OREANDA-NEWS. November 14, 2014. Please note that the numbers are calculated in accordance with Sberbank`s internal methodology.

Income Statement Highlights for 10M 2014 (as compared to 10M 2013):
Net interest income increased by 21.6% y-o-y
Net fee and commission income grew by 22.2% y-o-y
Noncredit commission income grew by 24.3% y-o-y
Operating income before total provisions increased by 28.6% y-o-y
Total provision charge was RUB311.5 bn vs. RUB99.5 bn charge for 10M 2013
Operating expenses were up by 12.3% y-o-y

A sizable provision charge was the main reason to a negative dynamic in net profit. Net profit before income tax amounted to RUB370.3 bn, down by 5.4% vs. 10M 2013. Net profit totaled RUB293.9 bn, down 7.8% from that of January-October 2013. Please also note that comparison to Net profit for the same period of 2013 is skewed due to adjustments that reflect new CBR regulation on deferred tax assets and liabilities that came into force since May 2014. Excluding the effect of the one-off change in accounting, net profit would have amounted to RUB303.0 bn.

Net interest income came at RUB711.6 bn, up by 21.6% compared to that of January-October 2013:

Interest income increased by RUB245.7 bn driven by both corporate and retail loan portfolio growth;

Interest expenses increased by RUB119.4 bn due to deposits growth (both customer and corporate) and increase in CBR funding volumes and costs;

Net fee and commission income amounted to RUB219.2 bn; up by 22.2% y-o-y compared to that of January-October 2013, contributed primarily by noncredit commission income that was up by 24.3%, mostly driven by bank cards transactions and acquiring, which accounted for over 60% of the growth. Insurance, pension and investment products, guarantees issuance and trade finance also demonstrated strong growth.

Net income from trading operations amounted to RUB73.1 bn, including RUB40.6 bn in October, primarily from conversion operations. In addition to a rather elevated demand for foreign currency from corporate and retail clients in October, the growth in net income from trading operations was driven by the following factors:

In accordance with local regulatory accounting principles, provision expenses related to revaluation of FX loans on ruble devaluation are reported as conversion income (with a positive sign). In October conversion income was RUB11.6 bn;

Positive revaluation of investments in foreign subsidiaries in the amount of RUB27.3 bn in October (RUB48.5 bn for 10M2014). Please note that as per new regulatory change in accounting for investments in foreign subsidiaries effective November 1, 2014, the full amount of revaluation accumulated in 2014 would no longer be reflected in the Profit & Loss Statement.

Operating income before provisions increased by 28.6% to exceed RUB1 trn.

Operating expenses increased by 12.3%. C/I ratio for January-October 2014 decreased by 4.9 pp to 33.7%. The Bank continues to optimize its expenses to maintain the trend when pre-provision operating income growth (28.6% for 10M2014) significantly outpaces operating expenses increase (12.3% for 10M2014).

Total provision charges amounted to RUB311.5 bn vs. RUB99.5 bn charge a year earlier. The Bank formed a significant amount of provisions in October urged by the following three factors:

The Bank increased provisions to nearly 100% of its total exposure to a single large corporate loan and was forced to take the case to court as the client failed to fulfil its current debt obligations;

Ruble devaluation relative to key foreign currencies, which required to form additional reserves in the amount of RUB11.6 bn for FX loans, even when the latter demonstrated no quality deterioration;

Worsening of the macroeconomic situation in the Ukraine advance quality deterioration of the Ukrainian corporate loan book.

Overall the Bank continues to practice a conservative approach in loan-loss provisioning based on requirements of the Central Bank of Russia. Coverage ratio remained strong: loan-loss provisions are 2.3 times the overdue loans.

As a result of sizable provision charges in October net profit before income tax for 10M2014 amounted to RUB370.3 bn, down by 5.4% from that for January-October 2013. Net profit totaled RUB293.9 bn, down 7.8% from that of January-October 2013. Please also note that comparison to Net profit for the same period of 2013 is skewed due to adjustments that reflect new CBR regulation on deferred tax assets and liabilities that came into force since May 2014. Excluding the effect of the one-off change in accounting, net profit would have amounted to RUB303.0 bn.

In October assets increased by 2.9%, or RUB525 bn. The growth of the Balance Sheet was further influenced by positive revaluation of FX component on ruble devaluation. Assets growth for 10M 2014 reached RUB2.4 trln, or up by 14.5%, mainly due to total loan portfolio growth.

The Bank lent about RUB590 bn to corporate clients in October. Total corporate loan issues for 10M 2014 reached RUB5.9 trln, or by 12% more than for the same period last year. Total corporate loan portfolio increased by RUB338 bn in October driven by both new loan demand as well as positive revaluation of previously issued FX loans. Total corporate loan portfolio for 10M 2014 increased by RUB1.6 trln, or 18.4%, to reach about RUB10.2 trln.

The Bank lent about RUB160 bn to retail clients in October. Total retail loan issues for 10M 2014 reached nearly RUB1.7 trln, which exceeded the amount of issues for the same period last year (excluding the credit cards turnover) by 17%. Total retail loan portfolio increased by RUB57 bn in October to reach about RUB4.0 trln. The increase of the retail loan portfolio for 10M 2014 amounted to RUB643 bn, or up 19.3%.

Overdue loans came at 2.4% of total loans (as of November 1, 2014), up by 10bp for the month.
Securities portfolio increased by RUB42 bn, or 2.3% in October mainly from revaluation effect from Eurobonds of the Russian Federation and corporate Eurobonds.

Corporate funding increased by RUB178 bn in October due to term deposits. Corporate deposits and accounts portfolio increased by RUB630 bn, or 20.2%, for 10M 2014. Retail deposits and accounts increased by RUB124 bn in October, or by RUB140 bn for 10M2014 (up 1.7% YTD for 10M2014). The funding base was substantially influenced by FX revaluation.

Core Tier 1 and Tier 1 capital* (equal since Sberbank does not have instruments of additional capital) reached RUB1,605 bn as of November 1, 2014 under preliminary calculations. Total capital amounted to RUB2,251 bn on the same date. Key constituents to affect total capital in October were net profit contribution (+RUB7 bn), FX revaluation of investments in subsidiaries and issued subordinated debt (-RUB30 bn), and Sberbank’s raised subordinated debt revaluation (+RUB8 bn). Furthermore, the change in the CBR regulation 395-P (effective October 1, 2014) in regards to accounting for derivatives now states that the full amount (both realized and unrealized) of revaluation of derivatives is included in total capital; hence, added RUB12 bn to Sberbank’s total capital in October.  

As a result, total capital decreased by RUB8 bn in October.

Total capital adequacy level was also affected by growth in risk-weighted assets, related to revaluation of FX component.

Capital adequacy ratios under preliminary calculations as of November 1, 2014 were:
N1.1 – 8.6% (minimum adequacy level, required by the Central Bank of Russia at 5.0%)
N1.2 – 8.6% (minimum adequacy level, required by the Central Bank of Russia at 5.5%)
N1.0 – 12.0% (minimum adequacy level, required by the Central Bank of Russia at 10.0%, considering Deposit Insurance Regulation).
 
* Effective from January 1, 2014 are changes to capital level calculation under CBR regulation No 395-P and instruction No 139-I.