VTB Group announces IFRS results for 1Q 2015

19 May 2015

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 ended 31 March 2015, with the Independent Auditor's Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: 'VTB Group's first quarter results reflect the significant challenges that the Russian economy faced at the end of 2014 and beginning of 2015. The sharp rise in interest rates had a detrimental effect on our margins, and the general economic slowdown led us to continue building significant provisions against our credit exposures.

'At the same time, the Russian economy has demonstrated notable resilience to the adverse environment, with both our clients and VTB Group avoiding the more pessimistic scenarios. We maintain adequate coverage of non-performing loans and satisfactory capital levels. We also see that the recent easing of monetary policy is contributing to improved margins and will be supportive of the economy, as well as of VTB Group's performance going forward.

'VTB's business model has proved that it is strong and sustainable even in the most challenging environment, and we remain well-positioned to offer high-quality products and services to our clients. We also continue focusing on initiatives to further optimise costs and to improve the Group's efficiency.'

FINANCIAL AND OPERATING HIGHLIGHTS

Statement of financial position

RUB billion	31 Mar 2015	31 Dec 2014	Change, % or p.p.
Total assets	12,438.3	12,190.8	2.0%
Cash and short term funds	674.8	695.2	(2.9%)
Loans and advances to customers, including pledged under repurchase agreements (gross)	8,898.5	9,150.4	(2.8%)
Gross loans to legal entities	6,997.3	7,205.3	(2.9%)
Gross loans to individuals	1,901.2	1,945.1	(2.3%)
Customer deposits	6,450.5	5,669.4	13.8%
Deposits from legal entities	4,226.9	3,520.3	20.1%
Deposits from individuals	2,223.6	2,149.1	3.5%
NPL ratio	6.4%	5.8%	0.6 p.p.
Tier 1 CAR	9.7%	9.8%	(0.1 p.p.)
Total CAR	11.9%	12.0%	(0.1 p.p.)

 

- On the back of high interest rates and low economic activity, the Russian banking sector saw a continued slowdown in demand for loans in 1Q 2015. This trend, combined with the seasonality factor, as well as tight lending policies and approval criteria for loan applications, contributed to the contraction of the Group's loan book since the start of the year.

- Loan book quality continued to develop in line with macroeconomic and banking sector trends in 1Q 2015. The NPL ratio was 6.4% of gross customer loans, including those pledged under repurchase agreements (the 'total loan book'), as of 31 March 2015, versus 5.8% as of 31 December 2014. The allowance for loan impairments reached 7.2% of the total loan book as of 31 March 2015, compared to 6.7% at the start of the year. The NPL coverage ratio remained at a conservative level of 112.0% as of 31 March 2015, versus 114.8% as of 31 December 2014.

- The healthy 13.8% growth in deposits during 1Q 2015 was mainly attributable to an increase in deposits from legal entities. This drove the share of customer deposits in the Group's total liabilities up to 57.0% as of 31 March 2015, from 51.3% at the start of the year. With capital markets remaining effectively closed for Russian banks, the Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities falling to 7.0% as of 31 March 2015, from 8.3% as of 31 December 2014. During 1Q 2015, VTB and its subsidiaries made repayments on their international public debt in the total amount of USD 2.0 billion.

- Risk-weighted assets remained substantially unchanged during the first three months of the year, reaching RUB 10,073.3 billion. As a result, VTB Group maintained healthy capital adequacy ratios. As of 31 March 2015, the Group's total and Tier 1 capital adequacy ratios were 11.9% and 9.7% respectively, versus 12.0% and 9.8% as of 31 December 2014.

Income Statement

RUB billion	1Q 2015	1Q 2014	Change, % or p.p.
Net interest income	46.1	89.9	(48.7%)
Net fee and commission income	15.4	14.3	7.7%
Operating income before provisions	89.5	104.7	(14.5%)
Provision charge*	(48.9)	(48.0)	1.9%
Staff costs and administrative expenses	(59.2)	(52.8)	12.1%
Net (loss) / profit	(18.3)	0.4	-

 

*Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

- VTB Group interest income increased by 44.6% year-on-year to RUB 272.2 billion in 1Q 2015, due to an increase in the Group's interest earning assets and higher interest rates in Russia. At the same time, as the Group's liabilities continued to price in the CBR's key rate hike from December 2014, interest expense surged by 130.0% year-on-year to RUB 226.1 billion for 1Q 2015. This led to a 48.7% year-on-year reduction in net interest income to RUB 46.1 billion for 1Q 2015. These same factors also led to a decrease in the Group's net interest margin to 1.7% for 1Q 2015, versus 4.5% for 1Q 2014.

- The strong fee generating capabilities of Retail business and Transaction banking (as part of Corporate-Investment banking and Mid-Corporate banking) allowed the Group to deliver 7.7% year-on-year growth in net fee and commission income, despite a slowdown in business activity in 1Q 2015.

- Although the challenging economic environment in Russia continues to impact negatively the real sector of the economy, the Group's tight lending and risk management policies helped it to post a considerable quarter-on-quarter decrease in provision charges. This led to a decrease in the Group's cost of risk (annualised ratio of provision charge for loan impairment to average gross loans and advances to customers) to 2.2% in 1Q 2015, from 4.6% in 4Q 2014, and 2.8% in 1Q 2014.

- Staff costs and administrative expenses were up 12.1% year-on-year in 1Q 2015, due to the larger scale of the Group's business. During the quarter, VTB Group continued to reduce its headcount and implement other cost-cutting initiatives across all geographies. The Group's annualised costs-to-average assets ratio improved to 1.9% for 1Q 2015, from 2.3% for 1Q 2014. Despite the slight contraction in its balance sheet, the Group continued to deliver consistent growth in assets per employee, which stood at RUB 125.3 million as of 31 March 2015, versus RUB 120.6 million as of 31 December 2014, and RUB 88.3 million as of 31 March 2014.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 1Q 2015

% of the Group total*	Corporate-Investment banking	Mid-Corporate banking	Retail business
Assets	43.3%	6.9%	20.8%
Loans and advances to customers (net)	61.6%	10.9%	23.6%
Customer deposits	46.7%	8.7%	40.1%
Revenues from external customers	50.1%	9.9%	30.8%
Net interest income	20.6%	19.6%	78.1%
Net fee and commission income	20.1%	21.4%	56.5%
Provision charge**	11.9%	26.2%	59.9%
Net operating income	79.2%	1.0%	57.4%
Staff costs and administrative expenses	27.6%	12.1%	51.1%

 

*Before intersegment eliminations

**Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

- Elevated funding costs and considerable provision charges put pressure on profitability across all segments. For 1Q 2015, Corporate-Investment banking (CIB) delivered RUB 10.1 billion of net profit, despite the macroeconomic headwinds. Mid-Corporate banking (MCB) and Retail business posted net losses of RUB 5.8 billion and RUB 6.0 billion, respectively.

- In the Retail business VTB Group's mortgage loan portfolio was flat in 1Q 2015, as demand for this type of lending slowed in Russia. On the back of weaker real disposable incomes and consumer spending, as well as lower approval rates for the riskiest retail lending products, VTB Group's consumer loan book contracted, which was the main factor behind the decrease in total retail loans in 1Q 2015.

VTB Group gross loans to individuals

RUB billion	31 March 2015	31 Dec 2014	Change, %
Gross loans to individuals	1,901.2	1,945.1	(2.3%)
Mortgage loans	799.2	795.3	0.5%
Consumer loans	856.5	901.1	(4.9%)
Credit cards	118.9	113.8	4.5%
Car loans	119.4	129.7	(7.9%)
Reverse sale and repurchase agreements and other loans	7.2	5.2	38.5%

 

- Mortgage loans reached 42.0% of the Group's gross loans to individuals as of 31 March 2015, versus 40.9% as of 31 December 2014. The share of consumer loans and credit card loans in the portfolio was 45.1% and 6.3%, respectively, versus 46.3% and 5.9% at 31 December 2014. The share of car loans in the portfolio decreased to 6.3% as of 31 March 2015, versus 6.7% at the start of the year.

- VTB Group deposits from individuals grew faster than the market average during the period, which reflects the strength of the Group's deposit-taking franchise, enhanced by VTB24's (the Group's core retail bank) strong brand and the solid deposit-taking capacity of VTB24's private banking business.

- The total number of the Group's retail offices in Russia (operating under the VTB24, Bank of Moscow and Leto Bank brands) stood at more than 1,660 as of 31 March 2015. The combined number of the Group's ATMs exceeded 12,550 at the same date.

- Corporate-Investment banking saw weaker demand for loans from corporate clients due to higher interest rates and subdued levels of business activity. In this environment, the CIB focused on optimising risks and preserving the quality of the Group's loan portfolio. The Group also saw a strong 20.1% increase in corporate customer deposits in 1Q 2015. CIB's net profit of RUB 10.1 billion was supported by the solid results of Transaction banking as well as by a recovery in market prices across various asset classes during 1Q 2015.

- The Group's investment banking franchise, VTB Capital, maintained its status as Russia's leading investment bank, despite challenging conditions and subdued activity in the Russian capital markets, as it once again confirmed its leading position in both trading and investment banking. According to Dealogic, VTB Capital took third place in the domestic debt capital markets bookrunner ranking, and was #1 in equity capital markets in Russia and CIS in 1Q 2015. Also, in April 2015, VTB Bank Custody was recognised as the best in the Russian market in Global Custodian's 2014 client-perception survey.

- Mid-Corporate banking continued to adhere to tight loan origination policies and risk management standards. For 1Q 2015, MCB posted solid fee income, increasing its share in the Group's total net fee and commission income to 21.4%, as VTB's transaction banking business continued to increase its penetration into the medium-sized client segment, in line with the Group's strategy.

Contacts:

Investor relations:
Tel: +7 495 775 71 39
Email: investorrelations@vtb.ru

VTB Bank
Interim Consolidated Statement of Financial Position as at 31 March 2015
(in billions of Russian roubles)

	31 March 2015 (unaudited)	31 December 2014
Assets
Cash and short-term funds	674.8	695.2
Mandatory cash balances with central banks	88.7	85.5
Non-derivative financial assets at fair value through profit or loss	291.1	275.0
Derivative financial assets	351.1	407.0
Financial assets, other than loans and advances to customers and due from other banks, pledged under repurchase agreements	87.5	184.0
Due from other banks, including pledged under repurchase agreements	1,451.4	814.5
- Due from other banks	1,345.0	740.3
- Due from other banks, pledged under repurchase agreements	106.4	74.2
Loans and advances to customers, including pledged under repurchase agreements	8,259.7	8,537.3
- Loans and advances to customers	7,830.8	8,074.7
- Loans and advances to customers, pledged under repurchase agreements	428.9	462.6
Investment financial assets	154.4	132.2
Investments in associates and joint ventures	98.8	96.3
Assets of disposal groups held for sale	11.5	11.1
Land, premises and equipment	256.4	246.9
Investment property	218.5	192.3
Goodwill and other intangible assets	162.2	161.8
Deferred income tax asset	65.6	66.9
Other assets	267.2	284.8
Total assets	12,438.9	12,190.8
Liabilities
Due to other banks	736.8	733.2
Customer deposits	6,450.5	5,669.4
Derivative financial liabilities	348.6	397.8
Other borrowed funds	2,386.1	2,729.2
Debt securities issued	795.6	921.4
Liabilities of disposal groups held for sale	7.2	4.7
Deferred income tax liability	27.8	26.6
Other liabilities	300.5	312.3
Total liabilities before subordinated debt	11,053.1	10,794.6
Subordinated debt	272.0	265.2
Total liabilities	11,325.1	11,059.8
Equity
Share capital	352.1	352.1
Share premium	433.8	433.8
Perpetual loan participation notes	131.5	126.6
Treasury shares and bought back perpetual loan participation notes	(6.9)	(6.7)
Other reserves	39.6	42.8
Retained earnings	150.5	169.3
Equity attributable to shareholders of the parent	1,100.6	1,117.9
Non-controlling interests	13.2	13.1
Total equity	1,113.8	1,131.0
Total liabilities and equity	12,438.9	12,190.8

 

VTB Bank
Interim Consolidated Income Statement for the Three Months Ended 31 March 2015 (unaudited)
(in billions of Russian roubles)

For the three-month period                                                                                        ended 31 March

 

	2015	2014
Interest income	272.2	188.2
Interest expense	(226.1)	(98.3)
Net interest income	46.1	89.9
Provision charge for impairment of debt financial assets	(48.4)	(47.6)
Net interest (expenses)/income after provision for impairment	(2.3)	42.3
Net fee and commission income	15.4	14.3
Gains net of losses / (losses net of gains) arising from financial instruments at fair value through profit or loss	16.5	(4.4)
(Losses net of gains) / gains less losses from investment financial assets available-for-sale	(0.3)	0.5
Gains net of losses / (losses net of gains) arising from foreign currencies	17.7	(8.2)
(Losses)/gains on initial recognition of financial instruments, restructuring and other gains on loans and advances to customers	(0.9)	0.1
Share in profit of associates and joint ventures	1.5	0.6
Gain from disposal of subsidiaries and associates	-	9.0
Losses net of gains arising from extinguishment of liabilities	-	(1.0)
Provision charge for impairment of other assets, credit related commitments and legal claims	(0.5)	(0.4)
Other operating income	4.4	3.1
Non-interest gains/(losses)	38.4	(0.7)
Net insurance premiums earned	10.6	11.4
Net insurance claims incurred, movement in liabilities to policyholders and acquisition costs	(9.5)	(7.8)
Revenue from other non-banking activities	(3.7)	7.2
Cost of sales and other expenses from other non-banking activities	(8.3)	(9.5)
Revenues less expenses from non-banking operations	(10.9)	1.3
Impairment of goodwill	-	(0.5)
Staff costs and administrative expenses	(59.2)	(52.8)
Non-interest expenses	(59.2)	(53.3)
(Loss)/profit before tax	(18.6)	3.9
Income tax benefit/(expense)	1.3	(5.4)
Net loss after tax	(17.3)	(1.5)
(Loss)/profit after tax from subsidiaries acquired exclusively with a view to resale	(1.0)	1.9
Net (loss)/profit	(18.3)	0.4
Net (loss)/profit attributable to:
Shareholders of the parent	(14.3)	2.4
Non-controlling interests	(4.0)	(2.0)
Basic and diluted earnings per share (expressed in Russian roubles per share)	(0.00112)	0.00019
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)	(0.00104)	0.00004

 

VTB Bank
Interim Consolidated Statement of Comprehensive Income for the Three Months Ended 31 March 2015 (unaudited)
(in billions of Russian roubles)

For the three-month period                                                                                             ended 31 March

 

	2015	2014
Net profit	(18.3)	0.4
Other comprehensive income:
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Net result on financial assets available-for-sale, net of tax	5.7	(4.5)
Cash flow hedges, net of tax	(0.3)	1.0
Share of other comprehensive income of associates and joint ventures	0.4	(0.1)
Effect of translation, net of tax	(9.0)	6.7
Total other comprehensive income to be reclassified to profit or loss in subsequent periods	(3.2)	3.1
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Land and premises revaluation, net of tax	0.1	-
Total other comprehensive income not to be reclassified to profit or loss in subsequent periods	0.1	-
Other comprehensive income, net of tax	(3.1)	3.1
Total comprehensive income	(21.4)	3.5
Total comprehensive income attributable to:
Shareholders of the parent	(17.3)	4.9
Non-controlling interests	(4.1)	(1.4)