Good morning, everyone. It's 2:00PM. CET. Welcome to Bank Millennium 2Q/1H 2023 Results Call. With us, we have our yearly presenters, João Brás Jorge, our CEO and Chairman of the Management Board, and Fernando Bicho, Deputy Chairman and CFO. First, Bicho will do a brief presentation of the results, and then obviously, we'll be available for questions. Thank you very much. Over to you, Fernando.
Thank you. Good afternoon. Once again, thank you very much for attending this meeting and for your interest. As usual, we will go through first the financial performance of the bank and then through the business results. We start with a reference to pages five and six, which shows some key figures about the PNL and business activity of the bank in the Q2 and first half, 2023. From the page five, we would highlight the very positive performance in terms of net interest income during the quarter, which increased by 6% versus the previous quarter, and for the first half of the year, 21% versus one year ago.
While at the same time, fee and commission income stayed flat versus the previous quarter. Costs dropped due to the absence of regulatory charges, namely from contributions to the Bank Guarantee Fund, Resolution Fund, in this case. We also benefited in this quarter from lower cost of credit risk. Although we had to make still substantial amount of provisions for FX mortgage legal risk, we ended up with a positive result of PLN 106 million in the Q2 , and an accumulated net profit for the first half of the year of PLN 358 million. In terms of on page 6, we would highlight the continuation of the solid growth of active customers and digital customers.
Regarding the first one, we are approaching the threshold of 3 million active customers in retail. Also for the solid performance in terms of deposits, particularly deposits from individuals, and on the other side, a drop in the loan portfolio, to a large extent, driven by the drop of the FX mortgage loan portfolio, but also to some drop in loans to companies. Last but not least, we continued to improve the capital ratios of the bank, increasing the surplus over the minimum regulatory requirements, and we'll illustrate this later in this presentation. On page 7, so apart from the significant improvement in the results of the bank, we had the third consecutive quarter of positive result. This represents, on an adjusted basis, a growth of 53% year-on-year.
We benefited from the growth of NII by 21% year-on-year during the semester, and the improvement of the net interest margin by 57 basis points year-on-year. As a consequence, the reported ROE stood at 12.4% and 22.7% on an adjusted basis, and the adjusted cost-to-income stood at 29%, while the NPL ratio was at 4.5%. On pages 8 and 9, we illustrate the status of implementation of the three-year strategy for the years 2022–2024 . We can say that we are on the right track to achieve the strategic objectives in the different fronts.
Starting with the increase in the number of active customers in retail, which, as I said before, is approaching the 3 million threshold, which we were targeting for the end of 2024. We are on track to achieve it right before this moment. Also, the share of active clients, the active digital clients is increasing, and it's already at 89%. Also, we have increased share of digital in sales in the first half of 23, already at almost 75%. Regarding financial targets, the...
Regarding the target of annual profit level, excluding extraordinary charges, we are already in the end of the first half of the year with PLN 1.4 billion, when we had the target for the full year, 2024 of PLN 2 billion. The cost-to-income ratio, of course, is significantly lower, also in the higher interest rate environment, and in the first half of the year was at 29%. The return on equity, I already mentioned, with a 22.7% on an adjusted basis. Regarding the credit quality, the quality of the portfolio remains strong, with the NPL ratio at 4.5%, and we continue to decrease the share of FX mortgage in total loans in this half.
On this page, we are showing the share in total gross loans, so without deducting the provisions for legal risk that are already allocated to the loan portfolio. Otherwise, of course, the share is much smaller. On page 9, we also illustrate some of the achievements and delivered initiatives, including the significant number of settlements that were done from the very beginning until now with FX mortgage customers. Almost 20,000 since we started this effort. Also, 400,000 newly opened current accounts from our Millennium 360° offer and the reduction of our own greenhouse gas emissions by nearly 60% at the end of 2022 compared to 2020. We also will highlight the strategic partnership established with the Europa Insurance Company that was announced in the first quarter.
A number of other initiatives, namely recently, the new mobile application for corporate clients based on modern mobile technologies, and also the implementation of WhatsApp technology in contact center. We have a number of projects which have already started or are being rolled out, including the transformation of the service and service model for affluent and micro business clients, combining digital channels with remote advisors expertise, the transformation of the branch network, and the expansion of automatic cash service format, and also the support for corporate clients in the green transformation. Going now to the details of the results of the bank in the first half and Q2 .
The key points are a third consecutive quarter of positive results, PLN 106 million, with a net profit, excluding extraordinary items of PLN 776 million in the Q2 , which means a 16% growth quarter-on-quarter, and 69% growth year-on-year. On the left side of this page, we break down the net results of the bank, segregating the extraordinary one-offs, including FX-related and others, in order to be able to illustrate the significant progress that we have been making step by step in terms of improving the capacity of organic generation of results.
Going into more details on page 11, the main, of course, the major driver of the improvement on the revenue side is net interest income, which grew 6% quarter-on-quarter and 21% year-on-year. This is, we have to say, even above our expectation when we had the our meeting 3 months ago. This was achieved through a combination of still some increase in the average yield on the loan portfolio, while at the same time, we had already reduction of the average cost of deposits during this quarter by 16 basis points to 2.75%. As a consequence, we had a substantial improvement and rebound in the net interest margin to 4.85%, so an improvement of 27 basis points during the quarter.
On the fee and commission income, nothing new. The fee and commission income was flat versus just 1% up, versus the previous quarter, 5% down versus the analogous quarter of last year. Here we don't have major drivers of change. We have, although, because on one side we have lower fee and commission income from loans due to more limited lending activity, while on the other side, transactional fees have been increasing. Also, we see some improvement coming up from the volume, higher volume of assets under management. On page 12, moving to costs. Of course, the picture looks good because we overall had a decrease of operating costs by 17% year-on-year.
Although, if we take out the costs connected with Bank Guarantee Fund and the extraordinary event of 1 year ago of contribution to the Institutional Protection Scheme, of course, we had overall growth of operating costs by 15%. Still, the performance in the Q2 was better than the first quarter, as we did not have the contribution to the Resolution Fund that was booked in the first quarter. Even we had some relief because the amount initially booked was actually higher than the final contribution that was done. The process of optimization of the branch network is still going on, although with small adjustments, and also a small drop in the number of employees took place in the Q2 . Moving to asset quality, it continues to be very resilient.
We would highlight in this quarter, first of all, that the cost of risk was significantly lower than in the previous quarter, with a total amount of provisions of PLN 52 million. This brought the average cost of risk for the first half of the year to 45 basis points over total loans. We benefited also from the positive impact of sale of NPL, with a pre-tax impact of PLN 36 million. This performance of the portfolio, plus this sale, it also supported the again improvement of the NPL ratio to 4.5% in the end of the Q2 . Regarding liquidity and capital on page 14.
Starting with liquidity, of course, a very strong liquidity position, even strengthened during the Q2 , with an LCR of 260% and a loan-to-deposit ratio of 74%, and with a ratio of debt securities over total assets of 25%. Regarding capital ratios, we have another improvement in the level of the Tier 1 and total capital ratio. At the end of June, Tier 1 ratio was at 11.7%, which means a surplus of 1.5 percentage points over the minimum regulatory requirement. And total capital adequacy ratio was at 14.8%, a surplus of 2.1 percentage points over the minimum regulatory requirement. From this perspective, we continue to execute what we have said to the market in recent quarters.
We continue to be focused on the strengthening of the capital ratios of the bank. You see from the graph, the significant improvement that we were able to achieve during the last nine months after the shock of the credit holidays. I should add that in July, the capital ratios will further improve due to the fact that in the meantime, we have concluded another synthetic securitization of leasing receivables, which will further improve capital ratios by around 45 to 50 basis points. Regarding MREL, the improvement in the results and capital position of the bank also supports the reduction of the levels that need to be done in order to achieve the MREL requirements. We are in a situation where the interim MREL requirement without CBR has been already met, while the other one is still to be met.
Of course, we will be developing further actions in order to achieve the ultimate goal, set for the 31st of December this year until the end of the year. Moving now to the FX mortgage platform. First, in terms of the numbers of the quarter, we had an inflow of new court cases of 1,525, as you can see on page 16, which is lower by almost 200 versus the inflow of the first quarter. On the other side, we assigned 924 settlements with customers, an increase versus the 806 of the previous quarter. The cost was very similar to the previous quarter.
We created, in the Q2 , an amount of provisions of PLN 715 million over the portfolio originated by Bank Millennium. A slight higher number than the one preliminarily disclosed in our current report of 16th of June. A consequence of these provisions and further utilization of provisions, the current stock of provisions for FX mortgage legal risk represents around 65% of the total outstanding. Then in the later in the Q&A, probably we will address some more questions regarding the recent trends, but this is the most important information regarding the FX mortgage portfolio. As you probably saw or you can see, we are also providing additional disclosure in our first half report. That was also today released.
Moving on to the second part of the presentation, regarding business highlights of the first half of 2023. We would stress the good performance of customer deposits that grew 5% year-on-year, and especially the growth of retail deposits that have grown 10% year-on-year. I would say this is especially good, taking into consideration that at the same time, we managed to decrease the average cost of the deposits during the Q2 . Also, very good in the Q2 and first half of the year has been the sales of cash loans, which grew 25% year-on-year, and also, apart from the number of active customers that I already mentioned before, also the growth of 172,000 cards year-on-year. On page 19 through the loan portfolio.
Of course, we have a decrease in the overall loan portfolio on net basis of 7% year-on-year, or 2% if we exclude FX mortgage loans. This is especially the reflection of a significant slowdown in mortgage lending during the last two quarters on one side, and on the other side, also some decrease in the corporate loans as we have been actively managing the risk-weighted assets. Regarding the deposits, as I mentioned before, solid performance, and in the Q2 with relevant growth in terms of retail deposits, which also had as a consequence, that we were not very aggressive in holding deposits from companies, and as a consequence, there was some drop versus the previous quarter.
The structure of the loan portfolio continues to show the dilution of the FX mortgage loan portfolio, which represented 5.5% of total gross loans, already being deducted by the allocated provisions for the legal risk. Last but not least, we also see improvement in terms of investment projects, where we see already a growth year-on-year of 7%, also benefiting from more favorable market conditions. On page 20, we show more details about the numbers of retail business. The most important is the growth of consumer loans, which on the back of the strong sales that we have achieved during this first half of the year.
We have a growth of the overall portfolio, of the gross loan portfolio by 3% year-on-year, while there was a drop of PLN mortgages by 1% year-on-year. Without the FX mortgage loan, the portfolio, the retail loan portfolio was flat year-on-year. Regarding the sales, apart from the sales of cash loans that I already mentioned, that reached PLN 1.64 billion in the Q2 . The sales of mortgage loans were slightly higher than the first quarter by 7%, but for in the first half of the year, 55% lower. Still with these numbers, which is a 10% market shares in new markets origination and 10.8% market share in cash loan new sales. Retail customer funds grew 10% year-on-year.
Of course, during these 12 months, with some higher growth of term deposits due to the higher level of interest rates, although there is some tendency to slow down this process. On page 21, regarding the number of accounts and customers, apart from the numbers that I already mentioned, we would also highlight the solid growth of micro business customers and the growth of 175,000 in, of current accounts. On page 22, the success of the banking digital is shown by the 2.62 million active digital users, a growth of 8% year-on-year. The 2.37 million active mobile users, a growth of 13% year-on-year, and the 1.7 million BLIK users in the first half of 2023, a growth of 22% year-on-year.
The numbers of digital sales are also very strong, as you can see on page 23. We have 81% digital share in cash loan sales in the first half of the year, and a growth of 18% in the number of cash loans disbursed online in this first half versus last year. We had a 41% share, digital share in current accounts acquisition in the first half of the year, and the growth in the number of accounts opened online by 21%. Term deposits, traditionally, always numbers are higher than 90% in terms of the share in total deposits. On page 24, illustration of the new features that continue to be introduced for our retail customers in order to ensure convenient and secure solutions for daily banking.
We have been continuing to expand the use of biometrics in the mobile app. We also have now the possibility of having online disbursement of a mortgage loan. We also have improvements in the search engine and new BLIK services introduced. In terms of goodie platform, on page 25, we have more than doubled the number of acquired cashback users year on year, a PLN 2 billion turnover exceeded in the goodie cashback service, with more than PLN 40 million cashback paid to customers. On page 26, moving now to the corporate business. Of course, the lending activity was somehow more limited in recent quarters, due to the effort of optimization of risk-weighted assets, the bank has been focusing more on small and medium-sized companies than on large tickets.
As a consequence, we have a decrease of the gross loan portfolio by 8% year-on-year, but at the same time showing improvement in transaction activity. At the same time, deposits from companies are of course, largely dependent on pricing. So we have in the Q2 , in fact, not been too much aggressive in terms of pricing, and so we had some small drop in terms of overall deposits from companies due to the very tight price management. We still keep a very good balance between current accounts and time deposits. In terms of the businesses of companies and also transactions on page 27, we see that leasing sales were slightly better than in the previous quarter by 4%. Overall, they still dropped 10% year-on-year.
Affecting sector turnover was flat versus the previous quarter. We see clear increase in the volume of FX transactions by 10% quarter-on-quarter and year-on-year. We continue also to offer a number of solutions in different programs for the companies, also in cooperation with BGK, and to, at the same time, investing also in the digitalization of the corporate business. This is very visible on page 28. We launched in May, a new mobile app for companies, the number of activations has been at an average of 400 per week. This application was extensively tested, and we also drew on the experience that was gathered for the development of the mobile app for individual clients.
We have this new platform where we put a lot of hope in terms of potential for customers, activization and creating stable relationships with them, and promoting, of course, the corporate banking products and services. On page 29, we also illustrate the support that we are giving to our customers in the green transformation and digital solutions, with things such as ecological loan, technological loan, loans for financing, photovoltaic projects, and also the development of digital customer service and access to a larger CDM network. This shows that although some temporary restrictions in terms of overall lending growth in corporate, we have not stopped the process of investment in new solutions for our customers, that we believe will also support in the future, our further growth in this segment.
This ends the presentation of our first half year results, and now we will go through the Q&A session. Thank you.
Thank you very much, Fernando. Because they say it's good to break habits sometimes, we decided to break our habit of accumulating questions into subjects. Because we have some very active analysts, we decided to honor some of them. The special mention reward goes to Noemi Peruch from Mediobanca. She's always first with questions. She fired quite a number of these. We will go one by one, and hopefully, this will cover quite a number of areas of interest for pretty much everybody. First question from Noemi is, "Are there any non-recurring items in cost in the Q2 , or is this new run rate for OpEx and staff costs?
Regarding staff costs, nothing extraordinary in this quarter, I mean, non-recurring. Regarding admin costs, of course, we have the effect of, on one side, we did not have the contribution for the Resolution Fund that is booked once a year in the first quarter. Additionally, we had the release of part of the provision that we have made for this contribution in the first quarter, so which translated into reversal of a cost of around PLN 23 million, if I'm not mistaken, that we had booked from the first quarter. This can be considered a non-recurrent item, because the actual cost in the first quarter should have been lower. Apart from this, there was nothing else significant in the Q2 .
Thank you very much. Continuing with questions from Noemi. "Cost of risk was particularly low in Q2 . Was there any single main release? Would you update your FX, sorry, full year guidance for cost of risk?
We said also in the press conference in the morning, that the quality of the credit is very high, and of course, especially that we keep very low unemployment, and we are even foreseeing a decrease of the interest rates. The guidance would be more on 50 basis points instead of 60, that we were giving in beginning of the year. This low cost of risk in the Q2 was not driven by a single, let's say, release. It was a combination of factors. One of them we already mentioned, was the sale of NPLs. The number of other verification of criteria of the classification of the loans.
Of course, it was clearly better than the first quarter, and we don't see signs of deterioration in any of the, let's say, four critical portfolios that the bank has. Which means mortgages, consumer loans, corporate loans, and leasing. That's why we are more optimistic regarding the cost of risk for the year.
To be worth mentioning that there is a bit of a mathematical contribution, because our book is not growing very fast, and in some segments it's even decreasing. There's no dilution effect that you would see otherwise. Also, you have to factor this into account while forecasting our cost of risk for the full year. Continuing with questions from Noemi, this time it's on NII. We have seen deposits costs going down in quarter-on-quarter. Could you please give us some color on customer behavior and competition? Do you expect competition and appetite for term deposits to soften going forward, so deposits rates do not move much?
Deposits is also a lot of mix and price management. In a simplified way, quarter-to-quarter, we have PLN 2 billion of time deposits in corporate that decrease and PLN 1.5 billion of time deposits in retail that increase. Of course, the corporate time deposits are usually at higher level than retail. I would say that besides a more prudent price management, probably this quarter, with the teams in marketing also understanding that scenario of decreased interest rate is coming, but this is change of this mix as well. In terms of the competition, in terms of the products, that advertising and everything, it's too early to see the effect.
It's visible that even the offers in retail now are more attached with some conditions, or activity, or new customers, or some additional products, and not so much a plain vanilla time deposits with high prices. We believe that we are going to see this decrease. However, I would alert that as usual, the credit adjusts very fast and the deposits adjusts very slow. When we had the increase of the interest rates, this was very beneficiary for the banks, and as soon as we will have the decrease of the interest rates, this will be less beneficiary in the banks in the beginning. It's we will see the repricing of credits to go faster than the reprices of the deposits.
Thank you. We're moving slightly away from numbers. When do you expect to leave the Recovery Plan? When do you expect to have visibility on moratoria?
The Recovery Plan we need to issue MREL. We were very transparent last year in setting the priorities. We explained that first we will address the capital, then we will address MREL requirements. We end up to be faster than we forecast, we end up to solve the capital ratios at the end of the year. Now we are happily, we see this progressing and even increasing the buffers that we have versus the minimum requirement of capital from KNF, it's fine. Now we are addressing MREL, and as soon as we address MREL, and we have visibility that we will not have any constraints. Also, it is also because when you leave the recovery, there is consequences like paying banking tax and everything.
As soon as we feel, then we will apply to the situation. In terms of visibility of moratoria, this we don't have any visibility at all, because the moratoria appears without any reason and without any possibility of being expected last year. It's completely unpredictable. Of course, it's difficult to understand the market have embedded a decrease to 6% reference rate at the end of this year, and 4% reference rate at the end of 2024. It's difficult to understand the justification for a credit holidays in this environment. However, it was also difficult to understand justification last year, we don't have any visibility.
Would you update us on your MREL insurance plan? Are you working on further RWA efficiency measures?
Starting with RWA, of course, we are always looking at further ways of optimizing risk-weighted assets, mainly through.
additional securitization of synthetic securitization of assets, we'll be continuing to explore this route. The transaction that we have concluded in July is already the 3rd transaction since the 1st quarter of last year. We finished one in March last year, another one in December, and this is the 3rd one, leasing, now, leasing lease. It is still possible that additional will come, it's still too soon to mention about potential impacts of such transaction. Regarding MREL, first, the improvement that the bank has shown in results, operational profitability, but also in terms of its capital position, has been supportive in terms of in reducing the gap to fulfill the MREL.
Not only the interim level that we are obliged to fulfill now, but also the final level that is in force from 31st December onwards. Our MREL requirements were lowered in June, as communicated to us by the Bank Guarantee Fund, and as we reported in a current report, as a consequence of the reduction of the Pillar 2 buffer done by KNF in December last year. The third, as a consequence of the improvement on the capital ratios and also all the improvements in the capital ratios, also have immediate benefit in terms of reduction of the issuance needs for MREL. We are analyzing the market and monitoring the market conditions in order to see the possibilities of issuing bonds eligible for MREL during the second half of the year.
As it was already said before, we have as a target to fulfill the MREL requirements, the ultimate ones, by the end of the year. The progress that was achieved during the Q2 is that we already fulfilled the minimum one. I'm saying the MREL without the combined buffer requirement. And of course, now we want to fulfill all the MREL requirements until the year end. This is the plan.
Thank you very much. Next question from Noemi, could you add,[crosstalk]
We tried several times to explain a little bit how we are addressing the negotiations and the settlements and everything. We explained that we have a team of 150 bank professionals that interact in a constant basis with the clients and registered all the interactions and trying to find whatever the solutions is possible to them. This means that even when we have legal scenarios that are very disadvantaged for the bank, there is a constant line of communication, and we try to find solutions for settlement, amicable settlements with the clients, even in this situation. It doesn't matter if they are in court or if they are not in court. It's always a trend.
Two quarters or three quarters ago, I explained that due to the all the settlements that we have done, it would not be possible to maintain this target of 2,000 settlements per quarter, and that we would move to a more 1,000 level, and this is more or less what we are working. We would like to cross these 1,000. We are making 900 and something, so it's okay. This is in terms of trends, it's difficult to assess yet what is going to be the trend. We never know what we are receiving from courts, if it is, what are the customers engaging lawyers? Because there is, of course, here in the legal system, also a bottleneck. It's something.
From what we see now, the trend is similar. We had already quarters with higher levels and quarters with lower levels. It's at, in very basic and round numbers, we are for a long time on these 500 court cases per month. It's, or 1,500 per quarter. We don't see, we already saw quarters that were more. Now we are seeing quarters that is less, but also we are not taking a conclusion that is slowing down. We believe that is stable. In terms of provisions, I will start and then see if this, to say something or not. We try to disclose, and this time we are disclosing even more, as much as possible, the methodology that we are using.
We always explain that the methodology, at the end of the day, the biggest impact is number of court cases and the results of the courts. At the moment, the results of the courts are already in the maximum that we can put in probability to lose. Now I would say that the driver is the number of court cases, but maybe you want to add something more.
Yeah. First, it is always a tricky question because, of course, we have been facing, for several quarters some negative developments, which then contribute to the further, to the continuation of this provisioning effort, and in, during this first half of the year, especially, we had the elimination of this factor of remuneration for banks, due to this European Court of Justice judgment, and also some more conservative adjustments connected with the inflow of the number of court cases, which turned out in the, during this first half of the year to be higher than what we were thinking it would be in the fourth quarter of 2022.
These were two drivers of the increased level of the higher amount of provisions during this first half of the year. Having said that, going forward, of course, what the drivers of provision will be connected with the inflow of the court cases and the trend. Also, is also important to the level of the settlements that we'll be able to achieve with customers in court cases and outside of court. This is also a driver, and also any other developments in terms of jurisprudence or in terms of court decisions that also can influence the loss that is booked regarding each case.
Of course, we don't expect in the second half of the year extraordinary events such as the ones that happened in the first half of the year, right? From this perspective, of course, we should expect a lower amount of provisions in the second half of the year than in the first half of the year. It's very difficult to give a concrete guidance for quarter by quarter provisions, because as I said, there are multiple things that influence. I would say that the general statement that of course, we would expect that the second half would be less costly than the first half.
Thank you. Now we're making a leap into a totally different area, the question is: What is your NII sensitivity to 100 basis points rate cuts?
Okay, we were expecting this question, to be honest. First of all, we are disclosing this estimation in our first half report on page 40 and 41 of our financial statements. Of course, there are always some assumptions underlying the estimation, which we are also disclosing. The answer is that a decrease of 100 basis points immediate, and assuming that all the assets and liabilities will be already aligned with the currently existing level of interest rates, would translate into a 2% impact on the group's NII reference level. It means that the next four quarters would be lower by percent in the last quarter, annualized. Again, this is based on a number of assumptions.
It's also based on the fact that part of the assets are at fixed rate or temporarily fixed rate, because we also have a question about some hedging strategies later on. I, of course, I would connect the answer to that question. Of course, what protects the bank against decreases of interest rates is, on one side, the bond portfolio at fixed rate that exists, which is divided into components. One is the hold to collect and sell, and the second one is the hold to collect portfolio. This provides a caution against decreases of interest rates, at least for the period of the duration of the bond portfolio. The second is also the fact that part of the loan portfolio of the bank is at fixed rate.
One is fixed rate for the private, as per se, namely the consumer loans. They are sold at fixed rate for the lifetime of the contract. The mortgage loans in recent quarters has been especially done at periodically fixed interest rate, which means the interest rate is fixed for the first five-year period. This also provides some caution against the drops and reduces the sensitivity.
Now we have to bit improvise, but let me handle that.
I'm sorry. I don't if our combination of deposit is linked to WIBOR or fixed. We don't have deposits next to WIBOR.
Yes. Okay, we partly answered the questions regarding the sensitivity or plans to reduce the sensitivity of our NII or, interest rate linked assets to rates, as Bicho said before. There is a question from, someone calling himself Santander. Santander is asking us, actually a question that many of our colleagues would like to hear answer to. Does Bank Millennium plan further salary increases?
Yes. We have active management of the personnel. The increases of salaries in Poland have been very dynamic. Also, for us, it's very clear the cost of the attrition and the time that takes to recruit and train and to have full capacity. With the bank, we have a tradition to, twice a year, assess the employees, and they have the consequences of this assessment. There is groups of employees that have raises, and we will keep the policy as we are doing. This is clear. There is also some questions about, but I think we already answered about the, when we start to pay banking tax and everything.
We already answered also to leave, when we will leave the.
Recovery.
The Recovery Plan.
Just a question fromJaromir from PKO BP: Did you book any special income tax shield in the quarter? I lost this question, but it's effectively about-
On a regular basis, of course, we review the treatment from a tax perspective of different revenue and cost items. In this particular quarter, there was also a reassessment of the consideration for tax cost of some provisions that existed associated with FX mortgage. This translated, in fact, in some reduction, let's say, of the tax rate for the quarter, due to this review that was done during the Q2 . Of course, it is a regular process. This quarter, there was a, let's say, a bigger impact. But as a standard, we are always analyzing from tax point of view, which provisions should be treated as not a tax cost.
As you know, unfortunately, for the time being, we are treating most of the provisions for the FX mortgage legal risk as not tax deductible. Although we are, let's say, launching actions in order to fight against this interpretation. There are some other provisions which also we are assessing whether they can or not be considered as a tax cost.
Thank you. There is also a question from Maciej Marcinowski, from Trigon DM: Do you plan to join the government 2% mortgage program? If not, do you see chances to increase new mortgage sales?
The market of the mortgage is, of course, very disturbed by all of the legal problems that we had around mortgage. It was all of these saga in Swiss francs, then the unexpected credit holidays, then these not prepared change of uncertain , so with the WIBOR change. It's somehow. Now we even are waiting and seeing what will be the reactions and the, and the customer expectations, slash, consumer protections, when we will have decrease of interest rates, and what are their interpretations for fixed rate, if it is fixed rate, or if there is any expectation less normal as well.
For us, we didn't assess for the time being, as necessary to join this program. We will keep assessing and studying if the program justifies us to make all the developments and efforts to join it. I must say that we are more committed for the future to keep growing in consumer lending. We were very happy with the results that we achieved this year in consumer lending, customer acquisition also, we are very happy. As Fernando said also we, in this presentation, we gave a little bit bigger flavor in terms of SME with corporate.
We had some, of course, capital risk constraints, but we believe that in the year of 2024, at least last part of that year, we could be back in the game, and trying to grow the portfolio of SME with corporate. In terms of mortgage, we will do our market share, and we do not have any intention to excel in this area. We believe that, unfortunately, the legal frame in Poland does not advise us to make big efforts in terms of long-term credit for the time being.
Thank you very much. Maybe it's time to ask 2 questions from IPOPEMA, from Marta. First is about, I understand, outlook for court cases in the future. What the bank sees in terms of client interest in case of history of the mortgage loans? I think it is significant, right? Which would indicate higher level of court cases in the following quarters?
Yes, I understand the question. Yes, I understand the question. What we expressed before, we still don't see a significant increase or change of trend in these type of indicators that could lead us to the conclusion that a significant wave of new cases will come. That's why we still believe that the average, at least for the nearest months, will not be substantial. The averaging flow of court cases is not going to be substantially different than the one that we have shown in during the first half of the year. It's something that we need to monitor every time, but of course, we are not excluding the possibility that the number of court cases will grow towards more the end of the year.
For the time being, looking at what we can anticipate for the next four months, five months, we are not seeing, let's say, a significant change of the trend.
Another question from me, IPOPEMA, is there any increase in usage of Borrowers' Support Fund? It's borrowers, from the vector, right?
This access to the Borrowers' Support Fund has fluctuated through time because it was growing last year until the moment that the credit holidays were introduced. It dropped. During the first half of the year, there was again, some increase. Of course, we also pay special attention to understanding what is behind the requests that are submitted to have access to the Borrowers' Support Fund. We are distinguishing between the underlying reasons. When we see that the reason of submitting the request is connected with unemployment, of course, we treat this in a, let's say, as a more serious situation than other reasons that can be underlying the request. The answer is there was some increase during the first half of the year.
But when we look at the underlying reasons, the critical reason, which is unemployment, is still not significant. I don't, I don't have exactly the percentage, but it is not the dominant one when the clients are asking for this. Sometimes it seems that it is also a way of somehow managing some temporary, let's say, lower disposable income or higher inflation, but not necessarily a sign of problems in terms of servicing the debt.
Thank you. There's one technical question which I think we may answer to the benefit of all the participants. The question is coming from Marcin Trzpiński from PKO BP. What is included in the category other, within other administrative costs? In Q2 2023, it was -PLN 24.21 million, while in first quarter 2023, in Q2 2022, it was positive.
This is partially connected with some settlements that happen from time to time with current companies and that are not regular through time. That's why sometimes we have this fluctuation in terms of the cost. This is the main reason.
Thank you very much. I think we have answered, I mean, not all questions religiously, but we have covered all the questions that were included, all the areas of interest that were included in the questions, unless you think otherwise.
Let us check this one.
Okay, let's quickly go through the questions. That's no question remains unanswered.
Just about the question, if the bank is taking some steps to limit sensitivity to interest rates?
Also about the hedging.
I think I partially already explained how we are managing and how we are limiting the sensitivity.
This is a global hedging. This is not a mathematical hedging, even because a mathematical hedging would create other problems when the early repayment of a fixed interest rate loan can happen and these kinds of things. It's a combination between, as you said, and having credits in fixed interest rates and also a balanced portfolio with different maturities of fixed interest rates of bonds. Also it's very important to understand that nothing is more efficient than a good price management as the conditions are changing. It's also important, in Poland, the traditional time deposits are three months, or even I would say, up to three months.
There is always active repricing that needs to be done in order to offset, of course, also keeping loyal customers and and not being the first to cut. There is a need of an exercise when we have rate cuts to, in a very proactive way, to reprice the portfolio. As I said, and it's very important that everybody understands that this should be expected because we saw exactly the opposite when there was the hike of the interest rates. Even you can see here, we have a page, is the page 11.
You see that in the past, end of 2021, and then 2022, and the first three quarters of 2022, the speed of the interest on loans and the interest in deposits is completely different. There is the repricing in deposits, is always later and it takes longer, and when the rates are going down, this is, of course, not positive for banks.
Connected with this, there was also the last question I did not address directly, which is the NIM outlook for the next quarters.
Which is connected with the exactly this point, of course. I think to a large extent, it depends on the actions that will be taken by the Monetary Policy Council later on in the year, and how quickly these interest rate drops will happen. Of course, as we said during the presentation, the NIM improved in the Q2 . This was better than what we were initially expecting, but the interest rates already started to go down. WIBOR is already starting to go down, already reflecting this anticipation of expectations of a decrease of interest rates. We cannot expect that the NIM will hold up at the current level, and it of course will tend to go down.
It's very difficult to provide exact guidance on the evolution of the of the NIM when we have now this process that probably will start of gradual cuts in the in the interest rates. Of course, we try to protect what would be protected in advance, but there is always some impact.
Okay, gentlemen, thank you very much for your time. João, as usual, maybe any closing remarks that you may have in mind?
I just said a lot. Just from one side, we are quite happy with the results. We are not only with the capacity to absorb the costs in Swiss francs and it's also important to understand that we are materializing the biggest risks. Although there were always two risks since beginning of the year, one was the decision of European Court of Justice and the consequences of that decision, and this was a shadow during all of the first half of the year. The second one is the credit holidays and in what conditions. We believe that sooner or later, we also will have this outcome.
The materializations of the risks, it's always good for the financial markets because takes uncertainty outside, looks to all of us that the impacts end up to be lower than the some of the scenarios that were forecasted. We are not saying that this is a total cost, because this is, of course, the impact, as Fernando said, that it's too early to see the end game. We don't see with the methodologies that we are using to see more cases, but we are not also saying that is over. We are not far away from that.
Of course, after this exercise, and especially now that we also reinforce the capital and we have these good results and also this strong efficiency, because one of the things that we are quite happy is not only the volume of sales and net interest income, but also the capacity to have control costs in this very tough inflationary environment and with zero unemployment also in Poland. This makes us quite optimistic for next year, because it's also important to understand that the NIM will be lower, but the credit appetite, the credit demand changes completely with the environment of interest rates, because it's very costly to have consumer credits when we have or credit card credits and everything, when we have a reference rates of 675 basis points.
you are putting the commercial margin and risk costs and everything. The game changed completely. If we have an environment of 4.5%, 5% or 4% even, it's, we will have less gain per transaction, but we hope it's more gains in more transactions. This make us look with a very optimistic eyes for 2024. And of course, for the close of 2023, but we are already looking for 2024.
Gentlemen, thank you very much. Thank you very much, all the viewers, for the time and interest. For those who call us from hot locations or geographies, I can make a little bit envy. We see raindrops on our window, so we had a bit of cold breeze or cold weather. It will not last, though. Lastly, there was a lot of articles recently about how the tourist traffic or directions or patterns may change going forward. Do come to Poland before the crowd, basically, and do come and visit us to see Bank Millennium, to see the wonders of Poland. Otherwise, we hope to see you in late October with the release of 3Q results. Thank you very much. Have a good holidays, and relax. Thank you very much.