Good afternoon, ladies and gentlemen. Let me welcome you at the follow-up call after presentation of Q3 2023 results of PKO BP. We have strong team with two board members, our CFO, Marcin Eckert, and Piotr Mazur, our Chief Risk Officer, Jakub Niesłuchowski, Head of Finance Division, Piotr Bujak, Chief Macroeconomist, and our IR team, Joanna Wilk, Dorota Pszczółkowska . My name is Dariusz Choryło , I'm Head of IR. As usual, we propose to go straight to the Q&A session, as the presentation was delivered in the morning, and I believe you had an opportunity to get familiar with it. So please, we are ready for the questions. I see Michał Konarski as the first one. Michał, we are ready for your question.
Yes. Hi, hi, Michał Konarski from mBank. Thank you for taking my questions. And first of all, congratulations on the really exceptionally good results. And actually, I was wondering if you could give us some update maybe on net interest margin sensitivity, how it presents now, and maybe just few words about cost of risk outlook, maybe for the Q4 as well, because it's usually seasonally weaker. However, we see that the trends are really good this year, and maybe there won't be any seasonality in the Q4 . But also I would like to hear anything if you can add on 2024. Thank you so much.
So, I would like to propose that the first answer would relate to cost of risk, and I will pass the voice to Piotr, and then Jakub would follow up on net margin. All right? So please, go on.
Okay. As we presented during the today morning presentation, we see still good positive trend in relation to the portfolio quality, the new sales. The NPS level is on the, you know, the maximum low level. I agree that the Q3 , the, you know, the time that you, I would say, review the portfolio, you have to agree with the auditor, but I don't expect, you know, any material increase in the quarter four. It could be, you know, maybe some 10-20% higher or lower, but still portfolio behave very good, and the outlook for 2024 is still positive. We was worried about, you know, our SME segment. However, they perform, I would say, excellent.
And I'm very surprised how they behave in this, you know, macro situation and with this, high interest rate, you know, situation.
Right. So, so then, hello, good afternoon. I will comment about NIM, and so, and sensitivity. So, so the question about it. So on the one hand, as you know, we were able to increase our NIM in this quarter by 6 basis points. And the main drivers was that the revenue on the asset sides grow faster than the cost of financing, and here is actually lower cost of hedging, one of the major points impacting better margin. And looking on the sensitivity point of view, as you can also read in our financial statement, it increased. Now it's about PLN 1 billion for a static balance sheet. That's important, static balance sheet for the move of 100 basis points.
The main reason of increase, because it was increased about PLN 200 million, was short-term period or for pricing for a bond portfolio, and it was major position, why the sensitivity in this third, on the end of the Q3 was higher. Also, what you can observe on our balance sheet, we got the situation that the term deposits dropped and increased current deposits. It also actually then increased sensitivity on our side, on the asset side. Looking at the liability side is more stable then. Also hedging, so shorter pricing of hedging. So these are the main points actually which impacted an increase of sensitivity.
But on the other hand, you have to remember that looking forward, of course, again, what is not captured by this measure, which we present, is that in the next quarters, we again will be supported by decreasing cost of hedging on the one hand, and also we'll be supported by maturing of part of our bond portfolio and replacing with portfolio at higher yields. And also, what is kind of a shield again is growing fixed initial fixed income mortgages, which now is at the level of 23% of the mortgage book already. And the increase will actually continue due to the fact that the program, Safe Mortgage Loan 2%, is based on this initial five-year...
fixed, fixed rate, and this is actually predominant part of our current sale of mortgages.
Just maybe one quick follow-up question. Is it possible still that given your guidance the net interest margin in the Q4 could be flattish? I mean, plus flattish, or should we expect actually after 100 bps rate cut some drop in net interest margin in the Q4 ?
I would say it's a chance that it will be plus flattish or I would say flattish, but of course, it will depend on how our deposit base will behave. Although we actually took steps on our side, and we modified our offer just to follow the cut of interest rates. And here what also should play a role is again decreasing cost of hedging. So this I would say another point here which should support our NIM. But here again, it will depend how we'll be able and our customer will behave in terms of predominantly retail deposit base, right?
Because we decreased the share of term deposits will also support us just to actually not to increase so much the cost of the deposit base.
Okay, thank you so much for answers.
Lukasz, please.
Yes. Hi, good afternoon. Thank you very much for the call. Just maybe one question on the Swiss franc mortgage portfolio and current level of provisioning. The question is how we should look at the current level of provisioning, whether do you think this is fully sufficient to cover the risk also for the, let's say, 2020 to 2024? And in which scenario you would be somehow forced to increase the provisioning substantially? I am not talking about like PLN 500 million or like couple of billion PLN. What, what scenario would require this kind of additional movement? Thank you.
Piotr? Piotr, you are muted.
Yes, sorry. I would say that on the quarter three, the provisioning is correct. It doesn't mean that it's in line with our model. Today, it's too short time, you know, to make a prediction how it will behave on the end of the year. The number of court proceedings, I would say looks as we expected. It's a little bit higher, but we predict this in our model. We think that maybe there will be need some recalibration in December, but I don't think so, that it will be material amounts related to the amounts which we provided in the quarter two. What should be happened to provide material provisioning for this line?
I would say, for sure, if there will be material change in the, I would say, legal assessment of our situation. Today, we see rather a positive trend in this situation, so we don't expect that it will be required.
Okay. Thank you very much.
Jovan?
Yes. Yes, sorry. Thank you. Thank you for, for possibility to ask question. I have a follow-up on margin. I think Bloomberg quoted a CFO saying that net interest margin 2024 should be at the level of Q3. Can you just confirm it? Because I think it will be substantially positive, right?
Yes. I can confirm during the presentation of our results for Q3, I've been asked by Bloomberg's rep-
Mm-hmm
... representative, and we do believe that, taking into account the adjustments and the measurements on our side, we are going to apply towards our balance sheet. We believe that the NIM for 2024 should be comparable to the levels we do have on the Q3 .
Okay. Thanks. And if I may, another one. You have approached again KNF with the dividend proposal, right?
Yes. Approximately two weeks ago, we've heard from the official statement from Santander Bank Polska that they've been allowed-
Yeah
... to pay the dividend for 2022. Since we do believe we have a comparable situation to Santander-
Okay
... the day after the announcement, we have contacted KNF, and also we provided KNF with our official request to revise the initial decision about 2022. And we are following contacts with them, and we hope to receive the answer during 2023, with a positive outcome for making the payment of the dividend or advanced dividend payment. We are allowed to pay based on the decision of the general shareholders meeting for 2022 in the form of advanced payments amounting to up to the level of PLN 1.6 billion. So this is our expectation to actually be able to pay the dividend for 2022.
Can you repeat? The decision is expected when?
They don't have an official, let's say, official deadline for providing us with the decision, but we hope to receive this decision by the end of this year.
Okay. So then, okay.
At the latest, I would say, you know.
Okay, thank you very much.
Gabor?
Yes, hi. A short question from me, please. I, I saw some indications about the Swiss franc provisions receiving tax deductibility potentially. Can you expand on that a bit?
Jakub, maybe you can take this question.
Sorry, can you clarify your question? Yes.
Tax deductibility-
Yes, actually
... of the Swiss franc provisions.
Yeah. So right now, the provisions are obviously not tax deductible, and I saw some public discussion, which I think one of your peers quoted as well, that the provisions will become tax deductible. Any views or updates on that?
So, actually, we do not have any, for now, tangible update on it. And if it will come into force, or become reality, we don't know. So currently, we do not expect or assume, taking into account planning for the next year, that we will have this tax deductibility.
Okay, thank you. And another one is just a follow-up on the margins, that you talked about the cost of hedging. But I think the latest indication was that you expect a PLN 400 million lower cost in the second half relative to the first half. Is this still the case? And would you have an indication for how you expect the cost of hedging to develop next year? Thank you.
So, actually, yeah, yes, we can expect, I would say, when we compare the second half to the first half at that level. So, as I comment for the Q4 , again, will support actually increase of net interest income and also net interest margin. And, for now, I can comment that for 2024, again, it will be substantial, I would say, or decrease in cost of hedging in 2024, which will support our NIM. And as Marcin said, that's why it's one of the factors which will allow us to keep the margin in 2024.
Very clear. Thank you.
Veronica, please.
Yes. Hi, I'd like to ask a follow-up question on the comment regarding the NIM and it being at similar levels in 2024 as through Q 2023. Just kind of to explain what the main drivers behind that is, given the sensitivity that you just provided, of a to a 100 basis points rate cut. Also, kind of on top of that, what do you see therefore as a sustainable margin level in a normalized 4% rate environment?
As I mentioned before, one of the factors which will support the NIM in 2024 will be a lower cost of hedging. That's the one point. That's the one point. Second point is adjustment of deposit cost of deposit base. We already made steps on our side to do it, and we also will do it in the next months or quarters. It will depend on the interest rates on the market, on the one hand. On the other hand, I also mentioned that part of the portfolio of fixed income instruments will also mature, and they will be replaced with higher rates. That's. It's another factor which will support actually our NIM. Third point is natural hedging resulting from fixed initial fixed income mortgages.
So it will support NIM in a falling rates environment. So that's, I would say that is another element which will support NIM going forward. So here, I mean 2024. And of course, what we also expect for the next year, that we will have an encounter some development of volumes, which means that the liquidity which we have will be utilized for also more for loans than for securities. That is another, I would say, element which should translate and support NIM in 2024. As you can see in our macro...
Forecast for the next year, which—this information you can find in the presentation—we assume, at least for now, around 7% increase of the loan book for the sector for the next year. So and we of course want to take our share, and we are here rather optimistic, taking into account that this year was also these nine months were very good when we talk about and look on our market shares. When we increase our market shares, both on the corporate side and also retail side. So that's my answer to the question concerning the factors impacting NIM and supporting NIM actually in 2024.
The second question concerning normalized NIM, you pointed out 4%, something like that? If I understand.
Yes, exactly.
So, I do not have, I would say right away question answer, sorry, for your question. So, we'll look at it. So we would rather look on our NIM based on our macro projections and our current situation.
Thank you for that. And also just following up from your macro assumptions then, from the presentation, you say that you expect loan growth at 7% for the sector in 2024, and some of your peers expect something much lower than that, around 2%-3%. What is driving this difference, do you think, between PKO's higher loan growth view for the sector?
Piotr, maybe you take this-
Sure.
-this question.
Yes, I will cover this. Piotr Bujak, Chief Economist at PKO. We, first of all, we had somewhat lower interest rate level assumed for the next year. It was based on the assumption that we will have political status quo, and we have somewhat different political situations, some new challenges regarding fiscal policy. It seems that the Polish NBP may become somewhat more hawkish than we assumed earlier. Now we tentatively assume that interest rate path will be maybe 100 basis points higher than than assumed earlier. So we will probably revise down our predictions regarding volumes growth to maybe mid-single-digit level, 4 or 5% for total loans growth.
With no revision for corporate loan book and stronger downward revision for PLN mortgagors and maybe to a smaller extent for consumer loans. What else may explain the difference? Maybe we are a bit more constructive on economic growth than our competitors, other large banks in Poland. As far as I know, our prediction for economic growth is somewhat higher for the next year than the consensus. So this also may explain the difference.
Perfect. Thank you. I just have one last question, if that's okay. Your cost of risk is trending well below your strategy for 2025, the range 70-90 basis points. So would you say that this range is conservative, or is there any expectation that provisioning will trend up to that level by 2025?
I would say that, you know, our provisioning level in our strategy, this is long-term prediction. So, because portfolio is, I would say, in a good shape, we observe so low provisioning level, we will think about revise our parameters in our strategy. Today, we didn't make decision like this, however, I see space for some reduction in this line.
Perfect. Thank you so much.
Mihail?
Good day. Thank you very much for the opportunity to ask a question, and congratulations on the results. My first two questions on the Swiss mortgages. So on page 20 of the presentation, you disclosed that 55,000 motions were submitted and represents 54% of entitled CHF customers. So first question, this number includes also the customers who already repaid their Swiss mortgages? And then second question here is, what is the overall participation rate of the Swiss mortgage customers, either in settlements or in the mediations? Basically, the question is, is there a big overlap between the mediations and those who applied to courts? And then also a small clarification question on the mortgage holidays. So from the accounting perspective, what would trigger the-...
Necessary reflection of that in the accounting statements, so the cost related to this holidays? What would be already the? When, from the accounting perspective, that will be necessary? Thank you.
Maybe I will answer the questions related to the slide 20. The number doesn't include the loan what was already repaid. However, the number of court proceedings from this portfolio is very, very low. So today we have, of course, in our provisioning model, that some customers will go to the court. However, the number is relatively low. In relation, you know, what is the percentage of the court proceedings and the voluntary settlements as is presented on the slide, in quarter three, we had about 3,000 new court proceedings, and in the same time, we had as well about 3,000 the new voluntary settlements. So it's... today, it's, I would say, the very close numbers.
So with respect to the credit holidays, I would say this is quite difficult to predict the final outcome, because, as you know, the government most likely would change in Poland due to the recent election process. We've seen the draft of the new regulation related to credit holidays for 2024 been published this week with some assumptions resulting in the forfeit installments and extension of those holidays for one year. Our previous... And we are currently, let's say, evaluating the outcome of this for our bank.
The previous research and calculations we've made was amounting to approximately PLN 1.3 billion as an impact for 2024, depending when exactly these credit holidays would be announced. Based on the assumption that it would be comparable to the last year regulations, we would have to recognize them in the moment once this law would be passed by the Polish parliament and would be signed by the Polish president, which probably would not happen in 2023. But we don't know.
We simply don't know, because the first session of the new parliament would happen on next Monday, and then the parliament would establish themselves, and probably will take some time to normal, to start to normal work on this type of the laws to be adopted by the government. But we don't know whether this would be supported by the new government. So assuming that this new law would be passed, probably the outcome can happen or can be recognized most likely in the Q1 of 2024, but it is not decided yet, and in my opinion, the chances are 50/50, whether this would be introduced or not. So depending on the situation, obviously, we would recognize this on our balance sheet and would provision appropriately.
Thank you very much. Just a small clarification question on the first one, on the Swiss mortgages. So just what is the overlap ratio between the customers who gave some lawsuits, had lawsuits, and also those who submitted motions? Is there overlap at all between these two groups of 28,000 people and 55,000 people, or it's minimal?
I think the current situation is that there is not such an overlap at all, because all of the people are concluding the voluntary agreements with us or go to the court. So I would say this is not the-
Okay
... the real situation. We've been asked during the presentation today about the situation when someone has concluded the voluntary settlements with the bank and then came back with complaints that this voluntary settlement was not appropriate for this. And we just have one example of such a client for 34,000 voluntary settlements concluded. So I would say that there is not such an overlap because people choose to go to the court or conclude the voluntary settlements or do nothing. So there are three groups of people.
Okay. Okay, thank you very much. Thank you.
Alan?
Oh, hi. Thanks for the call this afternoon. On, do you have any visibility on operating costs for 2024? I mean, clearly, you know, you're running up nearly 20%, nine months, ex regulatory costs, and I think your view of average inflation is about 11% for this year. So, I mean, is that sort of 11% a base at which we should be thinking for next year's operating expenses? I mean, you keep saying that, you know, the main driver of operating expenses is inflation, and presumably it's inflation towards the end of 2023 for 2024. So, is that right, or do you think you've got some, you know, better opportunities to make efficiencies, you know, from increased digitalization and so on, next year?
That was the first question. And the second question, and clearly, I think you're, you're telling us that from a macro perspective, the, the figures that you've put in for banking sector growth, are somewhat too high, and you're going to revise them down. And then at the same time, you're saying that part of your, your flat NIM guidance for 2024, is related to volume growth. So can you give us an idea of what sort of volume growth you've baked in to your view of, of stable NIM for next year? And actually, if the volume growth is not up at the sort of 7% level, does that mean your net interest margin is actually gonna come down a bit?
I mean, clearly, you know, I can see, I know it's only a macro forecast, but you've got, I think, you know, 14% loan growth in mortgages, and yet, I think the envelope for the subsidized mortgages is almost being used up. So, you know, there's clearly uncertainty on the retail side in terms of what demand's gonna look like. So can you give us an idea of how important volume growth is to keep your NIM stable? Because clearly, you're an outlier versus the market, even outside of hedging. So I'd be interested in your view on that as well. Thank you.
Yeah. Could you take this question?
Yeah. So, looking on the first question, we are now in the planning process for 2024. However, also take into account that we are in the middle, or maybe not even in the middle of realization of our strategy, which requires actually some additional spendings on our side, as we decided to carry on pretty extensive number of large number of strategic initiatives to address all the pillars of our strategy. And next year, we do not expect, because we'll be still in the middle of optimization. It will come in the next years, as we all assume, actually, as a result of at least part of our initiatives.
So I would say preliminarily that we expect some double-digit growth next year. But the scale, it's still actually in the planning process on our side. Just to-
Mm-hmm
... to please take it into account. Concerning volumes versus... because one important thing here is that what Piotr said, that the revision actually results from the fact that we expect now higher interest rates than we actually expected yesterday, let's put it this way, after the decision of our monetary council. So on the one hand, taking into account that we can expect some lower volumes on our side, but now we expect higher interest rates for the next year, which will support the NIM. So I would say from this perspective, it will at least be neutral, not saying positive.
Because important remark that we commented and about NIM, with the assumption that our reference rate at the end of 2024 will be at the level 4-4.5. Now, preliminary, and here, Piotr can also... We can also comment, we have grounds to expect higher interest rates than this 4-4.5 at the end of 2024, but as on the other hand, a lower volumes. So-
Exactly. So NIM will be higher. NIM will be higher, NII should be stable or maybe be even higher, because the positive impact of higher rates than previously assumed may be stronger than negative impact on volumes growth. But we are still, you know, analyzing the situation, so-
Okay
... I think the best assumption at the moment is that NII will stay broadly unchanged. The same as was expected earlier. That's my take on this from macro perspective. All right. Thank you very much.
Gabor, Mihael, do you have additional questions or you still keep your hand raised?
Sorry, I don't. Thank you very much.
Okay. Marta, please.
Yes, hello. Can I just ask,
Marta, if you could speak up, we hardly hear you.
Sure. Is that better? Hello. Can I just ask about the level of dividend out of 2024 that the management would feel kind of comfortable with? You mentioned that 100% dividend payout would be already possibly potential from 2023. So what would be the level that you would feel comfortable?
... Yeah, I would say that we were always thought about ourselves as a dividend company, and we do believe that having the ability to pay the 100% of the net net incomes for the given year in the form of dividend would still remain our approach towards this this opportunity towards the investors. Obviously, everything would depends on the dividend policy announced by KNF for 2023 going onwards, and our individual decision for or received by KNF. So we are. I would say that we would be happy to pay probably between 75% to up to 100, depending on the situation, but this should be taken into account, the eventual decision of KNF.
So this range is the range we would thought about the opportunity to make this type of payment for this year.
If I may add, I would say two points here. One point, we still haven't received any updated MREL levels for the next year, which also may next to dividend policy determine in some way payout ratio on the one hand. On the other hand, please remember that, most probably January 1, 2025, CRR3 will come into force and may have impact on our capital requirements. This also will be another, I would say, important factor, which will then determine the management board decision and recommendation concerning payout of dividends.
Okay, perfect. Thank you. And, another question is to Piotr on cost of risk, if I may. I mean, I remember that you used to say that the cost of risk is kind of counters. If the economy is good, then you make more provisioning for the bad times. So I just wonder if that apply for next year, or you still hold to your kind of more buoyant guidance on cost of risk?
Sorry, sorry, could you repeat? I didn't capture.
Sure.
Yeah.
I mean, you always been saying that, when the times are good, it's better to-
Yeah
... to do more provisioning for the worse times, kind of,
Yeah
Says. So I wonder if that apply to next year, or this is still not valid?
I would say that, you know, as I mentioned during the presentation, that our provisioning cover is very, very high. So we provide enough provisioning for the good and bad, and even very bad times. So, we are on the safe side.
Mm. Okay, perfect. Thank you very much.
Do we have any additional questions? Or should I assume that you want to ask another one? Oh, Michał, please.
Yes. Hi. Maybe one more question from me, actually also relating to a bit of cost of risk. Should we expect anything more in terms of the provisioning related to Ukraine? How the things are going over there? Do you have to, you know, put any CapEx over there to rebuild branches? How it's going? Thank you.
Yeah. I would say that in relation to the credit provisioning, we are very, I would say, surprised, positively surprised, how the portfolio behave. I had, you know, the meeting last week with the management board from Ukraine, and I expected, you know, that the customer situation will be worse, but today we see that there is more payment from the customer, and they have provisioning release. So the situation looks very, very good, and I am really surprised how they behave. We had some losses in relation to the infrastructure, but you know, the amount is immaterial from the KredoBank perspective. So from our perspective, it's really completely immaterial.
All right. And maybe one more question from me, actually, regarding M&A. Maybe if you could give us some kind of color why you resigned from Bank Pocztowy takeover. Is it just... I don't know, you are not looking for any M&A targets overall, or it just didn't work out? Any color would be great. Thank you.
So with Pocztowy, we have announced the situation that we have stopped our due diligence process and, let's say, finished the process in total. As you know, we are minority shareholder in Pocztowy already, coming from many years, you know, such a minor shareholder there. I would say that the main reason was that we were not able to establish the final, let's say, conditions for this transaction, take into account the overall better-off situation of Bank Pocztowy, between the moment we have started the process and the moment we have concluded this process. And this is, this was the main reason why we have stepped out from this transaction.
With other M&As, as our CEO said, we are always looking for all the opportunities available, and we do have analysis on what is suitable for the group as such. This, we are not talking only about the bank sector, but also financial sector institutions like leasing and factoring companies. But, we will announce further steps in this respect once there will be something to be announced, right? So we do not comment in details what are our plans with this respect.
Okay, so maybe one more follow-up question from me. So if there is no conclusion in terms of acquisition of remaining stake in Bank Pocztowy, do you consider actually, you know, like disposing what you've got currently? Or-
Our current-
What's the future of this stake? Yeah.
Our current agreement with Poczta Polska allows us to, let's say, go together with Poczta once they would decide to sell this asset to someone else. So depending on the outcome of and the decisions of the major shareholder in Bank Pocztowy, we can make up the decision to go with them and sell our stake as well. But as far as I know, there is not such a decision yet.
Can you put it on the stock exchange, for example, just list?
I'm not sure whether this, these are the current plans of the major shareholder, and I don't think we are in a position to actually evaluate this, this opportunity for them. So-
Thank you so much.
Do we have any additional questions? If not, thank you for participating, and I hope to see you next time. Thank you.
Thank you very much.
Thank you very much.
We hope to see-
Thank you very much.
... see you all next time in the next quarter.
Bye-bye
... with the very good results of PKO Bank Polski. All the best.
Thank you. Bye. Thank you. Bye-bye.
Thank you.
Bye.
Marek? Marek?