Alior Bank’s Q3 2017 Financial Results
Net profit significantly above the market consensus: PLN 190 million v. PLN 154 million, and above the highest analyst projection (PLN 172 million).
- ROE (quarterly, annualised) grew sharply from 6.3% in Q2 2017 to 11.7% in Q3 2017; with synergies fully loaded 9M ROE was 11.9% v. 10.7% in Q2 2017 (strategic target for 2019 is 14%).
- Strong growth of gross loans* sustained: PLN 1.4 billion in Q3 2017, PLN 5 billion in 9M 2017 (strategic target at PLN 5-6 billion of annual growth).
- Successful completion of the integration with BPH Core and restructuring. Target synergies up at PLN 381 million v. original estimate of PLN 374 million. Total cost of integration PLN 62 million lower than the original estimate (2016-2017).
- Durable cost reduction ofPLN 55 million in Q3 2017 due to generated synergies and other cost-optimization initiatives.
- Strong capital position to support growth according to the plan, including successful issue of PLN 600 million of subordinated bonds at a record-low margin of 2.7%. A high TCR of 14.1% (v. regulatory minimum of 13.25%) – before the issue of subordinated bonds and a Tier 1 ratio of 12.02% (v. regulatory minimum of 10.25%) excluding the net profit of Q3 2017. An additional capital buffer, available if required, under a guarantee line (an agreement with PZU of 8 November 2017).
- Significant improvement of the Bank’s liquidity position: LCR (liquidity coverage ratio) up to 103% at the end of Q3 (88% at the end of Q2) thanks to a bigger deposit base (+PLN 3 billion). Deposit campaigns (including new savings account “Konto lokacyjne”) focused on acquisition of clients in strategic segments.
Net profit of Alior Bank stood at PLN 190 million in Q3, which was PLN 36 million above the market consensus (PLN 154 million), and well above the highest analysts’ projection (PLN 172 million), up 90 percent more than QoQ.
Alior Bank largely improved its return on equity (ROE) in Q3 2017. ROE was 11.7 percent, compared to 6.3 percent in Q2 2017. 9M’17 ROE with BPH Core synergies fully loaded was 11.9 percent in Q3. This puts Alior Bank close to the target of 14.0 percent expected in 2019 according to the implementation plan of the Digital Disruptor strategy.
Alior Bank maintained a strong growth momentum in Q3 as its gross loan volumes increased by PLN 1.4 billion. 9m’17 Loan growth stood at PLN 5 billion and hit the annual target of PLN 5-6 billion 1-3 2017.
The Bank successfully completed its key restructuring and integration projects following the acquisition of BPH Core and settled the final purchase price. Integration cost was PLN 62 million lower than originally planned for 2016-2017 while synergies expected by 2019 increased to PLN 381 million compared to the original target of PLN 374 million. With the efficient restructuring and integration, the Bank released restructuring provisions of PLN 21 million.
Alior Bank’s operating expenses were subject to durable reduction of PLN 55 million in Q3 2017 due to BPH Core synergies and other cost optimization initiatives.
Bank’s capital position improved among others with a successful issue of subordinated bonds. Bank’s TCR was 14.1% at the end of Q3 2017 (v. regulatory minimum of 13.25%), before the issue of subordinated bonds. Tier 1 ratio was 12.02% (v. regulatory minimum of 10.25%) excluding net profit of Q3 2017.
Bank’s liquidity position improved as its LCR reached 103 percent at the end of Q3 (up from 88 percent at 30 June 2017).
Liquidity improved among others as a result of successful promotion campaigns focused among others on new deposit accounts, targeting the strategic segments of retail customers.
The Bank remained the leader of the Polish banking industry as measured by the net interest margin, which was 4.7 percent in Q1-3 2017. Following the sale of non-performing loans, Alior Bank reduced its cost of risk to 1.7 percent.
“Our financial results, including a high increase of the net profit, a strong return on equity, the highest net interest margin on the market, and a sharp reduction of operating expenses, demonstrate successful implementation of the Digital Disruptor strategy. The strategy’s implementation plan published in early October will help us achieve the goals even faster,” said Filip Gorczyca, CFO and Vice President of the Management Board of Alior Bank.
Based on behavioural segmentation and consumer trends, the Bank added a new account to its retail products in Q3: Konto Jakże Osobiste, which is personalised bank account whose holders can independently configure benefits depending on their current needs and requirements. The launch of the new account is a part of the Bank’s Digital Disruptor strategy, which involves the simplification of the product range according to customer’s needs and expectations.
In October, the Polish Financial Supervision Authority (KNF) approved the prospectus of Alior Bank’s issue programme of ordinary and subordinated bonds up to PLN 1.2 billion of par value. This opens the door for the Bank to raise additional funding and improve its capital position.
With a view to further growth in the segment of business clients, Alior Bank has launched an attractive investment finance product, Pożyczka Szerokopasmowa, under an agreement with Bank Gospodarstwa Krajowego signed last July. The funding is provided under the Operational Programme Digital Poland and from Alior Bank’s own funds. The scheme offers PLN 46 million for telecoms. Preferential funding at interest rates below the market rates is available to SMEs and large companies which are planning to invest in the development, expansion or improvement of telecom networks providing fast internet access.
Alior Bank expanded beyond Poland in Q3 as it opened a branch in Romania. It launched Telekom Banking last October in a strategic partnership with the Romanian telecom operator Telekom Romania (a member of the Deutsche Telekom group). Telekom Banking services will be launched gradually, starting with modern intuitive banking. Clients are offered personal accounts in RON (Romanian Leu), EUR, USD and GBP; debit cards; and access via modern online and mobile banking based on the best-in-class model already used in Poland. The service also includes online FX services, which are new to Romania. Telekom Banking is the first partnership of a bank and a telecom in Romania on such a large scale.
As a part of the long-term vision, the Management Board of Alior Bank approved the implementation plan of the Digital Disruptor Strategy by 2020 in early October. According to the plan, key strategic targets will be achieved earlier than originally expected. Return on equity (ROE) will be 14 percent, cost/income ratio (C/I) 39 percent and the net interest margin (NIM) 5.1 percent as soon as 2019.
Alior Bank has signed a memorandum of understanding with Bank Pekao SA to initiate preliminary negotiations of potential co-operation strategies to be developed in order to grow shareholder value as well as added value for customers.
Strong financial results of Alior Bank and its growing business volumes are broadly appreciated by the Polish business community. The Bank has been named the Company of the Year at the 27th Economic Forum in Krynica held last September. The title was awarded in recognition of Alior Bank’s market success as a bank which has revolutionised Poland’s banking industry since 2008 with a focus on innovation and state-of-the-art technology.
Alior Bank’s share price gained 17% between 30 June and 31 October 2017.
* excluding loan loss provisions, sale of NPLs, Buy-Sell-Back transactions and securitization and including portfolio amortization