Banking on the macro story

Transcription

1 Banks, Romania 31 May 216 Romanian Banks Banking on the macro story We remain positive on the outlook for the banking sector in Romania and believe that it still offers one of the best growth/risk profiles in the region. In our view, the fundamentals for the potential growth of the system are still in place: loan growth driven by strong macroeconomic conditions and a recovery in NIMs driven by a stabilisation in interest rates and improved asset allocation profiles. We also believe that the concerns regarding the impact that some of the pre-election political decisions might have on the banking system are exaggerated. We acknowledge the negative impact that policies such as the mortgage walkaway law might have on the banking system, and have consequently adjusted downwards our loan growth, rate of cost of risk (COR) decline and earnings estimates. The adjustments have been marginal, however. We still see both loan and earnings growth as being high enough to justify upside in both Banca Transilvania (BT) and BRD, and maintain our BUY recommendations, with new price targets (PT), for both banks. For BRD, our estimate changes have resulted in our PT decreasing by 1% to RON 11.6/share, implying 24.8% upside. For Banca Transilvania (BT), the negative adjustments in growth rates have been offset by more positive surprises resulting from the Volksbank transaction, as well as a better asset capital allocation profile ex-dividend. After also adjusting for the new number of shares, our PT for BT decreases by 12.5% to RON 2.57/share, but this still implies 27.6% upside. Loan growth supported by strong macroeconomic conditions. GDP growth in Romania was 3.8% last year, driven by consumption on the back of higher wages, low inflation, a decrease in taxes and low interest rates. We anticipate that consumption should remain an important driver for GDP growth (which we expect at 4.5% this year and 5.5% next year), which should, in turn, drive higher activity on the corporate side. We expect a positive macro environment for loan growth, which we forecast at 5.1% CAGR for the next three years, driven by both corporate and retail loans. Banca Transilvania BUY (maintained) Sector report Price*: RON 2.2 Price target*: RON 2.57 (from RON 2.94) *Adjusted for div and share split May-15 Sep-15 Jan-16 TLV BET rebased BRD-GSG BUY (maintained) Price: RON 9.31 Price target: RON 11.6 (from RON 12.9) May-15 Sep-15 Jan-16 BRD BET rebased NIMs could start expanding. In recent years, the banks margins have been affected by: declining interest rates; higher competition for deposits in an attempt to replace liabilities from parent banks with local deposits; and an increased allocation to government bonds, which bear a lower interest rates than loans, as lending activity has contracted. We expect this trend to reverse as inflationary pressures build up (inflation estimated at 2% for next year by the NBR), which should lead to an increase in interest rates. In addition, as lending activity picks up, we expect that LTDs will also increase, with a positive effect on margins. Risks accumulating in the system. The recently-passed mortgage walkaway law has already raised expectations for the COR for most banks, and created uncertainty regarding the pace of the growth of the mortgage market. In addition, we see risks related to the approaching AQR by the NBR (which may begin in the last quarter of 216E). As a result of these concerns, we have decreased our mortgage loan growth expectations for both banks, and also reduced our expectations regarding the pace of the COR decline. EQUITY RESEARCH Valuation premium justified. Both banks are trading at a small premium to our peer group of Polish, Greek, Austrian and Turkish banks. We believe this is justified, given the mix of high growth and relatively lower risks for the Romanian banking system. We also consider the macro environment to be favourable for an acceleration in loan growth, while concerns regarding legal initiatives that could disrupt the system, such as the mortgage walkaway law, are exaggerated, in our view. Analyst: Lucian Albulescu, CFA Prague: lucian.albulescu@wood.cz Website:

2 Contents Investment summary... 3 Valuation summary... 4 Macro environment supportive for banks... 6 Asset allocation and margins Cost of risk situation - NPLs and NPL coverage Legislative and political risks Risks Company sections Banca Transilvania BRD-GSG Important Disclosures Closing Prices as of 27 May by WOOD & Company Financial Services, a.s. All rights reserved. No part of this report may be reproduced or transmitted in any form or by any means electronic or mechanical without written permission from WOOD & Company Financial Services, a.s. This report may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without written permission from WOOD & Company Financial Services, a.s. Requests for permission to make copies of any part of the report should be mailed to: WOOD & Company Financial Services a.s. Palladium, Namesti Republiky 179/1a, 11 Prague 1 Czech Republic tel.: fax: http//: Banks, Romania 2 WOOD & Company

3 Investment summary We remain positive on the outlook for the banking sector in Romania and believe that it still offers one of the best growth/risk profiles in the region. While we acknowledge the negative impact that pre-election political decisions might have on the banking system, we believe these are exaggerated, and that they are already incorporated in the stock prices. In our view, the fundamentals for the potential growth of the system are still in place: strong macroeconomic conditions that should eventually lead to loan growth, and a recovery in net interest margins (NIM) as interest rates have stabilised and the banks are improving their asset allocation profiles. Cost of risk (COR) should also remain on a downward path, although we believe the pace of decline is likely to slow, especially given the potential additional provisions related to the mortgage walkaway law. Loan growth supported by strong macroeconomic conditions. GDP growth in Romania reached 3.8% last year, driven by consumption on the back of higher wages, low inflation, a decrease in taxes and low interest rates. We forecast consumption to remain an important driver for GDP growth, which we expect at 4.5% this year and 5.5% next year. This, in turn, should drive higher activity on the corporate side. As a result, we expect a positive macro environment for loan growth, which we expect at 5.1% CAGR for the next three years, driven by both corporate and retail loans. Improved asset allocation and stabilisation of interest rates should help NIMs. In recent years, banks margins have been affected by: declining interest rates (ROBOR 3M is.78% currently vs. over 1% in 28); higher competition for deposits in an attempt to replace liabilities from parent banks with local deposits; and an increased allocation to government bonds, which bear a lower interest rates than loans, as lending activity has contracted. We expect this trend to reverse as inflationary pressures build-up, which should lead to an increase in interest rates: the National Bank of Romania (NBR) is estimating inflation of 2% for next year. In addition, as lending activity picks up, we expect that LTDs will also improve, with a positive effect on margins. Risks related to political decisions ahead of elections. The recently-passed mortgage walkaway law has already raised expectations of the COR for most banks and created uncertainty regarding the pace of the growth of the mortgage market. Significant cuts in taxes and higher salaries may lead to an acceleration of the consumer demand, but could also result in inflationary pressure if they are not counteracted with increases in both labour productivity and internal production (vs. imports of goods). As a result of these concerns, we have decreased our loan growth expectations for both banks, and also reduced our expectations regarding the pace of the COR decline. BRD. On the back of the changes in the sector as a whole, we have decreased our earnings estimates for BRD by1-2% for the next three years. That said, since the beginning of the year, BRD s stock price has fallen 23% and already incorporates the more pessimistic scenario, in our view, thereby offering upside potential. Our estimate changes have resulted in our price target (PT) for BRD decreasing by 1% to RON 11.6/share, implying 24.8% upside. We maintain our BUY rating on BRD. Banca Transilvania. BT has continued to surprise positively with further one-off gains related to the Volksbank transaction (e.g. a high dividend yield of 14%, more gains in terms of provision reversals, the potential reversal of the tax expense), as well as gains on the Visa transaction. These have resulted in the price increasing by 16.3% since the beginning of the year. Given the better capital allocation and our belief that BT should be able to achieve a ROE above 13% in the medium term, we see further upside even after the ex-dividend adjustment and the incorporation of reserves. The combination of our estimate changes and the adjusted number of shares, reduces our PT by 12.5% to RON 2.57/share, still implying 27.6% upside. We maintain our BUY recommendation on BT. BRD: Net profit - Wood vs. consensus Banca Transilvania: Net profit - Wood vs. consensus E 217E 218E Wood&CO forecast Consensus 1, E 217E 218E Wood&CO forecast Consensus, Bloomberg, Bloomberg Banks, Romania 3 WOOD & Company

4 Valuation summary DuPont decomposition, 215 Both BT and BRD are trading at a small premium to our peer group of Polish, Greek, Austrian and Turkish banks. We believe that a premium is justified, given the mix of high growth and relatively lower risks for the Romanian banking system. We also consider the macro environment to be favourable for an acceleration in loan growth, while concerns regarding legal initiatives that could disrupt the system, such as the mortgage walkaway law, are exaggerated, in our view. BRD s share price has declined 23% since the beginning of the year, and it is currently trading at a 216E P/B of 1.x. Even if it only generates a ROE close to its cost of equity (COE) for 216E and 217E on our estimates, we do believe that an increase towards 12% is possible in 218E and 219E, and hence we value it above book value. On our 217E P/B of.94x, BRD trades at an 21% discount to Banca Transilvania and a 1% premium to the regional average, while on our 217E P/E of 1.6x, it is at a 15% premium to its regional peers and a 15.5% premium to Banca Transilvania. Banca Transilvania: Given the efficient allocation of the extra capital from the Volksbank acquisition by the payment of a special dividend this year, and also the strong profitability forecast for the coming years, we expect BT to be able to maintain a normalised ROE of >13%, which implies a P/B of 1.3x. The bank currently trades at a 217E P/B of 1.2x, which implies a 26% premium to BRD and 4% premium to the regional banks. On a 217E P/E of 9.2x, the bank is trading at a 13% discount to BRD and a 1% discount to regional banks. % Poland Greece Turkey Other CEE Romania BRD TLV Net interest income/assets 2.4% 2.2% 3.1% 3.1% 2.8% 3.1% 4.7% Fee and commission income/assets.9%.3%.8% 1.1% 1.% 1.6% 1.2% Other non-interest income/assets.4%.1%.5%.3% 1.1%.5% 5.% Total operating income/assets 3.7% 2.5% 4.4% 4.4% 5.% 5.2% 1.8% Total costs/assets -1.9% -1.5% -2.1% -1.9% -2.9% -2.7% -3.4% Operating profit before provisions/assets 1.8% 1.% 2.2% 2.% 2.1% 2.5% 7.4% Provision expense/assets -.5% -1.6% -.8% -1.% -1.% -1.4% -1.9% Pre-tax profit/assets 1.3% -3.% 1.5%.2% 1.% 1.1% 9.5% Tax/assets -.2%.7% -.4%.4%.3% -.2%.4% ROA 1.1% -2.4% 1.1%.6% 1.2% 1.% 9.8% Equity multiplier ROE 1.1% -3.2% 1.6% 6.% 11.8% 7.8% 81.7% DuPont decomposition, 217 % Poland Greece Turkey Other CEE BRD TLV Net interest income/assets 2.5% 2.6% 3.2% 2.9% 3.2% 3.4% Fee and commission income/assets 1.%.4%.8% 1.1% 1.5% 1.1% Other non-interest income/assets.2%.2%.4%.3%.4%.4% Total operating income/assets 3.7% 3.1% 4.4% 4.2% 5.1% 4.9% Total costs/assets -1.8% -1.5% -2.1% -1.7% -2.6% -2.1% Operating profit before provisions/assets 1.9% 1.7% 2.3% 2.% 2.5% 2.8% Provision expense/assets -.6% -.3% -.8% -.6% -1.% -.9% Pre-tax profit/assets 1.4%.8% 1.6%.4% 1.4% 1.9% Tax/assets -.4% -.2% -.4%.6% -.2% -.3% ROA.9%.5% 1.2% 1.% 1.2% 1.6% Equity multiplier ROE 8.5% 5.3% 12.3% 1.3% 9.1% 13.3% Banks, Romania 4 WOOD & Company

5 Peer group comparison P/B P/E E 217E 218E E 217E 218E Akbank Turkiye Garanti Bankasi Yapi Kredi Bankasi Turkiye Is Bankasi-C Turkiye Halk Bankasi Turkiye Vakiflar Bankasi T-D PKO Bank Polska Bank Pekao Bank Zachodni WBK mbank Bank Handlowy W Warszawie Bank Millennium ING Bank Slaski Getin Noble Bank Alior Bank Komercni Banka OTP Bank Raiffeisen Bank International Erste Group Bank Ag n.a n.a. Alpha Bank Ae Eurobank Ergasias Piraeus Bank S.A National Bank Of Greece-ADR Median BRD Discount to peers 7.5% 8.4% 1.4% 12.2% 26.2% -2.2% 14.9% 15.8% Banca Transilvania Discount to peers 21.3% 36.% 4.% 43.% -72.8% -4.2% -.6% 21.2%, Bloomberg Banks, Romania 5 WOOD & Company

6 Jan-6 Jun-6 Nov-6 Apr-7 Sep-7 Feb-8 Jul-8 Dec-8 May-9 Oct-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jan-2 Aug-2 Mar-3 Oct-3 May-4 Dec-4 Jul-5 Feb-6 Sep-6 Apr-7 Nov-7 Jun-8 Jan-9 Aug-9 Mar-1 Oct-1 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Macro environment supportive for banks We view the macro situation in Romania as favourable for an acceleration in loan growth in the coming years. GDP is increasingly driven by consumption, on the back of higher wages, low inflation, a decrease in taxes and low interest rates. Following the 5pps cut in the contribution to social security at the end of 214, the increase in state employees wages of 1%-25% in autumn 215, and an increase in the minimum wage by 19% this year, wages growth has accelerated to above 1%, and could increase even further, in our view. We are forecasting wage growth to remain at high levels, as the nominal average salary in Romania is 8% below the EU-28 average. We also note, however, that productivity is 44% below the EU average, and a more healthy wage growth can only happen on the back of an increase in productivity. On the other hand, the low inflation and the effect of declining taxes (VAT cut from 24% to 2% in January 216) should add to increased consumption in the short term. Average interest rates for households (including consumer and housing) have declined from over 12% in 29 to below 7% currently, leading to a lower wages to debt service ratio, which we again believe is an argument for increasing loan growth. GDP drivers by segment GDP forecast Net export Gross fixed capital formation Household consumption Change in inventories Government consumption GDP E 217E Real GDP growth Source: INSSE, WOOD Research Turnover in retail Source: INSSE, WOOD Research Wage evolution % 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% -5.% Total Food Non-food Fuel Net wages growth Source: INSSE, WOOD Research Source: INSSE, WOOD Research Banks, Romania 6 WOOD & Company

7 1Q213 2Q213 3Q213 4Q213 1Q214 2Q214 3Q214 4Q214 1Q215 2Q215 3Q215 4Q215 1Q216 1Q213 2Q213 3Q213 4Q213 1Q214 2Q214 3Q214 4Q214 1Q215 2Q215 3Q215 4Q215 GDP deviation from potential Capacity utilisation in production of goods GDP deviation Durable goods Capital goods , NBR, NBR Retail turnover (% yoy) Net imports of goods (EUR bn) 25% 2% 15% 1% 5% % % -3. change% EUR bn, NBR, NBR Most banks have loan expansion on the agenda We expect to see loans expanding at a 5.1% CAGR for the next three years, while we forecast LTDs to increase from the current 84% to 87% in 218. Our new loan growth estimates are 7.7% lower than our estimates from August 215, as we are now forecasting a small negative impact from the mortgage walkaway law, as well slightly lower GDP growth, even though the growth rates still remain high. Loans growth forecast (old vs. new) 2.% 15.% 1.% 5.%.% (5.%) old new old new old new old new Total Corporate (non-financial) Mortgage loans, total Consumer loans Banks, Romania 7 WOOD & Company

8 21 Jun 213 Sep 213 Dec 213 Mar 214 Jun 214 Sep 214 Dec 214 Mar-15 Jun-15 Sep-15 Dec E 217E 218E The increase in loans should be driven by various factors, including: convergence in terms of financial intermediation (loans to GDP stand at 62% in Romania vs. the EU-28 average of 13%); rising financial indebtedness for companies (which now stands 8% below the EU-28 average); an increase in corporate profits, allowing them to score better when accessing financing; higher average wages, and consequently improved access to loans for the population (mortgages should remained the primary driver here, in our view); and a low LTD ratio as the banks have replaced financing from parent banks with local deposits. According to the Romanian Financial Stability Report, recently published by the NBR which, for the first time, includes a survey of bank s plans for the next three years, most banks have loan expansion on the agenda. According to the survey, these companies are forecasting loan growth of 5.4% p.a. for the next three years, with a 5.3% increase in retail loans and 5.7% growth in corporate loans. In addition, most banks are planning to expand loans in RON terms at a higher rate than FX loans, with an increased allocation towards retail (49% of new loans) vs. companies (42% of new loans). Stock of loans and estimates (banks survey) CAR evolution (banks survey) E 217E 218E, NBR, NBR Corporate loan growth While the level of loans to financial corporations has remained on a declining trend over the last twelve months, down.7%, we expect to see a turnaround this year, with a loan 3y-CAGR to financial companies of around 4.6%. We believe this will be driven by a longer-term trend of convergence with the EU-28, as Romanian companies currently have a low debt to net value-added ratio compared to EU levels. The level of financial indebtedness for Romanian companies is still 8% below that of EU-28 average, when calculated in terms of debt-to-gross operating surplus. We expect that the convergence story will continue to play out over the longer term, and that the level of debt should increase. We also expect a shorter-term recovery from the losses registered in the aftermath of the economic crisis in 28-9, as the level of corporate profits is increasing and the financial health of the Romanian companies is improving. The number of companies registering losses increased dramatically following the crisis of 28, but has recently started to improve. As the level of profitability and financial soundness recovers, we expect banks to be more willing to grant loans to non-financial corporations. Banks, Romania 8 WOOD & Company

9 Jun 213 Jun 214 Jun 215 Jun 213 Jun 214 Jun 215 Jun 213 Jun 214 Jun 215 Economy Corporate SMEs Economy Corporate SMEs Economy Corporate SMEs Economy Corporate SMEs Economy Corporate SMEs Economy Corporate SMEs Loans to non-financial corporations Debt to gross operating surplus (Euro area vs. RO) 13, 5. 12, 11, , 9, , 7, , E Romania Euro area, NBR Companies - financial health indicators, NBR, ECB Cumulated profit vs. loss of companies in Romania H214 1H215 1H214 1H215 1H214 1H Debt/equity Current ratio ROE, NBR, NBR Retail loans and deposits Retail loans have increased by 5.7% over the past 12 months, driven by both an increase in new lending and the repatriation of some of the credits previously sold by banks. We expect this trend to continue, and see an increase in retail lending at a CAGR of 5.5% for the next three years. The level of household deposits has also increased by 42% over the past five years, as a result of which the Romanian banking system now largely relies on internal savings, rather than external financing. We also expect this trend to continue, but at a slower rate, as low interest rates lead also to accumulation in other, more risky investment types (equities, investment funds etc.). Loans to household Debt to disposable income (EU vs. RO) E Q215 Euro area Romania, NBR, NBR, ECB, INSSE Banks, Romania 9 WOOD & Company

10 Mortgages should remain an important driver, in our view, although we are decreasing our growth estimates. We now estimate that mortgages will expand at a three-year CAGR of 8.%, vs. our previous estimate of 11.3%. The main reason for our decreased estimate is our belief that the mortgage walkaway law is likely to cause a deceleration in terms of housing loan growth on the back of higher down payment requirements. That said, we also expect the banks will be able to introduce different products that will bypass the effects of the law in due course, for example consumer loans for the downpayment. Coupled with a structurally low level of mortgages to GDP (7% in Romania vs. 49.6% in the EU-28), we forecast that the mortgage market should remain an important driver of growth for loans. Consumer loans are also picking up. In our view, the short-term macroeconomic environment of low inflation, lower taxes and higher salaries is also favourable for consumer credit growth. While this is not visible as yet, with consumer loans still down 3.2% yoy in March, we believe the negative trend will reverse by the end of the year, and estimate a three-year CAGR of 3%. Deposits. The source of financing for the Romanian banking system has recently switched away from foreign financing from parent banks, into financing via local deposits. These have grown 42% over the past five years, and by 6.4% over the past 12 months, while financing from parent banks has dropped by 38%. The financing structure remains an issue, with long-term loans increasingly being financed via short-term deposits. Deposit structure (RON m) Structure of bank liabilities (%) Jan. 27 Jan. 28 Jan. 29, NBR Jan. 21 Jan. 211 Jan. 212 Jan. 213 Jan. 214 Jan. 215 Jan. 216 FX deposits RON deposits Other deposits (all currencies) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan Deposits - external Deposits - overnight Deposits - term Capital Others, NBR Banks, Romania 1 WOOD & Company

11 Jan. 27 Jan. 28 Jan. 29 Jan. 21 Jan. 211 Jan. 212 Jan. 213 Jan. 214 Jan. 215 Jan. 216 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Asset allocation and margins Margins have been under pressure due to: 1) a general trend of declining interest rates, which is affecting assets more than liabilities, as competition for both deposits and new loans has intensified; and 2) a general increase in asset allocation towards government securities, which bear a lower interest rate than loans and consequently generate a lower income. We expect the downtrend in margins to have stabilised as the decline in interest rates in Romania appears to have come to an end (due to concerns that inflation will pick up from 217E), and the banks are allocating more funds to loans, which should lead to an increase in LTDs. Interest differential between loans and deposits. Calculated on average RON-denominated loans and deposits, the differential has decreased from 6.96% to 4.69% as the banks increased competition to attract new local deposits in order to replace parent-bank financing in the aftermath of the financial crisis, while the general interest rates decline has led to decreases in interest charged on loans. However, as LTDs in the Romanian banking sector have decreased from 13% in 28 to 86% in 1Q16, we expect the scramble for deposits to ease, reducing the pressure on margins. We also believe that interest rates within the system have hit bottom, with the ROBOR 3M rate now at.78%, vs. 1-15% in 28. As inflation is expected to pick-up in 217E (NBR estimate, +2%, vs. -2% in March 216), after the effect of the cut in VAT drops out of the numbers, we believe the central bank will have to put its recent policy of rate cuts on hold, and become more hawkish in its approach. We expect the combined effect of the above to result in the interest differential between loans and deposits remaining stable at 4-5% for the next three years. Allocation to government bonds: After the credit boom years of 26-7, once the deleveraging process started, the banks allocated more of their extra cash available to government bonds, which bear a lower interest rate than customer loans. The weighting of government bonds increased from 2.4% in December 27 to 19.6% in 1Q16. The yield on 1-year government bonds has decreased from 7.4% in 211 to 3.3% in 1Q16, while the two-year bond yield has fallen from 6.96% to 1.15%. As we expect the LTDs of banks to increase from the current 84% to 87% by 219E, we believe the share of assets allocated to bonds should also start declining, leading to a better overall NIM on total assets. RO Banks: Structure of assets RO Banks: interest rates 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Households Non-financial corporations Key rate Gov 1 years Gov 2 year Loans AFS Other, NBR, NBR Banks, Romania 11 WOOD & Company

12 Cost of risk situation - NPLs and NPL coverage Cost of risk (COR) has declined significantly in recent years, following a hike in particularly on the back of higher insolvencies in small and medium enterprises (SMEs). In our base scenario, we expect the COR to decline further, as the banks have made significant efforts to provision their NPLs in the past few years, resulting in coverage ratios high enough to allow a decrease in COR from the base effect. Still, we do see additional risks associated with the potential negative effect of the mortgage walkaway law on the retail side, and some increases in the level of insolvencies on the corporate side. Although the number of companies entering insolvency is decreasing, the value of the amounts owed by these companies has increased. In addition, the AQR to be undertaken in Romania ahead of joining the banking union could trigger some additional provisions, albeit not to a significant extent. In terms of differentiation between BRD and BT, our base scenario is that both companies will see their COR fall below 1.5% by 217E. While this should continue to add to the increase in profitability, we do not believe it will be a significant profit driver. We view BT as slightly more exposed to a prolonged higher COR, due to the high proportion of loans to SMEs in its portfolio, as while BRD is more exposed to retail, we believe the concerns here are less significant. Evolution of NPLs: After the 28-9 banking crisis, NPLs increased significantly in Romania, from 6.5% in 29 to 22.2% in 214, largely generated by companies, which represented 75% of the total stock of NPLs in 212. Increased NPLs ratios were seen from SMEs, as well as sectors like construction, real estate and retail. The combination of a new insolvency law, a decrease in the number of insolvencies, modifications to NBR regulations allowing the write-off of fully-provisioned NPLs, and the efforts of the banks to cover NPLs and write them off, has since led to a significant decrease in the NPL ratio from 22.2% in 214 to 13.7% in 1Q16. Going forward, we expect a small increase in the formation of NPLs, as the level of debts owned by companies in insolvency has increased, while the number of restructured loans is still high and could create additional NPLs. This should, however, be offset by the process of continuous provisioning by the banks, in our view, and we therefore expect the overall NPL ratio to remain at current levels. NPLs rate evolution Jul-9 Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 NPLs rate (IFRS) New NPLs rate NPLs ABE definitition, NBR NPLs ratio by company size Non-repayment rate (historical & forecast from NBR) , NBR NPLs ratio by company sector Jun-15 Dec-15 Jun-15 Dec-15 Jun-15 Dec-15 Jun-15 Dec-15 Jun-15 Dec-15 Jun-15 Dec-15 Total Corporate SMEs Micro Small Medium Jun-15 Dec-15 Jun-15 Dec-15 Jun-15 Agriculture Industry Retail Services Construction and real estate Dec-15 Jun-15 Dec-15 Jun-15 Dec , NBR, NBR Banks, Romania 12 WOOD & Company

13 E /215 5/215 6/215 7/215 8/215 9/215 1/215 11/215 12/ NPLs - households NPLs of households by year of granting Non performing loans Off balance sheet loans , NBR, NBR The annual level of provisioning expenses taken by the banks increased from below 1% (as a percentage of loans) in 26 to 5-6% in In most cases, 214 marked the peak, resulting in the banking system falling into a loss of RON 4.8bn, largely due to the high level of provisions that year. The continuous provisioning process led to a write-off of fully-provisioned NPLs, and consequently a decline in the NPL ratio, but also led to an increase in coverage ratio to the current 65.5%, higher than most other European countries. We believe the banks will only need to create small amounts of provisions going forward in order to maintain the coverage at this level (1.-1.5% COR). NPLs ratio by country Coverage of NPLs with provisions 5% 7% 45% 65% 4% 6% 35% 55% 3% 5% 25% 45% 2% 4% 15% 35% 1% 3% 5% 25% % GB NL DE CZ FR SK EU ES PL AT BG HU RO IT IE PT* GR 2% GB DE NL IE PT* EU IT ES GR FR AT BG HR PL CZ HU RO, ECB RO Banks: Cost of risk 7% 6% 5% 4% 3% 2% 1%, ECB Profit of the banking system % -6, companies disclosure, NBR Banks, Romania 13 WOOD & Company

14 Legislative and political risks The Romanian parliament has recently discussed, and in some cases passed, various legislation that could have a negative effect on the profitability of the banking system. The mortgage walkway law We believe the most important of these is the walkaway law. This allows debtors who took out a loan with the intention of buying a house or apartment, to return the property used as collateral to the bank, thereby terminating the loan. The legislation applies to loans with a maximum value of EUR 25k, while loans taken out via the First Home programme have been excluded. This has generated negative comments from both the banks and the NBR, as the legislation means that the risks from a decrease in the value of the collateral property are now being transferred from the debtors, and retroactively being placed on the shoulders of the banks. It would not come as a surprise if the banks choose to contest the law in the Constitutional Court, in our view. As the most likely reaction from the banks will be to raise downpayment requirements, in our view, we believe the walkaway law will result in a slowdown in mortgage market growth in Romania. In addition, it may result in the banks having to make additional provisions against the eventuality of having to deal with situations where the current value of the collateral is lower than the initial loan value. We also see the possibility that the CAR could decrease by an average of 1-2%, as 1% of the difference between the market value of the collateral and the loan value would need to be recognised in the calculation of RWA vs. 35% currently. FX-loan conversion Another piece of legislation which could have an impact on the profitability of the banking system is the law allowing the conversion of FX-denominated loans into local currency loans (which has been registered in Parliament under proposal number PL-x 345/214). In the form adopted by the Senate, this allows FX-loan conversion, but only at the current FX rate, which should not generate additional costs for the banks. However, comments from some members of Chamber of Deputies include alternatives such as conversion at historical rates for CHF-denominated loans. While no amendments have yet been introduced that would point towards a change in the initial form, we highlight these discussions as a potential risk for the banks. That said, we believe this would have a limited impact on either BT or BRD, which only have a low exposure to CHF-denominated loans. Banks, Romania 14 WOOD & Company

15 Risks In our view, the key risk factors to our earnings estimates over the next couple of quarters are as follows: Risks related to the financial performance of the banks: our estimates in terms of operating performance and the COR at BRD and Banca Transilvania are more conservative that their respective managements have indicated. Our estimates are based on statistical assessments of the balance sheet and profit and loss accounts, and are subject to risks. The general state of the economy: while the economic outlook in Romania has been improving, in our opinion, we are still cautious about an eventual deterioration due either to internal or external factors. Since banks exposure is spread over the entire economic spectrum, we see a risk of one or several sectors, or the entire economic situation, worsening in Romania. Potential share overhangs: with several of the local Romanian funds invested in the banking sector (e.g., the SIFs), we see potential share overhangs putting pressure on prices. Risks to the assumptions we use for the banking sector: any deviation in the key assumptions on which we base our estimates (including, among others, the level of interest rates, the interest margins, cost-restructuring possibilities, the level of provisions, loans and deposits growth, NPL formation or NPL coverage), could lead to profit above or below our current estimates. Romanian market liquidity risk: the trading volumes on the Bucharest Stock Exchange are relatively low (below USD 1.m), for both BRD and Banca Transilvania, which creates a risk of higher price fluctuations. Political risk: this remains high in Romania, with potential changes in the government during the next year due to election scheduled end of 216. Our current assumptions are that a change in the Parliamentary majority would not trigger a significant change in economic policies. However, issues such as the personal insolvency law, or the discussions related to a potential conversion of FX-denominated loans into RON, have been part of the agenda of the political discussions. The general state of the legal system: while several steps have been taken in the past two years to improve the general legislative process in Romania, in our opinion, for example improvements to company insolvency laws, we believe there could still be flaws in the legal system that could result in losses for the banks. Additionally, any new regulations that pass, which support the recent pro-debtors rhetoric, could lead to additional losses for the banks. Legacy FX loans: a forced conversion of foreign currency loans at a set rate, especially those denominated in EUR, as well as other measures targeting lowering of the burden of the debtor and moving more of the risks and financial burdens to the creditor, could lead to further costs for the banks. Several possibilities are currently being debated by the Romanian Parliament with regard to addressing the problem of FX-denominated loans. Increased pressure is currently being seen from consumer associations, following the strengthening of the CHF against the RON. There is no current visibility on which project, or amendments to projects, might be approved, with the NBR and the IMF suggesting that the banks should find solutions on a caseby-case basis. While a forced conversion is not currently our base case scenario, we see risks stemming from the recent precedents set in the region. Banks, Romania 15 WOOD & Company

16 Company sections Banks, Romania 16 WOOD & Company

17 Banks, Romania 31 May 216 Banca Transilvania Improved capital allocation Banca Transilvania (BT) managed to surpass all expectations last year, with the very profitable acquisition of Volksbank at a discounted price. This led to an extraordinary gain of RON 1.65bn and a special dividend of RON 1.2bn, implying a dividend yield of 14.% at current prices. Although we do not expect such a gain, or similarly profitable acquisition, to be repeated, the bank continues to outdo itself this year, with a budget of RON 848.2m, implying an ROE of 14.4%. We believe this is achievable, and are therefore increasing our earnings estimates for 216E by 37%. Moreover, we believe the integration of Volksbank will continue to pay off well into the medium to long term, and that the bank will continue to report a ROE above 13% in the longer term. Incorporating our more optimistic earnings scenario, but adjusting for the cash and stock dividend payment (ex-div date 3 May), has resulted in our price target (PT) decreasing by 12.5% to RON 2.57/share. This still implies 27.6% upside, so we maintain our BUY recommendation. One-offs continue to drive earnings above expectations: Even without a repeat of the high one-off from the Volksbank transaction from last year, we still see the possibility of additional one-offs that could continue to drive earnings above expectations. One example is the Visa transaction (Visa Inc. acquiring the Visa Europe association, in which BT held a stake). Additionally, an eventual reversal of the taxes booked for the Volksbank acquisition gain is possible, which could further increase profit by some RON 25m. While some higher COR is also possible this year, because of the mortgage walkaway law, we believe this is already included in the budget and is offset by the one-off gains. ROE above 13% sustainable after dividend payment: Even excluding this year s one-offs, and given that the equity has decreased by the value of the RON 1.2bn dividend paid out of the profit from the Volksbank acquisition, we believe a ROE in excess of 13% is still sustainable in the coming years. This should be supported by further revenue increases with loan growth (5.7% three-year CAGR), and an eventual recovery in interest margins. The bank should also continue its efforts to keep costs under control. Dividend policy might be introduced: While we do not believe that a transaction as profitable as the Volksbank acquisition is likely to be repeated in the near future, BT still has sufficient liquidity buffers to afford to pay out a constant dividend in the coming years, in our view. We estimate a 65% payout from 216E profits, increasing to 7% at a later date. Stable, high ROE justifies a premium: Given both the efficient allocation of the extra capital by the payment of a special dividend this year, and the strong profitability forecasts for the years to come, we expect BT to be able to maintain a normalised ROE of >13%, which implies a P/B of 1.3x on our estimates. The bank currently trades at a 217E P/B of 1.2x, which implies a 26% premium to BRD and 4% premium to the regional banks. On a 217E P/E of 9.2x, the bank is trading at a 13% discount to BRD and a 1% discount to regional banks. Buy Maintained Price: 2.2* Price target: 2.57 *(adjusted for div and share split) Expected events 2Q16 Results 12 August 216 3Q16 Results 14 November 216 Key data Market Cap RON 8.3bn Free float 88% Shares outstanding 3,26m Major Shareholder EBRD Bloomberg Code TLV RO BET Index 6,472 Price performance 52-w range w performance 35.3% Relative performance 48.2% May-15 Sep-15 Jan-16 TLV BET rebased EQUITY RESEARCH Year Revenues Net Profit EPS EPS PE BVPS PBV ROE Dividend Dividend (RON mil) (RON mil) (RON) growth (RON) (RON) yield 218E 2, % %.2 7.9% 217E 2, % %.2 7.6% 216E 2, % %.2 7.8% 215 2,854 2, % % % 214 2, % %..% 213 1, % %..% Analyst: Lucian Albulescu, CFA Prague: lucian.albulescu@wood.cz Website:

18 Banca Transilvania snapshot - BUY, PT RON 2.57 Buy SHARE PRICE PERFORMANCE COMPANY DESCRIPTION Bloomberg ticker TLV RO Banca Transilvania (BT) is the third-largest bank in Romania (according to the 213 data) 3.3 Closing price (RON) 2.2 and could move close to second position after the acquisition of Volksbank. The bank was Price target (RON) 2.57 started in Cluj (in the Transilvania region) in 1994 on the initiative of local businessmen as a 2.8 Upside to PT 27.6% local bank. BT engaged in an aggressive expansion strategy, retaining a large part of its profit 2.3 Shares outstanding (m) since its inception and growing into a national bank. BT does not have a majority MCAP (RON m) 5258 shareholder, but the EBRD holds 11.6%. 55.8% of the shareholders are foreign shareholders 1.8 Free float 85.67% and a large part institutional investors. The bank positions itself as an SME bank and over 1.3 ADTV (USD m) 52 Week Range (RON) 6% of its credits are granted to this segment. In December 214, BT announced that it had signed a binding agreement to acquire Volksbank Romania, a bank with a portfolio of FXdenominated.8 May-15 Sep-15 Jan-16 mortgages that would increase BT s assets by one-third. TLV BET rebased RATIOS VALUATION RATIOS E 217E DuPont decomposition E 217E P/E Net interest income/ Assets 3.3% 3.5% 4.7% 3.5% 3.4% P/BV Fee and commission income/ Assets 1.2% 1.3% 1.2% 1.1% 1.1% Dividend yield.%.% 19.7% 7.8% 7.6% Trading income/ Assets.5%.4%.4%.3%.3% ROE 13.6% 12.7% 48.8% 14.6% 13.3% Other non - interest income/ Assets.7% 1.% 4.5%.6%.2% ROA 1.3% 1.3% 5.9% 1.8% 1.6% Total operating income/ Assets 5.7% 6.1% 1.8% 5.5% 4.9% Total costs/ Assets 2.8% 2.6% 3.4% 2.3% 2.1% PER SHARE RATIOS E 217E Cost/ Income 49.6% 42.2% 49.3% 42.7% 43.4% EPS Operating profit before provisions/ Assets 2.9% 3.5% 7.4% 3.1% 2.8% BVPS Provision expense/ Assets -1.3% -2.% -1.9% -1.% -.9% DPS Pre - tax profit/ Assets 1.5% 1.5% 9.5% 2.2% 1.9% Tax/ Assets -.2% -.2%.4% -.3% -.3% BALANCE SHEET QUALITY E 217E RoA 1.3% 1.3% 9.8% 1.8% 1.6% CAR (stand-alone) 13.8% 17.4%.%.%.% Equity multiplier IFRS Impaired loans/loans 18.4% 18.4% 16.% 14.% 14.% RoE 13.6% 12.7% 81.7% 14.6% 13.3% Provisions/ IFRS Impaired loans 73.8% 71.3% 61.7% 77.2% 82.8% Actual ROE 13.6% 12.7% 48.8% 14.6% 13.3% Provisions/Avg. customer loans (CoR) 2.2% 3.4% 3.3% 1.7% 1.5% COMPANY FNIANCIALS INCOME STATEMENT (RONm) E 217E BALANCE SHEET (RONm) E 217E Net interest income 1,27 1,176 1,952 1,78 1,726 Cash 4,16 4,234 5,19 5,27 5,198 Non-interest income Due from banks 1,761 2,387 3,798 2,658 1,861 net commission income Debt securities 8,886 1,771 12,243 14,79 14,783 net FX gains Customer loans 16,821 17,663 24,895 26,361 27,827 securities income Fixed assets Total banking revenue 1,755 2,78 2,854 2,663 2,492 Other assets Total costs ,47-1,138-1,82 Total assets 32,237 35,795 47,579 49,841 51,25 personnel costs Due to banks 2,565 1,186 1,518 1,721 1,954 depreciation Customer deposits 25,741 29,995 38,32 4,683 41,588 other costs Certified debt Operating income 884 1,2 1,448 1,525 1,41 Total equity 3,18 3,793 6,235 5,92 6,144 Net provisions Equity and liabilities 32,237 35,796 47,579 49,841 51,25 Extraordinary gains 6 1,651 Pretax profit ,31 1, Income tax GROWTH RATIOS E 217E Net income , Customer loan growth 8.1% 5.% 4.9% 5.9% 5.6% - of which corporate loan growth 14.3% 1.4% 8.5% 5.% 6.% GROWTH RATIOS E 217E - of which mortgage loan growth 37.4% 6.% 1.7% 5.% 7.% Net interest income growth 6.1% 14.5% 66.% -12.5% 1.1% - of which consumer loan growth -4.7% 9.3% 87.5% 5.% 7.% Net fee growth 17.6% 23.9%.% 6.% -19.9% Customer deposit growth 11.1% 16.5% 27.7% 6.2% 2.2% Total income growth 1.6% 18.4% 37.3% -6.7% -6.4% - of which corporate deposits growth 15.3% 31.7% 31.9% 5.% 1.% Cost growth 4.%.8% 6.2% -19.1% -5.% - of which retail deposits growth 9.1% 8.9% 25.1% 7.% 3.% Operating profit growth 18.% 35.8% 2.6% 5.3% -7.5% Total asset growth 8.5% 11.% 32.9% 4.8% 2.7% Net profit growth 16.8% 9.3% 452.7% -63.8% -9.6% BALANCE SHEET STRUCTURE PROFIT TRENDS E 217E 3, LTD 65.3% 58.9% 65.% 64.8% 66.9% Credit split 2,5 Corporate 64.7% 62.8% 5.2% 49.2% 49.% Mortgages 13.1% 13.3% 19.6% 19.3% 19.3% 2, Consumer 22.2% 23.3% 32.1% 31.5% 31.7% RON 67.5% n.a. n.a. n.a. 1.% 1,5 FX 32.5% n.a. n.a. n.a..% Deposits split 1, Corporate 33.6% 37.9% 39.2% 38.8% 38.3% 5 Retail 66.4% 62.1% 6.8% 61.2% 61.7% RON 67.5% n.a. n.a. n.a. 1.% FX 32.5% n.a. n.a. n.a..% E217E Credits market share 8.9% 9.5% 12.4% 12.3% 12.1% Net profit Deposits market share 11.9% 13.6% 16.5% 16.5% 15.4% E217E Pre-provision operating profit BT: changes in our forecasts RON m New forecast Old forecast Changes 216E 217E 218E 216E 217E 218E 216E 217E 218E Loans 29,554 31,477 33,266 29,628 35,783 37, % -12.% -11.6% Deposits 4,683 41,588 42,419 37,133 38,91 41, % 6.9% 2.9% NII 1,78 1,726 1,785 1,454 1,622 1, % 6.4% 3.2% NIM 3.51% 3.42% 3.45% 3.2% 3.4% 3.4% 9.5%.5% 1.5% Total revenues 2,663 2,492 2,554 2,25 2,44 2, % 2.1% -.7% Provisions % 1.% -4.% Net profit % 1.2% -2.3% Banca Transilvania 18 WOOD & Company

19 Valuation Three-stage Gordon Growth Model We set our PT for Banca Transilvania using the three-stage Gordon Growth Model (GGM). We derive our target of RON 2.57/share from three free cash flow-to-equity streams: E: the fair value of the dividends expected in the explicit forecast period E: the expected dividend stream from the transition period, where we assume the gradual convergence of net profit growth to the level of g and set the sustainable dividend payout ratio according to the formula (1-g/ROE), over E. We use next year s growth expectations (t+1) in order to derive payout ratios during the transition period (217-23E). Terminal value: we set an implied P/BV multiple to determine the terminal value using the formula P/BV(x)=(ROE-g)/(COE-g). We conservatively use 12.% as the long-term ROE. Summary of three-stage GGM Our COE is set according to the formula: COE = RFR + beta * MRP. We use the three-month average yield of the RON 1-year bonds as a risk free rate (RFR). In this report, we set this at a level of 4.5%. We set the market risk premium (MRP) at 4.5%. We use a beta of 1.15x. RON m E 217E 218E 219E 22E 221E 222E 223E + Net profit growth yoy 452.7% -63.8% -9.6% 3.2% 4.8% 4.4% 4.1% 3.8% 3.5% 3% EPS growth yoy 376.5% -7.% -9.6% 3.2% 4.8% 4.4% 4.1% 3.8% 3.5% Capital growth yoy 64.4% -5.1% 3.8% 4.3% 4.5% 2.5% 4.3% 3.9% 3.4% BPS growth yoy 41.7% -21.2% 3.8% 4.3% 4.5% 2.5% 4.3% 3.9% 3.4% DPS* growth yoy -2.6% 3.2% 27.3% -11.9% 7.1% 9.1% Return on equity 48.8% 14.6% 13.3% 13.2% 13.2% 13.3% 13.4% 13.4% 13.4% Payout ratio % 49% 65% 7% 7% 85% 72% 74% 78% RFR 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% MRP 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Beta Cost of equity 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% LT return on equity 12.% g 3.% Implied P/BV(x) E TV 2.8 FV of TV 1.5 FV of DPS Sum of FV of DPS 217E - 223E.9 FV M PT 2.57 Current price 2.2 Upside 27.6% Banca Transilvania 19 WOOD & Company

20 Financials Income statement (consolidated IFRS) RON m E 217E 218E 219E Interest income 1,879 1,798 2,417 2,228 2,176 2,244 2,365 Interest expense Net interest income 1,27 1,176 1,952 1,78 1,726 1,785 1,81 Fee and commission income Trading income Net other operating income Other income (net of expenses for Deposits Fund) Total non-interest income Total operating income 1,755 2,78 2,854 2,663 2,492 2,554 2,591 Staff costs (462) (474) (677) (68) (62) (62) (68) Depreciation and amortisation (65) (66) (92) (8) (8) (8) (8) Other operating costs (344) (337) (638) (45) (4) (42) (43) Total costs (871) (878) (1,47) (1,138) (1,82) (1,12) (1,118) Operating profit before provisions 884 1,2 1,448 1,525 1,41 1,452 1,474 Provision expense (414) (684) (798) (472) (458) (469) (444) Other income/expense Extraordinary items 6 1,651 Income from affiliates Pre-tax profit ,31 1, ,3 Taxes (71) (73) 147 (169) (152) (157) (165) Minorities/pref. divs. (2) Attributable net profit , Key ratios E 217E 218E 219E DuPont analysis Net interest income/assets 3.3% 3.5% 4.7% 3.5% 3.4% 3.4% 3.4% Fee and commission income/assets 1.2% 1.3% 1.2% 1.1% 1.1% 1.1% 1.1% Trading income/assets.5%.4%.4%.3%.3%.3%.2% Other non - interest income/assets.7% 1.% 4.5%.6%.2%.2%.2% Total operating income/assets 5.7% 6.1% 1.8% 5.5% 4.9% 4.9% 4.9% Total costs/assets 2.8% 2.6% 3.4% 2.3% 2.1% 2.1% 2.1% Operating profit before provisions/assets 2.9% 3.5% 7.4% 3.1% 2.8% 2.8% 2.8% Provision expense/assets (1.3%) (2.%) (1.9%) (1.%) (.9%) (.9%) (.8%) Pre-tax profit/assets 1.5% 1.5% 9.5% 2.2% 1.9% 1.9% 1.9% Tax/assets (.2%) (.2%).4% (.3%) (.3%) (.3%) (.3%) ROA 1.3% 1.3% 9.8% 1.8% 1.6% 1.6% 1.6% Equity multiplier ROE 13.6% 12.7% 81.7% 14.6% 13.3% 13.2% 13.2% Actual ROW 13.6% 12.7% 48.8% 14.6% 13.3% 13.2% 13.2% P&L ratios Yield on interest earning assets 6.2% 5.4% 6.% 4.7% 4.4% 4.5% 4.6% Cost of interest bearing liabilities (3.1%) (2.1%) (1.3%) (1.3%) (1.%) (1.%) (1.2%) NIM* 3.3% 3.5% 4.7% 3.5% 3.4% 3.4% 3.4% NIM (provision adjusted)* 2.% 1.4% 2.8% 2.5% 2.5% 2.5% 2.6% Cost/Income 49.6% 42.2% 49.3% 42.7% 43.4% 43.1% 43.1% Income and cost growth Net interest income growth 6.1% 14.5% 66.% (12.5%) 1.1% 3.4% 1.4% Net fee growth 17.6% 23.9% (.%) 6.% (19.9%).4% 1.6% Cost growth 4.%.8% 6.2% (19.1%) (5.%) 1.8% 1.4% Operating profit growth 18.% 35.8% 2.6% 5.3% (7.5%) 3.% 1.5% Net profit growth 16.8% 9.3% 452.7% (63.8%) (9.6%) 3.2% 4.8% Income breakdown Net interest income/total income 58.5% 56.6% 68.4% 64.1% 69.3% 69.9% 69.9% Non - interest income/total income, of which: 4.9% 42.9% 31.1% 27.6% 29.5% 28.9% 29.% Fee income/total income 21.1% 2.5% 17.1% 2.1% 21.9% 21.9% 22.% Trading income/total income 8.2% 6.1% 6.3% 5.6% 5.6% 5.1% 5.% Other income/total income 11.6% 16.3% 7.8% 1.9% 2.% 2.% 1.9% Banca Transilvania 2 WOOD & Company

21 Balance sheet (consolidated IFRS) RON m E 217E 218E 219E Cash and due from the central bank 4,16 4,234 5,19 5,27 5,198 4,666 4,994 Interbank loans 1,761 2,387 3,798 2,658 1,861 1,861 1,33 Loans to customers (net) 16,821 17,663 24,895 26,361 27,827 29,147 3,444 Loans to customers (gross) 19,467 2,332 27,615 29,554 31,477 33,266 35,8 Debt securities 8,886 1,771 12,243 14,79 14,783 15,79 15,23 Other financial assets Fixed assets Investment in associates Other assets Total assets 32,237 35,795 47,579 49,841 51,25 52,287 53,56 Interbank deposits, including due to central bank 2,565 1,186 1,518 1,721 1,954 1,94 1,86 Deposits from customers 25,741 29,995 38,32 4,683 41,588 42,419 43,43 Debt securities Subordinated loans Other liabilities ,12 1,12 1,12 1,12 1,12 Total equity 3,18 3,793 6,235 5,92 6,144 6,41 6,697 Minority interest Total liabilities and equity 32,237 35,796 47,579 49,841 51,25 52,287 53,56 Key ratios E 217E 218E 219E Asset quality IFRS impaired loans/total loans 18.4% 18.4% 16.% 14.% 14.% 14.% 14.% Coverage of IFRS impaired loans 73.8% 71.3% 61.7% 77.2% 82.8% 88.5% 93.1% PAR 9 NPLs 12.6% 1.9% n.a. n.a. n.a. n.a. n.a. Coverage of PAR 9 NPLs n.a. 75.% n.a. n.a. n.a. n.a. n.a. Provisions/Avg. customer loans (CoR) 2.2% 3.4% 3.3% 1.7% 1.5% 1.5% 1.3% Provision expense/ Pre Provision Operating profit 46.9% 57.% 55.1% 3.9% 32.5% 32.3% 3.1% Balance sheet ratios Net loans/deposits 65.3% 58.9% 65.% 64.8% 66.9% 68.7% 7.1% Customer deposits/assets 79.8% 83.8% 8.5% 81.6% 81.2% 81.1% 81.2% Customer loans/assets 6.4% 56.8% 58.% 59.3% 61.5% 63.6% 65.4% Equity/assets 9.9% 1.6% 13.1% 11.9% 12.% 12.3% 12.5% CAR 13.8% 17.4% 21.7% n.a. n.a. n.a. n.a. RWA n.a. 21,252 26,827 28,294 29,76 31,79 32,377 ROE 13.6% 12.7% 48.8% 14.6% 13.3% 13.2% 13.2% ROA 1.3% 1.3% 5.9% 1.8% 1.6% 1.6% 1.6% Growth ratios Customer loan growth 8.1% 5.% 4.9% 5.9% 5.6% 4.7% 4.5% - of which corporate loan growth 14.3% 1.4% 8.5% 5.% 6.% 6.% 6.% - of which mortgage loan growth 37.4% 6.% 1.7% 5.% 7.% 6.% 4.7% - of which consumer loan growth (4.7%) 9.3% 87.5% 5.% 7.% 5.% 4.4% Customer deposit growth 11.1% 16.5% 27.7% 6.2% 2.2% 2.% 2.4% - of which corporate deposits growth 15.3% 31.7% 31.9% 5.% 1.% 2.% 3.% - of which retail deposits growth 9.1% 8.9% 25.1% 7.% 3.% 2.% 2.% Total asset growth 8.5% 11.% 32.9% 4.8% 2.7% 2.1% 2.3% Per share figures E 217E 218E 219E No of shares (ave) No of shares (end) EPS (RON) DPS (RON) BVPS (RON) P/E (x) Dividend yield (%).%.% 16.3% 7.8% 7.6% 7.9% 1.% P/BV (x) Banca Transilvania 21 WOOD & Company

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23 Banks, Romania 31 May 216 BRD-GSG Buy Maintained Price: RON 9.31 Price target: RON 11.6 Playing systemic growth On the back of renewed concerns related to the potential creation of additional provisions as a result of the mortgage walkaway law, and ahead of the approaching AQR, the price of BRD has decreased by 23% ytd. We have incorporated a lower growth rate for loans in our model, in view of a reduction in mortgage market growth, but also lingering companies loan growth. Consequently, this has led to a decline in LTDs and NIMs. We therefore believe that although BRD s target ROE is 12%, it will be unable to reach this level in either 216E or 217E. It should, however, be able to generate a ROE above its COE, in our view. We believe the negatives have been priced in, with the bank now trading at a P/B of 1.x, and that a fair multiple would be close to 1.2x. The changes in our estimates have resulted in a decrease in our price target (PT) of 1% to RON 11.6/share. This still offers 24.8% upside, however, and we maintain our BUY recommendation. Renewed worries regarding cost of risk: The COR for BRD declined from 6.1% in 213 to 2.1% in 215. However, given the recently-passed mortgage walkaway law and the approaching AQR of the banking system, we believe the COR is unlikely to continue declining as abruptly going forward. We estimate COR at 1.8% in 216E, 1.6% in 217E and 1.25% in 218E. Long term ROE target of 12%: BRD has stated that it is making efforts to return to a 12% ROE in the long term. Given our increased forecast for COR this year, however, we do not believe this achievable in 216E. In addition, even if the bank does achieve growth in banking revenues over the next three years (by 6%), we believe that significant cost cuts are unlikely to be achievable, and that cost inflation will keep the cost/income ratio above 5% until 218E. We forecast the bank to achieve an ROE of 12% only in 219E. Credit revival still slow: Gross customer loans declined by a further 1.8% in 215, but we see this reversing this year to a positive 2.6%, and rising to 4.8% in 217E. These forecasts are still below our previously published numbers as a result of our lower estimate on mortgage growth (8.% threeyear CAGR), due to the new mortgage walkaway law. We do expect an acceleration in consumer loan growth (4.3% three-year CAGR), while growth in loans to companies, especially the SME segment, could lag (three-year CAGR of 2.2%). Expected events 2Q16 Results 3 August 216 3Q16 Results 3 November 216 Key data Market Cap: RON 6.4bn Free float: 39.8% Shares outstanding 696.9m Major Shareholder Soc. Gen Bloomberg Code BRD RO BET Index 6,472 Price performance 52-w range w performance -13.4% Relative performance -1% May-15 Sep-15 Jan-16 BRD BET rebased We believe the price decline has been too abrupt: Following the 23% decline ytd, BRD trades at a 216E P/B of.99x. Based on our estimates, even if the bank only generates a ROE of close to its COE in 216E and 217E, an increase towards 12% in 218E and 219E is possible, in our view, hence we value it above book value. On our 217E P/B of.94x, BRD trades at an 21% discount to Banca Transilvania and a 1% premium to the regional average, while on our 217E P/E of 1.6x, it is at a 15% premium to its local peers and 15.5% premium to Banca Transilvania. EQUITY RESEARCH Year Revenues Net Profit EPS EPS PE BVPS PBV ROE Dividend Dividend (RON m) (RON m) (RON) growth (x) (RON) (%) (RON) yield 218E 2, % %.9 1.% 217E 2, % %.6 6.6% 216E 2, % %.4 4.5% 215 2, % %.3 3.6% 214 2, n.m. n.m %..% 213 2, n.m. n.m %..% Analyst: Lucian Albulescu, CFA Prague: lucian.albulescu@wood.cz Website:

24 BRD-GSG snapshot - BUY, PT RON 11.6 Buy SHARE PRICE PERFORMANCE COMPANY DESCRIPTION Bloomberg ticker BRD RO 13 BRD-Groupe Societe Generale is the second-largest bank in Romania byassets. It is one of Closing price (RON) the oldest banks in Romania and was bought by Societe Generale in The SIFs still Price target (RON) hold 1%, although they initially held close to 3%. The bank's loan portfolio grew quickly over Upside to PT 24.8% , with EUR-denominated credits a prime driver (now 6% of total loans). The Shares outstanding (m) proportion of FX loans is declining and the LTD has come down from above 11% to close to MCAP (RON m) %. BRD is a systemic bank, with exposure that emulates the system in terms of credits Free float 39.8% 8.5 split. The bank is the second largest in terms of units (88 atthe end of 213) and has 8,4 ADTV (USD m).7 8 May-15 Sep-15 Jan-16 employees. 52 Week Range (RON) RATIOS VALUATION RATIOS E 217E DuPont decomposition E 217E P/E n.m. n.m n.m. Net interest income/ Assets 3.6% 3.4% 3.1% 3.1% 3.2% P/BV Fee and commission income/ Assets 1.6% 1.6% 1.6% 1.5% 1.5% Dividend yield.%.% 3.6% 4.5% 6.6% Trading income/ Assets.1%.4%.3%.3%.3% ROE -7.% 1.1% 7.8% 9.2% 9.1% Other non - interest income/ Assets.6%.1%.2%.2%.1% ROA -.8%.1% 1.% 1.2% 1.2% Total operating income/ Assets 5.9% 5.6% 5.2% 5.1% 5.1% Total costs/ Assets 2.8% 2.8% 2.7% 2.6% 2.6% PER SHARE RATIOS E 215 Cost/ Income 47.4% 5.6% 51.7% 5.7% 51.2% EPS Operating profit before provisions/ Assets 3.1% 2.8% 2.5% 2.5% 2.5% BVPS Provision expense/ Assets -4.4% -2.6% -1.4% -1.1% -1.% DPS Pre - tax profit/ Assets -1.3%.2% 1.1% 1.4% 1.4% Tax/ Assets.5%.% -.2% -.2% -.2% BALANCE SHEET QUALITY E 215 RoA -.8%.1% 1.% 1.2% 1.2% CAR (stand-alone) 14.2% 17.1% 18.1% n.a. n.a. Equity multiplier IFRS Impaired loans/loans 24.8% 2.3% 17.% 17.% 17.% RoE -7.% 1.2% 7.8% 9.2% 9.1% Provisions/ IFRS Impaired loans 69.1% 71.2% 76.3% 82.9% 86.4% Actual ROE -7.% 1.1% 7.8% 9.2% 9.1% Provisions/Avg. customer loans (CoR) 6.1% 3.7% 2.1% 1.8% 1.6% COMPANY FNIANCIALS BRD BET rebased INCOME STATEMENT (RONm) E 217E BALANCE SHEET (RONm) E 217E Net interest income 1,728 1,585 1,516 1,574 1,591 Cash 9,779 7,19 8,82 8,245 7,427 Non-interest income 1,18 1, Due from banks 1,469 1,957 3,533 2,859 2,179 net commission income Debt securities 6,499 8,25 9,29 1,13 1,636 net FX gains Customer loans 28,59 26,777 26,745 27,112 28,215 securities income Fixed assets 1,11 1, Total banking revenue 2,836 2,62 2,57 2,552 2,55 Other assets Total costs -1,345-1,325-1,297-1,295-1,35 Total assets 47,991 46,17 5,185 5,223 5,335 personnel costs Due to banks 5,446 3,249 1,881 1,443 1,197 depreciation Customer deposits 36,65 35,954 41,99 41,223 41,262 other costs Certified debt Operating income 1,491 1,295 1,21 1,257 1,245 Total equity 5,346 5,699 6,28 6,56 6,879 Net provisions -2,131-1, Equity and liabilities 47,991 46,17 5,185 5,223 5,335 Pretax profit Income tax Net income GROWTH RATIOS E 217E GROWTH RATIOS E 217E Customer loan growth -6.9% -7.5% -1.8% 2.6% 4.8% Net interest income growth -11.2% -8.3% -4.4% 3.8% 1.1% - of which corporate loan growth -12.7% -15.3% -1.5% -3.% 2.% Net fee growth -3.% -.4% -2.%.5%.1% - of which mortgage loan growth 23.2% 8.3% 13.8% 1.% 8.% Total income growth -6.9% -7.6% -4.3% 1.8% -.1% - of which consumer loan growth -13.8% -6.6% -2.4% 3.% 5.% Cost growth -6.1% -1.5% -2.1% -.2%.8% Customer deposit growth 13.5% -.3% 14.3%.3%.1% Operating profit growth -7.6% -13.1% -6.6% 3.9% -1.% - of which corporate deposits growth 24.3% -7.5% -2.1% -2.% -4.% Net profit growth 29.9% % n.m. 25.6% 4.5% - of which retail deposits growth 3.2% 8.% 3.5% 2.% 3.% Total asset growth -1.8% -3.9% 8.8%.1%.2% BALANCE SHEET STRUCTURE PROFIT TRENDS E 217E 8 LTD 77.8% 74.5% 65.1% 65.8% 68.4% Credit split Corporate 5.% 45.9% 41.8% 39.5% 38.5% 6 4 Mortgages 22.7% 26.6% 3.8% 33.% 34.1% Consumer 27.2% 27.5% 27.3% 27.4% 27.5% 2 RON 4.1% 42.% 43.% 44.% 44.% - FX 59.9% 58.% 57.% 56.% 56.% Deposits split Corporate 53.4% 49.6% 42.5% 41.5% 39.8% -2-4 Retail 46.6% 5.4% 57.5% 58.5% 6.2% RON 65.4% 66.% 67.% 68.% 67.% -6 FX 34.6% 34.% 33.% 32.% 33.% Credits market share 15.1% 13.6% 12.5% 11.5% 1.9% Deposits market share 16.7% 15.5% 17.% 15.9% 14.6% Net profit E216E217E Pre-provision operating profit BRD: changes in our forecasts RON m New forecast Old forecast Changes 216E 217E 218E 216E 217E 218E 216E 217E 218E Loans 27,112 28,215 3,21 29,418 32,296 35,97-7.8% -12.6% -16.5% Deposits 41,223 41,262 41,267 4,292 42,123 46, % -2.% -1.6% Equity 6,56 6,879 7,214 6,645 7,72 7,45-1.3% -2.7% -3.2% NII 1,574 1,591 1,67 1,53 1,61 1,76 2.9% -.6% -2.1% NIM on total assets 3.14% 3.16% 3.3% 3.1% 3.1% 3.2% 1.1% 2.1% 3.1% Total revenues 2,552 2,55 2,649 2,526 2,563 2,642 1.% -.5%.3% Operating profit 1,257 1,245 1,335 1,313 1,36 1,46-4.3% -8.5% -8.6% Provisions % 21.4% -5.1% Net profit % -22.1% -1.2% BRD-GSG 24 WOOD & Company

25 Valuation Three-stage Gordon Growth Model We set our PT for BRD using the three-stage Gordon Growth Model (GGM). We derive our target of RON 11.6/share from three free cash flow-to-equity streams: E: the fair value of the dividends expected in the explicit forecast period E: the expected dividend stream from the transition period, where we assume the gradual convergence of net profit growth to the level of g and set the sustainable dividend payout ratio according to the formula (1-g/ROE), over 22-23E. We use next year s growth expectations (t+1) in order to derive payout ratios during the transition period (22-23E). Terminal value: we set an implied P/BV multiple to determine the terminal value using the formula P/BV(x)=(ROE-g)/(COE-g). We use 12.% as the long-term ROE. Summary of three-stage GGM Our COE is set according to the formula: COE = RFR + beta * MRP. We use the three-month average yield of the RON 1-year bonds as a risk free rate (RFR). In this report, we set this at a level of 4.5%. We set the market risk premium (MRP) at 4.5%. We use a beta of 1.15x. RON m E 217E 218E 219E 22E 221E 222E 223E + Net profit growth yoy 638.3% 25.6% 4.5% 24.7% 9.4% 7.3% 5.6% 4.3% 3.4% 2% EPS growth yoy 638.3% 25.6% 4.5% 24.7% 9.4% 7.3% 5.6% 4.3% 3.4% Capital growth yoy 8.9% 5.7% 4.9% 4.9% 2.6% 2.5% 4.9% 3.8% 2.4% BPS growth yoy 8.9% 5.7% 4.9% 4.9% 2.6% 2.5% 4.9% 3.8% 2.4% DPS* growth yoy 51.4% 9.4% -18.8% 19.% 2.4% Return on equity 7.8% 9.2% 9.1% 1.8% 11.4% 11.9% 12.2% 12.2% 12.2% Payout ratio % 5% 5% 7% 85% 85% 64% 72% 84% RFR 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% MRP 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Beta Cost of equity 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% LT return on equity 12.% g 2.% Implied P/BV(x) E TV 14.4 FV of TV 6.9 FV of DPS sum of FV of DPS 214E - 223E 3.7 FV M PT 11.6 Current price 9.3 Upside 24.8% BRD-GSG 25 WOOD & Company

26 Financials Income statement (consolidated IFRS) RON m E 217E 218E 219E Interest income 2,678 2,268 1,94 1,868 1,99 2,94 2,22 Interest expense Net interest income 1,728 1,585 1,516 1,574 1,591 1,67 1,752 Net commission income Net FX gains Securities income Non-interest income 1,18 1, Total banking revenue 2,836 2,62 2,57 2,552 2,55 2,649 2,737 Personnel costs Depreciation Other costs Total costs -1,345-1,325-1,297-1,295-1,35-1,315-1,326 Operating income before provisions 1,491 1,295 1,21 1,257 1,245 1,335 1,411 Net provisions -2,131-1, Other income/expense Extraordinary items Income from affiliates Pre-tax profit Income tax Minorities/pref. divs Net income Key ratios E 217E 218E 219E DuPont analysis Net interest income/assets 3.6% 3.4% 3.1% 3.1% 3.2% 3.3% 3.4% Fee and commission income/assets 1.6% 1.6% 1.6% 1.5% 1.5% 1.5% 1.5% Trading income/assets.1%.4%.3%.3%.3%.3%.3% Other non-interest income/assets.6%.1%.2%.2%.1%.2%.2% Total operating income/assets 5.9% 5.6% 5.2% 5.1% 5.1% 5.2% 5.4% Total costs/assets 2.8% 2.8% 2.7% 2.6% 2.6% 2.6% 2.6% Operating profit before provisions/assets 3.1% 2.8% 2.5% 2.5% 2.5% 2.6% 2.8% Provision expense/assets -4.4% -2.6% -1.4% -1.1% -1.% -.8% -.8% Pre - tax profit/assets -1.3%.2% 1.1% 1.4% 1.4% 1.8% 1.9% Tax/assets.5%.% -.2% -.2% -.2% -.3% -.3% RoA -.8%.1% 1.% 1.2% 1.2% 1.5% 1.6% Equity multiplier RoE -7.% 1.2% 7.8% 9.2% 9.1% 1.8% 11.4% Actual ROE -7.% 1.1% 7.8% 9.2% 9.1% 1.8% 11.4% P&L ratios Yield on interest earning assets 5.5% 4.8% 4.% 3.7% 4.% 4.1% 4.3% Cost of interest bearing liabilities -2.% -1.5% -.9% -.6% -.8% -.8% -.9% Net interest spread 3.6% 3.4% 3.1% 3.1% 3.2% 3.3% 3.4% NIM* 3.6% 3.4% 3.1% 3.1% 3.2% 3.3% 3.4% NIM (provision adjusted)* -.8%.8% 1.8% 2.% 2.1% 2.5% 2.6% Cost/ Income 47.4% 5.6% 51.7% 5.7% 51.2% 49.6% 48.4% Income and cost growth Net interest income growth -11.2% -8.3% -4.4% 3.8% 1.1% 5.% 4.9% Net fee growth -3.% -.4% -2.%.5%.1%.7%.8% Total income growth -6.9% -7.6% -4.3% 1.8% -.1% 3.9% 3.3% Cost growth -6.1% -1.5% -2.1% -.2%.8%.7%.9% Operating profit growth -7.6% -13.1% -6.6% 3.9% -1.% 7.2% 5.7% Net profit growth 29.9% % 638.3% 25.6% 4.5% 24.7% 9.4% Income breakdown Net interest income/total income 6.9% 6.5% 6.5% 61.7% 62.4% 63.% 64.% Non - interest income/total income, of which: 39.1% 39.5% 39.5% 38.3% 37.6% 37.% 36.% Fee income/total income 27.1% 29.2% 29.9% 29.5% 29.6% 28.7% 27.9% Trading income/total income 12.2% 4.2% 6.% 3.9% 4.7% 5.3% 5.1% Other income/total income 1.5% 7.9% 5.2% 5.5% 5.5% 5.3% 5.1% BRD-GSG 26 WOOD & Company

27 Balance sheet (consolidated IFRS) RON m E 217E 218E 219E Cash and due from the central bank 9,779 7,19 8,82 8,245 7,427 6,19 6,18 Interbank loans 1,469 1,957 3,533 2,859 2,179 1, Customer loans 28,59 26,777 26,745 27,112 28,215 3,21 31,926 Debt securities 6,499 8,25 9,29 1,13 1,636 1,849 1,596 Other financial assets Fixed assets 1,11 1, Investment in associates Other assets Total assets 47,991 46,17 5,185 5,223 5,335 5,88 51,123 Due to banks 5,446 3,249 1,881 1,443 1,197 1,43 1,524 Customer deposits 36,65 35,954 41,99 41,223 41,262 41,267 41,22 Debt securities Subordinated loans Other liabilities Total equity 5,346 5,699 6,28 6,56 6,879 7,214 7,4 Minority interest Equity and liabilities 47,991 46,17 5,185 5,223 5,335 5,88 51,123 Key ratios E 217E 218E 219E Asset quality IFRS Impaired loans/loans 24.8% 2.3% 17.% 17.% 17.% 16.8% 16.7% Provisions/ IFRS Impaired loans 69.1% 71.2% 76.3% 82.9% 86.4% 87.9% 88.3% PAR 9 NPLs 2.3% n.a. n.a. n.a. n.a. n.a. n.a. Coverage of PAR 9 NPLs 74.6% n.a. n.a. n.a. n.a. n.a. n.a. Provisions/Avg. customer loans (CoR) 6.1% 3.7% 2.1% 1.8% 1.6% 1.25% 1.2% Provisions/net interest income 123.3% 76.7% 43.4% 35.6% 32.5% 25.6% 23.9% Provisions expense/average total assets 4.4% 2.6% 1.4% 1.1% 1.%.84%.8% Balance sheet ratios Net loans/deposits 77.8% 74.5% 65.1% 65.8% 68.4% 72.7% 77.5% Customer deposits/assets 75.1% 78.% 81.9% 82.1% 82.% 81.1% 8.6% Customer loans/assets 7.5% 67.9% 61.3% 62.8% 65.7% 69.2% 73.3% Equity/assets 11.1% 12.4% 12.4% 13.1% 13.7% 14.2% 14.5% CAR (stand-alone) 14.2% 17.1% 18.1% n.a. n.a. n.a. n.a. ROE -7.% 1.1% 7.8% 9.2% 9.1% 1.8% 11.4% ROA -.8%.1% 1.% 1.2% 1.2% 1.5% 1.6% Growth ratios Customer loan growth -6.9% -7.5% -1.8% 2.6% 4.8% 6.5% 6.4% - of which corporate loan growth -12.7% -15.3% -1.5% -3.% 2.% 8.% 9.% - of which mortgage loan growth 23.2% 8.3% 13.8% 1.% 8.% 6.% 6.% - of which consumer loan growth -13.8% -6.6% -2.4% 3.% 5.% 5.% 3.% Customer deposit growth 13.5% -.3% 14.3%.3%.1%.% -.2% - of which corporate deposits growth 24.3% -7.5% -2.1% -2.% -4.% (3.%) -2.% - of which retail deposits growth 3.2% 8.% 3.5% 2.% 3.% 2.% 1.% Total asset growth -1.8% -3.9% 8.8%.1%.2% 1.1%.5% Per share figures E 217E 218E 219E No of shares (ave.) EPS (RON) DPS (RON) BVPS (RON) P/E (x) Dividend yield (%).%.% 3.6% 4.5% 6.6% 1.% 1.9% P/BV (x) BRD-GSG 27 WOOD & Company

28 Important disclosures This investment research is published by Wood & Company Financial Services, a.s. ( Wood & Co ) and/or one of its branches who are authorised and regulated by the CNB as Home State regulator and in Poland by the KNF, in Slovakia by the NBS, in Italy by the CONSOB and in the UK by the FCA as Host State regulators. Wood s 12-month rating and PT history for Banca Transilvania 11/2/215 BUY 3/4/215 RON /6/215 RON /8/215 RON /5/216 RON 2.57 Wood s 12-month rating and PT history for BRD-GSG 24/6/214 BUY 11/2/215 RON /8/215 RON /5/216 RON 11.6 Explanation of Ratings BUY: The stock is expected to generate total returns of over 15% during the next 12 months as measured by the target price. HOLD: The stock is expected to generate total returns of -15% during the next 12 months as measured by the target price. SELL: The stock is expected to generate a negative total return during the next 12 months as measured by the target price. RESTRICTED: Financial forecasts, and/or a rating and/or a target price is restricted from disclosure owing to Compliance or other regulatory/legal considerations such as a blackout period or a conflict of interest. NOT RATED: Suspension of rating after 3 consecutive weekdays where the current price vis-à-vis the target price has been out of the range dictated by the current BUY/HOLD/SELL rating. COVERAGE IN TRANSITION: Due to changes in the Research team, the disclosure of a stock s rating and/or target price and/or financial information are temporarily suspended. Equity Research Ratings (as of 31 May 216) Buy Hold Sell Restricted Not rated Coverage in transition Equity Research Coverage 5% 41% 9% 1% N.A.% 7% IB Clients 1% 1% N.A. N.A. N.A. N.A. Securities Prices Prices are taken as of the previous day s close on the home market unless otherwise stated. Valuation & Risks Analysis of specific risks to set stock target prices highlighted in our investment case(s) are outlined throughout the report. For details of methodologies used to determine our price targets and risks related to the achievement of the targets referred to in the main body of the report or at in the Section Corporate Governance or via the link Users should assume that the investment risks and valuation methodology in Daily news or flash notes not changing our estimates or ratings is as set out in the most recent substantive research note on that subject company and can be found on our website at Wood Research Disclosures (as of 31 May 216) Company Disclosures AT&S 5 BRD 5 BZ WBK 5 CD Projekt 5 CETV 5 CEZ 5 Conpet 1 DO&CO 1 Erste Group Bank 5 Enea 5 Energa 5 Fortuna 5 S.C. Fondul Proprietatea S.A. 1, 4, 5 Getin Noble Bank 5 GTC 5 ITG 1, 3 Immofinanz 5 IPF 5 JSW 5 KGHM 5 Komercni 5 mbank 5 Millennium 5 Netia 5 Orange PL 5 Pekao 5 PGE 5 Philip Morris 5 PKO BP 1, 2, 3, 5 PKN 5 PZU 5 RC2 4 Romgaz 5 SIF2 1 SNP 3, 5 O2 CR 5 Transilvania 5 Transgaz 1 WSE 1 Warimpex 1, 5 # Description 1 The company currently is, or in the past 12 months was, a client of Wood & Co or its affiliated companies for the provision of investment banking services. 2 In the past 12 months, Wood & Co or its affiliated companies have received compensation for Corporate Finance/Investment Banking services from this company. 3 In the past 12 months, Wood & Co or any of its affiliated companies have been lead manager, co-lead manager or co-manager of a public offering of the company s financial instruments. 4 Wood & Co acts as corporate broker to this company and/or Wood & Co or any of its affiliated companies may have an agreement with the company relating to the provision of Corporate Finance/Investment Banking services. 5 Wood & Co or any of its affiliated companies is a market maker or liquidity provider in relation to securities issued by this company. 6 In the past 12 months, Wood & Co, its partners, affiliated companies, officers or directors, or any authoring analyst involved in the preparation of this investment research has provided services to the company for remuneration, other than normal course investment advisory or trade execution services. 7 Those persons identified as the author(s) of this investment research, or any individual involved in the preparation of this investment research, have purchased/received shares in the company prior to a public offering of those shares, and the price at which they were acquired along with the date of acquisition are disclosed above. Banks, Romania 28 WOOD & Company

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30 CONTACTS Czech Republic Namesti Republiky 179/1a Palladium 11 Praha 1 Czech Republic Tel Fax Romania Metropolis Center Grigore Alexandrescu St Bucharest 1 Tel.: Research Co-Head of Research/ Head of Research Poland Marta Jezewska-Wasilewska marta.jezewska-wasilewska@wood.com Poland Skylight Zlote Tarasy Zlota Warszawa Poland Tel Fax Co-Head of Research/Head of Greek Research Alex Boulougouris alex.boulougouris@wood.com UK City Point, 15 th Floor 1 Ropemaker Street London EC2Y 9HT Tel Head of Turkey/Industrials Oytun Altasli oytun.altasli@wood.com Italy Via Vittor Pisani, Milan Italy Tel Macroeconomics Kristen Andrasko/ Sadiq Razak Co-Heads of Equities / kristen.andrasko@wood.com sadiq.razak@wood.com Bloomberg page WUCO Raffaella Tenconi raffaella.tenconi@wood.com Consumer/Industrials Lukasz Wachelko lukasz.wachelko@wood.com Energy Jonathan Lamb jonathan.lamb@wood.com Romania Lucian Albulescu lucian.albulescu@wood.com Utilities/Mining/Pharma Bram Buring bram.buring@wood.com Financials/Turkey Can Demir can.demir@wood.com Non-banks financials Jerzy Kosinski jerzy.kosinski@wood.com Metals/Mining Andy Jones andrew.jones@wood.com Consumer/Industrials Gabriela Burdach gabriela.burdach@wood.com Real Estate Jakub Caithaml Czech Republic Robert Kaplan robert.kaplan@wood.com Consumer/Industrials Maciej Wardejn maciej.wardejn@wood.com Poland Pawel Wieprzowski pawel.wieprzowski@wood.com Jakub Mician jakub.mician@wood.com Sales Head of Sales Kristen Andrasko kristen.andrasko@wood.cz Ioana Pop ioana.pop@wood.com Jan Thomson jan.thomson@wood.com Ondrej Slama ondrej.slama@wood.com Sean Callahan sean.callahan@wood.com Vinay Ruparelia vinay.ruparelia@wood.com Kostas Tsigkourakos kostas.tsigkourakos@wood.com Sales Trading and Execution Services Ashley Keep ashley.keep@wood.com Jennifer Ewing jennifer.ewing@wood.com Jan Koch jan.koch@wood.com Grzegorz Skowronski grzegorz.skowronski@wood.com Markus Ulreich markus.ulreich@wood.com Jan Jandak jan.jandak@wood.com Piotr Kopec piotr.kopec@wood.com Michal Skowronski michal.skowronski@wood.com Tatiana Sarandinaki Enclave Capital in association with WOOD & Company tsarandinaki@wood-enclave.com Zuzana Mora zuzana.mora@wood.com Ermir Shkurti ermir.shkurti@wood.com Marek Siwy marek.siwy@wood.com RECENTLY PUBLISHED REPORTS Martin Stuchlik m.stuchlik2@wood.com Date Company/Sector Title Analyst Vladimir Vavra vladimir.vavra@wood.com 3/5/16 OPAP Give some to get some Lukasz Wachelko 25/5/16 Titan Cement New cyclical growth phase Alex Boulougouris 2/5/16 Halkbank Valuation and fundamentals still not compelling Can Demir 2/5/16 CD Projekt Still time to gear up for the next battle Jerzy Kosinski 16/5/16 Wirtualna Polska Virtual reality geared to real growth Lukasz Wachelko 12/5/16 Uniwheels Big wheels keep on turning Maciej Wardejn 6/5/16 Poland Macro Unintended effect of PiS plans: a weak PLN Raffaella Tenconi 5/5/16 Folli Follie 5% summer sale already on Lukasz Wachelko Although the information contained in this report comes from sources Wood & Company believes to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.