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2018 Financial and Social Report

In 2018 the Bank Millennium Group implemented its medium-term business strategy adopted in October 2017 for the years 2018-2020. It assumed the acceleration of organic growth through adding to retail account acquisition such areas as cash loans, investment products, micro-enterprises and corporate lending. In the main growth area – retail accounts – the Bank achieved acceleration through increasing in 2018 the number of active customers by 200 thousand. This is a good starting point for achieving the goal of growth by 600 thousand (doubling the previous 3-years period) in the strategy’s horizon until 2020. In the next strategic area – cash loans – the Bank had a 39% increase of sales through acquiring over 3.2 bn PLN in new loans in 2018, i.e. not much less than new mortgage loans (3.3 bn PLN and 31% growth of sale). A double-digit growth of credit volume was also achieved in the corporate segment, thus considerably exceeding the average growth of corporate loans in the whole banking system. On the other hand, no growth was noted in the balance of sold non-deposit investment products, because this market was affected by very negative factors, both global (falling share prices on most markets) and local (drop of trust in the market caused by problems of one debt-collecting company). Strengthening the Bank’s position in the micro-enterprise segment was helped by organisational changes in order to separate this area within the Bank’s structure.

An important area of Bank Millennium’s strategy continues to be its focus on customer satisfaction with a mass personalisation in retail and sectoral approach in business, to be supported by a strong utilisation of the digital component in banking (and outside it) as an important competitive edge. 2018 confirmed the Bank’s leadership in this area: the Bank became number one in the ARC Rynek i Opinia ranking in many categories, including perhaps the most important one, using the Net Promoter Score to measure customer satisfaction (NPS=61 for the Bank – the market’s highest). The achieved success largely results also from new digital solutions, being effectively implemented, which not only improve cost and sale effectiveness, but also help improve the quality of products and services on offer.

The progressing automation of processes allows to contain rising costs of business, particularly personnel costs, which are now under huge pressure in the whole economy, particularly in the banking sector. Bank Millennium tries to win the war for talent by offering an inspiring working environment and responsible conduct vis a vis its Employees, as well Customers and Society.

Strong competition in the banking sector and growth of concentration also prompted Bank Millennium to supplement the above-mentioned organic growth strategy with a takeover transaction.  On 5 November the Bank announced the agreement on the transaction to buy 99.8% of the shares in Euro Bank S.A., which should be finalized in 1st half of 2019 without increasing the Bank’s equity. The planned acquisition of Euro Bank, holding as of June 2018 11.9 bn PLN in loans (almost half of them cash loans) and 7 bn PLN in deposits, will enable Bank Millennium to become bank no 6 in the attractive segment of retail non-mortgage loans and become no 6 in terms of retail customers in Poland, thanks to adding 1.4 million new customers. Euro Bank’s competences in lending to new customers will enable Bank Millennium to strengthen its ability to acquire new customers. Euro Bank will also add a complementary network of branches with significant presence in small towns based on the franchise model. This transaction means for Bank Millennium an advantageous utilisation of capital and liquidity with simultaneously maintaining them at a comfortable level. The transaction should bring a significant rise in efficiency due to economies of scale and synergies, mainly in terms of costs. This should ensure a positive growth of earnings per share at the Bank and solid return on investment in future.

A transaction much smaller in scale (but already implemented) was the incorporation of a credit union SKOK Piast in Tychy in the Bank’s structures, which happened as of 1 November 2018.

Development prospects in 2019

The goal of the Bank Millennium Group for 2019 will be a combination of effective implementation of the Euro Bank acquisition transaction with continued solid organic growth accompanied by high innovation level.

As regards the acquisition transaction, after obtaining all the approvals, the Bank assumes the closing of the legal merger in the 3rd quarter of 2019 year, which will enable an effective merger of the organisational structures of both banks. The full operational merger is planned by the end of the year and will be preceded by the migration of all the customers and products of the acquired bank to the platform of Bank Millennium. After the merger the Bank will operate under Millennium logo.

The planned Euro Bank acquisition transaction is the biggest transaction of such scale with Bank Millennium’s participation in 20 years. Despite this, the Bank intends to conduct the merger in a way interfering to the minimum extent with its current operations.

Thus, Bank Millennium assumes that the main goals specified in the organic growth strategy for the year 2020 will be implemented in at least the same assumed scale or will be considerably accelerated thanks to the merger. The first group includes tasks for the micro and corporate segment, where it is planned to maintain a high pace of growth despite an expected slight economic slowdown in Poland. In the retail segment the currently fast increase in the number of customers and products will be supplemented by the base of 1.4 million new customers providing the basis for the penetration of the present Bank products. Particularly high acceleration thanks to the merger should take place in consumer loan sales. First of all, there will be an initial doubling of the present portfolio, and secondly the Bank will acquire the competences of Euro Bank in granting such loans to new customers. The Bank is also preparing to increase its exposure in terms of mortgage loans, both thanks to the acquired portfolio and also by maintaining a high rate of selling new loans. In order to support business development in this area, the Bank started last year the project of setting up a mortgage bank. The obtaining of suitable licenses and starting its operations is planned for 2019, thanks to which the Bank Millennium Group will gain the possibility of issuing covered bonds.

The Bank’s task for the coming quarters will also include the effective implementation of the process of utilising the complementary network of branches, mainly in small towns, where Bank Millennium has not been present so far. It is initially estimated that the Euro Bank network (based mainly on the franchise model) will add over 200 of such towns totalling 4.5 million residents. At the same time the process of closing overlapping branches will take place in order to achieve full synergy effects.

The implementation of the growth strategy in the investment product area will depend on capital market trends and the manner and consequences of implementing the MiFID2 regulation, which may cause continuation of the last year’s negative trend on this market. The Bank is also preparing in 2019  year for challenges related to the full implementation of the PSD2 payment system directive. Operating in conditions of more openness to competition, from banks and players getting involved in payment services, will more and more depend on the effectiveness in maintaining relations with customers, whose expectations are growing and require more personalisation of services with the use of state-of-the-art solutions and digital technologies. Bank Millennium intends to meet these challenges by maintaining the highest standards in these areas. Keeping leadership position in quality and digitalization remains the Group’s target and will be supported in 2019 and following years by needed investments on innovations.

An effective combination of the merger project with maintaining a fast pace of organic growth should enable the Bank to reach or exceed the adopted main medium-term goals of the 2020 strategy.