Bank IFRS 2007 results

Bank Saint Petersburg increased its 2007 net income by 68% to RUR 2 billion (USD 82 million).

Financial highlights

- Net income amounted to RUR 2.009 billion (USD 82 million) compared to RUR 1.2 billion in 2006 (USD 45 million).

- Total assets increased by 109% to RUR 126.7 billion (USD 5.16 billion)

 - Equity more than tripled and amounted to RUR 15 billion (USD 611 million)

 - Return on equity (ROE) is 20.6%

 - Cost to income ratio decreased by 2.4 percentage points to 40.2%

Alexander Savelyev, Chairman of the Management Board, comments on the Bank’s annual results:

“The year 2007 was an important stage in our development, and we are proud with the results achieved. Our business volumes grew more than twice which clearly indicates that we have chosen a successful strategy. Our market share increased in all segments of the targeted market of Saint Petersburg and the Leningrad region and the number of our customers exceeded 600,000 within the last year.

The highlight of the year was IPO. We decided for the public issue of shares, since this guaranteed us not only new equity, but also a new level of reputation. In spite of unfavorable market environment our IPO was extremely successful and we are pleased to present these good results to our shareholders”.

In 2007 the Bank continued to implement its strategy to develop as a full-service universal bank and further strengthen its market position in Saint Petersburg and the Leningrad region. Within the last year the Bank opened 7 new branches and outlets and installed 95 new ATMs, totaling to 32 and 305 respectively. Product line was also expanded in 2007 to include new services, such as SME lending and Private Banking services. In July 2007 Bank Saint Petersburg opened its first mortgage centre which considerably boosted the growth of the Bank’s mortgage portfolio and allowed the Bank into Top 3 mortgage players in the targeted market. As at 31 December 2007 the Bank was ranked 24th in terms of assets among the Russian banks according to RBC Rating.

Stable funding structure based on customer deposits allowed the Bank to feel confident while the capital markets became volatile in a second half of 2007. During this period Bank Saint Petersburg managed to sustain high growth rates in particular due to the growth of its customer deposits, which correspond to 79.5% of total liabilities as of the end of 2007.

In 2007 Bank Saint Petersburg became the first privately-owned Russian bank to carry out an IPO which resulted in USD 274 million capital increase. The placement was extremely successful - it was over-subscribed seven times at the top of the price range. Close to a hundred well-known international funds and banks purchased Bank’s shares.

Balanced development of the Bank resulted in new ratings assigned to it in 2007. Moody’s increased Bank’s rating from B1 to Ba3 while Fitch has changed its B rating outlook to “positive”.

Results Summary

Net Income. During 2007 the Bank’s net income increased 68% to RUR 2.009 billion from RUR 1.193 billion in 2006. The major factors of this growth are the twofold increase of the Bank’s assets; customer lending growth by 130% along with the improvement of portfolio quality; as well as maintaining of the high level of operational efficiency.

Net Interest Income
increased by 72% to RUR 4,667.6 million for 2007 from RUR 2.715.3 million in 2006. The result was primarily influenced by two differently directed trends: the growth in the Bank’s loan portfolio to RUR 92.3 billion in 2007 from RUR 39.7 billion in 2006 and the increasing share of more expensive and longer-term funding attracted from the corporate customers and the capital markets. The Bank’s net interest margin representing the ratio of net interest income to average interest earning assets declined to 5.5% comparing to 6.7% in 2006. One of the major factors behind the margin decrease is a very fast and accelerating balance sheet growth within the year which influenced averaging. This taken into account, the quarterly calculated NIM declined during first half of the year from 6.45% in 1Q to 5.73% in a 2nd to pick up to 6.36% in the 4th quarter.

Net fee and commission income grew 55% to RUR 889.4 million for 2007 from RUR 575.2 million for 2006 as a result of the increase in customers’ number and activity as well as due to the launch of new fee generating products. Thus, in 2007 the Bank acquired more than 4,000 new corporate customers and more than 130,000 individuals; accordingly the total number of customers’ payments performed by the Bank grew 59%. The fastest growth in fee and commission income is attributed to commissions on guarantees and letters of credit issued (+174%) which results from the trade finance related services launched in 2006.

Cost-income ratio
improved by 2.4 percentage points to 40.2%, being one of the best among the Russian commercial banks. In 2007 the expense growth was lagging behind the growth of income and assets. Operating expense increased 59% to RUR 2,429 million compared to RUR 1,527.9 million in 2006. The growth of expenses reflects the increase in the number of transactions, opening of new branches and outlets and the respective staff increase. During 2007 the number of employees increased by 364 persons to 1,875.

In 2007 assets increased more than twice to RUR 126.7 billion from 60.6 billion in 2006 (+109%) mainly due to the fast business development and increased demand for lending services. Customer accounts remain the major source of funding for the Bank increasing to RUR 88.7 billion from 44.7 billion in 2006 and contributing 79.5% to total liabilities as of the end of 2007. In 2007 the Bank also attracted more than USD 300 million from the capital market via Eurobond issue and several syndicated loans.

Equity. As at the end of 2007 the Bank’s shareholders equity grew 3.3 times to RUR 15 billion primarily due to two additional ordinary shares issues (including by means of an IPO) which brought in aggregate RUR 7.9 billion, asset revaluation of RUR 643 million and 2007 net income equal to RUR 2 billion. The Bank’s Tier 1 and total capital adequacy ratios as at the end of 2007 are 12.3% and 16.4% respectively.

Loan portfolio increased by RUR 52.6 billion to RUR 92.3 billion. The key driving forces behind this growth are the fast growing economy of Saint Petersburg and the Leningrad region and expansion of the Bank’s share at the targeted markets. An important contribution to the portfolio growth also comes from the expansion of the Bank’s retail lending activities. In 2007 the retail loans grew to 8.9% from 5% of the total loan portfolio. Retail loans increased by 312% and amounted to RUR 8.5 billion with mortgages forming half of the retail portfolio. Corporate loans grew 2.2 times without any considerable changes within the portfolio structure.

Loan portfolio quality
. As at the end of 2007, the share of overdue loans in the Bank’s portfolio declined to 0.25% of total volume of loans from 0.39% in 2006. The volume of write-offs during the year also remained insignificant - RUR 13 million, which amounted to 0.01% of the loan portfolio compared to RUR 68.2 million (0.17% of loan portfolio) in 2006. The level of provisions as at the end of 2007 declined to 2.73% from 3.88% for the previous year as the history of high quality becomes more reliable. Still, the Bank remains conservative about provisions since the level of coverage of the overdue loans by provisions makes up 10.8.

IFRS Results 

  RUB (millions)  USD (millions)
 2006 2005  2007 2006  2005 
 Assets  126 656
 60 580
 31 135
 5 160
 2 301  1 082 
 Equity 15 005
 4 507
 3 317
 611 171  115 
 Net Interest Income
(before provision)
 4 668
 2 715
 1 687
 190 103  58 
 Expenses for provision
for loan impairment
 (1007) (484) (477) (41) (18)  (17) 
 Fee and commission income 1 065
 651 419 43 25  15 
 Operating expenses (2 429)
 (1 528)
 (1 133)  (99) (58)  (39) 
 Profit before tax 2 638
 1 569
 796  107 60  28 
 Tax (629) (376)  (166)  (26) (14)  (6) 
 Profit after tax 2 009
 1 193
 630  82 45  22 
 Return on Equity (RОE) 20.6 30.5 24.2    
 Return on Assets (RОA) 2.1 2.6 2.6   
 Earnings per share for the period 8.9 5.9 5.9    

(Assets and liabilities are translated to the USD at the nominal rate of RUR/USD as of the end of the corresponding period according to the Central Bank of the Russian Federation statistics: 2005 –  RUR 28.78 per USD 1; 2006 – RUR 26.33 per USD 1; 2007 – RUR 24.55 per USD 1).

Consolidated IFRS Financial Statement and Auditor’s Report for 2007 are available on the Bank’s website.

Information about the Bank:

Bank Saint Petersburg is one of the largest banks in the North-West Russia. The Bank was founded in 1990; it has become an integral part of the regional financial infrastructure in the past years. Today the Bank serves over 600,000 private customers and about 30,000 companies at 36 branches and outlets in Saint Petersburg, Moscow, Kaliningrad and Nizhny Novgorod. According to the RBC rating agency  Bank Saint Petersburg is ranked 24th in terms of assets among the Russian banks.

In 2007 Moody’s upgraded Bank’s ratings to Ba3/NP from B1/NP. The outlook on all of the bank's ratings is “stable”. Fitch Ratings changed the Outlook on Bank Saint Petersburg’s B rating to “positive” from “stable”.