A good start for the year: BRE Bank Group’s strong financial performance in Q1 2006

A good start for the year: BRE Bank Group’s strong financial performance in Q1 2006

BRE Bank’s consolidated pre-tax profit at PLN 109.5 million and net profit at PLN 78.9 million in Q1 2006
·   The best first quarter in six years
·   Investment and corporate banking as the drivers of Q1
·   All of the Group’s business lines and strategic subsidiaries reporting significant profitability
·   A step forward towards the strategic targets of 2006
BRE Bank opened the year of its 20th anniversary with the best first-quarter results in six years. Its consolidated profit before tax was PLN 109,508 thousand, up 34% year on year. All of the BRE Bank Group’s business lines and strategic subsidiaries reported significant profitability, confirming their structural potential of on-going growth in future. The Bank’s credit portfolio grew 25% in Q1 2006, mainly thanks to dynamic sales of mBank and MultiBank mortgage loans and a break-through in the corporate banking market as companies resumed investments and took loans. The trend is reflected in the marginal quarter-on-quarter decrease in the volume of deposits, which however grew 15% year on year. As a result, the Bank’s consolidated total assets grew by over 11% year on year and stood at PLN 35.6 billion. The Q1 2006 results portend well for the annual strategic targets including a pre-tax profit of PLN 380 million in 2006.

“A few months ago, as I summarised BRE Bank’s 2005 results which exceeded our original forecasts, I said this was only the beginning of our aspirations. Today, proud of the good start for the year, I can conclude that we are right on track to meet the targets of 2006, including a pre-tax profit of PLN 380 million, and the mid-term targets whereby BRE Bank will provide its shareholders with return on equity of at least 20 percent gross by 2007,” said Sławomir Lachowski, BRE Bank’s CEO.

Corporate Banking Benefits from Corporate Investment Recovery
The corporate banking line generated a pre-tax profit of PLN 37.7 million in Q1 2006. The past quarter was a period of very successful corporate banking transactions. Lending grew by 9% quarter of quarter. Loans to large enterprises (segment K2) and SMEs (K1) grew by 11-12%. Lending to the largest corporations (segment K1) grew ca. 4%. Cash management and foreign trade services as well as complementary services offered by the BRE Bank Group subsidiaries also grew dynamically. The customer base was expanding fast. In Q1 2006, BRE Bank acquired ca. 500 new corporate customers with annual sales over PLN 3 million (up 39% year on year), including 450 SME customers. BRE Bank wants to acquire over 2,000 new corporate customers in 2006.Q1 2006 was successful in terms of sales of EFFECT Packages to SME customers (defined by BRE Bank as companies with annual sales between PLN 3 and 30 million). The Bank sold 350 SME Packages in Q1 2006, up 59% year on year. The sales of Packages including credit products – EFFECT Plus and EFFECT Investments – also grew.
 “Our strategic target in the corporate market is not only to grow our share as measured by the size of the loans portfolio (current market share 6%) or of deposits (ca. 9%). For BRE Bank, both deposits and loans are a platform for sales of corporate financial management products, including cash management, foreign trade service, structured finance, and quasi-banking services, such as leasing and factoring. The comprehensive range of financial products with a high added value is the main advantage of our corporate banking. It is also a factor in building long-term relationships with corporate customers. Advanced product solutions are the foundation of solid relations between corporate customers and the bank,” said Janusz Wojtas, BRE Bank’s Board Member and Managing Director for Corporate Banking.

BRE Bank Conquers the Retail Market
Ongoing business expansion of BRE Bank’s retail banking (and private banking) operations helped the line’s profitability to grow from PLN 30 thousand in Q1 2005 to PLN 12 million (before tax) in Q1 2006. This last figure corresponds to two-thirds of the annual profit of the retail banking line in 2005. mBank and MultiBank acquired in Q1 96.8 new customers. BRE Bank had nearly 1.4 million retail customers and operated ca. 1.6 million retail accounts by the end of March 2006. The combined mBank and MultiBank loans portfolio grew 16% in Q1 2006 and totalled PLN 4.66 billion; their deposits grew 8.7% and totalled PLN 5.58 billion.
 (For details, see Appendix 1)

Strong Position of the Investment Banking Line
The investment banking line generated a pre-tax profit of PLN 58.4 million in Q1 2006, up 12% year on year. The line’s profitability was supported strongly by very good trading results especially in the areas of money markets, fx and equity trading  Profitability was further improved by the sale of another 14.9% of Novitus SA stocks where the Bank realised gains of PLN 8.4 million. The Bank still owns a 10% package in the company.BRE Bank remained a leader in non-Treasury debt securities. According to Fitch Polska, at the end of March 2006 BRE Bank was:
- number one in bank debt issues (33% market share);
- number two in short-term debt issues (19.5%);
- number two in issues of corporate bonds over 1 year (13.5%).The Bank is also an active player in other sectors of the financial market and has a leading position among dealers of Treasury securities. In Q1 2006, the BRE Bank Group received the Golden Bull award for the highest share in options trading on the Warsaw Stock Exchange in 2005 (31.8%).

Growing Sales and Profits of Subsidiaries
The consolidated subsidiaries of the BRE Bank Group generated a pre-tax profit of PLN 45.5 million in Q1 2006, up 35% quarter on quarter.
 (For details, see Appendix 2)

Key Indicators
The consolidated return on equity (ROE) was 20.9% gross (16.2% net) in Q1 2006. The cost regime was consistently pursued: the cost/income ratio was 66%, in line with the annual financial target, much lower than in Q1 2005 (71.7%). The Group’s solvency ratio grew in Q1 to a safe 11.2% (12.7% for the Bank). The NPL ratio (under the NBP rating) fell to 7.2% (from 8.5% at 31 December 2005). The Group’s total assets increased significantly in Q1 2006 by more than PLN 2.7 billion to PLN 35.6 billion.

Summary
The first quarter of BRE Bank’s 20th anniversary year confirmed the upward trends in all of the Bank’s strategic businesses. BRE Bank entered 2006 strengthened by the structural reorganisation implemented in 2005. The modification of its business model supported by active sales initiatives and close customer relationships enabled the Bank to benefit from growth opportunities afforded by moderately favourable market conditions. In the context of the financial performance of Q1 2006, the annual financial targets (including a pre-tax profit of PLN 380 million) are realistic. BRE Bank will strive in the coming quarters to keep up the high growth rate while enhancing the quality of products and customer service and providing a high ROE to the shareholders.“The past three months portend well for our business in 2006. In the coming months, it will be key to keep up the positive trends in sales and to continue the active acquisition of new customers. Only in this way can we achieve long-term returns tapping BRE’s potential. The successful Q1 2006 confirms that we are right on track to achieve the strategic business targets of 2006 and further years,” said Sławomir Lachowski, BRE Bank’s CEO.

BRE Bank’s strong outlook has recently been appreciated by investors as reflected in the Bank’s stock price on the Warsaw Stock Exchange. BRE Bank stocks were quoted at another ever-high of PLN 207 per share on 26 April.