OREANDA-NEWS. March 30, 2012. Sberbank Group (hereafter ”the Group”) has released its consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 31 December 2011 and for the year ended 31 December 2011, with an independent audit report by Ernst & Young Vneshaudit, reported the press-centre of Sberbank.

Statement of financial position highlights:

The Group continues to enjoy solid loan growth with gross loan portfolio up 35.4% in 2011. This growth was reasonably balanced between corporate loans increasing 35% and retail loans expanding by 36.8% in 2011.

Customer deposits increased by 19.3% in 2011, similarly well balanced between retail deposits growing at 18.4% and corporate at 21.4%.

The Group’s Equity increased in 2011 by 28.4% to RUB 1,268.0, with profit for the year being the major driver of the increase.

Income Statement highlights:

Net profit for 2011 reached RUB 315.9 bn (or RUB 14.61 per ordinary share), showing a 74% increase on RUB 181.6 bn (or RUB 8.42 per ordinary share) for 2010.

In 2011, the Group’s revenues continued to come mostly from core banking operations, with net interest income and net fee and commission income accounting for 94.5% of total operating income before provision for loan impairment.

The Group’s net interest margin for 2011 was close to the level of 2010 around 6.4%.

Despite higher operating expenses in 2011, the Cost to Income ratio stays at an adequate level of 46.9% versus 40.9% in 2010.

The improving Russian economy and ongoing implementation of new risk management and recovery procedures have had a positive impact on the Group’s loan quality, resulting in net recovery of provisions in 2011 of RUB 1.2 bn. The non-performing loan ratio declined from 7.3% as of 31 December 2010 to 4.9%, while the non-performing loan coverage ratio remained strong at 1.6x as of 31 December 2011.

Return on equity improved and reached 28.0% in 2011 versus 20.6% in 2010.

Financial and Operating Review:

Interest income increased in 2011 by 6.9% year-on-year to RUB 850.6 bn. The increase was driven by the expansion of interest earning assets and the growing proportion in them of assets with higher yields, primarily loans.

Interest expenses decreased in 2011 by 8.5% year-on-year to RUB 289,6 bn. The largest component of interest expenses was interest on retail deposits which are a core source of funds for the Group. The cost of retail deposits continued to decrease during 2011 year as deposits with high interest rates taken in 2008-2009 retired, leading to a lower overall cost of funds for Sberbank.

Net interest income for 2011 totalled RUB 561.0 bn, a 17.1% increase year-on-year. This increase reflects growth and change in the structure of interest earning assets and improved pricing on deposits. Net interest income remains the main component of the Group’s operating income, accounting for 75.5% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income totalled RUB 140.6 bn in 2011, a 13.8% increase year-on-year. This growth was supported by a variety of fee-generating operations, but particularly by the expansion of operations with bank cards.

Other operating income, which includes amongst others net gains from operations with securities, foreign exchange, derivatives and precious metals as well as losses from revaluation of premises and other items, comprised 5.5% of Operating income before provisions. These items in aggregate declined by 13% from RUB 47.2 bn in 2010 to RUB 41.2 bn in 2011.

Total operating income before provision for loan impairment for 2011 reached RUB 742.8 bn, compared with RUB 649.8 bn for 2010, a 14.3% increase year-on-year. The growth of operating income was primarily driven by the strong increase of net interest income, well supported by net fee commission income and other operating income.

Net recovery of previously recorded provision for loan impairment for 2011 totalled RUB 1.2 bn, compared with net charges of RUB 153.8 bn in 2010. This reflects better quality of the overall loan book as the Russian economy has improved. Additionally, the Group benefitted from its focus in 2011 on recovering impaired and non-performing loans.

The Group's operating expenses increased in 2011 by 31% year-on-year, with employee compensation growing slower than non-staff costs at 26.4% vs 38.0% respectively. The main drivers of cost growth in 2011 were continuing investments in personnel quality, IT, and branch network in accordance with the Group's transformation strategy. As a result, the Group's cost to income ratio reached 46.9% in 2011 versus 40.9% in 2010.

The Group’s net profit in 2011 totalled RUB 315.9 bn versus RUB 181.6 bn in 2010, a 74% increase generated mostly as a result of higher operating income.

As at 31 December 2011, the Group’s total assets reached RUB 10,835.1 bn, a 25.6% increase since 31 December 2010.

The loan portfolio after provisioning for loan impairment increased by 40.6% in 2011. Loans to individuals before provisions for loan impairment grew by 36.8% to RUB 1,805.5 bn as of 31 December 2011, while loans to legal entities before provisions at the same date increased by 35.0% to RUB 6,576.6 bn. This increase in lending came as a result of stronger demand for loans in 2011 and the Group’s continued focus on sales and marketing.

The Group’s loan quality improved, with non-performing loans (NPL), defined as loans for which payment of principal and/or interest is overdue by more than 90 days, decreasing from RUB 452.3 bn as at 31 December 2010 to RUB 407.4 bn as at 31 December 2011. The proportion of non-performing loans in the total loan portfolio (the NPL ratio) decreased to 4.9% as at 31 December 2011 compared with 7.3% at the beginning of the year. As at 31 December 2011, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) was 1.6x. Provisions for loan impairment decreased by 5.7% reaching RUB 662.4 bn as at 31 December 2011. The ratio of provisions for loan impairment to total gross loans reached 7.9% compared with 11.3% at the beginning of the year.

The Group’s securities portfolio declined in 2011 by 10.8% to RUB 1,625.8 bn as at 31 December 2011, mainly following the disposal and redemption of Bank of Russia bonds in 1H 2011. As at 31 December 2011, federal government bonds accounted for the largest part of the Group’s securities portfolio with a 43.8% share. The proportion of corporate bonds in the total securities portfolio increased from 19.4% at the beginning of the year to 31.7% at 31 December 2011. In absolute terms the portfolio of corporate bonds amounted to RUB 514.7 bn as at 31 December 2011, having grown by 45.8% from the beginning of the year, mainly through purchases of corporate bonds issued by Russian companies.

The Group does not have investments in debt securities of European Union countries or companies. All the Group’s investments in securities issued by foreign countries or companies comprise less than 3% of the Group’s securities portfolio and relate mostly to the jurisdictions in which the Group operates.

In accordance with the Group's accounting policies office premises have been revalued as at 31 December 2011 (previous revaluation was at 31 December 2009). The net gain from office premises revaluation totaled RUB 25.6 bn, of which RUB 36.9 bn is reported in the Consolidated Statement of Comprehensive Income and is offset with RUB 11.3 bn loss shown in the Consolidated Income Statement.

As at 31 December 2011, the Group’s total liabilities amounted to RUB 9,567.1 bn, a 25.2% increase since 31 December 2010.  The Group’s liabilities structure remained largely stable throughout 2011. Retail deposits, totalling RUB 5,726.3 bn as at 31 December 2011, have remained the core source of the Group’s funding, accounting for 60% of the Group’s total liabilities, and increased by 18.4% compared with year-end 2010. Corporate deposits rose 21.4% to RUB 2,205.8 bn as at 31 December 2011 compared with year-end 2010, and accounted for 23.1% of total liabilities.

The Group’s equity attributable to the Bank’s shareholders amounted to RUB 1,264.5 bn as at 31 December 2011, a 28.6% increase for 2011. As at 31 December 2011, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) calculated under Basel 1 was 15.2%, well above the 8% minimum requirement, and the Tier 1 ratio was 11.6%.