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BRD GROUP RESULTS FOR H1 2020: BRD STOOD BY ITS CLIENTS AND DELIVERED AN OVERALL RESILIENT FINANCIAL PERFORMANCE

03 Aug 2020

The main commercial trends and financial indicators of BRD Groupe Société Générale at June 30, 2020 at consolidated level, according to the International Financial Reporting Standards (IFRS):

- Efficient answer to the outbreak of the crisis through internal organization measures and business actions to support our customers

- Strong corporate lending and retail deposits’ collection: net loans advanced by +1.2% YoY on a sustained corporate financing activity (+5.4% YoY), with a dynamic performance of leasing (overall leasing portfolio up by +16.6% YoY), while retail lending, though impacted by the lockdown, rebounded starting May; strong saving propensity triggered by the pandemic driving deposits increase (+4.8% YoY); and growing use of digital channels (MyBRD Mobile & MyBRD Net unique active users up by +19% YoY)

- Resilient operating performance and double digit ROE, while building on solid fundamentals

Strong balance sheet, with a capital adequacy ratio of 27% and a very comfortable liquidity situation
Elevated asset quality, with NPL ratio of 4.0% at June 2020 end, and high level of coverage with provisions (74.5%)

- Net profit of RON 415 million (vs. RON 787 million in H1 2019), influenced by negative cost of risk incorporating the deteriorated economic perspective

“In the first quarter of the year, Romania and the entire world entered in an unprecedented sanitary crisis, with strong, complex and difficult to quantify economic implications.

We quickly and successfully adapted our organization, swiftly implementing appropriate measures to ensure the protection of our employees and clients and business continuity, to offer the adequate support to our customers, and mitigate the financial impact for the bank.

Considering the significantly deteriorated context, BRD delivered an overall resilient financial performance and continued to build on solid fundamentals with strong capital, high liquidity and elevated asset quality. The past few months amplified the orientation towards digital services. We are fully committed to answer to these changing market expectations and accelerate our digital roadmap, as proven by our latest releases.”, said François Bloch, CEO of BRD Groupe Société Générale.

Dynamic commercial activity despite the crisis and resilient operating performance

BRD Group net loans, including leasing receivables, increased by +1.2% compared to June 2019 end. Retail loan evolution (-0.4% YoY) was driven by decreasing consumer loans (-3.6% YoY) due to deep cut in loan origination in the midst of lockdown and quasi stable BRD Finance’ net loans (+0.4% YoY), but there is a visible rebound in consumer loan production starting May, back to pre-crisis level in July. Corporate financing portfolio increased by +5.4% versus June 2019 end, driven by both SMEs (+7.2% YoY) and large corporates (+4.6% YoY). Leasing portfolio advanced by +16.6% YoY, on financing of commercial vehicles, and of equipment for agriculture and industry. BRD took an active participation in IMM Invest Programme.

Deposits from customers saw a consolidation of the already solid retail foundation. Retail deposits’ annual growth (+8.1%) with an almost double yearly pace vs previous quarter was driven by larger inflows in individuals’ savings (+7.5% YoY), with current accounts up by +32% YoY. Corporate deposits decreased (-1.6% YoY) 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). The ratio of net loans to deposits was 65.2% at June 2020 end, down by 2.3 percentage points versus June 2019 end.

Digitalization of BRD services was set as a priority even before lockdown situation, which merely highlighted the need to accelerate the pace and deliver the expected functionalities. The use of digital channels has further intensified as reflected by the increasing number of internet and mobile banking unique active users to 651k at June 2020 end (up by +19% YoY), and the fast growing volume of transactions via electronic channels (+32% YoY) in H1 2020. Apple Pay, a safer and faster way to pay, is now available to BRD retail digital users and also the possibility for clients to update their data through bank’s website brd.ro. Digital penetration on corporate clients’ segment registered a very high level, with 96% of the transactions performed via digital channels. Corporate clients’ digital experience was further enhanced by delivering new digital solutions: implementation of physical token for BRD@Office incorporating latest security standards and coming closer to a fully digitalized trade finance offer with automated letter of credit flow, after the initial automation of letters of guarantees flow. As a premier in Europe, BRD in partnership with Mastercard and Octet Europe, offers easy and free of charge access for SMEs to an international trade platform. The platform facilitates business relationships and ensures secure and simple commercial transactions.

BRD Group net banking income amounted to RON 1,512 million in H1 2020, lower by 6.0% compared to the same period of the last year, mainly due to the decrease in net fees and commission and other revenues categories, while net interest income remained quite resilient. The quasi-stability of net interest income on a yearly basis (-0.3%), combined the effect of drop in individuals’ loan production (particularly consumer) within the lockdown context, the rates’ decline urged by the crisis (average ROBOR 3M at 2.72% in H1 2020 vs 3.20% in H1 2019) and unfavorable structure shifts. The decline in net fees and commissions, -14% YoY in H1 2020, was mainly driven by regulatory changes, lower volumes and commercial actions supporting our customers. The evolution of other non-interest revenues is mainly explained by a base effect generated by significant revaluation gains in H1 2019.

Operating expenses slightly decreased in the first half of 2020 as compared to the same period of last year, reaching RON 800 million in total. To this evolution, regulatory costs (Deposit Guarantee Fund and Resolution Fund) had a favourable contribution, reducing by 40%, to RON 43 million from RON 72 million in 2019. Staff expenses increased only moderately (+2.2% YoY) mostly due to 2019 salary adjustments, in a context of accelerating economy-wide wage growth. The COVID 19 crisis brought extra costs, which were necessary for protecting both our employees and clients. Protection materials were acquired and prevention measures were implemented in all business outlets. The digital transformation plan continued, even accelerated on selected projects of critical importance for the Bank. With the main influence from the elements described above (sanitary costs and IT&C related items), other costs categories inched up by 4.8% YoY in H1 2020. Looking on quarterly evolution and excluding sanitary costs and the unfavourable base effect related to previous year adjustments recognized in June 2019, operating expenses decreased compared to Q2 2019, reflecting the rapid savings actions already engaged in Q2 2020.

Given all the above, the BRD Group cost/income ratio increased moderately to 52.9%, up from 50.0% in the same period of the previous year. Considering the strongly deteriorated context, BRD Group registered resilient operational performance, with gross operating income amounting to RON 713 million in H1 2020 vs. RON 805 million in H1 2019.

The quality of the loan portfolio remained solid with NPL ratio (non-performing loans, according to EBA definition) at 4.0% as of June 2020 end (vs. 3.8% as of June 2019 end) and a high level of coverage of non-performing exposures (coverage ratio at 74.5% at June 2020 end vs. 75.7% at June 2019 end). Net cost of risk turned negative to RON 225 million versus a release of RON 144 million in H1 2019, mainly reflecting worsening economic outlook. As a result of all the above, BRD Group net profit reached RON 415 million in H1 2020 vs. RON 787 million in H1 2019.

BRD builds on strong fundamentals. The capital solvency ratio, stands at a very solid level, reaching 27% at June 2020 end (vs. 20% at June 2019 end), with most of the year on year increase explained by the integration of the full 2019 profit, allowing thus the highest capacity to support the economy in the current crisis context.

Rapid and responsible answer to the crisis

In response to the current crisis, BRD has quickly and successfully adapted its organization, to ensure business continuity. Extended work for home was put in place and prevention measures continued to be applied in all business outlets, as safety of customers and employees has been a top priority.

BRD proved again a reliable partner, and stood by its customers in these difficult times, offering grace period in loan repayments for more than 44k clients (under both BRD and legislative moratorium). To answer quickly to customers’ requests, the contact center capabilities were increased and a dedicated web page was created. The usage of digital channels was encouraged by offering free access and transactions on MyBRD mobile and internet banking applications, from 15th of March to 15th of June. The interaction with corporate clients was even more digitalized (electronic signatures, internet front end) in response to the current COVID-19 environment. Online conferences #Restarting together, were organized, sharing to BRD customers knowledge and bringing at the same time more comfort in the decision making process, in this challenging business environment.

BRD financial results for six months ended June 30, 2020 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.

_{Note: If not stated otherwise, all variations are vs. H1 2019 (for income statement related items) or June 2019 end (for balance sheet related items) NPL ratio, coverage ratio, at individual level.}

_{BRD - Groupe Société Générale operates a network of 625 units. BRD has a leading position on the card market with approx. 2.41 million cards and a network acceptance of approx. 30,000 POS and almost 1,500 ATMs. Total assets of the bank at June 2020 end amounted to RON 58.39bn.}

_{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 H1 2020: BRD STOOD BY ITS CLIENTS AND DELIVERED AN OVERALL RESILIENT FINANCIAL PERFORMANCE