Banca Transilvania: Net profit below our expectations due to surging provision charges

NIM reached 5.10%, a level not seen for almost three years, and 25 bps above our estimate. The other items were roughly in line with our estimates. Strong NII: Helped by this wider NIM and also by a 3.3% loan growth on a quarterly basis, NII was TLV’s highest ever. As expected F&C and trading gains were not impressive and the bank booked a RON 10.7 mn gain from its portfolio of treasury shares.

Operational profitability robust: Excluding that one-off like gain, cost/income ratio for the quarter stood at 48.4%, flat on 3Q 09, again a level not imaginable a few quarters ago. Salaries expenses were down both on a quarterly and on a yearly basis. Risk costs higher but better coverage ratio: TLV did not provide relevant info about its NPLs but we expect they went up from 14.3% to 16.3% (under RAS) while the coverage ratio increased from 33.6% to 41.2%.

Outlook and recommendation: We will try to get more info on this surge of risk costs, but most likely these results will prompt us to revise slightly lower our FY 2009 estimates under IFRS. On the other hand, the same results might warrant an upgrade of our NIM estimate for 2010. Therefore, for the moment we maintain our Hold rating and the 12m TP at RON 2.3 per share.

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