Sberbank reports 2018 Net Profit of RUB 831.7 bn under International Financial Reporting Standards (IFRS)

Sberbank reports 2018 Net Profit of RUB 831.7 bn under International Financial Reporting Standards (IFRS)

Moscow, February 28, 2019 - Sberbank (hereafter "the Group") has released its Annual consolidated IFRS financial statements (hereafter "the Financial Statements") as at and for the 12 months ended 31 December 2018, with audit report by AO PricewaterhouseCoopers Audit. All information is presented net of Denizbank A.S. operations, unless stated otherwise.

Herman Gref, Chairman of the Executive Board, CEO, commented:

"2018 was an important year for Sberbank. Not only did we report a record net profit and reach a Return-on-Equity of over 23%, we also successfully completed the first year of the execution of our Strategy 2020. Furthermore, we embraced the ambitious challenge of carrying out our technological transformation. We completed the revision of all major IT initiatives, hired experienced IT experts, radically redesigned our production process, and integrated our businesses with IT in order to develop our platform.

We learnt to implement changes faster, improve our processes and products faster, making them more convenient and time-saving for our clients. Yet we have a long way to go in perfecting client experience, introducing new services to the Sberbank platform and developing new skills among our team in order to build a data-driven company with a high level of collaboration. The achievement of our strategic goals is the key to our confidence in facing external challenges and to providing for the sustainable growth of shareholder value."  

The 2018 Financial Highlights:

• The Group net profit[i] reached RUB 831.7 bn, up by 11.1% compared to 2017
• The Group earnings per ordinary share (EPS) from continued operations came at RUB 38.13 per share, up by 15.4% compared to 2017
• The Group annualized return on equity (ROE)i reached 23.1%, while the Group annualized return on assets (ROA) reached 3.2%
• Net fee and commission income increased by 18.1% y/y to RUB 445.3 bn
• The Group loan portfolio (includes loans at amortized cost and at fair value) increased by 16.5% to RUB_21.1 trn. Retail loan portfolio increased by 25.0%, up to RUB 6.8 trn, while corporate retail loan portfolio expanded by 12.9%, up to RUB 14.3 trn.

The 4Q 2018 Financial Highlights:

• The Group net profiti reached RUB 176.2 bn up by 2.2% as compared to 4Q 2017, and the Group earnings per ordinary share (EPS)i came at RUB 8.4 per share,
• The quality of the Group loan portfolio improved: share of Stage 3 and POCI loans came at 8.1%, showing a decrease of 0.3% compared to 3Q 2018
• Client deposits portfolio increased by 5.1% up to RUB 20.9 trn compared to 3Q 2018 with retail deposits up by 7.1% and corporate deposits - by 1.6%.

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

*** Net interest margin was recalculated as working assets adjusted for the amount of provisions, created under IFRS 9, against Stage 3 loans

Selected Balance Sheet Results

*  combined loans at amortized cost and at fair value

Net interest income was RUB354.7 bn in 4Q 2018, down by 0.7% y/y on the back of outpacing growth of interest expenses.

Total interest income (RUB574.3 bn, up by 5.4% y/y) during the quarter was influenced by strong dynamics in the loan portfolio: total gross loans (at amortized cost and at fair value) were up by 4.7% to RUB21.1 trn in 4Q 2018 as compared to 3Q 2018. 

• Retail loan portfolio was up by 5.2% as compared to 3Q 2018 to RUB6.8 trn. Strong growth dynamics was observed throughout the year both in mortgages and consumer unsecured loans that increased by 5.6% and 5.5% respectively in 4Q 2018 as compared to 3Q 2018.
• Retail loan yields came down to 12.5% in 4Q 2018 on the back of the gradual redemptions of older vintage loans at higher rates and growing share of mortgages in the portfolio composition.
• Corporate loan portfolio (at amortized cost and at fair value combined) came up by 4.4% to RUB14.3 trn, as compared to 3Q 2018. 
  • Based on management accounts, Ruble loan portfolio increased by 9.5% during the quarter, while FX portfolio, net of currency revaluation, was down by 5.3%.
• Corporate loan yields were up by 30 basis points to 8.2% in 4Q 2018 as compared to 3Q 2018 due to rising interest rates in the economy.

Total interest expense for 4Q 2018 increased by 17.2% from 4Q 2017 to RUB219.6 bn on the back of growing cost of funding and higher deposit insurance expenses:

• Client deposits portfolio increased by 5.1% in 4Q 2018 due to traditional for the end of the year inflows of both corporate and retail deposits.
• Cost of retail and corporate term deposits increased on average by about 20 basis points in 4Q 2018 as compared to 3Q 2018 to 4.7% and 3.6% respectively.  
• Deposit insurance expenses increased by the 36% y/y to RUB18.9 bn in 4Q 2018 related to change in the insurance premium rate in 2018.   

Net LDR ratio for 4Q 2018 came slightly down by 10 basis points to 93.7% as compared to 3Q 2018. Net LDR in Rubles increased to 103%, while in U.S. dollars came down to 66%, which indicates that the demand for foreign currency loans among corporate clients was declining.  

The Group 4Q 2018 net fee and commission income came at RUB122.6 bn, up by 8.4% from the year-ago period mainly from acquiring, client operations with foreign currencies and settlement operations for both retail and corporate clients. The share of net fee and commission income in total operating income increased to 24.9%. The slowdown in growth of net fee and commission income in the reporting quarter was explained by change in methodology for liabilities recognition on loyalty programs in 4Q 2017.

• The number of active retail clients in 2018 increased to 92.8 mln.
• The number of active retail digital users increased by 2.6 mln during the quarter to 65 mln, of which the number of daily users reached 19.6 mln (+35% y/y).
• Fees from acquiring, commissions of payment systems and other similar commissions, net of applicable costs, increased by 30.2% in 4Q 2018 y/y.
• The number of cities that offer transportation acquiring reached 67 by the end of the quarter.
• The net income from client operations with foreign currencies grew by 65.8% compared to 4Q 2017 due to the increase of transactions volume.
• The net income from brokerage increased by 35.7% compared to 4Q 2017 due to the increase of number of clients driven by improved functionality of Sberbank Online platform on brokerage accounts opening.

The sales volumes of life insurance for 12M 2018 increased by 80% as compared to 12M 2017. Assets under management of the Wealth Management business increased by 35% for 12M 2018 to RUB1.2 trn. Sberbank maintained its leading market shares in asset management and mandatory pension insurance businesses, while increasing its market share in life insurance to 38.4% as of December 31, 2018.

The Group operating expenses (staff and administrative) for 4Q 2018 came at RUB208.6 bn, up by 8.7% from the same period a year ago. The increase was mainly explained by the change in expenses capitalization principles in 3Q 2018 and revaluation of recurring expenses nominated in foreign currencies. Excluding these factors operating expenses would have increased by 5.1% as compared to 4Q 2017.

The Group headcounti amounted to 293.8 ths employees at the end of 2018 - down by 2.4 ths in 4Q 2018 and by 16.5 ths over the year as a result of implementation of programs focused on increasing operating efficiency.

The Group Cost-to-Income ratio reached 42.5% in 4Q 2018, taking into account revaluation of loans at fair value, whereas the ratio improved by 50 basis points to 34.2% over the year.

The net provision charge for loan portfolio totaled RUB34.2 bn for 4Q 2018, including the effect of ruble devaluation. This translated into the cost of risk (CoR) of 69 basis points for the quarter (or 86 basis points cumulative for 12M 2018) for the loan portfolio at amortized cost. The IFRS 9 standard reporting requires part of the loan portfolio to be accounted at fair value through the Profit & Loss Statement. Negative revaluation of loans at fair value due to change in credit quality in 4Q 2018 was RUB17.0 bn. Consequently, the combined CoR for loans at amortized cost and at fair value in 4Q 2018 was 99 basis points (or 115 basis points cumulative for 12M 2018).  

The total provision coverage of Stage 3 and POCI loans remained merely unchanged in 4Q 2018 at 90.4%. The share of Stage 3 and POCI loans in total gross loans at amortized cost came down by 30 basis points to 8.1%.  

Capital Adequacyi

The Group's total capital under Basel III reached RUB3.95 trn as of 31/12/2018, up by 4.9% as compared to 30/09/2018, mainly on the back of retained earnings.

The Group's risk-weighted assets (under Standardised and IRB approach) were up by 6.0% to RUB31.8 trn during 4Q 2018 due to increase both in credit and operational risks, by 5.9% and 8.0% respectively.

Common equity Tier 1 capital adequacy ratio remained merely unchanged and came at 11.85%, while total capital adequacy ratio decreased by 12 basis points to 12.43% as of 31/12/2018 driven by assets growth (caused to some extent by the ruble devaluation at the end of the reporting period) and by changes in operational risk component on the back of calculation period shift. The Group leverage ratio decreased from 11.4% to 11.3% in 4Q 2018 subject to the above mentioned factors.

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

 Other non-interest income / (expense) includes 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

DISCLAIMER

This document has been prepared by Sberbank of Russia (the "Bank") and has not been independently verified. This press release does not constitute or form part or all of, and should not be construed as, any offer of, or any invitation to sell or issue, or any solicitation of any offer to purchase, subscribe for, underwrite or otherwise acquire, or a recommendation regarding, any shares or other securities representing shares in, or any other securities of the Bank, or any member of the Bank's group, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or any commitment whatsoever or any investment decision. The information in this press release is confidential and is being provided to you solely for your information and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any purpose.

This press release doesn't constitute an offer of securities of the Bank for sale in the United States. The Securities may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act of 1993 as amended.

This press release is only being distributed to and is only directed at (A) persons in member states of the European Economic  Area (other than the United Kingdom) who are "qualified investors" within the meaning of Article 2(1)(e) of Directive 2003/71/EC (as amended and together with any applicable implementing measures in that member state, the "Prospectus Directive") ("Qualified Investors"); (B) in the United Kingdom, Qualified Investors who are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") and/or high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order; and (C) such other persons as to whom this press release may be lawfully distributed and directed under applicable laws (all such persons in (A) to (C) above together being referred to as "relevant persons").  The shares, or other securities representing shares, or any other securities of the Bank are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons.  Any person who is not a relevant person should not act or rely on this press release or any of its contents.

This press release does not constitute any offer of, or any invitation to sell or issue, or any solicitation of any offer to purchase, subscribe for, underwrite or otherwise acquire any securities of the Bank within the Russian Federation or in favor of the Russian entities or persons. Any foreign securities representing shares of the Bank may not be offered or sold within the Russian Federation, except as provided by the relevant Russian legislation.

The information in this press release or in oral statements of the management of the Bank may include forward-looking statements. Forward-looking statements include all matters that are not historical facts, statements regarding the Bank's intentions, beliefs or current expectations concerning, among other things, the Bank's results of operations, financial condition, liquidity, prospects, growth, targets, strategies, and the industry in which the Bank operates. By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. The Bank cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Bank operates may differ materially from those made in or suggested by the forward looking statements contained in this press release or in oral statements of the management of the Bank. In addition, even if the Bank's results of operations, financial condition and liquidity and the development of the industry in which the Bank operates are consistent with forward-looking statements contained in this press release or made in oral statements, those results or developments may not be indicative of results or developments in future periods.

Sberbank assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason.

The information and opinions contained in this press release or in oral statements of the management of the Bank are provided as at the date of this press release or as at the other date if indicated and are subject to change without notice.

No reliance may be placed for any purpose whatsoever on the information contained in this press release or oral statements of the management of the Bank or on assumptions made as to its completeness.

No representation or warranty, express or implied, is given by the Bank, its  subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of this press release or its contents.

This press release is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

By attending or reviewing this press release, you acknowledge and agree to be bound by the foregoing.