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BRD GROUP RESULTS FOR 9M 2019: SOLID COMMERCIAL ACTIVITY AND STRONG PROFITABILITY

06 Nov 2019

The main commercial trends and financial indicators of BRD Groupe Société Générale at September 30, 2019 at consolidated level, according to the International Financial Reporting Standards (IFRS):
• Robust business dynamics: continued retail loan growth (+2.8%* YoY), increasing financing to large corporate clients and SMEs (net loans including leasing up by +4.2%* YoY), solid performance on alternative savings market (BRD AM’s assets under management up by +48% YoY), increasing remote banking subscribers (+18% YoY)
• Good revenue momentum, with net banking income up by +6.9% YoY
• Increase in operating expenses primarily driven by higher staff costs and contributions to Deposits Guarantee and Resolution Funds
• Improved operating performance as reflected by the increase in gross operating income to RON 1,260 million from RON 1,185 million in 9M 2018 (+9.2% YoY excl. Deposit Guarantee and Resolution Funds’ contribution), positively influenced by steady growth in customers’ business; Cost-to-income ratio improved by 1.2 ppts, at 45.5% in 9M 2019 vs. 46.7% in 9M 2018, excluding the impact of above mentioned regulatory contribution
• Positive net cost of risk of RON 207 million (vs. RON 170 million in 9M 2018) including provisions’ write-backs sustained by strong recovery performance on defaulted portfolio and exceptional insurance indemnity recognized in Q3 2019
• Net profit of RON 1,226 million, up by +7.4% YoY (vs. RON 1,142 million in 9M 2018)

“The first nine months of 2019 were commercially dynamic. With increased lending on both retail and corporate segments, we kept our commitment to finance the Romanian economy in a responsible way, through an improved and balanced offer. The evolution of assets management activity was also remarkable, reflecting our strategy to capture the potential of the alternative savings market. In parallel, we continued to move forward with the implementation of our "phygital" business model, combining superior digital experience with human expertise ”, said François Bloch, CEO of BRD Groupe Société Générale.

Growth of banking system loans on the Romanian market has remained dynamic (+6.5%* YoY at September 2019 end) on both individuals’ and companies’ segments, in a supportive macroeconomic environment marked by increasing private domestic demand. Banking system deposits continued to grow (+8.8%* YoY at September 2019 end) on both customer segments.

BRD Group’s net loans, including leasing receivables increased by +3.2%* compared to September 2018 end, thanks to both retail and corporate segments. Housing and consumer loans were the main determinants of retail loan growth, which reached +2.8%* YoY. Corporate loan growth (+4.2%* compared to September 2018 end) was underpinned by large corporate lending (+4.0%*) and leasing financing. Leasing production expanded by +36% versus the first nine months of 2018 pushed by demand from both small businesses and SMEs.

Deposits from customers were quasi stable on an annual basis. Retail deposits increased by +2.4%* YoY, driven by larger inflows in individuals’ sight deposits (+27%* YoY) resulting partly from continued growth in wages on the domestic market. The ratio of net loans to deposits was 71.0% at September 2019 end, +2 ppts versus September 2018 end.

Through the funds managed by its specialized subsidiary BRD Asset Management, BRD offers to its customers a wide range of solutions for investing and saving. BRD registered a very strong performance on this market during the first nine months of the year. Growth in assets under management accelerated to +48% YoY at September 2019 end on high net inflows in BRD Simfonia and Eurofond (RON-denominated and EUR-denominated, respectively), which invest mainly in fixed income and money market instruments. As a result, BRD AM’s market share further increased by +4.9 ppts to 17.6%** at the end of the reporting period.

Constant focus on digital innovation has resulted in an increasing number of internet and mobile banking subscribers (+18% versus September 2018 end). The adoption of mobile banking is rising fast as reflected by the +42% increase in MyBRD Mobile subscribers. The volume of transactions through MyBRD Mobile and MyBRD Net solutions increased by +25% compared to the first nine months of 2018.
The intensity of commercial relationships also improved, with individual customers’ equipment rate (the average number of products per active customers) rising to 4.30 from 4.25 at September 2018 end.

In the first nine months of 2019, BRD Group’s net banking income reached RON 2,446 million, up by +6.9% compared to the same period of the last year, stemming from both net interest income and non-interest income growth. Net interest income, was up by +9.7% year on year benefitting from expanding volumes across all segments, while favorable structure shifts and higher market interest rates also contributed to the rise. The positive effect of interest rates lost steam over the third quarter in a context of declining interest rates (Q3 2019 average ROBOR 3M at 3.09% vs. 3.27% in Q3 2018). Fees and commissions revenues inched higher by +2.1% year on year, on intensified card activity and growing clients’ transactions, thus offseting the pricing pressure over transactional banking services.
Operating expenses amounted to RON 1,186 million in 9M 2019, up by +7.4% compared to 9M 2018 mainly as a result of increasing staff costs due to salary and other benefits’ adjustments, in a context of steady wage growth on Romanian market, and higher contribution to Deposits Guarantee and Resolution Funds (RON 72 million vs RON 35 million in 2018, fully recognized in the first quarter of the year). Other expenses’ increase (excl. staff costs and contribution to Deposits Guarantee and Resolution Funds) was contained at +1.0% year on year thanks to strong cost control, despite continued significant investment on our IT platform.
Overall, BRD Group improved its operating performance over the year with gross operating income reaching RON 1,260 million vs. RON 1,185 million in 9M 2018, up by +6.4% (+9.2% excluding contribution to Deposits Guarantee and Resolution Funds). Cost-to-income ratio reached 48.5% in 9M 2019 and was quasi stable compared to 9M 2018. Excluding above mentioned regulatory contribution, cost-to-income ratio was improved by 1.2 ppts compared to the same period of last year.
Risk profile continued to be strong as reflected by the decrease in NPL ratio (non-performing loans, according to EBA definition, NPL ratio at Bank level) by 1.8 ppts to 4.0% at September 2019 end from 5.8% at September 2018 end, embedding the result of write-off operations, as well as strong recovery performance on defaulted portfolios. In addition, provisioning coverage of non performing loans increased to 74.1% at September 2019 end from 73.1% at September 2018 end (NPL coverage ratio at Bank level). Cost of risk registered RON 207 million net release compared to RON 170 million in 9M 2018 due to strong recovery performance, good quality of originated loans and exceptional insurance indemnities’ recognition (RON 161m booked in Q3-19, finalizing several insurance claim files).

In this context, BRD Group net profit reached RON 1,226 million in 9M 2019 vs. RON 1,142 million in 9M 2018, up by +7.4% YoY, driven by robust revenues’ generation and positive cost of risk. Return on equity reached 20.8% in 9M 2019 (vs. 20.9% in 9M 2018).

BRD capital position remained robust with total capital ratio reaching 20.9% as of September 2019 end (vs. 19.4% as of September 2018 end, figures at individual level, under Basel 3 regulations), mainly driven by the increase in own funds as a result of higher reserves from revaluation of debt instruments accounted at fair value through other comprehensive income and higher retained earnings.

BRD financial results for the nine months ended September 30, 2019 are available to the public and investors on the website of the bank: www.brd.ro beginning with 09h00. Copies of the documents can also be obtained upon request, free of charge, at the head office of BRD-Groupe Société Générale, located at 1-7, Ion Mihalache Bd., 1st district, Bucharest.

(*) Variations at constant foreign exchange rate
(**) Market share on open-end mutual funds market
Note: If not stated otherwise, all variations are vs. 9M 2018 (for income statement related items) or September 2018 end (for balance sheet related items).
BRD - Groupe Société Générale operates a network of 674 units. BRD has a leading position on the card market with approx. 2.4m cards and a network acceptance of approx. 28,600 POS and almost 1,500 ATMs. Total assets of the Bank at September 2019 end amounted to RON 54.1bn.
BRD is part of the Société Générale Group, one of the largest European financial services groups. The group has 149,000 employees in 67 countries and 31 million customers worldwide in its three key activities:
• French Retail Banking
• International Retail Banking, Insurance and Financial Services to Corporates
• Global Banking and Investor solutions.
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BRD GROUP RESULTS FOR 9M 2019: SOLID COMMERCIAL ACTIVITY AND STRONG PROFITABILITY