Oschadbank releases unimpressive 4Q11 results

Oschadbank (OSCHAD) posted USD 18 mln in net income for 4Q11 and USD 67 mln for 2011, according to a report released on Friday. Net interest income grew considerably in 4Q11 (+8% qoq and +20% yoy) due to a sizable increase (+13% qoq) in the corporate loan portfolio over 3Q11. At the same time, growth in operating expenses was also strong at 21% qoq and 38% yoy, fully offsetting gains in revenues. Profit before provisions fell 3% yoy in 4Q11 and 4% yoy in 2011, while provisions were up 21% yoy in 4Q11 and 5% yoy in 2011.

Oschadbank 4Q11 and 2011 financials, UAS, USD mln

—————————————————————-
                                                      2011   yoy 4Q11   qoq   yoy
—————————————————————-
Net interest income                           568    8%  161    8%   20%
Net fees and commissions                  118    3%   30    3%   -5%
Operating expenses                         -324   27%  -96   21%   38%
Pre-impairment profit                        411   -4%  106   -4%   -3%
Impairment charge for credit losses  -350    5% -100    7%   21%
Net income                                         67   15%   18    6%  395%
—————————————————————-
                                                     2011   qoq  yoy         
—————————————————————-
Assets                                          9,258   -2%  25%         
     Gross corporate loans               6,805    3%  36%         
     Gross retail loans                        559   -3% -11%         
     Loan loss reserve                    -1,048   10%  49%         
Liabilities                                      7,049   -3%  -3%         
     Corporate deposits                    1,672   -3% 169%         
     Retail deposits                          3,158    3%  29%         
Equity                                           2,209    0%   6%            
—————————————————————-
Source: Company data

Vitaliy Vavryshchuk: The decline in pre-impairment profit in 2011 is a disappointment. While rapid expansion in the bank’s balance sheet lays the groundwork for stronger core earnings, the inability to contain growth in operating expenses prevents them from feeding it into the bottom line. The 25% yoy upsurge in loan book in 2011 (well above the sector’s average of 10%) is also a concern as it likely came due to heavy involvement in transactions with state-owned companies. The bank continued channeling retail deposits (+29% yoy, which is quite remarkable) into loans to state-controlled entities. The think the share of related parties in the bank’s gross loan book increased further from an unreasonable 65% as of end-1H11 (including 45% to Naftogaz). The bank’s business remains extremely vulnerable to economic shocks due to extensive related-party lending and thus its liquidity remains fully in the hands of the central bank and government. We stick to our view that the government and the NBU will support the bank’s solvency and liquidity and remain confident in its ability to service its obligations.