FUIB announces recapitalization plan

FUIB announces recapitalization plan. A recent stress test has revealed a need for an additional UAH1.2bn in capital (35% share capital increase) that FUIB's shareholder agreed to provide through September 2016. Considering the overall acceptable UAH liquidity, no net cash inflow appears to be necessary for this recapitalization. The balance of related party deposits comprise 17.8% of the bank's customer accounts (UAH5.2bn) of which approximately 70% are considered to be stable.

Although the bank has not disclosed its regulatory capital adequacy ratio (RCAR) for 1Q16, we believe it to be above the minimum required level of 5% but below the final recapitalization target of 10%, primarily because of related party credit exposure. As excessive net exposure is deducted from regulatory capital, the bank must either reduce it or seek a capital injection. Please note that the NBU's related party identification methodology is more conservative than normal international measures. As such, credit exposure to entities owned by close business partners of FUIB's shareholder Mr. Akhmetov are considered to be insider exposure.

Liquidity remains sufficient. FUIB meets the regulatory requirements for liquidity. According to our estimates, at any time the bank holds UAH2.5bn to UAH3.0bn of spare UAH liquidity in government bonds and NBU certificates of deposit.

We expect the bank to be able to repay the partial principal amortization and coupon payment due on June 30.

NPL collections. NPL growth has significantly declined to 25.8%. The bank has collected approximately UAH1bn of NPLs in cash during 2015 and plans to resolve the remaining UAH9.5bn of 90+ days overdue gross exposure over the next three years.

Bank plans to increase its high margin retail consumer loans that currently account for 37% of the bank's gross retail portfolio (see Chart 2). However, the total outstanding has declined by quarter over the last year as the volume of newly issued loans is continually lower than their repayment.

Deposits show signs of growth. Customer deposit have increased by 0.5% QoQ in 1Q16, net of the FX revaluation effect. Corporate customers demonstrated 2.8% QoQ growth while retail deposits contracted by 1.7% QoQ due to the outflow in the FX segment. The bank recently has introduced certificates of deposits for retail customers that allow them to legally avoid NBU constraints on FX withdrawals. Such instruments enable the bank to keep customers with significantly above average FX deposits outstanding who would be unable to withdraw that amount of money during one visit to the bank due to the regulatory limits on withdrawals. With yesterday's increase of the maximum withdrawal amount from UAH50,000 to UAH100,000, along with expected further FX liberalization, we see little advantage for this instrument.

No profits yet. The bank has recognized a net loss of UAH265m in 1Q16, 77.8% below results in 4Q15, because of high provisioning expenses (UAH615m). We estimate the cost of risk to be 12.3% and a net interest margin of 6.1% in 1Q16.

Источник: ICU