fy 2016 consolidated results (unaudited, ifrs) · 2020-01-06 · fy 2016 business highlights –...

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Excellent 2016 supported by strong loan growth and one-off

effects

28 February 2017

Česká spořitelna -

FY 2016 consolidated results

(unaudited, IFRS)

Page

-6%

-2%

2%

6%

10%

2011 2012 2013 2014 2015 2016

GDP (y/y, %)

Household consumption (y/y, in %)*

Fixed investment (y/y, in %)*

Executive summary –

Czech economy development remains

favourable

2

• The GDP growth arrived at 2.3% y/y in 2016 as there

was a temporary slowdown in foreign demand. However,

cyclical position improved at the end of 2016. GDP

growth is being supported by solid domestic and foreign

demand

• Stable households consumption, which is the main

GDP growth contributor, reflects strong labour market

and positive sentiment of households

• Headline inflation arrived at 2.0% in December mainly

due to a higher than expected increase in food prices.

However, core inflation (1.6% y/y in December) reflects

improving domestic demand pressures

• The EUR/CZK is still close to the level of 27. The ČNB

had to intervene to avoid a potential break in its FX

commitment

• We expect exit from the FX commitment in Q2 2017.

However, the timing will depend on economic data

• The Czech banking sector is well capitalized and

profitable, and the ČNB stress test shows that it is

highly resilient to potential adverse shocks

0%

0.5%

1%

1.5%

2%

2.5%

12/2

01

4

06/2

01

5

12/2

01

5

06/2

01

6

12/2

01

6

CPI Core inflation

ČNB inflation target

Growth of GDP, household consumption and investments

*For 2016 ČS estimates

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Executive summary – Financial results benefit from growing Czech economy

3

In 2016, Česká spořitelna boosted net profit by 8.1% to CZK 15.5 bn,

benefiting from favourable economic climate mirrored in strong growth

of lending and continuing improvement of loan portfolio quality • Net profit supported also by one-off items, mainly by income from sale of equity stake

in VISA Europe (CZK 1.4 bn pre-tax)

Operating result decreased by 5.1% driven by drop of net fee income • Net fee income from payment transfers hit by EU regulation in payment cards business.

However, net fee income from asset management was higher than in FY 2015

• Net interest income ended only 1.4% below FY 2015 level despite still adverse interest

rate environment

Operating expenses were reduced by 2.4% y/y due to lower contribution to

Deposit Guarantee Scheme and strict management of costs

Capitalisation of ČS Group is very strong, total capital ratio stands at

20.1%,Tier 1 ratio at 19.5%

Net profit

Operating result

Operating expenses

Capital ratio

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Executive summary –

Strong loan growth with further improved loan portfolio quality

4

Gross volume of customer loans increased by strong 8.0% in 2016 and

outperformed the whole market in both retail and corporate segments

• Newly granted private mortgages in 2016 increased by 16% y/y and exceeded

CZK 57 bn which is the historically highest annual volume. Mortgage loan outstanding

increased by 12.2% y/y

• Declining trend in consumer loans was reverted after 1.1% increase in 2016,

cash loans (outstanding) increased even by 4.0% supported by 20.7% higher new

volumes than in 2015

• Wholesale loans* (outstanding) boosted by 12.8% y/y driven by large corporate

clients

Risk costs dropped by 33% to 32 bps y/y reflecting decreasing default rates

and recoveries in private individuals and corporate segments

• Share of NPLs reduced to 3.2% (from 4.1% in December 2015)

• NPL coverage by credit risk provisions at strong 83%, total coverage at 116.0%

Increasing demand for more advantageous investment products evidenced

in growing assets in pension funds of ČSPS (up by 9.3% y/y) and in

domestic and foreign mutual funds (up by 9.9% y/y) * Wholesale defined as Corporate and Group Markets customer segments

Lending

Risk costs

Investments

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FY 2016 business highlights – Retail

5

Our Transparent Credit Card offers

new simple interest calculation and

interest-free period including ATM

withdrawals. The card account is free

of charge with monthly payments of at

least CZK 3,000. We issued 69,903

transparent credit cards in 2016

ČS Real Estate Fund managed by

REICO investiční společnost České

spořitelny closed one of the most

significant transactions in CEE -

acquisition of the highest building in

Prague – the City Tower – for CZK

4.4 bn. Aggregate volume of funds

in REICO exceeds CZK 13 bn

We provided to our clients over

28,000 mortgages for more than

CZK 57 bn and 168,000 consumer

loans in total volume of almost

CZK 34 bn in 2016

With the new award-winning* Friends 24

app, our clients can make small

payments via standard email, SMS or

messenger apps without knowing

account numbers. Our internet service

PLATBA 24 can now be used in more

than 1,800 e-shops. New e-Faktura

and e-Inkaso services allow easier

payments to number of companies and

municipalities

We launched free internet access in

all of our branches. We also

introduced biometric signature with

signpad or tablet. Since April clients

have biometrically signed over two

million documents

ČS connected fans with Olympic

athletes in our Fingers Crossed

project and through support of

Olympic Parks across the Czech

Republic. Earnings from featured

Paleček’s Café were donated to anti-

drug charity SANANIM

*Finparáda award

Almost 163,000 clients are saving

money with the My Healthy Finance

service. Through this service we help

our clients to reduce their regular

expenditure such as household

utilities and to appreciate resulting

savings

Around 50 000 people also activated

application My Healthy Finance and

approximately 15 000 people are

actively using it. Thanks to the app

our clients can track the structure of

their expenses and set up their

budget. They can also file their own

saving envelopes and to monitor how

they are drawing closer to assigned

amount

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FY 2016 Business highlights – Corporates

Investment loan, refinancing,

IR hedge

EUR 9,781,000

CZK 251,380,000

Sole Lender

Club financing

EUR 25,000,000

Mandated Co-Lender

Acquisition financing

EUR 68,500,000

Mandated Lead Arranger, Sole Lender

Syndicated Acquisition Financing and

Refinancing

EUR 165,000,000

Original Lender, Escrow Agent

Senior Secured Bond Issue

CZK 2,700,000,000

Joint Lead Manager, Lender, Fiscal and

paying agent

6

Syndicated Investment Loan

EUR 720,000,000

Mandated Co-Lender

For corporate clients we introduced Easy

Loan - a package of simple products

with rapid approval process. SME

companies can now get working capital

financing approved within just 2 days

and receive the money within 5 days

With the new Smart City package, we

assist towns and cities in implementing

smart solutions in areas such as

municipal waste collection, cashless

payments in public transport and

intelligent street lighting

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Sdružení Neratov employs 110 people with mental

disabilities. The bank perceives it as a long-term

partner: we work together on various levels from

volunteering over donations and grants to financial

consulting and loans. Sdružení Neratov was

among the first clients to appreciate the option to

take out an investment loan, which will be used

to build a brewery, a new sheltered workplace

Social banking of Česká spořitelna in 2016

Organisations can test the viability and financial

sustainability of their business plan in the Impact

First accelerator. We organise three rounds a

year, and 10 finalists can work on their projects at

a time. The first winner of our accelerator was the

project Social Trade by Prostor Plus, an

organisation that operates in Central Bohemia and

employs socially excluded people

The unique FRIN fundraising academy offers

to non-profits a way to financial independence

from subsidies and grants. 80 organisations

signed up for the 6-month acceleration program,

and 10 finalists had a chance to work on their

campaign. Nadační fond UPOL won the main

prize for its campaign that targets selected

graduates of the university

The three main winners of the Social Impact

Award include the NáZnak project, whose

objectives are to foster interest in sign language,

to improve the integration of the deaf and to

eliminate the fear of people to communicate with

them. It is one of the most extensive acceleration

and educational programs in the area of socially

beneficial business in Europe and targets

university students

Since 2015, social banking of Česká spořitelna has

been helping non-profits and social enterprises

to stand on solid ground and to grow steadily

In the course of 2016, we granted 74 loans with

aggregate value of CZK 209 m. The average loan

amounts to CZK 2.8 m and is granted for 4 years.

Together, we bring a new dimension to money

Development and accelerating programs Impact

First, Social Impact Award and FRIN support

socially oriented profit and non-profit organisations

to grow, develop and multiply their positive impact

on the society. 50 participants were involved

during 2016

The Smíšek non-profit organisation helps

children from socially disadvantaged

background and runs four integration-focused

kindergartens in Prague. It is one of the

organisations whose continuous operation we

have ensured by pre-financing their grants.

This is one of the way to help non-profits to

maintain a balanced budget

7

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Presentation topics

8

• Česká spořitelna

• Financial performance analysis

• Macroeconomic developments

• Economic trends in details

• Banking market

• Czech banking market developments

• Česká spořitelna market shares

• Awards, CSR

• Appendix

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Financial statements – Income statement (CZK m)

9

2015 2016 Change

Net interest income 25,864 25,512 -1.4%

Net fee and commission income 10,254 9,308 -9.2%

Dividend income 70 86 22.9%

Net trading and fair value result 2,823 2,853 1.1%

Net result from equity method investments 0 -10 -

Rental income from investment properties & other operating leases 732 478 -34.7%

General administrative expenses -18,586 -18,146 -2.4%

Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net 449 1,421 >100%

Net impairment loss on financial assets not measured at fair value through profit or loss -2,648 -1,905 -28.1%

Other operating result -1,018 -672 -34.0%

Pre-tax result from continuing operations 17,940 18,925 5.5%

Taxes on income -3,645 -3,470 -4.8%

Post-tax result from continuing operations 14,295 15,455 8.1%

Net result for the period

Net result attributable to non-controlling interests 2 -2 -

Net result attributable to owners of the parent 14,293 15,457 8.1%

Operating income 39,743 38,227 -3.8%

Operating expenses -18,586 -18,146 -2.4%

Operating result 21,157 20,081 -5.1%

Cost/income ratio 46.8% 47.5%

Return on equity 13.0% 12.9%

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Financial statements – Balance sheet I (CZK m)

Assets

10

Assets Dec 15 Dec 16 Change

Cash and cash balances with central banks 111,027 173,100 55.9%

Financial assets - held for trading 14,725 20,944 42.2%

Derivatives 13,995 13,357 -4.6%

Other trading assets 730 7,587 >100%

Financial assets - designated at fair value through profit or loss 907 423 -53.4%

Financial assets - available-for-sale 78,053 81,274 4.1%

Financial assets - held to maturity 160,988 167,899 4.3%

Loans and receivables to credit institutions (net) 34,717 22,328 -35.7%

Loans and receivables to customers (net) 532,524 577,453 8.4%

Derivatives - hedge accounting 663 519 -21.7%

Property and equipment 12,318 10,456 -15.1%

Investment properties 4,949 2,390 -51.7%

Intangible assets 3,966 4,284 8.0%

Investments in associates and joint ventures 0 753 -

Current tax assets 740 611 -17.4%

Deferred tax assets 146 136 -6.8%

Assets held for sale 0 320 -

Other assets 3,861 3,636 -5.8%

Total assets 959,584 1,066,526 11.1%

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Financial statements – Balance sheet II (CZK m)

Liabilities

11

Liabilities and equity Dec 15 Dec 16 Change

Financial liabilities - held for trading 14,956 17,982 20.2%

Derivatives 14,944 13,877 -7.1%

Other trading liabilities 12 4,105 >100%

Financial liabilities designated at fair value through profit or loss 4,019 1,997 -50.3%

Deposits from customers 4,019 1,997 -50.3%

Financial liabilities measured at amortised cost 811,679 911,350 12.3%

Deposits from banks 83,915 114,282 36.2%

Deposits from customers 709,817 786,876 10.9%

Debt securities issued 15,493 9,173 -40.8%

Other financial liabilities 2,454 1,019 -58.5%

Derivatives - hedge accounting 496 452 -8.9%

Provisions 2,584 2,909 12.6%

Current tax liabilities 100 109 9.0%

Deferred tax liabilities 621 188 -69.7%

Liabilities associated with assets held for sale 0 125 -

Other liabilities 5,166 9,684 87.5%

Total equity 119,963 121,730 1.5%

Equity attributable to non-controlling interests -23 166 -

Equity attributable to owners of the parent 119,986 121,564 1.3%

Total liabilities and equity 959,584 1,066,526 11.1%

,686 3,534293 -465

-473

-18

508 3

Q3 16 Operatingincome

Operatingexpenses

Netprovision

creation

Other result* Taxes onincome

Minorities Q4 16

-4.1%

14,293 15,457-1,516

439 7431,318 175 4

1-12 15 Operatingincome

Operatingexpenses

Net provisioncreation

Other result* Taxes onincome

Minorities 1-12 16

8.1%

Financial performance – Executive summary

Net profit increased by 8.1% y/y in FY 2016

Q/Q net profit reconciliation (CZK m) Y/Y net profit reconciliation (CZK m)

12

• Operating income increased by 3.1% driven by 33% growth

of net trading income due to better result from interest derivatives

and FX swaps and by 7% growth of net fee income related

to seasonality in securities and insurance business

• Operating expenses went up by 10.4% mainly due to seasonality

visible mainly in marketing and property management and due to

creation of restructuring provision

• Growth of net provision creation caused by several individual

cases in corporate segment

• Positive development of income tax relates to created deferred tax

asset resulted from impairment of buildings.

• Net profit supported by one-off items in other result (sale of equity

stake in VISA Europe CZK 1.4 bn pre-tax, sale of Acquiring

business CZK 1.1 bn and impairment of buildings CZK -1.3 bn)

• Decline of operating income caused mainly by drop of net fee

and commission income (CZK -0.9 bn), net interest income

(CZK -0.4 bn) and rental income (CZK -0.3 bn)

• Further improved customers´ rating and lower volume of risky

loans led to further reduction of net provision creation (-28.1%)

P/L positive

P/L negative

* Includes Gains/losses from financial assets and liabilities not measured at fair value and Other operating result

P/L positive

P/L negative

Page

Positive

Negative 959.6

1,066.5

3

30

75 -6 3 2

Dec 15 Trading

liabilities

Bank

deposits

Customer

deposits

Debt

securities

Other

liabilities

Equity Dec 16

11.1%

959.6

1,066.5

62

16 -12

45 0 -4

Dec 15 Cash andbalances

with ČNB

Trading,financial

assets

Loans tobanks

Netcustomer

loans

Intangibles Other assets Dec 16

11.1%


Total balance sheet boosted by 11.1% in 2016

YTD total asset reconciliation (CZK bn) YTD total liability reconciliation (CZK bn)

13

• Cash and balances with ČNB increased by CZK 62 bn in 2016

driven by overnight deposits with ČNB (placing overliquidity

with ČNB)

• Net customer loans increased by 8.4% in 2016

• Driven by loans to large corporates and by private mortgages

• Trading assets grew by 42.2% due to reverse repo operations

with ČNB

• Group customer deposits rose by 10.5% since YE 2015

• Deposits in parent bank up by 11.3% (CZK 73 bn), driven by deposits

from private individuals (CZK +53 bn) and corporate deposits

(CZK +13 bn)

• Bank deposits rose by 36.2% in 2016

Increase

Decrease

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Strong capitalisation and ROE, branch network optimization

Cost/income ratio

14

Loan/deposit ratio Number of branches

ROE Total capital ratio Number of employees (eop)

44.3%46.8% 47.5%

1-12 14 1-12 15 1-12 16

14.5%13.0% 12.9%

1-12 14 1-12 15 1-12 16

644621

561

Dec 14 Dec 15 Dec 16

10,504 10,501

10,299


73.5%74.6%

73.2%


18.5%

21.3%20.1%


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Operating result –

Declined due to lower operating income

• Operating result declined given drop

of operating income (-3.8%); operating

expenses went down by 2.4% y/y

• Net fee income dropped by 9.2%,

net interest income declined only slightly

• Rental income was the main contributor

to decline of other income due to

reduction of real estate investments

• Net trading and FV result increased

by 1.1%

• Negative y/y impact of the change in

methodology adopted in 2015 for valuing

derivatives successfully outweighed by

increasing profit from foreign currency

transactions and trading

in securities

Operating result (CZK m)

15

22,90521,157 20,081

1-12 14 1-12 15 1-12 16

-5.1%

Operating income structure (CZK m)

26,673 25,864 25,512

11,30610,254 9,308

2,2872,823 2,853

873 802554

1-12 14 1-12 15 1-12 16

Net interest income Net fee and commision Net trading and fair value result Other

,673 25,864 25,512

1-12 14 1-12 15 1-12 16

-1.4%

Net interest income –

Only slightly lower than in FY 2015

• Negative impact of historically low

interest rates and maturing bonds

with higher yields partly mitigated

by accelerating growth of loans,

repricing of deposits and maturing

own issued mortgage bonds

• Yields of Czech government bonds

were at lowest levels in 2016

• Higher margin cash loans increased

by 4% in 2016

• Net interest margin decreased

to 3.12%

• Caused by declining yields from interest

bearing assets

16

Net interest margin

Net interest income (CZK m)

3.53%3.31% 3.12%

0.62%

0.13% -0.06%1-12 14 1-12 15 1-12 16

Net interest margin 5Y CZGB yield; FY AVG

,30610,254

9,308

1-12 14 1-12 15 1-12 16

-9.2%

2,608 1,986 1,689

6,2755,591

5,017

1,3991,781

1,921

1,024896

681

1-12 14 1-12 15 1-12 16

Lending Payment transfers Securities transactions Other

Net fee and commission income –

Declined by 9%, without regulation effect by 4%

• Development of net fee income

negatively influenced by EU regulation

in payment card business and by

growing customer preferences of

advantageous products and services

• Fee income from payment transfers

declined by 10%

• Excluding effect of regulated interchange

fee (CZK 0.5 bn) total net fee income

would decline by 4%

• Income from securities and asset

management rose by 8% as a result

of growing asset management and

securities business

• Clients assets in pension funds grew

by 9.3%, assets in domestic and mutual

funds increased by 9.9%

17

Net fee and commission income structure (CZK m)

Net fee and commission income (CZK m)

*

* Including fees from account maintenance and payment cards fees

,632 8,804 9,169

7,331 7,628 6,863

2,271 2,154 2,114

1-12 14 1-12 15 1-12 16

Personnel expenses Other administrative expenses

Depreciation and amortisation

18,234 18,586 18,146

1-12 14 1-12 15 1-12 16

-2.4%

Operating expenses –

Reduced by 2.4% y/y

• Other administrative expenses down

by 10.0% driven by lower contribution

to Deposit guarantee scheme and lower

costs for business operations and office

space (optimization of branch network)

• Personnel expenses rose by 4.1%

especially due to creation of restructuring

provision (for a reorganization of the

Bank’s redundant activities), regular

increase in wages and full year impact of

updated fringe benefits

• Depreciation down by 1.9% y/y affected

by decline in depreciation of buildings

Operating expenses (CZK m)

18

Operating expenses structure (CZK m)

Page

Group capital adequacy –

Total capital ratio at strong 20.1%

• ČS Group total capital ratio above 20%,

slight decrease compared to YE 2015

attributed to higher risk weighted assets

• Risk exposure to credit risk up

due to strong growth of retail and

corporate loans

• On the other hand, total capital

(Tier 1+Tier 2) grew by 2.0% in 2016

due to strong net profit

19

Tier 1 capital thereof: 99,405 98,832

CET 1 capital 91,298 90,725

Additional Tier 1 8,107 8,107

Total capital 99,859 101,886

Risk exposure to credit risk 405,856 424,863

Risk exposure to market risks 5,475 8,361

Risk exposure to operational risk 56,919 73,913

Total risk exposure 468,250 507,137

Tier 1 ratio 21.2% 19.5%

Total capital ratio 21.3% 20.1%

ČS Group, CZK m 31/12/2015 31/12/2016

Page

Balance sheet development –

High growth in loans and even faster growth in deposits

Group net customer loans (CZK m) Group customer deposits (CZK m)

20

• Group net customer loans increased by 8.4% in 2016

driven by loans to large corporate customers

and by retail mortgages /details in the lending part of the

presentation/

• Customer deposits added 10.5% following persisting

inflow of deposits from private individuals and corporate

clients (placing their overliquidity with ČS)

713,836 726,618 763,076 772,283 788,873

Dec 15 Mar 16 Jun 16 Sep 16 Dec 16

10.5%

532,524 543,240 553,224 570,344 577,453


8.4%

Page

IFRS, in CZK bn Dec-15 Dec-16Change

(y/y)

ČS - customer deposits 640.7 713.4 11.3%

SSČS - building society 74.6 77.1 3.3%

ČSPS - pension company 64.4 70.4 9.3%

Dom. and foreign mutual funds 108.4 119.2 9.9%

thereof Reico - investment company 8.2 13.1 60.0%

Asset management 71.0 75.2 5.9%

Total 959.1 1,055.2 10.0%

959.1

1,055.2

Dec-15 Dec-16

Asset management

Dom. and foreignmutual funds

ČSPS

SSČS

ČS

Total

ČS Group deposits – Organic growth in alternative deposit products

• Customer deposits in parent bank grew

by 11.3% y/y • Private individuals and corporate clients were the main

contributors to the overall growth of customer deposits

• Assets in pension company increased by 9.3%

• Organic increase of volumes split between

transformed and participants´ funds

• Domestic and foreign mutual funds added

almost 10% in 2016

• Low interest rates support higher clients´ demand

for alternative higher-yielding products

• In Reico investment company customer assets

increased by 60% in 2016

• Assets under discretionary management

rose by 5.9% in y/y comparison

ČS Group deposits (CZK bn)

21

10.0%

Page

Group loan portfolio – Summary

Portfolio growth accompanied with better quality and lower risk costs

22

• Gross loans to customers in ČS Group increased by strong 8.0% y/y to CZK 593 bn

• Favourable macroeconomic framework and expected growth of interest rates in mortgages led to outstanding

demand for private mortgages, resumed consumer lending appetite and growth of corporate exposure, mainly

to largest clients

• Detail segment figures are affected by internal resegmentation of public and non profit sector

(CZK 9.1 bn moved from retail to corporate in Q4 2016) and reshuffle in corporate itself (transfers among sub-

segments following a new corporate strategy)

• Record sales of private mortgages in accord with recommendations of ČNB towards prudent LTV limits

• Risk costs reduced by 33% from 48 bps to 32 bps y/y

• Decreasing default rates and recoveries in private individuals

• Significant recoveries and low NPL inflow in Corporate

• When including provisions for guarantees, risk costs would decrease from 51 bps to 38 bps y/y

• Portfolio quality further improved and NPL ratio declined from 4.1% to 3.2%

• Portfolio quality upturn driven by successful solution of old defaults and low new NPLs inflow combined with

loan portfolio growth especially in safest ratings

• Provision coverage increased to strong 83%, total coverage (provisions+collateral to NPL) improved

to 116.0% (from 105% in 2015)

Page

Group loan portfolio –

Group loans increased by strong 8.0% y/y driven by Parent Bank and Leasings

ČS Group loan portfolio (gross) Loan book by Group members as of Dec 2016

23

• ČS Bank dominates the ČS Group

• Interest rates at bottom for housing markets and strong economic growth for large corporate further

accelerated growth in ČS bank and its leasing subsidiaries. Stavební spořitelna (building society) recorded

loan portfolio growth

in CZK m, IFRS 31/12/2015 31/12/2016 Y/Y Change

I. ČS Bank 509,874 551,947 8.3%

II.1. Stavební spořitelna ČS 35,387 35,989 1.7%

II.2. Leasing (sAL, EL) 14,885 15,782 6.0%

II.3. Factoring ČS 4,817 5,106 6.0%

III. Other subs and Consolidation items -16,127 -15,831 -1.8%

Total Loans (consolidated) 548,836 592,992 8.0%

Bank90.7%

Stavební spořitelna

5.9%

Leasing subs.2.6%

Factoring0.8%

Page

Bank loan portfolio –

Total growth balanced by both retail as well as wholesale* business

Loan portfolio development - ČS Bank Loan portfolio by customer segments

as of Dec 2016

24

• Loans to retail rose by 5.2% y/y (excluding

resegmentation of CZK 9.1 bn by 8.2%)

• Driven primarily by private mortgages +12.2%

• Commercial loans when excluding

resegmentation of public sector grew by 2.8%

• Loans to wholesale added 12.8% y/y

(excluding resegmentation of CZK 9.1 bn

+8.4%)

• Growth driven mainly by large corporates

in real estate, automotive and natural resources

sectors * Wholesale defined as Corporate and Group Markets.

302.3 304.7 310.9 319.5 318.0

206.6 212.5 217.4 226.6 233.1

5.8% 6.6% 7.4% 8.8% 8.3%

0%

10%

20%

30%

0

50

100

150

200

250

300

350


in C

ZK

bn

Retail loans Wholesale loans Total loan growth (y/y)

Large corporates

13.6%

SME23.7%

Consumer,

private credit

cards,

overdrafts and

home equity

11.7%

Mortgage & real est.45.3%

Others 5.7%

Page

Bank loan portfolio –

Mortgages accelerated at year end, pick up in consumer lending

Private mortgages development Consumer lending development*

25

• Private mortgages accelerated

to CZK 209.6 bn (+12.2% y/y)

• Strong demand culminated in Q4 2016, when first

interest rate hike was announced

• Despite outstanding sales, quality is kept stable with

whole portfolio LTV ratio at safe 64.3%

• Consumer lending* at CZK 64.5 bn (+1.1% y/y)

• Higher sales of cash loans enabled by growing

household income and very low unemployment rate

finally reversed long term decline of consumer

lending already on y/y basis

*Consumer lending here includes Cash loans, home equity loans,

private credit cards and private overdrafts. Social loans are excluded.

186.8190.1

196.0

203.0

209.6

11.8% 11.9% 11.5% 11.9% 12.2%

5%

10%

15%

20%

25%

160

170

180

190

200

210


in C

ZK

bn

Private Mortgages Private Mortgages growth (y/y)

63.8 63.5 63.5 64.2 64.5

-3.7% -2.5% -1.8% -0.3% 1.1%

-20%

0%

20%

40%

60%

0

20

40

60

80

100


in C

ZK

bn

Consumer Lending Consumer Lending growth (y/y)

Page

Group asset quality Improving risk profile and coverage, decline of risk costs

NPL ratio and NPL coverage Risk costs development

26

• Group NPL share further declined to 3.2%

• Driven by low NPL inflow, recoveries and write offs

across segments

• Provision coverage at strong 83%, total coverage

(provisions+collateral to NPL) improved to 116.0%

• Annualized group risk costs declined to 32 bps

• Positive development from Q2 and Q3 2016 was

partly held back by single larger default and additional

provision creations on already defaulted corporate

clients in Q4 2016

4.1% 3.9% 3.6% 3.3% 3.2%

73% 73% 76%80% 83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%


Group NPLs Risk Provisions / NPLs

48

33

24 24

32

-32.9%-50.2% -53.6% -47.8%

-33.4%

-100%

0%

100%

200%

300%

0

10

20

30

40

50

60


in b

p

Group risk costs Y/Y change

Page

Presentation topics

27


• Segment financial performance analysis



• Banking market



• Awards, CSR

• Appendix

Page

Macroeconomic developments –

GDP growth remaining solid

Real GDP growth y/y Components of GDP

28

• The GDP growth slowdown to 2.3% in 2016 is being driven by

extraordinary volume of public investment in 2015 (utilisation

of EU funds) and temporary slowdown in foreign demand in H2 2016

• Real economic activity is still solid, favourably influenced by both

domestic and foreign demand

• Domestic demand is being influenced by labour market strengthening

and positive sentiment of households; foreign demand is affected

by the economic recovery in the Eurozone (mainly in Germany), low

oil prices and the weak EUR/CZK exchange rate

• Relatively stable growth of household consumption is the most important

GDP growth contributor. It is being supported by a strong labour market and

positive sentiment of households

• Decrease in fixed investment in 2016 affected by significant public

investments financed by EU funds. In 2017, fixed investments will increase due

to improved economic development and higher public investment expenditures

• The manufacturing sector, supported to a large extent by continuing

expansion in the automotive industry, remained the most significant contributor

to GDP growth on the supply side (adding 1.1pp in Q3 2016)

Note: Source for historic figures is Czech statistical office. Figures for forthcoming years are ČS forecasts

-0.5%

2.7%

4.6%

2.3%2.7%

3.2%

2013 2014 2015 2016 2017e 2018e

0.5%1.8%

3.1% 2.7% 2.9% 3.0%

-2.5%

3.9%

9.1%

-1.3%

2.8% 3.1%

2013 2014 2015 2016 2017e 2018e

Private consumption growth

Fixed capital formation growth

Page


The lowest unemployment rate in the EU

Unemployment and inflation General government debt and government balance

29

• Average CPI arrived at 2.0% in December and thus reached the ČNB target.

Significant unexpected increase in food prices was the main driver of this

development

• We expect a gradual increase in CPI inflation during this year due to solid

domestic demand and wage growth, fuel and food prices and also lower

anti-inflationary pressures from the Eurozone

• The general unemployment rate (ILO) reached 3.6% in December

and is the lowest in the EU

• The strong growth of the Czech economy and high inflow of EU funds positively

affected the central government’s cash flow-based budget, which reached a

surplus in 2016

• In 2017 and 2018, we expect a slight deficit in general government balance

due to higher public consumption and investment expenditures

• The share of public debt to nominal GDP is anticipated to further decrease,

mainly thanks to the favourable development of the Czech economy

Note: Source for historic figures is Czech statistical office. Figures for forthcoming years are ČS forecasts

6.8%

5.9%

4.6%

3.7%4.0% 4.0%

1.4%

0.3% 0.3%0.7%

2.2% 1.9%

2013 2014 2015 2016 2017e 2018e

Unemployment rate (eop)

Consumer price inflation (avg)

44.9% 42.2% 40.3% 37.2% 35.7% 35.9%

-1.2% -1.9% -0.4%

0.5%

-0.6% -0.6%

2013 2014 2015 2016e 2017e 2018e

General government debt (share of GDP)

General government balance (share of GDP)

Page


Yields of Czech T-bonds are expected to remain low in 2017 despite recent uptick

• Domestic demand pressures strengthened

at the end of 2016. Core inflation contributed

approx. 0.8pp to overall inflation in December

• The ČNB will not abandon the FX

commitment (EUR/CZK above 27)

before Q2 2017

• Due to inflation at the target, positive inflation

outlook and high inflow of foreign capital, we

expect the exit from the FX cap in Q2 2017

• However, the timing will be dependent on

economic development in the Eurozone

and the Czech Republic

• The possibility of negative ČNB rates

is still relatively low, in our view

• Yields of government bonds increased

reflecting higher pro-inflationary pressures

30

-0,5%

0%

0,5%

1%

1,5%

1-1

5

2-1

5

3-1

5

4-1

5

5-1

5

6-1

5

7-1

5

9-1

5

10-1

5

11-1

5

12-1

5

1-1

6

2-1

6

4-1

6

5-1

6

6-1

6

7-1

6

8-1

6

9-1

6

10-1

6

12-1

6

1-1

7

10Y T-Bond Yields CZGB10YR Index

GDBR10 Index

GTATS10Y Govt

-1

0

1

2

3

2015 2016

Break-down of CPI

Regulated prices Indirect taxesFood, beverages and tobacco CoreFuel CPI

Page

Presentation topics

31





• Banking market



• Awards, CSR

• Appendix

1 16.818.2

20.2

15.5

18.9

0

5

10

15

20

25

Q3 2015 Q3 2016 Q3 2015 Q3 2016 Q3 2015 Q3 2016

Large banks Medium-sized banksbanks

Small banks

T1 Capital ratio Total capital ratio

• According to latest ČNB stress tests the Czech banking sector has

a strong capital adequacy, liquidity and robust profitability

• The counter-cyclical capital buffer rate for exposures located in the

Czech Republic is set at 0.5%, applicable as of January 2017. In

December 2016 the ČNB decided to keep the rate at this level also after

January 2018

Czech banking market –

Sufficiently capitalized and resilient, with low and falling NPL share

Capital ratios of Czech banks* (%) Non-performing loan ratios (%)

• The share of non-performing loans (NPL ratio) in the retail

sector has been falling since 2013 in line with the improving

economic situation

• Corporate NPL ratio has been oscillating around 5% over the

last two quarters

32

* Compliant with ČNB segmentation of banks, data for Dec not available yet

4.4%

5.7%

4.1%3.6%

5.0%

3.2%

0%

1%

2%

3%

4%

5%

6%

7%

Total Non-financialcorporations

Households

Dec 15 Dec 16

Page


Prevailing growth in retail loans and deposits, optimization of corporate deposits at YE

Retail and corporate loans (y/y growth) Retail and corporate deposits (y/y growth)

33

• Total loan growth was 6% y/y in December 2016. The main driver

was the growth of retail loans. In the last two quarters this growth rate

was mostly around 7%

• In 2017, ČS expects client loans to grow at a pace of about 6%.

The growth of retail loans will ease a bit compared to the levels

up to now. Housing loans will grow at the rate of roughly 7%, while

for corporate loans ČS expects increase slightly below 5%

• The pace of y/y growth of retail deposits increased during 2016

to levels above 8%. Conversely, growth of corporate deposits

gradually fell to zero (likely in connection to optimisation of charges

to Resolution fund)

• In 2017, ČS expects the growth rate of total deposits to be slightly

below 7%

7.6%

6.4%6.9% 7.3%

8.5%

6.7%5.9% 6.0%

Mar 16 Jun 16 Sep 16 Dec 16

Retail loans Corporate loans

6.3%

7.3%7.7%

8.4%

6.5% 6.5%5.9%

0.0%

Mar 16 Jun 16 Sep 16 Dec 16

Retail deposits Corporate deposits

Page


Limited exposure of clients to FX risk

Customer loans (December 2016) Customer deposits (December 2016)

34

59.1%

29.4%

0.1%

11.3%

LC retail loans LC corporate loans

FX retail loans FX corporate loans

67.7%

22.8%

2.8%6.7%

LC retail deposits LC corporate deposits

FX retail deposits FX corporate deposits

Page

Banking market –

Market shares of ČS (December 2016)

Asset side Liability side

35

• Market leadership in:

• Number of customers (4.7 m)

• Total mortgages (market share of 26%)

• Consumer loans incl. credit cards (market share of 29%)

• No. 2 in:

• Total loans (market share of 20%)

• Total assets (market share 19%)

• Private mortgages (market share 25%)

• Market leadership in:

• Total deposits (market share of 21%)

• 25% in retail deposits, 12% in corporate deposits

• Mutual funds with market share of 25%

19% 18% 19% 19% 19%

23% 23% 23% 23% 23%

19% 19% 19% 19% 20%


Total assets Retail loans Corporate loans

25% 25% 25% 25% 25%

12% 11% 12% 12% 12%


Retail deposits Corporate deposits

Page

Presentation topics

36





• Banking market



• Awards, CSR

• Appendix

Page

The ČS Foundation awarded the Floccus

Awards to 6 organisations and 3 individuals

who support people on the fringe of society.

The ČS Foundation distributed CZK 2 m among

the 24 most successful non-profit projects in its

Grant Programme for ČS’s Clients and also

Employees

2016 Making Good Things Happen

Through the new mobile donor application

Melinda people contributed CZK 380 thous to

various charitable non-profit organisations

projects. Bank clients are donating 10 thous per

week now

ČS developed financially-educational online

game „Mysterious Journey“ for primary and

secondary schools.

As a part of its promotion ČS cooperated with

youtuber Vidrail which was very successful and

made this game more popular

ČS is already the main partner of six

universities: Česká zemědělská univerzita v

Praze, Univerzita Hradec Králové, Univerzita

Jana Evangelisty Purkyně, Univerzita Karlova,

Univerzita Palackého v Olomouci, Vysoká škola

ekonomická v Praze

The NDB introduced an unique one year

training program for future teacher Učitel

naživo (Teacher Live).

The Foundation was founded in order to

administer the extraordinary yields from

anonymous pass-books in 2012 with CZK 1.45

bn. The rest of the money, CZK 121 m, will be

transferred to the NDB

ČS launched an unique ambassadorial

programme. The concept is based on several

surveys among students, and the outcome is a

one-year internship for students of partner

universities who will help with communication

between students, universities, and ČS. The

communication channel is Facebook page

Making Good Ideas Happen

37

2016 Awards from Prestigious Institutions

• International finance magazine The Banker named Česká spořitelna Bank of the Year for the

Czech Republic for the ninth time. The distinction of "bank of the year" was awarded by a jury

in which CEOs and managers of British companies, as well as several editors from The Banker

magazine

• Česká spořitelna defended the Zlatá koruna award for Corporate Social Responsibility

• SERVIS 24 Mobile bank gets points in Mobile application of 2016 awards

• Second position in Client service category and first in Banking applications category

• According to the public, the Servis 24 mobile banking is the best banking app in the Czech

Republic

• Česká spořitelna won the title as the Best Card Acquirer and Proposition of 2016 in the

fourth annual Visa Awards

• Our good knowledge of clients was confirmed by the prestigious PR prize Zlatý středník

awarded for the publication called Etapy where the bank mapped the behaviour of its clients

from student years until the death

Page

Presentation topics

39





• Banking market



• Awards, CSR

• Appendix

Structure of ČS Group loan portfolio (gross) –

Group customer loans

* Wholesale defined as Corporate and Group Markets.

*

Outstand. Share Outstand. Share Outstand. Rate

RETAIL 302,303 55.1% 318,003 53.6% 15,699 5.2%

Overdrafts 5,964 1.1% 5,725 1.0% -239 -4.0%

of which non-private (MSE, Muni) 1,574 0.3% 1,697 0.3% 123 7.8%

Credit cards 3,401 0.6% 3,054 0.5% -347 -10.2%

of which non-private (MSE, Muni) 15 0.0% 15 0.0% -1 -6.2%

Cash loans 51,885 9.5% 53,968 9.1% 2,083 4.0%

Private social 952 0.2% 776 0.1% -176 -18.5%

Home equity mortgages 4,103 0.7% 3,453 0.6% -650 -15.8%

Private mortgages 186,813 34.0% 209,568 35.3% 22,755 12.2%

Commercial loans 49,185 9.0% 41,459 7.0% -7,726 -15.7%

WHOLESALE 206,600 37.6% 233,138 39.3% 26,539 12.8%

Corporate 205,696 37.5% 226,803 38.2% 21,107 10.3%

Group Large corporates 27,489 5.0% 36,206 6.1% 8,716 31.7%

Local Large corporates 35,606 6.5% 39,006 6.6% 3,400 9.5%

SME 91,316 16.6% 89,244 15.0% -2,071 -2.3%

Real estate 38,366 7.0% 40,523 6.8% 2,156 5.6%

Public sector 12,918 2.4% 21,824 3.7% 8,906 68.9%

Group Markets 904 0.2% 6,336 1.1% 5,431 >100%

OTHER 970 0.2% 806 0.1% -165 -17.0%

BANK: LOANS TO CUSTOMERS 509,874 92.9% 551,947 93.1% 42,073 8.3%

SUBSIDIARIES 55,089 10.0% 56,877 9.6% 1,787 3.2%

CONSOLIDATION ITEMS -16,127 -2.9% -15,831 -2.7% 295 -1.8%

GROUP: LOANS TO CUSTOMERS 548,836 100.0% 592,992 100.0% 44,156 8.0%

31/12/2015 31/12/2016 YTY changein CZK m, IFRS

Page

Ratings of Česká spořitelna

Status as of 31 December 2016

41

Fitch A- F2 a- 2 stable 20/05/2015

Moody's A2 Prime - 1 stable 17/03/2015

Standard & Poor's A- A-2 negative 09/06/2015

OutlookRating Agency Long-term Short-term Viability SupportLatest

actions

• Latest rating actions

• Rating agency Standard & Poor´s confirmed all ČS ratings on 1st August 2016

• Fitch confirmed all ČS ratings on 16th May 2016

• Moody´s revised the outlook for LT rating of ČS from negative to stable on 17th March 2015

Page

Macroeconomic figures –

Historical and forecasted macroeconomic data

42

2011 2012 2013 2014 2015 2016 2017e 2018e

Population (avg, m) 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5

GDP/capita (EUR thsd) 15.6 15.1 14.6 14.1 14.9 15.4 16.0 16.9

Real GDP growth 2.0 -0.7 -0.5 2.7 4.6 2.3 2.7 3.2

Consumer price inflation (avg) 1.9 3.3 1.4 0.3 0.3 0.7 2.2 1.9

Unemployment rate (eop) 6.5 7.3 6.8 5.9 4.6 3.7 4.0 4.0

Current account balance (share of GDP) -2.1 -1.6 -0.5 0.2 0.9 2.1 1.2 1.4

General government balance (share of GDP) -2.7 -3.9 -1.2 -1.9 -0.4 0.5 -0.6 -0.6

Public debt (share of GDP) 39.9 44.5 44.9 42.2 40.3 37.2 35.7 35.9

Short term interest rate (3 months, eop) 1.2 1.0 0.5 0.4 0.3 0.3 0.3 0.3

EUR FX rate (eop) 25.8 25.1 27.4 27.7 27.0 27.0 26.4 25.8

Page

Financial statements – Quarterly development (CZK m)

43

Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q/Q %

Net interest income 6,435 6,379 6,396 6,412 6,326 -1.3%

Net fee and commission income 2,724 2,282 2,364 2,252 2,410 7.0%

Dividend income 3 3 51 6 26 >100%

Net trading and fair value result 584 633 604 692 924 33.5%

Net result from equity method investments 0 0 3 -4 -9 -

Rental income from investment properties & other operating leases 151 131 127 123 97 -21.1%

General administrative expenses -4,950 -4,369 -4,413 -4,450 -4,915 10.4%

Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net 127 2 1,421 -1 -2 100.0%

Net impairment loss on financial assets not measured at fair value through profit or loss -765 -460 -235 -369 -842 >100.0%

Other operating result -138 -396 -148 -57 -71 24.6%

Pre-tax result from continuing operations 4,171 4,206 6,170 4,607 3,941 -14.5%

Taxes on income -1,011 -831 -1,305 -921 -413 -55.2%

Post-tax result from continuing operations 3,159 3,375 4,864 3,685 3,530 -4.2%

Net result for the period

Net result attributable to non-controlling interests 2 0 1 0 -3 -

Net result attributable to owners of the parent 3,158 3,375 4,863 3,686 3,534 -4.1%

Operating income 9,898 9,427 9,546 9,480 9,774 3.1%

Operating expenses -4,950 -4,369 -4,413 -4,450 -4,915 10.4%

Operating result 4,947 5,058 5,132 5,031 4,860 -3.4%

Cost/income ratio 50.0% 46.3% 46.2% 46.9% 50.3%

Page

Segment financial statements –

Segment Czech Republic - income statement (EUR m)

44

2015 2016 Change

Net interest income 923.0 914.3 -0.9%

Net fee and commission income 375.8 344.3 -8.4%

Dividend income 2.5 3.1 na

Net trading and fair value result 103.5 105.5 2.0%

Net result from equity method investments 0.0 -0.4 na

Rental income from investment properties & other operating leases 26.8 17.7 -34.2%

General administrative expenses -681.2 -671.2 -1.5%

Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net 16.5 52.6 219.4%

Net impairment loss on financial assets -97.1 -70.5 -27.4%

Other operating result -37.3 -24.8 -33.5%

Levies on banking activities 0.0 0.0 na

Pre-tax result from continuing operations 632.6 670.6 6.0%

Taxes on income -128.9 -122.8 -4.7%

Post-tax result from continuing operations 503.7 547.8 8.8%

Post-tax result from discontinued operations 0.0 0.0 na

Net result for the period 503.7 547.8 8.8%

Net result attributable to non-controlling interests 5.4 5.8 7.7%

Net result attributable to owners of the parent 498.3 542.0 8.8%

Operating income 1,431.7 1,384.5 -3.3%

Operating expenses -681.2 -671.2 -1.5%

Operating result 750.5 713.3 -5.0%

Cost/income ratio 47.6% 48.5%

Return on allocated capital 29.5% 31.1%

Page

Segment financial statements – Quarterly development

Segment Czech Republic - income statement (EUR m)

45

Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

Net interest income 236.0 226.9 228.7 230.9 227.9

Net fee and commission income 100.6 84.4 87.4 83.3 89.2

Dividend income 0.1 0.1 1.8 0.2 1.0

Net trading and fair value result 21.7 23.4 22.3 25.6 34.2

Net result from equity method investments 0.0 0.0 0.1 -0.2 -0.3

Rental income from investment properties & other operating leases 5.6 4.8 4.7 4.6 3.6

General administrative expenses -182.8 -161.6 -163.2 -164.6 -181.8

Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net 4.7 0.1 52.6 0.0 -0.1

Net impairment loss on financial assets -28.2 -17.0 -8.7 -13.6 -31.1

Other operating result -5.2 -14.6 -5.5 -2.0 -2.7

Levies on banking activities 0.0 0.0 0.0 0.0 0.0

Pre-tax result from continuing operations 152.5 146.5 220.2 164.1 139.8

Taxes on income -37.3 -29.5 -46.7 -32.9 -13.7

Post-tax result from continuing operations 115.2 117.0 173.5 131.2 126.0

Post-tax result from discontinued operations 0.0 0.0 0.0 0.0 0.0

Net result for the period 115.2 117.0 173.5 131.2 126.0

Net result attributable to non-controlling interests 1.4 1.3 2.0 1.3 1.2

Net result attributable to owners of the parent 113.8 115.7 171.6 129.9 124.8

Operating income 364.0 339.6 345.0 344.4 355.5

Operating expenses -183 -161.6 -163.2 -164.6 -181.8

Operating result 181.2 178.0 181.8 179.8 173.7

Cost/income ratio 50.2% 47.6% 47.3% 47.8% 51.1%

Return on allocated capital 26.0% 26.8% 41.5% 29.3% 27.5%

Page

Investor Relations contacts

46

Česká spořitelna Miloš Novák

Tel: +420 956 712 410

E-Mail: [email protected]

Eva Čulíková

Tel: +420 956 712 011

E-mail: [email protected]

Josef Boček

Tel: +420 956 712 461

E-mail: [email protected]

Erste Group Thomas Sommerauer, Head of Group Investor Relations

Tel: +43 50100 17326


Peter Makray, Investor Relations Manager

Tel: +43 50100 16878


mailto:[email protected]





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