Given that all the listed Croatian banks on the ZSE have published their H1 2023 results, we decided to bring you an overview of their H1 2023 results.
The banking sector has been in a lot of focus in the recent period, influenced by the rising interest rate environment on the back of high inflation rates recorded. In this situation, we decided to look at the banks’ performance based on the latest available data, and how they compare to each other. It should be noted that we only looked at the listed banks on the Zagreb Stock Exchange, as these are the ones you can directly trade there. These include Zagrebačka banka, HPB, Agram banka, Podravska banka, Slatinska banka, and Istarska Kreditna Banka Umag(‘IKBA’). To put things into perspective, we included the list of the largest banks operating in Croatia, based on their assets.
List of largest banks operating in Croatia (%)*
Source: HNB, InterCapital Research
*Latest data available as of Q1 2023
Moving on, with the entry of Croatia into the Eurozone, the interest rate hikes by the ECB have had a direct influence on the banking sector (a more detailed explanation at the Croatian National Bank is available here, albeit only in Croatian).
Net interest income comparison of Croatian banks listed on ZSE (H1 2023 vs. H1 2022, EURm)
Source: HNB, InterCapital Research
As we can see, all of the banks managed to improve their net interest income, both under the influence of higher interest rates on loans, but also on continued new loan production. The largest relative increase was recorded by IKBA, with growth of 102% YoY, followed by HPB at 75%, ZABA at 67%, Podravska banka at 59%, Slatinska banka at 22%, and finally, Agram banka, at 19% YoY.
Net fee and commission income comparison (H1 2023. vs. H1 2022, EURm)
Source: Companies reports, InterCapital Research
More tempered growth can be seen for the net fee and commission income, as these depend primarily on various services and offers from banks to customers, rather than the change in the macroeconomic environment. The largest relative increase here was recorded by Slatinska banka, with 14% growth YoY, followed by Podravska banka at 9%, HPB at 5%, ZABA at 3%, while IKBA and Agram banka recorded decreases of 1% and 6%, respectively.
Net banking income comparison (H1 2023 vs. H1 2022, EURm)
Source: Companies reports, InterCapital Research
Taken together, this also led to significant improvements in the net banking income. In fact, HPB managed to achieve 74% growth YoY, followed by IKBA at 43%, ZABA at 31%, Podravska banka at 25%, Slatinska banka at 16%, and finally, Agram banka at 10% YoY. Of course, given the difference in size between these banks, it would also be prudent to look at some operational KPIs, such as ROA or ROE. We would like to note that these are based on the trailling 12 month data, to provide an accurate picture.
ROE comparison (H1 2023 vs. H1 2022, %)
Source: Companies reports, Bloomberg, InterCapital Research
Looking at the return on equity, we can see that the largest change was recorded by HPB, however, it should be noted that this mostly came as a result of the one-off effect of the acquisition of the Sberbank subsidiary in Croatia (Nova hrvatska banka), due to negative goodwill. Moving on, ZABA recorded the largest ROE at 15.02%, representing an increase of 6.27 p.p. YoY, followed by Agram banka at 10.75%, an increase of 2.90 p.p. YoY, and IKBA at 10.43%, a decrease of 1.10 p.p. YoY. The remaining two banks, Podravska banka and Slatinska banka recorded ROE of 2.85% and 2.23%, respectively, also implying a decrease of 0.51 p.p. and 2.15 p.p., respectively.
ROA comparison (H1 2023 vs. H1 2022, %)
Source: Companies reports, Bloomberg, InterCapital Research
In terms of return on assets, the largest amount was recorded by ZABA, at 1.54%, an increase of 0.49 p.p. YoY. Following them we have Agram banka, at 1.17%, an increase of 0.43 p.p. YoY, IKBA at 0.87%, a decrease of 0.12 p.p. YoY, and HPB at 0.53%, a decrease of 2.43 p.p. YoY. Again, it should be noted that the same one-off effect has an influence on HPB’s ROA as on the bank’s ROE.
Overall, here we can see the direct effect of ZABA’s size. Given that it is the largest bank in Croatia, it also has the largest amount of loans issued and the largest potential to produce new loans due to the number of customers. Furthermore, because of this position, it can be the leader in terms of the increases in loan interest rates, which further supports its profitability growth. The smaller banks on the other hand, and especially the ones that are more focused on certain regions of the country rather than the country as a whole, do not have that much of an ability to independently increase interest rates on their loans, as losing customers would have a more immediate and larger impact on them than on the larger banks. On a final note, H1 2023 proved to be quite good of a quarter for the Croatian banks, especially the larger ones. Given that the interest rate hikes take time to pass through the economy and influence everything, and that at least one more interest rate hike is estimated to happen by the ECB, further profitability growth could be expected. This is especially true if the new loan volume production continues at similar rates we have seen thus far.
