“The quality of loans has become the main problem, and because of concerns regarding financing, uncertainties in terms of medium-term growth are justified,” added ING analysts in the most recent report on the banking sector. According to these same analysts, cost-related risks will affect mostly banks in Russia, Austria, and Israel, as well as medium-sized banks in Poland, while major Polish banks, BRD, and a major share of Turkish banks should be less affected. “We reduced profit per share by an average 28 percent for 2009, as we expect a drop of some 30 percent on gains this year,” stated ING. The Dutch bank’s analysts reduced the target price for Erste Bank to €9.4 from €44 per share, with a recommendation to “hold,” some 35 percent higher than the price in yesterday’s session. “We are estimating that a 2 percent rise in non-performing loans will completely wipe out the bank’s operational profit and one third of its own capital. Such a scenario could unveil a prolonged recession in Austria and/or large-scale bankruptcies in Austria,” according to ING analysts. They added that the loan quality of Erste, owner of BCR, will continue to depreciate and are expecting that 2010 will also be a difficult year for the bank. On the other hand, for Banca Romana de Dezvoltare (BRD), ING analysts indicated a target price of RON 6 per share, compared to a previous projection of RON 23/share, and maintain their recommendation to “buy.” The target price is 60 percent higher than yesterday’s market price. “BRD appears capable of resisting future shocks. The sharp increase in non-performing loans, the economic recession, and the depreciation of the leu could place short-term pressure on the bank,” added ING. These same risks are expected to affect Banca Transilvania which, according to ING’s analysts, is more vulnerable to the shocks to which it will be subjected, because of its lower market share and high operational costs. Analysts have maintained their recommendation to “hold” bank shares, with the target price in the coming 12 months to be RON 0.69/share, similar to that on the Stock Exchange.
