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

Hello, everyone. This is the earnings call for the Second Quarter 2025 of Citi Handlowy. My name is Adam Piotrak. I'm Investor Relations head. I'm with Maciej Krywoniuk, the Head of the Strategy and Investor Relations Department. He will go through the presentation. The presentation is available on our website, Investor Relations, Citi Handlowy or you can see on your screen. So let's start. And after the presentation, there will be a Q&A session. Maciej?

Thank you very much, Adam. So a warm welcome to all of you. Thank you for joining. Let me start with Page 2, which is a summary of key events in the second quarter. So what happens on the Consumer Banking segment, we start with the business where we announced on the 27th of May, we have signed the sale agreement, which we published to the market. So following the signing of the agreement, we have also updated the strategic directions, which are bank for global business. This was also communicated to the market. We have prepared the merger plan, and so we are well on track to transfer the consumer banking operations to the buyer, which as per plan is scheduled for mid-2026. There is a series of different approvals, including the regulatory approvals. So we will be executing to get these. In terms of our strategy implementation, we walk the talk in a way. So as you will see in the material today, there's high dynamics of lending growth among the strong banking clients. We announced the payout of the second highest dividend in the history of the bank from 2024 profits. This was PLN 1.3 billion, which translated into 8.3% dividend yield. We informed in fact, last Friday about the KNF approval for the payment of 2019 profits in 2025, which is additional PLN 449 million that will repaid to shareholders. Now moving on a brief introduction on how we change the reporting structure of the bank. It's the first time that we use IFRS 5 which is about assets held for sale and discontinued operations. So we have classified the consumer banking as discontinued operations. And the remaining part of the business will be presented as continued operations sticking to the accounting terms, this includes institutional banking. So the institutional banking covers, as you see on the slide, 3 main areas of activities. The first 1 is markets. But this is both the client business and professional markets. The second 1 is the services, which covers transaction trade solutions and custody activities. And the third 1 is banking. So it's both the lending portfolio and the investment banking activity of the bank. So we will be presenting the revenue the revenue split following these 3 areas going forward, there will be more details around the areas of activity. Now moving on to Page 4, which is a brief summary of the financial results. So key -- a snapshot of key figures at the total bank level. The revenue of PLN 1.1 billion. The net profit impacted by one-offs related to the consumer bank exit at PLN 166 million. This translates into a return on equity of PLN 17.9 million with strong balance sheet growth, strong double-digit figures here, so 14% growth in lending and 19% in deposits with carried on strong capital ratio of 27.1% TLAC TREA ratio. Key highlights in terms of Q2 and activity. I think it's worthwhile, I think the net profit excluding the transaction loss. This was PLN 546 million -- so 26% quarter-on-quarter growth. In terms of the lending, I have mentioned the balance sheet growth. The lending growth is above the banking sector average with loan volumes growing at 7% quarter-on-quarter in the institutional banking. The revenue growth of 7% quarter-on-quarter. It was partly due to strong performance in financial markets, which are recovering on the following slides. And we have reaffirmed our market-leading position in Poland in the custody activities. And just to remind you, our market share is over 40% in custody. We are exiting consumer business, but it's been the third consecutive quarter an increase of retail deposits. Citigold private client portfolio is also growing by 5% quarter-on-quarter. So all in all, good trends in the consumer banking business. Coming back to the institutional side. So Page 5 is the business volume slide. So as you can see, as per our strategic directions that we are executing, that was a quarter of strong dynamics of client assets. 7% growth, which is about the banking sector of 2% quarter-on-quarter, even 19% vis-a-vis the banking sector of 6% year-on-year. It was commercial banking and corporate clients that were primarily responsible for the growth. On the deposit side, also strong volumes with deposits growing quarter-on-quarter 12% versus the banking sector of 6% and 27% year-on-year growth with the banking sector growing at 20%. The financial market trends, the drivers, I would point to value of transactions concluded through the brokerage house, which was up 63% year-on-year. Strong client FX transaction volumes with 7% growth, very healthy growth in trade finance assets with 47% growth in the portfolio year-on-year and also the relationship banking where new financing increased by 36% year-on-year. In terms of the volumes that the presentation here is the transaction. So as you see on the slide, several transactions, from -- ranging from FX solutions for Jerónimo Martins, which was tailor-made, in fact. I think talking about the facts, it's worth mentioning that we have launched the Citi Velocity platform, which is our new platform, completely revisited in terms of user experience, design and functionalities with automational transactions. This also includes reporting and research. We -- there is an option to integrate with client systems. So very much state-of-the-art new implementation that well valued by our clients. We have been supporting Allegro in 2 transactions around accelerated equity offering. As you can see on the slide, we were so partner supporting liquidity of the Polish -- Polski System Kaucyjny, which is a recycling company around product packaging, and we have also granted the syndicated loan. We were in the syndication for the company from the IT sector and the amount was PLN 1 billion total. Coming back for a second to the consumer banking business volumes. This was another solid quarter there in growth in lending in line with the sector at 2% and it was both in mortgage and unsecured loans, which grew 2% quarter-on-quarter. With deposit flattish 1%. But as you can see on the trends high volumes of deposits. And also FX volumes were growing with 2% year-on-year growth in terms of number of transactions, CitiKantor our FX tool available online and 1% growth in the FX volumes on the consumer side. I mentioned at the beginning, the Private Banking segment, strong double-digit growth rates in terms of the total relationship balance as well as a number of private clients and slightly flattish or down trends in terms of that card volumes, the card transaction value was flattish, in fact, 1% down domestic and cross-border was down 7% year-over-year. Not going into details on the next slide in terms of the Global Community Day. I think it's just worth mentioning. We've been doing volunteer projects for 20 years now. So it's an important year for us we are present in the different volunteering programs. We are supporting different disadvantaged groups and we carry on work for the environment, 2,300 of volunteers with more than 13,000 hours and 20,000 beneficiaries in the whole program this year. So something to be proud of definitely and something we do for the community we operate in. And just briefly on Page #10, which is the implementation of IFRS 5. This is linked to the carve-out of the Consumer Bank and presentation of the discontinued operations. So as you can see on the walk, that's the walk on the bank's net profits and how we arrived at the PLN 546 million of net profit, excluding the loss on transaction, the loss was PLN 381 million and the reported net profit, as you can see, is PLN 166 million. So happy to give you more details in the case there are questions. But just 1 point to note, the PLN 381 million number, this is the conservative view. This doesn't include the PLN 100 million earn-out if we recognize the earn-out, this will be recognized as revenue in the next year. The revenue page, which is page 11. So this is the Institutional Banking revenue. So the continued operations and the revenue growing both quarter-on-quarter and year-on-year, with 7% quarterly growth and 3% yearly growth. I think strong Q2 with strong markets business and realized gains there. But as shared with you, definitely a set of solid business volumes in this quarter with growth of assets around 19%, strong custody, strong foreign exchange activity and strong trade. So these are the businesses I would point to. If you look at the revenues in terms of the management view on the 3 areas I have shared with you in the beginning. So markets, they represent 43% of the mix, services are to 51% and banking is 6%. Now the consumer banking revenues, they amounted to PLN 276 million. This is a decrease of 7% year-on-year. And this is a function of falling interest rates in the second quarter. The net interest income. So following the 50 basis points decline in rates, the net interest income is slightly down 3% quarter-on-quarter and 5% year-over-year. And the fact that as said, net interest income, the PLN 530 million in the second quarter. The decline in rate is slightly compensated by the growth of the lending portfolio. If you look at the right-hand side and the dynamics of interest income from the nonfinancial clients, they are up 22% quarter-on-quarter and 24% year-on-year. The consumer banking net interest income amounted to PLN 232 million. This is, again, the function of the rate sensitivity on the consumer banking side. In terms of the fees, which are on the next page, they are 4% down quarter-on-quarter. There was one-off transaction in the first Q, the IPO-related revenue that we booked, there were no significant one-offs this quarter. So more on a comparable basis in terms of the fee year-over-year, it's ex one-offs and is 3% growth. In terms of the consumer bank, PLN 40 million of fees in the second quarter, slightly lower fees. This is a decrease of 9% year-on-year and slightly lower fees in the installment products, which, on the other hand, we have reported increased fees in the investment product sale. All in all, the quarter-on-quarter revenue -- fee revenue is kind of stable. The treasury activity, 15% growth quarter-on-quarter, so strong performance here and realized gains, as I have shared with you, that you can see on the treasury results graph, 10% growth year-over-year, and we have reversed the trend of the revaluation reserve, which is a positive news on the page. Now moving on to expenses. So we carry out the cost discipline. If you look at the graph of the operating expenses, you see that the costs were down this quarter. They amounted to PLN 171 million. The first quarter was impacted by one-offs primarily to the regulatory expenses. So the first and the second quarter are hardly comparable. However, I think what stands out is the cost-to-income ratio of 20% on the quarterly approach. When you look at the types of expenses, we have recorded growth, but it's primarily staff expenses and regulatory expenses that has been growing in the first half of the 2025. And all in all, the cost base was flattish with 1% dynamics. In the consumer business, the operating expenses amounted to PLN 223 million. which is an increase by 23% year-over-year. I would point to 3 components of the growth, the regulatory costs of the BFG charge the transaction-related expenses. As you know, we got in the process of exiting and then there are some specifically transaction-related costs that we have booked and there is also increase in the staff cost line on the consumer banking side. Cost of risk, cost of risk, so only PLN 1 billion of provisions books and booked in the first quarter, which is, again, the reflection of the high quality of the lending book that we carry on the books better than market coverage ratios and NPL ratios. The cost of risk on the consumer banking side is at PLN 1 million. The positive result of write-offs and the positive impact was driven by the NPL portfolio and also positively contributing to the P&L by PLN 10 million. You'll see also the coverage and share of Stage 3, where we are significantly better than the banking sector. So in brief, this is the set of figures that we wanted to share with you for the second quarter. Some new reporting cuts, as you have seen, and this is something that will be continuing following the implementation of the IFRS 5 this quarter. So I might expect some questions around the numbers. So we are opening the Q&A session just now.

I believe it was clear for everyone. So if there are no questions. So thank you very much for joining. We are available both by e-mail and on the mobile phone. So if you need anything, you will just reach out. Again, thank you for your time, and have a good rest of the day.