OREANDA-NEWS. April 19, 2010. Sberbank has posted RUB43.2bn in 3M10 RAS net profit on net interest revenues of on RUB120.6bn. The bank’s corporate lending portfolio was down 2.7% MoM in March to RUB4.1tr, while retail remained almost flat at RUB1.15tr., reported the press-centre of OTKRITIE FC.

View: The impressive bottom line is indicative of a strong core banking business. Net interest revenues climbed from 8.9% YoY in 2M10 to 16.8% YoY in 3M10, which was a positive surprise. Commissions were also in good shape (+12.4% YoY), and in this regard we do not see the 9.4% YoY cost growth as a negative. Indeed, we believe it reflects a return to normal business.

On the balance sheet side, however, the inflow of retail deposits continues to fuel the bank’s securities portfolio, which rose RUB205bn MoM, whereas loans were down RUB112bn. Even though this decrease partially reflects the one-off sale of bad assets to a subsidiary (which will not be replicated in IFRS), we believe this reflects difficulties in deploying funds profitably. Given this, we think Sberbank would partially repay the subordinated loan from CBR if its interest rate is cut from their current 8% level to 6.25% (rather than 4.75% initially proposed). Nevertheless, from our standpoint Sberbank looks strong in terms of the cost of funding, and thus will maintain its margins.

Valuation and Action: At these levels Sberbank trades at 2011E P/BV of 1.9. We reiterate a BUY recommendation, with a target price of USD3.6/share.