Vozrozhdenie Bank Reports First Half 2007 Net Income
OREANDA-NEWS. August 9, 2007. Vozrozhdenie Bank (VZRZ) today reported six months 2007 IFRS financial results:
Net income 674 million rubles ($26.1 million), double 2006 first half
Return On Equity (ROE) at 20.1%, above 2006 average of 19.1%
Shareholders Equity reaches 10.7 billion rubles ($413 million)
Market capitalization rises to 38 billion rubles ($1.5 billion)
Assets grew by 62%, compared to July 1, 2006
We are pleased to report continuing strong business and financial results for the first half of 2007. Under International Financial Reporting Standards (IFRS) our profit after tax was 674 million rubles or $26.1 million, almost twice the profit of the first half of 2006. Our Return on Equity (ROE) was 20.1%, above the average for last year at 19.1%, despite the large increase in equity resulting from our 20th share issue which was registered on May 23. The Bank has profitably employed the funds raised primarily in expansion of loans to small and medium size businesses.
Business volumes continue to grow strongly with balanced growth coming from both retail and corporate sectors. Retail loan volumes are double the same time last year. Mortgages make up almost half (49%) of our retail portfolio and are the most rapidly growing part of our retail lending. Credit quality has shown no deterioration in the first half of this year. We continue to provide very conservatively for possible losses, with provisions at twice the level of loans past due.
During the second quarter the bank completed its 20th additional issue of ordinary shares, raising $177 million in an issue which was widely subscribed. Preemptive rights were exercised by both domestic and international investors. As a result of the issue roughly 50% of the bank’s shares are considered ‘free float’ and are traded freely on the Russian stock exchanges. A small portion, 2.3%, of the Bank’s shares trade on German exchanges as ADRs.
The new share issue was registered by the Central Bank of Russia on May 23 at which time we received use of these funds. Therefore we have weighted the Return on Equity and earnings per share calculations to give proper consideration to the increased equity and number of shares during the quarter. Return on Equity at 20.1% on an adjusted weighted basis, slightly exceeded the bank’s long term target of 20%. Market capitalization of the bank reached $1.5 billion.
“The strength of our capital base has helped us provide new loans to both existing and new borrowing clients. This assists our customers in expanding their businesses and increases employment and the general level of economic activity. I am very pleased with the solid relationships we have with our customers which is reflected in a very low level of potential problem loans,” said Dmitry Orlov, Chairman of the Management Board of Vozrozhdenie.
Pre-tax profit for the six months was a record 887 million rubles, an increase of 90% on the previous year. After taxes of 213 million rubles, net income was 674 million rubles ($26.1 million) which compares to 342 million rubles ($12.6 million) in the same period of 2006. Earnings per share rose to 32 rubles in the six months compared to 17 rubles for the first six months of 2006.
Net Interest Income grew 71% comparing to the first six months of 2006 exceeding the growth of average assets of 57%, due to the more profitable mix of assets this year. Although the level of problem loans in both the retail and commercial portfolios remained very low, 1.7% of total loans, we have been increasing provisions for possible losses on a regular basis. In the first six months we set aside 478 million rubles for provisions, or an annualized 1.6% of average loans. Total provisions were 2.4 billion rubles, or 3.3% of total loans, a cushion of almost twice the volume of past due loans.
Operating income grew 54% to 3,459 million rubles ($134.1 million) as transaction volume increases provided a 31% increase in fee and commission revenue from bank’s core business. Non-interest revenue provided 43% of total operating revenue in the first half of 2007 and net fees and commissions constituted 87% of non-interest revenue.
Operating expenses grew 44% as both retail and corporate business transactions have increased. We have added 10 new branches or sales outlets since the end of 2006. Expenses have grown less than the growth in assets or loan volumes and less than the rise in operating income. The Bank’s measured efficiency has increased, with the cost to income ratio going down to 65.3% from 72.0% in the same period last year and an average of 72.3% for 2006
Assets grew 62% over the past year to reach 92,806 million rubles, or $3,595 million. Loans to individuals and families continue to grow rapidly, particularly mortgages. The volume of mortgages outstanding is four times what it was at the same time last year, reaching 6.1 billion rubles or $238 million. Mortgages make up almost 50% of our loans to individuals with very few past due or problem mortgages in the Bank’s portfolio. Our consumer loans increased over 60% in the last twelve months. Credit card use has accelerated with balances now at 2,069 million rubles, triple the volume of this time last year.
Equity rose to 10,660 million rubles ($413 million) at the end of June 2007. This includes the 4,583 million rubles ($177 million) which has come from our recent issue of three million new shares and the 1,447 million rubles ($54 million) from our 19th share issue of two million shares received in August 2006. Earnings in the past 12 months have contributed 1,133 million rubles ($44 million).