Net earnings came in at PLN 874m for 4Q12, down 5.1% q/q and 8.2% y/y, broadly in line with the consensus estimate of PLN 869m (range from PLN 826m – PLN 934m, source: PAP) and above our expectation of PLN 841m. Total income came slightly below expectations driven by worsethan- expected net interest income, which was only partly offset by higher net fee income. Operating expenses also came above expectations.
Bottom line benefited from lower net provisioning and lower effective tax rate (17%). We would expect the results announcement to have a neutral trading impact.
Net interest income was down 5.8% q/q, below the consensus expectations of PLN 1,950m. Net interest margin declined to 3.85% (down 27bp q/q) in 4Q12. This came on the back of lower asset margin (-23bp q/q to 7.01% over average interest earning assets), driven by negative change in the loan portfolio mix. At the same time the bank reported continuing pressure on cost of financing (+6bp to 3.36% over average interest bearing liabilities) driven by change in the mix of funding sources. Volumes came below our expectations with net loans increasing by 0.1% q/q in 4Q12, while deposits by 0.5% q/q in the period.
Non-interest income was up 4.6% q/q, above implied consensus estimates of PLN 931m. This was driven by better-than-expected net fee income (+5.9% q/q), net other operating income (+29.3% q/q) and above average net trading and FX income (-10.2% q/q) including PLN 58m
gain on investment securities but worse FX income.
Net provisioning came in at PLN 566m, down 13.9% q/q and up 0.9% y/y, below both the consensus expectation of PLN 596m and our estimate of PLN 638m. Net provisioning requirements came at 151bp in 4Q12 (over average gross loans), down from 177bp in 3Q12, it seems that the bank has released provisioning in corporate segment related to specific case.
Impaired loans remained at 8.9% in 4Q12, while coverage ratio increased to 50.4% in 4Q12 from 49.0% in 3Q12. Operating costs came in at PLN 1,241m, up 9.7% q/q and 4.6% y/y, above both the consensus expectations and ours of PLN 1,204m. This was driven by both an increase in personnel costs (11.7% q/q) and increase in administrative costs (+11.0% q/q).