In the first 3 months of 2020, the major Croatian listed banks (ZABA, PBZ, HPB) observed similar challenges, resulting in high single digit drop in net banking income. You can read more about it in this brief article.  

ZABA

In the first three months of 2020, ZABA’s net interest income recorded a sharp decrease of 9.7% (or HRK 86m) to HRK 797.6m. The bank attributes such a decrease to mostly to the existing pressure on the NIM. Net fee and commission income observed a decrease of 11.9% (or HRK 45m) to 332.6m. 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 HRK 101m (increase of HRK 17m). 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 HRK 1.23bn.

When observing operating expenses, they amounted to HRK 561.8m, which is a decrease of 1.5% YoY. Such a decrease came on the back of lower depreciation by HRL 10.8m. Such a result puts the CIR to 45.7%, an increase of 3.3 p.p. YoY (on the back of lower income).

In Q1, ZABA recorded a release of provisions of HRK 30.7m compared to provisions of HRK 109.5m in Q1 2019. The bank recorded quite high provisions in 2019, mostly for lawsuits to (former) debtors on loans in Swiss francs. Although the bank did not provide any information on this topic in their Q1 report, we assume that the release of provisions came as a result of currently favorable situation for ZABA regarding the mentioned lawsuits. The release of provisions also indicates that there were very low to no provisions regarding bad loans.  ZABA noted that they are currently allowing moratoriums for their clients.  It is important to note that the loans which were given a moratorium will not have to be initially provisioned. However, after the moratorium expires, we can expect that there will be borrowers who will unlikely pay, which will then be included in the NPLs. Therefore, it is plausible to assume to see part of these NPLs in 2021 as well.  As this measure is deferring payments for borrowers, this could be seen rather as a liquidity burden, not at interest income burden as interest is accrued during the period. 

Going further down the P&L, the bank recorded a decrease of 8.3% of net profit to majority, which amounted to HRK 492m.

Turning our attention to the balance sheet, total assets amounted to HRK 146.4bn, representing an increase of 0.5% YoY. Of that loans to customers amount to HRK 84.52bn, which is an increase of 1.4% YoY. The increase could be attributed to a rise in loans to corporate clients. Deposits from customers amounted to HRK 111.5bn, a decrease of 1.6% due to lower deposits of corporate clients. Consequently, L/D ratio stands at 75.8%.

ZABA Performance (Q1 2019 vs Q1 2020) (HRK m)

PBZ

In the first three months of 2020, PBZ’s net interest income witnessed a decrease of 3% (or HRK 19.6m) to HRK 667m. 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 HRK 62.5m) to 319.5m. 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 HRK 63.2m (increase by HRK 58.4m). Just like ZABA, PBZ also recorded a FX loss, however to a less extent (HRK -39.44m).

As a result of the above mentioned, net banking income recorded an 8.6% YoY decrease amounting to HRK 949.8m. Operating expenses recorded a 3.3% decrease YoY, amounting to HRK 483.4m, 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 HRK 3.9m (compared to a release of HRK 14.6m 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.

Going further down the P&L, the company recorded an increase impairment of financial assets not measured at fair value through profit or loss of HRK 93.2m (increase of HRK 39.8m).

In Q1, PBZ recorded a decrease of 21.4% of net profit to majority, amounting to HRK 308.8m.

Turning our attention to the balance sheet, total assets amounted to HRK 121bn, representing an increase of 2.6% YoY. Of that loans to customers account for 70%, amounting to HRK 84.3bn (+1.3% YoY). Meanwhile, deposits amounted to HRK 100.2bn, representing a solid increase of 4% YoY. As a result of a solid deposit growth, L/D ratio observed a decrease of 2.3 p.p., amounting to 84.2%.

PBZ Performance (Q1 2019 vs Q1 2020) (HRK m)

HPB

The smallest bank of the observed ones, HPB recorded an increase in net interest income of 2.6%, amounting to HRK 136.3m. Meanwhile, the bank recorded a decrease in net fee and commission income of 8% to HRK 44.8m. Net banking income amounted to HRK 184.9m, which is a decrease of 8.6%.  Such a decrease could be attributed to lower NFCI coupled with a loss from financial assets available for sale of HRK -5.4m (compared to HRK 24.2m). HPB also observed FX loss of HRK 4.83m.

When observing operating expenses, the bank recorded an increase of 1.2% to HRK 115.4m. Such an increase came on the back of higher amortization (by HRK 8.6m). Such a result puts the CIR at a relatively high 62.4%, which represents an increase of 6.1 p.p. YoY.

In Q1, HPB recorded an increase impairment of financial assets not measured at fair value through profit or loss of HRK 28.7m (increase of HRK 22.2m). When observing the bottom line, the bank witnessed a sharp decrease of 44.5% YoY, amounting to HRK 35.9m.

Turning our attention to the balance sheet, total assets amounted to HRK 25.3bn, representing an increase of 6.2% YoY. Of that, loans to customers amounted to HRK 15.1bn, showing a slight decrease of 0.5% YoY.  Meanwhile, deposits account for 98% of total liabilities, amounting to HRK 22.48bn (+7.4% YoY). Such a strong deposit growth lead to a decrease in L/D ratio by 5.3 p.p., amounting to 67.2%.

HPB Performance (Q1 2019 vs Q1 2020) (HRK m)