18 August 2011
Bank Vozrozhdenie (VZRZ) published today its H1 2011 Financial Statements in accordance with International Financial Reporting Standards with the following key figures:
- Net Income: Rub 712 million (up 3.3 times YoY)
- Assets: Rub 174 billion (up 19% YoY)
- Operating income before provisions: Rub 4,778 million (up 44% YoY)
- Net interest margin grew by 106 bps QoQ to 4.3% in Q2 2011
- Return on Equity (ROE): 9.1% in Q2 2010
In the second quarter the bank managed to achieve strong operating results across all business lines. Despite low rates environment in the banking system we demonstrated long-awaited growth of net interest income due to both funding cost optimization and active growth of the loan portfolio in the most profitable segments", — commented Dmitry Orlov, Chairman of the bank’s Management board.
“As loan demand recovers we are heading towards the target structure of the loan portfolio — retail lending rapidly gains momentum largely driven by mortgages as a flagship banking product, while SME lending have become the driving force of the overall loan book growth in this quarter. Steady growth of fees and commissions on the back of active client’s transactions provides stable operating revenue”, — added Mr. Orlov.
Assets grew by 19% YoY to Rub 174 billion (USD 6 billion). Though total assets remained at stable level during the quarter, the structure of assets has changed —interest earning assets grew by Rub 3.3 billion (2.5%) to Rub 135.2 billion, and loan to deposit ratio reached 98%, up by 603 bps QoQ. Nevertheless balance sheet liquidity remained solid with 24% share of liquid assets as of June 30, 2011. Traditionally customer funds accounting for 86% of total liabilities have been core funding source of the bank. Already starting from the beginning of the year overall inflow of customer deposits has cooled down a bit and low interest rates and high inflation in Q1 contributed to loan expansion and consumption. Overall retail funds grew by 1.3% in Q2 2011 to Rub 85.8 billion mainly owing to 12.6% increase in balances on debit cards while corporate and retail term deposits contracted by 3.8% and 1.1% respectively. Current accounts that are almost interest free funding source for the bank accounted for 34% of total client’s funds.
Shareholder’s equity rose by 2.3% for the quarter to Rub 17.6 billion ($ 626 million) largely due to capitalization of retained earnings of the bank. Risk-weighted assets grew by 4.3% over the quarter to Rub 148.5 billion that reflects growing share of loans in total assets. Nonetheless capital adequacy ratios remained in comfortable band exceeding regulatory requirements: total CAR was 13.6% while tier-1 adequacy ratio stood at 11.8%.
Loan portfolio before provisions grew by Rub 6.7 billion QoQ (5.3%) to Rub 132.7 billion ($4.7 bln). Key driver of corporate loan book growth in Q2 was lending to SMEs, core client segment of the bank, which demonstrated robust growth by 9.3% or Rub 6.1 billion QoQ to Rub 72 billion. On the background of tough pricing competition with state banks in lending to regional authorities loans issued to such customers contracted by 35% to Rub 5.5 billion. By the end of the first half of 2011 corporate loan book reached Rub 112.6 billion, up by Rub 4.0 billion QoQ (3.7%) while the share of SME-loans stood at 63.9%. Corporate loan book remained well-diversified by economic sectors with the largest part of loans issued to manufacturing and trading companies (29.8% and 28% respectively).
Strong growth of retail loan book was mainly driven by rejuvenation of mortgage lending which rose by 15.2% to Rub 12.1 billion and accounted for 60% of total retail loan book as of June 30, 2011.
Overall structure of loan portfolio has changed in favor of high-yielding loans: share of retail and SME loans expanded to 15.2% and 54.2% from 13.9% and 52.3% respectively.
Security portfolio amounted to Rub 14 billion ($506 million), down by 15.8% QoQ. Trade securities portfolio mainly consists of debt securities with investment grade and short maturity. Most of them were represented by fixed-income securities of Russian federal and regional government bodies and companies with quasi-sovereign risk. The breakdown of the securities portfolio as of June 30, 2011 was as follows: 36.3% — Central Bank of Russia bonds and Eurobonds, 38.4% — corporate bonds and Eurobonds and 19.6%- Federal and Regional Government’s bonds. Portfolio does not contain securities issued by euro zone countries.
NPL ratio declined from 8.78% a quarter ago to 8.31% as of June 30, 2011. In absolute numbers non-performing loans amounted to Rub 11 billion. Charges to provisions in Q2 added up to Rub 0.6 billion which is Rub 0.2 billion more than in the previous quarter. As a result total cost of risk in H1 2011 stood at 1.5%. Thus total coverage ratio was 109%, while for loans past due for more than 30 days it was 136% and 142% for more than 90 days past due with total provisions of Rub 12.1 billion.
Net interest income demonstrated significant growth by 36% to Rub 1 857 million in Q2 2011. Lending expansion in retail and SME segments coupled with continued reduction of funding costs allowed the bank to increase net interest income rapidly even in the environment of steady rates that remained low during the most part of the reporting period. Thus in Q2 the bank managed to earn Rub 3 528 million that is 12% higher than in Q1 while average yields of earning assets reached 10.6%, up 74bps in comparison with the previous quarter. Interest expenses decline by 6% to Rub 1 671 million allowed the bank to reduce average cost of funding to 4.3% in Q2 2011. As a result net interest spread expanded to 6.3% in Q2, up 113 bps as compared with the previous quarter. Net interest income grew by 106 bps in comparison with Q1 2011 to 4.3% — the highest level since the end of 2009.
Non-interest income in 1H 2011 grew by 26% as compared to the same period of the previous year and amounted to Rub 2 483 million. Rejuvenation of economic activity in the second quarter provided growth of almost every kind of fee-generating banking products: cash transaction fees grew by 27%, fees for settlements by 18%, fees for bank cards transaction and payrolls increased by 14% each while cash collection and currency transactions showed 17% and 25% growth respectively. Thus, even taking into consideration strengthened interest income, share of non-interest income in total operating income before provisions remained on solid level of 41%.
Operating expenses amounted to Rub 2 091 mln in Q2, up by 16.3% during the quarter largely due to personnel expenses growth driven by accrued employee bonuses to be paid at yearend. As a result the share of personnel expenses in total operating expenses increased from 59% in Q1 to 61% in the second quarter. Thus cost to income ratio declined by 475 bps from to 66.1% in Q2 due to superior growth of operating income.
Net profit in Q2 amounted to Rub 395 million, up 25% in comparison with the previous quarter. In the first half of 2011 net profit exceeded the results of the first half of the previous year 3.3 times. Effective tax rate for the reporting period remained at 20%.