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Blvd Mihajla Pupina 115v, Block A3/7 11 070 Belgrade & +381 (0)11 2099 500


Strong efficiency boosted profit

Analyst: Milos Bijanic Tel: +381 (0)11 2099 574 Email:

March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

AIK Banka (AIKB) is an independent modern bank, operating for more than 35 years in the domestic banking system. It was founded in 1976 as the internal bank of the Agro-industrial Combine Nis, and in 1993 it obtained the license and officially began operating as a bank. In spite of extremely harsh business conditions, AIK Banka has managed to establish the position in the market as one of the leading, solvent, liquid and profitable banks, a bank with a clear balance sheet that meets all its liabilities and settle its debts to the business partners and clients in time. Owing to own capital capacities and liquidity, solvent and profitable business operations, the Bank has achieved a title of a contemporary bank giant in Serbia. In this light, the bank has been awarded as The Best Bank by Capital Strength and The Best Bank by ROA. AIK Banka is also one of the best capitalized banks in the region, and thus, significantly mitigates the risks regarding its asset quality.
General Information Company Name Country of Domicile Home City Sector Security Type ISIN CFI Code Primary Stock Exchange Stock Exchange Ticker Bloomberg Ticker Stock Exchange Segment Trading Method Market-maker Benchmark Number of Shares Market Float Auditor Fiscal Year
Source: Sinteza Research

AIK Banka Serbia Nis Financial Ordinary RSAIKBE79302 ESVUFR Belgrade Stock Exchange (BSE) AIKB AIKB SG Equity Open Market Continuous No Belex15 Index 8,861,501 79.65% KPMG DOO Beograd January 1st December 31st

Market and Business Performance

There are total of 33 banks in the Serbian banking sector. From 11 domestic banks, only 2 are privately owned - AIK and Univerzal Banka. Total assets of the banking sector at the end of 9M 2012 were RSD 2,843bn (1.2% increase qoq), while total capital was 574bn (1.1% rise qoq). AIK Banka belongs to the top 10 banks that operates in Serbian market and is ranked eight by assets with a 5.4% market share, while amongst domestic banks, it holds second place, after its biggest rival, Komercijalna Banka. By total profit, the bank has been amongst top five and the second ranked within domestic banks. AIK Banka during 2012 employed around 514 people within 86 branches. The number of branches has been growing each year. It has one of the lowest number of employees per point of sale (around 6 employees per sale unit) in all sector. According to this, AIK is one of the most efficient banks and has many options to boost its effectiveness further and to reduce cost to income ratio which is currently at 51% (sector average is around 57%). In last couple of years, the bank recorded increase in all main types of assets and its compound quarter growth rate was near 6%. The banks main strengths are high efficiency and profitability as well as excellent service and solid number of branches and diversification. AIK is also the healthiest bank amongst those listed on the BSE and has excellent free float and well-diversified shareholding structure which are important strengths for the stock. On the other side, the most important business risk factors are very competitive market which is now more intensively than ever as terms for banks operations were very tough in last year, and fall of interest rates as country becoming more stable. Also, real sector is in very poor situation so there is no high interest to credit it, though the rates are high as risk is greater. Still, we think that taking this risk as well as investing more in retail business will in long term help bank to take more market share. Further analysis of banks business and its surroundings is presented in SWOT and PEST analysis.


March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

SWOT Analysis Strengths Weakness

domestic brand, the healthiest bank listed on the BSE, high efficiency, productivity and profitability, product line diversification, services (web site, online banking, geographical diversification, solid number of branches) diversified shareholding structure and large free float the most liquid banking stock on the BSE.

intensely competitive market, high exposure to currency risk, fall of interest rates, undeveloped stock market, reluctance to go on listing market.

Opportunities investment banking, higher participation in retail banking, possible sale of 20% stake of a single major shareholder (ATE-Piraeus bank), expansion on regional markets, acquisition, dividend payments.


unpredictable FX, slow economic growth, domestic regulations and pressures and stricter banking regulations, further industry consolidation.

Source: Sinteza Research

PEST Analysis Factors - investment banking - higher participation in retail banking - possible sale of 20% stake of a single major shareholder (ATE - Piraeus) - expansion on regional markets - acquisition - dividend payments - unpredictable FX - slow economic growth - domestic regulations and pressures and stricter banking regulations - further industry consolidation Total score
Source: Sinteza Research

Influence -5 do 5 0 4 3 1 1 0 -3 -3 -2 -1 -

Weight 1-5 2 5 4 2 3 2 3 4 3 3 -

Score 0 20 12 2 3 0 -9 -12 -6 -3 7

Total score for the banks outer factors is 7 which mean that the outlook is positive and that there are more favorable than negative possibilities for growth. The maximum or the highest possible score on these factors is 90 (at the moment), which indicates that positive terms are not so effective, but at the same time there is a lot of space for growth and development in next years. Ratio of current to maximum score is showing that AIK Banka can use only 8% of its total potential for now (in short-term period). On the opposite side, the lowest negative grade is -65, which is telling that there is still plenty of risk for future development, but it is not equal to positive factors, so it can be concluded that there is much more probability for growth than for decease in business. In order to achieve maximum growth and use its full potential, AIK Banka needs to continue to work on its retail banking (as it is one of the main factors for growth) and to finance real sector as rates are higher than for deposits and to use state driven subventions and support for small and medium enterprises. One way is to acquire some weak bank, as consolidation in this sector is highly probable. On the other side, this can be important threat as at the same time some competitors can become stronger. SINTEZA INVEST GROUP | AIKB - 2012 3

March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

Shareholding Structure
Shareholding structure is solidly diversified, with excellent free float which makes this bank one of the

most liquid stocks on the BSE. The largest banks shareholder is Greece-based ATE bank (its healthy assets was taken by Piraeus bank), which bought the stake of 20.35% in AIK in 2006 at the share price of RSD 4,190 (including stock dividend adjustments made in 2008 (4%), 2009 (14%) and 2011 (4.5%)). As Greece banks are under pressure, a possible sell could have strong impact on share price, thus this is one of the most important factors to watch in next period. During 2012, mostly in summer, domestic company Sunoko (member of MK Group) increased its stake beyond 5% (as it got approval by the NBS) to 12.57% and currently, together with affiliates (other members of MK Group) holds 15.25% of total AIK Bankas shares.

ATE bank 20.35% Free float 67.08% Sunoko company 12.57%

Financial Performance
In 2012, interest income was almost flat yoy (1.5%), but the hole sector had same problem as terms for banking operations were very hard during the period. Number one bank in the market by assets, Banca Intesa had lower growth yoy 0.8%. On the other side, the second largest bank and main competitor, Komercijalna Banka experienced solid rise of 11.6% yoy. According to the yearly plan released in April 2012, AIK Banka planned to generate RSD 15bn in interest income (which is 15.4% more than achieved) while RSD 9.5bn in net interest income (27% more than realized). Although it was not expected that AIK achieve its plan for 2012, the yoy rise was still below our perceptions from 9M12 (around 4%). The average growth rate in last four years was 3.75%. 2013 year will also be tough for the banking sector, thus, if AIK Banka realizes any growth, it will be a success. On the other side, although interest income increase was very low, EBIT and EAT soared most in last four years as AIK boosted its efficiency and reduced interest expense by very good 16%. Compared to peers, Banca Intesa EBIT rose 3% while Komercijalna Banka had 7% rise yoy. As expected, although currency changes were little more stable in 4Q12, FX losses were huge (around one third of EBT) due to the high FX volatility during first 9M12. During 2012, write-offs saw yoy rise by 35%, and amounted to RSD 3.5bn, which is the largest sum in last four years. Compared to peers, Intesa had RSD 6.3bn, while Komercijalna saw RSD 1.4m in write-offs, which was a little unexpected for the second largest bank in the market with twice more assets and given loans than AIK Banka. Ratio of write-offs to given loans&deposits for AIK Banka at the end of 2012 was 3.5% (2.4% in 2011), for Banca Intesa 1.9% (1.4% in 2011) and for Komercijalna was 0.7% (0.7% in 2011). The important note here is that AIK Banka is one of the most rigorous banks in the market when comes to the write-offs. Due to lower than expected net interest income and huge FX losses and also very high write-offs, EBT was not at the planned level of RSD 5.6bn and our expectations from 9M, but, it still recorded an excellent jump of 21% yoy. EAT had similar rise yoy 28%. As write-offs and FX losses should be lower as fluctuations should be more stable this year, and as bank applied new development strategy aiming for higher participation in the market, the profit should continue to rise, but hardly at this rate.
FX EURRSD Statement of Earnings (m RSD) Interest Income Growth 93.95 2009 12,163 9% Com. Size 100% 103.04 2010 11,748 -3% Com. Size 100% 101.95 2011 12,655 8% Com. Size 100% 113.04 2012 12,839 1% Com. Size 100% -


March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

Interest Expense Net Interest Income Growth Fee and Commission Income Growth Fee and Commission Expenses Net Fee and Commission Income Other Operating Income Other Operating Expenses Operating Income (EBIT) Growth Other Non-Operating Items FX Gains/Losses Write-Offs Net Income Growth Source: Sinteza Research 4,545 7,618 18% 793 -50% 180 613 103 2,018 6,316 -1% -737 -400 -2,528 5,579 2% 37% 63% 7% 1% 5% 1% 17% 52% -6% -3% -21% 46% 5,107 6,641 -13% 860 8% 128 732 598 2,437 5,534 -12% 58 -1,152 -1,968 5,592 0% 43% 57% 7% 1% 6% 5% 21% 47% 0% -10% -17% 48% 6,304 6,351 -4% 1,047 22% 114 933 370 2,468 5,186 -6% -2,212 -256 -2,629 2,974 -47% 50% 50% 8% 1% 7% 3% 20% 41% -17% -2% -21% 24% 5,298 7,541 19% 925 -12% 142 783 511 1,808 7,027 36% -3,385 -2,447 -3,455 3,642 22% 41% 59% 7% 1% 6% 4% 14% 55% -26% -19% -27% 28% -

Operating Income
m RSD 14,000 12,000 10,000 8,000 30% 6,000 4,000 2,000 0 2009 Interest Income 2010 2011 2012 Other Fee&Commission 20% 10% 0% 2009 % 60% 50% 40%





Operating Margin Profit Margin

Net Interest Margin

When comes to balance sheet statement, AIK Banka succeed perfectly in achieving its plan to increase assets by 7.6% to RSD 154bn in 2012 and overcame estimates for the loan making activity (RSD 89.3bn) by 8% making RSD 96bn (callable and non-callable loans and deposits). Compared to year before, given credits fell by 6% (Intesa saw fall by 5%, while Komercijalna recorded rise of 4%). Non-callable loans rose 2% yoy, while 4-year-average growth was 9.5%. This position participated with 44%, a light decrease from 47% in 2011. Similar to sector, cash saw huge rise of 54% yoy (around EUR 100m), due to the instability of macroeconomic situation which resulted in lower investment in real sector. Most of the banks saved cash waiting for the better business conditions and lower risks. This was expected, as similar thing happened during previous quarters. On the credit side of the balance sheet, the bank increased taken deposits by 9% over 2012, but it is still far less than 4-year-average growth of 22.5%. Intesa and Komercijalna Banka both saw double digit rise in deposits yoy - 11% and 14% respectively. As the deposit taking activity rose and total credit activity fell, the coverage of given credits by taken deposits and loans declined to below 1 for the first time in five years. SINTEZA INVEST GROUP | AIKB - 2012 5

March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

FX EURRSD Balance Sheet (m RSD) ASSETS Growth Cash and Cash Equivalents Callable Deposits&Loans Loans to Customers Growth Other Assets LIABILITIES Deposits Growth Loans from Customers Other Liabilities EQUITY Growth Stated Capital Others Off-Balance positions Source: Sinteza Research 95.89 2009 109,421 31% 12,093 11,405 64,454 17% 21,469 70,328 63,806 40% 3,789 2,733 39,094 15% 25,391 13,703 89,551 Com. Size 100% 11% 10% 59% 20% 64% 58% 3% 2% 36% 23% 13% 82% 105.50 2010 141,583 29% 5,834 20,220 96,671 50% 18,858 97,415 91,188 43% 2,120 4,107 44,168 13% 25,391 18,777 113,854 Com. Size 100% 4% 14% 68% 13% 69% 64% 1% 3% 31% 18% 13% 80% 104.64 2011 143,193 1% 7,764 36,357 66,619 -31% 32,453 96,363 89,609 -2% 2,124 4,630 46,830 6% 26,210 20,620 118,180 Com. Size 100% 5% 25% 47% 23% 67% 63% 1% 3% 33% 18% 14% 83% 113.72 2012 154,352 8% 11,921 28,144 68,203 2% 46,084 104,090 97,624 9% 2,303 4,163 50,262 7% 26,518 23,744 102,197 Com. Size 100% 8% 18% 44% 30% 67% 63% 1% 3% 33% 17% 15% 66%

Source Structure
% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 Equity 2010 2011 2012 Deposits Cash 0 2009 60,000 40,000 20,000 100,000 80,000 m RSD 120,000

Asset Structure




Loans from Customers and Banks

Callable Deposits and Loans

Loans to customers

RATIOS LIQUIDITY Cash/Taken Deposits Cash/Taken Loans Cash/Taken Loans&Deposits Made Loans&Deposits/Taken Loans&Deposits SOLVENCY Equity/Assets Cash/Assets Made Loans&Deposits/Assets PROFITABILITY






0.18 4.99 0.18 1.36

0.19 3.19 0.18 1.12

0.06 2.75 0.06 1.25

0.09 3.66 0.08 1.12

0.12 5.18 0.12 0.96

0.41 0.10 0.77

0.36 0.11 0.69

0.31 0.04 0.83

0.33 0.05 0.72

0.33 0.08 0.62


March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

Operating Margin Net Interest Margin Interest Income/Interest Bearing Assets Interest Expense/Interest Bearing Liabilities Spread Profit Margin Return on Assets Return on Equity
Source: Sinteza Research

49.8% 10.0% 17.3% 9.9% 7.4% 42.7% 6.6% 16.1%

48.4% 10.9% 17.4% 6.7% 10.6% 42.7% 5.8% 15.3%

41.9% 6.9% 12.2% 5.5% 6.7% 42.3% 4.5% 13.4%

36.9% 5.8% 11.5% 6.9% 4.6% 21.1% 2.1% 6.5%

49.2% 7.6% 12.9% 5.3% 7.6% 25.5% 2.4% 7.5%

AIK Banka is the largest bank by market cap on the BSE with the largest participation in the Belex15 index basket of 20% (only NIS has the same yet). The stock is trading in market segment called Open Market, which has less quality than a Listing Market, but it is also a part of the regulated organized market segment on the BSE. The number one bank by market cap and liquidity should be on the listing market, but for now, the bank has no interest in that. During a long time in 2012, the price was at RSD 1,350-1,400 mainly as a lack of investors and overall low activity on the BSE, especially in the banking sector which saw huge disturbance thanks to Agrobankas default and few more state-run banks which continued to struggle with results. The investors, mostly foreign ones lost confidence in domestic banks, so their strong sell kept prices low and the only strong buyer in that period was Sunoko company (member of MK Group) which increased ownership interest to 12.6% as NBS approved that its stake can be larger than 5% (by the law, any buyer must get approval from NBS to raise its stake beyond 5% in any bank in Serbia). As the positive trend occurs on the BSE, since the start of November the price recorded excellent jump of more than 20% and crossed the psychological mark of RSD 1,700 but it finished 2012 at RSD 1,566, which made 5.6% positive yield. The stock is currently trading around levels of RSD 1,600-1,650 and for the stronger growth, continuation of the rise in world markets is necessary (as domestic market follows the foreign) as well as stability in domestic banking system. The bank pays out cash preference dividends once per year and for 2011 the gross dividend was RSD 114 per share (15.4% div. yield at the moment). Last year, the bank also paid out dividend on ordinary shares - pay-out ratio of 6.7% and gross dividend of RSD 5.9 per share (0.4% div. yield). The dividend is also expected for 2012, while dividend day was December 31, 2012.
MAIN STOCK VALUES Price Face Value Book Value per Share Basic Earnings per Share* Dividend per Share Dividend Yield Price-to-Earnings Price-to-Assets Price-to-Book Market Cap (m RSD) Enterprise Value (m RSD) Enterprise Value to EBIT 2008 2,550 1,900 3,551 616.5 0.0 0.0% 4.14 0.27 0.72 22,597 17,285 2.71 2009 2,472 1,900 4,127 629.1 0.0 0.0% 3.93 0.20 0.60 21,906 15,080 2.39 2010 3,952 1,900 4,700 630.5 0.0 0.0% 6.27 0.25 0.84 35,021 33,041 5.97 2011 1,483 1,900 5,000 335.1 5.9 0.4% 4.43 0.09 0.30 13,142 8,654 1.67 2012 1,566 1,900 5,387 410.5 3.82 0.09 0.29 13,877 5,360 0.76 13-Mar-13 1,645 1,900 5,387 410.5 4.01 0.09 0.31 14,577 5,945 0.85

*calculated on total outstanding (not weighted average) number of ordinary shares Source: Sinteza Research


March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

INFORMATION ON STOCK PRICE Last Price All-Time-High All-Time-Low 1M Change 3M Change YTD 52-Week-Change
Source: Sinteza Research

INFORMATION ON TRADING ( RSD) Last Trading Value 5-Day-Trading Value 30-Day-Trading Value 90-Day-Trading Value 90-Days Average YTD Average Last Trading Volume 5-Day-Trading Volume 30-Day-Trading Volume 90-Day-Trading Volume 90-Days Average YTD Average
Source: Sinteza Research

13-Mar-13 419,354 28,836,604 108,893,481 240,720,908 3,820,967 3,492,698 255 17,473 66,805 146,891 2,332 2,123

13-Mar-13 1,645 15,829 1,150 5% -3% 5% -21%

Price and Turnover

RSD 2,350 m RSD 800 700 600 1,950 500 400 300 200 1,350 100 0 19-Feb-13 % 150 140 130 120 110 100 90 80 70 30-Dec-11

Benchmark Comparison


Belex15 Index



Share Price

1,150 30-Dec-11






Although its business was affected by bad business conditions and overall fall of banking activities in 2012, AIK Banka succeed in boosting its efficiency and reducing costs and thus it saw excellent jump of net income by near 30%. We expect that further implementation of the program of retail business with growing retail

network would have solid impact on the market share in next period. As situation in banking sector is very intense and there is a real chance for consolidations, the bank can give its word on this, as it is now strong enough to take over some weaker bank with lower market share. This can be the main boost to the bank in its aim to get more clients and higher participation in the market that should secure its further growth. As competition is very strong, and market is already well diversified, this can be maybe the only way in obtaining larger client base. Another boost, directly focused on the share price could be sale of ATE (Piraeus) bank stake. As RSD/EUR volatility should be lower in 2013 compared to 2012, this FX risk should not be large, thus the main risk in this paper stays the position of write-offs. Compared to other investing alternatives, AIK Banka is still one of the most undervalued stocks (the most undervalued amongst financial stocks) and we expect it to continue its growth on a long term. The rise may be accelerated if positive trends continue in the world markets as BSE is sensitive to theirs movements.
Thus, the main factors to watch in next period are potential sale of ATE (Piraeus) bank stake as well as position of write-offs.


March 15, 2013 AIK Banka - Serbia - Financial Quarterly update

Sources Belex, Bank, Sinteza Invest Group, Bloomberg... Analyst Certification The views expressed in this report accurately reflect the personal views of undersigned analyst about the issuer of the security. The undersigned analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. The recommendation has not been disclosed to anyone prior to public release. Disclaimer The data in this material is of the informative nature and is intended exclusively as a basis for the further reconsideration. The company Sinteza Invest Group ad has prepared this material with all the necessary care and based on the data it received from the sources it believes to be reliable. Sinteza Invest Group ad does not guarantee for the accuracy, promptness, completeness and correctness of the data in this material. The information, opinions, estimates and forecasts may well be affected by subsequent changes in market conditions. This report does not take into account the investment objective, financial situation or particular needs of any particular investor. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision based on the recommendations in this report. This report is disseminated and available primarily electronically to professional investors and may not be reproduced in whole or in part, or published for any purpose. Additional information is available on request.