H1 2014 IFRS Results
Important Notice
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Key financial highlights
Strong and high quality capital position maintained
‒
Highest Tier 1 ratio under Basel I amongst the Bank’s peer group
at 13.0% as at 30 June 2014
‒
CBR total regulatory capital ratio of 12.0% as at 1 July 2014, in line with peers
Robust funding and liquidity position maintained despite volatile market environment
‒
Stable / resilient customer funding base: total customer funding in H1 2014 increased by circa 2% compared to
YE2013
‒
Low dependence on market funding maintained: loan / deposit ratio of 87% as at end H1 2014
‒
Strong liquidity position: liquid assets stood at 33% of total assets as at end H1 2014
Stable net interest margin in H1 2014, despite challenging operating environment: 4.5% in H1 2014, compared
to 4.0% in H1 2013
Significant improvement in underlying H1 2014 financial performance:
NPL management remains a key focus of management attention, particularly in the context of a deteriorating
macroeconomic and operating environment:
‒
NPLs marginally lower in Q2 2014: NPL ratio decreased by 50bps (circa RUB 1 bln decrease in NPL portfolio) to
12.2% as at end H1 2014, with a comfortable provision coverage ratio of 151%
‒
Active work on NPL / impaired loan portfolio continues in earnest
In H1 2014, the Bank delivered a commendable financial performance, despite a challenging macro environment:
net profit of RUB 738 mln in H1 2014 compared to a breakeven result (RUB 5 mln) in H1 2013
Key
achievements to
date…
…whilst some
remaining
challenges are
being addressed
RUB mln
H1 2014
H1 2013
Delta
Profit before tax
972
20
+952
Recurring profit before tax (excluding trading and other income)
493
-860
+1,353
9.9% 9.6% 9.2% 7.9% 7.4% 6.5% 12.3% 12.0% 13.1% 11.2% 10.9% 10.6% 0 5 10 15 Vbank MDM BSPB USIB NB PSB
Core Tier 1 (N 1.1) Total Capital (N 1.0)
High quality capital base
The Bank’s CBR regulatory capital position remains in line with its
peers
The CBR’s new Basel III capital rules (mandatory compliance with
which began in February 2014) have had minimal impact on the
Bank’s capital adequacy ratios
Basel I Tier 1 and Total CAR vs. Peers (IFRS)
1CBR Regulatory Capital Ratios vs. Peers
MDM Bank maintains a comfortable capital cushion and remains
ahead of its peer group in terms of IFRS Basel I Tier 1 capital
adequacy
88% of the Bank’s total capital is Tier 1 capital
1Key: MDM – MDM Bank; Vbank – Vozrozhdenie Bank; NB – Nomos Bank; PSB – Promsvyazbank; BSPB – Bank Saint Petersburg; USIB – Uralsib Bank
Based on CBR data as at 01.07.2014 13.0% 12.0% 10.9% 10.1% 9.6% 8.5% 1.8% 1.8% 3.6% 4.5% 4.4% 4.6% 0 4 8 12 16 MDM H1 2014 Vbank BSPB NB USIB PSB Tier 1 Tier 2 14.8% 14.5% 14.6% 13.1% 14.0%
Based on latest available consolidated financial statements of relevant peer banks; data for all peer banks as at Q1 2014, except Uralsib and Vozrozhdenie as at YE 2013
Total loan portfolio
Following a reduction in the Bank’s loan portfolio in 2013 primarily attributable to balance sheet restructuring, the Bank’s total net loan
portfolio demonstrated modest growth in H1 2014 (circa 3%):
‒
Corporate loan growth: RUB 3.1 bln
‒
SME loan growth: RUB 0.5 bln
‒
Retail loan growth: RUB 0.4 bln
Net Loan Portfolio Segmentation
Total Net Portfolio RUB181.7 bln
Total Net Portfolio RUB156.0 bln RUB17.7 bln RUB8.0 bln Balance sheet adjustment based on conservative assessment of ‘legacy’ problem assets Reduction in lending
46.7 38.9 27.9 30.3 17.2 11.7 11.0 12.9
0
25
50
75
YE 2011
YE 2012
YE 2013
H1 2014
Top 10 exposures Top 11 - 20 exposures
Corporate loan portfolio
With a view to optimising risk adjusted profitability, in 2012-13 the Bank pursued a policy of reducing corporate portfolio concentration
and increasing profitability, resulting in the decrease / closure of a number of larger corporate exposures, increasing granularity of the
loan book. However, in the current challenging macro environment, the Bank has refocused its business development towards the higher
end of its corporate client portfolio, deemed to be more resilient in current conditions
Nonetheless, loan concentration remains below 2011 levels and top 20 exposures as a share of Tier 1 capital remain significantly below
the industry average of circa 230%
2‒
134
% excluding the Irish Funds (linked to the Balance Sheet Support Transaction)
‒
161
% including the Irish Funds
Top 20 Exposures
11 Excluding the Irish Funds
2 Source: Moody’s Investor Services Report “2013 Survey of Russian and CIS Banks Single-Client and Related Party Concentrations”
Average Corporate Loan Size
RUB bln
The Bank’s NPLs were provisioned on a conservative basis as at YE 2013, anticipating that a number of ‘legacy’ problem loans still current
as at the year end would become delinquent (>90 days overdue) in the course of Q1 2014
In Q2 2014, NPLs marginally decreased (by circa RUB 1 bln)
Work continues in earnest on:
‒
Straight cash recoveries; and
‒
Longer term solutions,
including improvements in the value / quality of security and negotiating improved terms on restructurings
NPL management remains a priority of Management
Evolution of NPLs, Provisions and Provision Coverage
175% 174% 106% 36.2 28.9 36.3 36.0 36.0 34.1 16.7 20.9 24.9 23.9 15.4% 13.7% 18.9% 18.3% 18.4% 14.5% 7.9% 10.9% 12.7% 12.2% 0 2 4 6 8 10 12 14 16 18 20 0 5 10 15 20 25 30 35 40 YE 2011 YE 2012 YE 2013 Q1 2014 H1 2014
Deposit-based model: limited reliance on market funding (1/2)
Evolution of Funding Breakdown
Loan / Deposit Ratio
Strong net loan to deposit ratio: 87% as at end H1 2014,
despite the increased market volatility since November 2013
Overwhelming majority of the Bank’s funding needs are
secured through customer deposits
The Bank has deliberately maintained a limited reliance on
market funding, providing a level of insulation against current
market volatility
0 50 100 150 200 YE 2011 YE 2012 YE 2013 H1 2014Net Loans and Advances to Customers Customer Accounts
RUB bln 98% 90% 86% 87% 41% 47% 50% 46% 34% 31% 30% 30% 16% 17% 18% 22% 9% 5% 3% 2% 0 20 40 60 80 100 YE 2011 YE 2012 YE 2013 H1 2014
Retail Accounts Corporate Accounts Due to Banks Debt Securities in Issue
80%
78%
75% %
59 61 63 65 62 62 65 50 51 49 43 37 33 34 54 34 37 39 38 36 46 0 25 50 75 100 125 150 175 YE 2012 Q1 2013 H1 2013 Q3 2013 YE 2013 Q1 2014 H1 2014 Mass Retail Deposits VIP Deposits Corporate/SME Deposits
Deposit-based model: proven resilience (2/2)
Term Deposits by Segment
2 RUB blnFigures based on management account data
Evolution of Customer Funding
112 122 112 111 91 79 58 74 0 50 100 150 200 250 YE 2011 YE 2012 YE 2013 H1 2014
Retail Customers Corporate Customers
203 201 181 184 From 1 to 3 years; 39.1% From 6 to 12 months; 20.8% From 1 to 6 months; 28.7% Less than 1 month; 11.2% More than 3 years; 0.2%
Despite a volatile market environment, MDM Bank’s overall
customer funding base has demonstrated modest growth (circa
2%) compared to YE 2013. The core mass retail deposit segment
has remained stable over the past 18 months, growing circa 10%
compared to YE 2012 and circa 5% compared to YE 2013
The Bank has no material funding from its controlling shareholder
As at end H1 2014, circa 39% of total deposits had a maturity of
one year or more
1
Stable NIM and recurring income
Evolution of Operating Income and NIM
Stable net interest margin in H1 2014, despite a challenging operating
environment (moderate NIM contraction in Q2 vs. Q1 2014 primarily
driven by CBR key refinancing rate increases from March 2014)
Stable recurring operating income (+3.0%) vs. H1 2013, while overall
operating income decreased by circa 8% vs. H1 2013 primarily driven
by Q1 trading losses on the Bank’s securities portfolio and FX losses
resulting from market volatility and ruble devaluation
13% growth in fee & commission income in H1 2014 vs. H1 2013,
primarily due to increased insurance, FX and cash transaction
commissions
10 4.2% 4.0% 4.2% 4.3% 4.8% 4.5% -2 -1 0 1 2 3 4 5 -1 0 1 2 3 4 5 6 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014Net Interest Income Net Commission Income Other Operating Income Net Trading Gains/Losses Net Interest Margin (cum)
RUB bln 4.2 3.8 4.5 0 2 4 6 8 H1 2013 H1 2014
Net Interest Income Net Commission Income Other Operating Income Net Trading Gains / Losses
8.0 7.3
RUB bln
Total Operating Income H1 2014 vs. H1 2013
3.7 3.4 4.0 0 2 4 6 8 H1 2013 H1 2014
Net Interest Income Net Commission Income
Recurring Operating Income H1 2014 vs. H1 2013
6.8 7.0
Ongoing focus on operational efficiency and cost control
Evolution of Operating Expenses and Cost / Income Ratio
Operating Expenses H1 2014 vs. H1 2013
Continued discipline in cost control, with operating expenses effectively remaining flat in H1 2014 vs. H1 2013
The increase in the cost / income ratio in Q1 2014 is primarily driven by trading losses incurred due to market volatility (Q1 2014 net trading
losses of RUB 385 mln vs. RUB 305 mln net trading gains in Q1 2013)
Targeted spending increases have been budgeted for 2014 in key areas such as IT in order to further support operational efficiency and
performance
RUB bln 64% 66% 58% 62% 74% 71% 67% 63% 61% 60% 78% 67% 0 20 40 60 80 0 1 2 3 4 5 6 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Other OpEx Staff CostsCost / income ratio (quarterly) Adjusted cost / income ratio (quarterly) RUB bln 2.4 2.8 2.1 2.8 2.5 2.8 0 2 4 6 Н1 2013 H1 2014
Source: Based on IFRS Consolidated Financial Statements
1 Incl. mandatory cash balances with CBR
H1 2014 YE 2013 Change H1 2014 / YE
2013
Assets
Cash and cash equivalents1 40,019 38,023 5.2%
Due from banks 18,402 15,349 19.9%
Available-for-sale financial assets 35,888 30,073 19.3%
Loans and advances to customers 159,974 156,047 2.5%
Corporate 104,350 101,371 2.9% Retail 46,088 45,683 0.9% SME 9,536 8,993 6.0% Investment property 9,844 9,483 3.8% Other 20,016 18,724 6.9% Total Assets 284,143 267,699 6.1% Liabilities Due to banks 52,411 39,607 32.3%
Total customer accounts 184,073 180,524 2.0%
Retail 110,503 112,360 -1.7%
Corporate 73,570 68,164 7.9%
Debt securities in issue 5,667 6,135 -7.6%
Other 5,371 5,470 -1.8%
Total Liabilities 247,522 231,736 6.8% Total equity 36,621 35,963 1.8%
Key ratios
Liquid assets / Total assets 33.2% 31.2% 2.0 pp
Net loans / Deposits 86.9% 86.4% 0.5 pp
NPL ratio 12.2% 10.9% 1.3 pp
Provision coverage ratio 150.8% 173.9% -23.1 pp
CBR total regulatory capital ratio 12.0% 11.9% 0.1 pp
Tier 1 Capital ratio (Basel 1) 13.0% 13.4% -0.4 pp
Total Capital ratio (Basel 1) 14.8% 15.3% -0.5 pp
Balance sheet summary
Balance Sheet Summary (IFRS), RUB mln
The Bank has pursued a policy of cautious growth
H1 2014 H1 2013 Change H1 ’14/H1 ’13
Net interest income 5,013 5,033 -0.4%
Gains less losses from trading, available-for-sale financial
assets and foreign exchange, net 17 905 -98.1%
Net fee and commission income 1,951 1,726 13.0%
Other income, net 360 380 -5.3%
Total operating income 7,341 8,044 -8.7% Operating expenses (5,301) (5,244) 1.1%
Staff costs (3,311) (3,134) 5.6%
Administrative and other operating costs (1,990) (2,110) -5.7%
Net operating income before impairment losses 2,040 2,800 -27.1%
Loan impairment losses (1,170) (2,375) -50.7%
Other impairment losses 116 (299) nm
(Loss)/gain from investment property (14) (83) -83.1%
Loss on fair value adjustments for financial instruments - (23) nm
Net operating profit / (loss) after loan and other
impairment / revaluation losses 972 20 nm Profit / (loss) after tax and before other comprehensive
income 738 5 nm
Key ratios
Net interest margin (NIM) 4.5% 4.0% 0.5 pp
Cost / income ratio (CIR)1 72% 65% 7.0 pp
Cost of risk 1.2% 2.3% -1.1 pp
Income statement summary
Income Statement Summary (IFRS), RUB mln
Trading / FX results
Weak peformance primarily driven by Q1 losses on the securities portfolio and FX losses resulting from market volatility and ruble devaluation (Q1 2014 net trading losses of RUB 385 mln vs. RUB 305 mln of net gains in Q1 2013)
Impairment losses
Significant decrease in impairment provisions and revaluation losses following completion of the balance sheet restructuring in 2013
Net fee & commission income
13% growth in net fee & commission income primarily driven by an increase in insurance, FX and cash transaction commissions
Source: Based on IFRS Consolidated Financial Statements
Staff costs
Growth in staff costs primarily attributable to one-off redundancy payments
Disciplined approach to sector diversification: no single corporate sector accounts for more than 16% of the Bank’s lending book
Exposure to higher risk sectors maintained at modest levels:
̶ Real estate and construction at 11% and 6% respectively (peer group average circa 20% total)
̶ 2% exposure to agriculture
Gross Loan Portfolio by Sector, 30 June 2014
Maintaining diversification
Individuals: 27% Retail trade: 16% Finance: 12% Real estate: 11% Wholesale trade: 7% Manufacturing: 6% Construction: 6% Chemicals: 3% Ore: 3% Food and agriculture:2%
Healthcare: 2% Transport: 1%
Oil and gas:
