VTB Group announces IFRS results for 2Q 2020

дата07.08.2020

VTB Bank (“VTB” or “the Bank”), the parent company of VTB Group (“the Group”), today publishes its Interim Condensed Consolidated Financial Statements for the three months and half-year ended 30 June 2020 with the independent auditor’s report on review of these statements.

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

"In the first half of the year, VTB Group delivered good net operating income performance, including impressive growth in net fee and commission income, despite a sharp decline in business activity as a result of the COVID-19 pandemic. Our key priority is to enhance operating efficiency and optimise costs, and since the beginning of the year we continued to ensure income grow faster than expenses, with costs growing at a reasonably slow pace. Nonetheless, the sharp increase in provisions put significant pressure on our bottom line. VTB Group’s net profit for January—June 2020 came to RUB 41.9 billion, which represents a ROE of 4.9%.

"VTB Group responded to unprecedented challenges facing the economy and the banking system with efficiency and confidence. Our strong market position and the vast experience of our team, as well as our ongoing work to transform our customer service and internal processes, enabled us to maintain smooth, high-quality service in all customer segments and to increase the penetration of digital services.

“VTB is a socially responsible company and we implemented a wide array of support programmes for clients facing difficult situations.

“The current recovery in economic and business activity gives grounds for cautious optimism. In the second half of the year, we will continue focusing on enhancing the customer experience, expanding existing customer relationships and broadening our client base while conservatively managing risks and continuing to optimise costs.”

FINANCIAL HIGHLIGHTS

RUB billion

30-Jun-2020

31-Mar-2020

1-Jan- 2020

Change in 1H 2020,
% or pp

Change in 2Q 2020,
% or pp

Total assets

16,346.9

16,588.7

15,516.1

5.4%

-1.5%

Loans and advances to customers, including pledged under repurchase agreements (gross)

11,947.2

12,058.6

11,461.5

4.2%

-0.9%

Legal entities

8,347.0

8,565.4

8,096.2

3.1%

-2.5%

Individuals

3,600.2

3,493.2

3,365.3

7.0%

3.1%

Customer funding

11,852.4

11,819.7

10,974.2

8.0%

0.3%

Legal entities

6,583.5

6,408.2

5,932.6

11.0%

2.7%

Individuals

5,268.9

5,411.5

5,041.6

4.5%

-2.6%

NPL ratio

5.1%

4.9%

4.7%

0.4 pp

0.2 pp

LDR ratio

94.1%

95.5%

98.2%

-4.1 pp

-1.4 pp

The loan book expanded by 4.2% in 1H 2020

  • In the first half of 2020, the Group’s total loan book grew by 4.2% to RUB 11,947.2 billion.
  • The retail portfolio grew by 7.0% in 1H 2020, driven primarily by a 10.8% increase in mortgage lending.
  • As of 30 June 2020, secured loans (mortgages and car loans) accounted for 53% of total retail lending, an increase of 1 pp from 31 March 2020 and from the beginning of the year.
  • In 1H 2020, the corporate loan book grew by 3.1% to RUB 8.3 trillion. Excluding the impact of the revaluation of loans denominated in foreign currencies, the corporate loan book contracted by 1.0%.
  • The Group’s market share in Russia in corporate and retail lending was 17.0% and 18.0% (-1.2 pp and +0.6 pp for 1H 2020), respectively.

Customer funding increased by 8.0% in 1H 2020, with considerable growth in both retail and corporate funding

  • Customer funding grew by 8.0% in 1H 2020 to RUB 11,852.4 billion. Customer funding from legal entities and individuals rose by 11.0% and 4.5%, respectively.
  • Customer funding as a share of the Group’s liabilities increased by 1.5 pp in 2Q 2020 to 81.0%. The loans-to-deposits ratio (LDR) was 94.1% as of 30 June 2020, compared with 95.5% as of 31 March 2020 and 98.2% as of 31 December 2019.
  • The Group’s market share in Russia in corporate and retail funding stood at 20.4% (+0.2 pp since the beginning of the year) and 14.9% (-0.2 pp since the beginning of the year), respectively.

Income statement

RUB billion

1H 2020

1H 2019

Change, %

2Q 2020

2Q 2019

Change, %

Net interest income

252.0

213.6

18.0%

132.3

109.4

20.9%

Net fee and commission income

52.9

44.9

17.8%

24.9

26.0

-4.2%

Operating income before provisions

290.5

269.8

7.7%

127.3

132.8

-4.1%

Provision charge*

-113.9

-45.4

150.9%

-68.8

-30.2

127.8%

Staff costs and administrative expenses

-129.1

-125.6

2.8%

-65.0

-64.9

0.2%

Net profit

41.9

76.8

-45.4%

2.1

30.3

-93.1%

ROE

4.9%

10.1%

-5.2 pp

0.5%

7.9%

-7.4 pp

*Includes provision charge for credit losses on debt financial assets, provision charge for credit losses on credit-related commitments and other financial assets, and provision charge for legal claims and other commitments.

Net operating income before provisions increased 7.7% in 1H 2020

  • The Group’s net profit for 1H 2020 amounted to RUB 41.9 billion, a decrease of 45.4% year-on-year as a result of growing provision charges.
  • Net interest income for 1H 2020 amounted to RUB 252.0 billion, an increase of 18.0% year-on-year due to organic business growth and a further increase in net interest margin. Net interest margin was 3.7% in 1H 2020, up from 3.3% in 1H 2019. In 2Q 2020, net interest margin was 3.9%, up from 3.3% in 2Q 2019. Changes in the base rate for contributions to the Mandatory Deposit Insurance Fund since the beginning of 2020 had a positive impact on net interest margin in 2Q 2020.
  • Funding costs stood at 4.0% in 1H 2020, which is a 1.3 pp year-on-year decrease, driving a 17.2% reduction in interest expense, while interest income declined at a slower pace of 3.4%. At the same time, the return on interest-earning assets decreased by 0.6 pp year-on-year to 7.8%.
  • Net fee and commission income increased by 17.8% year-on-year to RUB 52.9 billion in 1H 2020. The growth in net fee and commission income was driven mainly by robust growth in commissions on trade finance and steadily increasing commissions from the sale of insurance products.

External factors, including declining oil prices and the COVID-19 pandemic, impact provision charges in 1H 2020

  • Cost of risk increased by 0.9 pp in 1H 2020 to 1.7%. Provision charges amounted to RUB 113.9 billion, an increase of 150.9% year-on-year. The increase in provision charges was due to the impact of the COVID-19 pandemic on loan quality.
  • The NPL ratio stood at 5.1% of gross customer loans as of 30 June 2020, compared with 4.9% as of 31 March 2020 and 4.7% as of 31 December 2019. The Group increased the allowance for loan impairments as a portion of the total loan book to 6.7% as of 30 June 2020, compared with 6.4% as of 31 March 2020 and 6.0% as of 31 December 2019. The NPL coverage ratio was 131.7%, compared with 128.6% as of 31 March 2020 and 128.7% as of 31 December 2019.

VTB Group achieved further improvements in operating efficiency in 1H 2020

  • Personnel and administrative expenses in 1H 2020 amounted to RUB 129.1 billion, an increase of 2.8% year-on-year. Cost increases due to the indexation of wages in December 2019 for non-executive employees in the regional network, the implementation of unplanned measures related to ensuring safety and business continuity during the COVID-19 pandemic, as well as the ongoing technological transformation programme, including an increase in IT staff, were largely offset by ongoing cost-saving programmes.
  • The Group’s key long-term priorities are improving operating efficiency and optimising baseline costs. In 1H 2020, the costs-to-income (CIR) ratio decreased to 44.4% from 46.6% a year earlier.

Other results

VTB remained the outright leader in investment banking

In 1H 2020, VTB Capital remained #1 in investment banking services in Russia and the #1 M&A advisor in Russia and Eastern Europe, and it was also #1 in debt capital markets in Russia according to Dealogic, Refinitiv and Mergermarket.

Continued growth of VTB’s investment products sales platform

  • In 1H 2020, VTB Capital Investments’ assets under management increased by 35% to RUB 2.6 trillion, while the total number of clients exceeded 950 thousand. The number of retail clients using VTB Bank’s brokerage services increased by 38% to 884 thousand; 98% of brokerage accounts since the beginning of the year have been opened online. The number of active clients investing in the stock market has doubled since the beginning of the year, and the value of transactions on Moscow Exchange in 1H 2020 has already exceeded the total amount for FY 2019.
  • The number of active users of the VTB My Investments mobile platform in the first half of the year doubled to more than 350 thousand, while the number of active users per day reached 150 thousand, with monthly transactions of over RUB 740 billion.
  • VTB Capital Investments integrated its proprietary financial management platform into Yandex.Plus. The creation of this new service has enabled users of the country’s leading Internet resource to invest in stocks and bonds available on the Moscow and St Petersburg stock exchanges, to exchange foreign currencies at near-market rates, and much more.
  • A partnership program with Magnit has been launched: Magnit clients receive bonuses when opening a brokerage account with VTB Online.
  • VTB Capital Investments’ companies were ranked #1 in Expert RA’s rating of the largest management companies in Russia based on 1Q 2020 results and preliminary 2Q 2020 results.

IT developments

  • As part of the implementation of the Bank’s Development Strategy, which calls for a large-scale digital transformation, 12 technology programmes are being implemented in key areas with no deviations in terms of timing or budget despite the pandemic.
  • The modernisation of the Bank’s systems continues: since the beginning of the year, VTB has sped up the delivery of SMS and push messages to customers thirtyfold, doubled the capacity of VTB Online and increased the capacity of the remote banking system tenfold.
  • The reliability of the Bank’s IT systems improved: in July 2020, reliability increased from 96.4% to 99.7%. A new production process for the development of technological products was launched, doubling the number of products introduced.
  • In July, VTB Bank completed the first stage of the implementation of its Data Governance system, which will enable analysts, data scientists, IT professionals and other Bank employees to verify the quality and reliability of corporate data faster. The Bank launched a new personnel management system that operates at a much faster speed than before. For example, payroll can now be processed five times faster compared with previous systems.

As part of the development of strategic initiatives, a number of services and non-financial products have been launched for the Medium and Small Business global business line.

  • A number of initiatives were launched to attract new customers and facilitate the procedure of opening new accounts, including remote booking of a settlement account requiring minimum client data was implemented at the Bank’s website, as well as the service allowing to open a settlement account for individual entrepreneurs within the timeframe of 20 minutes in client’s presence. Despite current market environment during 1H 2020 clients opened twice as many new settlement accounts as in 2019.
  • The unified line of settlement and cash services packages for Medium and Small Business clients remains one of the best among similar offers of other banks in terms of price positioning and optimal packing. In 1H 2020, it attracted the attention of more than 100 thousand of new clients. Total of 370 thousand clients chose the Bank’s packages services.
  • The new function within the Universal banking card was launched — a possibility to set expenditure limits. The new function allows a client to control business cards’ expenditures broken down by expenditures types (cash withdrawals, payments in the internet or in retailer and service outlets) and by time periods (day/week/month). Clients also got an opportunity to retrieve statement information from the Universal business card broken down by the card’s account and by every business card in particular.
  • Digital non-banking services were actively developed with focus on helping entrepreneurs. For individual entrepreneurs, a mobile online accounting service called ‘Cifra’ was made available, which enables sole proprietors to fully automate their accounting and tax reporting without engaging an accountant. VTB upgraded its ‘Closer to Business’ information and training portal, which was created specifically to support entrepreneurs and business leaders. The portal now enables users to complete free online training taught by market professionals and to read expert articles on the principles of business process formation, while also providing free access to its electronic library.

At the end of 1H 2020, the Retail Business global business line was developing a number of digital and environmental projects

  • In April 2020, VTB, together with PIK Group, completed the first entirely contactless mortgage transaction. The transaction was completed with an electronic digital signature; the client concluded the transaction online and signed the mortgage agreement without leaving home. VTB and the largest market players believe that this deal marked the beginning of the use of digital mortgages as a bona fide way to purchase a home. The technology is a breakthrough for the Russian mortgage and housing market.
  • As of the end of 1H 2020, VTB was #1 for the first time in terms of the number of mortgage loans issued on the primary housing market in the Moscow region. During the first six months of the year, the Bank issued more than 11 thousand loans worth of RUB 56 billion on the primary housing market to clients in the capital region. VTB’s market share reached 30.7% for the first time.
  • New services have been available to existing VTB Bank customers since May 2020: the ability to receive cash loans without visiting a branch office and paperless processing. A Bank employee fills out an application for the client over the phone and sends the document for signature through VTB Online. The client then signs the contract; the funds are credited instantly, and the documents are stored in VTB Online.
  • In April 2020, the first transactions for remote car purchases were completed in Moscow and St Petersburg. The client chooses a vehicle on the VTB automobile marketplace, completes a loan application and signs the documents with an electronic signature. The dealer delivers the vehicle to the customer’s home, or the customer can pick it up.
  • In May 2020, a pilot project for the delivery of debit cards was implemented: customers can order a card on the Bank’s website with a home delivery option free of charge. The service is already available in 10 cities with a population of more than 1 million.
  • In June 2020, VTB launched the Give a Forest to a Friend online service, which makes it possible to select a piece of land in Russian national parks and plant trees there—all done remotely. The project is being carried out in conjunction with the Russian forest restoration platform Treeography. The service has a potential audience of 5 million people; during the first phase, it will enable the restoration of forests by planting more than 105 thousand trees. The service is available to everyone, not just Bank clients.