Good afternoon. Welcome to Bank Millennium second quarter 2024 results call. With us, we have João Brás Jorge , our Chairman of the Board and CEO, and Mr. Fernando Bicho, Deputy Chairman of the Board and our CFO. Over to you, Fernando.
Good afternoon. Once more, thank you very much for joining our quarterly results presentation. Today we are covering the second quarter and first half results. So let me start by page five of our presentation with the main achievements in the first half of 2024. We can say that the first half of the year was marked by further improvement in core profitability and high efficiency, still very strong asset quality and liquidity, and also material net profit, despite the cost of the credit holidays and the costs related with FX mortgage portfolio that were also partially offset by some positive tax impact.
We would like to stress that, of course, the second quarter was very important for us because of the formal conclusion of the Capital Protection Plan in May, and also for the exit of the recovery plan in June. So we closed a chapter that was started exactly two years ago, and we are showing now very solid level of capital ratios, with a consolidated Tier One ratio at 14.3% and the total capital ratio at 17.1%, with a significant surplus over the minimum regulatory requirements, and also fulfilling the MREL requirements, also with a surplus. And as we had already expected and communicated before, from formal point of view, the MREL requirements were reduced in June this year.
Important is also to say that if we would include the first half net profit in own funds, this would add close to 1.3 percentage points to our capital ratios. We had the seventh consecutive quarter with a positive net result. We closed the first half of the year with a net profit of PLN 357 million, which is exactly at the same level as the first half of 2023. And excluding extraordinary events, the underlying net profit was at PLN 1.5 billion, a growth of 6% year-on-year. The result was driven by strong NII, excluding the impact of the credit holidays, growing by 5% year-on-year and 2% quarter-on-quarter, with the NIM at 4.32%.
Core income was up 4%, excluding, excluding the credit holidays. The cost-to-income ratio adjusted at 31%, and the cost of credit risk at 50 basis points during the first half of the year, supported by a sale of NPLs in the second quarter. We returned to the payment of the banking tax after exiting the recovery plan already in June. And finally, the reported ROE was 10% and 19% on an adjusted basis. Pages six and seven present the key profit and loss items and key balance sheet and business items that we will go through in more detailed, in more detail throughout this presentation.
And especially, we would highlight not only the fact that we kept the same level of net profit, despite having benefited in the first half of last year from the extraordinary gain from the banc assurance transaction, but also that the costs in the second quarter clearly decelerated versus previous periods, and the cost of risk is within the guidance that we have given in the beginning of this year. And on the business side, a very strong quarter, especially in terms of deposits growth, investment funds, and also consumer loan growth. Page eight, regarding the status of the strategy cycle 2022-2024, which is reaching its end. Basically, we are already in line with most of the targets that we have set almost three years ago.
So we can say that basically the most important targets have already been achieved. When we move to page nine, looking now at the evolution of the results. As I mentioned, a total net profit of PLN 357 million in the first half of this year. If we exclude extraordinary events, in the second quarter, we had a net result of PLN 834 million, which is 3% above the second quarter of 2023. From this perspective, we are able to show a very resilient and high level of profitability before extraordinary items. Looking now in more detail to the evolution of revenues and starting with the net interest income, we had another very good quarter.
Net interest income, excluding the impact of credit holidays, grew 2% quarter-on-quarter, and in the first half of the year, 5% versus last year. It should be noted that, looking also at the second quarter of this year versus the second quarter of last year, the growth was 3.5%, excluding the impact of the credit holidays. And we need to remember that in the meantime, interest rates are lower by 1 percentage point versus what, versus the level where they were one year ago. We also would like to add that we cannot forget that we are also facing some additional costs that are going through the NII from the MREL bond issue that we have done in September last year, and also the securitization transactions that also were done last year.
So when we look for a like for like comparison of of NII underlying, excluding these additional costs, actually the NII grew by 10%, year-on-year. In this quarter, we had a small drop of the average accumulation on loans, but also a small drop in the average cost of the deposits, and so there was a marginal decline of NIM to 4.28%. In terms of net fee and commission income, in the first half of the year, the amount of 390 million PLN, slightly below one year ago by 3%, where the lower fees and commissions coming from the insurance business were largely offset by the growth of commissions coming from cards and investment products. On the cost side, the second quarter was clearly better, with some...
Not only because we did not have contribution to the resolution fund, which was booked in the first quarter of this year, but also because there was a deceleration in some other items. So all in all, in the first half of the year, we had an overall growth of 14% of total operating costs, with stronger growth of staff costs by 16% and other admin costs by 12%, in a context where we had relatively stable employment base and also very minor reduction in the number of branches. On page 12, looking at the asset quality.
So first of all, the cost of risk in the second quarter was clearly lower than in the first quarter, with PLN 71 million of total provisions, bringing the average cost of risk during the first half of the year to 50 basis points, which is exactly in line with our past guidance. The second quarter was supported by a sale of NPLs with a positive impact of PLN 45 million pre-tax, and this supported the reduction of the NPL ratio to 4.5%, and still an improvement of the coverage ratio of NPLs by total provisions to 74%. Moving to capital on page 13. So we had some drop in the capital ratios in the second quarter, but still finishing the quarter with a very strong ratio.
So as I mentioned, Tier One ratio or Core Tier One ratio, 14.3%. Total capital ratio at 17.1%. First of all, also anticipating already some of the questions, I need to remind that the capital ratios that we are presenting do not include the first half net profit, both on solo and consolidated level. So this is the level of regulatory capital ratios, because we, in Poland, in order to recognize the results in the middle of the year in own funds, it is necessary the specific approval of the regulator. And so that's why we are putting here exactly the ratios from regulatory point of view.
But of course, we are also adding this information, that if we would consider the net profit of the semester in total on funds, our capital ratios would increase by around 1.3 percentage points. So very solid levels of capital ratios, significantly above the minimum requirements, and also the same applies to the fulfillment of the MREL requirements. The stronger growth of deposits versus loans continue to drive down the cost, the loan-to-deposit ratio, which finished the first half of the year at 64%. Moving to the FX mortgage in the second quarter, the inflow of court cases was similar to the inflow of the previous quarters, so slightly above 1,600 cases. And at the same time, we achieved more than 1,000 amicable settlements with clients.
The number of active agreements continues to be reduced at a fast pace. At the end of June, the number of active loan agreements was already below 29,000, a reduction of 19% year-on-year. At the same time, the combination of reduction of the portfolio, negotiations and verdicts and additional provisions, makes the share of net FX mortgage in total, gross FX mortgage after provisions as a percentage of total gross book, already below 3%. On page 15, the level of provisions for legal risk in the second quarter was similar to the first quarter, at PLN 518 million, bringing the balance sheet value of provisions for the Bank Millennium originated portfolio to slightly more than PLN 7.5 billion.
The total provisions over outstanding mortgage loan value crossed 100% in the end of the second quarter and stood at 101%. Moving now to the second part of the presentation regarding main business achievements on page 17. We had a very strong quarter and first half of the year in terms of deposits growth. Total deposits portfolio grew 16% year-on-year, including also the retail deposits. Also very strong growth of consumer loans. The portfolio grew 8% year-on-year, while the origination grew 10% year-on-year. In terms of the PLN mortgage, also a rebound in origination, translating into a growth of portfolio by 6% year-on-year. Also very strong growth of investment funds, a growth of 32% year-on-year.
And the first signs of clear change in terms of corporate lending are coming mainly from the leasing business, where the origination in the first half of the year was higher by 20% versus one year ago. Finally, the number of active customers continued to grow at a solid pace. We have now 3,083,000 active customers in retail, with 92% actively digital. On page 18, going in more details, so total loan growth was net, net loan growth was 1% year-on-year, or 4% if we exclude FX mortgage loans.
This growth was mainly driven by consumer loans and PLN mortgage, while corporate still slightly down as a consequence of the temporary restrictions that we have applied during last year for the purpose of management of the risk-weighted assets. Structure of the loan portfolio not much changed, with a share of cash loans above 21% and the share of PLN mortgage below 49%. Customer deposits, as we mentioned, very strong growth, and especially during this first half of the year, both in retail and in corporate, and at the same time followed by a significant growth of investment products, with a total outstanding value above PLN 9.5 billion at the end of June.
On page 19, we can see that the growth of retail loans, excluding FX mortgage, on a gross basis, was 7% year-on-year, driven by the growth of consumer loans and PLN mortgage. With a significant growth in the consumer lending production in the second quarter, higher by 33% versus the previous quarter, and in the first half of this year, growing by 10% versus the first half of last year, and allowing us to achieve a market share above 10% in terms of new sales. At the same time, also, there was a rebound in the sales of new mortgage loans from a relatively low level from last year. In retail customer funds, the growth was across the different products, so from current and savings accounts to time deposits and investment products.
The number of active customers continues to grow at a solid and regular pace. We added up 38,000 net number of active retail clients during the second quarter, and also the same, although of course, at a proper scale, growth we are seeing in the segment of micro business. And the number of cards grew by 120,000 versus one year ago. Page 21. We continue our mobile-first approach, placing the app in the center of our actions. At the end of June, we had 2.6 million active mobile users, a growth of 10% year-on-year, 2.8 million active digital users, a growth of 8% year-on-year, and 1.9 million BLIK users in the second quarter, a growth of 16% year-on-year.
Page 22 updates also the share of digital in the sale of different products: 83% in cash loans, 45% in current account acquisition in the second quarter, 95% in term deposits. And also significant role of digital in terms of receiving applications for different governmental programs, such as this Dobry Start 300 or the benefit of 800 plus. Last but not least, significant growth in BLIK payments, a growth of 35% in BLIK transactions in e-commerce, P2P, contactless, buy now, pay later. Other digital developments to highlight in this quarter, on page 23, we launched a currency exchange for our retail customers in the mobile app.
And also, we were the first bank in the market to get involved in the project of buy now, pay later, in which the bank's customers can now use the BLIK Pay Later service. Page 24, continuation of the significant increase of the Goodie smart shopping platform, an increase of 54% year-on-year in the number of active cashback users, and a growth of 66% in the number of transactions made via Goodie Cashback. Moving to the corporate side. We see for the second consecutive quarter signs of rebound in the corporate business, more visible for the time being in leasing. Overall, year-on-year, the portfolio on a gross basis is still down 2% because of the temporary restrictions that I already mentioned. But the... as I said, already two quarters of signs of rebound.
At the same time, we are benefiting from a significant growth of deposits, 15% year-on-year, and 3%, quarter-on-quarter, with the growth divided between current accounts and, while time deposits actually stabilized in the second quarter. Also we see a gradual increase in the transactional activity, especially visible in the volume of FX transactions, which were up by 43% year-on-year, and domestic transfers by 5% year-on-year. On page 26, we see that the growth of origination of leasing is very strong.
Total origination in the first half of the year reached almost PLN 1.9 billion, a growth of 20% year-on-year, and also, as I already mentioned, the growth of, in the volume of FX transactions by 43% year-on-year. Page 27, we continue to adjust our offer for corporate banking clients' needs. We are introducing new guarantee programs based on BGK guarantees, and also developing our internal competencies in terms of ESG. So these are the most important points from our results in the second quarter and first half of the year, and now we will go through the questions. Thank you very much.
Thank you very much, Fernando. As usual, I'll try to group questions into, into some thematic parts. Many questions related to DTA, and I think it would be good if you could explain to our guests the dynamics of DTA, how it worked, what was covered, and what expectations or what developments we expect in the second, second half of the year?
Yes, I saw that there were many questions about this topic. So going point by point, just to have the full picture. For a long time, we have been fighting to consider the costs associated with the FX mortgage, especially the losses, as considered for tax purposes. In the end of last year, as we disclosed in our annual report, the Supreme Administrative Court issued a negative verdict, but at the same time, it became clear that what could be done was the correction of the last five years in case the loans would be invalidated. And so what we have done-...
In the first half of this year, was to make the adjustments connected with revenues and also with FX differences connected with the FX mortgage loans that are assumed to be invalidated, and to consider those losses in the calculation of the DTA. So in the first quarter, we booked an initial amount divided between corporate income tax and DTA of PLN 68.8 million. In the second quarter, an amount of PLN 192 million, of which PLN 171 million was booked in DTA. Due to these. So once again, this relates to loan agreements, which are assumed to be invalidated during a specific period of time, and based on which we will, let's say, be correcting the level of the tax and considering as a tax loss. So the...
Going forward, because there are also many questions about how this will unfold moving forward. So the value of the DTA regarding FX mortgage will fluctuate depending on the level of the FX rate, depending on the inflow of new court cases, and depending on the pace of verdicts of the courts regarding the court cases. So these are the most important. Also to a lower extent, but also depends on the settlements that will be achieved in the meantime. So these are the parameters that will influence the evolution of the DTA going forward. Apart from the FX mortgage, also we should highlight that in the second quarter, we had some additional impacts on the DTA, namely the credit holidays.
We created a provision for credit holidays of PLN 201 million that also generated a DTA of close to PLN 40 million. Obviously, for example, this part will disappear until year-end, because the credit holidays will expire in the end of this year. So if you look at one of the notes to our accounts, the note 18, where we have the breakdown of the DTA, it is visible that the DTA growth was generated not only because of the FX mortgage, but also because of some other factors, including this one connected with the credit holidays. Then the increase of the DTA generated two impacts at the level of capital. One is the growth of risk-weighted assets, because of course, there is a weight assigned to the DTA.
The second was that there was an excess over 10% of own funds that was directly deducted to the Tier One capital. This deduction would not happen if we would consider this additional net profit of the first half of the year. So actually, when we will incorporate in our funds, in our own funds, the net profit of the first half or of the full year, this additional impact will simply disappear, assuming that nothing else in the meantime, of course, will be adding to the DTA. So we expect that first part of the DTA increase of the second quarter will disappear during the third and fourth quarter as a combination of some verdicts, elimination of the DTA connected with the credit holidays.
In terms of impact on capital, I can say that maximum until March next year, this negative impact should be largely eliminated, or even earlier, if we will include in our own funds the result of the first half of the year.
Thank you very much. I hope it's clear. We also had questions on long-term funding ratio, which is a relatively new thing.
Mm-hmm. So it's also to put in the context to all that are seeing us. So there is a new ratio approved just two weeks ago that by the regulator that will enter into force on the 31st of December, 2026. So we are still two years and a half before that date. Second, this ratio establish percentage of the mortgage loans that should be covered by, let's say, long-term funding, but in fact, it's not. It's a combination of long-term funding and also excess of capital. And there are different weights assigned also to the mortgage, so I will not enter into these more technical details. So what we can say right now is that: so first, we are still two years and a half before the introduction of this ratio.
The second thing that we would like to remind is that, five or six years ago, we decided to set up a mortgage bank. And the mortgage banks in Poland are the banks that can issue covered bonds, because in Poland, universal banks cannot issue covered bonds. So the covered bonds can only be issued by mortgage banks. So we have set up our mortgage bank, which has been up and running already for a few years, and we also, in the second quarter, made the first issue. Small issue for the time being, because also it was not necessary to do a large issue. But we made a first testing issue in the local Polish market. The bonds were rated double A plus. After the issuance, even the rating of the bonds was upgraded to triple A.
And so I just want to say that we have already a platform in place that will allow us, through time, to issue amounts through covered bonds that will contribute to the fulfillment of the long-term funding ratio. Although the covered bonds is not the only way to fulfill the needs, because also other capital instruments, such as MREL bonds or subordinated bonds, will also count. And on the other side, also, we cannot forget that in the next two years, the net value of the Swiss franc portfolio will be zero. So...
Then Swiss franc mortgages are also covered by these requirements, so it means that by the time that we will reach the end of 2026, this portfolio will no longer be there to be financed by long-term funding. A lot will depend also on what will be the evolution of our PLN mortgage portfolio. So all in all, we would like to say that these new requirements will be incorporated in our planning process. We have the instruments that allow us to comply in the future with these requirements. It does not matter what is the level today. What matters is, because many of the instruments that we have today will not, will not matter in two and a half years' time.
What matters is how we will prepare the plan to fulfill, in the most efficient way possible, the level of the ratio that is required for the end of 2026.
Thank you. Another question or another subject of interest is the performance of our insurance fees. Analysts have spotted a bit of a irregularity this quarter, and the question is about the reasons and most importantly, if this is a new run rate for this line.
We would say that it's better to assume this level as the run rate. We made the bancassurance transaction last year. The implementation was done in a, let's say, sequential way, so this is the level that could be assumed to be the run rate for the time being.
Also the new recommendation.
Okay
. The bancassurance business became less profitable also due to the new recommendation from the authorities.
Which was incorporated in the meantime within all the process.
It was incorporated also in the process, in the transaction, the pricing and everything, yes.
Thank you very much. There was a number of questions related to deposit pricing. One of the analysts noted that we have above average pricing or cost of deposits, and the questions were, whether in the flat interest environment, we'll be willing to lower deposit pricing, and the other analyst is asking: What would trigger a cut of deposits, if at all?
So the deposits profit pool is the biggest profit pool in the banking activity in Poland, and so it justifies by itself, even if there is high liquidity in the system and high liquidity in the banks, the business per se is highly profitable. Sometimes the pricing difference between the banks is also the combination of what they have in current accounts, what they have in time deposits, also what they have in corporate versus what they have in retail. So there is a lot of reasons for that. We believe that we are still in a downtrend of the cost of the total time deposits, so there is still space to work on that.
However, it's a combination between growth of the volumes that we are achieving at the moment. It's a very good opportunity to increase the time deposits presence, because it's a period with over liquidity in the market and with a high disposable income of customers. We are working mainly on deposits of retail and, of course, the growth in corporate was the same percentage, but that it can be a little bit more opportunistic. In retail, it's a normal activity. As you know well, we tend to have price differentiation for the daily bankers, so it's trying to have the savings of the customers and full relations with the customers and not so much.
... just bigger time deposits from more affluent or slash private banking customers. So we think that is still the potential to keep growing. We grew a little bit the market share. It's very difficult to grow the market share in deposits of individuals, but we grew around 30 basis points year-on-year. So we are, we, we-- it have been a positive experience, and it's exactly the volumes with these proper price management that allow us to present these solid net interest income, even with the environment of the interest rates that although it's not so low as initial forecast for this year, they are in fact 1% lower than a year ago.
While you have the microphone, so to speak, there was also a question about a good, very good origination level of consumer loans in the second quarter. Were there any particular reasons or drivers behind that?
So it's I would say that the second quarter was as good as the first quarter was not so good. So mainly, very strangely, the market for consumer loans ramped up in Poland since the beginning of the year. We didn't change anything about our process, our models, our risk assessments, our risk appetite, nothing at all. So we have been working with the same criteria and with the same way. And we were more successful in the second quarter. It's true that we made some changes in the pricing. Looks like it was adequate, so it's increased a little bit the interest rates, reduced the commissions. Looks like it's more attractive and simple to explain to customers, and we have been more successful.
But we are more or less aligned with the market share. So we are at 10% banking, 10% market share in consumer loans, in terms of the stock and also in terms of production. So I would say that it's quite balanced.
Thank you very much. Sticking to the loan subject, there was a handful of questions relating to our growth outlook for SME and PLN mortgages, in particular, our risk appetite and the demand that we see not only in the short term, but also in the midterm.
So first, a little bit of PLN. PLN mortgage, sorry. PLN mortgage. One criteria that it's less seen by the analysts is the number of active customers, because I understand it's more difficult to see. But one thing is a fact. Anytime that we are increasing the customer base, sooner or later, we will increase the cards fees, we will increase the time deposits and savings of customers, and also consumer loans. Mortgage is a little bit different because, of course, customers also can consult their bank, but there is a little bit of more shopping around. So there is a little bit less competitive advantage, even if you have a strong customer base in terms of mortgage, so you need to be on the market through price and product.
We did big volume versus one year ago, a little bit less market share. We would like to maintain this volume or even slow down a little bit. So it's clear that our intention is not to overperform in mortgage, would be even reduce a little bit, our percentage of mortgage in total portfolio. In terms of corporate or SME, SME with corporate, let's call it, we have been working quite hard. We are out with our capital constraints. It takes some time to change completely the approach, so we were having an approach of preserving capital, reducing the risk-weighted assets. So to change the network and even the customers interactions take a little bit of time. We see a lot more activity.
It's already very visible in terms of leasing. That is a faster product. We are quite confident that in the second half of the year, we will show already visible increase in terms of corporate portfolio, and there's no doubts that the future strategy will have main importance of the SME development. We believe that we have strong credit capabilities. This is shown when we decrease the portfolio, because when we decrease the portfolio, it's usually if there is a less quality credit portfolio, it will show because you- of course, when we reduce a portfolio, you reduce the best quality credit that is repaid or sold.
This is visible with our cost of risk, so we believe that we have the credit capabilities, also the commercial interaction with the customers, and sooner or later we will show it already in second quarter, and as I said, it will be an area of future development of the new strategy.
... Thank you. Fernando, this, maybe while you are going through the questions, I refer the question to João. There was a questions about dividends prospects, whether dividends from 2026 or in 2026, meaning from 2025 profits are realistic, and what is our level, a comfortable level of Tier One going forward?
Dividends, it's—I think it's, it's clear, the information, that we will not plan to distribute the, this year dividends that are paid next year. Next year, we will see. So it's, it depends, also from the recommendations from the regulator, and depends also, in our capacity to use this capital in a proper way. We would like to go back to the dividend distribution. There is a lot of rules for that, from the percentage of the Swiss franc portfolio as the percentage also of the year of the production, so the vintage. So I think it's too early to assess, how we will be, in the year of 2026, distributing the years of 2025. But it's clear that, in the next cycle, we will return to the dividend distribution.
Thank you. Very clear. A handful of questions related to our interest rate sensitivity. Questions were about the share of fixed-rate mortgages, about the share of VASAs that are the fixed rate, whether this is hedged or natural hedge, and how do we see sensitivity to interest rates in evolving going forward?
So regarding the fixed-rate share, so starting with mortgage. All the new mortgage loans that we have been originating since, I think, beginning of last year, so for more than one year, all the new mortgage loans have been originated with temporary fixed rate for five years, so 100%. So currently, we are originating new mortgages with a temporary fixed rate for five years, and after five years, the clients have the option to continue with another five year at the rate that will then be enforced or to switch to a variable rate. So this is the first thing. Due to this origination in recent periods, the share of temporary fixed-rate mortgage in total mortgage has been systematically increasing, and now we should be close to 30%.
I don't have the exact number, but we should be getting closer to 30%. Also, the origination of consumer loans is done at a fixed rate entirely. So in our... So the, in terms of interest rate risk, we have a large, let's call it, natural hedge between loans and deposits. So this is the first thing. The second thing is on the top of that, of course, due to the significant excess of liquidity that has been growing, we also, of course, we have to deploy this excess of liquidity, and part of it is done in government bonds, part of them with fixed rate that also contribute to protect the NII for the future. The sensitivity we disclosed in our first half report today is very low now.
But when we look at the next 12 months, it's 0%-1%, basically. And in fact, we have even more sensitivity from the part of the balance sheet that is at in foreign currency, especially in Euros and U.S. dollars and in Polish zloty. So we can say that we tried to protect against the expected decrease of interest rates. I also, of course, we also need to recognize that we were already assuming that interest rates would be lower this year than what they actually are. So this also gave more time to make this, let's say, this protection again, for the future. There is another question which is connected with, for what is the sensitivity for the second and third year?
Here, it is, it's much more difficult because then we need to enter into assumptions regarding how it's going to evolve, also the commercial activity of the bank, and the management of the bond portfolio. What I can say, as a general statement, is that we are trying to protect against the decrease of interest rates that we expect that will happen during the next two or three years.
We are not able to, of course, to anticipate the exact timing, but what we are assuming is that sooner or later, interest rates will start to go down, and we are trying to protect as much as it is possible, but also at the same time, fulfilling all the regulatory ratios, which is not only about net interest income sensitivity, but it's also about other indicators, such as the economic value of equity and so on. And even there is one question also asking if we are fulfilling one of these indicators short NII, and I can say that, yes, we are fulfilling.
But, so the decisions about, management of the interest rate risk are not only about the protection of the sensitivity in terms of NII, but also at the same time complying with a number of other, regulatory, ratios that need to be fulfilled on an ongoing basis. So I think this is regarding NII. I think this is-
Tier one?
Expectations regarding Tier One.
Comfortable level.
Yes, of course, this is also when we will announce the strategy. Of course, also we will somehow provide what is our assumption regarding the level of Tier One that we expect in the medium term. I would say that looking at where we are right now, and also in order to be on the safe side, we think that at least we will not fall below 14%, but also we will take into consideration other regulatory requirements. Basically, what we are seeing is that in two years, in one and a half year's time, we will have the gradual introduction of a countercyclical capital buffer, which will bring two percentage points more requirements until the end of 2026 on one side.
On the other side, we have the hope to bring our P2R buffer to zero or close to zero also in the future. That would significantly offset this impact. But this we will elaborate more in when we will present our strategy, but I would say at least 14%-15% Tier One ratio; this is the level that we are trying to ensure. As I said, the first half results would add 1.3 percentage points that would put our Tier One ratio at 15.6%. And just to be clear, because there is an additional question about this, why the impact is bigger than just the pure result of the first half? It's because of the explanation that I gave about the DTA.
So the incorporation of the result has a direct impact, and additionally, eliminates part of the negative impact of the DTA that we had during the first half of the year. So that's why we have an impact of 1.3 percentage points.
Okay, thank you. Before we move to FX mortgages, which is inevitable part of our presentation, there was also a question about our outlook for OpEx, which is also a typical question at this time of the year.
I think we all know that there is some cost pressure in Poland, which still subsists after inflation started to come down. It's driven by a very tight labor market. Poland has the second lowest unemployment rate in the European Union. It's driven by significant growth of minimum wages, 20% in 2023, 19% in 2024, and probably 8% next year. And this brings other, let's say, a cascade of consequences in terms of the costs of different outsourcing agreements, and in terms of staff costs and different admin costs. But we believe that gradually the pressure will start to subside. We don't want just to take conclusions quarter after quarter.
The second quarter was clearly better than the previous, but we are not just saying that it's going to be from now on like the second quarter. We are prepared to face this, cost pressure. We also need to continue to invest, so this is also clear. But this year, the cost growth will still be double digits. We also said this already one or two quarters ago, so the, we are not changing our expectation regarding this. But of course, with, with inflation stabilizing at a lower level, of course, this will help to, to anchor a lower cost growth for the future. This is, I think, what we can say regarding operating costs.
Thank you very much. FX mortgages, analysts have spotted that we have changed assumptions for the percentage of closed loans that will sue us in the future. Some of them claim that there's a higher level of lawsuits against us than what we expect going forward. And lastly, the usual question that we get at these meetings is that a question for the comment on the future pace and level of FX mortgage provisions.
I think. So I can start, and then Fernando will detail a little bit more. There is also a question about the historical numbers. So our initial number of contracts were 104,000. That was the contracts that we initiate this process. So it's our methodology, and we always explain that we have a methodology and not a model. So it's mainly we quantify what we see in the reality. So it's the probability of losing what are the results of the courts, first, the results of the courts of the system. Later on, when we had enough number of cases, our own results.
... the impacts and the they are calculated by the cases that are already in the court, or by the average cases of losses that we are having at the moment. And so it's always a process that every time that there are new risks, we need to assess with the new provisions, and we try to disclose it as much as possible. So if it is penalty interest, if it is other criteria, we try to elaborate and to be as detailed as possible in all of these cases. The future cases, there is always a difficulty to predict.
The peak in terms of cases were in the summer last year, with 650, 700 and, and something, 750, I think, in August last year. Now we are having 550 per month, more or less cases. Some people forecasted after the decision of European Court of Justice on the remuneration, a huge increase in of future cases. These end up to not be materializing, so I think we need to have some prudent in terms of forecasts for the cases. It's obvious that, as time goes by and we have less cases of contracts that are live and more cases that are repaid, in these 550, we will have a bigger number of repaid and a smaller number of of live contracts.
But, but it's important also to understand that if we move from 101 one year ago to 150 this year, it's 50% growth, but it's just 50 cases. So it's, it... I think it's also important to understand these metrics and to wait to see how it goes. It's difficult to expect a big increase, but also we should not expect a huge drop in terms of inflow of cases. Lessons learned from the past is to be modest and modest and prudent to forecast these kind of things, and to wait to see how it goes, and to correct the methodology as it goes.
Usually, in our internal discussions, we say that we don't have the perfect methodology, but it's by far much better in assessing the risk that we have at the moment than one year ago or than two years ago. So it's obvious. But it's also important to understand that the methodology also incorporate new risks, so it's not a static thing. So it was with a probability of having remuneration. Remuneration was eliminate. Then there is this new fact of penalty interest, so that should be incorporate. So also the methodology have changes because also there is a materialization of risks that are changing.
Regarding the assumptions, as we wrote, due to this, let's say, relative growth of closed loans [foreign language] active, we have increased this estimation to 24% of the historical number of repaid loans that were not settled and/or that were already subject of past verdicts. So the assumption, we were conservative in terms of, let's say, looking also at what was the recent inflow during the first half of the year. On the other side, what we expected regarding active loans is materializing, so the number per month is gradually falling.
But it's also very much supported by the continuation of the effort that the bank is doing to settle with customers, regardless of the fact if they are in the court or not in the court. So this is an effort that we continue to do. Whatever happens, we continue to try to find amicable settlements with the customers during the court proceedings or when they are not in the court. I think regarding FX mortgage, there's also the question going forward, what can be expected in terms of the provisioning effort? And we keep the view that we had one or two quarters ago, which is that this year this burden is still going to be significant.
And so we also expect still to be still significant during the second half of this year. Then if no other, let's say, factors will come, then of course, we would expect next year that the effort will be already clearly lower. You know, if we would have spoken one year ago, of course, we were expecting that 2024 would be already lower, but we were not counting with some developments that took place, especially in the end of last year, and especially this part connected with interest that introduced requirements to create provisions that we had not thought that would come. So if nothing else will come, so of course, we expect this year still to be significant.
and then gradually during the next year, the effort should be clearly lower. We cannot quantify, of course, but it should be clearly lower.
Two remaining questions before we move to the closing part. One is: could we comment on the outlook for the banking tax? It's, I think, that returns to our P&L, and analysts are wondering whether they should plug in the same amount or, or not. And then there was also a question about the risk related to PLN mortgages. I understand it's more of a legal risk than a credit risk. João, maybe you can comment on that if you like.
Maybe I'll start with the banking tax.
Yes. So, we started to pay again the banking tax in June. The amount that is reflected in our accounts is PLN 35 million. So I think that for the purpose of projections, you just should use as a proxy this PLN 35 million that we paid in June, and that this will be the run rate on a monthly basis for the banking tax.
It's difficult when we are in an environment that such important banking product for a society as a mortgage is constant and regulatory and legal risk. It's difficult because this is crucial for the development of a society, because gives you the ownership to the ones that will not get from their parents. But things are what they are, and we need to be calm and assess that it's true that we have here two risks. One is connected with the change of WIBOR as the reference for the mortgage calculations, and this can have an impact in the long term, depending the exchange of the indicator or the reference indicator that will be chosen.
There is already some alignments to be WIRON. Now, this is again in discussion in the national working group, so we need to wait and to see how it goes. There is a second one, which is the potential litigation that can appear, if this is a reason or not to have disputes in terms of contracts. We just hope that the authorities will act in due time, and also that at European level, there is this understanding that if we have these kind of discussions, the discussion will not be just for WIBOR, but also for EURIBOR and other forms of indexing mortgage interest rates. But I think it's too early to assess how the risks can be translated.
But of course, we do, or we have it, a quite prudent understanding for that, and, and some regret that we are already in this situation again. But, but it's difficult to have a, a view or a forecast if this is a risk that can, really materialize or if it is just a hypothetical potential risk.
Thank you very much. And now, any question that you think we might have answered or omitted?
Oh, there is a question about CRR3, which will come into force in the beginning of the next year. So of course, what I can say is that, of course, we are paying due attention to this, with a dedicated project to assess its impacts. There are, of course, some impacts in terms of the growth of risk-weighted assets. We are still before the exact assessment, but also several mitigation actions will be taken. So it's something that for now, we don't see as, let's say, significant impact.
We may have some marginal impact in terms of reduction of the total capital ratios, but we will come back to this later in the year with some more, how to say, expected guidance regarding the impacts.
Thank you. João, closing remarks, if you wish.
Although we have always kind of a neutral tone when we present the results, it's obvious that we are very pleased with the results that we, all the colleagues in the bank were able to achieve. We had this plan in our mind, even when two years ago we announced that we would have a recovery plan. We said in that time that our plan to exit was summer 2024, and we kept talking about this date. So it's we are very proud and happy and fulfilled that we achieved this. So it's important milestone for the bank to exit the recovery plan and to be ready for the next phase.
Moreover, we are happy that, of course, we did securitizations, of course we did transactions, of course we did the reduction of capital and the risk-weighted assets, of course. But the main reason for the bank to be able to leave the recovery plan was the profitability of the business model. So was the capacity to generate very high results that they would accumulate the needs of provisions and the additional costs in this of the Swiss franc portfolio, and also generate additional capital that will allow us to incorporating and moving to the levels of capital that we have today. So this is, this is of course, a very good moment.
We believe that the second part of the year will be quite strong in terms of the business, and also we are quite optimistic for the first rounds that we are doing our new strategy. We will present the strategy in the next meeting that we will be together. We are optimistic about what we are achieving. We believe that will be a quite ambitious plan, but a plan that we have been proving with the capacity to deliver. So it will be a plan that although ambitious, the investors and analysts will entrust us to deliver it. And, and so we are quite, quite...
Although this natural tone of us, we are in a very optimistic mood for the delivery of this year and for the plan that we will present for the next years.
Thank you very much, gentlemen. Thank you very much all the participants. As Mr. João Brás Jorge hinted, our next data point is 29th of October. This is also the most likely date when we will present our new midterm strategy. Otherwise, I hope we have answered all the questions. If you consider otherwise, please do contact us directly. As, as usual, we are at your service, and enjoy the rest of the summer. Thank you very much.
Thank you.