PSB has reported RUB 2.1 bn profit for 2016 according to IFRS

Promsvyazbank (PSB) publishes Q4 2016 and 2016 consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), audited by PricewaterhouseCoopers

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«We positively assess our 2016 results. PSB has posted a profit in amount of RUB 2.1 bn, driven mainly by growing risk-free revenue amid expansion of the customer base in all business segments. We have been successfully implementing our strategy aiming to improve operational efficiency through modernization of both our technology platform and internal processes. Smooth completion of strategic projects to strengthen our market position in the Samara region by consolidating Pervobank and Avtovazbank is a reflection of this. 

Macroeconomic stabilization has had a positive impact on our operations in terms of reduction of the cost of risk in our portfolio and a certain margin recovery. We expect these trends to continue in 2017, and look forward to the consumer sector revival and subsequent growth in our SME and retail loans», - PSB Deputy Chairman of the Management Board and CFO Vladimir Mamakin comments on the results. 

Profit and Loss Statement Highlights 

Net profit for Q4 2016 was RUB 0.4 bn, up from RUB 0.1 bn a quarter earlier. Net profit for 2016 totaled RUB 2.1 bn, against a loss of RUB 16.4 bn for 2015. 

• Based on a strong growth in fees and commissions, operating income for Q4 2016 increased by 34% q-o-q and 28% y-o-y, to RUB 15.3 bn. Operating income for 2016 increased by 14% to RUB 55.9 bn. 

Net interest income resumed its growth and increased by 26% q-o-q and 24% y-o-y, to RUB 8.4 bn for Q4 2016. Net interest income for 2016 totaled RUB 27.6 bn (2015: RUB 27.3 bn). Due to higher investments in interest-earning assets, Q4 2016 net interest margin increased by 59 bp to 3.0%. 2016 net interest margin was 2.5%. 

• Driven by a significant expansion of the customer base and transactional business volumes, net fee and commission income increased by 15% q-o-q and 46% y-o-y, to RUB 5.3 bn for Q4 2016, with a 35% share in operating income. 2016 net fee and commission income increased by more than 33% to RUB 17.7 bn, with a 32% share in operating income. 

General and administrative expenses for Q4 2016 were RUB 5.8 bn (Q3 2016: RUB 5.1 bn). An increase in expenditure at the end of the year is seasonal (traditional growth of marketing expenses). General and administrative expenses for 2016 increased by 7%, mainly as a result of consolidation of Pervobank and Avtovazbank, and totaled RUB 21.1 bn. Supported by strong operating income, 2016 cost-to-income ratio decreased by 2.5 pp to 38%. 

Provision for loan impairment decreased throughout 2016 and stood at RUB 7.1 bn for Q4 2016, which corresponds to a cost of risk of 3.2%. Net loan provision charges for 2016 totaled RUB 30.7 bn, which corresponds to a cost of risk of 3.5% (2015: 5.8%). 

Key Balance Sheet Indicators 

• In line with the policy of control on RWA expansion, Q4 2016 assets remained unchanged q-o-q and y-o-y, totaling RUB 1.224 trln. Excluding the effect of the ruble recovery, total asset growth as at the end of 2016 would have been approximately 6%. 

Net loans to customers for Q4 2016 decreased by 4% q-o-q to RUB 783 bn, due, inter alia, to the ruble appreciation factor. 2016 corporate loans totaled RUB 676 bn, down 1% y-o-y, the SME portfolio decreased by 21% to RUB 38 bn, while retail loans, by contrast, grew 2% y-o-y, to RUB 69 bn. 

The share of non-performing loans (NPL) was 8.5% for Q4 2016 (Q3 2016: 8.3%; 2015: 4.0%). NPL coverage ratio was 94%. 

Securities portfolio for Q4 2016 grew to RUB 136 bn (Q3 2016: RUB 89 bn; 2015: RUB 61 bn), mainly in highly liquid corporate Eurobonds and federal loan bonds (OFZ). The securities portfolio share in PSB balance sheet was 11% (Q3 2016: 7%; 2015: 5%). 

• In line with the strategy on transactional business development, Q4 2016 customer accounts increased by 0.5% q-o-q, to RUB 883 bn (2015: RUB 792 bn, up 12%). The share of current accounts as at the end of the reporting period was 25% (2015: 28%). 

CBR funding as at 31 December 2016 decreased 13x y-o-y, to RUB 9.8 bn (2015: RUB 131 bn). The share of this source of funding declined from 11.6% to 0.9% of total liabilities. 

Shareholders’ equity for 2016 increased by 10% y-o-y, to RUB 92 bn (2015: RUB 83 bn). In June 2016, PSB received cash for preferred shares issued in amount of RUB 3.7 bn. 

Overview of Financial and Operating Results 

As a result of a deliberate policy to strengthen risk-free revenue, Q4 2016 operating income (mainly driven by fee and commission income) increased by 34% q-o-q and 28% y-o-y, to RUB 15.3 bn. Core income (net interest and net fee and commission income) for Q4 2016 increased by 22% q-o-q and 32% y-o-y, to RUB 13.7 bn, with a 90% share in total operating income. Operating income for 2016 grew 14% to RUB 55.9 bn. 

Q4 2016 interest income increased by 10% q-o-q and 7% y-o-y, to RUB 28.0 bn. Interest income for 2016 totaled RUB 103.0 bn, in line with the 2015 result. 

Interest expense for Q4 2016 was RUB 19.6 bn (Q3 2016: RUB 18.8 bn; Q4 2015: RUB 19.4 bn). 2016 interest expense decreased by 1% to RUB 75.4 bn. 

On a higher growth of interest income, Q4 2016 net interest income increased by 26% q-o-q and 24% y-o-y, to RUB 8.4 bn. Net interest income for 2016 totaled RUB 27.6 bn (2015: RUB 27.3 bn). 

Based on a strong expansion of the customer base and transactional business volumes, Q4 2016 net fee and commission income increased by 15% q-o-q and 46% y-o-y, to RUB 5.3 bn. Q4 share of net fee and commission income in operating income was 35%. Net fee and commission income for 2016 increased by more than 33% to RUB 17.7 bn, mostly on customer money transfers and card transactions. 2016 share of net fee and commission income in operating income increased by 5 pp to 32%. SME remained the leading business segment in terms of net fee and commission income as at the end of 2016. Supported by a steadily growing customer base, SME share in total net fee and commission income was 47%. 

General and administrative expenses for Q4 2016 totaled RUB 5.8 bn (Q3 2016: RUB 5.1 bn). An increase in expenditure at the end of the year is seasonal (traditional growth of marketing expenses). Q4 2016 cost-to-income ratio was 38%, down 7 pp q-o-q and 8 pp y-o-y. General and administrative expenses for 2016 totaled RUB 21.1 bn, an increase of 7% y-o-y, mainly driven by consolidation of Pervobank and Avtovazbank. 2016 cost-to-income ratio decreased by 2.5 pp to 38%, driven by a strong increase in operating income. 

Net loan impairment provision charges decreased throughout 2016 and stood at RUB 7.1 bn for Q4 2016, which corresponds to a cost of risk of 3.2%. Net loan impairment provision charges for 2016 totaled RUB 30.7 bn, down more than 35% y-o-y, with a cost of risk of 3.5% (2015: 5.8%). 2016 cost of risk decreased by 2.2 pp to 3.5% in the corporate loan portfolio, to 4.2% in the SME portfolio (2015: 5.1%) and by 3.9 pp to 3.2% in the retail portfolio. 

The share of non-performing loans (NPL) in PSB loan portfolio as at 31 December 2016 was 8.5% (2015: 4.0%). NPL share growth was driven by the bank's strategy on problem loans management, envisioning, in some cases, rejection of loan restructuring and changes in bank’s collecting strategy. NPL coverage ratio at the end of 2016 was 94%, reflecting the bank expectations for a reduction of problem loans in PSB portfolio (2015: 200%). 

PSB continues to maintain a sufficient level of liquidity. As at 31 December 2016, the share of liquid assets in PSB total assets was 21% (2015: 19%), while liquid assets to customer accounts stood at 30% (2015: 29%), which is an adequate level under stress scenario. As at 31 December 2016, PSB complies with regulatory LCR requirement (min. 80.0%). 

Securities portfolio as at 31 December 2016 rose to RUB 136 bn, mainly in highly liquid corporate Eurobonds and Russian federal loan bonds (2015: RUB 61 bn). The securities portfolio share in PSB balance sheet increased to 11% y-o-y (2015: 5%). PSB continues to maintain a conservative approach to its securities portfolio structure, with more than 86% of securities included in the CBR Lombard List. 

Due to bank’s strategy focus on transactional business development customer accounts as at 31 December 2016 stood at RUB 883 bn, a 12% increase y-o-y (2015: RUB 792 bn). Excluding the effect of the ruble recovery in the reporting period, the growth would have been 18%. The share of current accounts was 25% (2015: 28%). 

CBR funding as at 31 December 2016 was RUB 9.8 bn, a 13x decrease y-o-y, following repayment of a 12-month USD loan received in early 2015 (2015: RUB 131 bn). The share of this source of funding declined from 11.6% to 0.9% of total liabilities. 

Concentration of top-20 borrowers in PSB net portfolio as at 31 December 2016 reduced to 32% (2015: 34%). The share of top-20 depositors in total customer deposits as at 31 December 2016 decreased to 19%, due to growth in retail deposits (2015: 32%). The share of loans to related parties to total IFRS capital as per Basel III was 20% as at 31 December 2016 (2015: 21%). 

Capital 

Total IFRS capital adequacy ratio as per Basel III as at 31 December 2016 was 13.4% (2015: 14.4%), against the minimum requirement of 8.0%; tier 1 adequacy ratio was 8.2% (2015: 8.2%), against the minimum requirement of 6.0%; core capital adequacy ratio was 6.8% (2015: 6.8%), against the minimum requirement of 4.5%. 

Total capital adequacy ratio according to Russian Accounting Standards (RAS) as at 31 December 20161 was 13.5%2 (2015 : 13.8%), against the minimum requirement (including additional buffers for systemically important banks) of 9.6%; core capital adequacy ratio was 8.1% (2015: 7.3%), against the minimum requirement (including additional buffers for systemically important banks) of 7.6%; base capital adequacy ratio was 6.8% (2015: 5.9%), against the minimum requirement (including additional buffers for systemically important banks) of 6.1%.

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11/08/2016
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10/20/2016

According to the preliminary reporting (published form) under the Russian Accounting Standards (RAS), PSB net profit for 9M 2016 amounted to RUB 2.0 bn. Income from core banking operations (interest income and fee and commission income) increased by 21% to RUB 36.9 bn.

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Promsvyazbank has appointed a new Board of Directors at the Extraordinary General Meeting of shareholders. Lindsay Forbes, representing the interests of the European Bank for Reconstruction and Development, was appointed to the Board.

09/20/2016

Standard & Poor's Ratings Services (S&P), international rating agency, has confirmed PromSvyazBank (PSB) credit rating at «BB-» with negative outlook.

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