Daily analyst comments
Interest rate on Sberbank’s subordinated debt may be downsized
25.02.10 11:01
A scheduled decrease in the interest rate on Sberbank’s subordinated debt could permit the bank to reduce its 2010 pretax profit by 20%. The cumulative effect of the rate reduction, however, could turn out to be smaller than expected, as the bank may have to downsize rates on loans to customers.
In was reported on February 25 that the State Duma deputy, Vladimir Reznik, had proposed a bill to reduce the interest rate on the subordinated loan granted by the CBR to Sberbank in late 2008 from 8% to 4.75%.
We are upbeat on the initiative. The loan totals RUB 500 billion; therefore, the announced reduction in the interest rate could enable Sberbank to save RUB 16.25 billion annually, or 45% of the bank’s RAS net profit for FY 2009. In 2010, savings on interest charges could add 20% to Sberbank’s pretax profit. Moreover, we note that the loan accounts for nearly 7% of the bank’s total liabilities. Nevertheless, the overall effect of reducing the rate may be lower due to a corresponding reduction in rates on loans to borrowers.Our fair price for Sberbank on 31 December 2010 is USD 2.42 per commons (RTS: SBER) with a HOLD rating and USD 1.14 per preferred share (RTS: SBERP) with a SELL rating.