25 November 2014
Bank Vozrozhdenie summarized IFRS results for 9M 2014.
- 9M 2014 net income came in at RUB1.2 billion ($31.2 million), 60.2% up from 9M 2013 level
- Operating income for 9M 2014 grew by 9.6% versus 9M 2013 to RUB8.1 billion ($205.1 million)
- Assets were up 1.7% from the year-start to RUB214.6 billion ($5.4 billion)
- Customer funds reached RUB168.3 billion ($4.3 billion), 4.2% up YtD
“In the third quarter we have successfully navigated through deteriorating macro environment and maintained the level of operating income and sound balance sheet structure. In the challenging business landscape the bank continued to focus on risk management and credit quality control that limited the loan portfolio growth. We have adjusted the assets structure to the current conditions and increased the liquid instruments share to 23% scaling up top-quality securities portfolio, which in the high interest rates market supported the net interest margin.
We were glad to record strong inflow of customer funds well above the average sector dynamics, while we did not raise interest rates. Comfortable funding is enhanced by strong capital position with a high share of Tier 1 capital — 79% versus 74% for the sector.
We will keep diversifying our business and developing fee generating products. In autumn, the bank introduced new sets of cash and settlements services tailored for SME clients and was the first in Russia to launch a mobile app for cash-in-transit service that we provide for our clients in Moscow region. The app will simplify utilization of this service for the clients and will help us to engage new customers”, commented Andrey Shalimov, Deputy Chairman of the Management Board.
Assets were up 1.7% from the year-start to RUB214.6 billion ($5.4 billion) with some shifts in their structure. Throughout the third quarter, a downward trend persisted in dynamics of the loan book share in the assets — it shrank from 74% at the end of 2013 to 70% as of October 1, 2014. To maintain the yields level, the bank placed idle liquidity on the debt market. As a result, the share of securities portfolio in the assets reached 9% versus 6.5% as of July 1, 2014. It supported the share of interest-earning assets that stayed intact QoQ at 79.4% with the proportion of liquid assets edging up to 23.3%. Outpacing growth in clients’ funds led to a decrease of Loan-to-Deposit ratio to 98.1%.
The bank’s securities portfolio expanded by 40.8%, or RUB5.6 billion ($490 million), to RUB19.3 billion ($142 million), with significant increase in Eurobonds, corporate bonds of quasi-sovereigns and the Russian Federation Eurobonds. The bank gives preference to short-term investment grade instruments, as the securities portfolio remains one of liquidity-management tools. The securities with maturity less than one year accounted for 91.6% of the total securities portfolio.
Loan portfolio before provisions came in at RUB165.1 billion ($4.2 billion) as of the reporting date, 1.9% lower than the year-start level, with the pace of the loan book decrease slowing down over Q3 2014. Due to the lack of good quality demand, the corporate loan portfolio declined by 4.4% YtD to RUB120.1 billion ($3 billion). During the same period, retail loans gained 5.5% and were equal to RUB45 billion ($1.1 billion) thanks to enhancement in demand for mortgages and consumer loans after some easing of credit terms. Share of loans to SMEs in the corporate loan book stood at 58.2% as of the reporting date, while mortgages traditionally made up the major part of the retail portfolio (68.7%). Mortgage loans added 4.7% during 9M 2014 and equaled RUB30.9 billion ($785 million). Consumer, car and bank card loans advanced by 7.4% during the same period to RUB14.1 billion ($357 million), generally on the back of expansion in consumer lending.
NPL’s share grew by 91 bps to 9.2%. The total NPLs were up by RUB1.4 billion ($35.8 million) to RUB15.1 billion ($383.6 million). The past due but not impaired loans added RUB0.6 billion ($15.9 million), as one of the large corporates’ debt went overdue. NPLs in SME segment widened by RUB0.8 billion during the quarter, largely owing to impairment of loans in trade, construction and manufacturing sectors. Retail NPLs fell both in absolute (-RUB29 million, or $0.7 million) and relative (-15 bps) terms.
Over Q3, the bank charged RUB817 million ($20.7 million) to provisions, 16% less than in the preceding quarter. Cost-of-Risk amounted to 2% in Q3 2014, while the annualized figure stood at 2.1%, remaining within the targeted range. Coverage ratio of non-performing loans, including all one day+ overdue loans and impaired but not past due installments, was at the level of 97.5% and coverage ratio of 90 days+ overdue loans — at the level of 115.6%.
With the positive trend continuing through the last two quarters, client funds increased by 6.4% in the reporting quarter to RUB168.3 billion ($4.3 billion) (1.8 pps above the sector, according to the data of the Bank of Russia) and by 4.2% over 9M 2014. Excluding FX revaluation the increase was 3.7% QoQ and 1% YtD. During Q3 retail savings grew by RUB7.4 billion ($187.2 million), or 7.9% (5.4 pps above the sector, according to the data of the Bank of Russia). Total retail customer funds were up by 5.4% and reached RUB116.3 billion ($3 billion), representing 60.9% of the bank’s liabilities. Downward dynamics of corporate client funds reversed — throughout the reporting quarter it climbed by 8.8% to RUB52 billion ($1.3 billion) (2.3 pps above the sector, according to the data of the Bank of Russia).
The share of market funding continued to drop across Q3 on the back of stable client funds inflows. As of September 30, 2014, the share of due to other banks in the liabilities structure edged down to 5.1% versus 5.6% as of June 30, 2014 and 8.5% as of March 31, 2014, predominantly as a result of a decline in funds attracted from the Bank of Russia. In Q3 2014, the bank repaid RUB1.6 billion ($40.6 million) raised via REPO transactions and borrowed RUB650 million ($16.5 million) under the pledge of non-market assets.
The bank’s capital added 5.5% YtD mainly due to retained earnings and came in at RUB23.6 billion ($599.1 million). As per Basel III standards, the total regulatory capital adequacy ratio (N1.0 norm) improved to 12.2% as of October 1, 2014, while the minimum acceptable level is set at 10%. The common equity Tier1 capital adequacy ratio (N1.1 norm) reached 9.6%, considerably exceeding the minimum requirement of 5%.
Net interest income for 9M 2014 increased by 7% versus the same period of the previous year to RUB7.3 billion ($185.8 million), due to the outperformance of interest income adding 7.6% to RUB15.1 billion ($382.7 million). Interest expenses advanced by 8.1% to RUB7.8 billion ($196.9 million) as a consequence of growth in funding costs.
In Q3, interest income grew by 2.3% to RUB5.1 billion ($128.5 million) reasoned by higher loan rates as well as by retail lending widening. However, this did not fully offset the rise in interest expenses by 6.8% to RUB2.7 billion ($69.3 million), which resulted from strong demand for retail deposits. Thus, net interest income went down by 2.6% QoQ to RUB2.3 billion ($59.2 million). Net interest spread remained unchanged at the level of Q2 equal to 6.2% thanks to an increase in lending yields. Net interest margin for Q3 stood at 4.4%. Despite changes in the structure of interest-earning assets in favor of more liquid but less profitable instruments, for 9M 2014 the bank managed to earn net interest margin at the level of 4.6%, that exceeded the targeted range for the year.
Net fee and commission income continued to recover during the year adding 2% QoQ, and for Q3 amounted to RUB997 million. The dynamics was supported by higher income from cash and settlement operations resulted from client base expansion and introduction of new products for SMEs. However, on the annual basis, the bank hasn’t yet overcome the negative trend of commission income reduction.
Operating expenses for 9M 2014 equaled to RUB6.5 billion ($165 million), 2.9% higher than for the same prior-year period but notably less than the current inflation rate. Staff costs remained flat YoY and accounted for 59.6% of OPEX.
Throughout the past three quarters, the bank’s expenses have been stable at RUB2.2 billion ($55.9 million) per quarter. In Q3, the bank managed to reduce staff and administrative costs by 1.3% and 13.5% QoQ respectively. Other costs grew by RUB47 million ($1.2 million) largely owing to IT expenses increase.
Over the last quarter, Cost-to-Income ratio went up by 288 bps to 62.7% for 9M 2014 due to weaker dynamics of operating income.
For 9M 2014, net profit grew by 60.2% YoY to RUB1.2 billion ($30.5 million) influenced by higher yields on operating activity of the bank as well as the reduction in the risk costs comparing to the same period of 2013. ROE advanced from 4.8% for 9M 2013 to 7.1% for 9M 2014.