Page 69 - RUSRptSept18

the first half of 2018, while NIM grew 10 bps H-o-H and 36 bps y/y to 4.9% on the back of a decline in the cost of funding as well as a shift in the loan book toward higher-yielding categories (retail loans grew 14.9% YTD). Fee income grew 11% y/y, while FX and securities operations brought in $45mn. It was good to see that the bank was able to keep its opex under control: the cost-income ratio fell to 41.5% from 51.9% in 1H17. The effect of IFRS 9 was limited. The introduction of the new standards had a one-off negative effect on equity of $91mn, while it contributed $137mn to the credit loss allowance. The provision charged through the P&L in the first half of 2018 was quite modest, with an annualized cost of risk of 0.2%. The asset quality numbers were rather strong: 90-day NPLs/gross loans stood at 1.7% (1.6% for corporate loans and 2.3% for retail loans), with the LLR coverage ratio at 155% (136% for corporate and 221% for retail loans). In accordance with the new standards, the broader category of Stage 3 loans made up 6.5% of the gross loan book, with provision coverage of 40%. The bank's capital position was supported by the issuance of $500mn of perpetual Eurobonds in January, as well as retained profits. As of August 1, the bank's local standalone CET1 ratio was 9.5%, with TCAR at 13.9%. In late November, Alfa Bank will have to redeem a $500mn senior Eurobond issue (according to the IFRS accounts, $185mn of the bonds had already been repurchased by the bank), which looks manageable given the bank's available liquidity. We assume that refinancing in the primary market is not something that is currently being considered by Russian borrowers given the current market conditions, even by borrowers with a strong standalone credit profile such as Alfa Bank. The bank's perpetual Eurobonds suffered from the selloff in the Russian banking space in mid-August and in our view look relatively attractive at the current levels. Yesterday, the 8.0% perps were quoted at 92.2% of par, and the 6.95% perps at 87.3% of par.
TCS Group has reported good the second quarter of 2018 IFRS results,
which were nevertheless slightly below consensus on NII and net income. The conference call made a good impression, as management confirmed that all business lines are developing fruitfully and that the second half of 2018 promises to be healthy. As a result, the bank restated its FY18 net income guidance at RUB24bn (+26%y/y). We reiterate our positive view on TCS Group as a long-term growth story, but think that positive outcomes for 2018 are generally priced-in. We therefore expect a moderately positive market reaction to the results. Earnings. The bank earned RUB6bn net income in the second quarter of 2018 (+43% y/y), which is nevertheless 3% below the analysts’ consensus. ROE remains an impressive 69.3%. Net interest income (NII) increased 28% to RUB14.2bn with implied NIM at 24% (vs 26% for 2Q17 and 26% for the first quarter of 2018), which is 3% below expectations. Net F&C income climbed 75% to RUB3.8bn, predominantly driven by the SME business and acquiring. The insurance segment performed extremely well with income from insurance operations jumping 3x y/y to RUB1.1bn. For the first half of 2018 TCS Group’s net income rose 55% to RUB11.7bn. Yields performances. TCS’s gross yields were down 190 bpts QoQ to 36.1% due to changes in the loan portfolio structure (raising the share of cash loans and POS). Cost of borrowing declined 10 bpts to 6.3%, and the bank reiterated its FY18 cost of borrowing at 6-7%. Assets and asset quality. Total assets increased 33% y/y/11% YtD to RUB287bn. Net loans expanded 26% y/y/17.3% YtD to RUB152bn, which is in line with consensus. The bank reiterated its net loan portfolio growth for 2018 at 25%. The net provision charge was 53% higher y/y to RUB3.1bn with implied CoR at 6.6%, which is in line with the consensus and the bank’s initial guidance. NPLs improved to 12.1% from 13.4% at the beginning of 2018, which is a promising performance. Capital ratios and dividends. Both Tier 1 and total CARs remain at 16.5% vs 17.7% and 17.8% at the beginning of 2018, respectively. The CBR N.10 ratio stands at 16.4% vs the 8% minimum, allowing the bank to maintain its dividend policy at a 50% payout ratio. TCS Group announced an interim dividend of $0.24 per share, implying a 1.5% dividend yield, and a 13 Sep record date.
69 RUSSIA Country Report September 2018 www.intellinews.com