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

Hello, everyone. Welcome on Citi Handlowy financial disclosure for first quarter 2025. My name is Adam Piotrak, I'm the Head of Investor Relations. I'm with Maciej Krywoniuk, who is the Head of Strategy and Investor Relations Department. He will go through the presentation. The presentation, you can see on the screen, also you can find on our website. Maciej?

Thank you very much, Adam, and welcome, everyone. Thank you for joining the call where we will discuss the Q1 earnings for Bank Handlowy w Warszawie S.A. Before we start, we -- I just wanted to share with you that we still are in the process of exiting consumer bank and as it is with such projects and important milestones, we will be sharing with the market participants in the form of a report to the Warsaw Stock Exchange. So let me turn to the results. We have shared the presentation with you, it is also available on our web page. So I am referring on Page 2, which probably you can see on the screen as well. So it's my pleasure to share with you that it's been a good opening of the year. We have recorded the balance sheet growth, which was driven primarily by the corporate lending volumes and we have reached a record high level in the balance sheet size. So it's a landmark for us. So on the financial results itself. The revenue exceeded the PLN 1 billion mark. So it was PLN 1.076 billion (sic) [ PLN 1.067 billion ]. The net profit, we have concluded the first quarter with a net profit of PLN 435 million, which translated into ROE of 20%. The balance sheet dynamics. I have mentioned the record levels, the lending grew by 12% year-on-year, the deposits portfolio grew by 9%. And capital position of the bank remains very strong with the TLAC TREA ratio at the level of 26.5%. Moving on to the segment performance in the Institutional Banking, the top line was lower by 11% quarter-on-quarter. It was partially a reflection of the base effect in the fourth quarter when treasury activity was very strong. On the other hand, let me draw your attention to the core revenues, i.e., the net interest income and fees and commission income. By the way, they represent around 90% of the revenue line. So the core revenues, they grew by 2% quarter-on-quarter, primarily driven by the higher demand for financing among our clients. As you can see on the slide that the nonfinancial and financial clients' volumes increased by 8% quarter-on-quarter. And in fact, each of the segments positively contributed to the growth. The transactions, we have concluded similar transactions. I will be covering them on the following slides, but the new volumes, just a comment here, 76% is the share of the long-term loans. The financial markets, it's been a quarter with slightly lower FX volumes, again, the effect of the very strong performance in Q4, but on the other hand, our brokerage business that achieved very, very strong performance and the turnover grew by 63% quarter-on-quarter. The transaction banking in the quarter was the one with the growth of average trade finance assets by 6%. So all in all, strong client activity, which is reflected in the core revenues. On the consumer banking, stable revenues ex one-offs. So we have recorded positively contributing valuation of capital investments recently, this quarter, and there was no such event. So ex one-offs, it's stable revenue performance. The deposits growth 1% quarter-on-quarter and the tax in consumer grew by 16% quarter-on-quarter. So good news here and the wealth management with strong performance and investment product sales, which grew by 30% quarter-over-quarter. Moving on to Page 3, which is a page describing the business volumes in the Institutional Banking segments. I have briefly commented in the beginning on the lending growth. When you look at the right-hand side of the slide, where we can see new lending to institutional clients, it's been 3x versus the same period last year. So significant growth here. It's also reflected in the lending volumes that you can see on the left-hand side with strong dynamics, which are significantly above the sector with the bank's performance plus 8% quarter-on-quarter vis-a-vis the sector of 2% and year-on-year growth of 17%. So very significant growth here with the banking sector growing 6% year-on-year. The corporate clients represented most of the growth this quarter with 19% increase quarterly. The deposit volumes, both year-on-year and quarter-on-quarter, growing 12%. The quarter-on-quarter growth was above the sector or slightly below the sector if you look at the year-on-year. There was strong inflow of deposits from the public sector claims, you can see that it almost doubled with 91% growth in volumes quarter-on-quarter. The transaction volumes briefly commented on them in the beginning of -- in the opening slide across all of the areas, you can see that FX volumes were up 13% year-on-year. Transactional banking not only the trade finance area, but also more transfer related to areas that recorded growth. And custody where we are the leading bank with #1 position in the market, the market share increase by 4.5 percentage points in the first quarter. Then Page 4 is just showing you some of the key flagship transactions that we have concluded in the first quarter. It's a brief representation of what we have been doing. In fact, it's my pleasure to share with you that these top transactions, they are not only covering the top segments of the corporate banking clients, they also include Commercial Banking segment. So it's the indication that also the commercial banking clients are active in the complex transactions where our relationship is very strong. And these are just the public transactions that we can share with you, there were many more and maybe drawing your attention to the EBRD on the left-hand side, it's 1 of the transactions supporting the energy sector transformation in Poland, which is a country priority. And at the same time, it's 1 of our strategic pillars for the next years. Moving on to the Consumer Banking, which is Page 5. It's been a quarter where investments and FX product areas were recognized with a strong performance. CitiKantor which is our online tool for FX, recorded double-digit growth rates. When you look at the volumes, the lending volumes are flattish, 1% down. The banking sector was also flat with 0% quarter-on-quarter. Looking into more details, the cash loan sales were up 6%. This has been another quarter of growth here. However, we are looking forward to the lower rates following the rate cuts talking to the business. We hope that there will be some more demand for the lending in the coming quarters. The deposit volumes, the quarter was 1% up quarter-on-quarter with the banking sector plus 3%. There were some promotional offers. They served the purpose to acquire clients, especially the affluent clients. And what we usually do is we -- in the affluent segment, the deposits are the starting point of the relationship. And once we recognize the needs of the clients we are cross-selling to investments. It's the model that proved to be working and I think it's important to share that in the times of the turbulent environment, which was the case in the first quarter, we are very close to our clients, and the clients underlying that relationship managers in the wealth management space are important partners for clients in such periods. You can see that in the wealth management, which is under the Private Banking section on the right-hand side of the slide, the total relationship balance grew by 6%. The client portfolio grew by 6%, slightly -- slight declines in the card space on the transaction value in the domestic transactions and cross-border, which is kind of seasonality, but also this year was slightly lower than last year, as indicated in the beginning, with this turbulent environment and market volatility, significant growth rates on the FX volume side. And moving on to the next page, just to share with you, like we are still active in the social impact space, I'll be not going into the details, but just a reflection of the program that we have for the refugees from Ukraine where we support through mentoring and support programs, and it's been executed with support of Citi Foundation, some humanitarian actions, both in Poland and Ukraine, happy to share more details if you're interested. Coming back to the business side of things, Page 8. going through the P&L, the total revenues, yet another quarter with revenue above the PLN 1 billion mark. It's been down quarter-on-quarter. So let me share some color on that. On the Institutional Banking side, the total revenue on the Institutional Banking was down 11%. And has been primarily impacted by financial instruments held for trading. However, if you look at the core revenues, they were up quarter-on-quarter. Going into more detail on the clients' revenue. The growth here was 9% year-on-year. It's been driven by the demand for financing that we have discussed just a while ago. And you see healthy growth rates and it's a reflection of the solid client activity. On the Consumer Banking side, the total revenue was down 6% quarter-on-quarter. I mentioned the valuation of equity investments in the fourth quarter, so this is the impact that you're seeing, and this is what's behind the decline, the core revenues are stable on the quarter-on-quarter performance. Moving on to net interest income. It's been stable quarter-on-quarter as well as year-on-year. Going through the segments on the Institutional Banking side, the interest in cut was positively impacted by 17% growth of the lending portfolio. The impact here was also linked to the maturity of bonds portfolio. So this is a combination of these 2 factors. The consumer banking, the net interest income was impacted by slightly lower interest income, that's the reflection of the product mix that was the case in the first quarter. On the interest expense, I can briefly discuss the attractive deposit products for affluent clients. This is where the higher interest in expense is coming from. This is cross-sold to the investment products and maybe just a comment here on the recent rate cuts. So we got questions in the morning on the Polish call, what's the impact of the 25 bps, so we -- the impact for the bank is PLN 45 million for each 25 basis points cut. It's also difficult to translate it one-on-one, just a headline number, but there is more details behind it. Like it will depend on the interest expense, the hedging situation and market trends as well. But just broadly to give you a sense of what's the magnitude of the rate cuts and what's the impact size. On the fees and commission line, PLN 151 million in the first quarter. It's -- when you look at the trend, it's one of the record levels. It's driven primarily by Institutional Banking. We have discussed now. So loans positively impacted here. On the quarterly view, cards also contributed to the piece with 13% quarter-on-quarter growth. And the fee revenue is also a reflection of the transactions that we have executed in the first quarter and in general the strong client activity that was also visible, the -- especially in the Institutional Banking segments in the first quarter, having in mind the market situation and turbulent environment. Page 11, the treasury area. So the quarterly treasury result was PLN 773 million, 10% down quarter-on-quarter. The decline, as you can see on the graph on the left-hand side is primarily driven by the trading results. We have recorded PLN 40 million of FX gains and the -- the net interest income, which is also the reflection of the balance sheet, which is on the right-hand top side. So basically, there is slight decrease of the share of the debt securities portfolio. We always underline that it's high-quality debt securities portfolio, but the client portion of the balance sheet is growing which is also a reflection of our business efforts and client demand. Positive sign on the revaluation reserves, it improved by PLN 40 million in this quarter, which is also a good news that we can share with you today. Page 11 (sic) [ Page 12 ] expenses. So we have been consistently recognized by the cost discipline. This quarter, it has been no different. So both the quarter-on-quarter trend and the year-on-year trend is positive. Some details behind the numbers. The admin expenses, they are down both quarter-on-quarter and year-on-year. The main reason here and the driver of the decline is primarily the real estate expenses. We have finished the refurbishment of headquarters. So it's part of the positive impact here. On the other side, you see the growth in the staff expense side. There is a slight increase in number of employees. And in fact, there is no 1 area that's responsible for the head count growth. It's across the bank. And there is definitely some wage pressure that we see which translates into elevated staff expenses both quarter-on-quarter and year-on-year. We have also recorded growth in regulatory expenses. It's the green bar that you can see and it's -- the growth here is from PLN 99 million to PLN 109 million in the regulatory expenses line. It's traditionally recognized in the first quarter. So more of a one-off event in terms of the calendar. But it's been well accommodated. And all this achieved with inflation around 5%. So the cost discipline was and will be 1 of our focus areas definitely. Cost of risk, Page 13. This quarter, we released provisions on the consumer banking side. That's driven by some positive trends in the portfolio quality in the credit card area. So-called consumer banking positively impacted the P&L this quarter. You can see that with PLN 8 million cost of credit in Q1, it's more of a normalized trend and in the Institutional Banking side, despite the growth rates, so it's looking at the quality of the loan book and both the coverage ratio and Stage 3 -- share of Stage 3 in our lending portfolio are better than the market in the sector. So it's a reflection of our credit policy and the target market. So despite of the growing portfolio, the growth that we record is -- we have not been expanding the target market. The growth is achieved in the segments that we have been active in so far. So in a nutshell, that's the summary of Q1 performance, and it's the time when we are more than happy to take your questions. Okay. If there are no questions, so thank you very much for joining. Please reach out if you need anything. So you've got Investor Relations contact on our web page. Thank you for joining, and have a good rest of the day.