OREANDA-NEWS. August 30, 2012. Promsvyazbank net profit on an IFRS basis for the first half of 2012 was RUB 3.8 billion, more than 3 times the net profit for the same period in 2011. The increase in net profit was driven by higher earnings assets, improved margins and fee and commission revenues and a slight decrease in cost of risk, reported the press-centre of PSB. 

The Bank’s IFRS results were reviewed by PricewaterhouseCoopers and are posted on the bank’s web-site www.psbank.ru at http://eng.psbank.ru/292/8.

Key Income Statement Items:

1H 2012 net profit was RUB 3.8 billion, up from 1.2 billion in 1H 2011

Net interest income grew 50% year-on-year, to RUB 14.1 billion

Net fee and commission income rose 9% year-on-year, to RUB 3.8 billion

Income from operations with securities was RUB 824 million, compared with a RUB 515 million profit in 1H 2011

Operating income grew 35% year-on-year, to RUB 18.3 billion

The net impairment provision charge fell by 5% to RUB 3.7 billion, 20% of operating income (29% in 1H 2011)

The cost-to-income ratio decreased to 52%, compared with 60% in 1H 2011

The strong increase in operating income was driven by higher loan volumes and higher margins than last year. In part this reflects the successful implementation of our strategy of increasing the proportion of SME and retail loans in our portfolio, but also a declining proportion of non-performing loans.

The share of net fee and commission income as a percentage of operating income remained strong at over 20% although down somewhat from last year due to the strength of margins.

Loan impairment provision charges were lower by 5% as the relatively strong Russian economy, as well as our own improved credit procedures and standards, have reduced the cost of risk to 1.7% from 2.2% last year. We have continued to sell non-productive retail loans, which are fully provisioned, to independent collection agencies which has a positive effect on margins and NPLs . PSB has not used its improving risk profile to release loan loss provisions, thereby building a safety cushion throughout this relatively more favorable economic cycle.

While non-interest expenses increased 19% from the same period last year, this was significantly less than the increase in revenues reducing our cost to income ratio to 52% from 60% in the prior half year. The increase in cost reflects in part higher accrual of bonuses throughout our sales forces as we have emphasized remuneration against strictly formulated sales and performance targets throughout the bank and further branch network expansion

Key Balance Sheet Items:

Assets rose 9% in 1H 2012 to RUB 611 billion

The net loan portfolio was RUB 445 billion, up 12%. The share of the loan portfolio in total assets increased to 73%, from 70% in 2011

The share of non-performing loans (NPLs) has fallen to 4.3% at July 1, 2012, from 5.7% at year-end 2011 with 125% provision coverage

The securities portfolio was RUB 41.7 billion at July 1, 2012, down 5%. The share of the securities portfolio in total assets also fell, from 7.8% at year end to 6.8% at June 30 this year

The share of liquid assets remained at an optimal level of 17%, compared with 18% in 2011

Regulatory capital as per Basel Accords was RUB 73.8 billion at July 1, 2012

PSB’s net loan portfolio posted a moderate 12% growth in the first six months of 2012. The net standard corporate loan portfolio was up 16%. The total SME net loan portfolio was up 9% in 1H 2012. The strongest growth was in our retail loan portfolio which rose 29% in 1H 2012 compared to year end. Since the re-launch of our retail lending program in mid 2010, there has been a steady increase in new loans issued every month.  In the first half of 2012 approximately RUB 18 billion in new loans were issued and in recent months we have exceeded RUB 3 billion of new  consumer loans per month.

This should have a continuing effect of sustaining margins. We are watching closely the credit performance of our revived lending of course and to date have been pleased as the proportion of problem loans is significantly less than we had expected in our business and credit models. Overall the quality of PSB’s loan portfolio continued to improve. The share of NPLs as percentage of the loan portfolio had fallen to 4.3% at July 1, 2012, from 5.7% at year-end 2011. We have held to our policy of an NPL coverage ratio at least 100%, with actual levels of 125% in 1H 2012 compared to 122% in 2011.

The securities portfolio (trading, held-to-maturity and available for sale) was down 5% in 1H 2012. The portfolio composition remains fairly conservative, with 51% invested in highly liquid securities included in the Bank of Russia’s Lombard List. The share of corporate debt securities was down to 47% at July 1, 2012, from 56% at year-end 2011. Our securities portfolio provides liquidity as well as supporting the flow of our customers issuing and trading activities.

Customer deposits and current accounts are the key source of our funding, with a 69% share at July 1, 2012 (2011: 67%); grew by 13% in 1H 2012.  Corporate current accounts and deposits grew by 32% year-on-year and by 17% compared to the beginning of the year, standing at RUR 250 billion. Retail funding increased by 32% year-on-year and by 8% versus the beginning of the year to reach RUR 134.2 billion.

Key Financial Ratios:

Total capital adequacy ratio (per Basel Accords) was 13.2%, compared with 13.9% in 2011.

The tier 1 capital adequacy ratio remained almost flat at 9.9% (10.0% in 2011)

The net loans-to-deposit ratio declined marginally to 116%, from 117% at December 31, 2011

NPLs fell by 17% compared to December 31, 2011, to RUB 20.2 billion or 4.3% of the total net loan portfolio (5.7% in 2011)

Loan impairment provisions as a percentage of the loan portfolio decreased to 5.4%, compared to 6.9% in 2011.

PSB’s First Vice President Alexandra Volchenko comments on the published results: " We are pleased that the financial results of the bank are showing the effects of our strategy and its effective implementation. In the second quarter we started to see the first results of PSB2.0 project, a significant review of the bank’s operation across many areas which will lead to evolutionary changes as we move our operational efficiency to a completely new level. In February we completed the centralization of accounting and back office functions of our branch network into our main office and 8 hubs across Russia. Further centralization of mid-office functions is now being implemented.

We expect further improvements in our cost to income ratio as these real changes roll into the financial results. However the reduction in cost-to-income from 60% to 52% reported for this half year compared to 2011 has also been driven by our strategies to increase revenue. PSB2.0 has also resulted in optimization of business credit processes, increased the SME sales force and made it faster for customers to open accounts, all of which will assist revenue generation. Across all businesses we are seeing the effect of improving sales effectiveness and cross-selling. We expect that, particularly in our retail business, the new loan generation we have seen at less than our expected cost of risk will continue to improve our financial performance".