Russia's Sberbank Has Record Profit as Lending Margin Widens

  • State-controlled lender benefits from gradual rate cuts
  • Net interest margin widens to 5.8% from 5.3% a year earlier

Sberbank PJSC has the Russian central bank to thank for a record profit in the first quarter.

The Russian state-controlled behemoth reported net income of 167.8 billion rubles ($2.98 billion), beating estimates of 159 billion rubles by 10 analysts surveyed by Bloomberg. Earnings were boosted by a stronger net interest margin as the Russian central bank moved slowly to bring down borrowing costs. It was the third record profit in the last five quarters.

Sberbank Chief Executive Officer Herman Gref said last week the bank is on track for another year of record profit in 2017 as the economy limps out of its longest recession in two decades. Central bank rate cuts, which are set to continue after inflation slowed sooner than expected, won’t start squeezing margins until next year, he said.

“With the economic recovery, Sberbank should enjoy lending growth, and it should maintain strong margins at least until the second half,” Natalia Berezina, a banking analyst at UralSib Financial Corp., said by phone. “They came out ahead of expectations this quarter and even if going forward every quarter’s not a new record, they will continue to keep investors happy.”

Sberbank’s net interest margin, which measures the difference between income from lending and the cost of funding, rose to 5.8 percent in the first quarter, up from 5.3 percent a year earlier. A gradual decrease in the central bank rate can help boost the margin for a time by lowering the cost of funding.

The pace of rate cuts may accelerate in the remainder of the year after the inflation rate slowed to 4 percent as of May 15, seven months earlier than the year-end target set by the central bank. The central bank surprised analysts at its last decision with a bigger cut than they had expected, decreasing the one-week auction rate to 9.25 percent from 9.75 percent. The next rates decision will be June 16.

Sberbank, which is subject to sanctions that restrict its access to international capital markets in response to the Ukraine crisis, saw its interest income decline by 7.7 percent from a year earlier to 566 billion rubles, while interest expenses fell by 20 percent to 229 billion rubles, helped by lower central bank rates.

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