- The bank's net profit for Q1 2017 amounted to Rub 0.5 bln

- Cost-to-income ratio decreased by 16.3 pp YoY to 51%

- ROE for Q1 2017 was 9%

- Gross loan portfolio increased by 3% during 3M 2017 to Rub 196 bln

- Retail loan book grew by 2% in Q1 2017 to Rub 65 bln

- Assets were Rub 234 bln, 3% less than at the beginning of the year

Due to positive dynamics of all the components of income and a decrease in operating costs, profit before provisions for Q1 2017 reached Rub 1.8 bln exceeding the result of the previous quarter by 4% and the one for the same period of 2016 by 56%.

Net profit for the first three months of 2017 amounted to Rub 0.5 bln compared to a loss for Q1 2016 of Rub 0.3 bln.

For the reporting period the bank earned Rub 2.9 bln of net interest income, 28% higher YoY due to a drop in interest expenses. In quarterly terms, interest income decreased by 4.5% mainly as a result of lower interest rates on loans to legal entities with a slight decline of interest expenses.

Despite a downward trend in assets' yields the interest spread remained at a comfortable level of 6.1%, exceeding the first quarter of the last year by 18 bp. The bank maintained its net interest margin above the targeted level of 4.5%, NIM was 4.8% compared to 4.0% for the same period of the last year.

Net fee and commission income increased by 4% YoY and amounted to Rub 1 bln. Within its composition, commission income grew by 2% to Rub 1.2 bln mainly due to a growth in fees on settlement transactions and a decrease in commission expense by 7% to Rub 0.2 bln for the same period. Net fees for the reporting period comprised 26% of the bank's operating income before provisions, 3.6 pp lower YoY.

The Bank continuously strives to reduce operating costs. In absolute terms the expenses decreased by Rub 0.2 bln (-11%) versus Q1 2016 to Rub 2 bln as a result of the reduction in staff costs by 14% YoY due to a 6%-decrease in the number of employees to 4,815 people^[1]. In addition, there was a decrease in other expenses related to the maintenance of fixed assets and rents by 19% to Rub 0.5 bln.

Cost-to-income ratio for the reporting period was 51%, good progress compared to Q1 2016 and Q4 2016 results (68% and 59%, respectively).

ROE for Q1 2017 was 9%, the ratio of pre-provision pre-tax profit to equity was 31%, and ROA for the reporting period equaled to 1%.

The bank's assets went down by 2% during Q1 2017 and were Rub 234 bln as of March 31, 2017. The main reason was a decrease in cash and cash equivalents by 35% to Rub 17 bln with cash on hand reduced by Rub 3 bln and balances on correspondent accounts and interbank deposits with less than 1M maturity by Rub 6 bln. Due from other banks also decreased by 77% to Rub 847 mln (- Rub 2.8 bln) after the repayment of syndicated loans granted to other banks. The share of liquid assets traditionally decreased during the first three months of the year by 3 pp to 16% releasing additional funds to expand the loan book. The bank continued to improve the ratio of funds' allocation: the proportion of net earning assets increased by 4 pp from 83% to 86%.

Gross loan book grew by 3% to Rub 196 bln during the quarter. Loan growth combined with the seasonal decline in customer funding by 3% to Rub 195 billion as of March 31, 2017 resulted in the gross loan-to-deposit ratio improvement by 6 pp YTD to 101%. Both parts of the loan book expanded: portfolio of loans to legal entities increased by 4% QoQ to Rub 131 bln (a decrease by 3% across the banking sector*) and portfolio of retail loans went up by 2% QoQ to Rub 65 bln (+1% across the banking sector*).

Loans to corporate customers amounted to Rub 96 bln, up by 2% during Q1 2017, mainly due to granting loans to a number of new customers (+ Rub 1.8 bln) from mining industry, construction and municipalities. Loans to medium and small businesses (SMEs) also increased by 10% (+ Rub 3 bln) to Rub 35 bln, first of all as, a result of additional lending to existing clients. The share of SMEs in the portfolio of loans to legal entities improved by 1.4 QoQ to 26%.

Retail loan book increased by Rub 1.4 bln QoQ due to a rise in mortgage lending fueled by a continuing interest rates decline. The mortgage portfolio added 3% to Rub 47 bln during the last three months. Consumer, credit card and car loans remained at the level of the beginning of the year and amounted to Rub 18 bln at the end of the reporting period.

In Q1 2017 non-performing loans (NPL 90+) dropped by 17% to Rub 12 bln. Sale of impaired loans of several corporate borrowers under cession agreements to interested investors was the main reason for such a progress. As a result, the share of NPL 90+ lowered during the reporting period from 8% to 6% of the total loan book.

NPLs 90+ in the corporate business segment was Rub 6.6 bln as of March 31, 2017 with a 7% share in the portfolio compared to 9% at the beginning of the year. In the SME segment, NPL 90+ amounted to Rub 4 bln at the same date. Their share in the portfolio was 11%, 2 pp lower than at December 31, 2016. In the retail segment, the amount of NPL 90+ was Rub 1.8 bln with 2.7% share in the portfolio which is significantly lower than the average for retail lending in the banking sector of 8% *.

Cost of risk for the reporting quarter was 2.3%, which is in line with the average level of 2016. In absolute terms Rub 1.1 bln were charged to provisions for loan impairment during the reporting period, while Rub 1 bln of provisions were recovered after the sale of a portion of impaired loans. Total provisions remained at the level of the beginning of the year and amounted to Rub 15 bln. As of March 31, 2017, the coverage of NPL 90+ improved to 122% compared to 102% as of December 31, 2016.

During the reporting quarter customer funds decreased by 3% to Rub 195 bln mainly due to a reduction of term deposits of legal entities by 15% to Rub 23 bln. Nevertheless, balances on transaction accounts of companies remained at the level of the beginning of the year and amounted to Rub 35 bln.

Retail funds decreased by 1% QoQ to Rub 137 bln due to seasonal dynamics of balances on current and card accounts of individuals (- Rub 3.3 bln from the beginning of the year). Retail savings were again on the rise reaching Rub 122 bln, +2% for the reporting period. In 2017 the bank rejuvenated the line of the deposit products and offered more flexible terms of deposits emphasising the remote services for the clients. The share of retail funds in the total customer funding grew by 1.4 p.p. QoQ to 70%.

Due to retained earnings of Rub 0.5 bln the bank's IFRS equity increased by 2% and amounted to Rub 24 bln as of March 31, 2017.

Total capital calculated in accordance with the requirements of Basel III amounted to Rub 31.5 bln as of the reporting date (+2% from the beginning of the year). Tier I capital adequacy ratio increased by 28 bp QoQ to 11.6%, while the total capital adequacy ratio was up by 19 bp to 15.7% due to the growth of risk-weighted assets. As of April 1, 2017, the regulatory common equity Tier I capital adequacy ratio (N1.1 norm) calculated in accordance with the requirements of the Bank of Russia was 7.7% and the total regulatory capital adequacy ratio (N1.0 norm) was 12.2% (minimum acceptable levels set by the Bank of Russia increased for CAR support buffer are 5.75% and 9.25% respectively). Some decrease in the indicator resulted from RWA expansion (+5.5% per quarter to Rub 248 bln) with the increase in the total capital by 4% to Rub 30 bln.

* According to the data provided by the Bank of Russia.

Vozrozhdenie Bank, a community bank for companies and individuals. Among the Top 30 Russian private banks as per the Bank of Russia data, its network includes 119 offices in 17 regions of Russia and 2000 ATMs including ATMs of bank-partners. The bank provides its services to more than 1.3 million individuals and 42 thousand corporate and SME clients, including savings accounts, payment handling, payroll management, mortgages, bank cards and business and consumer loans. www.vbank.ru/en.
^[1] Average number per the quarter