Sberbank of Russia (SBRCY) on Q1 2021 Results - Earnings Call Transcript

Sberbank of Russia (OTCPK:SBRCY) Q1 2021 Earnings Conference Call April 29, 2021 10:00 AM ET

Company Participants

Anastasia Belyanina - Head, IR

Alexandra Buriko - SVP & CFO

Dzhangir Dzhangirov - SVP & Head, Risk Management Service

Conference Call Participants

Elena Tsareva - BCS

Stephan Potgieter - UBS

Gabor Kemeny - Autonomous Research

Andrzej Nowaczek - HSBC

Evgeniy Kipnis - Alfa-Bank

Andrew Keeley - Sber CIB

Simon Nellis - Citigroup

Mikhail Shlemov - VTB Capital

Olga Veselova - Bank of America Merrill Lynch

Alan Webborn - Societe Generale

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sber's First Quarter 2021 IFRS results call hosted by Sber's management team. [Operator Instructions]. I must advise you that this conference is being recorded today, April 29, 2021.

I would now like to hand the call over to Mrs. Anastasia Belyanina, Head of Investor Relations. Please go ahead.

Anastasia Belyanina

Thank you, and good afternoon, everyone. Thank you for joining us on our regular call our first quarter results 2021. I hope that you all are safe and healthy. Today, we have our regular speakers, our CFO, Alexandra Buriko; and our CRO, Chief Risk Officer, Dzhangir Dzhangirov.

They will hold a short presentation on the results and walk you through the most recent highlights and most interesting events and numbers. And then we will open up our traditional Q&A session, where we will be happy to take your questions as always.

Thank you for that. Before we start, let me, as usual, draw your attention that some information on 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 made during the call due to known and unknown risks and uncertainties.

For more information, please refer to our presentation and the most important Slide, 2, in our presentation, where you can find more information on that.

Thank you for that, and I turn the floor over to Alexandra.

Alexandra Buriko

Thank you very much, Anastasia, and good afternoon, everyone. Thank you for joining us today. I hope you had the chance to review our first quarter results and are as pleased with them as we are. I will just briefly walk you through the key highlights and then discuss the key trends.

In the first quarter of 2021, we are in the highest quarterly profit ever of RUB304.5 billion. Our EPS reached RUB14.2 per share, which is 2.5x growth year-on-year. Our ROE reached 24.3% and return on assets, 3.3%.

These strong results were reached on the back of supportive operating environment. Although the Russian economy remained affected by the pandemic in the first quarter, there was increasing evidence of recovery, gaining traction. In the first quarter, Russian GDP contracted by 1.3% versus 1.8% in the fourth quarter of 2020.

In March 2021, we already see most numbers turning positive as compared to a year ago, which was the first month of pandemic restriction. Sequential month-on-month GDP growth throughout first quarter was solid, 0.3% in March after 0.6% in February. Industrial output was up by 0.8% month-on-month in March, while services sector, which was the most distressed, grew by 0.5% month-on-month and was up by 1.4% as compared to March 2020.

The primary sectors driving recovery are machinery, chemicals, transfers and construction. Overall, business and consumer activity in March flat, but recovery became sustainable and faster than originally predicted and we see additional proof to that in our weekly dynamics as of mid-April on the Sber platform, highest annual growth and consumption of goods and services, up by 5.5% year-on-year, adjusted for lockdown effect.

The decrease in spending on services narrowed to just 1.1% year-on-year, best dynamics thus far, also adjusted for the pandemic effect and recovery in business turnover by 4.1% year-on-year.

Let's now turn to our results and start with net interest income and net interest margin. NII increased by 13.3% year-on-year to RUB421.5 billion in the first quarter, driven mainly by retail lending. Our retail loan book expanded by 3.9% in the first quarter to RUB9.7 trillion, which is 38% of the combined portfolio.

Both mortgages and consumer loans showed solid dynamics. Consumer lending grew by 3.4% in Q1, supported by promo campaigns. Mortgages increased by 4.5% in the first quarter as demand remained solid amid favorable market rates and continued subsidized mortgage programs, which accounted for over 30% of overall mortgage issuance.

Our digital housing platform, DomClick, is among the top 3 in Russia by the number of listings, which remains over RUB1.7 million. The platform's monthly audience added over 2 million users in the first quarter and reached 14 million. Overall, DomClick gained RUB2.9 billion in Q1 for the services supportive to real estate transactions, such as secure settlements, title transfer and other services not directly related to mortgage originations.

On the corporate front, loan growth was 0.8% for Q1, as solid issuances were offset by the redemption. By segment, demand stems from large corporate and SMEs. The cross sector lending was led mainly by construction, real estate, metals and mining and chemicals.

Loan portfolio of the developers of residential construction expanded by 16% to over RUB990 billion for the period, and almost 80% of lending was extra based. 45% of all short-term loans to medium and large businesses, worth RUB520 billion, was approved in 7 minutes, applying AI-based smart lending technology.

In the first quarter, we extended this option to state and public borrowers. As for funding, the retail segment, we saw a typical seasonal outflow for Q1 of 0.8% from a high base at the year-end. In the meantime, the share of current accounts in the structure of retail finding held close to 38% due to the growth of outstanding balances on escrow accounts and cashless turnover through banking card accounts.

Corporate deposits increased by 15% for Q1, performing a liquidity management tool. Now let's look at our net interest margin. As you can see, our margin contracted by 16 basis points to 5.18% in Q1. That was mainly due to the lower yield on retail loans, around 50 basis points, on the back of ongoing downward repricing and increased share of mortgages.

In the meantime, the corporate loan yield was slightly up, given the meaningful share of floating rate loans in the loan lease. Combined funding cost decreased by around 10 basis points in Q1 as a result of higher share of current accounts in retail funding.

Overall, we are sticking to our full year NIM guidance and expect a 50 basis point contraction versus the average net interest margin in 2020. This is mainly due to the following factors: the bank book is still yielding higher; and the natural loan repricing will continue for some time.

As you know, the Sber came up with several rate hikes recently, and those will have an effect going forward on the cost of retail funding. In the meantime, the corporate cost of funding is sensitive to market trades, and that offsets the repricing of the increased share of floating rate government bonds, serving as a healthy liquidity buffer and little interest rate risk.

Now let's look at our fees and commissions income. Net fees and commissions income grew in the first quarter by 6.3% year-on-year to RUB134.3 billion due to decent transactional activity and despite the unusually high base effect of the previous year. The main driver was banking part operations that was up 11% year-on-year amid growth in acquiring loans.

73% of all retail transactions -- they were cashless in the first quarter of 2021. Among incentives to boost cash flow penetration in the first quarter, we rolled out payments with the Glance Biometric Technology at 2 major Russian retailers. We also launched a QR solution for cashless in the services sector and we expanded acquiring in public transfer to 142 cities, where more than half of all fares are based by the banking card.

Let's now move to our Wealth Management segment. In the Wealth Management business, operating income before provisions grew by 17.3% year-on-year in the first quarter to RUB16.3 billion. Key revenue drivers were life insurance, mutual funds and savings insurance. Almost 1/3 of all Wealth Management products were sold online. Assets under management increased by 3% in Q1 and reached RUB1.8 trillion and client assets from brokerage and individual investment accounts approached around RUB2 trillion by the end of the first quarter.

Now let's have a brief look at our risk insurance segment. In this segment, operating income before provisions was down 4.6% year-on-year in the first quarter. The key reason is the client outflow from our branches to digital channels on the back of pandemic constraints. Back in 2020, we launched an online marketplace for own damage insurance for car owners and rolled out this product across all branches countrywide this year.

Recently, we also launched another product for car owners, mandatory auto insurance, which now can be purchased online without preliminary car insemination. Pricing is based on the scoring model, which allows a personalized client offering.

And now let's look at our nonfinancial segments that demonstrates the tremendous growth quarter-on-quarter. Revenue from Sber's nonfinancial business grew fourfold if we compare the first quarter of 2021 with the previous years and reached RUB33.6 million.

There are several important developments worth highlighting in the same. We finalized the buildup of main verticals in our e-commerce segment, which is our strategic priority. We filled the gap for nonfood vertical by acquiring 85% share of goods.ru at the end of March. This week, it was rebranded into multi-category marketplace, SberMegaMarket.

In February, we closed a deal for a 45% stake in the e-pharmacy platform, Sber Eapteka, and momentum remained strong in the first quarter in our e-grocery business, that is part of e-commerce. The market GMV increased 6.5x year-on-year to around RUB10 billion, and over 6% of this turnover was derived from supplementary sources, advertising and B2B. Revenue growth in express grocery platform, SamoKat, jointly owned with our partner, Mail.Ru Group, was even stronger, 11x year-on-year.

As you may remember, last year, we launched subscription-based bundles of products, SberZvuk and this year, we are expanding and diversifying the subscription family. Recently, we broadened the range of the most popular nonfinancial services and added a set of financial services to the bundle.

That includes SberZvuk, free of charge B2B transfers beyond RUB50,000 per month, higher cash back and Sber loyalty program and free of charge cash withdrawals at any ATM globally. The number of Sber prime users continues to increase and approach around 1 million by the end of the first quarter and another enabler of debt ecosystem, DiDi, registered 19 million users in the first quarter.

Now let's have a brief look at our operating expenses. Operating expenses were up by 7.1% year-on-year in the first quarter. Our staff costs grew by 12.8% year-on-year as we consolidated the headcount from nonfinancial businesses that include Rambler Beru marketplace. That offset the positive effect from the reduction of financial staff, along with increasing efficiency and cash transformation. Cost-to-income ratio for the financial business came down by 1.4 percentage points year-on-year to 29.3%.

Now I would like to pass the floor to our CRO, Dzhangir Dzhangirov, to discuss cost of risk and a policy.

Dzhangir Dzhangirov

Thank you very much, Alexandra. Good afternoon, dear colleagues. The quality of assets is very stable. The share of nonperforming loans stayed at the level of 4.3% and the share of stage 3 and POCI loans increased from 6.6% to 6.8%, mainly due to the migration of 1 of the corporate clients to stage 3, and the coverage of the -- the provision coverage of stage 3 decreased from 103% to 99%, mainly due to the classification of 1 of the stage 3 clients from amortized cost to fair value. So there is some allocation between stage 2 and stage 1 portfolio.

So next slide, please. And this is due to -- mainly due to 2 factors. First of all, our total portfolio increased in the first quarter, and we didn't have that many migrations from stage 1 to stage 2. And also, we had a repayment of 1 of the clients from Stage 2.

On the next slide, you may see the behavior of the restructured loans. So on the left side, you see the behavior dynamics of the restructured loans in detail. In 2020, we had RUB185 billion of restructured loans. And out of that, 88% is already out of the payment holidays or has been repaid. And as you can see, the share of the secondary restructurings do not grow that much, and it's now 5% versus 4% 2 months ago.

On the corporate side, also 88% already out of the holidays or has been repaid and secondary structures also do not grow that much. On the next slide, we present our cost of risk, and it came to 41 basis points in the first quarter. This is significantly lower than we expected. And as I said when we announced our yearly results, this time, in this crisis, there is much less the relationship between the macroeconomic parameters and risk metrics.

So they are much -- so the risk is much lower than on may expect from the macroeconomic parameters, such as decreasing in 2022. Based on that, we announced our new guidance on cost of risk at 100 basis points for the total year 2021.

So on the next slide, you may see the dynamics in our RWA and RWA density. So we had 2 positive effects in the first quarter. First of all, we eliminated macro add-ons for nonresidents created in local currency and we discussed this for a year with the Central Bank, and they finally allowed us to decrease to cancel macro add-ons for nonresidents in the foreign countries of our presence.

And the effect on that in absolute terms, is RUB537 billion. And another decrease by approximately RUB500 billion is due to the reallocation of the assets to METRO and interbank loans. On the next slide, we have some news for you. First of all, I'm happy to announce that the day before yesterday, we finally got approval from Central Bank to use a standardized approach for operational risk starting from 1st of May 2021. And as we expected, on that will be the decrease in RWA by RUB1 trillion.

There is pure potential in this number, so we made the economy on operational risk made. So the increase, a slight increase. But as of 1st of May, the FX will be approximately RUB1 trillion. And another good news is that Central Bank canceled the macro add-ons on for unsecured consumer loans issued in the period between 1st of September 2019 and 31st of March 2020.

For this particular period, the macro add-ons are canceled, and then that gives us another RUB348 billion economy on RWA. In the same time, Central Bank announced that they will return to the macro add-ons that we had before the COVID. So the macro add-ons for unsecured loans will increase back, and that will mean incremental RUB400 billion of RWA in the second half of this year.

That's all on my side, and I hand it over to Alexandra.

Alexandra Buriko

Thank you very much, Dzhangir. Before we turn to a discussion on capital adequacy. I would just like to highlight that we expect a positive impact from implementation of our AI technologies across the board and we expect that this effect in 2021 will amount to approximately RUB145 billion.

And now let's look at our capital. CET 1 capital adequacy ratio increased by 47 basis points to 14.3% for the quarter while the total capital adequacy ratio added 61 basis points to 15.29%, supported by the issuance of subordinated debt for the amount of RUB56 billion in the first quarter.

As you know, our annual general meeting approved dividend payout from profit in 2020 at approximately 56% ratio, and we will distribute, again, a record amount of RUB422 billion in dividends during the second quarter.

Now let's look at ESG. And let me briefly recap on our recent developments on the ESG agenda. We approved the list of prioritized ESG projects for 2021 and assigned ESG KPI for our top management. We approved policy for ESG risk management and defined criteria for ESG-linked loan origination. We also started measuring Scope 1 and Scope 2 according to Russian methodology and exploring the carbon intensity of the loan portfolio. We finalize -- we plan to finalize Scope 3 assessments by the end of this year.

We launched a series of sessions for corporate clients in various sectors to help them adjust business models to new realities and minimize own impact on the environment and manage their ESG risk.

And now let me look at our guidance update. Last Friday, the Central Bank has said that the Russian economy is recovering faster than expected and increased key rate by 50 basis points to 5% on the back of the elevated inflation expectation. For the first time, they disclosed their key rate expectations for neutral rate by ranges over the next 3 years. This signals a potential rate increase by the end of the year.

In our forecast, we expect the key rate to be raised by another 50 basis points in 2021 and we see inflation of 4.8% by the end of this year. GDP growth increased to 3.8% in our forecast. Based on these trends, we have upgraded our outlook for the sector and expect corporate loans to grow between 9% and 10% in 2021 and retail loans to grow between 16% and 18% in 2021.

On the funding side, we expect corporate deposit growth to be in the range of 13% to 15% and retail growth between 7% and 9%. We expect to perform in line with the sector respectfully and retain our market share. We also revised some of our own financial targets. OpEx growth is raised to low- to mid-teens on a full year horizon.

We expect that to be largely driven by greater expenses of our nonfinancial businesses, which in their turn, will generate greater revenues for the year. We estimate now that to be over RUB200 billion. On cost of risk, we slashed our expectations, as Dzhangir said, to 100 basis points.

On CET1, capital adequacy ratio, we upgraded our expectations from a range to around 14%. And finally, on the back of these positive changes, as you have already seen, we improved our guidance on ROE and now expect it to be over 20% in 2021.

Thank you very much for your attention, and we are now ready for your questions.

Anastasia Belyanina

Absolutely. Let's open up the Q&A session. Operator, can you check if we have already any questions?

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question today comes from Elena Tsareva of BCS.

Elena Tsareva

Elena Tsareva from BCS. Thank you very much for your presentation and configurations with very, very strong results. So my question is more like a detailed question about your guidance change. So first of all, I see, despite you have a different key rate forecast for 2021, which is quite different, would you still expect the same 50 bps decrease of margin.

So could you just comment a bit detailed what kind of implications, why such a strong increase is still is just to expect the same dynamics of margin. Also, a bit detailed on capital adequacy guidance for end of this year. So assuming that you have higher ROE and also you have some savings risk weights, you still largely expect the same tier 1 ratio?

Is it right to assume that like your growth expectations improved? And also on cost of risk for such small like reading cost of risk in fourth quarter. So we may see that cost of risk should like largely increase like twice going forward, I mean, by quarter. What the kind like this increase in cost of risk going forward?

Alexandra Buriko

Thank you very much for your questions. Let me start with your question on net interest margin. As we previously said, our net interest income is positively sensitive, generally speaking, to increase in the rate and we still stick to that. We expect a slight positive impact from the recent developments on net interest income.

However, in terms of net interest margin, the factors will be mixed. Positive factors basically relate to the fact that quite a large share of our corporate loans is floating rate, around 40% of our corporate book. And of course, mortgages that are front under state subsidy program are also floating rate and that should drive the net interest income and margin slightly higher. And of course, the new book will be issued at a higher rate.

At the same time, we understand that there is a number of negative factors that will impact net interest margin. That includes the cost of corporate funding that is very sensitive to changes in key rate, as you understand, and this book reprices within 1 month.

The cost of retail funding also depends on the market, but we expect the repricing efforts to accelerate and downwards repricing of loan yields will still continue. We still expect that the print portfolio yields lower than the bank book for the time being.

So overall, new guidance, we believe, should remain unchanged despite the recent developments. However, we confirm positive sensitivity of net interest income. The asset base will grow faster. The net interest income will increase, but NIM should stay the same. That was the first question.

The second question on our capital guidance, capital adequacy ratio. The savings from OPEX that Dzhangir has talked about, we already included in our previous guidance. So the positive impact that you can see here comes mainly from change in our cost of risk guidance. And yes, it gives approximately 0.5 percentage point that we have incorporated as you can see.

So that is on the CAR. And I would ask Dzhangir Dzhangirov to comment on the cost of, please.

Dzhangir Dzhangirov

Thank you, Alexandra. So we changed our guidance to the level which is common for a normal year. So a 100 basis points is something that we expect to have in a normal stable year. Although the actual cost of risk in the first quarter was significantly lower, which is 41 basis points, we still keep in mind that there will be aging of the restructured loans.

We still keep in mind the effects of the potential third wave. And also keep in mind that the monitoring of yearly results of our corporate portfolio will be seen only in the second quarter, mid-April, mainly. So due to these 3 reasons, we -- our guidance is 1%.

Operator

Our next question comes from Stephan Potgieter of UBS.

Stephan Potgieter

My question was actually on net interest margin as well, largely onset, but maybe just to check on that. So a big part of the decline happened already in this quarter. So you're expecting it to flatten out quite a bit towards year-end to get to the 50 basis points decline. If you could maybe just indicate whether that's mainly due to higher rates starting to help or do you expect also the retail loan yield decline to subside?

I suppose that has been particularly pronounced in this quarter, if you can maybe just comment on that. And then maybe on the margin, you previously had a medium-term guidance for FY '23, a glide path down towards 80 to 100 basis points down, would that look better, I suppose, with higher rates?

Alexandra Buriko

Thank you very much for your question. Indeed, we always expected that kind of the large portion of decline in net interest margin should take place in Q1 as the repricing of the loan book takes place and then should stabilize gradually over the course of the year.

So what we see in Q1 is completely in line with our expectation. And the hike in the key rate will, as I said, will have a mixed impact on net interest margin. We don't anticipate any drastic changes to our previous forecast, considering the more rapid acceleration of retail loan book growth.

So the decrease will decelerate. It will continue over the second quarter and third quarter and then should stabilize. If you look at the 3-year horizon, and we gave the guidance of decline between 80 and 100 basis points. Now we anticipate that we should kind of remain closer to the lower end of that range in terms of the decline, okay?

Stephan Potgieter

That's very helpful. Maybe if I can just have a follow-up question on your sensitivity to higher rates, you mentioned it turned from the usual initial negative gearing to higher rates to slightly positive. Can you give us a sense of what ruble sort of impact would be for 1% increase in the key rate?

Alexandra Buriko

Yes. If you look at the dynamic sensitivity that includes, let's say, behavioral pattern of our clients, we expect that the sensitivity to kind of 100 -- to 100 basis points move should be somewhere between rub 10 million and RUB20 billion in terms of net interest income.

Operator

The next question comes from Gabor Kemeny of Autonomous Research.

Gabor Kemeny

A few questions from me. The first one on provisioning. You had this RUB18 billion or so positive revaluation of the loans measured at fair value in the first quarter. Can you talk a bit about what drove this and what's the likelihood of recurrence in the next few quarters?

Second question is on the new CBR regulation on consumer lending from the middle of the year. You talked about the capital impact, but would you assume this will affect your credit underwriting in the consumer space in any way, where you do see quite meaningful growth currently, either shall we think about the front-loading of some origination or possibly slower growth after the measures have taken place?

And just finally, on ESG, you mentioned that you would be linking or you are linking the KPIs, the management KPIs to ESG objectives in a way. Can you talk a bit about this, how this link works and how are you linking the ESG objectives to management compensation?

Dzhangir Dzhangirov

Thank you very much for your questions, Gabor. The effect on the revaluation of the loan portfolio is due to the repayment of the loans, which were not in very good shape. So the loans were repaid, and they were valued at lower than their -- face value, so we had a significant regulation back.

On the underwriting policy side for the retail loans, we are not going to change automatically our underwriting policy. We take into account the cost of capital for RWA. At the same time, this effect is not going to be that much significant. So the effect on the issuance of the retail loans will be insignificant.

And on the ESG side, Alexandra will answer.

Alexandra Buriko

Yes. Thank you. It's a great question. And as I said, we are we can say that we are in the beginning of this journey with the implementation of ESG factors in kind of our corporate day-to-day life. And as I said, ESG KPIs were incorporated for our top team. We have a number of ESG initiatives that include pricing our products with the ESG factors incorporated, credit products, as well as other products that we have that includes our own impact on ESG at the corporation from the environmental perspective, from a social perspective and the governance side.

And basically, all of that, at the end of the day, is measured through the ratings that we, as a corporation achieve. And recently, we underwent the assessment by S&P, and we're also rated by Sustainalytics and we have certain goals to increase these ratings and that is part of kind of the overall KPIs of our top management team that we expect to achieve through basically following and implementing those initiatives that I described. There are quite a number of them and we will disclose them as part of our ESG policy that will be published later this year.

Dzhangir Dzhangirov

Let me add a couple of words here on refi side, we started this late last year, but we will continue this work, and we continue this work this year. We incorporate ESG factors in our credit policy. So with the intensive industries, we'll definitely have changes in the underwriting policy.

Secondly, we are going to estimate is really for each existing loan in our loan book. We are going to make that both for corporates and for retail loans. This will be finalized by the end of the year. And thirdly, and this is -- it's a multiyear task, we are going to develop our only derating for, for corporate clients. And for that, we already started to collect the data from our clients, but this is not 1 year initiative, it's a multiyear initiative.

Operator

Our next question comes from Andrzej Nowaczek of HSBC.

Andrzej Nowaczek

I have a follow-up question on the NIM guidance. You've talked about loan and deposit rate dynamics and the sensitivities. But I wonder how much of this expected change in NIM is due to the portfolio investments. They increased a lot in the latter part of last year, not so much in Q1.

Do we expect to be buying more of asset in the coming quarters, especially once foreign investors can't from June, I believe. And what is the net interest margin on that compared to average loan yield?

And the bigger picture question is in the context of strong deposit growth in Q1. Would you say that whilst you maintain your NIM guidance that minus 50 bps, more or less, you are actually more positive on the NII outlook than you were before?

Alexandra Buriko

Yes. Thank you very much for your questions. In terms of NIM, well, obviously, all that portfolio given that size has some pressure on the net interest margin overall. We have previously disclosed the relevant numbers. At the moment, we do not expect any significant changes in our debt portfolio. We have accumulated quite a large addition to the portfolio last year when Ministry of Finance was issuing floating rate or debt. And right now, we are just using it as liquidity buffer.

So any additional purchases would be in line with kind of our internal needs and expiration of the current debt in the portfolio. And as I said, you're absolutely right to tune that while our net interest margin remains so far unchanged, we do expect a positive impact from the current changes on net interest income. And of course, all our investments in -- out debt portfolio, that is largely floating rate, as I said, also allow us to earn additional interest income as well. So here, we do expect positive.

Operator

Our next question comes from Evgeniy Kipnis of Alfa-Bank.

Evgeniy Kipnis

Congratulations on strong beginning of the year. I have a couple of questions, and I will ask them one-by-one. My first question is on your retail current accounts. From your IFRS disclosures, we see the average rate you are paying these accounts is pretty stable, at nearly 0.8%, for many years and many quarters -- many quarters and many years, actually.

At the same time, we know that you have recently launched the new savings account product with 3% interest rate on minimum balance, that's basically what we can see from Sberbank mobile app.

So my question is, which part of your clients has migrated to that type of account from, let's say, ordinary current accounts, whether it's a meaningful part so far? And given that, is it correct to assume some step-up in average rates on retail current accounts going forward? And is that built into your NIM guidance for this year and beyond? That's my first question.

Alexandra Buriko

Thank you. Thank you very much. It's a great question. Indeed, you're absolutely right. We have recently launched that, that product as an alternative to some similar products that you can see in the markets, such as cards that are carrying interest rates.

So far, kind of the flow into this new product was not very significant, and it is incorporated in our guidance. We do not anticipate any large impact from kind of the transfer of the customers from current and settlement accounts into this new process. It has certain restrictions built in and indeed, it doesn't really have a large draw on our net interest income.

Evgeniy Kipnis

Thank you very much, that's very clear. Yes, and my second question is on ESG side of your business, in particular, on lending to companies in the coal industry and its impact, its potential impact on your ESG profile, I guess, in light of recent news on your deal with Raspadskaya coal company.

I'm curious, what's your current debt this quarter to coal industry, maybe in terms of percentage of your corporate loan book? What are your plans on lending to the industry going forward and how does that coincide with your ESG commitments? And overall, speaking about your ESG policy, does that assume that you should potentially avoid lending to companies in a certain industry? That's my second question.

Alexandra Buriko

Thank you very much for your question. Indeed, it is something that we should consider very carefully as of now and on a go-forward basis, our -- the share of the coal industry in our portfolio is just slightly over 1% and so it's not very significant. And of course, we focus on the metallurgical coking coal rather than energy coal that can be replaced by other more ecologically friendly sources.

However, we should understand that ESG is not only about ecological aspects. It also includes social factors that shall be considered. And of course, many of the clients in the coal industries are situated in such cities where there is no alternative employment. And we should take a very careful look at how and when this industry shall be transformed.

But overall, we will incorporate, as Dzhangir already talked about, we will incorporate ESG scoring for our clients in our lending process, and that will impact the pricing on the loans. So that be kind of the way forward in terms of dealing with the coal industry, as well as, of course, supporting their projects that will help them become more ecologically friendly.

Maybe Dzhangir, would have something to add.

Dzhangir Dzhangirov

Yes. Thanks, Alexandra. Actually, last year, we already tightened our credit policy for the coal industry, both in terms of the leverage that we assume in this industry and also for the term of the loans that we allow in this portfolio. There are many unknowns for -- in the coal industry and Alexandra said already, there is a trade-off between E&S, so Ecology & Climate and social factors. And we are going to resolve these unknowns this year, particularly in May, we will hold our internal industry summit for the coal industry, particularly in Kemerovo. So we will explore this problem further, and we will continue to adjust our create-ables in this industry and other environmental, heavy industries.

Operator

Our next question comes from Andrew Keeley of Sber CIB.

Andrew Keeley

I have a question on costs. Your other operating expenses were very impressive in the first quarter. They were down, I think, about 3% or so year-on-year. I'm just wondering if you have any additional color in terms of the kind of key drivers behind this and whether you think this is sustainable this year, this kind of year-to-year on year run rate.

And if we look at the staff costs, I mean those picked up, I think, 13%, something like that year-on-year despite a 7,000 drop in headcount. So is this a reflection of more expensive hires, data analysts, IT stuff, et cetera? And just generally, in terms of your OpEx growth guidance of around 10%, I mean is it fair to think that you see basically most of this coming from staff cost growth rather than OpEx this year?

Alexandra Buriko

Thank you. Thank you very much for your questions. You're absolutely right. The staff cost grew by around 13% if we compare first quarter of this year with the last. And partially, it is an impact of basically reduction of lower cost staff, as I said, in the financial business, and replacement of that headcount with more expensive personnel, first of all, in IT, as we continue our technological advancement as well as the addition of our new subsidiaries in nonfinancial segments, such as Rambler, Beru market doubles gees and others, that were just simply not part of our group in the first quarter of 2020.

We have updated our guidance on the OpEx growth for this year. We expect that our OpEx will grow at the low- to mid-teens range and the major driver of that is the rapid growth of our new nonfinancial subsidiaries. We also upgraded their revenue growth as well and it will be driven by staff costs, as they will need to hire more personnel as they grow rapidly, as well as customer acquisition expenses that they will need to carry as they expand and acquire additional market share.

Andrew Keeley

Great. And just a second question on SberPrime. Thanks very much for disclosing the numbers. It looks like you're starting to get some kind of traction there. Can you just shed any light on how this kind of affects the financials? Where will we see this coming through, I guess, in the fee and commission income line? Just any kind of color on that would be helpful.

Alexandra Buriko

It is a very important question. As we said, by the end of Q1, our SberPrime subscribers reached nearly 1 million users. And we see some good dynamics in terms of cross-sell and the increase in penetration of the number of products in our client base that for SberPrime users was well over 2 products, and it was the launch of the new line of their SberPrime Plus recently that also includes very interesting financial product offering. We expect that, that will significantly improve kind of the attractiveness of the subscription.

For now, I think considering the number of users and various promo actions that we undertook over the last several months, it's too early to talk about the financial impact. It's not very significant. But as we go through the year, we will definitely disclose it as part of our kind of regular report to our investors.

Operator

Our next question comes from Michael Shlemov of VTB.

Mikhail Shlemov

A couple of questions for me. Actually, the first 1 for Dzhangir regarding the asset quality. When I'm looking at the Stage 3 plus PCI loans and the coverage is actually at 98%, it seems fairly high. But if I add up together the second restructuring, especially on the corporate side of the book, I get basically to the coverage of 90%.

I wanted to double check with you, to what extent thinking like this is actually correct or to whatever, there is an intersection between the sector restructurings and actually the recognition in stage 3 in both CR loans. That's the first question.

And the second question is actually on broader ecosystem strategy, especially in the light you have been guiding a more customer acquisition cost to come through the OpEx line and the fact that it seems like that the lineup, in the e-commerce line is rated.

To what extent we should expect also some recombination of the business entity there? If I remember correctly, you have the SberMarket and goods.ru, which has been rebranded, also Samokat and verket. And especially, whatever you can share, if anything, on the recent rumors regarding the possible discussions about the fate of the O2O JV with you.

Dzhangir Dzhangirov

Okay. Yes, Mikhail, your first question was about coverage of stage 3 for see and its link to the restructuring. So the drop of stage 3 coverage was mainly due to the default of 1 of the clients. So the client migrated from stage 2 to stage 3. So this was the main effect on this coverage and that particular client was already in the group of restructured loans.

So basically, it didn't affect the increase of the secondary restructurings in the corporate loan portfolio. So if I understood your question correctly, this is the answer.

Mikhail Shlemov

Dzhangir, if I may follow-up. Basically, what I wanted to find out is just like regarding this 30% of the secondary restructuring, to what extent this broader category is reflected in the stage 3 and both CR loans or in order to allow the total problematic exposure, we should sum up these numbers.

Dzhangir Dzhangirov

Yes. Thank you, Mikhail. The portfolio, which is in stage 3, unless this is bankruptcy or something that's already out of the normal course of business, the lion's share of the stage 3 portfolio was, of course, restructured.

However, not everything that we have when the secondary restructuring is in stage 3. So we understand that some of our clients had temporarily drop in their financial -- their revenues, especially from the industries that were mostly affected by COVID, but this doesn't mean that they will become stage 3 immediately.

So we still expect that there will be some aging in the secondary restructuring, but that's why we actually keep our guidance at 1% level. In the secondary restructuring, we have stage 2 loans as well. So basically, they may migrate in stage 3, but this will not happen automatically.

Mikhail Shlemov

Alexandra, if I may, just like ask 1 last question to Dzhangir. So basically, it seems that -- well, let's say, if we make this very simplistic argument, I just like the total amount of programmatic exposure, stage 3 plus policy, plus secondary restructuring, it seems like that the coverage -- provision coverage is still fairly high at 90%. Especially once I benchmark versus, let's say, your peers in the broader region, especially in Central and Eastern Europe, that seems the way too high.

I was wondering on whatever we see the likelihood of actually of cost of risk staying actually below 100 basis points of the cost of the next quarters actually continuing? And the 100 basis points cost of risk guidance basically still looks a bit conservative here.

Dzhangir Dzhangirov

Yes. Thank you, Mikhail. Indeed, our -- the coverage ratio is higher than for average bank in Russian banking industry, but as you know, and this is our policy for years already that our provisioning policy is quite cautious. So we'll continue to keep our provisions on conservative level.

Alexandra Buriko

All right. Shall we move to your questions on e-commerce then, Mikhail?

Mikhail Shlemov

Please.

Alexandra Buriko

Okay. So the question, if I understood correctly, was about the competition kind of our e-commerce business and how we see it shape over the year. You're absolutely right. Right now, it includes SberMarket, where we own around 81%. It includes goods.ru, that were recently rebranded in SberMegaMarket, where we hold 85% stake.

So those two companies are majority owned. Their market is a player -- leading player in e-grocery, while their mega market is a multi-category marketplace. And we also include into this kind of e-commerce family our 1P e-grocery player, Samokat, that is within our auto joint venture as well as our share in SberEApteka, that we completed basically the acquisition of recently.

The key kind of drivers for GMV and revenue this year will be the market and their megamarket in terms of absolute numbers. But we also expect that Samokat will continue very nice growth.

Although, of course, in terms of absolute numbers, since we hold only half of the stake, it will have a lesser impact on the overall numbers. In terms of how it will be shaped, we are currently working on various integrations between the client journeys and between the applications, so that our customers will have a choice, of course, by going to the mega market platform and having all the different possibilities through that, as well as going, for example, to their market and having the possibility to be put through to our other multi-category platform to acquire things other than grocery there. So that's kind of the overall story.

And then you also asked about our JV with Mail auto. I think that it has recently been addressed by Mr. Prius and Mr. Hart and I have very little to add. We are continuing to develop our joint venture both Mail group and ourselves investing quite heavily into the development of these businesses that includes, as you know, a delivery club, a CityMobil, Samokat, and some others, and they all demonstrated very significant growth during Q1. We already mentioned Samokat that grew 11x in terms of turnover in the first quarter.

And other parts grew very well as well, both DiDi and CityMobil demonstrated very significant growth in Q1. So we are quite happy with the development and intend to continue on with this joint venture.

Operator

Our next question comes from Simon Nellis.

Simon Nellis

Hello. Can you hear me?

Alexandra Buriko

Yes, Simon, please go ahead.

Simon Nellis

Yes, we haven't spoken much about payments yet. I was hoping you could elaborate a bit on what's driving the strong growth in payments and if you could say anything about TPV, total payments value, and take rates where your market share is and, generally, how you see the cashless payments market in Russia evolving over the next couple of years?

And then I'd also be interested in knowing how you plan to kind of integrate payment solutions into your e-commerce business. Do you see any opportunity to create kind of closed-loop networks, either through QR codes or otherwise, that would let you reduce expenses by basically circumventing Visa and MasterCard.

Alexandra Buriko

Thank you. That's a great question. You can see that our segment results in payments business grew almost 30% in Q1. And we've disclosed previously that our kind of overall payment volume, including P2P and other payments in 2020, was around RUB45 trillion with approximately half of that relating to P2P.

And as we discussed, we enjoyed quite significant growth in the segment, P2P grew healthily around 18% year-on-year. And our acquiring business is growing quite rapidly over 25% in Q1. We have a very large share in acquiring business. And indeed, the introduction of QR, it's rather supplementary.

It's already very good kind of client experience where they can use their phone to pay at any point that has -- our acquiring. And of course, we will incorporate our payment solutions in all of our platforms, and our e-commerce platform to have basically seamless experience for the clients where they will use SA and other payment solutions to make transactions.

Simon Nellis

Okay. And actually, if I could just ask about credit on the ecosystem as well. Are you rolling out kind of buy now, pay later type credit solutions and has that been a driver of growth? Or is that a growth driver to come?

Alexandra Buriko

As you know, our kind of e-commerce is very young and with goods.ru, we just completed the acquisition recently. But we will certainly have options such as buy now, pay later, incorporated. And it will relate to both our retail client base, where we expect to roll out something like that, as well as merchant base, where we already have some credit products, and we want to expand it to kind of the whole e-commerce universe. So it will definitely be kind of additional growth driver in terms of fees, commissions and interest income, for sure. We see very opportunity there.

Operator

Our next question comes from Olga Veselova of Bank of America.

Olga Veselova

I have three questions. My first question is about the a RUB200 billion revenue target from nonfinancial businesses and the increase in costs, which, as I see from the slide, these two revisions of the guidance, they come together. This upward revisions, do they mean that you run your expense faster than you targeted in the 3 year strategy? Could you confirm that?

And also, if you could help us to understand what part of the cost growth increase is driven by the additional expenses on the ecosystem. So in other words, if you could give us the cost income ratio for these businesses, which generate RUB200 billion revenue for the full year this year, that would be very helpful.

My second question is about the risk-weighted assets optimization. I hear you will enjoy the benefits from the announced matters by the Central Bank. Do you think this optimization is largely done or more to come in comparable size and magnitude? And also as a part of this question, if you could update us on the percentage of your assets, what percentage of assets is on standardized and on IRB approach?

And my third question is about regulation. We hear talks from the Central Bank that it wants to consider some tightening of regulation in mortgages, and we all know that there were talks about this over the past years. Now it seems to be finally seriously discussed.

Do you have any feeling about the timing of implementation of this regulation mortgages? And do you think this will be similar to what we have in consumer lending now, so PKI-based regulation?

Alexandra Buriko

Thank you very much for your questions, Olga. I will start with your question on nonfinancial businesses. Indeed, we upgraded both the guidance on nonfinancial business revenue growth as well as our operating expense. And of course, a large part of the -- basically, most of the kind of upgrade to our expense guidance relate to the faster growth of our nonfinancial businesses.

We do not target cost-to-income ratio in our nonfinancial businesses, as we have previously stated, the majority of them in particular in a B2C segment are currently loss-making as the acquiring market share and client base as is very customary for such businesses. So the key here is the top line that is growing very strongly and unit economics for each of the particular business model.

That has to turn positive under a short period of time in order for us to continue with this business model. So this is what we kind of have in our focus. And at the same time, our guidance for the cost-to-income ratio for our financial business remains unchanged. We expect to meet it. And as we disclosed in Q1, we actually improved year-on-year. We're down to 29% on our financial business.

And overall, for the year, we expect it to be not worse than in 2020 in terms of cost-to-income ratio in the financial business. All right? Is that okay for a first question?

Olga Veselova

Yes. If that's what you can disclose that, that's fine.

Dzhangir Dzhangirov

Okay. Other questions on the optimization. First of all, already 91% of our portfolio in retail loans is already on IRB. And for the corporate loan, the number is 67%. And so the Central Bank already at 2x canceled the macro audits for the unsecured loans. I'm not sure this is already an addition, and they will continue to cancel this, but it may be such because they see the performance of the portfolio, and they do not see significant macro reasons of portfolios, they cancel it, but again, it's difficult to predict what's going to be the next steps in this area for the Central Bank.

On the tightening of regulations in the mortgages, as of now, we do not see any signs of deterioration in the mortgages portfolio. The share of NPL 90-plus declines, while portfolio grows. Currently, the share of NPL 90-plus in our portfolio is below 1%, it's 0.8%. And for the new loans, the PTI issuances is stable issuance is also stable, at 74%, and average monthly payment amount is actually now close to what we had in 2019, although there was inflation, but those numbers are 26,000 for the primary mortgages and 21,000 for the secondary mortgages.

So actually, we see quite stable performance on mortgages portfolio and we actually stress tested it, and this portfolio performs very well and during the prices that we had in 2009 and 2015. So we do not see those signs.

At the same time, Central Bank's discussed a potential bubble in the portfolio and they may tighten the regulation. On the PTI side, they started to discuss PTI for the mortgages, I believe, in 2019, it was not yet implemented, but, but that may be the case. And macro exist in the mortgages for the loans with LTV above at above 80%.

Olga Veselova

All right. So you don't see anything concrete from the Central Bank now, what type of regulations could be about the timing?

Dzhangir Dzhangirov

No, we didn't get assigned any announcements from them. But as you said, PTI might be announced in the future because they started to discuss this already in 2019.

Olga Veselova

Right. And let me then maybe ask the last question. If I assume that the further room for risk-weighted assets optimization could potentially be limited and if there is additional requirements to capital because of additional regulation, do you think the instrument for you to address this would be issuance of 81%? Is this still on the table for you?

Dzhangir Dzhangirov

Pardon,, what did you mean by issuance of 81% or ...

Olga Veselova

Additional capital. Additional Tier 1 capital.

Dzhangir Dzhangirov

Okay. As of now, our economy from IRB is quite small. So there is big room for improvement here, and we're going to improve our models and our process for IRB. So we didn't reach the cap of the IRB optimization.

Alexandra Buriko

Yes. Well, on the capital instruments. Of course, we will continue our program. We are closely monitoring the market and, basically, we'll continue to optimize our capital structure on a go-forward basis.

Operator

Next question comes from Alan Webborn of Societe Generale.

Alan Webborn

Just two quick questions, if I may. Firstly, in revising your targets for the sector and for other parts of the business, I see that the sort of fee income growth target is the same and I wonder what the dynamics were and why you weren't tempted to sort of set up a little bit. That was 1 question. And then the second question was on the -- apologies if I've missed it, but on the sort of the revenue dynamics on the wealth management and brokerage quarter-on-quarter and how do you see that across the year?

Alexandra Buriko

Yes, Alan. Thank you very much for your questions. Actually, our original guidance of 10% growth in season commissions income year-on-year was already quite bold, to be honest, and was produced in anticipation quite a rapid recovery. We do see good dynamics, of course, the first quarter of last year was unusually high in terms of seasonal commissions, in particular because of March, and we anticipate some acceleration of growth in the second quarter.

But so far, we do not anticipate that it will exceed 10%. And kind of the dynamic that we see in terms of loans would not necessarily translate in kind of a more rapid growth in terms of kind of overall consumer spend and season conditions. So this is on the first question.

In terms of our Wealth Management business, to be honest, we are quite happy with the growth that we see in the first quarter. You can see that the operating income before provisions grew by over 17% in Q1 2021 and we increased assets under management by 3% that were already quite significant. And what is most important for us, that we are already selling around 1/3 of our products online.

What is important is that on the back of various pandemic restrictions, we experienced a significant decline of customer flow in our physical branches. And it was very important, basically, for our new lines of business, such as Wealth Management, to kind of reinvent themselves and ensure kind of increased penetration of products in online channels.

And we can see that they've been quite successful there and we anticipate that this traffic growth will continue and bring additional income to us. At the same time, we have to be very careful and to avoid any misstep, as the kind of investment products are quite new to Russian markets and we have to fully incorporate ESG factors as we offer new products to our clients in the market and ensure that clients are fully aware of kind of the risk and the cost of such products and work on financial education of our clients here as well. So Wealth Management remains our key priority for the time being, and the growth there shall continue.

Operator

And there are no further questions at this time.

Anastasia Belyanina

Thank you very much, and thank you to all participants, analysts and investors for joining us for this call. If you have any follow-up questions, so please feel free to contact us, and our IR team will be happy to address them. And now, we switch to the journalist and continue our call in Russian.