STOCKWATCH - RCI Downgrades Romania's Banca Transilvania to 'Reduce', Lifts Target Price

"We raise our 12-month target price for Banca Transilvania shares to 1.47 lei [$0.50/0.34 euro] from 1.23 lei, which is 7.0% below the September 18 closing price. Therefore, we cut our rating to Reduce from Hold, as we consider that the recent rally is not justified given the high cost of equity and the fragile macroeconomic environment," RCI said in a statement.

Banca Transilvania is included in the BET blue-chip index of the Bucharest Stock Exchange, BVB. Its stock last traded at 1.58 lei by 1237 GMT on Monday, unchanged from Friday's close.

RCI reduced its estimates for the bank’s loan growth over the 2009-2011 period but left mainly unchanged its non-performing loans scenario. These are expected to increase to 13.4% in 2009, peak at 16.3% in 2010 and slightly decrease to 16% in 2011.

RCI has revised its 2009 net profit forecast for Banca Transilvania to 3.0 million lei from an earlier estimate of a 27 million lei loss.

“The main thrust for our higher bottom line estimates was due to wider NIM [net interest margin] expectations through 2011, as the funding costs should continue their recent downward trend. Thus, we expect second-half NIM to expand by 20 basis points, being also helped by the recent reduction of reserve requirement,” RCI said.

Banca Transilvania's second-quarter net profit dropped by 84% on the year to 10 million lei. The bank sees its gross profit falling by 82% to 85 million lei in 2009.

(1 euro = 4.2684 Romanian lei)