Sberbank of Russia ADR (OTCPK:SBRCY) 3Q 2016 IFRS Earnings Conference Call November 15, 2016 9:00 AM ET
Jyrki Talvitie – Strategic Partners & Investors
Alexander Morozov – Deputy Chairman Executive Board, Chief Financial Officer
Alexander Vedyakhin – Managing Director, Risks Department
Mikhail Shlemov - UBS
Alex Kantarovich – JPMorgan
Olga Veselova – BofA Merrill Lynch
Adnan Bilgin – Metzler Equities
Gabor Kemeny – Autonomous Research
Alan Webborn – Societe Generale
Ivan Kachkovski – Deutsche Bank
Yulia di Mambro – Barclays Capital
Ladies and gentlemen, thank you for standing by and welcome to Sberbank Group's 3Q 2016 IFRS results call hosted by Sberbank's management team. Live webcast is available, and you can find the link on Sberbank.com. [Operator Instructions].
I must advise you that this conference is being recorded today on Tuesday, November 15, 2016. I would now like to hand the conference over to Mr. Jyrki Talvitie. Please go ahead.
Thank you very much. Welcome, on behalf of Sberbank and Sberbank's management also to this nine-months 2016 IFRS results call.
I would like to have the call kicked off by Deputy Chairman and CFO, Alexander Morozov, to comment on the results. Alexander, please.
Good afternoon and good time of the day. I'd like to thank you for – all of you for being with us tonight on our regular conference call to discuss our nine-month results 2016.
In the first quarter of 2016, the operating environment in Russia showed quite mixed results, with on the one hand declining investments and consumption dampening the whole picture, while at the same time industrial production showed some positive signs.
Monthly GDP dynamics fluctuated around zero in the first quarter, but inflation at the same time continued to decline. Our end-of-year expectation is now at below 6%. Our Chief Economist Julia Tseplyaeva is on the call as well, and she will be more than happy to share with you more comments with regard to market economics picture in Russia now and maybe answer some of your questions.
Nonetheless, the banking system itself continued its recovery and posted nine-month net profits about RUB635 billion, which is roughly 5 times more than the same time a year ago. One of the major challenges for the banking system continued to be the lack of the growth on corporate side, corporate lending, lack of demand, good quality demand. It's really down 2% year-on-year, and also quite negative in terms of nominal growth.
Inflation was due to ruble revaluation. So in nominal terms, like in substantial parts of the credit portfolio denominated in American dollars, we notice it's a negative dynamic, in nominal terms.
Despite these trends which resulted, examples being the shrink across the balance sheet up to date by 1.6%, we were able to grow our net interest income and to increase our margin, as we have promised that. We achieved record profits for nine months, around RUB400 billion – even slightly more than RUB400 billion, RUB400.1 billion. For nine months ROI, return on equity, almost 21%; slightly below that, 20.9%.
In normalized terms, which is very important, this quarter also was a record quarter in the history of Sberbank in rubles terms, if you deduct a couple of one-off effects. On the one hand we have to deduct RUB12.2 billion positive effect out of several of Krasnaya Polyana in the second quarter this year. On the other hand, we should deduct RUB3 billion as a result of sales of one of our subsidiaries in Slovakia in the first quarter. But on balance, as I have mentioned, the third quarter is all-times record in normalized terms for us.
We see that risk policy dynamics, policy developments will be continued. Hence this year is very challenging for us in a number of aspects, and one of them is fees and commissions, because I'd like to remind you that last year our fees and commissions were substantially supported by foreign exchange conversion operations because of high volatility on the market. This year foreign exchange market is relatively stable, ruble a little bit appreciates and substantially appreciated since the beginning of the year. Hence, as a result, we got much less fees and commissions out of that business.
At the same time, fees and commissions up to date grow for us 12.7%. So this lower, a little bit, growth than a year ago is mainly explained by much lower fees and commissions out of foreign exchange business.
Looking forward full year, we have to downgrade our fees and commission growth guidance for this year from mid- to high-teens to low- to mid-teens. The net effect on our bottom line will be fully offset by higher-than-expected net interest margin. So in absolute terms, it will not undermine all our promises, hence full-year results.
Asset quality is stable and was stable in third-quarter 2016. Nonperforming loans declined slightly in absolute terms, but with the same time shaky grow portfolio. The ratio remains stable at around 4.9%.
And cost of risk came to 195 basis points for nine months 2016, which is fully in line with our guidance, which used to be at 200 basis points for year 2016. And today I confirm that guidance of 200 basis points, so that is what you should expect full-year around.
We prefer to be on the conservative side, and from that respect we prefer to have rather more provisions than less on a number of topics. That's why do not expect us to substantially beat that expectation under that guidance. I would put into the models just the 200 basis points for the safety.
Operating cost growth remains completely under control, and it is about slightly above 10 percentage points, to 10.2% for nine months. And the cost-to-income ratio as a result, 37.5%, which is well within our guidance.
I'd like to remind you that this year we effected a 9% to 12% increase of our service in the Russian business and in our subsidiaries as well, because of inflation for the last two years. So average 8%, which is maximum 12%, which is below inflation accumulated.
As a result, we have slightly more than 10% cost growth. Next year we believe that we will grow – we will be able to take our costs fully under control and it will be much lower growth rates, if at all.
By the way, we continue to improve our cost structure. We continue to work on it hard, and when we present to you our full view into our guidance for the next year, which will happen on December 14, in Moscow, we will update you on some of the initiatives in that respect. And I hope that you will be satisfied and surprised with that.
We continue to improve our funding structure, and our efforts have resulted in contraction of our most expensive part of it: so term deposits, corporate deposits. Our corporate term deposits book has declined here year-to-date; and we today revise our full-year guidance from in line with the sector to below the sector.
The explanation behind it is just the price. We are not prepared to overpay, hence we are working hard, and it shows a reduction of our cost structure and the cost of our liabilities. Hence with some reduction of corporate term deposits fully offset by much more substantial developments on retail deposits, hence hereby we increase our guidance for retail term deposits to better than sector, better than the market.
We have more and more deposits from retail side on accounts without contractual maturities: current accounts, settlement accounts. This is a very stable source of liquidity in Russian rubles and in dollars as well, and we feel ourselves absolutely comfortable. Our loan-to-deposit ratio is slightly above 90% in the Russian Federation and it's well below 100% in terms of Group level.
So we feel our self absolutely comfortable with liquidity. This reduction of the corporate term deposits was done intentionally and it's absolutely under our control. The aim is to fill the support our net interest margin.
All together on the balance sheet, the combination of a slow growth and improving profitability, our Tier 1 capital ratio has risen to 11.2% for full nine months. We improve our guidance, being still on very conservative side, I have to admit: we improve it to over 11%.
So still we are working hard on taking into account that next year we will have to address new requirements outlined by IFRS 9 standards. We have to work hard to support our capital adequacy ratio. IFRS 9 will be implemented since January 1, 2018, hence we have 12 months in front of us to further support our capital adequacy ratio, create necessary buffers.
I believe that we will continue to do it in the way we do it now, so organically. Hence up to date situation has got the capital adequacy ratios developing according to our initial plan.
Today, as we promised on our previous conference call, we will give you more details about the composition of our restructured book, and we will answer specific questions on that. But before I pass – I give the word to callers on risk side, to Alexander Vedyakhin, head of our risk management, whom you know well, to give more color on our asset quality and specifically our restructured portfolio. I'd like once again to remind you that we will announce our full-year guidance on December 14 on a separate conference call; and December 14 we arrange an Analyst Day here in Moscow in our Corporate University.
We will present our full-year view and we will be more than happy to share our opinion about a number of interesting topics. So today I'd like to focus during this conference call just on the results of nine months and this year.
Having said that, I'd like to give the way to Alexander Vedyakhin, who is on the conference call, on mobile phone actually. He joins our conference call from Germany. Alexander, are you with us? Can you hear me?
Yes, yes, yes.
Okay. Please go ahead.
Good afternoon, Alexander; good afternoon, colleagues. Yes, I am from Frankfurt actually now.
As Alexander has already mentioned, asset quality was stable in the third quarter of 2016. NPLs declined by RUB23 billion; but with the construction loan portfolio the ratio remains stable at 4.9% of our loans.
Cost of risk came in at 213 bps for the quarter and 195 bps for the nine months 2016, comfortably within our guidelines of around 200 bps, as you will remember. And over time our coverage ratio improved to 142 from 134, and we see the cost of risk trending positively in the next few quarters.
As we mentioned on the last call, we want to improve the way we report the renegotiated loans to allow you to better analyze what is going on with our portfolio. Our portfolio of renegotiated loans grew in third-quarter 2016 to 21.6% from 19.9% in second-quarter 2016.
The increase is explained by a decrease in corporate loan portfolio as well as a number of modifications of interest rates to major clients with high credit quality. The share of NPLs in the renegotiated book declined to 8.2% and coverage ratio improved slightly to 75.4%.
On page 22 of our presentation, we see the traditional way we have disclosed the quality of the renegotiated book, divided into the color scale from green to black, based on our internal management systems. During the quarter, the structure has improved in the black zone, declining from 8.3% to 5.3%; and the red zone declining from 30.7% to 24.5% as a result of migration within the buckets and repayments of some loans.
In the third quarter of 2016, we have changed the reporting to try to give you a more detailed picture. Our renegotiated loans have been further divided into restructured loans and modifications.
Restructured loans are distressed situations, whereas modifications are normal, also to say good renegotiations, where some terms and conditions of the loan agreement have been amended. More comprehensive criteria and definitions you can find in Note 7 of our quarterly accounts. Here you will also find a criteria for loans to cease to be restructured.
Going forward, we will concentrate on the restructured loans, which at nine months 2016 constituted 28.9% of the overall administrative portfolio. During the year 2016, restructured loans declined from RUB1.231 trillion to RUB1.192 trillion, also from 36% to 28.9% of overall renegotiated loans.
On page 24 of the presentation you will find the sector breakdown and currency breakdown between the restructured portfolio. We have said many times construction is the leading sector within restructurings, and most restructured loans have been US dollar-denominated.
As already mentioned, our coverage ratio for our NPLs is a strong 142%. And even if you would add all of our non-NPL restructured loans to our NPLs, the coverage ratio would still be very healthy at actually 72.9%, which we feel is more than adequate from seated in current loan to reduced coverage levels.
Finally, I would like to iterate that we have turned the corner on asset quality and see a slowly improving trend going forward. I hope this additional disclosure has been helpful for you and look forward to your questions.
That concludes the management presentation for the nine-month results. We're ready for questions.
[Operator Instructions] And we will take our first question from Mikhail Shlemov from UBS. Please go ahead.
Good afternoon, gentlemen. Thank you very much for the call. Three questions from my side. First of all restructured coverage, restructured loans, perhaps you could share a little bit your philosophy about the target coverage ratios which you think is adequate for the NPLs plus the restructured book. And also perhaps you can share some numbers in terms of the collateral on the underlying restructured loans to give us idea of a broader coverage.
The second question is actually about the capital and the dividend, given very nice progress which you've had in the Q2, and just like with the very slow loan growth – and hopefully are we sustaining? Perhaps you can update it on your sets on whatever you're in a good position to revisit your dividend policy.
And just like I said, question is basically if you could provide a little bit more color on the underlying slowdown in the fee and commission income growth and what do you think could be changing to reaccelerate growth in the coming quarters, let's say to the mid-teens guidance which you provided? Thank you.
Callers, I have to emphasize, unfortunately, my line is really not so potent. It's really difficult for me to hear all questions. Because of this, I would like to ask my colleagues in Moscow to answer, and especially Alexander Morozov for sure to answer questions related to risk metrics. Because as usually the dropdowns we have discussed everything with Alexander together. Thank you.
Thank you much for the question. I have to say that we actually are very comfortable with these levels of coverage, 73%, which feeds the level of our CE peers, and we see good returns from our restructured portfolio. And more or less we consider collateral as that what's in terms of collateral-to-loan to early levels.
So we believe that the already achieved level is sustainable, adequate. I would not expect us to grow substantially that level of coverage from existing level.
To some extent a little bit, everything is possible; but was just a technical. Do not consider this as a minus 3 for the serious increase of the coverage. That's not necessary, we believe.
So with regard to dividends, hence it's fair to assume we will be able to achieve our target above 12.5% sometime by the end of 2017, maybe 2018. So at the same time, we will be faced with the new requirements from IFRS, I mean IFRS 9 – if and when it is implemented – plus changes in methodology from Basel I to pre-. Hence, who knows what to expect from regulatory by that time?
So I'm not in a position now to speculate whether it will be possible or not to discuss a change of our dividend policy. I cannot exclude it completely, but I definitely know that today or beginning of the next year it's a little bit too early to start the discussion.
We will turn back to that a year from now when we have already achieved 12% at least Core Equity Tier 1 ratio. But life is life, hence everything is possible.
And your last question with regard to fees growth dynamic. As I already mentioned, we expect this year to be a low- to mid-teens growth, and it has been low when we expected, mainly due to sharp declines for initiation of transactions, volumes, and the reduction of cash reserves where our fees and commissions also are quite substantial.
Looking forward I can say that we believe that volumes of current transactions business increase, as we continue to increase the cost of associated with processing transactions. Business also increased proportionally.
We will focus on co-promoting our transactional services and fee-based nonbanking financial services like asset management, insurance sale, and private banking. Hence, as a good example, I can say what we are growing very well in terms of in terms of core equity, in terms of growth rate. We increase the business by 60% up to date, and we are controlling near 60% of the market share in terms of acquiring pre-cap loan and 36 million mobile customers, Sberbank Online.
Hence, business associated with this I can already say ecosystem is growing very fast. So gradually, looking forward, I believe that fees and commission business will continue to go up faster than growth of our net interest income and proportional fees and commissions, because we will continue to go up a little bit in our completion of our revenues.
As well as I consider it as a target for us to increase the proportion, so coverage, by fees and commission risk free of our OpEx. Today we have above more than 60% covered, but definitely we want to increase that proportion much more.
So looking forward, I see no necessity to change our medium term for customers with regard to fees and commission income. I believe we would be able to deliver mid- to high-teens next year.
That's perfect. Thank you very much. If I may follow up a little bit on the capital targets actually, you have mentioned that just like – it would be more comfortable for you to revisit dividend policy if the CET1 ratio hits 12.5%, seems like basically 50 basis points increase. This is the guidance which you have earlier provided. Can you please confirm this?
And the second point is whether the RB release, RB-associated release to risk-weighted assets and the capital adequacy is actually still on track for the next year. Thank you.
We are still waiting for the final resolution from Russian Central Bank. We have no information to share with you today on this conference call.
As soon as we have more understanding of what's going on there, we will definitely inform you about that, about the full implication, the full effect on our capital liquidity ratio. And yes, I confirm, that we are not going to start any sort of discussion about our change or potential change of our dividend policy before we achieve at least 12% Core Equity Tier 1 ratio.
That's minimal. We can see that for the bank of our size now, which fits perfectly the average Core Equity Tier 1 ratio showed by European banks and [indiscernible] banks ratio and keep a higher Core Equity Tier 1 ratio. And the rating agencies were all signs indicating a deficit of capital equity the way it estimates, hence we want to address that topic. So as of now, it's a little bit early to speak about that.
And taking into account that our – we are living in a time in which everything is absolutely unpredictable. Hence, nobody knows what will happen tomorrow. I do not want to start the discussion now. It's, again, too early.
But we are working hard to increase capital adequacy ratio. You see that. We increased it in our Russian business by more than 100 basis points 10 months up to date on a Group level. But 80 basis points over three quarters, hence –
Hence we will continue to move that direction [indiscernible]. So you know tends; you know what we're thinking; you know our limitations here and there. Hence, let's just turn back to a discussion next year.
That's very helpful. Thank you very much.
We can now take our next question from Alex Kantarovich from JPMorgan. Please go ahead.
Thank you. Hi, Alexander; hi, Jyrki. A little bit on your new classification or categorization of modified versus restructured. It seems that what we should focus on is just the purple part on page 23, restructured. Correct me if I'm wrong, because that's where the problematic loans are residing. Is that correct?
Absolutely correct, you're right.
Okay. And regarding currency breakdown of restructured loans, it's surprising to see so much dollar loan there, over 60% still. So shall I assume that basically currency exposure was the trigger for the term change in most cases?
In a number of cases, it's absolutely correct. In a number of cases. We faced mostly these issues on the construction side. A number of construction projects and development projects loans were denominated in American dollars, that's correct.
Hence, the first line methodology. But all of you, you know the names in our books and you know the quality of those names; you know the collateral we have; and our focus for those names. So I do not see [indiscernible] here some specific questions there.
So the most difficult topic for us was construction. And so you're absolutely right: very substantial part of construction was denominated in American dollars.
Okay, that's great, that's great. And, Alexander, to the extent possible – I appreciate that this is a quarterly call; but as usual we're curious about the ongoing dynamics on the net interest margin side. If you could give us possible further trajectories of asset yield and funding cost to the extent you can.
Looking forward, say, I do not want to go too much into details, otherwise I'll have nothing to say to you when we present our full-year guidance 2017 on December 14. So really I'd like to see in first [indiscernible] here you come and attend our Analyst Day.
But just to cut a long story short, I believe that we will be able to support all the trends you can see in our revenue structure. So all the same, but in slightly different way – more efficiently, I would say.
Margin is also relevant for our net interest margin. I was maybe a little bit conservative beginning of the year. Our margin continues to improve a little bit quarter to quarter.
I would not expect substantial expansion of our margin further. But nevertheless I do not see any reasons why it should drop down substantially as well.
So I would say trends you see now in our third-quarter results, maybe to some extent extrapolate it with regard to our revenue side at least.
But at least in terms of growth rate on our fees and commissions, definitely that's one of our points of focus of management attention. And we believe that next year results might differ slightly from that, for better.
Okay. Very good. Alexander, thank you very much.
We can now take our next question from Olga Veselova from Bank of America. Please go ahead.
Good evening. Thank you. My first question is about impact from one-offs on capital adequacy ratios. Have you made any estimates of impact on capital ratios from revaluation of property which you will make by the end of this year, from Basel II, for IFRS, and also, IFRS 9 in 2019? That's my first question.
With regard to the valuation of real estate, as a matter of fact a valuation of our office premises, the net negative effect on our capital we expect will be around RUB30 billion. That's approximately, plus or minus, before taxation.
That's preliminary estimate, but it will be offset by some other things, some including a positive valuation of our investments into Visa and MasterCard. We intend to sell those shares; but there is a very high probability that we will complete the transactions already in 2017, not this year.
So as we discussed it earlier, I do not expect this valuation of our office premises will undermine our full-year promised results. So all together on balance, taking into account all other components of our structure of the profit and loss.
With regards to selloff of our subsidiaries, that's a very limited effect. Slovakia gave us 0.1% positive implication our capital liquidity ratio.
With regard to implementation of Basel III requirements and IFRS 9, we are not ready now to give you some numbers. We are still calculating full effect, but – and the range is still quite wide.
We are preparing ourselves for the worst, for conservative scenario. But when we believe that the calculations, hence our vision, calculated this more or less adequate level of certainty, we will definitely share these numbers with you. But it is not yet the time.
That's clear. Thank you. My other question is a clarification about your 12% or 12.5% Tier 1 ratio. You mentioned that you would not be willing to revise the dividend policy until the Tier 1 ratio is firmly above 12%. Is this Basel I, or this will be valued for Basel II Tier 1 ratio once you move to Basel II?
I'd say it's about Basel II, definitely. We have to change our applieds, method of calculation of our capital adequacy ratio for Basel II, and we are preparing ourselves for that. So that's equating to Basel II.
That's clear. Thank you. My other question is about your presentation. If we can look at slides 21 and 22, on the 21st slide the NPLs in total renegotiated loans were 8.2%; but on slide 22 the black category is 5.3%, which suggests to me that that category should include 90 days NPLs as well. Am I right?
Okay, thank you.
But to be precise our red zone includes a little bit of – not delinquent loans 90-plus but substantial parts of other loans, so performing loans as well, where we have some other reasons why we include it in the red zone.
I see. The reason I ask is because the footnote on this page says that the criteria for red zone are 30 to 90 days overdue. It's not 90 days-plus. That's the reason I ask.
One correction. If you look at page 22, at the title, that's top 100 borrowers percentage. So what's relevant for top 200.
And page 21 was for our all portfolio. Okay? So some changes in grouping and mapping is partly explained by that. So a different sample; sorry.
Yes, thank you.
We can now take our next question from Adnan Bilgin from Metzler. Please go ahead.
Good afternoon; hello. Here is Adnan Bilgin from Frankfurt. My question is actually concerning the loan-to-deposit ratio. It looks to me that you are giving up some deposits in a weak loan environment. And I wondered what the range of loan-to-deposit ratio is where you feel comfortable with, and if you should expect a further decrease of the ratio. Thank you.
We feel ourselves very comfortable with existing level, about 93 percentage loan-to-deposit ratio, even taking into account that we continue to be sanctioned institution. Otherwise, I would feel myself very comfortable even under assumption of 100% loan-to-deposit ratio.
But today taking into account uncertainties around this 90%, 93%, 95% level, I feel myself much better. So we can show – and you saw on a daily vision our loan-to-deposit ratio separately for different currencies, hence we feel our self absolutely comfortable with our liquidity with regard to different sort of scenarios for full-year 2017 in all currencies: ruble, dollars, euros.
We have enough provisions to reserves. I have do not see necessity to just buy additional expensive short-term liquidity. We do not need it.
That's why we decided to support the margin, hence to a little bit reduce the interest rate payable on the less loyal customer front, which is short-term corporate deposits. What was an intention and we did it successfully.
Okay, thank you.
We can now take our next question from Gabor Kemeny from Autonomous. Please go ahead.
Hi. Another question on your new asset quality disclosure. You show that roughly 30% of the total renegotiated loans is what you now call restructured loans, so kind of distressed restructuring. This is almost the same proportion with what you classify under red and black zones in the color coding.
Now, I understand that the color coding refers to only the top few borrowers. But are these two definitions essentially different, or are they very close to each other?
And my other question on this asset quality disclosure is whether you include across defaults here. I mean if a borrower defaults on a loan, do you include all your other exposures to the borrower in the restructured category?
And then I will have another question.
The definition is very close, but not absolutely the same, and that's why we updated and presented new information more clear. So when you find it in the structured, you can see – instead of our old version or presentation of restructured portfolio. But definition is to some extent close.
With regard to your second part of your question, the cross sell. In most cases, yes, it is included.
We have some exclusions out of the total rule. But that's on just an individual basis and very rarely happens. I would say for 95% cross sell is included.
Okay, thank you. The other question is on your margins. I was actually a bit surprised that your retail deposit costs slightly increased in the third quarter. Do you see room to improve your deposit spreads to do more downward depositary pricing from here? Or do you think – is this the kind of run rate for your deposit costs going forward?
You can witness the change of our currency composition of our liabilities, our retail deposits. So less dollars, more rubles, since the nominal interest rate in Russian rubles is a higher one. So because of that, you see that nominal effect.
But looking forward, definitely, I see potential for further – and not just the reduction of our payable rates and retail term deposits.
Okay. I guess there is also some kind of downside to your asset yields. Is it just …
Yes, yes, yes –
– reasonable to assume that your margins season in the third quarter? Or is there a chance they become stable?
Seasonally you may notice, if you look back into our history, fourth quarter normally is very productive and very forceful in terms of margin for Sberbank of Russia seasonally. So I would not expect contractions of margins in fourth quarter this year.
But you can find more details on the page 8, net interest margin – net interest income and net interest margin. So you may find the cost of funds and yields on our assets, liabilities.
So, again, I'm very positive with regard to our ability to support the margin at the current level. But at the same time, looking a little bit forward, further than just one quarter, I would not expect further expansion of the margin because of contraction of our interest rate, interest yields we can achieve on our asset side.
Okay. That's helpful. Thank you.
We can now take our next question from Alan Webborn from Societe Generale. Please go ahead.
Hi, good afternoon. Thanks for the call. Does the reduction in the corporate term deposit costs, which were clearly quite marked in Q3, in your review does it potentially tell us that the behavior of corporates is starting to change? Would you share the view that perhaps this is a precursor to a slightly better volume demand going forwards?
Is that something that you recognize, or is that just wishful thinking at the moment? I'd be interested in your view as to the behavior of Russian corporates towards the second half of the year and how you feel about that.
And I say secondly on the retail demand, you did point to the fact that I think on the secured retail lending as well as mortgages were rising at least a little bit in Q3. Some of the other banks that we've seen are perhaps indicating slightly more optimistic views in terms of retail loan demand.
And I wondered what you feel about – is the environment in any way more conducive to doing more retail lending? Or are you still in your ultraconservative mode that you appear to have been in for a good part of this year? I'd be interested in your view on that. Thank you.
Hi, Alan; it's Jyrki. I'll take this one. So, starting from the retail, yes, we have seen a pickup in retail lending and specifically starting from after the summer. So August numbers were very good. It was a record month since the cycle started or since the autumn of 2014, and both with mortgages – but specifically a pickup and a change in attitude in consumer loan, so our credit cards and unsecured loans.
And as you've probably seen in the press, we have several times taken down the rate as well to promote that, and we've started to see a pickup in the last three months which is very visible, very clear trend already.
On the corporate side, as Alexander said initially, the growth has been very anemic. We've been around 0%.
But as you alluded, we have started to see the corporate deposits go down not only because of our own efforts in lowering the rates, but also the companies anecdotally starting to use their funds and burning through some of their cash, which of course we hope is the first time that will allow them to come to the markets again to borrow from the banks going forward. So it is a sign that we have been waiting for.
Okay, that's helpful. Thank you.
We can now take our next question from Ivan Kachkovski from Deutsche Bank. Please go ahead.
Yes, good afternoon, gentlemen, and thanks for the presentation. I have a follow-up question on the corporate lending. In particular, do you see any signs of any pickup of demand in investment credit? Or if that's not the case, what are your thoughts on what should happen before such demand could reappear in earnest and help grow your loan books?
Any color would be appreciated. That's the first question. I'll have a second one a bit later. Thank you.
Up to date we do not see any growth in investments demand from corporate side. Not at all, unfortunately.
I should say that before it happens we would expect as a precondition – not to say precondition, sentiment change and some reduction of the prevailing interest rate environment. So key interest rates should go down a little bit.
Thanks. Thanks very much. Very helpful. And the second question is about your headcount. I appreciate your focus on the tightening costs, but in the third quarter we saw the headcount creeping up again.
Just wonder if you could share with us in what areas are you hiring or maybe transforming. If that is comprised of both hires and some layoffs, what lies behind it? Thanks very much.
With regard to headcount, I can say that you should expect us to start to reduce our headcount number and it will be more visible next year. On the Russia side, so Sberbank of Russia, we have already started that process.
And we continue to hire people in just selected geoformalists like data scientists, IT specialists, IT engineers, and technologists. That's it.
And we continue to reduce our branch numbers and just the back-office staff number, middle-office stuff number headcounts. So that's how it's going on.
And next year it will be more visible. We are going to address it more details on our Analyst Day on December 14. But it's part of our program to noticeably reduce our growth rate in terms of operational costs.
Thank you very much. Very helpful.
We can now take our next question from Yulia di Mambro from Barclays. Please go ahead.
Yulia di Mambro
Hi, thanks very much for the presentation. Most of my questions have already been answered, but I just have one final question on the new disclosure that you have kindly provided on the restructuring portfolio. The text on slide 23 suggests that loans can be reclassified out of the restructuring category if they've been in compliance with their terms for at least six months.
Can I just confirm that in that case, if that happens, they are then reclassified into the other category of renegotiated loans? I.e., the green bar on that slide.
And would you be able to share with us what proportion of modified loans is this type of loans? I.e., loans that used to be restructured but performed for six months and were then reclassified out of that category. Thank you.
I'm not ready to give you the exact number, exact proportion of how much of restructurings after which incur these requirements were reclassified into modified. But you're right; we have reclassified to that case as – into modified and reflect it in this line. We will think about your question; hence maybe sometime in the future we will address that topic.
As of now, I don't have that specific information with me. Sorry.
Yulia di Mambro
Okay. No problem. Thank you.
But it's not a big proportion, anyway. That's a relatively small number; hence, trend-wise it's not very significant.
Yulia di Mambro
Understood. Thank you.
We can now take our next question from Svetlana Aslanova from VTB Capital. Please go ahead. I think we've dropped the line. As there are no further questions in the English queue, we will now take new questions from the Russian queue.
Okay. So if that concludes the international part I would like to once more thank everybody for being on the call today. And like always, should you have any further questions, our Investor Relations team is ready to answer any of them.
Thank you very much for participating today and we will now turn to the Russian language questions.
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