New three-year strategy for the development of VTB Group is approved

11.04.2014 On April 10 the Supervisory Board of VTB Bank OJSC has approved new three-year strategy for the development of VTB Group, called «Strategy of qualitative growth».

Andrey Kostin, President – Chairman of the Board of VTB Bank: «For the last four years, we have created unique business model based on combination of the leading corporate and investment bank and one of the most efficient retail banks in the Russian market. We have strengthened our positions as a market leader, having increased business volumes faster than competitors due to both organic growth and effective acquisitions.

Our understanding of opportunities and challenges which we will face in the terms of deceleration of growth of economy and banking sector is in the basis of the new strategy. For the next three years, our main objectives will be:

• maintenance of positions of corporate and investment banking business with a further growth of its efficiency and increase of flow of non-interest income;
• outrunning growth in markets of retail lending and attracting funds of individuals, and further increase of share of retail business in assets and income of the Group;
• allocation of medium-sized businesses into separate operating segment and profit center in order to ensure significant growth of volumes of this business, its market share and profitability indexes;
• thrifty relation to expenses in all business-lines;
• further strengthening of risk management at the Group level;
• achieving additional synergistic effect from integration and preparation for the merge of the largest banks of the Group.

These initiatives in combination with clear operational and financial objectives fixed in the strategy will help us to complete all phases of economic cycle successfully and to ensure profitable growth of our business in behalf of investors».

Review of strategy of the Group for 2010 – 2013

«Strategy of qualitative growth» of the Group supersedes the previous strategy, which covered period from 2010 to 2013. During this period, the Group has increased its assets by 2,4 times up to 8,8 trillion rubles, credit portfolio – by 2,5 times up to 6.6 trillion rubles, funds of clients – by 2,7 times up to 4,3 trillion rubles. Growth of these indicators was contributed by acquisition and successful integration of TransCreditBank (2010) and Bank of Moscow (2011). In addition, the Group has strengthened its retail business due to creation of Leto Bank specializing in consumer lending in mass customer segment. Leto Bank was recognized as one of the most successful new Russian brands of 2013.

Within the framework of strategy for 2010 – 2013 the Group has exceeded target indexes of growth, but profitability indexes have not always corresponded to target levels. In accordance with the new strategy, profitability indexes remain key indicators of effectiveness of the Group’s activities.

Forecast of the dynamic of Russian banking sector development

Against the background of worsening economic situation and tightening regulation in financial markets, the Group expects that growth of Russian banking sector will slow down both in lending and attracting customer funds. The Group expects continuation of consolidation in the banking sector and further strengthening of positions of the largest banks in the next few years. Growth rates in corporate lending will remain stable, however, profitability of loan portfolio and interest margin of banks will gradually decrease. In retail lending, banks are expected to seek to reduce risk level, and in this connection the role of mortgage lending as a driver of growth of market will increase.

In accordance with forecast of the Group, average annual growth rates (CAGR) of corporate and retail lending for the period of strategy will amount to 7-10% and 15-20% respectively, and customer funds of corporate clients and individuals - will grow on the average by 6-9% and 12-15% per year respectively.

Main strategic objectives

The objective of Corporate and Investment Banking (CIB) is ensuring the growth of lending at the market level and to outrunning the market in attracting customer funds, primarily to current accounts of clients. Within the framework of the strategy main objectives of CIB are:

• diversification of business and reducing the level of concentration of income and risks;
• further strengthening of transactional banking business in order to increase share of products bringing commission income in total income of the Group, including management of account balances and cash and settlement services;
• increase of business efficiency due to optimization of number of employees, standardization and improvement of business processes, development of infrastructure and IT-platform, as well as optimization of regional network.

Segment of medium-sized businesses stands out as separate operating segment and is expected to make significant contribution to the Group's income. The Group considers servicing of medium-sized businesses as one of the most perspective areas of development. In this connection, objective of the segment of «Medium-sized businesses» is increase of market share by all key products, including loans, current accounts, fee-based products. This growth is planned to be provided particularly due to development of cross-selling. It is expected that during period of the strategy customer base of medium-sized businesses segment will increase by 1,6-1,8 times up to more than 20,000 active clients. Significant reduction of expenses will be another priority of the segment.

In the direction of retail business, the Group plans to continue increase of customer base and market share by deposits and loans to individuals and small businesses. By the end of 2016 the Group's customer base in retail segment will consist of 20 million individuals and more than 300,000 small businesses. In order to achieve this objective it is planned both extension of retail branch network of the Group and continuation of investment into development of remote channels of servicing. It is planned to increase total number of retail offices of the Group in Russia, operating under the brands of VTB24, Leto Bank and Bank of Moscow, approximately up to 2,600 against 1,600 at the end of 2013. At the same time, further growth of sales of banking products and operations on servicing clients via ATMs, Internet and by phone is expected.

Increase of efficiency of activities and strengthening of control over expenses in all business directions is a key priority of the Group for 2014-2016. The Group plans to implement the following key initiatives to increase efficiency of activities:

• reduction of expenses for CIB personnel due to optimization of number of employees and remuneration system;

• integration of infrastructure of operational support and control at the level of the Group;

• establishment of closer interaction on servicing corporate clients at the level of branch networks of VTB and Bank of Moscow and further optimization of regional network of the Group;

• increase of efficiency of divisions of operational support and optimization of administrative expenses.

In order to contribute reduction of expenses, VTB Group creates specialized office for managing this project, and indicators related to the objectives on optimization of expenses are included in the motivational program in the largest banks and companies of the Group.

It is also planned to take measures on further integration of all Russian banking structures of the Group for achieving the objectives on creation of unified banking platform in the long term, beyond the horizon of this strategy.

Planned financial indicators of VTB Group for 2016

2013 2016