MBank Group A Leading Bank in one of the EU's Strongest Economies - March 2019 Debt Investor Presentation
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mBank Group A Leading Bank in one of the EU’s Strongest Economies March 2019 Debt Investor Presentation
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|2Disclaimer (2/2)
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|3Agenda
Key Investment Highlights
mBank Group’s Performance
- Financial Results
- Balance Sheet
- Asset Quality
- Funding & Capital
Additional Information
- Polish Economy
- Polish Banking Sector
- mBank Group’s Detailed Financial Information
- Management Team
Transactions Overview
|4Key Investment Highlights
A leading universal
bank in Poland 1
A resilient economy with
2 fundamentals supporting
growth prospects
A well-capitalized
and stable 3
banking sector Leading market positions,
highly efficient platform
4 underpinning solid
Prudent risk financial results
management and 5
a robust balance sheet
Bank’s 2016-2020
6 strategy building on key
competitive strengths
|5mBank Group in a snapshot
General description Key financial data (PLN M)
• Poland’s 4th largest universal banking group in terms of total 2015 2016 2017 2018
assets and 5th by customer net loans and deposits as at the end Total assets 123,523 133,744 131,424 145,750
of December 2018 Net loans to customers 78,434 81,763 84,476 94,723
• Well capitalised, liquid bank with a strong funding profile Customer deposits 81,141 91,418 91,496 102,009
Total equity 12,275 13,051 14,292 15,216
• Among Poland’s most efficient banking platform built on the Total income 4,093 4,295 4,454 5,059
principles of organic growth Net profit 1,301 1,219 1,092 1,316
• A well balanced business mix with leadership positions in both Cost-to-Income ratio 50.1% 45.7% 45.9% 42.8%
retail and corporate banking segments attracting continued Cost of risk 0.54% 0.46% 0.61% 0.78%
inflows of new clients Return on Equity 11.8% 10.1% 8.3% 9.5%
• Credit-rated by Fitch (BBB/F2) and Standard & Poor’s (BBB+/A-2) Tier 1 Capital ratio 14.3% 17.3% 18.3% 17.5%
Total Capital Ratio 17.3% 20.3% 21.0% 20.7%
• Listed on the Warsaw Stock Exchange since 1992, NPL ratio 5.7% 5.4% 5.2% 4.8%
69.3% owned by Commerzbank NPL coverage ratio 58.9% 57.1% 59.2% 62.8%
Key product lines as of 31.12.2018 Market position by total assets (PLN B)
as of 31.12.2018
Corporates and
Retail Banking 324.3
Financial Markets
A wide range of modern Fully fledged offering:
financial services for Corporate banking 205.9 #4
mass market, affluent 191.1
Transactional banking
and private banking Investment banking 145.8 141.6
clients as well as entrepreneurs 109.0
Brokerage
80.5 73.4
Leasing
Czech Republic
Poland Factoring
and Slovakia
5,685 thou. clients 23,706 clients PKO BP Santander Pekao ING BSK BGŻ BNP Millennium Alior
BP Paribas Bank
Source: Base Prospectus Source: Banks’ consolidated financial statements as of 31.12.2018
|6Poland – one of EU’s most resilient economies
Strengths Contributions to GDP growth
7
The largest economy in Central and Eastern Europe (CEE) 6
5.4
5.0 5.3 5.1 5.1 4.9
1 4.6 4.6
with more than 40% of the region’s gross domestic product 5 3.8
4.2
4 3.1 3.3 3.4 3.3 3.3 3.6 3.1 3.4 2.8 2.8
Track record of steady growth despite prolonged turmoil
3
experienced by the international financial markets
2
Growth supported by expansionary policy-mix, solid influx 1
of EU funds under 2014-2020 framework, high cost 0
-1
competitiveness and key location within the huge EU market
-2
Economic expansion began in 2013 and GDP growth -3
Q1/14 Q3/14 Q1/15 Q3/15 Q1/16 Q3/16 Q1/17 Q3/17 Q1/18 Q3/18
continued to remain solid in the next quarters
Investment Net exports Consumption
Inventories GDP YoY (%)
1
Share of 2018 Nominal GDP of CEE region defined as: Bulgaria, Czech Republic, Hungary, Poland,
Romania and Slovakia Source: Central Statistical Office of Poland
Poland – one of the fastest growing economies in the region
GDP index (Q1 2008=100) 2018 Nominal GDP share Real GDP growth
150
Hungary 5.1%
Poland
140 3.3%
11.1% 4.8%
Czech Hungary
3.0%
130
Poland Republic
17.5% 4.2%
Slovakia
120 3.8%
4.0%
110 42.0% Romania
3.7%
7.6%
Slovakia 3.2%
100 Bulgaria
4.7% 3.6%
90 Bulgaria 2.9%
17.1% Czech Republic
Q1/08 Q3/09 Q1/11 Q3/12 Q1/14 Q3/15 Q1/17 Q3/18 2.8%
1.9%
Poland Hungary Czech Republic EU-28 2018
Romania 1.6%
Slovakia Bulgaria Romania 2019-2020
Source: Eurostat (average)
|7Sound fundamentals for the banking business
Very strong labour market Inflation is oscillating within the target band
Unemployment rate – 31.12.2018 Harmonised indices of consumer prices (HICP)
4,0%
4.0%
7.8% 3,5%
3.5%
3,0%
3.2%
6.6% 3.0%
2,5%
2.5% 2.4%
2,0%
2.0%
1,5%
1.5% 1.3%
3.7% 3.6% 1,0%
1.0%
0,5%
0.5%
2.2% 0,0%
0.0%
-0,5%
-0.5%
-1,0%
-1.0%
-1,5%
-1.5%
Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18 Jan-19
Poland Czech Hungary EU-28 Euro area
Republic Poland Czech Republic Hungary
Source: Eurostat Source: Eurostat
Relatively low government debt Underleveraged private sector
General government debt (% of GDP) - 2017 Domestic credit to private sector (% of GDP) - 2017
86.7% 95.4%
88.3%
73.6%
50.6% 50.9% 52.5% 51.6%
34.6% 33.4%
Poland Czech Slovakia Hungary Euro area Poland Hungary Czech Euro Area EU-28
Republic Republic
Source: Eurostat Source: World Bank
|8A well-capitalized and stable banking sector
Banking sector penetration in Poland Capitalisation and Funding – the Polish banking sector
% GDP - 2018 2015 – 2018 growth Total Capital Ratio & Tier 1 ratio Loan-to-deposit ratio
33.7% 14.3% 98.9%
19.0% 19.1% 95.7% 94.8%
12.7% 17.7% 92.4%
16.3%
10.5%
20.0%
17.8%
17.2% 17.2%
15.0% 16.1%
Corporate Total retail Mortgage Corporate Total retail Mortgage 2015 2016 2017 2018 2015 2016 2017 2018
loans loans loans loans loans loans
Tier 1 ratio Tier 2 ratio
Asset quality and Regulations – the Polish banking sector Efficiency and Profitability – the Polish banking sector
NPL ratio – 31.12.2018 Prudent supervision Cost / Income ratio Return on Equity
6.8% Strict origination standards 58.7%
56.0% 56.3% 56.1% 7.8%
5.9% for retail and mortgage loans 7.1% 7.2%
6.6%
FX mortgages only to
borrowers earning income
in the loan currency from
2.5% July 2014
Minimum requirement for
Tier capital 1 ratio at 11.50%
and for TCR at 13.50%
Total Retail Mortgages starting from January 2019 2015 2016 2017 2018 2015 2016 2017 2018
Source: National Bank of Poland, Polish FSA, Central Statistical Office of Poland Note: Ratios (C/I, ROE) impacted by one-off costs in 2015 and banking tax in 2016-2018.
|9Successful story of organic growth
Brief history Number of retail customers (thou.)
mBank CZSK +343
1986 mBank developed its operations from Retail loans: PLN 52.9 B
Retail deposits: PLN 65.9 B mBank Poland
corporate banking. Since its establishment 5,685
[as of 31.12.2018]
in 1986 the bank has served some of 5,342
5,052 924
Poland’s largest companies involved in Favourable demographics of 4,551 4,663 905
customer base: 869
foreign trade on export markets. 762 797
ca. 50% of retail clients are
under the age of 35 and are
In 2000, mBank started its operations in expected to reach their
the retail banking segment by launching highest personal income 4,437 4,761
3,789 3,866 4,182
a first fully Internet-based bank in Poland levels in the future,
(developed in just 100 days). mBank's mortgage clients
predominantly live in urban
areas and large cities of
In 2001, mBank added a high street brick- more than 100 thou. residents 2014 2015 2016 2017 2018
2000
and-mortar bank, offering a broad range of
2001 products and services targeted at affluent
customers and micro-businesses seeking Number of corporate customers
high quality, personalized service at branches. +1,658
Corporate loans: PLN 44.2 B
Corporate deposits: PLN 35.3 B
mBank, which launched retail operations [as of 31.12.2018] 23,706
22,048 2,193
2007 in the Czech Republic and Slovakia in 2007, 19,562
20,940
2,093
Corporate customers split:
managing to replicate its business model in (starting from 2018)
17,787 1,983 2,123
7,520
foreign markets. 1,838
K1 – annual sales 6,067 7,088
5,748
over PLN 1 B and 5,144
As a result, mBank’s client base has grown non-banking financial
institutions
almost entirely organically, reaching 5,685
thou. retail clients and 23.7 thou. corporate
K2 – annual sales of 12,750 12,867 13,993
PLN 50 M to PLN 1 B 10,805 11,831
customers at the end of 2018. More than K3 – annual sales
1.3 million clients are systematically banking below 50 M and full
2018 accounting 2014 2015 2016 2017 2018
via mBank's mobile application.
Source: Base Prospectus, IFRS Consolidated Financial Statements of mBank Group
|10Highly efficient platform underpinning solid financial results
Composition of mBank Group’s profit before income tax – 2018 mBank Group’s key market shares in volumes
as of 31.12.2018 9.0%
Financial
Markets
and Other 6.5% 6.4% 6.6%
4.0%
65.7%
Retail
Banking
Corporates 30.3%
and
Investment
Banking
Retail Retail Corporate Corporate
Loans Deposits Loans Deposits
Profit before income tax: PLN 1,800 M
mBank Group’s efficiency of operations mBank Group’s profitability
Cost/Income ratio Revenue per employee (PLN thou.) Net profit attributable to owners of mBank (PLN M) Return on Equity
50.1% 1,287 1,301 1,316
44.9% 45.7% 45.9% 1,219
42.8% 1,092
787.3 13.1%
11.8%
658.4 686.1 10.1% 9.5%
639.1 636.0 8.3%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Source: Base Prospectus; calculation of mBank’s market shares based on data published by the National Bank of Poland
|11Prudent risk management and a robust balance sheet
mBank Group’s NPL ratio below the market level mBank Group’s Loan-to-Deposit ratio reflects ample liquidity levels
6.8%
6.4% 103.0%
5.7% -2.0 pp 96.7%
5.4% 92.3% 92.9%
5.2% 89.4%
4.8%
2014 2015 2016 2017 2018 Sector 2014 2015 2016 2017 2018
2018
A well funded balance sheet of mBank Group (PLN B) mBank Group’s strong capitalisation and liquidity
as of 31.12.2018 as of 31.12.2018
23.0%
104.2 Total assets: PLN 145.8 B
20.7%
86.3 Assets Liabilities
17.5%
10.4%
29.1
14.9 17.9 15.2
3.8 6.9 7.8
1.8 3.6
PLN CHF EUR USD Other Equity Tier 1 Capital Total Capital Equity/ Securities/
Ratio Ratio Assets Assets
Source: Base Prospectus, IFRS Consolidated Financial Statements of mBank Group, Polish FSA data for the sector
|12Highlights of mBank Group’s 2016-2020 strategy
Specific business actions will be based on three strategy pillars
1 2 3
Empathy Mobility Efficiency
Be the point of reference in Grow while keeping the FTE
Offer the best customer terms of mobile banking base at current level
experience i.e. give clients what
they need just when they need it Offer the best (most convenient, Increase average revenues
hassle-free, intuitive and per client every year
Make banking easy engaging) mobile application Enhance assets profitability
Focused customer acquisition on the banking market through an active management
oriented on development of Enhance ‘mobile first’ of balance sheet structure
active client base, incl. distribution approach within
mBank’s aspiration to acquire Strengthen funding
the multichannel model independence through rising
1/3 of young people (18-24 year
old) entering the banking market Minimize the functionality gap volume of covered bonds and
between mobile and internet clients transactional deposits
Broaden the sources of
information about the client Expand base of active mobile Simplify, streamline, automate
to target our offer more precisely app users and sales via mobile and digitalise all processes to
channel be a paperless bank
New mission emphasizes focus on being close to clients and taking advantage
of the mobile revolution
„To help. Not to annoy. To delight… Anywhere.”
|13Highlights of mBank Group’s 2016-2020 strategy
Financial performance targets – 5 key measures
Financial measure Target point
1 Cost efficiency: Top3 in Poland, every year
Cost/Income ratio to be one of the three most efficient listed banks in Poland
2 Top3 in Poland, every year
Owner’s capital profitability:
Return on Equity (ROE net) to be among the three most profitable listed banks in Poland,
assuming ROE adjusted for dividend payment
3 Balance sheet profitability: Top3 in Poland, by 2020
Return on Assets (ROA net) to be one of three listed banks in Poland with the highest ROA
4
Capital position in terms of Maintain CET 1 ratio min. 1.5 p.p. above capital
core capital: CET 1 ratio
requirement for mBank and the ability to pay a
dividend every year
5 Financial stability and liquidity: Maintain L/D ratio at the level not significantly
Loan-to-Deposit ratio higher than 100%, every year
|14Agenda
Key Investment Highlights
mBank Group’s Performance
- Financial Results
- Balance Sheet
- Asset Quality
- Funding & Capital
Additional Information
- Polish Economy
- Polish Banking Sector
- mBank Group’s Detailed Financial Information
- Management Team
Transactions Overview
|15Historical View
Balance Sheet
mBank Group’s historical performance Asset Quality
Funding & Capital
Total income & Net Interest Margin NII NFC Trading and other Total costs & C/I ratio Contributions to the BFG One-off regulatory costs
(PLN M) (PLN M)
2.3% 2.1% 2.3% 2.5% 2.6% 44.9% 50.1% 45.7% 45.9% 42.8%
+6% +5%
+14%
+14%
CAGR +6%
+6%
CAGR
5,059 2,051 1,963 2,043 2,164
4,295 4,454 587 1,771 180
3,939 4,093 326 194 151 11 180
556 976 71 136
547 685 992
897 906
902
1,802 1,863 1,983
3,496 1,700 1,720
2,491 2,511 2,833 3,136
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Net impairment losses on loans and advances & Cost of Risk Net profit attributable to owners of mBank & Return on Equity
(PLN M) (PLN M)
0.72% 0.54% 0.46% 0.61% 0.78% 13.1% 11.8% 10.1% 8.3% 9.5%
+1%
+8% +37%
+37%
CAGR
CAGR +21%
694 1,287 1,301 1,316
1,219 1,092
516 508
421 365
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Source: IFRS Consolidated Financial Statements of mBank Group
|16Historical View
Balance Sheet
mBank Group’s historical performance Asset Quality
Funding & Capital
Total Assets Total Equity & Total Capital Ratio
(PLN B) (PLN M)
+5% 14.66% 17.25% 20.29% 20.99% 20.69%
CAGR
+11%
+8%
+6%
+6%
CAGR
133.7 145.8
118.0 123.5 131.4 15,216
13,051 14,292
11,073 12,275
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Gross Loans and Advances to Customers Amounts due to Customers
(PLN B) (PLN B)
+6% +9% +11%
+11%
+12%
+12%
CAGR CAGR
97.8 102.0
87.4 91.4 91.5 0.7
81.4 84.6 0.6 81.1
77.4 1.3 0.5 1.2
1.7 1.5 72.4 0.6 35.3
3.0 44.2 0.9 37.4 34.6
33.4 34.2 37.9 34.4
32.8 32.2
65.9
46.3 48.9 48.1 52.9 46.1 53.5 55.7
41.6 39.3
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Individual clients Corporate clients Public sector and other Individual clients Corporate clients Public sector
Source: IFRS Consolidated Financial Statements of mBank Group
|17Historical view
Balance Sheet
Balance Sheet Analysis: Assets & Liabilities Asset Quality
Funding & Capital
Structure of Assets Structure of Liabilities and Equity
(PLN B) (PLN B)
145.8 145.8
7.5 5%
133.7 12.9 9% 133.7
131.4 131.4
8.1 15.2 11%
123.5 11.9 10.4 123.5 6.2
118.0 118.0
8.5 9.1 13.1 14.3
5.9 33.5 23%
18.0 12%
10.8
31.4 12.3 12.7
32.1 14.3
30.7 1% 11.1
27.7 1.1 1.0 1% 8.9
1.8 10.3
3.8 1.5 1.2
1.2
4.9 0.6 3.3
81.1 91.4 102.0 70%
94.7 65% 72.4 91.5
81.8 84.5
74.6 78.4
13.4 12.0 8.5
3.8 1.9 3.1 1.7 2.6 1% 5.1 3.1 2%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Amounts due from banks Derivative financial instruments Amounts due to other banks Equity
Loans and advances to customers Investment securities Amounts due to customers Other
Trading securities Other Debt securities in issue
Source: IFRS Consolidated Financial Statements of mBank Group
|18Historical view
Balance Sheet
Balance Sheet Analysis: Currency Structure Asset Quality
Funding & Capital
Currency Structure of Loans to Customers (net) Currency Structure of Amounts due to Banks and Customers 1
(PLN B) (PLN B)
94.7 107.6
3.8 4% 103.8
1.2 1% 7.7 7%
97.0 6.3 98.7
84.5 3.4 3%
81.8 4.8 2.6 7.0
78.4 3.7 15.5 16% 90.0
3.4 0.9 2.0 3.0
74.6 3.0 1.5 4.4 16.8 16%
1.7 1.4 17.3
2.5 14.4 12.6
1.3 16.8
14.9 10.7 2.3 2%
14.8 16%
13.3 16.8 9.5
12.2
4.6
15.2 14.5
19.1
18.9 19.8
77.4 72%
59.3 63% 65.5 68.1 67.3
50.3 58.9
43.0
38.5 37.1
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
PLN CHF EUR USD Other (mainly CZK) PLN CHF EUR USD Other (mainly CZK)
1 Including amounts due to other banks and customers and subordinated liabilities
Source: IFRS Consolidated Financial Statements of mBank Group
|19Historical view
Balance Sheet
Balance Sheet Analysis: Structure of Loans & Deposits Asset Quality
Funding & Capital
Structure of mBank Group’s Gross Loans Structure of mBank Group’s Deposits
as of 31.12.2018 as of 31.12.2018
Public sector
Corporate
Corporate clients
Public sector clients:
Individual PLN 0.7 B
loans loans current
clients:
PLN 0.7 B PLN 44.2 B accounts2
term deposits
PLN 13.7 B PLN 26.4 B
1%
1% 45% 13% 26%
Other retail
loans 1
PLN 18.2 B 19%
Total: Total:
PLN 97.8 B PLN 102.0 B
9%
64%
51% Corporate
54% 35% clients:
Individual term
clients: deposits
current PLN 9.0 B
Mortgage accounts3
loans to PLN 52.2 B
Individuals
PLN 34.7 B
1 Including non-mortgage loans to individuals and all loans granted to microfims 2 Including repo transactions, loans and advances received, other liabilities
Source: IFRS Consolidated Financial Statements of mBank Group
3 Including other liabilities
|20Historical view
Balance Sheet
Balance Sheet Analysis: Loan Portfolio Structure Asset Quality
Funding & Capital
mBank Group’s Sector Exposure by Industry
as of 31.12.2018
Households
Real estate management
12.4% Building industry
1.3%
Financial activities
1.2%
1.4% Food sector
1.4%
Transport and logistics
2.0% 1.9%
2.1% Metals
Total:
2.6% Motorization
PLN 97.8 B
2.8% 54.1% Chemicals and plastics
2.9% Construction materials
3.5% Wood, furniture and stationery
4.5% Wholesale trade
5.9% Fuels
Scientific and technical activities
Other (below 1.2%)
A well diversified loan portfolio with granular structure
Source: IFRS Consolidated Financial Statements of mBank Group
|21Historical view
Balance Sheet
Quality of mBank Group’s Loan Portfolio Asset Quality
Funding & Capital
mBank Group’s NPL Ratio mBank Group’s NPL Ratio by segment
IFRS 9
6.4% Corporate
7.1%
5.7% Portfolio*
5.4% 5.2%
6.2% Retail
4.8% 6.9% Portfolio
5.8%
5.3% 5.1%
5.7%
5.2% 5.2%
4.7%
* excl. Reverse repo
/ buy-sell-back
transactions
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
mBank Group’s NPL Coverage Ratio mBank Group’s NPL Ratio of Mortgage Loan Portfolio*
IFRS 9
mBank Group applies a
4.9%
62.8% conservative client-oriented
58.9% 57.1% 59.2% approach in its methodology
51.9% of NPL recognition.
3.8% 3.7%
3.3%
2.6%
* to Private Individuals
in Poland
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Source: Base Prospectus Note: Since 2018 risk indicators presented for credit portfolio measured both at amortized cost and at fair value through profit or loss.
|22Historical view
Balance Sheet
Loan Loss Provisions & Cost of Risk Asset Quality
Funding & Capital
Net Impairment Losses and Fair Value Change on Loans mBank Group’s Cost of Risk
(PLN M)
694.4 0.78%
54.1 0.72%
0.61%
184.2
515.9 507.7
0.54%
421.2
165.1 0.46%
212.6 112.7
365.4
197.0 80.5
342.6 343.4
303.3 284.9
224.3
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Retail Banking: at amortized cost at fair value
Corporates and Financial Markets: at amortized cost at fair value
Source: IFRS Consolidated Financial Statements of mBank Group
|23Historical view
Balance Sheet
Funding structure details Asset Quality
Funding & Capital
mBank Group’s funding structure mBank’s ratings Loan-to-Deposit Ratio
as of 31.12.2018
103.0% +0.5 pp
Retail Fitch
deposits 96.7%
50% Long-term 92.3% 92.9%
Other rating BBB
4% 89.4%
Subordinated liabilities
2% Short-term
rating F2
EMTN 8% 78%
Standard & Poor’s
Other debt 6% Long-term
BBB+
securities in issue 2% credit rating
Due to banks 28% Corporate Short-term
credit rating A-2
deposits 2014 2015 2016 2017 2018
Contractual maturity of long-term funding instruments in original Summary of issues under Euro Medium Term Note (EMTN) Programme,
currencies as of 31.12.2018 (LC in million) outstanding as of 31.12.2018
1,000
Issue size Issue date Maturity date Tenor Coupon
EUR 500 M 01-04-2014 01-04-2019 5.0 Y 2.375%
500 500 EUR 500 M 26-11-2014 26-11-2021 7.0 Y 2.000%
446
380
289 EUR 500 M 26-09-2016 26-09-2020 4.0 Y 1.398%
230 250
CHF 200 M 28-03-2017 28-03-2023 6.0 Y 1.005%
CHF 180 M 07-06-2018 07-06-2022 4.0 Y 0.565%
2019 2020 2021+
EUR Loans EUR EMTN CHF Loans CHF Subloans CHF EMTN
EUR 500 M 05-09-2018 05-09-2022 4.0 Y 1.058%
Source: Base Prospectus, IFRS Consolidated Financial Statements of mBank Group
|24Historical view
Balance Sheet
A stable CHF funding profile Asset Quality
Funding & Capital
mBank’s CHF funding composition as of 31.12.2018 (CHF M)
3,877
289
250 23.7% direct CHF long-term funding
380
2,661
297
CHF retail loan CHF loans CHF subordinated CHF unsecured Long-term cross Short-term market
portfolio loan bonds (EMTN) currency swaps instruments
and repos
CHF mortgage loans are funded predominantly by long-term funding sources, including CHF-denominated loans and
bonds (including loans from EIB and subordinated loan from Commerzbank, and unsecured bonds issued under the
EMTN Programme) as well as long-term cross currency swaps and repos
Reliance on short term funding at marginal levels
Source: Base Prospectus
|25Historical view
Balance Sheet
Key regulatory ratios: capitalisation and liquidity Asset Quality
Funding & Capital
mBank Group’s Total Capital Ratio mBank’s NSFR and LCR
21.0% 20.7% 199%
20.3% 190%
17.3% 165%
16.9%
149%
144%
14.7%
114% 118%
114%
109% 109%
Basel III requirement ≥100%
18.3%
17.3% 17.5%
14.3% 14.0%
12.2%
2014 2015 2016 2017 2018 minimum 2014 2015 2016 2017 2018
requirement
as of 12/18
(PLN B) 66.5 69.4 65.31 68.0 76.2
Net Stable Funding Ratio (NSFR) Liquidity Coverage Ratio (LCR)
Tier 1 capital ratio Tier 2 XX.X Total risk exposure amount
1
Due to the adjustment of the application of the regulatory floor to the requirements of article 500 CRR and the extensions of the AIRB approach
Note: On 04.10.2016 the Polish FSA identified mBank as an other systemically important institution and imposed on the bank an additional buffer at 0.5% of total risk exposure amount.
Source: Base Prospectus
|26Agenda
Key Investment Highlights
mBank Group’s Performance
- Financial Results
- Balance Sheet
- Asset Quality
- Funding & Capital
Additional Information
- Polish Economy
- Polish Banking Sector
- mBank Group’s Detailed Financial Information
- Management Team
Transactions Overview
|27Growth-supporting policies and flexible exchange rate
Growth-oriented policies Issues and challenges
Historically low interest rates are supporting business lending Poor demographic prospects – working-age population is
and reducing the interest burden faced by households projected to decline by more than 20% by 2050
Plans to reduce personal income taxes via lower PIT rates and Relatively low private investment rate and R&D spending
higher deductibles
Various measures to permanently raise household savings rate
and, indirectly, private investment rate (an offset to
demographic headwinds)
Redistributive policies and increased spending on family
support to tackle long-term demographic problems
Flexible exchange rate as an asset
100 From the beginning of 2017 the Polish
currency appreciated by 3% against the
euro and by 11% against the US dollar,
95
reaching a peak in early 2018. Depreciation
since then has been rather modest.
90
There are clear benefits to a flexible
exchange rate: fast adjustment, no need
85
for internal devaluations. In addition,
relatively low external debt makes currency
80 depreciation a clear net positive for the
economy (via exports mainly).
75
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19
Currency appreciation is also a substitute
for interest rate hikes.
EUR/PLN USD/PLN
Source: Eurostat, Bloomberg
Polish Banking Financial Management |28
Economy Sector Information Team2019 set to be another good year for the Polish economy
Polish exports are defying expectations Consumption is set to remain a key pillar of growth
65 20% 9% 10
8%
60 15% 5
7%
55 10% 6% 0
50 5% 5% -5
4%
45 0% -10
3%
40 -5% 2% -15
1%
35 -10% -20
0%
30 -15% -1% -25
Q2/06 Q3/07 Q4/08 Q1/10 Q2/11 Q3/12 Q4/13 Q1/15 Q2/16 Q3/17 Q4/18 Q1/05 Q3/06 Q1/08 Q3/09 Q1/11 Q3/12 Q1/14 Q3/15 Q1/17 Q3/18
Household consumption YoY (LA)
Eurozone manufacturing PMI (LA) Polish exports YoY - 2Q avg (RA)
Expected changes in financial situation of households (RA, -2Q)
Polish exports continues to surprise to the upside Consumption poised to remain a key driver of growth
So far, Poland has largely escaped the effects of the global Thanks to a very good labour market, strong wage growth and
slowdown and the retrenchment of activity in the euro area. widespread optimism among consumers.
Polish exports slightly slowed down and this was offset by This, in turn, has already translated into very high consumption
weaker imports, with no measurable impact on overall activity. growth (between 4.5 and 5% YoY).
It seems that Polish manufacturers have become adept at Consumption will be further supported by the new fiscal
mastering global trade and finding new buyers in a flexible package (personal tax cuts, social transfers including the
manner. extended child subsidy programme), whose impact is estimated
at 0.5 p.p. in 2019 and 2020.
As a result, mBank’s near-term GDP forecasts are very
optimistic (4.5% YoY in 2019 and 4.0% YoY in 2020).
Source: Central Statistical Office of Poland Source: Central Statistical Office of Poland, National Bank of Poland
Polish Banking Financial Management |29
Economy Sector Information TeamMPC expects stable rates until the end of its term
The MPC is in no hurry to raise rates Polish assets: no clear trend
Owing to the cut in electricity prices, low fuel prices and still Warsaw stock exchange is primarily driven by global factors;
low core inflation, CPI remains comfortably low, even below mid-cap and small-cap stocks were negatively affected by
the NBP’s target band. rising costs (materials, energy, labour).
Inflation is expected to rise gradually this year and hit the Long-term Polish government bond yields are driven by global
target at the turn of 2019 and 2020. The primary reason for factors as well, i.e. monetary policy, inflation and growth
this is rising core inflation. expectations. Short-end yields are anchored by NBP policy
stance and the banking tax.
From the NBP’s point of view, these inflation prospects are
mellow and do not warrant a change in policy. The stance of Zloty was exposed to temporary depreciation due to low local
the NBP governor indicates no changes to interest rates until interest rates and rising global rates. Now its prospects
the end of the MPC’s term (i.e. at least through early 2021). brightened somewhat given the Fed’s dovish turn.
Inflation rate (YoY) and the path of interest rates Key Polish interest rates
3,0%
3.0% 4,0
4.0
2,5%
2.5%
3,5
3.5
2.0%
2,0%
1.5%
1,5% 2.91
3,0
3.0
1.0%
1,0%
0.5%
0,5% 2.5
2,5
0.0%
0,0%
2.0
2,0
-0.5%
-0,5% 1.72
-1.0%
-1,0%
1.5
1,5
-1.5%
-1,5% 1.50
-2.0%
-2,0% 1.0
1,0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Repo rate CPI inflation Core inflation Wibor 3M NBP base rate 10-year yield
Source: Central Statistical Office of Poland Source: Bloomberg
Polish Banking Financial Management |30
Economy Sector Information TeamCredit growth rebounding, retail deposit growth accelerated
Corporate loans and deposits (% YoY) Household loans and deposits (% YoY)
25% 14%
20% 12%
10%
15%
8%
10%
6%
5%
4%
0%
2%
-5% 0%
-10% -2%
Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18
Corporate deposits Corporate loans Corporate investment loans Household deposits Household loans Mortgage loans
Corporate deposits slowed down considerably. Several Household deposits accelerated as consumers raised savings
explanations are likely, including: increased imports, higher and shifted their savings away from mutual funds and the
labour costs, shift from bank deposits to T-bonds, change in equity market. Going forward, the fiscal package is set to
VAT refund policy reducing corporate liquidity. increase retail deposits further, and double-digit growth in
deposits is expected throughout 2019.
Corporate lending started accelerating in 2017, but the
composition is constantly changing. In any case, Polish The government’s new fiscal package will likely breathe new
corporates are characterized by low reliance on bank funding. life into consumer lending. Both mortgage and consumer loans
are set to benefit from higher household disposable income.
Source: National Bank of Poland Source: National Bank of Poland
Polish Banking Financial Management |31
Economy Sector Information TeamAsset quality trends in Poland
Comparison of NPL ratios for CEE countries – 2017 Improving risk indicators in Poland – NPL ratios by sector
14%
10.2% 13%
Introduction
of IFRS9
9.2% 12%
8.4%
11%
6.6% 6.6% 10%
8.7%
9%
8%
3.7% 6.8%
2.8% 7%
6%
5.9%
5%
4%
Bulgaria Slovenia Hungary Romania Poland Slovakia Czech Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Republic
Total Households Corporates
Source: ECB (Statistical Data Warehouse) Source: Polish FSA
Mortgage NPL ratio evolution in Poland A conservative regulatory environment
3.6%
3,6%
Recommendation S
3.2%
3,2% 3.0% Introduction of a limitation on LtV: to 90%, if part of the loan exceeding
2.8%
2,8%
the 80% limit was insured or backed by high quality collateral, and to
80% in other cases; a gradual reduction to the target levels in 2017
2.4%
2,4% Recommended to retail customers repayment period no longer than 25
2.5%
years for retail customers
2.0%
2,0%
Foreign-currency mortgage loans as a niche product offered only to
1.6%
1,6% borrowers earning permanent income in the loan currency
Recommendation T
1.2%
1,2%
Assessment of the client's standing based on certificates of income,
0.8%
0,8%
external databases, e.g. the Credit Information Bureau (BIK)
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Maximum Debt-to-Income ratio determined by the bank’s management
Total Mortgages FX Mortgages board and approved by the supervisory board
Source: Polish FSA
Polish Banking Financial Management |32
Economy Sector Information TeamConsolidated Profit and Loss Account
Annual results (PLN thou.) 2015 2016 2017 2018
Net interest income 2,511,373 2,832,843 3,135,660 3,496,474
Net fee and commission income 897,176 906,445 992,158 975,850
Dividend income 17,540 3,327 3,428 3,558
Net trading income 292,935 244,631 294,063 347,336
incl. FX result 288,708 270,451 289,112 323,472
1
Gains less losses from financial assets 314,408 261,281 -3,937 21,306
2
Net other operating income 59,891 46,827 32,189 214,667
Total income 4,093,323 4,295,354 4,453,561 5,059,191
Total operating costs -2,050,596 -1,963,284 -2,043,168 -2,163,932
Overhead costs -1,850,946 -1,739,643 -1,818,949 -1,911,340
Amortisation -199,650 -223,641 -224,219 -252,592
3
Loan loss provisions and fair value change -421,222 -365,394 -507,721 -694,425
Operating profit 1,621,505 1,966,676 1,902,672 2,200,834
Taxes on the Group balance sheet items -3,650 -328,939 -375,256 -401,760
Result on entities under the equity method - - 486 1,240
Profit before income tax 1,617,855 1,637,737 1,527,902 1,800,314
Net profit attributable
to owners of mBank 1,301,246 1,219,282 1,091,530 1,316,451
1 Including a part of ‘Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss’ related to equity instruments and debt securities (without related to loans and advances)
2 Including the share in the profits (losses) of joint ventures
3 Sum of ‘Impairment on financial assets not measured at fair value through profit or loss’ and ‘Gains or losses on non-trading financial assets mandatorily at fair value through profit or loss’ (related to loans)
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |33
Economy Sector Information TeamConsolidated Statement of Financial Position
Assets (PLN thou.) 2015 2016 2017 2018
Cash and balances with Central Bank 5,938,133 9,164,281 7,384,869 9,199,264
Loans and advances to banks 1,897,334 3,082,855 1,707,722 2,546,346
Trading securities 557,541 3,800,634 1,525,382 1,098,223
1
Derivative financial instruments 3,349,328 1,808,847 1,236,303 1,006,079
2
Loans and advances to customers 78,433,546 81,763,277 84,475,844 94,722,587
3
Investment securities 30,736,949 31,393,352 32,144,699 33,469,728
Intangible assets 519,049 582,663 710,642 776,175
Tangible fixed assets 744,522 757,371 758,738 785,026
Other assets 1,346,619 1,390,222 1,479,820 2,146,691
Total assets 123,523 021 133,743,502 131,424,019 145,750,119
Liabilities (PLN thou.) 2015 2016 2017 2018
Amounts due to other banks 12,019,331 8,486,753 5,073,351 3,078,387
1
Derivative financial instruments 3,173,638 1,599,266 1,095,365 981,117
Amounts due to customers 81,140,866 91,417,962 91,496,027 102,009,062
Debt securities in issue 8,946,195 12,660,389 14,322,852 18,049,583
Subordinated liabilities 3,827,315 3,943,349 2,158,143 2,474,163
Other liabilities 2,140,712 2,584,622 2,986,725 3,941,727
Total liabilities 111,248,057 120,692,341 117,132,463 130,534,039
Total equity 12,274,964 13,051,161 14,291,556 15,216,080
Total liabilities and equity 123,523,021 133,743,502 131,424,019 145,750,119
1 Including ‘Held for trading derivative financial instruments’, ‘Derivative financial instruments held for hedging’ and ‘Offsetting effect’
2 Sum of ‘Loans and advances to customers’ reported within ‘Non-trading financial assets mandatorily at fair value through profit or loss’ and ‘Financial assets at amortised cost’
3 Sum of ‘Financial assets at fair value through other comprehensive income’, ‘Debt securities at amortised cost’ and ‘Equity instruments and debt securities mandatorily at fair value through profit or loss’
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |34
Economy Sector Information TeamDevelopment of Total Income and Total Costs
Development of mBank Group’s Total Income Development of mBank Group’s Total Costs
(PLN M) (PLN M)
Net Interest Margin Cost/Income ratio,
2.1% 2.3% 2.5% 2.6% 49.2% 48.2% 45.9% 44.7% excl. one-offs
+13.6%
+8.7% +4.1% +5.9%
change -4.3% change
+3.7% 5,059 +4.7%
2,164
‘18/‘17 +5.1% ‘18/‘17
+4.9% +10.0% 220 2,051 2,043
1,963 180
+7.3% 4,454 367 194 11 180
4,295 151
4,093 248 326 +12.7% 136 +0.2%
319 308 976
365 992
1,031
906 960
866 925
897 -1.6% +7.4%
3,496
3,136 +11.5% +5.5%
2,833
2,511
855 877 903 952
+X.X% +X.X%
Dynamics Dynamics
2015 2016 2017 2018 w/o one-offs 2015 2016 2017 2018 w/o one-offs
Net interest income Trading and other income Personnel costs Regular BFG contribution
1
Net fee and commission income One-off gains Material and other costs One-off regulatory costs1
1 Including: in 2015 one-off gains on the sale of BRE Ubezpieczenia TUiR (PLN 194.3 million) and PZU 1 Including: in 2015 payment to the BFG related to the bankruptcy of Cooperative Bank in Wołomin
shares (PLN 125.0 million); in 2016 a gain on the settlement of Visa transaction (PLN 247.7 million); (PLN 141.7 million) and contribution to the Borrowers’ Support Fund (PLN 52.1 million); in 2016
in 2018 a gain on the sale of an organised part of the enterprise of mFinanse (PLN 219.7 million) additional payment to the BFG related to the bankruptcy of Cooperative Bank in Nadarzyn
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |35
Economy Sector Information TeamNet Interest Income
Interest Income Structure Interest Expense Structure
(PLN M) (PLN M)
+12%
4,518.2 1,465.6
130.0 76.3
180.4
3,956.3 4,052.1 77.3
3,872.9 87.8
138.127.2 3,660.5 80.7 133.6
196.8 229.3 1,149.1 +11%
66.8
157.5 13.8
79.0 1,040.0 1,021.7
12.0 14.4
68.7 916.4 75.3
265.0 15.9
69.0
3,387.6 257.0
2,833.2 3,014.8 318.9
2,584.5 2,753.2 280.2
892.1
696.0
638.7
557.8
47.9 493.0
51.1 77.0 62.8 72.4
836.6 750.7 708.0 693.2 692.1
190.6
95.3 63.7 58.3 55.3
73.3 49.9 57.3 59.9 55.7
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Cash and short-term deposits Loans and advances Amounts due to banks Subordinated liabilities
Investment securities Derivatives classified into banking book Amounts due to customers Other
Debt securities held for trading Other Issue of debt securities
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |36
Economy Sector Information TeamNet Fee and Commission Income
Fee and Commission Income Structure Fee and Commission Expense Structure
(PLN M) (PLN M)
-1% 0%
1,659.7 1,641.8 667.5 665.9
644.4
1,550.8
246.4 227.1
1,433.9
1,399.6 218.5
536.8 175.9 203.0 220.6
100.6
188.9 199.1 187.4 497.9
166.8
116.7 149.8 341.2 150.5 11.5 13.1
306.6 13.5
280.7 148.1
255.1 123.0 130.7
268.6 104.5 10.6
141.5
135.5 10.8
111.0 142.0 98.4
123.0 78.0 56.3 28.6
390.0 47.5 26.8
31.6 47.9
372.9 29.9 50.1
361.9 36.1 40.7
413.6 342.3
84.7
71.4 11.6
58.8 14.8
14.9 49.0 13.5 244.7
13.4 46.6 195.0 204.9 229.9 213.6
382.0
287.3 308.5 324.8
254.3
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Credit related fees Brokerage activity & securities issue Payment card fees Commissions paid to external entities
Portfolio management Accounts & money transfers Cash handling fees Fees paid to NBP and KIR
Guarantees and trade finance Insurance activity Discharged brokerage fees Other (incl. insurance activity)
Payment card fees Other (incl. custody)
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |37
Economy Sector Information TeamChanging funding base towards more diversification
Evolution of mBank Group’s Funding Mix Development of mBank Group’s Own Funds
100% 4% (PLN M)
2%
15,771
14% Other
80%
14,280
2% 13,244
Subordinated debt
11,971
28%
60% Debt securities in issue 9,751
Medium & long-term funding1
40%
50% Corporate deposits
20%
Retail deposits
0% 2014 2015 2016 2017 2018
12/13 12/14 12/15 12/16 12/17 12/18 1
Loans granted by Commerzbank and
other bilateral credit agreements
mBank’s subordinated securities outstanding
as of 31.12.2018
Type Nominal value Currency Maturity date Tier II eligible On October 9, 2018, mBank issued two
series of subordinated bonds with a total
Loan 250 M CHF 21.03.2028 √ Yes nominal value of PLN 750 million:
10NC5 subordinated bonds with a
Bond 750 M PLN 17.01.2025 √ Yes nominal value of PLN 550 million
and maturity on October 10, 2028;
Bond 550 M PLN 10.10.2028 √ Yes 12NC7 subordinated bonds with a
nominal value of PLN 200 million
Bond 200 M PLN 10.10.2030 √ Yes and maturity on October 10, 2030;
Source: IFRS Consolidated Financial Statements of mBank Group
Polish Banking Financial Management |38
Economy Sector Information TeammBank’s mortgage client domicile in Poland
mBank’s portfolio distribution – by province Unemployment rate – by province
as of 31.12.2018
Pomorskie Pomorskie
4.9%
10.2% Warmińsko-Mazurskie Warmińsko-Mazurskie
Zachodnio- Zachodnio-
2.0% 10.4%
Pomorskie Pomorskie
4.4% Podlaskie 7.4% Podlaskie
Kujawsko- Kujawsko-
1.4% Pomorskie 7.8%
Pomorskie
8.8%
4.1%
Mazowieckie Mazowieckie
Lubuskie
Lubuskie Wielkopolskie 28.6% Wielkopolskie 4.9%
5.8%
1.8% 8.0% 3.1%
Łódzkie Łódzkie
8.5% 6.1% Lubelskie
Lubelskie
8.0%
Dolnośląskie 2.1% Dolnośląskie
10.5% 5.2%
Świętokrzyskie Świętokrzyskie
Opolskie Opolskie
Śląskie 1.0% Śląskie 8.3%
1.8% 6.3%
9.4% 4.3%
Podkarpackie Podkarpackie
1.0% Małopolskie
Małopolskie 8.8%
4.7%
5.4%
% of mBank’s mortgage portfolio 28.6% - 10.0% 7.0% - 9.9% Unemployment Rate in Poland 3.1% - 5.0% 5.1% - 7.0%
4.0% - 6.9% 1.0% - 3.9% 7.1% - 8.5% 8.6% - 10.4%
Source: mBank’s internal data Source: Central Statistical Office of Poland
Mortgage portfolio concentrated in low unemployment areas, with 34.6% of clients living in the biggest cities
in Poland (Warsaw, Cracow, Poznan, Lodz, Wroclaw, Tricity)
Polish Banking Financial Management |39
Economy Sector Information TeammBank’s Management Team
Cezary Stypułkowski Adam Pers
Vice-President of the Management Board
President of the Management Board Head of Corporate and Investment Banking
Chief Executive Officer • In 2000-2011 worked for Raiffeisen Bank in various positions
• In 2012 joined mBank where his first task was to restructure
financial markets area; then he was promoted to Managing
• Holds a Ph.D. in law from the University of Warsaw, studied at Columbia Director and integrated cooperation with trading area
University Business School in New York as a member of the Fulbright • Member of the Management Board of mBank since October 2017
Program
• Between 1991 and 2003 chaired the Management Board of Bank Frank Bock
Handlowy S.A. Vice-President of the Management Board
• From 2003 to 2006 acted as President of the Management Board of Head of Financial Markets
PZU Group
• Worked for WestLB and was ALM Director at Dresdner Bank
• In 2007 appointed Managing Director of J.P. Morgan Investment Bank
• Since 2009 a Managing Director in Treasury at Commerzbank
responsible for Central and Eastern Europe responsible for ALM, market risk and liquidity management for
• A member of Institute of International Finance in Washington Central and Eastern Europe
• CEO of mBank since October 2010 • Member of the Management Board of mBank since May 2017
Andreas Böger Cezary Kocik
Vice-President of the Management Board Vice-President of the Management Board
Chief Financial Officer Head of Retail Banking
• In 2007-2013 a Managing Director in Global Capital Markets and • From 1994 to 1996 in Stockbroker House of PBG Bank
Co-Head of Capital Solutions Europe & CEEMEA at Deutsche Bank
• Since 2004 in mBank as Head of Retail Credit Risk Department,
in London
Head of Marketing and Sales Department, Managing Director for
• In 2013 joined Commerzbank as head of the Corporate Finance retail banking sales and business processes
division within Group Development & Strategy • Member of the Management Board of mBank since 2012
• CFO of mBank since July 2017
Lidia Jabłonowska-Luba Krzysztof Dąbrowski
Vice-president of the Management Board Vice-President of the Management Board
Chief Risk Officer Chief Operating Officer
• From 1994 to 2001 worked for Schroeder Smith Barney Poland • In 2004-2011 built and managed the Software Development
• In 2002 joined Bank Handlowy, then Kredyt Bank as deputy Practice at shared services center of F.Hoffman-La Roche
president in charge of finance and risk • In 2011-2014 CTO of Polish e-commerce leader Allegro Group
• In 2010 appointed Senior General Manager at KBC Group in
• In 2014 joined mBank as a Managing Director and CIO/CTO
Brussels responsible for managing all risk types
• Member of the Management Board of mBank since April 2017
• Vice-President of the Management Board since April 2013
Polish Banking Financial Management |40
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