VTB Group announces IFRS results for 1Q 2021

VTB Bank ("VTB" or "the Bank"), the parent company of VTB Group ("the Group"), today publishes its Interim Condensed Consolidated Financial Statements for the three months ended 31 March 2021, along with the independent auditor's report on these statements.

Dmitry Pianov, a member of the Management Board and Chief Financial Officer of VTB Bank, said:

"We are pleased to report excellent first-quarter results that reflect both our strong operating performance - underpinned by the effects of the business transformation achieved to date - and the post-pandemic economic recovery. VTB's net profit in the first quarter amounted to RUB 85.1 billion (ROE of 19.2%), having more than doubled year-on-year. This result was driven by strong organic growth in core banking revenues, with net interest income increasing 21.6% year-on-year, while net fee and commission income rose by 19.1%.

"The operating environment was quite favourable for us. A high level of business activity, and positive economic dynamics led to a decrease in provision costs. The cost of risk in the first quarter was 0.7%, while provision charges halved compared with the same period last year.

"Controlling costs remains a key priority for VTB as we increase investments in our technological transformation. In the first quarter, staff costs and administrative expenses increased by just 1.2% year-on-year, well below inflation, while rapid growth in operating income resulted in a considerable improvement in operating efficiency. The costs to net operating income ratio was 33.5%, down 5.8 p.p. year-on-year.

"VTB Group continued to expand its business, increasing the share of the retail banking business in assets. The total loan book remained practically unchanged during the quarter, while loans to individuals increased by 4.4%. Assets managed by VTB Capital Investments grew by 12% to RUB 3.8 trillion, of which assets under management from individuals increased by 16% to RUB 2.1 trillion.

"These results are fully in line with our forecasts for the current year and provide a solid foundation for the continuous delivery of a strong return on equity."

Financial highlights

Total loan book remains stable amid an increase in the share of retail lending

• As of 31 March 2021, the total loan book before loan loss provisions amounted to RUB 13.1 trillion, practically unchanged from the beginning of the year.
• Loans to individuals increased by 4.4% from the beginning of the year to RUB 4.0 trillion amid a recovery in demand for consumer lending and car loans, as well as continued growth in the mortgage portfolio thanks to the Group's participation in the state-supported mortgage programme. In 1Q 2021, VTB Group issued mortgage loans worth RUB 215 billion, an increase of 7% year-on-year.
• Lending to legal entities decreased by 2.0% from the beginning of the year to RUB 9.1 trillion. The loan book was affected by negative currency revaluation as well as the write-off of loans to small and medium-sized enterprises as part of government support programmes for businesses affected by the COVID-19 pandemic.
• As a result of higher growth in lending to individuals, the share of retail in the Group's total loan book increased to 31%, up from to 29% at the end of 2020.
• Since the beginning of 2021, customer funding has increased by 6.7% to RUB 13.7 trillion. Customer funding from legal entities increased by 12.3% in 1Q 2021, while the current-account balances of legal entities increased by 31.6%. Customer funding from individuals saw little change, amounting to RUB 5.7 trillion: while there was a considerable increase in balances in savings accounts, this was offset by a decrease in term deposits.
• As a result of faster growth in customer deposits, the loans-to-deposits (LDR) ratio decreased to 89.4% as of 31 March 2021, down from 95.6% as of 31 December 2020. The share of customer funding in the Group's total liabilities increased in the first three months of 2021 to 81.9%, up from 78.1% as of 31 December 2020. The structure of customer funding continues to change in line with the Group's strategic targets: the share of current accounts increased to 44%, up from 40% at the beginning of the year.

Income statement 

(1) Includes provision charge for credit losses on debt financial assets, provision charge for credit losses on credit-related commitments and other financial assets, and provision charge for legal claims and other commitments.

Substantial improvement in profitability amid a strong increase in key banking revenues and stabilisation of the quality of the loan book

• The Group's net profit in 1Q 2021 increased by 113.8% year-on-year to RUB 85.1 billion, which represents a return on equity of 19.2%, up from 9.5% in 1Q 2020.
• Net interest income amounted to RUB 145.6 billion, an increase of 21.6% year-on-year. Net interest margin was 3.7%, up from 3.6% in 1Q 2020. The increase in net interest margin was the result of further optimisation of the funding structure and an increase in the share of more profitable loans to individuals in the total loan book.
• At the same time, the sensitivity of the Group's net interest income to a 100 bps change in interest rates on cash flows in Russian roubles decreased in 1Q 2021 to RUB -11.7 billion from RUB -12.0 billion at the end of 2020.
• Net fee and commission income amounted to RUB 38.6 billion, an increase of 19.1% year-on-year. The considerable increase in net fee and commission income was driven by the expansion of the Group's transactional business and a steadily increasing volume of commissions from the sale of insurance products and commissions from the brokerage business.
• In the first three months of the year, the Group's cost of risk amounted to 0.7%, having decreased by 80 bps year-on-year as the Russian economy continued to recover from the acute phase of the COVID-19 pandemic. Provision charges were RUB 22.6 billion, a decrease of 49.9% year-on-year.
• The Group's NPL ratio deceased by 20 bps to 5.5% of gross customer loans as of 31 March 2021. The Group increased its allowance for loan impairments to 6.9%, up from 6.8% as of 31 December 2020. The NPL coverage ratio was 126.4%, up from 120.6% at the beginning of the year.
• Staff costs and administrative expenses in 1Q 2021 amounted to RUB 64.9 billion, an increase of 1.2% year-on-year. Growth in key income lines contributed to considerable improvements in operating efficiency, with the ratio of costs to net operating income before provisions decreasing by 580 bps year-on-year to 33.5%.

Corporate-Investment Business

Investment banking leadership

• As of the end of 1Q 2021, VTB Capital retained its leading positions in the rankings of lead managers in equity and debt capital markets according to Refinitiv, Bloomberg and Dealogic. Mergermarket also recognised VTB Capital as the leader among financial advisors in terms of the number of M&A transactions in Russia.
• VTB Capital organised a number of major transactions, including the initial public offering of Fix Price, which was the largest Russian IPO in the last 10 years, M.Video-Eldorado Group's SPO, as well as several ESG bond issues, such as Russian Railways' green perpetual Eurobonds and Sovcombank's social Eurobonds.

Rapid growth of the investment platform VTB Capital Investments

• In 1Q 2021, VTB Capital Investments increased customer assets by 11.6% to RUB 3.8 trillion. The retail assets under management increased by 16.1% to RUB 2.1 trillion, while the corporate assets under management increased by 6.5% to RUB 1.7 trillion. VTB Capital Investments' customer base grew by 19% in the first quarter to over 1.4 million individuals and legal entities. VTB Capital Investments' income in 1Q 2021 reached RUB 7.0 billion, a twofold increase year-on-year.
• VTB Capital Investments' customer base grew by 19% in the first quarter to over 1.4 million individuals and legal entities. VTB Capital Investments' income in 1Q 2021 reached RUB 7.0 billion, a twofold increase year-on-year.

• VTB Capital Investments continues to develop the functionality of the VTB My Investments digital investment platform. At the beginning of 2021, a service offering individual investment recommendations was launched in the VTB My Investments app. As of the end of 1Q 2021, the app had about 290 thousand daily active users; the number of daily transactions was 840 thousand, with turnover of up to RUB 115 billion.

• VTB Capital Asset Management has adopted a responsible investment policy that takes sustainability factors and risks into account and avoids investments in companies with unacceptable ESG risks. VTB Capital Asset Management's investment portfolios are off limits to companies that deliberately and systematically violate the basic principles of human rights and environmental protection and permit misconduct in corporate governance.

Development of the product portfolio

• As part of the development of its transactional business, VTB launched a new digital service called VTB Business-Online E-Workflow, which enables customers to sign legally binding documents and conclude multilateral agreements electronically and to access electronic documents in real time, which greatly reduces the processing time for transactions.
• The implementation of special niche solutions for customers continued. In particular, VTB introduced a new method of making online payments on the Gazpromneft-Aero blockchain platform. The innovative solution using smart contracts will enable airlines to pay for fuel at the moment of refuelling by means of a completely secure financial transaction carried out in real time.

Medium and Small Business

Digitalisation of customer service, development of the product portfolio and expansion of transactional operations in 1Q 2021

• The Bank expanded the geography of operations for its VTB-Kassa solution, which combines an online cash register and a payment terminal and enables business operators to accept all types of payments using a single device. The product is now available in all regions where the Bank operates.
• VTB began issuing fully digital virtual Visa and Mastercard business cards for small and medium-sized businesses. Customers can apply for and manage their cards through online banking.
• VTB launched a new version of its VTB Business Lite mobile bank, which offers remote services for small business operators. The app's design and navigation were updated to make them more user-friendly, and customer support chat and other functions were launched.
• VTB updated its Cifra mobile app offering accounting services for small business owners. As of the end of 1Q 2021, the app had more than 70 thousand users with 20 thousand customers having registered with the service in the past three months. The service's response time has improved; in addition, the ability to send documents through the chat function has been expanded to enable more comprehensive communication with specialists.

Customer support and the expansion of market coverage in 1Q 2021

• In March 2021, VTB began accepting applications for a new state-run lending programme aimed at the recovery of business activity in all regions where the Bank operates (Payroll 3.0). Funds are lent at an annual interest rate of 3% and can be used to cover costs related to any business activity, including the payment of wages or the payment of interest and principal on existing loan agreements.

Retail Business

Progress achieved in 1Q 2021 to digitalise customer service, develop the product portfolio, reduce the cost of funding and improve the customer experience

• The Bank introduced more than 70 updates to its flagship app and online bank VTB Online, including expanding the range of functions and investment products available to the users of the app. In February 2021, for example, a voice assistant was launched within VTB Online. In the first three months of 2021, customers completed 64 million transfers through VTB Online worth more than RUB 500 billion, a twofold increase year-on-year. VTB Online's user base grew by 500 thousand and reached 10.6 million active users, an increase of 26% year-on-year.
• In January 2021, VTB launched a unique online service for the Russian market called Smart Savings, which enables users to select a portfolio of savings and investment products through mobile and online banking. The customer chooses the investment strategy, amount and term, and the service offers an optimal portfolio of instruments, including deposits, savings accounts, VTB bonds and federal bonds.
• In January 2021, VTB began issuing loans through the relaunched state programme for preferential car loans, which enables borrowers to receive a loan for the purchase of an automobile at a discounted rate. The Bank has received over 24 thousand loan applications through this programme. The state provided assistance in 28% of all sales from January through March. In addition, a pilot project offering car loans to self-employed individuals was launched in March 2021.

• VTB expanded its online car loan service to all of the Bank's customers, including iOS users. Approximately 7 thousand applications for car loans are processed through VTB Online every month.

Business digitalisation and the development of a digital ecosystem

Key business digitalisation initiatives in 1Q 2021

• VTB began providing external partners with access to a new platform of open application program interfaces (APIs), which enable companies from various sectors, including insurance and retail, to fully automate their connection to VTB's services. Once connected to the platform, partners can create banking products under their own brands that will be issued and serviced by VTB.
• Two systems were introduced: one to manage CRM offers for individuals, which allows to instantly fetch the latest marketing offers for every customer; the other to manage customer data.
• VTB carried out a large-scale upgrade of its retail customer service system at Bank branches and its call centre in the context of shifting all services and products to its omnichannel platform. As part of the Bank's Reliability programme, equipment was upgraded to increase the reliability of VTB Bank's call centre to 99.99%, and a mobile app was also introduced to improve the performance of the Bank's Situation Centre and to improve its response time to emergency situations.
• In the context of its digital transformation programme, the Bank introduced an automated procurement planning and implementation system that is based entirely on Russian software.
• The Bank began its transition to its target Automated Banking System: an efficient, powerful IT platform that is scalable to meet growing business needs. The transition will unify customer service processes, while also reducing the time to market for new products and services and improving the reliability of key services.