Annual report 2011 - VTB

VTB Annual Report 20114. Management report48In 2011, VTB Bank (Austria) and VTB Bank (France)launched an innovative retail product for VTB Group– VTB Direct, an electronic savings deposit account.The new banking product was offered to individualcustomers in France, Austria and Germany, andapproximately EUR 504 million was deposited byindividuals during the reporting period.The Russian Commercial Bank (Cyprus), VTB’ssubsidiary in Cyprus also focused on thedevelopment of corporate lending. As at the end ofthe reporting period, the bank’s loan portfolio morethan doubled from USD 5.3 billon to USD 11.5 billion.Business in Asia and AfricaThe main objective of VTB Group’s bankingoperations in Asia and Africa is to establish strongpartner relationships with companies from Russiaand the CIS that operate in these markets, and withlocal businesses looking to expand into the CIS.VTB Bank Branch in Shanghai was launched in March2008 and is currently the only bank from Russiaand the CIS, that has a banking licence in China.It aims to provide support to VTB’s large corporateclients in China and facilitate access to the Chinesecapital markets for CIS companies and banks. Thebranch has been active in trade finance transactions,servicing Russian importers and exporters, and inlending to the subsidiaries of Russian businessesin China. The bank is also expanding its Chineseenterprise customer base, particularly those whocooperate with Russian and CIS companies, andprovides a full range of trade finance services inpartnership with VTB Group’s banks.The branch places particular emphasis on thedevelopment of operations in national currencies.The branch received official confirmation of its marketmaker status from the People’s Bank of China, markinga milestone for the Bank at the end of 2010.This unique status allows the branch to participate inthe setting of rouble/yuan exchange rates and conductoperations on the China Foreign Exchange Trade System(CFETS). As at the end of 2011, the VTB Bank Branchin Shanghai was acknowledged as the market makerwith the largest number and volume of transactions forthe rouble/yuan currency pair. It was also named theforex market participant who demonstrated the mostdynamic development in 2011 by CFETS.During the reporting period, the branch played a majorrole in maintaining rouble liquidity in the Chinesemarket, as it provided Chinese banks with a full rangeof services for rouble-denominated bank accounts andforeign exchange operations within China.In 2011, VTB Bank Branch in Shanghai also met allthe necessary regulatory requirements to obtainpermission for conducting transactions using theyuan currency. Presently, the branch conductstransactions in roubles and freely convertiblecurrency and plans to obtain permission that wouldenable it to conduct transactions in yuan in 2012.In 2011, the branch also launched Internet bankingservices, enabling it to expand its cooperation withcustomers across China from a single sales point.The joint Russian-Angolan bank, Banco VTB AfricaS.A. (VTB-Africa), has been a success since its launchin 2007. VTB-Africa has worked hard to attract newclients and develop transactional banking experience,primarily international settlements, trade finance,currency exchange and working capital loans. In2011, the bank operated in line with the businessdevelopment strategy approved for VTB-Africa in 2010.A new organisational structure was therefore developedand a number of business priorities were defined. As aresult, the bank increased its client business volumesand it built a high-quality loan portfolio.In 2011, new grounds were established to furtherdevelop the Vietnam-Russia Joint Venture Bank (VRB),whose mandate is to provide reliable support toRussian companies operating in the SoutheastAsian markets. To increase its market representationand create a convenient infrastructure to serviceRussian and Vietnamese companies, VRB has beenfocusing on the development of its sales network.Currently, it consists of the head office in Hanoi, fivebranches in Vung Tau, Ho Chi Minh, Da Nang, NhaTrang and Hai Phong; it has centres that deal withspecific transactions and card requests; as well asan extensive network of additional offices in thecountry’s economic centres of Hanoi, Ho Chi Minh,Vung Tau; and it also has a wholly-owned subsidiarybank in Moscow. The Bank also plans to launchbranches in Can Tho and Vinh. VRB is a universalcommercial bank providing an extensive rangeof banking products and services for Vietnameseand Russian companies, such as debt and projectfinancing, import and export financing, trade financeand other products, including those, which are newto the Vietnamese market.VTB Bank Branch in New Delhi (India) is the flagshipof Russian banking in the country. Its key objective isto become an intermediary between both countries’businesses in their cooperation and collaboration,the development of new projects and the opening ofnew markets. The branch focuses on the foreign tradeoperations of Russian companies that operate in India,as well as their subcontractors, and it also servesIndian companies with interests in Russia. The branchhas established a customer base that comprises oflarge Indian and Russian enterprises. The branch’ssolid development is reflected in its financial results.Today, VTB Bank Branch in India examinesopportunities to participate in Russian-Indianjoint projects in India in sectors covering technicalmilitary projects, chemicals, metals, energy,agriculture, telecommunications, the developmentof infrastructure and more. The branch is alsoconsidering the prospect of conducting exportand import settlements in national currencies andopportunities are being evaluated to help the branchto structure payments and arrange project financing,involving VTB’s subsidiary banks in Ukraine, Belarus,Kazakhstan and Armenia.4.4. Review of financial performance 1Financial highlightsRecord net profit of RUB 90.5 billion in 2011, up65.1% year-on-year, with ROE of 15.0%, versus10.3% for 2010;Net interest income for 2011 amounted toRUB 227.0 billion, up 32.7% from 2010;Net fee and commission income in 2011 amounted toRUB 39.2 billion, up 58.7% year-on-year;Net interest margin remained stable year-on-year at 5.0%;Cost of risk was at 0.9% of average gross loans in2011, versus 1.9% in 2010;Balance sheet improved, due to organic growthand the consolidation of the Bank of Moscow:total gross loan portfolio increased by 50.0% toRUB 4,590.1 billion and customer deposits wereup 62.5% to RUB 3,596.7 billion;Loans-to-deposits ratio improved to 119.6%,compared to 125.9% as at the end of 2010.Profit & loss statement analysisOperating incomeAs at the end of 2011, VTB Group’s operating incomebefore provisions totalled RUB 286.6 billion, anincrease of 29.6% from RUB 221.1 in 2010. Thisdynamic growth resulted primarily from VTB receivinggreater income from interest charges, fees andcommission charges, and was also due to the netrecovery of losses on initial recognition of financialinstruments and on loans restructuring.491 This review is based on VTB Group’s IFRS consolidated financial statements for the years ended 31 December 2011 and 2010.