Privatbank reports neutral 2Q12 results

Privatbank (PRBANK) reported a 2% yoy decline in total revenues in 2Q12 as its net interest income was down 1% yoy and net fees and commissions increased 7% yoy. In 1H12 overall, the results were still strong, with revenues adding 20% yoy and net interest income growing 19% yoy. Operating expenses continued to grow at above the inflation rate of 11%, but the bank’s Cost/Income improved to 40% in 1H12 from 43% in 1H11. Privatbank’s cost of risk grew considerably to 4.6% in 1H12 from 3.4% in 1H11, which pushed the lender’s 1H12 net income down 25% yoy to USD 74 mln. Assets added 5% qoq and 19% yoy but the net loan book increased 2% qoq and 9% yoy. The bank’s liquidity remained high as cash and its equivalents stood at 17% of total assets. The bank is not involved in the local T-bill market and keeps no government papers on its balance sheet.

Privatbank’s 2Q12 and 1H12 results, USD mln

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                                                       1H12   yoy  2Q12   qoq   yoy
—————————————————————-                             
Net interest income                          453   19%   224   -2%   -1%
Net fees and commissions                 252   13%   133   11%    7%
Revenues                                         786   20%   372  -10%   -2%
Operating expenses                         -315   11%  -164    9%   12%
Pre-impairment profit                        471   27%   208  -21%  -10%
Impairment charge for credit losses   -382   41%  -160  -28%  -12%
Net income                                       74  -25%    40   21%   -7%
—————————————————————-
                                                       1H12   qoq   yoy       
—————————————————————-
Assets                                            20,236    5%   19%       
 Gross corporate loans                     13,182    3%   12%       
 Gross retail loans                            3,303    1%   11%       
 Loan loss reserve                           -2,923    5%   24%       
Liabilities                                        18,077    6%   17%       
 Corporate deposits                          3,011    1%    8%       
 Retail deposits                                9,803    3%   16%       
Equity                                             2,160    1%   36%       
—————————————————————-
Source: Company data

Olena Zuikova: We view Privatbank’s 2Q12 results as neutral – the decline in revenues in 2Q12 relative to the same period last year should reverse and we expect more than 15% growth for the full year. We are concerned about the rapid expansion in the bank’s loan book amid the dearth of creditworthy borrowers and do not rule out the involvement of related-party lending. We are also concerned with the fact that the bank does not deploy its idle cash into interest-earning assets.