By Elena Fabrichnaya
MOSCOW (Reuters) -VTB expects to bounce back from a sanctions-induced $7.7 billion loss last year to post record profits in 2023, Russia's No. 2 lender said on Wednesday, boosted by the purchase of rival Otkritie Bank and a profitable start to the year.
CEO Andrei Kostin has blamed the bank's losses squarely on Western sanctions against Russia's financial sector. VTB, heavily exposed to international markets and with more than 20% of its loan portfolio in foreign currencies, was particularly hard hit in the early stages of the conflict in Ukraine.
Wednesday's results, published under international reporting standards for the first time in more than a year, reveal hefty losses on foreign exchange and precious metals operations as well as huge provisions.
VTB posted a net loss of 612.6 billion roubles ($7.73 billion), down from a record profit of 327.4 billion roubles in 2021. The bank's Moscow-listed shares fell around 5%.
Provisioning costs increased 343.3% to 514.3 billion roubles and net interest income slumped 50.3% to 321.0 billion roubles.
CAPITAL WOES
VTB is resolving capital issues by topping up assets. It purchased rival Otkritie for 340 billion roubles from Russia's central bank late last year and is planning a second additional share issue this quarter, in which it plans to raise 50-125 billion roubles.
"The stress has passed, the tears have been shed," Deputy Board President and Chief Financial Officer Dmitry Pyanov told reporters, adding the trajectory of the profit recovery will allow VTB to repeat 2021 in terms of record profit.
He later forecast a range of 327-400 billion roubles, a net interest margin above 3% in 2023 and a return on equity (ROE) above 16.5%. ROE in 2022 stood at -42.6%.
VTB will allocate profits to capital recovery and does not plan to pay dividends on 2023 results, although that decision will be finalised in mid-2024, Pyanov said, forecasting loan book growth of around 12% in 2023.
The bank aims to organise cross-border settlements in 'friendly' foreign currencies, as sanctions have curtailed operations in dollars and euros. With foreign markets becoming ever more inaccessible, VTB's share of corporate business investments will shrink and the focus on retail will grow, Pyanov added.
Russian banks have rallied after a collective 90% profit drop last year, with lenders now jostling for business from the state, particularly a burgeoning defence budget, and the country's big corporate accounts.
Blocked from the SWIFT international payment system and forced to shutter operations across Europe, VTB has acknowledged the sanctions impact, something Moscow has sought to downplay.
Pyanov explained how European regulators had essentially deprived the bank of shareholder control over its Frankfurt and London entities. The disposal of those subsidiaries cost VTB 229 billion roubles before tax.
Russian-imposed measures were also to blame. Provisions for credit losses amounted to 344 billion roubles before tax, in part due to the lender having to grant loan payment holidays to mobilised troops fighting in Ukraine, Pyanov said.
($1 = 79.3000 roubles)