as compared to the first quarter of 2005:
- Net interest income increased to U.S.$330 million, by U.S.$130 million or 65.0%;
- Net fee and commission income grew to U.S.$81 million, by U.S.$47 million or 138.2%;
- Further diversification of funding base:
- EUR 200 million 1-year Schuldscheindarlehen in January 2006;
- EUR 500 million 10-year put 5 Fixed Rate Notes Reg S in February 2006.
The total asset growth up to U.S.$40,808 million as of March 31, 2006 from U.S.$36,723 million as of December 31, 2005 (by 11.1%) was primarily due to a 45.5% increase (U.S.$1,884 million) in due from other banks, a 19.1% increase (U.S.$1,390 million) in securities and a 5.2% increase (U.S.$1,038 million) in net client loans. The increase in assets by U.S.$415 million reflected the acquisition of a 98% interest of bank Mriya (Ukraine).
Loans and advances to customers increased by 5.2% to U.S.$ 20,963 million as of March 31, 2006 from U.S.$ 19,925 million as of December 31, 2005. Percentage of net client loans and advances in total assets stood at 51.4% as of March 31, 2006 vs. 54.3% as of December 31, 2005.
Securities as a percentage of total assets increased to 21.3% as of March 31, 2006 from 19.9% as of December 31, 2005, while the total value of the financial assets at fair value through profit or loss grew to U.S.$6,052 million, up 14.9% from December 31, 2005.
As of March 31, 2006, the Group had total liabilities of U.S.$35,223 million, compared to total liabilities of U.S.$31,454 million as of December 31, 2005. The increase in total liabilities of 12.0% in the first quarter of 2006 was primary due to a 16.8% increase (U.S.$2,147 million) in client accounts, a 16.9% increase (U.S.$495 million) in other borrowed funds and 4.4% increase (U.S.$317 million) in debt securities issued.
Client accounts increased by 16.8% to U.S.$14,914 million as of March 31, 2006 from U.S.$12,767 million as of December 31, 2005.
Credit Risk Management
As of March 31, 2006 overdue and rescheduled client loans as a percentage of total client loans and advances increased to 2.6% from 1.4% as of December 31, 2005. The allowance for loan impairment as a percentage of total client loans and advances increased to 3.2% as of March 31, 2006 from 3.0% as of December 31, 2005 as a result of the Bank's conservative provisioning policy with regards to its retail business.
Review of Operating Performance
Interest income increased by 91.1% to U.S.$709 million in Q1/2006 in comparison with U.S.$371 million in the same period of 2005. The major component of interest income is represented by interest income from loans and advances to customers (77.7% of total interest income) which grew by 90.0% to U.S.$551 million.
Net interest income before provision for loan impairment increased by U.S.$130 million, or 65.0%, in Q1/2006, to U.S.$330 million, as compared to U.S.$200 million in Q1/2005. Net interest margin decreased to 4.1% for Q1/2006 from 4.5% for Q1/2005. The decrease in net interest margin in 1Q/2006 was as a result of the Group's expansion (acquisition of new banking subsidiaries), as well as growth of equities in the Group's securities portfolio, which are not included in interest-earning assets.
Net gains from securities increased by U.S.$176 million to U.S.$201 million in Q1/2006, as compared to U.S.$25 million in Q1/2005, due to the positive securities market trends and the sale of JSC "Kamaz" shares. Profit from this deal in the amount of U.S.$119 million was included in the Group's profit in Q1/2006. Operating income grew by 147.7% to U.S.$659 million compared to U.S.$266 million for Q1/2005, due to the increased net interest income of U.S.$330 million, net gains from securities of U.S.$201 million, foreign exchange translation gains of U.S.$119 million and net fee and commission income of U.S.$81 million.
Operating expenses increased by 70.3% to U.S.$281 million from U.S.$165 million in Q1/2005 resulting from consolidation of banks acquired in Q4/2005, organic expansion of the Group`s network in Russia, increased expenses for marketing and advertising, IT infrastructure upgrading and expenses on the deposits insurance system in accordance with the Government Program.
The profit before income taxes was U.S.$375 million in Q1/2006 compared to U.S.$99 million in Q1/2005. The increase in profit before income taxation in Q1/2006 was caused by significant growth in net interest income, growth of securities trading gains, foreign exchange translation gains less losses and increased net fee and commission income.
Net profit was U.S.$334 million for Q1/2006 compared to U.S. $67 million for Q1/2005, i.e. increased by U.S.$260 million, including increase by U.S.$28 million (10.8% of total increase) which was attributed to new subsidiary banks acquired by VTB after Q1/2005.
The capital and capital adequacy were calculated in accordance with the Basle Capital Accord as discussed below. As of March 31, 2006 Tier 1 Capital amounted to U.S.$5,225 million, compared to U.S.$ 4,927 million as of December 31, 2005. As of March 31, 2006 Total Capital amounted to U.S.$5,974 million, compared to U.S. $5,898 million as of December 31, 2005. The Group`s capital adequacy ratio decreased from 14.1% as of December 31, 2005 to 13,6% as of March 31, 2006. The capital adequacy ratio is well above 8.0% minimum required by the Basle Accord.
Natalia Loginova, Head of Debt and Trade Finance
Telephone: +7 (495) 783-2161
Irina Mokeeva, Director, Debt Investor Relations
Telephone: +7 (495) 783-2116
NOTES TO EDITORS
ABOUT THE GROUP
VTB and its subsidiaries are a leading Russian commercial banking group, offering a wide range of banking services and conducting operations in both Russian and international markets. As of March 31, 2006 the Group had a network of 151 branches, including 55 branches of VTB, 42 branches of VTB Retail Services and 54 branches of Industry and Construction Bank, located in major Russian regions. The Group operates through 4 subsidiaries located in the CIS (Armenia, Georgia, Ukraine (2 banks)), 7 subsidiaries located in Western Europe (Austria, Cyprus, Switzerland, Germany, Luxembourg, France) and Great Britain and through 5 representative offices located in India, Italy, China, Byelorussia and Ukraine. VTB has operated under a full banking license # 1000 from the Central Bank of the Russian Federation since 1990. With 25,721 employees as of March 31, 2006 the Group operates in the commercial banking sector including deposit taking and commercial lending, support of clients' export/import transactions, foreign exchange, securities trading, and trading in derivative financial instruments. The Government of the Russian Federation is the main shareholder of VTB and owns through the Federal Property Management Agency 99.9% of its registered share capital. For more information please visit www.vtb.ru.
FORWARD LOOKING STATEMENTS
Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of VTB. We caution you that these statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that we cannot predict with certainty. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. We do not intend to update these statements to make them conform with actual results.