VTB Bank: Russia sanctions losing their bite

VTB chair: Our FY target is to break even

VTB Bank handily beat earnings forecasts in the third quarter, as Western countries' sanctions begin to lose their bite, the bank's chairman told CNBC.

"We've survived the first shock of sanctions. We're used to them now," Andrey Kostin, chairman of VTB Bank, told CNBC on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit Wednesday.

"Though there are some bad effects on our bank, particularly in the sense of international borrowing and international stock markets, we received a substantial support from the government."

VTB, Russia's second-largest bank by assets, was the subject of a $5 billion of state recapitalization program in July, implemented as part of a wider state plan to help stimulate lending amid a wide economic slowdown.

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Russia's economy has been on a rollercoaster ride over the last couple of years since the government's annexation of Crimea in March 2014 and role in the pro-Russian uprising in Ukraine resulted in the European Union and the U.S imposing sanctions.

That economic isolation, coupled with the low price of oil, has weighed greatly on the , and its economy, which is expected to experience a 3.8 percent contraction in gross domestic product (GDP) in 2015.

Kostin noted that the bank's reliance on Russia—the lender earns 90% of its profits in its home country—limited the impact of sanctions, although the outlook is more cloudy if the sanctions stay in place for a long period.

"Things are not so bad. The beginning of the sanctions was quite a shock. We can still survive for a few years (under sanctions). As they say, 'The present is good… The future is unpredictable," he said, noting that the inability to tap foreign investors has halted the state-controlled bank's plan to privatize. The government owns around 60 percent of the bank, down from 100 percent in 2007.

Vincent Mundy | Bloomberg | Getty Images

"If we were allowed to do more, we could sell more and privatize the bank even further. But now we have to rely on government support," Kostin said.

But VTB, at least, appears to be righting its ship. In the third quarter, VTB Bank said Tuesday it posted net profit of 6.2 billion rubles (around $95 million), above the 3.8 billion rubles forecast in a Reuters poll. For the first nine months of 2015, VTB has a net loss of 10.9 billion rubles.

But in Russia, an earnings beat isn't necessarily an earnings beat.

"Our target for this year is break even, which is not, frankly speaking, a very high result," Kostin said, citing Russia's high interest rates, which pushed the bank's net interest margin down to 1.7 percent in the first quarter, although it's since recovered to 3.2 percent.

He expects a better fourth quarter and noted the bank hopes to post a profit of around $750 million next year.

"The major problem for us is the high interest rate and the sooner it goes down, the better it will be for VTB and the banking sector in general in Russia," Kostin said.

Suffering of Russian banks set to ease: VTB Capital

Russia's central bank in October kept its main lending rate at 11 percent, although it signaled cuts could come in coming months as inflation slows. At the end of last year, the bank hiked rates up to 17 percent to stabilize its currency as the sanctions spurred fund outflows.

Russia's Finance Minister Anton Siluanov told CNBC in October that the outflows were estimated at $65 billion this year.

VTB may see some other positives in the next couple years: Russia may prune the size of its banking sector.

"The central bank is cleaning up the banking sector," Kostin said. "We have too many banks in the Russia. So probably dozens or hundreds of them will go within the next couple of years."

—Holly Ellyatt and Geoff Cutmore contributed to this article