Edited Transcript of BSPB.MZ earnings conference call or presentation 12-Mar-20 1:00pm GMT

In terms of P&L numbers, we saw strong core banking revenues, while negative dynamic in our trading. Net interest income grew more than 5%, while revenue declined by 6%. Nevertheless, our interest margin slightly increased and comprised 3.71%.

Profitability, we posted RUB 7.9 billion net profit for the year. That gave us ROAE 10.2% for the whole year. It implies RUB 16 earnings per share and dividends per share — expected dividend per share is RUB 3.3, which means — so a 7% dividend yield.

The next slide illustrates our financial results for the year. And as I said, we had steady growth in net interest income and net fee and commission income. They increased by 6.3% and 28.9%, respectively, on the year-on-year basis.

Cost of risk was under control, and around 1.8%. Cost-to-income ratio comprised 45.5%, mainly due to our poor results in trading.

Not much to say about fourth quarter results. We had pretty good results. And what was important to say here is our core banking margin increased up to 6.1%, while cost of risk declined and as we guided you to 1.8%. Also here was a significant growth in fee and commission income, that altogether gave us 12% of ROE.

Revenue structure. Here, revenue makeup from certain displaces of trading income that was actually significant for the bank in previous years by core banking income and we expect in current year, trading supports our financial targets.

Interest income grew slightly over 5% for the year, and here you can see, as I mentioned before, it’s split across business lines. An important thing is that, our corporate and retail interest income grew by 11% year-on-year, in spite of decline in interest rates on the assets side, which you can see in the right graph.

Interest expense grew by 4.4% for the year. And that was below the interest income growth. Here, you can of course see the contribution of each segment in it. Although cost of funding goes down, it shows in the right graphs as well.

Net fee and commission income. We had a very good performance in net fee and commission income, that grew by 28.9% year-on-year basis or 31.3% quarter-to-quarter. The growth was spread across all types of commissions. And here, we show insurance commission, as it become more supportive for the growth of the revenue of the bank.

Our corporate fee and commission income grew slightly over 18% for the year. And here, main driver was commission for cash and settlement transactions.

Retail fee and commission income grew even more significantly, almost by 40%. The main driver was commission for insurance. This growth was in line with our strategy and our strategy in increasing our transactional part of the business.

As to margins, after several quarters in a row, we enjoyed the growth in core banking margin, which increased up to 6.1%, reflecting repricing versus our assets and liabilities and align with the reduction of CBR key rate.

Our net interest margin grew up to 4.2% in the fourth quarter, results in 3.71% net interest margin for the whole year.

Operating expense grew by 8% for the year. Our staff costs grew mainly due to development of our transaction model in Moscow. We had also growth in software expense, that grew more than 36% to support our digitalization on both in retail and corporate banking while other costs I suppose were under control and in line with what we guided you.

Cost-to-income ratio grew up to 45% and was driven mainly by decline in our revenues rather than costs, as we discussed earlier. And cost-to-assets remains stable and slightly over 2%.

Our assets and liability structure remains pretty comfortable with high proportion of liquid assets. It’s about 40% of our assets on the one side, and stable part of corporate and retail deposits on the another side. And I have to say that loans and advances to customers increased and the amounted about 55% of our total assets.

Our one of the key points of growth is retail banking. We demonstrated 2-digit growth across all products, and the total portfolio grew by 17.5% for the year, with the quality of the portfolio remains stable. For me, it’s important to say that the quality of our portfolio in general is exceptional.

Our mortgage portfolio as a major part increased by 12%. And here, I must say that we are benefiting of corporate reduction of the CBR key rate. And as I said, the quality of the portfolio is pretty good.

Total loan portfolio increased by 7% year-to-date, while loan/deposit ratio increased and reached 88%. The amount of our problem loans decreased along with the increase in our loan portfolio. And allowance for impairment loss is now at 8.3% level. We see positive trends here and further reductions in this level for the next year.

Next slide, slide discloses currency, maturity and industry structure of our portfolio. And here, you can see that our retail portfolio consists of more than 1/4 of our total loan portfolio.

Provision charge for the year declined by 2.2% for the year and amounted slightly under RUB 7 billion. Total cost of risk remains stable with decline in corporate segment and increase in the retail ones, as we significantly increased our unsecured loans.

Reduction in securities portfolio means our success and growth of loan portfolio with overall structure remaining almost unchanged. Almost 1/3 of our portfolio is bonds of the CBR.

Customer deposits, actually, it didn’t change. And the structure also remained the same with the retail deposits comprising about 60%. Here, you can see also currency and maturity structure and I have to say that proportion of our current accounts grew both in retail and corporate segment.

Let’s look at — our total capital increased by 10.6%, while Tier 1 capital reduced by 1.7%, risk-weighted assets grew by 2.4% for the year. And capital adequacy ratio though at comfortable level for the bank and Tier 1 ratio is 9.7%. Before audited net profit for the year reached — is supposed to increase our ratio up to 10.8%, as we expect. We believe that the capital will be sufficient to support our growth for the next year after dividend payment. Changes in the ratios is on the right graph.

Key strategic priorities. We stated in our revised strategy, growth in Corporate Banking segment is in the first place. We plan 15% growth — annual growth for the next 3 years. This growth is to be supported by our transactions business model and SME segment that we recently developed in Moscow as well as a big corporate loan portfolio growth here, I mean in Moscow in Saint-Petersburg.

Digitalization is our next priority. We approached 90% automated credit decisions and 90% online sales to 2022. And here, I might say that we have everything necessary for achieving this goal. And digitalization is in focus for us.

Our upcoming events are presented on the next slide. In the early April, we expect dividend recommendation and buyback consideration of the Supervisory Board. In May, we have the record date of the AGM 2020.

And as to our IR Events, we plan to take part at MOEX Forum and as we know, that it will be differently and what is it more important for us is our Investor Day that we plan for May/June 2020.

In the conclusion, I’d like to present our guidance for 2020. Of course, you should consider this guidance in relation to what we see on the market. But nevertheless, our basic guidance implies ROAE about 13% for the next year. We approach loan portfolio growth about 15%, with flat core banking margin around 5.7%. Cost of risk remains stable and it’s about 1.7%, 1.9%. And cost-to-income ratio is about 42%.

That’s all I want to say on the subject, and we are ready to move to Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Actually, there are no questions via the phone. So I’ll hand back to the speakers.

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Konstantin Yuryevich Balandin, “Bank “Saint-Petersburg” Public Joint-Stock Company – Deputy Chairman of the Management Board [2]

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I suggest that, given problems with connecting to the phone line, which a lot of our users might be experiencing, we are ready to stay on the line for a couple of minutes in order to give opportunity for the participants to dial in.

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Operator [3]

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And actually, we received a question via the phone from Andrew Keeley from Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research – Head of Financial Institutions Research & Senior Analyst [4]

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Yes, got through, eventually. So I guess, a couple of questions. Your guidance for this year is, I think it’s unchanged in terms of loan growth, kind of 12% to 15%. And I suppose, I’m just wondering, generally, how you’re thinking about the outlook and the environment, given where we are now in the world, and given what’s happened with the oil price? And how it’s kind of making you think about the way that you run and manage the business?

And I imagine, you haven’t yet kind of thought about perhaps changing your budgeting plans, et cetera, but it would just be interesting to get your kind of thoughts on, I suppose, on how prepared and resilient, you feel that the bank is now perhaps relative to 4 or 5 years ago, when we had similar sharp falls in the oil price? And I guess part of the question is, then the business got quite hurt by quite high concentrations in the loan book, as I remember. And I think it seems like you’ve worked on that quite a lot. So any kind of thoughts on how well positioned do you feel on that front, would also be helpful.

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Stanislav Nikolaevich Filatov, “Bank “Saint-Petersburg” Public Joint-Stock Company – VP & CFO [5]

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Okay. Thank you for the question. Of course, when we provide our guidance, we understand that, given current market situation, it’s quite ambitious, but actually, we see several threats for our business. That’s coronavirus; it’s oil price drops. And obviously, all that impact our business. And the impact will be definitely negative. But I’m sure that accumulated experience of the bank and the management team is able to cope with these problems. And with the rising issues, the bank managed to overcome all the crisis before in 2014 and 2008. And I think we’ll do it again.

As to growth, yes, it’s very unusual growth, 15%. But in absolute numbers, it not sounds very big, I suppose.

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Andrew Keeley, Sberbank CIB Investment Research – Head of Financial Institutions Research & Senior Analyst [6]

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And anything on the kind of loan concentrations, how that’s changed would be helpful.

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Stanislav Nikolaevich Filatov, “Bank “Saint-Petersburg” Public Joint-Stock Company – VP & CFO [7]

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Loan concentration is provided on slide — Page 20. And we have pretty much diversification of our loan portfolio and 25% of our loan portfolio is individuals, with a major part of mortgages and other portfolio trade and other instead.

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Andrew Keeley, Sberbank CIB Investment Research – Head of Financial Institutions Research & Senior Analyst [8]

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What I…

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Konstantin Yuryevich Balandin, “Bank “Saint-Petersburg” Public Joint-Stock Company – Deputy Chairman of the Management Board [9]

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And as for the concentration of the larger groups of the borrowers, this has really declined approximately by 1%. It was 31.4% for 2018 and 30.2%, 2019. Not that big shift, but still the concentration is going down.

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Andrew Keeley, Sberbank CIB Investment Research – Head of Financial Institutions Research & Senior Analyst [10]

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Okay. I guess I have another question on your key strategic priorities. It’s kind of interesting that you have corporate business in there, but you don’t have retail business specifically in there. And I would imagine the retail business is more profitable business than the corporate business. And still, if we look at the share of, say, retail lending within your business, it’s quite a bit lower than the kind of sector average. So could you talk a little bit about why you’re kind of further prioritizing corporate? And then I suppose, secondly, just this bank of 2 capitals, how — what competitive advantages do you feel that you have operating in Moscow, given that’s a super competitive market?

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Konstantin Yuryevich Balandin, “Bank “Saint-Petersburg” Public Joint-Stock Company – Deputy Chairman of the Management Board [11]

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Well, Andrew, thanks for the question. And actually, what you see on this slide is the major drivers for the bank going forward. I mean we have been focusing on the retail front for many, many years. And the corporate was not growing. And what this slide is about is that, now the mindset is changing, and we have more appetite in corporate. Retailers going to grow — continue to grow, we still have business targets in retail lending and in retail customers. And digitalization is mostly about retail. But what this slide is about is that corporate is becoming a point of growth as well. So the mindset has changed. That’s — we are more ambitious about corporate.

And speaking about Moscow, our key competitive advantage is that, well, we are a privately owned bank first. And second is the huge market and we can push our elbows left and right and gain a lot more than we can in Saint-Petersburg. Because in Saint-Petersburg, we have pretty nice market share already, and it’s quite difficult to increase it and quite difficult to grow further. So that’s why I mean implying that new assets in Moscow are more efficient than new assets in Saint-Petersburg. That’s what the shift is about.

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Operator [12]

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(Operator Instructions) Actually, there are no further questions. (Operator Instructions) We received no further questions via the phone. So I hand back to the speakers.

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Konstantin Yuryevich Balandin, “Bank “Saint-Petersburg” Public Joint-Stock Company – Deputy Chairman of the Management Board [13]

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Once again, we would like to apologize for problems, was connected on the phone line for a number of people who wish to be there and to ask questions. If you have any further questions, please feel free to contact our IR department, and we will be back with the answer as soon as possible.

Having said that, thanks a lot for being on the call. And thanks a lot for your time and your attention and good luck in this turbulent environment, and we’re looking forward to see you on our next investor relation events, including our next conference call in May. So thanks a lot, and goodbye.

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Stanislav Nikolaevich Filatov, “Bank “Saint-Petersburg” Public Joint-Stock Company – VP & CFO [14]

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Thank you, and bye.

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Operator [15]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.