OREANDA-NEWS. November 28, 2014. Sberbank (hereafter ”the Group”) has released its interim condensed consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 30 September 2014 and for the nine months ended 30 September 2014, with an independent review report by Ernst & Young Vneshaudit.

Income Statement highlights:

Net profit for the nine months ended 30 September 2014 reached RUB 241.3 bn (or RUB 11.13 per ordinary share) compared to RUB 268.3 bn (or RUB 12.40 per ordinary share) for 9m 2013. The decline in net profit was mainly driven by provision charge for loan impairment.

Net interest income for 9m 2014 increased by 19.5% to RUB 745.1 bn, compared to RUB 623.3 bn for 9m 2013.

Net interest margin for 9m 2014 declined by 10 basis points as compared to 9m 2013 to 5.7%.

Net fee and commission income for 9m 2014 increased by 24.9% to RUB 192.3 bn, compared to RUB 154.0 bn for 9m 2013.

The Group’s operating income before provision charge for impairment of debt financial assets for 9m 2014 increased by 18.8% to RUB 960.6 bn compared to RUB 808.6 bn for 9m 2013 and was driven by growth of net interest income and net fee and commission income.

Operating expensesfor 9m 2014 increased by 10.2% year-on-year, slower than operating income. As a result, Cost to Income ratio improved to41.5% versus 44.8% for 9m 2013.

Net provision charge for loan impairment for 9m 2014 amounted to RUB253.6bn, translating to Cost of risk of 231 basis points.

Statement of financial position highlights:

As of 30 September 2014, the Group’s total assets reached RUB 20,678.9 bn showing a 13.6% growth (18.1% annualized) compared to the 2013 year end, the main driver of the growth being an increase in loans to customers.

For 9m 2014, net loans and advances to customers increased by 16.4% (21.9% annualized) to RUB 15,060.4 bn compared to RUB 12,933.7 bn at 2013 year end.

For 9m 2014, the proportion of non-performing loans in Group’s total gross loans increased to 3.5% as of 30 September 2014 (31 December 2013: 2.9%).

Customer deposits increased by 9.5% (12.7% annualized) to RUB 13,210.1 bn compared to RUB 12,064.2 bn at the 2013 year end, with corporate deposits being the main driver of the growth.

The Group’s Equity increased for 9m 2014 by 7.0% (9.4% annualized) to RUB 2,013.8 bn, with net profit being the major driver.

The total capital adequacy ratio (Basel 1) improved by 60 basis points for 9m 2014 to 14.0%. The core capital adequacy ratio decreased by 50 basis points to 10.1%.

Financial and Operating Review:

Interest income for 9m 2014 increased by 22.2% year-on-year to RUB 1,316.7 bn. The increase is attributable to a significant expansion in volumes of both corporate and retail loans.

Interest expenses (including deposit insurance expenses) for 9m 2014 increased by 25.8% year-on-year to RUB 571.6 bn. The largest component of interest expenses was related to retail deposits, which are the core source of funds for the Group. In 3Q 2014, the cost of term retail deposits remained stable at 5.2% as in 2Q 2014, while the average cost of term corporate deposits in 3Q 2014 decreased to 5.4% versus 5.8% in 2Q 2014. Yet the largest driver of interest expenses growth in 2014 were borrowings from banks (primarily from the Central Bank of Russia) because of their larger volumes and higher costs. As a result, interest expenses on borrowings from banks increased by 126.8% year-on-year and on subordinated debt by 33.3%.

Net interest income for 9m 2014 totaled RUB 745.1 bn, a 19.5% increase year-on-year. The increase is driven by growth of interest earning assets, primarily loans. Net interest income remains the main component of the Group’s operating income accounting for 77.6% of total operating income before provision charges for impairment of debt financial assets. Net interest margin declined by 10 basis points to 5.6% in 3Q 2014 following the funding cost increase.

The Group’s net fee and commission income for 9m 2014 totaled RUB 192.3 bn, a 24.9% increase year-on-year. Income from operations with bank cards was the key driver of the growth, expanding by 34.6% year-on-year. Customer cash and settlement transactions also remained an important source of fee and commission income, their share in fee and commission income for 9m 2014 is 43.3%.

Other operating income for 9m 2014, which includes net results from operations with securities, foreign exchange, derivatives and precious metals and other items, totaled 23.2 bn versus 31.3 bn for 9m 2013, and comprised 2.4% of Operating income before provision. The main components of other operating income were gains from foreign exchange and derivatives.

Total operating income before provision charge for impairment of debt financial instruments for 9m 2014 reached RUB 960.6 bn compared to RUB 808.6 for 9m 2013, an 18.8% increase year-on-year. The growth was driven primarily by the growth of net interest income and net fee and commission income.

Net provision charge for loan impairment for 9m 2014 totaled RUB 253.6 bn compared to RUB 106.8 bn for 9m 2013 translating into Cost of risk of 231 basis points versus 123 basis points for 9m 2013. The main drivers of the cost of risk were general deterioration of the loan quality in view of slowdown of the Russian economy and in particular creation of one-off provisions against some large borrowers; depreciation of the Rouble which meant creating additional provisions in Rouble terms against foreign currency loans even though their quality remained unchanged; creation of provisions against Ukrainian borrowers because of deterioration of the Ukrainian economy.

The Group's operating expenses for 9m 2014 increased by 10.2% year-on-year to RUB 399.0 bn. The main driver of this growth is an increase in staff costs as a result of business growth. Since operating income growth outpaced the growth of operating expenses, the Group's cost to income ratio for 9m 2014 decreased to 41.5% versus 44.8% for 9m 2013.

The Group’s net profit for 9m 2014 reached RUB 241.3 bn versus RUB 268.3 bn for 9m 2013, a 10.1% decrease year-on-year. The decrease in net profit for 9m 2014 as compared to 9m 2013 is explained mostly by the significant increase in net provision charge for loan impairment.

As of 30 September 2014, the Group’s total assets reached RUB 20,678.9 bn, a 13.6% (or 18.1% annualized) increase since 31 December 2013.

For 9m 2014, the Group’s gross loan portfolio before provision for loan impairment increased by 17.1% (or 22.8% annualized). Gross loans to corporate clients increased by 16.3% (21.7% annualized) to RUB 11,393.0 bn; loans to individuals increased by 19.3% (25.8% annualized) to RUB 4,472.0 bn. Mortgage loan portfolio grew up by 28.2% for 9m 2014 (37.5% annualized) and was the main driver for retail loan portfolio growth.

The proportion 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 for 9m 2014 to 3.5% as at 30 September 2014 compared to 2.9% at the 2013 year end. The NPL coverage ratio (total provisions for loan impairment to non-performing loans) remains stable at 1.5 for 9m 2014. Provisions for loan impairment increased for 9m 2014 by 31.8% (42.4% annualized) reaching RUB 804.6 bn. As of 30 September 2014, the proportion of provisions for loan impairment to total gross loans was 5.1% compared with 4.5% at 2013.

As of 30 September 2014, the Group’s total liabilities amounted to RUB 18,665.1 bn, a 14.3% (19.1% annualized) increase for 9m 2014 while retail deposits, totaling RUB 8,608.3 bn. Retail deposits remain the core source of the Group’s funding, accounting for 46.1% of the Group’s total liabilities. Corporate deposits increased to RUB 4,601.8 bn as at 30 September 2014 showing a 26.8% (35.8% annualized) growth for the 9m 2014, while their share in total liabilities amounted to 24.7%.

As of 30 September 2014, the Group’s amounts due to bankstotaled 2,472.2 bn, a 17.1% (22.8% annualized) increase since the beginning of 2014.

At 30 September 2014, the Group’s exposure to Ukrainian risk amounted to approximately 0.6% of total consolidated assets; this represents a 0.2 percentage point decrease as compared to 0.8% at 31 December 2013.

The Group’s equity amounted to RUB 2,013.8 bn as at 30 September 2014, a 7.0% (9.4% annualized) increase for 9m 2014. As at 30 September 2014, the Group’s total capital adequacy ratio as per Basel 1 reached 14.0%, well above the 8% minimum requirement, and the Tier 1 ratio was 10.1%. The improvement of total capital adequacy ratio as of 30 September 2014 is mostly explained by an increase in subordinated debt received from the Central Bank of Russia in 2Q 2014.