GSS Press | March 2016 1

March 2016

GSS PressGroup Securities Services Monthly

Musing over what to write in an Editori-al on Austria I realized that I have been spending large parts of my life working for Austrian-owned companies. This is not so unusual for a citizen of a CEE country, particularly in finance, and I take pleasure in serving as a role model for Austria’s strong exposure to the region.

From my desk located in the center of Vienna I may confirm that this city offers great working conditions. Moreover, the capital has become a truly international place over the last decade.

A small country like Austria does not have much choice than to interact with its neighbors. What had started like a new gold rush some 20 years ago may have

This document is intended forinstitutional investors only.

In this issue

AT A GLANCE Karl Sevelda CEO of Raiffeisen Bank International 2 TALKING POINTHans Jörg Schelling, Minister of Finance, Republic of Austria 3 Peter Brenzinschek Head of Raiffeisen Research 5 RESEARCH REPORT 7 MARKET ROUNDUP 9

BEHIND THE SCENES 14

DID YOU KNOW? 15

CONTACT US 16 IMPRINT & DISCLAIMER 17

ATTILA‘S PHOTO BLOG EVENTS 18

provided bloody noses here and there but the overall return is clearly positive, as Peter Brezinschek, Head of Raiffeisen Research, told GSS Press.

This issue features two exclusive inter-views with top decision makers: Austria’s Minister of Finance, Hans Jörg Schelling, set forth the current economic policies and Raiffeisen Bank International’s CEO, Karl Sevelda, highlighted the Bank’s global strategy in view of the changing geopolitical circumstances.

Kind regards,

Attila Szalay-Berzeviczy Executive DirectorHead of Group Securities Services

More than Mozart

Austria

GSS Press | March 2016 2

AT A GLANCE

One year into RBI’s Transformation Programme

Mr. Sevelda, are you satisfied with the steps that have been taken along the Transformation Programme so far?Yes, we have achieved a great deal this last year on our path to more capital and efficiency as well as less risk and com-plexity. Among the steps with the highest visibility was the sale of our Slovenian sub-sidiary bank. I expect the closing of the transaction to happen in the first half of this year. Reduced exposure in markets such as Asia, the United States, Russia and Ukraine were also important to improve RBI’s risk profile or at least decrease its complexity. Furthermore, securitizations – most recently in December 2015 in the Czech Republic with a volume of EUR 1 bn – contributed to strengthening our equity.

Speaking of the Czech Republic, why did RBI acquire more in this area when all the signs point towards downsizing?Even if we want to reduce our risk-weigh-ted assets to the point that we reach a mi-nimum 12% CET1 ratio fully loaded by the end of 2017, we certainly want to grow in stable markets. Our Transformation Pro-gramme also explicitly counts in some lee-way for business growth. Since the CzechRepublic has stable economic and legal framework conditions and promises sustai-nable yields based on the growth potential, we used this opportunity to buy the retail banking and credit card business of the Czech Citibank.

Where does RBI stand in its largest market, Russia?Russia remains an important market for our Group. We successfully sold our pension fund business in October. In addition, our

exit from car financing has already notice-ably reduced our risk-weighted assets. And we have greatly optimized our local bran-ch network.

What about the neighboring country, Ukraine?I am also optimistic about Ukraine, where we are focusing on the centralization of regional functions: We not only visibly stre-amlined our brand network in this market and transitioned towards a more restrictive credit-granting policy, we were also able to gain EBRD as a 30% shareholder of our Aval Bank. This has resulted in a percepti-ble relief on the capital side and reduces our risk.

You once mentioned shifting trends in connection with Hungary. When will the Hungarian subsidiary show a profit again?We already returned to the profitable zone in Hungary in 2015, partially due to one-off effects and partially due to our realignment: Corporate Banking is being strengthened considerably and our private customer busi-ness is now focusing on the upscale retail customer. We have also undergone substan-tial streamlining, which resulted in the remo-val of 45 business outlets from our branch network. Furthermore, we are planning in-vestments in online banking to strengthen customer relationships and increase operati-onal efficiency at the same time.

Where do you see the challenges for 2016?The sale of Raiffeisen Polbank currently represents the greatest challenge because the conditions for a sale are not exactly favorable. We may be confronted with a

mandatory conversion from Swiss franc loans adding burdens on banks as well as with the introduction of a high bank levy. Of course, this affects the confidence of potential investors. We therefore had to restart the sales process.

In terms of the Swiss franc loans, we are currently checking whether we can carve out the Swiss franc portfolio in order to increase the number of interested parties. This project requires perseverance and strong nerves. Even under normal circum-stances, a bank is not sold as easily as a loaf of bread – let alone under the current difficult conditions. In general I do hope that the policies regarding the liabilities of many Central and East European govern-ments – keywords: bank taxes and forced conversions – will end in 2016!

Karl Sevelda, CEO of Raiffeisen Bank International, announced a strategic adjustment in February 2015. Now, one year later, he reflects on the accomplishments and points out the challenges that still lie ahead.

GSS Press | March 2016 3

TALKING POINT

Minister Schelling, which role does the capital market play in the economic policy of the Austrian federal government? Economic growth in a modern economy depends on an efficient and effective fi-nancial sector that pools domestic sa-vings and mobilizes capital for productive projects. For this reason the government supports the European Commission’s ac-tion plan on building a Capital Markets Union. One main objective of the Capital Markets Union is to develop a more di-versified financial system complementing bank financing with deep and developed capital markets. Such markets will lower the cost of funding and make the financial system more resilient. What does the government undertake to foster the capital market? From our point of view it is important to unlock capital which is currently frozen and put it to work for the economy, giving savers more investment choices and offe-ring businesses a greater choice of fun-ding at lower costs. In this sense a new legal framework for crowd funding has been established last year. Why should investors pick Austrian securities? Austria is a safe haven within the core Euro-zone economy. The economy is diversified and competitive (ranked 14th out of 186 countries worldwide). As a consequence strong exports and a similarly strong tourism sector generate a sustainable current ac-count surplus. Austria does not face any ma-jor macroeconomic imbalances. The unem-ployment rate is low, the level of innovation is high. For this reasons Austrian securities should be part of a diversified portfolio.

When can we expect the next privatiza-tions via the Vienna Stock Exchange? Privatizations are not included in the coali-tion agreement. The prerequisites therefore are negotiations within the government and a positive capital market environment, which I do not see for the time being. You called for more resolute reform mea-sures in response to Moody’s latest down-grading of the outlook for the Republic of Austria. What needs to be done?

As growth is the key, the way forward lies in mobilizing all resources and improving productivity. We agreed on a package to reform the school system in November 2015. We are mobilizing elderly workers to work longer. A draft law on mandatory education and vocational training for the peer group of 16-18 year olds is currently under parliamentary appraisal. We are about to continue cutting red tape and reduce the administrative burden as well as further developing e-government.

Growth is the keyFinance Minister Hans Jörg Schelling discussed the goals of the Austrian federal government in terms of economic development with GSS Press.

GSS Press | March 2016 4

TALKING POINT

We already agreed on a gradual reduc-tion of indirect labor costs. As of this year the capital duty (“Gesellschaftssteuer”) was abolished.

Moreover, we are currently negotiating further steps to underpin the sustainability and stability of the Austrian pension sys-tem. As a small economy at the heart of the single market we also keep track of enhancing infrastructural networks, incre-ase digital coverage and boost R&D as well as innovation. Besides the ongoing Federal FTI strategy (strategy to foster Re-search, Technology and Innovation), spin off projects like “open innovation”– brin-ging together different stakeholders – are in the pipeline.

I personally believe that jobs and growth predominantly come from business acti-vity. Economic policy should therefore be

aimed at increasing competitiveness and improving the business environment at low administrative burden.

How big is the exposure of the Austrian banks towards Central and Eastern Europe? And how would you rate the intrinsic risk? The exposure of the Austrian banks towards Central and Eastern Europe amounted to roughly EUR 335 bn in 2015. It will de-cline significantly when the corresponding business unit of UniCredit Bank Austria will be transferred to Italy.

As far as risk is concerned, markets in CEE are heterogeneous and there is no common theme to the challenges. In recent years Austrian banks have adapted their models. They have stopped foreign exchange len-ding to individuals and scaled in markets with negative return on investment. So risk has been reduced but there is still a lot of work to be done.

To which extent will the current migration wave affect the state finances? The immediate direct impact is substantial. For 2015, public expenditures attributed directly to refugees amounted to some 600 mn EUR. This amount could double in 2016, which would be equivalent to 0.35% of GDP.

As the measures increase aggregate de-mand, there are some additional tax reve-nues to be taken into account. In the me-dium to long run the net costs per person depend on the speed and level of integra-tion into the labor market. The government has provided EUR 145 mn for 2016.

Strong exports and a strong tourism

sector generate a sustainable current

account surplus. Austria does not face any major macroeconomic

imbalances.

GSS Press | March 2016 5

TALKING POINT

Mr. Brezinschek, how do you rate Austria as an investment destination, both for direct and strategic investors? Despite a deterioration of its competitiven-ess in recent years and the ongoing need for reforms, as indicated by several com-petitiveness rankings, Austria continues to be an attractive investment destination.

While some ground was lost regarding price competitiveness, factors determining non-price competitiveness, such as its in-stitutional strength, underline its appeal. This is also reflected in the large inflow of foreign direct investments (FDI), as the total stock increased by more than 38% between 2008 and 2014. Due to its geo-graphic location and history within the re-gion, Austria serves as a “bridge-head to CEE” for multinational companies, who lo-cate their regional headquarters there. As such, more than 50% of inward FDI can be attributed to regional headquarters of foreign multinationals, which, in turn, redi-rect these funds to their CEE markets.

The OECD and other international obser-vers have repeatedly criticized a reform deadlock in the public administration. Have you noticed any endeavor in this respect?While being acknowledged as a stable and wealthy economy with no major im-balances, the lack of reform progress in key policy areas like pensions, healthcare, education, taxation or the relationship between different levels of government are regularly brought up by international organizations.

On the one hand, the awareness of the need for reforms is in place as there is a continuous debate on how to imple-ment changes in these areas. On the other hand, differences in how to design concrete policies as well as the need for consensus building limit the effectiveness of reform measures. For example, the tax reform that came into effect in 2016 redu-ces the taxation of labor, which is among the highest compared to its peers.

However, reform measures reducing the equally pressing issue of the high expen-diture ratio, as well as non-wage labour costs, have not been implemented yet. Discussions within the government on re-forms in the pension system are currently taking place, but cross party differences impede the agreement on effective measu-res. However, some reform initiatives have

already been launched, but more decisive steps are needed to preserve the still com-paratively good relative position of the Austrian economy in the long run.

Austria has been in the eye of the storm of the current refugee issue. Which effect will this migration wave have on the Austrian economy? After a very optimistic view at the begin-ning of the big migration streams into Austria and Germany, a more realistic approach has been established by most economists. No doubt, there is a positive short-term impact on the GDP growth by favouring private consumption (through the help of non-profit organizations and transfer payments directly to the refugees) and public consumption (by hiring additi-onal staff for security, education and trai-ning, healthcare, justice and administra-

Looking for efficiencyPeter Brezinschek, Head of Raiffeisen Research, discussed the Austrian reform agenda with GSS Press.

GSS Press | March 2016 6

TALKING POINT

However, Austria is not suffering over-proportionally. In the banking sector ma-jor foreign-owned banks operating in Rus-sia (Austrian, Italian and French lenders) have shown their willingness to stay and have generated positive results in recent challenging years. Therefore it is possible that the remaining significant presence of Raiffeisen and other foreign-owned banks in Russia could turn into an even bigger competitive advantage once the Russian economy stabilizes again.

How sound is the Austrian banking sector? Is it prepared for the challenges ahead?The Austrian banking sector has already seen a lot of adjustments, partially re-ducing the long-standing issue of being overbanked on the domestic market (e.g. players without a sustainable business mo-del left the market). However, on average the profitability on the Austrian market re-mains subdued. Therefore, the current low rates environment as well as the supervi-

sory focus on the sustainability of business models and capital positions may lead to further adjustments. Interesting to know, Austrian banks are much more competiti-ve and effective in the CEE business than on their domestic market.

So the challenge will be to bring dome-stic operations closer to the CEE profita-bility and efficiency standards. This holds especially true as capitalization levels of large Austrian banks are at the lower end of the European competition, while (retai-ned) earnings are the most efficient way to boost capitalisation.

Is the strong exposure of the Austrian economy to Central and Eastern Europe a benefit or a risk?When questioning Austria’s exposure to CEE, one has to ask what should have been the alternative? That said and taking a broader perspective, the CEE exposure is more of a benefit than a risk. Firstly, the increased gearing towards CEE lowers the one-sided dependency on Germany that dominated the Austrian economy be-fore the fall of the Iron Curtain.

Secondly, it is almost natural that Austria has strong ties with its neighboring (EU member) countries, due to its location and shared history. Moreover, Austri-an companies have generated a certain competitive advantage in CEE that is hard to achieve somewhere else. The current return of most CEE countries to stronger and healthier growth may turn the percep-tion of the CEE exposure once again into a very positive territory. And last but not least, the significant CEE presence also strengthens Austria’s position in certain policy areas (e.g. at the IMF).

tional issues in the respective authorities) primarily financed by raising public debt.

That said, in 2016 it will add to the real GDP growth by about 0.2 to 0.3 per-centage points coinciding with additio-nal public debt. In total, the real GDP is estimated to increase by 1.4% in 2016 after 0.9% last year. Unfortunately, the majority of refugees are not yet qualified to actively participate in the labor market and will need intense trainings in order to do so. As a result, the labor supply will grow substantially in the short term, but at the same time unemployment will be on the rise.

Russia has been a considerable business partner for Austrian suppliers of goods and services. To which extent is Austria suffering from the ban? And what about Raiffeisen in particular?Trade volumes with Russia are significant-ly down, by some 30-40% yoy on ave-rage with larger cuts in certain segments.

GSS Press | March 2016 714 Please note the risk noti cations and explanations at the end of this document

Austria

After a long slow period, a modest recovery began to emerge in the Austrian economy in 2015. Consequently, real GDP expanded at a rate of 0.2% qoq in the first quarter and by 0.3% qoq in both the second and the third quarter. It also appears that investment activity reached a turning point. However, this is due almost exclusively to developments in equipment investment, while construc-tion investment continued to fall. Private consumption also remains weak and es-sentially stagnated in the third quarter (+0.1% qoq). Although gains were reg-istered for real exports (goods and services) during the year (Q3: +1.5% qoq), this export growth was accompanied by higher imports, and consequently exter-nal trade only made a small contribution to GDP growth.

Leading indicators such as the purchasing managers’ index for the manufactur-ing sector (November: 51.4) and the European Commission’s economic sen-timent indicator (November: 98.2) point to a continuation of the modest eco-nomic recovery. By contrast, consumer confidence remained very weak, mainly due to consumers´ pessimistic assessment of future labour market developments.

The assumption of a further acceleration in the recovery is supported by various factors. For instance, significant momentum is expected to come from the tax reform which enters into effect from January 2016. Part of the additional dis-posable income will probably be used to boost the saving rate, which has de-clined sharply in recent years from 12.1% (2007) to 7.8% (2014). Neverthe-less, it is still assumed that private consumption will break out of the long period of stagnation in 2016 and become a decisive factor behind economic develop-ments. This will be supported by the foreseeable increase in transfer payments to asylum seekers. Additional public employees as well as government expen-ditures for accommodating refugees increase public consumption and conse-quently stimulate the economy as well. The rebound in investment activity which has already started should continue in the quarters ahead. Even though capac-ity utilisation remains below the long-term average, and thus there are no signs of a surge in expansion investments in the immediate future, internal and exter-

Economy slowly gaining pace, supported by special effects

Pessimistic consumers

Investment in equipment is on the rise

*Assessment of consumers; deviation from long term av-erage (0)**in the next 12 monthsSource: Thomson Reuters, RBI/Raiffeisen RESEARCH

*real, indexed, Q1 2012=100Source: Thomson Reuters, RBI/Raiffeisen RESEARCH

Key economic gures and forecasts

2014 2015e 2016f 2017f

Real GDP (% yoy) 0.4 0.9 1.8 1.5

Trade balance (goods and services, EUR bn) 12.4 13.4 13.3 13.6

Current account balance (% of GDP) 2.0 2.8 2.7 2.6

General budget balance (% of GDP) -2.7 -1.7 -1.9 -1.6

Public debt (% of GDP) 84.2 86.2 85.3 84.2

Unemployment rate (avg, %, EU definition) 5.6 5.7 6.4 6.7

Employment (% yoy) 0.6 0.7 0.9 1.0

Consumer prices (avg, % yoy) 1.5 0.8 1.6 2.0

Real wages (% yoy) 0.9 1.3 0.3 0.2

Unit labour costs (% yoy) 2.3 1.9 1.0 1.7Source: Statistics Austria, Thomson Reuters, RBI/Raiffeisen RESEARCH

95

97

99

101

103

105

12 13 14 15GDP*Equipment investment*Construction investment*

-2.0

-1.0

0.0

1.0

2.0

Jan-13 Jan-14 Jan-15

Unemployment (inverted)*Business cycle*Financial situation own household*

Improvement expected**

Deterioration expected**

Moderate economic revival that started in 2015 should continue Investment in equipment has turned around Private consumption expected to bene t from special effects in 2016 In ation mirrors oil price developments

Economy slowly gaining pace, supported by special effects

AUSTRIARESEARCH REPORT

GSS Press | March 2016 815Please note the risk noti cations and explanations at the end of this document

Austria

nal financing conditions are favourable, which fosters the implementation of necessary replacement investments. This and the rising external demand should push gross fixed capital formation higher. While construction invest-ment will probably continue to be a negative factor, in-creasing activity is also expected in this area as the year 2016 progresses. A mild upturn was seen in exports in recent months. For instance, nominal exports of goods in-creased by 2.5% in the period January–September, com-pared to the same period of the previous year. Higher exports to the US, Switzerland, the UK as well as to Po-land and the Czech Republic were contrasted with de-clines in exports to Russia. Due to rising equipment invest-ment, however, an increase was also registered in goods imports, even though this was smaller (January–Septem-ber: +1.5% yoy). Exports should continue to gain pace in the quarters ahead. At the same time, this also holds true for imports due to our expectation of a recovery in domestic demand, and consequently net exports are not expected to make a tangible contribution to GDP growth over the forecast horizon. Thus, the anticipated continu-ation of the economic recovery should be borne by do-mestic demand. This scenario points to real GDP growth rates of 0.9% (2015), 1.8% (2016) and 1.5% (2017). While this does mean that the growth differential com-pared to the euro area will narrow in 2016 and 2017, the economic recovery in Austria will still be below aver-age (compared to previous recoveries).

The situation on the labour market is likely to remain tense over the entire forecast horizon, and there are two main reasons for this. First, in light of the ongoing in-crease of labour supply growth, the anticipated economic growth is too low to generate an adequately high level of employment growth to noticeably reduce the unemploy-ment rate. And second, it is assumed that initially a larger part of the working-age asylum seekers will not be able to find employment, which consequently increases the la-bour supply as well as the unemployment rate.

In line with our expectation of a modest increase in the price of oil, in ation (HICP) should rise from an estimated 0.8% in 2015 to 1.6% (2016) and 2.0% (2017), and thus remain above the euro area inflation rate (2016: 1.4%; 2017: 1.6%).

Financial analyst: Matthias Reith, RBI Vienna

GDP: Expenditure composition

Change (% yoy, in real terms) 2014 2015e 2016f 2017f

Private consumption 0.0 0.2 1.3 1.5

Public consumption 0.8 0.7 1.5 1.5

Gross fixed capital formation -0.2 0.7 3.0 2.6

Equipment 1.3 3.0 4.1 1.6

Construction -1.0 -1.2 2.0 3.5

Exports 2.1 2.6 4.9 2.5

Imports 1.3 2.3 5.4 2.7

Gross domestic product 0.4 0.9 1.8 1.5Source: Statistics Austria, Thomson Reuters, RBI/Raiffeisen RESEARCH

GDP: Value added by sector

Change (% yoy, in real terms) 2014 2015e 2016f 2017f

Agriculture & forestry 4.1 -5.0 0.0 0.0

Prod. of goods/mining 1.1 1.2 2.2 2.0

Energy/water supply 2.6 2.5 1.5 1.3

Construction -2.0 -0.1 1.9 1.4

Wholesale and retail trade -0.5 1.5 2.1 2.0

Transportation -1.1 -0.5 1.7 1.5

Accom. & restaurant trade 0.6 0.9 1.4 1.4

Information and communication -2.7 -1.9 2.4 2.2

Credit and insurance -1.5 0.8 1.1 1.0

Property & business services 2.8 2.3 1.8 1.7

Other economic services 1.2 -0.5 3.6 2.5

Public sector -0.2 0.2 0.8 0.7

Healthcare, social services -0.2 1.5 1.6 1.5

Other services 0.4 1.2 1.5 1.4

Gross domestic product 0.4 0.9 1.8 1.5Source: Statistics Austria, RBI/Raiffeisen RESEARCH

Contributions* to real GDP growth (yoy)

*in percentage pointsSource: Thomson Reuters, RBI/Raiffeisen RESEARCH

-6

-4

-2

0

2

4

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Private Consumption Public Consumption InvestmentStocks External Trade Real GDP

Forecast

AUSTRIARESEARCH REPORT

GSS Press | March 2016 9

MARKET ROUNDUP

BULGARIAMaria Lazova, Head of GSS Bulgaria

SEE Link is growing

The SEE Link project, initiated by the Bulgarian, Macedonian and Croatian stock exchanges, aims to create a regional trading infrastructure for securities listed on those three markets. The re-gional cooperation was institutionalized by setting up SEE Link as a joint company based in Skopje in 2014.Belgrade and Ljubljana intend to join SEE Link, for which an agreement was signed by the Serbian and Slovenian exchanges at the EBRD Western Balkans Investment Summit. The forthcoming developments include the introduction of the

SEE LinX blue chip index and an order-routing system scheduled to become operational in March 2016. Initially, it is expected that 8 stock exchange members from Bulgaria, as well as 10 each from Croatia and 10 Macedonia will connect to the platform, making 387 securities available for trading. According to Mr. Ivan Takev, CEO of the Bulgarian Stock Exchange, preliminary interest expressed by investors is very encouraging and will eventually increase.

Our viewThe expansion of the project will help integrate regional equity markets to provide more efficient access for investors and local brokers while at the same time allowing participating stock exchanges to remain independent. No impact is anticipated on settlement processes; they will remain unchanged in the respective local markets. More participants are expected to join SEE Link in the future, recognizing the benefits of regional integration.

Spotlight news

BG: Requirements for insurance companies In line with Solvency II, a number of new regulatory requirements re-garding the activities of insurance companies operating in the Bulga-rian market entered into force as of January this year.

Similar to the bank regulatory rules fixed in Basel III, the essence of Sol-vency II is to guarantee that the In-surance Companies have adequate capital power to bear an eventual market shock. In addition to that, the insurance companies have to stand the forthcoming stress tests.

CDAD launches new information systemThe new Information System of Central Depository AD (CDAD) was launched on 29 Feb-ruary. As from that date all clearing and settlement operations have been fully processed through the new system. Additional tests on corporate actions will continue as follows:• syntactical correctness of messages: 14 March – 28 March• integration tests: 28 March – 8 April

The SWIFT standards MT5XX and communication via the SWIFT network will be gradually introduced by the Central Depository in the course of 2016.Thanks to the new information system, CDAD members are allowed to open securities ac-counts of type 45. This is a new, specifically designated number for client omnibus account of global custodians as per Art 41 (1) of the Law on Markets in Financial Instruments, thus clearly recognizing the foreign nominee concept in the books and records of CDAD.

Our viewWith the implementation of the new IT System, the Central Depository is expected to meet all EU regulatory requirements.

GSS Press | March 2016 10

MARKET ROUNDUP

Spotlight news

BH: Application for EU membershipThe President of Bosnia and Her-zegovina, Dragan Čović, submitted the country’s application to join the European Union to the Dutch For-eign Affairs Minister, Bert Koenders in Brussels mid-February. Minister Koenders welcomed the European ambitions of Bosnia and Herzegovina as well as the adop-tion of the Reform Agenda and its accompanying Action Plan. Still, necessary reforms need to be imple-mented in expectation of receiving an EU candidate status in 2017.

EEX takes over PXE

The European Energy Exchange (EEX) will take over POWER EXCHANGE CENTRAL EUROPE (PXE) from the Prague Stock Exchange. EEX will become a majority shareholder, owning 66.67%, and the Prague Stock Exchange (PSE) will retain the remaining shares. The transaction is expected to be closed by the end of the first quarter 2016 and it is still subject to approval by the relevant authorities. The value of the transaction has re-mained undisclosed.

With this acquisition, EEX plans to contribute to the integration of European markets, further develop the power derivatives market in CEE, increase the range of products offe-red and widen the member base.

Our viewAfter selling a majority share in PXE, the Prague Stock Exchange is supposed to focus on its original core business and to further support developments in the area of securities trading and new listings.

Vit Cermák, Head of GSS Czech Republic CZECH REPUBLICˇ

SEPA project and establishment of the Croatian component of the TARGET2 payment system

As one of the main steps in the implementation of the SEPA project, in January, the Croatian National Bank (CNB) carried out all preparatory activities for the establishment and connec-tion of the Croatian TARGET2-HR component to the TARGET2 payment system and started operating through TARGET2-HR as of February.

TARGET2-HR represents the Croatian component of the Eurozone’s real-time gross settlement payment system. It provi-

des the preconditions for the further development of payment services in the Republic of Croatia in compliance with European standards.

Our viewThe establishment of TARGET2-HR will ensure a single platform for the settlement of cleared euro payment transactions. It also implies setting up the Euro National Clearing System (EuroNCS) as the national payment system for the execution of retail payments in euro in the future. In comparison with traditional correspondent banking, TARGET2-HR will enable a faster and, in terms of price, a more acceptable manner of carrying out interbank euro payment transactions. We believe that it will reduce the costs of processing interbank euro payment.

Mensur Hodžic, Head of GSS Croatia CROATIA

GSS Press | March 2016 11

MARKET ROUNDUP

Spotlight news

CZ: Record in fund investmentsInvestments in domestic funds and foreign funds offered in the Czech Republic reached another all-time high. The Czech Capital Market As-sociation (AKAT) reported that as of end 2015, the total value of assets invested through the Association members into investment instruments reached CZK 1,150 trn (EUR 43 bn), which is an increase of 4.1%.

ROMANIAAndrei Mezdrea, Head of GSS Romania

MIFID II implementation under way

Even though the European deadline for MIFID II implementation has been postponed until January 2018, the schedule for the national implementation of the European Directive remains tight, with July 2016 as deadline. Therefore, the Romanian Financial Supervision Authority (FSA) has installed a local working group comprising market participants aiming to implement the MIFID II Directive into national legislation, while revising FSA’s related legislation.

FSA’s plan for MIFID II implementation involves four stages:

1. Preliminary analysis in order to draft a first version of the law. This has already been achieved; MIFID II will be implemented as an independent law which will repeal the remaining provisions of Law no. 297/2004 on the capital market. The other EU regula-tions related to the MIFID II package (e.g. PRIIP) shall be reflected in the new law only in general terms, but in detail in FSA’s secondary legislation.

2. A first version of the proposition shall be ready in March. In further discussions, FSA and the National Bank of Romania (NBR) will have to establish each authority’s juris-diction in terms of markets, trading venues and instruments.

3. The draft law will be sent to the Ministry of Finance for promulgation in April.

4. Secondary legislation issued by FSA and NBR will follow subsequently and will be discussed with market participants within the same working group.

Our viewThe current development will lead to a clearer definition of the supervisory role of the National Bank of Romania and the Financial Supervisory Authority over capital market and the banking sector.

Market development – the agenda for 2016

The reshape of local capital market rules aimed at achieving the Emerging Market status has resulted in multiple regulatory adjustments initiated during the past two years. The most important initiatives for 2016 will encompass:

Securities lending and borrowing The project coordinated by the FSA has led to several regulatory changes. Still, as colla-teral publicity and lending/borrowing procedures can be burdensome, securities lending operations are not a market practice in Romania. Further amendments of the regulatory framework shall be promoted during the current year, with the purpose of making the a.m. activities accessible.

GSS Press | March 2016 12

MARKET ROUNDUP

Spotlight news

KZ: New CEO at KASE Kazakhstan Stock Exchange (KASE) announced the decision of the Board of Directors to appoint Ms. Alina Aldambergen Chairperson of the Management Board of KASE as of 8 February, with a term of office of three years.

Simplified market access for investors A number of issues shall be addressed in order to pave the way for a friendlier environ-ment for international investors:Clarification of the current provisions imposing the involvement of investor’s "legal repre-sentative" into the account opening and day-to day activities (e.g. proxy voting);Electronic registration of foreign investors in relation to fiscal authorities. Although the solution has been proposed in the context of the change of the Fiscal Code, it has not been implemented yet and needs further technical and regulatory developments in order to become effective;Admission of electronic registration of voting instructions as an alternative to the current voting procedures implying the use of a general of event-specific power of attorney.

OTC settlement and free of payment transfersThe procedures applicable to OTC settlements and free transfers, allowing the execution of such operations for equities primarily listed on Bucharest Stock Exchange, will be up-dated. The two solutions will increase the attractiveness of the market and will respond to market’s risk-management needs.

Trading, settlement and supervision feesSignificant effort has been made to reduce the markets and commissions. Investor access to the Romanian market is still expensive compared to other regional markets. In our view, there is potential for substantial reduction of market fees, i.e., by capping the current percentage-based fees for trading, settlement or regulation.

CSD Guarantee FundThe current CSD Guarantee Fund funding model (based on the coverage of the biggest net position at market level) shall be changed, in order to ensure a more efficient coverage of settlement-related risks. We expect that the ongoing market consultations aiming to create a more efficient risk-mitigation model will lead to a change of the current rules applicable to the CSD guarantee scheme, based on the market-risk coverage approach, implying that market participants shall provide an initial (membership) participation and a margin directly related to the risks taken during the settlement process.

Creation of a Romanian CCPThe project to create a local Central Counterparty, initially proposed by the BSE to its shareholders in 2012, has been restarted during the last part of 2015. The project, sup-ported by FSA, aims to investigate through a working group made of the main market participants (local exchanges and CSDs, Banking and Broker’s Associations) the advanta-ges of creating a CCP and further develop a business plan for the new market institution.

Our viewThe momentum gained during the previous year in the implementation of the market developments needs to be exploited at large, in order to fully benefit from the efforts put by various institutions driving the change. Several initiatives (e.g. electronic registration for fiscal purposes) can achieve results with minimum effort, while others, i.e. the creation of a local CCP, need important resources and commitment in order to become effective.

GSS Press | March 2016 13

MARKET ROUNDUP

Spotlight news

RS: Early electionsThe early parliamentary elections have not yet been officially sche-duled, but according to the Parlia-ment speaker, they will be called in early March and will be held in late April or early May. The delay in the elections’ arranging came from the Prime Minister’s resolution to speed up the adoption of the Law on Pub-lic Companies, before resolving the Parliament.

NBS cuts key rateThe Executive Board of the Nati-onal Bank of Serbia cut the key policy rate by 25bp to 4.25%, after a 4 months pause supported by low inflation and gloomy global econo-my prospects amidst China’s eco-nomic slowdown. The market was surprised by the decision as 22 out of 24 analysts (as per a Bloomberg survey) expected the key rate will remain intact at 4.50% amidst the elevated fiscal risks stemming from the early parliamentary elections agenda driven delay in the public sector reforms.

Review of the new listing requirements

The Regulation on the Functioning of Stock Exchanges, approved back in September 2015, has fueled much debate straight from the start. This document provided for such a dramatic change in the requirements for the shares of joint-stock companies (particu-larly, the thresholds for net profit, free float, adherence to certain corporate governance standards, etc.), that only a handful of the issuers were expected to qualify.

Since the beginning of the year, when the new rules became applicable, the local stock exchanges started removing companies from their listings. Consequently, in the middle of February, only about twenty companies were able to retain their shares listed on a stock exchange, while a year ago the number was 182. The “survivors“ included PJSC "DNEPRAZOT", shares of the investment funds Synergy-5, Synergy Real Estate, Synergy – 4, PJSC Donbassenergo, Motor Sich JSC, Raiffeisen Bank Aval JSC, PJSC “AVDIIVKA COKE”, PJSC “Ukrnafta”, PJSS KHMELNITSKOBLENERGO, PJSC “Kyivoblenergo”, PJSC “Odessaoblenergo”, PJSC “KIROVOGRADOBLENERGO”, PJSC “PSC “Khersonoblenergo”, JSCB “INDUSTRIALBANK”, Pivdennyi Bank, PJSC "Cen-trenergo", PJSC “Ukrsotsbank”.

According to the regulator, the selection was based on principles of market efficiency, transparency, and assurance of the protection of shareholders’ rights. The idea was to create a class of issuers modeled as public companies, where investments can be directed to. As of today, there are no more opaque companies with blown up capitalizations in the absence of underlying assets.

Our viewThe new listing requirements were a logical step in a set of measures aimed at the total reload of the Ukrainian stock market and constitute part of the homework, which needs to be accomplished before undergoing the pension reform.

UKRAINEBogdana Yefremova, Head of GSS Ukraine

GSS Press | March 2016 14

Being a team located in 15 different cities throughout the Central and Eastern Euro-pean region, it can be pretty challenging to stay connected and focused on a com-mon goal. Hence, our recent GSS Team workshop was the perfect opportunity to refresh the unique team-spirit and intensify our favorable working-cooperation. Some participants arrived already warmed-up after a couple of hours of joint skiing in the nearby resort of Flachau to reunite with the less snow-proof part of the team in Salzburg.

A series of team exercises pushed everyone out of their comfort zones and made us test our limits. Building towers out of spaghettis and marshmallows – apparently a widely known and much-used management trai-ning exercise – clearly required innovative approaches, quick adoption to unknown situations and a lot of new thinking. The entire workday was accompanied by intensive sessions coached by an experi-enced management trainer, which led to an astonishingly visible transformation of the existing team dynamics. A vibrant atmosphere prevailed and left everyone motivated and well prepared for any up-coming challenges.

Besides the team building sessions, the GSS ExCo consisting of the Regional Ma-nagement Team as well as the Heads of the larger markets discussed major strate-gic initiatives for the upcoming year.

A couple of colleagues closed the event by attending the popular "Nightrace" in Schladming – a men's slalom of the Ski Worldcup series. Cheering for their res-pective national heroes, they witnessed Austrian Marcel Hirscher in an amazing catch-up game: racing from 22nd position after the 1st run he nearly managed to win the competition and finished 2nd.

Bettina JanoschekHead of GSS Sales and Relationship

Management

BEHIND THE SCENES

Tying up the loose spaghetti endsRBI's GSS Team held an offsite in Salzburg

GSS Press | March 2016 15

1. How many Austrians have ever watched the world-famous movie „The Sound of Music“. a. > 90%b. > 50%c. < 5%

2. Which country does not share a border with Austria?a. Croatiab. Sloveniac. Czech Republic

3. Which field of research was the Austrian School (“The Austrians”) devoted to?a. Psychologyb. Economicsc. Skiing

4. Which 2 countries outnumbered Austria in terms of liters of beer per capita in 2013?a. Czech Republic and Namibia b. Poland and Belgiumc. Germany and Czech Republic

5. Who of the following personalities was not Austrian?a. Egon Schieleb. Marie Antoinettec. Ludwig van Beethoven

For further discussions, please contact your reliably informed Relationship Management Team!

DID YOU KNOW?

How sophisticated is your knowledge of Austria?

GSS Press challenges its readers over a few important topics.

Answers:

1. c The movie is known and famous abroad only. Austrians hardly know anything about the movie; the songs are neither popular nor part of the cultural heritage.

2. a Travelers from Austria to Croatia have to pass by the picturesque Slovenian landscape.

3. bStarting from the late19th century, a number of Austrian economists inclu-ding Carl Menger, and later Ludwig von Mises and Joseph Alois Schumpeter, modernized the perspectives of national economics.

4. a – Prost!

5. c Beethoven, although counted among the Viennese classics, originated from Germany (born 1770 in Bonn, died 1827 in Vienna).

GSS Press | March 2016 16

CONTACT US

GSS Central TeamRaiffeisen Bank International AGAm Stadtpark 91030 Vienna, Austriawww.rbinternational.comAttila Szalay-BerzeviczyHead of GSSattila.szalay-berzeviczy@rbinternational.comPhone: +43 1 71707-8252Jürgen SattlerHead of GSS Regional Managementjuergen.sattler@rbinternational.comPhone: +43 1 71707-1882Bettina JanoschekHead of GSS Sales & Relationship Managementbettina.janoschek@rbinternational.comPhone: +43 1 71707-1820

AustriaRaiffeisen Bank International AGAm Stadtpark 91030 Vienna, AustriaAnita FröchHead of GSS Austriaanita.froech@rbinternational.comPhone: +43 1 71707-3040www.rbinternational.com

AlbaniaRaiffeisen Bank Sh.a.“European Trade Center”Bulevardi “Bajram Curri” TiranaMirela BoriciHead of GSS Albaniamirela.borici@raiffeisen.alPhone: +355 4 2381000-1074www.raiffeisen.al

BelarusPriorbank JSC31-A, V. Khoruzhey Str.220002 MinskYury DorofeyHead of GSS Belarusyury.dorofey@priorbank.byPhone: +375 17 2899102www.priorbank.by

Bosnia and HerzegovinaRaiffeisen BANK d.d.Bosna i HercegovinaZmaja od Bosne bb71000 SarajevoDraženko BobašHead of GSS Bosniadrazenko.bobas@rbb-sarajevo.raiffeisen.atPhone: +387 33 287-153www.raiffeisenbank.ba

BulgariaRaiffeisenbank (Bulgaria) EAD55, Nicola Vaptzarov Blvd., Business Center Expo 2000, 1407 SofiaMaria LazovaHead of GSS Bulgariamaria.lazova@raiffeisen.bgPhone: +359 2 91985-463www.rbb.bg

CroatiaRaiffeisenbank Austria d.d.Petrinjska 5910000 ZagrebMensur HodžicHead of GSS Croatiamensur.hodzic@rba.hrPhone: +385 1 6174-327www.rba.hr

Czech RepublicRaiffeisenbank a.s.Hvezdova 1716/2b14078 Prague 4Vit Cermák Head of GSS Czech Republicvit.cermak@rb.czPhone: +420 234 40-1481www.rb.cz

HungaryRaiffeisen Bank Zrt.Akadémia utca 61054 BudapestZsuzsanna HarasztiHead of GSS Hungaryzsuzsa.haraszti@raiffeisen.huPhone: +361 484 4362www.raiffeisen.hu

PolandRaiffeisen Bank Polska S.A.(Raiffeisen Polbank)Piękna 20 Str.00-549 WarsawRadek IgnatowiczHead of GSS Polandradoslaw.ignatowicz@raiffeisen.plPhone: +48 22 585-2000www.raiffeisen.pl

RomaniaRaiffeisen Bank S.A.246C Calea Floreasca 014476 Bucharest 1Andrei MezdreaHead of GSS Romaniaandrei.mezdrea@raiffeisen.roPhone: +40 21 30612-89www.raiffeisen.ro

RussiaAO RaiffeisenbankSmolenskaya-Sennaya Sq. 28119020 MoscowEvgenia KlimovaHead of GSS Russiaevgenia.klimova@raiffeisen.ruPhone: +7-495-721 9900www.raiffeisen.ru

SerbiaRaiffeisen banka a.d.Djordja Stanojevica 1611070 Novi BeogradIvana NovakovicHead of GSS Serbiaivana.novakovic@raiffeisenbank.rsPhone: +381 11 2207572www.raiffeisenbank.rs

SlovakiaTatra banka, a.s.Hodžovo námestie 381106 BratislavaPeter Uhrin Head of GSS Slovakiapeter_uhrin@tatrabanka.sk Phone: +421-2-5919 2134www.tatrabanka.sk

SloveniaRaiffeisen Banka d.d.Zagrebška cesta 762000 MariborPrimož KovacicHead of GSS Sloveniaprimoz.kovacic@raiffeisen.siPhone: +386 22293119www.raiffeisen.si

UkraineRaiffeisen Bank Aval JSC9, Leskova Str.01011 KievBogdana YefremovaHead of GSS UkraineBogdana.Yefremova@aval.ua Phone: +380 44 49879 32 www.aval.ua

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GSS Press | March 2016 17

Imprint

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Publisher of GSS Press: Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 ViennaMedia Owner of GSS Press: Zentrale Raiffeisenwerbung, Am Stadtpark 9, 1030 WienProducer: Marketing, Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 ViennaEditors: Jürgen Sattler, Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna

Society Commitee Zentrale Raiffeisenwerbung:Dr. Leodegar PRUSCHAK (Chairman), Petra WALTER (Deputy Chairman), Stephan MARENT (Deputy Chairman)

Other committee members Zentrale Raiffeisenwerbung:Mag. Rainer SCHNABL, Franz POSPISCHIL, Bernd NÖHRER, Mag. Maximilian EDER, Mag. Gertraud FRANK, Mag. Martin KOFLER, Markus FRIEDRICH, Katharina STÖGNER, Mag. Clemens GANTAR

Zentrale Raiffeisenwerbung is a registered society. Society purpose and activities of Zentrale Raiffeisenwerbung are (inter alia) a joint communication work (advertising and public relations).

Basic tendency of the content of GSS Press: GSS Press presents services and products of the Group Securities Services unit of Raiffeisen Bank International AG and its subsidiaries. Aiming at a professional audience, GSS Press reports about developments in the financial markets, with a particular focus on post-trade infrastructure. The publication is available free of charge.

Images: Photographs and illustrations provided by Raiffeisen Bank International, Attila Szalay-Berzeviczy and the organizations featured in this issue.

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This document has been published by Raiffeisen Bank International AG. This document is for information purposes and may not be reproduced or distributed to other persons. This document shall not be considered as financial, investment, legal or tax advice. This document constitutes neither a solicitation of an offer nor a prospectus in the sense of the Austrian Capital Market Act (KMG) or the Stock Exchange Act or any other comparable foreign law. An investment decision in respect of a security, financial product or investment must be made on the basis of an approved, published prospectus or the complete documentation for the security, financial product or investment in question, and not on the basis of this document. This document does not constitute a personal recommendation to buy or sell financial instruments in the sense of the Austrian Securities Supervision Act or any other comparable foreign law. Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a substitute for legal or tax advice or the necessary advice on the purchase or sale of a security, investment or other financial product. In respect of the sale or purchase of securities, investments or financial products, your banking advisor can provide individualised advice which is suitable for investments and financial products. This analysis is fundamentally based on generally available information and not on confidential information which the party preparing the document has obtained exclusively on the basis of his/her client relationship with a person. Unless otherwise expressly stated in this publication, the publisher deems all of the information to be reliable, but does not make any assurances regarding its accuracy and completeness. The publisher shall not have any liability for any representations (expressed or implied) regarding information contained in, or for any omissions from, this document or any other written or oral communications transmitted to the recipient in the course of its preparation. The information in this publication is current, as of the creation date of the document. It may be outdated by future developments, without the publication being changed. The data and statements contained in this document are strictly limited to the matters stated herein and shall not to be read as extending by implication to any other matter.

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IMPRINT & DISCLAIMER

GSS Press | March 2016 18

ATTILA‘S PHOTO BLOG

PHOTO OF THE MONTH by Attila Szalay-Berzeviczy Verdun, France100th anniversary of the Battle of Verdun, the longest single battle of World War One (started on 21 February 1916)

NEMA14-16 June, Dubrovnik

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