Annual Report 2015 Bank Saint Petersburg at a Glance
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ANNUAL REPORT 2015 BANK SAINT PETERSBURG AT A GLANCE 25 years 1 600 000 read more page 6 individual customers read more page 35 86% 72% 24% 11% S P Moscow 56 000 57 corporate branches customers and offices 4% 3% read more page 29 read more page 80 K 3 600 employees Share in the loan portfolio read more page 55 Share in the customer deposits The Bank is always profitable, even in a challenging macroeconomic environment 20.6% 17.2% 16.4% 15.3% 15.2% 9.7% 6.7% 3.2% 2.9% 640 2007 2008 2009 2010 2011 2012 2013 2014 2015 N I RUB RAE BANK SAINT PETERSBURG Annual Report 2015 CONTENTS 2 LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD AND CEO 5 THE BANK’S PROFILE 9 OVERVIEW OF THE RUSSIAN ECONOMY AND BANKING SECTOR 15 MANAGEMENT REPORT 27 OVERVIEW OF THE BANK’S BUSINESS DIVISIONS 28 Corporate Banking 34 Retail Banking 39 Private Banking 40 INFORMATION TECHNOLOGY 44 RISK MANAGEMENT 51 RELATIONSHIPS AND RESPONSIBILITY 52 Customers 54 Colleagues 57 Community 60 CORPORATE GOVERNANCE 69 IFRS FINANCIAL STATEMENTS FOR FY 2015 BANK SAINT PETERSBURG Annual Report 2015 1 Letter from the Chairman of the Supervisory Board and CEO Bank Saint Petersburg is the first bank during the last 100 years that has designed and built its own headquarters in St. Petersburg. The ultramodern Head Office was opened in 2011 and became the embodiment of the most advanced technologies in the fields of engineering solutions and in the sphere of customer service. Letter from the Chairman of the Supervisory Board and CEO LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD AND CEO Dear customers, investors and partners, 2015 was marked by an aggravation of negative trends in the Russian economy due to consistently low oil prices. The slowdown in economic activity affected lending dynamics in the banking sector resulting in the growth of credit and interest rate risks, substantially reducing the profitability of many credit institutions. In a sign of average market constriction, we ended the year of the Bank’s 25th anniversary with record revenues of RUB 28 bn and a decent profit of RUB 3.6 bn. Financial market operations brought in more than 20% of the revenues and became the key driver of growth. Return on equity for FY 2015 amounted to 6.7%; aggregate ROAE 10.5% was supported by an investment securities revaluation of RUB 2 bn through capital account. The Bank Continues Its Dynamic Development In 2015, retail deposits increased by more than 20%. As at January 1, 2016, Bank Saint Petersburg was ranked 14th in Russia in terms of retail deposits, which proves our individual customers’ immunity to the mood of panic, which is likely to be initiated by revocations of several bank licenses. Retail deposits grew to be 55% of customer deposits and we expect them to grow further. One of the highlights of 2015 for the Bank was mortgage lending. At the end 2015, Bank Saint Petersburg was ranked 3rd in Russia within the State Mortgage Subsidy Program and 8th in terms of new mortgages issued. The Bank’s share in new mortgage lending in St. Petersburg reached 18% in 2015. These are the best results the Bank has had since the introduction of its mortgage lending program. In 2015, while many credit institutions were downsizing their branch networks, the Bank opened 10 new offices, in which a new approach to business is being realized through an integrated system of organizational and technological innovations. Leadership in Innovative High Technology Solutions The Bank is one of the national leaders in applying high technology solutions, continually introducing innovative online financial services. We have 1 600 000 retail customers. Our aim is to cover all of our customer’s banking needs, where convenience and fast processing play an ever more important role. Our Internet Bank has 600 000 users, accounting for 1/5 of the economically active population of St. Petersburg. The high-tech services developed by the Bank became a convenient payment environment to the fullest extent possible. Online deposits accounted for 51% of retail term deposits and 61% of corporate term deposits placed in 2015. Consumer loans originated through the Internet Bank accounted for 70% of all consumer loans granted in 2015. Every year, 96% of retail payments and 99% of all corporate transactions are made through digital channels. Lending Practices, Capital and Liquidity Management We pay considerable attention to reducing concentration and maintaining a high quality loan portfolio. We do not increase exposure to problematic segments and take a careful approach to the collateral pledged. Throughout 2015, we have gradually raised our provision level, prompted by the current macroeconomic situation. BANK SAINT PETERSBURG Annual Report 2015 3 Letter from the Chairman of the Supervisory Board and CEO In the reporting year, the Bank strengthened its capital position by means of subordinated funds obtained from the Deposit Insurance Agency (DIA) in the amount of RUB 14.6 bn within the State Capitalization Support Program for credit institutions. As a result, the total capital adequacy ratio was strengthened by 2.3PP, which is especially important when markets are so volatile. The Bank is one of the most liquid institutions in the market. Our loan portfolio is fully financed by customer deposits, making us completely independent from external funding, which proved to be one of the Bank’s significant advantages compared to other credit institutions when Russia was subjected to western sanctions. The Bank’s stable liquidity position, coupled with growing customer confidence, allows us to keep our deposit interest rates at the level offered by state-owned banks, ensuring reasonable cost of funding. Opportunities for Investors In 2015, although the Bank’s share price grew by 79% to RUB 44, the Bank still remains the most undervalued bank in the market (P/BV remains 0.3) with significant upside for the growth of shares. The Bank has been increasing book value per share for its shareholders: at the year’s end in 2015, to support share price and to overcome the current undervaluation, the Bank bought back 2.7% of the share capital. As at January 1, 2016 book value per share has reached RUB 129. In 2015, the Bank also paid dividends of 20% of net income. In February 2016, the Supervisory Board approved the Dividend Policy. This document establishes the Bank’s intention to maintain a dividend payout ratio of 20%+ of the Bank’s RAS net income. We expect that this step will make the Bank’s shares more attractive for current and prospective investors. Sustainable Growth at Maximum Capacity In December 2015, the Supervisory Board approved the Bank’s Strategy for 2016-2018, with the focus on sustainable growth at maximum capacity, both organic and by potential mergers and acquisitions. At the same time, the Bank must continue to be focused on enhancing its operational efficiency. The key financial goal remains the recovery of ROAE to 15%. We believe that in current challenging circumstances, the Bank turned out to be stronger and more adaptable to the new reality than its competitors, creating new opportunities for our sustainable development. We will continue to introduce innovative high technology solutions and to develop all of the Bank’s numerous best practices in the electronic banking environment. We invest in the development of innovations in order to strengthen leadership in today’s digital environment and over the next 3-5 years. We aim to expand the customer base to 2 600 000 individual customers in the next 3 years, including both further growth in the home region, and expansion into new regions – Novosibirsk, Ekaterinburg and Krasnodar – where we plan to start the development of our business by opening representative offices, which is currently the most efficient strategy in our opinion. Customers will receive the full range of services via remote channels. We rightfully celebrate the results of our day-to-day labor and the intellectual work of our employees. We highly appreciate that our customers stay with us and we are always ready to assist them in meeting any financial challenge. Alexander Savelyev Vladislav Guz Chairman Chairman of the Supervisory Board of the Management Board BANK SAINT PETERSBURG Annual Report 2015 4 The Bank’s Profile Bank Saint Petersburg is the largest privately-owned bank in North-West Russia. The Bank’s historical competitive advantages in the region are its expert knowledge of the local market, quick decision- making, high quality and accessibility of services, reliable reputation, high brand recognition, and flexibility and responsiveness in addressing client needs. The Bank’s Profile THE BANK’S PROFILE Bank Saint Petersburg is the largest privately-owned universal bank in North-West Russia and plays an important and constructive role in the development of the Russian banking system, th which is the same age as the Bank. As at January 1, 2016, Bank Saint Petersburg was the 17 among Russian banks 17th largest bank by assets and 14th largest by retail deposits among the Russian banks. in terms of assets In 2015, the Bank celebrated its 25th anniversary, which is a significant age for a Russian bank that, confirms its strong position in the financial market. Today, the Bank is proud of its market share, the long-term relationships it has with its clients, its strong team of professionals and impeccable reputation. In a quarter of a century, Bank Saint Petersburg has become the largest Russian regional bank with a strong and positive brand which has won the trust and support of its customers: today the Bank provides services to 1 600 000 individuals and more than 56 000 corporates, including major companies located in St.