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Vneshtorgbank ("VTB") presents financial results of VTB and its subsidiaries (the "Group") based on the consolidated financial statements prepared in accordance with IFRS for the year ended December 31, 2005

 
22 May 2006

Moscow, May 22, 2006 - Vneshtorgbank today announces financial results based on the consolidated financial statements prepared in accordance with IFRS for the year ended December 31, 2005.

Highlights of 2005 results (in millions of US dollars):
December 31, 2005December 31, 2004 (restated)
Assets36,723 17,810
Loans and advances to customers19,925 10,169
Customer accounts12,767 6,024
Total shareholders' equity 5,269 2,709
Net interest income839 574
Net fee and commission income168 106
Operating income1,515 924
Operating expenses(850) (628)
Profit before taxation703 301
Net profit511 208

The financial results for the year 2005 reflect a dynamic growth in different business segments of the Group with continuous strengthening of its domestic and global competitive position in the banking sector:

  • Asset base grew to U.S.$36,723 million, up U.S.$18,913 million or 106.2% as compared to December 31, 2004;
  • Loans and advances to customers increased to U.S.$19,925 million, up U.S.$9,756 or 95.9% as compared to December 31, 2004;
  • Customer account rallied to U.S.$12,767 million, up U.S.$6,743 million or 111.9% as compared to December 31, 2004;
  • Net interest income increased to U.S.$839 million, up U.S.$265 million or 46.2% y-o-y;
  • Net fee and commission income grew to U.S.$168 million, up U.S.$62 million or 58.5% y-o-y;
  • Overdue and rescheduled client loans as a percentage of total client loans and advances decreased to 1.4% from 3.4% as of December 31, 2004;
  • Effective provision for loan impairment as a percentage of total client loans and advances decreased to 3.0% from 5.2% as of December 31, 2004;
  • Funding base was further diversified through issuance of:
    • 1-year Schuldscheindarlehen for EUR 130 million;
    • 10nc5 Lower Tier II Capital Notes for U.S.$750 million;
    • 3-year syndicated loan with maturity of 3 years for U.S. $ 450 million;
    • 30-year put 10 Fixed Rate Notes 144A/Reg S for U.S. $1 billion;
    • 8-year put 1.5 Domestic Bonds for RR 15 billion;
    • 21-month Fixed Rate Notes 144A/Reg S for U.S. $1 billion.

Balance Sheet

As of December 31, 2005, the Group had total assets of U.S.$36,723 million, compared to total assets of U.S.$17,810 million as of December 31, 2004. The increase in total assets of 106.2% was primarily due to a 95.9% increase (U.S.$9,756 million) in net client loans, a 135.0% increase (U.S.$4,188 million) in securities and a 104.7% increase (U.S.$ 2,118 million) in due from other banks. The increase reflected continued focus on commercial banking activities, as well as rapid expansion of the Group's network both in the Russian Federation (including the acquisition of a 75% plus three shares interest of OJSC Industry and Construction Bank in Saint-Petersburg) and abroad (including the purchase of the Central Bank of the Russian Federation's interests in Moscow Narodny Bank, London, UK (a 89.10% interest), BCEN-Eurobank, Paris, France (a 87.04% interest), Ost-West Handelsbank AG, Frankfurt-am-Main, Germany (acquired 51.64%, a 83.54% interest), Donau-Bank AG, Vienna, Austria (acquired 15%, a 100% interest), East-West United Bank S.A., Luxembourg (acquired 16,74%, a 50.74% interest).

Loans and advances to customers increased by 95.9% to U.S.$ 19,925 million as of December 31, 2005 from U.S.$ 10,169 million as of December 31, 2004. Percentage of net client loans and advances in total assets stood at 54.3% as of December 31, 2005 vs. 57.1% as of December 31, 2004.

Securities as a percentage of total assets increased to 19.9% as of December 31, 2005 from 17.4% as of December 31, 2004, while the absolute value of the financial assets at fair value through profit or loss grew to U.S.$5,267 million, up 105.3% from December 31, 2004.

As of December 31, 2005, the Group had total liabilities of U.S.$31,454 million, compared to total liabilities of U.S.$15,101 million as of December 31, 2004. The increase in total liabilities of 108.3% in 2005 was primary due to a 111.9% increase (U.S.$6,743 million) in client accounts, a 83.4% increase (U.S.$3,293 million) in debt securities in issue, a 103.7% increase (U.S.$3,375 million) in due to other banks, and a 69.9% increase (U.S.$1,208 million) in other borrowed funds and additional U.S.$750 million in subordinated debt issue.

Client accounts increased by 111.9% to U.S.$12,767 million as of December 31, 2005 from U.S.$6,024 million as of December 31, 2004. This increase was primarily attributable to the improved conditions of the Russian economy and expansion of the Group's regional network.

Credit Risk Management

The Group is committed to quality improvement and diversification of its client loan portfolio. Due to its continuous efforts overdue and rescheduled client loans as a percentage of total client loans and advances reduced to 1.4% from 3.4% as of December 31, 2004. The allowance for loan impairment as a percentage of total client loans and advances decreased to 3.0% as of December 31, 2005 from 5.2% as of December 31, 2004. In addition, this decrease also resulted from valuation of the loan portfolios for the acquired banks on the basis of their fair value with no further sub-allocation to loan and allowance amounts in accordance with IRFS.

Review of Operating Performance

Interest income increased by 67.7% to U.S.$1,759 million in 2005 in comparison with U.S.$1,049 million in the same period of 2004. The major component of interest income is represented by interest income from loans and advances to customers (78.3% of total interest income) which grew by 78.1% to U.S.$1,377 million.

Net interest income before provision for loan impairment increased by U.S.$265 million, or 46.2%, in 2005, to U.S.$839 million, as compared to U.S.$574 million in 2004. Net interest margin decreased to 4.2% for 2005 from 4.6% for 2004. The decrease in net interest margin in 2005 was as a result of the expansion of the Group's operations and its acquisitions of new banking subsiduaries, as well as increased funding costs due to the longer maturities of liabilities.

Net gains from securities increased to U.S.$332 million in 2005 due to the positive securities market trends, as compared to U.S.$4 million in 2004, which was restated in 2004 due to the change of IAS 39 "Financial Instruments: Recognition and Measurement" resulting to the positive revaluation of portfolio investments being reflected in equity but not in current profit.

Operating income grew by 64.0% to U.S.$1,515 million compared to U.S.$924 million for 2004, due to the increased net interest income of U.S.$839 million, net gains from financial assets of U.S.$332 million, and net fee and commission income of U.S.$168 million.

Operating expenses increased by 35.4% to U.S.$850 million from U.S.$628 million last year resulting from significant expansion of VTB`s operations and branch network, increased expenses for marketing and advertising (including the development of a new brand Vneshtorgbank 24), IT infrastructure upgrading and expenses on the deposits insurance system in accordance with the Government Program.

The profit before income taxes was U.S.$703 million in 2005 compared to U.S.$301 million in 2004. The increase in profit before income taxation in 2005 was caused by significant growth in net interest income, which resulted from continued growth of interest received from loans to customers, growth of gains less losses arising from financial assets and increased net fee and commission income. In 2005, VTB incurred an income tax expense of U.S.$195 million (27.7% of profit before taxation) versus U.S.$93 million in 2004 (30.9% of profit before taxation).

Net profit was U.S.$511 million for 2005 compared to U.S. $208 million for 2004. The financial results for 2004 were restated as discussed previously due to the changes in IFRS standards.

Capital Management

The capital and capital adequacy were calculated in accordance with the Basle Capital Accord as discussed below. As of December 31, 2005 Tier 1 Capital amounted to U.S.$4,927 million, compared to U.S.$2,540 million as of December 31, 2004. As of December 31, 2005 Total Capital amounted to U.S.$5,898 million, compared to U.S. $2,540 million as of December 31, 2004. The Group`s capital adequacy ratio increased from 12.0% as of December 31, 2004 to 14.1% as of December 31, 2005 due to VTB's efforts to strenghten its capital position both from internal and external sources. In February 2005, VTB obtained a U.S.$750 million subordinated loan, financed via a subordinated bond offering. The capital adequacy ratio is well above 8.0% minimum required by the Basle Accord.

Enquiries to:

Vneshtorgbank

Nikolai Tsekhomsky
Senior Vice-President
Telephone: +7 (495) 783-18-66

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 December 31, 2005 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 3 subsidiaries located in the CIS (Armenia, Georgia, Ukraine), 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. At the beginning of 2006 VTB purchased a 98% stake in the Bank Mriya located in Ukraine. VTB has operated under a full banking license # 1000 from the Central Bank of the Russian Federation since 1990. With 23,145 employees as of December 31, 2005 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.

Financial Statements


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