Net earnings came in at PLN 272.6m for 4Q12, down 2.7% q/q and 4.4% y/y, above both consensus estimate of PLN 240.2m (range from PLN 211m – PLN 268m, source PAP) and our expectation of PLN 236.2m. Strong decline in total income (-10.3% q/q), was offset mainly by lower net provisioning and tax rate (8.9%). Initial positive market reaction supported by dividend recommendation from management board, would be muted in our opinion by weak composition of the results.
Net interest income came below expectations (-3.1% q/q) in 4Q12. Net interest margin decline was somewhat stronger than expected at 15bp to 2.20%. This was driven by declining margin on earnings assets while increase in funding costs was slower.
Non-interest income came below expectations (-22.4% q/q). Both net fee income (-4.3% q/q) and trading income (-31.8% q/q) came below market expectations.
Operating cost came slightly below expectations (+1.3% q/q and -0.3% y/y). Decline in costs was driven by personnel expenses (-1.1% q/q) while non-personnel costs increased (+1.1% q/q). Cost containment year-on-year (-1.1% y/y) came ahead of management guidance for flattish costs in 2012 compared to 2011.
Net provisioning came much below expectations (-34.0% q/q) in 4Q12. Cost of risk declined to 50bp of average gross loans from 76bp in 3Q12.This was largely driven by decline in corporate provisioning to just 36bp from 93bp in 3Q12, while provisioning in retail portfolio was stable at 63bp. NPL ratio remained stable at 5.2% in 4Q12, at the same time coverage has decreased to 64.1% from 64.5% in 4Q12 and coverage ratio including IBNR declined to 69.6% from 70.0%.