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VTB Group announces IFRS results for the first six months of 2013

 
12 September 2013

VTB Group today publishes its Interim Condensed Consolidated Financial Statements as at 30 June 2013 with the Independent Auditors’ Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “VTB Group posted strong growth in its core income lines supported by the successful expansion of our corporate and retail businesses. At the same time, the Group's cost of risk was impacted by a challenging macroeconomic environment. We have responded to these headwinds by tightening origination policies and strengthening our debt collection function in our retail banking entities. We are also making significant progress on key long-term strategic initiatives, including developing our retail franchise, growth of lower-risk fee and commission-driven business lines, as well as the merger of TransCreditBank and continued integration of Bank of Moscow. Successful implementation of these initiatives, combined with the enhanced capital resources we have at hand, will enable us to build significant value to our shareholders.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income statement

RUB billion

1H 2013

1H 2012

Change, % or pps

Net interest income

150.3

112.4

33.7%

Net fee and commission income

25.6

21.8

17.4%

Operating income before provisions

184.0

158.8

15.9%

Provision charge for impairment of debt financial assets

(50.7)

(32.3)

57.0%

Staff costs and administrative expenses

(97.3)

(82.6)

17.8%

Net profit

27.6

33.6

(17.9%)

ROE (adjusted for 2Q 2013 capital increase), %

7.8%

10.7%

(2.9 pps)

  • VTB Group core income lines saw solid growth in 1H 2013, with net interest income and fee and commission income up 33.7% and 17.4% year-on-year, respectively.
  • Net interest income growth during 1H 2013 was driven primarily by the strong expansion of the Group’s loan book, in particular a 17.0% year-to-date increase in retail gross loans as of 30 June 2013. The net interest margin (NIM) was stable at 4.4% both for 2Q 2013 and 1H 2013 (vs. 4.5% in 1Q 2013 and 4.0% in 1H 2012).
  • Retail Banking and Transaction Banking continued to be key drivers of the Group’s fee and commission income growth, contributing RUB 17.6 billion and RUB 9.0 billion or 57.0% and 29.1%, respectively, to the Group’s total net fee and commission income before inter-segment eliminations in 1H 2013.
  • The slowdown of Russia’s GDP growth resulted in a year-on-year increase in the Group’s cost of risk in both retail and corporate lending. The provision charge for impairment of debt financial assets increased year-on-year and was RUB 50.7 billion in 1H 2013 versus RUB 32.3 billion in 1H 2012. The provision charge for impairment of loans and advances to customers reached 1.8% of the average loan portfolio in 1H 2013 compared to 1.4% in 1H 2012.
  • Staff costs and administrative expenses amounted to RUB 97.3 billion in 1H 2013, up 17.8% from RUB 82.6 billion in 1H 2012, largely due to the expansion of the Group’s key businesses. The Group’s cost-to-income ratio was 52.9% in 1H 2013 versus 52.0% in 1H 2012.
  • VTB Group, in response to macroeconomic environment, continues to focus on further strengthening its insurance franchise as it expects further attractive growth in both the retail and corporate segments of the Russian insurance market. The Group’s net operating income from insurance activities amounted to RUB 5.8 billion in 1H 2013, up 61.1% from RUB 3.6 billion in 1H 2012.

Statement of financial position

RUB billion or %

30 June 2013

31 Dec 2012

Change, % or bps

Total assets

8,355.8

7,415.7

12.7%

Total gross loans

5,637.3

5,084.8

10.9%

Corporate gross loans

4,326.3

3,964.6

9.1%

Retail gross loans

1,311.0

1,120.2

17.0%

Customer deposits

4,312.8

3,813.4

13.1%

Corporate deposits

2,683.1

2,379.3

12.8%

Retail deposits

1,629.7

1,434.1

13.6%

NPL ratio

5.5%

5.4%

10 bps

Tier 1 ratio

11.0%

10.3%

70 bps

Total CAR

15.1%

14.7%

40 bps

  • The Group outperformed the Russian market in both corporate and retail lending growth in 1H 2013. Customer deposits grew even faster than the loan book reflecting a solid increase in deposits from the government bodies as well as the Group’s strong deposit-taking capacity. This helped to improve the loans-to-deposits-ratio to 122.1% as of 30 June 2013 versus 127.3% as of 31 March 2013 and 124.9% as of 31 December 2012.
  • Loan book quality developed in line with macroeconomic and the Russian banking sector trends in 1H 2013. The NPL ratio as of 30 June 2013 was 5.5% versus 5.4% as of 31 December 2012. The allowance for loan impairment amounted to 6.6% of the Group’s total gross loans as of 30 June 2013 up from 6.4% as the year start. The Group’s NPL coverage ratio at 30 June 2013 was 114.2%, versus 112.4% as of 31 December 2012.
  • The Group’s total and Tier 1 capital adequacy ratios (CAR) as of 30 June 2013 were 15.1% and 11.0%, respectively, versus 14.7% and 10.3% as of 31 December 2012. In May 2013, the Group successfully completed its RUB 102.5 billion share issue, which was conducted within the Russian regulatory framework among both international and Russian investors, solely in the form of ordinary shares listed on the Moscow Exchange. A group of investors comprising existing and new shareholders, including Norges Bank Investment Management, Qatar Holding LLC, the State Oil Fund of Azerbaijan and China Construction Bank, subscribed for and were allocated an aggregate of 55% of the total issue volume. This transaction enabled VTB Group to significantly strengthen its capital adequacy while also providing funding for the continued growth of the Group’s key businesses.

KEY BUSINESS SEGMENT HIGHLIGHTS

Corporate and Investment Banking

  • During 1H 2013 the Group managed to effectively grow its corporate loan book increasing its market share in corporate loans from 14.7% to 15.0%. Corporate gross amounted to RUB 4,326.3 billion as of 30 June 2013, up 9.1% from RUB 3,964.6 billion at 31 December 2012.
  • Global Transaction Banking (GTB) continued streamlining its sales process and increasing coverage of the mid-sized client segment, with a particular focus on the Russian regions. In 2Q 2013, the GTB team sold customised cash management solutions to 50 large groups of companies (over 450 legal entities). Following introduction of new account management services and deposit products during the period, GTB’s average current account balances grew by 16% in 2Q 2013.
  • The successful integration of TransCreditBank (TCB) into the Group’s GTB offering was finalised in 1H 2013 and over 450 large cap entities migrated from TCB to VTB Bank.
  • VTB Capital continues to be the #1 investment banking franchise in Russia. For 1H 2013, VTB Capital’s DCM team took the top spot in the Dealogic ranking for Russia & CIS having arranged 62 transactions for a total of USD 10.3 billion and taking 10.2% market share. VTB Capital is also ranked number one in Dealogic’s Russia domestic DCM bookrunner ranking for arranging 43 transactions for a total of USD 7.0 billion with a market share of 31.5% in 1H 2013.
  • VTB Capital held the top place in the equity capital markets in Russia and CIS, having arranged 5 transactions for a total of USD 1.9 billion and taking 32.2% market share during the first six months of 2013.VTB Capital is also ranked first place in Dealogic’s ranking of M&A consultants in Central and Eastern Europe, Russia and CIS respectively. In 1H 2013, VTB Capital had nine transactions in CEE with a volume of USD 11.8 billion. In Russia, VTB Capital advised on seven transactions with a market share of 30.9%.

Retail Banking

  • In line with the new retail strategy, announced in June 2013, VTB Group continued to grow its retail loan portfolio, and increased its market share in retail lending to 13.8% as of 31 June 2013 from 13.3% as of 31 December 2012.

VTB Group Retail Loan Book

RUB billion

30 June 2013

31 Dec 2012

Change, %

Gross retail loans

1,311.0

1,120.2

17.0%

Cash and credit card loans

738.8

624.3

18.3%

Car loans

119.1

102.0

16.8%

Mortgage loans

450.4

390.7

15.3%

  • The composition of the retail loan book continued to be driven by stronger growth in cash and credit card loans (56.4% of the total retail loans at 30 June 2013 vs. 55.7% at 31 December 2012) as well as car loans (9.1% of the total retail loans at 30 June 2013 and at 31 December 2012) as compared to the mortgage loans (34.4% of the total retail loans at 30 June 2013 vs. 34.9% at 31 December 2012).
  • At the same time, given the macroeconomic environment and in line with the Group’s conservative risk management approach, VTB24 in 1H 2013 started to proactively optimise risk in its unsecured lending by adjusting originating policies and pricing conditions. These steps, together with tighter debt collection, are expected to have a positive impact on the Group’s cost of risk going forward.
  • The robust growth of the Group’s retail deposits was helped by continued strong inflow of VTB24’s private banking customers’ funds. Deposits from VTB24’s VIP clients increased by 46.9% in 1H 2013 to RUB 314.5 billion, representing 19.3% of the Group’s retail deposits as of 30 June 2013.
  • The Group’s Leto Bank, which was launched to focus on the mass market segment, grew its loan book to RUB 8.6 billion as of 30 June 2013 without compromising on risk management and asset quality.
  • The total number of the Group’s retail offices in Russia (operating under the brands of VTB24, Bank of Moscow, TCB, and Leto Bank) was 1,401 as of 30 June 2013. The combined number of the Group’s ATMs exceeded 11,200 at the end of 1H 2013.

Integration of recent acquisitions

  • The Group is proceeding with the successful integration of TransCreditBank’s (TCB) While TCB’s corporate and investment business is being transferred to VTB Bank and Bank of Moscow, all TCB offices began offering VTB24’s products including cash, credit card, mortgages and deposits since August 2013. In 3Q 2013, the Group launched the process of legal merger of TCB into VTB24.
  • Bank of Moscow is developing as a universal commercial bank within the Group. Under this strategy, Bank of Moscow services large corporate clients as part of the Group’s global corporate and investment banking business line, and individual clients as part of the Group’s global retail business line. Bank of Moscow is particularly focused on developing business with SME clients contracted by the Government and municipalities in Moscow and the Moscow region. Maintaining and strengthening business relations with the City of Moscow is therefore one of its key priorities. In addition to Moscow and the Moscow region, the Group plans to develop the Bank of Moscow's regional network model to target selected priority regions of Russia.

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, in selected countries of Europe, Asia, Middle East, and Africa, and in the USA. The Group conducts its banking business in Russia through VTB Bank as a parent and five subsidiary banks. The Group’s largest subsidiary banks in Russia are VTB24, Bank of Moscow, and TransCreditBank.

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 investment banking division also performs broker/dealer operations in the United States of America, securities dealing and financial advisory in Hong Kong and investment banking operations in Bulgaria.

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 deposit accounts, lending, debit and credit cards and transaction services to individuals and small-sized corporations.

VTB’s majority shareholder is the Russian Federation state, acting through the Federal Agency for State Property Management, which holds 60.9% of VTB’s shares.

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