In recent months, banks were in a much more difficult situation, and adverse changes occurred relatively quickly. Bank tax was introduced in February 2016. Haitong and according to estimates it will this year cost the banks about four billion PLN (25 per cent. Profits).
The politicians are preparing another proposal regarding the problems of loans frankowych. In June of 2016. Representatives of the banks were removed from the board of the Bank Guarantee Fund (previously the banks had two seats on the eight-member council).
introduced a new regulation on deposit insurance and carrying out of bankruptcy (in the case of risk of bankruptcy of the bank), which to some extent favors credit unions.
Analysts Haitong Bank expect that in 2016. Polish banks will receive a return on equity (ROE) at 7.7 per cent., for the period from February to April, they were not able to pass on the costs of a bank tax to customers, which resulted in significant damage to their profits. If it was not a positive one-off item due to an agreement with VISA, ROE for the industry would amount to 7 percent.
PKO BP
Haitong Bank report of 17 August lowers rating for PKO BP to SELL with a target price of the shares at 24 PLN (formerly NEUTRAL and price Target 30 PLN). Analysts lowered their earnings estimates for the years 2017/2018 by 8 and 11 per cent., On the assumption that PKO BP will be very difficult to rebuild decrease in net called bank tax. Analysts also fear that the competitive position of PKO BP remains limited by its capital capacity.
In the event of any acquisition, the new capital requirements or significant costs to solve the problem frankowiczów, PKO BP may be forced to suspend the payment of dividends or decide to raise capital. PKO BP was at the end of the first quarter in its balance sheet loans francs worth 30.8 billion PLN, which constitutes 23 per cent. market share. With the unlikely scenario that the final cost of the solution to the issue of loans frankowych the banking sector would cost only $ 7 billion zlotys (it spreads the cost of the return of foreign exchange customers), then 23 percent. Of this sum (PLN 1.61 billion) charge PKO BP.
Bank Pekao
Haitong Bank report of 17 August raises rating for Pekao from Sell to NEUTRAL with a target price of shares of 125 PLN (PLN to 124 previously). This recommendation was changed after the last drop in the share price of Pekao, which is slightly below the level set in the accelerated bookbuilding (ABB) last month. Analysts Haitong Bank of fear that if UniCredit decides to withdraw from Pekao as a result of the ongoing strategic analysis, and if the buyer is PZU (and indirectly the Treasury), the valuation of Pekao may suffer.
BZ WBK
In a report on August 17 Haitong Bank reiterating a neutral rating for BZ WBK and raises the price target shares from 260 to 280 PLN. Credit francs are an obvious cause for concern in the case of BZ WBK, but analysts believe that, in contrast to Getin Noble Bank, Millennium Bank and mBank capital buffers in BZ WBK are strong enough to neutralize any serious consequences. However, the rate of price to book value (P / BV) of 1.5 for permanent ROE of 10 percent. and risks related to the dividend, Haitong analysts see little growth potential. Haitong Bank estimates that at the consolidated level (including profits for the first half of 2016), BZ WBK has a buffer of 5.5 billion PLN, which can be used to absorb the costs of conversion loans frankowych and sześciomiliardowy buffer over CT1 ratio equal to 10.25 percent . It will therefore be able to bear 40-50 percent. reduction in the value of loans frankowych without the need to raise capital. According to Haitong such reduction it seems unlikely, because it would mean a loss for the whole sector at the level of 56-70 billion PLN. Analysts remind that the involvement of BZ WBK francs in loans is 12.6 billion PLN (PLN 10.8 billion in the balance of BZ WBK and 60 per cent. Of amounting to three billion PLN involvement in the balance sheet SCB). Looking at the capital position of BZ WBK and remembering that all banks seriously involved in the loans francs, BZ WBK is the only one that pays a dividend, analysts believe that in the coming years, the bank will continue the transfer of 50 per cent. influence on the dividend. Haitong baseline scenario assumes that BZ WBK will be able to reward investors 50 percent. payment, but analysts note that higher capital requirements together with additional buffers associated with the loans frankowymi can stop BZ WBK share profits with investors.
mBank
Haitong Bank report of 17 August lowers recommendation for mBank to SELL with a price target shares in the amount of 300 PLN (to NEUTRAL and target price of shares of 350 PLN before). Analysts believe that mBank remains vulnerable to the consequences of solving the problem loans frankowych, has a limited ability to cut costs and must continue to rebuild its balance sheet, to repay the funding received from Commerzbank. On the other hand Haitong Bank analysts believe that the bank has the best structurally profile retail clients. mBank is able to withstand 20-25 per cent. reduction in the value of loans frankowych without any need to raise additional capital. In the second quarter of 2016, mBank had at the consolidated level (excluding profit for the first half of 2016) buffer of 3.8 billion PLN for the absorption of the cost of conversion loans frankowych and pięciomiliardowy buffer above the CT1 ratio = 10.25 percent. Haitong notes that at the end of the second quarter of 2016, mBank has a portfolio of foreign currency loans with a value of PLN 26.9 billion, of which PLN 19.2 billion accounted for by loans francs.
Alior Bank
Haitong Bank report of 17 August reiterating a neutral rating for Alior with a target price of shares in the amount of 53 PLN (52 PLN previously). Analysts agree with market consensus, according to the years 2017 and 2018 will probably be difficult for Alior because of integration costs. Analysts Haitong otherwise, however, they see the situation of the bank after this period. They fear that the bank’s capital ratios deteriorate over the next two years, while capital requirements will increase, which may cause the Alior will need fresh capital. Haitong stresses that Alior by PZU is indirectly controlled by the state and in the case of acquisition by PZU Pekao, Alior role in “repolonizacji” the banking industry in Poland may significantly change. Haitong Bank analysts point to the relatively high involvement of the bank in the financing of wind farms and, finally, remind investors a high degree of dependence on the profits of the business cycle because of the large commitment to consumer loans.
Bank Handlowy
Haitong Bank report August 17, lowers the rating for Bank Handlowy to NEUTRAL with an unchanged target price of shares the amount of 77 PLN, seeing little upside potential for the bank. Haitong Analysts believe that Bank offers investors an attractive dividend and a low level of risk, but, unfortunately, little development potential, hence the recommendation to neutral. The volume of credit Commercial Bank declined after the introduction of a bank tax, just as it did in the case of Pekao. According to Haitong this was due to the revaluation of corporate loans.
However, unlike Pekao, which changed its valuation method and showed a high level of charge source in the second quarter of 2016, analysts expect Bank Handlowy will be less eager to reduced credit spreads, due to the increase in volume should slow down, especially in the corporate segment. In the first quarter of 2016, credit growth in Bank Handlowy was 2.2 percent. year-on-year for the full year, analysts assume its slight decline.
ING Bank Slaski
Haitong Bank report August 17, keeps recommendation NEUTRAL for ING with a target price of shares in the amount of 143 PLN, raised from 126 PLN. The Bank recorded double-digit growth, has ambitions in the field of mergers and acquisitions and a small portfolio of loans frankowych, but in the light of higher capital requirements may be forced to review its current strategy, perhaps at the expense of dividends. In addition, the bank has a relatively high P / BV of 1.8 times the ROE for 2016 at 9.6 percent.
Analysts Haitong Bank appreciate the strengths of ING, but do not see much upside potential in the bank compared to the current high valuation of their opinion. In the first quarter of 2016 total loans ING increased by 15 percent. y / y (whereas the overall market grew by 5.3 percent. y / y). Haitong Analysts expect ING in the next few quarters will grow its loan portfolio at a similar pace as in the previous quarters, which is nearly three times faster than the market average. Moreover, analysts believe that ING may be seriously interested in the assets of Raiffeisen Polbank.
Bank Millennium
Haitong Bank report of 17 August issued Bank Millennium SELL recommendation with a target price of shares of PLN 4.7 (compared to NEUTRAL with a target price of shares of PLN 5.0 previously). Recommendation has been reduced because of the impact that the solution to the problem loans frankowych may have on the capital Millennium. The Bank had in the second quarter of 2016 years CT1 capital in the amount of PLN 6.3 billion francs and loans worth 18.6 billion PLN, with an average risk weight already was 70 percent. Haitong Bank analysts estimate that the maximum cost of the Franks bill that Millennium may incur still presenting CT1 above the minimum required by the Financial Supervision Authority, which is 10.25 per cent., To 2.4 billion. It implies to 12.9 percent. reduction of receivables from the portfolio francs and the total cost for the industry in the amount of approximately PLN 17.2 billion, which analysts treat as unlikely and optimistic scenario for the market.
Features of the loan portfolio frankowych Millennium seems to be similar to the general market situation, with an average ratio of debt to income estimated by Millennium at the level of 27 percent. (Compared to 20-25 per cent. For the whole market according to NBP) and 40 per cent. frankowych loans with loan-to-value ratio (LTV) above 100 percent. (Compared to 52 per cent. Market by KNF). Haitong Analysts note, however, that banks use different approaches to these estimates.
Author of the report: Kamil Stolarski, CFA, Analyst, Haitong Bank
The following new and previous recommendations for banks together with the target prices.
| new | Previous | new | previous | |
| recommendation | recommendation | Target price | price Target | |
| PKO BP | sell | neutral | 24 zł | 30 zł |
| Pekao | neutral | sell | 125 zł | 124 zł |
| BZ WBK | neutral | neutral | 280 zł | 260 zł |
| mBank | sell | neutral | 300 zł | 350 zł |
| Alior Bank | neutral | neutral | 53 zł | 52 zł |
| Bank Handlowy | neutral | buy | 77 zł | 77 zł |
| ING Bank Slaski | neutral | neutral | 143 zł | 126 zł |
| Bank Millennium | sell | neutral | 4,7 zł | 5 zł |
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