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Edited Transcript of BSPB.MZ earnings conference call or presentation 27-Nov-19 1:00pm GMT

Nine Months 2019 Bank Sankt-Peterburg PAO Earnings Call

Saint Petersburg Dec 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank Sankt-Peterburg PAO earnings conference call or presentation Wednesday, November 27, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Konstantin Yuryevich Balandin

"Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of the Bank Saint Petersburg. At our customer's request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Konstantin Balandin, who will lead you through this conference. Please go ahead.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [2]

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Thanks a lot, and hello, everybody, and welcome to our 9 Months and Third Quarter 2019 IFRS Results Conference Call. And as usual, I will pass us through the presentation and then we will have time for Q&A session. So let's begin.

Starting with highlights for the third quarter and 9 months. Well, basically, the most important highlight of the third quarter is that our corporate loan portfolio increased by 8% during the quarter. And just to remind you, this is one of the shifts that we have announced in our strategy which we disclosed earlier this year. This is not to say that this kind of growth is going to happen every quarter, but this is an important turnaround for us, nevertheless. So we have demonstrated that we are serious about increasing our corporate loan portfolio.

And we continue to see growth in retail lending as well. We have increased the retail loan book by 4%, and it amounts to almost 16% year-to-date, which is broadly in line with the market.

We have also seen core banking revenues increasing by 12% to RUB 22.5 billion in a 9-months period, which includes another record-breaking quarter, namely the third -- in third quarter, we have posted another RUB 7.7 billion of core banking revenues. And it is primarily driven by very strong fees and commission income, which increased by 23% year-on-year, up to 5.2% (sic) [RUB 5.2 billion] in 9 months period, and it includes 27% growth in the third quarter alone.

Let's have closer look at the figures. And our total assets as of 1st of October are RUB 656 billion. No major changes on a quarterly basis, but all in all, there's a 7% growth year-on-year.

Our loan book -- total loan book is RUB 390 billion -- almost RUB 391 billion, which is 7% growth throughout the quarter, and it amounts to 4% growth year-on-year.

Customer deposits of RUB 417 billion, which is a 4% growth. And total capital is RUB 95 billion.

We have posted RUB 5.9 billion of net interest income, which is the strongest figure for a quarter in 2019. And it contributes to almost RUB 17 billion of net interest income throughout the 9-months period, which is a 7% growth up from 2018 period.

We continue to post very impressive figures in net fees and commissions. All in all, our net fees and commission income in the quarter is RUB 1.9 billion, totaling RUB 5.2 billion in the 9-months period. So all in all, we increased our net fees and commission income by 1/4 compared to the same periods of 2018.

All in all, we have posted RUB 7.5 billion of revenues and RUB 22.2 billion of revenues for the 9-months period. And it amounts -- at the end of the day, it amounts to RUB 2 billion of net income and RUB 5.5 billion of net income in 9 months period.

Our net interest margin for the quarter is up to almost 4%, 3.95% to be precise. And it contributes to net interest margin being flat at 3.7% level for 9-months period. This is the same figure we had 1 year ago.

Cost to income ratio is 44% for the quarter. And all in all, we posted around 10% ROE, both for the third quarter and for the 9-months periods.

And let's have a close look at the 9-months figures. Our net interest income once again is almost RUB 17 billion. So we have added RUB 1 billion of new -- or net interest income. We have had another RUB 1 billion of revenues to net fees and commission income compared to the same period of last year. On the other hand, we have lost about RUB 0.5 billion of our -- in trading. And accordingly, the trading revenues are much lower than it used to be in 2018. But all in all, on the back of weak trading, we continue to post pretty strong revenues of RUB 22.2 billion. So at the end of the day, trading revenues are not reliant on trading anymore. And the bulk of revenues here consists of core banking revenues.

Our operating expenses are up by RUB 0.5 billion, which is about 5% growth and more or less in line with our guidance. And we have also created RUB 1 billion less of provisions during the 9-months period. So total provisions are RUB 4.9 billion compared to RUB 5.9 billion in 2018.

And let's turn the page and have a look at key ratios. So cost-to-income ratio is 46%. And all in all, net interest margin is slightly better than it used to be in 2018 -- in full year 2018. So once again at the same level as for the 9-months period, but slightly better than full year 2018.

Operating expenses increased more or less uniformly across the lines. So no major points to note here. Once again, we stick to our 5% guidance and we are in line with this guidance. And all in all, we have posted RUB 5.5 billion of net income, which corresponds to 9% ROE.

And the next slide is dedicated on the -- to the quarterly dynamics. We have posted RUB 5.9 billion, almost, of net interest income, which is 6% growth year-on-year and a very good result for, let's say, for not non -- for non-fourth quarter, because fourth quarter is seasonally high, today, we have a very, very nice figure for a non-fourth quarter. So probably this is the best non-fourth quarter in our history.

We continue to post strong quarterly results in net fees and commission, totaling almost RUB 1.9 billion in the third quarter, which is RUB 400 million more than a year ago. And we have seen another -- we have also seen another weak quarter of trading income, posting trading income -- posting a trading loss of RUB 0.46 billion.

All in all, it amounts to RUB 7.7 billion -- RUB 7.5 billion, sorry, of revenues, which is not the strongest quarter for us, given weak trading. But on the other hand, behind this figure, we have RUB 7.7 billion of core banking revenues, which is the strongest quarter we have ever seen as a bank.

And our operating expenses for the quarter at RUB 3.3 billion continues to -- this figure continues to improve for a second quarter in a row. So we have spent RUB 100 million less when compared to the second quarter. And provisions are RUB 1.7 billion, so broadly in line with what we have seen in the previous quarters, but RUB 0.5 billion better than the year before.

And let's turn the page and have a look at key ratios. Cost-to-income is 44% for the quarter; net interest margin improved up to 3.9%; and all in all, we have posted RUB 2 billion of net income, which is a pretty healthy figure given weak trading result and corresponds to 10.4% ROE.

And the next slide helps you to understand what is going on with the interest rates on both assets and liabilities side, what is going on in the margin dynamics. We see a slight decline in core banking margin down to 5.7% and a slight decline on average interest rates on the loan portfolio by about 20 basis points. Most of it is due to rapid loan growth towards the end of the quarter. So statistically, the loan portfolio and the balance sheet increased, but we haven't seen a lot of income yet from this kind of asset. And once again, more or less, in my book, this is about the calculation, so this is not about trend.

So core banking margin. Having said that, core banking margin remains on a pretty high level. And what we also wanted to note here is that cost of funding goes down in -- started to go down in the third quarter. So especially on the corporate deposit side, we have seen average interest rates on term corporate deposits peaking in the second quarter at 7.1%, now it's down to 6.4%. And this broadly reflects the interest rate dynamics we have seen on the market because some corporate deposits today are more or less in line with money market. So all of this is to say that the market interest rates on the money markets are turning around rapidly in the third quarter, and it starts to penetrate in the cost of funding.

And the next slide is to give you the breakdown to give you some flavor on what is going on in our fees and commission on both corporate and retail lines of our business.

Speaking about corporate, in the 9-months period, our net fees and commission increased by RUB 0.5 billion, up to RUB 3.7 billion, and we see very strong growth across major product lines. We see cash and settlement transaction fees and commission increasing by RUB 330 million, which is very nice double-digit growth rate. We see guarantees and letters of credit increasing by RUB 100 million. We see customer FX increasing by RUB 100 million. So we see very nice double-digit growth across the lines contributing to 16% growth year-on-year.

On the retail side, we see an increase of fees and commission by more or less the same amount, RUB 550 million, close to RUB 2.5 billion in the 9-months period, to be precise. And the major growth is coming from plastic cards and check settlements, where we have had RUB 250 million of new income. And we also see very nice growth in the line which is called other. And basically, this is fees and commission from the sale of insurance products, and this is a major -- the major boost to the growth of our retail fees and commission income.

And the next slide is to combine all we say about core banking revenues, core banking results and trading results. And once again, we have posted second record-breaking quarter in a row now of core banking revenues results, posting RUB 7.73 billion of core banking revenues, mostly driven by fees and commission in the third quarter, if you compared third quarter to second quarter. And net interest income largely remains flat.

And in trading business, we see negative result for the third quarter in a row. So the things are not very good in this line of business. And all in all, combined result from trading activities is minus RUB 0.45 billion in the third quarter.

And the next slide is about what is going on in our retail portfolio through -- the major growth in the third quarter was coming from corporate book. And I believe that in the next quarter, probably in the first quarter, we're going to provide more information, more flavor, on what is going on in the corporate lending, once it becomes a trend for us. But we are going to continue with this kind of information because retail banking is going to be a point of growth going forward as well.

So what we have in retail banking is we have added RUB 3.5 billion to our portfolio in the third quarter. In particular, we have added RUB 1 billion to mortgages book and RUB 2 billion to consumer lending portfolio. And what is also very important for us is that behind this growth, which continues -- which we continue to see, the quality of loan book continues to remain pretty high. And you can see everything with regards to the quarter, it's down on the left.

And the next slide is dedicated to the loan portfolio generally and to the quality of the book. And we have added RUB 25 billion of new loans to our loan book in the third quarter alone. And in total, it's RUB 15 billion from the beginning of the year. And the combined loan book is RUB 390 billion, almost RUB 391 billion. And we have created RUB 1.7 billion of provisions, so provision charge remained stable for the third quarter in a row, and all-in-all it results in the cost of risk of about 180 basis points, slightly better than previous quarters, but more or less consistent. And we don't see any major changes in the sector breakdown of our portfolio.

Next slide is about the balance sheet structure, assets and liabilities. No major changes here as well, or business as usual. Retail deposits are slightly lower -- is a slightly lower share as a source of funding than it used to be in previous quarters, is down to 58%, but still a major source of funding. And loan-to-deposit ratio is 85%, so we continue to be in a very comfortable position with regards to liquidity.

And the next slide is about our capital adequacy position, are comfortable here as well as of 1st of October. Up on the right, I invite to look at -- as traditional, I invite you to look at the figures up on the right. Total capital adequacy ratio is 14.6%, and Tier 1 is 10.0%. So we are still feeling good.

What is also -- what's not in here is that the buyback results, and the buyback was completed in October. So just to remind you, we bought back almost 12 million shares at RUB 53.5 per share, which we are going to cancel as soon as possible. And this is going to diminish our Q1 capital adequacy ratio by about 10 basis points at the 1st of January. So this is probably the only other important issue I have about capital adequacy here.

And the next slide is about some recent developments, so we have -- in our business and our strategy implementation and in our team, in the middle of November, we have approved the opening, a full-sized branch in Novosibirsk. And just to remind you, our representative office has been operating there since 2016, accumulating about RUB 8 billion of loan portfolio and about RUB 1 billion of customer accounts. And we have decided to roll out a full-scale branch in Novosibirsk with a goal of increasing our customer base by almost 3,000 corporate customers and 23,000 retail customers on a 3-years' horizon and a financial target of RUB 1 billion of new revenues.

And we also had some changes in our team. On 20th of November, Mr. Kirill Kuznetsov was approved to a nomination to the Management Board. And Mr. Kuznetsov is head of our Moscow team. And in particular, he focuses on increasing the footprint of the bank in SME segment in Moscow. And Kirill has a very vast experience in dealing with SME in Alfa Bank previously. So as we have announced in our strategy earlier this year, we have a special focus on expanding our activities in Moscow. So he's the key person to implement the strategy going forward.

And basically to conclude my presentation, I want to give some flavor on the guidance we have for full year figures and to first targets we are ready to announce for the next year. And for full year figures for 2019, we see that loan portfolio is going to improve -- to grow by more than 5%. And as I mentioned, it's more than 4% in 9-months period, we continue to see pretty strong growth. Depends to be seen how some major tickets are going to -- whether they going to stay in the book as of 1st of January. But more or less, we are very positive that the growth is going to be above 5%.

Core banking margin is going to be flat. It's 5 point -- this is the same guidance we have seen throughout the previous quarters, it's 5.5% to 5.8% area. But I'm looking more towards the upper end of the range, actually.

Cost of risk, we are slightly less aggressive than we used to be. And our previous guidance was 170 to 190 and we are changing it upward slightly, 180 to 190, because 3 quarters behind -- are behind us and probably 170 is unreachable just due to mathematical reasons.

We stick to the guidance of cost growth of 5%. Given our weak trading results, we have to revise our guidance on both cost-to-income ratio upwards and ROE downwards. So we are more conservative, and we understand that given trading results, initial full year targets are out of reach. So cost-to-income ratio target today is 43% and ROE is 10% to 11%.

And speaking about 2020 targets. We are in the middle of our budgeting right now and it is still too early to give all of the targets and -- or to call them guidances, actually. So what we see at the moment is that we are budgeting 12% to 15% loan growth, which is broadly in line with the strategy. We believe that we are capable of keeping our core banking margin flat next year. We have more or less reiterate the guidance we have provided for 2019 for cost of risk initially of 170 to 190 basis points range. And we see that the cost growth is going to be faster in 2020 compared to what we have seen in 2019, so we changed the target upwards to 6.8% (sic) [6% to 8%] revenues.

But having said that, once again, we're in the middle of our budgeting process and it is too early to give you some flavor on cost-to-income and return on average equity. And some of the targets we already announced might also change, but I'm more positive about the ones I already gave you.

So having said that, I finish my presentation and I would be happy to answer your questions. Thanks a lot for your attention, and welcome, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Andrew Keeley with Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [2]

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I have 2 or 3 questions. First of all, on your loan growth. Could you talk us a little bit through what was driving the very strong corporate lending growth in the third quarter? I see that there was quite strong growth in the loans to entities that also have state financing, so maybe you could perhaps talk us through that a little bit.

And then a follow-on to that is really regarding your loan growth outlook for next year, which looks very -- pretty upbeat, I mean 12% to 15%. And just wondering whether you can give us some breakdown of how you see that growth being split between corporates, mortgages and unsecured lending. That's my first one, I'll take the next one later.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [3]

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Yes, thanks a lot for your question. Well yes, we have -- as promised, we have launched growth in corporate lending. It turned out to be better than expected in the third quarter because we have managed to do a number of large tickets, some of them are on the money market terms and they just stayed in the portfolio as the 1st of October. So once again, I don't expect us to post 8% growth every quarter or every other quarter.

So all in all, I think that the growth rate we have announced in our strategy of 12% to 15% a year is what you should reasonably expect from us.

And frankly speaking, we believe this is not a lot of ambition because we haven't been growing our corporate book for 5 or 6 years already being conservative and testing our risk management models, as you know. And now we -- I mean, we -- today, we are a pretty small player on the market in order to increase our book by this kind of rate. Because if you think about it, and the expectation we have at least, that the market is going to grow by, let's say, 10% next year. And it means that we are targeting 2% to 5% of additional growth rate, which is, given our -- the size of our loan book, is something like RUB 12 billion to RUB 15 billion of additional growth, come on, it is not a lot. This is several large tickets.

And yes, we have -- we are more certain about the kind of risk management we have. We are not going to increase our risk appetite. This is going to come across the line. So we do -- we are not targeting any particular sectors, I mean. We can see growth in any sectors. But what we do is we're increasing our sales force, we're increasing our appetite for growth, not appetite for risk, let's put it this way. And that's about corporate loan growth.

But having said that, back to your question on corporate versus retail. I would say that we do see retail lending slowing down. We have posted 20-plus percent last year. We are going to see some, probably almost 20% this year. I would say the next year, the kind of growth rate we expect is probably between 10% to 15% in retail lending. And accordingly, if we target 12% to 15% for the book as overall, then it means corporate lending is 12% to 15% as well.

So yes, it's going to be like retail, is not -- probably, the share of retail loans are not -- is not going to grow any more or is not going to grow that fast as it used to. So hopefully, I covered all of that.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [4]

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Sure. I mean, do you think that within the retail book, I mean this year, for example, I think your kind of unsecured lending has been growing faster than your mortgages. Do you think that will reverse at all next year, given the kind of combination of kind of tighter regulation in unsecured lending and also falling mortgage rates potentially boosting demand?

And on the corporate side, is any of the growth coming through due to the kind of escrow financing scheme that came in from the middle of the year, given that you have quite high exposure to the kind of real estate sector?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [5]

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Not yet, not a lot. Actually, we do -- and we did expect a lot of growth coming. And we do expect some growth coming, but it doesn't happen that fast. So we don't see it -- it's immaterial so far with regards to escrow accounts financing.

And the answer to your first question is yes, probably consumer lending is going to slow down. What we also see is that mortgages are slowing down also, both on the market and in our book as well. So I'm just not sure which portion of the book is going to slow down faster, that's what I mean. The book is pretty -- the mortgages book is pretty big for us already and we see a lot of prepayment coming with interest rates coming down. And accordingly, you have to issue huge amounts of new loans just to stay at the same place. So that's what's going on in the mortgages.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [6]

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But do you think in the mortgages, the lower rates, at some stage, they should start actually stimulating more demand once, obviously, there's a lot of demand perhaps for refinancing? But it's interesting that you...

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [7]

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That's true. There's a lot of demand for refinancing primarily. And you see a lot of prepayments, and accordingly, you have to issue new loans to refinance and you don't see a lot of growth come in, and that's the reason.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [8]

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Okay. That's interesting. Second question is on costs. So your guidance is basically for an increase in your cost growth for next year, even though generally inflation trends are kind of downwards. Can you just give us a bit more color as to why you're guiding for cost growth to pick up?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [9]

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Well first, please note that, that kind of cost growth is in line with what we have in our strategy. Second, well, I mean, we are expanding. We are expanding in the Novosibirsk, we're expanding in Moscow. We hire new people, and what these people are going to do is they are targeting low-risk transactional business. And if you have a look at this kind of business model, and well you have kind of business model was higher cost of -- cost-to-income ratio, right? Because you don't have risk premium in your income. And that's the key reason.

And IT is important also. I mean we're expanding our investment in IT also, so it also takes its price.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [10]

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Okay. And just a final question. Your trading result, which for several years really, was very strong consistently. You've had basically 3 quarters of negative results, looking at your Slide 10, I think it is, which basically have quite a pretty material impact on your ROE. Are you doing anything -- are you kind of basically looking at this and thinking, we need to change the way we're doing this, we need to change our risk appetite, something? Because it's been 3 quarters now of negative results, and that does have a big impact in terms of whether you hit your ROE targets or you don't.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [11]

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And how do you think?

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [12]

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How do I think what, sorry.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [13]

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Whether we do it or not?

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [14]

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Well, I hope so. But I'm interested to hear what you have to say.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [15]

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What I mean, if you really believe that we are happy with our trading results, you are definitely wrong. We are not. And yes, we -- and actually, we have done a lot of our homework throughout this year about changing our risk appetite to certain business models within trading and to -- in order to find more, let's say, less volatile business model where the results are more predictable and you are not going to end up with 20% of revenues 1 year and minus 5% next year. That's one of the key strategic discussions for us this year.

And well, yes, hopefully, we're going to -- we have made a lot of changes in our risk limits and in our risk appetite already. And in order to how -- what kind of business models we tolerate with what kind of risk appetite. And hopefully, it's going to -- and I mean, not hopefully, definitely, it's going to be seen next year and the years after that.

And it's going to be -- it should be less volatile. We're still going to do this kind of business because a lot of business models we have in trading are risk-free, arbitrage, and this is the kind of business models we're going to continue to provide to our customers to do on the market. Yes, some business models are going to be scaled down or we're going to drop them completely.

All in all, the target is still to have -- long term, to have trading income at about 5% of our revenues. But once again, it's not going to be like 25% for 3 years in a row and then minus 5%.

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Operator [16]

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The next question is from [Julia Serovokov, Corporate Markets.

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Unidentified Analyst, [17]

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Hello?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [18]

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Yes.

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Unidentified Analyst, [19]

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So I have follow-up question on your previous trading answers. So looking at your guidance for the next year at 12% to 14% ROE, how should we assume any, like, trading result implications for -- on ROE from -- for the next year? So if we -- or we could just like eliminate any trading, I don't know, positive or negative result and see it's like more banking trade than ROE.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [20]

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Please explain it again. Didn't follow your logic to the end.

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Unidentified Analyst, [21]

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Yes. So I mean this 12% to 14% ROE, so do you model -- what kind of trading result you model to get this 12% to 14% ROE? Or you expect to achieve this ROE despite any like positive contribution from trading?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [22]

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Well, the strategy of the bank implies that we have trading business and it contributes about 5% to our revenues. So 5% of revenues is about RUB 1.5 billion to RUB 2 billion. So yes, in order to reach this ROE, we need to have this RUB 1.5 billion, RUB 2 billion of revenues.

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Unidentified Analyst, [23]

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Okay. And just a question on mortgage growth, which like showed quite a strong slowdown in the third quarter on a quarterly base. Do we see this slowdown contributed because of previous strong growth in mortgages? Or you see other reasons for the slowdown?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [24]

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Well, a number of reasons. First, we see a lot of refinancing, much more than there was in previous quarters. Second, we tried to stick to our interest rates and not follow the market. And currently, we tried to boost our margin in mortgages, but we lost some of the borrowers, naturally. And third, we see a general slowdown in the market actually after the launch of these escrow accounts. So we believe that there was some slowdown in the market as well in the third quarter.

But once again, we don't -- I don't think that the growth in mortgages is going to be that fast as it used to be in previous years. So we're probably going to increase our mortgages book by high single digits next year, let's say -- let's put it this way.

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Unidentified Analyst, [25]

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And this expectation is mostly attributed to Bank Saint Petersburg rather than to the market? Or you think that like a decrease in interest rates should somehow influence demand, right? So it should be supported by this sector.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [26]

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Yes, it should be supported by the sector as well.

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Unidentified Analyst, [27]

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But not for Bank of Saint Petersburg? So you're still seeing slowdown, should be...

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [28]

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We are revising our appetite towards mortgages given the interest rate risk also. [Please have this into account]. I mean, interest rates are coming down, how much long-term assets are going to -- do you want to buy on your balance sheet at this low level of interest rates? I mean, they are not as low as in Europe, true, but we start thinking about it.

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Unidentified Analyst, [29]

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Fair enough. And just a small question on strong pickup of corporate current accounts in third quarter. Is it driven like by one-off or a single exposure? Or you see bigger demand driven by better service? Or maybe you just can explain a better reason for this pick up.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [30]

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It's both, but primarily it's driven by a number of big customers. We see a nice growth in average customer base. But most of the growth was coming from a few select customers.

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Unidentified Analyst, [31]

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And you see this client account volumes as sustainable, right?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [32]

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We're probably going to lose some of this -- some of these balances, but it doesn't change the trend. I mean the trend was for the current accounts to grow slightly ahead of the market. We have seen a boost in the third quarter. We're going to be back on the trend in the fourth quarter. And then first quarter, whatever. But it doesn't change the trend.

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Unidentified Analyst, [33]

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I see. And just also maybe like a continuation of the discussion on accounts, on funding actually. So loan portfolio growth of 12% to 15% will require like more funds to come on to the bank. So do you think it could pressure margin? Actually, you don't expect it in your guidance, but still, how do you think you can fund this quite strong kind of growth for the next year?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [34]

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Well, we don't have any problems with funding during last 12 months because we are over-liquid. And if you look at our loan-to-deposit ratio of 85%, we're going to be completely comfortable with loan-to-deposits of 93% or 95%. We just -- we will just get rid of our excess liquidity, and that's it. So we can easily do that.

And having said that, there's no problem for us to increase funding beyond this extra liquidity also. We just need to be more active in sales, and not all of it is down to the margin. And I would say that the effect we're going to have from increase and the effect on the margin we're going to have on -- by increasing loan-to-deposit ratio to a more -- let's say to closer to 100%, is going to be much higher than the kind of margin we're going to lose on increasing our funding.

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Unidentified Analyst, [35]

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Yes. Actually, you can -- basically it could even widen, right, because of asset mix change towards high yields and [coupons] as I understand?

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [36]

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Correct.

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Operator [37]

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At the moment, there are no further questions. (Operator Instructions)

And we received another question. It is from [Justin King], Alfa-Bank.

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Unidentified Analyst, [38]

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And one question from my side, please. Well, as you revised your -- down your guidance on ROE for 2019, well, it appears that your net income will go somewhat down year-over-year on the annual basis on my brief calculations. And my question is about dividends for this year, actually. I understand it was a little bit premature to say, but any of your thoughts on that will be helpful.

I mean, are you going to stick strictly to your 20% payout ratio? Or maybe you will consider paying out more than 20% payout ratio in order just to maybe secure some dividend growth year-over-year in absolute terms? Or at least keep it at the level of 2018? Of course, if your capital adequacy allows you to do so.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [39]

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Well, thanks for your question. Well, yes. First, you are correct with your calculation.

Second, at the moment, I don't see any reasons for us not to stick to the dividend policy. And because we have pretty ambitious growth plans. And currently, we're going to need some equity to support it.

And third, just to remind you, we have, not just dividend policy, we have a broader plan now for distributing capital. And if we see that we have an excess capital, we can continue as buyback options also. So this is -- all of this is still in place. And for the time being, I don't see any reasons for why we are not going to stick to these policies.

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Operator [40]

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So at the moment, there are no further questions. I would like to hand back to the speakers.

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Konstantin Yuryevich Balandin, "Bank "Saint-Petersburg" Public Joint-Stock Company - Deputy Chairman of the Management Board [41]

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Well, thanks a lot, everybody. Once again, thank you for your time, for your attention, for your questions. I wish to -- I want to wish you a very nice festive season next month, and hope to have you back on our next IR event. And see you in March on our full year results conference call as well.

So thanks a lot again and a have a nice evening. Bye-bye.

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Operator [42]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.