With the Russian invasion of Ukraine, Sberbank Europe AG and its subsidiaries in Croatia, Slovenia and Serbia were failing due to the rapid outflow of deposits. Single Resolution Board carried out fast insolvency procedure and as a result of it Sberbank Europe AG’s subsidiaries were sold to regional banks. Sberbank Slovenia to NLB Group and Sberbank Croatia to HPB. This unexpected consolidation of the banking sector brings stabilization to regional banking sectors and offers potential for the banks that have acquired these shareholdings. As an add-on, we are presenting you with an overview of the Croatian banking sector in 2021 and the results of ZABA and HPB.
With the Russian invasion of Ukraine, Sberbank Europe AG and its subsidiaries in Croatia, Slovenia and Serbia were failing due to the rapid outflow of deposits. Due to sharp deterioration of their liquidity, Single Resolution Board applied suspension of payments, enforcement and termination of rights to the three banks known as moratorium of two days so that it could determine whether the case should be handled under European bank resolution rules. SRB decided it should not, and that insolvency procedures will be carried out according to national Austrian law. Sberbank of Russia who was in full ownership of these banks was deprived of their shareholding by the measure of the regulator. As a result of it Sberbank Europe AG’s subsidiaries were sold to regional banks. Sberbank Slovenia to NLB Group and Sberbank Croatia to HPB. This unexpected consolidation of the banking sector brings stabilization to regional banking sectors and offers potential for the banks that have acquired these shareholdings. As an add-on, we are presenting you with an overview of the Croatian banking sector in 2021 and the results of ZABA and HPB.
In Croatia, Single Resolution Board (SRB) has decided to transfer all shares of the group’s Croatian subsidiary Sberbank (615,623 in total) to Hrvatska Poštanska Banka (HPB) for consideration of HRK 71m for 100% shares. The transaction implies a price-to-book ratio (P/B) of 0.06x. Sberbank in Croatia had HRK 11.1bn of assets in 2021 amounting to approx. 2% of the banking assets in Croatia. At the same time, before this transaction, HPB owned 5.56% of total assets in the Croatian banking system, making it the 6th largest bank in the country. After the transaction, HPB will own 7.77% of the total assets in Croatia, still maintaining its 6th place, just below Raiffeisen bank with 8.3% of total assets in Croatia. It should also be noted that HPB’s is owned in majority by the Croatian state.
In Slovenia, The Single Resolution Board decided to transfer all shares of the Slovenian Sberbank subsidiary to NLB, for the transaction of EUR 5.11m, reporting a price-to-book ratio (P/B) of the transaction equal to 0.03. On 1 March 2022 after SRB decided to transfer all shares to NLB, on 2 March 2022 NLB provided material liquidity support in the amount of EUR 500m, removing uncertainty for Sberbank customers and strengthening the stability of the Slovenian banking sector. With total assets of EUR 1.8bn at the end of 2020, Sberbank had a market share of approx. 4% of the banking assets in Slovenia. This would indicate that the NLB’s market share would increase to roughly 30% in Slovenia.
As an add-on, we are presenting you with 2021 results of two Croatian banks listed on stock exchange ZABA and HPB. It shows that the Croatian banking sector performed very well, as all of 23 banks/savings houses showed a positive net profit, while the whole sector net profit amounted to HRK 5.6bn (EUR 742m), increasing 8.8% YoY. Total assets of the sector amounted to EUR 66.2 bn(+8.3% YoY). NPL of the sector has once again shown a steady decrease in the NPL share in total loans. Total loans of the whole sector reported an increase of 1.1% YoY, while the share of NPL in given loans fell to 4.33% of all given loans (-0.35 p.p.), showing an increase in the sector profitability and efficiency. The share of NPL fell (-14.1% YoY) mostly due to the decrease in NPL to the non-financial corporations (-7.5% YoY) – improving relative loan quality indicator (share of NPL in total loans). Also, total banking sector profitability improved with the improvement of its profitability indicators – return on assets (ROA) increased to 1.2% (+ 0.6 p.p.) and return on equity (ROE) increased to 8.7% (+ 4.3 p.p.).
ZABA FY 2021
In 2021 ZABA’s net interest income amounted to HRK 2.82bn, representing a decrease of 8.2%, or HRK 252.4m YoY. The company attributes this decrease mostly to continued pressure on NIM due to the unfavorable market situation. Net fee and commission income stood at HRK 1.37bn, representing an increase of HRK 99m or 7.8% YoY.
Meanwhile, net banking income stood at HRK 4.85bn, representing a slight decrease of 1.1 YoY%. Within the net banking income, ZABA noted an increase in gain on financial assets held for trading of 3x or HRK 205.8m. Meanwhile, the bank recorded a gain on financial assets measured at fair value through P&L of HRK 1.9m, compared to a loss of HRK 98.2m in 2019 (HRK +100m YoY), which also offset the decrease in net interest income. ZABA had equity investment in Optima Telekom of 36.9% shareholding and from 7th July 2021 it was consolidated into its results as Hrvatski Telekom lost controlling right due to agreement with regulator, while ZABA gained majority vote rights. On the same day ZABA and HT signed an SPA to sell shares in Optima Telekom to buyer Telemach Croatia. So from July till year-end Optima is marked as available for sale and consolidated with ZABA. Closing of the transaction took place on 21 January so from them optima will not be consolidated with ZABA anymore.
Furthermore, operating expenses amounted to HRK 2.2bn, mostly staying on the same level as the previous year. Looking at value adjustments and provisions for losses, they were down 56% YoY, amounting to HRK 505m, mostly due to higher losses than what were impairments in 2020, as followed by the COVID pandemic. On the other hand, provisioning for risk was down 50% (amounting to HRK 157m), as the majority of loans is put on hold as deferral of payment of obligations under the loan is made while some of the interest is paid at the agreed interest rate during the moratorium. Growth of credit risk following the COVID-19 pandemic after the measure will not be in place anymore, is yet to come. As a result of the above stated, ZABA recorded a sharp increase in net profit to the majority of 49.4%, to HRK 1.5bn (an increase of HRK 494.4m).
Turning our attention to the balance sheet, total assets amounted to HRK 158.5bn, representing an increase of 5.8% YoY. Of that, loans to customers account for 54.6% or HRK 81.7bn, mostly staying on the same level. On the flip side, deposits from customers amounted to HRK 127.4bn, representing an increase of 8.7%, in line with banking trends in the region. Such a result puts the L/D ratio at 64.1% (YoY decrease of 5.3 p.p.).
ZABA Financials (HRK m)
HPB FY 2021
In 2022, HPB’s interest income amounted to HRK 524.1m and it reported a decrease of net interest income by 2.4% due to decreased loan portfolio, lower market interest rates and strong price competition on banking market. Interest expenses management in 2021 (-36.8%) did not neutralise decrease in interest income (-5.0%) compared to previous year.
Meanwhile, net fee and commission income witnessed an increase of 9% due to withdrawal of COVID-19 measures related to card transactions, successful and prolonged tourist season and recovery of economic activity, rebounding to pre-COVID Q4 2019 level (HRK 44m Q4 2019).
As a result of the aforementioned, net banking income increased by 3.6% to HRK 833.6m. Operating expenses reported a decrease of HRK 18.8m (-3.6% Y0Y), amounting to HRK 505.3m – which puts the CIR at 60.6% (-4.5 p.p. YoY).
We also note that provisions reported a decrease, from HRK 62m to being close to HRK 0. As a result of this, HPB recorded an increase in net profit (to majority) by as much as 10.5%, to HRK 202.6m. Net profit growth was as a result of higher NFCI, trading and other income, followed by slightly lower operating expenses due to reduction of deposit insurance premium, lower provisions and lower depreciation. It was the highest net profit in bank’s 30-year history.
Turning our attention to the balance sheet, as the end of 2021, the bank operated with HRK 27.8bn in total assets (+9.3% YoY). Such an increase was a result of increase in liquid assets +47.8% primarily due to continuous increase in deposits. Securities increased 6.5% YoY while gross loans decreased -3.1% YoY. Deposits were up +9.3% with largest increase in SMEs +22.0%, the central state and large corporate segment +20.7% and retail +1.9%. Therefore, loans deposit ratio stood at 60.6%.
In terms of NPL ratio, the HPB reported a decrease of 0.3 p.p. to HRK 8.4%, which is a result of the company’s actions to materialize payments and reduce non-performing exposure. Meanwhile, NPL coverage ratio decreased by 1.1 p.p. and amounted to 61.1%. NPL ratio was down 60bp to 9.8%. When looking at approved COVID-19 measures moratoria status at the end of year, there was only HRK 4m of remaining moratoria in retail segment, while there was no remaining moratoria in corporate segment.
HPB reported a CET 1 of 26.5%, indicating a very solid level of capitalization. The increase of 3.9 p.p. came mostly on the back of retention of earnings.
HPB Financials (HRK m)
