OREANDA-NEWS. November 29, 2013. Sberbank (hereafter ”the Group”) has released its interim condensed consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 30 September 2013 and for nine months ended 30 September 2013, with an review report by Ernst & Young.

IncomeStatementhighlights:

Net profit for nine months ended 30 September 2013 reached RUB 268.3 bn (or RUB 12.40 per ordinary share) compared to RUB 262.8 bn (or RUB 12.13 per ordinary share) for the the same period of 2012.

Net interest income increased by 23.7% for 9m 2013 to RUB 623.3 bn, compared to RUB 503.8 bn for 9m 2012. Excluding the effect of DenizBank acquisition in 3Q 2012, the Group’s Net interest income increased for 9m 2013 by 15.6% year-on-year.

Net interest margin for 9m 2013 declined by 20 basis points as compared to 9m 2012 but remained strong at 5.8%.

Net fee and commission income increased by 28.2% for 9m 2013 to RUB 154.0 bn, compared to RUB 120.1 bn for 9m 2012. Excluding the effect of DenizBank acquisition in 3Q 2012, the Group’s Net fee and commission income increased for 9m 2013 by 21.0% year-on-year.

The Group’s operating income before provision for loan impairment increased by 22.5% to RUB 808.6 bn as compared to RUB 660.0 bn for 9m 2012 and was driven mainly by growth of net interest income, net fee and commission income and supported by DenizBank acquisition. Excluding the effect of DenizBank acquisition in 3Q 2012, the Group’s operating income before provision for loan impairment increased for 9m 2013 by 13.5% year-on-year.

Operating expenses increased by 17.2% year-on-year, slower than operating income. As a result, Cost to Income ratio improved to44.8% versus 46.8% for 9m 2012. Excluding the effect of DenizBank acquisition in 3Q 2012, the Group’s operating expenses increased for 9m 2013 by 9.4% year-on-year and Cost to Income ratio would have been 45.0%.

Net provision charge for loan impairment amounted to RUB106.8bn and was translated to annualized Cost of risk of 120 basis points for 9m 2013.

Statement of financial position highlights:

As of 30 September, 2013, the Group’s total assets reached RUB 16,689.4 bn showing a 10.5% (14.0% annualized) growth compared to 2012 year end, the main driver for the growth being an increase in loans to customers.

For 9m 2013, loans and advances to customers increased by 12.0% (16.0% annualized) to RUB 11,760.6 bn compared to RUB 10 499.3 bn at 2012 year end.

In 9m 2013, the proportion of non-performing loans in Group’s total gross loans remains stable and accounted to 3.3% as of 30 September 2013 (31 December 2012: 3.2%).

Customer deposits increased by 10.6% to RUB 11,258.4 bn compared to RUB 10,179.3 bn at 2012 year end.

The Group’s Equity increased for 9m 2013 by 10.8% to RUB 1,799.5 bn, with net profit for the period being the major driver for increase which was partly offset by a dividend payout.

The total capital adequacy ratio remained unchanged as at 30 September 2013 compared to 2012 year end and accounted to 13.7%. The core capital adequacy ratio improved for 9m 2103 by 20 basis points up to 10.6%.

Financial and Operating Review:

Interest income for 9m 2013 increased by 32.0% year-on-year to RUB 1,077.7 bn. The increase is attributable mostly to a significant expansion of volumes of both corporate and retail loans in 2012 and the expansion of retail lending for 9m 2013, and, to a lesser degree, to higher yields on loans.

Interest expenses for 9m 2013 increased by 45.2% year-on-year to RUB 454.4 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 for 9m 2013 and reached 5.6%, as customers were able to add funds to the earlier opened deposits with high interest rates.

Net interest income for 9m 2013 totaled RUB 623.3 bn, a 23.7% increase year-on-year. The increase is driven by growth of interest earning assets in 2012 and 9m 2013, primarily loans, and DenizBank acquisition. Net interest income remains the main component of the Group’s operating income accounting for 77.1% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income for 9m 2013 totaled RUB 154.0 bn, a 28.2% increase year-on-year. Income from operations with bankcards was the key driver of the growth, expanding by 55.2% year-on-year. Customer cash and settlement transactions also remained core source of fee and commission income, their share in fee and commission income being 44.9% for 9m 2013.

Other operating income, which includes amongst others net gains from operations with securities, foreign exchange, derivatives and precious metals and other items, equaled to 3.9% of Operating income before provisions and decreased by 13.3% year-on-year. The main driver for the decrease is a reduction of profit from non-financial business activities by 86.2% year on year following the sale of significant non-financial operations at the end of 2012 – beginning 2013.

Total operating income before provision for loan impairment for 9m 2013 reached RUB 808.6 bn compared to RUB 660.0 bn for 9m 2012, a 22.5% increase 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 totalled to more than 96.1% of total operating income. The acquisition of DenizBank in 3Q 2012 brought a significant volume of operating income to the Group.

Net provision charge for loan impairment for 9m 2013 totaled RUB 106.8 bn compared to RUB 10.6 bn for 9m 2012 and was translated into a 120 basis points of the annualized cost of risk. This result represents a gradual return to a more normalized level of the cost of risk by the end of the recovery cycle.

The Group's operating expenses for 9m 2013 increased by 17.2% year-on-year to RUB 362.1 bn. The main driver of this growth was the acquisition of DenizBank which accounts for 47.5% of the increase. Since operating income growth outpaced the growth of operating expenses, the Group's cost to income ratio for 9m 2013 decreased to 44.8% versus 46.8% for 9m 2012.

The Group’s net profit for 9m 2013 reached RUB 268.3 bn versus RUB 262.8 bn for 9m 2012, a 2.1% increase year-on-year. Slow growth of net profit for 9m 2013 as compared to the same period a year ago is explained by an increase in provisioning for loan impairment.

As of 30 September 2013, the Group’s total assets reached RUB 16,689.4 bn, a 10.5% (14.0% annualized) increase since 31 December 2012.

During 9m 2013, the Group’s gross loan portfolio before provision for loan impairment grew by 11.8% as a result of demand for loans primarily from individual clients in Russia, Turkey and CIS. Gross loans to corporate clients started to pick up only in the 2nd and 3rd quarters of 2013 and grew by 8.7% to RUB 8,942.6 bn compared to 2012 year-end, and loans to individuals increased by 21.0% to RUB 3,432.3bn for the same period.

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) remained stable in 2013 and accounted to 3.3% as at 30 September 2013 compared to 3.2% at the beginning of 2013. The NPL coverage ratio (total provisions for loan impairment to non-performing loans) decreased from 1.6 times at the beginning of 2013 to 1.5 times at 30 September 2013. Provisions for loan impairment increased for 9m 2013 by 8.7% reaching RUB 614.3 bn. As of 30 September 2013, the proportion of provision for loan impairment to total gross loans was 5.0% compared with 5.1% at the beginning of the 2013.

As at 30 September 2013, the Group’s total liabilities amounted to RUB 14,889.9 bn, a 10.5% (14% annuaized) increase since 31 December 2012. Retail deposits, totaling RUB 7,593.1 bn as at 30 September 2013, increased by 8.7% since 31 December 2012 and remain the core source of the Group’s funding, accounting for 51.0% of the Group’s total liabilities. Corporate deposits also increased during the discussed period and amounted to RUB 3,665.3 bn as at 30 September 2013 showing a 14.7% growth, while their share in total liabilities amounted to 24.6%.

Loan portfolio continuing pick up and some slow down of customer deposit growth in 3Q 2013 resulted in a slight increase of the loan to deposit ratio to 101.5% at 30 September 2013 (31 December 2012: 100.9%).

As at 30 September 2013, the Group’s amounts due to bankstotaled 1,348.4 bn, a 7.2% decrease since the beginning of 2013.

The Group’s equity amounted to RUB 1,799.5 bn as at 30 September 2013, a 10.8% increase for 9m 2013. As at 30 September 2013, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) as per Basel 1 was 13.7%, well above the 8% minimum requirement, and the Tier 1 ratio was 10.6%. The increase in Tier 1 ratio since the beginning of 2013 was primarily driven by the growth of Tier 1 capital primarily due to faster increase in retained earnings than the growth of RWA.