RECENT TRENDS IN POLAND'S BANKING SECTOR -

1H 2014
August 2014

Inteliace Research

Summary
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POLAND'S BANKING SECTOR: SUMMARY AS OF H1 2014
All key banking volumes keep growing.
Deposits grow faster than loans.
Retail volumes increase faster than corporate ones.
Volumes Volumes
Deposit margins have been under pressure during 2013 which could be attributed to
falling market interest rates. In contrast, lending margins were not significantly affected
due to typical construction of loan contracts, assuming passing market rate risk to clients.
In late 2013/early 2014, banks managed to adjust to lower rates environment and
deposit margins stabilized.
Margins Margins
The overall lending quality is improving. Both consumer loans and corporate debt show
decreasing NPL rates.
The only loan category where quality is falling is mortgage. The cause is ageing portfolios
and only limited dilution from new loans due to very slow new sales.
Lending Quality Lending Quality
Total interest revenues are increasing thanks to growing volumes.
Pressure on fee and commission income persists mainly due to unfavourable regulatory
decisions (e.g. card interchange, bancassurance).
However, slowing f&c income is more than compensated by interest income.
Profitability Profitability
2
1
2
3
4
Source: Inteliace Research
SUMMARY
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3
RETAIL VOLUMES KEEP GROWING

Annual growth rate in outstanding loans / deposits at banks
Dec.2010-Jun.2014
Demand deposits
in
%
Source: NBP, Inteliace Research
Household
deposits keep
growing. The term
structure is
fluctuating inline
with changing
interest rates
expectations
Consumer lending
is steadily
recovering since late
2012. In contrast,
mortgage lending
continues to
stagnate.
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
Mortgage loans
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
HOUSEHOLDS
Term deposits
HH Loans (billion PLN) HH Deposits (billion PLN)
Consumer loans
in
%
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4
CORPORATE LOANS AND DEPOSITS ARE INCREASING AGAIN
Source: NBP, Inteliace Research
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
Loans in c/a
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
CORPORATE
Annual growth rate in outstanding loans / deposits at banks
Dec.2010-Jun.2014
in
%
Corporate Loans (billion PLN) Corporate Deposits (billion PLN)
The structure of
corporate deposits is
changing in favour of
short term funds.
Corporate lending
has been growing
again since early 2014
as the economy
showed first signs of
recovery.
Demand deposits
Term deposits
Investment &
other loans
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5
ALL KEY BANKING VOLUMES ARE GROWING
521.4
35.1
556.5
Jun. 2013 Jun. 2014
*Corporate subjects only. Excluded: non-monetary financial institutions and public sector
Source: NBP, Inteliace Research
Corporate
clients*


Loans (billion PLN) Deposits (billion PLN)
Retail clients
(Households)

538.6
23.9
562.5
Jun. 2013 Jun. 2014
191.1 9.2
200.3
Jun. 2013 Jun. 2014
250.3 10.9
261.1
Jun. 2013 Jun. 2014
Loans and deposits by business segment, Jun.2013-Jun.2014
in billion PLN
Loans growing,
but at lower rates
than savings
+6.7%
+4.3%
+4.8%
+4.4%
Deposits grow
quickly, in
particular, retail
savings
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6
THE QUALITY OF CONSUMER AND CORPORATE LENDING HAS RECENTLY
IMPROVED. HOWEVER, MORTGAGE LOANS ARE STILL DETERIORATING
The share of non performing receivables in total lending by
segment/product, Jan.2010-Jun.2014
Consumer loans
in %
Source: NBP, Inteliace Research
Quality of lending portfolios of
banks is improving across all key
segments with exception of
mortgage loans.
Mortgage lending quality is
gradually deteriorating as
mortgage portfolios of banks are
getting older and there is little
dilution due to low new sales.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
J
a
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-
1
0
M
a
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-
1
0
M
a
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-
1
0
J
u
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-
1
0
S
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p
-
1
0
N
o
v
-
1
0
J
a
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-
1
1
M
a
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-
1
1
M
a
y
-
1
1
J
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-
1
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S
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p
-
1
1
N
o
v
-
1
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J
a
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-
1
2
M
a
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-
1
2
M
a
y
-
1
2
J
u
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-
1
2
S
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p
-
1
2
N
o
v
-
1
2
J
a
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-
1
3
M
a
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-
1
3
M
a
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-
1
3
J
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-
1
3
S
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p
-
1
3
N
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-
1
3
J
a
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-
1
4
M
a
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-
1
4
M
a
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-
1
4
Corporate (big) loans
Mortgage loans
SME loans
Mortgage NPL rates
are growing
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7
BOTH RETAIL AND CORPORATE MARGINS HAVE NORMALIZED AFTER THE DROP
OF MARKET INTERST RATES IN 2013
* Stock of term deposits or loans respectively (loans and funds in current account excluded)
** Theoretical margin calculated against WIBOR 6M
*** Consumer lending : Loans to households other than mortgage
Source: NBP, Inteliace Research
Deposits* (stock, average)
N
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a
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b
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I
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M
a
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g
i
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*
*

(

o
n

W
I
B
O
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6
M
)

Loans* (stock, average)
Dec.2011-Jun.2014, in percent, PLN volumes only
Deposit margins
returned to positive
territory after a
significant drop in
mid-2013 caused
by quickly falling
market interest
rates.
Lending margins
have stabilized (at
10% for consumer
lending and ~2% for
corporate loans) as
banks have been
able to pass
changes in market
interest rates on
clients.
Deposit margins
returned to positive
territory after a
significant drop in
mid-2013 caused
by quickly falling
market interest
rates.
Lending margins
have stabilized (at
10% for consumer
lending and ~2% for
corporate loans) as
banks have been
able to pass
changes in market
interest rates on
clients.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
0
2
4
6
8
10
12
14
16
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
-1.50
-1.00
-0.50
0.00
0.50
1.00
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
0
2
4
6
8
10
12
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Retail
Corporate
Corporate
Retail***
Corporate
Retail (consumer)***
Deposit margins went
temporarily down after
CB rates were cut
Lending margins
are steady
Corporate
Retail
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ROAE***
8
PROFITABILITY OF BANKS REMAINS STABLE ALTHOUGH FEE & COMMISSION
REVENUE IS FALLING
Profit before tax and
extraordinary items
Extraordinary items & taxes
Profit after tax
Net interest revenue
Net fee & commission revenue
Net banking revenue
Wages & social security
Net reserves
Other banking revenue
Commercial banks profitability, 2011-1H 2014
Percent of average assets,
(May not always sum to 100% due to rounding)
* Excluding cooperative banks and foreign bank branches operating in Poland **Data for 1H 2014 annualized
*** Based on average equity
Source: KNF, NBP, Inteliace Research
Revenues have
stabilized
Interest margin
has stabilized
Costs & charges & other
Depreciation
Other operating costs Cost to income ratio
Other net revenue
Personnel costs are
well under control
COMMERCIAL
BANKS*
1.3 1.2 1.1 1.2
2011 2012 2013 H1 14
1.6 1.5 1.4 1.5
2011 2012 2013 H1 14
0.3 0.3 0.2 0.3
2011 2012 2013 H1 14
0.0 0.0 0.1 0.0
2011 2012 2013 H1 14
3.1 3.0 2.7 2.6
2011 2012 2013 H1 14
1.1 1.1 1.0 1.0
2011 2012 2013 H1 14
0.8 0.8 0.6 0.6
2011 2012 2013 H1 14
0.2 0.2 0.2 0.2
2011 2012 2013 H1 14
1.0 0.9 0.9 0.8
2011 2012 2013 H1 14
2.8 2.6 2.5 2.5
2011 2012 2013 H1 14
1.1 1.1 1.0 0.9
2011 2012 2013 H1 14
0.7 0.7 0.6 0.6
2011 2012 2013 H1 14
4.7
4.4
4.0 4.0
2011 2012 2013 H1 14
12.4
11.0 10.1 11.3
2011 2012 2013 H1 14
49.4 49.2 51.0
48.5
2011 2012 2013 H1 14
Risk costs have
stabilized
Net profit margin
is stable
Overall costs are
sinking
F&C margin is
falling down
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9
FALLING EMPLOYMENT AND SHRINKING BRANCH NETWORKS CONTRIBUTE
TO HIGHER PRODUCTIVITY IN POLAND'S BANKING SECTOR
Evolution of bank outlets and employment at banks*
Dec.2012-Jun.2014
in thousand
* Data for all banks operating in Poland including cooperative banks and foreign bank branches
Source: NBP, KNF, Inteliace Research
15.0
15.1
15.2
15.3
15.4
15.5
15.6
170
171
172
173
174
175
176
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
T
h
o
u
s
a
n
d
s

T
h
o
u
s
a
n
d
s

87.6
88.8
90.7
93.0
91.8
94.6
97.2
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average bank* assets per bank outlet
Dec.2012-Jun.2014, in million PLN
7.7 7.9 8.1 8.2 8.1 8.3 8.6
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average bank* assets per bank employee
Dec.2012-Jun.2014, in million PLN
11.4 11.3 11.2 11.3 11.4 11.4 11.3
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average number of employees per bank* outlet
Dec.2012-Jun.2014, in FTE
+11%
+12%
-1%
Change (in%)
Dec.12-Jun.14
Total employment
(left-hand scale)
Total number of bank outlets
(right-hand scale)
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REVENUES GROW FASTER THAN COSTS
10
14.6
16.8
6.3
6.2
5.2
4.0
H1 2013 H1 2014
11.9 11.9
3.4
3.7
1.4
1.3
H1 2013 H1 2014
+4%
Change (in%)
H1 14 vs.H1 13
26.1
27.0
-24%
-1%
+16%
+2%
-6%
+10%
0%
16.6
16.9
Bank revenues (billion PLN) Bank costs (billion PLN)
Change (in%)
H1 14 vs.H1 13
Revenues and costs of commercial banks in Poland, H1 2013 vs. H1 2014
Net interest
income
Net fee &
commission
income
Other
income
Total
Total
Operating
costs
Cost of risk
(net reserves)
Other costs
Source: NBP, KNF, Inteliace Research
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About this report


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I A T W
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BANK OUTLETS DENSITY IN POLAND (1/3)
GSTO SIECI PLACWEK BANKOWYCH WPOLSCE (1/3)
37
59
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35
28
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48
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67
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40-60
< 40
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Liczba/Number
Number of bank outlets per 1000 sq km, by region, 2011
Liczba placwek na 1000 km2 powierzchni wg. wojewdztw, 2011r.
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the largest density of bank outlets
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rdo/Source: Inteliace Research
rednia / Average
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B A Z A P L A C W
E K B A N K O W
Y C H W
P O L S C E I S T A T Y S T Y K A P O W
I A T W
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BANK OUTLETS DENSITY IN POLAND (3/3)
GSTO SIECI PLACWEK BANKOWYCH WPOLSCE (3/3)
rdo/Source : Inteliace Research
Number of outlets per 1 million inhabitants, by county powiat, 2011
Liczba placwek bankowych na 1 milion mieszkacw, wg. powiatw, 2011r.
Minimum: 126
Maximum: 947
Mediana
Median (443)
Number of bank outlets per 1 million
inhabitants varies a lot on county level
Na poziomie powiatw gsto placwek
jest bardzo zrnicowana
100 200 300 400 500 600 700 800 900 1000
3
7
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p
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Inteliace Research
GE MONEY BANK OVERVIEW
7.4 8.3 9.1
2003 2004 2005
10.9
1.6
Assets
PLNbillion
* Although Expander is distributing products from various banks, GE offer / for example mortgage/ is reported to be favoured
** Compound Annual Growth Rate
Source: Inteliace Analysis
CAGR**
Concept Description Results
1.6 1.7
Timeline
History & Background
Loans
PLNbillion
Net Profit
PLNbillion
Target Clients
Products
Channels
20.4 26.7 22.8 ROE (%)
Market
share
(%)
6.6 7.6 8.6
2003 2004 2005
0.14
0.30 0.32
2003 2004 2005
14.2
51.2
Affluent individuals and professionals
looking for mortgage. Valuing quick
processing and flexibility, sometimes not
fulfillinglending criteria set by other
banks (for example job contract or own
funds level)
Mass market clients looking for simple
and quick consumer loans
Only lending products on offer:
mortgage
refinancing loan
credit cards
installment loans
cash loans
car loans
GE money bank - 48 branches
GEpard, ~200 used car dealers
Dobry Kredyt consumer finance 12
outlets and ~1000 POS
Expander - 33 branches - financial
products distributor*
In 1995, GE group purchased a small regional
bank: Solidarno Chase D.T. Bank. Bank was
rebranded soon to GE Capital Bank.
In 1998, GE group purchased another small bank
(PAMBank)andconverted it to a mortgage
specialist: GE Bank Mieszkaniowy
In 2004, GE group acquired POS lending
specialist :Chrobry with a network of ~1000 POS.
Chrobry was renamed to: Dobry Kredyt
In 2004 , a used car dealers network was created
under the GEpard brand, being the main channel
for car loans sales
As of Jan. 2005, all GE activities in Poland were
consolidated under one roof: GE Capital bank
Shareholders
Top notch risk management and collection
High performing sales staff
Fast loan processing and flexibility
High margins
Control over distributors (GEpard, Expander,
Dobry Kredyt)
Advanced cross-selling betweensegments
As of March 2006
99
1
General Electric
Company
Other