Daily analyst comments

On September 7 Bank Saint Petersburg disclosed its 1H 2008 consolidated financial results calculated to IFRS standards. In the reporting period, the bank's assets increased by 30.9% y-o-y to RUB 165.8 billion and its total loans rose by 30.5% to RUB 119.7 billion. At the end of the reporting period, the bank had an equity capital of RUB 16.7 billion, a gain of 11.4% since the end of 2007.

Тable 1. Bank Saint Petersburg: key financial indicators for 1H 2008, bn RUB

	1H2008	2007	Change
Assets (as of the end of the period)	165.8	126.7	30.9%
Total loans (as of the end of the period)	119.7	91.7	30.5%
Equity capital (as of the end of the period)	16.7	15.0	11.4%
Return on equity (ROAE)	22.1%	20.6%	+ 1.5%
Return on assets (ROAA)	2.4%	2.1%	+ 0.3%
Net interest margin	6.0%	5.5%	+ 0.5%
Cost/Income multiple	35.7%	40.2%	- 4.5%

Source: company data

We view the posted results as positive. The bank grew faster than the financial sector as a whole, taking advantage of its strong position in its operating area. Furthermore, the bank benefited from growing demand for loans from small and medium-sized businesses, its prime clients, which can now rely only on domestic banking loans in the face of adverse conditions on world debt markets. The bank's assets expanded by 30.9%, up by 2.2x over the average growth rate of 13.9% in the sector. The bank saw its portfolio of loans to the non-financial sector grow by 30.5%, a noticeable excess over the average growth figure for the sector of 21.3%.

Table 2. Bank Saint Petersburg: key profit and loss indices for 1H 2008, mn RUB

	1H2008	1H2007	Change
Interest income	7862	3696	113%
Interest expenses	3828	1799	113%
Net interest income	4034	1897	113%
Commission income	736	458	61%
Commission expenses	211	88	140%
Administrative expenses	1667	924	80%
Net profit	1755	825	113%

Source: company data

An upturn in the indicators for return on capital, assets and net margin is attributable to a rise in interest rates on loans as demand for loans rises. As small and medium-sized businesses find it increasingly harder to gain access to debt financing at affordable costs, demand for banking loans is steadily on the rise, as are interest rates on loans. Bank Saint Petersburg relies on these types of clients, and its policy has propelled it to the number two spot in the region in terms of the amount of loans issued to corporate clients.

On the positive side, we also point to a decrease in the bank's Cost/Income ratio from 40.2% to 35.7%, which is evidence that the bank's overall operations are becoming more efficient. The bank cited the ability to draw cheap funds from state corporations and the regional budget as being behind the rise in the multiple. However, this is fraught with specific risks for the bank unless state agencies alter their policy with regard to the bank.

We estimate the fair value of one common share in Bank Saint Petersburg at USD 5.3, with an upside potential of 45%, which corresponds to a BUY recommendation. The fair price of one preferred share should be USD 1.6 per share.