BRE Bank Best Group’s Semi-annual Results in 6 Years

BRE Bank Best Group’s Semi-annual Results in 6 Years

BRE Bank’s consolidated pre-tax profit at PLN 249.1 million and net profit at PLN 180.4 million in H1 2006·   Best semi-annual results in 6 years·   The 2006 financial targets, including a pre-tax profit of PLN 380 million, may be exceeded·   BRE Bank’s new bancassurance strategy: inception of BREUbezpieczenia·   Plans to expand the MultiBank branch network
BRE Bank generated a consolidated profit before tax of PLN 249.1 million in H1 2006, up 27% year on year. The net profit was PLN 180.4 million at the end of June 2006. These were the Bank’s best semi-annual results since 2000. BRE Bank’s individual loans portfolio grew 29% year to date thanks to active corporate lending as well as dynamic sales of mBank and MultiBank mortgage loans. BRE Bank’s corporate and retail deposits also grew, by more than 7% year to date. The excellent results of Q1-2 2006 are a good prognostic that the BRE Bank Group’s original strategic targets, including a pre-tax profit of PLN 380 million in 2006, may be exceeded.
“The excellent results of Q2 2006 make up optimistic about the prospect that the original strategic targets for 2006, including a pre-tax profit of PLN 380 million, may be exceeded. However, one must not simply extrapolate the 2006 quarterly results,” said Mr Sławomir Lachowski, BRE Bank’s CEO.

The Bank will announce potential upward update of its financial targets at the time of publication of Q3 2006 results.“We want to be realistic about the financial targets, and to keep our promises. While setting ambitious targets, we are always striving to exceed them if market conditions allow. Based on these criteria, BRE Bank will announce potential upward update of its 2006 targets at the time of publication of Q3 2006 results,” added Mr Lachowski.

BRE Bank’s New Bancassurance Strategy: Inception of BREUbezpieczenia
BRE Bank’s decision to implement a new bancassurance strategy, made in mid-June 2006, derives from the plan to tap the big potential purchasing power of mBank and MultiBank customers. Their insurance spending already accounts for approximately 10% of the market. The new strategy will be pursued by BREUbezpieczenia. The subsidiary will implement a business model proving to customers that the Bank offers better insurance products and services than other distribution channels. The model will be based on 5 pillars: application of a proven model of on-line and telephone sales and service; low price; transparent, easy to understand, flexible products; choice of products from several insurers; integration of insurance service (complete information and policy service available in the Bank’s existing communication channels). The specific profile and approach to financial needs of BRE Bank’s existing and prospective retail customers is one of BREUbezpieczenia’s future success factors. According to Forrester Research, they are ‘self-directed’ customers who make independent decisions about their personal finance and whose choice relies on such criteria as access to information, price, speed and ease of product purchase. BREUbezpieczenia’s business model will fulfil those needs. The company’s sales will ensure a steady growth in BRE Bank’s retail business (bancassurance segment) and provide additional profitability already in 2007.

MultiBank Branch Expansion to Reinforce the Retail Banking Business
In order to grow its market share and to enhance the efficiency of retail customer service, BRE Bank has decided to expand the MultiBank branch network. The decision is based on the success of BRE Bank’s retail branch model: a Financial Services Centre with personalised service, modern functionalities and visual identity. The model has proved effective: MultiBank’s full operational Financial Service Centres have approximately 8 thousand customers each and break even within 2.5 years of business. With the model’s success story, BRE Bank wants to add more scale and dynamics by expanding the network. BRE Bank is making another step to enhance the functionality concept of Financial Service Centres branches. They will become “Branches of the Future” with a yet stronger focus on sales and advisory functions. The Bank plans to open 56 new Branches of the Future in 2008, including 6 branches in 2006 and 25 branches in both 2007 and 2008. MultiBank’s new network will include 30 Finance Service Centres in cities with population over 100 thousand and 26 Partner Outlets in smaller cities and towns (population of 20-100 thousand). The investment will help to further grow MultiBank’s profitability in 2009 as the new branches will take less time (only 2 years) to break even thanks to lower capex per branch (down 30%) and reduced current costs (down 25%).The Retail Banking Line’s financial results improved considerably by the end of June: they grew nearly three-fold year on year and reached PLN 23.7 million pre-tax. mBank and MultiBank acquired almost 180 thousand customers year to date. BRE Bank had 1.455 million retail customers and operated nearly 1.7 million accounts at the end of June 2006. mBank and MultiBank’s combined loans portfolio grew 46% year to date and reached PLN 5.9 billion while their combined deposits grew 18% and reached more than PLN 6 billion. (See Appendix 1 for more information)

BRE Bank’s New Corporate Branch ModelBRE Bank has implemented a new corporate customer service model in its Corporate Branches over the past weeks. As a result of the BREactivation strategy pursued since 2005, the functionality of BRE Bank’s branches has been modified to focus fully on sales and customer service. Settlement functions were taken over by the Bank’s Head Office and its Regional Operating Centres which provide back-office operations, previously accounting for a third of branch workload. In July 2006, BRE Bank opened its second Corporate Branch in Warsaw, the first new branch under the business model developed in the BREactivation strategy. The new concept branches have new functionalities and image: they are modern business centres, more than just a corporate customer service desk, but providers of advisory services and a professional office and conference environment for meetings with customers and their business partners.BRE Bank’s new Corporate Branches will help to enhance the quality of corporate customers relationships, to grow sales, and to improve the Bank’s market position in corporate banking. The Corporate Banking Line generated a pre-tax profit of PLN 89.3 million in H1 2006. The Bank acquired 1,150 new corporate customers in H1 2006, up 20% year on year. Most new customers are small and medium-sized enterprises (SMEs), a segment defined by the Bank as companies with annual income between PLN 3 and 30 million. In the second half of July 2006, BRE Bank opened the account of its 1,000th new SME customer this year. Corporate lending grew considerably year to date (up 14%), and consequently the Bank’s market share in corporate loans rose to 6.3% (from 6% in Q1 2006). BRE Bank has an even higher market share in enterpreneurs’ deposits (8.4%). The deposits of corporate sector grew 14% in Q2 2006.

Strong Position of the Investment Banking BusinessThe Investment Banking Line generated a pre-tax profit of PLN 117.0 million by the end of Q2 2006, up nearly 40% year on year. The proprietary investments portfolio was PLN 279.2 million at cost at the end of Q2 2006. The portfolio was reduced by 26% year to date. BRE Bank remains a leader of the non-Treasury debt market. According to Fitch Polska, at the end of Q2 2006 BRE Bank ranked first in the market of issued bank debt securities (26.9% market share) and short-term debt (19.4%), and second in the market of issued corporate bonds (14.5%).

Group Subsidiaries’ Profits DoubleThe strategic subsidiaries of the BRE Bank Group generated a pre-tax profit of PLN 110.1 million year to date, up 84% year on year. (See Appendix 2 for more information)

Key Performance IndicatorsThe consolidated return on equity (ROE) was 23.6% pre-tax (18.4% net) at the end of Q2 2006, much above the annual target (18% pre-tax). The strict cost regime continued: the cost/income ratio was 64.7%, much lower than a year earlier (69.8%) and lower than the annual target (66%). The Group’s solvency ratio was 10.4% (11.6% for the Bank). NPLs (under NBP rating) went down to 6.1% of the portfolio (from 7.2% at the end of March 2006). The Group’s balance sheet total grew significantly (up 18%) in Q2 2006 (by more than PLN 6 billion to PLN 38.8 billion).

Summary
Growing sales in all of BRE Bank’s businesses in Q1-2 2006 enabled a 27% year-on-year growth in the pre-tax profit. The Bank benefited from its growing market share in retail banking and reinforced its business relations with corporate customers: many companies decided to invest using the Bank’s loans. The trend will continue thanks to the implementation of the new corporate banking business model, developed in the BREactivation Project, as well as the planned expansion of the MultiBank branch network. The development of MultiBank’s sales network will grow significantly the profitability of BRE Bank’s retail banking business in the mid term. The potential of the retail market will also be tapped thanks to the new bancassurance strategy. The new company BREUbezpieczenia will provide the Bank with important benefits as of 2007, including a bigger product range, increased sales to mBank and MultiBank customers, and consequently better performance and higher profitability.The very positive trends in its core business in H1 2006 make BRE Bank optimistic about the prospect that its original strategic targets, including its YE 2006 consolidated pre-tax profit of PLN 380 million, may be exceeded. BRE Bank will publish a potential upward update of the financial targets in the next 3 months.