22 May 2012
Today Bank Vozrozhdenie reported Q1 2012 IFRS Results with the following highlights:
- Net income reached RUB 526 million (up 65.9% compared with Q1 2011)
- Assets grew by 4.9% over the year to RUB 183 billion
- Operating income was up 38.8% compared to Q1 2011 and amounted to RUB 3,044 million.
- Return on average equity (ROE) reached 11.2% versus 7.5% in Q1 2011.
“The reporting quarter was pretty successful for the bank despite seasonal recession in business activity across the whole system. Steady loan portfolio growth together with stable level of interest income contributed to further improvement in operating profit. Return on equity continues to expand and in Q1 2012 it reached 11.2%. We put special emphasis on operating efficiency and started to implement new approaches while tightly controlling expenses — in the first quarter we have managed to maintain administrative expenses at the level of Q1 2011 and reduce cost-to-income ratio to 60%” — commented Dmitry Orlov, the Chairman of the Management Board. “Funds attracted at the yearend started to earn revenues — we increased securities portfolio and loans to our core clients’ mostly in Moscow Oblast, our key region of presence. Thus, retail loans traditionally grew on the back of mortgages while loans to SMEs became the main driver of corporate segment pick-up”, — Mr. Orlov added.
Assets rose by 4.9% in comparison with Q1 2011 and reached RUB 183.1 billion ($6.3 billion) mostly due to 14.1% growth of the net loan portfolio. Though total assets remained at a level of the end of 2011, in Q1 2012 their structure shifted towards interest-earning instruments. Loans to customers and securities portfolio were growing at the expense of cash and equivalents reduction by RUB 11 billion bringing share of interest-earning assets to 79% versus 73% as of the end of 2011.
The bank is still mostly funded by clients’ funds which account for 87% of total liabilities. As of March 31, 2012 customer funds rose by 4.5% to RUB 143 billion from the previous year mostly on the back of inflow of retail funds totaling RUB 89.6 billion. Retail deposits of RUB 72 billion in clients’ funds remained at the same level in Q1 2012 whereas balances on card accounts insignificantly fell to RUB 17.6 billion due to seasonal factors conditioned by outflow of funds after aggressive yearend inflow. Nevertheless share of current accounts remains high at 34% reducing pressure on the bank’s cost of funding.
Despite maintained pressure on liquidity in the Russian banking system which evoked in the second half of the previous year, a share of bank’s liquid assets remained at a comfortable level of 22.1%. Loan before provisions to deposit ratio grew to 100.7% versus 94.6% QoQ supporting optimal balance sheet structure.
Shareholders’ equity grew 10.6% throughout the year to RUB 19 billion ($649 million) as of March 31, 2012 mostly due to earned profit. Tier 1 capital adequacy ratio and total CAR were on a comfortable levels of 11.8% and 13.4% respectively. Slight decrease of the ratios in Q1 2012 from the yearend levels of 11.9% and 13.8% were driven by business expansion and risk weighted assets increase by 4.25% to RUB 160 billion on the back of loan and securities portfolios growth.
Securities portfolio of the bank (trading and investment portfolio) amounted to RUB 13.7 billion ($468 million) compared to RUB 8.7 billion of the previous quarter. Debt securities of Russian corporations with quasi-sovereign risk as well as securities of Federal and regional government bodies represent the major share of the bank’s securities portfolio. Corporate bonds and Eurobonds accounted for 83.5% of securities portfolio as of the end of the quarter, whereas bonds of federal and regional state authorities — 16.3%.
Loan portfolio before provisions rose by 14% YoY to RUB 144 billion. Quarterly growth of the bank’s loan portfolio was 4.8% surpassing the Russian banking sector growth of 1.5%. Corporate loan portfolio increased by 4.5% mainly in second half of the quarter to RUB 118 billion as of March 31, 2012 mostly driven by expansion of lending to SMEs by 4.9% during the quarter to RUB 73.6 billion. SME’s remain core clients’ segment for the bank accounting for 51% of the total portfolio. The Bank managed to strengthen its position in Moscow Oblast — loans provided in this region grew by 10.8% to RUB 59 billion, exceeding sector that added up just 6.6% in Moscow Oblast.
The Bank’s loan portfolio remains well diversified across industries with largest shares in manufacturing (28%) and wholesale and retail trade (23%). Retail loan portfolio amounted to RUB 25.9 billion up 48.3% versus similar period of the previous year and 4.6% sector growth. Retail lending development with focus on mortgages remains one of our priorities — share of retail lending in total portfolio grew to 18% compared to 14% as of March 31, 2011. In Q1 2012 6.9% growth of retail loans was mostly driven by mortgages which rose 10.3% due to participation in mortgage programs in core regions of the bank’s presence. Thus, mortgage portfolio reached RUB 17.0 billion and accounted for 65% of the retail portfolio. Total portfolio of consumer, car and bank card loans amounted to RUB 8.9 billion remaining at the level of the previous quarter.
NPL ratio was 8.68% in accordance with Q1 2012 results versus 8.78% in the comparable quarter of the previous year. Impairment of the significant corporate loan at the beginning of 2012 became the main reason of NPL’s growth in absolute terms to RUB 12.5 billion. At the same time provisions on possible loan losses grew 15.5% compared with the similar period of the previous year and amounted to RUB 13.3 billion. Bank’s NPLs are fully covered by provisions: total NPL coverage ratio, including impaired and more than 1 day overdue was 106.7%, 30 day + overdue — 140% and over 90 day overdue — 146%. In Q1 2012 charges to provisions on possible losses on loans amounted to RUB 358 million or 1.02% of total loan portfolio before provisions.
Net interest income increased by 57.6% compared to Q1 2011 and reached RUB 2.15 billion, reflecting interest income growth by 19.8% coupled with 9.1% decrease in interest expenses. In Q1 2012 interest income grew 2.0% versus the previous quarter to RUB 3.8 billion driven by lending expansion and higher lending rates. The fact that major growth fell on the second half of the quarter restrained indicator’s growth. After hitting the bottom at the end of 2011 cost of funding grew 28 b.p. to 3.97% in Q1 2012 reflecting growing deposit rates across the system, still remaining at a comfortably low level. Thus, reduction of net interest income by 2.9% QoQ was conditioned by growth of interest expenses which added up 9.4% for the quarter and reached RUB 1.6 billion. Nevertheless, share of interest earning assets grew during the quarter on the back of loan and securities portfolios growth with a stable balance sheet. Yields on interest earning assets increased by 10 b.p. in Q1 2012 to 9.9%.
Net interest margin reached 4.7% for Q1 2012 significantly exceeding 3.2% level of the previous year. The slight reduction by 22 b.p. in comparison with Q4 2011 was caused by outpacing growth of interest expenses.
Non-interest income reached RUB 1.3 billion in Q1 2012 up 6.6% compared with the similar period of the previous year mostly due to commission income growth by 11.9% which was attributable to extension of settlements(+13.2%), cash operations (+10.6%) and bank cards operations (+11.3%). The indicator dropped by 19.2% QoQ due to seasonally weak business activity at the beginning of the year coupled with long national holidays. The main constituent of the indicator, net commission income, diminished by 17.7% during the quarter and amounted to RUB 1.1 billion. Non-interest income accounted for 37% of total operating income before provisions in the reposting period.
Operating expenses decreased by 15.1% during the quarter to RUB 2.0 billion, and all constituents of the indicator demonstrated significant reduction. Strict cost control contributed to maintaining administrative expenses at the level of Q1 2011, while they declined by 24.9% in comparison to the previous quarter. Reduction of the share of non-personnel expenses from 41% in Q1 2011 to 38% in the reporting period indicates improvement of operating efficiency. Thus cost-to-income ratio was 60% versus 70.8% in the previous year.
Profit before tax amounted to RUB 689 million in Q1 2012, or 74% higher than in the similar quarter of the previous year. The effective tax rate was 24%. Thus, stable growth of net profit continued during the reporting period bringing it to RUB 526 million, up 11.7% QoQ. ROE also continued to rebound reaching 11.2% in Q1 2012 versus 7.5% in the comparable quarter of the previous year.