Vozrozhdenie Bank earned net profit of Rub 2.1 billion for 2016

  • Vozrozhdenie Bank earned net profit of Rub 2.1 billion for 2016
  • ROE reached 15% for Q4’16 brining annual ROE to 9.4%
  • Cost-to-income ratio for 2016 declined to 55%
  • Assets grew by 7% during 12 months to Rub 239 billion
  • Gross loans added 10% during 2016 and totalled Rub 190 billion
  • Retail loan portfolio soared by 21% to Rub 64 billion
  • Customer funds grew by 18% YoY to Rub 201 billion

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“In 2016 the bank restored its sustainable profitability. We managed to increase both interest and non-interest income and to keep net interest margin very close to the previous year’s level. Earned fees and commissions gradually improved during four consecutive quarters and we believe this trend should strengthen in 2017,” noted Andrey Shalimov, Deputy Chairman of the Management Board, “Continuous control over operating expenses will further reduce the cost-to-income ratio. Maintaining the quality of the loan book and recovery of existing problem cases are priority areas for the bank. In the current year the ongoing normalization of the cost-of-risk should also contribute to higher profits.”

The bank earned Rub 2.1 billion of net profit for 2016 compared to a net loss of Rub 3.8 billion for 2015 due to positive dynamics of all components of the income, moderate provisioning and a decrease in operating expenses.

The bank’s ROE for 2016 was 9.4% while the ratio for Q4’16 was even more impressive, 15.3%. Annual ROA reached 0.93%.

Operating profit before provisions for 2016 grew by 23% compared to the previous year to Rub 7.2 billion. The ratio of profit before provisions and income tax to equity improved by 6 pp YoY to 32%.

In 2016 the bank earned net interest income (NII) of Rub 10.4 billion, 3% more than in 2015. During the year both interest income and interest expenses increased by the same 3% to Rub 24.4 billion and 14.1 billion respectively. Increase in the share of more marginal retail lending within the loan book structure was the main reason of the interest income growth.

During the year the bank continuously improved interest spread from 5.9% in Q1’16 to 7.1% in Q4’16 as the cost of funding decreased faster than yields on earning assets. Nevertheless, annual net interest spread for 2016 narrowed to 6.4% from 7.0% for the previous year due to the lower level of interest rates on loans and additional expenses on interbank funding paid early in the year.

The bank succeeded in keeping NIM on average assets above the targeted level of 4.5%. NIM for 2016 was 4.6% compared to 4.7% for 2015.

Net fees & commissions for 2016 were Rub 4.3 billion and exceeded the result of 2015 by 14%. Within its composition earned fees & commissions grew by 13% to Rub 5.2 billion YoY while paid fees & commissions increased by just 9% during the same period to Rub 0.8 billion. Transaction fees, targeted by the bank, were the main driver of the growth. The bank earned Rub 1.7 billion of transaction fees in 2016 compared to Rub 1.1 billion in 2015. Net fees & commissions comprised 27% of total operating income before provisions for 2016 (25% for 2015).

For the second year in a row the bank’s efforts on cost cutting brought positive results. In absolute terms operating expenses decreased by Rub 0.3 billion (-3%) versus the previous year to Rub 8.8 billion. The bank saved on personnel costs that contracted as a result of staff reductions by 13% to 4,716 people. Other costs of premises and equipment, rent and other expenses also reduced YoY. Cost-to-income ratio dropped to 55% in 2016 from 61% a year ago.

Assets of the bank grew by 7% during the year and reached Rub 239 billion as of December 31, 2016. The increase in net loan book by 11% to Rub 175 billion was the main reason of that growth. The share of the liquid assets decreased by 2.9 p.p. since the beginning of the year to 19.2% of the total assets as some liquidity was redeployed into loans. Cash & cash equivalents dropped by 15% as a result of a decline in balances on correspondent accounts and overnight deposits with the banks of other countries. Moreover, due to financial markets calming down the bank reduced the cash reserve traditionally accumulated in anticipation of the New Year vacations at the year-end.

In 2016 the proportion of interest-earning assets improved, in average terms it rose from 80% to 83% during the year. The loan-to-deposit ratio decreased by 7 pp to 95% since the beginning of 2016 as customer funds grew faster than loans.

During 2016 the bank increased investments into securities by 8% to Rub 18.5 billion as of the end of the year. In order to keep the optimal balance of short duration and appropriate profitability of the portfolio the bank bought more OFZ, corporate bonds and Eurobonds than a year ago.

In 2016 gross loans grew by 10% to Rub 190 billion with retail loan book surged by 21% to Rub 64 billion and corporate and SME loan portfolio increased by 5% to Rub 126 billion.

During the second half of the year the bank completed the re-segmentation of the existing client base of legal entities. It was divided into two categories, corporate business customers (CB) and SME customers (SME), using annual sales as main criteria. As of December 31, 2016 according to the results of the re-segmentation CB loans comprised 50% of the total loan portfolio (including 5% share of loans to administrations), SME loans 17% and retail loans 33%.

Record high increase in retail lending by Rub 11 billion per the year was supported by the bank’s participation in the state-subsidy program as well as partnership programs with developers, realtors and construction companies. During the year mortgages grew by 27% to Rub 45.5 billion. Consumer loans added 13% YoY and totalled Rub 16.5 billion as of the end of 2016.

In Q4’16 total NPLs1 amount was reduced to Rub 14.8 billion (-10%) as a result of writing off SME loans for the amount of Rub 3.7 billion, sale of several loans under cession agreements for Rub 0.6 billion and loans recovery for Rub 0.6 billion via seizing collateral. In general, NPLs share decreased to 7.8% of the loan book compared to 8.1% as of the end of 2015.

In CB segment NPLs totalled Rub 8.9 billion with the share of 9.4%; in SME segment NPLs amount was Rub 4.2 billion as of the end of the year with the share of 13.2%. During the year retail NPLs grew by Rub 350 million to Rub 1.7 billion due to the increase in overdue loans in consumer lending. Nevertheless, as total retail portfolio rose tremendously the share of NPLs went up by just 10 bp to 2.6%, significantly below the average level for the sector.

In Q4’16 cost-of-risk was equal to 1.75%, a reduction of 41 bp on a quarterly basis. Annual cost-of-risk decreased to 2.3% from 5.7% for 2015. During 2016 the bank charged Rub 4.1 billion to provisions for loan impairment and used Rub 4.0 billion of existing provisions for writing off impaired loans. The bank for the first time applied the recovery rate based on the historical data of pledges realization for calculating provisions for mortgages impairment. As a consequence, it recovered Rub 292 million of provisions for retail loans impairment. Total provisions for loans impairment amounted to Rub 15.1 billion as of the end of 2016 compared to Rub 15.9 billion a year ago. As of December 31, 2016 NPLs coverage by provisions was 102% compared to 113% as of December 31, 2015.

During 2016 the volume of funding due to banks went down to Rub 4.2 billion from Rub 19.8 billion as of the beginning of the year. In H1’16 the bank repaid the full amount of loans raised late 2015 from the Bank of Russia (Rub 12.3 billion). Afterwards the outstanding loans provided by other banks were repaid according to set schedules and during the year their amount declined from Rub 7.2 billion to Rub 4.1 billion.

Customer funds grew by 18% YoY and reached Rub 201 billion as of the end of the reporting period. Corporate accounts were the most dynamic part of clients funding: balances on transaction accounts rose by Rub 10 billion YoY (+37%) to Rub 36 billion and term deposits of companies added Rub 11 billion YoY (+68%) and reached Rub 27 billion.

In 2016 retail funds increased by 8% and totalled Rub 138 billion as of December 31, 2016. Savings of individuals grew by 10% to Rub 120 billion outpacing the sector (as per the Bank of Russia data the growth rate for the banking sector was +4.2%).

At the end of 2016 the bank’s SPVs CJSC IAV 1 and CJSC IAV 2 redeemed mortgage backed bonds of “A” and “B” classes issued in the course of securitization of the bank’s mortgage portfolio in 2011 and 2013 respectively. The first securitisation was closed due to the full redemption of the senior tranche. Redemption of the second securitisation was made ahead of schedule. Thus in the bank’s statements as of December 31, 2016 mortgage backed bonds amounted to Rub 3.4 billion compared to Rub 5.9 billion as of December 31, 2015.

The bank’s equity under IFRS grew by 7% YoY to Rub 24 billion due to retained earnings in the amount of Rub 2.1 billion. The equity revaluation reserve for investment securities available for sale decreased by Rub 0.6 billion during the year as part of the accumulated revaluation was realized via securities sale and recorded in the profit & loss account in Q2’16.

Total capital calculated as per Basel III requirements grew by 3% during the year to Rub 31 billion. Tier I CAR declined by 15 bp YoY to 11.3% (minimum 4.5%) and total CAR by 1 pp to 15.5% (minimum 8.0%) due to the increase in RWA. N1.1 norm according to the Bank of Russia requirements (common equity Tier 1 CAR) was 8.1% as of the reporting date (minimum acceptable level 4.5%) while N1.0 norm (total regulatory CAR) was 12.4% (minimum acceptable level 8%).

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