Context in the banking sector
In 2018, the WIG-Banks3 index sank 12.1% y/y, or 2.6 p.p. more than the WIG index. The deteriorating sentiment towards banks (in 2017, WIG-Banks increased 35.4% y/y, beating WIG by 12 p.p.) is a result of the market’s response to the passive “wait and see” attitude adopted by the Monetary Policy Board towards interest rate hikes. The rationale behind this behavior of the Monetary Policy Board was the low inflation rate (below the NBP target of 2.5%) and the inflation structure, not driven by growth in demand on the goods and services market but stimulated predominantly by energy prices. The decline in the valuation of banking assets in Poland was also a result of the deteriorating global sentiments: the STOXX Banks index (adjusted for dividends, EUR) decreased in 2018 by over 30%.4
Despite the diminishing valuations of banks listed on the stock exchange, the overall condition of the banking sector remained good. Banks recorded increases in lending activity and net interest income, driven to a large extent by the high rate of economic growth and wages in Poland and the falling rate of unemployment. On the other hand, greater regulatory pressure resulted in a lower result on fees and commissions. This notwithstanding, already in November 2018 the profits generated by the banking sector surpassed those achieved in the whole of 2017.
The bank valuations were also affected by local factors related to the situation involving Getin Bank and Idea Bank. Due to their financial problems and a rapid outflow of deposits (especially in the case of Getin Bank), concerns emerged about possible corrective measures and potential involvement of other capital-rich Polish banks. It also caused concerns about a greater-than-expected increase in contributions to the Bank Guarantee Fund (BFG), which according to analysts would have to swell from approx. PLN 2 billion to PLN 3 billion per annum in order for the Fund to reach the target levels of cash until 2030 despite potential additional costs. The risk related to the conversion of loans denominated in Swiss francs continued to exist.
In 2018, the share prices of the banks controlled by PZU, i.e. Pekao (a member of the PZU Group since 7 June 2017) and Alior Bank (a member of the PZU Group since 18 December 2015), went down 9.7% (taking account of the dividend) and 33.1%, respectively. The relatively poorer performance of Alior Bank compared to the WIG-Banks index resulted to a certain extent from investors’ concerns about the execution of Alior Bank’s ambitious strategy in the context of profound changes in its management and speculations about the bank’s possible continued participation in the consolidation of the banking sector in Poland.
In 2018, Pekao distributed a dividend of PLN 7.9 per share (100% of profit), which implied a 6.1% dividend yield (calculated based on the share price at yearend 2017). The dividend yield for the WIG-Banks index was 3.4%.
WSE-listed banks in 2018
3 It is an income-based index and thus, when it is calculated, it accounts for both the prices of underlying shares and income from dividends and pre-emptive rights.