I should say welcome again because it had been not long ago that we've met last time, and I hope we have not reached an annoying level of frequency of meeting with yourselves. It's just a worrying level, perhaps, of how frequently we come to your screens. Before we start, obviously present our guests or speakers today, Mr. João Bras Jorge, Chairman of the Management Board, CEO, and Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. Before I let the gentlemen speak, I need to do a bit of a housekeeping duty. I would like to remind you that the data that we present today is preliminary and unaudited, so you need to wait until twenty-first of February for the publication of full and audited data. Thank you very much. Gentlemen, the floor is yours.
Thank you. Good afternoon. Thank you for attending this presentation. Yesterday when we were preparing for this presentation, I just recalled that last time that we were able to have a physical meeting here with the presence of analysts and investors was already two years ago. It is already two years, consecutive years that we are making these presentations only through electronic channels, so it shows how quickly the time flies. Today we will present the Q4 and full year 2021 preliminary results. I will not go through every single detail of the presentation that was previously distributed to you, but I will try to focus on the main points and on the main messages regarding the performance of the bank during the year.
I will start with page number five, where if you remember one year ago, we said that 2021 would be a transition year before new strategy rollout, and at that time, we presented the snapshot of the main objectives that we were trying to achieve in the year 2021. Now, after closing the year, we can say that on one side, we had a quick recovery of business results. In fact, we had a record year in terms of origination of mortgage loans, with almost PLN 10 billion of new mortgage loans originated, and also with the sales of cash loans up 21% year-on-year. The net profit without FX mortgage costs up 57% year-on-year.
In terms of operational efficiency, we continued the fine-tuning of the branch network after the significant reduction that had followed the acquisition and merger with Euro Bank in 2020. We further reduced the number of branches by 8% in 2021. We achieved a reported cost-to-income ratio of 46% against the planned target of 47%. On the full digitalization path, we also achieved significant milestones. The share of digital clients is already above 80%. We continue to extend our digital customer base beyond the customer age segments. We launched in 2021 the mobile app of Junior, that was also a significant success.
Page number six reminds the pillars of the Millennium 2024 strategy that we have announced almost two months ago, inspired by people, as you recall, and that will be underlying our presentations during the next periods. Also on page seven, we just remind what are our strategic ambitions for 2024, which I will not repeat now, but also which show the path that we expect to follow and to achieve during the next three years, and in which the year of 2021 was very important in setting some trends that create a very good base for further growth and development. Pages eight and nine summarize the key P&L items and key balance sheet and business items.
We will go in more detail throughout the presentation, but just to here I would highlight first the significant improvement of net interest income in the Q4 rose almost 15% versus the previous quarter. Also in the full year already with a growth of 5% versus 2020. The double-digit growth of fee and commission income also in 2021. The reduction of costs by 6% year-on-year, and also the much lower costs of credit risk, which was less than half of the levels that were shown in 2020. On the other side, we had a significant increase of the provisions for legal risk, which generated, at the end of the day, a net loss during the financial year of 2021.
Still, if we would exclude those extraordinary costs connected with FX mortgage legal risk issues, we would have shown for the first time a net profit above PLN 1 billion. On page nine, also we can see as main numbers the solid growth of loans by almost 7% year-on-year. While at the same time, we were significantly decreasing the net value of the FX mortgage loan portfolio, and also the excellent achievement in terms of the asset quality by reducing the NPL ratio to 4.4% from 5% one year before. While increasing at the same time the coverage of NPLs by provisions. Moving now to page 10. We had in the full year of 2021 a net loss of PLN 1.3 billion.
Excluding the FX mortgage related costs, we booked a net profit of PLN 1.1 billion, which is 45% above the year 2020, also excluding other extraordinary one-offs. It is visible on the right-hand side of this page, the sustained growth of the net profit without extraordinary items, which in the Q4 was already above PLN 300 million. Despite some items that negatively affected operating income during the year, that still, when we compare the Q4 2021, was also above the Q4 of 2020. In a snapshot on page 11, we have on one side the adjusted net profit, so excluding extraordinary items, growing 45% year-on-year in 2021.
A strong rebound of net interest margin. Fees up by 11% year-over-year. An adjusted ROE excluding these FX mortgage-related cost and extraordinary items at 13.6%. Cost reduction by 6% and the higher level of coverage of NPLs over 90 days. Going now in more detail through the P&L. On page 12, we were already in a positive trend regarding net interest income coming from the second and Q3s. We had already signaled that even without interest rate changes, we would achieve a higher NII in the full year 2021 versus 2020.
Of course, we also benefited from the cycle of increase of interest rates that started in the beginning of October, which helped to further increase the net interest income in the Q4 by 15% versus the previous quarter, and bringing the overall NII higher by 5% versus the previous year. The driver of this growth was the quicker repricing of loans when compared with deposits, and which is exactly what happened when interest rates went down. When we had the cuts of the interest rates after the beginning of the pandemic, we also saw at that time a faster repricing of loans downwards than the adjustment in the cost of the deposits. As a consequence of these two trends, our net interest margin increased from 2.61% to 2.98% in the Q4.
In terms of fees and commissions, we had the best quarter of the last eight, with a growth of 7% versus the previous quarter. In terms of full year, a growth of 11% versus the previous year. In which we had a strong contribution of commissions coming from loans, and cards, and also from accounts service and other. Moving to the cost side. We had a reduction of costs on a reported basis by 6% year-on-year.
If we exclude the contributions to the Bank Guarantee Fund and the integration costs, the costs would have been flat versus the previous year, which still is a significant achievement, taking into consideration the cost pressure that, in general, companies and banks are facing in Poland since mid-last year, which are translating into higher pressure in terms of staff costs, but also in terms of other admin costs. As a consequence of this positive performance, the cost-to-income ratio decreased and on an adjusted basis, reached less than 43% when compared with 45.8% in 2020. Throughout the year, we had a continuation of a gradual adjustment in the number of employees, which fell by 357 on a yearly basis.
Also, we had the continuation of the fine-tuning optimization of the branch network, which was reduced or consolidated by another 47 branches during the year 2021. Moving now to the FX mortgage portfolio. Looking at the full year, we had a significant reduction of the portfolio in currency by 17%, and just in the Q4 by 6%. This is the reduction excluding FX impact. As a consequence of this, and also the growth of the other portfolios, the FX mortgage portfolio continues to be diluted, and the portfolio overall represented 12.4% of total gross loans or 11.4% just the part that was originated by Bank Millennium.
We had still a continuation of the increase of new lawsuits, although at a lower number than in the previous two quarters. On the other side, we continued to increase the amount of provisions for legal risk, which in the Q4 2021 reached PLN 662 million just connected with the part originated by Bank Millennium. This was the amount that influenced the P&L in the Q4, bringing the cumulative balance of provisions against legal risk to close to PLN 3 billion. On page 16, still continuing on this topic of provisions.
As a consequence of the increase of the provisions for the legal risk and the reduction of the portfolio, the total stock of provisions represents now 25.7% of the outstanding balance of FX mortgage loans originated by Bank Millennium. In the last three quarters, the number of new lawsuits was still relatively high, although in the Q4, as I said, was lower than in the previous two quarters. At the same time, we had higher number of amicable settlements with clients. In the Q4, we reached agreements with 2,614 customers, which implies a cost of the negotiations booked through P&L of PLN 144 million.
Page 17 is just a new split of the segmental reporting that also will be included in our annual report, in which we isolated the segment of FX mortgages in order just to show in even more detail where are the revenues and costs connected with this portfolio. Of course, confirms the clear picture that the core business is really the source of the pre-provision profits, while the FX mortgage segment is generating a significant negative result as a consequence of the cost connected with provisions for legal risk and also the costs of the negotiations of settlements with the customers. This not to speak, of course, about the additional capital that is currently allocated to the portfolio of FX mortgage. On page 18, liquidity continues to be solid.
The loan to deposits ratio was stable at 86%. In terms of capital ratios, of course, they fell as a consequence of booking a loss in the Q4. At the same time, we managed to offset the impact of this loss partially through reduction of risk-weighted assets. At the same time, there was a decrease of the minimum capital ratios that the bank is obliged to fulfill as a consequence of the update and reduction of the Pillar 2 buffer that was communicated in the Q4. We continue our preparation to the potential issuance of senior non-preferred bonds in the H1 of 2022 in order to fulfill MREL requirements. Last Friday, we confirmed by current report the approval, internal approval, of setting up the EMTN program.
Moving now to the second part of the presentation about business development. On page 20, a few highlights. On one side, retail business growing fast, already up above pre-COVID levels, and also corporate segment already showing signs of gradual improvement. We finished the year with overall loan growth of 7% year-on-year. Very strong sales of mortgage loans, as I mentioned, almost PLN 10 billion zlotys. Cash loan sales above last year by 21%. Debit cards growing almost by 100,000. Active digital customers, 2.3 million, and customer deposits growing by 12%. On page 21, growing in more details through the numbers. The growth of the loan portfolio was driven by the significant growth of the PLN mortgage loan portfolio by 29% year-on-year, while the FX mortgage portfolio contracted.
The consumer loan portfolio grew at a smaller pace, 4% year-on-year. Important is also the rebound in corporate loans driven by leasing and factoring, leading to a growth in the full year 2021 of 4%. Structure of the loan portfolio continues to change with the dilution of the FX mortgage portfolio and an increase of the share of PLN mortgages. Looking at customer deposits, where we are, we have not been aggressive in recent periods. In the quarter, the growth was just 1%, in the year 12%, mainly driven by growth of deposits from companies. In terms of investment products, the Q4 was affected by market correction. For the full year, overall growth of investment products was only 3%.
On page 22, apart from what I already mentioned, the growth of the PLN mortgages driving the overall growth of retail loans. We should also mention that if we excluded the contraction of the FX mortgage loans, total retail loans would have grown 19% year-on-year. This was supported by record sales of mortgage loans, which peaked at PLN 2.8 billion in the Q4 of 2021, a growth of 24% year-on-year, leading the full-year sales 46% above 2020, and allowing us to reach a market share of 12.5%. On the cash loans, the Q4 was weaker than the previous one. Still, cumulative sales were higher by 21% year-on-year, and our market share stood above 10%.
On page 23, the price of customer acquisition is increasing. In the year, we had a growth of 87,000 active retail customers, of which 30,000 just in the Q4. While the number of cards increased significantly, 95,000 increase of the number of debit cards just in one year. Page 24, some figures to illustrate the increased usage of banking services online by our clients. We would highlight that 77% of cash loan sales in Q4 2021 were done digitally, and this represents a double of the number that we had one year before. 29% of current accounts were opening through digital channels in the Q4 of 2021.
This represents an increase of 32% versus the Q4 of 2020. The growth in payments and e-commerce services is growing at a fast pace, as you can see on page 25. In Q4 2021, as much as 1.58 million customers performed at least one e-commerce payment, and 64% choose to pay by BLIK. Apart from this, all the other indicators show a significant increase in the usage of value-added services, as it is shown on this page 25. On page 26, we keep the innovation pace. In this quarter, we would highlight the launch of innovative application, the app for Apple Watch. Also the continuation of the digitalization of the mortgage loan process, including now the possibility of attaching insurance policies.
Also the developments that are being done in our investment funds, investment products, platform that will be even more visible in the near future. On page 28, moving now to corporate business. We have a gradual growth of the loans, which reached 3% year-on-year. Which was clearly driven by a strong growth of factoring by 10% year-on-year in terms of portfolio. Also leasing, which portfolio grew by 7% year-on-year. We also see a robust pace of growth of current accounts by 18% year-on-year. A strong pickup in transaction activity and digitalization of clients services progressing, of which we would highlight the implementation of 24-hour FX trading for our corporate customers that is now fully available and also with conditional orders.
also the increase in the number of agreements signed digitally. On page 29, it is visible the recovery and rebound of leasing sales, which increased by 57% year-on-year. Leasing had been the most affected segment during the pandemic, but now in 2021 had a huge rebound. Factoring also growing very solidly, 17% increase in turnover versus the previous year. Last but not the least, also a significant increase in the volume of FX transactions by 26% year-on-year. These are the most important points regarding our results of the Q4 and in full year. Thank you very much.
Thank you very much, Fernando. While you were presenting, I tried to, as usual, to combine questions or organize them into groups. I'm sending them to you now. Let's start as usual with questions relating to our 2021 results. The first question touches other comprehensive income, which we in fact did not report fully. The question is, other comprehensive income was not fully recognized in Tier 1 TCR. This is the first question or statement, actually. Why using this approach if there is enough room or surplus in your capital ratios?
Yes. First, of course, we will report much more detailed data on the twenty-first of February when we will publish our audited financial statements. Looking concretely to the question about the other comprehensive income and specifically about the valuation of the bond portfolio. Obviously, the bond portfolios were affected by the significant increase in yields that happened in the Q4. Even though we had a relevant, not a long duration in our portfolio, but as everybody knows, all parts of the yield curve were affected.
We applied as a capital treatment what is foreseen in the CRR, in which we treated the change in equity valuation of bonds, which was in the Q4. There was a depreciation of close to PLN 700 million, capturing 30% of that impact in decreasing the own funds. This is according to CRR. In 2021, we applied this 30% of this negative valuation. In 2022, it will be 70% of the valuation.
Of course, what will happen during the current year is that part of the negative valuation of the portfolio that existed in the end of 2021 will disappear due to the fact that some bonds will be approaching maturity. Part of this negative valuation will in fact flow through the lower NII of this portfolio in the next periods. As a consequence, the capital impact was minor.
Okay. Second question on the [past] would be on the cost of risk in the corporate book. Write-backs in the corporate loan book continued. When do you expect normalization and at what level?
First, we did not have a relevant growth of volumes of corporate loans in 2021. As we have shown, the book overall grew 3%, but of which leasing and factoring grew, but corporate loans decreased, as we are showing on the page or one of the last pages of the presentation. On one side, we did not have, let's say, relevant impact from volume change. Second, we did not face deterioration of the quality of the portfolio, rather the opposite. The third, we cannot forget that in general, companies benefited from a strong financial support during the pandemic, which allowed them, most of them, to keep a very solid financial position. There was a recovery of the economic activity in 2021.
Having said that, of course, the year 2021 was extraordinary in terms of having low cost of risk. When we presented our strategy two years, two months ago, we mentioned that our average level that we would expect for cost of risk would be around 50 basis points per year. Of course, now there will be some other factors that at that time we could not anticipate, such as higher than expected interest rates and some cost pressure also that is affecting in general the economy, including companies. We expect some normalization throughout the year, but we are still not seeing, for the time being, signs of deterioration of the portfolio. Of course, it's something that we will need to monitor through time.
Thank you. Now a very detailed question regarding our Q4 results. What were the drivers of other admin cost quarter-over-quarter growth in the period?
It's relatively simple to answer. Usually admin costs. First of all, to say that staff costs were flat versus the previous quarter, which I think is something that should be highlighted, taking into consideration the significant pressure that is happening now in Poland, and also looking at the overall growth of staff costs in Poland, which is at levels of close to 8%-9% year-over-year. Still to keep stable staff costs in the quarter, we believe was an achievement. Looking at the admin costs and depreciation, the increase in the Q4 was mainly driven by three items. One was much higher marketing costs in the Q4.
The second, legal costs connected with our FX mortgage portfolio and the third, counterclaims that we had to submit during the Q4, and the third connected also with higher consulting costs, taking into consideration the number of projects that we were doing in the last year, including the update of our strategy that was announced in December. These were the major drivers. Overall, we still think that there was a significant improvement overall in the cost last year, despite these negative pressures, because we continued to show, to be able to capture savings in different cost items, which helped to achieve this overall full year result.
Thank you. One question now maybe for João. If you could comment on consumer loans dynamics in the Q4. After a strong pickup in 3Q, there was a slowdown in 4Q.
Mainly it was a slowdown in demand. The consumer loans are, they have some seasonality also here in Poland, or especially for us. They are very connected in the second and Q3s, connecting with refurnishing, traveling, improvements. In the Q3, Q4 sometimes is a little bit slower. Probably also the idea of the change of interest rates, but also the comments, the articles, the information in terms of increase of interest rates, they would require some time also for the consumers to adapt to this new reality. From what we noticed, it was a slowdown somehow everywhere.
We believe that this is normal and probably this will be a trend that we will see in beginning of this year, in this Q1. Because even if there is a salary that compensate when there is inflation, increase of prices, higher taxes, and then higher interest rates, usually for the Polish consumer they take a position of prudence and some slowdown in terms of lending.
Thank you very much. I think we mostly answered questions relating to the past. Now, questions on 2022 and further out. Some of them are very direct, actually, because someone is asking, what do you expect on your NII line, fee line, cost of risk line? We will not be that direct in our answers. Needless to say that some banks on the market do not want to discuss future at all, but we won't be that far going. Let's try to do it in a more elegant and somewhat, let's say, intellectually challenging way for you, so you don't get a free lunch. First of all, the questions on the outlook for NII in 2020.
Along this question, there's another one which asks about the new NII sensitivity in the current interest rate environment, and also what is the outlook for deposit costs after the good management of deposit costs so far? Like three questions, but around NII and NIM.
I will try just to explain the drivers, but of course, we are exactly now in the middle of a period of unexpected just a few months ago, and on the other side, very sharp increases of interest rates, and we are still in the middle of the process. There is an expectation that next week interest rates will move up once again by fifty basis points. We are not yet in a new level that we can consider as stable that will allow to have the full picture going forward. What I'm going to say also needs to be taken with the proper, let's say, reserve, due to the fact that some effects are still not fully clear.
In general terms, what we can say is that, first, it is visible that NII already strongly increased in the Q4 by 15% quarter-over-quarter, and also the NIM moved up to close to 3% in the quarter. This is still only with partial recognition of the process of increase of interest rates, which happened in the Q4. The second thing is that, as I mentioned during the presentation. Most of the loans reprice quicker than the deposits, as it's happened in the opposite direction as well. It means that in the short term, we are amplifying the effect, but there will be a moment in which also there will be some increase in the cost of the deposits. For the time being, we of course expect the NIM to continue to increase.
In fact, in December, the NIM was already above 3.2%, just in the month of December. It's obvious that for the Q1, we can expect a NIM not lower than 3.2%. The second point is that regarding NII, where we had this 15% quarter-on-quarter increase, in the Q1, we are still going to continue to relevant improvement on one side. The full picture for the year is a little bit more careful due to the fact that while we can benefit from higher level of interest rates, at the same time, we will need to take into consideration the potential impact on volume growth. Which, as I said, is still too early to assess.
Of course, we see some signs of lower origination of mortgage loans in the recent weeks. Also consumer loans, although January is not the ideal month to be able to assess the real demand for consumer loans. For the corporate, the picture is still not fully clear, so we still need some more time. What we can expect is, first, clear improvement of NIM, as I said, in the Q1, at least 3.2%. Second, NII still in the short term improving due to this different speed of adjustment of remuneration on the asset side versus costs on liability side.
Third, the NII also being favorably supported, but at the same time, anticipating that for the full year, the volume growth may be lower than we were initially expecting several months ago. For example, one thing to illustrate this is that there is somehow the market consensus that origination of mortgage loans during the current year will be 10%-15% lower than in the previous year. This is just, let's say, an illustration that there may be some impact on volumes, which, according to our current views, will be more than offset by the improvement of the overall margins.
Yes, I think it's important also to understand that behind this, there is always a lot of consumers and in different timings and exactly what Fernando said. It's the lending is immediately, and that's why it was so painful, the decrease of interest rates, because the lending is immediately. Liabilities take more time. Then we start by the term deposits, a little bit longer tenor, and it takes some months to go to savings accounts in terms of repricing. Maybe in long run, we can expect also some changes of mix because there was a major change of consumer behaviors because interest rates were so low that people left all the money in current accounts. It's normal that there is some shift here.
Also with the higher interest rates, also the maximum rate and the usury rate can be higher. Here we will see what is going to be also the changes. Of course, this is a positive impact, but for us it's a little bit too fast. We would prefer that these interest rates hike would have started six months before at least, and more announced and slowly. Because it's also disturbing a little bit the normal equilibrium in terms of market, the number, management of the clients, of their installments. There is always we remember very well when the interest rates were cut to zero, that somehow the consumers were giving the, or they were the responsibility to the banks.
The banks were guilty because they were not giving a decent rate, decent percentage in time deposits. It's very clear that once again, we will be guilty because the installments of the loans will increase. We would of course prefer, in commercial terms, to have this in a more smooth way.
One question is touching on NII, but not directly. An analyst is asking whether we see accelerated prepayments of retail loans, and if so, do we expect this trend to have any impact on our small CELU, as we call it here, provisions? What we can say. First of all, we were surprised in the morning to see this question. We were not expecting to have this question. But from the information that we have
There is a small, but very small increase of early repayments, but it's still in the immaterial level when compared with what was happening six or 12 months ago. There's a little bit of increase. Too early to take conclusions from that. This is the first thing. Second, most of the time, we did not charge commissions when selling mortgage loans. It was not always, but most of the last 10 years or 15 years, as far as I remember, in most of the years, we were not charging commission when granting new PLN mortgage loans, as it has been the practice, for example, in the last 12 or 24 months at least. It means that there is no such thing as a small CELU.
that is, that we can anticipate, regarding the potential early repayment of the loans. This is what we can say for now.
In consumer loans.
We have already a pure mechanism that is already offsetting and accruing.
We are returning immediately.
Returning immediately, but also accounting.
Yes.
As the time is happening. There is not an issue here.
Thank you very much. There's a handful of questions regarding fee outlook. There's one direct question, what is the fee outlook for 2022? There's also a question, do we plan to continue charging customers deposit fee? I think these are the two key questions on fees.
I can go to this last. It's obvious that this in principle will not happen. We will see how it's going to be the end of the year. If we are talking about deposit fee of high volume deposits at the end of the year, with a low probability at the end of 2022, it will happen. We will see. There will be for sure a change in the compositions. Also, I think the analysts should be prepared to see even also in retail some changes of the mix because during the decrease of interest rates or some composition in consumer loans, a little bit of more commission or more insurance penetration.
As interest rates go up, probably we will have more revenues on the interest part, but a little bit less elsewhere. There is always some offsetting of this part of the commissions versus net interest income when the interest rates go up. Okay. Because already answered.
We're moving to further down the P&L. One analyst observed that HR costs were flat year-on-year for the full year, despite 8% growth in workforce. Is this a sign of wage pressure? What in general should be expected for HR costs in 2022 and 2023?
I think some time ago, I was in an event with colleagues from other banks, and somehow I was surprised that people were considering the biggest threat, not Swiss francs or geopolitical challenges, but the labor shortage and the war for talent. It's obvious that this is a big challenge. We will see also our peers, how they will relate. Since the beginning, for us, it's very clear that we need to offset the salary pressures through efficiency. This is a little bit what we have been pushing since the beginning, since 2020, when we start to push a little bit further the synergies from the merger.
When we went through different processes that we explain here, like a complete reengineering of the mortgage process, that is a very labor-intensive process in order to achieve results. We would never be able to make the volumes that we are making at the moment without this reengineering of the process, because it gives us a competitive advantage, but also gives us efficiency and this capacity. First of all, this salary pressure is here to stay, and we should expect that we will have per head increase of HR costs. We will try to offset partially. We will never be able to offset completely, but partially by being more efficient and by that having a lower head count. Please remember that also the mix will change.
As we become more digital, the workforce of a bank is changed completely from a pure traditional branch-based bank. Also the cost per head changes.
Thank you very much. I mean, obviously our colleagues who certainly listen to the call will probably be very pleased by the first part of your answer, but be less pleased by the second part of the answer, but okay. That's the banking reality. Now questions relating to cost of risk. First, very direct question is, what cost of risk and CHF provisions do you expect in 2022? In a more elegant way is, what are your cost of risk expectations, and what will be the impact of higher interest rates on those? What is the maximum level of interest rates manageable from asset quality and cost of risk perspective? This is an interesting question.
It's an interesting question, of course. It's not easy to answer, right? As I mentioned, we had this sudden very sharp increase of interest rates, which means that the full impact of the increase of interest rates on installments paid by customers is still not fully reflected. This is the first comment. The second is also that the impact depends not only on the increase of the installments that happens for different types of credits, but also on other variables such as the evolution of the remuneration of people, and we know that there are multiple factors here now on the table.
We have, on one side, increase of minimum salary in Poland by 7.5% in January, which drives also some growth, general growth in some other lower, let's say, lower base salaries. The second thing is there was a change in the taxation system, which also triggers changes in the disposable income for different classes of customers. Third, there is this high inflation. Number 4 also is the fact that when granting the loans, of course, the bank adopts scenarios that are not exactly the ones that are enforced at the moment of giving the loans, but also assuming some changes in the interest rates.
It's still too early to make a full assessment about what can be the potential impacts on asset quality of this increase of interest rates. For example, just as a reference, in September we had WIBOR levels at around 0.2, 0.3%. Now they are at 3%. NBP rate moved from 0.1% to 2.25%. There is expectation that can still go to 4%. It's completely in a period of six months, everything has changed, and we need to analyze carefully the potential implications.
For the time being, our base scenario for the cost of risk in 2022 is the one that we have disclosed during our strategy presentation, which will be some kind of normalization at around 0.5% per year. This continues to be our base scenario. I think that we will see the first impacts coming from the demand for loans, probably. Then we will see if there will be relevant impacts in terms of asset quality for specific classes of customers. Again, just highlighting that in principle, if everything that we said will be confirmed, let's say, lower segments with lower remuneration would have a higher increase of disposable income versus higher segments of remuneration. We will need to see in practice how this will unfold.
Thank you very much. There's a handful of questions which circulate or center around on outlook for lending and demand for lending given or for borrowing, given higher interest rates. I think we largely touched upon it, unless you want to elaborate. Okay, we already answered these questions. There are two questions about our capital requirement. First is, do you expect capital requirement to drop in 2022 as a result of CHF provisions and amicable conversions? How big could this impact be? And second, about sensitivity of capital to higher interest rates and whether we have made any precautionary measures.
Sensitivity of capital?
Mm-hmm.
Regarding the first question, our objective is to reduce the share of FX mortgage loans in total loans to below 10% as quickly as it will be possible, in order to create the possibility of removing the additional capital add on that we have for FX mortgage, which is still significant. As we presented during our strategy, we believe that this is possible to achieve until 2023. It can happen sooner or later, depending on the pace of reduction of the FX mortgage portfolio and the growth of the other loan portfolios and evolution of FX rates. There are several factors that have influence. We have this clear objective of bringing down the share of FX mortgage in total loans to below 10%. If that, when
If it will happen, it will allow us to be entitled, in principle, to benefit from the elimination of the Pillar 2 buffer, as it happened with several other banks in the past, if the methodology will not be changed. This can happen, as I said, until 2023. If it will not happen in 2022, at least we would expect an update of the Pillar 2 buffer as usual once a year in the Q4. I think this is the answer to the first question. Regarding the second question. I think, let's, I will try to answer in a simple way, is that with higher interest rates, we will have, in principle, higher recurrent results. Higher recurrent results means higher profits or lower losses, whatever, whichever is the, let's say, the forecast.
From this perspective, it is beneficial. There is a short-term negative impact, which we already discussed, which is the valuation of the bond portfolio, which as I said, has also some capital impact according to the regulations. But also we know that part of it, we expect to be eliminated during the year 2022.
The biggest impact.
The biggest impact was already achieved because it's already embedded interest rates at 4%. Unless there is another movement of another four-
Yes.
If we are talking about more than 50 basis points or less, the big jump was already done. Yes, exactly. That's why we would expect it, although it will count more in terms of the coefficient that will be applied, the absolute amount will be smaller. Generally speaking, higher interest rates should give us support for further improvement of the recurring results, even if we will be facing some higher costs on one side due to the inflation pressure and some higher cost of risk if it will happen due also to the higher interest rate environment.
Thank you. Last but not least, we have received questions relating to Swiss francs. Without this, our conference call wouldn't be complete. This time, actually, very few questions I have to admit. They're mostly around decreasing number of lawsuits, whether we see this in the Q4, whether we see it as a seasonal thing or beginning of a trend. How do we see our provisioning buffer? Do we think we need more provisions? There are questions about the settlements, mostly about expectations and if you could share what is the progress in January and whether we see any seasonality or correlation within high interest rates.
We would not like to give some too optimistic expectations in terms of decrease of court cases. It's true that in last quarter it was smaller, but in our view, the movement is still negative in terms of flow of cases and in terms of decisions of courts. Although we are confident even in the cases that were related to the bank in European Court of Justice and also the cases of Supreme Court, where we will try to make our position, we are working in this less positive scenario, and we are not expecting a huge decrease, even if there is a slowdown, a huge decrease or a new trend of lower court cases. This is the first point.
Also we are not expecting a turnaround in terms of court decisions. This will reflect what we always said, that the years 2021 and 2022 were years of where we would have, in our view, the biggest impacts in terms of provisions and costs for solving the legacy portfolio, and this is what we are doing. We were a little bit surprised. I think that I said in the meeting one quarter ago that our view would be more at 2,000 level of settlement. It was a little bit more than we were forecasting. I'm quite optimistic. I think that we have a good structure here.
I cannot say if it is 2,500, if it is 2,000 or if it is 3,000. It's very difficult to forecast. Each customer is a customer. Each reality is a reality. January, for example, it's winter holidays. There is a lot of people, in fact, staying at home in quarantine. It's not extremely positive. We believe that the capabilities that we have in that time we will keep having it. Once again, 500 more, 500 less, but we believe that we will be able to reach agreement with customers as we have been doing up to now.
Higher interest rates is of course a challenge, but this is a combination of FX discount and a conversion with an installment. It's in the way that we are doing, we are seeing case by case. And when there is willingness to find the settlements, we will be able to find it. We see as a continuation what we have done up to now. We don't see as a big transformation from what we did up to now. It's obvious that the situation is still not finishing as we would like. But it's clear that the next year will be again, as it was already this year, but a major step to solving this saga by settlements, by provisions, by counter-claiming, so by several ways. But it will be
Of course, to reinforce the idea that, of course, we will try as much as it is possible that the recurrent results of the bank that we expect to improve during the year will absorb a larger part of the additional provisions in case they will need to be done during the year 2022. It's difficult to make forecasts about additional provisions because it depends essentially on inflow of court cases and the nature of the court decisions and plus a number of other aspects and clarifications that are still which are still before us. This can determine more or less needs of provisions. Of course, we are still anticipating the continuation of the need of making provisions.
Our expectation is that we will be able to generate higher recurrent results that would absorb a larger part of these additional costs when it will come.
Also, to add, I listened to the morning call with media, and it's worth sort of repeating what was said there. Namely that when you think about the sensitivity or propensity of customers to convert into zloty, sensitivity to interest rates, also remember that some people simply pay off the loans, so they are totally insensitive to interest rate levels because they wanna repay. All they're after is attractive-
After they wanna repay.
Attractive exchange rate.
Mm-hmm.
Okay, Fernando, any questions that we omitted that you particularly would like to answer?
Just Fernando checking.
Okay. Allow us a minute or two. As you see, we're very diligent and try to answer all the questions that arrived. Nothing to hide. When Fernando is checking the last questions, I will just put a little bit our view in this year because somehow the year when it started, it was confusing for us because 2020 was a very challenging year due to COVID, protecting our people, the customers, business continuity, and then the moratoriums, support of the companies, problems with governments, all of these. Then we start to have this dream that now is coming the scene and everything is finished. Suddenly the things is, as Fernando said, two years passed and we are still here in these videos and everything.
It looks like the year somehow there is always this taste of a so-so. For us it's important because we had a Supervisory Board last Friday, and it was always a reflection. For us it looks to us that we made a major movement in terms of solving the legacy issue. Between the settlements, between the amounts that we create provision, between the capacity for the bank in terms of defending their interests and argumentation, even in terms of operational levels. We are today operating in courts in massive cases which means it takes a long time, a lot of challenges in operational terms, in the operational risk.
At the end of last year, we had all of these waves of counterclaims that the bank had to put. We are quite happy that all of these efforts is clear, visible, and also assessed by the market that the bank made a major improvement in the direction of solving this legacy. At the same time, doing simultaneously, the bank also made a major improvement in terms of revenues and in terms of cost control and efficiency. It's very positive because we always had this dream of achieving PLN 1 billion of net profit.
We didn't achieve it yet, but if we deduct the FX costs, we achieve it. In operational level and in commercial level, this is very important because it's a clear indication. This is before the interest rates, because we have the 1.1%, and 1%, 0.1% is the impact of the interest rates. We adjust by natural business, by managing the business, the volumes, the interaction with the customers, the efficiency and cost control. On top of that, in this strange year also, we put it out this strategy for the next three years, that we present in the last meeting, and it was well assessed by all of you. That we are very happy for that.
This is also besides that we don't do it as just an exercise for the analysts. We do it mainly for ourselves and to be able then to roll out. We are in full rollout mode on this strategy and going through all of the plans that have the components of the strategy that we present to you. We are very optimistic for the year of 2022. There is a mood a little bit around the country at the moment, a little bit like the weather today, so very gloomy and a little bit gray. Because it's inflation, it's the new taxation, it's the geopolitical challenges, whatever, but we are quite optimistic.
We are optimists also for the economy and for the capacity of the country to react well to these situations. We are particularly optimistic for our business. It's of course low interest rates. It's always a very challenging time for the banks. Now with good economic growth, the bank being prepared, higher interest rates and then a more dynamic and normal economy and life of people, we are very optimistic for the prospects or with the prospects of the bank and the bank activity for the future.
João, thank you very much for your optimistic comments. Given the gray, grayish misery of today.
Yes.
The spring is coming nonetheless.
It will take a while.
Okay, gentlemen. Thank you very much for your time, your presentation, and your answers to questions. Thank you very much, the audience, for listening in and your interest in our bank. We will meet with you on the twenty-sixth of April, so there will be a little bit of breathing space, and we will not bother you unless you attend one of many conferences that brokers are organizing between now and end of April. It's the eighth time that we're wishing you health and safety, so unfortunately, this, although it's actually good wishes in general. But stay healthy, nonetheless. Keep up the good work. Good luck in what you do. See you soon. Thank you very much.