OREANDA-NEWS. August 19, 2011. Bank Vozrozhdenie reported its 2Q/1H11 financial results. Earnings reached RUB400mn for 2Q11 and RUB712mn for 1H11, nearly in line with consensus forecasts of RUB402mn and RUB714mn, respectively.

The bottom line result was expected but impressive in terms of growth rates: earnings rose 28% QoQ and more than doubled YoY. Bottom line has already exceeded the FY10 result of RUB581mn.

Scrutinizing the components of this growth we note that:

- Core income items such as net interest income increased materially (RUB1.86bn), rising 36% QoQ and 35% YoY. Net F&C income (RUB1.19bn) was also notably strong, up 18% QoQ and 22% YoY. Trading and FX income declined 62% QoQ due to volatile trading results. Total net non-interest income gained 11% QoQ.

- On the other side total operating costs increased by 16% QoQ due to staff costs and administrative expenses.

- What diverges significantly from consensus is the level of provisioning at RUB576mn (+64% QoQ) vs the consensus estimate of RUB83mn. The comments we have received from the bank partially explain this growth with a mismatch in reporting provisions between quarters, i.e. some of the provisioning for 2Q11 should have been counted in 1Q11. The reason why this occurred was not explained.

NIM (which management forecasted would reverse its downward correction after the 1Q11 results) increased notably on our calculations from 3.6% in 1Q11 to 4.7% in 2Q11. We believe the bottom was reached in 1Q11.

An effective tax rate of 20%. The company’s tax rate has been stable and 20% seems an acceptable level.

Balance sheet trends: Loan growth was quite good at 5% QoQ and 16% YtD. Similar trends were seen in the corporate loan portfolio while retail loans accelerated 16% QoQ and 23% YtD. Deposit growth was negative QoQ (-1.2%) but on YtD basis deposits have increased by 4%.

Also on the positive side we note that asset quality improved and NPLs continued to decline in percentage terms: 6.4% of gross loans in 1Q11 vs 6.9% in 1Q11.

Bottom line

While the results were expected by the market (given that 1H11 RAS financials were released about two weeks ago) the high growth rates speak for themselves: YtD earnings have exceeded RUB700mn (vs RUB581mn for FY10) and loan growth has been strong (5% QoQ and 16% YtD). Meanwhile, NIM improved and NPLs are declining.

We look forward to hearing management’s comments on the 2Q/1H11 results and their outlook for 2H11 and FY11 during the conference call today at 5:00 pm Moscow time.