Banca Transilvania - Weak bottom line but encouraging NPLs

Loan growth slowed down: Loan growth for the quarter stood at 2.6% qoq inline with our estimate, while L/D ratio improved to around 75.4% from 76.7% in 3Q 11, on the back of a faster growth in deposits. T-bills portfolio surged by 30% to around RON 5.3 bn. This might be the reason for the narrowing of NIM on IEA to 4.34% from 4.47% in 3Q.

C/I ratio of 51.5%: F&C were better than expectations most likely on a higher client activity (up 11% yoy compared to 10.1% yoy in 3Q 11) while trading result was disappointing. We expected a stronger impact from the bank's trading portfolio (shares) after the negative contribution in the previous quarter. Operating expenses were slightly below expectations, despite the fact that a higher headcount, larger network (+7 outlets qoq) and weaker RON worked against it. C/I ratio stood at 51.5%, not surprisingly higher than the level of 49.3% from a year ago but lower than the figure of 57.4% from 3Q 11.

Higher coverage ratio: Apparently, according to the data provided by TLV, its NPLs were a hair below the level of 3Q 11, the first time this has happened during the past three years. We expected that a higher coverage ratio, after the drop from 3Q 11, would drive risk costs higher but its growth was faster than our estimate. Risk costs for the quarter stood at 388 bps. Based on data provided, Tier 1 ratio was 10.6% compared to 10.3% as of September 2011.

Outlook and recommendation: While we are disappointed by these results, we take comfort in the encouraging evolution of NPLs. We do not consider that we have to significantly alter our projections for FY 2011 IFRS results since, when we issued the update, our projection for trading results was gloomier. Therefore, we keep our 12m TP of RON 1.18 but we put under review our 'buy' rating for the share and intend to downgrade it to 'hold' considering also the strong performance of the stock over the past weeks.

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