OREANDA-NEWS. September 14, 2009. Sberbank reported strong 2Q09 results. Net interest income was RUB129bn, exceeding consensus by 7%; NIM expanded to 8.2%, from 7.2% in 1Q09. Non-interest income was also strong, up 23% QoQ. RUB100.8bn of provisioning charges resulted in net income of RUB5.4bn, still above consensus. NPLs increased to 6.4% of gross loans, almost doubling QoQ, reported the press-centre of Otkritie FC.

View: Sberbank's core banking operation is in very good shape, in our view. The widening in NIM suggests the bank is reaping the benefits of its lower funding base. Management guided that further expansion of NIM is less likely, though. The flat loan book has been the result of falling retail lending, but growing corporate loans, which we think is a positive in the current conditions. Cost/income ratio falling to 34.5% (from 36.8%) suggests the management is finally taking real measures to address overhead.

The significant growth in NPLs and provisioning charge is perhaps to be exepcted, and reflects management's conservatism. With CAR of 18.4%, Sberbank has ample reserves to address loan problems without the pressing need of recapitalization which was also confirmed at the conference call.

Valuation: On bloomg consensus, Sberbank trades at 2009E p/b of 1.7, which does not appear cheap at first glance, but reflects the bank's uniquely strong (in relative terms) position in the Russian banking sector.

Action: We do not rate Sberbank at present, but believe these results should be taken positively by the market.