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BRD-GSG First Impression FY 2010 - IFRS offers a better picture

BRD-GSG's FY 2010 consolidated results were in line with our estimates and slightly above consensus in terms of net profit. A lower than expected NIM has been outweighed by lower risk costs, despite higher than forecasted NPLs.

Loans contracted yoy: BRD-GSG's portfolio of gross loans contracted 0.7% yoy, slightly higher than our projection of 0.3% yoy, while loan/deposit ratio improved to 115.9% from 118.5% a year ago on the back of faster deposits growth. Total assets increased 2.8% yoy driven by a surging T-bills portfolio.

NIM below what RAS financials have suggested: NIM came in at 4.82% below our expectations of 5.24%. We suspect, as we have cautioned before, that under IFRS some interest revenues from overdue loans were not recognized, as opposed to RAS. F&C and trading income were in line with expectations.

Operating expenses better than expected: Due probably to a better performance at subsidiaries level, operating expenses were a bit below our projections and 5.2% below the 2009 figure, with both salaries and general expenses having a contribution in this respect.

Coverage ratio decreased: Risk costs stood at 252 bps which compares favourably with our projection of 291 bps, due to a decrease in coverage ratio. NPLs ended the year at 13.0% worse than our forecast of 10.6%, but the coverage ratio decreased from 50.3% to 37.1%. We believe that the decrease of coverage ratio is partially explained by the sale of bad loans.

Outlook and recommendation: For the moment we maintain our 12m TP for BRD-GSG and keep a 'buy' rating for the stock. We will probably increase our estimate for 2011 risk costs, but we maintain our view that a decrease in risk costs will more than compensate for deteriorating operating profitability.

2011 RAS budget: The bank has also published its 2011 budget based on RAS figures (partially consolidated). Thus, BRD-GSG is envisaging a loan growth between 0%-5%, lower than our estimate of 6.5% (under IFRS) while deposits are seen expanding with 5%-10% in line with our estimate of 7.7%. Banking income is expected to grow by around 5%, similar with our expectations under IFRS of +5.3% while operating expenses are also seen increasing by 5%, while we expect then to increase by 5.2%. Risk costs (under RAS) are budgeted 'flat or slightly lower' versus 2010 figure while bottom line is expected 'flat or slightly higher' on a yearly basis. We see a faster decrease of risk costs, corresponding to a slightly higher growth in net profit in 2011.

Sursa: http://www.rciro.ro

Tags: brd ratio while slightly better costs

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