Russia’s Sberbank for a few hours on February 26 was the No.1 bank in continental Europe by capitalization, edging out Spain’s Santander.
In Europe, as a whole, Britain’s HSBC is still the leader by a wide margin with capitalization at 165 billion euros. Nonetheless, some experts see this Russian bank as a trending indicator of things to come.
That Monday quotes for ordinary shares of Sberbank (MCX: SBER) grew by more than 5% and exceeded 285 rubles per share with an increase in the MOEX (Moscow stock exchange) index of about 1%. Thus, the capitalization of Sberbank on the MOEX reached 91.7 billion euros. Capitalization of Bank Santander at the same time was 91.5 billion euros.
The bank also reported its ninth straight quarter of growing profitability, and a record year for earnings. Both the U.S. and EU sanctioned Sberbank in 2014 over the Ukraine crisis, with penalties limiting the bank’s access to capital markets and sending its value down 46% that year.
Sberbank, which in English cleverly means “Savings bank” is a broad profile Russian banking and financial services company headquartered in Moscow. Sberbank has operations in a number of European and FSU countries. In 2014, just prior to sanctions, it was the largest bank in Russia and Eastern Europe, and the third largest in Europe, ranked 33rd in the world and first in central and Eastern Europe.
The majority shareholder of Sberbank is the Central Bank of the Russian Federation, owning 50%+1 voting share. The rest of the shares are dispersed among portfolio, private and other investors. Russia’s central bank cannot sell its stake without a change in Russia’s laws.
Sberbank stock has become increasingly in demand by international portfolio investors that want exposure to Russian equities, and tend to buy Sberbank shares as a preferred secure vehicle. The bank is also the main creditor of the Russian economy and holds the largest share of the deposit market. Sberbank shares have been rising steadily as the Russian economy recovers and have easily outperformed the market, up 19% over the last three months alone.
From a fundamental viewpoint, the bank represents a practical investment vehicle to take part in the Russian economic recovery, growth of Russia’s middle class, and a mechanism to empower growth through one of the biggest banks in Europe and CEE where it is a major player in these markets.
Sberbank presence on the Russian retail banking market is the largest in Europe in volume of clients. Sberbank has 14 territorial banks and over 16,000 branches throughout the country represented in all 83 regions of Russia. The bank today has more than 127 million retail customers in Russia and 10 million abroad, with corporate clients topping 1.1 million in 22 countries. The banks operations are positive, showing a 20%+ ROE, and 10% EPS CAGR in 2018-20 even after tripling EPS since 2016.
In 2017, the head of the bank German Gref said that the bank would direct 35% of its net profit under IFRS for dividends, 10% more than the previous year. Final decision/announcement should be by late March – early April 2018 and the dividend according to the street might in fact be even higher.
Over the past few years, Sberbank has made significant progress in establishing itself as a leading e-banker for Russia, establishing a high standard for convenient, efficient and fast online and mobile banking services throughout the country. It has succeeded in responding to customer demands for a one-stop institution where clients can trade securities online (Sberbank CIB) as well as individual precious metals accounts.
Remembering what a dowdy bank it used to be back in the days of perestroika, and what it has transformed into today through hard work, positivity, vision and not just a little mojo, sets a performance standard.
Paul Goncharoff is an American business executive working in Russia.