Daily analyst comments
Interest rates on subordinated loans to Russian banks reduced
29.07.10 10:31
Sector: Banks
A reduction in interest rates on subordinated loans issued by CBR and VEB to Russian banks in late 2008 – early 2009 should enable Sberbank and VTB to cut expenses: in line with our estimates, they could save 3-6% of the FY2010 projected net profit annually.
On July 28, the Russian president, Dmitry Medvedev passed a bill on lowering interest rates on the two subordinated loans, granted by VEB to Russian public banks, from 8% to 6.5% and from 9.5% to 7.5%, respectively. An equivalent reduction is envisaged in respect of CBR’s subordinated loan to Sberbank. The law is to come in force on the date of its official publication.
We are upbeat on the news, as a reduced interest rate could enable banks to ease pressure on interest margins. Given that Sberbank has already repaid RUB 200 bn of the total RUB 500 bn, granted in late 2008, it could save nearly RUB 4.5 bn per year on the rate reduction, or 3% of the FY2010 estimated net profit (RUB 148 bn). As to VTB, whose subordinated debt totals RUB 200 bn, the bill could save it some RUB 3 bn per year, or 5.9% of the FY2010 projected net profit (RUB 50.8 bn).
Our 12-month target value for Sberbank (RTS: SBER) is USD 3.89 per common share and USD 2.18 per preferred share.