Good afternoon, ladies and gents and welcome to the conference that will present the results of mBank Group in the Third Quarter of 2021. Today we would like to focus only on results as this, the presentation of our strategy is planned for November 16th. The results will be presented as usual by Mr. Cezary Stypułkowski, Chief Executive Officer, Mr. Andreas Böger, Chief Financial Officer, and Mr. Marek Lusztyn, Chief Risk Officer. Marcin Mazurek, our Chief Economist, will present the macroeconomic outlook.
Good afternoon. Some key messages. The most important ones, I believe you know the net interest income has recovered. We are 4.6% year-on-year, and I think 4.5% quarter-on-quarter, which is a clear signal that we have returned back to upside trajectory, and it was obviously before the interest rate hikes. Fees and commissions consecutive second or third year of significant increase. As you see this is more than 28%, you know, year-on-year. Worth mentioning is also the level of Swiss franc reserves, which costed us more than PLN 400 million. Then constant growth of the balance sheet items, but that will be elaborated later on.
On new product front, I think that what is worth to mention, I believe is Biometry being used, you know, for the confirmation of transactions, depending on the systems, whether it is iOS or Google related applications. You can confirm transactions via Face ID or fingerprints. What is also worth to mention is that we consider ourselves as being, you know, in the forefront of renewable energy financing. This has been sort of scaled down also to the smaller players. We started to offer also the financing for small RES installations, which is a significant coverage. This is our drive into the SME sector.
Something we will be elaborating in more detail when we invite you for the strategic session is our drive into e-commerce and our strong position. Now Digital Revolutions which we supported as a kind of a semi competition, and which was a part of our drive into e-commerce. That is I think second edition of this competition has happened in the third quarter, and I think, you know, has attracted more than 800 players. The important development of the third quarter was the placement of our MREL- eligible senior green bond. Andreas will elaborate a few words about this. You know, you've been personally involved.
Yes. Briefly. I think this was indeed a financial highlight of the quarter. It was the inaugural senior non-preferred for MREL, but it was also in green bond format. We think this is first a testament that what we have done in terms of the green bond framework, obviously together here with also the risk side, that this is not only a theoretical exercise, but we make that work. We went to market with that transaction. We saw very strong demand. We had more than 110 investors who actually ordered with an order book of EUR 1.2 billion. As you see on the right side also, it's nicely spread across Europe, the investor universe. In the end, we were able to execute a EUR 500 million trade there.
What I think is important for us is this is the beginning of the green bond issuance. We got very strong confirmation from the market that the frameworks we're using are seen as very good, and that also in senior in future it would be highly rewarded and highly appreciated if we come back in the senior non-preferred market with further green bond issuance.
Our market position is significantly growing year after year. As you see on the retail side, we have gained significant portion of the market over the last two years. When I look back, you know, in the perspective of decade, it's almost doubling our market share on the retail side. The corporate, which is obviously, you know, more stable part of the market in principle, and our position used to be very strong and continues to be strong. We keep the market share. On the loan side, though, the fact that the bank is a big cash manager attracts a lot of money from the market. Our market share now will rise, obviously around 10%, 12%.
What is worth mentioning and what is sort of a signature of mBank, our mobile focus. We believe that those cores are very important. One is the number of active users. We are number two in this respect of active users of our mobile app. The second is we are clearly, you know, number one when it comes to number of transfer transactions done by clients on the application. We are also recognized, you know, as well in the specific Czech market. What is important part of the longer-term strategy is, you know, how much of transactions are being initiated on the mobile devices.
This is something what is the drive of the bank, the fact that we are focusing on the something what we used to call icon of mobility, and now we are more going into this icon of possibility. You know, the evolution which we will elaborate in more detail when the strategic perspective will be presented. In principle, we see that share of processes in retail banking are initiated in digital channels, you know, has grown significantly. It's on the trajectory to be at the level of 80% in the not too distant future. I would not elaborate on this, you know, in more detail.
I think that, you know, what is worth to mention is both corporate and retail, and specifically corporate, is trying to catch up in terms of, you know, the way we are presenting ourselves to the clients, and on top of that, applications which we use. To some extent, one can say that we are also, on the corporate side, we are trying to catch up with what the retail has done, you know, to its clients, you know, pushing the mobile and digital. Paynow, which is our payment gateway, worth to mention that it has been launched, I think, 2020, as I recall. First quarter of 2020. It's growing fast. This is the first cloud-based solution of this nature. It's growing, you know, 27% quarter-on-quarter.
We are very much satisfied because this is a part of our strategy really to go into the e-commerce. Finally, we are coming to some key elements of our results. What's worth to mention is the total income is growing. You know, cost income traditionally at mBank, you know, at a very more than reasonable level. As it will be elaborated later on, we since I think a year, we are presenting our results in a new format, which is, you know, the reported results and the results for our core business. As you see when we strip out, you know, the Swiss franc or foreign currency portfolio in a way which we consistently presented since I think beginning of this year.
Beginning of the year.
Yeah. The returns are very satisfactory. The balance sheet positions are growing, so let's move on. I think that, you know, when it comes to the net interest income, I already talked about, you know, and then fees and commissions, you know, quarter-on-quarter, almost 6%. One have to be though fair, the third quarter was very active. I think that was the record fees and commissions quarter in the history of the bank. To some extent, obviously related to the fact that it was a vacation season. Total income, you know, I think that, you know, you see that on the chart. What I want to add, the balance sheet figures, you know, growing nicely, both at the quarter level and also the year-on-year level. Not that much to complain about.
You know, if there will be any questions, we'll go in more detail. Finally, summary of litigations and provisions. You know, this is an important part of our reporting, and I think that the transparency around this issue, I believe, you know, should distinguish us because I think that we are coping with very much uncharted waters. The situation, you know, on the judiciary front is very complex in Poland, as you know. It's not only, you know, the Swiss franc, but in principle, the judiciary is in kind of a disarray. That make all these things more complicated. Worth to mention is the following: You know, in principle, the overall portfolio is going down. This is currently almost PLN 11 billion zlotys, mostly in the Swiss francs.
One has to compare this to PLN 123 billion of our loan book across, you know, all the products, which more or less is slightly less than 10%. At the same time, we are booking more than PLN 3 billion of our capital against, you know, this and, you know, out of 16%+. That shows how capital consuming, you know, is this portfolio and at the same time, you know, not that much remunerative for the bank. We observed some, I would say modest slowing of the number of cases which has been brought against the bank in third quarter. It will be premature to say that, you know, this is signaling something important.
Though in our estimates, we believe that, you know, the time lag between the time when we sort of understand that the customer is preparing for bringing, you know, the case against ourselves, that means, you know, he's asking for more documentation. And the time when effectively we are being informed about the case brought against us in the court, somewhere between seven-nine months. While in my opinion, the next two quarters will be the most critical really to assess, you know, whether the wave is still on or on the upward trend or contrary. I think that, you know, the number of developments which has happened specifically in the second and third quarter in terms of legalities.
You know, I refer to what the Supreme Court postponed meetings, the KNF position as a joining the host of banking law. The National Bank of Poland, which you know is instrumental to the FX law in Poland and setting, you know, the tone for this and their opinions. The cases which have been addressed by Austrian Supreme Court and Hungarian case in European Court of Justice. All of these have been signaling some kind of a change, in my opinion, in terms of, you know, to which extent the judiciary is prepared really to accept that there will be an automatic annihilation of the contracts. That is something what is on the horizon. We are closely observing, you know, the developments.
That's the reason I'm saying, okay, this is not yet reflected in the figures which we see on the purely legal front. This quarter and the next quarter will be very much, you know, to judge, you know, which direction it goes. As you see, we have added some provisions, you know, more than PLN 400 million provisioning, you know, vis-à-vis this portfolio that totals to almost PLN 2.2 billion. Part of that, you know, which we have created this quarter was related to one of the class actions which we have in our portfolio, and there were some legal developments which we had to reflect. The coverage of the portfolio is currently at more than 17%.
When it comes to the coverage of the claims against ourselves, this is being reflected on the southeast part of the chart. Which I believe leads us to the opinion that we are reasonably well covered at this stage with a lot of unknowns in the market. Finally, you know, the new segmentation, that was the invention of my friend Andreas. He will elaborate in more detail about this.
Let's briefly go through this. These are the nine-month figures. You see the nine months here. As Cezary was saying, the minute you start separating non-core, i.e. non-core, to repeat that the FX mortgage loan portfolio with its low yielding assets, with its equity allocation that's currently PLN 3.1 billion zlotys, and also with the legal reserves we have booked. You actually see the core bank more in detail. I think the only figure I would like to highlight is you see return on equity here in the core bank, above 10%, 11.7% here. I think that's a good way of also looking at mBank. With this, I think I'll go over into more details.
Let's start, as always, with the development of loans, which has seen a strong retail momentum in this quarter, again, I have to say. In total, the development of loans is up by PLN 3.3 billion in the quarter. That's roughly 2%. Full year it's up by roughly 9%, so PLN 10.5 billion. If you look at the composition, where does it come from? Corporate is rather flattish, actually flat over the quarter. That's still a testament to the over-liquidity we see in the corporate portfolio. That's something we also then positively see materializing in non-materialized loan loss provisions. That's actually a coin that has two sides of the corporates being over-liquid. Still, for the full year, corporate loan growth is roughly 4%, so it's still up.
If you look at our market shares, it was in one of the slides before, the market share in corporates, I think it's 8.7% versus 8.6% the year before, so we kept the market share. This also shows the dynamics that are there in the market, and the share even increased a bit. Stronger market share increase is what we've seen in retail. There, for example, the market share in total household loans is now 7.7% versus 7.3% a year ago. Let's look more at what happened. The strong growth here, only in the quarter, the growth without foreign exchange effects is 3.3%. Really a very strong new lending business in retail.
I think for this, the best is to also look at the next slide and to just take a deep dive there. As I said, let's start with the upper left side. Mortgage loan, for example, very strong sales, +49% year-on-year. In this quarter and also in the last two quarters, I think what's really nicely seen is the very strong sales in Poland. The PLN 2.7 billion and the PLN 2.2 billion. Both quarters were record quarters. That's good. We also expect the Polish mortgage loan production to further prosper. Maybe not at the PLN 2.7 billion, but rather, I think what happened in Q2 is a very good proxy, and we want to build on this.
What also nicely played out, we have talked about it, I think for two quarters, that in Czech and Slovakia we have actually increased prices for mortgage loans with the plan of also printing less then, but refocusing that business on non-mortgage loans, and that's what you exactly see on the right side, the PLN 497 million in red. The contribution of the Czech and Slovakian business to the non-mortgage loan side has increased in the last two quarters, and that is exactly also what we were planning to happen. That nicely happens. Speaking about non-mortgage loans. Non-mortgage loans with record overall sales of PLN 2.7 billion. As always, it's not easy to hold the records, but we will work hard to actually be on that level.
That's a level we would like to also ideally see in future quarters with the usual fluctuations, obviously. Looking at corporates. Corporates is all a story of K2 with a strong K3 backbone, but the volumes is mostly K2. You see a good growth here quarter-over-quarter, but also year-over-year, that's -8%. But if you take the K1 out, you also see a growth year-over-year. On K1, as you know, our mantra is we like the business to a certain extent, as long as it's fun and as long as the return on equity we get there is adequate. But it's not that we run after volumes. This explains the corporate quarter. Leasing here, new leasing contracts are down. To some extent, maybe seasonal effect.
In general, we're very happy with the business development in leasing, and we also have a strong outlook here. Nothing to worry. Let's go over to the deposit side. Deposits have strong constant inflows. The deposit inflow in the quarter is nearly 5%, that's quite high. This time, driven, as you see on the right side, by corporate customers. It's on the one hand transactionality and also new clients. We're close to all this. Obviously, it's now a more lucrative business to have more deposits, especially given the interest rate rises. But on the other hand, there is an evolving market practice, and we're also following this of charging for zloty amounts.
For heavy users and high balances in corporates, in corporate deposits, we will start from end of November to charge also on an ongoing basis for current accounts. Retail added another 2% of the deposit base, but I think that's nothing to further report on. Let's go to the revenues. Cezary already said it at the beginning, very good revenues. Record high core revenues. To highlight are actually two things that start with the one that delivers the most. That's net interest income, very strong, back above PLN 1 billion. That's a important psychological mark, at least for the Management Board here. It also shows nicely that the bottoming out in interest rates, you see that on the right side.
In NII, the bottoming out that we've spoken of, that we will rebuild here from the interest rate shock we had in COVID times with the lower rates that we were rebuilding, and that rebuilding works out nicely, and that's before interest rate raises. That's quite good. The 40 basis points interest rate hike that happened on the sixth of October, I think, we also have it in our results package. We expect that this roughly adds PLN 180 million of net interest income over the next 12 months. I think the best part in revenues of this quarter is, as Cezary was saying, that fee and commission income, very strong contribution from cards. You see this on the right side. Very strong contribution also from lending.
Also as Cezary was saying, it's a strategic target for us to grow net fee and commission income. To immediately repeat Q3, this will not happen. Q3 is a mixed bag of vacation time. Q4 will also have some nonlinear cost items there. Q4 will be lower, but net fee and commission income remains a very strong focus of the bank. Let's move to cost. The only thing to really mention, costs were growing because we were rewarding our employees for the tough times and for exceptional work that was done in COVID times.
I think we can say we're very happy that costs are increasing in this quarter, because it is something that's very important for the franchise, to adequately also see what kind of extra mile staff was going. That also explains the 16% higher quarter-over-quarter personnel costs at nearly PLN 300 million. Most of the change compared to the second quarter is the COVID rewards. It also is, to some extent, commissions that we're paying. Also to some extent a bit higher salaries, but as I said, it's mostly the COVID rewards, and I think it needs to be seen in conjunction with the cost-to-income ratio. Cost-to-income ratio here on the right side. You can talk about quarter, et cetera.
The quarter is still strong, but what's really important for us is that nine months normalized cost-to-income ratio is at 14.7%. Okay, let's not forget the BFG cost was a bit more benign to us this year than last year, but this is a very strong cost-to-income ratio. It's also why we think it was more than reasonable to actually in this quarter have higher costs. With this, I hand over to Marek.
Okay, thanks, Andreas. On the cost of risk, excellent results in Q3. Impairment losses going down quarter- to- quarter and year-over-year. Year to date, standing slightly below 70 basis points, which we see as it's slightly better than the outlook we provide for the years to come. It's thanks to the outstanding macroeconomic developments in the maybe not post-pandemic, but post lockdown environment. The strong rebound of the economy, which is reflected in the portfolio results. Also, when we look at slide 23, where we provide more details on our asset quality, we see a continuous improvement of the credit portfolio.
Impaired portfolio going down almost 10% year-on-year and 6.2% quarter-on-quarter. The NPL ratio systematically going down at the end of Q3, standing at four percentage points. It is going down both in terms of corporate portfolio and retail portfolio. The coverage almost unchanged quarter-to-quarter and slightly going up year-on-year. On the mortgages, we see still continuation of the stable trends with respect to the level of NPLs in the total portfolio. Looking at the next slide, where we provide the picture of the capital and liquidity, the position of the bank.
Quarter-on-quarter, almost unchanged, total capital ratio standing at 17.5 percentage points. 364 basis points above the minimum regulatory requirements. Very healthy capital position. Liquidity even improved quarter-over-quarter with liquidity coverage ratio standing at 218% and loan to deposit ratio going down quarter-over-quarter to 72.9%.
Okay. Now, Marcin Mazurek will present macroeconomic outlook.
Good day. Macroeconomic situation is still favorable. We've seen recently the progress in consumer optimism, but it's somehow stalled recently. It doesn't seem to be connected with labor markets since this part of the economy is doing more than fine. We think the culprit here is inflation, because consumers haven't seen such high inflation numbers for 20 years. It's this small economic toll that is being spread on consumers right now. It's not a growth killer, though. We still see the growth picture for the upcoming years as favorable, close to 5% mark. What we've done some minor adjustments recently. We've moved down a little bit 2021 to 5.2% and a bit 2022 to 4.8%.
Speaking about inflation, in October it passed 6.8% mark, and it's going to rise towards 7% or even 8% at the start of 2022. The good news is that MPC started a rate hike cycle, which is going to be continued in the next month. It will help bring inflation down in 2023. In 2022, inflation on average will be higher than was in 2021. Speaking about monetary aggregates, we see the same old story here. So there is still high deposit base. Credit volumes in retail sector are clearly on the rise, but still corporate sector is kind of lagging behind.
The good news is that we've seen the trough in growth rates, so the outlook here is favorable as well. As far as rates are concerned, we've seen recently and are seeing still some aggressive repricing of monetary policy. It's mostly driven by regional and local developments. It's less connected with global picture. Since we think that Monetary Policy Council is going to kind of fall behind those market expectations in the near term, we think that the zloty would be weak and any appreciation down the road is expected to be rather minor. Thank you.
Thank you, Marcin. We have some questions in the internet. I can see that not a lot is related to our results, which means that we did a good job in our disclosures. Most of them are related to the sensitivity to interest rates. The first question will be to Marcin, actually. Could you please share with us mBank rates projection in 2022?
Yes. We think that this year rates will reach 0.75% in the year-end or 1%, and the next year, 1.5%.
Thank you. Is your 40 bps NII sensitivity provided earlier a good proxy for any further tightening? Also regarding this subject, what is deposit and loan repricing looks like after recent 40 bps rate hike? Could you comment on front and back book developments, please?
Okay. Hello?
Yes. Well, we have a lot of questions regarding this topic.
Exactly. A long question. The 40 basis points is a mild increase, and obviously the sensitivity of a bank or of our bank against interest rate rises is not completely linear. In general, the 40 bps, which corresponds to PLN 180 million, that means 100 basis points is roughly PLN 450 million, if I mathematically get that right. That in general holds, but if you see very high interest rate rises, it's non-linear. That is the. In general, the proxy is good to extrapolate from this. What does it do to the repricing? Well, the repricing on the loan side will happen when we either disburse loans or when the loans are floating actually have their reset.
The large amount of the retail book, for example, will only reset late in December. A stronger NII push there will come in the first quarter, not immediately in the fourth quarter. When it comes to deposits, we are staying on our path that we are currently not paying for deposits. The sensitivity or the passthrough of interest rate raises, and especially on the 40 bps that have happened on deposits, is minimal, so is not really there.
The bank is extremely liquid, and you know we don't have any temptation really to pay for the deposits, which, you know, obviously under the current circumstances when the current levels, we are not losing money out of these deposits. I think that naturally it will be slower growth reflecting, you know, what will be the competition in the market.
Mm-hmm. Talking about front versus back book, I mean what obviously helps is to understand that a lot of loans in Poland are actually floating. So that helps us in gaining traction here and transforming these interest rate hikes into P&L. I think that covers the questions. Let's see what else we have.
Well, the other question concerning this subject is: What's the impact of rising sovereign yields on mBank capital in nine months of 2021?
Obviously the strong interest rate raises have happened in October, so in the nine months there has been an effect. That effect we'll have to see. I think we have to get back with more details. There was an effect, because obviously part of the sovereign portfolio in which we invest is in hold to collect and sell, so you see this in other comprehensive income. Other comprehensive income is not going through P&L, but is part of our equity base. This means if interest rates rise, our future NII and our future potential is stronger, that valuation part goes down. The effect was there in the first nine months. It's not very significant, but I don't have the figure here.
Changing the subject, some of your regional peers suggested rising energy prices and supply chain obstacles as potential area of risk if it comes to asset quality outlook. Have you looked into mBank exposure to industries affected, and what's the potential risk?
Okay. We have deep dive into this one. As far as the supply chain disruptions are connected, we see some impact on the customers of mBank. As far as energy prices are concerned, it really depends to which extent the current peak in energy prices is transitory, and to which extent it is permanent. At this stage, it's too early to say in our view. Looking at our cost of risk outlook, we believe that at this stage, both supply chain disruption as well as peak in the energy prices are not yet in a situation to drive us to change the outlook on the cost of risk. As communicated also last week with respect to the strategic targets, that we believe that in the quarters to come it will cover around 80 basis points.
Have you done any NPL sales in corporate segment?
Yes, there was a sale in Q3. We have sold around slightly north of PLN 200 million of exposure that are default for corporate segment with a slightly positive impact on the quarterly P&L.
Thank you. Do you think that current higher growth in PLN mortgages are sustainable? How do you see corporate loan dynamics ahead? What level of loan growth do you expect for 2022?
On slide 28 we are providing our outlook for the overall Polish banking sector, both for corporate loans as well as for the mortgage loans. We expect both of them to grow as far as the sector is concerned around 10 percentage points. This answers also, to some extent, the question about how do we look at the mortgage growth. Because what we have seen in 2021, to a large extent was a result of clients shifting their savings somehow into the real estate market. We believe that that level of mortgage on demand that we have seen in past quarters is not sustainable going forward.
While still we expect a healthy growth of the mortgages for the year to come. As far as corporate book is concerned, we need to highlight that in the past quarters, the demand has been, I would say, somehow subdued due to the liquidity provided by the Polish Development Fund as an anti-crisis measures. With those actions ceasing the effect, we expect growth for the corporate loans to go up to the extent which is highlighted at the slide 28. We will continue our selective approach, in particular to larger clients. Therefore, we do not plan to chase the volumes. We'll be very selective on pricing, and we will maintain our margin lending.
Thank you. How should we see provisioning for FX mortgages in future quarters? Can you provide some color on the PLN 200 million additional provisions taken by management in FX mortgage charges? Is this one-off, or can we expect more such provision in future quarters?
Maybe I start and then Cezary adds. To first talk about what we did this quarter, and we've talked about that before, that we have a methodology of how to look at this, and this methodology is under expected value. How many clients are expected to come? The volume of cases, what's the probability of winning or losing in court, and what's the loss given losing in court? If we look at what has happened over summer, Cezary was alluding to this before, not a lot of things have actually changed, and various things have even changed positively in terms of rhetoric, but there is a huge uncertainty.
The minute we were plugging in our figures into the methodology, including the class action suit, what came out was PLN 237 million. Given the fact that the fact pattern around that didn't change over summer, we also didn't see a reason why we should holistically revisit the methodology and what we're actually doing. Nevertheless, given the uncertainty, and if you also look at the sensitivities that we are giving in the disclosures around the matter, and that is very fluid, we decided to take a cautious stance for future events that might come, but they are, they're not specified and nothing exists exactly on the horizon and the background of this. We said that we will take the PLN 200 million management adjustment.
Going forward, what we will do, because I think that was also part of the question, we cannot say if there will be a management adjustment still in the fourth quarter or not. We'll have to see, because what we are planning in the fourth quarter for annual accounts closing is we will take a more holistic view at the methodology and at the way how we reflect the CHF topic. This is something we will have to decide in the next three months, how we actually approach the matter. As I said, we will take another more holistic view into what we're doing.
The critical elements is, you know, the number of cases which, you know, which are coming to the courts, and the second is the probability of losing the cases. The problem we have is the number of cases which have been already ruled by the courts in the second round is relatively small compared to the overall portfolio. That creates a big unknown with the jurisprudence in Poland, you know, being, as I said, in disarray. I think that in the judiciary in Poland.
Sorry for the phone that's ringing.
The judiciary in Poland is really in a bad situation. You know, that creates lots of unknown, which are very difficult to be judged. Obviously, you can be on the conservative side, you can try to manage the portfolio, but that's the reason that, you know, this more holistic view is needed to unveil.
Thank you. What's the potential cost of out-of-court settlement offer prepared by you for the client?
Too early to say. As we have declared on several occasions, we are working on our own solution, which we believe better explains our position. Because I think that there is sort of lack of understanding that. This is also proven by, as I understand, the PKO BP situation. The people who are in court are hesitant really to accept the amicable sort of agreement proposals. Most of the people who are considering this are people who are out of court at this stage. One have to approach this issue separately, in my opinion.
If we go into the solution which have been proposed by KNF at some point, which I personally consider as being, you know, at the extreme of rationality, if I may say, then I think our estimate was in the magnitude of what?
The Jastrzębski proposal estimated at the year-end was PLN 5.5 billion.
PLN 5.5 billion. Obviously, this is significant burden for the bank. I personally look into this more from the perspective of potentially sharing the consequences of the exchange rate between Swiss franc and zloty, and sharing the burden, if I may say. This is not yet decided by ourselves, so it's too premature. Definitely it will be much less than in the scenario which have been presented by KNF.
Thank you. Can mBank fully cover its foreseeable FX mortgage litigation costs for its entire portfolio under its to-be-proposed settlement regime using its own capital, for example, surplus capital over Tier 1 minimum requirements and litigation reserves? Or will it require additional capital, whether or not from Commerzbank?
Well, as Cezary was saying, we're working on our proposal, and that's most likely financially, if you look at it, something that's not going as far as the Jastrzębski proposal. Let's anchor on this Jastrzębski figure. The PLN 5.5 billion, and our understanding is that the market practice is to see that part of this, a large part, is even tax-deductible. If it would be fully tax-deductible, the PLN 5.5 become PLN 4.5, but let's talk about anything between PLN 4.5 and PLN 5. Then you look at mBank with a non-core portfolio of already PLN 2.2 billion reserves booked and a current capital allocation of PLN 3 billion. With the rest of the capital, the core bank is operating. That shows that, for scenarios in that magnitude, the capital is there.
Thank you. Which portion of staff cost increase in Q3 is non-recurring?
Yeah. I would say, as it was, I think, said by someone of us, these were specific COVID-related awards directed at mostly the staff, not the management. One can assume that, you know, this, I mean, it was in the magnitude of almost PLN 14 million. A part of that, you know, one can assume that will play a role because we are observing that the labor market is changing and, you know, it's not exactly recurring, these awards, but I think some increase of the cost of the workforce is on the horizon.
How do you see fees trajectory into 2022 as sustaining 2021 growth rates? Looks rather challenging?
That's my word. I have to say, as I mentioned, we have increased our fees and commissions over the last few years significantly. One cannot exclude that next year we will be at the level of PLN 2 billion fees and commissions. Obviously, there were some methodological changes also in terms of what gets into this line. You know, the current 28%, which you know is being reflected in the figures post 9 months, I don't think is sustainable. No, the volumes are growing, you know, the price adjustments are taking place, so some growth is expected, though not in the magnitude which we have observed last year and this year.
Thank you very much. We have also a question about strategy, but as we said, today we'll focus only on results and, our strategy will be presented, and we will also answer your questions on strategy on November 16th. Today we will not elaborate on it.
One thing which I can add, your questions, you know, even, you know, preempting the meeting on the sixteenth will be welcome. If you have any questions that you want to raise at this stage, post the basically the note which we have placed, when the public announcement has taken place, I think on Friday, you know, if you want, you know, you can address to Joanna, and I think that they will welcome it. Obviously, that will help us to prepare and more sort of focus on issues which are of your interest.
Okay, we have some new questions. Can you comment on inflation impact on cost base in 2022, and whether you plan to address this somehow to make sure operating jobs remain positive?
Yeah. We expect inflation. Of course, we have inflation. They are both in our plans, reflected when it comes to material costs and also when it comes to staff costs. I think the most dynamic part currently is the job market, and the staff cost. This is one of the challenges we have. On the other hand, what we have, we have just beforehand spoken about interest rate raises that will also add revenues there. In the end what we will do is we'll gear towards doing the right thing in terms of long-term, getting the best out of it for the bank. The cost-to-income ratio will be very competitive, but inflation will hit, but the -
- It's also the inflation we currently foresee and what inflationary shocks could further come. Any of these inflationary shocks fortunately would also come with high interest rates and with higher benchmark rates, so we will also earn against that.
I will even address this issue in more generic terms. I believe that, you know, in the inflationary environment, banks are pretty well equipped to manage, you know, the cost vis-à-vis the income levels or revenue levels more aggressively than our cost base.
Okay. Thank you very much. This way we cover some of the questions. Thank you for your attention today, and we hope that you will join us on November 16th for our conference presenting our new strategy. Thank you very much.
Thank you.
Thank you.
Thank you.