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. Last Updated: 07/27/2016

Global Credit Crisis Hits VTB Earnings

VTB Group reported a 12.5 percent drop in first-half net profits Thursday but said it was well positioned to sit out the global financial crisis.

Group earnings under international financial reporting standards dropped to $504 million from $574 million in the first half of last year, while second-quarter net profit rose by 12.4 percent year on year to $272 million, beating analysts' expectations.

First-half results were distorted, VTB said, by the sale of its shares in truck maker KamAZ, resulting in a one-off gain last year.

In May, VTB raised $8 billion in an initial public offering on domestic and international markets. This has provided a substantial buffer from the financial turmoil that has rocked markets in recent weeks, chief executive Andrei Kostin said. "In these turbulent times, we are very pleased to be able to grow safe in the knowledge that our capital base is secured," he said.

Nevertheless, Kostin told an earnings conference Thursday that the bank would reduce its borrowings on international markets this year while it waits out the current credit squeeze. Earlier this year, VTB projected that it would borrow $10 billion abroad.

Kostin said the bank would pass on higher costs to corporate clients, while it has no plans to hike rates in the near future on the profitable retail segment. "We need to be cautious in our approach to this," Kostin said. "If we raise rates, it may be misinterpreted by the market."

VTB's share price has taken a beating since its IPO, falling more than 20 percent from its listing price by early September. In the last two weeks, it has recovered some of the lost ground. Kostin denied that the fall could be attributed to its own performance, saying the stock had been a victim of global jitters. "VTB has been the only [Russian] bank to place shares on Western exchanges," he said. "We don't have the credit history to obtain a higher quotation."

Analysts have noted that the stock price has received little support from portfolio investors.

Kostin said he was confident that the government would continue to support the banking sector during the ongoing liquidity squeeze.

Some smaller banks, Kostin said, could face liquidity problems, and should this emerge as a wider trend, it could affect gross domestic product growth.

His comments came amid news from the Economic Development and Trade Ministry this week that GDP growth had slowed to 6.4 percent in August, well below the 8 percent reported by the ministry in July.

Analysts said they were pleased to see VTB's loan portfolio grow 22 percent on the year to date to $36.8 billion, while the share of retail loans, a high-margin segment, grew by 2 percentage points to 11 percent.

While some analysts saw potential in VTB's lending portfolio, others were more skeptical.

Rustam Botashev, an analyst at Aton brokerage, said the results were "mediocre" and that this was reflected in the price of VTB Global Depositary Receipts, which were trading down 3 percent at 5 p.m. in London.