OREANDA-NEWS. April 13, 2010. CBR Chairman Ignatiev stated on Friday that there will be a common decision on interest rates on subordinated debt from the state to banks. At the end of February Duma deputies submitted a draft law suggesting 3.25 pts cut from the Sberbank’s current 8% interest rate, reported the press-centre of OTKRITIE FC.

View: Though Ignatiev did not confirm it, the wording that a decision will be made on interest rates leads us to believe that they will be cut, rather than allowing for early repayment. In addition, subordinated debt will support capital adequacy, which according to Ignatiev's deputy Melikyan could become a problem for a number of banks in about half a year.

Even if rates are reduced uniformly, Sberbank will be the major beneficiary, as subordinated debt finances 7% of its assets, which is substantial. Among other direct beneficiaries are VTB (as this source finances 5.5% of its assets), and Bank St. Petersburg, with a sub-loan from VEB at just 0.7% of assets. However, because Sberbank was considering partial repayment of this debt if the rate was not reduced, we believe that it will decrease its deposit rates. And given that Sberbank controls roughly half of Russian retail deposit market, this will mean that other participants will probably follow suit.

Action: We believe the news confirms the ability of Sberbank to control its cost of funding, and continue to like the stock at current levels. We reiterate a BUY recommendation for Sberbank at US3.6/share.