May 12, 2020 / 10:50 AM / 25 days ago

UPDATE 1-Polish Bank Pekao says no chance of double-digit ROE this year

(Adds more information, quotes and background)

WARSAW, May 12 (Reuters) - Poland’s second-largest lender, Bank Pekao SA, has cut its 2020 financial targets for the second time in six months and said no one should expect a double-digit return on equity (ROE) in the Polish banking sector this year.

The bank said earlier on Tuesday that its net profit fell 23% year-on-year in the first quarter to 187 million zloty ($44 million), as it was forced to create provisions for credit risk connected to the coronavirus pandemic.

It also said it will have to revise its strategy assuming ROE, a measure of profitability, at 11-12% in 2020, seen by analysts as too ambitious for the bank with outdated IT technology operating in the crowded, low-interest rate market.

“If you take into account banks’ vulnerability to interest rate change and a two-fold rise in provisions, it is possible that the sector’s net profit will fall by at least 50%,” Pekao Deputy Chief Executive Tomasz Kubiak told reporters.

“This year one can not talk about double-digit levels of ROE,” he said when asked whether Pekao would be able to maintain its ROE this year above 10%, after it abandoned its already lowered target on Tuesday.

The updated strategy for Pekao’s financial targets had yet to be published, the bank said.

Last November the bank cut its 2020 ROE target to 11-12% from 12.5%. In the first quarter, its ROE amounted to 10.5%. But the economy is expected to fall 10-15% in the second quarter, according to state fund PFR.

“We see a 60% fall in new consumer loans, as well as 30-40% lower demand for loans for small and medium-sized enterprises,” Kubiak said, adding that the bank also suffered from recent interest rate cuts that lowered the cost of credit by 100 basis points.

State-run Pekao remains vigilant when it comes to future acquisitions, its representatives said.

Pekao was the most serious candidate to buy its smaller rival, mBank, from Germany’s Commerzbank AG, sources have said. But Commerzbank said on Monday it would not sell its Polish unit.

“Concentration in the Polish banking sector will be progressing, we have our eyes wide open,” said Leszek Skiba, who resigned as deputy finance minister in April to become Pekao’s acting chief executive officer.

Pekao shares rose on Tuesday by 0.5%, slightly outperforming other Polish banks. ($1 = 4.2125 zlotys) (Reporting by Marcin Goclowski and Pawel Florkiewicz; editing by Nick Macfie)

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