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Vozrozhdenie Bank - 1Q09 results below expectations on higher provisions

Vozrozhdenie Bank - 1Q09 results below expectations on higher provisions

28.05.2009 13:57

Net earnings came in at RUB 386m for 1Q09, down 36.9% q/q and 43.3% y/y, below both the consensus estimate of RUB 476m (source: Interfax) and our forecast of RUB 708m. Strong cost containment was offset by weaker revenues (mainly net fee income) and higher-than-expected provisioning. The results had a negative trading impact on the stock yesterday and are likely to continue to weigh on a sentiment towards the sector as the read-through for banks that have yet to report is negative (i.e. margin pressure and more rapid deterioration of asset quality).

Net interest income came in at RUB 2,335m for 1Q09, down 9.9% q/q but up 41.1% y/y, below our expectation of RUB 2,437m, with a visible rise in funding costs (both CBR funds and retail deposits). The net interest margin (over average assets) came in at 6.69%, below our expectation and down 76bp q/q but up 89bp y/y. The loans-to-deposits ratio decreased to 103.3% in 1Q09 from 104.7% in 4Q08. Bank Vozrozhdenie managed further downward its loans (-1.6% q/q and +14.4% y/y), while deposits were broadly flat (-0.3% q/q and +2.9% y/y).

Non-interest income came in at RUB 1,282m for 1Q09, down 11.6% q/q but up 34.8% y/y, driven mainly by stronger seasonality of net fee income (down 26.6% q/q but up 9.3% y/y), while slightly weaker net FX gains were offset by better-than-expected net trading income boosted by a marked-to-market securities revaluation of RUB 131m.

Operating costs came in at RUB 1,390m for 1Q09, down 33.1% q/q and 12.5% y/y, below our expectations. The key driver of lower total costs was administrative costs, as well as seasonally lower personal expenses. Vozrozhdenie plans to further focus on optimization of network, including closing of some less efficient branches.

Net provisioning came in at RUB 1,646m for 1Q09, up 35.1% q/q, much above our estimate of RUB 1,184m. This equates to net provisions of 663bp (over average gross loans) in 1Q09, versus 472bp in 4Q08. The NPL ratio jumped to 5.9% in 1Q09 from 3.4% in 4Q08, while provisioning coverage dropped drastically to 109% from 178% over the period. An increase in net provisioning had been expected, given the negative macroeconomic outlook, but the rapid pace of NPL formation was a surprise.

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