20 May, 2022
PKO Bank hopeful on future profits despite geopolitical, regulatory risks
By Beata Fojcik
Poland-based PKO Bank Polski SA can improve its future earnings even as geopolitical tensions and regulatory risks affect its operating landscape, according to CFO Bartosz Drabikowski.
Increasing central bank rates will fuel higher net interest income in the coming quarters, Drabikowski said during a May 19 earnings conference. NII growth will be limited by the repricing of deposits, which is starting to happen due to higher rates, as well as regulatory changes in Poland's mortgage market, Drabikowski said.
Poland's central bank raised its key rate to 5.25% as of May 2022, up from 0.50% in October 2021. PKO predicts the rate could increase to about 7% this year.
The Polish government is working on a support program for holders of zloty-denominated mortgage loans, which will help borrowers with repayments amid growing inflation. The impact of the program will be significant for local lenders, but it is too early to make specific estimates, PKO Chief Risk Officer Piotr Mazur said during the earnings call.
The Polish lender posted a first-quarter net result attributable to the parent company of 1.42 billion zlotys, up 20.3% year over year and up 17.7% quarter over quarter. Net interest income increased by more than 38% year over year and by almost 20% quarter over quarter to 3.2 billion zlotys. Fee and commission income reached almost 1.18 billion zlotys, up 14% year over year but down 0.3% quarter over quarter.
PKO Bank set aside more than 200 million zlotys against its direct exposure to Ukraine and 100 million zlotys against its indirect exposure to Ukraine, Russia and Belarus in the first quarter, Mazur said. Excluding additional provisions linked to Russia's invasion of Ukraine, PKO's cost of risk would have been 52 basis points for the quarter instead of the 76 bps reported, he said.
About 20% of PKO's direct Ukraine exposure is located in territories occupied by Russia, Mazur said. He said a significant proportion of customers serviced by the lender's Ukraine unit, JSC Kredobank, were still making timely loan repayments, and the bank has not yet noticed any problems among its large corporate clients in the country.
"It seems that the provisions that we set aside in the first quarter are sufficient in the current situation," Mazur said.
Kredobank reported a small quarterly drop in gross loans and deposits between the end of December 2021 and the end of the first quarter of 2022. The bank's net income fell 95% in the same period. Ukraine's central bank said recently that lenders operating in the country significantly increased loan loss provisions amid the ongoing invasion, which hit their quarterly financial results.
Mazur said PKO's indirect exposure to Russia through clients with ties to that market was insignificant. "Apart from gas and oil exporters, the exposure is so negligible that it is not on my radar," the executive said.
As of May 19, US$1 was equivalent to 4.39 Polish zlotys.