Bank Handlowy w Warszawie S.A. (BHW) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining. It's 2:00 so I think we can start. Welcome to the presentation of the consolidated financial results for Q2 2021 for Bank Handlowy w Warszawie S.A. We've got with us today Vice President of the Management Board, the CFO of the bank, Natalia Bozek, who will be leading the presentation. The presentation will be followed by the Q&A session. So you are welcome to ask questions after the presentation. And with this, Natalia, I hand over to you. So the floor is yours.

Thank you very much. Good morning, and good afternoon. Good day to everyone. Thank you so much for joining this conference as I have a pleasure to present the numbers for the second quarter of this year. Obviously, maybe just as an opening note, I would say that it's very difficult to look at this quarter, not linking this to what happened in the first quarter of this year. So definitely, there will be areas where a comparison will drive a sort of a negative variance. But hopefully, we'll take you through the items which put a very good trend for Bank Handlowy in this quarter, and we do hope to -- this trend will continue in the coming months and coming quarters. First and foremost, starting from the Page #2, where we do have a summary of our activities. I would basically say that this was a quarter of quite a high activity of our corporate clients. In the second quarter, Bank Handlowy supported our clients, especially the ones who are in the digital space and whose major area of activities is transactional on the foreign market. And in that space, basically, with the value proposition which Bank Handlowy has in the space of FX and cross-border payments, these clients were very active. And in that space, basically, we saw a significant improvement on our -- of our volumes and, as such, improvement in our recent commission line. We always were declaring that we are the bank of the first choice for global and digital companies. But what is pretty important to highlight in that particular quarter is that we successfully managed to leverage our experience from our global companies to match it with the local needs of the e-commerce -- domestic e-commerce companies who would like to go abroad. And that specific well-matched proposition included process automation, specific solutions within the space of FX transaction, as well as liquidity management. It is not only institutional client banking which deserve a credit this quarter in terms of the client activity, but also there are some positive trends observed in the consumer business space. The first positive trend is within the spending on credit card portfolio. And we saw that in the second quarter of this year, the volume of the transaction and the spend on the credit cards had increased compared to the second quarter of last year. But most notably data which we have allow us to assume that basically each and every month, these volumes in the second quarter -- these volumes were growing. Last but not least, we also see that the continuation of the strength in July. So we are basically very optimistic that hopefully this trend will continue towards the next months of the second half of the year. Credit card business was one of the positive stories, and considering our 24% market share in the total spending, it is an optimistic view. But also, it was a very strong quarter for our core segment and our key competitive advantage, which is wealth management. In wealth management, we basically recorded a high level of our assets under management, and we also recorded 4% growth since the beginning of this year of the accounts and clients within the segment of CPC and Citigold. That is very optimistic as this translated also to the growth in the conversion to the investment and insurance products, which led to the higher fees and commissions. But it's also a story around the second quarter for the consumer business, which proved to improve net income quarter-on-quarter. And despite this is still a loss, that loss is significantly lower than it was presented in the first half of this year -- in the first quarter of this year. When we look at the financial results, our net profit for the second quarter on the level of PLN 73 million is 19% down compared to prior year. But that is a result of our lower activity in the area of treasury professional market, so especially in -- linked very much to the gains realized on IFS portfolio. Second quarter last year as well as the first quarter of this year had significant gains, while the second quarter of this year was basically very much client revenue story rather than professional market activity. Net profit, however, for the first half of the year attributed to potential shareholders' value of PLN 468 million, which is for the 6 months of this year, over 3x higher comparing to 2020. And at the same time, this is the level which is very close to the PLN 490 million, which bank recorded as a net profit for full 2019. So the first half of this year is a promising factor in terms of the potential dividend payout as only regulator allows for that. And with that, actually, I would basically say that with our tier 1 ratio, which we currently have of the level of close to 21%, we do believe that this entitles us to dividend payout. One positive development in that area has been already achieved. Our regulator allowed us for dividend payout for 2020, but we do hold the strong capital position, together with the high quality of our credit portfolio and a sort of resilience with our clients presented for the pandemic, which was visible in both client activity, and at the same time, low cost of credit will be a good sign for the future allowance of paying the dividend. It's not only net profit and tier 1 ratio, there are other -- some other components of that, which we should say a few words about. It's also about sustained cost discipline, which, obviously, we know that this is a story which Bank Handlowy keeps repeating for quite a long period of time. We are too proud from our very solid expense discipline. However, what I would like to point is that it is something which is a sort of a unique on the market. When we look at the market in the second quarter, especially majority of the banks recorded the growth in the expense base, while Citi Handlowy continuously manages to achieve some savings, which are then translated into the investment in core technology development, and we had quite a few of them in the second quarter as well. When we look at Page #3 and when we -- or Page #4, apologies, when we talk about the institutional banking loans and deposit volumes, the story is, to some extent, mixed. There are some positives within the core strengths of the ICG business. And for that, I would say that is a clearly commercial banking, which is growing 4% versus 2020. It's a positive story. It shows signs of the a positive sentiment with our commercial banking clients present, and the growth of the loan volumes in that segment is something which we believe is a positive sign, especially that when we look at the drivers of that and when we look at the efficiency of that growth, we're basically companies who benefited from export and expanding abroad. This within the Bank Handlowy is even a better story because in that particular segment of our companies going abroad, exporting, we recorded 14% year-on-year growth in -- of the loan volumes. We have, however, reported a decline in loan volumes for the corporate and global clients of 11% compared to 2020, but that is very much driven by payoffs of a few large clients. We do have a pipeline for that transaction to happen. So hopefully, the better story in terms of the reverse trend in that particular segment of our business will be visible pretty soon in the second half of 2021. When we look at the deposit volumes, here, the decline of 2% compared to the fourth quarter of 2020 is, in a way, a good story from 2 perspectives. First and foremost, it presents the activity of our clients. It feels like our clients definitely look at the more positively and feel more positively about the future. They started making some investments. And at the same time, they reduced their liquidity buffer, kept in their own balance sheet. So with that actually, it's one promising factor. And there I think is actually given the current structure of our balance sheet with all in all extremely high liquidity that the decline in the deposit volumes is a healthy sign. When we look at the next page, we -- it is a story which I wanted to share with you in terms of what we did in the second quarter, in particular to the new economy enterprises, which we feel like being a strong partner supporting them, growing their own businesses. We always believe that we are the bank of the first choice, and we had a lot of -- given the market share which we have in our -- within our global subsidiaries group, we do believe that we are bank of first choice for that companies. But what is even more important that we saw a very positive signs within the companies of the new economy, especially e-commerce and within the digital space. And we see that, that company is naturally transact with Bank Handlowy, who has some competitive and clear competitive advantages in the space of the payment and in terms of the FX transactions. When we look at the companies with digital aspiration or being digital, we can see that our deposit volume within that segment increased since the beginning of this year by 55 -- 52%. And what is really important to say that basically, this is -- I mean deposits in that space is sort of a door opener for the other activities that they are doing with the bank. And we've observed that our cross-border payments increased 16% quarter-on-quarter. We recorded 10% year-on-year growth when it comes to the trade financing assets. And also, we saw that the value of the -- the volume of the electronic transaction increased by 5%. That is very much supported and will continue to be supported by our partnership with PayU, which we launched, and that will basically allow our -- it will be accessible for our all ICG clients. And that solution will support them in payments and obviously in e-commerce -- within the e-commerce area. And as I mentioned in the beginning, we also combined our global experience looking from the perspective of our digital space, how to adapt it to local needs of smaller companies with the ambitions and aspirations to be global. And we prepared for them a unique solution and value proposition which involves liabilities reconciliation. It involves cost monitoring, and it helps providing suitable FX solutions. We've been always talking about our luxury, I would say, a fruitful transaction within the investment banking space. Very happy to say that this is not only the clients who appreciated the support Citi Handlowy together with Citi is providing them, but also it was recognized by Euromoney. We have received an award to be the best investment bank in Poland, but it's not only about the award. I just wanted to share with you that we've been active not only in the first quarter, the second quarter was also the quarter when we actively -- we were involved in the issuance of the corporate bonds on local markets of the value of PLN 500 million. And together with Citi partners, we've been acting with Eurobonds issuance of the value of EUR 490 million. The -- what I wanted to stress also is that something which was typically till the, I would say, end of last year a competitive advantage for -- or was a strong sign for corporate clients, like all these IPOs, it was predominantly an activity observed in the large corporate clients. And we -- the trend would be certain within our client base is that, that sort of the activity becomes more and more attractive for our CCB clients. So our smaller commercial banking clients, middle-market enterprises basically find that solution as an attractive and bank obtained IPO mandates from clients in new economy sector. So we might expect more and more that sort of the activities being not only dominant in the corporate banking space,, but also within the commercial banking client base. Consumer business is, overall I would say, a good story in the second quarter. First and foremost, just because that client came back to a sort of a normal customer's shopping decisional behaviors, which we observed pre-pandemic. So we saw a growing number of the spending and transactional volumes in country and abroad. So it is visible that the relief or lifting in the restriction significantly increased clients' freedom, and that was followed by the number of transactions and the volumes on our assets within the credit card space. It increased 1% quarter-on-quarter. That will hopefully be supported even more with the strong sales volumes, which we have observed in terms of the credit card acquisition, thanks to the partnership which we have with our OBI partner. We managed to acquire 39% cards more than it was in the first quarter of this year. So hopefully, that will translate pretty soon in a very good ratio of growing our assets volume in the credit card space. Also, mortgage loans are -- had another good quarter, 4% growth compared to the first quarter. So it is clearly following the market trends. What is less optimistic at this point in time is our cash loan volumes, which declined 4% quarter-on-quarter, and this is also a decline year-on-year. And that is primarily driven by our lower acquisition within digital space, but also it's a reflection of the longer-than-expected pandemic restrictions, especially in the first quarter of this year, which led to the lower acquisition volumes. And that was basically -- that is basically the consequence of the lower portfolio -- declining portfolio. Deposits, this is a very good story in terms of that who is our client placing with us, they are investments. And this is basically the growth visible in wealth management space with the Citi private clients growing 24% in terms of the number of clients year-on-year and also Citigold clients 6% year-over-year. The very good story that is there actually the number of new clients is also followed by the new current account balances and supported by the very good sales and conversion of the investment products. We've managed to increase our investment product volume by 39% year-on-year. And it's also proven that these clients are very transactional ones. At the same time, while increasing number of clients and increasing the balance of current accounts, basically, we've reported 2% growth quarter-on-quarter of FX volume, specifically with the Citigold clients. Page #8 is just a very short reflection of this that as much as we are focused on supporting our clients, as much as we are happy with our -- and proud with our achievements within corporate and investment banking space, about supporting our clients within the consumer business space, it is a huge pride for us also to say that the social responsibility is also extremely important for us. And we -- it comes to the diversity management when we are being perceived as one of the most engaged companies in diversity management, but it is also a huge number of activities, which despite pandemic the bank continues to support seniors, lonely people, but also to providing care for people -- for young people from child care houses. When we talk about -- some key highlights about the profit and loss items. The Page #10 talks about total revenue. And when we look at the total revenue for the second quarter of this year with a total amount of PLN 421 million, it feels like it is a small number compared to first quarter of this year. But definitely, the huge chunk of that decline is driven by our treasury results and primarily bank the gains realized on investment security sale, which happened in the first quarter this year. When we look at the client business, it's slightly declining quarter-on-quarter and year-on-year. But basically, the most important item is that our first quarter of this year included some one-off periodic transactions related to the investment banking, which is typical for that sort of a transaction. Its nature is volatile. So the [ calendarization ] was with us in that space in the first quarter. We are waiting for the new pipeline to materialize in the second half of this year. However, when we look at the client business, which is very much driven and when we look at the compositions of this business and the dynamics, it feels very promising. When we look at them in the second quarter and our year-on-year comparison in the ICG business, we can clearly see that the second quarter of this year -- was third quarter when we saw the growth continuation of the growth year-on-year. So it was third quarter on the route with the strong double-digit growth went on year-on-year. When we look at the consumer business, where the dynamics is more like dependent and behavior of the client, it's very much dependent on what's going on around in the environment, including restrictions, pandemic, macroeconomic situation. We monitor this on a quarterly basis. And we can see that this is the second consecutive quarter of revenue growth. We can see a sort of a slowdown in that growth, but I'm very pleased to see that's the negative trend which we've observed since the second quarter of 2020 have been reversed. Client revenue. When we look at this from the perspective of how we are managing this product, it's clearly the story about some positive dynamics within institutional banking space, but also consumer banking space. When we look at the product when it comes to the institutional banks, majority of them recorded strong double-digit growth, not only quarter-on-quarter but also year-on-year. And basically, when it comes to the consumer business, I would say that a very promising factor is that our credit card business, which accounts for 40% of our revenue of consumer business, has recorded growth quarter-on-quarter and year-on-year. And also, I'm very pleased to see the significant growth year-on-year on our investment and insurance products. And despite it is slightly down compared to the first quarter, it's still a very high level. The net interest income is basically a story of our investment securities and the decline of the net interest income in relation to professional market activities. So as you can clearly see, the 48% quarter-on-quarter and significant decline year-on-year is visible in that part of the net interest income story. But when we look at the institutional banking, core institutional banking client activity, we are observing a pickup quarter-on-quarter by 1%. And when we look at that margin, it's clearly visible that the margin -- we managed to improve our margin on the client assets to 249 basis points, while the overall net interest margin has been impacted by yields on debt securities. Net fees and commission income, the Page #13. It gives you basically the study which we've already discussed in terms of the products. You can clearly see that our net fees and commission on the level of PLN 151 million are growing year-on-year. When it comes to the institutional banking, however, had some decline compared to the first quarter. As I've mentioned, it is very much driven by one-off transaction on capital market, which was extremely strong in the first quarter. But at the same time, the consumer banking space is growing nicely, 4% quarter-on-quarter and 29% compared to the second quarter last year. Treasury activity, well, maybe just focusing on this quarter has not been [ felled ] is FX volume. And I think that it's extremely positive to see that we have a very strong volume growth and, at the same time, FX revenue quarter-on-quarter and year-on-year. And what is extremely supportive is that this FX volume growth is visible across all client segments in ICG space. So basically, global clients and commercial banking recorded phenomenal growth year-on-year and a very strong growth quarter-on-quarter. Operating expenses 6% down year-on-year. And basically, as we can see, it's a decrease or a savings, which we've managed to generate across all the expense lines. We've managed to convert the savings into investments, and that investment in the second quarter of this year very much supported new functionalities of the platform for our institutional banking client. It also meant that we've managed to extend our currency by 10 new currency pairs within Citi Kantor, and that was very much also supporting the new offer launched for local e-commerce companies. And also, we continue to invest in cybersecurity as we clearly visualize that pandemic is not behind us and still a significant number of operation is basically run remotely. Therefore, cybersecurity is very much in our focus, as it has always been. Cost of risk is, what to say, except for the fact that this reflects a very good quality of our portfolio. It is clearly visible within the space of our 18 basis points cost of risk recorded in the second quarter of this year, but this is the third quarter on the road with such a low cost of risk. The NPL ratio is very stable on the level of 3.9%, well above banking sector. So again, proof of a very strong and solid quality of our credit portfolio. But what I will only add is that, that result are achieved not through releasing any sort of COVID provisions. Basically, the COVID provisions which have been taken by the bank in 2020 are still existing. We do not release them, taking conservative approach to look at this what's going to happen in the second half of the year and fourth wave of pandemic, which everybody is talking about. So the question is, to what extent it will hit Poland and to what extent it will affect in commercial and corporate clients within the banking sector? Till now, the clients of Bank Handlowy remained very stable and resilient for the pandemic. But definitely, our conservative approach requires us to be thoughtful about that and to watch what's going to happen, not necessarily immediately with the improving macroeconomic conditions released provision. So this is still ahead of us. And last but not least, there is the summary page of our financial results. Not clearly repeating what have been already said, but also maybe just pointing out the very strong performance of our first half of the year. And as I mentioned in the beginning, the second quarter, to the great extent, shall be looked in conjunction with the first quarter of this year because some of the phenomenal decisions which have been made by our experts within the professional market space recorded a great result in the first quarter. That means that some of the -- that put some of the pressure for net interest income for the bank. But actually so far, it proves to be a very economically justified decision. For the first half of this year, the bank recorded the net total revenue on the level of PLN 1.361 billion, which is 23% above prior year. And at the same time, our expenses remained extremely strong, recording 5% decrease year-on-year. Why? As I've mentioned, still investing in our core competencies to support our clients within the space where they can realize they can grow and at the same time, we can grow with them. Net profit, PLN 468 million, 3x bigger than a year ago and, at the same time, very close to the level which we recorded for the full year 2019. Strong position of our liquidity and strong position of our capital base with a TCR ratio of close to 21%. With that actually, I would pause, allowing -- leaving kind of space for the questions.

We can hear you well, Natalia. [Operator Instructions] I think it was very, very thorough, Natalia. So thank you very much. It seems there are no further questions. If there is anything that you would like to ask for, you know Adam's and my e-mail, so please reach out to us. And from my side, thank you very much and have a good weekend. And we'll hear each other during the next quarter. And in the meantime, just reach out to us.

Thank you very much. Thank you, Maciej. And let me wish each and everyone a very good weekend. And still for those who have some holidays, have a nice holiday.

Thank you. Bye-bye.

Thank you.