OREANDA-NEWS. April 26, 2013. VTB Group publishes its Consolidated Financial Statements with the Independent Auditors’ Report for the year ended 31 December 2012.

"These full year results demonstrate the strength of our core businesses, and in the fourth quarter we delivered record high net profit in VTB’s history. In 2012, we made considerable progress in strengthening capital and optimising risk in our asset base, thus positioning us well for further profitable growth. We also continue focusing on expanding our retail business, including developing the new Leto Bank mass market banking project".

Andrey Kostin, VTB President and Chairman of the Management Board

VTB Group’s 2012 net profit was RUB 90.6 billion, corresponding to earnings per share of 0.817 Russian kopecks and an ROE of 13.7%. In 4Q 2012, the Group posted a record quarterly net profit of RUB 30.4 billion, corresponding to an annualised quarterly ROE of 16.8%.

The Group’s core business segments, Retail Banking and Corporate and Investment Banking (CIB), posted a profit before tax of RUB 66.0 billion and RUB 52.4 billion in 2012, contributing 57.8% and 45.9% respectively to the Group total pre-tax profit before intersegment eliminations.
The expansion of the Group’s loan book, stronger yields on loans in 4Q 2012 and releases of provisions booked on the balance sheet of Bank of Moscow (BoM) prior to its consolidation into the Group contributed to year-on-year and quarter-on-quarter net interest income growth. Net interest margin (NIM) was 4.6% in 4Q 2012 (vs. 4.1% in 3Q 2012 and 2Q 2012 and 3.8% in 1Q 2012) resulting in a NIM of 4.2 % for 2012. The 4Q 2012 NIM adjusted for the BoM provision releases amounted to 4.3%.

Retail Banking and Transaction Banking continued to drive solid growth in fee and commission income, contributing RUB 32.2 billion and RUB 15.6 billion or 58.3% and 28.3%, respectively, to the Group’s total net fee and commission income before intersegment eliminations.

The provision charge for impairment of loans and advances to customers reached 1.2% of the average loan portfolio in 2012, up from 1.0% in 2011. In 4Q 2012, the provision charge for impairment of loans and advances to customers remained stable on a quarter-on-quarter basis at 1.1%. For 2012, the provision charge for impairment of debt financial assets was RUB 59.4 billion (versus RUB 31.6 billion in 2011), approximately 34% of which was booked counter-cyclically in 1Q 2012.

The Group’s net result from financial instruments was RUB 15.0 billion in 2012. In 2011, the Group recorded net loss from financial instruments of RUB 26.7 billion. The net result from foreign currencies was RUB 6.8 billion in 2012 versus a net loss of RUB 0.4 billion in 2011.

Staff costs and administrative expenses amounted to RUB 191.6 billion in 2012, up 35.4% from RUB 141.5 billion in 2011, largely due to the consolidation of Bank of Moscow and continued expansion of the Group’s key businesses.

In 4Q 2012, the Group continued the expansion of its corporate loan book that started in 3Q 2012. Corporate gross loans excluding federal loan bonds purchased by Bank of Moscow in September 2011 and accounted for as customer loans, amounted to RUB 3,929.9 billion as of 31 December 2012, up 7.7% from RUB 3,650.6 billion at 31 December 2011 and up 4.8% in 4Q 2012 from RUB 3,748.2 billion at 30 September 2012. Retail gross loans increased by 35.9%, from RUB 824.1 billion to RUB 1,120.2 billion during 2012, reaching 22.0% of the Group’s total gross loans.

Loan quality was stable, with the NPL ratio unchanged for 2012 at 5.4% of total gross loans (including financial assets classified as loans and advances to customers pledged under repurchase agreements) as of 31 December 2012. The Group’s NPL coverage ratio at 31 December 2012 was 112.4%, versus 111.3% as of 31 December 2011.

Changes in customer deposits during 2012 were primarily driven by the Group’s focus on optimising the cost of funding and improving net interest margin.

The Group substantially reduced its equity securities portfolio, which contracted by RUB 167.8 billion, or 61.7%, during 2012 (4Q 2012 decline of RUB 97.3 billion or 48.3%) to RUB 104.0 billion.

Throughout 2012 and into 2013, the Group reaffirmed its ability to effectively diversify funding sources across instruments, geographies, currencies and investor bases, issuing debt in US dollars, Singapore dollars, Swiss francs, Chinese yuan renminbi, and Australian dollars. In December 2012 VTB successfully issued an AUD 500 million 7.5% Eurobond due in 2017, the first ever Australian dollar offering from a Central and Eastern European issuer. In March 2013, VTB raised a US\\$ 2.0 billion, 3-year syndicated loan facility with a margin of 150 bps p.a. over LIBOR, the largest syndicated facility by a financial institution in Russia since 2011.

The Group continued to prioritise strengthening its capital base in 2H 2012. In August 2012, VTB successfully issued a US\\$ 1 billion Tier 1 perpetual bond, which provided the Group with a cost effective, non-dilutive means of raising capital. The bond was designed to achieve capital treatment under Basel I and II, as well as to accommodate anticipated changes to the Russian regulatory system in light of the transition to Basel III. In November 2012, VTB increased the total issue size by US\\$ 1.25 billion to US\\$ 2.25 billion. In October 2012, the Group also issued a US\\$ 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 31 December 2012 were 14.6% and 10.3%, respectively, versus 13.0% and 9.0% as of 31 December 2011. The Group will continue to seek to strengthen its capital ratios in order to support further growth.

Corporate and Investment Banking
In 2012, the Group’s Global Transaction Banking Business (GTB) sold complex and customised cash management solutions to 165 large corporate groups (comprising over 1,300 legal entities). Throughout the year the GTB team was focusing on improving client service and establishing dedicated sales teams in the Russian regions for small and medium-sized clients.

The CIB team has successfully delivered on its strategic project aimed at transforming VTB’s corporate branch network in the Russian regions to further enhance its performance and efficiency. During 2012 and 1Q 2013, more than 40 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.

In 2012, VTB Capital started operations in a number of new geographies, with its clients gaining access to South African, Turkish, Polish, Czech, Hungarian, Israeli and other Middle Eastern markets. VTB Capital also began offering direct market access (DMA) services for institutional clients in 2012 via VTB Capital Broker.

VTB Capital is the #1 investment banking franchise in Russia. In November 2012, it became the first Russian bank to place sovereign Eurobonds in CEE (Serbia’s US\\$ 750 million Eurobond), and in March 2013 it was the first Russian bank to participate in a domestic bond offering in the United States (Bank of America Corporation's US\\$ 4 billion offering). For 2012, VTB Capital’s DCM team took the top spot in the Dealogic ranking for Central and Eastern Europe, with 103 local and international debt placements worth a total of US\\$ 18.7 billion. VTB Capital also holds top positions in the 2012 Russia and CIS Eurobond Bookrunner ranking, with 35 transactions worth USD 10.7 billion (market share: 18.2%) and in the Russia domestic bonds bookrunners ranking, with 63 placements worth USD 7.4 billion (market share: 21.4%).

Key highlights of VTB Capital’s capital markets operations in 2012 included: joint bookrunner for the USD 1.8 billion IPO of Megafon, Russia’s largest equity market transaction of 2012, and a sole advisor and co-investor in exchangeable bonds issue by Uralkali, one of the world's largest potash producers.

VTB Capital placed second in Dealogic’s M&A financial advisor league tables focusing on Russia and CIS. In 2012, VTB Capital has advised on 21 deals worth a total of USD 68.3 billion, which is a 50.8% market share in Russia and a 46.1% share in the CIS.

Retail Banking
Mikhail Zadornov, VTB24 President and Chairman of the Management Board, said: “Our retail business saw strong growth both through the expansion of our client base and by successfully selling new products to existing clients. We further enhanced our retail franchise by launching the mass segment project, Leto Bank, which is growing rapidly and starting to outperform all relevant peers. We also continue to integrate the retail operations of banks we have acquired. In 2013 TransCreditBank’s clients will be offered the full product range of VTB24, our core retail bank with the most advanced product offering.”

VTB Group Retail Loan Book
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 2012.

In April 2013, TransCreditBank (TCB) offices started offering VTB24’s products as part of the ongoing integration of the banks’ retail operations. VTB24 is the Group’s core retail bank with the most advanced product range, and efficient exploration of TCB’s client base is expected to further increase the value of the Group’s retail business going forward.

In 2H 2012 the Group launched Leto Bank, a new strategic project aimed at the mass retail client segment. The bank focuses on highly profitable cash loans and point-of-sale loans. In 1Q 2013 Leto Bank’s loan portfolio expanded 4.5x times to RUB 3.2 billion. At 31 March 2013, Leto Bank had already established 106 client centres and was present in over 1,600 shopping centres.

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 64.8% at 31 December 2012 from 62.1% at the start of the year. The share of mortgage loans in the same period decreased to 34.9% from 37.5%.

The changes in the portfolio mix contributed to an annualised yield on the Group’s retail loans amounting to 17.6% in 4Q 2012, versus 16.6% in 3Q 2012, 15.7% in 2Q 2012 and 15.9% in 1Q 2012.

VTB24’s private banking deposits continued to be an important contributor to the retail deposit base, as the Group continued to successfully expand its business among affluent and high-net-worth customers. Funds from VTB24’s private banking clients increased to RUB 214.1 billion, representing 16.1% of the Group’s retail deposits.

The total number of VTB24, BoM and TCB retail offices in Russia was 1,257 as of 31 December 2012, versus 1,242 as of 31 December 2011. The combined number of VTB24, TCB and BoM ATMs exceeded 12,300 as of 31 December 2012.