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

[Interpreted] Good morning. This is Dominik Prokop from the Investment Relations Department. Welcome to the results conference where we discuss the results after the first half of 2026. In the first half of our meeting, there will be a presentation. We will discuss the bank results and the trends which we envisage. We will hear from Piotr Zabski, the President of the bank, who will talk about the business side; Zdzislaw Wojtera, who will tell us about the financial side; and Marcin Ciszewski will talk about risk. After this first part, we will swiftly move on to a Q&A session. Everyone is invited to ask questions already during the first part, which will allow us to fluidly move to the Q&A session. I hand over to the President.

[Interpreted] Good morning, everyone. Welcome at our results conference discussing the second half -- the first half of 2026. Let me firstly look at business results, and then we'll move on to risk and finance according to our agenda. Beginning with the heart of the matter, we've had a good quarter and a good first half, PLN 1.37 billion in revenue, which is 10% less than a comparable quarter of the previous year, but the result includes the results of CJEU. If we didn't have that one-off, it would be on the same level as the previous year, which with lower interest rates shows that our business activity brings good results. PLN 367 million in profit, which includes the one-off that I mentioned above. Without that one-off event, we would have PLN 433 million in profit, which is 20% less than in the previous result, which would be the result of the CIT tax. The slide shows C/I at 43A. We would have PLN 377 without that. So that's a very good result. The NPL is close to our strategic goal, similarly with the cost of risk according to our assumption, 17.5% is the capital ratio, which allows us for a good result. Very high ROEs, which if we take the CJEU out, we have a very good result. And very high level of NIM. We're still the kind of a player which has a high level of margins in the market, and that's what we want to maintain. On the right-hand side, you can see some strategic perspective. We have 3 pillars of our growth, high resilience and operational excellence. Our activity in these pillars is quite strong. We've had a good quarter, above 50% growth in the mortgage loans, 12% in total sales. We have a growing group of customers, 6% of relation customers are banking in the mobile app. We launched the mobile app, we see considerable growth there, above 20% growth. As for leasing, the activity is very vigorous and has brought us a 30% growth year-on-year, which is twice what would be the market situation. A very good issue, PLN 80 million at a good marginal price, PLN 1.6 billion. And also, we are happy about the situation, the costs. EMEA 2% rise as regards to costs. Our cost discipline allows us to be very efficient in this regard. We're managing our income statement very well in this regard. As for the dividend, we paid it out at the level of PLN 1.1 billion. A glance at the business side of our activities. Assets grew by 7%. The assets in total are PLN 106 billion performing loans PLN 6 billion deposits grew by 9%. Some additional ratios as for the share of credit assets about 65%, and we are focusing on loans rather than issues of bonds as in some other parts of the business. As for the share of mortgage loans in total also grows, it is 35%. Now nonperforming loans is on the down track. As for deposits in retail, we have 14% growth and 31% growth of assets under management of the TFI, the investment funds of the bank. So, we are catching the customers who moved from the deposit side to the investment funds. And for the operational activities, 2 perspectives there, the business customer and the retail customer. First, the retail customers. And let's talk about mortgage loans, and almost 50% growth there. As for non-mortgage loans, there is a steady level, slightly decreased, but the structure is changing. As you can see, there are more cash flows handed out now. So we're growing them more vigorously than in the consumer finance loan field. This is crucial because we are generating more margins there. As for the installment loans, the sales is going down because we are choosing the cooperation with partners where we generate higher margins. And we, therefore, give up certain nonprofitable activities. As far as the balance of loans and deposit is concerned, it grew by 7%. The structure of the balance is also changing to the benefit of the loans for real estate, which is the burgundy color. As for the of assets of retail customers, looks very well. We've had another very good quarter where all the constituent parts of the bar on the right-hand side are growing at the tune of 15% year-on-year. We are also very happy about the growth in the number of customers. We are #7 in the banks. So, we don't have the scale of some of the competitors ahead of us, but we've had a good result, 7% growth in the relational customers, which is our internal retail ratio. Those who open accounts and transact are giving us 14% growth. And at the bottom, you see how they are banking with us. They are banking mostly or very vigorously with the mobile app. The share of sales in the mobile channel grew by 21%. That's the number of mobile app users growth and the share of sales initiated in the mobile channel grew by -- which now represents about 43% of the total sales by our channel. There's been a very important part of the business, which is the investment services of Alior Bank Group. The balance of customer assets is on the rise. There's been a 21% growth year-on-year in all the constituent parts of the bar that you can see. On the right-hand side, you can see the net brokerage commission of the brokerage house. We will hear more from Zdzislaw about it, but let me just focus on the fact that we promised we will be in the second pillar of our strategy stabilizing our result by growing the commissions. And you can see that the TFI activity and the brokerage house activities deals with that handsomely. Some additional figures, there's been a growth in the number of brokerage accounts by 4%. The funds grew by 36% in open-end investment funds and there's been a sales growth of structured products. All in all, this feeds into the commission profits at a high level than had been promised. Both customers who are interested in investments receive from us proper mobile service. We've been offering some considerable possibilities. There's been a growth in new brokerage houses or investment fund transfers, and we have 2-digit growth in those fields. So, you can see that customers very much use this channel of distribution and wish to invest. Now a few words about the business customer. On the left-hand side, you can see the balance of loans and deposits. The growth balance grew by PLN 1.4 billion and middle of this structure, the most active growth part is the leasing activity on the side of the bank and the leasing company. On the right-hand side, you can see the deposits of business customers broken down into the term deposits and current and other deposits. It's quite stable. But what is important is that the yellow bar keeps growing, which is the current deposits, thanks to which and -- thanks to the changes in which we are able to decrease the financing costs. Now as far as the business customer in terms of the quality of the loan portfolio. The performing loans on the left-hand side is quite stable. The nonperforming loan is consistently going down. On the right-hand side, you have the structure of the loan balances, micro SME and large companies. What you can see is considerable growth in the yellow bar. We are really moving on there. We generate considerable margins there. We know how to play in this field, and we can focus on this one, small and medium-sized companies. This is our focus. As for the micro companies, well, as I mentioned previously, we will keep discussing that the NPLs are still quite high in that field. So going down or decreasing that portfolio is our priority. But it's not happening very fast because it takes time to catch up there. But we keep being active in the marketplace will take some time before this balance is stabilized. And the burden part is obviously the large companies. There is more competition there. We are not active in all types of transactions. We want to participate in those which provide us with good margins. The competition is very tight right now. The low interest rates create a situation where not all the contracts are attractive for us, and that's how it looks. There's been a growth in the number of new current accounts, not a big growth, just 5%, but considering the trajectory, which I mentioned previously in different segments, it gives us a satisfactory result. The customers use digital banking channels, which is something that we are very happy about and both purchase and bank online, and that's something that makes us very happy. About the leasing now, we distribute leasing products via our banking network and via our leading company. The 30% growth is much higher than the market has grown, which makes us very happy because we've also maintained good risk parameters. The leasing portfolio grew by 14%. The segments where we try to be active have noticed growth. We have very good shares in the market there, and we keep increasing those shares. This is our response to the activities in the micro and small and medium-sized companies. Now as for some awards and distinctions, we've had a few in the second quarter. The market has appreciated us in a number of fields. But I think it will be more interesting to hear from Marcin about how we've managed to implement our business in terms of the risk.

[Interpreted] Hello, and welcome. Quarter 2 ended with a very safe capital and liquidity performance. Liabilities. We have issued S&P bonds valued at PLN 800 million, and it should be stressed that we had oversubscription, good margin, 1.6% above WIBOR. And at the same time, we have redeemed N-series bonds before the term with 2.81% margin. So, a significant decline in the cost of financing. This translated into MREL totally 21.72%. On the capital side, we had a very safe performance. All indicators totaled 17.57%. Robust liquidity LCR 283% at the end of 6 months -- first 6 months of 2026. And coming back to liquidity indicator, we have a significant surplus of capital on all levels. And as a result, we can continue our growth. Nonperforming loans ratio, we continue to go down below 5% of such loans, and it's realistic. And we are continuing our strategy. We want this indicator to go down below 5% by the end of this year. 5.16%, that was the figure for the end of the first 6 months of this year. We had one default in the business customer segment, which has impacted this indicator and the cost of risk, which you can see on the bottom graph. Core total 0.71%, but we continue to implement our strategy. And this year and next year, implementing -- our strategy will be implemented provided that there will be no major turmoil on the market. And this indicator would go above 0.8. Nonperforming loans balance at the end of second quarter totaled PLN 3 billion -- more than PLN 3 billion or retail customers at the end first 6 months, it stood at 2.1% in case of business customers, the quarter ended with 11.8% considering that no major changes and no major defaults will come underway. This indicator should go below 2-digit figure by the end of the year. The cost of risk, business customers, as you can see, the impact of the default. So less than 2% is the result. And for retail customers, the result in quarter 2 sales of nonperforming loan support portfolio led to core value be close to 0. And over to Zdzislaw.

[Interpreted] Let me now discuss financial results. Revenues. Like Piotr has mentioned, we are very happy with the development of our revenue in line with our strategy and in line with our expectations. Of course, in the first 6 months of this year, we need to take into consideration one-off event, the judgment of CJEU, which has forced us to make an adjustment totaling PLN 153 million on interest. So we -- just like the rest of the sector, we have adjusted the balance sheet value of loans with expected value of future cash flows. And this is also reflected by PLN 153 million worth of fees and commission results. So, with dwindling interest rates and fierce competition in the sector, we have a slight increase by PLN 128 million. Our net profit is going up. If we look at different quarters, the situation is very similar. The difference between quarters, it's slightly bigger, so parameters are changing. But adjusted revenue with one-off events gives us the same position like in quarter 2 2025. Let's analyze our net profit. It should be stressed that in the first 6 months of this year, 3 major events took place. One of them is the adjustment of CI results as a result of CJEU judgment it's PLN 196 million. This is dark gray bar. The second event is the adjustment of the cost of risk by PLN 98 million and the impact of corporate income tax, which is translated into higher effective tax rates. So, it's PLN 866 million altogether in the first 6 months of 2026. If we compare it to the previous quarter where we reported PLN 403 million, considering only CJEU results, we would have profit aligned to our expectations. On the next slide, we have a more detailed breakdown of our profit and revenue, and we have 3 events in the quarter, in the first 6 months, which have a significant impact on the results. So adjustment following the CJEU judgment, higher cost of risk and higher corporate income tax, what translates into net profit for the quarter and for the first 6 months of the year. Our key indicators, let's start with ROE. It's 11.5%, but considering the one-off event, it's 14.3%. So, it's a good result. So, 43% of COF and 37.7% NIM looks robust. And more about it, I will tell you on the next slide. Net interest income includes the adjustment of PLN 153 million, and that would mean that by quarter, we have comparable amounts. And that means that the increase -- that the growth of our business is compensating for dwindling interest rates. And that's the slide I've mentioned on net interest rate. So very high margin of Alior. Last quarter, we communicated -- but from 5.19%, this figure has gone down to 4.5%. And if we exclude this effect, the result would be 5.11%. So that's in check with our aspirations and expectations for our margin and the growth of business. So, we will strive to keep NIM stable at approximately 5%. The cost of financing is going down slightly in line with market trends. Loan-to-deposit ratio remains stable above 70% for a longer period of time and cost-income ratio 37.7%. Fees and commissions. Piotr has mentioned that this is the key pillar of our strategy, and we are happy that fees and commissions are going up by the quarter. So, you can see significant improvement of fees and commission. So, this is the result of higher brokerage commissions, growing volume of assets margin on current accounts. And final part, operating costs. We have declared that we want to be transparent that we want to have a predictable cost trajectory. And this is an example from the perspective of 2025 and the first 6 months of '26, we can compare several quarters. And we can see that the amounts are predictable, comparable between different periods. We see growth by PLN 6 million, PLN 7 million, so 1% by every quarter. And something that we have declared early this year that we want to end this year with costs not higher than those triggered by inflation. So, this is the end of financial part. Piotr, over to you.

[Interpreted] Thank you very much. So, we are keeping our promises. We will be growing. We will be more resilient. We'll be better. And our strategy is translated directly into our parameters. So, in black front, these are results without the one-off event, PLN 1.5 billion worth of profit, PLN 367 million in profit, 11.5% in ROE, 40.3% costs and interest, 5.1% of NPL. So, we are on the right track to deliver the strategy. So, thank you very much for your attention, and we can now answer your questions.

[Interpreted] Thank you very much, Piotr. It's now the beginning of our Q&A session. So, loans for SMEs, one of the most critical segments of the market seems to be stagnating. What are the outlooks for the segment?

[Interpreted] I wouldn't say it's stagnating. We have 2 different trends. We need to reduce double-digit NPL in this segment. Our strategic objective is to keep it below 5%. So we have huge room for improvement. New business, we are reconstructing, we are introducing to our portfolio with other risk parameters. It's quite unlikely that it's going to grow so fast, especially that we are reducing NPLs. So in a while, we'll see this portfolio shrink. But I think more efficiency is on the horizon. We are not shifting our focus from this segment.

[Interpreted] And another question. What is the share of commercial profits subject to CJEU judgment? And how did you take it into consideration in Q2? So what mitigations do you expect also in relation to consumer credits, which have been paid for which this judgment may be relevant? When terms and conditions of such loans were amended?

[Interpreted] Quite a few questions. Start at the beginning as far as I remember everything, the CJEU ruling from April relates to a small part of the portfolio of the consumer loans, about 25%, about 1/4 of it. We already dropped the sale of loans where we generated the noninterest costs. We are respecting the ruling, and we have set up a correction of the interest results on the value of PLN 130 million. And as for the net result, PLN 96 million. We believe that the ruling should be implemented from April date the loans which had been paid off previously. We acted according to the law in Poland and the Polish regulatory authorities, which had not objectives to the practice that we applied. The loan offer rulings were changed 1.5 years ago. So within 75% of our portfolio is being paid off and therefore, the financing of the noninterest cost relates only to a small part of the portfolio, about 1/4.

[Interpreted] Thank you very much. Let's move on to the next question. What is the level of commission income can we expect after a good second quarter? In the results of the second quarter, did we have any seasonal issues?

[Interpreted] No. I think we are witnessing regular business activities. When we consider brokerage activities, it obviously fluctuates depending on the interest of the customers in the activity of the stock market, for instance. But in our assessment, we are witnessing a regular business development there. We expect in the subsequent quarters in the second half of the year, the commission values which will be not lower from what we reported in the first half.

[Interpreted] And the next question, what about the recent period and the mortgage and corporate loans?

[Interpreted] Well, let me say about the environment. It has certainly had an impact. We see a growth in the pressure. We've talked about the business customer. The segments were higher. We are not going to fight for certain contracts, which are not profitable. So, there is a lot of pressure. We consider -- including some modification in installment loans, and we are quite conscious and withdrawing from certain types of contracts because of the lower margins. But we could catch up in other areas, for instance, in the volumes, our mortgage loans are growing well. The leasing activity is growing well. So, it's a trade-off.

[Interpreted] The next question, what are the prospects regarding the consumer loans in the future?

[Interpreted] We view this market positively. The low interest rate is conducive to providing more loans to customers. Consumer loans, as you will notice, were used by some specialized providers. And now the whole of the sector wants to get involved in that because it's such an attractive sector as far as the margins are concerned with the risk, which is well managed and which we can prove that you can manage it well. It's a very profitable sector in the business. So, the consumer loans are certainly on our radar as part of our strategy.

[Interpreted] Thank you. Can you present the current data regarding the financing ratio WFT?

[Interpreted] Well, at the end of the first half, we had 45.3 regarding that particular ratio. We keep observing what's happening in the market. We're observing the changes implemented by the KNF, the Polish regulatory authority with regard to that ratio. And we do not see a problem with meeting the requirements.

[Interpreted] Next question. Why did we have a lower level in the NPL level? Is it the new level of profits with regard to this segment?