H 4 IFRS Results August 4
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Key financial highlights Key achievements to date Strong and high quality capital position maintained Highest Tier ratio under Basel I amongst the Bank s peer group at 3.% as at 3 June 4 CBR total regulatory capital ratio of.% as at July 4, in line with peers Robust funding and liquidity position maintained despite volatile market environment Stable / resilient customer funding base: total customer funding in H 4 increased by circa % compared to YE3 Low dependence on market funding maintained: loan / deposit ratio of 87% as at end H 4 Strong liquidity position: liquid assets stood at 33% of total assets as at end H 4 Stable net interest margin in H 4, despite challenging operating environment: 4.5% in H 4, compared to 4.% in H 3 Significant improvement in underlying H 4 financial performance: RUB mln H 4 H 3 Delta Profit before tax 97 +95 Recurring profit before tax (excluding trading and other income) 493-86 +,353 Net profit 738 5 +733 whilst some remaining challenges are being addressed NPL management remains a key focus of management attention, particularly in the context of a deteriorating macroeconomic and operating environment: NPLs marginally lower in Q 4: NPL ratio decreased by 5bps (circa RUB bln decrease in NPL portfolio) to.% as at end H 4, with a comfortable provision coverage ratio of 5% Active work on NPL / impaired loan portfolio continues in earnest In H 4, the Bank delivered a commendable financial performance, despite a challenging macro environment: net profit of RUB 738 mln in H 4 compared to a breakeven result (RUB 5 mln) in H 3 3
High quality capital base Basel I Tier and Total CAR vs. Peers (IFRS) CBR Regulatory Capital Ratios vs. Peers 6 8 4 4.8%.8% 3.% 4.5% 4.6% 3.8% 4.%.8% 3.6% 4.5% 4.4%.%.9%.% 9.6% 3.% 4.6% 8.5% 5 5.3% 9.9% 9.6%.% 9.% 3.% 7.9%.%.9% 7.4% 6.5%.6% MDM H 4 Vbank BSPB NB USIB PSB Tier Tier Vbank MDM BSPB USIB NB PSB Core Tier (N.) Total Capital (N.) Based on latest available consolidated financial statements of relevant peer banks; data for all peer banks as at Q 4, except Uralsib and Vozrozhdenie as at YE 3 Based on CBR data as at.7.4 MDM Bank maintains a comfortable capital cushion and remains ahead of its peer group in terms of IFRS Basel I Tier capital adequacy 88% of the Bank s total capital is Tier capital The Bank s CBR regulatory capital position remains in line with its peers The CBR s new Basel III capital rules (mandatory compliance with which began in February 4) have had minimal impact on the Bank s capital adequacy ratios Key: MDM MDM Bank; Vbank Vozrozhdenie Bank; NB Nomos Bank; PSB Promsvyazbank; BSPB Bank Saint Petersburg; USIB Uralsib Bank 4
Total loan portfolio Net Loan Portfolio Segmentation Total Net Portfolio RUB8.7 bln RUB7.7 bln RUB8. bln Total Net Portfolio RUB56. bln RUB4. bln Total Net Portfolio RUB6. bln Balance sheet adjustment based on conservative assessment of legacy problem assets Reduction in lending New lending 46. 9.5.3 4.4 H 4 Following a reduction in the Bank s loan portfolio in 3 primarily attributable to balance sheet restructuring, the Bank s total net loan portfolio demonstrated modest growth in H 4 (circa 3%): Corporate loan growth: RUB 3. bln SME loan growth: RUB.5 bln Retail loan growth: RUB.4 bln 5
Corporate loan portfolio Top Exposures Average Corporate Loan Size 75 RUB mln 8-6.5% 5 7..7-3.5% 35 5 46.7 38.9..9 7.9 3.3 9 45 6. 44. 3.8 53.6 YE YE YE 3 H 4 YE YE YE 3 H 4 Top exposures Top - exposures 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% 34% excluding the Irish Funds (linked to the Balance Sheet Support Transaction) 6% including the Irish Funds Excluding the Irish Funds 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% 4 35 3 5 5 5 8.9% 8.3% 8.4% 5.4% 3.7%.7%.% 4.5%.9% 36. 34. 7.9% 36.3 36. 36. 8.9 4.9 3.9.9 6.7 YE YE YE 3 Q 4 H 4 Provisions NPLs Provisions/Gross Loans NPLs/Gross Loans 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 In Q 4, NPLs marginally decreased (by circa RUB bln) Work continues in earnest on: Straight cash recoveries; and Longer term solutions, including improvements in the value / quality of security and negotiating improved terms on restructurings 7
Deposit-based model: limited reliance on market funding (/) Evolution of Funding Breakdown Loan / Deposit Ratio % 8 6 4 9% 5% 3% % 6% 7% 8% % 3% 3% 34% 3% 75% 78% 8% 76% 5 98% 9% 86% 87% 4% 47% 5% 46% 5 YE YE YE 3 H 4 YE YE YE 3 H 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 Strong net loan to deposit ratio: 87% as at end H 4, despite the increased market volatility since November 3 The Bank has deliberately maintained a limited reliance on market funding, providing a level of insulation against current market volatility 8
Deposit-based model: proven resilience (/) 5 5 Evolution of Customer Funding 3 8 84 9 79 58 74 75 5 5 75 54 34 37 39 5 5 49 43 Term Deposits by Segment Figures based on management account data 38 36 46 37 33 34 5 5 5 59 6 63 65 6 6 65 YE YE YE 3 H 4 YE Q 3 H 3 Q3 3 YE 3 Q 4 H 4 Retail Customers Corporate Customers Mass Retail Deposits VIP Deposits Corporate/SME Deposits Despite a volatile market environment, MDM Bank s overall customer funding base has demonstrated modest growth (circa %) compared to YE 3. The core mass retail deposit segment has remained stable over the past 8 months, growing circa % compared to YE and circa 5% compared to YE 3 The Bank has no material funding from its controlling shareholder As at end H 4, circa 39% of total deposits had a maturity of one year or more From to 6 months; 8.7% Deposit Maturity Profile, H 4 Less than month;.% More than 3 years;.% From to 3 years; 39.% From 6 to months;.8% Corporate customers also includes state organizations Figures based on Management account data and may not fully reconcile with IFRS data 9
Stable NIM and recurring income Evolution of Operating Income and NIM Recurring Operating Income H 4 vs. H 3 6 4.8% 4.% 4.% 4.% 4.3% 4.5% 5 4. 4.5 4 3.8 3.7 4. 3.4 3 5 4 3 8 6 4 6.8 7. - Q 3 Q 3 Q3 3 Q4 3 Q 4 Q 4 Net Interest Income Net Commission Income - - H 3 H 4 Net Interest Income Net Commission Income Other Operating Income Net Trading Gains/Losses Net Interest Margin (cum) Total Operating Income H 4 vs. H 3 Stable net interest margin in H 4, despite a challenging operating environment (moderate NIM contraction in Q vs. Q 4 primarily driven by CBR key refinancing rate increases from March 4) 8 6 8. 7.3 Stable recurring operating income (+3.%) vs. H 3, while overall operating income decreased by circa 8% vs. H 3 primarily driven by Q trading losses on the Bank s securities portfolio and FX losses resulting from market volatility and ruble devaluation 3% growth in fee & commission income in H 4 vs. H 3, primarily due to increased insurance, FX and cash transaction commissions 4 H 3 H 4 Net Interest Income Net Commission Income Other Operating Income Net Trading Gains / Losses
Ongoing focus on operational efficiency and cost control 6 5 4 3 Evolution of Operating Expenses and Cost / Income Ratio Operating Expenses H 4 vs. H 3 67%.4 64%.8 66% 63% 6%. 58% 6% 74% 6% 78%.8.5.8 7% 67% 8 6 4 6 4 5. 5.3. % Q 3 Q 3 Q3 3 Q4 3 Q 4 Q 4 Н 3 H 4 Other OpEx Staff Costs Cost / income ratio (quarterly) Adjusted cost / income ratio (quarterly) Staff Costs Other OpEx Continued discipline in cost control, with operating expenses effectively remaining flat in H 4 vs. H 3 The increase in the cost / income ratio in Q 4 is 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 have been budgeted for 4 in key areas such as IT in order to further support operational efficiency and performance CIR is adjusted to allocate semi-annual staff bonus payments, which are booked entirely in Q and Q4, evenly across the respective quarters
Balance sheet summary Balance Sheet Summary (IFRS), RUB mln H 4 YE 3 Change H 4 / YE 3 Assets Cash and cash equivalents 4,9 38,3 5.% Due from banks 8,4 5,349 9.9% Available-for-sale financial assets 35,888 3,73 9.3% Loans and advances to customers 59,974 56,47.5% Corporate 4,35,37.9% Retail 46,88 45,683.9% SME 9,536 8,993 6.% Investment property 9,844 9,483 3.8% Other,6 8,74 6.9% Total Assets 84,43 67,699 6.% Liabilities Due to banks 5,4 39,67 3.3% Total customer accounts 84,73 8,54.% Retail,53,36 -.7% Corporate 73,57 68,64 7.9% Debt securities in issue 5,667 6,35-7.6% Other 5,37 5,47 -.8% Total Liabilities 47,5 3,736 6.8% Total equity 36,6 35,963.8% Key ratios Liquid assets / Total assets 33.% 3.%. pp Net loans / Deposits 86.9% 86.4%.5 pp NPL ratio.%.9%.3 pp Provision coverage ratio 5.8% 73.9% -3. pp CBR total regulatory capital ratio.%.9%. pp Tier Capital ratio (Basel ) 3.% 3.4% -.4 pp Total Capital ratio (Basel ) 4.8% 5.3% -.5 pp The Bank has pursued a policy of cautious growth in the context of a challenging macro and operating environment Source: Based on IFRS Consolidated Financial Statements Incl. mandatory cash balances with CBR
Income statement summary Income Statement Summary (IFRS), RUB mln H 4 H 3 Change H 4/H 3 Net interest income 5,3 5,33 -.4% Gains less losses from trading, available-for-sale financial assets and foreign exchange, net 7 95-98.% Net fee and commission income,95,76 3.% Other income, net 36 38-5.3% Total operating income 7,34 8,44-8.7% Operating expenses (5,3) (5,44).% Staff costs (3,3) (3,34) 5.6% Administrative and other operating costs (,99) (,) -5.7% Net operating income before impairment losses,4,8-7.% Loan impairment losses (,7) (,375) -5.7% Other impairment losses 6 (99) nm (Loss)/gain from investment property (4) (83) -83.% Loss on fair value adjustments for financial instruments - (3) nm Net operating profit / (loss) after loan and other impairment / revaluation losses 97 nm Profit / (loss) after tax and before other comprehensive income 738 5 nm Key ratios Net interest margin (NIM) 4.5% 4.%.5 pp Cost / income ratio (CIR) 7% 65% 7. pp Cost of risk.%.3% -. pp Source: Based on IFRS Consolidated Financial Statements Trading / FX results Weak peformance primarily driven by Q losses on the securities portfolio and FX losses resulting from market volatility and ruble devaluation (Q 4 net trading losses of RUB 385 mln vs. RUB 35 mln of net gains in Q 3) Net fee & commission income 3% 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 Impairment losses Significant decrease in impairment provisions and revaluation losses following completion of the balance sheet restructuring in 3 In H 4, the Bank delivered a commendable financial performance, despite a challenging macro environment: net profit of RUB 738 mln in H 4 compared to a breakeven result (RUB 5 mln) in H 3 Cost to Income ratio excludes (loss)/gain from investment property Total comprehensive income for H 4 amounted to RUB658 mln (total comprehensive loss for H 3: RUB77 mln) 3
Appendices
Maintaining diversification Gross Loan Portfolio by Sector, 3 June 4 Healthcare: % Transport: % Oil and gas: % Other: 3% Food and agriculture: % Ore: 3% Chemicals: 3% Individuals: 7% Construction: 6% Manufacturing: 6% Wholesale trade: 7% Retail trade: 6% Real estate: % Finance: % Disciplined approach to sector diversification: no single corporate sector accounts for more than 6% of the Bank s lending book Exposure to higher risk sectors maintained at modest levels: Real estate and construction at % and 6% respectively (peer group average circa % total) % exposure to agriculture 5
Contact: ir@mdmbank.com MDM Bank 33/ Kotelnicheskaya Embankment Moscow 57 Russia