CGD Group Consolidated Operations

1 Feb 2019

Consolidated results - 2018*

(Unaudited financial information)

2018 results reinforce the increase in profitability and improved asset quality consequent from the successful implementation of the Strategic Plan, reflected in rating improvements.

Highlights

CGD’s consolidated activity continued to be positively impacted by the implementation of its strategic plan which generated net income of €495.8 million in 2018, equivalent to a ROE⁽¹⁾ (return on equity) of 6.6%;;
This level of profitability reflects the evolution of the following accounts:
- CGD Portugal’s net interest income was up 2.1% over 2017 to €731.0 million. Consolidated net interest income, impacted by adverse foreign exchange effects in Angola and Macau, was down 2.9% to €1,204.8 million;
- An improvement of 2.0% in net fees and commissions in 2018, in comparison to the same period 2017;
- A visible 10.3% reduction in operating costs⁽²⁾;
A low cost of credit risk (0.21%) was maintained, confirming the quality of CGD’s assets as well as their coverage ratio;
Net core operating income before impairments was up 15% over the end of 2017 to €726 million;
CGD’s total operating income in 2018 was sharply impacted by the anticipated reduction in net trading income, owing to its highly expressive proportion in 2017;

CGD’s efficiency level continued to progress favourably with a cost-to-income ratio of 52%;

(EUR Million)

Core Activity Evolution
Core Activity Evolution	2017-12	2018-12	Var. (Abs)	Var. (%)
Net interest income CGD Portugal	716	731	15	2%
Net interest income Other Entities	525	474	-51	-10%
Net interest income Consolidated	1,241	1,205	-36	-3%
Net fees and comissions	465	474	9	2%
Recurrent operating costs⁽²⁾	1,062	953	-109	-10%
Net core operating inc. before imp.⁽²⁾	634	726	92	15%
Credit impairment (net)	86	119	34	39%
Net income	52	496	444	854%

Consolidated net income of €495.8 million in 2018 was sharply up over the €51.9 million of 2017;
As part of the implementation of its deleveraging plan for non-performing assets, in 2018, CGD Group made several sales of both real estate received as payment in kind for loans as well as other investment properties. All non-performing loan sales planned for 2018 were therefore negotiated and executed without the recognition of any capital losses to the net book value;
CGD’s asset quality continued to show remarkable improvement with the CGD Group NPL (non-performing loans) ratio reaching 8.5%, along with impairment and collateral coverage ratios of 63.5% and 52.4% respectively (total coverage ratio of 115.8%);
Total resources continue to show the engagement of customers with CGD, with the total amount of domestic deposits reaching €70,360 million;
In new mortgage loans, there was an increase of 27%, more €328 million compared to 2017;
Regarding specialised credit, new factoring and confirming operations increased by 15%, equipment and property leasing by 27% and 33%, respectively, over 2017;
A CGD’s liquidity position remains highly favourable. CGD’s assets eligible as collateral for the Eurosystem pool amounted to €12 billion, with an LCR (liquidity coverage ratio) of 226%;
In June 2018, CGD completed the last stage of its Recapitalisation Plan for a global amount of €4,944 million with its issuance of €500 million Tier 2 securities;
The phased-in and fully loaded CET 1 ratios both stood at 14.7%. The fully loaded Tier 1 and Total ratios of 15.7% and 17.0%, were indicative of the robustness of CGD’s capital position, even without any phasing in period for the implementation of IFRS 9 in first quarter 2018;
CGD’s performance in implementing its strategic plan and the completion of its recapitalisation plan in 2018, together with the favourable economic environment in Portugal, were reflected in Moody’s three notch upgrade of CGD’s rating to Ba1, and one notch upgrade from FitchRatings, to BB with positive outlook, while DBRS affirmed CGD’s investment grade rating of BBB (low);
The London, Cayman, Macau Offshore, Zhuhai and New York branches were already closed down as part of the implementation of the Strategic Plan. Work also continued on the sale process of CGD’s shareholder position in Mercantile Bank Holdings Limited, Banco Caixa Geral, S.A. (Spain) and Banco Caixa Geral Brasil during the course of 2018. These sales seek to rationalise CGD Group’s international structure, enabling it to free up capital and reduce its risk profile.

The buyers of CGD’s entire shareholding in Mercantile Bank Holdings Limited (South Africa) and in Banco Caixa Geral, S.A. (Spain) were approved in 2018. These transactions are now subject to the local authorities, and for that reason weren’t considered in 2018 accounts. If these sales materialise until the final approval of the CGD’s Annual Report 2018, they will constitute an adjustable subsequent event.

Press Release - Read or Download here the full version.
Presentation - Read or Download CGD Consolidated Results presentation.

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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€ 47.9 in 2018 and M€ 31.1 in 2017 for staff reduction programs as well as administrative expenses.
^(*)2017 accounts have been restated following a change of accounting policy on the sale of non-current real estate assets (held for sale) which includes essentially assets obtained from credit recovery.

This document is an English translation of the Portuguese language document “Press Release - Resultados Consolidados de 2018”. In the event of any inconsistency, the original version prevails.

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