CGD Group Consolidated Operations

27 Jul 2018

Consolidated results
1st Half 2018*

(Unaudited financial information)

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Recapitalisation Plan concluded with Tier 2 issuance by CGD. Strategic Plan implementation with progress in profitability and asset quality.

Highlights

CGD completed the last stage of its Recapitalisation Plan for a global amount of €4,944 million with its recent issuance of €500 million Tier 2 own funds securities, in June 2018;
At the same time, CGD’s consolidated activity continued to be positively impacted by the current implementation of its Strategic Plan which generated a positive net income of €194.1 million in first half 2018, equivalent to a ROE⁽¹⁾ (return on equity) of 5.7%;
Core operating income reached €367.3 million, up 29.9% over first half 2017;

This level of return, in line with the CGD’s Strategic Plan for 2018 (5%), reflects the following evolution:

CGD Portugal’s net interest income which was up 5.8% over first half 2017 to €367.2 million. Consolidated net interest income, impacted by adverse foreign exchange effects in Angola and Macao, was down 2.1% to €593.3 million;
Net fees and commissions with a positive evolution of 9.6% in the half year in comparison to the first six months of 2017;
A visible 14.0%⁽²⁾ reduction of operating costs;
The maintenance of a low cost of credit risk of 0.38%, confirming the CGD’s assets quality as well as their respective coverage.

(EUR Million)

Core Activity Evolution
Core Activity Evolution	2017-06	2018-06	Abs Change	(%) Change
Net interest income	606	593	-12	-2%
of wich CGD Portugal	347	367	20	6%
Net fees and commissions	218	239	21	10%
Recurrent operating costs⁽²⁾	541	465	-76	-14%
Net core operating inc. before imp.⁽²⁾	283	367	84	30%
Provisions and impairments	390	45	-346	-89%
Net income	-50	194	244	-

Total Operating Income of €889,3 million in the semester (- €153,1 million compared to june 2017) was strongly impacted by the reduction of income from net trading income, given the high proportion thereof in 2017;
CGD’s efficiency level continued to show improvement, with a cost-to-income ratio of 50.8%;
Net income of €194.1 million for the half year was sharply up over the negative €49.9 million of June 2017;
Following 2017 when CGD reduced its NPLs (non performing loans), according to the EBA’s definition by €2.7 billion, an additional reduction of €1.1 billion, was achieved in first half 2018 with a strong impact from cured credit, write-offs and recovery components;
The quality of CGD’s assets therefore continues to show an improvement, with an NPL ratio of 10.5%, and a coverage by impairment of 61.6%, by collateral 41,9% and a total coverage of 103,5%;
Consolidated Total Assets decreased in the semester by €1,740 million reaching €91,508 million;
Special reference should be made to the €2 billion amortization of European Central Bank (ECB) funding as well as the reduction in credit, highly influenced by portofolio sales and write-offs;
Total customer resources continue to benefit from the preference of CGD’s customers, with the total, in terms of domestic activity, amounting to €71,067 million, notwithstanding the low level of current interest rates;
CGD’s liquidity position remains highly favourable. CGD’s assets eligible as collateral for the Eurosystem pool amounted to €11.7 billion, with an LCR (liquidity coverage ratio) of 216%;
CGD’s capital ratios in the half year benefited from the referred to Tier 2 issuance which increased the total (phased-in) ratio by 1 p.p., to 16.5% in June. Both the phased-in and fully implemented CET 1 ratios stood at 14.0%, showing the robustness of CGD’s capital position, even with the first quarter 2018 implementation of IFRS 9 without a phasing-in period.

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⁽¹⁾ Net ROE from current activity = (Net Income + non-recurring costs + Non-controlling interests) / Average Shareholders' equity (13 observations).
⁽²⁾ Excluding non-recurring costs of M€ 50.7 in 2018 and M€ 61.0 in 2017 for staff reduction programs as well as general administrative expenses.
^(*) The 2017 June values have been restated, considering BCG Espanha, BCG Brasil and CGD Investimentos CVC as a non-current asset held for sale. Mercantile Bank Holdings was already reclassified as such since December 2016. The whole analysis in this document was done comparably to the June 2017 restated accounts.

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CGD Group Consolidated Operations

Consolidated results
1st Half 2018*

(Unaudited financial information)

CGD Group Consolidated Operations

Consolidated results1st Half 2018*

(Unaudited financial information)

Consolidated results
1st Half 2018*