Statement of the Chairman of the Management Board

Alexander Dolgopolov
Chairman of the Management Board
Bank Vozrozhdenie

Dear shareholders, members of the Board of Directors, clients and partners!

We are in business to serve our retail customers as well as corporate and SME clients and help them to realise their objectives.

We have always stayed true to our purpose and loyal to our customers even during the most challenging times. We place particular importance on getting close to our customers, understanding their circumstances and specific needs and giving them products and services that are relevant and valuable to them. By doing this we aim to deliver value for all our stakeholders, notably our shareholders, employees, partners, and the community as a whole.

Many companies talk about customer service. At Bank Vozrozhdenie we actually put these principles into practice.

Through our network of 141 sales offices and around 865 ATMs covering 21 regions of Russia (with a focus on the Moscow region, South- and North-West of European Russia), we serve around 63,000 corporate clients and 1.7 million retail clients. But this is not about numbers on a page, it is about the quality, length and depth of the relationships we enjoy with our customers. They trust us to provide them with the products and services they need in an increasingly fast-paced society. We look after retail customers through their lives and we advise and service SMEs through every stage of their business development. We bring them a set of core banking products backed by a conservative balance sheet primarily deposit funded with a regional structure focused on the regions with a high potential, and striving to continuously increase the accessibility of our products.

Quality service, as we understand it, also means being technologically-advanced and having the optimum operational structure. We have been innovating and investing in two key areas: giving customers more services through cards, ATMs, remote sales channels and digital platforms; and making our office network leaner and more efficient.

Our customer-based approach gives Bank Vozrozhdenie competitive advantage and is the basis of our corporate culture. We add high standards of corporate governance to ensure that all our activities are managed responsibly and effectively. Our reputation in the industry, our credit ratings and the many awards we have received are reflections of the quality of our management style and systems.

Being a classic commercial bank, we fund our loan portfolio by customer accounts. Our business model is based on two business lines within our bank: banking for businesses (predominantly SME) and servicing individuals with two closely connected segments – retail and bank cards. In terms of corporate lending we provide mostly working capital for manufacturing, construction, agriculture and real estate as well as service businesses daily banking needs. Our retail segment is characterised by a fast-growing loan book, most of which is represented by mortgages. Our card business generates strong fee income and overlaps retail and corporate clients. Payroll is an anchor card product and is one of our key tools for growing our retail client base.

Our performance for the year was satisfactory. Due to unexpected impairment of a large corporate loan, we had to amend our plan in terms of the net profit to the lower end. But overall regarding NIM generation and balance development we were in line with our initially set financial plans. Total gross loan portfolio grew 7.6% year-on-year to a total of RUB 168 billion. Retail loan book expansion was the main driver of that growth with lending to individuals share in total loans reaching our target level of 25%. Notwithstanding instability in the banking system experienced in Q4 and people’s concerns about its future we coped with clients’ fears and hesitations and at the end of December normalised the situation with the customers’ resources outflows. All-in-all over the year retail client funds grew 4% to RUB 106 billion. The bank’s equity increased by 8% and reached RUB 22.4 billion. Our capital adequacy ratio, in accordance with the Basel I standards, was 13.8% that is enough to support assets expansion during 2014.

The Bank earned RUB 1.5 billion of net income in 2013, a decrease of 36% due to higher provisions amid the slowdown in the Russian economy. Total provisions reached RUB 12.4 billion at the end of 2013 reflecting significant level of write-offs. Net interest income for 2013 improved by 5% and reached RUB 9.5 billion. We managed to support net interest margin on average assets level at 4.5%. Non-interest income was RUB 5.2 billion.

Clearly, the economic environment in Russia is uncertain and financial markets are volatile. We address this by concentrating on limiting credit risks, maintaining our net interest margin, improving the efficiency of our operations while still giving our customers a high level of service. To ensure the sustainability of the capital position in difficult times, we have limited the maximum credit risk per borrower and per group of related borrowers to the level, which is several times lower than the regulatory norms, and have concentrated the lending authority in the Head office. We hope these measures will help us to cope with a major threat of the stagnant economy – the deterioration of credit quality. The Bank has proven that it can successfully manage the structure and profitability of the credit and deposit portfolios, protecting the net interest margin and the operating income before provisions. Currently we work on the operational model optimisation, although the process is a bit slower than we had expected. In fact, we believe it is necessary to maximally scrutinise all proposed developments prior to replicating them across the whole sales network, so that they would not have a negative impact on the quality of customer service. This year we also plan to additionally invest into IT and infrastructure to ensure the optimum progress of the project.

In 2014 we will focus on our defined key market segments, maintain a moderate growth strategy and stick to prudent and conservative risk management disciplines. In this way, I believe that our model and considerable potential will continue to provide value for our stakeholders.

Alexander Dolgopolov
Chairman of the Management Board