VTB earned on the sale of distressed assets

Net profit VTB on MSFO in the first half of 2016 amounted to 15.4 billion rubles. against a loss in the accounting period 2015 to 17.1 billion RUB On the financial result was influenced by the increase in interest income (by 88%) and Commission income (12%), follows from the published statements of the group.

According to reports, a large part of interest income (207 bn) was generated by retail business (94,2 bn), while corporate and investment banking has brought the Bank of 55.5 billion rubles In may 2016, the group completed the integration of Bank of Moscow from VTB. Reporting according to IFRS, the projects were more than 10 million people.

The portfolio of retail credits VTB for the first half of 2016 exceeded 2 trillion rubles, having increased since the beginning of the year by 4.2%.

“The results of VTB for the first half show steady improvement in profitability, as we continue to contribute to recovery of the Russian economy, developing the retail, corporate and investment banking businesses,”- commented on the results of reporting, the head of VTB Andrey Kostin.

The financial results of VTB was much above the expectations of analysts, who had forecast profit of the Bank at the level of 5.3 billion rubles As of the reporting Bank, to increase profits he helped the deal to sell the Mari oil refinery. In June 2016, the Bank sold 99.3% of its shares for RUB 4.2 billion, subject to an earlier evaluation of negative assets Mariyskiy NPZ at the date of disposal amounted to RUB 7.7 bn, thus the operation has allowed VTB to offset his profit of 11.9 billion. However, as stated on a conference call Deputy Chairman of VTB Herbert Moos, the transaction had no significant impact on the financial performance of the group. He explained that the deal “is the recovery of accumulated losses from previous periods”, in particular, losses incurred by VTB in the first quarter of 2016.

Herbert Moos also said that the Bank’s profit has not affected gospodarica on previously issued loans. Reporting according to IFRS, the government compensated Bank VTB RUB 11 billion of losses on corporate loans by reducing dividend on preference shares for the year 2015. “These loans provision has been made, the problem thus was closed, and we hope it will not come back,” he said. Moos said that loan loss provisions were formed to the amount of compensation the government, so this operation has no impact on the net profit of the Bank.

Profit VTB could be higher, but she was influenced by the costs of reserves, which in January-June 2016 has increased by almost a third from 80 billion rubles in the first half of 2015 to 102.9 billion rubles including VTB suffered heavy losses on real estate investments, reflecting a loss in the line “other operating expenses”. This figure rose 3.5% to 19.2 billion rubles, “the Situation on the real estate market is that prices fall in residential property and lower rates on rent. We have reflected the movement of the market trend in their reporting,” explained Moos.

Expenditure on Bank staff grew by 9.9% and amounted to 116.3 billion rubles. While part of the cost was formed at the expense of payments to top management of VTB, which in the first half of 2016 increased by 33% and amounted to 800 million rubles Compensation to key management consists of short-term bonuses, including pension payments”, — explained in statements to IFRS.

However, even taking into account the losses due to real estate investments and growth in personnel costs, financial result, VTB was significantly above analysts ‘ expectations. “One of the reasons — the expectation of analysts that the cost of risk VTB is above 2%, as the economic situation is still unstable. We predicted up to half of the cost of risk at 2.3%,” — says the analyst “URALSIB Kepital” Natalia Berezina. According to her, excluding expenses of the Bank for the provision of credit guarantees, impairment of assets and legal risks (for these purposes VTB spent in January-June 2016 37 billion rubles, which is higher than the expenditure under this item in the same period of 2015, almost six times), the cost of risk of the Bank is estimated at 1.3%.

In addition, she said, the impact on earnings also had a deal to sell the Mari oil refinery. “From an economic point of view, the sale of the refinery is an implementation of the pledge the credit of default, and this means that the Bank could recover the reserves,” — said UBS analyst Michael helm. He also says that analysts in their forecasts did not expect such a quick recovery percentage margin VTB. “In the second quarter, the growth of interest income of the Bank was three times higher than our expectations,” he said. The analyst also drew attention to the increase in operating expenses of the Bank (January-June 2016, they increased by 28% compared to the same period last year), which, according to Precipitation connected with the development business of the group.