MerloFotografia. Carige s Transformation Programme

Transcription

1 MerloFotografia Carige s Transformation Programme 14 September 2017

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Third-party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the fairness, quality, accuracy, relevance, completeness or sufficiency of such data. The Company has not independently verified the data contained therein. In addition, certain of the industry and market data contained in this document come from the Company s own internal research and estimates based on the knowledge and experience of the Company s management in the market in which the Company operates. Such research and estimates, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change without notice. Accordingly, undue reliance should not be placed on any of the industry or market data contained in this document. Although Banca Carige S.p.A. has obtained the information provided from sources that should be considered reliable, it cannot guarantee its accuracy or completeness. The information provided is purely of an indicative nature and is subject to change without notice at any time.

3 3 Executive summary LEGACY FROM THE PAST The NPE Stock, a legacy of the past Unsustainable Cost/Income ratio BASIS FOR RELAUNCH Local roots + DNA of a Retail and Small Business bank + resilient and loyal customer base Good potential for improving commercial effectiveness and operating efficiency vs benchmark Over EUR 1 bn capital strengthening KEY FIGURES -54% of NPE stock as early as by end-2018, -58% by % operating expenses and +48% commercial productivity 2020 vs. 2016

4 4 Agenda Transformation Programme The Group s vision and new strategy Conclusions

5 5 Transformation Programme A Transformation Programme resting on four pillars was prepared, which will require support from the Bank s current stakeholders (bondholders, shareholders, etc.) 1.1 LIABILITY MANAGEMENT 1.2 CAPITAL INCREASE DISPOSALS Transformatio n Programme 3 2

6 6 Transformation Programme EUR 1 bn in capital strengthening actions to cover for "clean up... CET1: >12% over the (EUR/bn) Plan period 1,000 + Impact from RWA i LME and disposals Capital increase Capital strengthening ii i Capital generated by the liability management transaction and asset disposals (already well on track), including the NPL management platform, prestigious real estate properties, Creditis and the merchant book business ii EUR 500 mln cash call, plus one tranche of EUR 60 mln possibly to be reserved for one or more categories of investors taking part in a separate liability management transaction (1) Inclusive of profit/loss (net of LME effects and disposals) and further impacts on capital (e.g. FTA IFRS9) in the period Note: consisting in the exchange of certain subordinated financial instruments issued by the Bank with newly issued Senior notes

7 7 Transformation Programme to go back to being a sound and profitable Bank... Main targets CET1 ratio Total Capital ratio [SREP requirement] Not inclusive of potential upside from AIRB adoption 11.4%* 2016A 13.8%* 2018E 2020E 12.5%* 13.8%* 13.9% 15.1% [11.25%] [12.50%] [11.88%] [13.13%] [12.50%] [13.75%] Texas ratio (%) 170.7% 79.1% 61.8% LCR ratio (%) 124% 144% 149% Net NPE ratio (%) Coverage** (%) Bad loans 21.9% 10.7% 8.1% Past Due due UTPs Sofferenze (sofferenze) 81.0% 81.3% 56.7% 63% 63% 63% 18% 37% 42% 18% Cost/Income ratio*** (%) 64.8% 66.5% 16.3% 27.9% 37.1% 42.7% 66.1% 18.0% 18.0% ROTE (%) 1.2% 6.5% -12.2% (*) Phased-in figure (**) including write-offs (***) Calculated on Reclassified Income statement data. If calculated on non-reclassified item, the ratio would be 91.3% as at 2016 and 59% as at 2020

8 8 Transformation Programme...of which Liability Management is the first step... Actions September October 2017 November December March 2018 LME Capital increase EGM Disposals At an advanced stage of development with closing expected between the end of 2017 and the beginning of 2018

9 9 Transformation Programme...in order to transform Carige into a "Clean, Lean & Focused" bank Enablers Key targets CAPITAL STRENGTHENING Liability Management Share capital increase Disposals CET1 Ratio Total Capital Ratio ASSET QUALITY ( CLEAN ) Holistic approach to NPE de-risking and deleveraging Disposal of ~EUR 1.4 bn worth of bad loans (sofferenze) in addition to the GACS-backed securitisation recently completed (~EUR 0.94 bn) Proactive management of UTPs New NPL management model Net NPE Ratio OPERATING EFFICIENCY ( LEAN ) COMMERCIAL RELAUNCH ( FOCUSED ) Headcount reduction by ~1,000 and closure of ~120 branches Strategic management of ICT and the Back Office Cost review + zero base budgeting EUR 100 mln worth of investments to support Group s business turnaround Refocus on the Core Business Digital platform + fast and automated credit solutions Introduction of the omni-channel approach Expanding the product offering by adopting an "Open architecture" model Cost Income ROTE

10 10 Agenda Transformation Programme The Group s vision and new strategy Conclusions

11 11 The Group s vision and new strategy Do the job of a Retail Bank well for its core business (customers, geographies, products) through a "Clean, Lean & Focused approach Clean Lean Focused Net of past legacy (NPE): texas and coverage ratios in line with market best practices Lean in operation and fast in response: overhaul of the operating and distribution model (role of the branch manager - cashless branch - digital solutions and fast & automated credit) Focused on fully unlocking the value of the core customer base (Households, Small Business and SMEs) through an omni-channel platform and distribution partnerships

12 1 CLEAN MerloFotografia

13 13 1 The Group s vision and new strategy CLEAN Over 50% reduction in the 2016 NPE stock with texas and coverage ratios in line with best practice Trend in non-performing exposures Gross volumes (EUR /bn) +EUR 3.3 bn +EUR 0.8 bn % 6.5 Bad loans (sofferenze) UTPs Past Due GACS-backed bad loan securitisation (~EUR 0.94 bn) Disposal of a bad loan portfolio of ~EUR 1.4 bn (2017) Disposal of EUR 500 mln worth of UTPs (2018) Proactive approach in non-performing loan collection activities through a new management model Far below SREP target (EUR 3.7 bn in 2019) A 2014A 2016A 2018E 2020E Total loans (EUR/bn) Texas Ratio (%) Major clean-up coupled with de-risking and deleveraging strategy, in addition to a stringent discipline for new loans

14 14 1 The Group s vision and new strategy CLEAN The UTP portfolio, highly concentrated on large files, was originated before 2014 and is mostly secured EUR 3.4 bn EUR 2.4 bn EUR 2.4 bn Small e Medium; 30% ante 2008; 23% Unsecured; 22% ; 41% Large (>10M ); 70% Secured; 78% ; 35% ; 1% Total UTP Stock Total Large files (> EUR 10 mln) Total Large files (> EUR 10 mln) Note: Secured/unsecured loan breakdown calculated at NDG account identifier level by a 'prevalence' criterion (secured exposure >50% of NDG exposure)

15 15 1 The Group s vision and new strategy CLEAN New holistic approach for NPE management, with a comprehensive action plan BAD LOANS (SOFFERENZE) UTPs PRE NON- PERFORMING Actions completed - undeway - scheduled SET UP OF NPE UNIT GACS (EUR 0.94 bn GBV): completed ORDINARY MANAGEMENT OUTSOURCING OF SMALL TICKETS LARGE FILES ACTION PLAN REOCO TIME ZERO PROCESSES DERISKING INCREASE IN COVERAGE SET UP OF NPE UNIT: Head of the NPE Unit identified, multi-year experience in NPE management SET UP OF REOCO: incorporation of the company and authorisation obtained + key staff identified + exposures requiring intervention identified EXTRAORDINA RY MANAGEMENT DISPOSALS /GACS (2017) NPL PLATFORM DISPOSAL (2017) DISPOSALS (2018) Disposal of bad loan portfolio (EUR 1.4 bn GBV): underway Disposal of NPL platform: underway Disposal of UTPs (EUR 0.5 bn GBV): planned for 2018 PARTNERSHIP / JV WITHOUT DE- RECOGNITION

16 16 1 The Group s vision and new strategy CLEAN...to quickly achieve a net NPE ratio in line with best market practice Net NPE ratio 21.9% CARIGE S Business Plan Target 19.0% 18.1% 14.7% 13.6% 10.7% 8.1% 9.9% 9.5% 8.2% 7.6% 5.7% CARIGE 2016 CARIGE 2018 CARIGE 2020 Player 9 Player 8 Player 7 Player 6 Player 5 Player 4 Player 3 Player 2 Player 1 Coverage Ratio* Cost of Risk (bps) -204 bps +8.1p.p % 52.4% 57.8% Cov. Past Due 16.3% 18.0% 18.0% Cov. UTPs 27.9% +9.2p.p. 37.1% +5.6p.p. 42.7% Cov. Bad loans 64.8% 66.5% 66.1% (*) including write-offs Note: players data as at 31/12/2016 LLPs (EUR/mln)

17 2 LEAN MerloFotografia

18 18 2 Notable efficiency gaps still observed in Carige today... The Group s vision and new strategy LEAN Cost Income (1) 2016 Operating expenses / GBP (2) 2016 Total operating expenses 81% -13% -20% 68% 61% 0.99% -4% -15% 0.92% 0.73% Carige Benchmark avg. Best Practice Carige Benchmark avg. Best Practice Human Resources Personnel expenses/ni & OBI % 43% Personnel expenses / Employee (3) 2016 (EUR/000) Carige Benchmark avg. Carige Benchmark avg. Other Administrative Expenses (OAE) OAE 4 / NI & OBI Significant gap also in terms of OAE (4) /Employee (3) % Carige sq.m./employee for HO (44 vs. approx. 15) 23% Benchmark avg. (EUR/000) 35 Carige 42 Benchmark avg. Source: 2016 FY Reports. Benchmark made of players comparable in sizing and business model (1) Calculated on the basis of operating expenses reported in the reclassified income statement (2) Gross Banking Product calculated as Direct Funding, Indirect Funding (Carige net of Amissima s assets under custody) and Gross Loans to Customers. (3) Employees average for the year. (4) OAE net of ECB costs and Indirect Taxes.

19 19 2 The Group s vision and new strategy LEAN...to be filled in by introducing a lean & simple banking operating model Strategic guidelines A Lean platform 20% headcount reduction over the Plan period (+100% reductions compared to Feb 17 Plan) Closure of 20% of the branch network (+22% compared to Feb 17 Plan) B Cost management Enhanced Cost Management, tight cost base control and spending discipline the introduction of "zero based budgeting C ICT systems Strategic management of ICT via outsourcing to leading industrial partners to both ensuring quality and efficiency, and supporting the bank along a growth path, including from a digital standpoint D Back Office Advanced management of the Back Office by leveraging an upgrading of the IT systems and a streamlined business model and process flow E Investments High-return Investment Plan based on a "cashless/cashlight branch model, innovation, core process and HR digitalisation (performance and skill management)

20 20 The Group s vision and new strategy LEAN 2 Key Operating Levers and Business Plan targets Area of action Key Operating Levers 2018 and 2020 targets Human Resources Headcount reduction from one-off deals and "Lean Banking Headcount reduced by ~500 compared to old Plan (o.w. ~50 staff of Creditis) Personnel expenses, EUR/mln 316 (1) 305 -EUR 52 mln; - 16% 264 Headcount, [avg. number] c.-1,000; -20% ca OAE (excluding indirect taxes) Optimisation of overhead expenses Space Management initiatives Decrease in legal costs associated with NPE scope reduction ICT: full-scale enhancement of an industrial partnership Other administrative expenses (2), EUR/mlnBranches 3, # -EUR 55 mln; - 26% branches; -21% General-purpose investments Investments to support the Group s business turnaround and evolution ~EUR 100 mln worth of Investments throughout the Plan period Total investments over the Plan period (EUR/mln) Unlock the value of the existing client base Investments to support the service model EUR 98.6 mln Digital transformation 63.3 (1) In 2016 FY Report: EUR 296 mln in personnel expenses, EUR 20 mln in non-recurring upside (2) After indirect taxes (3) The number of branches excludes the not fully-operating branches and the branch in Nice

21 21 The Group s vision and new strategy LEAN 2 Actions identified inthe HR area Description Headcount reduction (# Employees) Over 150 headcount efficiencies implemented to date Disposal on Creditis Scope Disposal of NPL platform Strategic management of ICT via outsourcing to leading industrial partners >200 Branch closure Closure of 121 branches, of which 58 branches already closed in 1H17 and additional 63 branches to be closed by 2018 HR-related enablers to manage redundancies Business model and cashless /cashlight approach Processes and Back Office Overhaul of the business and distribution models Adoption of a cash-less/light model at least in 40% of the branch network, upgrading the remaining branches and implementing an integrated omni-channel approach Upgrade operational processes using an end-to-end, lean/agile approach Simplification and improved efficiency of back offices ~550 Resources budgeted and earmarked to ensure the management of redundancies Simplificatio n of Head Office units Simplification and optimisation of the HO structure by identifying less efficient areas for targeted actions, with a revision of existing processes ~100

22 22 2 The Group s vision and new strategy LEAN More aggressive plan for reducing operating costs than in February 2017 Comparison of operating costs, New Business Plan vs February Plan 2017, EUR/mln -15.1% CAGR: -4.0% CAGR: -6.5% % No. Employees No. Branches New Plan 4,742 in early Other expenses July 17 Personnel expenses 2020 Feb. Plan 4,873 ~ 3,900 4, in early July Note: In 2016 FY Report: EUR 296 mln in personnel expenses, EUR 20 mln in non-recurring upside. The number of branches excludes the not fully-operating branches and the branch in Nice

23 3 FOCUSED MerloFotografia

24 24 3 The Group s vision and new strategy FOCUSED Carige is strongly concentrated in high-potential regions and core customer segments... Number of branches in the domestic market (1), # Over 70% of total branches are concentrated in the first 4 regions Net Interest and Other Banking Income 93% 19% 2% 17% 5% 100% Liguria % Tuscany 82 Lombardy 56 Sicily 55 Piedmont Veneto Lazio Emilia Romagna Sardinia Number of customers (1) Mid Corp. 1% Large Corp. 0% Other 3% Retail Small Business 35% 7% 7% Mid Corp. Total lending (3) 86% 93% 100% Large Corp. Other Total funding (3) 88% (2) 3% 3% 1% 4% Total 100% Apulia Marche 4 9 Small Business 4% 39% 13% Umbria 2 Aosta Valley 1 Retail 92% Retail Small Mid Business Corp. Large Corp. Other(2) Total (2) Source: Data refers to commercial customers (excluding the institutional segment). (1) As at 31 December Excluding the branches of Banca Cesare Ponti, the not fully-operating branches and the branch in Nice. (2) includes Institutions and other non-segmented customers. (3) Stock of Lending and Direct/Indirect funding from customers (excl. Institutional), net of bad loans.

25 with much room for improving productivity... The Group s vision and new strategy FOCUSED Assets managed per customer EUR per customer, 100 = value for Carige (2016) Mortgage loans to retail customers per branch p.a % Number of mortgage loans, 100 = value for Carige (2016) Carige Benchmark avg. (1) Consumer Finance per Carige branch 2 +33% Consumer loans granted, 100 = value for Carige (2016) Mass Market Affluent Private Carige Benchmark (1) Carige Benchmark avg. (1) Room for expanding existing customer base penetration in AuM 40 to 50% productivity in mortgage loans to retail customers compared to benchmark average Source: Bank of Italy, Statistical Bulletin, benchmark - source: Bain & Company (1) Benchmark made of players comparable in sizing and business model (2) The number of branches does not factor in the branches of Banca Cesare Ponti, the not fully-operating branches and the branch in Nice

26 and profitability vs. the peer group The Group s vision and new strategy FOCUSED CPI penetration in the Retail segment 2016 (# CPI / # mortgage loans granted) NI and OBI/Lending, 100 as a base Retail Small Business Mid Corporate x2 x2 +15% % % % % 10% 20% Retail Small business (2) Carige Benchmark Carige Benchmark Carige Benchmark (1) (1) (1) Carige Benchmark (1) Source: Financial Statements as at 31 December 2016 (1) Benchmark made of players comparable in sizing and business model (2) Small Business customers underwriting a retail CPI insurance product

27 27 3 The Group s vision and new strategy FOCUSED Carige s commercial relaunch focuses on 4 clear-cut areas of action A Customer and Territorial Centricity All-round business refocus on core customers and geographies Have a footprint in key regions, close to core customers B A Lean and Business-Oriented Service Model Increasingly cashless/cashlight branches with the Branch Manager acting as a businessman in the local market area Less cash, more advisory model with fast solutions C An innovative, digital platform Embark on a digital innovation path leading to the development of an omnichannel digital-based approach Development of an integrated multichannel model D An innovative and distinctive offering "Open architecture" model with distribution of in-house developed core products and best-of-breed externally developed solutions State of the art open architecture offering

28 28 The Group s vision and new strategy FOCUSED 3 A Branch network rationalisation and business focus on core geographies continues Geographical coverage in branches (1) Target geographical coverage in branches (2) Carige s branch network (1), # -20% 0% 8% 37 % 10 % 3% 14 % 8% 1% 0% 0% 8% 38 % 11 % 3% 14 % 8% 0% % 7% % 2% 2% 10 % 9% 5% 5% Branches per region, # Carige's footprint regions 0% Per capita GDP (3) (EUR) +14% Other regions Per capita GDP in Carige's footprint regions is higher than in other Italian regions 9 % 5% 5% Branches per region, # Source: figures from Carige, Eurostat. (1) Excluding the branches of Banca Cesare Ponti, the not fully-operating branches and the branch in Nice. (2) Representation of 480 branches, after 89 branches were closed or identified for closure; an additional 25 branches are being identified as part of a select batch (to reach target of 455). (3) As at 31 December (4) Gross Banking Product = Net loans - net bad loans + total direct and indirect funding as at 31 December % 0% Gross Banking Product per Branch ( (EUR mln) %

29 29 The Group s vision and new strategy FOCUSED 3 B Introduction of cashless and cash-light branches... Key drivers influencing the choice of the type of branch Full-fledged branch Cash-less branch (Service Improvement) Cash-light branch Areas of footprint Sales and distribution network layout (branch-to-branch distance b, etc.) Type of customers and level of digitalisation Branch physical layout Number of tellers Branch profitability Larger branches located in the Bank's most representative areas SMEs with higher degree of interaction with the Branch Branch with regular cash service Technology availablefor managing low-value transactional business Proactive support from branch staff (reception desk) > 40% of network involved Medium-sized branches Small-sized branches with no specific operational Composite portfolio of and real estate constraints intermediately advanced Composite customer customers with routine portfolio with routine service demands service demands Intermediate model, with Branch with no internal traditional branch teller desks and tellers operations, but only for part of the day or part-time teller Technology available for opening managing low-value transactional business with Advanced ATMs installed to Self-banking areas (e.g. support customers carry out advanced ATMs, automated transactions when the workstations, kiosks) teller is closed Proactive support from branch staff (reception desk) Integrated model, focusing on multi-channel approach and faster customer response

30 30 The Group s vision and new strategy FOCUSED 3 C Digital innovation (driven by major investments) to lead the evolution of the sales proposition Key initiatives Banca Carige s internet & mobile banking penetration (1), % Innovation Unit Creation of an innovation unit to design and manage the Group's digital strategy Utmost focus on potential high-value initiatives On-line Mobile 50 A multi-channel Customer Journey Customer Journey completely redesigned with a multi-channel digital approach Focus on the "Anchor Products" for core customers: FAST credit and digital lending, opening of current accounts, Mortgage loans to retail customers and Credit Cards Digital offering 9 On-line Apps Contact Centre The Contact Centre as a contact and sales channel for "prospect", "ghost" and lowermass customers, to optimise the cost to serve Contact Centre structure reinforcement. Current accounts Credit cards Big Data Make the most of Customer information (Big Data analysis) Make the most of market opportunities offered by the regulatory framework FAST Credit & Digital Lending Mortgage loans (1) Only Retail customers

31 31 3 D The Group s vision and new strategy FOCUSED Have today s offering evolve with an "open architecture" approach Key initiatives "In-house" development of all "Core Commercial Banking related products For Retail and Small Business customers, development of a suite of digital / smart lending products for fast response to customer needs (FAST credit) Take advantage of best market offers (outsourced product factories) for highly specialised products, including from a "capital light perspective Development and consolidation of new (non-recourse) Factoring product catalogue Full-scale enhancement of the Cesare Ponti brand, particularly in Wealth Management Commercial Banking Wealth Management High-Value Fee and Commission Income from distribution as a share of Total Fee and Commission Income c.40% c.30% Fee and commission income growth driven by high-value distribution fees (AuM, CF placement, insurance, ) Net fee and commission income (EUR/mln) % 297 CAGR Consumer Finance Factoring & Leasing Insurance Significant increase in Net Fee and Commission Income due to the sales and distribution drive from third-party product cross-selling

32 32 3 Significant increase in sales and distribution output... The Group s vision and new strategy FOCUSED GBP per FTE +29% 100=value for Carige (2016) NI & Other Banking Income per FTE +48% 100=value for Carige (2016) Carige 2016 Carige 2020 Benchmark avg (1) 100 Partly due to higher "productivity per FTE (+29%), expected to exceed peers level Carige 2016 Carige 2020 Benchmark avg. (1) NI & Other Banking Income / GBP (2) +15% =value for Carige (2016) NI & OBI per FTE up 48% over the Plan period, in line with main Peers current performance Carige 2016 Carige 2020 Benchmark avg. (1) Source: Individual and consolidated financial statements as at 31 December 2016 (1) Benchmark made of players comparable in sizing and business model (2) Gross Banking Product (inclusive of Institutional) = Net loans - net bad loans + total direct and indirect funding and higher profitability (in terms of market rates, segment mix, short vs. mid-long term mix, )

33 33 Agenda Transformation Programme The Group s vision and new strategy Conclusions

34 34 Conclusions A major transformation plan... Over EUR 1 bn capital strengthening -54% of NPE stock as early as by end-2018, -58% at % operating expenses and +48% commercial productivity 2020 vs for a sound and profitable Bank... CET1 (2020): 13.9 % Texas ratio (2020): 61.8% ROTE (2020): 6.5%... requiring the input of all its stakeholders LME closing (by end-october) Capital increase closing (by end-december) Execution of disposal transactions (2017-H1 2018)

35 Annex MerloFotografia

36 36 Annex Update on disposals Actions Description Progress status NPL portfolio Expressions of interest from a large number of players Binding offers by November NPL management platform Disposal of the branch of business consisting in the NPL management platform and related multi-year servicing contract Expressions of interest and access to the Virtual Data Room Binding offers by November Creditis Disposal of the 100% equity investment and related distribution agreement Non-binding offers received by various counterparties Binding offers by November Merchant Book Disposal of the P.O.S. transactional business and distribution of debit cards Sales process underway Real estate assets First cluster identified of 8 readily marketable real estate assets With regard to the building located in c.so Vittorio, Milan: counterparties submitting interesting non-binding bids short-listed (with prices in line with expectations) Carige will assess binding offers by mid-october

37 37 Annex EUR/mln H P&L Δ CAGR Net Interest Income % Net fee and commission income % Other revenues (12.0%) Net Interest and Other Banking Income % Loan loss provisions (473) (219) (122) (94) (33.2%) Operating expenses (562) (283) (505) (430) (6.5%) Gross profit (431) (225) n.s. Parent company s net profit (292) (155) n.s. EUR/mln H Δ CAGR Net loans to customers 18,246 17,626 15,809 17,047 (1.7%) BS Direct funding* 19,613 18,324 17,191 18,359 (1.6%) Capital and reserves 2,401 2,112 2,181 2,279 (1.3%) Net tangible equity 2,344 2,064 2,134 2,231 (1.2%) Note: Classification as per Bank of Italy s template (*) Deposits from customers, Debt securities issued and Financial liabilities designated at fair value

38 38 Annex The macroeconomic scenario over time Italy's real GDP forecast, % Inflation rate, % 1.0% 1.2% 1.0% 0.8% 1.0% 1.5% 1.1% 1.3% 1.8% -0.1% E 2018E 2019E 2020E E 2018E 2019E 2020E 3-m Euribor forecast (%, yearly average) Italian banking system s growth in loans to customers, % 0.4% 2.0% 1.5% 0.1% -0.3% -0.3% -0.3% E 2018E 2019E 2020E -0.9% -0.9% -0.7% E 2018E 2019E 2020E Source: Prometeia, July 2017

39 39 Annex The funding mix Total funding at year-end, EUR/bn E 2020E Retail direct funding Institutional direct funding Cost of funding % 0.82% 1.04% (1) Average rate on average deposit amount

40 40 Annex Breakdown of UTP portfolio Secured / Unsecured loan breakdown Breakdown by segment 23% Individual 7% Secured Unsecured EUR 3.4 bn Corporate 93% EUR 3.4 bn 77% Breakdown by year of default Breakdown by sizing class % 30% % EUR 3.4 bn 30% Large (>EUR 10 mln) SMEs EUR 3.4 bn % 19% 70% Note: figures as at 31/03/2017 Secured/unsecured loan breakdown calculated at SNDG account identifier level aby 'presence' criterion (at least one secured credit line present)

41 41 Annex Bad loan portfolio breakdown Secured / Unsecured breakdown Breakdown by segment 44% EUR 3.8 bn 25% EUR 3.8 bn Secured Corporate Unsecured 56% Individual 75% Breakdown by year of default Breakdown by sizing class Ante % 9% 4% 30% 9% % 24% EUR 3.8 bn 12% 6% 20% > 5 M 1 M - 5 M 500 K - 1 M 100 K K < 100 K 12% EUR 3.8 bn 23% 26% Note: figures as at 31/03/2017 Secured/unsecured loan breakdown calculated at SNDG account identifier level aby 'presence' criterion (at least one secured credit line present)

42 42 Annex Trend in UTP, PD and bad loans UTPs and PD EUR/nm ~EUR 3.6 bn ~EUR 1.1 bn EUR 0.9 bn o.w. from disposals (EUR 0.5 bn) and from REOCO (EUR 0.4 bn) ~EUR 1.3 bn ~EUR 1.0 bn ~EUR 1.5 bn ~1.1 bn ~EUR 0.4 bn FY16 Outflows to Bad loan status Outflows to performing status Inflows from performing status Write-offs, Collections, Other changes Capitalised interest and inflows from bad loan status FY20 Bad loans (sofferenze) EUR/bn ~EUR 3.7 bn ~EUR 2.4 bn ~EUR 1.1 bn ~EUR 0.6 bn ~EUR 2.0 bn ~EUR 100 mln ~1,6 FY16 Disposal Inflows from performing status Inflows from UTP and PD Write-offs and other changes* FY20 * Includes collections, write-offs and other decreases