VTB Group announces IFRS results for the full year and the fourth quarter of 2018

VTB Bank ("VTB" or "the Bank"), the parent company of VTB Group ("the Group"), today publishes its Consolidated Financial Statements for the three months and twelve months ended 31 December 2018, with the Independent Auditor's Report on these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "2018 was the second year of our current three-year strategy, and I am pleased to announce that for the second consecutive year we have beaten our own strategic targets for net profit. During the year we achieved very strong business growth and further enhanced our market position, outperforming the industry in both corporate and retail lending, as well as in retail deposits. Following the impeccably executed merger of VTB24, in 2018 we functioned as a unified bank, continuing to strengthen our franchise and delivering sizeable business and costs synergies, while also generating new opportunities and benefits for our clients.

"We have entered 2019 with strong momentum, as the profound transformation of our business and new strategic initiatives will continue to drive VTB's success this year and beyond."

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

*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 for FY 2018 increased by 48.9% year-on-year to RUB 178.8 billion, supported by stable performance in core income lines, enhanced cost efficiency and lower provision charges year-on-year.
• Net interest income rose by 1.8% year-on-year to RUB 468.6 billion in FY 2018, with the fourth quarter seeing further growth in both corporate and retail lending. The net interest margin declined by 20 bp year-on-year to 3.9% for FY 2018. Net interest margin in 4Q 2018 was 3.4%, compared to 4.1% for the same period a year earlier.
• Net fee and commission income declined by 5.6% year-on-year to RUB 90.0 billion in FY 2018; this decline was primarily due to the high base effect following robust 17% year-on-year growth in 2017.
• The cost of risk was 1.6% in FY 2018, at the same level as FY 2017. Cost of risk in 4Q 2018 was 1.7%, up by 20 bp year-on-year. The provision charge for FY 2018 amounted to RUB 167.1 billion, down by 2.8% year-on-year.
• The Group significantly improved its cost efficiency even further in FY 2018: the ratio of costs to operating income before provisions declined to 40.5%, compared to 44.0% for FY 2017. Staff costs and administrative expenses declined by 0.4% year-on-year in FY 2018, to RUB 259.8 billion, and by 4.5% year-on-year to RUB 72.5 billion in 4Q 2018.

Statement of financial position

*In September 2018, VTB Group and the Russian Post signed an amended shareholder agreement with respect to PJSC Post Bank, which turned the latter into a joint venture. As at 30 September 2018, VTB Group accounted for its shareholding in PJSC Post Bank as an investment into a joint venture accounted under the equity method.

• In FY 2018 the Group's loan book adjusted for the change in accounting treatment of Post Bank grew by 18.7% to RUB 11 427.1 billion as gross loans to individuals and legal entities rose by 28.7% and 15.5%, respectively. The Group's market share in Russia in corporate and retail lending stood at 18.6% and 17.8%, respectively.
• The Group's NPL ratio fell to 5.7% of gross customer loans as of 31 December 2018, down from 6.9% as of 1 January 2018. The allowance for loan impairments continued to decline and reached 6.4% of the total loan book, compared to 7.1% as of 30 September 2018 and 7.5% on 1 January 2018. The NPL coverage ratio rose to 112.0% at year-end, up from 103.7% at 30 September 2018 and 109.3% as of 1 January 2018.
• Customer deposits adjusted for the change in accounting treatment of Post Bank amounted to RUB 10,403.7 billion as of 31 December 2018 and were up by 15.9% year-on-year, bringing customer funding to 79% of the Group's liabilities, while the loans-to-deposit ratio was 102.8% at the end of FY 2018, compared to 104.6% as of 30 September 2018 and 99.5% as of 1 January 2018.
• Deposits from legal entities grew by 8.6% in FY 2018, while deposits from individuals adjusted for the change in accounting treatment of Post Bank grew by 27.7%. The Group's market share in Russia in corporate and retail funding stood at 20.7% and 14.0%, respectively.
• The Group continued to maintain a low reliance on wholesale funding, with the share of debt securities issued in total liabilities decreasing to 2.0% as of 31 December 2018, compared to 2.8% as of 1 January 2018.
• VTB Capital remains Russia's go-to investment banking franchise, leading the DCM, ECM and M&A league tables in FY 2018.
• Solid profitability supported capital adequacy ratios even as lending growth accelerated: as of 31 December 2018, the Group's total and Tier 1 capital adequacy ratios were 13.5% and 12.0%, respectively, versus 14.3% and 12.5% as of 1 January 2018.