Daily analyst comments

On November 19, Sberbank disclosed the main provisions of its credit policy for the ongoing crisis period, which may drag on for two years. In its statement, the bank underlines the necessity of maintaining a balance between the interests of shareholders, clients and the state. The bank also emphasizes the need to toughen requirements for borrowers as an additional measure for risk management.

Aware of the role it plays in the financial sector and Russia’s economy, the bank is set to maintain its operations on a full scale, retaining its entire range of services, both for corporate clients and households. The bank will provide aid to the retail, power, transport, farm and defense-related sectors on a priority basis. The bank will also give priority to replenishing the working capital of businesses to keep them afloat.

We do not view the voiced principles of credit policy as unambiguous. On one hand, the reinforcement of the risk management system will help the bank cap the potential decrease in the quality of its loan portfolio, which is practically unavoidable given the gravity of the current financial crunch. On the other hand, the bank’s obligation to keep the economy in normal working condition often encroaches on minority shareholders’ interests.

In its statement, the bank discloses only the general provisions of its credit policy, which still give the bank a broad scope for maneuver. As before, we point out the potential deterioration of the quality of the bank’s loan portfolio and its social obligation to ensure the normal functioning of the financial sector and the strategic sectors of the economy as the main risks faced by the bank. We regard the current quotations for the bank’s shares as unjustifiably low. Our target price for Sberbank is USD 3.31 per common share and USD 1.17 per preferred share, with respective upside potentials of 272% and 200%.