High profitability and plans of further expansion: BRE Bank Group Q3 2007 results

High profitability and plans of further expansion: BRE Bank Group Q3 2007 results

Maintained high profitability of regular business: profit before tax PLN 749.8 million, ROE 37.8%Dynamic growth in lending and depositsmBank expansion to the Czech Republic and Slovakia

In Q1-3 2007, the BRE Bank Group generated a consolidated profit before tax of PLN 749.8 million, up by 86% year on year (PLN 403.4 million in Q3 2006). The profit on regular business operations was PLN 646.6 million pre-tax and PLN 509.109 million net. The ROE (excluding the sale of SAMH) was 32.6% pre-tax, proving continued high profitability of the core business.

“The generated profit is a result of both favourable market conditions and economic cycles and the effective performance of all business lines. Once again, we have proved that our strategy of dynamic growth based on direct client relations, partnership and support for SMEs brings tangible results. I would also like to stress that the retail banking business made a very large contribution to the Group’s growing profit: its share in the consolidated profit before tax grew from 16.7% to 29.9% over the past year and its pre-tax profit more than tripled,” said Mr Sławomir Lachowski, CEO of BRE Bank.

The main drivers of the financial results after three quarters of the year included:the net interest income at PLN 739.2 million, up by 41% year on year, mainly due to interest income on the loans portfolio and investment securities; the net commission income at PLN 448.3 million, up by 25% year on year, thanks to the growing loans portfolio (income up from PLN 81.5 million to PLN 158.0 million year on year), broker’s fees (up from PLN 56.4 million to PLN 94.4 million year on year), and payment card fees (up from PLN 73.6 million to PLN 107.5 million year on year);the trading income at PLN 378.1 million, up by 31.8%, mainly due to the growing fx result (PLN 323.6 million, compared to PLN 256.7 million a year ago).

“The main drivers of growth in the BRE Group’s income and profitability in future will include the retail banking business, the corporate banking business, and the strategic subsidiaries of the Group providing complementary services: BRE Leasing, BRE Bank Hipoteczny, and Polfactor. We want BRE Bank to become a top three player in the Polish retail and corporate banking market in the next 3-4 years,” added the BRE Bank CEO.

Corporations and Financial Markets

The Corporations and Financial Markets Line generated a profit before tax of PLN 449.1 million in January-September 2007, contributing 69,4% of the Group’s profit.

The Corporate Customers and Institutions segment generated a profit before tax of PLN 350.0 million. Very active customer acquisition produced tangible results in Q1-3 2007. In this period, 1,881 new corporate customers were acquired, over 10% more than in Q1-3 2006. BRE Bank now serves 12,343 corporates, including 7,677 SMEs.

Corporate lending was growing very fast year to date. In Q1-3 2007, loans granted to corporate customers were PLN 12.2 billion, up by PLN 3.0 billion or 32.6% year to date. BRE Bank’s market share in lending was 6.4% at the end of September, compared to 5.9% at the end of 2006.

Corporate customers’ deposits were PLN 18.2 billion at the end of Q3 2007, up by PLN 2 billion or 12.3% year to date. BRE Bank’s market share in corporate deposits grew from 8.6% in December 2006 to 9.6% at the end of Q3 2007.

“Corporate banking remains BRE’s focus. I believe that this will be a high-income segment whose target contribution to the profitability of the Group should remain at 40%. Today BRE Bank is an innovative bank looking for new, non-standard solutions, offering a broad range of products for large corporations as well as SMEs. SMEs account for 74% of newly acquired corporate customers; according to European trends, SMEs are the fastest growing segment,” added the BRE Bank CEO.

In Q1-3 2007, the Trading and Investments segment generated a profit before tax of PLN 99.1 million. The largest contribution to the profit was that of fx transactions and commercial debt issues as well as risk and liquidity management.

BRE Bank ranked first in bank debt securities and second in commercial papers with a market share of 32.3% and 18.4% respectively. In addition, BRE Bank again ranked first in a rating of Treasury securities dealers run by the Ministry of Finance (Q2 2007).

Retail Banking

The Retail Banking Line (mBank, MultiBank and Private Banking) generated a profit before tax of PLN 197.7 million in Q1-3 2007. The profit was largely driven by the dynamic growth of the loans portfolio, mainly mortgage loans.

mBank and MultiBank balance-sheet mortgage loans grew by PLN 3.3 billion to PLN 10.35 billion, up by 47.1%. BRE Bank’s Retail Banking remained the third largest provider of new retail mortgage loans with a market share of 10.4% (7.8% at the end of Q3 2006).

The balance-sheet retail loans portfolio grew by PLN 3.9 billion to PLN 12.2 billion (up by 47.9%) year to date. BRE Retail Banking market share in loans was 5.2%, compared to 4.4% at the end of 2006.

Customers’ assets grew to PLN 11.8 billion in Q1-3 2007, including PLN 9.0 billion of deposits and more than PLN 2.7 billion of assets in investment funds. BRE’s market share in retail customers’ assets was 3.5%.

mBank will be launched in the Czech Republic and Slovakia by the end of November. In the beginning, mBank will offer checking accounts, savings accounts, mortgage-backed loans, and cash loans. In the second phase, the product portfolio will also include the Investment Fund Supermarket, credit cards, business products, and e-commerce with on-line payments. mBank will develop a sales network in the Czech Republic and Slovakia similar to the one in Poland. There will be 12 Financial Centres in the Czech Republic and 6 Financial Centres in Slovakia by the end of 2008. In addition, 18 mKiosks will be opened in the Czech Republic and 8 in Slovakia.

 “mBank will start its operation in the Czech Republic and Slovakia before the end of November. This is currently our most important strategic initiative supported by Commerzbank. It is our objective to leverage the mBank experience in Poland in order to win a major position and build a similar business model in neighbouring countries. We expect to acquire at least 250 thousand customers and sell EUR 1.2 billion of loans and EUR 300 million of deposits in both countries by the end of 2010. We want to be a top five retail bank by customer base in the next 5-7 years. We expect the project to reach the break-even in 2012,” said Mr Sławomir Lachowski.

Private Banking also improved its performance. Customers’ assets under management, including deposits, asset management products and financial market products, grew by PLN 459.4 million to PLN 4.9 billion year to date. Assets managed by BRE Wealth Management were PLN 565.7 million, up by PLN 50.3 million year to date. (See Appendix 1 for details)

BRE Group Subsidiaries

The consolidated BRE Bank Group subsidiaries generated a profit before tax of PLN 175.0 million year to date. As a result, the contribution of the strategic subsidiaries to the profit of the Group was at 23.0%. The largest profit contribution came from the Corporate Customers and Institutions subsidiaries. (See Appendix 2 for details)

Key Performance Indicators

After Q3 2007, the ROE of the continued business was 32.6% pre-tax. Despite business expansion, the cost discipline was maintained: the cost/income ratio of the continued business was down at 56.9%, much below last year’s ratio (64.0% in Q1-3 2007). The Group’s consolidated capital adequacy ratio was at a safe 10.26%.

BRE Bank Share Price

At the last trading session in September (28 Sep.), BRE Bank’s share price was PLN 511. The BRE Bank share price rose 49% year to date while WIG gained 17.2%, WIG-20 8.5% and the WIG-Banks subindex 16.3%.

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