BRD Group’s net profit down 27 percent in Q1 2019 to RON 301 million

Aurel Dragan 03/05/2019 | 12:29

The BRD Group recorded a net profit of RON 301 million in the first quarter, down 27 percent from the same period last year, as a result of the decrease in the cost of the positive risk and the increase of the regulatory costs.

“In the first quarter of the year, BRD continued to grow lending on both retail and corporate segments, and increased transaction volumes while improving operational performance. In the future, we will continue to build on our strong franchise, actively financing the projects and activities of all economic actors, and prioritizing improving customer experience by enhancing digital innovation and further streamlining processes,” said Francois Bloch, general manager of BRD Groupe Societe Generale.

According to the communiqué, the credit market in Romania grew at a strong pace (+6.9 percent in annual dynamics at the end of February 2019), supported by both segments, households and companies. Deposits increased by 7 percent in annual dynamics, driven in particular by individuals who benefited from the continued positive trend in disposable income.

In this favorable but competitive banking landscape, net loans, including leasing receivables, grew by 4.1 percent compared to the end of March 2018. Retail credit growth (+ 3.6 percent) was based on the advance consumer and housing loans.

At the same time, loans to companies increased by 5.2 percent as compared to the end of March 2018, which was boosted by the large companies segment (+10.4 percent). Factoring operations were worth RON 1.2 billion in the first quarter of 2019 increased by 2.8 percent in annual dynamics. Also, leasing financing increased by 12 percent compared to the first quarter of 2018, with demand in particular being driven by small business segments and small and medium-sized businesses.

Customer deposits were relatively stable in annual dynamics. The 4 percent annual growth in retail deposits was driven by higher inflows into current accounts of individuals (+20 percent) supported by increased disposable income. The Net Loans / Deposits ratio was 69 percent at the end of March 2019, up 3.3 percentage points.

BRD mentions that it has continued to focus on providing the best banking experience to its customers through multiple distribution channels. The Mobile Application MyBRD Mobile now offers Instant Top-up functionality that allows free interbank transfers to customer accounts opened with BRD. In addition, customers can view their account balance and transactions from eight banks in the ContAll account aggregator available within the MyBRD Mobile application.

The number of Internet banking and mobile banking subscribers increased by 18 percent compared to the end of March 2018, the mobile banking adoption rate rising rapidly (the number of MyBRD Mobile subscribers increased 43 percent).

The number of transactions with MyBRD Mobile and MyBRD Net increased by 23 percent compared to the first quarter of 2018. Additionally, the trade relationship intensity improved, the number of individual customers (average number of products per active client) increased to 4.26 from 4.18 at the end of March 2018.

BRD Gross Net Income reached RON 784 million in the first quarter of 2019, up 8.3 percent over the same period of the previous year, benefiting from strong business performance in both retail, retail and corporate sectors. Net interest income recorded a two-digit rise (+10.3 percent) in annual dynamics, combining higher volumes and positive structure changes in a favorable interest rate context. Although volumes grew, net commission income remained relatively stable over the previous year (+0.2 percent), influenced by the increase in price pressure on transactional banking services.

Operational expenditures totaled RON 442 million in the analyzed period, up 14.9 percent (excluding the expenditures related to the Deposit Guarantee Fund and the Resolution Fund), compared to the first quarter of 2018, significantly influenced by the doubling of the cumulated contribution to Guarantee and Resolution Funds compared to the amount registered last year (RON 72 million in 2019, compared to RON 35 million in 2018). In a tense labor market context, with record low unemployment rates, staff costs remained under pressure, up 8.6 percent in annual dynamics, explained by wage increases and other benefits.

The “Other Expenditure” chapter jumped 2.5 percent from the same period last year, while the cost / income ratio reached 56.4 percent, compared with 53.2 percent in the first quarter of 2018.

Gross operating result recorded an increase of 10.7 percent in Q1 2019, compared with the first quarter of 2018.

According to the cited source, the quality of the loan portfolio continued to improve, reflected by the fall in the bad debt ratio (as defined by ABE) to 4 percent at the end of March 2019, compared with 6.4 percent at the end of March 2018, driven by write-offs and sales of non-performing loans, aggregated with credit growth.

The coverage ratio of non-performing loans remained at 75.1 percent at the end of March 2019, compared with 75.4 percent in the same year-ago period. The net cost of the risk was again positive in the first three months of the year, totaling RON 26 million, compared to RON 153 million in the first quarter of 2018, with a decrease in the exceptional elements and lower recoveries from non-performing loans.

Net profit decreased

In this context, the BRD Group net profit reached RON 301 million between January and March 2019, compared to RON 414 million in the first quarter of 2018, as a result of the decrease in the cost of positive risk and the increase in regulatory costs. Return on equity reached 15.4 percent in the first quarter of 2019 (compared with 22 percent in the first quarter of 2018).

Starting with the fiscal year 2019, a tax on certain financial assets for banking institutions was imposed by Government Emergency Ordinance no. 19/2019. Excluding possible incentives, BRD estimates a tax on financial assets for the fiscal year 2019 of RON 79 million (RON 67 million, net of tax on profit).

BRD’s capital position remained robust, with the solvency ratio reaching 19.7 percent at the end of March 2019 (compared with 19.3 percent at the end of March 2018, individually, according to Basel 3, net of dividends approved under general meeting of shareholders), significantly above the regulatory requirements.

BRD – Groupe Societe Generale has a network of 723 units and occupies an important position on the Romanian card market, with approximately 2.4 million cards and an acceptance network of about 27,000 POS and more than 1,600 ATMs. The total assets of the bank at the end of March 2019 amounted to RON 54.4 billion.

BRD is part of the Societe Generale Group, one of the largest European financial services groups. The Group has 147,000 employees in 67 countries and over 31 million clients worldwide.

Societe Generale’s net profit down 26 pct.

The French banking group Societe Generale, also present on the Romanian market, reported a 26 percent drop in net profit in the first quarter on Friday after weak earnings in 2018 caused the third largest French bank to start a restructuring plan.

In the first three months of this year Societe Generale posted a net profit of EUR 631 million, while net banking revenues declined by 1.6 percent to EUR 6.19 billion. Analysts interviewed by Infront Data, cited by Reuters, bet on a net profit of EUR 670 million and revenues of EUR 6.07 billion.

Last month, Societe Generale unveiled a restructuring plan that includes the elimination of 1,600 jobs and the sale of assets. According to General Manager, Frederic Oudea, the restructuring plan is starting to show its results.

“We can fine-tune business where needed. Increasing the financial soundness of banks should reassure investors,” Frederic Oudea told BFM Business, adding that there are no plans for a bond issue.

Societe Generale focused primarily on improving its solvency ratio, with Common Equity Tier I rising to 11.7 percent in the first quarter from 11.2 percent in the previous quarter.

Under measures to improve the solvency ratio, Societe Generale announced the sale of its division in Slovenia to the Hungarian banking group OTP Bank. The French banking group will record a loss of EUR 67 million from this sale, but will improve its balance sheet by reducing its risky assets by EUR 2.3 billion.

Like other major European banks, Societe Generale has trouble raising its profits, with low interest rates on revenue generated by retail banking, while investment banking operations are vulnerable to volatility in financial markets.

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