Privatbank reports 9M16 profit, reduces cash operating losses in 3Q16

Ukraine’s biggest financial institution Privatbank
(PRBANK) reported its 9M16 net income rose to UAH 592 mln, according to its
standalone IFRS-based financials. The result was mostly achieved due to a 88%
yoy increase in net fees and commission income to UAH 6,045 mln. At the same
time, its net interest income decreased 6% yoy to UAH 3,085 mln as growth in
interest costs (+8% yoy) exceeded its growth in interest income (+6% yoy).

The bank reported UAH 196.1 bln in client accounts as
of end-September, which is +10.2% YTD and +3.5% qoq. Its net loan portfolio
reached UAH 194.3 bln, which is +2.6% YTD and +10.4% qoq. The qoq growth mostly
resulted from rising receivables from the lease of assets that reached UAH 18.4
bln as of end-September from UAH 0.6 bln as of end-June. At the same time, the
book value of repossessed assets by the bank decreased to UAH 20.7 bln as of
end-September (from UAH 31.8 bln as of end-June), which might be the result of
the leasing of some assets.

On a cash flow basis, Privatbank generated negative
net cash-interest income of UAH 6,379 mln in 9M16 and negative cash flow from
operations (before assets and liabilities change) of UAH 4,646 mln. In 3Q16
alone, the bank generated negative net cash-interest income of UAH 1,955 mln
(which improved against UAH -2,469 mln in 2Q16). At the same time, high net
cash commissions (UAH 2,434 mln, +21% qoq) enabled the bank to improve negative
cash flow from operations to UAH 979 mln in 3Q16 (better than UAH -3,667 mln in
2Q16).

Alexander Paraschiy: Privatbank’s
fundamentals have significantly improved due to a significant increase in
commission income, the nature of which is not clear to us. The good news is
that the bank managed to improve its net cash-interest income, but it still
remains negative and requires a further increase in the bank’s deposit base (or
other external financing) to keep the bank afloat. All in all, we retain our
position that the Eurobonds of Privatbank, offering a YTM of over 30%, are too
risky to invest in.