During the first three months of 2008, Ukrainian banks continued growing at the solid pace they posted last year.
Banking sector assets grew 70% yoy to reach USD 132 bln as of April 1, 2008. Banks' loan portfolios expanded even faster, mostly driven by increase in retail loans. Growth in customers’ deposits accelerated to 53% yoy and banks’ equity rose along with assets. The sector’s net income increased by half yoy during first quarter.
The key drivers for the earnings growth remained net interest income, fee & commission income and further efficiency improvement (Cost/Income fell comparing to year ago).
However, Ukrainian banks face two main challenges:
- Tougher access to the international borrowing pool, which has forced most Ukrainian banks to postpone plans to raise foreign debt
- The National Bank of Ukraine, as it clamped down on the money supply to curb accelerating inflation, sucked excessive liquidity from the market. Banks' funding bases halved over the last 6M
Under current market conditions, we think foreign-owned banks, which are continuing to tap external markets for financing and halving their borrowing costs, are best positioned. In an environment of falling NIMs, we also favor lenders with strong fee & commission generation and room for efficiency improvement.
We apply Gordon Growth Model and peer valuation methods to value Ukrainian banks.
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