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VTB Group announces IFRS results for 2014

 
13 March 2015

VTB Group today publishes its Consolidated Financial Statements with the Independent Auditor’s Report for the year ended 31 December 2014.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “2014 was a very challenging year for both the Russian economy and the banking sector, and in this context I am satisfied that VTB’s business model has demonstrated its resilience in the face of the economic downturn. During 2014, our clients were affected by an economic slowdown and tough geopolitical environment, as well as by the rapid depreciation of the rouble and subsequent spike in interest rates. This led to elevated risk costs for VTB, which in turn resulted in subdued net profit despite our very strong operational results.

In this environment the Russian state, our main shareholder, has provided timely and adequate support to the banking sector, enabling systemically important banks, including VTB, to maintain strong capital and funding bases, and thus to continue providing credit to strategically important sectors of the economy. While the operating environment is expected to remain difficult in the medium term, we believe we are well positioned to further strengthen our franchise. Our top priorities will continue to be maintaining a high quality of client service across all business segments, further improving cost efficiency, and adhering to conservative risk management policies.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion

2014

2013

Change, % or p.p.

Net interest income

354.3

323.0

9.7%

Net fee and commission income

63.1

55.4

13.9%

Operating income before provisions

547.5

429.3

27.5%

Provision charge for impairment*

(275.4)

(99.2)

177.6%

Staff costs and administrative expenses

(239.3)

(210.9)

13.5%

Net profit

0.8

100.5

(99.2%)

Return on equity

0.1%

11.8%

(11.7 p.p.)

* Including provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

  • In an extremely challenging operating and geopolitical environment VTB Group posted strong pre-provision operating income for FY 2014, supported by healthy year-on-year growth of net interest income (+9.7%) and net fee and commission income (+13.9%).
  • The Group’s net interest margin (“NIM”) contracted during the year, mainly driven by increases in the Central Bank of Russia’s (CBR) key rate. The sharp hike in the CBR’s rate from 10.5% to 17.0% in December 2014 had a significant impact on the Group’s cost of funds and NIM, which contracted to 3.5% in 4Q 2014 (from 4.1% in 3Q 2014) and to 4.1% in FY 2014 versus 4.5% in FY 2013.
  • The challenging economic environment in Russia and the crisis in Ukraine contributed to an increase in the Group’s cost of risk (“CoR”) to 3.4% of average gross loans and advances to customers in FY 2014 from 1.6% in FY 2013. In 4Q 2014 the Group saw a quarter-on-quarter increase in the annualised CoR to 4.6% versus 3.4% in 3Q 2014. The total of provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims increased to RUB 275.4 billion for FY 2014, versus RUB 99.2 billion in FY 2013.
  • Staff costs and administrative expenses amounted to RUB 239.3 billion in FY 2014, up 13.5% year-on-year, compared to 16.4% year-on-year growth in FY 2013. The Group posted a considerable year-on-year improvement in its cost-to-income ratio, which stood at 43.7% in FY 2014 versus 49.1% in FY 2013.

Statement of financial position

RUB billion

31 Dec 2014

31 Dec 2013

Change, % or p.p.

Total assets

12,190.8

8,768.5

39.0%

Cash and short term funds

695.2

354.3

96.2%

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

9,150.4

6,620.7

38.2%

Corporate gross loans

7,205.3

5,099.9

41.3%

Gross loans to individuals

1,945.1

1,520.8

27.9%

Customer deposits

5,669.4

4,383.4

29.3%

Corporate deposits

3,520.3

2,590.0

35.9%

Deposits from individuals

2,149.1

1,793.4

19.8%

NPL ratio

5.8%

4.7%

1.1 p.p.

Tier 1 ratio

9.8%

10.9%

(1.1 p.p.)

Total CAR

12.0%

14.7%

(2.7 p.p.)

  • Expansion of the Group’s loan portfolios across all business segments and USD appreciation against the rouble (by 67% in FY 2014 and 43% in 4Q 2014) were the key drivers behind the growth of the Group’s loans and advances to customers. More than a quarter of the Group’s customer loans are denominated in USD.
  • Loan-book quality developed in line with macroeconomic and banking sector trends in 2014. The NPL ratio was 5.8% of gross customer loans, including those pledged under repurchase agreements (the “total loan book”), as of 31 December 2014 versus 4.7% as of 31 December 2013.
  • VTB has adjusted its corporate lending policies to limit new issuance of FX-denominated credit by tightening collateral requirements and overall origination policies in response to adverse macroeconomic conditions. The Group continued to adhere to conservative provisioning policies, driving the allowance for loan impairments to 6.7% of the total loan book as of 31 December 2014, compared to 5.5% at the start of the year. The NPL coverage ratio remained at a conservative level of 114.8% as of 31 December 2014, versus 115.5% as of 31 December 2013.
  • The Group’s customer deposits grew by 29.3% during 2014, mainly reflecting the Group’s strong deposit-taking capacity in its core businesses, including a solid increase in deposits from corporate clients, as well as the revaluation of FX-denominated deposits during the period.
  • Given the riskier operating environment and revaluation of the Group’s FX-denominated assets, VTB’s top priority continues to be strengthening its capital base and capital adequacy ratios. In September 2014, following a decision of VTB’s Extraordinary General Meeting of shareholders, the Group converted subordinated loans received by its banks in 2008 (as part of the Russian Government’s support package) into new preference shares that have Common Equity Tier 1 treatment under Basel III and CBR regulations.
  • In December 2014, the Russian Government placed a RUB 100 billion subordinated deposit in VTB Bank from the Russian National Wealth Fund. The deposit was recognised by the Central Bank of Russia as Tier 2 capital. As of 31 December 2014, the Group’s total and Tier 1 capital adequacy ratios were 12.0% and 9.8%, respectively, versus 14.7% and 10.9% as of 31 December 2013.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 2014

RUB billion

Corporate-Investment banking

Mid-Corporate banking

Retail business

Treasury

VTB Group (before intersegment eliminations)

Revenues from external customers

445.0

108.5

413.7

147.3

1,164.4

Net interest income

109.1

121.6

194.7

(79.7)

355.1

Net fee and commission income

13.1

12.1

35.5

1.2

62.9

Provision charge for impairment*

(119.8)

(63.7)

(92.1)

0.4

(275.4)

Net operating income

29.5

71.5

167.4

6.3

282.1

Staff costs and administrative expenses

(53.4)

(28.7)

(118.5)

(6.3)

(246.2)

Net profit

(34.2)

31.9

37.6

-

2.9

* Including provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

  • The Group’s key business segments continued to deliver strongly in core income lines in 2014. However, a considerable increase in provision charges has put pressure on each segment’s profitability. Retail business and Mid-Corporate banking (MCB) remained profitable, despite severe macroeconomic headwinds.
  • Loan book growth in the Retail business was primarily driven by mortgages during both FY 2014 and 4Q 2014, as the Group continued to see strong demand for this type of loan across Russia, and continued to prioritise less risky products while expanding its asset base.

VTB Group gross loans to individuals

RUB billion

31 Dec 2014

31 Dec 2013

Change, %

Gross loans to individuals

1,945.1

1,520.8

27.9%

Mortgage loans

795.3

539.9

47.3%

Consumer loans

901.1

741.4

21.5%

Credit cards

113.8

86.2

32.0%

Car loans

129.7

133.2

(2.6%)

Reverse sale and repurchase agreements and other loans

5.2

20.1

(74.1%)

  • Mortgage loans reached 40.9% of the Group’s gross loans to individuals as of 31 December 2014, versus 35.5% as of 31 December 2013. The share of consumer loans and credit card loans in the portfolio was 46.3% and 5.9%, respectively, versus 48.8% and 5.7% at 31 December 2013. The share of car loans in the portfolio decreased to 6.7% as of 31 December 2014, versus 8.8% at the start of the year.
  • The Group’s retail banks have considerably reduced approval rates for the riskiest customer segments and further strengthened their debt collection function. As a result, the Group has delivered a consistent decline in cost of risk in retail loans on a quarter-on-quarter basis since 1Q 2014.

VTB Group cost of risk in loans to individuals

%

4Q 2014

3Q 2014

2Q 2014

1Q 2014

Provision charge / Average gross loans, annualised

2.7%

4.4%

5.1%

5.5%

  • The total number of the Group’s retail offices in Russia (operating under the VTB24, Bank of Moscow and Leto Bank brands) stood at more than 1,700 as of 31 December 2014. This represents a reduction of approximately 100 offices in 4Q 2014, as the Group started to optimise the network of its consumer finance entity Leto Bank in response to challenging market conditions. The combined number of the Group’s ATMs exceeded 12,200 at the end of 2014.
  • During 2014, the Group’s Corporate-Investment banking saw solid demand for credit from large, high-quality borrowers as international debt capital markets remained largely closed for Russian issuers. In 4Q 2014, corporate lending in Russia slowed due to FX rates volatility and the spike in interest rates.
  • MCB grew its gross loan book efficiently to RUB 1,047.8 billion as of 31 December 2014. In 2H 2014, the MCB team adjusted its credit origination policies to prioritise the quality of the portfolio.
  • 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 2014, VTB Capital’s debt capital markets team took the top spot in the Dealogic’s Russia domestic DCM bookrunner ranking, arranging 37 transactions worth a total of USD 4.3 billion and taking 15.9% market share. VTB Capital also ranked #1 in equity capital markets in Russia and CIS with four transactions totalling USD 467 million (22.5% of the market).

Contacts:

Investor relations:

Tel: +7 495 775 71 39

Email: investorrelations@vtb.ru


VTB Bank

Consolidated Statements of Financial Position as at 31 December 

(in billions of Russian Roubles)

2014

2013 (restated)

Assets

Cash and short-term funds

695.2

354.3

Mandatory cash balances with central banks

85.5

58.7

Financial assets at fair value through profit or loss

681.7

406.4

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

184.0

173.2

Due from other banks, including pledged under repurchase agreements

814.5

446.2

- Due from other banks

740.3

443.4

- Due from other banks, pledged under repurchase agreements

74.2

2.8

Loans and advances to customers, including pledged under repurchase agreements

8,537.3

6,259.6

- Loans and advances to customers

8,074.7

5,969.0

- Loans and advances to customers, pledged under repurchase agreements

462.6

290.6

Investment financial assets

132.2

140.8

Investments in associates and joint ventures

96.3

87.6

Assets of disposal groups held for sale

11.1

36.7

Land, premises and equipment

246.9

170.3

Investment property

192.3

160.7

Goodwill and other intangible assets

161.8

162.5

Deferred income tax asset

66.9

45.5

Other assets

285.1

266.0

Total assets

12,190.8

8,768.5

Liabilities

Due to other banks

733.2

624.6

Customer deposits

5,669.4

4,383.4

Other borrowed funds

2,729.2

1,485.9

Debt securities issued

921.4

738.2

Liabilities of disposal groups held for sale

4.7

20.7

Deferred income tax liability

26.6

15.0

Other liabilities

710.1

262.6

Total liabilities before subordinated debt

10,794.6

7,530.4

Subordinated debt

265.2

291.0

Total liabilities

11,059.8

7,821.4

Equity

Share capital

352.1

138.1

Share premium

433.8

433.8

Perpetual loan participation notes

126.6

73.6

Treasury shares and bought back perpetual loan participation notes

(6.7)

(3.6)

Other reserves

42.8

35.6

Retained earnings

169.3

262.0

Equity attributable to shareholders of the parent

1,117.9

939.5

Non-controlling interests

13.1

7.6

Total equity

1,131.0

947.1

Total liabilities and equity

12,190.8

8,768.5


VTB Bank

Consolidated Income Statements for the Years Ended 31 December

(in billions of Russian Roubles)

2014

2013

Interest income

844.1

686.3

Interest expense

(489.8)

(363.3)

Net interest income

354.3

323.0

Provision charge for impairment of debt financial assets

(255.4)

(96.9)

Net interest income after provision for impairment

98.9

226.1

Net fee and commission income

63.1

55.4

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

(3.0)

13.2

Gains less losses from investment financial assets available-for-sale

7.3

Losses net of gains arising from foreign currencies

(3.2)

(8.7)

Government grant from Deposit Insurance Agency

99.2

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

3.5

9.1

Share in profit of associates and joint ventures

0.3

2.2

Gain from disposal of subsidiaries and associates

15.1

2.8

Gains net of losses / (losses net of gains) arising from extinguishment of liabilities

0.8

(3.7)

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

(20.0)

(2.3)

Excess of fair value of acquired net asset over cost

0.3

8.0

Other operating income

18.5

9.6

Non-interest gains

111.5

37.5

Net insurance premiums earned

43.9

29.4

Net insurance claims incurred, movement in liabilities to policyholders and acquisition costs

(31.8)

(16.4)

Revenue from other non-banking activities

38.1

34.2

Cost of sales and other expenses from other non-banking activities

(45.9)

(36.1)

Revenues less expenses from non-banking operations

4.3

11.1

Impairment of goodwill

(5.7)

Staff costs and administrative expenses

(239.3)

(210.9)

Non-interest expenses

(245.0)

(210.9)

Profit before tax

32.8

119.2

Income tax expense

(31.5)

(24.1)

Net profit after tax

1.3

95.1

(Loss) / profit after tax from subsidiaries acquired exclusively with a view to resale

(0.5)

5.4

Net profit

0.8

100.5

Net profit attributable to:

Shareholders of the parent

4.1

101.5

Non-controlling interests

(3.3)

(1.0)

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

(0.00023)

0.00805

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)

(0.00019)

0.00760


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