Earnings Call: Q2 2021

Aug 12, 2021

Good afternoon. We'd like to welcome all of the participants of our Remote Earnings Conference. You're somewhere out there in space. We don't see you. We hope that you can see us and that you can hear us. In a few moments, we're going to talk about our performance in Q2 2021 and we're going to do this as a team. So I'm joined today by Jean Jean Aranda, who is the CFO of the bank, Michel Dubon, who is our Chief Economist. And then in a virtual way, we can see quite clearly, we have Wojciech Coentgen, who is our CRO. So we have a sophisticated form of communication. The difficulty is that I don't see you here. I don't see your reactions. We don't have any type of visual contact, which doesn't make life any easier, but that's the way things are and we're going to have to cope with that. So I would propose that we go ahead and go to our presentation and start walking through the subject. The agenda is pretty traditional straightforward. I don't think it requires any type of special explanation. We're going to talk about our story in different roles. So I'll begin and then my colleagues will take over at the proper times. So we can start with the key highlights. As you know, in Q2, we've given you delivered solid robust business results. So our interest results, our commissions have grown. The number of customers is on rise. So the market conditions have improved to drive up loans. Our current expenses, OpEx is under control. And so the results of the bank have been debited with a pretty big charge because of mortgage loans, because of CHI, so the Swiss franc along. And so we had a pretty big hit to the result as a result of those provision that provision. The bank continues to watch and walk through its transformation process. We're augmenting our technological prowess. We're automating, simplifying our processes internally. And you can see that on the numbers that we're more and more of a digitalized bank, we're more and more modern. In terms of our business, we've mentioned that for the first time in the history of the bank, we have more than 4,000,000 clients, which is a psychologically important threshold. So the corporate business, we've done a number of very big transactions, high value transactions, attractive transactions. And then we can say that our digital banking is doing very well. So we'll talk about in just a couple of moments. So ladies and gentlemen, here you see some of the trends in terms of our sales activity with respect to customers in various quarters. And so you can see that in Q2, we were quite active in terms of acquiring personal accounts, payment cards. So cash loans are up strongly as our mortgage loans and some of these are very highly positive. And generally speaking, you can say that we're moving up quite strongly. Our customers are more active. And so in a natural way, that means that we have a higher number of payments. We have a sample of tombstones where you can see our biggest transactions are the ones that were the most important for the results of the bank and these are corporate transactions that we did as a bank. If you look at our volumes and you can see that we've moved up quite strongly in terms of our retail customers as well as our corporate customers. So this is a reversal of the trend and this is a pretty important moment showing in fact that the bank was well poised. Once the economy enters the phase of recovery and we that we're going to be able to continue that in subsequent quarters. Customer deposits are up in a controlled fashion. The bank is highly liquid and we're not actively seeking additional liquidity. The number of customers, as I've said, has exceeded €4,000,000 watermark. So we continue to pursue our strategy, our fast forward strategy. The recent these are the last quarters of the validity of this strategy, but this organizes our thinking in terms about where we're going. Here you have some tangible examples and samples of the activities that we're engaging in, which underlines each one of the pillars. I'm not going to discuss these in detail, but I would like to draw your attention to a couple of them. In the most recent quarter, we have my ID service that was rolled out. This is quite a big facility. Of course, this was done relatively late, but better late than never. We continue to grow quite nicely our mobile application for individual customers, which is called Go Mobile. We are adding functionalities and the numbers of clients are growing quite quickly. We've received a number of awards, so traditional awards for wealth management And so it's probably the biggest in the market. And based on external assessments, the best in the market, We're continuing the transformation of our branches in terms of safety, convenience and modern approach. But above all, we're actually accessible to persons disabled persons. We've also won an annual voting competition in terms of responsible companies. So it's the 3rd time in a row and in the overall standings. And this shows basically that our activity in terms of sustainability, our care for the environment, diversity, inclusion that these activities are authentic and basically done with integrity and the experts have basically We highly regard this, and this gives us more energy. So it's not only about our drive to generate and deliver good earnings, but also to make sure that we're doing things well. If If we look at the transformation program, as I said, this is something that's being continued and the bank will continue to do this for a long time, perhaps forever. The world is changing and we want to be a front runner. We want to change rapidly as we basically adapt to the evolving needs of our customers. And as a result, we are steadily rolling out functionalities, new functionalities, services, different tools. Externally, we've gone through a process where we sign documents electronically using the Outenti platform. Additional processes are being digitalized. And so this means that the bank is making sure that the clients are well taken care of and that's why we're offering new solutions and the challenge that we're facing and a pretty high priority In terms of our internal processes, we want to simplify, automate them as well as become augment our efficiency overall. Another important very important subject is sustainable development, positive banking also being a green institution. This is an oversimplification. Basically, we can say our volumes of green financing have grown very strongly, some by some 72%. We've nearly tripled quarter on quarter. And so I hope this is a trend and this has quite a bit of importance for us in this area of operations. We're going to focus on this very strongly. We have nearly 6,800 installations, PV solar installations, which were basically set up because of the financing. We have large scale projects, primarily in wind and photovoltaic energy. So each one of the sectors were active highly active in each one of sectors in terms of delivering products that are ecological, environmentally friendly, that make it possible the care for the environment, rescue the environment and operate in the field of energy. We have other positive changes, several initiatives, which emphasize and underscore our commitment in terms of sustainable development, CSGs. And so this is something that's been announced by the UN and this is a trend that we're going to continue on an intensive and strategic and steady basis. And so now we can say a little bit about are trends. And here's a simple graph that shows where we are in Q2. So as you see, the profit is a little bit lower. But as you remember, we have a big provision for the Swiss franc loans and this basically dropped the profitability of the bank in this period. And so we can say that the net banking income was at the same levels in Q1. Costs are totally under control. Cost of risk are slightly higher than in Q1, but they continue to be at a very low level. And so the portfolio is healthy. It's a robust portfolio, and we don't see any reasons to be concerned at the current point in time. And then if you look at some of our parameters, ROE, it's 4.9%. Of course, This is something that we're satisfied by in the longer term. But having in mind the current set of circumstances, the reality, it seems to be quite a robust result. If you look at the cost to income ratio, CI, it's at a stable level. We're doing this in a reasonable fashion. Of course, there's some room to improve our effectiveness and this is something we're going to continue to do. I've mentioned the cost of risk Then we also see the provision for CHF loans in the Q2. So this will not, of course, handled the entire problem related to Swiss franc portfolio. So it's relatively small compared to the big Swiss franc lenders, but it does have an impact on the profitability and the return on equity. And that's why this provision had to be set up. We're closely observing the development of the situation, and we'll react suitably in subsequent quarters. So then we have the macroeconomic environment. So go ahead and give the floor to Michal. Thank you very much. So I'd ask you to show the first slide. So tomorrow, we'll see the preliminary estimates of GDP in Q2 of this year. So the available data suggest that on a year to year basis, this is going to be a spectacular growth in excess of 10% probably. Of course, we have a very low base effect and this will play a crucial role. But what I would like to draw your attention to is that on a quarter to quarter basis, the economy is accelerating and we can see this recovery and it's becoming more evenly balanced or spread over the sectors, the various sectors of the economy. So all in all, there's a good chance that the annual average growth will be around 5%, perhaps we'll even be able to surpass that level. And What's even more important, the optimism regarding forward upcoming quarters is quite justified. So if we look from the beginning of this year, we can say that investments have been picking up the pace and This gives us the idea or portents that we could have a longer term recovery. So we can go to the next slide. What's important here in terms of the investment recovery is that we see demand for loans in the corporate segment is picking up. We hadn't seen that up until now in terms of the volumes, in terms of new productions of corporate loans. So this is something that we've seen market growth here is what I'd like to underline. And we have this overall optimistic narrative about the macroeconomic environment. But we do have to mention probably the most important factor of risk basically, which is high inflation. In July, the level of inflation was 5%. So it's twice the inflation target defined by the National Bank of Poland and having in mind what we observe in terms of more expensive food, but energy and some of the other inflationary factors, this is not the highest level of inflation that we see at present and what we'll see in this year. So high inflation coupled with a more and more robust recovery of the economy does, of course, drive up the expectations of the monetary policy being normalized. And so the market does see that in the next few months, 10, 12 months, we should see an increase in money rates, monetary rates, and then we can go on to a more a greater discretion of the financials. So thank you, Przemek. Of the year, we delivered solid core financial result. Good news. Corporate loans started recovering as a result of the portfolio loan grew by 4% year to year. Net result decreased only by 11%, reaching the level of CHF 296,000,000 despite the additional booking of provision for Swiss franc portfolio. NBI decreased by 4% year to year, of which net interest income decreased by 5.2% year to year, mainly explained by the interest rate cut, MREL implementation and low demand in corporate loan in the beginning of the year. Very good results in term of fees and commission. We drew by 22.1% year to year. Net trading income decreasing by 11.9% year to year due to the lack of one off in 2021. Costs remain fully under control, and we are keeping on changing our operating model. As a result, the cost increased by 5% Year to year, cost income ratio reaching the level of 53.9 percent of tight decrease. As already discussed and shared with you additional provision in the Serje portfolio, EUR 259,000,000.30 I will share a few information with you later. And the cost of risk remain very low and the quality of portfolio is there. No significant comments in terms of ratio or the ratio in the green zone. Overall, our loan portfolio grew by 3.6 Quarter to quarter, 4% year to year. On one hand, individual portfolio grew by 3.4% quarter to quarter, 12% 12.2% year to year. The positive trend is remaining with our good performance in term of mortgage loan. On the other hand, we've had the trend in corporate loans. We start growing again, which is a good news. So we grew by Philips 8% quarter to quarter, slight decrease year to year, 1.5%. Let's say. As regard to individual loans portfolio, the increase was mainly from the mortgage loan portfolio, very good level of sale, again in Q2. And we start going again in term of cash flow. We grew by 1.9% quarter to quarter and very good performance in term of digital sales. As for the institutional loans portfolio, The trend has been reversed and very good performance in term of corporate loans and leasing as well. Next slide, please. As regard CHF mortgage loan portfolio and as a result of Significant increase in the number of new court cases and also further declaration in 2 parameters. We have increased the level of provisioning, and this is why we booked additionally EUR 239,000,000 in the first half of the year. Next slide. After optimizing the level of deposit at the end of 2020, deposit grew by 1.4% quarter to quarter, 2.2% year to year. We are keeping the positive trend in term of investment product. Volume grew quarter to quarter by 6.2%, 54.5% year to year. So the trend is there and it's giving a positive impact in term of fees as well. Next slide, please. No significant change in terms of structure of deposit. Current account is representing now more than 90% of the total deposit due to the low interest rate. And we have stabilized the cost of deposits, so no significant change compared to Q1. Net marketing income. So year to year, net marketing income decreased by 4.1% as a result of the interest rate cut, lack of one off mainly. When we look at the evolution quarter to quarter, NBI remain stable compared to Q1. However, positive trend in net income, Fees and commission sorry, Fees and commission and NII and net income, either however, we get negative impact coming from the volatility of the valuation of the portfolio measured at the fair value. Next slide. So year to year, the margin decreased from 2.79 percent to 2.47 percent as a result of the interest rate cut, mainly an implementation of MREL. Quarter to quarter significant increase coming from the growth of the loan portfolio and also interest on derivatives. Next slide. Fees and commission, so very good news. The trend is very good. So year to year, plus 22.1%, all the components improved. So thanks to better activity with the customers, but also to change in our pricing. Quarter to quarter, we see dynamic as well, positive trends. Very good performance in term of asset under management and better penetration in term of insurance to the trend is there. Net trading income year to year decreased by 11.9%. However, we have to keep in mind that last year, we take the benefit of significant one off, but I'm referring to the valuation of big and tier entities, which did not occur this year. Quarter to quarter positive trends with better activity with our customers, So quarter to quarter increased by 9.9%. Net investment income, this is a part which is always volatile and that links to our professional portfolio, which is measured at the fair value. So year to year, we are increasing by 123 percent quarter to quarter, slight decrease as in Q1, the valuation was positive compared to Q2, in which evaluation was negative. Cost. So cost remained fully under control. We are keeping and changing our operating model. So year to year, cost increased by 5.4%, excluding BFG impact minus 1.6%. So I think it's visible that literally we are adapting our model. We are keeping and distillate the bank. So we are adapting our cost base. Quarter to quarter, no significant change with stabilized. Thank you very much. And now we can give the Floor to our CRO, to Wojtek. Good afternoon. I begin with this summary of the biggest impact of COVID-nineteen on our credit risk in the previous year and now. Generally speaking, we have support of SEK 6,100,000,000. This was support as well as moratoriums. 97% of these moratoriums have already been completed, have ended and were to the situation back to the situation that was in existence prior to COVID. So the performance of this portfolio is 95.8% of the customers have returned to normal payments, a normal amortization schedule. So our customers, as this testifies, did not need such extensive support and they were able to navigate the waters on the market. So if you look at Q1 2021, we can say that one aspect is quite important. We released some of the provisions because of the changes in the macroeconomic scenario for 2021. And so right now, the scenarios are better than previously, but we've also identified some potential sensitivities in some of the industrial sectors where COVID-nineteen could have had an impact. As a result, we've set up some provisions, forward looking provisions with respect to all types of industries. That means in Q1, we have provisions of EUR 80,000,000. So we have to have in mind that in 2020, we've had provisions of a certain amount and we had a status of that at the end of the year. And in the first half of the year of this year, we've added another EUR 80,000,000 in provisions under on top of EUR 131,000,000 that we had. And so then we can go on to the Next slide, where we have basically the uptake in 2021. On top of that, In addition to the nonrecurring impact, we also had the multi scenario approach and this was a recommendation that was given by our auditor. And so this was BRL 42,000,000. Then we had the opposite result where we had EUR 21,000,000, which is a new definition of defaults than the EUR 80,000,000 that I mentioned in terms of the coronavirus impact and then we have the positive impact because we sold one part of our NPL portfolio and this had a positive impact on the risk costs of EUR 36,000,000. And so that means that we had a proper level of provision and so perhaps even more than the market was suggesting we had very good prices. So what I would like to say generally speaking, in the first half of the year, there is very few new defaults that came into the picture, which were in different segments also in corpus in the retail segment, we had very few new defaults. We were able to maintain the same level. In fact, we even increased the level of provisions of the forward looking type. We had a very good amount of recoveries and the sales prices that we were able to command for these NPL loans we sold. And so that means that we have 36 basis points as the live of provisions in Q2. And so around 33 basis points if you were trying to average out the first half of the year. And so we can go into the next slide where we can talk about the quality of the loan portfolio. So if we look at the overall bank, basically have the lowest level we've ever had in the bank down to 4.8%. On one hand, we owe this to the management of the NPL portfolio. But at the same time, we can see the growth of the working portfolio, performing portfolio. So both in terms of percentages and in absolute terms. So we have the lowest level in history. We can see that the loans, both retail loans and corporate loans in each one of these segments, The quality has improved, has been enhanced and it's at a very safe level. And then I can ask you for the next slide. And you can also see this if you look at the various phases of the portfolio. In the most recent quarter, we have more in Phase 1. Phase 2 and Phase 3 have a decline. So that means that we're improving the quality. On the other hand, if you look at the coverage with provisions, especially in Phase 2, where it's growing a little bit. But we've been able to maintain the level of coverage. And so this basically confirms the fact that the level of recoveries and of sales prices that we've been able to command on the marketplace are totally sufficient and are equivalent or matched to the level of provisions that we previously set up. So to recap, In terms of the quality of the portfolio, we believe that the situation is highly stable, highly sound, and we can concentrate our efforts on development and growing the portfolio. And certainly, we don't have to think about remedying the portfolio at this stage in any way, shape or form. Thank you. And then we have the capital adequacy. The capital ratio as a result of the increase of our loan portfolio, RW increased and as a consequence, quarter to quarter Capital ratio slightly decreased, reaching the level of 13.28% in term of TRN ratio. However, the capital ratio remained in the safe positions and significantly higher than the minimum requirement. So ladies and gentlemen, we have the final slide prior to our Q and A session. What awaits us? First, well, the economy has embarked on a growth phase. So we anticipates that GDP will grow substantially this year. We believe that we're well poised to tap into the conducive macroeconomic environment in order to grow. We are a bank that's focused on growth and development, and we're thinking about organic growth. Of course, we're going to phase in additional technological solutions for our customers. We're going to be highly focused on our offering linked to sustainable development. And if we look at sustainable development, We will adjust our position to ESG legal requirements. We're far along that path in doing that. I've mentioned some of the other processes. Well, this is a story that's going to last a long time. We want to have the top end class, the fastest, the most convenient processes for our users, also our customers' internal users. I've mentioned previously, I think that we're working on a new strategy to devise a new strategy for 2022 or 2025. And so the work is highly advanced. We're engaged in dialogue with the provide support members for explaining some things. And in the second half of this year, this is what I'm counting on that we're going to be able to finalize the work on that strategy and communicate that strategy. Of course, I can reveal a little bit of information that this strategy will be a continuation of our growth strategy that the bank has had in the past at the bank and our shareholders has extensive ambitions in terms of being active and the scale of its operations, the magnitude of its operations and its profitability. And so we want to be very clear on that and we're going to manage things reasonably and prudently, especially in the cost side. And I think that would be more or less It in terms of maybe as a matter of a recap, I would say one thing. Our results for Q2 are quite robust. The core income has grown. Risk is totally under control. Same is true of costs. And then the Swiss franc factor is something that we've talked about at the previous conference. So I'd like to thank you very much for your active Participants, perhaps your patience in this part of the presentation. And now we can move on to the Q and A session. So I see some of the questions. I think we've responded to some of the questions in the course of our presentation. So one second, please. So perhaps I'll walk through the questions Chronologically, so the first question from Jean Louis Pritin. What Percentage of the Swiss franc loan portfolio is got a provision attached to it in Q2. So if we look at the overall portfolio, it's 11.4%. But if we look at that portion, which has client claims will then we the provisioning is in excess of 90%. The second question from Santander. The costs of wages are at the same level despite the decline in the number of FDs by 9.4% I had anticipated or what sort of expectations you have for upcoming quarters? Well, you're very well aware that there is, of course, across the market and the entire economy in terms of the level of wages, We have inflationary pressures, which are quite strong. Our policy is that raises are done once under a process at the beginning of the year, in the Q1 of the year, the subsequent year and that's going to be the same case here. So I think the pool of raises will be close to the level of inflation. It should not exceed the level of inflation. To have some expectations about the X14 Swiss francolines. Well, we have some situations in the first instances that we've lost cases inherited from Fortis and that's reflected by the growth in the provisions for legal risks. Then we have another question from the same person, Carlos Daleske. The question is in English. So I think the question is going to be for Jean Chollet probably. For further fees and commissions growth. It was relatively flattish in the last four quarters. The answer is yes. First, we have to keep in mind the impact of COVID-nineteen crisis. So meaning that the activity with our customers was affected and we are starting recurring. So there is no reason for not keeping ongoing fees and commission. We had some positive Trend in many areas as well. So I was referring at the beginning of the presentation about asset under management. So the portfolio is continuously growing. So it must be affected in fees and commission. So as you know, this topic, we had received it for a long time, and it's a never ending story. So the answer is yes. Thank you very much. So the next question is how do you intend to encourage your customers to utilize remote access channels, will you make available a bleak to the phone? And this is a question for Mr. Moginski. So we continue to encourage customers to use remote channels. We're giving them new functionalities all the time. We're introducing or running CRM campaigns. We have web campaigns and this is something that will continue. So we can see the absorption of remote channels is very clear. And the same is true in terms of the number transactions executed through the BLEAK functionality. Now we have a question from an individual investor. In terms of the macro impact on the balance of provisions, how many how much of your provisions have been set up in 2020? And how much of that has been released in the first half of twenty twenty one? What amount a few provisions remains in the bank's balance sheet. What I'm thinking here is how much of the provisions directly related to the pandemic, We how much of what we've created has been released. And I think that the CRO is the best person to respond to that question. I can respond to this question. So the balance of provisions at the end of 2020 was SEK 236,000,000. And as I mentioned during the presentation, so we have an additional Amount of provisions of SEK 80,000,000. So if we add it, it's a little bit more than SEK 300,000,000. And that's the balance of provisions pertaining to the potential impact of COVID. Thank you very much. Then we have 2 questions that are identical about the sensitivity of the interest result to interest market interest results. So this is from Taitung Bank and from Sureteca. So this is from the Pico Dankolski brokerage house. So generally So if we have an increase of still basis points, that would give us an additional EUR 200,000,000 additional NBI in terms of the total bank result. Then we have a question from Maciej Lutka. What's going to happen with the Swiss franc settlement agreements? Is this a good way of solving the problem? If so, When will you phase them in? I think we've spoken previously many times about that subject. We're waiting at present for the rulings of the Civil Chamber of the Supreme Court. The plans are for that ruling to be handed down on the second September. I won't say anything more about our plans because we've talked about them in the past. I don't see any more questions in this tool. So I understand that questions can be posed orally, so humans can pose the questions. So I'd just ask you If you have any other questions, if you'd like to take the floor, ladies and gentlemen. So I see there's One more question here, but I've just found it, okay. So again, Marcio Lutka, let's assume that the dividend policy of the Polish FSA will be the same as it's been up until now. When would the bank be able to pay a dividend? And when would the bank like to do that? So perhaps I'll ask Jean Charles to respond to the question about the dividend policy when we'd like to pay dividends. It's not the first time I get this question. I will keep My answer. So we are doing our best to pay dividend as soon as possible, and this is one of our main goal. By principle, I'm not going to give you a precise year on that, but we are working on it. So thank you very much. Then Mr. Santander, What's the pipeline of corporate loans? Do you anticipate higher growth? Well, we don't give forward looking projections. When we talk about the pipeline, that's perhaps a little too specific of a question. We see recovery. We see greater activity amongst our customers. We see greater interest in investments. And that, of course, means There's more demand for financing. And of course, it's our total intention to participate in that growth. And we want to actively satisfy that demand. I don't see any other questions. Are there any other questions which you would like to express verbally out loud at this time? I don't hear anybody raising their voices to say anything. So if there are no other questions, perhaps I'm going to count maybe to 5. So if there are going to be no questions, then we're going to have to we're going to go ahead and say we'll wrap things up essentially. If I don't hear any or get any more questions in the next 4 or 5 seconds. So I haven't received any new questions. Nothing's flown in. So I'd like to thank you for your presence at today's remote earnings conference. I'd like to wish you a very good end of the summer, And it's my hope that we'll be able to see you in the near future directly in 1 quarter from today, more or less, 1 quarter from now. Thank you very much for your attendance.