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VTB Group announces IFRS results for 3Q 2016

 
14 November 2016

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VTB Bank ("VTB" or "the Bank"), the parent company of VTB Group ("the Group"), today publishes its Interim Condensed Consolidated Financial Statements as at 30 September 2016, with the Independent Auditor’s Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “VTB Group delivered net profit of RUB 34 billion in 9M 2016, more than double the bottom-line result for 6M 2016. This steady improvement in profitability reflects the continued recovery in the Group’s core revenue generation.

“Operational efficiency also played an important role in this strong set of numbers as we started to benefit from the synergies created by the merger of Bank of Moscow. We expect to achieve further synergies and greater efficiency going forward, following the recently-approved decision to merge VTB24 into VTB Bank.

“We are impressed by the development of Post Bank, with more than 3,600 offices opened in 1,075 localities covering 60 Russian regions in under one year. This rapid expansion is enabling us to significantly enhance the Group’s retail franchise.

“VTB Capital remains Russia’s go-to investment banking operation, with continued leadership across DCM, ECM and M&A league tables for the first nine months of the year.

“VTB Group as a whole continues to maintain a solid balance sheet and strong capital ratios, leaving us in an excellent position to support our clients across all sectors of the Russian economy.”

 FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion 9M 2016 9M 2015 Change, % 3Q 2016 3Q 2015 Change, %
Net interest income 310.4 196.0 58.4% 103.4 85.9 20.4%
Net fee and commission income 55.9 54.0 3.5% 19.3 21.4 (9.8%)
Operating income before provisions 361.1 293.8 22.9% 124.1 123.0 0.9%
Provision charge* (146.7) (136.9) 7.2% (43.8) (57.0) (23.2%)
Staff costs and administrative expenses (171.6) (161.4) 6.3% (55.3) (55.6) (0.5%)
Net profit / (loss) 34.1 (10.9) - 18.7 6.2 201.6%


*Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

  • Net profit in 9M 2016 was RUB 34.1 billion, supported by improved core revenue generation as net interest income and net fee and commission income continued to grow.

  • VTB Group net interest income increased by 58.4% year-on-year to RUB 310.4 billion in 9M 2016, as repricing of assets and liabilities supported a recovery in net interest margin to 3.7% for 9M 2016, up from 2.4% in 9M 2015. Net interest margin for 9M 2016 was unchanged from 6M 2016 at 3.7%.

  • The Group’s Retail business and Transaction banking (as part of Corporate-Investment banking and Mid-Corporate banking) were the two main drivers of the 3.5% year-on-year growth in net fee and commission income to RUB 55.9 billion.

  • For 9M 2016, the Group’s provision charge grew significantly slower than net interest income, increasing 7.2% year-on-year to RUB 146.7 billion. The Group's cost of risk, taking into account provisions for credit related commitments (the annualised ratio of the provision charge for loan impairments including provision charge for impairment of credit related commitments to average gross loans and average credit related commitments), was 1.9% in 9M 2016 compared to 1.8% in 9M 2015.

  • In 9M 2016 the Group benefitted from ongoing cost management efforts as well as synergies from the Bank of Moscow merger. Staff costs and administrative expenses for 9M 2016 amounted to RUB 171.6 billion, an increase of 6.3% year-on-year. After the end of the reporting period, on 2 November 2016, the VTB Supervisory Council voted to merge the Group’s retail banking arm VTB24 into VTB Bank. This is expected to help the Group achieve significant cost reductions by optimising the structure of the Group’s retail business in Russia and creating synergies from the merger of operations, including regional networks.

  • The Group's annualised costs-to-average assets ratio was 1.8% for 9M 2016, unchanged from 9M 2015, while the ratio of costs to operating income before provisions improved to 47.5% for 9M 2016 versus 54.9% for 9M 2015.

Statement of financial position

RUB billion 30 Sep 2016 30 Jun 2016 31 Dec 2015 Change in 9M 2016, % or p.p. Change in 3Q 2016, % or p.p.
Total assets 12,359.2 12,333.5 13,641.9 (9.4%) 0.2%
Loans and advances to customers, including pledged under repurchase agreements (gross) 9,409.7 9,362.5 10,110.0 (6.9%) 0.5%
Gross loans to legal entities 7,288.3 7,319.6 8,150.0 (10.6%) (0.4%)
Gross loans to individuals 2,121.4 2,042.9 1,960.0 8.2% 3.8%
Customer deposits 8,000.9 7,859.1 7,267.0 10.1% 1.8%
Deposits from legal entities 5,077.3 5,009.0 4,383.6 15.8% 1.4%
Deposits from individuals 2,923.6 2,850.1 2,883.4 1.4% 2.6%
NPL ratio 7.2% 7.1% 6.3% 0.9 p.p. 0.1 p.p.
Tier 1 CAR 13.5% 13.3% 12.4% 1.1 p.p. 0.2 p.p.
Total CAR 15.4% 15.1% 14.3% 1.1 p.p. 0.3 p.p.

  • The Group’s loan book contracted by 6.9% during 9M 2016 due to a decline in loans to legal entities during the first quarter of 2016 that was driven by repayment of several large FX-denominated loans in 1Q 2016 as well as the strengthening of the Russian ruble in the period and the corresponding revaluation of loans denominated in US dollars and other currencies. In 3Q 2016, the loan book grew for the second quarter in a row, increasing 0.5% despite a 0.1% reduction overall for the Russian market during the same period.

  • Retail lending continued to gain momentum, as loans to individuals increased by 8.2% during 9M 2016 (up 3.8% in 3Q 2016), and stood at RUB 2,121.4 billion as of 30 September 2016.

  • The Group’s NPL ratio was 7.2% of gross customer loans, including those pledged under repurchase agreements (the “total loan book”), as of 30 September 2016, compared to 7.1% at 30 June 2016 and 6.3% as of 31 December 2015. The allowance for loan impairments was 7.5% of the total loan book as of the end of 3Q 2016, versus 7.4% on 30 June 2016 and 6.7% as of 31 December 2015. The NPL coverage ratio remained at a comfortable 102.9% at 30 September 2016, versus 103.9% as of 30 June 2016, and 105.8% as of 31 December 2015.

  • Customer deposits grew by 10.1% in 9M 2016, driven by 15.8% growth in corporate deposits during the period. Growing deposits helped to further improve the Group’s balance sheet, with customer deposits representing 73% of total liabilities as of 30 September 2016, up from 60% at year-end 2015. As of 30 September 2016, the Group’s market shares in Russia in retail and corporate deposits stood at 11.2% and 24.8%, respectively.

  • The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities decreasing to 3.9% as of 30 September 2016, down from 4.2% as of 30 June 2016 and 5.1% as of 31 December 2015. Since the beginning of 2016, VTB and its subsidiaries have made repayments on their international public debt totalling USD 2.2 billion. After the end of the reporting period, on 17 October 2016, VTB Bank launched an overnight bond programme on Moscow Exchange. The Group expects that this tool will have a positive impact on its borrowing costs in the future.

  • VTB maintained solid capital adequacy ratios. As of 30 September 2016, the Group’s total and Tier 1 capital adequacy ratios were 15.4% and 13.5%, respectively, versus 15.1% and 13.3% as of 30 June 2016, and 14.3% and 12.4% as of 31 December 2015.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 9M 2016

% of the Group total*

Corporate-Investment banking

Retail business

Mid-Corporate banking

Assets

44.8%

26.3%

5.3%

Loans and advances to customers (net)

61.5%

24.1%

7.5%

Customer deposits

39.4%

43.3%

8.5%

Revenues from external customers

47.9%

33.2%

6.9%

Net interest income

25.8%

46.1%

8.3%

Net fee and commission income

19.5%

65.0%

12.4%

Provision charge**

38.7%

41.3%

17.4%

Net operating income

28.9%

63.4%

3.3%

Staff costs and administrative expenses

25.4%

53.2%

9.1%


*Before intersegment eliminations

**Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

  • Corporate-Investment banking (CIB) delivered RUB 11.8 billion of net profit in 9M 2016. The Retail business posted a positive net result of RUB 35.1 billion for the period. Conservative lending policies and a cautious business environment continued to put pressure on Mid-Corporate banking during 9M 2016. Net loss of Mid-Corporate banking for 9M 2016 was RUB 8.0 billion.

  • The loan book in the Retail business continued to grow in 9M 2016, primarily driven by mortgage lending and consumer loans. Mortgage lending growth in 9M 2016 was driven by increasing consumer activity and the continuation of the Government’s programme to subsidise mortgage interest rates. The Group has continued to focus on portfolio quality in consumer lending and has seen a significant pickup in consumer activity.

VTB Group gross loans to individuals

RUB billion

30 Sep 2016

30 Jun 2016

31 Dec 2015

Change in 9M 2016, %

Change in 3Q 2016, %

Gross loans to individuals

2,121.4

2,042.9

1,960.0

8.2%

3.8%

Mortgage loans

953.9

921.6

875.1

9.0%

3.5%

Consumer loans

937.4

893.4

854.9

9.7%

4.9%

Credit cards

132.7

129.4

124.1

6.9%

2.6%

Car loans

89.2

90.1

100.2

(11.0%)

(1.0%)

Other loans

8.2

8.4

5.7

43.9%

(2.4%)


  • Mortgage loans amounted to 45.0% of the Group’s gross loans to individuals as of 30 September 2016, up from 44.6% as of 31 December 2015. Consumer loans and credit card loans accounted for 44.2% and 6.3% of the portfolio, respectively, versus 43.6% and 6.3% at 31 December 2015. The share of car loans continued to decline, reaching 4.2% as of 30 September 2016, versus 5.1% at the start of the year.

  • The Retail business has been pursuing opportunities to grow fee-based revenues, in particular through active cross-selling of ancillary pension and insurance products, including mortgage-linked products from VTB Insurance and life insurance plans from VTB Life Insurance for private banking clients. The Retail business’s net fee and commission income reached RUB 36.6 billion in 9M 2016, or 65.0% of the Group’s total.

  • In 9M 2016, the Group continued to optimise its Retail business branch network and staff in line with market trends. As of 30 September 2016, the Group had around 5,000 retail offices in Russia (including the Post Bank branch network).

  • VTB Capital, the Group’s investment banking franchise, topped the Dealogic rankings for the first nine months of 2016 across DCM and ECM categories, securing a solid market share in Russia, CIS and CEE. Highlights include: #1 Russia and CIS International DCM Bookrunner with market share of 40.7% for Russia and 33.8% for CIS; #1 Russia Domestic DCM Bookrunner with market share of 31.4%; #1 CEE Total DCM Bookrunner with market share of 14.3%; and #1 Russia and CIS ECM Bookrunner with market share of 21.9%. VTB Capital also holds the top position in M&A by number of transactions in Russia and the CIS according to Mergermarket rankings for 9M 2016.

  • In Mid-Corporate banking (MCB), the Group continued to grow its loan book conservatively, with a focus on high-quality borrowers. While interest rates have become more affordable for the MCB customer segment, customers remain cautious about new borrowing. Throughout 9M 2016, MCB maintained its focus on strict loan origination policies and risk management standards, as well as on its documentary business with high quality customers.

Contacts:

Investor relations:

Tel: +7 495 775 71 39

Email: investorrelations@vtb.ru


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