As a result of concerted efforts undertaken in 2005 to enhance its core businesses, Vneshtorgbank has succeeded in reinforcing its systemic role in the Russian banking industry. Of primary importance for the VTB Group corporate development was an increase of Vneshtorgbank`s capital by RUR 37.5 billion in December 2005. The funds were used to acquire the Russian-owned banks abroad and to buy out the Bank of Russia`s stabilization deposits in these financial institutions. Besides, in late 2005 Vneshtorgbank completed the second stage in the acquisition of Promstroybank, having increased its stake there to 75%+3 shares.
These acquisitions, as well as an integration of MRIA Commercial Bank (Ukraine) in early 2006, have added new and meaningful dimensions to the VTB Group. At present, the Group consists of 7 banks based in West European countries, 4 banks - in the CIS, Promstroybank, Vneshtorgbank 24 retail subsidiary and several regional banks in Russia. Actually, Vneshtorgbank can now start building a banking holding on the basis of its separate subsidiaries. More importantly, matrix management applied by the VTB Group to subsidiaries ensures their efficient performance and promotes interests of the VTB Group customers in both domestic and foreign markets.
Due to its wide network of foreign subsidiaries, Vneshtorgbank is gaining stronger leadership in such key segments of the Russian banking industry as foreign fund raising for Russian economy needs, Russian foreign trade servicing, clearing services for former Soviet republics etc. According to consolidated reporting of the VTB Group (IFRS, preliminary estimates), as at January 1, 2006, the Group`s assets have exceeded USD 35 billion, shareholders` equity approached USD 4.5 billion, and Customer Loan Portfolio has approximated USD 20 billion. By 2005 year-end, the VTB Group net income reached USD 500 million.
In 2005, Vneshtorgbank posted impressive growth in all major financial indicators. Under the Russian accounting standards, its shareholders` equity grew within the year by 62% and reached RUR 110.7 billion from RUR 68.2 billion. Vneshtorgbank`s assets approached RUR 635 billion as compared to RUR 404 billion at 2005 year-start. Its net income gained in 2005 hit a record in the Bank`s history having exceeded RUR 12 billion which is a 29% increase year-on-year. A share of the VTB Group`s Russian banks - Vneshtorgbank, Vneshtorgbank 24 and Promstroybank - in the aggregate assets of the Russian banking system has increased to almost 9%.
In 2005, Vneshtorgbank continued to build up finance channeled into the Russian economy. Customer loan portfolio has increased 3% over the year and as at January 1, 2006, amounted to RUR 320 billion. Over the period, Vneshtorgbank signed 24 cooperation agreements with corporate customers, among which are Sheremetyevo International Airport, Sukhoi Company, Rosspirtprom State-owned enterprise, Russneft Oil Company and some others. On the whole, there are more than 125 cooperation agreements signed with strategic customers, most of them being recognized leaders in the core Russian industries, federal ministries and governmental bodies, administrations of Russian constituencies. Vneshtorgbank works closely with 90% of the Russian high net worth customers.
Vneshtorgbank is a key bank servicing the national defense and industrial complex, it is also developing mutually rewarding partnerships with other segments of civil engineering of strategic importance. Among industries accounting for the largest share in Vneshtorgbank`s loan portfolio are also agriculture, trade, ferrous and non-ferrous metals, construction, government and regional administrations.
The 2005 results show that the steps that have been taken to further enhance customer base and attract new strategic customers are beginning to bear fruit. Among major achievements are a Cooperation agreement signed with the Federal Space Agency, renewed cooperation with some aerospace enterprises such as Khrunichev State Research and Production Space Center, Energomash Research and Production Union named after V. Glushko, Votkinsky plant and some others; increased finance for construction enterprises, including Don-Story and Miraks companies, which brought more than a 5-time increase in Vneshtorgbank`s loan portfolio in this industry to exceed RUR 25 billion as at January 1, 2006.
In line with strategic goals as set by its shareholders, Vneshtorgbank continued to develop its investment banking services. In 2005, the Bank gained leadership in the main segments of investment business, in particular in financing investment projects. VTB was ranked No.1 among arrangers and underwriters of Russian corporate and municipal bonds. Also, the Bank gained a stronger foothold as a leading REPO market maker.
Traditionally, Vneshtorgbank has participated in implementing investment projects in such key industries as oil and gas, metals, energy and others. In 2005, the geography of these investment projects spread far beyond the territory of Russia - now such projects are being implemented both in the CIS and other East European countries. Over the period, the Bank launched financing of 20 new investment projects. Vneshtorgbank`s total participation in these projects has exceeded RUR 44 billion.
Vneshtorgbank continues to be active in corporate control market, i.e. in financing M&As. The total volume of operations executed in 2005 is more than RUR 24 billion.
By the 2005-year end, Vneshtorgbank took a lead in arranging and underwriting Russian corporate and municipal bonds, as rated by Cbonds.ru and Rusbonds.ru, as well as by Bloomberg international agency. In 2005, the Bank participated in arranging and underwriting 38 bond issues worth RUR 109 billion.
Of no less importance among customer operations in financial markets was the Bank`s participation in issuing and placing credit notes and eurobonds of Russian companies, and arranging syndicated loans. In particular, Vneshtorgbank was a co-arranger of a syndicated loan for the 36.6 Drug Store Chain company worth RUR 1 billion and USD 50 million.
In order to strengthen its own resource base and to enhance financing of the Russian economy, Vneshtorgbank went on borrowing. In 2005, the total volume of funds raised in capital and syndicated loan market approximated RUR 120 billion. VTB was the first Russian bank to have issued 30-year eurobonds and subordinated eurobonds. International Financial Review magazine called Vneshtorgbank`s subordinated eurobond issue `The Deal of the Year` for 2005 in the Р*Р*Р?Р*Р? region, and Euromoney recognized VTB as the best borrower in the emerging markets of Europe for the same year.
Vneshtorgbank was also a success in the Russian capital market, having placed RUR 15 billion bonds to mature in 8 years. This year, VTB is set to continue Russian Rouble borrowing; its volume is expected to total USD 1 billion equivalent. Within this amount is another RUR 15 billion bond issue to be placed.
Striving to revamp its retail business, the VTB Group has launched its retail subsidiary - Vneshtorgbank 24, which continued the Bank`s social programs of supporting small business and developing mortgage lending. Soon afterwards, through offering innovative products and services to households and SMEs, Vneshtorgbank 24 demonstrated positive dynamics in all retail indicators. Thus, households` deposits accumulated by the VTB Group have reached USD 4.5 billion. In the overall volume of households` deposits raised, a share of the VTB Group banks including Vneshtorgbank, Vneshtorgbank 24 and Promstroybank has exceeded 5%, which is more than a quarter increase over the year. In terms of loans to individuals, the VTB Group share in the total volume grew to 1.7% from 1.1% within the year.
A major driving force behind Vneshtorgbank`s sustained development was its enhanced regional network. In 2005, the Bank opened new branches in Bryansk, Vologda, Tver and Ulan-Ude. More than 40 offices of the existing branches were also put into operations. As at January 1, 2006, VTB branch network consisted of 55 branches, with their aggregate assets exceeding RUR 160 billion and accounting for more than a quarter of the total assets of Vneshtorgbank. The volume of funds raised by the branches rose to RUR 98 billion. Presently, regional branches form almost half of the Bank`s total loan portfolio; the volume of finance they extended to regional enterprises exceeded RUR 150 billion, as at January 1, 2006. The year 2005 saw more than a RUR 60 billion increase in this parameter, which had become possible mainly due to a new customer relationship management model applied to the whole regional network. As a result, the Bank was able to increase its service capacity and optimize decision-making process under various projects. Comparison of funds borrowed and placed by the branches shows that Vneshtorgbank has remained a net-creditor of the regions channeling most of funds raised both in Russian and international markets into the regional markets.
In 2006, the VTB Group aspires to further develop its regional network. With new offices to be opened and Promstroybank`s branches to be merged into the Group structure, the regional network of Vneshtorgbank and Vneshtorgbank 24 is expected to include about 500 outlets by 2007.
Vneshtorgbank`s development strategy for 2006 envisages establishing an investment holding on the basis of Moscow Narodny Bank (London-based). When implemented, this decision will lead to a noticeable increase in businesses involving foreign investment into Russian companies and companies in the CIS, as well as joint projects of Russian and foreign companies.
While diversifying its geographical footprint, the VTB Group places a special emphasis on the CIS, where Vneshtorgbank plans to considerably enhance its presence. Active participation in these dynamic financial markets will allow the VTB Group to offer a wider spectrum of services to its corporate customers and their counterparties in these regions.
Among other main priorities set for the year 2006 is a continued modernization of the VTB Group governance. In particular, a strategy to develop Vneshtorgbank`s subsidiaries is to be launched in strict compliance with the general development strategy of the Group; unified standards of planning, recording and reporting are also to be put in place. The VTB Group will gradually introduce unified policies and procedures for assets and liabilities, as well as liquidity management.
To sum up, in 2006 Vneshtorgbank will continue to evolve as a large international financial group which is committed to gain true leadership in the Russian wholesale and retail markets, to develop a network of its subsidiaries in the CIS and other European states in order to enhance its customers` businesses, to support large projects in Russia and abroad, to strengthen Russia`s economic cooperation with other states and to raise funds for the Russian economy.