Sberbank First Deputy CEO Kirill Tsarev: Retail loan portfolio adapting to market realities, lower levels already passed
Kirill Tsarev
Photo: Press-office
The tightening of monetary conditions along with the tightening of macroprudential 'screws' has resulted in the retail lending demonstrating near-zero dynamics for six months already. The market participants do not see any grounds for a trend reversal. Sberbank, the leader of the sector, is also still keeping cautious forecasts. Sberbank Management Board First Deputy Chairman Kirill Tsarev told Interfax in an interview about the risks of deteriorating quality of the retail portfolio, the future of the Drive Click Bank, the development of the business-to-customer (B2C) services, the digital ruble and competition with marketplaces.
Q.: The retail portfolio grew by 0.3% in March after being unchanged in February and down 0.5% in January. Is this a reversal of the trend? In your opinion, will the portfolio demonstrate approximately the same slightly positive trend in the coming months?
A.: The portfolio is adapting to the new market realities, below which it will not now fall. Looking ahead, it should start growing, but not by much.
As for mortgages, the rates for the market programs, although slightly, but started to fall. Of course, state programs account for the bulk of mortgage issuances, and they will drive modest growth. If we see a gradual drop in the cost of money, and therefore market mortgage rates, then we will see some sort of growth in the portfolio. We can cautiously assume that we are on a plateau, beyond which either mortgage issuances will grow slightly from current levels, or the trend will persist. The same cannot be said about consumer loans.
Q.: Are they declining?
A.: They continue to decline, and probably will continue to decline for a while. If there were no preferential programs in mortgage lending, it would be falling as well. The dynamics of consumer lending is affected by high interest rates and a slower consumer demand, as well as by a tight regulation on the part of the Central Bank, which severely restricts the banks' ability to select clients and has a negative impact on both the dynamics and the quality of the portfolio. We are issuing fewer loans, while the portfolio is amortizing and will continue to decline for some time. The stabilization point for consumer loans, unlike mortgages, will be at lower interest rates.
Our forecast for the overall retail portfolio is that it will remain roughly the same. Theoretically, it could grow due to mortgages, with consumer loans down, automobile loans flat or down (probably the latter) and credit cards stable, perhaps up slightly.
Q.: Is the forecast for retail portfolio growth at less than 5% for 2025 still valid?
A.: Yes, there is no reason to revise it yet. As I have already said, we expect the consumer loan portfolio to decrease. According to forecasts, mortgages will grow by 3%-6% give or take in 2025. It should be mentioned that state programs are becoming more and more targeted, and this is the right and positive signal. I think that the mortgage market is relatively stable. True, there is sometimes a topic of price gap between primary and secondary housing. But we do not confirm this, because we believe that there is no significant gap in cost. It is important to understand what is meant by secondary housing. If we take a property that is two to five years old in the same neighborhood of the same quality and with the same set of services, the difference in value with new housing will be 12%-15%, no more. If you take all secondary housing on average, taking into account old residential buildings, the difference could be up to 20%, no more.
Q.: Is the forecast for retail deposits to grow by 17%-19% this year still valid? What is the situation regarding a move away from forex in the retail deposit portfolio?
A.: Yes, the forecast remains unchanged. We have finally seen a move away from forex [in the retail deposit portfolio] in the past three years and now there are almost no liabilities in forex. In 2021, the share of [forex] liabilities was around 18%, now it's 4%-5%. We live in our ruble space - cards are Russian, our own payment systems. In terms of this, we have complete import substitution.
Q.: Banks have started to reduce deposit and loan rates without waiting for the key rate to change. When, in your opinion, will the situation around spreads on bank rates normalize?
A.: In November-December, deposit rates were higher than the key rate, and loan rates, respectively, were even higher. We now see a downward trend, the situation has normalized, and the rates are falling for deposits and almost synchronously for loans. If the situation evolves as it is now, I think that banks will continue to lower rates. If the Central Bank makes some decisions, that will also definitely have an impact on the market. We see a trend for spreads to revert to standard levels. The trend is positive. The speed will depend on the situation in the economy as a whole.
Q.: Does Sberbank see an opportunity to lower deposit rates in the near future?
A.: It is difficult to make forecasts. We have just lowered rates, and we will see how clients and the market will behave. If we do not see where to place this money at these rates, we will think about further reduction. If we see where to put it, there will be no point in lowering the rates.
Q.: Do you see any risks for the retail loan portfolio this year? What are they? Is there any deterioration in the quality of the portfolio?
A.: If there is deterioration, it will be negligible. Amid the contraction of the consumer portfolio, we may see an increase in the cost of risk. The portfolio is getting smaller, but all old bad loans that we have collected remain. We cannot say that there should be problems on the market. Household incomes are growing all the same. We do not expect significant changes, but there could be local things. Some companies could carry out optimization, someone could lose their job, and, on the contrary, someone could find one. This will all be within the margin of error. We will get a certain increase in the share of problem loans because of the changing structure of the portfolio due to repayment, but no more than that.
Q.: Do you see any risks in tightening regulation, in particular, in the introduction of macroprudential limits on mortgages and automobile loans?
A.: Yes, we do.
Q.: You previously criticized the idea of introducing limits on mortgages...
A.: And we continue to do so. Macroprudential requirements for mortgages are increasing, and this affects the cost of capital that we allocate to these transactions. It turns out that taking into account the down payment and debt load indicator (DLI), mortgages are becoming less affordable for the most vulnerable strata of the population, even under the state programs. A down payment of 50% is the most risk-free. The question is who has that 50% down payment for a mortgage loan under the state program? As you move toward a 20% down payment, your risk weights increase, you need more capital - in essence, you have to set a higher rate for the customer. The result is that a 20% down payment we have to rate more expensive for the client in terms of macroprudential reserves. If the client also has a DLI above 80% rather than over 50%, the conditions are even worse. We realize that young families will have a worse rather than a better DLI. And we are actually making a non-positive selection in terms of clients and conditions.
Q.: The Central Bank has announced the introduction of macroprudential limits on mortgages and a simultaneous reduction in mortgage premiums from July 1. Will this option suit you?
A.: We should realize that any introduction of additional restrictions and additional slicing and dicing would result in the fact that you will still start working under the restrictions, which means that you will issue fewer loans. We cannot issue more loans with a DLI above 80%, so we will have to turn those customers away. Will that bring in more customers with a 50% DLI? No, it won't. This is not related to each other. And we cannot fully predict what the impact will be. We will be observing it.
Q.: The group has decided to transfer the loans of its subsidiary Drive Click Bank to Sberbank's balance sheet. The Drive Click Bank has not ruled out its liquidation in its financial statements in the future. What motivated these steps?
A.: At one time, this bank used to be managed jointly with BNP Paribas, and then we consolidated it. The question is how efficient is it to implement this or that business model?
Q.: The Drive Click Bank is one of the leaders in car lending...
A.: Fine, Sberbank is also a leader in many positions. We have a mobile app called Sberbank Online, and it has a daily audience of 44 million people and 85 million MAUs [monthly active users]. Our task is to focus on demand, on what customers need. When a person chooses some credit products, we would like to have them all in one place for them. We first introduced the Drive Click Bank as a partner, but if all credit products were in one place, it would be more rational to start offering these products from Sber's own balance sheet rather than from the Drive Click Bank's balance sheet. As of now, in terms of efficiency and cost optimization, it looks logical to develop this product directly with Sber. At the same time, our ambitions remain the same - we want to be leaders in car lending. Last year, we issued a record 500 billion rubles in car loans and we want to continue to do so. Most importantly, we want to develop a comprehensive loan product. If you need an apartment, you are welcome, a car, you are welcome, money until payday, you are welcome, and a consumer loan, you are welcome. All services are put together for you. We have a concept of "credit potential", where the main task is to show you all the possibilities you have. Therefore, it is logical that all of them should be brought together.
Q.: Have you decided that the Drive Click Bank will definitely be liquidated? Are you currently negotiating its sale?
A.: We are not conducting any negotiations. We do not have a specific decision whether to liquidate it or not. We have a solution that the focus on the development of automobile loans will be from Sber's balance sheet. And this is already being implemented.
Q.: Do you want to transfer all loans from Drive Click Bank's balance sheet?
A.: Little by little. All new loans will be issued from Sber's balance sheet. Then we will make a decision as to whether they are left to amortize or we take them away.
Q.: What else does the transformation of the automobile segment imply? Which subsidiaries will be affected by this process? Is the group going to change SberLeasing's activities somehow, or will everything stay the same?
A.: Nothing is changing with regard to SberLeasing. The second part of the transformation is creating services that are convenient for car customers. Sberbank Online now has a refueling service, and SberAuto has services for car transactions. We want to present all information related to the vehicles in order to offer comprehensive services similar to DomClick. It started as a service for issuing mortgages, but today over 30% of its transactions are not linked to mortgages at all. DomClick has become a mini-ecosystem connected to the home. We are gradually adding new services, for instance, cleaning (for some neighborhoods), repair, and e-commerce (you can buy some home goods there). For many properties, you can now see their market value. Additionally, we will make an option in Sberbank Online to reflect the value of your apartment in the "total funds" section. We are doing the same with your car.
Q.: Since we are talking about services, the bank has earlier announced the launch of QR code payment in Turkey. Has the service been launched? And does Sber plan to launch QR code payment in any other countries in the near future?
A.: The matter is very sensitive. We are working on it all the time so that our clients would be able to pay in different parts of the world. When we are connecting some services, we are trying not to talk about it loudly, and we are bringing the information to our clients more specifically. The saying "money likes silence" fits this case perfectly.
Q.: The Central Bank has recently postponed the full-scale introduction of the digital ruble due to the unpreparedness of some banks. Can you tell us at what stage Sber is now?
A.: We are in the pilot stage, testing together with the regulator. The most important thing is that everything works well, so the regulator is doing everything right in this regard. The key thing here is a properly refined product, and there is no need for haste.
Q.: Are you testing it on employees? Or on retail clients too?
A.: On employees. On a very limited sample, it is a small group, like a sandbox. We will test it and then we will be ready to expand the pilot project in coordination with the Central Bank.
Q.: Have you tried conducting transactions with the digital ruble yourself?
A.: I will connect to it later.
Q.: Did you get into the focus group?
A.: My participation is scheduled for the next stage. In accordance with the Central Bank's requirements, the participants should perform a certain set of operations on a regular basis, so a dedicated team is involved in the current testing phase.
Q.: It is now expected that not only the Central Bank, but also other banks will have to comply with the requirements of the anti-money laundering legislation on the digital ruble platform. Will there be many costs associated with these refinements?
A.: It will definitely be more expensive than without it, but we did not estimate it that way. It is clear that these are not only refinements, but also additional administration. In essence, this will potentially increase the costs of maintaining the digital ruble, which are not very clear how to be reimbursed. This is on the list of open questions about the functioning of the digital ruble business model.
Q.: Finance Minister Anton Siluanov said that the introduction of the digital ruble is one of the key tasks for the Russian Treasury, as the use of this tool can help realize the targeted nature of budget execution and the traceability of each ruble. Will banks have an opportunity to make money in this regard?
A.: Accounts will be opened at the Central Bank, we will only display it in our mobile application. In this model, if it is a one-tier one, everything is taking place in the Central Bank. The bank should give access in the mobile application and visualize your wallet in the Central Bank. Moreover, all banks should visualize the same wallet in the same way, but each in its own application. Further on, if you transfer money, everything happens right in the Central Bank, and the bank simply reflects, like a mirror, what has happened.
What Anton Germanovich [Siluanov] says is about transparency in the use of money and its intended use. This lowers corruption risks, risks of money withdrawal and so on. At the same time, the question arises as to when they can or cannot turn into regular money. In other words, when a company has received it, does it pay wages in digital rubles or does it pay them in regular money? There has to be a rule. Contract funding has such mechanisms now, and there is some kind of targeted spending. The main advantage of all this in the digital form is that everything can be created as working rules. We still have to see and discuss everything. We are currently actively working on this together with the Central Bank and systemically significant lending organizations. Our common goal is to find an optimal balance between compliance with regulatory requirements and the economic efficiency of the solution.
Q.: The Finance Ministry and the Central Bank are planning to undertake a pilot project on using the digital ruble to pay social benefits and capital construction expenses this fall. Will Sber be involved in it?
A.: Sberbank continues to work within the approved plan of the Central Bank's pilot project, focusing on practicing the current requirements for digital ruble transactions. The possibility of joining the experiment involving budget payments will be considered additionally, should there be a relevant proposal from the regulator.
Q.: VTB CEO Andrei Kostin has recently said that the development of fintech services by marketplaces does not pose a threat to the banking market, as the projects are still in the development stage, but regulation should be introduced for them. How does Sber view competition with the banks owned by major technology companies and marketplaces?
A.: Fintech is promoting competition on the payment and banking markets. The presence of competitors keeps us in shape and helps us develop products for our clients. What is important, however, is that certain principles and rules are upheld - the transparency of the market, of pricing and so on.
We are always attentive to everyone in this respect. This is because every player has an opportunity to bring something new and make some kind of market disruption. And this is a good thing. We are also striving to do so. We believe that the biometrics service, for instance, is the largest installation worldwide.
Q.: Don't you think that subsidiaries of marketplaces have a competitive advantage on the electronic payment market? Does the Central Bank need to exercise some kind of regulation and control here?
A.: It is important that the same legal standards are applied to marketplaces as everywhere else. It is established that regardless of the method or form of payment, the price for the consumer must be the same.
Cashback has not been banned - it can still be offered - but the base price must remain the same. When we talk about transparent and fair competition, it means the customer understands that the price is the same regardless of the payment method used. And if the law says one thing, but in some cases (I'm not accusing anyone of anything) a different perception is created, then this must be brought into compliance. And that, in my opinion, is key.
After all, your life and your wallet are not tied solely to marketplaces. Marketplaces will occupy a certain niche - that is normal, it shows development, but they will not take over everything. As they begin to grow, they become larger like banks, and when they become larger, they face AML/CFT requirements [obligations related to anti-money laundering and countering the financing of terrorism], dropper issues, and so on. These also need attention and investment.
It is normal when new players appear on the market and try to disrupt it. This will result in the consumer winning, which is a good thing. Russia is one of the most developed countries in the world in terms of banking fintech. I believe that this will make our country even more competitive and more developed.