Sberbank expects to boost profits in 2023 amid dissolution of reserves; European subsidiary already dissolved

ST. PETERSBURG. July 6 (Interfax) - Sberbank expects to boost profits in 2023 amid the non-recurrent dissolution of the reserves created in 2022, Sberbank CEO Herman Gref told reporters on the sidelines of the Financial Congress of the Bank of Russia in St. Petersburg.

"Now that profitability is returning to a normalized level, this shows that the cost of risk has normalized. The un-normalized profit this year should be somewhat higher, because everyone was creating reserves last year, including us, and a range of other financial organizations created reserves with a margin," Gref said.

"We dissolved the reserves in June. A large reserve had been created at our European bank, and we sold it. We lost in return on capital last year, and we should see a surge in profits this year. We do not consider this to be regular, meaning that this is a one-off occurrence," Gref said.

Gref did not state the amount of reserves that Sberbank dissolved in June at Sberbank Europe AG, currently Sber Vermogensverwaltungs AG. Sberbank closed the deal to sell 100% of the Austrian subsidiary in mid-June 2023.

The Russian banking sector in 2023 should generate profit from regular activities plus non-recurrent profit from the dissolution of reserves. "Given the extremely bad year last year, the level of profit this year should be higher owing to the dissolution of reserves, though this will not occur next year," Gref said.

Gref recalled that the profitability of banks' capital, excluding the results in the crisis years, ranges from 17% to 22%-23%. "If it is closer to 20% or slightly above 20%, then the 'temperature' in the banking sector is calm and normal. If it is lower, then there are some signs of concern somewhat. As a rule, this occurs because the risks are large, and banks' cost of risk is growing," Sberbank's CEO noted.

Gref stressed that the banking sector should not be considered excessively profitable. "The return on capital of 20% is significantly lower than in a range of other sectors, such as in the raw materials sector particularly. In a number of sectors, there are both 60% and 70% returns. In the banking sector, this is impossible, as it could not be excessively profitable," Gref said.