ProCredit is a Germany-based group operating regional banks across South-Eastern and Eastern Europe 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.
We now expect ProCredit Holding (PCB) to reach its mid-term ROE target of 10% in FY21, driven by continued scaling of its operations through consistent loan book expansion (we forecast 13% growth in FY21) while maintaining the high credit quality of its portfolio. The group has also benefitted from some recent net interest margin (NIM) expansion. Despite the above, it continues to trade at a significant discount to book value (current FY21 P/BV at 0.6x), which we find hard to justify.
While the SEE and EE region benefitted from secular GDP growth of 3–5% pa in the five years prior to COVID-19, the pandemic triggered a recession in 2020 with a GDP decline of 2.0% in Emerging and Developing Europe, according to IMF data. The IMF forecasts a return to growth in 2021 with GDP up 6.0%. PCB’s in-depth, impact-oriented relationships with SME borrowers (93% of loan book at end June 2021), prudent credit risk management and solid capital base (CET-1 ratio of 13.7% at end June 2021) should help drive further loan book growth while reducing the impact of any macro headwinds. Longer term, PCB’s business should be assisted by the low banking sector penetration in the region (loan book to GDP of 40–45% on average vs >70% in Western Europe).