VTB Group announces IFRS results for 3Q 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 nine months ended 30 September 2019, with the independent auditor's report on review of these statements.

 

Andrey Kostin, VTB President and Chairman of the Management Board, said: "Since the beginning of this year, we have continued to grow our universal banking business, further expanding VTB's market shares in Retail and SME banking, while maintaining leadership in corporate and investment banking. At the same time, we have been diversifying and improving our products and services with the rollout of a number of digital economy initiatives that will supplement the Bank's intensive organic growth. 

 

"VTB delivered solid profitability growth in 3Q 2019, which reinforces our confidence in our full-year net profit target. The ongoing digital transformation of our banking services and our commitment to further enhancing client centricity will enable VTB to achieve continued success going forward."    

 

FINANCIAL HIGHLIGHTS

 

RUB billion	30 September 2019	30 June 2019	31 December 2018	Change in 9M 2019, % or bps	Change in 3Q 2019, % or bps
Total assets	15,624.6	15,055.3	14,760.6	5.9%	3.8%
Loans and advances to customers (before loan loss provisions)	11,912.7	11,623.2	11,423.5	4.3%	2.5%
Gross loans to legal entities	8,491.3	8,323.6	8,435.0	0.7%	2.0%
Gross loans to individuals	3,421.4	3,299.6	2,988.5	14.5%	3.7%
Customer deposits	11,288.4	10,738.0	10,403.7	8.5%	5.1%
Deposits from legal entities	6,485.7	6,029.5	5,995.8	8.2%	7.6%
Deposits from individuals	4,802.7	4,708.5	4,407.9	9.0%	2.0%
NPL ratio	5.5%	5.7%	5.7%	(20 bps)	(20 bps)
LDR ratio	99.1%	101.5%	102.8%	(370 bps)	(240 bps)

 

 

 

 

 

 

VTB achieved measured growth in 3Q and 9M 2019, while strengthening its market positions in prioritized segments

 

Loan portfolio

 

• The Group's loan book grew by 4.3% in 9M 2019 to RUB 11,912.7, driven by fast growth in retail lending.
• The Group's market share in Russia in corporate and retail lending stood at 19.3% (+60 bps ytd) and 18.0% (+20 bps ytd), respectively.
• The corporate loan book grew by 0.7% in 9M 2019; growth has continued for the second quarter in a row. Corporate lending rose by 2.0% in 3Q 2019. The loan book in the SME segment also saw excellent growth, rising by 12% since the beginning of the year and by 4% in 3Q 2019. The share of loans to SME borrowers in the total corporate loan book has increased by 2 bps since the beginning of the year to 13%.
• Retail lending has risen by 14.5% since the beginning of the year, while growth slowed to 3.7% in 3Q 2019.
• Consumer lending has increased by 16% since the beginning of the year, with 4% growth in 3Q 2019, while mortgage was up by 14% in 9M 2019, with an increase of 3% in 3Q 2019.
• As of 30 September 2019, secured loans (mortgages and car loans) accounted for 52% of total retail lending, unchanged from the beginning of the year.

 

Customer deposits

 

• Customer deposits grew faster than other Group liabilities, increasing by 8.5% to RUB 11,288.4 billion as of 30 September 2019 and bringing customer funding to 80% of the Group's liabilities (up by 2 pp). The loans-to-deposits ratio was 99.1% as of 30 September 2019, compared to 101.5% as of 30 June 2019 and 102.8% at the end of 2018.
• Deposits from legal entities rose by 8.2% in 9M 2019, while deposits from individuals increased by 9.0%. The Group's market share in Russia in corporate and retail funding stood at 21.1% (+40 bps ytd) and 15.0% (+100 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 September 2019, compared to 2.4% as of 30 June 2019 and 2.0% as of 31 December 2018.

 

Income statement

 

Income statement comparisons are provided on the basis of modified figures for 9M 2018 (excluding Pochta Bank, MultiCarta, VTB Insurance, VTB Bank PJSC (Ukraine) and VTB Bank (Belgrade)), as this provides for a more accurate analysis. An additional disclosure showing how the income statement would have looked without these companies is provided in the consolidated financial statements of VTB Bank for the nine months ended 30 September 2019, in the section "Other additional financial information".

 

RUB billion	9M 2019	9M 2018 modified	Change, %	3Q 2019	3Q 2018 modified		Change, %
Net interest income	323.8	330.7	(2.1%)	110.2	110.2		0.0%
Net fee and commission income	67.3	63.2	6.5%	22.4	22.1		1.4%
Operating income before provisions	425.0	423.2	0.4%	155.2	141.7		9.5%
Provision charge*	(77.8)	(98.9)	(21.3%)	(32.4)	(38.2)		(15.2%)
Staff costs and administrative expenses	(184.3)	(154.4)	19.4%	(58.7)		(51.6)	13.8%
Net profit	128.0	133.3	(4.0%)	51.2		36.0	42.2%
ROE	11.1%	12.0%	(90 bp)	13.0%		9.6%	340 bp

* Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit-related commitments and legal claims.

 

In 3Q 2019 VTB Group's demonstrated positive trend in profitability driven by growth of core revenues

 

• The Group's net profit for 3Q 2019 was RUB 51.2 billion, an increase of 42% year-on-year, demonstrating upwards trend in profitability. Net profit for 9M 2019 decreased by 4% year-on-year to RUB 128.0 billion. Considering that profit had declined by 21% year-on-year in H1 2019, net income in the third quarter made up for much of the shortfall; a continuation of this trend in the fourth quarter will enable the Bank to achieve its net profit guidance and to deliver a year-on-year profit increase for 2019.
• Net interest income amounted to RUB 323.8 billion in 9M 2019, compared to RUB 330.7 billion a year earlier due to a decrease in net interest margin amid monetary policy tightening that began in September 2018. Net interest margin for 9M 2019 amounted to 3.3%, compared to 3.9% for 9M 2018. Funding costs were 50 bps higher year-on-year at 5.3% for 9M 2019, driving a 26.4% year-on-year rise in interest expense, while interest income rose at a slower pace of 13.5% year-on-year as return on interest-earning assets was comparable to last year's 8.4%.
• A series of reductions in the key rate that began in the second half of June 2019 spurred a growth trend in the Group's net interest margin. A continuation of this trend as a result of successive decreases in the key rate in September and October and the faster pace of the repricing of liabilities will support to an increase in net interest margin in 4Q and for the year compared to 9M 2019.
• Net fee and commission income rose by 6.5% year-on-year to RUB 67.3 billion in 9M 2019. In 3Q 2019, net fee and commission income amounted to RUB 22.4 billion, an increase of 1.4% year-on-year. A one-off increase in expenses for loyalty programmes - the result of significant changes to those programmes - had a negative impact on fee and commission income in 3Q. In the absence of further changes, stronger organic growth in terms of net fee and commission income is expected going forward.

 

The decrease in the cost of risk  due to stable asset quality supported the bottom line performance

 

• The cost of risk was 1.0% in 3Q and 0.9% in 9M 2019, a year-on-year decrease of 30 bps and 50 bps, respectively. Provision charges amounted to RUB 32.4 billion in 3Q 2019 and RUB 77.8 billion in 9M 2019, down by 15.2% and 21.3%, respectively, year-on-year. The decrease in the cost of risk and the decline in provision charges was driven by stable credit quality across all business segments. 
• The Group's NPL ratio decreased to 5.5% of gross customer loans as of 30 September 2019, declining by 20 bps from both 31 December 2018 and 30 June 2019. The allowance for loan impairments as of 30 September 2019 was 6.1% of the total loan book, compared to 6.3% as of 30 June 2019 and 6.4% as of 31 December 2018. The NPL coverage ratio was 112.4% as of 30 September 2019 (110.8% on 30 June 2019 and 112.0% on 31 December 2018).

 

Operating expenses increased as a result of the consolidation of operating banks and varied calendarisation, while the pace of the increase slowed in 3Q

• Personnel and administrative expenses amounted to RUB 184.3 billion for 9M 2019, up 19.4% year-on-year, out of which 6.4 ppt was due to the consolidation of Vozrozhdenie Bank, Sarovbiznesbank and Zapsibkombank into VTB Group's reporting. At the same time, the rate of growth in expenses slowed in 3Q 2019, with expenses for the period amounting to RUB 51.6 billion, an increase of 13.8% year-on-year. In addition, higher growth rates in expenses at the beginning of the year were associated with varied calendarisation for year-by-year variable personnel costs (earlier recognition of these expenses in 2019 compared to the previous year), which led to a slowdown in the growth rate of expenses in 3Q and will affect the dynamics of expenses in 4Q. A VAT increase in 2019 also contributed to the increase in expenses.

• The costs to income ratio (CIR) also saw positive developments, amounting to 37.8% in 3Q and 43.4% in 9M 2019.

Other results

 

Leadership in investment banking

• As of the end of the reporting period, VTB Capital maintained its leading positions in several international rankings, taking the top spot in the ranking of Russian domestic DCM bookrunners, first place in the ranking of Russian international DCM bookrunners and becoming the leading bookrunner for Eastern European bonds, according to Dealogic, Refinitiv and Bloomberg.

 

VTB Group's development in the digital economy

• VTB Mobile began operating in September 2019 for clients based in Moscow, with the rollout in St Petersburg and other Russia cities planned for the coming months. VTB Mobile is an MVNO that uses Tele2 infrastructure. In addition to creating a unified ecosystem, VTB believes that this service will help increase loyalty, heighten the effectiveness of individual offers based on new data about customers, reduce the cost of communication services such as SMS account information, maximise the protection of customer information and provide a new channel for attracting customers. VTB will offer its customers communications services at uniquely low prices.
• The Bank began the creation of its residential ecosystem project in the third quarter. Services were launched for electronic registration of transactions and a showcase of new-build apartments for digital mortgages. This project aims to create a unified portal for most residential real estate services.
• In August 2019, the Bank acquired First OFD, which provides fiscal data from POS equipment to the Federal Tax Service in almost real time. This acquisition will further enhance the Bank's big data capabilities, improve its ability to monitor the financial standing of corporate borrowers in real time, refine scoring models and provide more tailored solutions to clients.

 

Developing VTB Capital Investment's platform for individuals

• VTB Group is actively developing VTB Capital Investments, a comprehensive investment services platform to serve a wide range of investors in the Russian market, including investment products and services for individuals. VTB Capital Investment's customer assets exceed RUB 1.9 trillion, including RUB 810 billion in assets belonging to individual customers, an increase of 40% compared to 31 December 2018 and 14% compared to 30 June 2019. More than 213 thousand new customers signed up for the service during the reporting period, more than 115 thousand of which joined in 3Q 2019. VTB Capital Investment's customer base has reached more than 600 thousand customers. 

• VTB's retail brokerage business continues its solid growth, with more than 50 thousand new accounts being opened each month in the second and third quarters of 2019. Total client assets amounted to RUB 603 billion, up by 43% in 9M 2019.

• VTB Capital Investment's digital services are a prime example of VTB Group's successful digital transformation. VTB has devoted considerable attention to developing the VTB My Investments app, which offers access to over 3,500 investment instruments. In 2019 the app began offering robo-advisor, investment consulting services, as well as access to foreign shares. The purchase of OFZ-n was made possible in the third quarter. Transactions worth more than RUB 1.6 trillion have been completed through the app.

 

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THIS PRESS-RELEASE HAS BEEN PREPARED BY VTB BANK (PJSC) ("VTB") AND HAS NOT BEEN INDEPENDENTLY VERIFIED. THIS PRESS-RELEASE DOES NOT CONSTITUTE OR FORM PART OR ALL OF, AND SHOULD NOT BE CONSTRUED AS, ANY OFFER OF, OR ANY INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF ANY OFFER TO PURCHASE, SUBSCRIBE FOR, UNDERWRITE OR OTHERWISE ACQUIRE, OR A RECOMMENDATION REGARDING, ANY SHARES OR OTHER SECURITIES REPRESENTING SHARES IN, OR ANY OTHER SECURITIES OF VTB, OR ANY OF ITS SUBSIDIARIES, NOR SHALL IT OR ANY PART OF IT NOR THE FACT OF ITS PRESENTATION OR DISTRIBUTION FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR ANY COMMITMENT WHATSOEVER OR ANY INVESTMENT DECISION. SOME OF THE INFORMATION IN THIS PRESS-RELEASE MAY CONTAIN PROJECTIONS OR OTHER FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF VTB AND ITS SUBSIDIARIES (TOGETHER WITH VTB, THE "GROUP"). FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ARE NOT HISTORICAL FACTS. THEY INCLUDE STATEMENTS ABOUT OUR BELIEFS AND EXPECTATIONS AND THE ASSUMPTIONS UNDERLYING THEM. THESE STATEMENTS ARE BASED ON PLANS, ESTIMATES AND PROJECTIONS AS THEY ARE CURRENTLY AVAILABLE TO THE MANAGEMENT OF VTB. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS, BELIEFS AND EXPECTATIONS REGARDING THE GROUP'S PRESENT AND FUTURE BUSINESS STRATEGIES, FINANCIAL CONDITIONS, TARGETS AND THE OPERATING ENVIRONMENT. WE CAUTION YOU THAT THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT WE CANNOT PREDICT WITH CERTAINTY. ACCORDINGLY, OUR ACTUAL OUTCOMES AND RESULTS MAY MATERIALLY DIFFER FROM WHAT WE HAVE EXPRESSED OR FORECASTED IN THE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS PRESS-RELEASE AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE ASSUME NO OBLIGATION TO UPDATE OR REVISE THESE STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION OR FOR ANY OTHER REASON OR TO MAKE THEM CONFORM TO ACTUAL RESULTS. CERTAIN NUMBERS AND RATIOS CONTAINED HEREIN, RELATED TO PAST DATES AND PERIODS, MIGHT HAVE BEEN RESTATED IN ACCORDANCE WITH THE LATEST FINANCIAL STATEMENTS ISSUED, AND HENCE DIFFER FROM THE ONES PRESENTED IN THE PREVIOUS COMMUNICATIONS. FIGURES SHOWN IN THIS PRESS-RELEASE ARE BASED ON FIGURES DISCLOSED IN THE ANNUAL AND INTERIM FINANCIAL STATEMENTS OF THE GROUP. HOWEVER, FIGURES USED IN THIS PRESENTATION MIGHT HAVE BEEN ROUNDED, WHICH COULD RESULT IN SLIGHT DIFFERENCES IN PERCENTAGE CHANGES COMPARED TO THOSE PROVIDED IN SUCH FINANCIAL STATEMENTS.