Sberbank reports 3Q 2018 Net Profit of RUB228.1 bn under International Financial Reporting Standards (IFRS)

Sberbank reports 3Q 2018 Net Profit of RUB228.1 bn under International Financial Reporting Standards (IFRS)

Moscow, November 1, 2018 - Sberbank (hereafter "the Group") has released its interim condensed consolidated IFRS financial statements (hereafter "the Financial Statements") as at and for the 9 months ended 30 September 2018, with report on review by AO PricewaterhouseCoopers Audit. All information is presented net of Denizbank A.S. operations, unless stated otherwise.

Alexander Morozov, Deputy Chairman of the Executive Board, CFO, commented: "the third quarter underwent through intensifying volatility, both on the global markets, and in Russia. That said, our business-model has yet again proven its resilience. Business development dynamics, including outpacing growth of usage of digital services among our clients, fortify our expectations. We are confident that our financial targets for 2018 would be met."  

The 3Q 2018 and 9M 2018 Financial Highlights:

• The Group net profit[i] reached RUB228.1 bn for 3Q 2018, and RUB655.5 bn for 9M 2018
• The Group earnings per ordinary share (EPS)i came at RUB29.91 per share for 9M 2018, up by 13.0% as compared to 9M 2017
• The Group annualized return on equity (ROE)i reached 25.5%, while the Group annualized return on assets (ROA)i reached 3.3%
• Net fee and commission income increased by 17.7% y/y to RUB114.6 bn
• The Group loan portfolio (includes loans at amortized cost and at fair value) increased by 3.5% during 3Q 2018 to RUB20.1 trn, with retail loans growing by 6.8% to RUB6.4 trn, and corporate loans to RUB13.7 trn, up by 2.0% during the quarter. Consequently, for 9M 2018 corporate loan portfolio increased by 8.1%, while retail loan portfolio expanded by 18.9%

Selected Financial Results

* Total equity / Total number of ordinary shares outstanding

** Operating income before provisions for debt financial assets, revaluation of loans at fair value due to change in credit quality and credit related commitments

Selected Balance Sheet Results

*  combined loans at amortized cost and at fair value

Net interest income was RUB359.3 bn in 3Q 2018, up by 3.2% y/y.

Total interest income (RUB557.7 bn, up by 3.1% y/y) during the quarter was influenced by dynamics in the loan portfolio: total gross loans growth (at amortized cost, gross, and at fair value), was up 3.5% to RUB20.1 trn in 3Q 2018 as compared to 2Q 2018. 

• Retail loan portfolio was up by 6.8% as compared to 2Q 2018 to RUB6.4 trn:
  • Prevailing market interest rates encouraged demand for consumer credit; Sberbank consumer unsecured loan portfolio was up by 8.8% q/q. Sberbank mortgage portfolio increased by 6.2% during the quarter.
  • The convenience and ease of applying for credit via Sberbank Online took the share of online sales of consumer loans in total number of unsecured loan issuances to 29% in September.
• Retail loan yields remained unchanged during the quarter at 13.0% as compared to 2Q 2018, on the back of the mix effect within the retail portfolio as consumer unsecured lending was growing faster.
• Corporate loan portfolio (at amortized cost and at fair value combined) came up by 2.0% to RUB13.7 trn, as compared to 2Q 2018. 
  • Based on management accounts, Ruble loan portfolio increased by 2.7% during the quarter, while FX portfolio, net of currency revaluation, was down by 1.5%.
• Corporate loan yields were down by 40 basis points to 7.9% in 3Q 2018 as compared to 2Q 2018 from gradual redemptions of older vintage loans at higher rates.

Total interest expense for 3Q 2018 increased by 3.0% from 3Q 2017 to RUB198.4 bn on the back of stabilization in the cost of funding:

• Client deposits portfolio increased by 3.6% in 3Q 2018 predominantly due to inflows of corporate deposits (+10.0% q/q).
• Cost of retail term deposits remained unchanged at 4.6% during 3Q 2018. Cost of corporate term deposits was up 40 basis points during the quarter to 3.4%; yet there was a 1.1% inflow of funds to current accounts to RUB2.4 trn for the same period.  
• Deposit insurance expenses increased by the 33.8% y/y in 3Q 2018 related to change in the allocation rate in 2018.   

Liquidity position of the Group in 3Q 2018 remained strong; net LDR ratio for 3Q 2018 was stable at 93.8% as compared to 2Q 2018.

• Net LDR by currency also demonstrated resilience, as net LDR in Rubles was at 100%, while in U.S. dollars remained at 70%.  

The Group 3Q 2018 net fee and commission income came at RUB114.6 bn, up by 17.7% from the year-ago period mainly from bank card operations:

• The number of issued retail bank cards reached 123,5 mn in 3Q 2018, adding over 1.1 mln for 9M 2018.
• Fees from acquiring, commissions of payment systems and other similar commissions, net of applicable costs and Loyalty programs expenses, increased by 27.3% in 3Q 2018 y/y.
• The number of cities that offer transportation acquiring reached 62 by the end of the quarter.
• Clients continue to go digital: the number of active retail digital users increased by 1.5 mn during the quarter to 62.4 mn, of which the number of daily users reached 16.7 mn (+32% y/y).
• The number of new corporate clients that chose to bank with Sberbank in 3Q 2018 exceeded 170 ths, which was 1.5X more than in the same period a year ago.    
• Net commission income from conversion operations increased by 31.4% y/y in 3Q 2018 mainly due to improvement in pricing offerings and development of the global markets platform Sberbank Markets.
• Sberbank became the leader in the brokerage services market, adding 149 ths retail accounts since the beginning of the year to over 400 ths brokerage accounts by the end of September, as this service became available via Sberbank Online.

The sales volumes of life insurance for 9M 2018 increased by 79% as compared to 9M 2017. Assets under management of the Wealth Management business increased by over 30% during 9M 2018 to RUB1.1 trln. 

The Group operating expenses (staff and administrative) for 3Q 2018 came at RUB156.8 bn, up by 6.4% from the same period a year ago. The increase was explained by the change in capitalization principles of expensing for in-house developed IT products in light of optimization of operations of the Technology Block to increase time-to-market of new products and services. Should this change has not taken place, operating expenses would have increased by 2.5%.

The Group headcounti in 3Q 2018 was down by 3.3 ths, or 1.1%, to 296.1 ths employees as a result of implementation of new technologies focused on increasing operating efficiencies.

The Group Cost-to-Income ratio improved to 30.6%.

The net provision charge for loan portfolio at amortized cost totaled RUB58.9 bn for 3Q 2018, affected by volatility in the exchange rate. This translated into the cost of risk (CoR) of 123 basis points for the quarter for the loan portfolio at amortized cost. The IFRS 9 standard reporting requires that loans at fair value are revalued through the Profit & Loss Statement. The credit impairment of loans at fair value in 3Q 2018 was RUB18.6 bn. Consequently, the combined CoR for loans at amortized cost and at fair value in 3Q 2018 was 157 bp (or 121 bp cumulative for 9M 2018).  

The total provision coverage of Stage 3 and POCI loans remained merely unchanged in 3Q 2018 at 91.6%. The share of Stage 3 and POCI loans of total gross loans at amortized cost also remained unchanged at 8.4%.  

Capital Adequacyi

The Group's total capital under Basel III (Standardised and IRB approach) reached RUB3.8 trn as of 30/09/2018, up by 4.7% as compared to 30/06/2018, mainly on the back of retained earnings.

The Group's risk-weighted assets decreased by 0.3% to RUB30.0 trn during 3Q 2018 from improved credit and market risks, down 0.1% and 8.1% respectively.

The Group leverage ratio improved to 11.4% from 10.9% in 3Q 2018.

Common equity Tier 1 capital adequacy ratio improved by 60 basis points to 11.9%, while total capital adequacy ratio increased by 60 basis points to 12.6% as of 30/09/2018.

[i] Including corresponding line from discontinued operations, that, effective May 2018, Denizbank is classified as

[ii] The line is composed of: Net (losses) / gains from non-derivative financial instruments at fair value through profit or loss (2017: Net gains from trading securities and securities designated as at fair value through profit or loss); Net gains from financial instruments at fair value through other comprehensive income (2017: Net gains from investment securities available-for-sale); Net gains from derivatives, trading in foreign currencies, foreign exchange and precious metals accounts translation; Net (losses) / gains arising on initial recognition of financial instruments and loan modification; Impairment of non-financial assets; Net charge for other provisions; Revenue of non-core business activities; Cost of sales and other expenses of non-core business activities; Net premiums from insurance and pension fund operations; Net claims, benefits, change in contract liabilities and acquisition costs on insurance and pension fund operations; Income from operating lease of equipment; Expenses related to equipment leased out; Other net operating income

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