VTB Group announces IFRS results for October and 10 months of 2019

04 December 2019

VTB Bank, the parent company of VTB Group, publishes its unaudited consolidated IFRS results for October 2019 and the 10 months ended 31 October 2019.

Dmitry Olyunin, First Deputy President and Chairman of VTB Management Board, said:

"We started the fourth quarter with continuing improvement of core profitability on the backdrop of stable asset quality, slowing down of costs growth and further strengthening of balance sheet structure. The Group's net profit reached RUB 147.6 billion in 10M 2019  which corresponds to ROE of 11.4%, while in October 2019 net profit was RUB 19.6 billion (ROE 14.3%). Gross customer loans increased by 3.9% year-to-date, while retail loans grew by 15.8% and the share of retail loans in the total loan book reached 29.2%. Funding from customers grew by 10.8% year-to-date and its share in the Group's total liabilities rose to 82.4%. The results of October and 10M 2019 support our full year net profit guidance of RUB 200 billion".

In 10M 2019 VTB Group achieved measured growth and strengthened its market positions

• Total assets amounted to RUB 15.6 trillion as of 31 October 2019, up 5.7% year-to-date, including growth of loans and advances to customers (hereafter before provision charge for credit losses and other provisions) of 3.9% year-to-date to RUB 11.9 trillion.
• In 10M 2019 retail lending was the key growth driver having increased by 1.2% in October and by 15.8% year-to-date. In October 2019 loan portfolio to legal entities decreased by 1.0% due to repayment of several large exposures. In 10M 2019 loan portfolio to legal entities decreased by 0.4%. At the same time the Group achieved robust loan growth in SME segment where the loan book grew by 11.7% year-to-date (including SME assets of Vozrozhdenie Bank as of 31 December 2018).
• As of 31 October 2019 the Group's market share in Russia in corporate and retail lending reached 19.0% (up 30 bps year-to-date) and 18.5%* (up 70 bps year-to-date), respectively.
• Deposits from legal entities increased by 3.0% in October and by 11.4% in 10M 2019, while deposits from individuals increased by 0.9% in October and by 10.0% in 10M 2019 significantly outperforming the average market indicators.
• The share of customer funding in the Group's total liabilities reached 82.4% as of 31 October 2019 (31 December 2018: 78.6%). Out of total funding from customers 42.0% was raised from individuals as of 31 October 2019.
• As a result of accelerated growth of customer funding in 2019 the ratio of loan portfolio to customer funding (LDR ratio) dropped to 96.5% as of 31 October 2019 (31 December 2018: 102.8%).
• As of 31 October 2019 the Group's market share in Russia in corporate and retail funding was 21.7% (up 100 bps year-to-date) and 15.1% (up 110 bps year-to-date), respectively.

VTB Group substantially improved its profitability metrics due to growth in net operating income and the drop of provision charge for credit losses

• In October 2019 net profit amounted to RUB 19.6 billion, up 47.4% year-on-year. In 10M 2019 net profit was RUB 147.6 billion.
• Net interest income was RUB 37.8 billion in October 2019 (up 1.1% year-on-year) and RUB 361.6 billion in 10M 2019. The net interest margin in 10M 2019 reached 3.3%. We expect improvements in net interest margin and net interest income dynamics in November-December 2019 following the easing of monetary policy and on the backdrop of continued loan portfolio growth.
• Net fee and commission income was RUB 13.6 billion in October 2019 and RUB 80.9 billion in 10M 2019, up 52.8% and up 12.2% year-on-year, respectively. The Group's CIB business line was the key contributor to net fee and commission income growth in October.

Strong asset quality and decrease of cost of risk supported the bottom line result

• Cost of risk was 1.0% in October and 0.9% in 10M 2019, down 80 bps and 60 bps respectively. Total provision charge for credit losses and other provisions amounted to RUB 10.4 billion in October 2019 and RUB 88.2 billion in 10M 2019, down 39.5% and 24.0% year-on-year, respectively. The reduction of cost of risk and total provision charge reflects the improving asset quality across all business lines.
• The Group's NPL ratio decreased to 5.0% of gross customer loans as of 31 October 2019 (down 70 bps year-to-date).The Group has significantly increased the NPL coverage ratio to 124.3% as of 31 October 2019 (up 12.3 ppt year-to-date).

Cost growth in 10M 2019 was caused by the consolidation of recently acquired banks and uneven calendarisation, while the growth rate continued to slow down in October 2019

• Staff costs and administrative expenses amounted to RUB 206.7 billion in 10M 2019, up 17.4% year-on-year. The increase in staff costs and administrative expenses was largely caused by acquisition and subsequent consolidation of three banks (Bank Vozrozhdenie, West Siberian Commercial Bank and Sarovbusiness Bank) as well as strengthening of IT team. The costs growth significantly slowed down versus H1 2019 due to uneven year-by-year calendarisation of variable personnel costs. Additionally VAT increase in 2019 contributed to the growth of operating expenses.
• In October 2019, staff costs and administrative expenses increased by 3.7% year-on-year versus 19.4% year-on-year growth in 9 months 2019.
• On the backdrop of improving profitability the ratio of staff and administrative cost to operating income before provisions (CIR) continued to decline and was 38.8% in October 2019 versus 42.8% in 10M 2019.

The P&L statement components have been compared with modified financial results for 10 months 2018 for the purposes of accuracy of the year-on-year analysis (revenue and expenses of VTB Bank (Belgrade) JSC, "Post Bank", PJSC,"Multicarta", LLC,VTB Bank, (Ukraine) PJSC and of all companies within VTB Insurance Group have been excluded as if these companies have not been consolidated by the Group during 2018; gain/loss recognised on disposal of subsidiaries reflected in the line "Gains from disposal of subsidiaries and associates" have not been adjusted).

*- Without sales of portfolios to the mortgage agent in 2019.