Czech and Polish banks see third-quarter earnings growth and lower risk costs amid broader recovery

Most of the major banks in Poland, the Czech Republic and Hungary posted higher profits in the third quarter, with central bank interest rate hikes in some economies expected to have a positive impact going forward.

Komercní banka as recorded the largest year-on-year increase in net profit in a sample of nine banks, rising 108.5% to CZK 3.4 billion from CZK 1.6 billion a year ago . That beat consensus analyst estimates by more than 10%, according to data from S&P Global Market Intelligence.

Ceskoslovenská obchodní banka asalso known as ČSOB, reported 75.0% growth in net profit in the third quarter, and 84% growth for the first nine months of 2021 – the highest in the sample.

PKO Bank Polski SA, based in Poland class second in terms of net profit growth in the third quarter, at 76.8%, with a total of 1.26 billion zlotys also beating analysts’ expectations. Countryman Polish Bank mBank SA’s quarterly net profit fell year-on-year, hit by legal risk arrangement linked to exposure to Swiss franc mortgages, but it posted a profit of 26.6 million zlotys for the period and beat analysts’ estimates by almost 25%. Polish banks could face additional costs related to mortgages denominated in Swiss francs.

Komercní, ČSOB and mBank belong to The French bank Société Générale SA, the Belgian KBC Group NV and the German Commerzbank AG, respectively.

The cost of risk is falling

Poland’s GDP is expected to grow by 4.9% in 2021 and 5.2% in 2022, while that of the Czech Republic is expected to grow by 3.0% and 4.4% respectively, according to the European Commission. The performance of the countries’ major banks was positively impacted by the recovery in interest income and the growth in commission income.

All the banks in the sample, except PKO Bank Polski, recorded a decrease in the cost of risk, reflecting lower provisions for loan losses – in the first nine months of 2021, compared to the same period of 2020. ČSOB registered the largest drop of 1.11 percentage points. OTP Bank Nyrt, based in Hungary. posted the second highest risk reduction cost of 0.91 percentage points.

Bank Polska Kasa Opieki SA based in Polandalso known as Bank Pekao, Santander Bank Polska SA and ING Group SA unity ING Bank Slaski SA recorded the smallest improvements in their costs of risk.

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Outlook

Central European authorities have raised policy interest rates to curb inflation, and financial institutions expect this to have a positive impact on their results, although the potential benefits of further rate hikes could be mitigated by rising deposit costs.

Poland has raised rates by 0.1% to 1.25% in recent weeks, which is expected to lead to a 40% year-on-year increase in Santander Bank Polska’s net profit in 2022, according to the daily. Polish Park reported, citing analysts. Bank Pekao’s 2022 net profit could grow by 31%, while those of PKO Bank Polski and ING Bank Śląski could increase by 25% year-on-year, the newspaper noted.

The Czech Republic also raised rates to 2.75%. Ceská sporitelna’s financial outlook update for 2021 as the parent company of Erste Group Bank AG, fueled by a V-shaped economic recovery in the Czech Republic and other key markets, recently prompted analysts at Citi to raise EPS estimates for the Austrian lender by 10% for 2021, 6% in 2022 and 2% in 2023.

OTP Bank executives said in a Nov. 5 earnings call that another potential 10 basis point rate hike by Hungary’s central bank could add another 300 million Hungarian forints to 500 million forints to the lender’s net interest income on an annual basis, but the impact of a larger rate increase would be difficult for the bank to estimate. On November 16, the central bank raised its rates by 30 basis points, to 2.1% against 1.8%.

As of November 17, US$1 was equivalent to 22.31 Czech crowns, 322.39 Hungarian forints and 4.12 Polish zlotys.