BRD profit lower year-on-year, but above estimates

The lender earned more than €90 million from forex operations, state bonds and derivate product transactions, double year-on-year. According to financial analysts, data shows that the lending deadlock registered since the end of 2008 on the local market has forced banks to boost operations on the currency market in order to increase their profit.

Overall net income registered by BRD - lending and other operations included, amounted to RON 425 million (€100.5 mln), while experts were foreseeing a 24 percent drop in earnings, due to higher provisions and interest rates for deposits, and lower revenues from fees and interests. The decline announced by the local subsidiary of French SocGen lender was only 17.4 percent compared to the first half of 2008. Furthermore, the loan balance dropped slightly to RON 32.2 billion (€7.6 bln), from RON 32.265 billion (€7.62 bln) registered at the end of 2008. As far as the second quarter is concerned, earnings dropped 16 percent year-on-year, but rose a mere 2 percent compared to Q1, to RON 215 million (€50.8 mln).

“The first quarter of 2009 was marked by a significant slowdown in lending demand and a sharp increase in risks for individual and [small and medium-sized enterprises] SME clients. This proves the magnitude of the economic recession that was felt in the first quarter,” the lender’s President and CEO, Patrick Gelin, said. “Amid this background, BRD managed to secure satisfactory results. Due to the efficiency of its internal proceedings, general cost cutting measures, and the quality of its portfolio, BRD has proven its ability to cope in a difficult environment,” Gelin added.

Analysts say that the results above expectations are mainly due to lower provisions made by the bank. “The widest gap between our estimates [and results] was in terms of provisions, which amounted to RON 181 million [€42.7 mln] in the second quarter, while our estimate was RON 280 million [€66.2 mln],” according to Raiffeisen Capital & Investment analysts. “BRD did not report the level of poor-performing loans, but we estimate their ratio to be slightly above 6 percent,” the analysts added.

“The drop in lending demand had a major impact on the [loan] balance at the end of the first quarter,” BRD Executive Officer, Claudiu Cercel, said. Meanwhile, SSIF Broker Analyst Adrian Danciu agrees that the drop in the loan balance is caused by lower demand. However, he added, “that it is possible that, due to high volatility registered in the first months of the year, a portion of the major clients have repaid their loans in advance.”

Analyst Iulian Panait said that, given the current economic environment, results posted by BRD are very good. “Shareholders are most interested in earnings and the yield the management obtained for funds invested. As far as BRD is concerned, the return on equity (ROE) amounted to 22.3 percent in the first six months, which is a very good value, higher compared to other earning possibilities in the Romanian economy at the moment,” he indicated.

“It is true that the ROE amounted to 30 percent for the whole of 2008, but it is natural that, in the current situation, we witness a lower profitability for banks,” Panait added.