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Title: Slower growth but higher profitability – a mixed outlook for the banking sector in Poland through 2013 ...

Title: Slower growth but higher profitability – a mixed outlook for the banking sector in Poland through 2013

“The growing nominal interest-rate environment will help banks to temporarily increase margins and to boost revenues in 2011, but the stagnating real income of the population due to elevated unemployment rates and the growing cost of living will prevent a significant growth in deposits and loans…Higher interest rates are also likely to negatively affect existing mortgage loans portfolios of banks in a one- to two-year perspective,” explains Marcin Mazurek, Director of Intelace Research, a consulting company specializing in CEE financial-markets research.

ECONOMY AND THE BANKING SECTOR IN POLAND
With its real GDP increasing by 3.8%, Poland ranked among the top three fastest-growing economies in Europe in 2010. Favorable developments in the economy have been reflected also in the solid performance of the banking sector. Bank deposits increased by 9% YoY, driven by both: retail and corporate savings. A similar growth in lending volumes (+9% YoY) was primarily driven by new lending in the household sector, while outstanding loans to corporate clients contracted by 2% YoY.

Slightly increasing market interest rates helped banks to improve margins. The net interest income jumped by 19%, while F&C margin advanced by 10%. On the cost side, banks were able to reduce risk costs (net reserves) by 10% and allowed only a slight (3%) increase in operating costs, including personnel expenses. As a result, the 2010 pre-tax result of banks jumped by 45% YoY to 13.5 billion PLN.

COMPETITION AND THE FUTURE OUTLOOK
The long-expected sector consolidation started to accelerate in 2010. BZ WBK has been acquired by Banco Santander, Polbank EFG has been sold to Raiffeisen Bank, and a few smaller players changed hands. Since most of the buyers in these M&A deals were already present in Poland with other subsidiaries, those transactions will ultimately mean mergers and an increase in concentration. The consolidation process is likely to continue in the near future because a number of foreign banks engaged in Poland (Millennium, BCP, KBC, and ING, among others) might soon be forced to look for additional capital in order to meet stricter Basel III capital requirements; selling their Polish franchises might be an option.

As far as the mid-term performance of the banking sector is concerned, we expect a moderate, single-digit annual growth in key banking volumes through 2013. The increasing interest-rate environment will initially boost interest revenue of banks; however, it is also likely to contribute to higher NPL rates, especially in case of residential mortgages. The persisting elevated unemployment rates and stagnating real income of the population will limit the growth of retail deposits and may also be a major barrier to further lending expansion in the household sector.

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    Banking market in_poland_2011-2013_slideshare Banking market in_poland_2011-2013_slideshare Presentation Transcript

    • BANKING MARKET IN POLAND 2011-2013,CEE BANKING SERIESby Intelace ResearchApril 2011Version: 2011/I/4
    • REPORT SUMMARYECONOMY AND THE BANKING SECTOR IN POLANDWith its real GDP increasing by 3.8%, Poland ranked among the top three fastest-growing economies in Europe in 2010.favorable developments in the economy have been reflected also in the solid performance of the banking sector. Bankdeposits increased by 9% YoY, driven by both: retail and corporate savings. A similar growth in lending volumes (+9%YoY) was primarily driven by new lending in the household sector, while outstanding loans to corporate clientscontracted by 2% YoY.Slightly increasing market interest rates helped banks to improve margins. The net interest income jumped by 19%,while F&C margin advanced by 10%. On the cost side, banks were able to reduce risk costs (net reserves) by 10% and Banking Market in Poland 2011–2013allowed only a slight (3%) increase in operating costs, including personnel expenses. As a result, the 2010 pre-tax resultof banks jumped by 45% YoY to 13.5 billion PLN.FUTURE OUTLOOKIntelace Research expects moderate, single-digit, annual growth in key banking volumes in Poland through 2013. Theincreasing interest-rate environment will initially boost interest revenue of banks; however, it is also likely to contributeto higher NPL rates, especially in the case of residential mortgages. The persisting elevated unemployment rates andstagnating real income of the population may limit the growth rates of retail deposits and could be also a major barrierto further lending expansion in the household sector.For more information on recent developments in the Polish banking market, please refer to the full version of ourreport "BANKING MARKET IN POLAND 2011–2013" available at: www.intelace.com/publications.html 2 Intelace Research
    • TABLE OF CONTENTS (1/4)Slide 1: Executive summary1. Macroeconomic overviewSlide 2: Poland - General overviewSlide 3: Key macroeconomic indicators, 2004-2010Slide 4: Foreign trade statistics, C/A balance, FDIs, 2004-2010Slide 5: Unemployment and salaries, 2004-2010Slide 6: Disposable income in households and income distribution, 2004-2009Slide 7: Consumer confidence Index evolution, 2008- 2.2011Slide 8: Warsaw Stock Exchange - Turnover, Market cap and indexes, 2004-20102. Banking market2.1. Banking market - General trendsSlide 9: CEE banking markets: Size vs. growth matrix, 2008-2010 Banking Market in Poland 2011–2013Slide 10: CEE banking penetration benchmarks - International comparison, 2010Slide 11: Structure of the Polish Banking System, 2010Slide 12: Polish Banking System ERA analysis, 1989-2010Slide 13: Evolution of banking assets by ownership, 1993-2010Slide 14: Top 12 foreign investors on the Polish banking market, 2010Slide 15: Banking assets evolution (LCU, EUR), 2004-2010Slide 16: Banking assets evolution (in EUR) by group of banks, 2004-2010Slide 17: Top 12 commercial banks, market shares, ownership, 2010Slide 18: Evolution of market shares for top 10 commercial banks, 2008-2010; pro forma after M&A market shares calculation, 2010Slide 19: Concentration of the banking market (Assets, Branches, ATMs, HH Index), 2009/2010Slide 20: Deposits by customer segment evolution, 2004-2010Slide 21: Loans by customer segment evolution, 2004-2010Slide 22: Foreign funding evolution, 2004-2010Slide 23: Non-performing loans value evolution and NPL ratios by type of customer, 2009/2010Slide 24: Non-performing retail loans, ratios by type of product, 2005-20092.2. Banking market - Regulatory overviewSlide 25: Regulatory overview: Regulatory bodies on the Polish banking marketSlide 26: BFG - Deposit Insurance FundSlide 27: BIK - Credit information BureauSlide 28: BIG - Regulated commercial information providersSlide 29: Central Bank interest rates and mandatory reserve policy, 2000-2010Slide 30: Inter-bank yield curves, 2004-2010 (WIBOR 3M, Polonia O/N)Slide 31: Basel II/CRD implementation status, Capital requirement, own funds and CAR ratio for banks, 2005-2010Slide 32: Loans and FX-denominated mortgage – regulatory changes 3 Intelace Research
    • TABLE OF CONTENTS (2/4)2.3. Banking market - Banking InfrastructureSlide 33: Bank outlets by types of banks, 2004-2010Slide 34: Employment in commercial banks sector, bank assets per employee evolution, 2004-3Q2010Slide 35: Direct employee costs evolution, 2005-2010Slide 36: ATM number and transaction value evolution 2004-2010, ATM players, 2010Slide 37: POS number and transaction value evolution 2004-2010, POS players, 20093. Retail bankingSlide 38: Current account penetration in Poland vs. EU, EUROBAROMETER 2008/2009Slide 39: Loans penetration in Poland vs. EU, EUROBAROMETER 2008/2009Slide 40: Access to banking services in Poland, 2008Slide 41: Demographic trends determining future number of bank clients, 2007-2020FSlide 42: Demographic and social trends influencing future number of bank accounts, 2010Slide 43: Retail banking clients by segment - pyramid (mass market, affluent, personal and private banking), 2010 Banking Market in Poland 2011–2013Slide 44: Households deposits by sub-segments , 2004-2010Slide 45: Cash in circulation, cash vs. deposits ratio, 2004-2010Slide 46: Household loans by sub-segments evolution, 2004-2010Slide 47: TOP banks serving households sector, market shares, 2010Slide 48: Deposits of private individuals, structure by currency, 2004-2010Slide 49: Deposits of private individuals, structure by maturity, 2004-2010Slide 50: Current accounts of individuals at major banks, 2006-2010Slide 51: Internet and PC penetration in Polish households and in corporate sector, shopping online, 2009/2010Slide 52: Number of accounts with online access and number of online accounts actively used, 2008-2010Slide 53: Online Banking - mBank case, 2001-2010Slide 54: Online Banking - new entrants: ING and Citibank and perspectives for standalone internet projectsSlide 55: Bill payments market structure, 2010Slide 56: Investment funds assets evolution, domestic and foreign funds, 2004-2010Slide 57: Investment funds - top 10 players, 2010Slide 58: Personal Financial Assets (PFA) structure and evolution, 2007-2010Slide 59: Loans to private individuals by type evolution, 2004-2010Slide 60: Mortgage to private individuals by currency evolution, 2004-2010Slide 61: Mortgage to private individuals – new sales, outstanding contracts, 2006-2010Slide 62: POS and other installment loans market, 2008-3Q2010Slide 63: Car loans market, 2008-3Q2010Slide 64: Specialized/exclusive loan distribution networks – recent trends, 2008-2010Slide 65: Value and number of loans and investment products sold by major intermediaries, 2009Slide 66: Perspectives for financial intermediaries 4 Intelace Research
    • TABLE OF CONTENTS (3/4)3.1. Payment cardsSlide 67: Cards issued by card type, 2004-2010Slide 68: Card transactions by type (cashless, cash), share of cash transactions, 2006-2010Slide 69: Credit card transactions , values, volumes, per card evolution, 2006-2010Slide 70: Top players in credit cards business, co-branding partners, 20104. Corporate bankingSlide 71: Corporate subjects by size, number, employment, revenues and profits, 2009Slide 72: Corporate subjects, regional distribution, 2009Slide 73: Corporate subjects, revenue and profit evolution, 2006-2010Slide 74: Corporate deposits and loans evolution, 2004-2010Slide 75: Top players on the corporate banking market, 2010Slide 76: Brokerage business, top players, shares of investors groups, 2006-2010 Banking Market in Poland 2011–2013Slide 77: Leasing market, structure by industry, top players, 2006-2010Slide 78: Factoring market, 2006-2010Slide 79: Non-treasury debt securities market, 2006-20105. Banks profitabilitySlide 80: Average retail and corporate banking rates offered and implied margins evolution, 2009-2/2011Slide 81: Commercial banks - profitability tree – market averages evolution, 2008-2010Slide 82: Commercial banks – revenue, costs and profits composition, 2010Slide 83: Top 5 commercial banks profitability tree – peers comparison, 2010Slide 84: Segment reporting (1/2): volumes, revenues and profit by segment (retail, corporate, other), 2010Slide 85: Segment reporting (2/2): volumes, revenues and profit by segment (retail, corporate, other), 20106. Banks valuation and M&A activitySlide 86: Strategic control map for major listed banks in Poland, 3/2011Slide 87: Market multiples for major listed banks in Poland, 3/2011Slide 88: Efficiency of top banks in Poland - Cost to income, Assets/Personnel/Branches benchmarks, 12/2010Slide 89: Share price performance on the stock market for key listed banks in Poland, 2010-3/2011Slide 90: Acquisition transactions on the Polish banking market (1/2), 2005-2008Slide 91: Acquisition transactions on the Polish banking market (2/2), 2009-2011Slide 92: Mergers on the Polish banking market, 2009/2010. 5 Intelace Research
    • TABLE OF CONTENTS (4/4)7. Top 5 banks - ProfilesSlide 93-94: Bank profiles: PKO Bank PolskiSlide 95-96: Bank profiles: Bank PekaoSlide 97-98: Bank profiles: BRE BankSlide 99-100 Bank profiles: ING Bank ŚląskiSlide 101-102: Bank profiles: BZ WBK8. Mid-term forecastsSlide 103: Banking assets forecast, 2011-2013Slide 104: Key retail volumes forecast, 2011-2013Slide 105: Key corporate volumes forecast, 2011-20139. Notes on methodology Banking Market in Poland 2011–2013 6 Intelace Research
    • ASSET PENETRATION IN POLAND IS STILL LOW IF COMPARED TO OTHER CEE COUNTRIES BASED ON PRELIMINARY Banking assets/capita, 2010 Banking assets/GDP, 2010 2010 DATA EUR `000 percent Slovenia 24.9 Latvia 172.4 Czech Rep 16.5 Slovenia 139.5 Estonia 14.6 Estonia 135.0 Latvia 13.7 Hungary 124.1 Banking Market in Poland 2011–2013 Hungary 12.0 Czech Rep 118.1 Croatia 12.0 Croatia 117.3 Slovak Rep 10.7 Bulgaria 104.2 Poland 7.7 Slovak Rep 87.5 Lithuania 7.0 Lithuania 86.7 Bulgaria 5.0 BiH 84.3 Romania 3.6 Poland 82.0 Serbia 3.2 Serbia 81.9 Macedonia 2.8 CEE 15 Macedonia 81.7 CEE 15 weighted weighted BiH 2.7 average: 8.0 Albania 81.6 average: 97 Albania 2.3 Romania 66.5 7Source: Central banks, IMF, National Statistical Offices Intelace Research
    • BANKING ASSETS INCREASED ALMOST 10% IN 2010. COOPERATIVE SECTOR CONTINUES TO GROW FAST CAGR* Yoy change IN PLN Domestic commercial banks ** Banking assets by group of banks, 2004-2010 13 1,032.8 in PLN billion 929.1 939.9 712.2 547.2 618.7 +10% 506.5 Total Banking Market in Poland 2011–2013 2004 2005 2006 2007 2008 2009 2010 14 1,158 1,042 1,057 Foreign bank branches 793 +10% 682 60 538 586 21.0 31.7 56.1 55.7 54.7 3.2 5.3 -2% 2004 2005 2006 2007 2008 2009 2010 Cooperative banks 2004 2005 2006 2007 2008 2009 2010 16 28.7 33.9 42.1 48.9 56.5 61.7 70.5 +14% 2004 2005 2006 2007 2008 2009 2010 Cooperative sector is growing faster* Compound Annual Growth Rate 8** All banks registered in PolandSource: NBP, Intelace Research Intelace Research
    • STRATEGIC CONTROL MAP – MAJOR LISTED BANKS IN POLAND Constant market As of March 2011 cap curves 4 billion 8 billion 16 billion 50 billion Market 2.6 PLN PLN PLN PLNto book* CONSOLIDATED ACCOUNTS 2.4 2.2 A correlation between Banking Market in Poland 2011–2013 2.0 bank size and market to book ratio can be found. 1.8 The largest bank (PKO) enjoys the highest valuation multiple (P/BV) 1.6 1.4 1.2 1.0 Equity* 0 2 4 6 8 10 12 14 16 18 20 22 (PLN billion) 9 * Based on consolidated results for 2010, ratios as of March 2011 Source: banks, press, Intelace Research Intelace Research
    • BANK PROFILE – BZ WBK (2/2) Bank financials, unconsolidated figures Recent facts/events UNCONSOLIDATEDPLN billion, percent CAGR** ACCOUNTS • During 2010, BZ WBK has experienced a drop in client loans (-2%) and a slight increase in client deposits (+2%). Total assets have risen Total 10 by a fraction. As a result, bank has been assets 54.8 51.9 52.0 loosing market share (-0.4pp) during 2010 39.2 • In order to speed up acquisition of new clients, bank introduced new product 2007 2008 2009 2010 packages and applied more aggressive Market Banking Market in Poland 2011–2013 pricing in 2009. Product innovations have Share*(%) 5.3 5.6 5.2 4.8 been also combined with intensive marketing Market campaigns in 2010/2010 share falling • According to the revised strategy for 2009- Net 10 2011, banks’ aspiration was to make a better banking use of its extensive distribution network 2.32 2.79 3.04 3.09 (third largest in the country), in order to revenue achieve a 10% market share in terms of 2007 2008 2009 2010 assets, to increase number of clients and bank’s equity. So far, the strategy does not seem to work as expected, and the reason might be the ownership changes absorbing Net 4 attention of management and tying up other resources profit 0.81 0.81 0.99 0.92 • In Autumn 2010, the majority shareholder of 2007 2008 2009 2010 the bank, AIB Group , agreed to sell its stake to Banco Santander ROAE (%) 21.7 19.6 19.9 15.8* Share in term of assets 10** Compound Annual Growth RateSource: Bank, NBP, Press, Intelace Research Intelace Research
    • NOTES ON METHODOLOGY (1/2)FX rates:• As a general rule all “end of year” balances like: assets, deposits, loans and similar volumes have been converted from the local currency into Euro using end of year exchange rate• All results achieved during a period of time like: profits, revenues, new sales etc. have been converted from the local currency into Euro using average exchange rate• Exchange rates used in the report: EUR / PLN 2004 2005 2006 2007 2008 2009 2010 Banking Market in Poland 2011–2013 End of year 4.08 3.86 3.83 3.58 4.17 4.11 3.96 Average 4.53 4.03 3.90 3.78 3.52 4.33 3.99Estimates and Forecasts:• In some cases, recent or verified data was not available. Therefore, necessary short-term estimations have been done to fill the gaps. Estimates are always indicated with the letter “E”• When preparing forecasts “F” we have built models using latest observed trends, available forecasts of main economic indicators, seasonal changes observed in the past and other specific factors considered important.Multiple sources:• In some cases multiple sources of similar data exist. In this situation we always try to select the most appropriate one /in our view/. The source is indicated in the footer area of each slide. Nevertheless in specific cases, before interpreting the data it is recommended to get a good understanding on the methodology of data collection by contacting the authors. 11 11 Intelace Research
    • About this report About Intelace ResearchThis report has been prepared using Intelace Research Intelace Research is an independent and privately ownedproprietary research and publicly available sources research firm based in the heart of Eastern Europe inincluding: financial reports, press publications, industry Warsaw / Poland.magazines, directories, financial databases and expertopinions. Our company is specializing in value-added research services and tailored business intelligence solutions.Views presented in this report reflect solely independentand unbiased opinion of Intelace Research and the Through our customized research services we help our Banking Market in Poland 2011–2013authors. clients to better understand their consumers, competitors and overall market dynamics.All due care has been taken in the production of thisreport. However, Intelace Research does not accept any The lead researcher and founder of Intelace Research isresponsibility or liability for any omissions or inaccuracies Marcin Mazurek.of the information contained in this publication. Our contact details:This report is copyrighted. Any distribution, storage, Intelace Researchreplication and usage is restricted to Intelace Research Stryjenskich 13c lok.78clients only. In case of any doubt please contact us at: 02-791 Warszawa, Polandinfo@intelace.com Tel. +48 22 408 66 20, Tel. +48 502 512 178 Fax. +48 22 349 21 40 mail: info@intelace.com web: www.intelace.com 12 Intelace Intelace Research
    • OUR RECENT PUBLICATIONS Recent documents: 2010 • February - Mortgage Lending in Poland ’10 • April - Banking Market in Poland ’10 • June - Insurance Market in Poland ’10 • July - Banking outlets database ’10 Banking Market in Poland 2011–2013 • September - Top 200 CEE banks ’10 • October - Investment Funds and Asset Mgmt. ’10 • November - Banking Market in Ukraine ’10 2011 • February - Mortgage Lending in Poland ’11 • April - Banking Market in Poland ’11 • May - Bank outlets database ’11[expected] • June - Insurance Market in Poland ’11 [expected] ... Visit http://www.intelace.com for more details 13 Intelace Research
    • Banks & other institutions mentioned in this reportNarodowy Bank Polski , NBP IDM DMAllied Irish BanksAllianz Bank IkeaAlior Bank INGAIG Bank Polska KBC Kredyt Bank KBCBank BPH KNFBank Pekao LukasBanco SantanderBGK mBankBGŻ Bank Gospodarki Żywnościowej Meritum BankBNP Paribas Fortis Millennium BCP Banking Market in Poland 2011–2013BRE MultibankBOŚ Bank MultibankBZ WBK , Bank Zachodni WBK Meritum BankCetelem NordeaCitibank handlowy Open FinanceCommerzbankDeutshe Bank PKO Bank Polskidb kredyt PioneerDnB Nord Polbank EFGDombank RabobankDominet bankFM bank Raiffeisen BankFortis BNP Paribas Santander Consumer BankGE Money Bank UniCreditGIIF WestLBGMACGetin Noble Bank VW Bank Intelace Intelace Research