22nd Jan 2009 07:02
VTB Announces Results for the Nine Months 2008
Unaudited financial results for the nine months ended September 30, 2008
Moscow, 22 January 2009 - VTB Group today announces its unaudited IFRS results for the nine months ending 30 September 2008.
OPERATING ENVIRONMENT:
Severe global economic and capital markets dislocation
There was a marked slowdown in the Russian economy in the third quarter 2008
The Russian government implemented an active programme to support the economy and insure stability in the banking system
VTB Bank has played a key role in channelling financial support to important economic sectors
9M08 HIGHLIGHTS:
Total loans increased 40.7% to US$ 84.5 bn from the end of 2007
Customer deposits were up 41.7% to US$ 52.6 bn over the same period
Core income of US$ 3.8 bn, showed a 83.8% increase year on year , thanks to strong growth in lending activity
Net interest margin expanded to 4.8% from 4.4% at the end of 2007
Provisioning charge, as a proportion of total loans, increased to 2.5% for 9M'08 from 1.3% in year 2007, reflecting deteriorating economic situation
Net profit US$ 316 mln (net loss of US$363 mln in the third quarter of 2008)
Strong capital with BIS ratio at 14%
OPERATING AND FINANCIAL REVIEW
After seeing strong growth in the first half of the year, the Russian economy slowed sharply in the third quarter. Falling commodity prices and further deterioration in the global capital markets impacted on confidence worldwide. During the quarter, the world oil price declined rapidly and there were significant capital outflows from the Russian financial markets. Wholesale demand in Russia weakened sharply although retail spending remained steady.
Against this difficult background, the Russian government and the Central Bank of Russia played an active role in supporting the economy. The controlled devaluation of the ruble is the most tangible policy, among other measures implemented by the Russian authorities to support the banking system and key sectors of the economy. Special attention was paid to the stock market with a number of measures taken in the trading regulation as well as Government's direct support to the Russian stock market.
VTB, as a leading state-backed institution with a strong and growing retail franchise and respected brand, has played a key role in channelling that support. Since early September, 2008 when the Government announced its package of measures to support the economy, VTB has extended credit to Russian customers across key sectors and issued over US$ 27 billion of new loans.
VTB's role in the economic support programme, as well as its strong capital base, has enabled it to benefit substantially from business inflows, driving loans up by 40.7% to US$ 84.5 billion from year end 2007 and total deposits to US$ 52.6 billion, up 41.7% over the same period. Corporate loans grew by 8.2% quarter on quarter to US$ 70.8 billion, with market share maintained at around 11%. Loans to retail customers went up 12.1% quarter on quarter to US$ 13.6 billion, significantly increasing VTB's overall market share in retail loans to 8.2% in the first nine months of 2008 from 5.9% at the end of 2007. The share of loans to retail customers in VTB's total loans increased to 16.2% by the end of September 2008 from 12.8% at the end of 2007. VTB believes that there will be longer term benefits in terms of improved customer relationships and business flows as a result of its pivotal role in supporting the government efforts to reinforce the economy.
In the reporting period, core income defined as net interest income before provisions and net fee and commission income excluding one-off item, was up 83.8% year-on-year to US$ 3.8 billion reflecting the fundamental strength of VTB's business and significant growth in its lending activities. Net interest income of the Group grew by 93.7% to US$3.4 billion. Net fee and commission income excluding one-off item increased by 35.6% to US$ 484 million in the first nine months of 2008 year-on-year.
At a time when the cost of funding is rising for many financial institutions, VTB was able to report an increase of net interest margin to 4.8% from 4.4% in 2007.
Against a deteriorating operating environment, but also reflecting strong loan growth, third quarter provision charges rose significantly to US$ 788 million, compared to US$ 592 million in the first six months of the year. The provisioning charge, as a percentage of total loans, increased to 2.5% in the first nine months of 2008 from 1.3% in 2007. As a result of the weakening economic outlook for Russia in 2009 combined with an expected increase in unemployment, we anticipate further growth in loan loss allowances in the forthcoming periods.
In view of the exceptional market conditions, and in line with the global revision of IAS 39, "Financial Instruments: Recognition and Management", which allowed reclassification of trading and available-for-sale assets, VTB has reclassified certain debt securities in the third quarter to financial assets held-to-maturity and to loans to banks and customers, based on disappearance of active trading markets and the Bank's intention and ability to hold these instruments for a foreseeable future, or until maturity. This reclassification resulted in a net pre-tax gain of US$ 97 million in the quarter. Nevertheless, in the face of the difficult markets, the Bank realised a loss of US$ 273 million in the third quarter of 2008.
To ensure the Bank's effective positioning to weather the current unprecedented market conditions, in November 2008, VTB announced a series of measures to reduce costs. These included the postponement of the move to the new headquarters, cuts in administrative expenses, a hiring freeze across VTB Group and headcount reductions in VTB24. VTB continues to monitor costs and consider measures to align costs with the tougher economic conditions. The Bank is also adopting an even more rigorous, centralised approach to risk management and is establishing a specialized work-out unit.
Given the requirements for proactive debt management, the extensive corporate restructuring anticipated in 2009, VTB expects its investment in building up a strong investment banking capability through VTB Capital to be able to assist clients with restructuring.
In 2009, we expect inflation to moderate and the economy to continue to grow, but at a slower rate than in previous years. The Bank's central assumption for 2009 is that the first half of the year will continue to be difficult, however, government action will mitigate the impact of withdrawal of foreign liquidity from Russian wholesale markets.
Although VTB is cautious about the macroeconomic outlook, the Bank remains strongly capitalised with a BIS capital of 14% at the end of September 2008 and enjoys a strong commitment from the state. However, we continue to keep our capital needs under review in close consultation with the CBR and Russian Government. VTB believes it is well positioned to withstand any further deterioration in the economic climate and has demonstrated its ability to gain market share.
VTB President and Chief Executive Officer Andrei Kostin said: "We believe the Government of the Russian Federation reacted promptly and efficiently to the crisis. We have worked tirelessly alongside the Government to insure the assistance is channelled where it is needed. Our numbers show that we have been able to do this while maintaining both good cost and risk discipline and continuing to grow the business in a way that adds value to shareholders. We believe that despite this tough economic climate, we are building a franchise which will stand us in a good state when the economy recovers in due course."
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 September 30, 2008 the Group had a network of 981 branches located across Russia, CIS and Europe, of which VTB24 retail branches totaled 453. Outside of Russia, the Group operates through four subsidiary banks located in the CIS (Armenia, Georgia, Ukraine and Belarus), 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. 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 42,025 employees as of September 30, 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. For more information please visit www.vtb.com
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 nine months ended September 30, 2008
|
(in millions of US dollars) |
30 September 2008 |
31 December 2007 |
|
(unaudited) |
|
|
|
Assets |
||
|
Cash and short-term funds |
6 061 |
5 160 |
|
Mandatory cash balances with central banks |
609 |
825 |
|
Financial assets at fair value through profit or loss |
4 988 |
10 436 |
|
Financial assets pledged under repurchase agreements and loaned financial assets |
1 265 |
2 212 |
|
Due from other banks |
10 214 |
9 733 |
|
Loans and advances to customers |
81 749 |
58 549 |
|
Financial assets available-for-sale |
715 |
858 |
|
Investments in associates |
189 |
167 |
|
Investment securities held-to-maturity |
1 819 |
5 |
|
Premises and equipment |
2 347 |
1 997 |
|
Investment property |
163 |
168 |
|
Intangible assets |
453 |
480 |
|
Deferred tax asset |
381 |
215 |
|
Other assets |
2 111 |
1 804 |
|
|
|
|
|
Total assets |
113 064 |
92 609 |
Consolidated Balance Sheet
Unaudited financial results for the nine months ended September 30, 2008
|
(in millions of US dollars) |
30 September 2008 |
31 December 2007 |
|
(unaudited) |
|
|
|
Liabilities |
||
|
Due to other banks |
11 768 |
14 794 |
|
Customer deposits |
52 575 |
37 098 |
|
Other borrowed funds |
7 174 |
5 176 |
|
Debt securities issued |
21 965 |
16 489 |
|
Deferred tax liability |
161 |
149 |
|
Other liabilities |
2 637 |
1 231 |
|
|
|
|
|
Total liabilities before subordinated debt |
96 280 |
74 937 |
|
Subordinated debt |
1 155 |
1 171 |
|
|
|
|
|
Total liabilities |
97 435 |
76 108 |
|
|
|
|
|
Equity |
||
|
Share capital |
3 084 |
3 084 |
|
Share premium |
8 792 |
8 792 |
|
Treasury shares |
(16) |
(21) |
|
Unrealized gain on financial assets available-for-sale and cash flow hedge |
11 |
109 |
|
Currency translation difference |
254 |
663 |
|
Premises revaluation reserve |
578 |
587 |
|
Retained earnings |
2 767 |
2 993 |
|
Equity attributable to shareholders of the parent |
15 470 |
16 207 |
|
Minority interest |
159 |
294 |
|
|
|
|
|
Total equity |
15 629 |
16 501 |
|
|
|
|
|
Total liabilities and equity |
113 064 |
92 609 |
|
|
|
|
Statement of income
Unaudited financial results for the nine months ended September 30, 2008
|
(in millions of US dollars |
For the three-month period ended 30 September |
For the 9-month period ended 30 September |
||
|
|
2008 |
2007 |
2008 |
2007 |
|
Interest income |
2 563 |
1 408 |
6 879 |
3 643 |
|
Interest expense |
(1 341) |
(680) |
(3 524) |
(1 911) |
|
Net interest income |
1 222 |
728 |
3 355 |
1 732 |
|
Provision charge for impairment |
(788) |
(215) |
(1 380) |
(355) |
|
|
||||
|
Net interest income after provision for impairment |
434 |
513 |
1 975 |
1 377 |
|
|
||||
|
Gains less losses / (losses net of gains) arising from financial assets at fair value through profit or loss |
(273) |
110 |
(501) |
196 |
|
Gains less losses from available-for-sale financial assets |
- |
(34) |
51 |
(33) |
|
Gains less losses arising from dealing in foreign currencies |
(1 274) |
206 |
(368) |
347 |
|
Foreign exchange translation (losses net of gains) / gains less losses |
1 250 |
107 |
757 |
134 |
|
Fee and commission income |
207 |
168 |
570 |
468 |
|
Fee and commission expense |
(34) |
(21) |
(86) |
(54) |
|
Share in income of associates |
(2) |
- |
5 |
7 |
|
Income arising from non-banking activities |
21 |
30 |
82 |
73 |
|
Other operating income |
39 |
14 |
121 |
55 |
|
|
||||
|
Net non-interest income |
(66) |
580 |
631 |
1 193 |
|
|
||||
|
Operating income |
368 |
1 093 |
2 606 |
2 570 |
|
Staff costs and administrative expenses |
(706) |
(480) |
(1 948) |
(1 289) |
|
Expenses arising from non-banking activities |
(9) |
(20) |
(48) |
(47) |
|
Profit from disposal of subsidiaries and associates |
- |
62 |
- |
80 |
|
|
||||
|
Profit before taxation |
(347) |
655 |
610 |
1 314 |
|
Income tax expense |
(16) |
(108) |
(294) |
(263) |
|
|
||||
|
Net profit |
(363) |
547 |
316 |
1 051 |
|
|
||||
|
Net profit attributable to: |
||||
|
Shareholders of the parent |
(369) |
555 |
297 |
1 029 |
|
Minority interest |
6 |
(8) |
19 |
22 |
|
|
||||
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VTBR.L