Banking Sector Main Indicators 8

Financial Sector Poland

December 2013

Produced by:

I. Sector Overview 9. Brokerage Institutions 1. Sector Highlights 10. Leasing 2. Macroeconomic Forecasts 11. Factoring 12. Financial Intermediation 3. Other Key Macroeconomic Data 4. Key Institutions on Poland 13. Private Equity Funds 14. Mutual Funds (TFIs) 5. CEE Financial Systems 6. Assets of Financial Institutions in Poland 15. Pension Funds (OFEs): Legal Changes in Detail

7. Government Policy 16. Pension Funds (OFEs): Reactions to Legal Changes 8. Government Policy (cont’d) 17. Pension Funds (OFEs): Market Importance 9. Government Policy (cont’d) 18. Pension Funds (OFEs) as Companies II. Financial Markets 19. Insurers: Basic Data 20. Insurers: Market Shares, Results 1. Money and Capital Markets: Value of Instruments 2. Money and Capital Market Instruments IV. Main Players 3. Money Market 1. M&A Activity 4. Capital Market 2. M&A Activity (cont’d) 5. Capital Market (cont’d) 3. PKO BP 6. Equity Market: WSE & Peers 4. PKO BP (cont’d) 7. Equity Market Sentiment 5. PKO BP (cont’d) 8. WSE & The Economy 6. Bank Pekao III. Financial Institutions 7. Bank Pekao (cont’d) 1. Banking Sector Main Indicators 8. Bank Zachodni WBK 2. Banking Watchdog’s Highlights 9. Bank Zachodni WBK (cont’d) 3. Banking Sector in Poland and Region 10. mBank (formerly, BRE Bank) 4. Banking Sector Financial Results 11. mBank (cont’d) 5. Banking Sector Market Shares and CAR 12. ING Bank Slaski 6. Banking Sector: Deposits & Receivables 13. ING Bank Slaski (cont’d) 7. Bank Cards 8. Credit Unions (SKOKs)

GDP Growth The Polish economy has survived the global economic and debt crises virtually unscathed, largely thanks to its strong exports, though it did experience a slowdown in 2012-2013. This year, GDP growth will likely slow to 1.3-1.5% (from 1.9% in 2012), while 2014 is expected to bring about a (gradual) improvement to around 2.5-3.0%, with slightly higher growth expected afterwards.

Unemployment Since economic growth is projected to remain below the levels enabling faster improvements on the labour market in the next few years, unemployment is bound to remain a hurdle for both the economy and the financial system for some time. Forecasters expect a slight improvement only in late 2014 - early 2015, though it is important to note that Poland's jobless rate is still below the EU average.

Economic Climate The economic climate began to improve around the middle of 2013, though progress is modest and gradual - occasionally interrupted by slumps of confidence. All in all, the business climate has been improving the most in the retail trade and manufacturing sectors - and the least in the construction sector. Also, consumer confidence has been on the upside for several months, contributing to the long-awaited strengthening of domestic demand.

Rating Agencies

In August 2013, S&P affirmed its sovereign rating (A-/ stable) for Poland. Also in August, Fitch revised the outlook on Poland's A- rating to stable from positive. Moody's affirmed Poland's A2 rating and stable outlook in December 2012.

Pension Funds The government-announced changes to the open pension funds (OFE) system will have a tremendous impact on the Polish economy and its financial system. Under the draft law (still in parliamentary works) the funds will have to transfer 51.5% of their assets (Treasury securities, state- guaranteed bonds and other non-equity assets) and future contribution to OFEs will become voluntary.

GDP Growth Forecasts

2012 2013 2014 2015 . Poland's growth is expected to stay well ahead of both Polish government 1.9 1.5 2.5 3.8 Western Europe and its regional peers - e.g. according to The ICC/Ifo World Economic Survey, Poland's economic Central bank 1.9 1.3 2.9 3.0 growth in the next 3-5 years will amount to around 3.3% annually vs. Western Europe's 1.5% and Eastern European Commission 1.9 1.3 2.5 2.9 Europe's 2.4%. Goldman Sachs 1.9 1.4 2.9 3.2

OECD 1.9 1.4 2.7 3.3 . The economic rebound in Poland has started in H2/2013 and is slowly gaining momentum. Net export played the 19 bank economists* 1.9 1.2 2.4 3.1 crucial part (thanks to Poland's staying outside of the euro Moody's 1.9 1.4 2.5 3.0 zone) in keeping the positive economic growth at the times of the slowdown and is also the driving force during Fitch 1.9 1.2 2.4 n/a the upswing; however, domestic consumption and investments have already begun to chip in. S&P 1.9 1 2.2 3.1 IMF 1.9 1.3 2.4 n/a . Still, the labour market is slow to feel the impact of the World Bank 1.9 1.5 2.8 n/a economic rebound. Even though the registered unemployment rate eased to 13.0% in August-October EBRD 1.9 1.2 2.3 n/a 2013, the government expects it to inch up to 13.8% by the end of 2013 and to remain at the same level a year Citibank 1.9 1.3 3.1 3.3 later. * - domestic analysts surveyed by the Central bank in September

Source: Finance Ministry, NBP, EC, OECD, IMF, World Bank, EBRD, rating agencies, investment & commercial banks Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 5 - Other Key Macroeconomic Data

GDP & Labour Market Central Bank's Interest Rates & Inflation

25 13.4 Lombard rate (end of year) 12.1 12.4 12.5 20 Reference rate (end of year) 10.1 9.5 9.3 9.7 8.5 15 CPI inflation (average annual) 6.7 5.1 4.5 10 3.9 5.75 1.6 1.9 4.25 5 2008 2009 2010 2011 2012 3.7 0 Registered jobless rate (%, end of year) LFS-based jobless rate (%, Q4 of year) GDP (constant prices, % change)

Comments

The National Bank of Poland's Monetary Policy Council has never succeeded in bringing inflation to its target of 2.5% at the end of each year. According to its most recent (November) CPI projection, inflation will likely not return to the target until the end of 2015. As of July 2013, interest rates are at their lowest historical levels - after being decreased by 2.25pps since May 2012. The Monetary Policy Council (RPP) maintains that "interest rates should be kept unchanged at least until the end of the first half of 2014". Bank economists expect the monetary policy tightening cycle to begin no earlier than in September or October 2014.

European Commission [On the economy:] "Improving consumer and business confidence and flattening unemployment suggest that private consumption and investment are regaining strength in the second half of the year, adding to the projected acceleration in economic activity." [On pension fund system changes:] "The Polish economy weakened considerably in 2012 and the first half of 2013 as a result of slow growth in key trading partners, confidence effects which weighed on private consumption and investment, and a decline in public investment. A recovery is underway and is expected to continue in 2014, driven by domestic demand."

Standard & Poor’s [On ratings and the economy:] "The ratings on Poland are supported by our view of its diversified, resilient economy made more flexible by a floating exchange rate, which has enabled adjustment to external shocks. (…)In affirming the ratings on Poland, we view the government as committed to fiscal consolidation, despite worsening near-term deficit expectations and amendments to fiscal rules."

[On pension fund system changes:] " Under our published criteria, this is neutral for Poland’s sovereign rating. (…) We view the announced cancellation of some 8% of GDP in government debt as essentially an accounting exercise that swaps an explicit liability for a contingent one."

Moody’s [On ratings and the economy:] "Growth in the economy is set to gather momentum in 2014 (+2.5%), driven by recovering domestic demand, which should in turn boost fiscal revenue and support the sovereign's consolidation strategy. [On pension fund system changes:] "Although these changes will hurt domestic capital market liquidity and increase the government’s pension- related contingent liabilities, government finances will benefit in the short-term. (…)Nevertheless, the fiscal impact is likely to be positive as it implies a reduction of debt metrics, granting more fiscal space with respect to the country's fiscal and debt rules."

Fitch Ratings [On ratings and the economy:] "The country's fiscal credibility was damaged by slippage relative to initial targets and by the suspension of Poland's first legal public debt threshold. This was a key reason we revised the Outlook on Poland's 'A-' rating to Stable from Positive in August." [On pension fund system changes:] "Polish pension reforms look broadly neutral for the sovereign's credit profile, assuming the authorities adjust public debt limits to take account of the fall in the public debt ratio that will result. The initial favourable impact on the headline public debt ratio may be offset by the reduction in the stock of assets to meet future pension provisions and a consequent increase in long-term state liabilities."

Assets as % of GDP

502.2 485.0 496.2 497.6 463.1 . Even though economic growth markedly slowed down in 2012, the importance of the financial system for the Polish economy continued to increase. 154.0 168.6 165.3 149.4 153.3 140.1 142.5 141.2 147.6 136.4 110.5 111.2 117.7 118.3 123.0 . At the end of 2012, the value of assets of institutions comprising the Polish financial system rose by 8.5% y/y to 2008 2009 2010 2011 2012 PLN 1,961.9bn (EUR 479.89bn). The financial system Poland Czech Rep. Hungary Euro zone assets-to-GDP ratio increased by 4.7pps y/y and amounted to 123.0%.

. The Polish economy - similar to the economies of other Structure of Financial Systems in Terms of Assets (end-2012, %) Central and Eastern European countries – is still characterized by a relatively low level of financial Czech Rep. Hungary Poland Slovakia intermediation.

Credit institutions 79.4 81.5 69.8 73.5 . Poland is clearly behind its CEE peers in terms of the financial system's assets-to-GDP ratio. The gap is less Insurers 3.7 9.3 8.3 8.2 pronounced in the case of credits-to-GDP (in 2012: 50.5% in Poland vs. 55.9% in the Czech Republic and 43.5% in Investment funds 8.0 6.0 7.7 4.5 Hungary) than in the case of deposits-to-GDP ratio (in 2012: 45.4% in Poland vs. 78.6% in the Czech Republic Pension funds 4.6 2.9 13.7 8.4 and 35.1% in Hungary).

Other institutions 4.3 0.3 0.5 5.4

Source: Central banks, Eurostat, GUS (upper) Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 8 - Assets of Financial Institutions in Poland

Assets in 2008-2012 (PLN bn) Share of Institutions in Assets (in 2012, in %)

2,000 1,962 Insurance 1,800 1,670 1,808 151 companies 1,600 118 Mutual funds (TFI) 121 270 8.3% 1,400 225 221 163 1,200 146 Open pension funds Open pension 145 funds 13.7% 1,000 (OFE) 800 Insurers Credit unions 0.9% 600 1,188 1,237 1,062 Investment 400 Commercial banks funds 7.7% 200 Total Brokerage 0 Banks 68.9% entities 0.5% 2010 2011 2012

Number of Financial Institutions in Individual Segments

576 574 576 572 581 482 407 369 2009 2010 2011 2012 64 67 66 68 62 59 59 55 64 63 61 59 43 50 50 54 59 64 65 69 3 3 2 2 14 14 14 14

Commercial Banking unions Cooperative Credit unions Insurance Investment Investment Open pension Brokerage banks banks (SKOK) companies funds funds firms (TFI) funds (OFE) entities

The most important tax that is applied in the financial system is the 19% capital gains tax - the so-called Belka tax (named after its author Marek Belka - currently governor of the National Bank of Poland) - which was introduced in 2002. Until 2004, it covered only Capital Gains savings, but was then extended to other forms of investments. In May 2012, it was extended to cover daily deposits. Today, the only way to avoid paying the Belka tax is to open an individual pension account (IKE) – the funds stored there (after paying income tax) can Tax be retrieved without any further taxation when its owner is 60 years old. The new individual pension savings account (IKZE) allows the deduction of funds transferred from income, but there is an obligation to pay a tax (currently planned at 10%) on withdrawals when its owner is 60 years old.

The institution that is designated to work in favour of the safety and stability of banks is the Bank Guarantee Fund (BFG). Its guarantee scheme covers deposits maintained in all domestic banks, i.e., those with their registered offices within the territory of the Republic of Bank Poland, regardless of the form of their operations (joint stock company, co-operative bank, or state bank). As of the end of November, Guarantee 2013, the Fund also covers deposits placed at credit unions (SKOK). The maximum amount of funds which can be returned to a single Fund depositor within the BFG guarantee is the equivalent of EUR 100,000. For 2012, the premium paid by banks to the BFG inched up to 0.1%. The premium paid to the Stabilization Fund, a new special-purpose fund introduced in 2013 to gather resources that may be used for financing actions aimed at preserving the banking sector's stability, has been set at 0.009% for 2013 and at 0.037% for 2014.

As of October 2012, credit unions (SKOKs) have joined the institutions being monitored by the Polish financial supervisor (KNF). Thus, the KNF will issue permits to launch new credit unions and will approve of their statutes. The new law also introduces the so-called Credit Unions precautious rule, under which credit unions will have to report a certain level of own funds that is adequate to the volume of their (SKOK) operations. Also, the Constitutional Tribunal ruled that the law does not need to include the provision of deposit guarantees (deposits at credit unions are worth nearly EUR 3.7bn), although the KNF advocates such a solution. As of November, 2013, deposits held at SKOKs are also covered by the Bank Guarantee Fund (BFG).

The government has proposed changes to the open pension funds (OFE) system (which are now in the final stages of parliamentary works). Its proposals have been met with widespread opposition from, among others, lawyers, economists - including the architect of Poland's economic transformation Leszek Balcerowicz. Indeed, the changes' author - deputy PM and finance minister Jacek Rostowski - was dismissed from the government as part of the November reshuffle, but the cabinet stuck to the amendments.

The key point of the change is the transfer of 51.5% of OFE-held assets to the 51.5% of their assets (Treasury securities, state-guaranteed bonds and other non-equity assets) to the state Social Security Board (ZUS) and moving the remaining part of these assets (for those who declare they want to stay in the funds) gradually to the ZUS in the last 10 years before the premium-payers reach retirement age.

Pension Other changes include e.g. OFEs' investment limits and halving their fees - they are discussed in detail in the Financial Funds Institutions chapter devoted to OFEs (below).

The finance ministry argued that these changes will allow to lower the public debt (as calculated by the Polish methodology) by 7pps, thus allowing to cut the warning thresholds envisaged in the new law on the debt-to-GDP ratio to 43% and 48% from 50% and 55%, respectively. The government also included savings from this move in its 2014 state budget draft.

However, as pointed out by the National Bank of Poland (NBP), driving OFEs from the Treasury securities market will increase the dependence of the borrowing requirement financing on foreign investors, which involves a risk of higher volatility in this market.

In 2013, the Polish Financial Supervision Authority (KNF) updated its recommendations: D (concerning ICT security in banks), M (concerning operating risk management), S (concerning mortgage-secured credit exposures) and T (concerning retail loan exposure's risk management). It also pledged to introduce new recommendations concerning banks' investment KNF operations and bank-assurance in the near term. Recommenda tions The most significant changes were included in the update of Recommendation S. The watchdog advocates to cease to offer mortgage loans with the LtV ratio of 100% and above - in 2014, the maximum LtV should be 95%, in 2015 - 90%, in 2016 - 85% or 90% if part of the loan exposure is properly insured, while as of 2017 - 75% or 80%, respectively.

In the middle of 2014, an amendment to the law on payment services is due to take effect, lowering the maximum interchange fee on all Polish payment cards to 0.5%. Currently, the fee in Poland is around 1.3% vs. the European Union's average of 0.5-0.7% (the bill enters force as of Jan 1, 2014, but with a six-month vacation legis).

Interchange Prior to the law amendment, the National Bank of Poland (NBP), Polish lenders, Visa and MasterCard carried out Fees negotiations on the changes, but they failed to reach a compromise.

Listed banks' representatives admitted that the interchange fees' cuts will have a significant impact on their fee-and- commission results, hence they started raising some other fees.

Outstanding Value of Individual Instruments (PLN bn) Comments

2009 2010 2011 2012 . The finance ministry has continued to extend the maturity of public debt, leading to further diminishing of the value of outstanding Treasury bills - in fact, in August, 2013, Treasury bills 47.5 28 12 6.1 Poland's debt in T-bills was nullified. . At the same, the role of domestic wholesale Treasury bonds has been growing. Recently, the ministry Central bank bills 41 74.6 93.4 117 introduced short-term (13-month) retail Treasury bonds, which led to the overall November 2013 sales of retail notes at the highest level in 10 years. The ministry said it Short-term bank debt securities 3 2.6 7.7 5.9 might again offer short-term retail bonds if the state budget needs short-term financing, instead of T-bills. . The average daily net turnover in the domestic foreign Short-term corporate bonds 6.2 11.7 15.9 18.5 exchange market in April 2013 amounted to USD 7,564mn (a decrease of 4% at current exchange rates compared to the value of transactions in April 2010), of Marketable Treasury bonds 405.4 471.3 495.2 520 which USD 5,446mn were transactions involving the Polish zloty, according to the NBP's data. . In October 2013, the value of transactions in the Treasury BGK bonds for the National Road Fund (KFD) 7.9 13.9 21.7 24.8 bonds secondary market increased by 37.1% m/m to PLN 1,243.0bn, according to the finance ministry's data. The trading focused on the non-regulated OTC market Long-term corporate bonds 15.5 19.9 26.6 32.3 (93.2%). The share of the electronic platform TBS Poland in total turnover amounted to 6.8%, while trading at WSE did not exceed 0.01%. Municipal bonds 6.9 10.9 14.4 15.6

Source: NBP on the basis of data from WSE, FinMin, NBP, KDPW, Fitch Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 14 - Money and Capital Markets: Market Instruments

Average Daily Net Turnover on the Domestic Market (PLN mn) Selected Sources of Financing of Enterprises (PLN bn)

2008 2009 2010 2011 2012 33.1 31.1 31.2 Shares 661.7 700.5 933.3 1,076.1 820

Treasury bonds 17,155.1 13,827.8 23,923.6 29,555.3 2,8491.7 27.3

Treasury bills 1,244.5 2,454.7 2,110.3 1,250.3 520 23.0

Interbank deposits 10,263.5 7,259.9 7,025.4 6,195.4 5,874.2

FX swap transactions 10,709.2 9,385.6 10,855.2 12,928 11,520.8

14.6 Spot FX market 4,236.4 3,906.6 4,280 5,219.1 5,179.9 13.2 12.9

Forwards 1,493.6 1,222.4 1,318.1 1,379.6 1,210.7

7.8 8.2 CIRS transactions 117.1 156.3 154.4 113.3 200.9 7.6 5.6 5.6 Currency options 1833 579.5 341.7 321.5 220.6 2.8 2.4 FRA 7,625.9 2,399.4 3,504.9 5,572.6 5,116.4

IRS 1,827 682.5 1,353 2,218.8 1,698.4 2006 2007 2008 2009 2010 Long-term bond issues on the domestic market OIS 1,912.5 868.2 963.7 1215 633.5 Leasing WIG20 futures contracts 1,198.7 995.1 1,319.6 1,381.6 832.8 Stock issues on the WSE

Source: NBP based on data from FinMin, WSE, NBP (left); NBP based on data from KDPW, Fitch, NBP (right) Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 15 - Money Market

Debt Securities Market: End-year Value (PLN bn) Deposit Transactions Market Average Daily Turnover (PLN bn)

117.0 12.6 2012 11.5 5.9 93.4 11.6 74.6 2011 12.9 Repo/SBB/BSB 6.2 transactions 50.4 47.5 41.0 9.1 FX swaps 2010 10.9 28.0 7.0 10.2 15.9 18.5 11.6 11.7 12.0 7.7 Unsecured deposits 2.1 3.0 6.2 2.6 6.1 5.9 8.1 2009 9.4 (interbank deposits) 7.3 2008 2009 2010 2011 2012 8.8 Treasury bills NBP bills 2008 11.7 10.3 Short-term bank debt securities Short-term corporate bonds

Comments The year 2012 was a period of stabilisation in the domestic money market. There was a marked increase in activity in conditional transactions market, largely due to further increases in the activities of foreign banks. On the other hand, in the segments of FX swaps and unsecured interbank deposits, the value of transactions dropped as compared with 2011. Still, FX swap transactions remain the most liquid instrument on the domestic inter-bank money market. They are used by non-residents to finance their investments on the Polish capital market, especially Treasury bonds purchases.

Selected Individual Capital Market Segments (PLN bn)

1,400

5.1 11.1 . Thanks to an improvement in global market sentiments, the finance ministry was able to continue 1,200 8.5 to work on extending maturity dates of public debt, which resulted in a significant reduction of the scale WSE's of issue of Treasury bills (especially in 2011-2012) NewConnect 1,000 and in an increase in the outstanding value of 734.0 Treasury bonds - indeed, the debt in T-bills was 796.5 nullified in August, 2013. 642.9 WSE's Main 800 Market . T-bonds have remained the dominant instrument on the domestic long-term debt instruments market (with Long-term 600 32.3 a share of 84.7% in 2012); with growing budget 29.7 corporate 21.6 deficit and state borrowing needs, the value of T- 24.8 bonds 21.7 13.9 bond offers increased in 2012, with the rate of return they offer seen as highly attractive. 400 BGK bonds for KFD . The non-government long-term debt instruments 520.0 471.3 495.2 market remains relatively underdeveloped, though 200 Marketable their share in the domestic long-term debt Treasury bonds instruments market rose to 15.3% in 2012 from 13.2% in 2011. 0 2010 2011 2012

Source: NBP based on data from FinMin, NBP, KDPW, WSE, Fitch Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 17 - Capital Market (cont'd)

State Treasury Debt as of End of September, 2013 Erste Group: Bond Yield Forecasts

PLN mn Ytd % change

State Treasury debt 847,710.5 6.8 4.95 4.76 4.84 4.61 4.42 I. Domestic debt 589,707.8 8.6

1. Treasury Securities (domestic market) 577,863.4 8.3 3.00 3.00 2.80 2.90 2.54

1.1. Marketable securities 570,401.3 8.4 1.83 2.00 2.10 1.80 1.90

- Treasury bills 0.0 -100

- Treasury bonds 570,401.3 9.7 current* Q1/2014 Q2/2014 Q3/2014 Q4/2014 1.2. Savings bonds 7,462.2 1.3

Poland 10Y Slovakia 10Y Germany 10Y II. Foreign debt 258,002.7 2.8

* - as of Dec 10, 2013 1. Treasury bonds (international markets) 196,611.3 -1.7

2. Loans 61,391.4 20.5

Number of Companies Listed Capitalisation of Domestic Companies (USD bn)

99 867 2009 2010 2011 2012 2012 1,073 2,767 105 777 LSE Group 3,453.6 3,613.1 3,266.4 3,396.5 2011 1,112 2,886 110 585 2010 1,135 NYSE Euronext (Europe) 2,869.4 2,930.1 2,446.8 2,832.2 2,966 115 486 2009 1,160 3,088 Warsaw Stock Exchange 151 190.7 138.2 177.4

Vienna Stock Exchange Warsaw Stock Exchange Vienna Stock Exchange 114.1 126 85.3 106 NYSE Euronext (Europe) LSE Group

Comments

From the point of view of the average daily trade value, the WSE belongs to the smaller bourses in Europe - trading on Europe's biggest stock exchanges, such as LSE, NYSE Euronext, Deutsche Boerse, is several dozen times higher (e.g. in 2012, the WSE's average was USD 244.0mn vs. the LSE's USD 8,849.4mn). Still, it has long competed with the Vienna Stock Exchange for the leadership position in CEE, while for several months now, the two bourses have been involved in cooperation talks (with capital links not ruled out).

Main Index WIG’s History . Ytd (i.e. by Dec 13), the Warsaw Stock Exchange's 46.9 (WSE) main index WIG gained 9.06% - after a recent downward correction - while the blue-chip index 26.2 WIG20 lost 5.94% and the new blue-chip (which is 18.8 due to ultimately oust WIG20) - 0.69%. However, 9.1 indexes of smaller companies were more effective: the small cap index sWIG80 gained 37.02%, while 2009 2010 2011 2012 2013* the mid-cap index mWGI40 gained 31.89%. . In terms of branch indexes, the best performers were -20.8 the indexes of the construction (up by 34.35% ytd) WIG: Rate of return (%) and media (up by 31.55% ytd) sectors, while the biggest losses were reported in the raw materials IPOs (down by 31.27% ytd) and food (down by 13.20% ytd) sectors.

* - as of Dec 13, 2013 38 . Still, Poland is believed to be in the middle of a 34 several-year-long bullish market. The positive trend that dominated in the large part of this year on the WSE, admittedly coupled with the government's 21 19 need to go ahead with the privatisation programme 15.9 13 has led to a rebound on the IPO market. 8.5 7.0 . This year, the largest IPOs were: the state-held 5.5 3.4 power group Energa (PLN 2.41bn), the state-held railway company PKP Cargo (PLN 1.42bn) and 2009 2010 2011 2012 2013* privately-held rolling stock company Newag (PLN Number Value (PLN bn) 0.40bn).

Capitalisation at Year-end (PLN bn) WSE's Strength & Importance

598.2 2013* 840.0 523.4 46.0 2012 44.0 734.0 43.0 446.2 2011 642.9 39.3 38.3 542.6 2010 796.5 32.8 2009 421.2 31.3 715.8 29.2

Domestic companies Total

Number of Companies Listed at Year-end

426 438 449 379 400

39 43 46 25 27 2009 2010 2011 2012

2009 2010 2011 2012 2013* Domestic companies capitalisation as % of GDP Companies in total Foreign companies Free float vs. capitalisation of domestic companies (%) * - as of Dec 13, 2013

Share in Total Banking Sector Assets (%) Ownership Structure of the Polish Banking Sector in 2012 (%)

Italy 12.8% 2008 2009 2010 2011 2012 Germany 10.5% 1. Commercial banks which 92.7 92.2 91.7 91.8 91.4 Others 20.4% conduct operational activities Netherlands 8.8%

1.1. Domestic banks 87.3 87 87 89.6 89.3 U.S. 5.7%

1.1.1. with major state shareholding 17.3 20.7 21.5 22.2 22.9 Spain 5.4% Poland 36.5%

1.1.2. with major private 70 66.3 65.5 67.4 66.4 shareholding Number of Banks and Branches

– Polish equity 3 3.3 3.9 4.6 4.9 576 576 574 572 572 – foreign equity 67 63 61.6 62.8 61.5

2. Branches of credit institutions 5.4 5.2 4.7 2.2 2.1 49 18 49 21 47 21 45 25 42 28

3. Affiliating cooperative banks 1.9 2 2.2 2.1 2.2 2009 2010 2011 2012 2013*

Number of commercial banks * - as of October 4. Cooperative banks which 2013 5.4 5.8 6.1 6.1 6.4 Number of cooperative banks conduct operational activities Number of branches of credit institutions

Source: NBP (left * upper right), KNF (lower right) Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 23 - Banking Sector: Watchdog’s Highlights

The Polish banking sector with foreign branches reported combined net profit of PLN 11.81bn in Q1-3/2013, down by 1.9% y/y, according to the data of the Polish Financial Supervision Authority (KNF). It points to the most Results significant worsening of the results in Q3. In the nine months, banking operations results fell by 6.9% y/y, as a Update consequence of lower interest results (-7.9%), fee-and-commission results (-1.5%) as well as other banking activities (-11.3%).

In the face of decreasing interest revenue, banks opted for raising some of their fees and commissions. Banks' Furthermore, the KNF notes that the majority of lenders reported an improvement on fee-and-commissions results, Reaction with only "one of the bigger banks" reporting a decline of this result due to lower sales of investment products.

Banks' efficiency measures followed suit of financial results' weakening: the C/I ratio rose to 53.3% at the end of September, 2013 from 50.4% at the end of 2012. At that time, ROA eased to 1.14% from 1.25%, while ROE - to 10.4% from 11.5%. Efficiency At the same time, their capital base has improved further: own funds rose to PLN 139.4bn at the end of September from PLN & Capitals 129.0bn at the end of 2012. Capital adequacy ratio was up to 15.6% from 14.7% and Tier 1 - to 14.2% from 13.1%, respectively.

The KNF expects negative pressures on banks' financial results to remain in place in the coming quarters due to low economic growth that may lead to the worsening of some borrowers' financial viability as well as to lower demand Outlook for bank products. The continuously low interest rates may continue to hurt interest revenues, while additional pressures may be expected from the new fee on the BFG's stabilisation fund and the cut in interchange fees.

Loans to GDP (%) Assets to GDP (%)

43.5 2012 55.9 50.5

351.3 355.8 50.3 344.6 2011 54.9 52.3

52.7 2010 53.1 49.2

Hungary Czech Rep. Poland

Deposits to GDP (%)

120.6 111.0 116.5 105.2 103.3 35.1 93.0 81.8 84.7 84.8 2012 78.6 45.4

35.6 2011 73.6 45.5

35.2 2010 2011 2012 2010 71.5 43.6 Poland Czech Rep. Hungary Euro zone

Hungary Czech Rep. Poland

Banking sector financial results

2008 2009 2010 2011 2012 . The country's economic downturn of 2012-2013 is expected to hurt banks' financial results - the market consensus was a drop of 10-15% in 2013, but the actual Net interest income 28.03 26.39 30.87 35.19 35.44 results (as calculated by the Polish Financial Supervision Authority, KNF) for the first ten months show a mere 3% y/y decline. However, the year 2014 will likely not be a Net fee income 11.46 12.48 13.77 14.35 14.33 break-through time: as noted by the biggest bank PKO BP's CEO Zbigniew Jagiello - repeating the 2013 result would be a success. The 2014 market challenges are Dividends received 1.46 1.39 1 1.06 0.92 going to be still low margins (which interest rates at historically lowest levels) and the possible further cuts of interchange fees, even in the face of economic rebound Net income from banking activity 48.44 49.64 53.07 57.7 58.74 (to 2.5-3.0% GDP growth).

. Moody's Investors Service changed the outlook for Poland's banking system to stable from negative in Net charges to provisions for 4.18 11.49 10.5 7.44 8.30 October 2013. The agency explained that the change impaired loans principally reflected its expectation of a recovery in economic growth and consequent stabilization in bank profitability. The stable outlook also reflects the banks' improved capitalization, increased risk-absorption Pre-tax earning 16.75 10.29 14.27 19.44 19.18 capacity and largely self-sufficient funding profiles, which make the system resilient to the persistently challenging conditions in international wholesale markets. Net earnings 13.63 8.4 11.48 15.42 15.45

Market Share of 5 Largest Banks (%) Capital Adequacy

42.30 2013* 45.75

46.65 15.84 14.74 14.34 39.14 13.84 2012 44.20 13.29 13.10 13.13 12.45 45.00 11.97 11.71

39.06 2011 45.44 44.32

39.24 2010 46.50 43.88

42.63 2009 54.36 44.19 2009 2010 2011 2012 2013*

in receivables due from non-financial sector in deposits in assets Capital adequacy ratio Tier 1 ratio

* - as of October, 2013 * - as of October, 2013

Deposits (PLN bn) Receivables (PLN bn)

2009 2010 2011 2012 2013* 2009 2010 2011 2012 2013*

Deposits from non-financials 567.17 620.36 698.6 724.01 751.1 Total 641.23 698.53 800.7 810.4 838.19

Households 416.41 475.43 531.99 533.25 554.04 PLN 507.42 557.71 623.81 644.76 668.44 PLN 259.04 290.82 317.51 341.37 370.5 EUR 38.06 40.51 44.59 50.21 53.48 FCY 157.37 184.61 214.48 191.88 183.54 Corporate deposits 165.13 182.78 205.96 191.26 196.97 Non-financial corporations 222.08 219.69 264.51 272.25 279 PLN 141.82 157.39 171.02 158.06 163.07 PLN 163.8 165.09 192.86 208.78 208.88 EUR 18.97 19.99 23.3 25.13 27.22 FCY 58.28 54.6 71.65 63.47 70.12 Household deposits 387.68 422.36 477.36 516 536.05 IMPAIRED CLAIMS

PLN 351.96 385.89 438.15 470.64 488.13 Total 50.68 61.41 66.02 71.73 71.94

EUR 18.59 19.95 20.8 24.53 25.61 Households 24.93 34.11 38.55 39.55 39.25

Central and local governments 51.97 52.96 48.98 59.81 81.4 Non-financial corporations 25.71 27.23 27.42 32.08 32.59

* - as of October, 2013 * - as of October, 2013

Number of Cards (mn) Value of Card Transactions (PLN bn)

411.2 389.0 33.2 33.3 34.4 353.8 32.0 32.0 330.5 374.1 26.5 27.8 304.3 24.8 22.7 265.2 319.5 353.4 21.0 296.1 218.9 271.5 187.2 237.4 195.8 10.9 8.9 168.1 6.9 6.4 6.3 0.4 0.3 0.3 0.3 0.3 12.0 15.9 21.3 26.9 29.0 29.2 30.4 32.1 7.1 7.2 6.5 5.9 5.4 5.1 5.2 4.9 Q4/2009 Q4/2010 Q4/2011 Q4/2012 Q2/2013 2005 2006 2007 2008 2009 2010 2011 2012 debit credit charge total debit cards charge cards credit cards total

Card Systems: Market Shares in Q2/2013 (%) Comments

. Debit cards continue to dominate the Polish market: at the end MasterCard of H1/2013 they constitute 80.7% of all cards in Poland. 38.8% . In quarterly terms, the value of card transactions has been fluctuating, with growths interchangeable with declines. In Q2/2013 (the most recent period for which data are available), it rose by 10.1% q/q to PLN 107.9bn (which was the highest rise since Q2/2011). Still, non-cash transactions constitute less VISA 59.9% Others 1.3% than 1/3 of the total value (at 30.3% in Q2/2013 vs. 28.6% in Q2/2012).

Network Loans and Deposits (PLN bn)

2,586 2013* 17.29 2,284 13.03 2,026 2,177 2,076 1,669 1,856 15.73 1,792 1,833 2012 1,695 1,739 12.16 1,596 2011 14.60 13.57 2010 13.15 67 62 62 59 59 55 12.05 Deposits 2009 10.96 2007 2008 2009 2010 2011 2012 10.07 Loans 2008 8.41 Number of branches Number of members (000) Number of unions 8.00

Credit Unions and Cooperative Banking Sector

115.6 106.1 96.5 75.8 82.4 57.8 65.6 47.1 5.3 6.0 7.3 9.4 11.6 14.0 15.6 16.9 11.3 10.3 11.2 12.5 14.1 14.5 14.7 14.6 2006 2007 2008 2009 2010

Assets – credit unions (PLN bn) Assets – cooperative banking sector (PLN bn) Share of assets of credit unions in assets of the cooperative banking sector

Source: KSKOK, KNF (upper left), KNF (upper right), NBP, KSKOK, KNF (lower) Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 30 - Brokerage Institutions

Financial Results (PLN mn) Market Shares (in 2012)

DI BRE Banku 1,555 1,488 1,511 DM PKO BP 4.1% 1,409 4.9%

KBC Securities

1,104 Others 39.1%

1,058

5.7%

965

943

856

864

794 791

720 Ipopema

653

Securities

370

367 7.0%

260 121 ING Securities 2008 2009 2010 2011 2012 2013* 8.7%

Revenue EBIT Net profit DM BZ WBK * - Q1-3/2013 9.1% DM BH 11.5% Note: in 2008-2009, data for brokerage houses and brokerage offices CS Securities were combined 9.8%

Comments

The number of investment accounts at brokerage institutions exceeded 1.5mn at the end of November 2013. As often in the past, the month's significant growth of these accounts (by nearly 9,800) was related to a large-scale initial public offering - this time, of one of Poland's largest power groups Energa (this year's biggest IPO). For the first time, the 1.5mn mark was reached in the middle of 2011, after the treasury ministry introduced the so-called citizens- based shareholding (which stipulated for limits of the number of shares to be subscribed by a single investor, hence the need to ask the assistance of "family and friends" in setting up additional accounts).

Leasing contract values, PLN bn Leasing contract breakdown by type

2008 2009 2010 2011 2012 Means of road transport Movables, including: 29.8 20.9 25.8 29.5 29.8 54.2%

− machinery and equipment 9.8 7.7 8.5 10.8 11.1

− computers and office equipment 0.5 0.5 0.5 0.6 0.5 Means of rail, air and water − means of rail, air and water transport 0.5 0.5 0.7 0.9 0.9 transport 2.9%

− means of road transport, of which: 18.7 12.1 15.9 16.9 16.9 Computers and office Other 1.2% − passenger cars 8.1 5.7 5.4 7.2 7.5 equipment Real estate 1.6% 4.5% Real estate 3.3 2.1 1.6 1.6 1.4 Machinery and Total movables and real estate 33.1 23 27.3 31.1 31.2 equipment 35.6%

Comments

The leasing market's growth decelerated in 2012 on the back of Poland's overall economic downturn and resulting worsening of enterprises' financial standing as well as lower investment outlays (also, some big-scale infrastructure projects were coming to an end). Still, leasing's share in fixed assets capital formation was broadly unchanged at 13.1%.

Turnover of Factors (PLN bn)

113.1 2012 81.8 94.9 2011 67.1 93.2 2010 56.2 51.4 2009 30.0 47.9 2008 32.9 30.7 2007 18.8

Total market turnover Turnover of PZF factors

Structure of Claims Repurchased in Domestic Factoring (%)

2010 2011 2012

Banks Factoring firms Banks Factoring firms Banks Factoring firms

Recourse factoring 63.2 50.3 48.4 48.4 50.8 48.7

Non-recourse factoring 36.6 47.7 51.2 50.4 48.9 45.1

Mixed factoring 0.2 2 0.4 1.2 0.3 6.1

Number of Agreements Signed (000) Value of Completed Agreements (PLN mn)

2011 2012 16,340

Number of loan agreements signed 1,784.6 2,940.3 10,808

− loans, cash lending facilities 1,702.3 2,869.2 and instalment loans 6,539

− housing loans 65.4 48.5 3,336

480 − car loans 5.4 4.6 63 316 241 51 186

2011 2012

− consolidation loans 9.9 15.6 loans, cash lending facilities and instalment loans housing loans car loans

− other loans 1.5 2.4 consolidation loans other loans

Investments and Capital Raised by PE Funds

2008 2009 2010 2011 2012 Investments carried out by domestic private equity funds, of which: 2,549 2,079 2,015 2,837 2,277 − on the domestic market 1,778 1,154 1,661 2,584 1,821 − on foreign markets 771 925 354 253 456 Investments carried out by foreign private equity funds in Poland 448 1,731 962 220 178 Capital raised by domestic private equity funds during a year 2,614 583 458 1823 1,907 Number of enterprises financed by domestic private equity funds 67 29 52 63 71 Number of enterprises where investments of domestic private equity funds were completed 15 13 13 23 26 Domestic private equity investments to GDP ratio (%) 0.2 0.2 0.1 0.2 0.1

Private Equity Capital Sources in Poland (%)

50.6

27.9 25.3 18.2 16.9 17.1 15.9 12.9 5.6 5.4 0.0 1.1 2.6 0.0 0.0 0.0

Funds of funds Others Pension funds Banks Insurers Government Private individuals Sovereign wealth agencies funds

2011 2012

Exposure of Mutual Funds in the Polish Market (%) Structure of Mutual Fund Sector by Type in 2012 (% of Assets)

40 Share in WSE 35 7.5 7.3 6.7 capitalisation 5.0 30 5.1 25 Share in free float on 15.3 10.8 WSE 20 18.8 18.5 12.1 Foreign debt 15 Share in Treasury Foreign equity 8.0 instruments 6.4 6.4 bond market funds 4.4% 10 6.6 funds 5.6% 6.7 Balanced 5 8.9 7.8 9.2 Share in Treasury bill 4.3 5.6 funds 6.7% 0 market 2008 2009 2010 2011 2012 Stable growth funds 5.6% Others 31.4% Rates of Return of Selected Groups of Mutual Funds (%)

40.5 21.1 18.9 10.6 15.5 11.0 10.0 7.0 6.4 3.4 7.5 Domestic debt instruments 2008 2009 2010 2011 -5.5 2012 funds 31.3% -18.1 -15.4 Domestic equity funds -52.5 15.0%

Domestic equity funds Domestic bond funds Weighted average for all types of investment funds

Source: NBP on the basis of data from FinMin, WSE, NBP, GUS, Analizy Online Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 36 - Pension Funds (OFEs): Legal Changes in Detail

In November 2010, PM Donald Tusk declared that his government would seek "solutions that will not pose a risk of dismantling the system and will at the same time take into account the interest of future old-age pensioners." When the government decided to lower the premium paid to the pension funds in 2011, Tusk stressed that there would be no more changes to the OFE system. However, parliament is finalising changes on the OFE system of a great magnitude. The key changes are as follows: * The pensions funds are to transfer 51.5% of the assets under management to the ZUS; these assets will then be written off (according to their value as of Jan 31, 2014). The remaining assets held by OFEs will be gradually transferred to the ZUS in the last 10 years before the premium-payers reach retirement age. * As of Feb 4, 2014, the OFEs will have to invest at least 75% of their assets under management in equities. In 2015, the minimum level of equity investments will be lowered to 55%, in 2016 - to 35% and in 2017 - to 15%. As of 2018, there will be no minimum-required level of equity investments. Also, the funds will not be allowed to exceed a 10% stake in an Gov’t individual company. Overhaul * The funds will not be allowed to invest in Treasury debt instruments (and also - in other countries' debt instruments) or instruments with the state guarantees, but there will be a solution allowing them to purchase debt instruments issued by the state-held bank BGK, provided that they no longer have state guarantees - this bank issues debt used to finance the state's transport infrastructure projects. * The limit on foreign investments will amount to 10% till the end of 2014 (vs. current 5%) and will be raised further to 20% as of 2015 and ultimately to 30% as of 2016. * The premium transferred to OFEs will be raised to 2.92% of gross wages from the current 2.80%, but premium-payers will have to declare whether they want this premium to be still transferred to their funds; if they fail to formally express such a wish, their premiums will by default be transferred to the ZUS. * The maximum fee incurred by the funds will be halved to 1.75%. * The minimum-required rate of return will be lifted, together with the need to cover for the losses or gains that are below the required minimum.

The proposed changes to the OFE system has prompted 115 Polish renowned economists and 31 lawyers to publish joint statements in which they opposed what they called a dismantling of the old-age pension system in Poland. According to them, the proposed solutions will undermine the system's safety and will bring negative effects for the Polish economy. 115 They deem that these changes also undermine the rule of citizens' trust in the state and the right to property. economists, The economists who signed the declaration include 33 professors from 10 Polish higher education facilities (incl. the 31 lawyers Warsaw University, the Warsaw School of Economics (SGH), the Leon Kozminski Academy, the Cracow and Poznan Universities of Economics as well as the Poznan University), 7 former government members (incl. 4 finance ministers) as well as 8 Polish economists working in higher education institutions abroad (in Australia, Holland, UK, etc.).

The Government Legislation Centre stated that the draft law may trigger doubts whether some of its provisions are in line with the constitution. The questionable provisions include: the minimum required level of equity investments (at 75% of assets), making the ZUS the default recipient of pension premiums if a premium-payer does not state otherwise, the short period for making the selection Other State between the ZUS and the OFE as well as the mode of writing off of the T-bonds held by the pension funds. Bodies The Treasury Ministry called for allowing the pension funds to continue to invest at least a small part of their assets, e.g. 5%, in Treasury bonds. It also opposed the 75% limit for equity investments and wanted to allow OFEs to engage in infrastructure-focused investments. Instead of transferring part of OFE-held assets to the ZUS 10 years before an employee retires, the ministry wanted to introduce sub-funds in which OFEs would invest in "safe" instruments.

The employers' organisation - Konferencja Lewiatan - deems that the proposal to gradually transfer OFEs' assets to the ZUS in the last 10 years of an employee's premium paying will actually lead to the demise of the capital part of the old-age pension system. Employers' The organisation proposes to allow the premium payers to choose whether they want to start transferring their assets to Organisation the ZUS so early or whether they want the state agency to receive their assets from OFEs only when they retire. Lewiatan also suggests that if premium-payers send no explicit statement as to whether they choose the OFE or the ZUS, they should continue to be regarded as OFE members under their current agreements with these institutions.

Source: Government and other public organisations Any redistribution of this information is strictly prohibited. Copyright © 20142013 EMIS, all rights reserved. - 38 - Pension Funds (OFEs): Market Importance

OFEs on Polish Financial Market (%) Rates of Return (%)

20.7 80 18.0 16.3 14.3 16.7 14.6 13.7 11.9 70 13.6 11.2 Share in WSE 7.1 12.5 11.8 capitalisation 9.3 60 6.2

2.2 -3.3 50 33.7 Share in free float on 31.1 36.8 WSE 2007 2008 2009 2010 2011 2012 30.1 -4.7 40 -7.2 Share in Treasury bond market -11.9 30 -14.3

-17.9 20 24.7 24.8 Share in Treasury bill 22.6 market Average annual weighted rate of return 27.4 10 The best OFE in a given year

8.4 6.2 6.0 The worst OFE in a given year 0 1.1 2009 2010 2011 2012

OFEs' Rates of Return in Sep 30, 2010 to Sep 30, 2013 Pension Fund Managing Firms' (PTE) Capital by Country (%)

Fund Rate Belgium 15% Sweden 16% AEGON OFE 17.337 Holland 9% Allianz Polska OFE 21.137 Amplico OFE 20.4 France 8%

Aviva OFE Aviva BZ WBK 19.756 UK 4%

AXA OFE 18.849 Others 5% Generali OFE 18.258 Poland 43% ING OFE 21.094 Nordea OFE 23.019 PTEs' Dividends: Share of Previous Year's Profits (%)

Pekao OFE 18.787 147.1 147.0 PKO BP Bankowy OFE 20.276

OFE Pocztylion 17.449 86.8 91.0 101.0 97.0 92.6 82.7 75.3 81.5 76.2 OFE PZU "Zlota Jesien" 18.628 61.0 64.0 54.2 OFE WARTA 20.43 46.6 46.1

Weighted average 19.751

Inflation 8.927 2006 2007 2008 2009 2010 2011 2012 2013 Change in WIG index 11.197 All PTEs Dividend-paying PTEs

Gross Written Premium (PLN bn) Number of Insurance Companies

35 35 34 33 33 33 39.0 31 31 31 36.4 30 28 28 31.4 31.8 30.3

26.3 25.3 22.7 21.1 20.3

2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

Life insurance Non-life insurance Life insurers Non-life insurers

Life Insurers: 2012 Market Shares (%) Insurers' P&L Statement (PLN mn)

2008 2009 2010 2011 2012 Europa 6.7% Gross written premiums 59,292 51,344 54,148 57,132 62,627 Warta 7.4% Others 41.1% Claims incurred 29,972 39,378 35,645 38,772 39,670

Open Life Acquisition costs 7,307 8,081 8,503 9,371 10,340 9.2% Balance on technical account 4,180 4,061 2,333 3,633 3,792

Benefia 10.0% Gross profit 6,698 7,811 7,548 6,984 7,533 PZU Zycie Net profit 5,779 6,631 6,746 5,993 6,301 25.6%

Casualty & Property Insurers: 2012 Market Shares (%) Comments

Allianz 6.8% Uniqua 4.4% Hestia 10.4% . PZU Zycie's market share dropped to 25.6% in 2012 from Others 32.9% 30.8% in 2011. Warta 13.3% . At that time, Benefia's share surged to 10.0% from 2.8%, while Open Life's - to 9.2% from 2.0%, respectively.

PZU 32.2%

Key M&A Deals

Date Target Company Deal Type Buyer Seller EUR mn Stake % 05/12/2013 Bank BGZ Acquisition BNP Paribas Rabobank Intl Holding 1,029.41 98.5 Santander Consumer 27/11/2013 Santander Consumer Bank Acquisition Bank Zachodni WBK 511.68 60 Finanse Vienna Insurance 12/11/2013 Skandia Zycie TU Acquisition Old Mutual PLC 100 Group 07/11/2013 eService Acquisition EVO Payments Intl PKO BP 84.7 66 13/06/2013 Nordea Bank Polska Acquisition PKO BP Nordea Bank 619.43 99.21 13/06/2013 Nordea Polska TUnZ Acquisition PKO BP Nordea Bank 42.23 100 09/05/2013 OFE Warta Acquisition Allianz SE KBC Group 100 22/03/2013 Bank Zachodni WBK SPO Institutional Investors Banco Santander; KBC 1172.3 21.36 30/01/2013 Bank Pekao SPO Undisclosed Investors UniCredit SpA 885.24 9.1 Institutional, private 24/01/2013 PKO BP IPO BGK, Treasury Ministry 1,259.99 11.75 Investors EBRD, Undisclosed 14/12/2012 Alior Bank IPO Carlo Tassara SpA 511.66 58 Investors Bank BPH; Investors 06/12/2012 BPH TFI Acquisition Investors Holding SA 41.22 100 Holding 21/08/2012 OFE Polsat Acquisition PKO BP SA PTE Polsat 14.68 100 Buyer(s) unknown in 19/07/2012 PKO BP SPO Treasury Ministry 738.68 7.6 this case

Selected Key M&A Deals

Date Target Company Deal Type Buyer Seller EUR (mn) Stake %

Institutional, private 04/05/2012 Bank BOS SPO 54.74 28.42 Investors

EFG Eurobank; 30/04/2012 Polbank EFG Merger Raiffeisen Polbank 100 Raiffeisen

11/04/2012 Bank BGZ Minority buy Rabobank Treasury Ministry, other 312.37 39.25

Banco Santander; BZ 28/02/2012 Kredyt Bank Merger KBC Group 1,019.42 100 WBK

20/01/2012 TUiR Warta Acquisition Talanx Group KBC Group 770 100

Comments The last few years saw increased M&A in the Polish financial services sector: in the banking, insurance and investment vehicles segments. Many of the deals resulted from decisions made abroad - e.g. KBC Group's withdrawal from Kredyt Bank and Warta or AIG's from AmplicoLife, but also a (failed) attempt to lure buyers to Bank Millennium (owned by Portugal's BCP). Even though the KNF recently said that the structure of the financial system in Poland is close to the optimum level, the M&A activity is not diminishing: most recently, BNP Paribas has announced its take-over of Bank BGZ from Rabobank. One should also point to the ongoing take-over of Nordea Bank Polska by PKO BP.

Financial Performance (PLN mn)

7,609 7,883 6,516 . The history of PKO BP, Poland's biggest bank, dates 5,051 back to 1919, when Pocztowa Kasa Oszczednosci was established. After World War II, Pocztowa Kasa 3,749 3,217 3,143 3,807 3,101 3,071 2,306 2,583 Oszczednosci was transformed into Powszechna Kasa Oszczednosci.

2009 2010 2011 2012 . At the end of Q3/2013, PKO BP's net ROE reached 44.1%, net ROA was 1.6%, while the C/I ratio Net profit Net interest income Net fee and commission income amounted to 44.1%.

Operating Ratios (%) . PKO BP's customers had 6.28mn current accounts and 7.09mn banking cards, while the lender provided e-banking systems to over 5.9mn customers at the 47.86 end of Q3/2013. 41.67 39.59 39.90 . At the end of Q3/2013, the group's open pension 14.81 fund PKO BP Bankowy OFE held the 8th place on 17.49 14.76 14.90 15.90 12.37 the pension funds market in terms of net asset value 12.47 13.10 (PLN 12.9bn) and the 7th place in terms of the number of OFE members (960,000). 2009 2010 2011 2012 ROE C/I CAR

Shareholders (After Jan 2013 Deal; %)

State Treasury 31.39% . In July 2012, Polish State Treasury sold 95mn PKO BP shares in block transactions. In January 2013, the State Treasury sold another 25mn shares in Aviva OFE block transactions and state-owned bank BGK sold 6.72% all PKO BP shares it held (128.1mn). Thus, the State Treasury's stake in PKO BP decreased by 9.6%. Two ING OFE 5.17% pension funds ING OFE and Aviva OFE exceeded Others 56.72% the threshold 5% of total number of the bank's votes at GM.

PKO BP on Capital Markets . PKO BP has signed an agreement to acquire Nordea's banking, leasing and fife insurance Dec 31, 2011 Dec 31, 2012 Feb 28, 2013 operations in Poland for a total consideration of PLN Bank capitalization (PLN bn) 40.2 46.1 44.5 2.83bn and has already received a permit for the deal from the anti-monopoly regulator UOKiK, but Free float (%) 48.8 56.4 68.6 since it is still waiting for a green light from the Free float (mn of shares) 609.5 704.5 857.6 financial watchdog KNF, it was forced to cancel the first tender for 100% of the shares in Nordea Bank Share in WIG20 (%) 14.5 15 15 Polska and call a second tender, which is still in progress. Share in WIG (%) 9.8 10 10

Share in MSCI Poland (%) 13.5 15 16.5

Loans Market Share (%)

20.0 19.2 19.5 19.2 19.0 19.0

17.2 16.0 16.6 13.8 16.2 16.1 16.1 12.8 14.1 13.1 13.2 13.2 . PKO BP's is particularly strong on the mortgage loans market, with a market share of 20.4% at the end of Q3/2013 (vs. 20.0% at the end of 2012); at that time, it controlled 28.4% of the Polish zloty mortgage loan market and 12.8% of foreign currency 2006 2007 2008 2009 2010 mortgage loan market. Households Corporates Total . The group's mutual fund firm PKO TFI has advanced Deposits Market Share (%) to the 3rd place in terms of the net assets value with a 7.4% market share at the end of Q3/2013 from the 23.5 23.4 23.2 22.3 21.8 22.2 4th spot and a 6.9% market share at the end of 2012. The value of assets managed by the company 18.5 17.3 17.9 17.8 amounted to PLN 12.9bn as at the end of September 16.8 16.2 12.9 11.7 12.1 2013, which is an increase of 8.4% quarter on- 10.6 10.2 8.6 quarter. PKO BP attributes the growth mainly to favourable situation on the stock exchange and positive net result on sales.

2008 2009 2010 2011 2012 2013*

* - end of Q3 Households Corporates Total

Financial Performance (PLN mn)

. Bank Pekao SA has the second largest network of 4,558 4,805 4,104 branches in Poland with 1,000 outlets as of the end 3,802 of September 2013. At that time, the bank had 2,899 2,956 2,525 2,449 5.45mn current accounts in Polish zloty. 2,412 2,289 2,368 2,257 . Since 1999, Bank Pekao is a part of Italian bank UniCredit which currently holds a 59.23% stake in the Polish lender. . The group owns Poland's largest mutual fund firm 2009 2010 2011 2012 Pioneer Pekao, with a 20.4% market share as of Net profit Net interest income Net fee and commission income September 2013. At that time, the assets managed grew by 21.5% year-on-year. Operating Ratios (%) . In July 2013, Pekao sold its 100% stake in Kiev- based PJSC UniCredit Bank to its majority shareholder UniCredit for USD 166.35mn as a result 52.1 50.6 of the Polish lender's focusing on the domestic 47.5 47.1 market. Existing funding granted by Bank Pekao to PJSC UniCredit Bank will be gradually reimbursed during a period not exceeding four years.

16.2 17.6 17.0 19.0 . Pekao expects its 2013 net profit to fall by a single- 13.3 14.1 13.1 14.2 digit in 2013 (after it grew by 1.9% year-on-year in 2012), while it plans to pay out dividend from the 2013 profit at the highest possible level allowed by 2009 2010 2011 2012 ROE C/I CAR the financial regulator.

Bank Data Loans (PLN mn; end of period)

2010 2011 2012 2013*

95,576 92,563 92,706

Outlets 1,014 1,002 1,001 1,000 81,124

55,829 52,221 52,399 49,579 ATMs 1,800 1,817 1,845 1,848 43,177 40,485 36,733 31,546

Employees 18,276 17,921 17,433 17,068

No of PLN current accounts 4,743 4,834 5,305 5,447 2010 2011 2012 2013* Households Corporates Total

* - end of September * - end of September

Financial Performance (PLN mn)

2,301 2,069 1,822 1,563 1,434 1,385 1,314 1,344 1,358 1,184 974 . Bank Zachodni WBK was established following the 885 merger of Bank Zachodni with Wielkopolski Bank Kredytowy (WBK) in 2001. In the same year, the bank debuted on the Warsaw Stock Exchange. Both predecessors of Bank Zachodni WBK were spun off 2009 2010 2011 2012 the National Bank of Poland in 1989. Subsequently, Net profit Net interest income Net fee and commission income they were privatised and became members of the AIB Group. Operating Ratios (%) . In January 2013, the new BZ WBK came into being, thanks to the merger of BZ WBK with Kredyt Bank; 50.0 49.9 50.2 the former took over the rights and obligations of the 43.9 latter. The merger created a universal bank ranked 3rd in Poland in terms of assets, equity, deposits, gross loans and the number of branches. After the 17.6 17.3 21.2 20.7 merger, the bank had a network of 889 branches 16.5 13.0 15.8 15.1 providing service to about 4.1mn customers. 5.5 6.8 5.5 5.4

2009 2010 2011 2012 ROE C/I CAR NPL ratio

Bank Data (end of period)

2009 2010 2011 2012 2013*

Outlets 512 527 526 519 836 . In November 2013, BZ WBK signed an investment agreement with Santander Consumer Finance and Banco Santander regarding the acquisition by BZ ATMs 1,042 1,051 1,045 1,059 1,406 WBK of 60% of the shares (67% of the voting power) in Santander Consumer Bank (SCB). The Employees 9,453 9,840 9,383 8,835 12,496 transaction is being carried out to fulfil the commitment made by Banco Santander towards the * - end of September Polish financial regulator KNF under which Banco Santander agreed to use available means to allow Loans & Deposits (PLN mn) SCB to become a subsidiary of BZ WBK by 31 March 2014. 76,188 69,688 . BZ WBK expects a single-digit growth in its 2013 net profit, excluding costs of the integration with Kredyt 46,829 47,077 Bank. In the future, the results are expected to 38,018 39,868 continue to improve further, especially as the synergies of the Kredyt Bank merger exceed expectations.

2011 2012 2013* * - end of September Loans Deposits

Financial Performance (PLN mn)

2,167 2,234 . mBank was founded in 1986 as BRE Bank and began to 1,811 provide corporate banking services in 1987. Next year, 1,658 the bank started to offer services connected with handling of foreign trade transactions. In October 1992, BRE Bank 1,135 1,203 debuted on the Warsaw Stock Exchange. 746 840 840 595 642 129 . In 1994, the bank signed an agreement on strategic partnership with Germany's Commerzbank. In 2000, Commerzbank increased it share in BRE Bank to 50%. 2009 2010 2011 2012 Currently, Commerzbank holds 69.66% in mBank. Net profit Net interest income Net fee and commission income . In November 2013, BRE Bank, the main company of the Operating Ratios (%) group operating in the corporate banking segment, and MultiBank, operating in the retail banking segment, were rebranded as mBank, the group’s internet retail banking 54.2 51.8 brand. Other subsidiaries including brokerage house DI 47.7 46.4 BRE Banku and BRE Private Banking & Wealth Management were to follow suit by the end of 2013. Rebranding costs have been estimated at around PLN 15.9 18.7 100mn (EUR 24mn). 21.0 17.9 15.6 11.5 15.0 . mBank’s net profit target for 2013 is PLN 1.0-1.2bn 5.1 compared to PLN 1.2bn reported in 2012. In Q1-Q3/2013, 2009 2010 2011 2012 the bank’s earnings reached PLN 0.88bn compared to ROE C/I CAR PLN 0.93bn for the same period of 2012.

Loans Development (PLN mn) Deposits Development (PLN mn)

72,073 70,240 69,588 60,085 57,984 54,244

38,689 38,961 37,817 33,234 32,595

30,211 26,701 26,636 27,890 28,405 27,015 24,249

3,661 3,366 2,901 528 501 854

2011 2012 2013* 2011 2012 2013*

Households Corporates Others (incl. public) Total Households Corporates Public Total

* - Q3/2013 * - Q3/2013

Financial Performance (PLN mn)

2,049 1,852 1,628 . Bank Slaski was established in April 1988 in 1,402 Katowice. The bank commenced its operations in 964 987 880 1,021 1,004 February 1989. In January 1994, the Netherlands's 753 832 595 ING bought 25.9% in Bank Slaski (currently, ING holds 75.00% in the Polish lender); later that month, the bank debuted on the Warsaw Stock Exchange. In 2011, ING Bank Slaski changed its initial capital 2009 2010 2011 2012 structure by a 1-to-10 shares split. Net profit Net interest income Net fee and commission income . ING Bank Slaski hopes to be able to meet the Operating Ratios (%) financial supervision's requirements allowing it to pay out dividend from its 2013 profit. In Q1-Q3/2013, the 58.8 58.3 56.3 56.9 bank’s earnings grew by 11% year-on-year to PLN 710mn. Last time ING Bank Slaski paid out dividend from its 2010 profit allocating 28% of the annual earnings for the purpose.

13.1 12.0 14.2 13.2 14.7 14.6 11.9 11.7 . ING Bank Slaski shares are included in the new blue-chip index WIG30 that debuted in September 2009 2010 2011 2012 2013.

ROE C/I CAR

Deposits Development (PLN mn) Loans Development (PLN mn)

66,011

50,377 57,783 46,307

52,771 39,331 48,455 47,437 47,972 43,727 32,212 32,348 29,742 39,378

27,595 24,367

24,357 33,450 34,213

32,515 33,014 19,833

18,165 17,892

17,133

16,565

14,964

13,422

12,515

12,539

11,334

9,703

22,284

8,485

7,224

5,997

19,405

18,558

4,488

15,441

14,523 14,922 2008 2009 2010 2011 2012 2013*

Retail loans Mortgage loans 2008 2009 2010 2011 2012 2013* Corporate loans, leasing and factoring

Households Corporates Total Total

* - Q3/2013 * - Q3/2013

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