OREANDA-NEWS. October 15, 2010. Sberbank announced that the minimum mortgage rates for employees of its salary scheme customers will be reduced from 10.5% to 9.5%, reported the press-centre of OTKRITIE Financial Corporation.

View: As of 1H10, 10.4% of all Sberbank loans (and 44% of all retail loans) were real estate related loans - hence at first sight the move looks significant. However, the announced reduction of mortgage rates is aimed at no more than 5% of the current mortgage client base (employees of salary scheme customers) - which in turn the bank clarified will be narrowed down further through credit scoring tools.

Hence, the impact on net interest income will be insignificant. We think that this initiative is primarily intended as a marketing/PR tool. In addition, it likely serves as a response to possible soft pressure from the government for Sberbank to reduce mortgage rates, in order to boost demand for residential real estate, construction, and ultimately -- economic growth. In our model we have Sberbank's NIM (on average working assets including cash) declining from 7.2% in 2009 to 6.0% in 2010, and we think a similar NIM erosion is already priced in by the market. We thus view the news as neutral for the stock. The risk is if Sberbank embarks on a wide loan rate reduction - but we think this is unlikely in the face of rising inflation.

Valuation and Action: Sberbank trades at a 2011E P/BV of 1.8x and a 2011E P/E of 8.7x.