OREANDA-NEWS. June 05, 2014. Home Credit B.V. (‘HCBV’ or ‘the Group’), the Netherlands-based holding company for Home Credit’s leading multi-channel consumer finance operations in CEE and Asia, announces its consolidated financial results for the three-month period ended 31 March 2014 in accordance with International Financial Reporting Standards (IFRS).

“Our strategy of geographical diversification and a focus on growth markets continues to deliver. The first quarter brought exciting developments in China and our other Asian markets which are growing strongly. However, headwinds In Russia, combined with our conservative approach to reserves, led us to an overall loss in the quarter.

In China we have tripled the number of provinces we serve to 14 and we expect to maintain a brisk, but controlled, expansion over the remainder of the year as part of our national roll out. Other countries in the Asian region continue their rapid development. Indonesia, although still in the investment phase, delivered very promising results, having achieved the target of 1,000 points of sale (POS) in just five months. Asia already generates 32% of our new volumes and this growth looks set to continue.

Our Russian business, in line with the sector as a whole, suffered the impact of a difficult economic environment and the after effects of a period of too fast growth in recent years. Home Credit was one of the first to recognise the risks and took action in mid-2013 to tighten its lending criteria. The positive impact of this step is already being seen.

Home Credit is a great franchise, with strong capitalisation, good liquidity, experienced management and an excellent competitive position in the consumer lending market. We have a clear road map to build on our strengths and restore profitability in 2014 and I remain excited by the future for these businesses."
Jiri Smejc, Chairman of the Board of Directors and Chief Executive Officer, Home Credit B.V.

HIGHLIGHTS
1Q2014 saw EUR 518 million of operating income achieved at Home Credit with a value of loans granted of EUR 1,725 million while the number of active clients reached 7.4 million. Distribution points, driven by the successful regional expansion in Asia, grew by 2.8% to 143,510 with 139,349 POS and loan offices, 1,355 bank branches and 2,806 post offices.

Operating income in Q1 2014 was down 15.2% y-o-y to EUR 518 million (Q1 2013: EUR 611 million). This drop in operating income is predominantly impacted by the challenging environment in Russia.

Net interest income fell slightly by 4.8% to EUR 389 million compared to EUR 409 million for same period in 2013. In response to regulatory reform in 2013, our local product line has been optimised and interest rates reduced. Nonetheless the Group’s Net Interest Margin remained solid at 19.4%.

The Group posted a net loss of EUR 62 million in the quarter as a result of very conservative provisioning in Russia. Although the Russian contribution to the Group business continues to decrease as the Group’s geographical footprint diversifies, Russia’s tough economic backdrop still had a negative effect on the Group results as a whole and overshadowed the continued strong development in Asia. Russia’s local economy in Q1 slowed down and average salaries showed negative growth. The consumer finance market there has also been impacted by the rapid growth in unsecured lending to individuals from 2011 to 2013. The effect of this growth was underestimated by lenders and credit quality was put under pressure. Our Russian subsidiary is quickly adapting to the changing environment there but, in common with our peers, faces headwinds due to challenging conditions.

The net loan portfolio fell 10.9% to EUR 6,387 million (31 December 2013: EUR 7,171 million). In response to the macroeconomic backdrop in Russia the growth rates of loan volumes have been intentionally decreased since the middle of 2013 which overshadowed the other Group countries’ operations. Total assets reflected this impact and were down by 8.9% to EUR 8,485 million.

The quality of HCBV’s loan portfolio dipped in Q1 2014 with the NPL (non-performing loans more than 90 days overdue) share of the gross loan book up to 14.2% (12.2% as at 31 December 2013) due to the deteriorating position in Russia. Our Russian subsidiary is now carefully managing its growth with tighter risk management procedures and an increased focus on loan quality. The benefits of this stricter approach to lending are already coming through and the risk profile of the portfolio accumulated since mid-2013 shows much higher quality. The Group’s NPL coverage ratio remained strong at 116.7% (31 December 2013: 117.0%).

General administrative and other operating expenses rose by 5.5% to EUR 213 million (Q1 2013: EUR 202 million) due to the continued development of the distribution networks linked predominantly to geographic expansion in Asia, China in particular. HCBV continues to maintain stringent cost management; the cost-to-income ratio was 41.1% as a result of a falling denominator, income.

HCBV’s customer deposits fell by 11.3% to EUR 4,528 million (31 December 2013: EUR 5,105 million) as a result of a decreased volume of lending requiring less funding. The share of current account balances and term deposits now comprises 63.6% of total liabilities (31 December 2013: 65.6%).

HCBV remains strongly capitalised and deposits remain the key source of external funding in line with the Group’s strategy: total equity was EUR 1,370 million as at 31 March 2014.