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Edited Transcript of SBER.MZ earnings conference call or presentation 2-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 & FY 2016 Sberbank Rossii PAO Earnings Call (IFRS)

Moscow Jun 27, 2017 (Thomson StreetEvents) -- Edited Transcript of Sberbank Rossii PAO earnings conference call or presentation Thursday, March 2, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jyrki Talvitie

Sberbank Rossii OAO - SVP, Head of IR

* Herman Gref

Sberbank Rossii OAO - CEO & Chairman of the Board

* Alexander Morozov

Sberbank Rossii OAO - Deputy Chairman of the Board, CFO

* Alexander Vedyakhin

Sberbank Rossii OAO - Chief Risk Officer

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Conference Call Participants

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* Armen Gasparyan

Renaissance Capital - Analyst

* Mikhail Shlemov

UBS - Analyst

* Ivan Kachkovski

Deutsche Bank Research - Analyst

* Andrzej Nowaczek

HSBC Global Research - Analyst

* Alan Webborn

Societe Generale - Analyst

* Gabor Kemeny

Autonomous Research - Analyst

* Olga Veselova

BofA Merrill Lynch - Analyst

* Yulia di Mambro

Barclays Investment Bank - Analyst

* Maria Semikhatova

Citi - Analyst

* Ekaterina Belkina

Interfax - Media

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Sberbank full-year 2016 IFRS results call hosted by Sberbank management team. (Operator Instructions). I must advise you that this conference is being recorded today, on Thursday, March 2, 2017.

I would now like to hand the conference over to Mr. Jyrki Talvitie. Please go ahead.

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Jyrki Talvitie, Sberbank Rossii OAO - SVP, Head of IR [2]

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Thank you and good afternoon, everybody. Welcome to the Sberbank full-year 2016 IFRS results call. Today we have with us Mr. Herman Gref, President and Chairman of the Management Board; Mr. Alexander Morozov, CFO and Deputy Chairman of the Management Board; and Alexander Vedyakhin, Chief Risk Officer of the Group.

The order of the day is such that our Chairman will be giving an opening statement, after which he will be available for questions for half an hour, at the maximum. Then we will turn to Mr. Alexander Morozov, give us some further statements on the financials and open up for Q&A.

With that, I would like to hand over the floor to Mr. Herman Gref, President and Chairman of our Management Board. Please, sir?

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [3]

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Thank you very much, Jyrki. Ladies and gentlemen, good afternoon. I will start with a few words on the macro situation, but before that I would like to say that I can rank this year as our most successful year, ever.

This year, Russian economy has started to improve after two difficult years. The Russian GDP was back to growth in the fourth quarter of 2016. In all, GDP was down by just 0.2%, which exceeded expectations. Our central bank succeeded in this inflation target. In 2016, inflation slowed by 5.4% and was down 4% to 5% in January. This is the lowest level in last 25 years.

Russian corporate profit grew by almost 20%, over RUB10 trillion. Industrial production grew by 1.3%. Despite this [emerging] recovery, many areas of the economy are still struggling, such as retail, construction, and many other industries like metal and mining.

A few words around net profit and dividend by Sberbank; Sberbank has emerged from this crisis stronger and more resilient than before. We earned a record net profit of RUB541.9 billion. Earnings per share grew over 140%. We propose to pay 20% of our net profit in dividends, according to our dividend policy. We still need to build up our capital to be ready for a regulatory capital ratio increase and IFRS 9 implementation.

Moving into performance against guidance; in our guidance, we promised a return on equity in the high teens and we delivered 20.5% -- excuse me, please 20.8%. Our net interest margin was also above the guidance, over 5%, at 5.7%.

We promised cost of risk of around 200 basis points and we have achieved 177 basis points. Today, our Russian credit quality metrics are almost 3 times better than those on the competition.

Our net fee and income commission grew 9.4%. It was below our expectations of low to mid teens. The primary reason for that was the high base effect of trading in foreign currencies in the fourth quarter of 2015. If we exclude FX trading, the net fee and commissions income grew over 17% in 2016.

And our bank card business, it remains a strong driver of all our growth. Bank card turnover grew by 47% to RUB5.7 trillion. [Acquiring] turnover grew by 55% to RUB4.5 trillion. And the number of POS terminals increased by 29% to 900,000. B2B transfers surged by 82%, to RUB7.5 trillion. Additionally, our insurance and pension fund operations are showing double-digit growth.

In terms of efficiency, we promised a cost to income ratio of around 40%, and have delivered 39.7%. We plan to further improve our efficiency this year. In 2016 our cost saving initiatives allowed us to save over RUB30 billion. 20% of the savings came from our subsidiary banks, and in 2016 our main challenges were the subdued loan growth and the difficult operating environment for all our international business.

In 2016 our corporate loans declined by 8.9%, even though we issued 35% more corporate loans than the year before. The main reason for this portfolio decline was strong ruble appreciation, prepayments and low demand for new loans.

In our international business, we experienced a challenging environment in all areas of our activities. Despite that, all our subsidiary banks, except those in Ukraine, were profitable. Additionally, our Ukrainian exposure is adequately provisioned.

Before I will finish my statement, I will say a few words about our new strategy. We are reasonably satisfied with our 2016 results. We have set very ambitious targets for ourselves for 2017, both financial and transformational. And we expect to reach our targets within our current strategy in 2017. The operating environment has changed dramatically, so we plan to develop a new strategy for the next three years by the end of 2017.

I don't want to announce any new answers about our new strategy. We will organize a special Investor Day, once our new strategy has been approved by our Supervisory Board.

And now I am ready to take a few questions from all of you. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Armen Gasparyan, Renaissance Capital.

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Armen Gasparyan, Renaissance Capital - Analyst [2]

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Good afternoon and congrats. It's great to see Sberbank still being the only large cap EMEA bank delivering the old 20% benchmark. Mr. Gref, thanks for joining the call, I have two questions.

First, I would love to know your thoughts regarding potential risks for the banking sector, stemming from the introduction of new products by Moscow Exchange, such as granting large corporates direct access to their fixed market, as well as to the money market, bypassing banks? How do you think banks should react to these developments?

And second, could you please provide an update on the international strategy of Sberbank in general? And specifically, on its presence in Ukraine, in the light of the recent statements by the Deputy Governor of National Bank of Ukraine, saying that Russian banks in Ukraine should either sell their subsidiary companies, or gradually reduce assets and liabilities? Thank you.

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [3]

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Thank you very much for your question. I think that, if you speak about the special instruments which MOEX announced and we know that they tried to finish this year, this instrument, I think that it's one of the instruments and one of the challenges which we can face in the future. But in our perspective and our understanding, it will be not such a big problem for the banks.

We tried to understand how big demand this instrument [helped] by the market, but our understanding, for the short perspective in 2017 and 2018, it will be not such a big problem for our balance sheet. It cannot have a big influence on our [Ireland] strategy, and I think we must see how it will be, after the launch of this, probably, but now we are not worried about it.

About your second question, Ukraine, I think that you can understand that Sberbank, during the last two years, faced a lot of problems in Ukraine, and it was a lot of verbal aggression and the real acts against our Bank. And now, in this period of time, we are not so worried about potential Ukrainian problems, because we are well provisioned by our Ukrainian loans. Our provision which we have now is more than [75%] and now we try to squeeze our balance sheet in Ukraine.

I think that we have a good chance, end of this year, to solve our Ukrainian problem. Now we are on the way to understand the different ways how we can do it. But I don't want to announce publicly about all the opportunities which we try to understand now, because it's very sensitive information for both sides of the border.

Believe me that now we are well prepared for all the potential [variance] and I think that, in any case, the whole Ukrainian assets, it's 0.1% of the Sberbank total assets. It cannot be a big influence in 2017 or in 2018 to the Sberbank results. Thank you very much for your question.

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Armen Gasparyan, Renaissance Capital - Analyst [4]

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Thank you.

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Operator [5]

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Mikhail Shlemov, UBS.

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Mikhail Shlemov, UBS - Analyst [6]

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Congratulations on the great results, gentlemen. Mr. Gref, thank you very much for joining the call. A couple of questions from me. The first question is actually about the headlines on the Sberbank initiatives around the digital marketplaces which we have seen quite a while over the last couple of months, including the potential JV with Alibaba in Russia. Perhaps, can you share your vision what does all those plans mean for both Sberbank investors and shareholders, both hopefully in terms of the costs and revenue opportunity?

And the second question is a little bit even more longer term. Given that 2017 is your 10th year at the helm of Sberbank and, indeed, a lot of things have been accomplished, including a huge transformation, what's your next 10-year challenge for you? Thank you.

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [7]

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Excuse me, can I understand a little bit more about your second question; do you mean the challenge for me or for Sberbank or for both of us?

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Mikhail Shlemov, UBS - Analyst [8]

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Hopefully, for both of you actually, together.

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [9]

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Thank you, Mikhail, for your questions. I told you that I don't want to speak a lot about our new strategy because it will be the special subject by the end of the year. Now we are working very hard with that and I hope, by the autumn, we will be ready with our new vision for the next three years. I think that in three years, the horizon is more -- in the current situation it's more precise than the previous horizon of five years. It's very difficult to predict how the situation is going to be changed in five years. But more or less, I think that we understand the technological challenges and market trends in the next three years.

Your second question about the digitalization, how big the influence on our revenues and cost will be this year, I think that I can't explain 100%. But what I can say in the both sides, by the costs and by the revenues, it cannot be, in one year, have such a dramatic influence. We understand that during 2017 and 2018 we build our future, and we started with our digital strategy two years ago. But 2017 is crucially important for us, because many infrastructure questions will be resolved during this year.

We have different plans on building partnerships and different activities by building a Sberbank ecosystem, but I don't want to announce now the future potential deals because we are not ready with our partners of these deals. When we will be ready, many different, our plans, we will be immediately informing all of you. And I think, by the end of this year, we can give you a clear plan for the next three years.

If you speak about my and Sberbank challenges, my main challenge I think this is the digital transformation, because I think that we must move from a standalone banking business to the banking digital business and to digital [corporation]. It means that we must make a lot of changes during the next two/three years and it will be the very, very important period of time for us. We have a lot of changes on this way.

We must dramatically catch three very important measures which we think can characterize the modern high-tech company. It's measurements like time to markets, time to decision, and time to deliver. If we can have these measurements on the levels like the other corporations, like Amazon or Alibaba, I will be happy. And I can say that I will be sure that Sberbank has a great future and, for the next 10 years, maybe more.

This is a big change for all of us, and we must make a lot of changes in our culture, in our organizational structure. We must build a new competence by the whole top management team, and it's a big change for me personally, and for the whole top management team. And if you can ask me that can I have 100% guarantee on our success, frankly my open answer can be, not. But if in 2015, during our last Investors Day, when our analysts ask me about the chances on success, my answer was 50/50. But now I think that we have more than 80%/85% to achieve our very, very ambitious goal.

Now we have a more clear understanding about our goals and about the answer on the question, how? We have a good team, which have built a lot of new technological skills in our Company, and I think that we have all what we need for showing you a successful transformation. It's a very challenging situation, but it's very interesting. It's very interesting for me, it's very interesting for top management team, and we try to use the this very, very interesting [travel] in our new Sberbank future.

Thank you for your questions.

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Mikhail Shlemov, UBS - Analyst [10]

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Thank you so much.

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Operator [11]

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Ivan Kachkovski, Deutsche Bank.

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Ivan Kachkovski, Deutsche Bank Research - Analyst [12]

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My question is about your focus on cost cutting. Obviously, there is a very strong management focus on that, and we've seen different, and sometimes unclear, media reports on that, on the numbers. So I would love this opportunity to ask you if you could share with us some exact plans for your headcount reduction; if you could elaborate on maybe front office to middle to back office breakdown within that? And how this headcount optimization overall plays into the overall modernization of processes in Sberbank? Thank you very much.

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [13]

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Thank you for your question. We have given efficiency targets to you, including on cost of income ratio, and we said that it will be of middle to high 30%s. And our operational expense growth of below inflation. You can understand that for me, as CEO of the Company, this question's very sensitive. And if we touch some detail for this very -- understand that it's a very important position for you, but if you touch more details on that, it will be very sensitive for the whole team. And each period of time if we try to express something more detailed, we get a lot of comments and [emotions]. And I would like to say excuse me, but believe me, we will deliver this very, very ambitious numbers which we give you, but I don't want to open all details of this process.

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Ivan Kachkovski, Deutsche Bank Research - Analyst [14]

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Understood. Thanks very much.

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Herman Gref, Sberbank Rossii OAO - CEO & Chairman of the Board [15]

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Our dear shareholders, or dear investors, thank you very much for your questions. I will leave you, and my colleagues, including our CFO, Mr. Morozov, for answers to all your questions. I look forward to our next earnings call. In the meantime, I would like to say, keep calm and buy more Sberbank. Thank you very much for being with us, and thank you very much for your kind words.

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Jyrki Talvitie, Sberbank Rossii OAO - SVP, Head of IR [16]

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Thank you, Mr. Chairman. I will now turn over the floor to Alexander Morozov, CFO and Deputy Chairman of the Management Board, for a short statement, before taking questions.

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Presentation

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [1]

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Good afternoon, everybody, from myself as well. I'd like to touch upon a couple of key points in our results. Net interest margin, credit quality and cost of risk, fixed cost revaluation, and some changes in our -- [I give a] breakdown of our corporate loan structure. First of all, net interest margin.

I have to say that growth of our net interest income was mainly driven by the Bank's ability to significantly lower the cost of liabilities, as a result of active management of our funding mix, and increased market shares, specifically retail deposits and current accounts.

As a result, our net interest margin improved to 5.7% from 4.4% in 2015. Also, we expect interest rates to start declining this year. We still see our cost of liabilities improving as, first of all, deposit rates will continue to decline and, secondly, our balance sheet currency mix will continue to shift towards rubles.

I have to say that, if, at the beginning of the year our currency mix [in our assets] liabilities used to be something like 39% in American dollars and euros and other currencies, and the remaining part in Russian rubles, yearend, we finished with 36.2% American dollars and euros, and the remaining part, so almost 68%, denominated in Russian rubles, which is quite a big change.

To cut a long story short, I expect that we'll be able to maintain a stable margin for the year, as we promised you in our guidance announced in late December last year.

Second point, credit quality. As already mentioned by Mr. Gref, our Chairman, our credit quality is improving. Our non-performing loans declined from 4.9% to 4.4% during the fourth quarter, due to the combination of improving quality, first on the left hand, and [some] write-offs on the right-hand. As a result, our non-performing loans coverage increased to 157%.

Our restructured loan portfolio was slightly up in the fourth quarter, but it showed a decline of 2% over the year. As a result, the total provision coverage of non-performing loans and restructured loans increased from 73% to 75%.

In the fourth quarter, our cost of risk was down [180] basis points, with especially retail recording a very low [precarious] level of 55 basis points. There is, however, fourth quarter seasonality effect here is that many customers receive yearend bonuses and use them to pay back their loans. We were also helped by the appreciation of Russian ruble, which lowered the corporate cost of risk from 172 to 147 basis points in Q4. Annualized, our cost of risk in 2016 resulted in 177 basis points, compared to 254 basis points a year earlier.

I have to say that result, in effect from ruble appreciation, our cost of risk would have been around 200 basis points, just in line with our initial guidance.

And to complete this section, I have to say that for year 2017, we confirm our guidance of 150 to 170 basis points.

Next topic, in relation of our office premises. During our second quarter 2016 conference call, we announced that we would conduct an evaluation of our office premises at yearend 2016, and would reflect it in our annual accounts. We did it, and it resulted a negative effect on our net assets of RUB31.7 billion. Out of this amount, RUB25 billion was posted through our profit and loss accounts, and RUB6.7 billion through capital accounts. This was fully in line with the guided amount which we indicated, roughly RUB30 billion, so just in line.

Last, but not least, we continue to strive to improve our regular and transparent communication with the market. I'd like to remind you now that in the [fourth] quarter, we improved our asset quality reporting by giving more details about our restructured loans portfolio, and split for restructured and modified portfolio. And now, today, we improve (inaudible) our report by providing more details on our corporate loan sector breakdown.

I'd like to address you to the page 21 of our presentation, which is posted on our site, and, basically, it's more detailed. The main change in today's update is the result of breaking down our services sector into the actual underlying sectors. I hope you'll find it useful.

And finally, as you know, we released our guidance for 2017 in December. And as of now, we have just to confirm that guidance. We have no new arguments to amend it now. We remain confident that we'll be able to achieve all earnings targets. But at the same time, I keep all options open and say, if something changes in our view, in our assumptions, we'll definitely let you know when we present our first quarter or second quarter results.

Having said that, I'd like to thank you for being with us today. And I'm happy to take your questions. Alexander Vedyakhin, Head of our Risk Management, Chief Risk Officer, he'll give you more details, if you have any additional questions with regard to credit quality, cost of risk, and our corporate credit portfolio. [He has all the details]. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Andrzej Nowaczek, HSBC.

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Andrzej Nowaczek, HSBC Global Research - Analyst [2]

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A couple of questions. One is on your new exposures classification. What is really behind this change, and is the new disclosure more comparable or less comparable to what other banks report? It appears that metals and real estate are now the two biggest sectors; would you agree that they also happen to be the two riskiest sectors that you have? Thank you.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [3]

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Thank you very much for your question. Actually, I can say that sectoral breakdown is really [-- shows] the sectoral breakdown of Russian economy. And they are very similar actually to Russian economy as the biggest bank in Russia. And because of this, we can't say that they're more larger in the sector; there are more potential issues we could have there, that's not correlated.

On another hand about comparison to other banks' reports, I can say that we hope it's useful for you and that's all. We are not comparing with other banks, our main goal is to provide for you as much comfortable information as we can.

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Andrzej Nowaczek, HSBC Global Research - Analyst [4]

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Okay. And my other question is on insurance and pension funds. You highlighted in your press release saying growth in net income was 63%, but when you look at it closely, premiums actually declined by 13%, and the growth was due to a change in technical reserves. Why aren't gross premiums increasing?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [5]

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Our assets in our pension funds are by 51%, which is in Russian rubles something like RUB176 billion. As a result, we booked much better results on both sides of our pension funds and banking side related to those activities as well. So altogether, our pension funds of Sberbank earned something like RUB400 million -- sorry, RUB6.6 billion last year, which is a big difference versus the previous year.

We believe that, this year, we will end up with the biggest pension fund in Russia. And we believe that, with the growth of related fees and commissions and management fees, that's sustainable, but just the beginning of the serious and much more sizeable business within the next couple of years.

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Andrzej Nowaczek, HSBC Global Research - Analyst [6]

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Perhaps this item that's described as insurance and pension funds is mostly insurance really; would you have figures for the insurance bit on a standalone basis?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [7]

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With regards to pension funds as well as insurance, a lot of technical details with regard to the reflection of the full profit and loss results, and we will be more than happy to provide you with more detailed answer and show it in numbers in offline after this call.

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Andrzej Nowaczek, HSBC Global Research - Analyst [8]

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Thank you very much.

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Operator [9]

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Alan Webborn, Societe Generale.

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Alan Webborn, Societe Generale - Analyst [10]

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Now you've had a couple of months of 2017, and I guess a fair amount of contact with large corporates, I remember back in December you were really very cautious about investment in capacity in terms of the appetite for Russian corporates to invest. Is that something that you see, as we keep hearing that the Russian economy is turning a corner and things are getting better, do you see in those discussions any improvement, any more optimism coming through? That would be interesting to hear what you think on that front.

And I guess secondly, we understand why you take a cautious approach to dividends, and you've taken a cautious approach to Basel II, and so on, but clearly, on the basis of your guidance for 2017 on moderate loan growth, you're going to be generating an awful lot of capital in 2017. Do you think, by the end of 2017, you'll be in a comfortable position with all these regulatory changes in place. Is that what you feel, or do you think that your caution and your need to build capital will continue through into the coming years? Thank you.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [11]

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If I understand you, you raised two main topics. First of all, our view on the developments we see of corporate lending portfolio. And secondly, capital topic, to what extent we feel ourself comfortable with our capital liquidity ratio, with capital generation, and whether it is in line with our initial guidance and assumptions or not?

I can say that, as of now, we still need good quality demand from corporate side and that's why we are very cautious on our promises. So that's why we do not change our estimation, our guidance for the full year. Year has just started, we have two months up to now, and seasonally January and February, because of public holidays, practically [half month] in January and four days in short month February, so seasonally that's quite low period.

Looking forward, we believe that taking into account amount that's forecast for Russian GDP growth, recently announced by Russian Ministry for Economic Developments, increased up to 2%. And looking at the quality on corporate side and customer side, we believe that's bottom was touched already and we on the way to recovery; recovery not only in terms of quality, but also in terms of risk appetite.

Hence, we'd like to hope, but second half of the year, in second quarter, we will see better quality, higher quality demands. So that will give us more grounds, more arguments to substantiate on that topic when we present our first quarter result in late May. And say again, as of now, we have no reasons to amend our initial guidance.

With regard to the second part of your question on the capital, I'd like to remind you that, this year, we have to prepare the Bank for IFRS 9 implementation. [That's news to us]. Also, we keep in mind transition to Basel II, which is also quite costly exercise, at least because of the inclusion into the calculation of operational risk. And the operational risk standardized approach assumes 10% of your revenues to be allocated for operational risk, which is quite heavy in our case.

And taking into account also growing requirements, regulatory requirements, set by Russian Central Bank, with regards to the minimal capital ratio for Core Equity Tier 1 and total capital ratio, and according to Basel III implementation, we, as of now, feel ourself quite comfortable. But nevertheless, this is [normal] comfort and we do not see, not feel an excess of capital as of now.

I'd like to remind you that our Russian Central Bank will increase, will continue to increase, additional consideration buffer from January 1, buffer for systemic importance and countercyclical buffer. And to provide you with additional information, we will add it on our presentation, all the details about the requirements of Bank of Russia, with regard to implementation of Basel III, year to year.

And what's altogether if you take all these factors into account, I hope you understand my position, we prefer to be on the conservative, on the safe side. And we want to be adequately prepared for all sorts of challenges, all sorts of volatilities in the market, which might happen, and to have enough capital on side.

When we complete all requirements to get through IFRS 9, and we are going to come back to our initial guidance in that respect when we present our second quarter results in late August, when we complete the transfer to Basel II and the final date will be defined in the second quarter and will be announced either in late May, when we present our first quarter result, or when we present second quarter results in late August, and when we have more certainty about the volatility of foreign exchange rate, which is very important for us. Just for your understanding, our volatility of RUB10 per $1, not influenced on my capital adequacy ratio is more than 60 basis points. That's quite a lot.

And so when everything is in place, we will definitely come back with our updated view and guidance with regard to the capital, and our visions for capital adequacy ratio for all related topics. Thank you.

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Alan Webborn, Societe Generale - Analyst [12]

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Thanks.

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Operator [13]

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(inaudible), JPMorgan.

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Unidentified Participant [14]

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Congratulations on great result. Your Tier 1 capital increased significantly by yearend, contributing for a Tier 1 ratio over 12%. It was claimed before that management sees an opportunity to increase dividend payout in the following years, once Tier 1 ratio reaches the comfort zone of 12%. So my question is, does the management consider dividend payout increase in the next dividend season?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [15]

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This question was already addressed by Mr. Gref in his statement and it's partly addressed also in my previous response to the previous question. We always mention that we have to be compliant there in the foreseeable future with all the regulatory requirements in Russia and according to international IFRS requirements including, but not limited to, IFRS 9 and Basel II.

So in that respect, we are not yet at that stage. We will come back to the topic when we have more certainty. As of now, we have not enough arguments to change our approach towards our dividend policy, as it was already outlined by Mr. Gref.

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Unidentified Participant [16]

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Okay. Thank you.

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Operator [17]

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Gabor Kemeny, Autonomous Research.

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Gabor Kemeny, Autonomous Research - Analyst [18]

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My first question is on the margin guidance. You guide for a stable net interest margin this year, which I assume presumes a pretty significant decline in your net interest margin over the course of this year. I guess this would be driven by lower asset yields; still we see asset yields being stable or actually increasing in the corporate segment. So can you elaborate a bit on what makes you so cautious around your asset yields going into 2017?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [19]

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We do not exclude, and I would say we expect some reduction for the margin on asset side; first of all the corporate side but not only. Retail side as well, gradually asset side margin will go down. It will be offset, at least we expect to be offset by better liability structure, mix of our liabilities, and growing volume of [considerable] contractual maturities, cards and settlement accounts and, say, better structure for our working assets.

If you look at the page 19 of the presentation, you may notice that our share of interest earning assets in the Group's total assets increased by more than 5 percentage points during the year. So we optimize our assets and liabilities management. We undertake all necessary steps to manage our margin but, at the same time, taking into account the expectation [of the asset side] reduction, decline, I think it's already mentioned, the guidance, and you can see there's almost as a promise it's already not very conservative.

It's already quite ambitious but it's a very big challenge for us and for me as Chief Financial Officer of the Bank. So I think if you look at our margin, where you see a 5.7%, it's a big challenge to preserve the margin this year at that level. Definitely, I'm not in a position to promise more.

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Gabor Kemeny, Autonomous Research - Analyst [20]

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Okay. And the other couple of things on the capital, so on the Basel II switch, I think you previously mentioned an up to 1% impact on your capital ratio; is this still relevant? Is this estimate still a good proxy?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [21]

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We always mentioned that it will be an effect posted, not at once, but over a period of time, up to three years. And in that respect our previous guidance, with regard to total positive effect, we keep unchanged. But, at the same time, as you see, the timing of transition towards that approach is postponing and we expect the final decision from Central Bank of Russia in that respect later this year. Definitely, the positive effect will be reflected just partly this year and fully over the next couple of years.

Alexander Vedyakhin will add something on the topic.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [22]

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Actually, this is about IRB. Yes, we expect to receive our IRB license from the Central Bank of Russia in 2017. And as Alexander absolutely correctly mentioned, the results we will see as one-off effects, so in 2017, and afterwards, in the next years, as usual actually as Sberbank, we will see improving results. But we have to mention those results will be according to Russian accounting standards. Thank you.

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Gabor Kemeny, Autonomous Research - Analyst [23]

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I see, so there's not a direct read-across to IFRS?

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [24]

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Not in this year at least.

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Gabor Kemeny, Autonomous Research - Analyst [25]

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Okay. And just finally on your preference shares, can you give us a sense whether this is now classified under Tier 1 capital? I mean under IFRS.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [26]

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Sorry, I didn't get the question. With regards to preferred shares, yes, they are classified as Tier 1 but not as Core Equity Tier 1, which is important for us.

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Gabor Kemeny, Autonomous Research - Analyst [27]

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Okay. And do you think you will lose the eligibility in Tier 1 capital once you switch to Basel II?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [28]

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I do not expect any changes in that respect, because already Basel I doesn't distinguish Tier 1 and Core Equity Tier 1. So when we report Tier 1 and Core Equity Tier 1, we report already according to Basel III. And Basel II also assumes that possibility of inclusion of preferred shares into Tier 1 but not Core Tier 1. So in that respect, we report more than just Basel I today.

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Gabor Kemeny, Autonomous Research - Analyst [29]

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I see. Thanks very much.

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Operator [30]

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Armen Gasparyan, Renaissance Capital.

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Armen Gasparyan, Renaissance Capital - Analyst [31]

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Mr. Morozov, would you mind sharing the sensitivity of provision charges to the FX rate? I guess the impact on the corporate provisions was pretty big for what was a 4% ruble appreciation in Q4? That's the first question.

And then on the margins, is the much anticipated increase in the Fed rate is going materially affect your funding costs, given the still big portion of fixed denominated corporate deposits?

And my last question, on the recent CBR regulation about applying increased risk weights to launch with higher full cost of credits, do you think it's going to have a big impact on the consumer credit market, and what implications you expect for the competition in that regard? Thank you.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [32]

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Thank you very much for your question, Armen. Actually, here is Alexander Vedyakhin, let me answer about cost of risk and impact cost of risk has because of ruble growth. Actually, the impact is 25 basis points in terms of our core for fourth quarter 2016 and 22 basis points in terms of full-year 2016. This is effect of the FX.

The third topic about the changes in SBR, actually there are some information we received also from Sberbank, Central Bank of Russia, talking about changes in risk-weighted assets, but we have always such kind of talks. Anyway, we don't see any significant impact of any initiative of Central Bank of Russia, at least at the moment, so don't worry.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [33]

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And with regard to the margin and implication for us from potential forthcoming decisions from regulation on rates, I have to say what's a specific structure, a repricing structure of our assets and liabilities, makes us positively exposed to potential hike of American dollars and a potential reduction of interest rate of key ruble rates. So in case of reduction of the ruble rate, key rate, or in case of increase of American dollars rate, we are benefiting.

And sensitivity of 100 basis point shift is above RUB20 billion for a 12-month horizon. So from that perspective, we believe that our forecast announced in December, and confirmed today, with regard to the margin, is adequate and includes possible changes in the interest rate policy by rate setters.

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Armen Gasparyan, Renaissance Capital - Analyst [34]

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Thank you. Could I clarify, the positive exposure to increasing FX rates, is it because most of loans are linked to LIBOR or similar benchmarks?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [35]

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Our assets reprice faster in dollars than our liabilities and vice versa on the Russian ruble. So we have a shorter term repricing of Russian rubles on our assets and a longer term repricing of our -- and it's vice versa on American dollars, so that's how we treat it.

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Armen Gasparyan, Renaissance Capital - Analyst [36]

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Okay, thank you. Just one more question, if I may? In the light of this long awaited consolidation in the Russian banking sector, which have been happening over the past couple of years, I was also wondering if Sberbank has any plans or any appetite to be part of this process? Thank you very much.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [37]

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To save your time, a very short answer, no.

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Armen Gasparyan, Renaissance Capital - Analyst [38]

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Thank you.

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Operator [39]

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Olga Veselova, Bank of America Merrill Lynch.

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Olga Veselova, BofA Merrill Lynch - Analyst [40]

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My question is about staff costs. I appreciate that the CEO wanted to avoid discussion about the potential reductions in future years, but let me phrase it differently. Do you have platforms in place to replace workforce or further investments will be needed, in your view?

The other question here would be, when you reduce staff, do you make extra payments or these payments are zero because these cuts are through attrition only?

And, finally, when you mad announcement about planned staff cuts in December, do you take into account social environment here when you make plans about staff reduction or does it matter for you, is it pre-election year or not? Or you don't take this into account? Thank you.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [41]

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We continue to invest into our efficiency and into our processes. I do not [open secrets] but since the very beginning we were keen to increase atomization of our processes and we launched the culture of LEAN. Toyota production system initially and calls bank production system when LEAN, [that means once are the tactics] were in place. And year after year we worked on build up of this efficiency increase and efficiency culture.

So as a result, we implemented a number of technological solutions up to date which allow us, and will allow us in the future, to continue to improve the efficiency on a sustainable basis. That's why Mr. Gref pointed out that, this year, we are going to achieve even more impressive results with regards to cost to income ratio. And if you take into account that more than 50% of our cost related to compensation benefits, that's an answer. And definitely we undertake all necessary steps and we follow all necessary procedures to do it in a very smooth way.

[We have very] quite normal but, anyway, relatively big attrition rate because of the scale, because of the big retail franchise and a number of (inaudible) with high attrition rate like core standards and so on, which will help us to pass through this period without big social turbulence. And taking into account Russian labor court and Russian regulations, I would not expect substantial growth of the related expenses on compensation benefits.

For sure, what is important for me as CFO of the Bank is sustainability. The absence of what we call hockey stick; when we deliver on a sustainable basis month after month, quarter after quarter, expected results and we work on efficiency, hence we undertake small steps on a consistent basis. So it's not yet an end to that journey and, later this year, we may return back to our efficiency guidance but, as of now, it's maximum we can say on that topic.

And I hope you understand our position. Mr. Gref partly, I would say, addressed the topic and with this question I have nothing more to add.

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Olga Veselova, BofA Merrill Lynch - Analyst [42]

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Yes, I understand. Thank you. My other question is about your risk-weighted assets. We are pleased to see the reduction of risk-weighted assets to total assets ratio; can you tell us which measures you have taken to do this? And do you see ability to continue using these measures, i.e., to cut this ratio further?

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [43]

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Olga, thank you very much. First of all, that's improving in the quality, and second issue could be a volume in some cases but, first of all, this is about quality of our assets.

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Olga Veselova, BofA Merrill Lynch - Analyst [44]

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Yes, and when you say volume, what do you mean?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [45]

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Reduction of our corporate portfolio last year also helped us to reduce risk-weighted assets as well. Looking forwards, some improvements of credit rating compression figuration potential or stabilization of the credit rating of what we witnessed now, definitely will help us to preserve this positive trend. And we believe that, even today, the calculation of risk-weighted assets is a relatively conservative one.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [46]

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And actually, following the words of Alexander I can say that there are different types of assets with different types of coefficient for risk weight. For example, consumer credits are much heavier, so to say, in terms of RWA as mortgage, for example. And mortgage is growing in our balance sheet, you can see, and the portion of mortgage is growing is in our balance sheet because of this. Now other kinds of credits, especially retail credits, are decreasing because RWA is changing as well in positive direction for us.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [47]

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And also we have to take into account, and to keep it there, that still we are living in very unpredictable macro environments, political environments, I mean the world. And we never know what to expect from smaller -- where will be oil prices the second half of the year, what might happen here and there. And we do not know exactly where will be foreign exchange rate as a result of all these volatilities, and foreign exchange rate seriously affect our risk-weighted assets, as you might notice from our numbers once again.

I have already mentioned that number but nevertheless, change of RUB10 per $1 of foreign exchange rate means, for us, almost 70 basis points in terms of capital adequacy ratio. That's why, again this is another argument, why we keep our guidance now and we stay with our existing dividend policy.

We have to be on the safe side, especially taking into account that, for some strange reasons, Sberbank is still on list of sanctioned institutions. Do not ask me why, but nevertheless, it's matter of fact and definitely it's reflected in our guidance as well. So we need additional caution on our side to assure, let's say, no matter what happens in the market, we are adequately prepared for the turbulence, for volatility, and we have enough ammunition pockets to address all these challenges and deliver our promises.

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Olga Veselova, BofA Merrill Lynch - Analyst [48]

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Thank you. And my last question is a technical one; is it fairly easy to apply your model used for IRB approach in [RAS] for IRB in IFRS, or it's a complicated task?

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [49]

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So it's actually possible that what's we will do, but you're absolutely rightly mentioned, Olga, this is more a technical question. There are a lot of technical work to [reload] RAS IRB models to IFRS IRB models. We will do this, but unfortunately not on this year.

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Olga Veselova, BofA Merrill Lynch - Analyst [50]

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I see. Thank you.

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Operator [51]

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Yulia di Mambro, Barclays.

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Yulia di Mambro, Barclays Investment Bank - Analyst [52]

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I just have a few follow-up questions, please. So firstly, on capital, can you please remind us if the decision to switch to Basel II, is that driven by you or did the Central Bank of Russia ask you to switch? And do you expect other banks in Russia to switch to Basel II this year as well?

And, as far as I understand, the impact on your capital ratios from the switch is going to be in the region of 200 basis points, that's based on your 2017 outlook guidance that you gave earlier in the year where you said that you plan to, so you target a Core Tier 1 ratio under Basel I of around 12%, and a Core Tier 1 ratio under Basel II of 10%; if you could please confirm that?

And also, what would be your longer term aspiration for your Basel II Core Tier 1 ratio; would it still be around 12%, which is where your European peers operate, or would it be at a lower level?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [53]

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Thank you very much for the questions. We want to achieve Core Equity Tier 1 ratio at a level adequate for our situation, and no less than similar banks of similar size and importance, similar rating in the world, at least in Europe. And from that perspective, we have yet to [go a long way]. We have yet to finalize our calculations of the implication of implementation of IFRS 9 and, when it's done, we'll take final decision about the timing of implementation of Basel II. Decision is on our side, but in order to be treated properly like our peers, leading European banks and world banks, we naturally have to do it sooner or later.

Our decision about the timing will be taken when all other effects from IRB [approach] implementation from IFRS 9 from new regulatory requirements, Basel III, will be calculated, and that will give us more ground for decision. So I hope that we'll announce a timetable of the transition later on this year, no later than we present our second quarter results, late August, maybe earlier.

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Yulia di Mambro, Barclays Investment Bank - Analyst [54]

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Understood, thank you. My second question is on the litigation cases that you are currently facing. So there has been a number of press reports about the different cases that you are facing, particularly in relation to FX derivatives; if you could please remind us what those are and what are your expectations regarding resolution there? Do you think you will need to make any additional provisions?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [55]

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With regard to these cases, all the information I can disclose now are already given in our statement. We have nothing to add to that. It's a very sensitive topic and I have nothing to add, sorry.

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Yulia di Mambro, Barclays Investment Bank - Analyst [56]

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Okay, no worries. And my last question is on your restructured loans; so there was a small pickup in the fourth quarter, can you tell us more about that and which ones were, was it new loans or was just the impact of FX?

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [57]

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So the reason is some increase in restructuring in DenizBank. As we talked with you this year, I mean the previous year, 2016, was really difficult for DenizBank because of tourism industry and so on, and because of this we made quite a lot of restructuring based on regulations. And you can see the small pickup because of this. As you very well know, the regulator of Turkey allowed banks to do restructuring in good favor of clients, because of the situation Turkey has had previously. Now it seems better, and we think the situation will improve.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [58]

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Nevertheless, we are very proud to follow with results of our Turkish Bank, DenizBank. They posted very good results and very good return on equity last year. It earns more than RUB38 billion in equivalents last year, and with return on equity about 17%. So that's very decent result, and we believe that this is sustainable. We have self-sufficient tranche of capital, self-sufficient tranche of funding, and we are very proud of the activities and their performance.

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Yulia di Mambro, Barclays Investment Bank - Analyst [59]

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Great. Thank you very much.

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Operator [60]

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Mikhail Shlemov, UBS.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [61]

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Mikhail, just before you -- I would like to just say that if we could keep it to one or two questions, as we're starting to run out of time. Thank you.

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Mikhail Shlemov, UBS - Analyst [62]

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I have just one question. I would like to actually explore a little bit of the numbers behind the -- to do with the guidance for 2017, because it seems like too many things going on in 2017 which could impact [that]. Perhaps you could break your cost of risk guidance between, let's say, the Sberbank core Russia operation, because it's obviously the area where you see improvement in the asset quality trends. Perhaps input from the overseas subsidiaries, especially DenizBank, would be interesting, on whatever you expect to create more provisions and what impact it would have on the Group cost of risk?

And any IFRS 9 effect, if it's any in? Thank you so much.

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Alexander Vedyakhin, Sberbank Rossii OAO - Chief Risk Officer [63]

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Mikhail, thank you very much question, actually. As usual, very interesting. So about cost of risk breakdown, in our estimates it's a little bit too complicated, I can say, to share it openly. I can say that all potential effects we could have on DenizBank side, or in Russia, are already in these figures what we have, 150/170 basis points as cost of risk estimates.

There is nothing special we could add on top of it. Actually, as general statement, I can say that we think that our portfolio will be stable in terms of quality, with some improvements. And actually you will see cost of risk approximately on these figures.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [64]

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As we have already mentioned at the beginning of our conference call, as of now we do not have any new arguments to amend our initial guidance for the full year. Just two months [left] since the beginning of the year. And the earliest time we may appear with some amendments of our assumptions, and as a the result amendments of our guidance, at the presentation of our first quarter results, that's late May, that's earliest day when you may [amend a little bit] previously announced numbers.

As for the implication of IFRS 9, like we already mentioned, the earliest day we make [refining more] and substantiate on the preliminary expectations on the range of numbers, that's presentation of our second quarter results in late August.

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Mikhail Shlemov, UBS - Analyst [65]

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That's clear. Thank you very much, gentlemen.

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Operator [66]

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Maria Semikhatova, Citi.

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Maria Semikhatova, Citi - Analyst [67]

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I have couple of questions regarding your fee income. I realize that full-year dynamics in 2016 was affected by the base effect on operations and foreign currencies. But given that you reiterated your guidance in the middle of December, I was just wondering what actually surprised you, that drove the miss on fee income line, and that kind of general view on fee income?

And more specifically, I see that there has been a slowdown in fee income from cash and settlement transactions with individuals, and given that Mr. Gref suggested the number of transactions and acquiring business volumes are picking up, is it fair to assume that the Bank actually decreased pricing for retail clients, or can you confirm if that was the case?

Also, I understand it's not that material, but I was wondering why agent commissions dropped in the fourth quarter. And in light of dynamics of fee income and of in the fourth quarter, what makes you comfortable with the projected growth in 2017?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [68]

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I'll start your second part, so if you look at the page 13 of the presentation, you may find that, quarter to quarter, we posted growing fees and commissions related to cash and settlement transactions with individuals, from RUB22.5 billion a quarter, first quarter 2016, to RUB29 billion a quarter in the fourth quarter. So I do not see any drop in that respect, that's sustainable. And we are always on the customer side, that's why we do not increase our commissions, but periodically, we reduce our commissions and we are compensated by greater volumes of transactions. And that's the basis of the development of the ecosystem.

Looking forwards, I'm absolutely appreciate and convinced that it is sustainable and we may expect further growth at more or less the same pace showed the last year with regards to this specific item, cash and settlement transactions with individuals. I'm not expecting a change of the trend.

As for fourth quarter overall fees and commissions, a substantial ruble appreciation in December to some extent affects, let's say, our fees and commission reported in the fourth quarter, plus some seasonality which also happens in the fourth quarter, so no major other things to point out.

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Maria Semikhatova, Citi - Analyst [69]

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I see. And on agent commissions that you include in this, sorry in fee income?

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [70]

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We sell more and more of products designed and produced within the Group of Sberbank. As a result, as we sell less priority products, insurance products, we get less agent commissions. But at the end of the day, the total profitability of the related business on a Group level is greater for us, as you may imagine. Our insurance business is growing up. I got as a takeaway point from this conference call today the necessity to add more clarity on our insurance and pension funds business. We'll add it in due time during the year. It will be one of our next stages of additional transparency increase and additional maybe slides to the presentation, so point is taken.

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Maria Semikhatova, Citi - Analyst [71]

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Okay. Thank you.

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Operator [72]

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There are no more questions on the English line. We are now switching to the Russian line to take questions in Russian.

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Unidentified Company Representative [73]

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(interpreted) We will continue our session of question and answers in Russian.

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Operator [74]

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(interpreted) (Operator Instructions). (inaudible)

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Unidentified Participant [75]

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(interpreted) Sberbank showed an decrease in provisioning with 28% in IFRS. Is this going to continue in 2017? And maybe you will have a forecast on this indicator for this year and a forecast for the net income of the Bank for 2017. Can you voice that?

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Unidentified Company Representative [76]

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(interpreted) We are not changing our forecast that we made in December last year. They are in our presentation. And in terms of cost of risk, we specified 150 to 170 basis points in our strategy. We have that the cost of risk will be about 180 basis points and in that respect, we are consistent with all our previous forecasts and guidances.

As to the net income, forecast traditionally as the majority, if not all banks, we're not giving these forecasts in absolute terms. We're just giving forecasts on the ratios which are enough to form the analysts' models. And no new information I can provide in addition to that declared in December.

And in terms of provisions, the main effects that contributed to that was FX, the strengthening of the ruble, seasonality in retail, regulation of a number of a problem cases and generally good quality of the credit portfolio that Sberbank has.

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Unidentified Participant [77]

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(interpreted) Thank you.

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Operator [78]

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(interpreted) Ekaterina Belkina, Interfax.

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Ekaterina Belkina, Interfax - Media [79]

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(interpreted) I have a couple of questions. Question number one relates to headcount, but not about the shrinking of the headcount but the indexing of the salaries. It was declared that there would be indexing in the second half of the year; how much will this cost to the Bank?

And second question, Sberbank announced that in February or March, it will issue structured bonds for RUB1 billion. So is this issue going to be? When and where and to which these bonds will be linked?

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Unidentified Company Representative [80]

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(interpreted) Well, we can't add anything to the things that were declared before. They were all made by Mr. Gref, not any new information on that. We review all options, so if we take the final decision, when we take it, of course, we will inform you and inform our employees on that.

In terms of structured bonds, yes, the probability of their issue in the near future remains. This is a new product which we are putting into the market; that's why the volume is rather low. So we should understand how much the demand is and so you can call it a pilot issue. After the results of the structured bond issue, the dates of which will depend on the market environment, which is hard to predict, as to the result, we'll take the decision on the further development of this type of product. This is all I can say right now.

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Operator [81]

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(interpreted) (inaudible), Russia Today.

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Unidentified Participant [82]

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(interpreted) I have a question relating to the headcount of Sberbank. So in terms of IFRS result, it contracted by 5,600 and by Russian standards by 5,200. What I wanted to specify that does it mean that Sberbank was hiring people especially in subsidiaries? Can you give us a breakdown in international business, Ukrainian and Russian business?

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Unidentified Company Representative [83]

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(interpreted) Yes, actually if you look at the slide 17 on the presentation, it's clear that there was a certain increase in headcount in our subsidiary companies and banks. But not just foreign business, we're talking about subsidiaries, Russian subsidiaries specializing in technology.

As you know, at Sberbank we have Sberbank technology and other subsidiaries specializing in important technical areas and they're leaders in this area. And so the Bank continues to increase the headcount of key specialists important for the future of the Bank, such as data scientists and data analysts, everything related to the process of automation and digitalization.

We're also increasing the efficiency, thanks to cutting the costs, cutting the compensation benefits for the areas that have been automated. At the same time, we increased our resource for our problem areas and this is not a piece of news really because we have talked about that last year. We're going to continue on that trend.

At the same time, it does not change our general forecast at all in terms of the opinion, in terms of our cost to income ratio and we're going to improve that ratio. We are going to actually make it even more sustainable in accordance with the requirements of time, with the environment and with the competition that we face.

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Unidentified Participant [84]

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(interpreted) Can I just say, perhaps Sberbank has some guidance in terms of the headcount optimization?

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Unidentified Company Representative [85]

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(interpreted) We do not publish such guidance. We give guidance on cost to income ratio and we think it is much more important because we are a responsible employer. We do not make a goal to decrease the headcount of the Bank just for the sake of it, no.

We think that our goal is to deliver to our employees the possibilities for retraining and the possibility to get a new profession. And they need to be able to contribute to develop the ecosystem of Sberbank. And in this case, I would like to say that it's not the headcount that is key for us, and we do not actually have it in the guidance, but productivity and efficiency.

If a bank can increase efficiency and productivity, quarter by quarter, and deliver good financial results that means, I think, that is something that is much more relevant for investors. And it's not the optimization of the headcount which is important for investors, but these indicators.

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Unidentified Participant [86]

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(interpreted) Okay. Thank you.

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Operator [87]

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(interpreted) (Operator Instructions). [Pilova], Interfax.

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Unidentified Participant [88]

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(interpreted) I would like to ask as Sberbank has demonstrated a record breaking net profit. Now, about your active programs, wouldn't it be a signal, a message, to change this program or to expand it really?

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Unidentified Company Representative [89]

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(interpreted) Sberbank has not changed its options or programs. It has increased the number of participants last year. We have actually talked about that after the results of the Supervisory Board meeting. Therefore, there are no changes that are going to be in the nearest future to that end.

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Unidentified Participant [90]

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(interpreted) Thank you.

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Operator [91]

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(interpreted) Ladies and gentlemen, there are no questions and Mr. Morozov now has the floor for his final remarks.

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Alexander Morozov, Sberbank Rossii OAO - Deputy Chairman of the Board, CFO [92]

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(interpreted) I would like to thank everyone who was with us on this conference call. Four or five minutes ago, a call for the [MICEX] has started. It is of much interest for us, because we are one of the major shareholders there and we are going to participate to that call as well, so please stay with us. I do hope that you liked that conference call and you liked the results. We'll try to do our best to make sure that we will continue to satisfy you. And I wish you all the success.

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Operator [93]

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(interpreted) Okay, ladies and gentlemen, that means that our conference is adjourned. You can now disconnect. The conference is adjourned. Thank you.

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Editor [94]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.