Daily analyst comments

The bank's headline IAS financial indicators are as follows:

	Rub mln			$ mln
	2004	2005	2006	2004	2005	2006
Assets as of year-end	30,627	49,109	73,426	1,104	1,706	2,789
growth, %		60%	50%		55%	63%
Average annual assets	28,701	39,057	58,376	1,006	1,385	2,147
Capital as of year-end	2,604	3,273	5,509	94	114	209
growth, %		26%	68%		21%	83%
Average annual capital	2,382	2,938	4,192	86	102	154
Net interest income	2,054	2,111	3,484	74	73	132
growth, %		3%	65%		-1%	81%
Reserve	467	247	393	17	8	15
Non-interest income	1,272	1,880	2,386	46	65	91
growth, %		48%	27%		41%	40%
Costs	2,258	3,037	4,243	81	105	161
growth, %		34%	40%		30%	53%
Earnings	507	707	1084	19	25	41
growth, %	,	39%	53%		32%	64%
Tax	46	163	283	2	6	11
Net profit	461	544	801	17	19	30
growth, %		18%	47%		12%	58%
Earnings per share, Rub	22	28	39	$0.79	$0.97	$1.48
Return on equity (ROE)	19%	19%	19%
Return on assets (ROA)	1.6%	1.4%	1.4%

Due to strong demand for banking services on the part of small and mid-size companies and also private clients, Vozrozhdenie Bank's growth rate outpaced the banking system as a whole (44% in ruble terms).

The bank's core business of extending loans to small and mid-sized companies generated over 75% of aggregate growth of credit portfolio. The bank also actively developed consumer lending and by year-end 2006 consumer loans grew to 17% of credit portfolio compared to 11% as of year-end 2005. This enabled the bank to increase returns on its portfolio and interest rates as a whole. The quality of credit portfolio remains high and the share of overdue credits stood at 1.7% of overall amount of credit portfolio.

Net interest income climbed 81% in dollar terms and the bank managed to extend interest spread from 8.1% in 2005 to 8.3% which is a strong result for the banking sector. Non-interest income accounts for nearly 40% of operating income which hedges the bank's earnings from the risks of a narrower interest spread in the future.

Meanwhile, we view costs as excessive and the bank's cost/income ratio is traditionally high. The bank only managed to reduce it from an abnormally high 76.1% in 2005 to 72.3%. This is due to considerable investments in sales network, implementation of new technologies and increasing headcount (+13%). Overall, personnel costs climbed nearly 42%. In our opinion, high costs depress the potential rise in the bank's margins. According to management's guidance, personnel costs will continue to grow rapidly in the coming years. However, margins will improve. The mid-term target for the cost-income ratio is 20-25%.

In the near future, the bank will place an additional share issue. The parameters have already been announced, 3 mln shares with Rub 10 par value. According to management, the shares are to be floated in late April-early May. As a result of this additional share issue, the bank plans to increase its free float form 30% to 40%. Management believes that raising long-term financial resources in the form of equity and debt (in 2006, the bank placed Rub 3 bln ($115.29 mln) Eurobond issue) will enable Vozrozhdenie Bank to maintain its growth rate in the coming years comparable with 2005.

We are upbeat on the bank's financials and its plans to raise long-term capital and increase free float. In our opinion, this will positively impact its stock valuations in the mid term.