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Sberbank to expand mortgages and credit cards after posting record FY profit

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Sberbank to expand mortgages and credit cards after posting record FY profit

PAO Sberbank of Russia will focus on growing its market share in residential mortgages and credit cards, its top executives said after Russia's largest lender had announced record profits.

Sberbank will seek to expand "faster than the market" in those highly competitive segments, CFO Alexander Morozov told analysts during a Feb. 28 earnings call.

The Russian banking sector is set to expand retail credit by 10% to 12% in 2018 and corporate credit by 6% to 8%, he estimated, adding: "On balance, I believe we will be in line with the sector or slightly better than the sector due to mortgages and credit cards."

Sberbank's mortgage portfolio grew 16% in 2017 to 19.9 trillion Russian rubles, while its credit card lending grew by 15.7%.

Uptake of mortgages among the Russian population is roughly 7%, according to the lender's CEO, Herman Gref, with the potential to double in the next three to five years. However, Sberbank should be careful about starting a "price war," he added.

"My feeling is that a 50% market share is more than enough," said Gref.

The bank's market share in retail and corporate lending was 41.4% and 32.4%, respectively, in 2017.

'Missed expectations'

Sberbank's total assets at the end of 2017 stood at 25.4 trillion rubles, a 6.9% increase on the previous year. Its group net profit for the fourth quarter of the year was 172.4 billion rubles, up from 141.8 billion rubles a year earlier. Full-year net profit hit 748.7 billion rubles, up 38.2% from 541.9 billion rubles in 2016 despite the net interest margin falling 0.3 percentage points to 5.7% over the 12 months. Net fee and commission income for 2017 came in at 394 billion rubles, up 12.9% from 349 billion in 2016.

Morozov said the management was aware Sberbank had "missed expectations" for fees and commissions revenue and promised to emphasize this stream of income in 2018.

"We put a clear focus on that for all of our businesses," he said. "The primary driver behind it is now retail and small business."

Sberbank guided investors to expect an end-2018 common equity Tier 1 capital ratio of over 11.5% compared to 11.4% at the end of 2017.