12 March 2014, 00:00

Payback for reorientation

HKF Bank, which was the first to refuse to issue expensive loans and reduced rates almost to the level of Sberbank, saw its quarterly profit fall fourfold Natalia Biyanova S. Porter / Vedomosti

The net profit of HCF Bank in 2013 decreased by almost half to 11.1 billion rubles, and in the fourth quarter the bank earned 1.7 billion - four times less than in the same period in 2012. The quarterly profit was less (700 million rubles in II quarter of 2009) HCF was only at the peak of the crisis, when the bank practically stopped lending, recalls Gazprombank analyst Yuri Tulinov.

Cause for concern. Ivan Svitek

Chairman of the Board of HCF Bank. “What is worrying is what is happening in the Russian economy - over the last month we have had to reconsider the risks of rising unemployment and devaluation.”

“The decline in HCF’s profit was affected by an almost threefold increase in reserves - in 2013, the bank allocated 47.7 billion rubles to reserves. versus 17.8 billion a year earlier,” points out Promsvyazbank analyst Dmitry Monastyrshin.

The bank creates reserves with a reserve, problem debts grew more slowly - from 16.7 billion to 38.7 billion rubles. in 2013, the share of bad loans almost reached 12% of the portfolio.

HCF was the first in its segment to change its business model on the fly, announcing the abandonment of loans with high rates. “Back in July, we tightened our risk assessment, which led to a sharp decrease in issuance: for example, now only 20% of applications for cash loans are approved to clients “on the street,” says Ivan Svitek, Chairman of the Board of HKF Bank.

In 2013, the gross loan portfolio of HCF grew by 29% to 332 billion rubles, but in the fourth quarter there was no growth at all, states Tulinov, and the entire unsecured lending market grew by 31 and 5.2%, respectively.

Having abandoned high-yield loans, the bank began to lose interest income in the fourth quarter, saving commission income from the sale of insurance to borrowers - in this, HCF bypassed even Sberbank. In 2013, income from insurance commissions provided more than half of the bank's operating profit after provisions, Tulinov points out. Insurance commissions will support the bank this year, although margins and interest income will decline - the bank has refocused on low-income lending.

HCF was the first among retail banks to reduce rates at the end of December - by 23 percentage points to 19.9-46.9% per annum. In January, the bank also reduced rates on credit cards - from 44.9 to 29.9%.

“We have refocused on a different client segment: these are people who are not so hungry for loans, they do a lot of transactions - payments, transfers, account management, they are more interested in credit cards,” describes Svitek.

According to him, the bank is not concentrating on portfolio growth, but on the quality of new issues - this is now a priority. The deterioration in portfolio quality may last until mid-2014, then the situation will stabilize and the cost of risk will decrease, Svitek expects.

“HCF has a very conservative approach to reserving; the ratio of reserves to portfolio increased over the year by 1.5 times to 15.7%, this is one of the highest indicators among Russian banks,” Tulinov calculated.

“This is far from the worst result for players in this segment - consumer lending is just going through bad times,” says Mikhail Nikitin from VTB Capital.

The closest competitors, Russian Standard and Orient Express, did not report for the year, but in the first half of 2013 they showed losses under IFRS, and the second half of the year was no easier for the sector than the first, Tulinov noted. In contrast to HCF, TCS's profit in 2013 increased by almost 50%. “TCS has a greater margin of safety - it did not refuse high-margin products and also increased reservations,” says Nikitin. The interest margin of TKS, taking into account insurance income, is 33%, and that of HCF is about 25%, he calculated.

Monastyrshin believes that HCF’s loan losses will be less than it reserves reserves: “Overdue debt will decrease, given the bank’s reorientation towards less risky lending.” Therefore, the bank will most likely release reserves and, due to this, in 2014 will show a profit no lower than in 2013, “if there are no shocks in the economy,” the analyst stipulates. “The bank will show profit in 2014,” Svitek assures, without giving specific forecasts.