27 August 2014
Bank Vozrozhdenie summarized IFRS results for H1 2014.
- H1 2014 net income came in at RUB859 million ($26 million), 64.9% up from H1 2013 results
- Operating income before provisions for 6M 2014 grew by 11% compared with the similar prior-year period to RUB5.4 billion ($161 million)
- Assets were flat at the level of the year-start at RUB209.6 billion ($6.2 billion)
- Loan portfolio before provisions decreased by 1.2% YtD to RUB166.1 billion ($4.9 billion)
“Funding stability was the key priority for us in the past quarter. Due to strengthening of the local currency and clients’ trust in banking products, rouble-nominated customer funds inflow resumed at the highest pace seen in the recent years. Thus, we not only reduced the share of market funding, but came to be net lender on the interbank market during the second quarter and repaid the major part of the Bank of Russia funding.
Having placed particular emphasis on the credit risks control, we restrained the loan book expansion amid decline of good quality loan demand and risks associated with the future impact of particular macroeconomic trends on the borrowers’ activity. It enabled to put Loans-to-Deposits ratio back to the more comfortable level of 105%”, commented Mr. Andrey Shalimov, Deputy Chairman of the Management Board.
The bank’s assets remained nearly unchanged since January 1, 2014 and equaled RUB209.6 billion ($6.2 billion) by the quarter-end as a result of the loan portfolio edging down amid decelerating economy growth. At the beginning of the year, the bank restricted lending due to the resource base volatility, while in the second quarter the active inflow of rouble liquidity following the exchange rate stabilisation broadened opportunities for the funds placement. Throughout the quarter, the bank substantially increased investments in short- and
Loan portfolio before provisions went slightly down by 1.2% to RUB166.1 billion ($4.9 billion) as of July 1, 2014. The major contraction due to macro uncertainty and reliable borrowers shortage fell in the second quarter and affected mostly corporate lending (-RUB5.5 billion). The pace of retail loan book expansion slowed down to 0.5% QoQ.
In accordance with the bank’s policy on the corporate loan portfolio diversification, the proportion of large borrowers declined at a faster rate. Since the year-start, lending to this client segment shrank by 2.8% to RUB49.9 billion ($1.5 billion), while loans to SMEs moderated by 1.9% to RUB71.9 billion ($2.1 billion). As a result, the share of loans to small- and medium-sized businesses in the corporate book rose to 59% from the beginning of the period.
Retail loan portfolio reached RUB44.1 billion ($1.3 billion) during the reporting period, adding 3.3% YtD. At the same time, mortgages surged to RUB30.7 billion ($0.9 billion) by 4% and accounted for 70% of the total retail portfolio. Consumer, car, and bank card loans advanced by 1.8% YtD to RUB13.3 billion ($0.4 billion). In the second quarter, the portfolio growth nearly stalled pressed by creeping rates on mortgage and consumer products and the vulnerable macroeconomic environment.
NPL’s share rose by 59 bps to 8.3% over the quarter, generally due to some growth in SME problem loans (+RUB437 million) primarily in construction and trade sectors. Over the second quarter, the bank has completed provisioning on earlier impaired large NPLs and continued to increase provisions for impairment of credit exposures to SMEs. Q2 2014 charges to provisions totaled RUB973 million ($29 million), exceeding the previous three months figure by 9%, while Cost-of-Risk elevated to 2.3% for the quarter. Total provisions for possible loans impairment stood at RUB14.2 billion ($0.4 billion) ensuring 103% coverage of non-performing loans, including all indebtedness on any payment one day+ overdue and impaired but not past due installments, and 117% coverage of 90 days+ overdue loans.
The funding situation normalised in the second quarter: clients’ funds advanced by 3.3% over the quarter to RUB158.1 billion ($4.7 billion). Thus, the bank managed to diminish the customer funds outflow to 2.1% YtD. Considerable widening of retail deposits (+RUB4 billion) over the second quarter stemmed from the rouble stabilisation and more attractive rates on deposits. With the increase in balances on debit card accounts by RUB1.9 billion, total retail funds jumped by 5.6% over the quarter to RUB110 billion ($3.3 billion), accounting for 59.2% of all the bank’s liabilities.
The slumping of corporate clients’ funds decelerated — the figure decreased by only 1.7% over the second quarter to RUB47.8 billion ($1.4 billion) versus outflow of 12.3% during the first three months of 2014. Moreover, for the first time since October, 2013 corporate deposits widened by 1.4% to RUB20.1 billion ($0.6 billion).
As of the reporting date, the share of current accounts and balances on debit cards was 28.6% of clients’ funds.
Due to the inflow of customer funds, the bank had no need of additional market funding in the second quarter. Thus, the amount of Bank of Russia funds, raised via REPO transactions, shrank from RUB5.5 billion, as of April 1, 2014, to RUB1.6 billion, as of the reporting date. As a result, the share of market funding in the bank’s liabilities dropped from 8.5% at the end of Q1 2014 to 5.6%.
The bank’s capital added 3.7% YtD mainly on the back of retained earnings and came in at RUB23.2 billion ($0.7 billion). As per the Basel III standards and the Bank of Russia regulations, total regulatory capital adequacy ratio (N1.0 norm) improved to 12.34%, as of July 1, 2014, up by 73 bps since the year-start, while the minimum acceptable level is set at 10%. Common equity Tier1 capital adequacy ratio (N1.1 norm) reached 9.85%, up by 10 bps YtD, significantly exceeding the minimum requirement of 5%.
Net interest income increased by 12.9% in the first half of 2014 versus the same period of the previous year to RUB5 billion ($148 million) due to the outperformance of interest income amid higher interest rates on loans and expanded share of retail lending. Net interest margin grew by 56bps to 4.7% over the same period.
In the second quarter interest income shrank slightly to RUB4.9 billion ($147 million), down by 2.3% over the quarter, reflecting the reduction of the corporate loan portfolio. Interest expense advanced by 3.3% to RUB2.5 billion ($76 million) as a result of the active inflow of retail deposits and higher rates on corporate deposits. Under the negative influence of those factors, net interest income dropped by 7.6% to RUB2.4 billion ($71 million) for the second quarter. As a consequence, net interest margin decreased by 36bps to 4.6% which remained within the bank’s target range.
Net fee and commission income enjoyed a positive trend during the second quarter of 2014, though it still remained below the level of the previous-year period. As a result, for the past three months the indicator increased by 6.7% reaching RUB977 million ($29 million) in the second quarter, while for the first half of the year the bank earned RUB1.9 billion ($56 million).
The quarterly dynamics was supported both by higher fee and commission income that was up by 4.4% to RUB1.1 billion ($34 million) compared to Q1 2014 and 7% decrease in commission expenses totaling RUB172 million ($5 million) for the same period. Fees from operations with bank cards delivered the major growth (+5.1% a quarter) fueled by the active development of multi-channel remote banking. Throughout the past three months, income from cash and settlement operations added 4.0%, commission income from foreign currency transactions grew by 13.5% amid the exchange rates volatility, and revenues from cash collection services jumped by 8.0%.
In the second quarter, trading income advanced to RUB193 million driven by the positive revaluation of the securities portfolio.
As a result, the share of non-interest income in operating income before provisions added 535 bps in the second quarter to 34.2%.
Operating expenses for H1 2014 advanced by 3.3% compared to the same period of the previous year and reached RUB4.4 billion ($130 million). This growth was mainly driven by higher IT and administrative spending, while staff costs decreased by 0.5% to RUB2.6 billion ($78 million).
On a quarterly basis, the expenses were intact at the level of the first three months of 2014 and equaled RUB2.2 billion ($65 million). Cost-to-Income ratio remained almost unchanged versus the same period of the previous year at 59.8%.
Operating profit before provisions reached RUB1.5 billion ($44 million) in Q2 2014 which is similar to the previous quarter level. Thanks to the stable level of provisioning for loan losses and other assets, net income amounted to RUB431 million ($13 million), exceeding the result of the previous quarter by 0.7%.
During H1 2014, net income grew by 64.9% compared to the same prior-year period and reached RUB859 million ($26 million), as a result of growing profitability of the bank’s operations. Return on Equity rebounded from 4.9% to 7.5% for the same period.