Financials have been on the rise both locally and globally during the past week, leading us to examine what kind of an impact did the coronavirus have on regional banks and their result in Q1 2020.
Comparison of Regional Banks Net Banking Income (EUR m)
In the first three months of 2020, ZABA’s net interest income recorded a sharp decrease of 9.7% (or EUR 11.3m) to EUR 104.9m. The bank attributes such a decrease mostly to the existing pressure on the NIM. Net fee and commission income observed a decrease of 11.9% to 43.8m. One could argue that the lockdown has had an impact on the bank’s fees and commissions, however it is difficult to assume to which extent, as the bank did not provide any information on it. The bank also realized a strong increase of 20.1% in income from trading and other income to EUR 13.3m (increase of EUR 2.2m). At the beginning of lock-down of economy the volatility on the markets was strong and it is hard to estimate to which end has this impacted the results, but the income on assets held for trading adjusted for FX loss has increased for 13%. As a result of the above mentioned, net banking income recorded an 8.6% YoY decrease amounting to EUR 161.8m.
Meanwhile, PBZ’s net interest income witnessed a decrease of 3% (or EUR 2.6m) to EUR 87.8m. The bank attributes such a decrease mostly to the existing pressure on the NIM. Net fee and commission income observed a decrease of 16.4% (or EUR 8.2m) to EUR 42m. It seems that the lockdown has had an impact on the bank’s fees and commissions, however it is difficult to assume to which extent, as the bank did not provide any information on it. In Q1, PBZ recorded a gain from derecognition of financial assets and liabilities not measured at fair value through profit or loss of EUR 8.3m (increase by EUR 7.7m). Just like ZABA, PBZ also recorded a FX loss, however to a less extent (EUR-5.2m). As a result of the above mentioned, net banking income recorded an 8.6% YoY decrease amounting to EUR 124.9m. Operating expenses recorded a 3.3% decrease YoY, amounting to EUR 63.6m, which came mostly on the back of lower administrative expenses. Such a result puts the CIR at 50.9% (+ 2.8 p.p. YoY).
It is also worth mentioning that the company also recorded release of provisions in the amount of EUR 0.51m (compared to a release of EUR 1.9m in Q1 2019). In April the bank started allowing moratoriums to its clients with a duration of 3 – 6 months, while certain industries (like tourism) which are highly affected by the pandemic are given a moratoriums for a longer period. The company notes that these measures do not immediately mean reclassification of their clients, meaning that they do not deem that there has been a significant increase in credit risk. However, the bank is carefully monitoring the further development and the creditworthiness of their clients.
Turning our attention to Slovenia, in Q1 of 2020, NLB recorded a net interest income EUR 77.4m, representing a 3% decrease YoY. Such a decrease could be mostly attributed to interest expenses for new subordinated Tier 2 instruments kicking in, which was partially offset by loan growth. NIM further decreased in Q1 to 2.29% (-0.27 p.p. YoY). The decrease was recorded due to lower yields on the securities portfolio and loan book and due to higher cost of funding as the Bank issued new subordinated Tier 2 instruments. On the Group level, average yield on loans stood at 4% (-0.1 p.p. YoY). Yield on retail loans amounted to 5.1%, while on yield on corporates amounted to 2.8%. Net fee and commission income amounted to EUR 42.4m, representing an increase of 6% YoY. Such an increase mainly came from the retail segment in the banking subsidiaries in SEE. Note that in second half of March, a decrease of NFCI was recorded on card operations, fewer withdrawals and payments made by customers due to the COVID-19 outbreak.
Romanian banks shared the same faith as the rest, with bottom line results impacted by impairments and negative cost of risk.
Banca Transilvania recorded a -1.4% YoY decrease in net banking income to EUR 190.6m. While net interest income fell -2%, net income from fees & commissions actually increased by 1% YoY. As a result of the occurrences witnessed in the market, Fitch Ratings revised outlook on Banca Transilvania from Stable to Negative. The reason behind the change in outlook lies in the fact that despite the efforts made by the Government to combat the ongoing crisis, asset quality is expected to weaken compared with previous expectations and earnings are expected to come under pressure from lower business volumes, higher loan impairment charges and pressure on net interest margins resulting from a 50bp cut in the policy interest rate.
On the flip side BRD Bank posted a 3.8% YoY increase in net banking income as net interest income posted a 6.6% YoY increase on the back of rising volumes, favourable structure shifts and higher yields on bonds portfolio. Meanwhile net fees and commissions decreased by -4% YoY, mainly due to prices alignment for EUR denominated payments, to domestic ones (starting with 15th of December 2019, according to SEPA rules) and also due to cease of the Western Union business in August 2019, partially compensated by higher revenues from custody and asset management activity.
Comparison of Regional Banks Net Profit (EUR m)
Despite operating in different countries, regional banks all experienced the same reason for the bottom-line decrease, higher impairments and provisions due to the coronavirus outbreak, coupled with a low interest rate environment which put additional pressure on NIM.
Finally, we bring you a comparison of banking multiples from the region to compare how investor reacted to the abovementioned results.
Trading Multiples of Regional Banks
