VTB Group announces IFRS results for 1Q 2016

16 May 2016

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 2016, 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 results for the first quarter reflect the continued stabilisation of business activity in the Russian economy as a whole, and more predictable macroeconomic conditions following the volatility seen in the same period a year ago.

'The Group started 2016 with solid performance: net interest income more than doubled, and fee and commission income also grew strongly. Cost of risk and provision charges have reduced both year-on-year and quarter-on-quarter, as the Group continued to strengthen its risk management policies.

'VTB Group's already strong capital adequacy ratios improved further, leaving us well-positioned to expand the business as the Russian economy moves back towards growth.

'We continue to focus on efficiency and streamlining our businesses as we seek to benefit from improvements in sentiment across the Russian economy. The recently completed integration of Bank of Moscow will generate further cost savings over time. VTB Bank's position in the retail segment will be further strengthened by the nationwide roll-out of Post Bank, the joint venture with Russian Post announced at the beginning of this year.'

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion	1Q 2016	1Q 2015 (restated)	Change, %
Net interest income	98.3	44.4	121.4%
Net fee and commission income	17.4	15.4	13.0%
Operating income before provisions	111.1	84.9	30.9%
Provision charge*	(40.6)	(48.9)	(17.0%)
Staff costs and administrative expenses	(60.6)	(54.6)	11.0%
Net (loss) / profit	0.6	(18.3)	-

 

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

- Net profit in 1Q 2016 was RUB 0.6 billion, supported by strong net interest income and solid growth of net fee and commission income.

- VTB Group net interest income increased by 121.4% year-on-year to RUB 98.3 billion in 1Q 2016, due to higher interest income and a significant 19.2% year-on-year decline in interest expenses. After the Central Bank of Russia's key rate spike in December 2014, the easing of monetary policy throughout 2015, combined with continued re-pricing of assets and liabilities, helped bring the net interest margin for 1Q 2016 to 3.4%, up from 1.6% in 1Q 2015 and 3.2% in 4Q 2015.

- The stabilisation of business activity in Russia, combined with the strong fee-generating capabilities of the Group's Retail business and transaction banking (as part of Corporate-Investment banking and Mid-Corporate banking), contributed to 13.0% year-on-year growth in net fee and commission income.

- For 1Q 2016, the Group's provision charge was RUB 40.6 billion, down 17.0% year-on-year. The Group's cost of risk (the annualised ratio of the provision charge for loan impairment to average gross loans and advances to customers) was 1.5% in 1Q 2016, compared to 1.6% in 4Q 2015 and 2.2% in 1Q 2015.

- Staff costs and administrative expenses for 1Q 2016 amounted to RUB 60.6 billion, an increase of 11.0% year-on-year. The Group's annualised costs-to-average assets ratio was 1.8% for 1Q 2015, unchanged from 1Q 2015.

Statement of financial position

RUB billion	31 Mar 2016	31 Dec 2015	Change, % or p.p.
Total assets	12,801.2	13,641.9	(6.2%)
Loans and advances to customers, including pledged under repurchase agreements (gross)	9,257.9	10,110.0	(8.4%)
Gross loans to legal entities	7,270.4	8,150.0	(10.8%)
Gross loans to individuals	1,987.5	1,960.0	1.4%
Customer deposits	7,431.7	7,267.0	2.3%
Deposits from legal entities	4,607.3	4,383.6	5.1%
Deposits from individuals	2,824.4	2,883.4	(2.0%)
NPL ratio	7.2%	6.3%	9 p.p.
Tier 1 CAR	13.7%	12.4%	1.3 p.p.
Total CAR	15.6%	14.3%	1.3 p.p.

 

- The Group's loan book contracted by 8.4% during 1Q 2016, primarily as a result of a 10.8% decline in loans to legal entities to RUB 7,270.4 billion, partly driven by the strengthening of the Russian ruble in the period and the corresponding revaluation of loans denominated in US dollars and other currencies. Loans to individuals increased by 1.4% during the period, and stood at RUB 1,987.5 billion as of 31 March 2016.

- Loan quality ratios were largely influenced by the contraction in loans to legal entities. The Group's NPL ratio was 7.2% of gross customer loans, including those pledged under repurchase agreements (the 'total loan book'), as of 31 March 2016, compared to 6.3% as of 31 December 2015. The allowance for loan impairments was 7.3% of the total loan book as of the end of 1Q 2016, versus 6.7% as of 31 December 2015. The NPL coverage ratio remained at a comfortable 102.3% at 31 March 2016, compared to 105.8% as of 31 December 2015.

- Customer deposits grew by 2.3% in 1Q 2016, driven by an inflow of corporate deposits. As of 31 March 2016, the Group's market share in retail and corporate deposits stood at 10.8% and 21.8%, respectively.

- The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities falling to 4.5% as of 31 March 2016, from 5.1% as of 31 December 2015. Since the beginning of 2016, VTB and its subsidiaries made repayments on their international public debt amounting to a total of USD 2.2 billion.

- VTB maintained solid capital adequacy ratios supported by four straight quarters of profitable growth. As of 31 March 2016, the Group's total and Tier 1 capital adequacy ratios rose to 15.6% and 13.7%, respectively, versus 14.3% and 12.4% as of 31 December 2015.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 1Q 2016

% of the Group total*	Corporate-Investment banking (CIB)	Retail business (RB)	Mid-Corporate banking (MCB)
Assets	44%	25%	5%
Loans and advances to customers (net)	62%	23%	8%
Customer deposits	46%	44%	8%
Revenues from external customers	48%	31%	7%
Net interest income	27%	46%	4%
Net fee and commission income	22%	61%	14%
Provision charge**	7%	59%	31%
Net operating income	51%	53%	-
Staff costs and administrative expenses	27%	52%	9%

 

*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.

- Corporate-Investment banking (CIB) delivered RUB 13.9 billion of net profit in 1Q 2016. The Retail business posted a positive net result of RUB 4.6 billion for the period. Conservative lending policies and a cautious business environment continued to put pressure on Mid-Corporate banking during the first quarter. Mid-Corporate banking (MCB)'s net loss for 1Q 2016 was RUB 9.7 billion.

- The loan book in the Retail business continued to grow in 1Q 2016, primarily driven by mortgage lending under the Government's programme to subsidise mortgage interest rates. In consumer lending, the Group continued to focus on portfolio quality, maintaining low approval rates on the back of weaker real disposable incomes in Russia.

- After the end of the reporting period, on 10 May 2016, VTB completed the integration of Bank of Moscow ('BoM'). As a result of the integration, VTB Bank will service BoM's retail and small business customers as part of the Retail business. VTB Bank has absorbed Bank of Moscow's core business, which accounts for approximately 70% of BoM's assets, worth more than RUB 900 billion according to IFRS. As a result of this transaction, more than 10 million retail, small business and corporate customers became clients of VTB Bank.

VTB Group gross loans to individuals

RUB billion	31 March 2016	31 Dec 2015	Change, %
Gross loans to individuals	1,987.5	1,960.0	1.4%
Mortgage loans	896.5	875.1	2.4%
Consumer loans	865.4	854.9	1.2%
Credit cards	126.3	124.1	1.8%
Car loans	93.4	100.2	(6.8%)
Other loans	3.5	3.3	6.1%

 

- Mortgage loans reached 45.1% of the Group's gross loans to individuals as of 31 March 2016, versus 44.6% as of 31 December 2015. Consumer loans and credit card loans accounted for 43.5% and 6.4% of the portfolio, respectively, versus 43.6% and 6.3% at 31 December 2015. The share of car loans decreased to 4.7% as of 31 March 2016, versus 5.1% at the start of the year.

- The Retail business has been pursuing opportunities to grow fee-based revenues, in particular through active cross-selling of ancillary pension and insurance products, including mortgage-linked products from VTB Insurance and life insurance plans from VTB Life Insurance for private banking clients. The Retail business's net fee and commission income reached RUB 10.7 billion in 1Q 2016, or 61% of the Group's total.

- In 1Q 2016, the Group continued to optimise its Retail business branch network and staff in line with market trends. As of 31 March 2016, the Group had more than 1,700 retail offices in Russia (operating under the VTB24, Bank of Moscow and Leto Bank - renamed as Post Bank - brands during 1Q 2016). The combined number of the Group's ATMs in Russia exceeded 13,400 at the end of the period.

- On 28 January 2016, VTB24 and the Russian Post announced the creation of Post Bank. The new bank aims to open 20,000 service windows in 15,000 post offices across Russia over the next three years. Of these, at least 6,500 outlets are planned to be opened at 3,500 post offices in 2016.

- CIB maintained its focus on optimising risk and maintaining the quality of the Group's loan portfolio. CIB's net profit of RUB 13.9 billion in 1Q 2016 was supported by solid results from Investment and Transaction banking.

- VTB Capital, the Group's investment banking franchise, remained #1 in the Dealogic and Thomson Reuters DCM bookrunner ranking based on the volume of transactions for Russian issuers, with nine deals worth USD 777 million in 1Q 2016, giving VTB Capital a market share of 34.9%. In Russian M&A, VTB Capital advised on three transactions, taking 40% of the market in 1Q 2016. On 4 May 2016, The Banker magazine awarded VTB Capital Deal of the Year in the Bonds: Sovereigns, Supras and Agencies category for its work on the inflation-linked OFZ issued by Russia's Ministry of Finance. In July 2015, VTB Capital acted as a placement agent, bookrunner and international B&D manager for Russia's debut inflation-linked OFZ issue, which totalled RUB 75 billion.

- In Mid-Corporate banking (MCB), the Group continued to grow its loan book conservatively, with a focus on high-quality borrowers. While interest rates have become more affordable for the MCB customer segment, customers remain cautious about new borrowing. Throughout 1Q 2016, MCB maintained its focus on strict loan origination policies and risk management standards, as well as on its documentary business with high quality customers.

Contacts:

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Email: investorrelations@vtb.ru