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

Hello, everyone. Thank you for joining the presentation of Consolidated Financial Results for the Second Quarter 2024 for Bank Handlowy w Warszawie. I'm Maciej Krywoniuk, Head of Strategy. And with me today is Adam Piotrak who is responsible for Investor Relations and good to see you all after the holiday break. And we will go through the presentation. And following the presentation, we'll be opening up for questions. So before I go into the details of the financial results in the Second Quarter, maybe in the opening statement, just two comments. The first one on the consumer Bank address. So basically, as previously, we will not be commenting on the same process of consumer bank. When there will be information to share, we'll be publishing the Warsaw Stock Exchange reports. I will cover the performance of the consumer bank in more detail during the presentation, of course. And as you have probably noticed, there was goodwill impairments. We have published the current reports on August 14. The impairment is linked through the semiannual tests we perform regularly. Hence I just wanted to share with you that this is one of events linked to growing cost pressures which we see in the forecasted cash flows for the consumer business. At the same time, there is a strong performance we are seeing in the forecast of the institutional banking. With this initial comments, let me move to the summary of the financial results and I will be referring to the presentation which you can find on our web page under the Investor Relations section. So Slide 2 of the deck, that you also see on the screen. So this was the quarter with the revenue above PLN 41 billion with net income of PLN 394 million, as just mentioned, the net profit figure was impacted by this one-off event of PLN 180 million goodwill impairment. Looking at the return to very healthy ROE at 22.8%. I'll be covering the balance sheet in more detail on the headline numbers, the lending was down 7%, and the deposits grew 5%. The total capital ratio was well above the regulatory requirements at the level and it ended up the quarter at a level of 23.6%. Moving on to the segment performance. The key highlights definitely strong revenue performance with 6% increase on the institutional banking side, the strong results supported by FX brokerage and customer operations. Good quarter effects with the volume growth of 9% quarter-over-quarter with the driver of commercial banking clients primarily. In terms of the lending, going into a little bit more details. That was second quarter in a row of higher loan volumes in the institutional banking segments, primarily in Commercial and Corporate Banking segments and linked with the loan growth, we have been communicating the target of PLN 1 billion financing and sustainable lending. It's my pleasure to share with you that with the implementation of sustainable product classification framework we have reached the goal. And one of the examples here is the PLN 1.8 billion of syndicated [indiscernible] for [ CTC ] Group, where we were part of and the [indiscernible] connected with sustainability and KPI. On the consumer banking side, it was impacted by the one-off events in [indiscernible] days with the one of the topline decreased by 8% quarter-over-quarter. The lending portfolio increased by 2% quarter-on-quarter. It was net from unsecured and mortgage, primarily the mortgage lending was driving the growth. And one of our core strategic areas, the Wealth Management's strong set of drivers, I will cover in more details with good performance in FX and the Citi Kantor, which was appreciated by our clients and used heavily especially in the vacation period. And on cards acquisition, we recorded the growth. It was not as dynamic as you could expect 2% quarter-over-quarter, but it's important to say that we have recorded high base in this quarter where the growth was 14%. Okay. So let's move on the next slide, which is Slide 3, where I will cover more details of the drivers in the Institutional Banking segments. As mentioned, second quarter of growth. So we were growing at 4%, excluding to, 4% basically, this was higher than the sector where, as you can see, the sector grew 3%. Commercial banking, corporate clients. These were two segments growing more dynamically. A little bit less growth in the -- a slight decline in the global client segments. However, if you look at the new lending in total for the institutional clients, it was above PLN 2 billion. So it's 4x compared to year-over-year and 3x compared to quarter-over-quarter. On the deposit side, healthy growth across all segments. In the global clients segment, there is flattish deposit base. We can explain that by the fact that there are signs of shifting the deposit balances into investment products, investment products, which are conducted and [indiscernible] by the global banking clients. So on Slide 4, I will not be going into the details, but just a few examples of key transactions that we performed in the second quarter ranging from lending, including the environmental initiative including some services for [indiscernible], which is linked to [ recreation ] of packaging deposit and retracting system. And so there were signs of recovery on the capital markets where we have been a global coordinator for Allegro in the book building for transactions. And good traction on the client activity reflected in the P&L this quarter and the institutional banking. Moving on to the Consumer Bank, Slide #5. Again, here, the growth that we recorded on the lending portfolio was above the market. The mortgage lending grew by 3% quarter-over-quarter. And the unsecured loan portfolio grew 2%. When you look at the mortgage lending, the sale of loans, mortgage loans in the first half was 3x higher compared to the same period of last year. On the deposit side of the balance sheet, flattish time deposits and the current account balance is 1% down. And this is linked to the fact that there is shift happening, hence our clients are moving their deposit balances to investment products. These are left with key asset classes, but the shift is happening and we can clearly see that. I've mentioned vacation period. So basically, [indiscernible] earnings with majority of the bottom process on the top. Briefly June is this month where we -- and certainly, we held a Global Community Day. This year was no different. There were more than -- almost 3,700 Citi volunteers where they participated in different kinds of volunteering projects with more than 20,000 beneficiaries. So as you can see in the pictures, there was a lot of happening. And it was not only our employees, but also we were supported by our own nice NGOs and local governments. So, it was our commitment to [indiscernible] responsibility that is happening throughout [indiscernible] market. There is much more happening in June than in the other months. Coming back to the business performance. So Slide 8, which is the revenue summary. So this is the second quarter of the growth. I mentioned we have been above the PLN 1 billion mark. And basically, this is despite some one-offs that the amount of around PLN 30 million. And segment-wise, the institutional banking was a driver of growth, with 6% growth quarter-over-quarter. And this was driven by the client services. As you can see transactional banking is around almost 70% of the contribution. And so this is primarily the cross-border transactions that we have recorded this quarter and trade. Products that positively contributed to the top line. And there was also activity in the capital markets. I've mentioned some of the transactions on the previous slide. As on the opening slide, custody and brokers, were positively contributing along with effects. A few words of comments on the Consumer Banking, which decreased 8% quarter-over-quarter. However, excluding the one-offs, we will be reporting growth quarter-over-quarter and these are primarily cards and lending both mortgage and unsecured that has positively contributed to the top line. Moving on to the net interest income. Next page. As you can see, the net interest income was at the level of PLN 805 million, slightly up versus the first quarter. With again, institutional banking positively contributing both on the debt securities portfolio, where the portfolio grew compared to the previous quarter and growing volumes of lending that I have shared with you. And basically, on the consumer banking, it's 3% down, but next credit holidays, it will be up 3%. We are maintaining the cost of discipline in the deposit portfolio. And I've mentioned the shift to money market funds and there is this positive contribution from both mortgage and unsecured lending, the [indiscernible] the rates will be going down with [indiscernible]. So the rate cards are ahead of us, but there is still a little bit of time until they happen. So this will be a period of where the rates will be helping our net interest income line. The fees and commercial income, this [indiscernible] of our client activity and it's my pleasure to share with you that the 148 figure and the PLN 148 million that we recorded this quarter, we have been checking it and the last time we were at similar levels for the fourth quarter of 2015. So this is the highest key performance in the last few years. Again, institutional banking with primarily customer, which is up 13% in fees quarter-over-quarter and brokerage, which was plus [indiscernible] quarter-over-quarter where primarily contributing to the growth. On the consumer banking side, it was at the similar level that dates previous quarter [indiscernible] to PLN 7 million this quarter and costs were primarily contributing plus 8% quarter-over-quarter. The investment insurance products, the sales were growing with that data called the 10% growth. However, I shared with you the product mix at the [ skewed store ] or lower margin products, and this is the reflection of the mix that we considering the [indiscernible] commercial line. So these were the highlights of this. Moving on to treasury. We're just -- what you see on the slide involves the clients and investment activity, hence the treasury result [indiscernible] is the highest in the last five quarters. It's a solid mix of both the net interest income and gains. We have realized PLN 21 million of AFS gains in the second quarter. When you look at the portfolio, there is shifts happening towards debt securities, and we are seeing less revised travel transactions in the second quarter. It's important to stress that, that securities are high-quality debt securities and with adequate risk profile. Hence, having in mind the gains is also important to stress that the revaluation is at the level for the PLN 180 million [ allotted ] for the second quarter. So still significantly above last year and basically just a slight comments on the income on the tax, on the client side, the 2% growth was primarily driven by the commercial impact in client activities. So the reversal of trend from the last quarter on the FX revenues from the clients. Last, but not least, expenses. So this is a reflection of our commitment to the strong cost discipline. The headline number 25% down. It's really a function of the regulatory expenses that we have clearly indicated on the slide, which amounted to PLN 99 million in the last quarter. This key figures that you can see the staff expenses are down, that's in the second quarter, this is a function of the lower social security plant costs. Hence we have also completed the refurbishments of our headquarters building and this is very modest that we have building where energy efficiency is much higher level compared to the [ 4 ]. It's also positively contributing to the admin expenses that we recorded in the second quarter. Just one comment to what you can see on the right-hand side of the slide, there is growing -- there are ongoing regulatory costs linked and what I have here in mind is really the consulting expenses. There is a several projects we are working on, including regulatory projects and some transformational projects and these are driving the consulting expenses. You can also see higher depreciation, which is connected with IT projects and investments in our infrastructure. All in all, very healthy cost income level of 32%. On the cost of risk that's release of provisions, and you can see it on the slide, the second quarter where primary driver was the NPL portfolio sale and the consumer banking. And there were also some one-off events that were impacting the institutional banking side. There were slight changes to IFRS 9 where we were reflecting the macro assumptions in our models. And these are primary drivers of the release of provisions that you can see in the cost of risk line for the second quarter. Important to say that both NPL and the cost of risk levels, at the level that are better compared to the sector, and this is a reflection of our credit portfolio quality and our risk profile. Hence in a natural, this is the summary and the headlines of the financial performance in the second quarter. And this is the time when I'm opening up to questions. So in case there is anything you would like to find out more, please reach out to our Investor Relations [ mailbox ]. You have the address. You've address on the website. and you've got our contact details, so please stay in touch. And thank you very much for joining. Wishing you all the best for the rest of Friday and have a good weekend and hope to see you soon. Thank you.