Earnings Call: Q2 2021

Aug 3, 2021

And gentlemen, welcome to this conference that will present the results of Copan Group in the Q2 of 2021. The results will be presented as usually by our Chief Executive Officer, Mr. Cesar Stebukowski Our Chief Financial Officer, Mr. Andreas Berger and Chief Risk Officer, Mr. Marek Lorschten. Marcin Mozurek will present the macroeconomic overview. Please use the chat field to ask questions. As I noted the floor sales. Okay. So these are the results for the Q2. We have to remember that the Q2 of 2020 was basically the Peak of the pandemic fear, not the pandemic, but fears were all around. And I think that was the true Lockdown at that time. So obviously, there is a base to which we have to refer. Plus, In the Q2 of last year, we had 2 steps of the interest rate lowering, Which obviously impact to some extent also the comparisons between those years. In principle, We believe that the business performance of the bank is very strong. 2nd quarter was strong. This is reflected on the chart which is being presented. I don't want to go into much of a detail. It's necessary because Obviously, we'll be responding to the questions. It's important that net interest income was 4.5% below the last year. But when we compare on the quarterly basis, we already recovered. So the momentum in terms of the regaining the Net interest income is in place. And fees and commissions, that's the Consecutive, I don't remember 6 or 6 quarter where we are significantly improving in our performance on this front. What should I say, efficiency is in place, balance sheet is growing, cost of risk seems to be moderate And Mobility, which is a synergy of Ambank is fully in place. And I think that expanding and we are again The market share. If I can suggest for this audience, rather move to the Page 5. And this is a kind of a confirmation that in terms of the business momentum regained the market shares, I think things are in place. So the performance of the bank, as you see in the 2 years period of time on the deposit side, On the loan development, I would say everything seems to be on track. This is mostly obviously on retail where I think this picture is continuing since number of quarters. On the corporate side, it's slightly more modest. The corporate is more mature business in principle. And I think that our strategy in this respect It's not the only way it's up, but being more selective. If we can move on, I think that the way we want to position the bank and this is clear since 2013 Is to be seen like the ultimate reference to the Marbella banking. And in this respect, I believe that the bank is continuing its inroads. I think that If you go into the details, the number of the active users, The growth of active users and the saturation of our clientele, which is operating On mobile devices mostly as a prime channel, we score as number 2, number 1 player in the Polish market. What needs also To be stressed is that this phenomenon to some extent is also followed By ourselves in the neighboring markets, Czech Republic and Slovakia, where I think we're distinguished to some extent So vis a vis the local banks, which are definitely strong players in the respective markets. I don't want to I don't intend to go through the details of what is In our solutions, I believe that no, if necessary, that can be elaborated in more detail. This is for the sake of documentation that the progress on this mobility and the mobile banking focus is being continued. What is very important, I believe, is that our corporate is catching up also trying to position as the Prime mobile solution for the corporate sector. On the company mobile, company mobile, company net, Both Internet and mobile solutions are developing and getting some new functionalities, which I believe already distinguished our offer from Mbank to some of our competitors. The functionalities which has been included into the offering are That's on the right side. What I want to focus on is the mauto, which is a solution which has been delivered by our leasing company, which is affecting the online platform for selling the used and new cars, which I have to say is exceeding our expectations right now. And I strongly believe that in the longer period of time, that type of solutions, I'm not saying necessarily hours, but I think I'm a strong believer This will be the new way of selling and placing the offer On the for the others in the market. PayNow, our payment Gate, which has been set up, I think, started to be operational, I believe, February last year, Seems to be developing reasonably well. The most important feature is that this is cloud based, so it's flexible And then can you respond to the flow of transactions in an active way? As you see, the volume of Transaction is growing dynamically. In the Q2, we have €25,000,000 €29,000,000 of transactions In the each on average per month. And we believe that this is also kind of a signal that We are focusing and we are trying to build the inroads into e commerce segment. We believe that we are uniquely well positioned among the Polish players and I think that the pay now is one of the ways in which we want to attack this segment of the market. We also on the retail side, we're trying to position the bank As an e commerce supporter to our SME clientele on the retail side, The campaign which we had the Digital Revolutions, which is aiming at micro Firms and SMEs on the e commerce side is developing very well. And I have to say that This is the 2nd edition of this concept and with dedicated webinars and articles. We believe that our coverage of the e commerce SME microfirms, e commerce focused companies is Relatively strong. There are no reliable statistics yet, but we believe that this is Dara where we are progressing rapidly. On sustainability, I will call on Marek to do short brief. Okay. So we continue our drive on sustainable and responsible banking. It is one of the Here are some of our attention. We focus on limiting both our direct and indirect impact. In terms of bank, our indirect impact matters much, much more. Therefore, we Very much focused in our policy to support the clients in energy transformation and We are stealing it away from the sectors which are helpful for the climate and not supporting the The EU Climate policy, we have eco supportive products in each of the customer segments. And As of now, we have NOK4 1,000,000,000 enveloped dedicated for renewable energy sources financing. As far as Q2 is concerned, our ESG efforts were appreciated by No pricing that we have received from Sustainalytics with ESG impact of And by related as low risk. Well, on Page 11, I think there's a Very reasonable wrap up of what has happened as you see on most of the metrics and the volumes With an exception of Tier 1 CAGR ratio, which will be explained later, I think that you see only the positives of the Performance of the bank in relative terms is in Q2 of the previous year. On the Page 12, you have a wrap up of the performance of the bank, Which does not call that much for the comment. I think that the balance sheet Developments are as you see everything in green. Important thing which I understand can Attract some attention. This is the development around our Swiss franc portfolio. The number of cases still going up in a pace which represents basically the quarters of of the previous trends. We have increased level of our provisioning by almost 2 Lot of vis a vis a vis a court cases. Well, the portfolio as you see historically it was at the peak at €7,000,000,000 currently it's below 3. And it's going up in a steady way. But obviously, the 10,000 cases Which we have on our in the cards right now is a concern. The coverage, I think that Has strength to some extent, but we believe that the new developments around Swiss francs saga mostly the opinions of National Bank of Poland or the President of National Bank of Poland and KNF. I believe strengthened the position of banking sector in the dialogue with the cards and adding the confrontation with our clients. And then we have the new segmentation, which we started to Present in the post the first quarter, which is showing the core bank Stripping out our Swiss franc portfolio, Which has significant impact on the overall performance. So when you look into the bank From this perspective, basically on the most of the scores, We are being seen reasonably stronger. Most of the return on equity and return on assets is much stronger. Cost of risk at 82, but So as everyone knows, the Swiss franc portfolio in terms of the credit risk is performing very, very well, continues to be very strong, Which is a reflection of some extent or what is confronting with the overall so the Public opinion, which in many respect claims that So the Swiss franc holders are in a very difficult financial situation, which Does not prove on a variety of fronts. Cost income ratio, as you see, Pretty low level, net interest margin better. So I think that when you look into the bank from the perspective Of its core business, it's a very strong well performing bank. With this, I will turn To Andreas for some more light on some specific aspects, not on everything, but the developments, Both in respect of the sectors or segments of the bank and some both balance sheet and P and L Yes. Thank you, Zazari, and also welcome from my side. So let's start with loans. On loans, we have seen a continuous Expansion with the driving engine here being mostly retail, not only for this quarter, but also for year over year figures. For the overall portfolio, as you see here, loan portfolio growing by 7% roughly for the full year and 3.4% for this quarter. So the quarter had some extra momentum. If I look on the corporate side and on corporates, you know this Since COVID, it's an ongoing theme that corporates are cash rich. That leads to deposit inflows. That leads to low to Well, relatively lower cost of risk because they are obviously on the one hand you have some defaults. Maric will talk about this, but they are cash rich, that's good. But the demand for credit then is a bit weaker. But even though you see here in the last quarter that was 2.6% was strong. And very strong was the retail side in this quarter. And I think that's best also explained on the next slide because on the next slide, we look at the A new loan, a new lending business and let's start with retail, let's start with the mortgage loans. In the last Quarter, we have sold SEK1.7 billion more mortgage loans than in the Q2 2020. So that's A 100% increase. Obviously, the Q2 as Cezary was saying last year has a little as a smaller basis Because of the COVID effect, but the drop wasn't that strong in mortgage loans. So the SEK3.4 billion is a strong print, The strong print on which we will continue to build. We still see very strong demand also going forward on mortgage loans. We might see less business on mortgage loans in Czechoslovakia, where we are changing focus a bit. It will be more towards non mortgage loans where you also see here good trends in Czechoslovakia and because we've also Change the pricing policy in the country. It's still more profitable to do Mortgage loans in Poland. This is why for mortgage loans, the focus remains in Poland. Let's go to non mortgage loans. So non mortgage loans also up By more than 100%, but okay, that basis was really low for the Q2. But it's very important, we are back To pre COVID levels with the roughly SEK2.6 billion in this quarter. And here the same as for mortgage going forward, We think that trend will continue. We're now in the Q3. Q3 always means holiday season. So it might be A bit weaker, but that trend will be with us. And it's very promising to see that the retail business is completely back on track and having these really, really Strong sales figures here. Going over to corporates, Cesario was already saying it. We are selective on the larger exposures. That's something also you have heard from us and you will continue hearing. So slightly down against The full year, but up in the quarter. And on the leasing figures, I mean, okay, leasing up by 91%, but that Q2 2020 was also a clear COVID quarter, but the new business in leasing currently is also really promising and that Engine has not stalled. We saw a bit of a dip in COVID and it's back up where it should be and that's also very good. Going to deposits briefly, we see the continued inflow in deposits. The continued inflow leads Through loan to deposit ratio, which is still roughly around 75% or 74.2%, roughly in line with the quarter before. It's lower than where we wanted to be, but you have seen the efforts on the loan side are bearing fruits. That's important. What's obviously important from the financial side is and you see this, that's not flip slides, but I think it's page 33 in the appendix. The costs of the deposits, even though we had higher deposits, are even lower in the second quarter. The 2nd quarter cost of deposit was a bit more than CHF12 1,000,000 before it was CHF14 1,000,000 or roughly CHF15 1,000,000 that's small figures, but it shows that even a higher deposit intake Doesn't lead to higher interest expense here. Let's move to total income And explain total income a bit. In total income, it's very important this quarter to again look at core revenues because as you know and as it's also Shown on the slides here, the 2 quarters beforehand were also characterized by extraordinary gains on bond sales, roughly CHF 90,000,000 in each of the quarters. We didn't have this in this quarter. But the core revenues are On the same level as in the Q1, it's SEK1.4 billion and out of the 5 quarters you see here that's The strongest is the 2 strongest out of the 5, so the core revenues are also rebuilding And that's obviously very important. In the core revenues, We have net fee and commission income. Net fee and commission income is slightly down at €452,000,000 but You have to remember that the basis the €468,000,000 also included a year end deposit fee we took from our corporate. So the real comparative basis is €430,000,000 And there you see a nice upward trend. On the right side, you see more where it comes from The increase that's on card payments, lending across the board and things that are just a bit weaker This time is to some extent the brokerage business was minus €15,000,000 and obviously The accounts with €35,000,000 less, but out of this €38,000,000 was the deposit fee. What's important for net interest income? Because net interest income, what always helps in the Q2 is Q2 has one business day more than the Q1. But if you look at the engine that is within net interest income and that's on the upper right side, In part, the NII comes or the interest income comes from loans and it comes from other assets like the bond portfolio. And you are nicely seeing that bottoming out that we are steering towards And you're seeing that the Q2 interest income from loans is at €820,000,000 visavis728,000,000 So that's a nice rebound here. Even if you take out the one day, you will be at 811,000,000. So it's a clear sign that the interest income from loans is on the right track where it should be. Talking about the right track where it should be, let's move to costs. On the cost side, our goal is always to be disciplined, but to also foster for investments and to foster for further growth. That we've again demonstrated. If you look at the cost income ratio for the first half, that's here in yellow, normalized with BFG equaled, that's 39.6%. So really very strong efficiency. The quarters within the quarters, 2nd quarter is a bit higher, but we don't manage by quarters. And obviously, in the Q1, it's important to keep cost Even more under control because there is this high DFG one off. Maybe 2 sentences on these items that have increased. The one is personnel expense. Business is good. You've seen that. So there is Commission payment for sales in that, there is in general performance related pay. It's to some extent also salaries, but we also had A bit less headcount, especially when it comes to year over year headcount is down by 2.7%. If we look at material cost, material cost was quite low in Q1. The increase here solely stems from 2 items. The one item is €15,000,000 in marketing and €9,000,000 in IT and that's exactly the space where we also want to spend the money. With this, obviously, I'm later open to questions, but I will now hand over to the Chief Risk Officer to Marek Lushchin for further insights on the risk matters. Thanks, Andreas. So on Slide 22, we said development of the loan loss provisioning at cost of risk. In Q2 this year, we have seen cost of risk coming back to the level start. We've seen in Mbank take COVID and this is the level that we would consider And to be normalized cost of risk in Mbank post pandemic, This is not something that we see as the guidance for 2021 given the fact that we Still higher than the prior COVID times. But if nothing unexpected happens on the And pandemic front, we expect a deeper decline in cost of risk in 2022 and going forward. This is of course conditional on the development of the epidemic situations in Poland and any further Potential restrictions that may come as a result of potential forward. But apart of that, we see the Long portfolio of Enbank quite well positioned for the future with positive We will cover weight into the sectors that are relatively well during the funding situation. So we see a little downside from the sectors which are too exposed to the pandemic restrictions. Going forward to the next slide, the loan portfolio quality of our bank These are confirmed by resilient risk indicators. We see in the figures no pandemic related Detellure, Shyam. As far as the stake of the impaired loss portfolio is concerned, It's going down year on year quarter on quarter. To some extent, this is driven by LPA sales that we have performed in the past months. You see that NPL The ratios in both segments are going down quarter on quarter and we are Considerably below 5% threshold, which is set by EDA As elevated NPL ratios. The common hedges Quarter on quarter, stable for Stage 3, going up for Stage 12. NPL ratios on the mortgage portfolio from beginning of the year, un comparable due to the previous year's due to the New default definition implementation. But on mortgages, Looking at the last three quarters, remains flat. And going to the capital and liquidity ratios, there is A drop in total capital ratio and COP1 ratio. I have seen that there were also Questions on the chart on the drop, so I will tackle them on the fly. As you may remember, Elvang is one of the 2 banks in Poland which are operating in Advanced internal rating based approach model for calculating escalated assets. And there was a set of the changes in both models and in the regulations surrounding the banks Operating the IMD award and in the Q2 we have received number of Approvals for model changes from the regulators, namely for the The implications for the implementation of the new definition of default all across different segments And those approvals from the regulators were coming with certain regulatory buffers that we We implement up until the final recommendations from regulators are implemented. So that was driving the Drop in the capital ratios that was also the reason of visible change in the risk weighted asset Density in Q2, that is first of all, there is a one off. And second of all, We expect that part of the drop will be recuperated once all the expectations of the regulators are And last from my side, as Alain was saying, the liquidity Position of Mbank remains excellent loan to deposit ratios of OpenBank and in bank net group coming still down quarter on quarter, excellent regulatory ratios both Thank you. So let's start with macroeconomic overview. Macro situation is improving in every quarter. You see that consumers are feeling much better than during the Again, during the most severe periods of epidemic, the trend is clearly upwards. They have Strong balance sheet, so the consumption somehow jump started and we think it's going only for the better in the future. The good news of flowing from the labor market unemployment rate is still declining and it's expected to decline further. We don't see any hidden structural problems in the labor market. So, the economic cycles carry unemployment rate Lower and lower in the coming quarters years. For this year, we expect GDP growth to be 5.7%. Of course, there is COVID-nineteen risk on the horizon due to the 4th wave. But at this moment, due to vaccination process, we think that It's much better manageable than in the previous wave. So the risks that pure economic risks stemming from those waves, The subsequent rates are much, much smaller than they used to be. Of course, inflation is on the rise, mimicking, I would say good macroeconomic environment. It's reached 5% in July And it's expected to stay above 5% till the end of the year. We don't See inflation falling towards NBP target in the next year. So we expect NBP to react and start normalizing interest Trades from the Q1 of the next year. What's in monetary aggregates? I think that's slower improving deposit growth rates of both. This is mostly reflecting the statistical base effects From last year. And what's the good news is that we have inflection points in credit growth Almost everywhere. So that spans from corporate loans to household loans and especially mortgages that are powering ahead right now. As far as interest rates are concerned, we see bond yields rising. Investors are slowly pricing in monetary policy normalization. So this process of increasing yields should continue in the future. At the same time, poly slot stays weak. It's reflecting very low Negative real interest rates and some of CHF legal risks right now, but it's that this is the factor that it's On the decline. We expect slotted to slowly reflect cyclical developments and as economy is powering ahead, The zloty should be also a tad stronger, but only slightly. Thank you. Thank you, Martin. We have some questions from the Internet. Some of them have been already addressed especially about capital ratios. So I will start with questions about Costs. Your cost efficiency is impressive, yet wage inflation, up 10% in June, appears to be emerging as a cost Pressure, can you comment on that please? How serious program is it for the sector? And the similar one, What was the driver for 6% growth of cost of salaries quarter on quarter? Well, that's the phenomenon I was observing in Poland. In the sector of Corporate sector, there is increase of wages, we have to respond. Yes, that's the pressure which we will witness in the upcoming months. We have to manage this in effective way. The thing that this is not going across all the represented professions in the bank, but some of them definitely To be addressed, the 6% is mostly due to the fact that we decided to pay an extra awards, Which are related to the COVID time. We had people dispersed across the country, Some of them working very hard and as a consequence we decided that we will compensate some groups of people for this extra effort. Yes. One thing which is important, the personal costs is a Significant contribution to the overall costs. So in this respect, we will have to respond to the potential pressures. Though I believe a better understanding of the dynamics of the labor market specifically for the qualifications Which are required by ourselves is the prerequisite for doing some adjustments. Another about costs, IT and marketing costs came back to pre pandemic level. Any comment on run rate going forward? Well, run rate going forward on this is it will increase because it is areas where we would like to spend money. There is no run rate which we will kind of set in stone as a core, but expect if in doubt and we can select as a bank To either or to on both spend money on marketing and with this in our digital business model also gain clients or gain traction with clients on products Or further foster for our digital infrastructure with IT spending, we will for both Spend money and I would think that within the material costs, they will always have Higher growth rates than other areas. But on the other hand, we're also reasonable and managed As you've seen in COVID times also downwards in case space is needed. Thank you. Do you think the current higher growth in PLN mortgages are sustainable? What level of overall loan growth you expect 2021? How do you see consumer and corporate loan dynamics ahead? Yes. So maybe I'll start and then Maric adds. As I said, we will further bank on this trend. The SEK3.4 billion is a strong print. Also the SEK2.3 billion in Poland here, we continue to see the demand. As I said, the summer will maybe bring a small dip, but we think that it will be with us for quite some time. That's the comment on mortgage loans and same is on non mortgage loans. If you look back into 2019, for example, SEK 2,600,000,000 was not an outlier. So that is a rock solid quarter. And it is also right now. And also from there, This is kind of, I would say, back to normal, not extraordinary, but it's just good to be back to normal. Maric, do you want to? Yes, it's worth highlighting on top of that, that I mean, our Historical levels of mortgage loan size were below where do we see the Say fair share of Mbank in the overall sector of sales. As Andreas was saying, The market really strongly moved up in the low interest rate development. Clients are looking for alternative ways of selling mine and what in addition Brings, we believe, reasonably good size of the mortgage loans going forward It's the demographics of our customers that in the context of the overall competitive field, we believe we Not exploited in full yet. So the next one, what drove provisions for FX mortgages in the second quarter? How should we see provisioning in future quarters? Are you hopeful on the implementation of KNF Chairman's loan settlement proposal? Do you see any traction in clients willing to take up your voluntary offer? Good. So I think I'll start with the technical side and then I'll hand over to That's Azari and or Marik. So technically what we did is, as you know, we have a methodology under which We actually book the legal reserves that has various components. And one of the components Is the projection of the number of court cases that will come or how many people will come in sewers? On this we have an overall projection and then we also have a kind of base case how we think this should evolve. And we are revisiting this basically every quarter and look at the dynamics here. And the higher legal reserve of the CHF 248,000,000 Mostly stems from a higher population that we have put in that still might come and sue us. As you see here on the slide, we have roughly 10,000 Cases that are in the bank. You also see it's a bit more detailed in the disclosure that we expect that 18,600 people will come In total, that's 29% of the whole portfolio for active and for repaid. And this was actually Driving it. We'll continue to monitor this, but you also see the strong trend here in the incoming cases. And this technically led To a change in projection. Zohr, maybe more on the substance behind? Yes. What was the can you repeat the question? Just a moment. Are you hopeful on the implementation of KNF Chairman's loan settlement proposal? Do you see any traction Your clients willing to take up your voluntary offer? Well, in the surveys, which we've done with our clients, I think that The picture is pretty mixed. And I think it's mixed because The agreements with the clients are being confounded at the same time with the Eurovision, which is going on the verdicts, which the Polish courts For the time being, our printing and as a consequence there, I would say Responses with the clients as I said are mixed. That's 1. The second, I think that the fact that You know, the Supreme Court is proceeding the questions submitted by the chairwoman. Slow down the also the willingness of clients really to decide On the preferences whether to continue to litigate us or to enter any type of negotiations. So that's the picture which I would say we witnessed right now. In the meantime, we are preparing our own, Let's call it compromise proposals. The background of our thinking is that And this is something what needs to be rephrased. We strongly believe that from the the abusing of the clauses used And are questionable. As a consequence, we are very much interested in what The Polish products will decide because this is about the paradigms of banking sector functioning. If some of these will be will continue to be questioned, then it will spread across a number of other products. And as a consequence, I believe that this is very problematic from our perspective and we very much wait for that to be responsible of the In the meantime, we've got some dose of optimism because our stance has been the stance of the banking sector, including ourselves, have We've been very much confirmed by KNF and the President of the National End of Parliament. So I think that basically on each and every aspect of the pending I think that BOSI solution have endorsed our interpretation of what's going on. And this is not trivial for the banking sector to get some kind of a solid response and Solid confirmation of legalities around what has been done, especially in the situation where For the time being, number of cases led to the situation that the contracts, which on average, I think 17, 18 years Long are supposed to be a new old. That is something which, as I said, puts a big question mark around the way The banking sector operates specifically on this situation where the abusiveness is very much grounded on the, I would say from my perspective relatively weak guns. Specifically when we are where abusing this is questioning the argument of abusing this It's referring to usage of the Tambalac Usob. So unilaterally set the Exchange rate by the banks. It's very interesting. We don't have cases on the euro and other currencies. We have obviously smaller Number of loans, the nominally in these currencies, but I have to say the picture is completely different, Which is confirmation of what the Central Bank Governor has said in his opinion. The issue is not Legal, the issue is really from the economic perspective, deterioration of the situation of the Swiss bank holders visavis their expectations at the time of inception of the contracts. So our sense is that, yes, we witnessed the situation that some risk Related to the currency has materialized. And in this respect, we believe that some solutions which can help our clients And at the same time, potentially can lead to the slowdown of the court cases It's necessary. We are working on this solution, but one have to be realistic that under the current circumstances without having also solid Declaration of the Supreme Court whether this 1,000,000 contracts in Poland Are still valid or can be subject to invalidation is a big question mark. So yes, we are working on the solution, which we hope to present to the market sometimes in the autumn this year. It's worth to mention that Pacao BPO, which has started this process already at the end of the last year and the beginning of this year, We still also in progress of preparing these solutions. As I know, the cases which they But presented today with the clients that needs some equal solutions with the clients, only some of them have been Accepted by the clients, because clients, some of them at least believe that via the court, they will get better conditions. Whether these are clients or the legal firms representing them, that's a separate issue and how it is being managed, it's a separate issue. But our position is pretty clear. We need solid legal understanding of the nature of these contracts. At the same time, we are very much prepared And we declared vis a vis our clients the willingness to get into the amicable solutions, Both for the clients who are specifically the clients who are hearing us in the courts. Thank you. Another one on Swiss francs. It may be a naive question, but what is holding Mbank from setting aside more provisions. So it covers better related risk. It seems inevitable coverage will increase from current 14%. Well, that's the situation where it was Conditioned, naive to some extent. You choose a certain way of addressing this issue. You can dump, I don't know how much money and was a belief that you will lose. I think that as I have mentioned, I think at least 2 or 3 times during my response to the previous question, I strongly believe that If you go into the sequence of the questions, which have been submitted by the child woman to the Supreme Court, you have first The question about there is no question about the abusiveness, which is separately very important I think Steve calls for a response and I think that the old stream cases which has taken place last year and which have The verdicts have been published this year, both of them, 1 in February, 1 I think in May. And one have to remember that So it was the country with the biggest portfolio in Europe, euros 80,000,000,000 instead of comparing to our €70,000,000,000 And in Australia, it's pretty clear on the abusiveness. The Supreme Court of Austria has ruled Very much in the way which we interpret the nature of our contracts. Interestingly enough, Poland is a country where the portfolio is covered by mostly 2 type of contracts. 1 is the so called denominated in Swiss banks and another one is index. These were Solutions which have been prepared by the Polish banks. As I have to say, as a solution which was pro clientele, Does that help? In the context of how the real estate market and the new the purchase of apartment has been set, I think it was to respond to the way the clients wanted to get the money for the to pay for the apartments with the Developers, these are particular transactions which are registered in the polybanking law. This is different than in Austria. In Austria, it just received a call. Then you have the situation where I believe in the sequence which the chairwoman has asked, The first is, okay, if this is abusive, should the Central Bank rate Yes. And we strongly believe that this is if the abusiveness will be questioned or decided, Then the natural response is that this is the Central Central Bank rate, which has the referencing policy report. Because as the governor has put in his opinion, the issue is not about the interest It's about not about the exchange rates in the format which the bank Opposed to the clients, it's about the overall position of Zlautervis a vis the Swiss bank, which was an economic issue Not purely legal issue. So we believe that still number of issues around the legalities has not been cleared. And as a consequence, I think our approach is wait and see and address the issue as the cases come to the courts. Another one on Swissbank provisioning. According to its disclosures, Mbank saw a 22% increase in new court proceedings and raised Swiss franc mortgage provisions by PLN66 1,000,000 in the first quarter. In the second Quarter it saw a 20% increase in new court proceedings, but increased provisions by CHF 248 1,000,000. What drove this disproportionality in provisions quarter over quarter? And how should investors anticipate the output of your provisioning model going forward. What did you see in the Q2 that you did not see in the Q1? Maybe I'll start. There is no hardwired system behind this. And it doesn't mean if The one thing is plus 20% and something else is also plus X%. As I explained before, We try to look into the future. We'll try to catch things that happen in the future. And I was referring to the 29% portfolio that we now think might suit us, which equates to 18,600 clients, That is revisited. That is seen what the assumptions were. And at certain points, we then Decide to add things or it's within what we expected for that quarter and then it's of rather technical changes. We cannot exclude that in the next quarters that there will be further bookings, but we will also then individually look at these situations. And as you know, this is highly assumptions driven and it's an environment that, as Cesare was saying, is from the needle front Pretty much unstable and you have to try to navigate through it in some shape or form. And there is but there is no linearity between things happening and then bookings. I think that's part of the question or the core part. Thank you. Some more on results. Can you explain where is the non core segment's trading loss of PLN19.7 million in the 2nd quarter and PLN10.7 million in the 1st quarter coming from. Is Mbank signing any agreements with clients willing to repay FX loans already? Yes. Okay. On the trading loss For the non core, that mostly comes from some FX differences and it's yes, It's the FX side that is actually then leading to some of these rather small trading losses. Could you explain PLN 43,000,000 of provisions for future commitments in other operating expenses? Yes. Other operating expenses in this quarter have a mixed bag of things that are reflected. Not all of them are strictly business related. It for example also includes Rather a cleanup we did in the lease portfolio of some properties also here in Warsaw and where we were closing contracts And that is part of that of these future commitments that then negatively affect the other operating income. But it's a lot of it's various situation. It's various things. There is no one line item that completely shouts out and is dominating that. Thank you. Another one is on cost of risk. Your cost of risk in the Q2 versus peers There's a bit different story. Can you please share more details on asset quality outlook? What's your normalized level? Okay. So as I was highlighting earlier, we believe that around 80 basis points is like Normalized post COVID-nineteen level of the cost of risk for Mbank portfolio. If we compare our number in 2nd quarter versus the peers, what needs to be highlighted is that We have one off effect related to the changes in One of the internal models for provisioning, mainly for corporate specialized lending portfolio. And in Q2, we were anticipating implementation of that model and its results. And that was in tune of €60,000,000 not the additional one off provision interest included in the numbers. Thank you. How should we see net interest margin trends ahead? Any outlook on fees? And another similar one Was the outlook for F and C income? Has there been a short term focus to improve F and C income in light of lower rates or is strong growth more staying into the second half in twenty twenty two. Maybe I will comment on the fees and commissions. If you look back in the trend which was in the bank, I think that you have some 6 Up to maybe 7, 8 consecutive quarters where our fees and commissions have been rolling. So this is not Just to respond to the net interest income drop, that was both driven by the volumes And some adjustments in our fee and commission structure. On net interest margin, If I look at the dominance in the debate also internally in the management board of net interest income versus net interest margin, I think we're currently more managing net interest income because we need to have that turn. And that turn, we think we are at the bottoming out, but Also there was a question about the outlook. Well 2020 still had higher interest rates and still higher NII. So the idea is The sloppies we make out of this bank are increasing when it comes to interest income. Then we have NIM and NIM obviously is a margin and the volumes play a role. The volumes are highly distorted By the massive inflows of deposits we currently have. There are obviously efforts in not Pricing deposits at all or pricing them at 0, let's say, this was not paying for them at all. There are also efforts on the retail side, for Example of getting these deposits more into investment products, but these high swings currently distort the NIM. So I can tell you there is no NIM target, we like look at every week, but there is an NII and overall balance sheet thing That's got much more attention over the last one and a half years since the interest rate rates were dropping. And that's important for us to make our way up There and to increase NII and less of an NIM debate. The NIM debate will maybe have once things are A bit normalizing and we maybe know what the normalized deposit base of a bank also will be Because I still think this is an exceptional situation we're currently in. Thank you. And last but not least, we have some questions on ESG issues. ESG seems to be important for the bank. What are the major targets for nBank so we can measure your relative performance? Can you provide some more quantitative targets? And another one, what is the value of the bank's total joint financing at the end of the first half of twenty twenty one? Okay. I will take this one. So first of all, thanks a lot for the comments. Indeed, Corporate responsibility and sustainability is one of the guiding principles of our bank activity And we have all those aspects deeply rooted in the way we operate. As far as the Detailed metrics with respect to the ESG are concerned. We would like to ask you for a bit of patience. We are now putting in place our comprehensive framework how we can measure ourselves with respect to ESG and how we can be held accountable to our goals and commitments. We are going to present you that set of ESG related KPIs for our both direct and indirect impact. And when we are presenting the broader and strategic overview Later that Cesar was referring to. As far as the numbers for existing green financing Our concern, on Slide 10, we are referring to this €4,000,000 that we have dedicated for renewable energy sources financing. This one is at the end of Q2 used to the extent of 2.25 billion. And another perspective I can provide with respect to the green financing is that there is for the Issuance of so called green bonds where so called green real estate is Underlying, when we look at the balance sheet amount of those loans, it totals to PLN7.5 billion. Thank you very much. We covered all the questions. So thank you very much for the attention and questions. Stay healthy and safe And see you in the autumn. Thank you.