To earn 676 million PLN purely, Alior Bank would have to break its historical record from 2018. Meanwhile, it was just such an amount that he entered into losses in the second quarter alone. The write-offs for COVID-19, the “small CJEU” and the growing risk of debt repayment took one tenth of equity. According to analysts, it would be justified to implement a recovery plan, and possibly a merger with Bank Pekao.
- Alior made great write-offs and reserves, mainly for the COVID-19 situation. PLN 676 million is one tenth of the bank’s equity at the end of March
- Shares are losing over 3 percent. in the stock market, which can be considered a cautious reaction
- The situation is not yet dangerous. The investment advisor of Millennium DM indicates that it would be good to consider a recovery plan, which would save PLN 200 million per year. There is also an option to connect with Pekao
“Pursuing a consistently conservative approach to risk, the bank’s management board decided to establishing additional provisions and write-offs in the total amount of PLN 676 millionwhich will affect the net result of the capital group for the first half of 2020 and the whole of 2020 “- Alior Bank announced in a release. The report summarizing the results of the second quarter and the entire half of the year will be published on August 19.
Shares fell by more than 3 percent on Monday. going down to the level of even PLN 13.82. To the historical low from April this year (PLN 11.40), more than 17 percent is still missing.
Let us just remind you that Alior’s equity at the end of March amounted to PLN 6.8 billion, i.e. write-offs constitute as much as one tenth of the company’s assets. And yet these are not the first write-offs and provisions in the last year – previously, for two quarters in a row, Alior believed that losses should include something new.
– Already write-offs in 2019 were to be the last to clear the situation – Unfortunately this did not happen. Let us remember that the crisis is still ahead of us, so I do not expect that from now on there will be no more reserves – comments Marcin Materna, investment advisor at Millennium DM for Business Insider. – If the situation of customers worsens, and in a crisis it is a rather normal situation, further write-offs will appear this time more closely related to the loan portfolio – he added.
The loan portfolio, due to the bank’s operating strategy and targeting consumer loans and loans for smaller enterprises, is burdened with greater risk (but also higher profitability so far) than in the case of the largest banks. At the end of the first quarter of 2020, out of PLN 62.2 billion of the loan portfolio as much as PLN 9 billion – 14.5 percent – these were impaired loans. For comparison, in the entire banking sector it was 5.7 percent at the end of March.
Alior has already entered PLN 4.4 billion from bad loans in losses, but the remaining part, not covered by provisions, accounts for 8.1 percent. portfolio. AND it is mainly about corporate loans. Out of PLN 4.6 billion of bad loans not yet covered by write-offs, as much as PLN 3.6 billion are corporate loans. Getin Noble Bank operates on a similarly risky market, although in the case of GNB there is also a bad portfolio of CHF mortgage loans, which is not available in Alior.
“There will be no repeat of Getin Bank”
Millennium DM analyst indicated that he does not think the situation with Getin Bank will be repeated.
– First, the management board of Alior Bank may use the option it offers entering the recovery plan implementation pathwhich would have allowed avoid paying bank tax and it immediately improved the results by over PLN 200 million per year. It seems that the sooner he does it, the better, suggests Materna.
The justification for such a step would, in his opinion, be possible losses after the recent interest rate cuts and further slippage of the economy. However, the bank does not envisage such a step at the moment. We are waiting for a response from the Polish Financial Supervision Authority, whether it is considering any action.
– Additionally, unlike GNB, the main shareholder of Alior Bank (the PZU group owns 32% of shares – ed.) has the means to recapitalize the bank, should the need arise, and the losses have started to adversely affect the possible growth rate of lending (which was one of the reasons for the deterioration in GNB’s results), Materna points out.
– Investors can also count on the merger of Alior Bank with Pekao, which in this situation seems to be a solution worth considering and allowing to avoid a possible further deterioration of Alior Bank’s competitive position and a decrease in its value. The “problem bank” patch is not a magnet for customers in the current uncertain times and what happened to profitability or dynamics at GNB (a bank with a completely modern offer, similar to Alior) should be a warning – comments Millennium DM adviser – assesses the Millennium adviser DM.
Largest write-offs for COVID-19
From the amount of PLN 676 million in write-offs and provisions, PLN 363.6 million results from an increase in expected credit losses due to the effects of the COVID-19 pandemic. Alior, unlike most banks, did not set up such provisions in the first quarter. This money will be charged entirely to the bank’s results.
In addition, the bank created an additional reserve for returns related to the early repayment of retail loans made before September 11, 2019 (i.e. in connection with the so-called “small” CJEU) in the amount of PLN 98 million. The so-called. “small CJEU” for banks, it means that they have to pay their customers a part of the commission on early loan repayment, in proportion to the loan period not used by the customer. In the third quarter of 2019, the bank created PLN 186 million for this purpose, and in the fourth quarter – PLN 102 millionand now PLN 98 million – in total it will be PLN 386 million.
“Alior Bank, due to the structure of the loan portfolio and the very active sale of loans in the past, currently incurs one of the largest costs in the sector in connection with the CJEU ruling” – informs the bank, pointing out that there is practically no problem with the second judgment of the CJEU (large CJEU) because it entered the market after the boom in franc loans.
Finally, the last write-offs concern goodwill arising from the acquisition of Meritum Bank ICB in the amount of PLN 64.4 million. The bank also made a write-off and created a provision in the amount of approx. PLN 150 million due to the increased risk of default on the bank’s receivables.
There is optimism
Despite such large amounts that must be written into losses, the bank’s management board remains optimistic about the future.
– We’re already watching today good sales results in the segment of mortgage loans and corporate loanswhich is particularly important in the case of large absorption of aid funds from anti-crisis shields, used in the first place by most companies – says Agnieszka Nogajczyk-Simeonow, vice president of the management board of Alior Bank.
The bank points to its technological market advantage over competition and the benefits that may result from this during an epidemic.
“Alior Bank has always been an innovative bank, and thanks to its strong technological competences, it is able to agile adaptation of new technologies and digitization of services, quickly responding to changing customer needs. The bank has the necessary resources: a team of experts, a modern technological platform enabling flexible and efficient implementation as well as fintech partners providing the latest solutions “- stated in the commentary.
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