OREANDA-NEWS. September 27, 2010.

Key financial indicators:

1H2010 net profit amounted to RUB562 million as opposed to a RUB384 million net loss in 1H2009, reported the press-centre of PSB. 

Gross loans were up 8% to RUB287 billion. The share of non-performing loans (NPL) in the gross loan portfolio decreased from 12.3% as at the end of 2009 to 11.9%, totaling RUB39.2 billion

Current accounts and deposits from customers remained virtually unchanged standing at RUB282 billion. The net loans to deposits ratio stood at 102% against 92% as at 31 December 2009

Capital as per Basel Accord was up 4% to RUB53.7 billion. The total capital adequacy ratio remained flat at 14%

Operating income grew by 5% in 2Q2010 to RUB13.3 billion for 1H2010, reflecting a total 23% decrease year-on-year

Net interest income was down 21% year-on-year to RUB10.1 billion. However, net interest income increased by 24% in 2Q2010 compared with 1Q2010

1H2010 net interest margin was 4.7%. Following a decline to 4.1% in Q1, net interest margin rebounded strongly in Q2 to 5.2%

Net loan impairment charges were RUB5.3 billion, down more than 50% year-on-year

PSB loan portfolio showed a strong growth in 1H2010, with corporate and SME loans up 11% and 4%, respectively. This pace of growth is several times higher than the national average of 3.9% for the 1H2010 as per CBR data. The growth was driven both by increased lending to long-standing clients of PSB as well as a new client inflow in 1H2010. At the same time the loan portfolio remained highly diversified, with a sustained industry structure and a further reduction of share of Top-20 borrowers in PSB’s gross loan portfolio and total capital.

For the first time since the beginning of the crisis, the share of NPLs in gross loans declined from 12.3% as at the beginning of 2010 to 11.9% as at the end of 1H2010. The trend reversed at the end of 1Q2010, which slightly exceeded previous expectations (NPLs had been expected to bottom out by the end of 2Q2010). NPL share reduction was driven both by the loan portfolio expansion and a significant slowdown in NPL growth rate in absolute terms: 1H2010 increase was 4% against 208% and 37% in 1H2009 and 2H2009, respectively. PSB remains committed to maintain its NPL coverage ratio at above 100% (107% as at 1 July 2010).

Retail deposits were up 8% in 1H2010, showing a positive trend despite several deposit interest rate cuts starting from the beginning of the year. Contrariwise, corporate deposits were down 8% in 1H2010 due to PSB’s policy of limiting new deposit inflow and thereby maintaining operating efficiency, which remains a key priority of PSB in 2010. Funding diversification improved significantly in 1H2010, with the share of Top-10 depositors in total customer funds down from 32% to 28% and the share of retail deposits in total client deposits up from 33% to 37%.

In the beginning of 2010, PSB suspended its anti-crisis liquidity management measures, including maintenance of excess liquidity cushion.  Amid improving operating environment the share of liquidity cushion in total assets was reduced in line with the general banking practice. Accordingly, PSB reduced the share of non-earning liquid assets in 1H2010 (cash and Nostro balances), partially replacing such assets with highly liquid earning instruments. As a result, the share of liquid assets on the balance sheet returned to a pre-crisis level (19%) with securities portfolio remaining flat at the level of 1 January 2010 and total assets decreased by 7% year-to-date.

Net interest income fell in 1H2010 vs. 1H2009, which is driven by the fact that the pace of reduction in funding costs lags behind that of lending rates. Nonetheless, net interest margin exceeded 5% already in 2Q2010, driven by a sound PSB policy targeted at maintenance of profitability by means of reduction of excess liquidity cushion, support of loan portfolio growth and control over customer deposits inflow. Due to a considerable moderation of problem loans growth and ensuing lower provisioning, net interest margin adjusted for loan impairment charges increased in 1H2010 to 2.3% vs. 1.2% in 2009.

Following a significant deterioration in 1Q2010 to 55.2% cost-to-income ratio improved to 52.2% in 2Q2010 and totaled 53.7% for 1H2010. Growth in cost-to-income ratio was mainly driven by a weaker operating income, while the ratio of operating expenses to average assets over the last 2,5 years remained stable at approximately 3%, which is quite a strong indicator for a universal bank with a wide branch network.

PSB President Artem Konstandyan comments on PSB 1H2010 results:
"1H2010 results and our profitable performance in particular reflect the soundness of strategy that PSB embarked on during the crisis period. Due to prioritization of the development of long-term and mutually beneficial client relationships in previous years, PSB was able to achieve considerable lending growth rates in the first half of 2010 outpacing national averages by several times. A conservative risk management approach allowed to spot the bulk of problem loans in 2009, which enabled PSB to overcome their peak level as early as in 1Q2010 and decrease the share of NPLs in gross loans by the end of 1H2010. Despite a certain deterioration of profitability amid excessive market liquidity and a significant decline in lending rates, PSB achieved a notable increase in net interest margin already in 2Q2010, which is the beginning of the trend that we expect to continue in 3Q2010 and 4Q2010".