Switzerland. The products' underlying instruments are recognised at their nominal value in the position "Bond issues and central mortgage institution loans". The products' derivative components are carried at their fair values in positive and negative replacement values.
Bond issues and central mortgage institution loans
The portfolio of bond issues and central mortgage institution loans (note 14) increased by CHF 925 million to CHF 26.9 billion. Central mortgage institution loans rose CHF 784 million to CHF 21.8 billion. They are an excellent supplemental source of funding for loans and a flexible tool for managing liability-side maturities, particularly for the Raiffeisen banks. Bonds issued by Raiffeisen Switzerland increased by a minimal CHF 63 million to CHF 3.4 billion. Three bonds totalling over CHF 900 million were repaid in 2018. They were easily replaced by four bonds totalling just over CHF 1 billion. Structured products issued by Raiffeisen Switzerland, which are reported under bonds, declined slightly, falling CHF 78 million to CHF 1.7 billion.
The demerger strategy and the extraordinary items associated with it had a large impact on provisions (note 15). Deferred taxes were reversed by CHF 14 million, mainly due to the sale of Notenstein La Roche Private Bank Ltd. Reorganisation provisions increased sharply due to the sale of Notenstein La Roche Private Bank Ltd. In the case of provisions for legal risks, the uncertainties in the legal disputes in the context of "Investnet" in particular resulted in a marked increase. The agreed repurchase of ARIZON Sourcing Ltd led to an increase in the provisions for other business risks.
An additional CHF 120 million in reserves for general banking risks (previous year: CHF 80 million) were recognised in the current year.
Capital adequacy/equity capital
On 21 November 2018, the Federal Council passed an amendment to the Capital Adequacy Ordinance for domestically focused systemically important banks. These banks now have to meet gone concern requirements for restructuring or liquidation contingencies in addition to the established going concern requirements. The Group's total requirement under the amended ordinance is 17.9%. However, this requirement will be phased in over a seven-year period. Consequently, Raiffeisen will have to meet the new requirements in full for the first time as of 1 January 2026. Raiffeisen is convinced that it can achieve this target on its own due to its high retention of earnings. The Group had already achieved a ratio of 17.5% as at 31 December 2018.
As a domestically focused systemically important bank, Raiffeisen currently has to meet a risk-weighted capital ratio requirement of 14.4%. Raiffeisen's total capital ratio of 17.8% (previous year: 17.4%) clearly exceeds these going concern requirements. Its CET1 ratio stood at 16.5% at year-end (previous year: 15.9%). With a leverage ratio of 7.6% (previous year: 7.1%), Raiffeisen exceeds both the current going concern requirements and the future TLAC leverage ratio. The large increase is attributable to the rise in core capital and the reduction in total assets.
Equity capital with minority interests (statement of changes in equity and note 16) went up CHF 780 million to CHF 16.5 billion. The high retention of earnings as a cooperative and the CHF 215 million increase in cooperative capital helped to strengthen the equity base.