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Edited Transcript of VTBR.MZ earnings conference call or presentation 26-Feb-20 10:00am GMT

Full Year 2019 Bank VTB PAO Earnings Call

Moscow Mar 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Bank VTB PAO earnings conference call or presentation Wednesday, February 26, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dmitriy Pianov

VTB Bank (public joint-stock company) - Member of Management Board

* Leonid Vakeyev

VTB Bank (public joint-stock company) - MD, Head of IR

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

* Andrey Klapko

Gazprombank (Joint Stock Company), Research Division - Senior Banking Analyst

* Andrey Pavlov-Rusinov

Goldman Sachs Group Inc., Research Division - Research Analyst

* Andrzej Nowaczek

HSBC, Research Division - Analyst

* Elena Tsareva

BCS Financial Group, Research Division - Senior Banking Analyst

* Mikhail Ganelin

Aton LLC, Research Division - Senior Analyst of Finance, Information Technology, Transport

* Olga Veselova

BofA Merrill Lynch, Research Division - Equity Banking Analyst

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Presentation

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Operator [1]

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[Interpreted] Ladies and gentlemen, we are happy to welcome you at the telephone conference for VTB Group to disclose IFRS results for Q4 and 12 months of 2019. This conference is going to be recorded.

And now over to Mr. Leonid Vakeyev, Head of Investor Relations. Please go ahead, Leonid.

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Leonid Vakeyev, VTB Bank (public joint-stock company) - MD, Head of IR [2]

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[Interpreted] Good afternoon, and we are happy to welcome everyone at this telephone conference to disclose 2019 IFRS results of VTB Group. All of the financials and related materials have been disclosed at the website and I'm sure you have had an opportunity to read through them. Please be reminded that this conference call is being held in Russian with simultaneous translation into English. And you'll have an opportunity to ask your question whether English or in Russian depending on the language of preference.

Our speaker today is Mr. Dmitriy Pianov, the CFO and member of the Management Board. And now over to Mr. Pianov.

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [3]

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[Interpreted] Thank you, Leonid. Good afternoon, colleagues. I'm very happy to welcome you at this disclosure call for VTB Group IFRS results for the full year of 2019.

Before I proceed to the results, which -- and before we proceed to the presentation, which is available on our website and also on the webcast, I need to make a disclosure, which is a standard one. All the financial numbers and the full year results and Q4 results are so-called reconstructed because last year's Q4 saw a divestment from some of the material subsidiaries, including Post Bank in Ukraine. And for reasons of comparison, we decided to bring the 2019 full year results aligning that across the year, excluding all the divestments made throughout the year.

So unless mentioned specifically, all the year-on-year comparisons available in line with IFRS results, which is part of the disclosure with the auditor's review note.

Thank you, and welcome, again, I would like to direct your attention to Slide 1 for now. So the P&L is obviously our key metrics. With our target of RUB 200 billion of net profit, the net profit actually in 2019 reached RUB 201.2 billion of net profit, which is a 13 year-on-year increase.

This corresponds to 12.8% of ROE, which represents a hike by 90 basis points. These numbers delivered across the year, thanks to a strong boost from our strong Q4, where we had RUB 73.2 billion (inaudible) or 76% increase year-on-year. That is fourth quarter 2018 as reconstructed vis-à-vis Q4 in 2019 as is.

And the key metric here is net interest margin. Our target was adjusted when we delivered our 9-month result. The adjusted target stood at 3.4% of net interest margin for the full year, and that is exactly the number you're observing in the accounts. Unfortunately, that represents a reduction by 30 basis points year-on-year but -- for the full year. But obviously, that represents additional pressure in the first half of 2019 with the increased key rate, which was hiked back at the end of 2018. Then another metric, also important, is the so-called cost-to-income ratio.

The actual number stands at 41.6% with a target of about 40%. Now if you consider the quarterly split, it was a lower number than 40% target in the course of Q3 and the Q4, and the underperformance here is related to the situation of the income in the first 2 quarters of the year. The cost of risk demonstrated better levels than our target. Well, the actual number stands at 0.8%, which is 70 basis points less than in the previous year, and it is below the target of 1%, which we communicated previously.

Now on top of the cost of risk -- on top of the CIR, the cost-to-income ratio -- besides the CIR, the cost-to-income ratio, all of the other numbers are within the target or better than the target. And the net profit of RUB 201.2 billion is record high throughout B2B Group's public and nonpublic history. Never before has VTB Group earned this much profit in absolute terms.

Flipping over to Page 2 now. This page gives you a more detailed breakdown of our P&L statement with further granularity in the key income lines. Net interest income nearly reached RUB 441 billion, which is a slight increase of 0.2% year-on-year. In the right part of the page, you can see our net interest margin dynamics. The full year target of 3.4% of NIM was made possible by overcoming the trend with the net interest margin falling in the first half of the year. So in Q3, it stood at 3.3% and then it was hiked to 3.5% in the fourth quarter. This is explained by the exclusion of the relatively low in -- margin yielding loans with loan to corporate. And then our -- the change of our policy on the liabilities side, with retail deposits being attracted at a lesser gap against the market competition. This resulted in not only organic revaluation of the portfolio but also in fast-tracked cheapening of the liabilities, especially on the retail side.

I would like to comment on the second line here, net fee and commission income specifically. This represents a significant increase of 29.2%. And obviously, a significant boost in the fourth quarter, which needs some explanations to be made.

So 29.2% of the full year increase is breaking down across several drivers. 9.3 percentage points of the increase represents fees from operations with securities and on capital markets. In fact, this represents the CIB fees and commissions for organizing a number of corporate clients' financing transactions and then the success fee we normally get at the end of the year in exchange for managing our mutual investment funds. That effectively represents seasonality which is typical of 2019. And clearly, there is more focus on Q4, and this represents the actual real fees obtained in the capital markets.

Another driver in the fees and commission stands at 7.8% -- basis points of the total of 29.2%. This is effect of the insurance product distribution, the bancassurance if you wish.

When delivering our results for the third quarter and 9 months, I announced significant changes in our bancassurance combination, which is a link of retail loans on the one hand, with the sale of insurance products at the same time. The change in that product occurred in August 2019.

This administration change, which resulted in a significant boost, mostly contributed in September of 2019. And the fully fledged scope -- the full-fledged impact of this product was seen in the fourth quarter of 2019. Now the feature of this new updated product is the possibility which we gained in consultation with the auditors in December in upfront rather than amortized recognition of the insurance commission. So we carry on selling the insurance product in its approved format, and that will carry on in 2020 as well.

So basically, the change is all about the commission amortization across the lifetime of the product to upfront recognition.

So the third element here, 6.5 percentage points out of the 29.2% is the contribution of Vozrozhdenie, Sarov and Zapsibcombank. And that's the input from recently consolidated banks, which contribute to fees and commissions as well. That's a linear increase representing 3 different drivers, which I have just described.

The third line here on the slide in the top left corner is other income. So had structured open currency position, and this includes an important element of our income is the Tele2 transaction. So the net income from that transaction in Q4 represents RUB 12.5 billion. So that income is accounted for as the net financial instruments result as represented by the fair value.

So that's part of the P&L and the mechanics here works as follows. So as of the 31st of December, 2019, our divestment from Tele2 was not yet completed. So that's an event -- it is represented in our accounts as event first reported data, but -- and the binding documents had been signed.

Our investment for Tele2 was valued at fair value. And the transaction was being prepped throughout 2019, while the pricing parameters have been determined internally within the framework of the year that was in 2019, which allowed us to evaluate the Tele2 assets by the amount of RUB 12.5 billion and recognize that assets for sale.

So first quarter -- yes, we signed binding documents. So the settlement is now underway to divest from our Tele2 stakeholding. In exchange, we're getting cash as well as Rostelecom shares. Once the settlement has been completed, VTB Group's effective position with Rostelecom is going to stand slightly above 17% of their equity.

Rostelecom is going to be recognized as an associate company and with a contribution into net profit without the market risk of securities revaluation. So these are some details into the Tele2 transactions accounting.

On top of that, here we have the negative -- and as part of other income, we also have the negative number of minus RUB 15.5 billion, representing structured open currency position. That's a noncash item, which is related to our [internal] debt as accounted for in our Russian Accounting Standards as well as IFRS. Given the strong ruble, we revaluated our FX capital position, which generated additional burden on our P&L in this particular line in the amount of RUB 15.5 billion.

Let's continue to the next line, provision charge, EUR 103.3 billion. That's about 1/3 less than the year before. Also, we see the cost of risk dynamics in the right part of the page, quarter-by-quarter. We see a significant reduction quarter-after-quarter from Q3 to Q4. And in Q4, it was only at 0.6%. Most of that was contributed by legal entities and including early repayment or credit swap of some loans in the third bucket, with a significant provisioning rate. So recovery of those provisions brings our cost of risk down in the fourth quarter.

On the individuals -- on the individual side, so Q4 was marked with the first instance of applying the new regulations for consumer loans. The (inaudible) pay-to-income ratio and the attached wage. So that resulted in positive selection of those customers who have low ratios, also with low trade burden and -- to income.

And then staff and admin expenses of RUB 254 billion, 12.6%, most of that -- like more than half represents the consolidation of Vozrozhdenie, Sarov and Zapsibcombank, their integration. And we also have significant investments into IT, including IT staff as well as vendor contracts.

The IT contribution represents 2.4 percentage points year-on-year. And also for 2 quarters running -- that's the bottom right corner of H2, for 2 quarters running, we have had our cost-to-income ratio at below 40%, 37.8% in Q3 and 37.7% in Q4.

Let's continue to core business developments in volume terms, which is Page 3. We had a few targets here already. So in the fourth quarter, we have seen some very exciting changes here as well.

Let's start with loans to individuals. Our target was to have growth of individuals portfolio to be above industry. The Russian domestic market went up by 18% year-on-year. So on the face of it, our loans to individuals portfolio is up by 13%. But our portfolio of loans to individuals has seen a very significant change, mostly in Q4.

We securitized and sold to the market that means to third -- independent third parties, a portfolio of mortgage loans, so amounting to RUB 190 billion in total throughout the year of 2019. So RUB 190 billion was removed from that portfolio due to the securitization and most of that -- 40% of that is in the fourth quarter. So once adjusted for our mortgage securitization, the actual adjusted growth of mortgages is above the industry at 25%.

Now loans to legal entities. Well, in the fourth quarter, we had a number of events, such as early payment or mid-swap. So with more than RUB 4 billion of loans coming out of our loan portfolio to legal entities, especially with the larger customers, this resulted in no growth in line with industry target. And if we adjust by FX revaluation, which is material for the industry and for VTB, we're up by 0.3%, pretty much no growth at all. However, the payout of major loans has contributed to improved cost of risk and improved margins, which I mentioned previously, and it has also contributed positively into our concentration risk. So for the top 10, it's down from 30.5% to 23.6%.

And the SME portfolio is growing year-on-year significantly, now it's a material element of our portfolio, nearly RUB 1.5 trillion, that's 1.4 plus -- 1.481, represents the growth of our SME segment. The early payment of loans has improved our LDR to now below 100%, standing at 98.2%, and also improved share of customer deposits in total liabilities as well, given that early payments resulted in removal of non-client money from our liability side. So the share of customer deposits in total liabilities has improved from 78.6% to 79.2%.

Over to Page #4, which is also a very material aspect of our business that is capital management. The most critical element -- ratio for VTB Group is the total capital adequacy ratio, represented in top-left corner. The Central Bank (inaudible) that [N20] and it has all the buffers applied for systemic importance and all other types of buffers. So throughout 2020, we're going to see the final step of buffer hike on the capital adequacy ratio and also the buffer for systemic importance.

Now as at the end -- as at year-end, the total CAR stood at 11.2%, which is exactly what we targeted. So that the profits and regulatory changes over the first quarter 2020 would take us to 11.5%, which is going to be there after the next step of fully fledged Basel, which is going to apply for the first quarter results to be filed by the 1st of April 2020.

Now on the capital management side, I would like to emphasize to you conclusions that -- the challenges that capital -- that VTB Group has in 2020. First challenge here is the next step in buffers hike, which (inaudible) announced. So the increase in the buffers is going to generate the additional need of capital in the amount of about RUB 100 billion. And also the return to 50% net profit of dividend payout. These are the 2 challenges.

Here's our response to those particular challenges. And let me start with the buffers. The increase in the buffers coincides with the Basel 3.5 being fully implemented for trade risk. So in the -- this quarter, we recovered about RUB 750 billion of RWA, thanks to the regulatory changes, that is about the regulatory categories, which are part of Basel 3.5, which now apply.

This allows us to be well off in the first quarter given -- of 2020 given our good profits and these regulatory changes. So that allows us to live through the buffer hike.

And the second challenge is about the dividends. You may have read the management comments on this matter. Management is going to propose that dividend payout be split between preference, all types of preference shares on the one hand and common shares on the other. So we propose to pay 50% of the payout in terms of share of IFRS net profit.

So about half of that is going to be paid in the second quarter, which will be dear to holders of common shares, and the other half is going to be paid in the fourth quarter to holders of preference shares, both types.

In fact, these are the main ideas on capital management in order to reach and maintain 11.5% of N20 or total CAR metric through all the quarters of 2020.

Over to the next page, which is #5. Here, we have 2020 guidance for the full year that we announced publicly. So let me start with first on our balance sheet and then the P&L guidance and then comment on profit.

So as we did last year, we expect loans to corporates to grow in-line with industry. And the market -- the industry is going to grow at an even faster pace at 8%. That's our guidance here. For the loans to individuals, we have the guidance to grow above industry, but the market is going to slow down in terms of their growth. So our target -- our guidance is plus 12%, given all the restrictions and regulatory changes in consumer loans and first year of pay-to-income ratio as well.

We have the potential of pay-to-income ratio to be introduced for mortgages as well, which may further limit growth of the market, hence our guidance for loans to individuals to grow at 12%. We also intend to maintain -- even though the key rate is going to come down according to expectations, our net interest margin is expected to stay flat, mostly thanks to our efficient efforts on the liability side, while increasing the number of current accounts -- the share of current accounts and an aggressive firm gap against our KPIs on the deposits for individuals.

Now the cost of risk. Following the payout of a high-risk part of the portfolio, we're going to have a reduction here, and we would expect a number less than 1%. And the cost-to-income ratio is expected to stand at around 40%.

Now on the net profit. I'm going to provide a more in-depth comment with our public guidance. Our strategy for 2019 through 2022 provided for RUB 230 billion of net profit in the year of 2020. That provision was based on -- and is a little bit different macro inputs as compared to what we're seeing today.

For example, the key rate as at the end of 2020 is expected to be at 5.75%, while our strategy provided for a number which was 1 percentage points above. So the key rate which we are going to have in 2020 had been envisaged at the later stage in the strategy. And the lower key rate provides 2 drivers. One is lower benefit from our current accounts as compared to term deposits and more competitive challenge on margins.

And then our strategy also provided that VTB Group would enter the period of low key rate and more prepared situation on the IT side. So we must be frank in admitting that our key products for retail, like daily banking, are going to have -- we're going to see a new product releases at the very end of 2020. So these releases are not going -- would not be in a position to affect, as we had expected to attract and maintain cheap retail liabilities.

And then again, you see increasing volatility in the financial markets, which is driven by global risks mostly. So with the 3 factors altogether, lower key rates and high pressure on the margins as compared vis-à-vis our strategy scenario and also being less prepared on the IT transformation side, coupled with increased volatility in financial markets, would enable us to have a RUB 10 billion buffer on the downside for the net profit. We really wish to implement the strategy target of RUB 230 billion. However, the drivers I have just explained enable us to guide the 2020 through -- sorry, RUB 220 billion to RUB 230 billion net profit target.

That completes my presentation. I'm happy to proceed with your questions.

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Questions and Answers

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Operator [1]

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[Interpreted] (Operator Instructions) And the first question comes from Mikhail Ganelin, Aton.

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Mikhail Ganelin, Aton LLC, Research Division - Senior Analyst of Finance, Information Technology, Transport [2]

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[Interpreted] I have 2 questions. My first question relates to the regulatory side. Quite recently, the Central Bank released their so-called consultation draft to diversify systemic banks, like suggesting that the capital adequacy ratio could be individualized for different banks. And there is the banks of systemic importance, major banks like yourselves, may be required to have a higher adequacy ratio. What do you think about this idea? And what's going to be your response, should this idea pull through? My other question relates to your expectations on the commission income. You have seen a good improvement in 2019. What would you expect from 2020, what's your expectation?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [3]

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[Interpreted] Thank you, Andrey -- sorry, thank you, Mikhail. Let me start by answering the first question of yours, which, unfortunately, it's going to be a lengthy answer, so it's going to take a while to explain our position. Indeed, back in February, the Central Bank published the so-called consultation draft, suggesting that capital adequacy buffers could be individualized for banks of systemic importance.

The status now is -- for this consultation draft is getting some feedback from the banking community and from the industry, and the feedback is expected to be completed by the end of March. So we are going to criticize that proposition, and our criticism is based on 2 elements here.

Firstly, the methodology proposed in the consultation draft suggests that instead of a single uniform capital adequacy buffer of 1%, which applies to all systemically important banks, Sberbank is going to have 1 -- 2.5%, while VTB is going to have 1.5%. So Sberbank 2.5%, VTB 1.5% rather than 1%.

We are not going to argue against the possibility of such a hike because Basel III does allow for individualized approach. What we are going to criticize is the ceiling of the buffers in question. The thing is, according to publicly available information from the Basel committee, the 2.5% percent buffer for Sberbank and 1.5% for VTB, you see, even though these banks are not of global systemic importance. These 2 credit institutions are lifted to the higher league of global credit institutions, while we only comply with the local systemic importance states. According to the Basel committee, so the only one bank, which is JPMorgan from the United States, has 2.5% capital buffer. So Sberbank has dozens of times lower scale, hence, importance is going to fall into the same category of the most global -- globally important systemic bank. VTB with its 1.5% buffer and -- is going to fall into no less respected group of Bank of America, BNP Paribas and Deutsche Bank.

And again, these banks of global systemic importance, which is why they have 1.5% buffer. So our first item of criticism is, yes, individualized approach is a possibility, but the ceiling must be adjusted. So I must precede from publicly available statistics when considering the change from 1%.

And the other element of criticism is as follows. Even without the systemically -- the buffers for systemic importance, even without these buffers the Russian Capital Adequacy Regulations are the most conservative globally, which is also represented by risk weighted assets to assets ratio, which has Russia above 100%, thus outpacing all the other banks, such as Saudi Arabia, Indonesia and so on and so forth.

So an additional conservative element on top of the already conservative system is going to multiply that degree of conservativeness and calculating the capital adequacy, which is going to limit the growth of the banking industry. And the banking industry's share of their GDP is not yet fully utilized -- fully in line with national programs of the Russian Federation as well as the address of the Russian President to the Federal Assembly.

That's the criticism we are going to voice out in our consultations with the Central Bank. And the timing of this regulation is 2020 for these updates to enter into force. So we expect to impact the eventual decision on either implementing that idea at all or at least the parameters of its implementation, and we're going to do that and bilateral as well as group consultations.

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Mikhail Ganelin, Aton LLC, Research Division - Senior Analyst of Finance, Information Technology, Transport [4]

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[Interpreted] Question -- an additional follow-up question, if I may. You suggest -- you had some plans to take all of the banks to IRB. Are you ready for the IRB transition? So what's your position?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [5]

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[Interpreted] Our bank has recent projects of IRB transition, we understand that this is a lengthy project. So the outcome is going to be in 2020. But again, we're going to move towards that. It's not a short-term vision, but rather a longer-term vision of capital management with internal ratings based approach. So that's part of the consultation draft by Central Bank spanning across 5 years. So I hope we're not going to have any objections. So in terms of timing and the assets involved and the scale, well it's really difficult to establish at present. So it's definitely not coming sooner than 2022.

And now the second question that has been asked is about the dynamics of net commission income our business plan for 2020. Our budget has a double-digit target of commission income growth. Among other things, the modified retail products only live through 1 quarter of 2019, and we are going to have it through all the 4 quarters in 2020. So more comfortable assessment would be mid-teens. So 11% to 15%.

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Operator [6]

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[Interpreted] Next question is coming from Mr. Andrey Pavlov-Rusinov from Goldman Sachs.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [7]

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[Interpreted] And congratulations on your stellar performance in the fourth quarter last year. I have several questions in the pipeline. First of all, I would like to get more insight into commission income. Could you please comment which particular changes in your retail product has allowed you to have upfront recognition of the revenue rather than an amortized recognition? Also, whether that could have affected the net interest margins. If you moved some from the -- some lines from the interest into commission? So I'm going to have more questions once you have answered this one.

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [8]

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[Interpreted] Thank you for your question, and thank you for the congratulations. And here's your answer, given the environment is so competitive and given that the timing of revenue recognition is a competitive advantage in terms of timing and capital, frankly, I wouldn't be able to comment in-depth given the competitive environment. I can tell you that it did not affect the previously recognized commissions for interest income.

So it's not about reclassification of the earlier lines from net interest income to net fee and commission income, it's certainly about the new sales. So that the upfront fee and commission income was recognized without amortization without affecting the net interest income. And considering which particular changes in the product enabled us to do so, well, that is privileged information, given it's our competitive edge and we wouldn't like to disclose that publicly.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [9]

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[Interpreted] Follow-up question. Can we consider that bancassurance income in the fourth quarter is going to be sustainable through all the quarters of 2020, would that be fair?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [10]

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[Interpreted] Only one adjustment would be acquired. And given that it's an insurance product attached to a loan. So my overall question -- overall answer to you is yes, generally, but you must factor in seasonality in loans. And the first quarter of the year has fewer business days, so this seasonal adjustment in sale of retail loans must be affected across every quarter. And the penetration -- ratio penetration depth like the income from insurance products as share of the fees for loans is basically I can look up to Q4.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [11]

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[Interpreted] Follow-up question. How about your costs, you have a more positive guidance on the cost-to-income ratio, which is going to come down. But in terms of absolute numbers, can you talk and -- about the absolute numbers? You have mentioned that your investment cycle carries on. With the IT transformation ongoing, would one expect that the costs would be growing significantly above the inflation rate in 2020 or not?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [12]

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[Interpreted] You see -- the cost-to-income ratio, okay. I have underlined that in the third and the fourth quarter where the income normalized, our cost-to-income went down to below 40%. We would target a slight improvement of the CIR slightly below 40%. So unless there is any abnormally on the income side, we wouldn't expect anything unusual on the cost side. So we'll sit quite neatly into the public guidance of less than 40% -- about 40%. On the cost side, I can give you a number from the budget. Our target in the budget is a 6% hike. So 2019 to 2020, it's indeed above the inflation rate, but very insignificantly.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [13]

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[Interpreted] Follow-up question. And a quick update on the capital. You mentioned RUB 750 billion released provisions. Did I get it right that we're talking about the investment-grade loans, which got a lower weight attached? And then that basically ends the Basel 3.5 effect on your numbers? Or could we see some more effects coming?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [14]

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[Interpreted] Yes, RUB 750 billion is the investment-grade and with the reduced provision ratio of 0.65 and that's for large corporates, and 0.85 for SMEs. So that's a one-off transition to the new regulations, which was made possible after the new instruction was released by the Central Bank in January. So that's a one-off exercise as of the 1st of February 2020. This is pure credit risk. This is pure corporate lending related to this reduced provisioning ratios with the new standardized approach of the Basel 3.5, which is being implemented stage-by-stage in Russian. No further major -- no further material changes would be expected in 2020, with the exception of cost to income drivers as part of the mortgage lending. So we believe this subject has not been fully discussed as yet and a lot of uncertainty here still remains. So would be a negative effect on the availability of mortgages in Russia and also for the national program of affordable housing. So we'll see how further discussions develop.

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Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [15]

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[Interpreted] Another follow-up question. Dmitriy, could you please remind me what effect you'd be expecting with new pay-to-income ratio, to be applied on consumer loans. And generally speaking, on the consumer loans? And what effect could you expect on your adequacy ratio from these new regulations?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [16]

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[Interpreted] You see, the year of 2020 is the first full year with the new macro prudential 2 factor application, including the pay-to-income ratio. So we believe that in order to match it, we would need RUB 9 billion here through 2020 and RUB 3.5 billion for risk weighted assets, RWA. So on the first quarter, we have already implemented, as part of this new framework, to limit -- we have undertaken measures to limit the sale of mortgages to high paid income, who get into the higher buckets on the consumer loan side as well. So that's an effect to mitigate and cut off declines with higher ratios.

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Operator [17]

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[Interpreted] The next question is coming from Elena Tsareva, BCS Global Markets.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [18]

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[Interpreted] Congratulations on your great results. I would like to follow-up on the capital management questions. Actually, a couple of questions from my side. With the current development of your capital adequacy ratios and the new regulatory ones by the Central Bank, you're going to -- are you going to follow through on the 50% dividend payout. And do you have that as part of your dividend policy? So are you going to have the same split into 2 parts for the dividends beyond 2020? That was my first question. My other question relates to discussions we heard earlier that Tier II capital would be required additionally. And whether that is the case this year? And what kind of placement are you going to see in the course of 2020, especially given that (inaudible) under the sanctions currently?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [19]

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[Interpreted] Okay. My first -- answer to the first question is as follows. We are going to deliver on our strategy which provides for the 50% dividend payout that is 50% of net profit to be paid every year. One must understand at the same time that beyond 2020, we are expecting two material capital release events with stage-by-stage implementation of other components of Basel 3.5, which is amortized risk on the one hand and then individualized approach on retail loans affecting mostly mortgages.

So these 2 events are the foundation of our expectations to keep the adequacy ratio flat so this -- to keep our payout ratio flat. So -- and we're working on that. But as I mentioned, it's not part of the dividend policies yet. It is a -- disclosed on the previous calls, we would intend to do so to have that as part of the dividend policy in course of this year.

The third question, we always have a practical element in it. We had the first issue of subordinated ruble bonds in the fourth quarter of 2019 with a successful placement of RUB 20 billion, that's again, subordinated ruble bonds would buy some of the regional investors as well as qualified investors. And even the sanctions are in place for subordinated bond issues, there's a possibility these are registered with the Central Bank, and that represents a high kind of Tier II to capital.

Our capital model for 2020, we'll provide that closer to the second half of the year, and that is Q3. Our capital model does provide a potential issue of up to RUB 40 billion if required, similar type, which is ruble -- either ruble or settlement in -- settled in rubles and in a foreign currency with a link to the rubles. And these will be available to qualified investors in the third quarter. So we don't need a Tier II capital at present. And this transaction is going to happen only if we see a lack of clarity on the pay-to-income ratio for mortgages and our capital position with a dividend payout as well.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [20]

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[Interpreted] Are you going to carry on with the 2-stage dividend payments in the [30] years? Or is that a one-off?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [21]

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[Interpreted] At present, we are not ready to discuss the quarterly split of dividends beyond 2020. Let's get back to the subject once we have the IFRS results disclosure call based on the 2020 full year results. So at present, I'm not prepared to go that much in-depth in terms of the granularity.

As of now, we believe this is a unique event of 2020, facilitating -- enabling us to go through the situation with the buffer hike as part of the Basel implementation. So -- and to a great degree, the dividend calendar split is going to be tied up to calendar split in any regulations to be introduced by the Central Bank Basel 3.5, be it operational risk or retail risk. If that happens early in the year, then a one-off payment of the dividend is a possibility. If there is a calendar split and the Central Bank has announced 2 time points, this could affect the timing of the dividend payout as well.

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Operator [22]

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Next question comes from Andrew Keeley from Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [23]

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Apologies, some of my questions may have been partially answered. But I have a few things. First of all, does your net income guidance for this year, the RUB 220 billion to RUB 230 billion, does that include any expectations of kind of further gains, kind of one-off type gains, perhaps relating to the closure of the Tele2 sale or not?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [24]

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[Interpreted] Andrew, we proceed from the idea that all the one-off events were in 2019 and their effects were implemented in 2019, and we disclosed them in a transparent way. Given that we don't have the legal closure and settlement of the transaction in 2020, all effects were actually recorded in 2019. So in 2020, we would not expect anything of the same kind, such as a similar divestment.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [25]

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Okay. That's clear. A question on your costs. So I'm just trying to understand how you think the -- how you're thinking about cost growth basically slowing from, I think, 13% or so last year too, I think, you mentioned, 6% this year. Given that it seems that you're kind of stepping up your ecosystem and digitalization spend. And what we've seen from other banks is that that tends to involve quite a lot of cost growth. Are there any kind of particular other areas of cost savings that you're targeting? And could you maybe tell us a little bit about in terms of your ecosystem ventures, what are the kind of most exciting things that you're investing in and that you'll be kind of looking at developing this year?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [26]

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[Interpreted] Let me try to provide a number of more in-depth comments on the growth of our costs. Indeed, 2019 to 2018, has seen a cost hike of 18 -- of 12.8%, of which 6.8%, that is more than half effectively, represents a reconsolidation of 3 banks which were not consolidated in 2019 -- and 2018, and we consolidated 2019.

So this effect is not going to be there. So out of the 12.8%, we need to extract 6.8%, which is one-off the previous year. And then one must understand we're going to save on certain areas of our activities and invest the savings made into IT, which does represent an area with a high degree of cost capitalization. So any investments into IT infrastructure, any investments into an IT product is -- effectively represents a slow recognition of the costs due to the capitalization.

So effectively, this enables us to have a slower growth of the cost, while having a significant cash out.

In terms of particular areas, where we are going to save and then stream the saving into IT. Well, we're going to have some cost synergies in the newly consolidated banks, which is SarovBusinessBank and Zapsibcombank and also Vozrozhdenie. And then spending on our retail chain, especially in the regions. And then one third element is the support and controlling department with the regionalization, centralization, optimization and robotization of manual labor. All of these events -- or actual both drivers, it's not just no growth, it's not just flat growth, it's rather saving on the consolidation of the new banks and then saving on the retail -- on the chain in the regions. And then that is going to enable us to have a relatively modest growth of 6% while having significant investment into IT upgrades at the same time.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [27]

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That's helpful. A third question is on your retail lending. I see you're guiding above kind of 12% and growing faster than the industry. Do you have any kind of split for how you see that in terms of mortgage and unsecured lending? Sorry, if you've already mentioned this.

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [28]

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[Interpreted] Well, in fact, we would guide to pretty much matching growth rates for secured and unsecured loans. And 12% represents the same number for consumer loans and then mortgages and then car loans as well.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [29]

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And just a quick final question. In terms of your capital, there's some comments on the newswires that government has apparently shelved plans to recapitalize VTB for now. So was this something that was kind of under serious discussion? And do you have any comment on those stories on the wires?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [30]

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[Interpreted] Our position as a bank is as follows. It's going to be -- it would be rather challenging to have an additional issue of common shares for the government given the sanctions in place. It is impossible to differentiate the common shares further by types, so these would be the same common stock.

So differentiating pricing for the common stock would be impossible between the equity issued before and after the sanctions are introduced.

So my understanding is as follows. Technically, it is not only challenging to have an additional issue of common stock, but it is impossible. And this understanding comes from our discussions with lawyers, including international law firms.

So in my understanding, the government has only one instrument available an additional issue of preference shares. However, our capital model for 2020 and following years does not require any special action in this regard from our major shareholder.

You can see that from my answers to your question -- to your questions, our strategy on the capital management side is to maximize the use and fast track, if possible, the regulatory changes as they become available. I'm referring to those regulatory changes that release our capital, such as the investment grade -- investment grade risks and the operating risk, where regulations remain excessively conservative.

So I'm talking about a more advanced approach with a longer-term view in terms of the weight -- risk weighted assets. Now one other element is to capitalize our revenue -- our profit and then the growth which would be in line with our scale. So as our capital allows us, we would target the growth of the highest-margin segments. And that would be in line with our strategy, and we'll be available -- we'll be in a position to deliver on that strategy without additional capitalization from our main shareholder.

Please don't forget that we're in a position to issue subordinated bonds. We have demonstrated that in practice. So we can do that in rubles or in settlement -- with settlement in rubles, which does not violate the sanctions regime. So these are the 2 pillars driving our capital management strategy.

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Operator [31]

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[Interpreted] And the next question comes from Olga Veselova, Bank of America Merrill Lynch.

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Olga Veselova, BofA Merrill Lynch, Research Division - Equity Banking Analyst [32]

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[Interpreted] I have several questions, in fact. And my first question follows up on the one by Andrew, potential discussions of additional capitalization. So in theory, would there be any limit on the new issue of additional preference shares? Or would the share of preference stock as compared to the total equity is not limited in any way?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [33]

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[Interpreted] We understand there is no limitation to that effect.

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Olga Veselova, BofA Merrill Lynch, Research Division - Equity Banking Analyst [34]

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[Interpreted] Okay. Next question then about the release of risk weighted assets in the amount of RUB 750 billion. Could you please disclose which share of loans were eligible for the lower rates of 0.65% and 0.85%, respectively?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [35]

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[Interpreted] About 1/3 of our total loan portfolio. So about 1 -- sorry, about 1/3 of the corporate loan portfolio to be precise because the new regulations only apply to the corporate lending. So 1/3 of the corporate loan portfolio.

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Olga Veselova, BofA Merrill Lynch, Research Division - Equity Banking Analyst [36]

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[Interpreted] Okay. And the third question relates to PTI regulations. So what's behind this discussion on pay-to-income ratio for the mortgages? Would the regulators still be concerned with their leverage? Or maybe they consider PTI implementation in nonsecured loans was not sufficient in (inaudible) Central Bank. So what triggers this discussion looking forward? And just an extension of that PTI question. So pay-to-income in retail effect, how in line was that was your expectations? Could you give some numbers? Like how many more loans you approved now, maybe? What's the share of approved loans -- approved applications for loans?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [37]

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[Interpreted] Okay. Thank you for your questions. Referring to the first element of your question now. And our understanding is that the PTI for mortgages is backed by the same idea of adding additional security to the consumers, like cutting off the loans that could potentially be a problem for the consumers and for the whole system.

And then the Central Bank is proposing a very similar approach to other PTI initiatives. So they're proposing a matrix of CLT versus PTI.

So if a loan falls into the right part of the matrix with high PTI and in the right low corner with high LTI and low PTI, so for those parts of the matrix, lower buffers could apply.

So the question is when that could be coming, and also when Basel 3.5 could apply to retail credit risk and mortgages in particular. If the situation goes well time-wise, this effect would not only offset for each other but rather the new regulations would kick in to release additional capital in this regard.

And then the discussions currently ongoing on the national programs in place. So that discussion is still ongoing. The national program is called affordable housing and affordable mortgages. The new regulations would reduce the affordability of mortgages for Russian consumers and then work against the purpose of the national program.

So the combination of all these drivers added to my confidence that this regulation is not going into force as of the 1st of July 2020.

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Olga Veselova, BofA Merrill Lynch, Research Division - Equity Banking Analyst [38]

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[Interpreted] Follow-up question. PTI for retail loans, was that in line with your expectation, or worse or less? Please comment.

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [39]

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[Interpreted] The share of approved applications as of the 1st of October 2019 was 5% to 10% of the applications being turned down, driven by the PTI non eligibility. That is within our expectation.

Our scoring models had that before the regulatory changes already. This was -- our scoring models had a certain methodology factored in as well in a similar fashion. So there is no significant change. And the approval rate is (inaudible) by 5 to 10 percentage points. That's it.

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Operator [40]

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Next question comes from Andrzej Nowaczek from HSBC.

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Andrzej Nowaczek, HSBC, Research Division - Analyst [41]

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I wanted to follow-up on the question of -- or rather on one-offs. There's an entry in your full year 2019 accounts of RUB 9.1 billion. Can you describe what it is? A gain from sale of assets, but what is it exactly?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [42]

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[Interpreted] The majority of that, that's 8.9 out of the 9, represents a one-off income from securitization. So we had more than RUB 100 billion securitized. So RUB 190 billion is the total number of securitized -- is total amount of securitized mortgages. So basically, that's the effect.

I wouldn't consider that to integrate with your interpretation that it's a one-off. We still have a significant portion of mortgages, so more than RUB 1 trillion, and we have regular securitization exercises every year. We have not yet used up the limit for securitization according to the rules of DOM. RF. So with the falling market -- falling interest on the market, and we still have the opportunity. So I wouldn't agree with your interpretation of the one-off.

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Andrzej Nowaczek, HSBC, Research Division - Analyst [43]

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Okay. Understand. What about this FX loss, do you expect it to reverse in the course of 2020? And what is your ruble forecast for this year?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [44]

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[Interpreted] The ruble FX expectation is rather flat. But frankly speaking, that's one of the most challenging forecasts to make. And given the current volatility in the FX and also in the financial markets, given the black swan which has arrived, I may -- I cannot exclude, we may have a number different from 0, maybe positive.

So currently it's RUB 220 billion to RUB 230 billion of net profit guidance. So this does not factor in any major FX revaluation, given that our FX rate for the ruble is flat in the course of 2020. What the actual oil price is going to be and the actual ruble FX rate. So how much to the point we are in this forecast for the average FX rate across the year, I don't know because it's the most challenging number to forecast.

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Andrzej Nowaczek, HSBC, Research Division - Analyst [45]

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Okay. And apologies if you've already answered this. On Basel 3.5, what is the net effect going to be? I remember previously, you were suggesting that perhaps, initially when you implemented, it could be positive, then it will be negative. So what is the time frame here? And what is the net effect on capital ratios?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [46]

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[Interpreted] Well, given Basel 3.5 is being implemented stage-by-stage with different risk components, we perceive that in 2020 from the idea that just one component is going to be implemented, which is called investment grade corporate loan portfolio. That has take -- that event has taken place already here in the first quarter in February this year. So RWA number released represents RUB 750 billion. So that's a positive thing for us, that's a low RWA.

And in 2020, we do not expect any further events in this connection with Basel 3.5, so we expect neither negative nor positive changes. And the outstanding components of Basel 3.5 are pending in future years of 2021 and 2022, with no particular timing as yet announced by the Central Bank. We see some work coming to fast track that on the operating risk and on the retail credit risk. So these 2 regulatory novelties are being fast tracked, and that would result in further capital release under those components. But more precise valuation is only available at a later stage.

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Operator [47]

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[Interpreted] And the next question comes from Mr. Andrey Klapko, Gazprombank.

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Andrey Klapko, Gazprombank (Joint Stock Company), Research Division - Senior Banking Analyst [48]

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[Interpreted] I have 2 questions. My first question relates to your guidance for 2020. As far as I understand, the guidance precedes from the 5.75% target key rate by the Central Bank. What's your most recent sensitivity calculations with a net profit and also net interest margin with each 0.25 percentage point change in the key rate up or down. And also what's your understanding of the recent developments with (inaudible) loans devaluation?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [49]

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[Interpreted] So the first question of yours, with each 110 basis points of the key rate movements, the full year effect would be less [1 5], RUB 15 billion net interest income. So if it goes down, then it's less. And it goes up, it's RUB 15 billion more that -- with each 100 basis points, and that's our sensitivity.

Well, as to the second part of your question, the decisions made by the government allow us to say that the regulatory capital and the capital adequacy ratio, so the government is undertaking efforts to revitalize the military and defense complex. So we would assume no effect on our position given these measures. So we believe that we're going to face some neutral effect on the military and given the military and defense undertakings of the government.

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Operator [50]

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[Interpreted] Next question is coming from [Mr. Andrey Mikhailov], Bank St. Petersburg.

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Unidentified Analyst, [51]

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[Interpreted] I would like to reconfirm your approach to dividend distribution between common and preference stock in the future. As far as I understand, you would expect the same approach of equalizing dividend yield for common and preference stock. So for the common stock, the dividend yield will be calculated as at the average share price, let's say, for 2020, is that correct?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [52]

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[Interpreted] Yes, your understanding is correct. We're going to maintain the same principle of equalizing the dividend yield for common and preference stock. And the common stock yield is the function of average share price at the Moscow Exchange across the year. And given there is no trading for preference stock, it's the nominal value, face value. So obviously, share price falling, the larger portion will go to the preference stock and otherwise.

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Operator [53]

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[Interpreted] And the next question comes from [Vadim Arabov] of Izvestia newspaper.

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Unidentified Participant, [54]

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[Interpreted] So my question is, which segments are going to have this transition to internal rating-based approach? Or are they first sooner? And what effect you're going to have from that and whether it's going to offset the negative effect?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [55]

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[Interpreted] As I mentioned in my -- in one of my responses, the earliest year when we could get some positive IRB effect is 2022. So that's midterm perspective.

Now considering the traditional IRB implementation approach, the most RWA release, and hence capital release, comes from retail assets, that's small and medium enterprises. So these segments are going to be part of our first bid most likely. Considering positive or negative effects from the implementation of a systemic importance buffer, individualized buffer. Well, first and foremost, we'd like to fight here on the feasibility of so significant buffers. And I have joined providing arguments that the current balance of these buffers is suboptimal. And then a lot will depend on the actual timing of the regulation, should we fail to have success in pricing. So in my understanding, IRB is not the -- is not coming too soon, so to say, it's not going to be the first effect RWA.

So in any case, that's a comprehensive exercise, requiring a lot of efforts and certification from the CBR. Even the operating risk and the retail risk elements which are going to enter into force much sooner are going to provide a much higher RWA release.

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Unidentified Participant, [56]

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[Interpreted] And a follow-up question, if I may. Just trying to understand your net profit -- like your dividend targets of 50%, would they remain in place, should you have the adequacy ratio of 12%, let's say, rather than 11.5%?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [57]

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[Interpreted] Colleagues, let me reiterate. The subject of additional buffers for systemic importance has no official status. It's only about industry consultations. And we have 2 major arguments in this regard. One is not quite balanced calibration of the buffers, 2.5% and 1.5% is excessively high. And then, again, we already have rather conservative weight applied without the buffers already. So with the conservative weight and a conservative buffer on top, that would be too much. So our key comment here, we'll fight against, if not, implementation of the individualized approach at all and at least with the ceiling of the individualized buffers.

Following the outcome of this discussion, let us get back to considering how that could affect our dividend policy. And then a lot will depend on the timing of implementing this change, given so many uncertainties around associates is hardly possible to say, as you wish to hear from me like it is impossible to say, as you would want to hear from me that it's going to affect this and that much our dividend policy in that -- this particular year.

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Operator [58]

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[Interpreted] Next question from [Ms. Tatiana Chibasova, Interfax].

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Unidentified Participant, [59]

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[Interpreted] I have a few follow-up questions on your accounts. Could you please explain the retail segment's profit coming down in 2019? Would you expect the profitability of the segment to recover in 2020? Or would RUB 65 billion to RUB 70 billion remain as is in 2020 as well? That is my first question, and I have more to follow.

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [60]

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[Interpreted] The answer is, yes. In 2019, we -- in 2018, we had VTB Insurance sale effect, like -- Note 3 of the first page of the accounts, you'll see RUB 57 billion of additional income. That is a one-off event in 2018, which is not repeated. Also our budget for 2020 does have a significant retail profit increase. So the reduction is only about a feature of 2018 rather than weak performance in 2019.

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Unidentified Participant, [61]

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[Interpreted] Okay. And one other question on the regulatory side. As of the 1st of January, the Central Bank has increased the risk weights attached to M&A transactions. So whether VTB Group has acted these regulatory novelties into your net profit and your capital and then government guarantees. Would you have to do significant provisioning for loans with bank -- with government guarantees attached, given the changes in the state budget code of the Russian Federation?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [62]

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[Interpreted] The answer to your first question is, yes, we factor these in. The new regulations taken into account as yet another additional requirements -- requirement to structure M&A transactions of the new kind.

So when these transactions are structured with -- by the either entry group entities or falling entities, there is no negative effect from the new regulations. So there is only a minimal impact, as you can see. And our target for the loan portfolio growth factors in this particular novelty.

It has only moderate impact. And it's just an additional feature for structuring the transaction additional requirement if you wish.

On the second part of your question, loans with government guarantees. Well, the situation is such that with the explanations received -- with the clarification received from the Ministry of Finance and the market regulator, we still maintain the possibility to factor in government guarantee in reducing the credit risk, subject to eligibility criteria. And that, in turn, means that should -- the client having the government guarantee follows through on their commitment to use the funding provided for a particular purpose in line with the government guarantee. So all these discussions on any other type of treatment of government guarantees has only a material effect, given very significant share of proper use of the funding by our customers.

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Unidentified Participant, [63]

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[Interpreted] And one follow-up question on the Tele2 transaction. You mentioned that the effective stakeholding of VTB with Rostelecom is going to be at around 17%. And given the indirect shareholding as well, could you suggest the total effective stakeholding, what's the problem? Why you're not putting that forth?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [64]

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[Interpreted] Tatiana, you see the wording of effective shareholding includes both direct and indirect shareholding, that's what we mean under effective. So indeed, we withhold disclosure of detailed breakdown of the shareholding as yet because the settlement and the transaction with Tele2 provides that VTB Bank is going to acquire Rostelecom shares, and then the shares would be redistributed between the bank and the consortium.

So that redistribution is going to lead to effective shareholding of the VTB Group, both directly and indirectly in the amount of slightly above 17%. That's basically the statement in place. And there's going to be a relatively insignificant share of direct shareholding by VTB Bank and then indirect shareholding as well by a number of subsidiaries within the consortium.

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Unidentified Participant, [65]

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[Interpreted] Follow-up question. Okay, do I get it right that consortium members which were part of Tele2 Russia are going to have indirect shareholding in Rostelecom just on top of VTB, is that correct?

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Dmitriy Pianov, VTB Bank (public joint-stock company) - Member of Management Board [66]

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[Interpreted] Colleagues, in my understanding -- like I think I have provided an exhausting -- an exhaustive answer for VTB Group. So both directly and indirectly, we're going -- the group is going to hold slightly more than 17%. And as to the composition of the consortium and the individual breakdown, it can be discussed with you at a later point, once we have the transaction fully settled.

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Operator [67]

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[Interpreted] As of now, we don't have any further questions.

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Leonid Vakeyev, VTB Bank (public joint-stock company) - MD, Head of IR [68]

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[Interpreted] Leonid Vakeyev speaking. I would like to thank everyone taking part on the call. As always the case, we're at your disposal, should -- at your service, should we have -- should you have any further questions. I would like to say goodbye to you at this point.

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Operator [69]

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[Interpreted] And this concludes this conference call. Thank you for your participation. You may now hang up.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]