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BRD GROUP RESULTS FOR Q1 2019: ROBUST COMMERCIAL PERFORMANCE

03 May 2019

The main commercial trends and financial indicators of BRD Groupe Société Générale at March 31, 2019 at consolidated level, according to the International Financial Reporting Standards (IFRS):
• Robust business dynamics: continued lending growth on retail (+3.6%*) and corporate (+5.2%*) segments, total leasing production up by +12%, higher volume of transactions, and increasing remote banking subscribers (+18% YoY)
• Sustained increase in net banking income, up by +8.3% YoY
• Operating expenses impacted by doubled cumulated contributions to Deposit Guarantee and Resolution Funds and higher staff costs in a tight labor market environment
• Solid operating performance: gross operating income reached RON 342 million (+10.7% YoY excl. Deposit Guarantee and Resolution Funds contribution); C/I ratio lowered by 1.2 pts, at 47.2% in Q1 2019 vs. 48.3% in Q1 2018, excl. the impact of above mentioned regulatory expenses
• Net cost of risk write-backs of RON 26 million (vs. RON 153 million in Q1 2018) with lowered influence of exceptional items and recoveries from defaulted portfolios
• Net profit of RON 301 million (vs. RON 414 million in Q1 2018)

“In the first quarter of the year, BRD marked continued loan growth on both retail and corporate segments, and higher transaction volumes, while improving operating performance. Going forward, we will continue to build upon our strong franchise, actively financing the projects and activities of all the actors of the economy and to prioritize the improvement of customer experience by stepping up on digital innovation and further streamlining operations”, said François Bloch, CEO of BRD Groupe Société Générale.

The Romanian loan market expanded at a strong pace (+6.9%* YoY at February 2019 end), due to both households’ and companies’ segments. Deposits rose by +7.0%* YoY, especially driven by private individuals as disposable income continued its positive trend.

In this supportive but competitive banking landscape, net loans, including leasing receivables, increased by +4.1%* compared to March 2018 end. Retail loan growth (+3.6%*) builds on both consumer and housing loans’ advance. Corporate loans increased by +5.2%* versus March 2018 end, pushed by the large corporate segment (+10.4%*). Factoring operations of RON 1.2 billion in Q1 2019 were up by +2.8% YoY. Leasing production increased by +12% versus Q1 2018, with the demand coming especially from small business and SME segments.

Deposits from customers were quasi stable on an annual basis. Retail savings’ annual growth (+4.0%*) was driven by larger inflows in private individuals’ current accounts (+20%*) on higher disposable income. The ratio of net loans to deposits was 69.0% at March 2019 end, up by +3.3 percentage points versus March 2018 end.

BRD further focused on offering its customers the best banking experience through multiple distribution channels. MyBRD Mobile application now features the Instant Top-up option allowing free interbank transfers in the customers’ BRD accounts. Moreover, customers can see their account balance and transactions at eight banks in the ContAll account aggregator available via MyBRD Mobile. The newly launched personal expenses dashboard in ContALL also offers additional insight to customers on their spending habits.

As a result of the continuous investments in digitalization, the number of internet and mobile banking subscribers advanced by +18% versus March 2018 end, with the adoption of mobile banking rising fast (number of MyBRD Mobile subscribers up by +43%). The number of transactions through MyBRD Mobile and MyBRD Net solutions increased by +23% compared to the first quarter of 2018. The intensity of commercial relationships also improved, with individual customers’ equipment rate (the average number of products per active customers) rising to 4.26 from 4.18 at March 2018 end.

BRD Group net banking income reached RON 784 million in Q1 2019, up by +8.3% compared to Q1 2018, benefiting from solid commercial performance on both segments, retail and corporate. Net interest income registered a double-digit increase, +10.3% YoY, combining higher volumes and positive structure shifts, in a favourable interest rate environment. In spite of expanding volumes, net fees and commissions remained quasi stable on a yearly basis (+0.2% YoY) influenced by increasing price pressure on transactional banking services.

Operating expenses totalled RON 442 million in Q1 2019, higher by +14.9% (+5.7% excl. Deposit Guarantee and Resolution Fund expenses) compared to Q1 2018, significantly impacted by doubled cumulated contribution to Deposit Guarantee and Resolution Funds when compared to the amount booked last year (RON 72 million in 2019 vs. RON 35 million in 2018). In a tight labor market context, with unemployment rate at record low level, staff costs remained under pressure, increasing by +8.6% YoY, in relation to salary and other benefits’ adjustments. Other expenses (up by +2.5%YoY), remained under tight control. Cost/income ratio reached 56.4% (vs. 53.2% in Q1 2018). Excluding the Deposit Guarantee and Resolution Funds cumulated contribution, the cost/income ratio improved by 1.2 pts compared to Q1 2018.

BRD Group operating performance remained solid. Excluding the Deposit Guarantee and Resolution Fund contributions, gross operating result advance reached +10.7% YoY compared to Q1 2018.
The quality of the loan book continued its improving trend, as reflected by the decrease in NPL ratio (according to EBA definition), at 4.0% at March 2019 end compared to 6.4% at March 2018 end, due to write off operations and sale of non performing loans coupled with lending growth. Coverage ratio remained solid at 75.1% at March 2019 end, compared to 75.4% at March 2018 end. Net cost of risk was again positive in the first three months of the year totalling RON 26 million compared to RON 153 million in Q1 2018, with fading effects of exceptional items and lower recoveries from defaulted porfolios.

In this context, BRD Group net profit reached RON 301 million in Q1 2019 vs. RON 414 million in Q1 2018 on lower cost of risk write backs and higher regulatory costs. Return on equity reached 15.4% in Q1 2019 (vs. 22.0% in Q1 2018).

BRD’s capital position remained solid, with total capital ratio reaching 19.7% at March 2019 end (vs. 19.3% as of March 2018 end, figures at individual level, under Basel 3 regulations, net of dividends approved in the annual shareholders’ meeting), significantly above regulatory requirements.

Begining with the 2019 fiscal year, a tax on certain financial assets for banking institutions (i.e. a tax on credits) is imposed by Government Emergency Ordinance no 19/2019. Based on the provisions of the emergency ordinance, this tax should be considered a levy, thus falling under the provisions of IFRIC 21 „Levies”. The payments made in August 2019 (based on June 30, 2019 figures) or any time before the end of the period will be recognised as payments in advance until December 2019 end, when the final tax will be booked. Disregarding possible incentives, BRD estimated the tax on financial assets for fiscal year 2019 at RON 79 million (RON 67 million, net of corporate income tax).

BRD financial results for three months ended March 31, 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
Note: If not stated otherwise, all variations are vs. Q1 2018 (for income statement related items) or March 2018 end (for balance sheet related items)
BRD - Groupe Société Générale operates a network of 723 units. BRD has a leading position on the card market with approx. 2.4m cards and a network acceptance of approx. 27,000 POS and almost 1,600 ATMs. Total assets of the Bank at March 2019 end amounted to RON 54.4bn.

BRD is part of the Société Générale Group, one of the largest European financial services groups. The group has 147,000 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 Q1 2019: ROBUST COMMERCIAL PERFORMANCE