Hello. Good afternoon, everybody, from Sberbank as well.

Welcome to this first quarter 2017 results call. We will have three short prepared remarks today followed by the Q&A.

First, Chief Economist, Julia Tseplyaeva, will touch upon the macro situation and our macro forecasts; then Alexander Morozov, Deputy Chairman and CFO, will give remarks concerning the results; and finally, Head of Risk Management, Alexander Vedyakhin, will talk about asset quality. So I’d like to give the floor to Julia Tseplyaeva.

Julia, please.

Thank you very much. Good afternoon.

Today, we can see actual macroeconomic results for first quarter of year 2017, and we have a revised macroeconomic outlook for year 2017. We did not change our GDP forecast, and believe the economic growth to be 1.2% this year.

We are more optimistic about investment trend and see investment growth at 1.8% year-over-year as big and giant companies have managed to increase their investment programs for year 2017. The main change of our outlook [Audio Dip] we expect the current slowdown in inflation to continue on the back of relatively slow growth of global food prices and modest major amount of retail hikes scheduled for year 2017.

We expect the inflation to be below Central Bank target of 4%, reaching 3.8% year-over-year by the year-end. The Central Bank policy is likely to remain tight, although the Central Bank is likely to accelerate with the key rate cuts.

We forecast the key rate at 8% at the end of this year. The Central Bank has given a clue that it estimates the balance rate at 6.757% with inflation of 4% in the midterm.

And finally, we should acknowledge that high oil prices, together with extremely hawkish monetary policy stance make possible more dramatic appreciation of the ruble. We have upgraded our forecast from RUB 64 to RUB 58 per dollar for year 2017.

The stronger ruble is supporting import growth affecting current account surplus of year 2017, which is unlikely to exceed $40 billion. Fortunately, after some acceleration in the first quarter of year 2017, capital outflow is likely to slow down and reach relatively modest $31 billion this year.

So recession is over, and we expect recovery to accelerate in year 2017. Thank you very much.

Thank you, Julia. I would now like to give the floor to Alexander Morozov, Deputy Chairman of the Management Board and CFO.

Alexander, please.

Good afternoon, ladies and gentlemen, or a good time of the day. As far as to present your results for the first quarter 2017, we posted quite substantial growth of our EPS, almost 42% on a quarterly basis versus first quarter of 2016, and was quite a surprise, at least for us, let’s say, results of our efforts.

And we believe that it’s sustainable results because we do whatever is necessary to deliver our promises to support the margin, to take and to [indiscernible] reduce our expenses and to gradually reduce the existing – the very conservative sight of cost of waste. So later on, I’ll address those three components.

First of all, margin. I have to admit that during the first quarter of 2017, our loan book shrunk by 2.7%.

The corporate portfolio went down by 3.7%, and retail portfolio posted growth 0.3%. That means that retail portfolio, which is more profitable for us, grew by almost 1 percentage points in our overall loan portfolio structure, from 27% to almost 28%.

Another positive term fee also posted in the first quarter what – the result of gradual appreciation of Russian ruble as well as a gradual shift of the preference of our customers. The share of fresh ruble loans denominated versus currency loans shifted towards Russian rubles by almost 2 percentage points from 63.8% to 65.5%.

So now we have 65.5% of Russian rubles denominated loan portfolio, both corporates and retail and balance. Both those trends saw accelerated growth of retail and shift toward Russian rubles marginally very supportive for our margin.

And I expect that those trends will continue, and that will help us to keep our promises and to sustain our margin at more or less stable level this year on year-to-year basis. I have to say that in April, over in second quarter, we saw some start of the growth of our domestic demand for loans – for new loans from corporate side and retail portfolio as well.

And overall portfolio grew up by almost 5 percentage points in April. And we are more positive about the remaining part of the year as regard to the growth of our great portfolio.

That does result the – we confirm our guidance for the full year over the growth of our loan portfolio of 5% to 7% for both retail and corporate. On retail side, I would say that we expect accelerated growth of mortgage portfolio, which is the basis for retail portfolio.

And the portion of our mortgage in our retail portfolio will continue to increase as well. Despite the growing pressure on asset yields, the [indiscernible] is surprising.

Continued, and as a result, we were able to post quite healthy margin the first quarter, 5.8%. And the same time, have to say that this margin was also supported by the gradual shift toward demand accounts and current accounts from time deposits.

So we pay less, and we earn more on these accounts with our contractual maturities. And it’s also quite supportive for the margin in the medium and long term.

Loan-to-deposit ratio, it was quite stable at around 90%, 91%. I do not expect substantial changes in this respect looking forward this year.

And within this 91%, the portion of accounts result contractual maturities, do not [indiscernible] came to 26.4% from near 24% a quarter ago. Very important topic, not very easy for me but very important.

I’ll definitely address it first. Weak net fees and commission growth in the first quarter, which grew up, if you look at numbers, by only 4.1% year-on-year.

4.1% definitely is not something all of us expected, but when we analyzed this number, we should take into account some very important components and some very important considerations. First of all, none of us expect such a substantial appreciation of Russian ruble against foreign currencies, against particularly all currencies.

And if you look at appreciation of Russian ruble versus American dollars was more than 12%, 12.5%. And when we look at appreciation of Russian ruble versus, let’s say, Turkish lira, it’s even more impressive from TRY 25 per Russian ruble to 15 – sorry.

Russian rubles per Turkish lira, from RUB 25 to RUB 15. That’s even more substantial with 40%.

And from that perspective, definitely, we lost in terms of our reporting currency, quite substantial profits from our subsidiaries. For example, DenizBank, that’s our biggest loss.

That’s about RUB 3 billion as a result of this regulation difference of Russian rubles. So assuming that’s a foreign exchange rate ruble versus Turkish lira would be the same as we projected, we would post RUB 3 billion more in our fees and commissions.

And all together, we underscored something like RUB 3.5 billion, RUB 3.7 billion in fees and commissions as a result of this appreciation of Russian ruble from our subsidiaries from our business abroad. That’s just very important component, but not the last one.

Second component, which also you should be taking into account was changes in methodology in the way we reflect our loyalty program-related expenses versus first quarter 2016. That’s about RUB 2 billion difference in terms of mediational fees and commission income, which might be booked, might be sure.

But the fact – we not carrying this. But that’s expense we posted traditionally first quarter this year, but this to be the Russian rubles, that clearly changes it – our approach toward the reflection of our loyalty program.

And this is a temporary difference, which will be practically full eliminated in the second quarter this year. That’s very important.

Third component, that’s overall reduction of volatility on foreign exchange market and versus first quarter previous year. Last year, I’d like to remind you, first quarter was very much volatile, and later on, volatility in the foreign exchange market gradually just went down.

And when we look at second quarter to second quarter this year, the difference in foreign exchange, a little bit much difference. But altogether, because of this reduction of volatility and reduction of demand for foreign currency in Russian customers, we earned less by quarter-to-quarter by something RUB 2.2 billion.

So that’s a little business result of a more stable macro environment. And another component we show is also very important.

That’s all the changes in methodology of how we reflect our expenses related to text messages, notification related to card business. Earlier, we reflect it as a part of OpEx.

Now we reflect it as part of our business, the whole card business. So – and last but not least, we sell less and less of third-party insurance contracts and more and more of our – the deposit insurance policy of our own company, of our own business.

And as a result, we get a little bit less of related commissions from third parties. [indiscernible] some balance.

If we bring together all the numbers, so less commissions as a result of regulation difference from our subsidiaries, that’s about 5% growth of fees and commission less foreign exchange business quarter-to-quarter basis. That’s about 2.7 percentage growth from fees and commission.

Change in methodology, something altogether 2.5, 3 percentage points in terms of growth of our fees and commissions, net fees and commissions altogether. If it were combined all together, this number already reflected in the official reports.

It will easily come to the number higher by some 10, 11 percentage points, which is still below our expectations. I remember very well, what we discussed with you, mid to high teens.

And that’s why we cannot be fully satisfied no matter what are the reasons behind it, and we put our full year forecast, our guidance on review. So we turn back to that topic.

Going to present our first quarter results, and at the same time, I have to say what, as a management, we today are very much focused on this business. And I remember very well one phrase said by George, Prime Minister of Great Britain at the time.

"So it’s not enough that we do our best. Sometimes, we must do what is required."

So fees and commissions are definitely priority today, as well as our priority on [indiscernible] cost reduction and efficiency increase. And let’s start.

I’d like to go to gradually – so efficiency increase and cost control here in first quarter. We saw some further progress on this front of this growth [indiscernible] 4% year-on-year.

That’s within our target of below inflation growth. We believe it is sustainable, and we will continue to focus on that.

So definitely our cost-to-income ratio this year, we feel it improved on annual basis. It is supported by the reduction of overall headcount number, some reduction of our branches, physical branches, street branches.

And definitely, it’s based on our number of efforts and initiatives regarding it. So the couch of our – efficiency cost utilization and day-to-day securities.

So we believe it is sustainable. Last but not least topic I’d like to cover was development of our capital adequacy ratio.

Capital adequacy ratio improved substantially and resulted in core equity Tier 1 Basel I of 13.2%, and total capital is 16.6%. What was supported by serious reduction of risk-weighted assets decline of 1.5% and way substantial growth of our bottom line, so our profitability.

Here, I’d like to say that we are still working on our timetable with regard to the switch from Basel I to Basel II and potentially, Basel III, as well on our calculation of the potential effect of IFRS 9. And so we’ll come back to those issues, as we promised earlier.

When we present our second quarter results in August at that time, we’ll definitely guide you about potential effect out of implication of IFRS 9. And no later than the date, we will announce our intention and our time table with regard to the switch to Basel II and Basel III and IFRS.

There is a high chance that we’ll complete it this year. So we are more or less in line, as we believe this is our initial plans as we get to the bottom line.

Composition is a little bit different, but some very important part of this composition including – underscores growth of fees and commissions, hence, to some extent, temporary difference. And later on this year, will be supported.

And that’s why today, we do not change substantially all our forecast. So in all, in particularly all most important numbers, we confirm our initial guidance and to deliver it.

As of now, we do not have enough arguments to change anything but fees and commission, which we pushed – we put in revenue. We cannot exclude, but we’ll lead with reduces.

But today, we do not have enough arguments to do this. So we’ll at this situation internally, and we will definitely separate temporary differences from permanent differences.

And when we present our second quarter results, we feel we will separate it and show it in our investor’s presentation at the time. Having said that, I’d like to mention the last topic, which is also important.

In first quarter, we posted two one-off transactions as it guided here in the fourth quarter last year, we sold our participation MasterCard and Visa shares. And under IFRS, those transactions were [indiscernible] in first quarter 2017.

That’s one-off effect. That’s it for now.

Definitely, I understand that you might have more questions. Hence, I’m ready to answer questions, but after the short presentation about three slides, which will be given by Alexander Vedyakhin, Chief Risk Officer of the bank.

Thank you, Alexander. Good afternoon.

Asset quality continued to perform as expected, with cost of risk totaling 146 basis points with corporate at 169 and retail at 87 basis points. The largest contributor to cost of risk in the first quarter was an international retailer in the food and agriculture sector, which contributed a significant proportion of the total cost of risk.

And actually we currently feel that we have adequately provisioned for this exposure and don’t anticipate further provisioning. I think it shows the strength of our balance sheet as well as the justification of our conservative approach that an unexpected loan deterioration of this size is absorbed into our quarterly result without having to change the cost of risk guidance.

NPLs grew slightly and now represents 4.7% of the total loan book. This was due to the decline in overall loan portfolio as well as one borrower in the restructured portfolio transitioning into NPLs.

And that’s really important to mention that this company was already 100% provisioned. Restructured loans grew slightly as well from 6.5% to 6.8% of total loans, with the aforementioned international retailer constituting the main change.

Coverage ratio of both NPLs and NPL plus restructured loans stayed flat at 157% and 75%, respectively. Finally, I would like to mention that from the beginning of 2017, the group introduced amendments onto the probability of default valuation models and to loss-given default valuation models applied for mortgage and consumer loans.

This was done as a result of accumulation of additional data on repayment of defaulted loans and some of recovery of loans through disposable collateral. Loan loss provisions are calculated based on the forecast of future cash flows for the whole lifetime of the impaired loan, which led to an increase in provisions for long-term mortgage loans and opposite effects on shorter-term consumer loans.

These amendments led to a decrease in the amount of provision for loan impairment as at the date of transition. It was 3 January 2017 by RUB4.3 billion.

That’s all for my side. I’m also ready to answer any questions.

Thank you, Alexander. We are ready for Q&A.

Hi, thank you for the presentation, a couple of questions. First on your margin, how should we think about your net interest margin for the rest of the year?

Actually, we see that the NIM came down quite a bit in the first quarter. And this was driven by lower corporate loan yields in the first place.

Do you expect more downward repricing to come through? Shall we expect a further drop in your corporate loan yields from here?

That would be first one. The second one is on cost.

What happened with the depreciation expenses? It was – depreciation was unusually low in the first quarter.

You reported less than RUB10 billion, whereas the run rate, the quarterly run rate is close to RUB16 billion. Did you have any one-offs here?

And what do you think the sustainable rate of depreciation is, especially given that your capital expenditures actually increased?

Okay, with regard to the net interest margin. I’d like to remind you that we are positively exposed to potential reduction of the interest rates in Russian rubles.

Our sensitivity to – basis points parallel shift is about 33 basis points in terms of net interest margin. So yes, we expect further reduction of the yields on corporate portfolio.

But at the same time, we believe that a reduction of the yields of retail portfolio won’t be so dramatic so fast because mortgage portfolio is quite stable. And high yields consumer loans are also very supportive in that respect.

So altogether, asset side yields will go slightly down, but it will be offset in full, I assume, by further reduction of cost of our liabilities. And looking forward this year as we promised you, we believe that we’ll be able to sustain our margin more or less at stable level, plus or minus where some seasonality with this, with three different quarters, but year-to-year, I think that we can now reiterate our initial guidance and confirm it.

Looking forward, beyond this year for the year 2018 and further, yes, we will start to feel the pressure on the margin. But we undertake all the necessary steps in order to prevent a sharp decline of the margin.

And we’ll address it in more details when we present on our updated strategy for the next three years later this year. As Mr.

Gref, CEO of the bank, said later this year. And in last quarter this year, we’ll present to investors, to our shareholders our updated – our new strategy.

It’s not an updated version, but is completely new strategy for the next three years. And as a part of this strategy, there will be definitely a financial plan, and – which will contain all our assumptions and view with regard to the margin development and say our [indiscernible] how to offset some reduction of the margin, how to offset it by which tools and which initiatives.

So – but as of now as for this year, we believe that’s essentially stable. Second part of your question.

So with regard to cost, yes, you’re right. We a little bit changed in our methodology.

Matter of fact, our of the change of amortization periods of IT components is RUB4.8 billion on a quarter basis. And what was down is based on generalities of actual useful lease of premises and equipment as of 1 of January 2017.

So we did it on the basis of our real numbers and real facts. If you save us some money in terms of profits this year, what we believe it’s quite – it’s more appropriate approach and it’s more fair reflection of our real costs, let’s say, how it looks like.

The net effect on the quarter basis, that’s RUB4.8 billion.

And do you expect that RUB4.8 billion impact each quarter from now? Or was this – or is the recurring impact lower?

No, no, no. That’s not one-off effect, but the impact of this change will be diminishing quarter-to-quarter.

And I expect zero effect in the fourth quarter. So there will be much less noticeable effect in second quarter and practically zero effect in the fourth quarter.

So that’s how – it looks like that as of now.

Okay. That’s helpful.

And just finally, can you give us a sense how shall we think about your pension income going forward? You had a pretty solid performance in the first quarter in terms of pension revenues.

I wondered – I mean, Q1 tends to be seasonally weak but you had a stellar performance. How do you think about the outlook here?

So pension business and assets under management business, let’s say, our growing business. They’re just the beginning of the story.

We became the biggest pension firm in Russia, and say – we believe that we should expect even faster growth and better numbers quarter by quarter. So it is sustainable.

Perfect, thank you.

Thank you. My first question is about provisioning.

If I clean provisioning from one-offs in the first quarter, I arrive at about 1.2% cost of risk. And I was wondering why was it much lower than your guidance for the full year.

And as I said, this is excluding strong ruble and excluding the core. And also I noticed that the NPL ratios went up, not only because of this one-off big exposure, but they went up in mortgages and consumer segment.

And in total, they would be still up if we exclude this one-off. So how do these two things fit together, much lower provisioning than you expected for the full year and some deterioration in NPL ratios?

So this is my first question. My second question is your dividend payout ratio.

You increased the payout – you looked to increase the payout ratio to 25% from 20%. And how do you think about it?

What allows you to increase the ratio before you know the impact from IFRS 9 and before you’re confident what impact you’ll have from moving to Basel II, Basel III? And finally, my third question is the change in methodology in the first quarter.

I think you mentioned that there was some additional data on recovery of loans, which you took into account. So what exactly – which exactly data did you take into account, which resulted in increase of provisions on consumer loans?

Thank you.

Okay, Olga. I’ll start with an answer.

Your second question about dividend payout ratio and the [indiscernible] results, two questions regarding quality of portfolio and methodology change on this side. So in regard to the dividend payout ratio, once again, one of the biggest effect, which we didn’t learn came from the fact of the revaluation, substantial revaluation of Russian ruble, which seriously reduced our risk-weighted assets.

Secondly, we managed to reduce our risk-weighted assets any way and some amendments, in that respect, some improvement of quality of the book, and changes of the regulation in that respect. So it helped also to reduce it a little bit.

So risk reduction and say, our enhanced certainty about our ability to deliver strong results, strong profitability, strong bottom line this year show it was the most – probably, we’ll be able to complete all the required matters. Again, if capital builds up and switch to IFRS 9 and most probably, to Basel II and maybe even to Basel III and the IFRS this year at the same time, be in line with our initial guidance.

So now we continue to evaluate it. And so since we’re beginning to promise to you to return back to capital topic when we present our second quarter results, so we keep that promise, and we’ll definitely return to that topic.

But situation, definitely today, developed better than we expected. And if situation develops better than we expected, we simply – we understand.

We hear it to our shareholders, to the voice that serves the market. And so we see the possibility to slightly increase our dividend payout ratio.

And by doing so, we do not only please our shareholders. We also support our return on equity on annual time horizon as well.

And as a result, I believe our return on equity guidance may be revised a little bit as well. So we promised high teens, potentially be revised to be a bit upwards.

Having said that, I just take you to the floor to Jyrki Talvitie. And he will answer two other questions regarding cost of risk and risk post.

Thank you very much, Alexander, and thank you very much, Olga, for the question. Actually about your first question about cost of risk of Sberbank.

I can say that we have promised 150, 170 basis points to the year-end for the cost of risk; in the first quarter of the year, 146. That’s actually – I can say, more or less, according to expectations.

And about one-off effect, on one hand, we can say, I can’t name the name as you can understand. Actually, on one hand, you could name it as a one-off.

On another at hand, we said that we – you know that we are working in really emerging economy. And that means we have to have – be able to have good provisions.

It’s always a discussion why you will not decrease your cost of risk or your provisioning just because sometimes the business is quite unpredictable. And having good coverage ratio and having conservative approach, we can look really sustainable in this type of environment.

As you see despite of one-offs – of one-off, we didn’t change in our forecast for the year-end. And majority of the banks with similar situation, I think, could make some adjustments.

So about your second question, about methodology, so it’s a little bit longer. But this methodology, I have to give some explanations.

Beginning from the first quarter of 2017, as a result of accumulation of additional data, the group introduced amendments to the probability of default valuation models and to loss-given default valuation models and to loss given before progression models applied for mortgages and consumer loans. These amendments led to a decrease in the amount of provision for loan impairment at the date of transition, 1 January 2017 by RUB4.3 billion, which had an effect on the interim consolidated statement of profit or loss for the three months ended end of March 2017.

The main change introduced by the bank is a part of the modification of its models. And affected banks’ provisions amount was broadening of default criteria definition.

This approach led to an increase in volume of credit portfolio classified as risky. Loss loan provisions for the broaden to risky portfolio are calculated based on the forecast of future cash flows for the whole lifetime of the loan, which led to an increase in provisions for long-term mortgage loans.

Amendments to the models had opposite effect on consumer loan portfolio, which have short to long-term. Meanwhile, improvement of bad debt collection resulted in decrease in provisions.

From the beginning of the last year and from the year 2016, the group uses provision coverage ratio of non-performing exposure for adequacy of provisions. Non-performing exposure, in this case, includes not only NPL 90 plus but also bank restructured loans.

For retail loan portfolio, there was a conservative assumption that always transferred loans of that loans to non-performing. Usage of new models results in following provision coverage ratio – ratios of non-performing exposure being equal to 57%, 59% mortgage portfolio and approximately 74% in consumer loan portfolio.

So sorry, it was a little bit long. But as I said, it’s about methodology and provisions.

It can’t be, unfortunately, shorter. And so I hope it was helpful for you, Olga.

Thank you.

Thank you, Alexander. Do you think you will continue fine-tuning?

Or this is done?

We hope this is done. I mean because to be able to proceed further fine-tuning, we have to collect data.

To be able to collect data, we need time. So just because of this, we can’t do it every quarter.

So I hope that for this year, it’s done. I hope so.

So we don’t have any additional plan despite regulatory, we’ll have costs to do something, but I don’t know nothing about such kind of plans, yes.

Thank you.

Thank you. My question is on the fee income.

You mentioned earlier that there were temporary and permanent factors behind those changing fee income growth dynamics. So I want to ask about the relationship between fee income growth and the inflation rate.

And also wanted to ask about how does a customer migration to online channels impact your fee income? Can you, perhaps, give examples of how the branch restructuring compares to online tariffs?

When is the last time you increased fees on any product or service? Thank you.

With regard to fees and commissioning, can we talk about tariffs and fees. It’s about volumes and fees.

It’s about knowing fees, what’s important for us. Because in the long-term, what’s important for us is to assure what we create for our customers’ real value.

So we don’t overcharge them, but we choose that because it’s the most efficient way to affect transaction. So from that perspective, we are limited in our ability to increase tariffs.

We are going to do that. Why tariffs?

We are going to continue to reduce our tariffs. And we do it practically every quarter.

And we’ll continue to do that. At the same time, this reduction of tariffs of normally fully compensated by growth of volumes, a growth of number of transactions.

And as of now, the bank online was waiting P2P transactions used in Russia and see control nears 90% of P2P markets in Russia in that respect. And definitely, it creates convenience for our customers.

And it creates additional value for them and was a very good example. And when you speak about fees and commissions, keep in mind, first of all, growth of volumes.

That’s my answer.

So to that extent, if credit origination volumes pick up, you’d expect an increase in fee income growth as well. Would it be front-loaded?

Or will we have to wait until you reach your 5% to 7% target?

My answer was about transactional business. So credit-related fees and commissions definitely will depend on our credit originations.

So that’s a separate cup of tea.

Okay. Thank you.

But I have to mention that it credit-related fees and commissions will reflect in our net interest income. We can see it as part of our regulatory activities and were reflected as part of net interest income.

Of course. Thanks.

Thank you. My question is on the guidance on Slide 27.

You guide core Tier 1 under Basel I at around 12%. But you already reached 13%.

And judging by the evidence, your ROE will be strong and your asset growth is not. So would you like to upgrade, perhaps the guidance for the full year for Tier 1?

Alex, what is different and sometimes contrarian’s points of view is with regard to fill the development for Russian ruble, foreign exchange rates until answer the – and you know, we have very high sensitivity to this factor. And I’d like to remind in that respect, what’s RUB10 change of foreign exchange rate means for us, 70 basis points in terms of capital adequacy ratio core Tier 1 and capital adequacy ratio.

Plus we have to take into account that high dividend payout ratio means for us minus 50 basis points each year in June when we pay out our dividends. Plus, we should not forget about new initiatives and activities undertaken by Russian Central Bank as they get additional requirements, which we announce and set up and increase quarter-to-quarter as it gets to capital adequacy ratio and calculation risk quite as so on.

So altogether, they got a lot of uncertainties in front of us. That’s fine now.

We took both. We are not prepared now to change our full year forecast.

But at the same time, I reserve the possibility for the time that we present our second quarter results. Since very beginning, we informed you we turn back to our full year capital adequacy forecast.

And when we present our second quarter results, I do not exclude, I do not exclude – let’s say, we will announce our guidance from Basel III Tier 1 requires our acquired ratio to Basel II core equity Tier 1 or in Basel II core equity Tier 1 or in Basel III when we present our second quarter results. And what’s – we reinforces for us.

But as of now, you are right. But we need more time and leave a small clarity about macroeconomic policy and to some applications from the activities.

That’s how I would answer your questions. But upside risk is you’re right.

Okay. Alexander, that’s fair enough, and one small follow-up.

Did I understand correctly that by the end of the year or in the later quarters your depreciation level, depreciation charge will result to the previous year run rate? So that was in essence kind of one-off low depreciation?

It’s just taken it longer this time. It will take something like 18 months.

Okay, okay. Thank you.

Thank you very much. Good afternoon, gentlemen.

And congrats on very strong results in the first quarter. The first question is about cost of risk, and I was wondering if you expect Ukraine to somehow materially impact your cost of risk going forward?

The second question, could I ask you to talk a little bit about the latest trends you see in the consumer and credit card segments? The growth remains subdued here, and I understand it’s the underlying growth.

It’s not affected by the currency. Where are your approval rates now?

How have they changed of late? Do you see any improvement in the incoming applications?

That will be appreciated. And the final question is more a philosophical question, if you like.

What is the management view, conceptual view under these terms of the preference shares? Is it something that might be canceled at some point, say, via buyback?

Is it something management care about? Would love to know your thoughts?

Well, let me – thank you very much for your question. Let me start with risk issues, risk issues that you – cost of risk and impact on cost of risk of Ukraine.

No, it will not have any impact on cost of risk here really well, for reasons. And I mean you will not see this, you will not see any significant impact on our cost of risk because it were in.

So about approval ratio, so it’s stable. It’s a little bit above 50% for retail.

And it’s stable, I can say. And the amount of loan applications we receive every day is a little bit above 40,000 applications a day.

But we made two campaigns in the first quarter and the number of applications during campaign rose even higher. So I think those are all answers about risk issues, and Alexander, please.

Yes, I’d like to suggest the one word about Ukraine. I believe that we have nothing to previously give information when we presented our annual results for 2016.

But provisions would have been created on the balance of Sberbank, as a group, sufficient to fully accommodate all potential negative implications in any sort of events. No matter what happens, this shows development about Ukraine situation.

And same time, I’d like to point out that Ukraine assets in terms of that portion of percentage of our total group assets, we continue to reduce. We used to be 0.1% beginning of the year, now 0.07%.

Okay, so we reduced by practically 30% from that perspective. And so what’s – not the case anymore for us.

As for your second question regarding credit card and consumer loans, we see that our market share and credit cost is gradually improving. It is today about 40% of the market.

So we gradually increased our presence. But demand from these products, not very high today, which is probably why we’ll hold interest in April, as I’ve already mentioned.

We undertake some additional accumulated matters to promote to our customers. And we believe that later on this year, we see more activities and more interest from our customers.

We are prepared to tell the customers who we know, both financial solutions in terms of visibility, in terms of convenience, in terms of pricing. And definitely, we will defend that market share and we are going to decrease a little bit.

At the same time, critics have got – I’d like to underline that we are not going to sacrifice our quality. And so taking into account that here, disposable income in Russia [indiscernible] continue to go down.

I already told you official statistics. We should be very, very careful in terms of we continue to be conservative.

So we believe that our chosen penetration in this market should go hand by hand in this – our development of our risk models and our ability to further improve – our ability to manage better. So that’s how it looks to be.

Overall, I believe that full year will get more positive in that respect around first quarter. April, already posted and May as well, showing quite encouraging first quarter results.

And for last topic is regard to preferred shares, it’s not the first time we answered that question. My answer is very short.

As of now, we have nothing – almost nothing to add to our previous comments on that subject.

Good afternoon. Just a quick question, a follow-up on margin.

If your interest rate scenario plays out and your current margin is around 5.8, where do you think the exit margin for the year would be like around the fourth quarter? That would be my first question.

And second is more again a clarification. I see you restated your – the amount of past in the bank this quarter.

I was just wondering what happened there? That’s my question to you.

Thank you

With regards to the end of year margin. When you think about quarterly margin, it’s difficult now to define because last quarter, fourth quarter is a year seasonally margin is a little bit higher than the third quarter and second quarter.

So I do not exclude that fourth quarter margins will be very, very useful and quite fine. But at the same time, I do not exclude that second and third quarters margin may go a little bit down, especially third quarter.

But on a full year time in 12 months, I believe that we would be able to sustain margin at plus or minus level we achieved last year full year, so more or less where we have be. So that’s how I see.

With regards to the headcount reduction. That’s part of our strategy to further reduce our expenses.

And we’ll continue to reduce gradually our staff and number of branch, 3 branches. Definitely we continue to keep our branches in just more players to provide our customers in those regions to use our services.

But in other crowded places, we see what’s gradually more and more our customers. And it converts into different channels.

And we believe what we passed already the big of fuels. We’re passing the peak of inflow of new customers.

So we have good potential in terms of reduction gradually. We – I mentioned a number of times that we feel liberated and can give you more numbers when we present our next strategy for next 3 years.

So I believe this is the case, which might be expected for the reduction.

Thank you and good afternoon gentlemen. My question is about loan growth, particularly in corporate sectors.

First quarter was very slow, but apparently affected by ruble strengthening. Even if we strip out that effect, loan growth was still quite subdued.

April numbers, in fact, under Russian company standards do look nice, do look promising. My question is what kind of dynamics are you seeing now?

And do you see this is beginning of a new trend? Is there something sustainable about more demand?

And since you have left your full year guidance unchanged, I assume you’re comfortable with the 5% to 7% growth outlook for the – on a full year basis. But that actually means quite substantial growth from second quarter on, the kind of growth that we haven’t seen for quite a while in corporate ending in Russia.

And my question is what, in your view, could drive this growth going forward? Thank you very much.

Okay. We shouldn’t forget the Turkish business and subsidiary business accounts for nearly 10% of our total assets and serious ruble appreciation versus all currencies, including Turkish lira.

If I could – not only in lower fees and commissions in our reported currency and rubles, but also in lower growth originations in terms of Russian ruble, okay. So that’s also part of it.

At the same time, first, for Russian business, yes, we see some revival demand from corporate sectors as well as retail. In second quarter, after the May, more promising.

So we grew up in April 1 percentage points as I have mentioned at the beginning of this conversation. May is not yet closed.

But even taking into account that May seasonally Russia is a low season in terms of business because of two weeks beginning of May versus say, probably holidays, practically from 1st of May to 9th of May. So the activity normally is slow in April.

But nevertheless, we expect positive growth. Looking forward, we have more optimistic, and that’s why we keep our full year guidance unchanged, 5% to 7% growth because we believe that some low-interest rate, you accumulate business to use, create facilities.

Plus we express what’s – closer we are to – now we have certainty. Now we really have confidence in the market related to forthcoming election March next year in Russia.

Now we have EBITDA from business side for financing. So we believe that full year round, we have a chance to achieve 5% to 7% growth on corporate side.

On the retail side, I believe this number may be even bigger on mortgage and – around these numbers on the consumer loans and corporate creative costs.

And we are supported by the GDP growth

Thank you very much. Thanks.

Good afternoon. I have a couple of questions that given some details on the some of the other issues that have already been raised.

First of all, relating to your loan yields, they declined obviously more sharply than I think we might have expected. And I wanted to give you a chance of maybe help us understand how much of that decline was perhaps related to FX effects, seasonal effects or any kind of loan quality effects, any other technical effects, whether you can quantify it, that will be great.

If not, then even just some qualitative color would be helpful as well. And the second question, separate, on OpEx, one thing we noticed is that even though your staff count has declined in – on the pace that you have suggested, the staff cost per employee is up quite a bit year-on-year.

Is that in relation to hiring more IT staff or any other effects? If you could please comment, that would be great.

Thanks

Let me get to corporate loans. It’s a little bit difficult for me now to quantify all the effects behind it.

I don’t think I will too. If I were to do it, maybe when we present second quarter results, we will try to address that in numbers.

But on a qualitative side, I would say what’s important for us, taking into account, a way for us – reduction of inflation rate as a key rate Sberbank and Central Bank, and excess of liquidity in the Russian market. We created both the Russian rubles and American dollars.

And for the result, very competitive environment, competitive, competitive for good borrowers. You have to keep it in mind, and when it’s about big borrows, it’s about big tickets, we always have a tradeoff, either to be able to offer best or good pricing or get the tools business.

And we simulate also the scenarios that we have, not only risk based price but we also have – so let’s what we call dynamic balance sheet management. So we calculate net effect of every – of our pricing decisions that gets every pricing decision against every [indiscernible] and say every specific creative product, liability sector as well.

Based on this, we understand quite well, and we may quantify quite well on our decision. Hence, we can see much more certainty that develops in net interest margin on the bank level.

And for me, frankly speaking, as we take it into account and reduce our rates for corporate side, when the amount of pricing ability as well. Hence, the fact that the bank errands, number of margins, so set-to-set margins, that’s liability side margins, margins, transformation margin so [indiscernible] risk management.

So on the balance, we manage it. And I would say we should not pay too much attention to it – to only one component of it.

That’s the site margin on corporate loans. You have to keep in mind the whole big ship.

That’s the way we manage the bank. So we manage the bank basic of the whole picture, and not only one specific portfolio.

This is very, very important. That’s a very pragmatic and complex approach.

There are many balance sheet management that allows us to dynamically model all the possible scenarios and implications. And at the end of the day, we have to take all our decisions and get the pricing based – just aiming to pressure, to keep untouched or to a little bit enhance the margin.

I believe it’s possible for the time being. And so that’s really reflected in our guidance.

With regard to OpEx, it’s on a related stock expense. I’d like to remind you last year, we made some indexation of our compensation benefits item.

So we increased salaries and compensation for all staff members. So Russian and subsidiaries since as well since 1st of July last year.

And then we compare first quarter this year to first quarter previous year, it’s not that [indiscernible]. So basic is different.

So from that perspective, it’s not comparable. This year, we are going to increase our salaries as well to our staff since 1st of July and [indiscernible] inflation rate.

But it’s – will be reflected to very important in the third and fourth quarter. But nevertheless, it was planned.

It was very good. And on a full year time horizon, it doesn’t affect our full year forecast.

So we are prepared for that.

Thank you very much.

Thank you, everybody, for participating. And we suggest [foreign language].

So there will be Russian questions. Unfortunately there is no sound in the Russian line.

[Foreign Language]

Thank you for participating. If you have any questions, you can refer to Investor Relations.

Thank you.

Thank you very much, and bye-bye.