* Working with government on plan to boost capital, lending
* Provisions charge more than doubles in Q1
* Hit by fall in Ukrainian hryvnia
* Shares slide 3 pct in Moscow
(Recasts with comments on capital strengthening)
By Megan Davies
MOSCOW, May 27 Russia's No.2 lender VTB
said it was working with the government on a plan to
boost banks' capital and lending, as a plunge in its net profit
and a rise in bad loan provisions showed the economic pain being
inflicted by the Ukraine crisis.
Once grouped with Brazil, China and India in the BRIC
acronym for fast-growing emerging markets, Russia is now
flirting with recession, hurt by tensions with Ukraine that
prompted the West to impose sanctions and led foreign investors
to flee as well as its currency and stock market to slide.
Russian President Vladimir Putin promised at an investment
forum on Friday the government would help systemically-important
banks by allowing them to convert subordinated loans to shares.
That would boost their capital positions and free them up to
lend more in support of economic growth.
"We are currently working with the government in relation to
a potential conversion of subordinated debt provided in
2008-2009," VTB Chief Financial Officer Herbert Moos said on
Tuesday. This would be converted into preferred shares.
"We expect that this conversion would materially improve our
Tier One (capital) ratio and we expect that this conversion
would be completed by end 2014," he said.
State-controlled VTB's Tier One ratio - a key
measure of a bank's ability to absorb losses - was 10.3 percent
at the end of the first quarter, lower than the average for the
20 largest euro zone banks at the end of 2013 of 11.85 percent.
Chief executive Andrei Kostin said a volatile economy and
geopolitical tensions had a significant impact on VTB's
quarterly performance, leading it "to be prudent and more
conservative in our lending and provisioning policies".
VTB's shares fell 3 percent in Moscow.
The bank said its provision charge for bad loans more than
doubled in the first quarter to 47.6 billion roubles ($1.4
billion), hitting net profit which fell to 400 million roubles -
far below analysts' forecasts of 12.9 billion.
"They charged a lot (for provisions) and the cost of risk
was far above our estimates," said Gazprombank analyst Andrei
VTB's non-performing loan ratio jumped to 5.8 percent of
gross customer loans from 4.7 percent three months earlier. Its
retail bank VTB 24 has "considerably reduced approval rates for
the riskiest customer segments", the bank added.
Return on equity (RoE) - a measure of a bank's profitability
- sank to 0.2 percent from 8.1 percent a year earlier, putting
it far below European peers.
Its cost of risk - a measure of its loan losses expressed as
a percentage of its total loan portfolio - rose to 2.8 percent
from 1.6 percent.
Net loss from foreign currencies was 8.2 billion roubles,
hit by a fall in the Ukrainian hryvnia, which is down
more than 40 percent this year. VTB had previously said its
exposure to Ukraine was 20 billion roubles and its operations
there amounted to about 2-3 percent of its total operations.
($1 = 34.1780 Russian roubles)
(Additional reporting by Oksana Kobseva and Laura Noonan,;
Editing by Elizabeth Piper and Mark Potter)