􀀗 Stable macro outlook strengthens the
currency, reducing key threats to
Polish banks
􀀗 We have more confidence in a recovery
from 2010, but are still waiting for the
bottom of the cycle in the sector in 2009
􀀗 We upgrade Pekao to Overweight (V), BZ
WBK and Handlowy to Neutral (V); PKO
and ING downgraded to Underweight (V)
The outlook for the Polish economy seems to be stabilising
at a level that suggests the country will avoid a recession this
year, making it unique among the major EU countries. Our
forecast is for 0.6% y-o-y GDP growth this year. Combined
with general market stability, this has had a positive impact
on the Polish currency, whose weakness and volatility had
been a source of great concern to the Polish banking sector,
which is heavily exposed to FX options and mortgages.
The greater visibility of a potential recovery next year has
prompted us to raise our 2010 earnings estimates for most
Polish banks under our coverage, mainly owing to
improvements in revenues with flat costs. That said, we expect
some of the negative trends observed in Q1 2009, such as
provisions for losses related to FX options and downward
pressure on NIM, will linger on in the second quarter and weigh
on overall 2009 results, which we reduce accordingly.
We value Polish banks using a three-stage residual income
model, which suggests that Pekao is best placed to benefit from
the expected 2010 recovery. Our new target price is PLN148,
some 22% above the current level, assuming that our aboveconsensus
earnings estimates materialise. On the other hand,
our belief that the latest abrupt change in management at PKO
will result in below-consensus earnings translates into a lower
target price of PLN22, a potential return of -22%.