PROMSVYAZ : PSB Announces 2015 Preliminary RAS Results

According to the preliminary reporting (published form excluding subsequent events after the balance sheet date) under the Russian Accounting Standards (RAS), net profit of Promsvyazbank (PSB) for 2015 amounted to RUB 11.0 bn, compared to a loss of RUB 2.3 bn for 20141.

2015 net interest income was RUB 29.4 bn., 15% lower than 2014 result due to sharp interest margin decrease amid CBR key rate growth. Net fee and commission income increased 21% year-on-year and reached RUB 15.3 bn for 2015. Other operating income, including income from operations with securities, foreign currency and financial derivatives grew more than 6x in 2015 and amounted to RUB 12.2 bn. As a result, in spite of net interest income decrease, net operating income of the bank exceeded 2014 result by 15% and amounted to RUB 57.0 bn in 2015.

PSB remained committed to a conservative policy on provisioning in an unfavorable macroeconomic environment. 2015 net loan loss provision charge 2 grew more than 1.5x year-on-year and totaled RUB 52.4 bn.

PSB continued to work on its operating cost control and optimization program throughout 2015. 2015 total administrative and operating expenses decreased by 19% year-on-year, to RUB 22.3 bn. Cost-to-income ratio was 39%, down from 56% for 2014.

2015 total assets stood at RUB 1.2 trln, up 15% year-on-year.

Total loans to customers (before provisions and excluding interbank loans) grew 6% year-on-year, to RUB 895 bn. Corporate loan portfolio was RUB 808 bn, an increase of 8% year-on-year, while retail loan portfolio, by contrast, declined by 10% to RUB 87 bn.

Securities portfolio 3 at the end of 2015 was RUB 55 bn or 5% of PSB total assets (2014: 2%). In 2015 securities portfolio rose 3x with the bulk of growth driven by sovereign and blue chip corporate bonds.

Total customer accounts and deposits (both retail and corporate4 ) increased by 18% year-on-year, to RUB 801 bn, with the bulk of growth driven by corporate accounts and deposits (+20%), while retail deposits were up 13%. Growth in customer accounts and deposits during the period was equally driven by acquisition of a new depositor base and depreciation of the ruble for the year.

As at 1 January 2016, the share of funding from the Central Bank in total liabilities was 11% (2014: 7%), with total funding of RUB 131 bn. The share of foreign currency borrowings from the Bank of Russia was over 60%.

PSB capital base was significantly strengthened by RUB 13.8 bn and RUB 15.7 bn capital contributions from majority shareholders, made in May 2015 and November 2015, respectively, and RUB 29.9 bn state recapitalization received in August 2015. 2015 total new capital injection amounted almost RUB 60 bn. New capital amount was used for capital base increase and subordinated borrowings buy-backs. As a result PSB capital («own funds» as defined in RAS) in 2015 increased more than 25% and amounted to RUB 151 bn as at 1 January 2016 (2014: RUB 120 bn). Common equity tier 1, tier 1 and total capital ratios as at 1 January 2016 were 6.1%, 7.4% and 13.9%, respectively (2014: 5.7%, 6.9% and 12.0%, respectively) considerably exceeding minimum requirements.

Liquidity ratios were at a comfortable level. Instant (N2) and current (N3) liquidity ratios as at 1 January 2016 were respectively 85% and 143%, significantly exceeding CBR minimum requirements of 15% and 50%, respectively. Moreover PSB meets new liquidity coverage ratio (LCR) requirement eligible from 1 January 2016, even without taking into account credit line from CBR. PSB LCR as at the end of 2015 was 75%, exceeding minimum requirement of 70%. Strong liquidity position in 2015 enabled PSB to repurchase its Eurobonds for a total amount of more than US$350 mln, repay subordinated Eurobonds in the amount of US$180 mln in early 2015, and, in November, duly repay a syndicated loan in the amount of approximately US$120 mln.

PSB Deputy Chairman of the Management Board and CFO Vladimir Mamakin comments on the results: «Objectively, 2015 was a challenging year both for the banking sector and the Russian economy as a whole. We noted a decline in business margins and need for new material impairment charges. In spite of that PSB offset decreased interest income by sustained growth of fee and commission income and income from operations in the financial markets. PSB operating income increased by approximately 15% year-on-year to RUB 57 bn. Simultaneous work on cost control and optimization led to substantial decrease of operating expenses, as a result CTI ratio turned down to a record 39%. In 2015, we received substantial support from our shareholders in the form of two capital contributions totaling approximately RUB 30 bn, which enabled PSB to meet all new regulatory additional capital requirements, as well as create a «safety cushion» for further business development».

For Reference: We intend to hold a more complete discussion of the results, including in terms of profit and loss statement, during a conference call with investors and analysts in Q1 2016, when PSB 2015 IFRS statements will become available