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VTB Group announces IFRS results for 1Q 2014

 
27 May 2014

VTB Group today publishes its Interim Condensed Consolidated Financial Statements with the Independent Auditor’s Report for the three months ended 31 March 2014.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "Over the first three months of the year, we continued to see very strong top line performance and solid balance sheet growth in our core businesses. At the same time, the volatile macroeconomic environment and geopolitical tensions had a significant impact on VTB Group’s P&L, and in particular on the cost of risk, prompting us to be prudent and more conservative in our lending and provisioning policies. We remain committed to our strategic priorities of growing the retail and mid-corporate banking businesses, while maintaining leading positions in corporate-investment banking as well as increasing our focus on risk management and cost efficiency. In line with our new strategy of quality growth, the Group is adhering to new standards of cost management, which will support its profitability against a weaker operating backdrop.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income statement

RUB billion

1Q 2014

1Q 2013

Change, % or pps

Net interest income

89.9

73.8

21.8%

Net fee and commission income

14.3

11.5

24.3%

Other operating income items

0.5

5.4

(90.7%)

Operating income before provisions

104.7

90.7

15.4%

Provision charge for impairment of debt financial assets

(47.6)

(22.0)

116.4%

Staff costs and administrative expenses

(52.8)

(45.9)

15.0%

Net profit

0.4

15.7

(97.5%)

ROE, %

0.2%

8.1%

(7.9 pps)

  • In 1Q 2014 VTB Group posted record quarterly net interest income, supported by solid lending growth across the Retail, Corporate-Investment banking (CIB) and Mid-Corporate banking segments. Net interest margin (“NIM”) was 4.5% in 1Q 2014, unchanged from 1Q 2013 and 20 bps down from 4Q 2013. The moderate quarter-on-quarter NIM contraction was driven by an increase in the CBR key refinancing rate, the Group’s larger liquidity cushion, and by lower yields on the Group’s debt securities and retail loans, as the Group continued to optimise risk across various asset pools.
  • The Group once again posted healthy year-on-year growth in net fee and commission income (“NFCI”), as its Retail Business and Transaction Banking in CIB and Mid-Corporate banking continued to develop further their fee-generating product lines in line with expanding balance sheets. VTB Group’s Retail Business and Transaction Banking in 1Q 2014 earned NFCIs of RUB 7.5 billion and RUB 4.7 billion, or 52.4% and 32.9%, respectively, of the Group's total net fee and commission income.
  • Against the backdrop of Russia’s macroeconomic slowdown as well as political tensions in Ukraine, the Group saw elevated cost of risk (“CoR”) and weaker results from securities and foreign currencies.
  • CoR increased to 2.8% in 1Q 2014, up from 1.5% in 4Q 2013 and 1.6% in 1Q 2013. In loans to individuals, the CoR amounted to 5.5% for 1Q 2014 vs. 1.9% in 4Q 2013 and 3.7% in 1Q 2013. In the corporate loan book, the CoR was 1.9% for 1Q 2014 vs. 1.3% in 4Q 2013 and 1.0% in 1Q 2013.
  • The net loss from financial instruments at fair value through profit or loss and available-for-sale financial assets was RUB 3.9 billion in 1Q 2014, while the net loss from foreign currencies was RUB 8.2 billion, driven by Ukrainian hryvnia devaluation and increased swap costs during the quarter.
  • Staff costs and administrative expenses amounted to RUB 52.8 billion in 1Q 2014, up 15.0% from RUB 45.9 billion in 1Q 2013, driven by the expansion of the Group's retail business.

Statement of financial position

RUB billion

31 Mar 2014

31 Dec 2013

Change ytd, % or bps

Total assets

9,402.3

8,768.5

7.2%

Loans and advances to customers (gross)

6,683.8

6,330.1

5.6%

Corporate gross loans

5,073.7

4,809.3

5.5%

Gross loans to individuals

1,610.1

1,520.8

5.9%

Customer deposits

4,928.6

4,341.4

13.5%

Corporate deposits

3,066.3

2,548.0

20.3%

Deposits from individuals

1,862.3

1,793.4

3.8%

NPL ratio

5.8%

4.7%

110 bps

Tier 1 ratio

10.3%

10.9%

(60 bps)

Total CAR

14.0%

14.7%

(70 bps)

  • The Group’s loan-book expansion, an increase in cash and short-term funds in response to the tighter liquidity environment in the Russian markets, as well as an increase in the Group’s exposure to Russian corporate debt were the main factors behind the growth in total assets during the first quarter of 2014.
  • Lending growth in 1Q 2014 reflected both demand for loans from the Group’s customers in the corporate and retail segments during the quarter, and the 9% depreciation of the rouble against the US dollar in the first three months of 2014, as around one third of the Group’s corporate loans are denominated in US dollars.
  • The NPL ratio was 5.8% of gross customer loans, including financial assets classified as loans and advances to customers pledged under repurchase agreements, (hereinafter the “total loan book”) as of 31 March 2014 vs. 4.7% as of 31 December 2013. The allowance for loan impairment as of 31 March 2014 amounted to 5.9% of the Group's total loan book vs. 5.5% at the start of the year. The Group's NPL coverage ratio at 31 March 2014 was 101.0%, vs. 115.5% as of 31 December 2013.
  • The Group saw robust deposit base growth during 1Q 2014, which was mainly driven by an inflow of government and corporate customers’ deposits. The Group also posted a net increase in retail deposits during the quarter.
  • The Group continues to be focused on maintaining sound capital adequacy ratios (CAR). The total and Tier 1 CAR as of 31 March 2014 were 14.0% and 10.3%, respectively.

KEY BUSINESS SEGMENT HIGHLIGHTS

Retail Business

  • VTB Group remains committed to its strategic goal to outperform the Russian market in the growth of its retail business, and to further increase the share of this business in the Group’s asset and revenue mix.

VTB Group loans to individuals

RUB billion

31 Mar 2014

31 Dec 2013

Change ytd, %

Gross loans to individuals

1,610.1

1,520.8

5.9%

Mortgage loans

584.8

539.9

8.3%

Consumer loans

780.8

741.4

5.3%

Credit cards

93.5

86.2

8.5%

Car loans

131.6

133.2

(1.2%)

Other loans

19.4

20.1

(3.5%)

  • The growth in loans to individuals in 1Q 2014 was primarily driven by mortgages, which outgrew unsecured cash and credit card loans and reached 36.3% of the portfolio as of 31 March 2014 vs. 35.5% as of 31 December 2013. The share of consumer loans and credit card loans in the Group’s total loans to individuals amounted to 48.5% and 5.8%, respectively, at 31 March 2014 vs. 48.8% and 5.7% at 31 December 2013. The share of car loans in total loans to individuals decreased to 8.2% from 8.8% during 1Q 2014.
  • The macroeconomic slowdown in 1Q 2014 had a negative impact on asset quality and cost of risk in retail lending. VTB 24, the Group’s core retail bank, has considerably reduced approval rates for the riskiest customer segments and strengthened further its debt collection function, which it expects will have a positive impact on CoR going forward.
  • Unlike the rest of the Russian banking sector, the Group saw a net increase in deposits from individuals during 1Q 2014, which was partially due to the devaluation of the rouble as well as a shift in sentiment among Russian retail depositors towards large, systemically important banks. During 1Q 2014, VTB 24 acting as an agent for the Deposit Insurance Agency distributed insured retail deposits to clients of several banks whose licenses had been revoked during the quarter. Around a half of these funds have remained in VTB 24 deposits, and the bank gained over 27 thousand clients as a result of these payouts during 1Q 2014.
  • VTB 24’s private banking customers continued to make a significant contribution to the Group’s funding. Private banking deposits increased by 4.1% during 1Q 2014 to RUB 320.9 billion, representing approximately 17% of the Group's deposits from individuals as of 31 March 2014.
  • The Group had over 1,720 retail offices in Russia (operating under the VTB 24, Bank of Moscow, and Leto Bank brands) as of 31 March 2014. The combined number of the Group's ATMs was over 12,200 at the end of 1Q 2014.

Corporate-Investment banking and Mid-Corporate banking

  • VTB continues to tighten its origination policies and to focus on lending to high-quality borrowers. In 1Q 2014 the Group saw stronger demand for credit from some of the largest Russian corporates, as the volatility in international debt capital markets started to increase. The Group’s loans to legal entities increased by 5.5% during the quarter to RUB 5,073.7 billion as of 31 March 2014.
  • Global Transaction Banking (GTB) continued developing its product offering for large- and mid-sized corporate customers. In particular, in 1Q 2014 GTB launched a new “Quick overdraft” product that allows VTB’s corporate customers to promptly finance their liquidity needs using an overdraft line.
  • Starting from 1Q 2014, the Group has established Mid-Corporate banking (MCB) as a separate operating and reporting segment. The Group’s strategic priority is to grow MCB’s market share in key products including loans, current accounts and fees and commissions. Hence, MCB is expected to evolve as a significant contributor to VTB Group’s revenue base. In 1Q 2014, MCB successfully introduced new products for mid-sized corporate clients and softened lending conditions for top-quality borrowers in this segment.
  • VTB Capital has maintained its position as Russia’s leading investment banking franchise, taking the top spots in Dealogic’s Russia domestic DCM as well as CIS ECM rankings for 1Q 2014.

Contacts:

Investor Relations:

Tel.: +7 495 775 71 39

Email: investorrelations@vtb.ru


VTB Bank

Interim Consolidated Statement of Financial Position as at 31 March 2014

(in billions of Russian Roubles)

31 March 2014

(unaudited)

31 December 2013

Assets

Cash and short-term funds

578.0

354.3

Mandatory cash balances with central banks

64.2

58.7

Financial assets at fair value through profit or loss

419.9

411.1

Financial assets pledged under repurchase agreements

504.5

466.6

Due from other banks

356.2

443.4

Loans and advances to customers

6,272.2

5,969.0

Investment financial assets

- available-for-sale

229.8

135.4

- held-to-maturity

0.6

0.7

Investments in associates and joint ventures

77.8

87.6

Assets of disposal group held for sale

37.5

36.7

Land, premises and equipment

176.5

170.3

Investment property

171.4

160.7

Goodwill and other intangible assets

161.5

162.5

Deferred income tax asset

47.1

45.5

Other assets

305.1

266.0

Total assets

9,402.3

8,768.5

Liabilities

Due to other banks

593.7

666.6

Customer deposits

4,928.6

4,341.4

Liabilities of disposal group held for sale

13.9

20.7

Other borrowed funds

1,531.6

1,485.9

Debt securities issued

751.7

738.2

Deferred income tax liability

15.3

15.0

Other liabilities

318.9

262.6

Total liabilities before subordinated debt

8,153.7

7,530.4

Subordinated debt

296.2

291.0

Total liabilities

8,449.9

7,821.4

Equity

Share capital

138.1

138.1

Share premium

433.8

433.8

Perpetual loan participation notes

80.3

73.6

Treasury shares and perpetual loan participation notes

(3.1)

(3.6)

Other reserves

37.5

35.6

Retained earnings

259.6

262.0

Equity attributable to shareholders of the parent

946.2

939.5

Non-controlling interests

6.2

7.6

Total equity

952.4

947.1

Total liabilities and equity

9,402.3

8,768.5


VTB Bank

Interim Consolidated Income Statement for the Three Months Ended 31 March 2014 (unaudited)

(in billions of Russian Roubles)

For the three-month period
ended 31 March

2014

2013

Interest income

188.2

157.2

Interest expense

(98.3)

(83.4)

Net interest income

89.9

73.8

Provision charge for impairment of debt financial assets

(47.6)

(22.0)

Net interest income after provision for impairment

42.3

51.8

Net fee and commission income

14.3

11.5

Losses net of gains arising from financial instruments at fair value through profit or loss

(4.4)

(0.9)

Gains less losses from available-for-sale financial assets

0.5

0.7

Losses net of gains arising from foreign currencies

(8.2)

(2.9)

Gains on initial recognition of financial instruments, restructuring and other gains on loans and advances to customers

0.1

2.6

Share in profit of associates and joint ventures

0.6

Gain from disposal of subsidiaries and associates

9.0

1.1

Net insurance premiums earned

11.4

5.4

Net insurance claims incurred and movement in liabilities to policyholders

(7.8)

(2.8)

Revenue from non-banking activities

7.2

8.3

Cost of sales and other expenses from non-banking activities

(9.5)

(6.7)

Losses net of gains arising from extinguishment of liability

(1.0)

(1.0)

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

(0.4)

(1.4)

Excess of fair value of acquired net asset over cost

0.2

Impairment of goodwill

(0.5)

Other operating income

3.1

1.5

Net non-interest income

14.4

15.6

Operating income

56.7

67.4

Staff costs and administrative expenses

(52.8)

(45.9)

Profit before tax

3.9

21.5

Income tax expense

(5.4)

(5.8)

Net loss after tax

(1.5)

15.7

Profit after tax from subsidiaries acquired exclusively with a view to resale

1.9

Net profit

0.4

15.7

Net profit attributable to:

Shareholders of the parent

2.4

15.3

Non-controlling interests

(2.0)

0.4

Basic and diluted earnings per share
(expressed in Russian Roubles per share)

0.0002

0.0015

Basic and diluted earnings per share before profit after tax from subsidiaries acquired exclusively with a view to resale
(expressed in Russian Roubles per share)

0.00004

0.0015


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