As at 31 December 2019, the bank’s total assets increased by 13.0%, or RUB 277.6 bln and reached RUB 2,423.5 bln.
The increase was mainly driven by an 11.2% growth of MKB’s net loan portfolio to RUB 788.7 bln, and reflects the expansion of its reverse repo business coupled with an increase in its portfolio of high-quality corporate and government bonds.
Loans to customers remain one of the largest components of MKB’s assets, accounting for 32.5% thereof. Liquid assets, which include cash and cash equivalents, due from banks and the securities portfolio, rose in 2019 by RUB 193.0 bln or 13.7% to RUB 1,599.2 bln or 66% of total assets.
The gross loan portfolio (before credit loss allowance) as at 31 December 2019 was RUB 829.2 bln, representing a 12.0% increase from RUB 740.1 bln as at 31 December 2018. The increase was mainly driven by loans issued to large, high-quality corporate customers. The share of corporate loans in the total loan portfolio remained the same as in 2018, i.e. 86.8%. The corporate portfolio stood at RUB 719.4 bln as of 31 December 2019.
The retail loan portfolio increased by 13.7% y-o-y to RUB 109.8 bln as unsecured consumer lending rose by 14.1% to RUB 82.4 bln and mortgage lending by 14.6% to RUB 23.7 bln. Thus, the share of retail loans in the total loan portfolio increased to 13.2% as at end-2019.
Being an active player in the international finance market, the bank has liabilities nominated in foreign currencies. For a more balanced currency structure of its assets and liabilities, the bank now only gives foreign currency loans to customers with a foreign currency component in their business. As at 31 December 2019, 71% of the bank’s loan portfolio was nominated in roubles, 23% in US dollars and the remaining 6% in other currencies.
As at end-2019, the total portfolio had a large, 41% portion of loans with maturities of up to 1 year. Long-term loans (with maturities exceeding 5 years) accounted for 13%.
Loan Portfolio Quality
Loan portfolio quality has been maintained at a high level. After overdue debt (NPL90+) increased in the first half of 2019 due to the deteriorated financial condition of a large corporate borrower, the second half-year saw no adverse changes in the loan portfolio, with NPL90+ declining by 0.3 pp compared to 1H2019 and reaching 3.6%. Write-offs accounted for a marginal 0.6% share of the gross portfolio in 2019 (2.1% in 2018).
Credit loss allowance stood at RUB 40.5 bln as at end-2019 as compared to RUB 31.1 bln as at end-2018, having increased by 0.7 pp to 4.9% as a percentage of the gross loan portfolio. Credit loss allowance increased by 30%, or RUB 9.5 bln, mainly because the financial condition of a large corporate borrower from the oil and gas sector deteriorated in the first quarter of 2019. The NPL90+ coverage ratio was 137% as at end-2019. The preservation of the loan portfolio quality was also evidenced by the cost-of-risk ratio that was as low as 1.0% as at 31 December 2019.
The corporate loan portfolio provisioning rate increased by 0.7 pp to 4.7%, with the LLP/NPL coverage ratio falling to 132%. The corporate loan book quality has been maintained at a high level, with the cost of risk declining by 0.3 pp y-o-y to 0.6% and annual charges for credit loss allowance by RUB 2.5 bln to RUB 3.8 bln as at end-2019. The ratio of NPL90+ to gross corporate portfolio was 3.6% as at end-2019.
NPL90+ in the gross retail portfolio, which expanded by 13.7% y-o-y, dropped to 3.6% as at end-2019 from 4.3% as at end-2018. As the retail loan portfolio is not aggressively expanded and most new loans are originated to employees of the bank’s corporate customers and to its existing clients, the portfolio’s quality remains at an acceptable level.
The NPL coverage ratio for the retail portfolio increased to 164.9% as of 31 December 2019 compared to 131.8% as at end-2018 partly because retail NPLs fell by RUB 0.2 bln to RUB 4.0 bln. The provisioning rate for the retail portfolio rose by 0.3 pp to 6.0%.
The cost of risk of the retail loan portfolio increased in 2018 by 2.5 pp to 3.9% due to higher risk appetite and growth rates in unsecured consumer lending.
Cash and Cash Equivalents
Cash and cash equivalents represent items that are readily convertible into cash and are subject to an insignificant risk of changes in value.
The decrease in cash and cash equivalents resulted from the decreases in due from credit and other financial institutions with maturities below 1 month, which mostly represent reverse repo transactions secured upon securities of top-tier issuers and putting minimal pressure on capital.
As at 31 December 2019, MKB had cash and cash equivalents of RUB 953.6 bln as compared to RUB 1,162.8 bln as at 31 December 2018, representing a decrease of 18%. Due from banks and other financial institutions with maturities below one month dropped by 22% to RUB 841.3 bln. Such changes were mostly driven by the bank’s efforts to lengthen the maturities of reverse repo transactions to meet the needs of certain customers.
Due from Credit and Other Financial Institutions
Accounts and deposits with banks expanded from RUB 13.2 bln as at end-2018 to RUB 348.8 bln as at end-2019.
The increase in deposits in credit and other financial institutions was attributable to an increase in the volume of reverse repo transactions with maturities exceeding 1 month, from RUB 7.8 bln to RUB 344.0 bln as at end-2019 in line with counterparties’ needs. Importantly, more than 90% of securities pledged under reverse repo agreements were rated BBB- or higher as at 31 December 2019.
MKB’s securities portfolio comprised 12.2% and 10.7% of its total assets as at 31 December 2019 and 2018, respectively. MKB classifies its securities portfolio into trading financial assets and investment financial assets. Its securities portfolio consists primarily of Russian government and municipal securities, corporate bonds and Eurobonds of top-tier Russian companies with solid credit ratings. As at end-2019, 50% of the securities portfolio was attributable to CBR, Russian government and municipal bonds and 42% to corporate bonds, with 72% of the debt securities portfolio being on the Bank of Russia’s Lombard List.
The increase in its securities portfolio is primarily attributable to an increase in the volume of the Bank of Russia’s bonds, aimed at enhancing MKB’s liquidity ratios and generating stable low-risk income.