OREANDA-NEWS. May 31, 2013. Sberbank Group (hereafter ”the Group”) has released its interim condensed consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 31 March 2013 and for three months ended 31 March 2013, with an independent review report by Ernst & Young Vneshaudit.

IncomeStatementhighlights:
Net profit for three months ended 31 March 2013 reached RUB 88.5 bn (or RUB 4.10 per ordinary share), showing a 4.0% decrease on RUB 92.2 bn (or RUB 4.28 per ordinary share) for the the same period of 2012.

Net interest margin for Q1, 2013 declined by 10 basis points to 5.9% as compared to Q1, 2012.
Net fee and commission income increased by 23.7% in Q1, 2013 to RUB 44.3 bn, compared to RUB 35.8 bn in Q1, 2012.

The Group’s operating income before provision for loan impairment increased by 23.8% to RUB 254.1 bn as compared to RUB 205.3 bn for Q1, 2012 and was driven mainly by growth of net interest income and net fee and commission income.

Operating expenses increased by 19.3% year on year, slower than operating income. As a result, Cost to Income ratio improved to 44.0% versus 45.6% for Q1, 2012.

Return on equity remained high at21.3%in Q1, 2013 versus 27.9% in Q1, 2012.

Statement of financial position highlights:
As of 31 March, 2013, the Group’s total assets were close to the level of the 2012 year end.

In Q1, 2013, the proportion of non-performing loans in Group’s total net loans increased by 10 basis points to 3.3%. This is explained mainly by seasoning of the outstanding loans on the back of slow new loan growth in Q1, 2103.

Interbank borrowings decreased by ~ RUB 400 bn in Q1, 2013 following repayment of significant volume of CBR financing.

Loan to deposit ratio slightly improved to 100.3% during Q1, 2013 as compared to 100.9% at 2012 year end.

The Group’s Equity increased in Q1, 2013 by 5.2% to RUB 1,707.6 bn, with net profit for the period accounting for the increase.

Total capital adequacy ratio improved by 50 basis points during Q1, 2013 to 14.2%. Core capital adequacy ratio also improved by 50 basis points up to 10.9%.

Financial and Operating Review:
Interest income for Q1, 2013 increased by 38.0% year-on-year to RUB 344.6 bn. The increase is attributable mostly to a significant expansion of volumes of both corporate and retail loans in 2012 and, to a lesser degree, to higher yields on loans.

Interest expenses for Q1, 2013 increased by 54.6% year-on-year to RUB 144.4 bn. The largest component of interest expenses was related to retail deposits, which are the core source of funds for the Group. Although Sberbank started decreasing interest rates payable on retail time deposits, the cost of retail deposits increased in Q1, 2013. This came as customers added funds to top-up deposits with high interest rates. In Q1, 2013, client deposits grew at a faster pace than loans, and the Group used deposits inflow to reduce its interbank exposure.

Net interest income for Q1, 2013 totalled RUB 200.2 bn, a 28.1% increase year-on-year. The increase is driven by growth of interest earning assets in 2012, primarily loans. Net interest income remains the main component of the Group’s operating income accounting for 78.8% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income for Q1, 2013 totalled RUB 44.3 bn, a 23.7% increase year-on-year. Income from operations with bankcards was the key driver of the growth, expanding by 54.5% year-on-year. Customer cash and settlement transactions also remained core components of fee and commission income.

Other operating income, which includes amongst others net gains from operations with securities, foreign exchange, derivatives and precious metals and other items, comprised 3.8% of Operating income before provisions and decreased by 27.3% year-on-year.

Total operating income before provision for loan impairment for Q1, 2013 reached RUB 254.1 bn compared to RUB 205.3 bn for Q1, 2012, a 23.8% increase year-on-year. Excluding the effect of DenizBank acquisition in 4Q2012, the Group’s Operating income increased in Q1, 2013 by 14.4% year-on-year. The growth was driven primarily by the expansion of the Group’s core banking business, as net interest income and net fee and commission income together comprised more than 96% of total operating income.

Net provision charge for loan impairment for Q1, 2013 totalled RUB 31.8 bn compared with the release of RUB 3.2 bn worth of provisions in Q1, 2012. This result represents a gradual return to a more normalized level of cost of risk by the end of the recovery cycle.

The Group's operating expenses in Q1, 2013 increased by 19.3% to RUB 111.8 bn. Excluding the effect of DenizBank acquisition in 4Q2012, the Group’s operating expenses increased by 10.3%. The main driver of this growth was higher personnel expense which is explained by (i) the effect of bringing the remuneration levels in line with the market and (ii) increase in headcount. Since operating income growth outpased growth of operating expenses, the Group's cost to income ratio for Q1, 2013 reached 44.0% versus 45.6% for Q1, 2012.

The Group’s net profit for Q1, 2013 reached RUB 88.5 bn versus RUB 92.2 bn for Q1, 2012, a 4.0% decrease year-on-year. As discussed above, lower net profit in Q1, 2013 as compared to the same period a year ago is by conservative approach towards provisioning for loan impairment.

As of 31 March 2013, the Group’s total assets reached RUB 15,115.6 bn, a 0.1% increase since 31 December 2012.

In Q1, 2013, the Group’s gross loan portfolio before provision for loan impairment grew by 1.3% as a result of lower demand for loans from corporate clients in Russia. Some decrease in Sberbank’s loan portfolio was compensated by strong lending business of the Group’s subsidiaries in Turkey and CIS. Since loan portfolio in Q1, 2013 was growing at a slower pace than customer deposits, loan to deposit ratio slightly improved to 100.3% as compared to 100.9% at the beginnning of the year.

The Group’s loan portfolio quality remained stable. The portion of non-performing loans (NPL), defined as loans for which payment of principal and/or interest is overdue by more than 90 days, in the total loan portfolio (the NPL ratio) increased by 10 basis points to 3.3% as at 31 March 2013 compared with 3.2% at the beginning of 2013. The increase of NPL is explained primarily by seasoning of the Group’s loan portfolio on the back of lower demand for new loans. As at 31 March 2013, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) stayed unchanged at 1.6. Provisions for loan impairment increased in Q1, 2013 by 3.1% reaching RUB 582.6 bn. As of the 2013 first quarter end, the proportion of provisions for loan impairment to total gross loans was 5.2% compared with 5.1% at the beginning of the year.

The Group’s securities portfolio decreased in Q1, 2013 by 4.1% to RUB 1,888.0 bn. As at 31 March 2013, Russian federal government bonds decreased by RUB 68.0bn as a result of redemptions compared to the beginning of the year.

As at 31 March 2013, the Group’s total liabilities amounted to RUB 13,408.0 bn, a 0.5% decrease since 31 December 2012. Retail deposits, totalling RUB 7,125.5 bn as at 31 March 2013, remain the core source of the Group’s funding, accounting for 53.1% of the Group’s total liabilities. They increased for the quarter by 2.0% compared with year-end 2012. Corporate deposits remained stable during the discussed period and amounted to RUB 3,199.5 bn as at 31 March 2013, while their share in total liabilities was 23.9%.

As at 31 March 2013, the Group’s amounts due to banks totaled 1,046.0 bn, a 28.0% decrease since the beginning of 2013. The main driver of the decrease was faster growth of customer deposits compared to the expansion of the Group’s assets.

The Group’s equity amounted to RUB 1,707.6 bn as at 31 March 2013, a 5.2% increase for Q1, 2013. As at 31 March 2013, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) as per Basel 1 was 14.2%, well above the 8% minimum requirement, and the Tier 1 ratio was 10.9%. The increase in capital adequacy ratio since the beginning of 2013 was primarily driven by a slowdown in RWA growth as compared to increase in capital.