Losses were brought under VTB – Newspaper Kommersant No. 2 (7447) dated 01/10/2023

VTB’s loss at the end of 2022 may exceed 500 billion rubles, Alfa-Bank analysts estimated. Among the main negative factors that led to a negative financial result are assets blocked due to sanctions. Also, the amount of losses could be affected by the additional creation of reserves, the reduction in interest income and other factors, experts say.

Analysts at Alfa-Bank published a review, predicting that the net loss of the VTB Group under IFRS by the end of 2022 will exceed 500 billion rubles. As Evgeny Kipnis, a senior analyst, explained, the assessment was made on the basis of the bank’s internal model.

In particular, the review notes, due to sanctions, VTB had assets blocked for 600 billion rubles, which is 27% of its capital at the end of 2021. At the same time, “losses probably led to a significant decrease in VTB’s capital adequacy.” At the same time, an extraordinary meeting of the bank’s shareholders is scheduled for January 30, which should approve a capital increase by 30.2 trillion shares. The securities will be placed in favor of the Russian Federation represented by the Federal Property Management Agency and the Ministry of Finance.

According to Alfa-Bank analysts, at the current price of VTB shares, capital attraction will amount to 491 billion rubles, which should help the bank “restore capital adequacy to pre-crisis levels.” VTB itself does not comment on the estimates.

According to IFRS statements for the first quarter of 2022 (Kommersant got acquainted with it), the net loss of the VTB Group exceeded 408 billion rubles. According to Mr. Kipnis, in connection with these data, his assessment hardly needs to be revised. According to the expert, in the second quarter, the loss reached a comparable size, and starting from the third quarter, the bank could show a profit. As Mr. Kipnis points out, “From the point of view of financial reporting, there were no new blows in the second half of the year that could seriously distort the result, the main negative effect was on the results of the first half of the year.” The head of VTB Andrey Kostin said last year that the bank made a profit in July-August, but by the end of 2022 it will show losses.

Sberbank announced that it had received net profit under RAS in the amount of RUB 175 billion for the eleven months of 2022. The fact that the situation had such a different impact on the performance of the two largest banks can be explained by several factors, including the large currency value of VTB’s balance sheet and the volume of its assets in unfriendly jurisdictions, as well as falling under sanctions among the first, explains one of the experts.

The frozen assets of banks under blocking US sanctions “can really hurt profits by international standards,” says independent expert Alexei Nechaev. According to him, among the negative factors that could also affect the financial result, and the fact that last year banks had to create additional reserves due to the revision of risks for both retail and corporate portfolios. The result could also be affected by the revaluation of securities.

At the same time, the expert explains, it should be taken into account that many banks revaluate their portfolio of securities through capital, so even if the revaluation is negative, it may not affect the financial result.

In this part, in reporting under RAS, banks could enjoy concessions, however, in IFRS, Mr. Nechaev notes, they were forced to reflect a significant revaluation, although now some of these problems are already in the past.

To calculate the capital adequacy ratio in April 2022, the Central Bank made concessions to banks, allowing it to take into account blocked assets due to unfriendly actions of foreign states and international organizations against Russia. In December, it was also decided to allow banks not to comply with capital adequacy ratios during 2023, they were reset to zero, followed by a five-year recovery schedule (see “Kommersant” dated December 15, 2022). Among other things, according to Mr. Nechaev, due to the suspension of coupon payments for “perpetual” subords (see “Kommersant-Online” of December 8, 2022) VTB could “adjust the value of the underlying capital.”

Olga Sherunkova