UPDATE 2-Sberbank's rapid growth seen based on risky consumer expansion
* Q3 earnings up 10 pct to 87.5 bln roubles vs f'cast 83.8 bln
* Shares up 1.8 pct, top level of Sept secondary offering
* Provisions up as bank competes in consumer space
* Acquisitions stretch capital adequacy
* Analyst says share issue may be needed (New throughout with analysts, shares, context)
By Katya Golubkova
MOSCOW, Dec 5 (Reuters) - Sberbank may be taking on too much exposure to free-spending consumers in its quest for growth, analysts said after the Russian bank posted higher than expected quarterly results.
The state-controlled lender reported third-quarter profit up 10 percent on last year thanks to its wide interest margins, even though funding conditions have turned increasingly hostile.
The earnings uplift sent the shares 1.8 percent higher to 93.50 roubles, just above the level at which the state raised $5.1 billion through the sale of a 7.6 percent stake in September.
Analysts cautioned, however, that loan-loss provisions had doubled year on year as Sberbank competed for consumer business, while its capital strength had been strained by recent takeovers to the point where a new share issue may be necessary.
Andrey Klapko, an analyst at Gazprombank, said Sberbank's total lending grew 12 percent from the second quarter, which should have dragged down the non-performing loan (NPL) ratio. Yet NPLs were unchanged at 3.4 percent of total lending.
"A flat non-performing loan level points to hidden risks of loan portfolio deterioration and a possible spike in provisions," Klapko said.
Sberbank set aside 11.7 billion roubles in third-quarter loan-loss provisions because of its growing loan portfolio. The bank accounts for a third of overall lending in Russia.
High borrowing rates and weak corporate credit demand have pushed Russian banks to compete aggressively in the consumer sector, with Sberbank offering bank cards on the spot at branches.
Bankers, including Sberbank Chief Executive German Gref, have complained that monetary policy in Russia is too tight, even though the central bank has ramped up funding to banks to its highest level since the 2008-09 financial crisis.
Sberbank's net interest margin (NIM) fell 30 basis points year on year to 6.2 percent - still higher than some analysts had forecast in a recent Reuters poll. Net profit reached 87.5 bln roubles against an average forecast of 83.8 billion.
"Sberbank managed to contain funding costs ... and increase revenues thanks to an increase in high-margin consumer lending, which was up 15 percent quarter on quarter," Klapko said.
Sberbank expects its full-year net interest margin to fall below its initial target of between 6.2 and 6.4 percent, with the risk of it dropping below 6 percent in 2013.
Retail lending grew 33 percent in the first 10 months of the year in Russia, three times as fast as lending to business, leading the central bank to consider tighter rules on provisions against bad loans.
Under Gref, a former economy minister who was the architect of President Vladimir Putin's early market reforms, Sberbank has bought foreign assets to diversify away from its core market.
The bank's corporate lending rose 18.6 percent and its retail portfolio was up 48.9 percent in the first nine months of the year, including its Turkish and eastern Europe assets.
Stripping out Denizbank and Sberbank Europe AG, the former VBI, corporate lending grew 8.8 percent and retail lending rose 35.4 percent.
These two deals have also eaten into Sberbank's Tier 1 ratio, a measure of a bank's capacity to absorb losses, which fell to 10.2 percent as of Sept. 30 from 11.6 percent at the beginning of the year.
"The stronger NIM figures are largely offset by the possibility that weakening capital adequacy might force a share issuance next year," Alfa Bank said.
Chief Financial Officer Anton Karamzin told a conference call Sberbank expects its Tier 1 to improve to 10.5 percent by year-end by retaining profits.
He added that the bank may look into possible subordinated debt issue in 2013 to support its capital. Sberbank's total borrowing needs from international markets are estimated at around $6 billion next year, Karamzin said. ($1 = 30.8495 Russian roubles) (Additional reporting by Oksana Kobzeva and Zlata Garasyuta; Editing by Douglas Busvine and David Holmes)
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