Profitable Growth: BRE Bank Group Q2 2007 Results

Profitable Growth: BRE Bank Group Q2 2007 Results

ROE at 33.5% before tax81% of the pre-tax profit contributed by the core businessFurther strengthening of the position in strategic business areasThe BRE Bank Group closed H1 2007 with a consolidated profit before tax at PLN 530.6 million, up 113% year on year. The profit before tax on regular operations (i.e., excluding the one-off sale of Skarbiec Asset Management Holding) was PLN 436 million in H1 2007, compared to PLN 230.5 million in H1 2006. ROE (net of the SAMH sale) was 33.5% before tax, proof of increasingly effective use of the Bank’s equity. “I am satisfied with the BRE Bank Group’s results at the end of June 2007, but I am fully aware that we’re only half way through to the achievement of the actual target of annual results. It must be remembered that very positive market conditions and strong GDP growth drove our performance. The semi-annual results were also helped by the one-off profit on the sale of SAMH. Consequently, I would be wary of a simple extrapolation of the Q1-2 results in projections of annual 2007 financial performance,” said Sławomir Lachowski, President of the BRE Bank’s Management Board.81% of Pre-tax Profit Contributed by Customer Relations BusinessBoth Corporations and Institutions and Retail Banking reported very good results in H1 2007. The corporate banking business generated a profit before tax of PLN 230 million in January-June 2007, contributing 52.3% to the Group’s profit. Retail Banking generated a profit before tax of PLN 126.7 million in H1 2007, contributing more than 28% to the consolidated profit. The two business segments ensure robust foundations of the Group’s profitability.“A strong focus on the core business is a key element of the strategy defined at the turn of 2004. From this perspective, it is very satisfactory that 81% of the Group’s consolidated profit was contributed by the business based on customer relations. The high profitability was mainly driven by very effective customer acquisition and a strong demand for the Bank’s products. The growth of the Group’s results was mainly driven by the expanding Retail Banking whose contribution to the consolidated profit grew from 9.5% to 28.7% over the past year, and its profit before tax grew more than by a factor of 5. It should however be stressed that 52% of the Group’s profit is generated by the corporate banking business. I am glad that this business segment has regained its old glory. But today’s corporate banking business is completely different and mainly relies on long-term customer relations, increasingly with SME customers,” added Sławomir Lachowski.  Further Strengthening of the Position in Strategic AreasRetail Banking Profit Up More than by a Factor of 5The Retail Banking Line’s profit before tax in H1 2007 was PLN 126.7 million, growing more than by a factor of 5year on year, the strongest growth rate in the BRE Group. The result was mainly driven by a dynamic growth in the loans portfolio, mainly mortgage loans carrying a low risk. In H1 2007, mBank and MultiBank’s combined mortgage loans portfolio grew from PLN 2.05 billion to PLN 9.1 billion, up 83.2% YoY. BRE Retail Banking’s market share in mortgage loans grew from 7.8% to 9.5% over the year.Meanwhile, assets under management grew to PLN 10.85 billion, including PLN 7.95 billion of deposits and more than PLN 2.9 billion of investment fund assets (PLN 2.19 billion mBank, PLN 713 million MultiBank). BRE’s market share in retail customers’ assets grew from 2.3% at the end of June 2006 to 2.8% now.Private Banking is improving its performance. At the end of Q2 2007, assets under management were PLN 5 billion (up 24.2% YoY), including PLN 500 million managed by BRE Wealth Management.(For more information see Appendix 1).Corporations and Financial MarketsIn H1 2007, Corporates and Institutions acquired 1,219 new corporate customers (of which 76% were SME customers with annual sales between PLN 3 and 30 million). Now BRE Bank serves 12,012 corporate customers. Since January 2007, corporate lending has been growing fast; as a result, BRE’s market share in corporate loans was 6.3% at the end of June 2007 compared to 5.9% at the end of 2006. Balance sheet corporate loans were PLN 11.8 billion after Q1-2 2007.BRE Bank corporate deposits were PLN 19.7 billion at the end of June 2007 (including 12.9 billion of enterprises’ deposits), up 32% year on year. BRE Bank’s market share in corporate deposits was up from 8.6% at the end of 2006 to 10.1%.Trading and Investments generated a profit before tax of PLN 83 million in H1 2007 (PLN 39.6 million in Q2 2006). The results were mainly driven by trading and issues of commercial debt securities as well as risk and liquidity management. BRE Bank remains a leader in non-Treasury debt securities and commercial papers (37% and 16.6% market share, respectively). BRE again took the first position in a Finance Ministry ranking of Treasury securities dealers (Q1 2007 ranking).Group Subsidiaries Contributed 22% of the Consolidated Pre-tax ProfitThe performance of the strategic subsidiaries continued to improve in Q2 2007. The consolidated subsidiaries of the BRE Bank Group generated a profit before tax of PLN 117 million in H1 2007, compared to PLN 109.4 million in H1 2006. As a result, the strategic subsidiaries contributed 22% of the Group’s profit. The largest profit contribution came from the Corporations and Institutions subsidiaries.(For more information see Appendix 2)Key Performance IndicatorsReturn on equity (ROE) on the continued operations was 33.5% before tax in Q1-2 2007. Despite business expansion, the cost discipline prevailed: the cost/income ratio on the continued operations was down to 58%, much lower than in 2006 (64.7% in Q1-2 2006). The Group’s capital adequacy ratio remained stable in Q2 2007: it was at a safe 10.4%. The Group’s equity was PLN 3.5 billion at the end of June 2007, compared to PLN 2.7 billion in June 2006.

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