Sberbank full-year profit drops 10% as bad-debt provisions surge

MOSCOW: Russia's largest bank Sberbank missed its pre-pandemic profit target with a 10% decline in net profit last year but said that efforts to contain costs supported profitability.

The coronavirus crisis and a sharp drop in the price of oil, Russia's key export, have pressured the banking sector and prompted lenders to make extra provisions against bad loans in the face of economic contraction and a weaker rouble.

Sberbank on Thursday reported that 2020 net profit shrank to 760.3 billion roubles ($10.29 billion) as provisions against bad loans surged to 412 billion roubles from 92.6 billion roubles a year earlier.

"A year ago we could hardly imagine the challenges we would encounter in 2020: the pandemic, the drop in oil prices, interruption in operations of certain segments of the economy," Sberbank CEO German Gref said in a statement.

The bank said fourth-quarter net profit declined 4.9% year on year to 201.7 billion roubles.

"Sber was able to quickly restore the business once the (coronavirus) restrictions were lifted," Gref said. "The launch of a massive cost optimisation programme helped to support profitability and as a result achieve 16% return on equity."

Sberbank's return on equity (ROE), an indicator of profit generated from money invested by its shareholders, was 20.5% in 2019.

Gref told Reuters this month that Sberbank had no choice but to diversify into non-banking businesses as shrinking margins threaten the survival of traditional banks.

Sberbank's net interest income, however, rose 13.6% in 2020. In the fourth quarter alone, it was up 15% year on year at 426.5 billion roubles.

The credit quality of Sberbank's loan portfolio improved in the quarter, returning to the pre-crisis level, the bank said.

Sberbank had no plans to make additional provisions for 2020 non-performing loans, Gref said last month, reflecting the bank's belief that financial results would improve this year.