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EFG EUROBANK ERGASIAS SA.
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Announcement
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July 31, 2008 First Half 2008 Financial Results - Group Net Profit Rises by 7% to euro 436m - Core Profit Grows by 21.2% - "New Europe" Profitability four times up to euro 83m - Total Revenues Expand by 19.2% to euro 1.6bn - Impressive Deposit Growth of 40.8% - New Deposits(euro 4.7bn) at a record high in the second quarter - Further Decrease in the Loans to Deposits ratio to 120% - Robust Expansion of Group Loans by 32.7% - Sharp Efficiency Gains in "New Europe" - Cost to Income ratio down to 65% - Strong Capital Position - 11.3% Risk Asset Ratio - Financial Targets Updated Eurobank EFG reports a noteworthy increase in business development and profitability within a difficult environment, characterized by intense volatility in the international markets, uncertainty, rising funding costs and problems with the global financial sector at the epicenter. Despite the adverse conditions, which partly affected income from trading activities, asset management and equity brokerage business, core profit grew by 21.2% y-o-y, reflecting the robustness of the Group and its capacity to rely mainly on organic sources of revenues and profits. Net profit after tax and minorities stood at euro 436m in the first half of 2008 and was 7% higher y-o-y. Results outside of Greece were very positive, as "New Europe" net income climbed to euro 83m, from euro 22m in the six months of 2007, contributing 19% to the overall profitability of the Group. Total Assets reached euro 77.3bn, Regulatory Capital stood at euro 5.2bn and the network of branches, points of sale and business centers exceeded 1,700 units at the end of June 2008. Loan Portfolio Group Gross Loans increased by 32.7% y-o-y and stood at euro 53.8bn at the end of the first six months of 2008. Loan balances in Greece grew by 18.2% and reached euro 40.6bn, while the loan portfolio in "New Europe' more than doubled to euro 13.2bn, from euro 6.2bn in the first half of 2007. Net loan additions in "New Europe" reached euro 2.2bn in the second quarter of the year, against euro 1.7bn in the first quarter, and accounted for 61% of the net loan additions of the Group. Group corporate lending expanded by 33.1% to euro 28.8bn, driven by the strengthening of Eurobank EFG ties with the corporate clients in Greece and "New Europe" and the launching of innovative products. In more detail, loans to large and medium enterprises rose by 33.1% to euro 20.1bn and loans to small businesses advanced also by 33.1% to euro 8.7bn. Household lending grew by an annual rate of 32.2% to euro 25bn at the end of the first half of the current year. In more detail, consumer credit increased by 26.2% to euro 11.8bn and mortgages expanded by 38.1% to euro 13.2bn. Deposits and Asset Management The increase in the client base and the gradual maturing of the new branches established in Greece and "New Europe" supported the strong deposit growth. As a result, Group customer deposits grew at a record rate of 40.8% to euro 43.8bn in the first half of the current year, with outstanding balances rising by 33.1% in Greece and by 94.2% in "New Europe" y-o-y. Eurobank EFG net deposit additions exceeded net loan additions in absolute terms for another quarter. Specifically, new deposits reached 7.7bn, against euro 7bn of new loans in the first half of 2008, driving the loans to deposits ratio further down to 120%, a new low. Eurobank EFG has established contingent liquidity that exceeds euro 4.5bn, following the recent successful securitization of SME bond loans of euro 2.5bn. Within a volatile and unfavourable environment for asset management, Private Banking funds under management (FUM) rose by 5.4% to euro 8.3bn. In addition, Life Insurance FUM posted a significant increase of 17.2% and stood at euro 1.2bn. at the end of the six months. Overall, Customer FUM expanded by 15.3% and amounted to euro 56.4bn, with "New Europe" FUM growing by 68.2% to euro 9.1bn, from euro 5.4bn the respective period of 2007. Net Interest Income The expansion of the corporate and retail loan portfolio in Greece and "New Europe" supported Net Interest Income, which grew by 24.7% year on year and 4.3% compared to the first quarter of 2008. At the same time, the net interest margin (net interest income over avg. total assets) remained at 3.2%. Net interest income from "New Europe" business climbed by 85.3% and amounted to euro 329m in the first half of 2008, from euro 178m in the respective period of last year, contributing 28.5% to the Group net interest income. Net Fee & Commission Income Net Fee and Commission Income advanced by 14.2% y-o-y and 4.9% versus the first quarter of 2008 and reached euro 344m in the first six months. Fees from Banking Activities were up by 16.9% and stood at euro 309m, as a result of the robust expansion of the loan portfolio. Despite the adverse conditions that prevailed in the global markets, fees from capital markets remained at the first half 2007 levels, totalling euro 72m, driven by Treasury Sales, Equity Brokerage business in "New Europe" and Investment Banking activities. The fast business expansion in "New Europe" led fees and commissions from the region to more than double to euro 140m, from euro 66m a year ago. As a result, the contribution of "New Europe" fees to the total Group fees expanded to 40.8% in the first six months of 2008, from 21.9% the same period last year. Trading & Other Income As a result of the high volatility in the capital markets, Trading Gains from Bonds, Equities and Foreign Exchange receded to euro 65m, from euro 89m in the first half of 2007, mainly due to lower equity gains. Overall, trading gains together with dividend income and other operating income came at euro 96m, from euro 110m the period January - June 2007. Total Revenues Positive performance across all business segments led Group Total Revenues to increase by 19.2% and reach euro 1.6bn in the first half of 2008. The fast business expansion in «New Europe» led revenues from this region to almost double to euro 495m. As a consequence, the contribution of «New Europe» revenues to Group total revenues rose notably to 31%, from 19% last year. Operating Expenses & Efficiency Cost expansion in Greece decelerated to 7.9% y-o-y, from 8.6% in the first quarter. Cost growth in Greece is expected to decelerate further to around 7% at the end of the year. Cost growth for the Group stood at 22.4%, whereas on a like-for-like basis , it was 16.2%. The opening of 194 new branches and points of sale in «New Europe» in the first six months of 2008, out of the 250 planned for this year, burdened expenses. Nevertheless, the Cost-to-Income ratio for the Greek operations remained at low levels compared to the global standards (41.3%); whereas the ratio for the operations in «New Europe» improved substantially to 65%, from 82.4% in the first six months of 2007. The efficiency ratio for the Group was 48.6% at the end of June 2008. Return on Assets and Shareholders' Equity The strengthening of Group profitability resulted in after tax returns on average Assets and average Equity of 1.2% and 20.5% respectively in the first half of 2008. Capital Adequacy & Bad Debt Provisioning Eurobank EFG is strongly capitalised. At the end of the first half of 2008, the Total risk asset ratio under Basle II stood at 11.3% (I.R.B. approach excluding cap imposed by the Bank of Greece for the first year of implementation), and is much higher than BoG limits. Further, the Core Tier I Ratio remained at high levels and reached 8.8%. Provisions accounted for 1.07% of avg. net loans in the six months of 2008 and covered 83.8% of non-performing loans, a ratio which is among the highest in the Greek market. Coverage of non-collateralized loans stood at 121%. Performance in «New Europe» Notable progress was made in «New Europe» in the first half of 2008. The Group enhanced its presence, by growing the network of branches and points of sales, widening the client base and expanding the offer of products and services. Business expansion remained robust, as the loan portfolio doubled and climbed to euro 13.2bn at the end of the six months. Net loan additions stood at euro 2.2bn in the second quarter of the year, against euro 1.7bn in the first quarter, representing 61% of the Group's net loan additions. Poland had the highest contribution to the net additions in «New Europe» with euro 895m of loans in the second quarter. Loans in Poland and Cyprus, two countries that enjoy macroeconomic stability, account for 43% of new loans outside of Greece. Results in deposit gathering were particularly positive, as customer deposits advanced by 94.2% y-o-y and amounted to euro 7.6bn at the end of June. New deposits outside of Greece increased by 55% and amounted to euro 1.3bn in the second quarter of the current year. Poland and Cyprus account for 49% of new deposits in the region. Revenues and profits recorded an impressive growth in the first six months of the current year. In particular, total operating income expanded by a remarkable 91.8%, whereas net profit stood almost four times higher to euro 83m. Net profit reached euro 46m in the second quarter and was 28% higher than the first quarter. Results in all countries of «New Europe» were particularly strong. In Romania, profits were three times higher compared to the first half of 2007 and escalated to euro 23m; in Bulgaria profits rose by 78% y-o-y to euro 36m and in Serbia more than doubled to euro 18m. Poland had a positive contribution of euro 7.5m to Group profitability, two years after Polbank EFG commenced its operations in the country, whereas the Ukraine is expected to turn profitable in the first quarter of 2009. Despite turbulent conditions in the equities market, results of the bank and the brokerage company in Turkey were very strong, as profits in total doubled to euro 16m. The continued financial sector crisis, rising oil and commodity prices, increasing inflation and fears of economic slowdown resulted in high volatility for the global capital markets. In this difficult environment certain business lines have been adversely affected, notably equity brokerage, asset management, insurance and equity related trading activities. Moreover, the rising funding costs have also contributed to significant loss of income. It is estimated that the foregone market-related earnings and extra funding costs to be about euro 100m after tax. As the market conditions are not expected to improve in any substantial way for the remaining of the year, the profit target for 2008 is revised by these euro 100m or about 10% to euro 930m. It is expected that normalization of the global markets will facilitate the recovery of lost market - related income, given the strong franchise of the Group in asset management, brokerage and other related activities. Despite the anticipated recovery, the medium-term profitability target is also revised by the 2008 setback of euro 100m in order to be moderate. Thus, the 2010 net profit target has been adjusted downwards to at least euro 1,450m, without factoring in the above mentioned potential improvements in market conditions. Based on the above, the new targets are both realistic and achievable. «New Europe», based on higher than expected mid-year results, is well on track to exceed the target of euro 170m profits in 2008. Although the accelerated profit generation of the region could justify an upwards revision to the 2010 target, the «New Europe» profit target of at least euro 550m is maintained to err on the side of caution. The Group continues to implement its business plan for consolidation of its position in Greece and further expansion in the wider region of «New Europe» without compromises, focusing on credit risk management, cost containment and more efficient utilization of the capital.
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