H 5 IFRS Results August 5
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Overview of key recent developments As announced on 3 June 5, the shareholders of B&N Bank, Mikail Shishkhanov and Mikhail Gutseriev, have entered into an agreement to acquire a majority shareholding in MDM Bank from Sergei Popov On 4 July 5, the Board of Directors appointed Mikail Shishkhanov CEO of MDM Bank Acquisition of majority shareholding in MDM Bank by B&N Bank shareholders, creating one of the largest privately-owned banking groups in Russia As at July 5, the B&N banking group, including MDM Bank, on a pro forma consolidated basis had total assets of circa.3 trillion and ranked amongst the largest privately-owned banking groups in Russia: Indicator Ranking Privately-owned Russian banks All Russian banks Total assets #3 #7 Retail deposits #3 #6 Corporate loans #4 #8 Retail loans #5 #9 Corporate deposits #6 # By the end of 5, the strategic development plan for MDM Bank as part of B&N banking group is to be approved, with operational integration of the banks to take place over the next -3 years MDM is in the process of implementing a major capital-raising programme, including: MDM Bank is in the process of strengthening its capital base In June 5, the Bank received the first tranche of a subordinated loan in the amount of US$ 56 mln, which was converted into a Tier capital instrument in July 5 and transferred from the current majority shareholder to the incoming majority shareholders In July 5, the Bank received the second tranche of a subordinated loan in the amount of US$ 77 mln from the incoming majority shareholders In May 5, the Bank submitted its application to the Deposit Insurance Agency to participate in the State s OFZ recapitalisation programme in the amount of 9 bln This capital raising is intended to provide the Bank with an additional capital buffer in the current challenging macroeconomic environment, whilst supporting its prudent risk-driven growth strategy Total assets and rankings based on Fitch Russian Banks Datawatch data (6M 5) consolidated by group; rankings exclude subsidiaries of foreign banks
H 5 key highlights Challenging macro environment impacting sector margins, asset quality and growth Significant ruble devaluation in 4 led to a series of CBR key rate increases (including a 6.5 percentage point rate hike to 7% in December 4), putting strong upward pressure on funding costs and weakening loan demand. In H 5, with the ruble tentatively stabilising, the CBR made four rate cuts to.5% (cf. CBR key rate range in H 4: 5.5%-7.5%) CPI inflation of 5.3% in H 5 y-o-y Real GDP contraction of.% y-o-y in Q 5 and 4.6% y-o-y in Q 5 In line with broader sector trends, the key drivers of MDM Bank s H 5 financial performance were: (i) net interest margin (NIM) compression due to elevated funding costs outstripping asset repricing; and (ii) an increase in cost of risk stemming from the economic downturn: H 5 NIM of.% down from 5.% in H 4; however, NIM recovered in Q 5 to.4%, primarily attributable to active repricing of the loan book H 5 cost of risk of 5.8% up from.% in H 4 (and 3.% in H 4) driven by a combination of the economic downturn and the Bank s conservative provisioning policy H 5 MDM financial highlights P&L Despite the challenging operating conditions, however, the Bank s total operating income only decreased by 8% y-o-y in H 5, supported by strong interest income, net fee & commission income and net trading / FX income growth: Gross interest income growth of 34% y-o-y, as per above, driven primarily by active repricing of the loan book Net fee & commission income growth of 5% y-o-y, mainly driven by an increase in settlement, guarantee and factoring fees (factoring fees increased almost 6-fold year-on-year, albeit from a low base) Net gains from trading and FX operations of.8 bln, compared to a net loss of. bln in H 4 (+ bln) H 5 operating expenses increased y-o-y, however remained materially below inflation for the period: Operating expenses increased by 8% y-o-y and were moderately down compared to H 4 (-5%) Overall, the Bank reported a net loss of 4.6 bln and total comprehensive loss of. bln for H 5: Net other comprehensive income of.6 bln was due to gains from revaluation of the Bank s available-for-sale securities portfolio Q 5 GDP figure based on preliminary Russian State Statistics Service data 3
H 5 key highlights (cont d) Moderate H 5 loan portfolio contraction, in line with broader sector trends, due to a combination of tightening credit risk controls and subdued loan demand caused by the high interest rate environment: Net loan portfolio contraction of circa 7% Marginal corporate loan contraction (-4%), whilst retail and SME loan portfolio contraction was 4%-5% as lending in these segments was strictly curbed to control risk Well-matched balance sheet currency structure, with the Bank adhering to a strict policy of currency matching: FX-denominated assets and liabilities accounted for circa 3% of the Bank s total assets and liabilities as at end H 5 Capital position strengthened through subordinated debt capital injections in June / July 5 End-H 5 IFRS Basel total CAR of 3.5% (5.3% pro forma ratio, including the July 5 capital injection) and Tier ratio of.7%, the latter being amongst the highest in the Bank s peer group H 5 MDM financial highlights balance sheet CBR total regulatory capital ratio of.6% and Common Equity Tier / Tier ratios of 7.8% as at August 5 are in line with peers Robust funding and liquidity position maintained, despite numerous reductions in deposit interest rates in H 5 aimed at reducing funding costs and protecting the Bank s operating profitability: The total customer funding base remained flat in H 5, whilst the share of retail in total customer funding increased from 68% to 73% and depositor concentration continued to decrease Continuing low dependence on market funding, comparing favourably to peers: net loan / deposit ratio of 76% Liquid assets stood at circa 33% of total assets as at end H 5 and the Bank comfortably met the CBR s regulatory liquidity requirements Proactive problem loan management continues to be a key focus of management attention, particularly in the context of an economic downturn Asset quality followed broader macro / sector trends with the total NPL ratio increasing by.5 percentage points to 3.9% as at end H 5 The provision coverage ratio was maintained at a comfortable 44% as at end H 5 Alongside strengthened monitoring and preventative measures at the pre-problem stage, management executed a number of successful restructurings and sales of problem loans in H 5 4
Assets and liabilities overview PRELIMINARY DRAFT Assets Liabilities 33% 8% 3% 34% 33% In H 5, total assets contracted moderately 84 bln 89 bln 39 bln +7.% 34 bln 35 bln 48 bln 5 bln 95 bln +.3% 9 bln 73 bln Strong liquidity position maintained, in line with conservative liquidity management policy: liquid assets stood at 33% of total assets as at end H 5 4% % 4% 6% % 3% 56% 6% 9% 8% % % 4% % % % % 55% 54% 55% % 8% 74% 76% 6% 4% 76% 79% 3% 8% Well-matched balance sheet currency structure: FX-denominated assets and liabilities accounted for circa 3% of the Bank s total assets and liabilities as at end H 5 FX share of customer loans 3% and of customer funding 5% as at end H 5 % % 3% % % H 4 Q3 4 YE 4 Q 5 H 5 Loans to customers AFS financial assets Interbank Cash Other assets Liquid assets / Total assets Currency breakdown end-h 5 % 5% 8% % 3% 3% % % % 3% 6% 5% 5% H 4 Q3 4 YE 4 Q 5 H 5 Debt securities Customer accounts Due to banks Other liabilities Currency breakdown end-h 5 5% 8% 77% 77% USD EUR Other USD EUR 5
Balanced and diversified loan portfolio Net Loan Portfolio H 5 net loan portfolio contraction of circa 7% due to a combination of tighter credit controls and subdued loan demand resulting from the high interest rate environment: Corporate loan portfolio: - 4.% Retail loan portfolio: - 4.7% SME loan portfolio: - 3.6% 6 bln 46. 9.5 77 bln. 4.4 9. 8 bln +5.% 76 bln 46.9 46. 4.3. 9. 39.4 8.8 5. 5. 9.8 H 4 Q3 4 YE 4 Q 5 H 5 Corporate loans SME loans Retail loans 68 bln 3% 5% 7% Disciplined approach to sector diversification: no single corporate sector accounts for more than 5% of total lending book Exposure to higher risk sectors maintained at relatively modest levels Transport % Oil and gas % Food and agriculture % Chemicals 3% Gross Loan Portfolio by Sector, 3 June 5 Healthcare % Construction 5% Wholesale trade Manufacturing 7% 8% Tourism % Other 7% Individuals % Real estate 5% Net Retail Loan Portfolio by Product, 3 June 5 Credit cards: 4% Mortgage loans: 5% Auto loans: % Cash loans: 59% Retail trade % Finance 5% Loan portfolio product breakdown based on management account data 6
Proactive problem loan management remains a key focus Total customer loan portfolio: NPLs (9 days +), Provisions, Provision Coverage and Cost of Risk bln 45 4 35 3 5 5 5 5% 47% 45% 5% 44% 7.9% 9.% 9.9% 8.4% 7.% 3.9%.4%.7%.%.5% 39.5 4.6 4.8 36. 36.3 3.9 4.6 7.3 7.6 9. 5.8% 5.3%.%.7%.% H 4 Q3 4 YE 4 Q 5 H 5 Provisions NPLs Cost of risk (cum) Provision coverage ratio 8 6 4 8 6 4 Asset quality followed broader macroeconomic / sector trends, with the total NPL ratio increasing by.5 percentage points to 3.9% as at end H 5 Nonetheless, the total provision coverage ratio was maintained at a comfortable 44% as at end H 5 Alongside strengthened monitoring and preventative measures at the pre-problem stage, management executed a number of successful restructurings and sales of problem loans in H 5 7
Robust customer deposit-based funding model % 8 6 87% % 3% 3% % % 7% 6% % 5% 5% 36% 37% Structural Funding Breakdown 93% 8% 77% 76% 3% 7% 6% bln 5 5 Customer Funding by Segment +.8% 5 3 6 3 3 84 9 44 6 5 46 37 56 5 35 3 39 4 9% 55% 54% 9% 95% 93% 65% 66% 68% 94% 5 35 34 76 79 4 9 3 H 4 Q3 4 YE 4 Q 5 H 5 H 4 Q3 4 YE 4 Q 5 H 5 Retail accounts Corporate accounts Due to banks Debt securities in issue Loan/Deposit ratio Mass retail customers VIP customers Corporate customers SME customers Primary focus on customer deposit funding, providing a level of insulation against market volatility Loan/Deposit ratio maintained comfortably below %: 76% as at end H 5 Total FX-denominated external wholesale / interbank funding amounted to <% of total liabilities as at end H 5 CBR funding equal to circa 9% of total liabilities as at end H 5, which is matched against short-term interbank and liquid securities (effectively arbitrage; not part of the structural funding base) On 9 April 5, the Bank repaid its only outstanding ruble bond in the amount of 5. bln In H 5, total customer funding base remained flat, despite numerous reductions in deposit interest rates targeted at reducing the Bank s funding costs 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) Segmental breakdown between mass retail / private banking and corporate / SME based on management account data 8
Decreasing deposit concentration, balanced FX and maturity profile Customer Deposit Concentration Customer Accounts Currency Breakdown, H 5 % 5 6% 6% 68% 7% 73% 6% 5 9.% 9.4% 9% 5 3.9%.5% 9.9%.%.3%.4%.3%.6 % H 4 3Q 4 YE 4 Q 5 Н 5 Top depositors / Total customer accounts Related party funding / Total liabilities Retail customer accounts / Total customer accounts 75% USD EUR Ongoing decrease in deposit concentration and improvement in the granularity of the customer deposit base, supported by the material inflow of mass retail deposits in 4, which continued in H 5 As at end H 5, c. 4% of total customer accounts had a maturity of one year or more Current accounts represent circa 6% of total customer funding as at end H 5 Customer Accounts Maturity Breakdown, H 5 From to 3 years: 3.8% More than 3 years:.% Less than month:.9% From 6 to months: 4.7% From to 6 months: 39.5% Related party funding as at end H 5 includes a US$ 56 mln subordinated loan from the majority shareholder 9
Capital position strengthened through new capital injection IFRS Basel I Tier and Total CAR vs. Peers CBR Basel III Capital Ratios (RAS) vs. Peers 8 7.% 5 9 6 3 5.3% 6.% 3.5% 3.7% 4.6%.8% 3.4%.%.7%.7%.3% 4.%.4% 6.% 4.% 8.3% 8.% 8 6 6.8%.7% 7.6% 3.5% 9.% 9.% 5.4%.6% 7.% 3.9%.% 7.8% 7.%.% 4.8%.%.6% 4.%.3% 6.3% 6.% N. regulatory minimum N. regulatory minimum N. regulatory minimum CBM MDM MDM pro BSPB Otkritie USIB forma Tier Tier BSPB CBM MDM Otkritie PSB USIB Common equity tier (N.) Additional tier Tier Based on latest available consolidated financial statements of peer banks; data for all peer banks as at YE 4 except for CBM and BSPB as at Q 5 Based on CBR data as at.8.5 In H 5, the Bank s capital position was strengthened through: A US$ 56 mln subordinated debt capital injection in June 5 by the current majority shareholder, transferred to the incoming majority shareholders and converted into a Tier instrument in July 5 (under Basel III) A US$ 77 mln subordinated debt capital injection in July 5 by the incoming majority shareholders On a pro forma basis, including the July 5 capital injection, the total IFRS Basel I capital adequacy ratio as at 3 June 5 was 5.3%, putting the Bank s total and Tier capital ratios at the higher end of its peer group CBR total regulatory capital ratio (N.) of.6%, Common Equity Tier (N.) and Tier (N.) ratios of 7.8% as at August 5 are in line with the Bank s peer group Key: MDM MDM Bank; CBM Credit Bank of Moscow; USIB Uralsib Bank; BSPB Bank Saint Petersburg; Otkritie Bank Otkritie FC ; PSB Promsvyazbank MDM s pro forma capital adequacy ratios include the US$ 77 mln Tier capital injection in July 5
NIM and operating income on recovering trend bln 6 5.% 5 4 3-4.9% 3.4 4. Operating Income and NIM 5.4% 4.%.6%.4% Q 4 Q 4 Q3 4 Q4 4 Q 5 Q 5 Net interest income Other operating income 4. Net interest margin (quarterly) Net fee & commission income Net trading & FX gains / Losses In line with broader sector trends, MDM s net interest margin (NIM) contracted materially in Q 5 primarily due to the impact on funding costs of the +6.5 percentage point year-end CBR key rate hike, as repricing of liabilities outstripped asset repricing. However, in Q 5, the Bank s NIM began to recover, increasing by 8bps to.4%, on the back of active loan book repricing Despite challenging macro conditions, the Bank s total operating income only decreased by 8% y-o-y in H 5, supported by strong growth of gross interest income, net fee & commission income and net trading / FX income: Gross interest income growth of 34% y-o-y, driven by active repricing of the loan book Net fee & commission income growth of 5% y-o-y, mainly driven by an increase in settlement, guarantee and factoring fees Net gains from trading and FX operations of.8 bln vs. a net loss of. bln in H 4 5. 3. 3.8 bln 8 6 4 bln 3 bln Total Operating Income 7.3 6.8 H 4 H 5 Net interest income Net fee & commission income Other operating income Net trading & FX gains / Losses Net Fee & Commission Income.4. H 4 H 5 Net Trading & FX Operations Gains / Losses.8 -. H 4 H 5
Continuing focus on operating efficiency and cost control bln 6 5 4 3 Quarterly Operating Expenses and Cost / Income Ratio 9% 84% 74% 9% 7% 7% 67% 79% 74% 7% 68% 3.6 3..8 58%.7.5.4 bln 8 8 6 6 4 4 Year-on-Year Operating Expenses and Cost / Income Ratio 84% 7% 5.7 5.3 +3.9% -.5% Q 4 Q 4 Q3 4 Q4 4 Q 5 Q 5 H 4 H 5 Staff costs Сost / Income ratio (cum) Other opex Сost / Income ratio (quarterly) Staff costs Other opex Cost / Income ratio In H 5 operating expenses increased year-on-year, although remained materially below inflation for the period and were moderately down compared to H 4 (-5%) Key ongoing initiatives to drive cost / operating improvements include optimisation of the Bank s branch network through closing a number of loss-making branches and reformatting / downsizing other branches
H 5 balance sheet summary Balance Sheet Summary (IFRS), mln min H 5 YE 4 Change H 5 / YE 4 Assets Cash and cash equivalents 59 64 63 38-5,8% Due from banks 6 598 6 758 -,4% Available-for-sale financial assets 34 46 36 736-6,3% Loans and advances to customers 68 9 8 4-7,4% Corporate 9 833 5 83-4.% Retail 39 37 46 4-4.7% SME 8 86 88-3.6% Investment property 3 93 46 33,% Other 963 3 5-7,3% Total Assets 34 55 38 88-7,4% Liabilities Due to banks 35 937 46 -,9% Total customer accounts 36 5 76 -,% Retail 6 8 53 8 5,7% Corporate 6 56 7 994-5,9% Debt securities in issue 69 7 63-77,9% Subordinated debt 3 7 n.m. Other 9 837 6 538-4,5% Total Liabilities 7 943 95 47-7,6% Total equity 3 67 33 634-6,% Key ratios Liquid assets / Total assets 33.% 3.5%.5 pp Net loans / Deposits 75.6% 8.6% -5. pp NPL ratio 3.9%.4%.5 pp Provision coverage ratio 43.8% 44.8% -. pp Tier Capital ratio (Basel I).7%.6% -.9 pp Total Capital ratio (Basel I) 3.5%.%.3 pp CBR total regulatory capital ratio.%.4% -.4 pp Source: Based on IFRS Consolidated Financial Statements Including Mandatory cash balances with the CBR Including Due to the CBR 3
H 5 income statement summary min H 5 H 4 H 4 Change H 5/ H 4 Change H 5/ H 4 Net interest income 35 5 397 5 6-55% -56% Gains less losses from trading, available-for-sale financial assets and foreign exchange, net 758 73-96 n.m. 5% Net fee and commission income 43 54 95 5% -4% Other income, net 49 57 36-3% 59% Total operating income 6 789 9 65 7 34-8% -5% Operating expenses (5 75) (6 9) (5 3) 8% -5% Staff costs (3 64) (3 639) (3 34) -% -% Administrative and other operating costs ( 46) ( 38) ( 987) 4% 3% Net operating income before impairment losses 64 3 46 4-48% -65% Loan impairment losses (6 75) (3 3) ( 7) 436% 94% Other (impairment losses)/provision reversals (65) 55 6-56% -8% Loss from investment property () (9) (4) 5% -8% Loss on fair value adjustment for financial instruments - (87) - n.m. n.m. (Loss)/profit before tax (5 97) (345) 97 n.m. n.m. (Loss)/profit after tax (4 63) (7) 738 n.m. n.m. Other comprehensive income/(loss) 576 ( 77) (8) n.m. n.m. Total comprehensive income / (loss) ( 7) ( 987) 658 n.m. n.m. Key ratios Income Statement Summary (IFRS), mln Net interest margin (annualised).% 4.8% 5.% -3. pp -.8 pp Cost / income ratio (CIR) 84.3% 66.4% 7.%. pp 7.9 pp Cost of risk (annualised) 5.8% 3.%.% 4.6 pp.7 pp Source: Based on IFRS Consolidated Financial Statements 4
Contact: Tel. +7 495 797 95 (ext. 54388) or +7 383 35 4 6 ir@mdmbank.com MDM Bank 33/ Kotelnicheskaya Embankment Moscow 57 Russia