The RI (Raiffeisen International) group is a unique network of banks and leasing companies. With the backing of the well-known 'Raiffeisen' brand and a strong focus on retail products in high growth markets, it currently serves approximately 12 million customers with nearly 3,000 outlets and over 50,000 employees.

One of the most diversified European banking groups, RI has a presence in 16 Central and Eastern European countries, in eight of which it ranks among the top three banks by assets, and in two of which it is the number one bank.

RI’s retail risk mission is to enable sustainable and profitable growth, effectively managing its portfolio and making sure that a suitable risk infrastructure is in place.  This has been done by setting a minimum level of standards, policies, benchmarks and targets throughout the network, which is particularly important in the context of the Basel II framework, where a significant challenge is to make sure that consistent implementation (methodology, standards, processes) is performed within the group. This is necessary to demonstrate to the home supervisor that local implementations comply with group standards and supervisory regulations. On one side, local units make use of the standard documentation in implementing the models while considering necessary amendments to comply with local regulation. On the other, RI put in place a monitoring procedure to make sure that central directives are followed and requirements met.

Other important challenges in the Basel II retail project can be grouped in four areas:

• Organisational
• People
• Data
• Processes and tools

From an organisational point of view, having such an extended group of banks in many countries means that there are historical issues with regards to the development of retail businesses in the individual banks - this may result in organisational misalignments and conflicts of interest. Another challenge is integrating the acquired banks considering theirdifferent regional systems and data, and often their limited communication infrastructure. Otherissues arise due to the RI group transforming itself from a financial to a strategic holding, and the fact that the mother company RZB is characterized by anon-retail focus.

Limited resources in individual subsidiaries often provide additional challenges, slowing down the building of a proper risk infrastructure including important areas from the regulatory point of view. Furthermore, even if most people are extremely smart and talented, many are inexperienced and lack the necessary technical skills (i.e. procedural, mathematics, IT and communication). The approach taken by RI is to nurture its own talents giving emphasis to training, motivation andretention.

Data challenges are crucial, as riskmanagement depends heavily on the availability of representative historical data. This is affected by several factors: the dynamically developing marketplace of each network unit, the ever changing macro economic environment, the creation of new products and the implementation of new standards and processes. Experian-Scorex has been supporting RI to ensure consistency throughout the network in light of these issues. Minimum data requirements were defined four years ago, with information to be collected classified as mandatory, strongly recommended or recommended on the basis of its relative importance. Data audits and data quality management have become a part of the process to make sure the necessary information is available before development.

A fundamental issue regarding processes is the essential definition of a single standard regarding payment allocation and days past due date (crucial in defining default). To produce a solid data platform (covering also collection activities and related costs), which needs to be implemented locally but with the same architecture throughout the network is another challenge faced by RI. This has also facilitated MIS activities, allowing a more accurate interaction between headquarter-network unit.

Frantisek Jezek - Head of Retail Risk, Raiffeisen International Bank-Holding AG - from the presentation given at the Experian Conference 2006

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