Financials have been on the rise both locally and globally during the past week, leading us to examine what kind of an impact did the coronavirus have on regional banks and their result in Q1 2020.
Comparison of Regional Banks Net Banking Income (EUR m)
In the first three months of 2020, ZABA’s net interest income recorded a sharp decrease of 9.7% (or EUR 11.3m) to EUR 104.9m. The bank attributes such a decrease mostly to the existing pressure on the NIM. Net fee and commission income observed a decrease of 11.9% to 43.8m. 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 EUR 13.3m (increase of EUR 2.2m). 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 EUR 161.8m.
Meanwhile, PBZ’s net interest income witnessed a decrease of 3% (or EUR 2.6m) to EUR 87.8m. 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 EUR 8.2m) to EUR 42m. 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 EUR 8.3m (increase by EUR 7.7m). Just like ZABA, PBZ also recorded a FX loss, however to a less extent (EUR-5.2m). As a result of the above mentioned, net banking income recorded an 8.6% YoY decrease amounting to EUR 124.9m. Operating expenses recorded a 3.3% decrease YoY, amounting to EUR 63.6m, 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 EUR 0.51m (compared to a release of EUR 1.9m 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.
Turning our attention to Slovenia, in Q1 of 2020, NLB recorded a net interest income EUR 77.4m, representing a 3% decrease YoY. Such a decrease could be mostly attributed to interest expenses for new subordinated Tier 2 instruments kicking in, which was partially offset by loan growth. NIM further decreased in Q1 to 2.29% (-0.27 p.p. YoY). The decrease was recorded due to lower yields on the securities portfolio and loan book and due to higher cost of funding as the Bank issued new subordinated Tier 2 instruments. On the Group level, average yield on loans stood at 4% (-0.1 p.p. YoY). Yield on retail loans amounted to 5.1%, while on yield on corporates amounted to 2.8%. Net fee and commission income amounted to EUR 42.4m, representing an increase of 6% YoY. Such an increase mainly came from the retail segment in the banking subsidiaries in SEE. Note that in second half of March, a decrease of NFCI was recorded on card operations, fewer withdrawals and payments made by customers due to the COVID-19 outbreak.
Romanian banks shared the same faith as the rest, with bottom line results impacted by impairments and negative cost of risk.
Banca Transilvania recorded a -1.4% YoY decrease in net banking income to EUR 190.6m. While net interest income fell -2%, net income from fees & commissions actually increased by 1% YoY. As a result of the occurrences witnessed in the market, Fitch Ratings revised outlook on Banca Transilvania from Stable to Negative. The reason behind the change in outlook lies in the fact that despite the efforts made by the Government to combat the ongoing crisis, asset quality is expected to weaken compared with previous expectations and earnings are expected to come under pressure from lower business volumes, higher loan impairment charges and pressure on net interest margins resulting from a 50bp cut in the policy interest rate.
On the flip side BRD Bank posted a 3.8% YoY increase in net banking income as net interest income posted a 6.6% YoY increase on the back of rising volumes, favourable structure shifts and higher yields on bonds portfolio. Meanwhile net fees and commissions decreased by -4% YoY, mainly due to prices alignment for EUR denominated payments, to domestic ones (starting with 15th of December 2019, according to SEPA rules) and also due to cease of the Western Union business in August 2019, partially compensated by higher revenues from custody and asset management activity.
Comparison of Regional Banks Net Profit (EUR m)
Despite operating in different countries, regional banks all experienced the same reason for the bottom-line decrease, higher impairments and provisions due to the coronavirus outbreak, coupled with a low interest rate environment which put additional pressure on NIM.
Finally, we bring you a comparison of banking multiples from the region to compare how investor reacted to the abovementioned results.
Trading Multiples of Regional Banks
A thorough and comprehensive assessment confirmed Zagrebačka banka’s resilience to the stressful macroeconomic scenario thanks to the strong capital position of the Bank.
The European Central Bank (ECB) has published the results of a comprehensive assessment of five Croatian banks, including Zagrebačka banka. The assessment included an asset quality review (AQR) and testing the institution’s resilience to stress, and was implemented after Croatia submitted a request in May 2019 for the establishment of close cooperation between the ECB and the Croatian National Bank.
The comprehensive assessment was part of the process of establishing close cooperation between the ECB and the national competent authority of an EU Member State whose currency is not the Euro.
A thorough and comprehensive assessment confirmed Zagrebačka banka’s resilience to the stressful macroeconomic scenario thanks to the strong capital position of the Bank, i.e. the maintained rate of regular share capital (CET1) of 21.28%, as of June 2019. Applying the methodology of the ECB, following a quality review assets and stress testing, the CET 1 capital ratio is 20.46% in the baseline scenario and 13.94% in the stress scenario.
The asset quality assessment in the comprehensive assessment confirmed the strength of the balance sheet and good risk management of Zagrebačka banka.
Strong results of Zagrebačka banka showed that there are no regulatory requirements for capital measures.
It’s important to note that the assumptions used for the stress test scenarios could not take into account the current COVID-19 crisis, which only started to evolve in the first quarter of 2020. The ECB is currently working on a consistent approach for all supervised entities in order to monitor the impact of the COVID-19 crisis. The same approach will be followed for Croatian banks should close cooperation with Croatia begin.
In May 2020, Croatia observed a fall in tourist arrivals by -94.8% and a fall in tourist nights by -90.7%.
According to the Croatian National Tourist Board, in May 2020, Croatia observed 86,413 tourist arrivals, representing a decline of -94.8% YoY (1.65m arrivals in May 2019). Of that, foreign tourists accounted for 48%. Meanwhile, tourist nights amounted to 524,185, which is a decrease of -90.7% YoY. Foreign tourists accounted for 56% of the total tourist nights realized. Such figures were expected, given that global travel was suspended for a large part of May due to Covid-19 lockdown.
As a reminder, in April, due to the lockdown, Croatia has witnessed extremely low figures when it comes to foreign arrivals. To put things into perspective, in April Croatia observed 2,349 arrivals compared to 2.87m in the same month last year.
Tourists from Slovenia recorded the most tourist arrivals, accounting for 26% of all arivals. Tourists from Germany and Bosnia & Herzegovina follow, accounting for 14% and 2%, respectively. However, each of these top 3 tourists by country of origin also observed a drop in arrivals greater than 80%. Meanwhile, most of the tourist nights were also observed by tourist from Slovenia, representing 40% of foreign nights (18% of total nights realized).
When observing the arrivals realized by counties, Istria leads the list with 22.9% of the total arrivals. The counties of Kvarner and Zadar follow, accounting for 22.8% and 14% of total arrivals, respectively. Looking at tourist nights, Istria county comes first with 22.3%, followed by Split-Dalmatia county with 18.1%.
When looking at the nights realized by the type of accommodation, one can observe that private accommodation leads the list with accounting for 27.4% of total nights. Camps follow with 8.4% of nights realized in them. Note that hotels recorded a 98% decrease in arrivals and 99% decrease in tourist nights realized.
To put things into a perspective, the deal is worth 2.1% of the company’s T12 consolidated revenues.
Đuro Đaković published an announcement on the Zagreb Stock Exchange stating that they have concluded a deal with with the Romanian Softronic SRL regarding the delivery of set of ASEA locomotive axle assemblies. The value of the contract is EUR 748,650, while the delivery of axle assemblies will start in the beginning of 2021. To put things into a perspective, the deal is worth 2.1% of the company’s T12 consolidated revenues.
This contract achieves continuity of cooperation with the Romanian manufacturer of locomotives and electric trains.
At the current share price dividend yield is 7.2%. Ex-date is 17 June 2020.
Telekom Slovenije held their General Meeting in which the shareholders approved the proposal for the use of distributable profit, which amounted to EUR 30.2m in 2019. The shareholders approved the proposal to allocate EUR 22.8m for paying dividends, which amounts to EUR 3.50 gross per share, while the remainder in the amount of EUR 7.4m shall be carried over to the following year.
Such a dividend per share is 22% lower compared to the one paid in 2019. At the current share price dividend yield is 7.2%, while the ex-date is 17 June 2020.
As a reminder, the Management Board initially proposed no dividend payment (EUR 30.16m to remain undistributed). However, the company received a counterproposal by SDH (Slovenski državni holding) which ended up being approved at the GSM.
In the graph below, we are bringing you historical overview of the company’s dividends.
Telekom Slovenije Dividend per Share (EUR) & Dividend Yield (%) (2010 – 2020)