In spite of the challenging economic environment in 2009, Sberbank generated robust operating income with simultaneous containment of operating costs. Operating income before provisions grew 30.2% y-o-y to RUB647.2 bn. Net interest income, which increased by 36.4% y-o-y to RUB456.8 bn, was the driver of this growth.
Interest income rose 33.5% y-o-y to RUB768.4 bn, outpacing growth in interest expense. The increase in interest income was largely due to income earned from corporate lending (+42.1% y-o-y), while contribution from interest income in the retail segment was less pronounced (+4.4% y-o-y) on the back of overall retail lending contraction.
The Bank earned a meaningful interest income (1.7 times higher) on a more-than 2-fold growth of its securities’ portfolio. Hence, the Bank diversified income sources, with income from the securities’ portfolio increasing from 5.6% to 7.2% of total.
Interest expense grew 29.5% y-o-y to RUB311.6 bn, driven by funding costs in the inter-bank and retail segments. Interest paid on funds from other banks increased 3.9-fold y-o-y which was largely due to the subordinated loan worth RUB500 bn raised from the Central Bank of Russia (CBR) in late 2008. Growth in interest paid on retail deposits (+20.6% y-o-y) resulted from both increased volumes and higher funding costs in response to the crisis. In the meantime, interest expense related to corporate funds decreased (-4.4% y-o-y).
Net fee and commission income grew 10.0% y-o-y to RUB143.1 bn, which was primarily due to commissions generated on settlement transactions, lending to corporate clients, current account transactions, operations with banking cards, operations with foreign currencies and precious metals, transactions with securities, banking guarantees. Subdued consumer demand for retail loans reduced fee and commission income on lending to individuals. Furthermore, fee and commission income declined on cash transactions with individuals. The volume of commissions charged on documentary operations with legal entities, budget accounts’ services, currency control operations, depositary and agent services remained virtually unchanged from 2008.
Net trading income increased by 66.9% y-o-y to RUB42.2 bn on the back of gains on trading transactions with securities and operations with precious metals.
With strict cost control in focus in 2009 the Bank reduced operating expenses by 2.8% y-o-y to RUB220.0 bn. Cost-cutting was led by reduction of staff-related costs within optimization of organizational structure and restrained growth in general and administrative expenses. Cost to income ratio stood at 34.0% vs. 45.5% in 2008.
The Bank adheres to conservative credit risk management. In 2009, the Bank allocated RUB383.9 bn in provisions, including provisions for loan impairment of RUB361.5 bn, which is 3 times the level of 2008. The Bank’s operating income was the only source for provision creation and the regulatory capital was unaffected.
Provision formation reduced the Bank’s profits:
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