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Innovativeness is one of the values in PZU’s new strategy. The acquisition of shares in Alior Bank fits perfectly with that strategy as this bank is highly innovative, has a high level of commercial and technological sophistication coupled with its experienced and effective management.
Purchase of Alior Bank shares and recognition in the consolidated financial statements of PZU Group
According to the preliminary share purchase agreement covering the sale of Alior Bank SA (“Alior Bank”) shares from Alior Lux S.à.r.l. & Co. S.C.A and Alior Polska sp. z o.o., which was signed on 30 May 2015, PZU acquired 18,318,473 shares of Alior Bank constituting roughly 25.19% of the bank’s share capital in three tranches for the total price of PLN 1,634.9 million (PLN 89.25 per share). The transaction depended on conditions precedent, including no objection from PFSA, approval of OCCP, and approval of the Ukrainian anti-monopoly office.
On 6 October, PFSA did not submit an objection and thus all of the conditions precedent were fulfilled.
PZU paid the following for specific tranches:
- I tranche 7,244,900 shares (9.96%) for total amount of PLN 646.6 million – 12 October 2015;
- II tranche 7,244,900 shares (9.96%) for total amount of PLN 646.6 million – 18 December 2015;
- III tranche 3,828,673 shares (5.27%) for total amount of PLN 341.7 million – 11 March 2016.
Between 12 October 2015 and 18 December 2015, Alior Bank was considered as an associated entity.
PZU Group has been in control from the acquisition of the second tranche. Consequentially, Alior Bank was subject to consolidation. A makeshift settlement of the acquisition was performed for the end of 2015 based on the data prepared for 31 December 2015. There were no considerable differences in the accounting data between 18 December 2015 (first day following the acquisition of control) and 31 December 2015. In 2015 only assets and liabilities of Alior Bank were consolidated.
Simultaneously, the obligations resulting from the acquisition of the third tranche of 3,828,673 shares for the total amount of PLN 341.7 million were recognized.
Market situation
As at the end of 2015, there were 38 domestic banks, 561 cooperative banks, and 27 branches of credit intuitions operating on the Polish market. On 2015, similarly to the previous years, banking network diminished (by 3.8% to 14,496 locations) and the employment level dropped (by 1.0%).
Between January and December 2015, the banking sector generated a net profit of PLN 11.5 billion (a drop by 27.6% year-on-year.) The net result in the banking sector was mainly influenced by the following events: decrease in interest result by 4.8% (as a result of lowering interest rates by the Monetary Policy Council) and the result from fees and commissions by 3.3%. Moreover, this drop resulted from a higher employees costs and a growth in general management costs due to increased fees payable by the banks to the Bank Guarantee Fund.
The value of assets of the banking sector as at the end of 2015 reached PLN 1,599.9 billion and was 4.4% higher than at the end of 2014. The main areas of improvement was a growth in credits for enterprises (+8.8% year-on-year) and household receivables (+6.7% year-on-year). Despite low interest rates, the deposits in the non-financial sector increased at the end of December 2015 by 9.9% year-on-year to the amount of PLN 938.8 billion.
The value of own funds in the banking sector for capital ratios reached PLN 149.2 billion as at the end of September 2015 and reached by 7.4% year-on-year. The growth was related to a decision of a considerable number of banks to retain 2014 profits as a result of resigning from and discontinuation of dividend payment.
Total capital ratio of the banking sector reached 15.6% at the end of September 2015 (a growth by 0.6 p.p. compared to the end of September 2014), and the core capital ratio, Tier I, amounted to 14.3% at the end of the above-mentioned period (an increase by 0.5 p.p. compared to the end of September 2014).
Activity of Alior Bank
Alior Bank is an especially attractive player, among others, on account of its strong position in the retail banking segment. It is backed up with numerous strategic initiatives, innovative solutions concerning IT systems and the distribution network as well as its high level of cost effectiveness.
Alior Bank is a universal bank that is recognizable for its state-of-the-art solutions and a wide product offer. In 2015, Alior Bank Group generated PLN 309,0 million in net profit per shareholders of the parent entity and reached ROE of 9.5%.
The above financial result was reached regardless of a number factors that adversely affected operations of the bank, including: incurring costs related with the bankruptcy of Spółdzielczy Bank Rzemiosła i Rolnictwa (Cooperative Bank for Craftsmanship and Agriculture) in Wołomin, making a payment towards the Borrowers’ Support Fund, higher fees payable to the Bank Guarantee Fund, higher interchange fee on card transactions, or operating in the environment where very low interest rates prevailed.
The main sources of revenues at Alior Bank Group include net interest result which reached PLN 1,501.0 million – thanks to a dynamic growth in credits by means of applying an effective pricing policy and as a result of merger with Meritum Bank.
The cost/income ratio amounted to 51.1%, but it would have reached 48.1% if the costs incurred as a result of the bankruptcy of Spółdzielczy Bank Rzemiosła i Rolnictwa (Cooperative Bank for Craftsmanship and Agriculture) in Wołomin and the payment towards the Borrowers’ Support Fund had been excluded.
At the same time, in 2015 operational merger with Meritum Bank took place four months after the legal merger, which evidences to the level of competence and experience of Alior Bank staff.
Factors, including risks and dangers, which will impact the activities of Alior Bank in 2016
The situation in the banking sector in 2016 will primarily be affected by:
- new tax burden applicable as of 1 January 2016 resulting from the tax on certain financial institutions;
- increasing by the PFSA minimum capital requirements to 10.25% in the core capital ratio Tier I and to 13.25% in the total capital ratio as of 1 January 2016, from the previously applicable levels of 9.00% and 12.00% respectively;
- operating in the environment where very low interest rates prevail, which creates pressure on the level of generated net interest margin;
- macroeconomic situation in the Polish economy – increase in the Gross Domestic Products, as well as the employment and salary level, accompanied by historically low interest rates and low prices of energy materials, positively affects the level of generated volume of credits and quality of credit portfolio.
