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BRD-GSG First Impression 3Q 2011

BRD-GSG's 3Q RAS results were weak across the board and came in below our and to a lesser degree consensus estimates. Risk costs went up, but the most disappointing was the deterioration of operating profitability, with lower revenues and higher non-interest expenses.

Narrowing NIM: Loan growth of 2.4% qoq was in-line with our estimate and L/D went up to 108.6% from 105.9% in 2Q 11. Total deposits were almost flat qoq but corporate deposits decreased 1.6% qoq. Liquid assets (i.e. cash with BNR, banks and T-bills) have decreased by RON 2.5 bn or 15% on a quarterly basis. NIM on interest earning assets for this quarter narrowed to 4.95% from 5.25% in 2Q 11.

C/I went up: F&C were somewhat stronger while trading result was extremely weak and the bank has not provided an explanation for their evolution. Non-interest expenses have accelerated their annual growth rate on the back of higher administrative expenses. C/I ratio for the quarter was 46.6% compared to 37.9% in 3Q 10.

Higher risk costs qoq: While we expected risk costs for the quarter to come down due to RAS provisioning specificity, they came in at 379 bps, higher than our estimate of 264 bps and above 2Q level of 324 bps. BRD-GSG has not disclosed any info about the evolution of the assets quality. Tier1 ratio according to local regulations stood at 12.1%.

Outlook and recommendation: The deterioration of operating profitability is worrying and the fast contraction of NIM does not bode well for the future. It seems that besides lower margin on the assets side, the bank is also feeling a pressure on the liabilities side. Our IFRS model is already assuming a deterioration of operating profitability for 2011 and 2012 and only a slight decrease in risk costs in 2011, but most likely we will revise somewhat lower our estimates for both 2011 and 2012. For the moment we keep our 'hold' recommendation for BRD-GSG shares and put our 12m TP of RON 13.0 under review.

Sursa: http://www.rciro.ro

Tags: brd bnr

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