Page 78 - RusRPTMar19

“A 12.0% y/y increase in F&C income and low provision charges (due to ruble appreciation) supported the bank's earnings. However, net interest income (NII) came under pressure from an increased cost of funding, with the 3mo rolling NIM down 8bp m/m to 5.9%, which raises concerns, in our view, with Sberbank targeting the protection of its market share of retail deposits and expecting a delay in the reversal of trends in NIM until 2Q19. The results are moderately negative amid NIM performance, in our view. We reiterate our 12- month Target Prices of RUB 360 for ords (ETR 75%) and RUB 320 for prefs (ETR 82%): Buys reiterated,” Svetlana Aslanova, a bank analyst with VTBC said.
The banking sector returned to profit in 2018, but the CBR is being extremely cautious in the face of more US sanctions and chose to shore up the ruble with two rate hikes in September and December to 7.75% that is now feeding through to bank profits, as the cost of borrowing has gone up marginally.
The rate hikes have also fed through to the mortgage business where rates have increased again after falling below 10% to post Soviet low towards the end of last year.
“The recent increase in mortgage rates might help NIM in the medium term, although management expects a reversal in the trend only in 2Q19. Net fees and commissions (F&C) income declined 35% m/m, and was up 12.0% y/y amid seasonal pressures of high transactions with cards, but management targets a 15% y/y growth for FY performance,” Aslanova added.
Corporate loans declined 2.0% m/m; however, excluding the FX effect, the portfolio contracted only 0.5% m/m amid demand for ruble denominated loans that balanced deleveraging in FX loans. The retail portfolio showed an unusual 1.0% m/m increase, stoked by a shift of demand as loan rates started to climb, as well as the low base effect after Sberbank sold part of its mortgage loans in December. Retail deposits were down 3.3% m/m (-2.5% w/o FX effect), which is in line with the seasonal trend. This outflow was balanced by a 4.1% (6.3%) increase in corporate accounts.
“The capital position remains strong despite regulatory changes. Both N1.1 and N1.0 remained flat m/m at 11.0% and 14.8%, respectively. These ratios include new regulatory deductions from capital (irrelevant for IFRS), lower RWA amid the FX factor, but do not include 2H18 RAS earnings before they are audited,” Aslanova concluded.
Russia’s retail banking powerhouse Sberbank increased the authorized capital of its Ukrainian subsidiary bank by UAH3.3bn ($122mn), or by 15.9%, to UAH24.065bn, the bank said on February 12. As a result of the increase in the authorized capital, the bank has formed additional reserves for loans, as well as increased capital adequacy, the bank said. Sberbank last year returned a loss of UAH7.6bn, after it was sanctioned by the National Bank of Ukraine (NBU). In January, the NBU fined the Ukrainian daughter bank UAH94.737mn for “risky activities.” Sberbank is appealing the penalty in court. Sberbank established a subsidiary bank in Ukraine in 2001. According to the Ukrainian regulator, as of December 1 of last year, the bank held 11th place in the Ukrainian banking system in terms of net assets of UAH31.824bn.
78 RUSSIA Country Report March 2019 www.intellinews.com