OREANDA-NEWS. February 26, 2010. Vladislav Reznik, the Head of the Duma’s Committee on the Financial Markets, submitted amendments to the parliament on legislation that would cut the interest rate for subordinated loans provided to Sberbank by the CBR in fall 2008 (RUB 500bn, 11 years) from 8% to 4.75%, reported the press-centre of VTB Capital.

The subordinated loan in question is Sberbank’s most expensive source of funding (the average funding rate is 5.2%) and the bank has reportedly been negotiating the possibility of repaying the loan early (which the CBR has opposed so far).

Other banks interest rates could be cut similarly stated Reznik, should the Sberbank case succeed. A number of other banks, including state-owned VTB, RSHB, Gazprombank and private ones namely, BSPB and Alfa-bank, have also received subordinated loans from the Bank for Development (VEB) on similar terms.

Sberbank could potentially see earnings increase 11% in 2010 (an annual benefit of RUB 16.25bn), should the initiative be approved. VTB would benefit the most (to the tune of RUB 6.5bn annually, resulting in earnings rising 22% in 2010 based on the Bloomberg consensus), while Sberbank could potentially see earnings increase 11% in 2010 (an annual benefit of RUB 16.25bn). BSPB is much less affected (a 2% increase in 2010 earnings) since its subords are mostly raised on market terms.

Development is clearly a fundamental catalyst and we think that either a rate cut, or an early repayment of state funding could well become possible, despite the clumsy looking terms of its legal structure. Regarding the big picture, this bodes well for the policy of lowering lending rates and the CBR concern over high funding rates.

NIM remains in Sberbank management’s focus with a possible cut as the latest addition to the management war chest. We estimate it could add 260bp to NIM.

We reiterate our positive view on the stock and would use the weakness (20% off peak of USD 3.11 in mid January) to re-enter the story.