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Banco Popular
Francisco Sancha, CFO
London, March 25th, 2015
Morgan Stanley 10th Annual European Financials Conference
Disclaimer
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This presentation has been prepared by Banco Popular Español solely for informational purposes. It may contain
estimates and forecasts with respect to the future development of the business and to the financial results of the
Banco Popular Group, which stem from the expectations of the Banco Popular Group and which, by their very
nature, are exposed to factors, risks and circumstances that could affect the financial results in such a way that they
might not coincide with such estimates and forecasts. These factors include, but are not restricted to: (i) changes in
interest rates, exchange rates or any other financial variables, both on the domestic as well as on the international
securities markets, (ii) the economic, political, social or regulatory situation, and (iii) competitive pressures. In the
event that such factors or other similar factors were to cause the financial results to differ from the estimates and
forecasts contained in this presentation, or were to bring about changes in the strategy of the Banco Popular Group,
Banco Popular does not undertake to publicly revise the content of this presentation.
The information contained in this presentation refers to the date that appears on it, and it is based on information
obtained from reliable sources. This presentation contains summarized information and may contain unaudited
information. In no case shall its content constitute an offer, invitation or recommendation to subscribe or acquire
any security whatsoever, to make or cancel any kind of investments, nor it is intended to serve as a basis for any
contract or commitment whatsoever. Its content shall not be considered as any kind of advice.
Banco Popular Group does not assume any responsibility for the losses, direct or indirect, which could derive from
the use of this document or its content. This document shall not be reproduced, distributed or published, not whole
not partially, without the previous written consent of the Bank.
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Agenda
1. 2. 3. Our path to increase our RoTE
Reinforce the most profitable core bank in Spain
Continue developing our recent successful NPA strategy
4. Final remarks
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1. Our path to increase our RoTE
Our path to increase our returns
Improving the RoTE of
Popular
Reinforce the most profitable
core bank in Spain
Continue developing our recent
successful NPA strategy
• Growth on SME banking
• Leadership in margins
• Improving our efficiency
• On track for risk normalization
• NPA management is a strategic
priority for coming years
• High quality portfolio & well diversified
• Proven sales track record in 2013 &
2014, and upside potential for 2015
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2. Reinforce the most profitable core bank in Spain
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Key levers to
drive Core
Bank’s RoTE
improvement
The growth of our market leading
SME franchise in Spain 1
A core bank focused on its traditional strengths to improve its already double-digit RoTE
The enhancement our leadership in margins 2
Already announced cost saving initiatives for 2015
(-10% general expenses) 3
A significant decline in cost of risk 4
8
Popular is a pure SME lender and the segment market leader in Spain…
Grow our already market leading
SME franchise in Spain 1
SMEs and Self
employed
“the most
desirable
business mix”
Other
Corporates
Commercial Banking split as of 4Q14
51%
34%
15%
A pure SME Bank…
…while gaining market share in
SMEs & corporates
… market leader in SME lending…
1.1%
1.3%
1.6%
1.8%
2.1%
2.4%
3.8%
4.2%
4.2%
7.6%
12.1%
12.1%
13.7%
14.9%
17.1%
0% 5% 10% 15% 20%
Bank 14
Bank 13
Bank 12
Bank 11
Bank 10
Bank 9
Bank 8
Bank 7
Bank 6
Bank 5
Bank 4
Bank 3
Bank 2
Bank 1
Popular
Average: 6.7%
SMEs(1) market share in Spain 4Q13
SMEs & Corporates market share evolution
10.7% 11.0% 11.2% 11.6% 11.5% 11.9% 12.0%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
+121 b.p.
Source: AQR & ST results
(1) According to details published by EBA and regarding Spanish
institutions taking part in the CA
Source: internal data & BoS. Latest available data
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… focused on the most profitable and loyal segments (the small, micro & professionals)
Grow our already market leading
SME franchise in Spain 1
POP’s SME loan book split
39%
31%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
SME split
Micro and
professionals
(up to €1m
turnover)
Small
companies
(up to €10m
turnover)
Medium
companies
(up to €100m
turnover)
A leader within the smallest SMEs…
70% of our
SMEs are
professionals,
micro and
small
companies
High entry
barriers to our
competitors
... the most profitable
segments…
Profitability by segment(1)
(average:1)
… due to a high cross-
selling performance
0.1x
0.4x
1.0x
1.1x
1.1x
1.3x
1.5x
2.0x
2.7x
Segment 4
Segment 3
Average
Segment 2
Segment 1
Medium
SelfEmployed
Small
Micro
% of engaged
customers(2) by segment
55%
66%
63%
67%
67%
SelfEmployed
Merchants
Micro
Small
Medium
• Business loans • Leasing, renting, factoring • Credit & debit cards • Time deposits, investment &
pension funds • Life & business insurance • POS, payroll & tax services • Direct debits & standing orders • Mortgage & auto loans • Equities
Source: internal data
(1) Retail gross operating income on average total assets
(2) Customers with more than six products
Products & services
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Our differential SME model will allow us to continue gaining market share both in SMEs & corporates
Principles of
Popular’s
successful
SME model
A high quality service & operational excellence
(i.e. quickest response to customer needs)
A dedicated organization structure for SME focus
(IT, risk, HH.RR., commercial)
A model based on customers, not on products
A specialized distribution (800 corporate managers
& 150 specialists in corporate centers)
Active spreads & fees management based
upon credit quality and focused on profitability
A know-how gained through
decades of experience in the Spanish SME space
Grow our already market leading
SME franchise in Spain 1
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Enhance our leadership in margins 2
Higher customer spread on new production…
(%)
Asset yield improvement potential
(%)
Reinforce our customer margins due to asset spread resilience…
2.58 3.52
Customer spread on stock Customer spread on newproduction
+94bps
Loan profitability
(%)
3.53
4.15
Stock 4Q14 New production 4Q14
3.53 3.32 3.00 2.65 2.36
POP Bank 1 Bank 2 Bank 3 Bank 4
+62bps
Peers: Caixabank, Sabadell , Bankinter & Bankia.
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Enhance our leadership in margins 2
Time deposit costs capacity for further
reduction
(%)
Wholesale funding maturities profile
(€ M)
Time deposits improvement potential
(%)
…and potential funding cost improvement
1.61
0.55
Stock 4Q14 New production 2015 YTD
Further
capacity to
be reduced
-106bps
1.61
1.38
POP Average peers
Higher potential than
peers to further
reduce liability costs
3,787 2,796 3,428
1,400 1,987
2015 2016 2017 2018 2019
3.36% 2.97% 3.27% 2.83% 2.35%
Expected cost of renewals c. 1.2%
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NPL ratio evolution & the high quality of the underwritten new business will contribute to reduce future cost of risk A significant decline in cost of risk 4
Positive development of the
non RE NPL ratio
An extremely high quality new business
performance
New lending to better rated companies (PD<1%)
85%
93%
2013 2014
81% 88%
2013 2014
SMEs Total
Expected Loss(1) of the new production 2013-14
+8p.p +7p.p
Non Real Estate NPL ratio evolution
6.34%
7.53% 7.61% 7.59% 7.57%
7.20%
3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
-41 b.p.
0.3% cumulative
2013-2014
(1) Internal data
14
3. Continue developing our recent successful NPA strategy
15
Spanish
banking
sector
RE
market in
Spain
2008-2013 2014…
Consolidation of the industry
Coverage ratios under pressure
Several ST & Royal Decree Laws
Banks were obliged to increase
their provisions linked to RE
loans…
… and started to foreclose them
Sareb was established in 2012
Prices dropped by 34%
NPL ratio has increased by 40
p.p.
Residential transactions
dropped in 1Q13
The AQR has proved that coverage
ratios are sufficiently strong
Profitability drag of RE assets is
the main concern
NPL ratio has peaked in 2Q14
Cost of risk has been reduced
NPA management has become a strategic objective for the Spanish banking industry in recent times
Prices are starting to rebound
(+1.8% YoY)
NPL ratio has peaked in 2Q14
Residential transactions are
recovering (+12% YoY)
Institutional investors started to
invest in RE
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That’s why we’ve recently adapted our internal structure, strategy and processes to further enhance NPA management
Adapting our internal
structure
A multi-level
perspective strategy
Processes, resources &
commercial activities
Segregation of the business
& creation of a specialized
unit
Creation of a new
company(1) with Värde
Partners & Kennedy Wilson
Financial
• Optimizing P&L impact
Customer
• Individualized strategy for
largest developers
• Boost portfolio sales
Process
• Minimize time & information
management
Resources
• Adequate teams
• Rebalance distribution
channels
HH.RR.
• +31% vs. 2013 in workforce
New tools
• New webpage; call center;
new CRM
Marketing
• Brand recognition;
communication agency
Distribution channels
• Grow online channel sales;
branch support, APIs model
Process industrialization
(1) Aliseda SGI
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279 314
314
51 365
2013 2014 2015E
Aliseda’s workforce
+13%
+31%
46
65
2013 2014
Commercial workforce
75%
22%
3%
RE sector sales2014
Popular sales 2014
% Branches % Commercial Agents % Internet
40%-60%
30%-50%
10%-30%
Potential growth
+41%
And the optimization of the sales force and distribution channels will contribute further in the increase of RE disposals
Real Estate worforce evolution Sales channels structure
Improvement of our human capital base and
RE sales force Optimizing our distribution channels
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Sound track record in RE sales to retail investors, maintaining prices around BV whilst increasing institutional investor interest
(1) Does not include sales from RE developers
75 175
240 284 248 350 391
513
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
€774m €1,503m
By product
18%
82%
Land Finished building
By region By investor
11%
89%
Wholesale Retail
Quarterly RE sales evolution(1)
2014 sales split
In 4Q14, we completed our first institutional property transaction
• 2 Real Estate portfolios • €160m (6% discount to NBV) • 1,100 units sold at book value
Transaction #1 Social housing portfolio in Madrid • 557 1st hand residential properties
(including garages & storerooms) • 83 additional garages • 20 commercial properties • 7% discount to NBV
Transaction #2 3 RE portfolios in Costa del Sol (Andalusia)
• 433 units sold, of which 195 were
residential properties (the rest garages & storerooms)
• 4% discount to NBV
19%
1% 1%
31%
4%
11%
10%
-
2%
-
1% -
3%
6% 5%
2%
4%
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Recovery
on housing
market
prices
Price index
(2007:100)
Spanish
property
market
The recovery of the Spanish property market is a fact and we believe that it will consolidate in the following quarters
50
60
70
80
90
100
110
1Q-07 3Q-08 1Q-10 3Q-11 1Q-13 3Q-14
Real Estate
market
demand
#
transactions
Declining
the stock of
available
properties
Housing
stock
(Thousands)
4Q-14
Housing prices have
rebounded slightly in
the last quarters
0
200
400
600
800
2007 2008 2009 2010 2011 2012 2013 2014
Activity recovery started
by early 2014
Source: INE (Instituto Nacional de Estadística) and Spanish Ministry of Development. Latest available data
195 273
414 583 650 643 627 583 564 ≈520
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
≈ -20%
-34% +1.8%
vs. 4Q13
Other additional positive trends
Real Estate Market
• Increasing demand of
Spanish real estate from
institutional investors
• Rising lending offer at a
lower cost for potential
buyers
Macro Scenario
• GDP grew by 1.4% in 2014, above estimates
• Upward revision to 2015 GDP by all institutions (c. 2.5%)
• Consumer confidence & industrial capacity are recovering strongly
• The unemployment rate fell to 23.7%
20
32%
8%
11%
12%
6%
4%
2% 1%
- 1%
1%
3%
5% 1%
8%
2%
3%
Source: INE (Instituto Nacional de Estadística). Latest avalailable data
GDP contribution by region
> 10% >5% & < 10% <5%
Our RE assets are located in higher value areas (Andalusia, Catalonia & Madrid)…
-4.2 -0.7 -0.3
0 0.1 0.2 0.4 0.5 0.7 0.8 1 1 1.3 1.8 1.8 1.8 2.2 2.7 2.8 2.9
NavarraExtremadura
AsturiasBasque Contry
AragonLa Rioja
Castilla la ManchaCanarias
Balearic IslandsCastile and Leon
GaliciaCeutaMelilla
NationalAndalusiaCantabriaCatalonia
MurciaValencian Community
Madrid
51% of our RE assets are located in the three regions
with the highest contribution to the GDP (Andalusia,
Catalonia & Madrid)
75% of our RE assets are
located in higher value
regions (More than a 5%
contribution to the GDP)
Catalonia • 2nd region by tourist inflows • 3rd region with the lowest unemployment rate • 4th region by per capita income
Madrid • 1st region by per capita income • 2nd region with the lowest unemployment rate • 4th region by tourist inflows
Andalusia • 1st region by RE transactions • 3rd region by tourist inflows
Annual Price Index Evolution 4Q14
By region, %. Housing market prices
NPA distribution by region
71% of our
exposure
in the most
dynamic
regions
3% of our exposure in
regions where prices go
down
26% of our
exposure in
regions
where prices
are slightly
below
average
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Finished
product
Land
plots
A high quality portfolio High quality entries
≈70% of the NBV, residential
≈25% of the NBV, commercial
New houses’ stock> Second-hand
houses’ stock
c.65% of the NBV located in
medium & high value locations
Finalist & under urban planning
represent >80% of the total land
stock value
>70% of the NBV located in
medium & high value locations
€251m land sold in 2014 (8%
above BV)
3 out of 4
assets
concentrate
in a medium
or high
quality
locations
32% 30% 27%
67% 70% 72%
2012 2013 2014
High & medium quality locations
Low quality locations
64% 43% 36%
36% 57% 64%
2012 2013 2014
New houses Second-hand houses
New houses’
entries are a 50%
higher than 2nd
hand houses’
entries, with a
greater disposal
capacity
… and have a good quality measured by locations and asset class
Quality of asset location (%, as of 3Q)
Asset class (%, as of 3Q)
Source: Internal data
Hign & medium quality locations >90% country purchasing power parity
Low quality locations < 90% country purchasing power parity
We will keep speeding up RE sales with a encouraging upside potential for 2015
Potential
upside
RE sales in 2014
1,200
2,000
1,500
2014 2015
Target Accomplished
Beating our
sales goals
Target for 2015
22
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4. Final remarks
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1. Clear route in a challenging regulatory and rates environment
2. Expanding our SME franchise and other core products/new businesses (ie: consumer loans) will sustain our already double digit RoTE of the core bank
3. We are starting to see an improvement of loan demand fuelled by the pickup of the economy (GDP>2%) which will allow us this year to stop deleveraging and grow by next year in a still attractive price environment
4. NPA’s management remains a top priority and we have the right strategy and assets to benefit from the recovery of the RE market
5. All in all, we are confident that Popular has a solid model based on recurrent revenues, lean cost base and strong solvency with quality ratios (CET1 FL 10.4%, Leverage FL 6%) to improve our dividend policy over the coming years
Final remarks
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