Raiffeisenbank has announced its IFRS financial results for the first six months of 2017

AO Raiffeisenbank has announced its financial results for the first six months of 2017. All figures are provided in accordance with International Financial Reporting Standards (IFRS) and may differ from the Russian data in Raiffeisen Bank International AG (RBI) financial report as a result of the difference arising from consolidation and translation to Euro.

Main financial results

Income statement

	6 months 2016, RUB million	6 months 2017, RUB million	change, %
Net interest income before provisioning for impairment losses	20,989.4	21,451.8	2.2%
Charge of provision for loan impairment	(4,888.5)	(766.0)	-84.3%
Net fee and commission income	6,537.9	7,624.2	16.6%
Trading result	4,312.0	4,003.5	-7.2%
Administrative and other operating expenses	(11,524.7)	(13,331.7)	15.7%
Profit before tax	15,775.8	19,441.0	23.2%
Net profit	12,435.5	15,228.1	22.5%
Cost/income ratio	35.8%	39.7%	+3.9 p. p.
ROE before tax	31.6%	32.9%	+1.3 p. p.
ROE after tax	24.9%	25.8%	+0.9 p. p.

In the first six months of 2017, profit before tax increased by 23.2% from the same period last year and amounted to RUB 19,441.0 million. The bank’s net profit reached RUB 15,228.1 million (+22.5% as compared to the first six months of 2016). The main factors leading to the growth in profits were lower expenditures on the additional provisioning and the growth of the net fee and commission income.

The bank’s return on equity (ROE before and after tax) are 32.9% and 25.8%, respectively, for 6 months of 2017, with an increase of, respectively, 1.3 percentage points and 0.9 percentage points from the same period last year.

«One of the key drivers of profit growth was the reduction in risk costs due to the improved credit portfolio quality in all business segments as compared with the same period last year. The 1st half of 2017 also demonstrated positive developments in the loan portfolio, primarily in the retail business, where the main growth still comes from mortgages: in the 1st six months of 2017 new loans issued reached 31.3 billion roubles, — said Sergey Monin, CEO Raiffeisenbank.

During 6 months of 2017, the charge of provision for loan impairment amounted to RUB 766.0 million, down 84.3% compared to RUB 4,888.5 million for the same period in 2016. The decrease of provisioning charges is due to the improvement of the portfolio quality across all segments. Risk cost for the first half of the year was 0.3% annualized (1.8% for the first 6 months of 2016).

The net fee and commission income increased by 16.6% to RUB 7,624.2 million due to the higher fee and commission income from plastic cards (+34.8%) resulting from the growing turnover on cards and agency fees from the sale of insurance and pension products (+38.5%).

Net interest income before provisioning for loan impairment showed a moderate growth by 2.2% as compared with the first 6 months of 2016 and amounted to RUB 21,451.8 million. Positive impact on the net interest income dynamics was due to a decrease in interest expenses on customer deposits against a background of rate cuts, as well as an increase in interest income on repo business and retail loans due to the loan portfolio growth. Dampening effect was rendered by decrease in the net interest income from derivative financial instruments.

The trading result¹ for the first six months of 2017 was RUB 4,003.5 million, down 7.2% compared with the same period in 2016 as a result of declining gains from operations with securities².

The bank’s operating income before provisioning for impairment losses³ for the first six months of 2017 was RUB 33,557.7 million, up 4.3% compared to the same period in 2016, mainly due to the increase in net fee and commission income.

Operating expenses increased by 15.7% to RUB 13,331.7 million, mainly due to the increase in marketing spending and staff expenses. Despite the increased costs, the cost/income ratio (CIR) was low: CIR was 39.7% for the first six months of 2017.

Statement of financial position

	31.12.2016, RUB million	30.06.2017, RUB million	change,%
Assets	753,800.0	807,782.0	7.2%
Liquid assets	212,453.2	256,476.2	20.7%
Loans and advances to customers before provisioning:	499,286.1	519,326.2	4.0%
Retail customers	187,116.3	210,720.5	12.6%
Small and micro businesses	14,052.5	15,342.9	9.2%
Middle businesses	23,301.1	24,076.3	3.3%
Large corporates	274,816.2	269,186.5	-2.0%
Customer accounts	547,596.7	596,255.1	8.9%
Term borrowings from the parent bank	32,326.5	31,601.8	-2.2%
Equity	115,905.1	120,606.9	4.1%
Share of loans individually determined to be impaired in total loan portfolio	6.7%	6.5%	-0.2 p. p.
Total Basel III capital adequacy ratio	26.3%	24.5%	-1.8 p. p.
H 1.0 capital adequacy ratio (calculated in accordance with the CBR methodology)	16.3%	15.2%	-1.1 p. p.

The share of liquid assets at the end of June 2017 was 31.8%, up 3.6 percentage points from the end of 2016 due to the growth of correspondent accounts. The bank has also overperformed CBR liquidity ratios: as of 01.07.2017, the H2 ratio was 98.7% (compared to the required minimum of 15%), H3 was 201.8% at the same date (compared to the required minimum of 50%), and H4 was 44.7% (compared to the required maximum of 120%).

Gross loan portfolio in the first six months of 2017 increased by 4.0% reaching RUB 519,326.2 million. The portfolio growth was observed in the following segments: middle business (+ 3.3% to RUB 24,076.3 million), small and micro business (+ 9.2% to RUB 15,342.9 million), retail customers (+ 12.6% to RUB 210,720.5 million). The main drivers among the products of the retail loan portfolio were mortgage loans, which increased by 29.5% to RUB 92,120.0 million.

The share of loans individually determined to be impaired in the total loan portfolio was 6.5% for the first six months of 2017 (6.7% at the end of 2016).

As of 30.06.2017, customer accounts amounted to RUB 596,255.1 million, an increase of 8.9% from the end of 2016. Customer accounts of individuals increased by 4.8% due to the growth of current accounts by 21.0% to RUB 240,605.3 million. The share of current accounts in retail liabilities increased from 56% to 65%.

Corporate accounts increased by 16.5% to RUB 224,268.6 million compared with the end of 2016, with growing both current accounts (+ 15.9% to RUB 164,434.4 million) and deposits (+ 17.9% to RUB 59,834.2 million).

The loan-to-deposit ratio decreased by 4.1 percentage points for the first six months of 2017 and amounted to 87.1%.

Tern borrowings from the Parent bank remained nearly unchanged compared to the end of 2016 at RUB 31,601.8 million (down 2.2% due to the currency effect). The share of term funding from parent bank in total bank’s liabilities was 4.6% as of 30.06.2017.

The bank’s equity increased by 4.1% compared with the end of 2016 and amounted to RUB 120,606.9 million. The decrease compared to the end of the first quarter of 2017 (-2.1%) is due to the payment of dividends in June 2017 in the amount of RUB 10.5 billion.

Capital adequacy ratios⁴ also fell slightly against the background of dividend payments and as of July 1, 2017 were: H 1.1. — 10.6% (required minimum of 4.5%), H 1.2 — 11.4% (required minimum of 6.0%), Н 1.0 — 15.2% (required minimum of 8.0%). The total capital adequacy according to Basel III as of 30.06.2017 was 24.5% with a minimum required value of 8.0%.