Welcome, ladies and gentlemen, at our next financial results meeting after the second quarter of 2023. We are still thinking for about the tennis tournament, WTA 2023. We are very happy that traditionally, Iga Świątek has won for the first time on the tennis courts of Legia Tennis Centre. We are going to discuss the situation of the bank, the bank, macro situation, and we are going to discuss the topics that are of interest to you. We will try to answer the questions that will be asked by people present here in this room and also asked remotely.
Most important information, let us start with numbers. In the second quarter of this year, the bank was able to generate PLN 460 million net profit net. So this is quite a good result, especially taking into account the provisions that had to be established for Swiss franc loans. That, that was, of course, a burden for our result. The, the, there was 5% increase of income quarter-to-quarter and 16% year-to-year, so we are very happy that there is positive income dynamics. This is the result of increased net interest income and also income from foreign exchange.
So we have generally solid results, although slightly lower than we expected. A few things that I would like to emphasize: First of all, we've significantly increased the volume of our sustainable financing on the market. The demand for this type of financing is relatively low. The total volume is PLN 8.4 million at the end of the last quarter of the year.
This is what makes us happy, because this is consistent with our strategy and also our values and views. There is a low demand for financing on the individual and corporate side. Mortgage loans are at a low level. We are very selective. We try to limit this product and offer it to our loyal customers only. We are also happy that the number of customers in our strategic segments has increased, although the total number of customers has slightly decreased. This is the result of the fact that we focused on those segments that we consider valuable.
We focus on those customers for whom we are the first choice bank, transactional bank, with whom customers want to stay for a long time and cooperate in many areas. Now, briefly about strategic pillars. I've already mentioned the positive pillar and the volume of sustainable financing. Let me also add here that we were a participant of the biggest issue of bonds on the Polish market, and we, we also participated in several structural, structured transactions, and we, we offered sustainability-linked loans. We are very competent in this area, and we can be the leader.
Well, we don't have any official data to confirm that, but we believe we are the leader. Very positive increase of volume of investment products. This is also something that makes us happy. We have positive development on the deposit side, but our customers are also willing to invest in other facilities other than term deposits.
Let me also mention that the liquidity position of the bank is very solid, very healthy. Here, we don't really focus on acquiring other liabilities. We rather focus on the costs of finance. We use the funds received from our customers. Further digitization is going to continue, digitization of the solutions offered to customers, also back office digitization. We have an increasing number of robots supporting the bank operations, which is a cheaper solution on the one hand, also more reliable. There are fewer failures or errors compared to human actions.
The last thought here, we regularly and carefully observe the level of our employees' satisfaction. I have to say, happily, that in the recent study, the eNPS index measuring employee satisfaction has increased, which is the source of satisfaction and pride for us, the managers. In the difficult reality, we have been able to create such working environment in which our employees feel well, and they want to get involved in the work to further improve the situation of the bank and our market position. Now, a few graphical slides showing the dynamics.
I believe here you can see the increased transactionality of our customers in terms of the number of tokens and also the use of BLIK transactions. A slight increase in the users of mobile solutions. We can see that the customers more intensely use mobile banking, and they do not use online or internet banking so frequently, which is disappearing gradually, like previously, the paper solutions. Now, in retail banking, you can see a slight decrease because we focus on corporate clients more.
We want to. We no longer have the situation where we want to have just the bigger number of customers, no matter who the customers are. Right now, we are more selective. We pick those customers who may be valuable for the bank and for whom our bank can be a stable and reliable partner. I've mentioned that the volume of investment products has increased. This is a very positive dynamics. Impressive, actually. The use of the GOmobile application is increasing also. Now, in corporate and SME banking, we can see a slight increase in volumes.
Again, we have an optimistic situation. As for the volumes on the loan side, as you can see, we've experienced a slight drop quarter to quarter, but we've been able to maintain our market share. Because of the macro and macroeconomic situation, we have a low demand for loan. Although we are going to listen to Michał in a moment, who may be more optimistic. I've already mentioned the number of customers, and I've mentioned the deposits. The deposits are increasing to the extent that we allow, because we don't want to participate in the race for market share.
We have a 0.1% drop, but this is not a concern for us. Here you can see a more detailed description of individual positions. I haven't mentioned expenses yet, but this should be mentioned. The expenses quarter-over-quarter have dropped, but this is actually the result of the market situation, especially drop in the cost of Bank Guarantee Fund. Definitely, the expenses are, are below the, the, the inflation rate. The expenses are under control, and we are going to continue this trend. The net result, slightly lower than in the previous quarter, but we have the Swiss franc loans provisions at a higher level.
We believe that we can positively evaluate the results of the second quarter. Cost to income, this is what we are working on, both parts of this ratio. A very interesting phenomenon, related to the costs of risk. It's been the second quarter during which the bank has released more provisions than established the provisions. Two quarters in a row, this seems quite a unique phenomenon on the banking market.
We believe that our portfolio is safe and stable, also looking into the future, we don't really see any threats related to this portfolio. Let's not deceive ourselves. It's, we cannot expect positive costs of risks in the following quarters. The risk has to be evaluated properly, of course, we treat this situation as an incidental situation rather than something permanent. Return on equity above the expected cost of capital, I think it does not require any further comments. This is it from me in the beginning. I give the floor back to Michał.
Thank you. Thank you, Przemek. Good morning, ladies and gentlemen. The second quarter, same as the beginning of the year, was rather poor for business. We will learn the GDP data next week. All the information that we have at our disposal right now indicate that probably, we have a slightly negative annual change dynamics. The thing that is of concern and makes us rather unhappy is that on GDP generation side, the industry seems to be weak. In the industrial sector, data for second quarter was very weak. Consumption expenditures of households have also dropped, as did retail sales.
Probably the only bright spot was construction, where the decrease was very, very minor, if there was a decrease at all. Looking forward at what we could expect, it would seem that the further months, the second half of the year and the next year, should be better in terms of economic growth. Nonetheless, the recovery will be very gradual and not particularly impressive. It will also be fairly diversified in terms of industries.
The outstanding sectors include services, where the business climate seems to improve faster and more, while industry as such, seems to remain in a difficult situation, and short-term outlook does not look well. As for the spending factors on national accounts, it would seem that the main driver for recovery should be consumption or consumption expenditures of households. The inflation is decreasing.
It is important, as at the end of the second quarter, the real wages stopped declining, and in further months they are going to increase relatively quickly, which should be conducive to improved outlook for the sectors that produce consumer goods and services. Inflation. Here, the picture is fairly nuanced. In September, at last, it should decrease to single-digit levels. However, this is caused, caused mostly by supply side, so the components and materials are getting cheaper.
As for the factors that are generated by labor markets or the choice of economic policy, for example, quickly growing nominal wages, increased current spending, increased current expenditures of the public finance sector, all that maintains a relatively high inflationary pressure in terms of base inflation, or in this case, the prices of services. Most likely, in the coming months, this is not going to change.
On one hand, the current inflation is going to decrease, but the base inflation will most likely remain fairly high and clearly away from the inflationary target of the central bank. This, however, should not stop the cycle of decreasing interest rates in the near future. I do believe that the conference after the July meeting of the Monetary Policy Council was fairly important, as the head of the National Bank of Poland has clearly outlined what conditions have to be met for the National Bank of Poland to reduce interest rates, and one-digit inflation was among them.
We believe the one-digit inflation should materialize in September, so probably by the end of the year, we will probably see more than one reduction or decrease of interest rates. Lower interest rates, somewhat better demand. I believe all that also means certain changes in our national external balances, so trade balance, current account balance. It is important as it would seem that the surplus on the current account are the main factor that supports the PLN exchange rate. Over the recent days, PLN was declining.
However, we believe that in the coming months, the balance of current account or trade account is not going to change, which may contribute to the exchange rate of the zloty. Finally, the banking sector, our own industry. Well, high interest rates are never a good time to increase the lending action. For the past few months, net leverage of this private sector, be it households, be it corporations, has been taking on momentum.
The deposits are growing much faster than loans, and this will probably remain the case in the near future. It is not so, however, that there are no signs of improvement. Especially in the household sector, the demand for loans seems to be recovering, both in terms of mortgage loans and consumption loans. Data for June indicate improvement in terms of new loans in that segment. Probably, the situation of corporate loans is somewhat poorer or less good, and here the dynamics in the following months would probably remain on the decline.
I would like to go back to what I said before, the recovery would be mostly driven by service sectors, which generally show a lower demand for loans, even during the expansion part of the cycle, and certainly, if the recovery was to be driven mostly by industry. Nonetheless, it would seem that the slump in terms of demand for loans is either just past us or we will pass it very soon. Thank you very much. I give the floor back to the Chairman, the President.
Good morning, ladies and gentlemen. As we talk about the first six months of 2023, it definitely should be mentioned that we have very robust results and robust net profit, despite significant provisions for currency loans. As a result, we have a very positive return on equity on the level of 16%, and it resulted from increase in almost all the categories, keeping operating costs on a level that is higher, but that grew a little bit, but its increase was proportionally less than the increase in revenues. The cost of risk was very limited.
As has already been stated, it was somewhat positive, but it will certainly not be something that will be a lasting trend. I will go back to this in a moment. Thanks to the fact that risk-weighted assets were reduced and evaluation of securities was better reflected, and they were priced better, our equity indicators or capital indicators have improved further. Speaking of loans, it is something that from the perspective of business and from the perspective of risk, does pose a certain problem.
Looking at this, I would like to see the non-performing loans decreasing and well-performing loans increasing. However, the market situation is such that both the corporate demand and demand for mortgage loans in the market has decreased very significantly. The production that we have achieved in the previous years is incomparable to what we are doing now.
A good sign are cash loans, as in the second quarter, we observe a much greater activity and much more interest. Ultimately, a much higher production than we've had in the first quarter. Currency loans, or actually, Swiss franc loans. The share of these loans in our portfolio is consistently decreasing. At this time, it is 57.6%, and it has decreased in the second quarter compared to the first quarter. There is a very positive dynamics in terms of settlements that we enter into. We have proposed settlements to over 12,000 clients. Over 2,600 of those have materialized, 3,400 were accepted.
Soon, in terms of the number of settlements, we should soon exceed the level of 3,000 of settlements realized. As for our portfolio, in the second quarter, we have created additional provisions. At this time, the value of these provisions is over PLN 2.1 billion at the end of the period. It should be mentioned here that the bank was not obligated or forced to create additional provisions due to a European Court's ruling, as we have another anticipated additional income from clients for using the capital. As for deposits, we are working on optimizing the cost of these deposits.
However, liquidity situation of the bank in terms of deposit is very stable. I do believe that further improvement of indicators as such is not necessary. What we should work on is rather the cost of acquisition, rather than getting better liquidity indicators than we have today. Investment products. First, and foremost, there was a major increase of PLN 12 billion in terms of investment products under management.
It is also worth pointing out that most of these, over 75% of these, are the products of investment funds that invest in short-term treasury debt securities, and we see great interest there. Interest results accumulating for six months, cumulative for six months as well as quarter- to- quarter, we have improving results, mostly thanks to investing excessive liquidity in securities, but also faster increase in loans yield and optimization of the cost of deposits. The impact of loan vacation was practically neutral, because both in first and second quarter, we had releases on the level of PLN 11 million.
Now, as for net interest income, we had PLN 30 million as compared to PLN 38 million as compared to PLN 35 million in the first quarter. The normalized result is PLN 305 million and PLN 308 million. The situation seems stable. The results on investment activity, very good client transactionality, supported by the better results on swap transactions. Additionally, our bank participates as a passive investor and as a shareholder in corporations. We have sold a number of our shares or interests in one of the companies, and we have materialized additional profit on this transaction in the second quarter of this year.
Operating expenses, depreciation, and amortization, all these are under control. The cost to income ratio is very good. We have 39% here, if we don't take into account the regulatory costs. As for the personnel costs, expenses increase, we compare the first six months of 2022 to the first six months of 2023, and we have 1.5% increase. Now, net allowances on expected credit losses. The low costs or positive costs have been a one-off event because we had the appropriate recovery levels, especially in the case of corporate customers. PLN 46 million were recovered in the first quarter.
We can't say that this situation is going to be repeated, that the situation will be stable, because right now the level of the loans that are outstanding is not so high. Previously, we have released the provisions, but on the other hand, we were growing and there were no new entries into Stage 3. Right now, the time is coming when we'll have a turning point, because as we'll see on the next slide, we don't really have big volumes to be restructured, and definitely something from the existing portfolio will move to Stage 2, Stage 3, sorry.
Of course, we don't want to have a big portfolio of not performing loans, but such situations do happen and probably will happen in our case also. As for mortgage loans, we have very good portfolio, Stage 2, in gross loan portfolio. Nothing is getting worse here. There is no new production, but the loans are being repaid. Now, as the impaired loans are concerned, we, we have a stable situation here, PLN 2.8 billion, 3.1%. In my opinion, on the Polish market, considering the macroeconomic situation that we have, this is the level which should not be exceeded.
This is like a borderline situation of 3%. Safe banks may have up to 5% of impaired loans. We still have a lot of space. We would like to stick to the level that we have, and we would like to focus on further production and increase of the working assets or performing assets. To continue on the portfolio quality, we have a stable situation here in all segments, actually. We do not see any additional entries into Stage 2 or Stage 3 in any segment. The situation is that whatever we could restructure and recover, we have restructured and recovered.
On the other hand, we don't have any new entries. We also sold certain assets, not performing loans, in the second quarter of the year, and we achieved a positive result. I think that we have a clear situation as far as the loan portfolio quality is concerned. The capital adequacy, the improving ratios here, we have lower level of risk-weighted assets. We have Tier 1 and TCR indicators at a decent level, and we also have increase in capital because of securities.
Ladies and gentlemen, we are coming to an end of the presentation part. Just a few words of summary. Very healthy results in the second quarter of the year and the entire half of, of the current year, despite of the difficult macroeconomic situation. We have the economic slowdown, and this is also the year of elections, which leads to certain uncertainty as to what may happen in the coming months, especially in terms of the regulatory risk or the risk of additional burdens for the sector. If not for the external factors, definitely we could be more optimistic, and our competitors could also be more optimistic.
We are doing our job. We are trying to improve the service to our customers. We focus on digitization. We support sustainable development of our customers, both through education and also through financing. There are a lot of risks around, but the bank is well prepared to face them. We are doing our job, and we'll see what the nearest future will bring. Thank you very much for your attention during this part of the meeting, and let's now move to the questions and answer session.
We don't have the relevant slide here, so no slide in the background. There have been several questions asked remotely, but let me ask whether there are any questions from people present here.
I represent as a news agency. I would like to ask, when is the bank going to introduce some schedule for the implementation of WIRON-based products? The question that probably is asked during each conference, how many attempts to undermine the WIBOR indicator, index, sorry, have been made? Also the 2% loan, well, there has been some resistance to that. Is the bank going to participate or establish the housing accounts?
Well, probably I've already forgotten certain the questions that were asked. WIBOR and WIRON. Well, the bank does have the schedule to offer the product based on WIRON. First of all, this will be product in the sector of corporate banking, but our intention is to move all new production to WIRON by the end of the first half of the next year. This is an absorbing project, but we have no concerns related to it. Now, as for WIBOR, the bank had 11 lawsuits related to that, but no assets have been seized. No case has been resolved yet.
I always emphasize that the voice of the regulatory authorities gives us the reason to be optimistic as regards this phenomenon. Of course, this phenomenon is dangerous, because if the decisions go towards undermining the integrity of WIBOR, then this could lead to a disaster. However, I believe that this will not happen. Hopefully, the opinion of the experts and the key institutions supervising the security of the banking sector, their voice will be well heard and will get reflected in the decisions.
Yes, there have been claims related to that. Now, the 2% interest rate loans. We did not make the decision to join the program. We are observing its development, which does not mean that we will not take such a decision at a later stage. This is all I wanted to say. Thank you.
Uncertain , the uncertain: I have a question regarding Swiss franc settlements. You have 2,617 settlement agreements signed. However, the percentage of the settlements signed compared to the total number of attempts made to reach the settlement is low. Is the bank going to do something about that?
Well, we are negotiating the conditions of settlements with our customers on the case-by-case basis, so we don't have any standardized program. The bank demonstrates a very flexible approach here. Yes, it is possible, even highly probable, that we are going to come back to the customers who did not accept the settlement conditions previously, and we will propose new conditions to them. I hope that among those customers who previously were not interested in settlement, some of them will be convinced and settlements will be reached.
Let us now hear the questions asked remotely. Agnieszka Romanowicz from Puls Biznesu: What is the reason for intentional limitation of the amount of mortgage loans? Is it related to the lack of willingness to conclude long-term contract with customers? Will, will the selective policy related to mortgage loans be continued, or is the bank expecting higher sales of such loans?
Trying to combine both questions, let me start with stating that the bank does offer mortgage loans to its customers who want to stay with the bank and who want to have a longer relationship with the bank, so transactional customers. We are not a bank that would offer mortgage loans outside our customers' portfolio, and for now, we are not planning to change this approach. Why is it so?
Because we would like to build the relationships based on transactionality rather than based on the longest term loan in the Polish conditions. This is also related to the risks some of them have materialized. I'm not going back to the issue of foreign exchange loans, foreign currency loans, sorry. We all know the situation.
We know that this is a very sensitive category of assets, and the current discussions on whether the customer should have an unlimited right to costless refinancing of a loan in the reality where the interest rates are going down, also showed that this is related to a significant financial risk. This definitely is one of the factors which leads us to having the mortgage loans related policy as we have.
What, what level of provisions for the Swiss loan, Swiss franc loans should be expected?
Well, we, we are not given forward-looking numbers, as you know, but I can say that the history of building provisions for Swiss franc loans has not been completed yet and is going to be continued in the coming quarters of the year. As for specific numbers, I will not give any.
What is the sensitivity of the income to the decreasing interest rates?
Well, I was asked about that yesterday. As for the interest rates related to the Polish zlotys, the drop by 100 basic points will be translated in the decrease in income of PLN 130 million in the period of 12 months.
Should we expect any transactions related to the shares of BNP Paribas?
Well, as I've already explained on many occasions before, and I'm going to repeat it once again, as the question indicates, this is the obligation of our majority shareholder, and it's the majority shareholder that will be the right party to give the answer on whether or when such transaction will be implemented.
What is the reason of the decreasing number of personnel, and should we assume that there will be further employment reduction?
The reduction in employment results from the fact that a number of processes that used to be implemented or carried out by people are now carried out automatically. Yes, we do assume that the number of employees will gradually decrease as the technology advances and progresses, especially as far as the back office processes in the bank are concerned.
When is your bank going to pay out the dividend at the earliest?
Well, this is actually a slightly political question. Whether or not we are going to pay out the dividend will depend on the result that we will work out, which we generally control. It also depends on the dividend policy that the Financial Supervision Commission announces each year, and it will also depend on the decision made by our shareholders. Personally, I would like us to have the situation where we can pay the dividend next year already.
Okay, the question about WIRON has already been answered. Now question to our online audience or persons present, do you have any last questions? Oh, here is another question about WIRON.
Do you know whether the correcting or adjusting spread is being prepared?
Well, I do not think that we have any knowledge other than any other market participant. There are many discussions going on in the background regarding the transition itself, and I would rather not speak on how it would be arranged for the entire market at its final stage. We are at an advanced stage of preparation. However, besides the very transition to offering WIRON-based products would be the date on which WIBOR or WIBOR would be removed or disappear, and here discussions are ongoing.
Madam Marta Czajkowska-Bałdyga. Good morning. I have a few questions, but my first question is about using the Borrowers' Support Fund in the second quarter. Has it increased or decreased?
Not on our side, no.
Also a question regarding the cost of risk. You have mentioned that releasing the provisions is coming to an end, and we should not expect further major releases. The question is: what is the level of the cost of risk at the current loan portfolio and current economic development GDP level? What cost of risk should we expect in the second half of the year or end of 2024?
Well, I would give you a twofold answer. On one hand, as a principle, the projection we do not announce projections for the second half of 2023 and 2024. You can, however, observe the market trends in 2022. Our peers had some 50, 60 basis points. We had about 30. If we speak about the economy in general and the banking sector in its entirety, it would probably be somewhere around that level. I mean, the banks would perform more or less on this level.
It will certainly not happen that the entire sector will go below 30 basis points consistently, because the level of impaired loans is fairly low in the entire sector. It's on a level of approximately 4%, so there isn't much space for huge recoveries and releasing provisions that would offset potential losses. Those options are limited, but it may, however, happen.
That the new impaired loans would eventually emerge. It's not something that is going to last forever. I think the sector was quite resilient anyway because going through pandemics and war, the impaired loans have not increased for the sector, and the cost of risk, through that period and generally in 2023, have reduced, have declined in general.
Very well then. In that case, looking at the difference between BNP and the market in general, do you think that this, the difference that you have just quoted is going to be maintained?
Well, we have to go back a little bit in order to answer that. BNP, throughout its existence, underwent a number of mergers, and there were various portfolios. Some were better, some were less good.
Sometimes in corporate parts, there were 15% of impaired loans, and in cash parts, in an extreme moment, there were 30%. Today, in cash loans, we have 5% of impaired loans. You will admit that it's a very low level. Our task was slightly different than that of other banks that have been building their policy over a long time and did not undergo mergers because they've created their own portfolios. In case of BNP, some of the exposure was acquired as a result of the merger.
There was a lot of activity on both commercial side and risk side to exchange the portfolio, to change the portfolio so that it would be comparable or better than other than other banks. We had to very effectively work on restructuring because at high levels of impaired loans, we either had to recover them or they were repaid naturally. In other words, the companies or individuals were able to repair, or repay, or we sold the assets. However, in order to grow at least at a market speed, it was clearly visible last year because we were growing faster than market.
It was a major commercial task to, on one hand, provide new assets, but on the other hand, to make sure that those assets are of very good quality so that they would not enter into second and third phase immediately. Once we arrived at a situation when the level of impaired loans is minimized, as it is now, and the commercial part operates properly and acquires new assets, those scissors are opening.
This is the situation I like best, where the performing assets are growing and non-performing are declining, but it results in an increasing cost of risk. This is our situation today. We have one more question from online viewers. VeloBank continues to seek an investor. Is BNP Paribas generally open to acquiring other banks? Are you interested in VeloBank?
Since the transaction of Raiffeisen Bank Polska core activity acquisition was completed, we have been consistently declaring that our strategy is based on organic development, and we are not planning further acquisitions and takeovers of banks in the Polish market. This strategy was not modified since then.
Very well. I understand we don't have any more questions. In that case, thank you all very much. Thank you for your attention. Thank you for questions, and we wish you the nice rest of the summer and everything best in general. Thank you and goodbye.