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VTB Group announces its strategy for 2014 – 2016

 
10 April 2014

© photoexpress.ru

JSC VTB Bank Supervisory Council today approved VTB Group’s new three-year strategy, titled “Quality Growth”.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "Over the past four years, we have pursued a unique business model, combining a market-leading corporate and investment bank with one of the most profitable retail banking franchises in Russia. We have strengthened our position as a market leader, outperforming our peers through both organic growth and value accretive acquisitions.

“Our new strategy addresses the key opportunities and challenges for VTB Group in an environment of slower economic and banking sector growth. For the next three years our primary objectives will be:

  • to maintain the positions of our corporate-investment banking business while further improving its efficiency and non-interest earning capabilities;
  • to outperform the market in growth of retail loans and deposits, and further increase the share of the retail business in the Group’s business mix;
  • to prioritise mid-sized corporate business as a separate operating segment and profit centre, and to achieve substantial growth in volumes, market share and profitability in this business;
  • to focus on stringent cost control across all business lines;
  • to further strengthen the risk management function on the Group level;
  • to achieve further synergies from integration, preparing the ground for the future merger of the Group’s major banks.

“These initiatives, complemented by clear financial and operating targets, will help us to successfully navigate the economic cycle, grow our business profitably and deliver value to our investors.”

REVIEW OF 2010 - 2013 STRATEGY

The strategy “Quality Growth” supersedes the Group’s previous strategy, which ran from 2010 to 2013. Over this period, the Group grew its assets 2.4 times to RUB 8.8 trillion, gross customer loans 2.5 times to RUB 6.6 trillion, and customer deposits 2.7 times to RUB 4.3 trillion. This growth was supported by the successful acquisition and integration of TransCreditBank (2010) and Bank of Moscow (2011). The Group further strengthened its retail business with the launch of the Leto Bank mass-market retail franchise, recognised as one of the most successful new Russian brands of 2013.

While the Group over-delivered against growth targets, profitability targets were not met sustainably throughout the lifetime of the strategy. Under its strategy for 2014 - 2016, the Group will continue to focus on profitability as a key performance target.

RUSSIAN BANKING-SECTOR OUTLOOK

Against a backdrop of a weaker economic environment and tighter financial markets regulation, the growth of the Russian banking sector is expected to slow in terms of both lending and deposit-taking. The Group expects to see continuing consolidation in the banking sector, with the top banks strengthening their market positions over the next few years. In corporate lending, growth rates will remain stable, although loan yields and interest margins will gradually contract. In the retail business, banks will look to achieve less risky growth, which will strengthen the role of mortgage loans as a driver of loan book expansion.

Corporate and retail loans are forecast to increase at a compound average growth rate (CAGR) of 7-10% and 15-20%, respectively, while corporate and retail deposits will expand at respective CAGRs of 6-9% and 12-15%.

KEY STRATEGIC OBJECTIVES

Corporate-Investment Banking (CIB) will seek to grow in line with the market in loans and faster than the market in customer deposits, with a particular focus on current accounts,. The segment’s key objectives are:

  • to diversify the business and improve concentration levels in revenues and risks;
  • to further enhance the transaction banking business, aiming to increase the share of fee-generating products in the Group’s revenues, including cash management and settlement products;
  • to improve efficiency via headcount optimisation, streamlining of business processes, upgrades to infrastructure and IT, and optimisation of the Group’s regional footprint.

Mid-corporate business will develop as a separate operating segment, and is expected to evolve as a significant contributor to the Group’s revenue base. As the Group sees strong potential in doing business with mid-sized clients, the segment’s goal will be to boost its market share in key products including loans, current accounts, fees and commissions, in particular by enhancing cross-selling capabilities. The segment’s customer base is expected to increase 1.6-1.8 times to over 20,000 active clients during the lifetime of the strategy. Another priority for the segment will be to substantially reduce its cost base.

Retail business will continue to consistently grow its client base and market share in retail and small-business loans and deposits. By the end of 2016, the Group’s retail customer base should include more than 20 million individuals and the number of the Group’s small-business clients should exceed 300,000. To achieve this, the segment will rely on the expansion of the Group’s retail branch network and on further investments in alternative channels. The total number of retail offices in Russia operating under the VTB24, Leto Bank and Bank of Moscow brands is expected to increase to about 2,600 vs. about 1,600 at year-end 2013. At the same time, the share of sales flow and service operations performed outside the Group’s offices through ATMs, online and telephone banking is expected to increase further.

Improving efficiency and cost control across all business lines is the Group’s key priority for 2014 - 2016. Measures planned to achieve better efficiency include:

  • reduction of staff costs in CIB through optimisation of headcount and compensation plans;
  • integration of the Group’s support and control infrastructure;
  • closer cooperation on corporate business between branches of VTB and Bank of Moscow; and further optimisation of the Group’s regional network;
  • improvements to back office efficiency and optimisation of administrative expenses.

To facilitate cost cutting initiatives, the Group is establishing a specialised project office, and will introduce changes to motivation and compensation programs in its largest entities.

The Group will also take steps to further integrate its Russian banking entities, with the aim of establishing a unified banking platform in the longer term beyond the lifetime of this strategy.

VTB GROUP 2016 FINANCIAL TARGETS

2013

2016

Total assets, RUB trn

8.8

12-13

Cost / Operating Income before provisions

49%

42-43%

Net profit, RUB bn

101

160-180

ROE

12%

15%


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