Good afternoon, everyone. Welcome to Bank Millennium 1Q results call. With us, the usual speakers and presenters, Mr. Joao Bras Jorge, our CEO, Chairman of the Board, Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. My name is Dariusz Górski. I'll be trying to manage or, let's say control the call. You know the drill. We typically do presentation first, and then we are answering your questions. We'll follow as this time as well, although we want to make a small change. Mr. Joao Bras Jorge will do the opening and also guide us briefly through key business achievements of the quarters because we are very proud of this this time. Over to you, Joao.
Thank you. Let's start on slide five. Slide four we have just a highlight of some of the awards that the Bank received that just confirm that the Bank is very focused by differentiating itself by the quality of services and the innovation of the products and the customer experience that it provides. The page five, we have at the beginning just to highlight some of the business achievements. As we initiate second year of the strategy, it's very visible the results that we are achieving and how successful the implementation of the strategy is being. As you can see, the total deposits year-on-year grew 13%. Consumer loans year-on-year grew 5%. Net loans to companies 40% year-on-year.
As you remember well, this was the biggest challenge that we had for this new strategy to build such a strong franchising corporate banking as we already have in retail. Leasing with the portfolio grew 6% year-on-year and also the growth of investment funds 30%. In last three years we have been presenting the growth of the investment funds every year around 30%. On the right side, we keep growing very well in organic way on customers. In retail active customers we already achieve 3,313,000, and this is a year-on-year acquisition of 150,000 customers active as net growth with 95% of the customers being digital actives.
Looking for the origination that gives a bigger flavor about the dynamics that we are having at the moment in commercial level, you can see that in cash loans we have almost PLN 2 billion of production in the first quarter. It was PLN 1.9 billion in production, which is 9% higher than the first quarter of 2025. In mortgage loans, PLN 2.2 billion of production, this is 179% higher than the first quarter one year ago. Corporate loans, PLN 3.2 billion, which is 122% higher year-on-year. Leasing, PLN 976 million, 12% higher than the first quarter of last year.
Factoring turnover also with almost PLN 8 billion of turnover, which is 21% higher than one year ago. This is a demonstration that the strategy is being successful, implemented, that the results are visible, and that we are in front of a very dynamic business volumes. That of course will translate also in the financial results. Now I will pass to Fernando.
Thank you. I will continue with the main financial highlights of the quarter. On page seven, we reported a net profit of PLN 301 million, a growth of 68% year-over-year. The net profit excluding extraordinary items stood at PLN 514 million, 28% lower than one year ago. The return on equity on an adjusted basis by splitting throughout the year contributions to the resolution fund reached 15.2% or 12.1% on a reported basis. We continue to show very resilient net interest income despite a much lower interest rate environment.
In fact, our NII in the first quarter reached PLN 1.4 billion, just 2% down year-on-year with the net interest margin at 3.65%, 58 basis points lower than one year ago. This against a background of a drop of the average three months WIBOR of 199 basis points to almost 200 basis points decrease year-on-year. We show some accelerating and well-diversified fee and commission growth, +12% year-on-year. The cost-to-income ratio on an adjusted basis at 39%. The cost of credit risk continues to be relatively low and stood at 45 basis points over total loans not being supported this quarter by any sale of NPLs.
The NPL ratio further improved and reached an all-time low of 3.7%. We also had relevant developments in terms of capital during the quarter. We significantly improved the total capital ratio that is now at 17.6%, and the Tier 1 ratio that is now at 16.4% after reflecting the proceeds of the AT1 bond issue that we have done in January in the total amount of PLN 1.5 billion, as well as the retention in own funds of the second half 2025 net profit. Consequently, we further increased the buffers over the minimum regulatory requirements, which were respectively at 5.8 percentage points and 6.6 percentage points. We also have solid buffers over the minimum MREL requirements, also supported by the issue of the AT1 in the first quarter.
The long-term funding ratio reached the targeted level of 40%, which was supposed to be met by year-end, and the loan-to-deposit ratio was flat at 58%. I will skip the tables of page eight and nine that gave the more detailed information about the important P&L items and different ratios, so because we will see them throughout the presentation, so I would go directly to page number 10. As usual, we are presenting the status of the execution of the strategy 2025, 2028 in terms of the main business, financial and risk indicators.
We can say that we are generally on track to achieve the targets for 2028, with special emphasis this time on the execution progress that we have achieved in the corporate area with the significant growth of the corporate loan book. Just as a reminder, we have targeted doubling the size of the corporate portfolio during this four-year period of the strategy. Other indicators are also supportive in terms of the improvement of the ROE, reduction of the NPL ratio, continuation of the pace of significant growth of the customer base in retail, which is also now being followed by the growth of the customer base on the companies segment.
On page 11, we see the evolution of the net profit that, as I mentioned, stood at PLN 301 million. It must be highlighted that in the first quarter of this year, we had higher contributions to the Banking Guarantee Fund, namely to the resolution fund, than one year ago. This will be offset throughout the next three quarters due to the fact that there will be no contribution to Deposit Guarantee Fund. When we will reach the end of the year, actually the contributions to the Banking Guarantee Fund will be lower than in the year 2025. Anyway, we have this inflated figure in the first quarter of the year when the resolution fund contribution is fully booked.
As a consequence, this inflates the admin costs and somehow deflated a little bit the net profit that would have been achieved otherwise. On a reported basis, we show an ROE of 12.1% or 15.2% if we would spread out through the year the contributions to the Banking Guarantee Fund. On an adjusted basis, so as I mentioned, the net profit stood at PLN 514 million. On page 12, we see the evolution of the NII, which continued to be very resilient. We had a drop of only 2% versus one year ago and 3% versus the fourth quarter of 2025.
It is visible on the top right graph that we continue to have repricing of the loan portfolio of the variable rate part of the loan portfolio, which translated into a reduction of the interest on loans to 6.75%. At the same time, we managed to decrease the average cost of deposits by 17 basis points to 1.78%. The net interest margin marginally contracted in the quarter by 13 basis points versus the fourth quarter of 25. On the net fee and commission income, we have some positive developments. After, let's say, a more difficult period last year, we already see clear signs of improvement with the growth of net fee and commission income by 12% year-on-year and 2% quarter-on-quarter.
The growth year on year, being supported by higher commissions from insurance and from investment products. On page 13, on a reported basis, operating costs grew 12% year on year. If we exclude this BFG impact, the growth was 10%. Other admin costs grew just 8%, so we see signs of deceleration in the cost growth. The cost-to-income ratio adjusted stood at 39.1%. Asset quality continued to be strong. Page 14, NPL ratio further down to 3.7%. Cost of risk at 45 basis points over total loans. As I mentioned, no sales of NPLs in this quarter. I would stress the further improvement of the coverage ratio of impaired loans by total credit risk provisions from 74% one year ago to 82% in the end of March.
On page 15, capital position further improved in the quarter due to mainly due to the issue of AT1 bonds and the retention in own funds of the net profit of the second half of the year. This was partially offset by a decrease in the valuation of the Hold to Collect and Sell bond portfolio due to the correction in yields that happened in March. On page 16, significant surplus also on MREL requirements, both MREL TREA, MREL TEM, and a very strong liquidity position which puts us very well-positioned for the further growth of the loan portfolio since we have now a loan-to-deposit ratio of only 58%. Last but not least, we reached the level of 40% in terms of long-term funding ratio according to the current definition of the ratio.
Of course, if the formula will be changed, we will have even bigger comfort in terms of the fulfillment of this new requirement. On page 17, regarding FX mortgage legal risk, we had from one side a significant drop in the overall costs connected with legal risk. On a pre-tax basis, a drop of 61% year-over-year. In terms of quarterly dynamics, we had an increase versus the previous quarter of the inflow of court cases to 893. Still, this is the second lowest inflow for many years of court cases. On the other side, we had a lower number of settlements in the court and out of court proceedings also due to different dynamics of the cases in the courts.
We can say that from our side, we continue to do all the effort to continue to have the as much possible settlements in regarding the existing court cases. Moving now to the second part of the presentation regarding business development. We have visible signs of acceleration of loan growth. Net loans on a consolidated basis grew by 5% year-on-year, or 6% if we exclude the FX mortgage portfolio. This despite the fact that we still have year-on-year a contraction of the PLN mortgage portfolio, although on a quarterly basis it already grew.
We continue to have a solid growth of consumer loan portfolio, 5% growth year-on-year, especially of course the growth in this quarter was fueled by the significant growth of the corporate portfolio including leasing and factoring that grew 27% year-on-year, accelerating the growth pace vis-a-vis the previous quarter. As a consequence, the structure of the loan portfolio is gradually changing with some dilution of the PLN mortgage portfolio and increase of the share of corporate leasing and factoring in total loans. Customer deposits has also a strong performance, a growth of 13% year-on-year, both coming with similar growth rates from retail and from corporate, but also with an increase of the share of current accounts and savings accounts in total deposits and a decrease of time deposits.
While in investment products, despite the turmoil in March, we still show a significant growth of 31% year on year, and particularly a growth of 39% of our Millennium TFI mutual funds. On page 20, the sales of consumer loans in the quarter were solid, a growth of 9% year on year. Of course, much more visible is the significant jump in the sales of mortgage loans that grew by 79% year on year. The origination in the first quarter reached PLN 2.2 billion, which allowed us to reach a market share closer to our natural market share of 7.7%. In cash loan sales, the market share is close to 9% in the first quarter.
Overall, we had the growth of retail customer funds by 15%, especially fueled by the growth of investment funds. On page 21, we continue to show a significant growth of the active number of retail clients. On a net basis, the number of customers grew by 42,000 in the quarter, 150,000 year-on-year. At the same time, the micro -business clients portfolio also further increased by 5,000 during the quarter. Of course, this growth of customer base is followed by a significant growth of current accounts by 276,000 in the last 12 months, and cards by 229,000. On page 22, mobile app is in the center of our contact channels with our customer base.
We continue to show impressive numbers regarding the level of penetration of digital in our customer base. Just a few important figures. We ended the quarter with 3.13 million active digital users, a growth of 6% year-on-year. 2.94 million active users of our mobile app, a growth of 8% year-on-year. Of which 2.43 million are active mobile-only users. We had 2.26 million BLIK users in the first quarter, a growth of 9% year-on-year. On the top, on the right side, you can see the split of how our customers use the different digital channels. The digital processes are contributing to boost acquisition.
On page 23, you can see that in the first quarter, we had 69% digital share in currents accounts acquisition, apart from already very high share in credit card sales, 81%, or cash loan sales, 88%. This is being recognized externally. We got the first place as best remote account opening process. Pages 24 and 25 further illustrate how we are putting the customer needs at the forefront of our digital development. This is translated into very practical usage of our solutions. For example, 74% of the family 800+ applications were submitted via the mobile app. We are implementing solutions that promote cross-channel synergy, as illustrated on page 25.
Page 26, we continue the development of the goodie platform. This quarter, apart from the continuation of the relevant growth in terms of transactions with the cashback, and we would highlight the establishment of strategic cooperation with the Polish Payment Standards , the PSP, the operator of BLIK, in the area of multi-bank cashback platform. Moving to companies, page 27, we have a strong momentum in companies financing. Total portfolio grew 27% year on year, and specifically, loans to companies increased by 41% year on year. At the same time, total deposits grew by 13% year on year. The origination of loans to companies in the first quarter was more than the double of the one registered in the first quarter 2025.
Also positive signs are coming from leasing, where new sales peaked visibly, picked up visibly in March. This is allowed us already to have 6% growth in the overall leasing portfolio. Finally, on page 28, the acceleration of and the momentum of the corporate business is also illustrated by the levels of leasing sales, plus 12% year-on-year, and factoring turnover, plus 21% year-on-year. These are the most important highlights of our first quarter results, and now we will go through the Q&A. Thank you.
Thank you very much, Fernando. You're doing very well because we have practically no question referring to the content of the presentation and the past, so this speaks for itself. We'll give you a bit of a breathing space, so why don't we start from questions relating to loans and deposits, and I will direct them or ask them to Joao. First question is, first quarter was another quarter when despite strong sales, portfolio of PLN mortgages only grew 1% quarter-on-quarter. Are earlier repayments behind it or refinancing? When do you expect an acceleration of the growth of the portfolio? Also a question within this context, do you consider the mortgage market as attractive at the moment?
We believe that, already next quarter we will present, or the same level than a year ago or starting to show some growth.
In mortgage it was PLN 5.7 billion the portfolio, we should be where we start, it should be where we started. Sorry, just, so if I remember. We have in PLN mortgage, sorry, PLN 35.7. Yes, we have PLN 35.1 billion, we should already present some growth next quarter. Last year, of course, we have also some intention of producing a little bit less. We end up to have this impact with the increase of the early amortization and some refinancing, we end up falling in terms of the portfolio more than we were expecting.
We explained this in the results presentation of last quarter, that the decrease was not so intentional, and that it was our intention to stabilize and to start to grow, and this is what we are doing at the moment. We are producing, as it was shown, PLN 2.2 billion in the quarter. We should expect the same levels of production, maybe a little bit higher, in the next quarters. There is a mix here, and we need to remember that for our portfolio, we already have a reasonable normal amortization.
Besides that, there is also some early repayments, so it's partial or total early repayments, not just by refinancing but by the customers per se because all the processes are user-friendly, without commission. Even in a mobile app, a customer can repay partially any amount that he wants of his mortgage. Of course, now there is the refinancing. Putting together, because we have also these kind of questions, 40% of our production is refinancing. We believe that should be aligned more or less with the market. We think the market is attractive, but it's always a question of doing in a balanced way, and what we are trying to fine-tune as much as possible is to do the right size of the mortgage portfolio.
To do the right size of the production, also align with the market share that we have in retail and market share of customers and all of that. We have been also giving some special conditions to green mortgage, so mortgage that fulfill some ESG criteria to build a better portfolio. I think that's all.
There's also a bit more nuanced question in that regards. How much of the mortgage sales results or include or are a function of refinancing of loans from our own portfolio, so effectively existing clients?
This is so we don't refinance ourselves in this perspective. Of course, we have some retention process in cases of the customers venting outside, but is in a small amount. Even when we go back to trying to understand the repayments, That's why I was so assertive that there is normal repayment. A lot of our customers repay the loan not by refinancing but by their own cash or partial repayments, so it's not so significant. Some of the refinancing that is done, there is also a different tenor, sometimes more amount. Sometimes it's not just a question of price. There is also a question of taking the opportunity of a lower interest rates environment to make a different, a different structure of the finance.
As I said, the percentage of our own, let's call it renegotiation of the rate is small. The percentage of our production that is refinanced is 40%.
Thank you. We also have rather uncommon question or rare one about deposits. Do you expect to continue reducing the share of term deposits throughout the year? What are you doing to change the mix and still grow the overall book?
I alert that it's the part that is not time deposits is also savings account. Depends a little bit what is the product preference or the product that also the bank invests more in promoting. The bank have been promoting savings account because believe that it's the most adequate product for the mass market. Being very liquid as our bank is, to be aggressive in the affluent or even in private banking, on time deposits only makes sense if there is a strategy to attract the customer to further on allocate this amount in investments. The deposit per se does not make a lot of sense.
That's why the bank is promoting more the savings account, because it's a tool for the standard savings and to attract mass market customers and also to initiate the journey for first for savings and later on for investments. These have been the strategy. The strategy have as a consequence the growth of the total deposits with the growth of the amount that is allocated in savings accounts plus current accounts. The amount I would say in gross numbers is a little bit 50/50 between savings accounts and the current accounts. As time goes by, you will see even a, maybe an increase of the savings account versus time deposits.
In a traditional way, what we grow in terms of total deposits is very similar what we grow in current accounts, which also shows primary increase of customers and all of that. There is always a challenge for us, so sometimes we discuss it very internally a lot because the Bank is very liquid and we are always waiting to grow in the credit to allocate all of this liquidity. Anyhow, because the growth is very much in mass market, it's a nonsense to block this normal growth because this will be blocking the growth of our own franchising retail. We will keep growing as we are. This is an issue about all the sectors.
The banking sector is very liquid in Poland, but we will keep this developing of our retail bank.
Thank you very much. Fernando, over to you. First question, let's get the historics out of the way. First question on the past. Despite the balance sheet growth, the value of banking tax dropped. What was behind this dichotomy?
The level of the banking tax is influenced by the size of the equity and by the size of the Polish government bonds portfolio. What we got during the first quarter was, first of all, the significant increase in our equity due to the issue of AT1 instrument, right? That was included in March in our own funds. This contributes to decrease the base. Second, also some change of the composition of the liquid assets portfolio. We had a little bit more, a little bit bigger part in Polish government bonds and less balance of NBP bills. These were the main drivers of the change of the base, which translated into a little bit lower, not substantially, but a little bit lower banking tax.
Thank you. We have received few questions on NII. Let me aggregate them. Could you please update on the NII guidance from 2026 and 2027, given the new rate outlook? By the way, do you have a new interest rate outlook? How do you expect volumes and margins to behave in the rest of 2026?
When we started the year, our interest rate scenario was that interest rates would be cut to 3.5% until the middle of 2026, then they would stay flat throughout 2027 and 2028. This was our base macroeconomic scenario. We have now interest NBP rate at 3.75%, current market expectations is that this rate will stay stable maybe until the end of the year. We cannot be sure, at least this is the current market consensus. What we expect is that this can be supportive to avoid further compression of the net interest margin. There is always some further compression that comes that was coming from the gradual repricing of the portfolio that is variable rate.
With the lower interest rates, of course, there was some repricing that is visible in the average remuneration of the loans that I mentioned during the presentation. If the interest rates will stabilize at the current level, what we can expect is some stabilization going further in terms of the net interest margin. Also, we expect that the positive effects from the volume growth will start to play out, and namely that the growth of the loan portfolio gradually will replace part of the bond portfolio that we have, which would bring nominally higher yields. This volume growth would contribute to offset, let's say, the contraction of the margin that we have observed in the last 12 months.
To summarize, we also, of course, have a partial protection through our bond portfolio in terms of the NII. All in all, we expect that NII going forward will tend to be more stable. We are not making, let's say, projections for each quarter. We usually don't do this. I think that the perspective for the year is that the volume growth throughout the year will tend to offset the reduction of margin that we have observed during the recent quarters. For 2027, if the interest rates would remain stable, of course, the perspective should be positive due to the continuation of the volume growth that should be beneficial for the NII.
Next question is on fees and commissions. Is low double-digit net fee and commission growth in first quarter a good proxy for the rest of the year?
I think we are positive in terms of the evolution of net fee and commission income. It's too early to say whether we will be able to achieve double digits growth. I think there is already some visible rebound. Also due to this recent markets volatility, of course it's more difficult to predict how the commissions from investment funds will evolve. It's obvious that when there is market turmoil or volatility, the inflows decrease or even in specific moments there can be some outflows, and this can have impact on the overall fees that are charged on the investment funds. I think we are positive that this year will be clearly better in terms of evolution of net fee and commission income versus the previous year.
It's too early to say whether a double-digit growth can be achieved.
Thank you. Now, cost of risk. Could you please update us on the cost of risk given the worse/uncertain macro environment? Is it still 50 basis points for the full year?
In our quarterly report that we published today in the morning, we also elaborate about the macroeconomic environment and the potential consequences of this war in the Middle East, which of course is subject to a large uncertainty due to the fact that it's impossible to predict when this situation will finish and for how long the effects will stay and which effects will have more impact for the Polish economy. Our view so far is that until now we have not seen any material impact from this situation in the quality of the credit portfolio. Of course, we have put into place the monitoring that is appropriate for these situations, both for the corporate and for the retail portfolio.
This situation started less than two months ago, so it's too early to take definitive conclusions about what is going to happen. As I said, so far we do not see any material impacts on both the corporate and the retail portfolio. Also, the prospects for the growth of the Polish economy for this year are still very good. The projections point to a GDP growth clearly above 3%. Even if a few decimals below the original estimate, it's still a very strong economic growth, very low unemployment, growth of real wages, inflation at the end of March 3% year-on-year. For the time being, the situation is still relatively benign, but of course we will need to continue to monitor the evolution of the situation.
Thank you very much. Next question is on costs. How much do you expect cost to grow in 2026? Do you plan to achieve positive operating jaws this year?
For the second, the answer to the second is no. We don't expect to have positive jaws in the year 2026. We are investing a lot, especially due to the execution of this new strategy. Investment means IT and technological investments from one side and increasing the number of employees. We are not in a stage of cost optimization for the time being. We are really investing in the future and also expecting that this investment will bring additional scale to the bank, which will be very important in the long run. What we expect. Having said that, what we expect this year is to show a clear deceleration of cost growth when compared with the year 2025.
In the year 2025, we had a double-digit growth of costs. This year we are targeting a single-digit growth of costs, both on admin and in staff costs. Of course, this is always more complex to achieve at the same time that we are significantly investing. Our investment plan for this year is significant, I would say. Our expectation is that costs will grow single-digit. Revenues due to the fact that the NII tends to be, let's say, flattish, I would say, versus last year, and this is the biggest revenue component. Even if the cost of risk will not be much higher than last year.
Of course, it creates that, on the overall we still, will benefit from much lower cost related to FX markets, but on the other side, the operating jaws will be negative.
Thank you. Indeed, difficult to expect positive operating jaws in this environment. One question on capital. Operating risk requirements are growing. What trajectory do you expect by end of the year and in subsequent years? How much of this growth relates to CHF portfolio?
The implementation of CRR3 last year brought a significant increase in the operational risk requirements for the bank which we reported last year. The operational risk charges that are based on a three-year average are still relatively inflated. What we expect at year-end is that the average will decrease. Most of the operational risk charge or significant part comes from the costs related to legal risk. We are using now the average of 2023, 2024 and 2025. 2023 was the peak of such costs, it's obvious that when we'll reach the end of the year and we will drop the year 2023, there will be some relief coming from the Swiss francs. This is the positive part.
On the other side, the operational risk charge is not only about legal risk. It has also other components, including the business component, which will continue to increase as the bank is growing. All in all, we expect that for 2027, the operational risk charge will be a little bit lower than what we have today.
Thank you. One interesting fresh question just arrived on bond portfolio. Revaluation of the securities portfolio, how exposed would the bank be in the case of sustained Polish government bond yields widening on the back of volatile markets given the sizable bond portfolio?
I mean, it's difficult to in few words to explain, but just the big picture is, we have a relatively large bond portfolio. It represents more 44% , 45% of total assets, it's very high. Not everything is Polish government bonds. We have one component which is around PLN 12 billion equivalent invested in Euro sovereign debt, which corresponds to the excess of liquidity that we have also in foreign currency. The other part that is invested in Polish government bonds is divided between Hold to Collect and Sell portfolios. Of course, by the way, the disclosure in the end of the year was done of the value of both portfolios.
During the first quarter of this year, of course, we had a decrease of the valuation of the portfolio of Hold to Collect and Sell. We had a positive amount valuation at the end of the year of PLN 250 million, more or less. I don't have the number by heart. In the end of the first quarter, we had a negative valuation of PLN 90 million, so we had a drop of valuation over PLN 300 million, so not dramatic. Part of it was already reversed in April, of course, with, as yields have come down. What protects us against significant volatility and the increase of yields is the fact that the portfolio duration is not very, very high, especially in the Hold to Collect and Sell portfolio.
We have strict rules regarding the distribution of the portfolio, through different tenors. Usually, we do not invest in fixed rate bonds with tenors above five years for the banking book. As I said, we have the portfolio split throughout these tenors, which means that even in situations of volatility, the impacts are relatively contained. For the future, what we expect is as the portfolio, loan portfolio growth will accelerate, the portfolio of bonds will start to decrease, hopefully we will reach a more, let's say, normal position because, as I said, to have 45% of liquid assets is not so standard.
It's a result of the recent years' dynamics where deposits grew much more than the growth of the loan portfolio. Also, having said that, if you look at market data, you see that in the Polish banking system, deposits are systematically growing more than loans. That's why the system is so liquid.
We have, let's say, three remaining blocks. One would be the FX. Shall we do it? Okay. Why has the amount of new lawsuits increased and amicable solutions declined in the first quarter? Do you see this as a change in trend? Sorry, I don't know if it was clearly heard. I'll repeat the question, sorry.
No, it was.
Okay, it was. Okay.
It was. It's difficult. The trends are difficult. There are some seasonality sometimes. We cannot say that there is a reverse of the trend. It's clear that there was a deceleration of the decreasing trend. Let's call it like that. This is clear. It's early to say that we achieve a plateau of levels of new cases, but the deceleration that we were seeing or the level of the decrease, it's clear that it was a slightly change. We need to wait and see a little bit. Also, we need to see these consumers of repaid loans, how they behave and so we need a little bit more time.
In terms of the settlements, we don't have much space, place to make settlements more, so it's a little bit. We have been impressed, is that the team is able to keep doing settlements lately because truly we have been pushing. First, we were pushing for the PLN 2,000 per quarter, then we pushed for the PLN 1,000 per quarter. We were expecting this decrease of settlements for a while, first we moved for pre-court settlements to court settlements. This is a trend that. Now we still do, but it's very small, the numbers of pre-court settlements. What we do more is court settlements at the moment. When we see the cases that we have versus the settlements that we have, it's.
We start to reach to a situation that there is no more customers that are open to make amicable settlements that we didn't contact with them 10 or 20 times. It's, I think we are running out of also the opportunities. Anyhow, we keep exactly the same openness in before court, after first instance. We are always open to find a solution for any kind of dispute with a customer.
Thank you, Joao. Fernando, one of your favorite questions on CHF. The reduction of CHF mortgage costs has been very material in the quarter. What are your expectations for the remainder of 2026? A similar one, can you update the guidance? Does 50% decline year-on-year still make sense, or could this be a lower decline?
Last year we had a decrease of the pre-tax costs of around 34%, if I remember. Now, in the first quarter, we had a decrease of 61% pre-tax. What we, in the previous, in the previous meeting, we said that we, based on our expectations, we were expecting to have further material drop of the costs related to FX mortgage during the year 2026. I would say that the drop can be 50% or higher. Of course, based on the assumption that no further, let's say, negative developments will occur. Very recently, we had developments that were important, namely two weeks ago, or less than two weeks ago, three verdicts of the European Court of Justice that are supportive in terms of not, let's say, opening new, let's say, new downside risks.
For the time being, we don't see further downside or events that could have a material negative impact. That's why we think that it is possible to have this another significant drop of the costs. It's something that we will be updating every quarter. The only thing that probably is a little bit behind our expectations is that the inflow did not drop. We do not have a continuation of the trend of five or six consecutive quarters of drop of the inflow of court cases. This was something that we were not forecasting. On the other side, as I mentioned during the presentation, despite this increase in the quarter, it's the second lowest quarter for many years. It's also not to dramatize.
Let's say this and not to treat immediately this as a new version of the trend.
Thank you very much. We're moving to a slightly different subject, interest free loan sanction. What is the outstanding volume of consumer loans with interest charged on credited costs?
We are not providing this type of information, as you can imagine. I think that the questions are being put in the context of the decision of the European Court of Justice of last week. I think that more important than the question about how much it is or not covered is what is the consequence of such a verdict, right? Which is, I think we will need time to understand because it's not clear that the decision of last week will translate into significant additional number of cases from one side or the application of the sanction on another, right?
I think that is re-reading the verdict and the considerations that led to the verdict, I think it's not possible to conclude that automatically the sanction will be applied. By the way, the sanction was not being subject to appreciation by the court. It was rather specific components of the loans that were done with the clients.
Yes.
Joao, I think this is what we can say for now, right?
Yes. Yes. Yes. It's very important to understand well because for us is not clear how this is impact the free credit sanction. We think that this is to give guidance on this subject could be very misleading. It can be nothing or it can be big, and it's too early to say.
What I can say, because we wrote it in our quarterly report today, is that the number of open court cases increased a little versus the previous quarter, but we have on average 100 cases per month. The number of cases that we have is 2,000 something, as we wrote in the report. We, the statistics are still that the bank, and the banks in general, are winning between 85%-90% of the cases so far. These are the facts until now.
All right. Second last question. Again, a slight, last, let's say, deviation from the normal subjects. One of the participants is asking for an update on so-called long-term funding ratio. Could you please reveal your position in terms of the long-term funding ratio? What is the status of the legally binding regulatory minimum? Was it eventually rise from 40% to 20%, and also entailing a change in the calculation and composition logic?
As we have shown in the presentation, with the current formula we are at 40%, which is the requirement to be fulfilled by the year-end. If there will be a change in the ratio and in the way it is calculated to 20%, we will be above this target of 20%, I can say. I will not be precise now. I think what we want is to see if really this is going to change and what is the final formula that will be adopted. If what was announced a few months ago will materialize, we are clearly already above the 20% that were, that would be the new target.
We would have, let's say, more comfort in the fulfillment of the requirement versus the current situation.
It's 2:59 P.M., so last question would be on which one?
Tech tag.
Exactly. That's the one that I'm left kept for for the last. Can you comment on potential dividends and payout ratio? How much would Q1 profit boost CET1 ratio?
This I actually calculated 50 basis points.
That is very possible.
I think what we can say today is where in the strategy we have put as an objective to be able to distribute, to return to dividend distribution in 2027 from the results of 2026. We still see this is possible to be achieved subject to the recommendations of KNF that will come by year-end regarding dividend policy of the Polish banks and any specific recommendation for us. Our historical dividend policy was to distribute 35%-50% of the net profit. I think that if we will start to distribute dividends, we will start from a lower payout in the beginning. How much it can be, it's too early to say. Our intention continues to be to achieve also that objective that we have disclosed in our strategy.
More is a indication of normalization of the process and not so much by the amount. All the feedbacks with investors and everything, they have been very much giving less relevance for the dividend and being more focused about the growth and to keep capital to make this growth, especially in terms of the corporate credits. We need to balance a little bit this because it's very important that. I said this last quarter, the numbers are very much the same. When we separate the new credit exposures, more or less is 1/3 below PLN 30 million, so EUR 3.5 million .
Another 1/3 between PLN 30 million-PLN 100 million , so it's up to EUR 25 million. Moreover, 50% of the new exposures are new clients. 50% of the growth, it's for from new clients. As you know, the team, it's fully the same, so it's the risk team is the same. It's not, there was not a change of underwriting criteria. There is no relaxation of any type of risk management. We are very happy with the openness of our customers for our value proposition.
Also we are very proud and confident about the results that we are presenting and the continuation of that results. For us it's also important to be able to sustain this growth. It's we are we announce it, and we are very keen to, if allowed by the co-regulator to distribute dividends. As Fernando said, is more as a demonstration of normality that they have a concentration to distribute a big amount of the profits because there is still a huge potential to deploy by the bank and to use this capital in this speedy development that we are having at the moment.
Well, Fernando is very meticulous about the questions, he does not allow any questions to remain unanswered. He rightly noticed that maybe the question on the cost of risk wasn't directly answered. Question was about the guidance for the cost of risk in 2026.
Yes. Just to be clear. Because I mentioned about this macro environment that we were not seeing material in negative impacts both on the corporate and retail. What I missed to say is that we still expect the cost of risk during this year to be relatively benign. We are not expecting to be so low as it was last year, which was 32 basis points over total loans. It is, we are not guiding in that direction. We benefited last year from significant results from the sale of NPLs. We are not assuming that it will always happen at the same, in the same scale. In the first quarter, 45 basis points over total loans is very similar to last year without the sale of NPLs.
I think that it is possible that during this year to be somewhere between 40 basis points and 50 basis points over total loans. I think it's, for the time being, based on the information that we have, seems possible to be achieved.
Oh, it's a very specific guidance.
Thank you very much, gentlemen, for your time and unusual, very insightful questions. Joao, would you like to have any closing remarks?
Just that, we keep, and because, maybe because I spoke so much about corporate, now I will speak about retail. We, in retail, of course, it's more visible the progress that we did lately in mortgage. We keep deploying our strategy connected with the primacy. We deploy a new platform in terms of recommendation engine for customers. This is this hyper-personalization approach powered by AI. We will up to summer onboard a million customer. We have already 500,000 customers being surveyed this approach.
This will, we believe that with it we are building the competitive advantage of the bank for the future. This is as relevant as 10 years ago was deploying digitalization in the banking system. This is something that will not have a major consequence in terms of increasing the volumes, but it will increase the customers that will interact with us with, as main relation. Besides more sales and more contacts and more interactions, we also have a very important thing for the bank, which is selling the same with less approaches. The constant approach to the customers sometimes also can be too much.
That's why we have, for example, we insourced call center to not have a situation that we outsource approach and contact with the customers with a lower quality, although it can be cheaper, but lower quality interactions. Sometimes too pushy, that creates customer attrition and lower Net Promoting Scores. We are keeping this approach. We believe that this also will translate to be able to increase it. The bank is keeping this customer acquisition at a strong pace. Now, the challenge is keeping these 150,000 new customers that every year we onboard and maintain as active, but also to increase the interaction with them and being our bank as a primary bank.
As we know, the demographics does not allow that all the banks would fulfill their targets of acquisition and growth because unless we have a huge increase of the population, there will be no clients for everybody, at least as a first bank. We keep deploying these. This is less visible, but is a very relevant activity that the bank invest a lot for several years, namely some regulatory authorization to deploying some technologies that are new and not tested and challenged. We went also to go through the authorities about that. We believe that with this we are building also a competitive advantage of the bank for the next five years. Now that things are going faster, I cannot say 10 years, or five years. That's it.
Thank you very much again, gentlemen. This concludes our call. Thank you very much for participation, interest, time, and questions. Good luck to those who will be involved in CE banks reporting on Thursday. There are six banks reporting on that day, so good luck. Hopefully you will have a restful and peaceful long May weekend after that. From us, we're here on the 28th of July. Thank you very much. As usual, we're happy to answer any questions, any requests you have in the meantime. Thank you very much. Goodbye.