Gentlemen, welcome to this conference that will present the Results of mBank Group in the Second Quarter of 2021. The results will be presented as usually, by our Chief Executive Officer, Mr. Cezary Stypułkowski, our Chief Financial Officer, Mr. Andreas Böger, and Chief Risk Officer, Mr. Marek Lusztyn. Marcin Mazurek will present the macroeconomic overview. Please use the chat field to ask questions. Cezary, the floor is yours.
Okay. These are the results for second quarter. We have to remember that the second quarter 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. Obviously there is a base to which we have to refer, plus, in the second quarter of last year, we had two 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 mBank is very strong. Second quarter was strong. This is reflected on the chart which is being presented. I don't want to go into much of a detail. If necessary, yes, 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. The fees and commissions, that's the consecutive, I don't remember, six or fifth quarter where we are significantly improving in our performance on this front. What should I say? Efficiency is in place. The balance sheet is growing. Cost of risk seems to be moderate. Mobility, which is the signature of mBank, is fully in place, and I think that expanding and we are regaining also the market share. If I can suggest for this audience to rather move to the page five. This is a kind of a confirmation that in terms of the business momentum regained, gaining the market shares, I think things are in place.
The performance of the bank, as you see in the three 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 is not the only way is 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 mobile banking. 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 the mobile devices mostly as a prime channel, we score as the number two, number one 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 vis-à-vis the local banks, which are definitely strong players in the respective markets. I don't intend to go through the details of what is in our solutions. I believe that 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 mBank CompanyMobile, mBank CompanyNet, both internet and mobile solutions are developing and getting some new functionalities, which I believe already distinguish our offer from mBank to some of our competitors. The functionalities which have been included into the offering are set 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 effectively the online platform for selling the used and new cars. Which I have to say is exceeding our expectations right now.
I strongly believe that, in the longer period of time, that type of solutions, I'm not saying necessarily ours, but I think I'm a strong believer that this will be the new way of selling and placing the offer for the autos in the market. PayNow, our payment gateway, 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 can respond to the flow of transactions in an active way. As you see, the volume of transactions growing dynamically. In the second quarter, we had 29 million of transactions on average per month. We believe that this is also kind of a signal that we are focusing and we are trying to build the in-roads into e-commerce segment.
We believe that we are uniquely well-positioned among the Polish players, and I think that the PayNow is one of the ways in which we want to attack this segment of the market. We also, on the retail side, 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. I have to say that this is second edition of this concept, and with dedicated webinars and articles. We believe that our coverage of the SME, micro firms, e-commerce-focused companies is relatively strong. There are no reliable statistics yet, but we believe that this is the area where we are progressing rapidly. On sustainability, I will call on Marek to do short brief.
Okay. We continue our drive on sustainable and responsible banking. It is one of the pillars of our attention. We focus on limiting both our direct and indirect impact. In terms of mBank, our indirect impact matters much more. Therefore, we very much focus in our policy to support the clients in energy transformation, and we are steering it away from the sectors which are harmful for the climate and not supporting the E.U. climate policy. We have eco-supportive products in each of the customer segments, and as of now, we have PLN 4 billion envelope dedicated for renewable energy sources financing. As far as second quarter is concerned, our ESG efforts were appreciated by a new rating that we have received from Sustainalytics with ESG impact of mBank rated as low risk.
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 capital ratio, which will be explained later. You see only the positives of the performance of the banking, the relative terms vis-à-vis second quarter 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. 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 the previous trends.
We have increased level of our provisioning by almost PLN 250 million vis-à-vis the court cases. Well, the portfolio, as you see, historically, it was at the peak at PLN 7 billion. Currently, it's below PLN 3. It's going up in a steady way. Obviously the 10,000 cases which we have in the courts right now is a concern. The coverage, I think that has shrinked to some extent, but we believe that the new developments around the Swiss franc saga, mostly the opinions of National Bank of Poland or the president of National Bank of Poland and KNF, I believe, strengthen the position of banking sector in the dialogue with the courts and adding the confrontation with our clients.
We have the new segmentation which we started to present in the, probably it was the first quarter, which is showing the core bank stripping out our Swiss franc portfolio, which has significant impact on the overall performance. When you look into the bank from this perspective, basically on most of these 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. As everyone knows, the Swiss franc portfolio in terms of the credit risk, is performing very well. Continues to be very strong, which is a reflection of, to some extent, or what is confronting with the overall public opinion, which in many respect claims that 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 now at a pretty low level. Net interest margin better. I think that when you look into the bank from the perspective of its core business, it's a very strong, well-performing bank. I think 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&L issues.
Yeah. Thank you, Cezary, and also welcome from my side. 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 whole year and 3.4% for this quarter. 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 relatively lower cost of risk because they are obviously, on the one hand you have some defaults. Marek will talk about this, but they are cash rich, that's good, but the demand for credit then is a bit weaker.
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. I think that's best also explained on the next slide, because on the next slide we look at the new loan, the new lending business. Let's start with retail. Let's start with the mortgage loans. In the last quarter, we have sold PLN 1.7 billion more mortgage loans than in the second quarter 2020. That's 100% increase. Obviously, the second quarter, as Cezary was saying, last year has a smaller basis because of the COVID effect. The drop wasn't that strong in mortgage loans, so the PLN 3.4 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 Czech and Slovakia, where we are changing focus a bit. It will be more towards non-mortgage loans, where you also see here good trends in Czech and Slovakia. Because we've also changed 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. Non-mortgage loans also up by more than 100%, but okay, that basis was really low for the second quarter. It's very important we are back to pre-COVID levels with the roughly PLN 2.6 billion in this quarter. Here, the same as for mortgage, going forward, we think that trend will continue. We're now in the third quarter.
Third quarter 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. Cezary 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. Slightly down against the full year, but up in the quarter. On the leasing figures, okay, leasing up by 91%, but that Q2 2020 was also a clear COVID quarter. 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 to a loan-to-deposit ratio, which is still roughly around 75%, so 74.2%, roughly in line with the quarter before. It's lower than where we want it 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, let's not flip slides, but I think it's page 33 in the appendix. The cost of the deposits, even though we had higher deposits, are even lower in the second quarter. The second quarter cost of deposit was a bit more than PLN 12 million. Before it was PLN 14 or roughly PLN 15. 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 is very important this quarter to again look at core revenues, because as you know, and as it is also shown on the slides here, the two quarters beforehand were also characterized by extraordinary gains on bond sales, roughly PLN 90 million 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 first quarter. It is PLN 1.4 billion. Out of the five quarters you see here, that's the strongest. It is the two strongest out of the five, 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 PLN 452, but you have to remember that the base is the PLN 468 also included a year-end deposit fee we took from our corporate.
The real comparative base is PLN 430, 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 with -PLN 15 million, and obviously, the accounts with PLN 35 million less, but out of this, PLN 38 was the deposit fee. What's important for net interest income? Net interest income, what always helps in the second quarter is second quarter has one business day more than the first quarter. 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.
You're nicely seeing that bottoming out that we are steering towards. You're seeing that the second quarter interest income from loans is at PLN 820 vis-à-vis PLN 788. That's a nice rebound here. Even if you take out the one day, you will be at PLN 811. 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, you know our goal is always to be disciplined, but to also foster for investment 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%. Really very strong efficiency.
The quarters within the quarters, second quarter is a bit higher. We don't manage by quarters. Obviously, in the first quarter, it's important to keep cost even more under control because there is this high BFG one-off. Maybe two sentences on these items that have increased. The one is personnel expense. Business is good. You've seen that. There is commission payment for sales in that. There is in general performance-related pay. It's to some extent also salaries. 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 two items.
The one item is PLN 15 million in marketing and PLN 9 million in IT. 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 Lusztyn for further insights on the risk matters.
Okay. Thanks, Andreas. On slide 22, we see the development of the loan loss provisioning at cost of risk. In second quarter this year, we have seen cost of risk coming back to the level that we're seeing in mBank pre-COVID. This is the level that we would consider to be, let's say, a 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 think that cost of risk will be lower than in 2020, but still higher than the pre-COVID times. If nothing unexpected happens on the 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 fourth wave. Apart of that, we see the loan portfolio of mBank quite well-positioned for the future with a positive overweight into the sectors that fared relatively well in the pandemic situation. 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 mBank is confirmed by resilient risk indicators. We see in the figures no pandemic related deterioration. As far as the state of the impaired loans portfolio is concerned, it's going down year on year and quarter on quarter. To some extent, it is driven by NPL sales that we have performed in the past months.
You see that NPL ratios in both segments are going down quarter-on-quarter. We are considerably below 5% threshold, which is set by EBA as elevated NPL ratios. In coverages, quarter-on-quarter, it's stable for stage three, going up for stage one and two. NPL ratios on the mortgage portfolio from the beginning of the year are incomparable due to the previous years due to the new definition of default implementation. On mortgages, looking at the last three quarters, remains flat. Going to the capital and liquidity ratios, there is a drop in total capital ratio and CET1 ratio. I have seen that there were also questions on the chat on that drop. I will tackle them on the fly.
As you may remember, mBank is one of the two banks in Poland which are operating in advanced internal rating-based approach model for calculating its weighted assets. There was a set of the changes in both models and in the regulations surrounding the banks that operate in the IRB world. In the second quarter, we have received a number of approvals for model changes from the regulators, namely for the loss given default model for the primarily retail portfolio, as well as the implications for the implementation of the new definition of default or across different segments. Those approvals from the regulators were coming with certain regulatory buffers that we implement up until the final recommendations from regulators are implemented. That was driving the drop in the capital ratios. That was also the reason of a visible change in the risk-weighted asset density in Q2.
That is, first of all, as I said, one-off, and second of all, we expect that part of that drop will be recuperated once all the expectations of the regulators are put in the internal framework. Last from my side, as Andreas was saying, the liquidity position of mBank remains excellent. loan-to-deposit ratios of mBank and mBank Group coming still down quarter on quarter. Excellent regulatory ratios, both from the perspective of net stable funding ratio and the liquidity coverage ratio. Significantly above the regulatory minimums.
No, it's around here.
Okay, then.
Okay. Yeah.
Thank you very much. Marcin will present the macroeconomy overview.
Thank you. Let's start macroeconomic overview. Macro situation is improving with every quarter. You see that consumers are feeling much better than during the most severe periods of epidemic. The trend is clearly upwards. They have strong balance sheets, so the consumption somehow jump-started, and we think it's going only for the better in the future. The good news are 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 should carry unemployment rate lower and lower in the coming quarters and years. For this year, we expect GDP growth to be 5.7%. Of course, there is COVID-19 risk on the horizon due to the fourth wave, but at this moment, due to vaccination process, we think that it's much better manageable than in the previous wave.
The pure economic risks stemming from those waves, the subsequent waves are much, much smaller than they used to be. Of course, inflation is on the rise, mimicking, I would say, good macroeconomic environment. It 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 rates from the first quarter of the next year. What's in monetary aggregates? I think that situation is slowly improving. The deposit growth rates have fallen. This is mostly reflecting the statistical base effects from last year. What's the good news is that we have inflection points in credit growth almost everywhere. 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 increase in yields should continue in the future. At the same time, Polish zloty stays weak. It's reflecting very low negative real interest rates and some of CHF legal risks right now, but this is the factor that is on the decline. We expect zloty to slowly reflect cyclical developments. As economy is powering ahead, the zloty should be also a dapts stronger, but only slightly. Thank you.
Thank you, Marcin. We have some questions from the internet. Some of them have been already addressed, especially about capital ratios. 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? A similar one, what was the driver for 6% growth of cost of salaries quarter-on-quarter?
That's the phenomenon which we're observing in Poland. In the corporate sector, there is increase of wages. We have to respond. That's the pressure which we'll witness in the upcoming months. We have to manage this in effective way. I think that this is not going across all the represented professions in the bank, but some of them definitely need 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, as a consequence, we decided that we will compensate some groups of people for this extra effort. One thing which is important, the personal cost is a significant contribution to the overall cost. In this respect, we will have to respond to the potential pressures.
I believe a better understanding of the dynamics of the labor market, specifically for the qualifications which were 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 set in stone, et cetera. 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. I would think that within the material costs, they will always have higher growth rates than other areas. On the other hand, we're also reasonable and manage it, as you've seen in COVID times also downwards in case space is needed.
Okay. Thank you. Do you think the current higher growth in PLN mortgages are sustainable? What level of overall loan growth do you expect for 2021? How do you see consumer and corporate loan dynamics ahead?
Maybe I'll start and then Marek adds. As I said, we will further bank on this trend. The PLN 3.4 billion is a strong print. The PLN 2.3 billion in Poland here. We continue to see the demand. As I said, the summer will maybe bring a small dip, 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, PLN 2.6 billion was not an outlier. That is a rock-solid quarter, and it is also right now. Also from there, this is, I would say, back to normal, not extraordinary, but it's just good to be back to normal. Marek, do you want to?
It's maybe worth highlighting on top of that, our historical levels of mortgage loan sales 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 as in the low interest rate environment. Clients are looking for alternative ways of saving money. What, in addition, brings, we believe, reasonably good sales of the mortgage loans going forward is the demographics of our customer base that in the context of the overall competitive field, we believe we have not exploited in full yet.
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. I think I'll start with the technical side, and then I'll hand over to Cezary and/or Marek. 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 and sue us. On this, we have an overall projection, and then we also have a base case how we think this should evolve. We are revisiting this basically every quarter and look at the dynamics here. The higher legal reserve of the PLN 248 million 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. This was actually driving it. We'll continue to monitor this. You also see the strong trend here in the incoming cases, and this technically led to a change in projection. Cezary, maybe more on the substance behind.
Yeah. 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 in clients willing to take up your voluntary offer?
In the surveys which we've done with our clients, I think that the picture is pretty mixed. I think it's mixed because the agreements with the clients are being confronted at the same time with the jurisdiction, which is going, or the verdicts which the Polish courts, for the time being, are printing. As a consequence, I would say responses of the clients, as I said, are mixed. That's one. The second, I think that the fact that, you know, The Supreme Court is proceeding the questions submitted by the chairwoman. This slows down also the willingness of clients really to decide on the preferences, whether to continue to litigate us or to enter any type of negotiations. That's the picture which I would say we witness 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 abusiveness of the clauses used are questionable. As a consequence, we are very much interested in what the Polish courts will decide, because this is about the paradigms of banking sector functioning. If some of the issues 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 response of the Supreme Court. In the meantime, we've got some dose of optimism because our stance has been the stance of the banking sector, including ourselves, have been very much confirmed by KNF and the President of the National Bank of Poland.
I think that basically on each and every aspect of the pending cases, I think that the courts usually have endorsed our interpretation of what's going on. 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 are on average, I think 17, 18 years long, are supposed to be annulled. That is something that, as I said, puts a big question mark around the way the banking sector operates, specifically in a situation where the abusiveness is very much grounded on the, I would say, from my perspective, relatively weak grounds.
Specifically when we are abusiveness is questioning or the argument of abusiveness is referring to usage of the tabela kursowa, 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 denominated 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, that the issue is not legal. The issue is really from the economic perspective, the duration of the situation of the Swiss franc holders vis-à-vis their expectations at the time of inception of the contracts. Our sense is that, yes, we witness the situation that some risk related to the currency has materialized.
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 is 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 these one million contracts in Poland are still valid or can be subject to invalidation is a big question mark. Yes, we are working on the solution, which we hope to present to the market sometimes in the autumn this year. It is worth to mention that PKO BP, which has started this process already at the end of the last year and the beginning of this year, is still also in progress of preparing their solutions.
As I know, the cases which they presented to the clients, that these amicable 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. 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 to. We declare vis-à-vis our clients, the willingness to get into the amicable solutions, both for the clients who are, specific for 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 which is, as 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 with the belief that you will lose. I think that, as I have mentioned, I think, at least 2x or 3x 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 Chairwoman to the Supreme Court, you have first the question about. There is no question about abusiveness, which is separately a very important question, which I think still calls for a response. I think that the Austrian cases which has taken place last year and where the verdicts have been published this year, both of them, one in February, one I think in May.
One have to remember that Austria was the country with the biggest portfolio in Europe, PLN 80 billion instead of, compared to our PLN 30 billion. Austria is 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 two types of contracts. One is the so-called denominated in Swiss francs, and another one is indexed. These were solutions which have been prepared by the Polish banks. As I have to say, as a solution, which was pro clientel. That helped in the context of how the Polish real estate market and the new purchase of apartment has been set.
I think it was to respond to the way the clients wanted to get the money to pay for the apartments with the developers. These are particular transactions which are registered in the Polish banking law. This is different than in Austria. In Austria, it's just the Civil Code. 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 be used? We strongly believe that this is if the abusiveness will be questioned or decided, the natural response is that this is the central bank rate, which has the reference in Polish Civil Code. As the Governor has put in his opinion, the issue is not about the interest rate. It's not about the exchange rate in the format which the bank proposed to the clients.
It's about the overall position of zloty vis-à-vis the Swiss franc, which was an economic issue and not purely legal issue. We believe that still, a number of issues around the legalities has not been cleared. As a consequence, I think our approach is wait and see and address the issue as the cases come to the courts.
Thank you. Another one on Swiss franc provisioning. According to its disclosures, mBank saw a 22% increase in new court proceedings and raised Swiss franc mortgage provisions by PLN 66 million in the first quarter. In the second quarter, it saw a 20% increase in new court proceedings, but increased provisions by PLN 248 million. 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 second quarter that you did not see in the first quarter?
Maybe I'll start. There is no hardwired system behind this. It doesn't mean if the one thing is +20%, then something else is also +X%. As I explained before, we try to look into the future. We try to catch things that happen in the future. I was referring to the 29% of the portfolio that we now think might sue us, which equates to 18,600 clients. That is revisited. That is seen what the assumptions were. At certain points, we then decide to add things, or it's within what we expected for that quarter, and then it's for other technical changes. We cannot exclude that in the next quarters there will be further bookings, but we will also then individually look at these situations.
As you know, this is highly assumptions-driven, and it's an environment that, as Cezary was saying, is from the legal front, pretty much unstable, and you have to try to navigate through it in some shape or form. There's 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 segments trading loss of PLN 19.7 million in the second quarter and PLN 10.7 million in the first quarter coming from? Is mBank signing any agreements with clients willing to hedge or repay FX loans already?
Yeah. Okay. On the trading loss for the non-core, that mostly comes from some FX differences. It's the FX side that is actually then leading to some of these rather small trading losses.
Could you explain PLN 43 million of provisions for future commitments in other operating expenses?
Yeah. Other operating expenses in this quarter have a mixed bag of things that are affected. 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 these future commitments that then negatively affect the other operating income. It's various situation. It's various things. There's 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 second quarter versus peers tells a bit different story. Can you please share more details on asset quality outlook? What is your new normalized level?
As I was highlighting earlier, we believe that around 80 basis points is the normalized post-COVID level of the cost of risk for mBank portfolio. If we compare our number in second 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. In Q2, we were anticipating implementation of that model and its results, and that was in tune of PLN 16 million additional. One-off provisioning that is included in the numbers.
Thank you. How should we see net interest margin trends ahead? Any outlook on fees? Another similar one, what's the outlook for F&C income? Has there been a short-term focus to improve F&C income in light of lower rates, or is strong growth more sustained into the second half in 2022?
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 six up to maybe seven, eight consecutive quarters where our fees and commissions have been growing. 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.
Good. 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. That turn, we are at the bottoming out, also there was a question about the outlook. Well, 2020 still had higher interest rates and still higher NII. The idea is that the zlotys we make out of this bank are increasing when it comes to interest income. We have NIM obviously is a margin, 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 zero.
Let's say it this way, not paying for them at all. There are also efforts on the retail side, for example, of getting these deposits more into investment products. These high swings currently distort the NIM. I can tell you there is no NIM target we look at every week, but there is a NII and an overall balance sheet thing that got much more attention over the last 1.5 years since the interest rates were dropping, and that's important for us to make our way up there, and to increase NII and less of a 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. I still think this is exceptional situation we're currently in.
Thank you. 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 mBank so we can measure your relative performance? Can you provide some more quantitative targets? Another one, what is the value of the bank's total green financing at the end of the first half 2021?
I will take this one. 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 a 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 when we are presenting the broader strategic overview later that Cezary was referring to.
As far as the numbers for existing green financing are concerned, on slide 10, we are referring to this PLN 4 billion that we have dedicated for renewable energy sources financing. This one is at the end of Q2 used to the extent of PLN 2.25 billion. Another perspective I can provide with respect to the green financing is the base 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 PLN 7.5 billion.
Okay. Thank you very much. We covered all the questions. Thank you very much for the attention and questions. Stay healthy and safe, and see you in the autumn. Goodbye.
Thank you. Thank you. Good one.