Patria Bank : Update of Investor Presentation

I. Macroeconomic background in brief

Romania shows strong economic recovery in terms of GDP growth, but rising inflation remains an important concern. Inflation fears will lead to rising interest rates going forward.

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Romanian economy shows strong recovery against a backdrop of rising inflation

GDP growth

› Romania recorded a solid recovery in 2021 due to strong domestic demand. Nevertheless, growth slowed down towards the end of the year due to supply restrictions, a new wave of Covid-19 infections and a resurgence of inflation. These factors are also expected to impact the first part of 2022, while the recent Ukraine military conflict is expected to increase this impact.

› At the beginning of February the European Commission revised downwards its 2022-2023 growth forecast for the Romanian economy. Thus, after a slow-down to 4.2% in 2022, growth is expected to be slightly higher in 2023 at 4.5%.

Source: Eurostat, National Bank of Romania

Inflation

› The inflation rate has experienced an increasing dynamic mainly due to the materialization of risks associated with accelerated increase in prices of energy products and of raw materials on the domestic and international markets

› Measures to compensate domestic consumers led to a slight temporary slowdown, with expectations of increase in magnitude from April 2022 to an estimated annualized value of 9.6% at the end of 2022. We expect inflationary pressure to persist taking into account the new geopolitical context due to the military conflict in Ukraine. Inflation is expected to remain high in 2023, with little chance of returning to the target range by early 2024.

Interest rate and banking environment developments

Interest rates

› Against the background of inflationary pressure, in 2022 the

NBR continued the cycle of reference interest rate increases that began at the end of 2021, while maintaining a firm control on liquidity. Two interest rate hikes were recorded in January and February, of 0.25 bps and 0.50 bps respectively, up to 2.50%

› We expect a continuation of increases in reference rates taking into account inflationary pressures, with a cautious approach by the NBR so that, through its monetary policy, it will contribute to sustainable economic growth with fiscal consolidation and while protecting financial stability.

Source: National Bank of Romania

Banking system

› The NPE ratio continued to decline during 2021 due to flexibility of the prudential framework implemented by NBR in order to combat the effects of the Covid-19 pandemic. At the same time, the Romanian banking sector registered a continuous improvement of the NPL coverage ratio, in June this indicator being at the highest level in the EU and reflecting the high capacity of banks to absorb future losses

› In 2022 there is a risk that the average ratio of non-performing loans will increase slightly. The pressure comes from debtors whose rates have been deferred and could be severely affected by the effects of the pandemic and of rising prices.