VTB Group announces IFRS results for 2Q 2016

16 August 2016

VTB Bank ('VTB' or 'the Bank'), the parent company of VTB Group ('the Group'), today publishes its Interim Condensed Consolidated Financial Statements as at 30 June 2016, with the Independent Auditor's Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: 'VTB's results for the first half of the year demonstrate the steady improvement in our profitability as we continue to contribute to the recovery of the Russian economy through our retail, corporate and investment banking franchises.

'I would especially highlight the successful integration of Bank of Moscow into VTB Bank during the second quarter of this year. Meticulous preparation and hard work made the transition seamless for clients, and allowed VTB to further streamline its corporate structure and achieve business synergies.

'Post Bank continues to develop at full speed, with more than 1,000 client centres already opened in 280 cities across 59 Russian regions. This is an impressive feat for a bank that was launched only at the beginning of this year. Development of Post Bank will further broaden and enhance the reach of our retail franchise in client segments and locations.

'On the investment banking side, VTB Capital remains Russia's strongest investment banking franchise having solely arranged Russia's USD 1 billion sovereign Eurobond issue in May 2016.

'Looking ahead, we are in a good position to benefit as Russia returns to economic growth, with a strong balance sheet, solid capital ratios and a sharp focus on continuously improving operational efficiency.'

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion	1H 2016	1H 2015	Change, %	2Q 2016	2Q 2015	Change, %
Net interest income	207.0	110.1	88.0%	108.7	65.7	65.4%
Net fee and commission income	36.6	32.6	12.3%	19.2	17.2	11.6%
Operating income before provisions	237.0	170.8	38.8%	125.9	85.9	46.6%
Provision charge*	(102.9)	(79.9)	28.8%	(62.3)	(31.0)	101.0%
Staff costs and administrative expenses	(116.3)	(105.8)	9.9%	(55.7)	(51.2)	8.8%
Net profit / (loss)	15.4	(17.1)	-	14.8	1.2	1,133.3%

 

*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 1H 2016 was RUB 15.4 billion, supported by strong net interest income and solid growth of net fee and commission income on a pickup in overall business activity.

- VTB Group net interest income increased by 88.0% year-on-year to RUB 207.0 billion in 1H 2016. After the Central Bank of Russia's key rate spike in December 2014, the easing of monetary policy throughout 2015 - 2016, combined with continued re-pricing of assets and liabilities, helped bring the net interest margin for 1H 2016 to 3.7%, up from 2.0% in 1H 2015. Net interest margin in 2Q 2016 grew to 4.0%, versus 3.4% in 1Q 2016.

- 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 strong 12.3% year-on-year growth in net fee and commission income.

- For 1H 2016, the Group's provision charge was RUB 102.9 billion, up 28.8% 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 1.4% in 1H 2016, compared to 1.7% in 1H 2015, the Group's cost of risk taking into account provisions for credit related commitments (the annualised ratio of the provision charge for loan impairment including provision charge for impairment of credit related commitments to average gross loans and advances to customers including average credit related commitments) was 2.0% in 1H 2016 compared to 1.6% in 1H 2015.Staff costs and administrative expenses for 1H 2016 amounted to RUB 116.3 billion, an increase of 9.9% year-on-year. The Group's annualised costs-to-average assets ratio was 1.8% for 1H 2016 versus 1.7% for 1H 2015, while the ratio of cost to operating income before provisions improved to 49.1% for 1H 2016 versus 61.9% for 1H 2015.

Statement of financial position

RUB billion	30 June 2016	31 Mar 2016	31 Dec 2015	Change in 6M 2016, % or p.p.	Change in 2Q 2016, % or p.p.
Total assets	12,333.5	12,801.2	13,641.9	(9.6%)	(3.7%)
Loans and advances to customers, including pledged under repurchase agreements (gross)	9,362.5	9,257.9	10,110.0	(7.4%)	1.1%
Gross loans to legal entities	7,319.6	7,270.4	8,150.0	(10.2%)	0.7%
Gross loans to individuals	2,042.9	1,987.5	1,960.0	4.2%	2.8%
Customer deposits	7,859.1	7,431.7	7,267.0	8.1%	5.8%
Deposits from legal entities	5,009.0	4,607.3	4,383.6	14.3%	8.7%
Deposits from individuals	2,850.1	2,824.4	2,883.4	(1.2%)	0.9%
NPL ratio	7.1%	7.2%	6.3%	0.8 p.p.	(0.1 p.p.)
Tier 1 CAR	13.3%	13.7%	12.4%	0.9 p.p.	(0.4 p.p.)
Total CAR	15.1%	15.6%	14.3%	0.8 p.p.	(0.5 p.p.)

 

- The Group's loan book contracted by 7.4% during 1H 2016 and grew by 1.1% in 2Q 2016 as a result of increased lending as Russian economic activity picked up. The decline in loans to legal entities during the first quarter of 2016 was substantially 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 4.2% during 1H 2016 (up 2.8% in 2Q 2016), and stood at RUB 2,042.9 billion as of 30 June 2016.

- The Group's NPL ratio was 7.1% of gross customer loans, including those pledged under repurchase agreements (the 'total loan book'), as of 30 June 2016, compared to 7.2% at 31 March 2016 and 6.3% as of 31 December 2015. The allowance for loan impairments was 7.4% of the total loan book as of the end of 2Q 2016, versus 7.3% on 31 March 2016 and 6.7% as of 31 December 2015. The NPL coverage ratio remained at a comfortable 103.9% at 30 June 2016, versus 102.3% as of 31 March 2016, and 105.8% as of 31 December 2015.

- Customer deposits grew by 8.1% in 1H 2016, driven by 14.3% growth in corporate deposits during the period. As of 30 June 2016, the Group's market shares in retail and corporate deposits stood at 11.0% and 24.7%, respectively.

- The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities decreasing to 4.2% as of 30 June 2016, down from 4.5% as of 31 March 2016 and 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. As of 30 June 2016, the Group's total and Tier 1 capital adequacy ratios were 15.1% and 13.3%, respectively, versus 15.6% and 13.7% as of 31 March 2016, and 14.3% and 12.4% as of 31 December 2015.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 1H 2016

% of the Group total*	Corporate-Investment banking (CIB)	Retail business (RB)	Mid-Corporate banking (MCB)
Assets	46%	26%	5%
Loans and advances to customers (net)	62%	23%	7%
Customer deposits	44%	42%	9%
Revenues from external customers	48%	32%	7%
Net interest income	27%	45%	7%
Net fee and commission income	20%	64%	13%
Provision charge**	36%	42%	21%
Net operating income	33%	63%	-2%
Staff costs and administrative expenses	25%	53%	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 10.8 billion of net profit in 1H 2016. The Retail business posted a positive net result of RUB 16.8 billion for the period. Conservative lending policies and a cautious business environment continued to put pressure on Mid-Corporate banking during 1H 2016. Mid-Corporate banking (MCB)'s net loss for 1H 2016 was RUB 11.8 billion.

- The loan book in the Retail business continued to grow in 1H 2016, primarily driven by mortgage lending and consumer loans. Mortgage lending growth in 1H 2016 has been driven by increasing consumer activity and the continuation of the Government's programme to subsidise mortgage interest rates. The Group continued to focus on portfolio quality in consumer lending, but has seen a significant pickup in consumer activity and has gradually increased approval rates.

- On 10 May 2016, VTB completed the integration of Bank of Moscow ('BoM'). As a result of the integration, VTB Bank now services BoM's retail and small business customers as part of the Retail business. The integration has brought approximately 70% of BoM's assets, worth more than RUB 900 billion according to IFRS, into VTB. The smooth and successful transition made the change in legal entity seamless for BoM's more than 10 million retail, small business and corporate customers as they became clients of VTB Bank.

VTB Group gross loans to individuals

RUB billion	30 June 2016	31 March 2016	31 Dec 2015	Change in 6M 2016, %	Change in 2Q 2016, %
Gross loans to individuals	2,042.9	1,987.5	1,960.0	4.2%	2.8%
Mortgage loans	921.6	896.5	875.1	5.3%	2.8%
Consumer loans and other loans	901.8	871.3	860.6	4.8%	3.5%
Credit cards	129.4	126.3	124.1	4.3%	2.5%
Car loans	90.1	93.4	100.2	(10.1%)	(3.5%)

 

- Mortgage loans amounted to 45.1% of the Group's gross loans to individuals as of 30 June 2016, up from 44.6% as of 31 December 2015. Consumer loans and credit card loans accounted for 43.7% and 6.3% of the portfolio, respectively, versus 43.6% and 6.3% at 31 December 2015. The share of car loans continued to decline, reaching 4.4% as of 30 June 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 23.4 billion in 1H 2016, or 64% of the Group's total.

- In 1H 2016, the Group continued to optimise its Retail business branch network and staff in line with market trends. As of 30 June 2016, the Group had over 2,000 retail offices in Russia (operating under the VTB24 and Post Bank brands as of the end of 1H 2016).

- VTB Capital, the Group's investment banking franchise, remained #1 in the Dealogic League Tables, where it took first place by volume of transactions in Russia and the CIS International debt capital market. Since the beginning of the year, VTB Capital arranged five transactions for a total of USD 2.0 billion, with a 29.4% market share. VTB Capital also maintained top positions in Russia Domestic DCM, having arranged 26 transactions, amounting to USD 1.7 billion and taking a 23% share of the market. In particular, VTB Capital has cemented its position as the №1 Eurobond Bookrunner in Russia, with over 38% net market share. VTB Capital also held the top spot in M&A by number of transactions in Russia and the CIS.

- 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 1H 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:

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