27 March 2013
Bank Vozrozhdenie (Moscow Stock Exchange: VZRZ) reported 2012 IFRS financial results today:
- Net income of Rub 2.3 billion ($77 million) grew 1.5 times compared to 2011
- Assets reached Rub 209.1 billion ($6.9 billion) up 14% from the previous year
- Operating profit before provisions grew YoY by 15% to Rub 14.8 billion ($487 million)
- Return On Equity (ROE) increased to 11.9% exceeding 10% for the first time since 2008
“In 2012, notwithstanding the deterioration of the real economy growth trends and consumer demand decline the bank managed to achieve stable growth. We improved our positions in the key market segments — SME and retail banking — enhancing lending to our clients on the basis of stable inflow of customers’ funds. In order to ensure balanced growth on both assets and liabilities side the bank pursued moderate deposit pricing policy that positively contributed to operating income progress. During the year we succeeded in active cost management and maintained expenses at the same level as in the 2011 improving the bank’s cost efficiency,” said Alexander Dolgopolov, the Chairman of the Management Board, about the financial statements. “In 2013, amid modest economic growth we’ll keep an eye on the credit portfolio quality dynamics and continue adding up provisions at the adequate level. The bank will move forward in development of operating model optimization project. On top of it we expect a tangible effect from remote channels of banking products sale becoming popular among clients, particularly mobile banking,” commented Mr. Dolgopolov.
Assets of the bank grew by 14% during the past twelve months to Rub 209.1 billion as of December 31, 2012. Liquid assets and net loan portfolio were the main driving force rising by Rub 6.5 billion and Rub 17.3 billion respectively (+14% both). Stable inflow of corporate and retail customers’ funds elevating by 13% over the year to Rub 163.9 billion supported the funding base enhancement. The growth intensified in Q4 driven by liquidity improvement in the banking system and seasonal top-up of current accounts balances. Retail deposits peaked twice — in Q2 and Q4 2012 — resulting from interest rates increase at the end of Q1 and getting annual bonuses by individuals respectively. At the year-end retail term deposits totaled Rub 81.0 billion (+3.6% QoQ, +12.3% YoY). Amid the modest loan growth the loan-to-deposit ratio stayed at 95.4% as of the end of 2012 preserving the base for the future business expansion.
Equity of Bank Vozrozhdenie was up 12.7% to Rub 20.8 billion ($ 685 million) versus 2011 by retaining earnings. Capital adequacy ratio stood at 14.9% while Tier 1 CAR was equal to 12.3% comparing to 13.8% and 11.9% respectively in 2011. In 2012, the Bank raised 2 tranches of
Loan portfolio before provisions rose 13.8% in 2012 to Rub 156.4 billion ($ 5.1 billion) due to the corporate loan book expansion by 9.3% and climb in retail lending (+34.8% over 2012). Growing macroeconomic concerns, in particular owing to Russia’s joining WTO made SMEs to reduce their loan demand in the second half of the year. Thus large corporate loans became the main contributor to the growth of the corporate loan book. Its sectoral structure remained stable in the past twelve months with largest segments related to manufacturing (28%) including food industry, machinery construction, metals, chemicals etc. and wholesale and retail trade (23%). The bank’s core client base of SMEs comprises 63% of corporate loans. In 2012 the bank experienced gradual expansion of retail lending with the peak of growth in Q3 resulting from a new mortgage program launch that drew particular interest of our retail clients. By the end of 2012 loans to individuals made up 21% of the total loan portfolio. In total the retail loan book was up 34.8% in 2012 driven by significant boost in mortgage lending which added 44.5% over the year to Rub 22.3 billion. Consumer loans dynamics remained positive (+27.1%) as well bringing them to Rub 8.1 billion by the end of the reporting period.
Securities portfolio stayed almost unchanged over the past year and amounted to Rub 8.4 billion ($275 million) as of the end of 2012. Historically the bank used to treat trading securities portfolio as a liquidity management tool so it includes primarily debt securities with investment ratings and short maturities. Substantial part of trading securities (Rub 5.4 billion) was repaid in Q4 2012 resulting in reduction of the portfolio adjusted for new investments by Rub 2.1 billion (27%) over the quarter. As of December 31, 2012, the bank’s securities portfolio comprised corporate bonds and Eurobonds (78.8%) and federal and municipal bonds (15.3%).
NPL ratio was up 130 bps to 9.0% of the total loan book or Rub 14.1 billion. Significant rise of NPLs in the course of the year was caused by the impairment of one large corporate group exposure amounted to Rub 3.7 billion. In medium enterprises segment NPL ratio remained virtually the same at 9.3% (versus 9.8% at the end of 2011) and in small enterprises segment NPL ratio was 1.8% down during the reporting period. Retail segment also enjoyed some improvement of the loan book quality. Non-performing mortgages stayed at 1.7% in 2012 and consumer NPL ratio cooled down to 4.8%. However, anticipating economic growth slowdown and the global vulnerable environment Bank Vozrozhdenie continues adding up provisions for loan impairment. In 2012 cost of risk was equal to 1.8% which looks reasonable to keep for the current year as well. Total provisions for loan impairment totaled Rub 14.7 billion ensuring coverage of NPLs 1 day+ overdue of 104.0% and NPLs 90 days+ overdue of 107.0%.
Net interest income elevated by 21% to Rub 9.1 billion in 2012 due to accelerating pace of interest income growth. Both loans’ and deposits’ rates kept surging throughout the year due to persisted liquidity shortage. However, the Bank pursued balanced interest rates policy and managed to restrain growth of funding costs to 4.4% versus 4.2% in 2011. Yields on earning assets that were repriced faster than deposits advanced 88 bps to 11.3% in 2012. A drop of funding costs by 4 bps in Q4 2012 on the back of expiration of a number of corporate deposits along with improved yields on retail and corporate loans contributed to rebound of net interest margin by 10 bps to 4.7% for the quarter. On the annual basis net interest margin expanded by 46 bps for to 4.7% while net spread added up 60 bps to 6.8%.
Fees and commissions reached Rub 5.5 billion for 2012, up 5.2% for the year contributed by commissions on settlements (+7.7% for the year) and bank cards operations (+7.4% for the year). In Q4 2012, net fee income was generated at the level of Q3 2012 in the environment of relatively low business activity despite traditional seasonal trends. Growth of fee and commission expenses in Q4 2012 by Rub 46 billion resulted mainly from non-recurrent commission associated with the 2nd securitization deal. Corporate business fees and commissions accounted for 52% of the non-interest revenue, a significant part of 27% was delivered by the bank cards’ business, the remainder 16% came from retail business.
Disciplined cost efficiency approach remains among the bank’s priorities. In 2012, operating expenses added only 3.6% to Rub 8.7 billion that is well below inflation level in Russia for the same period. Staff costs increased by 4.1% YoY to Rub 5.1 billion. Moderate growth of administrative expenses was offset by decrease of amortization charges and advertising costs. Cost-to-income ratio dropped to 58.5% from 64.8% in 2011, the lowest level for the last three years.
Profit before taxation in 2012 totaled Rub 3.0 billion, up 47.0% from 2011 driven by positive dynamics of operating income components and tight cost control. Net profit for 2012 grew by 46% to Rub 2.3 billion from 2011. Return on equity was 11.9% going to double digits for the first time since 2008.