Vozrozhdenie Bank reported on its financial results in H1 2017 under IFRS.

• Net profit in H1 2017 amounted to Rub 1.1 billion
• Cost-to-income ratio declined by 4 p.p. YoY to 51%
• ROE for H1 2017 was 9% increasing by 4.5 p.p. YoY
• Gross loan portfolio grew by 6% YtD to Rub 201 billion
• Assets added 2% YtD to Rub 245 billion

‟In the first half of the year the credit quality remained stable. On the back of capital strengthened through profit capitalisation, we managed to boost the loan book. Expansion of interest-earning assets share and better yields on them allowed us to reach 5% NIM," commented Andrey Shalimov, Deputy Chairman of the Management Board at V.Bank. ‟Keeping operating expenses under strict control will provide further advance in line with the plan on net profit and efficiency indicators."

Positive dynamics of interest income and fees & commission income supported pre-provision profit for H1 2017 which increased by Rub 3.8 billion, 33% higher than in H1 2016.

Net profit for H1 2017 reached Rub 1.1 billion, twice as much as the result of the previous year.

Net interest income (NII) equaled to Rub 5.9 billion in the reporting period. The bank improved the result by 26% YoY through considerable savings on interest expense. In the reporting quarter interest income grew by 3% due to loan portfolio expansion.

Gradual cost of funds decrease (-4 b.p. during the quarter to 6.1%) coupled with a growth in yields on earning assets (+11 b.p. during quarter to 12.3%) allowed the bank to expand net interest spread for the quarter to 6.2% and to 6.1% for H1 2017. Thus, net interest margin (NIM) continued growing and reached 4.9% in H1 2017 compared to 4.2% for the same period of the previous year.

Active development of transaction business and enhancement of commission-earning product line contributed to net fees & commissions increase to Rub 2.3 billion (+13% YoY). Commission income grew by 10% to Rub 2.7 billion, mainly driven by positive dynamics in fees on settlement and bank card transactions. Commission expense reduced by 5% to Rub 0.4 billion during the same period. Share of net fees & commissions in pre-provision operating income increased by 2 p.p. YoY and amounted to 28% in H1 2017.

Operating expenses for H1 2017 declined by 1% YoY and totalled Rub 4.2 billion. Expenses on IT & telecom service and fixed assets maintenance showed significant reduction by 32% and 21%, relatively.

Cost-to-income ratio for H1 2017 amounted to 51% reducing by 4 p.p. YoY. The ratio remained the same in quarterly terms.

ROE for H1 2017 was 9% surpassing that of the previous year by 4.5 p.p. Operating profit before provisions and taxation to equity ratio was 35%. ROA was 1% adding 0.5 p.p. YoY.

Assets of the bank grew by 2% since the beginning of the year and totalled Rub 245 billion. The share of liquid assets decreased by 3.2 p.p. YtD to 17% as the bank used a part of liquidity to expand loan portfolio. Thus, the share of interest-earning assets increased by 1.2 p.p. during the same period to 90%.

As a result of the outpacing growth in lending loan-to-deposit ratio reached 100%, the target level for the bank.

In Q2 2017 the positive dynamics in gross loans continued and the loan book amounted to Rub 201 billion at the end of the reporting period adding 2% QoQ and 6% YtD.

In May Vozrozhdenie Bank placed mortgage-backed bonds in the amount of Rub 4 billion and closed the fifth securitisation deal. Mortgage portfolio increased by 7% YtD to Rub 49 billion remaining the key growth driver of retail loan portfolio, which added 6% during the same period to Rub 68 billion amid +4% across the sector*. Consumer loans also grew by 2% to Rub 17 billion. At the same time, credit card and car loans decreased by Rub 2 billion and Rub 0.1 billion, relatively. The share of retail loans remained unchanged since the start of the year at the level of 34%.

By the end of the reporting period corporate loans totalled Rub 98 billion adding 4% YtD compared to sector negative dynamics of -0.4%* in the same period. This includes government and municipal loans declining by 16% YtD to Rub 8 billion. SME loan portfolio increased by 11% during H1 2017 to Rub 35 billion by financing existing clients as well as new ones. SME's share in portfolio of loans to legal entities was 26%.

The share of non-performing loans (NPLs 90+) remained unchanged in Q2, 2017 and accounted for 6% declining by 2 p.p. YtD. In total, NPLs 90+ were Rub 13 billion (-15% YtD).

Corporate NPLs 90+ were Rub 7.6 billion as of the reporting date with 8% share in portfolio compared to 9% share as of the beginning of the year. NPLs 90+ in SME segment stood at Rub 3 billion with 9% share declining by 5 p.p. YtD. Retail NPLs 90+ amounted to Rub 2 billion with 2.9% share showing significantly better figure than banking sector average of 8%*.

Cost of risk remained at 2.3% QoQ. Provisioning was Rub 2.2 billion in H1 2017, contracting by 4% YoY. Coverage of NPL 90+ improved to 124% (+22 p.p. YtD).

The bank's liabilities increased by 2% YtD and totalled Rub 220 billion. Within their structure, raised client funds added 3% QoQ to Rub 202 billion and thus recovered to the level of the beginning of the year.

Retail funds grew by 3% QoQ to Rub 141 billion driven by inflow into both current accounts (+12%) and deposits (+2%). During the reporting six months deposit portfolio continued positive trend (+4% amid +3% across the banking sector*) and amounted to Rub 125 billion by the end of the reporting period. The share of retail funds in total funds attracted from clients was 70%, +1.5 p.p. YtD.

Balances on companies' current accounts reached Rub 41 billion (+15% QoQ, +14% YtD) replacing term deposits of legal entities which are more expensive for the bank. They were down to Rub 20 billion as of June 30, 2017 (-16% QoQ, -29% YtD).

Due to earnings capitalisation in amount of Rub 0.6 billion, the bank's IFRS equity increased by 2% QoQ and totalled Rub 25 billion as of the end of the reporting period.

Total capital calculated in accordance with the requirements of Basel III amounted to Rub 31 billion as of June 30, 2017 (+1% from the beginning of the year). Tier I capital adequacy ratio increased by 8 b.p. YtD to 11.4%, while total capital adequacy ratio decreased by 25 b.p. to 15.3% in the same period due to the growth in risk-weighted assets.

Regulatory common equity Tier I capital adequacy ratio (N1.1 norm) calculated in accordance with the requirements of the Bank of Russia remained at the level of the beginning of the year and was 8.1% and total regulatory capital adequacy ratio (N1.0 norm) decreased to 12.1% (minimum acceptable levels set by the Bank of Russia increased for CAR support buffer are 5.75% and 9.25%, respectively). Some decrease in N1.0 norm resulted from RWA expansion (+7% in the reporting period to Rub 253 billion) with increase in total capital by 4% to Rub 30 billion.

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