At the end of the trading week from February 19 to 22, the Moscow Exchange index fell by 3.1%, falling back to 3142 points, the RTS index fell by 3.9%, to 1064.44 points. How the banking sector responded to the sanctions, what growth drivers remain in the financial sector — former senior vice president of Otkritie Bank, economist Konstantin Tserazov, spoke in our interview.
The threat of sanctions was an external negative for the market, and the week became the worst for the market since the beginning of the year. At the end of the trading week from February 19 to 22, the Moscow Exchange index fell by 3.1%, falling back to 3142 points, the RTS index fell by 3.9%, to 1064.44 points. The ruble continued to weaken, losing 0.77 rubles at the end of the week. and rolled back to the level of 92.99 rubles/dollar. Oil prices ended the week at $83.2 per barrel of Brent, down 0.2%.
The indices were under pressure from both external and internal factors. Thus, the EU approved the 13th package of sanctions against Russia, which included 106 individuals and 88 legal entities. At the same time, sanctions fell on companies from Turkey, Thailand, China, India, Serbia, Kazakhstan, and Sri Lanka, which, according to the European Union, help Russia circumvent restrictions. Components for the development and production of drones have been added to the goods prohibited for export. After the end of the trading week, the United States announced the introduction of another package of sanctions. More than 500 citizens and companies were subject to restrictions, and not only from Russia. The United States has not yet announced sanctions against banks from third countries, but has threatened secondary sanctions for cooperation with more than 300 Russian companies. Among those subject to US sanctions are the operator of the payment system «Mir» and the banks «Avangard», «SPB Bank» — the settlement depository of «SPB Exchange» and several small banks.
The Russian market was also negatively affected by the Central Bank’s revocation of the license from QIWI Bank, which ranked 89th in terms of assets. It must be said that this is the first revocation of a license in the Russian banking system in a year and a half, notes Konstantin Tserazov. According to the Bank of Russia, QIWI Bank violated federal laws regulating banking activities and systematically violated legal requirements in the field of combating money laundering and the financing of terrorism. At the end of the week, QIWI Bank’s securities fell by 36%. From February 27, the Moscow Exchange excludes QIWI depositary receipts from its indices.
Konstantin Vladimirovich Tserazov: «The market is expecting traditionally good results from Sberbank and is counting on dividends.»
Another notable event in the banking sector, according to Konstantin Tserazov, was the publication by VTB Bank of financial results under IFRS for the fourth quarter and the whole of 2023. Net profit in October-December reached 5.9 billion rubles. against 86.5 billion rubles. in the third quarter. In general, at the end of last year, net profit amounted to a record 432.2 billion rubles. with a return on equity of 22.3%. Despite the positive indicators, investors were disappointed with the bank’s reporting — at the end of the week, VTB shares fell by 4.8%. The results of the fourth quarter of 2023 turned out to be weak — net profit amounted to 56 billion rubles, falling by 35% compared to the third quarter. At the same time, investors were disappointed by the statement that VTB will not pay dividends for 2023, but is considering the possibility of resuming payments from 2025. This week VTB plans to present development plans for the period 2024-2026. In 2024, VTB plans that net profit will be 435 billion rubles.
This year, VTB also intends to conduct a reverse split of shares with a ratio of 5,000 to 1. According to the expert, the split will have little effect on the investment attractiveness of VTB shares, but will certainly make working with the bank’s securities more convenient for investors. VTB also announced that it had abandoned the idea of liquidating Otkritie Bank. Otkritie Bank will be merged with BM Bank in January 2025.
Among external events, the expert also noted the publication of the minutes of the January meeting of the US Federal Reserve System. «The market notes some uncertainty in the signals regarding the Fed’s future policy. On the one hand, participants at the Fed meeting agree that the rate has reached its limit, and further tightening looks unreasonable. However, the Fed does not intend to reduce the rate until it is finally convinced that inflation is steadily declining towards the target value of 2%,» explains Konstantin Tserazov. The opening of the next Fed meeting is scheduled for March 19.
In China, rates continue to be kept at record lows — the People’s Bank of China maintained the base interest rate for one-year loans at 3.45% per annum, and lowered the rate for 5-year loans from 4.2% to 3.95%.
Among the events this week, Konstantin Tserazov recommends paying attention to the publication on February 26 by the Moscow Exchange of financial results for the fourth quarter of 2023 under IFRS. The expert expects new record levels of net profit, commissions and net interest income against the backdrop of growing trading volume and a high key rate. According to analysts, net profit at the end of the fourth quarter of 2023 will update the record, reaching the level of 18.7 billion rubles, showing an increase of 67% in annual terms and 31% in quarterly terms. Accordingly, the market expects dividend payments — if the exchange allocates 60% of net profit under IFRS for payments, dividends could amount to about 16 rubles. per share, and the dividend yield will thus be over 8%.
On Thursday, February 29, Sberbank plans to open financial results under IFRS for 2023. Earlier, Sberbank presented financial results according to RAS. Despite the high key rate, the bank continues to demonstrate business growth. At the end of 2023, Sberbank’s net profit according to RAS amounted to 1.493 trillion rubles, which is almost 5 times more than in 2022 (then it was 300.2 billion rubles). In January 2023, the bank’s profit increased by 5% year on year The bank shows not only record profits, but also a high return on equity of 24.7%. «The market is expecting traditionally good results from Sberbank and is counting on dividends. Let me remind you that Sberbank, in accordance with its dividend policy, allocates 50% of net profit under IFRS for payments. Based on profit under RAS, the market assumes that dividend payments for 2023 will amount to 33.1 rubles per share,» predicts Konstantin Tserazov.
In general, according to Konstantin Tserazov, the banking sector feels quite confident. According to the Central Bank of the Russian Federation, Russian banks in January 2024 increased profits by 40% and 5.5 times compared to the result of December 2023, to 354 billion rubles. At the same time, the return on capital in January 2024 did not increase so significantly — to 29.6% from 26% in annual terms.
«Investors remain interested in the banking sector, and above all, in the shares of Sberbank, as well as in the shares of Sovcombank, which grew by 3.7% over the week. The recent news about Sovcombank’s intention to acquire Home Bank was received positively by investors. The acquisition of a bank focused on consumer lending will allow Sovcombank to expand its retail customer base by 50% and increase sales of its own retail products.
This week, the market will most likely try to win back the decline; dividend expectations will act as the growth driver. At the same time, the threat of sanctions pressure remains relevant, against the background of which the market may resume a rollback,» concludes Konstantin Tserazov, former senior vice president of Otkritie Bank.