Good morning, ladies and gentlemen. My name is Daria Shurewa, and I am responsible for Investor Relations at PKO BP. It gives me great pleasure to I invite you to the presentation of the bank performance after Q3 2021. I would like to introduce Our speakers today, primarily President Ivan Adoda, responsible for managing the management board and Presidents Marcin Grabikovsky, Marcin Eckhart and Piotr Mazur. Madam President and I'm Chairman, over to you.
Ladies and gentlemen, welcome. My name is Yvonne Ardoin. And as has been said, I am now responsible for managing the activities and operations of the management board of BKO BP. It gives me great pleasure to meet you today in connection with our performance after Q3 2021. Before my colleagues and I proceed to presentations, before we tell you how the performance of the bank Had been produced after Q3 2021, let me emphasize one factor.
This performance has been generated by the entire bank's community, their employees, their competencies, their involvement and engagement at each and every level at the rank and file level, at the medium or middle management level and at the CEO level. But it is also due to our companies of the Capital Group. Now moving to the performance. I believe that the first and most important thing is that the net profit that we generated After Q3, an accrual was PLN 3,700,000,000. This is excellent.
This is record Profit, which obviously gives us great satisfaction. As As commonly known, PKO BP is the leader on the Polish market. We have tremendous competitive advantages Derived both from our offer that we are trying to always cut to be tailor made to the needs of our Clients, but also it is due to the economy of scale allowing great profitability. I would like to point to the Index of ROE of 12%. Yet again, excellent, excellent performance, and it is definitely a reason to be Round of effectiveness is very high as well.
Cost to income, 39%. Absolutely an absolutely wonderful performance. As you probably know, the average on the market reaches 45%, 50%, which ultimately means that the 39% Coefficient is more than satisfactory. And yet another thing I'm greatly Proud of we have exceeded PLN 400,000,000,000 in assets. Now What does this prove?
We are an unquestioned leader on the market. Let me remind you that after the first 6 months of this year, we delivered we were responsible for a 40% share of the sector's profit. And we that gives us excellent foundations for future operations. It is also our driving force for future development, Not to mention the capacity for strengthening and expanding our operations that I hope we will be successful in the future. Our competitive advantage on the market Has also arisen from digitization.
You do know that we are a digital bank. We are now a number one in mobile payments, Not to mention the fact that we are expanding our IKO, we have also expanded our market for new clients. Digital Bank is obviously I'm very autonomous. The road to cloud, not to mention AI, used ever more extensively across the board, not to mention Automation and Robotization, light, lean end to end processes. And one other component that I would like to point to, which is also hugely important.
The entire sector Is now facing the huge debacle of the Swiss franc Loan crunch. We have been the first to tackle the problem. Performance is great. Last year, we have established EUR 7,000,000,000 of risk reserves for the CHF denominated Loans, whereas we have also obviously been work ESG aspirations. Now going back to our performance for the 3rd quarter, EUR 3,700,000,000 PLN and accrual.
Now in terms of the quarterly performance, it is also amazing, EUR 1,700,000,000, 87% increase in an analogy through the previous year. Now in order to prove what I am particularly happy to emphasize that this profit has been generated through fundamental basic operations. Our interest rate and commission related performance is growing. Cost to income, 39%, As said before, but I would like to mention one other thing. This is a level that we have already assumed in the strategy For year end 2020, and we have already delivered.
Core, 59% basis points. Now it goes without saying that we are slowly but surely moving to a certain normalization of the situation In terms of risk management, we do hope that the pandemic will no longer affect us and that the risk management policy will be increasingly Normalized, we have already exceeded PLN 400,000,000,000 in assets, not to mention the fact that we have also recorded 6,000,000 activations of our Eco app. We are growing our income, we are controlling our cost, And we are developing digital customer service. Now with regard to interest rate performance, that is not necessarily spectacular. It is well, it's excellent.
We have recorded an increase by 3.7% And that is definitely a reason for pride. That is the 2nd quarter running that where we have recorded an increase. As you well know, in the environment of low interest rates, it was far from easy to Record such a performance herein, but yes, we have been getting better, not to mention the fact that we have Recorded a dynamic of +7.8 percent in terms of our daily operations, which Definitely proves that we are getting better at financing our clients, an increase of 3.3 Now the digital customer service model has generated excellent performance. The share of digital in digital Sales has reached of 7 has reached 11% of 74% in terms of consumer loans, 76%. Now let me move to our strategy.
The I have already been discussing most of these parameters at the And performance, ROE, excellent. Now the cost of the risk of loan risk, Excellent net performance, wonderful for the period and it goes without saying that we have ambitions. That our ambition is that our aspirations are through indeed the net performance to be generated by the end of the year PLN 5,000,000,000 equity, wonderful. Tier 1, 17.8 percent. And one other component.
All these coefficients, all these indices We are definitely proving that we have excellent equity position, not to mention our income. Moreover, we have been resolving our conciliation Related agreements for CHF loans, which ultimately means that we can definitely consider The next stage of recovery, the next stage of considering the payout Of dividend, obviously, once all formal and regulatory requirements that are known that have been met that are known to all. This is all I wanted to say at this point. Although it is a wonderful opportunity to emphasize that we are very happy and proud to See that performance, nonetheless, over the next period, we are going to be developing our new strategy in recognition Of all circumstances prevalent, including new requirements of our clients, Something that the pandemic has changed, a swifter processes of digitization and other processes, Not to mention conclusions that should definitely be drawn from our operations throughout the pandemic period. We should also be looking to the future and looking to anything and everything that will allow us to overcome our competitors in the sector.
Thank you Very much, this is all I wanted to say in a nutshell. Now over to Max, who is going to be talking about our Retail Banking Sector.
Well, thank you very much. We have closed another excellent quarter. Retail Makes us all proud at our bank, but please take a look at a slide illustrating sales. Mortgage and Consumer Financing is a reason to be proud. So let's look at performance In mortgage, nearing €5,000,000,000 it's excellent performance, but 40% Year to year, it's a figure that should command respect of our competitors, and it should make us Proud with performance and effectiveness of our network.
Well, consumer financing and mortgage, So year to year, up by more than 5%. And please focus on mortgage again. We are nearing EUR 100 billion, so it's a reason to be satisfied. So we've heard about digitization and digital Services, so let me give you some additional figures. We are the unquestionable leader in mobility in banking apps.
We are outperforming our competitors, although we do congratulate them that they are trying To build a strong position, so the number of transactions in our banking gap in the past quarter From the perspective of our customers, 120,000,000 transactions in digital channels, so Please take a look at this figure, which first illustrates fast changing Operations of our bank. So the number of customers logging into Eco App And the number of digital customers in total active customers, as you can see, year to year and quarter to quarter Figures are going up also in this area. Another slide is illustrating how we are Building relations with customers based on omnichannel model. So I would like to Focus your attention on consumer financing and end to end ratio this quarter totals 46 percent, which is a robust performance considering our beginning. So we've come a long way, and it has impact on sales.
The shelf bots, as you can The robots are used to drive first contact. Okay. So we are now focusing on corporate business. Marginacad I'm accountable for Investment and Corporate Banking. In our area, we had great performance In corporate financing compared to previous quarter, we have witnessed an increase by more than 4%, so more than EUR 2,000,000,000 worth of new loans Granted to our corporate credit customers, so we turnover up to EUR 500,000,000 Strategic accounts, so these are leading Polish companies.
Equally robust performance was Demonstrated by the factoring and leasing, corporate and municipal bonds were also developing and Today demonstrated hefty growth. So we have exceeded figures for Q3 2020, what makes us very glad. We are also rebuilding our deposit portfolio. So amid low interest rate, it was a daunting exercise, but We see an increase by 0.5% in our deposit portfolio. On the slide, you can see main transactions in Q3.
So this is a reason to be proud. So IPO of Shopper, we were globally coordinating its IPO, so it's a major achievement, a great start, a great head start for the company. Lots of new loans, lots of new production. So these are developments that unfold, which
Make
us look optimistically into future. In terms of corporate clients, there are New opportunities, and the offer is widened. So new Mass payout module was launched. We have also introduced cash pooling service As part of LoRa account, we are also strengthening the leading position in banking services for municipalities. We are currently Providing services to more than 650 municipalities.
So we are the market leader. We have the Biggest share on of more than 60% Of total WSE Stock Market And our corporate clients are benefiting from access to eco app. So most functionalities of your brokerage accounts are available in the app. Green Financing in Q3 accounts for approximately EUR 400,000,000 And we have also acquired green bonds worth
PLN
35,000,000. The next slide illustrates our ambitious ESG policy. We take a very serious approach To our corporate social responsibility and environment, so we have new procurement policy, Which largely regulates our approach to suppliers in terms of ESG, we have also introduced the new Tax strategy for the entire That we are going to focus on, in terms of ESG ratings, they are improving. We are currently ranking 100 and 91st Position among more than 1,000 banks that were analyzed and ESG rating takes the lead in our current analysis, and we have introduced analysis of different customer and client groups. Previously, we have committed ourselves We are going to deliver on this commitments on our agenda.
We have also committed ourselves to Boost green financing by 5% year to year every year, and we have pledged to reduce our emissions
As a
bank, to 40,000 tons in the next years. So these are our pledges I would like to focus on today. And now, ladies and gentlemen, let's Zoom on financial performance and over to Bartek. Thank you very much, Madam President. Hello again.
It's a pleasure to present such Sound performance. At our bank, we have a bumpy quarter every now and then, and our Appetite is growing for breaking records. And I think the environment is conductive. Add to that verified Strategy, and it's definitely going to drive up our performance. So we have heard about the perspective, Strategic perspective, we know what's happening in 2 major areas, and I'm very happy that corporate financing is going up.
So It's a very robust quarter, probably not the last one. So together with Pietro Mazzaro, Head of Risk, let's Take stock of risk presents some figures. So net profit, I think everyone is asking the same question. How did you manage to break another record, which is Totally out of reach for our competitors. Well, we have significantly increased F and C And net interest income by PLN 172,000,000, and I'm going to tell you more about it in a minute.
In Q1 and Q2, we had one off events because we were working on settlements worth 130 €6,000,000 which is marked in red with the figure with minus because it did not happen in Q3. Well, the same goes Cost of risk and operating expenses slightly higher, but everything is kept in check. And slightly lower tax this quarter, our corporate income tax in Q2, we had adjusted Tax allowance. So combined altogether, our quarterly result What's up by 2%, so EUR 128,000,000. So other three slides are going to tell you more insight into our performance.
So Result on business activity, dynamics totally nearly 9% year to year. Such performance would not be possible. Please note that this Quarter had no one off events, so it's fair to say that it's a repeatable result without one off events Without the impact of higher interest rates, so it may be a repeatable baseline with Good market dynamics, and we'll be trying to get a major share of the market as usual, Plus, we have high interest rates. So net interest income, which underpins the performance of our Bank, we are rebuilding this performance in Q2. We have finally managed To turn around our performance in terms of net interest income and Figures are going up 3.5%.
Volume driven organic growth, There is no impact of higher interest rates yet. Max was talking about volumes, But net interest income has driven up F and C performance as well. So if you are listening to us, You are probably interested in suspectability Of the net interest income on F and C, and I would like to stress again, up by 90 Base points by 2022, EUR 1.2 €1,000,000,000 worth of net interest income, I think we'll be able to deliver this result Provided we'll be actively managing the balance, and we've been doing it since June, in line with Risk Management Principles, Piotr is nodding his head. And of course, Treasury overseen by Marching is also contributing to balance management to maximize the positive impact of higher interest rates on our performance. So we have very strong net interest income, and what makes us very happy is the Tractor, in every line, you see additional dynamics, monthly or annual dynamics.
You can't deliver such results on a single product. It's a combined effort of all very different areas and initiatives of the bank. So Digitization are remote channels. So this affects exchange, electronic payments, banking cards, Commission and charges plus loans. In each and every item, you have positive dynamics, And I'm sure we will follow-up on this performance.
So this is the voice of customer. We didn't change the price list. There is not a single record breaking transaction. I think this is a sign that our customers have appreciated the Quality of service offered by PKO Bank Polsky and their decision have driven up our performance To such high level year to year, up by 15% year to year and up by 8% quarter to quarter. So traditionally, the discipline was kept on the check.
We are all yielding to interest rate and wages Pressure in terms of depreciation, we are slightly under 1%, up by 6 Percent personal HR and payroll provisions for bonuses And awards, well, this is the natural after effect. We are performing Very well, what means that our staff has to have a share in our joint success. In terms of cost, In terms of cost income, with such performance up to 9 months, we have the lowest in Europe and probably In the world, cost to income ratio totaling 39%. So over to Pietro Mazzoro, The Head of Risk.
Good morning, ladies and gentlemen. I believe that the great value of the bank is that We are never a surprise to you. I also think that this is true for the risk area. We debated over Q1 and Q2 about what our future will look like. And I was warning you that we are going to go back to the Provisions level from before the pandemic.
Once we take a closer look at Default rates in all probability, these provisions could have been higher, but we'd understand the nature of the business. We understand that loan moratoriums We have actually allowed our clients to receive extra funds. The Financial Shield They had also contributed to the accrual. Now in full understanding how the portfolio works, we are very much aware that the situation may change over time, which is exactly why we are rather conservative in approaching risk. I had also been warning you that the performance for Q1 had also been associated with activities that we had taken Back in Q4 2020, I'm not the performance, the result would not be repeated.
And we are now making good on our promise now in anticipation of your questions because once if you take a look at this particular graph, you may assume that we are on a growth path. Q3 has been affected by a single time campaign That we introduced advised by our regulator, we shortened the And this is something that had affected our financial results. We intend to perform a similar action in Q4, so So the effect will be there. Nonetheless, that is not on the rise. Our portfolio is alive and well.
As the Risk Manager or Risk Director, I'm very, very happy to see how our customers are responding and how our retail and Corporate portfolios are performing. Now this slide definitely confirms what I said before. I would like to point out The portfolio is not deteriorating. The default loan portfolio has been closing, and it is very important that we had not Sold off any inoperable loans in Q3, we had also performed no non balance sheet off balance sheet write offs, Which means that our customers are really behaving very well and default loans are not on the line on the rise, excuse me. But we are obviously trying to hedge our A portfolio further, over Q2 or Q3, we are not going to be dissolving.
We decided not to dissolve Pandemic provisions and this decision seem to be have been correct. The pandemic is far from over. We still have many unfortunate developments ahead. We are well prepared. And as the person responsible for handling risk, I am responsible for dealing with what is going on will be happening in Q4 and next year.
So there is another thing I would like you to consider. I have received many questions concerning cash loans and their performance. I was asked whether this portfolio is healthy. You can see that the cost of risk has been dropping, which ultimately means that There is nothing to worry about here. I am truly happy to see how good we have been at managing our retail portfolio.
Next slide, please. And our equity position, PLN 16,000,000,000 is above the regulatory minimum. This is probably good for Bartek. Should we be a few billion less, our ROE would have been different. And this is exactly What our target is, we want to share our results with you.
And I hope that the year 2022 Will allow us to do just that, not least because our equity ratings have been excellent that we are keeping risk under control. We are definitely a bank that has remains in the lower risk related Exposure areas. We have also addressed our CHF loan related problems, And we have obviously launched a conciliation program. We have received 12 1,000,000 applications, we and 500 have been Excuse me, we have received more than 12,000 settlements motions for settlement, 500 of which have been resolved through mediation. Importantly, ever since May, we have been observing a regular Drop in the number of suits filed.
We are very happy to see that. When we entered the process, I believe that the clients were waiting for us to open up. This is something that we did. And the agreements, consolidation agreements are a much better solution for clients. Clients are not Required to cover any costs while provided with the option of being alleviated of their currency Exposure and transfer to PLN.
Most of these processes are handled automatically. And using the occasion, I would like To complement our financial supervision colleagues, I do not wish to conceal that over 30 years of my career, I had never seen the regulator to be as swift and efficient and effective in terms of IT solutions and working with clients. So I would like to commend the financial supervision authority. We are working with them very Closely in order for all our customers to be happy with what we are offering them. This is all that I wanted to talk about I wanted to And I'm optimistic about the future.
If I may, I'd like to offer a brief commentary with regard to the settlement or conciliation process. Well, it is going well. We are very happy with it. Nonetheless, it is noteworthy that other banks have taken are following our lead. We have definitely been a pioneer.
Nonetheless, other banks of the Polish Banking sector are also taking this particular part. This makes Just very happy because it is a promise that we, in all probability, be able to resolve a problem that has been Truly difficult for the entire Banking sector. Let me offer something of a summary in closing in order for you to remember. A record euros 3,700,000,000 profit after 9 months ROE of 12.1%. Now in order to offer a comparison, the 7%, 8% is the market average, and that definitely proves that our rates And rankings have been excellent.
Now we have also picked up in terms of our basic operations, tempo to 5%. We are very, very happy to have had our interest and net interest and commission related business. But obviously, we are happy with other areas of our business. We have also been received contribution from our Equity Group companies. That goes for leasing.
That goes for Investment Fund Societies. The cost effectiveness or cost to income rating is really great In comparison with the European and domestic market, risk has just been discussed by Piotr In detail, the risk is managed truly very well. The NPL rate of 4.5%. That is truly a very low rate and very few banks are performing better than we are. So that is definitely a tremendous result.
Last but not least, the very, very strong equity base, 17 point 8% of core Tier 1. We are also recognizing the high legal risk provisions, not to mention the conciliation process. Ladies and gentlemen, Q3 and its performance are a great springboard for Development for future excellent results, which is why we have announced our works on a new strategy That will definitely take into account all challenges faced by our bank, but also challenges to be faced by all institutions across the board. And I do hope that this strategy will bring about A very specific development tendency allowing us to boost and expand our position as a leader in the banking sector. It goes without saying that the challenges are huge.
Nonetheless, we have to bear in mind that challenges are there to face and translate into success and such is my wish for myself and my colleagues. Thank you very much. And now we shall welcome questions. We have already received a number of questions from our audience. If I may, I'm going to group them by topic.
Let's just start with questions concerning the CHF Portfolio and the conciliation or settlement process. The first question is, could you please provide us with greater detail with regard to the share Of the CHF portfolio taken up by the mediation applications, currently, PLN 2,000,000,000, that's more than 10 Percent of our portfolio, that is the share. We are slowly but surely reaching a share of 15% in terms of the mediation. Do you believe that the great interest growing interest rates May actually be conducive to some of our clients going to quarter. That is an excellent question, but let me reverse it.
I think that this may actually be conducive to some of our clients waiting with their decisions suspending it rather than going to court. I believe that is definitely proven by the fact that the number of other court cases have dropped. It goes without saying that when going to court, customers are facing the risk of being forced To return these funds, including the cost of financing, denominated in PLN, which is would definitely be disastrous. So I think that this could definitely cause a hiatus, if you will. If that if interest rates grow should interest rates grow by 1.5% or 2%, that is no blocker.
Nonetheless, should they grow further, that could definitely be present an issue and a problem. Is the bank engaging in any kind of active settlement or conciliation marketing campaign? No, we are not. Currently, we have approximately 1,000 we are receiving approximately 1,000 proposals per week. But to be fair, it was to be emphasized That we granted all loans to the letter of law, and clients have decided to choose such solutions.
Nonetheless, we table such proposal given the overall market situation and the reaction of our clients. Clients who are who feel that they have been harmed may definitely take advantage of the option. Nonetheless, we are not Actively encouraging our clients to do so. That is up to each and every client, case by case basis. And the final question concerning the settlement process.
Once the process kicked off, did the survey results have the survey results been confirmed? We have not organized another survey campaign. I would like to remind you that we were proceeding according to questionnaires or surveys we organized last year. We expected the process to reach 70% or 80% of the overall CHF loan packet. Well, as given the overall situation, including the interest rate growth, I would be inclined to say that the percentage of the share It's somewhat lower.
Thank you very much. Now let me move to other topics. We have a question concerning payroll salaries. Has PKO BP been observing a pressure on a wage pressure salary pressure? Have you encountered a higher Employee rotation.
Well, that is definitely a phenomenon present across the market. The inflation and payroll pressure, which definitely translates into employee behavior, we have definitely seen a single digit Increase in our HR costs, personal costs, Nonetheless, we intend to preserve our image of a preferred employer on the market, which means that our Employees have to be offered great packages. On the other hand, we also wish to remain attractive in terms of Being competitive and attracting best talent from the market, hence, we believe that the salary level has to be competitive. Let me emphasize that we are not we have not observed any major fluctuation or valuation rate. I think that we are still enjoying the reputation, the image of a solid and good employer.
And we are definitely working to become an even better employer and retaining the Our image is a good employer. I would like to point one other thing out. I would like to emphasize that since the fact that we have increased our Profitability rate by 5%. We can definitely stick to our costs, stick to our guns in terms of cost and employees. Nonetheless, yes, it is true.
We have reached approximately 3.5 percent of employee rotation. So but since the dynamic is as it is, we can afford that.
And another question, what is The suspectability of the bank to changes in bond interest, it's definitely a factor we are monitoring. But Because we have very strong capital base, the impact is slight. There are 2 basic transmission channels for the increased 1,200,000,000 of additional Net interest income by the end of 2022 makes us quite immune. But in terms of capital ratios, Which went up by 90 basis points, 100 basis points is the traditional measure of susceptibility used For measurement, so we assessed the susceptibility at 60 points. So own equity and capital are both included, but So the impact on of capital is slightly higher, but given Both items relate to EUR 40,000,000,000, so the impact is slight.
It Doesn't really change our capital position. What makes us look optimistically about our dividend Capabilities or business growth in the next period? And another question related to economic changes. Amid dynamic inflation, shifts in logistics, impact on GDP, can you share Your outlook on the cost of risk. I think PKO is well poised To embrace the risk, and this is best to illustrate it, sometimes you can compare Ranking or league tables of mortgage loans, who borrows money to an average Family earning a certain amount of zloties.
So our bank was not Topping those charts, we were on the ultimate position. Why? Because we had a good Insight into future developments on the market. We know that the risk is out there. It did not disappear despite Despite low interest rates, we were fully aware they may balloon, and we had always taken very conservative approach to Interest rates, I'm not afraid if they go up to 3% or 4% by 3% or 4%.
And a question about macro outlooks, Which is coming back, so we need to take a look at wider macroeconomic Trends. So an increase in disposable income over the past 2 or 3 years. And if you compare it To higher interest rates, not even the increase we see, but by additional 2 percentage points. So this will make the level of disposable income Comparable to the pre pandemic level, so we have Higher disposable income, but we also higher costs. So from this perspective, I don't think it should be an issue.
And another thing we can see in Enterprise sector, we have very high liquidity buffers. There is a lot of money in the corporate world. We hope they will be allocated. There are projects In the pipeline, so debts will be going down, and
I don't
think enterprises should be struggling in this respect. And something that We know from history, inflation enables some market players to increase margin. If competition allows, margins can go up slightly. So this improves profitability of enterprises. So macroeconomic factors are driving our optimistic outlooks Of the quality of portfolio or cost of risk, Well, to be fair, if there is a violent increase on the market, not all players are able to adapt Accordingly, so there will be companies that will vanish from the marketplace.
Some will be subject to restructuring. But globally, we don't see it as an issue. And another question regarding changes. So strong growth of deposit rate to 7% to pre pandemic level. Will it Impact interest rate on deposits.
And the question is, are you contemplating increasing interest rates on deposits? We will be re Acting to market developments accordingly, but for the time being, I don't think we have a pressure to increase prices or to Compete in the deposit segment. So probably, higher Interest will eventually increase deposits. We are monitoring liquidity. I don't think we have major challenges Phasing bags and so the increase will be moderate.
And questions about more Strategic issues, what dividend would the management find satisfactory in from 20 222023 is far too early to answer that question. We have very conductive Environment to state that we can pay the dividend again, but right now I can't give you a very specific figure. And two questions from foreign analysts and investors. Despite certain one off elements that had an impact on your performance, it seems that you are in fact Delivering and implementing all elements of your strategy for the next year. So what are your plans for the future?
Can we expect in the near future an update of midterm strategy? Well, like I've said before, very soon, we'll be focusing on development on a brand new Strategy, we won't be updating our strategy. It's going to be a brand new strategy embracing all factors brought about by the pandemic and developments on financial markets In economy, so we'll be communicating our objectives when strategy is completed. And another question Turning settlement. Some competitors are commencing or are contemplating Launching their own settlements on more attractive terms and conditions compared to methods offered by the Polish Financial Supervision Authority.
Will you be following suit? Well, we have decided Ask the Management Supervisory Board Gerritneral Meeting to launch Settlements on specific terms and conditions which are compliant to proposals made by the Financial Supervision Authority, and we have Not changed our mind. Of course, market situation in the future may encourage us to adjust its decision, but we don't see grounds to do that yet. And I think this was the final question because we've exhausted we've answered all of them. If so, thank you very much for today's meeting.
Should you have any more questions, Please do send them to us, to our Investor Relations