Sberbank of Russia (SBER) Earnings Call Transcript & Summary

Deal all. Hello, eceryone. Welcome to Sberbank Full year 2020, IFRS results. We are very happy that you decided to spend next couple of hours with us. We will try to explain and address all your questions and show you the very impressive results of our group, which we achieved during the last very challenging year. So our call is hosted by our management team, we have with us our CEO, Chairman of the Executive Board, Mr. Herman Gref. We have our first Deputy Chairman of the Executive Board, Alexander Vedyakhin. We have our CFO, Member of the Executive Board, Alexandra Buriko; and our Chief Risk Officer, Dzhangir Dzhangirov. We will have usually a brief introduction of our results, followed by a Q&A session for our analysts and investors, and then we will continue with journalists. Please note that this conference is being recorded today on the 4 of March 2021. Before we begin let me do some housekeeping. So I have to draw your attention to the fact that some information on the call may contain forward-looking statements, regarding future events and performance. Actual results may differ materially from those expressed or implied in the statements made during the call due to known, unknown risks and uncertainties. So for more information, please refer to the disclaimer statements in our presentation. English and Russian lines are today available, so please click the interpretation button on your devices. I turn it now over to our CEO, Mr. Herman Gref. Please go ahead.

Thank you very much, Anastasia. Good afternoon, ladies and gentlemen. Thank you for joining us today. I'm pleased to present you our 2020 results. First of all, we met our guidance improved despite the unprecedented and challenging year for all of us. People and businesses across the world have struggled with the pandemic and the related restrictions. And on top of that had to explore new behavioral pattern. The Russian economy demonstrated strong resilience, thanks to timely state programs and monetary stimulus and it's reasonably good shape before the crisis. Russian GDP shrunk less than feared by 3.1%. The government risky package costs 4.5% of GDP. And our Central Bank did a very good job cutting key rates overall by 200 bps to a historical low of 4.25%. Sber played an active role in helping clients' businesses and the community to deal with the crisis. We distributed social payments, launched our own support programs and participated in the state funding and restructuring programs. Overall last year, Sber originated RUB 17.7 trillion loans, including those understate programs. Sber has been the leading agent of state subsidized mortgages supporting demand. At the same time, we increased lending to developers or residential construction, the portfolio doubled to over RUB 850 billion. We made COVID-related restructuring or at RUB 2 trillion and RUB 5 trillion exposure for both, corporate and retail clients. Most payment holidays are now over. And we are very happy to state that the majority of our borrowers, both retail and corporate demonstrating solid payments discipline. Some of the industries in the corporate segment were more affected by the crisis and about the third of corporate restructuring required additional considerations in the second half of 2020. Overall, our assets quality looks pretty strong, and we will slightly update our outlook on cost of risk for this year, I think it would be a good news for all of us. Consumer activity and our payment business turnover was down bit during the lock down in the first half of 2020. But once restrictions were lifted, activity recovered fast. At the same time, the share of noncash transactions grew as a result of changes in client behavior. These factors supported growth of our fees and commissions revenues. As a result, we maintained a healthy level of capital adequacy and resumed dividend payments in October at the originally planned level. Sber was among the first banks to resume dividends last year. And we distributed a record amount of -- among Russian public companies over RUB 420 billion. We improved the market share across all key financial segments, with the most noticeable pickup in retail deposits to 45.4% from 43.8%. And historically these numbers are very important for our business. Now a few words about the quick overview of financial results. Net profit was RUB 760.3 billion. EPS came in at RUB 34.36 per share, down by 11% year-on-year. Return on equity reached 16.1%. Return on assets was 2.3%. 2020 was marked for us several significant events. First of all, we transformed into a tech company and completed our previous strategic plan. We rebranded to -- into the Sber, capturing our universe of both financial and nonfinancial services for life and businesses under one brand with a very strong recognition. And third, we presented our new strategy 2023, with a focus on an integrated ecosystem and easy agenda. What differentiates an ecosystem from a holding. It's a good question. Now we discuss this question with many our regulators and our colleagues. I can describe it in one sentence. Its focus is clearly around the client, while a holding was built around the owner. And our priority is to ensure the best user experience and engagement for our customers. Today, we're proud to report that our audience approached 99 million individuals and 2.7 million businesses. Out of them, 65 million retail and over 2.3 million corporate clients are using our digital apps every month. And more than half of them use on services every day. It's obvious that the pandemic boosted digital habits. Even traditionally offline audience bought twice as many products online compared with last year. Additionally, our digital nonfinancial services monthly client base of e-grocery grew over tenfold and of video streaming doubled. Over 55% of all retail products were sold online. We launched a family of voice assistance, Salute. They simplify user experience and make the use of our apps real fun. We started production of smart devices, SberBox and SberPortal, which are compatible with voice assistant. We launched SberPay, upgraded all our P2P tariff model around -- after transported to over 140 cities. All that contributed to the fact that more and more retail payments in Russia become cashless. Our numbers show the share of noncash turnover at Sber is 71%. In our wealth management business, we have maintained a leading positions across key segments, such as life insurance, investment insurance and mutual funds. We increased assets under management by 70% to RUB 1.75 trillion and made all products available on our online channels. To recap on our nonfinancial businesses, we added a few lines through acquisitions, including digital geo locations, audio streaming, enhanced presence in in Foodtech. The entire investment in nonfinancial ecosystem assets as the end of 2020 was around RUB 158 billion. In our nonfinancial businesses, we [indiscernible] RUB 71.4 billion in revenues, demonstrated 2.8x growth year-on-year. The integration of our ecosystem is now facilitated by 36 common services, including SberID number of its active users reached 16 million users. In 2020, we launched SberPrime, which is subscription-based bundles of products. It will be expanded and diversified this year. And finally, I would like to share with you our recent developments on ESG agenda. In 2020, we reshaped our ESG activities. We set up Executive ESG committee, created a dedicated team and appointed ESG supervisors to both of our Boards and defined ESG goal in Sber's new strategy. At the beginning of this year, Sber became a member of 2 global ESG initiatives, principle for responsible banking and Global Compact. This step flags that easy transformation is Sber's recognized choice and crucial for our corporate sustainability. All in all, 2020 ended on a positive note for our corporation. Based on our strong results and significant buffer of our CET1 capital adequacy ratio, we feel comfortable with proposing to our Supervisory Board the same amount of dividends per share as we paid last year -- over the last year, I mean, 2019, which will mean a 56.2% payout of net profit. And I would like to thank all of you for your attention.

Thank you, Gref Herman Oskarovich, and I pass the floor to our CFO, Alexandra Buriko, for the short introduction of our segment reporting, some quick update on our outlook.

Thank you, Anastasi, and good day, everyone. Thanks for staying with us. I promised to be very quick. A few words about segment reporting, which we present for the first time in our 2020 financials. During the strategy day, we defined our key growth drivers and structured the segmental breakdown accordingly. We talked about our banking business, payments, wealth management and brokerage, risk insurance and nonfinancial businesses. So now it's a new format. The segments are by business lines and not regions as was previously done. As mentioned by Mr. Gref, revenues from Sber's nonfinancial businesses for 2020 reached RUB 71.4 billion, in line with our guidance. We are going to disclose the operating metrics relevant for each business line to give you traction of its performance. E-commerce is our strategic priority, as we discussed during the strategy day. Its pro forma GMV reached over RUB 26 billion, represented by our e-grocery business, which includes SberMarket and Smartcard as well as SberLogistics. And shortly, we will add a nonfood marketplace good.ru. We have signed the agreement in January and are going to close the deal pretty soon. Also, we will complement the e-comm space within e-pharmacy business. We recently invested in a 45% stake of a JV for our SBER EAPTEKA. Our B2B nonfinancial businesses with main drivers in cybersecurity and SberCloud turned EBITDA positive on an individual basis in 2020. I hope that this disclosure will help you understand, track and value our business on a going-forward basis. Now let's look at our 2021 guidance. On the macro front, we slightly adjusted our forecast for 2021 with regards to inflation and the key rate versus our expectations that we shared with you on the Investor Day in late November. We revised inflation up to 3.8% from 3.5 as pricing pressure increased, distorting the [indiscernible] of CBR. We now expect the key rate to stay flat this year. On the sector side, we upgraded our guidance for corporate deposits to 10%, 12% range from 9%, 11%. As Sber numbers, we basically made 3 adjustments. First of all, on net interest margin, we ended 2020 higher than expected, and now we forecast a 50% basis point contraction from the higher base. On cost of risk, as mentioned by Mr. Gref, we slashed our expected range by 20 basis points to 120, 140 basis points to flag our more bit view on the asset quality. And finally, on the back of the changes, we have improved our guidance on ROE by 1 percentage point to over 18%. So thank you very much, and back to Anastasia.

Thank you, Alexandra, and I open up the Q&A session, and we take our first question from Andre Rusinov, Goldman Sachs.

Good afternoon, colleagues. Thanks a lot for the presentation. Congratulations with very strong results, especially with your desire to maintain the dividend flow that would be obviously very much appreciated by investors. So I've got a couple of questions. And probably more over medium-term and longer-term nature. So I would like to address them to Herman Oskarovich. Herman Oskarovich, essentially, kind of talking about your ecosystem and also the competition you are facing from various areas, could you please maybe elaborate your thoughts about the recent actions of the Internet companies and the commerce companies that are looking to develop their payment and more broadly lending capabilities. So do you see this as a risk to potentially your core business or risk to your developments in the broader ecosystem space. And probably the second question that's also a bit connected to that theme is about the regulations with regards to the ecosystem. You mentioned that you're in close contact with the regulator. So if you could maybe share some light on what your initial impressions about potential implications of this regulation on the development of your ecosystem that would be very much appreciated.

What could I say about this activities, all our Internet competitors with payments. It was totally expected from our side. What we described in our previous strategy that we need to be a tech company because now all tech companies try to be a banks. And we would like to fight with them on their territories. Now they tried to come on our territory, but I think they're a little bit too late with that. If you look at benchmark for us like a Chinese market. If you look at transactional activities in China and transactional business, 95% of all transactions -- first of all, I mean, the Internet transactions, but off-line also now doing 2 companies, WeChat and Ant Financial. And it means that transactional business like a very important business for the banks, not from the profitability side, also from the very important data sets side. Because the transactional debt generated very important data for risk management. Now then I think they are not able to bring this situation back. In our market, we have -- we are the dominant player because we didn't slip last 10 years. And we built outstanding transactional services for our customers. And I think that now we are ready for this kind of competition. I think it's all what I can say. We'll see how the situation will be developed in the future, but I think that we have a huge opportunity to be a biggest player in this market and to save our dominant positions. The second question is also very important because now in the whole world everywhere we see this conversation, these deep discussions about ecosystems and how the state can regulate the competition and these huge companies based on the platforms. Same situation we see in Russia now, we are in very active stage, in a very constructive discussion with our Central Bank and with our government. We would like to organize special discussion till the end of March, together with the government, how the regulation will look in a few years. I think that we have very constructive discussion. We organized a special presentation for regulator, I think, 1 week ago. We received a lot of experience, a lot of practices from the whole world. We now understand these trends in U.S., in China, in Europe. And now we understand what the regulators in the whole world doing in this area. And my opinion that our regulators, including our Central Bank, understand very clear that ecosystem, this is the fact, and this is the -- our future this is the trend. And the -- we need to monitor this situation and many markets in which this -- the big companies try to build this ecosystem and to save the competition between the ecosystem. In Russia, I think the situation is not so difficult because we have national competitors and 3 of them, the big players in this area. I mean, [indiscernible] Sberbank. And I think that it would be right if we don't be aggressive with this regulation because regulation can kill the business activities very easily. And I think that now we altogether we are on the same patient, we would like to monitor the situation and maybe support competition in many markets. And a few of the markets now mature enough, for example, if you look at taxi, it's a dominant player there. And we had a growing competitor for them, but I think that for the state, it's very important to save this competition and to support this game between 2 big players. But in many cases, the market is not so developed, for example, in the e-comm, and we see that we have a big players in these market leaders, but the market is on the beginning of the maturity way. I think that we will see this competition during the next 10 years, not less. And I'm optimistic. I think that now we are in a very constructive way with the regulators and level of understanding what is the right way on the ecosystem economy is very high. I mean Russian government and the Russian Central Bank. And I think that we will find the good solutions for the business and for the government also.

And meanwhile, we take our next question from Gabor Kemeny, Autonomous.

Hello, can you hear me, please?

Yes, yes. Yes. Gabor. Please, go ahead.

First question is on the segment. Thank you for providing the segmental disclosures. Looking at it, it seems that your payment business has been growing a little more quickly than you anticipated than what is implied in the 3-year strategy. And on the other hand, the insurance and the wealth management businesses seem to be trending a bit below the growth you indicated that. What's the outlook for these segments in -- for the income growth in this segment in 2021? Second question is on your assumptions on oil prices it seems that you are assuming a $55 oil price for 2021, and we are quite significantly above these levels. Right now, it's around $65. How would this impact your business outlook if the oil prices stayed at these higher levels? And just finally, if you could comment on how you expect the gusto through and cooperation to facilitate your e-commerce ambition in 2021.

Thank you very much for your questions, Gabor. I will start with the first one. Indeed, the growth in our payments business was quite healthy in 2020, despite some downfall during the first half, that was related to the log down period. And we anticipate that this healthy growth will continue in 2021 and throughout our strategy period. However, as we discussed during our Investor's Day, we do have certain risks related to regulation and potential decline in seasoned commissions rate. However, for now, it is still a very fast-growing business. We have large share in acquiring that helps and changes in client behavior that was mentioned by Herman Oskarovich, also was very helpful in this regard. In terms of your second question on the oil price, I can only say that our sensitivity to the oil prices, such is quite small. We are rather sensitive to ruble dollar exchange rate. And as you can see at the moment, the ruble dollar exchange rate is not fully compliant with the level of oil prices. But with that, I will pass to Oleg to maybe comment a little bit more on the levels that we forecast versus what we currently see.

Oleg Zamulin, Chief Economist.

Yes, I'm Oleg Zamulin and our assumption about the oil price comes from the fact that we think that the pandemic will still weigh heavily on the Russian economy this year and not only Russian economy, but the world economy. And therefore, the demand of oil will remain subdued. So we are not confident that the high oil prices that we observe today will stay throughout the year. Especially since there is much capacity to increase oil output in the world given the current restrictions on oil output, both from the OPEC countries and from the United States where these resections came naturally. That's the basis for our forecast.

[indiscernible]

The third question about our comment go through frankly speaking, I don't want to speak a lot about the deal with good because the deal is not close now. Maybe 1 month ago, we signed MOU and now underway to finish this and close this deal. And after that, maybe we can announce a little bit more detail of our plans, also together with our partners. But what we announced before that GMV this year and our e-com business must be doubled, and we save the same forecast for this year. And e-com is a very high priority for our team. And each board member had the same KPI for this year for e-com due augmented. And believe me, we will do everything and what we can to start and to launch this business as the highest priority in our company.

Just a quick add, not only e-comm, but overall revenues for nonfinancial services will double as we discuss or not less than double. And of course, e-comm will be the largest part of that development.

RUB 125 billion to the end of this year due in for e-comm here.

Thank very much. And we go ahead and take our next question from Mikhail Shlemov of VTB.

Yes. Do you hear me?

Yes, Mikhail.

I actually have 3 questions, 2 of them are kind of bundled together, but just like the way how I want to ask them, and that's mostly questions for the Herman Oskarovich. So if we would look rectally or examples of the other markets, how basically the fintech disruption to the incumbent banks have been coming from, it has mainly come from the payment. As you have rightfully pointed out and something which is very well visible in the segment reporting, you made a very strong move and pretty much ensured that you remain a dominant player in the payments in the digital age as well -- in the digital age as well in comparison to the previous branch-based banking. So the interesting point is that for regulators doesn't seem to be happy about it. So they are intervening more and more and actually leaving the disruption in the payment space. And probably, if you would follow this logic, they would be willing to take a more proactive role in terms of regulating or even try the competing review. So perhaps I want to hear your first -- how you think about this unlikely competitor, which is effectively the regulator and how it's going to impact the broad strategy? The second question also relates to the segment reporting, which is again, super helpful, and thanks a lot for providing this to us. And that actually comes to wealth management. And the interesting point of that, which I have picked up from one McKinsey report about the fintech, is that the wealth management in reality is the second largest revenue pool attractive for the fintechs right after payments. However, if we would compare the performance of the segment to the payments, it has been basically stagnating last year in terms of the bottom line, even despite the fact that we had a huge inflow of the retail investors on the Moscow Exchange. And some of your competitors have been demonstrating explosive growth in space. I was wondering on whatever you could share a little bit more ambition or perhaps even just like make a wealth management footprint into the high-growth club of basically the doubling of revenues given the high priority and actually the room for disruption coming from this space. These are the 2 or ecosystem, let's say, base question. And the third one is actually coming on a dividend. That's very highly appreciated the fact that you decided to maintain the dividend, especially in the turbulent times and especially in the context that you haven't stopped paying for dividend during COVID-19 crisis. However, a more philosophic question is that how we should -- with the thinking about your dividend payout going forward? As clearly, 56% likely to set the expectation that 50% dividend payout is a flow. So how we should be thinking about dividend distribution going forward, especially, if I remember, we were talking at the strategy today about the fact that you were thinking that the excess capital, which you have in the bank could be returned to shareholders.

Mikhail, thank you very much for your questions. The first question is -- I think it's the same question relating to the first question, what you think about the competition with regulator. Now we don't have a some of problems with our regulator because we are joined the common system is about BP -- fast payment system. And now we are on the right position with the regulator. And I think that now we have a huge market share of the payments. And it's -- it would be very difficult to save same market share. And I think that we could see maybe in a few years, we could normalize our market share. But now we are very, very powerful in this area. And it would be not so easy and not so fast. But I understand that we can -- I don't want to make some of the forecast in numbers, but I think that maybe it's only one country with this kind of situation when one big player has a such big market share. And I think it's normal. Banks and ecosystems, Internet players, regulator, altogether, they will try to compete with us, and we'll receive part of our business today, but it's not such a big problem for us. How big will be share, I don't know, I don't want to predict. Frankly speaking, when we started with this business 12 years ago, I can't expect that we will reach this kind of unbelievable market share. But what I said, I think it's -- I look at this situation, maybe like the special case in the world. But I think in 10 years, maybe we will have 50% of market share, but not less because we are very powerful. We are technologically very powerful, and we develop our technologies and new opportunities for our customers in payments, and our platform is #1 in our market by technological abilities. And I think it would be very difficult to fight with us. If you look at the growth management, you're right, it's -- it would be #2 size of the market for all of us for, I mean, financial organizations. And we grew last year 3.6% year-on-year. But if you look at the situation last year was not such an easy environment for wealth managers. And the pandemic situation, the second question, this is the new regulation of miss selling, the cut our growth during this period of time. And I can say that -- I can add maybe shorter reason on that we invest a lot of efforts on technological basis in this business. Because, frankly speaking, we invest before, we invest much money and much our efforts in retail and the corporate, but it wasn't so strong in wealth management. And last 2 years, we invest a lot of money in -- on that. And I think that we'll -- you will see during the next 3 years, the growth will be -- I hope that the growth in this area will be double digits. But I don't want to say that we would be -- we will double this result like in nonfinancial businesses, but I think that we'll -- you'll see good growth in growth management. And the...

And the third was on dividends, go forward.

No, look, it's very difficult to predict now how situation would be in the future. But we say -- what we said many times before, if we would like to have enough capital adequacy ratio. We would like to distribute our capital to our shareholders. And -- but I'm not ready to predict the numbers on that. And it's a principle. I can -- I could say and I could tell you our principles. And you can feel that we're very strong in declaration. And then delivery of all our promises and all our principles. And this year, what we have done during this difficult period of time during the pandemic that we distributed more than we promised that it means that we are on the track to follow our promises, which we have done before. Thank you very much for your question.

Thank you. And I am afraid we have to let Herman Oskarovich go in 8 minutes and have room for 1 question to him. We have in the queue Elena Tsareva from [indiscernible] , Elena over to you. But don't worry for the rest of analysts, we will continue with the team, and we'll address all your questions. So Elena, please go ahead.

And it's really good results for a very challenging year. So my first question is about like last year, we also stated in the press release that there was a good support of mortgage from the state program. So how would you evaluate the impact of these state programs, support program for mortgage when it comes to end on potential demand for mortgage and potential growth of mortgage business at Sber? And my second question, your key rate forecast and expectations and sees no change this year. But if we just see here some discussions here, some signals that there is a possible hike of key rate within the year, will be its risk for your NIM guidance? That will be my questions.

Thank you very much, Elena, for your questions. Mortgages now is a very significant business for us. And if we look at the state supported programs, now it's 25% of the new loans. And what we see that if the situation would be stable. I mean the inflation rate will be on the same level on the -- we don't expect that -- and if the program will be canceled in the middle of the year. Then we don't expect that it would have such a huge influence on the growth. I think that we will see maybe less than previous year and less than first half of the year, digits on growth. But I think we have a good potential to growth till the end of this year. And I don't think that it would have a huge impact on our portfolio and our NIM and financial results resulted in this year. And what I see that the government now try to intensify and implement different mechanisms to provide more loans because they have very aggressive plans to double the amount of building construction. And it's very, very aggressive goal for the government. And we have a very good team in this part of the government, Mr. Mishustin, in Vice Prime Minister, he is very experienced and very energetic guy. And now we are participating in different meetings with him to try to find new mechanisms, how we can intensify and provide money to the population -- to the citizens to buy more and more apartments. And I think that we will see a huge opportunity in this area during the next 5, 10 years, not less. And I'm very optimistic. And our B2B construction business and in our retail mortgage business. And we have a very good situation after the new regulation for the construction companies. Last year was not so easy for all of them, but now they are recovered. And we see a lot of new projects, and the government increased the amount of money in infrastructure investment. And I think that we will stay in a very good position from the banking side in this business.

And I believe there was a second question, Elena, on the change in CBI recovery on the interest rate. And I think it's important to understand that since the end of last year, we are now positively exposed to increase in CBR rate due to change in our asset structure and the large share of floating rate loans in our portfolio. So we don't see any downside risk to our NIM guidance. If the situation does not go as planned in terms of our forecast of the flat rate until the end of the year.

Thank you. Thank you very much. And closing remarks from our CEO, Mr. Herman Gref.

I would like to say that it was not an easy year for our business and for our organization. But if you look at the end at our results, we delivered in this -- not such a friendly environment, I think, very good results. And we're sure that this year would be much more successful for banks and for us specifically, and we will deliver also good results. And we're sure that we will -- now we are in a very good position because we finished our main part of technological transformation. We have a very strong team with a very -- good more than enough technological resources. And we are very strong in our relations with our customers. We provide many different services to our clients, including digital services, including digital transformation. And what we see that now is a huge demand on digital transformation in the market is key for many of our corporate customers. And we could provide them through SberCloud, newest and the best technologies, which we can see in the world. And it makes us happy. It gives us a lot of fun in our very traditional banking business. And what I see that in the eyes of my colleagues, they're completely different than 5 years ago during the beginning of this way. It was a lot of hesitations. And nobody else can predict that we can finish this transformation. But now this part of the game is over. Now we are in the new way, in the innovative way, and it's very interesting for the whole team, and it gives us new energy. And I would like to thank all of our investors for your trust, for your support and we will do everything what we can do in the situation to provide to you the best results. And hope that we can see also a little bit different impressions from your side, as a bank to the technological organization, technological company with completely different multiples. And this is the way which we can -- which we try to implement and bring the new value to our shareholders. And we believe that it's possible, and we will show to the -- all our investors that it's possible because many criticism during the last years was that please guys tell us, could you show us the second financial organization, who has this type of radical goals to convert their business to the technological and high-tech organizations. Now what I could see that a lot of banks in the world announce the same goals to build the ecosystems. And now we're not alone, a lot of our colleagues doing the same, not only in different countries, also in Russia. And we have a huge respect to our competitors, including the banks. We have a big respect to our competitors, think of, VTB, Gazprombank and many, many others. And we don't want to be self confident or so proud that we don't to be part of this environment and not to be a right competitor for them. We have huge respect to each of our competitor. I mean, the high-tech organizations like Yandex and the financial organizations and banks. And I think that altogether, we will develop economy in our country. And I'm optimist on that because the Russian government with the new program, which now their very intensive discussion will bring the country to the new level of economic growth. And it will give us a good upside for developing our ecosystem, new businesses and not financial and financial area also. And thank you -- thanks to you. We will stay in touch. We will open more and more information about our ecosystem, and we are ready to be criticized from your side. And we're expecting your constructive criticism. And we would like to stay in you -- stay in touch with you every day. And our IR team is ready for that.

Of course. Thank you very much, Herman Oskarovich. And we continue with the question, and we'll take the next question from Alan Webborn, Societe Generale.

Can you hear me?

Yes, sure. Please go ahead.

A couple of questions, if I may. Firstly, it's question on -- actually on ESG. Without becoming too broad, I'd be interested to know what your priorities are for the next year. I mean, you've clearly set yourself some big goals to be a leader in Russia and to pull the rest of Russia along with you, but I'd be interested to know what your priorities are for the next year? In particular, I wonder whether that ESG will become part of management incentives. It's something that you're probably a little bit behind other countries in doing that. And I wondered whether there was something that was being planned there. And also whether you feel opening up to independent audit from an ESG perspective is something that you might consider. So that was -- those were the questions on ESG. And I think also, are you actually in pulling Russia forward, be willing to go beyond Russian regulation? Because clearly, ESG criteria at the moment are being led elsewhere. And I wondered whether you now feel you can go further. So that would be very interesting. And two perhaps rather more dull questions. I did notice that the retail site deposits in Q4 were extremely strong. And in essence, the cost of retail deposits was very low in Q4. And I wondered whether you felt you could actually keep retail deposits down at that 3.1% that you achieved in Q4 because that did appear to be an extremely good figure. And then perhaps, if we could, get a little bit more granularity on what was going on in the cost of risk in Q4. I mean, you've been clear and we've seen from the RAS numbers that you've done better than your target. But clearly, the cost of risk in retail was exceptionally low in Q4. And you clearly did a few things on the corporate side. So I wondered what were the moving parts in Q4? And what's behind that is the reason for your change in guidance more than just generally feeling better about things.

So thank you, Alan. So actually 3 of us can answer, here is Alexander Vedyakhin. So about ESG. So as Mr. Gref said, this is a strategic priority for us. And this is what we'll do. So they would like be a leader in the ESG agenda in Russian. And maybe 1 of the leaders in the banking in the world. So this is our goal. Why and how? Actually, so we are actually improving, so to say, developing ESG agenda in 3 areas. First of all, ESG for our employees. This is really important and we have, for example, more than 1,000 initiatives, internal initiatives that we are supporting. So that's really good, and this really help us to encourage our employees, especially in the young generations. So second ESG for government. And we are in talks with the Central Bank, we are in talks with the government, we are in talks about all possible green agenda we have in Russia. And this is really important for us and we have also made a center for competence in Sberbank and Sber actually has to provide green and ESG services for our counterparties in the Central Bank and other regulators and to the government. So -- and ESG for our clients. So for retail clients, we're making special green products, the green cards, et cetera. Some green initiatives and social initiatives. So for example, we help a lot for workers from the East coming to Russia to work that's, by the way, there are more than 4 million such kind of workers. And we are talking in Tajik language, for example, Kyrgyz language with them and so on. So that's social agenda. And for green agenda for for our clients, we will rate all our rate portfolio, I mean, in terms of legal persons, so we'll rates every company for the CO2 footprint. And ESG rating. And based on this ESG rating, we will decrease interest ratio for the credit portfolio. And we hope that Central Bank will decrease RWA, risk-weighted assets, for such kind of stable companies. So we're on talk -- we're in talks with the regulator about this. And about external audits, we have made S&P audit for ESG, and I can say that we have quite a good rating. It's not under disclosure, but so we...

We'll release it closer to the year-end.

Yes. Yes, yes, yes. We'll release it in the year-end. And I think you will see it our annual report. Yes?

Yes.

Yes. Okay, when IR answered yes, it means, yes. So you will see our external audit results for ESG agenda. So I think that's all for the first question. And for the second question, I will pass word to -- on for ESG, we are really happy that the risk management is really in -- so having this in the loop ESG agenda. So Dzhangir?

Yes. Thank you, Alexander. Let me add a couple of words here. Actually, last year, we incorporated these factors in our credit policy. So we discourage projects where -- that the risks are high, and we encourage those where the risk are low and as Alexander said this will be in our interest rate. We're going to develop our own ESG score for our corporate clients, and we already started to collect data for that. And by the end of the year, we're going to have already some results. And the ultimate goal here is to incorporate ESG factors in the PD models. And once we do that, as Alexander said, we were going to, I would encouraged Central bank to incorporate the defectors in RWA valuation. This is what I wanted to add Thank you.

Thank you, Dzhangir and Al, I think you clearly can see that ESG is at the top of our mind and is included in all top team KPIs for this year. And now going to your question on the cost of retail deposits. You're absolutely right. And following the reduction in key rate, we managed to reduce the cost of funds and in particular, the cost of retail deposits quite significantly. And these trends, albeit at a slightly slower pace, but continue still as the previous deposits expire and people renew deposits or put them into special currency accounts -- current accounts that we launched recently that are interest-bearing. So overall, the cost of retail funds continues to slowly decline. However, the upside here is obviously limited considering that the key rate is now forecasted flat or may even increase towards the end of this year. We don't see here a huge upside potential. But of course, we will manage the cost of funds, and we'll do our best to maintain net interest margin in accordance with our guidance.

And so to add a little bit on words of Alexandra, I would like to mention that in December, we have always regular payments from the government. And that's our costs for free, so to say. And you can see that some decreases in Decembers and every December, actually, you can decrease cost of funds based on this effect, but I agree with Alexandra, for sure, that we have such kind of forecast.

Excellent. Now to Dzhangir about the cost of risk in Q4.

Thank you. So in Q4, our portfolio have performed better than we expected. And actually, it continued to perform better already in the first months of this year. So our more conservative assumptions were based on the assumption that it will be difficult for some of our clients, especially from the industries that suffered from pandemic that it will be difficult to return to the schedules. However, what we see is that most of the clients actually return to their schedules. And in -- our models actually also show that in previous crises, we've seen more strong correlation between macroeconomic factors and performance of the portfolio. This year -- last year and this year, we see that that correlation also slightly broke, which -- and broken in the good way. So portfolios performed much better than just based on the macro development. And this is especially in the retail. So retail performs much better than one may expect based just on the macroeconomic assumptions. And therefore, we changed our guidance, as Alexandra mentioned, related to the range between 120, 141. And there is some room for further improvement until the end of the year.

Thank you, Dzhangir. Perfect. Thank you, Alan, for your questions. So we go ahead. The next question we take from Andrey Klapko of Gazprombank.

Most of my questions have been answered already. I just wanted to get your official confirmation about your segment analysis, your ecosystem segment analysis on the pretax level. You booked the net profit of RUB 8.6 billion. Is that correct that the Yandex market stake disposal has been included into that. And yes, if I remember correctly, the financial effect from this deal has been estimated in the amount of RUB 20 billion. So without this deal, it was actually slightly more than RUB 10 billion loss. And broadly speaking, what the ecosystem -- what businesses of ecosystem are positively contributing now on the pretax level, if any, if possible, to disclose that? And could you please reiterate your sort of time line of other businesses going profitable on the operating level in this year particularly?

Andrey, thank you very much for your questions. So first, on the nonfinancial business and the results of disposal of Yandex market. Indeed, the segment result includes the positive result of disposal of the Yandex market in the amount of RUB 20 billion. It's a pretax amount. The amount of gain on disposal was previously disclosed. And yes, it is included in this segment. In terms of what -- like what is positive and what is EBITDA or segment result positive and what is negative in 2020? You can see the breakdown in addendum to the presentation as well as in the financial statements. But basically, the majority of our B2B ecosystem, are EBITDA -- businesses are EBITDA positive. And in particular, we highlighted the 2 fast-growing stories, cybersecurity and SberCloud, both of them are in the green zone already in 2020, and we expect that they will remain this way, despite kind of the expected growth in double digits or even for SberCloud, in particular, we expect growth several times in terms of top line. And in -- on B2C side, the majority of these businesses are still in the fast-growing market share gaining stage. And as we previously stated, the focus right now is on the top line as well as the unit economy. So what we consider important is, of course, gaining the market share as fast as we can, especially in e-commerce space, where competition is fierce, as we already discussed. And at the same time, we are very watchful to make sure that the unit economy is positive, and the business models are viable. The time line, some of the businesses we expect to turn positive in 2021, but the majority turning, in terms of B2C, are turning positive towards 2022 and 2023. Of course, it will depend on many factors that are currently unknown. But the goal, of course, is to gain market share and ensure that all of those businesses are earning good margins. Thank you.

And our next question from Sam Goodacre, JPMorgan.

Hello, can you hear me?

Yes.

I have a question on your insurance business. We obviously saw a decline in the gross-written premiums last year. But obviously, it's a very underpenetrated market. So when we think about the outlook, which segments of insurance are you most optimistic about? And could you also give us a bit of color on the competitive dynamic in that business? If perhaps we break it down between life and non-life, for example. The other question I had was related to your risk-weighted asset density release. And if you could remind us of the the sort of the decline you would expect over the course of this year from the implementation of centralized approach in the op risk part of that calculation. And then the other thing was just a clarification really on what Mikhail was asking earlier on your dividend policy. You've obviously -- you're recommending a dividend payout of 56% for this coming year. And I wonder if that therefore means that you're rather targeting dividend per share rather than a sort of a payout level as you have done previously.

Thank you for your question. So the first 1 on insurance business will be addressed by Alexander and then will share.

So we see in the insurance business, a big potential. So you're absolutely right. So 2020 was not so good year for insurance business also because of this COVID Pandemia. So despite of this, we see some increase in the segment assets. And you see it's in our segment analysis. Actually, yes, I'm not satisfied with the dynamic we have for this -- for insurance business. And we are assured that in this year and in the next 3 years, we will see much better results in insurance. So you asked about what are the main sectors, we will increase. So our revenues and our shares. I can say that actually, we will do -- so corporate insurance we will increase, and this is really understandable for us. Car, property insurance, health insurance and actually, our main target is online insurance. So as you know, our Sberbank Online has more than 60 million of online users monthly. And it means that we have really huge client base and providing this client base with the insurance -- insurance products, we will definitely improve our market share and definitely improve our profits. So by the -- so we are providing also insurance for pets, for example. And I have insured my cat, for example, now insurance companies. So when you have some pets, please welcome.

So the question on RWA density goes to Dzhangir.

So as you know, last year, we significantly improved our RWA due to mainly 3 reasons: Basel 3.5 implementation, also we implemented the new models for IRB. And we released some of the macro add-ons as well as other banks in the banking system, since central Bank allowed that. And in fourth quarter, there was another effect, which is increase of -- in the share of the government bonds in total assets. And therefore, our RWA density also slightly decreased. And this year, we are going to continue -- complement the new IRB models, but the main effect will come from a standardized approach for operational risk. We are fully ready for SA, and we are going to send the application to Central Bank over the course -- just few days. And that will give us approximately RUB 1 trillion or probably more of decrease in RWA.

And the last question was on dividend policy.

Yes. Thank you, Goodacre. As Mr. Gref already stated, it is very important to us to keep our promises. And we stated during our Investor Day presentation, that if we do accumulate excessive capital and have sufficient room above the comfortable level of capital adequacy, we will distribute that accumulated capital to our shareholders in the form of dividends. And I think this is how we want to look at it. Obviously, the 50% threshold remains an important mark, and it will remain in our dividend policy. However, we will follow this rule, and we'll continue to hopefully positively surprise our shareholders if and when we do accumulate sufficient cushion above the capital adequacy level. And just to clarify that the dividend payout that we will propose to our Supervisory Board will be RUB 18.7 per share this year. That is a similar amount as was paid out in 2020 or 2019.

And I, could I have a quick follow-up?

Yes, please.

Yes. So it's again related to insurance. So last year, your claims ratio increased by 25%. And and that seems somewhat counterintuitive to me given that as an impact of the result of the pandemic, mobility would have been lower, they would have been fewer folks driving cars and fewer accidents. And albeit the death toll potentially because of COVID was higher. There would have been less folk out and about dying in normal circumstances. So what drove the 25% increase in the claims ratio over the course of last year.

Yes. We are just looking at the numbers. And the reality is that it is driven by the recognition rules of the standards, where in the first year basically we recognized a larger part of all the potential claims. So it is not driven by the situation in the economy per se, but more the actuarial models that basically we use in order to reflect the results in our IFRS accounts. And just to clarify that in 2020, we're still not in the market for such things as car insurance, for example, it is a new part of our strategy that we're just launched in this year. So it is something that you will see as key drivers on a go-forward basis. Thank you.

Thank you, Alex. Thank you, Sam, and we move on to the next question we take from Ivan Kachkovski, Morgan Stanley.

I have 2 questions, and my first 1 is on the net interest margin. Your NIM decline expectations of around 50 basis points for this year, were first discussed in later November, early December and were based, if I remember correctly, among other things, on you're expecting another key rate cut from the Central Bank. Now that the regulator has moved to much more hawkish tone. And presumably, you have also changed the view on the potential for the rate cuts. How much, in your view, does that change pressure on asset yields for this year? And your overall view on the potential net interest margin trajectory? And isn't your current 50 basis points decline guidance looking a little bit too conservative? That's my first question. The second one is on the cost of risk to Dzhangir. So it appears you have reversed a part of macro factor for retail loans in the fourth quarter, but remain pretty conservative from the corporate side. And yes, you have improved your cost of risk guidance for this year, but it still seems to be quite significantly above average above through cycles. So what is driving it? If you could maybe provide a little bit more color. Do you see potential for further write-backs on your macro factor? And how is your outlook for the corporate side of the cost of risk looked? How does it look in particular.

Thank you very much for your questions. I will take the first 1 on net interest margin. When we presented our guidance at the end of November, we actually forecasted the same CBR rate as we are casting now flat at 4.25%. So here, we do not have any significant changes. And in reality, we do kind of upgrade the overall level of net interest margin for 2021, considering that we finished 2020 at the higher level. However, you are absolutely right to say that at this moment in time, we do have more upside potential than at the end of last year when the CBR rhetoric was not as dovish as it is now. And as I said, we are positively exposed to changes in -- or to increase in the interest rate. So we do have some upside potential here. And if the situation changes, we will definitely upgrade the guidance. However, it is not yet that we are ready to do that. Thank you. And now over to Dzhangir on cost of risk.

Yes. On the retail side, we actually indeed released the macroeconomic add on. Because actually, our macroeconomic outlook now is much better than it was in the first quarter last year. So we released that. However, at the same time, we did calibration of our PD models based on the history, which included the year 2020. And therefore, on the collaboration part, we actually increased back our reserves. So -- and the total effect was neutral, just to give you an idea of what happened on the retail provisions. On the corporate side, actually, the maturation of the portfolio is slower than on the retail side. And therefore we think that we don't -- we haven't yet seen all the results of the -- across industries. So we continue to be conservative here. But again, as I said before, we once we see the maturation and the effect of the restructuring, we may further improve our guidance. But let's wait the results of the first quarter at least. Thank you.

Thank you very much. And, we have 1 more question that we have received from the Andrzej Nowaczek, HSBC. The question is on the RUB 500 billion GMV target that we have, 2023. Whether it relies on acquisitions or e-commerce -- of other e-commerce businesses or we talk about organic growth? And what GMV run rate are you seeing for 2021 after the first 2 months of this year? The question was to Alexandra Buriko.

Yes. Thank you, Anastasia. I think we discussed during our strategy day that we will consider both organic growth as well as acquisitions when we are building our integrated e-commerce player. What is, I think, very important is that this year already, we closed one deal on e-pharmacy and we're in the process of finalizing a very important deal on the platform, goods.ru that is definitely going to form the basis that -- or the central piece of our e-commerce platform. On the go-forward basis, potentially, we will look to acquire some missing pieces if we feel that the price is right and kind of it is a good combination synergy with what we already have. However, I think it would be fair to say that what we already have in our portfolio, including acquisitions of e-pharmacy and goor.ru is sufficient we feel to achieve the target of RUB 500 billion GMV in 2023. In terms of the run rate, I would propose that we wait until the Q1 disclosures, where we will present, as we promised our full segment breakdown similarly to the full year accounts. And of course, because some of the acquisitions are not yet complete, we will not have the full picture yet, but the businesses that we already have in our portfolio, such as the market, some cut in logistics are going according to the plan. And the plan for this year is RUB 125 billion GMV that was already announced by Mr. Gref.

Thank very much. And we take the question from Alice -- we have one follow-up question, as I see from Mikhail Shlemov, VTB, and then we move on to journalists.

Thank you very much for opportunity for a couple of follow-ups. First of all, I wanted to follow-up the question, which [indiscernible] was asking about the net interest margin. I have quickly looked up at the sensitivity disclosure in the financials and just like something which has surprised me actually. Is the fact that the sensitivity to the change in the ruble interest rates, it seems like has significantly dropped actually, in 2020. And actually, it looks like fairly marginal. So according to financials, 1 percentage change drives only RUB 2 billion change in the net interest income. I just like wanted to check whatever it's right or whatever we are missing something in calculation, which we are seeing in the financials and the broader picture should be more complex. I would like to get your thoughts on this? That's first question. And the second question is, and actually on SBER EAPTEKA of the recently completed acquisition. And there are 2 questions around this. First of all, in what segment it would actually fall, whatever it would be e-commerce, where we do have a GMV target or whatever it would be a health segment, which you have been disclosing separate, just helping us to most properly? And whatever you can disclose since you've completed the deal, the GMV of EAPTEKA in 2020?

Mikhail, thank you very much for your questions. On interest rate sensitivity, I believe I already mentioned that, but maybe I was not sufficiently clear. Indeed, basically, our sensitivity turned at the end of last year and we are now positively exposed to increase in interest rates marginally positively exposed. This is the result of changes in our asset structure. We have a very large share of floating rate loans now in, first of all, on the corporate side, of course. But also, when we look at our mortgages, all the new mortgages issued under the state subsidy program are indeed the floating rates as well. So that drives the change in our sensitivity to interest rate changes that you also see disclosed in the financials. So it changes from minus 20 to around 0 marginally positive in the beginning of 2021. And on the...

Yes, I'm sorry, just like very quickly to follow-up. Perhaps, could you quantify the share of the floating rate loans, both on the corporate side and in mortgages. How is just like to make it easier for us to model?

Yes. It's around 40%, Mikhail.

Both, right?

40% of loan portfolio. Yes, overall, are now floating rate.

Perfect.

And now on SBER EAPTEKA well, since the deal was just closed, it is not yet, obviously included in our numbers. We will include it in e-commerce segment as it will operate as an e-commerce platform. For last year, their GMV, based on the information that we have was around RUB 6 billion in 2020.

Thank you, Mikhail. And I would like to thank all the investors and analysts for staying with us for this call. I hope it was useful. And we continue with journalists and we switch to Russian, Alexander will act as a moderator. Thank you. [Foreign Language]