May 30, 2012 / 6:47 AM / 5 years ago

UPDATE 2-Sberbank profits up after fall in bad debt charges

* Q1 net profit at 92.2 bln rbls versus poll of 86 bln rbls

* Sberbank wrote back 3.2 bln rbls in provisions

* Remains well-capitalised with Tier 1 at 11.8 pct (Adds details, analysts, background, share price)

MOSCOW, May 30 (Reuters) - Sberbank posted a six percent rise in first quarter profit on Wednesday supported by a cut in bad debt charges, putting Russia’s biggest bank in a strong position for its planned purchase of Turkey’s Denizbank.

Sberbank is in exclusive talks on a proposed takeover of Denizbank from bailed-out Franco-Belgian lender Dexia .

Sberbank said its Tier 1 capital adequacy ratio improved by 20 basis points to 11.8 percent, giving it a solid enough capital base to afford Denizbank, estimated to have a price tag of around $3.6 billion.

The proposed deal will add to Sberbank’s activities outside its domestic market, where it holds around half of Russia’s household deposits.

Headed by former economy minister German Gref, Sberbank recently bought eastern European lender VBI, but is likely to pause its expansion push if it lands Denizbank. The bank is controlled by Russia’s central bank which is planning to sell a 7.6 percent stake as part of a broader privatisation drive.

The bank’s first quarter net profit rose to 92.2 billion roubles ($2.9 billion) compared with forecasts for 86 billion.

The lender’s non-performing loan ratio stood at 4.8 percent, improving from 4.9 percent at the end of 2011, benefiting from the healthy state of Russia’s economy, which grew by 4.9 pct in the first quarter, an acceleration from last year.

Sberbank recovered 3.2 billion roubles of bad debt provisions, “ensured by stable quality of the loan book.” This was less than in last year’s first quarter, when the bank recovered 14.2 billion in provisions.

But analysts had expected Sberbank to set aside 9.9 billion roubles in provisions, which would have slightly cut its bottom line to 86 billion roubles in the first quarter.

“(These are) predictable strong results, with net profit boosted by unexpected provision write backs and higher-than-expected earnings from trading operations,” said Leonid Slipchenko, an analyst with Uralsib.

Sberbank’s loan book after provisions was up 6.8 percent, while net interest income increased almost by a quarter year-on-year to 156.3 billion roubles.

Sberbank, Europe’s No.2 bank by market value, said that its return-on-equity (ROE), a key measure of profitability, was down slightly to 27.9 percent from 33.6 percent for the same period last year.

But this is still one of the highest ROEs among European banks. Sberbank’s closest rivals HSBC and Santander reported first-quarter ROE of 6.4 percent and 8.13 percent, respectively.

MARGINS, COSTS

Sberbank accounts for a third of overall lending in Russia and enjoys cheap funding as a state agent for pension funds distribution, which helps the bank deliver the highest net interest margin (NIM) in the domestic banking sector.

It said this margin was six percent in the first quarter, in line with the same period last year. Sberbank expects its net interest margin this year to between 6.2-6.4 percent, Chief Financial Officer Anton Karamzin told Reuters on Tuesday.

“In general, the results are pretty strong but there is some negativism due to higher-than-expected expenses and lower margins,” said Olga Belenkaya, an analyst with Sovlink.

Sberbank’s operating expenses were up 34.6 percent year-on-year, while its cost to income ratio was 46.3 percent, up from 43.3 percent a year ago.

Last year, the bank posted a record 315.9 billion roubles in net profits and is on track to top this result in 2012, Karamzin said.

Sberbank’s shares were 1.24 percent down at 0845 GMT, in line with the broader MICEX index which was down 1.34 percent. ($1 = 32.1747 Russian roubles) (Reporting by Katya Golubkova and Oksana Kobzeva, Editing by Douglas Busvine and Jane Merriman)

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