Financial doubts remain despite BIG Bank share issue
BIG Bank Gdański's (Big BG) shareholders' decision last week to increase the bank's capital via share and bond issues before the end of the year is unlikely to patch up the bank's poor finances, at least not in the short term, analysts said.
A slight fall in Poland's fifth largest bank's share price to zł. 2.70 from zł. 2.97 on the Warsaw Stock Exchange (WSE) on Oct. 23 also indicated that investors do not share shareholders' optimism, though the shares rebounded slightly later in the week.
"The main reasons for the pessimism are the bank's ongoing rising level of bad loans, its poorly performing leasing activities and non-performing shares in Poland's largest insurer, Powszechny Zakład Ubezpieczeń (PZU)," said Robert Sobieraj, analyst at DM Bank Handlowy brokerage house in Warsaw.
A majority of the bank's shareholders voted at an extraordinary shareholders meeting to raise the bank's capital by zł. 764 million ($181 million) and to set up a special "development and risk fund" that would use the cash to finance the bank's restructuring program and oversee risk provisions. Big BG will issue 425 million K series shares for all shareholders at zł. 1.8 per share with a pre-emptive rights ratio of 1:1, meaning that shareholders can buy at a guaranteed price level not lower than the existing price. This is zł. 1.2 less than Big BG's shares traded on the WSE Oct. 22.
"Strengthening the capital base of the company is a prerequisite to accomplish all of the new program's targets and aims," said Maciej Mźżyński, a press officer at the bank. He said the issue will go ahead by 2002 if the decision is approved by the Banking Supervisory Council (KNB) and the Securities and Exchange Commission (KPWiG), auditors and the Registration Court. The bank also plans to raise zł. 200 million-zł. 300 million ($47 million-$71 million) via the issue of 10-year bonds.
Big BG President Bogusław Kott said the latest moves by the bank are necessary for restructuring. He said that during 1998-2000, Big BG spent zł. 1.89 billion ($450 million) on setting up the open pension fund OFE Ergo, shares in PZU, and starting up retail network Millennium. This year he said it expects to spend zł. 325.5 million ($77.5 million) and zł. 120 million ($29.3 million) in 2002 on restructuring.
In its new strategy, the bank outlined five main target areas:
so-called "Top Affluent Clients," for whom 14 retail branches will be set up in addition to two existing outlets, with banking and investment services included
to sustain its position in the corporate services sector
to set up 16 regional business centers servicing medium-sized companies and 100 new branches to service small businesses
increasing the number of branches in the bank's retail banking network,
Millennium, to 400 branches from 79, although with no time scale mentioned.
The share issue decision was opposed by two smaller shareholders, Grzegorz and Wiktor Jedamski, who said they will fight the change in the bank's statutes that made the issue possible. Analysts said this was unlikely to be a major obstacle.
But analysts said Big BG may need to earmark at least some of the new cash for underwriting its weak financial base, rather than investing in development. They pointed to the bank's non-performing loans ratio of 17%, up from 15.5% at the end of 2000 - the highest in five years. "While most banks have experienced similar problems, Big BG's low capital base exposes it to more risk than others, though ING Bank Śląski may find itself in a similar position before too long," Sobieraj said.
Analysts also pointed to Big BG's insolvency ratio of 9% in the first half of 2001, down from 13.7% at the end of 2000 and 3-4% lower than most other banks in Poland. "The NBP (National Bank of Poland) starts taking a closer look at banks when their solvency ratio goes below 8% - and that looks quite threatening," Sobieraj said. He blamed bad loans in the automobile and steel sectors and the bank's failure to find a position for itself in the leasing and in pension fund markets. Sobieraj said Big BG plans to sell its stake in OFE Ergo to BRE Bank at the end of this year or the start of 2002.
Analysts warned that a key concern was when Big BG would start to see returns on its large investment in PZU. Big BG holds about zł. 1 billion ($238 million) worth of PZU shares. "Over the next two years the bank should see some benefits from its investment, when Eureko and PZU start to offer insurance products through the bank," Sobieraj said.
Portugal's Banco Comercial Portugues (BCP) owns 20% of Big BG, with Holland-based insurer Eureko holding 10%, Achmea Holding 10%, CTL 9%, Priory Investment 8.2% with the remaining shareholders holding 42.8%. BCP has applied to the KPWiG to take a majority stake in Big BG and is expected soon to become the majority shareholder. If it buys all the new shares available in the share issue, it will take about 40% of the bank, according to unofficial estimates.
Joe Harper
