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Patria Bank S.A.
Quarterly Report • May 15, 2020
2328_10-q_2020-05-15_1e7c2885-8392-4dd3-b900-9ee5b7c72770.pdf
Quarterly Report
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Quarterly Report for Q1 2020
PATRIA BANK S.A.
March 31, 2020
Report date: 15.05.2020 Company name: PATRIA BANK S.A. Registered office: Bucharest, District 2, 42 Pipera Road, Globalworth Plaza, floors 7, 8 and 10 Phone/fax: 0800 410 310 / +40 372 007 732 Tax identification number: RO 11447021 Trade Register number: J40/9252/2016 Issued and paid-in share capital: RON 311,533,057.50 Regulated market on which the issued shares are traded: Bucharest Stock Exchange - Premium category Main characteristics of the securities issued by the trading company: nominal value of RON 0.1
This version of the accompanying documents is a translation from the original, which was prepared in Romanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views and opinions, the original language version of our report takes precedence over this translation.
Contents
| 1. Disclosure requirements 3 | |
|---|---|
| 2. Executive Summary 3 | |
| 3. Commercial and Operational aspects 3 | |
| 4. Financial-economic ratios (individual level)9 | |
| 5. Financial Results9 | |
| 6. The activity of the Bank's subsidiaries 14 | |
| 7. COVID-19 measures16 | |
| 8. Annexes 17 |
1. Disclosure requirements
This Report meets the disclosure requirements of Law no. 24/2017 on issuers of financial instruments and market operations, Regulation of the Financial Supervisory Authority (FSA) no. 5/2018 on issuers of financial instruments and market operations and Bucharest Stock Exchange Code.
2. Executive Summary
The financial results of Q1 2020 represent an operating profit of RON 3.5 million, increasing by RON 6.8 million compared to the same period of 2019. The net result is a loss of RON 2.4 million similar to Q1 2019 (RON - 2.3 million).
The consolidation of the operational profitability level represents the cumulation of the strategic decisions that the Bank has implemented, materializing in the following financial benchmarks reached in Q1 2020:
- Organic growth on all lines of activity through new loan granted of RON 181 million during Q1 2020, which led to an increase in the portfolio of performing loans by 2%, respectively + RON 36 million compared to December 2019
- Improving the bank's balance sheet structure by increasing the share of net assets in total assets to 53% from 47% in Q1 2019 and 50% in December 2019
- Optimization and reduction of operational expenses by 21%, RON 8.6 million (Q1 2020 vs. Q1 2019)
- Improving the operational result by RON 6.8 million (Q1 2020 vs. Q1 2019) despite the COVID-19 pandemic context.
- The impact in the net result of Q1 2020 of certain market evolutions and customer behavior as a result of the context of the COVID-19 pandemic during March 2020; thus, the Bank reported a net loss of RON 2.4 million, mainly due to non-recurring elements and the impact caused by the COVID-19 pandemic amounting to RON - 3.4 million, without these extraordinary elements the net result at Q1 2020 would have been a net profit of RON 1 million.
Following the analysis of the financial results, the management considers that Patria Bank's activity has already been impacted by the COVID-19 pandemic, but the effects can be mitigated by the measures taken by the bank or by the evolutions of the financial markets or by the economic recovery measures initiated by the Government. The current context brings negative effects, but it can also generate business and development opportunities.
The Bank absorbed the negative impact of Q1 2020, all prudential indicators are above the regulated limits, even without the recent change in the capital amortization requirements, the Bank having resources to support the activity.
3. Commercial and Operational aspects
On commercial level, the Bank continued to be an active and innovative participant in the segment of legal entities that are specific to bank's activity (Agro, Micro-enterprises and SMEs), with addressability both in the urban area as well as in the rural area and to develop the retail segment (individuals), mainly in urban environment and in small cities.
During the first 3 months of 2020 the lending activity generated new loans amounting to approx. RON 180 million, out of which approx 77% for legal entities. It is worth mentioning that a higher dynamics was recorded in the area of individuals, compared with the same period of last year, by consolidating the financing granted in the mortgage area. Although there was a certain pressure generated by the degree of realization of the sales budget, especially due to the decrease of the credit demand determined by the effects of the COVID pandemic, this volume of new loans ensured an increase in the gross balance of commercial performing loans of over RON 36 million compared with year-ended 2019.
Retail lending activity focused both on the mortgage area as well as on the area of personal loans without mortgage, following the Bank's strategy of balancing the secured and unsecured products portfolio, respectively to increase the volume of long-term exposures in the retail sector.
In the area of legal entities, the Bank consolidated the three main directions:
- SME and Small Corporate;
- Microenterprises (MICRO);
- Agribusiness (AGRO).
and the dynamic of the new credit production generated a positive evolution of the balance of the performing loans within all MICRO and SME business sub-segments (the balance of loans for the Agro segment remained largely unchanged).
In the SMEs and Small Corporate sub-segment, the Bank is constantly focusing on the development of the customer base, through personalized offers and developing the quality of the customer relationship, as the main differentiators, along with an adequate response time. As far as the Micro sub-segment is concerned, the strategy to increase the number of small value tickets and to spread the risk to a large number of customers has been strengthened. Thus, approx. 94% of all Micro funding in the first 3 month of 2020 are loan applications worth less than EUR 50,000. In the Agro sub-segment, an important pillar of funding is the financing of EU Funds projects, both in the area of animal as well as vegetal farms.
The Bank's interest in financing companies operating in the field of agriculture is also reiterated through the financing provided through the APIA program and by the financing provided for acquisition of equipment and agricultural land. Based on the guarantees issued by third parties, it is worth noting that Patria Bank remains the second user of FGCR - Fondul de Garantare a Creditului Rural (Romanian Rural Credit Guarantee Fund) guarantees in the banking system.
From the beginning, the Bank positioned itself as a supporter of the business environment, both by quickly initiating a payment deferral own solution and by applying the solution offered by emergency ordinance no. 13. At the same time, the bank reaffirmed its determination to continue the financing of companies that during this period needed additional financial support, observing the risk control criteria, because, especially in the area of small companies, there is an undoubted need to support the cash flow needs and investment projects from the part of financiers.
Patria Bank S.A. – Bucharest, District 2, Globalworth Plaza Building, Pipera no 42, floors 7, 8 and 10; ORC: J40/9252/2016, C.I.F. RO 11447021, RB-PJR-32-045/15.07.1999. Share Capital social: 311.533.057,50 lei; Patria Bank is registered by the National Supervisory Authority for Personal Data Processing – ANSPDCP – with the notification no. 753. Tel: 0800 410 310 | Fax: +40 372 007 732| [email protected] | www.patriabank.ro The penetration of the portfolio with non-credit products was accelerated in the transactional area within the last four quarters, especially facilitating remote transactions, which led to the consolidation of non-risk income, so that in the area of income from operating fees there is an increase that supports positive developments of
fee and commission income vs. the same period of last year: it was recorded, on average, an increase of 37% of unitary income from operational fee and commission per customer and an increase of 61% of unitary income from operational fee and commission per bank unit compared with the same period of last year.
Transactions through the Patria Bank's POS registered a positive dynamic in Q1 2020, both in terms of their number as well as their volume and the revenues generated. The Bank continued the process of financial inclusion of small agricultural producers and traders in the agri-food markets, so that, during all this time, small entrepreneurs were able to expand their range of customers who prefer to purchase products via cards.
In the Micro segment area, an important objective was to provide credited customers with advantageous operational packages. At the end of March 2020, 32% of the portfolio of small and very small customers used an operational package. By default, from this point of view, the operating income has been growing from quarter to quarter.
Regarding the new Internet Banking and Mobile Banking platform, with its launch in September 2019 and the enrollment of active customers (and despite the optimization of the territorial network implemented during 2019), the transactions through the IB Platform increased by 3 % in Q1 2020, vs. the same period last year.
Regarding the card activity, in Q1 2020 vs. the same period of last year, the Bank registered positive results both in terms of the number of transactions made with the cards in the Patria Bank portfolio and in terms of their volume. Also, with the implementation of more focused actions of cross-selling and stimulating the use of cards (and despite the optimization of the territorial network implemented last year), the Bank recorded a 32% increase in the number of transactions performed on average per month / Patria Bank card. Also, the value of the total transactions increased by 9% in Q1 2020 compared to Q1 2019. Details are presented below:
| Cards related indicator | Q1.2019 | Q1.2020 | Variation (%) |
|---|---|---|---|
| Number of total transactions | 448.335 | 456.089 | 102% |
| Total transactions / month / active card | 4 | 5 | 132% |
| Average value per transaction (RON) | 464 | 497 | 107% |
| Active cards (%) | 62% | 63% | 100% |
In terms of the achived level of the net income, an explicit chart is presented below for each business subsegment. It is worth mentioning that revenues in the retail area have decreased as a result of the Bank's decision to close a significant number of business relationships with customers who used the Bank's products and services only occasionally, with the risk of permanently entering into dormant status, the Bank assuming the
development of business relations in the next period only with the specific type of clients considered within the target market.
The state of emergency due to the COVID-19 pandemic was established in the first quarter of the year. This action impacted customer behavior as follows:
- Individuals there was a significant reduction in the appetite for indebtedness, especially for the acquisition of real estate (mortgages), as well as durable goods of higher value (consumer loans). The trend is manifested by a reorientation of consumer behavior mainly towards basic products: food, medical, cleaning and personal hygiene. In addition, over 1 million people had diminished incomes (through unemployment, technical unemployment, restructuring, temporary salary reductions, unpaid leave etc.) which led to a decrease in consumer appetite.
- Micro and SME & Corporate there was a significant reduction in indebtedness, both due to the establishment of the state of emergency that partially or completely closed a series of commercial activities; the investment appetite has disappeared and short-term financing needs have decreased significantly
- Agro there was an attenuated impact for large-scale agriculture and for the one which had the connection to the distribution system in the food chain; more affected was the area of very small agriculture, especially vegetable growing on very small areas which faced the impossibility of delivering the production to the final beneficiaries, due to logistical difficulties.
The current context has determined measures to support the economy and to restart the economy undertaken by the Romanian Government. Thus, the "IMM INVEST" program was launched, in which Patria Bank will also
participate. The pandemic also brings a leap in digitization and the use of alternative channels; thus more customers will join alternative channels and digitized banking services.
Throughout this period since the start of the COVID pandemic, the Bank has been concerned with supporting the financial needs of customers, both by allocating dedicated resources so that the payment deferral process is carried out quickly and by supporting new financing, depending of the immediate needs of the clients, with the careful control of the risk management. Thus, Patria Bank received a number of requests for deferred payments from a percentage of approximately 11% of the total credited customers. Of these, about 92% of applications were approved. Patria Bank also kept the entire network of units open during the crisis to ensure continuity of customer service.
The Bank was one of the first promoters of the IMM Invest government program and was an active player in explaining and detailing the program to the existing portfolio of clients and to potential clients and we anticipate that the high number of applications received will increase credit exposure until the end of the year.
At the same time, the Bank has initiated the necessary procedures to increase the guarantee programs developed in partnership with the European Investment Fund and the European Commission and it is investigating the possibility of participating in any other new projects and initiatives that may contribute to supporting the business environment.
In addition, the Bank analyzed the ability to further expand its partnerships with brokers and economic entities that provide leads, so that Patria Bank can contribute even more to financial intermediation, in the context in which this period may determine additional difficulties in meeting the demand and supply of credit in the system.
Operationally, during Q1 2020 the Bank continued the processes of optimization and digitization accordingly to the objectives set out in the business plan and the Budget for 2020, the main investments in the Bank's development activity being made as follows:
I. Projects completed during Q1 2020
- The Law 129 on preventing and combating money laundering and terrorist financing, implementing the new provisions on preventing and combating money laundering, among the most important being: Extension of the customer definition term, Monitoring transactions in order to report suspicious transactions, Mandatory reporting on external transfers in/from accounts and cash transactions
- Strong Customer Authentication (issuance and acceptance) that allows customers to access online services easily and securely and to made transactions on all digital channels, adding a second authentication factor
- Contract Management Platform, Auctions and Suppliers Portal automated management solution for documents and records, offering complete control over the entire contract management process with the Bank's suppliers
• Implementation of the New management module for physical documents archive - implementation of a unitary system for setting up archive files (paper documents) specific to the lending activity; administration, monitoring and centralized control of the entire archiving flow from the establishment of the archive file, transport and entry in the centralized Archive of the bank as well as the inflows / outflows of the files / documents from the archive.
II. Projects initiated and in different stages of implementation
- Internet Banking Platform permanent development and improvement
- Implementation of instant credit transfer (payment) services Instant Payments. Local payments of small value < RON 50,000 that can be made non-stop (24/7/365), the transferred funds reaching the beneficiary's account in less than 10 seconds. The service will be offered to individuals and legal entities and transfers will be possible only to the other member banks of the payment scheme implemented by Transfond
- e-Seizures as a result of the collaboration between ANAF and ARB, a general protocol and an individual framework convention were elaborated, following which the relationship between the Bank and ANAF will be in electronic format regarding the seizure management
- Access to fully automated cash operations (by installing multifunctional devices) simultaneously with the implementation of a new branch concept
- Optimization of internal flows and processes on the card area streamlining the operations of management of card products at the branch level
- Improving and digitizing the Partner lead takeover processes it is used to take over the leads from all the bank's distribution channels and the primary checks are redirected to the Call Center; thus, the process of granting loans to individuals is optimized by performing an initial filtering of potential clients
- Improving the credit flows on the Legal Entities segment (MICRO and AGRO) by optimizing the supporting IT flows, being given priority to the credit products related to the Micro segment
- Implementation of a new rating system by determining and implementing a rating model specific to this very important for the Bank Micro business segment
- Implementation of a specific Guarantee Management Module centralized guarantee management, in a unitary manner that has the immediate effect of an improvement of the control and optimization of their monitoring process, leading to the implementation of a unitary Guarantee Policy at all business levels.
4. Financial-economic ratios (individual level)
| Ratios | 31.mar.20 | 31.dec.19 | 31.mar.19 | |
|---|---|---|---|---|
| 1 | OCR | 16.50% | 17.75% | 15.20% |
| 2 | The potential change of the economic value (EVI / Own Funds) | 7% | 7% | 12% |
| 3 | Loans (gross value) / Customer deposits | 67% | 62% | 61% |
| 4 | Loans (gross value)/Total assets | 57% | 53% | 52% |
| 5 | Liquidity Coverage Ratio (LCR) | 293% | 422% | 444% |
| 6 | Liquid Assets / Total Assets | 36% | 39% | 41% |
| 7 | Debt securities and equity instruments/Total assets | 26% | 26% | 29% |
| 8 | Return on Assets ratio (ROA) | -0.3% | 0.2% | -0.3% |
| 9 | Return on Equity ratio (ROE) | -2.9% | 1.6% | -2.9% |
| 10 | Expense / Income Ratio | 90% | 84% | 109% |
| 11 | Non Performing Loans (NPL) | 12.14% | 11.93% | 14.85% |
| 12 | Non Performing Exposures (NPE) | 10.77% | 9.86% | 12.73% |
| 13 | Coverage NPL - depreciation adjustments (*) | 42% | 40% | 46% |
| 14 | Coverage NPL- depreciation adjustments (**) | 58% | 57% | 63% |
(*) Coverage NPL depreciation adjustments - calculated according to regulatory rules (individual FINREP)
(**) Coverage NPL depreciation adjustments – calculated in order to show the economic coverage of NPL with provisions – as per the presentation for determining the systemic risk buffer
As at March 31, 2020, the OCR is of 16.50% (individual level, exceeding the minimum regulatory level) compared with the level as at March 31, 2019 of 15.20% (individual level). At consolidated level, the OCR as at March 31, 2020 is of 16.15% (exceeding the regulatory level).
The consolidation of the capital base was achieved:
- by the issue of the subordinated bonds amounting to EUR 5 million in September 2019, which were fully subscribed. The subordinated bonds were included in in Tier 2 Equity Funds in October 2019
- by incorporating the audited net financial result of 2019 profit of RON 5.3 million, which consolidated the level of Equity
5. Financial Results
a) The Bank's financial position as at 31.03.2020 compared with 31.03.2019 and 31.12.2019 is as follows:
FINANCIAL POSITION
| -thousands RON | |||||||
|---|---|---|---|---|---|---|---|
| ASSETS | mar.20/ | mar.20/ | mar-20/ mar | mar-20/ | |||
| 31.dec.19 31.mar.20 |
dec.19 (abs.) | dec.19 (%) | 31.mar.19 | 19 (abs.) | mar-19 (%) | ||
| Cash and cash equivalents | 297,041 | 428,495 | (131,454) | (30.7%) | 388,659 | (91,618) | (23.6%) |
| Loans and advances to banks | 5,869 | 5,683 | 186 | 3.3% | 5,868 | 1 | 0.0% |
| Securities | 789,571 | 817,143 | (27,572) | (3.4%) | 950,149 | (160,578) | (16.9%) |
| Investments in subsidiaries | 30,230 | 30,469 | (239) | (0.8%) | 31,628 | (1,398) | (4.4%) |
| Loans and advances to customers, net | 1,631,826 | 1,588,274 | 43,552 | 2.7% | 1,555,548 | 76,278 | 4.9% |
| Other assets | 312,976 | 323,747 | (10,771) | (3.3%) | 361,796 | (48,820) | (13.5%) |
| Total ASSETS | 3,067,513 | 3,193,811 | (126,298) | (4.0%) | 3,293,648 | (226,135) | (6.9%) |
| LIABILITIES | mar.20/ | mar.20/ | mar-20/ mar | mar-20/ | |||
| 31.mar.20 | 31.dec.19 | dec.19 (abs.) | dec.19 (%) | 31.mar.19 | 19 (abs.) | mar-19 (%) |
| dec.19 (abs.) | 19 (abs.) | mar-19 (%) | |||||
|---|---|---|---|---|---|---|---|
| Due to banks & REPO | 16,751 | 18,627 | (1,876) | (10.1%) | 42,532 | (25,781) | (60.6%) |
| Due to customers | 2,612,782 | 2,733,713 | (120,931) | (4.4%) | 2,831,083 | (218,301) | (7.7%) |
| Borrowings and other liabilities (including subordinated debt) |
112,557 | 107,940 | 4,617 | 4.3% | 100,720 | 11,837 | 11.8% |
| Total Liabilities | 2,742,090 | 2,860,280 | (118,190) | (4.1%) | 2,974,335 | (232,245) | (7.8%) |
| Total Equity | 325,423 | 333,531 | (8,108) | (2.4%) | 319,313 | 6,110 | 1.9% |
| Total LIABILITIES AND EQUITY | 3,067,513 | 3,193,811 | (126,298) | (4.0%) | 3,293,648 | (226,135) | (6.9%) |
The evolution of loan portfolio is presented below:
| 31.mar.20 | 31.dec.19 | 31.mar.19 | mar-20/dec-19 | mar-20/mar-19 | |||
|---|---|---|---|---|---|---|---|
| Gross Loans | 1,756,498 | 1,704,309 | 1,722,557 | 52,189 | 3% | 33,942 | 2% |
| Performing loans | 1,531,060 | 1,495,264 | 1,448,260 | 35,796 | 2% | 82,800 | 6% |
| Non-performing loans | 225,438 | 209,045 | 274,296 | 16,393 | 8% | (48,858) | -18% |
| Provisions | (124,674) | (116,035) | (167,009) | (8,639) | 7% | 42,335 | -25% |
| Provisions for performing loans | (23,125) | (25,270) | (26,126) | 2,145 | -8% | 3,001 | -11% |
| Provisions for non-performing loans | (101,549) | (90,765) | (140,883) | (10,784) | 12% | 39,334 | -28% |
| Net loans | 1,631,826 | 1,588,274 | 1,555,548 | 43,552 | 3% | 76,278 | 5% |
| Net performing loans | 1,507,937 | 1,469,994 | 1,422,134 | 37,943 | 3% | 85,803 | 6% |
| Net non-performing loans | 123,889 | 118,279 | 133,414 | 5,610 | 5% | (9,525) | -7% |
• It is noticed a resizing of the balance sheet as a result of the optimization program that the Bank implemented in 2019 - remodeling the territorial units network from a number of 81 units to 46 units that aimed to: improving the balance sheet structure by optimizing the liquidity surplus, increasing the share of loans in total assets and correspondingly decreasing the cost base, thus, the total assets as of March 31, 2020 registered a decrease with 7% compared to March 31, 2019 and 4% compared with December 31, 2019, corresponding to the reduction of Debt due to customers (current accounts and deposits)
- The improvement in the balance sheet structure is highlighted by the loans / deposits ratio that increased from 62% (December 2019) to 67% (March 2020) while the share of loans (gross value) in total assets increased from 53% (December 2019) up to 57% (March 2020)
- The credit portfolio (gross value) registered an increase by RON 52 million (+3 %) compared to December 31, 2019; Compared with March 2019, the gross loans increased with RON 34 million (+2%) but in its structure, the performing portfolio (stage 1 + 2) registered an increase of RON 83 million (+6%) compared to March 31, 2019, while the portfolio of non-performing loans registered a decrease of RON 49 million (-18%) generated by the recoveries made on the non-performing exposures.
- There is a decrease in the liquidity surplus which was partially placed in the increase of commercial loans, but also in the resizing of commercial financing sources in line with the remodeling of the territorial units network
- Decrease in equity by RON 8.1 million (-2.4%) in Q1 2020 compared to the end of 2019 is mainly generated by the negative revaluation of financial assets valued at fair value through other elements of the overall result, the value of these assets being influenced by the effects of the COVID-19 pandemic. The decrease in revaluation reserves was partially recovered in the following period as a result of the appreciation of this portfolio.
b) Income Statement: The main elements compared to the same period of last year
The Bank recorded a positive operating result of RON 3.5 million for the 3 months period of 2020, in a positive dynamic compared to the same period of 2019 loss of RON 3.3 million and a net loss result of RON 2.4 million compared to the net loss of RON 2.3 million recorded in Q1 2019.
The financial result before tax on March 31, 2020 is a loss of RON 1.6 million compared to a loss of RON 2.3 million, the loss being reduced by 31%.
The impact on the net result of Q1 2020 by certain evolutions of the market and the behavior of the clients as a result of the COVID-19 pandemic context during March 2020; thus, the Bank reported a net loss of RON 2.4 million lei mainly due to non-recurring elements and the impact caused by the COVID-19 pandemic amounting to RON - 3.4 million, without these non-recurring elements the net result at Q1 2020 would have been a net profit of RON 1 million.
| FINANCIAL PERFORMANCE STATEMENT | 3 months up to | 3 months up to | Δ 2020/ 2019 | Δ 2020/ |
|---|---|---|---|---|
| -thousands RON | 31.mar.20 | 31.mar.19 | (abs.) | 2019 (%) |
| Net interest income | 26,373 | 27,898 | (1,525) | (5%) |
| Net fees and commission income | 5,720 | 6,347 | (627) | (10%) |
| Net gains from financial activity & other income | 4,020 | 3,754 | 266 | 7% |
| Net banking Income | 36,113 | 37,999 | (1,886) | (5%) |
| Staff costs | (15,199) | (18,261) | 3,062 | (17%) |
| Depreciation and amortization | (5,993) | (5,920) | (73) | 1% |
| Other operating and administrative expenses | (11,463) | (17,113) | 5,650 | (33%) |
| Total operating expense | (32,655) | (41,294) | 8,639 | (21%) |
| Operating Result | 3,458 | (3,295) | 6,753 | (205%) |
| Net impairment of financial assets | (5,052) | 1,001 | (6,053) | (605%) |
| Gain/ (Loss) before tax | (1,594) | (2,294) | 700 | (31%) |
| Expense from deffered tax | (835) | - | (835) | 0% |
| Gain/ (Loss) for the year | (2,429) | (2,294) | (135) | 6% |
| 3 months up tp | 3 months up to | Δ 2020/ 2019 (abs.) |
Δ 2020/ 2019 (%) |
|
|---|---|---|---|---|
| 31.mar.20 | 31.mar.19 | |||
| Interest Income | 37,635 | 37,109 | 526 | 1.4% |
| Loans | 32,192 | 32,459 | (267) | (0.8%) |
| Debt Securities | 4,843 | 4,249 | 593 | 14.0% |
| Other interest earning assets | 601 | 400 | 201 | 50.1% |
| Interest Expenses | (11,262) | (9,210) | (2,052) | 22.3% |
| Due to customers | (10,336) | (8,745) | (1,591) | 18.2% |
| Other interest bearing liabilities | (926) | (465) | (461) | 99.1% |
| Net Interest Income | 26,373 | 27,899 | (1,526) | (5.5%) |
Net banking income registered a 5% decrease compared with the same period of 2019 (RON - 1.9 million), this evolution being due the increase in the cost of financing from commercial sources in line with the evolution of interest rates in the market, but also from the transactional area where the volumes decreased in March due to the pandemic context (COVID-19).
- Interest income registered an increase of 1.4% compared to the same period of 2019, based on the increasing of the loan portfolio granted by the Bank and a higher yield of debt instruments (government bonds) held by the Bank.
- Interest expenses recorded an increase of RON 2 million generated by the increase in the cost of funding which registered an increasing trend, due to the increase of the market interest rates and additional costs related to the subordinated bond issue.
- The net income from fees and commissions registered a decrease of RON 0.6% million, due to decrease of the transactions made by customers in March as a result of the conditions imposed by the pandemic, as well as the remodeling of the territorial units network carried out during 2019.
- Incomes from financial activity and Other incomesregistered an increase of 7% (RON 0.3 million), mainly due to the net income from investments of RON + 1.3 million but considering also a negative impact from the transactional activity that registered negative mark-to-market value for the financial assets held at fair value in the profit or loss account, in line with the evolution of their fair value.
Operational expenses - recorded a contraction of 21% by RON 8.6 million in the first quarter of the current year compared to the same period of the previous year, this being due both to the resizing of the territorial units network during 2019, but also due to streamlining processes and operational flows. The reductions were made both in the area of personnel expenses -17% (RON 3.1 million) and in the administrative costs which decreased by 33% (RON 5.7 million lei) - Q1 2020 vs. Q1 2019.
Expenses with adjustments for the depreciation of financial assets register the level of RON 5 million, higher than in Q1 2019 when the operation of selling non-performing loans was performed. The level of expenses with adjustments for the depreciation of financial assets is below the level assumed in the budget, no negative evolutions towards it being recorded.
The non-recurring elements and the economic impact of the COVID-19 pandemic on the financial results for Q1 2020 are summarized in the table below:
| -RON Thousand | |
|---|---|
| Impact of non-recurring elements & COVID-19 | Q1 2020 |
| Net income from trading (COVID-19 impact) | (1,370) |
| Other adminsitrative and operational costs (COVID-19 impact) | (253) |
| (Expense)/income with adjustments for impairment of financial assets (COVID-19 impact) |
(994) |
| (Expense) with deferred income tax (non-recurring element) | (835) |
| TOTAL IMPACT | (3,451) |
The COVID-19 pandemic caused a decrease in the fair value of financial assets with a direct impact on the bank's profitability, caused additional costs with protection and cleaning materials to protect customers and its own staff and caused additional expenses with loan impairment adjustments.
6. The activity of the Bank's subsidiaries
Patria Credit IFN
Patria Credit is a microfinance institution specialized in lending to small agricultural producers and small businesses in rural areas. The company operates through 14 own agencies, 22 local representatives and a franchise partner and registers a number of approximately 3,000 active clients.
Patria Credit IFN SA has maintained its increasing trend of activity, developing the balance of the loan portfolio at the end of Q1 2020 up to the equivalent of RON 88.8 million, up 22.5% compared to March 2019. The company recorded a profit of over RON 1 million in Q1 2020, down 3% compared to the same period last year, in the context COVID-19 pandemic.
The volume of new loans granted during Q1 2020 register an increase of 16% compared to the achievements of the same period of 2019.
Regarding the credit risk, the company has maintained a prudent and appropriate policy for its risk profile. Thus, Patria Credit IFN SA registered in the first 3 months of 2020 an annualized risk cost of 0.61%, calculated as a ratio between the level of expenses with the loan provisions and the average annual portfolio.
In 2019, Patria Credit laid the foundations of the strategy for digitizing services and the interacting procedure with the company, with gradual implementation over a period of two years.
To this end, in January 2020, the project regarding online solutions for repaying installments was implemented in collaboration with EuPlatesc. Now, Patria Credit customers have the opportunity to pay the rates much easier and faster, directly from the Patria Credit website based on a bank card. To promote the payment of online installments a dedicated page was created on the Patria Credit website.
In March 2020, the project regarding the submission of the loan application through the Patria Credit website was partially implemented, part of the Bank's strategy to facilitate the entire financing process, both by simplifying remote access, which will contribute in the next period both to increase the level of entrepreneurship education as well as by reducing the approval time, while automating pre-decision processes. In this first phase of the project, the possibility for the client to fill in the minimum data (requested product, contact person, customer name, location, phone number, e-mail address), respectively the possibility to download documents from the website and sending the information to an internal e-mail address was implemented.
In March 2020, the new product CREDIT PUNTE TOMATINA was launched. The Tomatina subsidy bridge loan is intended for the beneficiaries of the Program for supporting the tomato product in protected areas, in the maximum amount of RON 10,000, in order to support the establishment of the productions until the collection of state aids. It is worth mentioning that this product appeared as a need identified by customers and Patria Credit IFN is one of the first financiers in the field to implement a concrete pre-financing solution.
Also in Q1 2020, the following were launched:
Patria Bank S.A. – Bucharest, District 2, Globalworth Plaza Building, Pipera no 42, floors 7, 8 and 10; ORC: J40/9252/2016, C.I.F. RO 11447021, RB-PJR-32-045/15.07.1999. Share Capital social: 311.533.057,50 lei; Patria Bank is registered by the National Supervisory Authority for Personal Data Processing – ANSPDCP – with the notification no. 753. Tel: 0800 410 310 | Fax: +40 372 007 732| [email protected] | www.patriabank.ro
- communication campaign for rural small business loans (website, leaflets, online promotion)
- the project of informing the agricultural producers clients for the sale of products (Facebook group for the sale of vegetables and the informative website page).
Patria Credit was awarded in Q1 2020 the Certificate of Compliance with the European Code of Good Conduct for Granting Microcredits, granted by the European Commission, as a recognition of the efforts made in this field in the last 10 years of responsible financing.
Given the context generated by the COVID-19 pandemic, Patria Credit IFN has taken a series of measures to protect customers and employees who are in direct contact in the process of approving, granting and monitoring loans. Thus, among the measures taken in order to limit the impact of COVID-19 we mention:
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- implementation of Emergency Plan in case of pandemic:
- prevention measures in units
- work instructions in case there are persons confirmed with COVID-19 among the employees / clients
- organization and communication plan
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- organization of Telework in the Head Office and territorial units
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- providing the territorial units with panels and protection materials
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- reducing the public relations program
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- COVID-19 information website page: https://www.patriacredit.ro/covid
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- credit application / deferrals of installments or rescheduling online, through the website
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- remote flow for clients mailbox
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- facility for online paying from home of installments: https://www.patriacredit.ro/informatii-utile/plataratelor/plata-cu-cardul
Until now, the lending activity in Patria Credit IFN has not been affected by the situation created by the COVID-19 pandemic, both the installments and the disbursements of loans being close to the objectives set. The institution is constantly following the evolution of the situation on filed and is in permanent contact with the small financed entrepreneurs, in order to be able to react together, quickly, to all the challenges brought by this exceptional situation. In this context, the Institution also assumed the role of supporting the financed businesses, in the sense of initiating and mediating a dedicated online page that connects the offer of small producers (vegetables, bee products etc.) with the demand of individuals in urban areas.
SAI Patria Asset Management
SAI Patria Asset Management is an asset manager fund which on March 31, 2020 manages four open-ended investment funds: Patria Obligatiuni, a fixed income instruments fund in RON, Patria Euro Obligatiuni, a fixed income instruments fund in EUR, Patria Global, a diversified fund In RON and Patria Stock, a stock fund in RON.
At the end of March 2020, the assets managed by SAI Patria Asset Management registered a level of RON 49.37 million, down with 11.1% compared to the level recorded at the end of the Q4 2019.
7. COVID-19 measures
The activity in the first quarter was impacted by the context generated by the Covid -19 pandemic, Patria Bank taking a series of measures to protect employees and customers, while providing flexible support and assistance solutions for all customer segments.
Summarizing the measures taken, they aimed at:
- Measures of support and specific help for clients in difficulty. The bank has made available to customers, since the decree of the state of emergency, its own flexible solutions for deferral of the payment of installments, such as: a) SMEs and Micro entrepreneurs who benefited from revolving financing lines due in the next 3 months and who were not in the process of remedying or restructuring existing loans, they were facilitated to renew these loans; b) SMEs and Micro entrepreneurs directly affected by the reduction of activity could benefit from deferral of payment and rescheduling of rates, according to the specific situation of each; c) individual clients who have been significantly affected by temporary or permanent reductions in income, job loss or serious health problems have been offered appropriate rescheduling solutions for periods of up to 3 months. Subsequently, with the entry into force of OUG 37, the Bank took all necessary steps and ensured a rapid implementation of the new regulations in its own flows, so that customer requests could be resolved as quickly as possible.
- Protection and prevention measures against the spread of the virus to employees. At the level of the territorial units and all the bank's offices, all the necessary individual protection materials were provided (masks, gloves, protective screens), simultaneously with the supplementation of the sanitation measures and the introduction of new rules of interaction with the clients in the unit. All these aimed to carry out the activity continuously and optimally, keeping a proper distance in interaction, along with reducing the public relations program, but maintaining the service of all customers through digital channels (telephone and e-mail). In parallel, the activity through staff rotation, the increase of the activity carried out in the telework system and the flexibility of the work schedule offered an increased degree of confidence and security to the employees to continue the activity in optimal parameters, as well as the maximum limitation of illness among employees.
- Measures to make the customer service channels more flexible and improved. The communication with the clients and the recommendations to use remote trading tools, the card and internet banking were made in a transparent and continuous way through its own website (www.patriabank.ro/covid) and through the use of direct communication channels. Moreover, a number of processes and flows have been optimized in order to facilitate or limit face-to-face interaction during this period, such as: the possibility of extending deposits by a simple phone call and postponing, during the state of emergency, the obligation to be present in bank units for updating personal data.
At the same time, considering the importance of a correct information of the population in the context of uncertainty created by the information circulating in the public space, Patria Bank joined the efforts of the Code for Romania Association and supports the platform www.cineceface.ro. CineCeFace is a digital public information project, made by a team of volunteers from the Code for Romania Task Force, which helps the public to have a clear and correct image about the roles of various actors in Romanian society.
The project is part of the digital solutions platform in the ecosystem developed by the Code for Romania Task Force in partnership with the Romanian Government through the Romanian Digitalization Agency.
• Social responsibility. Out of solidarity for the efforts of the medical system during this period and out of the desire to support the efforts of necessary medical equipment in hospitals and medical centers, Patria Bank donated RON 133,600 to the Daruieste Viata Association. The purchased equipment is distributed by the association according to the identified priorities and the requests sent by the medical units from all over the country.
2020 Forecast including the economic impact generated by the COVID-19 pandemic
Considering the high degree of uncertainty on the economic crisis caused by the pandemic and the side effects on the population and the business environment, the Bank is in the process of analyzing and quantifying the impact on the financial results for the entire year 2020; the Bank's forecast anticipates the following effects:
- Reducing the credit demand with impact on the volume of new loans granted
- Pressure on commercial sources, customers being forced to resort to savings to counteract declining revenues
- The reduction of net operating income caused by the decrease in lending activity in conjunction with a lower trading volume from customers and the decreasing evolution of the interest rate index (ROBOR)
- Operational expenses it is anticipated that their level will be reduced through measures to streamline processes, renegotiation of contracts and optimizations; at the same time, there are categories of costs where their increase is expected to grow due to the conditions and rules imposed by the pandemic.
- Expenses with depreciation adjustments of financial assets a higher level is anticipated considering the difficulties faced by customers
- Equity the potential effect of reducing the initially planned profitability compared to the budget plan could erode the level of own funds together with the volatile impact of the market marking of the securities portfolio which is captured in the revaluation reserves.
The COVID context impacted the bank's activity, the effects being felt especially at the level of decreasing credit volumes in March and April, due on the one hand to the limitations imposed by the state of emergency and, on the other hand, to the decrease of customers' appetite for lending products, against the background of the feeling of uncertainty specific to the period.
8. Annexes
- Statement of Financial Position as of 31.03.2020 for Patria Bank SA (individual)
- Statement of Financial Perfomance for the period ended 31.03.2020 for Patria Bank SA (individual)
NOTE: The present financial statements for Q1 2020 are not audited/reviewed by an independent financial auditor.
General Manager Director, Financial and Accounting Division Daniela Iliescu Georgiana Stanciulescu
ANNEXES
Patria Bank S.A. – Bucharest, District 2, Globalworth Plaza Building, Pipera no 42, floors 7, 8 and 10; ORC: J40/9252/2016, C.I.F. RO 11447021, RB-PJR-32-045/15.07.1999. Share Capital social: 311.533.057,50 lei; Patria Bank is registered by the National Supervisory Authority for Personal Data Processing – ANSPDCP – with the notification no. 753. Tel: 0800 410 310 | Fax: +40 372 007 732| [email protected] | www.patriabank.ro
| STATEMENT OF FINANCIAL POSITION | ||
|---|---|---|
| RON Thousand | ||
| 31-mar-20 | 31-dec-19 | |
| Assets | ||
| Cash and cash equivalents | 297,041 | 428,495 |
| Financial assets held for trading | 16,897 | 31,046 |
| Financial asset measured at fair value through other | ||
| items of comprehensive income | 430,586 | 445,338 |
| Due from other banks | 5,869 | 5,683 |
| Loans and advances to customers | 1,631,826 | 1,588,274 |
| Investments in debt instruments at amortized cost | 342,088 | 340,759 |
| Investment property | 122,873 | 130,100 |
| Repossed Assets | 3,460 | 7,417 |
| Investment in subsidiaries | 30,230 | 30,469 |
| Other financial assets | 8,791 | 8,591 |
| Other assets | 13,692 | 11,197 |
| Deferred tax assets | 17,214 | 16,800 |
| Intangible assets | 43,955 | 44,377 |
| Premises and equipment | 102,991 | 105,265 |
| Total assets | 3,067,513 | 3,193,811 |
| Due to other banks | 16,751 | 18,627 |
| Customer deposits | 2,612,782 | 2,733,713 |
| Other financial liabilities | 48,280 | 47,655 |
| Provisions for other risks, credit commitments and | ||
| financial guarantees | 7,745 | 8,348 |
| Other liabilities | 9,121 | 4,964 |
| Subordinated debt | 47,411 | 46,973 |
| Total liabilities | 2,742,090 | 2,860,280 |
| Equity | ||
| Share capital | 315,829 | 315,829 |
| Merger premium | (67,569) | (67,569) |
| Accumulated losses | (11,174) | (9,595) |
| Revaluation reserve | 45,911 | 52,440 |
| Reserves for general banking risks | 15,301 | 15,301 |
| Statutory legal reserve | 12,447 | 12,447 |
| Other reserves | 14,678 | 14,678 |
| Total equity | 325,423 | 333,531 |
| Total liabilities and equity | 3,067,513 | 3,193,811 |
Patria Bank S.A. – Bucharest, District 2, Globalworth Plaza Building, Pipera no 42, floors 7, 8 and 10; ORC: J40/9252/2016, C.I.F. RO 11447021, RB-PJR-32-045/15.07.1999. Share Capital social: 311.533.057,50 lei; Patria Bank is registered by the National Supervisory Authority for Personal Data Processing – ANSPDCP – with the notification no. 753. Tel: 0800 410 310 | Fax: +40 372 007 732| [email protected] | www.patriabank.ro
STATEMENT OF COMPREHENSIVE INCOME Thousand RON
| 31.mar.20 | 31.mar.19 | |
|---|---|---|
| Interest income | 37,635 | 37,108 |
| Interest expense | (11,262) | (9,210) |
| Net interest income | 26,373 | 27,898 |
| Fee and commission income | 7,139 | 7,492 |
| Fee and commission expense | (1,419) | (1,145) |
| Net fee and commission income | 5,720 | 6,347 |
| Net trading income | (1,365) | 417 |
| Net gains/(losses) from disposal of investments | 1,649 | 333 |
| Net gains/(losses) on derecognition of financial assets measured at amortised cost | (75) | (1,594) |
| Other operating income | 3,811 | 4,598 |
| Net Operating income | 36,113 | 37,999 |
| Staff costs | (15,199) | (18,261) |
| Administrative and other operating expenses | (11,463) | (17,113) |
| Depreciation and amortization | (5,993) (32,655) |
(5,920) (41,294) |
| Operating expenses | ||
| 3,458 | (3,295) | |
| Operational Result | ||
| (5,052) | 1,001 | |
| (Charge) / Release with adjustments for impairment of financial assets | ||
| Loss before tax | (1,594) | (2,294) |
| (Expenses) / income with deferred tax | (835) | - |
| Net profit for the period | (2,429) | (2,294) |