4 Aug 2009 07:01
VTB announces results for the First Quarter of 2009
Unaudited financial results for the three months ended 31 March 2009
Moscow, 4 August 2009 - VTB Group today announces its unaudited IFRS results for the three months ending 31 March 2009. The results are reported for the first time in Russian roubles.
FINANCIAL AND OPERATING HIGHLIGHTS
Strong commitment from Government to maintain funding and capital strength
Total gross loans up 7.5% to RUR2.8 trillion
Total customer deposits up 11% to RUR1.2 trillion
Core income up 30.0% to RUR38.6 billion year-on-year
Net loss of RUR20.5 billion mainly as a result of increased provisions and a one-off charge due to reclassification of interest rate swaps
Net interest margin of 4.1% down from 4.6% in the fourth quarter of 2008
Provision charge of RUR49.2 billion, an annualized 7.1% of average gross loan portfolio, up from 4.8% in the fourth quarter of 2008
Cost-to-core income ratio improved to 44.3% in first quarter of 2009 from 55.1% in fourth quarter of 2008
Total BIS ratio down to 15% from 17.3%
VTB President and Chairman of the Management Board Andrei Kostin said:
"In the face of extremely tough economic conditions, VTB is working hard alongside the Government to support its customers. We continue to maintain tight control on costs and risks. The level of provisions is to remain high in 2009 and we would not expect to return to profit this year. We are confident that we will be able to weather the storm and emerge successfully with a strong franchise when the economy recovers."
FINANCIAL AND OPERATING REVIEW
The first quarter was marked by a more rapid deterioration in the Russian economy than anticipated with GDP dropping by 9.8%, industrial production falling by 14.3% and unemployment level rising to 10.4%.
Although the Group was severely impacted by the adverse economic environment, VTB has benefited substantially from its position as a systemically important bank. This has given it privileged access to both funding and clients, at a time when availability of capital and liquidity has been at a premium.
The Group's total assets increased 3.1% to RUR3,812.7 billion, up from RUR3,697.4 billion at the end of 2008.VTB's total gross loan portfolio went up 7.5% to RUR2,847.9 billion from RUR2,650.3 billion at the end of December 2008.
Despite the Government's anti-crisis measures, Russian companies continue to face serious difficulties refinancing their operations. With foreign credit markets remaining mostly shut for Russian corporates, VTB has been working actively to provide alternative sources of finance in the domestic market and has been able to deepen its relationships with high quality borrowers. VTB's investment in VTB Capital has also provided additional expertise in that client segment. This is enabling VTB to create strong and high quality relationships which will stand the Bank in good stead when the economy returns to healthy growth.
As a result, VTB was able to report growth in corporate loans of 7.7% to RUR2,438.4 billion from the year end 2008. VTB Group's share of the corporate loan market increased from 12.7% to 12.9%. Retail loans increased by 5.8% to RUR409.5 billion from RUR387.1 billion at the end of 2008 with VTB's market share up slightly to 8.9% (2008: 8.8%) in that segment.
Customer deposits increased 11% quarter on quarter to RUR1,222.6 billion from RUR1,101.9 billion. Although this increase partly reflected the impact of the devaluation of the rouble on dollar denominated deposits, there was a marked increase in both corporate and retail inflows reflecting confidence in the VTB brand.
Core income, defined as net interest income before provisions and net fee and commission income, went up 30% to RUR38.6 billion in the first quarter of 2009 from RUR29.7 billion in the same period last year, demonstrating the continued earnings power of VTB's business. Net interest income before provisions increased 30.9% to RUR34.3 billion from RUR26.2 billion in the first quarter of 2008 due to strong lending growth. Net fee and commission income increased almost 23% year-on-year to RUR4.3 billion from RUR3.5 billion. The net interest margin decreased to 4.1% from 4.6% in the fourth quarter of 2008, largely due to increased funding costs.
Reflecting the worsening economic situation, the provision charge rose to RUR49.2 billion in the first quarter of 2009. The provision represents an annualised 7.1% of average gross loans, up from 4.8% in the fourth quarter of 2008. The share of overdue and rescheduled loans in the gross loan portfolio increased to 4.3% by the end of the reporting period from 2.4% at the end of 2008. Although down from 147.6% at the end of December 2008, the coverage ratio for overdue and rescheduled loans by allowances for loan impairment remained adequate at 118.3% at the end of March 2009. The Debt Center, established in 2008 to work with borrowers in difficulty and secure the bank's position in restructuring situations, became fully functional in the quarter, with a dedicated team able to manage problem assets and maximize recoveries. In the first quarter of 2009, the Debt Center was engaged in the recovery of more than 120 problem loans totalling over RUR62 billion. More than 80% of those assets represented loans to large companies.
As a result of sharply increased provisions coupled with a one-off charge of RUR10.3 billion related to the reclassification of interest rate swaps, VTB posted a net loss of RUR20.5 billion in the quarter. The exceptional charge was due to the reclassification of interest rate swaps from the hedging to the trading book. These related to foreign currency loans which were restructured into rouble loans, as part of the process VTB is undertaking to help its clients put their financing on a more sustainable footing. In addition, VTB booked a loss of RUR1.0 billion from trading securities in the first quarter of 2009.
Continuing its efforts to manage its foreign currency liabilities prudently, VTB continued to optimize its debt obligations. A net gain from the buy-back of RUR5.5 billion was booked in the reporting period. The nominal value of Eurobonds bought back during the first quarter of 2009 amounted to US$0.6 billion.
Focus on cost control and improved efficiency remained a key priority for the bank. In the second half of 2008, the Group implemented a number of cost cutting measures across all of its businesses. Progress on these measures is reflected in our first quarter results. Staff and administrative expenses decreased 17.8% quarter-on-quarter to RUR17.1 billion. As a result, VTB's cost-to-core income fell to 44.3% from 55.1% in the fourth quarter of 2008 and remained broadly stable as compared to the first quarter of 2008.
The number of VTB Group employees fell by 1.3% or 565 employees to 41,427. The Group's largest employer, our retail bank VTB24, cut 2.2% of its staff or 394 people to 17,487.
After a period of rapid expansion, VTB 24 has shifted its strategic focus towards customer relationship management while consolidating its operations and branch network. The number of branches of the Group's retail bank VTB 24 fell to 480 from 504 at the end of 2008. The bank has also shifted its product focus away from mortgage lending towards shorter term loans.
CAPITAL
In the light of the increased credit risk, a key focus has been to ensure that VTB retains a strong capital base and we are making progress towards obtaining additional Tier 1 capital, a process that we currently expect to complete by October 2009.
2009 OUTLOOK
The operating environment for the Group will remain tough through 2009. The Ministry for Economic Development is forecasting overall GDP contraction of 8.5% this year. While commodity prices have recovered in the second quarter from their lows and despite indications of moderating inflation and a strengthening rouble, the outlook remains uncertain. The Government has reaffirmed its commitment to support the economy. While the existing package of stimulus measures will take time to work through, VTB is maintaining its commitment to provide liquidity to the corporate sector, while helping viable companies restructure their debt and maintain their operational capability.
A cautious reopening of the capital markets should enable the Group to diversify its sources of funding. VTB Capital has now established itself as one of the leading Russian investment banking businesses playing a lead role in enabling the Russian corporate sector to access the capital markets. It has achieved a leading position on the MICEX market where it is the third largest market maker in Russian equities. VTB Capital has won some significant mandates including lead arranger for a series of bond issues for Russian Railways totalling RUR60 billion, with further issues in the pipeline.
VTB expects loan volumes to grow in the mid-teens in rouble terms in 2009. The Group also expects provisions to remain high for the rest of the year and it is likely that the allowance for loan impairment will exceed the 8% of the gross loan portfolio previously indicated by the end of the year. Given the difficult outlook, the Group continues to focus on cost control while working actively to reduce funding costs. VTB now believes that 2009 costs will not exceed the annualized level of the fourth quarter of 2008 in rouble terms. Based on all these assumptions, VTB does not expect to return to profit in 2009. In the meantime, the Group is continuing to focus on maintaining its capital strength and supporting its customers.
Contacts:
Investor Relations: Tel.: +7 495 775 71 39 Email: investorrelations@vtb.ru Media Relations: Tel.: +7 495 783 1717 Email: pr1@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 March 31, 2009 the Group had a network of 980 branches located across Russia, CIS and Europe, of which VTB24 retail branches totaled 480.
Today outside of Russia, the Group operates through six subsidiary banks located in the CIS (Armenia, Georgia, Ukraine, Belarus, Azerbaijan and Kazakhstan), 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 a presence in Singapore through a branch of its UK subsidiary as well as branches in India and China. 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 is in the areas of 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 and certain ancillary 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 Group had 41,427 employees as of March 31, 2009. The Government of the Russian Federation is VTB`s main shareholder and owns, through the Federal Property Management Agency, 77.5 % of its registered share capital.
Disclaimer:
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. You can identify forward-looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might," or the negative of such terms or other similar expressions. These statements are only predictions and actual events or results may differ materially. VTB does not intend to or undertake any obligation to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in VTB`s projections or forward-looking statements, including, among others, general economic and market conditions, VTB`s competitive environment, risks associated with operating in Russia, rapid technological and market change, and other factors specifically related to VTB and its operations.
This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of VTB or any of its subsidiaries, nor shall any part of it nor the fact of its distribution form part of or be relied on in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of VTB or any of its subsidiaries.
Information contained in this document is not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in Russia or to or for the benefit of any Russian person or any person in Russia, and does not constitute an advertisement of any securities in Russia.
Consolidated Balance Sheet
Unaudited financial results for the three months ended March 31, 2009
| (in billion of roubles) | 31 March 2009 (unaudited) | 31 December 2008 |
| | | |
| Assets | | |
| Cash and short-term funds | 354,1 | 416,1 |
| Mandatory cash balances with central banks | 11,8 | 7,6 |
| Financial assets at fair value through profit or loss | 192,9 | 170,8 |
| Financial assets pledged under repurchase agreements and loaned financial assets | 11,1 | 44,5 |
| Due from other banks | 309,6 | 308,0 |
| Loans and advances to customers | 2 703,5 | 2 555,6 |
| Financial assets available-for-sale | 29,0 | 23,9 |
| Investments in associates | 4,8 | 4,5 |
| Investment securities held-to-maturity | 36,1 | 20,7 |
| Premises and equipment | 62,4 | 60,8 |
| Investment property | 4,4 | 4,3 |
| Intangible assets | 11,8 | 11,3 |
| Deferred tax asset | 19,9 | 9,3 |
| Other assets | 61,3 | 60,0 |
| | | |
| | | |
| Total assets | 3 812,7 | 3 697,4 |
Consolidated Balance Sheet
Unaudited financial results for the three months ended March 31, 2009
| (in billion of roubles) | 31 March 2009 (unaudited) | 31 December 2008 |
| | | |
| Liabilities | | |
| Due to other banks | 351,8 | 388,7 |
| Customer deposits | 1 222,6 | 1 101,9 |
| Other borrowed funds | 925,2 | 848,7 |
| Debt securities issued | 543,6 | 560,1 |
| Deferred tax liability | 6,2 | 5,5 |
| Other liabilities | 185,0 | 174,1 |
| | | |
| Total liabilities before subordinated debt | 3 234,4 | 3 079,0 |
| Subordinated debt | 196,8 | 226,3 |
| | | |
| Total liabilities | 3 431,2 | 3 305,3 |
| | | |
| Equity | | |
| Share capital | 75,7 | 75,7 |
| Share premium | 215,8 | 215,8 |
| Treasury shares | (0,4) | (0,4) |
| Unrealized Gain (Loss) on financial assets available-for-sale and cash flow hedge | 0,9 | 0,1 |
| Premises revaluation reserve | 14,0 | 14,2 |
| Currency translation difference | 20,7 | 13,1 |
| Retained earnings | 49,6 | 70,9 |
| Equity attributable to shareholders of the parent | 376,3 | 389,4 |
| | | |
| Minority interest | 5,2 | 2,7 |
| | | |
| Total equity | 381,5 | 392,1 |
| | | |
| | | |
| Total liabilities and equity | 3 812,7 | 3 697,4 |
Statement of income
Unaudited financial results for the three months ended March 31, 2009
| 31 March | ||
| 2009 (unaudited) | 2008 | |
|
|
|
|
| Interest income | 94,0 | 51,1 |
| Interest expense | (59,7) | (24,9) |
|
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|
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| Net interest income | 34,3 | 26,2 |
| Provision charge for impairment | (49,2) | (4,7) |
|
|
|
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| Net interest income after provision for impairment | (14,9) | 21,5 |
|
|
|
|
| Gains less losses arising from financial instruments at fair value through profit or loss | (11,3) | (11,0) |
| Gains less losses arising from extinguishment of liability | 5,5 | - |
| Gains less losses / (losses net of gains) arising from dealing in foreign currencies | (42,6) | 14,8 |
| Foreign exchange translation gains less losses | 52,1 | (12,2) |
| Fee and commission income | 5,6 | 4,1 |
| Fee and commission expense | (1,3) | (0,6) |
| Share in income of associates | - | 0,1 |
| Recovery of / (provision charge for) impairment of other assets and credit related commitments | (0,6) | - |
| Income arising from non-banking activities | 0,6 | 0,8 |
| Other operating income | 0,5 | 0,8 |
|
|
|
|
| Net non-interest income | 8,5 | (3,2) |
|
|
|
|
| Operating income | (6,4) | 18,3 |
| Staff costs and administrative expenses | (17,1) | (13,1) |
| Expenses arising from non-banking activities | (0,2) | (0,6) |
|
|
|
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| Profit before taxation | (23,7) | 4,6 |
| Income tax expense | 3,2 | (1,7) |
|
|
|
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| Net profit | (20,5) | 2,9 |
|
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| Net profit attributable to: | ||
| Shareholders of the parent | (21,4) | 2,7 |
| Minority interest | 0,9 | 0,2 |
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