OREANDA-NEWS. November 22, 2007. JSC Kazkommertsbank, a Kazakhstan’s leading bank, on November 19 announced its financial results for the third quarter of 2007.

General Highlights:

• Net profit increased by 96% from KZT 21,827 million in the third quarter 2006 to KZT 42,777 million in the third quarter 2007;
• Net profit before income tax increased by 87.43% from KZT 29,424 million to KZT 55,150 million;
• Net interest income increased by 2.1 times from KZT 24,811 million to KZT 52,429 million;
• Net interest margin increased to 5.9% from 5.2%;
• Net commission income grew by 50.42% from KZT 10,706 million to KZT 16,104 million;
• Operating income increased by 78.34% from KZT 43,410 million to KZT 77,418 million;
• Earnings per share increased by 38.91% from KZT 51.14 to KZT 71.04;
• Total assets increased by 23.08% from KZT 2,444 billion as at 31 December 2006 to KZT 3,008 billion as at 30 September 2007;
• Total equity increased by 17.3% from KZT 249 billion to KZT 292 billion;
• Loans to customers less allowance for impairment losses increased by 44.4% from KZT 1,679 billion to KZT 2,425 billion;
• Customer accounts increased by 20.36% from KZT 688 billion to KZT 828 billion;
• Debt securities issued increased by 75.24% from KZT 424 billion to KZT 743 billion;
• Return on Equity amounted to 19.5%;
• NPLs falling as proportion of gross loans, to 0.8%.

Mr Andrey Timchenko , Managing Director, commented:

"We are continuing to show excellent results for profitability while maintaining rigorous lending discipline. Our results demonstrate our ability to maintain and enhance our relationships with customers and financial markets, both within and outside Kazakhstan, even in a period of international market uncertainty."


Business Performance Overview

Net interest income
Net interest income before provisions for impairment losses increased by 2.4 times to KZT102,146 million in the third quarter 2007 from KZT43,154 million in the same period last year, resulting primarily from 108.1 per cent growth in average interest-earning assets. Interest income grew at a faster rate than interest expense, resulting in an increase in the Bank’s net interest margin to 5.9 per cent from 5.2 per cent in the third quarter 2006.

Net non-interest income
Net non-interest income increased by 34.4 per cent to KZT24,989 million from KZT18,599 million in the third quarter 2006. This increase was primarily due to the increase in net fees and commissions and financial assets transactions. Net commission fee increased by 50.4 per cent, primarily due to the increased commission incomes. Thus, commission income on cash operations increased by 59.69 per cent; on L/C and L/G businesses operations by 49.1 per cent; on foreign exchange and securities operations by 60.9, and commissions on plastic cards and encashment operations by 52.3 and 68.6 per cent, respectively. Fee and commission expenses grew by KZT606 from KZT1,177 million as at 30 September 2006 to KZT1,783 million for the same period in 2007.
Net gain on financial assets at fair value through profit and loss was KZT15,084 million as at September 30, 2007 compared to a loss of KZT 152 million as of September 30, 2006. This significant shift in volume occurred due to the inclusion of the results from operations with foreign currency derivatives on the balance sheet. The above-mentioned operations were concluded with the aim of hedging foreign exchange risks. As a result, profit from these operations was KZT15,946 million as at September 30, 2007, compared to KZT734 million in the same period last year. Excluding net gain on foreign exchange operations from the net gain on financial assets at fair value through profit and loss, gives net result from securities and precious metals operations, which was loss of KZT166 million compared to losses of KZT348 million in the third quarter of 2006.

Net losses from foreign exchange operations in the third quarter of 2007 amounted to KZT11,560 million, compared to KZT5,681 million for the same period in 2006. Taking into consideration amounts from operations with foreign currency derivatives on the balance sheet, net profit from foreign exchange operations reached KZT3,690 million compared to KZT6,361 million in the third quarter of 2006, as a result of foreign exchange operations.

Provisions for impairment losses
Provisions for impairment losses increased by KZT 31,374 million (by 2.7 times) and made up KZT 49,717 million during the nine months ended 30 September 2007 compared to KZT 18,343 million for the same period of 2006. The growth of provisions for impairment losses is a result of a KZT 793 billion increase in the gross loan portfolio. The effective reserve rate on customer loans was 4.7 per cent as at 30 September 2007 compared to the rate of 4.2 per cent as at December 21, 2006. The above-mentioned growth of the effective reserve rate was due to the growth in general provisions, which were 0.5 per cent of the gross loan portfolio in the third quarter of 2007.

Operating expenses
Operating expenses increased by 80.17 per cent to KZT 20,747 million, from KZT 11,515 million in 9 months of 2006, as a result of an increase in personnel expenses. This trend was driven by the increase in the number of employees and other expenses related to the retail network expansion, which is a key part of Kazkommertsbank’s retail strategy. However, notwithstanding this growth in operating expenses, the ratio of the Bank's operating expenses to operating income before provisions for impairment losses decreased to 16.3 per cent from 18.7 per cent as at the end of 9 months 2006. This is a result of faster growth of operating income as compared to operating expanses.

Loans to Customers
The Bank’s total gross loan portfolio grew by 45.2 per cent to KZT 2,545,894 million from KZT 1,752,776 million as at 31 December 2006.
NPLs as a proportion of gross loans fell to 0.8 per cent. As of 30 September 2007, the trade sector made up the largest share of the loan portfolio with 20.5 per cent (KZT 497,994 million), compared to 18.5 per cent as at the end of 2006. Loans to residential and commercial construction increased by 17.6 per cent, while their share in total loans decreased to 18.7 per cent as at 30 September 2007 compared to 22.9 per cent as at 31 December 2006. As of 30 September 2007, the Bank’s 20 largest borrowers accounted for 30.5 per cent of the total loan portfolio compared to 27.7 per cent as at 31 December 2006. Loans to individuals, including consumer and mortgage lending, increased by 68.0 per cent, from KZT261,708 million at the end of 2006 to KZT439,602 million. These loans, as a percentage of the Bank’s loan portfolio, increased from 15.6 per cent as at 31 December 2006 to 18.1 per cent as at 30 September 2007.

Loans and advances to banks
Loans and advances to banks, less allowance for impairment losses, decreased by 42.4 per cent to KZT114.0 billion, as compared to KZT198.0 billion as at 31 December 2006. At the same time, loans and advances to banks as a percentage of total assets decreased to 4 per cent from 8 per cent as at 31 December 2006.

Cash and balances with National Bank
Cash and balances with the National Bank of Kazakhstan, the National Bank of Kyrgyz Republic and the Central Bank of Russia resulted to KZT211 billion which is almost equal to KZT209.0 billion as at 31 December 2006.

Securities portfolio
The size of the Bank’s securities portfolio decreased by 35.3 per cent to KZT210.6 billion from KZT325.6 billion at the end of 2006. The decrease was mainly in the Bank’s trading portfolio, which decreased by 35.7 per cent or KZT115.3 billion. This change was primarily attributable to the sale of international financial organizations securities of KZT99.2 billion and net sale of short-term NBK notes of KZT25.9 billion.

Funding
The Bank’s debt securities increased to KZT 743,304 million, representing 27.5 per cent of the Bank’s liabilities, up from KZT 424,162 million (19.5 per cent) as at 31 December 2006. In February 2006, the Bank issued EUR 750 million 6.875 per cent debt securities due February 2017 and GBP 350 million 7.625 per cent debt securities due February 2012 via Kazkommerts International B.V., under the MTN Program.

In May and July 2007, the Bank issued USD 250 million European commercial securities with zero coupon and JPY 25 billion 2.212 per cent via Kazkommerts International B.V., under the MTN Program. The commercial securities are due to May 2008 and July 2009, respectively.

The amount of other borrowed funds increased twice due to issuance in April 2007 of USD 500 million debt securities due 2017 under the Future Flows Securitization Program via Kazkommerts DPR Company. Merrill Lynch and WestLB AG acted as a Join Lead Arrangers and Bookrunners.

Customer accounts as of 30 September 2007 increased by 20.4 per cent compared to beginning of year. This is a result of increase by 45.9 per cent in term deposits. Term deposits amounted to KZT 621,112 million. Their share in customer accounts increased to 75 per cent from 61.9 per cent in the beginning of the year 2007. On the contrary, share of demand deposits decreased to 24.9 per cent from 37.5 per cent at the year-end 2006.