VTB Third-Quarter Profit Beats Estimates as Fees Increase

  • Net income jumps more than fourfold to 7.6 billion rubles
  • Bank focuses on breaking even in 2015, targets profit in 2016

VTB Group, Russia’s second-largest bank, reported third-quarter profit that beat estimates as revenue from fees climbed and provisions for bad loans and assets declined. The shares rose.

Net income increased to 7.6 billion rubles ($116 million) from 1.8 billion rubles a year earlier, the bank said in a statement on Tuesday. VTB’s second consecutive quarterly improvement beat the average estimate of 3.58 billion rubles by four analysts surveyed by Bloomberg.

While Russian banks face a toxic combination of high funding costs and low demand for loans, a return to profit signals the worst of the crisis may have passed. The central bank has left the key interest rate at 11 percent for two months after five cuts almost unwound an emergency increase to 17 percent in December.

The “results were a surprise to very downbeat expectations,” Alex Kantarovich, head of equity research at JPMorgan Chase & Co., said in an e-mailed note to clients. Virtually every major item came in higher than expected as provisions and expense increases were offset by better than expected revenue. 

The bank’s depositary receipts rose as much as 6.5 percent, the biggest gain since August, and were trading 3 percent higher at $2.28 as of 2:25 p.m. in London.

Net interest income fell to 88.4 billion rubles in the third quarter from 92.2 billion rubles a year earlier. Provisions for bad loans and underperforming assets declined to 55.3 billion rubles from 65 billion rubles. Nine-month net income swung to a loss of 4.2 billion rubles from a 6.1 billion-ruble profit a year earlier.

“The growth in non-performing loans remains a concern, delinquent loans will continue to rise and VTB will be eating up its own capital,” said Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow. “Also, consumer credit growth is a concern as there aren’t that many people willing to take personal loans at the moment, and the pressure on margins will remain."

Non-performing loans expanded to 6.8 percent at the end of September from 5.8 percent at the end of lat year, while falling 20 basis points from 7 percent at the end of June.

VTB management will focus on breaking even this year, while profit may reach 50 billion rubles next year, VTB Chief Financial Officer Herbert Moos told reporters on a conference call. The loan portfolio is forecast to grow by 5 percent to 10 percent next year, he said.

The net interest margin will probably continue to recover and reach 4 percent next year, up from an average 2.5 percent during the first nine months of this year, according to the bank.

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