BRD GSG First Impression 4Q 2009

Surging NIM: NIM for the quarter stood at 4.2%, the highest level in more than two years as the refinancing costs eased further. Gross loans expanded around 1% on the quarter but T-bills portfolio shrank. As expected the F&C were sluggish but trading income contracted, probably due to unfavourable evolutions on the FX and money markets.

Lower operating profitability: While personnel expenses were contained, the administrative expenses were disappointing, surging 21% yoy and 31% qoq. For the moment the bank has not provided additional details. Cost/income ratio for the quarter stood at 42.8% versus 37.0% a year before.

A new peak in risk costs: The bank said that NPLs under RAS as of end-Nov were 10.54%, below the market average of 15.39% (we expected NPLs under RAS at 11.77% as of end-2009). Annualized risk costs for the quarter stood at 4.58%, suggesting a better coverage ratio. For the next quarters BRD-GSG expects a slowing down in the growth of NPLs. Solvency ratio was 12.2% after taking into consideration the effect of the planned write down of some real estate assets.

FY 2009 unconsolidated RAS profit was RON 792 mn, while partially consolidated bottom line stood at RON 812 mn.

Outlook and recommendation: We will probably revise slightly down our FY 2009 IFRS estimate but, for the moment we maintain our rating and target price for BRD-GSG. We will also downgrade our 2009e DPS from around RON 0.55 to RON 0.48.