Russia's Sberbank's 2021 profit spikes, Ukraine conflict woes intensify

Sberbank of Russia reported a sharp increase in profit for 2021 on March 2, the same day it announced that it has been forced to exit most of its European markets.

The Russian bank is one of several to be hit by sanctions by the U.S., EU and other countries over Russia's Feb. 24 invasion of Ukraine. Following deposit withdrawals and worsening liquidity, Austria-based subsidiary Sberbank Europe AG, through which it does much of its business in Europe, will enter insolvency, the EU's Single Resolution Board said.

Sberbank reported a 64% year-over-year increase in net profit in 2021, with return on equity increasing to 24.2% from 16.2%. Net interest income was up 13.4%, and net fee and commission income was up 13.1% on the back of growth in bank card operations.

The bank canceled its March 2 earnings conference call. Its focus is on the challenges faced by the Russian economy and the financial sector, CEO Herman Gref said in a statement. All Russian branches remain operational and clients have full access to their funds, he said.

"In recent years, we have been able to create a significant margin of safety, develop competencies and accumulate experience that allow us to remain a reliable financial partner for our clients, regardless of external circumstances," Gref said.

Sberbank Europe's subsidiaries in Slovenia and Croatia were taken over by local banks, according to the Single Resolution Board. The central banks of Hungary and Czech Republic began proceedings to cancel the licenses of Sberbank's local units.

Sberbank confirmed that it had lost control over Sberbank Europe and said this will be reflected in its financial report for the first quarter of 2022. The net assets of the European subsidiaries were less than 1.3% of the group's total net assets as of Dec. 31, 2021, the bank said. It continues to operate as usual in Switzerland as its business there is not part of Sberbank Europe, it said on its Telegram messaging channel.

The Russian bank's 2021 results were strong, but should be viewed in the context of the current situation, Mikhail Zeltser, a stock market expert at Russia-based investment company BCS, said in a note. Pressure on Russia's financial system is leading to a revaluation of securities portfolios, restrictions on correspondent relationships with global banks, and an increase in the cost of credit resources, Zeltser said.

The Russian central bank's recent move to more than double the key interest rate to 20% will likely stanch the outflow of deposits, but a slowdown in consumer activity and the corporate segment will probably impact interest margins, Zeltser said. It will be difficult for Sberbank to reach the profit levels achieved in previous periods, he said.

Trading in Sberbank shares was suspended on the Moscow Exchange on Feb. 25. The share price ended that day at 130.5 rubles, down from the October 2021 peak of 387 rubles. The bank's American depositary receipts traded at 0.04 dollars apiece on the London Stock Exchange in the early afternoon of March 2, down from the previous-day close of 0.21 dollars and the 12-month peak of 21 dollars in October 2021.

As of March 1, US$1 was equivalent to 115.14 Russian rubles.