EUR 150.00 For Business Accounts Only

ING BSK: At its own speed

We keep ING BSK at NEUTRAL within our negative view on the Polish banking sector. The stock price has increased 1.2% in the last 3M, outperforming the WIG Banks index, which lost 12.2%. We like its lower risk profile with above-avg profitability, fast organic growth and limited exposure to CHF mortgages. However, we believe it has been well reflected in the valuation, which remains our biggest concern: it is the most expensive stock in our universe trading at 1.5x 2020E P/B, a 55% premium to Polish peers on 0.9x. Plus, ING has relatively lower capital ratios and one of the lowest RWAs densities in the sector (48% in relation to assets vs 58% on avg), which could oblige the bank to raise at least PLN 3.8bn of additional funds in order to meet expected 2023E 20% MREL requirement. This will most likely require mgmt to compromise on dividends (30% payout in 2019-21E). We adjust our 2019-2021E earnings for: 1) slightly worse-than-anticipated 3Q19 results; 2) expected result of September’s CJEU ruling concerning the return of the early repayment of consumer loan fees (annual negative impact of some PLN 30m on NII, fading over time); 3) higher BFG fees; 4) introduction of the gradual portfolio provisioning of FX loans following the less favourable court rulings (PLN 49m, i.e. 5% of the portfolio in 4Q19E and PLN 95m, i.e. 10% of the portfolio, in the following years). We have changed our 2019E-21E forecasts by -5% in each year to PLN 1.63bn (+7% YoY) / PLN 1.79bn (+10% YoY) / PLN 1.96bn (+9% YoY). We differ from consensus by -6%/-3%/-2%, in our opinion primarily due to the additional provisions we assumed for the CHF mortgage portfolio. We increase our FV by 1% to PLN 196.9 from PLN 195.5 (including an exp. loss on the CHF portfolio at PLN 0.1 ps, i.e. 0.1%), implying 3% upside.