PKO BP’s Profit Surge: A Catalyst for Eastern European Banking Recovery?
29min read Poland’s banking sector faces headwinds, from lingering inflation to geopolitical uncertainty, yet PKO Bank Polski S.A. (PKO BP) is defying the odds. The country’s largest retail bank reported a 14% year-over-year surge in recurring net profit to PLN 1.7 billion in Q1 2025, marking a stark contrast to its peers. While Bank Handlowy, a Citigroup subsidiary, saw net profit dip 4% year-over-year, PKO BP’s resilience highlights a strategic shift: resolving legacy risks and capitalizing on Poland’s economic momentum. This performance isn’t just a blip—it signals a turning point for the bank and a compelling investment opportunity in a region still navigating banking sector turbulence.
Legacy Risks Are Behind PKO BP—Now the Focus Is on Growth
The Swiss franc loan saga, a years-long headache for PKO BP, is finally closed. The bank’s successful resolution of its Swiss franc-denominated mortgage portfolio—once a major drag on earnings—has removed a critical overhang. This milestone, combined with a 4.5% non-performing loan (NPL) ratio (among the lowest in the sector) and a cost of risk at just 33 basis points, underscores its robust balance sheet. Meanwhile, Bank Handlowy’s Q1 results, while better than expected, still grapple with uneven performance: a 27% sequential jump in operating expenses hints at lingering inefficiencies.
PKO BP’s Q1 results reveal a bank in command of its destiny:
- Net interest income rose 11% to PLN 3.414 billion, driven by a wider net interest margin (4.29%) and 4% growth in total loans to PLN 186 billion.
- Digital sales hit 89% of total sales, with mobile banking users up 9% to 3.5 million, showcasing a modernized customer base.
- ROE of 20.5% outpaces peers, with plans to maintain ROE above 18% through 2027.
Outperforming Peers in a Testing Environment
While Bank Handlowy’s Q1 net profit fell 4% year-over-year, PKO BP’s 14% growth defies regional trends. The contrast is stark:
- Asset quality: PKO BP’s NPL ratio of 4.5% is half that of Bank Handlowy’s (9.2% in 2024).
- Cost discipline: PKO BP’s cost-to-income ratio (38.5%) is sharply better than Bank Handlowy’s 61% (Q1 2024), though the latter trimmed costs in Q1 2025.
- Earnings stability: PKO BP’s Q1 profit exceeded its own guidance, while Bank Handlowy’s results remain volatile, with OPEX spikes and uneven net interest income.
Why Poland’s Growth Fuels PKO BP’s Advantage
Poland’s economy is expected to expand by 4% in 2025, a robust backdrop for PKO BP. The bank’s strategic focus on mortgage lending, microfinance, and SME loans aligns perfectly with Poland’s needs. Key segments like MID+SME financing grew 12% year-over-year, while cash loans surged 11%, reflecting demand for credit in a strong labor market.
Bank Handlowy, by contrast, lacks the same scale and geographic focus. Its Q1 results were buoyed by one-time gains in financial/corporate income (+9% sequentially), but its net interest income fell 1% year-over-year, highlighting PKO BP’s edge in core lending.
The Investment Case: A Play on Polish Stability
PKO BP’s shares trade at a 1.2x price-to-book ratio, a discount to its historical average and a fraction of regional peers. With a dividend payout ratio of 75% (aligning with its 50–75% target) and a Tier 1 capital ratio of 16.2%, the bank offers safety and returns. The resolution of legacy risks has also unlocked strategic flexibility, with plans to boost digital sales and cut costs further.
Investors should note: PKO BP isn’t just a banking play—it’s a proxy for Poland’s economic resilience. With the Swiss franc saga behind it and the economy humming, PKO BP is positioned to capitalize on growth while peers like Bank Handlowy struggle with inconsistency.
Why Act Now?
- Catalyst-driven upside: PKO BP’s 2025–2027 strategy targets an ROE above 18% and a cost-to-income ratio below 35%, achievable given current trends.
- Valuation leverage: A rebound in banking sector sentiment could lift PKO BP’s valuation multiple.
- Sector differentiation: In a region where banking stocks are still recovering from 2023’s turmoil, PKO BP’s stability stands out.
The verdict? PKO BP’s Q1 results are more than just a profit beat—they’re proof of a bank that’s turned the page on its past. With Poland’s economy in its favor and peers lagging, this is a buy signal for investors seeking exposure to a region on the mend.
Bottom Line: PKO BP’s resilience and strategic execution make it a rare gem in Eastern European banking. Resolve lingering doubts about its legacy risks—this stock is primed to lead the sector’s recovery.
