VTB Group announces IFRS results for 3Q 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 and nine months ended 30 September 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:

"The impressive growth in key banking revenues that the Group has achieved in the course of this year contributed to our strong financial results while also setting new records for profitability in absolute terms. In 9M 2021, VTB Group earned a net profit of RUB 258 billion, which represents a more than fourfold increase year-on-year and is equal to a return on equity of 18%.

"Our sturdy performance in 9M 2021 leads us to revise and upgrade our net profit guidance for the second time this year. We expect to be able to exceed the target set in our strategy for 2022 already this year and to be able to provide an extremely attractive dividend yield at the end of the year as well."

Financial highlights

Business volumes grow accompanied by an increase in the share of retail lending

As of 30 September 2021, the total loan book before loan loss provisions amounted to RUB 14.3 trillion, an increase of 8.9% since the beginning of the year.

Loans to individuals increased by 15.9% from the beginning of the year to RUB 4.5 trillion amid a recovery in demand for consumer lending and continued growth in the mortgage portfolio. Lending to legal entities increased by 6.0% from the beginning of the year to RUB 9.9 trillion. 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 grown by 17.9% to RUB 15.1 trillion. Customer funding from legal entities increased by 29.1% in 9M 2021, while the current-account balances of legal entities increased by 48.2%. Customer funding from individuals increased by RUB 231.4 billion, or 4.0%, in 9M 2021 to RUB 6.0 trillion. An increase in current- and savings-account balances was offset by the lack of growth in investments in term deposits. At the same time, investments in term deposits on the by individuals increased by 9.2% in 3Q 2021, after decreasing by 6.1% and 2.6% in 1Q and 2Q, respectively.

The total volume of VTB Capital Investments' customer assets increased in 9M 2021 by RUB 744 billion, or 21.9%, to RUB 4.1 trillion. Retail assets increased by RUB 643.3 billion, or 35.8%, from the beginning of the year, reaching RUB 2.4 trillion as of 30 September 2021. Corporate assets increased by 6.3% to RUB 1.7 trillion.

As a result of faster growth in customer funding, the loans-to-deposits ratio (LDR) decreased to 88.7% as of 30 September 2021, down from 95.6% as of 31 December 2020. The share of customer funding in the Group's total liabilities increased in 9M 2021 to 81.8%, 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 43%, 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 loan book quality

VTB Group's net profit in 9M 2021 increased 4.4x year-on-year to RUB 257.6 billion, which represents a return on equity of 17.9%, up from 4.6% for the same period last year.

Net interest income amounted to RUB 475.7 billion in 9M 2021 and RUB 169.7 billion in 3Q 2021, increasing by 22.8% and 25.2% year-on-year, respectively. Net interest margin was 3.8% in 9M 2021 and 3.9% in 3Q 2021, compared with 3.8% in the same periods last year. The net interest margin remained stabled thanks to further optimisation of the funding structure and an increase in the share of higher-margin loans to individuals in the total loan book.

Net fee and commission income amounted to RUB 123.5 billion in 9M 2021 and RUB 39.4 billion in 3Q 2021, increases of 28.8% and 12.3% year-on-year, respectively. 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.

The Group's cost of risk was 0.7% in 9M 2021 and 0.5% in 3Q 2021, having decreased by 120 bp and 180 bp year-on-year, respectively. Provision charge amounted to RUB 78.4 billion in 9M 2021 and RUB 24.1 billion in 3Q 2021, decreasing by 57.8% and 66.5% year-on-year, respectively.

The Group's NPL ratio decreased by 110 bp from the beginning of the year, amounting to 4.6% as of 30 September 2021. The Group decreased its allowance for loan impairments to 6.4%, down from 6.8% as of 31 December 2020. The NPL coverage ratio was 140.2%, up from 120.6% at the beginning of the year.

Staff costs and administrative expenses amounted to RUB 205.9 billion in 9M 2021 and RUB 70.3 billion in 3Q 2021, increases of 7.2% and 11.6% year-on-year, respectively. 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 8.8 pp year-on-year to 33.9%.

CORPORATE-INVESTMENT BUSINESS

Investment banking leadership

• In 3Q 2021, VTB Capital retained its leading positions in international equity and debt capital markets as well as in M&A according to quarterly rankings by Dealogic, Refinitiv, Bloomberg and Mergermarket.
• According to Refinitiv, VTB Capital was the top lead manager for placements in debt capital markets in Russia with a market share of 49%; according to Dealogic and Bloomberg, VTB Capital was the leading bookrunner in the CIS and Eastern Europe. The same agencies named VTB Capital the top lead manager for share placements in equity capital markets in Russia and the CIS, with a market share of over 17%. In addition, VTB Capital was the leading financial advisor in Russia in terms of the number and volume of M&A transactions according to Refinitiv and Mergermarket.
• Highlighting its leading positions, VTB Capital was named the "Best Investment Bank in Central and Eastern Europe" at The Banker's Investment Banking Awards. The winning banks paid special attention to the ESG agenda, supported their customers in achieving their sustainability goals, continued to offer more-innovative products and services, and also offered their customers effective financial solutions adapted to the current market environment.

Continued growth of the investment platform VTB Capital Investments

• In 9M 2021, VTB Capital Investments increased its total volume of customer assets to RUB 4.1 trillion, adding RUB 744 billion, or 21.9%. Retail assets increased by RUB 643.3 billion (up 35.8% since the beginning of the year) to RUB 2.4 trillion, while corporate assets increased by 6.3% to RUB 1.7 trillion.
• VTB Capital Investments' customer base exceeded 1.9 million. In the first nine months of the year, the customer base increased by 765 thousand, and more than 930 thousand accounts were registered.
• VTB Capital Investments' income in 9M 2021 increased by 71.6% year-on-year to RUB 23.3 billion.
• VTB Capital Investments continued to develop the services and functionality offered by the VTB My Investments platform. For example, VTB Capital Investments continued integrating asset management products into the platform: now users of the mobile app can see their VTB Capital Asset Management portfolio of mutual funds that are not in a brokerage account, and a portfolio of trust management strategies was also made available. Customers who use VTB My Investments can now take part in direct public offerings. VTB My Investments launched an ESG strategy for its robo-advisor service and added five new USD portfolios with global allocation that, for the first time, consist entirely of ETFs. Accrued taxes and withdrawal limits are now displayed. The VTB My Investments app was seamlessly integrated with the Bank's app, and a USD robo-advisor was added that can purchase US shares. Robo-advisor strategies are now accessible with a low minimum investment: from RUB 5,000 or USD 100.
• Users can now become qualified investors through the mobile app, and unqualified investors can now undergo testing in order to gain access to complex financial instruments. In September, the app added a function that enables users to chat with support staff.
• VTB My Investments has about 400 thousand daily users, and more than 1 million transactions worth over RUB 100 billion are completed through the mobile app every day. As of September 2020, there were about 200 thousand daily users making an average of 600 thousand transactions worth around RUB 60 billion every day.

VTB Capital Investments became the first company in the market to enable customers with individual investment accounts to register online, in just a few clicks, to deduct taxes using the Bank's online channels.

• It is now possible to purchase shares in open-ended mutual funds managed by VTB Capital Investments through the Bank's online channels. The product line currently includes more than 30 open-ended mutual funds, and VTB Capital Investments manages more than 70 investment funds altogether.
• A line of new funds was launched in 3Q 2021:

• The open-ended mutual fund "VTB - Fund Moderately Conservative. Roubles". This portfolio aims to generate income at a rate above that of rouble-based deposits, with an average level of risk;
• The open-ended mutual fund "VTB - Fund Moderately Conservative. Dollars. Investment Strategy". This portfolio aims to generate income at a rate above that of deposits in US dollars, with an average level of risk;
• The open-ended mutual fund "VTB - Global Allocation Fund. Investment Strategy". This fund invests in assets - stocks, bonds, gold, raw materials and real estate - in global financial markets.

• Trading began in an ETF called "VTB - American Corporate Debt Fund". Another new ETF was launched with an ESG strategy for investing in Russian shares: "VTB - Fund for the Sustainable Development of Russian Issuers".
• In 3Q 2021, the National Rating Agency assigned VTB Capital Asset Management a rating of AAA|ru.am, with a stable outlook, on the national scale of non-credit ratings for the Russian Federation used to assess the reliability of asset management companies. This is the highest rating possible and indicates that an asset management company meets the highest-possible standards for the reliability and quality of its services. VTB Capital Asset Management also received a high ESG rating from the National Rating Agency (non-credit ESG rating of A2.esg) for the high degree of integration of the ESG agenda into its activities and for its compliance with relevant practices.
• VTB Capital Asset Management was the first Russian asset management company to become a signatory to the global Principles for Responsible Investment (PRI) initiative by joining the international PRI network.

MEDIUM AND SMALL BUSINESS

• In September 2021, VTB launched a new Internet bank for Medium and Small Business customers. This enables the Bank to move its work with entrepreneurs and companies to digital channels and to reduce the time it takes to serve clients. The VTB Business Internet bank offers more than 50 banking and non-banking products to make business more convenient as well as digital services to help entrepreneurs. They include a demo version, AI-based chats and chatbots, and predictive product offers.
• In July 2021, VTB expanded the list of privileges within the VTB Business League loyalty programme for Medium and Small Business customers. Now participants have access to more product offers and non-financial services on special terms from the Bank's partners, as well as additional educational opportunities. At the moment, about 330 thousand Medium and Small Business customers are taking part in the programme.
• In August 2021, a service that provides an expert review of foreign trade contracts was launched. VTB's Medium and Small Business customers can get an expert opinion on contracts with foreign partners through the VTB Business Internet bank. The service offers a comprehensive assessment of contracts in terms of compliance with Russian currency laws and expert support for transactions using letters of credit and bank guarantees.
• A new service for ordering cash online through the VTB Business Internet bank was launched in September 2021. The service enables businesses to submit requests for cash withdrawals remotely.
• Starting from September 2021, VTB began providing its Medium and Small Business customers with pre-approved credit in the form of an overdraft on their current accounts. The Bank can process and issue credit worth up to RUB 10 million online without additional documentation or collateral. The Bank calculates the credit amount for each customer automatically based on the account's turnover.
• In August 2021, customers were presented with a new online service for self-employed individuals that enables sole proprietors and individuals to register free of charge with the Federal Tax Service for the Professional Income Tax system, as well as to keep records of their income and generate customer receipts. The service is available through the VTB Business Lite mobile bank for sole proprietors and VTB Online for individuals.
• In 9M 2021, the number of visitors to VTB's Getting Down to Business information and educational portal increased by 55%, reaching 1 million users. According to the portal's statistics, the most popular items among visitors include articles with practical recommendations for business, webinars and free training courses. In 3Q 2021, a new catalogue was also launched on the portal with ideas for starting a business, advice from entrepreneurs on starting a business and calculations of potential costs and revenues.
• VTB's success in developing and incorporating new tech-based services for Medium and Small business customers was noted by international experts. In September 2021, the Bank received three Global Banking & Finance Awards for "Best Innovative Team in Russia with Innovations in Internet Banking", "Best Russian Bank for SMEs" and "Best Online Internet Banking Services for Micro-enterprises and SMEs in Russia 2021".
• VTB took first place in the Banking Ecosystems 2021 annual ranking of the top 20 ecosystems for business. The rating is based on the results of a study by the SME Banking Club. The study analysed the services for legal entities and sole proprietors offered by 208 banks from 11 countries.

RETAIL BUSINESS

• In September 2021, VTB began issuing preferential Far East mortgages at the very low rate of only 0.1% for customers who purchase an apartment in a new building or existing property from a developer in the Far Eastern Federal District. The maximum loan amount is RUB 6 million, with a minimum down payment of 15% of the property value.
• In the context of the development of ESG initiatives, in September 2021 VTB launched a loan programme for new electric cars for purchase from authorised dealers in Russia. The annual rate under the new programme is 3%, and the rate is fixed if car insurance is purchased for the entire loan term. The maximum loan amount is RUB 7 million, with a minimum down payment of 20% of the cost of the car.  

• In October 2021, VTB Online offered customers an opportunity to refinance credit cards from third-party banks (up to seven cards from other banks). To do this, customers can apply for an "Opportunities Card" digital credit card in just a few clicks.
• Since August 2021, VTB has been offering customer cards for children; the cards can be requested both through VTB Online and at Bank branches. For the Bank's youngest customers (aged 6+), cards are linked to a parent's account, and for older customers (aged 14+), cards are issued on the child's own account.
• In August 2021, personal accounts for the self-employed were made available through VTB Online, where customers can apply to register as self-employed and can track the status of their application. Customers can use their personal account to register income, generate receipts and send them to their customers, cancel income in case of refunds, monitor monthly earnings, receive receipts for tax payments, etc.
• To improve the customer experience, VTB Online launched a service in July 2021 that enables customers to request a debit card through a chatbot, and made it possible for customers to take out fraud insurance (this service is provided free of charge for pensioners); in August, a virtual financial advisor was piloted.
• In October 2021, VTB, in partnership with the Visa payment system, developed a service that enables the individualised or group-based collection of tips for businesses in the service sector. The service will be available free of charge for employees of companies that are VTB customers. The VTB Tips service enables users not only to transfer payment as a tip for services but also to leave their opinion about the quality of an establishment's operations without additional financial costs. To transfer money, the customer needs to scan a QR code on the check and then leave a tip using Apple Pay, Google Pay or a bank card number. These operations are carried out commission-free.

BUSINESS DIGITALISATION AND THE DEVELOPMENT OF A DIGITAL ECOSYSTEM

In the context of its business development, VTB Group implemented the following digital initiatives:

• In 3Q 2021, the VTB Online Voice Assistant underwent active developed: with its help, customers can select the nearest office for the range of services they need, check the limits of a specific card for P2P transfers, find out the commission for encashment in various currencies, and much more.
• In July 2021, a functionality was introduced that enables customers to use Apple Pay when paying for purchases with a Mir card.
• In early September 2021, VTB launched a car subscription service for payroll customers and VTB Group employees. The project was launched jointly with VTB Leasing and covers five regions of the Russian Federation. The new service is for the long-term leasing of a new car. The customer gets a new car of their choice right away, and pays for fuel, cleaning, parking and fines. VTB Leasing takes care of all other necessary support: it registers the car with the traffic police; arranges maintenance and the replacement of consumables; provides insurance (casco, compulsory third-party liability, and voluntary third-party liability) and insurance adjustor services in the event of an accident (visiting the accident scene, issuing and collecting documents); offers a replacement set of seasonal tires as well as storage for the tires and tire service; 24-hour roadside assistance; and an additional concierge service.
• In July 2021, VTB developed and introduced a machine learning model that uses big data analysis to predict demand for banking services at specific points in the city. Using this new model, VTB made calculations for all major Russian cities where it works with retail customers. The Bank will complete calculations for its entire network in the near future. Using the obtained data, the location of branches and ATMs will be optimised for VTB customers.

• In late August 2021, VTB developed and introduced its own platform for integrated risk management based on open-source software. The platform consolidates data flows from all major risk systems and can use tools for the robotisation of business processes and interactive analytics to greatly increase the efficiency of the Bank's capital management.
• In late September 2021, VTB's corporate accelerator provided a summary of its selection of tech startups: 677 applications were received from startups from 18 countries to participate in the accelerator. At Demo Day on 30 September, 22 companies presented their tech-based solutions for the Bank to pilot. The event was the final stage of a scouting campaign carried out by VTB in cooperation with the Skolkovo Foundation.