Gazprombank published reporting for 1Q 2008

Updated April 8, 2008

   Gazprombank published the activity results by the Russian Accounting Standards (RAS) of the first quarter of 2008. The bank income is almost 30 times down as compared to the analogical period previous year. However, the analysts assume such results of the Russian banks rather positive on the background of large write-offs of western financial organizations.

   According to 1Q results Gazprombank net income totaled RUR 0,5 billion that 96,6% lower than in the first quarter previous year. This index was RUR 14,8 billion then. Such substantial net income reduction of the bank is explained by the negative influence of the financial crisis on the Russian stock market that resulted in the revaluation of Gazprombank securities portfolio. "The crisis phenomena on the world financial and stock markets resulted in the negative effect from securities’ operations in size of RUR 0,4 billion the current year", explained in the bank press-service. Moreover, according to the bank representatives, the significant ruble strengthening against the US dollar (4% in 1Q) resulted in RUR 5,5 billion book loss from the foreign currency operations.

   Analysts assume that the negative result from securities operations was the fully predictable phenomenon in terms of the negative market situation. For the first three months current year RTS and MICEX indices were 10,32% and 13,78% down respectively. Meantime, according to the beginning of the year data, around 26% of Gazprombank net assets fell to the securities, thus, the stocks totaled around 11% from the aggregate volume of net assets. As considers Troika Dialog analyst Olga Veselova, it is a very significant stake. And she also adds that on the average around 3% of stocks are in the structure of the bank sector. "At such stocks stake the bank assets are high liquid, however they are a risky asset also, and that does not guarantee the stable return", Olga Veselova explains. However, according to 1Q results, Gazprombank has reduced the stake of securities and stocks volume in the portfolio to 20%. Thus, according to Gazprombank deputy director Alexandr Sobol, according to the quarter results the stake of bonds has grown due to the purchase of national bonds and totals two thirds securities portfolio.

   Not only Gazprombank suffered from the revaluation of securities portfolio in terms of financial crisis. According to 2007 end reporting by RAS, 12% assets of VTB bank fell to the stocks. And in January the bank has sustained the loss in terms of that. And the loss has been later covered by the traditional interest and commission returns. In the experts’ opinion, the other Russian financial organizations can also face the analogical problems. By the 2007 end the stocks were the significant stake from the net assets of such banks as Petrocommerce Bank (9,5%), KIT Finance (9,2%), OrgresBank (6,6%). "Due to the revaluation of securities portfolio some of these banks can sustain losses under the "trade returns" act that can more or less affect their net income", considers Uralsib Financial Company analyst Leonid Slipchenko.

   The returns reduction of the Russian financial organizations looks insignificant on the background of the substantial losses of the foreign banks as analysts assume. The foreign banks report about the new write-offs weekly caused by the financial crisis. "The traditional return from the bank activity exceeds the market risk from investments into the securities in Russia", Leonid Slipchenko sums up. "The losses from the revaluation of securities portfolio were covered due to the profit growth from the interest results received from loan operations foremost", explains Mr. Sobol.

   Experts agree that the losses of the Russian banks are not critical, and the maximum they would face is the return reduction by the year end. "But banks already try to even the possible losses from securities operations, reducing the securities portfolios and reducing the possible risks", sums up Trust bank chief economist Yevgeny Nadorshin.