2015-2017 BUSINESS PLAN PLAN GUIDELINES 1. Revenue increase through more impact on the markets and better management of the customer portfolio with a focus on fee and commission income and on developing the business areas with the most added value, primarily advanced multi-channelling. 2. Simplification and rationalisation of the operating model already begun through simplifying the commercial network, eliminating the Area level, and in further simplification aligning itself with international best practices. 3. Optimisation of the cost of risk through active management of impaired positions, also through conferment of some of these to specialised companies and implementation of differentiated bad loan collection practices. 4. Simplification of the corporate structure focusing the Group on the core businesses and continuing with the gradual disposal of assets not directly referable to the activity typical of a commercial bank. MAIN ECONOMIC AND FINANCIAL OBJECTIVES Operating income at the end of the Plan at 1,007 million Consolidated net profit for the year in 2017 at 170 million Consolidated ROTE attributable at the end of the Plan at 7.2% Fully loaded Common Equity Tier 1 ratio in 2017 of 10.8% 1
The 2015/2017 Three-Year Business Plan Yesterday, the Board of Directors of the Veneto Banca Group approved the new 2015-2017 Business Plan destined to guide the Group's activity and development over the next three years, and prepared as part of the Group s stand-alone approach. The Board confirms its intention to proceed promptly with the efficient transformation of the bank to a jointstock company. The Plan sets the sustainable objective of creating value for its Shareholders and employees, and for the communities it serves, starting from the current year (2015), by identifying realistic financial objectives for 2017: an ROTE at 7.2%, 170 million of net profit and a CET1 ratio at 10.8%. As a result of the close collaboration between the Board of Directors and senior management, supported by the Group's employees, the Plan is focused on four strategic initiatives: 1. revenue increase; 2. simplification and rationalisation of the operating model; 3. optimisation of the cost of risk; 4. simplification of the corporate structure. The new Business Plan was created with the precise objective of responding effectively and realistically to the new challenges of the competitive context of Italian and European banking, in full harmony with the bank's stakeholders: employees, customers, communities, shareholders, Supervisory Authorities and Regulators. Chairman Francesco Favotto commented: "The approval of the new 2015-2017 Business Plan lays the foundations for a return to profitability for our Shareholders, starting this year. With 138 years of history behind it, Veneto Banca will continue to support families and businesses in the areas in which it operates, as it has always done, even during the recent difficult years of economic crisis. From converting the convertible bonds to approving the new Business Plan, including the share capital increase and passing the ECB stress test, the long road travelled so far has been possible thanks to the crucial support of our Shareholders and all of our employees. It will enable Veneto Banca to face with determination the challenges arising from the forthcoming transformation of popular (cooperative) banks into joint-stock companies". General Manager Vincenzo Consoli added: "This is a concrete Plan and, for this reason, it is entirely feasible within the specified terms and objectives. Indeed, the Veneto Banca Group has the undisputed competitive advantage of operating in areas associated with widespread entrepreneurship of its citizens, both in Italy and abroad. The Plan is the result of a joint effort between senior management and colleagues, and focuses on a prompt return to form as regards revenues, technological innovation, and the development of high value-added activities, including investment in private banking and multi-channelling, as well as in bancassurance and in small businesses". The macroeconomic context of the Business Plan Towards the end of 2014 and in the early months of 2015, in Italy continuing reduction in economic activity seems to have come to a halt and some signs of recovery seem to be emerging, despite the ongoing persistent factors of economic uncertainty. Also starting during the last months of the year, financial market conditions improved and the trust of foreign investors returned. The profitability prospects of the Italian banking system, which are expected to improve in the current year, remain dependent on the trend in credit quality and on the uncertainties related 2
to the European and international economic context. The expectations for growth in the Italian economy and for an end to the recession reflect the benefit that should derive from a series of favourable factors, including the significant drop in oil prices, the very much weaker Euro and the beneficial effects that should result from the Quantitative Easing initiative launched by the European Central Bank in March 2015, aimed at keeping the cost of money very low. The Plan therefore incorporates the following development trends of the economic scenario to 2017 1 : Real GDP growth of 0.7% in 2015; 1.4% in 2016 and 1.3% in 2017; 1-month Euribor at 0.31% in 2017 and inflation at 1.6% at the end of the Plan; Cost of lending of the banking system at 85 bps in 2017. The main economic and financial objectives Return to profitability and the creation of value for shareholders: ROTE attributable to the Group at 7.2% in 2017; Net profit sustainable at 170 million in 2017; Fully loaded CET1 ratio at 10.8% by the end of the Plan, compared with 10.2% pro forma at the end of 2014, and above the 10% threshold currently requested by the European Central Bank. Any excess capital could be used to increase dividends, which are expected to grow even in the current policy. Sustainable growth of revenues and rigorous management of costs: Operating income increasing from 825 million in 2014 to 1,007 million at the end of 2017 (CAGR 6.9%); Net interest income up from 499 million at the end of 2014 to 593 million at the end of the Plan (CAGR 5.88%); Net fee and commission income increasing to 357 million in 2017 from 298 million in 2014 (CAGR 6.18%); Operating expenses down from 621 million in 2014 to 525 million in 2017 (CAGR -5.444%); Cost/Income ratio down to 52.1% in 2017 compared with 75.2% in 2014. Rigorous governance of the risk profile and of credit management: Write-downs on loans down to 222 million in 2017 from the current 702 million at the end of 2014; Cost of lending down to 81 bps in 2017 compared with the current 283 bps in 2014 (-202 bps); Controlled growth of loans from the current 23.2 billion to 25.9 billion in 2017 (CAGR 3.6%) and at the same time careful management of RWAs with a target of 24.2 billion in 2017 compared with the current 24.7 billion (CAGR -0.63%). 1 Source: Prometeia, Economic Outlook (updated 02/2015). 3
The strategic initiatives of the Business Plan The Plan identifies four strategic initiatives aimed at greater impact on the markets and better management of the customer portfolio, cost structure and operating model, risks, and corporate structure. Particular attention will be paid to gradual containment of the cost of lending. In particular: 1. revenue growth will occur through an increasing focus on the multi-channel service model and on realigning the productivity of branches, the result of investments made by the bank in the last few years in the field of technological innovation in serving customers. 2. simplification and rationalisation of the operating model will focus on developing an innovative HR platform, reorganising the existing branches (already begun with the redesign of the commercial structure) and optimising the operations side, gradually reducing ASA (Other Administrative Costs) costs and revising certain business processes; in particular through: a. rationalising the managerial and corporate structures, b. increasing productivity, c. reducing the cost of labour, d. prospectively reducing 2 staff by 10% (in Italy, excluding BIM), with the aim of 4,328 fulltime equivalent (FTEs) by 2017, e. re-sizing the distribution network through mergers and rationalisation: -70 branches during the Plan, f. reducing ASA (Other Administrative Costs) costs and revising certain business processes. 3. effective management of the cost of risk will aim at outsourcing exposures to private customers of impaired positions to specialised companies and at full collection of a number of bad loan positions present in the bank's portfolio. 4. focusing on the core business will occur through full disposal of assets held for sale and approved by the Board of Directors, with particular reference to the equity investments held in Banca BIM (in the process of being authorised by the relevant authorities) and in ICBPI. The main investments of the Plan Against significant cost containment, sizeable investment in innovation for a total of 20 million is planned. The following areas will be particularly involved: IT, Multi-channelling, Loans, Risk, Data Management and the HR platform. Implementation of the Plan 2015 is the first year of the Business Plan, during which the planned investments and the first non-recurring expenses will be activated with benefits that will be released over the three-year period. Implementation of the initiatives planned and achievement of the objectives it contains will take place over a time horizon of three years (2015-2016-2017). Press contacts Veneto Banca Group: Marco Micheli +39 334 6646861 Carlo Torresan +39 335 7932288 2 By way of example: turnover management, adopting legal and contractual measures to reduce personnel. 4
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