Russia’s TCS Profit Slumps on Increase in Loan Provision

TCS Group Holding Plc (TCS), the Russian consumer bank partly owned by Goldman Sachs Group Inc. (GS), said first-quarter profit tumbled 65 percent as it increased provisioning for bad loans.

Net income slipped to 362 million rubles ($10.5 million) from 1 billion rubles a year earlier, the Moscow-based lender said on its website today. Its London shares dropped as much as 9.4 percent and were down 4.6 percent to $6.20 at 1:50 p.m. in Moscow.

“Although in the quarter our profitability was reduced, we remained meaningfully profitable,” Oliver Hughes, TCS’s chief executive officer, wrote in an e-mailed statement. “The flexibility and scalability of our business model makes TCS Group more resilient to the downturn.”

Herman Gref, a former economy minister and head of Russia’s largest lender, OAO Sberbank, said last month the country is facing stagnation as international sanctions linked to the six-month standoff in Ukraine curb growth. Russia’s first-quarter gross domestic product growth of 0.9 percent was the slowest in a year, according to the Federal State Statistics Service.

TCS said in a statement that its full-year profit guidance of more than 7 billion rubles was under review. Hughes declined to give new expectations on a conference call today, saying the market is too “volatile.”

Lending Rises

TCS said non-performing loans increased to 8.9 percent at from 7 percent at the end of last year. Its loan-loss provisioning amounted to 12.5 billion rubles compared with 9.4 billion rubles.

Net loans rose 1 percent to 75 billion rubles at the end of last year. The number of credit cards issued, its main activity, was unchanged at 278,000, according to the statement. TCS’s return on equity, a measure of profitability, plunged to 7 percent from 41.2 percent at the end of 2013.

The lender, founded as Tinkoff Credit Systems in 2007 by entrepreneur Oleg Tinkov, has issued more than 4 million cards in Russia and ranks third in lending, according to the company. The bank, which doesn’t have branches, is modeled on McLean, Virginia-based Capital One Financial Corp. (COF), which pioneered the distribution of credit cards through direct mail, which Tinkov said he learned about while living in San Francisco.

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Steve Bailey, Jon Menon

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