OREANDA-NEWS. VTB Bank (“VTB” or “the Bank”), the parent company of VTB Group (“the Group”), today publishes its Interim Condensed Consolidated Financial Statements as at 30 September 2015 with the Independent Auditors’ Report on Review of these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "Our financial results reconfirm that VTB Group is on track to achieve its full-year targets despite turbulent economic conditions. During the third quarter, we posted healthy growth in both loans and deposits while strengthening our balance sheet through the issuance of preference shares.

"As our liabilities continued to price in lower interest rates, we saw further improvements in margins, which together with solid fee income contributed to the continued recovery of the Group’s results overall. Cost of risk remains under control despite heavy provision charges against certain corporate exposures. In line with the Group’s strategy, stringent cost management has remained a top priority throughout the year, and we expect it to continue to be an important driver of our bottom line for the rest of 2015 and beyond.

“Our liquidity position and deposit taking capacity remain very strong, and we deliberately continued to reduce our dependence on wholesale funding sources, having repaid over 3.3 billion US dollars of external debt and having bought back over 1.3 billion US dollars of outstanding bonds from the market since the beginning of the year.

“I am also pleased to note that in September 2015 we started to publish IFRS results on a monthly basis, which we hope will contribute to the transparency and predictability of VTB Group’s performance for investors and all of our stakeholders.”

FINANCIAL AND OPERATING HIGHLIGHTS

Income Statement

RUB billion

9M 2015

9M 2014

(restated)

Change

3Q 2015

3Q 2014

(restated)

Change

Net interest income

202.5

268.2

(24.5%)

88.4

92.2

(4.1%)

Net fee and commission income

54.0

44.8

20.5%

21.4

14.8

44.6%

Operating income before provisions

305.3

348.7

(12.4%)

127.3

130.3

(2.3%)

Provision charge

(136.9)

(166.3)

(17.7%)

(57.0)

(69.6)

(18.1%)

Staff costs and administrative expenses

(172.9)

(161.3)

7.2%

(59.9)

(54.0)

10.9%

Net (loss) / profit

(10.9)

5.4

n.a.

6.2

0.4

1,450.0%

- VTB Group interest income increased by 33.8% year-on-year in 9M 2015 to RUB 809.9 billion, due to higher interest rates in Russia and growth in the Group’s interest-earning assets. At the same time, the Group’s liabilities repriced faster than assets following the CBR key rate spike in December 2014, causing interest expense to surge by 80.1% year-on-year to RUB 607.4 billion in 9M 2015. This resulted in a 24.5% year-on-year decline in net interest income and brought the Group’s net interest margin (NIM) down to 2.5% in 9M 2015, versus 4.3% for 9M 2014. The easing of CBR’s monetary policy and the continued re-pricing of assets and liabilities enabled the Group to post its third consecutive quarterly NIM improvement, to 3.2% in 3Q 2015, versus 2.5% in 2Q 2015 and 1.7% in 1Q 2015.

- The strong fee generating capabilities of Retail business and Transaction banking (as part of Corporate-Investment banking and Mid-Corporate banking) enabled the Group to deliver a record quarterly and nine-months net fee and commission income of RUB 21.4 billion and RUB 54.0 billion, respectively, despite muted economic activity during the year to date.

- For 9M 2015, the Group’s provision charge was RUB 136.9 billion, down 17.7% year-on-year. In 3Q 2015, the Group’s provision charge was RUB 57.0 billion, down 18.1% year-on-year. The Group’s cost of risk (annualised ratio of provision charge for loan impairment to average gross loans and advances to customers) was 1.9% in 9M 2015 (2.4% in 3Q 2015) versus 2.9% in 9M 2014 (3.4% in 3Q 2014).

- Costs remained under control, in line with VTB’s strategy. Staff costs and administrative expenses were up by 7.2% and 10.9% year-on-year (below the rate of inflation) during 9M 2015 and 3Q 2015, respectively. The Group’s annualised costs-to-average assets ratio improved to 1.9% for 9M 2015 from 2.3% for 9M 2014, and to 2.0% in 3Q 2015 from 2.2% in the same period last year.

Statement of financial position

RUB billion

30 Sept 2015

30 June 2015

31 Dec 2014

(restated)

Change in 9M 2015

Change in 3Q 2015

Total assets

12,791.5

11,742.9

12 190.8

4.9%

8.9%

Cash and short term funds

592.4

624.7

695.2

(14.8%)

(5.2%)

Loans and advances to customers, including pledged under repurchase agreements (gross)

9,516.5

8,607.7

9,150.4

4.0%

10.6%

Gross loans to legal entities

7,594.4

6,719.9

7,205.3

5.4%

13.0%

Gross loans to individuals

1,922.1

1,887.8

1,945.1

(1.2%)

1.8%

Customer deposits

7,144.1

6,078.3

5,669.4

26.0%

17.5%

Deposits from legal entities

4,550.6

3,773.8

3,520.3

29.3%

20.6%

Deposits from individuals

2,593.5

2,304.5

2,149.1

20.7%

12.5%

NPL ratio

6.8%

7.0%

5.8%

1.0 p.p.

(0.2 p.p.)

Tier 1 CAR

12.9%

10.1%

9.8%

3.1 p.p.

2.8 p.p.

Total CAR

15.2%

12.4%

12.0%

3.2 p.p.

2.8 p.p.

- In 3Q 2015, the Group’s loan book resumed its growth, driven primarily by current activity financing provided to large corporate customers and government bodies. USD appreciation against the RUB during the quarter also contributed to the expansion of loans and advances to customers, as over 30% of the Group’s total customer loans are denominated in US dollars.

- The NPL ratio was 6.8% of gross customer loans, including those pledged under repurchase agreements (the “total loan book”) as of 30 September 2015, down from 7.0% as of 30 June 2015 and up from 5.8% as of 31 December 2014. The allowance for loan impairments was 7.1% of the total loan book as of the end of 3Q 2015, versus 7.6% as of 30 June 2015 and 6.7% at the start of the year. The NPL coverage ratio remained at a comfortable level of 104.7% at 30 September 2015, compared to 109.0% as of 30 June 2015 and 114.8% at the beginning of the year.

- Customer deposits grew faster than loans during both 3Q 2015 (up 17.5%) and 9M 2015 (up 26.0%), due to the Group’s strong deposit taking capacity in key business segments and the revaluation of FX-denominated deposits. In the third quarter, VTB Group deposits in both the retail and corporate segments grew at a faster pace than the Russian banking sector. As of 30 September 2015, the Group’s market shares in retail and corporate deposits were 10.3% and 20.5%, respectively.

- The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities falling to 5.9% as of 30 September 2015, from 6.5% as of 30 June 2015 and 8.3% as of 31 December 2014. During 9M 2015, VTB and its subsidiaries made repayments on their international public debt amounting to a total of USD 3.3 billion. Also, as the Group maintained its focus on efficient liability management, VTB was able to benefit from volatility in debt capital markets and further optimise its balance sheet by buying back its Eurobonds. In July and October 2015, the Bank bought back USD 763.0 million of its USD-denominated Eurobonds, CHF 461.5 million of CHF-denominated Eurobonds and AUD 126.7 million of Eurobonds issued in Australian dollars through public tenders.

- In July 2015, VTB took an important step to strengthen its core Tier 1 capital by placing new preference shares worth approximately RUB 307 billion, which were acquired by the State Corporation Deposit Insurance Agency. As of 30 September 2015, the Group’s total and Tier 1 capital adequacy ratios were 15.2% and 12.9%, respectively, versus 12.4% and 10.1% as of 30 June 2015 and 12.0% and 9.8% as of 31 December 2014.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in 9M 2015

% of the Group total*

Corporate-Investment banking

Mid-Corporate banking

Retail business

Assets

44.9%

5.0%

22.5%

Loans and advances to customers (net)

63.6%

7.9%

21.8%

Customer deposits

42.9%

8.5%

42.1%

Revenues from external customers

48.8%

8.2%

30.9%

Net interest income

21.1%

11.4%

58.0%

Net fee and commission income

20.7%

16.1%

55.1%

Provision charge**

31.7%

18.3%

51.3%

Net operating income

47.1%

4.6%

54.6%

Staff costs and administrative expenses

26.7%

11.1%

51.6%

*Before intersegment eliminations

**Includes provision charge for impairment of debt financial assets and provision charge for impairment of other assets, credit related commitments and legal claims.

- Higher funding costs and provision charges put pressure on profitability across all key segments throughout the first nine months of the year. For 9M 2015, Corporate-Investment banking (CIB) delivered RUB 23.1 billion of net profit, despite the macroeconomic headwinds. In 3Q 2015, Retail business posted a positive net result for the second consecutive quarter, earning a net profit of RUB 2.9 billion for 9M 2015. Mid-Corporate banking (MCB)’s net loss for 9M 2015 was RUB 9.4 billion.

- In Retail business, the Group’s loan book returned to growth in 3Q 2015, primarily driven by mortgage lending under the Russian Government’s programme to subsidise mortgage interest rates. In consumer lending, the Group continued to stick to lower approval rates on the back of weaker real disposable incomes and consumer spending in Russia.

VTB Group gross loans to individuals

RUB billion

30 Sept 2015

30 June 2015

31 Dec 2014

Change in 9M 2015

Change in 3Q 2015

Gross loans to individuals

1,922.1

1,887.8

1,945.1

(1.2%)

1.8%

Mortgage loans

832.9

802.9

795.3

4.7%

3.7%

Consumer loans

848.7

844.3

901.1

(5.8%)

0.5%

Credit cards

127.0

122.8

113.8

11.6%

3.4%

Car loans

106.6

110.9

129.7

(17.8%)

(3.9%)

Other loans

6.9

6.9

5.2

32.7%

0.0%

- Mortgage loans reached 43.3% of the Group’s gross loans to individuals as of 30 September 2015, versus 40.9% as of 31 December 2014. The shares of consumer loans and credit card loans in the portfolio were 44.2% and 6.6%, respectively, versus 46.3% and 5.9% at 31 December 2014. The share of car loans in the portfolio decreased to 5.5% as of 30 September 2015, versus 6.7% at the start of the year.

- Retail business has been pursuing opportunities to grow fee-based revenues, in particular through active cross selling of ancillary insurance products, including mortgage-linked products from VTB Insurance and life insurance plans from VTB Life Insurance for private banking clients. The Retail business’s net fee and commission income reached RUB 29.8 billion in 9M 2015, or 55.1% of the Group’s total.

- In 3Q 2015, the Group continued to optimise its retail business branch network and staff in line with the market trends. The total number of the Group’s retail offices in Russia (operating under the brands VTB24, Bank of Moscow, and Leto Bank) was more than 1,650 as of 30 September 2015. The combined number of the Group’s ATMs exceeded 12,800 at the end of 9M 2015.

- In Corporate-Investment banking (CIB), the Group saw a recovery in borrowers’ appetite for new borrowings and refinancing, as interest rates continued to decline during 3Q 2015. The CIB continued to focus on optimising risk and preserving the quality of the Group’s loan portfolio. CIB’s 9M 2015 net profit of RUB 23.1 billion was supported by solid results from Investment and Transaction banking.

- A continued decline in market yields as well as stronger investor demand in debt capital markets (DCM) spurred new issuance of Russian corporate debt in 3Q 2015. VTB Capital, the Group’s investment banking franchise, remained # 1 in the Thomson Reuters DCM bookrunner ranking based on the volume of transactions for Russian issuers, with 28 deals worth USD 7.4 billion in 9M 2015. As a result, VTB Capital’s share of the market was 52.3%. According to Thomson Reuters, VTB Capital also maintained its leading position in Russian equity capital markets, having arranged four transactions worth USD 481 million and taking 51.6% of the market in 9M 2015. In Russian M&A, VTB Capital advised on 10 transactions worth USD 9.1 billion, corresponding to 40.0% of the market in 9M 2015. Also, VTB Capital was named Best Investment Bank in Russia by Euromoney Awards for Excellence 2015.

- In Mid-Corporate banking (MCB), the Group’s loan book returned to growth in 3Q 2015, as interest rates in Russia became more affordable for MCB’s customer segment. Throughout 9M 21015, MCB maintained its focus on tight loan origination policies and risk management standards, as well as on documentary business with high quality customers.