Investor Relations
Tel: +7(495) 221-3075/76
Email: [email protected]

Public Relations
Tel: +7(495) 363-2741
Fax: +7(495) 363-2742
Email: [email protected]

RSS feed


MDM Bank Finishes 2008 in Strong Position

09.04.2009 11:29

Moscow, 09 April 2009 – Today MDM Bank released audited International Financial Reporting Standard (IFRS) financial results for 2008. Net attributable profit after taxation for 2008 amounted to RUR 3.3 billion, a decrease of 40.1 percent from net profit of RUR 5.5 bln for 2007. At the same time, revenues increased 22.4 percent y-o-y to RUR 21.8 bln for 2008 vs. RUR 17.8 bln in 2007. The decline in net profit despite increased revenues was driven primarily by MDM Bank’s conservative approach to maintaining adequate levels of loan loss provisions in the current economic environment. As a result of this and other measures taken by management and the Board of Directors of MDM Bank starting in the fall of 2007, the bank finished 2008 in a strong position despite the effects of the global economic crisis on the Russian economy and banking sector.

Other highlights:

  • Capital adequacy ratio at year end was 17.9%, and the Tier 1 capital ratio was 16.0%;
  • Excess liquidity (cash held in overnight accounts) at 31 December 2008 amounted to approximately USD 1.6 bln; currently the bank is maintaining around USD 1.1 bln in excess liquidity;
  • Total international wholesale funding repayments for 2009 easily manageable at approximately USD 800 mln;
  • Net interest income grew 20% y-o-y to RUR 16,908 mln in 2008;
  • Cost/Income ratio improved to 42.9% for 2008 from 48.3% in 2008 – further improvement on this ratio has been achieved to date in 2009;
  • Retail Term Deposits grew 79.9% to RUR 25,362 on 31 December 2008;
  • Provision coverage of non-performing loans on 31 December 2008 totaled 139.3%, provisions accounted for 5.9% of MDM Bank’s gross loans on this date.

The main factors influencing the Bank’s performance in 2008 were:

  • The development of the global economic crisis
  • The strategic decision by the bank, with a view to protecting clients and depositors, to put stability and liquidity above profitability in time of crisis
  • Increased net interest margin, which led to increased net interest income
  • Increased income from financial operations: early redemption of debt, trading in precious metals
  • Securities losses and decreased foreign exchange income
  • Impact of early cost optimization measures
  • Decreasing asset quality and high coverage ratio of NPLs by loan loss provisions

Income Statement Review:

The bank increased its consolidated revenue (excluding the impact of a one-time gain of RUR 498 mln before tax in 2007) by 25.9% to RUR 21,832 mln, primarily due to increases in net interest income and gains from early redemption of debt.

Net interest income accounted for 77.4% of total revenue, growing by 20.0% during 2008 to RUR 16,908 mln, while net interest margin increased to 5.7% from around 5.2% in 2007. Two factors contributed to the growth in net interest income in 2008: resumed expansion of the corporate loan portfolio in the first two quarters of 2008 and ongoing repricing in the corporate and small business loan portfolios.

Net interest margins rose in 2008 despite an increase in interest rates on customer accounts, as increased borrowing costs corresponded with the overall growth of the gross margin. Relative to 2007, the overall cost of funds increased by less than asset yields, which resulted in an overall increase of the net interest margin to 5.7% for the year ended 31 December 2008 vs. 5.2% for 2007.

Net fees and commissions decreased by 3.6% in 2008 to RUR 2,259 mln from RUR 2,344 mln. While total fee and commission income increased slightly, led by increases in commissions on settlement and trade finance transactions (2008: RUR 1,834 mln; 2007: RUR 1,417 mln) and commissions on foreign currency transactions (2008: RUR 545 mln; 2007: RUR 364 mln), the lower result was primarily due to a decline in investment banking and brokerage commissions (2008: RUR 177 mln; 2007: RUR 504 mln), as well as increased commission expenses on settlement transactions, mainly as a result of the growing number of transactions with debit and credit cards issued by MDM Bank, in addition to the increased number of transactions involving non-MDM Bank cards on MDM Bank’s acquiring network.

Net result from trading, including trading in securities, foreign exchange and precious metals, decreased by 16.8% in 2008 to RUR 941 mln from RUR 1,131 mln in 2007. The result was impacted by turbulence in capital markets in the first and third quarters, when the Bank recorded losses from securities trading of RUR 297 mln and RUR 575 mln respectively, and a YE2008 loss of RUR 997 mln from trading securities. This was partly offset by net gains from trading in precious metals (2008: RUR 504 mln; 2007: a loss of RUR 22 mln). Additionally, a gain of RUR 1,134 mln from early redemption of debt was recorded in Q4 2008.

Operating expenses grew by just 8.6% in 2008, which compares favorably both to operating expense growth in 2007 (28.4%) and the revenue growth in 2008 (25.9%). This resulted in the overall cost / income ratio improving from 48.3% in 2007 to 42.9% in 2008. A ratio more indicative of efficiency levels is operating costs to revenues before trading results in securities, which also improved from 48.2% the previous year to 39.3% in 2008.

Staff costs, representing 60.6% of the Bank’s overall operating cost base, declined by 1.3% to RUR 5,673 mln, despite new staff hires and network expansion (personnel numbers increased by 788 and the bank increased the number of outlets by 35 in 2008). This was primarily due to cost-saving efforts undertaken beginning in Q3 2008 and continuing through the end of the year. Average cost per employee decreased by 13.1% to RUR 864,000 per year, while staff productivity, evidenced by revenue per staff, rose by 6.4%, from RUR 3,393 mln to RUR 3,611 mln.

Non-staff operating expenses grew by 28.4% to RUR 3,693 mln, a slower pace than in the previous two years. The increase in non-staff expenses is primarily attributable to depreciation, rent and other expenses related to property, plant and equipment, which grew in 2008 by RUR 818 mln, an increase of 69.3%, on branch expansion (all new outlets opened by the Bank are being rented) and rising rental rates.

Total provisioning expense, including provisions for losses on credit related commitments, equaled RUR 6,616 mln in 2008, up 217.6% from RUR 2,083 mln in 2007. As a result of provisioning, non-performing loans (NPLs) were comfortably covered by provisions at the end of 2008 across all portfolio segments, with total coverage at 139.3%, despite a significant increase in NPL levels. Going forward, MDM Bank will continue to maintain adequate loan loss provisions per the market situation.

Balance Sheet Review

Total assets increased by 2.4% to RUR 329,117 mln in 2008, following 32.2% growth in 2007. The balance sheet grew only during the second quarter of 2008, as the bank focused primarily on liquidity throughout the year, and in Q4 2008 accelerated efforts to reduce exposure to riskier sectors of the economy, as well as to significantly reduce new corporate lending pending analysis to determine those sectors to which the bank would seek to lend going forward.

Gross loans reached RUR 194,806 mln at the end of 2008, up 8.0% over the previous year. Gross loans to corporate customers and loans to individuals grew by 13.3% and 9.8% respectively, while small business loans, a strategic priority for the bank, grew significantly faster, increasing 89.1% during 2008. Loans to corporate customers totalled RUR 137,800 mln and continue to make up the majority of the portfolio, representing 66.6% of gross loans, while the faster-growing small business portfolio (RUR 15,529 mln) made up 7.5% of gross loans, up from 4.4% at YE2007. The remainder is represented by retail lending amounting to RUR 40,460 mln, which accounts for 19.5% of gross loans.

Non-performing loans more than doubled in 2008 from 2.0% of gross loans at YE 2007 to 4.2% of gross loans at YE 2008 (from RUR 3,784 mln to RUR 8,763 mln). This increase was driven primarily by worsening asset quality in the corporate loan portfolio: NPLs in this portfolio increased from 0.8% to 3.5% of loans to corporate customers during 2008 (RUR 1,014 mln to RUR 4,756 mln).

Significant progress has been made to improve industry diversification in the Bank’s loan portfolio. The Bank’s largest industry exposures at YE2008 were to Trade, Individuals, Real Estate Management, Manufacturing and Wholesale Trade. Construction is no longer among the top 5 industries, and exposure to this sector dropped 35.3% from RUR 22,247 mln (12% of gross loans) on 31 December 2007 to RUR 14,397 mln (7% of gross loans) at the end of 2008. Since 2006, the bank’s exposure to the construction sector has fallen both in terms of its share of the loan portfolio (2008: 7%; 2007: 12%; 2006: 14%) and in absolute terms (2008: RUR 14,397 mln; 2007: RUR 22,247 mln; 2006: RUR 24,381 mln).

Trading securities exposure decreased in 2008 by 98.2% to RUR 194 mln at year end. The small amount of securities remaining in the bank’s portfolio is made up entirely of corporate shares, which decreased 87.0% from RUR 1,488 mln in 2007. At the same time, in 3Q 2008 following the introduction of amendments to IAS 39 and IFRS 7, the bank reclassified certain debt trading securities into AFS (RUR 10,009 mln), HTM (RUR 1,184 mln) and loans and advances to customers (RUR 3,924 mln).

Customer accounts at the end of 2008 totaled RUR 115,071 mln, down 7.3% from RUR 124,132 mln in 2007. The overall decline was driven by a 38.0% decrease in corporate term deposits from RUR 68,426 at YE 2007 to RUR 42,451 mln at YE 2008, which made up 36.9% of overall customer accounts as of YE 2008. A more accurate measure of customer accounts, however, can be made by excluding MDM Bank’s 100%-owned subsidiary Latvian Trade Bank (LTB), which management does not consider for liquidity management purposes due to the short-term and volatile nature of deposits in this bank. Excluding LTB, customer accounts were stable in 2008, increasing from RUR 96,470 mln at YE 2007 to RUR 98,347 mln at YE 2008. Retail term deposits (including deposits from private banking customers) also grew by 79.9%, reaching RUR 25,362 mln at 31 December 2008. In line with the bank’s strategy to develop its retail business and diversify its funding and asset bases, retail deposits now account for 22.0% of customer accounts, vs. 11.4% at the end of 2007.

During 2008, international markets were largely closed to Russian private banks. Due to its size and highest credit ratings among private Russian banks, however, MDM Bank was able to raise USD 535 mln from an IFC A/B syndicated loan in July 2008. The Bank remains largely opportunistic in 2009, with all plans on syndications and capital market transactions subject to market conditions.

Following a capital increase completed in the third quarter of 2007 of RUR 4,668 mln in favor of the International Financial Corporation (IFC), which is now a 5% shareholder in the Bank, the Bank’s capital base expanded to a very comfortable level relative to its risk-weighted assets. At 2008-end, the total capital ratio on a consolidated basis rose to 17.9% from 17.2% at the end of 2007. While management believes that the Bank’s minimum total capital ratio consistent with its objective to reach an investment-grade credit rating is around 12%, it is likely that the ratio will remain significantly above this level in 2009. This is mainly due to the restricted ability to increase leverage by international borrowing due to the ongoing volatility in the global capital markets.


Conference Call on YE2008 Results

MDM Bank will hold its YE2008 results conference call on Thursday, 9 April 2009, at 5 p.m. Moscow time (2 p.m. London time, 9 a.m. New York time). MDM Bank management will discuss the Bank’s financial results for the year ended 31 December 2008. For registration and instructions, please go to the following link:

The Bank’s YE2008 Financial Statements, press release and results presentation will be available on the day of the call on MDM Bank’s website.

Financial statements:
Press release:

The call will be held in English. A recording and transcript of the call will be made available on the MDM Bank website.

MDM Bank was founded in December 1993 and holds a General Banking License issued by the Central Bank of Russia (#2361 dated 31 March 2008). MDM Bank is one of the most dynamically developing banks in Russia and is among the top Russian banks in terms of assets and equity. Today, MDM Bank is a modern universal financial institution offering a full range of services to its clients.
MDM has one of the highest credit ratings among privately-owned Russian banks – Standard & Poor’s (BB, Credit Watch Negative), Fitch Ratings (BB-, negative) and Moody’s (Ba1, stable) – and is the only Russian financial organization that has been given a public Corporate Governance Score by Standard & Poor’s (CGS-6+). Standard & Poor’s awarded MDM Bank the highest ranking in its study of “Transparency and Disclosure by Russian banks” in 2006 and 2007. The Bank was also regarded by Euromoney magazine as “one of the leading banks in Russia and Emerging Europe, applying the most advanced standards of corporate governance.”
MDM Bank has received a number of awards from Global Finance magazine:
2005 – Best Domestic Bank and Editor’s Special Award for Transparency.
2006 – Best Forex Bank, Best Domestic Bank, Best Domestic M&A Arranger, and Best Bank in Corporate Governance. In October 2006, Euromoney magazine awarded MDM Bank Leading Bank in Corporate Governance in Emerging Europe.
2007 – Corporate Governance Editor’s Award, and Best Forex Bank.
2008 – Best Domestic Bond Research Team
2008 - Euromoney magazine named MDM Bank the Best Managed Bank in Corporate and Investment Banking in Central and Eastern Europe – 2007

MDM Bank
Investor Relations: +7 495 221 30 75
Public Relations: +7 495 363 27 41

15.05.2009 08:03

About MDM BankInvestor RelationsMDM NewsMDM ResearchMDM QuotesMOSCOW WEBCAMContact Information