Russia’s second-largest state-controlled bank VTB announced its medium-term strategy with a profitability target of 19%-20% and focus on the retail segment. VTB's net profit target is set at RUB435bn, RUB520bn and RUB650bn in 2024, 2025 and 2026 respectively. 

VTB Group posted record profit under IFRS of RUB432bn ($4.6bn) for 2023, with net profit of RUB56bn in 4Q23 alone. The group has also revised upwards its record loss for 2022 - from RUB613bn to RUB668bn ($7.2bn). Despite record profit of 2023, VTB’s management still has no plans to offer shareholders dividends.

As for the medium-term profit guidance, “...the profit forecast for 2024 includes RUB160bn of non-recurring income (including from work with frozen assets), while operating profit should reach RUB 275bn this year and almost double next year (to RUB 520bn), which does not include non-recurring factors,” Renaissance Capital commented.

As followed by bne IntelliNews, VTB’s executives hope to earn proceeds on frozen sanctioned assets. With this in mind, the profit forecast “looks very optimistic for us, although, according to comments from VTB's management, the calculations were based on conservative assumptions, including macroeconomic indicators,” RenCap comments.

The profitability metrics presented by VTB are consistently above historical averages (19-20% versus a ten-year average of around 8% until 2022 and 24% in 2023), the analysts also note.

RenCap stressed that the key issue for the bank remains the restoration of capital adequacy. VTB expects to ensure growth of capital adequacy ratio N20.0 from 9.4% this year to 10.6% in 2026 at the expense of profits without additional market entry. The first dividend payment after the break, as the company specifies, may amount to RUB80bn at the end of 2025 with distribution in 2026.

To remind, the bank had a RUB300bn capital injections approved with the state’s stake in the VTB’s capital decreasing from 76.4% to 61.8% as a result of two additional share issues. 

In addition, VTB is involved in recapitalising troubled state infrastructure assets, such as the United Shipbuilding Corporation (USC or OSK).

The strategy in the retail business is focused on attracting mass segment customers by expanding the office network (primarily compact offices), increasing regional penetration, investing in loyalty, developing products including "family service", and creating a federal courier delivery network. 

Building up the customer base to 35mn active customers in 2026 and increasing the share of the mass segment should support an increase in the interest margin to 3.6% in 2026, after 2.5% and 3.2% in 2024 and 2025. At the same time, VTB’s cost of risk is expected to remain fairly low at around 1% (1.1% in 2023).