Good afternoon, ladies and gentlemen. Welcome to our conference. Today we will present the results of mBank Group in the first quarter of 2024. Today, as usual, our speakers are Mr. Cezary Stypułkowski, Chief Executive Officer; Mr. Pascal Ruhland, Chief Financial Officer; Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist. Please use the chat box to ask questions. Cezary, you can start.
Welcome.
The reason that the welcome was so strong is because it was a strong start to the year. I would say obvi for obvious reasons we are focusing very much on things which we have impact on, and that is the core of the business, but I can imagine that for yourself, also for ourselves. The heritage portfolio, which is sort of, still hanging on, is an important factor of our results of the bank. So as a consequence, I like the phrase which recently had been used by Marek, that whatever we earn on five million clients, we lose on 86,000 contracts which have been signed 15 years ago. It's, what should I say? I think that, you know, that's the reality we have to cope with.
Some of you who know me longer know that, you know, I'm following, you know, the famous phrase by Hegel, which was real is rational. And obviously I'm still fighting, you know. By the way, there was a great phrase by Karl Marx who was commenting on Ludwig Feuerbach. He said, "Philosophers, until recently, tend to interpret the world. There is a time to change it." It was 11th thesis. So we are here to do two things, to explain, you know, what has happened and also to focus on, you know, what we can expect from the bank in the upcoming few quarters. Overall, I would say the first quarter was reasonably good. Reasonably good, that means that we've done fabulous results on the core.
But when I'm referring to the previous quarter, effectively it looks that we have reached the point where the net interest income is getting flattish. It was to some extent surprising for the markets, to some extent also for ourselves, that we've been able, despite the fact that there was a lowering of interest rates, oh, more than a year ago. Yeah, no, no, it was, yeah.
End of last year.
At the end of last year, we've been able to keep, you know, net, net interest income relatively high. Even in the last quarter we have increased our margin by six basis points. So this line obviously more volatile in principle, but I would say worked very favorably for us. But when it comes to fees and commissions on a quarterly basis it was pretty strong, but we are still disappointed that we are not reaching the levels of the previous year. The major driver of this are the cost side of the fees and commissions, with that area where we are focusing our endeavors right now, and I think that, you know, we hope for some improvement in the second, second part of the year.
Cost of risk, which will be commented by Marek. I was checking, you know, the files and Marta has advised me that we didn't have that level of quarterly cost of risk since 10 years. So that's positive development. Obviously, you know, the components of this, you know, will be explained if necessary. And obviously, you know, with our guidance I don't think that 17 basis points is sustainable. Well, these were the positives. I would say on the balance sheet in balance sheet terms we are keeping the pace of, you know, attracting deposits. This is not the line which, I would say, is any under the current circumstances the regulatory requirements; we don't have any incentive really to build up stronger deposit side. The loan-to-deposit ratio is slightly above 60% with the impact potentially on leverage ratio.
So I have to say on this front we are just optimizing our returns. When it comes to the loans I have to say there are green shoots of the. I have to stress green shoots of the more positive view on the upcoming quarters. That means this is related to the pipeline, to the, I would say, activities of our clients. More on the investment side I would say the regular working capital is not that much on the demand at this point. So this is kind of a rosy picture. And then we have PLN 1 billion 370 million of provisioning of Swiss franc. What should I say? Bleeding. So that's something what is a concern. On the other hand we continue to have the very, I would say, strong pace of the settlements.
As you know we've been relatively late to enter the settlement program. But once we've done, I have to say in comparison to many other players we are doing reasonably well. The big question mark is what's the cost of this? That's a separate issue. When it comes to the capital, which as you can imagine, you know, over the last few years was the major concern of this management, balancing between keeping the organization alive in terms of building up the new business and at the same time being deprived effectively for the ability to generate capital out of our own resources, that was problematic. We supported ourselves with the securitizations, which, you know, ease the issue on the capital side.
But as you see in principle the bank was able over the years to keep, you know, reasonably strong buffers about the required legal requirements in this respect. I would say you can feel comfortable though we would like to have more space for the growth. Key financial metrics I would say most of the figures which you see are in green. So I don't think that that requires that much of a comment. I think it will be more prepared really to respond when there will be questions. Clientele, I have to say, you know, we still attract, you know, new clients. I think that both the retail bank and corporate bank, you know, are in an acquisition mode.
I have to say, you know, mostly due to the easiness and transactionality we are still able to get very valuable clientele. Our market shares are under the pressure mostly due to the fact that the bank, you know, is a constraint of our capital. We manage these, you know, in a very tightly. And that obviously translates into, I would say, less the potential growth rates which we exercise. When I say potential that means the operational part of the bank would be able really to grow faster. But the I would say capital management and, you know, the team pace on which we were able to maneuver over the last three years kept us, you know, on alert. That was the part of the answer why, you know, the market shares have not grown.
But the bank has the potential and I have to say we are seeing right now, much better environment and we feel more confident that, you know, this capacity will be fully utilized. Mobile banking, what should I say? I'm just coming from the meeting on BLIK, where, you know, we are like a star in terms of our clients are really making a lot of transactions. I would say we are number two in nominal terms of and BLIK is ultimate reference in Poland to the transactionality, mobile transactionality. So, that translates into something what is a very important aspect of building up our business model, which means, you know, initiating transaction on the in the digital channels.
As you see over the years and we are talking about, you know, since 2021, both, I would say non-mortgage loans, and the variety of processes we are reaching the levels which are inaccessible for most of the banks which I know. For yourself it's not that much, you know, the I would say the business development issues. I think that what I will focus on I would say, okay, PFM continues to be, I would say focus for the basically for the future. I strongly believe that that will be the new opening opposed to 2025. We are still investing, you know, checking the waters, understanding better the client time's behavior. We have more than one million people, you know, entering the PFM functionalities in our systems.
But what I want also to mention is that, you know, some of you who are more local know that this Great Orchestra of Christmas Charity is the biggest event in Poland in terms of charity and mobilizing, you know, vast population in Poland. We help them really to change the way they are collecting money. In our case, 800,000 unique users clicked on our application and, you know, that helped to collect almost PLN 14 million, which is, I have to say, a significant amount, like 6% of all, I believe, payments which have been done just via our mobile, our mobile devices on our application, which was just the confirmation that, you know, when we start something, you know, it works. And then I think that, you know, that concludes my part.
I will focus on one thing and then I will pass to Marek if we can move to the page 12. I'm returning back to my initial opening when I said, you know, core bank's on core bank. I think that's the very important message. You know, you look into the ratios which the bank is able to deliver based on its business model, and you see the stellar results. It's very difficult even to comment, you know. The cost income below 30%, net interest margin at 4.43%. You see the cost of risk, that's a separate issue. All this translating into the return on equity which is, basically, like a dream.
then we are returning back. That will be part for Marek to elaborate and Pascal to elaborate on the cost of another risk which is, you know, which I referred initially. And I will, as an opening, I will say we already put aside PLN 13.6 billion for, as I said, less than 100,000 clients managing the bank which has to service five million accounts.
Before we go into the Swiss franc matter, I would start off briefly on slide 8 not just to give you the Q1 result but also as Cezary was mentioning it to give a brief outlook what to expect for 2024. As Cezary already said, Q1 has proved to be a very good period, so starting with this page you see that we have a record high quarterly revenues. This is really the highest we have seen in the history of mBank and we are crossing PLN 2.9 billion. This slight quarter-on-quarter increase of revenues was driven by higher net fee and commission income combined with the stabilization of NII also as mentioned already. It is worthwhile to mention that we have anchored on this PLN 2.9 billion income in the last two quarters which is really extraordinary.
The net interest margin as you can see is now at 4.37% in the quarter. Driver as you know also from the past is especially our effective management of the cost of deposits. Now forward-looking we expect for our NII to be similar to 2023 which already includes a negative credit valuation impact. This we estimate in the amount of PLN 350 million circa and it will be reflected in Q2. Our net commission income we expect to go step by step in the next quarters as also outlined. Our total NCI is supposed to be higher than 2023. All in all you can then see that we are well on track to defend our PLN 10 billion which we crossed in 2023 also in 2024.
Moving to the total costs briefly. Total costs of the group excluding compulsory contribution decreased by almost 7% quarter-on-quarter due to seasonally lower personnel and material costs. As a result, we gained again an extraordinary good cost income ratio of 30% while the normalized ratio reached 26.6% and was better than in Q4 and Q1 in 2023. As already noted, this is obviously something which is on long term not sustainable so we still believe in our target below 40% which we consider as a sustainable cost income ratio. For 2024 while we are benefiting from a high interest rate environment we will stay well below this strategic target. On the LLP and cost of risk you see in our quarter very favorable with PLN 48 million. The result was driven by a net release of corporate LLPs coupled with low provisions in the retail banking segment.
We have not reported such a level as Cezary was outlining it since Q1 2013. It reflects our earlier prudential provisioning and Marek will go into details later on. That means for 2024 we expect a slightly better than 2023 LLPs and guide still around 80 basis points cost of risk. Cost of legal risk, related to loans indexed to foreign currencies recognized in Q1, as already said, was dragging us down with PLN 1.370 billion. And it's a combination of several factors and Marek will go into details later on. One thing needs to be said it is extraordinary that despite the burden that our core business is capable of eating that up and why we saw it in the slide 12, which was explained by Cezary because we have an ROE of almost 49% in the core business in Q1 which is significant.
As our net profit reached PLN 262 million in Q1, there's at least a bit left over for us. The potential legal provision for Swiss franc in the upcoming quarters; this is the big question every time. Obviously, it depends on lots of different obstacles. While we aim to guide at least the next quarter, as of today we expect that the Swiss franc provisions will stay significant in Q2 but we expect to be lower than in Q1. Let's move briefly to slide nine to the balance sheet. Here I would like to draw your attention just to two observations. The first one is, as indicated in our Q4 call already, we expect to grow our asset side. Here you see our gross loans to customers increased 2.4% quarter-on-quarter. Both segments are contributing to it and we will go into details later on.
Also, as said by Cezary, while we see the freedom, our expectation is to further grow our assets. The second observation on this sheet, our TCR stands at 16% and the Tier 1 ratio at 14.1%. The drop is especially driven by the increase of RWA related to our loan growth and an amortization of our securitized portfolio. Despite this drop, the surplus reached 4.9 percentage points and shows our strong position to grow assets or to cover unexpected events. And with the topic unexpected, I'm now handing over to Marek to elaborate on the Swiss franc portfolio and our protection.
I mean, given that we are discussing this on a quarterly basis for a couple of years, I would say it's difficult to say that this is unexpected. But this burden still remains with us. As you have seen extraordinary core business results but also extraordinary level of Swiss franc mortgage loan provisioning. In Q1 we have booked PLN 1.37 billion of legal risk provisions related to the FX mortgages. And they were driven by several model updates. We have taken a more conservative view with respect to number of dimensions. Primarily we have updated the model parameters with respect to the future expected cost of execution of the court judgments. And in particular, we have improved estimates with respect to the statutory interest cost in relation to the pending court cases. And we also acknowledge that there was this verdict of the Supreme Court of April 25th.
And despite that, some doubts with respect to the binding force of that resolution exist, considering that they were taken by the mere so-called neo-judges only. So the judges appointed before 2017 refused to attend the hearing. And there were also a number of independent views on the matter. Conservatively, acknowledging that there is a propensity of the national courts to follow this Supreme Court jurisprudence, we have taken this into account into the provisioning model. And as a result we have also excluded from our possible future scenarios the scenario in which the contract remains valid by the mechanism of the indexation is eliminated. So this so-called Polish zloty on Swiss franc lifeboat scenario has been removed. So as you see from the slide that's currently displayed, the cumulative amount of FX-related legal risk provisions created so far reached an enormous amount of PLN 14.6 billion.
As we have commented in one of the previous investor calls, that amount that is sufficient to run the bank of the scale of mBank is today. And as Pascal anticipated a while ago, we also expect that more is to come in further quarters in 2024. But we expect this to be overall materially lower than what we have seen in 2020-23. On the next slide, we show the performance of new court cases and settlements. And as active portfolio comes to an end, we see both noticeable decline in the inflow of cases concerning active contracts. And also as the number of active contracts remains lower and lower, also we see a certain level of saturation with respect to the number of settlements that we sign up.
But overall, we see that the number of clients that are not in court and that did not sign the settlements yet is getting slowly close to zero. So the degree of uncertainty with respect to the future behavior of that cohort is also gradually removed with the time passing by and the successful settlements that we are concluding with the clients. And also with respect to that Supreme Court verdict that I have just quoted, also the degree of uncertainty with respect to the future evolution of the court cases has been removed. So all of that considered, we believe that the worst is behind us and even if we will still cope with number of cases in courts, we expect that going forward that we have more fuel for profitable growth.
With that, Pascal, I hand over to you.
Yeah. Let's jump directly on slide 14, profitable growth. Perfect. So overall as expected and communicated we see the rebound of our loan portfolio visible in both segments and that is very important. This I would like to bring in perspective and I start with the corporate clients. Loans and advances to corporate clients increased by 4.6% quarter-on-quarter. To some extent a significant quarter-on-quarter increase of corporate loans is a result of seasonality. At the end of the year some borrowers repaid their loans and in Q1 we registered a material increase in the balances on overdrafts and especially structured finance loans. Next to this volume rebound it is important to us that the loan margin in the corporate segment is not deteriorating by our initiative to aim for more.
We even saw a slight quarter-on-quarter increase in the loan margin to now 1.81%, which shows our ability to grow profitable. Forward-looking, we still expect to grow fairly over the market, which is expected to grow by roughly 5%. Going to the retail segment, the downward trends in loans to individual clients observed since Q1 2023 reversed. In Q1 2024, loans to individual clients went slightly up by 0.6% quarter-on-quarter. And still, our loans to those clients were impacted by declining Swiss franc mortgage loans, the sale of NPLs, and also PLN appreciation vis-à-vis the Swiss franc, euro, and Czech koruna. Taking this into equation, the gross loans to retail customer excluding the non-core portfolio increased by 1.4% quarter-on-quarter and by 0.5% year-on-year. The quarter-on-quarter increase was fueled by both products mortgage loans as well as non-mortgage loans.
Also here the margins on the retail loans did not deteriorate and remained stable. In Q2 we may see further increase in non-mortgage loan sales and a certain slowdown in mortgage loan sales as customers may wait for the next government mortgage program. All in all for 2024 we expect a single digit growth in retail loans. We go to slide 15 which provides our new lending business. As you can see on the top of the slide sales of new retail loans jumped in Q1 2024. Sales of mortgage loans reached nearly PLN 2.4 billion. That means we recorded the highest level of new mortgage loan sales since Q2 2022.
The sales of mortgage loans in Q1 were largely driven by the 2% Safe Mortgage Loan product. They represented almost 60% of mortgage loans to individuals. In total we sold PLN 2.2 billion mortgage loans within the 2% Safe Loan program.
The coming months may be somewhat weaker in terms of inflow of new applications while, as said, our customers might be waiting for the new government program Flat for Start. To incentivize now our mortgage loan product, there have been better pricing offered in April under the promotion of mortgages, which means slightly lower margins. The promotional offer will be most likely most be interested in particular for those customers who will not qualify for the new government program. Therefore, we expect the mortgage loan sales in Q2 to be higher than Q4 2023. Going to the sales of non-mortgage loans, right on top of the chart, it reached nearly PLN 2.8 billion. It was the highest level of new sales since Q1 2022. Plus, important to note, is that the vast majority of the non-mortgage loans were sold through our digital channels more than 80%.
Forward-looking, we see the Q1 volumes as the new normal or even higher. Briefly, to the corporate sales. Left, bottom of the slide. The volume of newly signed corporate loan agreements in Q1 2024 decreased significantly by 18%. A quarter-on-quarter decrease can be attributed to the extremely high level in Q4 and was driven mainly by lower value of renewals which is typical, because these are achieving the highest volumes at the end of the year normal. In Q1 2024, an increase of newly signed investment loans was the driver. As already said, here we expect further growth in the upcoming quarters. And finally, our quarterly volume of new leasing contracts in Q1 increased by 9% quarter-on-quarter. The highest increase was recorded in financing cars and vehicles. And also, here we expect to stay in the growth path. Briefly, on the next slide, to deposits.
Total deposits declined by 1.3% quarter-on-quarter. This drop was driven by lower amounts on current accounts of corporate clients. The reason of the drop in corporate clients is related to high comparative base of Q4. At the end of the year the customers increased the funds on their current accounts while in the first months of 2024 some of these funds were withdrawn to finance actively business activities and not to place it somewhere else. Despite this decline at the end of Q1 2024 the current accounts represent 79% of total deposit base of the group which confirms that we are the premier international bank which also was indicated by Cezary with respect to the BLIK numbers we are achieving. Thanks to continued active deposit management we again managed to improve margins also in the first quarter especially in the corporate deposit side.
Forward-looking, single forward-looking a single digit deposit growth is expected to be driven mainly by retail deposits supported by growing customer base and also the increased wages and salaries which we expect to see. Slide 18, I would skip while I already discussed the total income. Let's directly go to the costs. Starting on slide 19. Slide further. One second. Thanks. Starting this time with the normalized cost-income ratio of the group which is visible in purple right-hand top of the page. Here, you see that the adjusted for the annual contribution of the resolution fund and the impact of the credit holidays we reached 26.6% compared with 29.4% a year ago. This shows how effective our machine is running. Derived from the excellent efficiency, let's go into the cost development in detail. In purple you see the BFG contribution in Q1 2024 decreased by 19%.
The drop of the contribution for resolution fund was driven mainly by better risk profile of mBank if you compare ERS with our competitors. In green you see staff-related expenses declined by 2.2%. The drop was driven by decreased relevant compensation so this is a seasonality effect. On an annual basis staff costs went up by 13.2% and reflecting an increase in wages and salaries on our side which was also driven by additional headcounts. But it fairly compares to the wage growth we've seen in Poland in February 12.9% plus the inflation level of 2% in March. Jumping to material costs in blue. They fell by 18% quarter-on-quarter. And also here this is a seasonal drop resulted mainly from lower marketing costs and consulting costs which are naturally the end of the year high.
On an annual basis an increase was registered on all cost categories except for PR expenditures. So this is a general trend we are following. And last but not least in red our depreciation declined by 2.3% quarter-over-quarter but was higher on a year-over-year comparison by 14.4% which reflects earlier investment in our IT infrastructure. So all in all our operational costs in the next quarters are expected to be lower than in Q2, Q1 which was burdened by the contribution of the resolution fund. But costs excluding compulsory contribution will grow on a similar pace as 2023 due to three reasons. The first one inflation-related material cost increases. Second one higher personel costs driven by wage pressure we see and new employment in certain areas we will do. And last but not least IT investment-driven depreciation is also to be expected to increase.
But as said, the group's cost-income ratio is expected to remain well below our strategic midterm target of 40% this year. With this, I'm handing over for the details of the cost of risk.
Okay. Thank you, Pascal. So on these I'm going to be brief. We had an excellent cost of risk results as Cezary mentioned in his opening speech. It was primarily driven by the releases in the corporate segment and the normalization of the cost of risk in retail. Going forward, you can see on the following slide that it also reflects on the group non-performing loan ratio that was improved quarter-on-quarter, primarily thanks to the active management of NPL in corporate portfolio. The level of mBank Group coverage ratio remained flat quarter-on-quarter. And last but not least, on the following slide we confirm very solid capital and liquidity position of the bank, 490 points above the regulatory minimums whereas capital ratio is concerned and LCR at over 200% 100% shows an excellent liquidity position.
Given also, I would say even, to an extent, too long loan-to-deposit ratio. So as you see, there is plenty of liquidity space for further growth. And with that, I hand over to Marcin with respect to the outlook on Polish macroeconomic situation.
Good afternoon, everyone. So as before I am the bringer of good news. So economy is evolving as expected. We passed the trough and right now we are on a growth path. Consumption is on the rise, and especially consumer moods are getting better and better. With the slowdown ended, unemployment rate still stayed very low, reflecting mostly the still high demand for labor. At the same time we had inflation coming back almost to NBP targets so to 2% in March. So with that in mind with nominal growth of wages at double digit, we have a very strong boost to real incomes of household. That's why you expect them to spend some more money in 2024. That is why we expect also that consumption is going to be a visible driver of GDP growth.
Right now we expect GDP growth to be 3.5% in 2024 and most likely followed by 4.5% in 2025. As far as MPC behavior is concerned, right now MPC is turning more hawkish than it used to be. So, we still keep our view that rates in this year are going to be unchanged. The most likely date for rates to be changed is coming only in 2025. As far as monetary aggregates are concerned, also the worst is behind us. We are seeing that the activity both on consumer and corporate side is on the rise with respect to credit. And at the same time, deposit activity stays at high level. So the whole sector seems to be highly liquid in terms of client funds.
As far as the financial perspective is concerned, as far as government bonds are concerned, those are stable, and the movements mostly reflect the movements in global risk-free rates. And it is worth to mention that all credit risk measures of government bonds remain at low levels despite the huge supply coming onto the market every month. Strong zloty is kind of a resemblance of more hawkish monetary policy right now. The zloty stabilized at around 4.30 with regard to euro. Yes, it lost some of the momentum, but well it seems to be well supported right now. We think that there is a space to reach 4.20 in the end of the year. As far as structural developments are concerned, I have nothing to say here, despite the fact that I am meeting more and more people interested in Poland.
Whoever they meet, they claim that everybody is positive. So am I. So, fingers, fingers crossed and go on. Thank you.
Thank you, Marcin. We have several questions. We will now answer them. Some of them have been already covered. The first question is about the long-term financing indicator. What would be the level of this indicator at the end of Q1 based on the rules presented by the KNF?
Yeah. I'm taking that. So first of all it needs to be said that, if we're talking about our bank, we are one of the most frequent issuers in debt in the Polish market. Therefore we are very strong positioned to fulfill these kind of ratios. And, if we would take our end of year end of last year's statistics and the current proposed drafts of the KNF, then we are among the eight banks best in class and we would reach the ratio. Therefore this is currently no concern for us.
Thank you. Could you share some statistics on legal risk in consumer loans? For example, number of litigations, value of claims, binding verdicts.
Sorry. So maybe I will, I will take this one. So actually we have several clients litigating with us with respect to the consumer loans. Currently there is 260 pending court cases. Historically 20 were closed and most of them were either closed in favor of the bank or discontinued by the clients. So far, as far as the consumer loans legal cases are concerned we have just lost one. And as far as the first instance judgments are concerned, majority in first instance are also given in favor of the bank. There is also a number of cases which are currently suspended. The value of claims for pending cases is around PLN 5 million. So it's insignificant from the point of view of financial results and is covered by established provisions.
Does the risk-weighted assets growth in the first quarter reflect to some extent the impact guided for 2024 in the last annual report?
Maybe I will take this one as well. What we have guidance in our management report for end of 2023, that was page 122, we expect the increase of risk-weighted assets due to number of regulatory factors. As you may recall, mBank is one of the banks in Poland that operate in so-called advanced internal rating-based method. That is the not standardized model-based method of establishing risk-weighted assets. And on the back of that we expect number of regulatory driven decisions for adjustments in the model. But Q1 were not primarily related to the model changes. They were more related to the business as such.
What is the effective tax rate expected in 2024?
So on the tax, I'm taking it we showed in Q1 2024 this 39.3%. And, as explained also in the last quarters, we are taking our tax rate based on IAS 34. So we expect for the full year our based on our forecast and tax rate and apply those tax rates towards our quarter. So currently this is the expected tax rate for the full year. But what you need to keep in mind is that we have with the Swiss franc especially something which is almost an entirely not tax deductible and something which is up for fluctuation as we said. So the it is hard to predict which kind of number comes out. And this is the big question how it is influencing our tax rate.
If you would not take this Swiss franc into account, we would be as in a normalized environment around 25% of corporate income tax.
Why do you keep the risk costs outlook at 80 bps for 2024 after a low Q1 and upgraded short-term outlook from neutral to positive?
As we said, the Q1 was extraordinarily low. We expect corporate credit risk to normalize in the coming quarters. And, with extraordinarily high cost of risk in the retail segment in 2023, we expect this to normalize as well in 2024. But we are also mindful that despite very positive outlook on the Polish economy that Marcin has just presented, the number of geopolitical risks remains. And we do not want to overpromise on that specific P&L line.
When do you believe Swiss franc mortgage provisions will finally sunset?
Sunset? Well, they are sunsetting already I think. Yeah. But there is no date which we can just share with you. I think that we've been taken by surprise by the EU jurisprudence both at European level and I would say also Polish level. So we know one thing that, you know, we are over the peak of the problems. We feel much more confident that, you know, we are on the bright side of the world. But the continuation of provisioning is in front of us. Not in that magnitude which we have experienced over last few quarters. But being prudent and being better prepared balancing between the growth of the bank and, I would say conservative approach since the whole issue is, I would say not complex in terms of the legalities.
But I would say it had turned into the era which was very much unexpected and which as I used to say undermines the paradigms of the banking sector. So that's the reason that we have to be very focused and continue to reflect what... what is the jurisprudence? What's the activities of the clients? To which extent our settlement programs attract, you know, the response on the client side? So these are the very complex factors which we have to weigh. And as a consequence I will not say that, you know, there will be a particular date when, you know, we will say it's fully over. Though as I said I believe that 2024 is the year which I will consider as being, you know, the more or less going over the boundaries of problems which has emerged in the previous years.
So patience, conservatism, and the intention to be on the safe side, which we manage over the years, I think are the most critical. Marek, would you like to add something?
Thank you. What participation does the bank assume for the PLN 350 million cost of credit holidays in 2024?
So we derive the cost for the credit holidays with the PLN 350 on the actuals we have seen in the last program. We also have showed it very transparently in our notes that here it is, for the original portfolio, higher than 80% participation rate because we were higher, affected by our customers taking that versus the average of the sector. This is also managed into this number.
What is the current sensitivity of NII to 100 basis points drop in interest rates?
So the sensitivity for this 100 basis points interest rate shift is currently slightly above PLN 700 million. And within this 700 while we are in three currencies active 60% so roughly PLN 400 million is related to the Polish market. So the Polish zloty interest rate environment. And if you compare that to our total NII income so far and take for instance last years into account then you see that we are less than 10% exposed to this risk. Plus that we have seen last year, 100 basis points drop. And this should give you then, magnitude of how reliable you can compare that between the banks. And despite this drop we have not seen a deterioration of NII.
What is the expected impact of CRR and CRD4 regulations on Tier 1?
Okay. So, maybe I take this one. We have performed an impact study on the Basel 4 impact. mBank expects that there will be some uptick in the capital requirements primarily due to operational risk and market risk at this fundamental review of the trading book. We expect that impact not to be substantial. Based on the current estimates, the increase in the capital requirement driven by the Basel 4 shall not exceed 5% of our overall risk-weighted assets. But please also recall, as commented in the previous answer with respect to the risk-weighted assets, that this is on the back of a number of supervisory decisions on PD-LGD models which are related to the new definition of default. And also there is a number of EBA guidelines which are still to be issued with respect to the Basel 4. So, this is a preliminary guidance.
as I said, to sum up we don't expect to be substantial. We do not expect this to exceed 5% of the current risk-weighted assets.
How much MREL funds is expected to be issued in 2024?
Yeah. So, before we talk about the expectation of issuance, it needs to be said, and it's visible here that we meet fully fledged MREL requirements, including a significant buffer. So when we're talking about our issuances, we are not doing that solely because we want to meet MREL expectations rather than that we know that our investors want to see us as a frequent issuer. So even despite we're meeting that very comfortable, we will have this year a benchmark trade most likely in the preferred senior format in the second half of the year. And benchmark means then at least 500.
Thank you very much. We covered all the questions. Thank you for these questions and for your attention. Have a nice day. Bye-bye.
Thanks a lot. Bye-bye.
Thank you.
Thank you.