OREANDA-NEWS. June 1, 2012. Promsvyazbank net profit on an IFRS basis for the first quarter of 2012 was RUB1.8 billion, two and a half times that of one year ago. The growth was mainly driven by an increase in net interest income resulting from of a significant loan portfolio expansion, as well as good net fee and commission income growth.

Key P&L Items:

Q1 2012 net profit rose more than 2.5x year-on-year to RUB1.8 billion

Net interest income increased by 58% year-on-year to RUB7.3 billion

Net fee and commission income grew 18% year-on-year to RUB1.9 billion

Operating income increased by 39% year-on-year to RUB8.9 billion

Net impairment provision charges were down almost by 7% to RUB1.8 billion, which represents 21% of operating income (1Q 2011: 31%)

Cost-to-income (CTI) ratio fell to 53.9% from 56.3% a year before

Despite pressure on credit product profit margins in 2011 and in Q1 2012 and on the back of significant loan portfolio growth (+20% compared to Q1 2011), PSB posted a significant net interest income growth. Net fee and commission income also continued to show positive dynamics. Q1 2012 net fee and commission income as percentage of operating income was 22%.  As before, key sources of fee and commission income were commission for servicing plastic cards, commission on documentary operations as well as money transfer fees.

Loan impairment charges continued to decline on the back of a persisting trend of reduction in non-performing loans (NPL). PSB currently does not have plans to release provisions in 2012, maintaining a safety cushion throughout a more favorable economic cycle, which will mitigate profitability fluctuations in case of a new wave of crisis.

Cost-to-income ratio improved despite seasonality, as a result of cost control and an increase in operating income.

A year-on-year increase in general and administrative expenses in Q1 2012 was mainly driven by payroll growth due to staff expansion, payment of unified social tax (a seasonal factor), as well as bonus payments related to performance.

Key Balance Sheet Items:

Assets decreased by 1% year-on-year to RUB556 billion

As at 31 March 2012, NPLs were down to 5.0% from 5.7% at the end of 2011

At quarter end the securities portfolio (traded and held to maturity) was up 7% to RUB45.5 billion from last year

Liquid assets remained at an optimum level of 19% (2011: 18%)

In Q1 2012, PSB loan portfolio net of impairment provisions declined slightly compared to the beginning of the year, to RUB388 billion. Standard credit products remained virtually unchanged, while the trade finance and factoring portfolio reduced, seasonal in nature, as anticipated. In Q1 2012 our loans to small and medium businesses increased by 3% compared to the beginning of the year, to RUB39.3 billion. At RUB37.6 billion, due to the effect of non-performing loans, our retail loan portfolio remained virtually unchanged compared to the beginning of the year.

The quality of PSB loan portfolio continued to improve driven by an improving domestic economic environment and strengthening of our credit processes. The share of NPLs in loan portfolio at quarter end was down to 5.0% from 5.7% as at the end of 2011. The reduction was mainly driven by sales of NPLs in the corporate and SME segments of RUB1.9 billion, as well as in the retail segment of RUB2.5 billion. As at 31 March 2012, NPL coverage ratio was 129% (2010: 117%, 2011: 121%), as we pursued our policy of maintaining the ratio above 100%.

In Q1 2012, securities portfolio (traded and held to maturity) was up 7%. As before, our portfolio mix remained rather conservative, with 53% in highly liquid securities included in the Bank of Russia Lombard List, while the share of corporate securities in 1Q 2012 fell slightly to 55% from 57% at the beginning of 2012.

With a 69% share in Q1 2012 (2011: 67%), funding from customers remains the primary source of PSB funding. In Q1 2012, PSB Private Banking retained a stable volume of VIP customer term deposits despite an expected sector-wide seasonal outflow in the beginning of the year.

Key Financial Ratios:

Total capital adequacy ratio (as per Basel Accords) was 14.2% (2011: 13.9%)

Tier 1 capital ratio rose to 10.6% (2011: 10.0%)

The ratio of loans (net of provisions) to deposits was 113% compared to 117% as at 31 December 2011

Non-performing loans were RUB20.8 billion or 5.0% of the total loan portfolio before impairment provision, a 14.3% reduction compared to 5.7% at 31 December 2011

Loan loss provisions to total loans was down to 6.4% (2011: 6.9%)

Promsvyazbank’s First Vice-President, Alexandra Volchenko comments on Q1 2012 results: “We are pleased about PSB IFRS results for Q1 2012. We continue to actively implement our strategy to increase the share of SME and retail portfolio in the total loan portfolio, while on the liabilities side focusing on customers as our primary source of funding. The Bank has been actively developing international cooperation. For example, in Q1 2012 PSB became the first-ever Russian private bank accepted as a member of the Loan Market Association (LMA). Membership will give PSB an opportunity to exchange the latest syndicated loan market practices and grant access to a database of documents on the organization of syndicated lending transactions in the international market. In general, despite an uncertain economic environment PSB continues to be regarded as a reliable partner, essential to successfully achieving our goals. In February 2012, we successfully completed a RUB10 billion domestic bond offering and in April closed a USD 400 million 5-year Eurobond transaction. Successful completion of these transactions in such an uncertain economic environment once again confirms the confidence and trust of investors in Promsvyazbank.”