Good afternoon, ladies and gentlemen. Welcome at the presentation that is dedicated to the financial results of Pekao S.A. for Q1 2022. Leszek Skiba, the CEO, and our Vice President CFO, Paweł Strączyński, is with us, and our VP for Retail, Wojciech Werochowski. Let me turn the floor to our CEO and the President of the Board, Leszek Skiba.
Welcome, everyone. The past quarter was a good quarter if we measure it by the level of our profit. ROE for Q1 was 15.3%. Obviously, we are under pressure of the interest rate hikes. We are really happy to see that we continue the fast rate of growth in the digital channels. The digital transformation is definitely our priority today.
Wojciech will be showing more details because we are launching new services and new improvements in our mobile applications. In the past quarter, we improved our interest income, and we also enjoy good dynamics of fees and commissions. Costs were kept under control. That would be visible on the slides. We were way below the inflation rate, and the cost of risk was also at the low level. Q1 2022 PLN 907 million. This is nearly a triple result compared to Q1 2021, and this is the net profit number. It is important to us that we were able to cross the mark that we had in our strategy, 10% ROE. Currently, we are at 15.3%.
Despite the high level of the interest rates, our business operations continue to be strong and robust, especially in the corporate sector. We've seen growing volumes. We see growing production. The retail segment does not have such a strong performance, but this is due to the stronger reaction of the retail customers. We improved our commission and fees, and we improved our interest income. I mentioned that the costs were well under control. We have four pillars in our strategy. The growth pillar is, again, our ROE. Efficiency means that our cost-to-income was down to 38.5%, which is way below the target that we had in the strategy. That was 42%, and that was helped by the good dynamics of the revenue, but we also kept the cost under control.
Our cost of risk under 30 basis points. Again, we are below 50-60 basis points that we had as a target in our strategy. We are really happy to see that our customers become more mobile. They use mobile app. We have 2.5 million customers that use the mobile app. 3.2 million is the target that we have in the strategy. In terms of volumes, it's not only the revenue that we can show, but we have also good growth. Our large corporate loan volume was up by 9%. What is important is the enterprise banking. Mid and SMEs, the loan volume was up by 22%. That proves that our bank shows the right response to the demand generated by medium and small enterprises.
This was definitely the segment of the market that was growing at the fastest rate. We are really responding to the demand shown by the customers. Despite the increased interest rate cost and increased rate of WIBOR, the growth continues. In terms of customers, we have 37% more individual accounts, and that was supported by the influx of Ukrainians. We are really happy with our operating ratios, which means that our core revenue grow at the very strong rate. Quarter to quarter, we are up 42%. Operating costs are negative, -6%, quarter- on- quarter. That shows that our ratio between cost and revenue is really favorable. We are at -17%. We were down to 38.7%, and at the same time, the revenue has been growing.
The number of FTEs has been also controlled. Revenue to FTEs, our efficiency ratio, has been very positive. We were up by 54% year-on-year. Now, digital channels. We are happy to see more customers embracing the digital channel. Therefore, our digitalization rate was up and reached 60%. This is an important indicator because this is the measure of our strategy. It shows how many processes can be handled remotely or through the digital channel. The target is 100%. In other words, all the major processes that the customer has with the bank should be available remotely, so that the customers do not need to come to the branch. At this point, we are at 60% rate, so we are on a good trajectory to reach 100% rate by 2024.
At the same time, we are very determined to keep digital trend going, and we have more next digital sales. We were up by 18% and we reached 75%. In terms of the segment of large corporate players, we are happy with the nice growth of our leasing portfolio. For like SMEs were up 23%, 14% up for mid players. We improved our factoring processes, and therefore factoring for SMEs was up by 67%, and the factoring portfolio for mid was up by 44%.
When we look at these rates, we are truly happy because it shows that we are very determined to be with our customers, but at the same time, it proves that we are flexible and we go digital with our processes wherever and whenever possible to make our operations and sales more efficient. In terms of other things that are worth mentioning, there are four deals that we have on the slide. R. Power is that syndicated loan for photovoltaic farms. UNIMOT is a revolving facility, and KRUK is a six-year bond, and Volkswagen Financial Services two-year bond, PLN 400 million. As always, we have been recognized. Global Finance Award for the best corporate FX award in Poland for 2022.
This is the reputation of the corporate bank that we have, the bank that is the leader in this area. That's a well-established fact. Now, the war in Ukraine. Just like the other banks, we offered free of charge account for Ukrainian refugees, no fees. We had a helpline available, and we also translated our app and electronic banking into Ukrainian to be available to Ukrainian customers. We are also active when it comes to businesses from Ukraine. The numbers are very telling. The total number of accounts that were opened since the beginning of the war was 60,000, and right now we have 190,000 customers from Ukraine. These are people that have had accounts for a longer time. They opened them earlier than in February.
In ESG strategy, we make a strong bet on employees volunteering. We want to be the bank that really shows engagement of the employees in ESG. We are really proud of that. Over 2,100 volunteering hours went towards supporting victims of war in Ukraine. We appreciate the engagement of our employees. As a bank, we support their volunteering. We want to be recognized as a bank where employees show interest in what is happening in the world, and they are ready to support the right cause. This proactive attitude is certainly visible also in their professional capacity. We were supporting Polish Red Cross. We mentioned that earlier. We were actually raising funds and donations for Polish Red Cross for children.
Now, we are on the right track with our strategy. It's not only about the financials, but also about digitization and the digital transformation that is going on. The digitization rate has been growing and this is a steady growth. We are on the way to have 100%. We have more active mobile banking customers. We are changing internally. We are moving on with a large range of products that will become visible in the near future. Wojciech will be talking about the new app. We are also digitizing our internal processes. In each quarter, we will see the new changes coming up. We've accelerate our processing of loans and.
This year, whenever we have more profit, we take it. We actually invest it in the acceleration of the digital transformation. Over to Wojciech.
Thank you, Leszek. That was an excellent quarter for our retail and corporate. The first thing is not that visible. We communicated that. We may say that, 50% of our customer database
Buying a particular product. We know that the variety of P2P app and that can be arranged. That what we provide also increases. Our slowdown resulted in increased energy prices in global markets. Improvement of the result on interest, better result on commissions and lower costs. 80 basis points net interest margin and WIBOR in the fourth quarter.
Percent, compared to the last quarter of 2021, we are up more than 1%. In terms of products, we've seen the growth across all the segments, with the exception of asset management and brokerage, which is a natural. PLN 900 million. There is important contribution from the personnel costs. We've completed our negotiation with social partners, and we reached an agreement regarding the pay raise in 2022. Is way down compared to our 15.1% for Tier 1, so we have a buffer of six percentage points. The dividend payout is 12.3 or 12.5. We see that there is a substantial reserve. Total capital adequacy ratio, again, we have five. We closed Q1 at 16.9%.
I will speak about these ratios at a greater length, later on. Now, the regulatory requirement for MREL, we were at 16.9%. It's important to note one detail. When we look at the current projections, it seems that we are well prepared to meet the MREL requirement in 2022 without any major issues. Why am I saying that? Well, our plan was for 2022 and 2023 to have the total issuance for MREL purposes amounting to approximately PLN 7 billion. In 2022, we will be making decisions on possible issuance while looking at two things. First of all, we will monitor our current and ongoing compliance with the MREL requirement, and we will be looking at the market developments. In other words, our goal is to avoid the situation where MREL.
That MREL requirement would force us to place issues in case of the possibly adverse market environment. The cost of risks in Q1 2022 were record low, 30 basis points. The total was PLN 134 million and PLN 126 million standard cost of risks. But provisions for the Swiss mortgage portfolio and COVID provisions is approximately PLN 9 million. The standard cost of risk remained at the same level. There was just a slight movement down by PLN 1 million, and the level of our provisions was down by nearly PLN 100 million to Q4 2021. In Q1 2021, cost of risk was PLN 176 million. NPL ratios and NPL coverage ratios have been stable.
When we put aside the ex-Idea portfolio, we are at 3.8%, and the coverage is at 90%. When we include the former Idea portfolio, our NPL ratio is 5.4% and the coverage is 84%. Now, when we look at the structure of active PLN mortgage loans, I believe that we see an interesting picture here. There is a heightened risk for mortgages that were granted between 2020 and 2021, because in these years, interest rates were at the record low level. We do not see such risks for older loans that were granted when the interest rates were at the higher level.
We estimate that the cost of risk for 2022, looking at the current developments and the current knowledge that we have, we will be talking about it later because I'm sure that there will be questions. Given what we know today and given our current projections, it is our goal to keep the cost of risk at the strategic level, which is between 50 and 60 basis points. This is what we have in the strategy. Let me summarize. We have taken advantage of the very favorable market and economic environment. We improved our performance. Our ROE was very high at 15.3%. We have continued a very high pace of growth in digital channels. We launched new functionalities and new improvements that Wojciech discussed.
We have substantially improved our net interest income because of the growing interest rates, but also because of our higher volumes of lending. We were able to keep our operating costs under control way below the inflation rate. The cost of risk remained visibly low. Thank you for your attention.
Thank you. Now it's time for Q&As. We encourage you to continue to ask questions either through webcast or by email. Let me group the questions that we have received so far. First, some questions that were about the numbers that we showed.
LCR is stable. Yes, it is true. It's stable despite the growth of the mandatory provision. Let me just remind you that we showed a major increase in corporate deposits, and let me draw your attention to the certificates of deposit.
The issuance was up, the scale was much higher, this is no secret and no puzzle here. Obligacje.pl, Michał, asked the question whether the bank is thinking about the syndication about refinancing of the syndicated bond issue from 2017. It's PLN 2.7 billion. Look, if this is something that we are looking at, and we understand the question, but this is something that we'll communicate when any actions is taken. It is true that there is a market practice that may allow for such a step for us to take, but we will communicate it once we do it, if we do it. Obviously, there are a lot of questions about the package that the government prepared for the banking sector.
The questions are very detailed, but let's have a general commentary on that. Well, very briefly. This week we are going to hold meetings. Our goal is to better understand the detailed nature of the proposal that was presented. Once we have the thorough understanding and we complete our review of the proposal, we should be able to communicate more details. For the time being, we refrain from comments. The numbers are fairly legible to the sector. Now, when it comes to the breakdown of these numbers and the distribution amongst the banks, here we still have some question marks. At this point, it is really hard to tell how what would be the share of Pekao S.A. Probably next week, we should have more knowledge about it.
We are going to have more one-on-one discussions. We want to encourage you to actually approach us on a one-on-one basis. Perhaps we will be able to say more. But to be honest, until this mechanism is fully presented, I'm speaking about the mechanism that actually relates to the reference rate or to the WIBOR. Until we have the clear picture of that, our comments will be rather general. Okay, the next topic that is fairly hot is our net interest income and the improvement of this number. What are the prospects for Q2 and Q3 given the prospects of the interest rate hikes? Well, during the previous conferences, we showed the correlation between interest rate hikes and the additional contribution to our net operating financial result.
Initially, the correlation was at 100 basis points, and that was the additional contribution of PLN 600 or PLN 650 million. During the last conference, where we were at the interest rate level of that time, we said that the correlation that we calculated was between PLN 400 million and PLN 500 million. Today, this correlation is certainly lower. Why? There is one simple reason for that.
Correlation between the additional interest rate hikes and additional interest, net interest margin was based on the assumption that, we are having the stable cost of deposit. Today, the situation is somewhat different. The deposit policy of our bank and other banks in the sector had to evolve. As you know very well, we had to offer higher interest rate on deposits. For the saving account, the interest rate is 1%, deposits are 2.3%, and the hybrid product, where is a deposit combined with the, investment fund, that product, offers the interest of 4%, four percentage points. As a result of these things, we are able to see that additional interest rate hikes will not correlate that highly to with our net interest, income. Here, there would be less correlation.
However, I believe that all of us agree that it was impossible to keep zero rate deposits for the long run, and sooner or later, everyone must have expected some movements here. As of today, we are not able to say specifically what trend will evolve and what will be the actual correlation, but we are definitely sure that we will be below PLN 400 million.
The next question is about operating costs. Is the increase that was mentioned at 8.6% the end of increases in the bank this year? Ladies and gentlemen, in accordance with our agreements and internal sources of labor law, the practice is that we set the increase coefficient once a year, and it is applicable for the following months.
Of course, that is the base scenario, and we set aside here, we disregard any disaster scenarios. The situation today is an exceptionally unique situation. Of course, we have to keep in mind the possibility of really extreme scenarios. But on current trends, or assuming that the situation improves, we believe that, yes, that this negotiated level of increases is pay rises, the one that will apply till the end of the year. As the management board, we are so grateful to our social partners that we've been able to conclude this agreement. We have another question about our solvency ratios. TCR and T1 are the parameters that didn't really change in the first quarter despite the significant depreciation of bonds. Why was that the case?
What are the prospects for solvency ratios if the depreciation of bonds continues? Here, we see certain negative consequences of the depreciation of bonds. We have more or less estimated this cost at about 30 bps. That was at least the contribution to in the first quarter. That was less than PLN 500 million. I think that if we watch the market, that will in a certain way depend linearly on the market. We expect a linear development rather than any sudden changes. That is, I think, what should be expected. We will monitor the market, we will see what is happening with prices. Let me just add that since we see your interest in this topic, we added a slide to our presentation.
That's slide number 38, so we recommend it to your attention. Please note that it's only now in the first quarter that we recognize a significant part of profit that offset the negative impact of the bonds, but also we had a transition period in IFRS 9. Maybe that also answers the question why the ratios seem so stable. If we move on. We also had a question regarding the planned update of our strategy, but more specifically in the context of rethinking our to-date dividend policy. Let me remind you that it is 50%-75% of recurring profit that we pay out.
The question also reminds us that last we announced paying out only half of our profit and also, undistributed profit and other, equity related, elements that are part of a broadly understood capital policy. Yes, during the presentation, we pointed out that in the first quarter, capital ratios were at safe high levels. At the same time, I would like to, reiterate something that I said before. In our projections, the proposed level of dividend payment in 2022 will, according to our expectations, mean that the bank will not be forced to issue subordinated debt in order to meet the MREL requirement in this unstable and possibly not very comfortable financially situation.
It seems to us, and that is our position, that the proposed level of dividend payment will mean that the dividend, as proposed by the management board, will support the stability of our position in a situation where market is very unstable, very uncertain. We want to be more certain of the functioning of the bank rather than risk proposing dividend at a higher level and at the same time risk forcing placement of an issue which would probably happen at a significantly worse conditions for the bank if we wanted to meet the MREL requirement. I think that this argument will also be accepted by our shareholders. This is a thought through action.
The level of dividend is set in a way which is optimum, in our opinion, allowing us to go safely through 2022. We also had a question regarding our forecast of volumes in the sector. On slide 40, you can see a summary of our sector forecast, so please refer to this slide. Now, we expect 2% growth of loans year-on-year. Corporate loans should perform better than retail loans. There is also a specific question on the portfolio of loans. The market notices that retail is no longer growing, either in mortgage or in consumer loans. The question is, how we see the prospects here, especially in retail sector.
Another question, more behavioral, I would say, at which rate our deposits can move from term to current accounts. Let me answer the question on the market of loans. In mortgage loans, our sales dynamics. Well, in fact, as you probably have noticed, the entire market has negative dynamic. Our dynamic is also negative year-on-year, but it is slightly better than the dynamic of the overall market. Of course, we are taking action intended to increase our sales of mortgage loans. Because of a certain cycle of our processes, the effects are likely to be visible a few months down the line because a few months elapse between the application for a loan and the actual granting of the loan.
As regard to retail loans, in the first quarter and individual months of this quarter, we recorded significant growth dynamics, and we would like to continue them in the months beyond March. We invested in marketing, a campaign is now in progress, as well as a number of other activities. As I signaled before, we have very strong focus on digital channels, so I think we can be optimistic about sales levels. As regards movement between term deposits and savings accounts, because that's how I understand your question about what movement we expect here, we will monitor the situation. We have just changed our offer to align it with the market situation. I can say in general that for years now, we have seen that for customers, term deposits and savings accounts are in fact substitute products.
Depending on where the greater benefit is seen, that is where the money goes. Paweł quoted the numbers, and we improved our offer both for term deposits and for savings accounts, not only for the existing customers, but for the new ones as well. If I may add something. I believe it is worth taking into account, in particular with regard to the portfolios of loans from small and medium enterprises and corporate loans. We also participate in various industry conferences, and I can share with you some of the thoughts and insights I have after conferences related to energy transformation. Ladies and gentlemen, the interest in investments in projects linked to energy transformation, not only in corporations but also among SME, among major energy plants, energy generating companies, is huge.
Here we should really expect stable growth, stable dynamics. The international situation is even more conducive to aiming at energy independence as soon as possible. While there is huge interest on the part of investors and declared support of the state for transformation projects, we see here a great opportunity for ourselves and for our further involvement in this, in particular as far as transformation projects are concerned and in terms of portfolio, small and medium enterprises, as well as corporations. We do not have any more questions that we would like to address now. We have some specific questions as well, but please understand that we are not very specific about commenting those details. Other banks were also reticent to talk in detail about those recent developments.
We would like to thank Paweł's team for quick reporting of the latest results. We will see you at investor conferences. Thank you very much for all your questions and for interest in Bank Pekao. I'll see you next time. Thank you very much.