JSC VTB Bank (VTBR)
VTB Group reports record annual IFRS profit for 2021
VTB Bank ("VTB" or "the Bank"), the parent company of VTB Group ("the Group"), today publishes its consolidated financial statements for 2021 along with the independent auditor's report.
Dmitry Pianov, a member of the Management Board and Chief Financial Officer of VTB Bank, said:
"In 2021, VTB Group achieved record performance in terms of business volumes, profitability and efficiency, as well as the speed of transformation and technological change, surpassing strategic benchmarks by a wide margin.
"Net profit for 2021 amounted to RUB 327 billion, which represents a return on equity of 16.5%, while net interest income as well as net fee and commission income - our key banking revenues - increased by 22% and 16%, respectively. In connection with substantial investments in our technological transformation, we were able to continue to improve operational efficiency, reducing the cost-to-income ratio to 37.5%.
"As of the end of 2021, VTB's assets amounted to RUB 20.9 trillion, having surpassed the symbolic milestone of RUB 20 trillion in August. Retail loans accounted for nearly a third of the loan book at the end of the year; their share increased by 3.1 percentage points over the 12 months of 2021. Alongside excellent business performance, we saw an improvement in asset quality, with non-performing loans and cost of risk reaching record lows.
"It is extremely important for us that our customers truly appreciate the huge amount of work we have been carrying out to constantly improve the quality of our products and services and to develop digital banking, as evidenced not only by the professional awards we have received but also by the growing number of customers choosing VTB. In 2021, the Group saw the number of retail customers surpass 16 million, an increase of almost 2 million customers over the year, and the number of Medium and Small Business customers reached 858 thousand, an increase of 35% during the year.
"We are confident that our excellent results in 2021 will enable VTB Group to overcome market challenges and take advantage of opportunities for profitable growth."
Business volumes grow, with increased retail lending a priority
VTB Group's assets reached a new all-time high in 2021, surpassing RUB 20 trillion and reaching RUB 20.9 trillion as of 31 December 2021.
The total loan book before loan loss provisions amounted to RUB 14.7 trillion, having increased by 11.6% over the year. Notably, most of this growth was attributable to Retail Business and Medium and Small Business, which is in line with the Group's development strategy.
Loans to individuals rose by 23.5% during the year to RUB 4.8 trillion on the back of considerable growth in mortgage lending and a recovery in demand for consumer lending in 2021. The volume of loans to legal entities increased by 6.7% over the reporting period 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 32% (an all-time high for the Group), up from to 29% at the end of 2020. The share of loans to Medium and Small Business customers increased to 18% of the corporate loan book by the end of the year.
In 2021, customer funding grew by 18.3% to RUB 15.2 trillion. Customer funding from legal entities increased by 23.5%, while the current-account balances of legal entities increased by 29.4%. Customer funding from individuals increased in 2021 by RUB 682.3 billion, or 11.9%, amounting to RUB 6.4 trillion. In connection with the Central Bank of Russia's tightening monetary policy, funds from individuals flowed into term deposits in 2H 2021, following the growth in retail current accounts seen in the first half of the reporting period. Investments in term deposits by individuals increased by 18.2% in 4Q 2021, following a rise of 9.2% the previous quarter.
The total volume of VTB Capital Investments customer assets increased in 2021 by RUB 1 trillion, or 30%, amounting to RUB 4.4 trillion as of 31 December 2021. Retail assets grew by RUB 803 billion, or 45%, from the beginning of the year, reaching RUB 2.6 trillion. Corporate assets rose by 13% to RUB 1.8 trillion.
As a result of faster growth in customer funding, the loans-to-deposits ratio (LDR) decreased to a Group record of 90.9% as of 31 December 2021, down from 95.6% as of the end of 2020. The share of customer funding in the Group's total liabilities increased in 2021 to 81.4%, up from 78.1% as of 31 December 2020.
(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.
Record net profit and profit margin amid a strong growth in key banking revenues and stabilisation of the loan book quality
VTB Group's net profit for 2021 increased 4.3x year-on-year to RUB 327.4 billion, which represents a return on equity of 16.5%, an all-time high since the Bank's initial public offering, and up from 4.4% a year earlier. The actual result for the year exceeded the strategic target for net profit by more than RUB 40 billion. In 4Q 2021, the Group earned RUB 69.8 billion, an increase of 4.3x year-on-year.
The Group's net interest income amounted to RUB 646.3 billion in 2021 and RUB 170.6 billion in 4Q 2021, increasing by 21.6% and 18.3% year-on-year, respectively, despite the Central Bank of Russia's tightening monetary policy. Net interest margin was 3.8% in 2021 and 3.7% in 4Q 2021, compared with 3.8% in the same periods the previous year. The net interest margin remained stable in 2021 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 rose by 15.9% year-on-year to RUB 158.5 billion in 2021 and decreased by 14.4% year-on-year to RUB 35.0 billion in 4Q 2021. The considerable increase in net fee and commission income in 2021 was driven by the expansion of the Group's transactional business and the growing volume of commissions from the sale of insurance products and commissions from the brokerage business.
The Group's cost of risk was 0.7% for the year and for the fourth quarter, having decreased by 120 bp and 110 bp year-on-year, respectively, on the back of the improved quality of the loan book. The provision charge amounted to RUB 116.0 billion in 2021 and RUB 37.6 billion in 4Q 2021, down 53.6% and 41.2% year-on-year, respectively.
The Group's NPL ratio decreased by 170 bp from the beginning of the year, amounting to 4.0% as of the end of 2021. The Group decreased its allowance for loan impairments to 6.2%, down from 6.8% as of 31 December 2020. The NPL coverage ratio was 153.3%, up from 120.6% at the beginning of the year.
Staff costs and administrative expenses amounted to RUB 308.8 billion in 2021 and RUB 102.9 billion in 4Q 2021, up by 14.4% and 32.3% year-on-year, respectively, against the backdrop of the Group's ongoing digital transformation. 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 6.8 pp in 2021 to 37.5%, an all-time low for VTB Group.
Investment banking leadership
In 2021, VTB Capital ranked first in ratings of lead managers from Russia in both domestic and international markets.
According to Bloomberg, VTB Capital ranked first among lead managers of debt capital placements in Russia with 82 deals worth more than USD 5.9 billion, securing a market share of 14%. VTB Capital's leading position was also noted by Dealogic and Refinitiv, which recognised VTB Capital as the top lead manager in debt markets in Russia, the CIS and Eastern Europe.
According to Dealogic and Bloomberg, VTB Capital was the clear leader in equity capital markets in Russia and the CIS in terms of both the number of completed deals and the amount of funds raised. The VTB Capital team arranged 15 deals worth a total of more than USD 6 billion. The company's share of Russia's equity capital market was 21%; of the CIS market, 19%.
Refinitiv, Dealogic, Bloomberg and Mergermarket also named VTB Capital the leading advisor in terms of the volume and number of M&A deals in Russia and the CIS: 22 deals with a market share of over 20%.
In 2021, VTB Capital retained its leading position in terms of ESG instruments, and it was the only bank that took part in every international placement of ESG instruments by Russian issuers. VTB Capital placed seven issues of ESG bonds (two social bonds and five green bonds) worth a total of USD 1.9 billion.
Digitalisation and development of the transactional business
In 2021, the Bank improved and simplified its internal processes for loan transactions dramatically, thus reducing the amount of time needed to release funds in response to customer requests. Customers are now able to sign off on loan transactions remotely. In 2021, the time needed to make a decision on loans was reduced by 23%. In order to make the loan process for developers more efficient, special customer accounts for developers where launched that enabled the Bank to switch to paperless document management.
The Bank also made a change to its remote banking system, RBS 2.0, adding a new electronic application for cash withdrawals that enables customers to order cash withdrawals online without hard-copy paperwork.
In addition, the Bank launched a service enabling legal entities and individual entrepreneurs to make transfers to individuals by phone number through the Central Bank of Russia's Faster Payment System.
Using blockchain technology, the Bank completed payments on behalf of agents for air tickets from S7 Airlines on TechLab's blockchain platform, and it also created a blockchain scenario to speed up the shipment of metal products (even outside of banking days) on SAP's Business Technology Platform, which enabled customers to automate their shipment process and reduce costs.
Development of the VTB Capital Investments platform
As of the end of 2021, VTB Capital Investments' customer base exceeded 2.3 million, increasing by 892 thousand customers during the year (with more than 1.4 million new accounts registered).
During the year, VTB Capital Investments increased its total customer assets by 29.6% to RUB 4.4 trillion. The main driver behind the growth in total assets under management was retail investments. Retail assets increased by 44.7% to RUB 2.6 trillion; corporate assets increased by 12.6% to RUB 1.8 trillion.
VTB Capital Investments' revenue for 2021 amounted to RUB 31.3 billion, an increase of 43.3% year-on-year. The total trading volume for 2021 exceeded RUB 34.8 trillion, up 51% from 2020.
In 2021, VTB My Investments had more than 400 thousand daily active users (DAUs) and 800 thousand monthly active users (MAUs). More than 1 million transactions worth over RUB 100 billion are completed through the mobile app every day.
During the year, VTB Capital Investments continued to develop the services and functionality of the VTB My Investments app. Improvements to the app enabled users to participate in every available securities placement; mutual funds and trust accounts from VTB Capital Asset Management were added to the app, and a new investment consulting service was introduced.
It is now possible to acquire 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 80 investment funds with various investment strategies in Russian and global markets, including 12 ETFs with unique investment strategies.
VTB Capital Asset Management became the first management company to complete a deal on Moscow Exchange's precious metals market. The company purchased 1 kilogram of gold through the VTB - Fund Gold. Exchange (VTBG ETF).
In the context of incorporating sustainability principles into its business, 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.
VTB Group retained its position in 2021 as one of the leaders in the Russian infrastructure market. Notably, the largest public-private partnership project in the healthcare sector in 2021 was a concession agreement between VTB Infrastructure Holding and the Magadan Regional Government for the construction of five specialised and primary healthcare facilities in Magadan in the amount of RUB 31.5 billion, which is being carried out through the Far East concession mechanism.
VTB was involved in a project to build a new exit (the Eastern Exit) from Ufa onto the M-5 Highway (known as the Ural Highway). The project was certified by the National System for Quality Assessment and received IRIIS infrastructure project certification; it also won a Quality Infrastructure Investment award.
MEDIUM AND SMALL BUSINESS
In 2021, VTB Bank increased its Medium and Small Business customer base by 35% to 858 thousand customers, which speaks to the high demand for the Bank's products and services.
In line with the strategic goals of its Medium and Small Business, the Bank continued its efforts to improve the customer experience while also accelerating the incorporation of new digital solutions.
In 2021, the Bank developed and launched a new generation of its Internet bank for its Medium and Small Business customers (VTB Business), while also improving the Internet bank's functionality and completely redesigning the mobile bank. The new Internet bank, VTB Business, offers customers more than 50 banking and non-banking products that make it easier to conduct business, as well as digital services to help entrepreneurs. These include the ability to select products and services, chats and chatbots that use artificial intelligence, predictive product offers, an intelligent assistant, as well as virtual learning tours.
In addition to traditional payment options, the products available in the new remote banking systems include the issuance and maintenance of business cards (including virtual cards), online connection to merchant acquiring services and online tracking of acquiring transactions. In addition, customers can use analytics to evaluate the efficiency of their retail outlets, make online deposits, order and reserve cash, manage tariffs and notifications, register for non-banking services and enrol in a loyalty programme.
The highlight of the reporting period was the introduction of a digital ecosystem in the new Internet bank for entities conducting business abroad, a high-tech solution for importers and exporters that combines, in the form of a one-stop shop, traditional financial and specialised products to begin and successfully conduct international business.
Since 2021, the Bank's customers have been able to receive online express loans through the Internet bank, and sole proprietors who are not yet VTB customers can apply for loans through the Bank's website and receive a decision within five minutes.
In addition, the Bank offered a new selection service for Medium and Small Business customers in 2021. Now, entrepreneurs can choose the best investment offer available on the VTB website based on their business needs. The new service enables customers to allocate their funds to investments offering the best returns to generate additional income.
In collaboration with the City of Moscow's IT Department, the Bank launched Supplier Portal, an online service that accepts applications for bank guarantees. The service is available to customers of VTB and other banks and simplifies the process of preparing the documents needed to take part in public procurement.
In 2021, the Bank actively developed its e-commerce service VTB Business Connect, a B2B platform. The volume of purchases made on the electronic trading platform doubled, exceeding RUB 1.3 billion. The period for determining the winners of procurement contracts was reduced; now it takes from two to five days on average from the time a bid is submitted until the winner is determined. The platform conducts more than 100 competitive procurement procedures every day.
In 2021, VTB Group increased its Retail Business customer base considerably. As of the end of the reporting period, the number of active retail customers had increased by 2 million to 16 million, which is more than 20% of Russia's workforce. At the same time, the number of payroll customers increased by 5% to more than 7.5 million.
The key factors driving customer acquisition in 2021 were the digitalisation of sales, successful work with inactive customers, the development of advanced service technologies and targeting new segments, including young people and retirees. Social responsibility projects were strategically important for VTB, including payments to large families and fraud insurance for customers.
The number of active users of the VTB Online app increased by 30% in the reporting year, reaching 13.4 million. During the year, VTB Online was named one of the top three mobile banks for retail business in UsabilityLab's convenience and accessibility rating. For customers of other banks, VTB introduced Easy Bank, offering instant access to financial products; more than 400,000 users have signed up for the service so far.
In 2021, the Bank greatly accelerated the digitalisation of its retail business. The digitalisation of lending enabled the Bank to increase the number loans issued while reducing the processing time and costs. Thanks to the retail loan pipeline developed by the Bank, the efficiency of pre-approved loan offers increased 12-fold; the processing time decreased from 15 to 5 days, and the number of customers increased from 10 million to 40 million. As a result, by the end of the year, the number of loans issued had increased by 46%, while the number credit cards issued had increased by 33%.
In addition, the Bank began issuing uncollateralised car loans entirely online, and it also entered the cashless-tips market with the VTB.Tips digital service.
The Bank launched a voice assistant named Leo. The virtual assistant is able to advise customers on 1.5 thousand topics. In less than a year of operation, it helped 340 thousand users make payments and transfers worth RUB 30 million.
A quarter of a million VTB Online users make over 800 thousand transfers every day. In 2021, VTB continued to make the service more convenient: the Bank enabled transfers via a link, QR code or the VTB Radar function, which enables users to find other Bank customers located nearby using Bluetooth and AirDrop technologies and to quickly send them a money transfer. The Bank continued integrating municipal services into VTB Online, enabling Moscow residents and non-residents to rent bikes through the Velobike service, and to track and top up the balance on Troika transport cards, parking accounts and transponder accounts with Avtodor-Toll Roads.
In 2021, the Bank stepped up its focus on fraud prevention. During the year, the Bank fended off more than 1 million malicious attacks and saved over RUB 14 billion in customer funds. To ensure that users of the Bank's app have every opportunity to protect themselves, VTB Online added a function that enables users to instantly block access to their personal account, and the chatbot began collecting data on the phones and phishing sites used by scammers.
The availability of VTB Online is a priority for the Bank. Thanks to efforts undertaken up to the end of 2021, 80% of the functionality of VTB's mobile bank and 100% of the functionality of its Internet bank were accessible to visually impaired customers. In addition, the Bank launched a project aimed at adapting VTB Online for users with hearing and learning disabilities.
Square Metre housing ecosystem
In 2021, using the tools available in VTB's housing ecosystem (Square Metre), more than 267 thousand real estate transactions worth over RUB 1 trillion were completed. In December, Square Metre's share of primary real estate transactions increased to 16%, and its share of secondary real estate transactions increased to 6%. During the year, the platform acquired nearly 500 thousand new individual users. Square Metre currently operates with all the largest developers in the country (more than 3.2 thousand legal entities) and nearly 20 thousand real estate agencies and private realtors.
SUSTAINABILITY IN LINE WITH ESG PRINCIPLES
In November 2021, VTB's Supervisory Council approved a sustainability strategy for 2022 to 2025.
The main focus of the strategy is on social initiatives and on improving the quality of life of the Group's customers. The strategy is based on three fundamental principles that resonate with the Group's values and mission: to help business and the state implement sustainability initiatives, to improve the well-being of the Group's customers and create opportunities for self-fulfilment, and to set an example regarding the implementation of sustainability practices.
The Bank created and continues to develop a centre of expertise that advises customers on sustainability issues; the Bank is also working hard to develop responsible and green financing instruments.
The strategy includes initiatives related to promoting the development of the regions where the Bank operates, in the context of which the Bank plans to implement charitable, sponsorship and partnership programmes to support healthcare, sport, culture, the environment and education. Issues of a positive working environment are also touched upon. VTB Bank occupies a leading position among employers: in November 2021, the Bank was granted the highest (platinum) status in Forbes' rating of the best employers in Russia.
File: VTB Group 12M2021 IFRS Financial report
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