Sberbank Publishes Financial Statements for 1H 2011
OREANDA-NEWS. September 02, 2011. Sberbank Group (hereafter “the Group”) has released its condensed interim consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 30 June 2011 and for the 6 months ended 30 June 2011, with an independent review report by Ernst & Young (Download the 1H Results Presentation), reported the press-centre of Sberbank.
Statement of financial position highlights:
The Group continues to see loan demand picking up with 1H 2011 growth in the gross loan portfolio of 8.3%. The Group is also benefitting from an increasing share of retail loans which are growing faster than corporate ones.
The Group’s statement of financial position has not been affected by the ongoing volatility in Western European debt markets, as Sberbank has been decreasing its securities portfolio which is mainly in Russian sovereign and quasi-sovereign debt instruments and has no exposure to European sovereign risk.
Customer deposits, in particular retail deposits, remain the major source of funding for Sberbank, growing in 1H 2011 by 4.9%.
Income Statement highlights:
Net profit for 1H 2011 reached RUB 176.1 bn (or RUB 8.12 per ordinary share), an almost threefold increase on RUB 64.3 bn (or RUB 2.95 per ordinary share) for 1H2010.
The Group’s revenues continued to be of high quality sourced from core banking operations, with net interest income and net fee and commission income accounting for 92.1% of total operating income before provisions for loan impairment during 1H 2011.
The Group’s net interest margin has stabilized since beginning 2011 in the range between 6.2% and 6.5% averaging 6.4% for 1H2011.
Despite higher operating expenses in 1H 2011, the Cost to Income ratio stays at an adequate level of 45.6% versus 40.2% in 1H 2010.
The improving Russian economy and ongoing implementation of new risk management and recovery procedures have positively affected loan quality, resulting in write-backs of provisions of RUB 22.2 bn. In particular, in 1H 2011 there were a number of loans which were previously provisioned for as impaired or non-performing, but were subsequently recovered /disposed off. As a result, the non-performing loan ratio declined to 6.6%, while the non-performing loan coverage ratio remained strong at 1.5x as of 30 June 2011.
Return on equity improved and reached 33.2% in 1H 2011 on an annualized basis.
Financial and Operating Review:
Interest income increased in 1H 2011 by 0.6% year-on-year to RUB 401.9 bn. The increase was driven by the growth of interest earning assets but the effect of this growth was moderated by a decline of average yields on corporate loans which reflected continued decline of market interest rates on loans. The yields on retail loans continued to improve, however, and reached 15.2% in 2Q 2011.
Interest expenses decreased by 14.6% year-on-year to RUB 133.0 bn. The largest component of interest expenses was interest on retail deposits which are a core source of funds for the Group. The cost of retail deposits continued to decrease in line with market trends and Sberbank’s pricing policy, leading to a lower overall cost of funds for Sberbank.
Net interest income for 1H 2011 totaled RUB 268.9 bn, a 10.2% increase year-on-year. This increase reflects change in the structure of interest earning assets and improved pricing on deposits. Net interest income remains the main component of the Group’s operating income, accounting for 74.4% of total operating income before provision charges for loan impairment.
The Group’s net fee and commission income totaled RUB 64.1 bn for 1H 2011, a 12.9% increase year-on-year. This growth was supported by a variety of fee-generating operations, especially operations with bank cards and distribution of insurance policies.
Net gains on operations with securities, including gains on trading securities, securities at fair value and securities available for sale, totaled RUB 7.3 bn for 1H 2011, a decline of 18.9% year-on-year. In addition to this, the group showed decrease in fair value reserve for investment securities available for sale within other comprehensive income of RUB 4.7 bn due to partial disposal of securities portfolio.
Total operating income before provision for loan impairment for 1H 2011 was RUB 361.6 bn, compared to RUB 319.3 bn for 1H 2010, a 13.2% year-on-year increase. The growth in operating income was primarily driven by robust and improved net interest income, well supported by net fee commission income and other operating income.
Net recovery of previously recorded provision for loan impairment for 1H 2011 totaled RUB 22.2 bn, compared with charges of RUB 110.3 bn in the 1H 2010. This reflects the better quality of the overall loan book as the Russian economy has improved and Sberbank has continued to attract demand from high-quality borrowers. Additionally, Sberbank has benefitted from its increased focus on managing impaired and non-performing loans and achieving recoveries on a number of individual loans previously classified as impaired or non-performing.
The Group’s operating expenses grew in 1H 2011 by 28.4% year-on-year. The main drivers of this growth was a planned increase in salaries, as the Group raised its employee compensation to make it more competitive relative to current market levels, and also incurred higher social security taxes and bonus accruals off higher compensation budgets and profit levels. Other operating expenses increased by 30.3% compared with the first half of 2010, due mainly to costs incurred in relation to the Group’s continuing implementation of its strategy, notably in terms of new infrastructure projects, acquisitions, marketing and advertising. As a result, the Group’s cost to income ratio was 45.6% in 1H 2011 versus 40.2% in 1H 2010.
The Group’s net profit in 1H 2011 totaled RUB 176.1 bn versus RUB 64.3 bn in 1H 2010. The major reason for the near threefold increase was a higher operating income and a net recovery of loan impairment provisions in 1H 2011 instead of a charge in 1H 2010.
Total comprehensive income for 1H 2011 doubled to RUB 166.6 bn compared with RUB 87.7 bn for 1H 2010, with the increase almost entirely attributable to net profit growth.
As at 30 June 2011, the Group’s total assets reached RUB 9,078.9 bn, an increase of 5.2% since 31 December 2010.
The loan portfolio after provisioning for loan impairment increased by 10.2% in 1H 2011. Loans to individuals before provisions for loan impairment grew by 11.2% to RUB 1,467.3 bn as of 30 June 2011, while loans to legal entities before provisions at the same date increased 7.5% to RUB 5,239.6 bn. The Group continues to see loan demand picking up and is benefitting from an increased focus on retail loans which are growing faster than corporate loans.
The Group’s loan quality improved with non-performing loans (NPL), defined as loans for which payment of principal and/or interest is overdue by more than 90 days, decreasing from RUB 452.3 bn as at 31 December 2010 to RUB 445.2 bn as at 30 June 2011. The proportion of non-performing loans in the total loan portfolio (the NPL ratio) dropped to 6.6% as at 30 June 2011 compared with 7.3% at the beginning of the year. As at 30 June 2011, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) was 1.5, a level which the Group considers as comfortable. Provisions for loan impairment decreased by 6.1% reaching RUB 659.9 bn as at 30 June 2011. The ratio of provisions for loan impairment to total gross loans reached 9.8% compared with 11.3% at the beginning of the year.
The Group’s securities portfolio declined by 17.3% to RUB 1,508.8 bn as at 30 June 2011, mainly following the disposal / redemption of Bank of Russia bonds. As at 30 June 2011, federal government bonds accounted for the largerst part of its securities portfolio with a 47.9% share. The proportion of corporate bonds in the total securities portfolio increased from 19.4% as at the beginning of the year to 29.6% as at 30 June 2011. In absolute terms the portfolio of corporate bonds amounted to RUB 445.9 bn as at 30 June 2011, having grown 26.3% from the beginning of the year, mainly through purchases of corporate bonds issued by Russian companies, which the Group considers to be another form of corporate lending.
As at 30 June 2011, the Group’s total liabilities amounted to RUB 7,946.0 bn, a 4.0% increase since 31 December 2010. The Group’s liabilities structure remained largely stable throughout 1H 2011. Retail deposits, totaling RUB 5,089.7 bn as at 30 June 2011, have remained the core source of the Group’s funding, accounting for 64.1% of the Group’s total liabilities, and increased by 5.3% compared with year-end 2010. Corporate deposits rose 3.9% to RUB 1,887.3 bn as at 30 June 2011 compared with year-end 2010, and accounted for 23.8% of total liabilities.
The Group’s equity attributable to the Bank’s shareholders amounted to RUB 1,129.0 bn as at 30 June 2011, a 14.9% increase during the first half of 2011. As at 30 June 2011, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) calculated under Basel 1 was 17.9%, well above the 8% minimum requirement, and the Tier 1 ratio was 13.3%.
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