Oschadbank net interest income falls 24% in 1H18

Ukraine’s State Savings Bank (Oschadbank, OSCHAD)
reported a 6% yoy decrease in 1H18 interest income to UAH 9.30 bln, according
its standalone IFRS-based financial report. At the same time, its interest
costs increased 1% yoy to UAH 7.17 bln, bringing net interest income down 24%
yoy to UAH 2.13 bln. The bank reported UAH 2.67 bln in recovery of loan loss
provisions (vs. UAH 1.02 bln in provisioning a year ago), which allowed it to
report a positive bottom line of UAH 0.11 bln (65% yoy plunge) despite higher
losses from the revaluation of financial instruments (a 5.9x yoy surge to UAH
3.94 bln) and a 24% yoy increase in operating expenses (to UAH 3.96 bln).

The bank’s net loan portfolio rose 3% YTD to UAH 60.69
bln as of end-1H18, while its portfolio of financial instruments decreased 6%
YTD to UAH 113.06 bln. All the instruments and 34% of net loans are with
related parties. Oschadbank’s deposit base was UAH 152.39 bln as of end-1H18,
which is 2% higher YTD.

Its cash flow statement looks more troubling as cash-interest
income fell 17% yoy to UAH 7.42 bln in 1H18, implying a 48% yoy decline (to UAH
2.68 bln) in 2Q18. The bank’s operating cash flow before assets and liabilities
changes was negative at UAH 1.37 bln in 1H18 (vs. positive UAH 0.62 bln a year
before). Despite such an outflow, the bank remained cash-rich as of end-1H18
having UAH 13.15 bln in cash (up 8% YTD) even though it repaid USD 5.0 bln in
NBU refinancing during the period.

The bank’s equity dropped 49% YTD to UAH 16.08 bln,
which seems to be mostly the result of its shift to the IFRS-9 standard.

Alexander Paraschiy: Oschadbank’s worsened cash-interest income may indicate its loan
portfolio continues to deteriorate, while significant moves in non-interest
incomes and losses suggest the bank was struggling to remain profit-making on
paper. As the bank’s liquidity remains high, and its shrinking equity only
boosts the chances for a capital contribution from the state as soon as this
year, we remain positive about its ability to service any of its obligations.
Therefore, we remain positive about OSCHAD Eurobonds.