Bank Aval 3Q10 pre-tax profit up 2.4x q-o-q

Raiffeisen Bank Aval posted a net after tax loss of UAH 964 th (USD 121 th) in 3Q10 after net profit in 1Q10 and 2Q10 (total UAH 36 mln for 1H10). The loss came on the back of tax expenses of UAH 34.4 mln after zero tax payments in 1H10. At the same time, pretax income rose to UAH 33.4 mln, 2.4 x increases over 2Q10. Profit increase was derived from higher gains on transaction with securities portfolios (both trading and available for sale). At the same time, Aval generated 7.3% (4q rolling) of net interest margin in 3Q10, down from 7.8% in 2Q10, while its Cost/Income ratio stood at 51.3% (4q rolling) in 3Q10, up from 49.2% in 2Q10. As the bank continues shrinking its loans portfolio (-2.9% q-o-q in 3Q10), while accumulating clients deposits (+5.8% q-o-q in 3Q10), its Loans/Deposits ratio improved to 158% as of end-3Q10, down from 172% as of end-2Q10. RB Aval continues accumulating NPL provisions (additional UAH 713 mln in 3Q10), which now reached 26% of total loans portfolio (20% as of end-2009). We expect the bank to restart its lending activities with subsequent improvement of the bottom line in 2011.