Bank Pekao earnings jump

Bank Pekao, Eastern Europe's largest listed lender, reported a 32% rise in first-quarter profits last week, slightly below the consensus of market forecasts but leaving its full-year target attainable. The bank, a unit of UniCredito Italiano, said its unconsolidated net profit for the first three months of the year rose 32% to zł. 305 million ($76.25 million), just short of market consensus of zł. 313 million. Analysts said the results, largely powered by lower costs, have helped the bank buck a negative trend for the sector amid Poland's sharp economic slowdown, and leaves it on track to hit its 2002 earnings target of zł. 1.4 billion ($350 million). But revenues from fees and commissions - a driving force behind the bank's earnings last year - fell slightly, which raised concerns among analysts over the lender's ability to significantly boost profits in the future. "People are expecting an economic rebound in the second half of the year, which should help the bank to reach its earnings targets," said Andrzej Nowaczek, analyst at Credit Suisse First Boston (CSFB) in London. "What is worrisome, however, is the fall in their fees and commission income."

Pekao, which maintained its net 2002 profit targets, also said in a statement that its cost to income ratio - a key profitability measure in the industry - dropped to 47% from 53% in the same quarter last year. The lender said that a 1.4% dip in its net fees and commission income to just under zł. 260 million ($65 million) in the first quarter was a result of sluggish loan growth. Demand for credit in Poland is weak due to steep official interest rates, imposed by the central bank to ward off inflation. Most domestic banks are expected to see weak earnings for the first three months of the year as Poland's economic slowdown takes its toll on their loan growth and interest income while also forcing many lenders to create big bad-debt provisions. Expectations of strong earnings have powered Pekao's stock price so far this year, pushing it nearly 40% higher since the start of 2002, while Warsaw's large-cap WIG20 index has managed less than a 10% rise. Last week the bank was valued at $4.63 billion, making it the largest issue in Eastern Europe. After a strong financial performance last year, when Pekao saw its earnings jump 65%, the bank earmarked half of the 2001 net profit for a dividend. The bank will release consolidated results for the first quarter based on Polish accounting standards on May 15. - Reuters