Raiffeisen Bank Aval Slashes Hryvnia Interest Rates to Individuals

According to a bank press release, since yesterday, Raiffeisen Bank Aval (BAVL: HOLD) has significantly reduced interest rates on hryvnia-denominated loans to individuals by 2 p.p. on average. Alexander Viktorov: We believe the goal of these cuts is to increase the bank’s position on the retail market where it has ambitious plans to supplant Privatbank as #1 by 2009. In moving to increase the share of hryvnia-denominated loans in its portfolio, the bank is seeking to hedge itself against the risk of hryvnia appreciation. Despite the interest rate cuts, we do not see a large threat to the bank’s margins. Raiffeisen Bank Aval has one of the highest portions of cheap foreign borrowings in the sector (about 25% of assets), and plans to grow it to about 35-40% in the mid-term to offset the lower interest rates. We leave our key financial forecasts for the bank unchanged, and reiterate our HOLD recommendation.