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Vneshtorgbank (VTB) presents consolidated IFRS financial results of VTB and its subsidiaries for six-month period ended June 30, 2005

 
26 October 2005

Moscow, October 26, 2005 - Vneshtorgbank (VTB) today announces IFRS results for the six-month period ended June 30, 2005.

Highlights of six-month results (in millions of US dollars):
June 30, 2005December 31, 2004 (restated)
Assets22,00417,810
Loans and advances to customers12,37210,135
Customer accounts8,2546,018
Total shareholders' equity 2,7322,709
1H/20051H/2004
Net interest income424201
Net fee and commission income7946
Operating income539154
Operating expenses(328)(207)
Profit (loss) before taxation211(53)
Net profit (loss)146(42)

The financial results for the first six months of 2005 reflect strong broad-based gains across all three of VTB's growth platforms - Corporate Banking, Retail Banking and Investment Banking - continuing the success of its strategy of diversifying geographically across business lines to strengthen the position as a full-service commercial bank:

  • Rapid asset base growth to U.S.$22,004 million, up U.S.$4,194 million or 23.5% as compared to December 31, 2004;
  • Significant customer account growth to U.S.$8,254 million, up U.S.$2,236 million or 37.2% as compared to December 31, 2004;
  • Net interest income increase to U.S.$424 million, up U.S.$223 million or 110.9% y-o-y;
  • Net fee and commission income growth to U.S.$79 million, up U.S.$33 million or 71.7% y-o-y;
  • Growth in loans and advances to customers to U.S.$12,372 million, up U.S.$2,237 or 22.1% as compared to December 31, 2004;
  • Effective provision for loan impairment as a percentage of total client loans and advances decreased to 4.9% from 5.2% as of December 31, 2004;
  • Overdue and rescheduled client loans as a percentage of total client loans and advances decreased to 2.3% from 3.1% as of December 31, 2004;
  • Further diversification of funding base:
    • EUR 130 million 1-year Schuldscheindarlehen in January 2005;
    • U.S.$750 million 10nc5 Lower Tier II Capital Notes Reg S in February 2005;
    • U.S. $450 million 3-year Syndicated Loan in April 2005;
    • U.S. $1,000 million 30-year put 10 Fixed Rate Notes 144A/Reg S in June 2005.

Balance Sheet

The total asset growth up to U.S.$22,004 million as of June 30, 2005 from U.S.$17,810 million as of December 31, 2004 was primarily due to a 22.1% increase (U.S.$2,237 million) in net client loans, a 8.5% increase (U.S.$218 million) in financial assets at fair value through profit or loss and a 31.4% increase (U.S.$ 1,186 million) in net cash and due from banks. The increase reflected focus on commercial banking activities that involve servicing clients through deposit taking and lending, as well as rapid expansion of the regional network in the Russian Federation and abroad.

Loans and advances to customers increased by 22.1% to U.S.$ 12,372 million as of June 30, 2005 from U.S.$ 10,135 million as of December 31, 2004. Percentage of net client loans and advances in total assets stood at 56.2% as of June 30, 2005 vs. 56.9% as of December 31, 2004.

Securities as a percentage of total assets decreased to 12.7% as of June 30, 2005 from 14.4% as of December 31, 2004, while the absolute value of the VTB`s financial assets at fair value through profit or loss grew to U.S.$2,784 million, up 8.5% from December 31, 2004.

As of June 30, 2005, VTB had total liabilities of U.S.$19,272 million, compared to total liabilities of U.S.$15,101 million as of December 31, 2004. The increase in total liabilities of 27.6% in 1H/2005 was primary due to a 37.2% increase (U.S.$2,236 million) in client accounts and additional U.S.$750 million in subordinated debt issue.

Client accounts increased by 37.2% to U.S.$8,254 million as of June 30, 2005 from U.S.$6,018 million as of December 31, 2004. This increase was primarily attributable to the continued regional expansion of VTB.

Credit Risk Management

VTB strives to continuosly improve the quality of and to diversify its client loan portfolio. As a result, the allowance for loan impairment as a percentage of total client loans and advances decreased to 4.9% as of June 30, 2005 from 5.2% as of December 31, 2004. Overdue and rescheduled client loans as a percentage of total client loans and advances decreased to 2.3% from 3.1%.

Review of Operating Performance

Interest income increased by 102.3% to U.S.$809 million in 1H/2005 in comparison with U.S.$400 million in 1H/2004. The major component of 1H/2005 interest income is represented by interest income from corporate loans and advances (80.7% of total interest income) which grew by 22.1% to U.S.$12,372 million.

Net interest income before provision for loan impairment increased by U.S.$223 million, or 110.9%, in 1H/2005, to U.S.$424 million, from U.S.$201 million in 1H/2004. Net interest margin increased to 2.3% for 1H/2005 vs. 1.9% for 1H/2004. The increase in net interest margin in 1H/2005 was primarily due to the growth in the percentage of client loans and advances in VTB's total interest-earning assets and an increase in investments in higher-yielding Russian corporate securities.

Net gains from securities increased to U.S.$102 million in 1H/2005 from a loss of U.S.$52 million in 1H/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 for 1H/2005 grew by 250.0% to U.S.$ 539 million compared to U.S.$154 million for 1H/2004, due to the increased net interest income of U.S.$424 million, as well as net fee and commission income of U.S.$79 million. These positive factors were partially offset by losses arising from dealing in foreign currencies of U.S.$23 million, as well as foreign exchange translation losses of U.S.$21 million in 1H/2005.

Operating expenses increased by 58.5% to U.S.$328 million in 1H/2005 from U.S.$207 million in the same period last year resulting from significant expansion of VTB`s operations and branch network, promotion of its retail and investment banking businesses.

The profit before income taxes was U.S.$211 million in 1H/2005 compared to a loss of U.S.$53 million in 1H/2004. The increase in profit before income taxation in 1H/2005 was caused by significant growth in net interest income, which resulted from growth in the loan portfolio, substantial growth of gains less losses arising from financial assets and increased net fee and commission income. In 1H/2005, VTB incurred an income tax expense of U.S.$75 million versus a benefit of U.S.$11 million in 1H/2004.

Net profit was U.S.$146 million for the six-month period ended June 30, 2005 compared to a loss of U.S. $42 million for the same period last year. The financial results for 1H/2004 were restated as discussed previously.

Capital Management

As of June 30, 2005 Tier 1 Capital amounted to U.S.$2,632 million, compared to U.S.$2,540 million as of December 31, 2004. As of June 30, 2005 Total Capital amounted to U.S.$3,127 million. The VTB`s international risk based total capital adequacy ratio, computed in accordance with the Basle Accord guidelines increased from 12.0% as of December 31, 2004 to 13.8% as of June 30, 2005 due to VTB's efforts to strenghten its capital position. In February 2005, VTB obtained a U.S.$750 million subordinated loan, financed via a bond offering, which received Tier 2 capital treatment from the Central Bank of the Russian Federation. The capital adequacy ratio is well above 8.0% minimum required in accordance with the Basle Accord guidelines.

Enquiries to:
Vneshtorgbank

Natalia Loginova, Head of Financial Institutions

Telephone: +7 (095) 783-2161

Irina Mokeeva, Head of Investor Relations

Telephone: +7 (095) 783-2116

Katya Pavlova, Manager, Investor Relations

Telephone: +7 (095) 775-7212

NOTES TO EDITORS
About VTB

VTB and its subsidiaries are a leading Russian commercial banking group, offering a wide range of banking services and conducting operations across Russia (through its network of 55 branches, located in Moscow and all major Russian regions) and in parts of Europe. VTB has operated under a full banking license from the Central Bank of the Russian Federation since 1990. With 15,384 employees as of June 30, 2005 VTB 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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