05.09.2008 - MDM Comment: Russian Standard 1H08

Russian Standard Bank (Ba2/BB-, Bloomberg ticker RUSB) yesterday released its 1H 08 IFRS and held a brief conference call. Our take on the results is positive. Key highlights:

- Loan book stagnates for obvious reasons (funding conditions are tough). But we don't view stagnation as something that creditors should be concerned about, it’s the pain for the shareholders. Structure wise we are seeing a shift from car loans into cash all-purpose loans.

- Having no need to grow fast, the bank puts increased attention on risk management. Tighter criteria when selecting borrowers is already resulting in much lower NPL ratios. After write-offs NPLs in 1H08 stood at 3.8% vs 5.5% in 2007. Before write-offs - 9.4% (17.2% in 2007).

- Profitability ratios continue to look better vs the 2H07, when the cancellation of commissions resulted into large loan impairment charges (strict accounting approach btw). Interest margins remain wide, although pressure is there - from both competition and rising cost of funding.

- The bank is gradually reducing its exposure to capital markets on the funding side by building up deposit base (RUSB has access to MinFin's deposit auctions) as well as raising loans and placing bonds privately (see last section of notes to the financial statements)

- From a sustanability perspective the bank continues to look very solid. There are no liquidity gaps on the 12-month horizon as the bank is mostly invested in short-term loans. RUSB is also still well-overcapitalized with TCAR ratio of 22.5%.

- Settlement agreement between BNP Paribas and RUSB's shareholder has expired in July 2008, so there are apparently no restrictions on the bank's equity sale anymore. That said, we don't expect Mr.Tariko to sell the bank in the short-term

05.09.2008 14:01