17 may 2010Ukreximbank announces FY2009 Results according to IFRSJoint Stock Company The State Export-Import Bank of Ukraine (Ukreximbank) has published its Consolidated Financial Statements for the year ended December 31, 2009, along with the Independent Auditors' Report by Ernst & Young.
Within its important public function as real economy supporter, in Y2009, JSC Ukreximbank went on lending for foreign trade purposes to prop up national exporters, financing corporate working capital and CAPEX, promoting added-value generating energy efficiency programmes and retaining modest business volumes with SME segment. In fulfillment of its honorary role as the sole Government Agent, Ukrexim continued servicing credit lines under the state guarantees.
In the environment still quite unstable during the reporting year, Ukreximbank held to the strategy of strong capitalization to preserve commercial activity volumes and high solvency level as well as sufficient liquidity to cover customer funds.
The Bank was internally upheld by steadily upgrading risk management and financial reporting procedures, all enabling permanent strict compliance with regulatory requirements, adherence to all financial commitments as well as to international transparency standards.
Financial results: notable core income increase while net profit absorbed in a large part by conservative loan loss provisioning during the turbulent period
In FY2009, Ukreximbank reported core income, inclusive of net interest income before provision and net fees and commissions, surged by weighty 95.4%yoy to an amount of UAH 3,734.3 million.
Net interest income before provision, making the largest share of ca91.4% of core income, rose notably by over 2x to UAH 3,414.1 million. Net interest margin posted at 7.07%, up from 4.51% in Y2008, backed by assets’ earning capacity gradually upward much referred to real economy revival.
Net fees and commissions were 13.9%yoy up to UAH 320.1 million. Revenues from cash and settlements transactions, making 62.7% of earned fees and commissions, increased 22.6%yoy. Income from both operations with banks and off-balance sheet operations declined by slight av.5%yoy, making total 28.1% of fees and commissions. Credit servicing commissions with 41.2%yoy growth brought 5.8% to total.
Unlike yearly heightening in operational income and ample profitability before allowance for loan impairment, net profit for the reporting period was retained closer to the bottom line at positive UAH 23.5 million, down 80.8%yoy owed to conservative loan loss provisioning, latter ensuring sufficient NPL’s coverage. With this regard and viewing continued in Y2009 strategy of a strong balance sheet rather than profitability, the Bank has boosted allowance for interest earning assets impairment by about 2.3x to UAH 2,921.0 million.
As a result of the above and in line with lowered net profit, earning ratios declined vs Y2008. Return on average assets (ROAA) down to 0.05%, mostly impacted by FX-assets re-valuation in view of the weakening hryvnia in IIH2009, from 0.32% in Y2008. Return on Average Equity (ROAE) down to 0.33% from 3.80% in Y2008, technically impacted by Y2009 five equity injections.
Cost to income ratio (CIR) improved to quite temperate 25.62% compared to 39.16% in Y2008, remaining one of the best among peers. In pursuing cost optimization policy aimed at shortening expenses to further improve cost to income ratio, overall costs were reduced due to declined cost of funds borrowed, lower personnel and income tax expenses.
Balance sheet trends: lowered but reasonable liquidity, gradually expanded interest-earning base with particular focus on asset quality; positive trend in customer funding
During the reporting Y2009, Ukrexim was mainly focused on best performing sectors of economy with substantial export revenues. With no target on considerable growth, loan book remained quite diversified by industries, with no critical concentration on any of them.
In 2009, Ukrexim exposure was diversified as follows: trade enterprises made the largest 21.6% share of total loan book as at year-end; agriculture, as constantly positive-performing sector to uphold GDP and exports, took second largest 18.8%; chemistry and metallurgy, also standing among exporting sectors, took total of 5.4%; individuals borrowed slight 2.8% of gross loan book, as still minor share of Ukrexim portfolio.
As the signs of stabilization in the Bank’s operating environment in 2009 conditioned lower need for extra-liquidity cushion, Ukrexim highly liquid assets, inclusive of cash and its equivalents, posted a slope down by 23.1% to UAH 4,851.7 million, staying however times over minimum regulatory requirements and at sufficient level of 71.3% coverage of current customer funds and 10.6% of total liabilities. Consecutive inflows of domestic liquidity helped retain Ukrexim asset strategy and allowed its place among few providers of liquidity to domestic inter-bank market during the challenging period.
The reported total assets grew at a very moderate 18.0%yoy to UAH 56,163.2 million. Non-Performing Loans (NPL), calculated on the 90-days-plus basis applicable to any kind of credit exposure, made up 5.84% of gross loan book vs 0.81% in Y2008. NPL’s were yet duly covered by provisions, that surged 2.3x to UAH 5.023.1 million. Allowance for loan impairment climbed to 10.46% of total loans as at end-2009 from 5.67% the year before.
In Y2009, in the course of strengthening market confidence in 2H2009 much as a reaction to restrictive monetary policy and regulations to smooth FX-market volatility, client resources and savings returned to the banking system. In line with this tendency and following the Bank’s previous-years track record, Ukrexim improved its position by accumulated client resources.
Customer deposits with Ukreximbank grew 20.2%yoy to UAH 19,953.2 million. This upward trend was mostly driven by term deposits up 28.3%yoy to USD 13,150.8 million, making weighty 65.9% share in total customer funds. Corporate term deposits advanced by the strongest 35.0%yoy.
Budget funds added to total increase, growing ca.5.6x to UAH 1,979.6 million, however a minor share of 9.9% in total funds.
Shareholder's Equity: highest propensity of shareholder’s support for Ukrexim to efficiently operate in the volatile environment
As the key financier for national production and trade, Ukreximbank was pre-emptively supported by the Government, its sole shareholder, to additionally ensure the Bank’s solvency and facilitate uninterrupted activity, diversified by range and volume of services. In pursue of its non-dividend policy towards JSC Ukreximbank, the Government retains a zero basic standard of profit distribution to capitalize profit in full.
In 2009, the Government made five injections into Ukrexim authorized capital, total worth UAH 6,940.9 million, including capitalisation of FY2008 UAH 590.9 million profits. This resulted in rapid 2.6x yoy total shareholder's equity growth, bringing total capital adequacy ratio to 25.45% as at end-2009, largely up from 10.98% as at end-2008, all fairly above the regulatory minimum.
Increased equity provided additional room for Bank activity expansion. Coverage of Bank asset-side operations rose, visualized by equity to assets ratio coming to 18.4% vs 8.3% in Y2008.
Continuous shareholder’s equity injections brought Ukrexim to the leading position among Ukrainian banks in terms of capitalization.
In IQ2010, fresh capital injections total worth UAH 6.4 billion to Ukrexim authorized share capital are already in place.
Agency services for the Government: publicly important and honorary role
Since 1992, Ukreximbank remains the sole Ukrainian bank acting as financial agent for the Cabinet of Ministers of Ukraine (the Government) in servicing international loans extended under state guarantees.
Under the agency function, as at end-2009, Ukreximbank has serviced over 150 loans totaling USD 3.3 billion within 13 credit lines and 2 loan programs, altogether embracing the geography of the EU countries, the US and Japan.
Ukrexim international activity: further long-term efficient cooperation with prominent IFI’s under nationally-important programs
Ukreximbank has implemented and maintained a series of programs in cooperation with international financial institutions in priority business areas. Such include trade and structured finance, energy efficiency promotion and SME sector support. Among key Ukrexim partners are: the World Bank, the European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC), Kreditanstalt fur Wiederaufbau (KfW), and others.
In this way, Ukrexim further operated under the World Bank's Second Export Development Project (EDPII) under USD 154.5 million Facility approved in 2006. In 2009, Ukrexim utilized 65% under EDPII as a wholesale export finance and guarantee institution for currently approved 25 subprojects.
In cooperation with the EBRD under Energy Efficiency Program (UKEEP), launched in Apr2007, in 2009, Ukrexim fully utilized USD 50 million Facility to finance large and medium-sized energy efficiency and renewable energy projects.
Under EBRD Trade Facilitation Programme (TFP) started in 2007 to promote foreign trade with Eastern Europe and the CIS region, in 2009, under Guarantee Facility and Revolving Credit Agreement, Ukrexim provided trade financing, including post-finance, guarantees, pre-export, pre-import and factoring services.
Along with the EBRD/EIB Multilateral Carbon Credit Fund, Ukreximbank arranged carbon financing for its customers, which stipulates purchase of greenhouse gases (GHG) emission reduction units. GHG emission reduction allows additional income from units sale under the Kyoto protocol mechanisms.
Under the EIB Energy and Environment Loan, approved in Oct2009 to enable access to long-term funds at affordable interest rates, Ukrexim was extended up to EUR 100 million credit line targeting SMEs’ energy and environmental improvement projects in Ukraine.
Under the Loan Facility from Kreditanstalt fur Wiederaufbau newly signed in 2008, in 2009, Ukrexim drew down the total EUR 40 million to uphold about 200 SME projects aimed to modernize assets and provide working capital.
In Jul2009, Ukrexim and IFC signed USD 40 million trade finance guarantee Agreement for Ukrexim as a confirming bank under Global Trade Finance Programme (GTFP). In Apr2010, trade finance guarantee was increased to USD 60 million.
By the end-2009, Ukreximbank has been recognized as a direct Borrower/Guarantor for medium- and long-term lending by about 35 foreign Export Credit Agencies. In cooperation with world-leading banks, Ukrexim took part in 118 export finance agreements totaling USD 402.2 million, including USD 28.9 million solely for Y2009.
In Mar2009, Ukrexim signed Memorandum of Understanding with the Japanese Public Agency Nippon Export and Investment Insurance (NEXI) to accelerate mutual trade and investment projects and facilitate export credit insurance. In Oct2009, Ukrexim joined Credit Line Agreement with the Export Development Canada for USD 30 million to finance up to 85% of the amount of long-term import projects.
Throughout Y2009, Ukreximbank achievements were recognized by key market participants. In particular, Ukrexim was honored with EUR/USD STP clearing quality awards by its main foreign correspondents, including JP Morgan Chase, Commerzbank AG, Deutsche Bank AG and Citibank.
Ukrexim access to foreign capital markets: comfortable redemptions in Y2009
Despite global credit resource shortage spreading from YY2008 to 2009, Ukreximbank accomplished a number of transactions adding to overall market confidence in the banking sector of Ukraine. Unlike market peers, in Y2009, Ukrexim kept on fulfilling all commitments and obligations all in strict compliance with the schedule and terms, and with no renegotiations.
The Bank duly repaid USD 345 million syndicated loan facility in Apr2009 as well as USD 250 million Eurobond along with coupon payments in Sep2009 and has immediately restored its liquidity to the level exceeding the one before the redemption.
In Jun2009, Ukrexim raised A/B USD 134.5 million syndicated loan comprising 2-year USD 50 million for the account of the EBRD and 364-day USD 84.5 million for the account of commercial banks. In early 2010, the unarguable success of this deal was proved by Emeafinance magazine Achievement Award to name it Best Syndicated Loan in CEE-CIS.
In May2009, the Bank received 10-year USD 250 million subordinated loan from the EBRD as largest-ever single investment in Ukraine to be channeled to finance energy efficiency projects and export-oriented Ukrainian companies. This highlighted IFI credit and commitment to the systemic bank of national significance.
In Apr2010, Ukrexim reopened the Ukrainian bond market with the new successful five-year USD 500 million Eurobond issue, having strongest investor demand. This came as first offering by a Ukrainian issuer ever since the credit crunch.
Ukreximbank remains quite comfortable about its external debt maturities with an optimal schedule of redemptions.
Management prospects for Y2010
In 2010, on the back of the global markets recovery and expected increase in demand for major Ukrainian exports, we logically expect positive economic adjustment in Ukraine as well as gradual stabilisation of the banking system.
Following the trend projected to Y2010, Ukrexim management expects gradual resumption of lending due to expanding partnership with IFIs with the focus on loan book quality and prudent provisioning policy. The latter should be enabled by expected strong cash generating capacity and sufficient net interest margin.
Ukrexim plans to further diversify its funding base focusing on domestic market.
The Bank will also be targeted at continuing improvements in its internal norms and procedures as well as risk management.
FY2009 HIGHLIGHTS BY IFRS:
- Net interest income up 109.5%yoy to UAH 3,414.1 million; net fees and commissions up 13.9% to UAH 320.1 million
- Customer deposits up 20.2%yoy to UAH 19,953.2 million, with corporate deposits growing 7.5%yoy, including term deposits up 35.0%; while individual deposits increased 13.9%yoy, including term deposits up 12.7%
- Total shareholder's equity surged over 2.6x yoy to UAH 10,312.5 million with five Y2009 capital injections
- Capital adequacy to strong 25.45% vs 10.98% as at end-2009 fairly above the 10%-regulatory minimum
- Non-performing loans made up 5.84% of gross loan book
- Cost to income ratio improved to 25.62% as at end-2009
Full text of IFRS FY2009 Consolidated Financial Statements for the period ended 31 December 2009 together with the Independent Auditors' Report available for review and downloads from http://www.eximb.com/eng/financials/financial/ifrs/auditors2009/.
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