VTB Group announces IFRS results for 2Q 2019

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 and first half of the year ended 30 June 2019, with the Independent Auditor's Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "We achieved robust business growth in the first half, and continued to expand our market shares in our priority Retail and SME segments. With lending volumes up, an improving interest rate environment and stable credit quality, as well as proactive efficiency measures to keep staff costs and administrative expenses in check, we are poised to post strong results in 2H 2019 and deliver on our FY 2019 net profit target of RUB 200 billion.

"While remaining focused on achieving our financial targets, we are also delivering on long-term strategic goals, transforming VTB into an efficient, technology-driven, client-centric bank that demonstrates intensive growth supported by initiatives in the digital economy."

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 1H 2019 decreased by 23.0% year-on-year to RUB 76.8 billion, as pressure on the net interest margin brought net interest income down by 10.3% year-on-year and other operating income declined by 68.0% year-on-year. This was partially balanced by a lower provision charge for 1H 2019 and staff costs and administrative expenses remaining nearly flat year-on-year.
• Net interest income amounted to RUB 213.6 billion in 1H 2019, compared to RUB 238.1 billion a year earlier. While lending volumes grew in the first half of 2019, the net interest margin for the period amounted to 3.3%, compared to 4.1% for 1H 2018. Funding costs remained 40 bps higher year-on-year at 5.3% for 1H 2019, driving a 25.1% year-on-year rise in interest expense, while interest income rose at a slower pace of 8.3% year-on-year as return on interest-earning assets was 30 bps lower year-on-year at 8.4%.
• Net fee and commission income rose by 4.7% year-on-year to RUB 44.9 billion in 1H 2019. The Group's retail and mid-corporate business lines contributed to strong 16.6% year-on-year growth in net fee and commission income in 2Q 2019.
• The cost of risk grew to 1.1% in 2Q 2019, in line with guidance, and amounted to 0.8% in 1H 2019, down by 80 bps year-on-year. The low CoR for 1H 2019 reflects a 34.2% year-on-year drop in the provision charge, which amounted to RUB 45.4 billion for the period.
• The Group's costs to operating income before provisions ratio was 46.6% in 1H 2019, compared to 39.4% for 1H 2018, while the cost to assets ratio was 1.7% in 1H 2019 compared to 1.9% for 1H 2018.  The efficiency ratios were driven by a modest 0.7% year-on-year growth in staff costs and administrative expenses, to RUB 125.6 billion in 1H 2019.

Statement of financial position

• The Group's loan book grew by 1.7% in 1H 2019 to RUB 11,623.2 billion, as continued strong growth in retail lending of 10.4% outweighed a 1.3% decline in the corporate loan book during the period. Corporate lending grew in 2Q 2019 by 2.5%, while retail lending growth decelerated to 4.2% during the period (+5.9% in 1Q 2019). The Group's market share in Russia in corporate and retail lending stood at 19.3% (+70 bps ytd) and 18.4% (+60 bps ytd), respectively.
• The Group's NPL ratio was to 5.7% of gross customer loans as of 30 June 2019, flat compared to 1 January 2019, and down 10 bps from 31 March 2019. The allowance for loan impairments at the end of the first half was 6.3% of the total loan book, compared to 6.4% as of 1 January 2019 and 6.5% as of 31 March 2019. The NPL coverage ratio amounted to  110.8% as of 30 June 2019.
• Customer deposits rose to RUB 10,738.0 billion as of 30 June 2019, up by 3.2% during the first half and bringing customer funding to 79.5% of the Group's liabilities, while the loans-to-deposit ratio was 101.5% as of 30 June 2019, compared to 104.0% as of 31 March 2019 and 102.8% at the start of 2019.
• Deposits from legal entities rose by 0.6% in 1H 2019, while deposits from individuals rose by 6.8%. The Group's market share in Russia in corporate and retail funding stood at 20.9% (+20 bps ytd) and 14.9% (+90 bps ytd), respectively.
• The Group continued to maintain a low level of reliance on wholesale funding, with the share of debt securities issued in total liabilities at just 2.4% as of 30 June 2019, compared to 2.0% as of 1 January 2019.
• VTB Capital continued its award-winning performance, leading the Dealogic ranking of Russian International DCM bookrunners and the Bloomberg Eastern Europe Bonds Bookrunner ranking for the period. VTB Capital was also named #1 Brokerage Firm in Russia according to the annual Extel Survey 2019 conducted among investors, and the VTB Capital Research team ranked #2 in Russia.
• VTB maintained solid capital levels during the first quarter, with the total and Tier 1 capital adequacy ratios amounting to 13.2% and 12.0%, respectively, as of 30 June 2019, compared to 13.5% and 12.0%, respectively, as of 1 January 2019.