Aval's Net Income Surges.

Bank Aval (BAVL: HOLD), Ukraine’s second-largest bank by assets, posted 1H06 net income of $37m, up from $1.4m in 1H05. The bank also posted a 9.2% increase in net assets since the beginning of the year despite a 16.6% drop in corporate deposits (see chart). Alexander Viktorov: The surge in net income is largely due to the fact that Aval stopped employing tax-optimization schemes after last year’s takeover by Raiffeisen Bank. One of the schemes was the inclusion of payments to affiliated parties in operating expenses, which were then reinvested via share capital increases. This heavily understated the bank’s profitability under local accounting standards (UAS), causing a large discrepancy between figures reported under IFRS and UAS.

                         1-Jan-06       1-Jul-06         % ytd 

Net assets           3813.6          4164.2          9.2%

Loans                  2520.7          3363.6          33.4%

Retail deposits      1832.0         1894.8          3.4%

Corporate deposits 1171.3        976.5         -16.6%

Equity                  345.7          400.9            16.0%

(USD mln)