Bank Forum posts UAH 3.3 bln loss in 2010

Bank Forum (UX: FORM UK) posted a UAH 1.2 bln loss in 4Q10, bringing its total loss in 2010 to UAH 3.3 bln (USD 0.4 bln), according to UAS. Forum’s 2010 RoE equals -250% and RoA -20%. Mykyta Mykhaylychenko: Despite the losses, the bank finished the year with strong CAR of 28.4% (local definition) vs. the regulatory minimum of 10% and system average of 20.3%. The forthcoming 34% charter fund increase (to be completed by end-1H11) is to drive CAR to 39%, other things being equal. The loss was primarily driven by provisions accumulation, which rose from 10% as of end-2009 to 31% of its loan portfolio as of end-2010, well above our expectations. On top of that, internal operational restructuring pushed Forum’s SG&A costs up in 2010 with Cost/Income reaching 160% although this sets the stage for more efficient operations and improving C/I going forward. The bank’s net interest rate margin amounted to 3.0% in 2010, up from 2.8% in 3Q10 (4Q rolling). We see the bank already as having completed its provisions accumulation and having sufficient equity to restart lending in 2011 in line with the management’s announced goal of a 25% increase in the bank’s loan portfolio over 2011. According to the filing, only 3.8% of minority shareholders (0.2% of all shareholders) used their right to sell their shares to the bank (for total nominal shares valued at UAH 9.3 mln) after voting against the share capital increase in October. Hence, we expect free float to be around 4.5% after completion of the charter fund increase. Forum stock now trades at 1.1x P/B 2011F or at close to a 70% discount to its Eastern European peers.