SBERBANK OF RUSSIA
Sberbank (hereafter "the Group") has released its consolidated IFRS financial statements (hereafter "the Financial Statements") as at 31 December 2014 and for the year ended 31 December 2014, with independent auditor's report by Ernst & Young Vneshaudit.
Income Statement highlights :
- Net profit for the year ended 31 December 2014 reached RUB 290.3 bn (or RUB 13.45 per ordinary share) compared to RUB 362.0 bn (or RUB 16.78 per ordinary share) for 2013. The decline in net profit was mainly driven by increase in provision charge for loan impairment.
- Net interest income for 2014 increased by 18.3% to RUB 1,019.7 bn, compared to RUB 862.2 bn for 2013.
- Net interest margin for 2014 declined by 30 basis points as compared to 2013 to 5.6%.
- Net fee and commission income for 2014 increased by 27.6% to RUB 282.3 bn, compared to RUB 221.3 bn for 2013.
- The Group's operating income before provision charge for impairment of debt financial assets for 2014 increased by 18.8% to RUB 1,300 .7 bn compared to RUB 1,094.8 bn for 2013 and was driven by growth of net interest income and net fee and commission income.
- Operating expensesfor 2014 increased by 12.1% year-on-year, slower than operating income. As a result, Cost to Income ratio improved to43.4% versus 46.1% for 2013.
- Return on equity remains high at 14.8% versus 20.8% for 2013.
- Net provision charge for loan impairment for 2014 amounted to RUB357.0 bn, translating to Cost of risk of 233 basis points.
Statement of financial position highlights:
- As of 31 December 2014, the Group's total assets reached RUB 25,200.8 bn showing a 38.4% growth compared to the 2013 year end, the main driver of the growth being an increase in loans to customers.
- For 2014, net loans and advances to customers increased by 37.3% to RUB 17,756.6 bn compared to RUB 12,933.7 bn at 2013 year end.
- In 2014, the proportion of non-performing loans in Group's total gross loans increased to 3.2% as of 31 December 2014 (31 December 2013: 2.9%).
- Customer deposits increased by 29.0% to RUB 15,562.9 bn compared to RUB 12,064.2 bn at the 2013 year end, with corporate deposits being the driver of the growth.
- The Group's Equity increased for 2014 by 7.4% to RUB 2,020.1 bn, with net profit being the major driver partly offset with negative revaluation of investment securities available-for-sale.
- The total capital adequacy ratio ( Basel 1) decreased by 130 basis points for 2014 to 12.1%. The core capital adequacy ratio decreased by 200 basis points to 8.6%.
Financial and Operating Review:
Interest income for 2014 increased by 24.3% year-on-year to RUB 1,837.9 bn. The increase is mostly attributable to an expansion in volumes of both corporate and retail loans.
Interest expenses ( including deposit insurance expenses) for 2014 increased by 32.7% year-on-year to RUB 818.2 bn. The largest component of interest expenses was related to retail deposits, which are the core source of funds for the Group. In 4Q 2014, the cost of term retail deposits decreased to 4.5% versus 5.2% in 3Q 2014 as a result of early termination of deposits due to the change in the clients' investment strategy and outpacing growth in foreign currency retail deposits. At the same time the average cost of term corporate deposits in 4Q 2014 increased to 6.2% versus 5.4% in 3Q 2014 following the funding costs growth. Yet the largest driver of interest expenses growth in 2014 were borrowings from banks (primarily from the Central Bank of Russia) due to increased volumes and higher costs. As a result, interest expenses on borrowings from banks increased by 156.6% year-on-year and on subordinated debt by 43.0% (primarily as a result of RUB 200 bn subordinated debt increase in the mid of 2014).
Net interest income for 2014 totaled RUB 1,019.7 bn, a 18.3% 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 78.4% of total operating income before provision charge for impairment of debt financial assets. Net interest margin declined by 20 basis points to 5.4% in 4Q 2014 primarily following the funding cost increase.
The Group's net fee and commission income for 2014 totaled RUB 282.3 bn, a 27.6% increase year-on-year. Income from cash and settlements transactions with individuals and legal entities was the key driver of the growth.
Other operating income / (expense) for 2014, which includes net results from operations with securities, foreign exchange, derivatives and precious metals and other items, totaled RUB (1.3) bn versus RUB 11.3 bn for 2013. The decrease is mainly driven by creation of other provisions (under guarantees and other assets) and net losses from operations with securities, partly offset by income from other derivatives.
Total operating income before provision charge for impairment of debt financial instruments for 2014 reached RUB 1,300.7 bn compared to RUB 1,094.8 for 2013, an 18.8% increase year-on-year. The growth was driven primarily by the growth of net interest income and net fee and commission income.
Net provision charge for debt financial assets impairment for 2014 totaled RUB 361.4 bn compared to RUB 134.9 bn for 2013. Net provision charge for loan impairment for 2014 totaled RUB 357.0 bn compared to RUB 133.5 bn for 2013, translating into Cost of risk of 233 basis points versus 112 basis points for 2013. The main drivers of the cost of risk were general deterioration of the loan quality in view of slowdown of the Russian economy and one-off provisions on several significant exposures; increase in provisions on Ukrainian borrowers due to significant deterioration of the Ukrainian economy. Also approximately 20% of net provision charge for loan impairment relates to the devaluation of the Rouble which meant creating additional Rouble provisions against foreign currency loans even though their quality remained unchanged.
The Group's operating expenses for 2014 increased by 12.1% year-on-year to RUB 565.1 bn. The main driver of this growth is an increase in staff costs as a result of business growth. Since operating income growth outpaced the growth of operating expenses, the Group's cost to income ratio for 2014 improved to 43.4% versus 46.1% for 2013.
The Group's net profit for 2014 reached RUB 290.3 bn versus RUB 362.0 bn for 2013, a 19.8% decrease year-on-year. The decrease in net profit for 2014 as compared to 2013 is explained mostly by the significant increase in net provision charge for loan impairment.
As of 31 December 2014, the Group's total assets reached RUB 25,200.8 bn, a 38.4% increase since 31 December 2013.
For 2014, the Group's gross loan portfolio before provision for loan impairment increased by 37.5%. Gross loans to corporate clients increased by 40.7% to RUB 13,778.8 bn; loans to individuals increased by 29.3% to RUB 4,847.3 bn. Gross mortgage loan portfolio grew up by 44.7% for 2014 and was the main driver for retail loan portfolio growth.
Approximately 60% of the gross loan portfolio growth is attributable to the expansion of the Group's lending operations, though the other 40% increase is due to revaluation of balances nominated in the foreign currencies.
The proportion 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) increased for 2014 to 3.2% as at 31 December 2014 compared to 2.9% at the 2013 year end. The NPL coverage ratio (total provisions for loan impairment to non-performing loans) remains stable at 1.4 times level in2014.
Provision for loan impairment increased for 2014 by 42.5% reaching RUB 869.5 bn. As of 31 December 2014, the proportion of provision for loan impairment to total gross loans slightly increased to 4.7% as compared with 4.5% at 2013.
As of 31 December 2014, the Group's total liabilities amounted to RUB 23,180.7 bn, a 42.0% increase for 2014 with retail deposits totaling RUB 9,328.4 bn. Retail deposits remain the core source of the Group's funding, accounting for 40.2% of the Group's total liabilities. Corporate deposits increased to RUB 6,234.5 bn as at 31 December 2014 showing a 71.8% growth for 2014, with approximately 55% of the increase attributable to the growth of funding volume and 45% - to revaluation of foreign currency deposits. Share of corporate deposits in total liabilities expended to 26.9%.
As of 31 December 2014, the Group's amounts due to bankstotaled RUB 3,640.0 bn, a 72.4% increase since the beginning of 2014 with the Central Bank of Russia being the main depositor.
At 31 December 2014, the Group's exposure to Ukrainian risk amounted to approximately 0.6% of total consolidated assets; this represents a 0.2 percentage point decrease as compared to 0.8% at 31 December 2013.
The Group's equity amounted to RUB 2,020.1 bn as at 31 December 2014, a 7.4% increase for 2014. As at 31 December 2014, the Group's total capital adequacy ratio as per Basel 1 reached 12.1%, well above the 8% minimum requirement, and the Tier 1 ratio was 8.6%. The decrease of the capital adequacy ratios as of 31 December 2014 is mostly explained by an increase in risk-weighted assets partly due to inflation of assets nominated in foreign currency due to the Russian Rouble depreciation.
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