PUMB cuts total assets by 5% YTD, posts UAH 0.6 bln profit in 1H17

First Ukrainian International Bank (PUMB, PUMBUZ)
generated UAH 593 mln net income in 1H17 (rising from UAH 46 mln losses a year
ago), according to its interim results published last week. The improvement was
the result of better net interest income (rising 60%, or UAH 548 mln yoy, to
UAH 1,460 mln), mostly fueled by a 26% yoy decrease in interest costs (falling
UAH 401 mln) and smaller loan loss provisions  (dropping 71%, or UAH 599
mln yoy, to UAH 241 mln).

Improvements in its top line were partially offset by
higher operating costs (rising 79%, or UAH 641 mln yoy, to UAH 1,455 mln),
which was the result of higher salary costs (rising 49%, or UAH 189 mln) and
impairment of property as well as assets in the occupied territory (by UAH 384
mln).

PUMB’s net loan portfolio decreased 9% YTD in 1H17 to
UAH 22,517 bln, while its securities portfolio rose 6% YTD to UAH 9,943 mln. Its
total assets decreased 5% YTD to UAH 42,258 mln.

The bank’s deposit base fell just 1% YTD to UAH 32,802
mln. It also reduced its Eurobonds outstanding to USD 102.4 mln as of end-June
(from USD 157.8 mln as of year-start), making two regular amortization payments
of USD 19.7 mln in end-1Q and end-2Q, as well as a USD 16.0 mln repurchase of
bonds at end-2Q.

The bank’s total capital adequacy ratio (Basel-I)
improved to 17.1% as of end-1H17, from 14.0% as of end-2016.

Alexander Paraschiy: The bank
demonstrated its efficiency in cutting its interest expense while keeping its
deposit base nearly unchanged. With significant reduction of expensive
Eurobonds outstanding in 1H17, the bank will further reduce its interest costs
in the second half of the year. We continue to treat the bank’s Eurobonds as
one of our top picks in Ukrainian fixed income universe.

Currently, the bank’s key risk is exposure to related
parties, which it seems to underreport (alleging its related party lending at
just 14% of its total loan portfolio as of end-1H17, which does not look
realistic). But given that most of the bank’s related parties (Metivest, DTEK)
have a much better financial position right now, we believe that related
exposure won’t harm the bank’s liquidity in the mid-term.