It's 2:01 P.M. Welcome everyone to Bank Millennium 3Q results call. Feels like a little bit like yesterday, but it's already October, unfortunately. We are first again. I mean, in terms of the speed of releasing the results to the market, and I hope we're also first in many other disciplines, so to speak, or rankings. You know the drill. First, we will present results and additional comments, then a Q&A session will follow. We have the usual participants, Mr. João Brás Jorge, our Chairman of the Board and CEO, and Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. Gentlemen, the floor is yours.
I start. Good afternoon. Dzień dobry [Foreign language]. Welcome to our results presentation. As usual, I will guide you through the presentation with two parts, one dedicated to the financial performance and the second to the business development. Going directly to the first part and starting with the page five. As we had announced several quarters ago, we consider 2021 a transition year before the new strategy rollout. But at the same time, we had announced some short-term targets to be achieved during this year, and they are being fulfilled. In fact, as you can see on this page five, we have a net profit without FX mortgage costs up by 74% year-on-year.
We have strong increase of sales of cash loans by 20% year-on-year, and also a very strong year in terms of origination of new mortgage loans at around PLN 7 billion year to date. On the operational front, we continue to focus on operational efficiency and which is translating into continuation of the optimization of the branch network with the number of branches down by 7% year to date, and achieving a reported cost-to-income ratio below 46%. On the digital front, we have this ambitious target regarding the share of digital clients, which is already above 79%. We continue the drive for innovation and in recent months, we have launched a mobile app for junior customers of the bank.
Pages number six and seven show highlights of the key profit and loss items and key balance sheet and business items. We will go through them in detail in the next pages, but as a quick snapshot, we can see the continuation of the recovery of net interest income translated into a growth of 2%, 2.1% of NII versus the previous quarter. Also, strong growth, double-digit growth of net commission income year to date versus the last year, and a decrease of operational costs by almost 10%. At the same time, benefiting from much lower cost of credit risk and on the other side, much higher provisions for legal risk during the first nine months of the year.
The NIM also recovering and the cost to income, as I already mentioned, below 46% and on an adjusted basis at 43%. Page seven also shows the continuation of the solid trends of growth of business of the bank translated into reaching almost PLN 100 billion of customer funds, more than 2.6 million active customers, more than 2.2 million online and mobile customers. At the same time, the loan growth is driven by mortgages with a significant reduction of the net value of the FX mortgage portfolio. Moving now to the details of the results on page eight.
We had already announced we still booked a quarterly loss in the third quarter of PLN 311 million, which is similar to the first quarter. When we look at the underlying results, excluding the FX mortgage related costs, we have a clear improvement, which you can see on the top right graph of page eight, with net result before these FX mortgage related costs of PLN 257 million in the third quarter of the year, which is 34% above the same quarter of last year. If we calculate the ROE on an adjusted basis, without these costs, the ROE would be above 12%.
Operating income lower by 5% versus the third quarter of 2020, which was driven by the additional costs of settlements of FX mortgage loans because the core income is already clearly growing. Page nine. The main financial highlights of the third quarter and nine months. This solid recovery of the net profit with a growth of 52% year-on-year if we adjust the net profit by the FX mortgage provisions and related legal costs and costs connected with settlements with clients, as well as even distribution of the BFG costs. The NII rebounding by, and the NIM already up by 12 basis points year-on-year on a quarterly basis. Fees up by 11%, and the cost reduction by 10% year-on-year.
On page 10, we can see the evolution of the net interest income, which shows a clear rebound. In the third quarter, the net interest income grew by 2% year-over-year, and on an accumulated basis, it's only lower by 1% versus the first nine months of last year. We have gradually been eliminating the negative deviation versus last year. Our projection was that we would already close the year with an NII above last year. Of course now with the recent increase of interest rates, this will be even more than achieved. It is also visible the recovery of the net interest margin from the lowest level that was achieved in the third quarter of 2020, and we are already above 2.6% quarterly NIM.
On the other side, net fee and commission income also show a solid performance, 11% growth year-on-year. The third quarter fee and commission income was 12% above the homologous quarter of 2020. We see a clear progress in fee and commission income connected with account service and others, cards and loans. Moving to the cost side on page 11. Total operating costs are lower by 10% year-on-year, and this is an effect on one side of lower contributions to the banking guarantee fund, and on the other side, a number of cost saving initiatives. If we exclude BFG and integration costs, still total operating costs are lower by 3% year-on-year. And this is both driven by staff costs and admin costs.
The reduction of costs is following the gradual reduction in the number of employees, which at the end of the third quarter was at 6,366. A reduction of more than 800 in the last twelve months. By the optimization of the branch network, which had the biggest impact last year following the merger with Euro Bank. Still, in the last twelve months, we have reduced the number of branches by 61. Regarding the quality of the credit portfolio on page 12, it remains very strong with impaired loan ratio or NPE ratio of 4.7%. This is supporting the relatively low cost of risk throughout this year.
In the third quarter, total cost of risk reached 42 basis points over total loans, bringing the total nine months cost of risk to 36 basis points over total loans, and this is still clearly below our historical average. The good performance is happening both in the Retail and in the Corporate portfolio. Page 13, moving now to the FX mortgage portfolio. We continue to have a drive in order to decrease the absolute and relative size of the FX mortgage portfolio. The portfolio in currency decreased by 12% just in the first nine months of the year.
The portfolio is being diluted in the total loan portfolio following the accelerated pace of amortization or conversion to Polish złoty, and also after deduction of part of the legal risk provisions that we have been doing. At the end of the third quarter, the share of Bank Millennium originated FX mortgage in total loans was at 12.6%. In the third quarter, we have still noticed continuation of the inflow of new court cases, which you also can see the evolution on the bottom left graph. The inflow of court cases was very similar to the second quarter. On the other side, we have still reinforced the provisions for against the legal risk.
As we announced already two weeks ago, we created in the third quarter with P&L impact PLN 452 million of provisions for the legal risk for the Bank Millennium originated FX mortgage portfolio, bringing the total accumulated provisions to over PLN 2.3 billion. This means, as you can see on page 14, that the total accumulated provisions now represent 20%, more than 20% of the gross FX mortgage exposure of Bank Millennium. Continuing the acceleration of the coverage of the legal risk. We believe based on the recent trends that we are, let's say, having above average, above market average coverage of the FX mortgage portfolio. Another important driver of the reduction of the FX mortgage portfolio is the negotiations with customers of conversions of the loans to Polish złoty or early repayments.
In the bottom left of page 14, you can see the comparison of the inflow of court cases with the amicable settlements with customers through conversions or full early repayments. As it is visible in the last two quarters, the number of amicable settlements clearly exceeded the number of new court cases. Of course, the settlements imply a cost, and this cost was significant in the third quarter and reached almost PLN 146 million. It is helping to, as I mentioned, to reduce the absolute and relative size of the FX mortgage portfolio, and also mitigating the legal risk.
On page 15, liquidity continues strong and the group capital ratios are still much above the minimum requirements, with an excess of close to 4 percentage points of Tier 1 and TCR over the minimum requirements. Moving now to the second part of the presentation about business development with the main highlights on page 17. We can say that Retail business is growing fast already above pre-COVID levels, and also the Corporate business shows clear signs of improvement. Overall, loan growth was 7% versus one year ago. Strong mortgage sales of PLN 7 billion. Cash loan sales higher by 20%. Investment products higher by 16% versus one year ago. Active digital customers at 2.2 million. Customer deposits growing 5% year-on-year. Moving to page 18. The strong growth of retail loans is being driven by PLN mortgages.
Overall total mortgage loans grew 9%. Of course, this growth was offset by the reduction of the FX mortgage portfolio. Already we show solid growth in loans to companies by 5% year-on-year, and consumer loans by 4% year-on-year. At the same time, the structure of the loan portfolio continues to change with an increase of the share of PLN mortgages to 40% and the dilution of the FX mortgage portfolio, as I already mentioned. On the deposits and customer funds side, here we had flat deposits quarter-on-quarter. This is a result also of the completely not aggressive position of the bank in terms of paying for deposits. Overall, year-on-year, we have a growth of retail deposits by 5% and corporate deposits by 6%.
On the investment products, a growth of 16%, as I mentioned, although in the third quarter, the growth was smaller only by 1%. On page 19, looking in more detail to the Retail portfolio. A very strong growth of PLN mortgages by 27% year-on-year, and also very solid growth of consumer loans by 4%. The retail customer funds, driven by the growth of current accounts and savings accounts and with a decrease year-on-year of term deposits, which is natural after having interest rates almost at zero level. The mortgage sales were very strong in the third quarter, PLN 2.25 billion, slightly below the third quarter, but the trend continues to be very strong.
Year to date, the growth of mortgage origination is 50% above the same period of last year, and with a market share above 12%. In the cash loan sales, the rebound is also visible. Almost PLN 1.6 billion origination in the third quarter. Year-on-year accumulated growth of 20% and a market share above 10%. Still on Retail, the active customers grew by 32,000 versus the previous quarter. This is also being followed by the growth of the number of current accounts after the cleaning of some inactive accounts that we have done two quarters ago.
The same effort is happening on the micro business segment with a growth of 9,000 year-on-year and also a sustainable growth of 98,000 cards during the last 12 months, in debit cards and 8,000 in credit cards. Moving to page 21, on the digital front, the numbers are really solid. As I already mentioned, more than 2.2 million active digital users, of which 1.9 million mobile-only users. More than 1 million BLIK users in the third quarter, and with significant growth of BLIK transactions during the third quarter when compared with the same period of 2020.
Important the fact that we had 1.8 million transactions authorized by clients through the mobile app, contributing to a significant reduction in the consumption of paper, as it is shown on this page 22. Page 23, still about digital, the importance of this channel for investments. The digital channels already represent 50% of investment products sales, and 55% of the MiFID's questionnaires in August and September were already completed by clients online. Page 24, the same development in our goodie smart shopping platform with more than 100,000 app downloads in the third quarter, and a significant amount of turnover of cashback in the third quarter, PLN 141 million, and PLN 2.8 million of cashback returned to customers. On page 25, moving now to the Corporate business.
A clear rebound on the lending side. Especially visible in the growth of factoring portfolio by 13% year-on-year, and also leasing by 5% year-on-year. Leasing has been probably the most affected segment of the Corporate business during the pandemic, but now shows a clear rebound. Finally, other corporate loans flat year-on-year, as we have been focusing on lending which fulfilling minimum profitability conditions and so has been a more selective growth that we have been applying in recent months. There is also a strong pickup in transaction activity, and also we continue the process of digitalization of the client service. On page 26, you can see the clear rebound in the leasing that I was mentioning.
The origination of leasing was above PLN 1 billion in the second and third quarter, and in the first nine months of the year, leasing sales were 65% higher than in the same period of last year. The same picture for factoring with the growth of the factoring turnover by 23%, year-on-year. These are the most important highlights of our results of the third quarter and nine months of the year. Now we are open to questions. Thank you.
Thank you very much, Fernando. As usual, we'll try to group questions into themes or subjects for the convenience of the listeners, the viewers. First, it looks like we have done a very good job in terms of explaining our historical results because there are very few questions about past, but nonetheless, there are some. First question I did not quite understand, but maybe you'll be able to get it better. The question is: What is the reason for higher write-offs in 3Q compared to the previous quarter? It may be relating to credit charges, right? Simply.
Yes. First of all, in the second quarter and in the first quarter, we had a partial support to the cost of risk from the sales of NPL, which are shown on page 12. This is one reason. In the third quarter, we have no sales of NPL. In fact, it is the main reason versus the second quarter, because in the second quarter, we had PLN 90 million that came from the sale of NPLs. The second also that, as it is visible on this page, we had a negative cost of risk in Corporate during the second quarter. Of course, we are still growing, so we cannot assume that the cost of risk of Corporate will continue to be negative.
It was very small, very slightly positive, five basis points in the third quarter. Basically, these two elements together with the growth of the loan portfolio, because we cannot forget that we are growing the loan portfolio, not contracting the loan portfolio. This is the growth of the loan portfolio also drives some increase in the amount of the provisions. As an explanation for the average cost of risk, I think these were the drivers.
Okay. A question for Mr. João Brás Jorge. The analysts have spotted that we had a drop in disbursements of mortgages in the third quarter. They ask for a reason, they ask for outlook, and also there's a question of probably a potential borrower, because the question is about how long does it take Millennium to issue a credit decision?
I'm not so sure, but I have the memory that we said in last quarter meeting, maybe it was with the press, I don't remember, that we were doing a little bit more than we were forecasting or that we wanted. There was a big discussion how to reduce the sales in a product that the customers like, the network like to sell, everybody likes in the bank. We also understand that we need to have a quite balanced position and so we end up making this reduction, forcing a little bit the process. We have this idea that of course it will not be for everything.
Of course there will be always special programs, but to digitize as much as possible the process, otherwise it would not even be possible to disburse 50% more than first three quarters of last year. Continuing with efficiency, reducing people, especially mortgage net in the past, in the previous process, was a very paper and human intensive process. We like this kind of volumes that we are having. Maybe we could go again to this 2.5, but we are not obsessed.
We would like to have this kind of production for a long period and not have excess of production during some time, even because although it's low consumption of capital, there is some consumption of capital. We have been doing a big effort in terms of risk-weighted assets on the Corporate side, reducing exposures that do not have side business, less interesting margins. Of course, mortgage is low consumption of capital, but we know that we need to preserve capital during this period. We prefer to have this for a short period of time or for a long period of time, these levels of production.
Between PLN 800 million disbursement per month, it should be the level that we can do. We can do a little bit more, but not much more. That's our target. If I may remember well, we are working at the moment with four days time to yes. If the application is done in the proper way, we should be able to have four days time to yes. These excessive fast time to yes is creating some issues because then the customers are asking to go a little bit lower or slower to have time to prepare all the process from their side. We are very happy with this redesign of the process that we did.
We believe that this also give inspiration for some reengineering in other process and continued with the efficiency that we start one year ago.
Thank you very much. As you have heard, you're more than welcome to come to Bank Millennium and apply for a loan, and you will be processed, so to speak.
If you're not, you can email me claiming.
We don't want to be too quick because it's causing a lot of discomfort to our clients, apparently. Okay. Sticking to results per se related questions. There was a question about the reason behind the drop in credit fees in 3Q. Was it related to lower origination of mortgages that we just touched upon? What we think is the outlook for fees in general for the rest of the year and for 2020?
We are showing on page 10 of the presentation the breakdown of the fees. In fact it came from two sides. From three, in fact. We had a little bit lower loan fees, slightly, also a little bit lower insurance fees. Sorry. Because we had some settlements, extraordinary annual settlements in the second quarter. Sorry. In general, as you know, not all the fees and commission income are completely regular through time, so we need to take this into consideration. In the second quarter, we had some, let's say, settlements, especially in insurance that were beneficial for the drive. I think knowing that this is not a regular item in every single quarter.
That's why I highlighted that versus the same quarter of last year, we had a growth of 12%. I think what is also important is to take into consideration, knowing that there is sometimes some seasonality of some of the fees that still on a quarterly basis, year-on-year, we still have a solid growth of 12%.
Thank you. Sticking to Q-on-Q volatility of movements, there was also a question about the costs, whether there were any one-off admin costs in third quarter because they increased on a quarter-on-quarter basis. Following up on this, what's the outlook for the remainder of the year in 2022, especially in light of the HR cost inflation?
I will answer the first part. In the second quarter, we also had some extraordinary settlements of costs that reduced, in fact, the cost base of the second quarter, and which did not occur in the third quarter. That's why there is this comparison. I mean, this growth versus the previous quarter. Although if we compare with the third quarter of last year, the costs are still clearly lower than the third quarter of last year.
In terms of HR costs, we are managing as we can. It's. There is clearly a huge salary pressure in Poland. There was this salary pressure already before COVID pandemic. With pandemic situation, there was some, I would say, during last year, some slowdown, but this year is speeding up again. This means that somehow we are offsetting the head count reductions that we are having, and the benefits of this head count reduction with some salary raises. Also, there is something that we also need to keep in mind is that the business model is changing and also the structure and the type of employee that the bank has is also changing.
There is increase in the constant wages of IT, data science, customer experience professionals that they are in high demand and at high cost for the bank. This is something that it's a reality that is for staying. The bank will manage in a way that will retain these best people and will offset, if not all the personnel costs pressure, at least partially, by continuous improving in the process and having, as time goes by, less and less head count.
Thank you. To finish off with results-related questions, there was a question about net losses eroding capital and also about and our view on the current capital position and excess of capital. Within that context, there was also questions about bond yields which are rising and whether we expect them to have negative impacts on our 4Q capital and capital ratios.
Regarding capital, of course, when we are having quarterly losses, this is of course having an effect on our own funds, which is also partially offset by the careful management of risk-weighted assets, which we have been doing and especially in the Corporate area. Still, as we have shown, we have a significant excess of capital ratios over the minimum requirements. This is clear. Second, we also believe that all the effort that we are doing now in terms of provisioning and in terms of mitigation the legal risk, also will contribute sooner or later to the gradual reduction or even elimination of the additional capital charge that we have, which is still relatively high. We have a Pillar 2 buffer of 3.4 percentage points.
We believe that through time, with the dilution and reduction of the FX mortgage portfolio and mitigation of the legal risks, we can continue this process of reduction of this Pillar 2 buffer and ultimately to expect its elimination, which will release further capital for the bank. This is what I can say regarding the capital. The other question was about?
Bond yields.
Bond yields. This correction on the market already has impact on the third quarter, as it is shown in our financial report in terms of other comprehensive income. I think this is clearly stated there. There was a further correction in October, which will further imply a correction in the valuation of the bond portfolio. We were not very aggressive in terms of the bond portfolio. Because basically our bond portfolio was essentially concentrated in maturities up to four years. Of course, there is always a negative mark to market because all the yield curves moved up. But still, we believe that within, I mean, the overall size of the bank, this is relatively diluted. I think we will not have a major impact coming from that.
Thank you very much. Sounds like the interest rate hikes have sparked attention, and this is becoming a hot topic again. We had various questions relating to this subject. In general, the questions about our sensitivity to interest rate hike, whether we repeat our sensitivity from the first half report, what is the outlook on NII as a result, whether we expect growth in revenues in the fourth quarter as a result of the first 40 basis point hike. It's all around this subject.
I will start answering the question. First of all, as I mentioned during the presentation, even without interest rate, the recent interest rate increase, we were already in a clear trend of finishing the year with net interest income for the full year 2021 above the full year 2020. This was going to be achieved clearly. If you remember, in the end of the first quarter, we were 11% down year-on-year. In the end of the second quarter, 4% down year-on-year. In the end of the third quarter, 1% down. We were already clearly in a trend of reaching the full year 2021 above full year 2020.
Of course, the recent increase further makes us comfortable regarding the achievement of that result. In terms of sensitivity, we stated the sensitivity both in our first half report and once again now. We stated that an increase of 100 basis points of the yield curve would translate into a growth of NII of 11%, in the next 12 months versus the previous 12 months. This is the sensitivity that we have disclosed. This is a static calculation, obviously. In practice, of course, it can be better or worse depending on concrete actions that are taken in terms of repricing of products, both on the lending and on the deposits side.
The sensitivity, as I mentioned, is 11% positive to a 100 basis points parallel shift in the yield curve.
In our view, and I think we said this already in the past conferences, the last interest rate cut of 40 basis points in summer 2020 was already outdated. If you remember well in that time, NBP had a forecast of a drop of GDP of 5.4, but the banks that they were using high frequency data, they were already forecasting just 3 as it was, for example, our case. It was a little bit excessive, and we are offsetting this because also it was visible that the inflation, even before the energy crisis, it was clear that the inflation was not just a supply issue, was coming back with the pressure in salaries that we saw in 2018 and 2019.
This first 40 basis points is an adjustment. We are not foreseeing a lot of corrections to NII. Of course, maybe we will see some in corporate deposits, some adjustments, some fees that were charged when the interest rates were really close to zero, can disappear in the long run. Of course, there will be interesting part in terms of new production of cash loans and old production that will readjust meanwhile. This is obvious. This is a first impact. As we will have other hikes of interest rates in the future, then we will see some adjustments.
We can also believe that the banks will appropriate all of the benefits of the hikes of the interest rates. There will always be some part that will be also offset by increase of cost of deposits or savings later on. If there will be much higher interests in terms of consumer loans, maybe there will be some offset in terms of commission. It needs to be seen as I think the first one is it's just the readjustment without the needs of the banks to compensate a lot this initial part offered for 40 basis points. If we have another 50 and another 50, there will be also some offset that we need to start to have this in mind as well.
It will not just be a benefit in loans and zero cost in deposits. There will be somehow some, of course, there will be benefits for the bank, but it won't, it will not be at 100% of the interest rate hike.
Thank you. IR is not typically involved in sales of banking products, but apparently we have a person here on the call who is also interested in taking a consumer loan. The question is, what is the typical interest rate on consumer loan? Will it go up with rate hikes, and by how much?
We believe that consumer loans are attached, or let's say it a different way, the system of the maximum interest rate in Poland is very conservative. The majority of our production is attached. It's at maximum of interest rate, let's call it like that. It's just lower when we make specific actions that we do for customers that are, what we call it, new to the product, so to improve penetration of the product in our database, shorter maturities, shorter also, or smaller amounts. That also we do to improve the cross-selling of our database. It's the maximum. As the maximum will go up, we will also go up in that perspective.
Of course, it may be a specific customer with a specific transaction. I don't know what we are doing at the moment, but in our view, this is the right pricing, so we will move with the. I think this is the important part of the question, is that if we will go up with the maximum interest rates as the interest rate go up with the increase of the reference rate, then yes. I would say almost all the production, or at least the vast majority of the production, will go at same pace as the interest rates will go up and the maximum interest rate will go up.
Okay, thank you very much. We're through with, let's say, technical questions, and we can congratulate ourselves, Fernando, on disclosure of legal risk, because there was no question about legal risk provisions this time. However, we've probably done less well on the settlement front, or maybe it's a novelty, because we have many questions about settlements. Again, many permutations, but they all circle around one question. First of all, why is there a difference between the cost of settlements between third quarter and second quarter, given that the difference in the number of conversions and full repayments were so low? People ask about specific terms, and there's also a few questions about the tax treatment between the difference between FX legal risk provisions and cost of settlement with customers.
I will try to summarize the main points of all these questions. First of all, as we are showing on pages 13 and 14, in fact, we are trying to provide as much as possible disclosure regarding the evolution of the provisions on one side, the evolution of the number of court cases on another, and the evolution of the amicable agreements with clients which cover conversions to Polish złoty and early repayments of loans. Here in these pages, we have shown the full number of conversions to Polish złoty and full early repayments. On top of that, we still have some additional partial early repayments that are also negotiated. The second thing is that this is a process that already started quite some time ago.
Of course, now it has achieved a lot of visibility due to the number of agreements that were signed. This is a process that was already started many quarters ago. Even I remember that we have stated over time in the quarterly reports that we had a constructive approach in order to find solutions with the customers. Of course, this constructive approach was to try to have solutions that could be agreed between us and each individual customer. The conditions for each customer are different and the outcome for us and the loss for us depends on the specific characteristics of the loan.
It depends on when the customer took the loan, at which FX rate took the loan, how long was the loan, what was the average amount of the loan, what was the current outstanding, and so on and so on. There are a number of factors that impact. That's why we don't want to enter into averages because each customer is a customer, each loan has a different situation. That's why one of the differences between the second quarter and the third quarter is that although the number of the negotiations was not much higher than the second quarter, although still it was 300 more between the second quarter and the third quarter.
The profile of the loans that were negotiated in the third quarter probably involved bigger amount loans. Also some of these characteristics turned out to imply bigger losses for us than the ones that were settled in the second quarter. This is what we can say. It's not so much about are we giving more now versus what we are giving before. This is not exactly the issue. The issue is that things are evolving, also the FX rate unfortunately has been going against us. Each time that the FX rate is worse, I mean, that the Swiss franc is stronger, also our loss is increasing. There are a number of factors. The nature of each loan that is settled has a lot of importance for the final outcome.
This process is still going on, so we are continuing the effort in the fourth quarter. We will continue to hold negotiations. We also had this question today in the morning regarding expectations from the journalists, expectations about further settlements. This is something that it is ongoing. As long as there will be interest from the customer side, we are always interested so, and we are always available for the negotiation. We are not setting a time limit for this. We are always open for the negotiations. We expect that at least during the fourth quarter, we will have still a good pace of the negotiations. The third quarter was exceptional, in fact.
We still expect a good number of agreements to be signed in the fourth quarter. Regarding the tax treatment, the provisions that we have been doing and due to the fact that most of the recent trends of court decisions are more towards invalidity of the loan agreements. In general, in the third quarter, basically the provisions that were done did not have any tax effect. We did not consider, for the time being, any tax effect. The gross impact was almost equal to the net impact. This does not mean that it will be like this, but in a conservative way, this is how we have treated this.
The settlements were booked as an FX loss, and so this part, yes, we considered.
Within this context, there was also quite a number of questions about the value or volume of settled mortgages, which we did not provide. Honestly, we do not intend to provide it because that also would be a free lunch.
Yes.
You can divide one by the other, and this will lead you to wrong conclusions.
Yes. That we don't want to provide that average because exactly as I mentioned, these are individual negotiations. This is not a general offer. These are individual negotiations which are based on the concrete conditions of each borrower.
There were also a few technical questions, but I'd rather take them offline about our market share and a couple of other nuances which I don't think, you know, require the whole audience to listen to within the context of your time, which is obviously very precious. I wrongly stated there were no questions about legal risk provision. There was one, and it was how much of this was allocated? You can find the answer in the FX risk section. For your benefit, out of PLN 2.4 billion at Bank Millennium, PLN 2.1 billion was allocated. All the details are there, so just find it in the report.
There is also a question about court verdicts.
Mm-hmm.
First instance versus second instance verdicts. In the section of our quarterly report where we describe the legal status and the evolution of the court cases, it is stated that, I think we have 90%, 94% or 96% of the loans still before first instance verdict. We have an extremely small number of first instance verdicts, and even smaller of second instance verdicts. The first instance verdicts in recent times have been very negative because unfortunately the court started to automatically issuing decisions without taking care about the proper circumstances and analysis of the merits of the case. In the second instance, the picture is more blurred, so there is less visible distinction, although still the trend is negative. I should remind that there are still important issues which are not clear and which can significantly affect the final outcome of the cases as well as the amount of the losses.
Namely, it's still not clear and the right of the banks to be entitled to compensation for the use of capital. This is something, it's one of the pending questions in the Supreme Court and also in the European Court of Justice . If this question will be finally clarified as we hope in that the banks are entitled to this compensation, of course, this would change the picture in terms of the provisions that are being done. We think also that would contribute to a much more constructive approach from the banks and from the borrowers in order to reach amicable settlements.
Sticking to the FX mortgage risk, there was a question about our estimate of the maximum loss on the portfolio. It was actually relating to our year-end 2020 number, which was 2.4%. Obviously, we continue to provide fresh numbers and also again, I would direct you to the FX risk section because this time we provided a lot of data.
Mm-hmm.
The news.
The number is there.
PLN 3.5 billion is the new number. There are also other like scenarios provided, so you can see the differences between each of them. Lastly, there are a few questions regarding the outlook about cost of risk, fee, cost, lending volumes next year. I wonder if we actually want to answer them now because not far away from here in terms of time, we will meet again. Most likely in early December, we will be presenting to the market our midterm strategy, and maybe this will be a better opportunity to discuss about 2022 and midterm outlook. Unless you gentlemen want very much to share your thoughts on 2020 now.
We are working on that and so it's exactly this. In the beginning of December, it will be adequate time also. We are quite optimistic for the Polish economy and for the capacity of the bank to take opportunity on these developments. We keep our target of having in 2021 and 2022 the majority, not totally, but majority of the burn of this legacy risk. Just a flavor because I know that it's complex for understanding how this process is done and everything. We have more than 100 negotiators. These negotiators, they go through the process, always the same person to the customer.
Because it's a journey that is also complex to a person. We are converting a credit, we are unwinding a position, we are also explaining and a lot of information was done, a lot of expectations were done, a lot of press is done, a lot of sometimes conversation with lawyers were done. We have any settlement that we are talking about, it's between four to five conversations with the customer. It's a process that takes a long time and it's complex for both sides. Each case is really a case. It's not an offer that we launch through internet and it's everybody take it or not.
Even so, we recognize a lot of the merits of the possibility of a solution like that. In due time, we will take this decision. Now it's more we are reacting to what is the expectation of a customer. Sometimes these expectations connected with installments, sometimes there is expectation of selling the asset and then just repay and move forward. Sometimes it's looking for
Conversion and elimination of the risk or sometimes also some psychological sharing of the burden of these unexpected depreciation of złoty. It's a mix and it's a process we took a long time to achieve this, as Fernando said, and we start a long time ago. Last year, in 2020, we made 1,500 or something more settlements, so it was a process that during 2020 also we started. There is waves, sometimes there is a big interest from customers, sometimes a little bit less, and it's not what we are forecasting. For example, we are forecasting less activity at year-end. Maybe it's going to be exactly the opposite, and there is a lot of people that wants to solve their issue before the year-end.
We don't know. We believe that each case that is solved is good for the bank in terms of reducing the risks of this legacy portfolio, but is also good for the customers and solving this situation that is not comfortable to anybody.
I'll try to earn my sales bonus again. Do come to Bank Millennium, either for conversion, settlements, new product, whatever, do come and talk to us. Fernando, do you have any questions that are interesting for you to answer? I mean, I have to say that Fernando is very diligent. He goes through the list, you know, in small steps, and he doesn't like to omit any question, which is a bit scary for an IR person, but life is as it is. Any question that you would like?
No.
Okay.
I think we covered most of them, but some technical issues we'll
Yes.
Discuss with you further. Clarification.
Okay. Well, thank you very much to all the viewers for your presence, your time and your interest and obviously all your questions. If we omitted any of your questions, I do apologize for that. It was not intentional. If you feel that any of your questions have not been answered, please do contact IR department. We'll be happy to help and answer. Gentlemen, thank you very much for your time. The viewers, you will hear from us shortly. As we said, before the end of the year, we will likely come back and we'll share our thoughts about our near-term plans and prospects. It's not the time for the new year greetings yet or Christmas greetings. You'll hear from us again. In the meantime, keep safe, stay healthy, and good luck. Thank you very much.