Retail lending boom lifts VTB profit past forecast

MOSCOW Thu Dec 20, 2012 9:11am EST

A sign displaying the logotype of VTB Bank, covered with icicles, is seen above the bank office in central Moscow February 27, 2012. REUTERS/Sergei Karpukhin

A sign displaying the logotype of VTB Bank, covered with icicles, is seen above the bank office in central Moscow February 27, 2012.

Credit: Reuters/Sergei Karpukhin

MOSCOW (Reuters) - VTB (VTBR.MM), Russia's second-biggest bank, lifted third-quarter profit by 40 percent on the back of a retail lending boom and expects to outpace the market in domestic loan growth next year.

Russian banks have been aggressively expanding into retail lending, riding economic growth, rising incomes and a consumer splurge on new TVs, cars and other items.

VTB expects retail lending to rise by at least 25-27 percent next year, with loans to large companies expanding by 10-15 percent.

Chief financial officer Herbert Moos said he saw retail lending growing faster than the market while corporate loans would be in line with the market.

To support its lending growth, VTB is considering an additional share issue next year, although the state, which owns 75.5 percent of VTB, does not plan to participate, Moos said.

The growth in retail lending - already exceeding 30 percent across the domestic banking system this year - is raising concerns that Russians are overstretching themselves and banks will be stuck with bad loans.

Rival Sberbank's (SBER.MM) latest quarterly results showed strong retail lending with the fastest pace coming from unsecured loans to purchase items such as TVs.

VTB said provisions for possible non-performing loans rose to 12.7 billion roubles for the third quarter from 8 billion a year ago.

Its loan growth before provisions stood at 4.1 percent since the start of the year with the corporate book down 0.4 percent and retail lending up 24.6 percent, lifting net interest income.

Net interest income, the difference between interest earned and interest paid, rose almost 15 percent year-on-year to 61.9 billion roubles in the third quarter, raising net profit to 26.6 billion roubles ($864.5 million) from 19 billion last year.

A Reuters poll of analysts forecast it would post 20.4 billion roubles. [ID:nL5E8NH65Y] VTB's net interest margin stood at 4.1 percent in the third quarter, flat from the previous quarter.

The bank's full-year profit - which it earlier forecast at over 100 billion roubles - could be supported by selling a 20 percent stake in iron ore miner Metalloinvest it bought last year. Dmitry Pyanov, senior vice-president, said the bank would likely make only a small profit on the deal.

VTB bought the stake in Metalloinvest - controlled by the country's richest man Alisher Usmanov - for a price of between $2 billion and $3 billion.

FUNDING EXPANSION

Russian banks are showing the highest lending growth - of around 60 percent - in consumer loans, according to the central bank, which expects the boom to last for two more years.

The regulator has warned it plans to demand tougher provisions to guard against default in the lowest-risk category of retail loans.

Rapid retail lending is eroding banking capital, a liquidity cushion needed to absorb possible shocks. Since the beginning of the year, banking capital is up only 10.7 percent, underperforming growth in lending.

VTB said its Tier 1 capital stood at 9.3 percent as of September 30, up from 9.0 percent from December 31. To improve its capital, the bank issued perpetual bonds earlier this year. <ID:ID:nL5E8M2A11>

Moos said VTB would issue additional shares next year if market conditions allowed, with proceeds going towards bolstering the bank's capital to enable it to expand lending.

The state sold a 10 percent stake in VTB last year for $3.3 billion and plans to cut its stake by another 10 percent.

CEO Andrei Kostin has said that the offering could raise at least $2 billion.

(Editing by Megan Davies and David Cowell)