Good morning, ladies and gentlemen. I would like to welcome you at our press conference. Today, we'll present consolidated results of Bank Millennium Group after two quarters, 2022. Results will be presented by our Chairman of the Board, Joao Bras Jorge, and Deputy Chairman, Fernando Bicho. Before we start, technical information, we broadcast the press conference in two languages, in Polish and English, so please choose the favored one. And the presentation in both versions you see at your screens. During the conference, please write your questions on chat. After we finish presentation, they will all be read and answered. I give the floor to Fernando Bicho.
Thank you. Good morning. As usual, I will drive you through the presentation, and we would like to start with a brief summary on pages five and six. As we see on page number five, we continue to have, in the second quarter and the first half of the year, a significant improvement of the operating results of the bank. This is illustrated by a significant increase in net interest income by 68% year-on-year, and 23% versus the previous quarter. Also with a relatively moderate growth of costs because the costs growth, excluding contributions to Bank Guarantee Fund and to IPS in the second quarter, the total cost growth was only 9%. We also continue to benefit from relatively low cost of credit risk.
Despite still the need of doing additional provisions for FX mortgage legal risk, we significantly decreased the loss of the bank in the first half of this year versus the last year. More than half of the level of last year. If we exclude the extraordinary items, in fact, we doubled the result versus one year ago. On page six, we also see that on the business side, the trend is very positive and strong, especially illustrated by the significant growth in the number of active customers, which increased by 173,000 year-on-year, and especially the number of online and mobile customers that grew by 273,000 also versus the previous year. On page seven, we show the main financial highlights.
The adjusted net profit without extraordinary items grew more than doubled versus the previous year, driven by strong growth of net interest income, while fee and commission income grew at a much slower pace, only 3% year-on-year. The adjusted return on equity, so excluding extraordinary items, was at 23%, and the adjusted cost to income at 33%. The next pages we will show, we show the details of the results. Starting with page number eight. It is visible on the top right graph, the gradual improvement quarter after quarter of the net profit of the bank, excluding extraordinary items. In the second quarter, the level reached PLN 637 million, which is 30% more than in the previous quarter.
On a reported basis, during the second quarter, we would have had a positive result even after FX mortgage legal risk provisions, if we had not at the same time the extraordinary contribution to the Institutional Protection Scheme, IPS. This contribution, which reduced our result by almost PLN 200 million net, was responsible for the net loss in the quarter of PLN 140 million. As it is visible, there is already for several quarters a gradual improvement on the capacity of the bank to generate results even after the provisions for FX mortgage legal risk. On page nine, we see the evolution of net interest income, which of course increased recently due to the significant increase of interest rates.
In the second quarter, it increased 23% versus the first quarter, and the net interest margin was also close to 4.5%. We had a continuation of the increase of the average interest rate on loans, but also it is already visible the increase on the remuneration of deposits, which will continue to happen in the next quarters. On the fee and commission income, the growth was 3% year-on-year, but dropped 7% versus the previous quarter due to the decrease of commissions from investment products and capital markets products, especially investment funds, due to the significant correction in the market. Page 10, regarding costs. I think we had a strong performance in the second quarter in terms of costs.
Total costs on the first half of the year only grew 9% versus the previous year. If we exclude BFG and IPS, it means this is a cost growth much below inflation. We had growth of personnel costs by 8% year-on-year, and admin costs excluding BFG and IPS by 11%. We had a continuation of a downward trend in terms of number of branches as a consequence of the ongoing process of optimization, and also number of employees. Page 11. The asset quality remained strong. The ratio even improved in the second quarter to 4.3%. This was supported by significant sale of NPLs that also generated a positive result of PLN 40 million.
As a consequence, we were able to keep the cost of risk in the second quarter at a relatively low level at 37 basis points over total loans. On page 12, the liquidity continues to be very solid, a loan to deposit ratio of 83%. The capital ratios still decreased in the second quarter as a result of the revaluation of the bond portfolio and the net loss that we still booked in the second quarter, but they were still clearly above the minimum capital ratios requirements. Moving now to the FX mortgage legal risk on page 13. We continue to have a significant effort to reduce the portfolio of FX mortgage loans. The reduction in currency was 20% versus the previous year and 5% versus the previous quarter.
As a consequence of the decrease of the portfolio and also deducting the legal risk provisions, the FX mortgage portfolio share in total gross loans has been decreasing, and it's now around 10%. We still have continuation of inflow of court cases at a similar pace as the previous quarter. This was one of the drivers of the continuation of the increase of the provisions for the legal risk, which totaled PLN 467 million for the Bank Millennium portfolio during the second quarter. On page 14, as you can see, due to the significant increase of provisions and reduction of the portfolio, the total stock of provisions as of the end of June represented more than 36% of the outstanding balance of mortgage loans.
In the second quarter, we continued the significant effort of negotiations of amicable settlements with our clients. For the fifth consecutive quarter, we achieved more than 2,000 successful negotiations in the second quarter, more precisely 2,175. This number was clearly above once more of the number of new court cases, which totaled 1,554. Of course, this has a cost, but continues to support the reduction of the overall portfolio and in order to decrease also the legal risk. Moving to the second part of the presentation about the business development, the main highlights on page 16. We had a solid loan growth of 5% year-on-year, driven by the growth of PLN mortgage loans by 19% and leasing portfolio by 8%.
We already reached 2.4 million active digital customers and we had also solid growth of debit cards by more than 200,000 year-on-year, and customer deposits by 7% year-on-year. Page 17, we see a clear rebound of loan growth excluding FX mortgage. The growth was 11% if we would exclude FX mortgage loans, driven by PLN mortgages, as I mentioned before, a growth of 19% year-on-year.
Also we saw some stabilization in the portfolio of the consumer loans after a small drop that we had in the first quarter, and also a rebound in loans to companies driven by leasing. On the deposits, growth was driven in the last 12 months by deposits from companies, but in the second quarter, we have already a rebound in deposits from retail clients. The structure of the loan portfolio shows the continuation of the dilution of the FX mortgage loans. Page 18, we had some slowdown in terms of origination when we compare, of course, the sales of mortgage loans in the first half of the year with the same period of last year.
There is a drop of 11%, but it's still a very strong level of origination of mortgage. In cash loans in the second quarter of this year, we had a clear rebound, + 26% versus the first quarter, although in cumulative terms, the first half of the year was 7% lower. Page 19. I already mentioned a very strong pace of growth of the number of customers. Total number growing by 173,000 year-on-year. Number of current accounts increasing by 132,000. Also, continuation of steady growth of microbusiness segment. This growth is being supported by the development of our digital channels. We show on page 20 very significant numbers in terms of importance of digital channels.
For example, 78% of sales of cash loans were done through digital. 91% of term deposits. 32% of the acquisition of current accounts. We had an increase of 51% in the number of current accounts that were opened online. On page 21, we also illustrate that through the mobile app and Millenet, we are providing access to additional non-banking services, especially mobile application on smartphone top-up goals. And also we continue the improvement of our solutions. This time we are showing on page 22 the redesigning of the process of opening an account online and in the mobile app with logging into another bank or with a new selfie process. This also makes this process of acquisition of customers much easier.
Page 23, again, a reminder of the support that we provide to Ukrainian citizens also through our digital channels. Page 24 also updates the growth of our Goodie platform with more than 221,000 downloads of the app during the first half of the year. Page 25. Then, on the company's side, a clear rebound, a growth of loans of 5% year-on-year with a clear rebound of leasing that grew 8% year-on-year. At the same time, a strong growth of deposits by 24% year-on-year. In general, a sustained increase of transactional activity both in terms of cash turnover, domestic transfers, foreign transfers, and FX transactions. This is also seen on page 26.
Leasing sales, although year-on-year they were flat, the portfolio grew 8% as we already showed. Also, a growth of factoring turnover and 15% growth in the volume of FX transactions. The digital effort to support our customers is also focused on companies and small businesses. This time, we are illustrating on page 27 the significant increase in the number of business accounts opened in the first half of 2022 versus the second half of 2021, a growth of 60%, and a growth of 40% in the cash loans for micro entrepreneurs that were completed in online channels in the first half of 2022 versus the second half of 2021. Finally, on the third part of the presentation, credit holidays and capital management.
After the publication of the new law regarding credit holidays, we announced that the maximum cost, if 100% of the borrowers would come, would reach close to PLN 1.8 billion. We also announced that we would book the upfront cost of the credit holidays in the third quarter based on an expected participation rate between 75%-90%, which is above the average level that was considered when we see what other banks have published. As we announced by current report one week ago, on page 30, and also as we are repeating in our report, first half report that we published today. Due to this significant impact, due to this upfront recognition of the costs of credit holidays, we are expecting a negative result in the third quarter.
Also that this impact on the capital ratio can be around 300 basis points. As a consequence, our capital ratios can fall below the minimum requirements between 118 and 174 basis points depending on the size of the final provision that we will book. As this triggered a risk of breaching the capital ratios, that's why we announced the decision to launch the recovery plan. The recovery plan that we have is a normal process for all the banks. It's updated every year. Our last update was approved by KNF in February this year.
Also, as we announced in our current report, and we are repeating today, we intend to increase the capital ratios in a comfortable way above the minimum requirements through a combination of further improvement of the operational profitability. Also through several capital optimization initiatives, such as the management of the risk-weighted assets or capital consumption through securitization transactions. These are the most important points of our results. Now we are available for questions. Thank you.
Yes. We are moving to a Q&A session, and we already have few. The first one, in the context of credit holidays, how does the bank see the all year cost of risk?
We still anticipate that the cost of risk in the second half of the year will be higher than in the first half of the year. This is due to the fact that in the first half of the year, on one side, we benefited from the sale of NPLs with a gain. This reduced the cost of risk, especially in the second quarter. This is one point. The second point is also that gradually interest rates have been going up. As interest rates go up, we can anticipate some deterioration in the cost of risk of some clients.
On the other side, for the mortgage loans in PLN, due to the introduction of the cost of the credit holidays, we do not expect deterioration because if someone will have a problem, we'll apply for the credit holidays. We are not expecting in the short term a deterioration of the quality of the PLN mortgage loan portfolio. Overall, this is the picture that we expect for the second quarter.
Next question. How does the bank assess the Swiss franc borrowers' interest in settlements? Will the quarterly cost of settlements continue to decrease?
We were very happy that we kept this capacity to settle more than 2,000 per quarter. As we have been expressing, this is our target on a constant basis. It's interesting that for the first time we are... This is only achieved because we speak on a regular basis with all the customers that they have Swiss francs, and we keep inviting them to find a settlement and to discuss what could be the best solution for them. For the first time lately, we are having even customers that are saying, "No, no, we don't have nothing against. We are not going to make any court action. We don't have nothing.
We just want to stay in Swiss francs because it's much lower installment, and we want to stay as we have, and we want to repay normally without any stress." We will see how it goes. It's. We still have as a main focus to solve and to convert all of our portfolio. We will keep insisting and offering solutions to our customers. The decrease is also because it's more, because per settlement, more or less the cost is the same. I would say that the transactions and settlements that we achieve with customers, they are very much connected also with the situation of the FX rates on the settlements that we are making and also the kind of solution that we found for each of the customers.
In average, the cost is very much the same as the previous quarter. We don't think that there will be a trend of decreasing, and even if there is any trend, it will be of increasing.
Next question. In second quarter, the sales of mortgage and cash loans increased quarter-over-quarter. Does the bank expect a decrease quarter-over-quarter in third quarter?
Yes, we expect that this acceleration of the credit activity, this is very much connected with the major slowdown that we will see in terms of the economy in Poland. It's not seen yet, but we believe that also in this period, after holidays, with all the expenses of the holidays and the back to school, people will feel a lower disposable income, but also a lower, how should I call it? A lower propensity for expenses or for investments and for big decisions. One way or another, we don't expect nothing dramatically, but we expect somehow a steady slowdown on the credit activity. A lot of the second quarter activity was some seasonality somehow as well.
From one side, there is in second quarter always a bigger activity in terms of consumer credits because people have take decisions in terms of spending holidays, transformation of their homes and these kind of things. On mortgage, there was somehow also some processing of a bigger activity in terms of credit applications that we had in first quarter. This was also connected with some changes by the regulations of KNF. This makes a big increase of the applications in first quarter that have been processed in second quarter.
We are not stressed about the future, but it's clear that we are seeing a steady slowdown also in the activity of credit by the cost of credit, but also by the decrease of the appetite for consumption and investment decisions in terms of the consumers.
How is currently behaving the portfolio of retail borrowers, who are particularly exposed to increased inflation and high rates, high interest rates in Polish zlotys?
I think Fernando already said more or less that, but.
In retail, we have basically PLN mortgage, and I already commented about PLN mortgage, so that the credit holidays will imply that we don't anticipate that there will be problems in the short term with this portfolio. Second, we have FX mortgage, but the FX mortgage so far was not affected by the increase of interest rates because the level of the Swiss franc was still relatively stable recently.
They had loans then, from a very long time ago.
It was a long time ago, so we don't see problems there. Then we have the consumer loans. In the consumer loans, we also, of course, have a portfolio that already comes from the past, but also in the new origination we reduced. We did not increase the price of the new loans in the same scale that we had the increase of interest rates. That's why, also, of course, we are anticipating that there will be some deterioration. When we have such a move of interest rates, of course, we are expecting some deterioration.
For the time being, we do not see yet such an increase in the NPLs from the retail side. Of course, it's something that we will monitor very careful during the next months. I think also each borrower also is adjusting to the new situation, to the new environment. We expect some deterioration but not substantial.
Thank you. Is the bank considering a share issue in order to increase capital ratios after the expected decrease in third quarter?
No. It's exactly the reason why we went through a recovery plan. It's because we took a different decision. Instead of making a share issue to recapitalize the bank, we went through the process of generating organically and through the specific transactions like securitization or optimization of usage of capital, in order to, in an organic way, to rebuild the capital of the bank.
In second quarter, the bank suspended the work on bond issue on foreign markets and in Poland. Does the bank see the possibility to enter the market with a new issue of subordinated debt of MREL this year after reduction of the rating and launch of the recovery program?
We think the problem is not so much our own situation, but the market. In the first quarter, we were not able to issue because the market simply disappeared, and there is no conditions to make any issue of this type at all. We will see if there is improvement of the market conditions. The market conditions, there are two things that, or three things that not helping at all. The war in Ukraine, it's bringing also instability to the markets. Also the turbulence in economic environment, across Europe and the world is also making it more difficult to issue this type of bonds.
Third, that also must be said, this unpredictable regulatory and legal environment in Poland, it's completely cyclical and it will make impossible to make any issue in short term of this kind of instruments. I think we need to go through a confidence rebuilding process for the investors in Poland before it being possible to issue any kind of these instruments.
We go back to the recovery of capital ratios, and the question is, will it be enough for the recovery of the capital ratios to limit the development dynamics and make potential securitization transactions? Does the board exclude increase in capital? Are disinvestments an option?
The capacity of generating net profits is the most important strategy to rebuild the capital. As we stated, we were already achieving the crossroad where the normal activity of the bank is already enough to cover the effort that the bank is doing in Swiss francs. This allow us to forecast, even because we have a very intensive policy of making provisions for Swiss francs this year and the year before. At the same time, we are making settlements and everything. We would see, in our view, that we would go to a pace that from one side we have the results increasing steadily, and from another side, we would have some stabilization or even decrease of the effort in terms of provisions.
with that, we will be capable to produce results that rebuild the ratios. Securitization is, of course, a process. There is another process that it's less seen, which is improve the management of the capital, namely to develop more credit activities that consume less capital like mortgage and reduce activity or smaller corporate transactions that are also protect, for example, with guarantees from BGK. These allow us by reducing very large exposures from syndicate loans with uncollateralized credit exposures, doing this kind of credit exchanging and balance sheet management allow us to keep a high activity, but also reducing the needs of capital.
We believe that this is what we are going to do, and this is what we will need to do. We don't see slowing down our digitalization process. We don't see not investing in the customer experience. Obviously, when we are in this kind of moments, we will manage costs in a more prudent way. The path is through managing costs in a more prudent way and having results from the normal activity plus improvement of management of capital. Once again, we don't consider at all any capital increase.
How many lawsuits did the bank file against the clients in relation to use of capital? What has been to date experience as regards court decisions in this type of cases?
The first group of claims submitted by the bank was done in the end of last year. It was around 1,700, if I remember. This year we will do another group. But I should stress that before doing that, we will offer to all that group of customer the possibility to reach an amicable settlement. This is part of the process that we have implemented. Regarding the court decisions, we do not have final court decisions about this. Most of the process of these claims were put together while waiting for the final also decision on the court case that was submitted by the client.
We still do not have conclusions about the result of this counterclaims process.
Next question, partly was answered, but I read as promised. What are your expectations as regards the credit action? Do you expect a decrease in demand for loans, especially as regards companies? Do you expect a deterioration in quality of the portfolio due to the increase in provisions of impaired loans?
I think we talked about, rightly about this, but there is this question about companies. Maybe I would say that we are seeing bigger utilization of working capital and overdrafts of companies, and much, much lower activity on the investment side of companies. Namely, for example, leasing, that is an instrument for investment in equipments. This also shows, in our view, some, from one side, some more difficulties in terms of their financial activity in short term, maybe by increase of cost, inflation, whatever. But also some more prudence or less optimism in terms of the future for the economical development, because it was a major slowdown. We saw just after COVID the bigger increase of the activity on investment side, on equipment side, and all of that.
Now we see kind of a big slowdown on this part with a bigger usage of these short-term financing facilities. We don't see deterioration in terms of credit risks of companies at all, but we see their activity reflecting a less optimistic picture for the Polish economy.
Last question, which I see on chat, how does the bank assess the legal environment in Poland in terms of banking activity? Is the bank considering exiting the Polish market?
The bank is not considering exiting the Polish market. We like the Polish market and especially in our situation that we 50% of the capital of the bank belonging to a group, but the other 50% is in the Polish stock exchange and owned by institutional investors and private Polish investors. It's we feel it very well. But it's obvious that have been challenging, the legal frame here in Poland. What is really frustrating is we could have done it differently.
If we would have done the credit holidays, as we did in COVID times, none of these problems would have appeared, and the customers would have had the same benefits as they did in a very easy way, in a very organized way with the private moratoria during COVID. It's this lack of cooperation, this lack of working together to find the best solution for the moments that we are having in the economy and also with the fears of the population and the needs of the consumers is somehow disturbing. It's a pity that there is this belief that by changing the laws and by making court cases and by fining by the authorities is a way of looking for solutions.
As always, we need to cope with whatever is decided. This was decided with a large majority in the parliament. What we need is to implement in the best way the credit holidays at the moment in the way that we believe that is beneficial for the customers, and also that allow them to make this in a smooth path. This is what we are doing, and this is what we will do.
Thank you. These were the last two questions which we see on the chat. We would be closing. We are closing the meeting today. Thank you very much for participation. If there are any further questions, we are at your disposal anytime. Thank you very much.