Bank Vozrozhdenie reports Q1 2013 net income of RUB 333 million

  Bank Vozrozhdenie reports Q1 2013 net income of RUB 333 million

Business Wire

MOSCOW -- May 23, 2013

Bank Vozrozhdenie (Moscow Stock Exchange: VZRZ) reported Q1 2013 consolidated
IFRS financial results:

  *Assets grew by 14.9% over the last 12 months to RUB 210.3 billion ($6.8
  *Operating income was up 2.6% compared to Q1 2012 reaching RUB 3.5 billion
    ($113 million);
  *Net income declined by 38% to RUB 333 million ($11 million) versus same
    reporting period of 2012;
  *Return on average equity (ROE) was 6.3%.

“During the first quarter we saw a recovery of SME businesses’ loan demand
despite the economy growth slowdown. As a result the bank succeeded in
widening its support of the key client segment, small and medium companies.
Nevertheless if challenging macroeconomic environment persists over the second
half of the year we can expect worsening of some borrowers’ credit quality.
Therefore being consistent in our conservative approach to credit risk
management we decided to increase provisions for loan impairment,” noted
Tatiana Gavrilkina, Deputy Chairwoman of the Management Board.

Assets rose by 14.9% in comparison with the same reporting period of 2012 and
reached RUB210.3 billion ($6.8 billion). Total assets stayed almost flat
during the quarter however their structure shifted towards interest-earning
instruments with their share growing by 2.0% to 76.6% of the balance. The bank
successfully employed funds raised late Q4 2012 optimizing its loan before
provisions to deposit ratio to 100.5% versus 95.4% as of December 31, 2012.
The liquid assets share in the balance remained at a comfortable level of

Shareholders’ equity grew by 11.4% compared to the same period of 2012 to
RUB21.2 billion ($697 million) as of March 31, 2013 due to retained earnings.
Total CAR and Tier 1 capital adequacy ratio increased to 14.87% and 11.92%
respectively from 13.4% and 11.8% a year ago. At the end of Q1 2013 the bank
raised the third tranche of subordinated deposit in the amount of RUB1 billion
to strengthen its capital base necessary for further credit expansion
throughout the year.

Securities portfolio of the bank (both trading and investment) amounted to
RUB11.4 billion ($369 billion) compared to RUB8.4 billion ($275 million) at
the end of the previous quarter. The majority of securities are classified as
high liquid assets with maturities less than 1 month. As of March 31, 2013
corporate RUB and FX denominated bonds represented 79.9% of the total
portfolio while securities issued by federal and regional government bodies
accounted for 15.5%.

Loan portfolio before provisions rose by5% during the last quarter surpassing
the Russian banking sector growth of2.1% (as per the Bank of Russia data).
Corporate loan book increased by5.8% to RUB130.6 billion ($4.2 billion). The
main driving force of that growth was SME lending expansion by 8.0% to RUB83.4
billion ($2.7 billion) after its slight temporary contraction in the second
half of 2012. Loans to SMEs, core clients’ segment of the bank, comprise over
a half of the total credit portfolio. AsofMarch31, 2013 loans to
individuals totaled RUB33.6 billion ($1.1 billion) up29.5% comparing to the
same date of 2012. The portion ofretail loans intotal portfolio grew to20%
versus18% asofMarch31, 2012. InQ12013growth oflending to individuals
decelerated to 2.2% Q-o-Q in response to the slight interest rates increase
made in the second half of 2012 to cool down the portfolio expansion. At the
end of the quarter mortgages reached RUB22.8 billion ($736 million) with their
share rising to 68.0% ofthe total retail loan book. Consumer loans amounted
toRUB8.3 billion ($267 million).

NPL ratio grew to 10.28% inaccordance with Q12013results from9.02% as at
the end of 2012. Increase of the problem loans amount to RUB16.9 billion
($545) resulted from the impairment ofone significant corporate loan.
Meanwhile SME loans credit quality remains stable. In the course of the
quarter the amount of overdue and impaired loans to SMEs didn’t change in
absolute terms whereas in relative figures it lowered to 9.2% from 9.8% in Q4
2012. Provisions forpossible loan losses rose by6.5% during the quarter and
amounted toRUB15.7 billion providing 114% coverage ratio for loans with
90days+ overdue. InQ12013 the bank charged RUB985million ($32 million)
toprovisions for loan impairment implying cost-of-risk equal to 2.5% p.a.
oftotal loan portfolio before provisions.

Customers’ funds rose by14.3% toRUB163.4billion ($5.3 billion) versus the
same reporting period of the previous year making up 86% oftotal liabilities.
The growth came on the back ofinflow of retail clients’ resources totaling
RUB102.9billion as of March 31, 2012 and corporate clients’ funds increase to
RUB59.1 billion. Retail term deposits widened to RUB84.4 billion ($2.72
billion) from RUB 81.0 billion ($2.67 billion) inQ42012 whereas balances
oncard accounts experienced some decrease toRUB18.5billion ($596 million)
from RUB20.9 billion ($688 million) due toseasonal outflow ofmoney after
aggressive yearend inflow related to payment of annual bonuses.

Interest income increased by18.1% in comparison withQ12012and reached
RUB4.5 billion ($144 million) as a result of loan interest rates growth and
expansion of high-yield retail lending. The interest expenses added 40.2%
versus same prior-year period outpacing progress of the interest income on the
back of rising cost of both retail and corporate funding. Thus net interest
income was slightly up by1.4% comparing to Q1 2012 and totaled RUB2.2 billion
($70 million). Interest income stabilization along with interest expenses
elevation by 9.9% resulted in Q-o-Q NII decline by 8.9%. Net interest margin
on average assets dropped by 52bp to4.1% versus Q12012. Yields oninterest
earning assets increased by42b.p. in comparison with the same quarter of
2012 to 11.24% whilethe cost offunding grew by 87b.p. to4.8% causing net
interest spread reduction to 6.4% for Q1 2013.

Net fees and commissions amounted to RUB1.1 billion ($36 million) inQ12013
weakening by 1.7% compared to the similar period ofthe previous year.
Contraction ofsettlement fees and commissions on cash operations was to some
extent offset by stronger bank cards fees (+9.6%) widened due to active
expansion of bank product sales via remote channels. Net fees and commissions
drop by 16.4% on Q-o-Q basis resulted fromseasonally weak business activity
atthe beginning ofthe year coupled with long national holidays in January
and March. Share of non-interest income intotal operating income before
provisions remained at the level of 37%.

Operating expenses for the quarter totaled RUB2.1 billion ($67 million) adding
just 2.4% versus similar period of the last year that is significantly below
the inflation rate for the last 12 months. Personnel expenses grew by 3.3%
versus Q1 2012 to RUB1.3 billion ($42 million) making 62% of all bank’s
operating expenses. On a quarterly basis operating expenses slipped by 13.6%
with all constituents ofthe indicator demonstrating significant reduction.
Cost-to-income ratio stayed at the level of Q1 2012 equaling to 59.9%.

Operating profit before provisions was 2.9% higher than for the similar
quarter of the previous year. Positive dynamic of operating income and
effective control over operating expenses contributed to Q1 2013 final
operating result of RUB1.4 billion ($45 million). However relatively high
charges to provisions during the quarter affected net profit which declined by
36.7% to RUB333 million ($11 million) versus Q1 2012.


Bank Vozrozhdenie
Andrey Shalimov, (495) 6209071
Deputy Chairman of the Management Board
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