Corporate business — Annual report 2010

Annual Report 2010
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- Portrait of the Bank
- Letter from the Chairman of the Management Board
- Strategy
- Main Events of 2010
- The Russian Economy and Banking Sector
- Business Overview
  - Analysis of financial results
  - Corporate business
  - Retail business
  - Bank cards
  - Operations on financial markets
  - Banking technologies
- Shareholder Structure
- Corporate Governance
- Risk Management
- Social Responsibility
- Financial Statements
- Branches in Russia
- Offices of Bank Vozrozhdenie
- Address and Contacts

# Corporate business

2010 was a year of steady recovery for Bank Vozrozhdenie’s corporate business. The stabilization of the banking sector led to increased corporate lending and greater competition. However, growth in the segment remained constrained by the slow pace of economic recovery and associated high credit risks. Moreover, in 2010, banks had to deal with rapidly contracting interest margins, which was reflected in their year-end profitability indicators.

Thanks to our conservative policies in previous years and trust-based relationships with our clients, Bank Vozrozhdenie created a reserve fund and continued to actively grow its corporate business despite the increased competition from state-owned banks. As a result, key performance indicators in the corporate segment were higher across the board.

Key developments for Bank Vozrozhdenie’s corporate business in 2010 were:

- Increase in the customer base
- Stable revenues in a low-margin environment
- Growth of non-interest income and development of fee-generating products
- Expansion of the loan portfolio from cooperation with reliable borrowers
- Monitoring of the loan portfolio quality and dealing with NPLs and restructured debt

The number of Bank Vozrozhdenie’s corporate clients grew by 11% last year. Key factors in attracting new clients are the Bank’s individual approach to each customer, partnership relations in achieving their financial goals and a broad range of high-tech banking products to meet client demands. The Bank’s new clients include industrial companies and trade outlets in Moscow Region and other areas where the Bank has a presence. The number of SME clients — a key client segment for Bank Vozrozhdenie — grew by 16% in 2010. Reliability and high levels of trust were evidenced by the Bank’s expanded cooperation with federal bodies, regional administrations and municipalities, as well as numerous major companies and state bodies.

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#### Corporate client funds, RUB million

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## Corporate client funds

Client funds form the basis for Bank Vozrozhdenie’s corporate lending. The Bank therefore places great emphasis on both diversifying its depositor base and optimizing its value.

In 2010, the Bank continued to attract funds from major companies and state bodies, including the Agency for Housing Mortgage Lending, the St Petersburg Finance Committee, ROSNANO and the Communal Services Reform Assistance Fund. The Bank has continued to expand its work with regional administrations where it is present. A new area for the Bank in 2010 was securing inflows of targeted funding as part of cooperation with various SME support funds.

In 2010, RUB21 billion was placed in term deposits with Bank Vozrozhdenie, of which RUB4.8 billion came from ROSNANO and RUB4 billion from the Agency for Housing Mortgage Lending.

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## Corporate lending

Bank Vozrozhdenie’s major corporate lending goals in 2010 were to maintain a competitive market position, expand the loan portfolio while maintaining credit quality, and keep an appropriate balance between the growth rate of the loan portfolio, profitability and credit risks. The primary goal was to retain existing borrowers and gain new and reliable clients. Particular attention was directed at reducing NPLs, and at monitoring and diversifying credit risks.

Excess liquidity in the banking sector led to greater competition between banks in the corporate sector and a rapid reduction of 4.85 percentage points in interest rates on loans to clients. An important factor affecting interest rates was the Central Bank’s monetary policy, which saw a series of cuts to bring refinancing rates down to 7.75%. The Bank’s borrowing requirements did not change significantly. However, to support its competitive position in the financial-services market, and also to retain and expand its client base, the Bank slightly relaxed its terms for granting loans.

All in all, Bank Vozrozhdenie’s corporate loan portfolio expanded by 22% to RUB98.6 billion in 2010. Loans to SMEs accounted for 60.7% of the overall figure and during the period the Bank granted a total of RUB94.3 billion to the segment. The Bank is ranked third by Expert RA and fourth by RBC Rating in terms of loans to SMEs. The most important factor in growth of loans to SMEs was Bank Vozrozhdenie’s involvement in various programs to support and develop the SME sector.

Under an agreement signed in November 2009 with the EBRD, Bank Vozrozhdenie obtained five-year funding totaling US$51 million to support lending to micro-businesses and SMEs. At the end of 2010, the total number of borrowers under this program stood at 239, while 116 new borrowers obtained loans. In October 2010, the EBRD granted the second tranche of a credit line to support lending to micro-businesses, worth US$10.6 million, and US$15 million for on-lending to small businesses.

Moreover, on 30 November 2010, Bank Vozrozhdenie joined the state Financial Support Program for SMEs run through the Russian Bank of Development by the Economic Development Ministry and Vnesheconombank. Under the program, the Bank was granted a five-year loan of RUB3 billion for on-lending to SMEs by 31 May 2011. The first borrowers received loans under the program in December, within regionally defined limits.

#### Portfolio structure by size of loan

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As part of its efforts to offer reasonable credit terms to borrowers, Bank Vozrozhdenie has expanded cooperation with state programs to support lending to SMEs in regions where it is present. In addition to existing agreements with funds in Moscow and Stavropol, Rostov and Volgograd regions, the Bank signed agreements with the SME Support Funds of Moscow, Murmansk and Magadan regions last year. Lending guarantees to SMEs thus almost doubled for the period.

To extend its relationships with highly reliable borrowers, Bank Vozrozhdenie continued expanding cooperation with national and local government bodies last year. Total funding volumes exceeded RUB9.7 billion, while the total outstanding debt of executive state bodies to the Bank as of 1 January 2011 stood at RUB7.6 billion. Lending to state-owned enterprises in the reporting period exceeded RUB3.5 billion.

Moreover, to comply with national legislation, the Bank expanded its operations on banking guarantees securing contract liabilities. In 2010, Bank Vozrozhdenie provided guarantees of more than RUB14.4 billion to Mostransavto, Moscow Regional Roads Center, the Moscow Regional Transport Ministry and other organizations.

As corporate loan volumes grew, Bank Vozrozhdenie maintained a good diversification of economic sectors and lending maturities.

As of January 2011, loans with maturities of more than one year comprised 43.8% of the portfolio, while shorter-term lending with terms of six months to one year accounted for 30.9%. This was largely due to cooperation between Bank Vozrozhdenie and the EBRD under the SME lending program. In terms of sectors, the Bank’s lending is concentrated mainly on highly reliable borrowers in the industrial, trade and communications sectors. At the end of the fiscal year, lending to these sectors represented 63.1% of the Bank’s corporate lending portfolio.

In 2010, the quality of Bank Vozrozhdenie’s loan portfolio improved. As of 1 January 2011, the share of corporate overdue loans had fell by 0.3 percentage points from a year earlier, to 8.16%.

As lending volumes increased, the Bank increased loan-loss provisions by RUB1.706 billion. The weight of provisions in the loan portfolio, meanwhile, remained almost unchanged. Including provisions on uncollectible loans, the Bank’s loan-loss reserves totaled 10.27% of the corporate loan portfolio at 1 January 2011.

#### Corporate client funds by sector, %

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#### Sector structure of the corporate loan portfolio, 2010, %

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## Leasing and factoring

As lending gradually resumed in 2010, Bank Vozrozhdenie recovered leasing volumes through its subsidiary V-REGISTR. Compared with 2009, when the company signed just 26 leasing agreements amounting to RUB85.4 million, in 2010 contract numbers totaled 188 with a total value of RUB1,239.7 million. As of 1 January 2011, the company’s leasing portfolio stood at RUB1,847.3 million, and its credit portfolio at RUB573 million.

In 2010, Bank Vozrozhdenie continued to expand its factoring operations. The Bank was able to boost demand for its factoring services by offering each client an individual choice in a wide range of financing schemes, and thanks to its ability to react to lower market rates for such services. In 2010, many of the Bank’s clients — primarily SMEs — used factoring as a way of obtaining short-term financing for working-capital facilities. As a result, the Bank’s client base for factoring tripled in size, while factoring receivables rose by a factor of five.

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## Trade finance

In the reporting period, the Bank actively increased financing volumes for its clients’ import contracts, after the reduction during the crisis. The focus was on deals to modernize and retool production capacity at companies in the metals, forestry, food processing and consumer industry sectors. The Bank also continued to roll out a financing program for deals to enable official dealers in Russia to purchase agricultural technology and equipment from US company John Deere.

Thanks to our active promotion of trade-finance products amid rising overall foreign-trade volumes, the Bank more than tripled its loan portfolio under trade contracts to US$110 million.

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## Green Corridor payment cards

The Bank has been issuing Green Corridor customs payment cards since early 2009 and is one of the market leaders by volume of operations and client numbers. The Green Corridor card is the leading-edge way of paying customs charges, and is rapidly gaining popularity among Russian and foreign companies.

Since the Bank entered into the scheme, 365 companies have become customers. In 2010, Aeroflot, Metro Cash And Carry, SIMPL and the Mytishchi Mechanic Factory all joined the list. Payment volumes on Bank Vozrozhdenie’s Green Corridor cards increased by 2.5 times in 2010, exceeding RUB49 billion. The number of client transactions increased by five times. At the end of the year, Bank Vozrozhdenie won the Customs Olympus 2010 award for Best Financial Institution Providing Services in the Customs Affairs, partly as a result of its active involvement in the Green Corridor project.

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## Cooperation with insurance companies

In 2010, the Bank’s cooperation with its insurance partners continued to increase. Non-interest income from the Bank’s services to insurers totaled more than RUB26 million, up 44% year-on-year, while commission income received under service agreements with accredited insurers came to more than RUB18.5 million, up 54% year-on-year. At end-2010, insurance companies allocated RUB1.5 billion of funds with the Bank.

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## Remote services

A priority for the Bank’s customer services last year was the development of remote services, including the standard Client-Bank remote-banking service, as well as the Corporate Control, Corporate Settlements Center and Secure Email services.

To improve quality and convenience for clients, and also to reduce costs, the Bank has pro-actively introduced remote client services. In 2010, the share of clients using Bank Vozrozhdenie’s remote services increased from 32% to 40%, while the share of payments increased from 50% to 69%, to a monthly average of 700,000 transactions.

#### Corporate loan portfolio, RUB million

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#### Corporate loan-book quality

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## Priorities for corporate business development

Increasing client loyalty and expanding the client base are key priorities for Bank Vozrozhdenie in its corporate business development. In 2011, the Bank plans to develop remote banking services and boost the attractiveness of cash-management services, focusing on quality of service and optimization of tariff policy.

An important goal will be to expand the loan portfolio, predominantly in the SME segment. With the cost of attracting resources remaining high and a relatively low cost of credit, Bank Vozrozhdenie will continue to improve its operational efficiency to maintain and increase margins. Maintaining the high quality of its loan portfolio will be one of the Bank’s most important goals.

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## IR contacts

Tel.: +7 (495) 620 9071
Fax: +7 (495) 620 1953
Web-site: http://www.vbank.ru
Email: investor@voz.ru

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- Financial Statements
- Portrait of the Bank
- Risk management

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