OREANDA-NEWS  On 04 March was announced, that following the publication of financial results for the first nine months ended 30 September 2008 on January 5, 2009, Kazkommertsbank presents the following additional financial indicators.
 
Profitability:
 
RoAE increased to 20% in the first nine months of 2008 compared to 19.5% in the same period of 2007

RoAA increased to 2.3% in the first nine months of 2008 from 2.2% in the first nine months of 2007

Net interest margin (NIM) increased from 5.9% in the first nine months 2007 to 7.9% in the first nine months of 2008
 
The Bank’s profitability improved due to the growth in yield on interest bearing assets from 12.9% in nine months of 2007 to 15.2% in the first nine months of 2008, while the average yield on interest bearing liabilities increased to 7.6% (7.3% in nine months of 2007).
 
Cost control:
 
Cost-to-income ratio increased slightly to 16.7% in the first nine months of 2008 from 16.3% in nine months of 2007 (17.5% as of the end of 2007).

The number of employees decreased to 7,511 as at October 1, 2008 compared to 7,711 as at October 1, 2007 (7,972 as at the end 2007).

The number of branches decreased to 189 from 190 as at the end of 2007. In line with continuous control of branch network effectiveness, 15 branches were opened and 16 branches were closed in the first nine months of 2008.

The Bank continues to enlarge its ATM network: 113 new ATMs since year end 2007, resulting 883 ATMs overall as at the end of September 2008
 
Deposit base:
 
Market share by total deposits was 22% as at the end of the third quarter of 2008.

Total deposits increased by 22.5% from KZT 895 bln in 2007 to KZT 1,096 blnin the first nine months of 2008.

The share of term deposits and demand deposits as at the end of the third quarter of 2008 was 82% and 18%, respectively, compared to 80%t and 20% in the same period in 2007.

The share of KZT deposits in total deposits decreased to 51% in the first nine months of 2008 compared to 61% as at the end of 2007.
 
Capital adequacy ratios:
 
Capital adequacy ratios under the requirements of Financial Supervision Agency of Kazakhstan as at 30 September 2008 were 10.6% (Tier 1 capital), and 13% (Total capital), compared to minimum requirements of 5% and 10%, respectively.

Capital adequacy ratios under Basel were 12.2% for Tier 1 capital, and 17.8% for total capital.
 
Upcoming foreign redemptions in 2009:
 
In 2009 the Bank has to repay around USD 1.2 bln principal on Eurobonds, syndicated loans, and securitization, which is approximately half the amount repaid in 2008 – USD 2.2 bln.

Repayments of principal on public deals in 2009:

February 2009 – SGD 100 mln Eurobonds, repaid on 24 February 2009

March 2009 – USD 16 mln payment of principal on securitization notes

June 2009 – USD 16 mln payment of principal on securitization notes

July 2009 – JPY 25 blnEurobonds

September 2009 – USD 28 mln payment of principal on securitization notes

November 2009 – USD 500 mlnEurobonds

December 2009 – USD 300 mln Tranche B of USD 1 bln syndicated loan

December 2009 – USD 28 mln payment of principal on securitization notes
 
Loan book structure:
 
Gross loans to customers decreased by 1.9% to USD 20.4 bln in the third quarter from USD 20.8 bln in 2007.

Net loans to customers decreased by 4.4% to USD 18.8 bln in the third quarter from USD 19.7 bln in 2007.

Share of loans to customers in Kazakhstan was 80.6%. At the same time, the share of loans in Kazakhstan in the geographical structure of the loan book increased by 10.3% from the end of 2006 (70.3% in 2006; 78.4% in 2007).

USD loans comprised 59% of the loan book, while KZT loans represented 36%, and loans in other currencies 5% of the loan book as at the end of the third quarter of 2008.

There were no significant changes in the industry structure of the loan book the first nine months of 2008. The sectors with a share exceeding 10% of the net loan book include retail loans (17.1%), wholesale and retail (16.5%), and residential construction (12.4%).

The structure of the retail loan book was as following: 54.7% were mortgages; 32.0% secured consumer loans; 7.9% business loans; 4.0% car loans; and 1.4% other loans.
 
Asset quality:
 
In determining NPLs, KKB includes the entire exposure to a client with overdue payments. The definition of NPL for corporate loans consists of loans overdue more than 30 days. In retail, the same figure is based on accounts delinquent for more than 60 days.

A sharp increase in NPLs from 3.1% at the end of 2007 to 5.1% in 1Q08 followed by some stabilization of NPLs in 2Q08 – 5.2%. During third quarter 2008 NPL further increased, however its growth pace was lower compared to 1Q08, representing 6.2% of total loans.

This trend was mainly a result of NPLs in the corporate sector (including SMEs), constituting 83% of the total loan portfolio. NPLs in the corporate sector increased to 4.9% in 1Q08 from 2.9% in 2007, then slightly decreased to 4.6% in 2Q08 and increased to 5.4% in 3Q08. NPLs in the construction sector (including residential, commercial and industrial construction) of 12.6% are significantly higher compared to other segments. The share of construction sector in the Bank’s loan portfolio was 22.3% as of 1 October 2008.

NPLs in retail loans grew throughout the first nine months of 2008, from 3.7% in 2007 to 6.0% in 1Q08, 8.1% in 2Q08 and 9.9% in third quarter 2008.

The following factors made an impact on the growth of NPLs:

General economic slowdown.

Falling commodity prices accelerated in the second half of 2008, especially in August and September.

Continuing reduction in consumer demand for durable goods and large ticket items, as well as luxury and premiums products and services.

Changing consumer expectations and propensity to save rather than to spend.

The impact of the above negative effects can be traced in our portfolio, both in retail and corporate. NPLs in the service, wholesale and retail sectors have markedly increased compared to earlier periods. NPL growth rate was higher in the Retail segment as compared to Corporate and SME. This is mainly explained by the delayed effect of economic slowdown on retail borrower creditworthiness.

Dealing with NPLs:

Loans to corporate and SME sector:

The bank continues to work with real estate companies through the Kazyna programme.

The bank has dedicated staff for monitoring and management of construction exposure.

The bank has also created a separate unit for real estate workouts.

We continue to assist our borrowers in mergers and acquisitions and asset disposals.

KKB restructures loans on a case-by-case basis

Maintaining adequate provisions

Loans to individuals:

Modern IT systems for managing overdue accounts – IT systems and reports improvement

Intensifying work with early delinquencies (strengthening Call Center).

Outsourcing the collection of small and unsecured loans to collection agencies.

Focus on the workout of large secured loans (i.e. mortgages)

Historically, about 86% of delinquent retail loan accounts, which became overdue, were recovered (either repaid fully or partially or resumed debt service) within 1 year.
 
Provisioning:

Effective provisioning rate increased from 5.6% as of YE07 to 8% at the end of third quarter 2008

Coverage of NPLs by provisions amounted to 131.4%

KKB has historically been conservative in provisioning, its provisioning level exceeds those of its peers (BTA – 6.8%; Halyk – 6,9% at the end of third quarter 2008).

According to the bank’s policy, every new loan is provisioned regardless of its category.

Significant events after the reporting date:

9 December 2008– Kazkommertsbank announced that it had received a Memorandum of Understanding signed by the Government of Kazakhstan on the main conditions of the Bank's participation in stabilisation measures to maintain volumes of lending to the real sector of economy.

15 January 2009 - Kazkommertsbank, its major shareholders and SamrukKazyna Fund signed agreements on the implementation of the Memorandum of Understanding.

30 January 2009 - Kazkommertsbank received KZT 120 bln from the SamrukKazyna National Welfare Fund. The amount includes a KZT36 bln six month deposit which is expected to be used for the acquisition of a 25% stake in the Bank by SamrukKazyna during this period. The remaining amount of KZT84 bln is deposited for 36 months and will be used to finance and re-finance the corporate clients of the Bank in the real sector of the economy. The terms of the deposits enable the Bank to decrease current interest rates for its borrowers.

The shares issued in accordance with Memorandum of Understanding will be placed in full compliance with the current legislation of the Republic of Kazakhstan, listing rules of Kazakhstan and London stock exchanges, pre-emptive rights of current holders of the Bank's shares and GDRs, and the terms and conditions of all international agreements to which the Bank is a party.

In accordance with the Memorandum, SamrukKazyna's stake will not exceed 25% of the total outstanding common stock of the Bank, and the Bank's major shareholders (CAIC, Mr. Subkhanberdin and the European Bank for Reconstruction and Development) will continue to maintain control of the bank. SamrukKazyna will not participate in the day-to-day management of Kazkommertsbank.

It is expected that, in case the major shareholders will not execute their pre-emptive rights they will have an option to buy back SamrukKazyna's shares within a four-year period starting on the first anniversary of the Implementation Documents.

4 February 2009 – Tenge devaluation. The Bank is in the process of evaluating the impact of tenge devaluation on the loan portfolio. The Bank expects the deterioration of quality of loans to importers and retail customers.

26 February 2009 – Kazkommertsbank received 2 deposits from Samruk-Kazyna: 1 to refinance mortgages (KZT24 bln) and the other to lend and refinance loans to SMEs (KZT16 bln).   

Year-end 2008 projections:

Kazkommertsbank expects its 2008 results to be impacted by the continuing global crisis. Its net profit may be lower than expected due to a higher effective provisioning rate. This reflects the concerns of the Bank that worsened macroeconomic conditions in the second half of 2008 and declining commodities prices will affect asset quality.