AIB’s Polish bank sees strong profits recovery

AIB’s Polish Bank Zachodni WBK said yesterday its net profit should double in 2002 thanks to tight cost control and relatively low bad debt charges, after its third-quarter earnings met market expectations.

Zachodni, a unit of Allied Irish Banks (AIB) and one of the Warsaw bourse’s top five banks, reported a net profit of 71 million zlotys (€18 million) for July-September, with the nine-month result reaching 215 million zlotys.

Despite a sector slump, the figure is little changed from quarterly earnings earlier this year and marks a sharp pickup from a restructuring-hit 18 million zloty profit figure in the third quarter of 2001.

Chief Executive Jacek Ksen said the bank, created from a merger of AIB's two Polish units, was likely to post full-year net profits around double last year’s 149 million zlotys.

“The fourth quarter will be slightly better. I would expect our net profit in all of this year at 285-300 million," Ksen told Reuters.

Ksen said the lender, with a market value of $1.3 billion, wanted to increase its return on equity ratio, a key efficiency measure, to 15-17% next year from 13-14% planned for 2002.

“Our ambition and obligation is to reach the profitability levels of AIB, which has (ROE at) around 20% or more, but of course it is not a matter of one year,” said Ksen. Thanks to improving results and strong growth potential, Zachodni has been one of Warsaw’s best performing large caps this year, surging nearly 40% to 69.5 zlotys. The key WIG 20 index has lost nearly 5%.

Based on Multex Global Estimates analysts forecast the bank’s net profits this year at 285 million zlotys -- the lower end of Ksen’s target range, rising to €430 million in 2003.

Multex’s 2002 consensus earnings per share forecast is 3.99 zlotys a share, valuing Zachodni on a multiple of 17.4 times prospective earnings, rising to 5.90 zlotys in 2003.

Tight cost control should help Zachodni bring its cost to income ratio below 60% next year from 68.3% in the first nine months of 2002.

“Since interest revenues are now falling and competition is strong, only banks with good cost control have a chance of posting decent results,” said Ksen.

The local banking sector has suffered severely for more than a year as Poland’s worst economic slump in a decade cut demand for loans and worsened asset quality, forcing many lenders to create heavy provisions for bad debt.

Pekao, eastern Europe’s top listed lender, saw its nine-month profit halve, mainly due to its exposure to a failed shipyard.

Zachodni, which had given no loans to the Szczecin shipyard or to the ailing State coal and steel sectors, said it created an additional €78m zlotys of loan loss provisions in the third quarter, against an expected €52m.

The negative impact of bad debt charges was neutralised by a 17 million zloty dividend, which the bank received from life insurer Commercial Union (now part of the UK's Aviva), in which it holds a small stake, and from solid gains on foreign exchange operations, said Ksen.