Bank Vozrozhdenie reports Q1 2013 net income of RUB333 million

23 May 2013

Bank Vozrozhdenie (Moscow Stock Exchange: VZRZ) reported Q1 2013 consolidated IFRS financial results:

  • Assets grew by 14.9% over the last 12 months to RUB210.3 billion ($6.8 billion);
  • Operating income was up 2.6% compared to Q1 2012 reaching RUB3.5 billion ($113 million);
  • Net income declined by 38% versus the same reporting period of 2012 to RUB333 million ($11 million);
  • Return on average equity (ROE) was 6.3%.

“During the first quarter we saw a recovery of SME businesses’ loan demand despite the economy growth slowdown. As a result, the bank succeeded in widening its support of the key client segment, small and medium companies. Nevertheless, if challenging macroeconomic environment persists over the second half of the year, we can expect worsening of some borrowers’ credit quality. Therefore being consistent in our conservative approach to credit risk management, we decided to increase provisions for loan impairment,” noted Tatiana Gavrilkina, Deputy Chairwoman of the Management Board.“The bank proceeded with investing in IT modernization and remote sales channels development in order to enhance customers’ satisfaction with the quality of its services and to improve operating efficiency. We believe that introduction of new advanced IT solutions will help us to widen the product range in response to ongoing growth of clients’ needs giving new momentum to the bank’s fee income increase,” added Mrs. Gavrilkina.

Assets rose by 14.9% from a year earlier to RUB210.3 billion ($6.8 billion). Total assets stayed almost flat during the quarter, however, their structure shifted towards interest-earning instruments with their share growing by 2.0% to 76.6% of the total assets. Loans to customers and securities portfolio increased to RUB148.6 billion ($4.8 billion) and RUB11.4 billion ($0.4 billion) adding RUB6.9 billion ($128 million) and RUB3.1 billion ($93 million), respectively, at the expense of cash and equivalents as well as loan to banks reduction by RUB3.8 billion ($151 million) and RUB4.8 billion ($158 million) accordingly. The bank successfully employed funds raised late Q4 2012 optimizing its loans before provisions to deposits ratio to 100.5% versus 95.4% as of December 31, 2012. The liquid assets share in the balance remained at a comfortable level of 23.1%.

Shareholders’ equity grew by 11.4% over the 12 months to RUB21.2 billion ($697 million) as of March 31, 2013 due to retained earnings. Total CAR and Tier 1 capital adequacy ratio increased to 14.87% and 11.92%, respectively, from 13.4% and 11.8% a year ago. At the end of Q1 2013 the bank raised the third tranche of subordinated deposit in the amount of RUB1 billion to strengthen its capital base necessary for further credit expansion throughout the year.

Securities portfolio of the bank (both trading and investment) amounted to RUB11.4 billion ($369 billion) compared to RUB8.4 billion ($275 million) at the end of the previous quarter. The majority of securities are classified as high liquid assets with maturities less than 1 month. As of March 31, 2013, corporate RUB and FX denominated bonds represented 79.9% of the total portfolio while securities issued by Federal and regional government bodies accounted for 15.5%.

Loan portfolio before provisions rose by 5% during the last quarter surpassing the Russian banking sector growth of 2.1% (as per the Bank of Russia data). Corporate loan book increased by 5.8% to RUB130.6 billion ($4.2 billion). The main driving force of that growth was SME lending expansion by 8.0% to RUB83.4 billion ($2.7 billion) after its slight temporary contraction in the second half of 2012. Over a half of the total credit portfolio is comprised by loans to SMEs, core clients’ segment of the bank. As of March 31, 2013, loans to individuals totaled RUB33.6 billion ($1.1 billion) up 29.5% comparing to the same date of 2012. Retail lending development with focus on mortgages as well as gradual acceleration of consumer loans and credit cards share continues to be among the priorities of the bank’s strategy. Hence the portion of retail loans in total portfolio grew to 20% versus 18% as of March 31, 2012. In Q1 2013, growth of lending to individuals decelerated to 2.2% Q-o-Q in response to the slight interest rates increase made in the second half of 2012 to cool down the portfolio expansion. At the end of the quarter mortgages reached RUB22.8 billion ($736 million) with their share rising to 68.0% of the total retail loan book. Consumer loans amounted to RUB8.3 billion ($267 million).

NPL ratio grew in Q1 2013 to 10.28% from 9.02% as at the end of 2012. Increase of the problem loans to RUB16.9 billion ($545) resulted from the impairment of one significant corporate loan. Meanwhile, SME loans credit quality remained stable. In the course of the quarter the amount of overdue and impaired loans to SMEs did not change in absolute terms, whereas in relative figures it lowered to 9.2% from 9.8% in Q4 2012. Provisions for possible loan losses rose by 6.5% during the quarter to RUB15.7 billion providing 114% coverage ratio for loans with 90 days+ overdue. In Q1 2013, the bank charged RUB985 million ($32 million) to provisions for loan impairment implying cost-of-risk equal to 2.5% p.a. of total loan portfolio before provisions.

Customers’ funds rose by 14.3% to RUB163.4 billion ($5.3 billion) over the last 12 months to make up 86% of total liabilities. The growth came from inflow of retail clients’ resources totaling RUB102.9 billion at the end of the quarter ($3.3 billion, up RUB13.2 billion or 14.8% during the last 12 months) as well as corporate clients’ funds increase to RUB59.1 billion ($1.9 billion, up RUB8.2 billion or 16.1%). Retail term deposits widened to RUB84.4 billion ($2.72 billion) from RUB81.0 billion ($2.67 billion) in Q4 2012, whereas balances on card accounts experienced some decrease to RUB18.5 billion from RUB20.9 billion due to seasonal outflow of money after aggressive yearend inflow related to enterprises payment of annual bonuses to employees.

Interest income increased by 18.1% in comparison with Q1 2012 and reached RUB4.5 billion ($144 million) as a result of loan interest rates growth and expansion of high-yield retail lending. Meanwhile the interest expenses added 40.2% versus the same prior-year period outpacing progress of the interest income on the back of rising cost of both retail and corporate funding. Thus, net interest income was slightly up by 1.4% comparing to Q1 2012 and totaled RUB2.2 billion ($70 million). Interest income stabilization along with interest expenses elevation by 9.9% resulted in Q-o-Q NII decline by 8.9%. Net interest margin on average assets dropped by 52bp versus Q1 2012 to 4.1%. Yields on interest earning assets increased by 42 b.p. in comparison with the same quarter of 2012 to 11.24%, while the cost of funding grew by 87 b.p. to 4.8% causing net interest spread reduction to 6.4% for Q1 2013.

Net fees and commissions amounted to RUB1.1 billion ($36 million) in Q1 2013 weakening by 1.7% compared to the similar period of the previous year. Contraction of settlement fees and commissions on cash operations was to some extent offset by stronger bank cards fees (+9.6%) widened due to active expansion of bank product sales via remote channels. Net fees and commissions drop by 16.4% on Q-o-Q basis resulted from seasonally weak business activity at the beginning of the year coupled with long national holidays in January and March. Share of non-interest income in total operating income before provisions remained at the level of 37%.

Operating expenses for the quarter totaled RUB2.1 billion ($67 million) adding just 2.4% versus the similar period of the last year that is significantly below the inflation rate for the last 12 months. Personnel expenses grew by 3.3% versus Q1 2012 to RUB1.3 billion ($42 million) making up 62% of all bank’s operating expenses. Increase in expenses for software technical support as well as for maintenance of hardware, ATMs and other equipment weighted on growth of expenses related to premises and equipment that were up by 17% in comparison to the same reporting period of 2012. On a quarterly basis operating expenses slipped by 13.6% with all constituents of the indicator demonstrating significant reduction. Cost-to-income ratio stayed at the level of Q1 2012 equaling to 59.9%.

Operating profit before provisions was 2.9% higher than for the similar quarter of the previous year. Positive dynamic of operating income and effective control over operating expenses contributed to Q1 2013 final operating result of RUB1.4 billion ($45 million). However, relatively high charges to provisions during the quarter affected net profit which declined by 36.7% to RUB333 million ($11 million) versus Q1 2012.

IFRS Results

RUB Million


Q1 2013

Q4 2012

Q1 2012



Assets (year-end)






Average Assets






Equity (year-end)






Average Equity






Net Interest Income












Non-Interest Income












Provisions for impairment of other assets






Profit before tax












Net profit






Earnings per share






Return on Equity




-430 b.p.

-490 b.p.

Return on Assets




-40 b.p.

-50 b.p.

Bank Vozrozhdenie will publish its Q1 2013 IFRS results and hold aconference call for investors on May 23
Bank Vozrozhdenie Board of Directors held its regular meeting