VTB’s chairman Andrei Kostin has once more urged the government not to rush the sale of a 10.9-percent stake in the bank, which is included in a privatization plan for 2017.
“It seems to me it is vital to determine what we want from this privatization. If the state as the owner wants to fully privatize VTB and steeply reduce its stake significantly below 50 percent, then maybe it makes sense to begin and move towards that goal. If we just want to sell 10 percent and remain with 50 percent plus one share held by the state, then I don’t see any special expediency in that today,” Mr. Kostin said in an interview on Rossiya 24 television network.
“Looking at things realistically, it is very difficult, I would say practically impossible, to get a good privatization deal today for a banking organization. The bank is not an oil company. There is not a strategic investor here. The deal in this area must be on an open market. Investors today under the condition of sanctions won’t go for it because they are scared. They are concerned about this,” he said.
“Frankly speaking, I am not a fan of expedited privatization until such time as the sanctions are lifted. Especially if we are talking about a partial sale privatization and not some strategic goal to sell all 100 percent, i.e. a full divestment. For now, I haven’t seen any such intent,” Mr. Kostin said.
There are other instruments to resolve the fiscal goals that the state has set, the banking executive stated.
“I believe that a waiting period is required. If the state needs liquidity, at the end of the day we can give it a loan, buy state obligations that can be used for budgetary needs. But all the same we should wait for a more favorable situation, when we can get a really beautiful deal,” he said.
The Russian Economic Development Ministry earlier submitted a privatization plan for 2017-2019 to the government. Deputy Economic Development Minister and the head of the state property agency Rosimushchestvo Dmitry Pristanskov said that a consensus meeting was expected with Russia’s Deputy Prime Minister Igor Shuvalov before the end of the year.
He said that the sale of at least three major assets has already been preliminarily agreed upon for 2017: stakes in the VTB bank, the Sovcomflot shipping company, and the port operator NCSP. There still remained some disagreement over Alrosa. “As of now there is already a preliminary agreement on the sale of three major assets in 2017. The plan is to privatize 10.9 percent of VTB, 25 percent minus one share of Sovcomflot, and 20 percent of NCSP,” he said.
Meanwhile, VTB is planning to post net profits in the amount of at least RUB200 billion (USD3.30 billion) in 2019, Mr. Kostin said.
“We are planning that in 2019 net profits will stand at RUB200 billion (USD3.30 billion), and a financial return ratio will be at least 14 percent,” the executive said.
He said that VTB is expecting certain economic growth in Russia. “We foresee that we will be able to provide on average a 10-percent growth of the loan portfolio. As for retail, the portfolio will be even more, at 12 percent by 2019. In the corporate portfolio, it may be about eight percent. Nevertheless, our assets will grow, and the credit portfolio will increase to about RUB13 trillion (USD214.39 billion) by 2019,” Mr. Kostin said.
VTB’s strategy is based on a “moderately optimistic” forecast for the economy and the banking sector, projecting a gradual recovery of economic growth of 2 to 2.4 percent, the slowdown of inflation to a target level of 4.5 percent, and a gradual reduction of the Central Bank’s key interest rate to six percent in 2019, the bank said in a press release.
The group is targeting a return on equity of about 13 to 14 percent, and a cost-income ratio of about 40 percent.
The VTB Group plans to restore lending growth to ensure that the group’s loan portfolio increases by at least 10 percent per year. The strategy calls for retail lending to grow faster than the market and increase as a share of the group’s loan portfolio.
VTB’s supervisory board considered the group’s development strategy for the years 2017 to 2019. VTB wants to double the volume of private entities’ deposits over the next three years, which will allow the bank to cut spending, Mr. Kostin said.
The total growth of VTB’s lending portfolio will be 10 percent a year. The growth in the corporate loan portfolio is expected at about eight percent, which is in line with the forecast rates of growth for the corporate lending market.
The bank’s growth of the retail loan portfolio is planned at about 20 percent, all the while the retail loan portfolio in the banking sector as a whole will rise by about 12 percent. These trends will allow for increasing the group’s market share and the share of private entities in the group’s lending portfolio.
VTB expects to see an increase in clients’ deposits of about 14 percent during the following year. The funds held on deposit for business entities are projected to rise by nine percent during the year.
The group confirmed the forecast that was announced earlier for the next three-years: net profits in 2017 are expected at about RUB100 billion (USD1.65 billion). The return on equity is estimated at about seven percent. In 2018, net profits are projected to stand at about RUB150 billion (USD2.47 billion) and the return on equity at about 10 percent. VTB is also planning to earn more than RUB200 billion (USD3.30 billion) in 2019 and projects that the return on equity will be about 14 percent. According to VTB’s forecast, tier one capital adequacy as of the end of 2019 will exceed 10 percent. The group’s new strategy was developed on the basis of an organic growth scenario.
The press service said that VTB is not planning to open any new branches in other countries, as the bank’s existing international network is wide enough. “We are developing initiatives for raising the effectiveness of our international network. In particular, we are considering the possibility of optimizing the operating model in Europe, with the possible move of the VTB Group’s headquarters in continental Europe to Frankfurt,” VTB said.
“We seriously want to change the working model for our bank. This is because in the last few years VTB had an international infrastructure that was widely used: we raised money from abroad in dollars. This model does not work today, especially after the rouble’s depreciation and the imposition of sanctions. Clients today are not borrowing in dollars, and financing deals in dollars in the West is also practically impossible today,” the head of VTB said.
He said that deposits in roubles were received primarily from corporate clients and also the Central Bank and the Finance Ministry.
“Therefore, our task is to enlarge the amounts held on deposit for private clients. We are planning to double the amount of deposits in three years,” Mr. Kostin said.
If VTB’s retail business gives the group funding of RUB1 trillion (USD16.49 billion), then by the end of 2019 this figure will rise to RUB2 trillion (USD32.98 billion). “We will change the structure of deposits. Today we have about 40 percent in dollars, and we want to reduce this number to 23 percent. We want to make it so that roubles have the main role, and therefore substantially reduce funding expenditures. We think that it is possible to save up to two percent,” the banking executive said.
Annual shareholder meeting
VTB is holding its annual shareholders’ meeting on April 26, 2017, at which the new supervisory board will be elected, and the head of the supervisory board will be a high-ranking government representative, Mr. Kostin said. “Regarding the chairman of the supervisory board, the agreement we have is that VTB will hold the next meeting in April. It will be slightly earlier, usually they happen in June, but due to the fact that our report will be ready in March, we decided to hold the next annual meeting on April 26. A new supervisory board will be elected at the meeting, including the new chairman,” he said during an interview on Rossiya 24 television network.
Mr. Kostin said that on December 14, 2016 VTB selected former Central Bank of Russia Governor Sergei Dubinin as the acting chairman instead of Alexei Ulyukayev. Dubinin al-ready held this post from 2011 to 2014, and he has been on VTB’s supervisory board since 2011. He is in charge of the personnel and remunerations committee.
Mr. Kostin said that the supervisory board elected two new management members on Decem-ber 14, Mikhail Zadornov and Gennady Soldatenkov. “The election of new management members is an unconventional event, because this is not simply some personnel appointment. Both new members of management Mr. Zadornov and Mr. Soldatenkov are people who are now in charge of our subsidiaries VTB 24 and BM Bank, formerly the Bank of Moscow. Their election to the board would entail structural changes to the system,” he said. The new management board members will receive additional powers within the group, Mr. Kostin added.
The group plans to merge VTB Bank and its retail arm VTB24 by January 2018. “The date of the merger is the first working day after the January holidays in 2018. We essentially have one year for this. We’ve already set up a commission for the merger with VTB24. In the course of these efforts, I think that a number of people will already move from VTB24 to work at VTB in the first quarter of 2017. We expect some changes in the management board, but the final structure will take shape only after the merger. When the banks merge into one, we will have to make one management board from two boards. This is done on a competitive basis, and I don’t think that only the executives of VTB Bank should hold key positions,” Mr. Kostin said, adding that some VTB24 executives will hold key positions in the merged bank.
The merger of the banks will save the group money, he said, without specifying the amount of the savings anticipated.