Company profile

Bank Forum (FORM) is the 12-th largest Ukrainian bank by assets. Its history dates back to 1994. The Bank has 332 branches and outlets across Ukraine. One of leading European banks, Commerzbank AG (Germany), bought 60% of Forum’s shares in March 2008.

Main drivers

• Support from shareholders should ensure Forum’s financial strength. We change our forecast of the amount of injection in FORM’s capital in late 2009 on the back of the latest agenda of the Bank’s October 28 EGM. Now, we expect that in order to cover Forum’s credit risks, the shareholders will raise the Bank’s statutory capital by UAH 300m as compared to UAH 1.1m in our previous forecast. However, this decrease in the planned capital injection does not lower our expectations of the improvement in the Bank’s financial strength as Commerzbank now intends to provide a subordinated loan of up to UAH 300m to Forum by the end of 2009. Thus, we maintain our forecast of the growth of the FORM's capital adequacy ratio from 10.0% in 2008 to 17.3% in 2009.
• Continuing funding from Commerzbank and EBRD should help raise assets. At the moment, Commerzbank’s loans account for 45% of total Forum’s liabilities. We expect that the Commerzbank group will continue providing loans to Forum in 2010-14. Forum is also implementing a number of joint projects with the EBRD: focused on lending to small and medium businesses, micro-crediting, promoting the development of international trade and mortgaging. We expect that access to financing from Commerzbank and the EBRD will help to increase the Bank’s assets by 26% annually in 2010-14.
• Revival of lending activity should bring profits in 2010-14. Improvements in the quality of FORM’s loan portfolio due to decline of the share of NPLs on the background of the economic growth should ease the pressure on FORM’s bottom line starting from 2010. We also expect that the Bank will activate its lending that should help it move into black and post UAH 125m in net income in 2010. With a 25%-35% annual growth of lending in 2011-14, FORM’s net profit should grow by 68% annually on average.
• The stock has 103% upside on strong prospects of the Bank’s growth and expected rise of bank valuations. FORM’s current 2010f P/Book is at 0.68 that implies a 19% discount to the Ukrainian peers and a 52% discount to the international peers. Before the crisis at the high of the stock markets in 4Q07, Eastern European banks traded at 2.5-3 P/Book. We expect that the current average P/Book of Eastern European banks at 1.6 will rise to 2.2 in 12 months on the back of growth of the quality of the banks’ assets and their profits. Due to the FORM’s association with Commerzbank and prospects for Bank’s bottom line growth in 2011-14, the stock should trade close to its European peers in 12 months time. We expect that, in 12 months, Forum will be trading at a 2010f P/Book of 1.8, which implies an upside of 113% and supports our BUY recommendation for the stock. Our 12M target price estimate takes account of the issue of 30 mln new shares at UAH 10 per share in late 2009.

Iaroslav Stetsik

Analyst

Banks

iaroslav.stetsik@astrum.ua