Ukreximbank equity plummets in 3Q15

Ukraine’s State Export-Import Bank (Ukreximbank, EXIMUK) reported strong interest income and heavy losses in 9M15, according to its regulatory filing of Oct. 26. Its net interest income improved 54% yoy to UAH 4,813 bln and net commission income advanced 77% yoy to UAH 700 mln. At the same time, its heavy loan loss provisioning (UAH 14,354 mln, or 59% higher yoy) resulted in UAH 8,330 mln in net losses for 9M14.

In 3Q15 alone, the bank’s losses were 4.5 bln, or 10% higher yoy. As a result of heavy losses, the bank’s equity decreased to UAH 6.5 bln as of end-September from UAH 11.9 bln as of end-1H15. The company has not provided its CAR as of end-9M15, though it seems to be lower than the NBU threshold of 10% (it was 12.1% as of end-1H15 and 22.6% as of end-2014).

Ukreximbank was able to increase its local currency deposits 12.7% qoq to UAH 22.7 mln in 3Q15, while its foreign-currency deposits continued shrinking, in USD terms: -5.1% qoq and -10.7% YTD. Its net loan portfolio also continued to decline, most likely due to provisioning.

Alexander Paraschiy: The losses of the bank, which is focused on operations with foreign currency, seems to illustrate how risky its business is in a time of hryvnia devaluation. This supports our idea that the bank has relatively higher risk than its peer, Oschadbank.

By reporting heavy losses, the bank is likely to be pursuing a capital increase at the cost of state. Usually, the government implements such an increase as soon as the bank lowers its capital adequacy ratio. While this could be also an indicator of the bank’s poor governance, we still believe Ukreximbank, as a government-controlled entity, is a safe fixed income story.