Sberbank information (materials)

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3.Income and Expense Analysis

Credit ratings

	1 January 2012		1 January 2011
	Fitch		Fitch
	Ratings	Moody’s	Ratings	Moody’s
Long-term rating in a foreign currency:
Sberbank	BBB	Baa1	BBB	Baa1
Russian Federation	BBB	Baa1	BBB	Baa1
Rating of international liabilities
Loan participation notes issued as part of Sberbank's Financial and Logistic Support program	BBB	A3	BBB	A3
RF Eurobonds	BBB	Baa1	BBB	Baa1

On 8 April 2011, Fitch Ratings upgraded Sberbank's individual rating from C/D to C and later, on 25 January 2012, discontinued these ratings for all financial institutions by replacing them with the Sustainability Rating. Sberbank was awarded the Sustainability Rating of bbb. This rating describes the Bank's creditworthiness without external support.

Sberbank also ranked:

ninth among the safest banks in Central and Eastern Europe published by Global Finance. The rating took long-term credit ratings from Moody’s, Standard & Poor’s and Fitch, and total assets of banks into account.
fortieth in the rating of the largest global banks by Tier 1 capital and twenty-third in the rating of most profitable banks of the world by The Banker.

3.Income and Expense Analysis

Aggregate Profit and Loss Statement^⁶:

mln rubles	2011	2010	Growth, %
Net interest income	575,826	502,833	14.5%
Total interest income	837,888	796,993	5.1%
Total interest expense	(262,062)	(294,160)	(10.9%)
Change in reserves	11,240	(86,869)	-
Net income generated by securities transactions	7,388	16,554	(55.4%)
Net income generated by foreign currency transactions	9,036	1,592	467.5%
Net fee income	125,576	111,942	12.2%
Other operating income	17,204	14,871	15.7%
Operating costs	(337,368)	(318,720)	5.9%
Earnings before tax	408,902	242,203	68.8%
Assessed (paid) taxes	(98,407)	(68,225)	44.2%
Earnings after tax	310,495	173,979	78.5%

The Bank increased its net interest income by 14.5 % to 575.8 bn. rubles due to a growth in interest income and a reduction in interest expenses.

Interest income^⁷ added 5.1 % with a growth in income generated by client loans and reached 837.9 bn. rubles. The structure of interest income generated:

489.0 bn. rubles – interest income generated by loans to legal entities (a 0.7 % growth in the context of a 34.1 % loan growth);
215.5 bn. rubles – interest income generated by loans to retail clients (a 20.9 % growth in the context of a 36.6 % loan growth);
100.4 bn. rubles – interest income generated by investments in securities;
32.9 bn. rubles – income from the sale of insurance products^⁸, income from previous years, fines, penalties^⁹, income generated by depositing funds in banks.

Interest expenses declined by 10.9 %, mainly due to expenses related to funds of retail clients, and amounted to 262.1 bn. rubles, including:

187.5 bn. rubles – interest expenses related to funds from retail clients (a 12.1 % reduction in the total cost of deposits with their total number growing by 17.8 %);
43.1 bn. rubles – interest expenses related to funds from legal entities;
28.3 bn. rubles – interest expenses related to funds raised from other banks;
3.2 bn. rubles – interest expenses related to issued debentures.

Net income generated by securities transactions^¹⁰ fell 55.4% to 7.4 bn. rubles. Largest income was generated by stocks and corporate bonds.

Net income on foreign currency transactions^¹¹ increased from 1.6 bn. rubles to 9.0 bn. rubles. The difference in income amounts results, to a large degree, from net income on conversion operations that include the financial result for fixed-term transactions (currency SWAP transactions).^¹² Currency SWAP transactions were made by the Bank to maintain liquidity in different foreign currencies required to conduct business.

Net fee income rose 12.2 % to 125.6 bn. rubles. Growth was based on fee income generated by transactions with bank cards, acquiring, bank guarantees, salary projects, cash and settlement operations. Fee income related to budget funds, maintenance of accounts and securities transactions fell.

In 2011 the Bank generated income from release of provisions^¹³ in the amount of 11.2 bn. rubles, while in 2010 the Bank's expenses incurred in creating reserves amounted to 86.9 bn. rubles. Dynamics of reserves is based mainly on loan reserves: income from release of provisions in 2011, as part of planned arrangements with troubled assets, amounted to 16.4 bn. rubles as compared to expenses of 80.6 bn. rubles in 2010. The Bank also continued to create reserves for newly issued loans.

Operating costs of the Bank grew 5.9 % to 337.4 bn. rubles. Growth of operating costs was mostly affected by a scheduled growth of the cost of maintaining personnel; administrative and business expenses that accompany development of a business; charges transferred to the Fund of Deposits’ Mandatory Insurance and increased as a result of larger deposits. Growth of operating costs was checked by lower expenses in 2011 related to assignment of own claims.

In 2011 Sberbank produced a financial result that exceeded results of the previous year:

Earnings before tax amounted to 408.9 bn. rubles (in 2010: 242.2 bn. rubles)
Earnings after tax amounted to 310.5 bn. rubles (in 2010: bn. rubles).

Sberbank's performance indicators in 2011 also improved noticeably:

return on equity was 26.2% (18.4% in 2010).
return on assets was 3.4% (2.3% in 2010).

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