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BRD-GSG First Impression 2Q 2011

BRD-GSG's RAS stand-alone net profit blasted past our and, to a lesser degree, past consensus estimates, mainly on the back of lower provision charges which were the lowest for the past eight quarters.

This decrease in risk costs is due mostly to the RAS pro-cyclical nature regarding the set-up of provisions. On the other hand, operating profitability continued to deteriorate on a yearly basis.

Slow loan growth: After adjusting for the favourable currency effects, loan growth remains weak, only 0.2% qoq, with big corporates and refinancing for individuals accounting for the largest part of new production. Overall NIM, improved a bit from 1Q 11, helped by higher margin of T-bills portfolio but NIM without this portfolio continued to decline from 5.0% in 1Q to 4.7% despite higher EURIBOR and a cut in reserve requirements for FX.

C/I ratio at 48.5%: F&C were weaker than our estimate, probably due to the influence of Ordinance 50 while trading result was also below expectations due to a narrowing interest rate differential between RON and EUR. The main driver of non-interest expenses was the contribution to the Bank Deposit Guarantee Fund. We remind that 2Q is usually weaker for BRD-GSG in terms of profitability due to seasonal effect of salaries expenses, but nevertheless, C/I for the quarter was 48.5%, 1.8% higher than a year ago.

Risk costs easing significantly: As usual BRD-GSG has not provided an explanation for the evolution of risk costs. The bank said recently that possibly provisions have peaked in 1H 11. We expected risk costs to start the decrease in 2H and we also estimate that a slightly lower coverage ratio has contributed to this decrease in risk costs

Outlook and recommendation: While we are pleased with this faster than expected decrease in risk costs, we remind that under IFRS risk costs are not expected to drop as fast as under RAS. We view their evolution as a confirmation of fact that NPLs have peaked in 1H 11 but, we advise investors to pay attention also to the ongoing decreasing trend of operating profitability. We maintain our Buy rating for the stock and the 12m TP.

Sursa: http://www.rciro.ro

Tags: costs brd

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