Banks - Scaling New Peaks
We maintain a bullish view on our entire CEE banking universe though this time the line-up shows more variety in terms of expected returns.
In our view, the tightening cycle rippling across the region is far from over, and the hikes still to come will trigger more revisions to analysts’ forecasts around mid-2022. The tightening has yet to be fully reflected in bank valuations and earnings expectations, but the adjustments this time are not likely to be as rapid as the 2021 rally, when the market finally recognized the true value of the financial sector and its resilience in the face of a global pandemic.
The potential catalysts that we want to highlight for our international bank coverage include rate increases that, in Czechia, could take the base rate as far at 5%, along with high-quality loan portfolios and, in case of OTP Bank, continued expansion through value-enhancing acquisitions.
When it comes to Polish lenders, they also stand to capitalize on higher rates through interest income, but the downside here is a likely reduction in credit demand and higher risk costs due to curbed household income.
Once they reach target levels, we believe interest rates will stay higher for no more than a year in the Czech Republic and about two years in Poland before being lowered again, with negative effects on interest margins and positive effects on lending volumes.
In other developments, the approach of Millennium and Santander to the issue of franc loan contract disputes has changed since our last update.
Updated to reflect higher interest rates, slower growth in volumes, and higher costs of risk and payrolls, our estimates of the aggregate net profit of our whole CEE universe sit 17% above the 2022 market consensus and exceed the average 2023 forecast by 14%.
The corresponding differences in case of Polish banks are 3% and 9% (or 15% and 12% if we leave out MIL and SPL), and the respective gaps applicable to CEE ex. Poland are 27% and 18% .
All in all, we want to stress that in the long run the net effect of the expected rate hikes to 5% in the Czech Republic and 3.5% in Poland will be positive.
Finally, note that the MSCI EME Financials benchmark is currently trading at an 11% discount to its historical average, and that the ROE it is currently pricing has not been seen in nine years.
Buoyed by interest rate increases that are set to continue through the first half of the year, owing to their high-quality loan books and growing dividends, combined with attractive valuations, CEE Financials in 2022 might be headed right for the sweet spot.
OTP Bank, PKO BP, and Alior Bank are our Top 3 Picks among rated CEE financials, with Pekao and Erste Group joining for a Best Tips Top 5.
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.
BNP Paribas Bank Polska SA, formerly Bank BGZ BNP Paribas SA and Gospodarki Zywnosciowej SA, is a Poland-based bank. The Bank divides its operations into three segments: Retail Banking includes sales of products and services for individuals, such as current and deposit accounts, term deposits, granting of housing loans and cash loans, mortgage loans, revolving loans, overdrafts, issuing debit and credit cards, service of foreign cash transfers, entering into foreign exchange transactions, among others; Institutional Banking includes sales of products and services for enterprises, companies and cooperatives, individual entrepreneurs, individual farmers, non-profit institutions and public sector entities; and Financial Markets, Assets and Liabilities Management covers activity in the area of financial markets and liquidity management.
Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
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.
Komercni banka is a universal banking group based in the Czech Republic. Co. is engaged in the provision of a range of financial services in retail, corporate and investment banking. Co.'s operating segments include: Retail Banking, the provision of products and services to individuals, such as among others building savings, pension insurance, overdrafts, credit card and personal loans and mortgages; Corporate Banking, the provision of products and services to corporate entities such as foreign currency and derivative products, syndicated and export financing, and guarantee transactions; and Investment Banking, which involves trading in financial instruments.
Moneta Money Bank as is a Czech Republic-based retail and expanding small and medium enterprises (SME) bank. The Company holds an universal banking licence and provides a range of retail and SME-focused financial products and services. The Company operates through a national distribution network of 229 branches and through alternative distribution channels, such as the internet, its call centre, auto dealers, brokers and approximately 4,700 leasing partners. The Company together with its controlled subsidiaries offers current accounts, savings accounts, term deposits and transactional banking products including payment services and debit cards, consumer loans, credit cards, overdrafts, mortgages and auto loans, auto leases and other complementary products such as bancassurance and sales of investment funds.
OTP Bank is a financial institution based in Hungary. Co. is engaged in retail banking (account management, bankcards and Electronic sevices - OTPdirekt) corporate banking and private banking. In Hungary traditional banking operations are performed by Co. while specialized services, including car leasing, investment funds and insurance are developed and offered by Co.'s subsidiaries. Co. expands its operations throughout the region via its foreign subsidiaries. As of Dec 31 2011, Co. had total assets of HUF10,200,527,000,000 and deposits of HUF6,398,853,000,000.
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.
Raiffeisen Bank International is a universal bank focusing on corporate and retail customers in Central and Eastern Europe (CEE) and on corporate customers in Austria. In CEE, Co. consists of a network of banks, leasing companies and financial service providers. In Austria, Co. is involved in corporate finance and export and trade finance banks. Co. provides services to customers in 2,800 branch offices. In the retail banking business, Co.'s product and service portfolio comprises inter alia credit services (mortgages, credit cards and personal loans), as well as payment transaction and current account package services. As of Dec 31 2014, Co.'s total assets amounted to Euro121.6 million
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.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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