VTB Leasing, a rolling-stock specialist lessor, has big growth
plans. However, it may have to tidy up its credit-risk profile to
avoid disappointment
The leasing arm of one of Russia’s largest banking groups,
VTB Leasing, reported total assets of RUB38.6bn (€1.04bn) as at
June 30 2007. Operating profit for the half year to June was €17.7m
or an annualised $56m (€35.5m).
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In 2006,VTB reported an operating profit of $42.6m (€27m) on
total assets of $778.4m (€494.7m), with a return on average of
equity of just more than nine per cent. Its financial statements
are prepared in accordance with IFRS.
With VTB being a state-owned bank, VTB Leasing continues to lean
heavily on the reliable support and credit of its parent. Although
its liquidity levels were low, ready credit lines from VTB makes
this a non-issue.
Balance-sheet analysis by Fitch shows that VTB Leasing is
performing better than its peers, partly because of its low cost of
funds.
Stacked up against Uralsib Leasing, a unit of Uralsib bank,VTB
Leasing reported a better cost-to-income ratio of 28.3 per cent,
against Uralsib’s 38 per cent. It also had far lower funding costs
of 4.8 per cent, versus Uralsib’s 9.1 per cent.
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By GlobalDataVTB Leasing sought to diversify its funding base when it issued
an RUB8bn (€216.1m) domestic bond last year. There are more plans
for debt issues in 2008. However, the credit-risk profile of VTB
Leasing remains worryingly high. Fitch notes its top 20 customers
represent 95 per cent of total leases.
VTB Leasing underwrites finance leases mostly in rolling stock
(53 per cent of total leases), oil and gas extraction equipment
(22.5 per cent), energy equipment (seven per cent), vehicles (about
six per cent) and aircraft (about five per cent).A good 80 per cent
of its business is booked in Russia, with the remainder in
Ukraine.
VTB Leasing is headquartered in Moscow and services large- and
medium-size corporates through a network of eight offices in
Russia, subsidiaries in Ukraine and Belarus, and three small
offices in Cyprus, Ireland and Bermuda.
While VTB Leasing does not carry direct residual-value risk, it
could still arise in situations where collateral is insufficient to
cover customer defaults.
All leased assets are insured by Russian insurance companies and
it typically demands advanced rates of up to 20 per cent from
customers. Interestingly, Russian Railways is only required to pay
an advance rate of one per cent.
VTB Leasing’s asset quality has been strong to date, with no
non-performing leases (defined as being 60 days in arrears). At the
end of September 2007, leases that were overdue by a month amounted
to €68,000. Fitch puts this strong asset quality down to its access
to Russia’s blue chips and a favourable economy. It remains to be
seen if this profile will change substantially in an economic
downturn.
