Sberbank reports 2Q 2019 Net Profit of RUB250.3 bn under International Financial Reporting Standards (IFRS)

Sberbank reports 2Q 2019 Net Profit of RUB250.3 bn under International Financial Reporting Standards (IFRS)

Moscow, July 31, 2019 - Sberbank (hereafter "the Group") has released its interim condensed IFRS financial statements (hereafter "the Financial Statements") as at and for the 6 months ended 30 June 2019, 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: «Expansion of the retail business, focus on SME lending, a further increase in efficiency driven by processes optimization and sustainable growth in the number of digital users ensured a 23.9% return on equity in the first half of 2019. That forms a strong basis to achieve the targeted level of return on equity for the whole year».

 The 2Q 2019 Financial Highlights:

• The Group net profiti reached RUB250.3 bn for 2Q 2019 (+16.3% y/y), and RUB476.9 bn for 6M 2019 (+11.6% y/y);
• The Group earnings per ordinary share (EPS) came at RUB10.70 per share, up by 17.2% compared to 2Q 2018;
• The Group annualized return on equity (ROE)i reached 24.9%, while the Group annualized return on assets (ROA) reached 3.4%;
• Retail loan portfolio was up by 4.2% in 2Q 2019 to more than RUB7 trn reaching more than 35% of the total loan portfolio;
• Client deposits increased by 2.0% for the quarter exceeding RUB21 trn;
• The combined Cost of Risk (CoR) came at 14 bp including the effect of provisions' release as part of completion of Agrokor debt restructuring;
• The quality of the Group loan portfolio improved: share of Stage 3 and POCI loans came at 7.8%, showing a 0.1 pp decrease compared to 1Q 2019.

Selected Financial Results

* Total equity attributable to shareholders of the Bank / Total numbers of shares outstanding (ordinary + preferred)

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

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

Selected Balance Sheet Results

* Before credit related commitments and combined loans at amortized cost and at fair value

Net interest income came at RUB353.1 bn in 2Q 2019, up by 1.2% y/y.

Total interest income amounted to RUB605.5 bn, up by 13.1% in 2Q 2019 on the background of the loan portfolio growth (at amortized cost and at fair value) by 5.9% to RUB20.6 trn.

• Retail loan portfolio increased by 4.2% to RUB7.3 trn in 2Q 2019
  • Consumer loan portfolio was up by 6.5% in 2Q 2019 supported by online sales through the digital channels that comprised 50% of total origination as of the end of the quarter.
  • Mortgages grew by 2.5%. The platform DomClick substantially supports mortgage lending and accounts for 25% of newly issued Sberbank loans. DomClick holds the leading position among all the aggregators by number of secondary market listings in Russia.
  • Retail loan yield increased by 20 bp to 12.2% in 2Q 2019 on the back of increase of consumer loans share in the total loan portfolio as well as the effect of rates change for newly issued loans at the beginning of the year.

• Corporate loan portfolio (at amortized cost and at fair value combined) came down by 3.6% to RUB13.3 trn in 2Q 2019 mostly influenced by lower demand for lending in the segment of large borrowers. However, there is an accelerated growth in the small and medium business lending (more than 5% for the quarter). Online lending for individual entrepreneurs was launched in the 2Q 2019.
  • Based on management accounts, Rouble loan portfolio decreased by 1.7% during the quarter, FX portfolio, net of currency revaluation, was down by 2.3%.
  • Corporate loan yield was up by 60 bp to 8.6% in 2Q 2019 as compared to 1Q 2019. The increase is mainly driven by the structural changes in the loan portfolio in favor of Rouble lending as well as the focus on SME segment.

Total interest expense, including deposit insurance expenses, increased by 35.5% to RUB252.4 bn in 2Q 2019 on the back of growth of interest bearing liabilities by 13.6% and cost of funding increase by 70 bp y/y.

• Retail deposits grew by 2.5% to RUB13.7 trn, the average cost of retail term deposits increased by 20 bp for the quarter.
• Corporate deposits were up by 1.2% to RUB8.1 trn, the average cost of term deposits remained unchanged in the 2Q 2019.

In 2Q 2019 Sberbank redeemed Eurobonds and Rouble-denominated exchange-traded bonds issued on the local market in the nominal amount of USD1 bn and RUB10 bn respectively according to the schedule. Sberbank Group also placed bonds on the Russian market in the amount of RUB20 bn. At the end of 2Q 2019, the nominal volume of exchange-traded bonds, issued on the Russian market, comprised RUB325.5 bn as well as USD2.5 bn and EUR1.0 bn on the international market. The share of wholesale funding in total liabilities of the Bank decreased below 1.2%.

The Group net fee and commission income for 2Q 2019 came at RUB116.7 bn, up by 4.2% y/y mainly driven by bank card fees from acquiring, commissions of payment systems and other similar commissions, settlement transactions and brokerage business. The slowdown in net fee and commission income growth in the reporting quarter was explained by a one-off effect on the income from documentary operations that elevated a comparative base of 2Q 2018. Excluding this factor, the growth for the 2Q 2019 would have comprised 8.1%. From 1 January 2019 VAT from loyalty programs is included in net fee and commission income, the comparative base is adjusted as well.

• Number of active retail clients reached about 93 mln. The "youth" segment accounts for more than half of Sberbank's new clients (1.6 out of 3.1 million).
• The number of active retail users in digital channels exceeded 66 million, while the number of daily active users (DAU) increased to 21.7 mln. DAU / MAU (mobile app) improved by 5.1 pp to 39.1% in 2Q 2019.
• The number of cities with transport acquiring reached 80 by the end of 2Q 2019.

According to management accounts, operating income of insurance and pension businesses increased by 14% in 1H 2019 based on both gross premiums written and investment income.

The Group operating expenses (staff and administrative) for 2Q 2019 came at RUB168.5 bn, up by 11.1% as compared to the same period a year ago and up by 7.7% for 6M 2019 y/y. 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 that took place in July, 2018. Apart from that it was influenced by VAT rate increase from the beginning of the year. Excluding these factors, operating expenses growth would not exceed 4.5% for 6M 2019.

The Group Cost-to-Income ratio*** totaled 34.6%. 

Net credit loss allowance charge for loans at amortized costs amounted to RUB7.7 bn for 2 quarter 2019. The charge includes recovery of previously created provisions against Agrokor's exposure due to completion of restructuring. This translates into Cost of Risk at 15 bp for the loan book at amortized cost. According to IFRS 9 a part of the loan portfolio is accounted at fair value through profit or loss. Positive revaluation of loans at fair value due to change in credit quality amounted to RUB0.4 bn in 2Q 2019. Consequently, the combined Cost of Risk for loans at amortized cost and at fair value in 2Q 2019 was 14 bp.  Starting from 1Q19 we exclude FX-component from provision charge/ recovery for FX-denominated loans at amortized cost as well as from revaluation of FX-denominated loans at fair value. This FX component was shown as foreign exchange translation (losses) / gains and amounted to RUB7.3 bn for 2Q 2019.

The total provision coverage of Stage 3 and POCI loans decreased by 1.2 pp compared to the previous quarter and comprised 90.7%. The share of Stage 3 and POCI loans in total gross loans at amortized cost improved by 0.1 pp and came at 7.8%. 

Capital Adequacyi

The Group's total capital under Basel III came at RUB4.0 trn as of 30 June 2019, down by 1.8% as compared to 31 March 2019, mainly on the back of dividends distribution in the 2Q 2019.

The Group's risk-weighted assets under IRB approach were up by 0.7% to RUB31.7 trn during 2Q 2019. The Group leverage ratio decreased by 30 bp to 11.5% in 2Q 2019.

Common equity Tier 1 capital adequacy ratio decreased by 34 bp and came at 12.29%, total capital adequacy ratio went down by 32 bp to 12.64% as of 30 June 2019.

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

ii Other non-interest income / (expense) includes: Net gains from non-derivative financial instruments at fair value through profit or loss excluding revaluation of loans at FV through P&L due to change in credit quality; Net gains from financial instruments at fair value through other comprehensive income ; Impairment of investment securities available-for-sale ; Net gains / (losses) from derivatives, trading in foreign currencies, foreign exchange and precious metals accounts translation; Impairment of non-financial assets; Net gains on initial recognition of financial instruments and on loans restructuring; Net recovery of / (charge for) other provisions ; Revenue of non-banking business activities ; Cost of sales and other expenses of non-banking business activities ; Net premiums from insurance and pension fund operations; Net claims related to insurance and pension fund operations; Income from operating lease of equipment; Expenses related to equipment leased out; Other net operating income

ii Active clients are calculated using the new revised methodology

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