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Banks’ results in the second quarter of 2021 better than expected. The reason is lower reserves and higher activity

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After the second quarter of 2021, the results of six listed banks are a quarter higher than market expectations. The improvement is mainly the result of lower provisions, because the quality of the loan portfolio did not deteriorate significantly despite COVID-19. Moreover, the banks’ results show higher customer activity.

So far, the results for the second quarter have been reported by six listed banks: Bank Millennium, Santander Bank Polska, mBank, Bank Pekao, Alior Bank and ING Bank Śląski.

Analysts on banks’ results for the second quarter

– Banks in the second quarter report phenomenal results due to concerns that we had a year ago – said Santander BM analyst Kamil Stolarski.

– Banks’ profit in this period was higher than consensus due to lower than assumed costs of risk and higher net fee and commission income. The results show higher activity of bank customers – he added.

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Most banks reported results several percent better than market expectations, and Santander’s profit exceeded the consensus by over 100 percent. Bank Millennium’s results were close to the consensus and only mBank reported worse than expected results.

The net profit of these banks amounted to nearly PLN 1.5 billion, so it was a quarter higher than the consensus. The better result is mainly due to the lower by 14 percent. from the expectations of the reserve and higher by 3 percent. net fee and commission income. Interest income and operating expenses have so far been in line with analysts’ earlier estimates.

The total net profit of 6 banks in the second quarter of 2021 compared to the PAP Biznes consensusPAP Biznes

Banks’ results in the second quarter are close to 180 percent. higher than a year ago, but this dynamics is mainly due to Alior Bank’s net loss of nearly 600 million last year. Compared to the first quarter, these banks showed more than 60 percent better results. and owe it to lower costs and reserves.

As expected, the second quarter is another period of high provisions for CHF mortgage portfolios. So far, banks have informed about provisions for this legal risk in the total amount of nearly PLN 800 million.

Banks’ results in the second quarter of 2021 – analysis

The interest income of the banks that have already reported the results for the second quarter of 2021 decreased by about 1 percent. year on year, but it is already 2 percent. higher than in the first quarter of 2021.

When presenting the results for the last quarter, banks’ management boards often pointed out that after last year’s interest rate cuts, the banks had already reached the bottom of their interest income and that the following quarters should bring further growth of this income line. Interest income increases were signaled by Bank Millennium, Santander, mBank and Alior Bank.

– Interest income in the second quarter was close to consensus, and the 2% improvement quarter on quarter was mainly due to the longer quarter and higher loan volumes – said Stolarski.

Banks’ income from fees and commissions

On the other hand, significant increases were recorded in the result on fees and commissions, the second basic line of income of banks. This result increased by 23%. yoy and nearly 3 percent. on a quarterly basis. Banks owe the increase in this line mainly to solid commission income from loans, cards and account servicing.

– Strong dynamics can be seen in the vast majority of lines, partly due to higher and new fees charged by banks, and partly due to greater transactionality and greater demand for a mortgage – said Stolarski.

– Account fees are increasing an average of 30 percent year on year, asset management fees are increasing 25 percent, credit fees are 23 percent, and the exchange rate is 24 percent higher. Fees related to brokerage activities, which were the driving force in the previous year, are several percent lower on a year-to-year basis, he added.

Banks in the second quarter report high sales of retail and mortgage loans. In the case of the latter, sales are often at record levels.

Declines in reserves, higher costs

Banks’ reserves in the second quarter are at a better level than previously estimated by the market, but they are also much lower both year-on-year and quarter-on-quarter.

– Risk costs are more than half lower year on year. Credit quality has not deteriorated significantly despite COVID-19. Provisions booked in 2020 are partially released, the NPL (non-performing loans) sales market has unlocked, said Stolarski.

In 2020, banks, in addition to “ordinary” provisions related to the current quality of the loan portfolio, also began to establish statistical (resulting from the estimated impact of the macroeconomic scenario adopted by the bank on the quality of the loan portfolio) provisions related to COVID-19.

Banking reports for the second quarter show that the pandemic has not brought a significant change in the quality of the loan portfolio so far, and some banks even decide to release some of these provisions.

Santander BM analyst pointed to the 5% growth in the second quarter of 2021. y / y operating costs of banks, despite lower employment, fewer branches and lower BGF fees.

– There is pressure on wages in the sector. Banks have so far increased wages slower than the average in the economy – this pressure may persist, said Stolarski.

Banks’ results in the second quarter – assessment

The results of Santander Bank Polska have been the biggest positive surprise of the Q2 results so far.

Analysts assessed that the bank owed its better results primarily to lower reserves, which were 17 percent. lower than expected. Santander representatives admitted that credit provisions in the last quarter were relatively low. In their opinion, with a positive macroeconomic scenario, they may remain at a low level.

Only mBank showed worse than expected results in Q2. Analysts believed that the reason for the bank’s weaker results were higher costs and worse other income due to a slightly weaker trading result, the result on the sale of AFS or slightly higher other operating expenses.

In the following days, the results for the first half of the year are planned to be reported by other banks, including on Thursday, August 12, PKO BP and BNP Paribas Bank Polska.

Analysts expect that the net profit of PKO BP in the second quarter will amount to PLN 1,281.1 million, i.e. it will increase by 60%. y / y and 9 percent kdk.

In the case of BNP Paribas, the profit will amount to PLN 128.8 million, which is a 41% decrease. y / y and 21 percent kdk. The bank’s results will be determined by a high reserve for CHF. In July, the bank announced that the estimated provision for claims under CHF housing loan agreements in Q2 2021 would amount to PLN 186.5 million.

Main photo source: Shutterstock

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