Sovcombank Records IFRS Net Profit of RUB 26 Billion in 1H 2021

  • Banking
  • 01.09.2021 04:55 pm
  • Profit in 1H 2021 increased by 87% year-on-year to a solid RUB 24 billion. Vostochny Bank, acquired in 2Q 2021, contributed RUB 1.4 billion to Sovcombank Group’s profit.
  • Net profit for the first half of the year increased by 2.7x year-on-year.
  • The Bank’s assets in the first half of the year grew by 25% to RUB 1.9 trillion, both due to organic growth associated with the economic recovery following the pandemic and in connection with the purchase of Vostochny Bank.
  • The Bank’s equity capital grew by 10% in 1H 2021 to RUB 207 billion.
  • Return on equity (ROE) from regular business rose to 28% (up from 20% in 1H 2020).
  • The retail net loan portfolio increased by 44% in 1H 2021 to RUB 429 billion, due to growth in the Halva portfolio, secured lending as well as the purchase of Vostochny Bank, whose retail portfolio amounted to RUB 75 billion as 30 June 21.
  • The net portfolio in terms of corporate lending increased by 54% to RUB 533 billion.
  • The bond portfolio as a share of assets decreased from 39% as of 31 December 2020 to 30% as of 30 June 2021.
  • Retail customers’ current accounts and term deposits increased by 29% in 1H 2021 to RUB 609 billion, due partly to a RUB 116 billion contribution from Vostochny Bank.
  • Funding from corporate customers grew by 27% from the beginning of the year to RUB 644 billion, mainly due to an inflow of corporate deposits (up 36% from 31 December 2020).
  • The share of Stage 3 loans and purchased and originated credit-impaired financial assets in the gross loan portfolio before provisions decreased by 0.5 p.p. to 2.3%.
  • Net interest income amounted to RUB 52 billion, up 39% year-on-year.
  • Net fee and commission income grew by 33% to RUB 15 billion.
  • The cost-to-income (CTI) ratio increased by 2 p.p. from the beginning of the year to 43%, mainly due to an increase in marketing and advertising expenses related to the Halva card rebranding and the incorporation of Vostochny Bank.

Information by segments:

Retail business. Over the last six months, all key retail business lines showed solid organic growth in assets and profits. The Bank’s net mortgage portfolio grew by 29% to RUB 102 billion, the net car loan portfolio grew by 13% to RUB 118 billion, and the net Halva card portfolio grew by 21% to RUB 66 billion. Once all Vostochny Bank credit cards have been converted to Halva cards, the latter’s portfolio will increase to RUB 120 billion. The share of secured loans in the gross retail loan portfolio is 55% and remains one of the highest figures among comparable top-20 banks in terms of assets. The percentage of Stage 3 loans in the retail portfolio remains low, at 4% as of 30 June 2021, with an NPL coverage ratio of 139%.

Interest income from the retail business increased by 46% year-on-year to RUB 42 billion. Retail fee and commission income grew by 14% to RUB 11 billion.

Sergey Khotimskiy, Sovcombank’s Co-owner and First Deputy Chairman of the Management Board, said: “All of our main retail business lines showed steady growth in assets and income in the first half of the year: the mortgage portfolio grew by 30%, and the Bank was one of the top three banks in the country in terms of total car loans issued in the first half of the year. Rebranding the Halva card this summer and carrying out aggressive advertising in the media will enable us to issue instalment cards at a faster rate in the second half of the year. Following the integration of Vostochny Bank’s retail business, we expect a considerable increase in the Bank’s share of the market for bank cards with limits and in the consumer lending segment.”

Corporate business. Corporate lending was once again one of the drivers of growth in the Bank’s profits and assets. The net portfolio of loans to large companies (blue chips) and to state borrowers increased by 59% in 1H 2021 to RUB 422 billion, while the volume of net loans to SMEs increased by 34% to RUB 111 billion. Interest income from the corporate business rose 25% to RUB 17 billion. Fee and commission income from the corporate business also increased by 25% in the reporting period to RUB 6 billion.

Dmitry Gusev, Chairman of Sovcombank’s Management Board, said: “The Bank remains one of the most efficient in Russia in terms of return on investment despite the growing capital base. Business diversification and the creation of a full-fledged financial group have enabled the Bank to increase its profit, which grew by a solid 87% year-on-year in 2021 despite the challenging external conditions. We see tremendous opportunities for further growth, as our market share remains below 2%.”

Highlights during the reporting period:

Purchase of Vostochny Bank. In 2Q 2021, Sovcombank completed a deal to purchase Vostochny Bank. The integration of the bank is proceeding on schedule: the transfer of Vostochny’s branch network to Sovcombank was completed by 31 August 2021. Customers reacted positively to the merger, as they gained access to all Sovcombank products and services as well as special bonuses and other opportunities.

Purchase of the National Factoring Company. On 21 July, Sovcombank completed a deal for the purchase of the National Factoring Company, one of the leaders in Russia’s factoring market and the only private player among the top 10 factoring companies. Joining the Sovcombank financial group will enable the National Factoring Company to expand its opportunities to provide high-quality factoring services for Sovcombank Group’s existing and future customers.

In May, the electronic platform RTS-Tender, a member of Sovcombank Group, completed the purchase of a 100% stake in the charter capital of JSC Economic Development Centre, the operator of the electronic platform B2B-Center, which specialises in the acquisition of commercial companies. Following the merger, RTS-Tender became the largest electronic trading platform in terms of trading volume.

Group financial results

The IFRS net profit of Sovcombank Leasing (part of Sovcombank Group) in 1H 2021 amounted to RUB 432 million, an increase of 4x year-on-year.

In 1H 2021, the insurance company Sovcombank Insurance had a net profit (according to IAS) of RUB 567 million, an increase of RUB 552 million year-on-year. Sovcombank Insurance’s assets grew by 59% to RUB 12 billion. Written premiums amounted to RUB 6 billion, an increase of 2.8x year-on-year.

The insurance company Sovcombank Life had a net profit of RUB 509 million, its assets grew to RUB 24 billion, and its insurance premiums amounted to RUB 3 billion.

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