Vozrozhdenie Bank has summarised its IFRS results for H1 2015.

- Net interest margin for H1 2015 of 4.7% remained flat comparing to H1 2014 result

- Operating profit before provisions for 6M 2015 went up 6.9% YoY to RUB3.1 billion ($56.3 million)

- Net loss for H1 2015 was RUB569 million ($9.7 million) versus net profit of RUB859 million ($25.5 million) for H1 2014

- Assets totalled RUB217.0 billion ($3.9 billion) as of July 1, 2015 versus RUB227.9 billion ($4.1 billion) as of December 31, 2014

- Retail funds grew by 1.8% YtD to RUB125.1 billion ($2.3 billion)

"Regardless of the general downturn, we build the business on the basis of good positioning and long-term customer relations and move toward the set goals. Pre-provision operating profit was on the upside, we've succeeded to enhance net interest margin thanks to wise interest rates management and ensured inflow of fees on the back of the optimised tariffs and newly implemented products.

We've been working on the portfolio diversification and expanded the share of SMEs. Nevertheless, amid complicated macro environment the quality of credit portfolio inevitably deteriorates that requires additional charges to provisions", commented Andrey Shalimov, Deputy Chairman of the Management Board at Vozrozhdenie Bank.

Assets were down 4.8% over the past half-year to RUB217.0 billion ($3.9 billion). Shrunk lending coupled with the sale of a part of the securities portfolio amid rising market (QoQ decrease of RUB1.6 billion to RUB14.5 billion, or $263 million) drove to a reduction of the share of earning assets by 2.9 pps over the quarter to 75.8%. The share of liquid assets grew 1.6 pps QoQ and stood at 24.0% as of July 1, 2015 as cash and equivalents added 15.6% to reach RUB38.5 billion ($0.7 billion) with larger share of funds placed in the interbank market at favourable rates. Loan-to-deposit ratio was slightly down to 95.5% (+2.8 pps over Q2 2015) still remaining within the targeted range.

Gross loan portfolio was 2.9% lower comparing with that of April 1, 2015 and totalled RUB163.5 billion ($2.9 billion), since the economy kept slowing to adversely impact borrowers' finances and lending dynamics. Over 6M 2015 the loan portfolio moderated by 3.9%.

Corporate lending decline of 5.4% YtD and 4.7% QoQ was the key driver of the established trend. Loans to large corporates, having expanded by 3.7% over Q1 2015, slipped down by 12.8% in the reported quarter to RUB49.3 billion ($0.9 billion). It was reasoned by a write-off of RUB2.7 billion ($49.0 million) as well as by RUB2.8 billion ($50.6 million) of loan repayments among a number of clients that was in line with the policy of improving the loan book granularity. Over Q2 loans to small and medium-sized businesses, which diminished by 4.1% during Q1 2015, gained 2.1% to RUB68.0 billion ($1.2 billion). As of July 1, 2015 the share of lending to SMEs made up 58.0% of the corporate portfolio, up 3.9 pps QoQ.

Fueled by moderation of rates on consumer and mortgage loans in the end of the reported period as well as by the state-supported mortgage programme launched in May, retail demand has revived after sluggish Q1 2015 when credit rates touched their highs. Therefore, retail portfolio was RUB46.2 billion ($831.4 million) as of July 1, 2015, up 2.0% QoQ and up 0.1% YtD. Within its structure, consumer loan book expanded to RUB12.3 billion ($222.2 million), up 6.1% QoQ and up 1.8% YtD, and mortgages - to RUB31.5 billion ($568.1 million), up 0.6% QoQ and down 0.1% YtD.

During Q2 2015 the share of non-performing loans decreased by 41 bps to 11.6%. After a jump of NPL ratio to 12% in Q1 2015 amid deteriorated financial state of corporate borrowers, in Q2 2015 the indicator edged down owing to NPL write-offs at the expense of provisions in the segment of large corporates for RUB2.7 billion ($49.0 million). That was partially offset by arisen RUB1.0 billion ($17.8 million) of loans impaired but not past-due. SME segment got another RUB0.8 billion ($14.3 million) of NPLs as a reflection of negative developments in the economy. Retail NPL ratio crept by 19 bps to 4.92%, 2.7% of which were represented by loans past-due for less than 30 days.

Annualised cost of risk for H1 2015 reached 4.7% after RUB3.9 billion ($70.8 million) were charged to provisions, most part of which fell to the second quarter. During the last three months RUB2.5 billion ($45.3 million) were sent to provisions - RUB1.2 billion ($21.3 million) for large loans and RUB1.2 billion ($22.2 million) for SMEs. In Q2 2015 we wrote-off some bad debts using provisions that utilised a part of the quarterly provisions' growth and caused the level of total provisions for loan impairment remaining almost flat from April 1, 2015 at RUB15.1 billion ($271.5 million).

As the amount of non-performing loans decreased, NPL 1 day+ coverage ratio improved by 3.5 pps to 79.5% and NPL 90 days+ coverage ratio advanced by 4.3 pps to 112.3%.

Customer funds stayed intact at the level of Q1 2015 amounting to RUB169.4 billion ($3.1 billion) as of the quarter-end, which is 2.8% lower than those as of the beginning of the year. These dynamics were largely a result of a drop of the corporate funds by 13.7% over the period to RUB44.3 billion ($0.8 billion) with a slump in expensive corporate term deposits of 23.8% YtD.

Owing to the limited qualitative credit demand, the bank was in a position to choose the most efficient sources of financing preferring cheaper retail deposits, which traditionally make up the core of its funding base. Thereat, the share of current accounts and card balances went up by 1.4 pps QoQ to 25.7%. Over H1 retail client funds rose by 1.8% to RUB125.1 billion ($2.3 billion) as of the reported date; within their structure deposits expanded by 3.9% over the same period, decelerating their pace to 0.1% amid gradual rates' moderation across the whole range of the bank's deposit products.

The bank's capital calculated as per Basel III standards was below the level of the year-start and equaled to RUB25.4 billion ($458.1 million). The total regulatory capital adequacy ratio (N1.0 ratio) remained intact YtD at 12.0%, while the minimum acceptable level is set at 10%. The common equity Tier1 capital adequacy ratio (N1.1 ratio) was up 0.9 pps over the same period and reached 10.4%, considerably exceeding the minimum requirement of 5%. It's noteworthy that the bank did not use the options suggested by the Bank of Russia on calculating risk-weighted assets denominated in foreign currencies.

Flexible interest rates management ensured the growth of yields on the loan book and partially compensated the reduction of lending volumes and higher funding costs. Interest income continued rising to RUB6.1 billion ($109.5 million) for Q2 2015, up 2.7% QoQ, and RUB12.0 billion ($216.1 million) for H1 2015, up 19.8% YoY.

It offset the growth of interest expense for Q2 2015 to RUB3.5 billion ($62.9 million), up 4.0% QoQ, and for H1 2015 to RUB6.8 billion ($123.3 million), up 36.2% YoY, due to higher cost of client funds caused by gradual revaluation of the deposit portfolio after a sharp rates increase at the turn of the year.

Therefore, the bank maintained its net interest income stable at RUB2.6 billion ($46.6 million) for Q2 2015 and RUB5.2 billion ($92.8 million) for H1 2015, up 3.3% from the similar prior-year period.

On the back of outpacing growth of yields on net earning assets (+98 bps QoQ) compared with funding costs (+46 bps QoQ), net interest spread for Q2 2015 expanded to 7.3%. The bank succeeded to improve its net interest margin by 17 bps QoQ to 4.8% that exceeded the targeted range.

The bank's net fee and commission income for H1 2015 amounted to RUB1.8 billion ($33.3 million), down 2.4% YoY. On a quarterly basis net fees saw positive momentum with 8.2% growth to RUB960 million ($17.3 million). Within its structure net bank cards fees mounted by 15.4% coming from tariffs optimisation and Ruble strengthening. Net fees from settlement and cash operations gained 5.8% and 2.5% respectively triggered by launch of new product lines for different client segments.

Total non-interest income for H1 2015 soared by 15.7% to RUB2.7 billion ($48.0 million), supported by strong dynamics of trade income generated amid market volatility. Its share in total operating income before provisions was equal to 34.1%.

Operating expenses for H1 2015 was up 7.4% to RUB4.7 billion ($84.5 million) under the pressure of accelerated inflation and the growth of personnel expenses due to severance pays to employees induced by 7.7% staff decrease from the year-start. On a quarterly basis operating expenses were down 5.7% and amounted to RUB2.3 billion ($41.0 million) that was reasoned by lower other expenses and staff costs decline by 3.7%.

Cost-to-Income ratio before provisions for H1 2015 remained flat YoY at 60.0%. Strict cost control contributed to the indicator contraction by 3.9 pps to 58.1% in Q2 2015.

Amid positive trend in interest and trading income dynamics pre-provision operating profit for H1 2015 grew by 6.9% to RUB3.1 billion ($56.3 million). However, the record level of charges to provisions of RUB2.5 billion ($45.3 million) in Q2 2015 led to H1 2015 net loss in the amount of RUB0.6 billion ($11.0 million).

Vozrozhdenie Bank, a community bank for companies and individuals. Among the Top 30 Russian banks in the Central Bank's rating, its network includes 142 offices and 900 ATMs in 21 regions of Russia. The bank provides its services to more than 1.7 mln individual and 61 thsd accounts of corporate clients, including savings accounts, payment handling, payroll management, mortgages, bank cards and business and consumer loans. www.vbank.ru/en.

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