Idea Bank : has come to terms with the past and is in talks with investors

30.04.2019

• Idea Bank is implementing a strategy aimed at restoring its capital ratios
• Idea Bank has prepared strategy scenarios to provide capital injection for the Bank and alternatively for the Bank merged with GNB
• Potential investors are carrying out a due diligence based on Idea Bank's 2018 results
• The Bank has a strong liquidity position, its LCR as at 26 April 2019 was 227.5%
• The consolidated loss of PLN 1,892 million published for 2018 consisted mainly of one-off elements, including:

- write-offs concerning Tax Care and Idea Money goodwill;

- changes to the expected loss estimation model;

- recognition of an impairment loss for deferred income tax;

- creating provisions for pre-sold insurance and investment products.

In 2018 the Bank cumulated the negative effects of prior years' errors, which impacted both individual and consolidated results. Another element that had an adverse impact on the result was the cost of coping with the liquidity crisis that broke out in November 2018. The Bank believes that the process of dealing with the past in financial terms has ended. Today, Idea is stronger because of those experiences.

'The most difficult year in the history of Idea Bank is behind us.' says Idea Bank's Management Board President, Jerzy Pruski.'In the face of the losses suffered, our main strategic goal is to strengthen our capital ratios and raise profitability. Action is being taken to obtain capital support from an investor and possibly to merge with GNB. We are also considering seeking an investor for the Bank operating independently. The Bank has also prepared an alternative strategy based on reducing the scale of its business and reducing costs. This would help restore the capital ratios to the required level. The Bank believes that those changes will, in a few years' time, enable profitability to be permanently restored based primarily on the development of the lease, term and other deposit and savings account offer.' emphasized Idea Bank's President.

At the end of 2018, Idea Bank noted an individual loss of PLN 1,614 million and a consolidated loss of PLN 1,892 million. This high loss was due largely to the need to create provisions and creating write-offs for the Group's receivables and other assets, including positive goodwill. The write-offs concerned in particular:

• subsidiaries and affiliates (PLN 553 million);
• credit risk - as a result of a review and change of the loss estimation model (PLN 407 million);
• valuation allowance for deferred tax assets (PLN 399 million);
• creating a provision for return of commission on insurance products linked to loan agreements (PLN 358 million).

Most of the provisions and write-offs on receivables were one-off and originated in the past.

'The bank's balance sheet must be carefully audited and all past issues must be made public in order for us to be able to speak of a new beginning at Idea Bank. This process entails high costs. We must tackle this in order to be credible - for the market, the investors, and the shareholders.' commented Piotr Miałkowski, Idea Bank's Management Board member in charge of finance.

Idea Bank is gradually implementing a new business model based on safe products and a light, low-cost organizational structure, which is possible due to new IT technologies and online banking solutions. The Bank is constantly expanding its offer by products addressed to small and medium-sized enterprises (e.g. the integration of Idea Cloud internet banking with a platform for servicing electronic invoices - Chmura Faktur, payment terminals #Ideapay or Idea Spot project). The Bank has also improved the safety of internet banking by introducing the IBM Trusteer system.

'The team that manages the Bank today has undertaken an extremely difficult task. Our task is to prepare Idea Bank for a complex transaction aimed at strengthening its capital and restoring profitability. Today, we have come to terms with the past and are leaving it behind. The second important element of the project is the restructuring, implementation of a new business model, which will enable the Bank to grow organically thanks to the stable expansion of its client base. Both those processes are being carried out simultaneously and in close contact with the supervisory authority.' says Mr. Pruski.