CEE Banks - Sector Report
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8 Decembrie 2011 |
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RAIFFEISEN BANK S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
011857 Bucureşti, Sector 1
Telefon
+40-21-306.10.00
+40-21-306.15.54
Fax
+40-21-230.07.00
Website
www.raiffeisen.ro
CEE headwinds to continue, but a lot priced in
Based on the revision of our GDP forecast for our coverage universe – where our macro team expects either meagre growth or recession except from Poland – we have cut our EPS estimates by 18% on average. Nearly all banking sectors in CEE are unlikely to expand at the rates seen precrisis. Firstly, a lot of the catching-up potential in terms of credit-to-GDP ratios has been already consumed in the last strong upcycle. Secondly, some CEE markets are already overexposed with regard to their overall credit-to-GDP ratio or in single business segments. Starting from best to worst mid-term relative growth outlook we rank Poland, Czech Republic, Serbia, Romania, Slovenia and Hungary.
We would use the recent correction to provide quite a colourful recommendation basket. With a total of seven buys, four holds and four reduce/sell calls, we take some sort of a cautiously positive stance for the sector. We still expect uncertain news-flow until mid 2012, when the EBA triggered recapitalisation wave should be completed.
Today, we can say that some stocks reflect a more negative scenario compared to our base case which we would use as entry points for the likes of Erste and OTP, particular with respect to the current Hungarian challenge. We therefore upgrade Erste from “hold” to “buy” as we believe that further steps by the Hungarian government and a likely capital increase have at least partly been digested by the market in recent weeks. Within Polish banks we would prefer Pekao on good funding and loan growth revival, PKO on its attractive valuation and Getin, speculating on more visibility towards asset quality. Our least preferred banks are BGZ and Bank Millennium.
For the SEE region, we take a pretty cautious stance due to high macro sensitivity on the Eurozone turbulences but fundamentally see a solid mix of moderate growth, profitability and capitalisation. We pick up Serbian banks again and at this stage prefer AIK over KMB on higher discount, excessive capital, strong efficiency and the share buyback programme. In Romania we would advise adding positions in TLV on expected market share gains, lower FX exposure and good local funding base. Despite being the weakest performer ytd and trading on record lows, we downgrade NKBM to "sell" due to pressures from all sides: funding & liquidity, lack of loan growth, asset quality and tight capitalisation combined with Slovenian sovereign exposure.
Valuation
Appealing valuations, but uncertain news-flow in the short term
We would use the recent correction to provide a quite colourful recommendation basket in our enlarged coverage universe. With a total of 7 buys, 4 holds and 4 underweight calls, we take something like a cautiously positive stance for the sector outlook for the next 12 months, eventhough we might see not necessarily positive news-flow until mid 2012 with respect to recapitalisation needs for the European banks triggered by the recent EBA requirement. Today, we dare to say that some stocks reflect a more negative scenario compared to our base case which we would use as attractive entry points for the likes of Erste and OTP. Polish banks should keep trading on a premium over the rest of the sector in the regional context, as Poland should prove strong vs. external shocks but the current premium of ca. 22% on P/E and 35 % on P/B to the rest might limit the upside fantasy, in addition challenged by more attractive Turkish and Russian banks (based on Bloomberg data). For the SEE region, we take a pretty cautious stance due to high macro sensitivity on the Eurozone turbulences and still very moderate stock liquidity but fundamentally find a solid mix of moderate growth, profitability generation and capitalisation.
Erste, Pekao, AIK, TLV upgraded to buy
From our basket we upgraded Erste, Pekao and TLV from “hold” to “buy” and re-start Serbian coverage preferring AIK (“buy”) over KMB (“reduce”). Our least preferred stocks in our coverage universe are NKBM (from “buy” to “sell” on funding, asset quality, capital), Bank Millennium (from “hold” to “reduce” on funding) and BGZ (from “hold” to “sell” on funding, cost control and capital erosion).
CEE banking markets: mid-term outlook
We summarize here some thoughts from our macro team on the most important banking markets from our coverage universe which were published in the 2011 edition of our Banking Report on November 8.
Poland: no recession, slowdown of lending growth to 8-10%
We believe that loan growth rates in high single-digit or low double-digit territory are within reach from a medium-term perspective (8-11% yoy in EUR-terms) as mortgage and corporate lending still look underpenetrated. Recession will be avoided in 2012, with 2-3% GDP growth yoy expected for 2012 and 2013. However, avoiding recession should be sufficient to avoid another round of substantial NPL flows. The deteriorating economic environment should also open the way for rate cuts in 2012. We expect at least 50bp in rate cuts in 1H 2012. In line with our monetary policy call and overall economic outlook the yield curve is likely to flatten, which may weigh on the banking sector profitability. With regard to the Zloty, from a short-term perspective the Zloty should hover around its current levels, while some appreciation potential towards a EUR/PLN level of 4.00-4.10 seems likely in 2012.
