Recent trends in Poland's banking sector - H1 2014. http://www.inteliace.com/en/00129_TRENDS_IN_BANKING_SECTOR_IN_POLAND_AUGUST_2014.html In contrast to some troubled CEE banking markets as Bulgaria or Slovenia, Poland's banking sector demonstrated strong performance in the first half of 2014. All key volumes (deposits and loans) have been growing at moderate rates. At the same time the level of non-performing loans has been decreasing for most of loan categories. The only exception with growing NPL rates has been mortgage lending, which could be attributed to ageing of contracts and low dilution due to weak new sales of mortgage loans. After a significant drop of market interest rates recorded in 2013 and subsequent collapse of deposit margins, banks were able to stabilize margins again in H1 2014. As a result of higher margins and growing volumes, banks have recorded very good operating results, with net interest revenue advancing by 16% YoY in H1 2014. Strong interest revenues have more than compensated for stagnating fee & commission income, which has been affected by regulatory developments including bancassurance, card interchange and other.) The banking sector in Poland remains strong, it is well capitalized and finally, thanks to accelerating build-up of local deposit, it is less and less dependent on external headwinds.

1. RECENT TRENDS IN POLAND'S BANKING SECTOR -
1H 2014
August 2014
Inteliace Research
Summary

2. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
POLAND'S BANKING SECTOR: SUMMARY AS OF H1 2014
• All key banking volumes keep growing.
• Deposits grow faster than loans.
• Retail volumes increase faster than corporate ones.
VolumesVolumes
• Deposit margins have been under pressure during 2013 which could be attributed to
falling market interest rates. In contrast, lending margins were not significantly affected
due to typical construction of loan contracts, assuming passing market rate risk to clients.
• In late 2013/early 2014, banks managed to adjust to lower rates environment and
deposit margins stabilized.
MarginsMargins
• The overall lending quality is improving. Both consumer loans and corporate debt show
decreasing NPL rates.
• The only loan category where quality is falling is mortgage. The cause is ageing portfolios
and only limited dilution from new loans due to very slow new sales.
Lending QualityLending Quality
• Total interest revenues are increasing thanks to growing volumes.
• Pressure on fee and commission income persists mainly due to unfavourable regulatory
decisions (e.g. card interchange, bancassurance).
• However, slowing f&c income is more than compensated by interest income.
ProfitabilityProfitability
2
1
2
3
4
Source: Inteliace Research
SUMMARY

3. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
3
RETAIL VOLUMES KEEP GROWING
Annual growth rate in outstanding loans / deposits at banks
Dec.2010-Jun.2014
Demand deposits
in
%
Source: NBP, Inteliace Research
• Household
deposits keep
growing. The term
structure is
fluctuating inline
with changing
interest rates
expectations
• Consumer lending
is steadily
recovering since late
2012. In contrast,
mortgage lending
continues to
stagnate.
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
Mortgage loans
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
HOUSEHOLDS
Term deposits
HH Loans (billion PLN)HH Deposits (billion PLN)
Consumer loans
in
%

4. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
4
CORPORATE LOANS AND DEPOSITS ARE INCREASING AGAIN
Source: NBP, Inteliace Research
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
Loans in c/a
-24
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
24
27
30
CORPORATE
Annual growth rate in outstanding loans / deposits at banks
Dec.2010-Jun.2014
in
%
Corporate Loans (billion PLN)Corporate Deposits (billion PLN)
• The structure of
corporate deposits is
changing in favour of
short term funds.
• Corporate lending
has been growing
again since early 2014
as the economy
showed first signs of
recovery.
Demand deposits
Term deposits
Investment &
other loans

5. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
5
ALL KEY BANKING VOLUMES ARE GROWING
521.4
35.1 556.5
Jun. 2013 ∆ Jun. 2014
*Corporate subjects only. Excluded: non-monetary financial institutions and public sector
Source: NBP, Inteliace Research
Corporate
clients*
Loans (billion PLN)Deposits (billion PLN)
Retail clients
(Households)
538.6 23.9
562.5
Jun. 2013 ∆ Jun. 2014
191.1 9.2 200.3
Jun. 2013 ∆ Jun. 2014
250.3 10.9 261.1
Jun. 2013 ∆ Jun. 2014
Loans and deposits by business segment, Jun.2013-Jun.2014
in billion PLN
Loans growing,
but at lower rates
than savings
+6.7%
+4.3%+4.8%
+4.4%
Deposits grow
quickly, in
particular, retail
savings

6. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
6
THE QUALITY OF CONSUMER AND CORPORATE LENDING HAS RECENTLY
IMPROVED. HOWEVER, MORTGAGE LOANS ARE STILL DETERIORATING
The share of non performing receivables in total lending by
segment/product, Jan.2010-Jun.2014
Consumer loans
in %
Source: NBP, Inteliace Research
• Quality of lending portfolios of
banks is improving across all key
segments with exception of
mortgage loans.
• Mortgage lending quality is
gradually deteriorating as
mortgage portfolios of banks are
getting older and there is little
dilution due to low new sales.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Corporate (big) loans
Mortgage loans
SME loans
Mortgage NPL rates
are growing

7. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
7
BOTH RETAIL AND CORPORATE MARGINS HAVE NORMALIZED AFTER THE DROP
OF MARKET INTERST RATES IN 2013
* Stock of term deposits or loans respectively (loans and funds in current account excluded)
** Theoretical margin calculated against WIBOR 6M
*** Consumer lending : Loans to households other than mortgage
Source: NBP, Inteliace Research
Deposits* (stock, average)
NominalInterestpaid
orchargedbybank
InterestMargin**
(onWIBOR6M)
Loans* (stock, average)
Dec.2011-Jun.2014, in percent, PLN volumes only
• Deposit margins
returned to positive
territory after a
significant drop in
mid-2013 caused
by quickly falling
market interest
rates.
• Lending margins
have stabilized (at
10% for consumer
lending and ~2% for
corporate loans) as
banks have been
able to pass
changes in market
interest rates on
clients.
• Deposit margins
returned to positive
territory after a
significant drop in
mid-2013 caused
by quickly falling
market interest
rates.
• Lending margins
have stabilized (at
10% for consumer
lending and ~2% for
corporate loans) as
banks have been
able to pass
changes in market
interest rates on
clients.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
0
2
4
6
8
10
12
14
16
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
-1.50
-1.00
-0.50
0.00
0.50
1.00
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
0
2
4
6
8
10
12
Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Retail
Corporate
Corporate
Retail***
Corporate
Retail (consumer)***
Deposit margins went
temporarily down after
CB rates were cut
Lending margins
are steady
Corporate
Retail

8. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
ROAE***
8
PROFITABILITY OF BANKS REMAINS STABLE ALTHOUGH FEE & COMMISSION
REVENUE IS FALLING
Profit before tax and
extraordinary items
Extraordinary items & taxes
Profit after tax
Net interest revenue
Net fee & commission revenue
Net banking revenue
Wages & social security
Net reserves
Other banking revenue
Commercial banks profitability, 2011-1H 2014
Percent of average assets,
(May not always sum to 100% due to rounding)
* Excluding cooperative banks and foreign bank branches operating in Poland **Data for 1H 2014 annualized
*** Based on average equity
Source: KNF, NBP, Inteliace Research
Revenues have
stabilized
Interest margin
has stabilized
Costs & charges & other
Depreciation
Other operating costsCost to income ratio
Other net revenue
Personnel costs are
well under control
COMMERCIAL
BANKS*
1.3 1.2 1.1 1.2
2011 2012 2013 H1 14
1.6 1.5 1.4 1.5
2011 2012 2013 H1 14
0.3 0.3 0.2 0.3
2011 2012 2013 H1 14
0.0 0.0 0.1 0.0
2011 2012 2013 H1 14
3.1 3.0 2.7 2.6
2011 2012 2013 H1 14
1.1 1.1 1.0 1.0
2011 2012 2013 H1 14
0.8 0.8 0.6 0.6
2011 2012 2013 H1 14
0.2 0.2 0.2 0.2
2011 2012 2013 H1 14
1.0 0.9 0.9 0.8
2011 2012 2013 H1 14
2.8 2.6 2.5 2.5
2011 2012 2013 H1 14
1.1 1.1 1.0 0.9
2011 2012 2013 H1 14
0.7 0.7 0.6 0.6
2011 2012 2013 H1 14
4.7 4.4 4.0 4.0
2011 2012 2013 H1 14
12.4 11.0 10.1 11.3
2011 2012 2013 H1 14
49.4 49.2 51.0 48.5
2011 2012 2013 H1 14
Risk costs have
stabilized
Net profit margin
is stable
Overall costs are
sinking
F&C margin is
falling down

9. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
9
FALLING EMPLOYMENT AND SHRINKING BRANCH NETWORKS CONTRIBUTE
TO HIGHER PRODUCTIVITY IN POLAND'S BANKING SECTOR
Evolution of bank outlets and employment at banks*
Dec.2012-Jun.2014
in thousand
* Data for all banks operating in Poland including cooperative banks and foreign bank branches
Source: NBP, KNF, Inteliace Research
15.0
15.1
15.2
15.3
15.4
15.5
15.6
170
171
172
173
174
175
176
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Thousands
Thousands
87.6 88.8 90.7
93.0 91.8
94.6
97.2
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average bank* assets per bank outlet
Dec.2012-Jun.2014, in million PLN
7.7 7.9 8.1 8.2 8.1 8.3 8.6
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average bank* assets per bank employee
Dec.2012-Jun.2014, in million PLN
11.4 11.3 11.2 11.3 11.4 11.4 11.3
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Average number of employees per bank* outlet
Dec.2012-Jun.2014, in FTE
+11%
+12%
-1%
Change (in%)
Dec.12-Jun.14
Total employment
(left-hand scale)
Total number of bank outlets
(right-hand scale)

10. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
REVENUES GROW FASTER THAN COSTS
10
14.6
16.8
6.3
6.2
5.2
4.0
H1 2013 H1 2014
11.9 11.9
3.4 3.7
1.4 1.3
H1 2013 H1 2014
+4%
Change (in%)
H1 14 vs.H1 13
26.1
27.0
-24%
-1%
+16%
+2%
-6%
+10%
0%
16.6 16.9
Bank revenues (billion PLN) Bank costs (billion PLN)
Change (in%)
H1 14 vs.H1 13
Revenues and costs of commercial banks in Poland, H1 2013 vs. H1 2014
Net interest
income
Net fee &
commission
income
Other
income
Total
Total
Operating
costs
Cost of risk
(net reserves)
Other costs
Source: NBP, KNF, Inteliace Research

11. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
About this report
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12. Inteliace Research
RecenttrendsinthebankingsectorinPoland,June2014
Visit http://www.inteliace.com for more details
Recent Reports:
2013
• February - Mortgage Lending in Poland ’13
• May - Banking Market in Poland ’13
• May - Bank outlets database ’13
• June - Insurance Market in Poland ’13
• September - Top 200 CEE banks ’13
• November - Investment Funds and Asset Mgmt. ’13
2014
• February - Mortgage Lending in Poland ’14
• May - Bank outlets database ’14
• May - Insurance commissions survey ’14
• May - Banking Market in Poland ’14
• June - Insurance Market in Poland ’14
• September - Top 200 CEE banks ’14
upcoming...
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RECENT PUBLICATIONS BY INTELIACE RESEARCH
Inteliace Research
BAZAPLACÓWEKBANKOWYCHWPOLSCEISTATYSTYKAPOWIATÓW,2011
1
BANK OUTLETS DENSITY IN POLAND (1/3)
GĘSTOŚĆ SIECI PLACÓWEK BANKOWYCH W POLSCE (1/3)
37
59
75
176
35
28
38
48
88
52
56
44
59
28
67
66
40-60
< 40
>60
Liczba/Number
Number of bank outlets per 1000 sq km, by region, 2011
Liczba placówek na 1000 km2 powierzchni wg. województw, 2011r.
The Southern and Central Poland have
the largest density of bank outlets
Południowa oraz centralna Polska są
najgęściej pokryte siecią placówek
bankowych na km2
Źródło/Source: Inteliace Research
Średnia / Average
= 58
Inteliace Research
BAZAPLACÓWEKBANKOWYCHWPOLSCEISTATYSTYKAPOWIATÓW,2011
1
BANK OUTLETS DENSITY IN POLAND (3/3)
GĘSTOŚĆ SIECI PLACÓWEK BANKOWYCH W POLSCE (3/3)
Źródło/Source : Inteliace Research
Number of outlets per 1 million inhabitants, by county „powiat”, 2011
Liczba placówek bankowych na 1 milion mieszkańców, wg. powiatów, 2011r.
Minimum: 126
Maximum: 947
Mediana
Median (443) Number of bank outlets per 1 million
inhabitants varies a lot on county level
Na poziomie powiatów gęstość placówek
jest bardzo zróżnicowana
100 200 300 400 500 600 700 800 900 1000
379powiatów
Inteliace Research
GE MONEY BANK – OVERVIEW
7.4 8.3 9.1
2003 2004 2005
10.9
1.6
Assets
PLN billion
* Although Expander is distributing products from various banks, GE offer / for example mortgage/ is reported to be favoured
** Compound Annual Growth Rate
Source: Inteliace Analysis
CAGR**
Concept Description Results
1.6 1.7
Timeline
History & Background
Loans
PLN billion
Net Profit
PLN billion
Target Clients
Products
Channels
20.4 26.7 22.8ROE (%)
Market
share
(%)
6.6 7.6 8.6
2003 2004 2005
0.14
0.30 0.32
2003 2004 2005
14.2
51.2
• Affluent individualsand professionals
lookingfor mortgage. Valuing quick
processing and flexibility,sometimes not
fulfillinglending criteria set by other
banks (for example job contract or own
funds level)
• Mass market clients looking for simple
and quick consumer loans
Only lending products on offer:
• mortgage
• refinancingloan
• credit cards
• installment loans
• cash loans
• car loans
• GE money bank - 48 branches
• GEpard, ~200 used car dealers
• Dobry Kredyt consumer finance – 12
outlets and ~1000 POS
• Expander - 33 branches - financial
products distributor*
• In 1995, GE group purchased a small regional
bank: „Solidarność Chase D.T. Bank”. Bank was
rebranded soon to GE Capital Bank.
• In 1998, GE group purchased another small bank
(PAMBank)andconverted it to a mortgage
specialist:GE Bank Mieszkaniowy
• In 2004, GE group acquired POS lending
specialist:Chrobry with a network of ~1000 POS.
Chrobry was renamed to: Dobry Kredyt
• In 2004 , a used car dealers network was created
under the GEpard brand, being the main channel
for car loans sales
• As of Jan. 2005, all GE activitiesin Poland were
consolidatedunder one roof: GE Capital bank
Shareholders
• Top notch risk management and collection
• High performing sales staff
• Fast loan processing and flexibility
• High margins
• Control over distributors (GEpard,Expander,
Dobry Kredyt)
• Advanced cross-sellingbetween segments
As of March 2006
99
1
General Electric
Company
Other