Annual report 2011 - VTB

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VTB Annual Report 20114. Management report28institutional investors and commercial banks.VTB Group’s subsidiaries also offer their customersa range of leasing and factoring products.VTB Group is one of the few banks in the financialsector to offer long-term project financing in theRussian regions. In 2011, VTB funded several projectswith the participation of Russian and CIS companiesin various sectors of the economy.Among the key areas of future development forVTB are the optimisation of business processes incorporate lending, the improvement of utilisation ofresources by the Group’s subsidiaries and expandingthe geographic range of the Group’s bankingproducts.To rationalise the decision-making process, the Bankintroduced a new Credit Procedure in 2011. Thisoptimised the turnaround time for the credit andexpert divisions, and thus reduced the time requiredfor an authorised person/body to make a decisionregarding a customer application.Despite the improvement in the overall economicenvironment and the financial position of most ofits customers, VTB Group continues to pay closeattention to monitoring the quality of its loanportfolio. The Group actively utilised various formsof risk reduction in credit transactions, such as thecreation of collateral (real estate and other property,pledge of receivables, etc.), guarantees, stateguarantees, remittance speed requirements, transferof service contracts, settlements through the Bank’saccounts, and establishing financial covenants andrestrictions and the control of their execution.In addition, VTB Group uses state guarantees as oneof the most reliable instruments for risk reductionwhen lending to major strategic customers.In 2011, VTB Group systematically worked to reducebad, and potentially bad, debt. The Group usedstandard procedures in the banking industry for theearly detection, prevention and settlement of suchobligations.A more detailed analysis of the quality of the Group’sloan portfolio can be found in the Risk Managementsection.Transaction bankingDepositsUnfavourable cash liquidity conditions in the secondhalf of 2011 intensified competition among lendinginstitutions for the funds customers had available.In the light of this, the Group increased its sale ofdeposit products by developing a deposit line andincreasing its competitiveness. As at the end of thereporting period, the portfolio of corporate fundsdeposited increased by 66% to RUB 2.4 trillion, andthe Group’s market share in Russia rose to 21.1%(+610 basis points). As a result, the Group held thenumber one position in Russia in terms of volume ofdeposits received.VTB Group’s customers can manage their temporarilyavailable funds effectively by utilising a whole rangeof deposit products – both in roubles and in foreigncurrencies – with options such as to pay in or partiallywithdraw, to close an account prematurely or utilisean interest capitalisation option. To meet the diverseneeds of its clients, the Bank offers flexible choices ofterms and rates.Corporate deposits (in RUB, billion)1,09247262020091,4654909752010Current depositsTerm deposits2,4356491,7862011Source: VTB Group’s IFRS consolidated financial statements.In 2011, a mechanism for conducting deposittransactions under a general agreement wasintroduced, which substantially simplified theprocess of placing funds by clients. VTB also startedoffering new banking products, such as depositsin Chinese yuan, as well as structured depositswith a rate linked to the price of gold. The launchof these products was due to increased interestfrom customers in investments in the commoditiesmarkets and in the increasing volume of foreign tradeoperations in the Chinese currency.Settlement transactionsThe development of settlement products in 2011was aimed at improving the system of remotebanking services, integrated solutions for centralisedsettlements and liquidity management for customers.Users of the remote banking services system wereable to use the Bank-to-Client service and InternetCustomer service to accept third-party paymentdocuments, to deposit funds and to make paymentswith letters of credit.The Group’s transaction banking unit paid particularattention to the improvement of business processesdesigned to reduce the time taken to make servicesavailable to clients. With this aim, the methodof logging on to the remote banking system wassimplified, including for those clients who have aserver network. Moreover, the procedure for openingan account was simplified, as well as a mechanismbeing developed for carrying out deposit transactionsunder general agreements. This made the process ofallocating funds by clients more straightforward, aswell as simplifying the procedure for issuing importletters of credit via subsidiary banks.In order to improve the efficiency of settlementtransactions, a team of highly-qualified specialists,possessing in-depth knowledge of the products andsubstantial experience of working in the leadingWestern banks, was created. The main task of thisteam is to identify clients’ needs and to implementintegrated solutions designed to optimise liquidityand working capital, thus enhancing operational andfinancial efficiency through the management andcontrol of clients’ cash flows. As a result, integratedsolutions were implemented in 28 of Russia’s largestholding companies in 2011. This generated a 25%increase in commission-based income on servicesarising from the centralisation of settlements andliquidity management, as well as a sevenfoldincrease in the closing balances of the accounts ofthese clients, when compared to a year earlier.Documentary businessDocumentary business is a key area of VTBGroup’s activities. The Bank offers all types of bankguarantees and a full range of products and servicesfor foreign trade transactions in documentaryform, including settlements by letters of credit andguarantee operations on the territory of Russia.For the past several years VTB has been the numberone bank in the Russian market in terms of the sizeof its portfolio and level of income from documentaryoperations. The Bank is the leading credit institutionin Russia in the sphere of foreign trade operations.Obligations under the VTB name have always inspiredtrust in international financial circles.VTB introduced a new model for the sale ofdocumentary business products in 2011, alsoforming a team of product managers, who providea full spectrum of services in this area. Theseinitiatives have enabled the Group to accelerate thesynergy effect arising from cooperation betweenthe Bank’s client and product divisions, and VTBhas thus secured its position as the Russian marketleader in the sphere of documentary business.Close attention was also paid to improving pricingmethodology. As a result of this, VTB Group has beensuccessful in achieving a 69% increase in incomefrom documentary operations, in maintaining a14% share in total commission income, in reducingthe concentration of documentary business andincreasing the proportion of deals with a reducedlevel of risk (performance guarantees for government29
VTB Annual Report 20114. Management report30contracts, guarantees of reimbursement of ValueAdded Tax, etc.)During the reporting period, a number of measureswere implemented to develop cross-selling within theVTB Group on the basis of documentary business.In particular, client service models were developedand introduced with the participation of the Bank’sforeign branches in India and China, as well as withother subsidiary banks of the Group.In 2011, intensive efforts were made to introducea system for the sale of letters of credit through theremote banking service. The practice of selling bankguarantees and letters of credit under the frameworkof general agreements was also actively promoted.Working with clientsIn order to improve the quality of client service,the Bank adopted new approaches to customersegmentation in 2011. In particular, the criteria fordefining large and medium-sized corporate clientshave been revised, and the model for servicing largecorporate clients has been modified.During the reporting period, VTB formed two clientservice divisions to deal with large corporate clients.One of them is focused on servicing the state anddefence sectors of the economy, and the otherdivision focuses on providing services to clientsin market-based sectors of the economy (metalsand mining, oil and gas, power generation, trade,information technology and communications,mechanical engineering, the chemical industry, etc.).The new servicing model is based on the creation ofsector directorates within the client divisions thathave responsibility for developing business withclients in each sector of the economy. This approachto client servicing enables the quality of sectorexpertise to be improved and banking services to becustomised to each client’s needs.The medium-sized corporate client segment iscrucial to the development and diversification ofVTB Group’s business. The model for servicingmedium-sized businesses focuses on developing astandard line of banking products and services, andso maintaining an integrated offering. Medium-sizedand regional corporate clients are serviced bya separate client division.4.3.2. Retail bankingIn 2011, VTB Group’s retail banking businessdeveloped in a dynamic fashion and grewsignificantly faster than both the market and VTB’smajor competitors, as a result of organic growth andthe successful completion of acquisitions. As thesecond largest bank in Russia serving individualcustomers, VTB24 continues to form a core part ofthe Group’s retail business. VTB Group retail bankingservices in Russia are also provided by the Bank ofMoscow and TransCreditBank.At the end of 2011, VTB24’s active customer basetotalled 5.9 million, compared to 4.9 million at theend of 2010. As at the end of the reporting period,VTB Group’s total active Russian retail customerbase totalled around 15 million active customers,including the Bank of Moscow and TransCreditBankactive customer base. At the end of the reportingperiod, the number of small businesses working withVTB Group amounted to more than 250,000.By the end of 2011, VTB Group banks in CIS countries(Ukraine, Armenia, Azerbaijan, Kazakhstan andBelarus) and Georgia were providing services toapproximately 1 million individuals. The Group’sretail business in Europe is also developingsuccessfully in France and Germany, where Groupactivities are mainly focused on attracting retailcustomer funds at present.The Group continued to implement its retail bankingstrategy during 2011. The strategy centres on acustomer-oriented approach to business development,which aims to improve customer service qualitywithout losing sight of the Group’s commitmentto delivering greater profitability. In addition toexpanding VTB’s retail banking scale and marketshare, the Group’s medium-term retail business plan isto intensively develop its customer relations, as well asexpand and grow remote sales channels.The most significant market factors that influencedVTB Group’s retail business performance during2011 included the recovery of the Russian economyagainst the backdrop of the European debt crisisand the reduction of the US credit rating, increasedcompetition in the retail lending market as well asthe stabilisation of the level of non-performing loans.The savings-oriented consumer behaviour model thatestablished itself during the credit crunch, changedto a consumer growth model over the course of theyear. This trend was confirmed by a growth in loansamidst falling growth in savings.In the context of a dynamic and growing retaillending market in 2011, VTB24 not only focusedon the extensive development of its network andthe growth of its loan portfolio, it also focused onthe improvement of customer services and theintroduction of innovative approaches to workingwith key customer segments. VTB24’s maincompetitive advantages are not restricted to therange and attractiveness of its retail product offering,as the high level of technological development ofits banking and its segmented approach to differentgroups of customers are also key. All these factorsVTB Group retail lending market share, %10.212.213.72009 2010 2011Source: VTB estimates based on RAS financial results of VTB Bank, VTB24,the Bank of Moscow and TransCreditBank.combined contributed to record levels of profit beingregained by VTB retail business-line in 2011.The improved economic situation in Russiacontributed to the dynamic growth of VTB Group’sretail loan portfolio, which grew by 52.2% toRUB 824.1 billion as at the year-end, compared toRUB 541.5 billion in 2010. In addition to organicgrowth driven by VTB24’s positive lending activity,the expansion of its portfolio was greatly enhancedby the consolidation of the Bank of Moscow in 2011.The high rate of growth in lending to individualsenabled VTB Group to increase its market share inthe Russian retail lending sector to 13.7% (versus12.2% in 2010). For the past five years, the Grouphas consistently been second-largest player in thissegment of the Russian market.In 2011, the Group managed to maintain growth ratesin retail deposits, far outpacing the market average.At the end of the reporting period, VTB Group’sportfolio of retail deposits reached RUB 1,161.4 billion,an increase of 55.3% compared to 2010. In anincreasingly competitive environment, VTB was ableto capitalise on its brand reputation and secure asignificant organic influx of customer funds. Theconsolidation of the Bank of Moscow contributedsignificantly to the growth in customer funds.VTB Group retail deposit market share, %6.07.29.02009 2010 2011Source: VTB estimates based on RAS financial results of VTB Bank, VTB24,the Bank of Moscow and TransCreditBank.31
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