Oschadbank discloses its IFRS financials for 1H14

Обзоры по компаниям и отраслям 16.10.2014 The State Savings Bank of Ukraine (Oschadbank, OSCHAD) released its consolidated IFRS-based statements for 1H14 on Oct. 15, which brought no surprises compared to its earlier released accounts under local standards, while adding some more details regarding its asset structure. The bank’s net interest income increased 17% yoy to UAH 3.10 bln on a 28% yoy increase in interest income (to UAH 6.84 bln). At the same time, its bottom line decreased 54% yoy to UAH 0.22 bln, mainly due to losses attributed to foreign currency operations and revaluation, which amounted to UAH 1.06 bln in 1H14. Oschadbank’s client accounts base decreased 6% YTD to UAH 43.7 bln as of end-1H14. At the same time, lending from the central bank increased 54% YTD to UAH 22.7 bln, which offset the decline in client accounts, as well as a 56% YTD decrease in deposits of other banks. Its total liabilities and equity increased 6% YTD to UAH 108.1 bln, mainly due to the currency devaluation effect. The bank’s gross loan portfolio increased 21% YTD as of end-June to UAH 77.5 bln, due to both increased lending activity and appreciation of hard currencies against the hryvnia. The bank slightly decreased its exposure to related parties, as can be seen from IFRS accounts. In particular, share of state loans and securities in Oschadbank’s total assets decreased to 47% as of end-1H14, compared to 51% as of end-2013. Gross loans to state entities increased 7% YTD to UAH 25.5 bln, but their share in gross loan book decreased from 37% in end-December to 33% in end-June. Gross loans to Naftogaz decreased 1% YTD to UAH 25.5 bln. The balance of bonds issued by state and state companies decreased 8% YTD to UAH 28.7 bln. The bank also provided its asset structure in current risky zones of Ukraine, stating that its gross loan book issued by its Crimean subsidiaries totaled UAH 7.7 bln as of end 1H14 (10% of gross loan book). The bank provisioned only 18.6% of its Crimean loans, reporting net loan balance of UAH 6.3 bln. Client deposits that the bank took from Crimea amounted to UAH 1.8 bln, as of end-1H14. The gross loan portfolio of its Donetsk and Luhansk outlets amounted to just UAH 2.5 bln (3% of total), and are much smaller than outstanding deposits there (UAH 5.5 bln). Alexander Paraschiy: We are disappointed with Oschadbank’s high exposure to Crimea, which implies a risk for the negative revaluation of its assets. On the positive side, even if the bank writes down all its outstanding Crimean loans (and report about UAH 6.3 bln of losses), its capital adequacy ratio (under local standards) will decrease only to 15% (from 26% as of end-1H14), thus remaining safely above the 10% threshold. Given that the government’s policy regarding state banks is to keep their CAR at above 20%, we expect the central bank will offer a capital increase to Oschadbank should it write off its Crimean assets. As all these assets look non-performing to us, their write-down (if followed by recapitalization) might significantly improve the bank’s liquidity. We retain our better-than-neutral view of the bank’s ability to smoothly service all its debt obligations.