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H1 2011 IFRS ResultsFrom volumes to returns
Conference Call
August 18, 2011
2
Key takeaways
Despite low interest
rate environment…
…solid and high-
profitable balance
sheet structure…
…results into material
margin growth
Inflationary environment was steady in Q2 – just 0.0-0.1% weekly level
with distinct downward trend from 9.4% YoY by the end of June
CBR kept refinancing rate at 8.25% in May managing liquidity in the
system with deposit (+25bps to 3.5%) and repo rates (5.5%). Excessive
liquidity in banking system is gradually shrinking
Average corporate loan rates continued to fall in April (to 8,3%) and May
(to 8.0%) hiking in June to 8.7%
LTD ratio stood at solid 98.1% with interest earning assets comprising
77% of total assets
Loan portfolio share increased from 62% a year ago to 69% driven by
loans expansion in retail (40% YoY) and SME (30% YoY)
Though IEA grew, the bank kept adequate liquidity cushion of 24%
Interest income grew by 12% QoQ on the back of reasonable interest
rate policy and healthy lending growth
Interest expenses contracted by 6% QoQ driven by eliminating “sticky
deposits” effect following next 39bps cost of funds reduction from 4.69% to
4.3%
NII boosted by 36% resulted in long-awaited NIM rebound by 106 bps
from 3.2% in Q1 to 4.3% in Q2
3
Financial highlights
Q2’11 Q1’11 Q2’10 QoQ YoY
NIM 4.3% 3.2% 3.7% +1.1 pps +0.6 pps
Net interest income 1,857 1,364 1,379 +36.1% +34.7%
Net fee income 1,192 1,006 975 +18.5% +22.3%
Operating expenses (2,091) (1,798) (1,679) +16.3% +24.5%
Net income 395 317 121 +24.6% +226%
ROE 9.1% 7.5% 2.9% +1.6 pps 6.2 pps
Gross loan portfolio 132,729 126,036 102,474 +5.3% +29.5%
Customer accounts 135,288 136,874 118,075 -1.2% +14.6%
L/D 98.1% 92.1% 86.8% +6.0 pps +11.3 pps
NPLs 11,030 11,061 10,814 -0.3% +2%
NPLs as % of loan portfolio 8.3% 8.8% 10.5% -0.5 pps -2.2 pps
Capital adequacy 13.6% 14.1% 17.2% -0.5 pps -3.6 pps
4
3,7% 3,3% 3,5% 3,2%4,3%
NIM
-2,1 -2,0 -1,9 -1,8 -1,7
3,5 3,2 3,3 3,1 3,5
Interest Expenses
Interest Income
Q1’11Q2’10 Q3’10
+0.4%
Q4’10
+12.1%
-19.4%
Interest
Income and
Interest
Expenses,
RUB bln
NIM
evolution
+52 bps
Q1’11Q2’10 Q3’10 Q4’10
Q2’11
Q2’11
-6.2%
- Interest income grew +0.4% on a year-on-year
basis first time since the beginning of the
crisis as a result of yields stabilization and
loan growth. During the quarter interest
income gained 12.1% versus 5% QoQ growth
of the loan book.
- Efforts on funding costs optimization resulted
in interest expenses decline for the 4th quarter
in a row (-6.2% QoQ) due to retail deposits re-
pricing.
- Net interest margin on total average assets
hiked by 106 bps QoQ driven by loan book
growth and contraction of interest expenses
Impressive NIM rebound
5
31,9% 32,9% 35,3% 28,9% 25,9%
36,2% 36,5%
50,9%
41,9%40,2%
Personnel expenses
Other expenses
Sizeable fee-income supports revenue expansion
1,4 1,3 1,4 1,4 1,9
1,0 1,0 1,1 1,01,2
0,1 0,2 0,1 0,2
0,1
-1,7 -1,7-2,3 -1,8 -2,1
Net interest income
Net fees
Q2’10 Q3’10 Q4’10 Q1’11
+24.5%
+28.3%+24.6%
Operating
Income and
Expenses,
RUB bln
Cost to
Income
before
provisions,%
-2.16 pps
Q2’10 Q3’10 Q4’10 Q1’11
+16.3%
Q2’11
Q2’11
- Fee-generating products demonstrated
excellent performance, net fees grew by 22%
YoY while total non-interest income increased
by 20% YoY. This resulted in solid 41% share
of non-interest income in total operating
income before provisions. Total revenue was
up 24.6% QoQ driven by stronger fees from
settlements and cash transactions coupled
with healthy loan growth.
- Operating expenses increased by 16.3% QoQ
primarily resulted from to the growth of
personnel expenses as we accrued provisions
for payment of annual bonuses for 2011 across
2-4th quarters in equal parts.
- Cost to income ratio declined by 4.75 pps QoQ
due to accelerated revenue growth in the
second quarter.66%71%
86%
69%68%
6
0,10,2 0,2
0,30,4
Provisioning policy in line with expectations
-0,7 -0,6-0,003 -0,4
-0,6
0,8 2,3 0,4
0,71,1
Operating profit before provisions
Provisions
+36.3%
Q2’10 Q3’10 Q4’10 Q1’11
+24.6%+226%
Operating
profit and
provisions,
RUB bln
Net profit,
RUB bln
+44.9%
Q2’10 Q3’10 Q4’10 Q1’11
Q2’11
Q2’11
- Cost of risk accounted for 1.8% in the second
quarter compared to 1.2% in Q1 2011 and 2.7%
in Q2 2010, the level that implied by the
financial plan for 2011. Charges to provisions
amounted to Rub 576 mln in Q2 and this
allowed to improve total NPL coverage ratio to
109%. For the NPLs with overdue more than 90
days coverage ratio was at the level of 142%
- Bottom-line growth of 24.6% was supported by
solid NII increase coupled with robust net fees
dynamic.
- Revenue boost resulted in operating profit
growth of 44.9% QoQ
Net profit
7
Balance sheet remains stable…
Assets
RUB bln
102 106 115 126 133118 125 130 137 135
87% 84% 88% 92%98%
Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
Gross loans Customer funds
RUB bln
IEA share increased to 77% of total assets
5%
58%11%
8%
0%
18%
LTD ratio improving
Corporate loan
portfolioRetail loan
portfolio
Other assets
Due from other
banks
Cash and
equivalents
Securities
…while loan portfolio gains momentum
72,065,959,857,255,4
20,117,5
16,615,214,4
5,58,5
8,17,38,4
35,134,2
30,725,924,4
Q2'11Q1'11Q4'10Q3'10Q2'10
SME Individuals Administrations Large corporates
+29.5%
+5.3%
9 9 9 8 9
79 79 88 98 102
13 1416
16 1918 19
1417 14
1628 3433
34 30147 156 166 174
174
Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
Cash and equivalents
Due from banks
Securities
Retail loans
Corporate loans
Other assets
8
22 826
53 521
56 382
25%
15%4%
24%
6%
8%
4%3% 11%
Loans
Breakdown by industryMoscow oblast remains the key region
SMEs drive growth in corporate… …and mortgages in retail segment
RUB
132,729
mln
65,9 72,0
34,235,1
8,55,5
КВ1 2011 КВ2 2011
10,512,1
4,8
5,82,1
2,2
КВ1 2011 КВ2 2011
108,6 112,6
SME
Large clients
Administrations
+2.6%
-35.2%
+9.3%Mortgages
Consumer and
auto loans
Cards
+20.1%
+3.9%
+15.2%
Rub blnRub bln
20,1
17,5
Moscow Oblast
(41%)
Moscow (17%)
Other
regions
(42%)
*as of 30.06.2011 *as of 30.06.2011
Construction
ManufacturingAgriculture
Wholesale &
retail trade Administrations
Other
Transport
Individuals
RUB
132,729
mln
Total Loans
Corporate Loans
Retail Loans
VZRZ Sector
+31.5%
+5.4%QoQ
YoY +17.8%
+6.0%
VZRZ Sector
+29.5%
+3.6%QoQ
YoY +16.0%
+5.2%
VZRZ Sector
+43.0%
+16.2%QoQ
YoY +24.0%
+8.6%
9
850
2 1602 936
1 624 1 626
6,4% 6,4%6,4% 5,6%
7,0%
3,2%
8,0%
9,3%
4,6%4,6%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Large corporate
NPLs, RUB mln Provisions, % of total loans NPLs, % of total loans
+2 new NPLs
Credit quality management
NPLs categorization: improvements in SMEs
NPLs dynamics
15
Annualized cost of risk
* NPL includes the whole principal of loans at least one day overdue either on
principal or interest as well as not overdue loans with signs of impairment
8 605 8 155 8 117 8 195 8 025
12,9% 13,4%12,1%
11,6% 11,0%
13,9%12,9%
12,1%
11,2%10,4%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
SMEs
1 359 1 2771 025
1 242 1 379
7,2%7,0%
6,4%
6,2%5,3%
9,5%8,4%
6,2% 7,1% 6,9%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Retail
1,80%1,16%
0,01%
2,22%
2,70%
1,50%
1,16%
1,83%
2,51%
2,66%
Q2 2011Q1 2011Q4 2010Q3 2010Q2 2010
Charges to provisions to avg gross loans, QoQ
Charges to provisions to avg gross loans, YtD
- 857 recoveries
+657 new NPLs- 332 recoveries
+469 new NPLs
10 81411592
12078
11061 11030
10,44% 10,68% 9,71%9,15% 9,09%
10,55%10,98% 10,48%
8,78% 8,31%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
NPLs, RUB mlnProvisions, % of total portfolioNPLs, % of total portfolio
*
RUB mln
10
Credit quality
as of 30.06.2011Large
corporateSMEs Mortgages Other
retailTotal % of
total loans
Gross loans, including 35,109 77,491 12,138 7,991 132,729 100.0%
Current loans 33,483 69,466 11,428 7,322 121,699 91.69%
Past-due but not impaired, of them 0 112 504 187 803 0.60%
Less than 90 days - 112 444 172 728 0.55%
Over 90 days - - 60 15 75 0.5%
Impaired, of them 1,626 7,913 206 482 10,227 7.71%
Less than 90 days 776 995 - 34 1,805 1.36%
Over 90 days 850 6,918 206 448 8,422 6.35%
Total NPLs 1,626 8,025 710 669 11,030 8.31%
Provisions - 2,455 - 8,540 - 476 - 599 -12,070 9.09%
Net Loans 32,654 68,951 11,662 7,391 120, 658 -
Provisions to
NPLs Ratio
NPL -
109%
Rescheduled
Loans
6.1%the whole amount of loans with principal overdue for more than 1 day as well
as loans with any delay in interest payments.
Provisions to
90 days+
NPLs
142%
11
Maturity gap not higher than 5% of the balance
24%
27%21%
28%
Q1 2011
24%
23%
19%
34%
Q2 2011Less than 1 month
1-6 months
6-12 months
Over 12 months
Stable funding base…
Liabilities and capital
16 17 17 17 185 4 4 4 4
8 84 56 6 717 18 17 21 20
24 26 2831 3015 14
1715 17
6366
6970 69
147 156166
174 174
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Retail deposits
Retail accounts
Corporate deposits
Securities issued
Due from other banks
Subordinated loans
Equity
RUB bln
…with strengthening long-term retail resources
Capital position reflects business development
Rub bln
14,1% 13,5% 12,8% 12,0% 11,8%
17,2% 16,3%15,2%
14,1% 13,6% 12,7%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 30.06.11
Tier 1 Tier 1 + Tier 2 CAR under CBR rules
(N1)
11%
MIN
0
10
20
30
40
50
60
On demand and less than 1
month
From 1 to 6 months
From 6 to 12 months
More than 1 year
Total assets
Total libilities
12
3,20%
0,82%
0,30%0,00% 0,07%
4,26%
Q1 NIM Loans effect
Deposits effect
Other Base effect
Q2 NIM
Key factors of NIM recovery
3,7% 3,3% 3,5% 3,2%4,3%
6,5%
5,6% 5,8%
5,1%
6,3%
NIM
Interest Spread
+106bps
Q4’10Q2’10 Q3’10 Q1’11
3,6% 3,2% 3,7%
6,3%
5,1%5,7%
NIM Interest Spread
Q2’11 6M’112010 3M’11
Quarterly NIM rebound… …resulted in cumulative NIM recovery
+12bps
+106 bps6,49%
5,59% 5,79% 5,14%6,30%
12,9%11,6% 11,0%
9,8%10,60%
6,42% 6,00%5,21% 4,69% 4,30%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Interest SpreadYield on earning assets (net)Cost of funds
… and upward spread development
13
57%
14%
25%
3%1%
276 304 287 288 340
248 262 277 230291
159 170 190 196
226
292308 335
292
3359751 044 1 089 1 006
1 192
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Settlements Cash transactions Other Cards
23%25%
37%41%
0,0% 1,0% 2,0% 3,0% 4,0%
Net fee margin
vbank
peer 1
peer 2
peer 3
Fees and commissions
Key points
Net fee income distribution
RUB mln
Vbank’s share of net fee income in total operating income
before provisions remained one of the highest among Russian
banks and stood at 38% in Q2 2011 while fee margin was 2,7%
which is also higher than for our peers.
Fees and commissions demonstrated robust growth
of 22% YoY and remained well-diversified across different
banking products with main contribution from settlements
and banking cards.
Corporate business continued to be the driver of fee income
with 57% of fees generated followed by 25% from banking
cards business and 14% from retail segment.
Non-interest income breakdown by segments
57%
14%
26%
3%
Cards
Financial
Corporate
business
Retail business
Others
Strong non-interest income based on long-term
relations with customers
Cards
Financial Corporate
business
Retail business
Q1 2011 Q2 2011
* Vbank data as of 2Q’11, Peer1, Peer2, Peer 3 - FY2010
Share of non-interest
income in total operating
income b.p.
2,7%
+18.5%
+22.3%
14
Cost-to-Income ratio
Costs
72,3%
62,70%
52,7%48,7%
72,6%68,20%
2006 2007 2008 2009 2010 H1 2011
*2006 - less extraordinary items
*
Operating expenses breakdown
Costs summary
RUB mln
Since Q2 the bank started to accrue provisions for
2011 bonuses scheduled to be paid at year-end that
resulted into higher personnel costs.
8931 063
1 271
786735
820
Q2 2010 Q1 2011 Q2 2011
1 679
2 091
1 798
53%
39%
HR
Non- HR
Staff evolution
Given new accruals overall cost growth was 24.5%
YoY. However notwithstanding of adverse impact on
cost growth stemming from social tax changes in
2011, overall cost growth on the same basis was only
14.2% YoY and moderate 6.7% QoQ
Cost to income ratio for H1 2011 declined to 68.2%
from 72.6% for FY 2010
+16.3%
24.5%
6 146 6 146 6 164 6 164 6 211
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Average headcount per quarter (people)
Staff costs per average employee ('000 RUB)
15
ROE, %
Value generation
ROA, %
Earnings generation capability
2,9%
4,3% 4,4%
7,5%
9,1%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Key points* % of average assets
0,33%
0,47% 0,46%
0,74%
0,91%
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
Profitability is on track with all the components
demonstrating robust dynamic, though going forward
our mid-term target for ROE of 20% is still to be
achieved.
We kept improving our value generation capacity even
in the environment of low interest rates supporting the
revenues with non-interest income. In Q2 core
revenues recovered contributing to healthy bottom-
line.4,3%
3,0% -1,3%
-2,9%
-1,9%
-0,2% 0,9%
NIM Non-interest income
Provisions HR costs Non-HR costs
Tax Net profit
16
Questions and answers
[email protected] http://www.vbank.ru/en/investors
Elena Mironova
IR manager
+7 495 620 90 71
Andrey Shalimov
Member of the Management Board
Head of Treasury
17
Disclaimer
Some of the information in this presentation may contain projections or other forward-looking statements regarding future events or the
future financial performance of Bank Vozrozhdenie (the Bank). Such forward-looking statements are based on numerous assumptions
regarding the Bank’s present and future business strategies and the environment in which the Bank will operate in the future.
The Bank cautions you that these statements are not guarantees of future performance and involve risks, uncertainties and other important
factors that we cannot predict with certainty. Accordingly, our actual outcomes and results may differ materially from what we have
expressed or forecasted in the forward-looking statements. These forward-looking statements speak only as at the date of this presentation
and are subject to change without notice. We do not intend to update these statements to make them conform with actual results.
The Bank is not responsible for statements and forward-looking statements including the following information:
- assessment of the Bank’s future operating and financial results as well as forecasts of the present value of future cash flows and related
factors;
- economic outlook and industry trends;
- the Bank’s anticipated capital expenditures and plans relating to expansion of the Bank’s network and development of the new services;
- the Bank’s expectations as to its position on the financial market and plans on development of the market segments within which the
Bank operates;
- the Bank’s expectations as to regulatory changes and assessment of impact of regulatory initiatives on the Bank’s activity.
Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially
from those expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include:
- risks relating to changes in political, economic and social conditions in Russia as well as changes in global economic conditions;
- risks related to Russian legislation, regulation and taxation;
- risks relating to the Bank’s activity, including the achievement of the anticipated results, levels of profitability and growth, ability to create
and meet demand for the Bank’s services including their promotion, and the ability of the Bank to remain competitive.
Many of these factors are beyond the Bank’s ability to control and predict. Given these and other uncertainties the Bank cautions not to
place undue reliance on any of the forward-looking statements contained herein or otherwise.
The Bank does not undertake any obligations to release publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable laws.
