(Bloomberg) -- Poland’s largest lender PKO Bank Polski SA seeks to sustain its record profitability next years as it eyes acceleration of organic growth, including expansion in corporate loans despite an expected drop in interest rates.
PKO’s new strategy envisages that its return on equity, a key measure of the bank’s performance, will exceed 18% at the end of 2027, after the ratio peaked at 19% in the first half of this year. The plan, announced on Thursday, assumes that the Polish central bank will slash its reference rate gradually to 3.5% over the next three years from current 5.75%. Polish lenders have widely benefited from the country’s monetary tightening that started in 2022 as it boosted their interest income.
The state-controlled lender has shifted its earlier focus away from the opportunistic acquisitions in the region. In its new “strategy for growth and development” it said it wants to be the number one financial group in Poland, supporting the country’s costly energy transition. PKO shares traded little changed after initially rising as much as 2%.
The bank pledged to be able to pay dividends or offer share buy backs, with a possible payout ratio of 50%-75% of profit.
“We believe that we can focus on organic growth and boosting our market share without denting profitability,“ Chief Executive Officer Szymon Midera said at a news conference in Warsaw.
PKO also sought to reassure investors that the prospect of lower interest rates should be mitigated by revenues from mutual funds, insurance products, expanding into online platforms, a high cost discipline as well as increased lending activity.
The Warsaw-listed bank seeks to increase its market share in corporate lending to 18% from 16.5% currently and boost the number of its retail customers to 15 million from 11.4 million now by expanding in mortgage and consumer lending and launch a new mobile application. It plans to increase its presence abroad to nine new European markets, by opening branches that will serve Polish exporters.
“The strategy seems ambitious when it comes to boosting market share and volumes,” Michal Sobolewski, an analyst at BOS Bank SA said in an email. “It should help the bank prepare for a period of lower interest rates.”
PKO is the first large state-controlled company that has announced new plans after broad overhaul of management following the Oct. 2023 election. Woes over economic growth and sustainability of banks’ record earnings have halted a rally in Polish stocks, fueled earlier by the change of administration to the cabinet that was expected to be more investor-friendly.
Apart from PKO, investors await a new strategy by insurer PZU SA that is expected to shed more light on the future of its banking stakes. They will also be scrutinizing a strategy update to be presented by Orlen SA as the country’s biggest energy group is reviewing its investment projects initiated by the previous management. Both documents are slated to be released by the end of this year.
(Updates with an analyst comment, more details starting from the 2nd paragraph)
©2024 Bloomberg L.P.