Sberbank: New Challenges in a New Environment

1
Sberbank New Challenges in a New Environment
The 2nd Banking Forum for the CIS and Eastern
Europe Vienna, 24-27 April 2008
2
Table of Contents

• Challenges for the banking sector
• Growing role of banking in the market economy
• Integration into the global economy
• Sberbank today key results in the key sectors
• Growing into a world class bank
• Sberbanks new strategy

3
Challenges for the Banking Sector

• Deteriorating capital ratio
• Shortage of long-term funds
• Limited access to global capital markets
• Growing rates and inflation
• Growing competition more foreign capital in the
  banking sector, concentration of assets and
  capital

4
Challenges deteriorating capital ratio
Banking sector Capital and asset growth rates
Asset growth outstrips capital growth
Sberbank and VTB IPOs
54
44
37
41
27
36
28
31
capital
16
assets
2004
2005
2006
2007
Meeting Standard 1 (capital adequacy ratio)
19.1
17.0
16.0
15.5
14.9
Banking capitalisation recovers growth thanks
to Sberbank's and VTBs IPOs
10
01.01.04
01.01.05
01.01.06
01.01.07
01.01.08
Source Central Bank, Sberbanks Strategic
Planning estimates
5
Challenges shortage of long-term funds
Loans/deposits ratio in the banking industry
Demand for loans outstrips savings growth
157
14
150
12.3
148
148
12
10
8.0
7.8
8
Trillion RUB
5.4
5.5
6
3.8
3.9
2.6
4
2
0
20
18.9
01.01.2005
01.01.2006
01.01.2007
01.01.2008
Retail deposits and corporate funds
15
Loans to non-financial companies and individual
loans
14.1
Loans/deposits ratio,
8.5
11.2
10
24.3
27.7
18.4
Long-term funds shortage
13.8
5
2.3
2.7
2.6
2.6
0
01.01.2005
01.01.2006
01.01.2007
01.01.2008
Long-term loans coverage by long-term deposits
Long-term loans percentage in assets
Source Central Bank, Sberbanks Strategic
Planning estimates
Long-term deposits percentage in liabilities
6
Challenges limited access to global capital
markets
Global borrowings of Russian banks
Despite market pressures the banking sector
continues to grow global borrowings
Capital account balance
47,6
24,2
30
14,2
20
????. ???.
-15,5
10
-1,7
0
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
(E)
-10
Source Central Bank, Sberbanks Strategic
Planning estimates
-20
7
Challenges limited access to global capital
markets
Credit default swaps, 5 years maturity Sberbank
and VTB Source GFI
Borrowings grow against a background of
increased cost of borrowing
Sberbanks CDS
VTBs CDS
Yield on Russian Standard Bank eurobonds maturing
16 Dec. 2015
Yield on URSA Bank eurobonds maturing 16 Nov.
2011
8
Challenges growing rates and inflation
Rates growth
MIBOR 91-180
MIBOR 181-360
CBR
Consumer price index
Source Central Bank
9
Challenges growing competition and concentration
Share of foreign banks in Russias banking sector
Growing competition banks with foreign
participation (over 50 in authorised capital)
increase their share
20
17.2
15
12.1
10
8.3
7.6
7.4
5
0
01.01.2004
01.01.2005
01.01.2006
01.01.2007
01.01.2008
Top 20 banks assets in total banking assets
64
63.7
Growing concentration banks in the Top
-20 increase their share
62.9
63
62.4
62
61.6
61
60
01.01.2005
01.01.2006
01.01.2007
01.01.2008
Source Central Bank, Sberbanks Strategic
Planning estimates
10
Table of Contents

• Challenges for the banking sector
• Growing role of banking in the market economy
• Integrating into the global economy
• Sberbank today key results in the key sectors
• Growing into a world class bank
• Sberbanks new strategy

11
Potential for growing the role of banks in
upgrading economy
49.6
Argentina
50.6
Romania
59.1
Ukraine
The banking assets to GDP ratio is low,
compared to the developing countries. There is
potential for further growth.
61.4
Russia
85.7
India
86.9
Kazakhstan
87.5
Brazil
97.9
Czech
106.0
SAR
138.5
Italy
161.5
Greece
Portugal
203.5
The figure for Russia is as at 01.01.2008 for
other countries, as at 01.01.2007
Russian banks share in financing capital
investments
Source Central Bank of Russia, countries
Central Banks, estimate by Russian Ministry for
Economic Development and Trade
12
Growing role of the banking sector in economic
growth
50 - 55
Loans to companies and individuals / GDP
Loans / GDP
37.2
29.9
25.2
22.8
20.2
6 - 7

01.01.2004
01.01.2005
01.01.2006
01.01.2007
01.01.2008
F01.01.2012
Mortgage loans / GDP
Mortgage loans / GDP
1.9
0.9
0.2
0.1

Source Central Bank, Sberbanks Strategic
Planning estimates
01.01.2005
01.01.2006
01.01.2007
01.01.2008
F01.01.2012
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Table of Contents

• Challenges for the banking sector
• Growing role of banking in a market economy
• Integrating into the global economy
• Sberbank today growing into a world class bank
• Sberbanks key results in the key sectors
• Sberbanks new strategy

14
Banking sector is dependent on global financial
markets
After the US credit crunch affected access to the
global capital markets, the banks had to shift
focus onto their domestic funding sources
Speculative capital flows out of Russia
Russias current account balance is affected
Russian banking sector
Domestic rates grow
Demand grows for Central Banks refinancing
instruments
Banks decrease their balances on their
correspondent and deposit accounts with the
Central Bank
15
Benefits of integrating into the global economy
for Russian banks

• Access to global capital market
• Better corporate governance
• New technologies
• Broader scope of services and operations
• Risk diversification
• Support for Russian companies international
  business

16
Table of Contents

• Challenges for the banking sector
• Growing role of banking in a market economy
• Integrating into the global economy
• Sberbank today key results in the key sectors
• Growing into a world class bank
• Sberbanks new strategy

17
Sberbank today

• The largest Russian bank with over USD 200 bn
• in assets (which is over a quarter of all
  banking
• assets)
• The flagship of the national banking sector
• Ranked
• in Russia No. 1
• in Central and Eastern Europe No. 1 (SP, The
  Banker)
• world-wide No. 66 (The Banker)
• Bank of the Year 2007 in Russia (The Banker)
• A universal commercial bank offering full banking
  service
• Proprietary payment system, second to that of the
  Central Bank in terms of payment volumes
• The largest domestic branch network with over
  20,000 branches and outlets
• Two subsidiary banks in the CIS (in Ukraine and
  Kazakhstan)
• Over 230,000 shareholders
• 250,000-strong staff

18
Sberbanks key results for 2007
- figures in this and the following slides are
by RAS
19
Sberbanks standing by the key financial metrics
24.9
Share in banking assets
25.0
Share in banking capital
51.4
Individual deposits
17.9
Corporate accounts
32.7
Corporate loans
32.1
Individual loans
As at 01.01.2008
20
Sberbanks profit growth
21
Sberbanks capital
Capital Ratio
Equity value
800
728
Average growth per quarter 16.6
682
700
633
606
602
600
RUB, bn
500
10
400
347
300
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
22
Funding trends structure
Retail Funds
Funding Structure
2746
2800
2676
Average growth per quarter 6.2
2600
Other
5.6
2453
2329
2400
RUB, bn
2164
2200
Corporate
funds
2044
31.2
2000
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
Corporate Funds
Retail
funds
1414
1500
1328
61
Average growth per quarter 10.5
1300
1092
Funds raised
1043
1100
RUB, bn
on international markets
957
859
2.2
900
as at 01.04.2008
700
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
23
Corporate loan portfolio changes and structure
Breakdown by industry
Corporate loan portfolio growth
Agriculture
5.6
Trade
3330
Transportation
23.7
3300
communications
8.3
3046
Average growth per quarter 11,6
3000
Construction
2700
2549
6.0
RUB, bn
2400
2087
2100
1972
Industry
1905

other sectors
1800
56.4
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
As at 01.01.2008
24
Corporate lending segmentation
Portfolio structure by customer category
Administrative
Total value of loans to small businesses
bodies

0.8
500
436
Medium
400
companies
CAGR48.8
30.6
288
300
205
RUB, bn
Big
200
146
customers
54.4
89
100
Small
businesses
0
2004
2005
2006
2007
2008
14.2
as at 01.01.2008
25
Retail lending
Portfolio structure by loan type
Total retail loans
1100
1013
Average growth per quarter 7.8
1000
939
Car loans
860
900
6.9
788
RUB, bn
800
714
690
700
Housing
600
loans
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
32.6
Share of housing loans in retail loan book
32.6
Consumer
loans
22.1
59.4
15.2
13.0

7.6
Subsistence
farming loans
as at 01.04.2008
1.1
2004
2005
2006
2007
2008
26
Credit risk management
Loan book and overdue loans
The Loan Portfolio is growing whereas overdues
are decreasing
4456
1.15
4400
1.10
1.10
4200
4024
1.10
4000
1.10
3800
3550
1.05
3600
3400
0.98
1.00
3077
3200
1.00
RUB, bn
Credit risk level
2901
3000
2712
0.95
2800
0.95
2600
0.90
2400
2200
2000
0.85
01.01.2007
01.04.2007
01.07.2007
01.10.2007
01.01.2008
01.04.2008
Loan portfolio total
Overdue loans share in portfolio
as at 01.04.2008
27
Contents

• Challenges for the banking system
• Growing role of banking in the market economy
• Integration into the global economy
• Sberbank today key results in the key sectors
• Growing into a world class bank
• Sberbanks new strategy.

28
Growing into a world class bank
Capitalisation
Assets

205
93.3
100
200
80
8-fold growth
63-fold growth
150
60
100
40
USD, bn
USD, bn
50
26
20
1.5
0
0
01.01.2002
01.01.2008
01.01.2002
01.01.2008
Net profit per employee
20.0
20
7-fold growth
15
10
USD, 000
5
3.0
0
01.01.2002
01.01.2008
29
Growing into a world class bank

• Sberbanks ranking by tier 1 capital
• in Russia No. 1 (Central Bank of Russia)
• in the CIS, in Central and Eastern Europe No. 1
  (SP, The Banker )
• in the world No. 66 (The Banker)

Sberbank Financial Times ranking by market
capitalisation
30
Growing into a world class bank

• Sberbank on the international market
• IFRS (IAS) financial statements since 1996
• 26 of authorised capital held by non-residents
• International market borrowings on better terms
  than for any other Russian company, including
• the largest subordinated loan (1 bn)
• syndicated loans (raising 3.25 bn)
• Loan Participation Notes issues under the EMTN
  program (outstanding issues for 1.25 bn)
• SPO (8.8 bn)
• our Moodys and Fitch ratings are
• long-term credit rating ???, Stable outlook
  (Fitch)
• long-term foreign currency deposit rating Ba?2,
  Stable outlook (Moodys)
• long-term currency rating for all loan
  participation notes issued by Sberbank ?2,
  above the sovereign ceiling (Moodys), ??B
  (Fitch)
• long-term currency rating for subordinated LPN
  (issued in 2005) ?2 (Moodys), ??B (Fitch)

31
Growing into a world class bank
International borrowings outstanding
Low percentage of international borrowings in
bank liabilities (2.7)

• Syndicated US1 bn loan raised in November 2005
  at LIBOR55 bps, maturing in November 2008
• Syndicated US1.5 bn loan raised in October 2006
  at LIBOR30 bps, maturing in October 2009
• Syndicated US750 mn loan raised in December
  2007 at LIBOR45 bps, maturing in December 2010
• Subordinated loan of US1 bn raised in February
  2005 at 6.23 p.a., maturing in 2015 (incl. early
  repayment option in 2010)
• The 1st US500 m tranche of the EMTN program
  issued in May 2006 at 6.48 p.a., maturing in May
  2013
• The 2nd US750 m tranche of the EMTN program was
  issued in November 2006 at 5.93 p.a., maturing
  in November 2011

The most favourable terms of borrowing against
the competition
The largest subordinated debt issue transaction
in Central and Eastern Europe denominated in
USD
The total value of the EMTN program is US10 bn
32
Contents

• Challenges for the banking system
• The growing role of banking in the market economy
• Integration into the global economy
• Sberbank today key results in the key sectors
• 5. Growing into a world class bank
• 6. Sberbanks new strategy

33
Long-term challenges for the banking sector

• growing demands and increasing number and income
  of potential customers
• growing role of small and medium businesses in
  the economy
• Russias streamlined integration into the global
  economy (WTO) and closer involvement of Russian
  companies in the global division of labour
• broadening of Russias economic influence zone
• technology development
• credit risks growth
• implementation of Basle II
• growing significance of the trust and confidence
  factor

34
What is Sberbanks new strategy about?

• Setting tasks and objectives for the benefit of
  all parties concerned
• Formulating the mission, philosophy and
  principles to attain these objectives
• Working out the strategy and business development
  model to attain these objectives
• Implementing corporate governance systems
  procedures to attain these objectives
• Taking state-of-the-art approaches to bank
  management
• Personnel motivation

35
Sberbanks development targets till 2014
Raise capitalisation by more than twofold (over
USD 200 bn)
Visible and financially efficient international
presence
Break through into Top 10 banks of the world
by capitalisation
Cost/Income ratio of less than 50
Domestic market share over 30

• Increase labour productivity

Annual net profit USD 10 bn
36
New business model

• customer segmentation
• CRM
• customised servicing
• standardized business processes
• targeted packaging
• improved electronic distribution channels

Corporate Block
Investment Block
Retail Block
A profitable and all-products-inclusive corporate
business, a locomotive of the Russian economy
The bank of choice of Russian retail customers
that efficiently serves their vital needs
37
International expansion at a glance
2 subsidiary banks in operation
Work under way to launch an Indian subsidiary
CIS
Fast-growing markets (Asia)
International financial centers (London, New
York,
Central and Eastern Europe
Expanding the investment banking service range
Access to new technologies
Big market, growing economy
Hong Kong)
38
Sberbanks presence in the CIS
Ukraine
Kazakhstan
39
State-of-the-art techniques in bank management

• Re-organise the Banks management system and
  implement a customer-centric business model
• Create an organisation structure for customised
  servicing
• Raise operational efficiency through business
  process streamlining
• Streamline the retail distribution network,
  different formats, develop alternative sales
  channels
• Improve the risk management system for all
  businesses
• Increase Sberbanks transparency
• Create a new and modern image of the bank in the
  eye of the customer, and carry out a drastic
  brand renovation
• Change the corporate culture and mindset of
  Sberbank staff

40

• Thank you