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VTB releases neutral 9M 2009 IFRS results

By Finam

The 9M 2009 IFRS report from VTB reveals a further degeneration in the quality of the bank’s loan portfolio, evidenced by a sudden surge in rescheduled loans. However, in 3Q 2009, the bank demonstrated certain upward trends as well, such as an increase in net interest margin and a fall in administrative expenses compared to the previous quarter.

On 17 December 2009, VTB (RTS: VTBR) published an unaudited consolidated IFRS financial statement for 9M 2009. In the reporting period, the bank showed a 3.1% contraction in assets, down to RUB 3.58 trillion. Loan portfolio expanded by 3% to RUB 2.73 trillion, and equity grew by 35% from FY 2008 to RUB 530 billion.

We are neutral about VTB’s operating performance in 3Q 2009. On the upside, we note the following:

- Interest expenses dropped 6% q-o-q in 3Q 2009, which provoked a 3.1% rise in net interest income. As a result, VTB’s net interest margin advanced to 4.4% from 4.3% in 2Q and 4.1% in 1Q 2009. However, VTB’s overall interest margin in 9M 2009 declined by 0.5 pp y-o-y.

- Administrative expenses decreased by 9.7% q-o-q in the third quarter. However, in 9M 2009, VTB posted a 12.2% surge y-o-y surge in administrative expenses.

- VTB improved transparency of its NPL data. In particular, it replaced its previous NPL accounting method, according to which even a part of the amount due was deemed a non-performing loan in a borrower fell into arrears for at least one day, with the more progressive 90+ days method.

At the same time, we note the following negative aspects:

- Provision charges declined by 37% q-o-q in 3Q 2009. As a result, bad debt coverage ratio as of September 30 dropped to 115% from 101% in 2Q 2009.

- VTB acknowledged losses on financial instruments because of loan restructures, and closed 3Q 2009 with a 16.9 billion loss.

- Bad loans continued to expand and totaled 7.8% of the loan portfolio on September 30 compared to 6% in late 2Q 2009.

- The volume of restructured loans jumped from 2.8% on June 30 to 8.3% on September 30.

Although VTB managed to somewhat improve its financials in 3Q 2009, we still view it as one of the most crisis-shaken banks in Russia. In 9M 2009, the bank reported a RUB 57.4 billion pre-tax loss, a sharp contrast to other public banks, who continue to make a profit despite large provision charges.