Oschadbank intrest income, operating cash flow improves in 1Q18

Ukraine’s State Savings Bank (Oschadbank, OSCHAD)
reported a 6% yoy increase in net interest income to UAH 1.49 bln in 1Q18, caused
by 2% yoy growth in interest income and flat interest expenses. The bank’s
cash-interest income improved to 96% of P&L-based interest income, from 78%
a year before. Related parties (government and state-controlled companies)
contributed 69% to the bank’s interest income in 1Q18 (vs. 70% a year ago).

The bank reported a UAH 0.99 bln gain from reverse
loan provisioning in 1Q18 (vs. USD 0.96 bln in provisioning reported in 1Q17),
but incurred UAH 2.48 bln in losses from the revaluation of derivatives. That
loss, as well as a 21% yoy increase in operating expenses (to UAH 1.84 bln)
resulted in a plunge of the bank’s net profit by 74% yoy to UAH 0.04 bln.

At the same time, the bank was able to reduce negative
cash flow from operations (before assets and liabilities change) to UAH 0.27
bln in 1Q18, from UAH 1.05 bln a year ago. Its net cash flow from operations
was positive UAH 0.20 bln, fueled by an increase of client deposits (by UAH
5.76 bln, most of which the bank used to repay UAH 5.73 bln to the central bank
and other banks) as well as recovery of loans.

The bank’s net loan portfolio decreased 3% YTD to UAH
72.0 bln in 1Q18 (gross loans slid 4% YTD to 122.6 bln), while its deposit base
increased 2% YTD to UAH 152.7 bln. Its securities portfolio remained almost
unchanged at UAH 118.3 bln.

Alexander Paraschiy: The only significant change in the bank’s 1Q18 balance sheet was the
repayment of UAH 5.0 bln in refinancing loans (bearing a 15.5% rate) by
attracting net deposits (which are likely to be cheaper than refinancing
loans). At the same time, we are impressed with positive changes in its cash
flow statement, with visible improvement in its ability to generate operating
cash from its client base. All in all, we retain our positive view on OSCHAD
Eurobonds.