Vozrozhdenie Bank has published its financial results for 3M 2016 under IFRS

26 May 2016

Vozrozhdenie Bank has published its financial results for 3M 2016 under IFRS.

· Assets were RUB 221.8 billion ($3.3 billion) as of April1, 2016, 0.9% down from the year-start.

· Gross loan portfolio added 3.2% over the reporting period to RUB 178.8 billion ($2.6 billion).

· Client funds increased by 3.0% YtD, reaching RUB 174.7 billion ($2.6 billion).

· Net loss for Q1 2016 reduced to RUB 269 million ($4 million) from RUB 1,241 million ($17.0 million) of net loss for Q4 2016 and versus RUB 40 million ($0.7 million) of net profit for the same previous-year period.

“We were really pleased to note some stabilisation of the credit quality. This allowed us to reduce charges to provisions, while our general provisioning policy will remain conservative. Though there were no signs of recovery of demand for loan products throughout the system, some positive developments among our target segments encouraged us to accelerate the loan book growth both in corporate and retail business-lines.

To support expansion of interest-earning assets, we had to temporarily rely on more expansive market funding that put some pressure upon the margin. Substitution of the interbank financing with the client funds that we already saw in the end of the first quarter should further mitigate that effect and, coupled with transactional business enhancement, provide for the operating income growth,” commented Andrey Shalimov, Deputy Chairman of the Management Board at V.Bank.

The bank’s assets decreased by 0.9% YtD to RUB 221.8 billion, while net loan portfolio widened by 3.6% during the first quarter to RUB 163.2 billion on the back of effectively-employed liquidity accumulated in late 2015. Net loans’ portion in total assets rose by 3.3 pps to 74%. The share of interest-earning assets grew by 1.4 pps from December 31, 2015 to 80.9%.

Cash and equivalents went down by 11.9% over Q1 2016 to RUB 27.5 billion as of the reporting date and securities portfolio was down by 11.6% to RUB 15.1 billion. Thus, traditionally for the first quarter, the share of liquid assets decreased by 2.4 pps to 18.7% remaining at comfortable level but unlocking additional funds to allocate in the expanding loan portfolio and meet the clients’ demand for credit products.

Loan and deposit portfolios were growing equably throughout the quarter, so L/D ratio stayed unchanged within the targeted range.

Gross loan portfolio was 3.2% up in Q1 2016 to RUB 178.8 billion fueled by vivid lending to both corporates (+2.7% QoQ versus the sector dynamics −2.1%, according to the Bank of Russia) and individuals (+4.1% QoQ versus the sector dynamics −1.2%, according to the Bank of Russia).

Large corporates’ book before provisions reached RUB 51.1 billion, 6.7% up QoQ primarily resulting from widened lending to existing customers. SME portfolio grew by 1.3% to RUB 63.0 billion on the back of actively-issued new loans. The share of the segment in the corporate book was 50.8%.

Throughout the last quarters retail loan portfolio was showing persistent growth. In Q1 2016 mortgages that widened by 6.1% to RUB 38.1 billion amid moderated credit rates were its main driver. Their share in the total retail loan portfolio was 69.6%. Consumer loans stayed intact at the year-start level of RUB 14.7 billion, while bank card loans added 2.4% to RUB 2.0 billion.

NPLs share in the total loan book decreased by 174 bps to 9.77% over Q1 2016. The bank managed to reach such a visible decline due to several large and medium-size loans repayments, cession deals concluded in relation to some corporate loans and efforts of the Problem Assets Department established in 2015 for effective management of troubled assets. Amount of 1day+ NPLs and not past-due but impaired loans decreased by 12.5% to RUB 17.5 billion. 90 days+ NPLs diminished as well by 4.3% down over the quarter to RUB 13.5 billion, accounting for 7.5% of the total loan book.

Retail NPLs grew by 94 bps to 5.6% with technical delays in repayments for less than 90 days being the main reason of such growth. 90 days+ NPLs in the segment came in at 2.6%.

NPL coverage for 1day+ NPLs rose by 9.8 pps to 89.6% and for 90 days+ NPLs grew by 3.1 pps to 115,9%.

Cost-of-risk diminished to 2.1% for Q1 2016 due to a relative stabilisation of the credit quality. The banks charged 57.3% less funds to provisions versus the previous quarter, i.e. RUB 910 million.

Liabilities remained almost at the year-start level with a 0.9% decrease. Thereat, customer accounts rose 3.0% to RUB 174.7 billion but those positive dynamics were offset by 29.3% shrunk of funds from other banks to RUB 14.0 billion resulting from partial repayment of loans raised from the Bank of Russia at the end of the year.

Expansion in the bank’s customer funding was supported by the recovery of corporate deposits (+10.9%) and current accounts (+17.9%). Retail deposits were 2.5% up YtD to RUB 125.8 billion, while that inflow was partially offset by FX revaluation (FX revaluation effect equaled around RUB 1.6 billion). Card accounts balances fell by 22.5% in Q1 2016 influenced by a seasonality factor. Current accounts accounted for 25.7% of customer funds.

A small decline in the bank’s IFRS equity by 1.3% over the reporting period to RUB 21.9 billion resulted from a loss incurred in Q1 2016.

N1.1 norm was equal to 7.9% as of March 31, 2016 (8.3% as of January 1, 2016) while the minimum set level is 4.5% and N1.0 norm was equal to 12.2% (13.0% as of January 1, 2016) while the minimum set level is 8%.

Some decrease in regulatory norms was due to RWA widening (+3.0% over the quarter to RUB 222.3 billion) and Basel III capital reduction by 3.2% to RUB 27.1 billion.

In Q1 2016 the bank’s interest income grew by 4.3% on the back of the loan book widening. Interest expense growth by 10.3% over the quarter resulted from the inflow of RUB deposits that gradually replaced FX savings and higher costs of funds from other banks. Thus net interest income of the bank went down by 4.4% QoQ to RUB 2.2 billion.

Net interest spread shrank by 53 bps to 5.9% over the reporting quarter due to increased funding costs (+39 bps to 7.6%). Yields on loans and cost of retail and corporate deposits moderated reflecting general market trends. Apart from the mentioned factors, NIM decrease by 36 bps to 4.0% was reasoned by average assets growth after a strong positive base effect in Q4 2015.

Q1 2016 net fee and commission income decreased by 2.1% QoQ due to weaker income from cash (-17.1%) and bank cards operations (-13.1%) amid declining general commissions level and tough competition in the segment. At the same time fees from settlement products, which the bank targets to expand, delivered 22.6% growth QoQ.

The share of net fees and commissions in the operating income before provisions continued to expand reaching 29.4% in Q1 2016. Total non-interest income declined by 5.4% during the quarter to RUB 1.1 billion accounting for 32.2% of the total operating income before provisions.

Operating expenses grew by 3% over the quarter to RUB 2.2 billion. Q1 2016 personnel costs returned to the level of RUB 1.4 billion that was close to the average staff expenses of the previous periods. In Q4 2015 such low personnel costs were reasoned by a recovery of earlier accrued but not actually paid bonuses as well as by a headcount reduction. Moreover, severance pays to employees leaving the bank in the course of continuing reduction of staff (-5.5% in Q1 2016 to 5,109 employees) also fell to Q1 2016.

Administrative expenses (-44.9% QoQ to RUB 270 million), expenses on deposit insurance and taxes other than income tax (-25.2% QoQ to RUB 166 million) and other expenses on premises and equipment (-25.2% QoQ to RUB 344 million) moderated after a seasonal spike in the year-end, reflecting the bank’s efforts on costs optimisation.

Q1 2016 сost-to-income ratio rose by 5.1 pps to 67.6% due to outpacing decrease of operating income versus the growth of operating expenses. In the coming periods the bank expects to reach sufficient progress in cost efficiency on the back of the synergy with the group in terms of the back-office functions and IT centralisation, as well as from the development of product offers in transaction banking

Pre-provision operating profit fell by 17.7% over the quarter to RUB 1.1 billion in view of a decrease in interest and fees & commission income. The result was also adversely affected by expenses arisen with the initial assets recognition at rates below the market in the amount of RUB 0.52 billion.

In Q1 2016 the bank managed to reduce the level of losses to RUB 269 million compared to Q4 2015 net loss of RUB 1.24 billion due to relatively lower level of charges to provisions on loan book impairment.

Vozrozhdenie Bank will publish its 3M 2016 IFRS results and hold a conference call for investors on May 26
Vozrozhdenie Bank holds the annual General Meeting of Shareholders