August 18, 2013
August 18, 2013 This is bne's Russia banking weekly newsletter, a list of the top stories in region last week. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here:http://businessneweurope.eu/users/subs.php TOP STORY BANKER 1. Hungarian banks on edge as Fidesz resumes hostilities with OTP chief 2. Career of shell-company creator points to banks as culprits 3. “Smart move”: Central Bank of Russia to push for chipped plastic to save RUB100m in card frauds 4. Russia's 'Fine Print Hijacker' Settles Conflict with Russian Bank NEWS BANKER 5. VEB to Set Up "Fund of Funds" to Aid Small Businesses 6. Russia's Banks: July RAS data - slowdown in loan book growth halts 7. Bulgaria's FIBank buys local rival from Hungary's MKB 8. Russians Despise Living in Debt, Laxer About Tax Evasion - Poll CE BANKER 9. Poland's BGZ bank returns to profit on cost cutting EE BANKER 10. Chubais, Mints to Sell Stakes in Otkritie 11. Yugra Banks Stops Taking Deposits EE BANKER - FROM THE DAILIES 12. Corporate lending accelerates to 13% y/y in July 13. Nomos Bank to Float $500M Share Packet CE BANKER - FROM THE DAILIES 14. Hungary's OTP drops on record high NPL 15. Hungary's OTP Q2: Better than expected bottom line 16. Hungary's OTP set to release flat second quarter results 17. Latvian insurer Balva appoints liquidator 18. Profits of Lithuanian banks decrease SE BANKER - FROM THE DAILIES 19. Bulgaria's Fibank to buy BayernLB's MKB Unionbank 20. Croatia calls tender to sell last state-owned bank EA BANKER - FROM THE DAILIES 21. Fitch Affirms Four State-Controlled Uzbek Banks 22. Georgia: BGH - 2Q13 IFRS results preview TOP STORY BANKER 1. Hungarian banks on edge as Fidesz resumes hostilities with OTP chief Tim Gosling in Prague August 13, 2013 Facing a government decision on how to deal with household's foreign currency mortgages, Hungarian banks were put on edge again on August 12 as an official reopened a war of words with the country's most senior banker, accusing him of usury in connection with these forex loans.
According to Reuters, Prime Minister Viktor Orban's chief of staff, Janos Lazar, called OTP Bank CEO Sandor Csanyi, "the number one usurer in the country. He throws his weight around with the billions he has amassed from foreign currency borrowers." Csanyi was previously viewed as a close confidant of the prime minister and the Fidesz government. However, in July, with the government surprising with an announcement that it plans to deal with the forex debt issue once and for all, the banker criticized the move. That sparked fury from Lazar, who accused the OTP head of being an octopus with tentacles reaching into every area of Hungarian life. Later the same week, Csanyi warned the government to take it easy on the banks to avoid upsetting the nascent economic recovery. He also shot back at the Fidesz official. "Some people clearly consider it an achievement to be mouthing off about me because then they appear brave," he said. "I'm thinking about Mr Lazar." The banker also sold all of his stake - worth around џ27m - in OTP around the same time, sparking a sharp slide in the share price of the country's largest lender, denying it was connected to inside information on the forex debt plan. However, signs since have suggested the government is taking a more conciliatory tone in talks with the banks over the form of the scheme to get rid of forex loans, and the shares have recovered somewhat. The resumption of hostilities has the banks on edge again as they continue to negotiate with the government on the final plan. While Finance Minister Mihaly Varga has indicated that the most drastic option - which would cost around HUF1.1 trillion (џ3.7bn) - is unlikely, that still leaves plenty of scope to inflict further suffering on the country's lenders, which are also paying a heavy crisis tax and a financial transaction tax. An early repayment scheme for forex mortgages in late in 2011 saw the banks forced to shoulder huge losses. Heavily sold by the banks in the run-up to the 2008 crisis when the forint was riding high, Hungarian households have seen their monthly payments skyrocket as the currency has lost value in the last few years. The government had indicated earlier this year that it would not seek to force a solution to the problem, but it performed an about-face in July. The vulnerability of the country to financial markets that the billions in household forex debt produces is perhaps the last remaining brake on Budapest's unorthodox policymaking. Varga said last month that Hungary intends to phase out forex debt entirely. The speed of that move, and who pays what towards the losses - the banks, the state or the borrowers - is the key question. The government has said the ongoing talks with the banks on those questions must be concluded by the end of September. Analysts report that Hungarian household forex debt sits at around HUF3.7 trillion currently. The worry is that Fidesz will push for a populist solution, given that it is clearly now in campaign mode ahead of a general election in May. At the same time, it also needs the battered banks to start lending again to support recovery from recession. However, Orban has shown that next year's vote has him thinking increasingly short term. Engaging the nationalist mood in Hungary, the government has continued to deter investment and drain reserves by promising to enforce a 30% cut in energy tariffs by the election - 10% was implemented so far - and legislating to make energy companies sell all gas storage assets to the state.
It is also leveraging anti-EU and international institution sentiment - which it has done much to cultivate in Hungary. August 12 also saw Budapest pay off its outstanding obligations to the International Monetary Fund early, as it had promised to do last month. The Washington-based lender has also agreed to close its office in the country, as Orban seeks to prove to the electorate that he has freed Hungary from the "tyranny" of international bankers. Budapest paid SDR1.88bn (approx $2.85bn) which was scheduled through the rest of 2013 and next year. While the move will not have a huge impact on the country's fiscal position now, the refusal of Budapest to agree on another loan from the IMF last year is likely to cost the country significant cash in borrowing costs. Hungary returned to the international markets early this year with a $3.75bn bond, but paid significantly more than it had it borrowed from the IMF. 2. Career of shell-company creator points to banks as culprits bne August 15, 2013 bne's tracking of a "meister creator" of shell companies suggests that recent moves by G8 countries to stop corporate anonymity will be insufficient, unless there are equivalent measures taken against the murky banks like those in Latvia and Cyprus whose clients require such vehicles. US senators Carl Levin and Chuck Grassley introduced the "Incorporation Transparency and Law Enforcement Assistance Act" in the US Senate on August 3, which is intended to close down the US as a jurisdiction used by unscrupulous businessmen, often of Eastern European origin, to set up shell companies. "Our states don't require anyone to name the owners of the corporations being formed under their laws, practically inviting people to misuse our corporations," Levin said, introducing the bill. That move comes after June's G8 summit at Lough Erne, Northern Ireland, where leaders, including US President Barack Obama, resolved to legislate so that, "Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily." British Prime Minister David Cameron has subsequently launched moves to creating a national register of beneficial ownership, intended to eradicate widespread use of the UK to set up shell companies. The prospects for the Levin-Grassley's bill may be less rosy than Cameron's initiative. But support from Obama is a given he was one of four senators who introduced the Transparency bill first time round in 2007 making the Lough Erne G8 declaration something of a return to his roots. 3. вАШSmart moveвАЩ: Central Bank of Russia to push for chipped plastic to save вВђ100m in card frauds RT August 14, 2013
As bank card fraud increases, the Central Bank of Russia (CBR) is planning to combat the problem by inserting a chip into them. Last year Russian banks and their clients lost about вВђ100 mln from swindlers getting access to card codes. RussiaвАЩs regulator has decided to oblige all Russian credit institutions to introduce a special chip into bank cards to protect clients from fraud, Kommersant daily reports. Read more here: http://rt.com/business/russia-banks-cards-skimming-450/ 4. Russia's 'Fine Print Hijacker' Settles Conflict with Russian Bank RIA Novosti August 15, 2013 A Russian man who tricked a bank into signing a deal with him on his own terms has reached an out-of-court settlement with the credit institution, whose owner previously threatened to have him jailed for fraud, the bank said Wednesday. "Conflict is unconstructive, so we decided to end it in a gentlemanly fashion, mutually dropping complaints," Tinkoff Credit Systems president Oliver Hughes said in a statement on the bank's website. Read more here: http://en.rian.ru/business/20130814/182764872/Fine-PrintHijacker-Settles-Conflict-with-Russian-Bank.html NEWS BANKER 5. VEB to Set Up "Fund of Funds" to Aid Small Businesses The Moscow Times August 15, 2013 State-owned Vnesheconombank (VEB) is planning to create a "fund of funds" to invest in small- and mid-sized Russian businesses, as part of the government's plan to boost economic growth, VEB deputy CEO Alexander Ivanov said. VEB will work with the Chicago-based investment management firm Adams Street Partners to set up the fund. Read more here: http://www.themoscowtimes.com/business/article/veb-to-set-upquotfund-of-fundsquot-to-aid-small-businesses/484592.html 6. Russia's Banks: July RAS data - slowdown in loan book growth halts UralSib August 12, 2013 Corporate loans accelerate. On Friday, the Central Bank published the preliminary RAS banking sector figures for July. As was the case for Sberbank, whose results were published earlier, they reflect a halt in the YoY slowdown of the loan book: corporate loan growth even accelerated to 13.5% YoY from 12.3% in June, while retail loan growth remained practically flat at 33.8% YoY. Corporate loans added 2% MoM, the same as Sberbank, and retail loans expanded 2.8% MoM (Sberbank gained 3%). Retail deposits grew just 1.1% MoM, but YoY growth accelerated to 23%.
Retail NPLs could become a concern this year. The situation remains quite stable, with the share of corporate NPLs remaining flat at 4.4% (close to the level of 4.5% at end-2012). Retail NPLs added 10 bps QoQ to 4.4%; although the share of NPLs/retail loans is still slightly lower than last July (4.6%), we see the risks gradually increasing. Even though the growth in NPLs reflected in the sector statistics is not dramatic to date, the statistics combine all retail loans; if we exclude mortgages, which have a low share of NPLs, the picture deteriorates. All banks under our coverage reported a QoQ rise in the share of overdue consumer loans under IFRS in 1Q13. Although it is still not that material, we see the start of a trend here; for purely consumer banks, this trend began in 2012 and in the only bank that has disclosed 1H13 IFRS figures, Renaissance Credit, the share of 90+day NPLs rose sharply to 11.1% from 8.4% in 2012. Rising risks could prevent retail loan rates from declining significantly. The rising risks in retail loans could be a sign that the decline in rates, which has started in some segments (corporate loan and retail deposit rates declined 70 bps in MayJune), could affect consumer loans to a lesser extent. According to the Central Bank's statistics, although average retail loan rates are volatile, they have generally remained in the 24-25% range (for 1-year loans) for more than a year. However, this should not immediately prevent the retail segment from being more profitable than the corporate segment, and we believe banks, including all banks under our coverage, will continue to compete for a higher share of retail loans in their portfolios. Natalia Berezina 7. Bulgaria's FIBank buys local rival from Hungary's MKB Sofia Globe August 15, 2013 Bulgaria's First Investment Bank (FIBank) has agreed to buy smaller local lender MKB Unionbank, according to a regulatory disclosure notice submitted to the Bulgarian Stock Exchange, where FIBank's shares and MKB Unionbank's bonds are traded. The financial details of the deal were not made public, but FIBank said that it would buy 100 per cent of MKB Unionbank's stock from Hungary's MKB Bank, itself a subsidiary of German Bayerische Landesbank (BayernLB). In its own statement to the Bulgarian Stock Exchange, MKB Bank said that its Bulgarian unit was "a successful company on a perspective market" and the only reason to sell the subsidiary was to conform to a European Commission decision. As part of its restructuring plan, approved by the Commission last year, BayernLB has to sell most of its foreign subsidiaries, as well as repay the state aid received in 2008 and 2009. The group has already sold its Romanian subsidiary, MKB Romexterra Bank, to a group of investors led by PineBridge Investments, the former asset management arm of AIG. To read the full storyhttp://sofiaglobe.com/2013/08/15/bulgarias-fibank-buyssmaller-local-rival/
8. Russians Despise Living in Debt, Laxer About Tax Evasion - Poll RIA Novosti August 15, 2013 The vast majority of Russians see not paying their debts as an ethically unacceptable act, whereas they are much more willing to suspend moral judgment on tax evasion, a new poll showed Wednesday. Only 3 percent of the respondents said that leaving a debt unpaid was acceptable, compared with 95 percent who condemned it and 2 percent who were undecided, according to the survey, conducted by the independent Levada Center pollster in mid-July. Read more here: http://en.rian.ru/russia/20130814/182764657/Russians-DespiseLiving-in-Debt-Laxer-About-Tax-Evasion--Poll.html CE BANKER 9. Poland's BGZ bank returns to profit on cost cutting Reuters August 14, 2013 Poland's BGZ bank, a unit of Dutch lender Rabobank said on Wednesday it returned to net profit in the second quarter of 2013 after a cost-cutting drive imposed after it made losses last year. Market sources say Rabobank wants to sell BGZ, a small player in a consolidating Polish market, and improved results should make it easier to find a buyer willing to pay above the $1 billion at which the Warsaw market currently values the company. BGZ reported a net profit of 53 million zlotys ($17 million) in the second quarter after a loss of about 1 million zlotys a year earlier. To read the full storyhttp://www.reuters.com/article/2013/08/14/poland-bgzidUSL6N0FV3GU20130814 EE BANKER 10. Chubais, Mints to Sell Stakes in Otkritie The Moscow Times August 14, 2013 Russian businessman Boris Mints and Anatoly Chubais, the architect of the country's 1990s mass privatizations, are to sell their stakes in Otkritie Financial Corp, the private financial group said. Mints, one of the founders of Otkritie, said in a statement late last week that he was selling his 11.2 percent stake in order to focus on developing his real estate firm O1 Properties. Read more here: http://www.themoscowtimes.com/business/article/chubais-mintsto-sell-stakes-in-otkritie/484507.html 11. Yugra Banks Stops Taking Deposits
The Moscow Times August 14, 2013 Yugra bank, known for its high interest rate savings accounts, has not been accepting new deposits for a week, claiming that the halt is being caused by a technical glitch during a software upgrade, Vedomosti reported Tuesday. Two weeks ago the bank cut its savings interest rates from 12.4 percent to 6.5 percent. Experts said this dramatic change was caused by an audit conducted by the Central Bank in June. Yugra used an aggressive advertising campaign to increase noncorporate deposits by nearly 18 billion rubles ($545 million) to 20.5 billion rubles between November last year and June this year, while the sum of its business deposits fell to 3.4 billion rubles, Prime reported. EE BANKER - FROM THE DAILIES 12. Corporate lending accelerates to 13% y/y in July Alfa Bank August 14, 2013 News: According to the CBR, corporate loan growth accelerated to 13% y/y in July from 12% y/y in June, while retail lending growth remained at 34% y/y. Impact: The acceleration in lending was unexpected and likely reflects a reaction to worsening conditions on the foreign debt market in recent months. Analysis: The biggest surprise from the July banking statistics was the acceleration in corporate loan growth to 13% y/y after the slowdown from 15% y/y in February to 12% y/y in June. That said, we are reluctant to consider this an outright positive sign for economic activity for two reasons. First, the pickup in local corporate lending may result from worsening conditions on foreign capital markets observed since the end of May, forcing the corporate sector to substitute foreign debt with local credit sources. Second, the funding base for this loan growth appears weak, as the banks increased their exposure to CBR funding and Finance Ministry deposits by RUB370bn in July, and as a result state funding reached 7.3% of assets, the highest level this year. At the same time, corporate funding growth decelerated from 20% y/y in June 18% y/y in July, while retail deposit growth, though it accelerated from 22% y/y to 23% y/y, is largely explained by increased foreign currency savings of the general public with Russian banks in response to ruble depreciation. Thus, from this point of view, the pick-up in corporate lending growth does not appear sustainable. Natalia Orlova Dmitry Dolgin ?Sergey Egiev 13. Nomos Bank to Float $500M Share Packet The Moscow Times August 13, 2013
Nomos Bank will float 19.5 percent of its shares, worth an estimated 16 billion rubles ($500 million), on the Moscow Stock Exchange, Vedomosti reported Monday. The offering, approved by the bank's board of directors, is planned for September, a representative of the bank said. Read more here: http://www.themoscowtimes.com/business/article/nomos-bank-tofloat-500m-share-packet/484447.html CE BANKER - FROM THE DAILIES 14. Hungary's OTP drops on record high NPL Equilor August 16, 2013 OTP dropped by 3.8% yesterday, most in two weeks in spite of excellent Q2 profit numbers. The market has concerns regarding the record high NPL ratio of 20.8% and the decreasing NPL coverage that helped the bottom line. However we believe that this is not a severe problem as the group-wide 78.6% NPL coverage is still very high comparing to other banks or IFRS minimum criteria (60%). OTP made huge buffer in the recent quarters to tackle the high NPL generation in Russia and Ukraine. Thus we think that the share price should turn around soon. 15. Hungary's OTP Q2: Better than expected bottom line Equilor August 15, 2013 OTP brought bright Q2 results today morning, net profit bet the optimistic expectations as well. However, there are a few warning signs as well at OTP like further narrowing NIM, record high NPL ratio (at 20.8%) and decreased NPLcoverage to help the bottom line. It is positive that OTP could further improve profitability in Hungary and in Bulgaria but Russia brought weak results on increasing risk cost. Expansion in fee&commission income in Q2 is also notable, more than offsetting the transaction tax effect. OTP had to book a HUF 11.5bn one-off government levy. Although there are some warning signs, the market should have positive reaction at first glance. Press conference will be held at 8 am UK, while the analysts' call starts at 2 pm UK. Drop in NIM offset by fee income Drop in NIM could be the major warning sign for OTP investors as it could hurt profitability in the long-run. It is surprising that NIM could slightly improve in Hungary in spite of rate cuts, in Q2 it was the foreign operations that brought the group level interest margins down (6.34% vs. 6.52% in Q1). On a y/y basis net interest income increased but it missed the Q1 results. The lower level of NII was compensated by skyrocketing fee and commission income in Q2. It seems that OTP made benefit from the industry-wide fee increase after the introduction of the banking transaction tax. OTP had to bear a one-off 11.5bn one-off tax levied in-line with the latest budget measures.
/ Risk costs helped by lower provisioning NPL ratio increased to a record high 20.8% in Q2 from 19.9% in Q1 but the lower provisioning helped OTP's bottom line. NPL-coverage ratio dropped notably from 80.3% to 78.6% during the period. Keeping the same NPL-coverage level would mean HUF 20bn less profit in Q2 (vs. HUF 52.3bn net profit adjusted). However OTP still has a very high NPL-coverage ratio and it seems that the bank is now willing to loosen on its extremely strict provisioning policy to improve its figures. / Russian profit has collapsed, Bulgaria hit new record Profit from Russia has decreased to HUF 2.6bn from HUF 11.0bn in Q2 '12 or HUF 7.7bn in Q1 '13. The steep rise in NPL and risk costs pushed the earnings down in Russia. However Bulgarian profit could increase further to a record high of HUF 10.9bn, giving 20% of group profit. Earnings from Hungary have also developed well as it gave 75% of total. / Positive price reaction deserved All in all, the report brought robust numbers for OTP but investors should keep in mind a few warning effects. However, considering the current pressured share price, the market reaction should be positive. It also has to be noted that the price development will be highly affected by the government's new FX loan relief program to be published before end of September. 16. Hungary's OTP set to release flat second quarter results VTB Capital August 12, 2013 OTP Bank is due to report its 2Q13 results on 15 August. A conference call is to follow. We expect adjusted earnings of HUF 43bn (up 6.7% QoQ and 14.9% YoY), with reported earnings of HUF 29.3bn under pressure from a special FTT FY13 banking tax (HUF 13.5bn) charged in 2Q13. Overall, we are 3.6% below the OTPcompiled consensus of HUF 44.6bn, on the higher provision charges. Operating trends. We expect a broadly flat operating performance QoQ, with F&C income boosted by FTT compensation from clients. We expect continuing pressure on the NIM (down 12bp QoQ and 7bp YoY) coming from Hungary and Russia. We forecast revenues will be up 0.6% QoQ (3.6% YoY). On the asset quality front, we see NPLs edging higher to 20%, with LLP up 4.8% QoQ but down 10.1% YoY, and CoR of 349bp. In 2Q13, the one-off FTT announced in June 2013 is to be charged, totaling HUF 13.5bn. Geographical overview. Our focus is on the Hungary core and Russian operations. In Hungary, we expect flat operating results (as with Erste, which has already reported) and stabilising asset quality, with the bottom line impacted by the FTT. In Russia, we expect deteriorating top-line growth quality, driven by higher risk costs. Conference call. 15 August, 3pm CET/ 2pm London time/ 9am EST. UK dial-in: +44 20 7162 0077; US dial-in: +1 334 323 6201. Conference ID: 935716. Our focus is on discussed FX loan restructuring in Hungary, trends in Russian consumer finance, potential M&As in SEE.
Since the announcement that the government was examining options for another FX mortgages restructuring, accompanied with the CEO reducing his stake, OTP has been down 11%, partly recovering after an initial 17% drop in the stock price. With the worst case scenario on the new phase of FX mortgages restructuring, we see 12% upside to our 12-month Target Price of HUF 4,930, and we are therefore reiterating our Hold recommendation. The stock now trades at 6.8x 2014F P/E, a 27% discount to Erste and 3% premium to RBI. 17. Latvian insurer Balva appoints liquidator Financial and Capital Market Commission August 12, 2013 The insurance joint stock company "BALVA" (hereinafter - the IJSC "BALVA") has informed the Financial and Capital Market Commission that Mr Rolands Strazdi__ has been appointed in the capacity of its liquidator. The decision to open winding-up proceedings concerning the IJSC "BALVA" appointing Rolands Strazdi__ as Liquidator was made during the shareholders' meeting of the IJSC "BALVA" on 22.07.2013. Information on the winding-up process and Liquidator was registered in the Commercial Register of the Republic of Latvia on 12.08.2013. 18. Profits of Lithuanian banks decrease The Baltic Course August 12, 2013 In the first half of 2013 banking sector profits decreased due to the decline in bank net interest income. In addition, loan portfolio which had grown for a year has shrunk as UniCredit group ceased its operations in Lithuania, reported LETA/ELTA. According to the data of the Bank of Lithuania, in the first half of 2013 banking system profit was LTL 550.3 million (EUR 159.4 million). Excluding bank subsidiary transaction profits, banking sector profits before taxes and provisions fell to LTL 378.6 million (EUR 109.6) or by 12.7 percent year-on-year. In the first half of 2013 six banks and six foreign bank branches were operating at profit, while one bank and three foreign bank branches recorded a loss. To read the full storyhttp://www.balticcourse.com/eng/good_for_business/?doc=78970 SE BANKER - FROM THE DAILIES 19. Bulgaria's Fibank to buy BayernLB's MKB Unionbank Reuters August 16, 2013 Bulgaria's First Investment Bank (Fibank) 5F4.BB has agreed to buy smaller rival MKB Unionbank from Germany's Bayerische Landesbank (BLGGgi.F) (BayernLB), Fibank said on Thursday.
The European Commission ordered BayernLB last year to restructure and sell some businesses as a precondition for approving state aid for the German regional lender. BayernLB ran into trouble in 2008 after risky investments turned sour. The deal for MKB Unionbank is subject to approval by Bulgarian regulators. BayernLB controls MKB Unionbank via its Hungarian subsidiary MKB Bank. 20. Croatia calls tender to sell last state-owned bank Reuters August 12, 2013 Croatia on Friday invited potential bidders to express interest in buying the last local bank in state hands, Hrvatska Postanska Banka (HPB), which controls around 4.5 percent of the market. The investors can express interest by August 31 and then they will be invited to submit non-binding bids by September 20. "The government aims to sell all of its 99.13 percent of HPB's stock," the finance ministry said in a statement. EA BANKER - FROM THE DAILIES 21. Fitch Affirms Four State-Controlled Uzbek Banks Fitch Ratings August 14, 2013 Fitch Ratings has affirmed the Long-term foreign currency Issuer Default Ratings (IDRs) of Uzbekistan's Uzpromstroybank (UzPSB), Asakabank and Microcreditbank at 'B-' and Long-term local currency IDRs at 'B'. The Outlooks are Stable. Fitch has also affirmed OJSC Agrobank's Long-term IDRs at 'B-' with Stable Outlooks and upgraded the bank's Viability Rating (VR) to 'ccc' from 'f'. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS -IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS UzPSB, Asakabank and Microcreditbank's 'B' Long-term local currency IDRs reflect Fitch's view of potential support from the government of Uzbekistan, if needed, based on the government's majority direct and indirect ownership and significant policy roles of the banks. Fitch expects the government and state-controlled entities to continue providing new equity and funding to match banks' growth plans, mainly associated with state-directed and policy lending. The government's ability to provide support is underpinned, in Fitch's view, by the currently only moderate cost of support potentially required given the small size of the banking sector, its low indebtedness and Uzbekistan's solid external and fiscal finances. However, Fitch's credit assessment of Uzbekistan remains constrained by the economy's structural weaknesses, including the difficult business environment and vulnerability to external shocks (see 'Uzbek Banks: Growing Without External Leverage' at www.fitchratings.com). The affirmation of Agrobank's Long-term local currency IDR at 'B-', reflects that since 2010, government capital support has not been sufficient to fully restore the bank's solvency. However, the bank's rating positively considers the track record of timely
liquidity support by the authorities, regulatory forbearance and gradual contributions to the bank's capital. Fitch caps all Uzbek banks' foreign currency IDRs at 'B-' reflecting the high transfer and convertibility risks present in Uzbekistan due to the country's tightly regulated FX market. Accordingly, Fitch believes that support in foreign currency to statecontrolled banks might be provided in some circumstances in a less timely manner compared with that in the local currency. RATING SENSITIVITIES - IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS An upgrade or downgrade of Uzpromstroybank, Asakabank and Microcreditbank's Long-term local currency IDRs would be possible in case of a strengthening or weakening of Uzbekistan's credit profile. Agrobank's Long-term local currency IDR could be upgraded following the potential full restoration of its capital position. All banks' Long-term foreign currency IDRs could be upgraded or downgraded as a result of liberalisation or further tightening of Uzbekistan's FX market regulation. 22. Georgia: BGH - 2Q13 IFRS results preview VTB Capital Research August 14, 2013 Bank of Georgia (BGH) is due to report its 2Q13 IFRS results on Wednesday 14 August at 07.00, UK time (08.00, CET). We expect decent results, with earnings attributable to shareholders of GEL 44.3mn (ROE 16.4%) up 9.2% QoQ and down 1.7% YoY despite the challenging macro environment. Operating trends. The Georgian economy remained weak in 2Q13, with GDP growth of 1.3% (down from 2.4% in 1Q13) and June posting a 0.8% decline in YoY terms. We expect the 1Q13 trends to be continue into the 2Q13 results, with NIM compressing 30bp QoQ amid weak loan growth (+2.1% QoQ driven by retail, amid the continuing strong deposit inflows +6.8%). That said, we expect operating income flat QoQ at GEL 123mn, with NII weakness (-2.9% QoQ, -8.1% YoY) offset by F&C. Asset quality and provisioning. We expect some moderation in the growth of NPLs, seeing them tick up to 4.5% (from 4.3% in 1Q13) with CoR of 185bp (down from 221bp in 1Q13). Conference call. The conference call is to be held the same day at 14.00, UK / 15.00, CET / 09.00, EST. The dial in numbers are as followd: i) UK +44 (0) 1452 555 566; ii) US +1631 510 7498. Conference ID: 31213682. We shall be focusing on the 2013 guidance, asset quality and strength of loan demand, as well as any updates on the LCC mortgages launched recently. Capital management and dividends are also of interest. BGH has been the best performing stock in our universe YTD, up 65%, largely driven by the compression of the country risk premium after the elections and the hefty dividend. Given the weak macro, we believe the next driver for the stock will be either i) higher operating leverage, should LCC lending take off, or ii) higher dividends, amid capital release and the current low growth environment. The stock currently trades at 2014F P/BV of 1.36x and P/E of 8.1x, which implies a 38-40% premium to Sberbank and 7% premium to MSCI EM Banks. We are reiterating our Hold recommendation.
Mikhail Shlemov Svetlana Aslanova
According to Reuters, Prime Minister Viktor Orban's chief of staff, Janos Lazar, called OTP Bank CEO Sandor Csanyi, "the number one usurer in the country. He throws his weight around with the billions he has amassed from foreign currency borrowers." Csanyi was previously viewed as a close confidant of the prime minister and the Fidesz government. However, in July, with the government surprising with an announcement that it plans to deal with the forex debt issue once and for all, the banker criticized the move. That sparked fury from Lazar, who accused the OTP head of being an octopus with tentacles reaching into every area of Hungarian life. Later the same week, Csanyi warned the government to take it easy on the banks to avoid upsetting the nascent economic recovery. He also shot back at the Fidesz official. "Some people clearly consider it an achievement to be mouthing off about me because then they appear brave," he said. "I'm thinking about Mr Lazar." The banker also sold all of his stake - worth around џ27m - in OTP around the same time, sparking a sharp slide in the share price of the country's largest lender, denying it was connected to inside information on the forex debt plan. However, signs since have suggested the government is taking a more conciliatory tone in talks with the banks over the form of the scheme to get rid of forex loans, and the shares have recovered somewhat. The resumption of hostilities has the banks on edge again as they continue to negotiate with the government on the final plan. While Finance Minister Mihaly Varga has indicated that the most drastic option - which would cost around HUF1.1 trillion (џ3.7bn) - is unlikely, that still leaves plenty of scope to inflict further suffering on the country's lenders, which are also paying a heavy crisis tax and a financial transaction tax. An early repayment scheme for forex mortgages in late in 2011 saw the banks forced to shoulder huge losses. Heavily sold by the banks in the run-up to the 2008 crisis when the forint was riding high, Hungarian households have seen their monthly payments skyrocket as the currency has lost value in the last few years. The government had indicated earlier this year that it would not seek to force a solution to the problem, but it performed an about-face in July. The vulnerability of the country to financial markets that the billions in household forex debt produces is perhaps the last remaining brake on Budapest's unorthodox policymaking. Varga said last month that Hungary intends to phase out forex debt entirely. The speed of that move, and who pays what towards the losses - the banks, the state or the borrowers - is the key question. The government has said the ongoing talks with the banks on those questions must be concluded by the end of September. Analysts report that Hungarian household forex debt sits at around HUF3.7 trillion currently. The worry is that Fidesz will push for a populist solution, given that it is clearly now in campaign mode ahead of a general election in May. At the same time, it also needs the battered banks to start lending again to support recovery from recession. However, Orban has shown that next year's vote has him thinking increasingly short term. Engaging the nationalist mood in Hungary, the government has continued to deter investment and drain reserves by promising to enforce a 30% cut in energy tariffs by the election - 10% was implemented so far - and legislating to make energy companies sell all gas storage assets to the state.
It is also leveraging anti-EU and international institution sentiment - which it has done much to cultivate in Hungary. August 12 also saw Budapest pay off its outstanding obligations to the International Monetary Fund early, as it had promised to do last month. The Washington-based lender has also agreed to close its office in the country, as Orban seeks to prove to the electorate that he has freed Hungary from the "tyranny" of international bankers. Budapest paid SDR1.88bn (approx $2.85bn) which was scheduled through the rest of 2013 and next year. While the move will not have a huge impact on the country's fiscal position now, the refusal of Budapest to agree on another loan from the IMF last year is likely to cost the country significant cash in borrowing costs. Hungary returned to the international markets early this year with a $3.75bn bond, but paid significantly more than it had it borrowed from the IMF. 2. Career of shell-company creator points to banks as culprits bne August 15, 2013 bne's tracking of a "meister creator" of shell companies suggests that recent moves by G8 countries to stop corporate anonymity will be insufficient, unless there are equivalent measures taken against the murky banks like those in Latvia and Cyprus whose clients require such vehicles. US senators Carl Levin and Chuck Grassley introduced the "Incorporation Transparency and Law Enforcement Assistance Act" in the US Senate on August 3, which is intended to close down the US as a jurisdiction used by unscrupulous businessmen, often of Eastern European origin, to set up shell companies. "Our states don't require anyone to name the owners of the corporations being formed under their laws, practically inviting people to misuse our corporations," Levin said, introducing the bill. That move comes after June's G8 summit at Lough Erne, Northern Ireland, where leaders, including US President Barack Obama, resolved to legislate so that, "Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily." British Prime Minister David Cameron has subsequently launched moves to creating a national register of beneficial ownership, intended to eradicate widespread use of the UK to set up shell companies. The prospects for the Levin-Grassley's bill may be less rosy than Cameron's initiative. But support from Obama is a given he was one of four senators who introduced the Transparency bill first time round in 2007 making the Lough Erne G8 declaration something of a return to his roots. 3. вАШSmart moveвАЩ: Central Bank of Russia to push for chipped plastic to save вВђ100m in card frauds RT August 14, 2013
As bank card fraud increases, the Central Bank of Russia (CBR) is planning to combat the problem by inserting a chip into them. Last year Russian banks and their clients lost about вВђ100 mln from swindlers getting access to card codes. RussiaвАЩs regulator has decided to oblige all Russian credit institutions to introduce a special chip into bank cards to protect clients from fraud, Kommersant daily reports. Read more here: http://rt.com/business/russia-banks-cards-skimming-450/ 4. Russia's 'Fine Print Hijacker' Settles Conflict with Russian Bank RIA Novosti August 15, 2013 A Russian man who tricked a bank into signing a deal with him on his own terms has reached an out-of-court settlement with the credit institution, whose owner previously threatened to have him jailed for fraud, the bank said Wednesday. "Conflict is unconstructive, so we decided to end it in a gentlemanly fashion, mutually dropping complaints," Tinkoff Credit Systems president Oliver Hughes said in a statement on the bank's website. Read more here: http://en.rian.ru/business/20130814/182764872/Fine-PrintHijacker-Settles-Conflict-with-Russian-Bank.html NEWS BANKER 5. VEB to Set Up "Fund of Funds" to Aid Small Businesses The Moscow Times August 15, 2013 State-owned Vnesheconombank (VEB) is planning to create a "fund of funds" to invest in small- and mid-sized Russian businesses, as part of the government's plan to boost economic growth, VEB deputy CEO Alexander Ivanov said. VEB will work with the Chicago-based investment management firm Adams Street Partners to set up the fund. Read more here: http://www.themoscowtimes.com/business/article/veb-to-set-upquotfund-of-fundsquot-to-aid-small-businesses/484592.html 6. Russia's Banks: July RAS data - slowdown in loan book growth halts UralSib August 12, 2013 Corporate loans accelerate. On Friday, the Central Bank published the preliminary RAS banking sector figures for July. As was the case for Sberbank, whose results were published earlier, they reflect a halt in the YoY slowdown of the loan book: corporate loan growth even accelerated to 13.5% YoY from 12.3% in June, while retail loan growth remained practically flat at 33.8% YoY. Corporate loans added 2% MoM, the same as Sberbank, and retail loans expanded 2.8% MoM (Sberbank gained 3%). Retail deposits grew just 1.1% MoM, but YoY growth accelerated to 23%.
Retail NPLs could become a concern this year. The situation remains quite stable, with the share of corporate NPLs remaining flat at 4.4% (close to the level of 4.5% at end-2012). Retail NPLs added 10 bps QoQ to 4.4%; although the share of NPLs/retail loans is still slightly lower than last July (4.6%), we see the risks gradually increasing. Even though the growth in NPLs reflected in the sector statistics is not dramatic to date, the statistics combine all retail loans; if we exclude mortgages, which have a low share of NPLs, the picture deteriorates. All banks under our coverage reported a QoQ rise in the share of overdue consumer loans under IFRS in 1Q13. Although it is still not that material, we see the start of a trend here; for purely consumer banks, this trend began in 2012 and in the only bank that has disclosed 1H13 IFRS figures, Renaissance Credit, the share of 90+day NPLs rose sharply to 11.1% from 8.4% in 2012. Rising risks could prevent retail loan rates from declining significantly. The rising risks in retail loans could be a sign that the decline in rates, which has started in some segments (corporate loan and retail deposit rates declined 70 bps in MayJune), could affect consumer loans to a lesser extent. According to the Central Bank's statistics, although average retail loan rates are volatile, they have generally remained in the 24-25% range (for 1-year loans) for more than a year. However, this should not immediately prevent the retail segment from being more profitable than the corporate segment, and we believe banks, including all banks under our coverage, will continue to compete for a higher share of retail loans in their portfolios. Natalia Berezina 7. Bulgaria's FIBank buys local rival from Hungary's MKB Sofia Globe August 15, 2013 Bulgaria's First Investment Bank (FIBank) has agreed to buy smaller local lender MKB Unionbank, according to a regulatory disclosure notice submitted to the Bulgarian Stock Exchange, where FIBank's shares and MKB Unionbank's bonds are traded. The financial details of the deal were not made public, but FIBank said that it would buy 100 per cent of MKB Unionbank's stock from Hungary's MKB Bank, itself a subsidiary of German Bayerische Landesbank (BayernLB). In its own statement to the Bulgarian Stock Exchange, MKB Bank said that its Bulgarian unit was "a successful company on a perspective market" and the only reason to sell the subsidiary was to conform to a European Commission decision. As part of its restructuring plan, approved by the Commission last year, BayernLB has to sell most of its foreign subsidiaries, as well as repay the state aid received in 2008 and 2009. The group has already sold its Romanian subsidiary, MKB Romexterra Bank, to a group of investors led by PineBridge Investments, the former asset management arm of AIG. To read the full storyhttp://sofiaglobe.com/2013/08/15/bulgarias-fibank-buyssmaller-local-rival/
8. Russians Despise Living in Debt, Laxer About Tax Evasion - Poll RIA Novosti August 15, 2013 The vast majority of Russians see not paying their debts as an ethically unacceptable act, whereas they are much more willing to suspend moral judgment on tax evasion, a new poll showed Wednesday. Only 3 percent of the respondents said that leaving a debt unpaid was acceptable, compared with 95 percent who condemned it and 2 percent who were undecided, according to the survey, conducted by the independent Levada Center pollster in mid-July. Read more here: http://en.rian.ru/russia/20130814/182764657/Russians-DespiseLiving-in-Debt-Laxer-About-Tax-Evasion--Poll.html CE BANKER 9. Poland's BGZ bank returns to profit on cost cutting Reuters August 14, 2013 Poland's BGZ bank, a unit of Dutch lender Rabobank said on Wednesday it returned to net profit in the second quarter of 2013 after a cost-cutting drive imposed after it made losses last year. Market sources say Rabobank wants to sell BGZ, a small player in a consolidating Polish market, and improved results should make it easier to find a buyer willing to pay above the $1 billion at which the Warsaw market currently values the company. BGZ reported a net profit of 53 million zlotys ($17 million) in the second quarter after a loss of about 1 million zlotys a year earlier. To read the full storyhttp://www.reuters.com/article/2013/08/14/poland-bgzidUSL6N0FV3GU20130814 EE BANKER 10. Chubais, Mints to Sell Stakes in Otkritie The Moscow Times August 14, 2013 Russian businessman Boris Mints and Anatoly Chubais, the architect of the country's 1990s mass privatizations, are to sell their stakes in Otkritie Financial Corp, the private financial group said. Mints, one of the founders of Otkritie, said in a statement late last week that he was selling his 11.2 percent stake in order to focus on developing his real estate firm O1 Properties. Read more here: http://www.themoscowtimes.com/business/article/chubais-mintsto-sell-stakes-in-otkritie/484507.html 11. Yugra Banks Stops Taking Deposits
The Moscow Times August 14, 2013 Yugra bank, known for its high interest rate savings accounts, has not been accepting new deposits for a week, claiming that the halt is being caused by a technical glitch during a software upgrade, Vedomosti reported Tuesday. Two weeks ago the bank cut its savings interest rates from 12.4 percent to 6.5 percent. Experts said this dramatic change was caused by an audit conducted by the Central Bank in June. Yugra used an aggressive advertising campaign to increase noncorporate deposits by nearly 18 billion rubles ($545 million) to 20.5 billion rubles between November last year and June this year, while the sum of its business deposits fell to 3.4 billion rubles, Prime reported. EE BANKER - FROM THE DAILIES 12. Corporate lending accelerates to 13% y/y in July Alfa Bank August 14, 2013 News: According to the CBR, corporate loan growth accelerated to 13% y/y in July from 12% y/y in June, while retail lending growth remained at 34% y/y. Impact: The acceleration in lending was unexpected and likely reflects a reaction to worsening conditions on the foreign debt market in recent months. Analysis: The biggest surprise from the July banking statistics was the acceleration in corporate loan growth to 13% y/y after the slowdown from 15% y/y in February to 12% y/y in June. That said, we are reluctant to consider this an outright positive sign for economic activity for two reasons. First, the pickup in local corporate lending may result from worsening conditions on foreign capital markets observed since the end of May, forcing the corporate sector to substitute foreign debt with local credit sources. Second, the funding base for this loan growth appears weak, as the banks increased their exposure to CBR funding and Finance Ministry deposits by RUB370bn in July, and as a result state funding reached 7.3% of assets, the highest level this year. At the same time, corporate funding growth decelerated from 20% y/y in June 18% y/y in July, while retail deposit growth, though it accelerated from 22% y/y to 23% y/y, is largely explained by increased foreign currency savings of the general public with Russian banks in response to ruble depreciation. Thus, from this point of view, the pick-up in corporate lending growth does not appear sustainable. Natalia Orlova Dmitry Dolgin ?Sergey Egiev 13. Nomos Bank to Float $500M Share Packet The Moscow Times August 13, 2013
Nomos Bank will float 19.5 percent of its shares, worth an estimated 16 billion rubles ($500 million), on the Moscow Stock Exchange, Vedomosti reported Monday. The offering, approved by the bank's board of directors, is planned for September, a representative of the bank said. Read more here: http://www.themoscowtimes.com/business/article/nomos-bank-tofloat-500m-share-packet/484447.html CE BANKER - FROM THE DAILIES 14. Hungary's OTP drops on record high NPL Equilor August 16, 2013 OTP dropped by 3.8% yesterday, most in two weeks in spite of excellent Q2 profit numbers. The market has concerns regarding the record high NPL ratio of 20.8% and the decreasing NPL coverage that helped the bottom line. However we believe that this is not a severe problem as the group-wide 78.6% NPL coverage is still very high comparing to other banks or IFRS minimum criteria (60%). OTP made huge buffer in the recent quarters to tackle the high NPL generation in Russia and Ukraine. Thus we think that the share price should turn around soon. 15. Hungary's OTP Q2: Better than expected bottom line Equilor August 15, 2013 OTP brought bright Q2 results today morning, net profit bet the optimistic expectations as well. However, there are a few warning signs as well at OTP like further narrowing NIM, record high NPL ratio (at 20.8%) and decreased NPLcoverage to help the bottom line. It is positive that OTP could further improve profitability in Hungary and in Bulgaria but Russia brought weak results on increasing risk cost. Expansion in fee&commission income in Q2 is also notable, more than offsetting the transaction tax effect. OTP had to book a HUF 11.5bn one-off government levy. Although there are some warning signs, the market should have positive reaction at first glance. Press conference will be held at 8 am UK, while the analysts' call starts at 2 pm UK. Drop in NIM offset by fee income Drop in NIM could be the major warning sign for OTP investors as it could hurt profitability in the long-run. It is surprising that NIM could slightly improve in Hungary in spite of rate cuts, in Q2 it was the foreign operations that brought the group level interest margins down (6.34% vs. 6.52% in Q1). On a y/y basis net interest income increased but it missed the Q1 results. The lower level of NII was compensated by skyrocketing fee and commission income in Q2. It seems that OTP made benefit from the industry-wide fee increase after the introduction of the banking transaction tax. OTP had to bear a one-off 11.5bn one-off tax levied in-line with the latest budget measures.
/ Risk costs helped by lower provisioning NPL ratio increased to a record high 20.8% in Q2 from 19.9% in Q1 but the lower provisioning helped OTP's bottom line. NPL-coverage ratio dropped notably from 80.3% to 78.6% during the period. Keeping the same NPL-coverage level would mean HUF 20bn less profit in Q2 (vs. HUF 52.3bn net profit adjusted). However OTP still has a very high NPL-coverage ratio and it seems that the bank is now willing to loosen on its extremely strict provisioning policy to improve its figures. / Russian profit has collapsed, Bulgaria hit new record Profit from Russia has decreased to HUF 2.6bn from HUF 11.0bn in Q2 '12 or HUF 7.7bn in Q1 '13. The steep rise in NPL and risk costs pushed the earnings down in Russia. However Bulgarian profit could increase further to a record high of HUF 10.9bn, giving 20% of group profit. Earnings from Hungary have also developed well as it gave 75% of total. / Positive price reaction deserved All in all, the report brought robust numbers for OTP but investors should keep in mind a few warning effects. However, considering the current pressured share price, the market reaction should be positive. It also has to be noted that the price development will be highly affected by the government's new FX loan relief program to be published before end of September. 16. Hungary's OTP set to release flat second quarter results VTB Capital August 12, 2013 OTP Bank is due to report its 2Q13 results on 15 August. A conference call is to follow. We expect adjusted earnings of HUF 43bn (up 6.7% QoQ and 14.9% YoY), with reported earnings of HUF 29.3bn under pressure from a special FTT FY13 banking tax (HUF 13.5bn) charged in 2Q13. Overall, we are 3.6% below the OTPcompiled consensus of HUF 44.6bn, on the higher provision charges. Operating trends. We expect a broadly flat operating performance QoQ, with F&C income boosted by FTT compensation from clients. We expect continuing pressure on the NIM (down 12bp QoQ and 7bp YoY) coming from Hungary and Russia. We forecast revenues will be up 0.6% QoQ (3.6% YoY). On the asset quality front, we see NPLs edging higher to 20%, with LLP up 4.8% QoQ but down 10.1% YoY, and CoR of 349bp. In 2Q13, the one-off FTT announced in June 2013 is to be charged, totaling HUF 13.5bn. Geographical overview. Our focus is on the Hungary core and Russian operations. In Hungary, we expect flat operating results (as with Erste, which has already reported) and stabilising asset quality, with the bottom line impacted by the FTT. In Russia, we expect deteriorating top-line growth quality, driven by higher risk costs. Conference call. 15 August, 3pm CET/ 2pm London time/ 9am EST. UK dial-in: +44 20 7162 0077; US dial-in: +1 334 323 6201. Conference ID: 935716. Our focus is on discussed FX loan restructuring in Hungary, trends in Russian consumer finance, potential M&As in SEE.
Since the announcement that the government was examining options for another FX mortgages restructuring, accompanied with the CEO reducing his stake, OTP has been down 11%, partly recovering after an initial 17% drop in the stock price. With the worst case scenario on the new phase of FX mortgages restructuring, we see 12% upside to our 12-month Target Price of HUF 4,930, and we are therefore reiterating our Hold recommendation. The stock now trades at 6.8x 2014F P/E, a 27% discount to Erste and 3% premium to RBI. 17. Latvian insurer Balva appoints liquidator Financial and Capital Market Commission August 12, 2013 The insurance joint stock company "BALVA" (hereinafter - the IJSC "BALVA") has informed the Financial and Capital Market Commission that Mr Rolands Strazdi__ has been appointed in the capacity of its liquidator. The decision to open winding-up proceedings concerning the IJSC "BALVA" appointing Rolands Strazdi__ as Liquidator was made during the shareholders' meeting of the IJSC "BALVA" on 22.07.2013. Information on the winding-up process and Liquidator was registered in the Commercial Register of the Republic of Latvia on 12.08.2013. 18. Profits of Lithuanian banks decrease The Baltic Course August 12, 2013 In the first half of 2013 banking sector profits decreased due to the decline in bank net interest income. In addition, loan portfolio which had grown for a year has shrunk as UniCredit group ceased its operations in Lithuania, reported LETA/ELTA. According to the data of the Bank of Lithuania, in the first half of 2013 banking system profit was LTL 550.3 million (EUR 159.4 million). Excluding bank subsidiary transaction profits, banking sector profits before taxes and provisions fell to LTL 378.6 million (EUR 109.6) or by 12.7 percent year-on-year. In the first half of 2013 six banks and six foreign bank branches were operating at profit, while one bank and three foreign bank branches recorded a loss. To read the full storyhttp://www.balticcourse.com/eng/good_for_business/?doc=78970 SE BANKER - FROM THE DAILIES 19. Bulgaria's Fibank to buy BayernLB's MKB Unionbank Reuters August 16, 2013 Bulgaria's First Investment Bank (Fibank) 5F4.BB has agreed to buy smaller rival MKB Unionbank from Germany's Bayerische Landesbank (BLGGgi.F) (BayernLB), Fibank said on Thursday.
The European Commission ordered BayernLB last year to restructure and sell some businesses as a precondition for approving state aid for the German regional lender. BayernLB ran into trouble in 2008 after risky investments turned sour. The deal for MKB Unionbank is subject to approval by Bulgarian regulators. BayernLB controls MKB Unionbank via its Hungarian subsidiary MKB Bank. 20. Croatia calls tender to sell last state-owned bank Reuters August 12, 2013 Croatia on Friday invited potential bidders to express interest in buying the last local bank in state hands, Hrvatska Postanska Banka (HPB), which controls around 4.5 percent of the market. The investors can express interest by August 31 and then they will be invited to submit non-binding bids by September 20. "The government aims to sell all of its 99.13 percent of HPB's stock," the finance ministry said in a statement. EA BANKER - FROM THE DAILIES 21. Fitch Affirms Four State-Controlled Uzbek Banks Fitch Ratings August 14, 2013 Fitch Ratings has affirmed the Long-term foreign currency Issuer Default Ratings (IDRs) of Uzbekistan's Uzpromstroybank (UzPSB), Asakabank and Microcreditbank at 'B-' and Long-term local currency IDRs at 'B'. The Outlooks are Stable. Fitch has also affirmed OJSC Agrobank's Long-term IDRs at 'B-' with Stable Outlooks and upgraded the bank's Viability Rating (VR) to 'ccc' from 'f'. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS -IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS UzPSB, Asakabank and Microcreditbank's 'B' Long-term local currency IDRs reflect Fitch's view of potential support from the government of Uzbekistan, if needed, based on the government's majority direct and indirect ownership and significant policy roles of the banks. Fitch expects the government and state-controlled entities to continue providing new equity and funding to match banks' growth plans, mainly associated with state-directed and policy lending. The government's ability to provide support is underpinned, in Fitch's view, by the currently only moderate cost of support potentially required given the small size of the banking sector, its low indebtedness and Uzbekistan's solid external and fiscal finances. However, Fitch's credit assessment of Uzbekistan remains constrained by the economy's structural weaknesses, including the difficult business environment and vulnerability to external shocks (see 'Uzbek Banks: Growing Without External Leverage' at www.fitchratings.com). The affirmation of Agrobank's Long-term local currency IDR at 'B-', reflects that since 2010, government capital support has not been sufficient to fully restore the bank's solvency. However, the bank's rating positively considers the track record of timely
liquidity support by the authorities, regulatory forbearance and gradual contributions to the bank's capital. Fitch caps all Uzbek banks' foreign currency IDRs at 'B-' reflecting the high transfer and convertibility risks present in Uzbekistan due to the country's tightly regulated FX market. Accordingly, Fitch believes that support in foreign currency to statecontrolled banks might be provided in some circumstances in a less timely manner compared with that in the local currency. RATING SENSITIVITIES - IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS An upgrade or downgrade of Uzpromstroybank, Asakabank and Microcreditbank's Long-term local currency IDRs would be possible in case of a strengthening or weakening of Uzbekistan's credit profile. Agrobank's Long-term local currency IDR could be upgraded following the potential full restoration of its capital position. All banks' Long-term foreign currency IDRs could be upgraded or downgraded as a result of liberalisation or further tightening of Uzbekistan's FX market regulation. 22. Georgia: BGH - 2Q13 IFRS results preview VTB Capital Research August 14, 2013 Bank of Georgia (BGH) is due to report its 2Q13 IFRS results on Wednesday 14 August at 07.00, UK time (08.00, CET). We expect decent results, with earnings attributable to shareholders of GEL 44.3mn (ROE 16.4%) up 9.2% QoQ and down 1.7% YoY despite the challenging macro environment. Operating trends. The Georgian economy remained weak in 2Q13, with GDP growth of 1.3% (down from 2.4% in 1Q13) and June posting a 0.8% decline in YoY terms. We expect the 1Q13 trends to be continue into the 2Q13 results, with NIM compressing 30bp QoQ amid weak loan growth (+2.1% QoQ driven by retail, amid the continuing strong deposit inflows +6.8%). That said, we expect operating income flat QoQ at GEL 123mn, with NII weakness (-2.9% QoQ, -8.1% YoY) offset by F&C. Asset quality and provisioning. We expect some moderation in the growth of NPLs, seeing them tick up to 4.5% (from 4.3% in 1Q13) with CoR of 185bp (down from 221bp in 1Q13). Conference call. The conference call is to be held the same day at 14.00, UK / 15.00, CET / 09.00, EST. The dial in numbers are as followd: i) UK +44 (0) 1452 555 566; ii) US +1631 510 7498. Conference ID: 31213682. We shall be focusing on the 2013 guidance, asset quality and strength of loan demand, as well as any updates on the LCC mortgages launched recently. Capital management and dividends are also of interest. BGH has been the best performing stock in our universe YTD, up 65%, largely driven by the compression of the country risk premium after the elections and the hefty dividend. Given the weak macro, we believe the next driver for the stock will be either i) higher operating leverage, should LCC lending take off, or ii) higher dividends, amid capital release and the current low growth environment. The stock currently trades at 2014F P/BV of 1.36x and P/E of 8.1x, which implies a 38-40% premium to Sberbank and 7% premium to MSCI EM Banks. We are reiterating our Hold recommendation.
Mikhail Shlemov Svetlana Aslanova
