Net earnings came in at PLN 921.0m for 3Q12, down 2.9% q/q and 9.4% y/y, broadly in line with the consensus estimate of PLN 916.6m (range from PLN 886m – PLN 945m, source: PAP) and slightly below our expectation of PLN 944.6m. Benefiting from strong trading income offset higher net provisioning. Core revenues came in line with expectations. We believe relatively worse performance of the stock price recently has already anticipated higher cost of risk, therefore we would expect the results announcement to have a neutral trading impact.
Net interest income was down 0.3% q/q to PLN 1,977.4m, above the consensus expectations of PLN 1,966m. The pace of net interest margin pressure has eased slightly with net interest margin declined to 4.12% (down 5bp q/q) in 3Q12. This came on the back of continuing pressure on
cost of financing (+17bp to 3.30% over average interest bearing liabilities) driven by change in the mix of funding sources. At the same time the bank managed to improve the asset margin (+9bp q/q to 7.24% over average interest earning assets), despite negative change in the loan portfolio mix. Volumes came slightly above our expectations with net loans increasing by 1.0% q/q in 3Q12, while deposits reported slower declined by 1.0% q/q in the period.
Non-interest income was up 8.1% q/q to PLN 1051.7m, above consensus estimates of PLN 902m. This was driven by better-than-expected net trading and FX income (+116.2% q/q) including PLN 17m gain on investment securities and much better FX income, as well as higher other income (+16.4% q/q). Net fee income (-2.3% q/q) came in line with expectations.
Net provisioning came in at PLN 657.6m, up 14.6% q/q and 34.8% y/y, above both the consensus expectation of PLN 613m and our estimate of PLN 593m. Net provisioning requirements came at 177bp in 3Q12 (over average gross loans), up from 156bp in 2Q12, driven by increase in corporate segment. Impaired loans increased to 8.9% in 3Q12 from 8.7% in 2Q12, while coverage ratio increased to 49% in 3Q12 from 47.0% in 2Q12.
Operating costs came in at PLN 1,131.4m, up 3.4% q/q and 2.6% y/y, slightly above the consensus expectations of PLN 1,120m and our estimates of PLN 1,117m. This was driven by 5.0% q/q increase in personnel costs and slightly slower increase in administrative costs (+1.5% q/q).