Vozrozhdenie Bank earned net profit of Rub 0.5 billion for 6M 2016 under IFRS

24 August 2016

  • Vozrozhdenie Bank earned net profit of Rub 0.5 billion for 6M 2016
  • Customer funds grew by 9.1% to Rub 185.0 billion YtD
  • Operating expenses decreased by 9.3% QoQ to Rub 2.0 billion
  • Cost-to-income ratio touched a new low of 45.4% in Q2 2016
  • ROE was 14.0% for Q2 2016

“During the second quarter we succeeded in generating a solid inflow of customer resources. Good interest risk management let us lower cost of funding and strengthen net interest margin. The bank’s significant progress on cost-cutting resulted in a decrease of cost-to-income ratio to 54.8% for six months of 2016, half-way to our mid-term target of 50%,” commented Andrey Shalimov, Deputy Chairman of the Management Board at V.Bank.

The assets of the bank remained almost at the level of the year-start (-0.4%) and totaled Rub 223.0 billion as of June 30, 2016. As of the end of the quarter the interest-earning assets stayed at the proportion of 81%.

Liquid assets share returned to 21% as it was at the beginning of 2016, but the bank succeeded in improving the proportion of interest-earning assets during the quarter; cash & cash equivalents grew by only 2% QoQ to Rub 28.0 billion, due from banks — by 3.5 times to Rub 3.5 billion and securities portfolio increased by 10% to Rub 16.6 billion.

As a result of deposits growing faster than loans, the loan-to-deposit ratio decreased to 96%.

During Q2, 2016 gross loans decreased by 1.1% to Rub 177.0 billion as tougher risk-metrics implementation led to a reduction in corporate loans (-3.0% QoQ). On the contrary, the retail loan book grew by 3.4% during the last 3 months with good interest in mortgages.

Large corporates’ loan book diminished by Rub 0.2 billion (-0.4%) during the quarter and totaled Rub 51.0 billion due to the redemption of loans by some significant borrowers. Meanwhile, the bank issued loans to several new big customers. SME lending decreased by 3.3% to Rub 61.0 billion as a result of loans repayment. SME segment share was 50.7% of the corporate loan book. The trend in the reduction of loans to local administrations persisted for another quarter decreasing by 15.1% QoQ (-6.9% during Q1 2016) to Rub 8.4 billion as of the reporting date.

Retail loan book increased by Rub 1.9 billion to Rub 56.7 billion as of June 30, 2016. The retail segment share grew to 32.0% of the total loan book from 30.4% as of the year-start. Mortgages continued to be the main driver of the retail lending growth adding 3.9% QoQ to Rub 39.6 billion. The major part of new mortgages was issued under the state-subsidy program. Consumer loans also grew by 2.9% to Rub 14.9 billion during the last 3 months, while credit cards loans and car loans decreased by 1.5% and 9.9% respectively to Rub 2.0 and 0.14 billion.

NPLs share grew by 2.1 pp during Q2 2016 to 11.85% of the total loans mainly due to some SME loans impairment. In the large corporates segment NPLs share was 13.5% (12.8% as of March 31, 2016). Impaired loans to SMEs rose by Rub 3.2 billion moving NPLs share in SME portfolio up by 4.7 p.p. to 15.5%. As a whole, the total amount of corporate impaired loans including 1day+ overdue loans and impaired but not-overdue loans increased by RUB 3.5 billion QoQ to Rub 21.0 billion.

The retail NPLs share grew by 0.4 pp. during the quarter to 6.0% mainly due to the increase of Rub 141 million in the loans overdue by less than 90 days. 90days+ overdue loans in the retail segment added Rub 188 million QoQ and totalled 2.8% of the total retail loan book.

The ratio of 1day+ overdue and not-overdue but impaired loans coverage diminished by 8.4 p.p. to 81.2%. The coverage ratio for 90days+ overdue loans improved by 7.7 p.p. and was 123.6% as of the reporting date.

Q2 2016 cost-of-risk was 3.2%. In the second quarter the bank charged Rub 1.4 billion to provisions, 54.3% more than during the previous quarter. New provisions were primarily in the SME sector.

Liabilities stayed almost unchanged compared to the beginning of 2016 and equalled to Rub 200.9 billion, 0.4% below their volume as of December 31, 2015. Increase in the customer funds of 5.9% to Rub 185.0 billion resulted in liabilities’ QoQ growth of Rub 1.0 billion (+0.5%). The inflow of clients’ resources during the last 3 months allowed the bank to fully repay the Bank of Russia loans raised in late 2015 and to reduce due to banks amount by 63.7% to Rub 5.1 billion.

The bank enjoyed faster than sector growth in customer funds for the third quarter in a row notwithstanding the continuing market trend to lower interest rates. It was supported by increase in both corporate and retail customer funds. Corporate funding added 18.8% since the year-beginning to Rub 50.4 billion (compared to a decrease of 3.9% for the banking sector, as per the Bank of Russia data), while retail funding grew by 5.8% YtD to Rub 134.6 billion (compared to a decrease of 0.7% for the sector).

Term deposits of more than 12M maturity experienced the most rapid growth of retail funding components (+59.0% during 6M 2016 to Rub 44.5 billion). Term deposits of 6-12M maturity also added +27.3% during 6M 2016. After a seasonal drop in Q1 2016 debit card balances recovered to Rub 16.1 billion, +13.8% QoQ.

Corporate clients’ resources also showed positive momentum both on transaction accounts (+22.7% during 6M 2016, +4.1% during Q2 2016) and on term deposits (+12.6% during 6M 2016, +1.5% during Q2 2016).

The bank’s equity under IFRS almost returned to the level of the start of 2016 due to retained earnings and totalled Rub 22.1 billion (+1.0% QoQ, −0.3% YtD).

Common equity Tier 1 capital adequacy (N1.1 norm) calculated as per Basel III declined by 0.16 p.p. since January 1, 2016 to 8.1% as of June 30, 2016 while the minimum acceptable level is set at 4.5%. Total regulatory capital adequacy ratio (N1.0 norm) was down by 0.48 p.p. during the same period to 12.5%, while the minimum acceptable level is set at 8%. That decrease was the result of two factors: RWA increasing by 3.0% YtD to Rub 222.3 billion and a capital slight contraction of 0.2% to Rub 27.8 billion.

Q2 2016 interest income was quite close to the results of the previous quarter and equalled Rub 6.1 billion notwithstanding the decline in the loan book. The bank successfully reversed the trend of interest expenses growth, which had persisted over previous quarters, and interest expenses went down by 3.9% during the reporting quarter to Rub 3.6 billion. Reduction of interbank funding expenses was one of the main reasons for that decrease. In addition, notwithstanding the significant inflow of individuals’ deposits interest expenses paid for them diminished by Rub 47 million (-1.7%) to Rub 2.6 billion as a result of the general market downward trend of retail interest rates.

Consequently, for the first time during the last 12 months net interest income grew by 8.6% QoQ to Rub 2.4 billion.

A significant decrease in the cost of funds by 28 b.p. to 7.32% and a slight growth of the yields on interest-earning assets caused interest spread to widen by 31 b.p. QoQ to 6.20%. NIM improved during the same period by 35 b.p. to 4.36% reflecting NII growth and a minor reduction of average assets.

In Q2 2016 the bank’s continuing efforts to improve fee-generating products increased net fees & commissions by 8.0% QoQ: transaction fees grew by 6.4%, cash operations fees by 14.1%, bank cards fees by 8.9%.

During the quarter the bank received Rub 750 million from the sale of non-core assets, a significant contribution to the increase of the total non-interest income. As a result, non-interest income for Q2 2016 reached Rub 2.0 billion (+91% versus Q1 2016) and represented 45.5% of the total operating income before provisions.

Operating expenses dropped in the last quarter by 9.3% to Rub 2.0 billion as staff costs decreased by 22.0% to Rub 1.1 billion. Continuing headcount reduction (-5.4% per Q2 2016 to 4,833 employees) contributed to the lower expenses.

Q2 2016 cost-to-income ratio touched a new low of 45.4% (-22.2 pp QoQ) in part due to non-recurrent income and staff cost contraction. 6M 2016 cost-to-income ratio declined by 5.5 pp compared to the same period of 2015 and was 54.8%.

Operating profit before provisions more than doubled QoQ and reached Rub 2.4 billion reflecting the improvement of all its components. 6M 2016 operating profit before provisions totaled Rub 3.5 billion, an increase of 12.0% versus the result of 6M 2015 (Rub 3.1 billion).

The bank earned net profit of Rub 0.5 billion for 6M 2016 compared to a net loss of Rub 0.6 billion for the same period of 2015. Such improvement was caused mainly by a cost-of-risk decline and net fees & commissions growth.

For the first time in the last year and a half the bank’s ROE turned positive and was 14.0% for Q2 2016. ROA for the same period reached 1.39%.

Vozrozhdenie Bank will publish its H1 2016 IFRS results and hold a conference call for investors on August 24
Standard & Poor’s positively assessed sustainability of V.Bank business profile