Good afternoon, ladies and gentlemen. Thank you for joining our call following our release of Q1 2025 results. We have, as always, a strong team with our CFO, Head of Finance, our Economists, and IR team.
Chief Risk Officer.
Risk Office. As you know our company very well, as always, I suggest simply to start directly with Q&A. Łukasz, please.
Yes. Hi. Thank you very much. Thank you very much for the call. A couple of questions from my side. There were already plenty of topics on the NII and the NIM, but my question is, what is your, let's say, economic view on the potential cut to the remuneration of the mandatory reserve, and what could be the impact on your NIM, on your net interest income? I just wanted to make sure that my calculations are correct. That will be my first question. Thank you.
Piotr, maybe you will start with your macro view on the probability of this event.
Yeah. We know that there has already been a discussion on the topic at the NBP on the issue for quite some time. So far, an important argument against such a change was that the financial result of the Central Bank was deeply negative. Then the change regarding interest on required reserve would not have a desired positive fiscal effect. That is why some NBP members that we talked to on the issue signal that the change will not happen because simply it will not bring a positive fiscal result. Possibly, projections of the financial result of the Central Bank for this year or maybe for the next one indicate that there is a chance for returning to the positive results. Maybe now there is a chance for the positive fiscal impact of such a change. That is why maybe they will start to seriously discuss.
Also, given the context, the regional context, given that other Central Bank's in the region have already conducted such a change, I think it will happen. It is only a question of time whether it will be the nearest NBP meeting or later. I think it very much, given what we have heard from NBP members, it very much depends on the projection of the Central Bank's financial result. If it is going to be positive this year, so then savings on elimination of the interest of required reserve will increase transfer to the central budget, then it may happen. If there is no such a chance for a positive result, I think it will not necessarily happen. That's my take on the issue.
Do you think it will be cut to zero or half?
To tell? Maybe. I would bet that it could be a gradual change. I would also not rule out simply one move to zero. I think it could also happen potentially.
Cool.
No clear answer.
If you have any comment on impact?
Yes. Taking into account what Piotr said, that for now we do not know what level will be if they will decide to cut, if to zero or to another number. Also taking into account that we already—and we assume that, okay, we already have almost half a year. Assuming that it will be cut, then we are talking about a few basis points impact on our NIM in the context of 2025. Finally, it would depend when, of course, and to what level. We are talking in this context of a few basis points on NIM.
Sure. Sure. Thank you very much. The next question may be on fee income. The beginning of the year is, I would say, not great, not terrible. What would be your outlook for this line for the entire year, the dynamic, for example?
We declared last year that we're going to keep the pace of dynamic here, single digit, 5%-10%. We will see, and we will try to execute this option, the market one. Yeah, this result is mainly an effect, this dynamic. Negative one is an effect of one of the first quarter of last year. What we see, we see that core drivers of fees and incomes are going quite well. We see a kind of acceleration, even if we take into account the fact that we had a less number of working days in the first quarter. In the longer run, the share of fees and commissions and core incomes should go up.
Okay. Thank you very much. Short question on cost. Would you maintain your outlook for this year like low double-digit increase in total OpEx, including regulatory costs?
Yeah, we keep this. Yeah.
Okay. The last question on the legal risk in the consumer loans. Any comments on the development here, the number of litigations and the value of gradually, not really dynamically, but growing? You have not recognized the provision for this yet. What is your view on this risk? Thank you.
The number is still, I would say, stable. Today, we incurred 90% of the cases. Up to now, we see rather that the risk is reducing. We do not make the decision to create an additional provision. We provide only for these cases in the court.
Okay. Thank you very much. That's all from my side. Thank you very much.
Do we have any other questions? Gabor, please.
Yes. Thank you. A few questions from me, please. The first one on margins, just to clarify your NIM guidance. Are you expecting broadly stable NIM at the Q1 level for the coming quarters? Is that fair, or shall we model some decline?
No, as we explained during the conference and in line with our declaration from previous year, we should see the landing level for this year not lower than 4.8. That's the average margin for the last year. Interest margin, you mean?
Yeah.
Of course, the margin will be under pressure after the rate cuts. So it actually will, in the next quarters, have an impact on the margin.
It doesn't mean that it is a target. It's a threshold for us for this year. It's not a target. Of course, we will take action simply to keep it as we can, maybe higher. To be honest, if the macro scenario is like we are seeing here, yeah, we shouldn't be lower than 4.8.
Okay. Very clear. Thank you. On your NIM or rate sensitivity guidance, it's PLN 500 million. It's very kind of reassuring, I would say. Do you have a sense of at what rate levels would this sensitivity increase significantly? I believe the forward markets are pointing to around 3.5% short-term rate by next year. If we go from 4.5%- 3.5%, how would your sensitivity look like and potentially at lower levels?
I would say this actually is a few elements. One is because this sensitivity, which we are showing, they are based on 100 basis points, right? When actually it will have a higher impact, when the rates will be at the level in which, for example, for a term deposit, will not be able to adjust the pricing of term deposits or saving account. Then the sensitivity is growing. Secondly, the growth of the balance sheet itself also is growing sensitivity, usually, in our case, because then we start to hedge on our side. Also, when the sensitivity is actually increasing, when we are actually with the rate on our consumer portfolio, are hitting the maximum rate which we can have on it, which in Polish is called antylichwa, but it is maximum rate which we can have on consumer loans.
If we hit that rate, then we go down. What happened before that, due to the fact that the new measure, Supervisor Outlier Test concerning NII, is measuring 250 basis point move for PLN, even earlier we will be forced to actually make an action, potentially to add additional hedging due to increase of sensitivity of NII for the SOT purposes because it's 250 move, not 100 basis point move. Increase of balance sheet and situation in which we actually are not able, from the model point of view, to adjust rates on deposits by 100 basis points in case of SOT NII by 250. On the asset side, it's usually actually when we hit for the consumer portfolio loan the maximum rate which we can have, and then we have to decrease it. That's it.
Remind me, what's the threshold you need to stay below in case of a 250 basis point shock?
It's 5%. We simply calculate the delta, calculate it based on the formula described by Yakub, and then we divide by the capital. We should be at 5%.
5% NII. Thank you. Just briefly on capital, if I may, on this up risk impact on your capital ratios, can you explain this a little bit to us? I think you are flagging 65 basis points from CRR and then another 22 maybe also from CRR. What is this operational?
The same source. Yeah, that's the same source. CRR, but Piotr simply made a split for better understanding. Sixty-something is connected with credit risk and twenty-something connected with operational risk. The source of the change is the same, CRR3.
Yes. Sorry. In the up risk, this is connected with the losses which we have due to the Swiss mortgages.
Yeah, that's what I thought. Shall we expect some reversal here as the Swiss franc charges come down and we have a timeline?
It will be temporarily reversed.
Just the 22 basis points.
Also, it's due to the fact that we switched method because we were one of the banks on the Polish market who use advanced management approach for op risk. We had to switch to the new standardized method. It's also due to the change of method of calculation. We also, adding what Piotr said, additional provisioning resulting from CHF, it added also some capital requirements.
Okay. Very clear. Thank you. Last question from me would be on your capital requirements. I believe there is a countercyclical buffer about to be phased in. Is it 200 basis points maybe by next year? If I just apply that simply on a fully phased basis to your current buffer of 277 basis points, which you have above the minimum requirement for a 75% payout, that would come down to below 1%. Any thoughts on that?
Actually, we are actively managing our capital position. As a kind of general rule, we definitely want to be above dividend levels, keeping also around 1 percentage point of kind of management buffer. For example, what you can expect potentially from our side, for example, tier two issuance if needed, it's also connected with the change of rating of our senior non-preferred debt, which was changed in the first quarter from BA3- BA2 because we agreed with Moody's that we'll keep certain level of subordination, meaning tier two or more subordinating instruments in relationship to our assets. This also will trigger from our capital structure, tier two, potential tier two issuance. That's one point.
Second point, our own funds will also slightly increase after general shareholder meeting, assuming that general shareholder meeting will accept Management Board and Supervisory Board proposal concerning around 75% payout because part of the profit out of this 25%, which will be retained, will increase our own funds. An additional point, usually what we also do and assume that part of the first half profit, after approval of Polish FSA, we include in the own funds. This also will actually, and we assume also that we'll do in this year. Last year, we included PLN 1.3 billion on the group level to the own funds.
Have you had any discussions about buybacks with the KNF at all recently?
Recently, there was no, and I would say, extensive discussion concerning payback, except the fact that, okay, in our strategy, we assume that we can, and in our dividend policy, we can pay the dividend or share paybacks. For now, there was no any more concrete discussion with Polish FSA.
Okay. All clear. Thank you, Tim. I appreciate it.
Michał?
Hey, good afternoon. I have a question. Maybe you could give a little bit of your personal commentary on what do you expect from the Polish sector following the ERSA entry. Do you think it's as an opportunity maybe to grab more share during this kind of handover and perhaps some disruption as one of your competitors or maybe more competition going forward? Any insights would be welcome. Thank you.
We open such a discussion simply to be better prepared for the different scenarios. We analyze both the change, no change, and negative change for us, positive, negative, and neutral. What we do, we simply define actions to be taken to make use of this situation. It is not a, we do not classify this M&A as a kind of consolidation on the market. It is a change of the owner from local market, of course, rumor, maybe one year, maybe one year plus, internal connected with allocation and change management and all this stuff. From this perspective, we want to be ready and execute any opportunity on the market, including both segments, retail and corporate one.
Thank you.
Any other questions? Should I assume that the results were quite clear?
Maybe one more comment to the Gabor question. Please take into account that in the dividend levels, already 2% of countercyclical buffer is included. This is according to the Polish FSA dividend policy. Of course, the question mark is what they will do going forward with the dividend levels, but currently, they already assume two additional percentage points to cover the countercyclical buffer. Thank you.
Thank you, Yakub. So the 12.5 and 14.5, the data there is the countercyclical buffer, is it?
The level.
Page 25, I'm talking about the chart on the right.
The dividend levels already include 2% of countercyclical buffer, yes? They are on the TCR level and 14.4.
Okay. Thank you. Thank you.
Mehmet, please.
Good afternoon. Thank you so much for your time. May I kindly ask you to comment on the deposit trends? Specifically, are you seeing any incremental pressure in this sector right now for deposits? I am asking as it seems like there are some inflows into term deposits again, and pricing is increasing. If that is the case, how do you see the developments later in the year relative to loan growth overall?
Okay. I would say I understand that you were referring to the retail deposit pricing. What we see, we see rather from the structure point of view that it is not changing as fast as we thought it would change towards current deposits. That means that the part of the term deposits is decreasing, but it is decreasing at a smaller pace than we assumed. That is why also what you can see is that potentially the rates might be slightly higher. However, we do not see pressure on deposits on our side. If you also look from the LCRs point of view, you can see that our LCR is over 240%. Many players also have LCRs above 200%, which creates no pressure on the deposit pricing. What you can see, of course, you can see offers for new money with conditions.
It's treated as we see kind of, and they are trying to attract new customers, giving, for example, 7% on saving account for new money. In general, I would say we do not see pressure currently on the deposit pricing. As you can see on our deposit base, it's growing quarter to quarter. On our side, we are trying to change a little bit our deposit structure also in the context of the long funding ratio implemented by the recommendation of Polish FSA, meaning that in April, we implemented a product five years long for retail customers as a saving product, which will contribute to the long term funding ratio.
We are currently in the discussion among other institutions with Polish FSA to change one thing in this context, one thing in the long term funding ratio recommendation because currently we can have deposits only by the end of 2027. We can include them in the long term funding ratio. We are actually discussing to remove this time restriction and use these deposits as a normal form of long term funding next to covered bonds, next to own funds surplus, next to Emeril issuances. From this perspective, okay, we as a biggest bank also are showing because there is no common product such also similar project on the market that we also would like to, on the one hand side, give customers a good product and on the other hand, address regulatory requirement.
That's very helpful. Thanks very much.
Any additional questions? Thank you for participating and hope to see you next quarter. Thank you and goodbye.
Thank you.
Thank you very much.
Thank you.
Thank you.