Russia 090804 Basic Political Developments

UPDATE 1-Russia's VTB Q1 loss wider than forecast

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL437108420090804
Tue Aug 4, 2009 2:33am EDT

* Q1 net loss 20.5 bln rbls vs 12.4 bln in poll

* Q1 net interest income 34.3 bln rbls

* Does not expect return to profit this year

* Provisions to exceed 8 pct of loan portfolio in '09

MOSCOW, Aug 4 (Reuters) - VTB (VTBR.MM: Quote, Profile, Research, Stock Buzz), Russia's second biggest lender, reported a 20.5 billion rouble ($656.2 million) net loss for the first quarter on Tuesday as loan provisions rose faster than expected.

Analysts had expected VTB to show a net loss of 12.4 billion roubles. They see the bank as an indicator of the health of the wider Russian banking sector.

"The level of provisions is to remain high in 2009 and we would not expect to return to profit this year," VTB's chief executive officer Andrei Kostin was quoted as saying in a press release.

VTB is planning to raise at least 180 billion roubles in new capital as early as September to offset the impact of the rising bad loans.

VTB's larger rival, state-controlled Sberbank (SBER03.MM: Quote, Profile, Research, Stock Buzz) has earlier defied expectations by staying in the black in the first quarter despite surging provisions [ID:nLE295374].

(Reporting by Dmitry Sergeyev; editing by John Stonestreet)

VTB Bank posts Q1 IFRS net loss of 20.5 bln rubles, worse than forecast (Part 3)

http://www.interfax.com/3/509071/news.aspx
MOSCOW. Aug 4 (Interfax) - The VTB (RTS: VTBR) Bank closed the

first quarter of 2009 with net losses of 20.5 billion rubles to

International Financial Reporting Standards (IFRS), the bank said in a

press release.

Analysts told Interfax in a consensus forecast that they thought

the bank would show losses of 12.7 billion rubles for the quarter.

VTB's equity decreased by 2.7% during Q1, to 381.5 billion rubles

from 392.1 billion rubles. Liabilities rose 3.8% to 3.431 trillion

rubles. Combined liabilities and equity rose 3.1% to 3.813 trillion

rubles.

The capital adequacy ratio fell to 15% at the end of Q1, from 17.3%

at the end of Q4.

The bank said provisions for loan impairment grew to 49.2 billion

rubles in Q1 2009 from 30 billion rubles in Q4 2008. This was 7.1% of

the average gross loans in annualized terms, compared with 4.8% in Q4.

Past-due and rescheduled loans grew to 4.3% of the portfolio at the

end of Q1 2009, from 2.4% at the end of 2008. "Although down from 147.6%

at the end of December 2008, the coverage ratio for overdue and

rescheduled loans by allowances for loan impairment remained adequate at

118.3% at the end of March 2009."

VTB said its Debt Center, established in 2008 to work with

borrowers in difficulty and secure the bank's position in restructuring

situations, became fully functional in the quarter, with a dedicated

team able to manage problem assets and maximize recoveries. In the first

quarter of 2009, the Debt Center was engaged in the recovery of more

than 120 problem loans totaling over 62 billion rubles. More than 80% of

those assets represented loans to large companies."

Provisioning will be high throughout the year and could top 8% of

total lending by the end of 2009, the bank said, echoing previous

guidance.

The bank said the sharp increase in provisions, coupled with a one-

off charge of 10.3 billion rubles related to the reclassification of

interest rate swaps, drove the net losses of 20.5 billion rubles in Q1

2009. It said the exceptional charge was due to the reclassification of

interest rate swaps from the hedging to the trading book. These related

to foreign currency loans which were restructured into ruble loans, as

part of the process VTB is undertaking to help its clients put their

financing on a more sustainable footing. In addition, VTB booked a loss

of 1 billion rubles from trading securities in the first quarter of

2009.

Core income, defined as net interest income before provisions and

net fee and commission income, went up 30% to 38.6 billion rubles in Q1

2009 from 29.7 billion rubles in the same period last year,

"demonstrating the continued earnings power of VTB's business." Net

interest income before provisions increased 30.9% to 34.3 billion rubles

from 26.2 billion rubles in Q1 20087 due to strong lending growth. Net

fee and commission income increased almost 23% year-on-year to 4.3

billion rubles from 3.5 billion rubles. The net interest margin

decreased to 4.1% from 4.6% in the fourth quarter of 2008, largely due

to increased funding costs.

VTB continued to optimize its debt obligations. A net gain from the

buy-back of 5.5 billion rubles was booked in the reporting period. The

nominal value of Eurobonds bought back during the first quarter of 2009

amounted to $600 million.

The Group's total assets increased 3.1% to 3.813 trillion rubles at

the end of Q1 2009, up from 3.697 trillion rubles at the end of 2008.

VTB's total gross loan portfolio went up 7.5% to 2.848 trillion rubles

from 2.65 trillion rubles.

"Despite the Government's anti-crisis measures, Russian companies

continue to face serious difficulties refinancing their operations. With

foreign credit markets remaining mostly shut for Russian corporates, VTB

has been working actively to provide alternative sources of finance in

the domestic market and has been able to deepen its relationships with

high quality borrowers. VTB's investment in VTB Capital has also

provided additional expertise in that client segment. This is enabling

VTB to create strong and high quality relationships which will stand the

Bank in good stead when the economy returns to healthy growth," VTB

said.

As a result, VTB was able to report growth in corporate loans of

7.7% to 2.438 billion rubles from the year end 2008. VTB Group's share

of the corporate loan market increased from 12.7% to 12.9%. Retail loans

increased by 5.8% to 409.5 billion rubles from 387.1 billion rubles at

the end of 2008 with VTB's market share up slightly to 8.9% (2008 -

8.8%) in that segment.

Customer deposits increased 11% quarter on quarter to 1.223

trillion rubles from 1.102 trillion rubles. "Although this increase

partly reflected the impact of the devaluation of the ruble on dollar

denominated deposits, there was a marked increase in both corporate and

retail inflows reflecting confidence in the VTB brand."

"Focus on cost control and improved efficiency remained a key

priority for the bank," VTB said. In the second half of 2008, the Group

implemented a number of cost cutting measures across all of its

businesses. Progress on these measures is reflected in the first quarter

results. Staff and administrative expenses decreased 17.8% quarter-on-

quarter to 17.1 billion rubles. As a result, VTB's cost-to-core income

fell to 44.3% from 55.1% in the fourth quarter of 2008 and remained

broadly stable as compared to the first quarter of 2008.

The number of VTB Group employees fell by 1.3% or 565 employees to

41,427. The Group's largest employer, its retail bank VTB24 (RTS: GUTB),

cut 2.2% of its staff or 394 people to 17,487.

After a period of rapid expansion, VTB24 has shifted its strategic

focus towards customer relationship management while consolidating its

operations and branch network. The number of branches of the Group's

retail bank VTB 24 fell to 480 from 504 at the end of 2008. The bank has

also shifted its product focus away from mortgage lending towards

shorter term loans.

VTB expects its consolidated loan portfolio to rise more than 10%

in ruble terms this year.

The group does not expect overall expenditures for 2009 as a whole

to exceed Q4 expenditures in annualized terms in rubles. On this basis,

VTB does not expect to close the year with profit.

"In the face of extremely tough economic conditions, VTB is working

hard alongside the Government to support its customers. We continue to

maintain tight control on costs and risks. The level of provisions is to

remain high in 2009 and we would not expect to return to profit this

year. We are confident that we will be able to weather the storm and

emerge successfully with a strong franchise when the economy recovers,"

VTB President and Chairman of the Management Board Andrei Kostin was

quoted as saying.

VTB was Russia's second largest bank by assets, according to the

Interfax-100 ranking at the end of the first quarter of 2009. VTB24 was

the seventh biggest.

VTB is about to launch a rights offering to bolster its share

capital by 90 billion rubles. It said in a statement published by the

Rossiiskaya Gazeta newspaper that shareholders would be able to exercise

their rights to buy 90 billion rubles of new stock between August 5 and

24. The placement price will be decided when the rights offer expires.

VTB 24 will accept the offers to buy the shares.

A VTB source also told Interfax that VTB would start a road show

for depositary receipts in Britain, Continental Europe and the United

States on or after August 10 and that it could place 10% of the new

share issue abroad.

VTB's share capital could go up 2.34-fold to 157.241 billion rubles

if the whole 90 billion rubles is placed.

The state currently owns 77.5% of VTB, institutional investors own

17.7% and individuals own 4.8%. Russian investors own 12.2% and foreign

investors own 10.3%. The government's stake in VTB is not expected to

exceed 90% even if existing shareholders do not exercise their right to

buy the new shares, VTB's chief financial officer, Nikolai Tsekhomsky,

said at the bank's AGM at the end of June. He said the government's

stake would be decided after the supervisory council decides on the

placement price, probably in August.