VTB expects to bounce back from a sanctions-induced $7.7 billion loss last year to post record profits in 2023, Russia's No. 2 lender said on Wednesday, boosted by the purchase of rival Otkritie Bank and a profitable start to the year.

CEO Andrei Kostin has blamed the bank's losses squarely on Western sanctions against Russia's financial sector. VTB, heavily exposed to international markets and with more than 20% of its loan portfolio in foreign currencies, was particularly hard hit in the early stages of the conflict in Ukraine.

Wednesday's results, published under international reporting standards for the first time in more than a year, reveal hefty losses on foreign exchange and precious metals operations as well as huge provisions.

VTB posted a net loss of 612.6 billion roubles ($7.73 billion), down from a record profit of 327.4 billion roubles in 2021.

Provisioning costs increased 343.3% to 514.3 billion roubles and net interest income slumped 50.3% to 321.0 billion roubles.

VTB is resolving capital issues by topping up assets. It purchased rival Otkritie for 340 billion roubles from Russia's central bank late last year and is planning a second additional share issue this quarter.

"The stress has passed, the tears have been shed and the trajectory of the profit recovery allows us to say that 2023 for VTB Group in its new composition, with the consolidation of Otkritie and RNKB, already has the chance to repeat 2021 in terms of record profits," Deputy Board President and Chief Financial Officer Dmitry Pyanov told reporters.

VTB will allocate profits to capital recovery and does not plan to pay dividends on 2023 results, although that decision will be finalised in mid-2024, Pyanov said.

($1 = 79.3000 roubles) (Reporting by Elena Fabrichnaya; writing by Alexander Marrow; editing by Jason Neely)