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VTB Announces IFRS Results for the First Nine Months of 2010

 
2 December 2010

Moscow – VTB Group today announced its unaudited IFRS results for the first nine months of 2010.

FINANCIAL AND OPERATING HIGHLIGHTS

  • Record nine months net profit of RUB 38.8 billion with an annualised ROE of 9.9%
  • Strong profit before tax contribution from the Group’s key businesses:
  • Corporate Banking: RUB 30.4 billion (versus a loss before tax of RUB 51.4 billion for 9M 2009)
  • Retail Banking: RUB 16.6 billion (versus a loss before tax of RUB 0.5 billion for 9M 2009)
  • Investment Banking: RUB 16 billion (up 55% versus a profit before tax of RUB 10.3 billion for 9M 2009)
  • Solid net interest margin at 5.2% versus 4.3% in 9M 2009
  • The Group’s cost of risk improved with annualised provision charge at 2% versus 6.1% in 9M 2009
  • NPL ratio at 9.5% down from 9.8% at the end of 2009
  • Total gross loans of RUB 2.8 trillion, up 10% since the start of the year, customer deposits of RUB 1.8 trillion, up 17% since the start of the year, bringing loans-to-deposits ratio to 137.5%, down from 147.2% at the end of 2009
  • Strong capital position with BIS capital ratio at 18.8%

Andrey Kostin, VTB President and Chairman of the Management Board, said:

“We are well on track to achieving the goals set out in the Group’s new strategy, as we continue to develop an unrivalled corporate and investment banking franchise and to build on strong earnings momentum in the retail business.”

FINANCIAL AND OPERATING REVIEW

During the first nine months of 2010, Russia witnessed an overall economic recovery, mainly driven by falling unemployment, rising incomes and household consumption, as well as by accelerating investment activity. However the growth remained fragile and the pace of recovery slowed in the summer months, as an abnormal drought and widespread fires put additional pressure on economic activity and banking sector performance.

Despite an environment of lingering uncertainty, VTB delivered a record nine months net profit of RUB 38.8 billion versus a loss of RUB 45.5 billion in the same period of 2009. Performance during the first nine months of 2010 implies an annualised return on equity of 9.9% and earnings per share at RUB 0.004, compared to a loss of RUB 0.0072 per share for the same period of 2009.

The Group’s operating income before provisions reached RUB 160.7 billion in the reporting period, up 32% from RUB 121.8 billion in the nine months of 2009. Net interest income before provisions reached RUB 129.5 billion, up 21% year-on-year from RUB 107.4 billion. With market lending rates steadily declining, yields on VTB’s loan book were under pressure, which was mitigated by the Group’s efforts to optimise its funding costs. As a result, our net interest margin remained strong at 5.2%, versus 4.3% for the same period of 2009.

Net fee and commission income was RUB 17.8 billion, up 21% year-on-year from RUB 14.7 billion for the first nine months of 2009, supported by a remarkably strong contribution from the retail business. The share of this segment in the Group’s net fee and commission income (before intersegment eliminations) was 41.3%, up from 33.8% for the same period last year.

VTB’s leading investment banking franchise enabled the Group to benefit from continuing growth in customer trading operations and from a recovery across major asset classes. Net gains from financial instruments amounted to RUB 7.9 billion, compared to a loss of RUB 13.9 billion in the first nine months of 2009.

For the first nine months of 2010, staff costs and administrative expenses amounted to RUB 68 billion, up 30% year-on-year, primarily reflecting strong growth in the Group’s corporate and investment banking (CIB) operations and continued expansion of VTB’s retail branch network. Nevertheless, in line with the Group’s strategic priority to keep costs under control, VTB’s cost to income ratio improved to 42.3% in the first nine months of 2010 from 43.1% in the same period of 2009.

As of 30 September 2010, total gross loans reached RUB 2,796.7 billion, an increase of 10% from RUB 2,544.8 billion at 31 December 2009. Corporate loans were at RUB 2,339.7 billion, up 11% from RUB 2,109.5 billion at the beginning of the year. Retail loans at the end of the reporting period equalled RUB 457 billion, up 5% from RUB 435.3 billion at year end 2009.

Effective risk management and a positive trend in VTB’s loan portfolio quality contributed to a significantly lower provision charge of RUB 40.3 billion, or 2% of the average loan portfolio (on an annualised basis), compared to RUB 126.4 billion, or 6.1% of the average loan portfolio in the first nine months of 2009. The allowance for loan impairment was 9.6% of total gross loans as of 30 September 2010, as compared to 9.2% at the end of 2009. The non-performing loan (NPL) ratio decreased to 9.5% of total gross loans versus 9.8% at the end of 2009, while the Group’s NPL coverage ratio was a comfortable 101.5%, up from 94.5% as of 31 December 2009.

Funding from customer deposits continued to grow during the reported period, reaching RUB 1,839.3 billion at 30 September 2010, up 17% from RUB 1,568.8 billion at year end 2009. Corporate deposits amounted to RUB 1,239.2 billion, a 13% increase versus the end of 2009. Retail deposits reached RUB 600.1 billion, up 26% during the reported period. The share of customer deposits in the Group’s total liabilities rose to 57% at 30 September 2010 from 51% at 31 December 2009. Over the same period, VTB’s loans to deposits ratio improved to 137.5%, down from 147.2%.

The Group has a strong track record in optimising its liabilities costs, including by diversifying funding sources across geographies, currencies and investor base. In addition to a US$ 1.25 billion 5-year Eurobond offering favourably priced in the first quarter of 2010, VTB in August successfully placed its inaugural Singapore dollar 400 million 2-year Eurobond and a CHF 400 million 3-year issue. In October, VTB placed a US$ 1 billion 10-year Eurobond issue, which established a new yield benchmark for VTB’s long-term international debt obligations.

The Group’s capital ratios remained strong with the Tier 1 capital adequacy ratio at 13.9% and total BIS ratio at 18.8% as of 30 September 2010.

CORPORATE BUSINESS

In the first nine months of 2010, VTB’s corporate business segment delivered a solid profit before tax of RUB 30.4 billion versus a loss of RUB 51.4 billion in the nine month period of 2009. This result was primarily driven by growth in corporate lending volumes, stronger margins, lower cost of risk and increased efficiency in the segment’s operations.

During the reporting period, the Group significantly expanded its Corporate and Investment Banking (CIB) unit, which was established to maximise synergies between the two businesses by promoting high quality and sophisticated products to the Group’s clients. In the third quarter of 2010, the CIB unit continued to build out its management team, with the recruitment of new client managers, and expanded its offering by introducing corporate dual-currency loans to its product line.

One of the Group’s strategic goals is to transform VTB Bank into the main settlement centre for its corporate customers by enhancing its transaction banking capacity. During the reporting period, we focused on strengthening VTB’s product offering through the further improvement of technology and infrastructure, as well as the development of the sales capability within the transaction banking team.

Another VTB priority is to optimise lending procedures in order to respond with greater flexibility to clients’ needs in an increasingly competitive market. Throughout the third quarter of 2010, the Group took important steps toward streamlining the process of granting loans and implementing a segment-based approach into the lending process.

Vladimir Tatarchuk, VTB Deputy President and Chairman of the Management Board, said: “We are very pleased with the pace of the transformation of our corporate business. In line with the Group’s new strategy, VTB will derive substantial value from the creation of the CIB unit, which is serving an increasing number of Russia’s leading corporates while offering new, competitive products to its customers.”

RETAIL BUSINESS

VTB’s retail business segment benefited from growing demand for retail banking services in Russia, posting a profit before tax of RUB 16.6 billion for the first nine months of 2010, versus a loss of RUB 0.5 billion in the same period of 2009. During the reporting period, the Group’s retail business enjoyed healthy margins, declining provision charges and strong net fee and commission income. For the first three quarters of 2010, the retail segment net fee and commission income was RUB 7.1 billion, up 45% from RUB 4.9 billion in the same period of 2009.

Retail loan growth (to RUB 457 billion, up 5% from the start of the year) was primarily driven by shorter term and higher margin consumer loans, which amounted to RUB 220 billion, up 20% since 31 December 2009, and auto loans, which reached RUB 51.6 billion, up 13% since 31 December 2009. In line with VTB’s priorities, the share of these products in the Group’s retail loan portfolio increased to 59.4% versus 52.5% at the start of the year.

During the third quarter of 2010, the Group’s retail bank, VTB24, resumed its branch network expansion by opening 27 new retail offices. As a result, VTB’s retail branch network in Russia increased to 507 offices as compared to 476 at the end of 2009. The number of VTB24 ATMs increased over the same period to 4,631 from 4,046.

“VTB24 achieved exceptional financial results for the first nine months of the year,” said Mikhail Zadornov, VTB24 President and Chairman of the Board. “Going forward, we will continue to build on the strong earnings momentum in the retail business by expanding our branch network, improving efficiency and enhancing market share.”

INVESTMENT BUSINESS – VTB CAPITAL

For the first nine months of 2010, VTB’s investment business segment posted a profit before tax of RUB 16 billion, almost matching its full year result for 2009 (RUB 16.4 billion). This performance implies a 55% increase on VTB Capital’s RUB 10.3 billion profit before tax for the first nine months of 2009.

As global capital markets saw increasingly active debt and equity issuance by Russian companies, our Global Banking division confirmed its position as a national investment banking leader. VTB Capital’s top position in debt capital markets (DCM) has been reaffirmed with a #1 bookrunner ranking in a Russia-related international DCM league table by Bloomberg, and a #1 arranger for domestic Russian DCM ranking by CBonds. During the first three quarters of 2010, VTB Capital arranged 31 transactions worth RUB 124.8 billion, with market share reaching 19.7%. VTB’s investment business took part in a number of milestone DCM deals, including sovereign Eurobond placements for Russia and Ukraine.

VTB Capital’s team continued to strengthen its position in equity capital markets (ECM). Dealogic ranked it #2 bookrunner for Russian ECM in the third quarter of 2010. During the quarter, VTB Capital acted as bookrunner for the US$ 104 million SPO of Synergy, a leading producer of distilled spirits in Russia. After the reporting date, VTB Capital successfully closed the US$ 420 million IPO by Russian food retailer O’KEY Group and the US$ 1 billion IPO of Mail.ru Group, the largest Internet company in the Russian-speaking Internet markets.

During the first three quarters of the year, VTB Capital took part in several key M&A transactions, including the purchase of a controlling stake in Uralkali, a leading global potash fertilizer producer. In November, VTB Capital was named Best Investment Advisor of the Year at the Russia Mergers & Acquisitions Awards 2010, a Mergers.ru event.

VTB Capital also continued to build its investment management business, growing assets under management and expanding the product range. In September 2010, it launched the VTB - BRIC Shares fund - a new, innovative open-ended investment product for the Russian market.

Yuri Soloviev, President and Global CEO of VTB Capital, said: “VTB Capital’s team has once again delivered excellent results. I am particularly delighted that all our business lines are ahead of or in line with our strategic plans.”

Contacts:

Investor Relations:

Tel.: +7 495 775 71 39

Email: investorrelations@vtb.ru

About VTB:

JSC VTB Bank and its subsidiaries (the VTB Group or the Group) is a leading Russian banking group, offering a wide range of banking services and products across Russia, certain CIS countries and in selected countries of Western Europe, Asia and Africa.

As of 30 September 2010, the Group had a network of 957 offices located across Russia, CIS and Europe, of which VTB24 retail offices totalled 507. The Group operates outside Russia through 12 bank subsidiaries, located in the Commonwealth of Independent States (“CIS”) (Armenia, Ukraine, Belarus, Kazakhstan and Azerbaijan), Europe (Austria, Cyprus, Germany, France and Great Britain), Georgia, Africa (Angola) and through 3 representative offices located in Italy, China and the Kyrgyz Republic and through 2 VTB branches in China and India and 2 branches of “VTB Capital”, Plc in Singapore and Dubai. VTB has operated under a full banking license, №1,000, from the Central Bank of the Russian Federation since 1990.

The Group’s business franchise spans corporate, retail and investment banking. In corporate banking, the Group provides a broad range of commercial banking services and products including corporate lending, foreign trade transactions, syndicated loans, deposit and settlement services, as well as custody services, leasing and treasury services to large- and medium-sized corporations and financial institutions. In retail banking, VTB offers financial services, including deposit accounts, lending, debit and credit cards and transaction services to individuals and small-sized corporations. In investment banking it provides equity and debt capital markets underwriting, project financing, merger and acquisition financing, advisory services, asset management and venture funds.

The number of employees of the Group as of 30 September 2010 was 42,837. The Government of the Russian Federation is VTB’s main shareholder and owns, through the Federal Property Management Agency, 85.5% of its registered share capital.

VTB Bank

Interim Condensed Consolidated Statement of Financial Position as at 30 September 2010

(in billions of Russian Roubles)

30 September 2010

(unaudited)

31 December
2009

Assets

Cash and short-term funds

182.2

260.2

Mandatory cash balances with central banks

26.7

23.9

Financial assets at fair value through profit or loss

315.3

267.9

Financial assets pledged under repurchase agreements and loaned financial assets

16.7

96.2

Due from other banks

255.5

345.6

Loans and advances to customers

2,528.2

2,309.9

Financial assets available-for-sale

40.6

24.9

Investments in associates and joint ventures

14.6

13.9

Investment securities held-to-maturity

32.0

11.7

Premises and equipment

88.9

65.9

Investment property

110.2

79.8

Intangible assets and goodwill

17.6

11.9

Deferred tax asset

36.4

31.4

Other assets

88.4

67.6

Total assets

3,753.3

3,610.8

Liabilities

Due to other banks

380.9

287.0

Customer deposits

1,839.3

1,568.8

Other borrowed funds

141.3

470.9

Debt securities issued

541.4

485.7

Deferred tax liability

6.9

7.0

Other liabilities

111.6

91.2

Total liabilities before subordinated debt

3,021.4

2,910.6

Subordinated debt

186.5

195.3

Total liabilities

3,207.9

3,105.9

Equity

Share capital

113.1

113.1

Share premium

358.5

358.5

Treasury shares

(0.4)

(0.4)

Unrealized gain on financial assets available-for-sale and cash flow hedge

3.1

3.4

Premises revaluation reserve

11.5

11.8

Currency translation difference

12.2

13.2

Retained earnings

41.7

2.7

Equity attributable to shareholders of the parent

539.7

502.3

Non-controlling interests

5.7

2.6

Total equity

545.4

504.9

Total liabilities and equity

3,753.3

3,610.8

VTB Bank

Interim Condensed Consolidated Income Statement for the Three Months and the Nine Months Ended 30 September 2010 (unaudited)

(in billions of Russian Roubles)

For the three-month
period ended

For the nine-month
period ended

30 September

30 September

2010

2009

2010

2009

Interest income

82.5

92.2

250.4

280.8

Interest expense

(39.4)

(55.1)

(120.9)

(173.4)

Net interest income

43.1

37.1

129.5

107.4

Provision charge for impairment

(13.1)

(29.8)

(40.3)

(126.4)

Net interest income / (expense) after
provision for impairment

30.0

7.3

89.2

(19.0)

Gains less losses / (losses net of gains) arising from financial assets at fair value through profit or loss

4.4

(1.8)

7.6

(15.8)

Gains less losses from available-for-sale financial assets

0.7

2.4

0.3

1.9

Gains less losses arising from extinguishment of liability

14.7

Losses on initial recognition of financial instruments

(0.2)

(16.9)

(0.1)

(19.0)

Gains less losses / (losses net of gains) arising
from dealing in foreign currencies

20.4

14.4

(5.7)

(9.9)

Foreign exchange translation (losses net of gains) / gains less losses

(21.2)

(13.3)

7.4

24.5

Fee and commission income

7.0

6.2

20.8

17.9

Fee and commission expense

(1.0)

(1.2)

(3.0)

(3.2)

Share in income / (loss) of associates

0.1

(0.1)

0.1

(Provision charge for)/recovery of impairment of other assets and credit related commitments

(0.3)

1.0

(2.0)

(1.3)

Income arising from non-banking activities

2.1

0.6

3.9

1.9

Expenses arising from non-banking activities

(0.9)

(0.2)

(2.6)

(0.8)

Other operating income

0.8

0.7

2.7

2.1

Net non-interest income / (loss)

11.9

(8.1)

29.2

13.1

Operating income / (loss)

41.9

(0.8)

118.4

(5.9)

Staff costs and administrative expenses

(24.1)

(16.8)

(68.0)

(52.5)

Impairment of goodwill

(1.1)

Profit from disposal of associates and subsidiaries

0.1

1.0

Profit / (loss) before taxation

17.8

(17.6)

49.4

(57.4)

Income tax (expense) / recovery

(4.1)

3.6

(10.6)

11.9

Net profit / (loss)

13.7

(14.0)

38.8

(45.5)

Net profit / (loss) attributable to:

Shareholders of the parent

14.7

(15.0)

41.6

(48.8)

Non-controlling interests

(1.0)

1.0

(2.8)

3.3

Basic and diluted earnings per share
(expressed in Russian Roubles per share)

0.0014

(0.0022)

0.0040

(0.0072)


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