OREANDA-NEWS. April 17, 2009. Joint Stock Company ‘Halyk Savings Bank of Kazakhstan’ and its subsidiaries (together “the Bank”) (LSE: HSBK) releases its audited consolidated financial statements for the year ended 31 December 2008 prepared in accordance with International Financial Reporting Standards, reported the press-centre of Halyk Savings Bank of Kazakhstan.

Total assets increased by 3.5 percent from KZT 1,595.1 billion as at YE2007 to KZT 1,651.3 billion

The net total loan portfolio increased by 14.2 percent from KZT 1,040.3 billion as at YE2007 to KZT 1,188.3 billion

Total deposits decreased by 7.3 percent from KZT 935.4 billion as at YE2007 to KZT 867.4 billion

Foreign borrowings increased as a result of USD 500 million Eurobond issue in April 2008 and USD 300 million syndicated loan borrowed in September 2008

Retail loans increased by 7.6 percent from KZT 322.3 billion as at YE2007 to KZT 346.6 billion

Total equity increased by 18.6 percent from KZT 161.0 billion as at YE2007 to KZT 191.0 billion

Net interest income before impairment charges increased by 29.4 percent to KZT 91.9 billion from KZT 71.0 billion for the year ended 31 December 2007

Net fee and commission income increased by 5.6 percent to KZT 25.5 billion from KZT 24.2 billion for the year ended 31 December 2007

Net income for the year ended 31 December 2008 was KZT 14.5 billion ratio of provisions to gross loans (provisioning rate) increased from 5.2 percent as at 31 December 2007 to 8.8 percent as at 31 December 2008

The ratio of operating expenses to operating income before impairment charge (cost-to income ratio) was 34.4 percent for the year ended 31 December 2008

The ratio of operating expenses to average assets (cost-to-assets ratio) decreased from 3.1 percent for the year ended 31 December 2007 to 2.6 percent for the year ended 31 December 2008

The ratio of net loans to customers to amounts due to customers (loan-to-deposit ratio) was 1.37x as at YE2008

Financial Overview
1
Interest income for the year ended 31 December 2008 compared to the year ended 31 December
2007
Interest income increased by 45.3 percent to KZT 192,660 million from KZT 132,566 million. This increase was primarily due to a 44 percent increase in average balances of interest-earning assets and also an increase in average rates on interest-earning assets from 12.3 percent p.a. to 12.5 percent p.a.

Average rates on loans to customers increased from 14.7 percent p.a. to 15.5 percent p.a. and average rates on the securities portfolio increased from 5.8 percent p.a. to 7.6 percent p.a.

Interest expense increased by 64.2 percent from KZT 61,352 million to KZT 100,753 million. This increase was primarily due to a 45 percent increase in average balances of interest-bearing liabilities and also an increase in average rates on interest-bearing liabilities from 5.9 percent p.a. to 6.7 percent p.a. Average rates on amounts due to customers increased from 5.4 percent p.a. to 6.6 percent p.a.

Net interest income before impairment charges increased by 29.4 percent to KZT 91,907 million from KZT 71,034 million. Interest expense grew at a faster rate than interest income resulting in a net interest margin of 6.0 percent for the year ended 31 December 2008.

Impairment charge
The impairment charge was KZT 60,015 million for the year ended 31 December 2008 compared with KZT 22,184 million for the year ended 31 December 2007. The effective provisioning rate on the customer loan portfolio was 8.8 percent as at 31 December 2008 compared with 5.2 percent as at 31 December 2007. The effective provisioning rate under Kazakhstan regulatory standards was 10.9 percent as at 31 December 2008 compared with 6.3 percent as at 31 December 2007.

The ratio of allowances for loan impairment (under Kazakh regulatory standards) to non-performing loans (on 30-day overdue basis) was 108 percent as at 31 December 2008.

Net interest income
Net interest income decreased by 34.7 percent to KZT 31,892 million for the year ended 31 December 2008 from KZT 48,850 million for the year ended 31 December 2007 primarily as a result of higher impairment charge.

Fee and commission income
Net fee and commission income increased by 5.6 percent to KZT 25,527 million for the year ended 31 December 2008 from KZT 24,173 million for the year ended 31 December 2007, resulting primarily from growing volumes of various types of transactional banking services, including bank transfers and payment cards, partially offset by 28.6 percent decrease in pension fund and asset management fees.

Other non-interest income
Other non-interest income decreased by 5.3 percent to KZT 16,231 million for the year ended 31 December 2008 from KZT 17,141 million for the year ended 31 December 2007, primarily as a result of net losses from financial assets at fair value through the profit or loss (securities portfolio) partially offset by net gains on debt securities issued that were repurchased and net gain on foreign exchange operations.

The net loss from financial assets at fair value through the profit and loss account was KZT 9,650 million for the year ended 31 December 2008 compared with a net gain of KZT 3,365 million for the year ended 31 December 2007, mainly due to one-off losses on foreign exchange derivative positions in the first quarter of 2008 and losses on the securities portfolio as a result of an upward shift in the KZT yield curve as well as losses from the revaluation of foreign exchange swap transactions.

Net gain from repurchase of debt securities issued was KZT 2,439 million as a result of series of
repurchases equivalent to KZT 23,122 million (mainly in the fourth quarter of 2008) of domestic and international debt securities issued by the Bank and HSBK (Europe) B.V., a wholly-owned subsidiary of the Bank.

Gains on foreign exchange operations, net of currency translation differences, increased by 115.8
percent to KZT 11,753 million for the year ended 31 December 2008 from KZT 5,447 million for the year ended 31 December 2007 primarily as a result of higher volumes and translation differences of foreign exchange transactions.

Insurance underwriting income increased by 55.4 percent to KZT 9,198 million for the year ended 31 December 2008 from KZT 5,920 million for the year ended 31 December 2007 mainly as a result of the overall increase in insurance volumes of JSC Kazakhinstrakh (a wholly-owned non-life insurance subsidiary of the Bank).

Insurance underwriting income, net of insurance claims incurred (net of reinsurance), increased by 12.7 percent to KZT 4,247 million for the year ended 31 December 2008 from KZT 3,768 million for the year ended 31 December 2007 mainly as a result of higher premiums received by JSC Kazakhinstrakh in its core insurance business.

Non-interest expenses
Operating expenses increased by 17.1 percent to KZT 44,325 million for the year ended 31 December 2008 from KZT 37,842 million for the year ended 31 December 2007 mainly due to inflation, increased personnel expenses and depreciation and amortization expenses relating to maintenance of the branch network.

The ratio of the Bank's operating expenses to operating income before provisions for impairment
losses (cost-to-income ratio) was 34.4 percent for the year ended 31 December 2008 compared with 34.3 percent for the year ended 31 December 2007.

The ratio of the Bank's operating expenses to average total assets decreased to 2.6 percent for the year ended 31 December 2008 from 3.1 percent for the year ended 31 December 2007.

Losses incurred from management of pension assets were KZT 7,209 million for the year ended 31 December 2008 as a result of significant decline in the domestic and international capital markets.

Pension Fund of Halyk Bank, majority-owned subsidiary of the Bank, would have to repay these
amounts in case if the customers leave the fund or otherwise they could be offset against future positive management fees.

Total assets
The Bank’s total assets increased by 3.5 percent to KZT 1,651,349 million as at 31 December 2008 from KZT 1,595,075 million as at 31 December 2007 primarily due to increases in the net loan portfolio, loans and deposits with banks, securities portfolio and revaluation of property partially offset by decrease in cash and cash equivalents and obligatory reserves.

Liquid assets
3
The Bank’s ratio of liquid assets to total assets decreased to 17 percent as at 31 December 2008 from 28 percent as at 31 December 2007 mainly as a result of a 37 percent decrease in cash and cash equivalents (mainly attributable to a decrease in short-term deposits with foreign banks) and a 65 percent decrease in obligatory reserves (mainly attributable to the decreased minimum reserves requirements introduced by the National Bank of Kazakhstan in 2008). The ratio improved subsequently to 30 percent as at 1 March 2009 mainly due to increase in cash and cash equivalents as a result of a 33.4 percent increase in customer deposits during the first two months of 2009.

Loans to customers
The total net loans to customers increased by 14.2 percent to KZT 1,188,280 million as at 31 December 2008 from KZT 1,040,273 million as at 31 December 2007.

Retail loans, including consumer and mortgage loans, increased by 7.6 percent to KZT 346,620 million as at 31 December 2008 from KZT 322,274 million as at 31 December 2007. Consumer loans, mostly backed by the salaries of the individual borrowers, increased by 16.7 percent to KZT 188,542 million as at 31 December 2008 from KZT 161,611 million as at 31 December 2007. Mortgage loans decreased by 1.6 percent to KZT 158,078 million as at 31 December 2008 from KZT 160,663 million as at 31 December 2007 as a result of adoption of tighter underwriting criteria.

Loans to corporate borrowers (including SMEs) increased by 23.5 percent to KZT 956,712 million as at 31 December 2008 from KZT 774,696 million as at 31 December 2007 as a result of overall increase in lending activity of the Bank.

As at 31 December 2008, the Bank’s 10 largest borrowers accounted for 16 percent of total gross loans to customers compared to 15 percent as at 31 December 2007. As at 31 December 2008, wholesale trade, consumer loans, construction, mortgage loans and services sectors accounted for 19 percent, 15 percent, 13 percent, 12 percent and 10 percent of the Bank’s total gross loans, respectively.

Funding and liabilities
The Bank’s total liabilities increased by 1.8 percent to KZT 1,460,294 million as at 31 December 2008 from KZT 1,434,050 million as at 31 December 2007 mainly as a result of increase in borrowings from international financial institutions and debt securities issued.

Amounts due to credit institutions
Loans and deposits from credit institutions increased by 17.0 percent to KZT 289,608 million, or 19.8 percent of the Bank’s liabilities, as at 31 December 2008 from KZT 247,452 million, or 17.3 percent of the Bank’s liabilities, as at 31 December 2007. This increase was mainly due to a 44.1 percent increase in loans and deposits from Kazakhstan banks in the domestic market from KZT 66,889 million as at 31 December 2007 to KZT 96,391 million as at 31 December 2008, as well as a 8.4 percent increase in loans and deposits from OECD-based banks as a result of USD 300 million syndicated loan raised in September 2008.

Debt securities issued
Debt securities issued increased by 16.9 percent from KZT 224,886 million as at 31 December 2007 to KZT 262,991 million as at 31 December 2008 primarily as a result of the issue of USD 500 million Eurobond and were partially offset by the Bank’s partial repurchase of its domestic and international bonds.

Foreign debt repayment schedule
The Bank has the following foreign debt repayment schedule:
September 2009 USD 300 million syndicated loan
October 2009 USD 200 million Eurobond
April 2010 USD 400 million syndicated loan
September 2010 USD 300 million syndicated loan
May 2013 USD 300 million Eurobond
October 2013 USD 500 million Eurobond
May 2017 USD 700 million Eurobond

Amounts due to customers
Amounts due to customers decreased by 7.3 percent to KZT 867,392 million as at 31 Deсember 2008 from KZT 935,429 million as at 31 December 2007. This reduction was primarily attributable to a 7.1 percent decrease in corporate deposits to KZT 536,545 million as at 31 December 2008 from KZT 577,757 million as at 31 December 2007 as well as a 7.5 percent decrease in retail deposits from KZT 357,672 million as at 31 December 2007 to KZT 330,847 million as at 31 December 2008. This decrease in deposits was due to one-off withdrawals by few corporate and large retail clients in the fourth quarter of 2008. Deposit base of the Bank subsequently increased by 33.4 percent between 1 January 2009 and 28 February of 2009 (on consolidated IFRS basis, unaudited). During February 2009 deposit base increased by 4.5 percent (USD 285 million), net of devaluation effect (on consolidated Kazakhstan accounting standards basis, unaudited).

Equity
Total equity increased by 18.6 percent to KZT 191,055 million as at 31 December 2008 from KZT 161,025 million as at 31 December 2007 primarily as a result of an increase in retained earnings and other reserves (including the property revaluation in the third quarter of 2008).