OREANDA-NEWS. December 10, 2012. Sberbank Group (hereafter ”the Group”) has released its condensed interim consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 30 September 2012 and for 9 months ended 30 September 2012, with an independent rewiew report by Ernst & Young Vneshaudit, reported the press-centre of Sberbank.

Income Statement highlights:
Net profit for 9 months ended 30 September 2012 reached RUB 262,8 bn (or RUB 12.13 per ordinary share), showing a 2.7% increase on RUB 255,8 bn (or RUB 11.81 per ordinary share) for the same period of 2011.

The Group’s operating income before provision for loan impairment increased by 23.0% to RUB 665.6 bn as compared to RUB 541.3 bn for 9m 2011 and was driven mainly by growth of net interest income and net fee and commission income.

Cost to Income ratio stayed at an adequate level of 47.3% versus 44.2% for 9m 2011.

Return on equity remained high at 25.1% in 9m 2012 versus 31.5% for 9m 2011

Statement of financial position highlights:
The Group’s total assets grew up by 27.0% for 9m 2012, this includes an 11.9% increase attributable to acquisitions of DenizBank AS (DenizBank) and Sberbank Europe AG (former Volksbank International AG (“VBI”))

The Group completed the acquisition of 99.85% share in DenizBank in September 2012. DenizBank is ranked 6th among private and 9th among all Turkish banks by consolidated total assets. The deal represents a major step in the implementation of the Group’s strategy and allows the Group to enter the fast-growing Turkish banking market. Total assets of DenizBank as at the date of acquisition amounted to RUB 902,5 bn. Loans and advances to customers totaled RUB 614,3 bn, due to individuals and corporate customers – RUB 580,4 bn. Preliminary fair value of net assets of DenizBank amounted to RUB 98,4 bn as at the date of acquisition.

The Group continues to enjoy solid growth of retail lending, with gross retail loan portfolio up 48.9% for 9m 2012. Without the effect of DenizBank and Sberbank Europe AG acquisitions, the Group’s gross retail loan portfolio was up by 35.4% for 9 months 2012

In 2012, the Group’s NPL portfolio decreased significantly to 3.4% of total net loans. This is explained mainly by a large one-off deal in 2Q12 as a result of the Group’s efforts to recover problem loans.

The Group’s Equity increased for 9m 2012 by 20.2% to RUB 1 523,7 bn, with profit for the period explaining the increase.

Financial and Operating Review:

Interest income for 9m 2012 increased by 32.8% year-on-year to RUB 816.7 bn. The increase was driven by the growth of interest earning assets and higher proportion in them of assets with higher yields, primarily loans. As at September 30, 2012, interest-earning assets represented 91.2% of the Group’s total assets. Interest income on loans and advances to customers grew by 37.6% year-on-year.

Interest expenses for 9m 2012 increased by 46.8% year-on-year to RUB 312.9 bn. The largest component of interest expenses was related to retail deposits, which are the core source of funds for the Group. The cost of customer deposits for 9m 2012 increased as a result of rising interest rates in the market. Another component which contributed to the interest expense growth was time deposits taken from banks as a result of larger amount of such deposits.

Net interest income for 9m 2012 totalled RUB 503.8 bn, a 25.3% increase year-on-year. Net interest income remains the main component of the Group’s operating income accounting for 75.7% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income for 9m 2012 totalled RUB 120.1 bn, a 20.2% increase year-on-year. The largest contributor remained operations with bankcards which were a key driver of the growth expanding by 50.9% year-on-year.

Other operating income, which includes amongst others net gains from operations with securities, foreign exchange, derivatives and precious metals and other items, comprised 6.3% of Operating income before provisions. These items in aggregate increased by 5.8% from RUB 39.4 bn for 9m 2011 to RUB 41.7 bn for 9m 2012.

Total operating income before provision for loan impairment for 9m 2012 reached RUB 665.6 bn as compared to RUB 541.3 bn for 9m 2011, a 23,0% increase year-on-year. As discussed above, the growth of operating income was primarily driven by increase in core components of business operations i.e. net interest income and net fee and commission income which together comprised 93.7% of operating income.

Net provision charge for loan impairment for 9m 2012 totalled RUB 10.6 bn compared with the recovery of RUB 16.8 bn in 9m 2011. This result was driven mostly by an increase of the Group’s loan portfolio.

The Group's operating expenses increased for 9m 2012 by 31.4% to RUB 314.6 bn year-on-year. The main drivers of this growth were continuing investments in IT projects, branch network and personnel in accordance with the Group's transformation strategy. Increase in both staff and other operating expenses was driven also by the acquisitions of Troika Dialog and Sberbank Europe AG in 4Q11 and 1Q12 respectively. As a result, the Group's cost to income ratio for 9m 2012 reached 47.3% versus 44.2% for 9m 2011.

The Group’s net profit for 9m 2012 reached RUB 262.8 bn versus RUB 255.8 bn for 9m 2011, a 2.7% increase year-on-year driven by growth of principal business lines and supported by income from operations on financial markets.

As of 30 September 2012, the Group’s total assets reached RUB 13,755.5 bn, a 27.0% increase since 31 December 2011.

The Group’s customer loan portfolio net of provision for loan impairment increased by 28.5% to RUB 9,918.7 bn as at 30 September 2012. Loans to individuals before provisions for loan impairment grew by 48.9% to RUB 2,688.2 bn as of 30 September 2012 (or by 35.4% without the effect of DenizBank and Sberbank Europe AG acquisitions). Loans to legal entities before provisions increased by 18.6% to RUB 7,802.7 bn as of the same date (or by 8.8% without the effect of DenizBank and Sberbank Europe AG acquisitions).

The Group’s loan quality improved, with the portion of non-performing loans (NPL), defined as loans for which payment of principal and/or interest is overdue by more than 90 days, in the total loan portfolio (the NPL ratio) decreased to 3.4% as at 30 September 2012 compared with 4.9% at the beginning of the year. Decrease in NPL is explained primarily by acquisition in June 2012 of a single-asset company holding a large problem loan. This acquisition was part of the problem loan work-out process; as a result, a substantial part of this loan was written off against provisions created in previous years. As at 30 September 2012, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) stayed at 1.6. Provisions for loan impairment decreased by 13.6% reaching RUB 572.0 bn. The ratio of provisions for loan impairment to total gross loans comprised 5.5% compared with 7.9% at the beginning of the year.

The Group’s securities portfolio increased for 9m 2012 by 11.4% to RUB 1,811.9 bn. As at 30 September 2012, federal government bonds decreased by 4.8% but still accounted for the largest part of the Group’s securities portfolio accounting for 37.4% of its total. Corporate bonds increased by 13.6% as part of the Group’s investment securities available for sale. Growth of other securities in the 3Q12 is mainly driven by RUB 125,5 bn worth of debt securities of foreign governments that came as a result of acquisition of DenizBank.

As at 30 September 2012, the Group’s total liabilities amounted to RUB 12,231.8 bn, a 27.9% increase since 31 December 2011. Retail deposits, totalling RUB 6,503.8 bn as at 30 September 2012, are the core source of the Group’s funding, accounting for 53.2% of the Group’s total liabilities. They increased by 13.6% compared with year-end 2011. Corporate deposits grew by 36.8% to RUB 3,017.6 bn as at 30 September 2012 compared with year-end 2011, and accounted for 24.7% of total liabilities.

As at 30 September 2012, the Group’s amounts due to bankstotaled 1,026.0 bn. The 92.7% increase since the beginning of 2012 of amounts taken from the money market was driven by faster growth of assets compared to the growth of the Group’s customer deposits.

The Group’s equity amounted to RUB 1,523.7 bn as at 30 September 2012, a 20.2% increase for 9m 2012. As at 30 September 2012, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) as per Basel 1 was 13.3%, well above the 8% minimum requirement, and the Tier 1 ratio was 10.2%. The decrease in capital adequacy ratio since the beginning of 2012 was primarily driven by acquisition of DenizBank in September 2012 and Sberbank Europe AG in February 2012.