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Czech, Polish banks see Q3 profit growth, lower risk costs amid wider recovery


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Czech, Polish banks see Q3 profit growth, lower risk costs amid wider recovery

Most large banks in Poland, the Czech Republic and Hungary reported higher profits in the third quarter, with central bank interest rate hikes in some economies expected to have a positive impact going forward.

Komercní banka a.s. reported the largest year-over-year net profit increase in a sample of nine banks, increasing by 108.5% to 3.4 billion Czech koruny from 1.6 billion koruny a year ago. This surpassed analyst consensus estimates by more than 10%, according to S&P Global Market Intelligence data.

Ceskoslovenská obchodní banka a. s., also known as ČSOB, reported 75.0% growth in third-quarter net profit, and 84% growth for the first nine months of 2021 — the highest in the sample.

Poland-based PKO Bank Polski SA ranked second in terms of third-quarter net profit growth, at 76.8%, with its total of 1.26 billion zlotys also coming in above analyst expectations. Fellow Polish bank mBank SA's quarterly net profit dropped year over year, impacted by a legal risk provision related to Swiss franc mortgage exposure, but it did record a 26.6 million zloty profit for the period and beat analyst estimates by almost 25%. Polish banks may face further costs tied to mortgages denominated in Swiss francs.

Komercní, ČSOB and mBank are owned by French bank Société Générale SA, Belgium's KBC Group NV and Germany-based Commerzbank AG, respectively.

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Cost of risk declines

Poland's GDP is expected to grow by 4.9% in 2021 and by 5.2% in 2022, while the Czech Republic's is set to grow 3.0% and 4.4% respectively, according to the European Commission. The performance of the countries' large banks was positively impacted by recovering interest income and growth in fee and commission income.

All banks in the sample except PKO Bank Polski saw a decline in a cost of risk — reflecting lower loan loss provisions — in the first nine months of 2021, compared to the same period of 2020. ČSOB recorded the largest drop of 1.11 percentage points. Hungary-based OTP Bank Nyrt. posted the second-largest cost of risk reduction of 0.91 percentage point.

Poland-based Bank Polska Kasa Opieki SA, also known as Bank Pekao, Santander Bank Polska SA and ING Groep NV unit ING Bank Slaski SA reported the smallest improvements in their costs of risk.

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Authorities in Central Europe have been increasing key interest rates to curb inflation, and financial institutions expect this will positively impact their results, although the potential benefits of further rate increases could be muted by the growing costs of deposits.

Poland has increased rates from 0.1% to 1.25% in recent weeks, which is set to drive a 40% year-over-year increase in 2022 net profit for Santander Bank Polska, Polish daily Parkiet reported, citing analysts. The 2022 net profit of Bank Pekao could grow by 31%, while those of PKO Bank Polski and ING Bank Śląski could increase by 25% year over year, the newspaper noted.

The Czech Republic also hiked rates to 2.75%. The 2021 financial outlook upgrade by Ceská sporitelna a. s. parent Erste Group Bank AG, fueled by a V-shaped economic recovery in the Czech Republic and other key markets, recently prompted Citi analysts to lift EPS estimates for the Austrian lender by 10% for 2021, 6% in 2022 and 2% in 2023.

OTP Bank executives said during a Nov. 5 earnings call that another potential 10-basis-point rate hike by Hungary's central bank could add additional 300 million Hungarian forints to 500 million forints to the lender's net interest income on an annual basis, but the impact of a higher rate increase would be difficult for the bank to estimate. On Nov. 16 the central bank increased rates by 30 basis points, to 2.1% from 1.8%.

As of Nov. 17, US$1 was equivalent to 22.31 Czech koruny, 322.39 Hungarian forints and 4.12 Polish zlotys.