2 Sep 2010 07:08
VTB Results for the First Half of 2010
2 September 2010
Moscow - VTB Group today announced its unaudited IFRS results for the six months ended 30 June 2010
FINANCIAL AND OPERATING HIGHLIGHTS
·; Record half year net profit at RUB 25.1 billion
·; Improved profitability in Corporate Banking with RUB 18.3 billion profit before tax
·; Substantial contribution from Retail and Investment Banking to the Group's results with profit before tax of RUB 11.1 billion and RUB 9.7 billion, respectively
·; Strong net interest margin at 5.3% in 1H 2010, 2Q 2010 margin at 5.5%
·; Net interest income at RUB 86.4 billion, up 23% from 1H 2009
·; Net fee and commission income up 22% year-on-year to RUB 11.8 billion
·; Total gross loans of RUB 2.8 trillion, up 11% since the start of the year
·; Credit risk under control - provision charge at 2.1% in 1H 2010 as compared to 6.9% in 1H 2009; allowance for loan impairment almost unchanged at 9.3% compared with 9.2% at the end of 2009
·; NPLs ratio at 9.5% versus 9.8% at the end of 2009 - the first decline since the start of the crisis
·; Solid capital position with BIS ratio at 19.3%
Andrei Kostin, VTB President and Chairman of the Management Board, said:
"I am pleased to announce that VTB has achieved record net profit for the first half of the year. We continue to derive value from our unique business model, identifying new opportunities for profitable growth across our core businesses, corporate, retail and investment banking, and we have started to implement the Group's new strategy under the leadership of our industry-leading management team."
FINANCIAL AND OPERATING REVIEW
In the first half of 2010, Russia saw an economic recovery with an acceleration in industrial production, lower inflation and an increase in retail sales and real wages. The recovery, however, remains fragile and the second quarter was marked by very challenging market conditions on the back of European sovereign debt problems.
Despite a difficult environment, VTB performed strongly in the reporting period and continued to deliver on the Group's new strategy focused on profitable growth. The Group posted a record net profit of RUB 25.1 billion versus a loss of RUB 31.5 billion in the first half of 2009. The performance in the first half of 2010 implies an annualised return on equity of 9.7% and earnings per share at RUB 0.0026 as compared to a loss of RUB 0.005 per share in the first half of 2009.
The Group's operating income before provisions was RUB 105.4 billion, up 12% year-on-year from RUB 93.8 billion in the first half of 2009. Net interest income before provisions reached RUB 86.4 billion, up 23% from RUB 70.3 billion in the first six months of 2009. With funding costs continually improving, VTB managed to maintain a strong net interest margin (NIM) over the last three quarters. In the first half of 2010, NIM stood at 5.3% versus 4.2% in the first six months of 2009. In the second quarter, VTB posted a record quarterly net interest margin of 5.5%.
Net fee and commission income was RUB 11.8 billion, up 22% from RUB 9.7 billion in the first six months of the last year, with a very strong contribution from retail and investment businesses. The share of these businesses in the Group's net fee and commission income reached 54%, compared to 39% in the first half of 2009.
A steep correction in the Russian equity market in the second quarter of 2010 had a negative impact on the net result from financial instruments. Nevertheless, in the first half of 2010, net gains from financial instruments amounted to RUB 2.8 billion, up from a loss of RUB 14.5 billion in the same period last year.
In the first half of 2010, total gross loans increased by 11% to RUB 2,815.5 billion, up from RUB 2,544.8 billion at the end of 2009. Corporate loans were up 13% to RUB 2,373.6 billion from RUB 2,109.5 in the beginning of the year. Retail loans reached RUB 441.9 billion, up 2% from RUB 435.3 billion at the end of 2009. In the second quarter of 2010, the Group saw the first signs of recovery in demand for credit both from corporate and retail customers with corporate and retail loans up by 12% and 5% respectively. However, lending growth remained unstable while competition for quality borrowers intensified.
The continued improvement in the quality of the Group's loan portfolio was reflected in the further decrease in its cost of risk. For the six months of 2010 provision charge amounted to RUB 27.2 billion, or 2.1% of the average loan portfolio (annualised ratio). This is down from RUB 96.6 billion or 6.9% in the first half of 2009. The allowance for loan impairment was 9.3% of total gross loans at the end of the second quarter as compared to 9.2% at the end of 2009 and 9.8% at the end of the first quarter of 2010. Non-performing loans ratio fell for the first time since the beginning of the crisis and amounted to 9.5% of total gross loans, against 9.8% at the end of 2009 and 10.2% at the end of the first quarter of 2010.
The first half of 2010 saw a healthy inflow of both retail and corporate customer funds, with total deposits up by 8% to RUB 1,688.8 billion. Corporate deposits increased by 4% in the first half of 2010, reaching RUB 1,137.8 billion. Retail deposits reached RUB 551 billion, up 16% from the end of 2009. The share of customer deposits in the Group's total liabilities remained stable at 54%.
VTB continues to take measures to further optimise liability costs, including by diversifying funding sources across geographies, currencies and the Group's investor base. In the first quarter of 2010, the Group favourably priced a US$1.25 billion Eurobond offering at 6.465% which resulted in a tightening of the VTB secondary curve. In August, VTB successfully placed its inaugural Singapore dollar 400 million eurobond issue at a 4.2% coupon rate, which was the largest transaction in Singapore dollars in 2010 by a foreign issuer. In the same month the Group placed a CHF 400 million issue under its LPN programme with a favourable coupon rate set at 4%.
Staff costs and administrative expenses were at RUB 43.9 billion in the first six months of 2010 versus RUB 35.7 billion in the first half of 2009. This increase was mainly due to a significant expansion of VTB's business operations as compared to the last year. In the second quarter of 2010, the Group's staff and administrative costs declined for the second consecutive time on quarter-on-quarter basis. Staff and administrative costs were at RUB 21.7 billion in the second quarter of 2010 down from RUB 22.2 billion in the first quarter and from RUB 23.9 billion in the last quarter of 2009.
As of 30 June 2010, capital ratios remained strong with the Group's Tier 1 ratio at 14.1% and total BIS ratio at 19.3%.
CORPORATE BUSINESS
VTB's corporate business segment benefited from higher margins and lower cost of risk, posting a solid profit before tax of RUB 18.3 billion versus a loss of RUB 23.8 billion in the first half of 2009. While increasing profitability, the Group also managed to maintain its market share in corporate loans at around 13%. In deposits, VTB's market share increased to 12.8% from 12.7% at the end of 2009.
In the first half of 2010, VTB began implementing its Corporate and Investment Banking ("CIB") concept, which was designed to ensure that the Group derives maximum value from the two businesses by promoting high quality and sophisticated corporate and investment banking products to the bank's clients. The Group appointed Yuri Soloviev, President and Global CEO of VTB Capital, and Vladimir Tatarchuk, VTB Deputy President and Chairman of the Management Board as co-heads of the CIB unit.
VTB sees significant opportunity in developing a strong transaction banking capability as part of its corporate offering, and has already started to develop a new range of settlement and treasury products for corporate clients. VTB is building a team of professionals with an outstanding track record in this area, which will enable the bank to provide best-in-class transactional solutions to its clients.
Consistent with the announced strategy, VTB has also separated customer relationship and product management functions by launching a new product management unit within the bank. This will enhance VTB's product development capability and will enable the bank to offer a broad variety of complex products to its customers.
Vladimir Tatarchuk, VTB Deputy President and Chairman of the Management Board, said: "We have started to reshape our corporate business in line with our strategy to maximise profitable growth by introducing more sophisticated, higher margin products and by realising further synergies between Corporate and Investment Banking as well as our other businesses."
RETAIL BUSINESS
VTB's retail business segment profit before tax increased strongly to RUB 11.1 billion versus a loss of RUB 4 billion in the first half of 2009. This increase, on the back of more robust demand by consumers for retail banking products, was supported by growth of net interest income, lower provisioning as well as by stronger net fee and commission income which increased 55% year-on-year to RUB 4.5 billion, up from RUB 2.9 billion in the first half of 2009.
The Group consistently grew its market share in retail loans, which reached 10.7% by the end of the first half of 2010, up from 10.2% at the end of 2009. VTB's market share in retail deposits remained almost unchanged at 6.1%.
In line with our priorities retail lending growth was primarily driven by shorter term and higher margin consumer and car loans. The share of these products in the Group's total portfolio increased to 58% at the end of the first half of 2010 from 52% at the start of the year.
The Group's retail bank, VTB24, continued to make inroads into the affluent retail customer segment through its advanced private banking platform. During the first half of the year, VTB24 enhanced its product range in this area and expanded the number of VIP customers by 6% to 1,188 clients, whose funds accounted for 11% of the Group's total retail deposits at the end of the first half of 2010.
In the reporting period, VTB24 further expanded its retail network bringing the number of its branches to 480 from 476 at the beginning of the year. In the same period, the number of the bank's ATMs increased to 4,272 from 4,046.
"We continue to deliver outstanding profitability combined with an upturn in the volumes of business and steadily increasing market share", said Mikhail Zadornov, VTB24 President and Chairman of the Board. "Looking ahead, we see significant opportunity for further revenue growth as we continue to expand our branch network and to enhance our product range."
INVESTMENT BUSINESS
VTB Capital further reinforced its lead in the investment banking sector. Despite a challenging market environment marked by a 15% drop in RTS index in the second quarter of 2010, VTB's investment business was able to post a profit before tax of RUB 9.7 billion for the first half of 2010 versus RUB 1.8 billion in the same period of 2009.
VTB Capital remained an undisputed leader in debt capital markets, topping the Bloomberg Russia DCM league table with 23 transactions worth a total US$4.6 billions (17% market share) at the end of the first half of 2010. Cbonds ranked VTB Capital #1 local bonds bookrunner for the same period and Euromoney magazine named VTB Capital 'Best Russian Debt House'. In the reporting period, VTB Capital acted as the only Russian bookrunner in Russia's sovereign Eurobond issue.
In equity capital markets, VTB's investment business continued to strengthen its position in a highly competitive environment. It was ranked #2 Russian ECM bookrunner by Dealogic, advising on four IPOs and SPOs in the first half of 2010, including Rusal's US$2.2 billion float on the Hong Kong Stock Exchange, the first Hong Kong placement by a Russian company. In the reporting period VTB Capital was named 'Best Russian Equity House' by Euromoney.
VTB Capital also became more active in the derivatives market, successfully marketed VTB's structured deposits and helped Russian corporate clients hedge their market risk exposures.
With its headquarters in Moscow and offices in London, Singapore and Dubai, VTB Capital continues to expand across strategic regions. New offices are planned in Hong Kong and the USA.
Yuri Soloviev, President and Global CEO of VTB Capital, said: "We are optimistic about VTB Capital's prospects for recurrent profitable growth and market leadership. We have assembled one of the best teams in the business and have developed an unrivalled position in several segments of the market. We see rich opportunities for further growth with capital markets activity picking up after the second quarter pullback and the summer doldrums. We also see a strong pipeline of both debt and equity deals secured for the second half of 2010 and beyond."
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 June 30, 2010 the Group had a network of 935 offices located across Russia, CIS and Europe, of which VTB24 retail offices totaled 480. The Group operates outside Russia through 12 bank subsidiaries, located in the Commonwealth of Independent States ("CIS") (Armenia, Ukraine, Belarus, Kazakhstan and Azerbaijan), Europe (Austria, Cyprus, Germany, France and Great Britain), Georgia, Africa (Angola) and through 3 representative offices located in Italy, China and the Kyrgyz Republic and through 2 VTB branches in China and India and 2 branches of "VTB Capital", Plc in Singapore and Dubai. 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 equity and 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 30 June 2010 was 40,981. 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.
Interim Condensed Consolidated Statement of Financial Position as at 30 June 2010
(RUB billion)
|
| 30 June 2010 (unaudited) | 31 December 2009 |
| Assets |
|
|
| Cash and short-term funds | 163.5 | 260.2 |
| Mandatory cash balances with central banks | 22.1 | 23.9 |
| Financial assets at fair value through profit or loss | 244.6 | 267.9 |
| Financial assets pledged under repurchase agreements and loaned financial assets | 17.2 | 96.2 |
| Due from other banks | 247.4 | 345.6 |
| Loans and advances to customers | 2,553.3 | 2,309.9 |
| Financial assets available-for-sale | 26.0 | 24.9 |
| Investments in associates and joint ventures | 14.5 | 13.9 |
| Investment securities held-to-maturity | 31.3 | 11.7 |
| Premises and equipment | 74.1 | 65.9 |
| Investment property | 96.4 | 79.8 |
| Intangible assets and goodwill | 11.6 | 11.9 |
| Deferred tax asset | 36.7 | 31.4 |
| Other assets | 89.1 | 67.6 |
| Total assets | 3,627.8 | 3,610.8 |
| Liabilities |
|
|
| Due to other banks | 336.6 | 287.0 |
| Customer deposits | 1,688.8 | 1,568.8 |
| Other borrowed funds | 237.8 | 470.9 |
| Debt securities issued | 528.5 | 485.7 |
| Deferred tax liability | 7.7 | 7.0 |
| Other liabilities | 117.9 | 91.2 |
| Total liabilities before subordinated debt | 2,917.3 | 2,910.6 |
| Subordinated debt | 186.4 | 195.3 |
| Total liabilities | 3,103.7 | 3,105.9 |
| Equity |
|
|
| Share capital | 113.1 | 113.1 |
| Share premium | 358.5 | 358.5 |
| Treasury shares | (0.4) | (0.4) |
| Unrealized gain on financial assets available-for-sale and cash flow hedge | 2.4 | 3.4 |
| Premises revaluation reserve | 11.7 | 11.8 |
| Currency translation difference | 10.9 | 13.2 |
| Retained earnings | 26.9 | 2.7 |
| Equity attributable to shareholders of the parent | 523.1 | 502.3 |
| Non-controlling interests | 1.0 | 2.6 |
| Total equity | 524.1 | 504.9 |
| Total liabilities and equity | 3,627.8 | 3,610.8 |
Interim Condensed Consolidated Income Statement for the Three Months and Six Months Ended 30 June 2010 (unaudited)
(RUB billion)
|
| For the three-month period ended | For the six-month period ended | ||
|
| 30 June | 30 June | ||
|
| 2010 | 2009 | 2010 | 2009 |
| Interest income | 84.3 | 94.6 | 167.9 | 188.6 |
| Interest expense | (39.9) | (58.6) | (81.5) | (118.3) |
| Net interest income | 44.4 | 36.0 | 86.4 | 70.3 |
| Provision charge for impairment | (11.7) | (47.4) | (27.2) | (96.6) |
| Net interest income / (expense) after provision for impairment | 32.7 | (11.4) | 59.2 | (26.3) |
| (Losses net of gains) / gains less losses arising from financial assets at fair value through profit or loss | (5.2) | (2.7) | 3.2 | (14.0) |
| Losses net of gains from available-for-sale financial assets | (0.4) | (0.5) | (0.4) | (0.5) |
| Gains less losses arising from extinguishment of liability | - | 9.2 | - | 14.7 |
| Gains / (losses) on initial recognition of financial instruments | 0.1 | (2.1) | 0.1 | (2.1) |
| (Losses net of gains) / gains less losses arising from dealing in foreign currencies | (14.1) | 18.3 | (26.1) | (24.3) |
| Foreign exchange translation gains less losses / (losses net of gains) | 15.1 | (14.3) | 28.6 | 37.8 |
| Fee and commission income | 7.6 | 6.1 | 13.8 | 11.7 |
| Fee and commission expense | (0.9) | (0.7) | (2.0) | (2.0) |
| Share in (loss) / income of associates | (0.3) | 0.1 | (0.2) | 0.1 |
| Recovery of / (provision charge for) impairment of other assets and credit related commitments | 0.2 | (1.7) | (1.7) | (2.3) |
| Income arising from non-banking activities | 2.9 | 0.7 | 4.2 | 1.3 |
| Expenses arising from non-banking activities | (3.3) | (0.4) | (4.1) | (0.6) |
| Other operating income | 1.4 | 0.9 | 1.9 | 1.4 |
| Net non-interest income | 3.1 | 12.9 | 17.3 | 21.2 |
| Operating income / (loss) | 35.8 | 1.5 | 76.5 | (5.1) |
| Staff costs and administrative expenses | (21.7) | (18.6) | (43.9) | (35.7) |
| Impairment of goodwill | (1.1) | - | (1.1) | - |
| Profit from disposal of associates and subsidiaries | 0.1 | 1.0 | 0.1 | 1.0 |
| Profit / (loss) before taxation | 13.1 | (16.1) | 31.6 | (39.8) |
| Income tax (expense) / recovery | (3.3) | 5.1 | (6.5) | 8.3 |
| Net profit / (loss) | 9.8 | (11.0) | 25.1 | (31.5) |
| Net profit / (loss) attributable to: |
|
|
|
|
| Shareholders of the parent | 11.6 | (12.4) | 26.9 | (33.8) |
| Non-controlling interests | (1.8) | 1.4 | (1.8) | 2.3 |
| Basic and diluted earnings per share (expressed in Russian Roubles per share) | 0.0011 | (0.0018) | 0.0026 | (0.0050) |