Rating Agency Expert Rating Ltd (www.expert-rating.com, e-mail: general@expert-rating.com, phone/fax +38 044 207 08 81) The Rating Report (Version for publication) uaaa Credit rating of the bank according to Ukrainian national scale Interpretation of rating according to the The bank with rating uaaa is characterized by very high credit capacity national scale: in comparison with other Ukrainian banks. Rating date: 29.05.2012 PUBLIC JOINT STOCK COMPANY BANK OF PROEFESSIONAL FINANCE (Full name of the Bank) Ukraine, 100а, Ilycha Avenue, Donetsk 83052 (legal and de facto bank address) Incorporation date 01.10. 91 USREOU code 09806437 Auditors JSC Deloitte and Touche USK Phone +38 (062) 210-07-07 / 210-24-14 Fax +38 (062) 312-77-58 Chairman of Board Ivanov Vladimir Contact persons Skryabina Elena, Senior Specialist of Finance Department, е-mail: olena.skryabina@prostofinance.ua E-mail custservice@profinbank.com Web-site www.profinbank.com List of licenses issued to the Bank: Banking License no. 55 dd. 07.11.2011, and General license for exchange operations performance No. 55 dd. 07.11.2011; The present report is the rating research expressing opinion of Expert Rating RA analysts. The report is a substantiation of the rating assigned, being also an opinion of Expert Rating RA analysts. See the last page of the report for use limitations
2 History of bank ratings: PJSC PROFIN BANK has long term borrower rating from the Rating agency Credit Rating at the level uaa-; stable outlook; assignment date: 01.07.2010; updated on 01.03.2011. 1. Overall bank review PJSC PROFIN BANK is a subsidiary bank of Société Générale S.A, one of the largest EU financial groups. As a part of international group, PJSC PROFIN BANK is focused on introduction of European business quality standards into the market of financial services of Ukraine. The history of Bank dates from 1989 when LLC under the name JSB IKAR-BANK was created and started commercial activity (registered by the National Bank of Ukraine on October 1, 1991 under no. 6). JSB IKAR-BANK was the first commercial bank in Donetsk region. Ukrainian Scientific Research Institute of explosion proof electric equipment, Torez electro-mechanical plant, JSC SNERA, Era - G LLC have been the founders of the Bank. In the end of 1993 the Bank was transformed into open joint-stock company under the name Joint stock bank IKAR-BANK and registered by the National Bank of Ukraine on December, 24, 1993. In January, 2008 the bank Société Générale S.A. acquired control stock of JSB IKAR-BANK. After completion of registration in December, 2008 the Bank was renamed into JSC ProFin Bank (full name - Open joint-stock company Bank of Professional Finance). In November, 2009 according to the Law of Ukraine On joint-stock companies no. 514-VI dated 17.09.2008 and the resolution of the General meeting of JSC ProFin Bank shareholders of 17.09.2009 the Bank changed the name for PJSC PROFIN BANK (full name - PUBLIC JOINT-STOCK COMPANY BANK of PROFESSIONAL FINANCE). The state registration of the relative changes in Articles of bank has been performed on November 23, 2009. According to the current legislation and Articles of bank PJSC PROFIN BANK is legal successor of all rights and obligations of JSC ProFin Bank. USREOU code 09806437, bank code 334594, legal address remained without changes. PJSC PROFIN BANK is: - A member of association French business community in Ukraine ; - Principal member of International payment system MasterCard Worldwide; - A member of International payment system Visa International with the status Cash Disbursement Member. Strategic directions of Bank development are: introduction of advanced standards of bank servicing, business management with account for the interests of shareholders and clients, and also minimization of banking activity risks. As of today PJSC PROFIN BANK has 9 branches in Donetsk and Donetsk oblast, and also branches in Kiev and Lvov. Head office of Bank is located in Donetsk. As of December 31, 2011 the bank had 22 709 corporate and private customers. The analysis of PJSC PROFIN BANK KPIs dynamics has shown their high rates of growth in the last two years. So, from 01.04.2010 until 01.04.2012 shareholders equity of Bank grew by 58,29 %, assets by 79,04 %, the volume of liabilities doubled (grew by 100,46 %), funds of individuals grew more than in 2 times (by 139,46 %), credit portfolio - more than in 3,5 times (255,79 %). In 2011 KPIs of Bank also grew in similarly high rate that is proved by essential gain in both assets and liabilities. So, from 01.04.2011 to 01.04.2012 Bank assets grew by 89,69 % or on UAH 193,1 m and made up UAH 408,4 m following Q1 2012; shareholders equity of Bank has grown on 59,07 % or on 68,1 UAH m, summing up UAH 183,4 m. Bank credit portfolio in the specified period grew more than in 2 times (by 139,27 % or on UAH 116,3 m) and as of 01.04.2012 was UAH 199,8 m, liquid assets grew by 74,84 %. High rates of crediting were aided by high growth indicators of Bank resources - the total volume of resources (liabilities) attracted by the Bank grew by 125,01 % or on UAH 125 m; including: funds of individuals grew by 96,31 %, of legal entities by 104,90 %; and funds of other banks - on 841,09 % (see table 1).
3 Table 1 Key performance indicators of JSC PROFIN BANK, UAH th, p.p., % Q12012 Q1 2011 Q1 2010 Change Growth rate Change Growth rate (01.04.2012) (01.04.2011) (01.04.2010) 2011-2012 2011-2012 2010-2012 2010-2012 Shareholder equity 183424 115308 115876 68116 59,07% 67548 58,29% Authorized capital 96250 96250 96250 0 0,00% 0 0,00% Regulatory capital (Н1) 194394 122638 125822 71756 58,51% 68572 54,50% Total liabilities 224962 99978 112224 124984 125,01% 112738 100,46% Funds of other banks 47525 5050 4810 42475 841,09% 42715 888,05% Funds of individuals 81389 41459 33988 39930 96,31% 47401 139,46% Funds of legal entities 79117 38613 60719 40504 104,90% 18398 30,30% Total assets 408386 215286 228100 193100 89,69% 180286 79,04% Liquid assets (Cash and cash equivalents + Trade securities + 141810 81109 116019 60701 74,84% 25791 22,23% Accounts held in other banks ) Client loans and debt 199763 83488 56146 116275 139,27% 143617 255,79% Securities for sale and for repayment 0 5025 20029-5025 - -20029 - ROE 0,04% 0,16% 0,17% -0,12 p.p. - -0,13 p.p. - ROA 0,02% 0,09% 0,09% -0,07 p.p. - -0,07 p.p. - Net profit 66 184 195-118 -64,13% -129-66,15% Due to essential growth of credit portfolio entailing growth of provisions under loan impairment, following the results of Q1 2012 in comparison with same period of 2011 the net profit of Bank decreased by 64,13 % and ROA and ROE decreased slightly. At the same time, the fact of break-even activity shows the capability of Bank to carry out balanced policy in the conditions of decreased rates of economic growth. 2. Market share and business activity According to the classification of National Bank of Ukraine, PJSC PROFIN BANK belongs to the fourth banking group on the size of assets wherein as of 01.04.2012 ranks on the 83rd position. It should be noted that for the last year (following the results of Q1 2012 in comparison with results of Q1 2011 PROFIN BANK jumped up 13 positions: from 96th to 83 rd place. By Agency estimations, as of 01.04.2012 PJSC PROFIN BANK occupies following shares in main segments of Ukrainian banking market: system assets - 0,038 %, credit portfolio - 0,03 %, total funds of clients (physical and legal persons) - 0,03 %. The analysis of dynamics of shares occupied by the Bank in the market of banking services of Ukraine following the results of Q1 2012 in comparison with the similar period of 2011 proves to further strengthening of Bank positions in all segments of the market. So, for the last year Bank share in the assets of bank system has increased by 0,016 p.p., in credit portfolio by 0,019 p.p., and in funds of clients by 0,013 p.p. (see table 2). Table 2 The analysis of JSC PROFIN BANK market share in the Ukrainian market, UAH th, p.p., % 01.04.2012 01.04.2011 Change Growth rate, % Bank assets 408386 215286 193100 89,69% Banking system assets 1082473105 995033185 87439920 8,79% Loans and debts of clients 199763 83488 116275 139,27% Banking system loans 670016569 768065850-98049281 -12,77% Funds of natural and legal persons of Bank 160506 80072 80434 100,45% Funds of natural and legal persons of the banking system 534837316 473264275 61573041 13,01% Share of Bank in system assets 0,038% 0,022% 0,016 p.p. - Bank share in system loan portfolio 0,030% 0,011% 0,019 p.p. - Bank share in the funds of individuals and legal persons 0,030% 0,017% 0,013 p.p. - As a whole, as of 01.04.2012 the share of PJSC PROFIN BANK in the Ukrainian market of banking services, by Agency estimations, fluctuated at 0,03-0,04 %. Thus, in view of advancing KPIs growth rate vs. average market dynamics, further strengthening of Bank positions in the bank system should be expected (see table 2).
Banks of the fourth group are main competitors of PJSC PROFIN BANK in the Ukrainian market of banking services. Among them ASTRA BANK should be mentioned, which, same as PROFIN BANK, is an active participant of car loans market in Ukraine, and the credit portfolio of these banks basically consists of car loans to individuals. According to Agency at least 2 factors provide good competitive positions to the bank: 1. Meeting the modern requirements of banking services market, PJSC PROFIN BANK constantly improves banking products and technologies. In particular, use of the most advanced IT technologies allows the Bank to raise the level and the quality of service, to minimize duration of each banking transaction. 2. Being a part of the French financial group Société Générale, PJSC PROFIN BANK has access to the international markets that is a big advantage vs. nearest competitors as it allows providing clients with high-quality service under most flexible and financially advantageous conditions. 4 3. Capital adequacy, profitability and external support Capital adequacy. From 01.04.2011 to 01.04.2012 shareholders equity of the Bank increased in 1,6 times (by UAH 68,1 m or on 59,07 %) and as of 01.04.2012 made up UAH 183,4 million. The regulatory capital of Bank for the same period increased by UAH 71,8 m or on 58,51 % and as of 01.04.2012 has constituted UAH 194,4 m. An essential replenishment of own means of Bank has allowed it to maintain indicators of capital adequacy at the levels considerably exceeding average market ones. So, as of 01.04.2012 equity/assets ratio was 44,91 %, regulatory capital adequacy norm (Н2) - 54,05 % (at average value in bank system of 17,88 %), and regulatory capital/total assets ratio (Н3) has made 44,89 % (system average - 14,51 %) (see table 3). Analysis of JSC PROFIN BANK shareholder equity adequacy, UAH th, p.p., % 01.04.2012 01.04.2011 Change Growth rate, % Total assets 408386 215286 193100 89,69% Shareholder equity 183424 115308 68116 59,07% Regulatory capital (Н1) 194394 122638 71756 58,51% Shareholder equity/assets ratio 44,91% 53,56% -8,65 p.p. - Regulatory capital adequacy ratio Н2 54,05% 70,75% -16,70 p.p. - System average value Н2 17,88% 20,02% -2,14 p.p. - Normative value Н2 >10% >10% - - Н3, regulatory capital/ total assets ratio 44,89% 53,02% -8,13 p.p. - System average value Н3 14,51% 14,19% 0,32 p.p. - Normative value Н3 >9% >9% - - Table 3 As of 01.04.2012 authorized capital stock made the most essential share in the structure of PROFIN BANK shareholders equity - 52,47 %, unregistered contributions to authorized capital stock equal to UAH 67 million constituted 36,53 % of Bank shareholders equity. Thus, after completion of registration the volume of authorized capital stock of Bank will make UAH 163,2 million. Specific share of other components of shareholders equity of Bank was insignificant: reserve and other funds of bank - 6,89 %, assets revaluation reserves - 3,68 %, retained profit - 0,43 %, and emission profit/loss - 0,002 % (see table 4). Table 4 Structure of shareholder equity of JSC PROFIN BANK, UAH th, p.p., % Indicator 01.04.2012 01.04.2011 Change of UAH th % UAH th % structure Growth rate, % Authorized capital 96250 52,47% 96250 83,47% -31,00 p.p. 0,00% Emission profit/loss 3 0,002% 3 0,003% -0,001 p.p. 0,00% Unregistered contributions to the authorized capital 66999 36,53% - - - - Retained earnings (uncovered loss) 794 0,43% 896 0,78% -0,34 p.p. -11,38% Reserve and other funds 12633 6,89% 11921 10,34% -3,45 p.p. 5,97% Revaluation reserve 6745 3,68% 6238 5,41% -1,73 p.p. 8,13% Shareholder equity, total 183424 100% 115308 100% - 59,07%
As a whole, the analysis of Bank shareholders equity structure allows the Agency to assess its quality positively. Thus the Agency draws attention to increase in volume and share of authorized capital stock which will occur after completion of contributions registration that proves to the will of shareholders to actively develop the Bank, at that supporting its solvency at high level. Profitability. Following the results of Q1 2012 Bank net profit was UAH 66 thousand, that is less on 64,13 % than for Q1 2011. Thus a growth on key components of Bank income has been noted: the net interest income has grown in 3,2 times, net fees and commission income - in 1,8 times, income from trade in foreign currency - in 3,5 times. The profit before taxes increased more than in 3 times (by 213,85 %) and following the results of Q1 2012 made up UAH 838 m. (See table 5). Table 5 Analysis of JSC PROFIN BANK profitability indicators, UAH th, p.p., % Q1 2012 Q1 2011 (01.04.2012) (01.04.2011) Change Growth rate, % Net interest income 6761 2083 4678 224,58% Net fees and commission 1896 1049 847 80,74% Income from securities trading 0 0 0 - Income from foreign currency trading 119 34 85 250,00% Profit before taxes 838 267 571 213,86% Net profit 66 184-118 -64,13% ROA 0,02% 0,09% -0,07 p.p. - ROE 0,04% 0,16% -0,12 p.p. - Major factors which influenced profitableness of Bank operations during the analyzed period, are the competitive environment in the area of consumer loans (need for taking into account the conditions of partners and other banks), price of crediting and size of credit risks, and also decrease in economy growth rates in Q1 2012. Growth of loan impairment provisions (on 45,39 % or on UAH 8,8 million) became one of the primary factors leading to decrease of Bank net profit. Such growth happened due to substantial expansion of Bank credit portfolio (on 139,27 % or on UAH 116 m). Support by shareholders. See table 6 for the information on key shareholders of PJSC PROFIN BANK and on their share in Bank authorized capital stock. Table 6 Information on JSC PROFIN BANK shareholders as per 01.04.2012 Full name of legal entity; % of authorized capital Country Full names of individual Direct participation Indirect participation SOCIETE GENERALE S.A. France 98,1003 0,0766 Investment company STIROLKHIMINVEST Ukraine 0,9689 0,0000 Source: JSC PROFIN BANK data As Agency analysis shows, on the beginning of 2012 Société Générale Group possessed the consolidated assets in the amount of Euro 1,181 trillion, the Group credit portfolio was estimated at Euro 367,5 trillion. The given statistics proves to considerable scale of work of Société Générale Group even within the limits of the European Union. According to the Agency, Société Générale Group is able to render its business in Ukraine an unprecedentedly high level of support (tab. 7). Table 7 Sample statistic PI of Société Générale Group, Euro bn., p.p., % 2011 2010 (31.12.2011) (31.12.2010) Change Growth rate, % Total assets 1181,4 1132,1 49,3 4,35% Financial assets measured at fair value 422,5 455,1-32,6-7,16% Loans issued to clients 367,5 371,8-4,3-1,16% Financial liabilities measured at fair value 395,2 359,0 36,2 10,08% Due to banks 111,3 77,3 34 43,98% Customer deposits 340,2 337,4 2,8 0,83% Securitized debt payables 108,6 141,4-32,8-23,20% Shareholders equity 47,1 46,4 0,7 1,51% Net banking income 25,636 26,418-0,782-2,96% Gross operating income 8,600 9,873-1,273-12,89% Net cost of risk (4,330) (4,160) -0,17-4,09% Operating income 4,270 5,730-1,46-25,48% Group net income 2,385 3,917-1,532-39,11% Tier 1 adequacy ratio 10,7% 10,6% 0,10% - Source: Société Générale Group. 2011 Activities and results, regulatory information 5
The Group ended the year 2011 with net profit of Euro 2,385 bn. that is on 39,11 % less in 2010. In 2011 corporate and investment bank business of Group has undergone the largest reduction. The Group net profit in this segment decreased by Euro 1,095 billion. At the same time bank network in France not only stayed profitable, but also showed 15,82 % net profit growth in 2011. Altogether Société Générale Group network in France has brought to the Group Euro 1,428 billion (see table 8). Table 8 Net profit structure of Société Générale Group per business types, Euro bn., p.p., % 2011 2010 (31.12.2011) (31.12.2010) Change Growth rate, % French network 1,428 1,233 0,195 15,82% International retail banking 0,325 0,492-0,167-33,94% Corporate & Investment Banking 0,635 1,730-1,095-63,29% Specialized financial service & Insurance 0,297 0,343-0,046-13,41% Global investment management and service 0,171 0,289-0,118-40,83% Totally per business types excluded expenses for Group Corporate Center 2,856 4,087-1,231-30,12% Source: Société Générale Group. 2011 Activities and results, regulatory information 6 Thus, the analysis of PJSC PROFIN BANK shareholders equity adequacy indicators has allowed drawing a conclusion on high level of its solvency. The bank adheres redundantly to all NBU capital norms, thus the values of the mentioned norms of Bank (Н2 and Н3) considerably exceed market indicators. Besides, being a part of the largest international financial group Société Générale Group, PJSC PROFIN BANK is provided with financial support from its key shareholder at a level unprecedentedly high for Ukraine. 4. Quality of assets The bank implements complex system of risk-management with which help risks are identified at the stage of consideration of applications for credit issuance, risk sizes are assessed, their monitoring and control of risks positions are performed at all levels of organization taking into account interrelations between various categories (kinds) of risks. With view to increase the received income and minimize the risks, this program is constantly being improved with account for changes in regulatory legal acts and risk management tendencies. Credit risk management in the Bank is performed through management of individual credit risk and portfolio risk. Each separate, concrete counterpart of bank - debtor, emitter of securities is a source of individual credit risk. The assessment of individual credit risk assumes assessing solvency of each separate counterpart. Each credit transaction passes strict expert examination which includes quantitative and qualitative assessment of credits issued to counterparts, establishment of limits both on counterparts, and on officers and divisions of the Bank involved in approval of issue of credits. Granting of credits on an interbank credit market of Ukraine is performed within limits established separately on each counterpart and approved by Bank Supervisory Board. The size of the established limit is regularly reviewed and can be cancelled in case of obtaining negative information on the counterpart. The assessment of portfolio credit risk provides estimation of concentration and diversification of Bank assets and quality of credit portfolio. Norms of credit risk established by the National Bank of Ukraine are used for assessment of concentration and diversification. As of 01.04.2012 Bank credit portfolio occupied 48,92 % of cumulative assets whereas a year ago this share was 38,78 %. The share of liquid assets in the structure of Bank assets reduced for the analyzed period on 2,95 p.p.: from 37,67 % as of 01.04.2011 to 34,72 % as of 01.04.2012. The analysis of Bank credit portfolio as of 01.04.2012 in comparison with 01.04.2011 proves to improvement of key indicators of financial risks of Bank. So, from 01.04.2011 to 01.04.2012 the volume of credits and debts of clients in foreign currency reduced by 61,35 %, whereof its share in cumulative credit portfolio of Bank decreased by 14,74 p.p.: from 17,58 % to 2,84 %. Along with decreasing sensitivity to currency risks, indicators of portfolio credit risk of Bank have improved, that is evidenced by reduction of non-performing loans share by 4,31 p.p. (from 13,74 % as of 01.04.2011 to 9,43 % as of 01.04.2012), and also reduction of loan impairment provisions/loan portfolio ratio by 9,14 p.p. (from 23,29 % to 14,15 % from 01.04.2011 to 01.04.2012).
Thus Bank credit portfolio consists mainly of loans to individuals which share as of 01.04.2012 made 97,12 % of total credits issued by the Bank (see table 9). Table 9 Loans and debts of customers of JSC PROFIN BANK, UAH th, p.p., % 01.04.2012 01.04.2011 Change, Change, Growth UAH th % UAH th % UAH th p.p. rate, % Total loans and debts of customers: 199763 100,00% 83488 100,00% 116275-139,27% - incl. in foreign currency 5672 2,84% 14674 17,58% -9002-14,74 p.p. -61,35% - incl. loans to individuals 194010 97,12% 78589 94,13% 115421 2,99 p.p. 146,87% - incl. nonperforming (bad and doubtful) loans 18840 9,43% 11469 13,74% 7371-4,31 p.p. 64,27% Provisions under loan impairment (28266) 14,15% (19441) 23,29% 8825-9,14 p.p. 45,39% 7 As of 01.04.2012 car loans took major share in the structure of portfolio of credits to individuals - 79,94 % (which share from 01.04.2011 to 01.04.2012 increased by 30,1 p.p.). Mortgage loans constituted 2,35 %, consumer loans - 17,72 % (see table 10). Structure of JSC PROFIN BANK credit portfolio per types of economic activities, UAH th, p.p., % 01.04.2012 01.04.2011 Change Table 10 Growth rate, % UAH th % UAH th % Loans to legal entities, incl. per types of economic activities: 5988 100,00% 4899 100,00% 1089 22,23% - Processing industry 1177 19,66% 2 0,04% 1175 58750,00% - Trade, repair of cars, household and personal use items - - 81 1,65% - - - other types of economic activities 4811 80,34% 4816 98,31% -5-0,10% Loans to individuals, including: 222041 100,00% 78589 100,00% 143452 182,53% - mortgage loans 5215 2,35% 6597 8,39% -1382-20,95% - car loans 177489 79,94% 39170 49,84% 138319 353,12% - consumer loans 39337 17,72% 32822 41,76% 6515 19,85% In the structure of credit portfolio per economic activities loans issued to processing industry occupied 19,66%, other kinds of economic activities - 80,34 % of credits (see table 10) The analysis of norms of Bank credit risks (Н7, Н8, Н9 and Н10) as of 01.04.2011 and 01.04.2012 proves to full observance by Bank of all NBU requirements. Thus it should be noted that the low value of large credit risks norm (as of 01.04.2012 Н8 constituted 20,58 %, at required value not higher than 800 %) proves to low level of concentration of large volume credits in Bank credit portfolio that, in turn, results in minimization of potential credit risks of Bank (see table 11). Table 11 Main norms of risk characterizing JSC PROFIN BANK loan portfolio, %, p.p. Norm Limit value 01.04.2012 01.04.2011 Change, p.p. Н7 Average of the system 22,50% 21,76% 0,74 p.p. < 25% Н7 (Maximal size of loan risk per counteragent) 20,58% 16,31% 4,27 p.p. Н8 Average of the system 177,94% 173,82% 4,12 p.p. < 800% Н8 (Normative value for large loan risks) 20,58% 16,31% 4,27 p.p. Н9 Average of the system 0,56% 0,90% -0,34 p.p. Н9 (Norm of maximal amount of loans, warranties and sureties issued to one < 5% insider) 4,88% 4,88% 0,00 p.p. Н10 Average of the system 2,74% 2,38% 0,36 p.p. Н10 (Norm of maximal amount of loans, warranties and sureties issued to < 30% insiders) 5,53% 5,62% -0,09 p.p. Thus, summing up the analysis of PJSC PROFIN BANK asset quality, following conclusions can be drawn: 1. The analysis of Bank assets structure proves to that the Bank carries out conservative credit policy, - as of 01.04.2012 the credit portfolio occupies 48,92 % of cumulative assets, liquid assets - 34,72%. Loans to individuals remain a priority crediting type for the Bank, occupying 97,12 % of credit portfolio. The portfolio of credits to individuals consists by 79,94 % from car loans. The developed structure of Bank credit portfolio clearly proves to its
8 specialization that, in turn, bears risks of concentration on certain category of borrowers and certain type of activity. At the same time it should be noted that the Bank solves the problem of credit risks diversification by granting rather small amounts of credits to a separate borrower, that is evidenced by low indicator of large credit risks (Н8) which as of 01.04.2012 constituted 20,58 % (at requested value of not more than 800%). 2. The analysis of credit portfolio indicators quality dynamics in the period from 01.04.2011 to 01.04.2012 proves to steady reduction of Bank sensitivity to credit and currency risks. So, the share of credits and indebtedness of clients in foreign currency in cumulative credit portfolio of Bank decreased for the specified period from 17,58 % to 2,84 %, the share of non-performing loans for the same period reduced from 13,74 % to 9,43 %, and the ratio of provisions under loan impairment/credit portfolio decreased from 23,29 % to 14,15 %. 5. Liquidity Management of Bank liquidity risk consists in determination of scheduled and actual payment positions by currencies. For this purpose the corresponding divisions of Bank analyze the mean daily size of write-offs, receipts, balances on clients account for the previous periods and forecast eventual write-offs. Forecast of liquidity and liquidity excess/deficit is carried out based on the analysis of Bank assets and liabilities structure by terms of their repayment terms, with account of influence of seasonal and other fluctuations, various macroeconomic indicators, etc. All this allows determining in due time essential liquidity misbalances which might arise in the course of activity. The committee on assets and liabilities management based on the aforementioned information has an opportunity to compensate liquidity gaps, to influence timing structure of assets and liabilities. Management of bank liquidity requires carrying out of the analysis of level of liquid assets necessary for settlement of obligations at approach of their repayment term, providing access to various sources of financing and control of conformity of balance liquidity indicators to standard requirements. The analysis of norms of instant, current and short-term bank liquidity (Н4, Н5, Н6) as of 01.04.2011 and 01.04.2012 proves to redundant observance by the Bank of NBU established requirements. In particular, as of 01.04.2012 the norm of instant bank liquidity (Н4) constituted 86,51 % (mean system - 54,25 %), current liquidity norm (Н5) - 167,04 % (bank system - 72,88 %), and short-term liquidity norm (Н6) - 132,41 % (at average norm on banks of Ukraine - 93,14 %) (see table 12). Liquidity norms of JSC PROFIN BANK, %, p.p. Threshold Norm 01.04.2012 01.04.2011 Change, p.p. value Н4 An average of the system 54,25% 57,33% -3,08 p.p. > 20% Н4 (Norm of instantaneous liquidity) 86,51% 126,74% -40,23 p.p. Н5 An average of the system 72,88% 79,66% -6,78 p.p. > 40% Н5 (Norm of current liquidity) 167,04% 183,78% -16,74 p.p. Н6 An average of the system 93,14% 90,94% 2,20 p.p. > 60% Н6 (Norm of short term liquidity) 132,41% 138,82% -6,41 p.p. Table 12 Thus, the above shown indicators prove to excessive level of bank liquidity that is a guarantee of timely accomplishment by the Bank of the obligations undertaken, and also proves to availability of considerable reserves for further escalation of active operations. Thus the Agency positively estimates the procedures of liquidity management implemented in the Bank, allowing it to identify and estimate currently existing and potential risks and to support bank liquidity positions at high level. 6. Other factors considered at rating Interaction with state authorities. In December, 2010 planned NBU check of PJSC PROFIN BANK (for assets, sub debt, other) was conducted. By results of the given check no penalties have been charged. Also during the period from December 2011 till January 2012 scheduled NBU audit was conducted to check adherence of Bank to foreign currency legislation, correctness of accounting and other issues. No penalties have been imposed following it. At the same time, by results of audits by Donetsk regional NBU office written prescription was issued to eliminate drawbacks in the work, plans of corrective measures were developed; reports on elimination of drawbacks have been made.
For the last 24 months no audits by NCSMS neither by Deposit Guarantee Fund have been performed. The last audit by Deposit Guarantee Fund was conducted on 16.02.2010, no penalties charged. 9 Total amount of penalties paid by Bank for last 12 months constitutes UAH 2337,51, including: - UAH 391,15 paid to the Pension fund of Proletarsky district of Donetsk for infringement of terms of client payments transfer (due to an employee fault the payment of the client was sent to an incorrect address); - UAH 246,36 - penal sanctions for infringement of the legislation on mandatory state social insurance of reversible incapacitation according to the Resolution no15 of 10.02.12; - UAH 1700,00 - penalty imposed by NBU for infringement in the area of financial monitoring. However, the paid penalties did not essentially impact the results of work of Bank. 7. Summary of rating results and rating visualization See complete substantiation of rating by RA Expert Rating in the rating report. When assigning the investment grade rating, the Rating committee was guided by the following: 1. PJSC PROFIN BANK is a subsidiary bank of Société Générale S.A. (France) which belongs to one of the greatest financial groups in the Eurozone. As a part of international group PJSC PROFIN BANK is focused on introduction of European business quality standards in the market of financial services of Ukraine. The analysis of PJSC PROFIN BANK KPI dynamics in the last two years indicates a dynamical development of the Bank. So, from 01.04.2010 to 01.04.2012 shareholders equity of Bank increased by 58,29 %, assets - on 79,04 %, liabilities doubled (on 100,46 %), funds of individuals - more than in 2 times (on 139,46 %), credit portfolio - more than in 3,5 times (255,79 %). 2. of PJSC PROFIN BANK shareholders equity adequacy testify to high level of its solvency. Within last year (from 01.04.2011 to 01.04.2012) shareholders equity of Bank increased in 1,6 times (by UAH 68,1 m or on 59,07 %) and as of 01.04.2012 made up UAH 183,4 million. The regulatory capital of Bank for the same period has increased by UAH 71,8 m or on 58,51 % and as of 01.04.2012 has constituted UAH 194,4 m. The bank observes redundantly all NBU norms of capital adequacy, thus Н2 and Н3 norms considerably exceed market indicators. As of 01.04.2012 shareholders equity/assets ratio was 44,91 %, regulatory capital adequacy norm (Н2) was equal to 54,05 % (at average value on bank system - 17,88 %), and regulatory capital/total assets ratio (Н3) constituted 44,89 % (average on system - 14,51 %). 3. Being a part of the largest international financial group Société Générale Group, PJSC PROFIN BANK is provided by financial support from the key shareholder at a level unprecedentedly high for Ukraine. As Agency analysis shows, on the beginning of 2012 Société Générale Group possessed consolidated assets of Euro 1,181 trillion, the Group credit portfolio was estimated at Euro 367,5 bn. The given statistics proves to considerable scale of work of Société Générale Group even within the limits of the European Union. 4. The Agency has positively estimated PJSC PROFIN BANK asset quality. As of 01.04.2012 the credit portfolio occupies 48,92 % of cumulative assets. Loans to individuals is a priority crediting type for the Bank, occupying 97,12 % of credit portfolio. The portfolio of credits to individuals consists by 79,94 % from car loans. The Bank solves the problem of credit risks diversification by granting rather small amounts of credits to a separate borrower, that is evidenced by low indicator of large credit risks (Н8) which as of 01.04.2012 constituted 20,58 % (at requested value of not more than 800%). The analysis of credit portfolio indicators quality dynamics in the period from 01.04.2011 to 01.04.2012 proves to steady reduction of Bank sensitivity to credit and currency risks. So, the share of credits and indebtedness of clients in foreign currency in cumulative credit portfolio of Bank decreased for the specified period from 17,58 % to 2,84 %, the share of non-performing loans of Bank for the same period reduced from 13,74 % to 9,43 %, and the ratio provisions under loan impairment/credit portfolio decreased from 23,29 % to 14,15 %.
5. Following the results of Q1 2012 Bank net profit constituted 66 thousand UAH, that is on 64,13 % less than in Q1 2011. Thus there was a gain observed of all key components of Bank income: net interest income has grown in 3,2 times, net commission and fee income - in 1,8 times, income from trade in foreign currency - in 3,5 times. The profit before taxes increased more than in 3 times (by 213,85 %) and following the results of Q1 2012 has constituted UAH 838 thousand. Growth of provisions under loan impairment (on 45,39 % or on UAH 8,8 million became one of the primary factors which affected decrease of Bank net profit). The above growth resulted from substantial escalation of Bank credit portfolio (on 139,27 % or on UAH 116 m). 6. The analysis of norms of instant, current and short-term bank liquidity (Н4, Н5, Н6) as of 01.04.2011 and 01.04.2012 proves to redundant observance by the Bank of NBU established requirements. In particular, as of 01.04.2012 the norm of instant bank liquidity (Н4) constituted 86,51 % (mean system - 54,25 %), current liquidity norm (Н5) - 167,04 % (bank system - 72,88 %), and short-term liquidity norm (Н6) - 132,41 % (at average norm on banks of Ukraine - 93,14 %). Thus, the current liquidity level can be named redundant, that is a guarantee of timely accomplishment by the Bank of the obligations undertaken, and also proves to availability of considerable reserves for further escalation of active operations. 10
Appendix A 11 Use limitations of the rating report The present report is an intellectual property of Expert Rating RA ltd. All intellectual property rights owned by Expert Rating RA ltd are protected in conformity with the legislation of Ukraine. No part of this report may be sold, reproduced or distributed by third parties without previous written approval of Expert Rating RA ltd. All information contained in the present report, had been obtained by Expert Rating RA ltd from sources which Expert Rating RA ltd considers as reliable. Due to the possibility of human or technical error, and other factors, Expert Rating RA ltd does not guarantee the absolute reliability of the provided information. The credit rating of the Bank, and any part of the information contained in the report, should be regarded exclusively as an opinion on the degree of withstanding by the financial entity to adverse factors and not as recommendation about purchase or sale of securities or recommendation about use of bank services. Expert Rating RA ltd does not bear responsibility for any consequences of credit, investment or economic decisions of third parties taken solely based on information on ratings, awarded by Expert Rating RA ltd. Depositors, insurers, investors, when using the given rating report, do automatically agree that the contents of the given rating report are the opinion of analysts of Rating Agency Expert Rating on the credit capacity of the financial entity. Perceiving results of estimation of the level of credit rating of bank, it should be understood that: 1. At rating some factors are taken into attention which can positively or negatively affect the stability of the bank. Therefore, RA Expert Rating Ltd estimates the level of bank resistibility to adverse factors of influence. The estimation is made for banks according to the international scale of RA Expert Rating Ltd (table A) and the national scale of Agency which is defined according to the scale approved by the Resolution of the Cabinet of Ukraine of April 26, 2007 no. 665. The parity between the international scale and the national scale is determined by the Agency independently. 2. The information provided in the rating report which source are the rated Bank and the National Bank of Ukraine, can slightly differ because of distinctions in system of account or methodology of calculation of indicators. 3. The information provided in the given report on foreign shareholders of financial institution is given in that currency in which the official annual report of the company-shareholder is made. Comparing such financial information with the data of Bank or of the similar foreign companies it is necessary to take care of difference in the systems of account and accounting policy. Table А International rating scale for credit ratings used by RA Expert Rating Rating Stability level Interpretation of stability level There is highest probability of that the company will withstand the influence of aaa Highest adverse factors. The company corresponds to аа level however its liabilities are additionally guaranteed by the foreign shareholders or the state. There is very high probability of that the company will withstand the influence of aa Very high adverse factors. There is high probability of that the company will withstand the influence of a High adverse factors. There is normal probability of that the company will withstand the influence of bbb Good adverse factors. There is acceptable probability of that the company will withstand the influence of bb Acceptable adverse factors. There is satisfactory probability of that the company will withstand the influence b Satisfactory of adverse factors. There is alerting probability of that the company will withstand the influence of ccc Alerting adverse factors. There is low probability of that the company will withstand the influence of cc Low adverse factors. The company is usually removed from rating process Every type of letter corresponds to three kinds of outlook: Positive (+); Neutral ( ); Negative ( ). This appendix is an integral part of any rating report.