PEO.WAPEO.WA
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Unknown Executive: Good afternoon, ladies and gentlemen. Welcome at the presentation of the financial results of Pekao S.A. Group after 9 months. We have our CEO, Cezary Stypulkowski; Dagmara Wojnar, CFO; Marcin Jablczynski; and our Chief Economist, Ernest Pytlarczyk.
Cezary Stypulkowski: Good afternoon, ladies and gentlemen. We will briefly discuss our financial performance. And later, we are standing ready to take your questions. I just want to start with a disclaimer that we ask you to have some understanding about the upcoming transactions. We will have an opportunity to present a short wrap-up during the meeting of the general meeting of the shareholders. It's part of the agenda. Therefore, I do not want to have answers duplicated, but I'm not going to be very dogmatic just saying no. Well, what happened over the past 3 months? It was a good quarter. Our profit was up, and this data was released this morning. I think that the most important changes with our lending activity. It is true for the entire sector, but we do have a feeling that we were able to jump a bit higher in terms of market shares, especially on the corporate side. We uphold a strong capital position. The bank has been stable in this regard for many years. And what is critical for Pekao S.A. is improved digital penetration amongst our customer base, and this is happening as we speak. Perhaps the pace is not one of my dream, but we do see progress. The net profit that we reported is very robust. Now looking at the capital, it is also solid. You may say that it's very decent. And it would be really hard to say that it was excessive. Cost to income, I think that the bank is holding very well. We fully appreciate the fact that the banking sector is under the cost pressure. And this is mainly because of the BFG charges. The cost of risk is below our projections. and the growing loan portfolio. These are the basic metrics for the past quarter, and I may say for the year-to-date. And this is what we are really proud to say that we are growing at the 2-digit rate across all the strategic area. On one hand, this is cash loans where we are underrepresented, and micro financing where the bank was also somewhat standing aside, but wherever we had a strong position, which is like that, mid and SME financing, that's truly decent growth. And this is a nice picture. All the business lines have contributed to this good landscape that emerged after 9 months of the current year. And we are truly happy to see that eventually after years of stagnating fees and commissions, the bank was able to generate the growth of 9% during the current year. From the viewpoint of our prior communication 6 months ago when we presented our strategy, we are definitely scratching the horizon. Perhaps we haven't gone beyond the horizon yet. But the trajectory to target seems to be within reach of our capabilities and the current positioning of the bank. Well, this is not something that I'm going to discuss in great detail because this is probably not the information that is most critical to the analysts here. This is a range of our accomplishments for the past quarter. And I believe that the most important highlight is investment banking advisory and equities. We do want to have stronger positioning in that area. And there are some changes that in our solution to the corporate and sector and small enterprises likewise. And with regard to retail customer, we continue to improve onboarding process and facilitate the documentation processing. And to be honest, I was quite surprised with today's reading of Newsweek that shows that we are really charging ahead in terms of how we are being perceived as the retail bank, both in our real branches and the mobile offering. Mobile offering counts because we are the underdog. So we are catching up with the leaders. And we are acquiring active mobile banking customers, and we are selling more through that channel. We know that it is going to be the key element of our strategy. A number of important deals that we closed during the past year. I need to emphasize that we are the bond house in this market. That's our claim. We are #1. So the deal with European Investment Bank definitely should be highlighted. This is an important and demanding partner that's entering the Polish market with the financing in zlotys, and we were able to raise PLN 1 billion in that deal. So it is definitely a good idea to think about Pekao S.A. as the leader and corporate financing of various [ account ]. And now let me turn the floor to my colleague -- no, first, let me turn the floor to Ernest.
Ernest Pytlarczyk: Okay. We would like to make the accounting of our projections for the current year. Well, we were predicting 4% GDP, and it's going to be less most likely. But in terms of the diagnosis of the direction where our economy is heading to, I think that we stand right. We do see the recovery in the investments. As our CEO pointed out, the growing lending volumes are triggered by the investment plans that the corporations started to work on. And the other part of the story is consumption demand. The consumption was a black horse of this year. In Europe, consumption is picking up when the inflation is going down, especially when the cost inflation is going down because it gives more room to consumers. The time of tightening is over. It was 2024 when we had to tighten the belt. Now the consumer started to go shopping. The consumption is up this year. And another thing that is important to note, on the right-hand side, the environment. Macro environment is really doing poorly. Europe is slightly above the 0, and the Germans announced their data today, and they are straight at 0. So they are stagnating with their economy. So historically, our key driving force for the economy is weakened. Export. Export was actually doing less because of the situation of our trading partners and the strong zloty. But nevertheless, the economy is holding strong. It is growing. We expect 4% GDP next year. We expect a major accelerating in investments. It could be even called a boom. It would be, in a sense, the outcome of the recovery plan accumulating, and the interest rate cuts -- we believe that the interest cuts will continue. The inflation will be actually hovering over the target, and the inflation will stop being a problem across Europe. And that should translate into further adjustments by the National Bank of Poland. Consumption. We believe that should stand at 4%, and 2-digit growth of investments in certain quarters of the year, and that should fuel the lending volumes. So next year, we expect 2-digit growth in lending, especially in corporate loans. I believe that this is a fairly conducive environment for our banking business that will help offset and compensate the interest rate cuts. The interest rate probably will go down to 3.5%, perhaps a bit higher, but it's not going to be a zero percent interest rate environment. So in that environment, banks are going to do pretty well. That would be all from me. Thank you.
Dagmara Wojnar: Ladies and gentlemen, more details about numbers. Loans were up by 8% in total. And as we heard, all business lines contributed to that growth. Cash loans keep growing, and this is where we are selling mostly through the digital channel, remote channels, over 90%. Small and medium enterprise loans are going up too. And what happened last quarter, and it has continued, is growing loan volumes for large corporate customers, 19% up on a year-to-year basis. And I think that it's worth to note that we are strongly acquiring new customers, especially for mid and SME loans. The customer base growth was approximately 900 during Q3. Now moving on to the deposit side. The total deposit base was up by 6% year-on-year, and this is where we are also acquiring customers. We are acquiring a lot of young customers, under 26 years of age. And because of the attractive sales of our investment products, as you may see from that chart, investment funds were up by 30% year-on-year. And we opened up approximately 130,000 current accounts for young customers. These are retail customers. And 50% of these accounts were for people who are really young. Now looking at the net interest income. The net interest income was up by 8% year-on-year. Let me just say that we are facing the declining rates environment. And to the extent possible, we are trying to offset the interest rate cuts. We are, on one hand, growing the volumes. And at the same time, we are modifying our product mix, and we actively manage our deposit base. The interest margin was up 2 basis points. As I said, the volumes and the product structure and decreased cost of deposits contributed to that. We also mentioned that our NIM, in terms of sensitivity to interest rate cuts, is like 15 to 20 basis points down, so per 100 basis point cuts of interest rates. This slide, we have been showing consistently because it really illustrates our sensitivity to interest rate changes. Well, the actual sensitivity to interest rate cuts will be the end result of our capability to adjust the term deposit rates. Now commissions and fees. We were growing up by 9%. This is the third quarter in line when we were growing our fees and commissions by 2 digits nearly. And the major contribution comes to the capital market commissions. So this is asset management. This is brokerage services. We are also growing our margin on FX transactions, and this is mostly the outcome of the growing volume. And we do see the uptick in the fees and commissions on loans, as loan volumes are growing. Cost-to-income ratio of 34%. Here, we have signaled that taking into account the strategy and the place where the bank is now, we will have to face some expenditures in infrastructure, technological outlays. Hence, depreciation is growing slightly higher than personnel costs. OpEx and depreciation growth, 14.6%, and human resources, costs 4.8%. Cost of risk, maybe Marcin will address this.
Marcin Jablczynski: Thank you, Dagmara. As for cost of risk, as has been mentioned, that cost remains at a stable level. For 3 quarters this year, the number is very similar to what we recorded last year, and the level is below what we stated in our strategy. Just to remind you, it was 65 to 75 basis points. And this is the market level. We see in general in the market that cost of risk is relatively low, lower than what we saw before COVID pandemic. In particular, in retail section of the market with individual customers, there is just a small part of clients who faced difficulties in repaying the loans. And also, there are some parameters used for assessing credit losses. With adjustments to these parameters, we have those costs significantly lower. At the same time, in the corporate segment, the results are also below the levels to which we are aspiring, but close to the normalized levels. In previous quarters, they were slightly lower, but still below our assumptions. As for NPL, which on the one hand, shows the risk in our portfolio, but on the other hand, is one of the dividend calculation parameters. We see there has been nothing unusual happening recently. Things are rather dull and boring and quiet. So I will not comment on this further. Back to Dagmara.
Dagmara Wojnar: As for capital, we maintain a strong capital position with surplus both in C1 and total capital ratio. As for [ MLER ], we also have a surplus in meeting our requirements. We are going to be an active issuer in the upcoming periods as for [ MLER ]. To recap, increase in recurring net profit, 10% year-on-year. Reported profit, PLN 5.2 billion for 9 months of '25. This growth is achieved on the income side. On the one hand, we have greater volumes of both loans and deposits, 8% and 6%, respectively. We see a growth in interest/income plus fees and commissions. ROE at 21.5%. Cost-to-income ratio, 34.5%. So we are accelerating. We are pleased to see that loan volumes grow in second consecutive quarter. In the third quarter, they grew faster than in Q2. The CEO talked about -- Cezary talked about this. We are consolidating our market position in some parts of the market by increasing our market shares. Commissions, almost 10% for all the third quarter in a row. And all these elements contribute, on the one hand, to improving our credit offer and supporting our customers better and being a partner in the development. But also, on the other hand, we keep in mind -- building the value for our shareholders. Thank you.
Unknown Executive: Thank you very much for this presentation. We will open now the Q&A session.
Unknown Executive: There are 3 banks reporting the results today. Kamil?
Kamil Stolarski: Kamil Stolarski, Santander Bank Polska. Congratulations on cost to income and fees growth. And also congratulations on the growth in corporate loans. Among the banks that have so far reported the results, Santander [ and then bank ] only showed minimum growth here. And today, at the conference, [indiscernible] said while commenting the situation in the bank, said that the margins on corporate loans grew even down to 18 bps on individual deals. So how come Bank Pekao S.A. has this growth that is clearly greater than anywhere else? And is this 18 bps thing driven by Bank Pekao S.A.?
Cezary Stypulkowski: We will not comment on the numbers and margins so deeply. But I can say that we announced in our strategy that, first of all, following Ernest's advice, we said that market would become more dynamic. And we prepared for that with greater mobilization of the resources, with deeper penetration of customers. Bank, as you know, for a couple of years, was on standby, if I may call it so. And probably this broader approach to customer acquisition, not focusing on state-owned companies only resulted in a diversification of the range of clients and diversification of risk. Price does play a role. Of course, it is not just margins growth and volumes growth. No, that is not the case. But it seems that all in all, given that we had small downtick in net income quarter-to-quarter, not a major change, but that was affected. Also, margin was affected to some extent. This is not the only element. revaluation of the portfolio of government papers. There are some things happening at the same time. But I wouldn't be so quick to make such generalizations about margins. Colleagues in the market signal changes, but we had some low business cycle, and everybody has some dry powder to use. It's hard to say whether we are on the eve of a major war. It's hard to predict. I was even surprised that the bank, while it had a very strong capital position, and its competitors were under major pressure of loans, we failed, at least from my perspective, to capitalize on this advantage. Now to the extent to which we can expand the spectrum of our corporate penetration in the segment where we are simply good. We have good products. We have good personnel. And now we simply have to utilize those resources better. That is it from me. Maybe you want to add something?
Unknown Executive: I would say that, as Cezary highlighted, mobilization and the coordination of our sales, CRM and other activities, very active involvement of senior management, also some process-related changes. All these brought their effects. We see that the price pressure continues to be high. Competition is stiff. And if you look at stand-alone credit products, we can have some doubts. But if you look at the balance sheet of the bank in total, you see still some room for improvement. We try to keep our margins whenever the competitive situation forces us to do so, we react. But we are doing fine, and we look at comprehensively at the entire relationship with the customer.
Kamil Stolarski: And I also have a question about financing and mortgage loans. ING said that more than 10% of sales was mortgage financing, and mBank said that many more customers came to them for refinancing than left them to seek financing elsewhere. Is there any acceleration here? And what is the policy of your bank towards refinancing of the portfolio? And what ambitions do you have to collect the debt?
Unknown Executive: Indeed, we see that refinancing is becoming increasingly important. And we have seen some dissonance in recent years between sales of mortgage loans and sales of flats and housing. And this resulted from the fact that refinancing became more active in the market. We also see a certain growth here. However, as of now, the growth is not material yet. About half of the portfolio here are safe loans. So there is no motivation to seek refinancing. This is the phenomenon which we are following closely. It is not as pronounced here as in other banks yet. However, it is definitely something we will have to look at in the future because we see diverse attitudes of various banks, which are becoming very active in refinancing their own customers. We are more selective in our approach. We check whether so far the clients had just one mortgage loan, or whether they have a stronger relationship with us. And the phenomenon on the whole is much lower than in other banks.
Unknown Executive: Maybe I will make a more general comment. Given that we are at a stage of declining interest rates. We can, of course, expect strengthening of this phenomenon. But also from my experience elsewhere, I can say that there are some markets, especially those saturated markets, refinancing is actually the name of the game. And some banks may position themselves in such a way so as to aim at refinancing the existing loans, which are characterized by being proven to some extent. There are markets where a large part of that market is built on this type of product. And there is no such great supply of new money. The market is also more monopolized. This is not what we see here in this market. But also a lot of loans were sold at a fixed interest rate. So something will happen here, but we do not know yet what.
Unknown Executive: Any other questions from our audience in the room? Well, at any time, we can come back to your questions. Let me read the question that we got online. At the conference back in June, the bank claimed that 70,000 payment [ bands ] will be sold. What is the end result of that action?
Unknown Executive: To be honest, I'm worrying too, but I cannot answer this question. I think that we have to get back with the answer through a separate channel. We will do that.
Unknown Executive: Now let me combine a few questions. But we already explained the fact that we are actually reducing our sensitivity to interest rate cuts by 5 basis points. Why? What is the reason for that? And is there any competition in the deposit market? And what is our sensitivity to that in the declining interest rate environment?
Unknown Executive: Okay. We showed that our NIM is sensitive by 15, 20 basis points per 100 basis points interest rate cuts. Well, the actual was 15 basis points. This is a slight change. We speak about the range. During the past quarter, we increased slightly the share of assets with fixed rate, and that's about mortgage loans and bonds, direct securities. As far as deposits are concerned, since like 18 months, we have had very active management of the deposit side of our balance sheet. And as you could tell during the past quarterly presentations, the deposit side helps us offset the impact of the interest rate cuts. But the deeper the cuts, the less room we have to maneuver. And how NIM is going to land in the future, it all depends on how we are going to respond with the term deposits given the upcoming interest rate cuts.
Unknown Executive: So we have one more question about the numbers. Do we have any guidance for upcoming quarters regarding the cost of legal risk of Swiss franc-denominated mortgages?
Unknown Executive: So in terms of the cost of risk, let me start with the historical background. In April, we implemented yet another edition of the settlement program. The settlement program is progressing quite well. We targeted -- and we addressed the majority of the targeted population. We observed that in terms of the incoming lawsuits, we have more lawsuits that are about the lost mortgages. So we are tracking the parameters on an ongoing basis, and we will respond accordingly. Is it the end of the provisions? And is it the end of the Swiss franc mortgage story? I believe we haven't reached that point yet, and time will tell when this point in time -- when it comes.
Unknown Executive: We have another question. Please quantify the possible changes of site -- based on our performance. This is a simple arithmetic. So are we going to comment on that?
Unknown Executive: No, let's let people crunch the numbers. We will find out something about ourselves.
Unknown Executive: Okay. We got another question about PZU to Pekao transaction. Our CEO mentioned that on the 6th of November, we have General Meeting of Shareholders, and we do have an item of the agenda about this transaction, and it will be available on our Investor Relations website if you are not able to participate in the streaming. The question is when we expect legislation and the decisions on the Alior Bank? And what would be the exchange parity?
Unknown Executive: Well, as I said earlier, it is our intention to speak about the transaction to the General Shareholders' Meeting at great length. And therefore, I would rather refer you to the 6th of November. Let me just say that we have little control over the legislative process. We expect it to unfold duly. Hypothetically, I assume that it should come to a close by the end of this year. And following this assumption and given the structure of the transaction that has been presented in the term sheet, I believe that Q3 is also a good timeline for closing. In terms of the exchange ratio, it's premature to answer this question.
Unknown Executive: Any other questions from the room?
Andrzej Powierza: Andrzej Powierza, Citi. I have a question about the cost structure and specifically personnel cost structure. Is it possible to estimate roughly what percentage costs are attributed to the IT personnel?
Unknown Executive: I don't think that I have such data breakdown at hand. Perhaps we will come back to you offline with this piece of information.
Unknown Executive: There are a handful of technical questions. I will address them on a one-on-one basis. Thank you so much for your attention. As we said on the 6th of November, we have General Shareholders' Meeting. We don't have the date for the publication of the annual report. Normally, it happens in February. But obviously, our Management Board will be available to you during upcoming investors conferences. Thank you so much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]