This report analyses the building savings business in the Czech Republic for the 4Q2012. You will find all the necessary details regarding volume growth, market share, margin and asset quality development in the building savings (as well as mortgage lending segment). Also, the report compares profitability and efficiency ratio of the largest player CMSS with the main player in the mortgage lending business - Hypotecni Banka to find out how market dominance translates into economies of scale and superior profitability.
The key highlights from 4Q2012 we discuss in this report are:
• The business remains under pressure in spite of its impressive profitability. ROE fell to 15.2% in 2012 and net profit dropped 6% yoy in 4Q
• Lending continues to fall and is losing to mortgages. In 4Q12, the annual decline deepened to 3.3% yoy
• 4Q12 confirmed a recovery in terms of the number of new contracts sold, while deposits grew by a seasonally strong 3.2% qoq
• ČMSS remains the leader, but Raiffeisen grabs most of the growth
This report focuses specifically on development in Raiffeisen Stavebni Sporitelna in 4Q2012. The main conclusions are:
Market position
Raiffeisen is the third largest building savings bank by loans. It is partly owned by the Czech subsidiary of Raiffeisenbank (10%) with the rest in the hands of Raiffeisen Bausparkasse. Following the acquisition of Hypo Stavební Spořitelna in 2008, the building savings bank now owns 14.1% of building savings loans and 17.5% of deposits.
In 2012, Raiffeisen was the only building savings bank that was able to expand its loan book (albeit by only 0.6% yoy), so it increased its market share by 55 bp (and 10 bp in 4Q alone).
On the deposit side, Raiffeisen was also among the most aggressive banks, gaining a further 38 bp in 4Q (and 32 bp for the full year 2012).
Despite strengthening its market position, the bank’s overall balance sheet momentum is negative. Annual loan growth disappeared in 2012 (and loans grew 0.6% qoq in 4Q), while deposit growth remains solid (up 3.9% yoy in 2012 and 1.9% qoq in 4Q).
Profitability
Raiffeisen Stavební Spořitelna’s profitability has been deteriorating fast. From over 30% in 2008-2009, the bank’s ROE had dropped to less than 12% at the end of 2012.
When adjusted for surplus/lack of capital (when ROE is adjusted to the building savings market average for each bank), Raiffeisen Stavební Spořitelna is the second least profitable building savings bank.
Increased cost of risk is the main reason for the deterioration of profitability. Although asset quality has remained fairly good in recent years (following the deterioration in 2009-2010), provisions reached 35-50 bp of average loans in the last three years. The aggressive provisioning has increased the coverage of non-performing loans, from 42.7% in 2009 to over 65% in 2012.
Asset quality
Asset quality remains good in spite of the build-up of provisions. Non-performing loans rose only CZK 33 mil, or 3%, in 2012, one of the least within the building savings banks. As a result, non-performing loans reached 2.77% of total loans (up from 2.72% at the end of 2011), slightly less than the market average. The provision coverage of over 65% is well over the market average of 53%:.
Cost-efficiency
Raiffeisen Stavební Spořitelna has been running its business relatively efficiently. Operating costs accounted for 0.66% of average assets in 2012, some 10% below the market average of 0.73%. On the other hand, low utilisation of the bank’s balance sheet (loans account for less than a half of assets, well below the 60% of the market) is reflected in lower revenue generation and a higher costs-to-income ratio as a result (nearly 40% compared to the market’s average of 35% at the end of 2012).
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