Azernews.Az

By Bloomberg

OAO Sberbank’s profit debacle is proving no object to Barclays Plc and Commerzbank AG, which are recommending the Russian lender’s bonds for one simple reason: it’s got the support of President Vladimir Putin.

The largest Russian bank’s dollar-denominated notes due February 2017 offered investors a 321 basis-point premium to similar-maturity Eurobonds issued by the sovereign. That’s almost 70 percent above the average for the past 12 months, according to data compiled by Bloomberg. Sberbank’s capital- adequacy ratio is 14 percent compared with 12.2 percent for smaller rival VTB Group, the data show.

While Sberbank’s year-on-year profit slumped in January, Barclays analyst Svetla Atanasova said the lender’s debt is attractive because there’s a “high likelihood” of state support should the industry backdrop darken further amid sanctions and the economic slowdown. Russian lenders face mounting losses and pressure on capital after the central bank surprised markets with a 650 basis-point interest-rate increase in December, aimed at stemming the ruble’s slump and calming inflation.

“Sberbank bonds are definitely a buy,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank, said by phone on Feb. 10. “Perhaps they’ll go through another wave of volatility if the political events don’t de-escalate. But on a longer term horizon, they’re definitely a very good opportunity.”

Capital Erosion

Sberbank’s profit plunged 88 percent in January from a year earlier after it doubled provisions for bad loans. That eroded its core Tier 1 capital, a measure of financial strength, by almost a full percentage point to 10.6 percent.

“You cannot have a banking crisis in Russia without Sberbank being affected,” Renaissance Capital analysts David Nangle and Armen Gasparyan wrote in an e-mailed note on Feb. 3.

At the same time, Sberbank, which controls about 46 percent of Russia’s deposits and gave out a third of the nation’s loans, will probably stay profitable this year, the analysts said. They forecast a “minimal, but positive” 35 billion-ruble ($531 million) profit this year, a 90 percent drop from 2014.

Sberbank’s press service did not respond immediately to questions sent by e-mail Tuesday.

The yield on Sberbank’s 2017 Eurobond jumped 56 basis points to 8.61 percent on Tuesday.

‘Strongest Bank’

“In the future the spread should narrow,” Egor Fedorov, an analyst at ING Groep NV in Moscow, said by e-mail. “Sberbank, in my opinion if the strongest bank in the country.”

Russian banks are taking the full impact of sanctions over Ukraine, the ruble’s 46 percent slump against the dollar in 2014 and the prospect of a 4 percent economic contraction this year, according to Yulia Safarbakova, a fixed-income analyst at BCS Financial Services.

“Banks are only preparing to disclose their lower profits,” Safarbakova said in e-mailed comments. “Rising bad loans promise more pressure.”

Additional Injection

Lenders’ net losses in 2015 may reach 2 trillion rubles, or 25 percent of their equity capital, as they incur losses on their securities portfolios after increases in non-performing loans and Standard & Poor’s downgrade of Russia to junk, Alfa- Bank analysts Natalia Orlova and Dmitry Dolgin said in a Feb. 2 research note.

“This will require additional capital injection from the government or the central bank,” they said.

While Sberbank wasn’t included in a government 1 trillion ruble recapitalization program, which obligates lenders to boost lending and inject capital, the state will step in to help if the bank founders, according to Commerzbank’s Bantis.

“Sberbank still doesn’t need so much state support as the other banks, it’s still self-sufficient,” Bantis said. “The fact is, they’ll get the state support if things turn out really badly.”