Breakingviews – Sberbank can afford to wait for its tech ambitions

A logo is on display at an office of Russian lender Sberbank in Moscow, Russia, December 24, 2020.

LONDON (Reuters Breakingviews) – German Gref is attempting a new professional renaissance. The chief executive of Sberbank wants the $ 85 billion company to make 60% of its sales through services such as e-commerce and streaming by 2030. They are currently bringing in only a fraction. Without a clear plan, investors will continue to rate Russia’s largest lender as a bank.

The 57-year-old former economy minister believes he has no choice but to diversify. Increased competition in the banking sector will weigh on profitability. Sberbank warns that its net interest margin, which widened to 5.5% in 2020, will decline to 100 basis points over the next three years. Gref believes it can counter this pressure by connecting a superapplication of digital services, notably in the fields of health, education and movie streaming, to its vast network of nearly 100 million customers, or the equivalent of about two-thirds of the Russian population.

This reasoning is solid but remains fairly theoretical. Although Sberbank’s revenue from these new services nearly tripled to nearly $ 1 billion last year, it still only accounts for 2% of total revenue. They are also in deficit. Without a detailed operational plan and a merger and acquisition strategy, it is difficult to see how Gref can achieve its revenue target in nine years, let alone do so efficiently and profitably.

So far, Sberbank’s ecosystem has grown mainly through small transactions and partnerships. Reconciliations with bigger companies like Yandex and Alibaba have failed. The risk is that larger acquisitions present too much culture shock for the 179-year-old institution.

Without a compelling track record for his transformation into a tech mogul, investors will continue to treat Gref like a heavy banking boss. It’s not such a bad thing. Although bad debt provisions quadrupled last year due to the pandemic, Sberbank still achieved a respectable 16% return on equity – a level most European banks could only dream of. Its shares are trading above their pre-pandemic peak at 1.2 times last year’s book value. Still, the successful IPO of the $ 13 billion Ozon online marketplace, which Sberbank has been considering buying, shows the appeal of online expansion. While Gref can afford to be patient, he will continue to squint at these sunny highlands.

Breakingviews

Reuters Breakingviews is the world’s leading source for financial information on agenda making. As the Reuters brand for financial commentary, we dissect big business and economic stories from around the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide real-time expert analysis.

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Jamie Collins

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