Gazprombank releases financial results for 1H2018, with net income at RUB 23.4 bn in accordance with International Financial Reporting Standards (IFRS)

Moscow, August, 29, 2018 - Gazprombank (Joint Stock Company) (hereinafter, Bank GPB (JSC) or the Bank) has published its consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) for the first half of 2018 and as at 30 June 2018.

Bank GPB (JSC) key financial indicators for 1H2018 / as at 30 June 2018 [1]:

• Net income totaled RUB 23.4 bn compared to RUB 26.2 bn in 1H2017;
• ROE and ROA stood at 8.3% and 0.8%, respectively, compared to 6.2% and 0.6% for 2017;
• Net interest margin comprised 2.9% compared to 3.1% in 2017;
• Net commission income amounted to RUB 8.9 bn compared to RUB 7.5 bn in 1H2017
• Cost of Risk stood at 0.03%, or, including fair value adjustment of the loans accounted at fair value, 0.5% compared to 0.6% in 2017;
• The cost-to-income ratio reached 60.8% compared to 49.5% in 2017;
• Assets stood at RUB 6,087.4 bn (RUB 5,509.9 bn as at 01 January 2018);
• The total loan portfolio [2] amounted to RUB 3,821.0 bn (RUB 3,745.8 bn as at 01 January 2018);
• The share of non-performing loans (NPL) (overdue 90+ days or defaulted loans) in the total loan portfolio amounted to 2.5% and remained unchanged since 01 January 2018;
• The loan loss provision rate stood at 5.4% compared to 5.3% as at 01 January 2018;
• Customer accounts totaled RUB 4,320.2 bn as at 30 June 2018 compared to RUB 3,915.4 bn as at 01 January 2018, the loan-to-deposit ratio declined from 95.7% to 88.4%;
• Basel I total capital reached RUB 669.6 bn as at 30 June 2018 compared to RUB 665.6 bn as at 01 January 2018, the capital adequacy ratio stood at 13.3%, the Tier-1 capital ratio - 10.3% as of the reporting date.

The key financial indicators are presented below:

	30 June 2018	01 January 2018	Change
Assets
Shareholders’ equity
Cash and cash equivalents
Loans to corporate customers
Retail loans
Securities[3]
Corporate customer accounts
Retail customer accounts
Capital borrowings [4]
Subordinated debt

	1H2018	1H2017	Change
Net income
Comprehensive income

	30 June 2018 / 1H2018	01 January 2018	31 December 2017 / 2017*	Change
Total Capital Adequacy Ratio [5]
Tier 1 Capital Adequacy Ratio
Non-performing loans [6] (NPL) % to gross loans
Allowance for credit losses to gross loans to customers, accounted at amortised cost
Loans-to-deposits ratio
Group’s ROE
Group’s ROA
Net Interest Margin [7]
Cost of risk [8]
Cost of risk [9]
Cost-to-income ratio [10]

* Without adjustments as per IFRS 9 and IFRS 15

Financial results
In 1H2018, the Group recorded net income of RUB 23.4 bn. Total comprehensive income accounted for RUB 24.1 bn. By comparison, in 1H2017, the Group’s net income and net comprehensive income amounted to RUB 26.2 bn and RUB 27.3 bn, respectively. The Group’s ROE increased in 1H2018 by 2.1 p.p. up to 8.3% due to both higher generated income and a negative accounting effect on capital from Group’s transition to IFRS 9 and dividends payment for 2017. ROA increased in 1H2018 by 0.2 p.p. and reached 0.8% compared to 0.6% as of the end of 2017.
The Group’s net interest income increased in 1H2018 by 8.6% and totaled RUB 69.0 bn compared to RUB 63.6 bn in 1H2017, with interest income lowering by 0.7% to RUB 182.1 bn, and interest expenses went down by 5.6% to RUB 113.1 bn. The net interest margin in 1H2018 comprised 2.9%, which is 0.2 p.p. less than the 2017 indicator (3.1%), but 0.2 p.p. more than the 1Q2018 indicator (2.7%).
The Group’s recurring core banking income, including net interest income before impairment of interest earning assets and net commission income, increased in 1H2018 by 9.6% and totaled RUB 77.9 bn compared to RUB 71.1 bn in 1H2017. The net commission income as of 1H2018 (RUB 8.9 bn) was 17.4% higher than in 1H2017 (RUB 7.5 bn).
Loss from operations with securities [11]  in 1H2018 totaled RUB -0.9 bn compared to income of RUB 6.4 bn in 1H2017.
The recurring income reached 110.1% in the Group’s operating income structure compared to 95.2% in 1H2017.
Non-banking segments recorded operating profit of RUB 0.09 bn in 1H2018 compared to RUB 2.0 bn in 1H2017. Income decline is due to one-off impairment of certain assets.
The abovementioned developments were factored into the Group’s operating income (before credit losses provisions and impairment provisions) of RUB 70.8 bn in 1H2018 compared to RUB 74.7 bn in 1H2017 (5.3% down).
Operating expenses reached RUB 43.1 bn in 1H2018 compared to RUB 35.3 bn in 1H2017. The cost-to-income ratio increased by 11.3 p.p. compared to 2017, from 49.5% to 60.8%. Expenses growth was driven by implementation of various innovative tasks faced by the Bank in the course of technology transformation, including launch of a number of business development and performance improvement digital projects. For example, the Bank intends to open the IT Development Center in Innopolis (Republic of Tatarstan). The main objective of the Center shall be the development of technological and innovative solutions benefitting Bank’s customers and employees. The expenses increase is also driven by implementation of the Bank retail business development strategy, in particular, launch of an advertising campaign to promote retail products.

Assets quality
In 1H2018, provision for credit losses totaled RUB 0.8 bn compared to RUB 6.7 bn in 1H2017, in particular, in 2Q2018, provision for credit losses in the amount of RUB 2.0 bn was made upon RUB 1.2 bn recovery in 1Q2018 due to repayment of several major loans. The Group’s cost of risk was 0.03% or, including the fair value adjustment of the loans accounted at fair value, 0.5% in 1H2018 (compared to 0.6% as at the end of 2017). The negative fair value adjustment of the loans and receivables accounted at fair value in 1H2018 amounted to RUB 11.8 bn which is due both to the change of the borrowers’ credit quality and market parameters stipulated in asset valuation models.
The share of NPL (non-performing loans) in the gross loan book remained stable in 1H2018 at 2.5%. The loan loss provision rate (total loan loss allowance to the portfolio of loans accounted at amortised cost) was 5.4% as at 30 June 2018 compared to 5.3% as at the beginning of 2018.
The loan loss allowance exceeded NPLs 2.1 times both as at 30 June 2018 and as at 31 March 2018 (coverage rate as at 01 January 2018 stood at 2.0).

Business volumes
The Group’s total assets reached RUB 6,087.4 bn as at 30 June 2018, which is 10.5% up compared to RUB 5,509.9 bn as at 01 January 2018.
In particular, cash and cash equivalents amounted to RUB 1,147.8 bn as at 30 June 2018 compared to RUB 649.0 bn as at 01 January 2018. The increase of cash and cash equivalents balances was driven by investment of customer funds into highly liquid assets.
The gross loan book was RUB 3,821.0 bn as at 30 June 2018 having increased by 2.0% compared to RUB 3,745.8 bn as at 01 January 2018. The loan book accounted for 59.5% of the total Group’s assets compared to 64.5% as of the beginning of the year.
The corporate loans did not change materially and equaled RUB 3,369.9 bn as at 30 June 2018 compared to RUB 3,356.7 bn as at 01 January 2018. Incremental loan portfolio growth was driven mainly by retail loans that increased in 1H2018 by 15.9%, from RUB 389.1 bn as at 01 January 2018 to RUB 451.1 bn as at 30 June 2018. Retail loans accounted for 11.8% of the loan portfolio as at 30 June 2018, having increased by 1.4 p.p. in the first half of the year. Mortgage loans constitute the main part of the Group retail loan portfolio. As at 30 June 2018, they accounted for 70.0%, having increased by 0.6 p.p. since the beginning of the year. Pursuant to the results of the first six months of 2018, the Bank went two steps up and became one of Top 3 Russian banks by mortgage lending (according to дом.рф and Frank Research Group consulting company rating). The Bank demonstrated most dynamic market share growth compared to other mortgage lending banks, having increased it by 2.3% over 12 months. Mortgage loans granted by the Bank from 1 January 2018 to 30 June 2018 totaled RUB 73.6 bn, which corresponds to the market share of 5.2%. To achieve such results the Bank has changed the terms and conditions of mortgage lending programs and started electronic registration of mortgage deals driving the share of online applications up.
The Group’s securities portfolio was RUB 639.1 bn as at 30 June 2018 compared to RUB 672.8 bn as at 01 January 2018. Securities share in the Group’s assets declined in the first half of the year by 1.7 p.p., to 10.5% as at the reporting date, compared to 12.2% as at the beginning of the year. The structure of the Group’s securities portfolio traditionally consists mostly of fixed income instruments, particularly investments in Russian government debt as well as bonds and promissory notes of Russian issuers. However, the share of debt securities has been gradually declining – in 1H2018 it was 3.2 p.p. down, to 69.9% compared to 73.1% as at the beginning of 2018, and the share of equity instruments increased accordingly due to repayment of certain debt instruments and increase of equity investments. For example, the Bank established a joint venture with PJSC MegaFon, State Corporation Rostec and USM Holdings in the course of technological transformation in 1H2018 and acquired a 35% stake in JSC MF Technologies (MFT) joint venture for USD 157.5 mln. The new entity, JSC MF Technologies (MFT), will develop digital services and implement digital economy projects.
Funds of credit institutions totaled RUB 470.7 bn as at 30 June 2018, 53.2% up compared to RUB 307.2 bn as at the end of 2017, predominantly due to placement of the correspondent banks’ short-term funds into the current accounts and term deposits at the Bank. Therefore, the share of bank funds in the liabilities as of 1H2018 increased from 6.2% to 8.5%.
In 1H2018, corporate and retail deposits increased by 10.3%, to RUB 4,320.2 bn as at 30 June 2018 compared to RUB 3,915.4 bn as at the end of 2017. In particular, corporate deposits reached RUB 3 405.5 bn as at 30 June 2018, having increased by 10.8% since the beginning of the year, mostly due to growing funds of state-run companies in Group accounts. Retail deposits and accounts increased in 1H2018 by 8.5% to RUB 914.8 bn, following the record growth of 24.3% in 2017.
The share of customer deposits in the Group’s liabilities declined in 1H2018 by 0.9 p.p., to 78.1% compared to 79.0% as at the end of 2017.
Borrowings from debt capital markets, including Eurobonds and local bonds, stood at RUB 363.3 bn as at 30 June 2018 compared to RUB 339.6 bn as at the end of 2017. In the first six months of 2018, RUB 5.0 bn bonds issued in 2015 were redeemed and RUB 20.0 bn bonds maturing in 2023 were placed. In general, the share of borrowings in capital markets in the resource base declined in 1H2018 from 6.8% to 6.6%.

Capital adequacy
The Group’s Basel I total capital based on consolidated IFRS financials amounted to RUB 669.6 bn as at 30 June 2018, having increased by 0.6% in 1H2018 compared to RUB 665.6 bn as at 01 January 2018. Capital increase due to the generated income was adjusted by dividend payment in 2Q2018. The Group’s risk weighted assets were down by 4.8% in 1H2018. Therefore, the Group’s capital adequacy indicators improved in the 1st half of the year: the Group’s total capital adequacy ratio amounted to 13.3% compared to 12.6% as at the beginning of 2018; the Tier 1 capital adequacy ratio reached 10.3% compared to 9.8% as at the beginning of 2018.