Banca Transilvania First Impression 3Q 2011

NIM narrowed: TLV continued to expand its loan book at quite a fast pace while NIM narrowed to 4.5% from 4.6% in 2Q 11, apparently on higher funding costs. L/D ratio is at a comfortable level and decreased a bit to 77%.

Weak trading result: The bank's trading result barely stayed in black as TLV had to mark lower its shares trading portfolio while F&C had a modest performance. C/I ratio deteriorated significantly to over 57% on the back of higher non-interest expenses due to an expansion of network and increased headcount. Administrative expenses were up 12% yoy while salaries costs increased 4% yoy.

Lower risk costs due to RAS specificity: The bank said that it noticed a slower deterioration in the quality of its credit portfolio while risk costs of 245 bps were the lowest since 3Q 08. RAS provisioning methodology leads to a fast decrease of risk costs when NPLs start to grow slower. We also suspect a decrease of the coverage ratio. Tier1 ratio decreased to around 10.3% from around 10.8% as of end of June.

Outlook and recommendation: We view these results as only moderately positive since the drop in risk costs is most likely due to RAS pro-cyclical nature and a little premature considering that Romania's recovery is expected to remain weak. We cautioned at the beginning of the year that in late 2011 RAS provisioning might convey a better image which is not expected to be reflected similarly under IFRS. For the moment we intend to keep our Hold recommendation and our 12m TP for TLV shares.