VTB Group reports full-year 2010 net profit of RUB 54.8 billion (approx. US$ 1.8 billion) compared with net loss of RUB 59.6 billion (approx. US$ 1.97 billion) in 2009.

VTB Group today announced its audited consolidated IFRS results for the year ended 31 December 2010.

FINANCIAL AND OPERATING HIGHLIGHTS

• Record net profit of RUB 16.0 billion in 4Q2010 contributing to record annual net profit of RUB 54.8 billion, with strong performance by all key business segments;
• Strong net interest margin of 5.1% in 2010 (excluding the effect of TransCreditBank consolidation);
• Cost of risk improved to 1.8% of average gross loans (1.9% of average gross loans without TransCreditBank) in 2010, vs. 5.7% in 2009;
• Net fee and commission income up 17.6% y-o-y to RUB 24.7 billion;
• Solid organic growth of assets and liabilities accelerated further by TransCreditBank consolidation: total gross loans up 20.2% to RUB 3.1 trillion, customer deposits up 41.1% to RUB 2.2 trillion;
• Loans-to-deposits ratio improved to 125.9% vs. 147.2% at the end of 2009;
• Capital efficiency improved through consolidation of TCB; BIS and Tier 1 ratios remain strong at 16.8% and 12.4% respectively.

Andrei Kostin, VTB President and Chairman of the Management Board, said: “We have lived up to our promises, delivering a record net profit for 2010 while successfully implementing the Group’s new strategy. We are also pursuing strategic acquisitions that will enable us to utilise our solid capital base and further strengthen our market position across our core businesses.”

FINANCIAL AND OPERATING REVIEW

Market overview

The Russian economy returned to growth in 2010, with GDP increasing 4% according to Rosstat. Russia’s industrial production increased by 8.2%, while real disposable income grew 4.2%, which supported demand for credit and growth in lending activity. This growth, however, was balanced by ongoing pressure on yields and margins resulting from increasing competition for high quality borrowers. At the same time global capital markets remained volatile due to ongoing sovereign debt concerns in some European countries, which also had a dampening effect on banking sector performance during the year.

Review of financial performance and financial position

In December 2010, the Group acquired a 43.2% stake in TransCreditBank, JSC (TCB) and on 31 December 2010 it obtained control over TCB based on the existence of potential voting rights. For IFRS reporting purposes, TCB is consolidated in the Group’s 2010 audited financial statements. All information on assets and liabilities discussed below includes TCB data. The metrics excluding TCB are also provided in a table format to indicate the organic changes in the Group’s assets and liabilities during the period. In 2010, the consolidation of TСBdid not affect the Group’s income statement.

VTB Group delivered a record annual net profit of RUB 54.8 billion for 2010, versus an annual loss of RUB 59.6 billion in 2009. Thus, the Group’s annual return on equity (ROE) amounted to 10.3% and its earnings per share reached RUB 0.00557, versus a loss of RUB 0.00821 per share in 2009. In the fourth quarter of 2010, VTB also posted a record quarterly net profit of RUB 16.0 billion, which implies an annualised ROE of 11.4% (11.6% for the Group excluding TCB).

The Group’s operating income before provisions reached RUB 221.1 billion in 2010, up 32.2% from RUB 167.2 billion the previous year. Net interest income before provisions reached RUB 171.1 billion, up 12.4% year-on-year from RUB 152.2 billion. While lending rates have seen downward pressure across the banking sector, VTB improved its net interest margin to 5.1% for the year 2010 (excluding the effect of TCB consolidation), up from 4.6% in 2009. This was largely due to the Group’s focus on liability management, which helped contain interest expense.

Net fee and commission income for 2010 increased to RUB 24.7 billion, representing 17.6% year-on-year growth from RUB 21.0 billion for 2009, supported by solid net fee and commission income in the retail business of RUB 10.2 billion, up 50.0% year-on-year. The share of this segment in the Group’s net fee and commission income (before intersegment eliminations) was 41.0%, up from 32.9% for the same period last year.

The Group’s net gains from financial instruments in 2010 amounted to RUB 14.7 billion, compared to a loss of RUB 20.2 billion in the previous year, during which VTB resumed marking-to-market its listed equity securities that had previously been marked-to-model.

Staff costs and administrative expenses for 2010 amounted to RUB 95.1 billion, up 24.5% year-on-year, primarily reflecting strong growth in the Group’s corporate and investment banking (CIB) operations and continued expansion of VTB24’s retail branch network. At the same time costs grew at a slower rate than the Group’s pre-provision income, which enabled VTB to successfully bring its 2010 cost to income ratio down to 43.0% from 45.7% in 2009.

VTB loans and deposits grew both organically and through consolidation of TCB. Total gross loans reached RUB 3,059.6 billion, an increase of 20.2% from RUB 2,544.8 billion at 31 December 2009. Corporate loans at year end 2010 amounted to RUB 2,518.1 billion, up 19.4% from RUB 2,109.5 billion at the beginning of the year. Retail loans at the end of 2010 equalled RUB 541.5 billion, up 24.4% from RUB 435.3 billion at year end 2009. The TCB contribution to the Group’s loan portfolio was RUB 142 billion of corporate loans and RUB 62 billion of retail loans.

Effective risk management and a positive trend in loan portfolio quality contributed to a significantly lower provision charge for impairment of debt financial assets of RUB 51.6 billion in 2010, compared to RUB 154.7 billion in 2009. Simultaneously the provision charge for impairment of loans and advances to customers decreased to 1.8% of the average loan portfolio (1.9% of the average loan portfolio without TransCreditBank), down from 5.7% of the average loan portfolio in 2009.

The allowance for loan impairment was 9.0% (9.6% for the Group excluding TCB) of total gross loans as of 31 December 2010, compared to 9.2% at the end of 2009. The Group’s non-performing loan (NPL) ratio decreased to 8.6% of total gross loans, down 120 bp from 9.8% at the end of 2009, while the Group’s NPL coverage ratio at 31 December 2010 was a comfortable 103.7%. The Group’s NPL ratio excluding the TCB loan book was 9.2% with an NPL coverage ratio of 104.3%.

Funding from customer deposits continued to grow during the reported period, reaching RUB 2,212.9 billion at 31 December 2010, up 41.1% from RUB 1,568.8 billion at year end 2009. Corporate deposits amounted to RUB 1,465.0 billion, a 34.1% increase versus RUB 1,092.3 billion the end of 2009. Retail deposits reached RUB 747.9 billion, up 57.0% from RUB 476.5 billion as of 31 December 2009. The share of customer deposits in the Group’s total liabilities rose to 59.6% at 31 December 2010 from 50.5% at 31 December 2009. Over the same period, the Group’s loans to deposits ratio improved to 125.9%, down from 147.2%. TCB’s contribution to the Group’s customer funds was RUB 214 billion in corporate deposits and RUB 63 billion in retail deposits.

VTB has been successful at optimising its liabilities costs through a number of measures, including diversifying funding sources across geographies, currencies and investor base. Throughout 2010 the bank successfully lowered its yield curve benchmarks with a number of placements in U.S. dollars, Swiss francs and Singapore dollars. In December 2010, the Group issued its first securities in the Chinese market with a CNY 1,000 million 3-year Eurobond successfully priced at 2.95% p.a.

The acquisition of 43.2% in TCB has improved the Group’s capital efficiency in the fourth quarter of 2010, with VTB’s Tier 1 capital adequacy ratio at a sound 12.4% and total BIS ratio at 16.8% as of 31 December 2010.

Source: VTB Bank
Date: 27.04.2011