ANNUAL REPORT

Transcription

1 ANNUAL REPORT

2 1. Letter from the CEO 2. Corporate Group profile 3. The Management of Piraeus Bank Romania 4. Administrators Report Market Overview Financial Statements Overview 4.3. Risk Management 4.4. Business development - innovation 4.5. Human Resources 4.6. Corporate social responsibility 4.7. Events after the Reporting Date 4.8. Key Objectives of Human Resources evolution 6. Business Segment Activity 6.1. Branch Network 6.2. Retail Banking 6.3. Corporate Banking 6.4. SME Sector 6.5. Treasury 6.6. Marketing 7. Other subsidiaries of Piraeus Bank Group 8. Financial Statements

3 Letter from the CEO 3

4 Dear Shareholders, Dear Customers, Dear Partners, Dear Employees, Stability is important and 2012 proved to be one of those years without major changes whether positive or negative from the market trend point of view. Thanks to our expertise we were already prepared for the waves of actions that the sensitive economic environment brought. The banking sector and many others kept the burden of crisis consequences such as the increase of the budget deficit which reached 2.5% of GDP or RON 14.8bn, above the 2.2% target set with IMF, a modest expansion of economy, of 0.7% YoY mostly supported by the services sector or an increase of the unemployment rate, up to 5.6% compared to 2011 year end when unemployment stood at 5.16%. Regarding our own local system, the number of players in the banking system recorded a small decline, from 41 institutions in 2011 to 40, as a result of the merge between Intesa Sanpaolo Romania and C.R. Firenze Romania. In the matter of capitalization, the Romanian banking system experienced a growth in 2012 of 29.4% YoY reaching RON 24.8bn, according to the International Financial and Reporting Standards (IFRS). The banking system s net assets dropped in real terms by 1.5% YoY to RON 366bn based mainly on deleveraging, property or non performing loans portfolio selling. Piraeus Bank Romania registered notable results. The system s solvency registered similar values compared to 2011, more precisely 14.6%, but we managed to keep the level of 17.5%, with similar figures characteristic for the previous year. We succeeded in proving our capability to overpass tense periods. Considering the difficult economic environment, the liquidity buffers proved their efficiency and we will remain committed to gradually reach a sustainable profitability, which is considered as essential for the creation of steady liquidity and capital buffers. Following our promise of dialogue, modernity, trust and perseverance and our adaptability to the market conditions and customers needs, Piraeus Bank Romania is an integrated part of this process and through permanent efficiency increase and market knowledge we manage to achieve the targets. In the spirit of the values that speak about our brand, 2012 gave us the opportunity to stay close to the Romanian athletes in their chase for medals at the London Olympic Games, thus ending 2 successful years of partnership with the Romanian Olympic and Sports Committee. Furthermore, this year represented one more step in our dialogue strategy. For everyone the accessibility became one of the most important feature when it comes to banking relations, so, for a better customer experience our online banking upgraded and adapted to the market and client s needs, the website captured all the needed and useful information and our Facebook page facebook.com/piraeusbank.ro became a new path for our visitors to get in touch with our products and services, in a friendly and professional way represents generally a successful story, which surely shows the progress of all of us for which I thank you! Catalin Parvu Chief Executive Officer 4

5 Corporate Profile 5

6 Founded in 1916, Piraeus Bank operated as a private credit institution for many decades, while for the period it went through state ownership and management ( ) before it was privatized in December Since then, it has rapidly grown in size and activities. Today following the acquisitions of the healthy ATEbank and Geniki Bank, the banking operations in Greece of Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank, Piraeus Group s pro-forma total assets amount to 98 bn, net loans 64 bn and customer deposits 52 bn (pro-forma data 31/12/12). The Group employs approximately 23,900 people, while the entire branch network numbers 1,650 units, with a presence in 10 countries including Greece. Piraeus Bank is today the 2nd largest Bank in Greece with 27% market share in terms of loans and deposits. Along with its organic growth during the decades of 1990 and 2000, Piraeus Bank made a series of strategic moves aiming to establish a strong presence in the domestic market. Thus, in 1998, the Bank absorbed the activities of Chase Manhattan in Greece, took over controlling interest in Macedonia-Thrace Bank and acquired the specialized bank Credit Lyonnais Hellas. At the beginning of 1999, the Bank acquired Xiosbank and absorbed the activities of National Westminster Bank Plc in Greece. In June 2000, Piraeus Bank absorbed its two commercial banks in Greece (Macedonia-Thrace Bank and Xiosbank). In 2002, Piraeus Bank acquired the Hellenic Industrial Development Bank (ETBAbank) which was absorbed in December Also, at the beginning of 2002, a strategic alliance agreement for the Greek market was signed between Piraeus Bank Group and ING Group, focused in the field of bancassurance, which was renewed for 10 more years in October In July 2009, Piraeus Bank and BNP Wealth Management agreed to a strategic partnership in Wealth Management. In October 2009, Piraeus Bank and ERGO General Insurance Company S.A. - subsidiary of Ergo International in Greece and member of the German insurance Group Munich Re - commenced a 10-year exclusive cooperation in the general insurance field. In 2005, Piraeus Bank Group, implementing its strategy for expansion in Southeastern Europe and Eastern Mediterranean markets, acquired the Bulgarian Eurobank (renamed into Piraeus Bank Bulgaria), strengthening its 12 year presence in Bulgaria, while the merger of Piraeus Bank branches in Bulgaria with Eurobank was completed in March Furthermore, in 2005, it entered the Serbian market by acquiring Atlas Bank (renamed into Piraeus Bank Beograd), and into the Egyptian market by acquiring Egyptian Commercial Bank (renamed into Piraeus Bank Egypt). Finally, in 2007, Piraeus Group expanded its international presence in Ukraine by acquiring the International Commerce Bank (renamed into Piraeus Bank ICB) and in Cyprus by establishing Piraeus Bank Cyprus through the acquisition of the Arab Bank Cypriot network. At the end of July 2012, Piraeus Bank acquired the healthy part of Agricultural Bank (selected assets and liabilities) gaining a leading position in the banking operations in Greece. Three months later, the Bank signed an agreement with Societe Generale for the acquisition of SocGen s total stake (99%) in Geniki Bank. In March 2013, Piraeus Bank acquired the Greek banking operations of Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank. These transactions comprise important steps towards the restructuring of the Greek banking system, in which Piraeus Bank has participated from the very beginning as a core pillar. Piraeus Bank leads a group of companies covering all financial and banking activities in the Greek market (universal bank). Piraeus Bank possesses particular knowhow in the areas of medium-sized and small enterprises, in agricultural banking following the acquisition of ATEbank, in consumer and mortgage credit and green banking, capital markets and investment banking, and leasing. These services are offered through the Group s nation-wide network of c.1,200 branches and c.2,200 ATMs, and also through the electronic banking network of winbank. The latter was launched in the beginning of 2000, as the first complete electronic banking service in Greece, and has received a significant number of awards all these years, demonstrating the high quality of its services. Piraeus Bank Group, at the end of 2012 had an 6

7 international presence consisting of 449 branches focused in Southeastern Europe and Eastern Mediterranean. In particular the Group operates in Romania through 167 branches (144 branches of Piraeus Bank Romania and 23 of ATEbank Romania), in Bulgaria through Piraeus Bank Bulgaria with 83 branches, in Albania through Tirana Bank with 56 branches, in Serbia with 42 branches of Piraeus Bank Beograd, in Ukraine with 38 branches of Piraeus Bank ICB, in Cyprus with 14 branches of Piraeus Bank Cyprus, in Egypt with 47 branches of Piraeus Bank Egypt, in London with a branch of Piraeus Bank and in Frankfurt with a branch resulting from the acquisition of ATEbank. The main midterm objectives of Piraeus Group s policy are: to safeguard liquidity, capital adequacy, asset quality, achieve high efficiency by containing operating costs, and to smoothly integrate the recently acquired banking activities in Greece, thus achieving significant synergies. Piraeus Bank will continue to focus on SMEs, the agricultural sector and retail banking segments, where it holds strong expertise. Piraeus Bank Group, combining business development and social responsibility, endorses systematically its relations with its social partners through specific actions, while special emphasis is placed on the protection of the natural environment and preservation of cultural heritage. Piraeus Bank acknowledges that energy sources are not inexhaustible and should be used in a responsible manner. The Bank s contribution to the protection of the environment has two dimensions. The internal dimension, which refers to the Bank s efforts to mitigate its operational environmental impacts, and the external dimension which reflects the Bank s efforts to increase environmental awareness of its customers, and to promote environmentally friendly investments. Piraeus Bank has built significant expertise and market share in the field of Green Banking with dedicated branches and products, addressing both business and individual needs. At the same time, the Piraeus Bank Group Cultural Foundation carries out culture-related activities, which are part of the Piraeus Bank Group s corporate social responsibility and operates a series of thematic museums in Greece, which is constantly growing and has the ability to convey to the Greek rural regions cultural activities of high standards with effective and efficient manner. As one of the systemic banks in Greece, Piraeus Bank takes initiatives that support sound business plans and the evolution of the Greek economy into a new model of sustainable development. 7

8 The Management of Piraeus Bank Romania 8

9 1. Piraeus Bank Romania Board of Directors structure as of Stavros LEKKAKOS Chairman (non-executive member) Catalin PARVU Member & Chief Executive Officer (executive member) Alexandros MANOS Member (non-executive member) Ilias MILIS Member (non-executive member) George PAPAIOANNOU Member (non-executive member) Spyros PAPASPYROU Member (non-executive member) Viorel MISCHIE Member & Deputy General Manager (executive member) Ioannis DELIS Member (non-executive member) 1. Piraeus Bank Romania Executive Committee structure as of Catalin PARVU Chief Executive Officer Viorel MISCHIE Deputy General Manager 9

10 Administrators Report 10

11 4.1. Market Overview In 2012, Romanian economy posted a modest expansion of 0.7% supported by services sector. Volatile weather conditions had a strong impact on GDP dynamics. While constructions sector dipped by 0.3%, the industrial output dropped by 1.0%. Agriculture plunged by 21.6%. The strong growth of services and the narrow decline of constructions are driven by domestic demand while industry was dragged down by the lack of structural changes and by its reliance on exports to the crisis battered EU zone. Current account deficit shrunk in 2012 by 15.1% to EUR 5bn. The improvement was supported by almost all C/A positions. Foreign direct investments dropped by 11.12% to EUR 1.61bn hindered by the high economic uncertainty both domestic and global. The budget deficit reached 2.5% of GDP or RON 14.8bn, above the 2.2% target set with IMF. The pace of the fiscal consolidation in Romania was one of the fastest among the EU member countries (the budget deficit in ESA 95 standards was reduced from 9% in 2009 to 3% of GDP in 2012). Annual inflation rate stood at 5%yoy, fuelled by a large contribution from volatile food prices (1.3%). In December 2012 the unemployment rate reached 5.6%. Given the reliance of economy on foreign capital inflows and foreign investors confidence, avoiding fiscal slippages, implementing structural reforms and increasing the absorption of EU funds remain key requirements to preserve the upward trend. The year 2012 proved to be again a difficult one for the Romanian banking system. Banks results continued to be largely impacted by the provisions as the quality deterioration still does not show stabilization tendencies. Banking industry posted for the third year in a row a compounded loss triggered by lower business and by higher provisioning costs that expanded to 2.3% of average compounded bank assets from 2.1% in Companies and households failed to strengthen their financial positions in the context of a very modest economic recovery. Non-performing loans (NPLs) remained on a clear upward trend in 2012 (amounting to 18.2% at the end of the year, up from 14.3% at the end of 2011). The pace of growth in NPLs even accelerated in 2012 compared to The increase in NPLs was fuelled in some extent by loans restructured in the previous years. The NPL ratio was highly impacted by large debt sales. On the positive side, the solvency ratio for the whole banking system stood at 14.6% at the end of 2012, which is close to the level recorded at the end of previous year (14.9%). Many banks increased their share capital to offset the negative impact of the provisions. Deposits grew at the level of banking system by 2.5%yoy, the increase of HHs deposits (5.4%,yoy), largely counterbalancing the decrease of companies deposits (2%yoy). Most likely, HH saving is largely explained by customers prudential reasons and still low consume appetite. Loans decreased 1.5% yoy, mainly on the back of the HHs loans (-2.5%), driven by the downward of consumer loans (-7.5%). Mortgage loans increased by 8%yoy helped by the state program Prima Casa. High indebtedness, especially in foreign currency, constitutes the main vulnerability of households. The companies payment discipline was negatively influenced by the persistence of liquidity constraints, as a result of tighter lending conditions offered by banks and the maintenance of a long commercial claim collection period by companies. Insolvency is still excessively used by the debtors. The majority of the banks continued the rationalization measures in the effort to stop the decrease in their operational profits. In 2012, more than 4000 employees left the banking system (vs. 981 in 2011) and 322 branches were closed (vs.124 in 2011). These downward adjustments were the largest in the period , Piraeus Bank Romania holding an important share in the overall effort (4,7% in terms of staff reduction and 10,6% in terms of the closed branches) comparing with the lower level of its market share. The Central Bank leaved unchanged the minimum reserve requirements both for RON denominated and for foreign currency denominated deposits. 11

12 Financial Statements Overview Starting with the 1st of January 2012 Piraeus Bank Romania applies the International Financial and Reporting Standards (IFRS) as accounting basis and reporting standard for the stand-alone financial statements, as required by National Bank of Romania accounting regulations applicable to banks. The introduction of IFRS starting with 2012 was in line with the global trend of harmonizing the national financial accounting and reporting standards with the international ones. Applying IFRS as accounting basis and reporting standard was a smooth process since the Bank has applied IFRS also in the past for the financial statements prepared for Group s consolidation purposes as well as for its IFRS stand-alone financial statements. The financial statements of the Bank for the years 2012 and 2011 have been audited by PricewaterhouseCoopers Audit SRL. The following comments on the Bank s financial position and performance are based on the IFRS financial statements and the related notes prepared as of December The equivalent of income statement figures has been calculated using the RON/ average exchange rates published by the National Bank of Romania for 2012 and 2011 (i.e. 2012: RON/ 1 ; 2011: RON/ 1 ). The equivalent of balance sheet figures has been calculated using the RON/ year end exchange rates published by the National Bank of Romania (i.e. Dec.31, 2012: RON/ 1 ; Dec.31, 2011: RON/ 1 ). Balance Sheet Developments Assets The year 2012 was the fourth year of contraction, the Bank being essentially focused on safeguarding its core equilibriums (capital and liquidity), as fundamentals for its long term viability. As of the year end 2012 Piraeus Bank Romania s total assets were in amount of 1,767.1mn against 1,956.8mn by 31 December 2011 (9.7% yoy decrease). The decrease of total assets is attributable mainly to the liquidity constrains and still low potential to expand business. Moreover, the Balance Sheet downscaling was driven by the large increase of provisions balance, which was objectively aligned to the deterioration of the assets quality. In addition to the above, assets in amount of 1,627.9mn have been administrated on behalf of Piraeus Bank S.A. London Branch following the policy of active cost management and distribution of assets. Piraeus Bank Romania acted as an agent for the London portfolio, managing the external portfolio while the risk and related income are substantially transferred to Piraeus Bank S.A.- London Branch. The currency structure of the assets shows a higher decrease for the assets in local currency which contracted with 14.9% ( 707.4mn in 2012 against 831.4mn in 2011) compared with the decrease of 5.8% ( 1,059.6mn in 2012 against 1,125.4mn in 2011) of the foreign currency assets. The assets deleveraging, although objectively required for safeguarding the capital and liquidity equilibriums, tightened the income generating potential. Efforts have been done in order to stop the contraction and gradually improve the volume of interest bearing assets, in an optimal mix of loans and liquid assets. All the actions designed and implemented for the achievement of this target, were adequately aligned to the objective risk prerequisites, being properly reflected in the Bank s risk appetite. Loans Although the Bank started to reinforce sales in the second part of the year, the contraction of the loan portfolio continued during 2012 (- 75,2mn i.e. 5.3%), mainly on the back of households portfolio. The total loan portfolio of the Bank amounted 1,346.6mn as of Dec.31, Under the circumstances of still poor bankable demand (even if some positive signs were visible into the market, especially in companies segment) and the high volatility of deposits, the Bank s appetite to expand loans remained low. A more dynamic approach was promoted towards local mid-market and SME clients in order to prevent the decrease in these specific areas. 12

13 The debt sales ( 21mn), the write offs, the repayments and the foreclosure procedures driven the downward trend of the loan portfolio. The less affected segment was the SME area, proving the fact that the Bank is focussing more in this direction. Households segment was the most affected as the vulnerabilities of this category (i.e. high indebtedness, especially in FX) do not give a comfortable ground for a more aggressive approach in disbursing new loans. Strong stimulus will continue to be promoted to stop the decline and gradually improve the income generating potential of the Bank, by preserving a critical mass of productive loans. Corporate (mid-market) and SME segment will remain the most targeted areas. No material variations between the business segments were registered in the structure of the loan portfolio: 24.4% loans for Companies (22% in 2011) and 75.6% (78% in 2011) loans for Individuals. In terms of Individuals Loans, the mortgage loans portfolio had a 5.1% increase as of Dec.2012 versus Dec despite the general decrease of Individuals loans portfolio by 8.2%. The currency structure of loan portfolio remained relatively stable as concerns the composition in foreign currency (72.9% as of 2012 to 74.1% as of 2011) and local currency (27.1% as of 2012 to 25.9% as of 2011). To deal with the deterioration of the quality of the loan portfolio remained one of the main challenges for the Bank. The NPL ratio reached the level of 26.3%. Constant efforts were thoroughly concentrated towards finding the most suitable solutions in collection, restructuring, workout and execution processes, aiming the maximization of recoveries. The loan provisions balance increased to 341.1mn as of Dec.2012 proving the large efforts done by the Bank to adequately cover the credit risk. Beside the IFRS provisions, the Bank registered as of Dec.31, 2012 prudential provisions (used in prudential indicators) in amount of 402.2mn (yoy increase of 52.9mn). The gap between prudential and IFRS provisions (used as prudential filter) was reduced during 2012 by 23.7mn, reaching the level of 59.9mn. Loan loss provisions ratio increased from 18.7% as of 2011 to 25.4% of total loans. The Bank has an adequate level of provisions, appropriate provisioning policies and methodologies being promoted. Liquid assets During 2012, in spite of the volatile circumstances, the Bank s liquidity was adequately managed, the adverse shocks being properly and timely counterbalanced. The uncertainties related to Greece, were adversely reflected in the interbank market as well as in institutional clients behaviour, consistently reducing the Bank s potential to attract additional liquidity from these sources. The liquidity buffers proved their efficiency, the Bank successfully overpassing the tense periods. The Bank timely covered all its obligations (e.g. in Oct.2012 the Bank started the repayment of the EBRD loan i.e. 9mn of total 45mn) and did not appeal any contingent facility from NBR and the Group s stand by facility was not further accessed, successfully overpassing the high liquidity pressure moments, such as May June. In Q4, the liquidity pressures eased as the Bank reverted the trend of the deposits (with significant accumulations) and took advantage on a calmer situation of financial markets. Cautiously managing its liquidity position, the Bank maintained a large T-bills portfolio (Romanian sovereign risk) focusing to permanently preserve the free bonds at a level of min.2% of total local assets. Mainly by improving the free T-bills position, the quick ratio significantly improved, posting over the year comfortable levels. The Bank played an active role in the management of the liquidity at Group level, by providing the liquidity in excess, but in the same time benefiting from Group s full support to cover the short-term liquidity gaps. Starting August 2012, the Bank was actively involved in the liquidity management of the Group s newly acquired subsidiary i.e. ATE Bank Romania, placing directly or indirectly its excess liquidity, but also giving support in the day to day management of ATE liquidity position. In Dec.2012, a subordinated loan of 13

14 40mn was granted to ATE Bank Romania. Financing the Swiss franc portfolio remained a serious and costly problem for the Bank, with very large impacts in the overall profitability, especially during the first three quarters. The Bank initiated discussions for signing ISDA and CSA with various local and international banks targeting to enlarge the number of the counterparties for repo and FX swaps. ISDA agreements were signed with Nomura and Credit Europe, facilitating improved funding cost. Lately, EBRD and other IFIs seem to be opened for such cooperation with the Bank. Moreover, during the last months some improvements have been seen in the financial markets, being reflected in better funding conditions for the Bank. To secure a steady liquidity position, with an increased selffinancing component, will remain a core priority. The Bank will continue to place an increased focus on small deposits in order to decrease the volatility and the concentration of the deposit base. The Bank will remain committed to gradually reach a sustainable profitability, which is considered as essential for the creation of steady liquidity and capital buffers. Tangible and Intangible Assets By the end of 2012 properties and equipment of the Bank continued the decreasing trend reaching 50.8mn from 61.1mn at the end of the previous year with 16.8% lower, due to the network downsizing process. During 2012, 34 branches were closed and all the leasehold improvements related to their locations were fully depreciated during the life of the rental contracts using an accelerated depreciation. In the same time, the intangible assets followed a decrease amounting 3mn (showing a reduction of 31.4% vs. previous year). Liabilities & Equity The overall evolution of liabilities reflects the efforts of the Bank to diversify its financing resources in order to sustain the business development needs and also to maintain the strategically objective that target a low dependency of the abroad funding offered by the Group. The years were characterized by a high volatility of deposits, attributable to clients increased risk sensitivity against the current economic uncertainties. While in 2010 and Q the deposits registered a mixed evolution (mirrored ups and downs), this was followed by six quarters of contraction. Although some stabilization signs have been seen in Q1 and Q3 2012, the quarterly downside movements were large. The last quarter of 2012 came with a significant recovery in deposits, showing that in normal conditions the Bank has the capacity to increase its deposit base. The positive trend continues in 2013, as well. Deposits from banks decrease in 2012 by 12.5%, from 594.9mn in December 2011 to 520.3mn by the end of The customer deposits as of December 2012 reached the level of 889.5mn compared with 953.8mn as of December 2011 (6.7% decrease). The outflows were more visible at the level of institutional clients, the small deposits being affected too, but at a lower scale. Although the Bank, in its efforts to limit the negative impact on the profitability, did not encourage the excessive pricing, the interest rates were positioned at levels above the market averages (top 3-5) trying to at least partially offset the risk adversity of the clients (with impact on the overall profitability). The repo based deposits decreased yoy by 186.6mn, while the non-repo based deposits in spite of the adverse shocks, closed with a yoy change in the positive territory i.e mn (16%). Although there were significant adverse movements in the overall volume of deposits, positive changes have been registered in the deposits structure, lowering the volatility and concentration. Retail deposits (HH and SME) significantly improved their contribution in total deposits i.e. from 54.9% at the 14

15 end of 2011, to 67.6% at the end of 2012, on the back of the institutional deposits, which reduced their share from 34.4% to 18.3%; corporate deposits also increased their contribution from 10.7% to 14.1%. Capital Consistent to its business philosophy according to which the Bank leads its operations within a prudential framework, focusing the optimum convergence of profitability criteria with banking processes associated risks, the Bank constantly acted for maintaining an adequate capital base. Despite the loss reported for 2012, the Bank managed to preserve a good capital base with a strong defence line against the adverse shocks i.e. comfortable capital buffers capable to absorb shocks of medium-large intensity. The capital buffers were permanently positioned well above 50% of the own funds value. The Bank permanently met the capital adequacy regulatory requirements, placing its solvency ratio well above both, the minimum limit set by NBR (i.e.10%) and the level targeted through the Capital Strategy. Even though the capital base is good enough, the fact that the Bank registered loss in 2012 is very attentively considered by the Bank. To create sustainable basis for the organic creation of the capital (by generating profits) remains one of the core priorities. The Bank is fully engaged towards the further enhancement of its operating profitability, mainly by strengthening the income generating engines, but also continuing acting for cost containment. The Bank will continue promoting a pro-active capital management considering the real availability of the capital, and the objective limitation in capital formation and acquisition (with primary focus to stop the erosion). Income Statement In 2012 the Bank continued placing a core focus on its operating profitability, trying to position it in line with the objective provisioning needs, as essential for the preservation of a good capital base. In spite of the constant efforts, the operating profit positioned below the previous year s result ( 30.1mn vs. 57.7mn in 2011), the Bank posting negative after-provision result. The positive influence of the rationalization measures reflected in material savings on the costs side, succeeded to compensate only partially the contraction of the income base. Considering the continuous efforts sustained in the past for costs optimization, the potential for capturing material savings significantly narrowed. However, the Bank will continue to act in this direction, aiming to further reduce its operational expenses, by considering the real business needs, but also the operational and internal control objective requirements. The 2012 pre-provision profit was by 48% ( 27.6mn) lower comparing with 2011, mainly due to the (objectively) lower Trading Income and the reduced Net Interest Income. Net Interest Income, declined yoy by 15%, i.e. 9.1mn, mainly as the effect of loan portfolio deleveraging and the efforts done for the management of the deposits base. The deposits contraction, combined with the continuous efforts for funding costs optimization, were reflected in a substantial decrease of the related costs ( 22.7mn) comparing with Although the Bank permanently acted to improve the cost of funds, some restrictions were objectively imposed by the need to limit the deposits outflows. The interest rate was one of the main measures employed by the Bank to compensate the increased risk adversity of the clients. Net Commission Income showed a yoy decrease of 3.6mn. The deterioration in the commission incomes was mainly driven by the lower money transfer commissions and the downward evolution in gold selling and bancassurance business. While the cards related commissions posted almost the same level as in 2011, trade finance commissions remained poor, even though some improvements were visible. The fragile contribution of the commissions in the Bank s profitability is mainly attributable to the pre-crisis aggressive development, which favoured financing towards sectors 15

16 with low business and commissions generating potential. Although in the last years the Bank placed a special attention towards attracting non-lending and commission generating business, the efficiency in this area still requires steady improvements. Due to the fact that the mid-market and SME segments hold the largest potential to increase the volume of the transactions through the Bank s network and systems, the Bank places an essential focus in attracting such new clients, not necessarily lending captives. Compared to previous year, the trading result declined by 66% ( 15.4mn), affecting the overall profitability of the Bank. Deterioration was also registered in FX trading, mainly due to the lower performance of the swaps, with adverse shocks linked to CHF funding. The potential for trading substantially reduced in the context of high volatility in the markets (especially in the first part of the year), with many counterparty limits blocked or substantially reduced. Q3 and Q4 came with visible improvements in FX trading, taking advantage on the ISDA agreement signed with Nomura and the calmer conditions into financial markets (improved funding rates). Securities trading registered an increase of 2.8mn compared to for 2013, but these should be correlated with the Bank s footprint strategy (i.e. to reduce the presence from the small cities i.e ,000 inhabitants or to further reduce the distribution network from major cities, which have a significant larger business potential), considering also the objectives for business rebounding, trying to efficiently enhance the enlargement of the income base. Staff Expenses decreased by 11% (- 3.3mn) comparing with previous year, mainly due to the tight control on the headcount and the implemented rationalization measures, both in 2011 and Administrative Expenses (without considering Other provisions item) decreased by 4.4mn i.e.7%, generally important savings being registered in the major cost categories, mainly based on contract renegotiation, tight cost control and the enforced rationalization measures (rents, communication). The rents renegotiation successfully continued, material savings being captured. Based on the contracts renegotiation, as well as by enforcing additional controls, the telecommunication costs decreased yoy by 0.7mn, -22%. Constantly focusing on costs optimization, the Bank succeeded in 2012 to further decrease its operating costs. The Bank continued the same tight control over the headcount and its operating costs. Firm actions were enforced (part of them being initiated in the last part of 2011, but with effect since Jan.2012 e.g. closing branches, layoffs, salary decreases). The decrease of the operating costs is attributable to the large savings registered in staff and administrative expenses. The Bank continued the process of network rationalization targeting to capture long term savings, in spite of the one off costs related to the closing process (accelerated depreciation, dismounting costs, penalties for the early cancelation of the contracts). On top of the 9 branches closed in 2011, other 34 branches were closed in 2012, out of which, 29 in Q1, 4 in Q3 and 1 in Q4. Supplementary downsizing measures are contemplated 16

17 4.3. Risk Management An efficient management of risks is considered vital for the Bank in order to achieve its strategic objectives. In this context, Piraeus Bank Romania s risk policies define the framework for the identification, assessment, monitoring and control of risks, in order to maintain their level within the risk appetite and risk-bearing capacity of the Bank. The Risk Strategy is strongly connected to the Internal Capital Adequacy Assessment Process (ICAAP), is approved by the Board of Directors and constitutes its view on managing significant risks across the Bank. The main objectives of the risk strategy are summarized as follows: To identify the significant risks that might intervene in the normal course of business and to formalize a robust framework for their management and control, according to the general business strategy by adopting best practices commensurate to the size and risk profile of the Bank; To develop a risk mapping system in order to identify the risks for each transaction as well as for the entire portfolio and to structure and rank them according to their potential impact on daily activity; To establish the level of risk accepted for each significant activity as well as for the entire activity of the Bank, according to general strategic action lines and with profit and capital targets, as defined by the management body; To promote the culture of risk consciousness and risk management within every structure of the bank; To support decision making processes at the Bank level by providing the necessary perspective on risk issues. The ICAAP represents an integral part of the management process, and of the decision-making culture of the Bank. By means of the ICAAP the management body has the possibility to assess the risk profile of the Bank, as well as the internal capital adequacy degree. The ICAAP covers: The risks in the Pillar 1 of Basel II: credit risk, market risk and operational risk The risks that are related to credit risk: concentration risk, residual risk, the risk stemming from foreign currency lending activities and counterparty credit risk Risks such as the interest rate risk for activities outside the transacting portfolio and the liquidity risk Potential losses under stressed macroeconomic conditions. The ICAAP takes into account the strategic plans of the bank, and the manner they are related to macroeconomic factors. The Bank has developed an internal strategy in order to maintain the capital levels, which incorporates a series of factors such as the forecasted increase of the loans volume, future sources and usages of the funds, and any pro-cyclic variation of the minimum requirements under the Pillar 1. The Bank has a capital planning that sets the capital target and the time horizon for achieving it. The plan also explains the manner the Bank shall observe the legal capital requirements in the future, and provides for emergency plans in the event of an occurrence of unexpected events Business development innovation In 2012, the continuous dialog with the clients resulted in the creation of an approach adapted also for more sophisticated needs of individual customers. Piraeus Bank Romania launched a saving offer with social implications. Binevoitor deposit, a standard term deposit (usual tenors, interest structure) which gives to the owners the possibility to automatically donate a part (10%) of the interest to a NGO of their choosing. The Bank selected as partners for this project only well-known and appreciated NGOs, most of them being subsidiaries of international organizations: Salvati copiii, Green Peace, World Vision, Salvati Delta and Noi Orizonturi. Capitalizing on the appreciation of the existing customers and in order to support the acquisition of new good potential clients, Piraeus Bank Romania initiated a pilot phase for a Member Get Member program for depositors. With this program, the depositors who recommended our bank s 17

18 savings offer to their acquaintances obtained an increased profitability of their savings with the bank. Additionally, the best promoters of Piraeus Bank Romania offer were rewarded with vouchers for traveling or shopping. In June 2012 it was launched the Gold Savings Plan, a modern savings tool which combines the advantages of classic savings account to those of investing in a traditional value, gold. This product is intended for those interested in taking exposure to the volatility of gold s price without incurring storage costs specific to physical gold buying, for those that want to have the freedom to save in their own pace, with no upper or lower limits of the amounts deposited and without timing preconditions in making the purchases. In August 2012 the Bank launched a new product DepoInvest - a structure composed of deposit and mutual funds investments on a 50% - 50% split, available in both EUR and USD. The hybrid structure brings in an easily accessible product, suitable for entry level and professional fund investors that are searching for access to international opportunities offered through the concentration of mutual funds. Furthermore, the new product has been designed to enforce the mutual funds distribution and to contribute to the enhancement of banks deposit taking activity. Starting with 2012, a new quality project has been launched in the Branch Network, Quality Management, based on practical tools for interacting with customers in order to increase and exceed customer s expectations at the branch / agency level. Regarding Cards activity, in 2012 were launched new debit card products, a premium product in RON and EUR for individuals and a premium and standard product addressed to companies both in EUR and local currency. The first discount catalogue was launched, addressed to premium debit and credit cards. Over 40 important brands are featured in a luxury catalogue named Shophistication. A new service, SMS/ Alerts, was launched to offer credit cardholders better control over their transactions and mitigate the risk of fraudulent transactions Human Resources At the end of 2012, Piraeus Bank Romania employed 1598 people compared to 1787 in 2011, recording a decrease of 10%. The active staff number recorded at December 2012 was 1494 compared to active staff number at the end of 2011 of 1619, being a decrease of 8%. Recruitment process is based on adequate recruitment procedures free of discrimination, utilizing specific candidate selection systems, by using modern appraisal and selection tools. These tools may vary according to the candidate s educational and experience level and include both competencies and professional tests. The age distribution of employees represents a major advantage of Piraeus Bank Romania. The age composition is such that favours the introduction and implementation of new technologies, methods and targets, as the average age of our people is 35 years Corporate social responsibility Piraeus Bank Romania encourages the rational consumption of resources by recycling paper and plastic. Moreover the employees take actions in order to reduce the electricity and fuel consumption. Piraeus Bank Romania maintained its sponsorship towards Romania Olympic & Sports Committee, 2012 being the second year, in order to help this authority in its progress regarding the athletes that participated at the Olympic Games Regarding social media presence Piraeus Bank Romania is present in this environment with 2 Facebook Pages and a blog. The bank sustain the Romania values through Curaj Romania page and blog, project born in august 2011 and present our products, offers and interesting banking news on the corporate page, newly developed on October

19 4.7. Events after the Reporting Date January 2013: The improved liquidity position, allowed the Bank to repay the 50mn under the Stand-by facility available from the Group. February 2013: The Board of Directors of the Bank approved in principle the taking over of a part of the patrimony of ATE Bank Romania, following the split of ATE Bank Romania by the carve out of a part of the patrimony. March 2013: A new subordinated loan amounting EUR 10,000,000 was granted to ATE Bank Romania for a period of 6 years Key Objectives of 2013 The Key Objectives of 2013 are: (e.g. systems, new workout / exit strategies), considering also the impact of the integration of ATE Bank s portfolio. Initiating more aggressively the foreclosure procedures, backed by the efforts for an efficient administration, promotion and sale of the foreclosed assets. To pro-actively manage the capital position in the context of ATE bank integration, envisaging a post-integration good capital base, with satisfactory capital buffers (by observing both, the regulatory and ICAAP requirements). To preserve a steady liquidity position, with enough contingent buffers. To stabilize and further enlarge the deposits base will remain a key objective of the Bank (improving the liquidity self-management potential). To ensure a smooth integration of ATE Bank business and operations. To superiorly enhance the corporate governance, by reviewing and reinforcing the whole framework. To revert the trend in operating profitability, mainly by: Reinforcing the income base by expanding the business: Continuing the rebound in sales, servicing existing clients and efficiently attracting new customers, by applying same rigorous risk criteria Focus on mid-market and SME clients, without neglecting the good large corporate and HH clientele Aligning the pricing to effectively respond to the business targets and efficiently support the profitability goals Improving the trading potential and results. Keeping the same tight control on headcount and costs, contemplating further rationalization measures, to optimally align the cost to the actual / projected income base (by observing the real operational needs and the objective internal control requirements). Managing adequately the assets quality ant to ensure that appropriate provisions are provided. Improving the efficacy of processes in early phases (close follow-up, increased responsibilities of business units). Strengthening the collection and workout functions 19

20 Human Resources evolution 20

21 Human Resources Aiming to consolidate the image of the Bank in the Romanian Banking System as a flexible organization, representing its customers and its employees, Piraeus Bank Romania management kept the focus on a healthy organizational stability. Our main objective is to bring out the potential of people and ensure their commitment to achieve excellent results. In 2012, the main challenge of the Human Resources Development was to maintain a strong team of professionals capable to operate effectively within the competitive environment of the banking market, being, in the same time, an attractive employer. This is achieved by modernizing organizational structures, training systems and rational management of human resources, focused on building a culture among staff members, with the following main features: passion for the customer, team spirit, professionalism, effectiveness, entrepreneurial vision and emphasis on learning change. Piraeus Bank Romania registered at the end of ,598 employees, a 10% decrease to the figures of 2011 when the total number of employees summoned 1787 people. More or less the same decrease, 8%, is noticed for the active staff. The number recorded at December 2012 was 1494 compared to active staff number at the end of 2011 of During 2012 it has been recorded a decrease with 38 % of the suspended contracts due to maternity leaves. Together with other activities like training, rewarding or evaluations, the recruitment process is based on adequate recruitment procedures free of discrimination, utilizing specific candidate selection systems, by using modern appraisal and selection tools. These tools are adapted to the candidate s educational profile and experience level and include a complex mix of competencies and professional tests. Number of people employed to implement business goals

22 Human resources distribution by Gender, Age and Area % of total Bank employees are female while % are male; within Headquarter, there are 39% of employees while 61% are allocated to the branch network. Age distribution Female Male >= <= Piraeus Bank Romania is advantaged by it s age distribution of employees which favours the easily introduction and implementation of new technologies, methods and targets, as the average age of our people is 35 years. At the same time, it takes advantage of the high rate of graduate and postgraduate degree holders (80%). The Bank managed to hire high quality and education employee, who contribute essentially to the achievement of its business objectives. 60% of total workforce (both Headquarter and branches employees) is located in Bucharest while 40 % is distributed in branches outside Bucharest. Bucureşti 60% Braşov 6% Cluj 5% Craiova 4% Constanţa 7% Iaşi 6% Ploieşti 6% Timişoara 6% 22

23 People continuous development Following Group s policy we consistently invest in development of the employees with the main focus to exploit the full potential of them. Learning programs developed are focusing both on internal seminars held by dedicated internal trainers and external seminars as well, developed to enrich employee s abilities. Main objective for the Training & Development area is to have motivated, committed and proficient employees within the Bank. Total number of training men / Training Category Manhours hours in 2012 was with a total number of participants in any training event of 7449, meaning an average of training-man/ hour/employees. 25% of total 7% 5% man-hours was accomplished by male while 75% by female. Distribution by hierarchical level showed that 28 % of participants were at managerial level while 78% were at operational level. 31% 47% Out of the total man-hours, 36 % was dedicated to development of financial and banking knowledge, 34 % focused on developing selling skills, service level or to enhance product knowledge, quality customer service, 4% dedicated to managerial & leadership skills development and also 12 % dedicated to compliance and fraud prevention. The remaining 11% was dedicated to the development of specialized technical training (courses aiming to provide specialized technical knowledge not directly connected to the core activities of the Bank). From the total number of training- Classroom-External Providers Classroom-Internal Providers E-learning On job-internal Providers Webinars/Phone conferences 10% men/hours, 47 % represented e-learning training man-hours, 31 % training man-hours were performed in classroom with external training providers, 10% classroom training man-hours were dedicated to internal training projects; 7% training man-hours were realized from training-on-job programs and the remaining 5% training man-hours were performed on webinars or phone conferences. 23

24 On the e-learning platform, there are enrolled online training sessions for the employees. Through this platform it is aimed to increase employee s knowledge in, Operations, Compliance, Anti Money Laundering, Major Risks, Quality Management, Physical Security, Operational Risk in cash transactions. Another alternative for professional skills development are the online Skillsoft courses developed by professionals, recognized internationally man/ hours were allocated in 2012 for e-learning courses and 2259 man/hours were allocated to distance learning, such as webinars and phone conference. For a better understanding of Bank s Products, Individuals Loans and banking operations, internal trainers provided On the Job Training to employees from branches and agencies in Bucharest, continuing the effort that started on year Employees accessed as well in class training sessions offered by external providers. In line with this, more than 800 employees participated in seminars regarding operational risk, developing selling skills, specific seminars for cashiers, team consolidation, credit school, trade finance, financial analysis, etc. In order to offer a better informational support for new comers, an induction program is offered to employees on all hierarchical levels, being presented as an interactive tool as well on the e-learning platform. Rewarding employees Human Rights in Piraeus Bank Romania In Piraeus Bank Romania employees acknowledged the Human Rights Policy and an Employee Survey has been conducted on Human Rights. The survey s results revealed positive approach of all the 5 principles: Forced Labor, Child Labor, Equal Opportunities, Health and Safety in the Workplace and Working Conditions. The detailed analysis involving the age, gender, work experience and organizational unit didn t reveal significant correlations. Performance Appraisal in Piraeus Bank Romania Performance Appraisal Process in Piraeus Bank Romania was formally implemented in year 2009 and it is based on two modern on-line systems in which both supervisor and employee interact besides the appraisal meeting. The managerial competences for 2012 were assessed based on 360 model. Participation rate was almost 100% of the eligible employees (both managerial and non-managerial positions) that took part of the process. Two dimensions were evaluated, overall performance and competencies, main purpose of the process being the continuous development of employees by identifying the strong areas and the aspects that need improvement. General average performance rate was 3.68 (for a scale from 1 to 5) and average of 3.82 for competencies. According to performance scale this result shows that level of performance and efficiency is situated at a good level. Piraeus Bank Romania acknowledges that has to attract and retain the appropriate people with the required knowledge and skills in order to achieve its strategic goals. Bank participates every year in salary and compensation & benefits survey in order to have access to benchmarking indicators. On the basis on the equal opportunities policy, there is established a minimum pay level salary for entry level position, with no distinguish between men and women. It is noted that in all aspects of human resources the Bank integrally respects and follow legal procedures in place. 24

25 Business Segment Activity 25

26 (Piraeus Insurance Reinsurance Broker) and partners (Western Union) and exploiting other Group synergies Assigning database with SME prospects customers that have been approached Branch Network During 2012, the Branch Network Division has been focused on increasing the efficiency of operations and optimization of activities in order to adapt to the market restraints, as well as preserving the customer base and acquiring new clients. The restructuring process of the network has been continued for complying with the expected profit level. This was translated by reducing the number of territorial units to 144 operational branches / agencies as of (47 branches / agencies in Bucharest - 33% of the total number of branches / agencies and 97 branches / agencies outside Bucharest - 67% of the total number of branches / agencies). During the year, 34 units were closed down and the branch network restructuring process was based on the performance and profit per unit criteria. The branch network business model also for the year 2012 was built starting from the Client s needs. During 2012 we capitalized on the usage of Portfolio Management actions as an effective tool for increasing penetration and loyalty among the existing customers. Over 30 sales actions were organized during the year, consisting of: Acquisition and reacquisition of HHs and SMEs, proactive retention, reactivation, anti-attrition, cross sell Drop mail campaigns, organizing specific actions to attract new customers (such as employees, students, pensioners, parents with children a.s.o.), participating to local fairs Joined sales campaigns together with group companies The integrated performance assessment system at the unit level (KPI s system) was further developed and during 2012 we have created the ground for stepping into a new dimension of excellence in performance individual targets for the staff within the network, concept which will be accomplished during the year The implementation of this concept will leave room for strengthening local teams, tackling poor performance and recognition and reward of best performing employees, with direct impact in increasing the overall branch network performance. The Sales Force Effectiveness Program, which started late in 2010 as a pilot in few branches in Bucharest, it has been further enriched in 2011 and extensively continued in 2012 in most of the territorial units in Bucharest. As a result of the SFE program, it has been noticed an increase in effectiveness and service quality within the branches / agencies. The program will further continue next year while an increase of sales within the units under implementation has been proven too. Starting with 2012, a new quality project has been launched in the Branch Network - Quality Management Program ( New Steps in Quality Management ), based on practical tools for interacting with customers in order to increase and exceed customer s expectations at the branch / agency level. As the first step, the program has been lunched on the e-learning platform and the level of knowledge of the involved employees has been tested through the application made available for the staff within the branch network. Increasing the quality of services provided to our customers and increasing the quality of the performed activity are the major benefits of the project. All initiatives and actions implemented in 2012 have helped the branch network to achieve its goals within a frame of a complicated macroeconomic landscape that needed a fast adaptation to the various challenges and constraints of the market. 26

27 In order to slowdown the downwards trend of the consumer loans, Piraeus Bank Romania initiated actions aiming to retain and empower the loyalty of the customers with good repayment behaviour, continuously trying to understand their current needs (e.g. adaptive pricing, additional financing etc.) and to identify the appropriate solution for the particular situation of each customer Retail Banking Individuals sector In 2012, the Bank continued acting towards reducing the loans/deposits ratio for the retail business line, by promoting actions aiming at increasing the customers deposits base. The results were positive, despite the challenges brought by the turmoil generated by the situation in Greece, given the sales efforts and supported also by commercial actions (e.g. promotion related to the Olympic deposit launched as part of the activities sustaining the sponsorship to the Romanian Olympic and Sports Committee for the participation to the 2012 London edition of the Summer Olympics or the media campaigns supporting year-end sales). As a consequence, Piraeus Bank Romania overgrew the market, increasing its retail deposits base with 16%, while the market went up with only 5%. This good performance led to an improvement of the market share in terms of retail deposits from 1.47% in 2011 to 1.62% in In terms of lending to individuals, Piraeus Bank Romania continued the participation in Prima Casa governmental program, providing the financing needed for the acquisition of the first home of numerous young families. The loans granted within this program helped achieving an increase of 6% for the mortgage loans balances. The bank continued to focus on supporting the usage of the alternative channels, the efforts in this direction resulting in an increase of 23% of the total number of registered customers to Piraeus Online Banking. Following this preoccupation, the bank initiated an important project for the upgrade of the currently used internet banking platform in order to add new functionalities and to enhance the experience of the users. Piraeus Bank Romania added new possible beneficiaries like utility providers and insurance companies to the list of companies for which the issued invoices can be paid via the various channels made available to its customers (e.g. branch network, internet, ATMs), managing to increase the transactional volumes in this area of business. The focus of Cards Business in 2012 was to increase customer satisfaction and loyalty by enriching the card products with meaningful benefits for credit and debit cardholders, as well as to encourage usage through usage & activation campaigns. In 2012 credit card products were designed to be more attractive by increasing the maximum grace period for purchases to up to 60 days and the maximum credit limit to up to 4 monthly incomes, modifications meant to boost application number as well as card usage by making Piraeus Bank Romania credit cards very competitive in the market. A new service, SMS/ Alerts, was launched to offer Visa Exclusive Gold credit cardholders better control over their transactions and mitigate the risk of fraudulent transactions. An example of synergy between issuing and acquiring cards business is the launch of interest free instalments at partner merchants in Q3 2013, a development meant to create loyalty both form cardholders and merchants of 27

28 Piraeus Bank Romania. The first cash-back campaign for credit cards was in Q and promoted the purchases at merchants by offering cardholders 3% cash-back from the purchase value. On the debit card segment, 2012 was the year the product portfolio was enriched with new chip cards in RON and EUR currency that replaced existing offline products in order to decrease risk and operational expenses. A special catalogue was designed for premium debit and credit card holders with discounts at selected partner merchants that are meaningful to this customer segment. We continued to participate in usage campaigns organized in cooperation with Visa in order to increase POS spending and card payments awareness. Merchant acquiring activity was enriched by adding to the network valuable industries which have been identified as producers of important turnover on POS devices. In this respect we reached at the end of 2012 the 886 merchants with 1456 POS plus 144 POS in branches for the cash withdrawal operations. The total turnover registered over 2012 on POS at merchants and in branches has reached the level of 43,405 mio euro. In parallel, meaningful merchants for the issuing activity have been added, the strategy being developed to create synergies between issuing and acquiring business. Both strategies have been based on the relocation concept which had also a good effect on usage and improved turnover average per terminal. Regarding the Unattended POS terminals technology, the existing network has been increased with new terminal locations of exiting merchants and of new partners, such as District 2 of Bucharest. Piraeus Bank Romania was and still is the first bank in Romania to offer this service to cardholders in order to encourage and simplify tax payment with a card. The services offered at Unattended POS were diversified by adding the payments of traffic fine by card. The ATM network was enriched with more Bill payment providers continuing the trend to transform ATMs from cash dispensing machines to service providers by enhancing customers satisfaction level. Also, the ATMs were improved with anti-fraud devices in order to better prevent frauds. In line with enriching the customers satisfaction related to ATM usage it was increased the off site ATM network up to 99 locations while each Bank s branch is equipped with its own on site ATM. Direct Sales Direct Sales activity for 2012 continued through increasing emphasis on sales quality. In 2012 we have maintained a high productivity on individual and focused on mortgage loans and mainly Prima Casa loan. In 2012, with an average of 4 sales people, a volume of about EUR was disbursed through Direct Sales. Through a sustained activity, Direct Sales prepared its portfolio in order to cross sell other financial services. Retail Partnerships In 2012, Retail Partnerships department managed a portfolio of 76 brokerage companies that directed to Piraeus Bank Romania Romania a total number of 218 loans, representing 2.9 mio EUR, out of which 65% (1.9 mio EUR) are unsecured loans, while mortgage/ real estate, equity and Prima Casa loans amounts together 35% (about 1 mio EUR). Even though only three of our Brokers have permission to promote the governmental program Prima Casa loan, this is the principal mortgage loan they sell and represents 0.8 mio EUR (18 loans), while through standard mortgage and equity-backed loans were disbursed only 0.2 mio EUR (6 loans) during The overall amount is slightly similar to that recorded in 2011, and this mainly due to Piraeus Bank Romania s 28

29 products competitiveness, bank s speed and flexibility in credit analysis, all these being issues that can be further significantly improved and brought to very competitive levels. Retail Partnerships department will continue further to strengthen its portfolio with highly experienced Partners and also Brokerage companies with great potential for the actual economic climate and Romanian market conditions. Along with our partners we will further focus to generate for Piraeus Bank Romania not only quality customers but also significant volumes. In order to achieve this goal Piraeus Bank Romania still needs to improve competitiveness regarding the lending products range as well as the efficiency and flexibility in analysing credit applications. Retail Payroll Packages During 2012, the Retail Payroll Packages Department continued to develop it s customer segments by attracting more aggressive clients from following categories: students, pensioners, social allowances and farmers. By the end of 2012 we ve registered an increase of number of clients, from the new developed segments, by 30% compared with The number of active payroll conventions increased also by 40% in 2012, compared to 2011 period, the main driver of the increase being the focus on attracting new companies with payroll agreements in Piraeus Bank Romania. 29

30 6.3. Corporate Banking Within the rather continuing unstable market environment during 2012 as well as the harsh competition from big banking players in the Romanian market, we have managed to stay focused on our set strategies achieving satisfactory results. In particular, it was a year in which we restarted at a higher pace the activity for attracting new customers / extending Corporate loans to new and existing good clients, giving also priority to the management of the Corporate portfolio for having minimum possible losses in terms of clientele takeover and NPL increase. At the same time particular effort was given to the risk assessment of our portfolio; existing clientele has been appropriately re priced when restructurings have occurred and wherever possible the Bank s security position was revised and in many cases has been improved, whereas new clientele has been adequately priced according to existing market conditions. Also structural and personnel changes have taken place within the Division, aiming at the efficiency in production and cost reduction. Based on its experience to date, Piraeus Bank Romania is planning to leverage further growth potential in this business Corporate Banking Exposures By Industry As Of % 0.44% 0.92% 6.18% 2.15% 4.77% 1.00% 13.73% 0.19% 6.43% 0.24% 0.50% 0.18% 0.36% 2.11% 47.63% < accomodation and food service activities < agriculture, forestry and fishing < construction < education < electricity, gas, steam and air conditioning supply < financial and insurance activities < information and communication < manufacturing < mining and quarrying < other service activities < professional, scientific and technical activities < public administration and defence; compulsory social security < real estate activities < transportation and storage < water supply, sewerage, waste management and remediation activities < wholesale and retail trade; repair of motor vehicles and motorcycles 30

31 line. Corporate Banking conducts Romanian wholesale banking activities and we address to local companies as well as to Greek owned businesses present on local market who seek appropriate problem-solving capabilities and can rely also on the corresponding product expertise of the entire Banking Group. For every transaction, we put together a cross-discipline team that offers tailor-made solutions. Our Corporate banking activity benefits of the professional sector knowledge we have in various industries - but not limited to - such as the ones depicted in the corporate banking exposures presented diagram. In Corporate Banking, we concentrate on the viable sectors and help our clients find solutions for financing their business / overpass complex issues and achieve their strategy within a win win situation. Corporate Banking s continuous performance has been underpinned by the consistency of our strategy. Our discipline around the strategy and execution over the years has enabled us, despite a challenging external environment, to earn the trust and confidence of our clients, enabling us to sustain our performance and deepen our long-term relationships. In 2012 Corporate Banking achieved good results, supporting the Group s policy of intensifying the cooperation among its Romanian subsidiaries leasing, insurance and valuation services; cross sales and efficient business structuring. The main highlights of the Division s activity are summarized as follows: Reorganization by creating a team in charge with the credit analysis process, thus increasing the overall efficiency Profitability of relationships improving by cross selling various products and services of the Group such as: installing POS and ATM machines, issuing payroll cards, attracting deposits, issuance of insurance policies, valuation services Piraeus Bank Romania Corporate Banking adapted its policy to a continuously changing environment, managing to maintain its portfolio of Clients at an aggregate level in spite of tough competition and adverse economic environment, offering to Clients support through various financial solutions Conclusion of new deals, through developing business with existing customers as well as starting bank relationships with new ones, aiming always in improving the portfolio profitability while establishing an acceptable security structure 31

32 6.4. SME Sector Year 2012 started under the sign of thriving for optimal utilisation of the existing resources and customer base. The year was marked by the steadying of the NPLs as a result of the bank s strategy, proactive actions and the market stabilization. The bank focused on 3 strategic directions in order to adjust to the market, but also to comply with the strategy of the group: a) Capital Management attracting and financing the strategic clients, key players in the local markets that could bring cross-selling and additional clients with turnovers through Piraeus Bank Romania; offering smaller financing to larger customer base as to have a higher dispersion of risk and a lower pressure of the profitability; addressed to micro clients with a greater focus (small financing amounts, greater dispersion of risk and very good profitability margins) as well as to new customer segments such as Professionals (notaries, doctors, lawyers, etc), financing agriculture through the subsidy system; greater promotion of products that will address low risk, non-lending, commission generating business, offers and campaigns, areas that will require no or very low capital allocations (operational packages with credit cards attached, special packages for groups of business related companies, other). b) Measures to improve operational efficiency Improvement of the processes involving SME business through: better usage of resources both human and physical (consumables, energy, etc); optimization of flows and procedures; increasing the efficiency of personnel through training, coaching and mentoring to increase productivity; setting strategic guidelines in terms of managing in relation with the clients, while remaining competitive. c) System and methodologies enhancements Updating processes, systems and methodologies in order to maintain and improve the competitive edge that is the quickness of the replies and the high quality of the services offered to our clients. While there will be a continual effort to better service the existing client base with proactive products and offers, Piraeus Bank Romania expects that a significant part of the new volume s production with be the existing clients that have performed well throughout the crisis and managed to adjust their business and the development plans to the existing market conditions, and that will require financing from the bank to continue developing their businesses. Targeting of the new clients, the bank will be done in a more organized and targeted system, with clearer campaigns focused on selected potential clients that meet sorted eligibility criteria. 32

33 Despite all tensions in the market, Treasury Sales remained an important liaison of the bank with its clients and in the same time offered alternatives to suit the conditions of the market and the needs of the customers. Continuous competitive pricing and innovative approach in terms of products and services were key elements in Treasury Sales strategy Treasury 2012 marked another challenging year for Treasury Division, due to tensioned environment set forth by the European Union sovereign debt crisis and particularly by the Greece bailout that kept skepticism in the local market concerning our counterparties, both customers and banks. Piraeus Bank Romania s Treasury made a lot of efforts in order to restart collaboration with various clients and banks, both local and abroad. One of the main targets of the Bank was to improve the cost of funding, by trying to obtain new counterparty limits in order to better manage cost of FCY financing. A strong emphasis was also put on sales activities in order to subsidize the profitability decrease from the significant reduction of loan activity of the Bank, by developing new Treasury products that would generate more income. The liquidity of the Bank was monitored closely, a special attention was given in order to increase the deposit base and carefully manage the liquid assets portfolio, while accepting still high cost for deposits attracted from customers. Results were seen in the second part of the year, when joined efforts with the sales force in the network, marketing campaigns and competitive pricing together with solving the Greek crisis brought significant increases in the deposit base ended with positive evolutions in all liquidity indicators, deposit base recovered while loan portfolio decreased, the Bank finding itself in a better position for doing business with its clients. The distribution of funds units administrated by Pioneer Investments and ING Investment Management was a natural step in diversifying the offer of the bank and start competing also on this segment with the other banks in the Romanian market. Funds distribution was a great opportunity to put Piraeus Bank Romania among big, well diversified banks, the association with this side of the investment industry further enhancing our image. We extended our portfolio of gold products by introducing a new investment alternative in the precious metal, Gold Savings Plan, an innovative savings tool which combines the advantages of classic savings account to those of investing in a traditional value, gold. Due to the interest in finding ways for increasing deposits and commissions based incomes for the bank, in August, we launched a new product DepoInvest - a structure composed of deposit and mutual funds investments on a 50% - 50% split, available in both EUR and USD. The hybrid structure brings in an easily accessible product, suitable for entry level and professional fund investors that are searching for access to international opportunities offered through the concentration of mutual funds. Furthermore, the new product has been designed to enforce the mutual funds distribution and to contribute to the enhancement of banks deposit taking activity. The new products launched during 2012 aimed at increasing both customers base and volumes traded by existing clients. Although the year 2012 has been mainly characterized by uncertainty about Europe s ability to solve its debt crisis, which conducted to high instability in the banking system, Private Banking segment registered a positive evolution, against the market trend in the first half of Overall 33

34 in 2012 the Private Banking balance was stable, with considerable inflows in November and December. The main focus of Private Banking activity continued to be portfolio diversification, balances growth, decreasing attrition and loyalty creation for existing clients. Our most important Private Banking clients enriched their experience with Piraeus Private Banking through a lifestyle component, participating to special events organized for them. In August 2012 our key Private Banking clients have been invited to London Olympics, where they enjoyed different competitions and also unique events. The event represented a very good moment to create awareness for our brand and products. In July 2012 a successful discount program for Gold and Private Prestige Cards has been launched, in order to offer extensive benefits to our clients. During 2012 we extended the collaboration across regions in the country, in order to develop the Private Banking business outside Bucharest: Brasov, Cluj, Sibiu, Iasi, Timisoara, Targu-Mures, Valcea, Suceava, Vaslui. We are planning also an internal expansion of Private Banking Department in Gold continued to be a profitable product for the Bank, although the evolutions of the gold price in the market did not favor increase in sales. Even if gold failed to eclipse the highs set in September ,920 USD/ounce it still managed to post a good gain for the year % in USD terms and 20.4% in RON terms. Moreover, its moves were determined by mainly two scenarios: language modifications or policy changes by the Federal Reserve and resolutions of the Eurozone crisis. We strongly believe that the gold market may continue to be hyper-sensitive to the policy language of the Fed and ECB in Piraeus Bank Romania still remained the only bank in the system offering physical gold to retail customers, and easy access to this market for all type of customers. Monthly bulletins stating main Facts and Figures regarding gold market is distributed to a wide range of customers. The Trading and ALM Department was mainly focused in carefully managing the assets and liabilities of the Bank, improving cost of funding while balancing the increased deposit base with the decreasing trend in loan portfolio. The strategy was oriented to bringing back more counterparties, putting in place also legal documentation: ISDA Master Agreement, Credit Support Annex, GMRA, repo contracts, netting agreements. The Legal Division had a very close collaboration with Treasury, positive results were seen as our expertise in this area became stronger helped also by the advice of the team in Piraeus Bank Romania. The continuous strive for a sound asset and liability management was the prerogative of the MM Desk in 2012, as it was in the past years. Although lack of trust in trading between banks was still present, an improvement in counterparty limits towards Piraeus Bank Romania became noticeable up to the year end, coming from both local and international players and proving that the institution remained coherent in its resolution to always be a strong market presence. Favourable developments followed, as the dependence to Piraeus Bank Romania for FCY funding was gradually reduced, by signing ISDA and CSA with an international counterparty and initiating trading. Efforts were constantly made in order to gradually increase limits to accommodate bigger amounts and longer tenors at more competitive prices. Discussions were re-enacted with other international institutions and counterparties were diversified by including also local names. As the easing cycle stopped in March 2012 with the key rate at 5.25% and inflation resumed an upward path, NBR continued to offer RON liquidity through weekly repo operations throughout the whole year, amounts taken by some banks in the market increasing in the first half of the year, the amounts reaching record highs. Also the credit facility was accessed in April 2012, the volume being a very large amount of 14 billion RON never seen since December As a consequence and solution, NBR allowed banks to use as many as initially 5 Government securities series in the weekly repo auction instead of the usual 3, followed by unlimited number of ISINs, measures to alleviate the technical barrier in accessing liquidity. Lowering inflation expectations, increased interest in Romanian assets and yields paved a downward path for rates, which started at the end of the year, but not excluding high volatility within the course of a month. The MM Desk was faced with a new challenge as an important event arose at the start of the second half of the year, the takeover of Ate Bank Greece by Piraeus Bank SA, 34

35 who also acquired 93.27% of Ate Bank Romania s social capital, the finality of the transaction being yet unknown at that point. Activity increased between our bank and ATE Bank Romania, in order to accommodate their financing needs, having also in sight our own strict control on liquidity. For the FX Trading Desk, 2012 was indeed a challenging year. RON continuously depreciated against EUR throughout the first half of the year and even in the beginning of Q3, the pair marking new all time highs at in August, on the back of three consecutive monetary policy interest rate cuts, uncertainties regarding the effect in the market by the difference of provisioning rules between accounting standards and local political turmoil generated by the attempted presidential impeachment. The second part of the year was marked by NBR interventions, managing to curve the depreciation, bringing the pair to a more sustainable level, around The last few months saw high inflows of foreign currency targeted at buying local denominated debt, helping the pair move lower to end the year near the same levels recorded at the beginning of Trading in EURRON was reduced during the year due to lines restrictions. Increased optimism during the later months of the year brought new talks of reopening lines with major players and activity started to take place at normal levels. Romanian Fixed Income market was heaven and hell in 2012, with four different Governments ruling the country throughout the period. The year kicked off on a very positive note, continuing the bullish mood started in November 2011, despite the social unrest in January and February, which eventually led to the PDL Government resignation. The main drivers of this move were the monetary easing cycle undertaken by the central bank as well as the higher yields of the Romanian papers compared to their regional peers. The Romanian yield curve touched temporary all time low levels in April However, the Euro-zone sovereign debt issues came back in global investors attention and gradually the risk-off sentiment took over the international markets, subsequently reducing the appetite for EM assets. Furthermore, the accumulation of political turmoil, starting with a noconfidence vote for the Government at the end of April, continuing with the Referendum for the impeachment of the President in July and peaking with the seemingly neverending disputes on the validation of the Referendum s results scared the (foreign) investors away and generated significant outflows from Romanian assets with direct consequences on the borrowing costs for the Romanian Government, which rose by November close to levels seen at the beginning of the year. Nonetheless, the apparent termination of the political crisis after the clear victory of the center-left ruling coalition in December as well as rumours of Romanian bonds inclusion in JP Morgan and Barclays EM bond indexes changed the picture completely and an unexpected wave of optimism (international players lead) hit the market by the end of Piraeus Bank Romania Fixed Income Desk continued to sustain the secondary fixed income market by being one of the most active players, maintaining a constant presence and a very good relationship with other banks in the market and institutional players and providing tight spreads and forward looking prices. With constant and consistent volumes and number of deals, Piraeus Bank Romania recorded a good year in terms of FI activity. The active management of the FI position resulted in booked profits exceeding the budgeted levels. The profits flowed out of realized gains, accruals and mark-tomarket of the portfolio. 35

36 our mission In dialogue with you having as result an open, friendly and modern marketing exposure Marketing From Marketing point of view the 2012 activity covered many areas on interest and promoted the bank s activity on all the channels used in our industry represented for the whole world the Olympic year and for Piraeus Bank Romania, the main sponsor of the Romania Olympic and Sports Committee, meant more than the proudness of supporting the Olympic team of the country, but gave us the chance to be part of the national Olympic day, event which encouraged the sports benefits in an all over the country cross. We had the chance to stand near our athletes through our CSR Facebook project Curaj Romania and we proudly promote a deposit under the name The Olympic deposit. This environment helped us to extend the Groups green protecting attitude by launching an eco-friendly application called Prieteni la drum represented and important year from the client-bank communication, starting October we showed more of our openness by launching the corporate Facebook page of the bank, Here we presented also another important campaign for us the Relaxat de sarbatori deposit, a very nice and quite spectacular execution involving Santa. All our actions were guided and strongly communicated by 36

37 Other subsidiaries of Piraeus Bank Group 37

38 Piraeus Insurance Reinsurance Broker Romania After extending the presence of the company in all the cities of the country and launching an online sales platform in the previous years, the main target in 2012 was to increase the company portfolio on the retail segment of clients and to consolidate the existing client base. During the period January-December 2012, Piraeus Insurance Reinsurance Broker Romania obtained revenues from fees of thousands EUR.The number of the clients increased from in December 2011 to at the end of December 2012, out of which individuals and legal entities. The number of policies handled as brokers increased from in December 2011 to at the end of December In the year 2012 Piraeus Insurance Reinsurance Broker Romania improved considerably the services offered by owned network due to the certification obtained for all the internal assistants and at the end of the year, the company registered a number of 340 internal assistants who generated revenues from fees of 213 thousands EUR. One year before, Piraeus Insurance Reinsurance Broker Romania began a new distribution channel through external agents. At the end of the year the company managed to have a number of 700 external agents that are generating high volumes of business by combining expertise and services with their portfolio of clients. At the end of September 2012, Piraeus Insurance Reinsurance Broker Romania opened the first branch of insurance in the historic city center of Bucharest, Lipscani Branch, mainly dedicated to retail insurance client side. Also to be closer to customers, Piraeus Insurance Reinsurance Broker Romania launched two new programs: Piraeus Assistance (assistance in case of lost) and Piraeus Customers Care. Types of policies mediated by Piraeus Insurance Reinsurance Broker Romania: Insurance for accident and illness (including work accidents and professional illness) Insurance for naval and railway means of transport Insurance for goods in transit, including cargo, luggage, and any other goods Insurance for general third party liability Insurance for supporting persons in distress Life and Private Pension insurance Unit Linked Household insurance Motor Hull Property damage. Piraeus Insurance Reinsurance Broker Romania managed to diversify its portfolio by spreading the risks amongst several insurance companies which allowed to maintain a low damage ratio that consequently gave stronger negotiating positions. Piraeus Leasing Romania Facing another challenging year, Piraeus Leasing Romania continued to achieve good performance during 2012 for the activities concerning the administration of the existing portfolio, by actively supporting needs of the good performing clients for further development of their business activities, in the same time looking to identify the best solutions for supporting the ones encountering financial difficulties. As a natural evolution following the last years marked by efforts concentrated on readapting to a new environment, with consistent emphasis on increasing operating efficiency, Piraeus Leasing Romania undertakes as primary objective for 2013 the rebound of its sales activities, aiming a consistent increase of the awareness of its expertise in the market. With the strong commitment of the shareholders in sustaining local operations and highly experienced management and personnel, Piraeus Leasing Romania is looking forward with confidence to the opportunities of the year to come. Piraeus Real Estate Consultants Piraeus Real Estate Consultants, a subsidiary of Piraeus 38

39 Real Estate Greece, was established in June 2006, aiming to impose itself in the Romanian market as a Real Estate Integrator and guided by consistency, responsibility and transparency to provide its clients with integrated and innovative solutions through the following services: Real Estate Development Project Management Asset Management Project Monitoring Consultancy Services for Real Estate Utilization and Management Property and Facilities Management Consultancy Services for Real Estate Investments Appraisals Reports Using the capabilities and expertise of Mother Company and based on a young and dynamic local team, Piraeus Real Estate Consultants managed to build up the business with highly promising results: Project management for the construction and the equipment and furniture installation of 143 branches throughout the country Project Management for Piraeus Bank Romania Headquarters construction in Bucharest Management contract of Office building in Bucharest Project Management for Residential Development in Crevedia Provision of Property Valuations - appraisals services to Piraeus Bank Romania, Piraeus Leasing and private companies or individuals. Facility management of buildings within the Bank s Group Evaluation of any anticipated Risks associated with the Investment (environmental issues, archaeological issues, utilities connections etc.) Progress Monitoring Construction Budget Monitoring Sample Checking of Construction Subjects Sample Checking of Quality of Materials and Installations Macroscopic Checking of Executed Construction Categories (Structural Works, Architectural Works, E/M Works etc.) The perspective involvement of Piraeus Real Estate Consultants as independent Technical Consultant aims at securing the interests of the Project s Development via the tight control and minimization of the inherent and rising risks. The strategic objectives of the company are to be the leader in the field of Real Estate with reliability and stability by providing high standard project development services, to expand its activities and to actively contribute to the implementation of client business plans. 39

40 Financial Statements 40