The results of BRE Bank in Q2 2003

The results of BRE Bank in Q2 2003

Q2 2003 was another period of successful measures taken by the BRE Bank Group to put the Bank back on the track of dynamic growth and profitability. Although the Polish economy did not yet display clear-cut signs of growth, the generated financial results were on the order of those achieved in the prosperous and profitable Q1 2003. The net financial result of the BRE Bank Group grew to PLN 55,175 thousand and total assets increased to nearly PLN 29 M at the end of Q2. BRE Bank is now the fourth largest listed bank in Poland in terms of total assets.

Selected Financial Data, Q1 and Q2 2003 [PLN’000]
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The financial results of the Bank and the Group in Q1 and Q2 2003 suggest that positive trends in the results on the core business continued. While interest income remained stable, both the result on banking operations and commission income were much stronger in Q2 than in the slightly more profitable Q1. More importantly, net interest income and net commission income as well as the result on financial transactions improved considerably. The past quarter brought more robust operating results (compared to Q1). The operating profit of Q2 was over PLN 61 M, compared to a large loss in 2002 (due to high provisions).These results confirm that the Bank continues to earn a high income; as the economy picks up, the growth rate of the Bank’s profits is expected to improve. The Bank’s solvency ratio remains at a safe level of ca. 10%.It must also be noted that the net financial result would have been much stronger had it not been for new provisions which had to be set up in Q2. The Bank’s net provisions stood at PLN 23,015 thousand (more provisions set up than released). Importantly, the provisions were several times lower than in the same period of 2002.Another upside of the Bank’s results consists in the result on financial transactions. As planned, the Bank consistently pursues the policy of reducing the risk profile of financial transactions; with the sale of Telbank, Polcard and Elektrim, the result was very strong (PLN 67.6 M in Q2 alone). Another stage of the planned process of gradual restructuring of the Bank’s equity investments came with the agreement signed on June 30 concerning the refinancing of the long-term debt of ITI Holdings. This transaction reduces debt exposure to the ITI Holdings Group.Although the economy is still harsh, BRE Bank was a top market leader in its business segments in Q2 2003.The Bank was once again the unchallenged leader in money markets: it came as number one in NBP’s ranking of banks who are money market dealers. According to FITCH Polska, the Bank remained in the second position by value of placed short-term and mid-term PLN securities. The Bank moved up to the high third position in the municipal bonds market.In corporate banking, BRE Bank recently reported impressive growth rates: its share in the market of SME services grew from 2.6% in 1999 to over 6%. Thanks to cross-selling efforts, the SME Product Package was recently expanded to include the leasing of vehicles (BRE Leasing products) and the products of the investment fund Skarbiec TFI.BRE Bank’s strong position in corporate banking is supported by the BRE Bank Group’s fast 11.5% year-to-date growth in lending thanks to, among others, dynamic growth in mortgage loans extended by the mortgage bank Rheinhyp-BRE Bank Hipoteczny. The share of irregular loans in the Bank’s risk portfolio (including Rheinhyp-BRE) was only 14.4% at the end of June 2003.Despite negative trends in the banking sector, BRE Bank’s retail banking line is growing fast. In H1 2003, mBank raised ca. PLN 0.5 B in deposits while household deposits in the banking sector fell by PLN 4.1 B. The growth rate of mBank deposits was over 25% year-to-date. mBank won over 475 thousand clients who deposited more than PLN 2.31 B in 553 thousand accounts. MultiBank is faring equally well: its 95 thousand clients deposited nearly PLN 320 M. MultiBank’s credit products are particularly popular with clients (over PLN 517 M in extended loans).BRE Bank plans its growth so as to offer more accessible services. The internet bank mBank launched the first mKiosk in Łódź in early May; it is a non-virtual customer desk (featuring telephone and internet access and a deposit-enabled ATM). mBank plans to open another 7 mKiosks later this year. MultiBank is also developing its branch network: it opened the first 4 “partner branches” in August. The new partner branches have the same functionality and services as Financial Services Centres; they help to expand MultiBank’s distribution network in large cities.BRE Bank Group subsidiaries are also growing. Rheinhyp-BRE Bank Hipoteczny consolidated its position of unquestionable leader in local mortgage banking. BRE Leasing sustained its very strong second position in the leasing market in H1 2003. The company signed leasing contracts worth PLN 356 M and reported a 35% growth Y/Y. BRE Leasing’s share in the market of vehicle leasing is growing fast and now accounts for 67% of all new movables leasing contracts. The companies of the Intermarket Bank Group are growing successfully. All reported profits in H1 2003 while Intermarket Bank and Polfactor achieved a 30% growth in volumes. The Skarbiec Asset Management Holding (SAMH) reported very good results: its assets under management grew to ca. PLN 4.5 B (up ca. PLN 500 M in Q2). SAMH’s investment fund Skarbiec TFI now manages 13 funds with assets worth PLN 2.46 B; its market share is ca. 7.5%. Skarbiec TFI’s results are impressive: its asset growth rate was the second largest in the local investment fund market in July 2003. The assets of the pension fund company PTE Skarbiec-Emerytura grew by over 18% year-to-date and the company remained in a strong fifth position.Given the good financial results of H1 2003, the Bank’s projected ROE of over 5% at the end of 2003 is very realistic. Though, due to the insufficient growth rate of the Polish economy, BRE Bank had to set up additional provisions, yet the Bank is optimistic about H2 2003, in particular in the light of improving results of the BRE Bank Group subsidiaries as well as continued successful growth of mBank and MultiBank which are fast approaching the break-even (projected at the turn of the year for mBank and one year later for MultiBank).Even with continued growth and investment in several market segments, the Bank’s operating costs were down 6.5% Y/Y in H1 2003. This is another sign of good growth and a strong outlook. The Bank’s positive outlook is also acknowledged by BRE Bank’s investors as the Bank’s stock price grew 9.5% in Q2 2003. In order to make the Bank more attractive for shareholders and investors, the Bank made a declaration last June that it complies with the rules of corporate governance defined in the Warsaw Stock Exchange document “Best Practices in Public Companies 2002.” The Bank announced that it complies with all 53 rules (except 2 where procedural reasons require partial compliance) of the business code of ethics, a confirmation of the Bank’s long-time policy of business transparency.