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VTB: Worse-than-expected 1Q09 results

VTB: Worse-than-expected 1Q09 results

4.8.2009 11:36

VTB Bank has reported a worse-than-expected loss (IFRS) of RUB 21.4bn for 1Q09 versus our expectation for a net loss of RUB 8.75bn and the consensus estimate for a loss of RUB 12.4bn. Revenues were much weaker-than-expected, as higher funding costs generated margin pressure and one-off charges hit trading results, and net provisioning requirements were higher-than-expected.

Total (38,53 EUR, -0,93%) income: Net interest income (+3.8% q/q) was affected by a 50bp q/q decline in the margin (reported). Non-interest income reflected weak generation of net fee income (-8.3% q/q), and a one-off loss of RUB 10.3bn (related to the reclassification of interest rate swaps from the hedging to the trading book, as loans originally denominated in US$ were restructured into RUB) which offset RUB 5.5bn of one-off gains on the buy-back of VTB bonds.

Net provisioning: Loan quality deteriorated with the level of overdue and rescheduled loans rising to 4.3% in 1Q09 from 2.4% at the end of 2008. This drove net provisioning requirements to an annualised 7.1% of average gross loans in 1Q09 (up from 4.8% in 4Q08 and 3.8% in 3Q08), whilst provisioning coverage declined to 118.3% from 147.6% at year-end. Management guidance is now for loan provisions to exceed 8% of the gross loan portfolio by the end of the year.

Total costs: Total costs were down 17.9% q/q from a seasonally high fourth quarter base but up 26.3% y/y. Emphasising cost control, management has reported a decrease in group employment of 1.3% q/q (including a cut at VTB24 of 2.2%) and declared VTB Capital fully staffed. However, the costs of expansion (staff is still up 8.6% y/y) will continue to weigh on performance this year. Management’s latest cost target is for costs not to exceed an annualised 4Q08 level (or for less than 22% y/y).

Outlook: In terms of annual guidance, management reports that the bank is not expected to breakeven this year. This is no surprise however – the consensus expectation is for VTB to make a loss this year of US$ 1.9bn (source: Bloomberg). This may deepen after the release of these disappointing 1Q09 figures and a negative trading impact is expected. However, this should be moderated by the fact that the results are already so dated and that the operating environment has since improved.

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