VAB Bank increases cash balance, exposure to unknown assets in 3Q13

Обзоры по компаниям и отраслям 23.10.2013 VAB Bank (VABANK) increased its net interest income 43% yoy to UAH 82 mln in 3Q12, as both interest income and interest costs showed mid-double digit growth, the bank reported on October 22. In 9M13, the bank generated UAH 122 mln in net interest income (+19% yoy). The bank’s profit amounted to UAH 0.5 mln in 3Q13, 10x smaller yoy, while its 9M13 bottom line improved to positive UAH 0.9 mln – a visible contrast to its net loss of UAH 379 mln a year before. The key item that affected the yoy improvement was a decline in loan loss provisions to UAH 13.1 mln in 9M13 from UAH 564 mln in 9M12. The bank’s deposit base increased 38% YTD (and 13% qoq) to UAH 11.1 bln, while its gross loan portfolio advanced 30% YTD (and 6% qoq) to UAH 10.0 bln, as of end-3Q13. VAB’s regulatory capital increased 3% qoq to UAH 1.8 bln as of end-3Q, while its CAR worsened to 11.5% from 12.4% a quarter before. Recall, the bank initiated a new UAH 1 bln capital increase this month. The bank’s cash position advanced 2.4x YTD and 1.5x qoq to UAH 2.4 bln. Meanwhile, VAB continued demonstrating an increase in its most mysterious balance sheet items: its “other financial assets” and “other financial liabilities” both advanced 1.3x qoq and 2.6x YTD to UAH 4.2 bln. Alexander Paraschiy: For the bank whose Eurobond trades at above 40% YTM, the key question is its solvency. Looking at the bank’s accumulated cash of about USD 290 mln (which more than twice covers its obligation under the Eurobond maturing next June), we can conclude the solvency risk looks low. On the other hand, we keep worrying about a further increase in the mysterious balance sheet items (which were non-existent in the beginning of 2012). Now other financial assets/liabilities (which the bank’s IFRS report classifies as receivables/payables for foreign currency and banking metals) account for more than 20% of VAB’s total assets and they exceed the bank’s equity by more than double. While we remain optimistic on the bank’s intention to repay its Eurobond (basically because of the high incentive of its key owner, Oleg Bakhmatyuk, to improve its reputation on international capital markets), the latest bank report adds little to our optimism.