Aval 2011 IFRS-based ROE improves but below expectations
30 March 2012
Raiffeisen Bank Aval (BAVL UK) posted ROE of 6.2% in 2011 (7.8%, accounting for non-controlling interests), according to Raiffeisen Bank International data released yesterday. Net interest income grew 3% yoy to EUR 343 mln thanks to a decrease in interest expenses for customer deposits and higher income from government bonds. Aval’s loan portfolio inched up 2.4% yoy. Provisions for impairment losses fell 46% yoy due to success in debt collection and higher loan repayment. The bank’s end-2011 NPLs amounted to 34.8% (up 1.3 pps yoy) and NPL coverage ratio stood at 65.7%.
Raiffeisen Bank Aval 4Q11 and 2011 financials, IFRS, EUR mln
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4Q11 qoq 2011 yoy
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Total assets 5,467 2% 5,467 -1%
Loans and advances to customers 4,248 2% 4,248 2%
Deposits from customers 2,631 4% 2,631 3%
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Net interest income 92 0% 343 3%
Net fee and commission income 36 4% 131 3%
General adminastrative expenses -76 10% -281 0%
Provisioning for impairment losses -30 93% -108 -46%
Profit after tax 4 -82% 47 69%
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Source: Raiffeisen Bank International
Olena Zuikova: Aval’s 2011 ROE of 7.8% is below our expectations of 10% on weaker than expected 4Q financials (4Q provisions for loan losses surged 93% qoq), which we believe was a one-off event. We expect Aval’s profit before provisions will stay virtually flat yoy in 2012 but the bank should still improve its ROE to 12% on a decline in loan loss provisions. While we think the bank is significantly undervalued fundamentally (our target price implies upside of 115% to yesterday’s closing price), we do not see any near-term price catalysts for Ukrainian banking stocks due to the broadly weak macro environment. We maintain our HOLD recommendation on Raiffeisen Bank Aval shares.
