Good afternoon, ladies and gentlemen, and welcome to our conference where we will present the results of mBank Group in the first quarter of 2022. The results will be presented by Mr. Cezary Stypułkowski, Chief Executive Officer, Mr. Andreas Böger, Chief Financial Officer, as well as Mr. Marek Lusztyn, Chief Risk Officer. Ladies and gentlemen. The macroeconomic overview will be presented by Mr. Marcin Mazurek, Chief Economist. Cezary, please.
Good afternoon. It's almost a new routine that whenever we report on our quarterly results, we are focusing on operational results, and we are using variety of wording, you know, like fabulous, outstanding, better than the previous quarter, because quarter after quarter, they are simply better. Which I think, you know, is the ultimate confirmation of the business model and our endeavors really to deliver on promise and to be in line with our strategy which we have announced. I believe that what the first quarter has confirmed is that, you know, overall strengths of our business model and our customer coverage. Well, we are realistic that, you know, part of our outstanding results is related also to the macroeconomic environment, specifically the interest rate environment, which we'll elaborate in, you know, in more detail.
Whatever we can say, you know, the net interest income, which is partly a result of, you know, what's going on with official rates, and our, I would say, very good management of the balance sheet, which is, I think, in comparison to most of our competitors, simply better. What is worth mentioning is continued growth of our net fee income. This is not coincidental, this is not one quarter event. This is something what's going on over last several quarters. I believe that, you know, it ultimately confirms, you know, the strength of our customer relationship and transaction life through our clients. That obviously translates into very attractive cost income ratio. Well, that's the statutory result, but, you know, it will go into more detail.
You will see, you know, the cost income, which is, you know, sort of more balanced in terms of BFG impact. Costs have risen, you know, that was expected. You know, we will explain that in more detail. You know, in this environment, we ended up net profits significantly above, you know, the previous year. I would say, I think it's the highest net profit ever in the bank. We continue to provision against, you know, legal risks related to CHF portfolio. You know, our stance very well. That has been expressed during our shareholders' meeting. You know, consequently, we are fighting, you know, on the legal front, but at the same time, we are experimenting with our clients, you know, their willingness really to reconcile with the bank.
Under the circumstance, if there will be questions, obviously, we'll respond. The balance sheet, well, it's growing. I would say under the circumstances, seeing relatively active way, although 8% is below our 10% aspiration, which we assume, you know, in the longer term perspective, that our customer base, specifically on the retail side, justifies that. The gross cost of risk, modest. You know, if necessary, we'll be elaborating. Plus, something worth mentioning for mBank, which is mobile, where we believe, you know, we are still acquiring, but, you know, more customers. We have more mobile payments. We have a stronger transactionality, and more transactions are being done on a mobile device. I don't want to go too much into details on, you know, sort of ESG front.
The most important message is that, you know, among the Polish peers, I would say among the Polish corporates, our ranking, you know, whatever other rankings at this stage, and you know, how much they are developed. Still, what we are proud of is that, Sustainalytics ranks us as the number one in the industry, with relatively low risk, and that has been elaborated when we presented our strategy. We believe that our starting position is very strong, and the focus is strong enough to continue to compete in this era and to be one of the reference names in the Polish market. The Great Orchestra of Christmas Charity, this is the first quarter event. That is something what we are very proud of. This is our social responsibility.
This is our strong involvement as employees as well as the institution. We are very proud that 10% of the overall revenues, which, you know, Great Orchestra is able to mount during the event, is either contributions from our clients or from the bank. What is the, I would say, sort of a new event, being the consequence of the conflict in Ukraine, is the fact that, you know, we've been very active and, you know, within 10 days we launched the functionality on our app, allowing people really to contribute to the Polish Center for International Aid. To the best of my knowledge, more than PLN 10 million has been generated by our clients with the micro payments.
There is a number of things which are important, you know, in terms of, you know, how we address the mobile mostly. This one aspect is, you know, constant improvement of our application. We have, you know, more functionalities. What is very important for us is, you know, to be on the top of the modern solutions like, you know, electronic signatures, like implementation of eID, which I think, you know, is a fact the new passport in Poland or new ID. I will be personally benefiting next week because I will be, despite the fact that I'm an old guard, but I will be having, you know, this new ID, which allows much more and specifically for younger generation.
It allows us also to remotely account opening, basically just, you know, via contact between the mobile device and eID, which I believe will be important factor of our continued acquisition of younger generation client, clientele, which will benefit us obviously in the later stages. What is important was the launch of the, I would say, new functionalities of PFM. As you may remember from our strategic presentations, PFM, I personally believe will be in the now the new big thing in banking within next five years. This is our investment. We have launched initial PFM, I would say embryonic functionalities in 2013, 2014. This is the new opening. In the first quarter we had some functionalities, but that's the process which will be continued over the next years.
Please remember PFM being the next big thing in the functionalities which the bank will be delivering. The continued upgrade of our solutions for the corporate. You know, corporate is to some extent limiting, you know, our success on the retail side. We want to be equally good in terms of delivering, you know, the access to the bank via the digital channels. It has been already confirmed, you know, 70% of our new account opening is basically remote. What was the event of the first quarter? I just don't want to overstate, so I will pass on Andreas Böger. This is our securitization transaction, which has been executed in the first quarter. Andreas, you know, I'm passing to you.
Thank you, Cezary. I mean, definitely a highlight next to the business we're running is that in the effort of having an up-to-date, active balance sheet and capital management, that is also capital markets driven. You know, we have been an issuer of bonds for a very long time. We have opened the non-preferred senior market in the green format last year for MREL-eligible securities. It's not only about traditional issuance, it's also about more going into the asset side and into the risk profile. With this, we for a longer time looked at securitization, and we were able to finalize this in the first quarter, which was obviously not an easy time with the war in Ukraine going on. With a very reliable partner. Here was PGGM, a large pension fund.
We were securitizing corporate and SME portfolio of a magnitude of PLN 9 billion. The largest ever securitization in actually CEE markets. In Poland, it's also the first simply transparent and standardized, so STS transaction and various other features. Like a significant risk transfer with the direct issuance from the bank in form of a credit-linked note. A lot of firsts that were done. Here we need an exclamation mark. It gave us 60 basis points breathing space on the total capital ratio on the Common Equity Tier 1. It will remain a part of the component of the box, of the toolbox we'll be using for active balance sheet and capital management in the future. This is why we're very happy that we're able to successfully place that at also a very good price in the first quarter. Please, I hand back.
We continue to gain market shares on a retail side, both on the lending and on the deposits side. We've been disproportionate beneficiary of what has happened during the pandemic and after. We believe that the process will continue. This is the result of specific profile of our customer base, which have been targeted from the very beginning, and I have to say, you know, reflects to some extent these issues which we have very much focused on during our strategic presentations. On the corporate side, I think that we continue to be very successful, though our focus has changed. As you see, K1, which historically was the focus of the bank, has been to some extent limited.
We decided to be more focused on the middle market in Poland and to be more selective when it comes to the big corporates. This strategy, which has been launched five years ago, proved to be successful. We are keeping, you know, the portfolio at a reasonable level and we are effectively strengthening our cross-selling segment, but at the same time, we are in a, I would say, pretty successful continued process of acquiring, you know, the clients which are midsize and smaller. On the mobile banking side, I think that the process, as I may have mentioned, you know, the only way is up, everything is growing. You know, the share of digital channels in our sales is growing.
The initiation of transactions, you know, via the digital channels growing with a stronger contribution of the mobile. From this perspective, I think that clearly the bank is in outstanding position. One thing which is worth mentioning is our very strong position on the BLIK, which is, I would say, the quintessential confirmation of, I would say, mobile usage. It's mostly due to the e-commerce BLIK success and also in terms of the new functionalities which have been launched at the end of last year, which were the payments on the point of sale. It was on the Android platform. Here we are number one, you know, among the Polish banks by far.
That means that our customers are using this like Apple Pay on the iOS devices like in no any other bank. You have to remember that iOS in Poland does not have coverage more than 10%. Most of the equipment used in Poland is Android. Finally, from my side, you know, the key messages which are straightforward, easy to pass to you. Income growth is growing. Cost income ratio, I would say the dream of, I would say, all the bankers worldwide. Net profit significantly higher. Return on equity, what should I say? Self-explanatory. Growing balance sheet. Well, the only issue which I think needs to be explained, and I will pass to Andreas, is our drop in the capital ratios, which is easy to be explained, but still requires, you know, some comments.
Good. Maybe briefly, I'll briefly comment on the capital ratio and also, Marek, feel free to chip in then later, but it's part of your presentation also. Capital ratio is increasing here over time. You see this with 310 basis points over the last 12 months. Actually we have various drivers. Let's pick out the three biggest ones here. On the one hand, we have indeed still, even though we had a securitization, we have more risk-weighted assets. That's one of the minor ones. Let's not forget that at last year, in total, the Swiss franc burden we took was PLN 2.7 billion net, which led to a loss of the full- year of more than PLN 1 billion.
On the other hand, as you know, we have a government portfolio in held to collect and sell. That held to collect and sell government portfolio is actually marked to market, not against equity, but against OCI. Obviously, on the one hand, the higher interest rates are good for net interest income, but on the other hand, they also in that portfolio affect the valuations, and the valuations go downwards. For example, in the quarter, that roughly also added or deducted another 40 basis points from the capital base. I briefly go on with the highlights, but I will go more into details. To summarize what Cezary said, very strong income components.
Next to NII, I think it's very important to stress the net fee and commission income, which is also on a record level here. Cost base higher, but cost base, I'll talk about this later. The year-over-year comparison, we start from very small basis. It's better to look at the quarter-over-quarter. It's still up, but that's mostly HR costs and also depreciation. Where we would like to spend the money also. Higher BFG, nearly PLN 200 million in a resolution fund and nearly PLN 200 million hit on the cost of FX loans here on the Swiss francs still leads to PLN 500 million of net profit with an interest margin of 315 basis points. Very strong increase here and a return on equity of 15% and respective CET1 is 3.7% on the core business. With this, we can move to the Swiss franc part on page 12.
On Swiss francs, we would like to highlight that Q1 overall portfolio mortgage loans in Swiss franc, they decreased by 4.6% quarter-on-quarter. Overall, it stands at below 7% of our overall portfolio of loans. What we want to highlight as well is that the pace of adding in the court proceedings in Q1 was significantly lower than in the beginning of 2021, roughly at the levels that we have seen in Q4, but it will be below the peak of previous year.
Quarterly cost of original risk related to foreign currency loans, recognizing the income statement of first quarter this year amounted to PLN 192 million, which brought us to the increase of the overall coverage ratio to the 33.5% from 13.2% at the end of the previous year. If we take only what we have set aside so far for that part of the non-core business, the total cushion set aside for the mortgage lending in Swiss francs reached almost PLN 6 billion if you look at the provisions and the capital set aside. What we want to highlight as well is that in Q1, we have concluded the pilot phase of our settlement proposals. The uptake on the customer side was relatively low.
We have to say that, in the opinion of the bank, it has impact related to uncertainty about the tax treatment of the signed settlements, pricing, exchange rate of the Swiss francs, and the growing interest rate differentials between the Swiss francs and Polish zloty, and economic uncertainty that is related to the war in Ukraine. If you look at the overall performance of the core versus non-core o perating under stress.
Good. I briefly in the overview, I've already talked about core bank. Let's summarize PLN 700 million net profit. Net interest margin obviously is higher than in the overall bank. It's 3.28%, and I already mentioned also the return on equity of 23.7%, which really shows that this was an exceptionally strong quarter. I will now go into more details and explain to you where it actually came from. Let's go on page 15, and let's first look at loans. Loans are positive both on corporate and on retail, roughly 4% quarter-over-quarter, 8% year-over-year growth. That's also roughly what we wanted to have in the strategy, so like 8%-9% growth here.
The corporate growth is more pronounced in the first quarter. That's always the case in the first quarter because at year-end also client activity is also more towards paying back credits, low usage, low utilization of credit lines. The business actually comes back in the first quarter. It's better to look at the year-over-year. Year-over-year in corporates a bit more than 5%. That's good growth here, especially given the fact that as Cezary was saying, we focused on profitability last year, and on the larger tickets especially, we were very selective. You also see this in the appendix, page 44.
You can see that, for example, even the K1 exposures year-over-year is the only exposure that is down, and the rest is all up. That shows exactly what has happened. On retail, a bit more than 2% up in the quarter, 10% for the full- year. That 10% is also good representation of the long-term potential of retail. In terms of the components, PLN 500 million more carrying values on non-mortgage loans and PLN 1.5 billion more on zloty mortgage loans. That explains. These PLN 2 billion explain the PLN 1.9 billion overall growth here. I think it's a bit more exciting to look at new lending. That's the next page because there you can better see the dynamics behind that.
Mortgage loans, let's start with this. A very interesting market because the overall market is in a downward trend on mortgage loans. We also see that, but only mildly, so only 3%, in that quarter, and 1% down year-over-year, still on very high. Because obviously this means our market share has improved in mortgage lending here. We also expect that the new mortgage loan sales will trend downwards. That's a function of interest rates going up, uncertainty due to the war in Ukraine. KNF has also put higher criteria. There are various factors that will, in the next quarters, most likely lead to a lower production in the mortgage loans. That's the next quarters.
As you know, long term for mBank, with our demography, demographic profile of the clients, it's a core product, and long term this will be very positive because we just know that our client base has inherent trend of just needing housing. With this also, looking after mortgage loans. Let's look at non-mortgage loans, where we had record sales with nearly PLN 2.8 billion. That's the highest sales figure we ever had. Poland strong, but also Czech and Slovakia had a very strong non-mortgage loan sales with nearly PLN 600 million equivalent. Maybe to give you an outlook there, obviously that's a record quarter. Will not be repeated like this. We'll be more stable, a bit going down maybe, but not as much as the mortgage loans.
We still expect maybe as an outlook on both mortgage loans and non-mortgage loans, that the overall balance sheet volumes we will have during the year, that they will still be growing. We expect a mid-single-digit growth there and not a double-digit growth. We'll have to see. There is various uncertainties out there. Let's look to corporate. Good quarter here. Obviously down from a very strong fourth quarter, but 28% higher than first quarter last year. These were good sales results in corporate also at good margins. That's the way we like to do corporate business. When it comes to leasing, you see that it's down. That's interesting, what we've seen. The leasing business is actually in good shape and also having good profitability.
Our clients have actually seen a lack of available assets, due to just scarcity, still with COVID and now also with the war situation in Ukraine. Due to higher interest rates, what we have seen, and these are numbers of tickets here, of a number of tickets also behind here. Behind these volumes is that especially for the lower value items, clients have just chosen to pay things in cash. Our leasing has also seen that the lower ticket went down. Let's look at deposits on the next slide. I mean, the headline says it. We're very strong anchored on transactionality. You see that, 3% up, 8% up, for the full- year. Deposits come back in corporate always in the first quarter because year-end is managed downwards.
In retail we have actually seen a drop, a slight drop in retail deposits. The whole market has seen drops here, but we have gained market share. Our drop here was lower than the drop in the market. I think the interesting thing is about deposit pricing and deposit pricing going forward, and there we would maybe like to give some more insights. Obviously the corporate side is something that is negotiated anyhow bilaterally, but the retail side clearly follows the general pricings. We have in mid-April increased prices for retail deposits or the interest we pay. We pay 1% for savings accounts above PLN 100,000, 75 basis points for savings accounts below PLN 100,000, and 50 basis points for term deposits. We have started to pay here.
That's still on a low level. In general, what we see in the market for deposits is that what will be in the end paid, and obviously interest rates have evolved. I mean, at the end of the first quarter, we only had 350 basis points central bank rate, now we have 525. But the market has not found its equilibrium yet there. In our position, we're strongly transactional. We have a loan to deposit ratio around 75%, and we have a liquidity coverage ratio that at the end of the quarter was at above 187. We are not forced to pay.
In the end, we will to some extent also go with the market because we obviously want to keep the clients, but we're not desperate that we actually need to pay here on deposits. The year will actually once it progresses in time-
What is worse is that I think over the last two years, our cost of funding in principle was the lowest among the peers.
Which is exactly a testament of the high transactionality we have in the accounts. Let's look at the revenue side. On total income, I already said it before, it's the highest revenue we ever had in a quarter. The highest net interest income, but also the highest fee results here. Let's look at the components. The nearly PLN 1.5 billion net interest income, very strong increase quarter-over-quarter, but also year-over-year, 58% more. I've said we have been very low on paying for deposits, but interest rates were still on the rise. That's a very good result. We think this result is repeatable also over the next three quarters. For the end of the year, obviously we'll pay more for deposits.
Also in that quarter, we didn't have the full interest rate rises in. So it's a good proxy. This 1.5 will be at least repeated to PLN 6 billion NII over the full- year. In general, maybe not as end of the quarter, but as we are right now with the 5.25% central bank rate, it can be expected that further interest rate rises here will have a more neutral effect on NII. To go further on to net fee and commission income. Obviously, the first quarter always bears a one-time fee we take for corporate deposits.
For corporate amounts, that was PLN 37 million in that quarter. It was also above PLN 30 million in the first quarter last year. We always take this in the first quarter. Net fee and commission income always has some non-linear effects also that are not fully repeatable in the next quarter. This is a very strong print with PLN 600 million, but definitely about PLN 500 million should be a good proxy also for the net fee and commission income, which we want to grow further. Obviously we are already at a very high basis. A similar thing for trading income. Trading income at PLN 95 million, very high. That's mostly FX-driven. I mean, obviously we're in business here.
We have to see if that business repeats, but definitely not with the PLN 95 million-PLN 96 million revenue here. Let's look at cost after we looked at income, and let's start with the cost-income ratio, where we have 38.7% cost-income ratio in the quarter. If you normalize it, i.e. you take the high BFG and divide it by four, you come to 32% underlying normalized cost-income ratio. That actually is very strong, especially also given the fact that BFG is nearly PLN 250 million. You see it here with the two top bars on the cost stack. We expect BFG to be around PLN 400 million this year, and last year it was a bit shy of PLN 230 million. That's a very strong increase.
Even with that very strong increase, as said, the cost-income ratio normalized is 32% here. Let's look at the further cost drivers. Start with material costs. Material costs similar to the last quarters. Some change in the mix. You see it in the results, actually. There is substantially higher cost for real estate and administration, but some lower costs to other dimensions. Against the year-over-year, against the PLN 147 million in Q1, I mean, that was a very low print. I think it's on all of the dimensions, it's actually an increase, but it's even a small decrease from quarter-over-quarter. The strongest increase you see on staff costs. Personnel costs went up.
That is a function of, on the one hand, still higher FTEs. You see this on the right side. On the other hand, it's a function of salary raises that we have done. We didn't do salary raises like the same rate for everybody. It was more of an individualized scale, but especially also in the lower salary ranges, we did some significant salary raises, and that is what you see here. It also includes a higher performance-related pay that was actually quite low in Q1 last year. That also explains the differences here on this side. Amortization is also up. That's what is to be expected because we further had invested. It was low in the last quarter, so year-over-year, up by 4%.
Maybe important, what is the cost outlook? Because Cezary has beforehand said, and we're clearly in an inflationary environment, what is the outlook here? We will have higher revenues. We'll also have higher costs. Costs will definitely increase. I think it's fair to say that costs will definitely increase double digits even in absence of the BFG effect. If you take BFG out, also the costs over the full- year will increase by double digits. With this, I hand over to Marek Lusztyn for the risk part.
Thanks, Andreas. On the cost of risk in Q1, we have seen net impairment losses lower than the quarter ago by PLN 20 million. As you can see on the right-hand side, there is a bit of a shift between the segments. It is not due to the deteriorating asset quality, but it's rather in particular in the SME banking, including the non-core segment. It's adjustment of the model parameters, primarily due to a more conservative macroeconomic scenario that we have applied in this region of the portfolio that absolutely impacts in particular the war in Ukraine on the economy. Overall, the cost of risk for the retail portfolio went up from 70 basis points total to 101 in Q1.
I would like to underline that at this stage, we do not identify any material stress in asset quality. We still maintain our mid-term target for cost of risk that we have communicated in the strategy to be at around 80 basis points. As it comes to 2022, we do not identify any material stress in asset quality. We at the same time see that the current interest rate environment plus macro plus geopolitical context. We cannot exclude that some individual borrowers may turn out to be at risk in some issues in repaying. At the same time, we would like to underline that in the creditworthiness calculation at origination we have included various regulatory and prudential buffers in calculating the creditworthiness.
At the same time, what needs to be underscored as well, very high pace of wage growth and the growth of in particular real estate prices in Poland is to large extent seen by us as quite a strong mitigating factor for increase of cost of risk. Going to the next slide, please. On slide 21 we see overview of the loan portfolio quality. As you may see in the first quarter this year the non-performing loan ratio on mBank loan stood at 3.9%, which is significantly better than the Polish banking sector average which was at 5.7% at the end of February this year.
This is also significantly better than the 5% threshold that is set by the current management of the loan portfolio. As it comes to asset quality in particular from the mortgage portfolio and cash loans, as you see, NPL ratio both on mortgages and retail overall was flat compared to the previous quarters, and also in the early indicators and KPIs we receive is the no indications of the lowering quality about the portfolio itself. Also answering to one of the questions which are on the Q&A. As it comes to the interest rate increases, as of today, we see basically no impact on the higher rates on loan quality, neither on the mortgages nor on the unsecured lending.
Going forward to the capital and liquidity ratios. Andreas already provided a brief overview of impact on capital. At the end of March, the total capital ratio stood at 50.9%. The Tier 1 capital ratio was 13.48. For CET1 that was well above the minimum requirements for the group level, 275. This was above the regulatory minimum. Going into one of the questions on the slide, with respect to the decrease in on-balance capital. It was basically driven by valuation of the bond portfolio that was measured at fair value for capital that Andreas already pointed to. Other components included the higher capital deductions related to DTA and LFIs deductions for Q1.
Looking at liquidity ratios, you see that mBank keeps on demonstrating an outstanding, very strong liquidity position both as far as LCR and net funding stability ratio is concerned, way above minimum requirements. Going forward, in the next quarters, we may still see some pressure on capital due to the higher rates impacting the valuation of the bond portfolio, but we don't expect anything close to what was achieved in Q1, as we have demonstrated in Q1. We can also try proactively mitigating pressures on the managerial capital ratios, as evidenced by the reposition transaction that contributed 20.6 percentage points of the bond ratios. Hence, us improving the capital ratios going forward. We may also expect some pressure on capital due to some regulatory changes coming in the next quarters, but I think it's good. Thank you. Now, Marcin Mazurek.
Good afternoon, everyone. Welcome to macroeconomic part. I hate to say that, but 2022 is going to be as complicated in forecasting as two previous years were. Russian invasion on Ukraine complicated things further. It seems that the economy is going to decelerate a lot this year, but fortunately, we are falling from a high level of GDP growth. It seems that we are almost 8% in the first quarter is within reach. We are entering the slowdown with quite tight labor market. Unemployment rate is declining and is below the natural rate of unemployment. It seems that wages are not only supported by the imbalance of demand and supply, but also by gains, substantial gains in productivity.
As you well know, a lot of refugees came to Poland. It is estimated that at least one million left and stayed in Poland. At least 100,000 found a job already. They may balance labor market more if they decided to finally stay in Poland for more. But before it happens, we see that consumers right now are under pressure. The optimism is sour. We are at the levels we witnessed during the harsh COVID times. Indeed, as I said, economy is slowing down. We expect 4.8% GDP growth rate this year.
This number masks a downward sloping GDP growth path, and it also masks the fact that 2023 is going to be the worst year in terms of GDP growth. We are heading towards 0%-1% GDP growth this year. I said already about the Russian invasion in Ukraine. It complicated things, and it also boosted inflation. Right now, after the April results, we are at 12.3% with respect to inflation, and yet it's not the top inflation. We expect the top to be reached during the holiday period, and it will be somewhere between 13% and 14%. Now, of course, the risks here are skewed to the upside. The central bank is continuing the hiking cycle.
Right now, the central bank rate is at 5.25%, and we expect the rates to reach 7% in the third quarter. It is highly likely that rates will begin to fall in 2023. When we look at the monetary aggregates, we see, I would say two different worlds because in terms of corporate loans and deposits, we are enjoying stable deposit growth, and we see accelerating corporate loans. We observe here some kind of catch-up effect. It's going to last this year, but of course just those numbers are going to turn a little bit lower in 2023. As far as households are concerned, we witnessed a drop in deposits in the first quarter.
It was most driven by withdrawals of cash in March as people rushed to ATMs being afraid of war. We think that it was only a level shift, and it will not affect the trend of growing deposit volumes this year. Of course, the annual growth rates will be lower due to this fact. As far as household loans are concerned, we are decelerating. We are slowing down vividly. These trends are going to be continued this year. Turning to financial markets, we see a burst in bond yields. Almost the whole curve is very close to 7%. It is reflecting higher rates, high inflation, and some worsening of credit outlook for the Polish economy.
Of course, this worsening credit outlook is also reflected by PLN. Polish currency stays weak, and we don't see much room for spectacular improvement. The one milestone which is important for exchange rate are relations with the EU, and I think that i t's important for the zloty and for the European Commission to accept Polish development plans. It would allow for, I would say, some sort of participation this year. All in all, the perspectives are rather bleak. Thank you.
Thank you, Marcin. Now let's move to the Q&A session. Some questions have been answered already, but let's start from the beginning. The first question is about net interest margin. Should we expect growing NIM ahead? How do you see deposit costs developing? Is it possible to provide your current rate on deposits?
Maybe I start. Current rate on deposits, I think I provided on retail with 100 basis points for above PLN 100,000 on savings accounts, 75 basis points below, 50 basis points for term deposits. As I said that the corporate side is a individualized debate here. The NIM at 315. Well, NIM, obviously, that's a representation. A quarter is always a representation of three months. But I've also said that best estimate is to actually take the PLN 1.5 billion times four for the full- year. There is still some upside in NIM. It will not fall for me, but the upside is not as big, obviously, as it has been in the last quarters that we've seen it.
Cost of deposits, they were developing. As I said, the market hasn't found an equilibrium yet. What needs to be paid, we are not in a position where we need to pay.
That's exactly our stance. We can expect, you know, some uplift movements can happen, not necessarily just to please the Prime Minister, but to reflect the market developments and the market dynamics. I don't think we will be leading the show, but obviously we'll reflect, you know, what will be the dynamics and, you know, which banks will be moving up, you know, in the first round. Second aspect, which I think is on the horizon, and that's my understanding and my reading of the Prime Minister's comment, is that the government is preparing to sort of join the race for the funds and to come with some retail products, which will be more attractive than the current offering by the government.
That will be a factor which, you know, definitely can impact the market, which is, as we all know, over-liquid, significantly over-liquid. In a variety of estimates, there are almost between PLN 350 billion and PLN 400 billion of cash, which I think, you know, makes sense to neutralize and to deploy. Marcin has said, you know, in the first quarter, we had a significant outflow of cash from the banks. The question is, you know, how this money will return back to the banking sector and how they will be employed and how they will be priced. There is a number of factors which I think, you know, as Andreas rightly pointed out, the easy go, if I may say, in terms of net interest income slash interest margin is gone.
This is much more sophisticated stage of the development, and any type of estimates which you can expect from us will be definitely much more nuanced than we have declared in December last year or even in the first quarter.
Does the mortgage growth in the first quarter was driven by fixed rate lending? Is it possible to provide current rates on the fixed and floating rate mortgages and update on loan growth dynamics as well?
To start with the fixed and floating rate question. Basically what has happened at the end of Q1, beginning of Q2, there was a significant regulatory change with respect to the underwriting standards that Polish regulator imposed on Polish banks. To a large extent, end of Q1, beginning of Q2 was driven by unexpected, I would say, pickup of demand. The share of the fixed rate mortgages over time is growing. We've seen this exactly as the industry did.
As it comes to the current pricing, I would say on top of my head, the fixed rate mortgage, which is basically mortgage with the fixed rate for next five years, depending on the quality of the client, loan-to-value and a number of different parameters, as of now starts at the prices which is south of 9%. So 8%, 8.7%, 8.8%, if my memory serves me well, which is roughly comparable with the rate which is applied on the floating rate with the margin, with the current mid-market.
Five-year IRS standing at 6.8% or so. That also compares, you know, with Polish government five-year Treasury bond yield that stands at 7% as we speak. The volumes forecast for the sector is included in the macroeconomic part of the presentation. As we have communicated in the strategy, given our favorable demographic profile, we expect over time improved package in that product as only we expect that more clients of mBank would keep on buying the primary. This has been really understanding our mortgages when compared to our overall package.
Thank you. How do you see fee growth dynamics ahead? Will you continue applying fees on corporate deposits?
I would say. There are two questions, basically. One is the overall fee growth, which we, I think over the last several quarters we've been experiencing, you know, double-digit or even above, well, 20%. I think that, you know, there is a limit. Under the current circumstance, we don't expect that, you know, there will be some kind of, you know, adjustments, fee structure that much. Obviously, there will be interventions depending on the market dynamics and our ability to justify or to, I would say, steer the clientele. But we still believe that, you know, our transactionality will pay us off. So the dynamics will be lower. I have to admit that, you know, the 27% which we have achieved in the first quarter was above our expectations. We've been.
I'm not saying we've been sort of a path from a flattish type of a development, but definitely, you know, that was exceeding our expectations. Interestingly, now with an exceptional profit, all other lines have been growing faster than expected. If the volumes will continue, and you know, there is no reason not to believe that, you know, volumes will continue, I strongly believe that we will be experiencing, you know, some growth. I would say we have to understand better the dynamics second and third quarter. Definitely, you know, it looks from today's perspective that it will be clearly double-digit growth. Which zone we will end up, you know, that will be premature.
When it comes to the second part of the question, which is, you know, corporate charges on the, on the money placed with the bank, yeah, in intelligent form, we will be using this, I would say, fee to steer the inflows of money because let's be fair, this is the very, very important aspects of this, is the way, the Bank Guarantee Fund is charging the banks, and very importantly is also banking tax. I have to say, you know, these are the tools which we are using to optimize the position of the bank in terms of the excessive charges from the public sector. You want to add?
Yeah. I mean, I can briefly add that that's the year-end fee we take. We don't take ongoing fees for zloty amounts in corporates, but we take it for foreign currencies. Yeah, for foreign currencies, we'll need to see what the rates do as long as they are where they are, we'll still continue. As you were saying, the year-end fee is currently not on the discussion because that's part of the way of managing the bank. Yeah. Maybe briefly on that fee and commission income. I said, we're nearly at PLN 600 million right now. If you look at the chart here that's on the screen, last year at each of the quarters we were below PLN 500 million.
PLN 500 million is a good target to actually have every quarter, and then we'll see where we go there. That also mathematically leads towards what Cezary was saying, up to double digits. That would be a good target right now to look for.
Thank you. Next question. How do you view settlement base of FX foreign borrowers in the variable rate environment? How should we expect related provisions in the coming quarters on that pilot program?
Yeah. When it comes to the pilot program, I have to admit, you know, we are not satisfied. The response from my clients to the model which we have presented to you, I want to remind you that the way we have approached our clients was with a pretty dogmatic stance that we don't believe that we violated the laws, and we will be fighting on this front. We will continue to fight on the legal front. We believe that what has really happened is the consequences of the macroeconomic situation in Poland leading to the significant depreciation of zloty. We decided that our approach will be to contribute or to share the burden, the materialized risk of the foreign exchange with our clients. The response, that was very unfortunate at the time when we started to offer these settlements.
There were basically two major developments. One was rapid increase of the interest rate, which definitely was the prospects for the clients switching to zloty, exposed them to, I would say, the type of a decision-making which is not trivial. I think that the interest rate differential for the zloty and Swiss franc loans must be in the magnitude of 5%-6% right now. But this is something what, you know, makes a material difference. That was one factor. The second was that, you know, in the meantime, you had the conflict in Ukraine, which led to the further depreciation of zloty. I think that, you know, it has created an environment which was less stable than expected or envisaged by ourselves. That was one of the factors.
Second, we have to be realistic. You know, our offer was less favorable to our clients than the proposal by, you know, set by the Chairman of KNF. On top of that, one factor which, you know, we have to recognize that, you know, the jurisprudence specifically in the third quarter, beginning in the first quarter, and thanks to a few courts favored, I believe temporarily, still believe that evaluation of the contracts, which I think is a big mistake by the Polish courts.
You have read recently the statement by the stability board on this issue, I think strengthening the position of the banking sector, and we still believe that, you know, there will be reversal of this attitude, but it has impacted, you know, the way our clients responded. In the meantime, we had this class action case which encompassed 1,700 clients, which we have won. Obviously it is not the final verdict, but the way the court, you know, which has justified its verdict, I have to say, very much resonates the position of the bank and the banking sector.
I believe that, you know, there will be more reflections still on the court side, that this annulment of the contracts is not necessarily the way to address. Obviously, we talk about the courts, sort of an inshallah type of environment, specifically in Poland, under the circumstances where the courts and the whole system is in this way. It has impacted vastly, you know, our initial program. We still continue to experiment with the clients and to understand better the dynamics, and we approach them different groups.
Interestingly enough, there was a situation where at the time when we offered initial settlements, we have been separately approached by almost 700 clients, you know, willing to discuss with us. Based on the experience, we believe that we will be able to adjust our process and being able to check with the clientele whether there is still space for a reasonable dialogue reflecting, you know, interests of both sides. I think that that's one. The second part of the question was?
Yeah. Maybe on the guidance for the provisions. As you have seen, what we booked in the first quarter was nearly PLN 193 million. We expect that for the upcoming quarters, amounts in similar magnitude might materialize. If we look at the reasons why in general the provision is to be booked and why it's also changing, I mean, on the one hand, we have constant inputs on the loss rate, so on this quasi loss given default, so loss given in court, what happens when we lose and what's happening in this scenario. On the other hand, what we have as a second one is we are actually seeing court cases not only in the methodology but also really materializing.
This is what Cezary was saying, and this materialization is currently differing from the average we expect in the methodology. That means that we also book additional amounts here, because as you know from our very wide disclosure, for example, we assume that in the long run 50% of the court cases will be lost if we lose more at a higher severity. Currently, we actually in the respective quarter book that. These are the two things, general update on the loss rate and also factually having cases in court materializing. In general, there are also other components. I mean, we frequently assess the methodology.
That's what we do on a quarterly basis, and we might also change the approach. On the other hand, we still have a still evolving approach to settlements, so we don't have a final settlement program. Clearly, I mean, that's the biggest element. We have an unsettled jurisprudence. That's where in the long run, we will also change the cost of legal risk. For the next quarters, a magnitude similar to what is in this quarter is maybe a good proxy.
Thank you. What's your view?
What is worth mentioning that, you know, our current buffering is the magnitude of almost what, PLN 4.5 billion, plus the buffer which we have on the capital side.
Yeah. PLN 4.2 billion plus the PLN 1.8 billion capital allocation, that's in total PLN 6 billion.
Yeah. That's the money against, you know, this portfolio.
What's your view on government's proposed borrower support program, repayment holidays and contribution to the support funds? What level of impact on contributions do you expect from the banking sector and from mBank? Do you see some offset from lower BFG contributions?
I would say this is like, you know, for this separate conference, you know, media conference question. Well, there are aspects which, you know, have been, you know. I love this expression, and I'm quoting recently, you know, the quote from Donald Rumsfeld saying, you know, "There are no knowns, there are known unknowns, and there are unknown unknowns." I think that, you know, the more I hear, you know, what the government is delivering, there are more unknown unknowns. On the one hand, I have to say I have predicted what has happened. You know, I want to remind, you know, some people that, you know, I have published an article in September last year, basically predicting what's on the horizon. It's not on the one hand or what's on the horizon. What's on the table.
This is, as always, a big problem for us as an industry because it undermines the paradigms of banking. Banking is about contracts and sticking to the contracts. I think what we observe in Poland is undermining, you know, this concept. I have invented many years ago this phrase, "Polska szkoła bankowa. Pożyczyć nie oddać dukać." I have to say, you know, at the end of my professional career, I think that, you know, it's materializing. That's the bad news. In principle, it's bad news. On the other hand, we very much respect the fact that there are clients in need. That there are some, you know, situations which, you know, under the circumstances with the inflation rate going significantly up and interest rates, you know, hiking, you know, like never, ever, at least over the last 20 years.
Yeah, some cushion for the clients is necessary. I would say twofold. One is that there is this support fund, which I think that, you know, the banking sector is willing to support and is prepared to contribute. Obviously, this needs to be utilized 'cause just mounting the funds is not enough. We are very much, that's the political reality in Poland, that we are squeezed between something what I describe as a right-wing populism and leftist puritanism. You know, it's not easy to operate being a banker in this environment. I would say what the government has proposed still needs to be investigated in more detail by the banking sector.
I think the instant approach which has been presented both by the banking community and also by ourselves is that if this is a universal approach to each and every client, I think that, you know, it's not fully justified. It needs to be calibrated for people who really are impacted. You know, I can imagine with the banking holiday that the number of clients which will be eased from the payments for at least one quarter a year, you know, they can place money and, you know, earn money on it. That's something what is, you know, not intuitive for us. I think that promoting that type of approach does not appeal to me from the professional perspective.
Okay, there can be some kind of political calculations which, you know, I don't feel that I have a sufficient level of expertise in this respect. I think that it undermines contractual arrangements in Poland. This is not the first development. The same has happened on the Swiss franc portfolio. The same happens here. When it comes to the vacations, you know, I want to remind, you know, all the public that banking sector during the pandemic voluntarily entered the vacation with the clients, has prepared the systems in a very short period of time, offered this.
I have to say, you know, much more clients has exercised this opportunity than from the official sector, you know, legislation. Number of cases which have been used by clients, you know, based on the legislation which has been adopted, you know, was much lower. The customers came back to the repayments, which is a very positive development. There are a variety of estimates. The one which I have heard, and I think that that has been to some extent correctly endorsed by the banking association, was PLN 8 billion per year. While they are ranging between altogether for two years, PLN 16 billion-PLN 20 billion. With our portfolio we can estimate, you know, even, you know, from the macro perspective that, you know, being the 10% contributor we will pretend. I would say on the mortgage side, slightly more than 10%.
It's the only thing for the Polish ones.
Yeah.
The Russian and everyone.
Potentially it can impact. You know, as you know, well, there are consultations which will end up fortunately coming on Friday. With the complexity of the issue and the magnitude of impact, I think that, you know, this is pretty short period of time. But I believe that the banking association will come with some counter proposals to show what we believe as an industry, I would say, under the circumstances, makes more sense. The technicalities around this needs to be worked out. This is what we have heard yesterday from the government seems to be. That's positive that this will be addressed only to borrowers who live in the apartments. For the truly living needs and not for the investments.
That's something what I think is a must from my perspective. That cannot benefit people who made investments in real estate. We are very unfortunate because we had this conference just day after. We have reflected, you know, in the afternoon and in the evening yesterday. We are trying to find out the way, you know, how to address this issue. You know, one have to be fair. We are talking about, you know, capital for free. This resonates to some extent what the Polish government has said today. The Court of Justice of the European Union that there is no charge for capital. That is something would be fundamentally disagree.
I have to say, you know, if that is being presented as a solution for people in need, because then I think that, you know, bankers are very much prepared to be sensitive to this issue. I think that, you know, the whole industry represents this type of approach. But when it comes to just benefiting people who want to make a better deal, I have to say, as a citizen, as a banker, as a lawyer, I'm fundamentally against it.
Thank you. Also, around this subject, do you see smooth transition of the WIBOR to the proposed cheaper benchmark market rate by end of quarter 2022, or is it likely to trigger a wave of lawsuits by borrowers? Any update on potential impact would be helpful.
Okay. First of all, I hope that you can hear me better right now than at the beginning of the conference. We understand from the public side that in principle it is a wish and expectation that the WIBOR transition follows the benchmark regulation by the EU if possible. We see a number of operational difficulties related to very speedy adoption of the new benchmark rates. In principle, as a bank and as a sector, we are happy and willing to assist in a smooth transition.
If that transition happens, according to the BMR directive, it's pretty clear then the spread adjustment needs to be applied that should basically compensate for the difference between the old benchmark and the new benchmark. The overall EU directive on benchmark reform has been built around those principles. As it comes to the details of that proposal of the transition to this new, cheaper benchmark, in the draft legislation that has been open for consultation as of yesterday, there is not much more details provided as it comes to the technicalities. It's even lack of the details at this stage. It's for us difficult to comment on any quantitative impact of this.
It's difficult for us to say where that billions of it that was used in the press conference of yesterday comes from. As I said at the beginning, if the transition follows the BRRD directive, then it is possible that should be an application.
If I may add, because the part of the question was about, you know, as I read this, is it likely to trigger a wave of lawsuits by borrowers? Well, that's. I'm just, you know, referring to the article which I published in September. I think that, you know, under the circumstance in Poland and with the Pandora's box being open, you know, a few years ago on the legal front, and, you know, you can question everything. You can question, you know, the Tabela kursowa question, LIBOR and everything. I believe that, you know, what has happened yesterday was the type of approach that the way it has been presented, one cannot exclude. Some people will go to the courts.
You know, that would be very interesting to what will be the position of the courts because, you know, this should be a concern of the official sector, including, you know, the Minister of Finance and Central Bank and others, because this undermines almost everything what we operate, you know, in the financial sector, including the government. I hope that it will not be the case. After the lesson which I've got on the Swiss franc portfolio and the way the government has treated this and the responses of the Polish government to the European Court, I have to say I will not exclude.
Does your new NII positive guidance take into account recent government proposals to support borrowers? Can you provide any sensitivity to lower mortgage rates or percent of customers opting for holidays?
I think we just answered that. Nothing is to be quantified right now on this. Everything we've said before is obviously without the, to be clear, this is without these government measures that were announced in draft yesterday.
Is mBank planning to join the voluntary IPS scheme?
Well, we don't have at this stage formal decision-making of our governance bodies. I understand that it has not been yet signed by the president. Am I right? Has been or isn't? Has been signed. Okay. I would say my personal view on the issue is that that type of institution will be helpful in the overall system. This is another element of the, I would say, stability and security net in the industry. In terms of understanding of its function, I have to say I'm sympathizing with all one have to be really firm. This gives a lot of participants in the market lunch for free.
Because, you know, this is a situation where I understand the number of participants which, you know, can compete with us, namely, you know, the smaller banks, you know, the cooperative banks, et cetera. Potentially, instead of contributing, you know, via BFG, you know, we'll have some kind of a soft lending in the case, due to the potential participation of the bigger banks in the scheme. That is something what needs to be recognized. The second issue is that obviously there are still technicalities which are being discussed, within the banking sector. I have to say have not been fully addressed.
Plus, in our particular case, our major shareholder operating in Germany, you know, has some experiences with that type of institution, which are not that much, I would say, in line with what had been promised by BRRD resolution, you know, some years ago, which is a pan-European regulation. I think that, you know, we will be processing, you know, the access, but we cannot declare at this stage that, you know, it's done.
The question about the current results for the year. For the results, what was the driver of lower corporate income tax in the first quarter?
Yeah. I mean, in general, corporate income tax in Poland is 19%. Effective tax rate in the quarter was more than 27%, and actually was higher the quarter before. You always have some components that are non-tax deductible. Part of the loan loss provisions are non-tax deductible, and BFG is non-tax deductible, but also the Swiss franc legal reserves are non-tax deductible. If what we expect for the full- year is actually higher profits than the last year. These non-tax deductible items actually not rising as fast as the higher profit.
We need to average this out over the quarters under IAS 34, and this now I have the figures, leads to the effective tax rate that's 28.2%, so still non-tax deductible items in it, vis-à-vis the 37.1% we showed last year. In essence, higher expected profits versus non-tax deductible items under IAS 34 projected over the four quarters. It's a bit complicated, but that's it in a nutshell.
How have spreads for new mortgage loans developed in the first quarter?
As far as the spreads for the new mortgages in Q1 were concerned, they were basically unchanged compared with the previous quarters. We see indications that the increase.
A question on the so-called small TSUE. Does the bank apply the early repayment rules to the mortgages first originated after 2017, or the bank will need to adjust its policy to meet consumer protection office expectations?
Yeah. We apply all the rules properly, and we don't expect additional amounts from this.
Could you please explain the asset quality impact from rapid rise in interest rates, especially on your unsecured retail loans?
I think I have answered that during the presentation already. As you see, on the slide currently displayed, slide 21, as of now, we see no deterioration in the asset quality, neither on the corporate nor on the retail side, in particular on the mortgage lending. We see also in early warning KPIs no indications of the deteriorating asset quality as we speak. Only, in particular, what needs to be underscored as well, together with the rising interest rates, also clients have seen significant increase of their income into the wage pressures that we've seen in the country for quite a few years.
Those two effects are quite balancing each other, so we see absolutely no impact as of now on the asset quality.
With such low cost-to-income ratio, what are your investment plans to use that excess?
Well, we have to recognize that this level of efficiency is to some extent artificial. This is the result of the very rapid increase of interest rates. We have to balance our costs in a very responsible way. That means that, you know, we have to, you know, what, you know, as it is sometimes being said, you know, what rises very fast can drop, you know, equally fast as we have experienced. We have operated for some time, namely 2020 and 2021, big part, in effectively negative interest rate environment with the banking sector. I think that, you know, sort of the rapid expense growth of our expense base, you know, will be irresponsible.
That's the reason that I think that, you know, we continue to target 39% as a cost-income ratio. We are realistic that 2022 will be exceptionally low. As I said, this is a side effect of something what has happened rapidly in an extremely liquid market environment, with the flood of money which has happened in 2020 and 2021, which ended up in a situation that, you know, lots of money have been placed with the banking sector. And there were questions about the interest margin. I think that, you know, I don't believe that it would be sustainable.
We have to manage this in a responsible way, not just overspending like it has happened with the government at the good times, but rather to balance, you know, and to foresee also the worst times that, you know, we experience right now. Of course, there is no doubt banking sector is a beneficiary of this rapid interest rate growth in a situation where the market intrinsically is overly. We wouldn't print the money.
What is the share of mortgage loans with installments higher than 50% of consumer income? This, as this seems to be the new criteria to split the contribution to the creditor support fund.
That is the proposed new criteria. We have very strong view that that is actually a long KPI to apply. Different banks calculate or estimate the customer income using different means and models. They are also calculated at the different points in time. Basically, they are just simply not comparable among the different institutions and across time. We have provided very detailed technical comments on why we believe this is wrong KPI to apply when meeting with the public side. We do hope that comments of the banking sector will be well heard and reflected in the final legislation on that matter. In that context, I just complete what you asked.
Maybe last question, about the sales of corporate loans. According to the NBP, there is a corporate credit boom in Poland, with new sales of credit portfolios growing by 7% quarter-on-quarter. Yet the new production of corporate loans of mBank fell by 19% in the first quarter, according to slide 16. What happened? Is it a structure of clients or something else? Does the banking tends to match the overall market sector of forecasting lending? What is this?
I think we need to look at page 16 and then at page 15. I mean, 16, what I said is the year-over-year growth is 28%. That's quite high. Q4 was just a very strong quarter. That's new sales. It might also have been new sales of credit line, for example. Because what you see in terms of credit usage on the page 15, I mean, you see that the carrying amounts of loans that we have on the corporate side is exactly 7% higher than the quarter before. We are actually seeing corporate credit expanding factually on our balance sheet by 7%. That is also a part of new sales that happened some quarters ago or generally of clients usage, but we are seeing that expansion.
That expansion also has to do with inflation because obviously the inflationary print, for example, in April was more than 12%. That means for a given unit of production, also the monetary cost of this is actually increasing. That means if our corporates, for example, would like to produce the same number of units, they actually need more funds for this. That's what we do not only see in our portfolio, but what you will see overall in the corporate space. We can on the one hand confirm that there's a higher usage and a higher demand for loans. Like one quarter in terms of new sales is not the best predictor for what's actually happening. Slide 15 is the one that I think is to be looked at.
One more question. Could you share what proportion of your PLN mortgage holders have got more than one mortgage?
We have looked into this one, and as far as our client base is concerned, significantly over 90% and 0% of our clients have just one mortgage with us. As it comes to the number of clients that have more than two mortgages with us is less than 1% of our mortgage customers. It's in the context of, you know, who's taking this for primary residential purposes, most likely looking at the number of mortgages they have with us. Also in the context of the demographics of our customers that we repeat so often, definitely vast majority of over 90% is having just one mortgage contact with us.
Thank you very much. I think we covered most of the questions. If you have more questions, please contact Investor Relations. Thank you very much for your attention, and have a nice day. Bye-bye.
Thank you very much.