News Column

VTB Group announces IFRS results for the first six months of 2014

August 22, 2014



ENP Newswire - 22 August 2014

Release date- 21082014 - VTB Group today publishes its Interim Condensed Consolidated Financial Statements as at 30 June 2014 with the Independent Auditors' Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: 'A challenging operating environment and correspondingly high cost of risk put pressure on VTB Group's profitability in the second quarter and first half of 2014, as we maintained a conservative stance in our provisioning policies. At the same time, our six-month results reconfirm that we are positioned well to withstand both geopolitical and macroeconomic headwinds. We continued to expand our key businesses while reducing our reliance on wholesale funding, sustaining robust liquidity and securing solid capitalisation ratios. We are also committed to stringent cost management and further improvements in our efficiency ratios in accordance with the Group's key strategic goals.'

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion

1H 2014

1H 2013

Change,

% or p.p.

Net interest income

177.2

150.3

17.9%

Net fee and commission income

28.8

25.6

12.5%

Operating income before provisions

220.1

184.0

19.6%

Provision charge for impairment of debt financial assets

(92.8)

(50.7)

83.0%

Staff costs and administrative expenses

(109.0)

(97.3)

12.0%

Net profit

5.0

27.6

(81.9%)

Return on equity

1.1%

6.9%

(5.8 p.p.)

In 1H 2014, VTB Group posted further solid growth in core income lines, primarily driven by the expansion of its balance sheet, with net interest income and net fee and commission income up by 17.9% and 12.5% year-on-year, respectively.

The Group's net interest margin (NIM) contracted slightly year-on-year to 4.3% in 1H 2014 from 4.4% in 1H 2013. In 2Q 2014 the Group saw a moderate 30 bps quarter-on-quarter NIM contraction (resulting in a quarterly NIM of 4.2%), which was mainly driven by an increase in the CBR key refinancing rate and further growth in the Group's liquidity cushion against higher uncertainty in the operating and geopolitical environment.

Russia's GDP growth slowdown, combined with political tensions in Ukraine, contributed to a year-on-year increase in the Group's annualised cost of risk (CoR) to 2.6% of the average gross loans and advances to customers in 1H 2014, versus 1.8% in 1H 2013. However, in 2Q 2014 the Group saw a quarter-on-quarter improvement in CoR to 2.5% versus 2.8% in 1Q 2014, reflecting the Group's successful efforts to further optimise risk in its retail and corporate loan books. The provision charge for impairment of debt financial assets increased to RUB 92.8 billion in 1H 2014 versus RUB 50.7 billion in 1H 2013.

The Group posted both year-on-year and quarter-on-quarter improvements in its cost-to-income ratio, which stood at 49.5% in 1H 2014 (52.9% in 1H 2013) and at 48.7% in 2Q 2014 (versus 50.4% in 1Q 2014). Staff costs and administrative expenses amounted to RUB 109.0 billion in 1H 2014, up 12.0% from RUB 97.3 billion in 1H 2013, largely due to further growth of the Group's retail business.

Statement of financial position

RUB billion

30 June 2014

31 Dec 2013

Change,

% or pps

Total assets

9,755.3

8,768.5

11.3%

Cash and short term funds

639.6

354.3

80.5%

Loans and advances to customers (gross)

7,130.4

6,330.1

12.6%

Corporate gross loans

5,412.9

4,809.3

12.6%

Gross loans to individuals

1,717.5

1,520.8

12.9%

Customer deposits

5,020.4

4,341.4

15.6%

Corporate deposits

3,154.0

2,548.0

23.8%

Deposits from individuals

1,866.4

1,793.4

4.1%

NPL ratio

5.9%

4.7%

1.2 p.p.

Tier 1 ratio

9.4%

10.9%

(1.5 p.p.)

Total CAR

12.8%

14.7%

(1.9 p.p.)

The Group's loan book expansion, as well as an increase in cash and short-term funds in response to the tighter liquidity environment in the Russian markets, were the main factors behind the growth in total assets during 1H 2014. The share of net loans and advances to customers in total assets continued to increase, reaching 68.6% as of 30 June 2014 versus 68.1% as of 31 December 2013 and 64.2% as of 31 December 2012.

Loan book quality developed in line with macroeconomic trends in 1H 2014. The NPL ratio as of 30 June 2014 was 5.9% of gross customer loans, including financial assets classified as loans and advances to customers pledged under repurchase agreements (hereinafter the 'total loan book') versus 5.8% as of 31 March 2014 and 4.7% as of 31 December 2013. The allowance for loan impairment amounted to 5.9% of the Group's total loan book as of 30 June 2014 and 31 March 2014, versus 5.5% at the start of the year. The Group's NPL coverage ratio at 30 June 2014 was 100.7%, versus 101.0% as of 31 March 2014 and 115.5% as of 31 December 2013.

The Group's customer deposits grew by 15.6% during 1H 2014, reflecting mainly a solid increase in deposits from corporate clients in 1Q 2014 as well as the Group's strong deposit-taking capacity in both corporate and retail businesses. In 2Q 2014 the Group's customer deposits growth was muted by the 6% revaluation of the rouble against the US dollar, as a substantial part of the Group's customer funds are denominated in US dollars.

In 1H 2014 and 2Q 2014, the Group further decreased its reliance on wholesale funding, as the share of funds raised via issuance of debt securities in the Group's liabilities contracted to 7.9% as of 30 June 2014 versus 8.9% as of 31 March 2014 and 9.4% at the start of the year.

VTB continues to work to further strengthen its capital base and capital adequacy ratios. On 29 August 2014, VTB's extraordinary general meeting of shareholders will decide on the issuance of preference shares by the Bank, which will allow the conversion of subordinated loans received by the Group's banks in 2008 (as part of the Russian Government's anti-crisis package). The subordinated loans are expected to be converted into new preference shares that are to receive Common Equity Tier 1 treatment under Bank of Russia regulations and Basel standards.

As of 30 June 2014, the Group's total and Tier 1 capital adequacy ratios were 12.8% and 9.4%, respectively, versus 14.7% and 10.9% as of 31 December 2013. According to the Group's pro-forma estimate as of 30 June 2014, the conversion of the Group's subordinated debt into preference shares is expected to boost the Tier 1 capital adequacy ratio by c. 2.4 percentage points.

KEY BUSINESS SEGMENT HIGHLIGHTS

The loan book growth in the Retail business was primarily driven by mortgages in both 1H 2014 and 2Q 2014, as the Group continued to see strong demand for this type of loan across Russia and continued to prioritise less-risky products while expanding its assets base.

VTB Group retail gross loans

RUB billion

30 June 2014

31 Dec 2013

Change, %

Gross loans to individuals

1,717.5

1,520.8

12.9%

Mortgage loans

639.9

539.9

18.5%

Consumer loans

830.1

741.4

12.0%

Credit cards

99.7

86.2

15.7%

Car loans

128.3

133.2

3.7%

Other loans

19.5

20.1

3.0%

Mortgage loans reached 37.3% of the Group's gross loans to individuals as of 30 June 2014 versus 35.5% as of 31 December 2013. The share of consumer loans and credit card loans in the portfolio amounted to 48.3% and 5.8%, respectively (versus 48.8% and 5.7% at 31 December 2013, respectively). The share of car loans in the portfolio decreased to 7.5% as of 30 June 2014 versus 8.8% at the start of the year.

The macroeconomic slowdown in 1H 2014 had a negative impact on asset quality and cost of risk in retail lending. VTB24, the Group's core retail bank, has considerably reduced approval rates for the riskiest customer segments and strengthened further its debt collection function. In 2Q 2014, the Group's CoR for loans to individuals improved to 5.1% from 5.5% in 1Q 2014.

The total number of the Group's retail offices in Russia (operating under the brands VTB24, Bank of Moscow, and Leto Bank) was more than 1,760 as of 30 June 2014. The combined number of the Group's ATMs exceeded 12,000 at the end of 1H 2014.

In Corporate-Investment banking, the Group saw a persistent rise in demand for credit from large, high quality borrowers, as international debt capital markets remained largely closed for Russian issuers. The Group's gross loans to legal entities increased by 12.6% in 1H 2014 and by 6.7% in 2Q 2014.

Mid-Corporate banking business continued to grow efficiently, with a particular focus on credit quality and diversification in the loan book. During 1H 2014, the mid-corporate banking team adjusted its origination policies in order to increase the share of top-quality clients in the Group's portfolio, and also enhanced its offering to Russian medium-sized entities by introducing a number of innovative lending products.

The Group's investment banking franchise VTB Capital continues to be the #1 investment bank in Russia despite challenging conditions in Russian and CIS capital markets. For 1H 2014, VTB Capital's debt capital markets team took the top spot in the Dealogic ranking for Russia & CIS, having arranged 20 transactions for a total of US$ 4.7 billion and taking 23.1% market share. VTB Capital also ranked #1 in equity capital markets in Russia and CIS. In 1H 2014, VTB Capital arranged two transactions totalling US$ 354 million, accounting for 25.9% of the market.

Contacts:

Investor relations:

Tel: +7 495 775 71 39

Email: investorrelations@vtb.ru

VTB Bank

Interim Consolidated Statement of Financial Position as at 30 June 2014

(in billions of Russian Roubles)

30 June 2014

(unaudited)

31 December 2013

Assets

Cash and short-term funds

639.6

354.3

Mandatory cash balances with central banks

66.2

58.7

Financial assets at fair value through profit or loss

363.0

411.1

Financial assets pledged under repurchase agreements

564.3

466.6

Due from other banks

328.7

443.4

Loans and advances to customers

6,687.5

5,969.0

Investment financial assets

available-for-sale 129.3 135.4

held-to-maturity 0.4 0.7



Investments in associates and joint ventures

78.4

87.6

Assets of disposal group held for sale

38.4

36.7

Land, premises and equipment

219.0

170.3

Investment property

179.2

160.7

Goodwill and other intangible assets

159.9

162.5

Deferred income tax asset

48.6

45.5

Other assets

252.8

266.0

Total assets

9,755.3

8,768.5

Liabilities

Due to other banks

658.2

666.6

Customer deposits

5,020.4

4,341.4

Liabilities of disposal group held for sale

12.4

20.7

Other borrowed funds

1,826.3

1,485.9

Debt securities issued

698.6

738.2

Deferred income tax liability

15.1

15.0

Other liabilities

299.9

262.6

Total liabilities before subordinated debt

8,530.9

7,530.4

Subordinated debt

290.4

291.0

Total liabilities

8,821.3

7,821.4

Equity

Share capital

138.1

138.1

Share premium

433.8

433.8

Perpetual loan participation notes

75.7

73.6

Treasury shares and bought back perpetual loan participation notes

(2.4)

(3.6)

Other reserves

36.7

35.6

Retained earnings

244.1

262.0

Equity attributable to shareholders of the parent

926.0

939.5

Non-controlling interests

8.0

7.6

Total equity

934.0

947.1

Total liabilities and equity

9,755.3

8,768.5

VTB Bank

Interim Consolidated Income Statement for the Three Months and the Six Months Ended 30 June 2014 (unaudited)

(in billions of Russian Roubles)

For the three-month period ended 30 June

For the six-month period ended 30 June

2014

2013

2014

2013

Interest income

200.1

167.4

388.3

324.6

Interest expense

(112.8)

(90.9)

(211.1)

(174.3)

Net interest income

87.3

76.5

177.2

150.3

Provision charge for impairment of debt financial assets

(45.2)

(28.7)

(92.8)

(50.7)

Net interest income after provision for impairment

42.1

47.8

84.4

99.6

Net fee and commission income

14.5

14.1

28.8

25.6

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

9.9

(6.9)

5.5

(7.8)

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

0.3

(0.9)

0.8

(0.2)

(Losses net of gains) / gains net of losses arising from foreign currencies

(3.2)

2.6

(11.4)

(0.3)

Gains on initial recognition of financial instruments, restructuring and other gains on loans and advances to customers

1.6

0.3

1.7

2.9

Share in (loss) / profit of associates and joint ventures

(0.3)

0.9

0.3

0.9

Gain / (loss) from disposal of subsidiaries and associates

0.3

(0.3)

9.3

0.8

Gains net of losses / (losses net of gains) arising from extinguishment of liability

0.2

(1.2)

(0.8)

(2.2)

Provision charge for impairment of other assets, credit related commitments and legal claims

(3.5)

(0.7)

(3.9)

(2.0)

Excess of fair value of acquired net asset over cost

-

1.3

-

1.5

Other operating income

3.3

2.0

6.4

3.4

Non-interest gains / (losses)

8.6

(2.9)

7.9

(3.0)

Net insurance premiums earned

11.5

5.7

22.9

11.1

Net insurance claims incurred and movement in liabilities to policyholders

(7.2)

(2.5)

(15.0)

(5.3)

Revenue from non-banking activities

6.1

9.8

13.3

18.1

Cost of sales and other expenses from non-banking activities

(8.9)

(8.1)

(18.4)

(14.8)

Revenues less expenses from non-banking operations

1.5

4.9

2.8

9.1

Impairment of goodwill

-

-

(0.5)

-

Staff costs and administrative expenses

(56.2)

(51.4)

(109.0)

(97.3)

Non-interest expenses

(56.2)

(51.4)

(109.5)

(97.3)

Profit before tax

10.5

12.5

14.4

34.0

Income tax expense

(7.0)

(3.6)

(12.4)

(9.4)

Net profit after tax

3.5

8.9

2.0

24.6

Profit after tax from subsidiaries acquired exclusively with a view to resale

1.1

3.0

3.0

3.0

Net profit

4.6

11.9

5.0

27.6

Net profit/(loss) attributable to:

Shareholders of the parent

1.9

12.6

4.3

27.9

Non-controlling interests

2.7

(0.7)

0.7

(0.3)

Basic and diluted earnings per share

(expressed in Russian Roubles per share)

(0.0003)

0.0006

(0.0001)

0.0021

Basic and diluted earnings per share before profit after tax from subsidiaries acquired exclusively with a view to resale

(expressed in Russian Roubles per share)

(0.0004)

0.0003

(0.0004)

0.0018


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Source: ENP Newswire


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