OREANDA-NEWS. August 21, 2007. JSC Kazkommertsbank announces first half 2007 financial results Almaty. JSC Kazkommertsbank, Kazakhstan’s leading bank, today announced its financial results for the first half of 2007.

Highlights:

• Net profit increased by 56.4% from KZT 17,208 million in the first half 2006 to KZT 26,907 million in the first half 2007
• Net profit before income tax increased by 73.2% from KZT 19,966 million to KZT 34,585 million
• Net interest income increased by 64.1% from KZT 19,158 million to KZT 31,443 million
• Net interest margin increased to 5.5 per cent from 5.0 per cent
• Net commission income grew by 67.4% from KZT 6,500 million to KZT 10,882 million
• Operating income increased by 77.3% from KZT 27,518 million to KZT 48,777 million
• Earnings per share increased by 33.6% from KZT 43.89 to KZT 58.62
• Total assets increased by 24.5% from KZT 2,444 billion as at 31 December 2006 to KZT 3,043 billion as at 30 June 2007
• Total equity increased by 10.9% from KZT 249 billion to KZT 276 billion
• Loans to customers less allowance for impairment losses increased by 41.3% from KZT 1,679 billion to KZT 2,373 billion
• Customer accounts increased by 38.3% from KZT 688 billion to KZT 951 billion
• Debt securities issued increased by 60.5% from KZT 424 billion to KZT 681 billion
• Return on Equity amounted to 18.6

Business Performance Overview

Net interest income
Net interest income before provisions for impairment losses increased by 128.6 per cent to KZT60,748 million in the first half 2007 from KZT26,574 million in the same period last year, resulting primarily from 77.1 per cent growth in average interest-earning assets. Interest income grew at a faster rate than interest expense, resulting in an increase in the Bank’s net interest margin to 5.5 per cent from 5.0 per cent in the first half 2006.
Net non-interest income
Net non-interest income increased by 107.3 per cent to KZT17,334 million from KZT8,360 million in the first half 2006. This increase was primarily due to the increase in net fees and commissions and financial assets transactions. Net gain on financial assets at fair value through profit and loss was KZT6,591 million as at Jun3 30, 2007 compared to a loss of KZT 3,155 million as at June 30, 2006.
This significant shift in volume occurred due to the inclusion of the results from operations with foreign currency derivatives on the balance sheet. The above-mentioned operations were concluded with the aim of hedging foreign exchange risks. As a result, profit from these operations was KZT5,736 million, compared to losses of KZT1,527 million in the same period last year. Excluding this effect, net profit from equity operations was KZT878 million compared to losses of KZT1,628 million in the first half of 2006. The increase in net profit from equity operations was driven by growth of the Banks equity portfolio.
Net losses from foreign exchange operations in the first half of 2007 amounted to KZT2,620 million, compared to KZT3,987 million for the same period in 2006. This change was also driven by the inclusion of the results from operations with foreign currency derivatives on the balance sheet. Taking into consideration these amounts, net profit from foreign exchange operations reached KZT3,093 million compared to KZT2,460 million in the first half of 2006, as a result of foreign exchange operations.
Provisions for impairment losses
Provisions for impairment losses increased to KZT 29,305 million during the six months ended 30 June 2007 compared to KZT 7,416 million for the same period of 2006. The growth of Provisions for impairment losses is a result of a KZT 721 billion increase in the gross loan portfolio. The effective reserve rate on customer loans was 4.1 per cent as at 30 June 2007.
Operating expenses
Operating expenses increased by 69.6 per cent to KZT 13,051 million, from KZT 7,693 million in the first half of 2006, as a result of an increase in personnel expenses.
This trend was driven by the increase in the number of employees and other expenses related to the retail network expansion, which is a key part of Kazkommertsbank’s retail strategy. However, notwithstanding this growth in operating expenses, the ratio of the Bank's operating expenses to operating income before provisions for impairment losses decreased to 16.7 per cent from 19.4 per cent as at the end of 2006.
Loans to Customers
The Bank’s total gross loan portfolio grew by 41.1 per cent to KZT 2,473,438 million from KZT 1,752,776 million as at 31 December 2006.
As at 30 June 2007, the trade sector made up the largest share of the loan portfolio with 20.8 per cent (KZT 494,185 million), compared to 18.5 per cent as at the end of 2006.
Loans to real estate and industrial construction increased by 7.3 per cent, while their share in total loans decreased to 17.4 per cent as at 30 June 2007 compared to 22.9 per cent as at 31 December 2006.
As at 30 June 2007, the Bank’s 20 largest borrowers accounted for 27.3 per cent of the total loan portfolio compared to 28.2 per cent as at 31 December 2006. Going forward, the Bank expects to reduce the concentration of its loan portfolio by attracting new medium- and small-sized borrowers.
Loans to individuals, including consumer and mortgage lending, increased by 53.0 per cent, from KZT261,708 million at the end of 2006 to KZT400,503 million. These loans, as a percentage of the Bank’s loan portfolio, increased from 15.6 per cent as at 31 December 2006 to 16.9 per cent as at 30 June 2007.
Loans and advances to banks

Loans and advances to banks, less allowance for impairment losses, decreased by 4.6 per cent to KZT188.1 billion, as compared to KZT197.2 billion as at 31 December 2006. At the same time, loans and advances to banks as a percentage of total assets decreased to 6.2 per cent from 8.1 per cent as at 31 December 2006.

Cash and balances with National Bank
Cash and balances with the National Bank of Kazakhstan, the National Bank of Kyrgyz Republic and the Central Bank of Russia decreased from KZT209.0 billion as at 31 December 2006 to KZT162.6 billion as at 30 June 2007. That was due to a 25 per cent decrease in balances with the National Bank of Kazakhstan.

Securities portfolio
The size of the Bank’s securities portfolio decreased by 15.1 per cent to KZT276.5 billion from KZT325.6 billion at the end of 2006. The decrease was mainly in the Bank’s trading portfolio, which decreased by 15.4 per cent or KZT49.5 billion. This change was primarily attributable to the sale of foreign securities of KZT20.4 billion and net sale of short-term NBK notes of KZT31.2 billion.

Funding
The Bank’s debt securities increased to KZT 680,742 million, representing 24.8 per cent of the Bank’s liabilities, up from KZT 424,162 million (19.5 per cent) as at 31 December 2006. In February 2006, the Bank issued EUR 750 million 6.875 per cent debt securities due February 2017 and GBP 350 million 7.625 per cent debt securities due February 2012 via Kazkommerts International B.V., under the MTN Program. In April 2007, the Bank issued USD 500 million debt securities due 2017 under the Future Flows Securitization Program via Kazkommerts DPR Company. Merrill Lynch and WestLB AG acted as a Join Lead Arrangers and Bookrunners.
In May 2007, the Bank issued USD 250 million European commercial securities with zero coupon via Kazkommerts International B.V., under the MTN Program. The commercial securities are due to May 2008.

Rebranding program
In May 2007, the Bank announced its retail rebranding to “Kazkom”. As part of the branch expansion program in 2007, Kazkommertsbank intends to open 80 new branches, which under the new brand. The rebranding of existing branches will take place at the time of their refurbishment.
During the first half of 2007, the Bank opened 37 branches bringing the total number of branches to 148.