28 August 2008
Vozrozhdenie Bank (VZRZ) reports six months 2008 IFRS results:
- Net Income of 1,559 million rubles ($66 million), up 131%
- Return on Equity (ROE) at 24.7% above 2007 average of 21%
- Earning per share increased to 62 rubles from 32 in same period in 2007
- Assets grew by 43% with strong liquidity position maintained
- $50 million long-term Subordinated Loan received from international development banks
“In spite of continuing difficulties in the international financial area, our domestically oriented strategy based on strong relationships within local regional markets continues to produce improving financial results,” said Tatiana Gavrilkina, Deputy Chairwoman and CFO of the Bank. “Our first half results improved in all significant areas of the bank’s operations; improving credit portfolio risks, stronger capital and liquidity, increased revenues and lower growth of expenses. We have been able to continue our core strategy of focusing on good customer relationships.”
On July 31 the Bank received $50 million under a subordinated loan agreement for 10 years, although Vozrozhdenie has the option of early repayment after 5 years. The Central Bank has approved this as apart of the bank’s capital and thus providing a greater base for continued strong growth in support of our customers borrowing needs, without the need for more equity in the near future. “We have maintained our liquidity position at a high level,” said Andrei Shalimov, Treasurer, “as we do not see an early end to uncertainty in the financial markets. There has not been a significant effect within Russia and we feel confident in our continued ability to grow our domestic funding base.” The bank’s loan to deposit ratio remained at a conservative 93%; i.e., loans are more than covered by customers’ funds on deposit, rather than from capital market sources.
Assets increased by 43% to 132.3 billion rubles ($5.6 billion) during the year. The growth in the Bank’s assets was funded primarily by growth in customers’ funds on deposit and in their transaction accounts. The loan to deposit ratio at the end of the quarter was a very conservative 93% and the Bank retained a significant proportion of liquid assets mainly in cash and in Russian government securities. Liquidity balances increased by 113% from a year ago to equal more than 26% of the total balance sheet.
Equity increased by 126% to 13.4 billion rubles ($573 million). The Bank’s Tier 1 capital adequacy was 12.0% and combined Tier 1 and 2 was 14.4%. The new subordinated loan will be reflected in third quarter results, but will add about 1% to our tier 1&2 ratio.
Loans to customers increased by 32% comparing to same period of the previous year to 93.5 billion rubles ($3.98 billion), although loan growth in the last two quarters was slower as liquidity was emphasized. Retail lending programs make up 19% of the loan portfolio, with mortgages being half of the retail loan portfolio, with very good credit experience. The Bank’s support of commercial enterprises provides 81% of the total loan portfolio and is well distributed by sector and geography.
Loan portfolio quality has improved; the portion of past due loans has declined to 2.3% from 2.6% at the end of the year. Overdue loans are tightly controlled and include all retail or commercial loans more than one day past due. The proportion of impaired loans, on which some loss of principal might be expected, is only 0.7%. The provision for possible losses compared to the total loan portfolio was at a prudent 3.3%, 3.2 billion rubles.
Net Interest Income increased 48% to 3.6 billion rubles as spreads widened. Rates on both loans and deposits have increased in the last six months due to tighter liquidity in the banking system although there is a more rapid effect on loan yields as deposit costs change only as deposits are rolled over at maturity. As well corporate time deposits, generally of shorter term and lower interest rates have provided a greater portion of funding. About 70% of all retail time deposits are reinvested when they mature providing a solid funding base. Approximately 40% of all customer funds are held in non-interest bearing current accounts which significantly supports interest earnings.
Non-interest income grew 38% to 1.2 billion rubles. The trends of retail transactions in branches, bank card operations, payrolls services and corporate payment transactions are all strong. Non-interest income contributed 38% of operating income.
Operating expenses were up 30%, to 3.35 billion rubles, significantly slower than the growth in assets and less than the growth in revenues. We continued to make some rationalization in our branch network and opened 6 new sales outlets while closing uneconomic 3 units. The delivery network added 51 new ATMs in order to make services more accessible to SME and individual clients. Our technology implementation to support present and future expansion continues as planned. The Bank has 6.260 employees, a 12.6% increase from the previous year, with the largest effect being from the last year network expansion.
Pre-tax income in the second quarter increased 130% to 2,044 million rubles. Profits after tax increased 131% to 1,559 million from 676 million in the same period last year. In dollar terms the increase was 152% to $66.0 million.
The Bank’s full IFSR report is available at: http://www.vbank.ru/en/reports/statements_2/ifrs_interim_2/.
Vozrozhdenie Bank, a community bank for companies and individuals, was founded in 1991. (General License from the Central Bank of the Russian Federation # 1439, March 24, 2003.) Among the Top 30 Russian Banks in the Central Banks rating, its network includes 172 offices and over 600 ATMs in 20 regions of Russia. The Bank provides more than 1,150,000 individual and 49,000 corporate clients with a range of services, from savings accounts, payment handling, payroll management, to mortgages, bank cards and business and consumer loans.