Welcome everyone to Bank Millennium Q1 2022 results call. With us we have the usual guests or participants, Mr. João Brás Jorge, our Chairman of the Board, CEO, and Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. Before we start, I would like to ask a rhetorical question. Who said that banking is boring? Hopefully, either of the two gentlemen will be able to answer that or maybe at some other opportunity, our participants in the call. I mean, without further ado, I'd like to welcome Mr. Bicho. He will present results of our bank in the Q1 and afterwards both gentlemen will be available for the Q&A session. Thank you very much.
Thank you. Good afternoon. Thank you for joining this conference on our Q1 results. We start with a snapshot on pages five and six, where it is visible that in the Q1 the bank had a very strong operational performance with a strong increase of core income, which was of course driven by the significant increase of interest rates but also by a solid performance in terms of fee and commission income. Which together were growing at a much faster pace than costs. We also continue to have quite low level of credit risk provisions. On the other side, we still booked a significant amount of provisions for FX mortgage legal risk and additionally also relevant amounts dedicated to settlements with amicable settlements with customers.
As a consequence, we have a net loss of PLN 122 million in the Q1 , which is significantly narrower than the one shown one year ago. For the first time since the Q3 2020, we have shown a pre-tax profit. If we exclude extraordinary impacts coming from the FX mortgage legal risk, the net profit of the bank more than doubled in the Q1 to PLN 485 million. This was supported by significant growth of net interest margin, a significant reduction of cost to income. On page six, regarding some key balance sheet and business items, we continue to show a strong pace of growth of active customers. A growth of 129,000 year-on-year.
A growth of 237,000 if we look just at online and mobile customers. We had a total deposit growth of 10% and a loan growth of 5%, and a significant decrease of the net FX mortgage loan portfolio by almost 29% year-on-year. Moving now to details starting from page number seven, and looking at the top right graph. It is visible the improvement of the underlying profitability of the bank in recent quarters, which, and especially the one in the Q1 of 2022, of course supported, as I mentioned, by the increase of interest rates, but this also shows the capacity of the bank to generate organic results, which will gradually more and more cover the costs connected with the FX mortgage loan portfolio.
If we look on an adjusted basis, the annualized ROE excluding the costs connected with FX mortgage reached almost 20% in the Q1 of this year against 10% in the Q1 of last year. On page eight, regarding the main financial highlights, apart from the significant increase in the normal profitability of the bank excluding FX mortgage collected costs, we also would highlight the significant decrease of cost to income, which on an adjusted basis reached 35.5% and the still low cost of credit risk at 40 basis points over total loans.
From page nine, more details about net interest income, which had a strong growth of 25% quarter-on-quarter and 54% year-on-year, driven by the repricing of loans, which is also starting to be followed by repricing of deposits. The different speeds of the repricing led to an increase of the net interest margin in the Q1 to 3.77% from almost 3% the quarter before. In terms of net fee and commission income, we still showed a solid quarter, 3% higher quarter-on-quarter, 8% higher year-on-year, despite the fact that the market situation contributed to lower fees from investment products.
On page 10, significant improvement of the cost to income ratio to 35.5%, on an adjusted basis. 41% on a reported basis, with a total cost growth of 14%, but excluding the costs connected with the Bank Guarantee Fund, the cost growth was 7%, with a continuation of the optimization of the branch network and also a slight reduction in the number of employees. On page 11, asset quality remained strong, allowing us to have a cost of risk which is very similar to the previous two quarters at 40 basis points over total loans. Also with stable NPL ratio at 4.4% and without having any positive impact from sale of NPLs which did not take place in the Q1 of this year.
Regarding the FX mortgage portfolio, we continue to try to accelerate its reduction. In currency, the portfolio was reduced by 5% in the Q1 or 19% versus one year ago. This means reduction without FX impact. Allowing us, together with the increase of the provisions, to continue to dilute the portfolio in total loans, reaching now slightly below 11%. We continue to strengthen the provisions for legal risk, as we already announced two weeks ago, with a charge in the Q1 for P&L of PLN 451 million. In terms of trends, the Q1 was still positive in the sense that we managed once again, for the fourth consecutive quarter, to have a higher number of amicable agreements with customers than the inflow of new court cases.
In this Q1 , we had a total number of amicable settlements of 2,081 against 1,568 new court cases. The total cost of the amicable settlements stood at PLN 124 million. As a consequence of the provisioning effort and the reduction of the portfolio, the ratio of legal risk provisions against the gross value of the mortgage FX mortgage book crossed 30% in the end of March. On page 14, regarding liquidity, the situation remained relatively stable but with a decrease of the loan-to-deposit ratio to 81%. In terms of capital ratios, of course, they were impacted mainly by the depreciation of the bond portfolio, which has an impact on funds, and to a much lower extent by the net loss booked in the Q1 of the year.
Still, we have a comfortable surplus over the minimum requirements. Moving now to the second part of the presentation regarding the business highlights of the Q1 . We would like to highlight the good dynamics in terms of the retail business and also corporate showing gradual improvement, translating into the overall loan growth of 5% year-on-year. Which is of course a depressed number due to the reduction of the FX mortgage portfolio, with a growth of 24% of PLN mortgage loans and 8% of the leasing portfolio. Debit cards grew by 163,000 in one year, and we reached 2.4 million active digital customers, and customer deposits grew 10% year-on-year. Regarding loans and customer funds on page 17.
The total loan growth, if we would exclude FX mortgage loans, would have been double digits at 13% year-on-year, driven by PLN mortgages with a smaller growth of loans to companies and consumer loans. This allows the continuation of the change of the structure of the loan portfolio with a lower share of FX mortgage loans and a higher share of PLN mortgage. On the other side, customer deposits grew 10% year-on-year with stable retail deposits and much higher growth of corporate deposits, with the Q1 decrease of retail offset by increase of corporate deposits. At the same time, investment funds have been subject to a significant correction due to the market situation. As a consequence, in the end of March the assets under management were 13% lower than one year ago.
On page eighteen, some more details about retail. Of course, we already had some decrease in the origination of mortgage loans and cash loans. The numbers that we are showing here that corresponds to disbursements show a reduction. Still a very solid performance because we originated PLN 2 billion of new mortgage loans in the Q1 , just 7% below the Q1 of last year. On the other side, cash loans with an origination of PLN 1.1 billion, which stood 12% below the Q1 of last year. This is a natural consequence also of the extraordinary events that we had during the Q1 in terms of the war, but also in terms due to the increase of the interest rates.
Regarding the retail customer front, it is visible that the start of some change in the structure of the deposits towards some recovery of the share of term deposits in total deposits. On page 19, strong numbers in terms of retail banking growth in terms of number of customers that grew 45,000 in the Q1 . Also the number of current accounts growing at a significant speed, and also the number of debit and credit cards also growing strongly versus one year ago. The numbers of mobile banking show the continuation of breaking records, especially in this quarter, we would highlight the fact that at the end of March we crossed another milestone of having 2 million mobile banking users.
Just to remind, we celebrated our first million just three years ago, so it shows at which speed mobile banking is becoming a major channel in transactions and services to customers. On page 21, we continue to support clients in managing their money and introduce new functionalities in terms of the administration projects and also in help to Ukraine in terms of charity support, also adding new banks in the open banking services and also providing investment advisory service through our electronic channels. Some additional numbers regarding digital can be seen on page 22. Regarding new current accounts, the share of digital channels in opening current accounts in the Q1 reached 32%. The number of current accounts opened in the Q1 online grew by 53% compared with the homologous quarter of last year.
In terms of cash loans, digital channels were responsible for 78% of the number of cash loan sales in the Q1 . The number itself grew by 38% versus one year ago. Goodie continues its development, as you can see on page 23, with 89,000 additional downloads in the Q1 and PLN 3.3 million of cashback just during the quarter. Moving to corporate business on page 24. We have already loan growth of 4% year-on-year with a relevant rebound in leasing, which grew by 8% year-on-year, and in other loans to companies by 4% year-on-year.
While at the same time, deposits grew strongly by 38%, and also with a trend of increasing of the share of time deposits in total deposits, which is natural when interest rates start to go up. Also, we see a strong pickup in transaction activity, which was especially visible in terms of FX transactions and also in the pace of digitalization of client services. Numbers of leasing can be seen in more detail on page 25, so a growth of 12% of the origination in the Q1 versus the Q1 of last year, while factoring grew 3%. As I mentioned, a significant growth in the volume of FX transactions by 27% year-on-year.
As we are showing on page 26, also, we continue to support the business with building a comprehensive online offering for corporate and business clients, in which we would highlight that we had a growth of 49% in the number of small business accounts opened online since the Q4 of 2021, and also a 34% share of the digital channels in business cash loan sales just in March 2022. These are the most important highlights of our Q1 's results of 2022, and now we are available for questions. Thank you.
Thank you very much. The questions start coming in. As usual, we try to group them into logical, more or less, sections. First question relates to our results. First question's about NII. With the current WIBOR, what kind of NII quarterly evolution do you expect? Is it fair to assume that the bulk of deposit repricing is still to come? What deposit beta shall we assume? I guess the, yes, it's a question.
Regarding the evolution of NII, we cannot provide very precise guidance due to the fact that we are living in an extraordinary period in which the interest rates have been growing permanently during the recent almost six months. It means that there is still further repricing of the loan portfolio that is going to take place in the Q2 . While at the same time, we started also to gradually increase the interest rates on the deposits already in the Q1 , but also already becoming more visible in April. At the same time, as we already showed in both on the retail and corporate side of the presentation, higher interest rates may also translate into some change of the deposit mix in which savings accounts and time deposits may gain against some space versus purely current accounts.
Which by the way, we cannot forget that we had the opposite situation when interest rates were cut just in the beginning of 2020 after the beginning of the pandemic. We had the opposite effect in which a part of the deposits migrated from savings accounts and time deposits to current accounts because we were paying almost zero in terms of remuneration of those deposits. Now we can anticipate some change. It’s difficult to say exactly if we will come back to the same structure that we had before the pandemic or not. It’s still too early to say.
Of course we expect some change, which means that of course we also have to expect some growth of the costs of the deposits as time goes by, and the pace of the growth, again, is not exactly the same as the loan portfolio in the same way, in the same way that it was also not the same when interest rates came down. We also provide in our financial reports some sensitivity of the net interest income to changes of interest rates, but assuming that everything will be repriced with the current market rates as of the end of March 2022. The sensitivity, if we would assume that everything is repriced, would be quite small, around 5% or 6%.
Of course, this is assuming that everything would have been already repriced as of the end of March, which still did not happen because, as I said, due to the different repricing timings of the loans and deposits, there is still further repricing that will happen in the Q2 . In the short term, we are still going to continue to see increase of the NII, but as I said, we also expect gradual increase of the average costs of the deposits.
There are indeed many questions regarding NII, but we answered as much as we could. The other questions relating to results touch upon our cost of risk. There's one very specific question about relatively low cost of risk in the corporate segment in the Q1 . What was the reason? I mean, any releases? There were a couple of questions regarding our thinking on the cost of risk in further quarters. Next quarters.
First, the NPL ratio remains stable. We did not face in the Q1 deterioration of the quality of the loan portfolio. Second, of course, we anticipate that the significant increase of interest rates can generate in the future some additional non-performing loans. As a consequence, we anticipate that instead of having a cost of credit risk around 50 basis points, which was our original plan, that we mentioned in one of the previous meetings, that it can be higher but not significantly higher. For the time being, we are assuming that the cost of risk for the full year could be somewhere around 60 basis points over total loans.
As I said, for the time being, we did not see yet deterioration of situation both in the retail and in the corporate portfolio. As I said, we can assume that if interest rates will continue to go up and will remain high for some time, that of course then we should not expect 50 basis points over total loans, but rather somewhere in the range of 60-something basis points.
Thank you very much. Inevitably, there are questions regarding our Swiss franc portfolio. One numerical questions, how many active loan agreements do we have in Swiss francs? I think it's very easy to actually calculate because we provided the drop of the number of active agreements and the year-end number. For the simplicity sake, it's below 45,000 at the moment. More important question is about the settlements. A comment on customer propensity. Do we expect similar rate going forward? Will people be less inclined to convert given PLN rates and so on and so forth? What's basically the outlook for that?
Our target is to maintain these levels. I think we said the last quarter that our goal for this Q1 was to reach again these 2,000. We did a little bit more. This, I would say that this is our pace of execution, or at least our intention. The way that we structure our openness and the position with the customers, we are adapting more or less to what are the conditions. There was a time that the idea of most of the customers were to make early repayments. A lot of them went through conversions, then another early repayment again. Sometimes the concerns were more the FX rate for the conversion. Now we see also that it's very important to have a good offer in terms of fixed rate on the conversion.
We are adapting more or less to that. We have been putting a lot of effort on this area, not only with a large group of senior negotiators to talk. We always maintain the same person talking with the same customer and tracking all the conversations that were done during this period. Also a lot of our data analytics, trying to understand what are the groups, the ones that already have a low balance, the ones that have still a long duration for the loan to the end, the younger ones, the older ones. Adapting these to the situation. We don't forecast in a quarter to make something outstanding. Our idea is to go like this. Our view for the Swiss francs is very clear. We want to negotiate and reduce the portfolio as much as possible.
Of course, this is a lot of effort and also a lot of money invested. We think this is the only way to really solve the problem. Is not just by provisions, because the problem don't before converting or settling. It's not solved. Another part also is to make higher provisioning. In our view, it's the only ways to shorten the problem of this legacy portfolio that we are having.
Thank you very much. There are also questions relating to our origination of cash loans. In the Q1 , it somewhat dropped. On top of that, there was a question about the outlook for both cash loans and mortgages in the remainder of the year.
There are moments that the activity, the commercial activity is very strong, but sometimes the financials are not so strong. There are other times that financials are very strong and the sales growth are not so strong. I think this quarter is a quarter of very strong business financial results. If we take out, of course, the FX legacy portfolio, we have very strong business and financial results shown in the adjusted return on equity. Also, which is also important, very strong operational results. When we see these efficiency results. When all the savings, all the redesigning of the processes, standardization, automation that were done are shown in the adjusted cost to income.
It means that we are able to analyze, decide, and disburse the mortgage at levels that are very high without the needs of the teams and the costs that we were having two years ago, for example. It's obvious that also when we are in a moment with a war in a country that are neighbor with high inflation and with higher interest rates. The demand for credits it tends to reduce from the cost of the credit to the less confidence from the consumers. This is obvious. We are believing that this, unless there are a lot of more radical changes, maybe we can see some improvement at the middle of the year.
It's obvious that we will see lower production of consumer loans and lower production of mortgage loans in the year 2022 in the Polish banking system than we saw in 2021. This is obvious for us. However, the profitability of the production will be more interesting, probably.
Thank you. There was also a question relating to our cost rationalization activity, whether we expect further reduction of branches going forward, whether we expect further reduction of headcount, or shall Q1 be considered as a more stable level.
We believe that the trend is this one. There is a huge work done by the bank in terms of digitalization. This digitalization is of course bringing a lot of efficiency and will decrease the need of physical presence as time goes by. It's a point of equilibrium that is together with increase of business as well. It's on one side having more business that will require or that will not require more physical presence, and on another side even reducing the physical presence. We are not in a hurry, but there is a natural trend of reducing branches. We think that this will happen very normally in the next years.
Probably we are in a phase of some slowdown on the reduction, and we will see another wave of increased reduction in next year. Anyhow, we are very committed with efficiency. It's the process that still ends up to be very physical is customer acquisition. It's a process that although the customers they will look for pricing, for characteristic of the accounts and all of that for digital, the onboarding, the first account, the discussion with the bank employee about their needs. The first one is a lot physically. This will slow down a little bit, probably the pace of decrease of branches.
We do not see any business model in banking in the future in Poland that will require the maintenance of the physical presence that we have at the moment. It will decrease for sure, without any big target for that. We will decrease as the consumer also will require less and less physical presence.
Thank you very much. Fernando, a few questions to you. They mostly regard capital. Well, first question was about the impact of negative other comprehensive income on equity. What is the size or impact of revaluation or negative valuation of bonds? There was also a question about capital in the context of our ability or willingness to produce more loans, whether we'll be selective or are we reducing appetite, and so on and so forth.
Okay. The reduction that we had in the capital ratio in the Q1 was mainly driven by the impact of the revaluation of the bond portfolio that is valued through other comprehensive income. On page 36 of our report that today published, we can see that the results in other comprehensive income of debt securities in the Q1 was minus PLN 394 million. Seventy percent of this amount affected our funds. Additionally, also due to the fact that this year, the impact of this valuation of the bonds on our own funds is bigger from 30% in the end of December to 21% - 70%.
There was an increase of the weight of the losses that were already shown at the end of the year. At the end of the year, just to remind, we had around minus PLN 700 million of negative valuation of the bond portfolio. At that time, it counted as 30% of that to our funds. Now, with the additional depreciation, 70% of that is booked in our funds. The majority of the impact on the decrease of the capital ratio is in fact driven by the valuation of the bond portfolio because the net loss, which also affects our funds, was much smaller than the one that we had one year ago. It was only PLN 122 million.
Of course, going forward, there will be a moment in which yields will stabilize, and of course, these losses will start to be reversed because through the NII, in fact, because the bonds that have the negative valuation have yields below the current level of market rates. Gradually, this will come through the net interest income line. Of course, how much it will be reversed this year depends on to what level the bond yields will stabilize after this significant correction. I think this is the biggest explanation. At the same time, this impact was partially offset by a reduction of risk-weighted assets during the quarter. Regarding the question if this affects or not our appetite for lending, no.
In fact, we had already said, I think one quarter ago, that we were focused in continuing the development of our retail business and also companies business. We were not fighting for large single ticket deals, in which we have relatively low margins and high consumption of capital. The same approach is kept on an ongoing basis.
Thank you. There was also a question about our cost to income, but more importantly, what are we going to do with the benefits of cost to income ratio? Are we going to invest, spend more? In general, what is the outlook for cost in 2022?
We are maintaining our strategy, and we have a cycle that we will invest heavily in terms of digitalization. We stick to our targets in terms of not only customer growth, but also we say that we would achieve 3 million, but also in this 3 million, 90% will be digital customers. Also, the sales would be on average 80% of them through digital channels. This means a lot of investment in terms of data analytics, in terms of new systems, new people, new technology. These have been the cycles that we are doing. There is nothing radical to do at the moment.
I would say that this is so we would keep investing from one side in the development of the bank, their customer base, their products and satisfaction of the customers. Digitalization that we see as the only way to have a viable, cost-effective banking business in the future. There is other side that is very visible that we are investing, which is holding our legacy portfolio. It's more and more profitability and better capital position we will have, the faster we will negotiate provisioning and solve this legacy part. Of course, every time that the Swiss franc is strong and zloty is weak, we delay a little bit the ending process of this saga. Anyhow, we are as committed.
Just because sometimes it's a little bit longer or more costly, as it was shown, for example, this quarter. Even when it is more costly, the settlements, we do not give up on doing the settlements.
Thank you. We also have a question about our bond issuance plans in 2022 and 2023. What is the size of the planned issuances?
Yeah. I will say around the number for 2022, the number can be a little bit higher or lower, but somewhere around EUR 300 million-EUR 500 million could be the amounts to be issued during the current year. In the next year should not be higher than this. In fact, it always depends on the update of the final MREL target, which is something that will come every year. We had a recent update in the end of March, and in one year time, we'll have another update. Things can change a little in the meantime. For now, this is what matters is the size that we could do during the current year, which is the one that I mentioned.
Thank you very much. I think we've reached the end. Obviously, the inevitable question that came in very different permutations and forms relates to the government measure disclosed yesterday. I think Noemi put it the most precisely. I will read it out loud so that you know how the question is. Can you please comment on the government measures disclosed yesterday? Do you expect the new PLN 3.5 billion fund to cover the one-sixth decline on loan yield? Otherwise, how could this be implemented? Do you think the comments on WIBOR are a part of the ongoing discussion or something additionally worrying? There are many other questions about what you think of this idea and how this might impact our business.
Precisely on this part, this information is very recent. We need to have some time also to see what's going to be the impact and also how to execute. The previous fund to support the borrowers was created but then never used it because we need to understand that in Poland, mainly we have inflation based with salary increase. The disposable income and the conditions of the consumers in Poland is very strong. Although it's obvious that the cost of credit will increase, but even so, to go to a level that would require assistance, we end up being a smaller group. Of course, this will be a cost for the banking sector.
I just hope that we will not just increase the fund without knowing how to use it as it was last time. It would be better if we start to use it, and then we grow whatever it needs. Because at the end of the day, for the banks, it's a contribution, but if it also helps to solve NPLs, it's not so bad. What the worst is just to put another PLN 3 billion on the fund that already has PLN 600 million, and then the money stays there without any usage. In terms of the WIBOR, we will need to see. Of course, it's every time that we make these radical changes, it's always a disturbing thing for the market. We need to understand also that WIBOR is not just used in mortgage loans.
It's interbank rate. I think this needs to be discussed and then with the proper timing. We heard that it's going to be in a year time, the possibility to change to overnight rate. If it is overnight rate, we are talking about this, a difference that is not very large in the long term. I think a long time ago or some time ago, I said something against the fast and sharp rate hikes that sometimes happens. Some analysts also will then tweet about this. Then this is clearly not our favorite environment. We prefer to have a cycle that is longer and then in small steps because this is the cycles that allow to the consumers to change their behaviors.
These radical steps make sometimes too fast adjustments, but also these adjustments have decreased of demand for credits and sometimes increase of cost of risk, and worse than that, a lot of turbulence and public pressure. For the time being, I would like to highlight that from another side, the Polish banking sector is highly profitable. If we still have a very costly banking tax, and even so, the banks, if we would take out the Swiss franc mortgage costs, the system is very profitable. Sometimes the system ends up being able to introduce in turn inside of the economics of the systems and inside of the pricing, these additional costs that are put on top of the system.
Okay. Thank you very much. I think we've answered all the questions diligently. Thank you very much for this, gentlemen. This concludes the Q&A session, and maybe it's time for closing remarks.
Not just, I end up to say a lot of things in the Q&A, but so we end up with the results that we are quite happy. Of course, it's a loss, but when we extract the cost of the Swiss francs, we see a very solid business model and with a very profitable bank. Also, we are confident that although with inflation and some increase of the costs, but this effort in the last two years in terms of efficiency are here for staying. We will have a much higher rate of increase of revenues than we will have in terms of costs. This is again. We maintain our position in terms of Swiss francs, as I said.
We hope that we will keep on a quarterly basis to bring this capacity of settlement between or at least 2000, let's call it. Let's maintain this target on a quarterly basis to be able to deliver around 2000 settlements, and like that every quarter to solve the problem. As Fernando said, the cost of risk that we understand has been or is a worry of a lot of the analysts, at least when we look to our portfolio and when we incorporate in the companies the dependence of Ukraine or Russia for raw material or for markets or something like that, or even the higher installments in terms of individuals, we see an increase of the cost of risk, but nothing dramatic.
Besides that, we are, of course, very confident in terms of the strategy for 2024. All of these changes, these additional charges that we are talking about, they will be, of course, with a negative impact in the short term. At the end, in the long run, we don't see that this will be dramatic because, as I said, the market tends to adjust and to reprice to accommodate these additional costs. We are quite happy for the numbers that we are having in terms of more strategic. Number of digital customers, sales done in digital, customer acquisition. All of that, we believe that these numbers are quite interesting.
Even in terms of corporate, we also try to give some flavor in our presentation and to disclose a little bit more what we are doing in this segment. We think that everything is in line in our plans to achieve what we propose for ourselves in 2024.
Thank you very much. This concludes our call. We will meet precisely in three months' time on the twenty-sixth of July. Thank you very much for listening. Thank you very much for your questions. As usual, the IR team is at your service. Thank you. Goodbye.