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BRD-GSG Impression 4Q 2010

BRD-GGS has released its 4Q 10 RAS unconsolidated results which were significantly below our and consensus estimates, profitability wise, due to higher risk costs. Despite the fact that NPLs formation does not seem to have accelerated, risk costs were driven up by a downward revaluation of the collateral and by the ongoing trend among some SMEs to appeal to the insolvency law.

Loan book shrank: BRD-GSG has underperformed the market with gross loans contracting 1.7% qoq which combined with a 0.5% qoq decrease of deposits base, improved the loans/deposits ratio to 106.9%. The bank's T-bills portfolio grew by only 5.9% qoq, BRD-GSG preferring to park its extra liquidity in deposits with Central Bank.

NIM remains strong: NII is not fully comparable with previous quarters, since starting with 3Q 10 the bank has classified its T-bills portfolio as AFS and booked its interest income from trading to NII. On a quarterly basis NIM (excluding T-bills portfolio) was flat at 5.27%. The bank said that F&C suffered due to a lower number of clients' transactions while trading income was weaker than our estimate, being mitigated by larger other income. BRD-GSG has not disclosed yet any info about the latter.

Still impressive cost/income: Despite higher non-interest expenses than our estimates, due to an outburst of administrative costs, cost/income ratio for the quarter stood at an appealing 42.2%, lower than the level of 43.9% in 4Q 09.

Lower NPLs than the sector: The bank said that its NPLs (loans with overdues more than 90 days and/where legal procedures have been initiated) stood at 9.13% lower than the average for the banking sector which was 11.85%. The management said it was expecting flat risk costs in the first half of the year and a decrease during the second half.

Outlook and recommendation: We will try to gather further info and we will probably revise lower our FY 2010 IFRS estimates. We remind investors that currently there are big discrepancies between IFRS and RAS results due to the stricter provisioning rules under the latter. We maintain our view that BRD-GSG is attractive at these levels and that 2011 will bring an improvement of the profitability on the back of the decrease of risk costs. Therefore, we put our TP under review but maintain our Buy rating for the stock.

Sursa: http://www.rciro.ro

Tags: brd lower costs income

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