(Repeat for additional subscribers)
July 10 (The following statement was released by the rating agency)
The introduction of deferred tax accounting for
Russian banks boosted profits, Fitch Ratings says. But there is no credit impact
because the change was largely a one-off and does not affect underlying
The extent to which the change in local accounting standards affected net income
varied considerably. Most banks had a boost to net income, while few reported
We estimate that the introduction of deferred tax accounting accounted for 21%
of the sector's RUB311bn net income in the first five months of the year (5M14),
largely as deferred tax decreased income tax for the period. Underlying
profitability without the one-off boost was RUB244bn, generating a moderate
10.5% return on average equity.
For some of the large state-owned banks the boost from the accounting change was
significantly higher. The deferred tax gain accounted for 55% of net income at
VTB group's local banks and 29% at Gazprombank. The greatest distortion was at
Russian Agricultural Bank, which made a large underlying loss without the
Sberbank, in contrast, showed a deferred tax loss that lowered net income by 7%,
meaning that the underlying profitability was stronger than reported.
Among private banks, accounting gains had a significant effect on the bottom
lines of Nomos group (80%) and Bank Saint Petersburg (50%). Promsvyaz, Uralsib,
MDM and Zenit would have made a moderate loss without this one-off benefit. Alfa
and Credit Bank of Moscow were outperformers, demonstrating strong core
profitability that benefitted from below-average deferred tax boosts.
In the specialised retail sector, Sovcombank and Tinkoff had decent
profitability and deferred tax accounting had virtually no impact. Home Credit's
positive results were solely due to accounting gains. Underlying performance at
Russian Standard and OTP remained positive, despite a material share of profit
relating to the one-off accounting gain. Rencredit, Orient Express and Svyaznoy
continued to underperform with underlying returns deep in negative territory.
The Central Bank of Russia introduced the deferred tax concept into accounts
prepared under Russian Accounting Standards in March, aligning the treatment
closer to IFRS financial statements. The majority of banks reported them in
regulatory accounts in May. The impact was significant as previously the banks
did not report deferred tax assets or liabilities and had to reflect the whole
amount as either a gain or loss through the income statement, while future
changes are likely to be more moderate.
For detailed breakdown of the impact of introducing deferred tax accounting on
individual banks, please see the attached tables, which are only available to
Link to Fitch Ratings' Report: Russian Bank Profits Get One-Off Boost From
Deferred Tax - Data File