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Sberbank will sell banks in Europe with assets worth € 7.3 billion

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Sberbank will sell several subsidiaries in Central and Eastern Europe. The deal will amount to about € 500 million. The largest Russian bank is reducing its presence abroad due to sanctions and the geopolitical situation

Sberbank Europe AG, the European division of Sberbank, signed an agreement to sell its subsidiaries in Bosnia and Herzegovina, Croatia, Hungary, Serbia and Slovenia, Sberbank said in a statement. The total assets for sale are € 7.329 billion, the banks being sold have 162 branches and about 600 thousand customers at the end of last year.

The buyers are AIK Banka a.d. Beograd, Gorenjska banka d.d., Kranj and Agri Europe Cyprus Limited. “The total amount of the transaction will be about € 500 million, including the sale of shares and the replacement of financing provided by Sber. Sber expects a neutral financial result and an insignificant impact of the transaction on capital adequacy ratios in the group’s consolidated financial statements, “Sberbank said. The corresponding agreement was signed on November 3.

Who will buy European banks from Sber

AIK Banka is a private Serbian bank, one of the top 10 in the country in terms of assets (€ 1.9 billion as of June 30, 2021). Since 2019, he has owned 100% of the shares of the Slovenian Gorenjska banka, which was also included in the list of buyers of Sber’s European assets. Both European lending institutions are part of the financial and industrial holding Agri Europe Cyprus Ltd, which, in turn, belongs to the Serbian MK group, which also specializes in agriculture and tourism. At the end of 2020, the total assets of the AEC group exceeded € 4.1 billion, follows from its statements (.pdf).

“AIK Banka is already present in this part of Europe and is striving to expand its presence and, in accordance with its long-term strategy, become one of the leading banking groups in the region of South-Eastern Europe,” a Sber representative said.

Circumstances of the transaction

Sberbank “decided to reduce its presence in Central and Eastern Europe in order to focus on priority markets and explore new business models,” the lending institution explained. Sberbank Europe (headquartered in Vienna) in Eastern Europe will continue to own the Czech bank Sberbank Czech Republic.

Sberbank Europe, which accumulates Sber’s European assets for € 12.942 billion, ended 2020 with a loss of € 13.649 million, its financial statements show (.pdf). For comparison: in the pre-crisis 2019, it showed a profit of € 40.612 million. The deal will include both profitable European assets and unprofitable ones. The latter include a subsidiary in Croatia with a negative financial result for 2020 of € 4.8 million and a bank in Hungary with a loss of € 3.2 million. Sber’s structures in Bosnia and Herzegovina, on the contrary, ended last year with a profit of € 4 , 8 million, and the Serbian Sberbank – with a profit of € 3.2 million.

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“The closing of the deal is subject to the necessary approval by local and international regulators, as well as local antimonopoly agencies. It is expected that approval will be received in 2022 “, – noted in” Sberbank “.

The sale of European subsidiaries is “rather an optimization than a complete withdrawal from the market,” since Sberbank Europe retains a presence in Austria, the Czech Republic and Germany (where it works through a representative office. – RBC), and in addition, Sberbank “There is still a separate bank in Switzerland,” says Anton Lopatin, director of the analytical group for financial institutions at Fitch. $ 7 billion is only 1-1.5% of the bank’s consolidated assets, so Fitch does not expect the deal to have a significant impact on either the business or the Sberbank rating. The impact on the rating will be neutral, since “the banks being sold do not make up a significant share” of Sberbank’s business, agrees Valery Piven, director of the ACRA financial institutions ratings group.

“Other Russian banks continue to operate in the West, but they do not have such a developed retail network in Europe as Sber (187 branches), since they work either in the corporate investment business or serve wealthy clients. From the point of view of operating costs, it is easier to work through a small number of offices or even remotely, like, for example, the digital bank Sberbank Direct in Germany, ”believes Petr Paklin, vice president and senior analyst at Moody’s.

Why is Sberbank leaving Europe

This is not the first deal in which Sberbank is reducing its presence abroad. In 2019, he sold the Turkish subsidiary of Denizbank to Dubai’s Emirates NBD. The deal amounted to $ 5 billion. According to the head of Sberbank, German Gref, the decision to sell was related to the sanctions restrictions that were imposed on the Russian credit institution in terms of its international presence. He noted that the deal would allow Sberbank to “focus even more on the development of the ecosystem” of a credit institution in Russia.

In 2014, Sberbank, along with other state-owned banks, fell under the sanctions of the European Union. Now sectoral sanctions prohibit citizens and companies of EU countries from lending to Russian state banks for a period of more than 30 days, and any other form of financing that can be regarded as providing borrowed funds for a period of more than a month, including the purchase of bonds, is also prohibited. These sanctions do not apply directly to the European subsidiaries of Sberbank. Trade finance loans for the export / import of goods from or to the EU are exempt from the sanctions.

“We plan to reduce our presence in Europe and develop our business in Kazakhstan and Belarus,” Gref said back in 2018. And in June 2021, the first deputy chairman of Sberbank, Lev Khasis, said: “Due to the geopolitical situation, we are now reducing our presence as a banking business in other countries.” He estimated the period during which the bank will reduce its presence in Europe at one or two years.

Sberbank Europe is the former Austrian group Volksbank International with subsidiary banks in Eastern Europe. Sberbank bought it in 2011 for € 505 million. In the future, it demanded investments for another € 1 billion, and Sberbank had questions to the seller. “We really have certain problems with the quality of the assets that we bought from Volksbank, compared to what was originally announced,” Gref said in an interview with the Financial Times. He stated that Sberbank could demand compensation from VBI and its auditors, and as a result, it happened: Sberbank “reached a compromise with the owners” and did not go to court. Even taking into account compensation from the former owners, investments in VBI “can be assessed as ineffective, investments in Russian assets with comparable risk could bring much higher returns,” said Stanislav Volkov, managing director of the NKR rating agency.

“Sanctions and the geopolitical situation affect Sber’s activities in Europe, but the market itself is complex, rates are low, and competition is high,” Lopatin notes. He recalls that after the purchase of VBI, Sber’s strategy in Europe changed several times, “but it was not possible to achieve high profitability, mainly due to competition and a small market share.” The withdrawal from part of the assets should “help to concentrate on priority areas and markets,” the analyst said. Sberbank’s business in Russia brings good profit to shareholders, and “the current profitability of other projects fully justifies the refusal to develop in these countries,” adds Piven from ACRA.

“Weak profitability of European subsidiaries and plans to sell them have already been taken into account in the reporting and credit ratings of Sberbank, but by reducing uncertainty and sensitivity to sanctions pressure, the sale can be perceived by investors as weak, but positive,” admits Volkov. The profitability of the banking business in Europe in the context of strict regulation and low interest rates on average in the sector is about 5-10% ROE, and in general for the Sberbank group – above 25%, notes Pyotr Paklin. Specifically, Sberbank Europe in 2019 showed a profitability (ROE) of only 2.7%, and in 2020 it was completely unprofitable, the expert recalls.

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