Financial Results of the PKO Bank Polski Group for 3Q November 2016

Transcription

1 Financial Results of the PKO Bank Polski Group for 3Q 06 7 November 06

2 Selected Business Initiatives in the 3rd Quarter of 06 PKO Bank Polski: One of the Safest Banks in the EU The wide stress test conducted by the European Banking Authority has shown that PKO Bank Polski is in the group of safest banks in the EU. The high level of safety results from a strong capital base, relying mainly on accumulated profits and beneficial impact of the Bank s business model, as well as domination, in the balance sheet structure, of traditional financial instruments, such as loans and deposits. PKO Bank Polski Plans to Open a Corporate Branch in Czech Republic Opening the Bank s corporate branch in Czech Republic is an element of the international expansion strategy that assumes following the clients. Czech Republic belongs to the most important economic partners of Poland and occupies the 5th position with respect to trade turnover (after Germany, Russia, China and Italy) and is the second largest recipient of Polish goods. The export of Polish companies to Czech Republic grows steadily (the value of export in 05 amounted to EUR.8 billion and was 0% higher than in 04). PKO Bank Polski Strategic Partner of PFR in Supporting Polish Export PKO Bank Polski will cooperate with Polski Fundusz Rozwoju as a strategic partner to support Polish export. Polish entrepreneurs will have the possibility of using financial products and counselling made available by the PFR as part of the International Expansion Programme of Polish Companies via the Bank. Let s Fintech with PKO Bank Polski! Once again, PKO Bank Polski joined the acceleration programme for start-ups implemented jointly with MIT Enterprise Forum Poland. In the second edition of the programme, the Bank is the supervisor of the Let s Fintech with PKO Bank Polski! path, dedicated to start-ups whose ideas encompass financial solutions related to payments, mobile and Internet banking, safety and investments. The aim of the programme is to choose and support most interesting technological start-ups. New Investment Programme for the Bank s Clients: Autolokacja The Bank has introduced a market novelty to its offer: Autolokacja Investment Programme, addressed to clients looking for innovative, yet simple solutions for their savings. Autolokacja is a product where the client receives a -month deposit with an automatic (systematic) transfer of funds from the deposit to a selected investment sub-fund (investments starting from the amount of PLN 0,000). IT Leader 06 in the Digital Business Era PKO Bank Polski is the winner of this year s edition of the competition organised by Computerworld IT Leader in the banking and finance category. The Bank was distinguished for its involvement in the programme of building a digital state, implementation of modern solutions in the administration sector and activities intended at integration of the banking sector with respect to the digitisation idea.

3 Executive summary of financial performance PKO Bank Polski has adopted a new strategy for the years As at the end of 00 the strategy assumes: ROE above 0% decrease in the C/I ratio to the level of below 45%, maintenance cost of risk in the range of bp. The net profit generated by the PKO Bank Polski Group in 3Q 06 amounted to PLN.3 bn and was higher by 5.3% compared to the previous year The 3Q 06 consolidated result on business activity of PLN 8.9 bn (+.7% y/y) was determined by the increase in net interest income (+0.9% y/y), mainly as a result of reduced interest expenses (-0.% y/y), and by a one-off events The results of the past two quarters was affected by one-off events: in Q the transaction of the acquisition of Visa Europe Limited by Visa Inc., whose impact on the Group s net profit amounted to PLN 338. mn, in Q3 assets sales of Qualia Development and its subsidiaries, whose impact on the Group s net profit amounted to PLN 09.7 mn. Excluding that one-off events the net profit generated by the PKO Bank Polski Group in Q3 06 would amounted to PLN mn (+3.%y/y). Including one-off events Group s net profit in Q3 amounted to PLN 769 mn was lower by % compared to the previous quarter Administrative expenses in Q3 06 amounted to PLN.4 bn and were lower by.3% compared to the previous quarter Strengthening a leading market position asset base increased to PLN 75.6 bn (+8.% y/y) as a result of an increase in net loans to PLN 93. bn (+4.3% y/y), funded with customer deposits, which rose to PLN 0. bn (+.9% y/y) maintenance of a high market share of loans (7.6%) and deposits (7.3%) Loan portfolio quality improved considerably cost of risk declined by 5 bp y/y to 73 bp on a year-to-year basis a y/y.8 pp increase of the coverage ratio to 65.3% the share of loans with recognised impairment declined by 0.7 pp y/y to 6.% High operational efciency has been maintained Cost to Income ratio (C/I) in Q3 06 at 5.7%, (45.3% excluding bank tax) Return on Equity (ROE) in Q3 at 9.6% (.4% without bank tax) Return on Assets (ROA) in Q3 at.% (.4% without bank tax) Net interest margin in Q3 06 at 3.7% Solid liquidity position and capital strength improvement The ratio of loans to stable sources of funding at 83.7% Total capital adequacy ratio at 6.00% and Tier Capital ratio at 4.65%; (for the Bank 7.03% and 5.63% respectively) - an increase of.5 pp y/y resulting mainly from the increase in own funds on account of retaining the 05 profit, and including the capital net profit achieved in H 06 in the amount of PLN. billion to Tier On November 06, PKO Bank Polski, Raiffeisen Bank International AG and PKO Leasing have entered into a share purchase agreement related to a sale by RBI of 00% of the shares in Raiffeisen-Leasing Polska to PKO Leasing. The transaction enables to achieve leasing market leader position with more than 3% market share and expected EPS accretion of ca. 4% since 08 3

4 Financial summary P&L items (PLN mn) 3Q'6 3Q'5 Change y/y Q3'6 Q'6 Change q/q Net interest income % % Net F&C income % % Result on business activity % % Administrative expenses % % Net impairment allowance % % Bank tax -595 _ x % Net profit % % Assets % % Balance sheet (PLN bn) Net loans % % Deposits % % Stable financial resources % % Total equity % % 4

5 Key performance indicators 3Q'6 3Q'5 Change y/y Q3'6 4) Q'6 4) Change q/q ROE net (%) pp pp. ROE net (%) excluding bank tax pp pp. Key financial indicators Quality of loan portfolio Capital position ROA net (%) pp pp. ROA net (%) excluding bank tax pp pp. C/I (%) pp pp. C/I (%) excluding bank tax pp pp. NIM ) (%) pp pp. NPL ratio ) (%) pp pp. Coverage ratio 3) (%) pp pp. Cost of risk (bp.) bp bp. TCR (%) pp pp. Tier capital ratio (%) pp pp. () 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) () Share of loans with recognised impairment in total gross loans (3) Coverage of loans with recognised impairment with impairment allowances (4) Ratios on quarterly basis; ROE, ROA, NIM and cost of risk annualised 5

6 Business volumes Dynamic growth of volumes of deposits and gross loans Gross loans sum of business lines (PLN bn) Customer deposits - sum of business lines (PLN bn) +3.4% +0.5% +.7% +0.8% Share in loan portfolio 3Q'5 05 Q'6 H'6 3Q'6 Gross loans by business line as at 30/09/06 60% 50% 40% 30% 0% 0% Mortgage banking Corporate SME Retail and private banking 0% -5% 0% 5% 0% 5% Volume growth rate (y/y) Share in deposits portfolio 3Q'5 05 Q'6 H'6 3Q'6 Customer deposits by business line as at 30/09/06 00% 90% 80% 70% 35. Retail and private banking 60% 50% 40% 30% Corporate 0% SME %.7 0% -5% 0% 5% 0% 5% 0% 5% 30% 35% 40% 45% Volume growth rate (y/y) 6

7 PKO Bank Polski market share Maintenance of the leading share in the deposits and loans market Loans market share (%) Private individuals Institutional entities 0.0 3Q'5 4Q'5 Q'6 Q'6 3Q'6 Deposits market share (%) Total Mutual funds market share PLN bn Q'5 4Q'5 Q'6 Q'6 3Q'6 Total assets of mutuals funds (PLN bn) PKO TFI market share (%) 3 % Private individuals Maintenance of a high share in the deposits and loans market on a competitive domestic banking market, as compared to the previous quarter Total Institutional entities 5.0 3Q'5 4Q'5 Q'6 Q'6 3Q'6 7

8 06 macroeconomic and banking sector outlook F GDP % y/y Consumption % y/y Investments % y/y Public sector deficit ) % GDP Deposits - FX adjusted growth rate (%) Public debt ) % GDP CPI % F Total Private individuals Instututional entities Unemployment rate % eop WIBOR 3M % eop Reference rate % eop EURPLN PLN eop USDPLN PLN eop ) ESA00 ) According to domestic methodology. Source: Bank s forecasts Loans- FX adjusted growth rate (%) F Total Residential Mortgages Consumer Institutional entities 8

9 Financial results 9

10 Result on business activity A significant increase in the share of net other income in the structure of result on business activity, mainly due to the settlement of the transaction with Visa and sales of selected properties and entities from the Qualia Development Split of result on business activity PLN mn 3Q'6 3Q'5 Change y/y Q3'6 Q'6 Change q/q 3.0% 6.9%.6% 8.% Net interest income % %.4% 7.4%.6%.% Net F&C result % % Net other income % % 64.6% 65.7% 64.8% 60.7% Result on financial operations and didvidens 59) % 57 49) -86.6% Net FX result % % ) ) Net other operating income % % 3Q'6 3Q'5 Q3'6 Q'6 Net interest income Net F&C result Net other income Result on business activity % % ) The result on investment securities in Q 06 was determined by the settlement of the acquisition of Visa Europe Limited by Visa Inc. As a result of this, PLN 47.6 mn was included in the Bank s result on investment securities. ) As a result of two sales transactions in the third quarter of 06 of the Qualia Development Sp z. o.o. company and its subsidiaries assets. In this respect, net additional revenue of about PLN 4 million was recognized in other operating income and expense of the Group. 0

11 Net interest income () The continuation of recovery of net interest income in Q3 mainly thanks to an increase in interes income. In 3Q significant decrease in interest expenses Net interest income (PLN mn) Q3'5 Q4'5 Q'6 Q'6 Q3'6 Net interest income quarterly Net interest margin quarterly % Net Interest margin and average interest rates on loans and deposits (%) Interest income and expense (PLN mn) and WIBOR 3M average in the period Three quarters of 06 net interest income was PLN 56.8 (+0.9%) mn higher than last year mainly due to a PLN 43. mn decrease in interest expenses associated with the adjustment of the deposit offer pricing terms to declining market interest rates, and due to interest income higher by PLN 48.6 mn as a result of an increase in the volume of asstets. The interest margin increased by 0. bps. y/y to 3.% at the end of the third quarter.0 06 as a result of increase in annualized net interest income, accompanied by an increase in the average volume of interest-bearing assets (mainly mortgage loans, 0.0 consumer loans and securities portfolio). 3Q'5 05 Q'6 H'6 3Q'6 Average interest rate on loans M () Average interest rate on deposits M () Net interest margin M () () Interest income (expense) for last 4 quarters / average net loans (deposits) at the beginning and the end of the period of last 4 quarters () 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) Q3'5 Q4'5 Q'6 Q'6 Q3'6 interest income interest expense WIBOR 3M (%)

12 Net interest income () A significant decrease in interest expense as a result of offer adjustment to lower market interest rates Structure of interest income (PLN mn) +.% % % 837 Structure of interest expense (PLN mn) % % % % 95 3Q'5 3Q'6 Customer loans Securities Derivative hedging instruments Other Interest rates on term deposits vs. WIBOR 3M (%) % Q'08 Q'08 Q3'08 Q4'08 Q'09 Q'09 Q3'09 Q4'09 Q'0 Q'0 Q3'0 Q4'0 Q' Q' Q3' Q4' Q' Q' Q3' Q4' Q'3 Q'3 Q3'3 Q4'3 Q'4 Q'4 Q3'4 Q4'4 Q'5 Q'5 Q3'5 Q4'5 Q'6 Q'6 Q3'6 average interest rate on term deposits averege WIBOR 3M 3Q'5 3Q'6 Customer deposits Debt securities in issue Other A. % increase in interest income y/y results from: the increase in income from loans and advances to customers (PLN 37. million y/y) primarily a result of the increase in credit portfolio (mainly housing and consumer PLN loans), with the decrease in the average interest rate resulting from lower market interest rates, the increase in income from securities of PLN 86.7 million y/y was a result of increase in the average volume of the portfolio, A 0.% decrease in interest expenses y/y results mainly from: the decrease in the cost of liabilities to customers by PLN 33.3 million y/y, mainly resulting from a lower average interest rates on deposits as a result of lower market interest rates and adjusting pricing of deposit products and the expiration of deposits with terms of pricing before the MPC cuts rates, the decrease in expenses related to own issuance of debt securities and subordinated liabilities by PLN 9.5 million y/y, associated with the decrease in the level of liabilities from the issue of bonds in the international financial markets and the decline in debt servicing costs on the domestic market.

13 Net fee & commission income Continiued q/q increase in net fee and commission income Net fee and commission income (PLN mn) 57 y/y -7.8% 988 q/q +3.0% % % % % % % -0.% % Q3'5 Q4'5 Q'6 Q'6 Q3'6 3Q'5 3Q'6 Loans & insurance Mutual funds & brokerage Cards Customer accounts & other The level of net fee and commission income during three quarters of 06 compared to the previous year was mainly affected by: effect of high reference base of income on payment cards, in 05 the Bank received bonuses from payment organizations due to renegotiation of agreements with them, increase in sales of insurance products offered by the PKO Group, the results of which are presented in categories: the remaining result of the insurance business decrease in income from loans and borrowings, mainly related to commercial loans, partially offset by higher commissions related to granting housing loans, decrease in commission income on securities transactions due to reduction of customers interest in the stock market. 3

14 Net other income A significant increase in net other income, supported by income from the Visa transaction and assets sales of Qualia Development Net other income (PLN mn) Qualia impact 57 y/y 5 q/q -3.8% Visa impact +.6% % Q3'5 Q4'5 Q'6 Q'6 Q3' % % % Q'5 3Q'6 Net other operating income Net FX gains Result on financial operations and didvidens +35.7% -86.6% A twofold increase in net other income in 3Q 06 was mainly impacted by: higher result on gains less losses from investment securities, which was determined by the settlement of the acquisition of Visa Europe Limited by Visa Inc in Q 06. The Bank participated in this transaction. As a consequence, PLN 47.6 mn was included in the Bank s result on revenue in gains less losses from investment securities. increase in net other operating income and expense mainly as a result of two sales transactions in Q3 06 of the Qualia Development company and its subsidiaries assets. In this respect impact on the Group s profit before tax amounted to PLN 4 mn. 4

15 Administrative expenses Maintaining high efficiency despite increasing regulatory burden Administrative expenses (PLN mn) One-off costs* y/y % % % % q/q -.3% +0.3% -.6% -3.6% % % Q3'5 Q4'5 Q'6 Q'6 Q3'6 C/I ratio quarterly One-off effect bank tax effect 3Q'5 Personnel expense Depreciation BGF expenditures 3Q'6 Overheads Taxes & fees Employment eop (FTEs) 3Q'5 3Q'6 Change y/y FTEs % Bank % Group % Q'5 Q3'5 Q4'5 Q'6 Q'6 Q36 The increase in administrative expenses by 0.5% compared with the same period previous year. The administrative expenses level was mainly determined by the increase of employee benefits in the amount of PLN 68.5 million ie. 3.4% increase. Increase has been mitigated with decrease of overheads cost in the amount of PLN 3.5 million y/y ie. 3.0% and decrease of depreciation of tangible fixed assets in the amount of PLN 7.6 million ie..9% The effectiveness of the PKO Group measured with C/I ratio on a quarterly basis was 5.7%, C/I (without banking tax) was 45.3% compared to 49.5% realized in the third quarter of 05. C/I ratio in annual terms amounted to 57.0% and was under negative influence of one-off events from IV quarter of 05. C/I ratio in annual terms excluding tax on certain financial institutions stood at 5.9%. *one-off costs incurred in Q4 05 in the amount of PLN mn (PLN mn charge for BFG in connection with the bankruptcy SK Bank and PLN 4.0 mn payment to the Borrower Support Fund) 5

16 Net impairment allowance On a year-to-year basis - improvement in cost of risk, share of loans with recognised impairment and deterioration in net impairment allowance Net impairment allowance and write-offs (PLN mn) Q3'5 Q4'5 Q'6 Q'6 Q3' Net impairment allowance (PLN mn) Cost of risk M (bp.) Share of loans with recognised impairment 3) 3Q'5 3Q'6 Change y/y Consumer loans 8.5% 7.8% -0.7 pp. Mortgage loans.7%.5% -0. pp. PLN.3%.0% -0.3 pp. FX 3.5% 3.7% +0. pp. Corporate loans.8% 0.4% -.4 pp. Total 6.9% 6.% -0.7 pp Q' % % % % -4 - y/y 3Q' % % Consumer loans ) Mortgage loans ) ) Corporate loans ) Other q/q +7.% -3.% In the period of three quarters of 06 there was a deterioration of net impairment allowance and write-downs compared to the same period in 05 for 8.% y/y, it was mainly due to additional provisions booked for depreciation of securities, assets and off-balance sheet liabilities.. () management accounts data () 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 6

17 Consolidated statement of financial position Secure structure of the balance sheet has been maintained Total assets 3.7% 3.8% 7.6% 70.% 7.% 8.6%.6%.7%.4%.0% 3.% 5.% Total equity and liabilities.6%.7%.%.0%.5% 5.5% 0.9% 3.8% 0.9% 0.9% 69.9% 73.0%.9%.% 8.0% 7.0% Other assets Loans and advances to customers Securities Derivative financial instruments Amounts due from other banks Cash and balances with the Cen.Bank Total eqiuty Other liabilities Subordinated liabilities Debt securities in issue Liabilities of insurance activities Amounts due to customers Derivative financial instruments Amounts due to banks PLN bn Change y/y Cash and balances with the Cen.Bank % Amounts due from other banks % Derivative financial instruments % Securities % Loans and advances to customers % Other assets % Total assets % PLN bn Change y/y Amounts due to banks % Derivative financial instruments % Amounts due to customers % Liabilities of insurance activities % Debt securities in issue % Subordinated liabilities % Other liabilities % Total eqiuty % Total eqiuty and liabilities % 7

18 Loans and deposits Stable growth of the scale of operations Gross loans (PLN bn) Deposits() (PLN bn) 3Q'5 05 Q'6 H'6 3Q'6 3Q'5 05 Q'6 H'6 3Q' Currency structure of gross loans portfolio Term structure of total deposits ) 5.% 5.3% 4.9% 4.9% 4.% 7.6% 5.7% 5.9% 5.3% 50.0% 49.7% 74.8% 74.7% 75.% 75.% 75.9% 7.4% 48.3% 47.% 48.7% 50.0% 50.3% 3Q'5 05 Q'6 H'6 3Q'6 FX PLN 03.9% Banking sector 8M6 3Q'5 05 Q'6 H'6 3Q'6 current+o/n term+other 87.7% 97.3% 96.4% 96.0% 96.0% 85.0% 84.3% 83.4% 83.7% Net loans/deposits Net loans/stable sources of funding () A PLN.9 bn increase in the volume of deposits on a year-to-year basis (+.9%) mainly due to a PLN 0. mln increase in deposits of retail clients and a PLN 9.6 mn increase in deposits of corporate entities 3Q'5 05 Q'6 H'6 3Q'6 () Amounts due to customers () 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. 8

19 Funding sources Well-diversified sources of funding Liabilities structure (total as at 30 September 06: PLN 43.3 bn) Amounts due to customers 83% Derivative financial instruments % Amounts concerning insurance activity % Debt securities in issue 4% Subordinated liabilities % Other liabilities % Amounts due to banks 8% Deposit structure (total as at 30 September 06: PLN 0. bn) Amounts due to retail clients 7% Amounts due to corporate entities 4% Amounts due to State budget entities 5% Retail and corporate deposits are the primary funding source. Financing agreements as at the end of 3Q 06 included: USD,000 mn 0Y note issued in September 0 on the US market under Rule 44A EUR 500 mn 5Y bond issued in January 04 multi-currency (CHF 3,645.8 mn, EUR mn and USD 3.7 mn) credit from Nordea Bank AB opened in April 04 CHF 4 mn 0Y subordinated loan opened by Nordea Bank Polska in April 0 PLN,600.7 mn 0Y subordinated bond issued in September 0 9

20 Securities portfolio breakdown Debt securities issued by the Treasury are predominant in the structure of the portfolio % % 4% 3% % 9% % 8% Other Issued by banks Local government debt securuties % 58% NBP money market bills Issued by State Treasury Q'5 05 Q'6 H'6 3Q'6 Trading ALPL AFS HTM 3Q'5 3Q'6 Structure as at 30/09/06 Issued by State Treasury 9% Trading assets Issued by banks % Eqiuty securities % Issued by local government Other 4% bodies 3% Financial assets designated at fair value through P&L (ALPL) NBP money market bills 6% Issued by local government bodies % Other % Issued by State Treasury 5% Investment securities available for sale (AFS) Issued by State Treasury 70% Issued by banks 4% Issued by local government bodies 3% Equity securities % Other % 0

21 Risk management

22 Loan portfolio quality Continued improvement in the loan portfolio quality Share of loans with recognised impairment and cost of risk % 6.6% 6.6% 6.5% 6.% % 0 6.4% 6.5% 6.5% 6.% Q'5 05 Q'6 H'6 3Q6 0.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0%.0%.0% 0.0% Coverage of loans with recognised impairment by impairment allowance 63.5% 63.% 63.3% 63.0% 64.6% 63.9% 65.0% 64.0% 65.3% 64.4% 0.0% 8.0% 6.0% 4.0%.0% Cost of risk for last M (bp) Group Cost of risk for last M (bp) Bank Share of impaired loans (Group) Share of impaired loans (Bank) Quality of loan portfolio vs. banking sector 3Q'5 05 Q'6 H'6 3Q'6 Share of impaired loans (sector) Share of impaired loans (PKO BP) Share of loans delayed past due over 90 days (sector) Share of loans delayed past due over 90 days (PKO BP) 3Q'5 05 Q'6 H'6 3Q6 Group Bank The declining trend in the share of loans with recognised impairment had been maintained during months Coverage of loans with recognised impairment by impairment allowance had maintained growing trend in comparison to the previous year as well as previous quarter Source: Own calculations based on PFSA data for the banking sector. Share of impaired loans (sector) according to 8M 06 data, share of loans delayed due over 90 days ( sector) according to H 06 data

23 Loan portfolio quality Record-low level of the share of loans with recognised impairment Standalone data Share of loans with recognised impairment 6.7% 6.4% 6.5% 6.5% 6.%.8%.6%.6%.7%.5% Other loans Coverage of loans with recognised impairment by impairment allowance 63.% 56.9% 70.0% 80.8% 63.0% 57.6% 68.8% 78.0% 63.9% 58.% 69.0% 79.5% 64.0% 58.% 69.4% 80.3% 64.4% 59.0% 70.% 79.4% 4.9% 4.8% 4.9% 4.8% 4.7% Loans delayed past due over 90 days 3Q'5 05 Q'6 H'6 3Q6 Cost of risk over the last M (bp.) Q'5 05 Q'6 H'6 3Q6 Total Corporate loans Mortgage loans* Consumer loans Improvement in corporate loans cost of risk by bp y/y Q'5 05 Q'6 H'6 3Q6 Total Corporate loans Mortgage loans* Consumer loans Growth of coverage ratio in comparison to the previous year. In the case of corporate loans the level of coverage ratio increased by 0 bp in comparison to the previous year, and it was the biggest growth among others * Includes data of PKO Bank Polski and PKO Bank Hipoteczny 3

24 Credit risk concentration Highly diversified loan portfolio Structure of corporate ) loans by industry segment Receiveables due from corporate ) entities (PLN bn) Other exposure % 3.3% 33.8% Electricity, gas, water, hot water and air to the mechanical systems production and supply %.0%.8% 8.9% 8.% Public administration and national defence obligatory social security 8.9% 6.8% Construction 5.% 5.7% 6.0% 6.5% Wholesale and retail trade, repair of motor vehicles, including motorcycles Maintenance of real estate % 6.7% 7.% Industrial processing Gross loans Corparate and municipal bonds The highly diversified structure of the loan portfolio indicates low sector concentration. At the end of 3Q 06 the biggest share in the portfolio had a section Industrial processing" (7.%), whose share in the portfolio increased by 0.5 pp. y/y. The largest decline of the share in the portfolio (-. pp. y/y) was on the section Construction. The share of the section Mining and quarrying in the corporate loans portfolio is approx..5%. () Gross loans of non-financial and state budget entities 4

25 Capital adequacy Solid capital position Group Bank Own funds (PLN bn) PLN bn % 4.6% 3.% Group % 6.0% 5.% 7.0% 3.3% 4.% 3.9% 4.7% 5.6% Bank % 8.0% 6.0% 4.0%.0% 0.0% 8.0% 6.0% 5 4.0%.0% 3Q'5 05 Q'6 H'6 3Q'6 3Q'6 Tier Tier Total capital requirement (PLN bn) Q'5 05 Q'6 H'6 3Q'6 3Q'6 Total own funds Total capital adequacy ratio Total capital requirement Tier capital ratio 0.0% Own funds have increased due to the inclusion of part of profit for H06 in the amount of PLN.5 bln. As of 3Q06, capital adequacy levels remained above any external limits and levels recommended by supervisory bodies (PFSR/EBA) Q'5 05 Q'6 H'6 3Q'6 3Q'6 Market risk Operating risk Credit risk New decisions of the PFSR regarding capital adequacy: O-SII buffer: decision as of 0/0/06 regarding the Bank s recognition as an O-SII (other systemically important institution), imposing on the Bank a new buffer of 0.75% of the total risk exposure amount. Additional own funds requirement related to FX retail mortgages: decision as of 8/0/06 requiring maintanance of additional own funds amount for the purpose of mitigation of the risk arising from foreign currency denominated mortgages, amounting to 0.83% of the total risk exposure over the Total Capital Ratio, 0.6% over Tier ratio and 0,46% over CET ratio. 5

26 Liquidity ratios LCR level significantly above the regulatory standards 38% 0% 6% % * 00% - level effective for LCR from 08 According to Capital Requirements Directive IV / Capital Requirements Regulation, implemented as at 3 March 04, the minimum LCR levels to be maintained are: 70% as of January 06 80% as of January 07 00% as of January 08 Liquidity Coverage Ratio (LCR) Net Stable Funding Ratio (NSFR) * NSFR as at the end of r. 6

27 Business activity by segment 7

28 Segment results: Retail Banking Increase in the volume of loans and deposits, and significant growth in the sales of housing loans y/y Gross financial result of retail segment (PLN mn) -5.9% 3 00 Net interest income Gross loans (PLN bn) y/y +3.6% q/q +0.3% +4.% Net F&C income Other income % +0.4% % % Net impairment allowance Administrative expenses % +4.% -0.5% +0.8% % -737 Bank tax Q'5 3Q'6 Deposits (PLN bn) y/y +8.3% +4.7% q/q +.4% +6.0% Mortgage banking SME Retail and private banking New sales of loans (PLN bn) - standalone data* Q 6/3Q 5 +7.% +9.% q/q -7.5% -7.6% % +0.6% % -0.6% % -6.% SME Retail and private banking Q3'5 Q4'5 Q'6 Q'6 Q3'6 Mortgage banking SME Retail and private banking *) Does not include renewals of SME loans, which in 3Q 6 amounted to ca. PLN 800 mn 8

29 Segment results: Corporate and Investment Banking A decrease in the segment s result is mainly associated with an increase in impairment allowances for corporate loans Gross financial result of the corporate and investment segment in PLN mn % % % Q'5 3Q'6 Deposits (PLN bn) % +5.6% +0.9% 39.4 Net interest income Net F&C income Other income Net impairment allowance Administrative expenses Banking tax y/y q/q +34.7% -.6% Gross loans (PLN bn) y/y q/q % +.% New loan sales (PLN bn), standalone data Q 6/3Q 5 q/q -7.6% -.8% Q3'5 Q4'5 Q'6 Q'6 Q3'

30 The transaction of acquisition of Raiffeisen Leasing Polska by PKO Leasing 30

31 Key benefits resulting from the transaction for the PKO BP Group and its shareholders Leasing market leader with more than 3% market share by sales value Doubling of the market share in the dynamically growing leasing market Significant strengthening of PKO BP Group s position in the promising SMEs segment Increase in revenues and profitability of leasing business resulting from the complementarity of sales networks and business models of both leasing companies Expected PKO BP EPS accretion of c. 4% since 08 3

32 Comparison of RLPL s and PKOL s business models Parts of business model Segments of Clients (%) Distribution and service channels (#) Compared areas Split of portfolio by segments Strategic 7% 8% Corporate and SMEs 39% 5% Micro Around 0% of sales 54% 4% through bank Structure of sales channel Number of salesmen channel for RLPL vs. c. 75% for PKOL Number of dealers Number of suppliers Number of branches 44 5 Profitability (PLN m) Revenues Net interest income Net profit 7 7 Merger provides PKOL with an opportunity to take advantage of a well-developed sales network and to increase profitability By PKOL s segmentation, strategic 00+ million of revenues per annum, Corporate and SMEs 5-30 million, Micro <5 million Net interest income, net F&C income, other operating income 3 Including 30 active agreements with dealers in the vendor channel Source: RLPL and PKOL 3

33 PKO BP expects that the transaction is EPS accretive for PKO BP and is expected to reach double-digit RoI already from 07 Projected financial impact on PKO BP Group RLPL s net income will be consolidated since closing expected to take place in Dec 6 06E 07E 08E 09E RLPL s net income, synergies and integration costs (PLN m) Expected PKO BP earnings accretion / (dilution) Expected Return on Investment (RoI) ,4% +3,7% +3,9% 0,6%,8% 4,% One off integration costs below PLN 0m Source: PKO BP expected net income based on Bloomberg consensus Note: The information outlined above being the financial planning data, forward-looking statements or other business outlook information shall be read as the internal targets of the Bank and shall not be construed as s financial projections or forecasts. These targets have been prepared based on the information prepared by research analysts using only publicly available information. These targets may or may not prove to be accurate. 33

34 Additional information 34

35 PKO Bank Polski is a clear leader of Polish banking sector Number of current accounts of induviduals ('000) +8% k Agencies 430k SME customers Number of corporate customers using ipko Biznes ('000) +58% Number of customers with access to e-banking ('000) % k 9.k ATMs Group employment 9.0 mn 7.8 mn Retail segment customers (incl. SMEs) Users with access to e-banking (incl. SMEs) The share of DM PKO BP SA in trading on the secondary stock market +3,3p.p. 9.% 9.% 5.9% k Branches 4k Corporate segment custmers Number of ATMs ('000) +33% Number of retail agencies and branches ('000.) 3. -9% IKO No. of active IKO apps ('000) No. of operations via IKO ('000) PKO TFI - value of assets under management (PLN bn) +88%

36 Activity in Ukraine results of Kredobank Net loans (PLN mn) Adequacy and liquidity 79.5% 73.3% 73.6% 73.4% 7.4% 4.5% 9.% 5.4% 7.4% 7.4% Q 06 H06 3Q06 Deposits (PLN mn) Q'6 Q'6 3Q'6 Capital adequacy N by UAS (min 0%) Net loans/deposits Loan portfolio quality 49.7% 6.0% 6.3% 67.9% 69.% 3.5% 5.4% 4.%.6% 0.9% Q'6 Q'6 3Q'6 Share of loans with recognized impairment Q 06 H06 3Q06 Financial results (PLN mn) Q 06 H06 3Q06 Result on business activity Net financial result Coverage of loans with recognized impairment by impairment allowance PKO BP s exposure (PLN mn) Q 06 H06 3Q06 Capital exposure Subordinated loan 36

37 Retail segment mortgage loans Standalone data Market share of FX mortgage loans * 30.0% 8.7% 8.7% 8.5% 8.5% 8.6% * Average LTV 8.0% 6.0% 4.0%.0% 5.5% 5.5% 5.5% 5.5% 5.6%.5%.5%.5%.5%.4% 73% 74% 73% 73% 70% 69% 7% 7% 7% 73% 0.0% 8.0% Total PLN FX Average carrying value of mortgage loan (PLN 000) * 0 Q3'5 Q4'5 Q'6 Q'6 Q3'6 Current average LTV of loans portfolio (eop) Average LTV of new sales * Average value of mortgage loan in new sales (PLN 000) Q3'5 Q4'5 Q'6 Q'6 Q3'6 Total PLN FX * Includes data of PKO Bank Polski and PKO Bank Hipoteczny 37

38 CHF denominated mortgage loans portfolio * * Volume of FX mortgage loans (PLN bn eop) Structure of mortgage loans by currrency 4.4% 4.3% 4.% 4.% 4.0% 8.% % 3.6% 3.7% 3.6% 30.% % % 63.% 64.% 64.% 65.8% 58.0% CHF Other FX Banking sector PLN CHF Other FX Relief measures vis-a-vis the Bank s customers with mortgage loans in CHF: ) Inclusion of negative CHF LIBOR rate values in setting of the mortgage banking product rates; ) Interim relief measures effective until the end of 05 and extended until end of 06: Reduction of the currency spread rate to % for the mortgage banking products denominated in CHF; Enabling extension of lending tenors without any additional fee or charge; Refraining from actions aimed at seeking additional loan collateral; Enabling loan currency conversion at average NBP rate as at the date of the loan agreement annex signature (at no additional charge); An additional relief for CHF borrowers, including reimbursement to them of a part of their principal repayments whenever the negative reference rate exceeds the Bank s margin. In addition, the Bank provided customers with the opportunity to apply for change of collateral of the loans in CHF in order to allow the sale of real estate secured with mortgage, associated with the granting of a new loan in PLN and the establishment of a mortgage on a newly purchased property * Includes data of PKO Bank Polski and PKO Bank Hipoteczny 38

39 Macroeconomic trends Solid GDP growth with positive trend in the labour market Real GDP growth and its drivers (% y/y) Labour market trends (%) GDP household consumption expenditures external trade contribution (pp) gross fixed investments (RA) Employment growth (y/y) RHS 5 Registered unemployment rate LFS unemployment rate, sa ) The ratio of supply and demand on the labour market vs. real wage growth (% y/y) Real wages growth, %yoy (L) Job offers eop/unemployed, sa, ratio (R) GDP growth in 3Q06 slowed modestly below 3.% y/y in Q06. Private consumption has remained the key growth driver, while drop in fixed investments has deepened. Slump in investments is related mainly to massive fiscal tightening at local governments level. Thus, modest GDP growth slowdown is coupled with substantial reduction of the fiscal deficit. Solid economic growth translates into further firming of labour market conditions: employment growth accelerated and the unemployment rate dropped to the record low level. Record low unemployment leads to gradual strengthening of wage pressure. Average wage growth in 3Q06 was 4.% y/y in nominal terms and 5.0% y/y in real terms. Solid rise in households income fuels private consumption growth. () Percentage share of the number of unemployed population in the number of economically active population (i.e. employed and unemployed persons); consistent with EU methodology. 39

40 Macroeconomic trends Longer deflation, stable NBP interest rates CPI and core inflation (% y/y) 5 4 CPI inflation 3 Core inflation PLN exchange rates PLN/EUR PLN/CHF PLN/USD Interest rates (% eop) WIBOR 3M Reference rate 5-year yield CPI inflation in 3Q06 (on average) rose to -0.8% y/y from -0.9% y/y in Q06 low base effects for fuel prices more than offset smaller scale of food prices growth and drop in core inflation. The headline inflation rate should return into positive territory in December or January due to powerful low base effects for fuel prices. Pro-inflationary factors in the subsequent factors will be changes in tax and regulatory policies and stronger consumption demand. The MPC signals that NBP interest rates should remain unchanged as resumption of monetary policy easing would be negative for financial system stability. MPC members believe that deflation has not had adverse impact on the Polish economy. At the same time, GDP has become relatively more important in the MPC s reaction function. The PLN appreciated against major currencies (EUR, USD, CHF) in 3Q06 driven mainly by reduction in global risk aversion (market sentiment has improved following earlier fears of GDP growth slowdown in China and Brexit). 40

41 Banking sector and mutual funds Slower loans dynamics and faster deposits growth 30 Loan growth rates (% y/y) 0 Mutual funds market (PLN bn) Housing Total Consumer Corporate net inflow net mutual fund assets Deposit growth rates (% y/y) Private individuals 9 7 Total 5 3 Corporate Total loans growth declined in 3Q06 (to 4.0% y/y; FX adj. 4.% y/y) as banks have adjusted to changes in relatively profitability of different segments of the loan market: consumer loans growth has remained the strongest (7.5%; FX adj. 7.8%), corporate loans growth slowed down (5.3%; FX adj. 4.8%) while mortgages growth accelerated (4.0%; FX adj. 5.%). Deposits growth decelerated in 3Q06 (8.8% y/y) with slower rise in households deposits (0.% y/y) and weaker increase in corporate deposits (5.8% y/y). The Loan-to-Deposit ratio declined to 99.7% vs. 00.% in Q06. Assets of mutual funds moderately rose in 3Q06 driven by net inflow of assets and upward trend in equity indices (WIG up by 5.% q/q in 3Q06)

42 Summary operational data PKO Bank Polski operating data (eop) Q3'5 Q4'5 Q'6 Q'6 Q3'6 Current accounts ('000) % +.% Banking cards ('000) % +.6% of which: credit cards % +0.3% Branches: % -0.9% - retail % -0.9% - corporate % 0.0% Agencies % -0.7% ATMs % -0.7% Active IKO applications ('000) % +3.3% y/y Change q/q 4

43 Consolidated income statement of the PKO BP Group Profit and loss account (PLN '000) 3Q'5 3Q'6 Change y/y Net interest income % Net fee and commission income % Other income % Dividend income % Net income from financial instruments designated at fair value % Gains less losses from investment securities % Net foreign exchange gains % Net other operating income and expense % Total income items % Net impairment allowance and write-offs ( 0 965) ( 0 50) +8.% Administrative expenses (4 563) ( ) +0.5% Tax on certain financial institutions - ( ) x Share in net profit (losses) of associates and jointly controlled entities % Profit before income tax % Income tax expense (50 858) ( ) +3.8% Net profit attributable to non-controlling shareholders ( ) 483 x Net profit attributable to the parent company % 43

44 Consolidated income statement of the PKO BP Group - quarterly Profit and loss account (PLN '000) Q3'5 Q4'5 Q'6 Q'6 Q3'6 Q3'6/ Q3'5 Q3'6/ Q'6 Net interest income % +3.3% Net fee and commission income % +3.0% Other income % -3.8% Dividend income % -87.% Net income from financial instruments designated at fair value (8 439) (5 304) % x Gains less losses from investment securities % -93.7% Net foreign exchange gains % +35.7% Net other operating income and expense % % Total income items % -3.4% Net impairment allowance and write-offs (36 36) ( ) (38 66) (400 0) (49 5) +5.7% +4.7% Administrative expenses ( ) ( ) ( ) ( ) ( ) +3.% -.3% Tax on certain financial institutions - - (48 365) ( 03) (5 353) x +.0% Share in net profit (losses) of associates and jointly controlled entities % +93.5% Profit before income tax % -9.% Income tax expense (93 03) (68 639) (59 760) (65 634) (6 40) +35.3% -.7% Net profit attributable to non-controlling shareholders (6) ( 4) % x Net profit attributable to the parent company % -.0% 44

45 Consolidated statement of financial position of the PKO BP Group Assets (PLN '000) Change y/y Change q/q Cash and balances with the Central Bank % +8.0% Amounts due from other banks % -5.0% Trading assets % -43.% Derivative financial instruments % -3.3% Financial assets designated at fair value through P&L % +0.0% Loans and advances to customers % +0.9% Investment securities available for sale and securities held to maturity % +.% Tangible fixed assets % -.% Other assets % -.% TOTAL ASSETS % +.% Liabilities and eqiuty (PLN '000) Change Change y/y q/q Amounts due to the central bank % -3.5% Amounts due to banks % +4.0% Derivative financial instruments % -5.0% Amounts due to customers % +0.9% Liabilities of insurance activities % +6.6% Debt securities in issue % -3.6% Subordinated liabilities % -.3% Other liabilities % +9.4% Total equity % +.3% TOTAL EQUITY AND LIABILITIES % +.% 45

46 Shares, rating and dividend policy Basic information on shares Listed: Warsaw Stock Exchange since r. Indices: WIG, WIG0, WIG30, WIG Banki ISIN: PLPKO Bloomberg: PKO PW Reuters: PKOB WA Shareholders structure (number of shares: 50 mn) State Treasury 9.43% Others** 58.68% Aviva OFE* 6.7% Nationale- Nederalnden OFE* 5.7% *) Share reported by ING OFE after exceeding the threshold 5% of total number of votes at GM of PKO Bank Polski by Nationale-Nederlanden OFE, former ING OFE (as at 4.07.) and Aviva OFE (as at 9.0.3) **) Of which.96% BGK (State owned bank) Rating Agency: Rating: Long-term Short-term Deposits Liabilities Deposits Liabilities Moody s A with negative outlook A3 with stable outlook P- (P)P- 46

47 Principles of the dividend policy Principles of the dividend policy adopted on March 06 The general assumption of the Bank s dividend policy is to maintain a stable level of dividend payments in the long term, in compliance with the principle of prudent management of the Bank s and the Bank s Capital Group and with consideration of the financial capacity of the Bank and the Bank s Capital Group as determined on the basis of the adopted criteria. The aim of the dividend policy is an optimization of the own funds of the Bank and the Bank s Capital Group, taking into account the return on capital and its cost, capital needs for development, while ensuring an appropriate level of capital adequacy ratios. The dividend policy assumes the possibility of the Bank s net profit distribution to shareholders in the long-term perspective in the amount of the surplus of capital above minimal capital adequacy ratios considering the additional capital buffer. The dividend policy takes into account factors related to the operations of the Bank and the Bank s Capital Group companies, in particular, the requirements and supervisory recommendations concerning capital adequacy. The principles have been changed in connection with the issuance by the Polish Financial Supervision Authority on 5 December 05 of the position on the dividend policy of banks in 06 for the year 05, recommending higher minimum levels of capital adequacy measures enabling the dividend payment and introducing a new condition for the dividend payment the level of leverage. Therefore, in accordance with the Principles, the capital adequacy ratios specifying the dividend criteria are as follows: total capital ratio above 4.0% and common equity Tier ratio above 3.8%, leverage ratio above 5%. Payment from Dividend the net profit DPS (PLN) yield of the year (Div. Day) Payout ratio x 0.00% % 3.65% % 6.% % 40.5% % 74.75% 009,90 4.% 97.65% % 34.7% % 40.07% 006 0,98.7% 47.87% % 47.7% % 66.8% Conditional dividend for 05 According to the resolution of the Bank s AGM of 30 June 06, PLN,50,000 thousand will be allocated for the divided, which corresponds to PLN gross per share. The profit will be allocated in this manner provided that the following conditions will be jointly met by 8 December 06:. The Bank does not take over control of a bank or another entity of the financial sector through the direct or indirect acquisition of shares, acquire the right or incur an obligation to take over such control, and. there are no regulatory changes or changes in supervisory recommendations that would affect the requirements for the Bank's own funds, which - according to the level of capital adequacy ratios recognised the Bank s financial statements for the third quarter of 06 - would cause lack of possibility to pay the dividend in accordance with regulatory requirements and supervisory recommendations. If the conditions for the payment of the dividend are met: the record date shall be 30 September 06 the dividend will be paid on 0 December 06. On November 06, PKO Bank Polski, Raiffeisen Bank International AG and PKO Leasing have entered into a share purchase agreement related to a sale by RBI of 00% of the shares in Raiffeisen-Leasing Polska to PKO Leasing. The transaction results in one of the conditions precedents of dividend payment established by the resolution of PKO BP s AGM held on June 30, 06 not being fulfilled According to the AGM resolution, Bank s Management Board is obliged to adopt a formal resolution confirming lack of fulfilment of conditions required for dividend payment by December 9, 06 47