Annual report 2011 - VTB

VTB Annual Report 20114. Management report50VTB Group key financial indicatorsNet interest income51(in RUB, billion) 2010 2011 ChangeNet interest income 171.1 227.0 32.7%Net fee and commission income 24.7 39.2 58.7%Operating income before provisions 1 221.1 286.6 29.6%Net profit 54.8 90.5 65.1%Total gross loans and advances to customers 3,059.6 4,590.1 50.0%Customer deposits 2,212.9 3,596.7 62.5%Net interest margin 5.1% 5.0% –10 b.p.Provision charge for loan impairment / Average gross loan portfolio 1.9% 0.9% –100 b.p.NPL ratio 2 8.6% 5.4% –320 b.p.Net interest incomeNet interest income has historically been the largestcomponent of the Group’s operating income. In 2011,net interest income contributed RUB 227.0 billionto operating income, which was 32.7% more than in2010 (RUB 171.1 billion).The Group generates interest income on loans andadvances to customers, its securities portfolio andamounts due from other banks. The following tableshows the principal components of VTB Group’sinterest income in 2010 and 2011.In 2011, VTB’s interest income increased by 26.1% toRUB 416.7 billion. The key contributing factors to thiswere organic growth in the Group’s loan portfolio,and the Bank of Moscow consolidation.Interest income from lending to customers amountedto RUB 376.7 billion in 2011, up 24.9% comparedto 2010. At the same time, interest income from theretail banking segment grew more rapidly than thatfrom corporate and investment banking. This wasprimarily due to greater stability in interest rates overthe course of the whole year. The worsening liquiditysituation in the Russian banking sector in the secondhalf of 2011, accompanied by the growth in interestrates, enabled the Group to increase its income frominterbank lending to RUB 8.8 billion, compared toRUB 7.1 billion in 2010.The Group’s interest expenses grew at significantlylower rates than interest income in 2011. At theyear-end, VTB’s interest expenses totalledRUB 189.7 billion, up 19.0% compared to 2010.Interest expenses increased primarily due toliabilities on customer deposits, the costs of whichwere up 31.1% to RUB 112.6 billion. This was theresult of the organic growth of the Group’s customerbase and the consolidation of the Bank of Moscow’sdeposit portfolio.In 2011, VTB continued to focus its efforts on reducingthe costs of funding. Despite a significant growth incustomer funds, the costs of attracting those fundswere lowered to 4.0%, compared to 5.0% in 2010.Net interest spread and marginThe Group’s net interest margin was nearly flat yearon-yearat 5.0% in 2011. The margin decreased by(in RUB, billion) 2010 2011 ChangeInterest incomeFinancial assets at fair value through profit or loss 19.2 28.3 47.4%Loans and advances to customers 301.5 376.7 24.9%Due from other banks 7.1 8.8 23.9%Other financial assets, including securities 2.7 2.9 7.4%Financial assets not at fair value through profit or loss 311.3 388.4 24.8%Total interest income 330.5 416.7 26.1%Interest expenseCustomer deposits (85.9) (112.6) 31.1%Debt securities issued (40.1) (36.8) –8.2%Subordinated debt (17.0) (17.2) 1.2%Due to other banks and other borrowed funds (16.4) (23.1) 40.9%Total interest expense (159.4) (189.7) 19.0%Net interest income 171.1 227.0 32.7%Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.10 b.p. in the reporting period as a result of a growthin interest earning assets. This growth outpaced thegrowth rates of net interest income before provisions.Net fee and commission incomeOne of the Group’s strategic objectives is to createa strong transaction banking business through anenhanced product offering and an improved salessystem of commission-based products tailored tothe needs of each customer segment. During thereporting period, VTB achieved notable success inthis regard, with a 58.7% increase in net fee andcommission income to RUB 39.2 billion.Net interest spread and marginGross fee and commission income in 2011 increasedby 64.6% to RUB 47.4 billion, compared toRUB 28.8 billion in 2010. The bulk of fee andcommission income (63.5%) is generated bysettlements and cash transactions. Aggregate feeand commission income received by VTB Group fromsettlements and cash transactions in the reportingperiod was RUB 30.1 billion, an increase of 64.5%year-on-year.In contrast to 2010, the Group demonstrated asignificant increase in fee and commission incomegenerated from the provision of customer servicesin the sphere of trade finance and the issue of(in RUB, billion) 2010 1 2011 ChangeAverage interest rate on interest earning assets 9.9% 9.2% –70 b.p.Average interest rate on interest bearing liabilities 5.3% 4.3% –100 b.p.Net interest spread 4.6% 4.9% 30 b.p.1 Here and below, operating income before provisions is calculated before provisions for impairment of debt financial assets and impairment ofother assets, contingencies and credit-related commitments.Net interest margin 5.1% 5.0% –10 b.p.2 Non-performing loans (NPLs) represent impaired loans with repayments overdue by over 90 days. NPLs are calculated including the entireprincipal and interest payments. Ratio is calculated to total gross loans including financial assets classified as loans and advances to customersSource: VTB Group’s IFRS consolidated financial statements for 2010 and 2011.pledged under repurchase agreements. 1 Calculated excluding the effect of TCB consolidation.