26 August 2009
Vozrozhdenie Bank (VZRZ) published its H1 2009 IFRS results with key items as follows:
- Net Income: RUB 642 million ($21 million)
- Cost to income ratiobefore provisions: 42.6% down from 2008 average of 52.7%
- Assets: RUB 137 billion ($4.4 billion), no significant change during the last quarter
- Operating profit before provisions up 17% versus H1 2008
- Return on Equity (ROE): 8.3%
“Credit quality management and maintaining current business volumes were in special focus of the bank during the passed 6 months. Conservative approach to borrowers’ selection and issuing new loans predetermined some reduction of the loan book within the quarter. That could not help but influenced interest income. We continued to funnel significant part of revenues into provisions for loan impairment and it affected the bottom—line,” said Tatiana Gavrilkina, Deputy Chairwoman of the Bank Management Board. “Customer funds grew by 7% during the last 3 moths and we are grateful to our clients for their confidence in the bank in such uneasy economic situation. Only true partnership and reciprocal support could form a sound base for successfully overcoming consequences of the crisis”.
Assets grew by 4% to RUB 137.0 billion ($4.4 billion) compared to H1 2009. During 6M 2009 the bank stuck to its policy regarding the liquidity cushion and kept the share of liquid assets at 28% of the total assets (RUB 38.2 billion or $1.2 billion). Recovery of the clients’ fund inflow has changed the bank’s funding structure. As of June 30, 2009 around 70% of the assets were financed by customer deposits. On the other hand the bank has decreased its dependence on Central Bank funding facilities as their share in the balance sheet dropped to 7.5%. Shareholders equity continues to account for 12% of the balance sheet. Loan to deposit ratio improved since beginning of the year to 101.7% versus 110% as of December 31, 2009.
Equity rose by 17% since June 30, 2008 to RUB 15.7 billion ($502 million). The Bank maintains the sound capital position with its Tier 1 capital adequacy ratio of 14.4% and combined Tier 1 and 2 capital ratio of 18.3%.
Gross loans to customers totaled RUB 97.8 billion ($3.1 billion) compared to RUB 99.3 billion ($3.4 billion) as at the beginning of the year. During Q2 2009 the bank limited issuance of new loans manifesting caution in respect of their future credit quality. Nevertheless at the end of the quarter the bank managed to increase the loan book to some extent by granting loans to existing clients that succeeded in readjusting their businesses to a new environment. Loans to corporate clients grew to 83% of the total loans. The bank adheres to a balanced structure of the loan portfolio that is well diversified in terms of sectors (the largest single sector exposure is 21%, which refers to manufacturing) and regions. Retail lending accounts for 17% of the loan book. The retail loan portfolio structure remains stable with mortgages representing a half of it.
Loan portfolio quality deterioration continued during the quarter resulting from difficult macroeconomic situation. As of June 30, 2009 the share of non-performing loans was equal to 7.3% of the total loan book. According to IFRS the Bank records as non-performing loans the whole principal of all retail and commercial loans more than one day past due either on principal or interest. The impaired loans, on which some loss of principal is expected, reached 6.3% of the total loan portfolio. During the past 6 months the Bank added RUB 2.9 billion to provisions for loan impairment including RUB 1.2 billion charged in Q2. As at the end of the quarter total provisions amounted to RUB 7.6 billion or 7.8% of the total loan portfolio ensuring coverage ratio of 1.1.
Net Interest Income increased by 20% compared to the same period of 2008 to 4.4 billion rubles due to the overall rise in lending interest rates. Partial repayment of CBR loans as well as its repricing to the lower end and adequate deposit interest rate management helped the bank to lessen interest expenses compared to Q1 2009. Temporary decrease of the loan book share in interest-earning assets within the second quarter resulted in relative decline of the interest income versus the result of the first three months of the current year. Cost of funding stabilized at 7.3% while yield on assets due to the mentioned factors lowered to 16.5%. In general in H1 2009 the bank succeeded in keeping appropriate level of interest spread and net interest margin at 9.7% and 6.3% respectively.
Non-interest income grew by 12% to 2.4 billion rubles since the H1 2008. Despite of the overall decline in clients turnovers we managed to earn nearly the same amount of fees and commissions as a year ago: RUB 1.80 billion versus RUB 1.84 billion for H1 2008. Net fees and commissions accounted for 73% of the net non-interest income. FX operations income that grew significantly at the end of the previous year during active ruble devaluation came down to the average level (RUB 93 million in Q2 2009 versus RUB 96 million in same quarter of 2008). The bank proved its strong capacity to generate non-interest income in difficult times as the share of non-interest revenue continued to be at a very good level of 35.7% of operating income before provisions.
Operating expenses declined 13%, to 2.9 billion rubles versus 3.4 billion in H1 2008. The bank followed its policy of tight control over the expenses and kept stuff costs, the main source of that economy, stable. Relative growth of operating expenses since the Q1 2009 was caused by rising fixed-assets related costs, i.e. taxes, amortization etc. The trend reflects the process of charging the collateral on some bad loans and taking it on the banks balance sheet. We plan to dispose the most part of that property in the future with relevant financial result. All in all cost-to-income ratio before provisions dropped to 42.6% versus 57.5% for H1 2008. During the quarter we continued rationalization of our sales outlets network by adding 16 new ATMs and closing 4 least efficient offices.
Pre-tax income for 6M 2009 totaled RUB 1,035 million ($33.1 million). The reduction by 49% compared to H1 2008 resulted from continuing growth of provision charges. Profit after tax amounted to RUB 642 million ($20.5 million). Effective tax rate for 6M reached 38% influenced by changed expectations regarding deferred tax asset on the part of interest income on NPLs.
The Bank’s full IFSR report is available at: http://www.vbank.ru/en/reports/statements_2/ifrs_interim_2/