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VTB Announces IFRS Results for 2010

 
27 April 2011

Moscow – VTB Group today announced its audited consolidated IFRS results for the year ended 31 December 2010.

FINANCIAL AND OPERATING HIGHLIGHTS

  • Record net profit of RUB 16.0 billion in 4Q2010 contributing to record annual net profit of RUB 54.8 billion, with strong performance by all key business segments;
  • Strong net interest margin of 5.1% in 2010 (excluding the effect of TransCreditBank consolidation);
  • Cost of risk improved to 1.8% of average gross loans (1.9% of average gross loans without TransCreditBank) in 2010, vs. 5.7% in 2009;
  • Net fee and commission income up 17.6% y-o-y to RUB 24.7 billion;
  • Solid organic growth of assets and liabilities accelerated further by TransCreditBank consolidation: total gross loans up 20.2% to RUB 3.1 trillion, customer deposits up 41.1% to RUB 2.2 trillion;
  • Loans-to-deposits ratio improved to 125.9% vs. 147.2% at the end of 2009;
  • Capital efficiency improved through consolidation of TCB; BIS and Tier 1 ratios remain strong at 16.8% and 12.4% respectively.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “We have lived up to our promises, delivering a record net profit for 2010 while successfully implementing the Group’s new strategy. We are also pursuing strategic acquisitions that will enable us to utilise our solid capital base and further strengthen our market position across our core businesses.”

FINANCIAL AND OPERATING REVIEW

Market overview

The Russian economy returned to growth in 2010, with GDP increasing 4% according to Rosstat. Russia’s industrial production increased by 8.2%, while real disposable income grew 4.2%, which supported demand for credit and growth in lending activity. This growth, however, was balanced by ongoing pressure on yields and margins resulting from increasing competition for high quality borrowers. At the same time global capital markets remained volatile due to ongoing sovereign debt concerns in some European countries, which also had a dampening effect on banking sector performance during the year.

Review of financial performance and financial position

In December 2010, the Group acquired a 43.2% stake in TransCreditBank, JSC (TCB) and on 31 December 2010 it obtained control over TCB based on the existence of potential voting rights. For IFRS reporting purposes, TCB is consolidated in the Group’s 2010 audited financial statements. All information on assets and liabilities discussed below includes TCB data. The metrics excluding TCB are also provided in a table format to indicate the organic changes in the Group’s assets and liabilities during the period. In 2010, the consolidation of TСBdid not affect the Group’s income statement.

VTB Group delivered a record annual net profit of RUB 54.8 billion for 2010, versus an annual loss of RUB 59.6 billion in 2009. Thus, the Group’s annual return on equity (ROE) amounted to 10.3% and its earnings per share reached RUB 0.00557, versus a loss of RUB 0.00821 per share in 2009. In the fourth quarter of 2010, VTB also posted a record quarterly net profit of RUB 16.0 billion, which implies an annualised ROE of 11.4% (11.6% for the Group excluding TCB).

The Group’s operating income before provisions reached RUB 221.1 billion in 2010, up 32.2% from RUB 167.2 billion the previous year. Net interest income before provisions reached RUB 171.1 billion, up 12.4% year-on-year from RUB 152.2 billion. While lending rates have seen downward pressure across the banking sector, VTB improved its net interest margin to 5.1% for the year 2010 (excluding the effect of TCB consolidation), up from 4.6% in 2009. This was largely due to the Group’s focus on liability management, which helped contain interest expense.

Net fee and commission income for 2010 increased to RUB 24.7 billion, representing 17.6% year-on-year growth from RUB 21.0 billion for 2009, supported by solid net fee and commission income in the retail business of RUB 10.2 billion, up 50.0% year-on-year. The share of this segment in the Group’s net fee and commission income (before intersegment eliminations) was 41.0%, up from 32.9% for the same period last year.

The Group’s net gains from financial instruments in 2010 amounted to RUB 14.7 billion, compared to a loss of RUB 20.2 billion in the previous year, during which VTB resumed marking-to-market its listed equity securities that had previously been marked-to-model.

Staff costs and administrative expenses for 2010 amounted to RUB 95.1 billion, up 24.5% year-on-year, primarily reflecting strong growth in the Group’s corporate and investment banking (CIB) operations and continued expansion of VTB24’s retail branch network. At the same time costs grew at a slower rate than the Group’s pre-provision income, which enabled VTB to successfully bring its 2010 cost to income ratio down to 43.0% from 45.7% in 2009.

VTB loans and deposits grew both organically and through consolidation of TCB. Total gross loans reached RUB 3,059.6 billion, an increase of 20.2% from RUB 2,544.8 billion at 31 December 2009. Corporate loans at year end 2010 amounted to RUB 2,518.1 billion, up 19.4% from RUB 2,109.5 billion at the beginning of the year. Retail loans at the end of 2010 equalled RUB 541.5 billion, up 24.4% from RUB 435.3 billion at year end 2009. The TCB contribution to the Group’s loan portfolio was RUB 142 billion of corporate loans and RUB 62 billion of retail loans.

Effective risk management and a positive trend in loan portfolio quality contributed to a significantly lower provision charge for impairment of debt financial assets of RUB 51.6 billion in 2010, compared to RUB 154.7 billion in 2009. Simultaneously the provision charge for impairment of loans and advances to customers decreased to 1.8% of the average loan portfolio (1.9% of the average loan portfolio without TransCreditBank), down from 5.7% of the average loan portfolio in 2009.

The allowance for loan impairment was 9.0% (9.6% for the Group excluding TCB) of total gross loans as of 31 December 2010, compared to 9.2% at the end of 2009. The Group’s non-performing loan (NPL) ratio decreased to 8.6% of total gross loans, down 120 bp from 9.8% at the end of 2009, while the Group’s NPL coverage ratio at 31 December 2010 was a comfortable 103.7%. The Group’s NPL ratio excluding the TCB loan book was 9.2% with an NPL coverage ratio of 104.3%.

Funding from customer deposits continued to grow during the reported period, reaching RUB 2,212.9 billion at 31 December 2010, up 41.1% from RUB 1,568.8 billion at year end 2009. Corporate deposits amounted to RUB 1,465.0 billion, a 34.1% increase versus RUB 1,092.3 billion the end of 2009. Retail deposits reached RUB 747.9 billion, up 57.0% from RUB 476.5 billion as of 31 December 2009. The share of customer deposits in the Group’s total liabilities rose to 59.6% at 31 December 2010 from 50.5% at 31 December 2009. Over the same period, the Group’s loans to deposits ratio improved to 125.9%, down from 147.2%. TCB’s contribution to the Group’s customer funds was RUB 214 billion in corporate deposits and RUB 63 billion in retail deposits.

VTB has been successful at optimising its liabilities costs through a number of measures, including diversifying funding sources across geographies, currencies and investor base. Throughout 2010 the bank successfully lowered its yield curve benchmarks with a number of placements in U.S. dollars, Swiss francs and Singapore dollars. In December 2010, the Group issued its first securities in the Chinese market with a CNY 1,000 million 3-year Eurobond successfully priced at 2.95% p.a.

The acquisition of 43.2% in TCB has improved the Group’s capital efficiency in the fourth quarter of 2010, with VTB’s Tier 1 capital adequacy ratio at a sound 12.4% and total BIS ratio at 16.8% as of 31 December 2010.

The table below presents the Group’s loans, customer deposits and key ratios discussed above with and without the effect of TCB consolidation:

VTB Group

Change to 2009

VTB Group excl. TCB

Change to 2009

Total gross loans

3,059.6

20.2%

2,856.0

12.2%

- Corporate loans

2,518.1

19.4%

2,376.5

12.7%

- Retail loans

541.5

24.4%

479.5

10.2%

Allowance for loan impairment / total gross loans

9.0%

(20 bp)

9.6%

40 bp

Customer deposits

2,212.9

41.1%

1,935.9

23.4%

- Corporate deposits

1,465.0

34.1%

1,251.1

14.5%

- Retail deposits

747.9

57.0%

684.8

43.7%

Loans-to-deposits ratio

125.9%

(21.3 pp)

133.4%

(13.8 pp)

Tier 1 capital ratio

12.4%

(2.3 pp)

12.9%

(1.8 pp)

Total BIS ratio

16.8%

(4.1 pp)

17.1%

(3.8 pp)

CORPORATE BUSINESS

As corporate profits rebounded across key sectors of the economy, Russian banks’ lending activity continued to recover during 2010. This growth, however, was balanced by a pressure on yields and margins resulting from growing competition – a trend expected to continue in 2011.

In this challenging environment, the Group’s focus on key strategic initiatives contributed to the corporate business segment’s strong return to profitability in 2010. The segment’s profit before tax amounted to RUB 35.0 billion, compared to a loss before tax of RUB 66.5 billion in 2009.

In 2010, VTB commenced the reorganisation of its corporate business in order to achieve closer integration and synergies between the corporate and investment banking businesses. As part of this initiative, VTB established the Corporate and Investment Banking (CIB) unit. A strong and enlarged team was formed to successfully market the full range of the Group’s corporate and investment banking products to nearly 100 of its top clients (Russia’s largest corporations).

In order to separate its sales and product management functions, VTB created the Corporate Products Unit, which is responsible for developing and supporting commercial banking products, with a particular focus on transaction banking. During 2010, VTB’s product management team developed several new cash management and settlement products, which are expected to increase further the competiveness of its product range.

The Credit Unit and the Corporate Business Support were created to develop the Group’s corporate business infrastructure and to further improve the quality of client service. During 2010, VTB streamlined decision-making processes in respect of several lending products, in particular for its medium-sized clients.

Vladimir Tatarchuk, VTB Deputy President and Chairman of the Management Board, and Co-Head of Corporate and Investment Banking, said: “We continue to enhance our service and product offering to stay ahead of the competition for quality corporate borrowers. With the launch of new products and the CIB Unit in 2010, we can truly say that VTB is one of the few banks in Russia that can offer leading corporations a full range of high-quality banking services.”

RETAIL BUSINESS

VTB Group’s retail arm, VTB24, contributed strongly to the Group’s results: retail segment profit before taxation was RUB 23.4 billion in 2010, up 3.25 times from RUB 7.2 billion for the previous year. Simultaneously, the segment’s share in the Group’s revenues increased to 24.8% from 19.6% in 2009.

In 2010, the retail business grew its lending volumes, achieved strong margins, reduced provision charges and had a very solid net fee and commission income of RUB 10.2 billion, up 50.0% from RUB 6.8 billion in 2009.

In retail lending, VTB24 continued its shift towards shorter-term and higher-margin products. As a result, the Group’s consumer loans grew by 30.2% to RUB 238.1 billion, while auto loans were up 15.8% to RUB 52.7 billion (all figures exclude TCB). The share of these products in VTB’s retail loan portfolio increased to 60.6% at 31 December 2010 from 52.5% at the start of the year. In the same period, mortgage loans were up 2.1% to RUB 185.6 billion but their share in the retail portfolio decreased to 38.7% from 41.7% (excluding TCB). TCB consolidation added RUB 30 billion of consumer loans and RUB 32 billion of mortgage loans to the Group’s retail loan portfolio, leaving the existing portfolio mix broadly unchanged.

In 2010, thanks to its strong and trusted brand, VTB Group saw significant organic inflow of retail deposits, which were up 43.7% to RUB 684.8 billion (with TCB: retail deposits were up 57% to RUB 747.9 billion). VTB24’s private banking business continues to make a meaningful contribution to the retail funding base, with deposits from VIP-clients reaching 12.3% of the Group’s retail customer deposits. VTB24 VIP client deposits increased by 58.7% to RUB 91.7 billion during 2010.

Expansion of VTB24’s sales network remained one of the key components of the VTB retail business strategy. As of 31 December 2010 VTB24’s retail branch network amounted to 531 offices, as compared to 476 at the end of 2009. The number of VTB24 ATMs increased over the same period to 5,000 from 4,046. The acquisition of TCB increased the Group’s retail branch network by a further 289 offices and 2,334 ATMs as of 31 December 2010.

Mikhail Zadornov, VTB24 President and Chairman of the Board, said: “We continue to outperform the market and rapidly expand the VTB24 branch network and franchise, while developing our innovative product offering and customer service model. VTB24’s further expansion will be supported both by organic growth as well as strategic acquisitions, as we increase our geographic reach and enhance our reputation as a high-quality and reliable retail bank.”

INVESTMENT BUSINESS – VTB CAPITAL

Despite continued challenging market conditions in 2010, the investment banking segment posted a profit before tax of RUB 25.5 billion, outperforming by 55.5% the RUB 16.4 billion profit before tax for 2009.

VTB Capital maintained its leadership in Russia-related capital markets during 2010. Its debt capital markets (DCM) team arranged 48 domestic and 22 international debt capital markets transactions, with a total principal amount of approximately RUB 325 billion, according to Cbonds. VTB Capital’s market share is calculated at 18.0% for domestic DCM, and 14.8% in Russia-related international DCM, making VTB Capital’s DCM team the top arranger of both international and domestic bond issues by Russian companies, according to Cbonds rankings.

VTB Capital’s equity capital markets (ECM) team also took the lead among investment banks in Russia, participating in 2010’s most successful deals, including the US$ 420 million IPO by Russian food retailer O’KEY Group and the US$ 1 billion IPO of Mail.ru Group. According to Dealogic, VTB Capital’s ECM market share was 17.8% for 2010, with a #1 ranking among equity capital markets bookrunners in Russia and the CIS.

In M&A, VTB Capital participated in the largest Russian deals of 2010, including the purchase of a controlling stake in Uralkali, a leading global potash fertilizer producer, and the following merger of Uralkali and Silvinit (the deal value based on pre-announcement closing prices is US$ 23.9 billion). In November, VTB Capital was named Best Investment Advisor of the Year at the Russia Mergers & Acquisitions Awards 2010, a Mergers.ru event.

In 2010, VTB Capital increased its derivatives market operations by offering clients diverse strategies and products for hedging market risks. In 2010, VTB Capital was recognised by the Euromoney FX survey as #1 in FX conversion for corporates, with a market share of more than 30%.

In equity trading VTB Capital has grown rapidly in 2010 in terms of turnover, profitability, market share, client numbers and product diversity. According to MICEX, VTB Capital holds a top-three position on the equity repo market (on-exchange trades).

Yuri Soloviev, President and Global CEO of VTB Capital, said: “We have demonstrated our ability to grow our operations quickly and profitably, and we look forward to building on our position as a leading Russia-related player in the global markets.”

STATUS OF ACQUISITIONS

TransCreditBank

In December 2010, the Group acquired a 43.2% stake in TCB from minority shareholders and on 31 December 2010 it obtained control over TCB based on the existence of potential voting rights. Following this acquisition, Russian Railways, the state-owned company that owns and operates Russia’s rail system infrastructure, remains the owner of 54.4% of TCB and a substantial part of TCB’s business is done with Russian Railways and its employees and affiliates. For IFRS reporting purposes, TCB is consolidated in the Group’s 2010 audited financial statements.

VTB intends to acquire an additional stake from Russian Railways in the first half of 2011, increasing the Group’s share of ownership to approximately 75%, and to acquire the remaining stake owned by Russian Railways by the end of 2013.

VTB believes that this acquisition allows the Group to strengthen its competitive position, increase its profitability, and expand its regional footprint in terms of branches, ATM network, and client base.

Bank of Moscow

VTB Group continues to pursue an acquisition of the Bank of Moscow, the fifth largest bank in Russia in terms of assets as of 31 December 2010. The Group believes that this acquisition would be in line with VTB’s strategic objectives, since it would: consolidate VTB’s presence in the Russian banking market and, in particular, the lucrative Moscow region; provide access to the Moscow City government as a major customer; significantly increase the Group’s number of branches; improve the Group’s corporate business mix; provide potential funding synergies; and enhance VTB’s financial position in terms of deposits.

On the date of publication of this release, VTB Group owns a 46.48% stake in Bank of Moscow, which it purchased from the Moscow City government. Four members of VTB Management Board are present on the Board of Directors of the Bank of Moscow including Andrey Kostin, VTB President and Chairman of the Management Board, as Chairman.

Contacts:

Investor Relations:

Tel.: +7 495 775 71 39

Email: investorrelations@vtb.ru

About VTB:

JSC VTB Bank and its subsidiaries (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 31 December 2010, 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 2 representative offices located in Italy and China 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 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, custody services, asset management and venture funds.

The number of employees of the Group as of 31 December 2010 was 51,781. VTB’s majority shareholder is the Russian Federation state, acting through the Federal Property Agency, which holds 85.50% of VTB’s issued and outstanding shares at 31 December 2010.


VTB Bank

Consolidated Statements of Financial Position as at 31 December

(in billions of Russian Roubles)

2010

2009

Assets

Cash and short-term funds

275.5

260.2

Mandatory cash balances with central banks

26.4

23.9

Financial assets at fair value through profit or loss

344.6

267.9

Financial assets pledged under repurchase agreements and loaned financial assets

16.9

96.2

Due from other banks

349.9

345.6

Loans and advances to customers

2,785.4

2,309.9

Financial assets available-for-sale

55.9

24.9

Investments in associates and joint ventures

15.7

13.9

Investment securities held-to-maturity

34.2

11.7

Premises and equipment

113.2

65.9

Investment property

102.2

79.8

Intangible assets and goodwill

30.5

11.9

Deferred tax asset

37.9

31.4

Other assets

102.6

67.6

Total assets

4,290.9

3,610.8

Liabilities

Due to other banks

397.3

287.0

Customer deposits

2,212.9

1,568.8

Other borrowed funds

185.7

470.9

Debt securities issued

593.1

485.7

Deferred tax liability

7.3

7.0

Other liabilities

110.9

91.2

Total liabilities before subordinated debt

3,507.2

2,910.6

Subordinated debt

205.5

195.3

Total liabilities

3,712.7

3,105.9

Equity

Share capital

113.1

113.1

Share premium

358.5

358.5

Treasury shares

(0.3)

(0.4)

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

4.0

3.4

Premises revaluation reserve

11.4

11.8

Currency translation difference

11.0

13.2

Retained earnings

56.6

2.7

Equity attributable to shareholders of the parent

554.3

502.3

Non-controlling interests

23.9

2.6

Total equity

578.2

504.9

Total liabilities and equity

4,290.9

3,610.8


VTB Bank

Consolidated Income Statements for the Years Ended 31 December

(in billions of Russian Roubles)

2010

2009

Interest income

330.5

373.7

Interest expense

(159.4)

(221.5)

Net interest income

171.1

152.2

Provision charge for impairment of debt financial assets

(51.6)

(154.7)

Net interest income / (expense) after provision for impairment

119.5

(2.5)

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

14.8

(21.3)

Gains less losses arising from extinguishment of liability

14.7

(Losses net of gains) / gains less losses from available-for-sale financial assets

(0.1)

1.1

Losses on initial recognition of financial instruments and on loans restructuring

(0.2)

(19.7)

Losses net of gains arising from dealing in foreign currencies

(7.5)

(12.4)

Foreign exchange translation gains less losses

12.1

26.6

Fee and commission income

28.8

25.5

Fee and commission expense

(4.1)

(4.5)

Share in (loss) / income of associates

(0.7)

0.3

Provision charge for impairment of other assets and credit related commitments

(2.2)

(1.7)

Income arising from non-banking activities

11.0

2.8

Expenses arising from non-banking activities

(7.2)

(1.1)

Other operating income

3.1

3.0

Net non-interest income

47.8

13.3

Operating income

167.3

10.8

Staff costs and administrative expenses

(95.1)

(76.4)

Impairment of goodwill

(1.1)

(3.7)

Profit from disposal of subsidiaries and associates

1.0

Profit / (loss) before taxation

71.1

(68.3)

Income tax (expense) / recovery

(16.3)

8.7

Net profit / (loss)

54.8

(59.6)

Net profit / (loss) attributable to:

Shareholders of the parent

58.2

(63.4)

Non-controlling interests

(3.4)

3.8

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

0.00557

(0.00821)


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