Financial Results of Financial Results of Financial Results of Financial Results of the the the the PKO Bank Polski SA Group PKO Bank Polski SA Group PKO Bank Polski SA Group PKO Bank Polski SA Group the the the the PKO Bank Polski SA Group PKO Bank Polski SA Group PKO Bank Polski SA Group PKO Bank Polski SA Group for for for for 1Q 2014 1Q 2014 1Q 2014 1Q 2014 „PKO Bank Polski. „PKO Bank Polski. „PKO Bank Polski. „PKO Bank Polski. The The The The Best Best Best Best Every Every Every Every Day” Day” Day” Day” Warsaw, 15 May 2014
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Financial Results ofFinancial Results ofFinancial Results ofFinancial Results ofthethethethe PKO Bank Polski SA GroupPKO Bank Polski SA GroupPKO Bank Polski SA GroupPKO Bank Polski SA Groupthethethethe PKO Bank Polski SA GroupPKO Bank Polski SA GroupPKO Bank Polski SA GroupPKO Bank Polski SA Groupfor for for for 1Q 20141Q 20141Q 20141Q 2014„PKO Bank Polski. „PKO Bank Polski. „PKO Bank Polski. „PKO Bank Polski. TheTheTheThe Best Best Best Best EveryEveryEveryEvery Day”Day”Day”Day”
� In the first quarter of 2014, PKO Bank Polski has focused on stable growth and the closing of the acquisition of the In the first quarter of 2014, PKO Bank Polski has focused on stable growth and the closing of the acquisition of the In the first quarter of 2014, PKO Bank Polski has focused on stable growth and the closing of the acquisition of the In the first quarter of 2014, PKO Bank Polski has focused on stable growth and the closing of the acquisition of the NordeaNordeaNordeaNordea assets in Poland. In line with the strategy, the Bank has maintained the high efficiency, has continued assets in Poland. In line with the strategy, the Bank has maintained the high efficiency, has continued assets in Poland. In line with the strategy, the Bank has maintained the high efficiency, has continued assets in Poland. In line with the strategy, the Bank has maintained the high efficiency, has continued investments in new technologies and has gradually reduced the cost of riskinvestments in new technologies and has gradually reduced the cost of riskinvestments in new technologies and has gradually reduced the cost of riskinvestments in new technologies and has gradually reduced the cost of risk
� NNNNet profit of the PKO Bank Polski Group generated in the first quarter of this year amounted to PLN 803 mn and was et profit of the PKO Bank Polski Group generated in the first quarter of this year amounted to PLN 803 mn and was et profit of the PKO Bank Polski Group generated in the first quarter of this year amounted to PLN 803 mn and was et profit of the PKO Bank Polski Group generated in the first quarter of this year amounted to PLN 803 mn and was PLN 16.2 mn higher than in the corresponding period of 2013 (+2.1% y/y)PLN 16.2 mn higher than in the corresponding period of 2013 (+2.1% y/y)PLN 16.2 mn higher than in the corresponding period of 2013 (+2.1% y/y)PLN 16.2 mn higher than in the corresponding period of 2013 (+2.1% y/y) whichwhichwhichwhich was dwas dwas dwas drivenrivenrivenriven by:by:by:by:� improvement of result on business activities (+PLN 20.2 mn y/y) � improvement of result on business activities (+PLN 20.2 mn y/y) � improvement of net impairment allowance (+PLN 34.5 mn y/y), mainly as a result of a decrease of impairment
allowances on consumer and corporate loans portfolios• Expansion of the operating baseExpansion of the operating baseExpansion of the operating baseExpansion of the operating base
� Assets increased to PLN 203 bn (+3.2% y/y) as net loans increased to PLN 150 bn (+1.7% y/y), funded through increase in deposits from customers to PLN 153 bn (+2.8% y/y) and bonds issue in the amount of EUR 500 mn
� Cost discipline and improved portfolio qualityCost discipline and improved portfolio qualityCost discipline and improved portfolio qualityCost discipline and improved portfolio quality� Stabilisation of operating costs in annual terms (+0.5% y/y)� Reduction of the cost of risk by 14 bp. y/y, improvement in coverage ratio by 1.8 pp. y/y and decline in NPLs by
1.1 pp. y/y� Retention of high operational efficiencyRetention of high operational efficiencyRetention of high operational efficiencyRetention of high operational efficiency
� Cost / Income ratio (C/I) at 43.1%� Return on Equity (ROE) at 13.1%
3333
� Return on Equity (ROE) at 13.1%� Return on Assets (ROA) at 1.6%� Interest margin at 3.7%
� Strong liquidity and capital positionStrong liquidity and capital positionStrong liquidity and capital positionStrong liquidity and capital position� Loans / Stable funding resources at 88%� Capital Adequacy Ratio at 13.5% (Core Tier 1 at 12.4%)
Selected Business Initiatives of Q1 2014Selected Business Initiatives of Q1 2014Selected Business Initiatives of Q1 2014Selected Business Initiatives of Q1 2014
NordeaNordeaNordeaNordea Bank Bank Bank Bank PolskaPolskaPolskaPolska now part of the PKO Bank Polski Group now part of the PKO Bank Polski Group now part of the PKO Bank Polski Group now part of the PKO Bank Polski Group PKO Bank Polski Group has expanded to include Nordea Bank Polska, Nordea Finance Polska and Nordea TUnŻ. Integration plans provide for completion of the process in 1H 2015. The acquisition commenced integration of the two banks; conceived as a two-step process. The first phase involves legal merger of the two entities while the second their operational integration. Until execution of the legal merger scheduled for early October 2014. Nordea Bank Polska continues as a separate entity forming part of the PKO Bank Polski Group. Within two weeks of completion of that legal merger. the PKO Bank Polski logo will replace the Nordea Bank Polska brand.
PKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bank
Account for the YoungAccount for the YoungAccount for the YoungAccount for the YoungAll students and university graduates within the 18–26 age bracket qualify for the new Account for the Young. Core of the offer consists of a no-service-charge savings and checking account combined with a package of loan and deposit products. Benefits of the offer include, among others,free-of-charge: account servicing, cash withdrawals in all ATM in Poland and worldwide, internet enabled bank transfers.
PKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankPKO Bank Polski applied to KNF for issuance of a permit for establishment of a mortgage bankA positive decision of the Polish Financial Supervision Authority (KNF) will open the way to the launch, at the turn of 2014–15, of PKO Mortgage Bank, a new entity of the PKO Bank Polski Group. PKO Mortgage Bank will employ the agency model to provide loan origination and after-sale servicing in the entire retail network of PKO Bank Polski as well as those of its intermediaries and agents. The adopted business model provides for close cooperation of both the institutions involving outsourcing of specific functions.
IKO for minorsIKO for minorsIKO for minorsIKO for minorsPKO Bank Polski has made the IKO money purse available to children of below 13 years of age. Minors can now make small phone settled purchases
PKO Bank Polski joins the Housing for the Young government schemePKO Bank Polski joins the Housing for the Young government schemePKO Bank Polski joins the Housing for the Young government schemePKO Bank Polski joins the Housing for the Young government schemePKO Bank Polski was the first to sign an agreement of cooperation with BGK within the framework of a government sponsored financial support and state subsidy scheme for first home purchases. As of 2 January 2014, the Bank’s customers can file applications for loans subsidized under the Housing for the Young scheme; addressed specifically to couples, single-parents and singles of up to 35 years of age.
4444
PKO Bank Polski has made the IKO money purse available to children of below 13 years of age. Minors can now make small phone settled purchases and ATM cash withdrawals under parental control. The IKO money purse for children of below 13 years of age is a perfect match and complement to the PKO Junior offer, which has been enormously popular with the PKO customers.
Contactless payments and QR codes for UPTs of PKO Bank PolskiContactless payments and QR codes for UPTs of PKO Bank PolskiContactless payments and QR codes for UPTs of PKO Bank PolskiContactless payments and QR codes for UPTs of PKO Bank PolskiPKO Bank Polski is the first in the market to provide unattended payment terminals (UPT) with a functionality enabling contactless payments with Mastercard PayPass and Visa payWave. The solution simplifies and speeds up payment of taxes and other local charges, e.g. for issuance of a driver’s license or an ID card. The unattended payment terminals of PKO Bank Polski represent a novel alternative to a bank teller window.
PKO Bank PKO Bank PKO Bank PKO Bank Polski’sPolski’sPolski’sPolski’s new marketing communication platformnew marketing communication platformnew marketing communication platformnew marketing communication platform„Organism” is the Bank’s newest marketing concept replacing the previous communications involving Szymon Majewski. The new concept is designed to reinforce the desirable attributes of the PKO brand through originality and humorous nature of the creation, and a long term cultivation of a consistent message. The earlier Szymon Majewski driven marketing communication was emblematic of PKO Bank Polski’s bold, modernising changes.
Plan for integration of the Plan for integration of the Plan for integration of the Plan for integration of the NordeaNordeaNordeaNordea assets assumes assets assumes assets assumes assets assumes completioncompletioncompletioncompletion ofofofofthe main stage of works in Q2 2015the main stage of works in Q2 2015the main stage of works in Q2 2015the main stage of works in Q2 2015
Migration toMigration toMigration toMigration tothe PKO the PKO the PKO the PKO systemssystemssystemssystems
• Forced share buyoutForced share buyoutForced share buyoutForced share buyout• Adoption of the merger planAdoption of the merger planAdoption of the merger planAdoption of the merger plan• Application to KNF for its consentApplication to KNF for its consentApplication to KNF for its consentApplication to KNF for its consent to to to to merger of the banksmerger of the banksmerger of the banksmerger of the banks
The The The The NordeaNordeaNordeaNordea network starts servicing network starts servicing network starts servicing network starts servicing PKOPKOPKOPKO clientsclientsclientsclients
RebrandingRebrandingRebrandingRebranding
TransTransTransTrans----actionactionactionaction
Nordea Nordea Nordea Nordea Bank Bank Bank Bank
PolskaPolskaPolskaPolska
5555
RebrandingRebrandingRebrandingRebranding Bank assumes a Joint Venture with strategic Bank assumes a Joint Venture with strategic Bank assumes a Joint Venture with strategic Bank assumes a Joint Venture with strategic insurance partner with insurance partner with insurance partner with insurance partner with complicomplicomplicompliaaaancencencence to to to to Recommendation U requirementsRecommendation U requirementsRecommendation U requirementsRecommendation U requirements
Legal merger and migration of the leasing businessLegal merger and migration of the leasing businessLegal merger and migration of the leasing businessLegal merger and migration of the leasing business
Transfer of controlTransfer of controlTransfer of controlTransfer of control
Transfer of controlTransfer of controlTransfer of controlTransfer of control
Net F&C incomeNet F&C incomeNet F&C incomeNet F&C income 705705705705 718718718718 -1.7%-1.7%-1.7%-1.7% 815815815815 -13.4%-13.4%-13.4%-13.4%
Result on business activityResult on business activityResult on business activityResult on business activity 2 5482 5482 5482 548 2 5282 5282 5282 528 +0.8%+0.8%+0.8%+0.8% 3 1763 1763 1763 176 -19.8%-19.8%-19.8%-19.8%
Net impairment allowance Net impairment allowance Net impairment allowance Net impairment allowance -413-413-413-413 -448-448-448-448 -7.7%-7.7%-7.7%-7.7% -683-683-683-683 -39.5%-39.5%-39.5%-39.5%
Net prof it Net prof it Net prof it Net prof it 803803803803 786786786786 +2.1%+2.1%+2.1%+2.1% 938938938938 -14.5%-14.5%-14.5%-14.5%
Stable f inancial resourcesStable f inancial resourcesStable f inancial resourcesStable f inancial resources 169.5169.5169.5169.5 163.5163.5163.5163.5 +3.7%+3.7%+3.7%+3.7% 166.7166.7166.7166.7 +1.7%+1.7%+1.7%+1.7%
Total equityTotal equityTotal equityTotal equity 25.925.925.925.9 25.225.225.225.2 +3.1%+3.1%+3.1%+3.1% 25.225.225.225.2 +3.1%+3.1%+3.1%+3.1%
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
ROE net (%)ROE net (%)ROE net (%)ROE net (%) 13.113.113.113.1 14.714.714.714.7 -1.6 pp.-1.6 pp.-1.6 pp.-1.6 pp. 13.213.213.213.2 -0.1 pp.-0.1 pp.-0.1 pp.-0.1 pp.
(1) Administrative expenses of last 4 quarters / result on business activity for last 4 quarters (2) Net interest margin = net interest income of last 4 quarters / average interest bearing assets at the beginning and the end of the period of
last 4 quarters (formula consistent with that applied in the PKO Bank Polski Group Directors’ Report)(3) Share of loans with recognised impairment in total gross loans(4) Coverage of loans with recognised impairment with impairment allowances
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
Macroeconomic trends
GDP and decomposition of growth rate (% y/y) Labour market (%)
Having reached a cyclical trough in Q1-Q2 2013, economic growth accelerated to 2.7% y/y in Q4 2013. High-frequency indicators suggest GDP topped 3% in 1Q 2014, driven by strong domestic demand (both consumption and investments). We believe domestic demand should accelerate further in the coming quarters. Tensions between Russia and Ukraine are the main risk for Poland’s growth outlook – in our base-case scenario we estimate this factor could shave off 0.3-0.6pp from GDP.
1
0 .50 .50 .50 .5
-4
-2
0
2
4
6
8
8888
3 .73 .73 .73 .7
-2
-1
0
1
2
3
Real wages
estimate this factor could shave off 0.3-0.6pp from GDP. Consequently, we expect 2.8-3% GDP growth in 2014.
Labour market is improving. Unemployment trend has reversed, with the unemployment rate down -0.8pp y/y in 1Q (vs. 0.0pp y/y in Q4, and +1%ish increase in 1H 2013). This is consistent with an acceleration in GDP growth to around potential growth (~3%).
2
Higher nominal wage growth – combined with low inflation –boosts real wages. Real wage growth (3.7%) is the strongest since late-2008/early-2009, boosting private consumption.
3
(1) Percentage share of the number of unemployed population in the number of economically active population (i.e. employed and unemployed persons); consistent with the EU methodology.
4 .174 .174 .174 .17
3 .423 .423 .423 .42
4
5
PLN/CHFPLN/CHFPLN/CHFPLN/CHF
PLN/EUR3
Inflation rate (% y/y) PLN exchange rates
Macroeconomic trends
Inflation has bottomed out, monetary policy neutral until early-2015
3
4
5CPICPICPICPI
3 .033 .033 .033 .03
2
3
PLN/USD
1
Interest rates (% eop)
5-year yield
CPI inflation remained stable in 1Q 2014 (0.7% y/y in March –unchanged from December 2013), as negative base effects from fuel prices were offset by a decline in food prices. We believe inflation has bottomed out and expect a gradual pick-up from 2Q 2014 onwards. with the headline CPI up to ~1.5% in June and ~2% in December, driven by a rebound in core inflation and a reversal in food price trends, from 2Q2014 onwards and to reach the lower bound of the NBP’s inflation target (2.5%+/- 1%pt) by June 2014.
In March 2014 the MPC pledged not to change interest rates (policy rate: 2.50%) at least until September 2014. We expect this ‚forward guidance’ to be extended to December 2014 ath the MPC’s July meeting, with March 2015 being the most likely timing of the start of monetary policy normalization.
2
Despite China’s economic slowdown and escalating tensions between Ukraine and Russia, the PLN has remained very stable recently, partly due to prospects of a solid domestic demand recovery.
3
bound of the NBP’s inflation target (2.5%+/- 1%pt) by June 2014.
Faster total credit growth in 1Q 2014 (4.7% y/y), driven by acceleration in consumer credit (3.7%), faster corporate loans growth (3.8%) and stable mortgages growth (4.3%), (NB. Our 2014-2015 forecasts on the following page).
1
2
3 .73 .73 .73 .7
4 .34 .34 .34 .33 .83 .83 .83 .8
4 .74 .74 .74 .7
-10
-5
0
5
10
15
,
15
20
90
105
120
135
150
-5
-3
-1
1
3
5
net inflow
net mutual fund assets
10101010
TotalCorporates
2
Acceleration in total deposits growth in 1Q 2014 (6.2% y/y) – net effect of a relatively stable household deposits dynamics (5.6%), slower growth in corporate deposits (7.3%), and higher public sector deposits. The Loan-to-Deposit stabilized at 106%.
2
Weaker q/q inflows into mutual funds in 1Q 2014 – despite a rise in real disposable income, low interest rates on bank deposits and rising equity prices – largely reflect seasonality in inflows to closed-end funds (used tor tax optimization purposes).
3
6 .26 .26 .26 .25 .65 .65 .65 .6
7 .37 .37 .37 .3
-10
-5
0
5
10
2014-2015 macroeconomic and banking sector outlook
1) According to the ESA95 methodology . with one-off capital transfer due to pension funds asset transfer; without the transfer. the public sector deficit in 2014 remains close to 2013; at -4.1% GDP.
Growth of PKO TFI’s market share in total assets of mutual funds by 0.8 pp. y/y thanks to higher than market growth rate (+38% y/y vs. +22% y/y for the market).
2
1. Executive summary 3
2. Financial results 14
3. Risk management 28
4. Business activity 33
5. Appendix 39
ResultResultResultResult on business activityon business activityon business activityon business activity Gross profitGross profitGross profitGross profit
958
1 2131 0032 528
3 176
2 548
+0.8%
-19.8%
+4.7%
-17.3%
Profit and loss account*
Consolidated data
Total administrative expensesTotal administrative expensesTotal administrative expensesTotal administrative expenses Income taxIncome taxIncome taxIncome tax
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
Increase due to inclusion in this item of income of PLN 315 mn from the sale in Q4’13 of a 66% interest in the eService subsidiary and income of PLN 162 mn on fair value adjustment of the remaining eService share interest
1
1 7531 628 1 627
1 715 1 740
4.13.6 3.5
3.7 3.9
1 000
1 500
2 000
1.5
2.0
2.5
3.0
3.5
4.0
Net interest income (1)
Net interst income (PLN mn)
Consolidated data
Interest income and expense (PLN mn) and WIBOR 3M average in the period
1
2 9462 754
2 551 2 513 2 467
3.77
3.60
4.00
4.40
4.80
5.20
5.60
1 500
2 000
2 500
3 000
3 500
+1.5%
0
500
0.0
0.5
1.0
1.5
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
Net interest income quarterly Net interest margin quarterly
7.37.0
6.56.1
5.94.4 4.2 3.9 3.7 3.74.0
5.0
6.0
7.0
8.0%
Net Interest margin and average interest rates on loans and deposits
2
1 194 1 126924 798 727
2.972.70 2.67 2.71
2.00
2.40
2.80
3.20
3.60
0
500
1 000
1 500
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
interest income interest expense WIBOR 3M (%)
In 1Q’14 net interest income remained at a stable level y/y, mainly due to decrease in interest expense by PLN 466.8 mn y/y, mainly due to adaptation of the price conditions of the deposit offer to a drop in market interest rates,along with a decrease in interest income by PLN 479.7 mn y/y, determined by the fall in market interest rates
1
16161616
3.1 3.02.7
2.32.0
0.0
1.0
2.0
3.0
4.0
1Q'13 2Q'13 3Q'13 4Q'13 1Q'14
Average interest rate on loans 12M (1)
Average interest rate on deposits 12M (1)
Net interest margin 12M (2)
(1) Interest income (expense) for last 4 quarters / average net loans (deposits) at the beginning and the end of the period of last 4 quarters(2) Net Interest income for last 4 quarters / average interest bearing assets at the beginning and the end of the period of last 4 quarters (formula consistent with that applied in the PKO Bank Polski Group Directors’ Report)
Interest margin dropped by 0.7 pp. y/y as a result of a decrease in annualized net interest income (due to a drop in market interest rates causing directly accelerated decrease in interest-bearing assets mostly based on market rates rather than due to the decline in interest rates of the deposit offer), accompanied by an increase in the volume of average interest-bearing assets (mainly the portfolio of loans and advances to customers)
2
Consolidated data
Net interest incomeNet interest incomeNet interest incomeNet interest income (2) (2) (2) (2)
309
246
148
88
54
38
2 946 2 946 2 946 2 946
2 467 2 467 2 467 2 467 124
122
14
13
1 1941 1941 1941 194
727727727727
Structure of interest expense (PLN mn)
Structure of interest income (PLN mn)
1-39 .1%-39 .1%-39 .1%-39 .1%
-2.1%2
-16 .3%-16 .3%-16 .3%-16 .3%
-20.2%
-40.5%
2 436 2 094
1Q'13 1Q'14
Customer loans SecuritiesDerivative hedging instruments Other
1 055
592
122
1Q'13 1Q'14
Customer deposits Debt securities in issue Other
3
4
6
7%
Interest rates on term deposits vs. WIBOR 3M
-43.9%-14.0%
Income declined mainly as a result of a drop in average interest rate,
Decrease in income resulting from narrowing of the spread between the PLN and foreign currency rates resulting from the drop in the WIBOR market rates and the drop in the average volume of CIRS transactions in hedge accounting
1
2
17171717
0
1
2
3
4
5
6
average interest rate on term deposits averege WIBOR 3M
Income declined mainly as a result of the drop in PLN interest rates, which for WIBOR 1M and 3M rates on an annual basis amounted to 0.78 pp. and 0.68 pp. respectively
Costs of amounts due to customers were reduced as a result of lower average interest rates on deposits due to a drop in market interest rates, adaptation of the price offer of deposit products and the change of the structure in favour of current deposits, accompanied by an increase in amounts due to customers by PLN 4.2 bn y/y
Income declined mainly as a result of a drop in average interest rate, accompanied by an increase in the volume of average securities portfolio
4
3
2
152.7152.7152.7152.7
Consolidated data
Structure of deposit base as compared to competitors
Structure of total deposits by client typeStructure of total deposits by client typeStructure of total deposits by client typeStructure of total deposits by client type1) 1) 1) 1)
(as at 31.03.2014)Deposits structure in Polish banksDeposits structure in Polish banksDeposits structure in Polish banksDeposits structure in Polish banks(as at 31.03.2014 in PLN bn)
82.4
54.241.1 43.3
26.4
70.3
58.8
39.023.6
37.2
152.7152.7152.7152.7
113.0113.0113.0113.0
80.180.180.180.1
66.966.966.966.9 63.663.663.663.6
PKO BP Bank 2 Bank 3 Bank 4 Bank 5
77.2%
47.5%60.1% 67.4% 54.7%
19.3%
44.7%34.7% 29.6% 44.1%
3.5% 7.8% 5.2% 3.0% 1.2%
PKO BP Bank 2 Bank 3 Bank 4 Bank 5deposits of retail clientsdeposits of corporate entities
2
1
46.0%
54.0%
52.0%
48.0%
48.6%
51.4%
58.5%
41.5%
35.3%
64.7%
18181818
term deposits+other current deposits + O/N deposits of corporate entitiesdeposits of State budget entites
PKO Bank Poski has the largest share of retail deposits resulting in lower elasticity of changes in financial conditions in the short term
PKO Bank Polski has the highest volume of term deposits, including a significant volume of deposits for a period of up to 12M, which -under conditions of declining interest rates, in the short-term led tothe an increase in interest costs
Loans & insuranceMutual funds & brokerageCardsCustomer accounts & other
Net fee & commission income was primarily determined by: − decrease in income in respect of loans and advances granted− decrease in net commission income on loan insurance, mainly due to a decrease in insurance saturation of consumer loans − lower result on payment cards, mainly due to a decrease in income from the rental of authorisation devices in connection with the sale of a 66% interest in
eService in the fourth quarter of 2013 − decrease in commission income in respect of cash transactions, due to development of electronic banking services− growth of commission income from servicing of bank accounts, which is a result of changes in tariff of fees and charges introduced in 2013Sale of a stake in eService and the exclusion of its revenues from the consolidation resulted in a reduction in the 1Q’14 F&C income by approximately PLN 30 mn. Had income from that source been included, the growth in net F&C income in the 1Q’14 would have reached nearly +2.5% y/y
1
103103103103
647
Net other income (PLN mn)
Net Net Net Net otherotherotherother incomeincomeincomeincome
1 y/y/y/y/yyyy q/q/q/q/qqqq
+78. 1%+78. 1%+78. 1%+78. 1%
-84. 1%-84. 1%-84. 1%-84. 1%
Consolidated data
Effect of theeServicetransaction
2820
-12
4942
3458585858
1Q'13 1Q'14
Net income from financial instruments and didvidendsNet FX gainsNet other operating income
58
133 141103
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
-17.7%
-29.5%
-93.4%
-51.1%
-12.3%
20202020
Net other operating income
In Q4’13 net other operating income included income on the sale of a 66% stake in the eService subsidiary amounting PLN 315 mn and on fair value readjustment of the remaining share interest in the eService amounting PLN 162 mn
Value of general and administrative expenses was primarily determined by: − an increase of PLN 13.9 mn y/y in expenses on contributions and payments to the Bank Guarantee Fund, as a result of introducing a prudential fee in Q4’13− an increase in amortization and depreciation expense of PLN 29.0 mn y/y, as a result of an increase in amortization expense of intangible assets concerning IT− decrease in employee benefits by PLN 21.3 mn y/y− decrease in overheads by PLN 14.8 mn y/y, i.a. due to decrease in cost of promotion and advertising, maintenance and rental of fixed assets, and
telecommunicationThe reduction of administrative expenses in 1Q’14 partly due to the exclusion of eService from the consolidation as a result of sale in Q4’13 66% stake in this company
1
140140140140
135135135135
129129129129131131131131
126126126126
125
130
135
140
145
-350
-250
-150
-50
-82-42
-14-20
29
1Q'13 1Q'14
Net impairment allowance and write-offs (PLN mn)
Net impairment allowance
Consolidated data
y/y/y/y/yyyy q/q/q/q/qqqq
+40.8%
-10.6%-48.3%
-61.3%
PLN mn bp.
----448448448448 ----419419419419----488488488488
----683683683683
----413413413413
100
105
110
115
120
-750
-650
-550
-450
-350
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
Net impairment allowance (PLN mn)Cost of risk 12M (bp.)
-14
-381
-348
-4
----448448448448
----413413413413
Consumer loans 1) Mortgage loans 1) 2)
Corporate loans 1) Other
Share of loans with recognized impairment3)
1Q'13 1Q'14 Change y/y
Consumer loans 9.8% 9.3% -0.5 pp.
1-7.7%-7.7%-7.7%-7.7% -39.5%-39.5%-39.5%-39.5%
-8.8%-24.9%
+40.8%
1
22222222
Consumer loans 9.8% 9.3% -0.5 pp.
Mortgage loans 3.8% 3.5% -0.3 pp.
PLN 3.6% 3.0% -0.6 pp.
FX 4.1% 4.8% +0.7 pp.
Corporate loans 14.2% 12.6% -1.6 pp.
TotalTotalTotalTotal 9.2%9.2%9.2%9.2% 8.1%8.1%8.1%8.1% -1.1 pp.-1.1 pp.-1.1 pp.-1.1 pp.
Improvement of net impairment allowance in 1Q’14 compared with the corresponding period of the previous year, as well as compared to previous quarter, is mainly a result of a decrease of impairment allowance on consumer and corporate loans portfolio
1
(1) management accounts data (2) Housing loans to individuals (3) Calculated by dividing the gross carrying amount of impaired loans and advances to customers by the gross carrying amount of loans and advances to customers
Total eqiuty and liabilit iesTotal eqiuty and liabilit iesTotal eqiuty and liabilit iesTotal eqiuty and liabilit ies 196.8196.8196.8196.8 203.2203.2203.2203.2 +3.2%+3.2%+3.2%+3.2%2
Balance sheet total increased as a result of obtaining proceeds from a bonds issue by PKO Finance AB in the amount of EUR 500 mn and due to increase in the deposit base
2
As at the end of the 1Q’14, the structure of assets was driven by changes in the loan and advances portfolio, as well as remained under the influence of the finalstages of the purchase of Nordea Group’s assets
1
Loans and deposits
Gross loans (PLN bn) Deposits(1) (PLN bn)
Currency structure of gross loans porfolio Term structure of total deposits1)
Net loans/deposits Net loans/stable sources of funding (2)
(2) Amounts due to customers and long-term external funding in the form of: securities issues (including funds raised through issuance under an EMTN programme executed by PKO Finance AB), subordinated debt and amounts due to financial institutions
Debt securities in issue7%
Subordinated
Amounts due to corporate entities
19%
Amounts due to
Consolidated data
Funding sources
Liabilities structureLiabilities structureLiabilities structureLiabilities structure(total as at 31 March 2014: PLN 177.2 bn)
Deposit structureDeposit structureDeposit structureDeposit structure(total as at 31 March 2014: PLN 152.7 bn)
Amounts due to banks
2%
Derivative financial
instruments2%
Amounts due to customers
86%
Subordinated liabilities
1%Other liabilities
2%
Amounts due to State budget
entities3%
Amounts due to retail clients
77%
• Retail and corporate deposits are the primary funding source.
• Financing agreements as at the end of 1Q 2014 included:
− CHF 410 mn 3-year credit facility opened in July 2012
25252525
− CHF 410 mn 3-year credit facility opened in July 2012
− EUR 800 mn 5Y Eurobonds raised in October 2010
− CHF 250 mn 5Y bonds issued in July 2011
− CHF 500 mn 3.25 Y bonds issued in September 2012
− USD 1.000 mn 10Y notes issued in September 2012 on the US market under Rule 144A
− EUR 500 mn 5Y bonds issued in January 2014
− PLN 700 mn domestic issue (short term)
Securities portfolioSecurities portfolioSecurities portfolioSecurities portfolio brakdownbrakdownbrakdownbrakdownConsolidated data
Trading assets Trading assets Trading assets Trading assets Financial assets designatedFinancial assets designatedFinancial assets designatedFinancial assets designated at fair at fair at fair at fair
value through P&Lvalue through P&Lvalue through P&Lvalue through P&L(ALPL)(ALPL)(ALPL)(ALPL)
Investment securities Investment securities Investment securities Investment securities available for saleavailable for saleavailable for saleavailable for sale
(AFS) (AFS) (AFS) (AFS)
Structure as at the 1Q 2014 endStructure as at the 1Q 2014 endStructure as at the 1Q 2014 endStructure as at the 1Q 2014 end
Cost of risk for last 12M (bp) Group Cost of risk for last 12M (bp) Bank
Share of impaired loans (Group) Share of impaired loans (Bank)
Quality of loan porfolio vs. bankig sectorDecrease in the share of impaired loans, mainly as a result of conducted non-performing loans package sales
1
28282828
2.0%
4.0%
6.0%
8.0%
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14Share of impaired loans (sector)Share of loans delayed past due over 90 days (sector)Share of impaired loans (PKO BP)Share of loans delayed past due over 90 days (PKO BP)
Source: for the banking sector own calculations based on KNF data
conducted non-performing loans package sales
Continuation of the gradual increase in the value of the coverage ratio for loans to customers with recognised impairment
Total Corporate loans Mortgage loans Consumer loans
2
Share of loans with recognised impairment as part of the Bank’s loan book remains unchanged on q/q basis
1
29292929
140 135 129120 115
29 25 2115 15
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
Total Corporate loans Mortgage loans Consumer loans
The declining trend in the costs of risk of corporate loans over the past 12 months has been sustained
2
20.00 19.81 19.84 19.61 19.59
1.53 1.52 1.52 1.54 1.530.04 0.08 0.12 0.15 0.19
Capital adequacy
Own funds (PLN bn)
Total capital requirement (PLN bn)
Consolidated data
2
11.55 11.67 11.64 11.59 11.68
0.64 0.64 0.62 0.63 0.640.52 0.53 0.32 0.33 0.33
1Q'13 1H'13 3Q'13 2013 1Q'14
Tier 3 Tier 2 Tier 1
21.6 21.4 21.5 21.3 21.3
13.6% 13.3% 13.7% 13.6% 13.5%
12.6% 12.3% 12.6% 12.5% 12.4%
10.0%
12.0%
14.0%
16.0%
14
16
18
20
22
1
11.55 11.67 11.64 11.59 11.68
1Q'13 1H'13 3Q'13 2013 1Q'14
Market risk Operating risk Credit risk
The level of capital adequacy of the PKO Bank Polski SA Group as at end of 1Q’14 remained on the safe level, significantly above the statutory limits.
By 1Q’14 report publication date, the European Commission has not accepted the majority of acts implementing Capital Requirements Regulation (CRR), and the European
1
30303030
12.7 12.8 12.6 12.6 12.7
2.0%
4.0%
6.0%
8.0%
10.0%
0
2
4
6
8
10
12
1Q'13 1H'13 3Q'13 2013 1Q'14
PLN
bn
Own funds Total capital requirement CAR Core Tier 1
the EuropeanBanking Authority has extended reporting deadline of first reports for Implementing Technical Standards (ITS) package until 30 June 2014. At thesame time the implementation of Capital Requirements Directive IV (CRD IV) into national law (mainly the so-called national options) has not beencompleted. Accordingly, the Group discloses capital adequacy ratio calculated in accordance with legal standards applicable as at 31 December 2013.
As at the end of 1Q’14, average banking sector CAR stood at 15.6% and its Core Tier 1 at 14.1%
Liquidity Coverage Ratio (LCR) Liquidity Coverage Ratio (LCR) Liquidity Coverage Ratio (LCR) Liquidity Coverage Ratio (LCR)
BaselBaselBaselBasel III and III and III and III and CRD IV/CRRCRD IV/CRRCRD IV/CRRCRD IV/CRRConsolidated data
As part of the preparation for the changes resulting from enforcing of the Directive and the Regulation on prudential requirements and supervision (CRD IV / CRR Package), the Bank monitors regulatory changes (in particular, the
129%129%129%129% 132%132%132%132%
100% 100% 100% 100% ----mandatorymandatorymandatorymandatory as of as of as of as of 2018201820182018
Bank monitors regulatory changes (in particular, the technical standards associated with the CRD IV / CRR) on an ongoing basis. Additionally, the Bank has participated in the asset quality reviews (AQR) and the quatitative impact studies (QIS).
The Bank is completing the process of adjstment to the requirements of the CRR/CRD IV Package.
Preliminary estimates show limited impact on Bank’s capital adequacy.
From Bank’s perspective, the most signifcant changes include:• amendments to the definition of own funds
31313131
According to CRD IV / CRR. the minimum LCR levels to be maintained as of 1 January 2014 are:- 60% in 2015- 70% in 2016- 80% in 2017- 100% from 1 January 2018
Gross loans by business lines Gross loans by business lines Gross loans by business lines Gross loans by business lines (as at 3(as at 3(as at 3(as at 31.03. 1.03. 1.03. 1.03. 2012012012014444))))1)1)1)1)
Sha
re in
S
hare
in
Sha
re in
S
hare
in lo
an
loan
lo
an
loan
po
rtfo
liopo
rtfo
liopo
rtfo
liopo
rtfo
lio
Retail and private bankingRetail and private bankingRetail and private bankingRetail and private banking
Customer depositsCustomer depositsCustomer depositsCustomer deposits by by by by business lines business lines business lines business lines (as at 3(as at 3(as at 3(as at 31111....03.03.03.03.2012012012014444))))1)1)1)1)
(1) Bank’s management data(2) To the SME business line of have been included deposits and loans of housing market clients (previously reported separately)
Retail and private bankingRetail and private bankingRetail and private bankingRetail and private banking
Structure of corporateStructure of corporateStructure of corporateStructure of corporate1)1)1)1) loans by industry segment loans by industry segment loans by industry segment loans by industry segment
Consolidated data
1
ReceiveablesReceiveablesReceiveablesReceiveables due due due due fromfromfromfrom corporatecorporatecorporatecorporate1)1)1)1) entitiesentitiesentitiesentities (PLN bn)(PLN bn)(PLN bn)(PLN bn)
----0.8%0.8%0.8%0.8%
15.1% 15.8%
15.1% 15.5%
11.5% 9.9%
9.5%9.2%
1.8%2.1%
Electricity, gas, water, hot water and air to the mechanical systems production and supply
Public administration and national defence obligatory social security
Construction
Wholesale and retail trade, repair of motor vehicles, including motorcycles
(1) Gross loans of non-financial and state budget entities
31.03.13 30.06.13 30.09.13 31.12.13 31.03.14
Gross loans Corparate and municipal bonds
Change y/y
Exposure vis-a-vis the Construction sector being 4.3% of gross loans at the end of 1Q’14 represented a decline of 0.8 pp y/y while its share in corporate loans declined by 1.6 pp y/y.
The highly diversified structure of the loan book points to low sector exposure concentration, with the Industrial Processing exposures being the highestrepresented in the loan portfolio and standing at 18.0% at the end of 1Q’14. The greatest change occurred in Other Exposures, which increased by 2.2 pp. y/y.
Number of branches: 1 199 1 177 1 181 1 186 1 186 -1.1% 0.0%
- retail 1 135 1 138 1 142 1 147 1 147 +1.1% 0.0%
- corporate 64 39 39 39 39 -39.1% 0.0%
Number of agencies 1 202 1 149 1 115 1 074 1 069 -11.1% -0.5%
40404040
Number of ATMs 2 911 2 945 2 960 2 992 3 028 +4.0% +1.2%
Number of active IKO applications ('000) 11 39 57 101 136 12x +34.4%
Consolidated data
� Profit and loss account (PLN '000)� Profit and loss account (PLN '000)� Profit and loss account (PLN '000)� Profit and loss account (PLN '000) Q1'13Q1'13Q1'13Q1'13restatedrestatedrestatedrestated
Net profit attributable to non-controlling shareholders (177) (97) (114) (1 212) (3 593) 20x +196.5%
Net profit attributable to the parent companyNet profit attributable to the parent companyNet profit attributable to the parent companyNet profit attributable to the parent company 786 422 786 422 786 422 786 422 752 757 752 757 752 757 752 757 752 296 752 296 752 296 752 296 938 318 938 318 938 318 938 318 802 574 802 574 802 574 802 574 +2.1%+2.1%+2.1%+2.1% -14.5%-14.5%-14.5%-14.5%
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
Consolidated statement of financial position of the PKO Bank Polski Group
Liabilities and eqiutyLiabilities and eqiutyLiabilities and eqiutyLiabilities and eqiuty (PLN '000) (PLN '000) (PLN '000) (PLN '000)31.03.1331.03.1331.03.1331.03.13
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
Standalone data
� Profit and loss account (PLN '000)� Profit and loss account (PLN '000)� Profit and loss account (PLN '000)� Profit and loss account (PLN '000) Q1'13Q1'13Q1'13Q1'13restatedrestatedrestatedrestated
*) Due to a change in the accounting principles applicable to recognition of insurance products related revenues and expenses, relevant data in respect of the previous periods have been restated to ensure comparability.
Basic information on sharesBasic information on sharesBasic information on sharesBasic information on shares
• Listed:Listed:Listed:Listed: Warsaw Stock Exchange since 10.11.2004
• Indices: Indices: Indices: Indices: WIG. WIG20. WIG30. WIG Banki
*) Share reported by ING OFE after exceeding the threshold 5% of total number of votes at GM of PKO Bank Polski by ING OFE (as at 24.07.12) and Aviva OFE (as at 29.01.13)
• to maintain a stable level of dividend payments in the long term. in compliance with the principles of prudent bank management and with consideration of the financial strength of the Bank and the Bank’s Capital Group as determined on the basis of the adopted criteria
• an optimization of the capital structure, taking into account the return on capital and its cost, capital needs for development. while ensuring an appropriate level of capital adequacy ratios• to recommend in the future the payment of dividend in an amount ensuring that the capital adequacy ratios are maintained at the following levels:
− capital adequacy ratio above 12 per cent while maintaining the necessary capital buffer− common equity Tier 1 ratio above 9 per cent while maintaining the necessary capital buffer
Dividend policy adopted on 4Dividend policy adopted on 4Dividend policy adopted on 4Dividend policy adopted on 4thththth April 2012 assumes:April 2012 assumes:April 2012 assumes:April 2012 assumes:
ING OFE*ING OFE*ING OFE*ING OFE*5 .17%5 .17%5 .17%5 .17%
**) According to the recommendation of the of PKO Bank Polski Management Board dated 29.04.2014.
Disclaimer
This presentation (the ”Presentation”) has been prepared by Powszechna Kasa Oszczędności Bank Polski S.A. (”PKO BP S.A.”. ”Bank”) solely for use by itsclients and shareholders or analysts and should not be treated as a part of any an invitation or offer to sell any securities. invest or deal in or a solicitationof an offer to purchase any securities or recommendation to conclude any transaction. in particular with respect to securities of PKO BP S.A. Theinformation contained in this Presentation is derived from publicly available sources which Bank believes are reliable. but PKO BP SA does not make anyrepresentation as to its accuracy or completeness. PKO BP SA shall not be liable for the consequences of any decision made based on information includedin this Presentation.in this Presentation.
The information contained in this Presentation has not been independently verified and is. in any case. subject to changes and modifications. PKO BP SA’sdisclosure of the data included in this Presentation is not a breach of law for listed companies. in particular for companies listed on the Warsaw StockExchange. The information provided herein was included in current or periodic reports published by PKO BP SA or is additional information that is notrequired to be reported by Bank as a public company.
In no event may the content of this Presentation be construed as any type of explicit or implicit representation or warranty made by PKO BP SA or. itsrepresentatives. Likewise. neither PKO BP SA nor any of its representatives shall be liable in any respect whatsoever (whether in negligence or otherwise)for any loss or damage that may arise from the use of this Presentation or of any information contained herein or otherwise arising in connection with thisPresentation.
PKO BP SA does not undertake to publish any updates. modifications or revisions of the information. data or statements contained herein should there beany change in the strategy or intentions of PKO BP SA. or should facts or events occur that affect PKO BP SA’s strategy or intentions. unless such reportingobligations arises under the applicable laws and regulations.
This Presentation contains certain market information relating to the banking sector in Poland. including information on the market share of certain banksand PKO BP SA. Unless attributed exclusively to another source. such market information has been calculated based on data provided by third partysources identified herein and includes estimates. assessments. adjustments and judgments that are based on PKO BP SA’s experience and familiarity with
45454545
sources identified herein and includes estimates. assessments. adjustments and judgments that are based on PKO BP SA’s experience and familiarity withthe sector in which PKO BP SA operates. Because such market information has been prepared in part based upon estimates. assessments. adjustments andjudgments and not verified by an independent third party. such market information is. unless otherwise attributed to a third party source. to a certaindegree subjective. While it is believed that such estimates. assessments. adjustments and judgments are reasonable and that the market informationprepared is appropriately reflective of the sector and the markets in which PKO BP SA operates. there is no assurance that such estimates. assessmentsand judgments are the most appropriate for making determinations relating to market information or that market information prepared by other sourceswill not differ materially from the market information included herein.
PKO BP SA hereby informs persons viewing this Presentation that the only source of reliable data describing PKO BP SA’s financial results. forecasts.events or indexes are current or periodic reports submitted by PKO BP SA in satisfaction of its disclosure obligation under Polish law.
This Presentation is not for release. directly or indirectly. in or into the United States of America. Australia. Canada or Japan.
Contact:Contact:Contact:Contact:PKO Bank Polski SA Investor Relations Office PKO Bank Polski SA Investor Relations Office PKO Bank Polski SA Investor Relations Office PKO Bank Polski SA Investor Relations Office Lidia Wilk – DirectorPulawska 1502-515 WarsawPolandTel: +48 22 521 91 82Fax: +48 22 521 91 83E-mail: [email protected]: [email protected]: [email protected]
PKO Bank Polski websitePKO Bank Polski websitePKO Bank Polski websitePKO Bank Polski website: www.pkobp.pl