OREANDA-NEWS. VTB Bank ("VTB" or "the Bank"), the parent company of VTB Group ("the Group"), today publishes its Consolidated Financial Statements with the Independent Auditors’ Report on these Statements for the year ended 31 December 2015.

Andrey Kostin, VTB President and Chairman of the Management Board, said: “In 2015, VTB’s resilient and flexible business model helped us to navigate through what was another challenging year for the Russian economy and the banking sector.

“At the same time, robust growth of non-interest income and stringent cost control helped us to withstand the challenges associated with much thinner margins, and to deliver a positive bottom line for both the fourth quarter and full year 2015.

“In the last quarter of 2015 we saw further recovery in demand for financing from our corporate clients despite ongoing volatility in macro indicators. Our continued focus on expanding the retail franchise resulted in strong inflows of retail customer deposits, while growth of the retail loan book was supported by mortgage lending. We expect the newly launched Post Bank to further strengthen the retail segment, which will be an important area of focus for us going forward.

“In 2014, we started to adjust our product mix, lending policies and approval rates across key business lines and we continued this conservative approach throughout 2015, which enabled us to bring down provision charges and the cost of risk.

“The efficiency-led corporate culture we are embedding across the Group has delivered tangible results, including a year-on-year decline in staff and administrative costs, notwithstanding the high rate of inflation.

“We also ended the year with much stronger capital adequacy ratios and a healthy liquidity position, leaving us well placed to benefit as economic conditions improve.”

FINANCIAL AND OPERATING HIGHLIGHTS

 Income Statement

RUB billion

FY 2015

FY 2014

(restated)

Change

4Q 2015

4Q 2014

(restated)

Change

Net interest income

 289.1

 347.3

(16.8%)

 93.1

 84.3

10.4%

Net fee and commission income

76.2

 63.1

20.8%

 22.2

 18.3

21.3%

Operating income before provisions

412.3

530.8

(22.3%)

118.5

190.4

(37.8%)

Provision charge*

 (178.1)

 (275.4)

(35.3%)

 (41.2)

 (109.1)

(62.2%)

Staff costs and administrative expenses

 (221.9)

 (222.6)

(0.3%)

 (60.5)

(69.6)

(13.1%)

Net (loss) / profit

1.7

 0.8

112.5%

12.6

 (4.6)

-

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

  • Despite a challenging operating environment the Group delivered net profit of RUB 12.6 billion and RUB 1.7 billion for 4Q 2015 and FY 2015, respectively, supported by strong profitability in Corporate-Investment Banking and the Retail business.
  • VTB Group interest income increased by 30.4% year-on-year in FY 2015 to RUB 1,100.9 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 re-priced faster than assets following the CBR key rate spike in December 2014, causing interest expense to surge by 64.0% year-on-year to RUB 803.1 billion in FY 2015. This resulted in a 16.8% year-on-year decline in net interest income and brought the Group’s net interest margin (NIM) down to 2.6% in FY 2015, versus 4.0% for FY 2014. The easing of the Central Bank’s monetary policy throughout January-August 2015 and continued re-pricing of assets and liabilities enabled the Group to deliver improvements in NIM, which reached 3.2% in 4Q 2015, versus 3.1% in 3Q 2015, 2.4% in 2Q 2015 and 1.6% in 1Q 2015. NIM continued to improve in the fourth quarter, even after the CBR put its easing policy on hold after 3Q 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 record quarterly and full year net fee and commission income of RUB 22.2 billion and RUB 76.2 billion, respectively, despite muted economic activity during the year.
  • For FY 2015, the Group’s provision charge was RUB 178.1 billion, down 35.3% year-on-year. In 4Q 2015, the Group’s provision charge was RUB 41.2 billion, down 62.2% 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 1.8% in FY 2015 (1.6% in 4Q 2015) versus 3.4% in FY 2014 (4.6% in 4Q 2014).
  • The Group’s efficiency-led corporate culture helped keep costs under control, with all key business lines enacting cost-cutting measures. Staff costs and administrative expenses were down by 0.3% year-on-year for FY 2015, despite the high rate of inflation. The Group's costs-to-average assets ratio improved to 1.8% for FY 2015 from 2.2% for FY 2014, and to 1.8% in 4Q 2015 from 2.5% in the same period last year.

Statement of financial position

RUB billion

31 Dec 2015

30 Sept 2015

31 Dec 2014

(restated)

Change in FY 2015

Change in 4Q 2015

Total assets

 13,641.9

12,791.5

12,190.8

11.9%

6.6%

Cash and short term funds

 570.7

592.4

695.2

(17.9%)

(3.7%)

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

 10,110.0

9,516.5

9,150.4

10.5%

6.2%

Gross loans to legal entities

8,150.0

7,594.4

7,205.3

13.1%

7.3%

Gross loans to individuals

1,960.0

1,922.1

1,945.1

0.8%

2.0%

Customer deposits

 7,267.0

7,144.1

5,669.4

28.2%

1.7%

Deposits from legal entities

4,383.6

4,550.6

3,520.3

24.5%

(3.7%)

Deposits from individuals

2,883.4

2,593.5

2,149.1

34.2%

11.2%

NPL ratio

6.3%

6.8%

5.8%

0.5 p.p.

(0.5 p.p.)

Tier 1 CAR

12.4%

12.9%

9.8%

2.6 p.p.

(0.5 p.p.)

Total CAR

14.3%

15.2%

12.0%

2.3 p.p.

(0.9 p.p.)
  • In 4Q 2015, the Group’s loan book continued to grow, driven primarily by financing provided to large corporate customers and government entities.
  • The NPL ratio was 6.3% of gross customer loans, including those pledged under repurchase agreements (the “total loan book”) as of 31 December 2015, down from 6.8% as of 30 September 2015 and up from 5.8% as of 31 December 2014. The allowance for loan impairments was 6.7% of the total loan book as of the end of 4Q 2015, versus 7.1% as of 30 September 2015 and 6.7% at the start of the year. The NPL coverage ratio remained at a comfortable level of 105.8% at 31 December 2015, compared to 104.7% as of 30 September 2015 and 114.8% at the beginning of the year.
  • Customer deposits grew by 1.7% in 4Q 2015, primarily driven by the inflow of retail deposits, which increased by 11.2% during the period. For FY 2015 customer deposits grew by 28.2%, compared to a 10.5% increase in the loan book. As of 31 December 2015, the Group’s market shares in retail and corporate deposits were 10.6% and 19.4%, respectively.
  • The Group continued to reduce its reliance on wholesale funding, with the share of debt securities issued in total liabilities falling to 5.1% as of 31 December 2015, from 5.9% as of 30 September 2015 and 8.3% as of 31 December 2014. During 2015, VTB and its subsidiaries made repayments and buybacks on their international public debt amounting to a total of USD 6.1 billion. 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.
  • VTB maintained solid capital adequacy ratios after issuing RUB 307 billion worth of preference shares in July 2015 in addition to three straight quarters of profitable growth. As of 31 December 2015, the Group’s total and Tier 1 capital adequacy ratios were 14.3% and 12.4%, respectively, versus 12.0% and 9.8% as of 31 December 2014 and 15.2% and 12.9% as of 30 September 2015.

KEY BUSINESS SEGMENT HIGHLIGHTS

VTB Group key segments in FY 2015

% of the Group total*

Corporate-Investment banking (CIB)

Mid-Corporate banking (MCB)

Retail business

(RB)

Assets

44%

5%

22%

Loans and advances to customers (net)

65%

8%

21%

Customer deposits

44%

8%

45%

Revenues from external customers

49%

8%

31%

Net interest income

26%

10%

53%

Net fee and commission income

23%

15%

56%

Provision charge**

39%

17%

46%

Net operating income

41%

10%

52%

Staff costs and administrative expenses

27%

11%

51%

 *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 put pressure on profitability across all key segments throughout the year. For FY 2015, Corporate-Investment banking (CIB) delivered RUB 29.9 billion of net profit, despite unfavourable macroeconomic headwinds. The Retail business posted a positive net result of RUB 16.9 billion for FY 2015, supported by a very strong fourth quarter performance of RUB 14.0 billion. Mid-Corporate banking (MCB)’s net loss for FY 2015 was RUB 12.0 billion.
  • In the Retail business, the Group’s loan book continued to grow in 4Q 2015, primarily driven by mortgage lending under the Russian Government’s programme to subsidise mortgage interest rates. In consumer lending the Group continued to maintain low approval rates on the back of weaker real disposable incomes in Russia. 

VTB Group gross loans to individuals

RUB billion

31 Dec 2015

30 Sept 2015

31 Dec 2014

Change in FY 2015

Change in 4Q 2015

Gross loans to individuals

1,960.0

1,922.1

1,945.1

0.8%

2.0%

Mortgage loans

875.1

832.9

795.3

10.0%

5.1%

Consumer loans

854.9

848.7

901.1

(5.1%)

0.7%

Credit cards

124.1

127.0

113.8

9.1%

(2.3%)

Car loans

100.2

106.6

129.7

(22.7%)

(6.0%)

Other loans

5.7

6.9

5.2

(9.6%)

(17.4%)
  • Mortgage loans reached 44.6% of the Group’s gross loans to individuals as of 31 December 2015, versus 40.9% as of 31 December 2014. The shares of consumer loans and credit card loans in the portfolio were 43.6% and 6.3%, respectively, versus 46.3% and 5.9% at 31 December 2014. The share of car loans in the portfolio decreased to 5.1% as of 31 December 2015, versus 6.7% at the start of the year.
  • The 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 42.7 billion in FY 2015, or 55.9% of the Group’s total.
  • In 4Q 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 during 2015) was more than 1,600 as of 31 December 2015. The combined number of the Group’s ATMs in Russia exceeded 13,300 at the end of FY 2015.
  • After the end of the reporting period, on 28 January 2016, VTB24 and the Russian Post announced the creation of Postal Bank on the basis of Leto Bank. This new bank, in which VTB Group owns 50% plus one share, aims to open 20,000 service windows in 15,000 post offices across Russia over the next three years.
  • 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 4Q 2015. The CIB maintained its focus on optimising risk and preserving the quality of the Group's loan portfolio. CIB's FY 2015 net profit of RUB 29.9 billion was supported by solid results from Investment and Transaction banking.
  • VTB Capital, the Group’s investment banking franchise, has topped the Dealogic and Thomson Reuters' Russian investment banking league tables for FY 2015. The bank took first place in the ECM, DCM and M&A Advisor league tables by a substantial margin. According to Thomson Reuters, the company more than doubled its market share in all major areas of investment banking to 26.7%, compared with 12.4% in 2014. 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 2H 2015. VTB Capital remained #1 in the Thomson Reuters DCM bookrunner ranking based on the volume of transactions for Russian issuers, with 70 deals worth USD 11.8 billion in FY 2015. As a result, VTB Capital's market share was 42.4%. According to Thomson Reuters, VTB Capital also maintained its leading position in Russian equity capital markets, taking 49.5% of the market in FY 2015. In Russian M&A, VTB Capital advised on 13 transactions, taking 26.2% of the market in FY 2015. In 2015, VTB Capital was named Best Investment Bank in Central and Eastern Europe by Global Finance magazine’s annual “World's Best Investment Bank" award.
  • In Mid-Corporate banking (MCB), the Group continued growing the loan book conservatively in 4Q 2015, as interest rates became more affordable for MCB’s customer segment. Throughout FY 21015, MCB maintained its focus on tight loan origination policies and risk management standards, as well as on its documentary business with high quality customers.