OREANDA-NEWS. September 02, 2011. PSB has published 1H 2011 IFRS interim consolidated condensed financial information reviewed by the independent auditors, PricewaterhouseCoopers, reported the press-centre of PSB.

PSB posted an over two-fold year-on-year increase in its net profit at RUB 1.2 billion for the 6 months ended June 30, 2011, driven mainly by an increase in fee and commission income and income from securities operations.

Key Balance Sheet Items:
Assets rose 2% in 1H 2011 to RUB 485 billion

The net loan portfolio was RUB 324 billion, up 4%. The share of the loan portfolio in total assets increased to 67%, from 65% in 2010

The share of non-performing loans (NPLs) had fallen to 8.1% at July 1, 2011, from 9.2% at year-end 2010

The securities portfolio (trading, held-to-maturity and available for sale) was RUB 44.7 billion at July 1, 2011, down 14%. The share of the securities portfolio in total assets for the same period also fell, from 11% to 9.2%

The share of liquid assets remained at an optimal level of 20%, compared with 21% in 2010

Regulatory capital as per Basel Accords was RUB 59.7 billion at July 1, 2011

PSB’s loan portfolio posted a moderate 4% growth in 1H 2011, maintaining the Bank’s projected growth for the 2011 loan portfolio at 15%. The standard corporate loan portfolio was up 5%, while the trade financing and factoring portfolio contracted due to a seasonal decline in demand.

The small and medium size enterprise (SME) loan portfolio grew more dynamically, outperforming the market average by more than two times (17% against 8%, respectively). In addition to organic growth, PSB also expanded its portfolio through acquisition of a RUB 5.6 billion SME loan portfolio from Trust Bank (transaction closed in July 2011, as well as a RUB 4.6 billion portfolio effectively acquired as at July 1, 2011). The total SME loan portfolio was up 34% in 1H 2011.

For the first time since the suspension of retail lending in summer 2008 and the subsequent re-launch of retail credit products in July 2010, the retail loan portfolio rose 5% in Q2 2011 (new loan issuance exceeded quarterly portfolio amortization). Starting from the beginning of 2011, monthly new lending volumes outstripped those registered in each previous month by 20% on average, enabling PSB to achieve approximately RUB 6 billion in new loan issuance in 1H 2011. Key portfolio growth drivers included a broader product offering (specifically, several mortgage lending programs launched in 2011) and an active marketing campaign.

The quality of PSB’s loan portfolio continued to improve. The share of NPLs as percentage of the loan portfolio had fallen to 8.1% at July 1, 2011, from 9.2% at year-end 2010, driven mainly by a reduction of RUB 3 billion of NPLs in the corporate loan portfolio. PSB maintains its policy of targeting an NPL coverage ratio of at least 100%, with actual levels of 126% in 1H 2011 and 117% in 2010.

The securities portfolio (trading, held-to-maturity and available for sale) was down 14% in 1H 2011. Anticipating the negative trends of late summer 2011, PSB closed a number of its positions in trading securities portfolio and fixed profits. The portfolio composition remains fairly conservative, with 70% invested in highly liquid securities included in the Bank of Russia’s Lombard List. The share of corporate debt securities was down to 36% at July 1, 2011, from 42% at year-end 2010.

Customer funding is a key source of PSB’s funding, with a 66% share at July 1, 2011 (69% in 2010). The share of this funding source receded slightly as compared with the beginning of the year, due to the issue of a US\\$500 million Eurobond in April 2011.

Key Income Statement Items 1H 2010 interest income (and, consequently, operating income and provisioning charges) were adjusted for retrospective effect of changes in the accounting policy in Q3 2010 (recognition of interest income from loans with a significant provisioning rate less provisions):

1H 2011 net profit was RUB 1.2 billion

Net interest income grew 1.3% year-on-year, to RUB 9.4 billion

Net fee and commission income rose 27.3% year-on-year, to RUB 3.5 billion

Income from operations with securities was RUB 515 million, compared with a RUB 700 million loss in 1H 2010

Operating income grew 10.5% year-on-year, to RUB 13.6 billion

The net impairment provision charge fell by almost 12% to RUB 4 billion, or 29% of operating income (36% in 1H 2010)

The cost-to-income ratio increased to 60%, compared with 57% in 1H 2010

Pressure on credit product margins persisted throughout 1H 2011, representing the single most important factor hampering net interest income growth. Conversely, net fee and commission income continued to show positive dynamics and exceeded the 1H 2010 level by almost a third. The share of net fee and commission income as a percentage of operating income increased to 25.5% in 1H 2011, from 22.2% in 1H 2010. As before, commissions on documentary operations (+37%), money transfer fees (+48%) and commissions for servicing plastic cards (+36%) were key drivers of PSB’s fee and commission income.

Loan impairment provision charges have been contracting, on the back of the persisting trend of a declining share of NPLs in the loan portfolio. PSB does not intend to release loan loss provisions before the end of 2011 or in 2012, thereby building a safety cushion throughout a more favorable economic cycle, to mitigate volatility of earnings in case of a new wave of the economic crisis.

Two key drivers of deterioration in the cost-to-income ratio included an investment increase in human capital and brand promotion.

Key Financial Ratios:
The total capital adequacy ratio (as per Basel Accords) was 13.9%, compared with 14.4% in 2010. If the subordinated loan from majority shareholders received in August 2011 were to be included in the calculation, the total capital adequacy ratio would be 14.5%

The tier 1 capital adequacy ratio remained almost flat at 10.1% (10.0% in 2010)

The net loans-to-deposit ratio rose to 111%, from 105% at December 31, 2010

NPLs fell by 9.2% compared to December 31, 2010, to RUB 29.1 billion or 8.1% of the total net loan portfolio (9.2% in 2010)

Loan impairment provisions as a percentage of the loan portfolio decreased to 10.2%, compared to 10.8% in 2010.

PSB’s First Vice President Alexandra Volchenko comments on the published results:  "We are positive about PSB’s 1H 2011 IFRS results. The Bank has been able to achieve acceleration of its retail lending growth rate, which will drive PSB’s net interest margin, as well as increasing the retail segment’s share in the Bank’s operations. In addition, the loan portfolio quality continues to improve, which resulted in a decrease in the share of NPLs, as well as improvement of debt service. However, we continue to follow a counter-cyclic approach to loan provisioning, charging more provisions in favorable economic cycles, which will result in less yield fluctuations in different phases of economic cycles. Moreover, PSB continues to follow a conservative risk policy, which has allowed the Bank to reduce its open positions in the financial markets and to fix profits on some financial instruments".