Privatbank 3Q net interest income plunges, insider disclosure improves

Ukraine’s biggest lender Privatbank (PRBANK) reported a 57% yoy plunge in net interest income to UAH 3,310 mln in 9M15, according to its financials disclosed on Oct. 21. The decline was caused by a 51% yoy increase in interest expenses, which, most likely, was the result of high deposit rates that the bank has been offering to retail clients. Its interest income lagged to costs growth, rising only 12% yoy in 9M15. The decline in its core business was partially compensated by a 40% yoy jump in the bank’s net fee and commission income to UAH 2,821 mln, and a 75% yoy plunge in loan loss provisioning (to just UAH 675 mln) in 9M15. This allowed the bank to report a positive bottom line at UAH 90 mln in 9M15, which was still 79% less yoy.

The bank’s foreign currency deposits, its key area of worry, continued to decline in 3Q15, although at a smaller rate of -3.1% qoq in dollar terms, compared to -8.3% qoq in 2Q15, -5.1% in 1Q15 and even worse in 2014. As of end-3Q15, foreign currency deposits were the equivalent of USD 4.09 bln, which is -21% yoy and -16% YTD. At the same time, the bank’s aggressive deposit acquiring policy resulted in a 3.8% qoq increase in local currency deposits (to UAH 73.6 bln, +14% yoy, +13% YTD). The 3Q15 increase in UAH deposists, however, was smaller than in the previous quarter (+10.2% qoq).

Privatbank’s regulatory capital was reported at UAH 22.2 bln and its CAR under local standards was 9.93% as of end-3Q15. This is below the 10% benchmark applied before the crisis, but is still an acceptable level for the regulator during this crisis year. The bank’s current liquidity ratio slightly increased qoq to 68.6%, while still remaining weaker compared to the year’s start (83.9%).

The most crucial changes in the bank’s statements were detected in its reporting of related party exposure. As of end-3Q15, Privatbank reported its total credit risk to related parties was 45.2% of its regulatory capital (or about UAH 10 bln). This is a sharp contrast to the ratio of 10.0% of regulatory capital reported last quarter and 3.9% reported as of the end-2014.

Alexander Paraschiy: The stabilization of foreign deposit outflow is a slightly encouraging event for the bank, which we still believe has not sufficient dollar liquidity to smoothly repay its USD 350 mln in total Eurobonds, which may come due in the next three months in the worst-case scenario. To prevent this, the bank has to secure a five-year maturity extension of its USD 150 mln subordinated Eurobond by January 5. Given that such an extension is not yet secured, we continue to treat PRBANK Eurobonds as one of the riskiest instruments in Ukraine’s fixed income universe.