Research Notes
Sberbank and VTB: through the crisis
| 26.05.09 |
Decreasing solvency in the real economy is prompting state banks to prepare for the worse, scaling down lending operations, increasing the share of liquid assets and slating practically all net income as provisions. Despite the similarity of the measures being taken, Sberbank’s position looks much stronger than VTB’s.
Sberbank is our favorite, but upside is not as large as before. A strong capital position, high interest margins, stable funding base and relatively conservative credit policy lay a solid foundation for the bank to overcome adverse trends in the financial sector. However, according to our estimates, the bank will post loss in 2009 if provisions grow above 8.0% of its loan portfolio.
VTB: risks continue to prevail. Despite the low P/BV ratio compared with its peers, we reiterate our HOLD rating. Uncertainty over the parameters of an additional share issue will continue to exert downward pressure on its shares. The need to increase provisions will force the bank to report a negative financial result for 2009 and 2010.
Capital adequacy threat. The capital adequacy ratio for the entire banking sector remains at a robust 16.9%. Sberbank’s capital adequacy is even stronger, at 18.9%. As regards VTB, the bank urgently needs additional capitalization, given the scale of its expected losses in 2009 and 2010 and negative currency translation effects.
NPLs. The aggressive credit policy of VTB in 2008 will inevitably lead to a higher proportion of overdue loans, as compared with Sberbank. However, given that the banks have nearly unlimited access to state funds, we expect that the share of NPLs in their loan portfolios will be below the sector average. According to our estimates, arrears on the two banks’ loans will peak in 2010, at 10% for Sberbank and 12% for VTB (under CBR regulations, NPL = total principal debt overdue for one day).
Interest margin. Despite pressure from higher deposit rates, we forecast expansion of interest margins for Sberbank in 2009-2010. Sharp growth in the cost of state funding, which account for 20% of VTB’s liabilities, will negatively impact its interest margin in 2009, further widening the gap between the two state banks.
As a result of revised lending growth rates, NPLs and interest margins, we lower Sberbank 12-month common share target price by 3%, and remain BUY rating. We downgrade Sberbank prefs to HOLD, after spread to commons tightened.
We raise 12-month VTB shares target price by 4%, and remain HOLD rating.
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Sector: Financial sectorCompany: Sberbank of Russia