Oschadbank reports tiny 1H17 profit amid 19% fall in net interest income

Ukraine’s State Savings Bank (Oschadbank, OSCHAD)
reported a 21% yoy increase in net profit to UAH 0.31 bln as its decrease in
loan loss provisions (-52% yoy to UAH 1.02 bln) was offset by a 19% yoy
decrease in net interest income (to UAH 2.79 bln) and 33% increase in operating
costs (to UAH 3.20 bln). Its decrease in net interest income was fueled by a 5%
yoy increase in interest costs to UAH 7.12 bln, which was mostly the result of
a 1.3x yoy higher deposit base in 1H17.

The bank’s net loan portfolio remained unchanged YTD
at UAH 65.6 mln, while its deposit base inched up 3% YTD to UAH 149.5 bln.
Oschadbank’s total assets increased 5% YTD to UAH 220.3 bln mostly due to a government-led
capital increase of UAH 8.9 bln. As a result of the capital contribution, the
bank increased its portfolio of local government bonds 11% YTD to UAH 90.7 bln.
Its total equity advanced 64% YTD to UAH 25.9 bln and total capital adequacy
ratio (by Basel) reached 20.1% as of end-1H17 (from 13.0% as of the year’s
start).

Alexander Paraschiy: The bank
continues to enjoy the smallest cost of deposits among major state-controlled
financial institutions (7.0%), reflecting its high trust among the Ukrainian
public. Like its peer Ukreximbank, its issued Eurobonds bear the highest costs
among all groups of liabilities (9.5% in 1H17), which prompts a partial
repurchase of international bonds as the most straightforward way to reduce its
interest costs. We retain our position treating OSCHAD notes as our top pick in
Ukraine’s quasi-sovereign bond universe.