Q3 4 IFRS Results November 4
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Key 9M 4 financial highlights Key achievements of 9M 4 Strong and high quality capital position maintained: Highest IFRS Tier ratio under Basel I amongst the Bank s peer group at.% as at 3 September 4 CBR total regulatory capital ratio of.% as at October 4, in line with peers Stable asset growth in line with the market: 9M 4 total loan growth of 3.5% and total asset growth of circa 8% Robust funding and liquidity position maintained despite volatile market environment: Stable / resilient customer funding base: total customer funding grew by circa 6% in 9M 4, whilst the core mass retail deposit segment grew by circa % over the same period Low dependence on market funding maintained: net loan / deposit ratio of 93% as at end Q3 4 Strong liquidity position: liquid assets stood at 8% of total assets as at end Q3 4 Well-matched balance sheet currency structure: FX assets and liabilities accounted for approx. % of the Bank s total assets and liabilities as at end Q3 4, whilst the FX share of customer funding remained stable at circa % of total customer accounts Stable NIM and steady fee & commission income growth, despite a challenging macro environment: 9M 4 NIM of 4.8%, compared to 4.% for 9M 3 (and H 4 NIM of 4.5%) 9M 4 net fee & commission income growth of circa % y-o-y Significant improvement in 9M 4 financial performance: RUB mln 9M 4 9M 3 Delta Profit before tax,5 494 +756 (+53%) Recurring profit before tax (excluding trading and other income) 678-49 +97 (n.m.) Net profit 934 385 +549 (+43%) whilst some remaining challenges being addressed Problem loan management continues to be a key focus of management attention, particularly in the context of a deteriorating macroeconomic and operating environment: NPL ratio has decreased by. percentage points over the past two quarters to.5% as at end September 4, with a prudent provision coverage ratio of 47% Recovery work on the problem loan portfolio continues in earnest In 9M 4, the Bank delivered a marked improvement in financial performance, despite a deteriorating macro and operating environment, with net profit of RUB 934 mln representing growth of >4% compared to 9M 3 3
High quality capital base Basel I Tier and Total CAR vs. Peers (IFRS) 6 8 4 3.8% 3.8% 4.5%.6%.8% 3.%.%.%.3% MDM Q3 4 4.%.% 4.5%.% Vbank BSPB USIB PSB Tier Tier 4.8% 3.4% MDM Bank maintains a comfortable capital cushion and remains ahead of its peer group in terms of IFRS Basel I Tier capital adequacy 89% of the Bank s total capital is Tier capital The circa.8 percentage point Tier ratio decrease quarter-on-quarter is attributable to risk-weighted asset growth quarter-on-quarter stemming both from organic loan portfolio growth and the impact of Q3 ruble devaluation on the Bank s FX assets (the same applies to the Bank s CBR regulatory capital ratios) 5 5 Based on latest available consolidated financial statements of peer banks; data for all peer banks as at H 4, except Vozrozhdenie as at YE 3 9.6% 9.6% CBR Regulatory Capital Ratios vs. Peers (RAS).%.% 9.3% 9.% 9.3% 9.% 3.3% 7.7% 7.7%.9%.% N. regulatory minimum N. regulatory minimum N. regulatory minimum 6.6% 5.8% The Bank s total CBR regulatory capital adequacy remains in line with its peers, whilst its Core Tier (N.) and Tier (N.) ratios are amongst the highest in its peer group Vbank MDM BSPB USIB PSB Core Tier (N.) Tier (N.) Total CAR (N.) Based on CBR data as at..4 Key: MDM MDM Bank; Vbank Vozrozhdenie Bank; PSB Promsvyazbank; BSPB Bank Saint Petersburg; USIB Uralsib Bank 4
Total loan portfolio overview Net Customer Loan Portfolio Segmentation 9M 4 total loan growth of 3.5% Corporate loan growth: circa 7% SME loan growth: circa 8% Retail loan growth: circa 3% The foreign currency share of total customer loans is moderate at circa 7% Total Net Portfolio RUB56. bln.3 RUB. bln Total Net Portfolio RUB77. bln New lending 46.9. 9. Q3 4 Net Total Customer Loan Breakdown, 3 Sept 4 SME loans: 6% Net Retail Loan Breakdown, 3 Sept 4 Auto loans: 3% Mortgage loans: 3% Retail loans: 7% Corporate loans: 67% Consumer loans: 74% This excludes an additional circa RUB.5 bln of loans, which were transferred from corporate to SME in Q3 4 following expansion of the SME segment to include companies with revenues of up to RUB bln per annum 5
Corporate loan portfolio Top Net Loan Exposures Average Corporate Loan Size 75 3.% 7.9% 4.9% 8.% RUB mln 8 5 5 7, 46,7,7 38,9, 7,9 5,9 33,6 35 9 45 6. 44. 3.8 73. YE YE YE 3 9М 4 YE YE YE 3 9М 4 Top exposures Top - exposures Top / Total Net Loan Portfolio With a view to optimising risk adjusted profitability, in -3 the Bank pursued a policy of reducing corporate portfolio concentration and increasing profitability, resulting in the decrease / closure of a number of larger corporate exposures, increasing granularity of the loan book. However, in the current challenging macro environment, the Bank has refocused its business development towards the higher end of its corporate client portfolio, deemed to be more resilient in current conditions Nonetheless, loan concentration remains below levels and top exposures as a share of Tier capital remain significantly below the industry average of circa 3% 53% excluding the Irish Funds exposure (linked to the Balance Sheet Support Transaction) 83% including the Irish Funds exposure Excluding the Irish Funds exposure Source: Moody s Investor Services Report 3 Survey of Russian and CIS Banks Single-Client and Related Party Concentrations 6
NPL management remains a priority of Management Evolution of NPLs, Provisions and Provision Coverage 6% 75% 74% 44% 5% 47% 4 35 3 5 5 5 8.9% 8.3% 8.4% 7.% 5.4% 3.7% 4.5%.7%.9%.%.5% 36. 34. 7.9% 36.3 36. 36. 36.3 8.9 4.9 3.9 4.6.9 6.7 YE YE YE 3 Q 4 H 4 Q3 4 Provisions NPLs Provisions/Gross Loans NPLs/Gross Loans Provision Coverage Ratio 8 6 4 8 6 4 The Bank s NPLs were provisioned on a conservative basis as at YE 3, anticipating that a number of legacy problem loans still current as at the year end would become delinquent (>9 days overdue) in the course of Q 4 The. percentage point NPL ratio decrease over the past two quarters to.5% as at end September 4 is attributable to a combination of a marginal reduction of NPLs in absolute terms and growth of the total loan portfolio (NB the marginal increase in NPLs in Q3 4 compared to Q 4 is partly driven by the impact of ruble devaluation on FX-denominated NPLs) Recovery efforts continue in earnest on straight cash recoveries and longer term solutions, including improvements in the value / quality of security and negotiating improved terms on restructurings Overall, the provision coverage ratio remains at a prudent 47% 7
Deposit-based model: limited reliance on market funding (/3) Evolution of Structural Funding Breakdown Loan / Deposit Ratio % 8 6 % 6% 3% 3% 6% 7% 6% % 36% 35% 34% 37% 5 98% 9% 86% 93% 4 8% 88% 9% 9% 44% 53% 56% 54% 5 YE YE YE 3 Q3 4 YE YE YE 3 Q3 4 Retail Accounts Corporate Accounts Net Loans and Advances to Customers Customer Accounts Due to Banks Debt Securities in Issue Overwhelming majority of the Bank s funding needs are secured through customer deposits Comfortable net loan to deposit ratio: 93% as at end Q3 4, despite the increased market volatility since late 3 The Bank has deliberately focused primarily on customer deposit funding, providing a level of insulation against current market volatility The structural funding breakdown shows only that portion of interbank borrowing which is used to fund the Bank s core lending business (i.e. it excludes short-term interbank borrowing up to 3 days and overnight repo operations) 8
Deposit-based model: proven resilience (/3) 5 Evolution of Customer Funding (IFRS) 75 Term Deposits by Segment (management accounts) 5 3 9 79 8 9 68 77 5 5 75 54 34 37 39 5 5 49 43 38 46 47 36 37 33 34 33 54 38 5 4 5 5 59 6 63 65 6 6 65 69 76 YE YE YE 3 Q3 4 YE Q 3 H 3 Q3 3 YE 3 Q 4 H 4 Q3 4 Oct 4 Retail Customers Corporate Customers Mass Retail Deposits VIP Deposits Corporate/SME Deposits MDM Bank s overall customer funding base demonstrated growth of circa 6% in the first nine months of 4: Retail customer accounts: circa % 45 Current Accounts by Segment (management accounts) Corporate customer accounts: circa 3% Despite a volatile market environment since late 3, MDM Bank s core mass retail deposit segment has remained resilient, growing circa % in the first nine months of 4 (and circa % in M 4) 3 5 4 7 7 5 4 4 5 YE Q 3 H 3 Q3 3 YE 3 Q 4 H 4 Q3 4 Oct 4 Corporate/SME Accounts Retail Accounts Retail customer accounts include mass retail and private banking clients; corporate customer accounts include corporate, SME and state organization clients Figures based on Management account data and may not fully reconcile with IFRS data 9
Deposit-based model: concentration, FX and maturity profile (3/3) Concentration of Top Depositors (% of Total Customer Accounts) Customer Accounts FX Breakdown, 3 Sept 4 % 5 EUR: 6% Other currencies: % USD: 5% 5.% 6.6% 6.3% 9.4% 5 RUB: 78% YE YE YE 3 Q3 4 Continued focus on managing deposit concentration and maintaining the share of top deposits in total customer accounts at below % The Bank has no material funding from its controlling shareholder Customer Accounts Maturity Breakdown, 3 Sept 4 Less than month:.% More than 3 years:.% The FX share of customer funding remained stable at circa % of total customer accounts From to 6 months: 3.% From to 3 years: 4.5% As at end Q3 4, circa 4% of total customer accounts had a maturity of one year or more, a materially higher share than amongst the Bank s peer group From 6 to months: 5.3%
Stable NIM and recurring operating income Evolution of Operating Income and NIM Recurring Operating Income 9M 4 vs. 9M 3 6 4.% 5 4 3.8 4.% 4. 4.8% 4.% 4.3% 4.5 3.7 3.4 4.5% 4. 4.8% 4. 5 4 3 8.4.9 3 4 - Q 3 Q 3 Q3 3 Q4 3 Q 4 Q 4 Q3 4 Net Interest Income Net Commission Income - - 9M 3 9M 4 Net Interest Income Net Commission Income Other Operating Income Net Trading Gains/Losses Net Interest Margin (cum) Net Fee & Commission Income 9M 4 vs. 9M 3 The Bank s net interest margin remained stable in 9M 4, despite a challenging operating environment, whilst net interest income grew approximately % quarter-on-quarter 3.6.9 Recurring operating income was stable (+5.%) vs. 9M 3, whilst overall operating income decreased by circa % vs. 9M 3 primarily driven by Q 4 trading losses on the Bank s securities portfolio resulting from market volatility % growth in net fee & commission income for 9M 4 vs. 9M 3, primarily due to increased insurance, FX and settlement / cash transaction commissions. Net fee & commission income as a share of total operating income grew to 5% for 9M 4 compared to % for the same period of 3 9M 3 9M 4
Ongoing focus on operational efficiency and cost control 6 5 4 3 Evolution of Operating Expenses and Cost / Income Ratio Operating Expenses 9M 4 vs. 9M 3 8 7.4 4.3 % 7.7 74% 7% 8 64% 66% 67% 63% 63% 6 74% 7% 64% 65% 6 58% 6% 58%.8.8.8 4.4.5.4. 4 Q 3 Q 3 Q3 3 Q4 3 Q 4 Q 4 Q3 4 9M 3 9M 4 Staff Costs Other OpEx Cost / income ratio (quarterly) Сost / income ratio (cum) Staff Costs Other OpEx Operating expenses increased by circa 4% in 9M 4 vs. 9M 3, the primary driver being staff cost growth linked to one-off redundancy payments, as well as newly introduced incentivisation programmes The increase in the cost / income ratio in Q 4 was primarily driven by trading losses incurred due to market volatility (Q 4 net trading losses of RUB 385 mln vs. RUB 35 mln net trading gains in Q 3) Targeted spending increases budgeted for 4 in key areas such as IT infrastructure in order to further support operational efficiency and performance
Balance sheet summary Balance Sheet Summary (IFRS), RUB mln Q3 4 YE 3 Change Q3 4 / YE 3 Assets Cash and cash equivalents 34 6 38 3 -.% Due from banks 938 5 349-8.7% Available-for-sale financial assets 35 67 3 73 8.6% Loans and advances to customers 77 4 56 47 3.5% Corporate 8 99 37 7.4% Retail 46 94 45 683.8% SME 9 8 993 4.6% Investment property 9 735 9 483.7% Other 37 8 74.4% Total Assets 88 68 67 699 7.8% Liabilities Due to banks 46 599 39 67 7.7% Total customer accounts 9 8 8 54 5.9% Retail 4 39 36.7% Corporate 76 94 68 64.9% Debt securities in issue 6 377 6 35 3.9% Other 7 987 5 47 46.% Total Liabilities 5 43 3 736 8.8% Total equity 36 539 35 963.6% Key ratios Liquid assets / Total assets 8.% 3.% -3. pp Net loans / Deposits 9.7% 86.4% 6.3 pp NPL ratio.5%.9%.6 pp Provision coverage ratio 47.4% 73.9% -6.5 pp Tier Capital ratio (Basel I).% 3.4% -. pp Total Capital ratio (Basel I) 3.8% 5.3% -.5 pp CBR total regulatory capital ratio.%.9% -.8 pp SME loans Organic SME loan growth for 9M 4 was 8%, whilst an additional circa RUB.5 bln of loans were transferred from corporate to SME in Q3 4 due to expansion of the SME segment to include companies with revenues of up to RUB bln per annum Source: Based on IFRS Consolidated Financial Statements Including mandatory cash balances with the CBR 3
Income statement summary Income Statement Summary (IFRS), RUB mln 9M 4 9M 3 Change 9M 4/9M 3 Net interest income 7 995 7 733 3.4% Gains less losses from trading, available-for-sale financial assets and foreign exchange, net 38 5-86.9% Net fee and commission income 9 6.6% Other income, net 457 348 3.3% Total operating income 49 75 -.% Operating expenses (7 79) (7 39) 4.3% Staff costs (4 756) (4 387) 8.4% Administrative and other operating costs ( 953) (3 3) -.7% Net operating income before impairment losses 3 78 4 36-3.3% Loan impairment losses ( 58) (3 3) -.9% Other provision reversals / (impairment losses) 9 (5) nm Loss from investment property (4) (38) -89.5% Loss on fair value adjustment for financial instruments () (3) 343.5% Profit before tax 5 494 53.% Trading results Weak performance primarily driven by Q losses on the securities portfolio resulting from market volatility (Q 4 net trading losses of RUB 385 mln vs. RUB 35 mln of net gains in Q 3) Net fee & commission income Growth in net fee & commission income primarily driven by an increase in insurance, FX and cash transaction commissions Staff costs Growth in staff costs primarily attributable to one-off redundancy payments, as well as newly introduced incentivisation programmes Profit after tax 934 385 4.6% Key ratios Net interest margin (annualised) 4.8% 4.%.6 pp Cost / income ratio (CIR) 67% 63% 4. pp Cost of risk (annualised).7%.% -.3 pp Source: Based on IFRS Consolidated Financial Statements In 9M 4, the Bank delivered a marked improvement in financial performance, despite a deteriorating macro and operating environment, with net profit of RUB 934 mln representing growth of >4% compared to 9M 3 Note: Total comprehensive income for 9M 4 amounted to RUB 576 mln (total comprehensive income for 9M 3: RUB 46 mln) 4
Appendices
Maintaining loan portfolio diversification Food and agriculture % Chemicals 3% Construction 6% Gross Loan Portfolio by Sector, 3 September 4 Transport % Ore 3% Oil and gas % Other 3% Individuals 5% Manufacturing 7% Wholesale trade 8% Retail trade 6% Real estate % Finance 4% Disciplined approach to sector diversification: no single corporate sector accounts for more than % of the Bank s total lending book Exposure to higher risk sectors maintained at modest levels: Real estate and construction at % and 6% respectively % exposure to agriculture 6
Contact: ir@mdmbank.com MDM Bank 33/ Kotelnicheskaya Embankment Moscow 57 Russia