Retail business

Annual report 2010

# Retail business

The retail segment continued its recovery in 2010, the first signs of which appeared in the second half of 2009. As deposit volumes increased from spring 2010, banks began to increase retail lending under various programs. In the reporting period, the market policy of commercial banks depended largely on the activity of state-owned banks, which enjoyed cheap funding and had expanded their business during the worst of the crisis.

Bank Vozrozhdenie has traditionally focused in the retail segment on deposit inflows. Last year, the Bank also actively boosted retail lending volumes, which had shrunk during the previous period of volatility. By the end of 2010, the Bank had managed to exceed its pre-crisis levels of mortgage lending.

As of 1 January 2011, the total number of retail clients had reached 1,546,000.

Bank Vozrozhdenie’s main goals in the retail segment in 2010 were:

- Attract deposit inflows, focusing on long-term deposits
- Expand the loan book proactively
- Raise the quality of the loan portfolio by reducing levels of NPLs and problem loans
- Develop cross-selling

## Deposits

In 2010, Bank Vozrozhdenie’s retail deposit portfolio grew by RUB14.2 billion, a record. The portfolio’s total volume rose by 26.1% over the year, and has increased by a factor of 2.3 since the start of 2007. The high inflow of deposits was largely caused by shifting consumer confidence, from a period of heavy spending to a phase of savings in 2009-10. Since the start of 2010, Bank Vozrozhdenie’s depositor numbers have grown by 4% to reach 316,000.

At the end of 2010, Bank Vozrozhdenie was Russia’s 13th largest bank by retail deposits.

Bank Vozrozhdenie is a full-service bank with a wide range of clearly explained deposit products. Most popular among consumers in 2010 were “seasonal” deposits, which grew by RUB9.8 billion and accounted for some 70% of the total increase in deposit volumes.

As part of efforts to increase the share of long-term deposits, extended terms were introduced for the most popular seasonal deposit accounts in 2010. As a result, the share of long-term deposits in Bank Vozrozhdenie’s deposit book rose by 8.6% to 59.7% by the year-end. The Bank also introduced special conditions with higher interest rates on term deposits for pensioners.

The Bank adjusted interest rates on deposits more than once during the year based on the market situation. During the reporting period, the highest interest rate was reduced from an annual 12.75% to 8.0% in rubles, and from 6.5% to 5.25% in foreign currency. As deposit yields declined, Bank Vozrozhdenie focused on offering high-quality service and expanding its range of additional services to clients through regular payment of deposit funds, complementary debit cards, and discounts on credit cards, etc.

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## Lending

In 2010 Bank Vozrozhdenie expanded its retail lending operations. During the year, the retail loan portfolio, including credit cards, grew by 18% to RUB16.6 billion. Problem loans as a proportion of the loan book declined from 6.1% to 4.8% 1 in 2010 due to continual monitoring of the quality of the loan book and effective identification of non-performing loans at an early stage.

### Mortgages

The growth of the retail portfolio was driven mainly by a significant increase in mortgage lending volumes. Last year, the Bank not only returned to pre-crisis growth rates, but expanded its mortgage portfolio to more than RUB10 billion for the first time, allocating RUB4.2 billion in mortgage loans.

To boost volumes of mortgage loans, Bank Vozrozhdenie reviewed limits on its target client segment, which it expanded to include new clients with a confirmed stable income, investments at major banks and no previous negative credit history. Alongside a reduction in market interest rates, mortgage-lending conditions were relaxed. The minimum initial deposit was reduced to 20%, while graduated interest rates depending on the form of proof of income provided were suspended.

The Bank was one of the first to actively re-launch mortgage lending in the primary market, and signed agreements with several major construction companies. As a result, issuance volumes in the primary market accounted for 40% of the total loans granted. In lending for apartments in new developments, the Bank works only with construction companies with a proven track record, and only with development projects that are 70% or more complete.

In 2010, the Bank developed partnership programs with realtors, construction companies and corporate clients. More than 50% of loans were made under such programs. In 2010, Bank Vozrozhdenie ran mortgage programs for RKK Energy, Teplo RKK, Mosvodokanal, Mostransavto and Afina, and also as part of the “Mortgage and Housing for Young Professionals” program in Nizhny Novgorod.

Meanwhile, as part of its collaboration with the Agency for Housing Mortgage Lending, the Bank launched a variable-rate product linked to the Central Bank’s refinancing rate. In 2010, Bank Vozrozhdenie was one of the first Russian banks that received funding from the Agency for Housing Mortgage Lending under the program of floating-rate financing. It totaled RUB63 million and has a term of 30 years, in line with the maximum maturity of the mortgage loans in the refinanced portfolio.

#### Individual deposits, RUB million

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### Consumer lending

In consumer lending, the Bank continued to focus on more creditworthy borrowers last year, particularly managers and employees at the Bank’s corporate clients. Nevertheless, as part of its program to increase retail lending volumes, the Bank expanded the list of potential borrowers including settlements and deposit clients, participants in corporate programs, clients of partner companies and people on payroll projects with other banks. Moreover, the Bank developed a program of collaboration with corporate clients to extend loans to employees at preferential rates.

During 2010, the Bank gradually increased the attractiveness of its consumer- and car-lending programs. Interest rates were reduced, arrangement and management fees were canceled, the ban on preterm repayment was abandoned, the maximum repayment term was extended and the lending ceiling was lifted on some products.

Thanks to these measures, Bank Vozrozhdenie expanded its consumer lending portfolio by 34% last year, from RUB3.5 billion to RUB4.7 billion.

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## Fee-generating products

Increasing fee income is a priority for Bank Vozrozhdenie’s retail business. Fee-generating products provide the Bank with a stable source of revenues. In 2010, the number of retail payments and transfers totaled 16.5 million, generating total revenue of RUB330 million, up 5% year-on-year. At the end of 2010, payment volumes had exceeded pre-crisis levels.

In 2010, the Bank began rolling out its own network of payment terminals to make cash payments easier and more accessible. By the end of the year, individuals had made more than 16,000 payments had been made through Bank Vozrozhdenie’s terminals. Major partners that received payments from individuals in 2010 included Mosoblgaz, Southern Telecom, Comstar, Rusfinance Bank and a number of key institutions in regions where the Bank has a presence, including the federal Land Registry, the federal Technical Inventory Bureau and local communal-services organizations and educational institutions.

Alongside the development of cash payments and transfers, the Bank has actively expanded its service for regular non-cash automated payments. In 2010, the number of clients using the service grew by 36% to 15,800.

As a whole, settlements are firmly established as the most widespread and in-demand services among individuals.

#### Quality of the retail loan portfolio

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#### Retail loan portfolio, RUB million

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## Cross-selling

As competition among banks increased in 2010, greater use of cross-selling became a priority for Bank Vozrozhdenie’s retail operations. During the reporting period, the Bank’s aim of targeting specific clients was reflected in the products offered to clients and the means of communication used to reach out to them. The most important factor in increasing cross-selling was personalized retail programs for major corporate clients and the resumption of partnership programs with major construction and real-estate companies.

The Bank has made active use of text messages and telephone calls to inform clients about changes to the terms and conditions of deposits and loans, as well as about new product launches, the imminent expiry of deposit terms, changes to branch opening hours, etc. Some RUB920 million of loans were advanced as a result of text messages and telephone calls.

At the end of 2010, Bank Vozrozhdenie’s level of active cross-selling of retail products had reached 53.27%.

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## Retail banking development priorities

In 2011, Bank Vozrozhdenie plans to maintain the growth rates of its retail business by using innovative methods alongside those that have already proved their worth. Term deposits are planned to increase to RUB78 billion.

Bank Vozrozhdenie’s lending priorities remain proactively expanding the loan portfolio while maintaining its high quality. The Bank plans to boost its mortgage portfolio to RUB15 billion, including by increasing lending during the construction stage, and also to almost double consumer and auto lending. Key factors in the growth of the credit portfolio will be to broaden the range of mortgage programs, further develop cross-selling opportunities, and conclude agreements with corporate clients and construction companies.

In 2011, Bank Vozrozhdenie will continue to introduce cutting-edge software and will unify business processes in its retail-lending operations using a single CRM system.

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© 2011 Bank «Vozrozhdenie»