Good morning, ladies and gentlemen. Good morning. Today, we will shed light on the results of Q3. Q3 featured large uncertainties and question marks due to geopolitical situations. Nevertheless, there are also positive changes in the Polish economy. Consumption is slightly slowing down, but investment is growing and gathering momentum. We see it in our bank looking at the projects involving defense and infrastructure. More and more focus will be switched into the boosting of our Polish economy. In the meantime, in Q2, we obtained more than 100,000 new retail clients to the tune of 4.5 million of clients altogether. Also new companies, 680, which is very important year-on-year because we only acquired 133,000 of retail customers as compared to 168,000. In companies it was 21,000, whereas now it is 24,000.
In the first three quarters of this year, we acquired as many new clients as throughout the previous year entirely. Which is very important in the Beat of Life strategy. Hand in hand with growing clients, the deposits are growing by 15% year-on-year, by 18% for retail, and by 10% for corporate clients. The investment products value was PLN 86 billion, including PLN 74 billion funds and PLN 12 billion brokers accounts. The volumes of investment funds that are growing translate into growth of our market share of our ING TFI. At the end of Q3, the value of loans in total was by 9% higher than in the previous year. The financing of corporate clients was also to the tune of 9%, whereas mortgage loans grew by 8%.
This, given very intense competition and high intensity of refinancing of loans, which were refinanced at lower margins and with lower interest rates, but it was the case three, four years ago. Higher growth to the tune of 14% was featured in cash loans. In conclusion, what makes us particularly happy is the increase in acquisition of new clients. We attracted more and more of new clients in the Beat of Life strategy, provided that we should get 7.5 million new clients altogether in 2035, and we are very well on track. After the first three quarters of this year, we generate the volumes of clients that will be in proportion to the final objective for 2035. What is also important is that loan products for corporate clients are in the pipeline and will be visible in incoming quarters.
We are very happy about it because in the previous quarters we complained that there was no appetite for investment, and now there is. So it makes us very happy, and this happens with very good profitability features, and Bożena will tell you about it in a moment.
Yes, indeed. Good morning. So, about financial results after Q3. What is noteworthy is that our gross result in Q3 was PLN 1.7 billion, whereas our gross result cumulated, it is to the tune of PLN 5 billion, 17% growth year-on-year. Our gross and net result is above the market expectation, which is noteworthy as well.
Importantly, the growth in financial results in those volatility conditions that we see are a result of a consistent turn to commercial activity, and thanks to the positive proportions in the financial statement, and especially the fact that our total revenue grew by 7% year-on-year as compared to the growth of costs of 6% year-on-year, operating costs 6% year-on-year. The proportion is positive. Also, costs of risk servicing have been beneficially reduced. They are 50% lower than it was the case a year ago. That is why, as Michał was saying, in Q3, we saw high volatility on the one hand, and changes in financial markets on the one hand, which will, of course, have bearing on balance sheet results and results, and there is also strong competition. Nevertheless, looking at our results, we have reasons to be optimistic.
Our profitability counted on net capital that is adjusted by macro cash flow hedge is 14.7%, and very often this is above what it has been provided for in the Beat of Life strategy. As for the interest rate result, it is 2.45% year-on-year improvement, 11% year-on-year improvement. Volumes of commercial loans are growing, and this translates into better revenues and better net interest result. We also better manage the interest rate risk, which is seen in our improved margin performance and interest margin performance. The improvement of our quarterly interest margin by 6 percentage points quarter-on-quarter, 6 or 7 basis points.
Well, 2 basis points is the impact coming from the adjustment of PLN 12 million that was imposed in Q2 because of the ruling of the Court of Justice of the European Union about consumer loans, and 3 basis points are resulted from the Q3 length, which is by one day longer. We have also stable financing cost to the tune of 1.62%. What is very important and should be repeated over and over again, and we can hear it also in many market comments, is that we function in highly competitive sector. We see margin pressure, especially in generation of new products. This is felt, and this net interest result is quite positive. As a result of commercial growth, our L2D ratio reduced by 40 basis points. That is 72.5%. So consistently, we have been reducing this proportion.
But what is important and what must be mentioned in our balance sheet management that this L2D proportion is below the average on the market, which was to the tune of 67% in Q3. As for fees and commissions results, PLN 692 million, 2% improvement quarter-on-quarter, 16% growth year-on-year. If we look at the tendencies of the cumulative nine months, at present, we have PLN 2 billion of commissions, which is a 12% growth. As you can see, these are very positive results of full consolidation of our ING TFI, which contributes very positively to the commission's income. But what is also important is that we have various commissions and fee sources, as illustrated on this slide. We have 5% growth in terms of operating accounts and 4% growth concerns new loans, new generated loans, 7% growth on insurance products.
You can see that the sources of commissions are quite diversified. This is what we wanted to achieve. At the end of the day, we have 21% growth, and this is one of the highest in the banking sector in the country. Operational cost, including banking tax, was PLN 1.3 billion, is stable quarter-on-quarter, and cumulatively, they increased by 6% for the first nine months. What is important is to retain good proportion between growing revenues and growing costs to be serviced. Importantly, as you can see on the slide, the main driver here is HR costs. They increased by 11% after the first nine months year-on-year. This is a result of the salary pressure. We had higher salaries, and we also have full consolidation of ING TFI, which translates into more costs to be served.
As a result, our cost-to-income ratio without banking tax improved by 47 basis points and achieved 37% result. The cost of risk. In Q3, the cost of risk was PLN 73 million. As you can see on the slide, this is the second quarter in a row where the cost of risk is clearly lower as it was one year ago, where by 71% lower in Q3 and 50% lower year-on-year after the first nine months of this year. As it was the case in the previous quarter, this quarter, we can see the positive impact of macroeconomic projections.
As a result of macroeconomic factors, we released PLN 23 million provisions in this quarter in the corporate segment. On the other hand, as you can clearly see, there are very stable and low costs of risk in the retail segment, which is also a result of our risk profile and a very robust payoff of retail dues, especially on mortgages. What is really striking is both in Q2 and Q3, we saw decreasing influx of new exposures to Stage 3, but we are still very cautious, and we will be in the oncoming months when it comes to behaviors of corporate clients, because there is high volatility, and it highly correlates with macroeconomic volatility. The question remains, what about the next quarters and their influence on macroeconomic data and the pay of corporate loans?
All in all, our aggregated cost of risk amounted to 24 basis points, and that is still very low, very distant from our long-term strategic average, which is set at 60 basis points, because that was the long-term average. Portfolio quality-wise, the share of loans in Stage 3 was 3.96%. It got a bit worse, but when it comes to inflows and the denominator value, it is purely mathematical rather than a result of worsening portfolio or increasing value and number of loans in Stage 3.
We still have very robust quality in the retail segment. As I mentioned before, it is record-breakingly low, our NPL ratio in mortgages. The provision coverage at Stage 3 is kept very stable, both for all the segments and for the whole bank. It stays robust at 48%. Last but not least, about capital adequacy. Our TCR amounted to 15.09% at the end of Q3.
After Q2, we included a part of our financial result to the capitals. As a result, the indicator grew by 55 basis points. Over this past quarter, we had higher risk-weighted assets and new loan generation. There were slight moves in Tier 1 and Tier 2 as a result of changes in our portfolio and the difference between expected loss and provisions within the technical approach to CRR, and the calculation of shortfall in the loan segment using sophisticated methods of calculation. That would be it for my part. I am open to any question you might have. Let us start with questions from the audience, if you have any.
I am Andrzej Powierża, Citi Handlowy. I have got a few questions. Let me address them one by one. Have you had any provisions for the risk of consumer protection in the area of consumer loans?
In this past quarter, we have set up PLN 13 million provisions for legal risk, as broadly understood. Speaking of SKD, because that is your question, I believe, while setting up provisions after Q2 for various consumer-related legal risks, we set up all of them. This is public information. This past quarter, we got informed about the penalty related to the so-called modification clauses.
Based on the previous quarter and the PLN 13 million provisions this past quarter, we completely covered the risk in our financial result, which does not change the fact, as we also informed you already, that this quarter, we are going to question the antitrust office's decision.
Thank you. The other question is about the influence of hedging on the interest income this past quarter. What was the delta?
We kind of expected this question because it is an ever-recurrent one. Of course. In Q3, we have seen a change in interest rates.
They have grown, naturally enough, which means that our revaluation reserve is more negative, and which also means that the contribution of macro cash flow hedge to the interest income quarter- on- quarter has been higher this past quarter. Higher, by this I mean worsening the net interest margin. Naturally enough, that is how we use macro cash flow hedge in the first place.
The delta between quarter two and quarter three amounts to just a few basis points. By the way, macro cash flow hedge should be viewed in broad terms in relation to treasury bonds as based on a constant interest rates, because it is either through a higher share of those or the mix of those and derivatives. We have got the latter, which is the mix of both. So when it comes to the influence of interest rates on revaluation reserve, it is more visible in macro cash flow hedge.
In the case of hedging the balance structure by constant interest bonds and HTC portfolio, it might not be that visible, but it works pretty much the same for any bank, through accrual, if the interest rates are going up.
Thank you. No wonder you expected this question, especially with more limited disclosures.
Our disclosures are perfectly up to the accounting standards. They are up to market standards. An annual report will come up with a full disclosure.
Well, I beg to differ when it comes to market standards, but let me continue with my further questions. Now, about the capital. I saw many banks starting securitization. Do you have any plans to do it?
Well, securitization meets various kinds of needs, especially securitization exercises we saw historically in Poland. They were aimed at increasing the capital adequacy ratios.
For our capital plans, we cannot see the need on a short term. We are not considering them now, but we are watching this space. Of course, any securitization structure, giving capital gains, comes at a price. To this end, every time we analyze such structures, we have to view both the gains and the costs.
Thank you. I forgot to check the leverage ratio after this quarter. Is it safe? Is it over 5%?
It is. To the best of my memory, it is above 5.5%. I will check and get back to you, but it is totally safe, and subject to close monitoring.
Thank you. I am Jacek Ramotowski. Hello. I would like to ask about POLSTR rates. Do you see clients approaching you asking for POLSTR loans? How much have you extended, or do they take loans based on WIBOR?
It might be cumbersome, because if you have a WIBOR-based contract and you only start the loan in some time, it might be problematic. Do you see any reactions from clients, and what kind of reactions, numerically?
Well, for starters, this is just the beginning of our POLSTR generation. As you know, between the decision and putting the loan on a balance sheet, there is quite some time. We are talking about October and everything that happened after we started offering the POLSTR-based loans. It was, if my memory serves me, on September 25. But it is still too early to see a considerable growth on the balance sheet. However, the POLSTR offer should be viewed in terms of the overall loan structure with fixed interest rates. When it comes to variable interest rates, we had 39% of them in Q3. So it is early days.
The variable rates loans. We have taken new applications as of September 25, only based on that indicator. But so long as we still have applications based on WIBOR ongoing, we will still see them on our balance sheet and we will see them started over the whole of 2027, because as you know, new generation as of January 1, 2027, across all financial assets, should be based exclusively on POLSTR, if it is subject to variable rates.
When it comes to the question you ask, it is 5.41%. By and large, if the client made a WIBOR application, and they wish to use POLSTR as the basis, we can comply, but it will lengthen the whole processing. As of September 28, we do POLSTR-based applications only. I believe there will still be many WIBOR-based applications in October, but not much in November because the conversion will happen very fast.
Formally speaking, in Q3, we had no POLSTR applications started.
Thank you. If I might, yesterday at mBank Conference, we heard that margin compression hit the rock bottom. Do you see it or there is no rock bottom maybe?
There is no rock bottom.
I get it.
I do not know if they reached the rock bottom. Much depends on the behavior of individual banks, I think. They are at a very low level, and the appearance of a new benchmark will have a bearing on the margin level. But what is going to happen? We shall see. Let us hope that we are now closer to some more stable level, but there are always some breakaway banks that come up with even lower offers. And so even if the banking community stays stable, there is always someone who offers less.
I wanted to ask about AI and about your relationship with AI and especially costs. The costs related to AI, are they visible in your organization? What is your take on AI costs, and how do you want to go about securing yourselves against the explosion of AI-related costs, so as to have everything under due control? Could you reveal what is the amount of AI-related costs? Do you have a position?
Yes, we have a dedicated position to reflect AI costs. This is taken into account. We also bear in mind that AI doesn't come for free because there are token costs and also other incurred costs. They are not significant. They are not explosive. They are well managed. We use AI to the extent as it is secure and makes sense.
But this is only the beginning of a process, so this is not a substantial cost item at this point. If we don't have AI, there will be other downturns, so we'll need to use AI or spend money elsewhere. When it comes to the conclusion that AI is more expensive than traditional processing measures, then we will be guided by common sense economy and not just AI fad, so to say.
Patrycja Maciejewicz, Polityka Insight. I wanted to ask about POLSTR. You don't see client preference before January 1st. If someone wanted to take out a WIBOR-based loan, it would be impossible?
The date, you're asking about our consumers, right? The generation started on the mortgage side on September 28th.
This is related to the whole process where applications filed until December 31st may be based on WIBOR if the client wishes so.
In line with this stage of reform, we as ING Bank Śląski, but all the banking community at large, are obliged not to come up with new offers and not to generate after January 1st based on WIBOR. So bearing this in mind, and bearing in mind the whole process of processing and working on credit applications, we are getting ready for January 1st, and we want to make sure that we don't receive any applications after January 1st. So this is why we have those dates, those fixed dates. Ever since we started POLSTR offers, we don't have WIBOR-based loans on our offer any longer.
Okay. So you won't be able to say more about client preferences because it will be either WIBOR or POLSTR.
Yes, this is the result of the transition that has been opted out for in the Polish path of transition.
There is no option for us. We have no choice. On variable rate loans, we may only offer POLSTR as of January 1. However, it is down to client to decide whether they go for fixed rate or variable rate. As you can see, the number of banks that started generating POLSTR offer is increasing each and every week. As for preferences, we do not see much preference towards WIBOR or POLSTR. This is a secondary consideration to our clients. Mind you, the reference rate reform is a reform that should be neutral at the end of the day, bearing in mind the equivalency of the option of POLSTR or WIBOR benchmark. It should not have bearing at client's preferences at the end of the day, because they should be on par at the end of the day, those two benchmarks.
Thank you very much.
If I could ask a broader question about corporate lending and the momentum in investment activity. The dynamics of corporate is, as it was, 9%, but what are your projections for Q4 and next year? Do you take part in major investment processes such as CPK, nuclear reactors, or any other spectacular projects? What kind of demand there is in investment loans?
Let me start out. We are very happy to see that there is also momentum in the medium-sized market. Small and medium-sized enterprises are more and more active. This is something we were awaiting for years. Is it going to change? Will it change if interest rates go up? It is for us to wait and see, because the growth of interest rates may slow down investment appetites.
However, the largest transactions are in the pipeline, and major refinancing is prepared accordingly to consolidate certain lending to those huge projects, especially on the nuclear side. CPK is a very early-stage story. Nothing radical has happened on the side of the government heretofore. But we see that preparation is under foot, underway, and if anything is available, we will be happy to participate. However, the commercial part of economy is also boosting, not only stimulated by the government demand. Consumption, that was the growth engine of our economy, is now replaced by the investment appetite, as we saw in Q3. We hope it is going to continue because consumption is not a very healthy tendency.
Small and SME offer in loans, do you see any particular industries that have larger appetite for loans in certain areas?
In large investments, how long is the process going to mature, and what is the time horizon for you to participate in large investment projects?
As for SMEs, the Polish economy is so diversified at the time being that we do not see prevalence of any particular sector. There are certain energy price-sensitive sectors, and they will be worse performing than the ones that are independent. Automotive will probably not be the industry that will be developing quite well. However, less energy-intensive industries will be developing at good pace, so will services. As for time horizon, this is an excellent question. Once the initial public procurement is announced, it only gets this process going, and it may take months and months until the chosen entities decide to take out loans from us.
This is a question to those delivering on the public procurement projects, how fast they are going to proceed. We are ready. We stand ready, looking at loan-to-deposit. This is to the tune of 71%. So we have loads of money, and this is typical not only for ING, but for the whole banking sector.
To what extent are you preparing for OKI?
We shall communicate to you about it very soon. We will be ready with those pension products as soon as it is fully mature. Certainly, the launch of such projects will be very important in expanding our offer to our clients, and we have our level of ambition, and this is something we certainly have in our consideration. Each and every bank is getting prepared for this new development that will start at the beginning of next year.
One more question, if I may.
If I understand correctly, you said, Mr. CEO, about the time lag between the announcement of a public procurement procedure and the signing of the loan contract. So it may take many quarters to come into the future because many public procurement procedures are in the pipeline.
Yes, it will take time. When it gets going, there will be monies made available in tranches based on the progress of the project on the ground. We see that certain projects are just kick-starting, but the visible and tangible credit effect will be deferred in time and will not be visible this year by no means.
Right. Let's now have questions from our online audience about what we have already spoken of. Speaking of credited companies, short-term, excluding our company's financing, it has dropped quarter-on-quarter. Apart from low margins, what's behind the reduction? Are there any other reasons?
It's part of the consolidation because large companies are preparing for investment by refinancing and consolidation of exposures. Things happened in Q3. I cannot tell you more about Q4, but please view it from the perspective of the whole year because Q3 explains it largely. If my exposure is PLN 20 million or PLN 40 million or PLN 60 million and I'm setting about refinancing it, I do it by higher exposure, and I make a structure making me fit to stand for a big tender. This is exactly what happened in Q3. That's for big corporates. In the case of SMEs, there was an actual growth.
Thank you. About AI, will AI decrease costs or stimulate the revenues?
It will decrease costs more than support the revenues.
Now, about technicalities, what percentage of the first half-year result was included in the capital?
25%.
There is a request for comment about the sensitivity of NII to a 100 basis points change in interest rates.
Well, my understanding is that you are not talking about a change for the worse or change for the better. The sensitivity is different to the growth scenario than to the reduction scenario by 100 basis points each. The moment where we check the sensitivity matters as well, especially from the angle of various repricing periods.
From the perspective of ING Bank Śląski, when it comes to net interest income, net risk, the sensitivity for 100 basis points growth is slightly above PLN 200 million. In the case of reduction, it is slightly above PLN 300 million. Of course, in the latter case, the impact is negative. In the case of growth, it is positive. In Q3 results, we can see a slight drop in market share of corporate deposits and market shares of loans.
Do you expect a rebound on both sides? I think we have already answered that. It is strictly a question about market shares. When it comes to corporate deposits, they fluctuate depending on whether you want to make money on them or refund loans on them. You do different scenarios, and it makes a difference for the long-term exposure. Yes, that was the case in Q3, but in Q4, it might be very different.
Naturally enough, in Q4, the companies will sanitize their balance sheets and their exposure in short-term loans will drop at the cost of deposits. But like every year, I think deposits will go up. If we want to keep them because they need to be productive to be used for lending conversion rather than just keeping them at the end of year because it has a bearing on the cost of guarantee schemes. I cannot see any questions from the room, so I have got two more questions from our online viewers. Does the bank see any risks at ING Bank Hipoteczny related to financing mortgages and changing interest rates? You meant ING Bank Hipoteczny. Okay. The mortgage banks like ING Bank Hipoteczny are based on issuing covered bonds based on the covered pool with enough security buffer.
In the case of refinancing, being an owner, if any standard relationship between the loan and covered bonds deteriorate, we will do our utmost to keep them at the right level. Please bear in mind that at ING Bank Hipoteczny, at our mortgage bank, and I think it pertains to all such banks, there was pooling of variable rates loans, which as of recently, were subject to lower refinancing risk than the loans we virtually do not have at ING Bank Hipoteczny.
In Poland, the difference between fixed and variable rate is virtually non-existent for the client because there were no consequences financing the loan with a fixed rate. So this is quite unprecedented in Europe because, as a result, for clients, it makes no difference whether the rate is fixed or variable, and they can terminate the contract at any time, which is negative for the bank.
I don't know whether we are the only country like that in Europe or not. There's one more, and it's Italy. Anywhere else, if you terminate the contract, in the case of fixed rate, you are subject to fees, but not in Poland. What's mark-to-market versus depreciated cost valuation? Do you see any risks related to overpricing of the bonds? What's the maturity date for those for the bank? You can get this information from our quarterly report. This is one of the disclosures required for interim reporting. You can find it all there. We have about PLN 49 billion of securities priced according to depreciated costs. As of the 30th of September, their valuation against the bookkeeping value is PLN 1.4 billion lower. On to the other part of the question.
When it comes to interest rate management, as I already mentioned, we should look at fixed rates treasury bonds, especially in HTC portfolio and the cash flow hedge structure, in similar terms for the interest margin. For portfolio, a bit like that, to secure against the interest rate risk in our bank and others, you should expect negative valuation.
By definition, the securities classified as HTC have to be kept by their maturity date, so they are a natural hedge for the interest rate risk for the banks. As I mentioned before, will it be for bonds or IRSs playing the same role? You should view them from the angle of their contribution to interest margins. With growing interest rates, those instruments are subject to negative behavior. But then again, the whole net interest margin is growing for the banks, so the two have to be viewed together.
The net interest income on the balance sheet and the adjustments by the hedging instruments, which can be fixed rate bonds or derivatives. All right. If we have no more questions in the audience, this is it for today. Feel invited for our next conference, which will take place in late January.