ProCredit Holding is a Germany-based group operating regional banks across SEE, EE and Ecuador. The banks focus on SMEs and private middle-income and high earners. At end-September 2021, the group’s total assets stood at €7.9bn.
Investment summary
ProCredit Holding (PCB) continued to report good progress in realising its scaling potential with FY21 ROE of 9.7% versus 6.9% in FY19. Despite the risk of a global recession, we believe that monetary tightening (supporting PCB’s net interest margin) and a relatively favourable, regional mid-term outlook should translate into healthy earnings growth in its South-Eastern (SEE) segment (c 70% of PCB’s loan book at end-March 2022). Having said that, the war in Ukraine will weigh on PCB’s local bank (12.9% of PCB’s loan book as at May 2022) and could lead to further provisions in Ukraine in FY22. Nevertheless, we believe the market has overreacted, with PCB’s shares now trading at c 0.24x our expected FY22 tangible book value.
SEE and EE saw secular GDP growth of 3–5% pa in the five years prior to COVID-19 and the IMF estimates that GDP in emerging and developing Europe was up 6.7% in 2021 (vs -1.7% in 2020). However, Russia’s invasion of Ukraine has introduced macroeconomic and geopolitical uncertainty in the region: the IMF expects a 35% GDP contraction in Ukraine. PCB’s in-depth, impact-oriented relationships with SME borrowers (92% of loan book at end-March 2022), prudent credit risk management and solid capital base (CET-1 ratio of 13.4% at end-March 2022) should help weather the near-term turmoil. Longer term, PCB’s business should be assisted by the low banking sector penetration in the region.
