OREANDA-NEWS. July 21, 2008. VTB Group announced its unaudited financial results according to IFRS for the three months to March 31, 2008, reported the press-centre of VTB Bank.

HIGHLIGHTS
Core income up 114.4% year on year to US 1.2 billion, reflecting strong underlying momentum in the business

Net interest margin up to 5.1% from 4.4% in 2007

Net profit of US 121 million compared with US 232 million in the first quarter of 2007, after realized securities losses and mark-to-market adjustments, as well as change in the functional currency from US dollar to Russian rouble

Total assets up 7.2% quarter on quarter to US 99.3 billion

Total loans up 15.7% quarter on quarter to US 69.4 billion with both retail and corporate lending outperforming market

Measures underway to de-risk securities portfolio

On target to reach management goals for 2008 and Group targets for 2010

Operating and financial review
VTB Group today reports that its core income, defined as net interest income before provisions and net fee and commission income, is up 114.4% year-on-year  to US 1.2 billion reflecting strong underlying momentum in the business. Net interest margin rose to 5.1% in the first quarter of 2008 from 4.4% in 2007.

Customer loans continued to show strong growth in the first three months of 2008. The total volume of loans issued to customers increased by 15.7% from the year end 2007 to US 69.4 billion with both corporate and retail loans growth outperforming the market. There was a particularly strong increase in individual loans, the growth of which was running at twice the rate of the market. As a result, the Group became the second biggest retail lender in Russia, taking 6.7% of the market compared with 5.9% at the end of 2007. The Group also continued to consolidate its position as the second biggest lender in the corporate market with 11.0% of the market, up from 10.7% at 2007 year end.

The retail branch network expanded by a further 50 VTB24 branches in the first quarter of 2008 to a total of 378. The Group is well on track to reach its target of 500 retail branches in Russia by the end of 2008.

VTB is also well advanced in its plans to set up a new investment banking business with a management structure now in place under the leadership of Yuri Soloviev.

Expansion internationally has continued further with branches opened in China and India during the quarter and a representative office set up in Kazakhstan.

Net profit for the three months of 2008 was US 121 million. As stated in the trading update on June 6, 2008, the net profit figure includes a charge for realized securities losses and mark-to-market adjustments to the securities portfolio of US 453 million. Reported net profits for the same quarter of 2007 were US232 million. Comparison with the prior year is also impacted by the change in functional currency from US dollars to roubles in line with IFRS. This change reflects the fact that VTB’s business is predominantly rouble denominated. The change will mean that the translation effects will impact on equity, but it will eliminate a major cause of volatility from earnings in the future.

As a result of the issues which arose relating to the securities portfolio in the first quarter, a number of measures have been taken to reduce overall proprietary exposures and derisk the portfolio. As indicated earlier in the June trading update, the losses that were taken were a result of an ongoing strategy to reduce overall earnings volatility. Since the end of 2007, total securities exposure has been reduced to US 11.4 billion from US 13.5 billion, or to 11.4% of total assets compared with 14.6% at year end 2007.

Management of the legacy portfolio has been transferred to a recently constituted team under the responsibility of VTB’s newly formed investment banking business. The team has adopted an active approach to managing risk in the portfolio. Overall proprietary trading exposure is being reduced while a thorough review of risk control and risk metrics in this area has been undertaken with a view to putting in place a more rigorous risk control structure in the near future.

In the first quarter of 2008, customer deposits increased by 17.5% to US 43.6 billion from US 37.1 billion at the end of 2007. As a result, the share of customer deposits in total funding increased to 53.2%, up from 48.7% last year. There was especially strong growth in corporate deposits, which increased by US 5.6 billion within the quarter to US 32.1 billion from US 26.4 billion at the end of 2007. The bank has also made progress in increasing retail deposits in a highly competitive environment. Retail deposits went up by 8.1% to US 11.5 billion.

VTB Chief Financial Officer and Member of the Management Board Nikolai Tsekhomsky said: “During the first quarter our core business continued to strengthen across the group. We are strongly positioned to meet our goals for the full year and we are confident that we are on track to achieve our strategic goals for 2010.”