VTB might not suffer big losses in 2015 if CBR cuts key rate quickly
ST. PETERSBURG. June 5 (Interfax) - VTB might get through 2015 without any serious losses if the Central Bank of Russia (CBR) lowers its key rate rapidly, the head of the state bank, Andrei Kostin told reporters.
This year VTB's financial result is linked to the CBR's key rate. A movement in the key rate of 1 percentage point either way costs the bank 21 billion rubles on its financial result.
"If the process of lowering rates will be fairly rapid, there's a chance of getting through this year without any serious losses. If the rate is lowered slowly or not at all, we will have some losses," Kostin said.
"We do not see problems today from the standpoint of creating new reserves. The problem, first and foremost, is the rate, which has totally changed our margin, from 4.1% to 1.7% in the first quarter of the current year," Kostin said.
The Central Bank has room to lower the key rate. It will be sufficiently safe for inflation, if the rate exceeds the inflation rate over a 12-month horizon by 1.5-2 percentage points, he said.
"If the Central Bank is saying today that the 12-month baseline inflation will total roughly 8%, accordingly the rate might be in the range 9.5%-10.5%," he said, adding that this level might be reached only in the fall.
If the rate was lowered to 9.5%-10.5% in June, VTB might manage to avoid losses, he said.
He said that this year VTB is reporting almost no losses on Ukraine. In the first quarter of 2015, the bank made almost no provisions for Ukrainian losses. The reserve level for problem loans is 67%, he said.
"We are planning in general that remaining loans in the amount that has not been additionally provisioned will be returned to us," Kostin said.
VTB posted an IFRS net loss of 18.3 billion rubles in Q1 2015.