OREANDA-NEWS. March 18, 2010. Sberbank posted RAS results revealing RUB24.4bn net profit for 2M10 (RUB12.7bn in February), figures suggesting nearly five-fold YoY growth, reported the press-centre of OTKRITIE Financial Corporation.

View: Strong profits primarily reflect provisioning charges that in 2M10 were at RUB33.6bn vs. RUB68.6bn a year ago. Lower provisioning charges are backed with stabilizing lending quality as overdue loans are 4.7% -- virtually unchanged MoM, which is a positive sign. Net interest incomes were relatively weak, up only 9% YoY for 2M10, compared with 25% YoY growth in 4Q09, while monthly net interest revenues were below those of 2H09.

We believe these figures reflect a strong inflow of accounts and deposits at the end of 2009. The bank sharply decreased its deposit rates in January, but in 1H10 margins could suffer. This trend is fully reflected in our model, which assumes a decline in NIM from 8.2% in 2009 to 6.7% in 2010 (in ruble terms). On the balance sheet we see an inflow of both corporate and retail funding (+RUB233bn in February; +4% MoM), while demand for loans is weak and the portfolio has marginally declined (-RUB7bn). Funding inflows have been partly directed to securities markets (+42RUBbn), but deploying funding seems an issue.

Valuation and Action: Despite some concerns, we believe that the importance of the high volatility of monthly RAS results cannot be overestimated. Sberbank trades at 2.2x and can protect margins over the longer run. We reiterate a BUY rating, with a USD 3.6/share target price.