Support The Moscow Times!

Sberbank Provisions Balloon on Fears of Economic Slowdown

Sberbank announced a big leap in third-quarter loan-loss provisions on Wednesday, suggesting that rising retail lending could leave Russia's largest bank vulnerable to the slowing economy.

Though the state-controlled bank posted net profit up a slightly better than expected 7 percent year on year, rising retail lending pushed provisions to 44 billion rubles ($1.34 billion) from 11.7 billion rubles last year.

Sberbank, Europe's third-largest bank by market value, this month unveiled an ambitious strategy to double earnings by 2019 through lending more to Russian households and developing its existing network of businesses abroad.

However, the change of focus by Russian banks to compensate for weak business demand has also raised concerns that consumer loans could turn sour as the economy slows.

"Provisions were higher than expected, showing [Sberbank's] response to the worsening economic situation," Gazprombank analyst Andrei Klapko said Wednesday.

The country acknowledged this month that its economy would grow at an average rate of 2.5 percent through to 2030, lagging behind global growth over the next two decades and setting the stage for an era of stagnation.

So far, however, Sberbank's strategy is boosting earnings while its nonperforming loan ratio was little changed at 3.3 percent at the end of September, in line with 3.2 percent at the end of last year.

The 7 percent rise in third-quarter net profit to 93.8 billion rubles was helped by fees and commission as well as net interest income on its increased retail lending and credit card operation in particular.

FEES FILLIP

Fee and commission income in the first nine months of the year has risen about 30 percent on last year, while net interest income climbed by about 24 percent.

Sberbank said its corporate loan portfolio has grown by 8.7 percent in the year to date, against a 21 percent rise in retail lending.

It did not give a quarterly breakdown, but UralSib analyst Natalia Berezina estimates that Sberbank's third-quarter retail lending was up 9 percent on the previous three months.

The Central Bank recently moved to curb rapid growth in consumer lending, the bulk of which comes in the form of unsecured cash loans or credit cards, demanding higher provisions and capital as safety buffers in case the weakening economy hurts household finances.

The tougher climate cut the nine-month earnings of Home Credit and Finance Bank — a pioneer in Russian consumer lending — by almost a quarter to 9.4 billion rubles. Its nonperforming loans ratio rose by a third to 9.9 percent.

Still, bankers see an opportunity in relatively low Russian household indebtedness, which at 12 percent of gross domestic product is low compared with developed countries such as Britain, where the ratio is close to 100 percent.

VTB, Sberbank's closest local rival, set aside more money than expected to cover potential bad debts in the second quarter as well. It is expected to report third-quarter results next month.

Sign up for our free weekly newsletter

Our weekly newsletter contains a hand-picked selection of news, features, analysis and more from The Moscow Times. You will receive it in your mailbox every Friday. Never miss the latest news from Russia. Preview
Subscribers agree to the Privacy Policy

A Message from The Moscow Times:

Dear readers,

We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."

These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.

We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.

Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.

By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.

Once
Monthly
Annual
Continue
paiment methods
Not ready to support today?
Remind me later.

Read more