Difficult environment but banks are surviving. The shortage of
liquidity and trust in the markets has caused problems for the Polish banks,
especially as the loan/deposit ratio has exceeded 100%. However, despite
relatively weak support from the Polish banking authorities, the banks are
coping with the pressure and we do not see a risk of defaults/emergency
share issues in the sector.
Out of the blue: swaps and FX derivatives. While Polish banks
avoided most of the global financial problems, eg, toxic assets, they suffered
from the shortage of CHF swaps (many had to stop FX lending) and
overzealous selling of FX derivatives.
Slowdown hits earnings. Following a series of downward revisions, the
consensus view is for 2.5-3.5% GDP growth in Poland next year. This would
be the lowest rate since 2002 and is likely to boost the growth of NPLs and
provisioning, which have already taken off. For this reason we take a more
conservative approach to our cost of risk assumptions. It is one of several
factors (but the most important one), which have led to a c.35% downward
revision in our net profit estimates for 2009F. We now forecast 23%/16% falls
in reported/adjusted earnings in the sector next year.
Recommendations. We downgrade Millennium (from Buy to HOLD) and
Pekao (from Hold to SELL). While we revise down our earnings forecasts,
we believe that in many cases they are more than factored in by the share
price depreciation this year. Our ranking of Polish banks (most preferred first)
is: Handlowy, BRE, BPH, Getin, PKO BP, Millennium, BZ WBK, Pekao.

Contents
Executive summary 3
Polish banks during economic slowdown: 2001-03 case study 5
Revenue side 11
Costs 17
Quality of loans and cost of risk 18
FX issues 28
Liquidity and capital 34
Financial forecasts 37
Valuations and recommendations 40
Companies 46
BPH.........................................................................................................................47
BRE.........................................................................................................................49
BZ WBK...................................................................................................................51
Getin........................................................................................................................53
Handlowy.................................................................................................................55
Millennium ...............................................................................................................57
Pekao ......................................................................................................................59
PKO BP...................................................................................................................61
Appendix : Quarterly data of Polish listed banks 63
Disclosures Appendix 67