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 Burinka in 4Q2012, the building savings bank of Ceska Sporitelna. The main conclusions are:
Market position
Stavební Spořitelna České Spořitelny (also called Buřinka, a bowler) is the third largest building savings bank in terms of assets. Once the second largest building savings bank on the market (with a share of nearly 19% of lending in 2008), the subsidiary of Česká Spořitelna has been losing its position in housing lending as part of the overall strategy of Česká Spořitelna to retreat from the area of housing finance.
At the end of 2012, the bank held only 13.4% of the lending market. The bank therefore gave up a further 32 bp of its market share during the year; however, 4Q suggests a stabilisation of the bank’s position (flat qoq). On the deposit market, the bank still maintains an impressive 22% share, up 22 bp qoq but down 6 bp in 2012.
Because of the market’s slowdown and its weakening market position, the bank’s overall balance sheet momentum remains negative. Loans declined by a further 0.8% qoq in the last quarter and the full-year decline reached 5.6% yoy, while overall deposits increased 2.6% in 4Q, but dropped 0.3% in 2012.
Profitability
Until 2011, Stavební Spořitelna České Spořitelny had been the most profitable (measured by ROE) and the best capitalised (by capital adequacy ratio) building savings bank on the market.
However, despite the negative momentum the bank is facing and the fact that the bank’s net profit dropped 23% yoy in 2012, the bank still achieved an impressive ROE of 15.7% in 2012! This is a remarkable achievement given the fact that the bank’s capital adequacy has been exceeding 17%.
When adjusted for a surplus of capital (when ROE is adjusted to the building savings market average for each bank), Stavební Spořitelna České Spořitelny is still the third most profitable one on the market.
Buřinka’s numbers are especially impressive on the cost side, which we describe on the right. This might be a result of accounting, rather than of real efficiency.
Asset quality
Asset quality remains one of the weakest links of the bank. Non-performing loans rose CZK 79 mil, or 4.8%, in 4Q, the most on the market, and reached 4.13% of total loans (up from 3.72% at the end of 2011), which is the worst result within building savings banks. Provision coverage remains relatively weak at nearly 52%, compared to the 53% of the market.
Cost-efficiency
Stavební Spořitelna České Spořitelny has been running its business 40-50% more efficiently than the rest of the market when measured by its costs-to-assets ratio in recent years. In 2012, the bank‘s operating costs amounted to 0.45% of average assets. compared to the 0.73% achieved by the market.
However good and efficient the bank is, we believe it has more to do with internal cost allocation within the Česká Spořitelna group, rather than with Buřinka’s underlying efficiency. Anyway, this, together with loan book development, are the main things to watch for here.
Helgi Library 
