Outlook

The Group's prospects for 2015 are positive, even though it faces an economic scenario characterised by high uncertainty over the time it will take to eventually see tentative signs of a recovery.

On the economic front, expectations are still definitely negative. It will be several quarters before GDP returns to growth; inflation is expected to fall to nearly zero or even into negative territory, significantly below the European Central Bank's target, mainly due to the staggering fall of raw material prices, chief among them oil; unemployment, especially among the young and in Italy's south, still prevents consumer spending from recovering.

As for the European monetary policy, after the recent actions aimed at reducing the cost of money for the banks operating in the Eurosystem, the ECB seems keen to intervene much more actively in the market: the impact on the availability of lending to the real economy and the costs/returns of debt and assets remain to be seen. The current imbalance in the Eurozone would require stronger price rises, notably in Northern countries. This scenario is not likely to materialise for political reasons, requiring more radical reforms in Europe's South. However, within this context, supply-side policies may not be sufficient, if they are not supported by demand-side measures. Furthermore, the EU common policy will seemingly not generate positive systematic solutions. The challenges that some Euro area countries – chief among them Greece – will face are only partly mitigated by the low interest rates on public debts.

Amid this already complicated backdrop came the oil price crash. On the one hand, it is good news for an energy importer such as Italy; on the other hand, it is having a one-off impact on energy prices, increasing the risk of deflation.

The Bank can count on sustainable margins thanks to the soundness and flexibility of its business model.

It appears impossible to leave the crisis behind without restarting the flow of credit to the economy. Our lending to businesses may be positively influenced by the opportunities to acquire new customers and new loans. A key factor is the protracted scarce availability of lending to businesses. This is attributable to both non-specialist banks' use of conventional credit instruments in supporting businesses and lenders' focus on improving equity ratios, aimed at reducing risks or at least the capital

absorption of loans of players with lower credit ratings. The performance will in any case depend on the trend in credit quality, a key variable for the banking market in challenging economic times. Should the excellent signs registered by the Bank in this sense be confirmed once again, it would bolster the Group's operations as far as lending to SMEs is concerned. This could both prompt the Bank to step up its efforts and positively impact returns on loans net of credit costs.

As far as non-performing loans are concerned, the Bank will continue to pay attention to the several portfolios of receivables due from households that originators will place on the market. The outcome of bids will also be influenced by the attention paid by international operators to offers and prices.

The Bank will relentlessly continue to buy the portfolios offered by the sellers in all segments, adopting also innovative direct approaches to intervene faster.

Concerning the management of Non-Performing Loans, the sale in the fourth quarter of 2014 of the sizeable portfolio of bills of exchange resulting from approaches that are gradually being discontinued should mark a change that will allow the bank to better focus its operations.

The focus on debt sustainability, the possibility of extending debtors' payments terms, and establishing a constant dialogue at low costs will most likely be crucial to boost the turnover and profitability of this business area, which operates in a social segment that has been badly hit by the crisis. In this segment, the introduction of new collection and management instruments and the necessarily conservative accounting of expected cash flows temporarily influenced the business area’s results. The expected acceleration will depend on the continuation of this negative trend and on any difficulties arising from the implementation of the new collection methods, through which the Bank can often sharply improve the quality of its portfolios, with long-term effects, following particularly strict margin recognition policies.

As for the Tax Receivables segment, which is strongly dependent on the time it takes for the Italian Treasury to make payments, the Bank is very actively acquiring often sizeable positions, given the good medium-term profitability of these investments.

The Group will continue to develop its two brands, Credi Impresa Futuro and CrediFamiglia, dedicated to financing companies operating in the domestic market and ensuring households settle their financial debts, respectively. Both brands will grow further thanks to their increasingly sophisticated web presence and, especially in the case of Credi Impresa Futuro, the fast ways to communicate with customers.

As for funding, the reduction in interest rates paid to customers due to market changes caused a further significant fall in the average cost of funding, and will continue to do so going forward, also as a result of term deposits with high interest rates coming to maturity. The closely monitored decrease in funding is slight in absolute terms compared to the very high opening levels, and retail funding shall not increase further in order to prevent economic imbalances deemed unnecessary in the current scenario.

The current trends in market rates have made it no longer profitable for the Bank to continue purchasing government bonds, which ended at the end of 2013. The portfolio will continue to shrink

over time as the bonds mature. Presumably, refinancing operations will continue with funding costs hovering around zero.

In light of the above, the Group can reasonably expect to remain profitable also in 2015.

Venice - Mestre, 20 January 2015
For the Board of Directors 

The Chairman
Sebastien Egon Fürstenberg

The C.E.O.
Giovanni Bossi

Last updated on 2015-01-21