Interest income and expenses

Interest income

The Group’s interest income amounted to RUB 850.6 billion in 2011, up 6.9% from 2010. The increase in interest income was primarily due to the growing amount of interest-earning assets and the rising share of assets, primarily loans, that generate the highest returns.

The table below presents the average annual balances of the Group’s assets by class of asset and related interest income, and average annual return.

RUB million 2011 2010
  Average for the year Interest income Average return, % Average for the year Interest income Average return, %
Assets
Loans and advances to customers 6,911,213 741,796 10.7 5,622,371 682,010 12.1
Debt securities available for sale 998,108 67,424 6.8 1,226,722 83,219 6.8
Due from other banks, including correspondent accounts and overnight deposits with other banks 371,638 6,982 1.9 336,960 8,073 2.4
Debt investment securities held to maturity 400,746 26,799 6.7 167,404 9,101 5.4
Other debt securities designated at fair value through profit or loss 59,579 3,588 6.0 91,692 5,740 6.3
Debt trading securities 65,494 4,035 6.2 87,299 7,503 8.6
Total 8,806,778 850,624 9.7 7,532,447 795,646 10.6
Provision for loan impairment (669,842)     (666,048)    
Non-interest-earning assets 1,126,194     827,401    
Total assets 9,263,130     7,693,800    

Interest income on loan portfolio

Interest income on loans to customers amounted to RUB 741.8 billion, up 8.8% year-on-year. The growth in interest income was driven by a 35% expansion of the Group’s loan portfolio before provisions.

Interest income on securities

Interest income on securities in 2011 was RUB 101.8 billion, down 3.6% from 2010 (RUB 105.6 billion). This change is primarily due to a 10.8% decline in the Group’s securities portfolio in 2011. An analysis of changes in the securities portfolio is presented in the Analysis of the Statement of Financial Position.

Interest income on amounts due from other banks

Interest income on amounts due from other banks (including interbank loans, nostro accounts and overnight placements) was RUB 7.0 billion in 2011, down 13.6% year-on-year.

Interest and similar expenses

The Group reduced its interest and similar expenses (hereinafter referred to as interest expenses) by 8.5% to RUB 289.6 billion in 2011. The cost of borrowed funds gradually fell in 2011, from 4.1% in the fourth quarter of 2010 to 3.5% in the fourth quarter of 2011. Interest expenses on retail deposits are the main component of the Group’s interest expenses. The cost of retail deposits fell steadily throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis.

The average annual amount of interest-bearing liabilities grew by 18.9% mainly because of continued growth in retail deposits.

The table below presents the average annual balances of the Group’s liabilities by class of liabilities and related interest expenses and the average annual cost of funds.

RUB million 2011 2010
  Average for the year Interest expenses Average cost, % Average for the year Interest expenses Average cost, %
Liabilities
Due to individuals 5,129,059 210,993 4.1 4,181,715 232,730 5.6
Due to corporate customers 1,906,598 36,580 1.9 1,710,205 38,836 2.3
Subordinated debt 310,755 19512 6.3 390,753 28,219 7.2
Other borrowed funds 195,458 4,226 2.2 92,504 1,640 1.8
Debt securities in issue 267,772 12,746 4.8 221,988 13,344 6.0
Due to other banks 158,607 5,541 3.5 105,067 1,774 1.7
Total 7,968,249 289,598 3.6 6,702,232 316,543 4.7
Non-interest-bearing liabilities 165,350     1,12,606    
TOTAL LIABILITIES 8,133,599     6,814,838    

Interest expenses on amounts due to customers

Interest expenses on amounts due to individuals and corporate customers fell 8.8% to RUB 247.6 billion in 2011. The cost of retail deposits fell steadily throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis.

Movements in the cost of customer deposits in 2011 and 2010 are presented in the table below

RUB million 2011 2010
  Average amount of liabilities Interest expenses Average cost of funds, % Average amount of liabilities Interest expenses Average cost of funds, %
Due to corporate customers
Deposits 658,378 26,040 4.0 597,700 29,747 5.0
Current accounts 1,248,220 10,540 0.8 1,112,505 9,089 0.8
Total 1,906,598 36,580 1.9 1,710,205 38,836 2.3
Due to individuals
Deposits 4,288,764 206,291 4.8 3,605,050 230,102 6.4
Current accounts 840,295 4,702 0.6 576,665 2,628 0.5
Total 5,129,059 210,993 4.1 4,181,715 232,730 5.6
Total 7,035,657 247,573 3.5 5,891,920 271,566 4.6

Interest expenses on subordinated debt

Interest expenses on subordinated debt and the average cost of such debt were less in 2011 because part of a subordinated loan (RUB 200 billion) received from the Bank of Russia was repaid in May 2010 and the interest rate on this subordinated loan was lowered from 8% to 6.5% in July 2010.

Interest expenses on amounts due to other banks

Interest expenses on amounts due to other banks rose more than 3 times, which is primarily due to an increase in the amount of funds raised from the Bank of Russia in the fourth quarter of 2011. These funds were borrowed by the Group to meet growing demand for loans.

Net interest income

The Group’s net interest income was RUB 561.0 billion in 2011, up 17.1% from 2010. Return on assets, cost of liabilities and interest spread and margin for 2010 and 2011 are presented in the table below.

RUB million 2011 2010
  Average for the year Interest income / (interest expense) Average return / cost, % Average for the year Interest income / (interest expense) Average return / cost, %
Total interest-earning assets 8,806,778 850,624 9.7 7,532,447 795,646 10.6
Total interest-bearing liabilities 7,968,249 289,598 3.6 6,702,232 316,543 4.7
Net interest income   561,026     479,103  
Net interest spread     6.1     5.9
Net interest margin     6.4     6.4

Factors that affected margin in 2011 and 2010 are presented below.

% 2011 2010
Prior year margin 6.37 7.61
Return on corporate loans -1.08 -1.28
Return on retail loans -0.02 0.03
Return on amounts due from other banks -0.02 0.01
Return on securities 0.00 -0.44
Structure of interest-earning assets 0.22 -0.42
Cost of amounts due to corporate customers 0.08 0.32
Cost of amounts due to individuals 0.83 0.25
Cost of amounts due to other banks -0.03 0.07
Cost of securities in issue and subordinated debt 0.11 0.07
Structure of interest-bearing liabilities -0.03 0.01
Interest-earning assets to interest-bearing liabilities* -0.06 0.14
Reporting year margin 6.37 6.37

Interest margin remained stable at 6.4% in 2011.

Interest spread* grew 20 b.p. to 6.1% in 2011, which is due to increased amounts of interest-earning assets and the reduced cost of interestbearing liabilities.

The table below presents an analysis of changes in interest income and expense for 2011 versus 2010 by looking at the following factors:

  • Changes in average annual balances of items recorded in the Statement of Financial Position;
  • Changes in average interest rates.
RUB million Volume factor Interest rate factor Change in interest income / expense
Assets
Loans and advances to customers 138,334 (78,548) 59,786
Debt securities available for sale (15,443) (352) (15,795)
Due from other banks, including correspondent accounts and overnight deposits with other banks 651 (1,742) (1,091)
Debt investment securities held to maturity 15,604 2,094 17,698
Other debt securities designated at fair value through profit or loss (1,934) (218) (2,152)
Debt trading securities (1,343) (2,125) (3,468)
Change in interest income 135,869 (80,891) 54,978
Liabilities
Due to individuals (38,971) 60,708 21,737
Due to corporate customers (3,768) 6,024 2,256
Subordinated debt 5,023 3,684 8,707
Other borrowed funds (2,226) (360) (2,586)
Debt securities in issue (2,179) 2,777 598
Due to other banks (1,870) (1,897) (3,767)
Change in interest expense (43,991) 70,936 26,945
CHANGE IN NET INTEREST INCOME 91,878 (9,955) 81,923

As evident from the table above, the dynamics of net interest income was driven by four major factors:

  • Higher lending volumes, the impact of which was partially offset by lower returns on loan portfolio in 2011 as compared with 2010.
  • The steadily decreasing cost of retail deposits throughout 2010 and 2011 as a result of the repayment of long-term deposits with high interest rates, which had been raised during the financial crisis.
  • Significantly increased interest income on securities held to maturity due to growing portfolio of the securities.
  • A reduction in the portfolio of debt investment securities available for sale, primarily due to the repayment of the Bank of Russia bonds in the first half of 2011.
* Interest spread is the difference between the return on interestearning assets and the cost of interest-bearing liabilities.

    History

My Annual Report

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