Good morning. Ladies and gentlemen, welcome to this conference, in the course of which we are going to be discussing the financial performance for the second quarter. Brunon Bartkiewicz, the CEO of ING Bank Śląski, Bożena Graczyk, Deputy CEO or CFO, and Rafał Benecki, our expert for macroeconomic analysis. My name is Piotr Utrata, I am the press spokesperson. Now over to Brunon.
Good morning, ladies and gentlemen. Since we are quite predictable, it is quite weird that we are holding a press conference because the media have already been publishing commentaries. Now we are only clarifying topics requiring explanation, not that many. I would like to point to certain components that have not been commented on today morning, in today morning's press. The bank has been growing in terms of client volumes.
Those are not really the accruals from the phenomenal times of five years ago. Nonetheless, the growth year-on-year in terms of individual clients over 60,000, or also 10,000 small and medium-sized enterprises or economic units or economic entities. This is all about changes between banks, not to mention 100,000 new primary clients, individual clients, individual customers, that we consider the bank to be their primary bank, and, this has been indicated by their moves. Those are statistics that bring us great joy. They are not greatly visible. Nonetheless, our bank strategy is all about stable growth, and, that growth, has actually been retained in today's rather dormant times. Now, the other aspect I would like to draw your attention to, is all about the over liquidity on the market, a new wave of over liquidity.
Given what has been going on in the first six months of this year, it has become apparent that throughout the banking sector, the accrual or the growth of deposits of PLN 154 billion on the market overall, on the overall market. Whereas, including assets, that's PLN 180 billion, where the credit campaign of PLN 160 billion , which means that we have been contributing such statistics to the process of growth. The loan-to-deposit is quite low. Today, loan-to-deposit is 75.6%, the market 68.7% in comparison. That, ladies and gentlemen, is something that we consider a part of the financial stability or risk, correlated risk.
This also shows the relative weakness of the Polish banking sector in comparison or against GDP. Rafał will be commenting on it, which ultimately means that we have had a reduced activity given the relative good use of operational assets. The non-investment in entities, this is something I've been talking about over the last six or seven years. Rafał, am I right or not? And that is the topic that we have been commenting on. It is also very important that the banking sector is being pushed out of the overall crediting market or funding market because there are other sources, including the state budget and EU funding sources. As a result, the credit campaign volumes over the span of six months have not been exactly rosy because of the constantly growing over liquidity.
Now, if we take a look, close look at banks, we are going to find out that there is a marked difference between the behaviors of these aggregates over this first and second quarters, as if a watershed were just about to happen. In our banks, it all boils down to the fact that in the second quarter of this year, we have experienced a greater growth or accrual of loan-related rather than deposit-related liabilities. Obviously, over this scale of the over the last years, it is quite regular. On the other hand, this means that we are overstretching. On the one hand, we have been experiencing a growth in credits or loans. The statistics are not mind-boggling.
Nonetheless, we are now starting to exceed GDP, which ultimately means that those signals are becoming a certain source of optimism given the non-optimistic waves, because the component of the moderate economic growth is going to be commented on by Rafał. This is why we have decided to ask him for a commentary. This is a good moment to observe. This ultimately means that our bank, as you have yourselves noticed, will be retaining its market share. And with regard to the aggregates that have given rise to the greatest non-balancing, balancing of individual items, the well, share in the market has ultimately been growing, both in the private or individual and corporate client segment. Now, we do have the greater activity period, which we have been using for purposes of improving effectiveness and improving efficiencies in terms of effectiveness targeting projects.
We used to be talking about digitization, that is no longer the case. We are just improving our efficiency. Digitization is a word that has overall lost its meaning, which means that we are going to be focusing on transactions with the transactions, let me emphasize, transactions engaged in by clients with the use of banking staff are actually dropping, the volume is dropping. I am not going to be talking about cash operations here. Nonetheless, that is also quite an interesting moment, where the average daily value of deposits generated by banking staff has dropped below PLN 10,000. 10 years ago, that was PLN 7,500 or PLN 7,700 a day. Not to mention payouts, cash payments. Cash payouts are associated with the cash-based operator.
Well, today, it's PLN 3,000 today, whereas PLN 14,500 or PLN 14,700 daily, 10 years ago. That does not necessarily mean that the cash payouts have been moved to ATMs. Nonetheless, simply, people are no longer using cash because the number of transactions at point of sale and transactions, transactions in general are growing. Nonetheless, they are definitely becoming cashless, reflecting the overall trend of improving efficiency. Now, you're interested in cost, administrative cost included, as in any case of growing inflation environments, we have to consider the in-house cost and the cost of services provided by other entities. We are not really dependent on other growth factors.
Inflation obviously translates into a high remuneration rate, which in turn translates into high employee or employment costs, and the high cost of services provided by third parties, which means that we are currently facing the trend. Not to mention IT expenses, which in all probability, we would want to engage in faster, but for a number of reasons, the process is not as dynamic, which means that this is probably a good time for larger scale business investments in stable systems. This has been confirmed by the labor consuming rates, not to mention the fact that we have actually noted a redundancy of 270 staff here on here. We are simply trying to adjust to the overall market conditions. Those are structural changes. We are not really applying any moves to match the overall market prosperity issues.
Now, there is another issue that we ought to consider here, that is the low activity and the perspective of lower economic activity, which means that we are obviously experiencing certain island-based tensions in the corporate sector. Now, once the cycle flattens out, once the curve flattens out, or, when the curve starts picking up, only then do we notice these isolated areas of threats to a number of entities. In terms of the loan repayment issues or loan repayment, we don't reach a turbulence here, whereas with regard to liquidity for a variety of corporate clients, the number is not that great. Nonetheless, those turbulences are there, which ultimately means that we are moving to the predictive phase of forecasting cost of risk, despite the relatively good service quality, hence, the blending in of the cost of risk with the dropping number of NPLs.
Now, on the pages of our report that Bożena will comment on, we are supporting on the overall application process in recognition of risk factors and in recognition of the topic that was of particular interest to you, ladies and gentlemen, i.e., the additional provisions or commissioning for CHF-related expenses. Additional components are there. The growth in income, NII, among others, related, not to mention the growth in asset management and growth of revenue on, in other areas, has already been noticed. Now with regard to the growth in expenses, the overheads, among others, and administrative cost has arisen from the outside world or out, or third-party services and IT costs. So we have not increased our employment or headcount.
The cost of risk is definitely increased, and given what Rafał is going to, is about to say to you, these isolated islands, isolated areas of threat can definitely be a possibility, and we are going to respond by establishing provisions. There are no sector weaknesses we have noticed, no distinct trends. Those are isolated areas. Those are components that can be referred to as certain turbulences to corporate operations, for overall market condition-related reasons or mismanagement, because obviously, difficult times require proper management. These times are difficult for a number of companies for the corporate sector, which ultimately means that we have actually noticed mismanagement, not to mention overinvestment, overinvestment in comparison with the current demand, which ultimately means that sales generate liquidity tensions. That, however, is quite a normal or regular situation.
Phase to phase, we have not sold any NPLs, which obviously did not contribute to or did not generate, excuse me, no, it did not alleviate the cost of risk. This is all I would like to say at this point. In terms of the rest, do consult our the first part of your conference kit. Now, we are going to move to a fascinating, hopefully, story about how we, i.e., our experts, see the overall macroeconomic set of circumstances, the bittersweet or salty and sour story of the environment that we are operating in. So Bożena will talk about it. Now over to Rafał.
Well, thank you very much. I just wanted to say a few words about the forecast for the Polish economy and investment, and that's a very important component that impacts loans and the share of loans in GDP. The economy is in a revival stage. In the fourth quarter, GDP grew by 1%, early this year, 2%, second quarter, almost 3%. The main driver of this economic improvement is internal demand. The risks are mostly domestic as well. On the level of the country, we are hoping that the consumption dynamics will continue, thanks to the higher rate of growth of income since the 1990s, the highest. We're quite afraid to look at investment. The forecasted investment is close to zero, at the risk of being negative. This is more to do with the shift after the KPO update.
I will talk about it in a minute. The threats are mainly external. There is a slowdown in China, Europe, and also lately in America. Soft indicators imply that, there is a small level of revival, in the German industry, but also globally. The parallel drawn, to compare it to 2018 shows why it's happening. Other than the weakness of China, it is important to also recall that when the trade wars began, just talking about customs, translated into a detrimental, impact on the economy. So, like I said, and this is visible in the German industry, but also globally. Now, in the U.S., it doesn't seem that there is a, such a high risk of recession as might be, visible.
From the market reactions on Friday and on Monday, there's a leap in unemployment, which is greatly linked to the influx of immigrants, which is quite considerable in America, but there is still quite a lot of demand for jobs, and it's an increase of unemployment and a slowdown in the increase of remuneration, which is something we could only dream of in Poland. It looks as though the American economy is going to have a soft landing rather than a hard recession. However, the projections have been less optimistic, so we need to also revise downwards our projections of GDP. Right now, the forecast says 2.5%-3% growth. Next year, it's looking more like 3 % or 3.6%. We have been able to avoid the heat wave of increasing forecasts of GDP when other teams actually lifted them up.
We are not trying to correct them nervously downwards, but we are seeing a deterioration of the situation, and it's 3.6 % next year to 2.5 % this year. The main reasons for that is the delays in investment, and a stalled development globally. In-depth comments about investment in Poland lately, and a few words about forecasting are here. We have lately developed quite a lot of research, 30 interviews with enterprises. We asked them about the raised investment plans, areas where they want to invest. So first, some figures, and then conclusions from the study. The share of investment of Poland's GDP has been decreasing since mid-last decade. It used to be close to the EU average.
Now, the discrepancy is growing, and it's almost two percentage points. If we break it down to entities, we have a downward trend, especially in the enterprise investments, vis-à-vis the EU average, but even more so vis-à-vis the region's average. Now, public investments are close to the EU average, private even higher, but their share is the smallest. Now, if you break it down to type of assets, we have a downward trend vis-à-vis the EU and the region in machinery and equipment, but also buildings, intellectual property, research and development as well, but we know here that this could have been impacted by tax reasons. So in brief, it looks as though the decrease of the share of investment in GDP, vis-à-vis our neighbors and the EU average, has been impacted or has impacted, to a large extent, enterprises and the sector of machinery and equipment.
That's a very disturbing fact, and there's quite a concern around it, because 80% of GDP, we're talking more and more about the middle-income trap, and we need to redefine it and talk about high-income trap, but we are still researching this topic. Now, we'll go back to that. Now, regarding the forecast of investments projections, we have studied the topic and analyzed the data, and it looks as though the main barriers recently have been institutional instability in law and unpredictable taxation. But going forward, it looks as though the future investment cycle will be even more linked to EU funds. Because before the pandemic, there was a choice between a EU grant and a loan, and the inflation was low, so the interest rates weren't that high.
And now, it's either co-finance, EU grant, and KPO, so Polish National Program grant. And then the inflation plays a role as well. So definitely, the option of EU money is more favorable, and it will be more and more linked with EU funding. Now, we have updated our projections for EU funding that we can see here at the bottom of the slide, of getting, actually obtaining the funding. So the national KPO program will not really cover the gap in structural funding. The new update that appeared before the holiday shows that some of the funding has been shifted to 2025, 2026. So the balance is 1.9 vis-à-vis, versus 2.3. So the investment projection should be very cautious. Our projection is around zero.
Even there is a risk of this being in the negative. If we look at various sections of the economy, we can see there are some public tenders in the railway sector, road sectors stalled. Yes, infrastructural projects are going on, but it's not looking very good. In the housing sector, is in the red. We can see that there are, however, construction sites that are not being launched. So all in all, the projections for investment is zero, at the risk of it being negative, but next year, we're looking at a potential growth of investment by about 7%-8%. Let me go back to the topic of middle-income trap or high-income trap. The main reason for that is, lies in demographics.
So availability of cheap labor is soon going to end, so there is a drop in the flexibility of our economy. And the experience of other southern EU countries also seem to tell us a story that the growth is weaker than expected after the 80% of GDP is achieved. There is also the slowdown in Germany, that's a factor. So the economy needs to be more capital intensive rather than labor intensive, and we have been talking about this a lot. Now, from the point of view of the banking sector's business, it's a very important component, leaving room for increase of loans. But companies are rather cautious, and let's hope that the new cycle of EU funding will revive investment.
We have lowered our projections actually two months ago, and we can see that investment can be weaker this year. So overall, investment projection zero to pick up next year. A few words about inflation and interest rates. The lowest inflation is already in the past. It'll jump to 4.5%-5%. The peak is going to be March next year, rather below 6%. One important factor is, was in July, and the energy prices are slowly normalizing as well as gas, but this has added on another 1.3 percentage points. Tariff policy will tell us whether there will be a future leap in September. Right now, the retail prices are about 30% higher than wholesale prices.
We are hoping that the next leap will be slower than expected, so we're assuming that peak is going to happen in March, and it will be about 6%. The baseline inflation will not drop. It stopped at 3.6%, and that's a concern to the central bank. This is mainly caused by the prices in the service sector, but also the prices of merchandise is a factor here. It used to be stagnant and commodities prices used to even contribute to deflation, but it's not happening at the moment. Central banks around the world are now starting the cycle, or it's more advanced throughout the region and in developed countries, developing countries.
We're looking at lowering the rates in the U.S. and additionally in Europe, and we believe that there will be a decrease in the Czech Republic. The central bank will be delayed with that decrease. We're assuming that it'll be 75 points next year. Discussing the issue of hiking trap also impacts our interest rates debate. It should be 4% rather than 5% in Poland. Whether this will be achieved in 2026, well, that depends on whether the NRP will generate an impulse for the inflation. But like I said, the mid-range projection is 4%, and we believe that discussing the lowering of that may happen in the second quarter of 2025 and the following months. That sums up my intervention.
Just to wrap it up quickly, there is a slow pickup of the Polish economy, could be one of the better growths in the EU, but there are some risks on the side of investment NRP. But we don't believe that the situation is quite as bad as the market situation seems to be implying in the treasury bond sector. But we do see the risk for 2025. We are hoping for a revival in 2025. Then there will be some decreases, but rather than late in the cycle. Thank you.
Okay, I will try to summarize the financial performance of the bank for the second quarter. The net income, PLN 965 million. That's 12% lower than last year. It goes without saying that the credit vacation or credit grace period definitely has an impact. PLN 170 million, excuse me, PLN 221 million, that was the net worth of the vacation. Now, we all lowered that to PLN 170 million based on the current estimates. Now, the share or the rate of usage of the grace period in June and July had an impact. Now, should we correct our performance to recognize the aforementioned, then we would definitely have a similar performance to last year's. Now, the six-month performance, PLN 1.98 billion. That's a 2% drop year-on-year.
Should we eliminate the grace period effect, we would actually have a performance 4% higher than last year. Now, it goes without saying that the performance for the first six months had been impacted by the higher interest performance, 290% more, 7% growth. The commission performance also over 9% year-on-year growth. On the other hand, this is something that Brunon told you, we have increased our operational cost by PLN 215 million, in general to 12% year-on-year. Excuse me, 2% year-on-year, not to mention the overall performance of 180. And now, in terms of the overall performance, ROE also corrected to recognize the cash flow hedge at 21%. The cost to income is 44.6%.
Now, let us take a closer look at the interest performance. It goes without saying that we have to recognize the credit vacation or grace period. Now, should we correct the interest performance to recognize it? In terms of year-on-year six-month growth, that's 12%, and 12% increase over PLN 4.3 billion over that period. This is our performance for the full six months. It is also worth mentioning that our accumulated interest margin in the second quarter was 2.64%. It remained at a comparable level in comparison with the previous quarters, whereas the interest rate margin had actually been increased by five basis points. Now, Brunon had already mentioned the loan-to-deposit ratio, 2.6% in the second quarter, a slight improvement in comparison with the previous quarter.
No, nonetheless, obviously, those are very low levels in terms of the overall balance sheet optimization. In terms of the commission-related performance, PLN 1.6 billion in the first six months. That's 9% increase year-on-year. And now, in the second quarter, PLN 571 million commission-related income, and that performance is similar to that we recorded one quarter ago. And now, our charge and credit card performance is truly extraordinary. That is associated both with the number of cards and the number of transactions. Over the six-month period, we have also noted higher performance in terms of funding and also the brokerage activity, 26% year-on-year. That goes for the participation units as well. Nonetheless, in terms of investment fund, in terms of the investment fund-related performance, that is, we have actually recorded a 51% increase year-on-year.
Those are the most important components of what we have achieved. Now, the costs for the six months were PLN 2.3 million . That is a 12% increase year-on-year, and as said before, that is primarily associated with the overall overheads and third-party services. That's 16%-18% year-on-year. That is closely related to the growth in labor costs and remuneration costs, and the third-party services that we need to run our bank operations. Now, this increase has come as no surprise. We told you before that operational costs will be affected by the inflation pressure, and we'll be moving towards the cumulative inflation-related components. Now, 9%, was the increase of employment-related costs. As said before, from April 1, we increased remuneration, the salaries, approximately by approximately 7% this year.
We have also recorded a 13% growth in the banking tax. Now, regulatory costs have also been not really impacted our performance in terms of any growth, the FSA, FSA costs included, correlated costs included. Now, with regard to cost of risk, they're at PLN 318 million, PLN 53 million for the retail sector. The remaining part, it goes to the corporate sector. Brunon was talking about it if extensively. Now, with regard to the increase of risk in the corporate sector, has arisen from our prudent forecasting and assessment. On the other hand, we have had these isolated areas of the less positive economic growth, that would also be a driving force behind the revenues. Financial performance and liquidity performance rates, or indices, have actually caused a worse financial standing.
This is why we have established extra provisions. We believe that this is a natural phenomenon. It is also predictable. We have been taking a closer look at the fluctuation rates of the past. This is exactly the kind of thing that gives rise to higher risk rates. Now, in terms of the corporate sector, the normalized risk rates are truly regular. This quarter, we established PLN 26 million for purposes of provision for CHF-related issues. We have also been taking a look at what was going on in the client sector and the consolidation procedures. We have also been taking a closer look at judicial decisions. We have, among others, corrected the cost estimates concerning interest that is added to judicial decisions.
In effect, we have reached 116% of risk coverage. We have seen that in the banking sector, the analogous rate has reached 100%, so the risk is truly covered there in terms of provisions. Now, in terms of portfolio quality, as said before, also in connection with an increased credit risk and the exposure, the risk exposure in for Tier 2 Tier 3, we have seen what has happened in Stage 3. The rate there has reached 3.2%, growing by 37 basis points this quarter. I believe that this is another thing that I would like to draw your attention.
True, in the corporate sector, should we take a look at the Stage 3 provision-related sector, well, I believe that our performance proves that even those cases that we reclassify for Stage 3 have been properly taken care of, and the basis is really good for provisions. Now, capital adequacy. We have reached 15.42%. In liquidity, we have achieved great performance in terms of risk-weighted assets. Now, in terms of the liquidity, well, in, on Tier 1, I believe that the dividend, it is worthwhile mentioning that we have paid out a dividend in the first quarter. That was paid out as a result of the decision made by the shareholders' assembly. As a result, our performance dropped by 79 basis points.
We have also been quite active in terms of RWA, risk-weighted assets, a drop of 7 by 72 basis points. On the one hand, this has arisen from the growth in credit volumes, not to mention the migration of credit-related risk that has translated into the overall liquidity ratio. So I believe that is all in terms of the overall commentary. Let us now move to the Q&A session.
Thank you very much. Congratulations on your performance. I have a number of philosophical questions, if I may, but also detailed questions. Detailed questions: what about your market share? Let's move to page five. Some banks have told us that they are now, they have been observing a growing demand for credit.
Till 2022, those shares were growing more rapidly than on the market, and then in 2023 came, and specifically in the last quarter, the bank has been losing. In the retail segment, specifically, you have actually been very, very close to market trends. You are not keen on talking about the future. Should that trend pick up, should I assume in my Excel sheets that we are going to be returning or revisiting pre-2022 rates, or are we going to be quicker or faster or beyond? But if you are not happy to answer that question, would you please care to comment on the difference concerning the pre-2022 and post-2022?
Well, that makes me smile. We are not trying to help you in any way in filling your Excel sheets. That is our strategy, so to speak. Now, the growth is an inherent part of our business model. Past events, pre-pandemic events, should be considered regular.
That regularity, that more normalcy, was reinforced by the fact that quite a few banks had been experiencing capital or equity-related problems, as a result of which the sector could not really afford to engage in credit campaigns. This is something we took advantage of. Now, conclusions. As well, since Q4 2019, we have been experiencing stagnation on the corporate credit market. That stagnation actually truly exploded in later years because companies had been expecting higher inflation. They were increasing their stock, in order, or their inventory, in order to anticipate inflation. Nonetheless, that credit activity or credit campaigns had been very inactive, whereas today, those credit campaigns are much more active.
Nonetheless, those isolated areas of increased activity have not necessarily affected areas that we are particularly interested in, hence the rather weakened credit campaigns or our lower share in the market. Now, as the waves of economic growth spread throughout the economy rather than throughout isolated growth areas, we are truly hoping that our regular market practice will allow us to revisit normalcy. This is why we are not really dependent on those isolated areas in terms of growth and credit campaigns throughout a period of a generally weaker economic dynamic. The more the dynamic spreads throughout the economy, the more inclined we are, and the more likely we are to go back to business as usual, because high activity is our business as usual, in combination with stable, stable balance sheet management.
Now, to be more specific, let's look at our share in loans and deposits, respectively, and you will be able to see the tendency that our share in the deposits grows slower, at a slower rate than that in loans. But the long-term trends are shown there to be able to outline to you what our business model is all about, and the distortions of the last four years are quite specific, and that's the reason why we are showing what you can see on the screen right now, to bring you closer to what the business model should look like in normal times.
Okay, regarding the balance sheet, another philosophical question. If I understood your comment well, sir, the current level seems to be a threat. Can there be a threat in the loan-to-depo ratio?
I have seen the last 20 years in the Nexo sheet, other banks have not gone beyond 63% in any of the years, and they're considered that's considered safe and stable. I understand that the loan-to-depo is different than what you have assumed in your strategy. It's a lot lower than what you assumed. But what are the nature, what is the nature of the threats of the excessive activity? Unless I misunderstood you.
No, let me just respond very directly. The insufficient development of the capital market and the liquidity market in Poland causes the fact that the low loan-to-depo ratio means that traditional Polish banks, we are a traditional Polish bank, from the point of view of how we operate. We're typical commercial banks, almost all of us, actually, perhaps, Citi bank Handlowy is different.
But this causes us to have to adequately use the funding from deposits, taking into account all the transmission of risks, the distortion, et cetera. We need to locate all of those funds in other instruments. And the weakness of the market means that there is excessive concentration. So Polish banks are excessively indebted. Our Polish banks have an excessive position, mainly in the treasury bonds area. There is, that's an excessively concentrated formula, and also, due to some accounting solutions, this causes risks, because we are not capable to make sure that all of these ratios, according to accounting rules, can be put into the formulas that are independent.
And so those carry a big market risk, and this component of excessive concentration of state treasury and financial instruments, that is a phenomenon that is, actually becoming more and more intense, and it's going in the wrong direction, and has been for the last four or five years. And any prognosis, any forecast that we can, develop, looking at the, relative wealth and such components as those, as Rafał has mentioned, the reasons to a high baseline inflation, inflation, this is something that is structurally included, integrated. So the reform in the capital market has its consequences, and the banks should deconcentrate its rate, and at this point, the only element is the loan operations, or, going overseas, but that's, carries an element of risk as well.
This is a situation that's relatively threatening to the state treasury, because the potential to sell, potential to generate new sales of debt instruments, published by the state, meets such entities that are largely concentrated already, which lowers their purchasing potential. So the treasury needs to account for the fact that it's going to have to look outwards into the overseas market, which in the current geopolitical situation, is not the most beautiful solution for the state treasury. So this is the sensitive point of this setup. The loan-to-deposit is a serious element of managing all the flows and the paradigms of the national economy. So the consequences might be serious, not just for individual banks, but even for all of us as citizens of this country and for the state treasury. So there we are.
We can see the structural lack of balance for commercial banks and the size of the loans, especially corporate loans vis-à-vis GDP. Those are not healthy indicators, actually, that are hindering our long-term growth, and that is convergent with the elements such as the risk exposure related to, for example, extreme overestimation of the value of treasury bonds. And we have seen that already, quite recently, actually, when treasury bonds that were considered to be the highest rated could lose value. And let's go back to 2008 to recall that fact. That's not very far in history, is it?
Two detailed questions. First, the cost of IT, they have significantly risen, and the fluctuation of IT costs is something that I wanted to ask you about. What is the nature of these costs?
You have, you have PLN 60 million in quarter four last year, then PLN 100 million, and now PLN 140 million. And question number two, why aren't such costs, such expenses, subject to CapEx? Why is it an expense in the P&L account?
Our model is an agile model, and that binds costs or expenses to activities in operations that are being carried out at that point in time. So that's related to that. We capitalize some of these expenses, but not all of them can be capitalized. Even in the agile model, we are functioning in the area of, well, small, lean changes that are constantly being produced. In many cases, those are not great changes. It's not we're constructing new systemic solutions. So it's more of an OpEx than a CapEx model, and it's linked to the, to the operations in a specific period, the flow of project development and, and regulatory projects as well, and they are almost always IT-related projects, too.
Thank you. And the last question from me, NPL in corporate segment, ING has different trends to that on the market, that's how I understood that. Individual large companies have problems. The growth of NPL by PLN 600 million.
Yes, I can confirm. Bożena talks about individual cases, I talks about. I talk about islands, but we're talking about the same phenomenon.
Thank you very much. That's all from me.
Thank you. My name is Jacek Ramotowski. I wanted to ask you whether we should continue this topic, the individual, islands of problems in the enterprise world. Could you quantify perhaps a little bit further? You've spoken about the fact that there is some mismanagement, overinvestment, weakening in the economy, but could we say that this is becoming a pattern that some industries, exporters, for example, or exporters of this commodity or a different commodity, et cetera?
Let me repeat my message. We do not observe such trends. We do not observe trends that would point to any shaping of forms in sectors or sub-sectors. No, we would say that those are more individual phenomena. That's why I use the word island, because it is not connected to the mainland. There isn't even a lagoon. No, this is exceptional. So a comparable company from the comparable sector with a comparable profile of operations or exports can be doing great, and another one, not so much, to be blunt.
The current requirement, does it change your strategy for the sales of mortgage loans or your appetite for sales or pricing?
The indicator is something that we are going to report on a monthly basis, starting from July, not the second semester, but in July, and that's the long-term financing indicator. We will be reporting that to the Financial Supervision Authority. But my comment on this indicator, well, the path of the preparation of this indicator has been quite winding. We need some adjustments, and the discussion that's going on right now between us and the Financial Supervision Authorities has not been completed yet.
So in essence, we understand that this is something that's going to be there, but there are some fine-tuning components that are still being discussed, and those could impact a difference in this indicator by. So what I would say is that we will be reporting a lower indicator to the to our target 40%, but there are some signs that can be interpreted to say that we have no reason to make any adjustments in our operations to match the indicator as prepared by the Financial Supervision Authority, because we believe we can meet its requirements given the time that we have allowed for that.
The indicator will only be binding at the end of 2026, right?
So, we need to look at it from the point of view of the large dynamic that we are expecting on the side of our loan operations, but also, capital surplus, and the weights of these surpluses and the buffers that come into play. So frankly, I believe that the long-term financing index is something that we should look at in a dynamic way, and its current level says nothing about its future level. We have actually, by the way, performed an assimilation analysis, which points to quite a large volatility of this index vis-à-vis the 40% that has been set.
Let's remember that one of the intentions, other than to extend the passives and the change of financing of the banking sector, was to issue covered bonds as the cheapest way to supplement long-term passive. And here we have an SPV, our mortgage bank, that if the need should arise, can quickly issue quite a lot at the lowest possible expense. And that's a model that should be thought about in the context of this index. When we created Bank Hipoteczny, we created it because we expected that this could happen. It was already clear that only dedicated special banks under special jurisdiction would have the right to issue covered bonds, and that's the decision that was made, so we wanted to have a tool available in our toolbox for that purpose.
As a rule, I think that the issuances are insufficient for covered bonds in the structure of the Polish banking sector, and I think perhaps the time has come to reverse that trend.
Thank you.
A question about equity and the change in next year's CRD. Can you share an estimate here?
We cannot give any specific amount at this point. Certainly, this is one of the strategic regulatory projects that we are carrying out, and the completion date will be by the end of this year. So we're looking at quite advanced calculations, but I think that until we have completed all the works, and you know that regulations have changed in Europe concerning important components for new capital requirements, we will not be able to reveal or disclose these effects. Perhaps during our next conference, we will be able to give you a ballpark value, that's going to be close to what we're going to be reporting, starting on January the 1st. But this question has already appeared during our previous conference, and I mentioned that this will not have a significant material impact.
And we are definitely going to handle the. We are also going to be able to handle the interest rate risk-related issues.
Now, with regard to the credit or loan market, specifically when it comes to corporate loans, would you care to comment? Because, for example, should the National Recovery Plan funds be replacing loans this year and next year, do you see any opportunity for that market to grow this year, next year? I understand that you are not keen on specifying details for your perspectives, for example, but, for example, do you expect the entire sector to absorb 5%-10% of those funds? So can you also expect any kind of effect on the corporate sector.
Well, I would not be happy to confirm that the National Recovery Plan is pushing banks out or the banking sector out, but activity is a different thing altogether, okay? So let's consider an overall body of water. So yes, indeed, the National Recovery Plan is a stone that causes turbulence, and this is a system where everything affects the overall body of water. Now, we have a certain take on economy, both as citizens and as banks. The point is that any sources of funding, be it grant-based or otherwise, they should definitely have an effect of a cascade or a multiplier effect. The entire economy is a separate being, which, thankfully, in Poland, has a high absorption rate.
Which means that if you throw a stone into the body of water, that causes waves, makes waves, and that's great. People get excited, et cetera, et cetera. And that is the entrepreneurship spirit that Poland is famous for, although recently, it seems to have a cold, and if not, the flu. So that is not about pushing out, it is about coexistence. Now, the economy as such, has a high capacity for absorbing the multiplier or cascade effect. If entrepreneurs assume. Should entrepreneurs only, or enterprises only base on grants or the National Recovery Plan or EU funding, that is not necessarily good for the economy, because the economy ought to be stimulated by the general environment rather than access to free funding.
So, what we need is a naturally developing economy rather than an economy stimulated by expenses with a source in centralized state functions, and this is what we are after here. I tried to respond to the question before by telling you that we are really very happy that the loan campaign indices have been growing at a faster rate than the predicted National Recovery Fund rates. This ultimately means that any increase in the loan campaign ought to be higher than GDP, small print. That would be healthy for the economy. It would also mean that impulses sent out by consumption or defense, of the defense sector or the National Recovery Plan, would indeed translate into economic growth. To go back to the first question and answer today, we want to grow faster than the market.
So the market faster than the GDP, we will be growing faster than the market, and, you know, it goes back to Julian Tuwim's famous poem about, you know, people grabbing each other to get the turnip, turnip out of the ground.
An interlude, a number of questions from the internet. This is something that has already been responded to, to a certain extent, the risk in the corporate segment, are they isolated cases or the beginning of a trend?
This is something that has been responded to. The same goes for the long-term funding index.
An estimate. There has been a question requesting or a request for an estimate.
This is something that has been responded to.
Now I understand that I think that with regard to exact amounts, do join us at our next press conference. This is when we are going to be making an announcement concerning the rates that we are going to be publishing as of January 1st . [SOT and II this is something that you mentioned already, so could we please now move to other questions?
What is your market share, if I understood the speaker correctly, with regard to fixed and variable rate credits? 32% 33%. 33%. The entire portfolio of zloty-denominated mortgage loans. Now, what is the share of the fixed rate interest loans in the assets, hedging and so-called natural securitization?
I understand the first part of the question. I don't understand the second part. Bożena will offer a commentary.
As you probably know, we have, for a long time now, been applying the strategy of active interest management. We are using the macro cash flow hedge instrument. This is something that is not necessarily connected to the mortgage loans, but to deposit stability. Now, from the viewpoint of the hedging strategy, we are using derivatives by applying them to mortgage loans. That 40%-50% of the nominal value, should we take that particular perspective thereon.
The next question: Now, what is the source of the growth of the NPL rate by 0.7% quarter-on-quarter in the corporate sector?
I think we have already responded to that question before.
Okay. Would you please care to comment on the sensitivity of your overall loan portfolio?
Well, obviously, we are obliged to reveal such data, so do reach for our annual report. I'm also going to be commenting on the drop of the interest rates by 100 basis points. The annual report mentions that, in terms of the overall decreases in interest rates, we have assumed a regular decrease of interest rates over a span of 12 months. That's PLN 228 million of the negative impact on our performance, 100 basis points, with an assumption of 100 basis points decrease. According to slide 28, the mortgage loans denominated in foreign currencies have grown up to PLN 164 million, given the PLN 181 million in the first quarter.
So did, have you reclassified those loans? Whence the growth, given extra provisions and no drastic moves on the FX market?
Well, as aforementioned, we have updated our assumptions to the overall model, which means that this move is a result of. This is a result of the overall perspective, that is the use of provisions to cover the risk. And this has grown from 113 % to 116% in the second quarter or quarter-on-quarter. This is just a technical change arising from a change to model assumptions. Moreover, we have approached specific items in on-balance sheet and off-balance sheet as a result of model changes to our balance sheet model. Now, given the specificity of our model, it is quite obvious that the number of cases in our active portfolio has been dropping.
It is now well-nigh invisible, as proven by the schedule of payments, and since our mortgage loans have been moving from the active status to repaid status, not to mention consolidations we have signed and the overall dispute settling.
Now, will bank revisit the option of a WIBOR-based mortgage loan issuing? That's part number one. Part number two of the same question: With regard to the campaign you have launched according to the periodically fixed rate loans, how is that campaign doing?
Now, I'm going to take the first part. I'm going to answer question one first. With regards to the fixed rate loan, it goes without saying that, given overall market trends, those have been dropping, 63%, I understand, is the average for the second quarter, approximately 63%, but it goes without saying that in June it had dropped below 63%, and that is quite natural and quite obvious.
Now, secondly, if I understood the question correctly, is the bank intending to revisit the WIBOR-based mortgage loans? We should respond in the affirmative. The answer is yes. And that ties in with the WIBOR-related social consultations currently in progress. So we have to bear with the social consultations in order to await the final decisions of the steering committee. Since, however, the consultations have been in progress for the past couple of weeks, we are probably closer to the ultimate resolution. All right, the next question.
Now, the report mentions the judicial questions to the Court of Justice of the European Union.
Now, don't you think that since the case has actually been passed to the CJEU, don't you think that this is not not going to affect the overall banking sector?
Well, no, this is going to be my private opinion. I'm going to count to ten. With regards to. It is about the preliminary rulings.
Thank you very much.
So it is okay, I think that the process of damaging the state is in progress. I think that the preliminary ruling filed with the court has been truly biased. I believe that the court did not account for the leading institutions of the state, who have actually made a statement concerning WIBOR.
All institutions have made their statements, whereas we are now filing highly biased rulings or questions with the court with regard to the CHF-denominated loans. I would really want each and every citizen, regardless of his or her station, to be responsible for their own loan decisions, and that is all from me at this point. So I would like to remind you that the WIBOR also provides stability to that particular index throughout the European Union. I think that common interest beyond own interest.
Well, I understand what you're saying as follows: You are revisiting the WIBOR-based mortgage loans because you believe that WIBOR is going to be the reference rate that is going to be used in the future.
Well, it is there, and what is, we can't tell you what is going to replace WIBOR, whereas not causing confusion to our clients is the absolute foundation of our customer service and customer relations. WIBOR is our reference rate. It is, has been quoted, it has been regulated. It is also subject to certain regulations with its own administration and, management structure. The main thing, however, is for our clients not to be thrust into a state of confusion. Now, obviously, obviously, we are considering the option of revisiting new production of WIBOR-based mortgage loans, because we are no longer issuing WIRON-based loans. Once the social consultations, public consultations have been launched with regard to the question of whether we are going to be using WIRON or, or another rate.
In order to alleviate confusion on the market, we have decided to refrain from WIRON-based loans until consultations are over. Exactly. Which means that at this point, we are not issuing any variable interest rate mortgage loans.
With reference to this topic, how is the selection of the new indicator going? We're looking at some kind of a timeframe here, I'm sure.
Please contact the steering committee. This information is confidential, and we have no access to it.
Thank you.
Next question, this time concerning the consumption loans. Your question is the following: In your opinion, where does the demand come from for consumption loans?
Even though the Polish banking sector has a higher rate of. This is quite an interesting perspective. From the point of view of comparing to the European average, we would say that all the banks in the EU are homogeneous.
No, that's not the fact. They are very much different. And we cannot compare because one is not alike the other. It's like apples and pears, so it's not the same aspect. Number two, the level of loans, credit, consumption loans, seeing the level that we have right now, is behaving quite in a quite normal way. It's not an excessive growth of cash loans.
What it means is that, as a matter of fact, well, touching this sector, this sector being affected with what we refer to as an incredible inflation, which has pushed the society into extreme poverty, is not exactly true. We have seen the the sudden growth of loan portfolio in what we refer to as parabanks during the pandemic.
But right now, the loaning operations, the cash loans in banks, well, the growth of it is following a completely different trend. Whereas we perhaps could have wondered at the time that perhaps individuals are having a difficulty to make ends meet, and seeing that they do not have creditworthiness, and they use the services of parabanks. But increased operations in banks that go by the rules in terms of assessing creditworthiness would prove that things are, businesses are normal. It's business as usual. We're getting excited by inflation, but we can see that the reading of inflation is definitely a lot lower. Please, look at the growth of remuneration.
It suddenly turns out that we have quite a strong increase, a real, realistic increase in the society's income. So hence, there is a revival in demand for both cash loans to perform your plans, such as furnishing your flat, for example, and that's quite a normal thing. The cars are experiencing an increase in sales, so all of that is interlinked. We can no longer look at Poland as a country where the level of interest rate is a killer for the economy. Because on the other hand, the income for both corporate entities as individual retail customers is statistically growing, such as the statistical growth of salaries, and that's a significant growth. So a cash loan is not something that I would treat as a proof that the society is getting impoverished.
Quite the opposite. We all see the labor market, and where it's going. Rafał, as an economist, is covering his ears right now, but I can tell you quite directly, we have a shortage of labor force. So the market is experiencing a strong demand for labor force, so the fear to lose your job is disappearing from the point of view of, of prognostics for individual customers, for retail customers. We can see that in the area of consumption, too. People are putting money aside, ladies and gentlemen, which is the other side to the story. Which pairs up with cash loans.
So if I know that I'm going to make the money, if I feel that I'm stable enough, or if I'm looking at my salaries increasing, my salary increasing, even given the high cost of interest rates, if I need to buy a car, I will buy a car. If I need to buy a washing machine, I will buy a washing machine. It's quite obvious that what we see is a shift towards a high-value loan, higher-value loan. That's a phenomenon throughout the market. Because low-value cash loans, which are characteristic for people with lower income, have slightly different rules. Let me just add that the power of the labor market. Well, in brief, unemployment is basically stable, despite the slowdown that we experienced recently.
The lack of availability of labor force is what leads us to the discussion about the middle-income, high-income trap. Turkey and Romania are quite a competitor in terms of, labor markets. The unavailability of work, this will be one of the components that we will be struggling against in the years to come, and it will change the behavior of the Poland, of Poland's economy in the next economic cycle.
Another question that makes reference to the cost of risk in the corporate segment: What sectors, and what industries have caused these costs to increase?
Not sectors, not industries, entities. Let me repeat that. We are talking about islands. Let's stick to this terminology. Those are, I would say, French Polynesia, rather than than largely, populated Indonesian and saturated Indonesian islands.
Okay, question is whether this is possible without lowering the interest rates by the National Bank of Poland?
Yes, but our baseline model says that it is the market's conviction to have a decrease of interest rates in 2025. Banks can vary among themselves, but the sectors, as such, is convinced that the decrease will take place. Our model talks about 70 basis points of reduction, and that's what experts are expecting. But also, this is also what the operators, what the entities are expecting, because this is not a barrier to a serious barrier anymore. So this is what Rafał has been talking about.
There is an expectation to see whether it's worth investing, and if it is worth investing, can we rely on the subsidies that will be reinforced again? And now again to separate myself from the bank's position, I'm wearing a different hat right now. As an economist, I don't like it, not much, but now I'm wearing a hat of the economist, and my 15 years experience, rather than the perspective of the last year or two.
I'm not sure if we made reference already to the CRR and CRD indicators. The question was: What impacts will be felt driving on the change in those regulations?
I think that we have responded to this question already. CRD4, yes.
Here is a question about the credit dynamic, 2024, 2025. What are we expecting on the retail and corporate side?
I think that we've already heard on that extensively.
We haven't spoken about retail, the retail market, but we do not want to be speaking about this. Unless we lead to quite a serious distortion with promises of very cheap mortgage loans, I think everything will run as it has so far. I think at this point, we have quite a lot of demand and a growing demand for mortgage loans. So all's well, let's just not spoil it. Let's not ruin that.
There is a question, another question regarding another topic, and that's the impact on the level of fees and commissions. What will be the impact of the product offering in the brokerage house?
I'm not sure I understand the question, but what change in the offering? I don't believe there have been any. We are not expecting significant changes. There have been some.
As a matter of fact, the level of our revenue is a derivative of the volume of transactions that our, that our clients bring to us, and as we indicate in our report, the second quarter has seen an 8% increase of turnover of our customers on the stock exchange PLN 3 billion , which obviously translates to the level of revenue we obtain from that branch of our operations.
The last but one question: Well, should banks stop giving out mortgages when the state cannot maintain the stability of long-term contracts with customers?
No, banks should not consider such an option.
And the last question: What is the natural unemployment rate in Poland in the current environment?
If we were to measure that, would it be. This is slightly below 3%. Yes.
We have practically achieved this rate, or we're very close to it. Let me just recall that we're at a stage where, over the last decade, the number of people who are professionally active has dropped by 10%, and we are expecting this to continue. So the current rate will be very close to the neutral rate, and any deviations due to the economic cycle will not cause it to budge very much.
Thank you so much. Unless there are any other questions, we can close the meeting. Thank you very much, and see you in a quarter.