PAO Sberbank of Russia wants to focus on internet-based activity as it eyes competition with tech giants, its top executives said Dec. 14 at an investor day in London.
Russia's largest bank is already experimenting with using drones to deliver up to 3kg of cash and with robots taking over the functions of branch tellers, Chief Risk Officer Alexander Vedyakhin said. Further, the lender — which controls more than half the Russian retail banking market — will start developing cybersecurity software and invest in online commerce, education and healthcare, he added. It will also expand its financial advice, transaction-banking and brokerage businesses. And a quarter of all mortgage loans extended by Sberbank in 2020 are to be issued online.
Increasing risk appetite, reducing costs
Sberbank booked a net profit of 222.40 billion Russian rubles in the third quarter, according to data compiled by S&P Global Market Intelligence. New accounting standards known as IFRS 9 will have an impact of 40 basis points on the bank's common equity Tier 1 capital, as provisions against bad loans are set to increase by 10%. The bank's CET1 will touch 12.5% by 2020, as its net interest margin will fall below 5% from 5.5% in 2018.
The lender's net income is projected to rise by more than 40% by the end of 2019, reaching a trillion rubles, as the bank aims to pay 50% of its profits in dividends to shareholders, starting in 2018. The Central Bank of the Russian Federation owns 50% plus one share of Sberbank's Moscow-listed equity.
The bank's return on equity will be around 20% by the beginning of 2020, CFO Alexander Morozov said. Sberbank's fees and commissions income is expected to grow to 580 billion rubles in 2020 from 390 billion rubles in 2017. Its loan-to-deposit ratio will increase to 99% from 91% currently. Meanwhile, costs will stay flat compared to 2017, meaning that the bank's cost-to-income ratio will fall to around 30%, partly due to roughly 18% of its employees in Russia being replaced by machines, according to the executives.
Asset management income is projected to be 118 billion rubles in 2020, up from 25 billion rubles in 2017. Brokerage revenues are set to grow almost fourfold, reaching 7.8 billion rubles in 2020 compared to 2 billion in 2017.
"We are increasing our risk appetite but we are bringing down the cost of risk," Morozov said.
He added that Sberbank remains vulnerable to a shock in the value of the ruble against the dollar, saying: "Our biggest risk is foreign-exchange risk. But we project [the ruble] to be rather stable."
Although the targets might seem ambitious and "adventurous," they are based on conservative assumptions and are achievable, CEO Herman Gref told the audience.
"We have zero chances to not deliver on the promises we make today," he said.