OREANDA-NEWS. On August 28, 2009 Joint Stock Company ‘Halyk Savings Bank of Kazakhstan’ and its subsidiaries (“the Bank”) (LSE: HSBK) releases its unaudited interim financial information for the six months ended 30 June 2009 prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” and reviewed by Deloitte LLP, Kazakhstan, reported the press-centre of Halyk Bank.

“The year 2009 remains challenging for both international and domestic markets. Nevertheless, Halyk Bank managed to retain its leading positions in Kazakhstan banking sector with #1 ranking in deposits, payroll and card products, distribution platform and pension fund services. The Bank’s successful performance is pillared by its traditionally prudent risk management policy and conservative approach to liquidity. Controlled growth, cost-cutting measures, maintenance of adequate loan portfolio quality and focus on Kazakhstan market remain our top priorities in 2009.”
Umut Shayakhmetova, Chairperson of the Management Board

Total assets increased by 23.2 percent in KZT terms and decreased by 1.0 percent in USD terms during the first six months of 20091

Total amounts due to customers increased by 37.0 percent in KZT terms and increased by 10.0 percent in USD terms during the first six months of 20091

The total net loans to customers increased by 1.8 percent to KZT 1,210.0 billion from KZT 1,188.3 billion as at YE2008

Retail loans decreased by 6.2 percent to KZT 325.3 billion from KZT 346.6 billion as at YE2008

Total equity increased by 40.9 percent to KZT 269.3 billion from KZT 191.1 billion as at YE2008

Net interest income before impairment charge increased by 21.4 percent to KZT 48,139 million from KZT 39,645 million for the first six months of 2008

Net fee and commission income increased by 40.5 percent to KZT 19.2 billion from KZT 13.6 billion for the first six months of 2008

Operating expenses decreased by 6.6 percent to KZT 19.0 billion from KZT 20.4 billion for the first six months of 2008

Net income for the first six months of 2009 was KZT 4.3 billion

Net interest margin increased to 5.8 percent from 5.4 percent for the first six months of 2008

The ratio of provisions to gross loans (provisioning rate) increased to 12.9 percent from 8.8 percent as at YE2008

The ratio of operating expenses to operating income before impairment charge (cost-to-income ratio) decreased to 24.6 percent from 35.1 percent for the first six months of 2008

The ratio of operating expenses to average assets (cost-to-assets ratio) decreased to 1.9 percent from 2.5 percent for the first six months of 2008

The ratio of net loans to customers to amounts due to customers (loan-to-deposit ratio) decreased to 1.02x from 1.37x as at YE2008

Financial Overview
Interest income
Interest income increased by 14.1 percent to KZT 102,272 million from KZT 89,603 million for the first six months of 2008. This increase was primarily due to a 19.7 percent increase in average balances of interest-earning assets and also an increase in average rates on interest-earning assets to 12.5 percent p.a. from 12.4 percent p.a. for the first six months of 2008. This increase in average rates on interest-earning assets was primarily due to an increase in average rates on the securities portfolio to 9.5 percent p.a. from 8.5 percent p.a. for the first six months of 2008 and average rates on loans to customers to 15.9 percent p.a. from 15.3 percent p.a. for the first six months of 2008 partially offset by the decline in average rates on amounts due from credit institutions to 1.3 percent p.a. from 3.2 percent p.a. for the first six months of 2008.

Interest expenses increased by 8.4 percent to KZT 54,133 million from KZT 49,958 million for the first six months of 2008. This increase was primarily due to a 14.8 percent increase in average balances of interest-bearing liabilities partially offset by decrease in average rates on interestbearing liabilities to 6.7 percent p.a. from 7.0 percent p.a. for the first six months of 2008.

Average rates on debt securities issued increased to 10.2 percent p.a. from 8.0 percent p.a. for the first six months of 2008. Average rates on amounts due to customers fell to 6.1 percent p.a. from 7.0 percent p.a. for the first six months of 2008 and average rates on amounts due to credit institutions fell to 4.8 percent p.a. from 5.5 percent p.a. for the first six months of 2008.

Net interest income before impairment charge increased by 21.4 percent to KZT 48,139 million from KZT 39,645 million for the first six months of 2008. Interest expense grew at a slower rate than interest income resulting in net interest margin of 5.8 percent for the first six months of 2009 compared to 5.4 percent for the first six months of 2008.

Impairment charge
The impairment charge increased to KZT 53,599 million from KZT 14,959 million for the first six months of 2008. The effective provisioning rate on loans to customers increased to 12.9 percent  from 8.8 percent as at YE2008. The effective provisioning rate under Kazakhstan regulatory standards increased to 16.5 percent from 10.9 percent as at YE2008.

Fee and commission income
Net fee and commission income increased by 40.5 percent to KZT 19,171 million from KZT 13,648 million for the first six months of 2008. This increase was primarily due to a 135.4 percent increase in pension fund and asset management fees to KZT 9,374 million from KZT 3,982 million for the first six months of 2008, an increase in plastic card maintenance fees by 17.5 percent to KZT 1,502 million from KZT 1,278 million for the first six months of 2008 as a result of higher tariffs introduced in the first quarter of 2009, as well as an increase in maintenance fees on customer accounts by 75.4 percent to KZT 1,372 million from KZT 782 million for the first six months of 2008.

Other non-interest income
Other non-interest income increased by 63.4 percent to KZT 11,926 million from KZT 7,301 million for the first six months of 2008 primarily as a result of net gains from financial assets at fair value through the profit and loss account, net gains on foreign exchange operations and net gains from redemption and repurchase of debt securities issued, partially offset by losses from available-for-sale investment securities, increase in share of losses of associates and decrease in other income.

The net gain from financial assets at fair value through the profit and loss account was KZT 1,150 million compared with a net loss of KZT 2,251 million for the first six months of 2008. The net gain from financial assets at fair value through the profit and loss account resulted from gains on trading securities and foreign currency forward and spot transactions.

Gains on foreign exchange operations net of currency translation differences increased by 113.8 percent to KZT 6,791 million from KZT 3,176 million for the first six months of 2008 primarily as a result of increased volumes of customer operations with foreign currency.

Net losses from available-for-sale investment securities were KZT 1,138 million compared with a net gain of KZT 445 million for the first six months of 2008. Net loss for the first six months of 2009 resulted from transfer of unrealized loss on the repurchased Eurobonds of HSBK (Europe) B.V. to income statement from equity as a result of the issuer substitution made in April 2009.

Insurance underwriting income less insurance claims incurred, net of reinsurance, increased by 2.4 percent to KZT 2,233 million from KZT 2,181 million for the first six months of 2008 mainly as a result of decrease in payments under insurance claims.

Non-interest expenses
Operating expenses decreased by 6.6 percent to KZT 19,044 million from KZT 20,399 million for the first six months of 2008 mainly due to a 20.0 percent decrease in salaries and other employee benefits.

Provisions for off-balance sheet assets and liabilities decreased to KZT 193 million from KZT 1,680 million for the first six months of 2008 primarily due to changed provisioning policy on the Bank’s off-balance sheet liabilities. The ratio of the Bank's operating expenses to operating income before impairment charge (cost-to-income ratio) decreased to 24.6 percent from 35.1 percent for the first six months of 2008. The ratio of the Bank's operating expenses to average total assets decreased to 2.0 percent from 2.5 percent for the first six months of 2008.

Total assets
The Bank’s total assets increased by 23.2 percent to KZT 2,035,138 million from KZT 1,651,349
million as at YE2008 primarily due to increases in cash and cash equivalents, investments held to maturity and foreign exchange differences on loans to customers denominated in foreign currencies partially offset by decrease in available-for-sale investment securities and financial assets at fair value through profit or loss.

Liquid assets
The Bank’s ratio of liquid assets to total assets increased to 34.3 percent from 17.0 percent as at YE2008 mainly as a result of a 237.2 percent increase in cash and cash equivalents. Increase in  liquid assets was mainly funded by a 37.0 percent increase in amounts due to customers. The Bank keeps its liquid assets primarily in short-term deposits with international banks and the National Bank of Kazakhstan.

Loans to customers
The total net loans to customers grew by 1.8 percent to KZT 1,209,954 million from KZT 1,188,280 million as at YE2008. Retail loans, including consumer and mortgage loans, decreased by 6.2 percent to KZT 325,294 million from KZT 346,620 million as at YE2008. Consumer loans, mostly backed by the salaries of the individual borrowers, decreased by 12.2 percent to KZT 165,506 million from KZT 188,542 million as at YE2008. Mortgage loans increased by 1.1 percent to KZT 159,788 million from KZT 158,078 million as at YE2008 mainly as a result of foreign exchange differences on loans denominated in foreign currencies.

Loans to corporate borrowers (including SMEs) increased by 11.2 percent to KZT 1,063,925 million from KZT 956,712 million as at YE2008 primarily as a result of foreign exchange differences on loans denominated in foreign currencies.

As at 30 June 2009, the Bank’s 10 largest borrowers accounted for 18.7 percent of total gross loans to customers compared with 16.4 percent as at YE2008. As at 30 June 2009, wholesale trade, construction, consumer loans, mortgage loans and services sectors accounted for 20.0 percent, 14.0 percent, 12.0 percent, 11.0 percent and 10.0 percent of the Bank’s total gross loans to customers, respectively.

Liabilities
The Bank’s total liabilities increased by 20.9 percent to KZT 1,765,879 million from KZT 1,460,294 million as at YE 2008 mainly due to increases in amounts due to customers, insurance liabilities and issuance of KZT 5 billion local subordinated bond and KZT 9.3 billion USD- and EUR-exchange rate linked domestic bonds.

Amounts due to credit institutions
Amounts due to credit institutions decreased by 18.4 percent to KZT 236,344 million from KZT 289,608 million as at YE2008. This decrease was mainly due to a 72.9 percent decrease in loans and deposits from Kazakhstan banks to KZT 26,084 million from KZT 96,391 million as at YE2008.

The overall decrease in loans and deposits from Kazakhstan banks was partially offset by foreign exchange differences on loans and deposits from OECD-based banks denominated in foreign currencies, a 483.9 percent increase in loans and deposits from non-OECD based banks and  longterms facility for KZT 11.7 billion provided by the Fund for Small Entrepreneurship Development “DAMU”.

Amounts due to customers
Amounts due to customers increased by 37.0 percent to KZT 1,188,577 million from KZT 867,392 million as at YE2008. This growth was primarily attributable to a 52.0 percent increase  in deposits of legal entities to KZT 815,682 million from KZT 536,545 million as at YE2008 as  well as a 12.7 percent increase in deposits of individuals to KZT 372,895 million from KZT 330,847 million as at YE2008.

As a result of higher-than-industry average growth in individuals’ and legal entities’ deposits, the Bank's market share in individuals’ and legal entities’ deposits in Kazakhstan increased to 22.6 percent from 21.8 percent as at YE2008 and to 21.5 percent from 17.0 percent as at YE2008, respectively.

During the first six months of 2009, the Bank’s foreign currency denominated deposits of individuals increased by 40.2 percent (in USD terms3) while KZT-denominated deposits of individuals decreased by 33.7 percent (in KZT terms). As a result, the share of foreign currency denominated deposits of individuals in total deposits of individuals increased to 66.1 percent from 42.6 percent as at YE2008.

Debt securities issued
Debt securities issued increased by 15.3 percent to KZT 303,331 million from KZT 262,991 million as at YE2008 primarily as a result of foreign exchange differences on Eurobonds issued previously. In January 2009, the Bank issued fixed-rate KZT-denominated domestic  subordinated bond for principal amount of KZT 5 billion. In March 2009, the Bank placed senior USD- and EUR-exchange rate linked domestic bonds for the total amount of KZT 9.3 billion.

Equity
Total equity increased by 40.9 percent to KZT 269,259 million from KZT 191,055 million as at YE2008 primarily as a result of capital injection from Joint Stock Company “Sovereign Wealth Fund “Samruk-Kazyna” (“SWF S-K”) for KZT 26,958 million from the sale of the Bank’s common shares in March 2009 and for KZT 33,049 million from the sale of the Bank’s preferred
shares in May 2009.