Table of contents
Domestic CEE banks: assessing sustainable returns......................................................................................... 5
How to defend against credit losses............................................................................................................................5
In search of sustainable returns ..................................................................................................................................6
Growing risk in Poland ................................................................................................................................................6
Upgrading rating on Komer鑞?banka to Outperform ...................................................................................................6
Downgrading rating on PKO BP to Underperform........................................................................................................6
Downgrading rating on Bank Pekao to In Line.............................................................................................................7
How to defend against credit losses ..................................................................................................................... 8
Three lines of defence ....................................................................................................................................................8
First line of defence: pre-provisioning profitability ........................................................................................................8
Second line of defence: dividends...............................................................................................................................9
Final line of defence: higher capital ratios ....................................................................................................................9
Komer鑞?and Pekao: capital increase unlikely .............................................................................................................10
PKO BP: capital likely to support expansion .................................................................................................................10
Credit quality: bank by bank .........................................................................................................................................11
Diverging asset quality ..............................................................................................................................................11
Potential problem areas ............................................................................................................................................12
In search of sustainable returns .......................................................................................................................... 16
Leverage.......................................................................................................................................................................16
Return on assets ..........................................................................................................................................................16
Normalising cost of risk ................................................................................................................................................17
Removing non-core revenues ......................................................................................................................................18
Growing risks in Poland....................................................................................................................................... 21
Funding pressure..........................................................................................................................................................21
Asset quality .................................................................................................................................................................22
Loss given default .....................................................................................................................................................23
Foreign currency option exposure.............................................................................................................................23
Exchange rate sensitivity of asset quality...................................................................................................................23
Updated earnings estimates................................................................................................................................ 25
Komer鑞?banka (Outperform, target price CZK2,400)..................................................................................................26
PKO BP (Underperform, target price PLN19)................................................................................................................29
Bank Pekao (In Line, target price PLN100) ...................................................................................................................33
Valuation considerations..................................................................................................................................... 37
Investment risks............................................................................................................................................................38
Komerční banka ........................................................................................................................................................38
Bank Pekao...............................................................................................................................................................38
PKO BP.....................................................................................................................................................................39
Disclosure information......................................................................................................................................... 40