Sberbank’s expenses for doing business at the end of 2023 increased by a quarter
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Sberbank (MOEX: SBER) significantly increased operating costs for doing business: at the end of 2023, they increased by a quarter, to 840 billion rubles. The bank itself claims that it actively encouraged employees and launched “various projects of a new strategic cycle,” including the development of artificial intelligence. Experts note that given record profits, the largest Russian banks can afford not to seriously think about the expenses on which they actively saved in 2022.
Sberbank published reports under RAS before events after the reporting date (APD), according to which operating expenses amounted to almost 843 billion rubles, an increase of 25.7% compared to 2022. In the bank’s statement, the growth is explained, among other things, by the effect of the low base of 2022 (670 billion rubles), when a large-scale anti-crisis program to reduce costs was launched. At the same time, the bank’s expenses for 2023 were 19.3% higher than those for 2021.
Operating expenses account for expenses associated with running a business, excluding provisions for credit losses. Operating expenses of Sberbank in 2019–2020 amounted to 621–649 billion rubles, and in 2016–2018 did not exceed 600 billion rubles.
According to the head of the financial block of Sberbank, Taras Skvortsov, a significant contribution to expenses was made by the indexation of salaries and the increase in employee bonuses. He explained that part of the remuneration of almost all bank employees “to a certain extent is tied to net profit.” “In the context of such a large net profit (RUB 1.49 trillion, almost five times higher than in 2022— “Kommersant”) the amount of remuneration in this part has also increased significantly,” noted Mr. Skvortsov.
In addition, the top manager clarified, various projects of a new strategic cycle have been launched: “This concerns artificial intelligence and new products. We did not wait to discuss the strategy, we did not wait until the beginning of 2024, but made all decisions in the second quarter of 2023 and began to actively invest.” He expects that such a solution will allow him to quickly show the results of his investments.
Banking expert Olga Ulyanova believes that the scale of the increase in Sberbank’s costs “does not look unexpected in light of both high inflation in 2023 and the deep transformation of many business processes in response to sanctions pressure.”
The ratio of operating expenses to operating income (cost-to-income, CIR) for Sberbank for 2023 was 24.9%. According to the Central Bank, at the beginning of October, the average CIR for the market was 31%, and at the beginning of the year it even exceeded 50%. At Sberbank, says Olga Naydenova, senior analyst at the Sinara investment bank, CIR under IFRS has historically not been lower than 30% (taking into account the fact that foreign businesses were more costly than Russian ones) and even under RAS exceeded 25%. This means, the expert emphasizes, that expenses are still growing more slowly than income.
Olga Ulyanova considers the achieved result “a completely positive indicator,” “especially since the bank’s return on capital is 24.7% and this allows it to comfortably invest in further development and innovation.”
The amount of operating costs depends on which business the bank invests more in.
“Different businesses have different economics. For example, commission business and asset management will usually be a more costly business than lending,” explains Olga Naydenova.
Sberbank’s presentation for Investor Day on December 15, 2023 stated that in the 2024–2026 cycle, the credit institution plans to focus on the development of artificial intelligence and its accelerated implementation in all business segments. It is also planned to develop payment solutions, transform the SberPrime subscription, recommendation systems and its own loyalty program.
The second largest Russian bank, VTB, also expects record profits (430 billion rubles) at the end of 2023; its expenses, like the indicators of other banks, have not yet been disclosed.
But the banking sector as a whole received record profits in 2023, Olga Ulyanova emphasizes, which means “we cannot expect that market participants will adhere to the austerity regime.”
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