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VTB Bank seeks to prop up regional retail, SME ops with M&A

Russia's JSC VTB Bank is currently reviewing several small merger and acquisition opportunities in its home market as it seeks to strengthen existing regional units, especially in retail and small business banking, Deputy President and Chairman of the Management Board Herbert Moos told analysts Feb. 26 at the presentation of the state-owned lender's annual results.

VTB's retail banking business performed better than the market in 2017 — 14.3% year-over-year growth versus 12.7% — as the group benefited from an ongoing move of bank customers from privately held and smaller banks to larger state-held institutions.

That trend was triggered a few years ago with the Russian central bank's banking-sector cleanup, which resulted in the closures of a number of smaller banks. In 2017, considerable deposit outflows raised concerns about the liquidity position of some Russian lenders, especially those not owned by the state. In late 2017, the Central Bank of the Russian Federation had to recapitalize the country's biggest privately owned lender, Otkritie Holding JSC. The recapitalization of two smaller privately held banks, PAO Promsvyazbank and B&N Bank, should be completed in the first quarter of 2018.

In addition to gaining more customers thanks to the changing market landscape, VTB was able to boost its share in domestic retail banking through the continued expansion of its Post Bank franchise network, which reached 14,000 outlets by the end of 2017. A further boost to the group's retail operations is expected from the recent acquisition of a 29.1% stake in Russian retailer PJSC Magnit.

Moos declined to comment on whether VTB plans to open in-store branches in Magnit outlets going forward. He also declined to give details about the integration of the company, as the acquisition is yet to be completed. However, he stressed that VTB sees significant potential for future synergies "given that Magnit is one of the strongest companies in logistics, in retail, and a further combination with the Russian Post will enable us to become the leader in the Russian logistics market." He added: "It's also entirely consistent with our strategic view and outlook for how banking would develop going forward."

Regarding the group's M&A strategy in 2018, Moos said: "We are reviewing several smaller M&A opportunities in banking... Most of those acquisitions will be regional banks with a strong footprint in that particular region [and will] have a material positive impact for that particular regional presence of VTB, mostly in retail and SME businesses. [They will] essentially [complement] our capability in specific Russian regions."

Equalization of dividends

VTB is also currently in talks with its majority owner, the Russian government, to equalize the dividend yield on all classes of VTB Bank shares, Moos said. The equalization will result in a significant increase in yield on ordinary shares, according to Moos.

To achieve the equalization, VTB will keep constant the amount paid to the Russian government on all types of shares held by the state, including ordinary and all classes of preference shares, he said, adding that to estimate the yield on ordinary shares, VTB will use an average weighted share price over a certain period. The specific period is yet to be determined.

VTB expects an agreement with the government to be achieved in April, when the supervisory board of the bank will hold a meeting to approve all proposals to be presented at the annual general meeting later in the year. Apart from ordinary shares, the group has issued two types of preference shares.

VTB more than doubled its net profit attributable to shareholders of the parent to 120.3 billion Russian rubles in 2017 from 52.3 billion rubles in 2016. EPS for the period jumped year over year to 0.86 kopeck from 0.32 kopeck.

As of Feb. 23, US$1 was equivalent to 56.40 Russian rubles.