􀀗 The Polish economy and banking sector
face a sharp slowdown but are likely to
be spared a recession
􀀗 We expect rapidly deteriorating credit
quality to result in substantial earnings
contraction at most banks
􀀗 Initiating coverage of ING Bank Slaski
(Overweight), Bank Handlowy (Neutral
(V)) and BPH (Neutral (V)); we downgrade
PKO to Neutral (V), maintaining Pekao at
Overweight (V), and BRE and BZ WBK at
Underweight (V)
Sharply slowing economy to hit
Polish banks with lower credit quality
The economy is slowing in tandem with the rest of the world,
but several factors suggest to us that Poland will outperform its
neighbours and we still expect positive growth in 2009.
Slower growth has reduced business activity, causing a fall
in profits and liquidity on the corporate side and an increase
in unemployment. Itself a strong enough negative driver for
deterioration in credit quality, this is exacerbated by the
additional drag from high exposure to FX mortgages and
currency options that have gone sour. All this adds to the
prospect of much lower profitability among Polish banks.
Although it is possible that some Polish bank valuations
incorporate too much of the bad news, we do not believe we are
in the clear yet. We prefer banks with less exposure to FX
products and with solid balance sheets; these would include
Pekao among the large banks and ING Bank Slaski in the midcap
segment. The key catalysts to look out for in the coming
months are positive surprises on credit quality results.