The selective acceptance of risks or risk transformation is a key component of the banking business. Under the clear guideline of exercising due diligence, the aim is to identify, measure and optimally manage these risks. In other words, to monitor, limit and manage these risks in a systematic manner using functioning systems and procedures.

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In line with these requirements, risk management at RLBV uses appropriate control procedures and systems to identify, monitor, limit and communicate current and, where foreseeable, future risks. This is based on a clear organisational and operational structure. RLBV's risk strategy and the principles of risk management are documented in the Raiffeisen Landesbank’s Risk Management Manuals, detailing individual risks in terms of identification, assessment, measurement, limitation, monitoring and the respective responsibilities.

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The primary focus of RLBV's risk management is on ensuring sufficient risk-bearing capacity. In addition to maintaining banking operations and protecting creditors, the focus is also on compliance with the legal requirements of the Austrian Banking Act (BWG), the CRR guidelines and the Financial Market Authority (FMA) Regulation on Credit Institution Risk Management (KI-RMV). Another important factor is the management of risks in terms of the allocation of the risk capital made available. The tool for this purpose is the risk-bearing capacity analysis (RTFA).

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This also provides the basis for the early identification of risk potential and is therefore of high importance for bank auditors, security systems and supervisory authorities. The Management Board manages and limits the risk-bearing capacity on the basis of the economic perspective. On 1 January 2025, economic and normative perspectives (ICAAP/ILAAP 2.0) were applied at RLBV for the first time to identify, monitor and manage risks under the ICAAP and liquidity ratios under the ILAAP.

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The aim of the economic capital approach is to ensure business continuity by maintaining an appropriate level of internal capital relative to economic capital throughout the economic cycle. Internal capital (= cover pool) is compared with economic capital (= risk) (unexpected losses at a confidence level of 99.9%). It must be ensured that the total amount of risk incurred on a consolidated basis is lower than the internal capital available at any given time. The aim is to stay below 90% utilisation. An excess of risk coverage capital requires either an increase of the internal capital or a reduction of the total risk exposure.

The aim of the normative perspective is to emphasise the importance of capital planning and the forward-looking approach, even in the face of adverse developments, thereby ensuring closer integration within the bank’s management framework. Building on sound business and capital planning, the normative perspective enables an assessment of compliance with regulatory and supervisory capital requirements in both base case and adverse scenarios, based on a multi-year analysis (at least three years).

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Thus, the economic capital requirement per control unit is allocated in a budget calculation. This allocated economic capital is then monitored quarterly to determine its level of utilisation.

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For a better overview, limit compliance, pre-warning level and exceeding of limits in the economic perspective are highlighted in colour according to the traffic light system. All of this is, however, carried out in strict compliance with regulatory requirements from a normative perspective. A systematic stress test with regard to the income statement supplements the risk management methodology.

The risk-bearing capacity analysis is a key decision-making basis for the management and an important component of the quarterly risk report to the Management Board and the Supervisory Board. Once a quarter, this risk report is reviewed by the Risk Committee. This body, which is made up of the Management Board, the Head of Financial/Capital Markets and representatives of Credit and Risk Management, primarily deals with issues relating to risk strategy, risk distribution, risk-bearing capacity and the risk management systems, processes and procedures. Risk Controlling is responsible for the ongoing monitoring of risk limits.

The following general risk policy principles apply to RLBV's risk strategy:

• The achievement of economic success requires the conscious and controlled taking of risks.

• A strong risk awareness encompassing all areas and a corresponding risk culture, in particular through transparent information and the use of adequate instruments, are fostered and are essential for business success. This also means that the principle of prudence is given preference in the event of a non-transparent, unmanageable risk situation. Only such risks as can be assessed are taken. This means that they can be understood and verified and that the main factors causing the risk can be assessed and measured.

• No decision or action may entail a risk to the company's survival. This principle is managed by means of risk limitation within the ICAAP.

• All risks are to be controlled using the risk management instruments. With regard to the main types of risk, the Bank aims to achieve a level of risk management appropriate to the structure, complexity, size and staffing of the Bank, based on best practice principles. All risk management processes are in line with the complexity of the business activities (proportionality and materiality). In order to ensure high-quality risk management, the procedures used for measurement and management are continuously being developed and are adapted to changing market conditions.

• Due to the rising significance of ESG risks, particularly climate risks, these risks are continuously identified, integrated into the existing risk categories and appropriately managed.

• The objective of the risk strategy considerations is to permanently ensure the risk-bearing capacity of the Raiffeisen Landesbank, thereby, on the one hand, securing the continued existence of the company (“going-concern”), where the regulatory minimum capital requirement is a strict lower limit, and, on the other hand, protecting creditors (liquidation approach).

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• For the purpose of risk mitigation and limitation, all significant risks are limited. The limits are derived from the Bank's risk-bearing capacity calculation and are also intended to prevent "multiple use" of equity capital.

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• In order to limit possible cluster risks in the lending business, consideration is also given to the portfolio perspective (diversification) and, if necessary, hedging measures (e.g. business on joint account, loan syndication) are considered.

• New products are only introduced after the standardised product launch process. Only the Management Board can grant an exemption.

• RLBV is part of the Raiffeisen sector and participates in the joint development of the risk methodology in order to comply with the market standard. Standards developed in the sector network are preferable to in-house developments.

In order to avoid conflicts of interest in risk management, functions are separated. This means that risk disposition, risk assessment and risk monitoring are separated in organisational terms. The Bank's risk agendas are assigned to a separate Chief Risk Officer for all levels up to the Management Board.

With due diligence, risks are examined for materiality against the background of the nature, scope and complexity of the banking transactions conducted. In this context, explicit reference should again be made to the proportionality principle. In our opinion, the appropriateness of the procedures should not be overstretched. In other words, there is a lower limit to the simplification of the methods and procedures for measuring risk. Below that, the risk must not be taken. On the other hand, importance must be attached to the simplicity and comprehensibility of the methods. In this way, transparency and thus management relevance can be achieved.

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