OREANDA-NEWS. September 14, 2011. Bank St Petersburg released its 2Q11 IFRS financial results today (13 Sep) posting a bottom line of RUB2.4bn, 10% above the Interfax consensus.

First Glance

We note the following takeaways from the numbers:

- Core revenues keep growing. Net interest income (NII) rose 8% QoQ to RUB3.5bn. NIM improved 0.2 ppt QoQ to 5.4%, on our calculations. In annual terms NII rose a respectable 12% YoY in 1H11 due to a sharp fall in interest expenses. Net fee and commission income also gained a healthy 23% YoY in 1H11.

- Operating costs are increasing fast (+40% QoQ in 2Q11), a trend seen in all traded Russian banks’ 2Q11 financials. Within that, staff costs added 21% QoQ.

- Record RoAE in 2Q11 (30.6%) aided by low provisioning and large trading income. Loan loss provisioning decreased by 70% QoQ to RUB221mn and income from securities in 2Q11 increased to RUB900mn vs RUB142mn in the previous quarter.

- Loan book growth surpassed market expectations. In 2Q11 the bank’s loan book grew by 2.4%, beating the consensus estimate of 1.5%. Year-to-date, loan book has expanded by 7.8%, driven mainly by corporate loans (+2.7% QoQ and 8.2% YtD).

A Closer Look

At the same time, we point to the following factors underlying positive NIM developments:

- Current accounts continued to grow quickly (+9% QoQ) in 2Q11 which, while reducing interest expenses and thus helping margins, represents a larger liquidity risk for the bank. We note that at the end of 2Q11, the bank’s liquid assets covered just 21% of deposits maturing in less than one month.

- Corporate loan book growth in 1H11 was represented in large part by more risky sectors such as real estate (+9% YtD), leasing and financial (+36%), and transportation companies (+19%). The total share of these sectors in the bank’s corporate loan book reached 41% vs 38% at the end of 2010. This could backfire if market conditions and the macro-environment deteriorate further, as loans to these sectors are most likely to become non-performing.

Bottom line

We view the results as fundamentally mixed. However, market perceptions could be more positive given loan book growth, stronger core revenues and NIM expansion, pointing to the potential for improved share price performance.