A PROFIT 30% GREATER AT NINE MONTHS Brokers: Earnings of Banca Transilvania are encouraging

• The bank is on schedule for the revenue targets, but it needs to be careful with provision costs, analysts say

• Magda Sirghe, Tradeville: "The significant exposure to state-owned companies, such as Hidroelectrica and Oltchim, has increased expenses with risk provisions"

Banca Transilvania (symbol: TLV) posted a net profit of 265.43 million lei, at the end of September, up 30% compared to the same period of last year, according to the report published yesterday by the bank.

The 9-month financial results are in line with the expectations of Horia Ciorcilă, the Chairman of the Board of Directors of Banca Transilvania. He said: "We are optimistic when it comes to our ability to achieve the objectives we set for ourselves for this year, even though we still remain cautious when it comes to the local and international economic climate".

Brokers and stock market analysts say that the report by TLV is encouraging, but they still warn about some of the bank's expenditure categories.

"The results posted today (ed. note: yesterday) by TLV confirm the bank's profitability and the fact that it is successful in remaining profitable in the rather unfavorable economic context", said Marcel Murgoci, director of operations at Estinvest Focşani. "Unfortunately, due to the market trading volume being quite low, the price of the stock did not see an evolution fit for the results it posted. I am waiting for the results of the other two important banks (BCR and BRD) to make a comparison and to draw a conclusion on how the banking system behaved during the summer months".

Simion Tihon, a broker with "Prime Transaction", considers that the results of Banca Transilvania at the end of Q3 are encouraging: "The prudential policy concerning the costs of provisions over the last few years are currently causing the bank's financial results to grow in a balanced manner. The financial ratios place Banca Transilvania in a favorable position, but there is still the risk of increased provision expenses, which could affect the bank's future financial results.

The constant increase of revenues and expenses and of the customer portfolio are solid arguments for investors, which leads to the bank benefiting from an increase in the level of confidence".

Magda Sirghe, an analyst with "Tradeville", says that the results posted by TLV exceeded her expectations. "All of the revenue categories led to the increase in operating revenues: interest (+9%), commissions (+10%) and financial operations (+38%)", Magda Sirghe explained. "At the same time, net expenses with loan-loss provisions increased 21%, to 277.6 million lei, for the most part due to the significant exposure to companies in which the state is a majority shareholder such as Hidroelectrica and Oltchim, as well due to the recommendation of the auditor to have them increased by 40.6 million lei. With a ratio of non-performing loans of 10.93%, the bank is doing better than the average of the Romanian banking system".

The analyst also considers that the bank is on schedule with meeting its operating revenue target and has reached 82% of the gross profit target, targets assumed through the budget set for this year. "We warn against the 13% increase in operating expenses due to the expansion of the activity of the bank and the increase in personnel expenses, as well as on the solvency ratio, which is below the average of the Romanian banking system of 11.27%. The bank maintains a better liquidity than the Romanian banking sector, with a loan/deposit ratio below 1 (0.76)", the quoted analyst said.

• Operating revenues up 13%, expenses higher by 12.5%

According to the representatives of the bank, TLV received tax benefits due to the implementation of the prudential filters imposed by the adoption of the international accounting standards. The operating revenues of Banca Transilvania reached 1,157.53 million lei, 13% higher than on September, 30th, 2011. The upward trend was caused by the 38% increase of the revenues from financial operations, of net commissions 10%, and net interest revenues (9%), the bank's press release states.

At the end of Q3 2012, the operational expenses of Banca Transilvania were 616.97 million lei, compared to 548.34 million lei at the end of last year's similar period. On one hand, this increase came as a result of the bank's activity, and on the other hand, by the 13% increase in staff expenses, as the bank used the 20 million lei provision it set up in 2011, according to the representatives of the institution.

The net expenses with provisions for assets, other debts and loans amounted to 265.73 million lei, compared to 219.46 lei, at the end of Q3 2011. Net provision expenses amounted to 277.62 million lei, compared to 195.07 million lei at the end of Q3 2011, as the bank made sure it constantly kept on top of the quality of its loan portfolio.

"For prudential reasons, the financial statements for H1 2012 were audited. Following the external audit, the cost of loan risk will grow by 40.6 million lei, of which 17.6 million lei were already included in the financial statements of September 30, 2012, and the balance of 23 million leu will impact the profit account in Q4 2012", according to the quoted press release.

At the end of September 2012, the assets of Banca Transilvania reached 29,009.97 million lei, up 12% over December 31st, 2011. The increase was predominantly caused by the investments in assets available for sale, which have increased 23% on September 30th, 2012, reaching 7,171.96 million lei, as well as the 12% increase of the volume of loans, according to the bank.