Letter from the Chairman of the Management Board
In 2014, which became a year of sharp and drastic changes in the economy and the banking system, Vozrozhdenie Bank managed to secure its planned business development, exceed its targets in a series of key areas, retain our clients and increase the functionality and popularity of remote channels. Vozrozhdenie Bank has continued to develop as a traditional commercial bank. At the heart of our model is an innovative approach to expansion of client product lines with a conservative approach to risk assessment.
It is noteworthy that the development of negative tendencies in the national economy and the majority of potential risks were apparent to us long ago, so we began preparing for economic challenges in advance. The bank has toughened its credit policies and strengthened its currency, market and operating risk management systems. We faced macroeconomic challenges with a substantial liquidity cushion formed to protect from possible deposits withdrawal and a safe capital position while keeping a conservative balance sheet structure.
Over the course of the past few years, we launched a series of important projects and programmes which are today at different stages of implementation. However, they are already producing results and starting to positively influence the efficiency of our business. These projects are aimed at introduction of new banking technologies, the modernisation of our technological platform and optimisation of operating model.
Vozrozhdenie Bank has continued to develop as a traditional commercial bank. At the heart of our model is an innovative approach to expansion of client product lines with a conservative approach to risk assessment.
Key 2014 Results
This year, the bank’s assets grew by 8% to RUB 227.9 billion, fundamentally driven by liquid assets. Cash and cash equivalents gained 21.5%, reaching RUB 35.6 billion, and our securities portfolio grew by 81.6% to RUB 22.1 billion. Over the course of 2014 the bank’s equity, calculated in accordance with Basel III Standards, increased by 12.6% to RUB 26.2 billion. Capitalisation of profits remained the main source for its replenishing. The total regulatory capital adequacy ratio grew over the past year by 0.8 percentage points to 12% with the minimum acceptable level of 10%, and the common equity Tier I capital adequacy ratio gained 0.5 percentage points, reaching 9.3% with the minimum acceptable level of 5%.
The loan portfolio before provisions grew in 2014 by 1.2% to RUB 170.2 billion, mainly due to retail loans, which increased over this period by 8.4% to RUB 46.2 billion. This growth compensated for the drop of the corporate loan portfolio by 1.3% to RUB 123.9 billion as a result of the development of a negative macroeconomic scenario, a declining credit demand from quality borrowers and tightening of credit policies. Client funds grew by 7.8% in 2014 to RUB 174.2 billion. The outflow of funds observed in the midst of the banking crisis at the beginning of the year ceased by the second quarter. Private clients’ funds were the main driver of growth.
Operating income of the bank increased by 3.5% to RUB 11.2 billion. Net interest income grew by 3.2% to RUB 9.8 billion supported by growth in revenue from retail businesses as a result of a larger volume of lending and rising interest rates.
Fee and commission income remains one of the primary components of total revenue. Net fee and commission income decreased by 12.1% to RUB 4 billion as competition toughened and international payment system tariffs increased. In total, net non-interest income in 2014 amounted to RUB 4.6 billion, or 32% of the total operating income before provisions. At the same time, operating costs grew by 6.7% and amounted to RUB 9.4 billion, essentially because of an increase in wages level, investments in operational model optimisation projects and the acquisition of new software and licences.
Despite the challenging macroeconomic environment, in 2014 we succeeded not only in safeguarding our capital but also in recording a net profit of RUB 1.2 billion; meanwhile, net interest margin exceeded the target level and reached 4.6% while return on equity was 5.2%.
Development of Business Areas
Conservative risk management policies and the long-term client relations limited the negative effect on the bank’s corporate business. In terms of lending to SMEs, the bank is rated 3rd in the country by Expert-RA national rating agency. Along with SME Bank, Vozrozhdenie Bank has been actively involved in government initiatives to provide financial support to small and medium businesses and in 2014 carried out the first transaction with the SME-Syndicate product, which implies simultaneous lending from two sources: SME Bank and Vozrozhdenie Bank. Furthermore, with the goal of enhancing the availability of corporate loans, V.Bank was one of the first in Russia to enter into a cooperation agreement with the Agency for Credit Guarantees.
A distinct feature and one of the fundamental competitive advantages of Vozrozhdenie Bank is the exceptionally high quality of its loan portfolio in the retail segment. These clients predominantly include those with stable incomes and impeccable credit records. More than 85% of the retail loans as of the end of the year were issued to the employees of the companies using the bank’s payroll services, employees of state-financed companies and clients with a positive credit record. In the reporting period, the bank continued to strengthen its position in the retail segment: in the Expert-RA ranking, the bank held 21st place by retail deposits, 13th place by active bank cards and 19th place by number of ATMs. In unstable economic conditions, the bank offered its clients new products, including service packages with unemployment insurance when taking out a mortgage in partnership with SOGAZ Insurance Group.
In 2014, the bank completed the third mortgage securitisation deal for RUB 3.45 billion and pooled mortgage loans for the fourth transaction. Moody’s Investors Service assigned an investment grade of Baa2 (sf) to the mortgage-backed bonds issued under the bank’s securitisation deals.
A major potential of retail business is in further enhancement of cross-sales within the existing client base. I am confident, with the synergy between the corporate and retail businesses we can further develop the segment of products for private clients in almost any area, including lending, remote services and deposits raising.
In 2014, in the bank card segment, the bank worked on increasing the number of credit cards issued and widening the proportion of operations carried out via remote channels. In total, the number of credit cards grew by 42.8% to 92.1 thousand cards, primarily owing to the introduction of technology for proactive selling of instantissue credit cards as part of payroll services. An ATM renovation project was carried out over the course of the year and the total number of ATMs grew by 5.6% to 904 units. Today, our clients enjoy a wide range of services, from deposits placement and their direct top-up from card accounts to obtaining account statements at any ATM, terminal or even online and via mobile banking. Meanwhile, our primary objective is to maintain the highest level of security of ATM networks and remote channels.
In 2014, we launched a unique, high-tech cash-in-transit product “Collection Lite”. This innovative technology allows our clients to manage cash-in-transit services via a mobile application. Moreover, we have expanded the functionality of the ROUND customs card, which enables clients to make remote customs payments. In 2014, the bank won the Customs Olympus award for the fourth time as the best financial institution providing services on customs operations.
Banking Technologies and Optimisation of Operation Model
2014 was marked by the centralisation and automation of key back-office functions. In particular, HR records and payroll as well as the opening and closing of corporate accounts at branches in Moscow and the Moscow Region, were centralised. A fairly wide range of projects was launched in order to transfer corporate lending processes to a new technological platform. We fully unified all lending processes in our retail business, introduced a One-Stop technology for servicing retail clients in the Moscow Region offices and also completed a pilot project on centralisation of currency control of payments.
In 2014, based on the results of a complete audit of IT systems, the bank’s Management Board approved a large-scale modernisation programme for the technological platform, which was subsequently and effectively put into practice. The Project Management Department was set up at the bank and a chain of projects aimed at modernisation of internal systems and processes was initiated.
As a result, the entire process of changes became more transparent for the management and, consequently, more effective.
Moreover, in 2014 we launched a marketing system, Campaign Management that would enhance efficiency of cross-selling.
Substantial progress was made in the area of new banking technologies and internet products. Over the course of the past year, we actively developed multichannel remote banking services. In 2014 the share of the bank’s clients using remote service products reached 61.5% and revenue earned on remote banking services grew by 11.6%. According to the results of research by Markswebb Rank & Report, an independent analytical agency, Vozrozhdenie Bank offers one of the top three most easy-to-use remote service packages.
We started 2015 in good shape, with solid business indicators and improved processes and technologies. I would like to thank Vozrozhdenie Bank team for well-coordinated and efficient work in the challenging environment. We have accomplished much and I am confident that we have laid solid foundations for further growth.
Chairman of the Management Board 1
1 - Held post from July 6, 2012 to March 30, 2015.