23rd Apr 2009 07:09
VTB Announces Full Year 2008 Results
Unaudited financial results for the twelve months ended 31 December 2008
Moscow, 23 April 2009 - VTB Group today announces its unaudited IFRS results for the twelve months ended 31 December 2008.
KEY STRATEGIC HIGHLIGHTS
Continued support from the Government on capital and funding
Increasing emphasis on supporting customers and protecting our franchise
Increased focus on efficiency and cost control
Risk management policies tightened
FINANCIAL HIGHLIGHTS
VTB remained profitable at a net level for the full year
Net profit of US$212 million, down from US$1.5 billion in 2007
Total loans up 50.3% year-on-year to US$90.2 billion, reflecting strong increases in both corporate and retail lending
Total customer deposits stable at US$37.5 billion, with retail deposits up 12.8% to US$12.1 billion
Core income of US$5.2 billion, a 71% increase year-on-year
Net interest margin up to 4.8% from 4.4% in 2007
Provisioning charge, as a proportion of average gross loan portfolio, up to 3.2% from 1.3% in 2007
Total BIS ratio at 17%
VTB President and Chairman of the Management Board Andrei Kostin said: "VTB has demonstrated its ability to manage the business through difficult market conditions, while successfully delivering its key strategic objectives in retail and investment banking. We continue to benefit from the ongoing commitment of the Government to provide funding and capital to support the growth of our business. This, coupled with the measures that VTB has taken to focus on cost and risk control means we are well placed to continue supporting our customers, protect our franchise and consolidate our position as the bank of reference for Russia and the CIS."
FINANCIAL PERFORMANCE
Despite the challenging market conditions and higher provision charges, VTB remained profitable and posted a net profit of US$212 million for the year, down from US$1.5 billion in 2007.
The Group achieved strong asset growth of 36% to US$126 billion, up from US$92.6 billion in 2007. VTB's key role in the economy and the support we have received from the Government as it seeks to sustain economic activity has enabled VTB to benefit substantially from business inflows in both corporate and retail, driving total loans up by 50.3% to US$90.2 billion from year end 2007.
Customer deposits remained stable in 2008 at approximately US$37.5 billion, with retail deposits up 12.8% year-on-year to US$12.1 billion. This reflects the growth in the branch network and a strong retail customer preference for the security of a state-backed bank with a strong brand. Corporate deposits declined by 3.6% year-on-year to US$25.5 billion. This was partly due to the impact of the currency devaluation - about 60% of VTB's corporate deposits were rouble denominated. With reduced access to other sources of funding, corporate customers also reduced cash deposits to fund expenditure.
Core income, defined as net interest income and net fee and commission income before provisions and excluding one-off items, was up 70.9% to US$5.2 billion year-on-year reflecting both strong top-line growth and improved underlying profitability in both corporate and retail lending as well as the resilience of our business. Net interest income increased 78.7% to US$4.6 billion from 2007. Net fee and commission income grew US$656 million year-on-year, or 31.2% excluding one-off items in 2007. Net interest margin before provisions increased to 4.8% in 2008 as compared to 4.4% in 2007. Income from trading and available for sale financial instruments was US$ 41 million reflecting effective trading and hedging strategies and the impact of the application of the amended IAS 39 standard. Overall, the value of VTB's debt and equity portfolio fell by 53.2% year-on-year to US$6 billion from US$12.8 billion at the year end 2007.
In the fourth quarter of 2008, provision charges grew by US$1.1 billion compared to US$1.4 billion in the first nine months of the year. The increase reflected strong growth in our loan portfolio as well as a further decline in the financial and operating environment. Given the worsening economic outlook for Russia, VTB significantly increased its provisioning charge to 3.2% of average gross loan portfolio as compared to 1.3% in 2007. The share of overdue and rescheduled loans in the gross loan portfolio increased to 2.4% by the end of 2008 from 1.4% at the end of 2007. Coverage ratio for overdue and rescheduled loans by allowances for loan impairment stood at a comfortable level of 147.6% as of December 31, 2008.
In the face of the existing liquidity crisis and in order to limit the increase in overdue debts, VTB introduced a number of significant changes to its lending procedures, including tightening lending standards and strengthened loan monitoring practices. At the end of 2008, VTB established a Debt Centre to work with borrowers in difficulty and secure the bank's position in restructuring situations.
Continuing its efforts to manage its liabilities prudently, VTB initiated steps to optimize its debt obligations. The nominal value of bonds bought back during the fourth quarter of 2008 amounted to US$ 1.4 billion. A net gain from the buy-back of US$349 million was booked during that quarter.
OPERATING PERFORMANCE
Although the economy continued to grow well into 2008, a sharp deterioration in output in the fourth quarter and the devaluation of the rouble, led management to focus increasingly on the following strategic priorities: seeking ways to preserve and where possible strengthen our capital base in anticipation of rising bad debt provisions going into 2009, supporting customers through their own difficulties and protecting our customer franchise, and maintaining and where necessary strengthening efforts to rein in costs and tighten risk control.
Capital position
As of the end of 2008, VTB had a total BIS capital adequacy ratio of 17%, up from 16.3% at the end 2007. The bank is making strenuous efforts to optimize capital allocation within the Group. It has also continued to enjoy the strong commitment from the Russian Government to provide capital and funding support. In the fourth quarter of 2008 VTB's capital adequacy ratio was materially supported through a Government subordinated debt issue of RUR200 billion at a rate of 8% and with a maturity of 11 years.
As part of the Government's plans to recapitalize the banking sector and ensure it is adequately capitalized to absorb an expected rise in bad debt provisions, the Government has indicated that it intends to underwrite an injection of up to RUR200 billion in Tier 1 Capital into VTB. This capital increase which will take the form of an issue of new ordinary shares, will enable VTB to continue to grow its lending book and support the Russian economy in 2009. Shareholders will vote on the proposed capital increase at the Annual General Meeting in June. The capital increase is expected to be completed by October, 2009.
Supporting customers and protecting the franchise
All our businesses reported strong growth in 2008, consolidating VTB's position as the second largest financial group in both corporate and retail banking in Russia
Corporate banking:
In the course of 2008, VTB was able to consolidate its strategic position as lender of choice to the Russian corporate sector, thanks to its strong relationship with the Government which ensured access to reliable funding. With the capital markets closed to Russian issuers, and foreign banks seeking to reduce exposure to Russian borrowers, VTB was one of the few sources of reliable credit for corporate borrowers in Russia. We were thus able to increase our share of the lending market to 12.7% from 10.7% at the end of 2007. In the face of deteriorating market conditions, we expect to focus increasingly on supporting viable customers through the downturn while maintaining our tight risk criteria. We believe that by taking a long-term, supportive view, we can protect and consolidate our franchise while continuing to benefit from the support of our largest shareholder, the Government, which at present is the only source of long-term capital and funding. In the autumn of 2008, VTB significantly expanded its volume of lending to strategically important companies. From September to the end of December 2008, VTB issued over US$27 billion of new loans to Russian customers across key sectors. As a result of this lending activity, our gross corporate loan portfolio increased 47.2% to US$77.0 billion at the end of 2008 from US$52.3 billion at the end of 2007.
Retail banking:
During 2008, we completed our three-year branch-opening programme in Russia. In the course of the year, we opened 176 new branches, bringing the total number of branches to 504. VTB24's retail branch network is now one of the largest in Russia. In 2008, VTB24 served more than 4.7 million individual and around 90,000 small business customers in Russia. Early action was taken to mitigate risk in the portfolio by shifting away from long to short-term lending products, such as consumer loans and credit cards, tightening requirements on borrowers and increasing emphasis on improving collection of arrears.
In the fourth quarter of 2008, thanks to its stronger market presence and trusted brand, VTB was one of a few banks that saw net deposit inflow with a substantial increase in the number of new current and savings accounts being opened. In 2008, retail loans were up by 71.5% to US$ 13.2 billion. Overall, our market share of loans increased to 8.8% (from 5.9% in 2007) while the share of deposits grew to 5.7% (from 4.8% in 2007.)
Investment banking:
The Group launched VTB Capital, its new investment banking business in April last year. By the end of 2008, we had established a full service investment bank, staffed with 500 employees, including both external hires and transfers from elsewhere in VTB. We are in the process of establishing ourselves as one of the leading Russian investment banking business. The objective is to provide a full suite of investment banking products to our extensive corporate client base and provide multiple opportunities to grow revenue.
Efficiency and cost control
VTB's cost to core income ratio improved to 51.9% in 2008 from 63.7% in 2007 despite the continued investment in retail branch expansion and the build-out of the investment banking business. As previously announced, at the end of 2008 VTB implemented a number of cost-cutting measures including the postponement of the move to new headquarters, cuts in administrative expenses, a hiring freeze across the Group and headcount reductions in some VTB Group businesses. Given the current challenging market environment, VTB Bank has resolved not to pay annual bonuses to the members of the Management Board in respect of the past financial year.
Corporate governance
On the corporate governance front, we intend to strengthen VTB's Supervisory Board with the appointment of two new independent directors, bringing the total number of independent directors to four. We have approved a policy on information disclosure and dividend policy, and have adopted a code of ethics setting out clear procedures and rules of conduct across the business.
2009 OUTLOOK
The key variable is the state of the economy. Our current working assumption is that the percentage growth in our top-line in dollar terms this year will be in the mid-teens.
We are also working on the basis that there will be additional funding from the Government to support that growth. Cost control remains a key priority and we expect costs to remain broadly at the same level as in the fourth quarter of 2008 on an annualized basis. We do not expect to see the allowance for loan impairment to rise beyond 8% of our total gross loan portfolio. Nevertheless, given current CBR interest rate policies and the likelihood of continued tough macroeconomic conditions, we expect interest margins to come under pressure. Our focus for the year ahead will be on supporting customers through these difficult times.
Contacts:
Investor Relations: Tel.: +7 495 775 71 39 Email: [email protected] Media Relations: Tel.: +7 495 783 1717 Email: [email protected]
About VTB Bank:
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, 2008 the Group had a network of 1020 branches located across Russia, CIS and Europe, of which VTB24 retail branches totaled 504. Outside of Russia, the Group operates through six subsidiary banks located in the CIS (Armenia, Georgia, Ukraine, Belarus, Azerbaijan and Kazakhstan), six subsidiary banks located in Europe (UK, France, Germany, Austria, Switzerland 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 41,992 employees as of December 31, 2008. 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 twelve months ended December 31, 2008
|
(in millions of US dollars) |
31 December 2008 |
31 December 2007 |
|
(unaudited) |
|
|
|
Assets |
||
|
Cash and short-term funds |
14,162 |
5,160 |
|
Mandatory cash balances with central banks |
259 |
825 |
|
Financial assets at fair value through profit or loss |
5,813 |
10,436 |
|
Financial assets pledged under repurchase agreements and loaned financial assets |
1,513 |
2,212 |
|
Due from other banks |
10,482 |
9,733 |
|
Loans and advances to customers |
86,984 |
58,549 |
|
Financial assets available-for-sale |
812 |
858 |
|
Investments in associates |
153 |
167 |
|
Investment securities held-to-maturity |
703 |
5 |
|
Premises and equipment |
2,070 |
1,997 |
|
Investment property |
148 |
168 |
|
Intangible assets |
385 |
480 |
|
Deferred tax asset |
316 |
215 |
|
Other assets |
2,048 |
1,804 |
|
|
|
|
|
Total assets |
125,848 |
92,609 |
Consolidated Balance Sheet
Unaudited financial results for the twelve months ended December 31, 2008
|
(in millions of US dollars) |
31 December 2008 |
31 December 2007 |
|
(unaudited) |
|
|
|
Liabilities |
||
|
Due to other banks |
13,231 |
14,794 |
|
Customer deposits |
37,503 |
37,098 |
|
Other borrowed funds |
28,888 |
5,176 |
|
Debt securities issued |
19,063 |
16,489 |
|
Deferred tax liability |
188 |
149 |
|
Other liabilities |
5,924 |
1,231 |
|
|
|
|
|
Total liabilities before subordinated debt |
104,797 |
74,937 |
|
Subordinated debt |
7,704 |
1,171 |
|
Total liabilities |
112,501 |
76,108 |
|
|
|
|
|
Equity |
||
|
Share capital |
3,084 |
3,084 |
|
Share premium |
8,792 |
8,792 |
|
Treasury shares |
(15) |
(21) |
|
Unrealized gain / loss on financial assets available-for-sale and cash flow hedge |
(3) |
109 |
|
Currency translation difference |
(1,853) |
663 |
|
Premises revaluation reserve |
568 |
587 |
|
Retained earnings |
2,682 |
2,993 |
|
Equity attributable to shareholders of the parent |
13,255 |
16,207 |
|
Minority interest |
92 |
294 |
|
|
|
|
|
Total equity |
13,347 |
16,501 |
|
|
|
|
|
Total liabilities and equity |
125,848 |
92,609 |
|
|
|
|
Statement of income
Unaudited financial results for the twelve months ended December 31, 2008
|
31 December 2008 |
31 December 2007 |
|
|
|
(unaudited) |
|
|
Interest income |
9,809 |
5,387 |
|
Interest expense |
(5,242) |
(2,831) |
|
Net interest income |
4,567 |
2,556 |
|
Provision charge for impairment |
(2,482) |
(526) |
|
|
||
|
Net interest income after provision for impairment |
2,085 |
2,030 |
|
|
||
|
Gains less losses arising from financial instruments at fair value through profit or loss |
87 |
138 |
|
Gain/losses on buy-back of bonds issued by Group members |
349 |
- |
|
Gains less losses from available-for-sale financial assets |
(46) |
116 |
|
Gains less losses arising from dealing in foreign currencies |
(2,416) |
547 |
|
Foreign exchange translation gains less losses |
2,547 |
108 |
|
Fee and commission income |
779 |
637 |
|
Fee and commission expense |
(123) |
(80) |
|
Share in income of associates |
6 |
18 |
|
Provision charge for impairment of other assets and credit related commitments |
(58) |
2 |
|
Income arising from non-banking activities |
127 |
95 |
|
Other operating income |
175 |
121 |
|
|
||
|
Net non-interest income |
1,427 |
1,702 |
|
|
||
|
Operating income |
3,512 |
3,732 |
|
Staff costs and administrative expenses |
(2,711) |
(1,948) |
|
Expenses arising from non-banking activities |
(58) |
(63) |
|
Profit from disposal of subsidiaries and associates |
- |
98 |
|
|
||
|
Profit before taxation |
743 |
1,819 |
|
Income tax expense |
(531) |
(305) |
|
|
||
|
Net profit |
212 |
1,514 |
|
|
||
|
Net profit: |
||
|
Shareholders of the parent |
218 |
1,480 |
|
Minority interest |
(6) |
34 |
|
|
Related Shares:
VTBR.L