Oschadbank posts modest 2Q12 profit

Oschadbank (OSCHAD) posted net income of USD 6 mln in 2Q12 (USD 29 mln in 1H12). Net interest income added 12% yoy in 2Q12, however profit before provisions remained flat as operating expenses grew 27% yoy. The bank’s Cost/Income ratio deteriorated 6 pp qoq to 50% in 2Q12. Provisions grew 13% yoy, pushing net income 59% lower in yoy terms. The bank’s asset growth accelerated notably, adding 8% in 2Q12, while its net loan portfolio grew just 3%. The bank deployed new liquidity into government T-bills (up 30% qoq to USD 2.5 bln), whose share in total assets reached 24%.

Oschadbank’s 2Q12 and 1H12 results, USD mln                                  

—————————————————————–
                                                    1H12   yoy  2Q12   qoq   yoy
—————————————————————–
Net interest income                           297   15%   147   -3%   12%
Net fees and commissions                  63     8%     31    – 7%    8%
Operating expenses                          -184   25%   -97   12%   27%
Pre-impairment profit                        164  -16%    98    48%    0%
Impairment charge for credit losses  -129  -18%   -88    118%   13%
Net income                                       29    -8%     6      -72%  -59%
—————————————————————–
                                     1H12   qoq   yoy        
—————————————————————–
Assets                             10,602    8%   17%        
Gross corporate loans        6,951    4%   24%        
Gross retail loans               550    0%   -7%        
Loan loss reserve             -1,168    8%   38%        
Liabilities                         8,375   11%   21%        
Corporate deposits            1,007    0%  -38%        
Retail deposits                   3,629    7%   22%        
Equity                              2,227   -1%    2%        
—————————————————————–
Source: Company data

Olena Zuikova: Growth in the bank’s core earnings remains strong and substantially outpaces that of the sector as a whole. However, the strong increases in operating expenses and loan loss provisions in 2Q12 are a source of concern. We do not expect the bank’s Cost/Income will improve, but provisions are very likely to decline in 2H12. The bank remains highly liquid given the high share of government T-bill on its balance sheet, which can be put up as collateral for refinancing loans from the NBU. We do not have any concerns about the bank’s ability to service its obligations smoothly.