Investor Presentation May 2020 Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
2 Fibank: Top Player in an Attractive Banking Environment
Historically strong macroeconomic indicators 3.4% annual GDP growth reported in 2019, exceeding EU average
solid budget revenue base and low government debt before COVID-19 global spread economy expected to recover to pre-crisis levels in 2021 on activation of international trade and Bulgaria has an domestic consumption catch-up attractive Joining ERM II and Banking union to positively impact the economy and the banking banking sector (domestically owned banks will benefit from the access to ECB funding) environment Stable, profitable banking system (RoE at 11.8%) with high net interest margin* at ~3% in 2019; Central bank with BGN 9.3 bn COVID-19 response measures
Significant catch-up potential vs. EU on retail loan penetration 21% Loan/GDP ratio in BG compared to 50% in EU in 2018, 44% in Slovakia, 35% in Croatia double-digit increase in salaries in each of the last 12 months and 40% in total over the last 4 years
Top 5 bank in Bulgaria; 10.2% market share in loans, 9.4% market share in deposits and Top 2 corporate-lender Fibank also operates a Cyprus branch and a subsidiary in Albania Fibank is a With 1.2m highly affluent customers and 143 branches countrywide, Fibank has an domestic excellent base for retail business growth champion in Bulgaria The bank has been awarded with the best customer service in the market and is the leader in digital channels offering being the first bank to offer NFC in Bulgaria in 2016 and introducing Garmin pay and Apple pay in 2019
3 Source: Company Information, BNB data, CEIC data; Finance Ministry expectations Note: *Sector NIM calculated over average interest-earning assets Fibank: Strategic Highlights
Growth in Retail & SME businesses to continue outpacing market, keep Top 3 position in Large & Medium business lending
Potential to further expand market share in digital banking through enhanced customer service experience and change in customer behaviour during pandemic COVID-19 crisis Strategy for Further improving efficiency and delivering sustainable returns to shareholders by growth and higher C/I ratio below 50% and efficiency deliver ROE above 12% by 2023
Implement a strategy to
clean-up NPE loans and
reduce NPEs to market levels, reaching target of <10% by 2023
New capital will support Fibank growth strategy and credit growth in Retail & SME EUR 100m businesses capital raise to Fibank is in best position to capitalize on favourable macro environment and growing support Fibank consumer confidence overall strategy Fibank is the largest locally owned bank in a consolidating market
4 Source: Company Information Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
5 Bulgarian Economy: Historical High Growth and Fiscal Stability
Bulgaria is among the fastest-growing EU economies with GDP real growth rate of 3.4% in 2019. Bulgaria is fiscally-stable reaching a budget surplus for the last three years in a row and maintains the third lowest government debt level in Europe (20% of GDP as of end-2019). Predictable and low inflation environment; stable currency - currency board arrangement since 1997 with Bulgarian lev (BGN) pegged to Euro. The country is expected to join the Eurozone (i.e. joining the Banking Union and ERM II) in H1 2020. The most favourable tax regime in Europe (10% corporate and individual tax rate and 19.6% social security rate). Bulgaria is a member of EU, NATO, WTO and CEFTA.
Indicator 2015 2016 2017 2018 2019 2020F 2021F
GDP, EUR m 45 675 48 620 52 309 56 086 60 674 n.a. n.a.
Real GDP growth, % 4.0% 3.8% 3.5% 3.1% 3.4% -7.2% 6.0%
Inflation, % -1.1% -1.3% 1.2% 2.6% 2.5% 1.1% 1.1%
Unemployment rate, % 9.1% 7.6% 6.2% 5.2% 4.2% 7.0% 5.8%
Current account balance, % of GDP 0.1% 3.2% 3.5% 1.4% 4.0% 3.3% 5.4%
FDI, % of GDP 4.4% 1.9% 3.1% 1.8% 1.8% n.a. n.a.
Budget balance, % of GDP -1.7% 0.1% 1.1% 2.0% 2.1% -2.8% -1.8%
Government debt, % of GDP 26.1% 28.8% 25.0% 21.8% 20.0% 25.5% 25.4%
Household consumption, improvements in the labour market and a return of export growth should drive a recovery in 2021 and EC forecasts Bulgaria’s GDP to advance 6%.
6 Source: BNB; NSI; EC(forecast) Bulgarian Economy: Still in good shape despite Covid-19
Bulgaria entered the COVID crisis with attractive macroeconomic fundamentals and robust banking sector
Bulgaria has one of the lowest number of COVID-19 cases thanks to: timely and strict government measures to fight the spread of the virus society obeisance and adaptation to distancing and new standard of living and work Bulgaria stands Government immediately introduced measures to fight COVID economic effects strong amidst the 60/40 employee protection scheme – 60% of the monthly salaries of employees who are not laid COVID 19 pandemic off are covered by the state BGN 2 billion new working capital loans to be provided to SMEs through banks, backed by 80% guarantee from the Bulgarian Development Bank (BDB) BGN 200 million interest-free and fee-free consumer loans (up to BGN 4 500 per recipient) to be provided by commercial banks and backed by a 100% guarantee from BDB
Bulgarian National Bank also applied a series of measures to respond to COVID-19: Smoothening the operation of the monetary regime and the infrastructure BGN 9.3 billion is Further strengthening of the capital and liquidity base of banks in the amount of BGN the estimated total 9.3Bln by: effect of the Central capitalisation of 2019 profits in the sector bank measures cancelling the intended increases of the countercyclical capital buffer repatriating liquidity from foreign markets. Temporary moratorium (up to 6m) that suspends or postpones payments on bank loans
7 Bulgarian Banking Sector: Strong lending growth
INCREASING DEPOSITS EVEN STRONGER GROWTH IN LENDING
Bulgaria: Deposits CAGR 2017-Q1’20 Bulgaria: Gross loans (in EUR billions, 2017 to Q1’20) (in EUR billions, 2017 to Q1’20)
10% 12 13 29 30 7% 11 27 10 25
22 22 7% 19 20 18 17 8% 15 16
2017 2018 2019 Mar-20 2017 2018 2019 Mar-20
Business Retail Business Retail
Positive development of overall economy and significant growth of personal income as well as consumption supported strong development of deposits and lending
8 Source: Bulgarian National Bank Bulgarian Banking Sector: Retail lending holds the strongest catch-up potential
RETAIL LOAN PENETRATION DEPOSIT PENETRATION
Retail loans to GDP, in % Deposits to GDP, in %
Loans to GDP for Bulgaria: 56% vs. 94% for the EU
9 Source: Bulgarian National Bank; Bulgarian Ministry of Finance; World bank data; the Globaleconomy.com Bulgarian Banking Sector: Attractive Margins
INCREASING PROFITS ATTRACTIVE PROFITABILITY
in EUR bn 14% 13.3% 2.16 2.16 11.8% 1.99 12% 9.6% 10% 8.8% 8.2% 8%
0.86 0.86 6% 0.60 4% 0.46 0.49 1.7% 1.2% 1.5% 1.2% 0.16 0.15 2% 1.0% 0% 2017 2018 2019 Q1'19 Q1'20 2017 2018 2019 Q1'19 Q1'20
Total operating income Net income Return on Equity Return on Assets STRONG NET INTEREST MARGIN LENDING RATES REMAIN LUCRATIVE
6% 8% 7.1% 4.7% 6.3% 6.3% 5.7% 3.9% 6% 3.6% 3.5% 3.7% 4.9% 4.9% 5.0% 4.8% 4.9% 4% 3.3% 3.3% 4.3% 2.7%4%
2% 3.4% 3.2% 3.2% 3.0% 3.0% 1.7% 2% 0.7% 0.2% 0.2% 0.1% 0.1% 0.1% 0% 0.5% 0.3% 0.3% 0.3% 0.3% -0.3%0% 2017 2018 Q1'19 2019 Q1'20 2017 2018 Q1'19 2019 Q1'20
Net interest margin LT loans ST loans Term deposits Int Income / interest earning assets Cost of funding Lending rates on new business volumes
10 Source: Bulgarian National Bank; Lending rates on new business volumes Bulgarian Banking Sector: Fibank is the Biggest Domestically-owned Bank
The Bulgarian banking sector is fragmented with 19 banks and 5 branches of foreign institutions as of March 2020
The consolidation process has started a few years ago (six bank transactions) and is likely to continue
With 8.8% market share Fibank is the largest domestically-owned player on the market
Bulgarian Banking Sector: Market Share List of all Market Participants
Market EURm, as of March 2020 Total Assets Other Banks & Share Foreign Branches Unicredit Bulbank 10 800 18.3% 8 806 10 123 DSK bank 8 806 15.0% United Bulgarian Bank 5 935 10.1% 17.2% 15.0% Eurobank Bulgaria 5 594 9.5% First Investment Bank 5 188 8.8% 3 175 Raiffeisenbank Bulgaria 4 611 7.8% 5.4% SG Expressbank 3 175 5.4% 5.4% Central Cooperative Bank 3 156 5.4% 3 156 Bulgarian Development Bank 1 676 2.8% Total assets in EURm Allianz Bank Bulgaria 1 473 2.5% 7.8% as of March 2020 Procredit bank 1 261 2.1% 18.3% 4 611 Municipal bank 1 054 1.8% 2.5% 10 800 Investbank 978 1.7% Bulgarian-American Credit Bank 820 1.4% 9.5% International Asset bank 800 1.4% 1 473 10.1% Commercial Bank D 542 0.9% City bank - N.A., branch Sofia 626 1.1% 8.8% ING bank N.V., branch Sofia 564 1.0% TBI bank 467 0.8% 5 594 BNP Pariba S.A., branch Sofia 489 0.8% BNP Paribas Personal Finance, Branch BG 382 0.6% 5 935 Tokuda Bank 195 0.3% Texim bank 191 0.3% 5 188 T.C. Ziraat Bankasi, branch Sofia 78 0.1%
11 Source: Bulgarian National Bank Bulgarian Banking Sector: Ongoing Consolidation
The consolidation process has started a few years ago and meanwhile 6 banks were sold with 5 of them already merged with the acquiring banks and one bank branch has left its local operations Within the last five years the number of banks (and foreign subsidiaries) in the Bulgarian market decreased from 31 in 2014 to 24 by year-end 2019 The consolidation process is likely to continue and to be the main exit option for investors
Fibank acquired MKB Unionbank AD from MKB Bank Zrt (Hungary based banking group and a subsidiary of Bayerische Landesbank). 2014 MKB UnionBank was #15 by total assets at the time of the transaction.
KBC Groep NV acquired United Bulgarian Bank from National Bank of Greece for a cash consideration of EUR 610 million implying a P/B multiple of 1.1x. 2017 The acquisition resulted in a combination of UBB with CIBANK, a KBC subsidiary in Bulgaria. It also allowed the combination of UBB-CIBANK and DZI, a Bulgarian insurance company.
OTP Bank acquired a 99.74% in Expressbank from Societe Generale. 2019 OTP paid P/B 1.4x for the bank. The transaction was closed in January 2019.
12 Source: Mergermarket, Reuters Bulgarian Banking Sector: Fibank as Top Market Player
TOTAL ASSETS LOANS DEPOSITS RETAIL DEPOSITS
Market share (%) Market share (%) Market share (%) Market share (%)
Unicredit Bulbank 18.3% UniCredit Bulbank 16.0% UniCredit Bulbank 18.9% DSK (OTP) 17.8% 19.5% 17.0% 19.8% 16.9%
DSK bank (OTP) 15.0% DSK (OTP) 14.4% DSK (OTP) 14.3% UniCredit Bulbank 17.0% 12.4% 13.7% 13.1% 16.3%
UBB (KBC) 10.1% Eurobank EFG 12.0% Eurobank EFG 9.9% Fibank 11.6% 7.5% 9.6% 7.8% 3 12.3%
Eurobank EFG 9.5% Fibank 10.2% UBB (KBC) 9.6% Eurobank EFG 10.5% 7.6% 4 10.3% 7.5% 8.5%
Fibank 8.8% UBB (KBC) 9.7% 5 Fibank 9.4% UBB (KBC) 9.8% 5 8.8% 7.1% 9.5% 8.1%
Raiffeisenbank 7.8% Raiffeisenbank 9.0% Raiffeisenbank 8.0% Raiffeisenbank 7.6% 7.2% 7.9% 6.9% 6.1%
SGE (OTP) 5.4% SGE (OTP) 5.9% CCB 5.9% CCB 7.3% 6.6% 7.2% 6.2% 7.3%
CCB 5.4% CCB 4.4% SGE (OTP) 5.5% SGE (OTP) 6.3% 5.5% 4.2% 6.7% 6.8% Bulgarian Development Bulgarian Development 2.8% 3.1% Allianz Bank 2.8% Allianz Bank 2.5% Bank 2.5% Bank 2.8% 2.9% 2.6% Mar-20 Mar-20 Mar-20 Mar-20 Allianz bank 2.5% Procredit Bank 3.0% Procredit Bank 2.2% Investbank 2.1% 2.6% Dec-17 2.7% Dec-17 1.9% Dec-17 2.4% Dec-17
CONSUMER LOANS* MORTGAGE LOANS BUSINESS LOANS
DSK (OTP) 33.7% DSK (OTP) 19.0% UniCredit Bulbank 19.2% Consumer Loans 28.2% 20.5% 20.1% Fibank increased its market Raiffeisenbank 10.0% UniCredit Bulbank 17.9% 2 Fibank 11.9% 12.1% 18.5% 12.1% share and moved to #6 up Eurobank EFG 9.6% Eurobank EFG 16.2% Eurobank EFG 11.5% 9.2% 15.7% 8.4% from #7 in 2014, despite UBB (KBC) 9.5% UBB (KBC) 11.2% UBB (KBC) 9.0% ongoing consolidation. 8.9% 9.2% 6.3%
SGE (OTP) 8.7% Raiffeisenbank 11.0% DSK (OTP) 8.4% 10.4% 7.0% 7.8%
Fibank 8.6% Fibank 7.0% Raiffeisenbank 8.0% Business Loans 6 9.7% 6 6.4% 7.3% BNP Paribas Personal Fibank is the second largest 5.9% SGE (OTP) 6.4% SGE (OTP) 5.0% finance 6.6% 6.8% market player in this TBI Bank 4.0% CCB 4.6% Procredit Bank 4.9% 3.8% 2.8% 4.2% segment.
CCB 3.9% Allianz Bank 3.3% CCB 4.8% 4.7% 3.7% 4.7% Mar-20 Mar-20 Mar-20 Bulgarian Development Allianz Bank 1.9% Investbank 0.9% 4.6% 2.2% Dec-17 0.6% Dec-17 Bank 2.3% Dec-17
13 Source: Company Information; Bulgarian National Bank. Note: * Including overdrafts and credit cards; Market statistics distorted due to double counting of some mortgage and consumer loans by DSK and other banks since H1 2018 Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
14 Fibank: Unique Position as Strongest Locally-owned Bank
BUSINESS STRENGTHS LEADER IN CUSTOMER SERVICE AND INNOVATI0N
Market position: Established domestic champion and top 5 bank in Bulgaria by assets, deposits and loans Brand: Strong, recognisable, brand with multiple
granted awards
Business Management team: Entrepreneurial team with deep
local knowledge
Overall Profitability: Attractive underlying profitability with NIM of ~3.3% (Q1’20) thanks to attractive asset yields Liquidity: Healthy liquidity position with (net) loans to
Financial deposits ratio at 69% and LCR at 214% (Q1’2020) Scale: Top 3 in retail deposits franchise with over 1M
customers and a sticky deposit base
Distribution network: Omni-channel presence, efficient country-wide branch network (143 branches)
Retail and scalable digital platform Customer service: First-class, differentiating customer service Scale: Top 2 position in business lending* with
~11.9% market share
Local expertise: Unparalleled understanding and
experience in working with local business SME Tailored offer: Innovative and tailored products and Corporate & Corporate personalized service
15 Source: Company Information Note: *Market share includes Corporate, SME, and Micro Fibank: Top Player with Leading Bulgarian Banking Practices
FIBANK COMPANY DEVELOPMENT
1998–2008 Attracted EUR >800M from international debt markets 2010–2016 Multiple projects with the IFC further strengthened corporate governance and risk management 2007 1997 2000 Listed on Bulgarian Stock Exchange EBRD became a Started developing 2016 July 2019 20% shareholder retail banking #1 largest common stock Bulgarian AQR completed ECB AQR completed IPO in Bulgaria
1990–1999 2000–2009 2010 – Today
1993 1997 1999 2005 2013 April 2017 January 2018 Fibank Fibank Cyprus Fibank Albania Issued EUR 200M Eurobonds Acquired Fibank has built Started implementation established established as a established as a MKB up additional of Fibank Growth branch branch (greenfield #1 to issue Bulgarian Eurobonds Unionbank capital buffers strategy focusing on operations) recommended by Retail & SME and digital #1 to issue perpetual Tier 2 bonds the BNB as part of banking the AQR
“Distinguished as the “Best Retail Bank ASSET GROWTH DEVELOPMENT Favourite Brand among in Bulgaria” FIs in Bulgaria”
2000 2007 2013 2017 2019* 2015–2016 2014
“Innovation in Retail “Best Bank in Bulgaria” Banking Bulgaria and Best
EUR EUR Private Bank of The Year” EUR 4.4bn EUR 4.5bn EUR 5.2bn 0.2bn 2.1bn 2014 2011
“STP award for delivery of “STP award for delivering commercial payments and high-class of No.9 No.6 No.5 No.3 No.5 financial institution customer service” transfers”
2016 2016
16 Source: Company Information, Bulgarian National Bank; Note: *preliminary Fibank: Stronger and even closer to its clients after COVID-19
CONTINUITY OF SERVICE SOCIAL RESPONSIBILITY OPPORTUNITY
Focus on customer and Devoted to best client and Strong market share employee safety community service expansion potential
Work-from-home protocol; on- First in Bulgaria to offer Insignificant exposure to site employees split in non- moratorium on loan payments tourism and aviation overlapping shifts Being a digital banking leader, Local leader in online banking Internal hotline for all COVID-19 Fibank was able to immediately Outrunning competitors in card related questions and concerns shift important customer payments and contactless services online Staff supplied with protective payments materials, disinfectants, masks, Offered free online banking Attracting new retail clients via gloves, etc. package during the State of free online banking and interest Emergency period Social Distance protocol, free-loans ensuring sufficient distance Donated 1000 COVID-19 tests
between clients Made available the support of
the state-owned BDB to its own retail and SME clients
17 Fibank: Branch Network and Distribution Platform
MAP OF FIBANK BRANCHES FULL RANGE OF PRODUCTS AND SERVICES RETAIL BUSINESS CLIENTS CLIENTS
FIBANK NETWORK
Fibank: Branches, ATMs and POS Network, as of March’20
Sofia Country Total Branches 51 92 143 ATMs 155 502 657 POS 3 572 5 599 9 351
Fibank distribution platform: Country-wide branch network with 143 locations in Bulgaria
18 Source: Company Information Fibank: Responsible in Impact Lending
GENDER FINANCING SOCIAL MICRO-FINANCING ENVIRONMENTAL
Fibank is the only Bulgarian Loans to start-ups and Clean energy financing bank to offer gender social enterprises, people Financing for renewable financing with disabilities and young energy investments people Smart Lady - a set of Energy efficiency upgrade superior customer Access to financial services projects experience for women, for entities, which other capturing a full product things being equal, would not Electric vehicles etc. package including credit have had access to financing EU programs available programs, health, wealth Instrument funded through EU education, insurances funds
Financial education and networking opportunities as a vocal part of the product Distinct online platform for women including a link to the bank application process;
19 Source: Company Information Fibank: Corporate Governance and Group Structure
OWNERSHIP STRUCTURE* CORPORATE GROUP STRUCTURE*
Free float, 15.0% First Investment Bank AD
First Investment 100% 100% First Investment Bank – Albania Sh.a. Finance B.V.
Mr. Tzeko Diners Club Mr. Ivailo 94.79% 100% Todorov Balkan Financial Dimitrov Bulgaria AD Minev, Services EAD Mutafchiev, 42.5% 42.5% Fi Health 59.1% 100% Turnaround Insurance AD Management EOOD
SUPERVISORY BOARD* 100% 100% Creative Investment MyFin EAD EOOD Name Position
Evgeni Lukanov Chairman 70% 100% Lega Solutions Debita OOD Maya Georgieva Deputy Chair EOOD Georgi Mutafchiev, Ph.D. Member 51% 100% AMC Imoti Radka Mineva Member Realtor OOD EOOD Jordan Skortchev Member Jyrki Koskelo Member Fibank Ancillary Services Companies
20 Source: Company Information Note: *as of May 2020 Fibank: Management Team
Nicola Yanko Svetozar Chavdar Nadia Ralitsa Bakalov Karakolev Popov Zlatev Koshinska Bogoeva Chief Executive Chief Financial Chief Risk Chief Corporate Director, SME Chief Retail Officer Officer Officer Banking Officer Banking Officer
>19 years of >20 years of 17 years of Joined Fibank in Joined Fibank in 18 years of experience in the experience in the experience 2004 1997 as a experience in the financial industry banking industry corporate loan Joined Fibank in Was appointed banking industry expert Started in Fibank Started in Fibank in 2004 as director of Started in Fibank in in 2000 and 1999 and served as corporate banking Appointed as a Chief Risk Officer 2002 and served as served as Director of Internet in 2011 Member of the since 2017, Deputy Director Director of Card Branch, Deputy-Chief Managing Board previously held the Prior to this role, Retail Banking, Payments Accountant, in 2015, served as role of Chief served as Director Internal Director Finance Chief Retail Member of the Compliance Officer Director of Audit and Chief IT and Chief Financial Banking Officer executive Branch Network and Operations Officer Executive from 2015 to 2017 committees of department Officer Director and Mastercard BG and Served as Member of Previous Member of Other roles have Served as Member of Visa BG the Audit Committee experience at the Fibank’s included Deputy the Supervisory of Fibank-Albania and Bulgarian Served as CEO of Managing Board Director of SME Board of Unibank, N. Member of the National Bank FiHealth Insurance since 2017 Lending Macedonia and Supervisory Board of since 2013 Member of the BoD of Unibank, MyFin EAD. N.Macedonia
21 *Mr. Yanko Karakolev and Mrs. Ralitsa Bogoeva appointment s to the Managing Board are pending finalisation Fibank: Strong Balance Sheet with Growing Portfolio & Deposits
FIBANK: BALANCE SHEET
Fibank: B/S development 2017 to Q1’2020, in EUR millions Asset growth driven by both EUR millions, unconsolidated 2017 2018 2019 Q1’20 expanding deposit base and loan portfolio Total assets 4 419 4 723 5 215 5 188 Cash & Reserves 729 826 1 022 912 Increase in net loans as a Interbank Placements 28 64 41 38 result of growth in retail Securities 358 348 431 431 and SME portfolio offsetting Loans (Net) 2 566 2 825 2 954 3 044 the deleveraging corporate segment PP&E, intangible assets 49 48 45 46 Repossessed assets and Investment assets 612 535 572 572 Conservative application of Other Assets 79 76 150 146 IFRS 9 lead to a negative one- Total liabilities and Equity 4 419 4 723 5 215 5 188 off effect of EUR 142m on equity in January 2018 Interbank liabilities 3 9 13 3
Due to customers 3 752 4 101 4 440 4 414 Fibank successfully placed Other borrowed funds 61 60 56 56 a EUR 30 million AT1 bond Other liabilities 21 30 87 89 in Dec’19 Tier I hybrids 107 107 137 140 Shareholder's equity 475 416 482 486
22 Source: Company Information; 2019 preliminary financials Fibank: Attractive Interest Margins and Focus on Cost Control
FIBANK: INCOME STATEMENT
Fibank: P&L development 2017 to Q1’2020, in EUR millions Market pressure on lending interest rates resulted in EUR millions, unconsolidated 2017 2018 2019 Q1’19 Q1’20 decrease of interest income Interest income 174 160 148 38 37 Growing fees & commissions Interest expenses -48 -31 -30 -8 -8 income reflecting increase in Net Interest Income 127 128 118 30 29 transactional business Net Fee & Commission Income 51 48 53 12 12 Core income remained stable Core income 177 176 171 42 41 over the last three years Trading income 8 6 8 2 2 Administrative expenses driven by wage growth and AQR Other operating income 14 8 37 2 1 related consultancy services in Total revenue 199 190 215 45 44 2019 Administrative expenses -101 -103 -107 -27 -26 Other income is higher due to Other income (expenses) -10 33 26 -3 -4 profits from sales and revaluation Pre-provision income 88 120 134 16 14 from repossessed assets (acquisition cost to market price) Impairment losses -40 -42 -60 -6 -9 Profit before tax 49 78 74 9 5 In the year of the AQR Fibank recognized EUR 332m of NPEs Taxes -5 6 -8 -1 -1 with total impairment of EUR Profit after tax 43 84 66 8 5 60m
23 Source: Company Information Key Ratios: Attractive Profitability and Higher Capital Ratios
KEY FINANCIAL RATIOS, UNCONSOLIDATED Profits support increase in Capital Adequacy 2017 2018 2019 Q1’20 capital adequacy ratios Overall capital adequacy 16.1% 16.3% 18.8% 19.6% Tier I capital adequacy 16.0% 16.3% 18.8% 19.6% Annual cost/Income contained below 50% CET I adequacy 13.0% 13.4% 15.0% 15.9% Strong ROE Liquidity 2017 2018 2019 Q1’20 Liquidity ratio, BNB recommandation 20% 26.3% 27.1% 27.4% 24.7% Healthy overall liquidity LCR 320.2% 251.4% 198.3% 214.1% Liquidity management supports net interest margin Profitability 2017 2018 2019 Q1’20 despite low interest rates Cost/Income ratio* 53.3% 46.3% 44.4% 64.4% ROE after taxation 9.7% 18.0% 14.6% 4.0% The NPE ratio increased in 2019 ROA after taxation 1.0% 1.9% 1.3% 0.4% as a result of post-AQR additional Net interest margin (IE assets base) 4.1% 4.2% 3.4% 3.3% recognitions but the bank noted a steady decrease NPL 90+ Loans/deposits 68.4% 68.9% 66.5% 69.0% ratio
Asset quality and provisioning 2017 2018 2019 Q1’20 Fibank's procedure for classification of NPEs is fully compliant with ECB’s. NPE ratio 22.0% 22.2% 24.2% 24.7% NPEs include: NPL 90+ ratio 17.6% 13.0% 12.0% 13.0% 1. Non-performing loans over 90+ DPD; 2. Some forborne non-performing NPE coverage ratio 48.0% 53.1% 32.8% 32.3% exposures <90 DPD; NPL 90+ coverage ratio 59.8% 90.7% 66.4% 61.2% 3. Other non-performing loans <90 DPD for which the Bank considers that the Cost of risk 1.4% 1.3% 1.9% 1.0% obligator is unlikely to pay in full without recourse actions
24 Source: Company Information; Note: Capital adequacy ratios reflect transitional requirements; *Calculated as Operating expenses/(Total operating income + Other income/expenses/) Fibank: Loan Portfolio Development In-Line with Strategy
LOAN VOLUME WEIGHT BY SEGMENT
Fibank: Gross Loans by Segment (in EUR millions, 2017 to Q1’2020)* Fibank: Gross Loan Weight by Segment (2017 to Q1’2020)
3,500 72 83 85 3,000 62 2% 2% 3% 3% 833 946 970 2,500 744 26% 26% 29% 29% 2,000 384 393 400 329 11% 12% 12% 12% 1,500 1,000 1,734 1,915 1,787 1,853 60% 60% 56% 56% 500 0 2017 2018 2019 Mar-20 2017 2018 2019 Mar-20
Large & mid-sized companies SME Retail Micro Large & mid-sized companies SME Retail Micro
INTEREST INCOME INTEREST INCOME CONTRIBUTION
Fibank: Interest Income by Segment (in EUR millions, 2017 to Q1’2020) Fibank: Interest Income Contribution by Segment (2017 to Q1’2020)
200 5 3% 3% 3% 3% 4 3% 150 4 62 37% 38% 40% 59 41% 44% 59 100 16 9% 16 10% 12% 12% 18 13% 50 51% 87 75 1 48% 44% 46% 41% 63 14 151 4 4 0 16 14 2017 2018 2019 Mar-19 Mar-20 2017 2018 2019 Mar-19 Mar-20
Large & mid-sized companies SME Retail Micro Large & mid-sized companies SME Retail Micro
*Under Fibank internal classification Large & mid-sized companies are those with>EUR 7.7M turnover or >250 employees; SMEs: ≤EUR 25 7.7M turnover or <250 employees Source: Company Information Fibank: Strong Growth in Retail and Micro Loans
LARGE & MID-SIZED COMPANY LOANS SME LOANS
Fibank: Gross large & medium company loans (in EUR millions, 2017 to Q1’2020) Fibank: Gross SME loans as per Fibank definition (in EUR millions, 2017 to Q1’2020) 7% 22%
2 000 1 734 1 915 1 787 1 853 500 384 393 400 400 1 500 329 300 1 000 200 500 100 0 0 2017 2018 2019 Mar-20 2017 2018 2019 Mar-20
RETAIL LOANS Market growth for Business loans: 17% MICRO LOANS
Fibank: Gross retail loans (ex. Repo loans), (in EUR millions, 2017 to Q1’2020) Fibank: Gross Micro loans (ex. Repo loans) (in EUR millions, 2017 to Q1’2020) 42% 43% -30% 37% Market: 35% Market: 42% 500 446 100 432 83 85 376 400 358 421 434 80 313 72 303 62 300 60 200 126 96 90 88 40 100 0 20
0 2017 2018 2019 Mar-20 Consumer loans Mortgage loans Credit cards
26 Source: Company Information. Note: *Credit cards decrease in 2018 driven by write-offs; Market dynamics for 2017-Q1’20; Market consumer loans include credit cards; Market Business loans include Large, SME and Micro. Fibank: Significant Improvement of Loan Quality after 2016
THE MAJORITY OF NPEs ARE DERIVED FROM 85% OF NPEs ARE NPE PORTFOLIO ORIGINATED BEFORE 2017 COMPOSED OF CORPORATE LOANS
Fibank: Gross NPEs by year of origination/recognition (in EUR millions, as of March’20) 900 800 690 816 80% of NPEs are 800 loans originated 700 before 2017. 700 657 600 186
600 500
500 400 394 400 300 300 504 200 175 200 157 83 100 100 37 100 6 44 53 46 5 37 6 1 46 1 0 32 4 0 Corporate SME Micro Retail <2017 2017 2018 2019 2020 Total NPEs Origination Recognition Balance sheet value Impairment
Loans originated in 2019 and Q1’20 and recognized as NPE are only 0.9% of the gross loan book
27 Source: Company Information Fibank: NPE ratio above sector average, cost of risk in line with market
FIBANK’S NPEs INCREASE REFLECTS FIBANK AVERAGE CoR FOR 2008-Q1’20 A PRUDENTIAL RECOGNITION APPROACH IS IN LINE WITH MARKET
Fibank: NPE ratio (in %, 2014 to Q1’2020) Fibank: Cost of Risk of Fibank versus market (in %, 2008 to Q1’20) (+21%) (-11%) Cost of risk not (+102%) covered between 30% 2008 and 2013 was 27.0% absorbed after 2013 24.1% 24.6% 24.2% 24.7% 6% 22.0% 22.3% Portfolio 20% AQR sales 5% recognitions 4% 11.9% New NPE 10% recognition 3% policy 2%
1% 0% 2014 2015* 2016 2017 2018 9m 19 2019 Q1 20 In addition, Fibank 0% has solid coverage Average banking sector NPE ratio with collateral
NPE coverage ratio, in % 2014 2015 2016 2017 2018 2019 Q1’20 Market; Average: 1.6% Fibank 69.5 51.6 58.2 48.1 53.1 32.8 32.3 Fibank; Average: 1.8% Market 58.4 51.5 52.9 52.8 60.1 59.0 59.2
28 Source: Unconsolidated; Fibank, BNB; *New NPE classification methodology introduced by the BNB since the beginning of 2015 on Bulgarian market [(EU) 2015/1278]; Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
29 Fibank: Midterm Strategic Priorities
SUPPORT AND STRENGTHEN GROWTH INCREASE STABILITY OF B/S AND P&L
Digital, Technology, Non-Performing Products Repossessed Assets Data Exposures
Redefine customer Retail: Focus on Improve policies/ Finalise sale of several experience & launch Consumer loans, processes/tools and large assets (advanced MyFin digital platform Mortgages, fintech governance buyer talks) partnerships Optimize business Enhanced cooperation Cut Repossessed processes & introduce SME: Expand business with regulators Assets to ~2% of total next-gen security services and transactional assets by 2023 Reduce NPE ratio to products Enhance data <10% accessibility & upgrade Corporate: Prioritise high data analytics quality clients & ‘impact’ lending
Fibank aims to leverage its strengths, establish a local digital banking champion, and finalise risk profile upgrade. Key focus is to further improve Fibank’s ROE and release capital to reinvest into growth.
30 Source: Company Information Fibank: Strategic Outlook
IMPROVING EFFICIENCY AND DELIVERING SUSTAINABLE RETURNS
The management targets a ROE above 12% by 2023. Profitability
The management targets a Cost/Income ratio below 50% by 2023.
CLEANING UP NPE LOANS AND IMPROVING ASSET QUALITY
The management targets to reduce non-interest bearing assets to <10% by 2023.
Asset quality The management aims to reduce NPEs to market levels, reaching a target of <10% by 2023.
The management aims to cut Repossessed Assets to ~2% of total assets by 2023.
31 Source: Company Information Fibank: Fibank’s planned best efforts exceed coverage of EUR 263 million capital gap
MEASURES TO COVER ECB CAPITAL GAP
Fibank: Capital measures, in € millions
500
400 100
EUR 263 million capital gap 300 61 15
90 434 200
30 36 100
101
0 Pre-prov. profit IFRS 9 Bond issue Disposal of RWA De-risking Capital raise Capital ('19-Q1'20) provisions roll- (AT1)* assets** optimisation measures*** (CET1) measures back
RWA decrease (EUR M) - - - (239) (181) (38) - (458) CET1 impact (%) 2.9% 1.0% 0.9% 2.6% 0.5% 1.7% 2.8% 10.9%
Source: Fibank. Note: *The new AT1 addresses part of the difference between the maximum shortfall coming out of the AQR and the 32 baseline scenario; **Executed at 10% as of the presentation date; ***Executed at 60% as of the presentation date; Pre-provisioning profit adjusted for profitability included in ECB’s adverse scenario. Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
33 The Offering: Key Dates
OFFER PARAMETERS AND INDICATIVE DATES
Issue type Ordinary stock
Listing Bulgarian Stock Exchange
Lead Manager First Financial Brokerage House
Ticker (BSE/Bloomberg) 5F4 /5F4 BU
Market cap (07/05/20) EUR 146.2m
Free Float 15%
Offering Size (min/max) EUR 10.2m/ EUR 102m
Offer Price BGN 5 /EUR 2.56 Expand lending growth with focus on retail, while Use of proceeds keeping stable capital ratios Rights trading 15 May – 1 June 2020
Subscription period (for right owners after the end of rights 15 May – 3 June 2020 trading period) Auction for the unused rights 10 June 2020
Subscription deadline (for rights purchased at the auction) 25 June 2020
Secondary trading 7 August 2020
34 Source: FFBH Agenda
Executive Summary
Macro Environment and Banking Sector
Fibank Overview
Strategic Highlights
The Offering
Appendix
35 Fibank: A trendsetter for new solutions in Bulgaria
MILESTONES IN DIGITAL …WITH STRATEGY TO SUPPORT EXPECTED BUSINESS INNOVATION AND LEADERSHIP… GROWTH
Fibank launched No.1 the first virtual Optimise branch workload 2001 No.1 banking branch Fibank Mobile – in Bulgaria the first banking Optimise existing processes and systems mobile portal created by the Bank Enable one step transactions; fully migrate to single Platform 2007 Automate processing activities in back-office Fibank offered new e-service My Support quick product development & integration Fibank, providing e- statements on bank New developments Integrate 3rd party products such as Western Union accounts 2009 added to mobile banking & e- services, incl. utility Digitalization of processes payments, 3D card security Improve sales process by enabling customers to No.1 Fibank first in the 2010 purchase and manage products digitally Balkans to launch an - Integrated platform Use digital applications, video chat options innovative platform 2015 My Fibank combining for digital all digital channels Shift tasks to digital/self-service payments via with enhanced mobile devices with functionalities Initiate transactions from mobile; NFC and the use of digital bank cards 2016 Biometric New digital channels development Software token identification for mobile application developed by Fibank 2018 Develop Natural Language Processing tools No.1 E.g., chat bots, voice processing capabilities No.1 Garmin pay and 2019 Payment initiation Apple pay – first in and account Enable seamless transfer of transactions from mobile- Bulgaria aggregation under PSD2 via mobile to-kiosk and mobile-to-ATM
36 Source: Company Information Fibank launches next generation digital platform to compete global fintech companies
MYFIN TO ENTER THE FINTECH LANDSCAPE IN AUGUST 2020
MyFin
• MyFin to offer mobile payment technology and introduce a new wave of financial services innovation, P2P payments, e-wallet
• Reach new markets, customers and unlock the greater potential of Open banking through APIs and PSD2
• Fast, fully digitized onboarding in combination with immediate product availability and BG-account number
37 Source: Company Information Key growth drivers in the Retail and SME business
RETAIL AND MICRO FOCUS AREAS SME FOCUS AREAS
Mass Mass- Affluent Micro Small Medium Large SME/ Clients Affluent Company Size SME SME Small corp
CA & CL Mortgage CC Micro TD Retail Manuf. Agri- Real HoReCa Proff. Other Products SA. loans Sectors* culture estate
Branches Mobile Internet Branches Direct Digital/ Call center/ Channels Channels Mobile Other
Cities Medium Small Villages Loan & Trans- Loan & Trans- Personal Geographies (100k+) towns towns (<5k) Products Financing actions Financing actions Asset (50-100k) (5-50k) Basic Basic Advanced Advanced mgmt
Primary focus areas Secondary focus areas Primary focus areas Secondary focus areas
Mass affluent is a key segment where most of the profitability is Focus on smaller/medium-sized SMEs as they represent the majority of focused SMEs and have simpler banking needs and hence will allow focus on more basic banking products Current Accounts and Consumer Loans give the access to the largest part of the revenue pool and are crucial to approach mass Retail, Manufacturing and Agriculture are some of the largest affluent segment economic sectors in Bulgaria, selected as priority sectors based on attractiveness and Fibank’s ability to win Omnichannel experience in Bulgaria will be crucial to win the market but branches will remain the main sales point Branches and direct channels are priority as personal interactions are key for SME segment Branches in the cities with above 100k inhabitants will be the core target allowing access to most of mass affluent Basic loans & financings and transactional products are key to focus on core SME needs
38 Source: Company Information, Bulgarian National Statistics Institute. *Focus sectors for lending shown, focus sectors for Transactional services consist of Retail, Transportation, Professional. CL: Customer Loans. CC: Credit Cards. CA: Current Account. SA: Savings Accounts. TD: Term Deposit Customer Overview: Strong Cross-selling Potential
90 DAY DIGITAL ACTIVITY BY DEVICE TYPE Strong cross-selling potential given a favourable customer profile: 91% retail customers, 61% in 25-55 age group. 40% 30% Fibank records higher levels of digital activity compared to Online only Bulgarian peers, driven by online. 21% 20% 24% 13% Mobile & Online 14% Fibank outperforms Bulgarian peers in terms of channelling Mobile only 10% 6% 5% demand through digital channels. Strong focus is given to higher 6% 5% 7% 5% 9% value products such as Personal loans, cards and insurance 0% 3% products. 2018 2019 2018 2019 Fibank BG Top 5 Peers
CUSTOMER PROFILE ACTIVE PERSONAL CUSTOMERS*
Fibank: Customer profile, as of March 2020 Fibank: Active personal customers in segments* Type Gender Age 0.1% 100% Commercial, 8% 9% >65; 0.5% Above €250k 17% 2.0% 80% Women, 55-65; 6% 49% 17% €100k to 0.1% €250k 0.3% 60% 45-55; 4% 20% 1.1% Retail, €50k to 40% 91% 35-45; 61% 5.3% €100k 23% 2% Men, 25-35; 3.2% €20k to €50k 51% 18% 20% 18-25; <18;4% 0% Fibank BG Top 5 Peers 0% 2%
Over 61% of Fibank’s customers fall within the most relevant (age) target group and the bank was able to position itself as a modern bank with above average usage of online services.
39 Source: Company Information, BNB data, CEIC data; Note: *Customers who have a certain amount of deposits and investments Fibank: Overview of largest subsidiaries
Fibank Subsidiaries Description Key Financials Ownership
EURm 2015 2016 2017 2018 2019 • Granted a full banking licence in 2007 and took over the activities of the former First Assets 123.4 139.1 157.9 199.6 260.5 Investment FIB-Tirana Branch 100% Bank – Albania • Offers a full range of products and Equity 13.3 17.0 20.0 27.6 28.4 Sh.a. services for individuals and small and medium enterprises Net profit 1.8 2.7 3.3 3.8 3.9
• Exclusive issuer of Diners Club credit cards in Bulgaria and a processor EURm 2015 2016 2017 2018 2019 of payments Assets 5.4 5.7 6.2 6.9 8.0 Diners Club 94.79% • In 2010, licensed by BNB as a payment Bulgaria AD institution to perform payment operations Equity 1.0 1.1 1.2 1.1 1.1 through payment cards and the issuing Net profit 0.1 0.1 0.2 0.2 0.02 and acceptance of payments by payment instruments
• Performs insurance activities, ensuring EURm 2015 2016 2017 2018 2019 financial security of expenses related to Fi Health medical care in the sphere of non-hospital Assets 3.8 4.0 4.4 4.9 6.1 59.1% Insurance AD medical services, hospital treatment, Equity 2.8 2.9 3.0 3.2 3.6 expenses for medical goods and dental services Net profit 0.1 0.2 0.1 0.2 0.4
First Balkan Creative Turnaround Lega AMC Imoti Investment Financial Investment Management Solutions Debita OOD Realtor OOD MyFin EAD EOOD Finance Services EAD EOOD EOOD EOOD 70% 51% 100% 100% B.V. 100% 100% 100% 100% 100%
40 Source: Company Information The Offering: Subscription Process
Participating How to invest in Fibank Investors
Potential investors should have brokerage contract with a Yes Are you No Bulgarian broker or a trading line currently a with international global broker shareholder? who has access to Bulgaria. For details contact:
11/05/2020 Up to 07/05/2020 Record date. Shareholders Purchase and hold Fibank receive subscription rights shares.
15/05/2020-03/06/2020 15/05/2020-01/06/2020 Place subscription order with Purchase subscription rights your investment intermediary during trading period
10/06/2020 Purchase subscription rights up to 25/06/2020 during the auction. Least- Payment of new shares preferred option Auctioned volume is unknown.
estimated 07/08/2020 Start of trading of new shares
41 Source: FFBH The Offering: Indicative Offering Schedule
SCHEDULE
6-7 weeks
1. Offering announcement
2. Rights trading 10 days 2 weeks
3. Rights Auction 1 week
4. Subscription period 6 weeks
5. Process end
STANDARD PROCESS SAFEGUARDING EXISTING SHAREHOLDERS INTERESTS
The offering process is initiated a week after the official offering announcement with the price parameters; Existing shareholders receive rights, which allow them to subscribe new shares in the public offering; The rights are a listed, tradeable financial instrument; they ensure shareholders can maintain their stake in the company, or alternatively monetize their right to participate in the capital increase; After the end of rights trading, unused rights are auctioned off, to make sure that participation demand can be met in case existing shareholders do not participate in the cap raise or sell their rights to interested parties. Over a six week period the shareholders have the right to subscribe new shares
42 Source: FFBH Disclaimer
This presentation has been prepared solely for information purposes. First Investment Bank AD (the “Company”) and its representatives bear no responsibility (and shall not be liable) for the accuracy, completeness (or lack thereof) or current status of any information contained herein, nor make any express or implied representation or warranty regarding the latter.
This presentation does not contain final, conclusive and definitive information and consequently any recipient of this information may not rely upon it including without limitation as a basis on which to take an investment decision.
Any statements set out in this presentation may neither reasonably be expected to occur in the future, nor are guarantees of future performance and may involve certain risks, uncertainties and assumptions that are difficult to assess.
Neither the Company nor any of its representatives shall have any obligation to update or supplement this presentation or otherwise provide additional information.
43 44