Table of contents
Domestic CEE banks: assessing sustainable returns.................................... 5
How to defend against credit losses..........................................................5
In search of sustainable returns .............................................................6
Growing risk in Poland ......................................................6
Upgrading rating on Komer鑞?banka to Outperform ......................6
Downgrading rating on PKO BP to Underperform.........................6
Downgrading rating on Bank Pekao to In Line.............................7
How to defend against credit losses ............................................ 8
Three lines of defence ...............................................................8
First line of defence: pre-provisioning profitability .......................8
Second line of defence: dividends................................................9
Final line of defence: higher capital ratios ..................................9
Komer鑞?and Pekao: capital increase unlikely ............................10
PKO BP: capital likely to support expansion .................10
Credit quality: bank by bank ..............................................11
Diverging asset quality ........................................................11
Potential problem areas .......................................................12
In search of sustainable returns .......................................... 16
Leverage.................................................................................16
Return on assets .................................................................16
Normalising cost of risk .................................................17
Removing non-core revenues ...........................................18
Growing risks in Poland.....................................................21
Funding pressure..............................................................21
Asset quality .........................................................................22
Loss given default ................................................................23
Foreign currency option exposure........................................23
Exchange rate sensitivity of asset quality............................23
Updated earnings estimates.......................................... 25
Komer鑞?banka (Outperform, target price CZK2,400)..............26
PKO BP (Underperform, target price PLN19)..........................29
Bank Pekao (In Line, target price PLN100) ..............................33
Valuation considerations............................................................ 37
Investment risks.................................................................................38
Komerční banka ..........................................................................38
Bank Pekao..................................................................................38
PKO BP....................................................................................39
Disclosure information................................................................ 40