The Central Bank and the Ministry of Finance have drafted a bill that stipulates that the Bank of Russia will sell its majority stake in Sberbank (50% +1 share) to the Government, represented by the National Wealth Fund (NWF). What are the motives behind this deal and its implications? Invest Foresight discussed this with financial analyst Sergei Khestanov, Associate Professor at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), adviser to Otkritie Broker CEO.
— The announcement says shares will be sold at market price, which is almost RUR 3 trln ($47 bln) according to Sberbank’s current stock quotes. If the bank remains state-controlled, why bother?
— Indeed, nothing really important is happening, from the economic perspective. I would say the attention to the deal is largely due to the large figure. In fact, the bank is being moved from one state ‘pocket’ to another. This is a simplified version of events of course, because according to the law, the Central Bank is an independent institution.
I think there are three reasons for this decision. The first one is strategic. During the 2008 crisis, all central banks around the world had to buy a fairly wide range of assets, mainly financial ones (the Russian regulator was not even the first to do so). As the situation returned to normal, they began selling off those assets – smoothly and gradually – to free up their balances. The process still continues. So this decision is part of the global trend. The goal is to free the Bank of Russia from formally non-core assets.
Secondly, if you look at Sberbank reports in recent years, it has good financial indicators such as dividends and share prices. So this deal can be viewed as a way to invest the National Wealth Fund money. It is supposed to be invested anyway, and Sberbank shows a good yield.
The third reason is smaller, but I would not completely rule it out either. Perhaps it is directly or indirectly associated with risk management in relation to potential sanctions. It seems unlikely to me, but they might be doing it just to be on the safe side.
— The Ministry of Finance plans to receive money for the deal from the Russian National Wealth Fund. The Central Bank has the legal right to conduct business activity. Does it mean that even though budget money is moved from one pocket to another, the Central Bank will benefit from the deal?
— Business activity is not important for the Central Bank. In addition, Bank of Russia will provide in exchange the controlling stake in Sberbank with regular dividends whose price is growing… Overall, there is nothing suspicious about this deal. Look, there are shares that belong to the Central Bank. Bank of Russia passes them over to the National Wealth Fund, managed by the Russian Government, and receives money. The deal is made at market price. This is a routine operation. Naturally, the status of the Central Bank is special, there are many legal nuances. But all central banks in the world are the same.
— Could this deal be a first step towards the privatization of Sberbank?
— Theoretically. Sometimes a year or more passes before it is clear why a deal was made.
— Could Sberbank lose its clients over this deal? People got used to trust it, they bring money and even agree to lower deposit interest rates than in other banks…
— I can assure you, clients will not feel the consequences of this deal. As for Russians’ belief that Sberbank is the most reliable… The DIA [Deposit Insurance Agency] works equally with all banks. It has been embedded in our society since the Soviet times that Sberbank is the most reliable bank. This is cognitive inertia. In fact, from the legal point of view, Sberbank is neither better nor worse than any other large bank. And it is as reliable as other large banks.
But the average person does not see that and keeps going to Sberbank. Smart people work there who see that people keep bringing them money, so why bother and pay more? Banks raise interest rates when they need money. In late 2014-early 2015, the interest rates soared. And when there was enough money, they dropped again. This is how the monetary market works.
Therefore, there is no tragedy in the deal between the Central Bank and the Government. This is a purely technical deal and it will not bear any consequences. They just decided to change the ownership structure. The National Wealth Fund is a state body, while the Central Bank is legally independent, but de facto (given that it is the Russian President who appoints the Central Bank head) is also state-owned. As they say, changing the order of the addends does not change the sum.
By Elena Skvortsova