Bank Hipoteczny Mortgage Covered Bond Investor Presentation. Proven track record and prospects for future growth

Transcription

1 Bank Mortgage Bond Investor Presentation Proven track record and prospects for future growth

2 Agenda 1 Group Group overview and key performance overview Overview and role in Group Strategy Financial results and asset and liability structure 2 issuances track record and Bond Market Mortgage Bond Programme 3 Credit risk and other statistics Distribution by real estate type, currency, interest rate and geographical 4 economy fundamentals Banking sector stability 5 & Stable and growing residential market in Poland Commercial real estate and activity of residential developers 6 Legal consideration of Bonds 2

3 Investment Highlights Group - well capitalised, liquid Bank Group with unique story of successful organic growth, well recognised Bank as a mobile icon. Mortgage - Mortgage Bonds issuer with the longest history on capital market. covered rated A by Fitch Ratings (3 notches above issuer rating and 1 notch above sovereign). High credit quality of cover pool with natural currency hedge for EUR and PLN Bonds issues. Poland one of EU s most resilient economies with profitable and well-capitalized and attractive banking sector. Stable and growing residential and commercial real estate market in Poland with prospects for lending growth. Legal consideration of Bonds in line with the best market practices protecting covered investors. 3

4 Group in a snapshot General description Poland s 4 th largest universal banking group in terms of total assets and customer gross loans and 5 th by deposits as at the end of September 217 Well-capitalised, liquid bank with a strong funding profile Among Poland s most efficient banking platform built on the principles of organic growth A well balanced business mix with leadership positions in both retail and corporate banking segments attracting continued inflows of new clients Credit rating by Fitch BBB/F2 and Standard & Poor s BBB+ /A-2 Listed on the Warsaw Stock Exchange since 1992, 69.4% owned by Commerzbank Key financial Group data (PLN M) Change 15 /16 Net loans 78,434 81,763 +4% Assets 123, ,744 +8% Deposits 81,141 91, % Equity 12,275 13,51 +5% Total income 4,93 4,295 +5% Net profit 1,31 1,219 (6%) Cost/Income ratio 5.1% 45.7% (4.4 pp) Cost of risk.54%.46% (.8 pp) ROE net 11.8% 1.1% (1.7pp) CET 1 ratio 14.3% 17.3% +3 pp Total Capital Ratio 17.3% 2.3% +3 pp NPL ratio 5.7% 5.4% (,3 pp) Key product lines as of Market position by total assets (PLN B) as of Retail Banking Corporates and Financial Markets A wide range of modern financial services for mass market, affluent and private banking clients as well as entrepreneurs Poland Czech Republic and Slovakia Fully fledged offering: Corporate banking Transactional banking Investment banking Brokerage Leasing Factoring # ,259 mln clients Source: s consolidated financial statements as of ,825 clients PKO BP* Pekao* *as of Q2 217 BZ WBK ING BSK BGŻ BNP Paribas* Getin Noble* Millennium mgroup 4

5 Group unique story of successful organic growth Number of retail customers (thou.) Retail loans: PLN 48.9 B Retail deposits: PLN 54.2 B [as of ] Favourable demographics of customer base: ca. 5% of retail clients are under the age of 35 and are expected to reach their highest personal income levels in the future, 's mortgage clients predominantly live in urban areas and large cities of more than 1 thou. residents Number of corporate customers Corporate loans: PLN 23.7 B Corporate deposits: PLN 31.7 B [as of ] Corporate customers split: K1 annual sales over PLN 5 M and non-banking financial institutions K2 annual sales PLN 3 M to PLN 5 M K3 annual sales below 3 M CZSK Poland 4, , , , , , ,957 4, , ,359 Q3 216* Q3 217* * Number of retail clients impacted by obligatory closing of inactive accounts and adjusted backward to exclude authorised users of microfirm C/A, not having any banking products for individual customers. 16,333 1,255 5,22 1, Source: s consolidated financial statements. 17,787 1,838 5,144 1, ,562 1,983 5,748 11, ,94 2,123 6,67 12, ,825 2,126 6,98 12,719 Q3 217 Brief history developed its operations from corporate banking. Since its establishment in 1986 the bank has served some of Poland s largest companies involved in foreign trade on export markets. In 2, started its operations in the retail banking segment by launching a first fully Internet-based bank in Poland (developed in just 1 days). In 21, added a high street brick-andmortar bank, offering a broad range of products and services targeted to affluent customers and micro-businesses seeking high quality, personalized service at branches., which launched retail operations in the Czech Republic and Slovakia in 27, managing to replicate its business model in foreign markets. As a result, s client base has grown almost entirely organically, reaching 5,348 thou. retail clients and 2.9 thou. corporate customers at the end of 216. has got more than 1.3 million active users of mobile banking. mgroup 5

6 overview and role in Group strategy The mission of is to develop effective real property market financing through issuing covered. Our successful operation since 1999 relies on optimal combination of: Specialised credit institution status and covered regulatory treatment for access to stable and competitive funding Expertise in commercial real estate valuation, loan origination, servicing and refinancing for professional clients Corporate structure Ultimate Parent Immediate Parent s wide distribution channels and operational excellence for access to residential market Bonds Project - one of the key initiative of Group s strategy is remodeling balance sheet by increasing the share of debt instruments on the basis of long-term source of funding. The main objectives of the covered project Improving stability of the financing the Group through the application of long-term solutions regarding the mortgage portfolio; Diversification of the funding sources Improving long-term liquidity in the Group adaption to the NSFR requirements Mortgage loans and financing developers and (details on next slides) 6

7 mortgage loans Pooling model Under the pooling model which was introduced in 214, the Bank s residential mortgage loans were originated by. The purchase of residential mortgage loans from is governed by the Framework Agreement. Transfer of existing residential mortgage loans portfolio from to its refinancing with mortgage covered : Based on framework agreement on acquiring portfolios of mortgage loans, provides after-sale services, Maintaining a good relationship with the clients no changes from the customer perspective.! Pooling of 's retail mortgage portfolio is a pioneer transaction of the mortgage transfer on the market. Characteristics of the portfolio eligible for transfer Financing the purchase of real estate, LtV (loan to mortgage lending value) at the transfer date does not exceed 1%, First rank joint contractual ordinary mortgage on all property pledged as collateral, Property located in Poland, The remaining term of the loan over 3 years, Suitable internal rating, PLN denominated loans, No delays & defaults. Agency model Comprehensive model of cooperation between and in terms of sales, services and management of the portfolio of retail loans secured by mortgage, and subsequently the issuance of covered. Agency model open since 213 is used depending on mortgage lending tactic and strategy within Group. Agency model of cooperation Product policy Marketing and communication After sales process Product offer (all financial parameters) Transaction ownership 7

8 commercial real estate and developers Commercial Real Estate The Bank offer in the area of commercial loans includes in particular: mortgage loan to housing developers projects, construction loan for the implementation of new commercial investment to commercial developers loans for the financing of commercial real estate projects that are consistent with the Bank s credit policy, refinancing loan or purchase of existing commercial properties (office buildings, warehouses, shopping centers and malls, logistics centers, hotels, guest houses, commercial premises, etc.), including commercial loans acquired from S.A. (commercial pooling). Commercial loan portfolio by property type Characteristics of funded projects Warehouse/Logistic centre Mixed use property Housing development Commercial premises,22 (5%),33 (7%),27 (6%),35 (8%) Hotel Other 1,45 (33%) Shopping centre,5 (1%),16 (4%) Total 4,46 bn PLN Offices 1,62 (36%) Maximum lending term - Duration of the loan for commercial real estate is up to 15 years, Loan currency - The Bankgrants commercial loans denominated in EUR and PLN, Own funds - 25% of the total investment cost is the minimum own funds of the borrower, Security - Basic security required by the Bank includes: the highest priority mortgage established for the benefit of the Bank on the ownership or the right of perpetual usufruct of the property, assignment of rights from insurance against fire and other perils for real estate which is the subject of credit or the registered pledge on those rights, assignment of rights from the insurance contract against all risks of building construction (CAR) in the case of real estate lending in construction or pledge on such rights. Source: financial statements. Data as of

9 key financials Summary of Key Financials: Profit and Loss Accounts in PLN M H1 216 H1 217 NII - Net Interest Income NFC - Net Fee & Commission Income Total income 1) Total costs 2) (43.4) (51.1) (62.6) (65.7) (32.8) (35.7) Cost/Income Ratio 52.16% 5.36% 54.82% 48.96% 52.1% 54.36% LLP - Loan Loss Provisions (34.9) (2.9) (24.8) (21.6) (1.3) (1.74) Operating result Taxes on the balance sheet items (16.7) (6.4) (11.2) Profit before income tax Net profit Net Interest Margin (NIM) % 1.55% 1.37% 1.37% 1.34% TCR 14.92% 13.31% 13.81% 14.54% 14.32% 15.82% Cost of Risk LLP -.47%.39%.26%.27%.4% ROE - Return on Equity (gross).98% 4.91% 3.91% 3.62% 3.39% 3.47% ROA - Return on Assets (gross).1%.54%.37%.31%.3%.31% 1) total income (defined as net interest income + net fee and commission income + net trading income + other operating income - other operating expenses) 2) total cost (overhead costs + amortisation and depreciation) 9

10 Development of Revenues and Costs Development of Total Income (PLN M) Development of Total Costs (PLN M) % H % H1 217 NIM (bps) change H1 16/H % Net Interest Income Net Fee and Commission Income Trading and Other Income 5.4% 51.3% % % 48.9% 54.3% % H1 216 H1 217 Cost/Income ratio change H1 16/H % Other +3.% -3.9% -5.% Staff-related costs Material Costs Depreciation & Amortization Loan Loss Provisions (PLN M) & Cost of Risk Net Profit (PLN M) & Return on Equity (ROE) gross Cost of Risk (bps) 5.7% 3.9% 3.6% 3.4% 3.5% ROE H1 216 H H1 216 H

11 Asset and liability structure Structure of Assets (PLN M) Structure of Liabilities (PLN M) 6,176 8, ,649 1, ,412 1,173 7,392 (88%) (9%) (88%) 5, % +6% , H ,25 (9%) Amounts due from banks Loans and advances to customers Derivative financial instruments Investment securities Other 3, , , ,176 6,123 (58%) , , , ,317 (31%) ,335 1,37 (9%) 6,159 (54%) 11 3,881 (34%) H (2%) Amounts due to other banks Amounts due to customers Debt securities in issue Equity Other Total Gross Loans (PLN M) Balance sheet value (carring value) 5, (16%) % +8% 7,392 3, , ,61 (35%) 9, ,76 4,375 (46%) 1, ,419 3,733 (53%) change H1 16/H ,6% +23,1% 3,8-5,6% Equity (PLN M) 14,9% 13,3% 13,8% 14,5% ,37 TCR (%) 4,29 (81%) 4,43 (6%) 4,714 (5%) 4,622 (45%) Corporate loans Housing loans to individual clients H1 217 Public-sector loans H

12 Quality of the loan portfolio NPL ratio significantly below the market level 6.87% NPL ratio (%) % 5.3% 5.2% pp Total NPL Ratio Retail NPL Ratio Mortgage NPL Ratio 2.9% 3.6% 3.25% Prudent supervision Banks Group -2.82pp.8%.8% Strict origination standards for retail and mortgage loans Minimum requirement for CET 1 ratio at 1.25% and for TCR at 13.25% since January 216 NPL by business lines (%) Cost of Risk LLP by business lines (bps) Total NPL Total Cost of Ratio 3.72% 3.42% 3.72% 3.25% Risk LLP 26 4 commercial portfolio retail mortgage portfolio 8,76% 7,36% 7,18% 6,67%,%,2%,8%,8% commercial portfolio retail mortgage portfolio,55%,11%,59%,49%,3%,4%,4%,3% H1' H1'217 12

13 Debt securities issued Debt financial instruments by type (carrying value, PLN M) Debt financial instruments by currency (carrying value, PLN M) +93.4% 6, , % 1.3% 6,116 2,33 6,134 2,47 33% 3, ,688 4, , ,268 5, % Short-term notes Long-term notes Public CB 3, ,274 4,157 1,242 2,915 4,83 4,87 67% EUR PLN H1 217 Mortgage CB (public + private offer) H1 217 Maturity of debt financial instruments by type (nominal value, PLN M) EUR - Mortgage Bonds (public + private offer) PLN - Mortgage Bonds (public + private offer) PLN - Long - term notes PLN - Short - term notes Data as of: Based on EUR/PLN NBP rate

14 Bond Market in Poland 1/2 Bond market players in Poland public issuance outstanding (bn PLN) Data as of PKO Bank 8,76 (54%) Total 16,15 bn PLN 6,7 (38%) (mbh) is a significant and frequent issuer with 38% market share in total outstanding amount of covered with the longest issuer history on the market. mbh have well distributed maturity profile of issued covered 1,31 (8%) 4,4 maturities (years) by issuer Pekao Bank 2,7 Pekao Bank PKO Bank 1, 1,3 1,5 1,5,2,5,,3,2,1,,8,5,2,1,5,1,1,,2,

15 Bond Market in Poland 2/2 Outstanding mortgage covered currency split as of ,15 Growing share of EUR issues by issuers % 7 EUR PLN 8,97 (56%) 7,18 (44%) Total Market 6,7 2,14 (35%) 3,94 (65%) mbh 8,76 6,47 (74%) 26% (2,3) PKO BH 1,31,95 Pekao BH,37 (28%) Outstanding mortgage covered float/fix rate split 16, /21 1/12 1/14 1/16 1/18 %EUR Fixed Float 8,7 (54%) 7,44 (46%) 6,7 1,41 (23%) 4,66 (77%) 8,76 7,23 (83%) 17% (1,53) 1,31,6 1,25 (5%) Starting from 212 mbh is active in the primary market s EUR debt segment which reflected in the currency structure of its issues Issuer of 15-year mortgage covered which are one of the longest maturity instruments issued by commercial enterprises in history. mbh is first PLN fixed rate Bonds issuer and issuer of the biggest 1 bn PLN Bond on capital markets. Total Market mbh PKO BH Pekao BH Data as of

16 Mortgage CB rating uplift among issuers Country ceiling AA-/A/Aa3 Mortgage CB issues -/-/Aa3 Mortgage CB issues +1 notch +2 notches Mortgage CB issues A/-/- Positive/-/- A/-/- Negative/ - / - +1 notch Poland Sovereign Long Term Commerzbank Long term A-/BBB+/A2 Stable/Stable/Stable +3 notches BBB+/A-/Baa1 Stable / Negative / Stable PKO Bank Polski Long term PKO Bank Long term -/-/A2 - / - / Stable -/-/Baa1 - / - / Stable +4 notches Pekao Bank SA Long term Pekao SA Long term A-/-/- Negative/ - / - +1 notch A-/BBB+/A2 Stable/ Stable/ Stable Long term Long term BBB/BBB+/- Stable/ Negative /- BBB/-/- Stable/-/- Fitch/ S&P / Moody s as of x notch - relation to sovereign rating +x notch - relation to issuer rating Fitch Ratings has upgraded 's mortgage covered bond programme to 'A' from 'BBB+ (by 2 notches) -higher than Sovereign rating (+1 notch) and removed the Rating Watch Positive. The Outlook is Positive - The resolved rating watch as well as the upgrade of the programme follows a review of the legal opinions and the historical performance data and reflects legislative amendments to the covered framework, effective 1st January 216. FitchRatings mortgage covered program rated 3 notches higher than issuer rating Source: Rating Agencies press releases 16

17 issuer track record Crucial milestones in issuance history First issue of Mortgage Bond in Poland (after 1945) First listed Bond in Poland First issue of Public Sector Bonds Introduction of pooling model (first tranche ) m PLN 12 1 Over 6 bn PLN Bonds outstanding Assets BH outstanding covered EBRD invests in 3 series in USD 15 m USD 2 series in EUR 2 m EUR EIB invests in 2 series in PLN 3 m PLN 15Y- Bonds longest maturity in market history 214-2/5 First fixed-rate Bond in PLN mpln - biggest Bond issue in PLN in market history ,429 3,163 3,76 17

18 Issuance activity on the Bonds Market Data as of Oct 3 th, 217 Bonds Issuance (PLN M) +555% , , Private placement 216: EUR 7m and PLN 4m; 217 PLN 3m + 4m PLN 7 2, Summary of Mortgage Bonds public issued in Amount Currency Issue date Maturity date Tenor (years) Coupon 2. M PLN WIBOR 6M + 78bps 2. M EUR Fixed (1.135%) 25. M PLN WIBOR 6M + 87bps 11. M EUR Fixed (1.285%) 5. M EUR EURIBOR 3M + 69bps 5. M PLN WIBOR 3M + 11bps 255. M PLN WIBOR 3M + 115bps 3. M PLN WIBOR 3M + 12bps 5. M EUR EURIBOR 3M + 87bps 5. M PLN Fixed (2.91%) 1. M PLN Fixed (2.91%) 13. M EUR Fixed (1.18%) 35. M EUR Fixed (1.183%) 24.9 M EUR Fixed (.94%) 5. M PLN WIBOR3M + 75bps 1,. M PLN WIBOR3M + 82bps 1. M EUR Fixed (.612%) bond issuance to become Public Issuance of Bonds in original currencies on quarterly basis (by ccy) the dominant long-term financing source for the Group s mortgage lending and a competitive advantage in a tightening regulatory environment. PLN , EUR Q1/15 Q2/15 Q3/15 Q4/15 Q1/16Q2/16 Q3/17 Q4/17 Q1/15 Q2/15 Q1/16 Q3/16 Q4/16 Q1/17 Q4/17 18

19 Outstanding Mortgage Bonds Data as of October 3 th, 217 Mortgage covered All issues Public issues Mortgage CBs 6 463, PLN 6 63, PLN PLNdenominated EURdenominated WA Time to maturity PLNdenominated EURdenominated 4 335, PLN 3 935, PLN 2 128, PLN 2 128, PLN 4.3 years 4.4 years 4.2 years 4.4 years 4.5 years 4.5 years Distribution by currency (all issues) EUR PLN 6,47 2,14 (33%) 4,34 (67%) mbh Distribution by interest rate (all issues) Fixed Float 6,47 1,41 (22%) 5,6 (78%) mbh Mortgage covered maturity profile broken down by currency (all issues PLN m) 7, 6, 5, 4, 3, 2, 6, , , EUR PLN 1, 3 Oct, ,

20 Domestic Bond Programme Mortgage Bond Programme by Law Law Prospectus date 26th August, 216 Size Manner of offering Instruments Form Depository Secondary trading Required rating Maturity Interest rate Minimum value of a single series PLN 15. bn (or the equivalent of this amount in EUR or USD) Public Offering Mortgage covered ( Hipoteczne listy zastawne ) Dematerialised bearer securities KDPW, Poland Regulated market operated by GPW / BondSpot (Catalyst market) International investment-grade rating Not less than 1 year Fixed, floating PLN 1. m (or the equivalent of this amount in USD or EUR) Mandatory overcollateralisation Yes 1% issued by based on domestic Programme: Fulfil the criteria of UCITS Directive & criteria of Article 129 (7) of the Capital Requirements Regulation (CRR) Eligible as collateral for lombard facility, internal credit and repo operation with central bank (only PLN-denominated CBs) All mortgage covered (PLN and EUR-denominated) are listed on the Catalyst market Soft bullet / conditional pass-through - maturity of the covered obligations extended automatically by 12 months and if asset coverage or liquidity test were negative, pass through - in hypothetical case of mortgage bank s insolvency Mandatory liquidity reserve covering at least 6 months of interest due on the covered outstanding 2

21 International Bonds Programme Bond Recognition Law & Jurisdiction Prospectus date 6 July 217 Mortgage Bond Programme by The Mortgage Bonds shall comply with (i) the requirements of Article 52(4) of the UCITS Directive, (ii) Art. 129 of the CRR and (iii) the Bond legislation. T&C`s: Law and Courts, English language legally binding Dealer Agreement, Paying Agency Agreement: English Law and English Courts, English language legally binding Size Form Base Prospectus approval Authority Clearing System Secondary trading Expected Bonds Rating Maturity Interest rate Currency Minimum value of a single series Involved Parties Issuer Arranger: Issuer`s Counsel Dealers Counsel: Fiscal and Paying Agent: Luxembourg Listing Agent: Appointed Dealers EUR 3. bn New Global Note - ECB repo eligible / Classical Global Note Commission de Surveillance du Secteur Financier, Luxembourg (CSSF) Clearstream / Euroclear Luxembourg Stock Exchange Fitch Ratings Ltd A outlook - positive Up to 3 years Fixed, floating Multi currency EUR 1, or its equivalent in other currencies Commerzbank Aktiengesellschaft Hogan Lovells LLP as to and English law White & Case LLP as to and English law Deutsche Bank Aktiengesellschaft Deutsche Bank Luxembourg S.A. Commerzbank Aktiengesellschaft, Erste Group Bank AG, Société Générale, J.P. Morgan, Landesbank Baden-Württemberg. 21

22 EUR PLN Mortgage highlights as of High over-collateralisation v Cover pool receivables + substitute Assets outstanding all issues Over-collateralisation Actual, non-committed. Regulatory 1% 8 2 m PLN (57,48 m PLN of Substitute Assets) m PLN 41,42% Comfortable natural currency hedge for EUR and PLN Bonds issues v FX space for PLN issues FX space for EUR issues ~161,5 m EUR 57 m PLN Substitute Assets 55 m PLN USD receivables High credit quality of cover pool v,% - NPL Fitch Rating - A 1% - Poland located mortgages 53% - share of residential mortgages Other characteristics v Number of loans WA LTV residential 78,4% Number of residential mortgage WA LTV commercial 67,57% Number of commercial loans 37 NPL (above 9 days),% Average loan size residential,25 m PLN WA life (in years) 17,57 Average loan size commercial 12,21 m PLN Rate type 1% Floating rate 22

23 Mortgage currency and mortgage type split Increasing share of residential mortgages in cover pool 9 CRE/REE by the type of property % % 84% 1 12/14 3/15 22% 78% 6/15 53% 44% 47% 49% mortgages 41% 4% 34% 39% 29% 51% 59% 56% 66% 61% 53% 71% 6% CRE/RRE 47% 9/15 12/15 3/16 6/16 9/16 12/16 3/17 6/17 9/17 4% Office Shopping malls Retail 36% Other Other commercially used Hotel/Tourism 8% Property developers 6% 4% Other 4% 2% 1% Commercial real estate Since 214 the currency structure of the loan portfolio in mortgage cover pool was subject to changes resulting from a systematic growth of the portfolio of retail loans granted only in PLN. In comparison with the end of Dec 214, the share of loans in PLN increased by 31 percentage points and, as at the end of June 217, accounted for 62% of the cover pool. Amount of loans denominated in USD continue to phase out. Historically mbh didn t grant loans denominated in CHF. Hence, there is no CHF-denominated loans in cover pool. Share of EUR, USD and PLN-denominated loans in cover pool % PLN 5 55% 57% 6% 62% 56% 4 53% 56% 44% 49% 3 39% 31% 2 54% 49% 42% 43% 44% 42% EUR 59% 45% 39% 38% 34% 1 67% USD 12/14 3/15 6/15 9/15 12/15 3/16 6/16 9/16 12/16 3/17 6/17 9/17 23

24 Mortgage - by loans value Residencial mortgages Commercial loans Total Value Value Value Value % share in cover pool % share in cover pool % share in cover pool (in PLN m) (in PLN m) (in PLN m) (in PLN m) % % % % 4 % % % 21 % 789 1% % 281 4% 43 5% % 32 4% 32 4% % 421 5% 421 5% % 43 5% 43 5% % 461 6% 461 6% % 523 7% 523 7% % 271 3% 271 3% > 5. % % % TOTAL % % 8 2 1% Residencial mortgages Commercial loans > 5. Data as of

25 Mortgage residential ML regional distribution Geographical distribution negatively correlated with unemployment by province strong client base portfolio % of mbh s Mortgage > 2% % % % < 1% Zachodnio- Pomorskie 4% Pomorskie 8% Kujawsko- Pomorskie 3% Warmińsko-Mazurskie 1% Podlaskie 1% Unemployment Rate in Poland 5.% - 6.9% 7.% - 8.9% 9.% - 1.9% 11.% % Zachodnio- Pomorskie 11.% Pomorskie 7.3% Kujawsko- Pomorskie 12.1% Warmińsko-Mazurskie 14.2% Podlaskie 1.4% Lubuskie 1% Wielkopolskie 7% Mazowieckie 41% Lubuskie 8.7% Wielkopolskie 5.% Mazowieckie 7.2% Dolnośląskie 1% Opolskie 1% Łódzkie 5% Lubelskie 2% Świętokrzyskie 1% Śląskie 5% Podkarpackie Małopolskie 1% 1% Dolnośląskie 7.3% Opolskie 9.% Łódzkie 8.6% Śląskie 6.6% Świętokrzyskie 1.8% Małopolskie 6.7% Lubelskie 1.4% Podkarpackie 11.6% Data as of Data as of December 3 th, 216 Data sourse - GUS 25

26 Mortgage CRE/RRE regional distribution Geographical CRE/RRE regional distribution vs with vacancy ratio by main cities stable portfolio % of CRE/RRE regional distribution in Mortgage > 2% % % % < 1% Zachodnio- Pomorskie 3% Pomorskie 5% Kujawsko- Pomorskie,7% Warmińsko-Mazurskie.7% Podlaskie.1% Vacancy Ratio 6.% - 8.% 8.% - 1.9% 11.% % 14.% - 2.% Zachodnio- Pomorskie Szczecin 14.7% Pomorskie Tricity 11.1% No data available Lubuskie Wielkopolskie.4% 1% Dolnośląskie 16% Opolskie 1% Mazowieckie 33% Łódzkie 4% Lubelskie 2% Świętokrzyskie 2% Śląskie 9% Podkarpackie Małopolskie 5% 9% Dolnośląskie Wrocław 12.5% Wielkopolskie Poznań 13,6% Łódzkie Łódź 6.2% Śląskie 14.% Małopolskie Kraków 7.2% Mazowieckie Warsaw 14,2% Lubelskie Lublin 1.9% Data as of Data as of December 3 th, 216 Data sourse Cushman&Wakefiled 26

27 Poland one of EU s most resilient economies Strengths Relatively strong labour market The largest economy in the CEE with almost 5% of region s gross domestic product 1 Track record of steady growth despite prolonged turmoil on the international financial markets Growth supported by expansionary policy-mix, solid influx of EU funds, high cost competitiveness and key location within the huge EU market The most liquid financial market in the region Economic rebound began in 213 and it s set to continue in the coming quarters; Poland should continue to outperform most of its peers Contributions to GDP growth s forecast Q1/13 Q3/13 Q1/14 Q3/14 Q1/15 Q3/15 Q1/16 Q3/16 Q1/17 Q3/17 Investment Net exports Consumption Inventories GDP YoY (%) Poland one of the fastest growing economies in the CEE region GDP index (Q1 28=1) 216 Nominal GDP share Real GDP growth Q1/8 Q2/9 Q3/1 Q4/11 Q1/13 Q2/14 Q3/15 Q4/16 Poland Hungary Czech Republic Slovakia Bulgaria Romania Poland 42. % 11.1% 16.8% Hungary Romania Czech Republic Slovakia Bulgaria Romania Hungary Slovakia Bulgaria Czech Republic Source: Central Statistical Office of Poland, Eurostat. 1 Share of 213 Nominal GDP of CEE region defined as: Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia 17.5 % 8.% 4.7% Poland EU % 3.2% 3.3% 3.1% 2.8% 2.8% 3.3% 2.6% 2.4% 1.8% 1.9% 4.% 4.9% 3.3% (average)

28 Stable growth within the forecast horizon Consumption is set to remain a key pillar of growth 9% 8% 7% 6% 5% 4% 3% 2% 1% % -1% Q1/5 Q3/6 Q1/8 Q3/9 Q1/11 Q3/12 Q1/14 Q3/15 Q1/ Strong growth in investment after a year of drought 12% 8% 4% % -4% -8% -12% Household consumption YoY (LA) Major purchases planned (RA) Construction output QoQ Inflation rebounded from historically low levels, as in other CEEs 3,% 2,% 1,%,% -1,% -2,% Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Poland Czech Republic Hungary Key interest rates 4.5% 5 4.% 4 3.5% 4 3.% 3 2.5% 3 2.% 2 1.5% 2 1.% 1 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Wibor 3M NBP base rate 1-year yield Source: Central Statistical Office of Poland, Eurostat, Bloomberg. 28

29 Sound fundamentals for the banking business Relatively strong labour market Capitalisation and Funding the banking sector Unemployment rate TCR & CET 1 ratio Loan-to-deposit ratio 7.7% 9.1% 15.7% 14.7% 16.3% 17.7% 12.% 12.2% 12.2% 98.9% 4.8% 2.9% 4.3% 14.1% 13.4% 15.% 16.1% Poland Czech Republic Hungary EU-28 Euro area CET 1 ratio Tier Consistent fiscal discipline General government debt (% of GDP) Underleveraged private sector Domestic credit to private sector (% of GDP) % 89.2% 89.2% 95.3% 54.4% 37.2% 51.9% 54.8% 34.9% 51.8% Poland Source: Eurostat, World Bank. Czech Republic Slovakia Hungary Euro area Poland Hungary Czech Republic Euro Area EU-28 29

30 Q1 21Q2 21Q3 21Q4 211Q1 211Q2 211Q3 211Q4 212Q1 212Q2 212Q3 212Q4 213Q1 213Q2 213Q3 213Q4 214Q1 214Q2 214Q3 214Q4 215Q1 215Q2 215Q3 215Q4 216Q1 216Q2 216Q3 217Q4 217Q1 Stable and growing residential market in Poland House price dynamics in the CEE very low volatility in Poland index, 215=1; Low volatility of house price dynamics 125 through the years with strong demand and 12 Euro area - EA19 supply with potential for future growth Czech Republic 115 Hungary The first quarter of 217 and 216 was a year of 11 Poland high activity both on the side of demand and 15 Romania supply on the housing properties market Transaction prices of residential units on primary and secondary markets in the largest cities in Q1 217 remained at the levels noted in the Q Data Source: Eurostat Mortgage penetration in Poland remains low while home ownership rates are among the highest in Europe Distribution of population by tenure status in selected countries (data for 215, in %) 95.6 Owner, no outstanding mortgage or housing loan Owner, with mortgage or loan Number of dwellings per 1, citizens Tenant, rent at market price Romania POLAND Hungary Source: Eurostat (data updated on ). Czech Republic EU-28 France Germany Denmark Tenant, rent at reduced price or free POLAND Ukraine Hungary Czech EU29 Republic Data Source: Deloitte Property Index report published in July 217 France 3

31 quarters ths real estate - activity of developers High activity of developers on the primary housing market The number of dwellings put on the market (left axis) The number of dwellings sold (left axis) The number of dwellings on offer (right axis) I II III IV I II III IV I II III IV I II III IV I II III IV I II During the first quarter of 217, the total number of sale transactions for the 6 main cities reached a record high level of 18.6 thousand units, approx. 3% more than in the first quarter of 216 when approx thousand units were sold. Developers acted prudently with regard to the impact of Recommendation S which increased own contribution to 2%, and the exhaustion of the funds from the MDM programme. As a result, approximately 15.9 thousand units, i.e. 16.1% less than in the fourth quarter of 216, were introduced for sale Offer sell-out period I II III IV I II III IV I II III IV I II III IV I II III IV I II Warszawa Trójmiasto Poznań Łódź Kraków Wrocław Avarege of 6 major cities Structure of the market offer according to the projects delivery date 3% 5% 13% 56% 24% untill The average time required for the dwellings to sell is shortened, the fastest sell out is in Tricity and the longest in Poznan Data Source as of June 3th, 217 Data source: REAS Analysis was based on major polish cities: Warsaw, Cracow, Poznań, Łódź, Wrocław, Gdańsk. 31

32 Commercial Real Estate investment volume Investment volume in Poland by sector m EUR ,5 Office Retail Warehouse Other , F Poland - CEE leader in CRE investment volumes (%) 11% 5% 7% 32% 45% Poland Czech Hungary Slovakia Romania Investment volume in Poland retail leading role (%) 17% 43%,4% 4% Office Retail Warehouse Other Poland - CEE leader in CRE investment (45%). The volume of transactions concluded in 216 on the commercial real property market amounted to approx. EUR 4.6 bn and the result was comparable with that recorded in 215 (EUR 4.1 bn). The share of the markets was more or less equal in the case of office and trade space, and amounted to approx. 4%, whereas investments in the warehousing sector constitutes approx. 17% of the transaction volume. Data Source for the slide: Cushman&Wakefield Report 32

33 Positive changes in Bonds Law Legal framework for Bonds The Act on Bonds and Mortgage Banks (Ustawa o listach zastawnych i bankach hipotecznych) of August 29, 1997 with changes in 216 The Bankruptcy and Reorganization Law (Prawo upadłościowe) of February 28, 23, Chapter II - Bankruptcy proceedings for mortgage banks, Article Mortgage Bank Specialised bank (mortgage bank) with the supervision of Financial Supervision Authority (KNF) Mortgage bank is a joint stock company with a legal personality (not a branch) with two licences: a banking licence and a consent to start operating activity, both granted by the KNF. A covered bond issuer may issue mortgage or public covered bond. Specific license for each covered bond type is required before the issuer may start to issue covered. Fundamental changes in 216 revision of the Act on Bonds and Mortgage Banks - in line with the best market practices and with recommendations of the European Central Bank (ECB) and credit rating agencies Improvements: Increase of credibility and safety of covered Extension of covered bond supply Extension of demand for covered soft bullet / pass-through - maturity of the covered obligations extended automatically by 12 months and if asset coverage or liquidity test were negative - pass through - in case of mortgage bank s insolvency (details on the next slide) mandatory liquidity reserve covering at least 6 months of interest due on the covered outstanding minimum legal overcollateralization requirement (OC) 1% increase refinancing limit for mortgage covered for residential mortgage loans to 8% from 6% introduce investment limit for Pension Funds 5% of portfolio income from interest or discounts on the covered earned by foreign investors is exempt from withholding tax (WHT) Regulatory status - Compliance with: CRR art 129 UCITS 52 (4) BRRD Domestic International Credit quality step 2 2 LCR Delegated Act (HQLA) ECB Repo NBP Repo CBPP / LTRO Expected category III 33

34 Bonds Law vs German Pfandbriefe Law Bonds Poland Hipoteczne Listy Zastawne (HLZ) Germany Mortgages Pfandbriefe (Hypfe) Special Bonds Law YES YES Special bank principle YES NO Mortgage Valuation concept Mortgage lending value Mortgage lending value Loan to Value (LtV) cap 1% NO Mortgage value refinancing limit (consider as OC) Geographical scope for mortgage assets : 8% Commercial: 6% PL 6% of mortgage lending value EEA, CH, US, CA, JP, AU, NZ, SG Repayment structure Soft bullet and CPT Hard Bullet Legal framework for bankruptcy Bankruptcy remoteness Recourse upon cover pool default Specific legal framework superseding the general insolvency law Preferential claim by law Specific cover pool administration Yes, pari passu with unsecured creditors Specific legal framework superseding the general insolvency law Preferential claim by law Specific cover pool administration Yes, pari passu with unsecured creditors Minimum Mandatory Overcollateralization 1% 2% CRR, UCITS compliant YES YES Source: European Bond Counsil 34

35 Tests perform initially 3 months after insolvency and subsequently every 3M Liquidity and 6M Coverage Maturity of covered Extended maturity of CB Repayment process in case of issuer insolvency Issuer insolvency Maturity of CB Coverage test* positive Initially extension by 12M Liquidity test* positive Soft bullet Coverage test positive Liquidity test negative or Coverage test negative Extension longest dated asset maturity plus 3Y Principal payment paid pass-through and pari-passu Earlier repayment 2/3 majority CBs holders decision on cover pool disposal Pass through *details on the next slide 35

36 Obligatory cover pool tests ensure safety of CB Coverage Test Verifies at the day of test whether the value of the assets in the cover pool allows for outstanding covered claims. Cover pool Core assets Substitute assets Liquidity buffer Hedging instruments CB claims Outstanding covered (principal) Due and unpaid interest from CB Cost of liquidating asset pool in case of insolvency 1 Test calculted also under stressed conditions: +/- 2% FX rate or highest year change in previous 12 M Tests performed min. once a 6M Liquidity Test Verifies at the day of test whether the value of the assets in the cover pool allows for outstanding covered claims even in extended maturity in case of issuer insolvency. Separately for 6M and 12M horizon Cover pool CB claims Substitute assets Liquidity buffer Net cash flows from hedging instruments in time horizon Interest payable in time horizon Principal amount that fall in time horizon Cost of liquidating asset pool in case of insolvency in time horizon Additionally for 12 M horizon: Interest under receivables in the cover pool for the next 12 months Obligations towards holders (principal + interest) that became due but were not paid before the date of hypothetical insolvency Test calculated also under stressed conditions: +/- 2% FX rate or highest year change in previous 12 M +/- 4bps shift of interest rate curves Tests performed min. once a 3M 36

37 Disclaimer This presentation is for promotional purposes only and under no circumstances shall constitute an offer or invitation, or form the basis for a decision, to invest in the covered of S.A. The prospectus prepared in connection with the public offering to which this presentation relates and admission of the covered to trading on a regulated market (the "Prospectus") is the sole legally binding document containing information about the new public offering of the covered. The Prospectus has been submitted to the Financial Supervision Authority for approval. Once approved by the Financial Supervision Authority, the Prospectus will be published and available on the website of S.A. ( This document has been created and published by the Treasury Department of S.A., Warsaw. The document is intended for distribution to the bank's professional and institutional clients and not to its private clients. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Commerzbank Group with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. This report is for information purposes, it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Commerzbank Group may provide banking or other advisory services to interested parties. This report is intended solely for distribution to professional and business customers. It is not intended to be distributed to private investors or private customers. Not for distribution to third parties. Commerzbank Group accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this report. In compliance with statutory and regulatory provisions, S.A. has made internal organisational arrangements so as to prevent as far as possible any conflicts of interest in preparing and transmitting analyses. These include, in particular, in-house information barriers (Chinese walls). These barriers prevent giving analysts access to information that may cause conflicts of interest for S.A. with regard to the analysed issuer or its financial instruments. These information barriers also apply to any information not in the public domain to which S.A. may have access from a business relationship with the client. For statutory or contractual reasons, this information cannot be used in an analysis of the securities and are therefore not included in this report. S.A., and/or its clients may conduct or may have conducted transactions for their own account or for account of another with respect to the financial instruments mentioned in this report or related investments before the recipient has received this report. S.A., its executives, managers and employees may hold shares or positions, possibly even short sale positions, in securities included in this report or related investments. 37

38 Contact details Karol Prażmo Direct dial: Head of Group Treasury Krzysztof Dubejko Direct dial: Head of mbh Treasury Wojciech Zdunkiewicz Direct dial: Investor Relations mbh Treasury wojciech.zdunkiewicz@mhipoteczny.pl S.A. Al. Armii Ludowej Warszawa 38