Alfa-Bank announces financial results for 2014

The Alfa Banking Group, which includes Alfa-Bank and its subsidiaries, reported IFRS financial results for full year 2014.

In a challenging operating environment the Alfa Banking Group reported operating profit before provisioning for FY 2014 in the amount of USD 2 591 mln representing a decrease of 16.4% as compared to FY 2013. Operating profit for the same period expressed in RUB slightly grew by 0.8%. The key components of operating profit — net interest income decreased by 2.8% to USD 2 226 mln (in RUB terms the increase was 17.2%), while net fee and commission income grew by 5.8% to USD 825 mln (in RUB terms the increase was 27.5%). The share of commission income in total operating profit before provisioning increased to 31.8% in 2014 compared to 25.2% in 2013.

But adverse economic conditions and the Alfa Banking Group’s consistently conservative approach to provisioning resulted in increased risk charges which in turn affected net profit. Cost of risk increased to 4.0% in FY 2014 from 1.7% in FY 2013. Provision charge for loan impairment doubled and amounted to USD 1 228 million in 2014 compared to USD 565 million in 2013.

Macroeconomic risks, ruble depreciation, Russian sovereign rating downgrade by international rating agencies led to significant market fluctuations and negative revaluation of securities and currency which further subdued the Alfa Banking Group net profit in 2014, which amounted to USD 33 mln.

The Alfa-Banking Group demonstrated strong operating efficiency in FY 2014 with cost to income ratio of 45.8% (38.8% of Alfa-Bank on a standalone basis, the lowest ever). Operating expenses decreased by 12.4% and amounted to USD 1 186 mln in 2014 compared to USD 1 354 mln in 2013, of which staff costs decreased by 16.2% to USD 679 mln in 2014 from USD 811 mln in 2013.

Rouble depreciation against US Dollar (by 72.2% in 2014) was the key reason for the Alfa Banking Group’s balance sheet items decrease given that the share of Rouble denominated assets was 40.8% as of December 31, 2014. Total assets showed decrease by 10.4% in USD (an increase of 15.8% excluding FX revaluation effect) and amounted to USD 43 566 mln as of December 31, 2014 compared to USD 48 647 mln as of December 31, 2013. Gross loan portfolio decreased by 17.2% in USD terms (increased by 14.4% excluding FX revaluation effect) to USD 28 105 million as of December 31, 2014 from USD 33 958 million as of December 31, 2013.

Non-performing loans ratio (more than 90 days overdue) was one of the lowest observed on the market and accounted for 2.7% of gross loan portfolio compared with 1.7% as of December 31, 2013. Coverage of 1+ days overdue loans remained at a conservative level of 115%, 90+ days overdue loans coverage was more than 200%.

The funding structure of the Alfa Banking Group remained stable, with corporate customer accounts, retail customer accounts and wholesale funding (including interbank) each accounting for approximately one third of total liabilities. In FY 2014 the Alfa Banking Group maintained high capital adequacy ratios with Tier 1 ratio of 12.8% and total capital ratio of 17.7%.

In 4Q 2014 the Alfa Banking Group paid special attention to liquidity management and accumulated a significant liquidity buffer. As of December 31, 2014, the amount of cash and cash equivalents increased to USD 4 999 mln or 11.5% of total assets, while the unused limit for additional liquidity sources provided by the CBR amounted to USD 3 242 mln.

The Alfa Banking Group’s credit quality was highly appreciated by investors in 2014 due to its clear and consistent strategy, professional risk management and the role that the Bank plays on the Russian banking market. On 10 June 2014, the Alfa Banking Group issued EUR 350 million 3-year Loan Participation Notes, becoming the first Russian banking group to close a successful deal on the international markets in 2Q 2014. In June and September 2014, Alfa-Bank also successfully issued RR 20 000 million (USD 552 million equivalent) bonds with 36 months maturity. On 13 November 2015, the Alfa Banking Group successfully placed a Basel 3 compliant subordinated Eurobond issue in the amount of USD 250 million. The deal has become the first subordinated deal on the market since summer 2014.

The Alfa Banking Group’s full year 2014 IFRS results have been audited by PWC.