Alior Bank S.A. (ALR) Earnings Call Transcript & Summary

[Interpreted] Good morning. My name is Dominik Prokop, I'm responsible for Investor Relations at Alior Bank. Welcome at the presentation of the Alior Bank's results for 2021. Due to the pandemic, we continue to hold online meetings. I am very pleased to introduce our management Board that will deliver the presentation during the first part of our meeting. And then we'll take your questions. Mr. Grzegorz Olszewski, our CEO; Mr. Gibala, our CFO; and Mr. Brzozowski, our CRO. And let me turn the floor to the CEO.

Good morning. Today, we meet to summarize our financial performance for 2021. Dominik has already said that Radomir Gibala responsible for finances, and Maciej Brzozowski responsible for risks are with us. Today, we are going to discuss the main highlights of 2021, and we would offer some comments regarding the outlook for the coming quarters. Given the current macroeconomic situation, let me say that Alior Bank has no exposure towards east, therefore, as of today, we are not identifying any risks that may substantially affect our operations, specifically our lending portfolio. I will revisit the question of the situation beyond the Eastern border later during the presentation. And now in 2021, the revenue amounted to PLN 3,640 billion. Q4 was PLN 935 million. And I would like to draw attention to our commission and fees that has improved compared to the previous years. And that is important, given the fact that the interest rates were in the downturn, so this is what we want to work on. Our interest income improved in Q4 as a result of the interest rate hikes, and we continue to see the positive impact of the net interest rate hike. So though not to the same extent as was the case with the first hikes. Now moving back to Q4, nearly PLN 100 million of profit, PLN 182 million adjusted net profit, excellent performance shown by Alior Bank. In terms of one-offs, there are some things that actually get us all prepared for 2022. We made the decisions to establish additional provisions for the legal risk related to mortgages and also for our Romanian operations, we will discuss that later, and we also took care of the commissions that are related to the -- other provisions that are related to European Court of Justice ruling. Now key indicators. 2021 was a growing year. Our assets were up to PLN 83 million. Our lending portfolio was up and the same happens with deposits. We see the first results of the interest rate hikes. Customers are actually paying attention to the fact that interest rates on saving accounts has been up. And deposits are going up. For now, the loans will become the challenge because the credit worthiness of the customers will be depleted, but nevertheless we will work towards building up our loan volumes. Now when you look at NPL, 11.75%, down by 2.71%. That's an excellent result, portfolio optimization -- loan portfolio optimization with a growing volume sets us on a very good path of the future. One of our key jobs now is to optimize NPL. So that and the deteriorating macroeconomic environment, the bank is well prepared [indiscernible] with the higher interest rates with possibly higher unemployment rates. This year, we also made some optimization and business customer area and that should also have a positive impact on our overall performance. Now I want to draw your attention to cost to income, 43.5%, one of the best results across banking center in Poland. Alior is, in a sense, a lightweight bank in that sense, but we add a technology driven. And as a result, we are less giving into the cost pressure. We do acknowledge the cost pressure pervasive in the market, and we will continue to invest to make sure that we are able to keep cost income ratio at the low level in the future. We want to be the lightweight digital bank that will continue to optimize its cost base, for Q4 was also very low and it stayed low throughout 2021. These are very good results for the bank. If you take overall picture like risks, costs, return on capital and the return on equity, this is a very good picture. We see the bank that has capacity to generate very good value for the shareholders. And that's what we intend to continue looking forward into the future. The bank continues to work on our offering and our approach in the ESG area. We do recognize challenges, but we also recognize opportunities, and we keep thinking how to monetize that although we do it in the consumer finance area, where we've provided some financing for. Well, we are part of this process. So we are selling loans. So that's also the way to generate additional value for shareholders. So people are -- human aspect is also important. We do have responsibility for our people, for our employees, and monetization is also one of the key imperatives for us. We believe that monetization within ESG will be a topic that will become more and more discussed. So how to build bank that is environment friendly. When it comes to the ESG area, Alior is well set. We are a paperless bank. If you look at our banking outlets, you can tell that we stand out in the market. So we don't need papers to sign the documents. And therefore, we reduced paper consumption. In the back office, we use authentic signature and that helps reduce costs. So these solutions really help us keep the cost base under control. We will continue to strive to -- they call the efforts to remain on the paperless side and continue to use digital and electronic solutions. We are well prepared for that. We offer products in the environmental protection area. We also recognize the trend, but our customers are more and more interested in sustainable development and environmental protection, but also work-life balance, so human aspects. So how to help our customers better manage their finances. At the time when they are over [indiscernible] with the numerous apps and all the bus out there, so what they feel safe using their banking apps. We also support our employees. We offer sport sections to join, and we also offer mental support, especially during the pandemic time. But we believe that it's going to stay with us for a long time. Now key products, 2021 show the growth of the mortgage loans. It's not only record high year for the entire market. It was also a record high growth of the mortgage volumes in the Alior Bank. So this is something that we are going to focus over the next few months. We have nearly 3% market share, but our ambitions go way beyond that. And in the retail bank, we want to make sure that we are ground there. And if you look at the cash loans and mortgage loans, we want to keep them in balance because that will help us better manage the risk. You may not be a strong universal bank that is able to thrive in the low interest rate environment and high interest rate environment, likewise. So mortgages are the products that perform best in Poland, and we are able to develop best relationship based on the mortgages. Therefore, in quarters to come, that will be one of the key products in the retail area. Starting from yesterday, we have a new product offering available in Warsaw and the neighboring areas. We are going very aggressively about the urban market. We do appreciate the fact that the interest rate hikes, curved creditworthiness of the customers, and that will affect residents of the large urban agglomerations. We understand that. So far, we've been present beyond major agglomerations, but now we want to build our portfolio in big cities with good scoring. So that's the target for this year, despite the fact that the macroeconomic situation is not very conducive. Cash flows, our share is over 11%, and we keep improving the quality of cash loans portfolio. And it's not only about the existing portfolio, but we tend to optimize and we sell out the nonperforming loans, but in addition to that we are optimizing the sales efforts to make sure that the quality of the portfolio keeps growing. That's truly important. So NPL has improved, but it is our goal to reduce NPL to prepare the bank for the more difficult times, but maybe on the horizon. So we will continue investments in automation processes in the lending area, also relationship-based banking and the lending to our own customer base. However, we will also develop our acquisition, and we will build the volume. Without all those things, we are not able to take a leadership position in this market segment if you are not reaching out to customers beyond your customer base. But together with customer finance and installment high purchases, we want to take advantage of the capacity that we are having right now. Well, I've already mentioned consumer finance. This is an important area of our business. We are a true leader in the market. This is a huge success of the Alior Bank, the number of customers, new customers that we were able to attract as a result of the customer finance. It is something that we value. It is important you want to keep it in place. We see the cost of the loans is getting higher for the customers because of the interest rate hikes. But Alior has the best process, and in the sales outlets where customers are actually using consumer finance loans show trust and confidence in us. Not only our partners, but also end customers. So we believe that we'll be able to keep our position strong despite of competitors that are emerging. We do have a stable position in this segment. Relationship with customers. I've already mentioned, but to build lasting relationship with customers is all about good quality loan portfolio, and it's also about good results and the commission and fees areas and you need to be also mindful of the interest rate hikes impact on our customers. To look, both customers that have regular job contracts or run their own businesses. Personal account, current account, Konto Jakze Osobiste, offers a number of advantages that are well appreciated by the customers. Now Polish people went out on vacation in Winter. Now motorway or highway payment application and application that helps them pay for tickets will be definitely appreciated. So we understand that we need to personalize the application. We need to take advantage of DAS. And -- if we don't develop that, it will be really hard to offer friendly and attractive mobile ad that would attract customers. Therefore, we are going to push for the growth in the digital channels. In 2021, we were up by 20%. The number of transfers made with the app has been growing. And that actually provides the evidence, but we do have conversions from the customers from traditional banking to mobile banking. And we do have more and more BLIKs. The new project on BLIK, this is one of the bigger projects implemented together. We run it together even with the competitors. It proved to be very effective, great success, and great element of the e-commerce extremely popular here. And it has a chance actually to replace plastic cards. And definitely, I believe this may happen. Proximity BLIK will start -- be used for the mobile payments. The conversion here, when we look at the customers using the mobile applications, increase -- is increasing. In the next presentation, we'll see the bigger number of the mobile customers than the customers online using the traditional website of a bank. Both like using mobile phones and these mobile applications are developing, growing and they deliver new extra services that enables easier life. 2021 development and increasing of the coverage area of clean offer. This is one of the areas that we work on. It allows actually for the monetization of the whole mortgage and sustainable approach to the business remote sales. We all the time work here to service customers in 360 way. So no matter whether the customers are in Poland or abroad, they have to be properly serviced, be it in the branch office, mobile, Internet, online activities. So it's very important for the bank to be able to service customers from various points. The pandemic proved that customers may turn out in various life situations. And the Internet bank can service customers in various situations in context. The proximity BLIK I already mentioned revolutionary project, contactless BLIK-C payments, chance to replace plastic, increase the security and safety and comfort of the customers. It's enough to have a mobile phone. Probably in the future, it would be a watch, and you can pay via BLIK, and instant card tokenization. Coming back to plastic. This is one of the areas where we have to continue our activities. We have to optimize and costly. And we have to introduce new play, new trends, young customers not always want to use plastic. They want to pay through the mobile phones, and that's quite understandable and clear. That's why we are going to develop the digital channels, we will digitalize the forms of payments. We will also adapt the mobile applications. I was talking last today. Last is very important. But if the application has too many apps and it is not personalized, it will not bring any extra value to the customers. That's why personalization is very important. And personalization or customers may adapt Alior mobile application to the preferences will be of paramount importance. Individual clients, let me refer to the current situation on your recent days, there is a brutal war ongoing in Ukraine. And so war of Russia against Ukraine, and there is a huge number of people going -- passing through the borders and Alior Bank decided to simplify the opening the account and the passport will be needed. We will provide service in the Ukrainian language, and we prepared a special offer for the accounts, current accounts, no fees for current accounts, for debit cards, for exchange of money because people who come to Poland, they have money taken from home. They don't know the Polish financial system. So we don't want to create an extra risks for them. And that's why we want to offer no-fee banking system for them. As of 4th March, we will launch the mobile banking on the Ukrainian language. Alior Bank online in the Ukrainian language would also be possible, and we will offer the counter-value for the exchange for the Ukrainian customers. As I said, 360 service also offered for the customers coming from Ukraine. For people who need help and support in these difficult days, we offered the special services for them. Let me refer to Ruble. Alior Bank is no longer receiving -- accepting payments in Rubles. There is no possibility to exchange ruble. So you cannot buy rubles in our exchange. Development of the business customer segment, let me start with the volume of credits of loans. Without this, Alior will not be able to grow dynamically. Today, we have a selective approach. We look at the industries that bring good return on growth, a good qualitative growth that could actually increase -- improve the relationships with our customers. This will be discussed in the next slide. This is also the year of the loan portfolio optimization, that's important. So in order to be able to grow properly, we wanted to structure the credit risk area. We improved the process. We optimized certain processes. We will invest further in automation systems to get ready for the increase of the loan portfolio in the business customer area. So automation of processes improved already the processes. When you look at the market, Alior is one of the leaders when it comes actually to the loans for the micro class of customers. Number of cards, active cards increased by 7%, no cash -- cashless transactions growth by 16%. The volume of transactions, noncash transactions, 24% growth. So not only the number, but also the volume of noncash transactions translated in a positive way in the results of bank. Without that, the commission results will not be able to be built in the area. In the times of the low interest rate, it's very important. There is relations with customers that is very important, and we will invest strongly in mobile banking and Internet online banking. One of the additional services that we are about to start offering is the accident and health care insurance, something new for the customers, great attractive conditions, cooperation with PZU. This is the offer for the business customers. They can enjoy great conditions if they are Alior Bank customers. Therefore, companies, the smaller companies will be able to support their employees, they can offer the medical packages, coverages something that used to be available, mainly for big companies will be now offered by our bank for the business customers, smaller business customers, and we do hope that it will improve also the quality of the offer for our customers. So we are going to support the business customers. This is one of the more important projects, our cooperation with PZU and together, we will be able to grow the business customers. And so far, we focused mainly on the Assured banking bancassurance companies services. So that was the cash loans and mortgage loans insurance or automotive or tourist insurance. Now we move on to the new segments. Coming back to the corporate segment. We will remotely service the business customers. Business differs from the individual customers. It requires better relations and the consultants, but consultants become more and more independent and the customers become more independent. Therefore, the mobile banking become more intuitive, so that customers can actually use the remote channels, and the new sales in automatic decision increased by 119%. And this is the trend that must be continued strongly. We have to invest in so-called decision-making engines for the individual and banking customers. Availability of loans, quick loans. We have to optimize processes, improve the quality. As a result, we will have better happy customers and better known portfolio. Now talking about the business. That was about business and no credit risk that will be discussed by Maciej.

Thank you. As the President stressed, it was a very good year for the bank. We have very good financial results. In terms of credit risk, it was also a very good year, and we were doing very well. Let me first stress that we are quite consistent in implementing our strategy. We want to structure, structure our portfolio in such a way to improve the quality of the assets to have the better portfolio, so that we have the safety buffers ready in case of potential risks. As I discussed already, during the recent conferences, I discussed the situation of the Alior Bank, this is the summary of everything that is happening. Let me stress something that was said already by President, the bank is aspiring to change the risk credit portfolio, loan portfolio to be more resistant towards the market challenges. The mortgage loan portfolio is growing. I stressed many times that it's a stabilizing factor. So it's a good factor, and we are happy that it is happening. We stressed it already in the first part of this presentation. What has been done? The top left corner diagram, we reduced dramatically the number of the incurred loans. 14.48% in the fourth quarter and 11.77% at the fourth quarter of 2021. It's a huge reduction. This value is really significant for and important for the bank. Lower, you see the composition, so how it was all structured. In case of the business customers, we have quite a high level when 20.83%, but it was reduced from the level of 23.22%. Individual customers 8.36% in 2020, and we decreased it to 5.90%. It was a huge challenge for the bank to improve the quality of our assets and the composition of the assets and the quality of the loan portfolio. Right now these activities in upcoming years should actually have the better results, and it should work now for our income and profitability. Cost of risks, COR risk costs, where you can see this -- the bank was not ready for maybe not optimization, but achievement of the minimum cost of risk. You can see on this slide on these 2 diagrams at the same time, bank increased the NPL reserve coverage ratio at 55.92%. That's the result of the fourth quarter of 2021. We started from 55.18% in 2020. It proves that we were not saving on risks. NPL, professional coverage in segments, the lower diagram, you see 65.69% in AI. So in retail segment and business corporate segment is 51.65%. And on the right-hand side, COR risk costs -- as of the fourth quarter of 2020, this is a flat curve. So there are no peaks and this proves the consistent, stable policy in the cost -- risk cost management. So we may say this growth was really flattened. This is an interesting chart that you see down there below cost of risks for retail and corporate centers. Q4 shows that [indiscernible] are opening. 3.57%, corporate segment, 0.2% retail segment. And I think that it explains it all. I already explained the chart. Now what happened? In terms of COVID and our expectations for the last year, the situation played out much better. There was a lot of uncertainty in the market. We didn't know what to expect, but it turned out that people were sitting on cash, both individual customers and corporate customers. As a result, you were able to fend off any negative developments or increased defaults. In addition to that, there was a huge support from the government. We had credit vacation and somewhere points of support that help us align our curves, especially for the retail customers and anything for retail customers is about our approach to reducing NPL. In the retail segment, our principle is that we do a lot of such loans. And this year, we were able to actually show positive results. And positive results help reduce core costs in this segment. So that explains the bottom curve on the right-hand slide. So if you eliminate these effects when we are able to flatten the curve. And that's also a good sign because it shows that cost of risks are captain check, it's all reasonable. And cost of risk in the corporate segment, well, here, we've done 2 major things. First of all, we work -- we've taken the inventory of all the SBLs. We were writing them out. So that puts a major cost for the bank, and that puts weight on the risk cost. Another thing is about COVID and the overall situation. We made a decision to adjust -- to make adjustments for commercial properties. We know that offices sit empty and therefore the value of the office assets go down, so we made the relevant adjustments. And as a result, the curve was climbing up to 3.57%. If we were taking that of those adjustments, then the curve would be almost flat for the past 2 quarters. So that really shows our approach to risk management, how we approach it and how we go about it in simple terms. And what's the thinking behind our decisions. Obviously, I need to mention the lending question. and lending processes, we do are very mindful about it, and we want to make sure that our lending is safe. Now the next slide explains how we approach cost of risks. Last year, I was telling you that we see a lot of uncertainty in the market. And today, I may say that the uncertainty is even greater than it used to be. We actually learned how to live with COVID. But now uncertainty comes from someplace else. Now look at the left upper corner, 2.39% in 2019 and 2021, 1.60%. You may say that the entire sector has improved. Yes, the entire sector has improved, but the entire sector has not done everything that we've done, and I explained that on the previous slide. So what was our strategy? We followed that. It was not our intention to reduce cost of risks at any price. And I think that it showed positive results this year, and we will see that in the years to come. So you see there is cost at the upper chart. Now what was the distribution in the business customer segment and the individual customer segment. Well, you see the charts at the bottom. So quarter-by-quarter 3.57%, I've already mentioned that. Where it comes from, just look at the bars, and for individual customers, I've already explained why we were down to 0.20%. And I don't want to discuss the Q2 2021 event because that was a high-value item. But if we cap it up, then we have a very nice declining trend for the individual customers and stable situation in the business segment. Now the question is, what kind of risk cost to be expected next year. It's hard to tell. We had interest rate hikes. The inflation was growing, so this is all understandable to all economists and the banks and the market players know how to respond. Now you might have been asking question what about the end customers. Are they going to default at the greater range because of the tightened interest rate policy. Well, these developments are well known to the banks, so we know how to respond. We know what needs to be done. The interest rates goes up, we can actually improve our performance management. But yesterday, we had 261,000 refugees from Ukraine, we don't know what would be the impact on the economy in the short term, long term, whether it's going to be positive or negative. There is again a huge uncertainty around here. But if we assume that the macroeconomic impact would be moderate, so no radical effect. Then my presumption is that our core should be in line with what we have today. Obviously, it's more like that it goes up than it goes down. But as I said, the situation is so volatile now, but it's certainly hard to predict what's going to happen. Now what we've done with the risk so far with all the changes that we introduced and the fact that we deployed buffers. Under normal situation, we would have very good starting position for 2020. But this is fairly simple, but this is DPD 30+. So these are customers that default up to 30 days and then it really shows that nothing was going up here. We actually acknowledged that Q4 was going down. There are now volatile movements here. So that helps us better manage all these things. And the same is true for business customers. So here, we may say that results are quite good, and actually this is a situation that is manageable and you can manage the risk. But we have huge uncertainty because of the Ukraine situation. And on top of it, we also have regular post COVID implications. So with post-COVID implications, you might have expect that inflation because of the huge influx of money in their economy. You might have inspected that because of the interest rates that customers with loans will be under pressure. But for the time being, we are not seeing any negative developments. But you need to keep it in mind when you manage the risk in 2022. Now capital, Tier 1 12.55%. So we have 405 basis points above what's required, TCR also with a nice buffer 366 and we are at 14.16%. And also for all the other ratio, we are in the safe territory else here. And we are much above the minimum 100% that is required. So we have a very reasonable approach to liquidity management. Now at the bottom right corner, you'll see the decomposition of change in TCR in Q4, you see all the developments here. And that explains why we had this reduction. The first square or rectangular shape that shows minus 4.47 (sic) [ 0.47% ]. It's nothing unusual. It's about hedging of the bond portfolio. Actually, the whole market felt that and that was typical development for 2021 for many banks. And the final thing that is important here is 0.51%, that's the change in the risk-weighted assets. So again, let me emphasize that in terms of the risk, the situation was favorable. In 2021, we were able to sort out a lot of things on the risk side. And as our CEO said, we believe that we are at good shape to continue healthy banking operation in 2022. So thank you, and over to Radomir who is handling Finances.

Well, thank you, and good morning, everyone. Let me offer a few comments about our financials. So the first thing to look at is income statement. And the main items will be discussed later. But first, I would like to comment on Grzegorz slides. Q4 and the net result adjusted net result, EUR 182 million, after one-offs is PLN 100 million. And here we would like to show you how in Q4, the results would look like without adjustments. But when we look at PLN, we need to transparently show adjustments and where they go. So let me start with the legal risk and the cost of that. So provisions for the rulings of ECJ. This is one of the major challenges for the banking sector today. And therefore, we've decided to add the line to the income statement. We show the provisions that we made for that, PLN 21 million after Q4. And additional comment just to cast more light on that is like -- slightly over PLN 100 million. This is the Swiss franc portfolio. The model -- so that's the model that we structured looking at the bank's performance and also recommendations of the Polish Union banks. So the next adjustment is ECJ, and this is shown in operating expenses. So this is what we wanted to attach a buffer. As Grzegorz mentioned, discussing the risk, this buffer, we believe, is needed because of the assessment that we make of the situation. We listen to the regulator. We look at the tourist prudence and to make sure that we get into 2020 in good shape and safe. We decided to add PLN 36 million net for so-called ECJ provision. Now the small ECJ provision. Now the next -- the third provision that we inserted in Q4 is at the income tax level. You can tell looking at the number quarter-to-quarter. This is because of our results, but also because of our -- like we had to right of our assets in Romania. In Romania, we've been operating for a few years, not at a big scale, but we did have some presence there. And our model in Romania was subject to a review by the entire management team. So we are looking into it. We want to see what can be corrected there and modified, but nevertheless despite the fact that we want to continue the business there, we decided to write off some impairments in 2021 due to Romania operation. Now you often ask about our sensitivity. So again, 265 basis points. Our estimates show that next year, that should bring PLN 780 million to -- PLN 700 billion to PLN 800 million. Now we look at the balance sheet. We also make some projections of the cost of financing. And as Maciej explained, -- we also take [indiscernible] look. In other words, we presume that the macroeconomic environment should be fairly stable. But as we know, it is no longer stable. Because of that, a dreadful situation beyond the eastern border. But right here, we are showing our estimates based on our best knowledge. When it comes to the return on equity, we assumed a 5% very conservative approach, 7.7%. This is after the full 2021. When it comes to the interest results, we can say that we expect the double-digit result for the -- for this year, but, of course, bearing in mind all the assumptions mentioned. Now let me move on to the interest results. The portfolio, as Grzegorz mentioned, portfolio that was already undergoing the composition because we are increasing the share of the mortgage loans, we try to make the portfolio more and more balanced. But it's working actually better and better. Third, vis-a-vis, the fourth quarter of '21, it's PLN 50-plus million more. But we are reestimating this portfolio a bit slower. So the results -- the full result of the growth in terms of interest rates will be visible after the full first quarter of this year. You can see here, and it's perfectly known that so far, we operated with ultra low interest rates in the first 3 quarters. And now moving on to the right side of this diagrams, interest margin, we say 3.75%, if I remember well, for the whole portfolio -- for the whole year. But already now, you can see over 4%. So we may assume that once we maintain higher interest rates, Alior Bank will return to the -- maybe, if not record margin to -- we will return to one of the biggest margins on the market. So it is related to the financing costs, and the final results will be strongly correlated. It's growing, and we decided -- due to relationships with our customers, we decided actually to anticipate increase of the interest rates. We decided actually to have an offer in the saving accounts, and it was welcomed by our customers, and this cost is growing in the fourth quarter. Of course, bearing in mind the last decade, it's still at a record low level, but we expect actually that in 2022, a slight increase of this cost. And now, third, connected aspect, loan-to-deposit ratio. It is slightly dropping because we [indiscernible] some deposits and savings. That's why, it dropped now to 80-plus percent. Our ambition is to improve this ratio to increase it, so that the biggest possible part of our assets can actually work as the loan portfolio. This will be some visible in the interest margin. Let's move on to the commission income. Year-on-year, 20%, we are proud of this result because throughout the period of the low interest rates, we did our best, so that customers can appreciate what we offer both in leasing insurance daily banking activities, as Grzegorz discussed. According to our assessment and initial estimates, it's one of the best results. So this led us actually take it as a more balanced approach because if the interest rates increase, the interest rates will work for us, historically 80%. Now it's a little bit less, but we do hope -- we can do our best as a bank as management board, so that this commission income result growth. And we also see it as a proof of our customers who want to stay with us, who see the value in this offer in the offered service. Let's move on, and talking about P&L, we have to discuss costs. We stick to the cost discipline on PLN 1.6 billion result. This is actually a bit lower, very good cost-to-income ratio for 3.5%. This results from the rent of savings. We had also smaller payments to BFG contributions and some banks already shown bigger cost, higher cost after the fourth quarter. However, we've managed to close the very ambitious cost budget. But looking at the inflation pressure on employees market, IT market, real estate management market, all these have to be taken into consideration. That's why the costs will probably no longer be maintained at minus PLN 400 million per quarter. We plan to increase of the costs. But looking at these numbers, we are quite certain that these numbers will grow quicker, both when it comes to the commission and interest rate results. So we still keep this ratio -- the cost of income under control. And that's quite a comfortable situation for the bank. Now every quarter, we refer to our strategy this year. Certainly, we are going to develop a new -- working on development of new strategy. This will be a horizon, but we want to actually inform you where we are with the implementation of the existing strategy. Without repetition of what has been set at PLN 83 billion assets. We are going to reach PLN 89 billion. So notice, it's a 6% growth year-on-year. And this is the assumption that we want to have as much as possible of the loan portfolio. This should work for the results. Number of customers as Grzegorz already showed you in the slide volatile, it changes and it results from the fact from technical issues and, of course, we have a big CF customer base, which is changing quarter-to-quarter, but we have ambitious plans, both for individual and business customers. As Grzegorz said, all the time would deliver values and assets. And ROE 7.7%, we still declare the ambitious double-digit growth with the assumptions mentioned before. We hope and we believe is going to be realistic. When it comes to the interest rates margin, 4%. This is the goal. And for the fourth quarter, it was almost -- we were almost there. But if the macroeconomic situation remains the same, we think that this result should not be endangered. Cost-to-income below 46%, even though actually I think that I discussed the cost base, I believe that we will be able to maintain these levels. COR, and risk costs, cost of financing, 0.19%. I discussed the fourth quarter already. Probably, we have to follow the market and the competitors, how they respond to the situation. There are many questions, many uncertainties when it comes to the monetary policy, we have to be flexible, but we want to inform already now that these numbers may grow slightly. And the last slide in the presentation, just some important messages for the results presentation. I will not read them out. Let me just move on to Q&A session. We are there for you.

We have quite many questions. So let us start screening of the individual customers' portfolio. Have you done it bearing in mind some sense activity to the -- towards the situation in the Ukraine and Russian market? Are you monitoring the situation in the East? What can be the scale of your portfolio here?

Of course, we did it. I believe that majority of the banks decide to go for this analysis. We actually did it before the war started. The scale is not big, 0.2% of the loan portfolio. This is actually the loan portfolio, very insignificant. And our approach was going in the approach to help the customers, who've got to develop and generate turnovers. But because of the scale of the portfolio, we wanted actually to protect it somehow. The scale is not significant. We are going to take a closer look at each individual customer in order to help them if there is a need for that. So basically, we have it under control.

Next question, please. About the loans. The legal write-offs for the FX mortgage cards. Please, could you describe the value of this portfolio where these loans have been given, whether you made any provisions for that as a bank?

So far, the bank made provisions for the -- started legal actions. Now we decided have the provision for the future legal actions and dedications, so we are very prudent in this area. And we -- in the fourth quarter, it was PLN 15.1 million. That was the provision and PLN 2.8 billion that -- and only 0.2%, it's about credits in Swiss francs. The majority of the credits were given after 2010. That's why I was discussing the generations of loans. Let me summarize it in the following way. The [indiscernible] of the loans in Swiss francs. The portfolio actually comes from the periods where there were no drastic currency exchange changes. That's why the number of litigations is lower than expected on the market. Currently, 19% on the market in case of Alior Bank is 0.3% of the disputes.

And the next question, requirement for the credit risk went up by 0.3%, but impact of RWA was 51 percentage points. So what happened in Q4? What actually -- what was driving RWA up and PCR down?

Well, I explained that during the presentation, RWA and this requirement is all about the balance of derivatives. So that was the main driver.

And the next question is again about the risk what is the outlook for cost of risk for 2022. In the presentation, you said that it will be similar to 2021, so 160 basis points, but the target 190 basis points is still there. So why the difference?

Well, for 2 reasons. Today, we have a situation in Ukraine. We don't know how that would impact our economic performance and the interest rate hikes. So we have interest rate hikes and inflation is still something that is uncertain. Now the strategy that we had was delivered even more than anticipated, but if predictable macroeconomic situation sustains, then the cost of risk would not be different from what we have, but I cannot actually say for sure, but it's going to be very low because of the current situation.

What kind of contribution to the bank insurance scheme would be expected next year?

Well, the President of the bank insurance fund has already announced what to expect? And we believe that it will be anything between PLN 70 million to PLN 90 million.

Do you intend to reduce the margin consumer loans and mortgage loans?

In terms of mortgage loans, we will take a very selective approach. We will be looking for the customers in the regions that are important for us and in terms of relationship and the income of the customer and also quality, so reduced risk or no risk of defaults in the future. And then better more transactionable collateral. So this is where we want to be competitive. And when we speak about competitiveness, that brings us to the margin, but competitiveness is not only about the margin, it's also about a good insurance. It's also about fast processing of loan applications, and this is what we have been working on and we continue to do so. So we will optimize this process to make sure that we stay competitive. The margin on consumer loans. Well, here, the bank will sell cash loans with a good margin to make sure that the return for investors is high. But depending on how the situation unfolds in the market, we will respond we have to be proactive and we have to react by watching what competitors are doing. So if there are any movements in the market, then we will have we will be responding to make sure that the balance of the cash loans is high because this is the highest margin product in the bank.

And the next question is about NPLs, and what industry you have to write-off NPLs in the corporate segment?

Well, here, we were not looking at the industries. That was not a criterion that we followed. So I cannot give you any precise answer to this question because we are not just looking at the industry. So we basically looked at the exposures that went to collection. And based on that, the decision was made, where we write it off or not.

And another question. So how come the FX result was improved in '20 -- in 2021, Q4, it was up to PLN 85 million, while Q3 was PLN 71 million?

Well, FX exchange in Q4, well, it was up because of the higher transaction rate. When we look at 2021 as a whole year, we believe that it was more like a one-off event. We don't expect such a big difference in the coming quarters.

And the next question. Do you see a growing competition in the deposit market? Do you expect further interest rate hikes. And if so, what would be the targeted level in this cycle?

Well, we do see that competitors are launching the new offering. And as each peer bank, we are reviewing the situation frequently. But in our opinion, there is no high pressure on the deposit prices. And we believe that the situation will not be changing at the very fast rate. Obviously, we are aware that the interest rate hikes may continue. The last week consensus was 4%. Let me just add to that in terms of the product offering, our deposits offering, we decided to reach out to the market earlier brand competitors. Today, we see competitors offering higher offers, but our liquidity position today is so stable that we don't need to be very aggressive about deposit products. We want to focus more on acquisition and relationship. So our proactive approach was effective. It worked out well.

And the next question, a very general question. Given provisions made in 2021, Q4, do you see any other areas of your operations that may be subject to provisioning in the future?

As of today, we do not see such areas that would need provisions. However, given the tragic conflict that spills out in the Ukraine. And given the pandemic that continues, well we are facing the time when the risks is always higher with any projections.

Okay. How much COVID provisions are still left those that may be released in the future?

Well, COVID provisions for the third basket were retained for 1 and 2. We updated our parameters, and we decided to give up on COVID provisions, and we implemented new fleet models that address macroeconomic scenarios, especially the risk related to the interest rate hikes. And in simple words, we may say that for Level 1 and Level 2, the overall write-offs were retained at the same level.

Okay, and the next question. Do you plan in 2022 to change your employment contracts and not for your employees. In other words, it says going from B2B contracts to the regular employment contracts?

Well, I think that the trend goes the other way around. Especially in the IT sector, people prefer to have the B2B arrangement. Given a lot of restrictions and the strength in the banking sector, we do see that it is more difficult to have B2B arrangements many times. But I think that looking at the entire banking sector, we still have a high rate of regular jobs and employment contracts. We do have people who have regular employment contracts. And therefore, in the area of technology, we can take advantage of our forms of collaboration in terms of the legal contracts. That would not affect our strategic goals. Today, we are not really thinking about any major change of our model. And this meant we work in the banking sector, and we do have some regulations that we have to comply with when it comes for instance banking [indiscernible].

Thank you. Well, I believe that we exhausted all the questions. If you have further questions, you are encouraged to contact us through the Investor Relations mailbox. And I would like to thank the Management Board for their presentation and answers through questions. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]