Citibank 2012 Annual Report Download - page 41

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The discussion of the results of operations for EMEA RCB below excludes the impact of FX translation for all periods presented. Presentation of the results
of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of EMEA RCB’s results excluding
the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these
metrics to the reported results, see the table above.
2012 vs. 2011
The net loss of $22 million compared to net income of $84 million in 2011
was mainly due to higher operating expenses and lower loan loss reserve
releases, partially offset by higher revenues.
Revenues increased 2%, with growth across the major products, including
strong growth in Russia. Year-over-year, cards purchase sales increased
12%, investment sales increased 15% and retail loan volume increased 17%.
Revenue growth year-over-year was partly offset by the absence of Akbank,
Citi’s equity investment in Turkey, which was moved to Corporate/Other
in the first quarter of 2012. Net interest revenue increased 17%, driven by
the absence of Akbank investment funding costs and growth in average
deposits of 5%, average retail loans of 16% and average cards loans of 6%,
partially offset by spread compression. Interest rate caps on credit cards,
particularly in Turkey and Poland, the continued liquidation of a higher
yielding non-strategic retail banking portfolio and the continued low interest
rate environment were the main contributors to the lower spreads. Citi
expects spread compression to continue to negatively impact revenues in this
business during 2013. Non-interest revenue decreased 20%, mainly reflecting
the absence of Akbank.
Expenses grew 12%, primarily due to the $57 million of fourth quarter of
2012 repositioning charges in Turkey, Romania and Pakistan and the impact
of continued investment spending on new internal operating platforms
during the year.
Provisions increased $43 million due to lower loan loss reserve releases,
partially offset by lower net credit losses across most countries. Net credit
losses continued to decline, decreasing 36% due to the ongoing improvement
in credit quality and the move toward lower-risk customers. Citi believes
that net credit losses in EMEA RCB have largely stabilized and assuming the
underlying core portfolio continues to grow in 2013, credit costs could begin
to rise.
2011 vs. 2010
Net income decreased 1%, as an improvement in credit costs was offset by
higher expenses from increased investment spending and lower revenues.
Revenues decreased 1%, driven by the liquidation of higher yielding
non-strategic customer portfolios and a lower contribution from Akbank. Net
interest revenue declined 1% due to the decline in the higher yielding non-
strategic retail banking portfolio and spread compression in the Citi-branded
cards portfolio. Interest rate caps on credit cards, particularly in Turkey and
Poland, contributed to the lower spreads in the cards portfolio. Non-interest
revenue decreased 2%, mainly reflecting the lower contribution from Akbank.
Despite the negative impacts to revenues described above, underlying
businesses showed growth, with investment sales up 28% from the prior year
and cards purchase sales up 15%.
Expenses increased 7% due to the impact of account acquisition, focused
investment spending and higher transactional expenses, partly offset by
continued savings initiatives.
Provisions decreased 70%, driven by a reduction in net credit losses.
Net credit losses decreased 46%, reflecting the continued credit quality
improvement during the year, stricter underwriting criteria and the move to
lower-risk products.