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

[Audio Gap] Traditionally, the results of the bank and the trends accompanying these results will be discussed by members of the Board. President Piotr Zabski, who will sum up the most important trends in the business sector. Zdzislaw Wojtera will present the finance results and Marcin Ciszewski will present the risk sector results. In the second part of the meeting, after the presentation, we will move on to a question-and-answer session. Before I hand over to Piotr, I encourage all those who are watching us to ask questions already in the first part of the conference, to which we will be able to move on smoothly to the Q&A session. I hand over to Piotr Zabski.

Good morning, everyone. May I welcome everyone at the meeting of the Board, which is a traditional quarterly meeting to present the results of the bank. This is the first quarter after our strategy was announced and the second quarter where the strategy is in place. So there will be some reference to what had been discussed in our 3-year strategy. As concerns the operating activities, let me tell you about some general trends and results. There will be division into business lines. And in the further parts, my colleagues will go deeper into the data and a handful of details will be presented to you. As regards the bank's operating activities, the second quarter was a very good one for us. We noted a 6% increase of revenues. In the second quarter, we had PLN 1.52 billion revenues. And in two lines, both in the interest and commission results, we had 4% and 3% growth respectively. So the net profit of the whole of the bank was PLN 640 million, and it was by PLN 50 million higher, 9% more compared to the same period of the previous year. The ROE reached 22%, as you can see in the slide. What we would like to draw your attention to is also the decrease in the cost of risk due to the recognition of profit on the sale of the NPL portfolio. It reached the result of 0.2%, which is quite notable as far as the CoR is concerned. There is also a continued decline in the NPL ratio to 6.18%. The sale of the NPL portfolio obviously had an impact on that. But in our strategic aims, we are certainly moving on target. As far as our capital position is concerned, there is a surplus over Tier 1 to the tune of PLN 5 almost PLN 5 billion and TCR almost PLN 4 billion, which vis-a-vis our strategy provides us an increase of scale and a safe buffer. The TCR at the level of 17% is certainly considerably above the reference regulatory benchmark. A few additional figures regarding our activities in the last quarter and indeed the first half of the year. The number of relationship customers grew. We now have 1.64 million customers. There's a growth of 81,000 compared to the previous year. The mobile app users also grew. We now have 1.5 million who use the app, which is by 13% more than a year ago. We had some problems concerning the use of the app, but we overcame them. There was a growth in the deposit portfolio. We now have almost PLN 80 billion in deposits, an increase of 8%. There is also a strong growth in the area of mortgage loans. In the second quarter, we granted loans to the tune of PLN 1.3 billion, which is almost a tough increase compared to a year ago. The share of these loans in the general sales portfolio is 1/3. You also probably realize that we paid out the dividend. This is not a new piece of information, but this is part of our strategy. Some additional info as regards the whole of the bank, our assets is almost PLN 100 billion. There was a 10% growth. Deposits grew by 8% to almost PLN 80 billion and the gross performing loans grew by 4% to the amount of PLN 62 billion. An important bit of information, which you find in the footnote at the bottom, the 4% growth does not take into account this BuySellBack transaction. So whether the working loans. Now additional information on the top line in yellow there is the second quarter and the bottom line, the whole of the first half of the year. C/I 36.1% is, I will tell you in detail about what brought about this cost-to-income ratio at such a good level. NIM discounts the drop in interest rates, which you can see, the ROE almost 22% for the whole of the half of the year. Cost of risk, 0.20%, a drop by 0.03 percentage points and as regards the capital NPL 6.18%. Two of the divisions, individual customers and business customers. As concerns relationship customers, we had a growth by 5%. The users of mobile app grew by 13%. As far as the share of the mobile app among relationship customers, the growth represents 4.7%. [indiscernible] sales is on the rise. And we hope that the new solutions, which we will be offering and which we entered the market will even increase this positive growth trajectory in the mobile channel. Now a few words about other elements, the balance of assets of retail customers, the top left-hand corner, quarter-on-quarter and year-on-year, we have 10%, slightly modification between different positions. The biggest growth that we noted was in the area of investment funds, which we are very happy about because is one of the elements of the growth as far as our commission in income is concerned. As for the gross loans to retail customers, the slight change in the share of the consumer loans and real estate loans, there are more real estate loans now than the consumer loans, which at the bottom left-hand corner, if you break it down, you see a stable position as regards the installment loans. The total growth in the volume is almost 20%, which is considerable and in the installment loans in the first and the second quarter and the whole of the installment loan sector were worse. There was a negative dynamic, but we maintained our position, which is very good. There's a growth in positive, the cash loans, the high commission loans, which provides a good boost to our income. I think the most interesting information in the top -- in the bottom right corner shows us how mortgage loans are growing in terms of sales, the last time that we were comparing ourselves to the situation where the safe loan 2% was quite significant. If we see the pink color, that's almost a twofold increase in that item. And that makes us very happy because on the one hand, we are stabilizing part of the assets, extending the assets, and we know that this is a protected portfolio marked by lower risk. A glance at business customers, that's our second business line. We will soon be explaining also in greater details what it looks like. But when it comes to the portfolio or the volume of loans is stable, whereas at the same time, the total credit limit allowed to business customers is on the increase, while at the same time, we have a significant decrease in nonperforming loans. We are working on it very much. So these two curves are balancing each other. Hence, the portfolio is still at a flat position. It's not growing. If you look at the trends, we grow faster when it comes to sales, then we are decreasing the NPLs, which means that the significant -- it will be visible soon. When it comes to the deposit volume, we have an increase of 7% year-on-year. Active debit cards, 4% year-on-year, 6% when it comes to the micro segment. Importantly, the micro segment had negative dynamics in the first quarter. We did not see -- or the market was not performing as we assumed in the strategy, the 67% in terms of our activity. I mean, our activity was focused on preparing the newest solution to be ready by this autumn. And hopefully, with the new application, we believe that the result -- this result will be significantly better. Our company's activity -- the largest subsidiary activity, which is Alior Leasing. The portfolio reached almost PLN 7 billion, specifically PLN 6.8 billion and grew by 6% year-on-year. As you can see, quarter-to-quarter by 2%. The sales of leases is marked by double-digit growth, 11% quarter-on-quarter. And it's important that we have specialized in certain niches, a very strong leg of it is a very significant share in the leases of vehicles exceeding 3.5 tons, where we even have a market share of 17%, that's only to draw attention to this. A couple of additional words on pursuing our strategy when it comes to the transformation or in sustainable funding. Firstly, we have a comprehensive offer for entrepreneurs, a specific proposal. to fund energy from renewable sources such as wind, sun, water, biogas. We also fund hybrid installations. We are ready, and we've started being very active in this market. A second item is that in cooperation with BGK, we have obtained access to European funds, EU funds, owing to this in several provinces, Wielkopolskie, Podlaskie, Malopolskie, Zachodnio-Pomorskie and Lódzkie, we've been able to provide our offer of low interest loans. To reconstruct and expand installations connected with RES and to improve energy efficiency, which means that we are also being active in this area, which is also aligned with the assumptions of our strategy. I would end on this slide and ask Marcin to present our results when it comes to the credit risk.

Good morning, ladies and gentlemen. Piotr has mentioned our safe capital position in his statement and about the significant surplus -- regarding the regulatory minimums, we intend to further strengthen our position and to having obtained the appropriate permission also it strengthen our capital requirements. In the first quarter, we have performed an early redemption of F-Series bonds, that's PLN 400 million with a 3.1% margin and issued series bonds of PLN 195 margin, which translates into a very good ratio exceeding 20%. In the further part of this year, we are considering another issuance of MREL bonds of -- with a value of approximately PLN 500 million. When it comes to liquidity ratios, both short term and long term are also at a safe level. LCR has attained to 227% and NSFR 146%. Passing on to credit risk, we closed the cost of risk at the level of 0.47%. However, these amounts are lowered by the one-off result of the NPL sales transactions. Excluding that transaction, the cost of risk would be at 0.76%, which is below what we've assumed in the strategy and which you've been -- we've been communicating to you for a couple of quarters now that our current risk profile should not exceed 0.8%. The profit on the aforementioned sales amounted to over PLN 100 million. The sale of that portfolio as well as further restructuring and debt collecting activities have improved our NPL ratio. And at the end of the second quarter, it amounted to 6.18%. We are sustaining our strategic assumptions that by the end of 2026, we should reduce the NPL below -- to a level below 5%. On the next slide, you can see that the gradual work when it comes to both the sales of NPL and the collection is helping us reduce the nonperforming loans at the end of this quarter, we went below PLN 4 billion with a stable coverage ratio. And by splitting our impaired loans into retail segment and the corporate segment, in the retail segment, we are at the market level, the whole share of nonperforming impaired loans is 2.67% in the individual customers portfolio. In the case of corporate customers, it's higher at 12.41%. However, we have also noted a decrease both on a quarter-to-quarter and year-to-year basis. The cost of risks when split to both segments, they were impacted by the sales. However, most of the sales, 85% was the retail portfolio, 15% was represented by mostly the corporate portfolio. Hence, the negative CoR on the retail segment and a positive of 0.78% in the corporate segment. Thank you very much. Over to Zdzislaw, who will present the financial results.

Thank you, Marcin. Good morning, everyone. Let us move on to the financial part. As Piotr mentioned, our income year-on-year for the quarter rose by 6% and taking into account the first half of this year compared to the first half of previous year, it grew by 2%. If we look at the net profits in the red color at the bottom, you see that there was a growth of PLN 54 billion between quarters and between half years, it dropped by 4%. It needs to be explained that in the first and the second quarter, we took into account BFG costs. We move on to the major part of the income statement. The first column in yellow is the second quarter of this year. The income grew by 6%. Interest grew by 4%. The commission grew by 3%. There's a dedicated slide which gives more details about that. The cost of the group is PLN 695 million. This is a 7% change year-on-year, and there will be a separate slide to describe that. Other lines, which will be important is the legal risk. We recognized PLN 44 million of the additional legal risk of mortgage loans in foreign currencies. This relates to growth in cases. It is not from our point of view, particularly a big item in the financial statement, you will see that there was 39 additional cases in the first quarter -- sorry, the first half of this year, about 20 each quarter. There's a model change, which reflects the reality and our expectations. We do not expect that this line would grow to some considerable degree. Going further down, we see gross profit at the level of PLN 827 million and net profit at the level of PLN 640 million. When looking at some more important lines, we have the interest margin, which went down by 8 percentage points. We brought down the financing cost even though the deposit base grew, the financing costs dropped by 16 percentage points. Cost of risk, which Marcin talked about because of this one-off transaction in the half year is at a very satisfying level of 47 percentage points. Cost to income 36.1% and return on equity, 22%. Now moving on to the interest income, which is a considerable part of the bank's operations. When you look at the graphs, they are slightly more complicated. However, there is a flat line. If you look at the first quarter, there is even 1% drop. Well, we should look at our interest result from a few standpoints. Firstly, our balance sheet. When you look at our products, you will see that there is a considerable growth in the mortgage loans share, which stabilizes our income over the long-term perspective and helps build our relation with customers, which is a very crucial part of our strategy. However, as for the margin for that product, it is lower than the cash loans. So it leads into a lower interest margin. And the other perspective is that a considerable part, almost 90% of the sales in the previous quarter relates to products which are fixed rate based. And as you well know, in the fixed rate product, we have a certain market expectation built in and the expectation is that the interest rate will go down. So when we sell our products, by definition, there is a slightly level -- lower level of income interest -- of interest income than would otherwise be. If you look at the top right-hand corner, you will see that indeed, we go down by 5.88% to 5.74%. If we introduce the cost of risk, it is at a quite high level, much higher considering our business model in the market. So 5.15% to 5.54% if we take into account the one-off event. And the cost of financing, which we managed to bring down, it sets off the drop in the interest income. If we look at the second quarter, what will be crucial is what will happen, what will be the decision of monetary council and that will translate into the way the interest rate will look like, which will obviously translate into how we will be selling our products. What we see today, looking at our balance sheet and its development and our cost of financing, it seems to us that our interest margin should not go below 10 percentage points. In the next slide, we see the net fees and commission income between the first and the second quarter, we had a 6% growth there. What is important, this the first part of the two parts, which is the customer activity, PLN 41 million, PLN 45 million, then the brokerage commission. The Alior Trade fee is a big part of that. This is a fairly new company that was created and our currency exchange transactions provides good results. The commission grew from 73% to 79%. We are very happy that the customers are using this particular channel. And the last part of the P&L is the cost dynamics. As we declared in the strategy at the previous meetings, what we would like our cost to be, is to be more under control, more predictable under careful management, and that's what we are able to achieve. If we take BFG costs off, then the costs of management are comparable. They're practically at the same level between the first and the second quarters. What is important is that the costs grew by 7% between -- but if we deduct the BFG costs, then the costs which are under our management grew by only 5%, which is definitely below the market average, and we expect that in the subsequent quarters, the costs will be maintained under this strict discipline. They should not be higher than just a few percent growth level. And the cost income ratio of 36.1%, as I mentioned, normalized depicts a more consolidated view once you exclude the loan repayment relief period, it's -- as comparable with the 31% this year. Thank you very much. That's everything as regards to financial information. Over to Piotr.

Thank you very much, gentlemen. Just to put an overarching component to our statements, I'd like to draw your attention to several important facts. We have been very consistently implementing -- striving to implement our ambitious strategy. We have announced a strategy. And as you've seen in the figures, most of the parameters and readings that we recognize today are aligned to our assumptions. First of all, we are still very much present in the consumer finance market, notwithstanding the performance of that market because we're talking about negative dynamics. Our brand is our major asset. As we've mentioned, we've refreshed our brand, rejuvenated it and started reaching younger -- groups of younger target customers, which means that the perception of our brand among our non -- people who are not our customers is at the highest level over the last couple of periods, which shows that this component has also started performing well. Our agile business model built on modern technologies and a variety of distribution channels is being reinforced even more given that the bank is scaling up the agile model of our capacities. The stable and predictable cost of risks, they are dropping. The fact that we were a bank that was, what distinguished itself in the negative sense are part of history. Our new sales are at a different level when it comes to the risk predictability and stability. The returns that we deliver to our shareholders are still high because they represent roughly 20% as we promised. Our stable capital position still provides us with a reason to feel good when we are thinking in terms of one of the strategic pillars that mentioned, the increase in the scale. At the same time, we are still benefiting from the fact that we are working with or we're part of the group of the leader in the insurance market in Poland. We're benefiting from the access to the products and implementing new solutions that we share with our customers. All of this gives us a sense of calm and comfort in the sense that this year should be another year where we are positive about a prospective dividend payment. As you can see, the bank is doing good. And having said that, I would conclude our presentation when it comes to the slide show, and we will be very happy to take any of your questions.

Thank you very much, Piotr. And the first question is how much was the WFD and SOT-NII at the end of the second quarter?

At the end of June, WFD was 43.6%. The reference period was 40% SOT-NII was 4.4% with the required level of 5% at Tier 1.

Thank you very much, Marcin. The next question, which part of the portfolio is based on the periodically fixed rate?

When it comes to the fixed rate, as of the end of June, we have 35% of the loan portfolio are fixed rate loans. And as I mentioned in the last quarter, the sales of products of fixed rate loans represent 90%.

Thank you very much. What was the value of the NPL portfolio sold in Q2 2025?

As I mentioned to you in the presentation, part of that portfolio was a balance sheet part and an off-balance sheet. When it comes to the balance sheet part was roughly PLN 180 billion worth. And off-balance sheet, it was roughly 3x more.

Thank you very much. Our next question, the number and value of litigations accelerated in Q2. The bank also increased its provisions for that risk. What were the verdicts and what number are expected by the Board?

When it comes to the statistics, they are maintained at the existing level, we don't observe any increases. Still, very importantly, and notably, the bank wins a vast majority of lawsuits no matter how active the law firms are that have built their business case on trying to achieve their business goals in that realm. We don't expect any changes at least until the next verdict of the European Court of Justice because such verdicts might change the landscape.

Thank you very much. Now the next question, could you update the bank's sensitivity to NII sensitivity to interest rate changes?

Yes. The answer is quite straightforward when it comes to this question because it's a standard question, which gets repeated in all the conferences. But I'd like to emphasize that as of today, in the banking sector, we are observing a major change because there's a large number -- a relatively large number of assets that are based on a fixed rate or a temporarily fixed rate. And this means that the decision on changing the interest rate by 100 bps does not have to translate into the decrease in interest rates on a one-off basis. So this is rather a category that is -- that we have to keep in mind that it's -- and we are estimating the impact of decrease by 100 basis points by PLN 100 million.

The next question, how does Alior evaluate the profitability of -- some banks express their doubts when it comes to the sales of mortgage loans, whereas at Alior Bank, the sales of mortgage loans are significantly growing?

When -- the sales of mortgage loans is one of our -- the components of our strategy. It's about building relationships. So when it comes to the consumer finance, we will be strong, but we want to increase the transaction banking. For this, we would need longer-lasting relationships with our customers than it would stem from consumer loans. That's why we are so active in the mortgage market. We have an idea of how to deliver products to customers. We know how to do it in consumer finance. We will be translating that into transaction banking. And this combination means that we are accomplishing our goals when it comes to the profitability of this product.

Thank you very much, Piotr. The next question, why is the interest result of Alior displaying lower dynamics than the market average?

Let me come back to what I was describing in one of the slides, depicting the income -- interest income, Alior Bank is one of -- is not one of the top 5 banks. It's rather in the top 10. Our total assets are lower. And when they were at installments, higher purchase or consumer finance predominating, it was obvious that our NII and margin was at a relatively high level. Today that we are building the bank in line with the strategy, the relationship-based strategy based on other products, we are implementing mortgage loans, which translates into other rates of return as presented by Piotr. It's definitely satisfying for us, but the position is slightly different. And another thing is the mix of products when it comes to the fixed and variable interest rate-based products. Fixed rate products play a very important role. It's difficult to compare with banks that have a lower sensitivity to that. The implementation of such a volume of products based on the fixed rate is visible more rapidly. I think it's also a simplification to compare because every bank has a specific situation, and it's worth emphasizing everyone has a different product mix and different dynamics. So I think it's slightly incomparable when it comes to the dynamics.

Thank you. The next question crops up frequently at conferences. Is part of the dialogue and the changes in the PZU structure? And what are the possible scenarios for Alior Bank?

The scenarios are still the same. There is nothing regulatory in the discussion, which keeps cropping up every now and then. Just this week, there was an interview given by two presidents, which talked about the transaction within the PZU Group. Taking into account the possibility that the transaction will transpire, then there will be a certain level of ineffectiveness because we will have a bank an insurer and a bank again. This is not an effective structure from a number of points of view. So in that context, the discussion is taking place. Both presidents, however, mentioned that the transaction has been put off. It is very complicated. It requires a lot of permits and agreements. And so our agenda for today is the agenda of our strategy, is the agenda of our business, and that's what we focus on. Is the bank being part or not of that structure should not be considered.

Thank you very much. The next question, when will the fees and commissions result move considerably forward.

As we suggested in the strategy, what is important for us and to build a relationship bank, the kind of a bank where customers will want to maintain business relations over a long period of time. So we need to propose the best possible solutions to them. We want to provide them with the best possible value, and that must be reflected in the structure of fees and commissions. We now work intensely on changing our infrastructure. In terms of business customers, things have been moving forward vigorously and there will be a new distribution platform and the mobile platform for the business customer, which will provide a very big additional value to customers and will provide more platform to generate more fees and commission income. We're also working on that for the retail customers, and we will be slowly exchanging the mobile app. It will become simpler. And we'll also be providing the values which customers require of us. So this will increase the number of our customers, number of relation clients, the number of transactions, which will also translate into better fees and commission income, which will be a win-win situation.

Thank you very much. When will we see the results of the strategy in the corporate sector. Leasing is on the up other corporate sectors are declining?

If you look at the market, the dynamic was positive. However, the positive dynamic was reflected only in the big businesses. Alior is not according to our strategy, an active or an aggressive player in that segment, which is now the strongest growth segment. If we were one of the third biggest banks, then that will be a possibility. But we focus on micro enterprises on midsized enterprises. In the first quarter, the dynamic in that sector was slow. Now you saw in one of the slides, our sales volumes are now on the uptick, but we can see growth, and there will be a game changer in the shape of the new solution that Zdzislaw mentioned, which will be unveiled in autumn. New banking, new features, which will surprise the whole of the sector.

Thank you. And the next question, there is a sense of wanting more in the mortgage sales. Can you again explain to us why such a strong growth in the mortgage sales?