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. Last Updated: 07/27/2016

Sberbank Plans a More Aggressive Portfolio

While Sberbank's retail facilities are getting a face-lift, with marble and glass moving in and Soviet-era cash registers moving out, Russia's biggest bank also is also signaling a change of heart.


Having recently elected a new president, the state-owned bank is switching to a more aggressive approach in the equities and corporate lending markets, positioning itself as a commercial bank with a capital C.


Under a new four-year plan outlined at a shareholders' meeting last month, Sberbank will diversify its assets activities away from its huge exposure to the government T-bill market.


New Sberbank President Andrei Kazmin told shareholders last week that the bank must reorient "from primarily allocating money for interbank credits to loaning money to the productive sector of the economy." Kazmin also hinted that he is planning other moves to open up to the outside world. The bank is planning to open its first representative offices abroad and make an international bond offer.


Sberbank is by far Russia's largest bank, with assets of 83 trillion rubles, according to its 1995 balance sheet. But despite its impressive size and big plans, analysts and potential investors remain wary.


They are mostly scared because of Sberbank's close links to the Central Bank and the government, which retains a controlling stake.With dividends slipping and privatization postponed -- "indefinitely," by some accounts -- Sberbank shares have dipped to a record-low this month.


Sberbank's tradition as a government savings bank goes back a century -- and it shows, some bankers say. "There is a lot of the Soviet mentality left over at Sberbank," said a Western analyst, who asked not to be identified.


Another analyst said Sberbank "would like to project the picture of a regular commercial bank," but that its dependence on the government is impeding the transformation.


As the government's agent, Sberbank is saddled with several unprofitable lines of business: For instance, it must act as a processor of consumer payments for public utilities and is also forced to operate retail banking in many of Russia's far-flung regions.


Moreover, with the driver's seat held down by Kazmin, a former deputy finance minister with good links to Central Bank head Sergei Dubinin, concerns linger that Sberbank money could be used at the government's whim, for example, to keep down T-bill yields, the analyst said.


Market sources said Sberbank, like other government-controlled banks such as Agroprombank, Vneshtorgbank and Promstroibank, often intervenes in the market on behalf of the Central Bank to keep yields down. These operations are in some cases bankrolled by the Central Bank and in some cases the cost is born by Sberbank, the sources said.


In fact, even though Sberbank holds some 50 percent of all T-bills, it is hard to tell whether this reflects an assessment of the returns in the market or just the priorities of the government .


Kazmin said this month that Sberbank "cannot behave like other commercial banks ... that can in one day enter or withdraw from the market. If we did the same there would be no market left."


There are no signs that government control of Sberbank will ease any time soon. Following a rumored takeover attempt of Sberbank last year by Oleg Boiko, the tycoon behind the ill-fated Bank Natsionalny Kredit, the State Duma moved to postpone privatization indefinitely.


Pavel Medvedev, head of the Duma's banking subcommittee, said Sberbank privatization is being put off until "some time next century."


Even so, state control has not kept Sberbank from beefing up its collaboration with Russian commercial banks. Kazmin recently announced that Sberbank is teaming up with several banks to finance large investment projects. He said Sberbank expects to appoint a number of banks as its "authorized banks" in connection with investment projects, but did not give further details.


Earlier Sberbank investments have been chiefly in housing construction, where it began financing large-scale projects in 1994. Among its corporate clients in industry are the AvtoVAZ carmaker and several large aerospace companies.


As regards the equities market, Sberbank has so far maintained only a minuscule presence in equities while becoming the largest player in the T-bill market.


So far investors have not reacted positively, if at all, to the signs of changing credit and investment policies at Sberbank.


Though Sberbank shares are slightly more liquid than other bank shares, actual trading in the paper is thin, analysts said.This month Sberbank stock reached a low of $11, down from $17 three months ago and $21 a year ago.


Analysts vary in their assessments of the bank's slide in share prices.


Andrei Yashchenko, a banking analyst with the United City Bank, said the drop is not linked to the performance of the bank."Sberbank is widely seen as one of the country's most healthy banks," he said.


But despite a tripling of profits in 1995 to 4.3 trillion rubles ($855 million), Sberbank has cut back on dividends, which has not gone over well with investors.


"In general, brokers only show an interest in bank shares, when the banks are close to paying out dividends," Goncharov said.


"Investors have been disappointed about Sberbank dividends," said Edward Roumanis of Rye, Man and Gor Securities, a Moscow investment house. Sberbank paid out dividends of 70 percent for 1995 on the par value of common stock, down from 150 percent for 1994 and 200 percent for 1993.


Sberbank has issued 9 million shares of common stock with a par value of 50,000 rubles and 50 million shares of preferred stock with a par value of 1,000 rubles. Dividends for 1995 were 250 percent on preferred stock, but these shares are rarely traded, brokers said.


According to Sberbank, the cutback on dividends is linked to provisions of the new joint-stock law that requests the bank also to pay dividends for 1995 on shares of the company's seventh share issue, carried out this year.


About 80 percent come from household deposits. Kazmin said he believes Sberbank, because of its experience and huge branch network, would dominate the household deposit market even in a hypothetical scenario in which all other Russian commercial banks pooled their retail networks.


Sberbank's market share has been on a roller coaster ride over the past three years. Back in 1993, Sberbank had a whopping 90 percent of all household deposits. As competition from new commercial banks grew, that fell to 59 percent last August. But the liquidity crunch that started in late summer destabilized several commercial banks and frightened depositors back to Sberbank, which now controls 68 percent of all household accounts.


At the same time, the bank's sheer size -- more than 30,000 branches staffed by nearly 200,000 employees -- often makes it unwieldy and cumbersome for top managers, who don't always have full control.


There are 76 regional banks under the Sberbank umbrella, each with its own management and, often, its own way of doing things.


The independent line of the large Moscow Sberbank, particularly, has been a thorn in the side of the top management.


In a move to tighten control, Kazmin last week announced that the bank will set up a new financial department to manage the money flows between the national Sberbank and its regional branches.