Management Board Report of the Alior
Bank S.A. Group
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 2 Contents
I. Summary of Alior Bank’s operations in the first half of 2015 ... 4
Major events and business initiatives executed in the first half of 2015 ... 4
Distribution network and employment level ... 7
Key financial data ... 9
Factors affecting the Bank’s results in next month’s perspective ...11
II. Alior Bank at the Warsaw Stock Exchange ...12
Quotations of Alior Bank’s shares on the WSE in the first half of 2015 ...12
Ratings ...13
Investor relations ...13
III. External environment of the Bank’s operations ...14
IV. Situation in the banking sector ...17
V. Financial results of the Alior Bank S.A. Group ...19
Income statement ...19
Balance sheet...23
Financial forecasts ...29
VI. Operations of Alior Bank S.A. ...30
Retail banking ...30
Corporate banking ...35
Treasury activities ...38
Capital investments ...38
VII. Business overview of the Alior Bank S.A. Group companies ...39
VIII. Significant events to the business operations of the Bank’s Group...41
Information about the planned change of strategic investor ...41
Significant events relating to the merger with Meritum Bank ICB S.A. ...42
Other significant events ...45
Significant events after the balance sheet date ...48
IX. Report on the risk exposure of Alior Bank ...52
Market risk and liquidity risk management ...52
Operational risk management ...62
Credit risk management ...65
Capital management (ICAAP) ...70
X. Contingent liabilities ...71
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 3
XII. Corporate social responsibility ...75
XIII. Controls applied in the process of preparing financial statements ...77
XIV. Shareholders of Alior Bank S.A. ...78
XV. Alior Bank S.A.’s authorities ...81
XVI. Management option scheme ...90
XVI. Management representations ...93
Appointing the registered auditor ...93
Policies adopted in the preparation of the financial statements ...94
Material contracts ...94
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 4
I.
Summary of Alior Bank’s operations in the first half of 2015
Major events and business initiatives executed in the first half of 2015
Undoubtedly, the most important events in the past 6 months included the following: On 30 June 2015, a legal merger of Alior Bank and Meritum Bank took place, as
confirmed by the entry in the National Court Register;
As a result of the merger, Alior Bank will use the best practices and solutions as well as technological potential of both organizations and their employees to strengthen its competitive advantages and to firmly establish its position as innovation leader. The integration process will be completed with an operational merger involving full harmonization of processes, systems and IT infrastructure of both institutions and development of a uniform offer of products and services. In accordance with the timetable, the operational merger will take place by the end of 2015.
In connection with the merger with Meritum Bank, Alior Bank initiated an employment rationalization process and changes in the existing distribution model. The employment downsizing process will be conducted through group lay-offs which will be completed by the end of December 2015 and will involve 1000 FTEs.
The new distribution model will take into account both cost synergies from elimination of overlaps in the network of branches of both banks and the changing needs of the banks’ customers resulting from a dynamic increase in the popularity of online and mobile banking.
On 30 May 2015, a preliminary agreement for the sale of 18,318,473 shares in Alior Bank, representing 25.26% of the share capital, was concluded by and between Alior Lux S.a.r.l. & Co. S.C.A., Alior Polska Sp. z o.o. and PZU S.A..
The shares will be purchased by PZU S.A. in three tranches. The execution of a subsequent tranche will take place 70 days after the execution of the preceding tranche. In the first tranche, PZU will acquire 6,744,900 shares in the Bank held by Alior Lux and 500,000 shares held by Alior Polska. In the second tranche, PZU will acquire 7,244,900 shares in the Bank held by Alior Lux. In the third tranche, PZU will acquire 3,828,673 shares in the Bank held by Alior Lux.
The agreement was concluded based on a condition that necessary permission to conduct the transaction is obtained from the Polish Financial Supervision Authority, Polish Antimonopoly Office (UOKiK) and the Antimonopoly Committee of Ukraine. The Management Board believes that having PZU as a strategic investor will lay solid foundations for the long-term development of Alior Bank and will strengthen its market position.
On 23 June 2015, the Polish Financial Supervision Authority granted Money Makers S.A. (a subsidiary of Alior Bank) permission to conduct activities consisting of establishing investment funds or foreign funds and managing such funds. After transformation, Money Makers S.A. started operating as an investment fund management company (Towarzystwo Funduszy Inwestycyjnych) in July 2015.
Alior Bank’s business activity in the first half of 2015 was characterized mainly by a dynamic increase in total assets (34.5% on a year-on-year basis compared with 5.6% for the entire banking sector) which was due to both the acquisition of Meritum Bank and
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 5 the organic growth driven by sales which focused mainly on cash loans, mortgage loans and corporate loans, executed based on own distribution network.
Sales of current accounts and cash loans through T-Mobile Banking Services were not insignificant, either, as well as Consumer Finance lending activity (instalment loans). Cooperation with T-Mobile enabled customers to open personal accounts with a debit card in 650 T-Mobile sales outlets (including 136 store-in-store outlets which provide a full range of banking services).
Currently, any customer may also obtain a cash loan for any purpose of up to PLN 150 thousand, to be repaid in as many as 120 monthly instalments. A loan application may be submitted either in store-in-store outlets or through remote access channels. An agreement may be concluded remotely, without a need to visit a branch, and customers are able to obtain funds in their bank account even on the same day.
Moreover, on 11 June 2015, the offer of T-Mobile Banking Services was expanded to include products dedicated to entrepreneurs. Sole traders may open a current account and ancillary accounts with a debit card covered with free of charge Assistance insurance. T-Mobile customers may also take advantage of a debit limit in a current account of up to PLN 20 thousand. The offer for business customers is available in store-in-store outlets. Until the end of June 2015 (i.e. after more than a year since the beginning of cooperation with T-Mobile), 226 thousand customers were acquired, within which 86% had no previous relation with Alior Bank.
In terms of instalment loans (Consumer Finance), the Bank’s offer is available in all of its three distribution channels (stationary, direct and online). In the first half of 2015, the Bank focused on a strong sales growth in the direct channel, expanding its activity in the higher-margin areas of the instalment loan business.
The Bank has been successively expanding its customer base by distributing instalment products and establishing relations with customers with a potential for further development of cooperation and sales of other products (mainly cash loans). Increasing the scale of productization of customers attracted in such a way is an important source of revenue generated in the Consumer Finance area.
The average monthly amount of instalment loans in the first half of 2015 (including Meritum Bank) exceeded PLN 900 million.
It should be emphasized that the Bank, as part of its strategy, focuses not only on increasing its customer base, but also undertakes measures aimed at deepening the Bank’s relations with the existing customers.
While pursuing the strategy of a dynamic asset growth, the Bank simultaneously strives to ensure that a desirable operating effectiveness is maintained, as measured by ROE which at the end of June 2015 exceeded 10% and amounted to 11.3%.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 6 As at 30 June 2015, the number of customers served increased to nearly 3 million. Approximately 2.8 million are retail customers, and over 137 thousand are business customers. On a year-on-year basis, the number of customers at the end of the first half of 2015 increased by over 25%, of which slightly more than 13% was due to organic growth. On the other hand, as a result of Alior Bank’s merger with Meritum Bank, the number of customers served as at the end of the first half of 2015 increased by 289 thousand.
The most important channels for acquisition of new customers included: T-Mobile Banking Services (60% of customers acquired in the first half of 2015), branch offices of Alior Bank (22% of customers acquired in the first half of 2015) and Consumer Finance (18% of customers acquired in the first half of 2015).
Alior Bank provides services mainly to customers from Poland. The share of foreign customers in the total number of the Bank’s customers is negligible.
The detailed amounts of quarterly sales (excluding renewals) in the individual credit product groups for retail customers and corporate customers are presented in the diagrams below.
Sales of products to retail customers (in PLN million)
992 1 062 1 114 990 949 423 546 629 562 526 74 73 66 90 55 1 489 1 681 1 809 1 641 1 530 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Other retail Mortgages Cash loans 2 210 2 792 120 137 2 330 2 929 30.06.14 30.06.15 Corporate customers Retail customers Number of customers (in ’000)
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 7 Sales of products to business customers (in PLN million)
Distribution network and employment level
Distribution network of Alior Bank S.A.As at the end of the first half of 2015, the Bank had 771 outlets (210 traditional branches, 153 mini-branches, 408 partner outlets). The Bank’s products are also offered through a network of nearly 3 thousand outlets of financial intermediaries.
In connection with the merger with Meritum Bank, Alior Bank initiated a process of changes in its existing distribution model. The target network of Alior Bank will comprise flagship branches, standard branches and partner outlets.
Until the end of 2015, the Bank will select approximately 40 large “flagship” branches to serve retail and business customers. Flagship branches will offer products according to
829
1 020
838
1 053
1 158
425 406 726 581 737 490 378 553 988 1 161 1 743 1 804 2 118 2 621 3 055Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
Other corporate
Investment loans
Working capital facility
149 195 208 209 210 211 209 210 50 97 230 411 428 414 411 408 100 221 211 211 153 199 292 438 720 859 836 831 771 2009 2010 2011 2012 2013 2014 Q1'15 Q2'15
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 8 the standard of private banking, currently available only to high net worth customers, to retail and business customers. Flagship branches will not offer any cash services. Flagship branches will be located mainly in big cities.
The Alior Bank Express brand will disappear from the market. Some of Alior Bank Express outlets are being upgraded to the standard of universal branches which offer a wider range of products and services, including products for micro-businesses and investment products. Selected outlets will be included in the Bank’s franchise network. Due to overlapping of outlets in certain locations, approximately a dozen franchise outlets may be closed.
On the other hand, transactional services and additional products will be introduced in the franchise network which was enlarged by the Meritum Bank outlets. In the target model, the franchise network will comprise more than 600 outlets.
The implementation of a new distribution model is aimed at increasing the number of products sold per employee, and thus, improving sales efficiency.
As at the end of June 2015, the number of Alior Bank’s outlets decreased by 65 amend compared with the end of December 2014. In the second quarter of 2015 alone 60 outlets were closed.
In addition, Alior Bank uses distribution channels based on a state-of-the-art IT platform, including online banking, mobile banking and call centres.
The distribution network described above is strongly supported by 650 service outlets where the Bank’s products are offered under the T-Mobile Banking Services brand and delivered by Alior Bank. Out of these service outlets, as at the end of the first half of 2015, full banking services were provided by 136 dedicated T-Mobile Banking Services outlets.
Additionally, Consumer Finance products are available from more than 470 business partners and more than 1000 shops.
Moreover as at 30 June 2015 the Bank had 174 partner outlets taken over from Meritum Bank.
Number of employees
As at the end of the first half of 2015, the employment level at Alior Bank was 6738 full-time positions (FTEs). This means an increase of 498 FTEs, i.e. 8%, compared with the end of the first half of 2014. The employment level expressed in the number of employees increased by 599 in the same period.
The said increases are connected with the Meritum acquisition and employment increase connected with it by 651 FTEs as of the end of first half of 2015.
Simultaneously Alior Bank is currently in the employment rationalization process. The employment downsizing is conducted through group lay-offs to be completed by the end of December 2015 and will involve up to 1000 FTEs.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 9 Employment level expressed by the number of FTEs:
Employment level expressed by the number of employees:
Key financial data
The achievements described above which resulted in an increase in the scale of operations significantly contributed to the level of net profit earned.
The net profit of the Bank’s group (attributable to the equity holders of the parent company) earned for the first half of 2015 amounted to PLN 179,035 thousand and was higher than the net profit earned for the comparable period of the prior year by PLN 27,400 thousand, i.e. 18.1%.
Selected financial indicators and financial results of the Alior Bank Group are presented in the table below:
in PLN ’000/ %
30.06.2015 30.06.2014 30.06.2013
Total assets 36 466 760 27 124 461 22 822 205
Loans and advances to customers, net 28 344 652 21 877 242 17 369 735
Amounts due to customers 29 774 617 21 395 053 19 051 608
Equity attributable to equity holders of the
parent company 3 345 221 2 820 193 2 063 501
Net interest income/(expense) 716 863 581 088 461 725
Total revenue 1 044 730 883 629 723 219 2 202 2 254 2 343 2 133 2 159 4 038 4 305 4 294 4 251 3 928 714 651 6 240 6 559 6 637 7 098 6 738 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Meritum Outlets Headquaters 2 253 2 325 2 426 2 186 2 223 4 160 4 382 4 408 4 380 4 138 714 651 6 413 6 707 6 834 7 280 7 012 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Meritum Outlets Headquaters
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 10 Operating expenses -520 392 -448 926 -401 388 Net profit 179 035 151 635 128 442 NIM 4.64 4.76 4.56 ROE (%) 11.3 12.1 12.7 Costs / Income 49.8 50.8 55.5 Loans / Deposits 95.2 102.3 91.2 Solvency ratio 12.8 13.1 12.8
Due to the fact that on 30 June, the District Court in Warsaw, 13th Business Department of the National Court Register, registered the merger of Alior Bank with Meritum Bank, the financial data of Alior Bank and Meritum Bank are presented jointly.
The key factors which affected the Alior Bank Group’s financial results in the first half of 2015 included both organic growth, driven mainly by the loan portfolio growth (supported by a series of initiatives, including offering products in cooperation with T-Mobile Polska), and the merger of Alior Bank with Meritum Bank. These factors, supported by diligent monitoring, significantly contributed to increases in the main items of the balance sheet and the income statement.
As at the end of the first half of 2015, the Group’s total assets increased by 34.4% year-on-year to PLN 36,466,760 thousand. Net loans and advances to customers increased by 29.6% in the same period, to PLN 28,344,652 thousand, and amounts due to customers increased by 39% to PLN 29,774,617 thousand. Due to a larger scale of deposit acquisition in the first half of 2015, the loans-to-deposits ratio amounted to 95.2% as at the end of the first half of 2015, i.e. 6.9% better compared with the first half of the prior year.
Increases in balance sheet items were accompanied by a dynamic growth of total revenue with interest income as the main component of this growth. In the first half of 2015, total revenue increased to PLN 1,044,730 thousand, i.e. by 18.2% year-on-year. Interest income (which increased by 23.4% year-on-year in the first half of 2015) represented over 68% of total revenue.
In the first half of 2015, the Group’s operating expenses amounted to PLN 520,392 thousand and increased by 15.9% compared with the same period of the prior year, i.e. by 2.3 pp less than the increase of revenue in the same period.
Consequently, the cost-to-income ratio was 49.8% in the first half of 2015, 1 pp lower than in the first half of the prior year.
The increase in the scale of operations was accompanied by efforts to maintain the solvency ratio at the level required by the law. Due to a share issue conducted in connection with the merger with Meritum Bank and the inclusion of the net profit earned in 2014 in equity, the solvency ratio amounted to 12.78% despite an increase in risk-weighted assets. Its level was 0.36 pp lower than capital ratio at the end of the first half of 2014.
The key external factors which affected the financial results of the Alior Bank Group in the first half of 2015 included:
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 11 Operating in the environment of low interest rates resulting from decisions of the Monetary Policy Council to lower interest rates in October 2014 and March 2015 which brought the Lombard rate to a historic low of 2.5%;
a reduction in interchange rates in January 2015; before the reduction, commission on transactions charged by banks amounted to 0.5%. After the reduction, the commission is 0.3% for transactions with credit cards and 0.2% for debit cards;
an increase in the mandatory annual premium paid to the Bank Guarantee Fund in 2015 to 0.189% (from 0.1%) of 12.5 times the sum of capital requirements, and an increase in the prudential levy from 0.037% to 0.05% of 12.5 times the sum of capital requirements;
the continued recovery of economic growth in Poland which increases the demand for loans in an environment of low interest rates. According to preliminary data of the Central Statistical Office of Poland (GUS), in the first half of 2015, the real GDP growth was 1.0% compared with the previous quarter and 3.5% compared with the prior year. The National Bank of Poland (NBP) estimates that Poland’s GDP growth in 2015 will reach 3.6%. According to the NBP, the growth will be driven by an improving situation in the labour market, low prices and the growing dynamics of business investments;
an increase in uncertainty on the financial markets as a result of growing concerns regarding the further development of the geopolitical situation in Ukraine, the prospects for an agreement between Greece and its international lenders relating to financing the next tranche of aid, and concerns regarding the excessive pace of monetary policy tightening by the FED.
Factors affecting the Bank’s results in next month’s perspective
In the next few months, the Bank’s financial results will be determined by the following factors:
the level of sales of the main products offered by the Bank, including mainly cash loans and housing loans for retail customers, and the scale of distribution of products for corporate customers, combined, at the same time, with maintaining profitability of sales at the budgeted level;
efficient implementation of the operational merger of the banks resulting in achieving planned synergies in terms of income, costs and risk management, while maintaining integration costs at the budgeted level. In accordance with the timetable, the operational merger will take place by the end of 2015;
continuation of positive trends in the economy. GDP growth, low inflation, increases in the employment and remuneration level, and an increase in households’ real income;
potential possibility of changes being introduced by regulators in the legal environment and resulting in an increase in charges associated with conducting banking activities (Act on CHF mortgages conversion, increase of BFG charges, banking assets tax).
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 12
II.
Alior Bank at the Warsaw Stock Exchange
Quotations of Alior Bank’s shares on the WSE in the first half of 2015
Alior Bank made its debut on the WSE on 14 December 2012. On 21 March 2014, barely 15 months after the stock exchange debut, the Bank joined the circle of the twenty largest and most liquid companies quoted on the Warsaw trading floor. In the first half of 2015, the total turnover in the Bank’s shares amounted to PLN 1.44 billion (vs. PLN 1.77 billion in the first half of 2014).The development of share prices and turnover volumes of the Bank’s shares on the WSE in the first half of 2015 is presented in the diagram below:
In the first half of 2015, the price of the Bank’s shares increased by 14.6% reaching PLN 77.98 as at 30 June 2015. This should be compared with the value of the WIG Banki index which decreased by 0.7% in the same period, while the quotations of the WIG20 index fell by more than 3.5%. As at the end of the first half of the year, Alior Bank’s P/E and P/BV ratios amounted to 18.8 and 1.96, respectively. In accordance with the data published in the WSE’s Official Bulletin (Cedula), the same ratios for the entire banking sector amounted to 15.1.
The diagram below presents the evolution of Alior Bank’s share quotations against the background of the evolution of WIG and WIG Banki indices in the first half of 2015 (quotations as at 30 December 2014 = 100).
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 13 Alior Bank’s shares listed on the WSE remain the subject of interest of many financial institution which prepare recommendations for their clients, due to, inter alia, a high liquidity of their quotations.
As at the end of June 2015, analytical reports on Alior’s shares were prepared by 21 financial institutions, both Polish and international, including, inter alia: Barclays Capital, JP Morgan, Citibank, Morgan Stanley, Wood&Company, DM PKO BP, DM BZWBK.
Ratings
On 5 September 2013, Fitch Ratings Ltd. assigned a company rating to Alior Bank S.A. of BB with stable outlook. The rating was maintained unchanged based on an evaluation of 5 March 2015.
The full rating evaluation of the Bank assigned by Fitch is as follows: 1. Long-Term Foreign Currency IDR: BB, outlook stable;
2. Short-Term Foreign Currency IDR: B;
3. National Long-Term Rating: BBB+(pol), outlook stable; 4. National Short-Term Rating: F2(pol);
5. Viability Rating (VR): bb; 6. Support Rating: 5;
7. Support Rating Floor: ‘No Floor’.
Definitions of Fitch ratings are published on its website at www.fitchratings.com, which includes ratings, criteria and methodologies.
Investor relations
Alior Bank perceives a consistent information strategy as an important element contributing to the development of the market value of its shares. Consequently, Alior
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 14 Bank carefully maintains regular, timely and effective communication with capital market participants.
As a public company, the Bank takes active measures to meet the information needs of its stakeholders, while striving to ensure universal and equal access to information in accordance with the highest market standards and the applicable laws.
Within the Bank, these activities are conducted by the Investor Relations Department which reports to the President of the Management Board. The tasks of the Investor Relations Department are aimed mainly at ensuring constant, immediate access to information on all material changes occurring within the Bank which have or may have an impact on the price of its shares.
As part of these activities, the Investor Relations Department organizes meetings of the Bank’s Management Board and its top management with capital market participants, including potential investors and analysts who prepare reports on the Bank.
These meetings are also aimed at discussing the current financial and operating situation of the Bank and at presenting, in a fair manner, the Company’s operating strategy and planned areas of further development. In addition to the issues referred to above, matters discussed at such meetings also include the current macroeconomic situation, the condition of the financial sector and the Bank’s competitive environment.
In the first half of 2015, 162 meeting were held, including 113 with foreign investors and 49 with local investors. The meetings took place both at the premises of Alior Bank and as part of domestic and international conferences and roadshows. The Bank also participates in many conferences organized by domestic and foreign brokerage houses. Moreover, to ensure equal access to information for all investors, Alior Bank organizes online chats for domestic individual investors to enable them to have direct contact with the Bank’s top management.
Webpages dedicated to investor relations, updated on an on-going basis and available on the Bank’s website (www. aliorbank.pl), are another important tool of communication with capital market participants. They are run in both Polish and English and provide a wide range of information necessary for investors to make a comprehensive assessment of Alior Bank’s operations (e.g. current and periodic reports, presentations of financial results, information on General Shareholders’ Meetings, corporate documents and current ratings prepared for the Bank).
III.
External environment of the Bank’s operations
Economic growth in Poland
The GDP growth rate in Q1 2015 brought two positive surprises: the flash estimate, amounting to 3.5% y/y, was adjusted upwards to 3.6% in the subsequent reading. Seasonally adjusted growth amounted to 1% q/q. The figures confirm that the fast growth of the Polish economy is the outcome of the performance of all its components: consumption, private investments, public investments and export. Export grew by 8% y/y (the fastest growth since Q3 2013), whereas the growth of import slowed down to 6%. As a result, the contribution of net export to growth amounted to 1.1 p.p., following a full year of negative contribution. The increase in private consumption accelerated to
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 15 3.1% y/y, and the increase in investments in fixed assets accelerated to 11.4% y/y (the highest level since Q1 2014). The latter result is particularly positive, since the investment growth rate was expected to decrease slightly in relation to the high previous year’s base; however, the investment growth accelerated and equalled the exceptionally high level recorded in Q1 2014, which reflects the permanent nature and strength of the economic growth. Stable private consumption growth should also continue further in the year with the aid of a further decrease in unemployment and growth in real wages and salaries. The increase in domestic demand was visibly slower in the first quarter (2.6% y/y), but it was mainly due to a significant decrease in inventories resulting from a considerable improvement in the net export balance. The decrease in inventories caused a decrease in the GDP growth in the first quarter of approx. 1.5 p.p.
Whereas the GDP growth data for Q1 2015 was strong and suggested sound and sustainable economic growth at the beginning of the year, some of the monthly ratios in the second quarter were disappointing and shed uncertainty on the issue of sustainability of growth. Industrial production was very disappointing in April, as its growth slowed to 2.3% y/y (the lowest level since January). At the same time, retail sales slowed down to 1.5% y/y (the lowest level since November 2014). Both these results were significantly lower than in March (8.8% and 6.6% y/y, respectively). It was probably the effect of Easter (which was earlier than in the previous year), which contributed to the annual increase in production and sales in March, and to their decrease in April. This seems to be confirmed by the fact that in both cases the overall result was mainly dependent on food, while the other categories generated quite good results. As far as production is concerned, the number of working days also mattered. On the other hand, the PMI index for Poland decreased in May to 52.4 points from 54 points in April, in line with all the main sub-indices (production, new orders, new export orders and employment). The strong decrease in this index in May was very surprising considering the strong macroeconomic data and recovery in the euro zone. It is possible that the ratio was affected by the results of the presidential election and the fears concerning Greece. It should be noted that other measures of economic activity (the European Commission’s ESI indicator, the economic situation index of the Polish Central Statistical Office) were quite good and consistent with the expected GDP growth of approx. 3.5% in Q2 2015.
Situation on the labour market
The demand for jobs has stopped accelerating in recent months, but remains sound. The increase in employment in the companies sector stabilized at the level of 1.1% y/y in April, whereas growth in the number of employed persons according to BAEL (the Labour Force Survey) slowed down to 1.5% y/y. The seasonally adjusted BAEL unemployment rate remained at a level of 7.9% in April (the lowest since May 2009). At the same time, there are more and more indications of labour shortages (such as e.g. the increase in the ratio of job offers per one employed person), which increases pressure on wages. This trend will probably continue, since the working-age population in Poland has started to decrease. According to BAEL data for April, the number of active labour market participants decreased by 113 thousand since January and by 162 thousand year-to-year (to 17.3 million). This trend should continue in the following quarters.
The average increase in wages and salaries accelerated to 3.7% y/y in April, i.e. less than in March, but (as in the case of production and sales) this could be due to the effect of Easter (earlier payment of bonuses, which accelerated the rate of wages and salaries’ growth in March and slowed it down in April). In the following quarters further increase in wages and salaries is expected in the following months. The accelerating rate of growth in household income from work has a positive effect on consumer confidence and supports private consumption.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 16
Inflation
As expected, the inflation rate (CPI) increased to 1.1% y/y in April compared with -1.5% y/y in March. In monthly terms, the prices of consumer goods and services increased by 0.4% m/m (the highest growth since April 2013). The annual CPI increase was mainly due to higher prices of fuels and food. In particular, the prices of fruit and vegetables increased, probably due to the effect of the Russian embargo being weaker and weaker. Base inflation (CPI after excluding food and energy prices) also increased (from 0.2% y/y to 0.4% y/y). The inflation rate is expected to grow further in the following months; however, deflation will continue into the third quarter, and the CPI growth as at the end of the year should approach 1% y/y (still being far from the inflation target announced by the Monetary Policy Council (RPP)). Faster economic growth, higher food and raw material prices and a very low statistical base will exert pressure on CPI growth.
Situation in foreign trade
Poland’s export increased by 13.7% y/y in March (the highest increase since October 2012) due to growing demand from the European Union. The figures show a visible growth in export to the main trade partners (Germany, the UK, Italy, the Netherlands, the Czech Republic), and this trend should continue in view of the indications of economic recovery in Europe. In March, the current account balance showed a record-breaking surplus (EUR 1.9 billion) and the ratio of the 12month balance to GDP amounted to -0.6% (the best result since the mid-1990s). This was a result of improvements in all categories: trade, services, and income. Moreover, the coverage of the 12-month current account deficit with the total inflow of long-term investments (EU funds + net direct foreign investment) increased to a record-breaking level of 735%. This positive trend was maintained in subsequent months, and the foreign trade balance for May amounted to EUR +946 million (this was associated with fast growing export and stable import). Export should continue to grow fast in the following quarters and it will contribute to accelerated economic growth, most probably making the year 2015 the first year with a positive current account balance since 1995.
Increased political risk and instability of global markets
Global factors will be the key to the valuation of domestic assets. The debt market is still dominated by risk aversion. The US labour market data for May, which is much stronger than the forecasts, increased again the expectations of interest rate increases by the Fed later in the year (they may come true in September). The higher yields on US debt will contribute to an increase in the yield on domestic bonds. A high positive correlation between the Polish and German debt has been maintained since the commencement of the QE programme by the ECB. Continued growth in yields on the base markets will result in higher yields on bonds/ IRS rates. The unsolved issue of financial aid for Greece will impose an additional burden on the valuation of domestic assets, maintaining the yields and IRS rates at a high level. Due to low interest rates being maintained at the short end of the curve, the yield curve has become even steeper. In the short term, reaching an agreement between Greece and its creditors should let the market breathe a bit. In the mid-term, investors will assess the political risk and the risk premium will grow as a result, which, in combination with higher volatility, may lead to yields/ IRS rates being maintained on an increased level.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 17
Foreign exchange rate
In the first half of 2015, the Polish zloty was under the negative pressure of unstable global moods associated with ambiguous signals regarding Greece. Additionally, some Polish data for the second quarter (particularly PMI) was not very good, which also contributed to an increase in the EUR/PLN exchange rate to almost 4.20. The global mood remains unstable due to the situation in Greece, China and Ukraine, discouraging investors from increasing their exposure to risky assets. At the same time, the exchange rate of the Polish zloty is still affected by fundamental factors, such as e.g. high real interest rates, accelerating economic growth, improving balance of payments and fiscal position, as well as the QE programme conducted by the ECB, which should support the Polish zloty in the following months of the current year.
IV.
Situation in the banking sector
Banking sector in the first half of 2015
The economic recovery observed in the first half of 2015 favourably affected the operating conditions of the Polish banking sector in the I half of 2015. There was a strengthening of the economic activity of Polish enterprises and the related acceleration of the lending activity, both in the area of corporate loans and household loans.
Nevertheless, one should bear in mind that the global economy is currently influenced by a number of negative factors, including the Ukrainian crisis, uncertainty associated with the possibility of Greece announcing its insolvency, or information from the FED on the potential tightening of the monetary policy in the US. A negative impact of these factors on the level of economic activity in Poland cannot be ignored, particularly with regards to their impact on the operating condition of Polish banks in the coming periods.
In the first half of 2015, banks operated in the environment of historically low interest rates which put pressure on the level of the net interest margin generated, in spite of measures undertaken by the banks to adjust.
The pressure was visible already towards the end of the last year following the interest rate cuts implemented in September when the Lombard rate was reduced by 100 bp to 3%. The pressure on net interest income strengthened further in the first quarter of 2015 after the Monetary Policy Council’s decision of 5 March 2015 to cut interest rates even further. This cut brought the Lombard rate to a record low level of 2.5%.
Interest rate cuts translated into lower interest rates on loans and deposits and lower yields on debt securities. Between January and June 2015 vs. the same period last year, the bank’s interest income fell by PLN 3,588 million, i.e. by 12.1%, and interest expense fell by PLN 1 957 million i.e. by -17.9%.
On the other hand, net fee and commission income decreased (by PLN 274.4 million to 6 676 million) mainly due to lower income generated by banks on payment cards following a reduction in interchange fees.
In January 2015, before the reduction, commission charged by banks on card transactions amounted to 0.5%. After the reduction, the commission is 0.3% for transactions with credit cards and 0.2% for debit cards.
A material increase in the net income on other banking activities was directly affected by an increase in income on trading and investment activities (a sale of a part of the Treasury bonds portfolio) and an increase in dividend income.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 18 Operating expenses (including depreciation and reserves) increased (by PLN 274 million; 1,8%) reaching the amount of PLN 15 697 million in the first half of 2015.
The level of impairment write offs (including IBnR as well as general risk reserves) in the first half of 2015 amounted to PLN 3 180 million and was by 14.4% (PLN 533 million) lower comparing to the same period last year.
Consequently, the net profit of the banking sector for the period from January to June 2015 of PLN 7.96 billion was 8.2% lower than in the same period of the prior year. Economic recovery positively contributed to increasing the scale of operations of the banking sector. In June 2015, the total assets of the banking sector increased to PLN 1,577 billion, i.e. by 5.6%, year-on-year. On the assets side, the increase was mainly due to an increase in loans and advances to customers of 4.6% y/y to PLN 1 090 billion, and on the liability side, an increase in customer deposits of 7.1% to PLN 1 080 billion.
In the first quarter of 2015 (the most recent data published by the Polish Financial Supervision Authority), equity of the banking sector increased to PLN 142 billion, i.e. by 3.8%, compared with the end of 2014.
The total amount of risk weighted assets amounted to PLN 954,1 billion and was 2.4% higher than at the end of 2014.
Consequently, at the end of March 2015, the total capital adequacy ratio of the banking sector amounted to 14.89 and the banking sector as a whole complied with the requirements of CRD IV/CRR.
In the coming months, pressures on the banks’ operations and market valuation, in addition to the factors described above, will mainly come from regulatory decisions which will ultimately be determined by the result of the parliamentary elections to be held in autumn. These decisions will relate primarily to the following two aspects:
realization of the potential scenarios relating to the possibility of currency conversion of housing loans denominated in CHF. An analysis of the proposed solutions indicates that their implementation will significantly contribute to lowering the financial results of systemically important banks and may result in a need for capital increases in many of them
According to the PFSA callculations which have been made publicly known, depending on the version of the law to be adopted the value of write-offs related to the conversion including the funding change costs and other costs can amount to approx. PLN 13.6 - 21.9 bln.
introduction of a banking tax based on asset taxation. The proposal provides for imposing a tax on the banking sector at the level of 0.39% of its total assets. This would reduce profits in subsequent years by one third, thus significantly affecting the long-term profitability of conducting banking activities in Poland before any effects of measures intended to absorb the new tax (such as cost cuts, higher margins or higher fees and commission for banking products and services) materialize.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 19
V.
Financial results of the Alior Bank S.A. Group
Income statement
The detailed items of the Alior Bank S.A. Group’s income statement are shown in the table below: PLN’000 1.01.15- 30.06.15 1.01.14- 30.06.14 Change y/y % Interest income 1 005 832 835 630 20.4% Interest expense -288 969 -254 542 13.5%
Net interest income 716 863 581 088 23.4%
Dividend income 42 2 2000.0%
Fee and commission income 260 393 263 918 -1.3%
Fee and commission expense -97 284 -96 532 0.8%
Net fee and commission income 163 109 167 386 -2.6%
Trading result 136 667 115 007 18.8%
Net gain / loss realized on other
financial instruments 4 345 2 170 100.2%
Other operating income 51 047 26 045 96.0%
Other operating expenses -27 343 -8 069 238.9%
Other operating income, net 23 704 17 976 31.9%
General administrative expenses -520 392 -448 926 15.9% Net impairment losses and
allowances -304 139 -247 151 23.1%
Profit before income tax 220 199 187 552 17.4%
Income tax -41 517 -36 267 14.5%
Net profit on continued operations 178 682 151 285 18.1% Net profit attributable to equity
holders of the parent company 179 035 151 635 18.1% Net loss attributable to
non-controlling interests -353 -350 0.9%
Net profit 178 682 151 285 18,1%
In the first half of 2015, the net profit of the Alior Bank S.A. Group (attributable to the parent) amounted to PLN 179,035 thousand and was PLN 27,400 thousand (i.e. 18.1%) higher than the net profit earned in the same period of the previous year.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 20 Total revenues (in PLN million)
Net interest income is the main component of the Group’s income (representing 68.6% of the total balance). Its over 23% increase year on year was not only the effect of an organic increase in the volume of loans extended to customers and the accompanying increase in customer deposits but also of the acquisition of Meritum Bank. In effect of the events referred to above, the net customer loan portfolio increased by 29.6% year on year and the deposits from the non-financial sector increased by 39.2%. An adequate pricing policy in respect of deposit and lending products also had a positive impact on the level of generated interest income in view of the Bank’s operating in an environment of low interest rates.
The factors which had a negative impact on net interest income in the 1st half of 2015 comprise mainly the reduction of interest rates in March which led to reducing interest on the loans offered by the Bank and thus had a negative impact on the generated interest income. This had a significant impact on the level of net interest income generated by the Bank in view of the time necessary to change the costs related to the maintained deposit base.
It should be emphasized that despite the drop in interest rates the Group’s profitability remained at a level of 4.64% in the 1st half of 2015 and compared to the interest margin earned in the 1st half of 2014 was only 12 b.p. lower.
At the same time, the average interest rate on loans went down by 0.87 p.p. to 5.93%. In the same period, the average cost of deposits decreased to 1.66% i.e. by 0.34 p.p. The average 3M WIBOR amounted to 1,77% in the 1st half of 2015 and dropped by 0.94 p.p. compared to the 1st half of 2014.
1 H 2015 (%) 1 H 2014 (%)
LOANS / 3M WIBOR 5.93 / 1.77 6.8 / 2.71
Retail segment, including: 6.90 8.0
Consumer loans 9.09 10.1
Loans for residential real estate 4.15 4.5
Corporate segment, including: 4.68 5.3
Investment loans 4.67 5.2
Working capital facilities 4.69 5.2
581,1 716,9 167,4 163,1 135,2 164,8 883,6 1 044,7 1H 2014 1H 2015
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 21 Car loans 6.56 8.4 DEPOSITS 1.66 2.0 Retail segment 1.58 2.0 Current deposits 0.40 1.0 Term deposits 2.56 2.9 Corporate segment 1.80 2.0 Current deposits 0.07 0.1 Term deposits 1.83 2.1
Net fee and commission income decreased by (2.6%) to PLN 163.1 million. It comprised PLN 260.4 million of commission income (down by 1.3%) and PLN 97.3 million of commission expense (up by 0.8%).
Fees related to loans, accounts, transfers and payments, etc. are the main component of fee and commission income. In the first half of 2015, they amounted to PLN 140.3 million and represented 53.9% of the fee and commission income. This year on year increase resulted mainly from the increase of fees related to accounts servicing as well as to a lesser extent from the increase of fees connected with granting loans as well as transfers and payments.
Additionally, it should be emphasized that there was a drop in fee and commission income related to servicing payment and credit cards obtained in the first half of 2015 due to the drop in inter change fee rates, as mentioned in the section “Summary of Alior Bank’s operations in the first half of 2015”.
Fee and commission income (PLN million)
Net trading income, the result realized on other financial instruments and net other operating income increased by a total of 21.9% to PLN 164.7 million). The Group recorded an 18.8% increase, year on year, in net trading income to PLN 136.7 million, i.e. by PLN 21.7 million. 27,9 33,2 60,7 41,9 75,9 45,0 99,5 140,3 263,9 260,4 1H 2014 1H 2015
fees related to loans, accounts, transfers, payments, etc.
bancassurance
payment and credit cards serviving
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 22 Most of the net trading income was earned on margins in foreign exchange transactions and interest rate derivatives concluded with the Bank’s customers.
Net trading income realized on other financial instruments and net other operating income (in PLN million)
The increase in the Bank’s general administrative expenses, thanks to careful monitoring of the expenses incurred, in the first half of 2015 was maintained at a level lower than the increase in operating income (15.9% compared with 18.2%). In the first half of 2015 operating expenses amounted to PLN 520.4 million and were PLN 71.5 million higher than in the same period of the prior year. It should be noted the estimated impact of acquiring Meritum Bank (at the level of approx. PLN 40.5 m) on the level of operating expenses in the first half of 2015.
Personnel expenses in the period under analysis amounted to PLN 278.5 million and were 12.6% higher than those incurred in the first half of 2014.
This was due mainly to acquiring the employees of Meritum Bank (641 full-time equivalents as at 30 June 2015) and to a reduction in employment under group layoffs.
Tangible costs amounted to PLN 199.1 million in the first half of 2015 and were 26.1% higher than those incurred in the first half of 2014. The main reasons for the increase in tangible costs include, similarly in respect of personnel expenses, the acquisition of Meritum Bank and an increase in the scale of operations.
The largest increase in tangible costs was noted in BGF costs – of PLN 14.7 million (i.e. 98.5%), which was related to an increase in the rate of fees payable to BGF.
Bank expects that the total amount of integration costs with Meritum Bank will amount to PLN 50 m. While the amount of integration costs incurred by the Bank in the first half of 2015 amounted to PLN 9.7 mln.
The amount of cost synergies obtained in the second quarter of 2015 was equal to PLN 5 m.
As a result, the Cost / Income ratio amounted to 49.8% in the first half of 2015 compared with 50.8% in the 1st half of 2014.
115,0 136,7 2,2 4,3 18,0 23,7 135,2 164,7 1H 2014 1H 2015
Net other operating income Net gain (realized) on other financial instruments
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 23 General administrative expenses (in PLN million)
The increase in impairment losses and provisions, which in the first half of 2015 amounted to PLN (304.1) million – (PLN (247.2) million in the first half of 2014 – a 23.1% increase), resulted mainly from the increase in impairment losses on receivables from non-financial sector customers (from PLN 229.1 million to PLN 307.9 million).
The change in the sign on IBNR relating to the non-financial sector also had a material impact on this item.
The estimated impact of the acquisition of Meritum Bank on the level of impairment allowances in the first half of 2015 was approx. PLN 53 million.
Net provisions calculated in relation to the average balance of gross amounts due from customers (risk cost ratio) dropped year on year from 2.27% to 2.22%.
Net impairment losses (in PLN million)
1.01.2015- 30.06.2015 1.01.2014- 30.06.2014 % change y/y
Impairment allowances on amounts due
from customers -310 961 -229 667 35.4% financial sector -3 013 -612 392.3%
non-financial sector -307 948 -229 055 34.4%
retail customers -208 287 -141 368 47.3%
corporate customers -99 661 -87 687 13.7%
IBNR for customers without impairment
losses 13 993 -18 358 -
Provision for off-balance sheet liabilities 961 881 9.1%
Property, plant and equipment and
intangible assets -8 132 -7 - Net impairment losses and allowances -304 139 -247 151 23.1%
Balance sheet
As at 30 June 2015 the value of total assets of the Alior Bank Group amounted to PLN 36,466,760 thousand and was PLN 9,342,299 thousand (34.4%) higher than as at the end of 2014. The impact of acquiring Meritum Bank on the increase in the value of
-247,4 -278,5 -157,9 -199,1 -39,3 -39,9 -4,3 -2,9 -448,9 -520,4 1H 2014 1H 2015
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 24 assets was approx. PLN 2.7 billion, which is around 29% of the increase in the value of total assets.
The main items which generated the increase in total assets were amounts due from customers – a y/y increase of PLN 6,467,410 thousand, and on the liabilities and equity side, customer deposits – an increase of PLN 8,379,564 thousand. The impact of the acquisition of Meritum Bank on the increase of the items listed above amounted to: 45.7% and 31.7% respectively.
The tables below show the detailed items of assets, liabilities and equity as at the end of the first half of 2015, with comparatives.
in PLN’000 ASSETS As at 30.06.2015 As at 30.06.2014 % change y/y
Cash and balances with Central Bank 1 814 603 1 057 413 71.6%
Financial assets held for trading 427 473 284 808 50.1%
Available-for-sale financial assets 2 713 708 1 503 883 80.4%
Derivative hedging instruments 49 445 15 671 215.5%
Amounts due from banks 502 779 292 331 72.0%
Amounts due from customers 28 344 652 21 877 242 29.6%
Assets pledged as collateral 1 495 445 1 299 221 15.1%
Property, plant and equipment 184 272 204 248 -9.8%
Intangible assets 357 654 190 006 88.2%
Assets held for sale 1 879 38 335 -95.1%
Income tax assets 228 238 145 169 57.2%
Deferred 228 238 145 169 57.2%
Other assets 346 612 216 134 60.4%
TOTAL ASSETS 36 466 760 27 124 461 34.4%
in PLN’000
LIABILITIES AND EQUITY As at
30.06.2015
As at 30.06.2014
% change y/y
Financial liabilities held for trading 324 028 225 988 43,4%
Amounts due to banks 1 600 556 1 587 834 0,8%
Amounts due to customers 29 774 617 21 395 053 39,2%
Derivative hedging instruments 10 887 0
Provisions 14 014 4 198 233,8%
Other liabilities 670 677 721 292 -7,0%
Income tax liabilities 15 666 18 681 -16,1%
Current 15 666 18 681 -16,1%
Subordinated liabilities 711 094 348 962 103,8%
Total liabilities 33 121 539 24 302 008 36,3%
Equity 3 345 221 2 822 453 18,5%
Equity attributable to equity holders of
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 25
Share capital 726 812 699 413 3,9%
Supplementary capital 2 278 384 1 773 494 28,5%
Revaluation reserve -22 724 6 082
Other reserves 185 762 179 765 3,3%
Share-based payments – equity
component 185 762 179 765 3,3% Retained earnings / (accumulated
losses) -3 608 9 804
Net profit/loss for the year 179 035 151 635 18,1%
Non-controlling interests 1 560 2 260 -31,0%
TOTAL LIABILITIES AND EQUITY 36 466 760 27 124 461 34,4%
Amounts due from the Group’s customers are the core component of assets (PLN 28,344,652 thousand). Their share in the total assets as at the end of the first half of 2015 was 77.7% and it decreased by 3.0 p.p. compared with the end of the first half of 2014. Available-for-sale financial assets were another significant item of assets as at the end of the first half of 2015, and they amounted to PLN 2,713,708 thousand, representing 7.4% of total assets (in the first half of 2014 - 5.5% of total assets).
Assets of the Alior Bank S.A. Group (in PLN billion)
The increase in amounts due from customers of 29.6% resulted mainly from the 36.1% (i.e. PLN 4.3 billion) increase in the volume of loans and advances granted in the retail segment. The respective organic growth was significantly supported by the acquisition of retail loans of Meritum Bank with a value of PLN 2.1 billion. The volume of loans to the corporate segment increased by 21.9% (i.e. PLN 2.2 billion).
21,9 28,3 1,5 2,7 1,3 1,5 1,1 1,6 1,1 1,8
0,3
0,5
27,1 36,5 30.06.2014 30.06.2015Amounts due from banks
Cash and balances with the Central Bank
Other assets
Assets pledged as collateral
Financial assets available for sale
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 26 Amounts due from customers (PLN billion)
Consumer loans with a volume exceeding PLN 7.9 billion (up by 38.5% y/y) were the main component of the loan portfolio in the retail segment. They represented more than 49.7% of all loans and advances to retail customers. Housing loans and mortgage loans had the second largest share in the loan portfolio of the retail segment (41.6%) with the aggregate volume of PLN 6.7 billion as at the end of June 2015 (an aggregate increase of 37.5% y/y).
Working capital loans represented the largest component of the corporate segment loan portfolio, i.e. 56.7%. Year on year, their value increased by 23% to more than PLN 6.9 billion. Investment loans were another significant item in the corporate segment loan portfolio, representing 38% of the said portfolio. Their balance at the end of the first half of 2015 increased by 27.6% to over PLN 4.6 billion.
Structure of amounts due from customers by currency
As at the end of June 2015 the share of amounts due in PLN increased by 2 p.p. compared with the end of June 2014. In effect, the share of amounts due in PLN amounted to 87% as at the end of June 2015.
Total amount of loans in CHF amounted to PLN 211 mln in the first half of 2015 and constituted 0.7% 11,8 16,0 10,1 12,3
21,9
28,3
30.06.2014 30.06.2015 Corporate segment Retail segment 85% 87% 15% 13% 30.06.2014 30.06.2015 Pozostałe PLNManagement Board Report of the Alior Bank S.A. Group for the first half of 2015 27 Structure of amounts due from customers by geographical area (as at 30.06.2015) Voivodeship % of amounts due Mazowieckie 26% Śląskie 11% Dolnośląskie 11% Wielkopolskie 9% Małopolskie 9% Pomorskie 7% Łódzkie 5% Podkarpackie 3% Kujawsko-Pomorskie 3% Lubelskie 3% Zachodniopomorskie 3% Warmińsko-Mazurskie 3% Lubuskie 2% Podlaskie 2% Świętokrzyskie 2% Opolskie 1% TOTAL 100%
More than 1/4 of the loans granted by the Bank are loans granted to customers from the Mazowieckie Voivodeship. More than 21% of the loans are amounts due from the customers from the Śląskie and Dolnośląskie Voivodeships. The share of the Małopolskie and Wielkopolskie Voivodeships in the Bank’s structure of loans is similar and amounts to 9%.
Amounts due from the residents of the remaining voivodeships represent approx. 34% of the entire loan portfolio.
Deposits of the non-financial sector customers placed with the Bank are the source of financing the Group’s operations. As at the end of June 2015, their share in the total assets was 81.6%.
The balance of equity as at the end of June 2015 exceeded PLN 3.3 billion and was PLN 0.5 billion, i.e. 18.85% higher than at the end of June 2014. This increase was mainly the effect of issuing H-series shares (to partly finance the acquisition of Meritum Bank) and earmarking the profit earned in 2014 to increasing supplementary capital.
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 28 Equity and liabilities of the Alior Bank Group (in PLN billion)
The main item in the structure of amounts due to customers by type are amounts due to the retail segment which represented 63.7% of the customer deposit portfolio as at the end of June 2015. Compared with the end of June 2014 this share decreased by 0.8 p.p. Both the acquisition of deposits of Meritum Bank and the significant organic increase in customer deposits which took place during the last 12 months had an impact on the structure of amounts due to customers by their type.
Amounts due to customers (PLN billion)
The sum of amounts due to the ten largest depositaries represents 4.5% of all customer deposits, which shows a strong diversification of the Bank’s deposit base.
1,6 1,6 21,4 29,8 2,8 3,3 1,3 1,7 27,1 36,5 30.06.2014 30.06.2015 Other liabilities Equity
Liabilities due to customers
Liabilities due to banks
13,8 19,0 7,6 10,8
21,4
29,8
30.06.2014 30.06.2015 Corporate segment Retail segmentManagement Board Report of the Alior Bank S.A. Group for the first half of 2015 29 Structure of amounts due to customers by currency
As at the end of June 2015, the share of PLN deposits in the whole customer deposit portfolio increased by 3 p.p. year on year. In effect, as at 30 June 2015 PLN deposits comprised 87% of the whole deposit base.
Structure of amounts due to customers by geographical area (as at 30.06.2015) Voivodeship % of liabilities Mazowieckie 29% Małopolskie 14% Śląskie 9% Dolnośląskie 8% Wielkopolskie 7% Pomorskie 6% Podkarpackie 5% Łódzkie 4% Lubelskie 4% Podlaskie 3% Kujawsko-Pomorskie 3% Zachodniopomorskie 3% Świętokrzyskie 2% Lubuskie 1% Warmińsko-Mazurskie 1% Opolskie 1% TOTAL 100%
The funds deposited with the Bank mainly come from customers from the Mazowieckie voivodeship (29%), Małopolskie voivodeship (14%), Śląskie voivodeship (9%). Customers from the other voivodeships deposited funds which constitute 48% of the whole deposit base with the Bank.
Financial forecasts
The Alior Bank S.A. Group did not publish any forecasts of its results.
84% 87%
16% 13%
30.06.2014 30.06.2015
Other
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 30
VI.
Operations of Alior Bank S.A.
Retail banking
In the first half of 2015, the operations in the individuals sector generated income before impairment losses of PLN 648.3 million. This income was PLN 105.9 million, i.e. 19.5%, higher than that generated in the prior year.
As at the end of June 2015, the Group served 2 519.7 thousand individual customers. Compared with the end of June 2014, the number of individual customers increased by PLN 310.2 thousand, i.e. by 14%.
In addition, as at 30 of June 2015, the bank served 272.5 thousand clients acquired in connection with the merger with Meritum.
Apart from serving retail customers, the individual customers segment also includes the operations related to Consumer Finance, T-Mobile Banking Services , the operation of the Brokerage House and the Private Banking program.
The most important products offered to individuals include:
Current accounts
Alior Bank maintains a high number of current and savings accounts (ROR), in spite of introducing a new pricelist for the accounts offer. During the year, the number of these accounts increased by nearly 201 thousand. In the first half of 2015, approximately 124 thousand accounts were opened at Alior Bank and 107 thousand at T-Mobile Banking Services , which confirms the attractiveness of both these brands. A high increase was recorded in the sales of T-Mobile Banking Services accounts, not only thanks to the attractive offer but also due to extending the sales channels.
Number of current PLN accounts (in ’000)
Konto Wyższej Jakości account and Konto Rozsądne account had the largest share in total sales in the first half of 2015.
Konto Wyższej Jakości is a free of charge account with a guarantee of unchanging fees for as long as 5 years. Moreover, active customers do not bear any costs of using the
1 489 1 557 1 632
1 733 1 785 1 827 1 833
Management Board Report of the Alior Bank S.A. Group for the first half of 2015 31 account - both the regular periodic fees and the transaction fees are nil. Konto Wyższej Jakości was ranked first in the ranking of personal accounts for traditional customers prepared by Polityka weekly. Konto Rozsądne is another account frequently opened by customers where the customers can obtain reimbursement of up to PLN 400 a year for their grocery shopping.
Alior Bank maintains a policy of encouraging its customers to actively use the products. The changes in the Table of Fees and Commissions introduced by Alior Bank are aimed at encouraging customers to choose Alior Bank as their “main bank”.
Cash loan
The key product of the Bank in the offer of non-secured loan products for individual customers is a cash loan, which can be designated either for any purpose or for consolidation of financial liabilities (consolidation loan).
In the first half of 2015, the Bank’s operations in the scope of the cash loan were focused on the campaign promoting a 5% interest loan “5% dla każdego” with additional product benefits: ”Gwarancja zwrotu odsetek” (”Guaranteed reimbursement of interest”) and “Gwarancją Najniższej Raty” (“Guaranteed lowest instalments”) binding throughout the lending period.
Moreover, in cooperation with PZU, the Bank introduced the TOP MBA loan – a product designated for Master of Business Administration (MBA) students. The TOP MBA loan is the first offer of this type on the market. This solution enables financing university studies at the most prestigious universities in the world.
The cash loan offer has been enriched with a number of temporary promotions aimed at gaining new customers with a specific profile. The above-mentioned measures helped considerably to increase sales.
In the period under analysis, the Bank carried out CRM initiatives aimed at strengthening customer relationships through: activation of customers, cross-selling and increasing the loan exposure. One of the key areas of the cross-selling activities in the first half of 2015 included converting the portfolio of cash loans affected by interest rate reductions into products ensuring a proper level of interest margins.
Additionally, the Bank strengthened the retention processes by increasing the loan portfolio cover of these processes and diversifying these activities into both proactive and reactive. This was done in order to tighten up the retention processes while maintaining the optimum level of portfolio profitability.
Credit cards and overdraft facilities
The Bank has four types of cards in its offer addressed to various target groups. The Gold Card is addressed to the mass individual customer segment, the World Card is dedicated to the mass affluent segment, whereas World Elite is dedicated to customers in the Private Banking segment. The Bank also offers one credit card under the T-Mobile Banking Services brand delivered by Alior Bank and addressed to T-Mobile customers. All the cards are secured both with a magnetic strip and with a chip, and also enable making paypass transactions.