UniCredit Polish Unit Beats Profit Estimate on Compensation

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Bank Pekao SA’s profit dropped less than expected in the second quarter as the Polish unit of UniCredit SpA benefited from an insurance compensation.

Net income fell 9.6 percent to 619.2 million zloty ($164 million), the country’s second-largest lender said in a statement on Tuesday, compared with the mean estimate of 575.2 million zloty in a Bloomberg survey. Earnings were supported by a 113.9 million-zloty compensation from an insurance policy, after the bank won a 10-year-old dispute with an insurer, Chief Executive Officer Luigi Lovaglio told reporters.

Polish banks are struggling to offset the impact of a decline in interest rates as borrowing costs have remained at a record low since March. Their combined profit declined 8.7 percent in the first five months, according to data compiled by the Polish financial-markets regulator. The industry may also face a new tax on assets proposed by the main opposition party, which leads in opinion polls before October parliamentary elections.

“Low interest rates will continue to weigh on Pekao’s profits and other banks’ profits,” Michal Sobolewski, an analyst at BOS Bank SA’s brokerage in Warsaw, said by phone. “One-time items such as compensation play an important role for future earnings with bond trading being the key.”

Pekao shares fell 0.4 percent to 161.6 zloty at 12:32 p.m. in Warsaw, having lost 9.6 percent this year. The WIG Bank index, a gauge for 15 lenders, retreated 13.5 percent in the same period.

Bank Industry

Its smaller competitors, Millennium Bank SA and Bank Zachodni WBK SA, also exceeded analysts’ profit estimates in the second quarter. PKO Bank Polski, the country’s largest lender, will publish earnings on Aug. 10.

Pekao’s 2015 net income will drop “a few percentage points” from 2014, when the lender earned 2.71 billion zloty, Lovaglio told reporters. The bank expects interest income to “slightly rise” in the next few months and interest margin to stabilize. The margin dropped to 2.8 percent in the second quarter after the bank boosted new retail loans by 10.5 percent year-on-year to a record 3.46 billion zloty.

The lender didn’t bid for Bank BPH SA, a unit of General Electric in Poland, Lovaglio said.

“We are looking for a target that will be complementary to our business,” he said. “We are monitoring the market, but there’s nothing concrete on the table.”

In the last year, Pekao exceeded the number of its clients by 200,000, reaching the 5 million threshold at the end of June.

“We want to keep this pace as new customers are key for our development,” Lovaglio said.