IC Market Espresso 18 Sep 2019

NLB Group Offers the Best Bid for Komercijalna Banka

NLB Group offered EUR 450m for 83.2% of the total shares of Komercijalna Banka. To put things into a perspective, this puts the offer at a P/B of 0.9 and a P/E of 7.8.

According to the Serbian media, NLB gave the best bid among 3 other banks for the sale of Komercijalna Banka. Allegedly, NLB offered EUR 450m for 83.2% of the total shares, which are owned by the Republic of Serbia. To put things into a perspective, EUR 450m puts the offer at a P/B of 0.9x and a P/E of 7.8x. Note that such an offer is priced at a higher P/B than NLB Group’s public offering, which was priced at P/B of 0.67x. As a comparison, at the current share price, Komercijalna Banka is traded at a P/B of 0.75x and P/E of 6.57x.

It is worth noting that if NLB eventually ends up being chosen as the buyer of Komercijalna Banka, the sale would probably not occur in 2019, as NLB Group has an acquisition ban, which expires at the end of 2019.

As a reminder, the Republic of Serbia has earlier this month reached an agreement with EBRD and IFC Capitalization Fund concerning the sale of 34.58% of the ordinary shares in Komercijalna Banka. Following completion of the mentioned transaction, the Republic of Serbia will own 83.2% of the ordinary shares of the Bank.

To read about Komercijalna Banka’s H1 2019 results click here.

Currently for NLB Group, Serbia represents their smallest market, where the company has only 1.6% of the total market share by total assets. In H1 2019, the company observed total assets of EUR 527m and net income of EUR 1m, which are both the lowest on the Group level. Currently the company has 28 branches operating in this market. 

As of June 2019, the company recorded a net interest margin (NIM) of 4.21%, which is significantly higher than the NIM on the Group level of 2.54%. However, note that the NIM has observed pressure in the past years, as it has been gradually decreasing in the past years (from 5.88% in H1 2016). Note that such a trend could be observed on the whole Serbian market. As a comparison, Komercijalna Banka’s NIM has been decreasing gradually since 2015 (NIM of 3.5%) and currently stands at 3.1%.  

P/E of Regional Banks

P/B of Regional Banks

Can Potential Swiss Franc Lawsuits Influence the Results of Croatian Banks?
Yesterday, the Supreme Court announced a decision regarding loans in Swiss francs which 8 Croatian banks placed to its clients that was resolved by allowing them conversion rights in Consumer Credit Act from September 2015. View on implications of this decision are mixed, while stock market has negatively reacted to the news.

The Supreme Court has rejected the banks’ revision of a class action lawsuit which was led by associations ‘Potrošač’ and ‘Franak’ who have represented the people who took loans in Swiss francs. The Judiciary Council ruled that the banks (eight of them) “violated the collective interests and rights of the borrowers contracted in Swiss francs. In doing so, the Supreme Court further opened the door to (former) debtors on loans in “Swiss” to seek compensation from the banks, but only through subsequent individual litigation. In terms of further legal options, however, banks still have to address the Constitutional Court, which they mostly announce, and procedures at the European level. The association Franak has said that 125,000 consumers who have contracted CHF loans can claim their money without hesitation in the courts, and that they have time to do it until 2023. In the Croatian Banking Association, on the other hand, they say that the Supreme Court has not given any new rights to the borrowers, and that it has not taken stance regarding any individual litigation.

Of the banks involved in Swiss Franc case two the them are listed on ZSE – Zagrebačka banka and PBZ. Yesterday, their share prices have decreased by 0.83% and 0.63%. Zagrebačka bank’s turnover was quite substantial concerning its usual daily turnover and it has amounted to HRK 1m, while PBZ turnover has reached HRK 0.65m. It remains to be seen in the next period if banks will increase reservations for the potential lawsuits and if they will become more transparent on the potential outcome of this issue. It looks like that investors are not so fond of this lack of transparency when they are regarding this news as negative.