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The new normal in Bank Millennium - lifting COVID-19 restrictions, business revival, record sales of mortgage loans

23.07.2020


Results and activity of Bank Millennium Group after Q2 2020

In IH 2020 the Bank Millennium Group earned 72 mln PLN net (54 mln PLN in Q2) i.e. less by 79% than in similar period of the previous year. After adjustment for extraordinary developments the net profit totalled 394 mln PLN (204 mln PLN in Q2). June brought about significant revival of business volumes, in particular in retail segment. In Q2 record level of mortgage loan sales was registered (1.5 bn PLN, +10% y/y) and 10% annual growth of deposits. The number of active retail clients exceeded 2.62 mln (+45.6 thous. in IH of the year), and the number of microbusiness clients exceeded 100 thous.

- In Q2, amongst its priorities, Bank continue to provide support to clients in all available forms – continuation of the programme of temporary deferral of repayment of cash loan instalments, instalments of mortgage loans and loans to companies and active participation in Government programmes such as PFR Financial Shield. Despite the fact that throughout the entire pandemic period, we encouraged people to use electronic banking more actively, Bank branches remained opened and the Bank serviced its clients without interruptions - said João Bras Jorge, Chairman of the Management Board of Bank Millennium.

Solid operational profitability in 1H20 affected by integration costs and legal risk provisions

  • Reported 1H20 net profit at PLN72mn (2Q20: PLN54mn) or PLN394mn (2Q20: PLN204mn) once adjusted for extraordinary items* translating into a y/y contraction of 79% (2Q20: -69% y/y) or 8% (2Q20: -14%)
  • PLN35mn (PLN28mn after tax) of Euro Bank related integration costs and provisions
  • Merger synergies of PLN62mn (PLN50mn after tax) well exceeding integration costs
  • Extraordinary provisions: PLN168mn for FX mortgage legal risk (pre-tax/net), PLN69mn for Covid-19 risk (PLN56mn after tax) and PLN60mn (pre-tax) provision for fee refunds on early repaid consumer loans
  • Reported ROE at 2.2% but adjusted at 8.7%
  • Reported cost/income at 51.8%, adjusted at 47.1%

Higher income and costs after the with Euro Bank

  • Operating income grew 14% y/y
  • Net interest income grew 23% y/y
  • Net commission income grew 10% y/y
  • Operating costs up 21% y/y without integration costs (reported up 22% y/y) and in 2Q20 down 8% q/q without integration and BFG costs

- After 2 quarters of 2020, business results are more positive than our expectations, and financial results are less satisfactory. In the last several months, besides COVID-19 pandemic, which completely change consumer behaviour and demand for credit, NBP interest rates were cut three times. So banks, Bank Millennium included, operate in an environment of very low interest rates, which means the need to change the business model – added the Chairman. - Macroeconomic perspectives for upcoming months are nevertheless better than it seemed when results for the previous quarter were published. I positively assess the chances for the development of corporate banking in the coming months, among others due to the lack of threat related to the risk of the loan portfolio and the fact that in retail banking we are coming back to sales volumes from before the coronavirus. We also observed a dynamic growth in electronic banking, incl. 30% annual growth in mobile banking and a high share of electronic channels in sales.

High asset quality and liquidity kept

  • Impaired loans ratio at 4.9%
  • Cost of risk** at 98bp (79bp ex-Covid-19 provision)
  • Loans to deposits ratio at record low level of 83%

Solid capital position and lower regulatory buffers

  • Group’s Total Capital Ratio (TCR) at 20.0% and CET1 ratio at 17.0% and well above levels required by the regulator (15.4% and 12.2% respectively).
  • Systemic risk buffer cut to 0% from 3% in Mar’20

Retail business

  • 2.62mn active clients (34% y/y); 45,600 new clients year to date with #2 score in new acquisitions in 1Q20 (PRnews)
  • 10% yearly growth of deposits
  • 8% yearly growth of loans (also up 12% y/y without FX mortgages)
  • New record high PLN1.5bn origination of mortgages in 2Q20 (1H20: PLN2.9bn, up 50% y/y) translating into 10% y/y growth of mortgage loan book (17% without FX mortgages) and solid origination of cash loan (1H20: PLN2.4bn, up 4% y/y, 2Q20: PLN1.1bn, down 17% y/y and down 17% q/q) translating into 2% y/y growth of non-mortgage retail loan book
  • Market share newly originated mortgages at 11.1% in 1H20 with market share in June at 15.8% (#2)
  • Accelerating pace of growth in microbusiness accounts, almost 23,000 y/y net growth of active accounts
  • Number of active microbusiness clients exceeded the 100,000 mark (up 29% y/y)

Companies business

  • 13% q/q growth of companies deposits (up 19% y/y) with current account deposits up 25% q/q and up 77% y/y
  • Loans to companies: -4% q/q, stable y/y
  • Stable level of factoring turnover vs. 1H19 with #6 ranking (PZF)

Results of the Group are also available here: https://www.bankmillennium.pl/en/about-the-bank/investor-relations

(*) without extraordinary items (pre-tax): 1. integration costs (PLN 35.3mn), 2. PLN168mn provisions for FX mortgage legal risk, 3. PLN69.3mn for Covid-19 risk, 4. PLN60.5mn provisions for the return of commissions from loans repaid earlier by clients, 5. linear distribution of BFG resolution fund fee of PLN58.2mn; in 1H19: 1. integration costs (PLN19.8mn), 2. PLN26.9mn release of tax asset provision, 3. acquisition related extra provisions for Euro Bank of PLN 80.6mn, 4. linear distribution of BFG resolution fund fee of PLN73.3mn
(**) total net provisions (including FV adjustment and modification effect) to average gross loans, without extra IFRS9 provisions on Euro Bank acquired portfolio and without provisions on FX mortgage legal risk