Gref's Sberbank Rides Russia's Private Bank Purge to Record Year

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(Bloomberg) -- Russia’s purge of troubled lenders keeps feeding state-owned Sberbank PJSC.

The lender on Wednesday reported its ninth quarter of rising profit, capping a record year for earnings, as clients continued flocking to the safety of Russia’s largest bank. Fees and income from lending rose, while rising client deposits kept funding costs low.

Sberbank, sanctioned four years ago by the U.S. and Europe, has been a key beneficiary of a purge by the central bank -- Sberbank’s principle shareholder -- of under-capitalized and unscrupulous lenders. The company’s market value has outstripped the national oil and gas champions like Gazprom PJSC and closed the gap with European banking giants such as Banco Santander SA as investors increasingly see it as a proxy to benefit from Russia’s return to growth.

Total deposits at Sberbank, which is run by former economy minister Herman Gref, grew by 6 percent last year even as the number of employees fell by 2.8 percent. That helped lift net income by 22 percent in the fourth quarter, to 172.4 billion ($3.1 billion). Gref has pledged to return 50 percent of profit through dividends by 2020.

Sberbank fell 1.1 percent at 12:14 p.m. in Moscow, in line with declines in the broader market. The shares have rallied more than 50 percent in the past six months, pushing the company’s market value to around 6.2 trillion rubles ($110 billion), about the same as Banco Santander. The only bank in Europe that’s more valuable is HSBC Holdings Plc.

Net interest income was 382.9 billion rubles, up 7.8 percent from a year earlier. Net fee and commission income rose 21 percent while operating expenses gained just 0.9 percent in the quarter from a year earlier.

Sberbank was sanctioned by the U.S. and the European Union in 2014 over Russia’s involvement in the Ukraine crisis, with the penalties limiting the lender’s access to capital markets and sending its value down 46 percent that year.

Since then, the stock has risen each year as the central bank shut down 40 percent of Russia’s lenders, triggering a flight to safety. In the last six months, three of the 10 largest were nationalized, helping expand the government’s stake in the banking system from 63 percent to 70 percent last year.

As the successor to the Soviet Union’s savings bank, it benefits from its dominant position in Russia, enjoying low funding costs with nearly half of the country’s retail deposits at the lender.

©2018 Bloomberg L.P.

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