OREANDA-NEWS. April 01, 2013. Sberbank Group (hereafter ”the Group”) has released its consolidated IFRS financial statements (hereafter “the Financial Statements”) as at 31 December 2012 and for the year ended 31 December 2012, with an independent audit report by Ernst & Young Vneshaudit (Download the Presentation).

Income Statement highlights:
Net profit for the year ended 31 December 2012 reached RUB 347.9 bn (or RUB 16.03 per ordinary share), showing a 10.1% increase on RUB 315.9 bn (or RUB 14.59 per ordinary share) for 2011.

The Group’s operating income before provision for loan impairment increased by 25.1% to RUB 920.8 bn as compared to RUB 736.3 bn for 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 49.0% versus 46.4% for 2011.

Return on equity remained high at 24.2% in 2012 versus 28.0% in 2011

Statement of financial position highlights:

The Group’s total assets grew by 39.3% for 2012, this includes an 12.6% increase attributable to acquisitions of DenizBank AS (DenizBank) and Sberbank Europe AG (former Volksbank International AG (“VBI”))

The Group continues to enjoy solid growth of retail lending, with gross retail loan portfolio up by 57.1% for 2012. Without the effect of DenizBank and Sberbank Europe AG acquisitions, the Group’s gross retail loan portfolio was up by 43.2% for the year

In 2012, the Group’s NPL portfolio decreased significantly to 3.2% of total net loans. This is explained mainly by a large write-off in 2Q12.

The Group’s Equity increased in 2012 by 28.1% to RUB 1,623,8 bn, with profit for the period explaining the increase.

Financial and Operating Review:

Interest income for 2012 increased by 36.1% year-on-year to RUB 1,157.3 bn. The increase is attributable mostly to a significant expansion of volumes of both corporate and retail loans and, to a lesser degree, to higher yields on loans.

Interest expenses for 2012 increased by 56.3% year-on-year to RUB 452.5 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 retail and corporate deposits increased in 2012 as a result of rising interest rates in the market in view of high competition for client funds. Client deposits grew at a slower pace than loans, and the Group used borrowing sourcesto support fast asset growths. This funding strategy led to further increase in interest expense on securities issued and on the amounts due from other banks.

Net interest income for 2012 totalled RUB 704.8 bn, a 25.6% increase year-on-year. The increase is driven by growth of interest earning assets, primarily loans. Net interest income remains the main component of the Group’s operating income accounting for 76.5% of total operating income before provision charges for loan impairment.

The Group’s net fee and commission income for 2012 totalled RUB 170.3 bn, a 21.0% increase year-on-year. Customer cash and settlement transactions remained core components of fee and commission income while income from operations with bankcards was the key driver of the growth, expanding by 47.9% 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 5.0% of Operating income before provisions and increased by 32.1% year-on-year.

Total operating income before provision for loan impairment for 2012 reached RUB 920.8 bn compared to RUB 736.3 bn for 2011, a 25,1% increase year-on-year. The growth was driven primarily by the expansion of the Group’s core banking business, as net interest income and net fee and commission income together comprised 95.0% of total operating income.

Net provision charge for loan impairment for 2012 totalled RUB 21.5 bn compared with the recovery of RUB 1.2 bn in 2011. This result was driven mostly by the increase of the Group’s loan portfolio.

The Group's operating expenses in 2012 increased by 32.1% to RUB 451.4 bn. The main drivers of this growth were higher personnel expense and substantial ongoing investments in modernization of IT and branch network in accordance with the Group's transformation strategy. Higher personnel expense is explained to a large part by the effect of bringing the remuneration levels in line with the market throughout 2011. In addition to this, growth of both staff and other operating expenses in 2012 was driven by recent acquisitions, including the most recent acquisition of DenizBank at the end of September 2012. As a result, the Group's cost to income ratio for 2012 reached 49.0% versus 46.4% for 2011.

The Group’s net profit for 2012 reached RUB 347.9 bn versus RUB 315.9 bn for 2011, a 10.1% increase year-on-year driven by growth of principal business lines. Increase of net interest income and net fee and commission income were the major drivers for net profit increase for 2012.

As of 31 December 2012, the Group’s total assets reached RUB 15,097.4 bn, a 39.3% increase since 31 December 2011.

In 2012, the Group’s gross loan portfolio before provision for loan impairment grew by 32.0% as a result of both the expansion of its regular lending business and acquisitions of DenizBank and VBI (now Sberbank Europe AG). Retail loan portfolio showed the fastest growth: it increased by 57.1% in 2012, from RUB 1,805.6 bn as of 31 December 2011 to RUB 2,836.5 bn as of the 2012 year-end. This rapid growth rate was partly attributable to the acquisition of DenizBank and Sberbank Europe AG. Without these acquisitions the Group’s retail loans increased in 2012 by 43.2%.

The Group’s loan portfolio 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 3.2% as at 31 December 2012 compared with 4.9% at the beginning of the year. The decrease in NPL is explained primarily by the 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 31 December 2012, the NPL coverage ratio (total provisions for loan impairment to non-performing loans) stayed at 1.6. Provisions for loan impairment decreased in 2012 by 14.7% reaching RUB 565.0 bn. The ratio of provisions for loan impairment to total gross loans comprised 5.1% compared with 7.9% at the beginning of the year. As of December 31, 2012, renegotiated loans before provision for loan impairment amounted to RUB 1,005.2 bn, or 9.1% of the loan portfolio (as at December 31, 2011: RUB 1,031.6 bn, or 12.3%).

The Group’s securities portfolio increased in 2012 by 21.2% to RUB 1,969.7 bn. As at 31 December 2012, federal government bonds increased by 10.0% and represented the largest part of the Group’s securities portfolio accounting for 39.8% of its total. Corporate bonds increased by 24.7% being the second major component of the securities portfolio. The increase in corporate bonds portfolio was supported by favourable conditions for wholesale public borrowings in 2012. Other securities increased during 2012, mainly as a result of the acquisition of DenizBank that had RUB 125.5 bn worth of debt securities of foreign governments.

As at 31 December 2012, the Group’s total liabilities amounted to RUB 13,473.6 bn, a 40.8% increase since 31 December 2011. Retail deposits, totalling RUB 6,983.2 bn as at 31 December 2012, are the core source of the Group’s funding, accounting for 51.8% of the Group’s total liabilities. They increased by 21.9% compared with year-end 2011. Corporate deposits grew by 44.9% to RUB 3,196.1 bn as at 31 December 2012 compared with year-end 2011, and accounted for 23.7% of total liabilities.

As at 31 December 2012, the Group’s amounts due to banks totaled 1,452.4 bn, a 172.8% increase since the beginning of 2012, with the main driver of such growth being the faster expansion of assets compared to the growth of the Group’s customer deposits.

The Group’s equity amounted to RUB 1,623.8 bn as at 31 December 2012, a 28.1% increase for the year 2012. As at 31 December 2012, the Group’s total capital adequacy ratio (Tier 1 and Tier 2) as per Basel 1 was 13.7%, well above the 8% minimum requirement, and the Tier 1 ratio was 10.4%. The decrease in capital adequacy ratio since the beginning of 2012 was primarily driven by the acquisitions of VBI Group (now Sberbank Europe AG) in February 2012 and DenizBank in September 2012.