OREANDA-NEWS. April 01, 2011. Promsvyazbank has released its 2010 consolidated IFRS accounts audited by PricewaterhouseCoopers, reported the press-centre of Promsvyazbank.

Promsvyazbank (PSB) posted a net profit of RUB2.5 billion in 2010, the bulk of which was generated in 2H2010 (RUB1.9 billion). This level of profitability was achieved due to recovery in interest margins and growing volumes of lending, as well as lower provisioning charges resulting from a gradual decrease in the share of non-performing loans.

Key Balance Sheet Items:
Total capital (as per Basel Accord) increased by 17% to RUB60.6 billion

Total assets increased slightly to RUB475 billion

The net loan portfolio increased by almost 17% to RUB311 billion. The share of net loans in total assets showed a considerable increase, amounting to 65% (2009: 57%)

The securities portfolio (trading, held to maturity and available for sale) increased by 6% in 2010 to reach RUB52.1 billion. However, the share of the securities portfolio in total assets remained virtually unchanged (11% in 2010 vs. 10.4% in 2009)

Liquid assets declined by 35% to RUB100 billion. The share of liquid assets returned to an optimal level of 21% (2009: 33%)

Customer deposits and current account balances were up 2.6% to RUB297 billion, accounting for 69% of total liabilities (2009: 67%)

PSB’s gross loan portfolio demonstrated considerable growth in 2010, exceeding the market average indicator (14.2% vs. 11.5%, according to CBR data). At the same time the loan portfolios in the corporate and SME segments showed particularly strong growth rates of 19.5% and 18.5%, respectively. The retail loan portfolio continued to amortize throughout 2010, showing a 19.8% decline for the year, although the pace of its reduction slowed down in 2H2010 due to the roll-out of mass retail lending in July 2010.

The quality of the loan portfolio improved significantly in 2010. The share of non-performing loans decreased to 9.2%, which is significantly lower than the 11.9% level registered at the end of 1H2010. The decreased share of NPLs was witnessed across all business segments, driven both by reduction of NPLs in absolute terms (due to NPL sales and write-offs) as well as by growth of the loan portfolio. Another indicator of the improving quality of the loan portfolio is that the share of loans with revised original terms almost halved in 2010 (13.5% at YE2010 vs. 26.0% at YE2009), while the gap between accrued income (interest and commission) and that actually received reduced from 17% to 4% during 2010.

PSB remains strictly committed to maintaining the coverage of NPLs by loan loss provisions at a level exceeding 100% (2010: 117%; 2009: 103%).

In order to support operating efficiency, in 2010 PSB placed a strong focus on reducing its funding costs (e.g. retail deposit rates were reduced five times over 2010), while at the same time retaining and further expanding its customer base. Retail deposits demonstrated a positive trend throughout the whole of 2010, showing growth of 12.1%, while corporate deposits showed a slight decline of 2.1%, as a result of deliberate actions undertaken by the bank. The share of retail deposits in total customer funds increased from 33% to 36%, reflecting the bank’s efforts to enhance the diversification of its customer base.

The securities portfolio (trading, held to maturity and available for sale) rose by 6% in 2010. The structure of the portfolio remains quite conservative, with approximately 70% of investments represented by highly liquid fixed-income securities included in the CBR Lombard List (i.e. eligible for REPO transactions with the CBR). At the same time, the share of government and municipal securities had increased to 44% as of January 1, 2011, compared to 34% a year before.
 
Key Profit&Loss Account Items:

Net profit of RUB2.5 billion

Net interest income down by 19.9% to RUB20.6 billion

Net fee and commission income up by 7.7% to RUB6.0 billion

Operating revenue down by 16.6% to RUB28.2 billion

Net loan impairment charges down by 50% to RUB10.4 billion accounting for 37% of operating revenue (2009: 62%)

Cost-to-income ratio increased to 53% against 39% in 2009

2010 was a year of declining interest rates, high competition for quality borrowers and resulting pressure on the margins of credit products. Under the pressure of the above trends PSB’s net interest income decreased versus the previous year. However, efficient asset and liability management (reduction of excess liquidity and funding costs in particular) enabled PSB to ease such pressure and achieve positive dynamics both in margins and net interest income as early as 2H2010: the net interest margin grew to 4.9% in 2H2010 from 4.3% in 1H2010, while net interest income was 4% higher in 2H2010 than in 1H2010.

Net fee and commission income demonstrated a positive trend throughout the whole of 2010, delivering 7.7% year-on-year growth. In 2H2010, net fee and commission income increased by almost 22% compared with 1H2010. Historically the key sources of fee and commission income were trade finance transactions (up 13% in 2010), cash and settlement services (up 28%) and plastic card transactions (up 14%).

The deterioration in the cost-to-income ratio was a result of a decline in operating revenues driven by a considerable market-wide margin tightening versus the relatively generous margins of 2009, as well as due to increased personnel expenses.

As PSB managed to achieve a sustainable trend of reduction of NPLs, loan impairment charges were more than 2 times lower in 2010 than in 2009. In addition, the bank’s provisioning expenses amounted to RUB10.4 billion in 2010 vs. RUB20.9 billion in 2009.

Key Financial Ratios:
Total capital adequacy ratio (as per Basel Accord) was 14.4%, showing virtually no change from 14.3% in 2009

Tier 1 capital ratio was 10.0% against 9.9% at year-end 2009

Following a sharp decline of the net interest margin to 3.7% in 1Q2010, PSB managed to increase the margins on its credit products by more than 1.5 times, thus achieving a level of 5.8% in 4Q2010 (net interest margin for the full year 2010 totaled 4.7%)

The net loans-to-deposits ratio stood at 105% against 92% in 2009

Non-performing loans were down 14.6% year-on-year to RUB32.1 billion, amounting to 9.2% of gross loans (12.3% in 2009)

The ratio of loan loss provisions to gross loans was down from 12.7% in 2009 to 10.9% in 2010
The ratio of large exposures (those exceeding 10% of PSB’s equity) to gross loans was down from 16.2% to 15.8%

The share of the ten largest customer balances in total customer funds fell to 28.1% in 2010 from 31.9% a year earlier.
 
First Vice-President of PSB, Alexandra Volchenko, commented on the bank’s 2010 results: "Last year we focused our efforts on maintaining margins on our credit products. Our key priorities for 2010 were loan portfolio growth through acquisition of new quality borrowers across all business segments, as well as sustained operating efficiency amid falling interest rates in the underlying economy. The 2010 results prove that we were successful in achieving most of our objectives: PSB’s loan portfolio growth outperformed the market-average trends; wide-scale retail lending operations were launched; we managed to reduce funding costs while retaining our customers, and we restored our liquidity cushion to pre-crisis levels. The combination of these factors allowed us to stop the shrinkage of interest margins which started in 2H2009, and to revert to a positive trend as early as 2Q2010".