OREANDA-NEWS. December 24, 2012. VTB Group today publishes its Interim Condensed Consolidated Financial Statements as at 30 September 2012 with the Independent Auditors’ Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “This was the second best quarterly net profit in VTB’s history. The Group’s strong performance this quarter was supported by the high-quality, profitable growth of our CIB and Retail banking businesses as well as by management’s ongoing efforts to optimise risk in the asset base. The Group is conservatively positioned in the current volatile market environment as we used strong earnings momentum to take an additional countercyclical provision charge in previous quarters. We are successfully leveraging our unique business model, while continuing to strengthen our capital base through the issuance of non-dilutive equity instruments that support our capital ratios as we prepare for further growth.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income statement

RUB billion

9M 2012

9M 2011

Change, % or pps

Net interest income

174.3

149.1

16.9%

Net fee and commission income

34.2

27.1

26.2%

Operating income before provisions

259.1

209.9

23.4%

Provision charge for impairment of debt financial assets

(45.0)

(25.3)

77.9%

Net profit

60.2

72.6

(17.1%)

ROE, %

12.6%

16.2%

(3.6 pp)

The Group posted its second-best quarterly net profit and best ever third quarter with net profit of RUB 26.6 billion for 3Q 2012, corresponding to a quarterly ROE of 16.2%.

The Group’s core business segments, Retail Banking and Corporate and Investment Banking (CIB), posted a profit before tax of RUB 35.6 billion and RUB 44.4 billion in 9M 2012, versus RUB 27.2 billion and RUB 76.6 billion in 9M 2011, respectively.

The expansion of the Group’s loan book contributed to both year-on-year and quarter-on-quarter net interest income growth. Net interest margin (NIM) remained flat quarter-on-quarter during 3Q 2012 at 4.1% resulting in a 9M 2012 NIM of 4.0%.

Retail Banking and Transaction Banking continued to drive solid growth in fees and commissions income, contributing RUB 21.1 billion and RUB 13.1 billion (up 64.8% and 32.3% from RUB 12.8 billion and RUB 9.9 billion in 9M 2011), respectively, to the Group’s total net fee and commission income.

The provision charge for impairment of loans and advances to customers reached 1.3% of the average loan portfolio in 9M 2012, up from 1.0% in the same period last year mainly due to a countercyclical provision charge booked in 1Q 2012. In 3Q 2012, the provision charge for impairment of loans and advances to customers remained flat on a quarter-on-quarter basis at 1.0%.

The Group’s net result from financial instruments of RUB 0.6 billion in 9M 2012 was supported by stronger debt capital markets in 3Q 2012. The net loss from financial instruments in 9M 2011 was RUB 1.0 billion. The net result from foreign currencies was RUB 14.9 billion in 9M 2012 versus RUB 2.2 billion in 9M 2011.

Staff costs and administrative expenses amounted to RUB 134.9 billion in 9M 2012, up 48.6% from RUB 90.8 billion in 9M 2011, largely due to the consolidation of Bank of Moscow (BoM) in 2H 2011 and expansion of the Group’s key businesses. The year-on-year growth rate in costs adjusted to BoM’s contribution in 9M 2012 equals approximately 24%.

Statement of financial position

RUB billion or %

30 Sep 2012

31 Dec 2011

Change, % or bps

Total assets

7,184.7

6,789.6

5.8%

Total gross loans

4,778.3

4, 590.1

4.1%

Corporate gross loans

3,751.6

3,766.0

(0.4%)

Retail gross loans

1,026.7

824.1

24.6%

Customer deposits

3,521.8

3,596.7

(2.1%)

Corporate deposits

2,190.5

2,435.3

(10.1%)

Retail deposits

1,331.3

1,161.4

14.6%

NPL ratio

5.6%

5.4%

20 bps

Tier 1 ratio

9.3%

9.0%

30 bps

Total CAR

12.9%

13.0%

(10 bps)

The Group’s focus on the robust development of Retail Banking along with healthy real wage growth and stronger domestic consumption in Russia contributed to the solid retail loan book growth in 9M 2012 and 3Q 2012.

The Group’s corporate gross loans excluding federal loan bonds purchased by Bank of Moscow in September 2011 and accounted for as customer loans, amounted to RUB 3,748.2 billion as of 30 September 2012, up 2.7% from RUB 3,650.6 billion at 31 December 2011 and up 4.3% in 3Q 2012 from RUB 3,594.2 billion at 30 June 2012.

Loan book quality was stable, with an NPL ratio of 5.6% of total gross loans (including financial assets classified as loans and advances to customers pledged under repurchase agreements) as of 30 September 2012 versus 5.4% as of 31 December 2011 and 5.6% as of 30 June 2012. The Group’s NPL coverage ratio at 30 September 2012 was 110.6%, versus 111.3% as of 31 December 2011 and 117.0% as of 30 June 2012.

Changes in customer deposits during 9M 2012 were primarily driven by the Group’s focus on optimising the cost of funding in order to support its net interest margin.

The Group substantially reduced its equity securities portfolio, which contracted by RUB 70.5 billion, or 25.9%, during 9M 2012 (3Q 2012 decline of RUB 45.4 billion) to RUB 201.3 billion.

In 3Q 2012 and 4Q 2012, the Group reaffirmed its ability to effectively diversify funding sources across geographies, currencies and investor bases. In July 2012, VTB issued a SGD 400 million 4% Eurobond due in 2015. In August 2012 the Group successfully tapped its USD 1.5 billion 6% Eurobond issued in April 2012 and due in 2017, with an additional issuance of USD 500 million. In August 2012, VTB issued a CHF 600 million, 3.15% Eurobond due in 2016. In October 2012, the Group issued a CNY 1 billion 4.5% Eurobond due in 2015. In December 2012 VTB successfully issued an AUD 500 million 7.5% Eurobond due in 2017, the pioneer Australian dollar offering from a Central and Eastern European issuer.

The Group continued to prioritise strengthening its capital base in 2H 2012. In August 2012 VTB successfully issued a USD 1 billion Tier 1 perpetual bond, which provided the Group with a cost effective, non-dilutive means of raising capital. In November 2012, VTB increased the total issue size by USD 1.25 billion to USD 2.25 billion. In October 2012, the Group also issued a USD 1.5 billion Subordinated Lower Tier 2 6.95% Eurobond, due in 2022.

The Group’s total and Tier 1 capital adequacy ratios (CAR) as of 30 September 2012 were 12.9% and 9.3%, respectively, versus 13.0% and 9.0% as of 31 December 2011. Tier 1 CAR as adjusted to reflect the perpetual bond tap was approximately 10% as of 30 September 2012. The Group will continue to seek to strengthen its capital ratios in order to support further growth.

KEY BUSINESS SEGMENT HIGHLIGHTS

Corporate and Investment Banking

RUB billion

9M 2012

9M 2011

Change, %

Segment profit before tax

44.4

76.6

(42.0%)

Loans and deposits subsegment

18.7

50.3

(62.8%)

Investment banking subsegment

11.3

17.5

(35.4%)

Transaction banking subsegment

13.9

8.5

63.5%

Inter-CIB eliminations

0.5

0.3

-

During 3Q 2012, the Group’s Global Transaction Banking Business (GTB) sold complex and customised cash management solutions to 31 large corporate groups (comprising over 400 legal entities). The GTB team continued to expand its product offering by introducing new capabilities to its Client Settlement Centre and remote banking systems. In 3Q 2012 VTB introduced the "Mobile Client“ service which provides corporate customers with access to information on bank accounts via mobile devices.

The Group continues to transform its corporate branch network in the Russian regions to further enhance its performance and efficiency. During 2012, almost 20 VTB Bank branches were converted into operational offices, which will allow further cost optimisation and unlock new growth opportunities in the regional corporate banking business.

VTB Capital remained Russia’s leading investment banking operation, maintaining the top spot in Russian and CIS DCM according to Dealogic, with a market share of 18%.

The VTB Capital structuring team continues to create new investment products aimed at expanding investment opportunities in the Russian capital markets. In November 2012, VTB Capital issued the first ever RUB 1 billion rouble exchange traded bond with a variable coupon linked to the price of gold; this was the third issue under the unique domestic structured bond programme registered by VTB Capital in 4Q 2011. Previous tranches issued during 2012 were linked to the MICEX index. In December 2012, VTB Capital successfully placed its second RUB 1 billion issue linked to gold price.

VTB Capital completed several noteworthy M&A transactions in 9M 2012. In 3Q 2012 VTB Capital was appointed as Joint Financial Adviser to Russian Railways for the landmark USD 1 billion transaction in which Russian Railways is acquiring (subject to regulatory approvals) 75% of the shares of GEFCO, the logistics division of French car manufacturer PSA Peugeot Citroen.

Retail Banking

RUB billion

9M 2012

9M 2011

Change, %

Segment profit before tax

35.6

27.2

30.9%

VTB Group retail loan book

RUB billion

30 Sep 2012

31 Dec 2011

Change, %

Gross retail loans

1,026.7

824.1

24.6%

Consumer loans

578,6

436.2

32.6%

Car loans

93.6

75.5

24.0%

Mortgage loans

351.2

309.0

13.7%

The Retail Banking segment’s performance was supported by a favourable macro environment combined with healthy real wages growth and strong household consumption expenditures in 9M 2012.

In retail lending, the Group maintained its focus on higher-margin products, which resulted in the share of consumer and car loans in the Group’s retail loan portfolio increasing to 65.5% at 30 September 2012 from 62.1% at the start of the year. The share of mortgage loans in the same period decreased to 34.2% from 37.5%. This change in the portfolio mix contributed to the annualised yield on the Group’s retail loans widening to 16.6% in 3Q 2012 versus 15.7% in 2Q 2012 and 15.9% in 1Q 2012.

VTB24’s private banking deposits continued to be an important driver of the retail deposit base, as the Group continued to successfully expand its business with affluent and high-net-worth customers. Funds from VTB24’s VIP clients increased to RUB 200.4 billion, representing 15.1% of the Group’s retail deposits.

VTB Group continues the successful integration of Bank of Moscow’s (BoM) and TransCreditBank’s (TCB) retail operations led by the Group’s core retail bank VTB24. During 9M 2012, these banks were focused on the further alignment of their product offering, quality control standards and procedures.

The total number of the VTB24’s BoM’s and TCB’s retail offices in Russia was 1,257 as of 30 September 2012, versus 1,242 as of 31 December 2011. The combined number of VTB24, TCB and BoM ATMs exceeded 10,500 as of 30 September 2012.

With the aim of further increasing its penetration in Russia’s mass retail client segment, the Group launched its new Leto Bank retail project, which focuses on the highly profitable cash loans and point-of-sale loans segments. In 3Q 2012, the bank launched pilot sales and started robust development of the sales network in Moscow and in Russia’s regions.