bank bph and recent trends in poland's banking sector
TRANSCRIPT
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RECENT TRENDS IN POLAND'S BANKING SECTOR ANDBANK BPH 3Q 2014
December 2014
Inteliace Research
Summary
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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AGENDA
Banking sector
Bank BPH
2
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POLAND'S BANKING SECTOR: SUMMARY AS OF Q3 2014
All key banking volumes keep growing. Most growth taking place in retail segment. Deposits grow faster than loans.
Volumes
Deposit margins have been under pressure again due to falling market interest ratesfollowing central bank rate cuts.
Lending margins are in an increasing trendMargins
The overall lending quality is improving. Both consumer and corporate debt showdecreasing NPL rates. The only loan category where quality is falling is mortgage. The cause is ageing portfoliosand only limited dilution from new loans due to very slow mortgage origination.
Lending Quality
Total interest revenues are increasing thanks to growing volumes.
Pressure on fee and commission income persists mainly due to regulatory developments(e.g. payment card interchange, fx mortgage repayment, bancassurance etc.).
However, slowing f&c income is more than compensated by interest income and fallingrisk cost.
Profitability
3
1
2
3
4
Source: Inteliace Research
SUMMARY
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-6
-4
-2
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1416
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D e c - 1
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M a r - 1
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J u n - 1 1
S e p - 1 1
D e c - 1
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M a r - 1
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J u n - 1 2
S e p - 1 2
D e c - 1
2
M a r - 1
3
J u n - 1 3
S e p - 1 3
D e c - 1
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J u n - 1 4
S e p - 1 4
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-4
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D e c - 1
0
M a r - 1
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J u n - 1 1
S e p - 1 1
D e c - 1
1
M a r - 1
2
J u n - 1 2
S e p - 1 2
D e c - 1
2
M a r - 1
3
J u n - 1 3
S e p - 1 3
D e c - 1
3
M a r - 1
4
J u n - 1 4
S e p - 1 4
4
BOTH RETAIL DEPOSITS AND RETAIL LOANS ARE GROWING
Annual growth rate in outstanding loans / deposits at banksDec.2010-Oct.2014
Demand deposits
in%
Source: NBP, Inteliace Research
Householddeposits keepgrowing. The termstructure isfluctuating inlinewith changinginterest ratesexpectations
After a temporaryslow-down in 2014,mortgage loans aregrowing again fasterthan consumerlending.
Mortgage loans
HOUSEHOLDS
Term deposits
HH Loans (billion PLN)HH Deposits (billion PLN)
Consumer loans
in%
Totaldeposits
Total HH loans
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-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
D e c - 1
0
M a r - 1
1
J u n - 1 1
S e p - 1 1
D e c - 1
1
M a r - 1
2
J u n - 1 2
S e p - 1 2
D e c - 1
2
M a r - 1
3
J u n - 1 3
S e p - 1 3
D e c - 1
3
M a r - 1
4
J u n - 1 4
S e p - 1 4
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
D e c - 1
0
M a r - 1
1
J u n - 1 1
S e p - 1 1
D e c - 1
1
M a r - 1
2
J u n - 1 2
S e p - 1 2
D e c - 1
2
M a r - 1
3
J u n - 1 3
S e p - 1 3
D e c - 1
3
M a r - 1
4
J u n - 1 4
S e p - 1 4
5
THE GROWTH IN CORPORATE VOLUMES HAS BEEN GRADUALLY ACCELERATING SINCEEARLY 2013
Source: NBP, Inteliace Research
Loans in c/a
CORPORATEAnnual growth rate in outstanding loans / deposits at banksDec.2010-Oct.2014
in%
Corporate Loans (billion PLN)Corporate Deposits (billion PLN)
The growth incorporate volumeshas been positive andincreasing since thebeginning of 2013.
Corporate depositshave been growingslightly faster thancorporate loansrecently. However,looking forward, it iscorporate lending ,which is expected togrow faster thandeposits.
Demand deposits
Term deposits
Investment &other loans
Total deposits Total loans
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THE QUALITY OF CONSUMER AND CORPORATE LENDING HAS RECENTLYIMPROVED. HOWEVER, MORTGAGE LOANS ARE STILL DETERIORATING
The share of non performing receivables in total lending bysegment/product, Jan.2010-Oct.2014
Consumer loans
in %
Source: NBP, Inteliace Research
Quality of lending portfolios ofbanks is improving across all keysegments with exception ofmortgage loans.
Mortgage lending quality isgradually deteriorating asmortgage portfolios of banks aregetting older and there is littledilution due to low new sales.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
J a n - 1 0
M a r - 1
0
M a y - 1
0
J u l - 1 0
S e p - 1 0
N o v - 1
0
J a n - 1 1
M a r - 1
1
M a y - 1
1
J u l - 1 1
S e p - 1 1
N o v - 1
1
J a n - 1 2
M a r - 1
2
M a y - 1
2
J u l - 1 2
S e p - 1 2
N o v - 1
2
J a n - 1 3
M a r - 1
3
M a y - 1
3
J u l - 1 3
S e p - 1 3
N o v - 1
3
J a n - 1 4
M a r - 1
4
M a y - 1
4
J u l - 1 4
S e p - 1 4
Corporate (big) loans
Mortgage loans
SME loans
Mortgage NPL ratesare growing
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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8
DEPOSIT MARGINS ARE SHRINKING AGAIN AFTER THE RECENT DROP INREFERENCE RATES
* Stock of term deposits or loans respectively (loans and funds in current account excluded)** Theoretical margin calculated against WIBOR 6M*** Consumer lending : Loans to households other than mortgageSource: NBP, Inteliace Research
Deposits* (stock, average)
N o m i n a l I n t e r e s t p a i d
o r c h a r g e
d b y b a n k
I n t e r e s t M a r g i n *
*
( o n W I B O R 6 M
)
Loans* (stock, average)
Dec.2011-Sep.2014, in percent, PLN volumes only
Deposit marginsare under pressureagain after the dropof reference ratesin 2014.
Lending marginshave stabilized (at10% for consumerlending and ~2% forcorporate loans) asbanks are able topass changes inmarket interestrates on clients.
00.5
11.5
22.5
33.5
44.5
55.5
66.5
77.5
8
D ec -1 1 M ar-1 2 J un -1 2 S ep -1 2 D ec -1 2 M ar-1 3 J un -1 3 S ep -1 3 D ec -1 3 M ar-1 4 J un -1 4 S ep -1 40
2
4
6
8
10
12
14
16
D ec -1 1 M ar-1 2 J un -1 2 S ep -1 2 D ec -1 2 M ar-1 3 J un -1 3 S ep -1 3 D ec -1 3 M ar-1 4 J un -1 4 S ep -1 4
-1.50
-1.00
-0.50
0.00
0.50
1.00
D ec-11 Mar-1 2 J un -1 2 Sep -1 2 D ec-1 2 Mar-1 3 J un -1 3 Sep -1 3 D ec-1 3 Mar-1 4 J un -1 4 Sep -1 40
2
4
6
8
10
12
D ec -1 1 M ar-1 2 J un -1 2 S ep -1 2 D ec -1 2 Ma r- 13 J un -1 3 S ep -1 3 D ec -1 3 M ar-1 4 J un -1 4 S ep -1 4
Retail
Corporate
Corporate
Retail***
Corporate
Retail (consumer)***
Deposit margins wenttemporarily down after
CB rates were cut
Lending marginsare steady
Corporate
Retail
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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9
REDUCED EMPLOYMENT AND SHRINKING BRANCH NETWORKS CONTRIBUTETO HIGHER PRODUCTIVITY IN POLAND'S BANKING SECTOR
Evolution of bank outlets and employment at banks*Dec.2012-Jun.2014
in thousand
* Data for all banks operating in Poland including cooperative banks and foreign bank branchesSource: NBP, KNF, Inteliace Research
14.6
14.7
14.8
14.9
15.0
15.1
15.2
15.3
15.4
15.5
15.6
166
167
168
169
170
171
172
173
174
175
176
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
87.6 88.8 90.7 93.0 91.8
94.6 97.2 101.0
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Average bank* assets per bank outletin million PLN
7.7 7.9 8.1 8.2 8.1 8.3 8.6 8.9
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Average bank* assets per bank employee
in million PLN
11.4 11.3 11.2 11.3 11.4 11.4 11.3 11.3
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Average number of employees per bank* outletin FTE
+15%
+16%
0%
Change (in%)Dec.12-Sep.14
Total employment(left-hand scale)
Total number of bank outlets(right-hand scale)
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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AGENDA
Banking sector
Bank BPH
10
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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SINCE 2012, BANK BPH HAS BEEN SHRINKING WHILE THE BANKING MARKETHAS BEEN GROWING
* Compound Annual Growth RateSource: BANK BPH, KNF, Inteliace Research
BANK BPH total assets evolution, 4Q 2012-3Q 2014CAGR*
Market share evolution, 4Q 2012-3Q 2014
PLN billion
Percent (of commercial banks and foreign bank branches assets)
UNCONSOLIDATEDACCOUNTS
33.5 33.7 33.5 32.7 32.1 31.0 30.7 30.2
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
2.65 2.63 2.56 2.45 2.45 2.31 2.21 2.11
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
-12.3
-5.7
BANK BPH has beencontinuously gettingsmaller since 2012. Atthe same time thebanking market hasbeen growing.
As a consequence ofnegative growth rates,the market share ofBANK BPH, ifmeasured by assets,has fallen to 2.1% in
third quarter of 2014.
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
P H ,D
e c e m b e r 2
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4
226.0
160.4
115.2
113.1
93.6
70.9
66.4
60.3
56.2
49.5
40.2
34.9
30.7
30.2
29.2
Total TOP 15 = 1 177 billion PLN
BANK BPH RANKED # 14 IN TERMS OF TOTAL ASSETS AS OF 3Q 2014
* Market share among commercial banks and foreign bank branches (cooperative banks excluded)** Nordea bank will merge with PKO in Q4 2014Source: KNF, banks, press, Inteliace Research
Assets, PLN billion Share change vs. 12/2013, in p.p.
Top 15 commercial banks in Poland by total assets, as of 3Q 2014
Bank Market Share by Assets*, %
Pekao
PKO BP
BZ WBK
mBank
BGK
Millennium
ING
Getin Noble
Citibank
Raiffeisen
15.7
11.2
8.0
7.9
6.5
4.6
3.9
2.8
2.1
2.0
82.0
UNCONSOLIDATEDACCOUNTS
10
7
9
8
6
5
3
4
2
1
12
0.8
-0.7
0.1
0.2
0.1
1.6
-0.2
-0.1
0.2
0.0
0.1
0.4
-0.4
-0.3
0.1
11
12
13
14
15
BG
Nordea**
Deutsche B.
BPH
Alior
4.9
4.2
3.4
2.4
2.1
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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BANK BPH HAS BEEN LOOSING MARKET SHARE IN KEY PRODUCT/CLIENTSEGMENTS RECENTLY
* Client volumes with exception of public sector and monetary institutionsSource: BANK BPH, NBP, Inteliace Research
Retail
Corporate& SME
13
22.2 22.1 21.8 21.2 20.5 20.3 19.9 19.8
5.2 4.9 4.7 4.6 4.4 4.2 4.1 4.1
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Market share in loans* , in percent
Retail
Corporate& SME
Value of deposits*in billion PLN
As combined loan volumes exceed client deposits, the difference has to be financed on the interbank market and by the major s hareholder. Bank's market share has been falling recently across key segments.
-6
-13
-3
-5
CAGR4Q12-3Q14
CAGR4Q12-3Q14
7.5 7.8 7.7 7.7 7.7 7.6 7.4 7.1
5.2 5.3 5.3 5.2 5.1 4.6 4.6 4.8
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
4.4
2.0
4.4
1.9
4.2
1.8
4.1
1.7
4.0
1.7
3.9
1.6
3.7
1.5
3.6
1.4
Market share in loans* , in percent
1.6
2.8
1.7
3.0
1.6
2.9
1.6
2.7
1.6
2.5
1.5
2.4
1.5
2.4
1.4
2.3
Value of loans*in billion PLN
Retail
Corporate& SME
Retail
Corporate& SME
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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IN SELECTED REGIONS, THE BRANCH NETWORK OF BANK BPH SEEMS TO BEUNDERDEVELOPED
BANK BPH - branch network by region and its share in the overall banking network, Q1 2014Number of outlets and % share in the total banking network*
Legend
2.75% share and more2.14% share and less
Maj 2011 r.
23(2.79%)
30(2.75%)
76(2.99%)
49(2.30%)
14
(2.89%)
13(2.28%)
27(2.69%)
19(2.09%)29(2.12%)
7(1.38%)
22(2.21%)
9(1.82%)
35
(2.09%)
21(3.07%)
35(2.53%)
32(2.71%)
Regionswhere BPH`snetwork isbestdevelopedrelative toother banks
* Banking network including commercial banks, foreign bank branches, cooperative banks and SKOK credit unionsSource: Inteliace Research Bank outlets database 2014
Average= 2.47%
Regions where
BPH`s network isleast developedrelative to otherbanks
Bank BPH - Network: Total outlets: 441 , of which: 280 own outlets 160 partner/agency outlets
BANK BPH's branch network covers thewhole country and bank is controlling ~2.5% of all banking outlets in Poland.
In selected regions, e.g. in Southern andCentral part of Poland, BANK BPH isrelatively underrepresented in terms ofbank outlets.
Bank BPH could still consider increasing itspresence in few important regionsincluding: Wielkopolskie and Maopolskie ,where its share of network is low ifcompared to competitors.
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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PROFITABILITY OF BANK BPH IS LOW AND FALLING, PRIMARILY DUE TOEXCESSIVE OPERATING COSTS
Profit before tax
Income tax
Profit after tax
Net interest revenue
Net fee & commission revenue
Net banking revenue
Personnel costs
Other net revenue
Profitability tree Bank BPH vs. commercial banks, 2012- H1 2014*Percent of average assets (May not add to 100% due to rounding)
* Data for H1 2014 annualizedSource: BANK BPH, KNF, Inteliace Research
Low profitability
Costs & charges
Depreciation
Cost to income (CIR ratio)%
ROAE%
Very low risk costs
UNCONSOLIDATEDACCOUNTS
0.7 0.9 0.51.2 1.11.2
2012 2013 14H1
Other operating costs
Low and decliningprofitability
Still highoperating cost
Revenues falling but stillhigher than market average
0.9 1.0 0.61.5 1.4 1.5
2012 2013 14H1
0.2 0.2 0.10.3 0.2 0.3
2012 2013 14H1
5.0 4.4 4.34.4 4.0 4.0
2012 2013 14H1
4.1 3.8 3.73.0 2.7 2.6
2012 2013 14H1
3.6 3.0 3.02.6 2.5 2.5
2012 2013 14H1
1.1 1.1 1.01.1 1.0 0.9
2012 2013 14H1
0.3 0.3 0.30.7 0.6 0.6
2012 2013 14H1
74.8 69.4 81.149.2 51.0 48.5
2012 2013 14H1
6.9 7.4 3.711.0 10.1 11.3
2012 2013 14H1
0.2 0.2 0.20.2 0.2 0.2
2012 2013 14H1
2.0 1.7 1.81.1 1.0 1.0
2012 2013 14H1
1.6 1.4 1.50.9 0.9 0.8
2012 2013 14H1
High CIR ratio
High interest revenue
Legend
Bank BPH All commercial banks
Net reserves
0.3 0.4 0.20.8 0.6 0.6
2012 2013 14H1
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d b a n k B
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20
40
60
80
100
120
140
160
SINCE EARLY 2010, BANK BPH HAS BEEN STRONGLY UNDERPERFORMING ITSPEER GROUP
16
WIG-BANKS*
BANK BPH
* Performance Index for banks listed on the Warsaw Stock Exchange** Based on book value as of Q3 2014 and net profit for the period Q4 2013 Q3 2014.Source: WSE, Inteliace Research
Bank BPH has relativelylow valuation as it is beingtraded significantly belowits book value (P/B of 0.72).
During last four years ,bank BPH has stronglyunderperformed its peergroup.
Performance IndexJan 1, 2010 = 100%
%
Bank BPH multiples (Dec. 19, 2014) Market cap: PLN 3.6 billion (EUR 0.84 b) P/E** ratio: 24.9
P/B** ratio: 0.72
Difference of 78 pp.:WIG-banks: 131.6%
Bank BPH: 53.3%
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MAJOR BANK ACQUISITIONS IN POLAND AFTER 2013
* Implied price (valuation) of a 100% stake *** Multiples as declared by PKO** Market share in terms of total assetsSource: Banks, press, Inteliace Research
2012 Santander Kredyt Bank 1.0 billion EUR
( P/BV: 1.4 )
~3.4% Santander agreed to acquire Kredyt Bank from KBC Group by mergingit with its other business in Poland BZ WBK.
Santander paid with a new issue of BZ WBK shares. The agreement wasbased on an exchange ratio of 6.96 shares of BZ WBK for every 100shares of Kredyt Bank.
Buyer DescriptionDate TargetPrice paid*(for 100%)
Market shareacquired**
2012 Getin NobleBank
Retail business ofDnB NORD
n/a
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R e c e n t t r e n d s i n t h e b a n k i n g s e c t o r i n P o l a n d a n d
b a n k B
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OWI A T W
,2 0 1 1
1
BANK OUTLETS DENSITY IN POLAND (1/3)GSTO SIECI PLACWEK BANKOWYCH W POLSCE (1/3)
37
59
75
176
35
28
38
4888
52
56
44
59
28
67
66
40-60
60
Liczba/Number
Number ofbankoutlets per 1000 sq km, by region,2011Liczba placwekna1000 km2 powierzchni wg. wojewdztw,2011r .
TheSouthernand Central Poland havethelargestdensity of bank outlets
Poudniowaoraz centralna Polskasnajgciejpokrytesieci placwekbankowychnakm2
rdo/Source:Inteliace Research
rednia /Average=58
In teliace Research
B A Z A P L A C
WE K B A NK
OWY C HW P OL S
C E I S T A T Y S T Y K A P
OWI A T W
,2 0 1 1
1
BANK OUTLETS DENSITY IN POLAND (3/3)GSTO SIECI PLACWEK BANKOWYCH W POLSCE (3/3)
rdo/Source :InteliaceResearch
Number ofoutletsper 1 million inhabitants, by countypow iat , 2011Liczba placwek bankowychna 1milion mieszkacw , wg. powiatw , 2011r.
Minimum:126
Maximum:947
MedianaMedian(443) Number of bankoutlets per 1 million
inhabitants varies a lotoncountylevel
Napoziomie powiatw gsto placwek jestbardzo zrnicowana
100 200 300 400 500 600 700 800 900 1000
3 7 9 p o w i a t w
Inteliace Research
GE MONEY BANK OVERVIEW
7.4 8.3 9.1
2 00 3 2 00 4 2 00 5
10.9
1.6
AssetsPLNbillion
* AlthoughExpander isdistributing productsfrom variousbanks, GE offer /for example mortgage/isreportedtobe favoured** CompoundAnnual GrowthRateSource:InteliaceAnalysis
CAGR**
ConceptDescription Results
1.6 1.7
Timeline
History& Background
LoansPLNbillion
NetProfitPLNbillion
TargetClients
Products
Channels
20.4 26.7 22.8ROE(%)
Marketshare(%)
6.6 7.6 8.6
2 00 3 2 00 4 2 00 5
0.140.30 0.32
2003 2 00 4 2 00 5
14.2
51.2
Affluent individualsandprofessionalslooking for mortgage. Valuing quickprocessing and flexibility,sometimesnotfulfillinglending criteria set by otherbanks(for example jobcontract or ownfundslevel) Massmarket clientslooking for simpleandquick consumer loans
Only lending productsonoffer: mortgage refinancing loan credit cards installment loans cashloans car loans
GE money bank-48branches GEpard,~200usedcar dealers Dobry Kredyt consumer finance 12outletsand~1000POS Expander -33branches-financialproductsdistributor*
In1995,GE grouppurchased asmall regionalbank:Solidarno Chase D.T. Bank.Bankwasrebrandedsoonto GE CapitalBank. In1998,GE grouppurchased anothersmall bank(PAMBank)andconverted it toa mortgagespecialist:GE BankMieszkaniowy In2004,GE groupacquired POSlendingspecialist :Chrobrywithanetworkof ~1000POS.Chrobrywas renamed to:DobryKredyt In2004, aused cardealers networkwas createdunderthe GEpardbrand,being the mainchannelforcarloans sales Asof Jan. 2005,all GE activitiesin Polandwereconsolidated underone roof:GE Capitalbank
Shareholders
Topnotchrisk management andcollection High performing sales staff Fast loanprocessing andflexibility High margins Control overdistributors (GEpard,Expander,DobryKredyt) Advancedcross-selling betweensegments
As ofMarch 2006
99
1
General ElectricCompany
Other
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