Pekao bank's ROE target above market expectations; stock hikes 3 pct

"As with other banks, in terms of financial targets, Pekao's new strategy exceeds both our and the market's expectations in terms of ROE," Erste Securities analyst, Lukasz Janczak wrote.

"In our view, the key is the assumption of stronger loan growth, which will reduce the negative impact of falling interest rates to 3.5 percent over the strategy horizon," he added.

In his view, this will also translate into a better outlook for the cost/income ratio, slightly offset by higher than assumed risk provisions.

"Pekao also assumes market share growth and faster-than-market growth in key products," he pointed out.

"Looking at already published strategies (e.g. PKO BP, Millennium, Alior) and recent comments from other players, someone towards the end will be disappointed," Janczak added.

He underlined that the market as a whole "will not magically rise above 100 percent."

"The dividend policy remains frugal in our view, but the upper range of payouts is in line with our assumptions. We believe that a payout closer to 50 percent could include a potential M&A transaction and setting aside capital for this purpose," Janczak wrote.

"Overall, we have a fairly positive view on the assumptions presented, and they could translate into a positive market reaction, although not on the scale we have seen with Alior Bank," he concluded.

Trigon brokerage analyst, Maciej Marcinowski wrote that for 3.5 percent interest rates, the brokerages calculations show a ROE of 15-16 percent, assuming a 5 percent yearly growth of debt portfolio.

"The bank is very optimistic about their cost to income ratio, which must be due to a more aggressive approach to the commission result and cost savings," Marcinowski wrote.

"On the other hand, the bank takes a rather conservative approach to the cost of risk. This reflects the planned greater emphasis on growth in cash loans and small business financing. Achieving an 18 percent ROE in 2027 would imply a valuation of the bank at around PLN 240 per share," he wrote.

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Listed lender Bank Pekao presented its new strategy on Monday in which it plans ROE above 18 percent by 2027, cost-to-income ratio below 35 percent, and cost of risk in the range of 65-75 bps.

In the guideline proposal for the distribution of the bank's profit for 2025-2027, Pekao said it wants to allocate 50-75 percent of the bank's profit for 2025, 2026 and 2027 to dividends.

"The bank's ambition in the 2027 horizon is to be among the most profitable and efficient institutions in the Polish banking sector," the bank stated.

seb/ han/ nl/