OREANDA-NEWS. June 05, 2014. Home Credit & Finance Bank (“HCFB”or ‘the Bank”), announces the consolidated financial results of operations in Russia and Kazakhstan for the three-month period ended 31 March 2014 in accordance with International Financial Reporting Standards (IFRS).  

HCFB is rated by Moody’s at Ba3, and by Fitch at BB. SB JSC Bank Home Credit (Kazakhstan), a 100% subsidiary of HCFB, is rated by Fitch at BB-.

“Our performance in the period was impacted by a sector-wide decline in asset quality and a challenging economic environment following rapid growth in recent years. Nonetheless, we maintained both a high capital adequacy ratio of 22.1% - one of the highest in the sector - and a strong liquidity position.

We believe this financial strength, combined with our ability to adapt and our leading market position, provides us with a solid foundation for the business going forward. We are already seeing early positive signs primarily related to the quality of loans granted under the stricter conditions we put in place from mid-2013 and expect an improvement in the risk profile of our loan portfolio from the second half of 2014.
 
Home Credit has been an industry benchmark for many years. We will continue to lead change in the sector and remain committed to leading the development of consumer lending and retail banking in Russia. Our experienced, stable and seasoned management team which successfully saw the business through the challenges of 2008-2009 makes me confident that we will emerge from the current period even stronger, smarter, and better positioned.”
Ivan Svitek, Chairman of the Management Board, HCFB
 
Home Credit is quickly adapting to the changing regulatory environment in Russia but, in common with its competitors, is facing headwinds due to the challenging conditions. The consumer finance market has been impacted by the rapid growth in consumer lending from 2011 to 2013. While Russia’s credit-to-GDP ratio is not high compared to that of peer countries, the effect of this rapid growth in unsecured personal lending was underestimated by lenders and credit quality was put under pressure.

Home Credit was one of the first to recognize the risks of this and took action in mid-2013. Taking on board the lessons learned from this period, the Bank is now carefully managing its growth with tighter risk-management procedures, greater cost control and an increased focus on loan quality. The benefits of this stricter approach to lending are already coming through although the loans issued before these measures were put in place continue to impact the business resulting in a loss for the quarter. Management is focused in improving the risk profile of both existing and future customers. Deposits, one of the Bank’s key funding sources, were reduced in line with the decline in loans reflecting the tougher lending criteria now in place.

Home Credit is distinguished by its strategic and operational flexibility having successfully navigated previous downturns and the Bank has a clear roadmap to restore our profitability in 2014. Home Credit has reinforced its leadership in the POS segment, introduced new insurance and credit card products which offer significantly improved value for customers, widened the transaction-related component in the business model and expanded its brand presence to new, additional customer segments. Home Credit remainsthe #1 privately-owned bank in unsecured lending, is well capitalised and attracts 3 million new customers each year through its POS business alone.
 
HIGHLIGHTS
Operating income for the reporting period eased reflecting the decline in business volumes reducing 4.9% to RUB 19.1 billion (Q1 2013: RUB 20.0 billion).

Net loss for the first quarter of 2014, on an IFRS basis, was RUB 3.3 billion predominantly from loans originated before mid-year 2013. On a Russian accounting standards basis, which is principally used by our peers in the sector, HCFB recorded a stand-alone profit of RUB 0.6 billion

HCFB achieved a net interest margin of 19.7%.

General administrative and other operating expenses rose 10.9% to RUB 6.7 billion, as the number of employees increased to 32,143, up 6.5% year on year, in line with the widening of the branch network predominantly in Kazakhstan. The Bank continued to effectively manage its operating expenses with a cost-to-income ratio of 35.4% and cost-to-average-net-loans ratio improving to 9.7%. Costs continue to be reduced to reflect market conditions and stricter cost discipline.    

Total assets amounted to RUB 342.0 billion.

Net loans decreased 6.5% to RUB 267.3 billion at 31 March 2014 (YE 2013: RUB 285.9 billion), with RUB 60.6 billion new loans granted (1Q 2013: RUB 76.3 billion). Given the changes in the regulatory and macro environment in Russia and also as a result of a tightening in the Bank’s underwriting standards, the growth rates of cash loan volumes were intentionally decreased since the middle of 2013. In response to regulatory reform in 2013, the Bank’s product line was optimized and the interest rates were reduced.

Retail deposit and current account balances were RUB 196.3 billion as at 31 March 2014, down 8.6% since YE2013. Deposit and current account balances comprised 69.7% of the Bank’s liabilities. The ratio of loans to deposits was 132.0% at the end of the reporting period, confirming the Bank?s continued focus on retail deposits as a major funding source. The deposits outflow reflects the decreased volumes of lending.

Non-performing loans (NPL) grew to 13.8% of the total loans (YE2013: 11.7%) closely linked to the market trend of asset quality decline. HCFB continues to apply a conservative provisioning policy with NPL provision coverage of 118.6%. NPL growth is driven by old portfolio seasoning after rapid growth over the previous years (2012-early 2013). The risk profile of loans granted in the second half of 2013 is healthier as a result of actions taken to reduce risk. The management team has a clear vision in respect of the necessary risk management procedures to manage the situation and to improve the risk profile of both existing and future customers. 

HCFB remains strongly capitalised with a consolidated capital adequacy ratio (CAR) of 22.1% at 31 March 2014 (YE2013: 23.5%).The capital adequacy ratio, based on standards set by the CBR, was 14.8% as at 31 March 2014.

HCFB serves about 4.8 million active customers through 1,312 bank branches, 8,814 loan offices, over 92,000 points of sale, and 1,446 ATMs across Russia and Kazakhstan. The Bank‘s client base comprised 29.7 million customers at 31 March 2014.