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VTB Group announces IFRS results for the first nine months of 2014

 
20 November 2014

VTB Group today publishes its Interim Condensed Consolidated Financial Statements as at 30 September 2014 with the Independent Auditors’ Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “Our pre-provision performance remains strong and has been resilient to the macroeconomic slowdown and geopolitical tensions. However, the headwinds we continue to face have driven up provision charges and cost of risk, which remain the key factor adversely impacting VTB Group’s profitability in 2014.

"In the third quarter we considerably strengthened the Group's Tier 1 capital through conversion of subordinated debt, which enabled us to continue robust loan book growth. I am also pleased to report that our cost control initiatives are translating into notable improvements in our efficiency ratios.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion

9M 2014

9M 2013

Change, % or p.p.

Net interest income

268.2

233.2

15.0%

Net fee and commission income

44.8

38.9

15.2%

Operating income before provisions

351.3

281.3

24.9%

Provision charge for impairment of debt financial assets

(157.8)

(72.8)

116.8%

Staff costs and administrative expenses

(163.9)

(149.2)

9.9%

Net profit

5.4

46.0

(88.3%)

Return on equity

0.8%

7.4%

(6.6 p.p.)

  • Despite the challenging operating and geopolitical environment, VTB Group posted strong pre-provision operating income for 9M 2014, supported by healthy year-on-year growth of net interest income (+15.0%) and net fee and commission income (+15.2%).
  • The Group's net interest margin (“NIM”) remained substantially unchanged at 4.3% in 9M 2014 versus 4.4% in 9M 2013. Margins continued to gradually contract on a quarter-on-quarter basis (resulting in a 3Q 2014 NIM of 4.1%), mainly driven by the increase of the Russian Central Bank's key refinancing rate.
  • Russia’s slowing GDP growth, combined with rapid deterioration of economic conditions in Ukraine, contributed to a year-on-year increase in the Group’s annualised cost of risk (“CoR”) to 2.9% of average gross loans and advances to customers in 9M 2014, versus 1.7% in 9M 2013. In 3Q 2014 the Group saw a quarter-on-quarter increase in CoR to 3.4% versus 2.5% in 2Q 2014, mainly due to credit quality issues affecting certain corporate borrowers. The provision charge for impairment of debt financial assets increased to RUB 157.8 billion in 9M 2014, versus RUB 72.8 billion in 9M 2013.
  • The Group posted considerable year-on-year and quarter-on-quarter improvements in its cost-to-income ratio, which stood at 46.7% in 9M 2014 (53.0% in 9M 2013) and at 41.8% in 3Q 2014 (versus 48.7% in 2Q 2014). Staff costs and administrative expenses amounted to RUB 163.9 billion in 9M 2014, up 9.9% year-on-year, largely due to further investments into the Group’s retail franchise. In 3Q 2014 staff costs and administrative expenses were RUB 54.9 billion, corresponding to a below-inflation increase of 5.8% versus 3Q 2013.

Statement of financial position

RUB billion

30 Sept 2014

31 Dec 2013

Change, % or p.p.

Total assets

10,135.2

8,768.5

15.6%

Cash and short term funds

448.9

354.3

26.7%

Loans and advances to customers, including pledged under repurchase agreements (gross)

8,022.9

6,620.7

21.2%

Corporate gross loans

6,184.8

5,099.9

21.3%

Gross loans to individuals

1,838.1

1,520.8

20.9%

Customer deposits

5,321.4

4,341.4

22.6%

Corporate deposits

3,373.0

2,548.0

32.4%

Deposits from individuals

1,948.4

1,793.4

8.6%

NPL ratio

6.0%

4.7%

1.3 p.p.

Tier 1 ratio

11.0%

10.9%

0.1 p.p.

Total CAR

12.2%

14.7%

(2.5 p.p.)

  • The Group continued to expand its loan book, with new lending focused on the highest-quality segments of both corporate and retail borrowers. The weakening of the rouble against major currencies in 3Q 2014 resulted in a revaluation of the Group’s customer loans denominated in foreign currencies. At the same time, the Group has adjusted its corporate lending policies in order to limit new issuance of foreign currency denominated loans in response to the exchange rate volatility.
  • Loan book quality developed in line with macroeconomic and banking sector trends in 9M 2014. The NPL ratio was 6.0% of gross customer loans, including those pledged under repurchase agreements (hereinafter the “total loan book”) as of 30 September 2014, versus 5.9% as of 30 June 2014 and 4.7% as of 31 December 2013. The allowance for loan impairment amounted to 6.3% of the total loan book as of 30 September 2014, compared to 5.9% and 30 June 2014 and 5.5% at the start of the year. The Group’s NPL coverage ratio was 105.9% at 30 September 2014, versus 100.7% as of 30 June 2014 and 115.5% as of 31 December 2013.
  • The Group’s customer deposits grew by 22.6% during 9M 2014, reflecting mainly the Group’s strong deposit-taking capacity in its core businesses, a solid increase in deposits from corporate clients (including government bodies), as well as the revaluation of FX-denominated deposits during the period.
  • VTB has continued to strengthen its capital base. In September 2014, upon a decision of VTB’s extraordinary general meeting of shareholders, the Group converted subordinated loans received in 2008 (as part of the Russian Government’s anti-crisis package) into new preference shares. The shares have Common Equity Tier 1 treatment under Basel III and the CBR regulation and the issuance has enabled the Group to strengthen its capital adequacy ratios while continuing the robust loan growth across its principal business segments.
  • As of 30 September 2014, the Group’s total and Tier 1 capital adequacy ratios were 12.2% and 11.0%, respectively, versus 12.8% and 9.4% as of 30 June 2014.

KEY BUSINESS SEGMENT HIGHLIGHTS

  • In Corporate-Investment banking, the Group saw strong demand for credit from large, high quality borrowers, as international debt capital markets remained largely closed for Russian issuers. The Group’s gross loans to legal entities (including loans pledged under repurchase agreements) increased by 21.3% in 9M 2014 and by 7.6% in 3Q 2014.
  • The Group’s investment banking franchise VTB Capital maintained its status as Russia’s leading investment bank despite challenging conditions and subdued activity in the Russian capital markets. For 9M 2014, VTB Capital’s debt capital markets team took top spot in Dealogic’s Russia domestic DCM bookrunner ranking, arranging 28 transactions for a total of US$ 4.8 billion and taking 33.2% market share. VTB Capital also ranked #1 in equity capital markets in Russia and CIS. In 9M 2014, VTB Capital arranged three transactions totalling US$ 433 million, accounting for 23.5% of the market.
  • Mid-Corporate banking business continued to focus on credit quality and diversification of its loan book. During 9M 2014, the mid-corporate banking team adjusted its origination policies in order to increase the share of top-quality clients in the Group’s portfolio, and also enhanced its offering to Russian medium-sized entities by introducing a number of innovative lending products.
  • Loan book growth in the Retail business was primarily driven by mortgages during both 9M 2014 and 3Q 2014, as the Group continued to see strong demand for this type of loan across Russia, and continued to focus on less-risky products.

VTB Group gross loans to individuals

RUB billion

30 Sept 2014

31 Dec 2013

Change, %

Gross loans to individuals

1,838.1

1,520.8

20.9%

Mortgage loans

706.8

539.9

30.9%

Consumer loans

882.0

741.4

19.0%

Credit cards

107.6

86.2

24.8%

Car loans

127.1

133.2

(4.6%)

Reverse sale and repurchase agreements and other loans

14.6

20.1

(27.4%)

  • Mortgage loans reached 38.5% of the Group’s gross loans to individuals as of 30 September 2014, versus 37.3% as of 30 June 2014 and 35.5% as of 31 December 2013. The share of consumer loans and credit card loans in the portfolio amounted to 48.0% and 5.9%, respectively (versus 48.3% and 5.8% at 30 June 2014 and 48.8% and 5.7% at 31 December 2013, respectively). The share of car loans in the portfolio decreased to 6.9% as of 30 September 2014 versus 7.5% at 30 June 2014 and 8.8% at the start of the year.
  • The macroeconomic slowdown has had a negative impact on asset quality and cost of risk in retail lending. VTB24, the Group’s core retail bank, has considerably reduced approval rates for the riskiest customer segments and strengthened further its debt collection function. In 3Q 2014, the Group’s CoR for loans to individuals improved further to 4.4% from 5.1% in 2Q 2014 and 5.5% in 1Q 2014.
  • The total number of the Group’s retail offices in Russia (operating under the brands VTB24, Bank of Moscow, and Leto Bank) was more than 1,800 as of 30 September 2014. The combined number of the Group’s ATMs exceeded 12,200 at the end of 9M 2014.

Contacts:

Investor relations:

Tel: +7 495 775 71 39

Email: investorrelations@vtb.ru


VTB Bank

Interim Consolidated Statement of Financial Position as at 30 September 2014

(in billions of Russian Roubles)

30 September 2014

(unaudited)

31 December
2013

Assets

Cash and short-term funds

448.9

354.3

Mandatory cash balances with central banks

68.7

58.7

Financial assets at fair value through profit or loss

429.2

411.1

Financial assets, other than loans and advances to customers and due from other banks, pledged under repurchase agreements

208.4

173.2

Due from other banks, including pledged under repurchase agreements

305.6

446.2

- Due from other banks

302.8

443.4

- Due from other banks, pledged under repurchase agreements

2.8

2.8

Loans and advances to customers, including pledged under repurchase agreements

7,515.8

6,259.6

- Loans and advances to customers

7,136.8

5,969.0

- Loans and advances to customers, pledged under repurchase agreements

379.0

290.6

Investment financial assets

138.9

136.1

Investments in associates and joint ventures

79.5

87.6

Assets of disposal groups held for sale

15.0

36.7

Land, premises and equipment

232.4

170.3

Investment property

188.5

160.7

Goodwill and other intangible assets

161.3

162.5

Deferred income tax asset

57.2

45.5

Other assets

285.8

266.0

Total assets

10,135.2

8,768.5

Liabilities

Due to other banks

614.3

666.6

Customer deposits

5,321.4

4,341.4

Other borrowed funds

1,746.4

1,485.9

Debt securities issued

755.0

738.2

Liabilities of disposal groups held for sale

1.7

20.7

Deferred income tax liability

17.1

15.0

Other liabilities

429.4

262.6

Total liabilities before subordinated debt

8,885.3

7,530.4

Subordinated debt

118.6

291.0

Total liabilities

9,003.9

7,821.4

Equity

Share capital

352.1

138.1

Share premium

433.8

433.8

Perpetual loan participation notes

88.6

73.6

Treasury shares and bought back perpetual loan participation notes

(6.7)

(3.6)

Other reserves

39.7

35.6

Retained earnings

201.3

262.0

Equity attributable to shareholders of the parent

1,108.8

939.5

Non-controlling interests

22.5

7.6

Total equity

1,131.3

947.1

Total liabilities and equity

10,135.2

8,768.5


VTB Bank

Interim Consolidated Income Statement for the Three Months and Nine Months Ended 30 September 2014 (unaudited)

(in billions of Russian Roubles)

For the three-month period ended 30 September

For the nine-month period ended 30 September

2014

2013

2014

2013

Interest income

217.2

176.1

605.5

500.7

Interest expense

(126.2)

(93.2)

(337.3)

(267.5)

Net interest income

91.0

82.9

268.2

233.2

Provision charge for impairment of debt financial assets

(65.0)

(22.1)

(157.8)

(72.8)

Net interest income after provision for impairment

26.0

60.8

110.4

160.4

Net fee and commission income

16.0

13.3

44.8

38.9

Gains net of losses / (losses net of gains) arising from financial instruments at fair value through profit or loss

1.3

4.2

6.8

(3.6)

Gains net of losses from available-for-sale financial assets

0.2

0.8

(Losses net of gains) / gains net of losses arising from foreign currencies

5.9

(8.9)

(5.5)

(9.2)

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

(0.1)

1.6

2.9

Share in profit of associates and joint ventures

(0.2)

0.1

0.9

Gain from disposal of subsidiaries and associates

3.1

1.1

12.4

1.9

Losses net of gains arising from extinguishment of liability

(0.3)

(0.4)

(1.1)

(2.6)

(Provision charge) / reversal of provision for impairment of other assets, credit related commitments and legal claims

(4.6)

0.1

(8.5)

(1.9)

Excess of fair value of acquired net asset over cost

1.5

Other operating income

5.0

2.7

11.4

6.1

Non-interest gains/(losses)

10.1

(1.0)

18.0

(4.0)

Net insurance premiums earned

11.6

6.3

34.5

17.4

Net insurance claims incurred and movement in liabilities to policyholders

(7.3)

(2.5)

(22.3)

(7.8)

Revenue from non-banking activities

14.1

8.2

27.4

26.3

Cost of sales and other expenses from non-banking activities

(8.7)

(9.8)

(27.1)

(24.6)

Revenues less expenses from non-banking operations

9.7

2.2

12.5

11.3

Impairment of goodwill

(0.2)

(0.7)

Staff costs and administrative expenses

(54.9)

(51.9)

(163.9)

(149.2)

Non-interest expenses

(55.1)

(51.9)

(164.6)

(149.2)

Profit before tax

6.7

23.4

21.1

57.4

Income tax expense

(4.8)

(6.5)

(17.2)

(15.9)

Net profit after tax

1.9

16.9

3.9

41.5

Profit/(loss)after tax from subsidiaries acquired exclusively with a view to resale

(1.5)

1.5

1.5

4.5

Net profit

0.4

18.4

5.4

46.0

Net profit/(loss) attributable to:

Shareholders of the parent

1.8

17.9

6.1

45.8

Non-controlling interests

(1.4)

0.5

(0.7)

0.2

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

0.0001

0.0014

(0.00002)

0.0035

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)

0.0002

0.0013

(0.0001)

0.0031


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