On June 17, 2014 Ural Bank for Reconstruction and Development (UBRD) signed unsecured uncommitted syndicated revolving loan facility agreement with Alfa-Bank JSC acting as arranger, initial creditor and paying agent, and Bayerische Landesbank acting as agent of the transaction. The transaction is governed by English law.
The term of the credit line is two years from the date of signing the loan agreement. The Borrower has the right to attract funds for a period of three, six, nine and 12 months. Repayment is one-off at the end of each period.
The first tranche in the amount of USD 16 mln was delivered on July 31, 2014. The first tranche was provided by two major Russian banks – Bank ZENIT OJSC and Promsvyazbank JSC by acquiring rights to claim under English law by signing Transfer Certificates with Alfa-Bank.
“This is a unique deal for the Russian banking sector. Contrary to the unstable situation in the market we have been able to implement a deal to provide a syndicated loan for the leading Russian bank, bringing together the main features of the primary and secondary market. Sale of UBRD’s risk was carried out through the signing transfer certificates and preliminary deposit of loan funds in the accounts with Alfa-Bank. We believe that this product will be able to interest other Russian banks as well,” says Alexey Petrov, Director, Head of syndication desk, Corporate and Investment Bank of Alfa-Bank.
Sergey Sisoshvili, Head of international business, UBRD, said: “This transaction confirms high reputation of Ural Bank for Reconstruction and Development in the interbank market, and also shows the emerging trend – many of leading Russian banks in the current market situation will shift to local debt capital markets.”
In the first half of 2014 despite a slowdown in the banking sector Ural Bank for Reconstruction and Development (UBRD) showed growth in key financial indicators demonstrating the effectiveness of its business model.
UBRD’s equity YTD increased by RUB 1.5 bln (+8.6%), reaching nearly RUB 18.9 bln. The capital increased due to the financial support from shareholders and a subordinated loan in the international market. This enabled the Bank to increase capital adequacy ratio (N1.0) to 11% (as of July 1, 2014) and continue the implementation of development strategy.
As of H1 2014 net profit amounted to RUB 746.8 mln, assets amounted to RUB 215.8 bln, compared to the beginning of the year an increase of RUB 14.3 mln or 7.1%, and for the year increase of 28.1%. The loan portfolio increased to RUB 138.5 bln (+7.9%). In the first half of the year the growth of the corporate loan portfolio (including SMEs) was to RUB 65.8 bln. (+17.7%); loans to retail clients in the first half to amounted to RUB 20.6 bln (in the same period last year it was RUB 23.9 bln). Total retail loan portfolio was RUB 60.9 bln, decreasing by 2.9% compared with January 1, 2014, due transaction for the sale of the portfolio.
Liabilities reached RUB 204 bln (+7.6%), compared to the same period last year an increase of 29.6%. Corporate deposits increased from RUB 35 bln to RUB 39.8 bln (+13.7%). Retail deposits reached RUB 85 bln (+9%). Inflows of individuals is a result of new products – promotional deposits "+10" and "Record", allowing the highest returns, as well as special programs for loyal customers.
Number of active clients of the Bank in six months increased by 61 thsd up to 947.8 thsd. Main inflow of individual clients: from January1, 2014 their number increased by almost 60.5 thsd.
“These results demonstrate with the overall serious slowdown in the banking sector UBRD confidently moves forward. External events require more work on the reliability of the Bank. We chose a conservative business management model that focuses on diversification of passive base, improving the quality of the loan portfolio, and it has shown its effectiveness.
At the same time, we worked on improving the quality of products and services, emphasizing on simple technological services. The result of this work is obvious – for six months UBRD significantly increased its customer base, which is primarily an indication of customer confidence,” said Anton Solovyov, President of UBRD.
To recall, UBRD has launched a number of new high-tech products. Among them are a new internet bank for individuals, rated 7th by functionality in Banking Review, and, according to Markswebb, UBRD is in the top 3 banks for mobile browsers. During Innoprom exhibition UBRD also presented bank technology SEQR of Swedish company Seamless, which allows to pay for purchases with smart phone.
UBRD’s shareholders have made additional capital injection of RUB 1,044 bln. The proceeds will be used to maintain and ensure the growth of the Bank, in particular, the development of lending, improvement of technologies, and expansion of office and ATM network.
“The capital increase confirms willingness of the shareholders to support and to stimulate the development of the Bank. Increased equity will allow us to focus more on improving efficiency and strengthening our position in the market, and will provide the necessary framework for the implementation of the Bank's strategy 3-2-3, according to which we plan to triple the number of offices and revenue, and double the number of active clients,” says Anton Solovyev , President of UBRD.
Highlights: Anton Solovyev talks with Thomson Reuters
On June 04, 2014, Anton Solovyev participated in a chat-room of Thomson Reuters Trading Russia, where the main topic of the discussion was a retail bank in current market environment. We have highlighted key quotes below:
Q: What are the expectations for the key rate?
A: On the one hand, this rate sets the general level of interest rates in the credit market, respectively, is an effective lever of government lending rates. If the issue is to reduce the cost of credit to businesses, it is logical to expect it to go down. According to the optimistic scenario, it may be reduced in the medium term by 0.5 - 1.0 percentage points
But one can not exclude the pessimistic scenario where it will remain at the same level, which will reduce the rate of inflation. The level of the key rate primarily depends on which of these issues the state will solve.
Q: What will be the ruble yield curve? What will happen to pricing and yield on Russian Treasury bonds? How the cost of short-term borrowing in the interbank market will change?
A: At the moment, the main factor of rate changes are the regulator’s actions. Therefore, when the key rate reduced, we see a similar reduction in the rates in the range of over 180 days, while the short rates should fall by 1.5.
Now a part of the curve from 30 to 90 days has very high values as a consequence of a shortage of liquidity in the market and the effect of the recent rate rise.
We believe that the most likely the regulator and market rates will decline, however, the corridor of reduction will not exceed 1.0 b.p.
Q: What dynamics did retail portfolio show in 2013, and whether you plan to increase its share?
A: According to RAS retail loan portfolio increased by 71.6% to RUB 62.7 bln in 2013. In 2014 we plan to expand portfolio by 20-30% (depending on the growth options of market capacity).
As of January 1, 2014 retail deposit portfolio was RUB 78 bln, which is RUB 18 bln more than last year (+29.9%). The total share of the retail sector in the resource base is 64%. In 2013 UBRD followed a policy of diversifying its resource base. As a result, the proportion of funds raised from the open markets (bonds issued in domestic and foreign markets) increased from 8% to 13%.
As long-term goals we set further reduction of the share of retail in liabilities by boosting other sources. According to our expectations, depending on the situation in the markets, the share of retail may be reduced to 55-60% in the next two years
Q: Who are your main clients, and how the Bank attracts deposits from individuals?
A: The Bank positions itself as a universal credit institution that offers traditional banking services to all categories of customers: large corporate customers and small businesses, and individuals.
The main part of attracted funds from individuals are deposits. By the end of 2013 deposit portfolio amounted to RUB 78 bln, by the end of four months of 2014 it grew by 6.3% and totaled RUB 82.9 bln; UBRD’s share in the Russian market was 0.6% as of May 1, 2014.
At the same time, in March, when the banking system saw an outflow of deposits UBRD entered the Top 20 banks, which recorded inflow of deposits. The Bank plans to increase its growth dynamics and bring its market share up to 1% in 2016.
Q: Do you plan any international developments, why? And if so, what methods are used?
A: Certainly. Reliability of the Bank’s business model involves the diversification of funding sources.
Therefore, the work in international capital markets is an important direction for us. Our plan is to continue the development of trade finance, as it can be quite interesting to a wide range of clients engaged in export and import.
In addition, using trade finance products may significantly reduce the cost of international funding and expand the circle of Western partners and financial institutions, including banks, export credit agencies, and factoring companies.
Q: Any borrowings in the bond market planned?
A: Currently, the Bank has registered and ready to place three three-year exchange bonds of Series BO-06, BO-07, and BO-09 with total nominal value of RUB 7 bln., and one additional issue of Series BO-05 of RUB 1 bln maturing in 2020.
The placement of these issues will depend on the situation in the financial markets of Russia.
Q: Are you ready to lend to businesses not in your region? How do you assess this recent practice in the banking sector?
A: We lend to businesses in all regions of our presence. Today we are represented in 68 regions, the number of our branches exceeds 550 offices.
Q: How does the portfolio of Bank’s customers look like, more individuals or legal entities?
A: Roughly, equal number of individuals and legal entities among the clients – 46% and 54%, respectively.
Q: What bonds do you hold in your portfolio? Are there any shares in the portfolio, which and why?
A: There are no shares traded on stock exchange; the Bank currently has limited investments in high-risk instruments. As of May 26, 2014, the bond portfolio is about RUB 51,6 bln.
It consists of more than 99% of the securities of issuers that are rated by international agencies and included in the Lombard list of the Bank of Russia. Two third of the portfolio are securities rated BBB- and above: A – 1.16% , B – 3.97%, BB – 27%, and BBB – 66.42%.
In the first quarter of 2014 despite the general economic slowdown UBRD showed a positive trend on the main indicators.
Compared with the beginning of 2014 the Bank's capital increased by to RUB 17.8 bln. (+4.1%). Over the past 12 months the growth of capital was +30.9%.
Profit before provisionsin the first quarter exceeded RUB 4 bln, an increase of RUB 1 bln. compared with the previous quarter. Net incomein the first quarter was RUB 7.2 mln, while for the same period last year it was recorded at around RUB 320 mln, and by the end of fourth quarter of 2013 – RUB 287.6 mln. The decline in net income is explained by securities revaluation, changes in reserve requirements on newly issued loans, and taxes.
During the first quarter assets increased by 5.7%, up to RUB 213 bln, compared to the same period last year, an increase of 38.3%. Driver of growth in the first three months of 2014 was the Bank’s loan portfolio, which increased by 4.8% since the beginning of the year, up to RUB 134.5 bln. Growth of the corporate loan portfolio (including SMEs) from the beginning of the year was RUB 5.3 bln and reached RUB 61.2 bln. Retail loan portfolio increased by 65.3% and reached almost RUB 62 bln compared with the same period last year.
Liabilities have also increased, and on April 1, 2014 exceeded RUB 201.4 bln. Portfolio of retail term deposits increased by 4.4% to RUB 81.4 bln. However, the higher growth rate were in corporate deposits. Portfolio grew by 12% and reached RUB 39.2 bln. To be noted that in the same period last year growth was recorded only at 2.4%.
Number of active clients of the Bank exceeded 920,000. Office network increased by 20 offices: as of April 1, 2014, 539 offices in 67 regions of Russia were registered with CBR.
In the first quarter, there were many external events that have had a direct impact on the banking sector. These were decreased customer confidence in the banking system and a significant decline in economic growth, as well as geopolitical factor. We understand the current threat to the market , and we already can predict that the recession will be. The first quarter was for the entire banking sector another stress test. As a result, we have seen once again that UBRD’s business model allows clearly and promptly respond to all the challenges of the market, ensuring uninterrupted service to our customers, said Anton Solovyov, President of UBRD.
RUB BO-05 repurchased
On April 23, 2014, UBRD fulfilled obligations under annual offer and redeemed at the request of the owners of seven-year BO- 05 bonds after the second coupon period.
Totally Bank repurchased 1,646,352 bonds at par, which is 82 % of the issue. UBRD further plans to place securities in the secondary market.
UBRD placed BO-05 Series totaling RUB 2 bln with third and fourth coupon rates of 11.75% in April 2013.
On April 17, 2014 MICEX has registered the additional issue of BO-05 Series with a total nominal value of RUB 1 bln. Overall, UBRD has three RUB bonds series of exchange bonds, and one of classic bonds totaling RUB 9 bln; classic RUB bonds in the amount of RUB 2 blnwill be repaid in early May 2014.
On April 17th, 2014, UBRD finalized the refinancing of its customer for buying power equipment from Caterpillar, USA. The loan for the amount of USD 33.8 mln with tenor of 5 years was granted by AKA Export Finance Bank and Commerzbank, and insured by export credit agency Euler Hermes.
“The structure of the deal was complicated since process involved companies from several countries: Germany, Switzerland, the United Arab Emirates. This kind of deal that lasted almost a year is unprecedented for the market because the rules of the German export credit agency do not involve the participation of such a wide range of countries. I am sure that it will further strengthen the reputation of UBRD as a reliable partner in foreign and domestic markets,” said Sergei Sisoshvili, Head of International Business. The successful completion of the transaction also evidences the fact that international cooperation and foreign trade will further develop, he continues.
In Top-20 by deposits
UBRD is among the 20 largest banks in Russia that showed an increase in the volume of retail deposits in March 2014, according to the analisys of Banki.ru Agency.
Agency experts have calculated the dynamics of deposits placed in the top 100 Russian banks, and found that only 20 of them observed increase in funds by the end of March. UBRD’s increase amounted to RUB 71.7 mln.
UBRD holds strong positions in the ranking of the largest Russian banks published by Expert RA in terms of assets, loans and deposits of individuals.
Occupying 33 place by assets as of February 1, 2014, UBRD shows a high growth rate of assets – 46% over the past year (01.02.2013 – 01.02.2014).
UBRD has established itself as a reliable bank for safekeeping of funds; for the same period the volume of individual deposits in UBRD increased by 28%, allowing the bank to take 22 place among the largest financial institutions of Russia. As of February 1, 2014, retail customers have placed deposits with UBRD for more than RUB 80.17 bln.
Bank’s retail loan products are also in great demand; in the beginning of February 2014 UBRD has granted loans to individuals in the amount of RUB 63.26 bln. In this term UBRD holds 26 place in the rankings.
Ural Bank for Reconstruction and Development to finance supply of Italian construction equipment of Italian company Linco Baxo in Russia . Term of the transaction is up to 4 years.
The agreement was signed between UBRD and UBI Banca. Credit insurer under the agreement is Italian export agency SACE. Linco Baxo equipment will be delivered to the client of UBRD – Sukholozhsky Refractory Plant, which is one of the main manufacturers of energy-efficient new generation of refractories Sverdlovsk (home) region.
It should be noted that SACE along with US Ex-Im Bank and Euler Hermes accepts long-term risks of UBRD.
As Sergei Sisoshvili, Head of International Business, says this deal shows UBRD’s strong positions in the international financial market and a high degree of confidence that the world's largest insurers place in UBRD. “In the future we plan to continue to attract long-term foreign capital for industrial development Russian regions”, he continues.
UBRD expands its network and in late January has opened first full office in Ulyanosvk.
In 2014 UBRD office network will continue to increase: in the first half of 2014 there will be new offices in Tomsk, Astrakhan, Kursk, Novosibirsk, Lipetsk and other cities. According to the bank's strategy, in 2015 the bank office network is not less than 550 outlets.
In 2013 Ural Bank for Reconstruction and Development has not only strengthened its position but also prepared the platform for further intensive development in the context of slowing growth of the market of banking services. The Bank's own capital has increased from RUB 12.7 bln to RUB 17.4 bln. (+37.1%) due to operating income and issue of subordinated Eurobonds. Thus UBRD became the first bank in the Sverdlovsk region by capital.
UBRD is among 25 largest retail banks in the country and maintain a leading position in home region (Sverdlovsk region) by all key banking indicators: assets, profit, loan portfolio, retail deposits, and investments in securities.
Net assets have increased by RUB 59 bln (+41.1%) reaching RUB 201,4 bln as of January 1, 2014. The total loan portfolio increased compared with the beginning of the year to RUB 43.6 bln (+51.5%) and reached RUB 128.4 bln. Retail loan portfolio increased by 71.6% reaching RUB 62.7 bln, volume of corporate loans grew by 27% from RUB 44 bln to RUB 55.9 bln rubles. High growth rate was recorded in lending to SMEs: SME loan portfolio increased to RUB 8 bln (75.8%).
YTD resource base increased by almost half reaching RUB 189,6 bln as of January 1, 2014. As of January 1, 2014 retail deposits portfolio amounted to RUB 78 bln, which is RUB 18 bln (+29.9%) more than last year. Portfolio of corporate deposits increased by RUB 18.6 bln (+113.4%) up to RUB 35 bln. UBRD has issued exchange bonds for RUB 5 bln, euro-commercial papers of USD 100.8 mln, and made a debut issue of subordinated Eurobonds for USD 68 mln to increase equity of the Bank.
As of January 1, 2014 net profit amounted to RUB 2 bln (+75%).
UBRD took 9th place by the number of point of sales in 2013 (RBC). As of January 1, 2014, 519 offices in 67 regions were registered by the CBR. In 2013 the Bank has opened 237 new offices. ATM network now accounts 1148 machines.
On January 1, 2014 the number of active customers has exceeded 886 thsd (+28.3%).
“We see the market is cooling and approaching the saturation point. Although our focus will gradually shift from extensive development towards intensive, UBRD’s business model will not change significantly in 2014. We will continue to compete in those areas where we are confident, will continue developing the network, we pay much attention to remote sales and service, will continue working with loyal borrowers. Particular attention will be paid to the Bank’s risk policies and the effectiveness of business processes. And, of course, we will continue to improve our services and offer our customers the best and marketable products,” said Anton Solovev, President of UBRD.
The Ural Bank for Reconstruction and Development has appointed a new top manager – Head of Risk Management – Tomasz Szymanowski, who will be responsible for development of risk management strategies and consistent credit policy, and capital management at risk.
“A new strong leader of an important division has joined our team. Tomasz Szymanowski has successful experience in establishing an effective control scheme of bank loan portfolio, which will allow him to build a quality system for monitoring liquidity risk in our Bank”, said Anton Solovev, President of UBRD.
Tomasz Szymanowski graduated from Warsaw University of Technology and the Warsaw School of Economics. He has more than 20 years experience in the banking sector, including eleven years of running credit risk management in different banks – Bank Millennium, GE Money Bank, and Rabobank in Poland. Tomasz Szymanowski is one of the organizers of the forum on banking strategy of the banking sector, which was held in Warsaw in 2012. Besides Polish , fluent in English and Russian languages.