During 9M 2023, HPB recorded NII growth of 73% YoY, NFCI decrease of 4%, net banking income growth of 61%, and a net income of EUR 68m, a 54% decrease YoY. Furthermore, during Q3 2023, it recorded an NII increase of 70% YoY, an NFCI decline of 18%, net banking income growth of 42%, and a net income of EUR 23.4m, a 2.1x increase YoY.
Starting off with the net interest income, it amounted to EUR 118m during 9M 2023, an increase of 73% YoY. In Q3, it amounted to EUR 44.6m, a 70% growth. HPB notes that this primarily came as a result of the increase in income on assets with the ECB, in accordance with the market trend of the risk-free interest rate. Moving on, the net fee and commission decreased by 4% YoY to EUR 25.4m during 9M, while in Q3, it amounted to EUR 8.9m, an 18% decline. It should be noted that this is also in line with the data seen in other banks, with strong NII growth but stagnant NFCI levels.
Taken together, this led to a net banking income of EUR 151.1m in 9M, a 61% increase, and EUR 54.5m in Q3, a 42% increase YoY. In terms of expenses, administrative expenses increased by 61% YoY to EUR 151m during 9M, and by 42% to EUR 54.5m in Q3. Admin. expenses growth was under the influence of regulatory projects and integration activities, as well as a general increase in prices, which is mainly reflected in the increase in energy prices and IT equipment maintenance. In terms of employee expenses, they increased by 19% YoY to EUR 37.9m during 9M, and by 4% to EUR 12.4m in Q3. This came as a result of the consolidation of NHB in 2023, i.e. as of January 1, rather than in 2022 (as of April 14, the acquisition date), as well as the labor and price adjustments due to the inflationary environment.
In terms of net income, it recorded a 54% decrease YoY on a 9M basis to EUR 68m, and a 2.1x increase during Q3 to EUR 23.4m. It has to be noted that HPB recorded negative goodwill of EUR 134.5m during 9M 2022, which was reflected in a higher-than-usual net income. If we were to exclude this effect, the organic net income grew by over 3.6x YoY in 9M 2023.
HPB key financials (9M 2023 vs. 9M 2022, EURm)
Source: HPB, InterCapital Research
HPB key financials (Q3 2023 vs. Q3 2022, EURm)
Source: HPB, InterCapital Research
Turning our attention to the balance sheet, HPB recorded total assets of EUR 5.8bn, an increase of 7%, or EUR 372m YoY. Of this, the largest increase was recorded by cash and cash balances at central banks and other demand deposits, which grew by 51% YoY to EUR 644.5m. Inside this category, cash at hand decreased by 32% YoY to EUR 79.8m, while cash balances at central banks grew by 72%, or EUR 721.9m to EUR 1.7bn. In terms of financial assets at amortised cost, they increased by 6%, or EUR 214m YoY to EUR 3.79bn. However, inside this category, we can see that loans decreased by 9%, or EUR 312m YoY to EUR 2.97bn. The growth drivers were the debt securities which increased by 183%, or EUR 526m YoY to EUR 813m.
As such, two things should be pointed out. Firstly, the loan amount decreased by a pretty high number, which is a trend that has been present across Europe for a while now but has been largely absent in Croatia. This is of course due to the higher interest rates offered on loans, meaning new loans are significantly more expensive than the older ones. Of course, the loan amount shows the overall amount of loans, both old and new, and as such the decrease could also mean that there are more older loans running out. The most likely scenario is one where both older loans are running out, while new loan production isn’t as high, rather than no new loans being issued. The second thing to be pointed out is the direct consequence of the increase in interest rates at the ECB, now yielding between 4% and 4.75% depending on the type of deposits held by banks at the Central Banks.
Knowing that the interest rates offered on loans are app. 3.5% for the largest consumer loan category, housing loans, the decision to increase deposits at the ECB then makes more sense. On the other hand, total liabilities increased by 6% YoY to EUR 5.3bn, driven primarily by deposit growth, which also grew by 6% to EUR 5.2bn. HPB also noted that its MREL rate as of 30 September 2023 amounted to 30.07%, above the current regulatory MREL requirement of 27.08%.
