Sberbank Seen Posting Lower Profit as Pressure Mounts on Rates

OAO Sberbank, Russia’s largest bank, may report a decline in first-quarter profit as slowing economic growth curbs demand for credit and drives up loan provisions.

Net income probably fell 8 percent to 84.8 billion rubles ($2.7 billion) from 92.2 billion rubles a year earlier, based on the average estimate of eight analysts surveyed by Bloomberg. Net interest margin, a gauge of the profitability of lending, may have shrunk by as much as 6 percent, BCS Financial Group said.

“Sberbank is at risk of underperforming against its own guidance and we could see a pronounced drag in earnings, especially in the next two quarters,” Ivan Kachkovski, a banking analyst at Aton Capital in Moscow, said by phone. “We see a trend for falling net interest margins, slower growth and the rising cost of risk.”

Andrey Kostin, chief executive officer of VTB Group, appealed to policy makers to cut interest rates to help encourage lending amid Russia’s slowest expansion since a 2009 contraction. Lowering the refinancing rate to between 5 percent and 6 percent from 8.25 percent would allow banks to reduce loan costs and make “a big difference for the industry,” Kostin, who heads Russia’s second-largest lender, said in a May 22 interview. Both VTB and Sberbank are majority-owned by the Russian state.

Sberbank shares rose 1.4 percent to 104.40 rubles in Moscow trading. The stock has advanced 12 percent this year. Russia raised about $5 billion in September selling Sberbank shares at 93 rubles apiece.

Slower Growth

Sberbank will report first-quarter results tomorrow under International Financial Reporting Standards, after already publishing earnings under Russian accounting rules for the first four months of the year.

Russia’s economy grew 1.6 percent in the first three months of 2013 from a year earlier, decelerating for a fifth consecutive quarter as corporate investment cooled. The central bank, which is resisting calls for monetary easing, kept its main interest rates unchanged in May for an eighth month after Russia became the biggest emerging economy to raise borrowing costs in 2012 with an increase in September.

Sberbank, Europe’s third-largest bank by market capitalization, is cutting rates on some of its deposit accounts by May 31, Kommersant reported on May 22, citing an interview with director Dmitry Oguryaev.

Loan Provisions

Lending growth at Moscow-based Sberbank started slowing near the end of the first quarter, according to UBS AG analyst Dmitry Vinogradov. “Deposit rate increases in the second half of 2012 and corporate rate cuts in the first quarter are likely to pressurize margins,” he said in a report e-mailed today.

The bank said on May 14 its loans to corporate clients in the first four months, under Russian Accounting Standards, declined 0.1 percent. Lending to individuals rose 6 percent.

The lender set aside 37.4 billion rubles in provisions for potential bad loans during the four months, compared with 6.7 billion rubles in the same period last year.

Sberbank’s Tier 1 capital ratio, a measure of financial strength, declined to 10.2 percent from 11.6 percent at the start of the year.

The company agreed in June to acquire Istanbul-based Denizbank AS (DENIZ) for $3.5 billion, after agreeing in February of last year to buy most of Vienna-based Oesterreichische Volksbanken AG (VBPS)’s eastern European business for 505 million euros ($662 million). Sberbank consolidated Denizbank, Turkey’s ninth-largest lender by assets, in its accounts in September.

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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