Polish banks lead profitability gains in central, southeast Europe

Poland's BNP Paribas Bank Polska SA, PKO Bank Polski SA and mBank SA recorded the biggest profitability improvements among major banks in central and southeast Europe during the first half of 2024, S&P Global Market Intelligence data shows.

BNP Paribas Bank Polska, owned by France-based BNP Paribas SA, grew its first-half ROE by 17.1 percentage points versus the second half of 2023, the biggest improvement for the period in the sample of 40 banks in central and southeast Europe and the Baltic states.

PKO Bank Polski, Poland's largest financial institution, grew its return on average equity (ROAE) by 8.4 percentage points year over year to 18.8%.

Commerzbank AG's Polish unit mBank published the second-highest ROAE gains in the sample both compared with the second half of 2023 and year over year.

The Polish lenders boosted profits despite the second quarter headwind of the country's extended mortgage repayment deferral scheme. The results were supported by net interest income performance and lower legal provisions on franc mortgage loans.

mBank said its second-quarter net interest income — excluding the impact of the mortgage repayment deferral scheme — was the highest in its history. S&P Global Ratings revised its outlook on mBank to positive from stable and said that continued strong underlying profits and falling legal costs related to the franc mortgage portfolio should improve the lender's profitability over time.

Romania's Banca Transilvania SA and Intesa Sanpaolo SpA's Serbian unit Banca Intesa a.d. Beograd were also among the best-performing banks by sequential ROAE growth, while UniCredit SpA's subsidiaries in Croatia and Romania and Erste Group Bank AG's Czech subsidiary Ceská sporitelna a.s. ranked among the lenders with the most substantial ROAE growth year over year.

Raiffeisen Bank International AG's Hungarian unit Raiffeisen Bank Zrt. posted the steepest ROAE decline compared with the second half of last year, yet it also ranked among the lenders with the highest year-over-year increases in the metric. Raiffeisen Bank International's group-level net interest income — a key contributor to net profit — dropped slightly in the second quarter, with rate cuts in Hungary contributing to the contraction, the bank's executive said in August.

Czech lender Fio banka a.s. recorded the highest first-half ROAE ratio in the sample at 32.3%. However, it also experienced one of the most significant declines in the ratio over the studied period.

Estonia-based AS LHV Group, plus Skandinaviska Enskilda Banken AB (publ)'s Lithuanian and Latvian unit, also ranked among banks with the highest ROAE ratio.

With the profitability of the Lithuanian banking sector remaining robust, according to the finance ministry, the country extended its temporary bank levy into 2025, planning to raise roughly €70 million from it next year.

Latvia plans to impose an excess profit tax for banks from 2025 through 2027, looking to collect €256 million in the next three years. A temporary mortgage levy introduced for Latvian banks in 2024 is unlikely to be extended.

Estonia, meanwhile, plans to implement a temporary 2% "defense levy" on individuals and companies in 2026.

Poland-based Bank Ochrony Srodowiska SA bucked the trend of its domestic peers and was the least profitable lender in the sample, reporting a first-half ROAE ratio of 4.6%. The bank's first-half profitability was significantly affected by several one-off items.

Slovakia-based Prima banka Slovensko a.s. as well as the Slovak units of Erste and KBC Group NV were among the least profitable major banks in the region, Market Intelligence data shows.

The first-half net profit of the Slovak banking sector dropped 3.1% year over year to €547 million, which the country's banking association attributed to a bank tax introduced at the beginning of 2024. Taxes paid by the sector in the first half surged by 131% year over year to €353 million, according to the banking association.

Slovakia's finance minister, Ladislav Kamenický, said that banks are, however, still on track to achieve the second-largest annual profit in history.

Overall, 25 of the 40 sampled banks reported lower ROAE ratios year over year, and the metric also dropped for 21 of the lenders on a semiannual basis.

On a country level, six of the 11 banking sectors sampled recorded lower average first-half ROAE ratios year over year.