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Banco PopularFrancisco Sancha
CFO
UBS Financials ConferenceNYC, May 20th, 2014
Disclaimer
This presentation has been prepared by Banco Popular Español solely for purposes ofinformation. It may contain estimates and forecasts with respect to the future developmentof the business and to the financial results of the Banco Popular Group, which stem from theexpectations of the Banco Popular Group and which, by their very nature, are exposed tofactors, risks and circumstances that could affect the financial results in such a way that theymight not coincide with such estimates and forecasts. These factors include, but are notrestricted to, (i) changes in interest rates, exchange rates or any other financial variables,both on the domestic as well as on the international securities markets, (ii) the economic,political, social or regulatory situation, and (iii) competitive pressures. In the event that suchfactors or other similar factors were to cause the financial results to differ from the estimatesand forecasts contained in this presentation, or were to bring about changes in the strategyof the Banco Popular Group, Banco Popular does not undertake to publicly revise the contentof this presentation.
This presentation contains summarised information and may contain unaudited information.In no case shall its content constitute an offer, invitation or recommendation to subscribe oracquire any security whatsoever, nor is it intended to serve as a basis for any contract orcommitment whatsoever.
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Agenda
3
1. Capital position for the upcoming AQR / Stress Test
2. The road to recovery of profitability
3. Conclusions
Over the past few years, Spanish Banks have faced a severe regulatory environment
4
2009 - 2012 2013 2014
AQR
Financial assistance program
Restructuring Public recapitalisations
SAREB
OW Stress Test
Banking Union
Royal Decree Law 2/2012 RE exposure
CRD IV/ CRRRoyal Decree
2/2011 recapitalisation
Stress test
Stress Test EBA
Popular has heavily reinforced its capital base and provisions since the beginning of the crisis
5
6.5
7.2
8.6
9.410.0 10.1
11.2 11.2
2007 2008 2009 2010 2011 2012 2013 1Q14
(1) BIS 3 Phased in CET 1 including MCNs stress test eligible(2) Write-offs included
Banco Popular’s core capital evolution
2.03.0
4.0
7.0
9.0
19.0
21.3 21.7
2007 2008 2009 2010 2011 2012 2013 1Q14
Banco Popular’s cumulative provisions 2007-2013 (2)
(€, Bn)(%)
Cumulative provisions +€19 Bn
BIS 3 Fully loaded: 10.3%
(1)
During 2013, Banco Popular has done several measures to prepare itself for the upcoming AQR & Stress Test
(1) SMEs treatment, DTAs monetization & deleveraging6
2013 capital measures1
Additional measures 2
+ Pre-provision profit excess in 2013 over OW (net of taxes) > €399M
+ 2013 Capital gains (net of goodwill and taxes) > €533M
+ ABB in 2013 > €450M
+ New measures in RWAs, DTAs & others (1) > €1,049M
€2.4Bn additional
capital generated over OW’ s/test requirements
ECB reduction in almost 79% since 4Q12
Reduction of the sovereign portfolio
Frontloading doubtful loans in 4Q13
Heavy provisioning: €2.7 Bn in 2013
While new macro assumptions for the upcoming EBA Stress Test are harsh but realistic3
Total Base Total Adverse Delta
GDPEBA’14 4,9% -1,2% -6,1%OW -1,7% -6,5% -4,8%
Unemployment EBA’14 23,2% 27,1% +3,9%OW 23,4% 27,2% +3,8%
Housing pricesEBA’14 -8,2% -9,5% -1,3%OW -9,9% -26,4% -16,3%
GDP
Unemployment
Housing prices
7
As a consequence, we have a sound capital position under all ratios
7
10.67%Common Equity Tier 1
(phased in)
10.28%CET 1 Fully Loaded
(with MCNs Stress Test eligible)
Leverage Ratio 6.18%
11.18%Common Equity Tier 1
(phased in, with MCNs Stress
Test eligible)
…while maintaining the highest quality capital with very low leverage
RWAs/Total Assets (%)(1)(2)
CRD IV fully loaded leverage ratio (%)(1)
(1) Banks: Barclays, BBVA, BNP Paribas, BPI, Caixabank, CASA, Commerzbank, Danske, Deutsche Bank, DNB, ING, KBC, Lloyds, Nordea, RBS, SEB, Societe Generale, Swedbank(2) Basel 2.5 RWAs as reported by each bank 8
Average (ex Popular): 4.07%
Average (ex Popular): 32.8%
Agenda
9
1. Capital position for the upcoming AQR / Stress Test
2. The road to recovery of profitability
3. Conclusions
10
Top priorities
Intensify our business model
Margins management
NPAs management
2014-15
The current environment presents challenges but also opportunities. In light of this, the bank’s main priorities are:
No need to change business model
Reinforce our leading SME franchise
Cost of deposits will drive NIM expansion
Asset yields stable
Steady improvement of customer spread
NPL already falling
Increasing the pace of RE sales
Incorporation of a RE specialized unit tounwind this exposure in an orderly way
1
2
3
Highly profitable business model through leadership in retail/SME banking, tested due to the crisis
11
Pre-provision profit evolution
(€, Bn)
2.9% 2.6% 2.7% 2.6% 2.6% 2.9% 2.2% 1.7% 1.9% 1.9%
Capital gains evolution & main JV
0.30.5
0.6 0.60.5
1.3
2008 2009 2010 2011 2012 2013
2010 2012
2013
2011
Main JVs
% Pre-provision over net loans
Note: Banco Popular and Pastor aggregated data through 2010, Banco Popular and Pastor pro-forma data for 2011, and Banco Popular consolidated data for 2013
1.82.0
2.42.7
2.9
3.5
2.5
1.9 2.0 2.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Leadership in cost management (efficiency ratio of ~44.4%)
Highest net interest margin over ATAs among peers: 1.46% vs. 1.22% average ex Popular
>€2.0 billion average yearly pre-provision profit (last 10 years) demonstrating capacity to generate a high and recurrent pre-
provision profit, reinforced by a strong track record of generating capital gains with reliable partners
1 Our Business Model
9.42%
21.10%
12.11%
18.15%18.75%18.09%
11.02%
16.35%
10.99%
7.19%
2010 2011 2012 2013 1Q14
2.6x
Proven profitable business model focused on SMEs
SME market share clearly above other segments…
16.0%
3.5%
6.2%
SMEs and Self-employed
Individuals
Branches
(1)
(1) Market share based on SME loan volume according to Oliver Wyman report (2012)
17%43%
82%
83%57%
18%
Customers ATAs Gross operatingprofit
SMEs and self employed Rest
…SMEs is the most profitable segment
Loans to SMEs & corporates market share evolution ICO official credit lines market share evolution
Source: ICO. Banks: BBVA, Sabadell , Caixabank & Santander . Corporate deals included proforma12
Bank 1
Bank 2Bank 3
Bank 4
+87%
6%
11%
2007 2013
(2)
(2) % over retail gross operating profit
1 Our Business Model
This unique SMEs specialized business model is based on expertise that cannot be improvised overnight
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SMEs & self employed
50.7%
Corporates14.8%
Other34.5%
5 pillars5 pillars
Branchnetwork
Product
Riskmanagement
Operationalmanagement
HH.RR.
Strategy based on profitable
growth
“Tailored” products
and prices
High quality, quick-response service. Lower expected loss than peers
Strong SME culture
Efficiency
Loans by segment Key management pillars of SME model
(% over total core lending book)
Focus onclients
1 Our Business Model
Data as of 31/03/2014
Maturities profile and repricing of time deposits
% over total maturities
31.4%
13.4%10.9%
29.2%
Cost of maturities ( % )
15.1%
Time deposits cost evolution
(Quarterly average %)
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(€, million)
Note: From January 1st 2014, due to the entry into force of IFRS 11, the equity method is applied to jointly controlled entities. For comparative purposes, this criterion has been applied to information concerning the financial year 2013.
The improvement in time deposits will drive NIM expansion in coming quarters
2 Margins management
Current yields in core segments still above back book. Current pricing environment in both deposits and assets will allow us to improve our customer spread considerably
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1Q14 Frontbook vs Backbook yields by segment
(%)
2 Margins management
3.583.08
4.98
3.74
4.77
5.98
Corporates Individuals SMEs & selfemployed
Back book Front book
1.37
2.74
3.74 3.88
2.25
1.87 1.92
2.62
1Q11 1Q12 1Q13 1Q14
Front book Back book
Frontbook vs Backbook customer spreads
Quarterly average (%)
We maintain not only the highest margins but also of a higher quality
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2 Margins management
Lower contribution from carry trade1Q14 Securities portfolio yield
Higher margins than peers1Q14 NIM Comparison
(%)
1.46%1.27% 1.22% 1.22% 1.20%
Bank 1 Average exPOP
Bank 2 Bank 3
(%)
2.12
3.41 3.48 3.50 3.61
Bank 1 Bank 3 Average exPOP
Bank 2
Banks: Sabadell, Bankinter and Caixabank. Source: 1Q14 results
High quality revenues1Q14 revenues composition
(%)
695 836455 540
1,425
2,276
-132
2008 2009 2010 2011 2012 2013 1Q14
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In 1Q14 we saw the first negative net entries of NPLs since the beginning of the crisis
(€ million)
Net entries evolution
(1)
(1) Adjusting the effect of Banco Pastor consolidation
Note: From January 1st 2014, due to the entry into force of IFRS 11, the equity method is applied to jointly controlled entities. For comparative purposes, this criterion has been applied to information concerning the financial year 2013.
3 NPAs management
17,315
3,743
Stock Mar 14
Non performing loans
Subjective doubtful loans
This positive trend coupled with the substantial provisioning effort made during the crisis and conservative NPL recognition should allow us to gradually normalize the cost of risk
Total provisions over risks(1)NPL and Doubtful 1Q14
100% still performing
(%)(€, millions)
13.2% 13.5%
1Q13 1Q14
(1) Credit, guarantees, write-offs and repossessed.
18
33 bp
82%
18%
3 NPAs management
398
774
2012 2013 2014E
119
Jan-14 Feb-14 Mar-14
75
248
1Q13 1Q14
Real estate sales are in line with the 2014 target and above book value
+3.3x
Real Estate Assets Sales (€ million) Real Estate Assets Sales (€ million)
(€, millions) c. 2x
c. 2x
3 NPAs management
Sales split by regionSales Mix 1Q14
(%)By nationality By product
30%
6.3%1.3% 0.1%
1% 14%
0.2%
3%
1% 1%
1.3%
16%
5.3%
1% 2.3%
12%
6%
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We continue selling above book value, and the Spanish RE market is showing clear signs of stabilization
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3 NPAs management
Banco Popular’s discount in sales vs. coverage
Prices stabilizing: First quarter with positiveevolution in housing prices (+0.84% QoQ) after 6years of decrease.
Demand increasing on a national level:
number of transactions +14,42% QoQ
Transactions up in 14 of 17 regions
Foreign demand still robust: 12% of total salesto foreign buyers
37%41%
15%20%25%30%35%40%45%
1Q13 2Q13 3Q13 4Q13 1Q14
Discount over book value of sales (gross)
RE assets coverage of sales
Recent trends of Spanish RE market
Source: Colegio de Registradors de la Propiedad.
Agenda
21
1. Capital position for the upcoming AQR / Stress Test
2. The road to recovery of profitability
3. Conclusions
Conclusions
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3
2 We will remain focused on expanding our core SMEs business while reinforcing ourNIM across the coming quarters.
The macroeconomic environment is showing clear signs of improvement.Nonetheless, challenges remain as the economy is still deleveraging and a lowinterest rates environment remains in place
1
The positive NPL trend is confirmed and hopefully maintained over the nextquarters, same as the improvement in REO sales.
4 Recovery of profitability centers on three key variables: Economic recovery, awinning business model and a successful management of margins and NPA’s.
5 After the measures implemented, Banco Popular is well prepared to face theupcoming supervisory assessments
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