Sberbank forecasts worsens: “Black swans”, or when praying Gref

Sberbank forecasts worsens: “Black swans”, or when praying Gref

Sberbank presented its updated development strategy until 2018. If in the previous forecast expected annual profit increase at 14-16%, 2016 the savings Bank expects to increase profit by 10%.

MOSCOW, 22 Oct. The head of the largest Russian Bank Herman Gref, speaking to investors in London, said the situation in the Russian economy “black Swan”, which was the reason for the deterioration of forecasts of Sberbank over the next three years.

Sberbank presented its updated development strategy until 2018. If in the previous forecast expected annual profit increase at 14-16%, 2016 the savings Bank expects to increase profit by 10%.

Profit of Sberbank under IFRS for the year 2013 amounted to 362 billion rubles, in 2014 — 290,3 billion rubles, Gref predicted that profits in 2015 will drop by 30%. Forecast asset growth is also reduced — instead of growing at twice the expected increase in 1.8 times.

“Black swans”

The banking sector was the first to take the hit in this crisis and has suffered the most, said Gref.

“If 2013 was within our expectations, even slightly better, then these two years radically changed the whole macroeconomic picture. And it is probably more correct to say that this is the situation (economist — ed.) Nassim Taleb called “black Swan”. Unfortunately, these swans had a few,” said Gref.

“Black Swan” — the theory of unpredictable and rare events that have a significant impact. From the point of view of the author, almost all major scientific discoveries, historical and political events, achievements of art and culture is the “black swans”. Examples are the development and introduction of Internet, world war I, the collapse of the Soviet Union and the terrorist attack on the USA on 11 September 2001.

“We imagined that oil would cost $ 100 per barrel, GDP growth will be about 2.2%. We had hoped that our economy will grow very strongly. We had other ideas about the rate of the national currency, inflation and capital outflow. Our current views are very different from what we presented to you just two years ago,” said the head of Sberbank.

Under the new macroeconomic forecast the savings Bank expects a decline in GDP in 2015 to 3.6% on average to 2018 will be an increase of 1.3% together prognozirovanija earlier average growth of 2.2%. Expectations at the middle exchange rate of the ruble rose to 58 rubles per dollar versus 35 rubles in the previous forecast. Inflation is projected at 12.3 percent in 2015 and 7.5% on average until 2018 against an earlier projected an average of 5%. Instead of capital inflow, the savings Bank expects outflow of $ 155 billion dollars in the forecast period.

“When this scenario was presented to the Board of Directors, met a fair share of criticism. According to them, the situation may be even worse,” — said Gref.

How will grow the profits of savings Bank

“We expected that we would have a much more aggressive decline in margins over the next five years as a result of aggressive competition in the market. In fact, we now revise our forecast, interest margin, we see slightly higher on the horizon,” — said the Deputy Chairman of the management Board — financial Director of the savings Bank Alexander Morozov.

Sberbank has improved its Outlook on net interest margin in 2018 to more than 5% to more than 4.5. The Bank has lowered its forecast for cost of risk with a 120-150 basis points (b.n.) to 190 b.p.

“With an increase in the cost of risk — how to compensate? One tenth of one percent in cost of risk is about 20 billion rubles, the impact on our net income. One percentage point of cost to income is about 15-20 billion rubles”, — said Morozov.

Cost to income expected under the new forecast at the level of less than 40% against the previous target at 40-43%. “What does that mean? This means being more conservative from the point of view of growth of our assets, which will grow more slowly than we expected, but at a higher margin, we will be able to offset interest income. The increase in cost of risk will be largely if not fully offset our higher efficiency from the viewpoint of cost to psome,” said the Treasurer.

Sberbank intends to be conservative in terms of provisioning, which leads to an increase in the cost of risk. “You know, we with the tenacity of a maniac to create these reserves, we prepare ourselves… to salvation run, so no “black swans” we came as no surprise that we were ready for it,” said Morozov.

Reserves against the portfolio at the end of three years will be at the level of 9% or more. The Treasurer added that the savings Bank has passed the peak of creation of reserves and the cost of risk will decline.

The savings Bank is shifting its focus to retail

The margins will grow faster “is that there is a shift of emphasis,” explained Morozov. “Two years ago we assumed that we will have faster growth to grow corporate business and loans, and deposits. But it’s not the highest margin is quite expensive liabilities, and for the most loyal. We are shifting our focus at a much higher margin retail business,” said Morozov.

“We don’t buy share, we take customers on their loyalty”, — said the financier.

“We are confident that in this respect the consolidation of the Russian banking sector, those of our investments that have made the products convenient for customers — they will help us not only to retain but also to increase the share of loyal customers, while significantly reducing the cost of liabilities”, — said Morozov.

When praying Gref

Gref quite emotionally told the investors about the attacks that survived the savings Bank in December during the panic among the population. The savings Bank for one week in December 2014 lost 1.3 trillion rubles cash or 300 tons of cash because of the panic people with well-planned attacks.

“We couldn’t imagine in any stress test that this speed can make our liquidity. For one week out of the savings Bank issued 1 trillion 300 billion rubles. It was a dramatic moment for us,” Gref said.

First, clients of Sberbank in the period of “black Tuesday” of December of 2014 it was sent over 1 million SMS messages about the problems in the Bank, then followed by a second wave of SMS messages, which caused panic among the population and queues at the ATMs of Sberbank. “SMS: the savings Bank under sanctions, I have accurate information from Visa and MasterCard that in two days all the card services of the savings Bank will be blocked and your funds will be blocked and withdrawn,” explained the top Manager.

“Unfortunately, it worked, and we saw tremendous flow of people to our offices, to each of our ATM… Never in a bad dream we couldn’t imagine that possible,” said Gref, noting that the Bank has the largest ATM network in the world.

“We realized that this “moment of truth”, when we just have to relax and pray. Pray that this horror, as soon as possible ended, and our IT system broke down,” said Gref, noting that the Sberbank stand.