OREANDA-NEWS. September 28, 2009. Alfa-Banking Group, which includes Alfa-Bank Russia and its subsidiaries, today reported IFRS financial results for the first half of 2009.

During the first six months of 2009 Alfa-Banking Group’s total assets decreased to USD 23.0 billion, down 15.0%  from USD 27.1 billion at the end of 2008, resulting from persistent weakness in the economy, accompanied by a reduction in the loan portfolio and general deterioration in credit quality of corporate and retail borrowers. Alfa-Banking Group’s gross loan portfolio decreased by 20.2%  to USD 15.3 billion at 30 June 2009 as compared to 31 December 2008. Alfa-Banking Group has maintained its conservative provisioning policy, resulting in provisions being increased to USD 1 451 million (9.5%  of loan portfolio) at 30 June 2009, up from USD 1 190 million (6.2%  of loan portfolio) at 31 December 2008. At the same time, Alfa-Banking Group’s core funding base comprising customer accounts remained stable at USD 12.6 billion and total equity increased by 16.6%  to USD 2.5 billion (2008 — USD 2.2 billion) following a share capital increase of USD 320 million in June 2009.

Net margin from lending operations decreased by 11.5%  to USD 571 million (1H 2008 — USD 645 million) mainly as a result of rising cost of funding coupled with cautious balance sheet management policies, leading to a higher proportion of lower yielding cash and interbank balances, as well as a focus on lower margin, shorter dated lending. Profit before tax and provisions decreased by 8.8%  to USD 425 million (1H 2008 — USD 466 million), assisted by a net reduction of USD 83 million in operating expenses, with cost-to-income ratio at 46.2%  for the period. Net profit attributable to equity holders decreased to USD 14 million primarily as a result of a USD 395 million charge to loan loss provisions in the year-to-date.

Alfa-Banking Group has paid careful attention to the management of its liquidity and capitalization risks. At 30 June 2009, Alfa-Banking Group held approximately 25% of its total assets in cash and short-term interbank instruments. Furthermore, Alfa-Bank has access to various additional liquidity provided by the Central Bank of Russia, such as unsecured financing obtainable at regular auctions, and secured borrowing backed by customer loans or cross-guarantees from other Russian banks.

In 2009 Alfa-Banking Group has repaid two syndicated loans totaling USD 705 million as well as all of its Euro-Commercial Paper in the amount of USD 219 million. Currently Alfa-Banking Group has approximately USD 494 million of foreign borrowings maturing by year-end with another USD 588 million maturing in 2010. Repayment of these liabilities is expected to be financed from organic cash flows.

The shareholder capital injection of USD 320 million in June 2009 combined with a RUB 10.2 billion (USD 294 million) subordinated loan from Vnesheconombank (VEB) in January 2009 significantly improved Alfa-Banking Group’s capital adequacy ratio to 14.7%  as at 30 June 2009. In September 2009 VEB approved the application of Alfa-Banking Group for two further subordinated loans totaling RUB 29.4 billion (USD 960 million) based on new legislation which allows for VEB to provide subordinated funding to banks in an amount up to three times higher than a corresponding capital increase provided by the bank’s own shareholders.

Alfa-Banking Group has maintained its position as the top Russian private bank by total assets, total equity and customer accounts. In 2009 Alfa-Banking Group continued its development as a universal bank with the following core business lines: corporate and investment banking including SME, trade finance and leasing, retail banking (including branch banking, auto and mortgage lending). Current strategic priorities include focus on effective restructuring and collection of problem loans, capital preservation, maintaining liquidity, and introduction of new corporate, investment, and retail products.

In February 2009, Moody’s Rating Services confirmed Alfa-Banking Group’s credit rating at Ba1, outlook Negative. In September 2009 Standard & Poor’s downgraded the credit rating by one notch to B+ citing deteriorating economic conditions and asset quality in the Russian banking sector, while the outlook was changed to Stable from Negative. Alfa-Bank’s survivability assessment by Standard & Poor’s was assigned at BB+.

Alfa-Banking Group’s IFRS figures have been reviewed by PricewaterhouseCoopers.