Vozrozhdenie Bank recorded 2014 net profit of RUB 1.2 billion

25 March 2015

Bank Vozrozhdenie summarized its IFRS results for FY 2014.

  • Assets totaled RUB227.9 billion ($4.1 billion) as of December 31, 2014, up by 8% YoY
  • Gross loan portfolio reached RUB170.2 billion ($3.0 billion), up by 1.2% YoY
  • Client funds grew by 7.8% over the year to RUB174.2 billion ($3.1 billion)
  • Operating income for 2014 rose by 3.5% YoY to RUB11.2 billion ($198.9 million)
  • Net profit for 2014 came in at RUB1.2 billion ($21.4 million), 19.3% less than 2013 result
  • Net interest margin for 2014 improved by 13 bps YoY to 4.6%

“The bank managed to cope with the volatile situation of the year-end when all the key macroeconomic challenges materialized and overall we are satisfied with 2014 results. We accumulated solid liquidity cushion for the possible deposits outflow and supported sound capital position preserving conservative balance sheet structure. We succeeded in protecting NIM and even widened it. Over Q4 we saw the first fruits of the projects aimed at strengthening fees and commissions though operating expenses appeared to be higher than we planned.

We started to prepare to the anticipated instability in the system well in advance, tightening the credit policies and enhancing management of currency, market and operating risks. We hope to successfully overcome the latest round of the market turbulence and improve the bank’s position in its key niches”, commented Alexander Dolgopolov, Chairman of the Management Board of Vozrozhdenie Bank.

The bank’s assets added 8% to RUB227.9 billion ($4.1 billion) in 2014 mainly on the back of the liquid instruments growth. Cash and equivalents were up 21.5%, or RUB6.3 billion, to RUB35.6 billion ($633 million) over the year; securities portfolio was up 81.6%, or RUB9.9 billion, to RUB22.1 billion ($392 million). The bank enhanced its liquidity position in the year-end situation of the market uncertainty, which resulted in the growth of the share of liquid assets comprised by cash and securities to 24.9% as of December 31, 2014 from 21.5% three months ago. Loan-to-deposit ratio was equal to 97.7%, flat across the quarter and close to the bank’s targeted level of 100%.

The bank embraced the opportunity to invest another RUB 2.8billion ($49.2 million) in the low-risk liquid debt securities of sovereigns and quasi-sovereigns in Q4 amid sagging market and attractive bond yields. Bonds with maturity less than 1 year represet 94.9% of the portfolio. Share of securities in assets advanced by 0.7 pps to 9.7%. In December, the bank used securities for RUB9.2 billion ($163.5 million) to replenish the liquidity cushion, pledging them under REPO transactions with the Bank of Russia.

Gross loan portfolio grew by 1.2% to RUB170.2 billion ($3.0 billion) in 2014 predominantly owing to the retail loans widening by 8.4% over the period to RUB46.2 billion ($821 million), which offset a contraction of the corporate book by 1.3% to RUB123.9 billion ($2.2 billion) resulted from the negative macro developments, diminishing demand from high-quality borrowers and continuing tightening of the bank’s underwriting standards.

In Q4, gross loan portfolio gained 3.1% triggered by 3.2% progress of the corporate book and 2.7% growth of the retail lending. Loans to large corporate clients added RUB4.3 billion to RUB54.5 billion ($969.1 million) caused mostly by the revaluation of FX-denominated debt of export companies. SMEs portfolio moderated by RUB1.3 billion to RUB68.3 billion ($1.2 billion), reflecting higher portfolio turnover and the bank’s low risk appetite. Lending to this segment comprised 55.1% of the corporate book by the year-end.

The bank was cautious in expanding retail lending amid aggravating risks and contraction of the real disposable income. Mortgages added 3.1% during Q4 to RUB31.9 billion ($566.5 million), while their share in the retail portfolio was flat at 69%. Consumer loans grew by 3.1% in Q4 to RUB12.1 billion ($215.3 million). The share of FX lending in the retail portfolio was insignificant, so there was no need to use the option of FX mortgages conversion into rubles at the exchange rate as of October 1, 2014 suggested by the Bank of Russia.

In 2014 the share of non-performing loans (NPLs) surged by 2.7 pps to 10% (or RUB17.1 billion), with the major growth coming at the end of the year reflecting worsening of the payment discipline and financial standing of the borrowers amid deterioration of macroeconomic environment. In Q4 new loans went impaired in large corporates and SME segments that was partially offset by sales and write-offs of uncollectible loans in SME segment. The share of 90 days+ NPLs in the gross loan portfolio was up just 0.5 pps Y-o-Y and totaled 7.4%. The quality of the retail loans improved in Q4: the share of NPLs dropped by 43 bps to 3.6%.

The bank charged RUB3.2 billion ($56.7 million) to provisions for loan impairment in 2014 that was 16.9% lower than in 2013. Cost of risk was generally in line with the bank’s expectations at 1.9%. Total provisions reached RUB14.4 billion ($256 million) as of December 31, 2014, up by 16.6% over the year. The coverage ratio for the total loan book decreased to 85% from 97% as of September 30, 2014 due to the growth in NPLs overdue less than 90 days, while the coverage ratio for 90 days+ NPLs stood at 115%.

Client funds grew by 7.8% Y-o-Y to RUB174.2 billion ($3.1 billion) as of December 31, 2014. After the outflow during the first three months of the year, in Q2 the situation on the market stabilized and the bank enjoyed the strong growth of customer funding over three consecutive quarters. In 2014, the retail deposits and balances on card accounts were up by 15.8% to RUB122.8 billion ($2.2 billion) outpacing the banking sector growth by 6.4pps (according to the Bank of Russia data) and becoming the key growth drivers of customer funding. Ruble-nominated retail funds reached RUB85.6 billion ($1.5 billion), up by 6.7% for the year.

The bank did not compete aggressively for the expensive corporate deposits, so the corporate client funds went down by 7.4% over the year to RUB51.4 billion.

In 2014 the equity grew by 6.4% to RUB23.8 billion ($423.1 million) as of December 31, 2014 with retained earnings being the main source of that growth.

As per Basel III standards, the total regulatory capital adequacy ratio (N1.0 norm) improved by 0.8 pps to 12.0% as of January 1, 2015, while the minimum acceptable level is set at 10%. The common equity Tier1 capital adequacy ratio (N1.1 norm) was up 0.5pps and reached 9.3%, considerably exceeding the minimum requirement of 5%. The bank did not use the options suggested by the Bank of Russia on calculating risk-weighted assets nominated in foreign currency at the exchange rates as of October 1, 2014.

Net interest income grew by 3.2% to RUB9.8 billion ($173.9 million) in 2014 comparing to the previous year period on the back of the retail business income going up by RUB1.4 billion Y-o-Y as a result of both new retail loans issuance and the rise of interest rates. Net interest spread decreased by 27bps to 6.3% due to the outpacing growth of the cost of funding. Meanwhile, the higher portion of the interest-earning assets and increase in the securities’ income caused NIM widening by 13bps to 4.6% for the year 2014 ahead of the planned 4.5%.

During Q4 2014 interest income was also in green — it grew by 2.4% to RUB5.2 billion ($92.1 million) on Q-o-Q basis primarily as a result of securities’ income uptick. Interest expenses decreased over the reported quarter by 0.5% and totaled RUB2.7 billion ($48.3 million) as higher interest rates on new deposits were offset by repayments of more expensive corporate deposits in October — November and ahead-of-term withdrawals of retail savings in December. On the top of that, revaluation of FX deposits that bear lower interest rates versus the RUB ones caused the growth of their share in the portfolio. Net interest income expanded by 5.7% comparing to the previous quarter and reached RUB2.5 billion ($43.9 million) that supported NIM at the level of 4.5%, 6bps above Q3 result.

In 2014 the bank earned RUB4.0 billion ($70.5 million) as net fees and commissions, 12.1% less than in 2013. Quite a tough competitive pressure as well as some large clients changing their banking preferences to the state banks together with the consecutive increase of pricing policy by the international payment systems were on the backstage of such a drop.

During 2014, the bank implemented a number of projects aimed on strengthening the fee income. First fruits of it was seen in Q4 2014 when the gross fee income added 9.7% on a Q-o-Q basis to RUB1.3 billion ($23.0 million) fueled by widening of income from settlements, operations with bank cards as well as from FX operations on the wave of the seasonal growth in business activity. Net fees and commissions grew by 7.7% over Q4 totaling RUB1.1 billion ($19.1 million).

Net non-interest income for 2014 equaled RUB4.6 billion ($81.6 million) comprising 32% of the bank’s total operating income before provisions versus 35% for the year 2013.

Operating expenses for 2014 were equal to RUB9.4 billion ($166.4 million) exceeding the level of 2013 by 6.7% but still well below the inflation rate for the relevant period. The growth of the indicator was reasoned by the rise in the staff costs by 6% to RUB5.6 billion ($99.0 million) as a sequence of higher level of salaries as well as by the increase in the other expenses by 7.8% caused by investments related to operating model optimization project and new software purchase.

Seasonal spike of operating expenses in Q4 2014 by 29.4% to RUB2.8 billion ($50.1 million) resulted from recording personal annual bonuses and traditional increase in expenses related to premises and equipment as historically they fell on the year-end according to the contractual terms.

Cost-to-income ratio grew by 5.2pps to 65.1% due to some decrease in operating income before provisions combined with the expenses’ widening.

Net income for 2014 was lower than the result of the year 2013 by 19.3% and totaled RUB1.2 billion ($21.4 million) under the pressure of the reduction in net fees and commissions and higher operating expenses. ROE decreased by 1.8pps on Y-o-Y basis to 5.2%. In Q4 2014 additional charges to provisions on non-core assets in the amount of RUB257 million ($4.6 million) caused by the diminishing of their value and to provisions on credit-related commitments in the amount of RUB92 million ($1.6 million) on the earlier issued guarantee led to net loss of RUB26 million.

Vozrozhdenie Bank has held the meeting of the Board of Directors
Igor Antonov appointed as Chairman of the Management Board of Vozrozhdenie Bank