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VTB Group announces its IFRS Results for 1Q 2012

 
5 July 2012

VTB Group today publishes its Interim Condensed Consolidated Financial Statements as at 31 March 2012 with the Independent Auditors’ Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “We delivered solid results with a strong ROE of 15% for the first three months of 2012. Having grown substantially over the past few years, we are now focused on extracting value from VTB’s unique franchise by optimising our asset base, further strengthening risk management policies and improving our operational efficiency. We believe these steps will help us maintain a strong position in an extremely challenging global market environment.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income statement

– VTB Group posted a net profit of RUB 23.3 billion for 1Q 2012, versus RUB 26.1 billion in 1Q 2011. Return on equity (ROE) was a strong 15% and earnings per share were RUB 0.0022, versus an ROE of 18% and earnings per share of RUB 0.0025 in 1Q 2011.

– Key business segments - Corporate and Investment Banking (CIB) and Retail Banking both made strong contributions to the Group’s performance with profit before tax of RUB 22.6 billion and RUB 10.9 billion, respectively.

– Operating income before provisions was RUB 95.4 billion for 1Q 2012, an increase of 30.9% from RUB 72.9 billion in the same period last year.

– Net interest income before provisions reached RUB 54.0 billion, an increase of 17.4% from RUB 46.0 billion in 1Q 2011, mainly due to year-on-year growth in average interest-earning assets. Net interest margin stood at 3.8% in 1Q 2012 versus 4.8% in 1Q 2011, primarily due to an increase in the cost of interest-bearing liabilities, in line with sector-wide trends.

– Net fee and commission income increased to RUB 10.3 billion in 1Q 2012, up 28.8% from RUB 8.0 billion in 1Q 2011. This growth was primarily driven by the Group’s Retail Banking and Transaction Banking businesses, which delivered net fee and commission income of RUB 6.3 billion and RUB 3.5 billion, up year-on-year 65.8% and 25.0%, respectively.

– The net result from financial instruments amounted to RUB 4.0 billion in 1Q 2012 as compared to RUB 9.7 billion in 1Q 2011; the net result arising from foreign currencies amounted to RUB 18.8 billion in 1Q 2012 versus RUB 5.9 billion in 1Q 2011.

– The provision charge for impairment of debt financial assets amounted to RUB 20.4 billion in 1Q 2012 versus RUB 7.7 billion in 1Q 2011 - a result of more conservative countercyclical provisioning in the current economic environment. The provision charge for impairment of customer loans reached 1.7% of the average loan portfolio, up from 1.1% in the same period last year, despite an overall contraction in the Group’s non-performing loans in 1Q 2012.

– Staff costs and administrative expenses amounted to RUB 42.5 billion in 1Q 2012, an increase of 28.8% from RUB 33.0 billion in 1Q 2011 driven by the Group’s strategic acquisitions. The Group’s cost-to-income ratio was 44.5% in 1Q 2012 versus 45.3% in 1Q 2011.

Statement of financial position

– Total gross loans amounted to RUB 4,551.5 billion as of 31 March 2012, a decrease by 0.8% from RUB 4,590.1 billion at the start of the year. Loan book growth was constrained by US dollar depreciation against the rouble of c. 9% during 1Q 2012 as approximately one third of the Group’s loan portfolio was denominated in US dollars. Corporate gross loans at the end of 1Q 2012 amounted to RUB 3,690.4 billion, a decrease of 2.0% compared to RUB 3,766.0 billion at year end 2011. Retail gross loans at 31 March 2012 equalled RUB 861.1 billion, up 4.5% from RUB 824.1 billion at 31 December 2011.

– Loan book quality improved further with total NPLs decreasing by 2.6% during 1Q 2012. In the same period, the NPL ratio largely remained stable at 5.5% of total gross loans (including financial assets classified as customer loans pledged under repurchase agreements), up from 5.4% mainly due to the contraction of the Group’s loan portfolio. The NPL coverage ratio at 31 March 2012 increased to 118.4% up from 111.3% as of 31 December 2011.

– Customer deposits reached RUB 3,332.9 billion as at 31 March 2012, versus RUB 3,596.7 billion at year end 2011. Corporate deposits amounted to RUB 2,143.2 billion at the end of 1Q 2012 versus RUB 2,435.3 billion at the end of 2011. Retail deposits reached RUB 1,189.7 billion at 31 March 2012, as compared to RUB 1,161.4 billion as of 31 December 2011.

– During 1Q 2012, the Group’s capital adequacy ratios improved. The Tier 1 capital adequacy ratio (CAR) amounted to 9.6% as of 31 March 2012 versus 9.0% as of 31 December 2011, while total CAR was 13.7% as of 31 March 2012 versus 13.0% as of 31 December 2011. The Group’s 1Q 2012 total equity and capital adequacy ratios include the impact of VTB Bank’s share buyback from shareholders that participated in the Group’s 2007 IPO. Based on an estimate of the potential amount of shares to be repurchased, the Group made an accrual of liability of RUB 13.8 billion, with a corresponding entry in the relevant line in the Group’s equity.

VTB GROUP KEY BUSINESSES

Corporate and Investment Banking Highlights

– The CIB segment’s profit before tax amounted to RUB 22.6 billion in 1Q 2012 compared to RUB 27.9 billion in 1Q 2011. The profit before tax of the CIB subsegments - Loans and Deposits, Investment Banking and Transaction Banking was RUB 11.4 billion, RUB 7.1 billion, and RUB 4.5 billion respectively in 1Q 2012, versus RUB 12.4 billion, RUB 12.9 billion, and RUB 2.7 billion in 1Q 2011.

– CIB management maintained its focus on enhancing VTB’s Global Transaction Banking (GTB) business as an important source of fee and commission income. In 1Q 2012, the Transaction Banking subsegment earned RUB 3.5 billion of net fee and commission income, a 25.0% increase year-on-year. During the quarter, the GTB business expanded its client coverage by attracting 1,500 new customers. The GTB team customised and sold complex cash management solutions to 30 large corporate groups, while its sales cash management pipeline reached c. RUB 1 billion.

– The Group’s investment business, VTB Capital, retained its position as Russia´s leading investment banking franchise. In 2012, VTB Capital’s Research team was ranked the best in Russia for the second year in a row by the Thomson Reuters Extel Survey of investors. The survey also named VTB Capital the #1 Brokerage Firm in Russia, #1 in Equity Sales and #1 in Trading and Execution.

– In 1Q 2012, VTB Capital’s global banking team closed 23 Debt Capital Markets transactions (including a Russian sovereign Eurobond issue for US$ 7 billion) and retained the top spot in the Dealogic Russia and CIS DCM ranking. VTB Capital is also ranked number two in Russian and CIS M&A deal volume by Dealogic. In 1Q 2012, VTB Capital took part in 4 M&A transactions totalling c. US$ 4.1 billion.

– In February 2012, VTB Capital successfully placed part of its minority stake in the leading CIS offshore software developer EPAM Systems during EPAM’s IPO on the NYSE, realising a substantial IRR on the investment.


Retail Banking Highlights

– The Retail Banking segment’s profit before tax was driven by the strong performance of the Group’s core retail bank VTB24 and retail operations of Bank of Moscow and TCB, amounting to RUB 10.9 billion in 1Q 2012 compared to RUB 7.4 billion in 1Q 2011.

– In retail lending, VTB Group maintained its focus on higher-margin and shorter-term loans. As of 31 March 2012, the Group’s consumer loans were RUB 466.6 billion, up 7.0% since 31 December 2011. Car loans reached RUB 79.3 billion at 31 March 2012, up 5.0% since the start of the year, while mortgage loans increased by 1.0% to RUB 312.0 billion during the same period. The share of consumer and car loans in the Group’s retail loan portfolio increased to 63.4% at 31 March 2012 from 62.1% at the start of the year. The share of mortgage loans in the same period declined to 36.2% from 37.5%.

– In retail deposits, VTB24’s private banking franchise was one of the key growth drivers during the first three months of the year. As of 31 March 2012, deposits of VTB24 private banking customers amounted to RUB 175.6 billion, an increase of 22.5% since the start of the year.

– During 1Q 2012, the Group optimised its retail branch network (primarily comprised of VTB24, TransCreditBank and Bank of Moscow outlets) by increasing the number of VTB24 offices in Russia and closing down selected offices of Bank of Moscow. The total number of the Group’s retail outlets in Russia was 1,216 as of 31 March 2012 versus 1,242 as of 31 December 2011. The combined number of VTB24, TCB and BoM ATMs exceeded 10,210 as of 31 March 2012.

– During 2012, the Group plans to enhance its retail banking franchise by launching a new “light bank” business, which will focus on point-of-sale lending and will target a broader client base, while the Group’s leading retail bank VTB24 will continue to cover mainly the affluent and mass affluent client segments. The new bank is expected to operate as a subsidiary of VTB24, and is expected to be ROE accretive for the Group. Pilot operations for the light bank are planned to start in 2012, with a full launch in 2013.

Contacts:

Investor Relations:

Tel.: +7 495 775 71 39

Email: investorrelations@vtb.ru

About VTB:

JSC VTB Bank and its subsidiaries (VTB Group or the Group) is a leading Russian financial group, offering a wide range of banking services and products in Russia, CIS, Europe, Asia, Middle East, United States, Africa. The Group conducts its banking business in Russia through VTB Bank as a parent and 6 subsidiary banks. The Group’s largest subsidiary banks in Russia are VTB24, Bank of Moscow, and TransCreditBank. Through the acquisition of Bank of Moscow the Group has also obtained control over Mosvodokanalbank and Bezhitsa-Bank. In February 2012, the Group obtained control over Russian National Commercial Bank.

The Group operates outside Russia through 15 bank subsidiaries, located in the Commonwealth of Independent States (Armenia, Ukraine (2 banks), Belarus (2 banks), Kazakhstan and Azerbaijan), Europe (Austria, Cyprus, Germany, France, Great Britain and Serbia), Georgia and Africa (Angola); through 2 representative offices located in Italy and China; through 2 VTB branches in China and India and 2 branches of VTB Capital, Plc in Singapore and Dubai.

The Group’s business franchise spans Corporate and Investment banking (CIB) and Retail Banking. In CIB, the Group provides a broad range of services and products including corporate lending, foreign trade transactions, syndicated loans, deposit and settlement services, equity and debt capital markets underwriting, project financing, merger and acquisition financing, advisory services, custody services, asset management and venture funds. In Retail Banking, VTB offers financial services, including deposit accounts, lending, debit and credit cards and transaction services to individuals and small-sized corporations.

The number of employees of the Group as of 31 March 2012 was 69,403.

In February 2011, the Russian Federation state reduced its share from 85.5% to 75.5% of VTB Bank’s shares as a result of an offering in the form of shares and global depositary receipts.


VTB Bank

Interim Consolidated Statement of Financial Position as at 31 March 2011

(in billions of Russian Roubles)

31March

2012

(unaudited)

31 December

2011

Assets

Cash and short-term funds

330.1

407.0

Mandatory cash balances with central banks

60.2

71.9

Financial assets at fair value through profit or loss

515.1

571.5

Financial assets pledged under repurchase agreements and loaned financial assets

79.3

198.6

Due from other banks

377.0

424.6

Loans and advances to customers

4,252.8

4,301.6

Assets of disposal group held for sale

8.7

10.3

Financial assets available-for-sale

172.5

167.7

Investments in associates and joint ventures

31.5

32.5

Investment securities held-to-maturity

33.2

32.4

Premises and equipment

110.7

116.8

Investment property

132.2

122.5

Intangible assets and goodwill

141.4

141.2

Deferred tax asset

41.3

42.7

Other assets

164.5

148.3

Total assets

6,450.5

6,789.6

Liabilities

Due to other banks

637.7

699.7

Customer deposits

3,332.9

3,596.7

Liabilities of disposal group held for sale

6.8

8.5

Other borrowed funds

549.1

734.6

Debt securities issued

829.9

664.5

Deferred tax liability

9.9

10.0

Other liabilities

215.4

209.4

Total liabilities before subordinated debt

5,581.7

5,923.4

Subordinated debt

239.5

241.1

Total liabilities

5,821.2

6,164.5

Equity

Share capital

113.1

113.1

Share premium

358.5

358.5

Treasury shares

(0.3)

(0.6)

Unrealized gain on financial assets available-for-sale and cash flow hedge

6.0

7.9

Premises revaluation reserve

11.4

11.4

Currency translation difference

7.3

11.0

Retained earnings

111.2

102.2

Equity attributable to shareholders of the parent

607.2

603.5

Non-controlling interests

22.1

21.6

Total equity

629.3

625.1

Total liabilities and equity

6,450.5

6,789.6


VTB Bank

Interim Consolidated Income Statement for the Three Months Ended 31 March 2012 (unaudited)

(in billions of Russian Roubles)

For the three-month period ended 31 March

2012

2011

Interest income

127.0

86.2

Interest expense

(73.0)

(40.2)

Net interest income

54.0

46.0

Provision charge for impairment of debt financial assets

(20.4)

(7.7)

Net interest income after provision for impairment

33.6

38.3

Net fee and commission income

10.3

8.0

Gains less losses arising from financial instruments at fair value through profit or loss

1.0

9.7

Gains less losses from available-for-sale financial assets

3.7

Losses net of gains arising from extinguishment of liability

(0.7)

Losses on initial recognition of financial instruments, restructuring and other gains / (losses) on loans and advances to customers

0.1

(0.4)

Gains less losses arising from dealing in foreign currencies

25.4

11.7

Foreign exchange translation losses net of gains

(6.6)

(5.8)

Share in income of associates and joint ventures

0.1

1.3

Provision charge for impairment of other assets, credit related commitments and legal claims

(0.2)

(0.1)

Income arising from non-banking activities

8.7

3.7

Expenses arising from non-banking activities

(4.0)

(2.1)

Other operating income

3.4

0.8

Net non-interest income

41.2

26.8

Operating income

74.8

65.1

Staff costs and administrative expenses

(42.5)

(33.0)

(Loss) / profit from disposal of associates

(0.4)

0.9

Profit before taxation

31.9

33.0

Income tax expense

(8.6)

(6.9)

Net profit

23.3

26.1

Net profit attributable to:

Shareholders of the parent

22.7

26.0

Non-controlling interests

0.6

0.1

Basic and diluted earnings per share

0.0022

0.0025

(expressed in Russian Roubles per share)


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