Good afternoon. Welcome to the presentation of the financial results of Pekao Group for 2021 and Q4 2021. Mr. Leszek Skiba, the President of the bank, Paweł Strączyński, head of the finance and head of the risk and head of economic analysis and transformation. Over to our CEO, Leszek Skiba.
Good afternoon. Today, we have a pleasure to share with you our financial numbers for 2021. We are showing our performance in a very difficult time. This is the time of crisis for Ukraine. We know very well that Polish people are tremendously engaged in providing support, and to all of us, it matters so much what's going to happen with Ukraine. In our presentation, we will show historical numbers. However, let us start with the key highlights of 2021. Main conclusions about 2021 are as follows.
We are very happy to see that the economic recovery that followed the pandemic situation help us improve our financial performance, and we were able to take advantage of the recovery and growth that we observed in the Polish economy. Our ROE was at 9%, and that makes us hopeful about the 10% target. The 10% target that we have in the strategy should be attained and perhaps overshoot it. Let me be very honest about it. We will need to set the targets, financial targets or adjust financial targets for 2024 in the strategy. That will happen in mid-year. We improve our business results, we grow. We have growth across all strategic segments. We are very happy to see that we are a robust corporate bank, where SMEs and mid-size companies have shown tremendous growth.
The growth ratios have been record high. We have two-digit performance, and we are gaining market share. To us, it is really important to improve our interest income and the fees and commissions. We want to take advantage of the interest rate hikes and the very fact that our customers show high activity. In terms of costs, we keep control of the cost. Cost of risk remains low. We have additional write-offs in Q4, but this is due to our standard prudential approach to our Swiss franc mortgage portfolio. We don't have a lot of such mortgages, but we don't want to have any surprises there in terms of the Swiss franc. Keeping things in proportions, we don't have many cases of that. However, we continue to take prudential approach.
These are the main data that we are showing. PLN 2.175 billion profit for past year. It's not only twice as much as during the year of the pandemic, 2020. We were above 2019 threshold. The main reason is that we were able to get high profits. We were growing our values, and we were keeping the costs under control. These are four pillars of our strategy. First of all, the customer. We are an evolving bank. We are adapting to the changes. We know that growth has to be driven by digitization, and we need to shift as many customers as we can to remote channels. At this point, 2.4 customers use mobile banking. Our target is 3.2, and we are on a good trajectory to have it.
Our target ROE is 10% growth. This is the pre-pandemic target. Our appetite runs higher. In terms of responsibility, we keep cost of risk under control at 45 BPS. However, we do have some write-offs for Swiss francs. This is the cost of risk that would not account for this Swiss franc adjustment would be much, much lower. That really shows that we are highly responsible when it comes to the management of our lending processes. Efficiency, we want to be at 42% cost-to-income ratio. At this point, we are at 47.3%, but we are able to see the trend.
We are bringing this ratio down, and I will show you the difference between 2021 and 2022 in a minute. We are improving our structure. We are growing our lending volumes. The loans were up by 11%. We also see the growth of deposits. Deposits were up by 9% and we are only happy to see that there are new current accounts by individual customers and here, the growth was 8%. The growth figures make it very clear that we have a good prospects to achieve better and better results in the years to come. We are very proud of our banking in the enterprise sector. Mid and SME loan volumes were up by 24%, so there is a lot of sales here, but also a major increase in loan volumes.
The time of recovery brings some opportunities, and we take advantage of that. We are the bank that is based on the relationship, and as a result, we have flexibility in the relationship with our customers. Therefore, the indicators that we are showing here are probably one of the best, if not the best, in the Polish banking sector. We are really proud that we are taking advantage of the recovery of the Polish economy, especially recovery of midsize and enterprises and SMEs. In terms of large corporations, the loan volumes were up by 7%. Well, here the situation is more difficult because this segment is highly dependent on the absorption and utilization and distribution of the EU funding. Despite the more difficult context, this ratios continues to look favorable.
It is important to mention that we showed increase in sales of cash loans. This is a highly competitive segment. We have not specialized in that segment yet, but we are trying to do everything we can to keep growing. The annual growth was 62%. To be able to grow, we need to be very determined about the digital channels, and that's what we are doing. Active mobile banking customers, the total number was up by 17%, so we are at 2.4 million compared to 2 million at the end of 2020, and the target is 3.2 million. Digitization rates, so in other words, what percentage of processes can be handled through the apps. Here we have 57% at the end of 2021, and the target is 100%.
Our customers are more likely to use remote channels for this, for the sales of the cash loans. We were up by 11% here. This is also an opportunity to be closer to our customers. PeoPay KIDS has become very popular. Our mobile app has been given very high ratings. We add on new functionalities like public transport tickets. Next year or even this year, we should be able to have a parking functionality included in the app. We do offer access to the investment fund through the app, and we will have a remote customer identification in the bank outlet. We are doing everything to make sure that we are a fully digital bank, so that we can compete with other leading technology banks in this area.
We are with our customers from mid sector and SMEs. For SMEs, the leasing portfolio was up 25%, and for mids it was up by 16%. We also see that our factoring portfolio has been growing at a dynamic growth. For SMEs it was 52% up. We are also with the larger customers, like Samur, that had an issue of green bonds. We also provide syndicated loan to AmRest. On this slide, you also see other companies that we work with, and we appreciate this relationship. Here we mentioned that we got a bronze medal for Pekao Direct. That really shows that our call center is doing very well. In terms of transactions banking we are the best bank.
Global Finance magazine for the fourth time acknowledged us as the best bank in this area in Poland. In terms of efficiency, we are really happy about the positive operating job, where we see that the revenues are growing much faster than this operating costs. The current ratio is 47%, so it's 2% down compared to 2020. We were able to grow the revenue and curb the costs. Ultimately, we should be able to get the target at 42%. We shall see whether we will keep it sustainable in the timeline of the strategy. Efficiency is also measured by revenue by FTEs, and here we have the ratio of 13%. Now, ESG strategy is important to us, and the important highlight is the green financing.
This year, we completed over PLN 1 billion in sustainable projects. The target is PLN 8 billion by 2024. We are supporting the issuance of green bonds by our customers, nearly PLN 6 billion. We want to have more green financing in our portfolio, over 4%. We actually are right on target, and we want to reduce high carbon financing. We are very much determined to make sure that volunteering is the heart of our activity. In our bank, volunteering is an important thing. Today, in the context of the Ukrainian war, while we see that everyone is helping the refugees, we are really proud that there is so much engagement on behalf of our volunteers. We want to make sure that they see that the bank is supporting them in these efforts.
We are also fighting for the best ESG ratings, and we are happy with the accomplishments so far. Perhaps a few words about how we help Ukraine. In addition to the huge engagement of our employees, the bank provided half a million zlotys to Polish Red Cross as a donation, and we will continue to donate as the needs will be growing, that's for sure. Now we help Ukrainian citizens to set up accounts in a very simple way, just using their passport. Normally we had more stringent standards, however, we get the agreement with the Polish Financial Supervision Authority to simplify the whole process of opening bank accounts for Ukrainians. We also offered an opportunity to open accounts for the companies.
We want to make sure that Ukrainians who flee Ukraine may continue to run their business in Poland. For that, they need to have a company bank account and we offer that, this opportunity. The mobile app is being developed with Ukrainian language, and the same is true for our call center. We canceled all the fees for the transfers to Ukraine, Ukrainian banks. Summarizing. In terms of the strategy, we are on a very good trajectory to reach the targets and possibly in many cases we should overshoot the targets. ROE 8.7%, we are getting close to 10%. Cost-to-income ratio, we are at 47%. Active mobile banking customers, 2.4%. Digitalization rate is 57%. We are proud of the numbers that we are showing here. Now over to Ernest.
We have two stories to tell you. One refers us to the position of Polish economy in general, and the other is the sad reality that begins to concern us because of the aggression against Ukraine. Definitely the economy is in a state of overheating. The situation in the labor market, from the perspective of labor force, second lowest unemployment rate in the European Union. GDP growth, which surprised us very positively in the first quarter. The carryover is so high that the economy could get into stagnation in the following quarters, and we would still experience about 4% economic growth. This is something that the Monetary Policy Council had to respond to and something that resulted in high spike in inflation. We outlined here two alternative trajectories.
One assuming the shield and the other if anti-inflation shield is not maintained. As inflation is inconvenient for the society, in our opinion, the Monetary Policy Council will continue interest rate interest. We are getting close to a moment where we have to consider the second part of the scenario, that is the war in Ukraine. In terms of book value, we already know that the war is resulting in higher energy prices. But we should not respond with monetary policy to that. We believe that those increases of interest rates will happen because there is pressure on PLN, there continue to exist numerous pro-inflationary factors. Let's remember that this war, because of our membership in the defense alliance of NATO, in spite of all our emotions, I'm not.
I'm a layman here, probably it will not affect us directly. What will affect us directly will be felt through commercial channels. Indeed here, that will be about 5% of our commercial trade with Ukraine, Belarus and Russia. Here we can expect several dozen percent decrease and that can bring about 1% GDP drop compared to the base scenario. We also see gloom prospects for demand. Also we have long-term concerns. We do not know what will happen with refugees in the long term. Of course it is difficult to say that there will be some demographic impulse coming from this wave of refugees, but we have to make this sort of simulations.
We believe that this extra growth and inflation will probably be very easy to identify that is linked directly to the aggression on the part of Russia. That should also bring about greater solidarity and greater closeness among European countries that will probably affect currency market and positive sentiment towards Poland. We think this is something that will happen in the upcoming months. As usual, there is some room for negotiation in this regard, but probability is increasing. At the moment we focus not on geopolitical scenarios, but on sectors which are the hardest hit. We believe that this is machinery sector with the highest share of exports to Russia, Ukraine and Belarus in the revenues. Paper, textiles, electrical tools.
These are the sectors, the industries that have a significant share of energy imports or they are simply, big consumers of energy. Energy is somewhere where we can expect increased costs. Also, they are more exposed to exchange rates. They export more than they import. We continue our studies. We will make available a report on that, and I encourage you to read that. I give the floor to my colleague.
Ladies and gentlemen, as Leszek Skiba mentioned, our net results for 2021 was PLN 2.175 billion, and it was almost double of what we had in 2020, where it was PLN 1.102 billion.
The main factors that drove this almost doubling of profit are the factors, something very positive news to us, factors that are under our direct control, and namely, growth in the interest result by almost PLN 460 million, growth in commissions by over PLN 250 million. Other revenue, slightly higher, PLN 44 million. Our control over operating costs, which were growing to a limited extent due to the integration with Idea Bank, but also driven by inflationary factors which occurred in 2021. Negative contribution of operating costs to profit PLN 288 million. Very high positive contribution of lower cost of risk because this is PLN 800 million. Lower than in 2020, BFG contributions, slightly over PLN 90 million.
Derivative of all previous factors, namely banking tax, corporate income tax and other factors, had a negative contribution to the result by PLN 257 million. I think that it is worth noting that net profit dynamics compared to 2020 were at a very similar level of average three-month WIBOR. While compared to 2019, the difference on WIBOR amounted to much more, and namely it was about 1.2 percentage points. Please note that the result which we achieved in 2021 compared with 2019 is almost identical, but it was achieved with a scenario of much lower base interest rates. As regards quarterly results, the results of the fourth quarter 2021 compared with the fourth quarter 2020 was almost 3x higher. Compared to the previous quarter of 2021, it was higher by about 10%.
ROE for 2021 amounted to 8.7 percentage points, while cost-to-income ratio, including BFG contributions, was at slightly over 47%. Gross operating profit compared to 2020 is higher by slightly over 10%. Compared with the fourth quarter 2020, it is already higher by over 32%. Compared with the previous quarter of 2021, also higher by slightly over 13%. Similar dynamics characterize our operating profits higher year-on-year by slightly over nine percentage points and quarter-to-quarter in 2021 showed the dynamics of over 20% and to the previous quarter of 2021 over 7%. Operating costs excluding BFG slightly over PLN 3.7 billion versus PLN 3.45 billion in the previous year, which is roughly above 8 percentage points.
For reasons I have already mentioned, namely integration with the Idea Bank and secondly, the growing cost base caused by higher than normal inflation. If we compare quarters, fourth quarter 2021 to fourth quarter 2020, the dynamics was slightly under 6 percentage points and compared with the previous quarter, 2021, it was about -2%. That shows that the programs which the bank implemented in order to improve cost efficiency are already showing effects. We can already see their outcomes. Net interest result of the bank compared with 2020 improved by almost 9 percentage points from PLN 5.2 billion to almost PLN 5.7 billion. Quarterly, the dynamics were much higher.
Compared with the fourth quarter 2020, the dynamics was over 32 percentage points, while compared with the third quarter 2021, the dynamics were over 15 percentage points. In net interest rate margins compared with 2020, only slightly lower, 6 base points. Quarterly, if we compare that with the fourth quarter 2020, a net interest rate margin is 7% higher, 7 base points higher. It was also higher than in the third quarter 2021. Here, if we look at the average three month WIBOR, year- on- year, we have comparable results, 0.65, 0.66. In the fourth quarter, we can see a significant growth of average WIBOR from 0.22 in the third quarter.
In the fourth quarter 2021, it was 1.54. We have a very interesting situation showing that the improving results of the bank are the result not of growing interest rates, but are the result of organic growth and the work we had undertaken. We can see that on the volumes. If we compare the volumes of retail loans, that was higher by 4 percentage points in 2021 compared with 2020. In our key loans, it was higher by 5 percentage points. Now the situation of corporate loans was significantly better. Here, the reported dynamic was year- on- year 18 basis points, while after eliminating the loan portfolio from Idea Bank, it was 20%.
Quarter-to-quarter dynamics in 2021 in retail loans showed a very similar level that is reported at 0.5 percentage point. Key products slightly over 1%. In corporate products, growth of reported dynamics quarter- to- quarter by over 4 percentage points. In key product segment, the dynamic was over 7 percentage points. Deposit segment. Similar dynamics globally as in volumes. While retail savings or more retail deposits have reported dynamics of 10 percentage points. After excluding Idea Bank, it was 7 percentage points. In corporate deposits, we can see clearly that the loan action is much more dynamic than the growth on deposits because here the reported value was 8%. If we eliminate the effect of Idea Bank, we are at 6 percentage points.
We had a very significant increase in net fee and commission income. On year-to-year basis, it was above 10% from PLN 2.4 billion to nearly PLN 2.7 billion. Quarter-to-quarter, the dynamic is a bit less compared to Q4 2020. We see that we are at nearly 6%, while quarter-to-quarter in 2021 in Q4
We had slightly lower fee and commission income, but that was mainly driven by the declining contribution from asset management and brokered services. I think that it is important to highlight operating costs. I've already said that overall growth was at 8.3%. Now, cost of personnel was growing at a lower rate than depreciation and tangible costs. It is also quite obvious that inflation contributed to operating costs. They were more significant for overall increase in operating costs. It was not just the contribution from the personnel costs. Compared to Q4 2020, it's less than 6%. It is quite remarkable that compared to Q3 2021, this dynamic was lower by two percentage points. We have excellent capital position.
The minimum regulatory level for Tier 1 is 9.3%. This is the minimum requirement. Tier 1 for the bank at the end of 2021 was 15.1%, which means that we were nearly 6% above the minimum that is required. At 12.3%, this is the criterion for 50% of dividend, and for 75% dividend payment is 12.5%. As you may know, the recommendation of the management board is that dividends should account for more than 50% of the net profit for 2021. I presume that you may have questions about it. We also mentioned that during the press conference, explaining the main drivers for such recommendation prepared for the general shareholders meeting. TCR, so total capital ratio, regulatory minimum requirement is 11.3%.
We are way above it, 5.6 percentage point above that threshold. At the end of 2020, we were nearly at 17%. In terms of the criteria for the dividend payment, at 50% or 70% of net income, it's between 14.3% and 14.5%. Now, MREL requirements. We were at 17.1% at the end of 2021. That was the requirement. The regulator identified the total MREL requirement at 15%, 11.7 + 3.3% as a combined buffer. At the end of 2022, our minimum level should be 16.8%. I believe that it is worth to acknowledge that we have met that requirement at the end of 2021.
To reach 18.7% that is required for the end of 2023, in our long-term strategy, multi-annual strategy for capital management, provides for the subordinated debt issuance at the level of PLN 7 billion, approximately. As of today, we are not able to say whether such issuance will happen in 2022 or in 2023. There is a simple reason for it. The market situation is highly volatile. There is a huge uncertainty in the market. The requirement for the end of 2022 has been delivered by now. Therefore, we don't see the need to place additional debt issuance on the market. Especially that at this point in time, we may have some doubts what will be the profitability of such debt issuance.
Now, the cost of risk is something that our VP for risk should discuss, Marcin Gadomski.
Thank you. Good afternoon, ladies and gentlemen. Cost of risk for 2021 at Pekao Group was 45 basis points, and this is the cost that is fairly close to our strategic target, our targeted cost of risk. Well, we were even slightly below that. Please note that 9%, now 9 basis points, are attributed to the provisions for legal dispute with the mortgage borrowers. This is about the Swiss franc mortgage loans. Looking at Q4 2021, the cost of risk was 53 basis points. It is important to note that typical cost is 29%, typical credit risk cost, but the remaining 24 has to do with the provisions for Swiss franc mortgage loans.
Overall, the quality of the portfolio is very good. The new default level is low, I should say even very low. We should also note that the cost of risk that we are reporting and presenting here provides evidence of our prudent approach to risk management and provisioning. When we estimate provisions and write-offs for 2021, especially at the end of the year, we were very much focusing on negative scenarios, whether pandemic driven or whether due to the overall deterioration of the economic situation. We were also aware of the potential risk beyond the eastern border that is materializing itself as we speak. Now, Swiss franc portfolio, currently PLN 630 million, its provision is 23% of the portfolio value.
As you can tell, the increase in the write-offs for this portfolio is the result of the update of all the parameters that have to do with the number of lawsuits and rulings, court rulings. Now, looking at the portfolio of the bank, NPL ratio has been going down steadily. This is the end result of our collection effort. In 2021, we were able to recover a number of large NPLs. In Q4 2021, we also sold the NPL portfolio, showing PLN 30 million in positive revenue and income. NPL for Idea portfolio is about 5%, so it's lower than last year.
When we look at NPL ratio and when we look at the NPL coverage, especially stage three, we need to remember that this is all covered by bank insurance scheme. NPL coverage only for the Pekao bank without bank insurance, it's 52%, so this is fairly high and safe level. That will be all in terms of the portfolio. Over to our President of the bank, Mr. Skiba.
Thank you. To summarize everything that was said here, well, four main conclusions. Good recovery and good prospects despite the turbulence along the way helped us achieve the good performance and good result in 2021. We want to retain it throughout 2022. We continue to grow, and the growth is important to us.
We are happy that we have good relationship with corporate segment and retail customers likewise. The growth is important to us, therefore we continue to invest substantially in digitization. We increased our interest and fee income and commission income. We want to take advantage of the interest rate hikes. Finally, we keep the cost under control. Marcin talked a lot about the low cost of risk and about our prudent approach to Swiss franc loan portfolio. Thank you.
Now it's time for Q&A. I would like to encourage participants from both webcasts in Polish and in English to raise, to ask questions. Well, I'm looking at questions, and I see that we have a right panel of speakers. Let me start with the first question.
What was the impact of Idea Bank on Pekao results in 2021, so for the last year? The impact of Idea Bank on our performance in 2021 was positive. It was not very substantial compared to the overall result for the group. It was just more than PLN 10 million contribution. I believe that we need to emphasize that, after the full IT integration of the Idea Bank in 2022, we will see declining operating costs. We have completed successful and probably the fastest integration process in the banking sector, historically speaking, two different institutions merged together. The positive effect of reduced operating costs will be visible in our numbers for 2022. It will be a greater contribution than 10+ million in 2021.
Let me group the questions, and I will jump from one area to another, but we are going to speak about the finances. What was the impact of reduced bond prices for Q 2021? Did you use some interim provisions for the end of Q 2021? Just let me gather my thoughts here. I think it was 0.3%. I think that it's at PLN 400 million in absolute numbers. Yes. That was TCR. The question was not about what? Similar. It was a similar impact, yes. Yes. It's 0.3 percentage point, which translates into PLN 400 million. Let me say that, yes, we applied interim regulations as the entire market did. Now about operating costs.
Can payroll costs grow at the lower rate than inflation rate? Well, we don't have a straightforward answer to this question. The personnel cost growth depends on two, at least two important factors. First of all, inflation and inflationary expectations and expectations regarding the pay raise. The second important contributor is internal regulations, internal sources of the labor law that are applied within the bank, and this is also about the safety and the comfort of our employees. At this point, we are negotiating with the trade union organizations in the bank. We are in the dialogue with our social partners. At this point, it is hard to predict what would be the final result. The negotiation is in progress.
The management of the bank and the social partners, let me assure you that we discuss in good faith and in good atmosphere, and you can tell that there is full understanding on both ends. On one hand, everyone is aware of the inflation, which triggers some expectations for the pay raise. At the same time, it's obvious to everyone that we need to improve our cost structure and cost-to-income ratio across the bank. Well, the only thing that I am certain of is that we are going to work out the shared position with our social partners. Another thing that is also obvious, well, the dynamics of the personnel costs in the bank will be highly correlated to the inflation rates.
When we are talking about costs, Pavel, there are two more questions about the general outlook on operating costs and more detailed outlook. What is our estimation of BFG contributions for 2022.
The first question was, again, could you repeat it?
Okay. The general level of operating costs in 2022 will be determined by the factors that I mentioned in the context of personnel costs. The share of personnel costs in the operating cost of the bank exceeds 50%. The dynamic of operating costs, non personnel-related costs, will mainly depend on inflation and in general on environment that is outside the bank. Now a mix of those two factors, personnel costs and operating costs, which are not related to personnel, will determine the dynamic of operating costs in general. Here, I also need to emphasize that the correlation of operating costs dynamic of the bank to inflation will remain high.
It will be difficult to expect that expectations of our business partners will become significantly lower than inflation, especially in the situation where their own costs of energy, personnel, and so on, increase. The second question, BFG costs for us this year.
Oh, yes. As of now, we only have some estimates regarding
The exact split, I think it is between PLN 370 million and PLN 470 million. Yes, that is our current estimation that to both funds, restructuring fund and deposit guarantee fund, that will be PLN 3.7 billion throughout the sector. There is one more question, slightly linked to the previous one. Are we considering joining the voluntary IPS system of which the media reported recently and which is now under legislative process? Yes. Now, this sector-wide solution that was presented some time ago, yes, we are considering joining this solution, joining this IPS. We have one more question to CFO and one macro, and then we move on to risk. As regards the question concerning our revenues, what impact do we expect on interest result from higher interest rates?
With the current term level, we modeled correlation between interest rate increase and additional interest net result at PLN 500 million-PLN 550 million. I need to emphasize here that those calculations were based on certain assumptions made before Russia invaded Ukraine. With this significantly changed situation, it is possible that the impact will be slightly lower. As interest rates go up, the impact on interest result of the bank will decrease as well. However, bearing in mind the assumptions that we had for this year, plus the current level of interest rates, the impact will be between PLN 500 million and PLN 550 million.
One question regarding us but also the whole sector, namely how the current situation and the latest development affect our thinking about volume dynamics, especially with regard to retail and corporate loans. Before I ask Ernest to comment on this, what we have seen so far with regard to market behavior, we can see uncertainty, and this uncertainty is probably temporary. Until we get a clearer picture of what is happening across the eastern border, how prices of energy develop, whether there is any stoppage of the supplies of oil and gas to Europe. Until we get this kind of information, we can only talk about temporary or transitional uncertainty. This is something that will affect decisions made by the companies regarding their investments. A lot will depend on what companies do.
Maybe they will delay some of their investment decisions. As for mortgage loans, probably the most important factor will be an increase of interest rates. Here, the events in the east can have much lower impact than the very fact that mortgage loan as of today is simply more expensive than it was a year ago. Cash loans probably are not affected by any major factors. Yes, there are numerous hypotheses here, and some of these hypotheses are formulated emotional way. I think that this is really driven by emotions. A few weeks down the line we will get to business as usual, even if it sounds cynical today. Also, some locations can be excluded because of increased risk.
Poland can actually be a beneficiary of this situation because geopolitically speaking, we are a country that is in NATO. These are more complex deliberations. I think in general this impact of interest rates is more important than risk or deterioration of the general sentiment. This is something that we can see on mortgage loans. There is also a tendency of repaying and prepaying in some companies. Even if they have a significant excess liquidity, they are willing to repay any outstanding loans. Those with better leverage are also reconsidering the proportions of debt and equity proportions. Okay. Now we move on to risk. We are a bank that reports its results slightly later than other banks.
In this situation, you are more interested in risk. You look more at the downside than the upside. I will put those questions together so that Marcin Gadomski can jointly address the whole picture. We have a few questions related to risk. First of all, how much COVID provisions we still have? How much of that we still have in the bank that was created for corporate customers? How do we see our corporate exposure?
To the Russia, Ukraine, Belarus situation and Polish companies which have strong exposure there. How does it affect the risk of our portfolio? These are in fact questions that jointly aim at getting more information about our view on the cost of risk in the upcoming future.
Thank you, Marcin. Let me start with the hardest fact, and then I will move towards an assessment of the situation. As regards our direct exposure to contractors from Russia, Belarus, Ukraine, these are the countries where the problem is direct now. Our exposure is about PLN 500, 000, 000 . Let's remember that really effectively it is much lower. It is low because that is covered with KUKE policies and especially with regard to Belarus in Russia and Ukraine that is only several dozen million PLN. It is not the kind of exposure that would be significant. If we take into consideration other policies that we have, this is not something really material for the bank.
Even though Russia and Ukraine are not key commercial partners of Poland, you know, still some companies will be affected either through their sales markets or their consumers, recipients of their goods in those markets, or suppliers from those countries, or maybe production in those markets. We can also talk about employees coming from those markets. We estimate that this kind of exposure of companies that to a significant extent rely in their revenues or costs on those three markets amount to about PLN 1.5 billion. That is 1.5% corporate exposure. We are talking about the situation whereby the company is significantly exposed to those markets, but it does not mean that the company will experience some bad developments.
There is the effect of the next round. This is something that we will regret when talking about macroeconomic situation and how some prices like imports of fuels or exchange rates can have a broader impact on economy. That is probably the third layer of effect. If I were to make a general assessment of how we position ourselves in terms of write-offs. There was also a question about COVID-related write-offs. We are no longer considering that as COVID write-offs, but write-offs for negative scenarios. As I mentioned earlier, we took into consideration a significant weight attached to the negative scenario of deterioration of economic situation, the situation in the east and COVID. All those factors taken together, you cannot really separate those things one from another.
I would assess that at PLN 600 million-PLN 700 million. We assume that long-term cost of risk will be maintained next year, but the situation remains highly volatile. Thank you.
We have one more question about our small size FX mortgage loan portfolio. Are we going to join the settlement program?
Yes. Overall, we want to be able to offer settlement options to our customers. We continue to review that, and we are looking at the existing track record and experience.
Well, there is a handful of detailed questions. Yet, let me just add that MREL issuance is PLN 7 billion. It doesn't have to be tier two, it could be senior non-preferred. As Pavel mentioned, we think about such issuance over the next few years. Thank you for your questions, and I will come back to you one-on-one with very detailed questions. Thank you very much for being with us today, and please stay in touch. Thank you.