In 2004, Vneshtorgbank continued to pursue its Development Strategy approved by the Supervisory Council. In line with the Strategy, the Bank channeled considerable investment funds into enhancing retail business, SME lending, and extending its network both in Moscow and regions. The results achieved proved to be a good basis for true competitive advantage Vneshtorgbank now enjoys in the Russian banking sector.
Alongside this, Vneshtorgbank succeeded in retaining positive growth dynamics of its main financial indicators, which outpaced both the industry average and those of its peers. As compared to 2004 year-start, the Bank's net assets grew more than time and a half to reach RUR404 billion, the total volume of the funds raised increased by 69% and amounted to RUR336 billion. In terms of the 2004 results, Vneshtorgbank's profit before taxes totaled RUR12.6 billion, with the net profit reaching RUR9.6 billion.
Striving to enhance its own resource base, to foster corporate development and to ensure financing of the socially important for the Russian economy programs of mortgage and small business lending, Vneshtorgbank placed a special emphasis on raising mid- and long-term resources on international capital markets. The Bank is proud of its successful cooperation with international financial institutions in placing proprietary debt obligations. Alongside traditional forms of fund raising, such as syndicated loans and Eurobonds, Vneshtorgbank now applies quite new forms, which have never been used by Russian banks, for example, 'Schuldscheindarlehen' bonds. Besides, in early 2005, for the first time in the history of the Russian banking system, Vneshtorgbank raised a US$750 mln subordinated loan financed through placing a 10-year fixed coupon Eurobonds issue on international markets, which helped the Bank considerably strengthen its capital base. All debt issues of Vneshtorgbank have invariably been rated at the highest possible level of ratings awarded to Russian banks, and are usually well welcomed by the global investment community. As a result, the total volume of untied funds raised by Vneshtorgbank on international markets has exceeded US$3.8 billion, which is a record amount ever posted in the Russian financial sector.
Also, Vneshtorgbank continued to actively use credit lines opened to it by foreign export credit insurance companies, commercial and export-import banks. The total volume of credit facilities extended to VTB has now reached US$4.3 billion. This allows our customers involved in import purchasing under investment programs to raise long-term finance on more favorable terms.
Solid resource base mobilized by Vneshtorgbank enabled it to considerably expand lending of the country's real economy. Over the same period, the total volume of credits offered to its customers grew from RUR129 billion to RUR235 billion. The number of corporate customers increased by 26 thousand and reached 85 thousand. Vneshtorgbank reinforced its relationship with high net worth customers in oil and gas, with this industry's share in the Bank's loan portfolio reaching US$365 million, as at the year-end; as to ferrous and non-ferrous metals - here the loan portfolio amounted to US$270 million and the balance of accounts held by customers from metals industry with Vneshtorgbank exceeded US$620 million. A considerable share in the Bank's loan portfolio belongs to such industries as power, atomic power, heavy engineering, motor-car industry, transport, telecommunications, precious metals and gems mining and processing.
In 2004, Vneshtorgbank went on servicing large international contracts within its cooperation with defense and industry complex enterprises, as well as power enterprises. In particular, VTB serviced Russian-U.S. agreement (HEU-LEU) on converting highly enriched uranium extracted from nuclear weapons into low enriched uranium to be used as fuel in commercial nuclear reactors, totaling US$12 billion. Among other customers serviced by Vneshtorgbank was Rosoboronexport, with its contracts, for example, on aircraft supplies to Malaysia approximating US$900 million and submarine supplies to the People's Republic of China reaching US$2.4 billion.
A major factor driving Vneshtorgbank's customer base growth was its ongoing cooperation with federal ministries and agencies, as well as with administrations of Russia's constituencies and municipalities. Most of the federal services and agencies established in 2004 in the context of a new state governance structure opened their accounts with Vneshtorgbank. Mutually encouraging cooperation with the government bodies resulted in US$130-150 million worth of balances in their current and fiscal accounts.
In 2004, Vneshtorgbank succeeded in maintaining its leadership on the domestic foreign exchange and securities markets. Aspiring to boost its investment banking business, VTB participated in 2004 in managing and underwriting of 41 corporate and sub-federal bond issues totaling US$97 billion. It is a time and a half increase as compared to 2003, and accounts for more than half of the whole bond issue placements on the Russian market.
In 2004, Vneshtorgbank continued its drive towards enhancing its retail business and made noticeable progress in this sphere. As a result, the Bank consolidated its share in the retail market and strengthened its resource base. Presently, Vneshtorgbank is ranked 2nd among Russian banks in terms of households' deposits raised, with its market share reaching 2.6%, an almost three-fold increase over the years 2002-2004. More than 800 thousand people are now customers of Vneshtorgbank. As from 2004 year-start, their deposit and card account balances increased almost two-fold and reached RUR52 billion, accounting for about 20% of the whole volume of funds raised by Vneshtorgbank. Furthermore, the number of international card issued by Vneshtorgbank increased by 300 thousand and exceeded 650 thousand, the Bank's card servicing infrastructure has presently been extended to 3,700 ATMs and outlets.
Vneshtorgbank plays an increasing role on retail crediting market, including mortgage and consumer lending, and lending to small business. Recognizing its social responsibility for developing these lines of business and their impact on the Russian economy at large, Vneshtorgbank placed a special emphasis on these activities. The total volume of Vneshtorgbank`s lending to individuals, as of January 1, 2005, surpassed RUR3 billion. VTB's share in the Russian mortgage market exceeded 6%, and in the Moscow region it amounted to 17%. With these trends persisting, Vneshtorgbank is certain to establish a pattern of leadership in mortgage lending countrywide.
Similarly, Vneshtorgbank succeeded in implementing its Program of small-business lending launched in 2004. Based on world's best practices, maximum standardization of lending procedures, and on offering a wide spectrum of standard lending products varying in loan periods, amounts, terms and ways of redemption, the Program implementation resulted in more than RUR1billion worth of the Bank's small business loan portfolio.
Within the framework of VTB's development concept as a network bank of federal dimension, Vneshtorgbank services its customers through a countrywide network of its divisions including 52 branches and more than 140 offices and cashier's desks. In 2004, Vneshtorgbank branches' assets grew more than twice - from RUR43 billion to RUR100 billion, their customer loan portfolios, as of January 1, 2005, reached RUR92 billion as compared to RUR39 billion at the year-start. Throughout the year, Vneshtorgbank opened 9 branches, namely in Lipetsk, Smolensk, Kaluga, Ryazan, Ulyanovsk, Orenburg, Naltchik, Petropavlovsk-Kamtchatsky and Barnaul. In 2005, the Bank is set to open 14 new branches and more than 100 offices and outlets. Vneshtorgbank's expanded geographic presence will lead to a more diversified customer base, more efficient servicing of large corporate customers involved in regional activities, and reaching out to more individuals, as well as small and mid-size enterprises.
Naturally, Vneshtorgbank's growing business, its enlarged and diversified activities have had a most positive impact on the development of the banks where Vneshtorgbank has a controlling stock interest, both in Russia, the CIS and abroad. The Bank is set to establish an efficiently managed system of subsidiary lending institutions designed to meet such strategic challenges as expanding international activities, gaining wider presence on lucrative banking markets in the CIS, diversifying and improving services offered to customers. At present, Vneshtorgbank Group includes three subsidiary banks and two affiliated banks based in West Europe. In 2004 and at the begging of 2005, Vneshtorgbank bought a stock in Armsberbank (Armenia), and the United Georgian Bank (Georgia); in January 2005 a new subsidiary of Vneshtorgbank was registered in Ukraine. Vneshtorgbank plans to further develop its foreign banks' network through acquiring the Bank's of Russia participations in Moscow Narodny Bank (London), Eurobank (Paris) Ost-West Handelsbank in Frankfurt-on-Main, Donau-Bank (Vienna) and East-West United Bank in Luxembourg. As a result, Vneshtorgbank Group will embrace seven banks based in West Europe with the aggregate assets exceeding ?6 billion.
Further consolidation of Vneshtorgbank financial strength will be achieved by integrating Guta-bank and Promstroybank, St.Petersburg, into VTB Group. These lending institutions are expected to considerably enhance the Group competitive advantages, especially in retail services. In line with a decision by the Bank's Supervisory Council, a specialized retail bank is to be established within the framework of the Group. Such financial institution will focus on servicing households and small businesses. It will be based on some of the already existing offices and outlets, which will help the new bank promptly and efficiently launch large-scale retail activities meeting the growing customer demands through sophisticated products and advanced management.
In light of the VTB Group development strategy aimed at transforming it into a universal financial institution, achieving better financial performance and reaching out to a wider range of customers, additional opportunities could be derived from the Bank's restructuring launched in late 2004 - early 2005. Three main business blocks have been identified and placed in the core of the Bank's activities, namely corporate, investment and retail banking. These blocks are to be horizontally coordinated and vertically integrated into VTB Group's overall governance, such approach is designed to provide smoother technological and organizational support for each banking operation, building on its specific character.
Growth dynamics posted by Vneshtorgbank in 2004, as well as tangible advance made in its development strategy against the background of high financial performance, have laid a sound basis for further strengthening Vneshtorgbank's positions in the Russian banking industry and expanding its presence on international financial markets.
|Indicators (in mln RUR)||01.01.04||01.01.05||as compared in bln RUR||as compared in %|
|Assets||261.5||404.4||+ 142,9||+ 55%|
|Profit before taxes||11.8||12.6||+ 0,8||+ 7%|
|Net assets||8.9||9.6||+ 0,7||+ 8%|
|Own funds||62.2||68.2||+ 6,0||+ 10%|
|Raised funds||199.3||335.9||+ 136,6||+ 69%|
|Corporate bodies' account balances and deposits||70.3||88.3||+ 18,0||+ 26%|
|Individuals' funds||26.8||52.0||+ 25,2||+ 94%|
|Loan portfolio||129.4||234.5||+ 105,1||+ 81%|
|Corporate customers (thousand)||~ 58||~ 85||+ 27|
|Individual customers (thousand)||~ 500||~ 875||+ 375|