Banks: Under pressure but it´s all relative
We update our view on Polish banks: we have a neutral view with a positive bias as we still see upside in some stocks (Bank Pekao and Alior Bank remain our top picks, while SPL and PKO remain buys). From a top-down perspective Polish banking sector prospects should deteriorate somewhat with consensus expectations for 3.6% YoY GDP growth in 2019E and 3.0% in 2020E following 4.8% in 2018E, with still strong private consumption and investments driven mostly by the public sector. Loan growth should remain solid (+6.6% in 2019E vs +6.8% in 2018E, excluding the FX mortgage portfolio), while liquidity remains intact with the L/D ratio around 100%. At the same time, we believe the risk of a potential liquidity squeeze in the banking sector (commercial/cooperative) and financial institutions (SKOKs) has increased, which may lead to a larger contribution to the BFG Fund. We see no upside potential in earnings, expecting NI of covered banks to grow by 5% YoY in 2019 vs 11% in 2018E, which is 5% below consensus. We expect NI to still be driven by top-line growth, which is likely to be partially offset by pressure on fees and higher risk costs as banks continue to build up coverage in light of the GDP slowdown and costs under pressure (partly due to upfront merger costs). The dividend outlook is mixed with negatives from above-average density of RWAs (BHW, PEO) and positives from a constant reduction in CHF mortgage portfolios (SPL, PKO). With 2019 being a parliamentary election year we see a risk of CHF mortgage regulations back on the agenda. We admit that taking into consideration the presidential bill proposal, FX conversion risk looks manageable, but think the market is completely ignoring it. We may see the market price in domestic rate hikes expected in 1Q’20 (+25bps), together with rising CPI. The WIG Banks index is down 11.6% YTD, presenting some relative opportunities. The sector looks appropriately valued on a 2019E P/E of 13.2x, at a justified 18% premium to CEE banks on 11.2x (on BBG cons).Alior Bank is a universal lending and deposit-taking bank which renders services to individuals, legal persons and other entities which are Polish and foreign persons. Co.'s core activities include maintaining bank accounts, granting loans and advances, issuing banking securities and purchasing and selling foreign currency. Co. also conducts brokerage activities, consulting and financial agency services and renders other financial services.
Bank Handlowy W Warszawie is a Polish bank holding company engaged in a wide range of banking services for individuals and corporate customers in the domestic and foreign markets. Additionally Co. operates in brokerage operations, lease services and investment operations. Customers have access to these services at the branches, ATM's, telephone services and electronic banking services.
Bank Millennium provides various banking products and services to individual clients, small businesses, corporate, and public sector entities in Poland. Co. offers current account, custody account, and escrow account; standard deposits, negotiated deposits, millenet deposits, and automatic overnight deposits; debit and charge cards; funds management; professional cash services; and management of balances of current and auxiliary accounts. Co. also provides current account overdraft facility, real estate loans, revolving credits, working capital loans, investment loans, energy financing facility, sureties, line of guarantees, letters-of-credit, preferential loans, and bid bond guarantees.
Bank Polska Kasa Opieki (the Bank) is a commercial bank providing a range of banking services, mainly in Poland. The segments of the Bank are as follows: Retail banking, which comprises all banking activities related to retail customers and small and micro companies; Private banking, which comprises all banking activities related to the affluent individual customers; Corporate and Investment banking, which comprises all banking activities related to the companies, interbank market, debt securities and other instruments; and Assets and Liabilities Management and other, which is engaged in the supervision and monitoring of fund transfers, and other activities centrally managed.
ING Bank Slaski is a bank holding company. Through its subsidiaries, Co. is engaged in providing a range of banking services rendered for individual and institutional clients in line with the scope of services outlined in Co.'s charter. Co. runs operations both in the home currency and in foreign currencies. Co. is also active on the domestic and foreign financial markets. The subsidiary, ING Bank Hipoteczny S.A., also runs banking business, including loans secured with mortgage. Additionally through subsidiaries, Co. operates brokerage services, real estate, leasing of real estate and advisory and acts as a financial intermediary as well as provides other financial services.
mBank is a provider of comprehensive corporate banking services in Poland. Co. and its subsidiaries make up the mBank Group which is engaged in offering financial services. Co.'s service offering includes a comprehensive financial offer tailored to the needs of corporate clients, Private Banking clients, and retail clients. The business activities of Co. is conducted in the following business segments: Retail Banking and Corporates and Markets.
PKO Bank Polski is a universal commercial bank offering services to both domestic and foreign retail, corporate and other clients. Co. is licensed to hold foreign exchange and currencies and sell/buy them, as well as perform a full range of foreign exchange services; open and hold bank accounts abroad and to deposit foreign exchange in these accounts. In addition, Co. conducts activities relating to leasing, factoring, electronic settlements via payment cards, as well as renders other financial services. As of Dec 31 2009, Co. had total assets of Zl156,478,685,000 and total deposit of Zl124,628,562,000. Co. operates in the Republic of Poland, Ukraine and Sweden.
Bank Zachodni is a bank seated in Poland. Co. and its subsidiaries provide a range of banking services for individual and business customers and operate in domestic and interbank foreign markets. Additionally, Co. provides also the following services, including intermediation in trading securities, leasing, factoring, asset/ fund management, insurance services, trading in stock and shares of commercial companies, and brokerage activity. Operational activity of Co. and its subsidiaries has been divided into five segments: Retail Banking, Business and Corporate Banking, Global Banking and Markets, ALM (Assets and Liabilities Management) and Centre, as well as Santander Consumer.
Haitong is the first international Chinese investment bank and our goal is to be the primary channel for capital flows into and out of China. During 2015 the Senior Management Team in London was expanded significantly to focus on this objective and to provide a full-service cross-asset markets business coupled with sector-focused investment banking. We work closely with our world-wide network of offices to bring a true depth of understanding to all client situations.
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