Non-Interest Income

Indicator, RUB bln Year ended 31 December
2019 2018
Fee and commission income 15,398 15,829
Fee and commission expense (3,864) (3,483)
Net loss on loans to customers at fair value through profit or loss (1,590) (5,611)
Net gain or (loss) on financial assets at fair value through profit or loss 793 (189)
Net gain or (loss) from sale and redemption of investment financial assets at fair value through other comprehensive income (272) (251)
Net realised gain or (loss) on investment financial assets at amortised cost 200 -
Net gain on derecognition of financial instruments measured at AC 295 -
Net foreign exchange (loss) (13,252) 2,723
Net gain on change in financial liabilities measured at fair value through profit or loss 162 -
Impairment gain or (loss) on other non-financial assets, credit gain or (loss) on other financial assets and credit related commitments and other provisions 3,318 (2,895)
State deposit insurance scheme contributions (2,691) (1,906)
Operating lease income 44 81
Net gain from disposal of subsidiaries - 637
Other net operating income (expense) (665) 3,366
Non-interest income or (expense) (2,124) 8,301

Fee and Commission Income

The largest source of MKB’s non-interest income is its fee and commission income. Its fee and commission income primarily comprises commissions generated by settlements and wire transfers, cash operations, plastic cards, insurance contracts processing, cash handling, guarantees and letters of credit, etc.

2019 2018
Fee and commission income
Plastic cards 2,926 3,161
Other cash operations 2,741 2,392
Guarantees and letters of credit 2,348 2,177
Insurance contracts processing 2,250 2,324
Settlements and wire transfers 1,892 2,329
Cash handling 1,564 1,954
Currency exchange and brokerage commission 1,039 976
Opening and maintenance of bank accounts 481 303
Other 157 213
15,398 15,829

The bank’s total fee and commission income decreased by RUB 0.4 bln, or 2.7%, to RUB 15.4 bln as of 31 December 2019 from RUB 15.8 bln as of 31 December 2018. That slight decrease was driven by settlements and wire transfers (mainly due to retail fee cuts) and by cash handling. However, 2019 saw a growth in fee and commission income from other cash operations and from guarantees and letters of credit by 14.6% to RUB 2.7 bln and 7.9% to RUB 2.3 bln, respectively.

Fee and Commission Expense

For the year ended 31 December 2019, fee and commission expense increased
by RUB 0.4 bln, or 10.9%,
to RUB 3.9  bln.

The increase in fee and commission expense in 2019 compared to 2018 was mainly driven by guarantees and other credit instruments taken as a result of growing business volumes.

Net Fee and Commission Income

For the year ended 31 December 2019, MKB had a net fee and commission income of
RUB 11.5  bln
as compared to RUB 12.3 bln for the year ended 31 December 2018.

The share of fee and commission income in operating income (before provisions) expanded by 9.1 pp from 18.9% in 2018 to 28.0% in 2019.

Net Loss on Loans to Customers at Fair Value through Profit or Loss

Net loss on loans to customers at fair value through profit or loss decreased
from RUB 5.6 bln for the year ended 31 December 2018
to RUB 1.6  bln
for the year ended 31 December 2019.

This income statement item came to being in the first quarter of 2018 due to the adoption of IFRS 9. It reflects changes in fair value of loans to corporate customers at fair value through profit or loss, and is used in calculating the cost of risk.

Net Gain (Loss) on Financial Instruments at Fair Value through Profit or Loss

For the year ended 31 December 2019, MKB had a net gain on financial instruments at fair value through profit or loss of RUB 0.8 bln as compared to a net loss of RUB 0.2 bln for the year ended 31 December 2018.

MKB enters into securities operations mainly for interest income and deployment of extra liquidity. MKB does not engage in transactions with securities for speculative purposes.

Net Loss from Sale and Redemption of Financial Assets at FVOCI

For the year ended 31 December 2019, MKB recorded a net loss from sale and redemption of financial assets at fair value through other comprehensive income of RUB 0.3 bln, which is similar to last year’s figure.

Net Foreign Exchange Gains

The bank’s foreign exchange gains or losses primarily comprise net gains or losses from foreign exchange transactions, net gains or losses on open foreign currency positions and on the purchase and sale of foreign exchange derivatives for hedging the foreign exchange risks of its clients.

The bank generates net income from foreign exchange transactions where its sale price for a particular instrument exceeds its purchase price, and typically incurs losses on its derivative transactions, which losses represent the cost of hedging arrangements made to limit the bank’s foreign currency exposure and to manage its liquidity position.

The bank’s net foreign exchange loss for the year ended 31 December 2019 was RUB 13.3 bln compared to a net gain of RUB 2.7 bln for the year ended 31 December 2018. That net loss was mainly due to the implications of a stronger rouble for the accounting treatment of the US dollar-nominated Tier 1 perpetual subordinated Eurobonds.

Impairment Gain or (Loss) on Other Non-Financial Assets, Credit Gain or (Loss) on Other Financial Assets and Credit Related Commitments and Other Provisions

Impairment gain on other non-financial assets and credit related commitments and other provisions was
RUB 3.3  bln
for the year ended 31 December 2019 compared to losses of RUB 2.9 bln for the year ended 31 December 2018.

That gain was partly due to a reversal of provisions made upon receipt of collateral under a large guarantee in the first quarter of 2019.

State Deposit Insurance Scheme Contributions

State deposit insurance scheme contributions include amounts that the bank pays for its membership in the state mandatory system of retail deposit insurance, and are assessed in proportion to its retail deposit portfolio.

Such contributions amounted to RUB 2.7 bln in 2019 and RUB 1.9 bln in 2018. The increase is explained by the growth of MKB’s retail deposit portfolio in 2019.

Other Operating Income (Expense)

For the year ended 31 December 2019, MKB’s other operating expense was RUB 0.7 bln as compared to other operating income of RUB 3.4 bln in 2018. The substantial amount of other operating income in 2018 was mainly due to income from operations with own securities (including income from a partial redemption of Eurobonds due 2027 and perpetual Eurobonds) and fees earned.