In the wake of the continuous trend of ECB rate cuts, but also globally, this week’s blog brings you an overview of selected regional banks and their 9M 2024 results.
Slowing inflationary pressures and stagnant eurozone growth made it necessary for the ECB to initiate a rate-cut cycle in June 2024. Since then, two additional rate cuts have been implemented, bringing the main refinancing operations rate down to 3.25%. However, monetary policy can only address the cyclical components of the economic slowdown, while structural issues currently present in the EU cannot be tackled solely through adjustments to the cost of financing. This may also signal the beginning of the end for the lucrative high-interest-rate environment in the banking sector, as monetary easing is expected to cap banks’ profitability growth.
Therefore, we analyzed 9M 2024 results of five regional banks – Zagrebačka banka, HPB, NLB, Banca Transilvania and BRD.
Net interest income comparison of analyzed banks (9M 2024 vs. 9M 2023, EURm)
Source: Companies reports, InterCapital Research
As we can see, all the banks recorded solid increases in net interest income, primarily driven by a robust combination of volume and margin growth. The largest increase was recorded by Banca Transilvania, with NII growth of 32.1% YoY, boosted by a steady increase in net loans and leasing receivables. This was followed by NLB at 15.4%, boosted by its recent acquisition of the SLS Group, HPB at 13.6%, ZABA at 8.2%, and BRD at 7.1%.
Net fee and commission income comparison (9M 2024 vs. 9M 2023, EURm)
Source: Companies reports, InterCapital Research
NFCI showed more tempered growth, as these revenues depend primarily on the range of services and offers provided by banks to customers rather than changes in the macroeconomic environment. The largest relative increase here was also recorded by Banca Transilvania, with 15.7% growth YoY, followed by NLB at 12.8%, followed by HPB at 8.0%, ZABA at 6.5%, and BRD at 6.4%.
Net banking income comparison (9M 2024 vs. 9M 2023, EURm)
Source: Companies reports, InterCapital Research
Taken together, these factors led to solid improvements in net banking income. Banca Transilvania achieved 28.4% growth YoY driven by the evolution of the total number of processed transactions, +30.7% compared to the same period in 2023, as well as in the number of active customers, which reached 4.4 million. Following the Romanian giant, NLB achieved 15.4% growth YoY, HPB 10.8%, ZABA 10.2%, and BRD 5.4%.
Net income (majority) comparison (9M 2024 vs. 9M 2023, EURm)
Source: Companies reports, InterCapital Research
Looking at the net income attributable to the majority, Banca Transilvania recorded the largest increase by far at 69.6% YoY, mainly driven by organic growth, customer activity, and volume of operations. ZABA followed with a 12.7% increase, driven by its cost resilience, NLB with 10.5%, while BRD and HPB recorded declines in net profit of 9.8% and 10.0%, respectively. It is also worth noting that state-owned HPB was required to raise its dividend yield following a government decision to increase mandatory contributions from state-owned companies to the state budget to fund public investments. This policy will benefit all investors through an increased dividend payout.
Given the differences in size and market presence among these banks, it is also prudent to examine key performance indicators, such as return on equity, return on assets, and the loan-to-deposit ratio. Notably, these KPIs are based on trailing 12-month data to provide a more accurate picture.
ROE (left) and ROA (right) comparison (9M 2024 vs. 9M 2023, %)
Source: Companies reports, InterCapital Research
Looking at the return on equity, the largest increase was recorded by ZABA with an ROE of 20.7%, representing an increase of 4.6 p.p. YoY, followed by HPB at 12.8% (+4.1 p.p.), TLV at 26.9% (+1.9 p.p.) and NLB at 17.9% (+1.6 p.p.). BRD recorded an ROE of 16.1%, representing a 4.8 p.p. decrease YoY primarily due to elevated operating costs.
In terms of return on assets, Banca Transilvania reported the highest level at 2.3%, reflecting a 0.3 p.p. increase YoY. Following are ZABA at 2.2% (+0.5 p.p.), NLB also at 2.2% (+0.4 p.p.), BRD at 1.7% (- 0.4 p.p.), and HPB at 1.0% (+0.2 p.p.)
Loan-to-Deposit ratio comparison (9M 2024 vs. 9M 2023, %)
Source: Companies reports, InterCapital Research
The loan-to-deposit ratios show mixed lending and credit risk approaches among the analyzed banks. The highest LDR was recorded by BRD at 88.6% (-0.6 p.p. YoY), followed by ZABA at 80.8% (+11.6 p.p.), NLB at 73.6% (+6.2 p.p.), and TLV at 59.2% (-0.2 p.p.). This reflects these banks’ strategies to maximize income from loans by taking higher risk exposure and increasing their market share. Conversely, HPB recorded an LDR of 44.1%, a decline of 12.9 p.p. YoY, indicating a more conservative approach.
Overall, the European banking sector is undergoing a blend of growth and adaptation to macroeconomic shifts, including lower interest rates and rising uncertainties across eurozone markets. Additionally, Trump’s victory in the U.S. presidential election may intensify structural challenges within the EU, further underscoring the need for fiscal measures alongside the upcoming ECB rate decision on the 12th of December 2024. Selected regional banks have benefited from increased top-line, driven by higher volumes and margins, as interest rate cuts take time to pass through the economy and impact banks’ performance. However, elevated operating expenses continue to put pressure on banks and their profitability, as seen in the case of HPB and BRD. Therefore, banks are expected to prioritize enhanced cost management while maintaining stable income growth in the coming period. A particular focus on NFCI could prove advantageous, as this revenue stream is less reliant on fluctuations in the macroeconomic and interest rate environment.
