Sberbank CEO Herman Gref atttends the Munich Security Conference in Munich, Germany, February 17, 2018. REUTERS/Ralph Orlowski
Sberbank’s chief executive Herman Gref is targeting a dividend payout ratio of 50 per cent © Reuters

You probably see the Russian markets as a straight bet on oil. Think again. Despite crude prices near multiyear highs, shares in Sberbank have trumped natural resources stocks over the past two years. Wednesday’s results underscored why. Profitability is up and bad loans down. This state-controlled lender is a proxy for the better side of the Russian market.

Though the bank has a domestic focus, petrodollars have boosted the economy since the oil price touched bottom in 2016. More importantly, a strong central bank has kept a lid on inflation despite the added liquidity. In January consumer prices rose at just 2 per cent, less than half the pace of the year before. Retail loans, not to mention those to small and medium-sized enterprises, still expanded at double digits last year. Though loan growth marginally outpaces deposits, the bank’s loan to deposit ratio remains healthy, at below 100 per cent.

If Russia’s government craves economic credibility, Sberbank (still on a US sanctions list) is doing its best to provide that. Its boss Herman Gref can boast control of half of Russia’s deposit base. As Sberbank booms, some smaller private banks have fared less well. The Russian government bailed out the likes of Okritie Bank and B&N Bank, plus let Jugra Bank collapse, during 2017.

Their losses are Sberbank’s gains. In a benign credit environment — Russian credit default swaps trade at early 2008 levels — those upsets likely have more to do with clamping down on capital outflows than bad credits. Whatever Mr Gref’s position in the oligarchical hierarchy of Russia, his personal stock is higher than the owners of those bailed out private banks.

To his credit, Mr Gref has reformed a Soviet leviathan into something nimbler. Return on equity last year was the highest in seven years. Even better, he is targeting a higher dividend payout ratio of 50 per cent, double that of 2016. The shares would yield 8 per cent next year at six times earnings, notes KBW. These numbers compare favourably with any big bank in Europe, never mind the emerging economies. Indeed, Sberbank’s market value only trails HSBC among Europe’s listed lenders.

If oil lubricates the Russian economy, a credible banking system is the cog it keeps turning. Moody’s and S&P upgrades of Russian debt only reiterate what bond prices have already declared. Sberbank provides a late cycle bet on Russia’s credit system.

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