Oschadbank profit surges in 1H20 on revaluation gains

Ukraine’s State Savings Bank (Oschadbank, OSCHAD)
reported a 15% yoy rise in net interest income to UAH 3.38 bln in 1H20. This was
the result of a 16% yoy slide in interest expenses on the background of a 7%
yoy decline in interest income (to UAH 9.23 bln). The bank’s net commission
income climbed 5% yoy to UAH 2.03 bln. Its total income surged 82% yoy to UAH
8.66 bln, which was largely the result of a UAH 5.23 bln gain on the
revaluation of securities. This resulted in the bank’s bottom line surge by 29x
yoy to UAH 3.59 bln. Meanwhile, its operating cash flow before
assets/liabilities changes was just UAH 0.18 bln in 1H20 (vs. negative UAH 0.25
bln a year before).

The bank boosted its portfolio of state bonds by UAH
15.7 bln YTD in 1H20 to UAH 111.1 bln, which reached 49% of the bank’s total
assets as of end-June (from 38% as of end-December). It reduced its holding of
the central bank’s certificates of deposit by about the same amount. Its net
loan portfolio increased 5% YTD to UAH 68.3 bln in 1H20.

The bank’s client accounts dropped 11% YTD (or by UAH
21.6 bln) to UAH 180.5 bln. The decline was solely the result of decreased
deposits of state-controlled companies (by UAH 37.3 bln YTD, to UAH 27.3 bln),
while the deposits of other businesses remained flat YTD. Moreover, individual
deposits increased 15% YTD to UAH 123.1 bln, reaching 61% of the bank’s total
liabilities as of end-June (from 47% as of end-December). Higher loans and
fewer deposits halved the bank’s cash position YTD to UAH 29.0 bln.

The bank’s total capital adequacy ratio improved to
16.3% as of end-June, from 13.9% as of end-December.

Alexander Paraschiy: An improved bottom line could be more a challenge for Oschadbank than
a benefit, taking into account that the government usually demands high
dividends from state-controlled enterprises. Otherwise, the bank showed stable
results and confirmed its status as a supporter of the state budget via the
purchase of local government bonds. Meanwhile, its liquidity and financial
stability remains beyond risks. We continue to believe the bank’s bond yields
should be close to sovereign levels, prompting our bullish view of this paper.