JSC VTB Bank - Final Results

RNS Number:0435S
JSC VTB Bank
10 April 2008

VTB announces record profits in its first year as a public company

Unaudited full-year results for the year ended 31 December 2007

Strategic highlights

• IPO in May 2007 raised almost US$ 8 billion

• Gained market share in all core business lines

• Opened 165 new VTB24 retail branches

• Began integration of VTB North West

• Continued expansion into CIS countries

• Extended capability to support clients outside CIS in Angola, India, and
China

• Strengthened corporate governance

• Optimised organisational structure and processes to reflect the new public
company status and to deliver on strategic objectives

Financial Highlights

• Total assets increased 76.7% to US$92,609 million

• Net income increased 28.4% to US$1,514 million, driven by strong growth of
the loan portfolio

• Doubling of total net loans and advances to US$ 58,549 million

• Tripling of retail gross loans to US$7,682 million reflecting success
of retail roll-out

• Core income (including net interest and fee and commission income before
exceptional item) increased by 48% to US$3,056 million

• Earnings per share increased 10.6% to the equivalent of 48.2 cents per 1
GDR or 2000 ordinary shares

• Further improved high quality loan portfolio

• Reduced proportion of overdue and rescheduled loans to total loans to
1.4% from 2.1%

• Reduced total provision charge as a proportion of average gross loan
portfolio to 1.3% from 1.8%

• Cost to income ratio increased to 53.6% from 50.8% driven by investments
in VTB24 retail network

• Strengthened capital base with BIS Tier 1+2 ratio at 16%, confirming solid
foundation for further asset growth, a particular advantage in current
market conditions

Andrey Kostin, President and Chairman of the Management Board of VTB Group
commented:

"This is our first annual results announcement as a public company and we are
delighted to be able to demonstrate VTB's strong financial health. We have
delivered on our objective of growing faster than the market. We have seen our
investment in retail and corporate banking in Russia bear fruit. We have also
begun building an investment banking capability to leverage our unique strengths
as the bank of reference for Russia and the CIS. VTB is well positioned in
these fast-growing markets, and we are continuing to build strong foundations
for longer term growth. Our Agenda by 2010 remains unchanged."

Contacts

Investor Relations:

Tel.: +7 495 775 71 39

Email: investorrelations@vtb.ru

Media Relations:

Tel.: +7 495 783 1717

Email: pr1@vtb.ru

About VTB Bank:

JSC VTB Bank and its subsidiaries (the VTB Group or the Group) is a leading
Russian banking group, offering a wide range of banking services and products
across Russia, certain CIS countries and in selected countries of Western
Europe, Asia and Africa.

As of December 31, 2007 the Group had a network of 586 branches located across
Russia, comprised of 152 branches of VTB, 328 branches of VTB24 and 106 branches
of VTB North-West. Outside of Russia, the Group operates through four subsidiary
banks located in the CIS (Armenia, Georgia, Ukraine and Belarus), six subsidiary
banks located in Europe (UK, France, Germany, Austria, Switzerland and Cyprus),
one subsidiary bank and one financial company in Africa (Angola, Namibia), and
an associated bank in Vietnam. VTB also has a presence in Singapore through a
branch of its UK subsidiary. VTB has operated under a full banking license, (1)
1000, from the Central Bank of the Russian Federation since 1990.

The Group's business franchise is in the areas of corporate, retail and
investment banking. In corporate banking, the Group provides a broad range of
commercial banking services and products including corporate lending, foreign
trade transactions, syndicated loans, deposit and settlement services, as well
as custody services, leasing and treasury services to large- and medium-sized
corporations and financial institutions. In retail banking, VTB offers financial
services, including deposit accounts, lending and certain ancillary services, to
individuals and small-sized corporations. In investment banking it provides
debt capital markets underwriting, project financing, merger and acquisition
financing, advisory services, asset management and venture funds.

The Group had 35,945 employees as of December 31, 2007. The Government of the
Russian Federation is VTB's main shareholder and owns, through the Federal
Property Management Agency, 77.5 % of its registered share capital. For more
information please visit www.vtb.com

Disclaimer

Some of the information in this release may contain projections or other
forward-looking statements regarding future events or the future financial
performance of JSC VTB ("VTB") and its subsidiaries (together with VTB, the "
Group"). Such forward-looking statements are based on numerous assumptions
regarding the Group's present and future business strategies and the environment
in which the Group will operate in the future. We caution 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 release and are
subject to change without notice. We do not intend to update these statements to
make them conform with actual results.

Statement of the President - Chairman of the Management Board

2007 has been a year of substantial progress for VTB.

One of the most significant developments for the Group was our IPO. Almost US$8
billion was raised in London and Moscow making it the largest IPO of 2007
worldwide. The two-year period of preparation for our life as a public company
marked a start of a new era for VTB both internally and in terms of business
strategy.

We embarked on the IPO for very sound reasons. In order to participate fully in
the huge opportunity for the bank, we needed access to the capital markets and
the commercial disciplines that come with a stock market listing.

The Russian economy is enjoying strong growth and financial services are now
emerging as a major beneficiary of the economic expansion. Structural reform is
now happening deep within the economy, fuelling demand for sophisticated
financial services from retail customers, small and medium sized businesses, and
larger corporations.

As a Russian bank to the core, with a strong tradition in Russia and the CIS, we
are well placed to benefit from the transformation that is taking place.
Although we are not entirely immune from what is happening in the international
credit and financial markets, our optimism about our long-term prospects remains
unchanged.

The placing of 22.5% of our stock with domestic and international investors was
the start of a journey. Last year we outlined to investors some ambitious
goals:

• to grow our business faster than the market;

• to develop an investment banking capability to service VTB's existing
corporate franchise;

• to develop a major retail banking presence to complement and balance our
corporate banking franchise;

• to improve our corporate governance and disclosure; and

• to improve our technology and infrastructure.

On each of those goals we can demonstrate real progress over the past year.

Our total net loans to customers have doubled to US$58,549 million while loans
to retail customers before provisions have tripled to US$7,682 million. Our
share of the corporate loan market has increased to 10.7% from 9.0%. We have
managed that growth while improving asset quality.

We recently announced plans to invest US$500 million over the next two years to
build a leading capability in investment banking. While this is a substantial
investment, we are confident that we can achieve our goal of a positive return
on that investment within three years. This will enhance our ability to service
our clients, as well as open up the opportunity to tap into substantial new
fee-based business. By opting for the "build not buy" route, we believe we can
target the skills we genuinely need and manage the risk and volatility inherent
in these types of businesses.

In retail banking, we pushed ahead with our branch-opening program and
strengthened the management team. In 2007, 165 branches were opened or migrated
from VTB and VTB North-West. With more than two million customers, our market
share in retail loans has increased to 5.9% from 2.6%, making us the number
three banking Group in Russia by share of retail loans. We are the number two
bank in Russia in terms of retail deposits with a market share of 4.8%.

Equally importantly, this has enabled VTB to become a more balanced business
with retail now accounting for 12.8% of the total loan book as compared to 8.4%
at the end of 2006 and with total loans now representing 63.2% of total assets,
up from 55.8% in 2006.

On the corporate governance front, we strengthened our supervisory board with
the addition of two independent directors, Matthias Warnig and Yves-Thibault de
Silguy, both having extensive international business background. We now have an
independent audit committee and a clear policy on insider trading, and are in
the process of approving a policy on information disclosure. We have adopted
the code of ethics setting out clear rules of conduct at all levels of our
business. Standard & Poor's ranked VTB the number two bank in Russia for good
information disclosure and transparency.

We have continued improving our IT systems to provide the Group with IT
infrastructure that meets best standards in terms of responsiveness, security
and functionality, with a special focus on improving the money transfer process.
We expect to see benefits in terms of efficiency, customer management capability
and risk control. Specific achievements in IT in the past year were:

• Investment in IT infrastructure including further development of
telecommunications networks, data processing and storage facilities;

• Introduction of Customer Relationship Management (CRM) software that will
result in a consolidated customer registry and improved customer service and
cross-selling;

• Development of a data warehouse that will assist with mandatory regulatory
and ad hoc reporting, financial analysis and accounting, risk management,
etc.

Another major event in 2007 was the integration of VTB North-West and the
migration of the business onto the VTB platform. This has allowed us to deliver
strong growth of VTB North-West's business. Although the merger of VTB and VTB
North-West was postponed, we have fulfilled our promise to minority investors
through an offer to acquire VTB North-West shares or exchange them for VTB
shares. As a result, VTB's stake in VTB North-West increased to 86% by year end
2007.

VTB has also expanded its presence in the CIS region and further abroad. We
acquired a banking business in Belarus and plan to invest to grow this bank's
branch network and assets in 2008. In Ukraine we have merged two banks and
integrated their businesses and opened 75 new branches extending the network to
204 branches at the year end. To serve our Russian clients better in other
regions we obtained a banking licence in Angola last year and opened branches in
India and China following the year end.

In short, this has been a year of restructuring, and of laying the foundations
for profitable growth in the future. There is still more to do and 2008 will be
a year of further investment.

In corporate banking, our priorities are to gain further market share while
focusing on increased client profitability and share of wallet, to diversify the
portfolio and to maintain net interest margin. To this end we are putting in
place clear incentive schemes for sales people rewarding staff on value of
products sold. We are adopting a segmented approach to customer targeting,
prioritising large corporates in the regions and mid-sized businesses in the
Moscow region, backed up by improved credit procedures based on state-of-the-art
internal rating methodology.

In retail banking, we have set out the following objectives for 2008: to expand
the VTB24 branch network to 500, to improve the retail banking products,
services and tariff structure, as well as to utilise VTB24 experience to expand
retail business in CIS countries, with primary focus on Ukraine and Belarus.

This year we plan to increase VTB's stake in VTB North-West, migrate the retail
business to VTB24, and continue to integrate the processes, including
unification of products, client coverage model, and IT systems.

As discussed above, this year we will significantly enhance our investment
banking capacity with operations in Moscow, London and Singapore. This capacity
will allow us to leverage our existing relationships with 2,400 large corporate
clients. Last month, we recruited a number of Moscow's leading investment
bankers to join the bank.

On corporate governance, we plan to add independent remuneration and nomination
committees to the Board of Directors to strengthen independent decision-making
and improve transparency for our investors.

The last few months have been difficult for banks generally. The fact that we
have delivered strong asset growth despite these problems is evidence of the
solidity of our business.

Although some funding avenues continue to be difficult to access for all banks,
the actions of the US Federal Reserve and other Central Banks indicate a
willingness to stand behind the system. Here in Russia, we and others have been
in discussion with the Central Bank of Russia about measures to improve
short-term liquidity, and we are confident that the authorities are ready to do
what is needed to keep the system functioning. The Central Bank has shown its
willingness to support the banking system by releasing funds against a wide
range of high-quality collateral.

VTB has a solid capital ratio, helped by the inflow of capital from the IPO last
May. Our 2007 results show that we are able to capitalise on the growth
opportunities available to us. There is a debate among economists about whether
the developing world can decouple from the US. As far as I can see, the
structural changes in the Russian economy are profound and long-term in nature.
The growth trajectory is unlikely to be impacted significantly from elsewhere.
Our management team will continue to ensure that VTB is positioned to win an
increasing share of that growth.

Statement of the Chief Financial Officer

2007 was a successful year for VTB Group. We believe that the growth we
delivered across our businesses, alongside the expansion of our business in
Russia and internationally, demonstrate our strengthening position in the
banking market. We have invested approximately US$130 million in the VTB24
retail network and in infrastructure development, and still delivered profits in
line with market forecasts.

We are pleased by the strong rate of asset growth, which has outpaced the market
and demonstrates the power of our business to gather high-quality assets. Assets
increased to US$92,609 million, up 76.7% from 2006, and net loans and advances
to customers increased to US$58,549 million, up 100.1% from 2006. The
proportion of the net loan portfolio to total assets has increased to 63.2% from
55.8% in 2006.

At the same time as we increase assets, we are maintaining a firm grip on credit
quality. The share of overdue and rescheduled loans in the gross loan portfolio
decreased to 1.4% by the end of 2007 from 2.1% at the end of 2006, while the
provisioning rate decreased to 1.3% from 1.8%. Coverage of overdue and
rescheduled loans by allowances for loan impairment stood at a comfortable level
of 176.5% as of December 31, 2007.

VTB Group's consolidated net profit for 2007 amounted to US$1,514 million, up
28.4% from 2006, as a result of strong loan portfolio growth. Core income,
which includes net interest and fee and commission income before exceptional
item, rose by 48.0% to US$ 3,056 million, reflecting strong growth throughout
the Group's key strategic areas. Net interest income grew by US$842 million
(49.2%), and net fee and commission income, adjusted for the IPO-related
depositary appointment fee, grew by US$149 million (42.5%) compared to 2006. Net
interest margin remained broadly stable at 4.4% with increased contribution from
our retail business.

Operating costs increased by 42.2% in 2007, reflecting the investment in growing
the business, particularly in retail, as we rolled out the branch opening
programme for VTB24. As a result our cost to income ratio increased to 53.6%
from 50.8%, but this investment will help us achieve our long-term objectives.

With a consolidated BIS Tier 1 capital of US$15,594 million, compared to
US$6,357 million at December 31, 2006, and total BIS capital of US$16,978
million, compared to US$7,646 million at December 31, 2006, the bank has been
able to continue to capitalise on its advantage in the fragmented domestic
financial services market to win new customers and increase volumes. By the end
of December 31, 2007, our total capital adequacy ratio was at 16% up from 14%
one year ago.

Given the current economic climate, VTB's strategy of diversifying its funding
sources has been particularly important. With its strong brand and financial
stability, VTB was able to increase customer deposits by 85.6% to US$37,098
million. Wholesale funding (which includes debt securities issued, other
borrowed funds and subordinated debt) increased by 32.7% to US$ 22,836 million.
In 2007, VTB successfully completed a number of planned funding transactions.
Landmark fund raising deals include a Series 11 issue for EUR 1 billion, the
largest Eurobond in EUR among Russian banks, and a Series 12 issue for GBP 300
million, the first ever GBP issue from Russia. Despite the uncertainty in the
international financial markets in the second half of 2007, in October VTB
issued a double-tranche Eurobond offering for the aggregate amount of US$2
billion within the new EMTN programme. This operation is the largest
international Eurobond issuance by a Russian non-sovereign borrower. This issue
received strong support from the international investment community in a number
of different financial markets, demonstrating confidence among international
investors in the strength of VTB's credit, and the stability of the Russian
banking sector.

In early 2008, equity markets worldwide fell dramatically and investors became
increasingly risk averse. In light of the uncertain market conditions, VTB
expects 2008 to be a challenging year. However, we believe that our plans remain
thoroughly appropriate for the markets in which we operate. In 2008, we expect
to be able to maintain the net interest margin at last year's level, and to
decrease our cost-to-income ratio. We are confident that we are on the right
track and well equipped to deliver the targets we have set.

The long-term outlook for the Russian economy remains strong. The readiness of
the Russian authorities to stand behind the banking system is an important
factor in maintaining confidence in the economy.

As a result, our agenda by 2010 remains unchanged:

• Grow faster than the Russian banking market in both corporate and retail;

• Increase share of retail business in bank loan portfolio to 25-30%;

• Maintain current level of net interest margin;

• Accelerate commission income growth;

• Target cost to income ratio of not higher than 50%; and

• Improve return on equity to 15-20%.

Consolidated Balance Sheet

Unaudited full-year results for the year ended 31 December 2007

US$, million 2007 2006

Assets

Cash and short-term funds 5 160 3 581
Mandatory cash balances with central banks 825 648
Financial assets at fair value through profit or loss 10 436 5 120
Financial assets pledged under repurchase agreements and 2 212 2 938
loaned financial assets
Due from other banks 9 733 6 813
Loans and advances to customers 58 549 29 262
Financial assets available-for-sale 858 888
Investments in associates 167 200
Investment securities held-to-maturity 5 11
Premises and equipment 1 997 1 422
Investment property 168 178
Intangible assets 480 455
Deferred tax asset 215 93
Other assets 1 804 794

Total assets 92 609 52 403

Consolidated Balance Sheet

Unaudited full-year results for the year ended 31 December 2007

US$, million 2007 2006

Liabilities

Due to other banks 14 794 7 587
Customer deposits 37 098 19 988
Other borrowed funds 5 176 4 468
Debt securities issued 16 489 11 565
Deferred tax liability 149 125
Other liabilities 1 231 509

Total liabilities before subordinated debt 74 937 44 242
Subordinated debt 1 171 1 169

Total liabilities 76 108 45 411

Equity
Share capital 3 084 2 500
Share premium 8 792 1 513
Treasury stock (21) -
Unrealized gain on financial assets available-for-sale and 109 154
cash flow hedge
Currency translation difference 663 352
Premises revaluation reserve 587 341
Retained earnings 2 993 1 744
Equity attributable to shareholders of the parent 16 207 6 604

Minority interest 294 388

Total equity 16 501 6 992

Total liabilities and equity 92 609 52 403

Consolidated Profit and Loss Statement

Unaudited full-year results for the year ended 31 December 2007

US$, million

Profit and Loss account as at December 31, 2007 2007 2006

Interest income 5 387 3 606
Interest expense (2 831) (1 892)

Net interest income 2 556 1 714
Provision charge for impairment (526) (442)

Net interest income after provision for impairment 2 030 1 272

Gains less losses arising from financial instruments at 138 218
fair value through profit or loss
Gains less losses from available-for-sale financial 116 348
assets
Gains less losses arising from dealing in foreign 547 73
currencies
Foreign exchange translation gains less losses 108 265
Fee and commission income 637 401
Fee and commission expense (80) (50)
Share in income of associates 18 15
Income arising from non-banking activities 95 111
Other operating income 123 157

Net non-interest income 1 702 1 538

Operating income 3 732 2 810

Staff costs and administrative expenses (1 948) (1 370)
Expenses arising from non-banking activities (63) (90)
Profit from disposal of subsidiaries and associates 98 54

Profit before taxation 1 819 1 404

Income tax expense (305) (232)

Profit after taxation from continuing operations 1 514 1 172

Profit from discontinued operations - 7

Net profit 1 514 1 179

Net profit attributable to:

Shareholders of the parent 1 480 1 137
Minority interest 34 42

Basic and diluted earnings per share 0,000241 0,000218
(expressed in USD per share)

Basic and diluted earnings per share - continuing 0,000241 0,000217
operations (expressed in USD per share)

Basic and diluted earnings per share - discontinued 0,000000 0,000001
operations (expressed in USD per share)

This information is provided by RNS
The company news service from the London Stock Exchange
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