Development strategy

1. Development strategy of the Bank Pocztowy Group and its implementation

3 million of clients in 2015 31.12.2013: 1.42 million of clients	1,000 Outlets dedicated to sales in 2015  31.12.2013: 516 outlets	14% consolidated ROE in 2015  2013: 9.6% ROE

 

The Bank Pocztowy Group pursues its strategy based on strategic partnership with PocztaPolska, its strategic shareholder.

In 2013, the Group continued implementation of “Development Strategy of Bank Pocztowy S.A. in 2012-2015” adopted in November 2012.

According to the strategy, the key strategic objectives include:

• 3 million of retail clients and micro-enterprises by the end of 2015;
• consolidated net ROE of 14% in 2015;
• continuing the strategic partnerships with Poczta Polska;
• increasing the Bank’s equity.

Implementation of the strategy should allow achievement of the extremely ambitious goal to serve 3 million retail clients and micro-enterprises by the end of 2015 (at the end of 2013, the Bank served over 1.42 million such clients). The goal is to be achieved through:

• continued fast development of the sales network to reach 1,000 outlets, i.e. 360 Micro-branches and 640 Postal Finance Zones (at the end of 2013, there were 256 and 260 such outlets, respectively) dedicated to sales of bank and insurance products in the network of the Bank and Poczta Polska. The basic network will be supported by sales and service of clients in other outlets of the Bank and Poczta Polska, and the growing in importance modern channels, to include WWW, call center and mobile tools;
• fast winning of clients through offering of an attractive current account with free transfers as an option. The service is addressed in particular to individuals using traditional financial services offered by Poczta Polska;
• activation of Poczta Polska sales network;
• strong acquisition activities aimed at financially excluded individuals (i.e. those not using financial services);
• development measures initiated in the micro-enterprise sector.

Improved profitability and achieving net consolidated ROE of 14% in 2015 is another strategic objective of the Bank. This will be possible among others through an increase in revenue, focusing on most profitable products, optimization of employment and payroll structure, reducing low-efficiency business lines and tight control of operating expenses. The consolidated net ROE for 2013 amounted to 9.6%.

Continuing the strategic partnerships with Poczta Polska is another key element of the strategy. This is achieved among others by sales management synergies (including the Micro-branches and Postal Finance Zones), separation of the financial services function in Poczta Polska Group and development of new technologies.

Further development of the Bank requires increase of its equity. Accumulation of the generated net profit will be the key source of equity increase in the years 2012-2015. Further, the strategy assumes continued increase in equity in the form of additional capitalization (e.g. through IPO or shareholder contributions). The manner and deadline of possible additional capitalization will depend on shareholders’ decisions and favorable market standing. The subordinated debt is used to maintain capital measures on the levels recommended by the regulator.

The Group pursues its strategy maintaining safe levels of equity ratios, i.e. solvency ratio above 12% (12.8% at the end of 2013) and Tier 1 ratio above 9% (9.5% at the end of 2013).

In the retail credit sector, the Bank aims at an increase in the sales of cash loans and maintaining a stable level of sales in mortgage loans. As far as corporate banking is concerned, the Bank plans focusing on development of an offer addressed to micro-enterprises and SME. It is also planning to maintain an attractive offer and development speed in the housing segment.

The Group plans to enhance its loan campaign maintaining a relevant and prudent risk management level. The non-performing loan (NPL) share ratio in the loan portfolio cannot exceed 8% (5.4% at the end of 2013).

The following initiatives are also crucial for the achievement of the strategic objectives:

• development and optimization of IT: plans include replacement of the central system, improvement and development of IT systems and tools with special focus on those supporting sales and client service;
• development of e-banking: improving the functionality and quality of the WWW channel and implementing of mobile solutions;
• implementing of Customer Relationship Management: developing and implementing of client relation building strategy and initiation of cross-selling activities;
• development of the micro-enterprise sector through implementation of new products, in particular loans with a new loan granting process, revitalizing of the distribution network and sorting out the client base.

Since additional capitalization is not available in the fast-changing external conditions (macro-economic situation, regulatory changes), the Bank continues developing of a new development strategy that would determine financial and business objectives for subsequent years, adjusted to the current conditions and optimized in terms of capital.

2. Performance vs. Group’s plans in 2013

The Group had established very ambitious goals for 2013. They included winning about 0.5 million new clients, opening of approx. 400 current accounts, owning 300 operable Micro-branches and efficiency improvement. The continuing macro-economic difficulties and lack of capital, though, disallowed their achievement.

In 2013 Bank Pocztowy attracted nearly 300 thousand new clients. At the same time, following a modification of its product offer regarding personal accounts, aimed at activation of the existing clients (and the related improved efficiency of operation) some clients have left. As a result, at the end of 2013 the number of consumers and microenterprises using our services reached 1.42 million, i.e. by 130 thousand more than in 2012. At the end of 2013 the Group managed 840 thousand current accounts, i.e. 113 thousand more than in the previous year.

At the end of December 2013 Bank Pocztowy S.A. had 256 operating Micro-branches, i.e. 69 more than a year before. The smaller than planned number of new outlets (113) resulted from a decision to verify the available locations for efficiency and to postpone the opening of some of them to 2014.

Due to interest income being lower than planned (mostly due to very low market interest rates) and an increase in the risk costs, the Bank generated a net profit smaller than in the record-hitting 2012 year. This in turn translated into a deteriorated net ROE (from 11.4% in 2012 to 9.6% in 2013).

An increase in revenue and efficient cost optimization policy allowed the Bank an improvement in the cost/income ratio from 74.7% in 2012 to 71.3% in 2013.

3. Directions for development in 2014

In 2014 the Bank will focus on acquiring clients, development of the Micro-branch network and efficiency improvement.

The increase in the number of clients (by approx. 200,000 in 2014) will be achieved in correlation with the high speed of acquiring current accounts. The goals will be supported mostly with product and sales related initiatives, service quality and client relation management projects, implementation of an e-commerce offer integrated with Poczta Polska, further improvement of sales efficiency of Poczta Polska network, continued acquisition and educational measures addressed to "non-banked” and financially excluded individuals, as well as development of the micro-enterprise segment.

The Bank will continue strengthening its relations with clients. To this end, it will continue implementing of CRM strategy, increase the importance of cross-selling, improve functionality and quality of the WWW channel and implement mobile banking solutions.

In cooperation with Poczta Polska, the Bank will continue developing of the banking and postal sales network. It is planning to have 360 operating Micro-branches by the end of 2014. At the same time, it will continue developing of Postal Finance Zones. According to the current plans, by the end of 2014, there should be 600 zones in place. Further, its strategic partnership with Poczta Polska will be demonstrated by synergy in sales management and improved selling processes both in the Bank and Poczta Polska, as well as in integrated development and optimization of IT tools.

An intensified loan campaign in the retail sector in 2014 should reach a two-digit level, with retail deposits as its key funding source. The business development will take place with the safe level of capital and liquidity ratios.

Improved efficiency of operations is among the key tasks of the Bank for 2014. To this end, the Bank will focus on increase in revenue and tightly control operating expenses through incentivizing of sales of most profitable products and focusing on most efficient business lines. The growing share of loans in the asset structure should ensure an improved interest income level. However, despite a projected improvement in macro-economic conditions in 2014, a significant growth in interest income may be hard to generate, among others due to very low market interest rates.

The Bank will continue its attempts to raise additional capital (e.g. through IPO or shareholder contribution) but his will depend on a positive decision of shareholders and favorable market conditions.

The achieving of the goals adopted for 2014 will strongly depend on the external economic conditions, in particular the scale of the economic upturn in Poland.

The Bank continues developing of a new development strategy that would determine financial and business objectives for the subsequent years, adjusted to the current conditions and optimized in terms of capital access.