19 October 2006
Moscow, October 19, 2006 - Vneshtorgbank (VTB) today announces its consolidated IFRS financial results of VTB Group for the first half of 2006.
Russia’s economy continued its growth in the first half of 2006, followed by further development of the Russian banking system and VTB Group. End-2005 acquisitions of Russia’s top-10 ranked Industry and Construction Bank (ICB) and the European banks formerly owned by the CBR, alongside with organic growth across key business lines, led VTB Group to continuous growth in business volumes and profits.
VTB Group’s consolidated net profit for 1H2006 was U.S.$576 million, up 294.5%, a record level in the Group’s history. This increase was underpinned by a 95.9% growth in core revenue to U.S.$1,753 million. Accordingly, net interest income rose by U.S.$319 million (75.2%), and net fee and commission income rose by U.S.$82 million (103.8%) as compared to 1H2005. Total assets reached U.S.$45,327 million, up 23.4%, and net loans and advances to customers rose to U.S.$23,695 million, up 18.9%, supported by a 45.6% growth in customer deposits.
Assets and Funding (as compared to December 31, 2005):
- Assets reached U.S.$45,327 million, up 23.4% or U.S.$8,604 million;
- Loans and advances to customers rose to U.S.$23,695 million, an increase of U.S.$3,770 million or 18.9%;
- Funding base further enhanced and diversified:
- Customer accounts reached U.S.$18,593 million, up 45.6%;
- EUR 200 million 1-year Schuldscheindarlehen in January 2006;
- EUR 500 million 10-year (5-year put) Fixed Rate Notes Reg S in February 2006;
- RUR 10 billion 3-year Fixed Rate Notes in April 2006.
Profit and Loss Account (as compared to 1H2005):
- Net profit grew by U.S.$430 million (or 294.5%) to U.S.$576 million, from U.S.$146 million in 1H2005;
- Interest income grew to U.S.$1,571, up 94.2%, fee and commission income rose to U.S.$182 million, up 111.6%, resulting in a 95.9% total core revenue growth to U.S.$1,753 million;
- Net interest income increased to U.S.$743 million, a rise of U.S.$319 million or 75.2%;
- Net fee and commission income rose to U.S.$161 million, an increase of U.S.$82 million or 103.8%.
New Acquisitions and Branch Openings in 1H2006:
- In 1H2006 VTB acquired 98% of Bank Mriya (Ukraine) with assets of U.S.$426 million for U.S.$67 million;
- VTB Group branch openings included 3 VTB universal branches, covering Russia’s North-West, Siberia and Volga regions.
- Profit before taxation was U.S.$683 million in 1H2006 compared to U.S.$221 million in 1H2005. The increase in profit before taxation of 209.0% in 1H2006 was mainly driven by significant growth in net interest income securities revaluation and trading gains, foreign exchange translation gains and increased net fee and commission income, attributable to organic growth and 2005 acquisitions.
- Net interest margin decreased to 4.3% for 1H2006 from 4.7% for 1H2005. This decrease was consistent with continuously shrinking margins in the Russian market underpinned by further upgrade of Russia’s sovereign ratings in 2005 and 3Q2006, as well as the Group’s expansion via acquisition of banking subsidiaries and increased value of equity securities portfolio, resulting in an increase of the share of non-interest earning assets.
- Operating income rose by 133.6% to U.S.$1,294 million, compared to U.S.$554 million for 1H2005, primarily due to growth of net interest income to U.S.$743 million, net gains from securities to U.S.$265 million, and net fee and commission income to U.S.$161 million, and foreign exchange translation gains to U.S.$218 million mainly attributable to the appreciation of the Russian rouble against the U.S. dollar in 1H2006.
- Net fee and commission income grew by 103.8% to U.S.$161 million, supported by an increase of fee-earning transactions in VTB and VTB Retail Services (VTB24) outlets, as well as consolidation of ICB, which has historically generated high commission income due to it’s strong positions in Russia’s North-West region.
- Net gains from securities increased by U.S.$163 million to U.S.$265 million in 1H2006, as compared to U.S.$102 million in 1H2005, due to the positive securities market trends and the sale of OJSC «KamAZ» shares. Profit from this deal in the amount of U.S.$119 million (US$89 million after tax) was included in the Group’s financial results in 1H2006. Net of this non-recurring item, operating income would be U.S.$1,175 million and net profit would be US$487 million, representing a 112.1% and 233.6% growth compared to 1H2005, respectively.
- Operating expenses were U.S.$610 million, up 75.3%, primarily attributable to addition of costs of banks acquired in December 2005, and also by organic expansion of the Group`s network in Russia, accompanied by increased expenditure on marketing and advertising as well as payments to the Deposit Insurance System in view of VTB Group retail expansion and corresponding growth in retail deposits.
- Total assets as of June 30, 2006 were U.S.$45,327 million, up 23.4%, primarily due to a 18.9% (U.S.$3,770 million) increase in net customer loans, accompanied by a 32.7% (U.S.$2,422 million) growth in securities and investments and a 27.9% (U.S.$1,156 million) increase in assets due from other banks.
- Total liabilities rose by 25.6% in the first half of 2006, primarily due to a 45.6% increase (U.S.$5,826 million) in customer accounts, a 39.6% increase (U.S.$1,164 million) in other borrowed funds and 15.2% increase (U.S.$1,101 million) in debt securities issued.
- Customer transactions remained key factor to business volume and core income growth, reflecting the Group’s strategy oriented towards corporate, retail and investment banking. Customer loans stood at 52.3% of total assets as of June 30, 2006 compared to 54.3% as of December 31, 2005. Accordingly, interest income on customer loans comprised 77.0% of interest income (80.7% in 1H2005) and 69.0% of core revenue (73.0% in 1H2005). Total customer accounts rose by 45.6% to reach U.S.$18,593 million, of which accounts of individuals represented U.S.$5,947 million, corporate U.S.$9,169 million, and state and public U.S.$3,477 million.
Loan Quality and Concentration
- At end-2005, the Group consolidated ICB, Moscow Narodny Bank, BCEN-Eurobank, Ost-West Handelsbank and East-West United Bank. According to IFRS requirements, assets and liabilities of the newly acquired banks were consolidated in 2005 at fair value, therefore no provisioning was posted to the Group’s balance sheet and profit and loss account. Accordingly, overdue and rescheduled loans and allowances for loan impairment as a percentage of total customer loans dropped to 1.4% and 3.0%, respectively. Following the gradual substitution of loans acquired in 2005 by newly granted credits, the share of overdue and rescheduled loans in the gross loan portfolio rose to 2.7% and allowances for loan impairment to 3.2%, of the gross loan portfolio as of June 30, 2006.
- As the Group seeks to diversify its customer base and lending capacity, the exposure to the largest group of borrowers as a percentage of gross customer loans decreased to 17.2% as of June 30, 2006 from 19.7% as of December 31, 2005.
Capitalization and Capital Adequacy
- The Group’s consolidated shareholders’ equity increased to U.S.$5,831 million as of June 30, 2006 from U.S.$5,269 million as of December 31, 2005. In addition to net profit of U.S.$576 million, major changes in shareholders’ equity included decrease in revaluation of available-for-sale financial assets by U.S.$108 million (due to movement of unrealized gains on OJSC «KamAZ» shares to profit and loss), effect of FX translation of U.S.$155 million, and declaration of dividends for 2005 in the amount of U.S.$64 million.
- As of June 30, 2006 VTB Group’s consolidated BIS Tier 1 capital was U.S.$5,476 million, compared to U.S.$4,927 million as of December 31, 2005, and total BIS capital was U.S.$6,261 million, compared to U.S. $5,898 million as of December 31, 2005.
- Despite growth of capital in absolute terms, capital adequacy calculated in accordance with the Basle Capital Accord declined, reflecting the Group’s expansion and growth in business volumes. BIS Tier 1+2 capital adequacy ratio decreased from 14.1% as of December 31, 2005 to 13.1% as of June 30, 2006. The capital adequacy ratio is well above the 8.0% minimum set by the Basle Accord, which Management estimates to be sustainable in the short to medium term.
VTB and its subsidiaries (VTB Group) 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 June 30, 2006 the Group had a network of 153 branches, including 57 branches of VTB, 42 branches of VTB Retail Services (operating under the brand VTB24) and 54 branches of Industry and Construction Bank, located in major Russian regions.
The Group operates through 4 subsidiaries located in the CIS (Armenia, Georgia, 2 banks in Ukraine), 7 subsidiaries located in Europe (Great Britain, France, Germany, Austria, Switzerland, Luxembourg and Cyprus) and through 5 representative offices located in India, Italy, China, Byelorussia and Ukraine. VTB operates under a full banking license №1000 from the Central Bank of the Russian Federation since 1990. Through its UK subsidiary the Group is also present in Singapore.
With 26,580 employees as of June 30, 2006 the Group operates in the commercial banking sector including deposit taking and commercial lending, support of clients’ export/import transactions, FX, 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.
Certain 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.
Head of Debt and Trade Finance
Telephone: +7 (495) 783-2161
Director, Debt Investor Relations
Telephone: +7 (495) 783-2116