VTB Group announces IFRS results for the full year and the fourth quarter of 2019

VTB Group announces IFRS results for the full year and the fourth quarter of 2019

VTB Bank (“VTB” or “the Bank”), the parent company of VTB Group (“the Group”), today publishes its Consolidated Financial Statements for the three months and twelve months ended 31 December 2019, with the Independent Auditor’s Report on these Statements.

Andrey Kostin, VTB President and Chairman of the Management Board, said: "VTB achieved the strategy target and recorded net profit of RUB 201.2 billion in FY 2019. All business lines demonstrated solid performance.

“VTB Group added over one million new customers in 2019, bringing the total number of clients to 13.9 million. We significantly improved our market positions in Retail and SME banking, rapidly grew in personal investments business, and retained market leadership in in corporate and investment banking.

“This success has been supported by the progress in digital transformation leading us to excel in customer servicing and laying ground for further improvements in operational efficiency.”

FINANCIAL HIGHLIGHTS

RUB billion	31-Dec-19	30-Sep-19	31-Dec-18	Change in FY 2019, % or bp	Change in 4Q 2019, % or bp
Total assets	15,516.1	15,624.6	14,760.6	5.1%	-0.7%
Loans and advances to customers (before loan loss provisions)	11,461.5	11,912.7	11,423.5	0.3%	-3.8%
Gross loans to legal entities	8,096.2	8,491.3	8,435.0	-4.0%	-4.7%
Gross loans to individuals	3,365.3	3,421.4	2,988.5	12.6%	-1.6%
Customer deposits	10,974.2	11,288.4	10,403.7	5.5%	-2.8%
Deposits from legal entities	5,932.6	6,485.7	5,995.8	-1.1%	-8.5%
Deposits from individuals	5,041.6	4,802.7	4,407.9	14.4%	5.0%
NPL ratio	4.7%	5.5%	5.7%	-100 bps	-80 bps
LDR ratio	98.2%	99.1%	102.8%	-460 bps	-90 bps

VTB achieved significant improvements in asset quality during 2019, and significantly grew its SME lending

Loan portfolio

• The Group’s loan book grew by 0.3% in FY 2019 to RUB 11,461.5 bn.
• The retail portfolio saw growth of 12.6% in FY 2019. This growth included significant deals on mortgage securitisation, which contributed to a 1.6% decline in overall retail loans during 4Q 2019. Excluding the securitisation of mortgage loans, the retail loan book would have grown by 19% in FY 2019 and 4% in 4Q 2019.
• Consumer lending has increased by 14.2% since the beginning of the year, despite a 1.4% decline in 4Q 2019. Mortgage lending rose by 11.9% in FY 2019, with a 2.2% decline in 4Q 2019 due to a securitisation transaction.
• As of 30 September 2019, secured loans (mortgages and car loans) accounted for 52% of total retail lending, unchanged from the beginning of the year.
• The corporate loan book declined by 4.0% during FY 2019, primarily due to a series of large loan repayments in the fourth quarter, which led to a 4.7% decline in overall corporate loans during 4Q 2019.
• The loan book in the SME segment saw excellent growth, expanding by 10% since the beginning of the year and decreasing by 2% in 4Q 2019. The share of loans to SME borrowers in the total corporate loan book has increased by 230 bps since the beginning of the year to 18%.
• The Group’s market share in Russia in corporate and retail lending stood at 18.2% (-40 bps for FY 2019) and 17.4% (-30 bps for FY 2019), respectively.

Customer deposits

• Customer deposits amounted to RUB 10,974.2 billion, up by 5.5% as of 31 December 2019. Deposits declined by 2.8% during 4Q 2019 due to an 8.5% decrease in corporate deposits, which was partially balanced by 5.0% growth in retail deposits during the quarter.
• Customer funding amounted to 79.2% of the Group’s liabilities at the end of 2019. The loans-to-deposits ratio was 98.2% as of 31 December 2019, compared to 99.1% as of 30 September 2019 and 102.8% at the end of 2018.
• The Group’s market share in Russia in corporate and retail funding stood at 20.2% (- 50 bps in FY 2019) and 15.1% (+110 bps in FY 2019), respectively.

Income statement

The P&L statement components have been compared with modified financial results for 2018 for the purposes of accuracy of the year-on-year analysis (revenue and expenses of VTB Bank (Belgrade) JSC, “Post Bank”, PJSC,"Multicarta“, LLC,VTB Bank, (Ukraine) PJSC and of all companies within VTB Insurance Group have been excluded as if these companies have not been consolidated by the Group during 2018; gain/loss recognised on disposal of subsidiaries reflected in the line “Gains from disposal of subsidiaries and associates” have not been adjusted).

RUB billion	FY 2019	FY 2018	Change, %	4Q 2019	4Q 2018	Change, %
Net interest income	440.6	439.7	0.2%	116.8	109.0	7.2%
Net fee and commission income	108.5	84.0	29.2%	41.2	20.7	99.0%
Operating income before provisions	610.4	589.0	3.6%	185.4	162.5	14.1%
Provision charge*	-103.3	-154.6	-33.2%	-25.5	-55.7	-54.2%
Staff costs and administrative expenses	-254.2	-225.8	12.6%	-69.9	-71.4	-2.1%
Net profit	201.2	178.2	12.9%	73.2	41.6	76.0%
ROE	12.8%	11.9%	90 bps	17.9%	11.0%	690 bps

* Includes provision charge for credit losses on debt financial assets, provision charge for credit losses on credit related commitments and other financial assets and provision charge for legal claims and other commitments.

In FY 2019 VTB Group’s net profit was up 12.9% driven by robust fee and commission income growth, improving asset quality

• The Group’s net profit for 4Q 2019 was RUB 73.2 billion, an increase of 76.0% year-on-year. Net profit for FY 2019 was up by 12.9% year-on-year to RUB 201.2 billion, in line with guidance.
• Net interest income amounted to RUB 440.6 billion in FY 2019, compared to RUB 439.7 billion a year earlier. Net interest margin for FY 2019 amounted to 3.4%, compared to 3.7% for FY 2018. Funding costs were 30 bps higher year-on-year at 5.2% for FY 2019, driving a 19,4% year-on-year rise in interest expense, while interest income rose at a slower pace of 11.0% year-on-year as return on interest-earning assets decreased by 10 bps to 8.4% compared to FY 2018.
• A series of reductions in the key rate that began in the second half of June 2019 spurred a growth trend in the Group’s net interest margin, which was 3.5% in 4Q 2019, compared to 3.3% in 3Q and 2Q 2019.
• Net fee and commission income rose by 29.2% year-on-year to RUB 108.5 billion in FY 2019. In 4Q 2019, net fee and commission income amounted to RUB 41.2 billion, an increase of 99.0% year-on-year. Strong fee growth was further enhanced by strong fees from operations with securities and on capital markets, robust growth of fees received for insurance products distribution and agents’ services and by recently consolidated banks.

Cost of risk was below guidance, with lower provision charges supporting overall performance

• Cost of risk for 4Q 2019 was 0.6%, which contributed to FY 2019 cost of risk of 0.8%; these represent year-on-year decreases of 110 bps and 70 bps, respectively. Provision charges amounted to RUB 25.5 billion in 4Q 2019 and RUB 103.3 billion in FY 2019, down by 54.2% and 33.2%, respectively, year-on-year. The decrease in the cost of risk and the decline in provision charges was driven by stable credit quality across all business segments.
• The Group’s NPL ratio decreased to 4.7% of gross customer loans as of 31 December 2019, declining by 100 bps from 31 December 2018 and by 80 bps from 30 September 2019. The allowance for loan impairments as of 31 December 2019 was 6.0% of the total loan book, compared to 6.1% as of 30 September 2019 and 6.4% as of 31 December 2018. The NPL coverage ratio increased significantly during 2019, reaching 128.7% as of 31 December 2019, compared to 112.4% as of 30 September 2019 and 112.0% on 31 December 2018.

Operating expenses increased as a result of the consolidation of recently acquired banks and costs related to transformation, while the pace of the increase slowed in H2 and Q4

• Personnel and administrative expenses amounted to RUB 254.2 billion for 12M 2019, up 12.6% year-on-year. At the same time, the expenses decreased in 4Q 2019 by 2.1%to RUB 69.9 billion.
• The costs to income ratio (CIR) continued to improve, amounting to 46.6% in H1, 37.8% in Q3, 37.7% in 4Q and 41.6% in 12M 2019.

OTHER RESULTS

Leadership in investment banking

• In February 2020 VTB Capital was named by Global Finance magazine as the Best Investment Bank in Emerging Markets for the third consecutive year and the Best Investment Bank for New Financial Technology in Central and Eastern Europe.
• VTB Capital also took first place for 2019 in debt capital markets rankings for Russia, the CIS and Eastern Europe in ratings by Dealogic, Refinitiv and Bloomberg.

Developing VTB Capital Investment’s platform for retail clients

• VTB Capital Investments continued its robust development, with RUB 1.9 trillion of assets under management as of 31 December 2019. The fastest growth was in personal investment management, with the client base increasing 2.5-fold to over 700,000 retail clients in 2019 and assets under management up by 60% to RUB 922 billion. VTB Capital Investments was recognized as “Best Broker” in 2019 by the Moscow Exchange.
• The VTB My Investments mobile app saw active users increase 6-fold, with over 170,000 users and more than RUB 2 trillion in transactions conducted via the app in 2019. This rapid growth was driven by the introduction of new features, such as online account opening, the ability to participate in IPOs, and the purchase of OFZ-n bonds. A robo-advisor that offered automated advisory services to clients via the app is available 24/7.
• VTB Capital Investments launched six ETFs in 2019, making it the leading ETF provider, while also offering unsurpassed transparency by providing real-time information about the makeup of each fund.
• Mutual investment funds offered by VTB attracted RUB 49.5 billion in new funds from investors during 2019, which represents roughly half of all funds invested in Russian mutual funds during the year.
• VTB became the first bank in Russia to use Open API technology for its investment products, with a platform solution that can serve an unlimited number of partners. VTB Capital Investments has used this technology in partnership with Post Bank and the website quote.rbc.ru to enable their retail clients to open brokerage accounts and conduct transactions.

Advanced development projects

In 2019, the general management model for advanced development projects (non-banking services and VTB Group projects) was approved. This included detailing the decision-making model and methodology for considering potential cases. This was done with the goal of building a digital ecosystem, the key components of which will be launched as early as 2020. The digital ecosystem is expected to be fully functional by 2022. As of the end of 2019, the following projects had been implemented:

• Roll-out and scaling of projects: Unicom 24, First OFD, Digital Residential Property Management (Domilend).
• Launch of MVP (mutual value products): Digital Accounting, VTB Business Connect, VTB Mobile, Housing Ecosystem.
• Creation of a team / design company Lifestyle platform for individuals.

DIGITALISATION OF THE BUSINESS

Retail Business

In line with our strategic focus on digitalisation of our retail banking business, in 2019 we launched several key digital projects:

• VTB Bank was one of the first banks in Russia to join the Bank of Russia’s Faster Payments System for individual bank transfers that use phone numbers as a simple identifier;
• Launched a biometric platform that enables facial and voice recognition of bank customers;
• Implemented a digital mortgage project: customers no longer need to visit the Bank’s branches to apply for a mortgage and can now submit an application, generate documents and receive a decision through the VTB mobile application;
• Launched a digital multicard solution. This technology will enable the issue of a digital debit card directly to VTB Online, with no plastic card needed;
• Launching a marketplace for automobiles: customers can choose a new car directly on the Bank’s website and arrange a car loan;
• Piloted ATMs with built-in video consultation technology. The “VTM” technology can be developed to cover more than 90% of the standard services handled by managers in offices and customer service times.

Medium and Small Business

The non-banking services platform launched in 2019 will enable small and medium enterprises (regardless of whether they are clients of VTB) to access modern tools for automation of business processes and increasing efficiency. This platform offers cloud solutions and services from leading Russian companies in areas like accounting, tax reporting, business security, payments, launching online businesses, etc.

In 2019 digital accounting and VTB Business QR pilot projects were launched, which are two of the most-requested services from small businesses.

Corporate Investment Business

• Launched digitalisation of corporate loan origination, which will lead to reduced times to make credit decision and cost savings for the Bank;
• Introduced process for opening new corporate accounts via the Bank’s website;
• Completed project to modernise Moscow metro turnstiles, which now accept contactless bank card payments;
• Introduced My Smart City mobile app, developed with the active participation of the Moscow Government. My Smart City offers popular functions such as: information on cultural events, information about traffic and public transport, payments for housing and communal services, replenishment of parking accounts, payment for school meals, replenishment of the Troika transport card, voting for the Active Citizen platform, local services of the My Neighbourhood programme and other options.

31 December 2019 Consolidated Financial Statements 26.02.2019, pdf, 3.12 Mb