1 Poland First Quarter 2015 April 28, 2015
Disclaimer 2 Bank Zachodni WBK S.A. ("BZ WBK") cautions that this presentation contains forward-looking statements. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors that we have indicated in our past and future filings and reports could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; such knowledge, information and views may change at any time. BZ WBK does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by BZ WBK. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation. In making this presentation available, BZ WBK gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in BZ WBK or in any other securities or investments whatsoever. Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast. Note: The results information contained in this presentation has been prepared according to Spanish accounting criteria and regulation in a manner applicable to all subsidiaries of the Santander Group and as a result it may differ from the one disclosed locally by Bank Zachodni WBK S.A.
Agenda 3 Macro-economic environment and financial system Strategy and business Results Appendix
Macro-economic environment 4 Economic growth likely to accelerate soon Annual GDP Growth (%, real) Interest Rates (%, end year) 1.8 1.7 3.3 3.6 3.2 4.25 2.50 2.00 1.50 2.50 2012 2013 2014 2015 (e) 2016 (e) Annual CPI inflation rate (%, annual average) 2012 2013 2014 2015 (e) 2016 (e) EURPLN exchange rate (annual average) 3.7 0.9 0.0-0.7 2.0 4.19 4.20 4.18 4.06 4.09 2012 2013 2014 2015 (e) 2016 (e) 2012 2013 2014 2015 (e) 2016 (e) Source: The National Bank of Poland, Central Statistical Office and estimates by Santander Research (8 April 2015)
Macro-economic environment 5 Strong domestic demand, export may benefit from recovery in EU Consumption, wage & employment growth Consumption growth 4.6 Real wage growth 3.8 2.9 2.0 3.6 3.0 3.5 1.0 1.1-0.2 2012 2013 2014 2015 (e) 2016 (e) Export and import growth Export of goods 11.8 9.5 10.0 Import of goods 8.7 6.5 5.7 7.2 5.6 2.2 0.2 2012 2013 2014 2015 (e) 2016 (e) Unemployment rate (ILO 1 definition, end year) Unemployment rate (ILO definition, %, year-end) Employment growth in corporate sector (%YoY) 1.3 10.4 10.0 0.6 0.8 8.2-1.0 0.1 6.9 6.5 2012 2013 2014 2015 (e) 2016 (e) Balance of payments (% of GDP) 0.2-0.4-0.1-0.8-1.9-1.3-1.4-1.1-2.0-3.5 Current account balance Trade balance 2012 2013 2014 2015 (e) 2016 (e) Source: The National Bank of Poland, Central Statistical Office and estimates by Santander Research (8 April 2015); 1 ILO: International Labour Organisation
Financial system: Loan and deposit growth 6 Financial system with stable growth rates PLNbn. Total loans 924 941 955 966 978 Loan growth driven mainly by credit for investment (11%YoY), consumption (4%YoY) and mortgages (+10%YoY) YoY (%) 4.7% 4.4% 5.2% 6.9% 7.0% Loans expected to grow by ca. 7% in 2015 Mar.14 Jun.14 Sep.14 Dec.14 Feb.15 Total deposits 848 859 879 915 907 Deposits are growing despite low interest rate environment and a shift of deposits to mutual funds YoY (%) 4.7% 5.5% 7.4% 8.1% 8.0% Deposits expected to grow by 8% in 2015 Mar.14 Jun.14 Sep.14 Dec.14 Feb.15 Source: The National Bank of Poland
Agenda 7 Macro-economic environment and financial system Strategy and business Results Appendix
Our Franchise Bank Zachodni WBK: The number 3 bank in Poland 8 BZ WBK Branches EUR March'15 Var. YoY Business and Results Gdańsk 54 8 38 9 Pomorskie 17 7 Zachodnio- Warmińsko- Pomorskie Mazurskie Szczecin 42 6 16 Poznań Kujawsko- Pomorskie Mazowieckie Podlaskie 117 22 26 107 14 Łódź Warsaw Lubuskie Wielkopolskie Lublin Wroclaw 43 10 24 3 Dolnośląskie Łódzkie Opolskie 14 112 7 Częstochowa 9 Lubelskie 20 1 79 7 Świętokrzyskie Śląskie Kraków 20 5 Podkarpackie 55 8 Małopolskie BZ WBK Branches: 784 BZ WBK Partner Outlets: 116 Gross loans 19.2 bn. 7% Deposits 20.5 bn. 7% Total customer funds 24.3 bn. 7% Consolidated profit 123 mill. 7% Attributable profit 90 mill. 6% Network and Customers Customers 4,4m Branches 784 ATMs 1,362 Market Share * Loans 8.76% Deposits 8.91% Market share as of month March 2015 and including Santander Consumer Business (SCB) in Poland
Commercial focus / strategy 9 Total deposits Active deposit management 19.2 20.9 20.5 Demand deposits +27% YoY Saving accounts +4% YoY M'14 D'14 M'15 Gross loans Improving loan mix 17.9 18.6 19.2 Total gross loans + 7% YoY M'14 D'14 M'15 LTD ratio Strong liquidity 89% 84% 89% Strong liquidity position M'14 D'14 M'15 Constant EUR billion * As of March 31, 2015
Commercial focus / strategy 10 Cash loans (gross) Cash loans 1.4 1.5 1.5 Cash loan new production + 6% YoY M'14 D'14 M'15 Mortgage loans (gross) Mortgage loans 6.5 6.7 7.0 Mortgage new production + 47% YoY M'14 D'14 M'15 SME (gross) SME loans 2.5 2.6 2.7 SME loan new production + 26% YoY M'14 D14 M'15 Constant EUR billion * As of March 31, 2015
Loan performance 11 Constant EUR billion* Total Gross Loan portfolio +7% YoY and 3% QoQ, driven by Cash loans, Mortgages, SME s and Large corporates Total gross loans +7% Mar'15 YoY (%) QoQ (%) Individuals 9,1 7% 4% Mortgage 7,0 8% 5% Cash loans 1,5 9% 2% Other personal 0,5-2% -2% Companies 10,1 6% 2% 17.9 18.3 18.8 18.6 19.2 SME 2,7 11% 6% Corporate 4,2 9% 2% Property 1,7-11% 0% M'14 J'14 S'14 D'14 M'15 GBM 1,5 14% 0% Total Gross Loans 19,2 7% 3% * As of March 31, 2015
Total customer funds 12 Deposit growth +7% YoY Constant EUR billion* Total deposits Mar' 15 YoY (%) QoQ (%) 19.2 18.5 +7% 20.5 20.9 20.5 Demand 11,6 10% 1% Time 8,8 3% -7% Total customer deposits 20,5 7% -3% Mutual funds 3,8 8% 6% M'14 J'14 S'14 D'14 M'15 Total customer funds 24,3 7% -1% * As of March 31, 2015
Agenda 13 Macro-economic environment and financial system Strategy and business Results Appendix
Net Interest Income and Spreads 14 Close management of NII in low interest rate environment Constant EUR million* Loan spreads, % Net Interest Income Retail Banking 2.51 2.47 2.45 2.36 2.32 207 216 213 196 191 1Q14 2Q14 3Q14 4Q14 1Q15 Deposit spreads, % 1Q14 2Q 14 3Q14 4Q14 1Q15 Retail Banking Net interest margin 1 (%) 1.12 1.20 1.10 0.82 0.84 3.60 3.72 3.59 3.05 3.07 1Q14 2Q14 3Q14 4Q14 1Q15 *At average exchange rate as of March 2015 (1) Local criteria, including SWAP points
Net Fees 15 Constant EUR million* Fee generation impacted by reduced Interchange fees in 1Q 15 Net Fees -8% 109 110 107 108 100 1Q 15 1Q 14 YoY (%) QoQ (%) Cards 14 22-37% -18% Customer 43 43 2% -9% Loan + Insurance 21 22-7% 15% Capital market fees 16 17-5% -18% Other 6 6 10% -2% Total 100 109-8% -7% 1Q14 2Q 14 3Q14 4Q14 1Q15 *At average exchange rate as of March 2015 Capital market fees include Investment Funds fees (distribution and management), Brokerage Fees and Issue Arrangement fees
Gross income Gross income +2% YoY. Impacted by lower interest rates and tougher regulations 16 Constant EUR million* Gross income 1Q 15 1Q 14 YoY (%) QoQ (%) Net Interest Income 191 207-8% -2% 334 351 334 355 340 Net Fees 100 109-8% -7% Subtotal 291 316-8% -4% 1Q14 2Q14 3Q14 4Q14 1Q15 Gains/losses on financial transactions 54 11 375% 12% Other (4) 6 n.s. n.s. Gross Income 340 334 2% -4% (*) At average exchange rate as of March 2015
Operating expenses 17 Costs under tight control. Qtr 1 increase driven by approved long term performance plan approved Constant EUR million* Operating expenses 1Q 15 1Q 14 YoY (%) QoQ (%) General and administrative expenses (137) (134) 2% 4% Depreciation and amortisation (12) (12) 1% -5% 146 147 143 144 149 Operating expenses (149) (146) 2% 4% Efficiency ratio (with amortisations) 43.8% 43.8% -0.0 pp +1.6 pp 1Q14 2Q14 3Q14 4Q14 1Q15 Number of branches 784 830-46 -4 Number of employees 11,896 12,167-271 -75 * At average exchange rate as of March 2015
Net operating income after loan-loss provisions (LLPs) 18 Constant EUR million* Stable credit quality with room for improvement going forward LLPs and Cost of credit 1Q 15 1Q 14 YoY (%) QoQ (%) Cost of credit 0.98% 0.92% 0.95% 1.04% 1.00% Net Operating Income 191 187 2% -9% LLPs (39) (43) -9% -31% Net loan-loss provisions 43 42 44 57 39 1Q14 2Q14 3Q14 4Q14 1Q15 Net operating income after LLPs 152 145 5% -1% NPL ratio 7.33% 7.35% NPL Coverage ratio 62% 65% (*) At average exchange rate as of March 2015
Attributable profit 19 Attributable profit growth +6% YoY Constant EUR million* Attributable profit 1Q 15 1Q 14 YoY (%) QoQ (%) 85 87 91 94 90 Profit before taxes 151 142 7% -14% Tax on profit (28) (27) 5% -42% Net income 123 115 7% -3% Attributable profit 90 85 6% -4% Effective tax rate 18,4% 18,7% 1Q14 2Q14 3Q14 4Q14 1Q15 (*) At average exchange rate as of March 2015
Conclusions Market Environment & Financial System Economic growth slowed slightly in 2H14, but remained above 3%YoY. It is expected that GDP growth should accelerate in H1,15, amid persistently strong domestic demand (supported by lower interest rates and low commodity prices) and reviving economic activity in the euro zone. Labour market booming, with number of employed increasing by 2% (0.3m) in 2014 and by 20% (2.7m) since EU accession, to 16 million. Unemployment steadily converging towards all-time low. Inflation likely to stay below zero until 4Q15, but it has probably hit the bottom in February and should gradually rebound in the following months. Central bank declared the end of easing cycle and that it is monitoring the Euro / PLN exchange. 20 Strategy & Business Business strategy is focused on gathering new customers through the development of our multi-channel approach and increasing loans and related fee income from the Consumer, SME, Leasing, Factoring, Business & Corporate and GBM segments. Sales efforts supported by marketing campaign for new and existing products. Increasing level of customer activity and related income offset by macro / regulatory issues low interest rates and increasing regulatory costs. Close management of Net Interest Income in low interest rate environment. Results Fees lower YoY due to the regulation of interchange fees since mid-2014. Costs under tight control, Qtr 1 increase driven by remuneration plan approved. Stable credit quality with room for improvement going forward. Year-on-year profit rise of 6% due to lower provisions and control of costs.
Agenda 21 Macro-economic environment and financial system Strategy and business Results Appendix
Balance Sheet Poland 22 EUR million. Constant currency* Variation 31.03.15 31.03.14 Amount % Loans and credits* 18 303 17 082 1 221 7,1 Trading portfolio (w/o loans) 1 258 826 432 52,3 Available-for-sale financial assets 5 355 5 235 119 2,3 Due from credit institutions* 1 223 1 282 (59) (4,6) Intangible assets and property and equipment 241 228 13 5,7 Other assets 2 168 2 335 (166) (7,1) Total assets/liabilities & shareholders' equity 28 548 26 988 1 560 5,8 Customer deposits* 20 481 19 201 1 279 6,7 Marketable debt securities* 240 124 117 94,4 Subordinated debt 372 342 30 8,7 Insurance liabilities 82 (82) (100,0) Due to credit institutions* 1 267 2 264 (997) (44,0) Other liabilities 3 786 2 730 1 055 38,7 Stockholders' equity** 2 403 2 244 159 7,1 Off-balance-sheet funds 3 960 3 631 329 9,1 Mutual funds 3 813 3 528 285 8,1 Pension funds Managed portfolios 147 103 44 43,1 Customer funds under management 25 053 23 298 1 755 7,5 * As of 31.03.15 * Includes all stock of concept classified in the balance sheet ** Capital + reserves + retained profit + valuation adjustments
Income Statement Poland 23 EUR million. Constant currency* Variation 1Q 15 1Q 14 Amount % Net interest income 191 207 (16) (7,8) Net fees 100 109 (9) (8,4) Gains (losses) on financial transactions 54 11 42 374,9 Other operating income** (4) 6 (10) Gross income 340 334 7 2,0 Operating expenses (149) (146) (3) 2,0 General administrative expenses (137) (134) (3) 2,1 Personnel (81) (77) (4) 5,5 Other general administrative expenses (56) (58) 1 (2,4) Depreciation and amortisation (12) (12) (0) 0,7 Net operating income 191 187 4 2,0 Net loan-loss provisions (39) (43) 4 (8,8) Other income (1) (3) 2 (71,3) Profit before taxes 151 142 10 6,8 Tax on profit (28) (27) (1) 4,9 Profit from continuing operations 123 115 8 7,2 Net profit from discontinued operations Consolidated profit 123 115 8 7,2 Minority interests 33 31 3 9,7 Attributable profit to the Group 90 85 5 6,3 * As of exchange rate 1Q'15 ** Including dividends, income from equity-accounted method and other operating income/expenses
Quarterly statement of income Poland 24 EUR million. Constant currency* 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 Net interest income 207 216 214 196 191 Net fees 109 110 107 108 100 Gains (losses) on financial transactions 11 7 13 48 54 Other operating income** 6 18 0 4 (4) Gross income 334 351 334 355 340 Operating expenses (146) (147) (143) (144) (149) General administrative expenses (134) (135) (131) (131) (137) Personnel (77) (76) (76) (80) (81) Other general administrative expenses (58) (59) (54) (52) (56) Depreciation and amortisation (12) (12) (12) (13) (12) Net operating income 187 204 191 211 191 Net loan-loss provisions (43) (42) (44) (57) (39) Other income (3) (16) 8 22 (1) Profit before taxes 142 147 155 175 151 Tax on profit (27) (27) (33) (48) (28) Profit from continuing operations 115 119 122 128 123 Net profit from discontinued operations Consolidated profit 115 119 122 128 123 Minority interests 31 32 31 33 33 Attributable profit to the Group 85 87 91 94 90 * As of exchange rate 1Q'15 ** Including dividends, income from equity-accounted method and other operating income/expenses
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