No surprise as Polish banks post poor results
The weak first-quarter financial results of most Polish banks came as no surprise to market analysts last week.
They cited low domestic demand for credit and the need to maintain a high level of provisions for potentially defaulted loans as the main reasons for their unsatisfactory reports.
The banks criticized the Monetary Policy Council's (RPP) decision to cut interest rates by only 200 basis points so far this year saying it was not enough to boost domestic demand for credit.
"The financial results of the banking sector are far from satisfactory," said Artur Szeski, an analyst with CDM Pekao brokerage house. "There is no demand for new credits. Moreover, many companies have problems repaying loans they took some time ago. This means that interest rates are still too high and the reduction of rates was too small."
Jakub Papierski, an analyst with Deutsche Bank, said the two interest rate cuts have increased pressure on margins, and consequently chiseled profits further.
Even if some high-cap banks had managed to deliver on their promises, producing net-profit figures in line with expectations, analysts are concerned about the low quality of earnings.
"In most cases, we see a decrease in profit margins and banks' operational earnings," Papierski said.
Analysts said the country's slow economic growth coupled with stubbornly high interest rates could further undermine the sector's growth in the coming months.
Szeski does not expect demand for credit to rebound anytime soon. "Even if the RPP decided to cut rates again in May, the positive impact of this move will not be seen the next day," he said.
According to the latest report by the marketing research department at the Economics Academy of Poznan, the PIKBANK banking-climate index dropped by 11% for Polish cooperative banks compared to the last quarter of 2000. Foreign banks were the most resistant to the industry's misfortunes between January and March, falling just 1%. Analysts said foreign banks are based on strong fundamentals and do not need to spend a significant part of their income on restructuring, while most of the domestic banks are in structural reshuffles.
Pekao bank is the only financial institute reporting satisfactory results, although it is majority owned by UniCredito Italiano. The bank's 53.8% rise in first-quarter profit to zl. 230.4 million ($58.3 million) compared to a profit of zl. 149.8 million ($37.5 million) posted in the corresponding period last year came as a surprise to investors. The bank's performance puts it in a good position to reach its year-end target of zl. 1.25 billion ($312.5 million).
"We're expecting that in the coming months the situation with our loan portfolio will stabilize and later in the year it will help us reach our financial forecast," Pekao President Maria Wisniewska told Reuters.
In the first quarter of 2001, the bank increased its provisions for potential loan defaults to zl. 165.5 million ($41.38 million) from zl. 86.5 million ($21.63 million) in the first quarter of 2000.
"Pekao is the only Polish bank that has shown high quality earnings this quarter," Papierski said. "Its outstanding financial figures are the result of its in-depth restructuring process the bank has undergone. It must be praised for its tight cost policy. What's more, its policy to focus on affluent clients of high income-generating potential has brought significant rewards."
At the other end of the spectrum was Bank Rozwoju Eksportu (BRE Bank), whose disappointing first-quarter results saw net profit plunge 30% year on year to zl. 83 million ($20.75 million). "BRE Bank's poor financial results are attributed partly to the loss it incurred on its financial operations," said Grzegorz Szychowski, an analyst with CDM Pekao brokerage house.
In the January-March period, BRE Bank recorded a loss of zl. 96 million ($24 million) on its financial operations against zl. 146.9 ($36.73 million) in income during the same period last year.
Also, international rating agency Moody's Investors Service reduced its outlook for BRE Bank to "stable" from "positive" on the back of its recent softening in profitability and asset quality.
Moody's said the stable rating would better reflect BRE Bank's financial strength in the face of its retail network development. At the end of last year, BRE Bank kicked off its e-banking unit, dubbed mBank, which was meant to be a prelude for setting up its Multibank retail network, scheduled for mid-2001. So far, mBank boasts 50,000 clients and in mid-April the value of its deposits amounted to zl. 214 million ($53.5 million).
