Earnings Call: Q3 2022

Nov 8, 2022

Good afternoon, ladies and gentlemen, and welcome to our conference, where we will present the results of Amban Group in the Q3 of 2022. As always, the results will be presented by Mr. Cesar Stepukowski, our Chief Executive Officer Mr. Andreas Beger, Chief Financial Officer Mr. Marek Lushten, Chief Risk Officer. Mr. Marcin Mazorik, our Chief Economist, we'll discuss the macroeconomic outlook. We will be happy to take to answer all your questions after the presentation. Zarek, please start. Okay. I would say we are extremely efficient, well structured, with a good business model institution. But to some extent I have to say we operate in a low country. Sad to say, but this is being reflected by the numbers which we will be presenting. So we are in a situation where our core revenues are growing faster, obviously, to some extent due to the interest rate hikes, which has taken place in the course of last 12 months. So on the annual basis, we have doubled our net interest income. Fees and commissions which was very strong part of our performance over the last, I would say, 3, 4 years already with the growth numbers reaching 20 plus percent still are 8% above the previous year your levels but and obviously showing that we effectively have doubled our fees and commissions within the last 4, 5 years. I have to say on the revenue side, the bank is performing very well. The costs are being reasonably well managed Was the cost income ratio normalized to core of the business at almost 32%. But there are these outside impacts which significant developments which significantly impact our overall result. So the underlying performance was pretty good. Though the developments, specifically the credit vacation and other initiatives sponsored by the government and targeting the credit, specifically mortgage loan holders significantly distorted the final net result. 2nd aspect, again we are talking about some kind of a privileging, you know, the borrowing customers at the cost of the specifically addressing the legal costs which are related to the performance of this portfolio. As we stated on a variety of occasions, I think it will be developed during the course of this meeting. We don't see still the credit risk on this portfolio, but the legal consequences of instability of Eurosputants in Poland and the paralyzed the Supreme Court impact also our approach being on the safe side we need to protect the bank And as a consequence, we have written off NOK 2,300,000,000 of additional legal provisioning, which led to the figure almost reaching €7,000,000,000 in totality. When it comes to loan dynamics, The stated one is relatively low 4.8. But once cleaned out of the consequences of using Of the credit vacation and Swiss franc portfolio, we are reaching level of slightly above 10%. Well, in the economy which is clearly on the direction to slow down, I don't think that this figure I believe that this figure represents the overall dynamic of the market. Specifically on the retail side, I think that our market position is stable or slightly growing. On the corporate side, we are more assertive picky. We are focusing on a particular group of clients. And I think that if there will be questions, I think Mike will explain. Cost of risk, reasonable. I would say under the circumstances, I think that rather on the lower side of our range, which we target. And what is important and I think that that is something what you know that this is our almost how should I say, almost the Mbank signifiers. So usage of mobile apps is still growing and activity of our clients is premier in the market on the mobile devices. So that is something which reflects our both business model, our message to the clients and our preferred distribution channels. One thing which we start slowly to introduce to the market and to Danis and to the investors is, I will Should I say, my strong belief that Pfizer and the Personal Financial Management is the new big thing which is on the horizon and this is something what we are investing in. I don't think that this will translate into the instant money. But In a 5 years perspective, I strongly believe that that will be something what customers would expect from the banks and it will be almost mandatory to have that type of functionalities. And we believe that on this front we are We know that the clients in this respect our value in the access from our app to the public services. And obviously, we will continue to develop additional functionalities on this front. On the ESG side, maybe I will switch to Marek Who is our champion. So he will give some words about our entry into the CBTI, which is I would say very important aspect though after reading the weaker issue of the economy slightly more skeptical whether things can be delivered worldwide by the industry. Nevertheless, as Cezary said, as part of the ESG strategy of the bank, we have declared that we will join Science based targets initiative, which we have concluded in Q1 2022. And within that part of the commitment, 2 years ahead, we will submit new ten targets foreign bank for official validation. And this is basically against the science based criteria and evidence on the climate change to limit the warming to 1.5 degree. What we are expected to do is to cover the decarbonization path for the next 5 to 15 years. And then it will be accordingly validated by SBTI. We are glad to highlight that we are one of the first institutions in Poland to joint global platform and we are happy to have our external our targets for decarbonization validated externally. Also as part of our ESG initiative, we keep on helping our clients to decarbonize themselves and one of the landmark transactions that we highlight on slide number for its construction of the wind farms under the PPA agreement, which brings one of the big corporate clients of us with the provider of the wind farms to reduce the carbon footprint. We are very proud that we've been ranked as 1 of the top banks in the ranking which has been prepared by the American issue of the Newsweek, what's most socially responsible banks 2022. We've been ranked as a number 10 among very respected institutions by far the only bank from Poland. This covers both these three elements of ESG. Interestingly enough, I think we've been the only bank which has been ramping this ranking on the corporate governance as the maximum a level. So not over exaggerating the meaning of this ranking and its importance. But it's always nice to be ranked and among the, I think, 170 plus banks. There are 2 banks from Poland, us being at the 10th 2nd part of the almost 200 names. Market position, I think we continue to grow our market our market positioning. Our current with some slowdown in the specifically in the second quarter on the retained deposits. Due to the I will call it a kind of a turbulence, which went through the market because people try to position themselves on the pricing. I think that we regain our trajectory to grow our market position. And So as you see on the presentation, is the presentation being displayed? No, so this is Page 5 of our presentation. So we are continuing on the trajectory basically on the household side to grow a natural path which allowed us over the last 2, 3 years to gain almost 2% market share. On the enterprise side, on the corporate side, I think that what is worse to mention is that we are more selective. We just went through the market benchmarking and it looks that our strategy to be more focused on the returns vis a vis the clientele. Profits as reasonably well. This is to some extent of expense of our market share, which is based on the corporate side around 10%. I have referred already to the into our mobile strategy and I think this being very much reflected by 2 factors which I want to focus on. 1 is that number of active users when it comes to the population of our world clientele and active users, we are number 1 in the nominal terms of the number of mobile applications used. We are number 2 after Pekka or VP, the biggest banking Poland. What what we've done what is I think ultimate confirmation of something what was always our aspiration to be the premier transaction bank is the fact that specifically on the bleak payments which are the fastest growing part of the I would say transactionality, all very much related to e commerce. We are, I would say, growing fastest among our peers with a clear number 2 position. And what is worth to mention also that the number of e commerce transactions done by our clients and I cannot go into the very detailed information because Because it has some other market players, but I want to stress that in our estimates, almost 30% of e commerce transactions are being done by the clients This is also very important that the mobile channel is playing more and more important role in the distribution of products, which was the obvious positive impact on our cost base and I would say the familiarization of the clients with additional functionalities plus very positive effect in terms of time to money for the clients. What I wanted to stress as well is that we have some positive effects also on the Czech and Slovak markets which are our international presence which Just to summarize, I think that you know what is very important, if we even with the even I think that you know the best would be really to move to the page I think 9, which I think explains a lot about the performance of the bank after 9 months. So the revenue side of the bank and cost management lead us to the position that we would be able to Consume all the burdens which have been imposed on the banks during the course of the Q3 and still being able really to come with the pre tax positive result in a big way, EUR 1,500,000,000 which is reflected here. This is the magnitude Of the profit which we've been doing on the annual basis, you know, in the best at the best time. I think we never reached that level By the way, but that was close. But after that, we have EUR 2,600,000,000 of additional provisioning visavis Swiss franc portfolio, which we will explain in more detail in a later stage. But all this shows Yes. What we observed in Poland this was first my initial statement that about the environment in which we operate. What we observe is effectively transfer of big portion of the capital of the banks in Poland to the to be perfectly honest relatively wealthy individuals. How to explain that? Very difficult. And I have to say, I feel very uncomfortable that these developments happen. We are outspoken on the issue and we and some of you who follow our stance know that Embank is very vocal. But still, all these are the realities in which we have to operate. And what I used to say what's real is rational. So we have to respond in a manner which protects specifically the clients of M Bank, specifically the depositors to manage the bank in a safe way. Credit holidays, I think that they've been already discussed extensively during the course of the previous presentation. I can imagine that there will be questions related to the participation, etcetera. We'll be responding. For our support fund, I think that The question mark is, we are talking about our contribution to this fund in the magnitude, €184,000,000 Significant. We don't still know and there was no recent report of what are the drawings on the fund. But we know that applications have been growing in the course of the first half of the year. That needs to be checked. But we believe, I believe that that's the way we need to address the issue of the problematic customers, not by, I would say, irresponsible distribution to each and every without any criteria. Everything what has happened ends up in the reported pretax loss. I have to say the highest ever and highest in my life. And that does not give me a lot of confidence. The summary, I don't think that we need to spend too much time. And then we are moving to the revised methodology of our approach to the Swiss franc portfolio. And on the Slide 11, you see the background for our revised approach to Swiss francs that reflects growing severity of the court verdicts and incoming court cases. I'll explain step by step what led us to the change in approach to calculation of the legal risk reserves. 1st of all, on a positive note, we see that the inflow of the new court cases and its dynamics Has slowed down a little bit. In Q3 2022, the number of individual cases concerning indexation costs increased by SEK1160,000,000 and that compares with EUR 1282,000,000 in Q2 and much higher numbers in the preceding quarters. One of the underlying reasons that led us to fundamentally different approach to the calculation of the legal lease provisions is that since Q4, Mbank has been observing a growing number of final verdicts in the course concerning the indexation clauses against the Swiss franc loan agreement and that number massively increased year on year. At the end of September 2021, we have seen 270 Verdi's coming in a quarter. And that has increased to almost SEK 1400 in Q3 of 20 in 'twenty two. What needs to be highlighted as well is that the severity of those verdicts massively the deteriorated against the bank. Until the end of September this year roughly 92% the verdicts were unfavorable for Rembrandt and those unfavorable judgments were based roughly on the same pattern of facts, which in the past resulted in different verdicts. Currently, we see roughly 82% of those unfavorable verdicts leads to the invalidation of the loan agreement and most of the others lead to the conversion of the agreement into a slot on Swissbank Swissbank LIBOR. However, what needs to be also strongly highlighted is that the line of jurisprudence is still not unified as the Swiss franc issue remains unresolved both at the the Polish Supreme Court level and the European Court of Justice. The proceedings in the Supreme Court in our case has been suspended. On the positive note, it's worth highlighting that opinions of the National Bank of Poland and the Polish FSA on the case submitted to the Supreme Court very strongly supported the bank's position. In September, European Court of Justice confirmed the previous views on the case So, Mbank and Deutsche Bank regarding whether the National Corp can modify the contracts, whether the National Corp may supplement the contract by the average Central Bankrate and the Study of Limitations. Also early October European Court of Justice performed a hearing on the case regarding the remuneration for using the non principle by the client, Verdiq in which case is expected in the middle of 2023. And what's important to highlight is that There was also a presence of the Chairman of the Polish Financial Services Authority that was presenting his view there in front of the European Court of Justice and that Polish FSA position was also very much supporting bank's view. So as announced during the previous quarterly results conference call. Over Q3, we have performed throughout the view of the methodology of calculating the cost of legal risk, which brought us to significant increase of the overall provisioning. The current model is based on an advanced statistical methods for determining the numbers of clients who will file lawsuits against the bank, Which is supplemented with the expert judgments where necessary given the number of uncertainties with respect to the potential outcomes that we have elaborated at length during the previous results conferences. In this new approach, Mbank assumes a higher number of the future plaintiffs, roughly 31,000 as well as a relatively lower number than in the past of clients who will remain passive. I mean they will file no lawsuit and they will now enter into a settlement with the bank. The parameters are derived from the historical data as well as from the current observations of the trends in jurisprudence that is provided against the bank. And then probability of losing the case is assumed here at 95% and we know further we are not assuming any further verdicts with the average our NBP rate. What needs to be highlighted as well that what led us to much higher level of provisioning is the entrance into the full scale settlements program, cost of which is also fully included in the current legal provisions. Moving to the next slide please. On Slide number 12, we are providing more details with respect to the development of the portfolio as well as the development of the provisioning of the plan. So at the end of September, the share of Swiss Bank Mortgage Loans in our total loan portfolio stood out 5.4% on the net basis or 10.3% on a gross basis that is before the reduction of respective provisions. The carrying amount was significantly decreased as you can see on the top left hand side of the slide. And that also covers not only the deduction of the higher legal lease provisions, but also the ongoing repayments that we see from the portfolio. As a result, to sum up of the application of the updated methodology that I was describing in details before, the cost of legal risk related to the foreign currency loans recognized in the income statement for Q3 2022 is increased by SEK 2,300,000,000 and the total value of provisions Then create an innovation to the legal risk and claims resulting from the court proceedings amounts to SEK6.8 billion. In turn, after 9 months of 2022, provisions created in relation to these legal risks and claims regarding from court proceedings covered 51.6% of our Swiss franc mortgage loan portfolio that is very significantly above the sector average. And it needs to be also remember that as an IRB Bank, we are having this FX add on allocated to the non core portfolio segment related to the FX mortgage loans that amounts to €1,880,000,000 So the total cushion created so far through equity and through P and L of the bank to cover the legal risk related to the Swiss banks reached at the end of September 8,600,000,000 which all in gives us the coverage of 60% 68%. And as we have also announced in September we have decided to launch a full settlement program for our clients who are still with active Swiss franc index bond and I pass over to Cezari for the details on the settlement. Yeah. If I may add one If I may add one issue to what Marika said. We have observed very important development which was which has happened in the end of September, which is the starting process of resolution of Getinge Bank. As you know, Getinge Bank has the portfolio of Swiss francs, which has been separated in the residual entity, which is being managed by DRG, which to some extent officialize the treatment of the portfolio. And it's very Interesting, you know, how it was valued at the time when it was measured by BFG and respective valuators. So we believe that, you know, this, I will call it, officialization of the Swiss franc portfolio in education. To some extent is a reference point for, I would say, official sector understanding of where the portfolio should end up. I will not go into more details, but as a reference for that specifically for the analysts, I believe that's important factor. And second is that obviously, In this capacity, BFC will be managing the portfolio with all the legal consequences, which will be a reference and it will be to some extent also when it comes to the settlement program. As you know, our initial stance, which we have presented I think a year ago, Was that despite the fact that on the legal front, we don't share variety of opinions of the legal firms supporting the clients which sue us in the courts and despite variety of other billions. So in the meantime, both the KNF, National Bank of Poland have come with the opinions which fully support the stance of the banking sector. There is continued mass on the legal front in my opinion. But at the same time, we recognize the fact that the situation of the clients are being resulting from the fact that Zlotti has Collapse visavis the Swiss francs significantly. Basically, I think that it was almost hard. I think that what has happened is basically halving the value of SoftBank, which means that customers run a significant foreign exchange risk, which was not expected by the banks and by the clients and that as a consequence we have come with the a pilot proposal which was sharing the burden of the depreciation of Zlot. This pilot, I have to admit, didn't, fertilizing response level which we have expected from the clients. That has been helpful for us to master the process which we have, which pretty much optimized, but we came to conclusion that we have to come with a new proposal, which is much more individualized what we have learned during the pilot process is that this more mechanical type of approach not necessarily was welcomed by the clients. So we are individualizing more our approach and we are offering the clients basically the conversion of the loan into Zolotti, which is a significant reduction of the outstanding plus our fixed interest rate on the preferential level of 4.99 a percentage point to the for the client, which obviously comparing to the current fixed rate offered for the new loans is significantly better this. We believe that the stabilization of the client a repayment perspective should be appealing to our clientele and that's the reason that we believe that the response level should be strong. As I've seen in one of the questions, we are certainly envisaging 33% and why we believe that it will happen. That will be the strong priority of the bank in the upcoming 6, 9 months to proceed and to approach on an individual basis all our clients there was outstanding the launch vis a vis the bank. The program started this quarter. This is premature to really report on this, but initial response is encouraging. That's what we can say at this moment. And as we have two questions on the Swiss franc topic that are related to what we have just said, maybe we'll address them on the fly. So one question on the model itself, asks us if our the model include the remuneration for using the loan principal or not. So as you can see from the size of the write off, It is visibly higher compared to the number as if all the loans would be converted to zloty at the original FX rate. So there is a certain scenario that assumes that no remuneration with 7 percentage may happen, But overall, the model is significantly skewed on the parameterization that assumes that remuneration for using the loan what applies. And in this context, addressing also the other question with respect to what would happen if European Court of Justice rules that no remuneration for banks is due. I would like to refer to the overall scenario that Polish FSA presented in spring 2021 that basically shows that if that is the ruling, then the overall loss for the banking sector as a whole would be roughly equal to the total capital that is held by the Polish banking system. So that roughly means that that is the scenario in which the banking system in Poland is to exist. Good. Maybe one last comment on Swiss francs and obviously you know that we are trying to have the most robust disclosure also here. I would like to refer to the financial statements. We're on 7 pages. You're actually seeing how our approach, is designed and what the respective outcomes are. So I recommend everybody to read that and go through because I think also there we're in the industry leading and being transparent what we are doing. Let's maybe go back to the performance of the bank. And on Page 13, well, you have heard the very negative effects from the Swiss francs and that for the 1st 9 months, this is the 9 months you hear, adds up to nearly €2,700,000,000 in Swiss franc legal costs booked, which obviously puts the non core in deep negative territory with nearly minus 2.8, but let's maybe here use the time to talk about the core business, core business for the 1st 9 months. You see down below net interest margin. Net interest margin that is without the credit vacations. So if there would be no credit vacations for 9 months, 3.73, that's a very strong print and we'll also see later that the Q3 was even better than this 3.73. Cost income ratio. And here in the core bank, you have that is including credit vacations, including IPS, Including borrower support fund, cost to income ratio is still below 50%, so 49%, in quite a distressed quarter 9 months with these extraordinary effects. And even with these extraordinary effects, the return on equity is at 14.3%. Last year for the 1st 9 months, it was at 11.7%. So return on equity here after this quite stressed 9 months, still really good for the core bank. Let's go to the detailed view of the quarter. There I would like to be brief. If you look on Page 15, if you look at the development of the loans, Well, on corporate, we have seen a slight increase and I've also seen that there is a question. The increase of roughly 1% after FX movements It's more skewed towards working capital loans and still the investment loan demand we're seeing is more on the lower side. Retail. The gross loans here are lower, lower by €2,300,000,000 but Cezari mentioned that beforehand. It's also technically affected by the Swiss franc booking because we're deducting this from the carrying amounts that's €2,200,000,000 roughly deducted. And also the credit vacations, part of the credit vacations, the ones that are not taken yet, but which we foresee in the future is also deducted by the carrying amounts, that's another €1,000,000,000 So there's a €3,200,000,000 negative drift in that due to the technical effects. So it actually makes more sense to look at the next page and the next page is the loan dynamics for the new sales. First of all, starting with the mortgage loan sites, mortgage loan, we have as anticipated seeing the strong drop to a volume a bit shy of only €1,000,000,000 in the quarter. That's a function of various things. On the one hand, interest rates have strongly went up. Well, affordability there technically goes down. But also there are very strong K and F criteria towards affordability. On the other hand, we also have adjusted our prices. We're still when it comes to the prices at the higher end of the competitive range, because we also need to see how the whole product evolves. And obviously, after these government interventions here into the market. We're not fully at ease with the product. And there's a third effect that also the market is not in full swing because obviously if you have We come to that later that we have 80% of our volumes of eligible volumes in credit vacations. I mean, these people Don't have any incentive of moving the house. So also the housing market to some extent in Poland has been heavily distorted by the credit vacations and we also expect this to continue for duration of the credit vacations, which is until the end of next year. Moving to non mortgage loans. Non mortgage loans also to some extent weaker. There we will in general move with the market. The idea is to be cautious on volumes and not to aggressively grow here. We're very much looking at the margins we're having. So we're looking at the business that has more choosy margins there, but currently on the volumes, we would also remain a bit more conservative. Going over to corporates, corporate sales and you know the story here very well. We continue our selective approach, selective approach being Well, growing in K2 and growing in K3, most likely more also at low single digits this year overall And on K1 also being very cautious and seeing that we You get the right rewards for the risk or for the risk and for the capital we also employ here. Leasing, similar Sorry to what we've seen. It's down. That's on the one hand a function of availability of assets. On the other hand, If interest rates are very high, small ticket leasing is not really on the cards. People rather pay in cash. So let's move to deposits. On deposits, well, the deposit base did increase on the one hand through slight increase from corporates, but even stronger increase came from retail. You know that over half year, we had lower deposits, but that was also to some extent something where we wanted to see what the market equilibrium is and what you need to pay for deposits and how much is a good remuneration. We should pay for that. We're again on the growth path. You see here the term deposits, for example, have risen. I mean, term deposits are the part of the deposit structure where we actually also pay for deposits And that has did get good client feedback and with this better volumes. Moving to income, well, the income side on the next slide and you have that very high gray bar with the credit vacations. Well, adjusting for that or without if the bar would be solid, this would be record high revenues. Just looking at net interest income, net interest income, if you take the green, euros 724,000,000 and you add the SEK 1,280,000,000 on credit vacations, you come to net interest income of a bit more than SEK 2,000,000,000 in the quarter, SEK 2,006,000,000,000 That's the best net interest income we ever had. Obviously, shows that the theoretical run rate there is really good. I mean, we're fighting for every piece of net interest income every day in trying to get the right amount of interest income, but also in terms of Not paying too much out, but that's strong. And also if you take core revenues, so NII plus net fee and commission income, That's €2,500,000,000 2.528,000,000,000 12% more than the quarter before. That's also really strong. Maybe to briefly comment also on net fee and commission income. Net fee and commission income up 8.8% year over year, a bit down over the quarter with 6%. Well, mixed bag here of drivers. The one thing is You don't see on the right side in the gray box what went down is, for example, also currency transactions, the margins there because We just had lower volumes that were traded. That's another €14,000,000 for example, and to some extent also a bit higher. Cost of fee and commission, but still with EUR520,000,000 that is a very strong and high level. The small red bar with the minus 26,000,000 that's trading income. Trading income turned negative because Part of the credit vacations effect is also a negative effect on trading income, namely that effects from hedge accounting relationships that became inefficient. That's another €63,500,000 negative in this. This is why the whole trading income is negative. And then finally, you see in other operating income minus €166,000,000 that's also quite a big chunk. That's on the one hand explained with €84,000,000 of repayment of the so called bridge margin. The bridge margin is something that was taken in Poland on mortgage loans before the mortgage loans were fully registered. Due to also the delay in the courts, the legal environment has changed And the banks should now not take this bridge margin anymore and also repay it for the loans that are Currently not registered yet. And this is €84,000,000 unexpected, I wouldn't say, within the control of the bank, more public reflection that courts are just very slow, especially also after COVID. Another example of, I would say, a legal environment and lack of understanding of the usage of capital income. That's these are the factors which we have to take into account. And As Andreas rightly pointed out, instead of speeding up the processes in courts, they are spoiling the clients, claiming that there is no cost of capital usage and that's something what we are fighting for. On the other hand, we currently have an intensive discussion with the Social Security Fund, with the Zoos in Poland on the operating model that we use in our subsidiary, M Finanze. We believe that what we did here is according to the rules and it's also according to the practice. It's an industry wide phenomenon. We also reserve €98,000,000 for potential future payment or potential repayment of source charges there and we also reflected this in the Q3 here. Let's move to the maybe finally one thing, the net interest margin, Because I mentioned it before for the core bank net interest margin in that quarter, if you would disregard the credit vacations, it's, I think, for the 1st time above 4, it's a 401 basis points, very strong. And we have said that last time, we think that The very strong growth in net interest margin is over. We still believe that. It's more of a technical nature that the net interest margin At least some extent in some products increasing because I mean what we need to do on a daily basis, we try to keep the bank as efficient as possible, what we view this level as very, very high. And this might for NIM be the top. But as I said, we every day try to get the best part of the business here for the bank and the shareholders. So, let's move to the cost side. Well, on the cost side, on Slide 19, if you look at it, well, the headline is impacted by external burdens. Just these 3 additional bars on Q1, Q2, Q3. 1st quarter is 194 BFG, 2nd quarter is €391,000,000 IPS and 3rd quarter is €184,000,000 for borrower support fund and another additional €37,000,000 on IPS. I think we've also explained this at the beginning. These are extraordinary burdens. Otherwise, if you look at the height of the bars below. And given the fact that we are in a highly inflationary environment, I think costs are kept under control. We try to be very reasonable with the spending. You see here, personnel expense, a bit down, roughly flattish. Material costs down over the quarter, up year over year. We have the usual drivers here. So example, the quarter was a bit lower because of lower IT spend and consulting spend, but I think this is all within the range how you would expect Mbank to reasonably manage the cost. Same thing is for amortization. Amortization is down, but amortization, you know, we expect to be trending up over time because of also CapEx we do. Well, on the right side here, you see the cost income ratio and cost income ratio, the red line, the reported one with all of the 3 interesting bars here on the left with the extraordinary burdens. I mean, that looks usually distorted. If you exclude, for example, the credit holidays and the borrower support fund, you come to a completely different cost income ratio the bank for this quarter and also for the last quarters. If we just normalize it over 9 months and we say, okay, let's take the credit vacations out and the borrower's what found out, you come to 34.6%, which we view as actually an excellent costincome ratio. With this, I hand over to Marek Gustin for the risk side. Great. Thanks, Andreas. So as it comes to the risk aspect of this, on the main risk that we have already commented that was the legal risk related to the Swiss franc portfolio that by all means was the source of the biggest light offs for the 9 months of of this year. As it comes to the loan loss provisions and cost of credit risk, As it comes to the Q3, cost of risk at the M Bank Group was 58 basis points that was roughly at the similar level compared to the Q2 and 8 basis points lower than respective period of a year before. The quarter on quarter decrease was primarily driven by the lower loan loss provisions in Corporate Investment Banking segment. Net impairment losses and further changes in retail revision of the macro scenario that foresees slower GDP growth in Poland. And at the same time, the net impairment and losses in Corporate and Investment Bank segment significantly declined just to 8 basis points and that was actually the byproduct of 2 vectors going into the different directions. We have released some larger provisions for example for the construction sector in the tune of PLN 35,000,000 due to the repayments and improvement of the financial situation of some of the counterparts that were conservatively provisioned in the past and some of the new defaults were basically covered by the new loan loss provisions from those releases. What needs to be stated is that overall quality of the individual exposures was maintained At a good level that you have seen also in the previous quarters. And as it comes to the outlook, I mean, it's pretty clear that the geopolitical and macro situation Let me deteriorate, Marcin Mazzullo will comment on that more in details afterwards. But we are clearly getting into the kind of discretionary scenarios, not only in Poland, but also at our main trading partners. So that very much skews our outlook on the cost of risk for the next quarters more to the downside and to the negative territory. So at the end of the day, we were seeing in the past cost of risk in the tune of 60 to 80 basis points in the good quarters. I will say given the uncertainties and the risks related to the macro scenario in 2023 in the first quarters, we may see temporarily something going EBITDA up to 90 to to 100 territory, but we do not foresee anything close to what the bank experienced in the 1st year of COVID pandemic. What needs to be highlighted is also the higher cost of risk are driven by the IFRS nine models that required banks to speed up the recognitions of the provisions due to the portfolio approach and worsening macro prospects. And to a large extent the provisions may be also driven and that is actually quite a big uncertainty that is ahead of us by the impact of the Russia Ukraine war in terms of the supply chains and topics related to the energy availability. But so far, cost of this remains stable NPL levels that you can also see on the next slide, Slide 22. The remain stable quarter on quarter. We also do not see significant deterioration of the quality of the NPL portfolio in the individual customer segments. So overall, we do not expect significant worsening of the portfolio quality just for a limited number of clients, a materialization of risk can lead to a financial liquidity problems resulting in temporarily increased provisions. What clearly attracts a lot of attention is the capital position of the bank that we have on Slide 23. And capital position of the bank at the end of September. Total capital stood at 14.66%. The Tier one ratio was 12 point 11%. That was roughly 1.5 percentage points above the minimum requirements. If you want to see the details, you can find them on the slide 36, but we stay on the 2020 3 for the time being. So main driver, 2022. The main driver of the decrease of the capital deterioration was clearly the mix of the Swiss franc write offs and regulatory interventions that we have discussed at length. So overall, own funds decreased by SEK 1 point PLN755 1,000,000 quarter on quarter. Apart of the main negative impact that is the net loss in the amount of SEK 2,000,000,000. We have a positive impact that was coming from not inclusion of adjustments to the current specific risk adjustment due to the recognition of the cumulative loss that amounted to SEK 200,000,000 and there was also positive impact of the valuation of the bond portfolio measured through fair value through capital And some negative impact coming from the DTAs. So only decrease of own funds by SEK 1.75 billion. Total risk exposure quarter on quarter almost unchanged. And as it comes to some of the capital related questions that we see on the Q and A, maybe I will address them on the fly as we are on this slide as well. So first of all, as it comes to the impact of the so called COVID quick fix on the Tier 1 capital ratio In Q3, it's roughly 39 basis points as of September 2022. So that is the waived negative valuation of the bonds, which is not fully reflected in the capital ratios. There is also a question in context of the PKO BP that got the FX buffer reduced yesterday. And the question reads, when do you expect the Swiss franc buffer to be decreased? That is subject of the administrative proceedings which are regularly ongoing on between the banks with Swiss franc portfolio and the KNF That also reflects our situation. We cannot comment on exact date when we should But we remain optimistic that also this buffer for us given the massive the increase of the FX provisioning that we have performed in Q3 will be subsequently reflected in the reduced buffer giving us more briefing space on the And we are in the dialogue. And we are in the dialogue. And in this context, in the context of the capital briefing space, there is also a question coming from Kamy Stolarski that calls as follows. In the relatively thinner capital buffer over the minimum capital requirements affecting Mbank operations long growth appetite to an extent. No, they are not affecting our long growth appetite or operations. We confirm that our strategic targets remain unchanged. As we have commented at length, As you have seen from the previous slides in the presentation, our capital generation capability of the core business of the bank is very strong. And unless unforeseen at this time headwinds Popup. We are very confident that we can very quickly rebuild that capital for further growth. So we have no plans, no any indications to that would divert us from the a strategy that we have been communicating to you over autumn last year. And to finish with the capital and liquidity the position as you can see on the right hand side of the currently displayed slide. We are liquidity position, which is very strong. It has actually improved over Q3 2022 and remain one of the strongest when compared to the peer bank groups. When you look at the economy, you can see the divergence between soft indicators, namely business tendency indicators and real figures. Business tendency indicators suggest that the economies right now, what could be in recession, it applies mostly to consumers. But in fact, it isn't. But it's safe to say that the economy is slowing down. We started the year on a somehow high note GDP growth exceeded 8%. Right now, we are coming closer to 3%. And in the year end, it will be close to 0. But overall, GDP growth in this year and here, our guidance is not changing, would be around 4%, 4.5%. So it would be still quite solid. But the trajectory of the economy. I mean, the downside sloping trajectory is going to bring much, much lower GDP growth figures in 2023 and the economy is set to barely escaped recession growing by 0.4%. At the same time, we observed that labor market is still strong. Unemployment rate is still at sick bottoms And wage growth is quite fast. Of course, the slowdown in the economy is going to affect labor market as well. But we expect only a minor change in unemployment rate, minor change upwards. We think that the most of the adjustments would be done by the growth of wages. Still cooling economy is coupled with very high inflation. And still, inflation hasn't reached its peak. We expect that the peak will come at the start of 2023. It will be around 20%. Yet the inflation is reflecting the imbalance of demand and supply. And primarily, I would say that past changes of energy and food prices And the pass through of those prices towards the other goods and services. So the key to lower inflation is our lower energy prices. Yet NBP is also cooling demand after rates reached 6.75% in August. We expect that they may stay at this level for some time. In the end of 2023, we are going to see still rates around 6.75. So we think that the NBP is already done with interest rates. As far as monetary aggregates are concerned, We can clearly see that on the corporate side, the growth is still propelled by current financing and also corporate deposits grow at a solid pace. It is soon expected to reverse and because the momentum is growing weaker and weaker. At the same time, household loans, are going down. They are shrinking in annual terms and at the same time, growth of deposits very low. Still, There is no visible turnaround inside in 2 or 3 quarters. We just have to wait until 2023, 2024 until we see some new momentum here. As far as the financial markets are concerned, The government bond yields are just off the peaks. We are at around 8% in 10 year bonds, whereas some weeks ago we hit 9%. Yields are high because Inflation is high and NBP is reluctant to hike as much as markets are expecting. Besides liquidity is low and credit risk is on the rise because the market is expecting substantial supply in 2023. As far as slot is concerned, slot is stabilized of late. And we think that, well, there is not much room for improvement, but also that the perspective is not as bad. And we will say that current levels of European land rate are set to prevail in the next months before we will see some downside push in European rates, I mean, stronger slot. Thanks. Thank you, Marcin. And now we are going to the Q and A session. We've answered a lot of the questions already. So I will start with the guidance for NII and net interest margin. Your guidance for NII and net interest margin the Q2 was very conservative adjusted for long holidays as in fact you delivered around 50 plus 50 basis points net interest margin growth. How should we read this time your neutral guidance? Well, it was conservative in the past. We continue to be conservative even though the basis now is higher. In the end, it is a function of how much we Have to pay for deposits. And yes, the 400 basis points we see as quite high. If we can keep that, that's good. If you can maybe get a inch higher, that's also nice. But there's also a downside to that and 400 basis points is a very strongly. Yes. Time being, we are very much privileged by a significant influence growing market share. There was, as you've seen in one of the charts, some drop in our market share at the time when I think it was Q2 when the market So that temporary disruption of the market structure happened. I would say very much driven by some politicians encouraging mostly state controlled banks to go more aggressive. That was very much unknown for us which direction The market will evolve. But I have to say if you look into also the structure of our retail deposits, we have significant portion of the transaction money, you know, most of the current accounts. We are less represented on the pure deposits. And we believe that this element will be the critical point potential, further increase of our net interest margin. Next question is on the borrower support fund. What was the bank's use of this borrower support fund in the 3rd quarter? It's it was only in roughly €15,000,000 which was significantly lower than our contributions to the fund. And what was the reported participation ratio in credit holidays in August September. Basically, as we have communicated our initial estimates at the beginning of Q3 when Rome holidays were announced, We said that we expect the participation ratio between 60% 80%. I mean, it really depends on how do you calculate the participations since not everyone applies for all 8 installments, etcetera. But all in, I would say, we were a bit a victim of our very a mobile population of customers because we see that it was on the upper end of not only our estimates, but also participation of the peer banks. But as I said, it was at the very upper end of our estimates, the details and the financial statements. But for the time being, we see that it was exactly spot on within the estimates that we have provided. Maybe briefly, I mean, it was 80% of the digital portfolio at 6.4% installments. And what we then booked because we said we do expected value, we did we booked 86 0.9% of the portfolio at 7.5% installments. So you should take this time to the installments. Also, we have still quite a buffer of people to come, but a lot of people were actually coming and taking credit vacations, especially the high tickets. There are figures and there are also anecdotes. And I still remember on the 1st day of introduction of this opportunity for the clients. I was talking to one of my colleagues from the peer bank and we've been sort of exchanging the figures. And in our case, it was like 24% people coming in 1st 2 days. And so he was shocked because in his bank, it was now half of population which we have, which I think is ultimate confirmation with Marek has referred to which is, you know, the quality clients and the mobility has 2 angles, if I may say. What impact does Mbank expect from recently approved windfall tax in the Czech Republic for 2023, 2025. We do not expect to fall under the windfall checks in Czech Republic. Can you please comment on €99,000,000 provisions related to ZUS. Have you agreed to pay additional taxes? Do you expect further cost from controlling the bank or was that just the case of Mfinanci? So I think we I in part commented on this. It's an isolated case when it comes to MFinansel. And as I said, the company is in a dispute with the Social Security Institution over an interpretation of the application of the secured social security regulation. And the position Of the bank and of the group is, that the company complies with the provisions of the law, including also the banking law here and also the banking secrecy. And it's an interpretation difference, but it only relates to the business model of the agents in M Financi, not to M Bank. And we have a conservative approach with the €99,000,000 booked, But also the inspection is even not close, but it's still ongoing, but we thought we'll reflect this right now. The next question is on mortgage originations. Have mortgage origination hit the rock bottom, what total loan growth do you expect for 2023? And maybe I will combine that answer with the answer to another question that has been posted on the similar topic because there is also a question asking us comment on the current demand for financing the corporate segment, operational and investment loans. So on Slide 26, we We display our forecast for end of this year and next year, both for retail and corporate lending. So on retail, as you see for household loans, we expect market to slowdown actually to contract both 20222023, primarily driven by a decrease in the non mortgage lending. We expect the market for mortgage loans in 2022 to marginally contract by 0.9 percentage points to an extent due to the loan holidays that we have discussed at length. And we expect the market to revive a little bit by 4.4% within next year. But as you may see, this is the drop of the market much lower than what we have seen in the 1st 2 years of COVID 2020, 2021 and in particular if you compare that number with the a reading of the headline inflation that means that the volume of the mortgage loans in the economy in real terms will also the contract. We are a bit more optimistic on the corporate loans. We expect nominal rates of the market still to be positive, not as fast as it was in 2022, where it was almost going up by 15%. Our current forecast is 5.2%, which also in the Real term is a contraction, but in monetary terms and this is what we are concerned running the bank in our view that's positive. There is also a question further on I see on the Q and A list on our expectations for the base rates. So having this slide displayed, I will maybe answer on behalf of Martin that we expect that rates to be flat till the end of next year. Thank you, Marek. We have a question on MREL what is the MREL Capital gap to the current targets set at the January 1, 2024. We're not quantifying the current gap. What we have is currently we are fulfilling all in all requirements. They will they are set to go up, especially by the date, beginning of 2024. For this, we have the issuance plan and the issuance plan will also need to be fulfilled or partially fulfilled to then fulfill the final MREL requirements. So we're here in the transition, but for getting the whole journey, things still need to be done next year. Thank you. And what is the share of clients' amount of loans that are being prepaid earlier as far as credit holidays are being concerned? So we have seen a bit of early repayments at the very beginning of the long holidays. But as of now, I would say this is not really material compared to the prolonged holidays period. I think the last one, would exempting repo transactions from banking tax bring any material impact for your business? We don't expect exclusion of the repo transactions from banking tax to materially impact the way we conduct the business. We see this as a way to unlocking some of the liquidity, which is currently trapped in the system through the Treasury bond holdings by various commercial banks. As we said, for us, it is less of a problem because of the abundant liquidity that Mbank has. But overall, from the systemic liquidity risk, we consider this to be a positive yes. Thank you very much. I think we covered all the questions. If you have any more questions, please contact Investor Relations. So for now, thank you very much for your attention and have a nice day. Thank you. Bye bye. Thank you.