Good afternoon. Let me welcome you and follow-up call with CFO of PQBP with our CFO, Christophe, chief economist, Piotr Bujak, finance division represented by Kobania Suhowski and IR team. As usual, I suggest go to go Nobody? Yaron, please.
Yes. I think hope you hear me right. I have just a minor question on I think you revised downwards a bit loan growth outlook for this year and next year for the sector. Right? I think it is related to mortgage revision downwards.
If you may just give us comment on that, please. Thank you.
You mean the loans growth, I guess. Right?
Yeah. Yeah. Exactly. Exactly. Yeah.
So even despite the the most recent developments in the market are still quite promising, the most recent data for September showed record strong in production of mortgages in the market. As we are in the process of financial planning or preparing financial plan for the next year, we at this very moment, we try to be as conservative as possible, and that's why now we show in our baseline over 9% growth, so very high single digit growth of PLN mortgages, but we stick to the view that there is a chance for even stronger developments in this segment of the market, and we definitely still do not exclude double digits growth. And, of course and, of course, our strategic ambition is still to grow over the market. So for us, definitely, for PKL and Polsky, the target is double digit growth in this segment, actually, in other segments as well.
Okay. Perfect. If I may add another one. Your interest rate scenario is 3.5%, right, terminal rate next year?
Yes, it is. Yes. We assumed this when we were preparing the strategy for 2025, 2027, and we stick to this view that the terminal rate will be the current cycle will be 3.5%. Some other major banks until recently, especially until the rate cuts this week, we're signaling that maybe or saying that it could be higher, 4% or maybe even higher. We were on the conservative side, and we speak to this view that it will be 3.5%.
Although one has to acknowledge that initially in the strategic cycle, we assume that this level would be would be reached in early twenty twenty seven. Now we think it will be somewhat more challenging for us as as we as we think as we assume in our baseline scenario at
the moment that this level will
be reached before the 2026. With three additional sweep rate cuts in the 2026, each by 25 basis That will drive the reference rate, the key policy rate in Poland to 3.5% from the current level of 4.25%.
Okay. And in this scenario, like what would be the low in margin in which quarter it would be reached?
So for now, as Piotr also already mentioned, we are in the planning process for 2026. So concerning NIM, I would say more clear guidance, we'll give you most probably with the 4Q results. Now we can say that what we expect that the NII will be now on rather stable level with some potential for growth, but it will depend on the volume growth. However, as Piotr also already mentioned, our appetite is to grow above the market. So we have potential to grow from, I would say, quarterly NII, but as a kind of base we assume will be on the stable level with some potential for growth.
Of course, from the mathematical point of view, there will be a pressure on the NIM. So you can expect in the fourth quarter, again, some slight drop, not at the scale which we have between second and the third quarter of the margin. And we should be for this year, we should be around 4.8. However, the rate cuts are deeper than we expected for this year at the beginning of the year because we expected 100 basis points spread across the year. Now we have already 150 cuts.
So we say that we should be around this 4.8 plusminus bps. But and for the next year, of course, NIM will be under pressure. So you expect again some drops, we'll work on our side actually to have NIM to improve, I would say, NII. NIM, of course, will be under pressure.
Thank you very much.
If are you, please?
Good day. Thank you very much for the presentation. I just wanted to clarify on net interest margin dynamic in the third quarter once again. So you had around 20 basis points decline on a quarterly basis, while effectively on average, I think policy rate was down around 50 basis points. So just wanted to clarify.
It looks like that the sensitivity was higher than the theoretical one of which I think you mentioned something like implied in basis points 10 to 15. So what was driving a higher sensitivity in this quarter? Maybe what are the key moving parts? And also on the hedging costs and benefits of hedging, could you give some additional color there? You.
I So can Oh, yeah. Kuba, I will try to describe the situation Okay. Here. Actually, we have to take into account the moment of reset of interest incomes on asset side, the loan book and the bond side. It is not we do not we have some peaks in time where we observe this reset.
That's why the sensitivity of interest rates you observe based on third quarter results could be not in line with this theoretical we reported. That's one aspect. And again, for the we our goal is simply to replace this lacking part of interest margin next quarters by rising interest income and net interest income, which is, generally speaking, should be driven And, of course, temporary, again, we have to underline that we have a kind of a slight crowding out effect due to KPO funds and some activity on Polish Development Bank who is also active who is active on this curve part of curve, which should be dedicated rather to special banks. That's it it is from my and our perspective rather temporary, and we should we we still are waiting for this wave and this acceleration on investments, which should give additional boost of loan activity.
Sorry, I could Yeah.
But just to add what Christoph underlined, please take into account that the, I would say, total rate cut this year was already higher, not the 50 basis points because we had the rate cut in May, July, September and October. And okay, is not for the third quarter, but we have in total by the end of third quarter this year, 100 basis points rate cut. And we already had a rate cut in 2023 by 100 basis points. So in total, it was 200 basis points. And by the second sorry, first quarter of this year, we were actually growing our quarterly NIM.
And then we have a slight decrease in the second quarter by four basis points. And now, okay, it's around 21. So please take this into account that we are not talking about 50 in the quarter because there is what we see is also effect of rate cuts from May also from May. And as we had, for example, our consumer loans, large part of our portfolio is repricing was repricing in July. So it consumes actually the rate cuts which we had in May and also in July, the 75 basis points and few other factors.
So it's I would say, one versus 50 rate cuts. That's one comment. You also asked about the hedging. So looking on the hedging numbers, which you also have in your financial statement. So from quarter to quarter, the cost of hedging was lower by around 70,000,000 lots.
So meaning positive impact on from hedging, from derivatives to be more precise.
And as you probably remember and to clarify how it works, this hedging, IRS, we will report this negative difference between floating part and fixing part, legs of IRS up to the maturity. From this perspective, if we see maturity of IRS old cohort originated in February, we will not see this negative next day. It it is not an evaluation. It is based on this, let's say, amortized cost methodology where we where we simply reflect in PLM, the difference between coupons, peaks and floating, which for the old cohort is negative for us, but just after maturity we do not see anymore. That's why we expect next year, of course, with the assumption for CIRS who is to hedge our MREL activity, we should shouldn't see a negative contribution from the old cohort or for the total portfolio anymore.
Thank you. Thank you very much. So I believe you are the next one, please.
Just two questions from our side, please. One is a clarity question from the conference call this morning. I believe the translator mentioned something about you guys entering into the e commerce market. Does it mean BNPL or if you can elaborate on that part? Second one is on the bank tax or corporate income tax.
Just in light of that, do you see any upside or adjust your fee income from that front? Thank you.
Answering the first question, publishing last year, the strategy, we defined seven pillars. One of them is this ecommerce activity. What impact means we should embed that our financial services to ecommerce large ecommerce platforms. This buy now, pay later channel to simply explore this and add to our wallet of clients and simply to adjust our portfolios. And we now are we made a first step.
The CEO announced this, and next week, we have a conference about of that that we signed an agreement, and we start the first stage of of mutual cooperation. But the general goal is simply to extend our services on different areas. This is a kind of development part of the bank. We named the strategy growth and payment in this ecosystem, this development part where we're gonna explore and find, in fact, acquire new clients and add our functionality to this buy now, pay later channels. But in in a short run, we will not see huge volumes.
That's probably the situation. But for us, the way simply to to check whether our services can be accepted in this new channel, and we hope that we will see both interest income and fees in the in the future? That's the first question. The second one about the tax, I don't know. Derek, me?
So maybe I will take it. So we still stick to our view that the tax will be implemented. We think that the most likely scenario is the one in which it's approved by the parliament and signed by Mr. President. And we still stick also to the view that the drop in tax rate they proposed in the loss from 20 from 30 to 26 next year, so around the following year and 23 later on also will be delivered.
From the impact on us, generally speaking, you all calculated it. We think this is quite quite straightforward. So we do not disagree with the numbers of site prepared between 15% to 20% impact on 26%, depends on your number, and high single digit for 27%. And if you look at the development, till now, as you know, it went from the lower house of parliament. We feel even more comfortable with our view that this will be implemented.
Thank you. Thank you, Yam. Kishandra, please.
Yeah. Sure. I think three very simple questions, I think. Well, starting with the fees part, actually. Just trying to understand your fees and rate is still below what you were initially guiding to.
How should I think about that fee line? And lastly, insurance number last year, like in the revenue line, looks slightly higher. Is there any one off in that line? Just a modeling question. And second one is around CET1 ratio.
Just trying to understand what's the company policy. Do you fully kind of exclude the net profit from the CET1 calculation and add it back once the amount is kind of reflected like you have restated like 2024 number that I could see in the presentation? And last one is on M and A. I think few days back, there was and in the morning, as when you were discussing about the M and A plan. In accordance to that, what are your thoughts in terms of expanding?
Is it are you looking at more at bolt on? Or you're looking at other CE markets in which you would have rather major presence that sense or whether it's just bolt on adding to your fee franchise or asset management or other parts? Thank you.
So maybe I will take the the reasons CH1. So in the context of fees, okay, we are maybe slightly below our guidance, but please take into account that and we communicated that we have pretty substantial one off in the credit card business, which is even amounting to 145,000,000 loss. So if we actually extract this one off, which resulted from the settlement with the credit card companies, then we are in the area of mid single digit dynamic. So from this perspective, it's what we actually said. But again, it's predominantly due to the one off which we had last year.
And it's not repeating this year and we do not expect to repeat in 2026. And this comment to the fees. Concerning the insurance, yes, we had, I would say, two significant factors impacting the dynamic year to year. One is resulting from the change of construction of the insurance products due to implementation of so called recommendation U by the KNF. So for example, we left with the products as mortgages and also cash loans, only life insurance without not life insurance due to the fact that the insurance for non life part was profitable, however, does not meet the requirements of recommendation you.
That's one point. And secondly, this what we also inform, we are converting also our old portfolio of cash loans to our new agreements in the context of also our free sanction loan loans. And always, we also have to return the provisions, which we take for the issuance, part of the provision. And these two factors actually impacted the dynamic year on year and was actually balanced significantly by our standalone products as we implemented for the home insurance, for car insurance, touristic insurance. So but these were actually two major change of products due to regulatory requirements or elimination of some products and returning of the part of the insurance fees to the customers in case of refinancing of existing cash loans, which were higher.
Concerning CET1 So CET1, our policy actually, okay, we want to pay dividend. So from this perspective, actually, we want to keep our CET1 ratio, TCR ratio above the regulatory, not only minimum regulatory levels, but also dividend levels. Currently, they are one percentage points higher, meaning the dividend levels than the minimum regulatory after implementation of countercyclical buffer starting September 25, with of course buffer for further development, meaning volumes. So volumes, regulatory development, because we already have resolutions of the Minister of Finance increasing the current countercyclical buffer in next twelve months by another percentage point, this was expected, and dividend payment. So this how we want to use the capital and where we want to be above dividend levels with some management buffer on our side.
M and A question, Christophe, I will pass to you.
Thank you, Jakob. Again, we explained this during the conference that we generally speaking do not change our view. We can add to the balance sheet in one year fifty billion euros The lot is what is roughly speaking 10% of the balance sheet. That's a pace of dynamic we can develop organically the bank. That's why that it's a natural option for us now.
But as you know, we have a professional team who is analyzing everything, what is on the market on the table and different options in different scenarios. What means potential transaction if we buy? What it means with our competitor is buying and different alternatives? And we analyzing on the group level some gaps versus normalized market for our group. We see some gaps, and we can define the trajectory to fill the gap organically, or we can add things to develop quicker.
But, of course, finally, we have to have a target and find the target and potentially meet the price and criteria. So it's not easy, but what we can declare, we will analyze different options and opportunistically speaking, we will also think about structuring the balance sheet and delivering the growth for shareholders in different ways. But formally speaking, we didn't change what we promised from the strategy perspective. But of course, this acceleration on M and A market we observe, and we discuss this m and a potential options much more than last year. But, finally, you know, it is not easy.
Yeah. If we change something, we will for sure inform our shareholders and and the market.
Sorry. Just one small follow-up on the on the M and A bit. I guess, you would have an internal I guess, you will be looking at IRR. So it's it's looking at how much are you going to reinvest in your business versus what you're generating. So anything, any business that you're looking at would have to meet the internal and if have you guided to that number?
Like it's because I see you guide to more than 18% ROE, so I would suggest the I would think anything that you're trying to buy would have would have to have a similar issue or or higher
Yeah. The question is the question is, maybe the answer is much more complex because, you know, if we add something to the balance sheet or the group to the group, we do not for us, synergies are not a theory because we can really leverage different companies who are providing different services, leasing companies or factoring companies much to be to to become much higher pace of development. If there is an IT platform who we can embedded to our case, this ecosystems, it's not an m and a transaction. It's a kind of partnership. But, of course, we can find some entities on the market in Poland and abroad who can really leverage, especially now in this era of AI, we can really add value even if something is small.
From this perspective, analyzing different potential targets even theoretical, I see the rising part of this potential value, which is the function of adding something to the very to big company we are. From this perspective, size matters, and it's not the situation that we are looking for buying a bank in local market to add $1,015,000,000,000 euro to our assets, but rather find a way to leverage our activities and services. But again, that's a tale that we can discuss everything. And if there is something on the market, we have to to be in the game that we can promise, but it doesn't mean that we will completely reengineer our focus, and we will now discussing twice a week opportunities what to buy. The pace of development organic where we can gain cash loan market mortgage market, Peter explained during the conference that this acceleration we observed from mortgage group, corporate side, investment place, really, we are keen to explore this and execute this organic option, but but we can't be in the position that we do not analyze things which are on the potentially on the market.
As we can promise, we have to launch.
I
do not see any other questions. So thank you for participation and hope to see you on the next event in three quarters. In the meantime, if you have any follow-up questions, sorry.
There is another question.
Maria, please.
Yes. Hi. Congratulations on good results. I just wanted to check about the pricing of corporate loans. So we started hearing some messages about competitive competition increasing in that segment.
So I'm just wondering to hear your color how the sector is rational or some players, smaller ones, bigger ones trying to somewhat undercut the pricing?
To some extent, it could be true. We are the distance between the largest bank in Poland to the second largest is PLN200 billion. What means that 1,000,000,000 in new assets for us is a different dynamic if we add this to third or fifth bank on the market. If you declare the dynamic and you add something very cheap, the negative impact on interest margin is limited, especially in first quarters. But then you can wait after this moment what I just mentioned about this investment way connected with energy transition.
We observed a change of landscape. Again, we keep the scenario that to meet everything we we should finance in five, ten years time, we will for sure invite foreign investors to Poland because we are too small as a sector. That's one aspect. And that's why currently, we observe crowding out effect and some competition and this compression on margins. But, of course, there is not the level playing field comparing