This report analyses the performance of the Bank for the 3Q2014. You will find all the necessary details regarding volume growth, market share, margin and asset quality development in the Bank.
The key highlights are:
Wüstenrot hypoteční's profit doubles...
Wüstenrot hypoteční banka reported a net profit of CZK 54.8 mil. in 3Q2014, nearly twice as much as in the same period last year.
...thanks to a fall in cost of funding
The whole profit improvement in the third quarter (and in the whole year actually) comes from the fall in the bank's cost of funding. The average cost of liabilities (deposits account for 69% of that) fell 20%, or 53 bp in the last 12 months to 2.13%.
Given the fact that average asset yield remained stable at 3.75%, the bank's net interest margin improved dramatically from 1.26% to 1.75% in the last year.
In other words, the cheaper funding brought a CZK 51 mil. improvement in the net interest income compared to a CZK 33 mil. increase in the bank's pre-tax profit in 3Q2014.
Re-pricing of the bank's assets and liabilities corresponds with the fact that Wüstenrot stopped gaining market share. It also put the bank nearly on a par with the market leader Hypoteční banka.
When comparing these two mortgage only banks on the market, two differences stand out:
• Cost efficiency
• Capital strength
Wüstenrot hypoteční banka seems to be a pretty cost efficient bank as costs account for less than 39% of income. The picture deteriorates somewhat when compared to Hypoteční banka's 17.6%.
The picture darkens even more on finding out that Wüstenrot pays its staff 2.2x more than Hypoteční banka on average.
Although the two banks cannot be compared so bluntly (Hypoteční has nearly 500 employees compared to Wüstenrot's fewer than 40, so management pay might distort the numbers heavily), it is clearly the cost side to watch at Wüstenrot.
Wüstenrot hypoteční banka's capital adequacy of 12.9% at the end of September 2014 is a respectable number, by all means. It's clearly a high enough figure for a bank with a ROE of nearly 14% while the market grows at 7% only.
However, the sector average accounts for 18% while Hypoteční banka's capital adequacy amounts to 34% (which is rather ridiculous).
The question is how well prepared is Wüstenrot hypoteční banka to gain market share in the future, or how to keep up with the market if demand rises fast?
You will find more details about the bank at www.helgilibrary.com/companies