Good afternoon, ladies and gentlemen, at the conference presenting our financial results of the third quarter at Bank Pekao S.A. We have Leszek Skiba, Vice President, Paweł Strączyński, Vice President of the Management Board, and Chief Economist and Director for Digital Transformation, Ernest Pytlarczyk. Over to the CEO.
Thank you very much, ladies and gentlemen, welcome to our conference. We will be presenting our results for the third quarter, which was a very good quarter, in which we achieved excellent sales in retail banking. High dynamics of sales, both in mortgage loans and in cash loans. Obviously, those results with regard to mortgage loans were related to our participation in the governmental program, the First Flat. We are very proud of participating and of high share in this program.
We regularly improve the attractiveness of our offer, especially in digital channels. We will talk more about that, but in particular, that is in our app for retail customers. It is also a standard for us that we surprise the market with low cost of risk in an environment which is by no means easy, because we are facing an economic slowdown. The key achievement is the profit PLN 1,716 million. Of course, much better than in the same period, that is the third quarter of the previous year, when we had some write-offs related to a loan moratoria.
This year we had profit because there were no charges resulting from one-off events, and at the same time, in the environment of high interest rates, we were able to maintain a high and growing interest margin. We are also known for pursuing a credit policy considered as conservative, so naturally, the cost of risk is low. We keep our costs under control. Obviously, there are no regulatory costs other than the banking tax, but then we have growing inflation. Inflation rate is the ratio which best reflects our cost dynamics. The thing that is very relevant to us is our strategy based on four pillars. With regard to the customer pillar, we are close to the target of 3.2 active mobile banking customers.
We are growing, and this growth is seen in our ROA, exceeding 25% in the third quarter. Efficiency, excellent ratio of cost to income at 31.1%, and the COR under control at 42 basis points. This quarter represented PLN 3.5 billion improvement in new mortgage loans, so which is much better than last year. And also, it was related to an increase in sales of cash loans, with a growth of 15%, plus a 17% growth in SME financing volume. So we can see that in this difficult environment, we are able to grow in the SME sector. This growth can be seen in this slide. Mobile banking customers, that is also a growing sector.
This is accompanied with our digitization rate, a very important rate for us in the context of implementation of our strategy. That is about transferring our processes to mobile banking, from branch-based banking services to digital channels. We are also successful in improving the ratio of our cash loans that are granted online. Now, you can see two slides, which I will talk you through briefly, then you will be able to look the details. Here, we are showing you some recent improvements in our app and the electronic channels. We are very much intent on making sure that those changes continue. We want to improve our operations by introducing new functionalities. For example, sending and receiving requests for BLIK transfers.
We are fully aware of the importance of security in this context, so tracking the status, notifications, and the split between users, all that is, on the one hand, becoming more and more attractive and is also attracting new customers whom we are trying to get to our base. In this quarter, we also participated in transactions on corporate bonds market, not only ours, but also seven-year Euro bonds. ORLEN's Euro bonds for seven years, and of course, related issuance. But also we are mentioning here, Ghelamco , Polsat Group, EIB And on a standard basis, we are considered a leading corporate bank in Poland, which is recognized by the awards granted to us.
This time, we received Global Finance Award, so we are proud of being not only the funder of small and medium enterprises, where the growth is significant, but also we provide funding for the largest corporations, and we are market leader in this sector. A short report on how we are implementing our strategy. ROE at 8% is take into account in the context of interest rates. Higher rates allow us to get a higher ROA, and that translates into higher cost-to-income ratio. We are improving our active mobile banking customers base, and we are improving our digitization rate, aspiring to become the fully digital bank by the end of our strategy horizon. Also in ESG, we are successful in achieving our targets.
Dividend payment ratio was also on target, in line with our strategy. Over to Paweł Strączyński. Ernest Pytlarczyk.
As regards macro environment, the peak of the business cycle is already behind us. Now, we experienced decreases year-over-year. In the second quarter, there was also a seasonal adjustment, but overall, there was a clear drop year-over-year. But in the third quarter, probably we will record a plus, an increase of 0.4% GDP growth, but the composition of this growth will change. This year, that was linked to a consumer crisis. Next year, we might have some difficulty resulting from the electoral cycle coming to an end, because the local governments, for example, will be budgeting in accordance with this election calendar.
We expect the growth is going to be moderate. The elephant in the room is actually the situation in our external environment, Europe, Germany, where the business is extremely careful. We clearly see a slowdown there. So probably, the European Central Bank will react accordingly to this change in the overall business cycle. Globally, the situation is not so good as last year either. There are certain cracks on this wall. And we will see the response of the monetary policy makers. Now, we have already passed the lowest point of the business cycle. We are operating in a very demanding environment. Disinflation is something that we illustrate on the left graph in this slide.
We strongly advocated for the argument that this disinflation would materialize this year, and this was a very successful call, actually, because we experienced decreases in interest rates than we took into account disinflation accurately, as reality confirmed. In 2024, we will probably experience further decrease in the inflation, but not so significant decreases as so far. In the Eurozone, that is already 2%. In Poland, probably 4%, maybe slightly over 4%, if we deduct all external effects, like regulated prices, and focus only on this regular business cycle core element. Probably, one-offs and regulated prices should not change the picture dramatically, nor should they change our thinking about inflation as such.
As regards the reaction of the Monetary Policy Council, we expect this policy to be more conservative. Probably the council will pay more attention to the policy mix. We'll see how our predictions compare with the reality. The conference of the chairman of the Monetary Policy Council is announced for tomorrow. But probably more responsible monetary fiscal policy will make the path of decline of the interest rates less steep. Translating this into what that means for banks, probably 2024 will be a good year for banks. We will continue to have relatively high interest rates, relatively better business cycle than in 2023. Well, without any special frills here, but I think next year's results of the bank are going to be very good.
Over to Paweł.
Good afternoon, ladies and gentlemen. I will talk you through, quickly through our, regular presentation, as we do quarterly, and we'll try to leave more time for your questions and our answers. What differentiated the third quarter 2023 from the third quarter last year, is the absence of one-off events, which we experienced last year in the form of, loan repayment moratoria, with the effect of over PLN 2.4 billion, and the, contribution to the, fund of support for, banks, and, that represented over PLN 200 million. We improved our interest results by almost PLN 200 million, and non-interest result by over PLN 160 million. Operating costs higher than last year by almost PLN 200 million.
Again, I, that's something that I kept repeating our major components of operating costs, so that is personnel costs and branch maintenance costs, which mainly means power supply and heating energy, are very correlated to inflation and to the situation in the energy market. Standard cost of risk lower by almost PLN 50 million. A slight adjustment on Swiss franc provision, and derivatives and obligatory contributions, banking tax, corporate income tax with negative impact on compared to last year, by almost PLN 600 million. We improved our result almost fivefold, maybe even more than that. And as regards comparison, quarter to quarter, the results remains basically flat, with just a cosmetic improvement of 1 percentage point. Growth in gross operating profit, also in operating income. I have already talked about costs.
An improvement of gross interest result, improvement of net interest margin. Please notice that adjusted net interest margin without payment moratoria effect in the previous quarter amounted to 416 points, now it is 421 points. We uphold our forecast of a slow but still a decline in the upcoming quarters of the net interest margin. A slow decrease in the volume of a retail loan portfolio with a great impact on this coming from the sale of Safe Loan at 2% by our bank. And we should also mention the phenomenon that we've been observing for a few quarters right now, that is a certain faster repayment of the existing portfolio of loans. In corporate loan portfolio, we have a decrease of almost 5%.
In deposits, very high increases, both in retail, over 14%, and corporate deposits, over 17%. And, the deposit offer of the bank does meet the expectations of our customers.
When it comes to the result on fees and commissions, it's at the same time as in the previous year. However, there is a slight increase by 2% on a quarter-over-quarter basis. The operating costs, strictly correlated to inflation and energy prices, increased as compared to prior year by roughly 20%, on a year-to-date basis by 15%. The Tier 1, at a high level, increasing both the regulatory minimum and both criteria for a dividend disbursement. TCR are also at a high level, 17.3. It's a similar situation. We exceed both the regulatory minimum and both dividend disbursement criterion. But when it comes to the MREL situation, we have 18.6%, we're 0.1% below the regulatory requirements this year. We've had three MREL issuances. We've run two issuances.
MTN program has been announced, and the issuance decisions will be made on an ongoing basis, depending on the requirements, market situation, and the possibility of issuance placement at the prices that we have contemplated. Costs of risk are at a stable level, below the corridor envisaged in the strategy in Q4. That's 42 percentage points. The NPL coverage ratio, NPL ratio, are similar to the previous periods. No major extraordinary events have occurred. Good sales results, and we have achieved favorable sales results. We were helped by the 2% loan program. We participate in the government program, First Apartment, and indeed, we are market leaders. As Leszek mentioned, we have increased our share in the digital markets, and we're keeping the risk in check.
We're starting the Q&A session. We received quite a few of them from the participants. Please signal them at any moment. Let me start on what we had. It's about our sensitivity to the decrease in there is a 2%. How do we envisage that?
The impact of the 2% loans sales on the portfolio, on the total portfolio, has been quite insignificant so far. The sensitivity of our interest margin on interest rates is quite stable, and it's 30% over twelve months for the change in interest rates by every 100 points. Please remember that we are very active in ensuring that the interest rate profile, this is at a very similar level.
Considering the dynamics of the structure, in our deposit situation, i.e., at a stable rate, it's generally the justification for this net margin sensitivity that we have. As I mentioned in the presentation, we envisage the interest margin. But as Ernest mentioned, what we showed as our projection when it comes to interest rates in 2024, the interest margin - net interest margin will be maintained at a relatively high level. Therefore, the expectations as to the interest results are positive. I'm not considering any extraordinary events that we don't see as of today, i.e., any major aggravation of the international situation. We have a conflict in the Middle East. What will happen to the oil prices, the nearest future is yet to show. We've been observing negative trends with our main importer, i.e., the German economy.
This might impact Poland's macroeconomic situation in the next year. If those negative factors don't materialize or their impact will be insignificant, we're rather looking optimistically towards 2024.
Let me continue in inviting the next participants to ask questions at any moment. There is a question about the brokerage result in Q3. What was it caused by?
In Q3, we had two major projects that were settled by our daughter company, Pekao Investment Banking. One of the projects was advisory in obtaining funding and one M&A project that was finalized in Q3. Please keep in mind that we also have, we also participate in the distribution of savings bonds in our brokerage house. This also generates some earnings that we did not have in the prior year. There are no particular questions as to the results.
I think they have been quite readable, but we have questions on our operating costs, outlook for the operating costs for Q4 and next year. Ladies and gentlemen, Q4 should not surprise us by anything. When it comes to personnel costs, as you will know, I've mentioned it on multiple occasions, we are running negotiations with our trade unions on an annual basis. Whatever we negotiate is covered in our budget, so this trend stays there. And I was mentioning, but let me repeat it, we have a strict correlation of operating costs, personnel costs included, to the inflation level in the prior year. As the inflation decreases, also, the operating cost dynamics will be decreasing as well, especially, in particular, as far as the personnel costs are concerned.
Another group of costs are those connected with energy prices, both power as well as district heating, which is connected with the maintenance of our branch offices as well as the headquarters, multi-branch offices that we have also opened this quarter, and everything will depend on the energy market situation. This year, we've contracted the energy in two stages because energy prices were very high last year, so we've split it. In expecting that the energy prices will be decreasing, we contracted it at higher prices for a minimum period of time. That was feasible back then, and we were right, by the way. I think energy experience of some people at our bank has been quite helpful, so we expected energy price decreases, and indeed, that's what happened.
So we have the energy prices protected, and we're in for 2024, another round of contracting also for 2025. As for the cost, there's a detailed questions whether we have dissolved any provisions for bonuses or holidays. No, there have been no extraordinary events. When it comes to holiday provisions, we try to review them at least twice a year. We have a model in place which adjusts provisions to the necessary amounts on a monthly basis, but when it comes to, well, many factors when it comes to the annual holiday provision, this is what we typically do in Q4. One of the management targets of our managers is to keep the low levels of overdue annual holidays for a simple reason. We want to be-- We want to keep the title of a good employer.
It's hard to envisage keeping the high efficiency at work without using your annual, annual holidays, or taking your annual holidays. So this management goal has been defined for our managers. And you know what it works like? Actually, it works like that in every company. Managers, typically in Q3, realize that the employees have too high unused annual holidays, and then they try to reduce those unused holidays, especially that we're in for the Christmas holiday period, which is also favorable when it comes to taking overdue annual holidays. So such extraordinary, significant events will probably happen in Q4. There are many questions on CHF-denominated mortgage loans, which are asked in various ways. There was an impact on those. We have also opened a provision for that.
The question is whether it's covered in on a 100% basis, and how we're doing when it comes to the amicable agreement, or, or settlement program, whether we expect anything.
Yes. On the second of October, we started, we launched the program, Secure 2% Settlement. Why? Is it simple? Because there is no small print, and we try to use it for, for 2%. It's not 2% plus margin. No, 2% means 2%. We calculate the interest rates throughout the period until the settlement proposal for a... At a fixed rate of 2%, we compare the payments with a theoretically calculated calculated interest. If there is any overpayment, we repay that.
If there is any balance to be repaid, we propose that it should be repaid within 5 years at 2%, fixed rate. The maintenance of a 2% fixed rate in the next years is a cost, is an expense, but it's not so significant, and it's covered by the provisions. The fact that we would be in maintaining the fixed 2%, fixed rate, will not impact next year's results. Let's remember that the balance of those loans will be significantly reduced, the one that will be covered by 2% in the next few years, 5 years. Today's calculations and the adoption of a certain participation or interest from our customers in the amicable settlement period gives a guarantee that what we have covered by provisions is sufficient.
... We calculated the extreme scenario. The extreme scenario consists in the situation where none of our customers signs a settlement, and 100% of customers with agreement will go to court, 100% will get an adjudication favorable to the customer and unfavorable to the bank. This extreme scenario would imply the necessity to establish additional provisions of about PLN 400 million or PLN 500 million. That is our estimation. However, we consider this scenario as an absolutely extreme scenario and an unlikely one. Let's look at the participation of our customers in payment moratoria that required much less activity on the part of customers. And there, the participation was below the level which we had initially assumed. We initially assumed it at 85%. That is why we consider this scenario as practically unlikely.
Throughout the month, when the 2%, say, settlement is active, the proposal of a settlement was made to over 1,000 customers, and the results are extremely promising right now. We have signed almost 200 settlements out of the offers that we made. We have about 100 refusals. That is 10%, and the remaining customers are considering this offer. So we hope that the program will be received with broad interest on the part of our customers. Let's also remember that canceling of a loan through court does not mean zero cost, because there are costs of law services, there are costs, court fees.
Taking into account the calculation of this, settlement offer, we had taken into account a significant number of factors, and we continue to believe that the offer, the settlement is very favorable, very beneficial to our customers.
The next question is about volume prospects for the whole sector for next year. Is there any chance here for some revival in the loan market?
Yes, indeed, we have a forecast of relatively low investment dynamics next year. Consumption is also below the market consensus, but we also have to pay attention to how our volumes are driven this year compared to last year. Last year, very often in the case of corporate loans, these were short-term, loans related to increase in raw materials. This year, that, dynamics, is driven mainly by the, 2% Safe Loan.
So we have this deferred demand. We continue to function in the environment of high interest rates, and that is conducive to building up certain buffers rather than major credit expansion. That is why we think that the dynamics that we forecast are realistic. It will be interesting how the situation develops over the next few quarters. There might come some incentives from various sources, like a new wave of revival in the market. But for the time being, our forecasts remain rather conservative, and we will stick to that conservative approach for the next quarter.
A question or group of questions that I would put under the single umbrella of assistance or aid programs: Do we see a greater interest? Are we getting ready for any extra subventions? As for extension of the payment moratoria, there is a certain governmental proposal on the table, and if it comes into effect, what will be the cost for us?
Yes, as regards the proposal of extending payment moratoria, based on the information that we have, we estimated the possible impact on the result of the bank. It's hard to say whether this impact will be felt this year or next year. That depends on whether at all, and if so, then when such payment moratoria extension is announced.
Depending on various circumstances and assumptions on the levels of participation of volumes that would undergo payment moratoria, now we have more information at our disposal than we had last year, when we could rely only on our estimates unsupported by any case study, because then there were no such cases. Today, however, if this program of payment moratoria came into effect, we estimate we would estimate the provision level, depending on the participation, but probably that would be somewhere between PLN 800 million and PLN 1 billion. Again, on the assumption that the program would be valid for only a year, and that the income criterion would cover about 90% or at least 90% of customers who took advantage of payment moratoria in the previous program.
The first question was about fund for borrowers' support. Is there any greater support in the program among your customers? If payment moratorium does not come into effect this year, there might be an increased interest of borrowers in the support fund. In 2022, throughout the whole year, we had about 1,400 applications, so it's really hard to talk about in a mass scale. In our assessment, the decisive factor will be whether payment moratoria come into effect in 2024 or not.
Another question to what extent is the management board comfortable with the dividend payment in the context of increased profitability? Are you considering M&As, getting into other markets, perhaps? Let me start with the dividend. Both capital ratios and the hitherto successful MREL issuances.
Our outlook on EMTN program, all that gives a very positive view of the dividend situation of the bank. The result, I think, is satisfactory. I think that most shareholders are satisfied with the results of our bank. We want to remain a bank that regularly pays off a dividend. Be that 50% or 75%. Well, that's a decision, well, the recommendation is to be submitted to the general meeting. Well, there is still some time ahead of us before the general meeting takes place. However, as of now, we do not see on the horizon any negative events that would make us worried that the dividend might not be paid.
I can also add that through well-conducted, successful MREL issuances, we may expect the dividend range to go towards higher limit rather than towards lower limit. But as I mentioned, recommendations on this point will be made at the right time, and there will be all that will be done next year. That is the due time for this kind of recommendation and decision. As for M&As, as always, we say that Bank Pekao S.A. is a bank that is growing organically. As of now, on the horizon, there are no initiatives related to mergers or acquisitions. We talk regularly about expanding our presence abroad.
That is this internationalization program, which was already announced with regard to enterprises. But again, it is conceived as our organic development in the presence where our customers operate, to be there to accompany them and to help them once we open our branches there. This initiative, which we pursue, continue to develop, and we do not plan any spectacular major acquisitions, either in Poland or abroad. The Swiss franc loan topic also complicates any transactions.
Any questions from the room?
Yes. Santander. I have two detailed questions. One is the significant growth in corporate deposits. Is that something that is going to stay in the bank for a longer time or not? That that was for PLN 20 billion. Another question is about your plans for increase in employment. You had a decrease in the number of branches, so what do you do with those people? How do you keep them occupied?
Let me start with the second question. Please, notice that we consistently build the strength of the bank, relying on our own resources. So a significant part of those FTEs is a conversion from B2B agreement, especially in IT, to positions in the bank.
That is the policy of the management board, and that is the decision of the management board, that especially in those areas that are of greatest strategic importance to us, we want to build the strength of the bank, relying on our own resources... We are also considered as an attractive employer, so the conversion from B2B to employment contracts is progressing, is progressing in a satisfactory way. Maybe not super fantastically well, but it is received with interest on the part of our collaborators who are presently using B2B contracts. As for your first question, that is corporate deposits, the situation as of now is flat. We see that the recent deposits are maintained. That shows, that is shown in the current short-term liquidity ratios.
But also, please remember that many customers, especially corporate customers, treat our bank as a settlement bank. So often, those deposits on balance do not diminish significantly, but they are kept on a low interest account or no interest-bearing accounts. Also, something that affects the level of corporate deposits is much lower variability than the one we had last year, especially on commodity. In particular with energy groups and with securing of prices on CO2 exchanges, the only possibility was to pay cash deposits, especially Leipzig refused to accept any other security different from cash. But in the case of high volatility, high variability, as we have in energy groups and PGNiG, we have the significant variability on big deposits of corporations.
When the situation and the commodities are stable, we see this wave becoming flatter.
There's one more question about our high return on equity at 10% or more. What would be the normalized level expected in the next year, considering the interest rates and the prospects for the bank?
Well, let me just tell you briefly, it all depends on the interest rate levels. Our sensitivity to interest rate changes is very well known, 30% to 1% to 30 bps. But in the case of we have a situation where the interest costs are relatively low. As Paweł mentioned, we have quite a few funds on non-interest-bearing accounts, and we are also benefiting from the liquidity reaching us both from businesses as well as retail customers. It's also important for us.
Interest rates are also connected with the transactions carried out in 2020. So the maturity of low-interest bonds, the pandemic bonds, and the possibility of increasing the earnings profile, profit profile, we'll be just investing into much more profitable securities. It's a matter of expert evaluation, and depending on the central bank's interest rate policy, that's the most important factor, whether we can assume that the interest rates will be dropping as expected, as expected before, i.e., we expected inflation at the level of 4%-5% in December 2024, and roughly the same level of interest rates. That's one scenario, and another scenario will be much more much slower in interest rate dropping rate, which will be favorable to the banking sector, ourselves included. I don't see any further questions.
Thank you very much for your participation.