PROMSVYAZ : PSB Publishes Q1 2016 Preliminary RAS Results

According to the preliminary reporting (published form) under the Russian Accounting Standards (RAS), PSB net profit for Q1 2016 amounted to RUB 414 mln compared to a loss of RUB 921 mln for the same period last year.

Amid recovery in net interest margin, net interest income increased by 43% compared to the same period last year, to RUB 8.3 bn. Q1 2016 net fee and commission income increased by 14% to RUB 3.4 bn1 . At the same time net fee and commission income structure is changing: SME business becomes the main contributor to net fees with 40% share compared to 31% for Q1 2015.

Income from securities transactions also grew strongly to RUB 1.3 bn, a 6x increase y-o-y. Q1 2016 other operating income, which includes income from operations with securities, foreign currency and derivatives2 was RUB 2.0 bn which is 20% higher than in Q1 2015. As a result, operating income for Q1 2016 amounted to RUB 13.7 bn, a 31% increase compared to the similar period last year.

Q1 2016 operating expenses remained flat y-o-y and amounted to RUB 5.7 bn. Cost-to-income ratio decreased from 54% to 42% y-o-y.

As expected, following considerable additional provisioning in 2015, when the cost of risk was 6%, provision charges decreased significantly in Q1 2016, resulting in a reduction to 3.5%2 cost of risk on the annualized basis. As of 1 April 2016, total assets stood at RUB 1.3 trln, a 5% increase from 2015 year-end. Total assets growth was mainly due to increased share of highly liquid assets.

Macroeconomic situation remained weak in early 2016 which did not allow PSB to expand its lending operations due to still high credit risks. As a result total loans to customers (net off provisions and excluding interbank loans) decreased by 7% compared to beginning of 2016, and as of 1 April 2016 stood at RUB 835 bn, of which only 1/3 was due to the effect of the ruble recovery in Q1 2016. Corporate loan portfolio was RUB 751 bn, down 7% compared to the year-end data, while retail loan portfolio amounted to RUB 84 bn, down 3% from 2015 year-end.

Securities portfolio3 at the end of Q1 2016 was RUB 52 bn, or 4% of PSB total assets (2015: 5%). As a general rule, PSB maintains a conservative approach to capital markets trading and continues to focus on sovereign and blue chip bonds in its securities portfolio.

PSB has a focus on transactional business and enjoys a sustainable growth of new clients inflow. As a result total customer accounts and deposits (both retail and corporate4) in Q1 2016 increased by 3% compared to the end of 2015, to RUB 823 bn. Adjusted for FX growth would have been 5%. During the 1st quarter corporate accounts and deposits grew 2% to RUB 541 bn, while retail accounts and deposits rose 5% to RUB 282 bn.

On the back of increased clients' balances PSB repaid foreign currency funding to the CBR thus reducing outstanding CBR loans from RUB 131 bn to RUB 74 bn. Its share in total liabilities as at 1 April 2016 decreased to 6.2% from 11.4% at the end of 2015.

As at 1 April 2016, PSB capital («own funds» as defined in RAS) amounted to RUB 145 bn (2015: RUB 151 bn), with reduction driven by the ruble recovery and amortization of subordinated loans. Common equity tier 1, tier 1 and total capital ratios as at 1 April 2016 were 5.7%, 6.9% and 12.6%, respectively (2014: 5.7%, 6.9% and 12.0%, respectively) exceeding minimum requirements.

Liquidity ratios are at a comfortable level. As at 1 April 2016, instant (N2) and current (N3) liquidity ratios were 101% and 116%, respectively, significantly exceeding the CBR minimum requirements of 15% and 50%, respectively. Moreover PSB meets new liquidity coverage ratio (LCR) requirement eligible from 1 January 2016. PSB LCR as at the end of Q1 2016 was 78%, exceeding minimum requirement of 70%.

PSB Deputy Chairman of the Management Board and CFO Vladimir Mamakin comments on the results: «Bank continues to focus on transactional business and risk-free income. This is evidenced by sustainable new clients' inflow 50% higher than a year before. PSB also improves its net interest margin by replacing the expensive CBR funding with cheaper client accounts. Our efforts have been already noticeable - PSB received net gain in Q1 2016 under RAS and operating income before provisioning showed 65% growth y-o-y».

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 Q2 2016, when PSB Q1 2016 IFRS statements will become available.