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Financial results

In 1Q2017 the Group recorded net income of RUB 7.3 bn. Total comprehensive income including revaluation of non-trading investments and exchange differences on translation of the Group’s foreign operations accounted for RUB 6.4 bn. By comparison, in 1Q2016 net income and net comprehensive income amounted to RUB 9.8 bn and RUB 5.2 bn, respectively. The Group’s ROE stood at 5.9% and increased by 0.3 pp compared to the same indicator as at year-end 2016. ROA remained unchanged for the first three months of 2017 and stood at 0.6%.

The Group’s net interest income in 1Q2017 totaled RUB 29.1 bn compared to RUB 30.1 bn in 1Q2016, meanwhile interest income decreased by 9.4% to RUB 89.0 bn, and interest expenses fell by 12.2% to RUB 59.9 bn. The net interest margin in 1Q2017 reached 2.8% compared to 3.0% in 2016.

The provision charge in 1Q2017 amounted to RUB 4.0 bn compared to RUB 6.5 bn in 1Q2016. The Group’s cost of risk in 1Q2017 totaled 0.4% compared to 0.6% in 1Q2016.

The Group’s recurring core banking income, including net interest income before impairment of interest earning assets and net commission income, totaled RUB 32.0 bn in 1Q2017 compared to RUB 33.4 bn in 1Q2016. The share of core earnings in the Group’s operating income reached 102.6%, up by 19.3 pp on 1Q2016 and was mainly attributable to decrease in the Group’s trading and investment gains compared to 1Q2016.

Combined income from operations with securities[9] totaled RUB 3.4 bn in 1Q2017 compared to RUB 7.6 bn in 1Q2016. The main reason for the contraction in income from operations with securities was lower income from portfolio investments due to the sale of a number of the Group’s investments.

Non-banking segments recorded an operating profit of RUB 0.9 bn in 1Q2017 compared to RUB 0.5 bn in 1Q2016.

The abovementioned developments were factored into the Group’s operating income (before allowance for impairment of interest earning assets) of RUB 31.2 bn, down by 22.2% from 1Q2016 results.

Operating expenses in 1Q2017 reached RUB 16.9 bn, down by 7.0% from RUB 18.2 bn a year earlier. At the same time, the cost-to-income ratio increased by 8.8 pp in 1Q2017 amounting to 54.1% due to an even larger contraction in operating income.

Business volumes and assets quality

The Group’s total assets amounted to RUB 5,282.1 bn as at 31 March 2017, up by 8.3% from RUB 4,879.2 bn as at year-end 2016. The main growth factor was attributable to a RUB 495.0 bn increase in cash and cash equivalents to RUB 968.5 bn, due to a sharp rise in borrowed funds of corporate customers at the end of 1Q2017. At the same time, strengthening of the ruble exchange rate in 1Q2017 further exerted decreasing influence on the size of the ruble equivalent of foreign currency assets and, respectively, on the dynamic of total assets.

Loan book before provision for impairment as at 31 March 2017 stood at RUB 3,381.4 bn, or 3.5% less than the same indicator at year-end 2016, which amounted to RUB 3,503.9 bn.

Loan book contributed 59.2% to the Group’s total assets, down by 7.3 pp from year-end 2016. At the same time, the Group’s corporate loans decreased by 3.8% compared to year-end 2016 (RUB 3,174.8 bn) and amounted to RUB 3,052.9 bn, while retail book remained virtually unchanged in 1Q2017 and stood at RUB 328.5 bn, accounting for 9.7% of the gross loan book (compared to 9.4% as at year-end 2016).

The share of non-performing loans (NPLs[10]) contracted by 0.1 pp in 1Q2017 and stood at 2.9% as of 31 March 2017.

The provisioning ratio (the ratio of loan loss reserves to the loan book) comprised 7.5% of gross loans as at end 1Q2017, which is almost the same as at year-end 2016 (7.3%). In addition, provisions continue to exceed substantially – by 2.6-fold – the non-performing loans volume, compared to year-end 2016 when NPLs were 2.5 times covered by impairment allowances.

The Group’s securities portfolio in 1Q2017 expanded by 4.7% and reached RUB 616.6 bn compared to RUB 589.1 bn as at year-end 2016, mainly due to the acquisition of investment units in 1Q2016. The share of securities in the Group’s assets decreased by 0.4 pp since year-end 2016 and totaled 11.7%. The structure of the Group’s securities portfolio is characterized by the prevalence of fixed income instruments representing investments in Russian government debt instruments, bonds and promissory notes of Russian issuers. However, their share in 1Q2017 decreased by 6.7 pp and stood at 72.5% as at 31 March 2017 compared to 79.2% as at year-end 2016.

Corporate and retail deposits continued to grow, amounting to RUB 3,765.4 bn as at 31 March 2017, up by 13.0% compared to RUB 3,330.8 bn as at year-end 2016. In particular, the volume of corporate deposits continued to increase, up by 17.3%, reaching RUB 3,110.4 bn as at 31 March 2017 compared to RUB 2,652.5 bn as at year-end 2016. Retail deposits and accounts decreased by 3.4% in 1Q2017 and totaled RUB 655.0 bn as at 31 March 2017 compared to RUB 678.3 bn as at year-end 2016. The share of customer deposits in the Group’s liabilities stood at 78.7% as at 31 March 2017 compared to 76.0% as at year-end 2016.

Borrowings from debt capital markets, including eurobonds, local bonds and syndicated inter-bank loans were virtually unchanged in 1Q2017 and stood at RUB 316.3 bn compared to RUB 317.3 bn as at year-end 2016. A CNY 1 bn eurobond, issued in 2014, was redeemed, RUB 9.2 bn and RUB 5.0 bn bonds were placed in 1Q2017. The share of borrowings on debt capital markets in the resource base declined in 1Q2017 from 7.2% to 6.6% on the back of increased corporate deposits.

In 1Q2017, borrowings from the CBR backed by corporate loans continued to contract and stood at RUB 33.6 bn as at 31 March 2017, down by RUB 61.9 bn, or 64.8% compared to 31 December 2016. The share of borrowings from the CBR in the Group’s liabilities stood at 0.7% as at the end of 1Q2017 compared to 2.2% as at year-end 2016.

The Group’s Basel I total capital based on consolidated IFRS financials amounted to RUB 615.8 bn, remained almost flat in 1Q2017, compared to RUB 620.4 bn as at year-end 2016. The Group’s risk weighted assets were also stable in 1Q2017. As a result, the Group’s capital adequacy indicators were virtually unchanged as at 31 March 2017 compared to year-end 2016: the Group’s total capital adequacy ratio amounted to 13.5%, while the Tier 1 capital adequacy ratio stood at 10.1%, up 0.1 pp.