Vozrozhdenie Bank has posted its IFRS results for 9M 2015.

- Net interest margin for 9M 2015 improved by 14 bps YoY to 4.8%

- Operating profit before provisions reached RUB 4.6 billion ($69.2 million)for the reporting period, 8.6% up YoY

- Net loss for 9M 2015 was RUB 2.5 billion ($38.3 million) versus net profit of RUB 1.6 billion ($31.2 million) for 9M 2014

- Assets totalled RUB 203.9 billion ($3.1 billion) as of September 30, 2015, 10.5% down from the year-start.

- Loan portfolio declined 6.8% YtD, while retail loans added up 8.8% YtD to RUB 50.3 billion ($758.7 million)

- NPL coverage improved by 4.1 pps YtD to 88.7% for 1 day+ overdue and by 11 pps to 126.4% for 90 days+ overdue

- Client funds decreased by 8.4% over the reporting period to RUB 159.5 billion ($2.4 billion)

"In the third quarter we saw some signs of stabilisation - further moderation in rates, recovery in some industries and a capital inflow for the first time in a long period. We intensified retail lending which is more interesting for the bank and outpaced the sector. On the back of the effective rates management and the expanded interest-earning assets share, net interest margin continued its strengthening for the fourth quarter in a row, despite shrinking balance sheet.

However, with still high credit risks on the agenda, we remained cautious in the corporate segment. We improved granularity, expanding in the more reliable segment of regional administrations; worked closely with NPLs, kept provisioning indebtedness impaired at the end of 2014 and at the beginning of 2015. Higher charges to provisions resulted in a loss in the third quarter.

RUB 6.6 billion ($99.6 million) of sovereign bonds (OFZ) obtained in the frame of the state re-capitalisation programme covering the largest banks will allow us to enhance our capital position on Basel III, offsetting the incurred losses, and will contribute to the further growth in the most promising segments", commented Andrey Shalimov, Deputy Chairman of the Management Board of Vozrozhdenie Bank.

As of September 30, 2015 the bank's assets edged down by 10.5% YtD to RUB 203.9 billion ($3.1 billion) driven by a contraction of net loan book, securities portfolio and cash and equivalents amid broadly decelerated economic growth. Despite the reduced balance sheet, its structure remained effective and resilient. Indeed, the share of liquid assets stayed at a comfort level of 21.4% and the share of interest-earning assets increased by 3.2 pps during the quarter to 78.9%. Loan-to-Deposit ratio rose by 2.9 pps over the quarter to 99.4% and came close to the bank's targeted level of 100%.

Gradually moderating throughout the year amid stagnating real sector and deteriorating creditworthiness of potential borrowers, gross loan portfolio came in at RUB 158.5 billion ($2.4 billion) as of September 30, 2015. The decrease was 6.8% YtD, meanwhile in the last three months the indicator lost 3.0%, in particular in the segment of large corporates. Visible decline in the largest commercial exposures (-22.4% QoQ to RUB 38.3 billion, or $577.9 million) coming in line with the business diversification strategy was reasoned by an expected repayment made by the one of the largest clients whose business overgrew the bank's capacity and a sale of non-performing loans.

SME lending remains the bank's key segment with a 57.4% share in the corporate book, nevertheless the bank reduced it also (-4.9% QoQ to RUB 62.2 billion, or $938.4 million) amid persisting credit risks. The bank preferred more reliable segment of regional administrations and municipalities - portfolio of loans issued to them grew thrice over the quarter to RUB 7.8 billion ($118.4 million) with a 7.2% share in the corporate book.

Moderation in rates on mortgages and consumer loans and launch of the state-supported mortgage programme contributed to a revival of retail lending after midyear (+8.8% YtD). Mortgage portfolio added 7.5% over the quarter and +6.4% YtD to RUB 33.9 billion ($511,8 million) both in the frame of the programme and the bank's own products. The system of targeted sales to the current clientele also brought its fruits - consumer, car and bank card loans advanced 11.9% QoQ and 14.0% YtD to RUB 16.4 billion ($246.9 million).

Further contracting after a peak in Q1 2015, non-performing loans (NPLs) totalled RUB 16.0 billion ($241.6 million) at September 30, 2015, down 6.2% from the year-start. On a shrink in the gross portfolio, NPL share in the loan book remained almost intact at 10.1%. Positive dynamics were predominantly caused by the sale of the large corporate loans under cession agreements for RUB 4.1 billion ($62.5 million) in Q3 2015.

Some increase in the share of non-performing loans to SMEs (+98 bps QoQ to 11.2%) reflected headwinds in macro environment and deteriorated quality of the credit demand. The share of NPLs to individuals also went up by 106 bps QoQ to 6.0%, basically on not impaired loans technically overdue for less than 90 days, accounting for 4.0% of the retail book. Herewith, the share of total NPLs past-due less than 90 days decreased from 8.2% to 7.1% over the quarter.

Cost of risk was 5.9% over 9M 2015, up 3.8 pps YoY, with RUB 7.3 billion ($110.5 million) charged to provisions in the reporting period. The bank continued provisioning earlier revealed NPLs, meanwhile the peak of charges fell on Q3 2015 when RUB 1.6 billion ($24.2 million) of allowances were accrued for possible losses in the segment of large corporates and RUB 1.8 billion ($26.6 million) - in SME segment. Total provisions were down by 5.9% QoQ to RUB 14.2 billion ($214.2 million) due to the sale of a part of the NPL book. NPL coverage improved in the third quarter and stood at 88.7% (+9.2 pps QoQ) for 1 day+ NPLs and 126.4% (+14.1 pps QoQ) for 90 days+ NPLs.

Client funds shrank by 8.4% YtD to RUB 159.5 billion ($2.4 billion), continuing to be the key source of the bank's financing. Their share in the liabilities added 2.1 pps in the reporting period to 87.4%.

Major decline in the indicator (-5.8% QoQ) fell on the third quarter and resulted from a 7.2% decrease in retail funds to RUB 115.5 billion ($1.7 billion) resulted from a withdrawal of several large deposits in August, 2015. Generally, the clientele was stable across the period and the outflows stopped in September.

Corporate funds lost 0.8% QoQ and 14.4% YtD to RUB 44.0 billion ($663.9 million). The bank does not aggressively compete for commercial deposits which were down 5.1% over the quarter to RUB 16.3 billion ($246.2 million). Meanwhile the bank actively attracts customers to settlement services with new business-tailored products, which allowed 1.9% expanding of the current accounts volumes to RUB 27.7 billion ($417.8 million).

The share of almost free funding source - current accounts and card balances - in liabilities advanced by 0.7 pps QoQ to 23.2%, easing pressure on funding costs.

The bank's equity diminished by 9.9% from the level of the year-start and was equal to RUB 21.4 billion ($323.7 million) as of October 1, 2015 mainly due to the incurred losses.

The bank's capital calculated as per Basel III standards decreased 8.9% YtD and equaled to RUB 23.9 billion ($360.5 million). The total regulatory capital adequacy ratio (N1.0 norm) was down by 0.3 pps YtD to 11.7%, considerably exceeding the minimum acceptable level of 10%. The common equity Tier1 capital adequacy ratio (N1.1 norm) improved by 0.7 pps over the same period and reached 10.0%, while the minimum requirement set at 5%.

Net interest income for 9M 2015 rose by 5.5% from the similar prior-year period to RUB 7.7 billion ($116.6 million) on the back of interest income enhanced by 19.1% to RUB 18.0 billion ($271.1 million). Timely interest rates management and short period of corporate loans turnover coupled with expanded share of more profitable retail lending contributed to a higher level of rates across the book. Interest expenses for 9M 2015 were RUB 10.2 billion, 32.0% higher YoY, due to a substantial growth in the market funding rates evidenced starting from December, 2014. That increase was offset by better yields on the assets. Thus, net interest margin for 9M 2015 grew 14 bps YoY and reached 4.8%.

In Q3 2015 the focus on supporting net interest margin remained intact - it added 11 bps QoQ to 4.9%, touching the record height in the last six quarters. Flexible interest rates management and the cut in the expensive FX deposits let the bank to partially mitigate the decline in corporate lending and support net interest income at RUB 2.6 billion, $38.9 million (-0.6% QoQ). Yields on net interest-earning assets grew over the same period by 11 bps on contracted volume of balance sheet, which with a slight decrease in the cost of funding by 3 bps to 7.2%, resulted in net interest spread expansion by 15 bps to 7.4%.

Net fees and commissions for 9M 2015 was RUB 2.8 billion ($42.5 million), 2.5% down from the similar prior-year period pressed by a drop in net income from cash and bank card transactions. Meanwhile net fees on settlement products added 9.0% driven by broadened product range and newly implemented package offers.

Net fees and commissions grew by 1.0% QoQ to RUB 970.0 million ($14.6 million) for Q3 2015 supported by net income from settlement transactions (+2.2% QoQ) and FX (+28.2% QoQ).

Herewith, total non-interest income advanced by 11.6% to RUB 3.8 billion ($58.0 million) as a result of almost 2.7 times jump of trade income amid volatility on financial markets. The share of non-interest income in operating income before provisions accounted for 33.2%. Total non-interest income was down 11.4% QoQ to RUB 1.2 billion ($17.8 million) lead by moderate decline in trade income.

Operating expenses for 9M 2015 amounted to RUB 7.0 billion ($105.5 million), up 6.7% YoY. Staff expenses, accounting for 60.0% of the bank's total expenses, added 7.6% to RUB 4.2 billion ($63.3 million) mainly attributable to severance pays to employees who left the bank. IT expenses also increased as well as contributions to the State Deposit Insurance Agency fueled by the expansion of the average deposit portfolio. Cost-to-income ratio before provisions for the reporting period remained almost flat YoY at 60.4%.

Operating expenses stayed practically intact QoQ at RUB 2.3 billion (+0.8% QoQ), with staff expense down 3.6% to RUB 1.3 billion ($20.3 million). Cost-to-income ratio before provisions for the quarter added 3.1 pps to 61.2% on the back of a contraction in the bank's operating income over the period.

Owing to positive dynamics in interest and trade income, operating profit before provisions 9M 2015 advanced by 8.6% YoY to RUB 4.6 billion ($69.2 million). Though, heavy provisioning across Q2 and Q3 2015 led to net loss of RUB 2.5 billion ($38.3 million) for the reporting period.