VTB Bank

VTB is implementing a strategy of efficient growth and business structure improvement aimed at steady growth of the Group’s capitalization and sustainable financial performance. The Group’s success had an effect on the 2010 profit, which amounted to unprecedented RUB 54.8 billion under IFRS. VTB increased its net fee income by half, while cutting its operational expenses. Asset growth and capital efficiency were strengthened due toTransCreditBank consolidation.

VTB is implementing a strategy of efficient growth and business structure improvement aimed at steady growth of the Group’s capitalization and sustainable financial performance. The Group’s success had an effect on the 2010 profit, which amounted to unprecedented RUB 54.8 billion under . VTB increased its net fee income by half, while cutting its operational expenses. Asset growth and capital efficiency were strengthened due to.

In 2010, the Group for the first time in its history was ranked by the Financial Times among 500 largest companies in terms of market capitalization.

The Group reinforced its position in corporate banking, which posted a profit of RUB 35 billion in 2010. Last year, VTB significantly expanded its product range offered to corporate customers, optimized its pricing system for the whole product line, and streamlined its lending procedure. The Bank also improved its service model for various customer segments, and implemented new sales tools.

To create a consolidated corporate investment business, VTB has profoundly restructured its corporate segment. This measure was aimed at strengthening the Group’s market position through higher integration of its commercial and investment segments and enhanced customer relations model. The Bank created Credit Department and Corporate Business Support Directorate. Credit Department is a single body focused on developing VTB Bankcorporate business infrastructure and improving service standards. The competence of Corporate Business Support Directorate includes handling bad debt and mitigating potential losses.

In terms of corporate lending, 2010 witnessed steadier market environment and lower anticipation of crisis events, which led to a boost in market activity. The Group took advantage of the recovery in the corporate lending market and increased its credit portfolio to RUB 2.5 trillion, a 19.4% increase year-on-year. VTB’s market share in this segment amounted to 12.2%.

In 2010, VTB Capital  topped international rankings (Bloomberg, Dealogic, Thomson Reuters) in key segments of Russian investment banking market. The Group’s investment business was ranked 1^st among underwriters in the debt capital and equity capital markets. In total, from 2008 through 2010, VTB Capital participated in 130 deals in the debt capital and equity capital markets, which allowed it to raise over USD 55 billion worth of investments into Russia.

The year 2010 saw VTB Capital become the leader in bond and Eurobond bookrunning both in Russia and the CIS. Arrangement of VTB Bank Eurobond issues denominated in Singapore dollars and Chinese yuan (RMB), Ukraine sovereign Eurobond issue and JSC Russian Railways Eurobond issue were the milestones of 2010. The offshore VTB Bank RMB Eurobond issue was named “The Deal of the Year” by Euromoney Magazine (in Central and Eastern Europe) and the “Best High Yield Bond Deal of the Year” by Alpha Southeast Asia. In 2010, VTB Capital participated in 13 M&A deals totaling USD 27.4 billion.

The core of VTB Group retail business is Bank VTB24, a major Russian bank offering services to individuals and small businesses. At the end of 2010, the total number of VTB24 active customers amounted to 6.9 million, compared to 5.2 million at the end of 2009. In total, VTB Group had 7.3 million active customers in Russia during the reporting period, including 115,000 small companies at the end of the reporting period.

VTB24 experience and technologies are successfully applied in developing retail banking outside Russia. At the end of the last year, VTB Group banks in the CIS (Ukraine, Armenia, Azerbaijan, Kazakhstan and Belarus) and Georgia provided services to 428,000 individuals. 2010 was the first year of implementing the Group’s new retail strategy based on customer-oriented approach and increased ROE.

The positive results we have achieved allow us to look to the future with confidence.

2011

Russia’s financial system is strengthening along with steady economic growth. The current situation in the banking system allows us to have an optimistic outlook, even though there are still many challenges to be addressed. To achieve efficient development of the financial sector, we need to apply every effort to implement the new 2011-2015 banking sector strategy. Its main objective is to ensure speedy transition to intensive growth based on higher quality of financial services and better efficiency of banking operations.

In the constrained growth environment, VTB switched to increasing efficiency and improving qualitative indicators, focusing on products and business segments with higher ROE. The new strategy envisages a drastic change in the income structure with a shift towards fee income and higher involvement in medium-sized business transactions. We have set the target of 15% ROE in core business lines by 2013. The first steps taken in 2010 under the new strategy contributed to improvement of our financial performance in the past year.

We will continue our systematic work aimed at implementing 2010-2013 VTB Group Development Strategy to shift our business to a new level.

Diagram: Forecast of asset structure by business lines (2013, %)

Corporate banking	55-60%
Investment banking	8-10%
Retail banking	20-25%
Other	5-15%
VTB Group	100%