UPDATE 2-Russia's VTB posts 63% drop in 2020 profit, aims for record 2021 income

* VTB’s 2020 net profit falls, misses initial target

* COVID-19 pandemic took toll on Russian banks

* VTB aims for 2021 net profit of 250-270 bln roubles (Adds background, detail)

MOSCOW, Feb 25 (Reuters) – Russia’s second-largest lender VTB on Thursday reported a 63% decline in net profit last year as the COVID-19 pandemic triggered a hike in provisions against bad debt but it said it aimed for record-high income in 2021.

State-run VTB saw its net profit shrink to 75.3 billion roubles ($1.02 billion). Before the coronavirus hit Russia’s economy, VTB had aimed to make up to 230 billion roubles in 2020.

VTB is now targeting net profit of 250-270 billion roubles in 2021, board member Dmitry Pyanov said, as the bank recovers from the pandemic hit. This year, VTB sees its retail loans growing above the market, which it expects to expand by 10%, and corporate loans to increase by 5%.

The bank plans to channel 50% of last year’s net profit into dividends, Pyanov said. The bank slashed dividends to 10% of net profit last year after the central bank warned financial organisations to pay 2019 dividends only if their capital was sufficient in the medium term.

The central bank said earlier this month the banking sector was ready to live without COVID-19 support from the state as the peak of loan restructuring in Russia had passed.

VTB’s shares were 1.1% up on Thursday, in line with the broader benchmark MOEX index.

In the fourth quarter, VTB’s net profit reached 16.2 billion roubles, down from 73.2 billion roubles in October-December of 2019, the quarterly earnings showed.

The bank’s financial performance took a hit from provisions against bad loans that VTB increased 150% year-on-year to 63.9 billion roubles in the fourth quarter.

The share of non-performing loans rose to 5.7% as of end-2020 from 4.7% a year earlier, the bank said.

Net interest income rose 23.5% to 144.2 billion roubles in the last three months of 2020 as the loan portfolio expanded by 1.7% to 13.16 trillion roubles, VTB reported.

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