Page 81 - RusRPTNov19

8.1.8 Bank news
Russia's second-largest bank VTB Bank reported mixed results under IFRS for January-August 2019 , with earnings declining by 7% year-on-year, net interest income down by 3% y/y and net interest margin inching up to 3.3% for the period. Nevertheless, the bank delivered strong fee income growth of 9% y/y, strong retail lending growth of 13% year-to-date, and 67% surge in net income with 13.4% ROE. To compare, the ROE of Russia's largest bank Sberbank was 23% in 1Q19. The slip on earnings does not change solid year-to-date performance, BCS Global Markets commented on October 4, noting that VTB's improvement in cost of risk (CoR) continues to offset the pressure from higher operating costs and weak net interest margin. The CoR picked up in August to 1.2% versus 0.5% in July , with 8M19 at 0.8%, below 2019 guidance of 1.2%. OpEx growth remains elevated 23% y/y in Aug, 21% for 8M19 driven by VTB's IT costs and the integration of acquired banks. NIM is expected to improve towards the year-end given the monetary easing by the Central Bank of Russia, while the cash from recent sale of Tele2 to Rostelecom state telecom major should support net profit, BCS GM believes.
Russia’s second-largest state-controlled bank VTB could recapitalise itself in 2020 , the CEO of the bank Andrei Kostin told the press on October 23. In particular, the options for attracting capital could include subordinated debt, as the bank does not have “a large reserve of capital”, Kostin said. As reportedby bneIntelliNews, mostrecently VTBpledgedtopay50%ofIFRS net profit in dividends and said it aims to bridge the digital development gap with Sberbank. "The potential increase in capital implies no risk for equity holders, but recapitalization raises concerns over sustainability of dividends long-term," BCS Global Markets warned on October 24. As of 1 July, the bank’s first-, second-, and third-tier capital adequacy ratios stood at 8.39% (8.0% minimum requirement), 9.23% (9.5%) and 11.24% (11.5%), respectively, which BCS GM sees as thin versus required levels. Raising subordinated debt could be supportive for capital ratios, though BCS analysts note VTB is under sanctions that limit potential investors and may affect pricing. In the meantime, Kostin reiterated the guidance for 2019 net profit of RUB200bn. VTB posted mixed results under IFRS for January-August 2019 , with earnings declining by 7% year-on-year, net interest income down by 3% y/y and net interest margin inching up to 3.3% for the period. Nevertheless, the bank delivered strong fee income growth of 9% y/y, strong retail lending growth of 13% year-to-date, and 67% surge in net income with 13.4% ROE. To compare, the ROE of Russia's largest bank Sberbank was 23% in 1Q19.
VTB’s proceeds from the sale of Tele2 may be accounted for in 2019,
which would allow the bank to meet its profit guidance. The sale would allow VTB to meet 2019 net profit guidance of RUB200bn, while running on RUB173bn annualized profit on 8M19 IFRS. Although the deal is unlikely to be finalized this year (given recent news flow), the sale may be accounted for earlier, according to VTB’s CFO Dmitry Pyanov. Pyanov said IFRS allows the company to account for the sale if all details are agreed. VTB’s CEO Kostin previously said the bank will receive 17% of Rostelecom as the result of the deal.
VTB may weigh options for recapitalization in 2020, esp ., subordinated debt. CEO Kostin held an interview with the press in, which he commented on the company’s capital and net profit. In addition to the potential
81 RUSSIA Country Report November 2019 www.intellinews.o