26 November 2013
Today Bank Vozrozhdenie reported 9M 2013 IFRS Results with the following highlights:
- Assets increased by 3.6% from the beginning of 2013 to RUB 216.7 billion ($6.7 bln),
- Operating income before provisions was stable compared to the level of 9M 2012 of RUB 11.0 billion ($339 mln),
- Net income for 9M 2013 equaled to RUB 768 million ($24 mln),
- Cost-to-income ratio for 9M 2013 was 58.0%.
“Decelerating economic trends and unstable market sentiments continued to persist over the last quarter. Nevertheless, the bank’s pro-active targeted work with customers from its traditional niches, SME and retail, brought its fruits of ongoing operating results improvement. During the last three months of the reporting period, we focused on the intensive growth of interest earning assets in order to employ the raised resources more effectively. Thanks to it, we reached an optimal level of loan-to-deposit ratio and recovered net interest margin to the planned level. However, a need of completing coverage of earlier impaired loans required us to channel the substantial part of income to provisions that pressed the bottom line down,” noted Andrey Shalimov, Deputy Chairman of the Management Board.
Assets rose by 3.6% YTD to RUB 216.7 billion ($6.7 billion) with the most considerable growth coming in the second quarter. During Q3 2013, the bank improved the share of interest-earning assets by 2.9 pps to 78.4% by allocating excess cash in loans and securities. As a result, loan portfolio growth surpassed that of customer accounts and loan-to-deposit ratio went up by almost 3 p.p. to 101.5%.
Loan portfolio before provisions surged by 11% from the start of the year to RUB 173 billion ($5.4 billion) in accordance with the bank’s business plan. In Q3 2013 total portfolio growth accelerated on the back of retail and corporate lending expansion. Loans to corporates were up 1.9% QoQ and totaled Rub 132.6 billion ($4.1 billion). For the last 3 months the bank improved penetration in its core SME segment — loans to the SME borrowers rose by 2% to RUB 80.0 billion ($2.5 billion) due to active promotion of the bank’s lending products among existing customers and new clients. Lending to large corporates grew by RUB 1.2 billion to RUB 52 billion ($1.6 billion) contributed by issuing a handful of loans to new customers. Breakdown of corporate loans by economic sectors remains unchanged, the major shares of 36% and 26% belong to manufacturing and trade.
Intensive expansion of lending to individuals brought the retail loan portfolio to RUB 40.5 billion ($1.3 billion), up 23% since the beginning of 2013. In the third quarter, the bank’s retail loan book growth outpaced the banking sector with 10.2% expansion versus 6.9% average growth for the system. On a quarterly basis, mortgages were the key driver with RUB 2.7 billion increase to RUB 27.6 billion ($0.9 billion) attributable to two factors: exceptional popularity of the bank’s partnership programs with developers and lowering the interest rate on such loans by 50 bps. Consumer, car and bank cards loans advanced by 8.3% for the quarter reaching RUB 12.9 billion ($0.4 billion).
Loan portfolio quality slightly weakened during the reporting quarter, and share of non-performing loans (NPLs) in total loans grew by 41 bps to 10.75%. Growth of NPLs in the corporate portfolio was associated with impairment of one
In Q3 2013 the bank charged RUB 1.3 billion ($40.8 million) to provisions for loan portfolio impairment implying cost-of-risk of 3.1%. It kept accumulating provisions on large corporate loans that were impaired earlier, coverage ratio for the corporate loan book exceeded 100%. Total amount of delinquent loans was covered by provisions by 97%, NPLs with more than 90 days overdue — by 108%.
Customer funds were up 4.1% since beginning of the year and reached RUB 170.5 billion ($5.3 billion). In the mid of the 3rd quarter the bank cut retail deposit rates and did not participate in fierce competition for corporate deposits focusing on employing the available resources. Hence, corporate client funds did not change during the quarter and were RUB 61.6 billion ($1.9 billion), while its structure shifted to current accounts which added up 2.7% to RUB 36.8 billion ($1.1 billion). Retail funds grew by 1.3% compared to the previous quarter and reached RUB 108.9 billion ($3.4 billion) supported by RUB 3.5 billion inflow of individuals’ deposits.
Shareholders’ equity rose by 3.9% YTD to RUB 21.6 billion ($0.7 billion). Tier 1 Capital Adequacy ratio stood at 11.4%, Total Capital Adequacy ratio — at 13.2% as of the reporting date. Lower total CAR was attributable to repayment of the subordinated loan raised in 2008 from German and Dutch development institutions DEG and FMO.
Interest income of the bank for 9M 2013 grew by 15.3% versus same period of the previous year to RUB 14.0 billion ($433 million) fueled by retail lending share widening in the total loan book as well as by increase of average yield on loans. During the reporting period interest expenses added 30.8% to RUB 7.2 billion ($222 million) reflecting the market trend of clients funds’ cost growth that persisted during the first part of the year. However in the course of the last three months resources cost progress slowed down to 3.5% from 6.1% during the Q2 2013 that positively influenced the dynamics of net interest income advancing throughout the last quarter by 8.3% to RUB 2.4 billion ($75 million) (+2.6% in Q2 2013). Total net interest income for 9M 2013 grew by 2.6% compared to the result of the similar period of 2012 to RUB 6.8 billion ($211 million). Net interest margin continued its recovery rising to its target level of 4.5% in Q3 2013. Quarterly improvement of yields on net IEA to 11.80% (+34 bps per quarter) again outperformed evolution of funding cost totaling 5.14% (+10 bps per quarter). Therefore net interest spread widened in the course of Q3 2013 by 24 bps going up to 6.66%.
During 9M 2013 the bank earned RUB 4.0 billion ($124 million) as fees and commissions that was practically equal to the result of 9M 2012. There was an increase of the share of settlement operations fees as well as bank card transactions fees in the structure of the fee income (30% and 26% for Q3 2013 respectively). Throughout the reporting period we saw a gradual recovery of fees from cash collection (+5% per the last quarter). On the contrary, fees and commissions expenses experienced 56% rise compared to 9M 2012 and stood at RUB 0.5 billion ($14 million) causing a decrease in net fees and commissions by 4.5% to RUB 3.6 billion ($110 million). However during the last quarter net fees grew by 2.6% and equaled RUB 1.25 billion ($39 million).
Operating income before provisions for Q3 2013 went up by 3.8% QoQ to RUB 3.8 billion ($118 million) contributed mainly by widening of the interest income. The proportion of non-interest revenues in total operating income was equal to 36.4% for Q3 2013.
Operating expenses remained unchanged at the level of Q2 2013 and totaled RUB 2.1 billion ($66 million). 9M 2013 OPEX grew in comparison with the result of the same previous year period just by 2.1% to RUB 6.4 billion ($197 million). Expenses structure was stable with approximately 60% of them represented by personnel costs. Q3 2013 cost-to-income ratio slipped to 56.0% improving by 218 bps on QoQ basis. The ratio for 9M 2013 was 58.0%.
Operating profit before provisions enjoyed positive dynamics for the third quarter in a row. For the last three months the result jumped by 9.3% to RUB 1.7 billion ($52 million) proving the bank’s business model capacity to generate stable operating income. The ratio of profit before provisions and taxes to equity kept recovering and grew over the quarter by 234 bps to 31.2% In order to finalize the process of covering earlier impaired loans with provisions the bank maintained quite impressive level of charges to provisions. It weighted on the net profit for 9M 2013 bringing it down by 57% versus the bottom line of the same period of 2012. The financial result totaled RUB 768 million ($24 million) producing ROE of 4.8%. Nevertheless on a quarterly basis the net profit rebounded by 31.4% to RUB 247 million ($7.6 million).