- CREDIT BANK OF MOSCOW’s 2013 IFRS net income increased by 53.7% on 2012 to RUB 8,880 mln (USD 278.3 mln)
- Assets grew 47.1% year-on-year reaching RUB 454,202 mln (USD 13,877.6 mln)
- The gross loan portfolio expanded by 54.4% year-on-year to RUB 317,860 mln (USD 9,711.8 mln)
- Non-performing loans (loans overdue more than 90 days) were up marginally to 1.3% in 2013 versus 1.0% for 2012; loan loss provisions increased to 2.8% of the total portfolio
- Operational efficiency remained strong, with a 20.1% return on equity and 2.4% return on assets
- The cost-to-income ratio decreased to 31.2% at the end of 2013 from 41.1% the previous year
- Equity increased by 28.9% in 2013 to RUB 50,658 mln (USD 1,547.8 mln)
- Basel capital grew by 59.8% in 2013 to RUB 71,906 mln (USD 2,197.0 mln), with a capital adequacy ratio of 16.0% and Tier I ratio of 11.0%
“In 2013 CREDIT BANK OF MOSCOW built on the trend of recent years to deliver another excellent set of results, generating outstanding growth while maintaining strong asset quality and best-in-class levels of efficiency. The Bank’s sustainable growth and profitability is underpinned by an in-depth knowledge of our market, a strong focus on risk management to maintain asset quality, and a cost-to-income ratio that is one of the best in the sector. We are pleased to note that our very strong performance was recognised by international rating agencies with two rating upgrades in 2013, as well as continued support from the international investment community, thanks to the Bank’s positioning and unique strategy in the Russian market”, said Chief Financial Officer Eric de Beauchamp.
CREDIT BANK OF MOSCOW reported net income for 2013 of RUB 8.9 bln, an increase of 53.7% compared to 2012 net income of RUB 5.8 bln. Return on equity (ROAE) rose to 20.1% from 18.2%, and return on assets (ROAA) to 2.4% from 2.2%.
Net interest income rose 42.0% to RUB 17.4 bln, driven by the expansion of the loan portfolio. The higher proportion of high-return retail products in the Bank’s portfolio helped to maintain the interest margin at 5.2%.
Fee and commission income increased by 68.2% compared to 2012, reaching RUB 7.2 bln, of which 32.2% is attributable to loan insurance contracts processing (increased by 201.2% compared to 2012), 16.8% to settlement operation fees (increased by 42.1%), 16.4% to cash handling fees (increased by 17.9%), and 16.0% to guarantees and letters of credit issuance fees (increased by 56.0%).
In terms of cash handling, CREDIT BANK OF MOSCOW services not only its own network and clients, but also other financial institutions and their clients. The number of third-party cash handling points rose by 2,228 to more than 11,000 at the end of the reporting period. Thirty new cash handling itineraries were put in place, bringing the total number to 180. The Bank provides cash handling services to over 1,000 customers, of which 37 are banks.
In 2013, operating income (before provisions) increased significantly by 53.8% reaching RUB 24.5 bln. Operating expenses (before other provisions) grew by a relatively modest 17.7% to RUB 7.7 bln mainly due to investment in the Bank’s infrastructure, higher rentals for offices, ATMs and payment terminals, as well as increasing number of staff in line with the Bank’s active growth strategy. Operational performance improved significantly, with the cost-to-income (CTI) ratio reaching a strong 31.2% compared to 41.1% a year before.
The gross loan portfolio grew by a significant 54.4% and reached RUB 318.0 bln at the end of 2013. The corporate loan portfolio grew by 41.5% to RUB 220.0 bln, and the retail loan portfolio by 94.2% to RUB 97.8 bln. The total loan portfolio net of provisions representing 68.0% of total assets expanded by 53.5% in 2013 and reached RUB 308.9 bln.
During 2013, the volume of trade and structured finance business grew to RUB 61.2 bln (USD 1.7 bln), an increase of 94% over 2012, primarily driven by the recent acquisition of new large clients. During the year, CREDIT BANK OF MOSCOW facilitated more than 423 transactions involving parties from 30 countries. CREDIT BANK OF MOSCOW is an active participant of IFC and EBRD trade facilitation programs and cooperates extensively with ECAs to arrange long-term financing facilities for clients.
Customer accounts and deposits rose 45.4% year-on-year to RUB 274.9 bln, of which term deposits increased 41.4% to RUB 222.7 bln. The retail deposit portfolio expanded by 25.7% and stood at RUB 134.5 bln at the end of the year. Net loans to deposits increased slightly to 112.4% at the end of 2013 compared to 106.5% at the end of 2012.
Capital markets activity
In February 2013, the Bank completed a RUB 2 bln 5.5-year subordinated bond issue series 12, the proceeds from which were included in additional capital. It was the Bank’s second subordinated bond issue following the debut RUB 3 bln 5.5-year bonds placed in December 2012. In February 2013, the Bank also successfully completed a USD 500 mln Eurobond issue, at the time the largest in its history. The bond pays a 7.7% coupon and has a 5-year maturity.
In May 2013, the Bank placed a USD 500 mln subordinated Tier II Eurobond issue with a 8.7% coupon and 5.5-year maturity. The transaction represented the first subordinated Eurobond issued by a Russian bank following the introduction by the Central Bank of Russia of Basel III rules on subordinated capital.
In October 2013, the Bank placed two domestic bond issues totalling RUB 10 billion. The first was series BO-06, with a nominal value of RUB 5 billion, a 5-year maturity and a fixed coupon rate of 8.95% for the first 2 years. The second was series BO-07, with a nominal value of RUB 5 billion with a 5-year maturity and a fixed coupon rate of 9.1% for the first 3 years.
In November 2013 CREDIT BANK OF MOSCOW repaid in full a USD 308 mln trade-related syndicated loan facility. The proceeds were used to finance trade-related operations by the Bank’s customers.
The Bank’s Basel capital increased by 59.8% in 2013 reaching RUB 71.9 bln, and the capital adequacy ratio stood at 16.0% compared to 15.8% last year. In September 2013 the Bank strengthened its capital structure through a placement of an additional 1.8 billion ordinary registered shares of RUB 1 nominal value by closed subscription. The total investment exceeded RUB 7.5 bln, and was purchased by the Bank’s current beneficial owners. As a result of the additional share issue the Bank’s shareholder structure remained unchanged.
CREDIT BANK OF MOSCOW was placed 566th among the 1,000 largest banks globally by Basel Tier I capital in The Banker’s “Top 1000 World Banks 2013” ranking (up from 724th in 2012). The Bank ranked 218th by return on equity overall, and 9th among the 24 Russian banks (without majority foreign capital) listed. By return on assets the Bank ranked 132nd overall (up from 145th in 2012), and 6th among the same group of Russian banks.
By end-2013, CREDIT BANK OF MOSCOW’s branch network comprised 60 offices and 24 operational cash desks in Moscow and the Moscow Region. CREDIT BANK OF MOSCOW’s branch network was recognised as the most efficient in the Russian banking sector in 2013 by Renaissance Credit.
The Bank’s ATM network grew to 710 machines at the end of 2013, compared to 694 at the end of 2012. The Bank’s payment terminal network comprised 5,200 devices at the end of the year, compared to 3,906 at the end of 2012.
The Bank continues to grow the number of credit and debit cards issued: in 2013 this increased by 39% to 1,190,103 cards from 857,700 in 2012.
During 2013 the Bank’s international ratings were upgraded by Fitch Ratings and Standard & Poor’s. Standard and Poor’s upgraded the Bank’s ratings on a reassessment of its systemic importance and also included CREDIT BANK OF MOSCOW in its list of the top thirteen systemically important banks for Russia. Moody’s also upgraded the Bank’s national scale rating and affirmed its international ratings in 2013.
Fitch Ratings — Issuer Default Rating of “ВB”, Short-Term IDR of “B”, Viability Rating of “bb”, Support Rating of “5”, National Long-Term Rating of “AA- (rus)”, stable outlook;
Moody’s — long-term global & local currency deposit rating of “В1/NP”, financial strength rating of “E+”, long-term national scale credit rating at of “A1.ru”, stable outlook;
Standard & Poor’s —Long-term credit rating of “ВB-“, Short-term credit rating of “В” , Russia national scale rating of “ruAA-“, stable outlook.
During 2013 the Bank was recognised for its exceptional performance in various categories by industry experts. CREDIT BANK OF MOSCOW was named “Bank of the Year 2013” by the leading Russian banking information portal Banki.ru. The Bank’s flagship United Card credit card also took the award for credit card of the year. Also in 2013 the Bank won the award for control of asset quality at the 10th Risk Management in Russia conference organised by Expert RA, a leading Russian ratings agency.
Lockdown 2.0 – Here’s how to be the best-looking person in the virtual room
suggests “the product you’re creating is not the camera, the lens or a webcam’s clever industrial design. It’s the subject, you, which is just on e part of the entire image they see. You want that image to convey quality, not convenience.”
Technology experts at Reincubate saw an opportunity in the rise of remote-working video calls and developed the app, Camo, to improve the video quality of our webcam calls. As part of this, they consulted the digital photography expert and author, Jeff Carlson, to reveal how we can look our best online.
It’s clear by now that COVID-19 has normalised remote working, but as part of this the importance of video calls has risen exponentially. While we’re all used to seeing the more casual sides of our colleagues (t-shirt and shorts, anyone?), poor webcam quality is slightly less forgivable.
But how can we improve how we look on video? We consulted Jeff Carlson for some top tips– here is what he had to say.
- Improve the picture quality of your call
The better your camera, the higher quality your webcam calls will be. Most webcams (as well as currently being hard to get hold of and expensive), are subpar. A DSLR setup will give you the best picture, but will cost $1,500+. You can also use your iPhone’s amazing camera as a webcam, using the new app from Reincubate, Camo.
Jeff’s comments “The iPhone’s camera system features dedicated coprocessors for evaluating and adjusting the image in real time. Apple has put a tremendous amount of work into its imaging software as a way to compensate for the necessarily small camera sensors. Although it all works in service of creating stills and video, you get the same benefits when using the iPhone as a webcam.”
Aidan Fitzpatrick, CEO of Reincubate explains why the team created Camo, “Earlier this year our team moved to working remotely, and in video calls everyone looked pretty bad, irrespective of whether they were on built-in Mac webcams or third-party ones. Thus began my journey to build Camo: an iPhone has one of the world’s best cameras in it, so could we make it work as a webcam? Category-leading webcams are noticeably worse than an iPhone 7. This makes sense: six weeks of Apple’s R&D spend tops Logitech’s annual gross revenue.”
- Place your camera at eye level
A video call will never quite be the same as a face-to-face conversation, but bringing your camera up to eye level is a good place to start. That can involve putting your laptop on a stand or pile of books, mounting a webcam to the top of your display screen, or even using a tripod to get the perfect position.
Jeff points out, “If the camera is looking down on you, you’ll appear minimized in the frame; if it’s looking up, you’re inviting people to focus on your chin, neck, or nostrils. Most important, positioning the camera off your eye level is a distraction. Look them in the eye, even if they’re miles or continents away.”
Low camera placement from a MacBook
- Make the most of natural lighting
Be aware of the lighting in the room and move yourself to face natural lighting if you can. Positioning the camera so any natural light is behind you takes the light away from your face, which can make it harder to see and read expressions on a call.
Jeff Carlson’s top tip: “If the light from outside is too harsh, diffuse it and create softer shadows by tacking up a white sheet or a stand-alone diffuser over the window.”
Backlit against a window Facing natural light
- Use supplementary lighting like ring lights
The downside to natural lighting is that you’re at the mercy of the elements: if it’s too bright you’ll have the sun in your eyes, if it’s too dark you won’t be well lit.
Jeff recommends adding supplementary lighting if you’re looking to really enhance your video calls. After all, it looks like remote working will be carrying on for quite some time.
“The light can be just as easy as a household or inexpensive work light. Angle the light so it’s bouncing off a wall or the ceiling, depending on your work area, which, again, diffuses the light and makes it more flattering.
Or, for a little money, use a softbox or a shoot-through umbrella with daylight bulbs (5500K temperature), or if space is tight, LED panels. Larger lights are better for distributing illumination– don’t be afraid to get them in close to you. Placement depends on the look you’re going after; start by positioning one at a 45-degree angle in front and to the side of you, which lights most of your face while retaining nice shadow detail.”
In some cases, a ring light may work best. LEDs are arranged in a circle, with space in the middle to put the camera’s lens and get direct illumination from the direction of the camera.
- Centre yourself in the frame
Make sure you’re getting the right angle and that you’re using the frame effectively.
“You should aim for people to see your head and part of your torso, not all the space between your hair and the ceiling. Leave a little space above your head so it’s not cut off, but not enough that someone’s eyes are going to drift there.”
- Be mindful of your backdrop
It’s not always easy to get the quiet space needed for video calls when working from home, but try as best you can to remove anything too distracting from your background.
“Get rid of clutter or anything that’s distracting or unprofessional, because you can bet that will be the second thing the viewers notice after they see you. (The Twitter account @RateMySkypeRoom is an amusing ongoing commentary on the environments people on television are connecting from.)”
A busy background as seen by a webcam
- Make the most of virtual backgrounds
If you’re really struggling with finding a background that looks professional, try using a virtual background.
Jeff suggests: “Some apps can identify your presence in the scene and create a live mask that enables you to use an entirely different image to cover the background. While it’s a fun feature, the quality of the masking is still rudimentary, even with a green screen background that makes this sort of keying more accurate.”
- Be aware of your audio settings
Our laptop webcams, cameras, and mobile phones all include microphones, but if it’s at all possible, use a separate microphone instead.
“That can be an inexpensive lavalier mic, a USB microphone, or a set of iPhone earbuds. You can also get wireless lavalier models if you’re moving around during a call, such as presenting at a whiteboard in the camera’s field of view.
The idea is to get the microphone closer to your mouth so it’s recording what you say, not other sounds or echoes in the room. If you type during meetings, mount the mic on an arm instead of resting it on the same surface as your keyboard.”
- Be wary of video app add-ons
Video apps like Zoom include a ‘Touch up your appearance’ option in the Video settings. This applies a skin-smoothing filter to your face, but more often than not, the end result looks artificially blurry instead of smooth.
“Zoom also includes settings for suppressing persistent and intermittent background noise, and echo cancellation. They’re all set to Auto by default, but you can choose how aggressive or not the feature is.”
- Be the best looking person in the virtual room
What’s important to remember about video calls at this point in time is that most people are new to what is, really, personal broadcasting. That means you can easily get an edge, just by adopting a few suggestions in this article. When your video and audio quality improves, people will take notice.
Bringing finance into the 21st Century – How COVID and collaboration are catalysing digital transformation
By Keith Phillips, CEO of TISATech
If just six or seven months ago someone had told you that in a matter of weeks people around the world would be locked down in their homes, trying to navigate modern work systems from a prehistoric laptop, bickering with family over who’s hogging the Wi-Fi, migrating online to manage all financial services digitally, all while washing their hands every five minutes in fear of a global pandemic… You’d think they had lost their mind. But this very quickly became the reality for huge swathes of the world and we’re about to go through that all over again as the UK government has asked that those who can work from home should.
Unsurprisingly, statistics show that lockdown restrictions introduced by the UK government in March, led to a sharp increase in people adopting digital services. Banks encouraged its customers to log onto online banking, as they limited (and eventually halted) services at branches. This forced many customers online as their primary means of managing personal finances for the first time.
If anyone had doubts before, the Covid-19 pandemic proved to us the importance of well-functioning, effective digital financial services platforms, for both financial institutions and the people using them.
But with this sudden mass online migration, it’s become clear that traditional banks have struggled to keep up with servicing clients virtually. Legacy banking systems have always stilted the digitisation of financial services, but the pandemic thrust this issue into the limelight. Fintech firms, which focus intently on digital and mobile services, knew it was only a matter of time before financial institutions’ reliance was to increase at an unprecedented rate.
For years, fintechs have been called upon by traditional players to find solutions to problems borne from those clunky legacy systems, like manual completion of account changes and money transfers. Now it is the demand for these services to be online coupled with the need for financial services firms to cut costs, since Covid-19 hit the economy.
Covid-19 has catalysed the urgent need to bring digital transformation to a wider pool of financial services businesses. Customers now have even higher expectations of larger institutions, demanding that they keep up with what the younger and more nimble challengers have to offer. Industry leaders realise that they must transform their businesses as soon as possible, by streamlining and digitising operations to compete and, ultimately, improve services for their customers.
The race for digital acceleration began far before the recent pandemic – in fact, following the 2008 financial crisis is likely more accurate. Since the credit crunch, there has been a wave of new fintech firms, full of young, bright techies looking to be the next big thing. Fintechs have marketed themselves hard at big conferences and expos or by hosting ‘hackathons’, trying to prove themselves as the fastest, most innovative or the most vital to the future of the industry.
However, even during this period where accelerating innovation in online financial services and legacy systems is crucial, the conditions brought about by the pandemic have not been conducive to this much-needed transformation.
The second issue, which again was clear far before the pandemic, is that fact that no matter how nimble or clever the fintechs’ solutions are, it is still hard to implement the solutions seamlessly, as the sector is highly fragmented with banks using extremely outdated systems populated with vast amounts of data.
With the significance of the pandemic becoming more and more clear, and the need for better digital products and services becoming more crucial to financial services firms and consumers by the day, the industry has finally come together to provide a solution.
The TISAtech project was launched last month by The Investing and Saving Alliance (TISA), a membership organisation in the UK with more than 200 leading financial institutions as members. TISA asked The Disruption House, a specialist benchmarking and data analytics business, to create a clearing house platform for the industry to help it more effectively integrate new financial technology. The project aims to enhance products and services while reducing friction and ultimately lowering costs which are passed on to the customers.
With nearly 4,000 fintechs from around the world participating, it will be the world’s largest marketplace dedicated to Open Finance, Savings, and Investment.
Not only will it provide a ‘matchmaking’ service between financial institutions an fintechs, it will also host a sandbox environment. Financial institutions can pose real problems with real data and the fintechs are given the space to race to the bottom – to find the most constructive, cost-effective solution.
Yes, there are other marketplaces, but they all seem to struggle to achieve a return on investment. There is a genuine need for the ‘Trivago’ of financial technology – a one stop shop, run by an independent body, which can do more than just matchmaking. It needs to go above and beyond to encompass the sandboxing, assessments, profiling of fintechs to separate the wheat from the chaff, and provide a space for true collaboration.
The pandemic has taught us that we are more effective if we work together. We need mass support and collaboration to find solutions to problems. Businesses and industries are no different. If fintechs and financial institutions can work together, there is a real chance that we can start to lessen the economic hit for many businesses and consumers by lowering costs and streamlining better services and products. And even if it is just making it that little bit easier to manage personal finances from home when fighting with your children for the Wi-Fi, we are making a difference.
What to Know Before You Expand Across Borders
By Sean King, Director of International Tax at McGuire Sponsel
The American retail giant, Target Corporation, has a market cap of $64 billion and access to seemingly limitless resources and advisors. So, when the company engaged in its first global expansion, how could anything possibly go wrong?
Less than two years after opening its first Canadian store in 2013, Target shut down all133 Canadian locations and terminated more than 17,000 Canadian employees.
Expansion of an operation to another country can create unique challenges that may impact the financial viability of the entire enterprise. If Target Corporation can colossally fail in its expansion to Canada, how might Mom ‘N’ Pop LLC fare when expanding into Switzerland, Singapore, or Australia?
Successful global expansion requires an understanding of multilayered taxes, regulatory hurdles, employment laws, and cultural nuances. Fortunately, with the right guidance, global expansion can be both possible and profitable for businesses of any size.
Any company with global ambitions must first consider whether the company’s expansion outside of the U.S. will give rise to a taxable presence in the local country. In the cross-border context, a “permanent establishment” can be created in a local country when the enterprise reaches a certain level of activity, which is problematic because it exposes the U.S. multinational to taxation in the foreign country.
Foreign entity incorporation
To avoid permanent establishment risk, many U.S. multinationals choose to operate overseas through a formal corporate subsidiary, which reduces the company’s foreign income tax exposure, though it may result in an additional level of foreign income tax on the subsidiary’s earnings. In most jurisdictions, multinationals can operate their business in the foreign country as a branch, a pass through (e.g., partnership,) or a corporation.
As a branch, the U.S. multinational does not create a subsidiary in the foreign country. It holds assets, employees, and bank accounts under its own name. With a pass through, the U.S. multinational creates a separate entity in the foreign country that is treated as a partnership under the tax law of the foreign country but not necessarily as a partnership under U.S. tax law.
U.S. multinationals can also create corporate subsidiaries in the foreign country treated as corporations under the tax law of both the foreign country and the U.S., with possibly two levels of income taxation in the foreign country plus U.S. income taxation of earnings repatriated to the U.S. as dividends.
Under U.S. entity classification rules, certain types of entities can “check the box” to elect their classification to be taxed as a corporation with two levels of tax, a partnership with pass-through taxation, or even be disregarded for U.S. federal income tax purposes. The check the box election allows U.S. multinationals to engage in more effective global tax planning.
Toll charges, transfer pricing and treaties
When establishing a foreign corporate subsidiary, the U.S. multinational will likely need to transfer certain assets to the new entity to make it fully operational. However, in many cases, the U.S. multinational cannot perform the transfer without recognizing taxable income. In the international context, the IRS imposes certain outbound “toll charges” on the transfer of appreciated property to a foreign entity, which are usually provided for in IRC Section 367 and subject to various exceptions and nuances.
Instead, the U.S. multinational may prefer to license intellectual property to the foreign subsidiary for a fee rather than transfer the property outright. However, licensing requires the company and foreign subsidiary to adhere to transfer pricing rules, as dictated by IRC Section 482. The U.S. multinational and the foreign subsidiary must interact in an arms-length manner regarding pricing and economic terms. Furthermore, any such arrangement may attract withholding taxes when royalties are paid across a border.
Are you GILTI?
Certain U.S. multinationals opt to focus on deferring the income recognition at the U.S. level. In doing so, they simply leave overseas profits overseas and delay repatriating any of the earnings to the U.S.
Despite the general merits of this form of planning, U.S. multinationals will be subject to certain IRS anti-deferral mechanisms, commonly known as “Subpart F” and GILTI. Essentially, U.S. shareholders of certain foreign corporations are forced to recognize their pro rata share of certain types of income generated by these foreign entities at the time the income is earned instead of waiting until the foreign entity formally repatriates the income to the U.S.
The end goal
Essentially, all effective international tax planning boils down to treasury management. Effective and early tax planning can properly allow a company to better achieve its initial goal: profitability.
If global expansion is on the horizon for your company, consult a licensed professional for advice concerning your specific situation.
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