Frankfurt, September 12, 2022
VTB Bank (Europe) SE (VTBE), headquartered in Frankfurt, closed the 2021 financial year with a net profit of EUR 26.9 million despite the noticeable effects of the coronavirus crisis, as is revealed in the bank's annual report, which has just been published. Business development was positive in 2021, and this continued into the first six weeks of 2022. However, the business environment for the German subsidiary of Russia's second largest bank changed dramatically on February 24, 2022. While during 2021 VTBE remained a profitable and internationally recognised institution with a clear focus, Russia's invasion of Ukraine and the sanctions imposed on Russian financial institutions as a result have created a business environment that makes it impossible for the bank to continue its previous business activities. As a result, the Federal Financial Supervisory Authority (BaFin), the responsible regulatory authority in Germany, banned VTBE from engaging in any new business as of the end of February 2022.
"For many years, we were a sound bank with a strong deposit business here in Germany and a well-diversified portfolio of loans that yielded respectable margins and was geared towards steady growth," says CFO Miro Zadro, the only member of the 2021 board still remaining who led the bank through a critical period immediately after Russia's invasion of Ukraine. Many investors withdrew their deposits from VTBE as a direct result of the Russia-Ukraine war.
The balance sheet total has shrunk by more than a quarter since the end of 2021, from EUR 7.3 billion to EUR 5.4 billion. This decline is primarily attributable to outflows of saving accounts and fixed-term deposits, which decreased overall from EUR 4.1 billion to EUR 2.6 billion.
The credit volume also declined significantly, from EUR 7.4 billion to EUR 5.5 billion. This reflects maturities, but also early repayments that are no longer offset by new business because of the regulatory measures taken by BaFin. "Pleasant for us was the fact that because of the precarious situation, which was not the fault of the bank, some customers were prepared to repay their liabilities to us before maturity," says CFO Zadro, "this has helped keeping our liquidity situation stable. We will continue to look for early repayments where this is feasible on reasonable terms."
The previous year's surplus turned into a loss of EUR 35.8 million at the end of the first half of the year. This is mainly due to depreciations, currency losses due to lack of hedging opportunities, and the absence of new business commissions combined with continuing operating costs. Equity nevertheless remains stable at around EUR 1.0 billion. An Extraordinary General Meeting had decided back in March that the profit carried forward from 2019 and 2020 and the net profit for 2021, which now add up to EUR 121,4 Mio., will be transferred to retained earnings.
The reduced volume of business has resulted in an improvement in key financial ratios such as the core capital ratio (CET1) from 15.9 per cent to 23.8 per cent. The ratio is well above the regulatory minimum of 9.6 per cent. CFO Miro Zadro: "Our focus in this critical business environment has been and still is on securing day-to-day liquidity, as the bank is sufficiently capitalised to be able to absorb the losses incurred and to meet all contractual obligations, especially towards our mostly German depositors."
The Management Board expects increased depreciations and risk provisions on assets for the whole of 2022, as the Russia-Ukraine war has led to a significant deterioration in overall credit exposure. However, the increase in risk capital requirements is offset by the suspension of new business and the active wind-down of the portfolio. Altogether, throughout 2022, the Management Board expects a decrease of the bank's credit risk while the liquidity situation will remain adequate at all times, since VTBE has a significant cash position.
"Our focus is now on safeguarding our operational activities as well as on maintaining well-ordered business operations," says Frank Hellwig, the Special Representative appointed by BaFin as CEO. "Within a few months, we have been able to replace numerous service providers who had terminated all further cooperation with the bank at short notice due to the current political and legal situation. Furthermore, we are now able to provide other processes that were previously outsourced in-house."
"As a result of the effects of sanctions and the suspension of new business, VTBE is currently undergoing a process of structured management and factually winding down its existing business," Hellwig says. "Other scenarios, such as a sale and thus a change of ownership, are currently not on the horizon, given the sanctions in place with regard to the bank's Russian parent company."
VTBE's full annual financial statements and the key figures for the unaudited first half-year results of 2022 are available for download from its website.