Sberbank of Russia (SBER) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Sber Third Quarter 2021 IFRS Results Call Hosted by Sber Management Bank team. I must advise you that this conference is being recorded today on October 28, 2021. I would now like to hand the conference over to Anastasia Belyanina, Senior Managing Director, Head of Business Valuation and IR. Please go ahead.

Thank you very much. Good afternoon, everyone. I hope that you all are safe and sound. Thanks for taking time and taking part in our regular call. So we will discuss our third quarter results as well as 9 months results for the Sber Group. I hope you all had a chance to review them and have prepared all interesting questions so you will be able to ask your live questions after the presentation. We have our regular speakers with us. So before we move to the interesting part, let me do some housekeeping. It will be very short. So please be aware that our call is recorded, and the transcript will be available shortly afterwards. The call may contain forward-looking statements regarding future events and performance, and actual results may differ materially from those expressed or implied in the statements during our call due to both unknown and known risks and uncertainties. For more information, please refer to the Slide #2 of our presentation. Now I open the floor for our CFO, member of the Executive Board, Alexandra Buriko.

Anastasia, thank you very much. And good day, everybody, and thank you for joining us today. I would like to start with some of our reporting period highlights. In the third quarter, we have earned a high quarterly profit historically of RUB 348.3 billion, which corresponds to a record of RUB 978 billion for the 9-month period. The net profit includes a one-off gain of RUB 65 billion on sale of discontinued operations of the Eurocement Group. We discussed this transaction in detail during our second quarter call. Our earnings per share reached RUB 16.28 per share, up by 38% year-on-year. And return on capital reached 26.8%, while return on assets was at 3.6%. We continued to show solid growth in our client base. The number of our active retail clients reached almost 103 million and 3 million corporate clients. And the engagement improved to over 71 million monthly and almost 30 million -- 36 million daily average users for our flagship Sberbank Online application. We are very pleased with the dynamics in the integration metrics that our ecosystem demonstrates. The SberSpasibo loyalty program coverage exceeded 53 million users. Our clients now actually use Spasibo bonuses within our ecosystem. In Q3, utilization of Spasibo increased almost threefold compared to the second quarter. This is an important growth driver for our new products and services, particularly in electronic commerce. Our unified login, Sber ID, that gives access to 135 services of Sber ecosystem and our partners is now used by 27 million clients. The number of SberPrime subscriptions is ramping up and reached 3.3 million at the end of the third quarter, and now we see it at over 3.7 million. We added new businesses into SberPrime. Our subscribers now can access telemedicine services and doctor appointments via [ SberDarodia ] and buy insurance products from their insurance with nice discounts. To sum up, the group earnings generation momentum remains very strong, and market trends are supportive, showing continued recovery of the Russian economy. Now let's have a look at some macro trends. We estimate the GDP growth in Q3 at 5.1% year-on-year according to our in-house analysts, surpassing the precrisis level, which leads to our more [ big ] view on the full year 2021 GDP growth, close to 4.5%. The economic activity for most industries has already exceeded the prepandemic level. For example, the retail trade, energy expanded by over 7%, while construction by 6%. One risk to the Russian economy is related to rising inflation. It rose to 7.4% year-on-year in September. Our in-house end-of-the-year inflation forecast was raised to 7.6% year-on-year. We expect that Central Bank continue their monetary tightening with the end of the year key rate reaching 7.75%. At the same time, we shared the view that this year's accelerated inflation is temporary to follow with moderation to 4.2% as soon as next year. Then employment rate is close to record lows, now at 4.6%, and the labor market remains tight. The real wages are growing in line with the GDP growth, which brings down the risk of the economy overheating in the short term. This year's strong consumer spending is increasing retail trade volume, which is set to reach over 8% growth year-on-year in 2021. The consumer demand was supported by state subsidies to certain social groups in the total amount of RUB 670 billion or 0.5% of GDP. The recent rally in the commodity prices is setting a strong ground for further ruble appreciation towards the year-end. Now let's return to our results. First, some words on the core business. The group operating income before provisions expanded by 5.3% year-on-year to RUB 623 billion in Q3 2021 or by 14.3% year-on-year to RUB 1.8 trillion for 9 months period. In the third quarter, we classified the assets of the subsidiary bank in Ukraine as restricted assets due to certain regulatory restrictions that do not allow the group to adequately manage the mentioned assets. Thus, we have formed certain provisions in relation to these assets in the amount of RUB 33 billion. As for our net interest income, the group NII increased by 14.2% year-on-year to RUB 470 billion in the Q3. Let's have a look at loan portfolio and funding. Our gross total loan portfolio reached RUB 27.5 trillion and grew by 4.9% during the quarter or 9.9% year-to-date driven by robust performance of our retail book on the back of economic recovery and strong demand. Consumer loan portfolio grew by 7.5% in Q3 with almost 80% of retail loans originating online. The demand in this segment was supported by state social payments and strong nominal wages growth of over 9% in Q3, according to our in-house, SberIndex, analysis. Mortgages were up by 6.4% in Q3 to RUB 6.3 trillion. We are happy to confirm that demand remains quite high. Our own offers as well as attractive programs with our partners, developers and construction companies keep the momentum going. On the corporate front, loan growth was up by 3.8% in Q3 to RUB 16.5 trillion or 4.8% year-to-date. The portfolio was affected by the repayment of loans by the state and municipal institutions on the back of the replacement of their debt with budget funding. Excluding this one-off, the corporate loan book expanded by 5.3% in Q3. Small and medium business loan portfolio expanded by 32% from the beginning of the year, adding over RUB 650 billion. As for funding volumes, in the retail segment, we saw inflows of over 2% for Q3 to RUB 17.3 trillion, with stronger inflows of ruble funding on current accounts. The share of retail current accounts of total retail funding expanded to almost 43%. Corporate deposits increased by 6.1% in Q3 to RUB 11.6 trillion. Now look at our net interest margin. You can see that the group's net interest margin increased by 14 basis points to 5.36% in Q3. The positive factors that influenced our net interest margin this quarter include continued repricing of corporate floating-rate ruble loans on the back of market rate increase. Floating-rate loans now account for 44% of corporate ruble loan portfolio. As a result, the corporate loan yields were up by 50 basis points to 7.1% in Q3. Second, asset mix is changing with the growing share of retail book. Now 40% of total loans are retail. Third, a sizable portion of mortgages issued under the state subsidy program, now 18% of the mortgage portfolio, is repricing with market rates. And finally, increasing share of current accounts of total funding structure supports net interest margin as well. Now it is at 39%. Some of the negative impact on our NIM were the increase of combined cost of funding by 33 basis points quarter-on-quarter on the back of market rate moves, the cost of corporate term deposits was up by 77 basis points quarter-on-quarter in Q3, and the cost of retail term deposits expanded by 31 basis points quarter-on-quarter due to certain promo action. As we approach the year-end, we are now more upbeat on our full year 2021 NIM outlook, raising our guidance to over RUB 5.25% driven by the continued upward pricing of corporate loans and improved asset mix. Now let's have a look at our payments business. Net fees and commissions income grew by 11.2% year-on-year to RUB 164 billion in Q3, demonstrating a more normalized pace of growth as compared to the first half of the year. Income from banking card operations, up 25% year-on-year in this quarter, was driven by strong acquiring business. Total payment volume that captures acquiring payments and money transfers in Q3 amount to RUB 15.6 trillion, up by 30% year-on-year, with meaningful growth across all main areas. As you'll remember, we are very strong in transportation acquiring. Now it is available in 147 Russian cities. And in Q3, we crossed the milestone of 1 trillion transactions. The number of partners that joined SberPay payment service is 65,000 and now SberPay monthly audience increased fourfold over the quarter to 4.4 million. Now let's turn to our wealth management and risk insurance business. First on wealth management. In wealth management, business operating income grew by 14.2% year-on-year and exceeded RUB 19 billion in Q3. Assets under management increased by over 5% to RUB 2 trillion. Sber pension fund reinforced its top 3 position by assets, supported by the acquisition of Renaissance pension fund. Our pension fund maintained its top rank in terms of returns for 9 months 2021 according to our estimates, and the share of investment products sold online reached 50%. The inflow of funds to our closed-end real estate mutual funds increased 4x over Q3 and reached RUB 16 billion. Now let's have a quick look in risk insurance. In this segment, operating income before provisions was up by 18.2% in Q3 to RUB 25.3 billion. The robust dynamics are supported by strong retail and mortgage lending as well as convenience origination costs. Again, about 50% of all risk insurance sales in Q3 were done online. We also note that Sber is growing its reinsurance business with corporate insurance premiums growing fourfold year-on-year in Q3. We continue to launch new products that appeal to our clients' interests. This summer, we entered the second largest risk insurance market of voluntary health insurance under partnership team and rolled out voluntary and motor third-party liability insurance. Sber now offers both own programs and programs of our partners. Now let's have a look at our fast-growing nonfinancial business. Revenues from Sber's nonfinancial business grew by 2.6x in Q3 year-on-year to RUB 47.6 billion or 2.8x to RUB 122 billion for 9-month period. The biggest contributor to the results was our electronic commerce, showing RUB 28.1 billion in GMV in Q3, growing 10x year-on-year, with our e-grocery heading the way. Our 2 e-grocery businesses, SberMarket and Samokat, together maintained their market leadership with a combined share of over 30%. SberMarket delivered RUB 13.3 billion in GMV, growing almost 3x in Q3 and increasing the number of orders fourfold to 6 million. SberMarket monthly active buyers reached 1 million. It is diversifying its services, now piloting express delivery and testing a new operating format of a darkstore model in partnership with one of the largest retailers. As for Samokat, it's GMV reached RUB 10.6 billion, growing 4.7x year-on-year. Samokat monthly active users increased 5x year-on-year with the number of orders growing fourfold again year-on-year in Q3 to almost 19 million. Having almost 760 darkstores in the country, Samokat now is one of the largest networks operating under the darkstore delivery model globally. SberMegaMarket that was launched in the second quarter 2021 is ramping up its business. Its Q3 GMV reached RUB 6 billion, increasing 2.3x as compared to the previous quarter. And our entertainment industry generated RUB 3.4 billion in revenues, which is up 1.8x year-on-year. The number of users with subscription access to our audio streaming service, SberZvuk, increased 4.6x year-on-year to 3.7 million customers. And the company expanded its music catalog to 65 million tracks and launched the unique format of customized audio streaming called Waves. The number of subscribers to our Okko video streaming service reached 4.5 million, including 3.3 SberPrime clients on the back of investments in content and interest client offers. The most viewed was the original series [ Survivors ]. Please note that in Q3, we account from -- for SberPrime subscription in the Entertainment segment. FoodTech & Mobility revenues increased 3.1x year-on-year and reached RUB 4.7 billion. The number of restaurants and shop served by Delivery Club reached 47,500, adding 8,500 since the beginning of the year. DC maintained its market-leading position in ready-to-delivery. Our DomClick monthly active users was almost 16 million at the end of Q3, increasing fourfold over the year. The revenues from additional services exceeded RUB 3.8 billion for the quarter. In the B2B segment, revenues increased 1.6x year-on-year to almost RUB 13 billion, while EBITDA came at RUB 3.1 billion in Q3. SberCloud's revenue grew 2.6x to RUB 2.3 billion in Q3. Let's have a look at our operating expenses. Our operating expenses increased to RUB 210 billion in Q3, up by 20.6% year-on-year and 15.1% to RUB 514.2 billion for 9-month period. They're largely in line with our guidance level of low to mid-teens growth for the full year. We carried out a regular annual salary review during this summer, which, together with a 2% headcount increase and calendarization impact, explains the inflationary dynamics in the OpEx line in Q3 2021. The number of employees increased to 282,000 primarily due to nonfinancial segments that showed robust revenue growth. What is remarkable is that cost-to-income ratio of the financial business decreased below 30% both in Q3 and for the 9-month period of 2021. Now I would like to pass the floor to our Chief Risk Officer, Dzhangir Dzhangirov, to discuss cost of risk and our asset quality.

Thank you very much, Alexandra. Good afternoon, dear colleagues. We see improvement in the asset quality for all key segments. As you can see, both nonperforming loans in total portfolio as well as share of Stage 3 and POCI loans improved in the third quarter. Based on that, total provision coverage of Stage 3 and POCI loans increased from 101% to 105%. On the next slide, we see that Stage 1 share in total portfolio increased due to the growth of total portfolio and issuance of the new good loans in third quarter. We see that share of Stage 2 is stable and amounts to 7%, and decrease of Stage 3 share and coverage were caused by recovery and repayment of loans of -- what I already said before. Cost of risk in the third quarter amounted to 85 basis points mainly due to increased expected trade losses in certain loans. And our expected range for cost of risk in 2021 remains in the range of 70 to 90 basis points. And most probably, we will see cost of risk to be closer to the lower bound of this range. So on RWA side, we have not that positive news. So our RWA density increased by 2 percentage points due to following 2 reasons. The first effect is caused by market risk. Market risk RWA increased by RUB 500 billion. Or out of increase in RWA density, it's -- this increase is responsible for 1.2 percentage points, and that happened due to growth of futures and options with clients and [indiscernible] (19:11) transactions. And we believe that here, we have potential for improvement in the methodology. There are imperfections in regulations -- in the Central Bank of Russia regulations. And we believe that we may -- Central Bank of Russia may improve regulation for marketing so that we get RWA for market risk back. The second significant effect is the growth of retail macro add-ons, which increased by incremental RUB 320 billion or 0.8 percentage point. We partially compensated this growth by IRB models and optimization of IRB models for retail, which amounted to RUB 248 billion. However, this was a one-off effect, and it would be difficult to compensate such add-ons in IRB models in the fourth quarter and further. That's all on my side, and I pass the baton back to Alexandra.

Thank you very much, Dzhangir. And let me now continue with our capital. Our total capital reached RUB 5.4 trillion in the third quarter, up by 5.7% quarter-on-quarter. Our capital adequacy ratio decreased by 10 basis points to 13.95% for CET1 and by 13 basis points to 14.36% for Tier 1 for the quarter, while the total capital adequacy ratio was down by 2 basis points to 14.83%. This decrease was caused by the increase in RWA during the quarter that Dzhangir just explained. Now let's turn to our tech leadership. You know that reducing time to market is a crucial KPI for us. That is why we closely track the number and the speed of technological changes in release. And for 9 months, their number crossed the mark of 790,000. The number of external IT specialists who partner to develop products using platforms like Platform V, SmartMarket, SberCloud increased by more than 10x since the beginning of the year to 29,000. The SmartMarket, a platform of smart apps that allows development of applications and teaching new skills for virtual assistant Salut already has more than 1,800 (sic) [ 800 ] apps, 60% quarter-on-quarter. Sber devices have now a new feature that allows to pay with face ID and voice commands. The number of monthly active users of Salut voice assistants exceeded 5 million in Q3. Since the launch of the service last September, about 21 million users have sent 257 million requests that the voice assistants processed. SberCloud clients now have access to SmartSpeech technologies service, which accelerates the engagement of speech technologies in chatbots and voice assistants in call centers, online stores and support services. Now let's have a look at our ESG agenda. We keep on our ESG integration across all businesses and processes. In the third quarter, we worked out the in-house methodology for the ESG scoring of our corporate borrowers as we collected and analyzed appropriate ESG data from large and medium-sized businesses. Our portfolio of green and ESG-linked loans keeps on increasing gradually and was up by 12% during Q3 to RUB 140 billion. The Supervisory Board approved our debut Green Bond Program and Green Bond Framework that specifies selection criteria for eligible projects. In Q3, we approved methodology and launched stress testing for transition ESG risks. We are heavily involved in the development of the national taxonomy, which was approved in September. I would also like to announce that on the 24th of November, we are planning to have a deep dive in ESG, where we will discuss the status of ESG integration at Sber. Now let's have a look at our guidance update. Based on the recent trends, we have revised upwards our outlook for the sector, and now we expect the retail lending growth at 20% to 22% this year, corporate lending growth at 8% to 12% this year and corporate funding growth of 20% to 22%. We are expected to perform in line with the sector across all segments and retain market share. As for our numbers, we expect that our average NIM for the year will exceed 5.25%. We keep our cost of risk guidance unchanged, as Dzhangir already mentioned, at 70 to 90 basis points as we take into account potential [ COVID risk ] before year-end. At the same time, we are more inclined towards the lower end of the guidance range, about 70 bp, given the current cost of risk run rate. And on the basis of that, we also raised our return on capital guidance to over 23%. To conclude, I would like to say that 2021 is proving itself to be a very sound year thus far, with strong top line dynamics, recovery in asset quality and favorable NIM trends. This momentum is forming a solid base for the beginning of next year, and we will share with you thoughts on the next year on our Capital Markets Day mid-December. With this, I would like to wrap up our presentation, and we are ready to take your questions. Thank you very much.

[Operator Instructions] We'll take our first question from Mikhail Butkov of Goldman Sachs.

My first question is on average loan and deposit yields for the retail segment. As we can see, it had a -- the asset yield had actually slightly declined in the third quarter while the deposit was slightly up, while, yes, the policy rate had increased quite remarkably over the last half year. So what explains this dynamic? And what would be your outlook for the next 6 to 12 months here?

Thank you very much for your questions. As -- I think on the guidance, we already gave all the updates. Our NIM in Q3 was 5.36% and our expectation for the year is that we will be above 5.25%. Obviously, as you look at the deposit cost, it's very clear that the deposits started to reprice together with the key rate change, especially the short-term deposits that we have with our corporate clients, while the retail deposits were more stable. However, we still have some promo actions, as I already mentioned, that led to repricing of retail deposits as well. As you look at our loan book, we still have the situation that the front book is yielding lower, while we have some of the loans that were basically -- that are outgoing from previous years with the higher interest rate. So this situation has not changed drastically despite a recent rate hike. We are lucky to have over 40% of our corporate book linked to key rate. So that part is obviously repricing together with the key rate, which supports our margin. But on the fixed rate side, in particular on fixed rate portion of housing loans, we still have the situation where the back book is yielding higher and the front book is yielding lower so far. As you can see on the market, there were no significant increases in the rates on the housing loans thus far.

I have another question on the nonfinancial services. So you had recorded RUB 122 billion of revenue in the 9 months, and you guided more than RUB 200 billion for the full year. So can you maybe share some outlook for the first quarter? Do you plan to launch some promo campaigns where the most growth can come from? Yes. And maybe if you could also comment on the performance of goods.ru segment.

Sorry, can you repeat the very last part of the question? I understood the first part on the nonfinancial services and the run rate, but the very last point that you asked?

Yes, the last point was on woods.ru segment. So how that performs, what can you disclose on that?

Okay. Okay. Okay. Perfect. Obviously, you can see that the increase in comparison to last year, is quite good. We increased in terms of revenue 2.8x for the 9-month period, that's what allows us to expect that we will exceed the RUB 200 million target for revenue overall. The key drivers -- as I already mentioned, the key driver of revenue, I would say, is our e-commerce business that is growing very rapidly. And within that is our e-grocery player, Samokat, and their market, of course. They seasonally generate higher revenues in Q4. And we expect that during our traditional Green Day in November, this products and services will also have some boost. And of course, before New Year's, generally, there is uptick in consumer spending that will positively impact the revenues of those products and services. Generally speaking, you can see the dynamics quarter-on-quarter. And as I said, this is not that we expect allows us to forecast the -- to exceed RUB 200 million in Q4. In terms of goods that we now call SberMegaMarket, I mentioned that we launched and rebranded it in Q2. And in Q3, it already increased its GMV by 2.3x in Q3 in comparison to Q2. So it's a very good pace. And we expect that it will grow faster, supported by our loyalty program, Spasibo and other marketing efforts that we will undertake, as I said, during Green Day and our New Year's marketing activities.

Great. And just the one final question from me is on the upcoming update from the Central Bank on the ecosystem consultation and the regulation paper. So what's your expectations from that and based maybe on some of the -- your latest interaction with the regulator? And what would you expect from that?

Thank you very much for your question. So far, it is too early to give you any update. We are still in discussions with the regulator of the paper that has been published. And we expect that they will publish some update before the end of the year. So far, it's basically too early to predict what exactly will be included in the update, but we are in the constructive dialogue.

We will now move on to our next question from Mikhail Shlemov of VTB Capital.

A couple of questions for me. First of all, can we talk a little bit more about the interest rates and net interest margin dynamics? Specifically, if you could update us, please, on the sensitivity of the net interest margin to 100 basis points increase in the rates, if it has changed recently and where it stands right now?

Mikhail, good day, and thank you very much for your question. As we previously stated, we are now positively sensitive to increases in the key rate. And at the moment, our sensitivity is between RUB 5 billion and RUB 10 billion to a parallel move of the curve. But of course, you have to be aware that it's unlikely that the curve would move in parallel. So it's not exactly that we anticipate that this will be the impact. Still we expect that recent trade hikes and the hike that we anticipate still to take place before the end of the year, will impact our NIM and NII in a positive way. And that is what we have already incorporated in our guidance.

But just like, could you repeat, please, the sensitivity number, the line broke up exactly at the moment when you're talking about it. Sorry.

Sorry, yes, it's between RUB 5 billion and RUB 10 billion, parallel roof of the curve.

RUB 10 billion, lovely. The second question is actually also about the regulation, but this time, not about the ecosystem, which you already commented about, but rather than a draft law in the parliament, which is basically giving the right for the CBR to limit the growth in the certain unsecured consumer loan growth segments, given that the regulator has been for a long time expressing concerns about the pace of marketing growth and given your market share, you are one of the bigger drivers, I wonder what you are thinking about the possible implications of this when it comes into force.

Thank you very much for your question. As we have seen during this year, Central Bank already increased the macro add-ons already 2x. On 1st of July, they increased them back to the pre-COVID levels and starting from 1st of October, the interest uncollateralized loans, macro add-ons even further. So these effects did not leave still for the pulling down of the market and Central Bank considers that certain limits for the shares of the loan with certain PTI range or LTV range or ourselves, some other limits might be more effective in the future. So as they already announced it on several conferences in their documents, they consider those limits to be more effective than just economic add-ons.

If I may just add a quick point to what Dzhangir was saying, we believe that inevitably, it will lead to certain slowdown in consumer lending. However, we expect that impact on us will be definitely not more than on the market overall, and we will maintain or increase our market share in this area, considering our risk policies and general responsible approach to the market.

We will move on to our next question from Gabor Kemeny of Autonomous Research.

A couple of follow-up questions from me. First one is on the capital requirements. Do you expect a further increase in your RWA density from the new macro add-ons, which are effective from October? So if you could give us a sense of how your capital ratio could be affected by the new regulations going forward? Yes, that's the first one. And the other question is on the margin outlook sphere, which is a little bit broad. I mean, about 5.25, you were already above these levels in the third quarter. If you could give us a bit better sense of how you expect your margins to evolve in the fourth quarter? Any reason why the third quarter dynamics would not be a fair indication for the fourth quarter, for example? And just a bit more specific question on margins. If you could please comment on how you are pricing the deposits -- the new deposits right now and how this compares with the back book?

Okay. Thank you very much for your question, Gabor. So based on the increased macro add-ons this year, of course, our RWA density for our retail portfolio will continue to grow. And this is inevitable. At the same time, those add-ons are already implemented in our risk return-based lending policies. So it's all included in our strategy, and will be taken into account in the budget.

Yes. And now continuing with the -- your question on the margin. As you know, Gabor, we don't really guide the quarterly numbers, but considering where we stood during the first half of the year and what we have in the third quarter, we expect that we will exceed this 5.25 mark for the year. But most likely, it will not be very significant. And we expect that the margin will remain somewhat elevated as we go into the first quarter of 2022. However, eventually, the repricing of retail deposits will take place. And this will obviously put significant pressure on the margin. This year, our sales and the market were very hesitant to make any significant activity in repricing the deposits. And we have been very lucky in terms of the share of current accounts as well, also helped by recent state subsidy programs and distributions made to different categories of the population. But that should eventually come to an end, unfortunately, and we already recently launched several promo actions that elevated the deposit rates. While the main line of the deposit has not been repriced during this year, we inevitably need to move it up through various marketing and promo kits. We're obviously not the driving force here. And as usual, we will follow the market on that.

As I understand, your new retail deposit is still around 4%?

For new money, we obviously raised the rates closer to what you see as the key rate or what you have recently seen as the key rate. Otherwise, we would lose the competition, but that does not mean that the full line is repricing. We enjoy quite a large market share in the retail deposits. So that is still holding on. But for the new money, we are raising the rates about 6.5%.

Understood. And just a final clarification. The RUB 5 billion to RUB 10 billion upside from the parallel rate moves, was that for 100 basis points of rate or something different?

That's right. That's a parallel move by 100 basis points.

We will now move on to our next question from Nida Iqbal of Morgan Stanley.

My first question is on the nonfinancial investments. For SberMegaMarket, can we get some color on the SKUs and merchants that you have on Mega Market and also possibly the mix of SKUs?

On SKUs, we are 3 million items. And the number of merchants is -- we expect to exceed 5,000 by the end of the year.

And then just again on the nonfinancial side of things. Competition is quite intense from the looks of it. Do you think this could mean higher investments than previously guided for?

Yes. Thank you for your question. I don't believe that we guided our investments specifically broken down by industries. The major part of the investments that we anticipated relates to our fulfillment centers that we're going to build over the period of our strategy. And that is -- that will remain intact. So that didn't really change significantly. In terms of cash burn that various players require, it does move from quarter-to-quarter, but we do not anticipate that any changes would be significant in relation to our overall profitability levels or in relation to our capital. You have to know that in e-commerce and in particular, in e-grocery, we already hold a leading position, which makes us basically closer on the path to profitability vis-a-vis our competitor.

And then on the financial -- on the loan growth side of things, with the recent CBR tightening measures, plus the rate hikes that we're seeing, should we be worried about mortgage loan growth into next year?

As we already, I think, discussed a couple of questions ago, we really do not see any cooldown on the mortgage loans so far. And I think the concern is now more around the consumer lending rather than mortgage loans. And the rates the mortgage loans are currently granted at are still quite attractive to the majority of our clients. And you have to take into account that the salaries are rising as well. The nominal growth of salaries was about 9% this year, which, of course, helps our clients to service the loans even if and when the rates would be elevated. So we are not particularly concerned that there will be a major slowdown in the housing loans.

We will now move on to our next question from Andrew Keeley of Sberbank.

I have a few follow-up questions on provisions. You had 4 quarters now in a row of releasing provisions on the mortgage book. I'm just wondering if you can add any kind of color behind that and whether you expect this trend to continue? I'm also wondering if you can tell us whether provisions on the financing of the Eurocement deal, what's -- whether you can give us any numbers as to how much they were in your provision charge. And I'm wondering also whether you see any risk of further write-downs on the Ukraine business.

Thank you very much for your questions, Andrew. As we already discussed on our Mortgage Day, the mortgage portfolio performed really very well. And our cost of risk was -- is even negative in certain periods. This may not happen. This may not continue infinitely. So we expect that going further, cost of risk will be positive, of course, but we are not expecting it to be high. Because as we said on the Mortgage Day, the performance is really good because the clients actually repay loans even in the said period. On Eurocement group question, as you know, we do not disclose the numbers for particular transactions. And on the Ukraine transaction, Alexandra, would you please comment?

Yes. Andrew, on Ukraine, we believe that all the necessary provisions basically recorded during this quarter, the amount was also connected to some reversals of provisions that were done at the individual level during the quarter, so that basically led to this optical increase. However, we do not foresee that any further provisions for Ukraine will be necessary.

Okay. And just a final question on your -- the kind of current environment given we're kind of entering another COVID-related lockdown. Do you -- when we saw this last year, the second quarter was obviously quite challenging, particularly in terms of the fee income dynamics. Do you have expectations that this could also be quite a dampener in the fourth quarter for your fee income growth or it's just kind of too hard to say at this stage?

Thank you very much for your question. So far, as you know, the so-called lockdown or this restricted period only accounted for 3 days. In addition to the holidays that were in place in any event. And we do not anticipate that it will kind of take a major charge at the rate that our payment business is doing and our fees and commissions income. Despite quite high rates of COVID cases recently, we have not seen any kind of slowdown in consumption or consumer spending. All of that has been growing at quite a healthy pace. And of course, we expect some regular elevation driven by the New Year's holidays as usual. So, so far, quite positive an update on that.

And just a couple of words on my side, and we, of course, do not expect any significant growth of provisions based on the 3 days lockdown.

We'll take our next question from Can Demir of Wood & Company.

Thank you for the presentation as well. Just a follow-up on Gabor's question, actually. You mentioned there could be pricing pressures in 2022 on the deposits, obviously. But it sounds like there is not so much duration risk on the balance sheet. I mean RUB 10 billion for 100 bps shift in the curve doesn't sound like a lot of money. So perhaps can you help us reconcile those 2 comments? And also tying into that, is there any reason to expect a radically lower margin next year? I know you wouldn't want to guide anything firm at this point, but it would be nice to get your view on that. And my second question is, how is your payment business and interchange rates are affected from the rate hikes? So just to get a sense of the fee growth next year, perhaps.

Yes. Thank you very much for your questions. On the net interest margin, I would just say I think that there is no good reason to expect that our net interest margin would significantly decline next year in comparison with this year, you're right. So while we do expect some pressure on the deposit side, obviously, there will be some positives on the loan side as well. So if I may just leave it to that for now. And on the payment business and the interchange rates, you know that some of the payments to the international card companies are USD and Euro denominated. So in an indirect way, the rate hikes actually helped our fees and commissions because our expenses are now lower in ruble terms as ruble appreciated on the back of recent rate hikes. Otherwise, there is no connection to curate.

And it appears we have no further questions over to English at this time. I'd like to transfer over to the Russian side. So we're continuing this Q&A session in Russian. [Operator Instructions] As of now, there are no questions. [Operator Instructions] Journalists have a couple of questions, but there are technical difficulties. Please wait for a little bit. A couple of journalists are reconnecting. [Operator Instructions] As we still have difficulties, I will read the questions that they are publishing in the chat. Question from [indiscernible]. You said that the can be various solutions to the Ukrainian subsidiary. Can there be a decision by the end of this year?

[Interpreted] Thank you very much for your question. I think as soon as we have this clarity and the Supervisory Board takes the decision, we will, of course, make the disclosure. Today, we don't have anything to say on this matter.

[Interpreted] There's a question from Tatiana Voronova from Thomson Reuters.

Can you hear me?

Yes, we can hear you very well.

I have a question on the operating income, which has decreased. Can you explain the reason for that?

[Interpreted] Yes, of course, in the third quarter -- can you hear me?

[Interpreted] Yes, I do.

[Interpreted] In the third quarter, inside the operational income, we posted the provisions on the Ukrainian subsidiary. And if you add that to the existing figures, big figure that corresponds to the quarter-on-quarter growth. So we'll have to keep up these provisions posted on the book for the third quarter.

[Operator Instructions] Another question from Interfax. [Interpreted] At the end of the year, Sberbank is planning to evaluate the assets from the ecosystem and maybe to [indiscernible] on some of them. Will you review all of the assets or in certain areas and which areas? What's the probability of exiting some of them? And what will be the condition for making the decision on exiting, a loss or something else?

[Interpreted] Thank you very much for this question. We are in principle, during our business planning procedures, we're doing this regularly. We're looking at all of our assets on a constant basis and this year, because our subsidiaries are actually developing, we will carry out this procedure as usual. The number of assets, we can't name right now. And if any decisions are made, we will disclose this information and tell you about it. But in terms of the key drivers in decision-making, it's not a loss. But the synergies with the ecosystem, whether they're high or low, the prospects for growth, which we see considering the changes that happen right now.

[Interpreted] Thank you, Alexandra. Just when the market started to raise rates, when will Sber start doing this, and we'll start with SSL liabilities?

[Interpreted] The market participants -- we, as a market participant, of course, react to all the changes that are currently happening. And considering the previous changes of the key rate, we raise our own rate of promo campaigns for deposits and change the rates on various facilities. So in general, we're moving along the main market trends. I can say that we are lagging behind in some way. We will have to look on the rate for deposits and for loans. It won't be anything too much different from the general flow. We'll have to look at the market and move along the way.

[Interpreted] We have another question from the chat. Is Sberbank susceptible to interest rate risk, especially in the situation where the key rate is increased?

[Interpreted] Thanks for this question. As part of the previous question, I think maybe you haven't heard this. We are positively sensitive to that very serious part of it of the loans. So corporate, more than 40% are given using floating rate. And all the mortgage is should -- lately also has a floating rate. So sensitivity to a parallel shift is about 1% from RUB 5 billion to RUB 10 billion in annual terms. So if you multiply it by 3, from RUB 15 billion to RUB 30 billion.

[Interpreted] I'll add that with a very big growth of rate and the nonlinear effects are starting to appear, but it has to do with the fact whether there's a one-off or not or will it continue raising the rate, but the linear effect is what Alexandra just said, RUB 15 billion to RUB 30 billion.

[Interpreted] Question from Tatiana Voronova from Reuters. One more time, there are 2 questions on the ecosystem indicators. We saw a very sizable growth of expense in the structure of operational expense of the core group. Have a question. Is it commonplace? Is it a situation to which we must get used to that the expense will have to grow with the speed? And another question. The cybersecurity was also good performing. But in the third quarter, I think something happened there and the revenue sale and EBITDA also deteriorated. Why is that?

[Interpreted] Okay. I understand this question. I think in various forms, we discussed it. But of course, while our nonfinancial businesses start to grow and the expenses that they show will also have to grow and the growth of expense will be comparable to the growth of revenue. Revenue in 9 months grew 3x. And of course, the expense also grew with this rate. I may be repeating, quarter-on-quarter, they are at this stage when they are sort of conquering the market, SberMarket and Samokat, were aggressively and naturally growing. But SberMegaMarket, multi-categorial platform, which was launched in the second quarter, is very, very young. They will continue to grow very fast or a rather long time. Revenues and expenses will grow. But in general, the share of financial businesses will grow. But as you remember, we're looking at the marginality and our goal is to bring these businesses to the breakeven point and we'll track the situation so that the expenses grow not faster than the revenues. That's the first part. Second part, on the BI.ZONE cyber security unit, fortunately, they show very good growth, quarterly revenue, certain indicative story, because it depends on the contract, which are not very evenly distributed. It's a B2B segment with very big contract, don't happen always, but they generally have good performance, which we are actually proud of.

[Interpreted] There are no further questions on the line and no further questions on the chat. We have a question. I would like to just specify. During your speech to analysts, what's your forecast on nonfinancial businesses? Is for which period?

[Interpreted] Go for 2021. Thank you very much. Have a nice time of the day, and we'll see each other when we close the fourth quarter.

[Interpreted] Ladies and gentlemen, with this, the conference is over. You can disconnect.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]