Daily analyst comments
Interest rate on subordinated loans to be downgraded
21.06.10 10:52
The Russian government has adopted a decision to lower the interest rate on subordinated loans from 8% to 6.5%. The news is undoubtedly positive for state banks. However, given their excessive current liquidity and high capital adequacy, we may conclude that both Sberbank and VTB would not have faced any troubles repaying subordinated loans at the current rate.
The Cabinet has decided to lower the interest rate on subordinated loans from 8% to 6.5%, Prime Minister Vladimir Putin reported June 18. The key beneficiaries of this decision are state-run Sberbank, with a RUB 300 bn subordinated debt, and VTB, with a RUB 200 bn subordinated debt. After the rate is lowered, the two banks could save, respectively, RUB 4.5 bn and RUB 3 bn per year on interest charges.
The current interest rate on subordinated loans was set when the crisis was in the height, and as the economic climate normalized, the cost of debt resources steadily decreased. In such conditions, state banks started lobbying for the rate to be revised, and Sberbank even managed to repay 200 of the 500 bn rubles granted by CBR. Bank management actively supported the interest cuts, but noted that future decisions concerning the repayment of the debts would be taken with regard to the market situation.
In our opinion, the news is definitely positive for the state banks. However, given their excessive current liquidity and high capital adequacy, we may conclude that they would have had no problems repaying the loans at the current rate. Our 12-month target for Sberbank (RTS: SBER) is USD 3.98 per common share and USD 2.18 per preferred share. The target price for VTB (RTS: VTBR) is USD 0.003 per share.