Sberbank reports 2Q 2018 Net Profit of RUB215.3 bn, or RUB9.13 per ordinary share, under International Financial Reporting Standards (IFRS)

August 23, 2018

 

Moscow, August 23, 2018 - Sberbank (hereafter "the Group") has released its interim condensed consolidated IFRS financial statements (hereafter "the Financial Statements") as at and for the 6 months ended 30 June 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: "Sberbank delivered strong 2Q 2018 results, securing ROE over 24% and earnings per share growth over 14% y/y. Despite the increased market volatility and external challenges Sberbank takes firm steps toward achieving its Strategy 2020 goals: the number of active retail digital channel users exceeds 60 mln, the number of active corporate digital channel clients is over 1.7 mln, while the share of online sales of certain products exceeds 40%. In 2Q 2018 Sberbank showed an outpacing growth in net fees and commissions and improvement in operating efficiency. The first half results and current business dynamics form a foundation for an upside revision of our 2018 targets."  

  

The 2Q 2018 Financial Highlights:

 

• The Group net profit reached RUB215.3 bn, including net profit of Denizbank A.S. of RUB7.0 bn
• The Group earnings per ordinary share (EPS) came at RUB9.13, up by 14.4% compared to 2Q 2017
• The Group annualized return on equity (ROE) reached 24.4%, while the Group annualized return on assets (ROA) reached 3.3%
• Net fee and commission income increased by 29.1% y/y to RUB113.7 bn
• The Group Cost-to-Income ratio improved to 32.2%
• The Group loan portfolio (includes loans at amortized cost and at fair value) increased by 6.4% during 2Q 2018 to RUB19.5 trn, with retail loans growing by 6.5% to RUB6.0 trn, and corporate loans - to RUB13.5 trn, up by 6.3% during the quarter
• Following closure of the Yandex deal to set up a joint venture, Yandex.Market B.V., the Group started disclosing the JV in Investments in associates and joint ventures
• Effective 2Q 2018 the Group started implementing IRB approach in assessing capital and risk-weighted assets that had an immediate positive effect of 20 basis points on CET1 ratio, with further upside expected toward the end of the year from RWA optimization

  

Selected Financial Results
 

RUB bn, unless stated otherwise	2Q 2018	2Q 2017	2Q18/ 2Q17, % change
Net interest income	349.0	331.2	5.4%
Net fee and commission income	113.7	88.1	29.1%
Other non-interest income / (expense)[i]	22.7	35.0	(35.1%)
Negative revaluation of loans at fair value due to change in credit quality	(26.4)	na	na
Total revenues	459.0	454.3	1.0%
Net credit loss allowance charge for debt financial assets	(45.5)	(84.1)	(45.9%)
Staff and administrative expenses	(153.4)	(148.6)	3.2%
Net profit  from continuing operations	208.3	177.2	17.6%
Profit from discontinued operations	7.0	8.4	(16.7%)
Net profit	215.3	185.6	16.0%
Earnings per ordinary share  from continuing operations, RUB	9.13	7.98	14.4%
Total comprehensive income  from continuing operations	181.6	190.7	(4.8%)
Book value per share *, RUB	154.5	152.1	1.6%
Ratios  based on continuing operations
Return on equity	24.4%	24.8%
Return on assets	3.3%	na
Net interest margin	5.8%	na
Cost of risk (amortized cost loans)	97 bp	na
Cost of risk (amortized cost + FV loans)	149 bp	na
Cost-to-income ratio	32.2%	32.7%

* Total equity / Total number of ordinary shares outstanding, unaudited

 
Selected Balance Sheet Results

RUB bn, unless stated otherwise	30/06/18	31/03/18	01/01/18	30/06/18 vs. 31/03/18  %	30/06/18 vs. 01/01/18  %
Gross total loans *	19 460.0	18 292.3	18 096.1	6.4%	7.5%
Corporate loans *	13 451.0	12 652.1	12 696.5	6.3%	5.9%
Retail loans *	6 009.0	5 640.2	5 399.6	6.5%	11.3%
Restructured loans	1 231.1	1 267.8	1 172.4	(2.9%)	5.0%
Securities portfolio	3 539.3	3 282.7	3 166.0	7.8%	11.8%
Assets	28 786.3	27 267.0	27 044.5	5.6%	6.4%
Total deposits:	19 199.7	18 046.0	18 123.3	6.4%	5.9%
Retail deposits	12 581.5	12 145.5	12 278.1	3.6%	2.5%
Corporate deposits	6 618.2	5 900.5	5 845.2	12.2%	13.2%
Ratios
Stage 3 + POCI loans / total gross loans at amortized cost	8.4%	9.4%	na
Provision coverage of Stage 3 + POCI loans	92.0%	85.1%	na

 

*  combined loans at amortized cost and at fair value

Net interest income was RUB349.0 bn in 2Q 2018, up by 5.4% y/y.

Total interest income (RUB535.3 bn, up by 1.7% y/y) during the quarter was influenced by strong loan portfolio growth. Total gross loans (at amortized cost, gross, and at fair value) increased by 6.4% to RUB19.5 trn in 2Q 2018 as compared to 1Q 2018:  

• Retail loan portfolio continued to demonstrate outstanding results led by robust consumer unsecured lending (up 12.4% q/q). These dynamics reflect the improved consumer sentiment in Russia, with consumer unsecured lending growing 6.4% (excluding Sberbank), while Sberbank domestic mortgage portfolio demonstrated similar dynamics as the Russian banking sector.
• During the second quarter Sberbank issued a historical record amount of retail loans, taking Sberbank's market share in retail lending in Russia to 41.3% (+80 bp YTD). Moreover, a digital product - a fully automated consumer loans offering via Sberbank Online platform (includes both application and offering) - accounted for 41% of total consumer unsecured loan disbursements in 2Q 2018, up from 30% in 1Q 2018.
• In mortgages, our digital housing ecosystem Domclick generated already 25% all mortgage loan applications (up from 16% a quarter ago).
• Corporate loan portfolio (at amortized cost and at fair value combined) came up by 6.3% to RUB13.5 trn, as compared to 1Q 2018. At the same time, the Russian corporate sector lending (excluding Sberbank) remained roughly unchanged during the quarter.  
• The share of pre-approved products accounted for 28% of SME loan issuances.
• Retail yields were down by 20 basis points to 13.0% in 2Q 2018 as compared to 1Q 2018, on the back of gradual repricing of mortgage loan rates in the Russian banking sector.
• Corporate yields were up by 10 basis points to 8.3% in 2Q 2018 as compared to 1Q 2018 in part supported by the Central Bank of Russia decision to keep the key rate unchanged during the quarter.

 

Total interest expense for 2Q 2018 decreased by 4.5% from 2Q 2017 to RUB186.3 bn due to continued funding base repricing, even despite deposit insurance expenses increasing 32.8% y/y in 2Q 2018:

• Client deposits portfolio increased by 6.4% in 2Q 2018, with inflows of funds to corporate deposits (+12.2% q/q), and inflow of retail deposits (+3.6% q/q).
• Cost of retail term deposits came down by 30 basis points to 4.6% during 2Q 2018 on the back of the funding base repricing.

 During 1H 2018 the Group issued Russian bonds in the amount of RUB67.9 bn, which was 4.5 time more than in 1H 2017.

The Group 2Q 2018 net fee and commission income came at RUB113.7 bn, up by 29.0% from the year-ago period:

• The number of issued retail bank cards reached 122.4 mn in 2Q 2018, adding over 900 ths during 1H 2018.
• Fees from acquiring, commissions of payment systems and other similar commissions, net of applicable costs and Loyalty programs expenses, increased by 31.8% in 2Q 2018 y/y.
• Fees from bank card operations, net of applicable costs, increased by 28.9% in 2Q 2018 y/y.
• The volume of retail payments growth y/y for 1H2018 increased by 16% to RUB1.3 trn, 58% of which were utility payments.
• The number of retail clients making P2P transfers on a monthly basis reached 77 mn, carrying out on average over 2 transfers per month. The volume of transactions increased by 43% in 1H 2018 as compared to 1H 2017.
• Cash and settlements transactions, net of applicable costs, increased by 18.0% in 2Q 2018 y/y.
• Documentary and other credit related commitments commissions included a one-off gain of RUB4 bn, excluding which net fee and commission income would have increased by 24.5% in 2Q 2018 from the year-ago period.

 

The sales volumes of life insurance in 1H 2018 increased by 100% as compared to 1H 2017. Premiums from insurance and pension fund operations, net of applicable costs, increased 2.6 times as compared to 1H 2017.

The Group operating expenses (staff and administrative) for 2Q 2018 came at RUB153.4 bn, up by 3.2% from the same period a year ago. Personnel expenses for 2Q 2018 decreased by 1.7% y/y to RUB90.8 bn, as the Group headcount came down by 5.6 ths (or 1.8%) to 299.4 ths employees.

 The net provision charge for loan portfolio was affected by the volatility in the exchange rate, and totaled RUB43.8 bn for 2Q 2018. This translated into the cost of risk (CoR) of 97 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 negative revaluation of loans at fair value in 2Q 2018 was RUB26.4 bn. Consequently, the combined CoR for loans at amortized cost and at fair value in 2Q 2018 was 149 bp (or 102 bp cumulative for 1H 2018).  

The total provision coverage of Stage 3 and POCI loans reached 92.0% (up from 85.1% in 1Q 2018). The share of Stage 3 and POCI loans of total gross loans at amortized cost came at 8.4%.   

Capital Adequacy Ratio (includes Denizbank operations)

Under Basel III RUB bn, unless stated otherwise	30/06/18 (standardized + IRB)	30/06/18 (standardized)	31/03/18	01/01/18	30/06/18 (std+IRB) vs. 31/03/18  %	30/06/18 (std+IRB) vs. 01/01/18  %
Total Tier 1 capital	3 387.1	3 387.1	3 485.8	3 291.1	(2.8%)	2.9%
Total capital	3 597.8	3 533.2	3 628.6	3 750.8	(0.8%)	(4.1%)
Risk-weighted assets	30 105.8	30 608.4	28 581.7	29 369.0	5.3%	2.5%
Credit risk	25 972.7	26 475.3	24 568.9	25 195.1	5.7%	3.1%
Operational risk	3 092.8	3 092.8	3 092.8	3 092.8	unch	unch
Market risk	1 040.3	1 040.3	920.0	1 081.1	13.1%	(3.8%)
Ratios
Common equity Tier 1 capital adequacy ratio	11.3%	11.1%	12.2%	11.2%
Total capital adequacy ratio	12.0%	11.5%	12.7%	12.8%

 

The Group's total capital under Basel III (Standardised and IRB approach) reached RUB3.6 trn as of 30/06/2018, down by 0.8% as compared to 31/03/2018, mainly influenced by the distribution of 2017 dividends in the amount of RUB271.0 bn.

The Group's risk-weighted assets increased by 5.3% to RUB30.1 trn during 2Q 2018 after implementation of IRB models.

The introduction of IRB approach improved Common equity Tier 1 capital adequacy ratio by 20 basis points and Total capital adequacy ratio by 50 basis points in 2Q 2018. Common equity Tier 1 capital adequacy ratio came at 11.3%, down by 90 bp due to dividends distribution. Total capital adequacy ratio was 12.0% as of 30/06/2018.

 

    

[i] The line is composed of: 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 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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