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BRD-GSG First Impression 3Q 2010

BRD-GSG's 3Q 10 unconsolidated RAS results came in well below our and consensus estimates on the back of surging risk costs while operating result was in accordance with the estimates.

Robust NIM: Driven by a stronger RON against EUR, gross loans shrank by 1% qoq while deposits contracted 3.8% qoq, driving the loans/deposits ratio higher to 108%. Starting with this quarter the bank has reclassified its trading T-bills portfolio into AFS (Available For Sale). That is why NII is not directly comparable with past figures since interest revenues from this portfolio used to be booked under trading result. It seems that NIM (excluding T-bills portfolio) went slightly up to 5.49% from 5.39%.

Sluggish F&C: Facing a weak demand environment and increasing competition, BRD-GSG's F&C were as expected sluggish. Trading revenues had a weak rebound and, as explained above, they are not directly comparable with past figures and our estimates.

Higher non-interest expenses: On the back of higher salaries costs, general expenses went up while cost/income ratio for the quarter stood at 37.9% compared to 37.1% in 3Q 09. Headcount was 0.5% yoy higher, but salaries expenses increased by 4.2%.

Surging risk costs: BRD-GSG has not disclosed the level of its NPLs which almost certainly increased during the quarter but we expect the bank to have also raised the coverage ratio. It seems that BRD-GSG has built up provisions above the regulatory requirement since its effective tax rate was higher than 16%. Tier 1 ratio according to local regulations was 11.6%.

Outlook and recommendation: While these RAS results were disappointing, they do not change substantially our view on the FY 2010 IFRS figures where we see enhanced operational profitability to mitigate the higher risk costs. We keep our TP and rating for BRD-GSG stock.

Sursa: http://www.rciro.ro

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