The results of ZAO Raiffeisenbank for 2012 are provided under International Financial Reporting Standards (IFRS) and may differ from the results of the «Russia» segment in the financial statements of Raiffeisen Bank International as a result of the difference arising from consolidation.
«2012 was the year, when we not only earned record profit, but also improved all the measures of efficiency, as well as all components of operating income due to optimization of processes. This meant not only the decrease of cost, but also the improvement of our services for clients. We observe that our operations become more highly marginal and the quality of our services increases,» — mentioned Sergei Monin, Chairman of the Management Board, ZAO Raiffeisenbank.
Profit after tax amounted to RUB 17 854.1 million, a 28.9% increase in 2012 as compared to RUB 13 855.4 million in 2011.
The operating income before deduction of provisions rose by 21.7% to RUB 44 801.4 million in 2012, as compared to RUB 36 826.6 million in 2011, and exceeded the level of 2008.
Net interest income before deduction of provisioning for loan impairment5 increased by 13.6% or by RUB 3 606.0 million to RUB 30 138.0 million in 2012. The improvement in the net interest income was due to the growth in interest income on loans and advances to customers (+16.6%) resulting from the increase in the amount of the loan portfolio and the growth in the average client interest rate in 2012 (due to the increase in the share of high margin products in the total loan portfolio), and also the increase in net interest income from derivative financial instruments (+163.1%) resulting from the widening of the spread between the market rouble and dollar interest rates as compared to 2011.
Trading result6 rose by 137.4% (or RUB 2 467.6 million) to RUB 4 264.0 million in 2012, as compared to RUB 1 796.4 million in 2011. The improvement in the trading result was primarily due to the drop in losses from trading securities (excluding the coupon yield) by 87.8% to RUB -174.5 million resulting from the increase in bond prices.
Net fee and commission income rose by 17.0% (or by RUB 1 316.2 million) to RUB 9 079.2 million in 2012 as compared to RUB 7 763.0 million in 2011. The main driver of growth was the commissions on operations with plastic cards due to the increase in the number of cards serviced, which, in turn, resulted from the successful implementation of a number of marketing campaigns.
In 2012, administrative and other operating expenses increased by 4.1% to RUB 21 319.9 million. The main items of expenses which grew were staff costs (up by 8.8% or RUB 869.1 million to RUR 10 690.3 million), deposit insurance fee (+20.6% or an increase of RUB 141.7 million to RUB 829.0 million) and spending on professional services (+82.0% or RUR 331.6 million.). The increase in staff costs was due to, among other things, legislative changes related to the calculation of social employer contributions. The growth of retail deposits and current accounts explains the increase in deposit insurance fee. The cost optimization policy succeeded in reducing the cost to income ratio by 8.0 percentage points in 2012 to 47.6% as of 31.12.2012 as compared to 55.6% in 2011.
In 2012, the bank’s profitability ratios continued to grow. ROE after tax increased by 2.3 percentage points to 17.6% in 2012 as compared to 15.3% in 2011. ROE before tax demonstrated a similar trend, increasing by 2.5 percentage points from 20.1% in 2011 to 22.6% in 2012.
Profit of business segments: increase of share of retail business segment
The greatest growth of before tax results was demonstrated in retail banking7 (+144.2% or by RUB 4 389.8 million to RUB 7 433.3 million) due to the increase in the net interest and net fee and commission income in this segment (+32.7% and 27.4%, respectively). Thus, the contribution of the retail business in the total result before tax of all business segments was 33.5% in 2012 as compared to 16.5% in 2011. The result before tax of proprietary business segment8 increased by 7.8% to RUB 4 309.3 million compared to RUB 3 999.1 million. The corporate banking9 shrank by 8.2% in 2012 (to RUB 10 465.9 million) as compared to the result before tax in 2011. The business segment result decreased due to the lower release of provisions for impairment losses in 2012 as compared to 2011, herewith there was the increase in the net interest and net fee and commission income as compared to 2011 (+14.7% and +5.6% respectively).
Assets increased to RUB 637 222.2 million (an increase of 5.3%, or RUB 32 135.8 million as compared to the end of 2011) mainly due to the growth of loans and advances to customers (before deduction of provisions for loan impairment) by 3.8% up to RUB 368 248.6 billion, as well as due to the increase in liquid assets (+6.4% up to RUB 221 561.5 million)
The bank continues to maintain a substantial liquidity cushion. Liquid assets10 increased by 6.4% as compared to the end of 2011 to RUB 221 561.5 million as a result of growth in cash and cash equivalents by 10.6% to RUB 154 337.1 million and due from other banks (+327.8% up to RUB 17 104.8 million). At the end of 2012 the share of liquid assets in the total assets of the bank amounted to 34.8%, almost unchanged from 34.4% in 2011.
Gross loan portfolio increased by 3.1% as compared to the end of 2011, and amounted to RUB 389 130.6 million, due to the growth of the retail loan portfolio (+21.4% to RUB 126 111.1 million) and the loan portfolio of the small and micro business (+55.8% to RUB 12 442.8 million).
The growth in the retail loan portfolio during 2012 was driven by the growth of almost all the retail lending products in the portfolio. In particular, the fastest growth was observed in unsecured consumer loans (+30.7%) and credit cards (+79.1%).
The loan portfolio of small and micro-business segment continued to demonstrate significant growth (+55.8%) in 2012 as a result of the steps taken to improve the quality and effectiveness of customer service.
Corporate loan portfolio as of 31.12.2012 amounted to RUB 250 499.5 million, a decrease in 2012 of 5.6% as compared to the end of 2011 due to contractual repayments. Herewith, the average volume of the corporate loan portfolio in 2012 exceeded by 2% the average volume in 2011.
In 2012 the quality of the loan portfolio improved, what was reflected in the improvement of borrower’s ratings and decrease of the share of loans individually determined to be impaired. The share of loans individually determined to be impaired (0.4 percentage points down to 5.5%) reduced due to both new loans of good quality and the decrease in volume of loans individually determined to be impaired by 4.3% as compared to the end of 2011 (from RUB 22 192.7 million to RUB 21 231.9 million).
The improvement of the existing loan portfolio quality, as well as high requirements to borrower’s credit quality resulted in release of portfolio provision for loan impairment, that partially compensated the allocation of individual provisions. As a result charge of provision for loan impairment during 2012 amounted to RUB 882.5 million.
Balance sheet provision for loan impairment decreased by 7.8% down to RUB 20 882.0 million as compared to RUB 22 644.5 million as of 31.12.2011, mainly due to amounts written off during the period.
Securities portfolio decreased by 22.4% compared to the end of 2011, and amounted to RUB 50 625.4 million (2011: RUB 65 230.8 million) due to the sale of corporate securities from the trading portfolio during the first half of 2012. The share of less risky federal loan bonds in 2012 was 24.2% of the total securities portfolio (compared to 7.1% in 2011).
The share of term borrowings from the Parent bank in liabilities fell from 9.2% at the end of 2011 to 7.7% due to contractual repayments.
Customer accounts remained almost unchanged in comparison with the figure in 2011 and amounted to RUB 399 764.0 million (of them: accounts of individuals RUB 231 137.6 million, accounts of legal entities — RUB 167 864.5 million, accounts of state and public organizations — RUB 762.0 million). The share of current/demand accounts and term deposits of individuals in the total volume of customer accounts increased to 57.8% compared to 53.2% in 2011.
Current accounts grew in all segments: current/settlement accounts of legal entities added 20.7%, current/demand accounts of individuals increased by 10.6%, current/settlement accounts of state and public organizations were up by 17.9%. The reduction in term deposits of legal entities (by 32.6% as compared to the end of 2011) related to the process of their replacement with cheaper current accounts. Term deposits of individuals rose by 7.6% up to RUB 134 708.4 million.
Customer accounts continued to be a major component of the Bank’s funding base — their share in 2012 amounted to 75.5% of the total liabilities of the Bank.
The loan-to-deposit ratio in 2012 was 97.3%, up by 2.8 percentage points as compared to 94.5% at the end of 2011 due to an increase in the loan portfolio.
In 2012, the bank’s equity grew by 12.2% to RUB 107 451.2 million as compared to the end of 2011 due to the growth of Tier I capital, which, in turn, increased due to the growth in retained earnings and other reserves by 23.2%.
The capital adequacy ratio (calculated in accordance with the CBR, N-1) as of 01.01.2013 amounted to 13.5%, almost unchanged as compared to the end of 2011 (a decrease of 0.1 percentage points). The factor which restrained the growth of N-1 ratio was the inclusion of the revaluation of derivative financial instruments in the calculation of equity (from 1st July, 2012) in accordance with the changed methodology of the Central Bank of the Russian Federation.
The total capital adequacy ratio according to Basel II as of 31.12.2012 was 19.3%, an increase of 4.1 percentage points from 15.2% as of 31.12.2011 due to the growth of Tier I capital. As of 31.12.2012 the share of Tier-1 capital equaled 97.8% of total Bank’s capital (according to Basel II).
In 2012, Raiffeisenbank was the arranger of significant Russian capital market deals. For example, the bank arranged the largest issue in 2012
In addition, the Bank, together with Raiffeisen Bank International (RBI), was an arranger and bookrunner in the placement of Eurobonds of Russian and foreign issuers. In October 2012, Raiffeisenbank with RBI arranged the placement of rouble Eurobonds for the Eurasian Development Bank in amount of RUB 5 billion. In December 2012, in conjunction with RBI, the Bank was the sole bookrunner of the first rouble Eurobonds in history, placed for a corporate issuer — non-resident Caterpillar
According to Cbonds, Raiffeisenbank got 4th place in the ranking of investment banks in 2012, having arranged 37 issues for 23 issuers with a total amount of RUB 89 838 million, which is by 55.8% more than the total amount of issues the Bank organized in 2011.
In 2012, for the first time in the history of the Bank, the rating agencies Moody’s and Fitch Ratings upgraded the bank’s individual ratings to investment grade. (Moody’s increased the baseline credit assessment (BCA) (without consideration of the support of the Parent bank) from ba1 to baa3; Fitch Ratings upgraded the viability rating (VR) of the Bank from bb+ to investment grade bbb-)
The Financial Market Authority approved the right to use the Foundation IRB-approach under Basel II11 in ZAO Raiffeisenbank’s non-retail portfolio on a consolidated basis. In order to use the IRB principles, the Bank must demonstrate to the regulator, which is authorized to check compliance with Basel II, a high level of efficiency and reliability of the credit risk management processes, collateral accounting, asset segmentation, applied rating models, high quality data and IT-systems. The IRB approach has been applied since 1 June 2012 and has a positive effect on the capital adequacy according to Basel II at the local level and at the level of the RZB Group.
Raiffeisenbank’s investment banking business received prestigious Cbonds Awards in 2012 in the following categories: 1st place in the nomination «Best Bond Market Research», 2nd place for «Best Bond Market Sales», 3rd place for «Best Investment Bank (Arranger for First Tier Issuers)», 2nd place in the nomination «Best Investment Bank (Arranger for Second and Third Tier Issuers)».
In 2012, Raiffeisenbank received a number of awards in other important areas: «Best Foreign Bank» according to the magazine EMEA Finance, «Best Bank with the Participation of the foreign capital in 2011» according to the news portal banki.ru, winner of the award «Big Money — 2012» in the nomination «Foreign Bank of the Year» (the award was established by the magazine «Itogi»), winner of the SPEAR’S Russia Wealth Management Awards 2012 in the nomination «The best foreign bank that provides Private Banking services and manages large sums of money for Russian clients in the Russian Federation».
1 Calculated on the basis of IFRS report as the sum of the net interest income before deduction of provisioning for loan impairment, net fee and commission income, trading result, gains from the sale of loans, other operating income and the share of results of associates.
2 In compliance with the methodology of the CBR
3 Including net interest income from derivative financial instruments
4 Excluding the net interest income from derivative financial instruments
5 Including the net interest income from derivative financial instruments
6 Trading result includes: losses net of gains from trading securities, gains less losses from other securities at fair value through consolidated profit or loss, gains less losses/(losses, net of gains) from redemption of investment securities available for sale, gains less losses from trading in foreign currencies, unrealized gains less losses/(losses, net of gains) from derivative financial instruments, realized gains less losses from derivative financial instruments (excluding net interest income on derivatives), foreign exchange translation (losses, net of gains)/gains, net of losses, ineffectiveness from the hedge accounting.
7 Retail banking — comprises retail demand and term deposit services, credit and debit card services, retail lending, including consumer loans and personal installment loans and loans to small and medium entities, auto loans and mortgages, money transfers and private banking services.
8 Proprietary business — comprises securities trading, debt and equity capital markets services, foreign currency and derivative products, structured financing, lending, including loans and advances to banks and other financial institutions and other transactions.
9 Corporate banking — comprises corporate lending, loans to corporate entities and state and municipal organizations, corporate deposit services, trade finance operations, structured corporate lending, corporate finance advisory services and leasing services.
10 Liquid assets include correspondent accounts and deposits in other banks, account balances with the CBR (other than mandatory provisions), cash, and liquid securities.
11 The Internal Ratings Based Approach is a method for evaluating capital requirements, according to which the credit institution uses ratings and risk indicators which it calculates by itself.