22 May 2014

In its audited consolidated IFRS financial statements for the three month period ended 31 March 2014 and for the year ended 31 December 2013 published today, MDM Bank (MDM) reported an improvement in its 2013 operating results and a substantial improvement in Q1 2014 profitability, following completion of its balance sheet restructuring in 2013.

In 2013, the Bank achieved a more than 55% increase in operating (pre-provision) profit (RUB6.1 billion compared to RUB3.9 billion in 2012), while in Q1 2014 the Bank posted:

  • Profit before tax of RUB404 million, compared to losses before tax of RUB449 million in Q1 2013
  • Recurring profit before tax (excluding trading and other income) of RUB592 million, compared to losses before tax of RUB589 million in Q1 2013
  • Net profit of RUB319 million, compared to a net loss of RUB347 million in Q1 2013

The significant year-on-year improvement in the Bank's Q1 results is attributable to the balance sheet restructuring and improvements in the operating performance achieved in 2013.

The Bank's FY 2013 and Q1 2014 IFRS financial statements have been audited / reviewed by its external auditor, KPMG.

Key highlights Completion of balance sheet restructuring

In 2013, the Bank completed its circa RUB21 billion balance sheet restructuring based on a conservative scenario, creating RUB17.7 billion of loan loss provisions and circa RUB3 billion of other revaluation / impairment provisions. These provisions came primarily out of the Bank's retained earnings and are aimed at shielding the Bank's future profitability from any potential provisioning stemming from its 'legacy' problem assets. This is in line with the Bank's conservative assessment of the potential risks resulting from the current and forecast macroeconomic environment.

Strong and high quality capital position maintained

MDM continues to lead its peer group in terms of its Tier 1 and total capital adequacy ratios (Basel I), which stood at 13.2% and 14.9% respectively as at 31 March 2014. The Bank's CBR total regulatory capital adequacy ratio of 11.6% as at end Q1 2014, in line with peers, provides sufficient headroom for business growth.

Robust funding and liquidity position

Despite the volatile market environment since November 2013, the Bank has maintained a robust liquidity position:

  • Continuing low dependence on market funding: loan / deposit ratio of 93% as at end Q1 2014
  • Continued reduction in deposit concentration: top 20 deposits as a share of total deposits reduced to 17.5% at end Q1 2014 from 20.1% at YE 2011
  • Liquid assets stood at 26% of total assets as at end Q1 2014
NIM and core income on improving trend

The Bank's net interest margin improved from 4.0% in 2012 to 4.3% in 2013 and 4.8% in Q1 2014, inter alia thanks to a combination of the Bank's continued focus on higher yielding business on a risk-adjusted basis and ongoing funding cost optimization.

Q1 2014 net fee & commission income demonstrated particularly strong growth of >22% year-on-year, primarily due to increased insurance, FX and cash transaction commissions, while the Bank's core operating income (excluding trading and other income) increased by 3.5% over the same period.

Ongoing focus on operational efficiency and cost control

Continued focus on strict cost control led to a reduction in operating expenses of 7% in 2013 compared to 2012, whilst the Bank's cost / income ratio improved by 11 percentage points to 63% compared to 74% in 2012. In Q1 2014, there was a slight uptick in operating expenses, which, in combination with the impact on earnings of seasonal factors and market volatility, led to a short term increase in the cost / income ratio.

Active NPL management

The Bank had an NPL ratio of 12.7% and comfortable NPL coverage ratio of 144% as at 31 March 2014. The Bank has in recent months rebalanced its approach to NPL management from straight recoveries towards a combination of cash recoveries and longer term solutions, including improvements in the value / quality of security and negotiating improved terms on restructurings.

Systemic status

MDM Bank maintains solid market positions, particularly in its core regions of the Urals and Siberia. Based on the CBR's official methodology published earlier this year, MDM Bank comfortably qualifies as a systemic financial institution.

This systemic status has been further highlighted by MDM Bank's appointment to date as an agent of the Deposit Insurance Agency for servicing the deposits of 9 out of 23 banks whose licenses have been revoked by the CBR since the beginning of 2014.

"MDM Bank is focused on a stable and sustainable business model. Our conservative approach and low risk appetite have created a solid base on which the Bank can build effectively in the context of rapidly changing market conditions," commented MDM Bank CEO Timur Avdeyenko.

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