OREANDA-NEWS. August 31, 2009.

First half 2009 highlights:
Revenue of KZT 106.2 billion (USD 733 mn), up 7.2% from H1 2008

Net profit of KZT 9.9 billion (USD 68 mn), down 71.1% from H1 2008

Total Bank assets increased 7.2% in KZT terms and decreased 13.9% in USD terms compared to Q4 08

Deposits increased 18.9% in KZT terms and decreased 4.5% in USD terms compared to Q4 08

Cost-to-income ratio decreased to 9.9%

Core Tier 1 ratio of 13.9%

Total capital ratio increased to 18.1%

Loans-to-deposits ratio decreased to 208% from 219% at YE 2008

Provisioning rate of 15.3% of gross loans

Net interest margin before provisions for impairment losses increased to 8.4% from 8.0% as of year-end 2008

EPS decreased from KZT 47.9 to KZT 13.7

Kazakh government agency Samruk-Kazyna purchased an equity stake of 21% in the Bank

EBRD increased its equity stake from 8.5% to 9.8%

KKB increased its participation in the Government’s stabilisation programme

Nina Zhussupova, Chairperson of the Management Board, said:
“We have continued to face very challenging economic conditions as confidence in global financial markets remains weak. The banking sector in Kazakhstan was affected by a significant deterioration in the quality of loan portfolios, as well as the devaluation of the Kazakh Tenge, and our business has not been immune. In these difficult times we are pleased that Kazkommertsbank has managed to achieve a resilient performance and generate positive results.
Our strategy of focusing on asset quality and liquidity management, whilst maintaining our operational efficiency, has proved to be critical in steering the Bank through the financial crisis, and this strategy remains unchanged for the rest of the year.”

Overview of current macroeconomic situation
The global economy is slowly emerging from a major crisis and the banking sector has been particularly badly hit by the poor market conditions. Although there is increasing optimism about a recovery, expectations for economic growth around the world are modest.

The first half of 2009 was a challenging period for the Kazakh economy and the financial sector in particular. The macroeconomic environment has remained weak with a 2.3% drop in GDP in H1 2009 as compared to H1 2008. The Kazakh banks were particularly affected by devaluation of the Tenge, the local currency, with its devaluation in February 2009 having an adverse effect on asset quality, leading to higher effective provisioning rates.

Two out of the four largest banks in Kazakhstan went into debt restructuring. These processes are ongoing and have had a negative impact on Kazkommertsbank and other Kazakh banks’ ability to access international funding.

Net interest income
Net interest income before provisions for impairment losses increased by 7.2% to KZT 106.2 billion for the period ended 30 June 2009, compared to KZT 99.0 billion for the period ended 30 June 2008.

The net interest margin before provisions for impairment losses as a percentage of average interest-earning assets was 8.4% for the period ended 30 June 2009, an improvement on the figure of 8.0% for full-year 2008. The increase resulted from the higher growth in the average yield on interest-earning assets from 15.2% in full-year 2008 to 15.8%, in the first half 2009 compared to growth in average cost of interest-bearing liabilities from 7.2% in full-year 2008 to 7.4% in the first half 2009.

Non-interest income
Net non-interest income amounted to KZT 38.0 billion in the first half 2009 compared to KZT 4.2 billion in the first half 2008. This substantial improvement was primarily due to income resulting from the purchase of the bank’s own debt securities of KZT 22.6 billion, and income from operations with financial assets of KZT 12.1 billion.

Operating expenses
Operating expenses decreased by 18.3% to KZT 14.3 billion during the period ended 30 June 2009 compared to KZT 17.5 billion in the period ended 30 June 2008.

Within this total, personnel expenses decreased by 21.1% to KZT 7.1 billion in the first half 2009 from KZT 9 billion in the first half 2008.   

As a result of our strategy of network optimisation, the number of branches decreased from 186 to 161 during the first half 2009.

Provisions and NPLs
The Bank continues with its conservative policy of building sufficient provisions for expected credit losses. Provisions for credit impairment losses increased to KZT 437.4 billion at 30 June 2009, compared with KZT 289.3 billion at the end of 2008. As a result, the effective rate of provisioning amounted to 15.3% of gross loans at the end of the first half 2009 compared to 11.9% at the end of 2008. 

Non-performing loans (NPLs) represented 15.0% of gross loans by the end of the second quarter of 2009, up from 8.1% at the end of 2008. KKB defines NPLs as total exposure to clients with overdue payments (30 days and more for corporates, 60 days and more for retail customers).
As of 30 June 2009, the provision-to-NPL ratio was 102.4%. Provision coverage of loans more than 90 days delinquent was 145.7%.

Profit
Net profit for the first half 2009 amounted to KZT 9.9 billion compared to KZT 34.1 billion for the first half 2008. This drop is a result of increase in provisioning expenses.

Capital ratios
Risk-weighted assets increased to KZT 2,722 billion at 30 June 2009, or by 11.3% compared to the situation at the end of 2008.

On a consolidated basis, the Bank’s Core Tier 1 ratio at 30 June 2008 was 13.9% compared with 13.5% at 31 December 2008, and the total capital ratio was 18.1% (17.7% at 31 December 2008).

Business line performance
Corporate and SME banking
The share of corporate loans in the Bank’s total net loan portfolio increased from 83.6% in 2008 to 86.8% in the first half 2009.

As of 30 June 2009 corporate deposits (excluding deposits received under the Kazakh Government’s stabilisation programmes) had increased by 4.8%, to KZT 713.4 billion from KZT 680.6 billion at 31 December 2008.

Retail banking
The share of retail loans within the total net loan portfolio was 13.2% in the first half 2009, with mortgages constituting 66.1% of the retail loan portfolio.

As at 30 June 2008, the Bank had 161 branches in Kazakhstan. In addition, it has an extensive alternative distribution network consisting of 933 ATMs and more than 10,000 point-of-sale terminals and it offers customers internet banking and a call centre.

Retail deposits increased by 13.8%, from KZT 263.8 billion at 31 December 2008 to KZT 300.3 billion as at 30 June 2009.