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VTB Group 3m2007 financial results strong start to the year

 
29 June 2007

NET INTEREST INCOME UP BY 40.9%
RETAIL LOAN PORTFOLIO UP 19.5%


Moscow, June 26, 2007 - VTB, Russia's leading universal banking group, today announces its consolidated IFRS financial results for 3M2007 ended March 31, 2007.

The VTB Group's net interest income grew by 40.9% (or US$141 million), and net fee and commission income grew by 13.6% as compared to 3M2006. Net of gains from disposal of investments, pre-tax profit increased by 13.9% from US$259 million to US$295 million. Assets increased to US$56,153 million, up 7.2% or US$3,750 million, with retail loans up 19.5% outperforming market averages.

Financial Highlights

Profit and Loss Account (as compared to 3M2006):

  • Interest income increased to US$1,066 million, up 46.2%, and fee and commission income increased to US$111 million, up 22.0%; 
  • Net interest income increased to US$486 million, up 40.9% or US$141 million;
  • Net fee and commission income increased to US$92 million, up 13.6% or US$11 million, reaching 13.6% of operating income;
  • The Group's effective taxation rate (consolidated) increased from 10.9% to 25.9%, reflecting gradual substitution of FX and securities gains by interest and commission income;
  • Consolidated net profit for 3M2007 amounted to US$232 million, down 30.5% due to a decrease in securities gains, which in 3M2006 included income from sale of KamAZ shares.
  • Earnings per share decreased from US$6.3 to US$4.2 per 100,000 shares.

Assets and Funding (as compared to December 31, 2006):

  • Loans and advances to customers increased to US$31,697 million, up US$2,435 million or 8.3%, with retail loans to individuals up US$494 million to US$3,027 or 19.5%;
  • Securities portfolio grew by 19.8% to US$10,729 million, including 5% of shares of European Aeronautic Defense and Space Company (EADS);
  • Customer deposits increased to US$23,381 million, up 17.0%, with retail deposits up 8.1% to US$7,918;
  • March 2007: VTB EUR 1,000 million Eurobond with a floating rate of LIBOR + 0.6% p.a. maturing in March 2009, and VTB GBP 300 million Eurobond with an interest rate of 6.332% p.a. maturing in March 2010.

3M2007 Important Events:

  • Increase of VTB's share capital by 1,734,333,866,664 shares (24.97% of number of VTB shares after the increase) approved by extraordinary general meeting of shareholders of VTB, followed by an IPO in May 2007;
  • Vneshtorgbank officially renamed to JSC VTB Bank;
  • Angola Banco VTB Africa SA started operations.

3M2007 Acquisitions:
VTB initiated the process of acquiring 50% + one share of Slavneftebank in Belarus for US$25 million (deal completed in May 2007);

VTB purchased 25% plus one share in OJSC Terminal for US$40 million.

Comments:

Andrey Kostin, Chairman of the Management Board and CEO:
"Early 2007 delivered encouraging results underpinning our competitive position for strong growth in a rapidly developing Russian economy. We continue to implement our strategy for further business expansion in Russia and abroad, focusing on increasing our market share in the fast-growing retail banking in Russia. Our successful Global Offer completed in May this year provided us with the capital to achieve this and reflected strong interest of the investment community in rapidly expanding banking market in Russia."
Nikolai Tsekhomsky, CFO:
"The results for the beginning of 2007 indicate the further growth of VTB Group and the anticipated positive changes of the structure of the Group's earnings. Early 2007 results demonstrate a clear trend toward gradual replacement of gains from proprietary activities by interest and commission income, reflecting the ongoing shift from proprietary activities to corporate and retail business. We hope that the improved quality of earnings will enable us to meet expectations of our investors."

Operating Performance

  • Net of gains arising from disposal of investments, profit before tax was up 13.9% driven primarily by growth in net interest income and net fee and commission income, reflecting the expansion of the Group's customer base and increase in volumes of lending, deposit taking and other customer transactions.
  • Net interest income reached US$486 million, which was attributable to growth in all of the components of interest income: (i) Interest income on loans and advances to customers increased by 50.9% to US$854 million; (ii) interest income on securities increased by 21.1% to US$115 million; and (iii) interest on amounts due from other banks increased by 42.6%, to US$97 million. The increase in net interest income reflected the ongoing expansion of the Group's lending business, particularly in the retail segment, and growth of the Group's securities portfolio.
  • Net interest spread increased to 4.3% in 3M2007 from 4.0% in 3M2006, mainly due to fast growth of the Group's retail loan portfolio reaching 9% of the Group's gross customer loans, which yields higher average interest rates than the Group's corporate loan portfolio. 
  • Operating income increased by 2.7% to US$674 million, compared to US$656 million in 3M2006, primarily due to an increase of net interest income to US$486 million and net fee and commission income to US$92 million. Decrease in net gains from securities by US$162 million was attributable to income from sale of KamAZ shares in 3M2006 and the performance of the Russian securities market in 3M2007, with RTS index up only 0.7% compared to 27.4% in 3M2006. 
  • Staff costs and administrative expenses increased by 38.3% to US$365 million, reflecting organic growth of the Group`s network in Russia which entailed increased staff, marketing and advertising expenditures. 
  • Sustained increase in VTB's interest and commission income was provided by growth throughout the Group's key strategic areas: corporate, retail and investment banking operations. Customer loans comprised 56.4% of total assets as of March 31, 2007, compared to 55.8% as of December 31, 2006. Accordingly, interest income on customer loans increased to 80.1% of interest income, from 77.6% in 2006. Total customer deposits increased by 17.0% to US$23,381 million in 3M2007, of which deposits from individuals represented US$7,918 million, corporate deposits represented US$11,368 million, and state and public deposits represented US$4,095 million.

Loan Quality and Concentration

  • Overdue and rescheduled loans and allowances for loan impairment as of March 31, 2007 amounted to 2.7% and 3.2%, respectively, of the Group's gross loan portfolio.
  • Coverage of overdue and rescheduled loans by allowances for loan impairment stood at 118.7% as of March 31, 2007.
  • The rate of provisioning decreased from 1.8% in 3M2006 to a comfortable 0.8% in 3M2007.
  • The Group's exposure to ten largest borrowers as a percentage of gross customer loans remained at 17.7%. The Group continues to seek to diversify its customer base and lending capacity and increase its lending volumes.

Capitalization and Capital Adequacy

  • The Group's consolidated shareholders' equity increased to US$7,143 million as of March 31, 2007 from US$6,992 million as of December 31, 2006 due to the contribution of net profit in the amount of US$232 million and foreign exchange gains of US$44 million, offset by a decrease in the unrealized gains on financial assets available-for-sale by US$105 million, mainly attributable to revaluation of EADS shares.
  • As of March 31, 2007 the VTB Group's consolidated BIS Tier 1 capital was US$6,509 million, compared to US$6,357 million as of December 31, 2006, and total BIS capital was US$7,787 million, compared to US$7,646 million as of December 31, 2006. The Group's BIS Tier 1+2 capital adequacy ratio decreased from 14.0% as of December 31, 2006 to 12.9% as of March 31, 2007, remaining well above the 8.0% minimum set by the Basel Accord.
  • VTB and all of its subsidiary banks continue to observe the capital adequacy requirements set by their respective local regulatory authorities.


 
   

 

Consolidated Balance Sheet (expressed in millions of US dollars)

31 March 2007

(unaudited)

31 December
2006

Assets

Cash and short-term funds

3,523

3,581

Mandatory cash balances with central banks

641

648

Financial assets at fair value through profit or loss

7,291

5,120

Financial assets pledged under repurchase agreements
and loaned financial assets

2,463

2,938

Due from other banks

6,193

6,813

Loans and advances to customers

31,697

29,262

Financial assets available-for-sale

970

888

Investments in associates

173

200

Investment securities held-to-maturity

5

11

Premises and equipment

1,427

1,422

Investment property

180

178

Intangible assets

452

455

Deferred tax asset

106

93

Other assets

1,032

794

 

Total assets

56,153

52,403

 

Liabilities

Due to other banks

6,643

7,587

Customer deposits

23,381

19,988

Other borrowed funds

4,279

4,468

Debt securities issued

12,915

11,565

Deferred tax liability

114

125

Other liabilities

512

509

Total liabilities before subordinated debt

47,844

44,242

Subordinated debt

1,166

1,169

 

Total liabilities

49,010

45,411

 

 

Equity

Share capital

2,500

2,500

Share premium

1,513

1,513

Unrealized gain on financial assets available-for-sale

49

154

Premises revaluation reserve

336

341

Currency translation difference

391

352

Retained earnings

1,994

1,744

Equity attributable to shareholders of the parent

6,783

6,604

Minority interest

360

388

 

Total equity

7,143

6,992

 

 

Total liabilities and equity

56,153

52,403

 

 

 

Consolidated Statements of Income (expressed in millions of US dollars)

 

For the three-month period ended

31 March (unaudited)

2007

2006

Interest income

1,066

729

Interest expense

(580)

(384)

 

Net interest income

486

345

Provision for loan impairment

(62)

(94)

 

Net interest income after provision for loan impairment

424

251

 

Gains less losses arising from financial assets
at fair value through profit or loss

20

71

Gains less losses from available-for-sale financial assets

-

111

Gains less losses arising from dealing in foreign currencies

78

(24)

Foreign exchange translation gains less losses

28

123

Fee and commission income

111

91

Fee and commission expense

(19)

(10)

Share in income of associates

(1)

4

Income arising from non-banking activities

22

22

Other operating income

11

17

 

Net non-interest income

250

405

 

Operating income

674

656

Staff costs and administrative expenses

(365)

(264)

Expenses arising from non-banking activities

(14)

(17)

Profit from disposal of associates

18

-

Profit before taxation

313

375

Income tax expense

(81)

(41)

 

Net profit

232

334

 

Net profit attributable to:

Shareholders of the parent

218

326

Minority interest

14

8

 

 

Consolidated Statements of Cash Flows (expressed in millions of US dollars)

For the three-month period
ended 31 March (unaudited)

2007

2006

Cash flows from operating activities

Interest received

1,057

725

Interest paid

(575)

(376)

Income received on operations with financial assets
at fair value through profit or loss

(13)

(12)

Income received on dealing in foreign currency

79

(21)

Fees and commissions received

111

91

Fees and commissions paid

(20)

(10)

Income arising from non-banking subsidiaries
and other operating income received

32

40

Staff costs, administrative expenses and
expenses arising from non-banking activities paid

(357)

(258)

Income tax paid

(99)

(60)

Cash flows from operating activities before
changes in operating assets and liabilities

215

119

Net decrease (increase) in operating assets

Net decrease (increase) in mandatory cash balances with local central banks

13

(38)

Net decrease (increase) in restricted cash

13

(12)

Net increase in trading securities designated at fair value through profit or loss

(1,960)

(369)

Net decrease (increase) in financial assets pledged under repurchase agreement

338

(762)

Net decrease (increase) in due from banks

653

(1,814)

Net increase in loans and advances to customers

(2,309)

(467)

Net increase in other assets

(276)

(194)

Net (decrease) increase in operating liabilities

Net (decrease) increase in due to banks

(972)

142

Net increase in customer accounts

3,148

1,551

Net decrease in promissory notes and certificates of deposits issued

(415)

(473)

Net increase in other liabilities

31

546

Net cash used in operating activities

(1,521)

(1,771)

Cash flows from investing activities

Dividends received

3

2

Proceeds from sales or maturities of investment securities available-for-sale

28

174

Purchase of investment securities available-for-sale

(110)

(18)

Purchase of subsidiaries, net of cash acquired

-

(14)

Proceeds from redemption of investment securities held-to-maturity

6

-

Purchase of premises and equipment

(30)

(39)

Proceeds from sale of premises and equipment

24

33

Purchase of intangible assets

(2)

(2)

 

Net cash used in investing activities

(81)

136

For the three-month period
ended 31 March (unaudited)

2007

2006

Cash flows from financing activities

Increase in Central Bank of the Russian Federation funding

184

-

Decrease in Central Bank of the Russian Federation funding

(153)

(75)

Proceeds from other credit lines

321

21

Repayment of other credit lines

(13)

-

Redemption of bonds denominated in RUR

-

(72)

Proceeds from issuance of Eurobonds

1,923

600

Proceeds from issuance of SSD debentures (Schuldscheindarlehen)

-

242

Redemption of SSD debentures (Schuldscheindarlehen)

(241)

(157)

Proceeds from syndicated loan

113

1,029

Repayment of syndicated loan

(603)

(591)

Net cash provided by financing activities

1,531

997

Effect of exchange rate changes on cash and cash equivalents

26

51

Net increase in cash and cash equivalents

(45)

(587)

Cash and cash equivalents at beginning of the year

3,479

2,541

 

Cash and cash equivalents at the end of the period

3,434

1,954

 

 


 
JSC VTB Bank and its subsidiaries (the VTB Group or the Group) are a leading Russian commercial banking group, offering a range of banking services and products across Russia, certain CIS countries and in selected countries of Western Europe, Asia and Africa. As of March 31, 2007 the Group had a network of 152 full-service branches located across Russia, comprised of 58 branches of VTB, 40 branches of VTB 24 and 54 branches of Industry and Construction Bank. Outside of Russia, the Group operates through four subsidiary banks located in the CIS (Armenia, Georgia, and two banks in Ukraine), six subsidiary banks located in Europe (Great Britain, France, Germany, Austria, Switzerland and Cyprus), two subsidiary banks in Africa (Angola, Namibia) and 4 representative offices in India, Italy, China and Belarus. VTB has also established subsidiaries in Asia, and its UK subsidiary has a representative office in Singapore. VTB has operated under a full banking license, № 1000, from the Central Bank of the Russian Federation since 1990.

The Group operates in the commercial banking sector and provides services including deposit taking and commercial lending, support of clients' export/import transactions, FX, securities trading, and trading in derivative financial instruments.  The Group had 29,550 employees as of March 31, 2007. The Government of the Russian Federation is VTB's main shareholder and owns, through the Federal Property Management Agency, 99.9% of its registered share capital. For more information please visit www.vtb.ru.

Some of the information in this presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of JSC VTB Bank ("VTB") and its subsidiaries (together with VTB, the "Group").  Such forward-looking statements are based on numerous assumptions regarding the Group`s present and future business strategies and the environment in which the Group will operate in the future.  We caution you that these statements are not guarantees of future performance and involve risks, uncertainties and other important factors 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.  These forward-looking statements speak only as at the date of this presentation and are subject to change without notice. We do not intend to update these statements to make them conform with actual results.


Contacts:

Nataly Loginova
Irina Mokeeva

Telephone:
+7 (495) 739-77-99
8-800-200-77-99
(toll free number for Russian regions)

E-mail:
InvestorRelations@vtb.ru

Pdf version of press-release
3M2007_press-release_ENG_22-6-2007.doc


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