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ASPIS BANK S.A.
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Announcement
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August 29, 2008 The Aspis Bank Group has entered into a new growth phase under new Management and organizational structure. The Bank's new strategy that already started to be implemented, is based on consumer credit, small business and medium sized enterprises financing growth, contraction of large corporate financing, immediate rationalization of operating expenses and further strengthening of liquidity with cost of money containment. The Bank's high capital adequacy ratio and adequate liquidity guarantee the implementation of Bank's new strategy. Despite adverse economic climate, the Bank maintained its growth dynamics, with total assets increased by 15% yoy to euro 3.1 billion driven by pure banking business growth, mainly loans. Loans and advances to customer net of impairment increased by 13% yoy to euro 2.3 billion, customer deposits increased by 14% yoy to euro 2.4 billion and the deposits to gross loans ratio maintained at 100%. Despite the strong increase in assets and deposits, ASPIS BANK Group reported a loss after tax and minority interests of euro 19.4 million, driven by the sharp increase in the cost of attracting deposits as a result of the turmoil in global credit markets, and certain one-off expenses relating to the reorganization of the Bank, including compensation to staff that left. Furthermore the Bank's Management, having considered the difficult conditions facing the banking market and with the intention of strengthening its balance sheet, has significantly increased loan loss provisions in H1 2008. Such one-off events will not impede ASPIS BANK's growth track. The Bank's strategic focus aiming at the return to profitability. Specifically, the following actions have been initiated: Boost of the Bank's productivity, through organizational restructuring and operational overhaul of infrastructure and procedures, and shift of its strategic focus to Retail Banking activities such as consumer credit and small business and medium sized enterprises financing. The results of this shift are already evident; credit cards and consumer loans increased by 23% and 25.5% yoy respectively, and loans to SMEs increased by 23%. It is noteworthy that, Retail Banking growth will be supported by the more efficient exploitation of synergies between the Bank and the insurance companies of ASPIS Group whose client base reaches 1.2 million clients. In parallel, contraction of large corporate financing is in implementation. Centralization of Retail Banking activities with restructuring of product development and distribution and credit procedures. Creation of business centers in selected regions. Immediate implementation of the containment and rationalization of operating expenses with administrative costs being significantly cut down. A Special Financial Control and Management of the Bank's expenses Unit has been established for that purpose. Completion in H2 2008 of the Bank's programme to further strengthen liquidity, beginning with an RMBS transaction of euro 500 million which will be completed. Considering that high cost deposits remain the major source of funding for ASPIS BANK Group operations, alternative solutions for acquiring liquidity and raising funds are explored. Review of ASPIS BANK Group Results The Bank's profitability was affected by disproportionately higher average cost due to the increased cost of attracting deposits, mainly time deposits which remain the Bank's major funding source. This fact led to the compression of net interest margin and to the decrease of net interest income to euro 23 million versus euro 28 million in H1 2007. On the other hand, loan growth, which remains the major source of income, led to the increase of gross interest income by 18% to euro 81 million versus euro 69 million in H1 2007. Negative returns in capital markets, and bear stock markets have negatively affected results from financial transactions as well as commissions from asset management and brokerage transactions. Consequently, net commission income decreased by 15% yoy to euro 12 million while loss from financial transactions amounted to euro 0.8 million. Total operating expenses increased to euro 56 million versus euro 35 million in H1 2007. Specifically, personnel expenses increased to euro 32.7 million versus euro 17.5 due to the Bank's restructuring programme and specific one-off costs. Personnel expenses increased to euro 32.7 million versus euro 17.5 in H1 2007 due to the organizational restructuring with changes in almost all levels of the Bank's Management, including compensation to staff that left. Administrative expenses increased to euro 17.8 million versus euro 13.3 million in H1 2007 due to the increased promotion and advertising cost and the cost of the expansion of ASPIS BANK in Bulgaria - a plan that has now been cancelled. Depreciation increased to euro 5.7 million versus euro 4.5 due to the increased cost of the upgraded IT systems, especially that of the new core banking IT system -Finacle. The upgrade of operating systems and the organizational restructuring are viewed as investments which affected the operating cost in the short run, but have benefits to be seen in the long run rather in the short run.
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