Focus on Banks
The increase in oil prices together with the stagnation of the European economy have made more distant the prospects for accelera-ting domestic economic growth and hence the chances of an improvement on the stock market. Nevertheless, some market players forecast markets picking up once the Iraqi conflict is resolved.
The 2002 financial results for most banks came in below analysts' expectations, which was generally caused by large write-offs for reserves. In 2003, following an anticipated halt of bad debt increase, the performance of the banking sector will be shaped by the cost basis, with Pekao taking the lead among domestic banks.
According to PKO BP brokerage, banks have opened the way to start gaining good financial results. Last year, banks quoted on the WSE successfully continued to restructure by reducing employment and implementing integrated IT systems. However, the biggest threat for the sector is the increase of bad loans. In the eight largest publicly-traded banks, bad loans increased by 28%, reaching €6.9 billion (zł. 30 billion), though in the fourth quarter the bad loans declined for the first time in most of the quoted banks due to the success of vindication procedures.
Bank Zachodni WBK ended last year with €62.4 million (zł. 270.4 million) net profit, up 78.5% compared to 2001. Analysts at CA IB estimate net profit will close at €84.3 million (zł. 365 million) this year. They say Bank Zachodni WBK will be improving its results faster than the banking sector. The decreasing margins will be compensated by an increase in turnover. The bank will follow Pekao in successful cost-cutting. Moreover, the decrease of bad loans at Bank Zachodni WBK will help it to be one of the first banks to profit from the economy's acceleration. Nevertheless, this year should not bring a market increase for Bank Zachodni WBK, as it is not present in all regions and its charges are rather uncompetitive, according to Deutsche Bank analysts.
In 2002, BRE Bank, incorporating the results of dependent units, had a net loss of €87.5 million (zł. 379.2 million), following a net profit of €77.6 million (zł. 336.18 million) in 2001. CA IB decreased its estimated net profit by 60% to €17 million (zł. 74 million) for this year and by 30% for 2004 to €40.4 million (zł. 175 million). Analysts forecast systematic growth in net profit in the two following years. Write-offs for reserves, €122 million (zł. 528 million), were larger than in the four previous years combined. BRE Bank has a high loans dynamic, which is, however, accompanied by a fall in their quality. In the fourth quarter of 2002, bad loans jumped by €231 million (zł. 1 billion), ending last year with 140% of dynamics. Analysts at CA IB believe greater transparency in management board decisions should make BRE Bank shares more attractive to investors.
Pekao, the leader in the banking sector, has a strong position on the market but its market share continues to diminish. The bank has not avoided problems with bad loans, which amounted to 21% at the end of the fourth quarter. The situation of dependent units worsened. The write-offs for reserves were unexpectedly high, reaching €85.4 million
(zł. 370 million), while PKO BP brokerage predicted €24.2 million (zł. 105 million). Full-year net losses of dependent units reduced the group's net profit by more than €41.6 million (zł. 180 million). According to PKO BP brokerage Pekao will work out a €219 million (zł. 949 million) consolidated net profit this year. Last year the bank ended with a €177.8 million (zł. 770 million) consolidated net profit.
According to BRE Bank brokerage, Pekao is recommended for macroeconomic pessimists because having a low cost basis will enable it to survive a lengthening economic slowdown. At the same time Bank Zachodni WBK is recommended to optimists as it specialises in the most dynamic, and thus risky, banking segments.
