FINANCIAL OVERVIEWAll figures in the present report are based on the financial results from VTB Group’s IFRS consolidated financial statements and might be rounded, which allows for insignificant deviations in calculations expressed in percentage amounts compared with data from the Group’s financial statements.RESULTS OVERVIEW

VTB GROUP KEY IFRS FINANCIAL RESULTS

Key financial results of VTB Group 2020
18.1
RUB trillion 18.1
Total assets of the Group increased by 16.9% (share of loans and advances to customers - 68%)
13.2
RUB trillion 13.2
Loan portfolio (before provisions) increased by 14.8% amid the recovery in corporate lending in the second half of the year and better-than-expected growth in loans to individuals
12.8
RUB trillion 12.8
Customer funding increased by 16.9%, thus bringing the ratio of total loans to customer deposits to 95.6%
40.1%
40.1%
The share of current accounts in total customer funding increased from 25.2% to 40.1%
3.8%
3.8%
Net interest margin increased by 40 b.p., up to 3.8%. The easing of monetary policy and liabilities revaluation that outpaced the decrease in the return on assets had a positive impact on net interest margin
18.9%
18.9%
Net interest income and net fee and commission income increased by 19%, demonstrating robust growth in 2020
1.6%
1.6%
The ratio of operating expenses to total assets improved to 1.6% down from 1.7% a year earlier. The Group continues to pursue initiatives to reduce costs and improve operational efficiency in line with its strategy and long-term development priorities

Analysis of VTB Group’s IFRS income statement

Key income statement indicators, RUB billion

Net interest income and net interest margin

Net interest income for 2020 amounted to RUB 531.7 billion, an increase of 20.7% from 2019 on the back of an increase in interest-bearing assets and in the net interest margin.

In 2020, interest expense decreased by 21.4% year-on-year on the back of a 150 b.p. year-on-year decrease in the cost of funding to 3.7%. At the same time, interest income decreased at the slower pace of 4.6% year-on-year. The return on interest-bearing assets decreased by 90 b.p. during the year to 7.5%.

As of the end of 2020, net interest margin had increased by 40 b.p. to 3.8%. The easing of monetary policy and liabilities revaluation that outpaced the decrease in the return on assets had a positive impact on net interest margin during the year.







Net interest income, RUB billion
INDICATOR 2020 2019 CHANGE, %
Interest income calculated using the effective interest method 1,055.8 1,107.0 –4.6
Interest expense –501.6 –636.5 –21.2
Payments to the deposit insurance system –22.5 –29.9 –24.7
Net interest income 531.7 440.6 20.7

Net fee and commission income

Gross fee and commission income increased by 11.3% in 2020 to RUB 196.1 billion. The bulk of commission income came from settlement transactions and trade finance, which accounted for 48.7% (53.3% in 2019) of the total amount. Fee and commission expense in 2020 increased at a slower pace, 8.6%, than fee and commission income, mainly due to an 8.3% increase in commissions on settlement transactions and trade finance.

Net fee and commission income for 2020 increased by 12.5% year-on-year to RUB 136.8 billion. The increase in net fee and commission income was driven mainly by robust growth in commissions for the distribution of insurance products, trade finance and commissions on operations with securities and in capital markets, including in the context of the expansion of VTB Capital Investments’ business. VTB Capital Investments’ fee and commission income for 2020 nearly doubled year-on-year to RUB 7.9 billion. VTB Capital Investments’ client base increased by 60% to 1.2 million individuals and legal entities. The Group’s net commission margin remained unchanged from 2019 at 0.8%.




NET FEE AND COMMISSION INCOME In 2020, the Group separated the commission and non-commission components of certain types of operating income and expense. Comparative information for the year ended 31 December 2019 was adjusted to reflect the new form of presentation. , RUB billion
INDICATOR 2020 2019 CHANGE, %
Commission on settlement transactions and trade finance 86.2 85.0 1.4
Fee received for insurance products’ distribution and agents’ services 44.9 35.3 27.2
Commission on operations with securities and capital markets 23.9 17.4 37.4
Commission on guarantees and other credit-related commitments issued 13.2 10.9 21.1
Commissions on customer transactions with foreign currencies and precious metals 10.8 9.9 9.1
Commission on cash transactions 9.3 9.0 3.3
Other 7.8 8.7 –10.3
Total fee and commission income 196.1 176.2 11.3
Commission on settlement transactions and trade finance –50.7 –46.8 8.3
Commission on cash transactions –2.9 –2.8 3.6
Commission on operations with securities and capital markets –2.9 –1.9 52.6
Commission on guarantees and other credit-related facilities received –0.8 –0.9 –11.1
Other –2.0 –2.2 –9.1
Total fee and commission expense –59.3 –54.6 8.6
Net fee and commission income 136.8 121.6 12.5

Provision charge

In 2020, the Group’s provision charge for credit losses on debt financial assets, credit-related commitments, other debt financial assets, legal claims and other commitments amounted to RUB 249.8 billion, an increase of 141.8% compared with 2019. The increase in provision charges was due to the impact of the COVID-19 pandemic on the Russian economy and the quality of the Group’s loan book.

The cost of risk was 1.9% in 2020, an increase of 110 b.p. year-on-year. VTB Group observed two waves of credit risk during the reporting period. The first wave came with the realisation of and provisioning for credit risk in the retail segment. The cost of risk in consumer lending peaked in 2Q 2020, which saw the toughest restrictions associated with the COVID-19 pandemic. Cost of risk in retail lending increased from 2.0% in 1Q to 3.0% in 2Q, stabilising at 2.1%2.2% in 2H 2020. Thus, as of the end of the year, the cost of risk in lending to individuals amounted to 2.3%, an increase of 80 b.p. year-on-year. The second wave of credit risk was observed in lending to corporate clients; the timing of this wave was shifted to later in the year compared with the first. The increase in the cost of risk on loans to legal entities occurred in 2H with a peak in 3Q at 2.4%. As of the end of the year, the cost of risk in lending to legal entities was 1.7%, an increase of 120 b.p. year-on-year.

Staff costs and administrative expenses

Staff costs and administrative expenses amounted to RUB 269.9 billion in 2020, an increase of 6.2% from 2019. This growth was driven by, among other things, investments in IT infrastructure as part of the digitalisation of business processes.

At the end of 2020, the cost-to-income ratio was 44.3%, an increase of 270 b.p. In the reporting period, the increase in staff costs and administrative expenses exceeded the increase in operating income before provisions, which was under pressure due to the negative revaluation of non-financial assets. At the same time, the ratio of operating expenses to total assets improved to 1.6%, down from 1.7% a year earlier. The Group continues to pursue initiatives to reduce costs and improve operational efficiency in line with its strategy and long-term development priorities.

Net profit

Net profit for 2020 amounted to RUB 75.3 billion, down 62.6% year-on-year due to higher provisioning costs and the negative revaluation of non-financial assets amid the COVID-19 pandemic.

Analysis of VTB Group’s IFRS balance sheet

Assets

As of 31 December 2020, the Group’s total assets amounted to RUB 18.1 trillion, an increase of 16.9% compared with 31 December 2019.

The main component of the Group’s total assets is net loans and advances to customers, accounting for 68% of the Group’s total assets.

In 2020, the Group’s loan portfolio (before provisions) increased by 14.8% to RUB 13.2 trillion. Net of currency revaluation, the increase in the total loan book for the year was 9.2% amid the recovery in corporate lending in the second half of the year and better-than-expected growth in loans to individuals during the year.

Assets structure, RUB billion
Retail loan portfolio structure, RUB billion

VTB Group’s retail loan portfolio showed strong growth during the reporting period, increasing by 14.6% in 2020 to RUB 3.9 trillion. This growth was mainly driven by a 24.3% increase in mortgage lending, which was partially offset by a decrease in car loans. The Group’s mortgage portfolio increased by a record RUB 122.4 billion in 4Q; this was in part due to VTB’s participation in a state-run mortgage assistance programme launched in April 2020. Since the start of the programme, VTB has issued over 63 thousand preferential-rate mortgage loans worth RUB 265.2 billion.

In addition, large transactions involving the sale of securitised mortgage loans had an impact on the growth of the Group’s retail loan portfolio. This product enables the Bank to attract liquidity, optimise the utilisation of capital on mortgage loans, remove interest risks from its balance sheet and earn profits by lowering market interest rates. In 2020, VTB issued RUB 191.5 billion in mortgage-backed securities, compared with RUB 265.2 billion in 2019.

As of the end of the year, secured loans (mortgages and car loans) accounted for 55.2% of the total retail loan portfolio, an increase of 340 b.p. year-on-year.

The share of retail loans in the total loan portfolio remained practically unchanged at 29.3%, compared with 29.4% in 2019.

The Group’s corporate loan portfolio grew by 14.9% to growth rates. This was driven by the Bank’s timely response to restrictions and the restructuring of business processes, which enabled the Bank to avoid work disruptions and losses in operational efficiency. In addition, in an effort to support customers, to prevent a qualitative loss in terms of its loan portfolio and to maintain returns on equity capital, the Bank restructured loans to large businesses worth a total of 9.3 trillion in 2020, mainly due to the expansion of corporate lending in 3Q and 4Q amid the ongoing economic recovery.

In lending to legal entities in a number of industries, the Group continued to build its loan portfolio, demonstrating growth in sectors such as building construction, oil and gas, metals and transport.

Loans to legal entities, RUB billion
Loans to legal entities by industry, %

Asset quality

As of 31 December 2020, the total amount of non-performing loans The Group defines non-performing loans (NPL) as lifetime ECL (expected credit losses) credit-impaired financial assets with contractual principal and/or interest payments overdue more than 90 days and POCI (purchased or originated credit-impaired financial assets) loans with principal and/or interest payments becoming overdue more than 90 days after the date of initial recognition. Loans with no contractual payments until maturity, grace period on principal and or interest payments as well as restructured loans are not considered NPL unless amounts due contractually become more than 90 days overdue. amounted to RUB 744.8 billion, or 5.7% of gross total customer loans (compared with RUB 534.3 billion, or 4.7%, as of 31 December 2019). The Group continued its policy of writing off bad assets at the expense of the corresponding allowance for loan impairment after all necessary procedures to recover the asset have been carried out. The volume of non-performing loans written off in 2020 amounted to RUB 72.2 billion (compared with RUB 165.5 billion in 2019). The allowance for loan impairment losses represented 6.8% of the gross loan portfolio as of 31 December 2020, up from 6.0% a year earlier. The non-performing loans coverage ratio was 120.6% as of 31 December 2020, compared with 128.7% as of 31 December 2019.

Asset quality, RUB billion

Liabilities

As of 31 December 2020, the Group’s total liabilities amounted to RUB 16.4 trillion, an increase of 18.4% year-on-year.

Customer deposits amounted to RUB 12.8 trillion as of 31 December 2020, an increase of 16.9% over the year, bringing the ratio of total loans to customer deposits to 95.6% as of 31 December 2020 (down from 98.2% as of 31 December 2019). At the same time, customer deposits accounted for 78.1% of the Group’s liabilities, compared with 79.2% a year earlier.

Customer deposits from individuals increased by 13.8% due to, among other factors, an increase in balances in brokerage accounts and in escrow accounts used for the purchase of housing from developers. During the year, VTB clients opened more than 47 thousand escrow accounts, with balances in excess of RUB 240 billion.

During the reporting period, deposits from corporate clients increased by 19.6% and amounted to RUB 7.1 trillion.

In 2020, the Group demonstrated a considerable increase in the share of current accounts in total customer funding: from 25.2% as of 31 December 2019 to 40.1% as of 31 December 2020.

Liabilities structure, RUB billion
Customer funding, RUB billion
Liabilities, RUB billion
INDICATOR 2020 2019 CHANGE, %
Due to other banks 1,093.0 1,177.2 –7.2
Customer deposits 12,831.0 10,974.2 16.9
Derivative financial liabilities 250.7 176.5 42.0
Other borrowed funds 1,053.2 348.9 201.9
Debt securities issued 215.7 343.4 –37.2
Liabilities of disposal groups held for sale 0.3 0.3 0.0
Deferred income tax liability 10.9 15.7 –30.6
Other liabilities 648.1 603.5 7.4
Total liabilities before subordinated debt 16,102.9 13,639.7 18.1
Subordinated debt 316.7 223.1 42.0
Total liabilities 16,419.6 13,862.8 18.4

Capital and capital adequacy

The Group’s capital management policy is to maintain a sustainable capital base so as to retain the confidence of investors, creditors and market participants, as well as to ensure the future development of its operations. The Group manages its capital in accordance with the requirements of the Bank of Russia. The Bank of Russia has recognised the Bank as a systemically important credit institution. Thus, capital adequacy requirements calculated in accordance with the requirements of the Bank of Russia include premiums on a banking group’s risk-weighted capital adequacy standards as well as a premium for systemic importance.

The Group monitors compliance with capital adequacy standards, defined as a percentage of the risk-weighted assets calculated in accordance with the requirements of the Bank of Russia: common equity adequacy ratio (N20.1), tier 1 capital adequacy ratio (N20.2) and total capital adequacy ratio (N20.0).

As of 31 December 2020, VTB Bank was in compliance with the requirements of the Bank of Russia to meet the minimum capital adequacy requirements in terms of the percentage of risk-weighted assets and in terms of premiums.

In the reporting period, VTB Bank’s total capital adequacy ratio (N20.0) increased by 59 b.p. to 11.8%. Capital adequacy was supported by, among other things, the issuance of subordinated bonds, the securitisation of assets, as well as regulatory changes as part of the transition to Basel 3.5 (revision in the direction of lowering risk ratios for loans for investment-grade corporate clients, loans to small and medium-sized enterprises and mortgage loans secured by residential real estate taking into account debt burden and the loan-to-value ratio).

Capital and capital adequacy, RUB billion
INDICATOR 2020 2019 CHANGE, %
Tier 1 capital 1,585.3 1,552.9 2.1
Common equity 310.6 276.1 12.5
Total capital 1,895.9 1,829.0 3.7
Risk-weighted assets after consolidation adjustments (N20.1) 16,041.5 16,278.1 –1.5
Risk-weighted assets after consolidation adjustments (N20.2) 16,028.6 16,268.4 –1.5
Risk-weighted assets after consolidation adjustments (N20.0) 16,007.3 16,259.3 –1.5
Common equity adequacy ratio (N20.1) 8.93% 8.74% 19 b.p.
Tier 1 capital adequacy ratio (N20.2) 9.89% 9.55% 34 b.p.
Total capital adequacy ratio (N20.0) 11.84% 11.25% 59 b.p.