BRD GROUP RESULTS 2 nd quarter and 1
BRD GROUP RESULTS 2 nd quarter and 1 st half 2020 | 04. 08. 2020
DISCLAIMER The consolidated and separate financial position and income statement for the period ended June 30, 2020 were examined by the Board of Directors on July 30, 2020. The financial information presented for the period ended June 30, 2020 and comparative periods has been prepared according to IFRS as adopted by the European Union and applicable at this date. This financial information is at group level, does not constitute a full set of financial statements and is not audited. This presentation may contain forward-looking statements relating to the targets and strategies of BRD, based on a series of assumptions. These forward-looking statements would have been developed from scenarios based on a number of economic assumptions in the context of a given competitive and regulatory environment. BRD may be unable to anticipate all the risks, uncertainties or other factors likely to affect its business and to appraise their potential consequences, and to evaluate the extent to which the occurrence of a risk or a combination of risks could cause actual results to differ materially from those provided in this document. Investors and analysts are advised to take into account factors of uncertainty and risk likely to impact the operations of BRD when considering the information contained in any such forward-looking statements. Other than as required by applicable law, BRD does not undertake any obligation to update or revise any forward-looking information or statements. 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 2
1 INTRODUCTION
OUR REACTION TO THE CRISIS We entered a worldwide unprecedented sanitary crisis § Pandemic confirmed to have reached Romania on February 26, with more than 47, 000 COVID-19 cases § State of emergency lasting for 2 months, with severe lockdown restrictions, easing progressively started mid May § Fourth phase of relaxation measures, scheduled for 1 st of July, postponed due to the surge of new cases Our priorities § Protect our employees and customers § Ensure business continuity through quick and efficient organization adaptation § Permanently stand by our clients, providing financial support and easing access to banking services § Mitigate the financial impact 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 4
RESILIENT OPERATIONAL PERFORMANCE Sustained corporate lending activity Lending to large corporate clients, up by +4. 6% y/y at June 2020 end Retail production impacted by lockdown, but back to pre-crisis level in late June Strong deposit collection Retail savings, up by +8% y/y at June 2020 end Revenues impacted by crisis consequences and regulatory changes Corporate loan portfolio +5. 4% vs June 2019 end Total loan portfolio +1. 2% vs June 2019 end Deposits, +4. 8% vs. June 2019 end NBI RON 1 512 m vs. RON 1 609 m in H 1 2019 Stable costs in Q 2 2020 y/y, excl. sanitary expenses, reflecting rapid saving measures engaged, offsetting transformation costs Net cost of risk integrating deteriorated economic perspective NCR Double digit ROE, despite impact of the crisis on NBI and NCR ROE: 10% Very strong fundamentals CAR: 27% vs 20% at Jun 2019 end RON -225 m vs. RON 144 m in H 1 2019 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 5
2 MACROECONOMIC ENVIRONMENT
COVID-19 CRISIS PUTS AN END TO A 9 YEAR EXPANSIONARY CYCLE Q 1 2020 confirmed the end of the expansionary phase of the cycle EU GDP registered the sharpest decline observed since 1995, when reporting started, as COVID-19 containment measures began to be widely introduced GDP GROWTH Romania’s GDP growth of 2. 7%, though showing initial effects of crisis, marked the highest rate in EU Domestic demand remains the main driver of economic expansion, followed by gross fixed capital formation Net exports kept their negative contribution to growth In Q 2, the lockdown led to a strong contraction of activity and consumption 2020 GDP expected to drop by 6%-7%* Inflation rate down CPI dropped at a fast pace in the first months of the year printing at +2. 6% y/y at June 2020 end (vs 4. 0% at Dec-19 end), on disinflationary base effects, the plunge in oil price, the removal of the special excise duty on motor fuels, outpacing strong food inflation generated by Covid-19 outbreak * In a scenario of continued progressive lifting of restrictions 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 7
RATE CUT AND QUANTITATIVE EASING IN PLACE Policy rate cut To support the economy in the context of unfolding COVID-19 epidemic, the central bank reduced the monetary policy rate twice this year to 1. 75%, 75 basis points under 2019 level INTEREST RATE ENVIRONMENT Quantitative easing NBR announced an unprecedented measure of purchasing RON denominated government bonds and stated that it shall provide necessary liquidity to financial institutions through repo operations Before the outbreak, NBR decided to lower the level of the minimum reserve requirements on FCY denominated liabilities to 6% (down from 8%) starting February 2020, keeping the existing level for RON denominated liabilities at 8% Interbank RON interest rates followed the downward key rate Following policy rate cut, interbank rates dropped and ROBOR 3 M decreased to 2. 2% at Jun-20 end (average ROBOR 3 M at 2. 72% in H 1 2020, -48 bps Yo. Y) 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 8
EXTENSIVE POLICY OFFSET Relief measures to support the economy § Loan facility program (IMM INVEST) : envelop of EUR 3 bn of state guarantee and interest subsidies to support SME sector financing § Income supporting measures : indemnity for technical unemployment (amounting to 75% of the net salary, capped at 75% of the average salary in the economy) for employees of companies affected by the crisis § Debt moratorium for individuals & companies hit by the crisis (OUG 37) ü Grace period up to 9 months (not beyond 2020 end) ü Interest accrued (capitalized for consumer loans, repaid in 60 equal installments for housing loans) ü Available to debtors without day past due (at request date) and affected by the crisis (based on declaration for individuals, loss of 25% of revenues for companies) ü No triggered reclassification as non-performing, consistent with EU regulators’ position § Flexibility for the payment of social and tax obligations National and EU stimulus package § The Romanian Government has presented on July 2 nd 2020 “Rebuilding Romania”, a National Investment and Economic Relaunch Plan, announced for EUR 100 bn/10 years. § EU allocated EUR 80 bn to Romania (EUR 63 bn subsidies and EUR 17 bn loans) as part of its EUR 750 bn recovery plan 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 9
ROMANIAN BANKING SECTOR ENTERED THE CRISIS WITH A HEALTHY PROFILE Solid capital and liquidity positions ROMANIAN BANKING SYSTEM NPL AND NPL COVERAGE RATIOS Loan to deposit ratio at 71% at March 2020, same as at 2019 end (vs 122% at 2008 end) EU* 44. 7% Average liquidity coverage ratio of 245% at March 2020 end vs. 240% at December 2019 end, well above regulatory requirement (100%) and European average (150% at 2019 end), indicating a comfortable resilience capacity of the banking sector to liquidity shocks. EU* 2. 7% Total capital ratio of 20. 3% at March 2020 vs. 20. 0% at 2019 end (compared to 13. 8% at 2008 end) Sound risk profile NPL ratio decreased to 4. 0% at May 2020 end vs 4. 1% at 2019 end ROMANIAN BANKING SYSTEM SHARE OF FX LOANS TO TOTAL LOANS NPL coverage ratio increased to 61. 0% (60. 6% at 2019 end) well above EU average (44. 7% at 2019 end) Share of FX loans at 32% at March 2020 end (compared to 56% at 2008 end) * As of Dec 2019 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 10
3 2 ND QUARTER AND 1 ST HALF 2020 BRD GROUP RESULTS
QUICKLY ADAPTING TO ADDRESS THE CRISIS SITUATION, ENSURE BUSINESS CONTINUITY AND PROVIDE OPERATIONAL SUPPORT TO OUR CLIENTS § Protect our customers and employees through implementation of adequate sanitary measures and prevention actions in all business outlets § Ensure business continuity with extended WFH, split teams deployed in different work locations § Facilitate access to banking services for our customers ü Permanent communication with the clients, a dedicated web page and integrated communication (website, branches, ATMs, Facebook, etc. ) ü Enhanced contact centre capabilities: number of answered customer calls increased by +46% y/y in H 1 2020 ü Promoting digital channels, with My BRD Mobile and My BRD Net free of charge for 3 months 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 12
FULLY COMMITTED TO SUPPORT OUR CLIENTS WITH FINANCING SOLUTIONS § Moratorium ü Deferral in loan repayment granted for 44 k individuals clients as of June 2020 end, postponements granted between 3 and 9 months, for RON 2. 9 bn (~14 % of portfolio) ü Grace period for SB clients: RON 65 m (~12% of portfolio) ü SMEs possibility to benefit from moratorium, though a limited number accessed this option (~2% of portfolio) HOUSING LOANS CONSUMER LOANS SB LOANS CORPORATE LOANS § Active participation in IMM Invest ü 1052 requests approved (both Non Retail and Small Business clients), for app RON 600 m, as of 23 rd of July 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 13
ACCELERATION OF OUR DIGITAL ROADMAP FAST ADOPTION OF DIGITAL CHANNELS Growing digital penetration 651 k My. BRD Mobile & My. BRD Net active clients at June 2020 end, +19% y/y +32% volume of transactions vs H 1 2019 +35% nb of connections vs H 1 2019 Contact Center HIGHLY REACTIVE CUSTOMER INTERACTION CENTER Fast tracked Customer Interaction Centre capabilities to answer increased remote requests ADAPTED PHYSICAL SET UP ü Fewer branches ü More specialized ü Better service ü +46% answered customer calls vs H 1 2020 ü +83% written interactions vs H 1 2020 96% of corporate clients’ transactions -74 branches, to 625 +17% 24/7 banking points Jun 2019 Jun 2020 performed via digital channels Apps & website -185 branches since end 2016 CLIENTS’ DIGITAL EXPERIENCE FURTHER ENHANCED ü Apple Pay, a safer and faster way to pay, available to BRD digital users ü Partnership with Mastercard and Octet Europe, for easy and free of charge access for SMEs to an international trade platform ü Implementation of physical token for BRD@Office with Cronto ü Possibility for clients to update their data through the website brd. ro technology for corporate clients, adding new features ü Enhanced digital trade finance offer with automated Letter of Credit flow 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 14
STRONG GROWTH OF CORPORATE FINANCING ACTIVITY NET LOANS (end of period amounts, RON bn) Sustained corporate financing activity Y/Y Loans to SME up by +7. 2% y/y and large companies advance of +4. 6% y/y +1. 2% Active participation in IMM Invest Programme +5. 4% Overall leasing portfolio increasing by +16. 6% y/y +0. 5% -13. 2% Retail loan production impacted by lockdown. . . -45% decrease of retail loans production in Q 2 2020 y/y INDIVIDUALS LOAN PRODUCTION Jan. Feb. Mar. Apr. May Jun. Jul. …. but strong rebound in consumer loan production in May, back to pre-crisis level starting late June 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 15
DYNAMIC DEPOSIT COLLECTION Consolidation of already broad retail deposit base Increasing retail deposits (+8. 1% y/y) with an almost double yearly pace vs previous quarter Individuals’ savings up +7. 5% y/y (o/w current accounts were up by +32% y/y) Corporate deposits decrease driven by a double digit compression of large corporate deposits mainly linked to the reduction of EUR non transactional accounts, on an assumed balance sheet management choice, while SMEs resources strongly increased (+18. 6% y/y), SAVINGS (end of period amounts, RON bn) Y/Y +4. 8% -1. 6% Strong liquidity profile +8. 1% Net loan to deposit ratio at 65. 2%, -2. 3 ppts y/y High degree of financial autonomy with the share of deposits in total liabilities reaching 92% at June 2020 end, ensuring a stable funding base Strong liquidity buffer at 31% of total assets, +3 ppts y/y Rebound in asset management activity Activity impacted by the crisis in line with the market evolution, driving down AUM to RON 3. 62 bn at March 2020 end Back on an upward trend starting May (AUM RON 3. 72 bn at June 2020 end) Market share of 18. 1% on open-end mutual funds’ market, up by +2. 3 ppts y/y 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 16
IMPACT OF CRISIS ON REVENUES IN LINE WITH EXPECTATIONS NET BANKING INCOME (RON m) Resilient NII over the 1 st semester Quasi stable NII in H 1 2020 (-0. 3% y/y) benefitting from positive volume effect induced by growing deposits NII lower (-6. 9% y/y) in Q 2 2020 ü interest rate effect turning negative Ø ROBOR 3 M average of 2. 39% in Q 2 2020, -90 bps y/y Ø ROBOR 3 M average of 2. 72% in H 1 2020, -48 bps y/y ü important drop of individual loan production during the Y/Y -6. 0% Other income Net fees and commissions -22. 3% -14. 0% Net interest income -0. 3% containment period Contraction of NFC triggered by pandemic and regulatory changes Decline in net fees and commissions income, -14. 0% y/y in H 1 2020 and -23. 2% y/y in Q 2 2020, following: Ø SEPA regulation enforcement (price alignment of EUR denominated payments to domestic ones, starting from 15 th of December 2019) Ø lower volumes of transactions Ø cease of the Western Union activity in August 2019 Ø free usage of remote banking applications (from 15 th of March to 15 th of June) Other income evolution explained by exceptional 2019 base effect of reevaluation gains NET BANKING INCOME (RON m) Y/Y -9. 6% Other income Net fees and commissions +5. 1% -23. 2% -6. 9% Net interest income 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 17
OPEX DYNAMICS REFLECTING STRICT CONTROL OF SUNDRY COSTS AND LOWER REGULATORY CHARGES OPERATING EXPENSES (RON m) OPEX evolution for H 1 2020, w/o regulatory costs, impacted by: Y/Y Ø measures taken to address the sanitary crisis (acquisition of protection materials for employees and clients) Ø 2019 salary increase, in a context of accelerating economy - wide wage growth Embarking on a significant saving plan Contributions to FGDB & FR -0. 5% -40. 0% +4. 8% Other expenses Staff expenses +3. 4% +2. 2% Ø immediate tactical actions (communication & marketing expenses, ban on travels, office supplies) Ø structural actions gradually delivering over time (freeze of hiring, resizing of network, optimization actions which mostly envisage systematization of e-training, reduction in communication budget, external services and travels, and continued automation of processes) OPERATING EXPENSES (RON m) Ø while preserving strategic investments in digital transformation Y/Y Already visible results in Q 2 Ø stable staff costs Ø other costs reduced by -2. 4% (excluding sanitary costs and negative base effect related to previous year adjustments recognized in June 2019) +3. 5% Other expenses +8. 0% Staff expenses +0% C/I ratio at 52. 9% in H 1 2020 (vs. 50. 0% in H 1 2019) 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 18
STRONG ASSET QUALITY Loan portfolio market mix GROSS LOANS – June 30, 2020 breakdown by segment and currency (RON bn) 70% on individuals market segment 30% on legal entities market segment Consolidation of RON lending Share of RON denominated loans at 67. 8% (vs 67. 1% as of June 2019 end) Trend in line with market evolution NPL RATIO – EBA methodology NPL ratio close to banking sector level Rather stable evolution versus previous quarter, the effects of Covid 19 pandemic are not yet visible (3. 96% for June vs 4. 01% for March computed with the same methodology). Outlook Upward trend expected, especially after the end of moratorium on loan repayments. * NPL for BRD computed in line with EBA new methodology (excl. RMO & demand deposits) All figures at individual level * NPL Ratio for Banking System – as of May 2020 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 19
COST OF RISK INCORPORATING DETERIORATED MACROECONOMIC CONTEXT COST OF RISK EVOLUTION Net cost of risk at 205 bps in Q 2 -20 (vs 59 bps in Q 120), driven mainly by: • Updated macroeconomic scenarios embedding Covid context, leading to higher expected losses • Lower recovery performance given the new context Note: Cost of risk in bps for Q 2 -2019 and Q 2 -2020 is annualized NPL COVERAGE RATIO - EBA methodology Solid NPL coverage ratio following prudent provisioning policy NPL coverage ratio well above banking sector average * NPL coverage ratio for BRD computed in line with EBA new methodology (excl. RMO & demand deposits) All figures at individual level * NPL coverage ratio for Banking System – as of March 2020 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 20
VERY SOLID CAPITAL POSITION SOLVENCY RATIO Strong high quality capital base CAR of 27% at June 2020 end +49 bp +145 bp -27 bp Regulatory own funds composed solely of Tier 1 capital Increase in own funds on a yearly basis mainly driven by the retention of the entire 2019 net profit, considering (i) the high uncertainty about the long term economic consequences of the Covid 19 outbreak, (ii) BRD strong commitment to support the Romanian economy in difficult times, and (iii) regulator recommendation Evolution of RWA influenced mainly by the implementation of the provisions regarding the temporary relief on the RW of EUR sovereign exposures, introduced through Regulation 873, approved late June in response to COVID-19 pandemic (+140 bps impact in solvency ratio at June 2020 vs June 2019) +528 bp 20. 01% Jun-19 26. 69% Retained profit OCI RWA Other Jun-20 Note: Own funds for 2019 include the FY net profit, according to the GSM decision 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 21
5 CONCLUSIONS
CONCLUSIONS § Entered a strong and unprecedented crisis § Quickly and successfully adapted our organization to protect employees and customers, and to ensure business continuity § Stand by our clients in these difficult times Ø loan moratorium Ø active participation in IMM INVEST Ø sustained corporate financing activity Ø eased the access to banking services § As expected, revenues were hit and cost of risk was directly impacted by the deteriorated economic environment § Cost adjustment measures were immediately taken § While preserving strategic investments in digital transformation § Financial performance directly impacted by the crisis, but resilient, and the fundamentals remain very solid Ø strong capital adequacy ratio Ø very comfortable liquidity position Ø elevated asset quality 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 23
6 Q&A SESSION
APPENDIX BRD GROUP – KEY FIGURES BRD STANDALONE - KEY FIGURES STOCK PRICE PERFORMANCE FINANCIAL CALENDAR FOR 2020 GLOSSARY – CLIENT SEGMENTATION
BRD GROUP | KEY FIGURES (1) Variations at constant exchange rate; (2) Bank only, including impact of prudential filters in Sep-17 and Dec-17; (*) according to Basel 3; CAR at Bank level; 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 26
BRD | KEY FIGURES FOR BANK ONLY (1) Variations at constant exchange rate; (2) Bank only, including impact of prudential filters in Sep-17 and Dec-17; 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 27
BRD | STOCK PRICE PERFORMANCE § BRD is part of the main market indices on the Bucharest Stock Exchange § BRD is in Top 5 largest domestic companies listed on the local stock exchange § BRD’s share price reached RON 11. 56 as of June 2020 end, -8. 5% y/y and -27% ytd. 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 28
FINANCIAL CALENDAR FOR 2020 6 th February: Preliminary 2019 financial results and annual press conference 23 rd April: General Shareholders Meeting for approving the 2019 annual financial results 7 th May: Presentation of the 1 st quarter 2020 financial results 3 rd August: Presentation of the 2 nd quarter and 1 st half 2020 financial results 5 th November: Presentation of the 3 rd quarter and 9 months 2020 financial results 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 29
GLOSSARY – CLIENT SEGMENTATION § The Retail category is comprised of the following customer segments: • Individuals – BRD provides individual customers with a range of banking products such as: savings and deposits taking, consumer and housing loans, overdrafts, credit card facilities, funds transfer and payment facilities. • Small business – business entities with annual turnover lower than EUR 1 m and having an aggregated exposure at group level less than EUR 0. 3 m. Standardized range of banking products is offered to small companies and professionals: savings and deposits taking, loans, transfers and payment services. § The Corporate category is comprised of the following customer segments: • Small and medium enterprises - companies with annual turnover between EUR 1 m and EUR 50 m and the aggregated exposure at group level higher than EUR 0. 3 m. The Bank provides SMEs with a range of banking products such as: savings and deposits taking, loans and other credit facilities, transfers and payment services. • Large corporate - within corporate banking BRD provides customers with a range of banking products and services, including lending and deposit taking, provides cash-management, investment advices, securities business, project and structured finance transaction, syndicated loans and asset backed transactions. The large corporate customers include companies with annual turnover higher than EUR 50 m, municipalities, public sector and other financial institutions. 2 ND QUARTER AND 1 ST HALF 2020 RESULTS 04/08/2020 30
BRD GROUPE SOCIETE GENERALE - INVESTOR RELATIONS +4 021 380 47 62 | investor@brd. ro; www. brd. ro
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