Raiffeisenbank reports record profit after tax of 33.7 bn RUB for 2018, +15.8% vs 2017

• Net profit reached RUB 33 739.2 million up by 15.8% compared to 2017.
• Net interest income reached 52 550.4 RUB million growth by 17.6% y/y.
• Net fee and commission income up by 8.6% to RUB 17 763.9 million
• ROE after tax reached 25.7% (+0.7 percentage points compared to 2017)
• Gross loan portfolio increased by 21.6% in 2018. Retail lending grew by 20.9% to RUB 266 762.3 million, corporate loans grew by 22.0% to RUB 422 669.2 million.
• Customer accounts rose by 35.8% to RUB 872 403.4 million year-on-year, with corporate accounts & deposits growing by 63.7% to RUB 403 890.6 million and retail accounts & deposits by 18.2% to RUB 466 734.3 million.
• Capital adequacy ratios based on Basel III stood at 24.2%.

«2018 was another successful year for Raiffeisenbank as we could deliver record profit and outstanding result of a return on equity above on the back of customer business growth while maintaining our operational excellence. On Customer liabilities, we grew higher than market. Record high profit and loan portfolio growth is result of our long-term strategy aimed at providing high-level services to our clients in all segments. We are confident that our approach to business efficiency and focus on quality of our services will contribute to further growth in the Bank’s financial positions," said Sergey Monin, Raiffeisenbank’s CEO.

KEY FINANCIAL RESULTS

INCOME STATEMENT

	12 months 2018, RUB million	12 months 2017, RUB million	Change, %
Net interest income before provisioning for impairment losses	52 550.4	44 684.8	17.6%
Additional provisioning	-3 113.2	-3 452.7	-9.8%
Net fee and commission income	17 763.9	16 351.8	8.6%
Trading result	8 381.5	6 836.4	22.6%
Administrative and other operating expenses	(32 704.9)	(28 431.1)	15.0%
Profit before tax	42 523.4	37 000.4	14.9%
Net profit	33 739.2	29 143.0	15.8%
Cost/income ratio	41.0%	41.4%	— 0.4 p.p.
ROE before tax	32.4%	31.8%	+ 0.6 p.p.
ROE after tax	25.7%	25.1%	+ 0.7 p.p.

At the end of 2018, profit before tax reached RUB 42 523.4 million, up 14.9% from 2017, driven by growth in key components of the operating profit: net interest income, net fee and commission income, and trading result.
At the end of 2018, the return on equity (ROE before and after tax) of the Bank remained high: 32.4% and 25.7%, respectively (showing growth from the same period of 2017 by 0.6 and 0.7 percentage points).

In 2018, the Bank created additional provisions for loan impairment in the amount of RUB 3 113.2 million, which is 9.8% lower than the additional provisions in 2017 (RUB 3 452.7 million). Risk costs¹ at the end of 2018 reduced to 0.5% (-0.1 percentage points from 2017).

Net fee and commission income increased by 8.6% to RUB 17 763.9 million due to the higher fee and commission income from settlement transactions, documentary business, and fees for asset management.

Net interest income before provisioning for loan impairment rose by 17.6% from 2017 reaching RUB 52 550.4 million. Growth in net interest income comes from the higher interest income from the corporate loan portfolio on the back of growing lending volumes and the higher income from trading and investment securities due to expansion of portfolio. Also, a positive impact on the net interest income came from lower interest expense on individual term deposits and interest expense on securities due to the redemption of two bonds issues in 2018.

The trading result² for 2018 amounted to RUB 8 381.5 million, up 22.6% from 2017 due to higher revenues from the sale of securities and income from foreign exchange translation.

The bank’s operating income³ before provisioning for loan impairment for 2018 was RUB 79 697.4 million, up 16.0% from 2017.
Operating expenses rose by 15.0% reaching RUB 32 704.9 million. The growth in operating expenses was mainly due to the increase in staff expenses, advertising and marketing costs resulting from the expansion of business, and higher IT and deposit insurance expenses. At the same time, the cost-to-income ratio (CIR) remains low: at the end of 2018 it was 41.0%.

STATEMENT OF FINANCIAL POSITION

	31.12.2018, RUB million	31.12.2017, RUB million	изменение,%
Assets	1 126 012.7	842 845.6	33.6%
Liquid assets	365 945.9	235 417.8	55.5%
Loans and advances to customers before provisioning:	689 431.5	567 021.2	21.6%
Retail customers	266 762.3	220 625.0	20.9%
Small and micro businesses	22 030.9	17 819.1	23.6%
Medium-sized businesses	57 382.8	35 938.2	59.7%
Large businesses	343 255.4	292 638.9	17.3%
Customer accounts	872 403.4	642 530.3	35.8%
Term borrowings from the parent bank	36 949.0	30 947.0	19.4%
Equity	145 609.0	116 559.1	24.9%
Share of loans individually determined to be impaired in total loan portfolio	3.1%	4.5%	-1.4 п.п.
Total Basel III capital adequacy ratio	24.2%	24.7%	-0.5 п.п.
N1.0 capital ratio (calculated in accordance with the CBR methodology)	13.0%	13.3%	-0.3 п.п.

The share of liquid assets in 2018 was 32.5%. Investment securities portfolio with maturities less than 3 months reached RUB 225 740.5 million, cash and cash equivalents rose by 36.6% to RUB 225 925.6 million, with the main growth coming from REPO deals and placements with the CBR. The Bank has continuously outperformed CBR’s liquidity requirements: as of 01.01.2019, the N2 ratio was 105.0% (compared to the required minimum of 15%), N3 was 136.8% (compared to the required minimum of 50%), and N4 was 48.6% (compared to the required maximum of 120%).

The portfolio growth was observed in the following segments: middle businesses (+59.7% to RUB 57 382.8 million), small and micro businesses (+23.6% to RUB 22 030.9 million), retail customers (+20.9% to RUB 266 762.3 million). Growth in retail loans was driven by mortgage loans, which increased by 23.9% to RUB 118 357.6 million, and unsecured loans (up 23.6% to RUB 127 660.8 million).
The growth of the portfolio was accompanied by an improvement in the quality of assets, the share of loans individually determined to be impaired in the loan portfolio before provisioning decreased by 1.4 percentage points from 2017 reaching 2.9% at the end of 2018. Overdue (90+ days) loans reduced from 3.1% to 1.6% of gross portfolio.

Customer accounts rose by 35.8% from the end of 2017 reaching RUB 872 403.4 million. Customer accounts of individuals increased by 18.2% on the back of the 30.0% growth in current accounts, which reached RUB 353 574.6 million. The share of current accounts in liabilities of retail customers rose from 68.9% to 75.8%.
Corporate accounts increased by 63.7% to RUB 403 890.6 million from the end of 2017, driven by growth in both current accounts (+ 25.4% to RUB 216 381.5 million) and term deposits that rose 1.5 times to RUB 187 509.1 million.
The loan-to-deposit ratio in 2018 was 79.0%.

Term borrowings from the parent bank rose by 19.4% from the end of 2017 reaching RUB 36 949.0 million due to currency effect. The share of funding from parent bank in total bank’s liabilities was 3.8% as of 31.12.2018.

The Bank’s equity increased by 24.9% from the end of 2017 reaching RUB 145 609.0 million. In 2018, the Bank paid dividends totaling RUB 4 168.0 million. The bank enjoys considerable capital adequacy and fully meets the regulatory capital requirements.

Capital adequacy ratios significantly exceed the minimum allowable limits and as of 01.01.2019: N 1.1. — 9.8% (required minimum of 4.5%), N 1.2 — 10.6% (required minimum of 6.0%), N 1.0 — 13.0% (required minimum of 8.0%). Total Basel III capital adequacy ratio as of 30.12.2018 was 24.2%. In December 2018 CBR authorized the Bank to use internal ratings based (IRB) approach for corporate loans to calculate capital adequacy ratios. Authorisation came into force on 1 February 2019.