Raiffeisen’s earnings report published last week closed the series of Q4 2012 preliminary corporate reports, which allows us to compare the performance of the region’s largest banks. What we see is a mixed picture in October-December 2012. Polish banks’s profits stagnated, Austrian banks showed a decline in results, while OTP and Komercni upped their profits in annual terms. Austrian banks came in last not only because of their one-off losses; their consolidated lending shows an already persistent contraction. Hungary’s largest bank, however, stands out in the region with its high net interest margin and a 19% non-performing loan (NPL) ratio.
Firstly, we should compare the size and value of the banks. The six banks we selected for this comparison are Hungary’s OTP Bank, Austria’s Erste Group and Raiffeisen Bank International, Polish PKO and Pekao and Komercni Bank of the Czech Republic. With regard to market capitalisation PKO is the biggest of them, whereas OTP’s market cap (cc. HUF 1,250 bn) is merely 41% of its Polish peer’s. The market capitalisation of Polish banks did not change meaningfully in euro terms compared to end-September, while that of Raiffeisen has decreased and the others saw their market cap rise.
The ranking is different based on total assets. In this respect Austrian banks are the mighty ones in the region. Their balance sheet footing is 4-6 times as large as that of OTP. The Czech and Polish banks are strong mostly on their home turf. Although OTP is present in several countries in Central and Eastern Europe, its total assets amount only slightly over of Komercni’s. With its EUR 213 bn total assets, which correspond to almost double Hungary’s GDP, Erste is by far the biggest bank in the region.
The ranking based on net profit gives us yet another succession of the banks. Due to a decline in profits in Q4 (mostly over goodwill impairment) Austrian banks slipped lower in the ranking, which propelled PKO and Pekao to the position of the most profitable banks. OTP has once again showed a modest performance in international comparison, with a relatively small net profit.
In a quarterly breakdown the net profits show that Poland’s PKO had the best last quarter in 2012, just like in the preceding two quarters. The bank’s profit generating capacity is outstandingly stable. Its net profit came in between EUR 200 m and EUR 250 m in each of the past five quarters. Pekao’s net profit is almost just as stable; its Q4 result was almost on par with its Q4 2011 profit. Overall, however, all six banks posted smaller net profits in October-December than in the third quarter and only Komercni and OTP managed to boost their net result compared to the base period. The Hungarian bank’s achievement is partly attributable to the low base figure that was related to the early FX mortgage repayment scheme.
How much money did they make?
The majority of these banks are aiming for a return on equity (ROE) of around 15% for the medium term, but all of them have moved further from this target during Q4. OTP’s ROE was around 7% in this period and Austrian banks that were still doing well in this respect in early 2012 started to show greatly deteriorating numbers in the second half. A capital increase at Raiffeisen, which has been constantly on the table, could bring about a drop in the indicator in the short term, albeit not compared to Q4 2012 which was pushed into the red by the aforementioned one-offs.
Return on assets (ROA) is around 2% at the “better" banks, while at the not so splendidly performing Austrian banks it has been around 0% recently. Polish banks and Komercni have been showing steady ROA numbers.
As for the absolute size of net profit we saw improvement at Komercni and OTP in Q4, but stagnation at Polish banks and a decline at their Austrian peers. The profits of Erste and Raiffeisen turned out especially hectically over recent months and there is no unambiguous direction for now (due to one-offs among other factors).
Net interest margin (NIM), which is good indicator of the profitability of core activities (primarily of lending) decreased at all of the banks we examined over the past year. The trend pointing to a decline was previously attributable to a rise in the cost of funds, but lately the main reason was most likely a drop in interests and yields. OTP’s 6.7% NIM continues to stand out in the region, whereas we have Pekao on the other end of the spectrum with the lowest NIM.
The cost/income ratio, a gauge of efficiency, rose at most of these six banks compared to the base period (i.e. their efficiency has worsened) and although managements remain committed to lowering employee-related and administrative expenses, a sustainable reduction of the cost-to-income ratio is not facilitated (primarily) by a contraction in revenues. Several banks are focusing mostly on cutting staff-related costs; Austrian banks trimmed their headcount in Hungary, Ukraine and Romania (Erste is also pulling out of Ukraine). In terms of cost/income ratios PKO was the most efficient bank with a 47% indicator, although this figure is higher than in the preceding quarters. In the meantime, Raiffeisen recorded a 73% cost/income ratio. A part of its expenses were linked to the acquisition of Poland’s Polbank.
Charting is displayed using TradingView's technology, a platform, where you can build advanced charts,
spot upcoming trends in the stock screener, and find inspiration in multiple trading ideas
