Bank Millennium S.A. (MIL) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Bank Millennium Second Quarter/First Half '26 Results. As usual, with us, we have Mr. Joao Bras Jorge, our CEO; Fernando Bicho, Deputy Chairman of the Board and CFO. My name is Dariusz Górski, I am Head of Investor Relations. The structure will probably be similar to what we did in the past first. Joao will guide you through our business achievements, and there's a lot to talk about. It's been a very strong quarter for us. Fernando will follow with details of financial results. And after that, we will be ready to take your questions. Gentlemen?

Good afternoon, and thank you very much for your participation. We will have just one slide before Fernando go into more financial and operational details. In the fall of 2024, we present our strategy, value and growth. And in that strategy, we explained that we would like to increase the volumes of the credits of the bank, particularly in the corporate side. And now that we already crossed 1.5 years, we are very happy to present the results that we are showing on Page 4. And in the Page 4, you can see that we have total deposits grew 16% year-on-year. Total net loans grew 10% year-on-year with a record level of PLN 81 billion. Consumer loans grew 5% year-on-year. Corporate financing grew 32% year-on-year with loans up to 41% year-on-year. Leasing portfolio grew 8% year-on-year and growth of investment funds was 25 -- 27% year-on-year. This is already a big demonstration of the new dynamics that the bank is having. And moreover, the commercial momentum is even increasing. In the right side of this Page 4, we can see that the active retail clients already achieved 3,354,000 with year-to-date, so just on this half of the year, the growth was 83,000 active customers with maintaining the high digitalization of this customer base with 94% of the customer being digitally active. In terms of origination or sales, the first half of the year, we had in cash loans PLN 4.2 billion of cash loan sales, and this is 18% higher year-on-year. We had PLN 5.2 billion in terms of mortgage disbursements, and this is almost 3x higher than a year ago. Corporate loans, PLN 6.5 billion of origination, 77% higher than a year ago. And even leasing that was in the previous quarters, a little bit less dynamic -- than the other areas of the corporate already presenting PLN 2.3 billion of new leasing sales 21% increase year-on-year and factoring turnover PLN 17 billion of invoicing, which is 25% increase year-on-year. So as I said, and this is shown also in the Page 5, the bank is progressing and even gaining momentum in terms of the commercial activity. The growth in terms of active customers and deposits has been significant since the beginning of the new strategy. So it's -- it's -- I would say that it's already -- the market is already used to that. The corporate, particularly in the middle of last year started to grow in a more intensive way. And now it's also the rebound of mortgage that supported very well this growth of the credit for the bank. And so we are very confident about the targets that we have for 2028, the business targets, but also the profitability targets in terms of return on equity, cost to income and all the other targets. So I would pass now to Fernando.

Thank you. So I will continue with Page #7 with the main financial achievements of the first half of 2026. Also financially speaking, we have a significant improvement. Reported net profit during the first half of this year reached PLN 708 million, which represents a growth of 39% year-on-year, supported by a resilient net interest income despite a lower interest rate environment when compared with one year ago. Some compression of the margin, but already being also offset by growth of the business volumes as it was already explained. Also a better performance in terms of net fee and commission income, relatively low cost of credit risk also deceleration of overall cost growth and much lower costs related to FX mortgage. And so all these combination of these factors helped to more than offset the much higher taxation that we are facing in 2026 with a corporate income tax of 30%, which, in fact, translates to an effective tax rate over 40%. Return on equity at 14.5% and NPL ratio, again, further improvement, reaching a new all-time low of 3.4%. On the capital side, very solid and strong capital position with a consolidated total capital ratio of 17.1% and a Tier 1 ratio of 16.1%. Both of them were supported in the first half of the year by the issue of AT1 in January. Further on, we still -- after the approval of the -- for regulatory capital purposes of the subordinated bond issued in May '26, we will have a further significant improvement of the total capital ratio. So we have now surpluses over 5 and 6 percentage points in terms of the main capital ratios. We also keep very solid buffers over the minimum MREL requirements. And also, we are already complying with the long-term funding ratio according to the new formula that was approved and communicated last Friday. So also with a significant surplus above the minimum. Anyway, we were -- even if the formula had not changed, we would also be fulfilling the -- previously designed ratio. And we keep the loan-to-deposit ratio at 58%, which gives a very strong liquidity position to support the future lending growth. On Pages 8 and 9, as usual, we summarize key profit and loss items and other key indicators, but I will go through the most important of them during the next pages of the presentation. So I would move to Page #10. So apart from this growth on the first half next -- this year, a profit of by 39% versus one year ago, we also registered in the second quarter a net profit of PLN 408 million, so a significant improvement also versus the previous quarter. And in terms of overall performance, we have from one side, a growth of operating income without extraordinary items by 1% versus the growth of operating expenses by 6%. I mean, comparing second quarter '26 with second quarter '25. And so it is visible the deceleration of the cost growth, especially when compared with the previous two years. Also visible, it's already the better level of return on equity with the return on equity in the second quarter reaching 14.8% and 13.5% for the first half of the year without adjustments related to the contributions to the banking resolution fund. On Page 11, we see the evolution of the NII. And the NII in the second quarter was flat versus the previous quarter. And in the first half of the year had just a small decrease of 3% versus one year ago despite the significant decline of market interest rates. The decrease of the net interest income was partially offset by a growth of 11% year-on-year of net fee and commission income, supported mainly by commissions coming from insurance, payment cards and investment products. The lower interest rate environment, of course, has been translated gradually in a decline in the average yield on loan portfolio. At the same time, there is a gradual decrease on the average cost of the deposits. And so the net interest margin in the second quarter was at 3.4%. On Page 12, visible deceleration of the growth of operating costs, a growth of 9% year-on-year during the first half of this year, so already a single-digit figure. When we look at second quarter '26 versus second quarter '25, the growth is only 6%. And on the other side, we have a relatively stable number of employees with small fluctuations up and down through the quarters and a small decrease in the overall number of the branch network. On Page 13, the credit quality continues to be strong. The NPL ratio fell to 3.4%. As a consequence, the cost of risk continues to be relatively low during the first half of the year, it stood at 34 basis points over total loans. In the second quarter, the cost of risk was further supported by the sale of NPLs, which had a positive gross impact of PLN 70 million. We also would call the attention to the fact that not only the NPL ratio is decreasing, but at the same time, we continue to increase the coverage ratio of impaired loans by total provisions, which went up to 82% compared with 76% one year ago. And once again, despite the sale of NPLs, which typically is done with loans that are significantly or totally provisioned or already written off. On Page 14, the evolution of capital ratios. I already mentioned the most important, so much above the minimum requirements in all the different tiers, including the common equity Tier 1 ratio, Tier 1 and total capital ratio, so significant surplus. Total capital ratio still will benefit from the inclusion of the subordinated bonds in the total. And so this also gives the capacity for the bank to support the continuation of a strong growth, specifically in lending. On Page 15, the picture about MREL ratios, also a significant surplus over the minimum requirement. And I already mentioned the status of the long-term funding ratio, which is also already fulfilled before its implementation in the end of December this year. On Page 16, regarding FX mortgage legal risk, we continue to have a significant drop in the overall legal risk costs compared with the previous periods. So in the first half of this year, the pretax legal risk costs, mainly provisions dropped by 65% year-on-year. We also had the lowest inflow of court cases since 2020. The cost of provisions, the legal risk cost in the second quarter of '26 was also the lowest since 2020. And so although the costs are yet -- are still material, they show a significant decrease versus the previous year as it was expected and as we had expected during previous investor conferences. So moving now to the second part of the presentation. A very strong business momentum on Page 18. We see that, first, we have a loan growth of 10%. It's a long time since we had a double-digit loan growth after also some of the restrictions that we have gone through. So for the first time in a long period of time, we have a total loan growth of 10% year-on-year, especially fueled by the growth of loans to companies by -- including factoring and leasing by 32% year-on-year, consumer loans by 5% and mortgage already growing, although modestly by 1%, but also for the first time in several quarters, we have the return of the growth of the PLN mortgage portfolio. As a consequence of this evolution, the structure of the loan portfolio is gradually changing. So there is a gradual dilution of the share of PLN mortgage in total loans, which is now below 44%, while there is a growth of the share of loans to companies, leasing and factoring. On the customer deposits, very strong performance, overall growth of 16%, of which retail loans grew by 17% and investment products growing by 27% year-on-year. On Page 18 -- 19, sorry, the growth of the loan portfolio is supported by very strong sales results, as it was already mentioned in the beginning of this meeting. On the retail side, the overall retail loan portfolio grew 1%. There is still a small depression in the loan growth due to the still decrease at a fast pace of the remaining FX mortgage portfolio. But as I said, it is visible already the return to growth of PLN mortgages and also the growth of consumer loans. So in fact, the retail loans would have grown 2% without FX mortgage. And we have a significant increase in sales, both in mortgage, almost 3x higher than one year ago and in cash loans, 18% growth year-on-year. On the customer fund side, what we would highlight is also a change of the structure with a faster growth of current and savings accounts in retail at the expense of term deposits. On Page 20, a continuation of a solid and resilient growth of the retail active customer base. So in the second quarter, we had a net growth of 40,000 clients in retail, net growth, not gross growth. So which implies an overall growth -- net growth of 160,000 customers during the last 12 months, bringing the total number to more than 3.3 million active customers in retail. This is also being followed by a steady growth in the number of micro business clients, which is one of the segments in retail. And then, of course, all this customer acquisition translates into a significant increase in the number of current accounts and payment cards. The next pages illustrate also the evolution in digital, again, continuation of the trends that we showed in previous periods. We would highlight this time that 80% of the active digital customers log into the bank only via the mobile app. We have more than 3.16 million active digital users of which 2.99 million are active mobile app users. So next time, we will already show a number above 3 million. We have 2.52 million active customers that are mobile-only users. On Page 22, the omnichannel strategy is, of course, supporting significantly the servicing and sales to retail customers with very high shares in the sales of cash loans, current accounts, term deposits and junior accounts. On Page 23, together with the significant growth in customers and also in digital usage, we are, at the same time, providing additional solutions, security and convenience to our customer base through different initiatives as it is shown on Page 20 -- 23. Page 24, we are also, at the same time, strengthening the omnichannel assistance through the mobile app, through consultant support, improved accessibility and self-service. Page 25, we continue to invest in the development of the multibank cash back platform also following agreement with PSP, and we continue to see a significant increase in the number of users using the cashback service and in the amounts of cash back that were paid out. Page 26, switching now to corporate, very strong momentum in the financing of companies has been kept and accelerated during the second quarter of this year. So total portfolio grew by 32% year-on-year, of which loans were up by 41%. Also, we had very strong growth in terms of the leasing portfolio and factoring portfolio. And so the numbers already allowed to have a significant increase in the overall exposure to company's financing that crossed PLN 25 billion and is supported by much stronger origination than in the homologous period of last year. Also, as it was already mentioned, leasing sales have picked up in the second quarter of this year and overall grew 29% versus the homologous quarter of last year and 21% in the first semester and also the significant growth in the factoring turnover by 25% year-on-year. On the company deposits -- company's deposits, what we would highlight is the positive change of structure with a higher share of current accounts in the total deposits, but overall with a growth of 10% year-on-year. So these are the most important highlights of our second quarter and first half results, and now we will go through the questions. Thank you.

Thank you very much, Fernando. As you were presenting, a handful of questions has arrived -- had arrived. Let's me start with questions relating to loans and deposits, and let's here give the floor to Mr. Joao Bras Jorge. Let's start from mortgages. Is share of refinancing in new mortgage sales still hovering around 40%? Second question about mortgages. Do you expect momentum on mortgage sales to be kept in the second half of the year? And also loan spreads development for new mortgage loans and in the corporate segment, please. So let's do mortgages first, corporate segment.

So yes, yes. In the morning, I said we are 35% to 40%, and it's 35% looks like it's the run rate of this month, but 40% is more adequate one, yes. It's around 40% the share of refinancing the new mortgage sales. Yes, we expect that the volumes that we will have in the second part of the year would be similar to the volumes that we had in the second quarter. So it's around PLN 1 billion disbursement per month. So this is our expectations as well. And what can I say about the spreads? Spreads have compressed, but a very small compression in terms of mortgage. At the moment, the biggest part of the production of mortgage loans in Poland are fixed rate or a 5-year fixed rate loan. The Bank Millennium at the moment only offers a 5-year fixed rate loan. We will see if we will change to flexible rate as well in the -- with Polestar. But at the moment, it's what we are doing. So sometimes there is some changes also connected with IRS changes and so all of these changes. But I would say that in terms of mortgage, there was slightly -- a small compression, particularly compared because the question is also about corporate. And in corporate, we see the compression of the margins. This is not new. Quarter-by-quarter, we always express that we would accumulate price concessions in the corporate, of course, but we would not accept risk concessions. So we prefer to take 20 basis points if needed, to have gain a relation and to gain a customer than to accept some transaction that is a little bit more compromise in terms of risk assessment. But of course, this needs to be compensate by volume. And also, we need to make these in medium transactions in order to allocate well our capital in corporate relations that also we can leverage later on in other kind of relations, transactionality, FX and all of the other business. But it's clear that the market in corporate is very active. There is a lot of transactions. It looks like the companies after a time that they were investing using their own means and also making a lot of projects under the European Union funds it looks like there is a new phase that will require more financing. So we would expect as we are having good numbers that all the sector will present good numbers in terms of volumes, but some aggressiveness in terms of the spreads in corporate, particularly.

One of the participants is asking about the difference between the average interest rates on the back book and new production per segment, but you largely covered that. So maybe consumer is probably the only left...

Yes, it's -- but consumer is the one that is more indexed, the pricing for the interest rates directly because, of course, the interest rates go down, also the offer is going down. I think in Page 11, we have a very clear -- of course, it's blended, so it's everything together. But it's very clear the decrease, especially year-on-year in terms of the interest on loans, particularly if you compare versus interest on deposits. So I would say that the new production in -- it's -- the biggest margin depreciation is in corporate after that is consumer loans and then it's mortgage, I would say like that.

Now questions about corporate lending in volumes this time. What growth rates does the bank expect for its corporate loan portfolio, excluding leases by the end of the year? What is the outlook for '27 and '28?

I would say that we are having the volumes today that we would like to maintain. So it's -- when we present our idea about doubling the corporate portfolio looks too ambitious in 2024, in the fall of 2024. And of course, now looks even more than realistic looks like we are overachieve it. But we want to build the portfolio with time, exploring each relation, assessing each transaction. So I would say that we would maintain the growth in net terms as we are having PLN 3 billion to PLN 4 billion per year, let's call it like that. But as the portfolio is going -- is getting higher, of course, the percentage will getting lower. But we are at speed that we want to have. We do not want to speed up. We want to do what we are doing at the moment in a very consistent way quarter-by-quarter up to 2028.

We'll now make a small detour. I'll move to Fernando. There's a question about the structure of the breakdown of the corporate book in terms of sectors and the changes that occurred since last year.

As it was already said in the previous conference three months ago, the growth of the loan book is relatively diversified. We are trying to have a balanced growth of the financing to companies for different sectors of activity, avoiding excessive concentration. Of course, we are also subject to the demand and the demand is not uniform from the different sectors of activity. But generally speaking, we see more appetite for investment, which is also supporting more demand for loans. This is also visible from market statistics that shows some acceleration of lending to companies in Poland in the recent periods. So overall, when we look at the picture of our corporate financing to companies one year ago compared with now, of course, it's not every -- not all the sectors, not the exposure to each sector did not grow at the same pace. But I can say, generally speaking, that we have been increasing the share of -- in financing of manufacturing, retail and wholesale trade and energy sector. So these are sectors where we have increased the share in the total loan portfolio, while there were a few others where the growth was slower or even did not grow, including in some sectors that can be more affected by high energy prices. So here, we are being careful in terms of managing this growth. But as I said, it also depends -- sometimes the change of proportion also depends on the demand that is coming from companies in specific sector of the economy.

Thank you. Now a few questions of -- regarding the deposits. First, it seems that one -- it has been one of the strongest retail deposit growth quarters, including the number of current accounts. Has there been any particular strategy behind such growth?

No, not really. We -- for us, it's clear that the mix is important. So in Page 26, you can see the corporate. So in the corporate, we are when we would like to be. So it's in a very stable time deposit portfolio that -- where we price it in a very rigorous way and all the growth will come more on the current account side. Of course, the corporate accounts, there are between -- in corporate between small organizations to big organizations. So we have different characteristics. But I would say that this is -- as we put more transactionality, improve our wealth services and everything, we would like to keep growing on current accounts, but there is nothing special that we are doing there. On the part of the retail on Page 19, we are for some time, as you can see even for one year like that, we are trying to grow on savings account and current accounts. So we have sometimes it's not everything through current accounts, it's current accounts and savings account. We believe that this is more mass market. This is more adequate for our growth. The bank is extremely liquid. So to pay costly time deposits is something that does not make sense unless it's an investor affluent customer that is also investing or something like that. But in -- as a time deposits gathering, it's not a profitable game for us. So we would keep growing in current accounts and in savings accounts for mass market. They've -- sometimes they have some promotions, but in a regular way, they are much less remunerated than time deposits. So I think it's more -- it was more success of previous strategies than anything specific that we did this quarter in our -- in our total deposit strategy, I would say.

Just adding that because it's going to be the next question regarding the evolution of the average cost of the deposits. So there was a decrease, not very significant, but there was a decrease in the second quarter. There is a -- there will be a trend of continuing to have a gradual decrease in the average cost of the deposits. So we expect these effects to continue. It always takes some time after the cuts of interest rates to -- that this is reflected in the average cost of the deposits. But our expectation is that there is still room for further reduction in the average cost of the deposits in the future periods.

Thank you. We're now moving to the P&L. One of our participants is asking for an update on NII. NII ex consumer charges performed minus 2% in the first half of the year, slightly below compared to the resilient/flattish NII guidance. Shall we expect an improvement in second half '26 in the trajectory?

I think that -- so the NII continues to be very resilient. We consider this decrease of 2% year-on-year, relatively small, taking into consideration the size of the decrease of the average interest rates between the first half of last year and the first half of this year. Second, we expect that also the significant volume growth that we are showing, both in the deposits and in lending will have a gradual positive contribution to the NII. We -- as everybody knows, we have a significant excess of liquidity loan-to-deposit ratio of 58%. It means that we have a substantial portfolio of bonds and NBP bills. And of course, any recycling, let's call it, of this excess of liquidity in lending should also bring some additional margin. So we stay relatively positive regarding the -- in terms of prospects for the NII, also supported by this volumes growth from the commercial activity of the bank and also from the expected stabilization of interest rates in Poland until the end of this year because this is currently the most likely scenario. And so if it will happen, it will also be supportive for the resilience of the NII.

We have two somewhat contradicting questions on NIM. One says like-for-like NIM seems to have stabilized. What's the outlook going forward given the strong volume growth? But the contradicting question is, what is the reasoning behind your guidance regarding the downward trend in the NIM? Is it due to the growing share of bonds and assets? Or is the growth in the corporate segment taking place at low margins?

So I think we would answer in the following way. So the -- so interest rates have come down. Consequently, although, of course, we tried to hedge as much as we could for the anticipated reduction of interest rates, there is always some negative impact in terms of NII and also in the NIM. We also -- and so we -- when we look at the evolution that we have of the NIM and still going forward, we have gradually been increasing the share of the fixed income portfolio in the total assets. It is visible that the growth of the bond book in the last two years. And of course, this helps to compress the margin. So although, as I said, we have been trying to protect as much as possible against the decrease of interest rates, there are also limitations in terms of for which -- for how long we can make these hedges. And so that's why we have been careful in showing that this trend has been downward growing. We think that with the stabilization of interest rates at the current level, this can help to stabilize the NIM. But at the same time, we cannot forget that we are -- when we have situations where fixed rate loan portfolios from the past are maturing or being repaid and then they are replaced by lower rates -- lower current rates, like, for example, in mortgage or in consumer loans. It's also true that the contraction of the spreads in corporate is also not helping to offset this compression of the margins. Still, all in all, we expect the NIM to gradually stabilize and which still gives good prospects for the resilience of the net interest income.

We have touched upon the balance sheet structure. So there's also a question about the share of bond securities going forward. Do you expect them to grow, remain the same?

We do not have a target per se regarding this, right? What is driving this is the fastest growth of deposits versus loans. We see now a reduction of this difference, right? But in absolute amounts, deposit growth have continued to grow at a faster pace than loans. So as long as this happens, of course, we always have some additional excess of liquidity that needs to be deployed. We expect going forward that loan growth will stay double digit because we think it is feasible to achieve with the trends that we have seen in the second quarter. This is a big difference versus the past. Deposit growth, we are not limiting the deposit growth, especially in retail and in current accounts from companies. We are not limiting this growth. So we are a little bit dependent on what will be also the market conditions. But I think that we are reaching, let's say, the top in terms of the share of bonds in terms of total liquid assets. I think that with the current trends, I think this will not grow much more.

Thank you. Moving to costs. Our viewers would like to know what's the latest -- what's the guidance in second quarter, costs have decelerated. How do you expect cost to behave in full year and second half of the year in...