oschadny bank overview

OSCHADNY BANK
Investor update
presentation
October 2011
1
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events, conditions or circumstances on which any of such statements are based.
2
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships with Government
Overview of Business Segments
Financial Highlights
Risk Management
3
INVESTMENT HIGHLIGHTS
Management Team
with Extensive
Experience
Financial Agent for the
State in Government
Programmes
Competitive Mix of
Products and Services
Profitable performance
even during crisis
100% State Ownership
Strong shareholder
support
Unique Government
Guarantee on Retail
Deposits
Largest branch network
Low NPLs, conservative
provisioning
High capital adequacy
Top 2 by all major
indicators
4
OSCHADNY BANK OVERVIEW
Formed in the early 1990s from the Ukrainian branch
of the former Soviet State Savings Bank
(in UAH Bn)
2008 YE
2009 YE
2010 YE
6m2011
Audited
Audited
Audited
Reviewed
One of the two systemically important state banks in
Ukraine
Total Assets
56.4
57.4
57.6
70.5
Total Equity
15.1
15.3
16.0
17.1
Substantial part of business connected with State
programmes
Gross Loans
35.0
49.8
49.1
53.3
Customer Accounts
17.5
24.7
24.6
32.9
With market share of 7.3% Oschadny is the bank
ROAE
0.46%
0.72%
2.92%
8.18%*
No.2 in the country by total assets, loans to
customers, customer deposits, equity
capital, operational profit and portfolio of state
securities
ROAA
0.11%
0.19%
0.80%
2.12%*
39.3
109.0
457.7
677.4
Tier 1 ratio
36.8%
28.4%
30.66%
29.01%
Capital Adequacy Ratio
(CAR)
41.5%
32.3%
35.57%
33.36%
The only bank in Ukraine, in which all retail deposits
Net Interest margin
4.5%
7.9%
7.9%
7.4%*
are fully-guaranteed by the State
Cost/Income
70%
35%
38%
43%
One of the most capitalised banks in Ukraine with
Tier I ratio of 29.01% as at 30 Jun 2011
NPLs
n/a
3.8%
6.6%
7.2%
3.1%
8.3%
13.3%
13.6%
Net Profit (millions)
Provisions/gross loans
Largest branch network in the country with 25
regional branches, 175 sub-branches and 5,696
outlets
Source: National Bank of Ukraine as of October 01, 2011, Oschadny Bank
Financials
Source:
Note:
IFRS Oschadny Bank Financial Statements
* annualized
5
BRANCH NETWORK
Largest branch network in the country with 25 regional
branches, 175 sub-branches and 5,696 outlets
Current focus on network optimization and increased efficiency
(1)
Chernigov (250)
Lutsk (117)
Rivne (133)
Zhitomir (80)
Sumy (157)
Kiyv (566)
Lvov (326)
Poltava (222)
Khmelnitsky (124)
Ternopol (57)
IvanoFrankovsk (141)
Kharkov (309)
Cherkassy (391)
Lugansk (208)
Dnepropetrovsk (367)
Vinnitsa (173)
Uzhgorod (159)
Donetsk (560)
Kirovograd (117)
Chernovtsy (177)
Zaporozhye (178)
Nikolaev (220)
>300 branches
200-300 branches
Kherson (103)
100-200 branches
<100 branches
Odessa (271)
Simferopol (281)
Note:
(1) Distribution network split by region on the map as of 01 August 2011
6
OSCHADNY BANK’S MARKET POSITION
Top Ukrainian Banks by Total Assets
(UAH, bn)
Top Ukrainian Banks by Loan portfolio
(UAH, bn)
Top Ukrainian Banks by securities portfolio
(UAH, bn)
123,7
141,4
14,0
12,5
9,4
75,3
73,1
57,4
53,2
54,2
45,1
42,2
37,4
3,7
2,5
PRIVAT
OSCHAD
UKREXIM
RAIFF
UKRSIB
Top Ukrainian Banks by Retail Deposits
(UAH, bn)
PRIVAT
OSCHAD
UKREXIM
RAIFF
UKRSOTS
Top Ukrainian Banks by Profit Before Tax
and Loan Loss Provisions (UAH, bn)
68,8
UKREXIM
OSCHADNY
RAIFF
UKRSIB
FUIB
Top Ukrainian Banks by Total Equity
(UAH, bn)
17,6
17,5
16,3
5,3
2,4
2,2
2,1
1,7
24,5
15,3
13,2
OSCHAD
RAIFF
UKREXIM
UKRSIB
-2,13
-1,96
RAIFF
UKRSOTS
-1,59
Loan Loss Provisions
Profit Before Tax and LLP
-4,27
PRIVAT
Source:
6,6
11,7
-1,99
PRIVAT
6,6
OSCHAD
UKREXIM
REIFF
UKREXIM
OSCHAD
PRIVAT
UKRSOTS
National Bank of Ukraine as of October 01, 2011, UAS
7
OSCHADNY BANK RATINGS
Ratings
Moody’s (as of 06 June 2011)
(Country ceiling)
Outlook
Stable
Stable
Foreign currency deposit ratings
Foreign currency long-term senior unsecured debt
NSR bank deposits – domestic currency
Bank financial strength rating
B3/NP
B2
A2.ua
E+
B2
Ratings
Outlook
Long-term issuer rating foreign currency
Domestic currency
Foreign currency short-term issuer default rating
Individual rating
Viability rating
Support rating
Credit Strengths
- Undisputed probability of systemic support in the event of need
- Solid franchise in retail on the back of its privileged position as
the country's only bank whose household deposits are fully
guaranteed by the state
- Established cooperation with the country's largest state
entities, which offers good prospects for cross-selling
- Competitive advantage of low-cost funding as a specialised
savings bank
Moody’s report as of 6 June 2011
Fitch (as of 19 October 2011)
Stable
B
AA-(ukr)
B
D/E
b4
(Country ceiling)
Stable
B
B
Taking into account Oschadbank’s 100% state
ownership, its role in distributing pensions and other social
payments, and its policy role in respect of the Naftogaz
loans, Fitch believes that the authorities would have a very
high propensity to support the bank if needed…
Fitch report as of 11 November 2010
8
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships with Government
Overview of Business Segments
Financial Highlights
Risk Management
9
UKRAINE AT A GLANCE
Key Data
Population:
2010 Industrial Production
45.8 MM
Growth
2010 CPI
2010 GDP
Growth Rate (Real):
Credit Ratings:
11.2%
9.1%
4.2%
Moody’s: B2 (Stable Outlook)
S&P: B+ (Stable Outlook)
Fitch: B (Stable Outlook)
Ukrainian hryvnia (“UAH”)
Currency:
Gross Domestic Product by Sector in 2010
Other
32%
Constr.
3%
Agricult.
8%
Transp.
13%
Source:
Industry
28%
Retail
Trade
16%
Between 2000 – 2010 real GDP increased by 51.8% (CAGR = 3.9%), 2010
real GDP growth is 4.2%
The metals and mining industries continue to play a significant role in
the Ukrainian economy while manufacturing, utilities and agriculture add
a degree of diversification
Ukraine continued to attract FDI in 2009 and 2010 despite global
economic slump
Despite the crisis in 2009 Ukraine redeemed and serviced its debt in an
orderly manner
Ukraine is a member of the WTO and maintains long-term relations with
the IMF
On the 28th July 2010, the IMF approved a new US$15.15 Bn stand-by
arrangement (“SBA”) to be extended in ten tranches in 2010-2012. The
first tranche of US$1.89 Bn was received the 2nd August 2010
In December 2010 IMF completed its first review of Ukraine’s compliance
with the SBA and approved the second tranche of US$1.5bn
State Statistics Committee of Ukraine
10
BANKING SECTOR DESCRIPTION
Banking Sector Asset Composition
Ukrainian Banking Sector
UAH Bn
Stateowned
16%
1,000
942
926
880
792
Domestic,
privately
owned
37%
755
747
800
600
415
357
400
325
200
Foreignowned
47%
Source:
National Bank of Ukraine
0
2008YE
Total Assets
Source:
2009YE
Loans to Customers
2010YE
Customer Deposits
National Bank of Ukraine
176 licensed banks as of June 2011
Regulated by the National Bank of Ukraine (“NBU”)
The equity capital of banks amounted UAH 147.8 Bn, or 16.95% of the banks’ liabilities
Capital adequacy: NBU’s mandatory minimum capital adequacy ratio is 10% of a bank’s
risk-weighted assets
Significant role of foreign-owned banks has been a stabilising factor during the peak of the crisis
Q3 2008–Q3 2009
Reasonable industry concentration with Top 10 banks accounting for 54% of total banking assets
Public confidence in banking sector has improved substantially since peak of the crisis – customer
deposits of the sector increased almost by 43% since beginning of 2010
Source:
National Bank Ukraine (1st July 2011); UAS
11
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships
Oschadny
Relationshipswith
withGovernment
Government
Overview of Business Segments
Financial Highlights
Risk Management
12
OSCHADNY’S STRATEGY
INCREASE PROFITABILITY, WHILE
MAINTAINING ROLE IN THE DEVELOPMENT
OF THE UKRAINIAN ECONOMY
RETAIL BANKING
CORPORATE BANKING
IT INFRASTRUCTURE
Retain its position as one of the
leading Ukrainian retail banks
Maintain an active position in the
corporate banking segment
Enhance internal processes via
improvement in IT infrastructure
Extend Lending to upper and middle
class customers
Extend corporate loans, while
maintaining prudent lending criteria
− Modernise IT
Improve efficiency of current
distribution network to further
strengthen its services
Expand product range to corporate
clients including SMEs, companies
in agri processing and trade, oil
trade, RE construction, energy, retail
etc.
− Modernise
operating infrastructure
Among others, increase funding to
exporters and importers
13
RELATIONSHIP WITH THE GOVERNMENT
100% State owned
Oschadny has strong Government support, however it operates commercially on an arm’s-length basis
Strong Government commitment shown through capital injections and funding from the NBU
The state of Ukraine exercises its right as a sole shareholder through Supervisory Council
The Government has provided capital injections for Oschadny to enable business expansion and maintain high
capital adequacy
Bank maintains strong cooperation with state-owned and strategically important entities in Ukraine
Oschadny is participating in a number of nationwide state programmes:
Bank acts as a financial agent for the State in cash settlement for the Pension Fund
Performs operations with accounts of participants of the wholesale electricity market and natural gas
suppliers, serves Ukrposhta (Ukraine state post company)
Timeline
First ‘‘saving offices’’
appeared in Ukraine
1923
Became a member of the
MasterCard and VISA
payment systems
1991 1998-1999
Bank was established
as successor of
Soviet Savings Bank
in Ukraine
Capital Injection of
UAH12,970 MM
2006
Memorandum with
Cabinet of
Ministers, NBU and
World Bank
2008
Debut Eurobond
Offering
2010
New Members of
Management Team
Joined
2011
Further Capital
Injection of
UAH604 MM
14
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships with Government
Overview of Business Segments
Overview
Segments
Financial Highlights
Risk Management
15
RETAIL BANKING
Oschadny Bank offers a full range of retail products, including
term deposits, current accounts, personal loans, mortgage
finance, auto loans, credit and debit card services and money
transfers
Retail Loan Portfolio Breakdown
Other
Loans
5%
Bank estimates to serve over 5 MM of individuals
Car Loans
16%
Oschadny has the largest distribution network in the country
with (25+175) + 5,696 branches and outlets in all regions of
Ukraine
Consumer
Loans
56%
Total retail deposits grew by 25.6% in 1H2011 primarily due to
strong distribution capabilities and improvement of public
confidence in the Bank
Mortgages
23%
Majority of Retail Loans are secured and denominated in UAH
Retail Term Deposits and Current Accounts
UAH Bn
Retail Lending
UAH Bn
24,5
7,1
5,9
19,5
13,7
2008
Source:
Note:
(1)
15,0
2009
2010
1H2011
2008
2009
5,0
4,7
2010
1H2011
Oschadny Bank Financial Statements as of 1H2011; IFRS
(1) Loans inclusive of allowance for impairment losses
16
CORPORATE BANKING
Oschadny Bank provides corporate banking products and
services to a variety of government and private clients
Oschadny’s corporate banking products include corporate
lending, overdraft facilities, revolving lines of
credit, guarantees, promissory notes, deposit
accounts, foreign exchange, letters of credit, payment and
account services
Corporate Loan Book
(1)
UAH Bn
43,9
44,1
2009
2010
48,6
27,9
The Bank intends to expand products and services offered
to its clients in food processing sector, electricity production
and distribution, oil trading, residential real estate
construction, retail as well as to export-oriented companies
and SMEs
2008
Corporate Loans Breakdown by Sector
Mining and
metallurgy
3%
Agricult. Trade
5%
3%
(1)
Local
authorities
10%
Constr.,RE
& Infrastr.
16%
Energy
17%
Corporate Deposits and Current Accounts by Sector
Lawyers,
notaries
9%
Other
6%
1H2011
Agricultur
6%
Media,
telecom.
6%
Other
16%
Services
31%
Oil&Gas
50%
Energy
22%
Source:
Note:
Oschadny Bank Financial Statements as of 1H2011; IFRS
(1) Loans inclusive of allowance for impairment losses
17
EXPOSURE TO NAK “NAFTOGAZ”
Following the onset of the global financial crisis in 2008, the liquidity position of
Naftogaz was severely diminished by an increase in gas supply prices and a
reduction in revenues
Since Naftogaz is of crucial importance to the Ukrainian economy, the
Government has taken actions to help improve its financial standing
At the end of 2008, Oschadny Bank was one of the very few financial
institutions in the country, that could provide liquidity in any substantial
amount
Having therefore negotiated competitive terms, the Bank has entered into loan
agreement with Naftogaz and made the initial disbursement in December 2008
The financing for these transactions was a combination of own funds, recapitalisation of the Bank by the State and use of the Bank’s credit lines
with the NBU.
Loan exposure to Naftogaz had a material impact on the overall profitability of
the Bank as well as Bank’s impairment reserves. Reserves on Naftogaz loans
reached its absolute maximum of UAH 2.3 billion as of YE2010
The Bank was allowed by NBU not to provision for Naftogaz loans (under local
GAAP), however it has decided to do otherwise in order to demonstrate
prudent approach and comply with all international standards
In order to mitigate the liquidity risks of repayment of the loans and in order to
enhance the marketability of the exposure to Naftogaz the CMU authorised
Naftogaz to issue bonds in the nominal amount of UAH 20,416,000 thousand
with maturities between 16 September 2011 and 16 September 2016
Given its current strong hryvnia liquidity position the Bank has not made a final
decision as to whether it should proceed with the loan conversion, however
retains such an option
During 6M 2011 loans to Naftogaz and Ukrtransnafta were partially repaid in
accordance with agreed repayment schedule resulting in an overall decrease of
the gross outstanding indebtedness to UAH 21,909,141 thousand
The exposure to Naftogaz is collaterised by the rights under commercial sales
contracts, gas in storage, State guarantees and Ukrainian Government debt
securities
The loan agreement with Naftogaz firmly stipulates Bank’s right for prepayment
claim in case of any breach of the loan agreement, reorganization, dissolution
procedure, or if any other negative events happen, which in the reasonable
Bank’s opinion may lead to non-payment.
Source:
Oschadny Bank Financial Statements as of 1H2011; IFRS
(1)
Evolution of Naftogaz Exposure
UAH Bn
58.1%
51.0%
45.3%
25,1
24,1
2010
1H2011
29,1
53.3%
18,6
2008
2009
% Share of Loan Book
Note: (1) Including subsidiary Ukrtransnafta
Evolution of Impairment Reserves
UAH Bn
35.4%
7,3
43.9%
12.1%
30.1%
6,5
4,1
1,8
2,3
2,2
1,1
0,1
2008
2009
2010
1H2011
% Share Naftogaz Reserves in Total Reserves
18
TREASURY OPERATIONS
The Treasury department is responsible for money market transactions, foreign exchange, precious metal
trading and for managing the Bank’s proprietary investment and trading portfolio:
– Ukraine Government Bonds
– NBU re-financed securities
– Corporate bonds
– Repos
The Bank operates a foreign exchange desk and trades wide range of foreign currencies:
USD, EUR, CAD, CHF, GBP, RUB, HUF, MDL, PLN, BLR
Oschadny is an active player in the Ukrainian interbank money market and remains one of the major market
makers
Evolution of Available for Sale Investments
(1)
Split of Investments Available For Sale
UAH Bn
15,7
12,0
4,0
Source:
Note:
2009
2010
Certificate
s of NBU
18%
State
Mortg.
Instit.
Bonds
6%
6,6
2008
Corporate
Bonds
21%
1H2011
Ukr. Gov.
Bonds
55%
Oschadny Bank Financial Statements as of 1H2011, IFRS
(1) Amounts net allowance for impairment losses
19
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships with Government
Overview of Business Segments
Financial
Financial Highlights
Risk Management
20
LOAN PORTFOLIO ANALYSIS
Loans by Borrower Type
Retail
9%
Loans by Maturity
Retail
10%
YE2010 2% 9%
1H2011
<1 month
1-5 years
Corporate
90%
Loans by Currency
YE2010
11% 3% 15%
62%
1-3 months
>5 years
10%
3 months-1 year
52%
10% 10% 8% 7% 13%
USD
4%
YE2010
1H2011
1H2011
UAH
86%
Source:
9%
Loans by Sector
EUR
2%
USD
12%
60%
YE2010
1H2011
Corporate
91%
20%
UAH
96%
45%
Oil, gas and chemical production'
Energy
Construction and Infrastructure
9% 15% 9% 6% 16%
Individuals
Construction and RE
Other
Oschadny Bank Financial Statements as of 1H2011; IFRS
21
BALANCE SHEET COMPOSITION
2009YE
FUNDING MIX
Deposits
and loans
from banks
2%
Securities
1%
Corporate
Customer
Accounts
9%
2010YE
Subdebt
2%
Retail
Customer
Accounts
35%
State
Treasury
14%
Fixed
Assets
Cash 3%
4%
ASSETS MIX
Debt
Securities
1%
Funds
from NBU
37%
Funds
from NBU
38%
Retail
Customer
Accounts
47%
UAH42.0 Bn
Other
Subdebt
borrowed
1%
funds
Eurobonds 1%
8%
Other
6%
Cash
5%
Securities
7%
Fixed
Assets
4%
Funds
from NBU
28%
Corporate
Customer
Accounts
16%
Retail
Customer
Accounts
46%
UAH53.3 Bn
UAH41.6 Bn
Other
6%
Cash
6%
Fixed
Assets
3%
Other
9%
Securities
11%
Securities
17%
Customer
Loans
80%
UAH57.4 Bn
Source:
Subdebt
2%
Corporate
Customer
Accounts
12%
1H2011
Customer
Loans
74%
UAH57.6 Bn
Customer
Loans
65%
UAH70.5 Bn
Oschadny Bank Financial Statements as of 1H2011; IFRS
22
FINANCIAL PERFORMANCE TREND
Total Assets
Net Loans / Deposits Ratio
UAH Bn
%
+25%
194
+22%
135
70,5
56,4
57,6
57,4
185
173
140
121
111
97
Net loans to deposits
Net loans (exclude amounts of NBU's refinancing) to deposits
2008
2009
2010
1H11
2008
2009
2010
1H11
Total Equity
Total Customer Accounts
UAH Bn
UAH Bn
+88%
+13%
+33%
+7%
32,9
24,7
24,6
2009
2010
15,1
15,3
16,0
2008
2009
2010
17,1
17,5
2008
Source:
1H11
1H11
Oschadny Bank Financial Statements as of 1H2011; IFRS
23
FINANCIAL PERFORMANCE TREND (CONT’D)
Net Interest Income
Net Non-interest Income
(1)
UAH Bn
UAH Bn
CAGR +67%
CAGR +6%
4,14
4,14
+5%
0,96
2,03
2,14
1H10
1H11
1,01
1,08
2009
2010
0,61
0,53
1,47
2008
+15%
2008
2009
Profit Before Tax
2010
1H10
1H11
Cost / Income Ratio
UAH MM
%
+39%
-32%
CAGR +210%
70
+6%
862,0
827,0
618,5
86,1
187,3
2008
2009
Source:
2010
1H10
1H11
2008
35
38
37
2009
2010
1H10
43
1H11
Oschadny Bank Financial Statements as of 1H2011; IFRS
(1) – net interest income before provision for impairment losses on interest bearing assets
24
AGENDA
Investment Highlights and Oschadny Bank Overview
Economic Overview
Oschadny Strategy and Relationships with Government
Overview of Business Segments
Financial Highlights
Risk
Risk Management
25
RISK MANAGEMENT
Risk management policy, monitoring and control are
conducted by the Assets & Liabilities Management
Committee and the Credit Committee at the
Management Board level and by the Risk Management
Department at operational level
Supervisory Council
(5 members appointed
by parliament,
5 members by President,
5 members
by Cabinet of Ministers)
The Bank’s risk management policies are aimed to
identify, analyse and manage risks, as well as to set risk
limits and monitor them
Management Board
Credit
Committee
ALMC
Corporate,
Retail Banking
and Treasury
Legal and
Compliance,
and
Accounting
The ALMC is a corporate operational body established
by the Management Board, consisting of twelve senior
managers. ALMC meets not less than once per month
chaired by the Chairman of the Management Board
and outlines the Bank’s policies for the management of
assets, liabilities and
market risks
The Credit Committee operates on a permanent
basis, consists of ten members and is chaired by the
First Deputy Chairman of the Management Board. The
Credit Committee meets not less than twice a week
Decisions outside of ALCO and Credit Committee’s
authorities are subject to Management Board approval
IT and
Operations
Risk
Management
Department
Risk Management Department is the operational body
of the ALMC, assists the ALMC on the implementation
of its functions and provides independent opinions to
the Credit Committee
26
ASSETS AND LIABILITIES MATURITY AND
CURRENCY PROFILE
Financial Assets vs. Financial Liabilities by Maturity
UAH Bn
Financial Assets
Financial Liabilities
32,1
Financial Assets vs. Financial Liabilities by Currency
UAH
24,2
19,2
USD
Other
Financial Assets
87%
11% 2%
18,3
Financial Liabilities
10,4
6,9
1,1
Up to 1
month
1 month to
3 months
82%
4,5
3,0
0,9
3 months
to 1 year
1 year to
5 years
Over
5 years
0,5
15% 3%
0
Maturity
undefined
Liquidity/Maturity Gap
UAH MM
Liquidity Gap by contracted maturities
Liquidity Gap based on expected withdrawal dates for customer accounts
8 794
7 897
3 491
873
3 491
7 897
3 667
3 667
472
-1 925
-1 925
-7 449
Source:
Oschadny Bank Financial Statementsa as of 1H2011; IFRS
27
Contact Details
Public Joint Stock Company “State Savings Bank of Ukraine”
12-G Hospitalna Street, Kyiv, 01001, Ukraine
Tel: +380 44 247 8540
Fax: +380 44 247 8537
E-mail: [email protected]
http://www.oschadnybank.com/ua/international.php
Oleksandr Buglak
Head of External Borrowings
Tel: +38 044 249 3103
E-mail: [email protected]
Taras Boyko
Manager of External Borrowings
Tel: +38 044 249 3126
E-mail: [email protected]
28