VTB Group announces IFRS results for the first six months and second quarter of 2015

18 August 2015

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 2015 with the Independent Auditors' Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: 'Following the extraordinarily challenging first three months of 2015, VTB Group saw early signs of improvement in the operating environment during the second quarter of the year and managed to achieve a positive quarterly net result. This was supported by a recovery in interest margins, lower cost of risk and the strong fee generating capabilities of our key businesses.

'Another important factor driving our performance has been stringent cost discipline, as we are delivering on the various cost cutting initiatives outlined in the Group's strategy.

'While the economic situation continues to be volatile, we remain conservative in managing our asset base, seeking to focus on less risky products and exposures across key business segments. This approach has enabled the Group to maintain healthy levels of capital adequacy, which is in line with our priorities of tight financial management and risk controls. In July 2015, we also undertook a placement of new preference shares worth RUB 307 billion, which were acquired by the State Corporation Deposit Insurance Agency, thus securing our position to capture economic growth in Russia when it resumes.'

FINANCIAL AND OPERATING HIGHLIGHTS

Statement of financial position>

RUB billion	30 June 2015	31 Mar 2015	31 Dec 2014	Change in 6M 2015	Change in 2Q 2015
Total assets	11,742.9	12,438.9	12,190.8	(3.7%)	(5.6%)
Cash and short term funds	624.7	674.8	695.2	(10.1%)	(7.4%)
Loans and advances to customers, including pledged under repurchase agreements (gross)	8,607.7	8,898.5	9,150.4	(5.9%)	(3.3%)
Gross loans to legal entities	6,719.9	6,997.3	7,205.3	(6.7%)	(4.0%)
Gross loans to individuals	1,887.8	1,901.2	1,945.1	(2.9%)	(0.7%)
Customer deposits	6,078.3	6,450.5	5,669.4	7.2%	(5.8%)
Deposits from legal entities	3,773.8	4,226.9	3,520.3	7.2%	(10.7%)
Deposits from individuals	2,304.5	2,223.6	2,149.1	7.2%	3.6%
NPL ratio	7.0%	6.4%	5.8%	1.2 p.p.	0.6 p.p.
Tier 1 CAR	10.1%	9.7%	9.8%	0.3 p.p.	0.4 p.p.
Total CAR	12.4%	11.9%	12.0%	0.4 p.p.	0.5 p.p.

 

- While economic activity and demand for loans continued to be subdued, the Russian banking sector saw further contraction in both corporate and retail loan portfolios during 2Q 2015. In this environment, VTB Group banks continued to adhere to tight lending policies, which also contributed to a decline in the Group's gross loans both in 6M 2015 and 2Q 2015.

- The Group's loan book quality developed in line with macroeconomic and banking sector trends. As of 30 June 2015, the NPL ratio was 7.0% of gross customer loans, including those pledged under repurchase agreements (the 'total loan book'), versus 6.4% as of 31 March 2015 and 5.8% as of 31 December 2014. The allowance for loan impairments grew to 7.6% of the total loan book as of 30 June 2015, from 7.2% as of 31 March 2015, and 6.7% at the start of the year. The NPL coverage ratio remained at a comfortable level of 109.0% at 30 June 2015, compared to 112.0% as of 31 March 2015 and 114.8% at the beginning of the year.

- During 2Q 2015, banking sector and the Group saw a contraction in corporate customer funds, in line with a contraction in the loan book. Simultaneously, as interest rates started to decline in Russia, VTB Group's cost of corporate customer deposits improved to 6.8% in 2Q 2015, versus 7.9% in 1Q 2015. In the retail segment, both banking sector and the Group continued to see a healthy inflow of customer funds, with the Group's total deposits from individuals increasing by 3.6% in 2Q 2015 and 7.2% in 1H 2015.

- The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities falling to 6.5% as of 30 June 2015, from 7.0% as of 31 March 2015, and 8.3% as of 31 December 2014. During 6M 2015, VTB and its subsidiaries made repayments on their international public debt in the total amount of USD 2.955 billion. The Group maintained its strong focus on efficient liability management. In July 2015, VTB, through a public tender, bought back USD 343.7 million of its USD-denominated Eurobonds, CHF 215 million on CHF-denominated Eurobonds and AUD 79.2 million of Eurobonds issued in Australian dollars. This successful transaction enabled VTB to benefit from the volatile situation in debt capital markets and to further optimise the Group's balance sheet.

- Risk-weighted assets were down 7.7% in 1H 2015, and 6.7% in 2Q 2015, to RUB 9,397.7 billion as of 30 June 2015, which resulted in improved capital adequacy ratios. As of 30 June 2015, the Group's total and Tier 1 capital adequacy ratios were 12.4% and 10.1%, respectively, versus 11.9% and 9.7% as of 31 March 2015 and 12.0% and 9.8% as of 31 December 2014.

- In July 2015, VTB also took an important step to strengthen its core Tier 1 capital by placing new preference shares worth approximately RUB 307 billion, which were acquired by the State Corporation Deposit Insurance Agency. The capital raised will be leveraged to expand VTB's loan book, in particular through financing import substitution programmes and Russia's strategically important industries and companies.

Income Statement>

RUB billion	1H 2015	1H 2014	Change	2Q 2015	2Q 2014	Change
Net interest income	113.2	177.2	(36.1%)	67.1	87.3	(23.1%)
Net fee and commission income	32.6	28.8	13.2%	17.2	14.5	18.6%
Operating income before provisions	180.4	220.1	(18.0%)	90.9	115.4	(21.2%)
Provision charge*	(79.9)	(96.7)	(17.4%)	(31.0)	(48.7)	(36.3%)
Staff costs and administrative expenses	(115.4)	(109.0)	5.9%	(56.2)	(56.2)	0.0%
Net (loss) / profit	(17.1)	5.0	n.a.	1.2	4.6	(73.9%)

 

*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 37.5% year-on-year in 1H 2015 to RUB 533.8 billion, due to higher interest rates in Russia. At the same time, as the Group's liabilities were pricing in the new level of interest rates in the economy, interest expense surged by 99.2% year-on-year to RUB 420.6 billion in 1H 2015. This resulted in a 36.1% year-on-year reduction in net interest income to RUB 113.2 billion for 1H 2015, and in a decrease of the Group's net interest margin (NIM) to 2.1% in 1H 2015, versus 4.3% for 1H 2014. In 2Q 2015, the easing of CBR's monetary policy led to a decline in Russian banks' funding costs. As a result, the Group's NIM improved to 2.5% in 2Q 2015, versus 1.7% in 1Q 2015.

- The strong fee generating capabilities of Retail business and Transaction banking (as part of Corporate-Investment banking and Mid-Corporate banking) enabled the Group to deliver 13.2% year-on-year growth in net fee and commission income for 1H 2015, despite a year-on-year slowdown in economic business activity during the period.

- The Group's tight lending and risk management policies helped it to post a considerable year-on-year decrease in provision charges, which also 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 1.7% in 1H 2015, from 2.6% in 1H 2014.

- In 1H 2015, VTB Group delivered on its comprehensive costs control programme, which was developed as part of VTB's medium-term strategy. Staff costs and administrative expenses were up by 5.9% year-on-year (well below the rate of inflation) during the first six months of the year and remained flat year-on-year in 2Q 2015. The Group's annualised costs-to-average assets ratio improved to 1.9% for 1H 2015, from 2.3% for 1H 2014.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 1H 2015

% of the Group total*	Corporate-Investment banking	Mid-Corporate banking	Retail business
Assets	44.3%	4.5%	22.2%
Loans and advances to customers (net)	64.7%	7.3%	23.9%
Customer deposits	45.3%	7.6%	43.5%
Revenues from external customers	47.8%	8.5%	30.6%
Net interest income	17.3%	14.1%	66.0%
Net fee and commission income	21.8%	18.1%	57.7%
Provision charge**	12.1%	23.3%	67.1%
Net operating income	58.2%	4.4%	53.6%
Staff costs and administrative expenses	26.5%	11.5%	51.6%

 

*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 put pressure on profitability across all key segments. For 1H 2015, Corporate-Investment banking (CIB) delivered RUB 20.7 billion of net profit, despite the macroeconomic headwinds. Mid-Corporate banking (MCB) and Retail business posted net losses of RUB 7.2 billion and RUB 3.7 billion, respectively. In 2Q 2015, CIB and Retail business delivered positive net result.

- In the Retail business segment, the Group's lending activity contracted throughout most of 1H 2015, due to weaker real disposable incomes and consumer spending, as well as lower approval rates for the riskiest retail lending products. In the end of 2Q 2015, the Group's retail loan book returned to growth, driven primarily by mortgage products. Since April 2015, VTB 24, the Group's core retail bank, has been actively issuing mortgages under the Russian Government's programme to subsidise mortgage interest rates.

VTB Group gross loans to individuals

RUB billion	30 June 2015	31 Mar 2015	31 Dec 2014	Change in 6M 2015	Change in 2Q 2015
Gross loans to individuals	1,887.8	1,901.2	1,945.1	(2.9%)	(0.7%)
Mortgage loans	802.9	799.2	795.3	1.0%	0.5%
Consumer loans	844.3	856.5	901.1	(6.3%)	(1.4%)
Credit cards	122.8	118.9	113.8	7.9%	3.3%
Car loans	110.9	119.4	129.7	(14.5%)	(7.1%)
Reverse sale and repurchase agreements and other loans	6.9	7.2	5.2	32.7%	(4.2%)

 

- Mortgage loans reached 42.5% of the Group's gross loans to individuals as of 30 June 2015, versus 40.9% as of 31 December 2014. The shares of consumer loans and credit card loans in the portfolio were 44.7% and 6.5%, respectively, versus 46.3% and 5.9% at 31 December 2014. The share of car loans in the portfolio decreased to 5.9% as of 30 June 2015, versus 6.7% at the start of the year.

- The Group's retail banks have been pursuing opportunities to grow fee-based revenues, in particular through more active cross selling of ancillary 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 18.8 billion in 1H 2015, or 57.7% of the Group's total.

- The total number of the Group's retail offices in Russia (operating under the brands VTB24, Bank of Moscow, and Leto Bank) was more than 1,700 as of 30 June 2015. The combined number of the Group's ATMs exceeded 12,600 at the end of 1H 2015.

- In Corporate-Investment banking (CIB), demand for loans remained weak due to higher interest rates and subdued business activity in 1H 2015. However, as the CBR continued to reduce its key rate in 2Q 2015, the Group saw early signs of recovery in corporate clients' appetite for new borrowings and refinancing through both loans and public debt issuance. The CIB continued to focus on optimising risks and preserving the quality of the Group's loan portfolio. CIB's 1H 2015 net profit of RUB 20.7 billion was supported by solid results from Investment and Transaction banking.

- The Group's investment banking franchise VTB Capital continues to be Russia's leading investment bank. In debt capital markets, VTB Capital topped the Thomson Reuters bookrunner ranking for 1H 2015 based on the volume of transactions for Russian issuers, with 21 transactions worth USD 7.1 billion. As a result, VTB Capital's share of the market increased from 23.6% in 2014 to 62.9% in 1H 2015.VTB Capital also ranked first in equity capital markets in Russia according to Thomson Reuters, having arranged four transactions during 1H 2015 worth USD 481 million and taking 51.6% of the market, which is up from 19.1% in 2014. In addition, VTB Capital was named Best Investment Bank in Russia by Euromoney Awards for Excellence 2015. VTB Capital's research team was ranked number one by the Extel Survey 2015. According to the Extel Survey 2015 VTB Capital was also named 'Best Equity Sales Firm in Russia' and 'Best Brokerage Firm in Russia'.

- In the Mid-Corporate banking (MCB) segment, the Group's loan book contracted, as MCB continued to adhere to tight loan origination policies and risk management standards, focusing more on documentary business with high quality customers. Overall demand for loans from mid-corporate clients remained limited throughout the first six month of the year. In 1H 2015, MCB posted solid fee income, with a share in the Group's total net fee and commission income of 18.1%.

Contacts:

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

VTB Bank
Interim Consolidated Statement of Financial Position as at 30 June 2015
(in billions of Russian roubles)

	30 June 2015 (unaudited)	31 December 2014
Assets
Cash and short-term funds	624.7	695.2
Mandatory cash balances with central banks	93.0	85.5
Non-derivative financial assets at fair value through profit or loss	223.3	275.0
Derivative financial assets	244.6	407.0
Financial assets, other than loans and advances to customers and due from other banks, pledged under repurchase agreements	67.4	184.0
Due from other banks, including pledged under repurchase agreements	1,264.4	814.5
- Due from other banks	1,195.1	740.3
- Due from other banks, pledged under repurchase agreements	69.3	74.2
Loans and advances to customers, including pledged under repurchase agreements	7,954.3	8,537.3
- Loans and advances to customers	7,623.6	8,074.7
- Loans and advances to customers, pledged under repurchase agreements	330.7	462.6
Investment financial assets	158.4	132.2
Investments in associates and joint ventures	98.1	96.3
Assets of disposal groups held for sale	12.9	11.1
Land, premises and equipment	258.2	246.9
Investment property	220.7	192.3
Goodwill and other intangible assets	159.1	161.8
Deferred income tax asset	65.4	66.9
Other assets	298.4	284.8
Total assets	11,742.9	12,190.8
Liabilities
Due to other banks	774.6	733.2
Customer deposits	6,078.3	5,669.4
Derivative financial liabilities	233.7	397.8
Other borrowed funds	2,232.4	2,729.2
Debt securities issued	693.9	921.4
Liabilities of disposal groups held for sale	8.4	4.7
Deferred income tax liability	25.2	26.6
Other liabilities	340.2	312.3
Total liabilities before subordinated debt	10,386.7	10,794.6
Subordinated debt	269.3	265.2
Total liabilities	10,656.0	11,059.8
Equity
Share capital	352.1	352.1
Share premium	433.8	433.8
Perpetual loan participation notes	124.9	126.6
Treasury shares and bought back perpetual loan participation notes	(2.5)	(6.7)
Other reserves	34.5	42.8
Retained earnings	132.4	169.3
Equity attributable to shareholders of the parent	1,075.2	1,117.9
Non-controlling interests	11.7	13.1
Total equity	1,086.9	1,131.0
Total liabilities and equity	11,742.9	12,190.8

 

 

VTB Bank
Interim Consolidated Income Statement for the Three Months and Six Months Ended 30 June 2015 (unaudited)
(in billions of Russian roubles)

 

	For the three-month period ended 30 June		For the six-month period ended 30 June
	2015	2014	2015	2014
Interest income	261.6	200.1	533.8	388.3
Interest expense	(194.5)	(112.8)	(420.6)	(211.1)
Net interest income	67.1	87.3	113.2	177.2
Provision charge for impairment of debt financial assets	(25.2)	(45.2)	(73.6)	(92.8)
Net interest income after provision for impairment	41.9	42.1	39.6	84.4
Net fee and commission income	17.2	14.5	32.6	28.8
Gains net of losses arising from financial instruments at fair value through profit or loss	2.0	9.9	18.5	5.5
Gains less losses from investment financial assets available-for-sale	1.6	0.3	1.3	0.8
Gains net of losses / (losses net of gains) arising from foreign currencies	3.7	(3.2)	21.4	(11.4)
(Losses)/gains on initial recognition of financial instruments, restructuring and other gains on loans and advances to customers	(0.1)	1.6	(1.0)	1.7
Share in profit/(loss) of associates and joint ventures	0.6	(0.3)	2.1	0.3
(Loss)/gain from disposal of subsidiaries and associates	(0.1)	0.3	(0.1)	9.3
Gains net of losses / (losses net of gains) arising from extinguishment of liabilities	-	0.2	-	(0.8)
Provision charge for impairment of other assets, credit related commitments and legal claims	(5.8)	(3.5)	(6.3)	(3.9)
Other operating income	4.8	3.3	9.2	6.4
Non-interest gains	6.7	8.6	45.1	7.9
Net insurance premiums earned	48.9	11.5	59.5	22.9
Net insurance claims incurred, movement in liabilities to policyholders and acquisition costs	(49.3)	(7.2)	(58.8)	(15.0)
Revenue from other non-banking activities	3.8	6.1	0.1	13.3
Cost of sales and other expenses from other non-banking activities	(9.3)	(8.9)	(17.6)	(18.4)
Revenues less expenses from non-banking operations	(5.9)	1.5	(16.8)	2.8
Impairment of goodwill	-	-	-	(0.5)
Staff costs and administrative expenses	(56.2)	(56.2)	(115.4)	(109.0)
Non-interest expenses	(56.2)	(56.2)	(115.4)	(109.5)
(Loss)/profit before tax	3.7	10.5	(14.9)	14.4
Income tax expense	(1.8)	(7.0)	(0.5)	(12.4)
Net (loss)/profit after tax	1.9	3.5	(15.4)	2.0
(Loss)/profit after tax from subsidiaries acquired exclusively with a view to resale	(0.7)	1.1	(1.7)	3.0
Net (loss)/profit	1.2	4.6	(17.1)	5.0
Net (loss)/profit attributable to:
Shareholders of the parent	2.5	1.9	(11.8)	4.3
Non-controlling interests	(1.3)	2.7	(5.3)	0.7
Basic and diluted earnings per share (expressed in Russian roubles per share)	(0.00062)	(0.00031)	(0.00174)	(0.00012)
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)	(0.00057)	(0.00040)	(0.00160)	(0.00036)

 

VTB Bank
Interim Consolidated Statement of Comprehensive Income for the Three Months and Six Months Ended 30 June 2015 (unaudited)
(in billions of Russian roubles)

	For the three-month period ended 30 June		For the six-month period ended 30 June
	2015	2014	2015	2014
Net (loss)/profit	1.2	4.6	(17.1)	5.0
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	(0.2)	2.5	5.5	(2.0)
Cash flow hedges, net of tax	0.2	(0.8)	(0.1)	0.2
Share of other comprehensive income of associates and joint ventures	(1.0)	0.1	(0.6)	-
Effect of translation, net of tax	(4.1)	(3.0)	(13.1)	3.7
Total other comprehensive income to be reclassified to profit or loss in subsequent periods	(5.1)	(1.2)	(8.3)	1.9
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Actuarial losses net of gains arising from difference between pension plan assets and obligations	0.2	(0.2)	0.2	(0.2)
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	(0.2)	0.2	(0.2)
Other comprehensive income, net of tax	(5.0)	(1.4)	(8.1)	1.7
Total comprehensive income	(3.8)	3.2	(25.2)	6.7
Total comprehensive income attributable to:
Shareholders of the parent	(2.5)	1.0	(19.8)	5.9
Non-controlling interests	(1.3)	2.2	(5.4)	0.8