24 November 2010
Bank Vozrozhdenie (VZRZ) published its 9M 2010 IFRS results with key items as follows:
- Net Income: Rub 397 million ($13 million)
- Operating income: Rub 1,897 million (5% up QoQ)
- Assets: Rub 156 billion (up 15% from the previous year)
- Return on Equity (ROE): 3.2% for 9M 2010
“Loan portfolio continued to grow over the third quarter, having increased by 11% from the beginning of the year. Even in tough competition landscape we managed to outperform banking sector growth rate of 9%. We continued to focus on funding costs reduction, and interest expenses declined 4% qoq despite almost Rub 7 billion of new customer deposits raised.” — said Tatiana Gavrilkina, Deputy Chairwoman of the Management Board. “Given the fall in yields of banking assets we paid particular attention to the control of operating expenses — they expanded only by 2%. Credit quality which was a main concern over the year remained fairly stable and allowed us to decrease charges to provisions. The share of received interest income has also increased — this quarter we received 96% of accrued interests while in the first quarter it was below 90%. NPL coverage ratio close to 100% allows us to feel optimism over bank’s development prospects in 2011.”- added Mrs. Gavrilkina.
Total assets rose by 15% yoy to Rub 156 billion ($5.1 billion). Over the third quarter the bank’s total assets increased by 6% owing to the inflow of both corporate (Rub +3.8 billion) and individual deposits (Rub +3.3 billion). Retail funds, accounting for 58% of liabilities, increased by 18% since the beginning of the year and still remain the main funding source. Current accounts of corporate clients demonstrated robust growth (+11.4% qoq) and as of September 30, 2010 accounted for 59% of total corporate clients’ funds. As a result customer funds constituted 90% of total liabilities or Rub 125 billion while current accounts representing almost interest-free source of funding accounted for 32% of total customer deposits. Loan portfolio grew by 10.6% since the beginning of the year, and by the end of the third quarter Loan-to-Deposit ratio (before provisions) was 84%. During the quarter the bank was selling trade securities purchased in the previous quarter. As a result securities portfolio contracted by 5.5%. Total share of liquid assets remained at a comfortable level of 33% reflecting strong liquidity of the balance sheet.
Shareholders’ equity increased by 1% to Rub 16.7 billion ($548 million) as of September 30, 2010, compared with Rub 16.5 billion ($528 million) a quarter ago. Capital adequacy ratio stood at 16.3%, the Tier1 ratio — 13.5%. The decline from the previous quarter (CAR down 0.9%, Tier 1 down 0.6%) resulted from the quarterly increase of the risk weighted assets. Both numbers are significantly higher than those required by regulatory guidelines for a credit institution. The bank’s equity to assets ratio was 10.7% by the end of the third quarter.
Loan portfolio before provisions rose by 3.0% (Rub 3.0 billion) in Q3 2010 and reached 105.5 billion. Abnormal summer drought affected lending growth rates and economy recovery. Corporate loan book grew by 2.6% per quarter. Generally the strongest growth came from SME lending sector (Rub +1.8 billion or 3.3%) where the bank traditionally leads among its peers. Despite awkward weather conditions and challenging competition environment we managed to increase our lending to the customers from Moscow region, the most important region for the bank, by 5%. The share of loans issued to the customers located in Moscow region accounted for 41.5% of the total loans. Loan book is diversified not only across the regions but also by industries — the largest share of loans was granted to trade and manufacturing sectors (24 and 23% respectively). Retail loan book growth remained stable (5.6% in Q3 against 4.7 in Q2) and reached 7.5% from the beginning of the year. On the back of housing real-estate market rejuvenation mortgage portfolio increased by 8.4% while consumer lending grew by 3.4%, having reached Rub 8.5 and 4.1 billion respectively. Therefore mortgages accounted for 56% of the total retail loans. All in all portfolio structure hasn’t changed substantially — retail loans represented 14% while corporate ones — 86%, with the loans issued to SMEs accounting for 54% of total loans.
Securities portfolio totaled Rub 17.6 billion ($580 million) as of September 30, 2010, down 4.4% qoq. The decline resulted from partial sale of securities acquired during Q2. By the end of the quarter trade securities portfolio mainly consisted of investment-grade securities with short-duration. Most of them were fixed—income securities of Russian federal and regional government bodies and companies with quasi-sovereign risk. The breakdown of the securities portfolio as of September 30, 2010 is as follows: 44,5%- Central Bank of Russia bonds, 34,4% — corporate bonds and Eurobonds and 21% — Federal and Regional Government’s bonds and Eurobonds.
NPLs ratio declined from 11.1% peak in Q1 to 10.98% of gross loan portfolio as of September 30, 2010. Total NPLs amounted to Rub 11.6 billion. Charges to provisions for loan losses amounted to Rub 0.6 billion over the third quarter in comparison with Rub 1.3 billion for the same period of the previous year. Provisions totaled Rub 11.3 billion or 10.7% of total loans. NPLs were almost fully covered by provisions, coverage ratio was 97%. Coverage ratio for more than 30 days NPLs was 127% and 132% for more than 90 days NPLs.
Net Interest Income amounted to Rub 1.3 billion in the third quarter of 2010 compared with Rub 1.4 billion in Q2. Continued pressure on lending rates together with expiration of earlier-issued loans with higher yields was a key factor which had a negative impact on net interest income. Interest expenses were down 4% QoQ due to ongoing re-pricing of corporate and individual deposits. Furthermore average interest-bearing liabilities grew by 3%. As a result net interest margin for average total assets contracted by 43 basis points and accounted for 3.3% in Q3 vs 3.7% a quarter ago. Average cost of funding declined by 42bp compared with the previous quarter from 6.4% to 6.0%, while interest spread came to 5.6%.
Total non-interest income grew by 12% (Rub 134 million) to Rub 1,222 million compared to Q2 owing to the higher fees for settlement transactions of the customers (up 10% qoq), banking cards transactions (up 11% qoq) as well as commissions for currency transactions (up 16% qoq). The share of non-interest income traditionally remained one of the highest in Russian banking sector and stood at solid 49% of the total operating income before provisions in Q3 compared with 44% in Q2.
Operating expenses grew only by 2% from the previous quarter to Rub 1.7 billion. Personnel expenses remained under strict control and represented more than a half of operating expenses. During the quarter they were down 2.9%. Administrative expenses also contracted by 3.8% qoq compared with Q2. Cost to Income before provisions ratio was 69.4% for Q3 compared with 68.1% a quarter before. The core reason for CI ratio growth was stable amount of operating income in comparison with Q2 while charges to provisions declined on the back of credit quality stabilization.
Net Income for reporting period amounted to Rub 397 million. Effective tax rate for 9M 2010 declined to 19% due to recognition of deferred tax assets related to the interest income on NPLs. Thus total income tax expenses for 9M 2010 amounted to Rub 91 million.