OREANDA-NEWS. On 02 June 2009 BANK URALSIB (URALSIB or Bank) (RTS: USBN) reported on financial results under IFRS for the twelve-month period ended December 31, 2008.

Key 2008 achievements

• modification of product line, fee and interest policy in accordance with new business environment

• preservation of corporate and retail customer base and market share

• focus on business efficiency and expenses control

• risk-management strengthening

Financial results

Net income of the Bank amounted to 1.2 bln rubles in 2008 vs net income of 2.3 bln rubles in 2007. Pre-tax income reached 2.1 bln rubles vs 3.7 bln rubles in 2007.

Considerable impairment of interest earning assets caused the decrease of net income in 2008. Worsening of the economic situation in IIH2008 and as its consequence  the growing fall of payment discipline of the Bank’s borrowers resulted in the growth of the allowances for impairment for loan losses by 8.4 times to 10.1 bln rubles. At that the specified rate of income before tax and impairment of interest earning assets increased by 2.5 times in 2008 vs 2007 (12.3 bln rubles vs 4.9 bln rubles correspondingly).

Positive financial result for the 12-month period 2008 was achieved due to the considerable increase of the core banking income1 and qualitative change of operating income structure, which resulted in lowering dependence on net gains from volatile financial instruments.

During the reporting period the core banking income kept on growing progressively by 47.6% up to 32.0 bln rubles. Net interest income grew by 57.9% up to 26.3 bln rubles in 2008 vs 2007.  That dynamics was secured first of all by the income increase throughout the whole lending products line, as well as by the inter-bank lending operations and investments in finance leases.

Net fee and commission income during 12-month period of 2008 amounted to 5.6 bln rubles vs 5.0 bln y-o-y 2007. The rise of net fee and commission income by 13.1% was caused by growth of net gains from cash operations, guarantees and letters of credit, as well as by underwriting.

Outrunning growth of net interest income in total operating income structure allowed to improve the core banking income/ operating and administrative expenses ratio up to 172.3% during the reporting period vs 128.0% in 2007.

Considerable worsening of juncture at world financial markets in the IIH2008 led to net losses from securities in the amount of 3.1 bln rubles vs net loss of 2.5 bln rubles in 2007. During the reporting period net gains from foreign currencies, derivatives and operations with precious metals amounted to 1.1 bln rubles vs 1.5 bln rubles last year. At that net gain from foreign currencies increased by 3.6 times in 2008 vs 2007.

Thus net operating income before impairment of interest earning assets reached 30.8 bln rubles, demonstrating 41.1% growth vs 2007.

Expenses control

Operating expenses amounted to 18.6 bln rubles in 2008, exceeding insignificantly similar indicator of 16.9 bln rubles in 2007 (9.6% growth that is lower than inflation rate). At that personnel expenses shrank by 5.0% from 9.5 bln rubles to 9.0 bln rubles during 12 months of the reporting period. The share of personnel expenses in operating expenses fell to 48.6% in 2008 vs 56.1% in 2007. In particular the growth of administrative and operating expenses was caused by the completion of some investment projects aimed at creating new sales points in Moscow and in other RF regions with corresponding increase of rental payments, expenses on IT etc.

Due to advanced sharp growth of core banking income and to insignificant increase of personnel and administrative expenses, Cost-to-Income ratio (C/I) decreased to 60.2% in 2008 vs 77.5% in 2007.

Change in assets structure, credit portfolio and customer accounts growth

The Bank’s total assets increased to 446.3 bln rubles by the end of the reporting period (by 19.1% up y-t-d). The increase of credit portfolio, net investments in finance leases and highly liquid assets became the key drivers for assets growth.

The Bank credit portfolio2 grew up by 16.1% to 278.0 bln rubles as of 31.12.2008. Loans to individuals were up to 84.6 bln rubles by the end 2008 (by 32.6% up y-t-d), corporate loans – to 193.4 bln rubles (10.1% growth).

Net investments in finance leases increased by 55.7% to 31.9 bln rubles as of 31.12.2008. The share of credit and leasing portfolio in assets structure remained almost at the same level - 65.9%, while the share of securities portfolio decreased from 12.6% as of 31.12.2007 to 9.3% as of 31.12.2008 and the share of liquid assets increased from 12.8% to 16.1% correspondingly. Liquid assets, introduced mainly by current accounts in Central Bank of Russia, grew up by 50.4% to 72.0 bln rubles during 2008.

The share of loans to micro and small business remained high – 58% as of 31.12.2008. The share of SME customers in corporate customer base amounts to almost 95%.

Residential mortgages and consumer loans still prevailed in retail loan portfolio – 48.6% and 24.4% respectively. The share of retail loan portfolio in total loan portfolio structure reached 30%, and total share of loans to individuals and loans to SME approximated to 70%.

Customer accounts increased by 5.3% to 226.4 bln rubles for 12 months of 2008, mainly, owing to the growth of corporate deposits – by 11.9% to 161.6 bln rubles. The positive dynamics was secured mainly by increase of term deposits (corporate deposits – 24.9% growth and individual deposits – 4.6% growth).

Individual accounts shrank to 64.8 bln rubles by the end of 2008 (8.3% vs as of 31.12.2007), that was caused by partial reduction of amounts due to individuals in October-November 2008 triggered by the cautious attitude of the population towards the stability of the whole banking system in general. The share of customers’ current and term deposits in foreign currencies increased to 26.5% by the end of the year vs 14.6% y-t-d that was caused by ruble devaluation.

Loan portfolio coverage by customer accounts amounted to 81.4%, the share of customer accounts in liabilities amounted to 56.9% as of 31.12.2008.

In 2008 the equity securities volume and share of equity securities in the assets structure kept on falling down to practically non-material. Total securities portfolio4 amounted to 41.3 bln rubles as of 31.12.2008 (12.8% down), investments in shares reduced by more than 3.7 times to 2.9 bln rubles. The shares in securities portfolio shrank to 7.1% as of 31.12.2008; in assets structure – to 0.7%.

In the reporting period the Bank reclassified its securities by different types of portfolios that allowed partially smoothing the influence of stock market environment on securities revaluation results. In particular trading securities5 amounted to 60.6%, available-for-sale securities – 24.3% and held-to-maturity securities – 15.1% of the total securities portfolio.

Total equity reached 48.2 bln rubles by the end of reporting 2008, remaining almost at the same level. In the reporting period of 2008 RoA amounted to 0.3%, RoE - 2.5%. The Bank improved capital adequacy ratio under Russian standards (N1) from 11.9% as of 31.12.2007 to 12.8% as of 31.12.2008, as well as under the Bank for International Settlements (BIS) methodology from 13.6% to 14.3% correspondingly.

Accounting standards

The Bank presented early application of segment reporting IFRS-8 in relation to operating results and balance sheet figures by business lines, while preparing financial reporting under IFRS for the twelve months period ended 31 December, 2008. This standard is based on management accounting, which is a key basis for management decisions. According to the segment reporting, net income of the Bank in 2008 was generated mainly by corporate and retail banking. Leasing, treasury operations and corporate investments were also profitable segments in the reporting period.

1 Net interest income after allowances for impairment and net fee and commission income

2 Loans to corporates and individuals before allowances for impairment (gross)

3 Before allowances for impairment

4 Including debt and equity securities, promissory notes, units in investments funds, investment shares in companies

5 Including trading securities pledged under repurchase agreements.