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Bank Pekao Profit Drops on Record Low Rates in Poland

May 10 (Bloomberg) -- Bank Pekao SA, Poland’s second-largest lender and a unit of UniCredit SpA, posted the lowest quarterly profit in almost three years as the slowing economy and record-low interest rates erode loan revenue.

Net income fell to 665.5 million zloty ($210 million) in the first quarter from 710.6 million zloty a year earlier, the bank said in a regulatory filing today. That exceeded the mean 648.2 million-zloty estimate in a Bloomberg survey of 13 analysts.

Polish banks’ combined profit fell 5 percent in the first quarter as the European Union’s largest eastern economy faces its worst slowdown in almost a decade and the central bank cut borrowing costs, the Warsaw-based financial regulator said this week. The National Bank of Poland lowered interest rates by a total of 150 basis points between November and March as the inflation rate fell to an almost seven-year low in March.

“Pekao earnings show that the economy is decelerating and its revenue came in worse than expected,” Iza Rokicka, a Warsaw-based analyst at BRE Bank SA, said by phone today. “The bank partly managed to offset that by lowering costs.”

‘Tough’ Year

Pekao’s net interest income fell 5 percent to 1.13 billion zloty in the quarter, while net fees and commission rose to 552 million zloty from 550.5 million zloty. Bad loan provisions surged 22 percent to 165 million zloty, it said.

Profit will probably decline less than 10 percent in 2013 as lenders in Poland face a “tough” year, Chief Executive Officer Luigi Lovaglio said at a press conference today. Lovaglio said in March that the banking industry’s full-year pretax profit will shrink 13 percent in 2013.

Pekao shares rose 0.7 percent to 151.65 zloty as of 1:18 p.m. in Warsaw, trimming this year’s decline to 9.5 percent and valuing the bank at 39.8 billion zloty.

Poland is fighting against the steepest slowdown in 12 years as the recession in the 17-nation euro area, which buys 52 percent of Polish exports, has put a damper on growth. The European Commission last week cut its 2013 growth forecast for Poland to 1.1 percent from 1.2 percent seen previously.

To contact the reporter on this story: Marta Waldoch in Warsaw at mwaldoch@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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