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Oschadbank reports tiny 1H17 profit amid 19% fall in net interest income

Ukraine’s State Savings Bank (Oschadbank, OSCHAD) reported a 21% yoy increase in net profit to UAH 0.31 bln as its decrease in loan loss provisions (-52% yoy to UAH 1.02 bln) was offset by a 19% yoy decrease in net interest income (to UAH 2.79 bln) and 33% increase in operating costs (to UAH 3.20 bln). Its decrease in net interest income was fueled by a 5% yoy increase in interest costs to UAH 7.12 bln, which was mostly the result of a 1.3x yoy higher deposit base in 1H17.

 

The bank’s net loan portfolio remained unchanged YTD at UAH 65.6 mln, while its deposit base inched up 3% YTD to UAH 149.5 bln. Oschadbank’s total assets increased 5% YTD to UAH 220.3 bln mostly due to a government-led capital increase of UAH 8.9 bln. As a result of the capital contribution, the bank increased its portfolio of local government bonds 11% YTD to UAH 90.7 bln. Its total equity advanced 64% YTD to UAH 25.9 bln and total capital adequacy ratio (by Basel) reached 20.1% as of end-1H17 (from 13.0% as of the year’s start).

 

Alexander Paraschiy: The bank continues to enjoy the smallest cost of deposits among major state-controlled financial institutions (7.0%), reflecting its high trust among the Ukrainian public. Like its peer Ukreximbank, its issued Eurobonds bear the highest costs among all groups of liabilities (9.5% in 1H17), which prompts a partial repurchase of international bonds as the most straightforward way to reduce its interest costs. We retain our position treating OSCHAD notes as our top pick in Ukraine’s quasi-sovereign bond universe.  

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