30 Mar 2010 07:00
VTB announces Full Year 2009 results
Audited financial results for twelve months ended 31 December 2009
Moscow, 30 March 2010 - VTB Group today announces its audited IFRS results for the twelve months ending 31 December 2009.
FULL YEAR OPERATING HIGHLIGHTS
·; Despite the difficult economic environment, VTB strengthened its competitive position across all its core businesses and delivered on its strategic priorities
·; VTB Capital generated a record pre-tax profit of RUB 16.4 billion in its first full year of operation
·; VTB24 consolidated its position as Russia's second biggest player and significantly outperformed the market in terms of loan and deposit growth
FINANCIAL HIGHLIGHTS
·; Core income up 33% year-on-year to RUB 173.2billion
·; Net interest income up 34% to RUB 152.2billion
·; Net interest margin up in 4Q09 to 5.3%, the highest level in VTB's public history, from 4.4% in 3Q09, and 4.6% in 4Q'08
·; Net fee and commission income up 29% to RUB 21 billion
·; Cost-to-core income ratio down to 44.1% in 2009 from 51.9% in 2008
·; Loan quality deterioration slowed down - NPL ratio at 9.8% at the end of 2009; prudent coverage at 95%
·; Net loss of RUB 59.6billion as a result of an increase in provision charges to RUB 154.7 billion
·; Improved funding position with a significant increase in customer deposits - reaching over 50% of liabilities - and full repayment of unsecured CBR borrowings
·; Total BIS ratio at 20.7% following capital increase
VTB President and Chairman of the Management Board Andrei Kostin said:
"VTB has made significant progress over the past year on its strategic objective of creating a leading retail operation and a top tier investment bank both of which are already contributing significantly to revenue and operating profits. We have also been able to take advantage of our secure funding base to widen and deepen our corporate franchise. While this year has been difficult for us and the industry generally, these achievements will stand us in good stead as the economy recovers in 2010."
FINANCIAL AND OPERATING REVIEW
Despite a difficult economic environment, VTB achieved significant progress across all of its businesses. Although inevitably rising impairments led the bank to post a net loss in the full year, significant progress was made towards the bank's key strategic goals of creating both a retail and investment banking capability to capitalise on the long-term growth in demand in Russia for sophisticated banking services. VTB Capital established itself as the leading Russian investment bank as well as becoming an important contributor to the Group's revenue growth. VTB Capital reported a record pre-tax profit of RUB 16.4 billion in 2009 and has also occupied leadership positions in all major segments of the investment banking market since its launch. VTB24 is now Russia's fastest growing retail bank with nationwide coverage, competitive product offering and strong brand recognition.
The Group's focus on the development of its three businesses - corporate banking, investment banking and retail banking - is reflected in the bank's solid underlying performance in 2009. Core income, defined as net interest income before provisions and net fee and commission income, was up 33.3% year-on-year to RUB 173.2 billion in 2009, compared to RUB 129.9 billion in 2008. Net interest income before provisions increased 34% year-on-year to RUB 152.2 billion, while net fee and commission income grew 28.8% year-on-year to RUB 21 billion. Net interest margin before provisions stood at 4.6% in 2009 compared to 4.8% in 2008. Net interest margin continued to gradually recover during the course of 2009. In the fourth quarter of 2009 alone, net interest margin increased by 90 basis points to 5.3%, the highest level in VTB's public history,from 4.4% in the third quarter and 4.2% in the first half of the year.
The funding climate improved markedly in the course of the year, which enabled VTB to reduce reliance on short-term state funding and lower its overall cost of funding. In the second half of 2009, VTB repaid in full government financing provided in the form of unsecured Central Bank of Russia (CBR) loans bringing the share of short-term state funds in VTB Group's liabilities to 2%.
With the wholesale market opening up, VTB expects to further optimise its funding costs by using a wider range of domestic and external funding opportunities as well as diversifying its investor base by accessing a broader range of funding instruments in a wider range of currencies.
The bank's share of retail lending in Russia rose to 10.2% in 2009 from 8.8% in 2008. The increase was accompanied by a shift from mortgage lending to higher margin unsecured loans. VTB's retail loan portfolio increased by 12.5% to RUB 435.3 billion in 2009, clearly outperforming the market. Much of the focus in the corporate loan book has been on helping viable customers manage their working capital and liquidity while reducing leverage. As a result of reduced demand for loans from corporate clients in the Russian banking market, VTB's corporate loan portfolio declined by 6.8% to RUB 2.1 trillion at the end of 2009. The decline in corporate lending was more than offset by increased financing of corporate clients through public debt instruments. VTB's portfolio of debt securities increased to RUB 311.3 billion from 110.9 billion at the end of 2008. The total corporate debt financing provided by the Group increased 2% year-on-year to RUB 2.4 trillion by the end of 2009.
In deposits, VTB registered strong growth while continuing to gain market share, thanks to high levels of customer confidence in the VTB brand. Total customer deposits increased 42.4% to RUB 1.6 trillion at the end of 2009 from RUB 1.1 trillion at the end of 2008. Retail deposits increased 34.6% to RUB 476.5 million at the end of 2009 compared to RUB 354.1 million at the end of 2008. Corporate and government bodies' deposits also grew significantly to RUB 1.1 trillion or 46.1% year-on-year compared to RUB 747.8 billion at the end of 2008. The bank increased its market share in the Russian deposit market both in retail (from 5.7% to 6%) and corporate (from 10.2% to 12.7%) compared with the end of last year.
Given the difficult economic backdrop, VTB stepped up its efforts to manage costs within the business. Lower headcount and increased focus on optimization of processes meant that costs grew more slowly than revenues: as a result cost-to-core income ratio fell to 44.1% in 2009 from 51.9% in 2008.
As expected, provision charges increased significantly in 2009 to RUB 154.7 billion or 5.7% of the average loan portfolio compared to RUB 63.2 billion or 3.2% of the average loan portfolio in 2008. However, the rate of growth of provision charges started to slow down during the course of the year from a 7.1% annualised rate in the first quarter of 2009 to 4.3% in the fourth quarter, as a result of the improving economic conditions. The allowance for loan impairment increased to 9.2% of total gross loans in 2009 from 3.6% at the end of last year. Non-performing loans were at 9.8% of total loans at the end of 2009 as compared to 1.9% at the end of 2008. The Group maintains a conservative provisioning policy with a coverage rate of 95% of non-performing loans.
The Group's net result for 2009 was negative at RUB 59.6 billion as a result of high provisions.
The capital increase completed in the third quarter of 2009 significantly strengthened VTB's capital base raising RUB 180.1 billion of additional Tier 1 capital. As a result, VTB Group now has a total BIS ratio of 20.7% and a Tier 1 ratio of 14.8%.
CORPORATE BUSINESS
In corporate banking, VTB maintained its leadership position and increased its lending market share in Russia from 12.7% at the end of 2008 to 13% at the end of 2009.
The first half of 2009 was characterised by a marked economic slowdown which inevitably impacted the ability of many corporate customers to meet their obligations. The priority in this climate has been to monitor rigidly the loan book and stay close to customers. This has enabled the bank to identify potential problems at an early stage and work with customers to identify strategies to support the business while protecting the interests of the bank and shareholders.
As one of the few banks open for business throughout the crisis, VTB was able to win major customers in key sectors of the economy. The bank's readiness, despite a conservative approach to risk, to engage constructively with businesses and support them when other sources of finance were closed, was appreciated by both existing clients and those who as a result of the crisis have become clients for the first time. The bank was one of the first to capitalise on the state guarantee scheme to strategically significant enterprises in the economy. The strategic role that VTB played in refinancing industry leaders in Russia has opened up new perspectives for both the corporate and investment bank going forward.
Important steps have been taken to improve the value added in the corporate business. Remuneration structures within the corporate bank have been amended to incentivise relationship managers to seek profitable cross-selling opportunities with other parts of the bank and particularly the investment banking businesses. For large and strategically important clients, task forces have been established across the bank's divisions to identify enhanced cross-selling opportunities which should raise the profitability of accounts longer term.
The experience in the fourth quarter confirms the bank's belief that the worst point of the cycle is now behind. Despite the reduction in the loan portfolio in 2009, the Group expects the demand to gradually recover in 2010.
RETAIL BUSINESS
VTB24 has consolidated its position as Russia's second biggest player in retail banking with a growing customer base and competitive product offering. The bank continued to grow its market share benefiting from strong confidence in its brand and its ability to deliver high quality customer service. VTB's efforts to cut costs and grow revenue from commissions started bearing fruit as VTB24 was profitable, despite a significant growth in provisions. Also in 2009, VTB24 managed to increase its contribution to the Group's net fee and commission income to 32% from 23% thanks to its increased focus on fee generating products and growing demand for remote banking services.
In retail lending, 2009 saw a significant shift to shorter-term and higher margin products. The total increase in the retail loan book (+12.5% from the start of 2009) was mainly driven by the growth in consumer loans (including credit card loans), which were up by 17.8% to RUB 182.9 billion.
In a weak market which saw a fall in car loans overall, the Group was able to grow its auto loan portfolio by a healthy 12.1% to RUB 45.5 billion. VTB's market share in this segment increased from 7.1% to 10.5%. VTB24 continued to strengthen relationships with auto manufacturers and auto dealers, developing joint financing offers to customers. VTB24 also participated actively in the government subsidised loan programme for the auto sector: around 11,500 new loans were issued through the programme in 2Q-4Q 2009.
Against a background of a weak housing market, VTB24 took a cautious approach to mortgage lending, tightening credit procedures and focusing on high quality borrowers. The bank also worked on loan restructurings where necessary to help homeowners meet their payments. The total volume of mortgage loans decreased by 4.7% to RUB 181.7 billion.
On the deposit side, VTB24 benefited significantly from its strong capital position, widely recognised brand and state backing which were considerable advantages in a period of high volatility. Retail deposits grew by 34.6% to RUB 476.5 billion giving the Group 6% of the market.
Following the rapid branch expansion programme in 2008, VTB24 has been focusing on optimizing its retail network bringing the number of retail branches to 476. The number of ATMs operating under the VTB24 brand reached 4,046 with improved functionality, while Telebank, VTB24's remote banking system, was substantially improved and its coverage extended to 460 branches across the country.
One of the key priorities for VTB in the last year was driving improvements in customer service. A continuing shift from a "product-oriented" approach to one based on customer value and developing loyalty programmes has delivered an improvement in customer satisfaction ratings. Serving 6.7 million retail customers in 2009, VTB24 came out top of the annual retail bank rating in customer service quality carried out by The Retail Finance Magazine.
INVESTMENT BUSINESS - VTB CAPITAL
In an intensely difficult market environment, VTB Capital has established itself as the leading investment business in the Russian market. From a standing start in just over 18 months, VTB Capital has captured leadership positions in all major market segments, including debt and equity capital markets and securities trading. VTB Capital more than achieved its objective of breaking even in its first full year of operations, reporting a pre-tax profit of RUB 16.4 billion in 2009 with the largest contribution being generated by fixed income sales.
VTB Capital won top tier positions in the key industry league tables. In 2009, it was an absolute leader in bond issuance in Russia coming number one in all key categories, while its Fixed Income Sales and Trading team was named as best in class by Cbonds. VTB Capital was named #1 international bookrunner of Eurobonds for Russian and CIS issuers by Cbonds. During the year, VTB Capital arranged 9 Eurobond issues raising a total of US$2.8 billion and giving it a market share of 14.7%. In the local bond issues, VTB Capital was also ranked #1 having arranged 39 transactions totalling approximately RUB 277 billion in 2009. According to Cbonds, VTB Capital's share increased to 24.1% in the local bond market. During the past year, VTB Capital closed several outstanding deals, including 10 corporate bond issues for Russian Railways and two issues for Atomenergoprom. In addition, VTB Capital won EMEA Finance awards as the Best EMEA Local Currency Bond House for the second successive year as well as the Best Securitization House in the CIS.
VTB Capital's research team has also established itself as the clear leader in both equity and fixed income research, scoring highly in both the All Russia Institutional Investor rating and the Thomson Reuters Extel Survey.
In 2009 VTB Capital successfully arranged a number of ECM deals, despite equity capital markets remaining substantially closed for new issues. Year-end 2009 results showed that Dealogic and ThomsonReuters rated VTB Capital #2 ECM bookrunner in Russia and CIS by volume of equity deals arranged. During the course of last year, VTB Capital participated in 6 ECM deals totalling US$1.4 billion, including the secondary public offerings of Globaltrans (US$175 million) and OJSC Synergia (US$80 million). VTB Capital also played a key role in the secondary offering of Magnit which raised US$526 million and, as a result, was nominated "deal of the year" by Business New Europe.
The year saw the completion of the migration of VTB Capital to a single brand in all territories of operation. VTB Capital also significantly extended its global reach. In June 2009, the bank opened its Dubai office. VTB Capital is also planning to open offices in New York and Hong Kong in the course of 2010.
STRATEGY
As previously announced, the bank is working on the detail of a new strategy which is planned to be presented to the market in mid 2010. The focus of the new strategy will be on increasing returns to shareholders. To achieve this objective, the Group intends to leverage its unique market position and capitalise on synergies between corporate, retail and investment banks. VTB plans to transform its corporate business with the ambition to become a leading transactional bank. The Group will also concentrate its efforts on growing the share of revenue that it generates from high margin businesses such as retail and investment banking. VTB will continue to focus on growing market share in retail through its competitive product offering and advanced operational platform while further expanding its branch network. In investment banking, VTB intends to consolidate its position and become the clear leader in the Russian market.
The Group also intends to better align management with the interests of shareholders by setting clear capital return targets for each business segment to drive operational and cost efficiencies through the businesses.
Contacts:
Investor Relations:
Tel.: +7 495 775 71 39
Email: investorrelations@vtb.ru
About VTB:
JSC VTB Bank and its subsidiaries (the VTB Group or the Group) is a leading Russian banking group, offering a wide range of banking services and products across Russia, certain CIS countries and in selected countries of Western Europe, Asia and Africa.
As of December 31, 2009 the Group had a network of 941 branches located across Russia, CIS and Europe, of which VTB24 retail branches totaled 476. Today outside of Russia, the Group operates through five subsidiary banks located in the CIS (Armenia, Ukraine, Belarus, Azerbaijan and Kazakhstan), subsidiary bank in Georgia, five banks located in Europe (Austria, Germany, France, UK and Cyprus), one subsidiary bank and one financial company in Africa (Angola, Namibia), and an associated bank in Vietnam. VTB also has branches in India and China and a presence in Singapore and UAE through the branches of its UK investment banking subsidiary. VTB has operated under a full banking license, №1,000 from the Central Bank of the Russian Federation, since 1990.
The Group's business franchise spans corporate, retail and investment banking. In corporate banking, the Group provides a broad range of commercial banking services and products including corporate lending, foreign trade transactions, syndicated loans, deposit and settlement services, as well as custody services, leasing and treasury services to large- and medium-sized corporations and financial institutions. In retail banking, VTB offers financial services, including deposit accounts, lending, debit and credit cards and transaction services, to individuals and small-sized corporations. In investment banking it provides debt capital markets underwriting, project financing, merger and acquisition financing, advisory services, asset management and venture funds.
The number of employees of the Group at 31 December 2009 was 40,447. The Government of the Russian Federation is VTB's main shareholder and owns, through the Federal Property Management Agency, 85.5 % of its registered share capital.
| Consolidated Statements of Financial Position as of 31 December 2009 | ||
|
| 31 December | |
| RUB bln | 2009 | 2008 |
|
|
|
|
| Assets |
|
|
| Cash and short-term funds | 260.2 | 416.1 |
| Mandatory cash balances with central banks | 23.9 | 7.6 |
| Financial assets at fair value through profit or loss | 267.9 | 170.8 |
| Financial assets pledged under repurchase agreements and loaned financial assets | 96.2 | 44.5 |
| Due from other banks | 345.6 | 308.0 |
| Loans and advances to customers | 2,309.9 | 2,555.6 |
| Financial assets available-for-sale | 24.9 | 23.9 |
| Investments in associates | 13.9 | 4.5 |
| Investment securities held-to-maturity | 11.7 | 20.7 |
| Premises and equipment | 65.9 | 60.8 |
| Investment property | 79.8 | 4.3 |
| Intangible assets and goodwill | 11.9 | 11.3 |
| Deferred tax asset | 31.4 | 9.3 |
| Other assets | 67.6 | 60.0 |
| Total assets | 3,610.8 | 3,697.4 |
|
|
|
|
|
|
|
|
| Liabilities |
|
|
| Due to other banks | 287.0 | 388.7 |
| Customer deposits | 1,568.8 | 1,101.9 |
| Other borrowed funds | 470.9 | 848.7 |
| Debt securities issued | 485.7 | 560.1 |
| Deferred tax liability | 7.0 | 5.5 |
| Other liabilities | 91.2 | 174.1 |
| Total liabilities before subordinated debt | 2,910.6 | 3,079.0 |
| Subordinated debt | 195.3 | 226.3 |
|
|
|
|
| Total liabilities | 3,105.9 | 3,305.3 |
| Equity |
|
|
| Share capital | 113.1 | 75.7 |
| Share premium | 358.5 | 215.8 |
| Treasury shares | (0.4) | (0.4) |
| Unrealized gain on financial assets available-for-sale and cash flow hedge | 3.4 | 0.1 |
| Premises revaluation reserve | 11.8 | 14.2 |
| Currency translation difference | 13.2 | 13.1 |
| Retained earnings | 2.7 | 70.9 |
| Equity attributable to shareholders of the parent | 502.3 | 389.4 |
| Non-controlling interests | 2.6 | 2.7 |
| Total equity | 504.9 | 392.1 |
| Total liabilities and equity | 3,610.8 | 3,697.4 |
| Consolidated Income Statements for the Years Ended 31 December
| ||
| RUB bln | 31 December | |
|
| 2009 | 2008 |
| Interest income | 373.7 | 245.2 |
| Interest expense | (221.5) | (131.6) |
|
Net interest income |
152.2 |
113.6 |
| Provision charge for impairment | (154.7) | (63.2) |
|
Net interest (expense) / income after provision for impairment |
(2.5) |
50.4 |
|
(Losses net of gains) / gains less losses arising from financial instruments at fair value through profit or loss |
(21.3) | 4.0 |
| Gains less losses arising from extinguishment of liability | 14.7 | 9.5 |
| Gains less losses / (losses net of gains) from available-for-sale financial assets | 1.1 | (1.6) |
| Losses on initial recognition of financial instruments and on loans restructuring | (19.7) | - |
| Losses net of gains arising from dealing in foreign currencies | (12.4) | (64.7) |
| Foreign exchange translation gains less losses | 26.6 | 67.0 |
| Fee and commission income | 25.5 | 19.4 |
| Fee and commission expense | (4.5) | (3.1) |
| Share in income of associates | 0.3 | 0.2 |
| Provision charge for impairment of other assets and credit related commitments | (1.7) | (1.5) |
| Income arising from non-banking activities | 2.8 | 3.2 |
| Other operating income | 3.0 | 4.4 |
|
|
|
|
| Net non-interest income | 14.4 | 36.8 |
|
|
|
|
| Operating income | 11.9 | 87.2 |
| Staff costs and administrative expenses | (76.4) | (67.5) |
| Expenses arising from non-banking activities | (1.1) | (1.4) |
| Impairment of goodwill | (3.7) | (0.2) |
| Profit from disposal of subsidiaries and associates | 1.0 | - |
|
|
|
|
| (Loss) / profit before taxation | (68.3) | 18.1 |
|
Income tax recovery / (expense) |
8.7 | (13.5) |
|
|
|
|
| Net (loss) / profit | (59.6) | 4.6 |
|
|
|
|
| Net (loss) / profit attributable to: |
|
|
| Shareholders of the parent | (63.4) | 4.8 |
| Non-controlling interests | 3.8 | (0.2) |
|
|
|
|
| Basic and diluted earnings per share (expressed in Russian Roubles per share) | (0.00821) | 0.00072 |