+++ (BBG) Millennium Surprise Signals Upside for Polish Bank Earnings

(Bloomberg) — An unexpected increase in the profit of Bank Millennium SA, the first major Polish lender to publish its first quarter report, is boosting expectations for the earnings  of its peers.

The nation’s banks are going through a rough patch after years of rapid growth as the government introduced a new tax on the industry last year and regulators plan to tighten risk recommendations. The industry’s combined earnings in 2017 are expected to drop 12 percent from last year, which was boosted by a one-off payment from Visa Inc., according to forecasts from the financial market supervisor KNF.

Net income at Millennium, the Polish unit of Portugal’s Banco Comercial Portugues SA, advanced 2.4 percent to 140.5 million zloty ($36 million) in January-March, exceeding an
average analyst estimate of 107.8 million zloty. It beat all predictions, which saw profit dropping. Net interest income rose 12 percent, while income from fees soared 24 percent.

“It’s a big and positive surprise, especially in terms of core revenue” generation accompanied by “good cost control,” according to Lukasz Janczak, an analyst at Ipopema Securities SA. “This will strengthen expectations for other banks to beat estimates that may be set too low, judging by Millennium earnings.”

Bearish Estimates

Analysts surveyed by Bloomberg predict Bank Pekao SA, the country’s second-biggest lender, will see its profit slumping 36 percent in the first quarter, with BZ WBK SA likely to suffer a 19 percent decline.

At Millennium, better-than-predicted revenue helped offset increased contributions to the bankruptcy fund. Unlike last year, banks had to pay higher contributions in the first quarter rather than spread them evenly over the year. The bank booked a 57.1 million zloty fee for the fund, which is more than double the amount a year earlier. At the same time, it paid 14.9 million zloty more in a banking levy in the quarter.

The shares surged as much as 11 percent, the most in more than two months, and closed 7.9 percent higher at 6.95 zloty. The country’s benchmark WIG20 Index advanced 2.5 percent, while the WIG-Bank gauge of lenders gained 3.7 percent.

Millennium earnings show there is a “light in the tunnel” and a “chance for upside” surprises, according to Marcin Gatarz, an analyst at Pekao Investment Banking SA in Warsaw. Bank earnings may get an additional boost from a rebounding economy
in Poland this year, where gross domestic product is set to expand 3.6 percent, he said.