OREANDA-NEWS. October 23, 2009. VTB Group announced its unaudited IFRS results for the six months ending 30 June 2009, reported the press-centre of VTB.

FINANCIAL AND OPERATING HIGHLIGHTS

total gross loans up 3.0% to RUR 2.7 trn as at 30 June 2009 - corporate loans up by 2.3%, retail loans up by 6.7%;

customer deposits up 41.7% to RUR 1.6 trn as at 30 June 2009 - both corporate and retail deposits up core income up 36.8% y-o-y to RUR 80.0 bn;

net fee and commission income up 29.3% y-o-y to RUR9.7 bn, up 25.6% q-o-q to RUR 5.4 bn in 2Q’09;

net interest margin at 4.2% in 1H’09 from 4.8% in 1H’08; 2Q’09 margin up to 4.3% from 4.1% in 1Q’09;

net loss of RUR 31.5 bn in 1H’09 due to high loan loss provisions of RUR 96.6 billion, although loss was down in 2Q’09 to RUR 11.0 bn from RUR 20.5 bn in 1Q’09;

allowance for loan impairment up to 6.9% of total gross loan portfolio at the end of 1H’09 from 3.6% at the end of 2008;

on track to meet cost target: cost-to-core income ratio improved to 44.6% in 1H’09 from 50.8% in 1H’08;

total BIS ratio at 16%.

VTB President and Chairman of the Management Board Andrei Kostin said:

"Against a difficult economic backdrop, we continue to manage the business with a focus on costs and risk. In the second half of the year, we expect to see signs of improvement and the benefits of a reinforced capital base and, while there is still some uncertainty, we believe we have now passed the lowest point of the economic cycle".

FINANCIAL AND OPERATING REVIEW

The first half of 2009 continued to be difficult for Russia with GDP falling 10.1% and unemployment rising to 8.3%.

Faced with challenging economic conditions, the Government has been focused on encouraging the banking sector to lend and support jobs and industrial production. VTB has played a full active role in these efforts and, despite the contraction in the Russian economy, the Bank continued to seek prudent ways to increase lending to industry and households.

VTB’s total gross loans increased 3.0% to RUR 2,729.5 billion from the year end 2008. Corporate loans increased 2.3% to RUR 2,316.3 billion while retail loans rose 6.7% to 413.2 billion. The slowdown in the Russian economy, however, had an impact on total loans outstanding as a rise of 7.5% in total gross loans in the first quarter of 2009 was followed by a fall of 4.2% in the second quarter. Total loans were also impacted in the second quarter of 2009 by the sale of our Swiss subsidiary, Russische Kommerzial Bank AG, and its deconsolidation from April 2009.

Customer deposits increased 41.7% to RUR 1,561.8 billion from RUR 1,101.9 billion at the end of 2008 reflecting growing customer confidence in the VTB brand and the Bank’s strong franchise. The increase in the level of deposits was also due to an inflow of Ministry of Finance funds in the second quarter of 2009 which contributed RUR 186 billion. Both corporate and retail deposits (adjusted for Ministry of Finance funds) were up in the first six months of the year by 24.9%.

Core income, defined as net interest income before provisions and net fee and commission income, was up 36.8% to RUR 80.0 billion in the first half of 2009 from RUR 58.5 billion in the same period last year reflecting strong underlying business performance. Net interest income before provisions increased 37.8% to RUR 70.3 billion from RUR 51.0 billion year-on-year. Net fee and commission income rose 29.3% year-on-year to RUR 9.7 billion, and 25.6% quarter-on-quarter to RUR 5.4 billion as a result of the successful implementation of VTB24’s new commission strategy.

Net interest margin decreased to 4.2% in the first half of 2009 from 4.8% in the first half of 2008 mainly as a result of high state funding costs. Net interest margin, however, improved by 20 bps to 4.3% in the second quarter from 4.1% in the first quarter of 2009 due to the positive effect of loan re-pricing and a decrease in floating wholesale funding costs.

In the difficult macro-economic environment, high provision charges of RUR 96.6 billion or 6.9% of the average loan portfolio were made in the first half of 2009, although the second quarter charges were lower that those made in the first quarter (6.6% versus 7.1% of the average loan portfolio, respectively). As a result, the allowance for loan impairment increased to 6.9% of total gross loans in the first half of the year from 3.6% at the end of 2008. The share of overdue and rescheduled loans in the total gross loan portfolio increased to 9.1% from 2.4% at the end of 2008, whereas the share of rescheduled loans increased to 2.9% of total gross loans from 0.6% at the end of 2008.

Impacted by heavy provision charges, VTB net result for the first half of 2009 was negative at RUR31.5 billion. The level of losses, however, was markedly lower in the second quarter at RUR11.0 billion compared to RUR20.5 billion in the first quarter of the year mainly due to stronger core income, net gains from financial instruments and foreign exchange.

VTB continued to focus on cost control and improved efficiency and, as a result, the Group’s cost-to-core income ratio improved to 44.6% in the first half of 2009 from 50.8% in the first half of 2008. VTB is on track to meet its cost reduction target with quarterly staff costs and administrative expenses remaining below the fourth quarter 2008 base guidance level. The number of VTB Group employees decreased in the first six months of the year by 3.6% or 1,506 employees to 40,486. VTB24, VTB Group’s retail bank, cut 5.5% of its staff or 988 employees to 16,893 in the first half of 2009. Reflecting close attention to costs, staff reductions were also implemented in a number of VTB’s subsidiary banks in the CIS. As a result, the total number of employees in this region (excluding Russia) in the first half of 2009 decreased by 254 to 6,842.

CAPITAL BASE
VTB has been focusing on ensuring that the Bank retains a strong capital base. At the end of June 2009, the total BIS ratio of the Group stood at 16%, even after absorbing substantial provisions. The capital increase announced in the first half of the year was successfully completed on September, 25th, 2009 raising RUR 180.1 billion of additional Tier 1 capital. As a result, the Government’s stake in VTB has gone up from 77.5% to 85.5%. The increase has strengthened VTB’s capital base and will enable the Group to continue to grow its lending book and support its customers as the economy recovers.