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Retail Banking

2014 Prioritie

In 2014, the Retail Banking division focused on improving efficiency and reducing risk appetite

The objective was to switch from the growing business volume strategy to one focused on improving the client base, with an emphasis on payroll projects. Another priority of the retail banking segment was to facilitate the integration processes. Both objectives were successfully accomplished. During 2014 the retail banking business was transferred from Otkritie FC Bank to Khanty-Mansiysk Otkritie Bank, significantly strengthening the Group’s competitive opportunities in this segment. The Group’s retail clients gained access to the entire range of its banking products. The day-to-day retail operations were used to leverage research data about emerging client priorities and focus on offering the lowest-risk products, including card and payroll projects.

Financial Highlights of 2014

In millions of Roubles

2014

2013

Y-o-y, %

Selected financial position data:

Total segment assets

252,972

226,710

11.6

     of which, net loans to clients

191,864

173,055

10.9

Total segment liabilities

332,826

291,706

14.1

     of which, client accounts

313,513

274,264

14.3

Key profit & loss figures1

Net interest income 2

21,806

9,985

118.4

Net Fee and comission income

6,115

3,769

62.2

Total operating income before impairment loss and provision

16,292

12,397

31.4

Operating expenses

16,029

9,340

71.6

Profit before taxation

131

2,981

-95.6

1 Income statement of Otkritie Bank for the year 2013 was not recognised as the Group gained control in late 2013.
2 Net interest income before provision for impairment losses on interest bearing assets.
Note: The financial highlights are shown as of December 31, 2014, for the year ended on December 31, 2014; and as of December 31, 2013, for the year ended on December 31, 2013.

Comment on Financial Highlights (IFRS)

In order to improve the quality of the retail portfolio, in late 2013, the Group revised its retail business growth strategy focusing on providing loans to customers, who are employees of the Group’s corporate clients on payroll projects and mortgage loans.

As of December 31, 2014, the Group’s gross retail loan portfolio was up 14.6 % to RUB 208.8 billion. The growth was mostly driven by consumer loans (up 12.0 % to RUB 124.6 billion) and mortgage loans (up 26.0 % to RUB 69.0 billion). Mortgage loans accounted for 33.0 % of the retail loan portfolio, compared with 30.0 % as at the end of 2013.

Customer deposits were up 14.3 % in 2014 and reached RUB 313.5 billion as of December 31, 2014. The retail deposits’ positive performance over the period characterised by volatile markets proves the clients’ trust. As of December 31, 2014, deposits accounted for 77.4 % of the total retail customer funds. At the same time, the Group continued to increase current and on demand retail customer funds that reached RUB 70.8 billion, as of December 31, 2014, a 6.4 % increase year-on-year.

In 2014, net interest income of the retail segment doubled compared to 2013 results. This growth was fuelled by:

  • the integration within the Banking Group and, in particular, the consolidation of Otkritie Bank by the Group in 2013;
  • retail loan portfolio increase accompanied by the higher average effective rate on retail loan portfolio (16.3 % in 2014 against 15.0 % in 2013);
  • low average cost of funding in the retail segment (5.9 %) due to the notable share of current accounts in the segment funding structure.

Net fee and commission income earned by the retail segment grew 62.2 %. In 2014, the key sources of fees and commission income were credit risk insurance, currency conversions, and payment transfers via the Rapida system.

In 2014, the retail segment’s profit was affected by the general economy slowdown, a plummeting Russian rouble followed by skyrocketing interest rates. All these factors contributed to a higher cost of risk in the retail segment. Please see Section Risk Management and Control, p. 66, for retail loan portfolio quality.

Strategic Objectives of Retail Banking for 2015

The key objectives of retail banking for 2015 include:

  • to proceed with the retail business integration at Khanty-Mansiysk Otkritie Bank;
  • to develop the card and transactional businesses with an emphasis on retirees;
  • to improve remote banking to increase the number of users and expand the range of services offered;
  • to develop more products and services for payroll clients;
  • to develop partner programmes, including prepaid cards;
  • to focus on the development of premium retail banking: new products/packages, chain restyling;
  • to improve efficiency by optimising business processes, expanding remote banking and updating card service technologies;
  • to increase the total number of clients;
  • to provide better service standards through day-to-day improvements.