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)
In Q1, INA recorded a decrease in sales of 7.1%, a decrease of CCS EBITDA of -14% and a net loss of HRK 798m.
INA has witnessed unprecedented market dynamics in Q1, particularly during end of the quarter. The outbreak of the COVID-19 pandemic coupled with the disagreement within OPEC+ have led to a parallel supply and demand shock on global oil markets leading to a massive drop in Oil & Gas prices. Furthermore, INA experienced a cyber-attack which created operational challenges, but core operations and market supply were not interrupted and the business continuity was ensured.
In the first 3 months of 2020, INA recorded revenue from contracts with customers of HRK 3.95bn, representing a decrease of 7.1% YoY. Such a decrease was triggered mainly by Refining and Marketing sales revenue decrease since higher sales could not compensate for the less favorable external environment. Exploration and Production revenues of HRK 820m (-15% YoY), were mainly driven by 12% lower hydrocarbon prices and the natural decline in production, primarily Croatian natural gas volumes. Consumer Services sale quantities were down only by 3% in Q1, as the bigger drop in demand triggered by the COVID-19 pandemic measures occurred at the end of the reporting period.
On the expenses side, total operating expenses observed a sharp increase of 15.3% YoY, amounting to HRK 4.96bn. Such an increase mostly came on the back of costs of raw materials and consumables which were 376% YoY higher at HRK 1.25bn, reflecting different processing dynamic, primarily due to Rijeka Refinery turnaround on Q1 2019. Costs of other goods sold in Q1 2020 decreased 19% YoY and amounted to HRK 1.62bn resulting from lower goods sales.
In such environment CCS EBITDA of INA remained positive at HRK 433m (-14% YoY). However, the reported EBITDA was negative, amounting to HRK -495m (compared to HRK 539m in Q1 2019) primarily due to inventory revaluation driven by external environment.
Going further down the P&L, the company recorded net financial result of HRK -83m, compared to HRK -36 in Q1 2019. Such a result mostly came on the back of a higher net FX loss in Q1 2020.
In the first 3 months of 2020, INA recorded a net loss (to majority) of HRK 798m, compared to HRK 58m in Q1 2019.
Turning our attention to CAPEX, it was significantly lower in Q1 2020 (HRK 29m) compared to Q1 2019 (HRK 95) due to the high base effect, as a major turnaround in the Rijeka refinery in 2019 boosted investment last year.
In Q1, Kraš recorded a 3.4% decrease in sales, an increase in EBITDA of 31.3% and a increase in net profit to majority of 46.7%.
In Q1 of 2020, Kraš’ operating revenues amounted to HRK 215.1m, representing a decrease of 4% YoY. Such a decrease could be attributed to lower sales on the foreign market, which account for 46.2% of total sales. On the domestic market, sales amounted to HRK 113.4m, representing an increase of 4.6% YoY.
The company notes that since the outbreak of the Covid-19 pandemic they insured the continuity of supply of raw materials as well as delivery to customers on the both domestic and foreign market. Kraš also noted that they prepared a diverse program for the Easter season (April) which was not realized according to plan due to the pandemic.
Operating expenses recorded a 6% YoY decrease, amounting to HRK 203.98m, which mostly came on the back of lower employee expenses (by 21% or HRK 19.4m). As a result of the lower operating expenses, EBITDA recorded a solid increase of 31.3%, amounting to HRK 23.4m. Such a result puts the EBITDA margin at 10.9%, representing an improvement of 2.9 p.p. YoY.
Going further down the P&L, Kraš recorded a net financial result of HRK -1.5m compared to HRK 1m in Q1 2019. Such a result could mostly be attributed to a net FX loss. In the first 3 months of 2020, the company recorded a net profit to majority of HRK 7.12m representing an increase of 46.7%.
Zavod VZMD proposed a dividend payment of EUR 2.5 per share, compared to initially no dividend payment proposed by the Management Board. Dividend yield is 8.9%. Note that the Management Board opposes the counter-proposal.
Triglav received a counter-proposal by the shareholder Zavod VZMD (Pan-Slovenian Shareholders’ Association) regarding the dividend payment in 2020. Zavod VZMD proposed a dividend payment of EUR 2.5 per share, compared to initially no dividend payment proposed by the Management Board. The newly proposed dividend translates into a yield of 8.9%.
As a reminder, Triglav has set the minimum dividend payout of 50% of consolidated net profit for the previous year, with the note that the company will not strive to reduce its dividend payment below the level of the previous year. Since 2015 (for net profit of the previous year), Triglav has been paying out a constant dividend of EUR 2.5 per share, which implied a high single digit dividend yield each year ranging from 7.3% to 9.5%.
The Management Board of Triglav opposes the counter-proposal. The proposal of the Management Board and the Supervisory Board is to leave the accumulated profit of EUR 60.5m from 2019 undistributed and thus its full amount to be allocated for the future payment of dividends or for other purposes in accordance with the GSM resolution. Their proposal is consistent with the Slovene regulator’s call and with the aim of ensuring the medium-term sustainable target capital adequacy of the Triglav Group, as set out in the Company’s dividend policy.
Given the current situation regarding the Covid-19 pandemic and the implications and uncertainties which come with the situation, we do not see the counter-proposal being approved on the GSM.
According to the SPA between NLB and the Republic of Serbia, declared but unpaid dividends and employee benefits for prior financial years will be paid before closing. Komercijalna Banka’s existing shareholders will also receive a dividend equating to 50% of 2019 net income.
Komercijalna Banka held the GSM in which they approved the profit distribution for the year 2019. Of the profit of RSD 8.96bn from 2019, RSD 4.46bn will be distributed to the ordinary shareholders, while RSD 13m will be distributed to the preferred shareholders. This translates into an dividend for the ordinary shares of RSD 265.5 per share and RSD 35 per share for the preferred shares. Such a dividend translates into a payout ratio of 50%.
As a reminder, according to the share purchase agreement between NLB and the Republic of Serbia, declared but unpaid dividends and employee benefits for prior financial years will be paid before closing. Komercijalna Banka’s existing shareholders will also receive a dividend equating to 50% of 2019 net income up to a maximum of EUR 38m before closing.