Based on the results of operations for 1Q and 1H 2011, OJSC "Promsvyazbank" received profit for 8768 thousand rubles and 26133 thousand rubles, respectively, for the 9 months of 2011 the bank received a loss of 483 484 thousand rubles.
The main reason for the losses was the creation of provisions for possible losses on loans, loan indebtedness and similar debts and an increase in interest expenses. The increase in reserves for 9 months of 2011 amounted to 1189145 thousand rubles. The increase in the created reserves was caused by the deterioration of the financial position of several borrowers and an increase in their overdue debt to the credit institution - the issuer of loans, loan indebtedness, and similar indebtedness.
The growth of interest expenses from 1298900 thousand rubles to 2648071 thousand rubles and 4133497 thousand rubles occurred due to the increase in the cost of borrowing of monetary resources, especially noticeable in the middle of 2011. Also, expenses on borrowed funds from customers (other than credit institutions) increased significantly and amounted to 2884277 thousand rubles. Due to the outflow of deposits of individuals in the last months of 2008, the Bank replaced them with short-term and medium-term loans from the Bank of Russia. In 2011, these loans were refinanced. After the recovery of individual deposits in liabilities, the Bank refused to attract short-term loans from the Bank of Russia.
The Bank of Russia's medium-term loans were used by a credit institution permanently to form a resource base. This resulted in an increase in interest expenses on funds raised from credit institutions.
The increase in the loan portfolio contributed to an increase in interest income from loans to customers (non-credit institutions) from RUB 1,311,490,000 to RUB 2,576,6480,000 and to RUB 3,755,644,000, respectively. A decrease in the value of market debt obligations and growth of their yield stimulated the bank to replenish the bond portfolio. Interest income on investments in securities increased in 2011 from RUB 2,134,777 thousand in 2010 to RUB 2,804,000 thousand in 2011. In the first half of 2011, interest income on investments in securities increased from RUB 2134777 thousand to RUB 557204 thousand, up to RUB 1174238 thousand in the first quarter of 2011.
The main source of income of OJSC "Promsvyazbank" in 2011 is interest received on loans to legal entities and individuals. Significant types of income are commission income received by the Bank from customers for banking services provided.
Growth of the securities portfolio was because interest income, as well as income from the sale and revaluation of securities, exceeded commission income in the first nine months of 2011. Profit from foreign exchange transactions is not material.
The main factors that caused OJSC "Promsvyazbank" to incur losses in the third quarter of 2011 were the growth in the cost of attracted monetary resources, decline in demand in the economy and production in most types of economic activities, decline in business activity, and deterioration in the financial standing of a number of organizations.
Inflation, changes in the exchange rates of foreign currencies, as well as decisions of government agencies, other economic, financial, political, and other factors did not have a significant impact on the Bank's profit.
Positive dynamics of growth of the bank's key financial indicators against the background of a slowdown in growth rates in the Russian economy demonstrates high efficiency of business management and advantages of a balanced risk management system. In a difficult period, the Bank not only ensured the safety of private and corporate clients' savings but also provided loans to the public and business, supporting the economy in an unstable period.
2.3 Liquidity analysis of OJSC Promsvyazbank.
In each of the periods under review, OJSC "Promsvyazbank" complied with all the mandatory standards of banking activities established by the Bank of Russia. The credit institution had no problems with solvency and liquidity. OJSC "Promsvyazbank" had a sufficiently high reserve of both instant and current liquidity. The volume of liquid assets remained at the level more than sufficient to cover unplanned outflows of demand funds under the crisis scenario. The capital adequacy ratio met the requirements set by the Bank of Russia.
Full and clear fulfillment of its obligations to customers and counterparties is one of the main tasks of a credit institution. In this regard, OJSC Promsvyazbank maintains a significant amount of funds in highly liquid assets to form an "airbag". At the same time, asset liquidity is not an end in itself, and the Bank seeks to maintain a balance between liquid and highly profitable assets.
As of 01.04.2011, the capital adequacy ratio (N1) of a credit institution as of 01.04.2011 was 11.50%, as of 01.07.2011 - 13.56%, as of 01.10.2011 - 12.57%, with an allowable value of >=10% for banks with the amount of own funds not less than the equivalent of 5 million euros and >=11% for banks with the amount of own funds less than the equivalent of 5 million euros. As of 01.07.2011, the capital adequacy ratio has increased by 2,06% as compared to 01.04.2011, the increase has occurred due to the outpacing growth rate of equity compared to the growth rate of assets. Instant liquidity ratio (N2) as of 01.04.2011 has amounted to 34,52%, as of 01.07.2011 - 21,43%, as of 01.10.2011 - 31,11% at an acceptable value >=15%. Current liquidity ratio (N3) as of 01.04.2011 - 52,09%, as of 01.07.2011 - 52,31%, as of 01.10.2011 - 63,52% at permissible value >=50%. Long-term liquidity ratio (N4) as of 01.04.2011 - 49,63%, as of 01.07.2011 - 43,21%, as of 01.10.2011 - 44,24% at permissible value <=120%.
To be continued the next part.