December 18, 2018, Warsaw. Marta Czajkowska-Bałdyga, Analyst, Haitong Bank

Transcription

1 December 18, 2018, Warsaw Marta Czajkwska-Bałdyga, Analyst, Haitng Bank Haitng Bank in a reprt frm 17 th December (08:00) upgrades stck recmmendatins fr the banks: Bank Peka (Buy, FV dwn 1% t PLN 137.3) Alir Bank (Buy, FV dwn 9% t PLN 78.9) Santander Bank Plska (Buy, FV up 2% t PLN 398.2) PKO BP (Buy, FV up 5% t PLN 44.5) Bank Handlwy (Dwngrade t Neutral frm Buy, FV dwn 14% t FV PLN 67.7) ING (Neutral, FV dwn 5% t PLN 184.6) mbank (Dwngrade t Sell frm Neutral, FV dwn 8% t PLN 366.4) Bank Millennium (Dwngrade t Sell frm Neutral, FV dwn 7% t PLN 8.1) Valuatin Methdlgy PKO BP: f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages t individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum, 2) a reductin rate f 20%, 3) natural repayments at 5% p.a, 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f the existing value (sme 4% f ttal lans vs 10% nw), 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. We are aware that given the large number f assumptins this calculatin has a very high margin f errr. Subsequently we apply a market share weighted prtin f this lss per share t individual banks. Main assumptin changes: we apply a cst f equity f 8.5% (unchanged). We assume a terminal ROE fr PKO at 11.7% (vs 11.1% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisin: On the back f higher vlumes, nn-cre revenues and lwer net prvisining we have increased ur 2018 NI frecast by 4% t PLN 3.68bn (+19% YY). At the same time, we have lwered ur frecast fr sectr fee incme, which has left ur 2019E/20E net incme flat/dwn 2% t PLN 3.89bn (+6% YY) and PLN 4.51bn (+16% YY), respectively. Bank Peka: f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages t individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% p.a; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. Thus we are aware that given the number f assumptins this calculatin has a very high margin f errr. Subsequently we apply t an individual bank a market share weighted prtin f this lss per share. Main assumptin changes: we apply a cst f equity f 8.5% (unchanged). We rlled the mdel ut t 2022E and thus we assume a terminal ROE fr PEO at 12.9% (vs 13.7% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: On the back f slwer market share gains, which lead t lwer prvisining, as well as slwer cst cutting initiatives, but als incrprating the NPL prtfli sale in 4Q18 (sme PLN 50m pre-tax impact) we increase 2018E NI by 3%, but lwer E NI by -5%/-3%. We frecast net earnings f PLN 2.18bn (-12% YY/+2% YY adjusted) in 2018E, PLN 2.37bn (+9% YY) in 2019E and PLN 2.84bn (+19% YY) in 2020E. Santander Bank Plska:

2 f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages fr individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% pa; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. We are aware that given the large number f assumptins this calculatin has a very high margin f errr. Subsequently, we apply a market share weighted prtin f this lss per share t the individual banks. Main assumptin changes: We apply a cst f equity f 8.5% (unchanged). We rlled the mdel ver t 2022E and thus we assume a terminal ROE at 12.8% (vs 13.0% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: We lwered ur 2018E net prfit by 3% t PLN 2.53bn (+14% YY, this includes an expected PLN 525m gain n the purchase f DB assets). Our 2019E-20E frecasts are dwn by -2% t PLN 2.71bn (+7% y/y, +24% adj.) and -2% t PLN 3.12bn (+15% y/y), respectively, n the back f frecast lwer NII, higher perating expenses and a smewhat higher cst f risk. mbank: CHF bill adjustment: We estimate a ttal PLN 6.53bn cumulative lss fr the banking sectr stemming frm restructuring f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages fr individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% pa; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. We are aware that given the large number f assumptins this calculatin has a very high margin f errr. Subsequently, we apply a market share weighted prtin f this lss per share t individual banks. Main assumptin changes: we apply a cst f equity f 9.0% (unchanged). We assume a terminal ROE at 9.9% (vs 10.3% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: Fllwing a better-than-expected NIM but at the same time higher risk csts and pressure n fee incme fllwing the sale f mfinance assets, we have revised dwnwards ur 2018E reprted net prfit by 5% (-4% adjusted) t PLN 1.33bn (+21% YY, +3% YY adjusted). Our 2019E-20E NI frecasts drp by -8% t PLN 1.27bn (-4% YY, +13% adjusted) and -7% t PLN 1.53bn (+20% YY), respectively, n the back f a higher cst f risk which has ffset strnger vlumes and higher expected NII. ING: f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages t individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% p.a; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f existing value (sme 4% f ttal lans vs 10% nw); 5) stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. Thus we are aware that given the number f assumptins this calculatin has a very high margin f errr. Subsequently we apply t each individual bank a market share weighted prtin f this lss per share. Main assumptin changes: we apply a cst f equity f 8.5% (unchanged). We assume a terminal ROE fr ING f 13.2% (vs 14.1% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisin: Our 2018E-20E frecasts are dwn -3%/-9%/-6% t PLN 1.47bn (+5% YY) / PLN 1.59bn (+8% YY) / PLN 1.86bn (+17% YY), respectively, n the back f higher perating expenses and net prvisining. Bank Millennium: Valuatin: We use a Dividend Discunt Mdel (DDM) with a 30% weighting and a Plish banks peer multiples analysis with a 70% weighting t value Plish banks (changed frm 50%-50%). Our FV is based n the weighted average f these tw methdlgies. CHF bill adjustment: We estimate a ttal PLN 6.53bn (flat) cumulative lss fr the banking sectr stemming frm restructuring f the CHF prtfli. Taking int

3 accunt a prtfli f CHF mrtgages t individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% p.a; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); 5) stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. Thus we are aware that given the number f assumptins this calculatin has a very high margin f errr. Subsequently we apply a market share weighted prtin f this lss per share t each individual bank. Main assumptin changes: we apply a cst f equity f 9.5% (unchanged).we assume a terminal ROE fr MIL at 12.0% (vs 10.4% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: Fllwing 3Q18 results, which were bradly in line with expectatins, ur 2018E NI is unchanged at PLN 745m (+9% YY). Incrprating Eurbank means ur 2019E frecast drps by 22% t PLN 655m (-12% YY) and in 2020E rises by 9% YY t PLN 1.05bn (+60% YY) (Eurbank cnslidatin since 4Q19). Alir Bank: a 50% weighting t value Alir. Our FV is based n the weighted average f these tw methdlgies. Sensitivity: We prvide tw sensitivity analyses fr ur fair value estimate wherein we examine tw sets f variables: (i) ROE and perpetuity grwth rates; and (ii) equity risk premium and the risk-free rate. CHF bill adjustment: We estimate a ttal PLN 6.53bn cumulative lss fr the banking sectr stemming frm restructuring f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages t individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum; 2) a reductin rate f 20%; 3) natural repayments at 5% p.a; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. Thus we are aware that given the number f assumptins this calculatin has a very high margin f errr. Subsequently we apply t each individual bank a market share weighted prtin f this lss per share i.e. PLN 0.1 per share at Alir Bank. Main assumptin changes: we apply a cst f equity f 9.0% (unchanged). We assume a terminal ROE at 12.0% (vs 12.5% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: We have revised ur 2018E-20E NI frecasts by -6%/-14%/- 14%, respectively. The main swing factr is higher net prvisining (+8%/+6%/+4%), which we decided t treat as a recurring factr given its expsure t the SME segment, cntrary t management assumptins. We have als lwered nn-interest incme due t wrse vlumes and the pr utlk fr capital market-related fees. Csts savings frm the merger with BPH seems t be n track. We have cut ur expectatins cncerning mrtgage lan expansin, which have perfrmed wrse than expected in 9M18. Bank Handlwy: a 50% weighting t value Plish banks. Our FV is based n the weighted average f these tw methdlgies. CHF bill adjustment: We estimate a ttal PLN 6.53bn (flat) cumulative lss fr the banking sectr stemming frm restructuring f the CHF prtfli. Taking int accunt a prtfli f CHF mrtgages fr individuals at PLN 107bn (December 2017), assuming: 1) a charge t the fund at a max level f 2% per annum, 2) a reductin rate f 20%; 3) natural repayments at 5% p.a; 4) a 5 year hrizn (until 2022), which wuld imply lwering the prtfli t rughly 50% f its existing value (sme 4% f ttal lans vs 10% nw); and 5) a stable FX rate at CHF/PLN 3.56; we estimate a ttal cumulative lss fr the system at PLN 6.53bn. We are aware that given the large number f assumptins this calculatin has a very high margin f errr. Subsequently we apply a market share weighted prtin f this lss per share fr individual banks. Main assumptin changes: we apply a cst f equity f 8.5% (unchanged). We assume a terminal ROE fr BHW f 11.0% (vs 12.5% befre). We use a risk-free rate f 3.5% (based n the 10Y Plish Gvernment Bnd Yield). Frecast revisins: Fllwing wrse-than-expected trading and fee incme in 3Q18, we have lwered ur 2018E net prfit by 1% t PLN 652m (+22% YY). Our 2019E-20E NI frecasts fall by -5% t PLN 642m (-2% y/y) and -4% t PLN 735m (+15% y/y), respectively, n the back f lwer cre revenues partly ffset by higher trading incme and smewhat higher net prvisining. Risks t Fair Value PKO BP: Macr related: Risks f a different macrecnmic scenari including: i) interest rates; ii) asset quality/cst f risk; Interest rate related: Material difference in size and timing f Central Bank interest rate changes versus ur base assumptin, i.e. 50bp interest rate rise in (PKO has the secnd highest sensitivity amng Plish banks). Funding csts Cmpetitive rise in depsit rates and/r relatively high share f whlesale funding whse pricing is vulnerable t glbal market sentiment and may prvide dwnside risk.

4 FX rate: Relatively high expsure t FX risk f its CHF mrtgage prtfli (PKO BP has a 19% market share in the CHF mrtgage market with a lan bk f PLN 23.5bn accunting fr 11% f its lan bk and 61% f equity). Dividend: Scenari f a 50% dividend pay-ut might nt materialize r PFSA may sften/temper the dividend payut criteria. Regulatry risk CHF mrtgages: The restructuring f freign currency husing lans may nt materialize, may be dne in a different way t ur base scenari r/and additinal csts, i.e. spread bill. Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial Vlume grwth significantly belw/abve ur expectatins Ownership related: PKO is state cntrlled (29.43%), thus we see a risk f nn market-riented decisins. Lately, the press has reprted (surce: Parkiet Daily) that the bank culd ptentially becme invlved in the reslutin f the sectr s liquidity prblems caused by the nging bribery scandal (including being the lender f last resrt). Change in market sentiment t risk n, with a preference fr dividend stcks (dwnside) Bank Peka: Macr related: Risk f different macrecnmic scenari including: i) interest rates ii) assets quality/cst f risk, Dividends: Any further cuts t the PEO s dividend plicy, in the event f ptential acquisitin r changes t the regulatins. Vlume grwth significantly belw/abve ur expectatins Strategic targets related: We assume PEO delivers n its 2020 strategic targets (ROE, C/I), giving the relatively new management the benefit f the dubt. Lwer assets quality: As it cmes with faster grwth f vlumes, PEO might cmprmise n the risk taken. Mrever PEO targets higher yield cnsumer lans and SMEs, i.e. segments where the risk is naturally higher. Acquisitin related: PEO finished talks with ALR with n merger cncluded. Hwever PEO s capital buffer makes it ptentially attractive t ther cmpanies seeking t d M&A. Therefre risks f verpaying fr assets and/r nt delivering upn ptential synergy targets persist. Regulatry risk Any new regulatry requirements cncerning minimum adequacy ratis/and/r dividends. Lately, the press has reprted (surce: Parkiet Daily) that the bank culd ptentially becme invlved in the reslutin f the sectr s liquidity prblems caused by the nging bribery scandal (including being the lender f last resrt). Ownership related: PEO is indirectly state cntrlled (via PZU and PFR cntrlling), thus we see a risk f nn-market riented decisins. Ptential share verhang: Althugh recently denied by PFR, lwering f the dividend payut belw 100% culd trigger a decisin by PFR t withdraw frm its investment (12.8% stake). Accrding t recent statement frm PZU s CFO, the cmpany is cmmitted t Bank Peka as a strategic investment and therefre it wuld pick up any ptential stake supply frm c-wner PFR. Change in the market-wise sentiment twards dividend stcks Santander Bank Plska: Macr related: Risks f a different macrecnmic scenari including: i) interest rates; ii) assets quality/cst f risk; Funding csts Cmpetitive rise in depsit rates. With the acquisitin f DB assets, its liquidity psitin may be squeezed. Thus it may ptentially need t raise funds, pssibly bth in depsits and whlesale. FX rate: Expsure t FX risk f its CHF mrtgage prtfli (sme 10% f the lan bk). Appreciatin f CHF may lead t further pressure n its liquidity psitin. Merger related: Given the acquisitin f DB assets (0.6x P/B), we see a risk f delivery f strategy csts and synergies. Capital market related: The relatively higher revenue expsure t capital market related fees culd be at risk with changing market cnditins. Dividend: Scenari f 50% dividend pay-ut might nt materialize. Cst f risk: SCB cnsumer finance lan bk prvides abve average risk t the retail nn-mrtgage bk cst f risk assumptins.

5 Regulatry risk CHF mrtgages: The restructuring f freign currency husing lans in a different way t ur base scenari and/r additinal csts, i.e. spread bill. We estimate the maximum cst f a CHF bill that BZW culd bear fr the bank t still be able t reprt a CET1 abve the minimum required by the KNF f 12.0% (nt taking int cnsideratin a change in the risk weights frm 150% n FX mrtgages t belw 100% n PLN mrtgages) is PLN 4.5bn, which implies a 42% haircut f its CHF prtfli. Based n a CHF mrtgage bk f PLN 10.9bn reprted in 1H18, taking int accunt the presidential prpsal (under the assumptin f a cntributin at a max. rate f 2% FX bk p.a.), the first year cntributin f PLN 0.18bn, i.e. 7% f 2019E NI, is nt included in ur frecast. Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends. Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial.. mbank: Macr related: Risks f a different macrecnmic scenari including: i) interest rates; ii) asset quality/cst f risk; Funding csts: Cmpetitive rise in depsit rates. FX rate: Relatively high expsure t FX risk f its CHF mrtgage prtfli (22% f lan bk). Cst f risk: Sensitivity f NI t changes in the cst f risk is strnger than average. Dividend: Higher-than-expected near-term dividend culd materialise. Regulatry risk CHF mrtgages: The restructuring f freign currency husing lans in a different way t ur base scenari and/r additinal csts, i.e. spread bill. We estimate the maximum cst f a CHF bill that MBK culd bear and still be able t reprt CET1 abve the minimum required by the KNF f 12.0% at PLN 3.22bn, which implies an 18% haircut in its CHF prtfli. Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends. Increase in LGD ratis fr banks using IRB methdlgy, raising min. requirements (in line with the Financial Stability Cmmittee Recmmendatin f 13 January 2017). Regulatry risk: Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial.. Change in market sentiment t risk n, with dividend stcks preferred. ING: Macr related: Risk f different macrecnmic scenari including: i) interest rates ii) assets quality/cst f risk, Cmpetitin: Intensified cmpetitin fr lans/depsits resulting in lwer spreads n assets/liabilities Vlume grwth significantly belw/abve ur expectatins Cst f risk: With abve average grwth f market share, the risk f deterirating assets quality and/r rising cst f risk persist. Dividends: The risk that ING might need t further limit dividend payuts given its B/S grwth. Upside risk that the cmpany will increase its payut rati given lwer lending vlume grwth Regulatry risk Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial Change in the market-wise sentiment twards stcks with high dividend yield Lw liquidity Bank Millennium: Macr related: Risk f different macrecnmic scenaris including: i) interest rates; ii) assets quality/cst f risk; NIM expansin faster NIM expansin due t ptentially higher assets spreads culd lead t higher earnings; Funding csts Cmpetitive rise in depsit rates culd lead t NIM narrwing; Better assets quality culd lead t a lwer cst f risk, which wuld have a psitive impact n earnings; Regulatry risk

6 CHF mrtgages: The restructuring f freign currency husing lans a different way t ur base scenari r/and additinal csts, i.e. spread bill. We estimate the maximum cst f a CHF bill that MIL culd bear fr it t still be able t reprt a CET1 abve the minimum required by the KNF f % t be PLN 2.9bn, which implies a 21% cut in its CHF prtfli; Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends; Increase in LGD ratis fr banks using the IRB methdlgy, rising min. requirements, in line with the Financial Stability Cmmittee Recmmendatin f 13 January 2017; FX rate: Relatively high expsure t FX risk f its CHF mrtgage prtfli (sme 30% f lan bk). CHF depreciatin helps the bank liquidity psitin, while CHF appreciatin shrts the bank s liquidity psitin; Dividend: Slwer than expected return t dividend payments, as we expect first dividends t be paid frm 2019 net prfit; Merger related: Given the pending acquisitin f Eurbank assets (1.2x P/B), we see a risk f delivery f strategy csts and synergies. Regulatry risk: Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial institutin (SKOK segment) may lead t a larger cntributin t the BFG fund. Vlume grwth significantly belw/abve ur expectatins; Change in the market-wise sentiment t risk n, with dividend stcks preferred Alir Bank: Macr related: Risk f different macrecnmic scenari including: i) interest rates; ii) assets quality/cst f risk; Dividend: Faster than expected return t dividend payment. Strategic targets related: We assume ALR des nt deliver n its 2020 strategic target ROE. Acquisitin related: Althugh the talks with PEO cncerning a ptential merger had been cancelled, the press cntinues t speculate that ALR may be invlved in further acquisitins f trubled banks and financial institutins in Pland, including BOS Bank with a lw ROE and lw capital adequacy rati (Puls Biznesu, Nvember 8, 2018), and ther savings unins, i.e. SKOK Jawrzn (Puls Biznesu, Nvember 28, 2018) Regulatry risk Any new regulatry requirements cncerning minimum adequacy ratis. Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial ALR culd be facing a fine frm the KNF regarding the WI Investment. Althugh it is hard t assess the ptential KNF fine, Raiffeisen was recently fined PLN 50m in that case. This wuld imply 5% f 2018E net prfit. Asset quality Relatively higher risk appetite reflected in its higher than-average cst f risk and NPLs. Ownership related: ALR is indirectly state-cntrlled (via PZU % stake), thus we see a risk f nn-market riented decisins. Risk f nging changes t the management bard (3rd CEO since acquisitin) Capital needs: Any ptential increase in appetite fr lan grwth (PLN 5bn-PLN 6bn net is expected annually) culd trigger a capital increase given its mst mdest margin in relatin t the minimum requirements. Change in market-wise sentiment twards dividend stcks. Bank Handlwy: Macr related: Risks f a different macrecnmic scenari including: i) interest rates; ii) assets quality/cst f risk; Interest rate related: Material difference in the size and timing f Central Bank interest rate changes versus ur base assumptin, i.e. a 25bps interest rate rise in (BHW has the highest sensitivity amng Plish banks). Equity market develpment sme 40% f fee incme cmes frm the equity market related business, thus it is sensitive t market cnditins. Trading incme vlatility: Abve-average sensitivity t trading incme, which is vlatile in nature, carries upside/dwnside risk t earnings Dividends: Risk that BHW might need t limit dividend payuts (belw 75%) due t regulatry changes / pssibility that BHW will be able t imprve the dividend t abve 75%. Securities yield curve: Abve-average sensitivity f NII t securities incme carries risks in the event f a lwer/higher than anticipated yield n securities. Regulatry risk Any new regulatry requirements cncerning minimum adequacy ratis and/r dividends.

7 Ptential liquidity squeeze in the banking sectr (cmmercial / cperative segment) and financial. Change in market sentiment twards dividend stcks (upside risk). IMPORTANT DISCLOSURES Please find updated IMPORTANT DISCLOSURES at: