Caixa Económica Montepio Geral : Consolidated Activity Results - 1st Half 2017 (PDF)

CAIXA ECONÓMICA MONTEPIO GERAL CONSOLIDATED RESULTS As at 30 June 2017

Lisbon, 26 July 2017

(year-on-year changes, unless when stated otherwise)

Unaudited financial information

This document is a free translation into English of the original Portuguese version. Due to the complexities of language translation, translations are not always precise. In case of doubt or misinterpretation the Portuguese version will prevail.

HIGHLIGHTS

• Consolidated net income of €13Mn, representing an increase of +€80.7Mn;

• The results of the 1st half 2017 incorporate context costs in an amount of

  €25.2Mn, related to the contributions to the Resolution Funds, the banking sector and to the Deposit Guarantee Fund;

• Core net operating income1of €198.5Mn, an increase of 25.7%, with the net interest income rising 28.3% and the commissions 19.5%;

• Improvement of operational efficiency, with the Cost to Income ratio 2at 55.2%;

• Reduction in the cost of risk to 86bp, less 33bp when compared to Dec-16, maintaining the coverage of the credit risk at 118.4%;

• Stable liquidity position - the LCR3ratio reached 129.5%, the all-time high since its implementation and 49.5 percentage points above the minimum regulatory requirement of 80%;

• Corecapital ratio (CET14) increased to 12.6%, benefiting from the reduction of the risk-weighted assets (RWAs) in €1,255Mn and the capital increase of

  €250Mn;

• Capital ratios do not incorporate the estimated effect of + 50bp concerning the adherence to the deferred tax assets (DTAs) regime;

• CEMG has been reinforcing the focus on Social Economy, as well as through various initiatives in the area of social responsibility, contributing to the market share of total deposits in this segment to be above 14%.

RESULTS Net income improves to €13Mn	Net income increased by €80.7Mn, to €13Mn, based on the recovery of the commercial activity results (the core business) and on the improvement the operational structure efficiency; Net interest income registered a28.3% growth, when compared to the same period of the previous year, supported by the cost of funding reduction, namely the cost of term deposits; Net Commissions rose by 19.5%, to €55.2Mn, benefiting from the favourable impact of the adequacy of the cost of the services provided and the better business dynamics; Core net operating income1increased €40.6Mn (+ 25.7%), boosted by the positive performance of the core business; Operating Costs5fell 9.6%, reflecting the impact of the human resources management achieved in 2016 and the synergies obtained in the external supplies and services.
ASSET QUALITY Sustained reduction in the cost of risk	Reduction of the cost of credit risk to 86bp,-33bp when compared to 119bp recorded in Dec-2016, reflecting the higher prudence in the lending policy; Reduction of 43.5% of the entries of new loans in default, showing an improvement of context; Decrease of the credit at risk ratio in 49bp, standing at 15.1%; Coverage of the credit risk by 118.4% taking into consideration the impairments and the related mortgage real estate collateral.

LIQUIDITY Stable liquidity position

Stable liquidity position, with the LCR3ratio at 129.5%, 49.5 p.p. Customer Deposits totaled €11.6Mn (+€36Mn when compared to Mar-17), continuing to represent the main source of funding (63% of the total); Reduction of the ECB exposure in €171Mn (-6.0%) and €125Mn in relation to the position as of the end of the previous quarter (-4.4%). above the minimum regulatory requirement of 80%;

CAPITAL Solid capital position

The core capital ratio (CET14)rose to 12.6% and the Total Capital The capital position strengthening incorporates the positive effects of the ratio4to 12.9% (+ 235bp and 198bp, respectively, when compared to Jun- 16); €250Mn increase of the institutional capital and the risk-weighted adjusted assets reduction to €12,202Mn (-€1,255Mn when compared to Jun-16).

1 Net Interest Income + Net Commissions2 Operating costs / Net operating income3 LCR -Liquidity Coverage Ratio

4 According to the CRD IV/CRRPhasing-in

5 Excluding the impacts associated with the resizing of the operational structure program

RESULTS

CEMG achieved a positive net income of €13Mn in the first half of 2017, which compares to the negative result of -€67.6MMn in the same period of the previous year. Three different effects were the main contributors for this evolution:

• The net interest income increase of €31.6Mn (+28.3%);

• The net commissions increase of €9.0Mn (+19.5%);

  Caixa Económica Montepio Geral, Savings bank, entity with the capital open to public investment, Headquarters: Rua Áurea, 219 to 241, 1100-062 Lisbon Institutional capital: 2,020,000,000 Euros, registered at the commercial registry of Lisbon under the single registration number and tax ID 500792615

• The operating costs reduction of €14.6Mn (-9.6%).

The net interest margin stood at €143.3Mn in the first half of 2017, compared with €111.7Mn in the same period of the previous year. This performance was achieved by the reduction of the funding costs, including the cost of term deposits, and the income increase obtained from the securities portfolio.

Commissions amounted to €55.2Mn in the first six months of 2017, representing an increase of 19.5% when compared to the value of the same period of the previous year, as a consequence of the favorable impact from the pricing revision as well as the better business dynamics.

These favorable performances determined the increase of 25.7% in the core net operating income1during the first six months of 2017.

The results from financial operations amounted to €26.6Mn, an increase of €13.8Mn when compared to the value of the same period of the previous year, benefiting from the realization of capital gains on the sovereign debt portfolio.

Operating costs in the first half of 2017 decreased by 9.6% 2, reaching €137.2Mn, to which contributed the rationalization process of the operational platform, providing improved operational efficiency and allowing the Cost to Income ratio to be reduced to 55.2%.

The cost of credit risk was reduced to 0.86%, compared to 1.19% recorded in the year of 2016 as a result of the rigorous policy in credit granting. Total impairments and provisions decreased by 24.9% when compared to the same period of the previous year, standing at €89.1Mn.

The CEMG Group's international activity is developed in three jurisdictions: Angola, Mozambique and Cape Verde. In Angola, the net income of Finibanco soared 19%, reaching €7.4Mn in the 1st half of 2017, which compares with €6.2Mn in the 1st semester of 2016. In Mozambique, the BTM presented a marginally negative net income of €32,000 in the 1st half of 2017, as compared with a negative net income of €61,000 in 1st half of 2016. In Cape Verde, Banco MG Cabo Verde presented a negative net income of €71,400 in the first half of 2017, as compared with a negative net income of €40,800 as of 30 June 2016.

1 Net Interest Income + Net Commissions

2 On a comparable basis. As reported, the variation amounts to -25.4%

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CEMG - Consolidated Results first half of 2017 montepio.pt