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ALPHA BANK
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Announcement
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February 27, 2008 Full Year 2007 Results Net Profits up 54% to Euro 850 million. Dividend up 20% to Euro 0.90 per share. On track to meet revised business plan targets. Strong financial performance. - Earnings per share grew by 50% to Euro 2.10 (2006: Euro 1.40) with return on equity at 28.1%. - Robust capital adequacy with Tier I ratio at 9.6% and Total BIS ratio at 12.5%. - Cost to income ratio at 45.8%, while expanding in Southeastern Europe at accelerated pace. Healthy operating metrics. - Net loans grew rapidly by 30.6% to Euro 42.1 billion, with new loan balances of Euro 2.6 billion in the fourth quarter, of which Euro 1.2 billion Greece and Euro 1.2 billion SEE. - Customer assets reached Euro 46.7 billion, with Euro 2.3 billion of deposits increase in the last quarter alone. - Net interest income, net of impairment, grew by 18.5% while the margin expanded by 20 bps. - Fee and commission income increased strongly by 16.1%. Increased contribution from Southeastern Europe. - Profit before tax from organic expansion of our SEE activities reached Euro 117 million, up 67.3%. - Southeastern European loan and deposit balances grew significantly by 88% and 46.4%, accounting for 18% and 15% of total loans and deposits respectively. - Branch network at the end of 2007 amounted to 817 units in Greece and abroad. "In 2007 we demonstrated our ability to expand our successful business model into Southeastern Europe, where our market share in loans at above seven percent confirms that we are reaching critical mass. We are confident of achieving the ambitious growth targets we set out in January at our Capital Markets Day in London. We are following with vigilance the turbulence in the global financial markets and are ready to take advantage of any change in circumstances." Yannis S. Costopoulos, Chairman "In the second half of 2007 we exceeded our expectations, delivering net profit of Euro 875 million* for the full year compared with our target of Euro 830 million. Our success is built on our quality brand and our strong commercial focus and is reflected in loan growth of 30% including new loan additions in SEE exceeding Euro 3.5 billion. We now have more than 3.5 million clients across the SEE region. We are pleased that despite the present economic conditions, our risk balanced growth has been acknowledged by Standard & Poor's which upgraded us to "A-". The improvement of our operating performance supports our strong commitment to deliver in 2008 according to our recently presented business plan." Demetrios P. Mantzounis, Managing Director *Adjusting for one-off fire donations (Euro 18.5 million after tax) and the newly introduced trading gains tax (Euro 6.4 million). KEY DEVELOPMENTS - Robust expansion in Southeastern Europe supported by accelerating maturity of our Network. Our regional platform expanded in 2007 by 133 Branches reaching 403 units at the end of December, fully meeting our target. In 2007, lending growth increased by 126% in the Balkans and 58% in Cyprus, resulting in market share gains of 160 bps across the region as we reached an overall market share of 7.3% in SEE. New loan balances reached Euro 3.5 billion for the full year, of which Euro 1.2 billion in the fourth quarter alone, equaling the respective performance in Greece. - Continued focus on expanding in retail banking in Greece. Retail lending expansion continued unabated, with consumer loans increasing by 34.8%, mortgages by 17.5%, and lending to very small businesses by 20.8%. These positive trends are underpinned by the opening of 20 new Branches in Greece during this year, while our plan calls for another 50 Branches to open in 2008. - Resilient funding platform. Alpha Bank's reliable franchise and quality brand has proven most appealing to depositors: in the fourth quarter we managed to attract Euro 2.3 billion of deposits including retail targeted bonds to our customers (close to the amount of new loan balances over the same period) without cannibalising our money market funds, which increased by Euro 300 million in the same period, or significantly adjusting our pricing policy. Furthermore, we ended the year as a net lender in the interbank market by Euro 2.2 billion and so far in 2008 we have raised Euro 970 million in wholesale funding. As stated in our Q307 results, Alpha Bank has no direct investments in subprime mortgages or indirect exposure to that market via credit-linked instruments nor does it provide support to any conduit structure. - Standard & Poor's upgrades Alpha Bank rating to "A-"Standard & Poor's has upgraded Alpha Bank's credit rating by taking into account the "implementation of initiatives to improve the Bank's underwriting and collection processes by taking a much more centralised and proactive approach" and has further commented that the "reserve coverage is adequate with further comfort derived from the Bank's strong earnings generation". (Standard & Poor's report on Alpha Bank, 19 February 2008). - Participation process in the State-sponsored auxiliary Pension Fund for Bank Employees (E.T.A.T.) concluded. Law 3620/2007 ratified the cost for Alpha Bank to be admitted to E.T.A.T. to Euro 543 million, to be paid in ten annual instalments of Euro 67.3 million, broadly in line with our provision. This is an important development towards restoring a level playing field in the banking market through the gradual harmonisation of the non-salary employee cost. - Agenda 2010 delivery update. Alpha Bank hosted its 4th Capital Markets Day on 16 January 2008 in London where we upgraded our business plan targets as follows: - Net profit in 2010 of at least Euro 1,400 million translating into 23% Earnings Per Share CAGR 2007-2010 (from 20%) and 30% Return on Equity (from 28%). - Increased SEE contribution in group earnings to 30% by 2010 (from 25%). - Accelerated loan growth, to produce risk weighted assets growth of 20% CAGR. - Interim net profit target for 2009 is set at Euro 1,150 million. 2007 DIVIDEND In light of our sustainable profitability, the Board of Directors will propose to the Annual General Meeting of Shareholders a dividend of Euro 0.90 per share compared to Euro 0.75 last year, an increase of 20%. Based on the average share price of 2007, this represents a dividend yield of 3.8%. Enquiries: Alpha Bank Marinos S. Yannopoulos, General Manager and C.F.O. Tel.: +30 210 326 2366 Michael Massourakis, Group Chief Economist Tel.: +30 210 326 2828 Vassilios Psaltis, Head of Group Investor Relations & Corporate Development Tel.: +30 210 326 4009 www.alpha.gr Finsbury Group Edward Simpkins/Matthew Newton Tel.: +44 207 351 2801 Results Calendar for 2008: The new dates for the announcement of the first quarter, first half and nine months results of 2008 are the 27th of May, the 26th of August and the 25th of November respectively. 2007 PERFORMANCE OVERVIEW Net profit attributable to shareholders amounted to Euro 850 million, an increase of 54%. This is a record performance that demonstrates the robustness of our market position in Greece and the accelerated delivery of our Southeastern European platform. Net interest income reached Euro 1,605 million, an increase of 13.2%, translating into a noticeably improved risk-adjusted net interest margin of 2.7% (2.5% in 2006). This is on the back of strong loan growth in Greece and Southeastern Europe, a continuous shift of the asset mix towards higher-spread activities, and a widening of liability spreads. Fee and commission income advanced by 16.1% mainly due to the positive development in loan related charges (+16%), credit card commissions (+28%) and capital markets related fees (+36%). Income from financial operations stood at Euro 82.5 million, and other income at Euro 85 million. We maintained our record of good cost control with a cost to income ratio of 45.8%. The Operating costs associated with our accelerated growth agenda increased by 15.5% to Euro 1,025 million, mainly due to a 10.7% increase in staff cost, which we see as important to retain and reward the best quality staff, and a 20.5% increase in general expenses. As a result of our expansion programme in Southeastern Europe our costs grew by 31%, mainly due to the accelerated roll-out of our Branch Network. We added 133 new Branches and 1,008 new staff during the year. The increase of our operating cost in Greece (+12%) was mainly affected by production-related expenses to support the rapid expansion of our retail business. Loans and advances to customers (gross) expanded strongly to 29.3%, reaching Euro 42.9 billion, primarily due to a 19.4% volume increase in Greece, and an even stronger increase by 88% in our Southeastern European credit operations. Our growing geographic diversity is reflected in the fact that in 2007 new loan additions in SEE amounted to Euro 3,544 million, which corresponds to approximately two thirds of the new loan additions in Greece (Euro 5,508 million). Credit costs as a percentage of average loans stood at 60 bps in 2007 vs 83 bps in 2006, confirming the trend towards a medium term target of 60 bps, supported mainly by the benign credit environment in Greece and in Cyprus and the early successes in our on-going efforts to reengineer our credit value chain, as evidenced recently by Standard & Poor's comments. Therefore, our NPL (Non-Performing Loans) ratio, under IFRS 7, reached 3.7% in December 2007, improving significantly from 5.1% a year earlier. Allowances for impairment reached Euro 841 million representing 2% of total loans outstanding, as we have written-off Euro 382 million in 2007, and covered 53% of NPLs. When collaterals are taken into account this ratio stands at 130%. Customer assets grew by 13.4% to Euro 46.7 billion. In the fourth quarter alone, we have added Euro 2.3 billion of deposits without engaging into any particular pricing action or directing any customers' money market funds to deposits (we attracted Euro 300 million of money market funds q-o-q). Deposits in Greece, including Alpha Bank bonds placed with our retail customers, advanced to Euro 28.8 billion (up 7.3%). As our extensive branch network exceeded 400 Branches, deposits in Southeastern Europe grew by 46.4% to reach Euro 5.3 billion. We now have nation-wide coverage in the countries we operate in and increasingly see benefits from enhanced brand awareness. Private banking assets stood at Euro 5.6 billion, and mutual funds balances at Euro 5.5 billion. In 2007, profits before tax reached Euro 508.4 million, compared to Euro 381.3 million in 2006, an increase of 33.4%. Mortgage credit reached Euro 9.9 billion, up by 17.5%, as we consolidated our second position in the market, fending-off intense competitive pressures with regular product innovation. Consumer credit continued to excel as we intensified our marketing efforts to benefit from a mix of multiple distribution channels. In that context, consumer loan balances rose by 34.8% to Euro 3 billion, with new disbursements standing at Euro 1.8 billion (up 43%). Credit cards balances advanced by 16.4% reaching Euro 1.2 billion, driven by the increasing success of our proprietary multi-retailer "Bonus Card" loyalty programme. Moreover, small business loans (extended to companies with turnover below Euro 2.5 million or credit limits up to Euro 1 million) rose by 12.7%, while loans to very small businesses (defined as those with credit limits up to Euro 90,000) increased by 20.8%. We expect our performance in the area of small businesses to strengthen further as we sharpen our focus in this segment through dedicated product offerings, centralisation of credit approvals and back office operations in addition to the enhanced coverage of our branch network. Profits before tax grew impressively over the year to Euro 117.1 million, an increase of 67.3% brought about by our accelerated Branch opening programme and the rapid maturity of our existing Branches as we increase the network density in the various countries we operate. In January we announced enhanced targets for our Network in the SEE region with just over 1,000 Branches at the end of the decade, an increase of 240 over our previous number. In Cyprus, our franchise delivered a Euro 71.9 million pre-tax profit, buoyed by our number three position in lending with a market share of 12.3% at end 2007, a gain of 2.1 percentage points over the year, and our fast improving position in the international banking segment. In the fourth quarter we added Euro 492 million of new loan balances to reach Euro 3.3 billion, and we have attracted Euro 412 million to reach Euro 3.1 billion in deposits. In Romania our market share grew by 2.2 percentage points to 6.5% by the end of 2007. Whilst we remain vigilant to potential macro-economic imbalances in the Romanian economy, we are the most experienced foreign bank in the country and have the ability to respond effectively to adverse developments in market conditions. As part of our balanced approach to risk we have hedged all our capital exposure in the country since July 2007. During the year we increased our loan book to Euro 2.7 billion (+126%) by adding Euro 1.5 billion of new loans. Alpha Bank Romania became a top five player demonstrating the highest productivity among its peers, as expressed by the loans-per-branch ratio. In Bulgaria, we doubled our Network to 80 Branches at the end of 2007. The intensification of our efforts to attain critical mass in Bulgaria has been rewarded by the doubling of our market share in 2007 to reach almost 3.5%, thus placing Alpha Bank as a top ten player in the country. Following recent management appointments we have deepened our organisational structure to handle the significant increase in business origination. Achieving nation-wide coverage allowed for the launch of a full-scale advertising campaign, the results of which are very encouraging: in the fourth quarter we sold 3,231consumer loans (up more than 300% q-o-q) and we reached 65,000 retail deposit accounts (up close to 50% q-o-q). In Serbia, having successfully restructured Alpha Bank Srbija in less than two years from its acquisition, we are now well placed to further capitalise on our network of 130 Branches to service our 265,000 customers, 23,500 entrepreneurs and 12,500 corporate customers. Loans grew to Euro 595 million, up 78%, with business loans up by 89%. In Albania, our network of 20 Branches delivered a pre-tax profit of Euro 13.1 million, mainly due to its focus in the retail market. Mortgage loans accounted for 42% of the portfolio and grew by 87% while deposits grew by 55%, delivering a loan-to-deposits ratio of 70%. In F.Y.R.O.M. our footprint numbered 15 Branches at the end of December. Our loan balances increased by 79% in 2007, indicating our penetration potential. In that context we plan open another 25 branches by the end of the decade. Profits before tax at Euro 211 million remained practically stable compared to last year. Operating income grew by 10.7%, supported by a 20% increase in loans despite moderate erosion in spreads in the nine months, which stabilised in the fourth quarter. Operating expenses increased by 9.7% as a result of the start-up costs relating to the recently established Business Centres. Results of the first full year of the pilot Business Centre are very encouraging as it exceeded its budget by 21% and managed to widen its spread by 10 bps. Profits before tax increased by 25.3% to Euro 56.3 million and funds under management grew by 23% to Euro 11.3 billion, demonstrating our leading position in this field. For 2008 we are taking a fresh approach to asset gathering to leverage off our leading product proposition in mutual funds and insurance products. We expect further gains through our dedicated distribution to mass affluent customers via Alpha Prime and Alpha Private Bank. Mutual funds reached Euro 5.5 billion at the end of December 2007, reflecting an overall market share of 23.1% and our number one position in domestic equity-related funds. During 2007 we undertook significant product development, to introduce a shipping and a real estate fund and the very first Greek ETF on the FTSE 20 Athens Index, which started trading at the end of January. Furthermore, private banking balances reached Euro 5.6 billion, registering an increase of 17% as we are intensifying our marketing efforts in the affluent segment. Lastly, we made considerable inroads in Bancassurance, capitalising on our exclusive relationship with AXA. Leveraging on AXA's global product expertise, we have started the roll-out of an enhanced product offering. In 2007 we have doubled premium volume in bancassurance and early successes include the significant increase in insurance cross selling rates in consumer loans (72% in second half 2007 vs 45% in 2006) and in mortgages (30% in second half 2007 vs 6% in 2006). Profits before tax for the period amounted to Euro 79.1 million, of which Euro 30.1 million relate to the investment banking business, primarily from brokerage activity.
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