OREANDA-NEWS. On June 26, 2007 VTB, Russia’s leading universal banking group, announced its consolidated IFRS financial results for 3M2007 ended March 31, 2007, reported the press-centre of VTB.

The VTB Group’s net interest income grew by 40,9% (or US$141 million), and net fee and commission income grew by 13,6% as compared to 3M2006. Net of gains from disposal of investments, pre-tax profit increased by 13,9% from US$259 million to US$295 million. Assets increased to US$56,153 million, up 7,2% or US$3,750 million, with retail loans up 19,5% outperforming market averages.

Financial Highlights

Profit and Loss Account (as compared to 3M2006):

Interest income increased to US$1,066 million, up 46,2%, and fee and commission income increased to US$111 million, up 22,0%;
 
Net interest income increased to US$486 million, up 40,9% or US$141 million;

Net fee and commission income increased to US$92 million, up 13,6% or US$11 million, reaching 13,6% of operating income;

The Group’s effective taxation rate (consolidated) increased from 10,9% to 25,9%, reflecting gradual substitution of FX and securities gains by interest and commission income;

Consolidated net profit for 3M2007 amounted to US$232 million, down 30,5% due to a decrease in securities gains, which in 3M2006 included income from sale of KamAZ shares.

Earnings per share decreased from US$6,3 to US$4,2 per 100,000 shares.

Assets and Funding (as compared to December 31, 2006):

Loans and advances to customers increased to US$31,697 million, up US$2,435 million or 8,3%, with retail loans to individuals up US$494 million to US$3,027 or 19,5%;

Securities portfolio grew by 19,8% to US$10,729 million, including 5% of shares of European Aeronautic Defense and Space Company (EADS);

Customer deposits increased to US$23,381 million, up 17,0%, with retail deposits up 8,1% to US$7,918;

March 2007: VTB EUR 1,000 million Eurobond with a floating rate of LIBOR + 0,6% p.a. maturing in March 2009, and VTB GBP 300 million Eurobond with an interest rate of 6,332% p.a. maturing in March 2010.

3M2007 Important Events:

Increase of VTB’s share capital by 1,734,333,866,664 shares (24,97% of number of VTB shares after the increase) approved by extraordinary general meeting of shareholders of VTB, followed by an IPO in May 2007;

Vneshtorgbank officially renamed to JSC VTB Bank;

Angola Banco VTB Africa SA started operations.

3M2007 Acquisitions:

VTB initiated the process of acquiring 50% + one share of Slavneftebank in Belarus for US$25 million (deal completed in May 2007);

VTB purchased 25% plus one share in OJSC Terminal for US$40 million.

Comments:

Andrei Kostin, Chairman of the Management Board and CEO:
“Early 2007 delivered encouraging results underpinning our competitive position for strong growth in a rapidly developing Russian economy. We continue to implement our strategy for further business expansion in Russia and abroad, focusing on increasing our market share in the fast-growing retail banking in Russia. Our successful Global Offer completed in May this year provided us with the capital to achieve this and reflected strong interest of the investment community in rapidly expanding banking market in Russia.”

Nikolai Tsekhomsky, CFO:
“The results for the beginning of 2007 indicate the further growth of VTB Group and the anticipated positive changes of the structure of the Group’s earnings. Early 2007 results demonstrate a clear trend toward gradual replacement of gains from proprietary activities by interest and commission income, reflecting the ongoing shift from proprietary activities to corporate and retail business. We hope that the improved quality of earnings will enable us to meet expectations of our investors.”

Operating Performance

Net of gains arising from disposal of investments, profit before tax was up 13,9% driven primarily by growth in net interest income and net fee and commission income, reflecting the expansion of the Group’s customer base and increase in volumes of lending, deposit taking and other customer transactions.

Net interest income reached US$486 million, which was attributable to growth in all of the components of interest income: Interest income on loans and advances to customers increased by 50,9% to US$854 million; interest income on securities increased by 21,1% to US$115 million; and (iii) interest on amounts due from other banks increased by 42,6%, to US$97 million. The increase in net interest income reflected the ongoing expansion of the Group’s lending business, particularly in the retail segment, and growth of the Group’s securities portfolio.

Net interest spread increased to 4,3% in 3M2007 from 4,0% in 3M2006, mainly due to fast growth of the Group’s retail loan portfolio reaching 9% of the Group’s gross customer loans, which yields higher average interest rates than the Group’s corporate loan portfolio. 

Operating income increased by 2,7% to US$674 million, compared to US$656 million in 3M2006, primarily due to an increase of net interest income to US$486 million and net fee and commission income to US$92 million. Decrease in net gains from securities by US$162 million was attributable to income from sale of KamAZ shares in 3M2006 and the performance of the Russian securities market in 3M2007, with RTS index up only 0,7% compared to 27,4% in 3M2006. 

Staff costs and administrative expenses increased by 38,3% to US$365 million, reflecting organic growth of the Group`s network in Russia which entailed increased staff, marketing and advertising expenditures. 

Sustained increase in VTB’s interest and commission income was provided by growth throughout the Group’s key strategic areas: corporate, retail and investment banking operations. Customer loans comprised 56,4% of total assets as of March 31, 2007, compared to 55,8% as of December 31, 2006. Accordingly, interest income on customer loans increased to 80,1% of interest income, from 77,6% in 2006. Total customer deposits increased by 17,0% to US$23,381 million in 3M2007, of which deposits from individuals represented US$7,918 million, corporate deposits represented US$11,368 million, and state and public deposits represented US$4,095 million.

Loan Quality and Concentration

Overdue and rescheduled loans and allowances for loan impairment as of March 31, 2007 amounted to 2,7% and 3,2%, respectively, of the Group’s gross loan portfolio.

Coverage of overdue and rescheduled loans by allowances for loan impairment stood at 118,7% as of March 31, 2007.

The rate of provisioning decreased from 1,8% in 3M2006 to a comfortable 0,8% in 3M2007.

The Group’s exposure to ten largest borrowers as a percentage of gross customer loans remained at 17,7%. The Group continues to seek to diversify its customer base and lending capacity and increase its lending volumes.

Capitalization and Capital Adequacy

The Group’s consolidated shareholders’ equity increased to US$7,143 million as of March 31, 2007 from US$6,992 million as of December 31, 2006 due to the contribution of net profit in the amount of US$232 million and foreign exchange gains of US$44 million, offset by a decrease in the unrealized gains on financial assets available-for-sale by US$105 million, mainly attributable to revaluation of EADS shares.

As of March 31, 2007 the VTB Group’s consolidated BIS Tier 1 capital was US$6,509 million, compared to US$6,357 million as of December 31, 2006, and total BIS capital was US$7,787 million, compared to US$7,646 million as of December 31, 2006. The Group’s BIS Tier 1+2 capital adequacy ratio decreased from 14,0% as of December 31, 2006 to 12,9% as of March 31, 2007, remaining well above the 8,0% minimum set by the Basel Accord.

VTB and all of its subsidiary banks continue to observe the capital adequacy requirements set by their respective local regulatory authorities.