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VTB Group’s development strategy for 2017-2019

On 14 December 2016, the VTB Supervisory Council approved VTB Group’s development strategy for 2017–2019.

The Group’s strategy for the next three years is based on the following priorities:

  • To increase profitability and achieve net profit in excess of RUB 200 billion by 2019.
  • To create an integrated banking business and build a single full-service bank by completing the VTB Bank — VTB24 merger no later than January 2018.
  • To modernise the Group by developing a more customer-oriented bank through a large-scale technological transformation

The strategy is built on a moderately optimistic development forecast for the Russian economy and the banking industry. This is based on the assumption of economic growth gradually recovering to 2%-2.4%, achieving the targeted inflation rate of 4.5% and a gradual reduction of the Bank of Russia’s key interest rate to 6% by end-2019.

The Group’s terminal ROE is expected to be at about 13%-14%, and cost-income ratio at approximately 40%.

The Group expects lending in the Russian banking sector to recover, enabling VTB to expand its loan portfolio by at least 10% per annum. Under the strategy, the Group is expected to outperform the market in terms of retail lending growth rates, increasing the segment’s share in the overall loan portfolio.

An important objective is to improve the funding profile by increasing the share of customer funds, primarily in the retail segment, as well as streamlining liabilities by attracting more funds into current accounts and increasing the share of rouble-denominated account balances.

Merging VTB Bank and VTB24 into an integrated bank is a key strategic project in the new three-year strategy. The initiative is expected to improve the Group’s management structure by creating a single, highly-competitive entity, efficiently leveraging its business lines to deliver common objectives. The merger will also enable the Group to streamline costs and improve its overall financial results.

A technological transformation entails rapid development of digital channels, significantly reducing the time it takes to introduce new products and services, developing data analysis tools and an integrated system for streamlining and automating processes.

Retail business

Under the approved strategy, we expect above-market growth in the retail segment. The Group is committed to improving all key indicators in the retail segment in terms of market share.

This will increase the share of retail business in the overall Group’s loan portfolio from 20% to 30%, and from 30% to 40% in the Group’s total liabilities. Consequently, the Group will have a greater share of businesses with a high rate of return, and more stable funding.

Increasing the size of the mass segment is an important objective in terms of optimising the cost of funding in the retail segment. This can be achieved, inter alia, by actively promoting Post Bank, increasing market share in terms of current account balance by at least 1.5-times, and significantly increasing the share of rouble-denominated funds on retail accounts as opposed to those in foreign currency.

By delivering on these objectives the Group will reduce the cost of funding, which will positively affect the net interest margin.
The integrated VTB Bank and Post Bank are expected to become leading players in terms of quality of service and customer loyalty in their respective sectors. With this as a focus, significantly improving the quality, convenience and functionality of digital channels, the mobile and the online bank, is a key priority.

Corporate-investment business

In the next three years, increasing business profitability whilst strengthening leadership with major corporate customers will be a priority for the Corporate-Investment Banking (CIB) global business line. To these ends, CIB will be tasked with delivering on the following strategic objectives:

  • Increase lending by at least market-average growth rates (approximately 8% per year), adjusting the variety of industries in the portfolio depending on established priorities
  • Increase market share in terms of average current account balances and transaction services to corporate customers by improving quality of service, offering innovative products and upgrading the existing technology platform
  • Diversify customer base by offering more competitive rates, which can be facilitated by a better funding profile and an approach whereby rates depend on the yields offered to customers across all business lines of the Group
  • Develop products and expand the geography of trade and export financing operations
  • Maintain leadership in investment banking services in Russia and make efficient use of the Group’s international presence to further develop CIB business line

Medium corporate business

In working with medium-sized corporate customers the strategic objectives for the Group are to grow the customer base by three times and expand the transactions segment by four times, including current account balances and risk-free fees, to exceed average market growth rate.
To this effect, the Group will overhaul its business model for medium-sized corporates. First, it will improve its risk coverage models and cross-sales for high-end medium corporate business customers by introducing detailed customer-level planning. Second, the Group intends to build a transaction model for attracting more bottom-end customers.

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