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

Good afternoon. Good morning to some. Welcome to Bank Millennium 3Q/9 Months '26 Results Call. With us, we have, as usual, our CEO, Mr. Joao Bras Jorge; and our CFO, Mr. Fernando Bicho. The structure of the call is probably typical. First, we will start from opening remarks and comments on the main business achievements from Mr. Bras Jorge. Then our CFO will guide you through the results. And then we will be ready to answer your questions. To remind, you have to click on the presentation on the website or use the one offline because we will not be projecting. Thank you very much.

Good morning, and thank you very much for attending to these presentations of the results. Let's start with Slide #4. So we are closing -- almost closing the year. So it's a good moment to see our business performance before going to the financials. The results are very good in the business terms. So in these 9 months of 2026, the growth in deposits, total deposits was 11% year-on-year, but also the growth in credit. Net loans grew 11% year-on-year with 7% in consumer loans, so keeping performing very well. 5% in P&L mortgage, which shows a recovery on this segment, an outstanding 25% in net loans for companies is showing that we keep the strong trend of growing the corporate side as it was presented in our strategy in 2024. 11% in leasing year-on-year and 21% in investment funds portfolio year-on-year. Also in the quarter, we closed with PLN 3.4 million -- 3.4 million active customers in retail. This is a strong growth since 1 year ago, and so we are going in our direction in the strategy to achieve 3.7 million customers in the end of 2028. And we achieved already the 95% of the digital activity of these active customers. Also very impressive are the increase on the sales side. So if we just look for the sales in the first 9 months of this year, we achieved PLN 6.8 billion in consumer loans, and this is 26% higher than the first 9 months of 2025. In mortgage, the sales were PLN 7.9 billion, which is 224% higher year-on-year. Corporate loans, PLN 8.3 billion of corporate sales in loans, which is 25% year-on-year. Leasing PLN 3.4 billion, which is 22% year-on-year. And in terms of factoring, using, for example, the turnover, we had PLN 25.7 billion, which is 22% year-on-year growth. If we go to Slide 5, we show the traditional tracking of our strategy. The strategy, as you remember, was presented at the end of 2024 and for the 4 years from '25 to '28. As you can see, the strategy targets in the different areas are being achieved in a regular basis and according to our plan. Some are already achieving -- we are already achieving the final goal. That's, for example, the digital penetration of active customers. Others will take a little bit longer like retail primacy. Anyhow, all the targets are being achieved taking in consideration the calendar that we are having and the moment that we are having on time. Also, it's important to see that the revenue targets, the efficiency targets, the risk targets in terms of nonperforming loans and capital and also, of course, the NPS of customers and the engagement of the employees are also on track to be delivered in the strategy time. Looking for the Slide #6. It's also interesting to show. So it's a benchmark. The benchmark that we have at the moment of the Polish banking sector is just from June, so -- which means 1.5 year of the strategy. And when we compare the end of 2024 with the first half of '26, we can see that we performed a 22% growth in deposits of individuals, which is the second best performance in the market. And for example, in corporate loans, we performed 38%, which is the highest growth in the market. And this was achieved with a major improvement in return on equity, also outperforming the market and also with this very prudent management of the risk, improving the NPL ratio for 3.4% versus 3.7% of the market. And now I will pass to Fernando.

Thank you. Good afternoon. Starting with the bank's financial achievements in the first 9 months of the year. We reached a net profit of PLN 1.109 billion, which represents a growth of 30% versus 1 year ago. The return on equity reported at 13.8%, adjusted at 14%. We show -- we have shown resilient net interest income despite a lower interest rate environment. We have actually only a 1% drop year-on-year against decrease by -- on average by 105 basis points in the average 3 months repo rates. And in the third quarter, we had a rebound of the NIM to 3.52%. We continue to show also a growth and a well-diversified growth of fee and commission income by 9% year-on-year. The cost to income adjusted at 37.6%. Cost of credit risk continues to be relatively low and stood at 37 basis points during the first 9 months of the year with an NPL ratio low at 3.6%. At the same time, we have a very strong capital and liquidity position, reflected in consolidated total capital ratio of 20.6%, Tier 1 ratio at 16.1%, and CET1 ratio at 13.7%, which means substantial surplus over the minimum regulatory requirements. Also solid buffers over the minimum MREL requirements, also safely fulfilling the new long-term funding ratio with the new formula, so significantly above the minimum of 20% and at the same time, keeping a stable loan-to-deposit ratio at 58%. Pages 10 -- Pages 9 and 10 summarize key financial and business data from this third quarter and 9 months of the year, but we will go through that in more detail in the next pages. So I would move to Page #11. In the third quarter, we have shown a net profit of PLN 400 million, very similar to the net profit of the second quarter and substantially above last year. At the same time, year-to-date net profit, as I mentioned initially, was 30% above 1 year ago. The improvement of the reported net profit was possible due to the fact that the much lower legal risk costs related to FX mortgage and also lately with consumer loans were offset by a resilient core income -- sorry, were also added by resilient core income, and this helped to much more than offset the much higher taxation during these first 9 months of the year. On a reported basis, as you can see on the top right, ROE close to 14%. Looking at the quarter, operating income in the third quarter was 5% above the homologous quarter of last year, while total costs were 3% above the homologous quarter of last year. On Page 12, we see the evolution of the net interest income, which has proved very resilient in this lower interest rate environment. And actually, for the first 9 months of the year, it only dropped 1%. But in the third quarter, it already went up by 7%. And this improvement happened despite having an additional adjustment to NII related to the consumer loans of PLN 16 million in the third quarter against PLN 35 million in the second quarter. This improvement of the NII was also followed by an improvement of the net interest margin, which rebounded to 3.52%, helped by a decrease in the average cost of deposits. On the net fee and commission income, a continuation of the growth, 9% year-on-year for the first 9 months, 3% quarter-on-quarter. On the cost side, we see that this year, cost growth is significantly decelerating when compared with the last 2 years. So overall, we had total costs growing by 7% year-on-year, including 6% of staff costs, 11% admin and depreciation, excluding BFG related costs. So this is more or less in line also with the expectations that we have formulated at the end of last year of a gradual deceleration in the overall cost growth. This is being followed also by a continuation of the optimization of the branch network and a slight change in the number of employees. Regarding credit quality, continues to be resilient. NPL ratio at 3.6%. Overall cost of risk at 37 basis points year-to-date over total loans, and the coverage of impaired loans by total credit risk provisions was above 80%. In this quarter, we did not have sales of NPLs. On Page 15, the evolution of capital ratios, which have significantly improved, namely the total capital ratio improved significantly in the first quarter through a combination of incorporation of the proceeds from the subordinated bond issue that we have completed in May to the total capital and also to the inclusion in own funds after regulatory approval of 65% of the net profit of the first half. This last factor also positively influenced the Tier 1 ratio that finished the quarter at 16.1%. The capital ratios at the end of September still do not include the further impact of another synthetic securitization transaction of a consumer loan portfolio that we have concluded on the 30th of September and its inclusion in capital is still subject to supervisory confirmation. On Page 16, we continue to show a significant surplus of MREL and liquidity ratios. In particularly regarding MREL, we exercised the call option of our first senior nonpreferred issue in September 2026. But as you can see, we have a significant surplus over the minimum regulatory requirement. And also the same happens with the long-term funding ratio now in its new formula where we closed the quarter at 36%, substantially above the minimum of 20%. Regarding FX mortgage legal risk. In the first 9 months of the year, total pretax costs related to the FX mortgage legal risk dropped by 64% year-on-year, continuing to show the significant drop that also has occurred in 2025. For this drop contributes lower inflow of court cases, which actually in the third quarter was the lowest of the last 5 years. And at the same time, the effort of the bank to close the existing court cases, mainly through settlements with customers. And as a consequence of this effort and also, we have reduced the portfolio of active court cases by more than 2,000 during the third quarter. Moving to the second part of the -- third part of the presentation regarding business development, starting with Page 19. So already double-digit growth of the loan portfolio, accelerating to 11% year-on-year, fueled by the 25% growth of loans to companies, including leasing and factoring, followed by 7% growth in consumer loan portfolio and 5% growth in PLN mortgage, also significantly impacting the trend of past quarters in which the portfolio was contracting and now already showing a reasonable growth of 5% year-on-year. As a consequence, we continue to gradually change the structure of our loan portfolio, diluting the share of PLN mortgages, which is now below 44% and increasing the share of loans to companies leasing and factoring. On the customer deposits, double-digit growth, 11% growth year-on-year, driven mainly by deposits from retail customers, which have grown 14%, while investment products grew by 21% year-on-year. We continue to have a positive momentum in terms of loans to individuals. In particular, we had record sales of consumer loans in the third quarter. And overall, in the first 9 months, total sales of cash loans grew by 26% versus 1 year ago, allowing us to have a market share above 10%. At the same time, there was also clearly during this year, rebound in the origination of mortgage loans, which reached PLN 7.9 billion in the first 9 months of the year, allowing us to achieve a more normal market share of 7.6%. Since 1st of October, we have introduced in the new mortgage contracts, the new benchmark index in Poland, POLSTR. So not having any more in the new origination loans indexed to WIBOR. On Page 21, we continued the solid pace of customer acquisition, which translated into net growth of 40,000 active customers in retail during the third quarter, bringing the total growth in the last 12 months to 160,000. At the same time, the active micro business clients number grew by 15,000 year-on-year. And all this process of acquisition of new customers is translating into a significant increase in the number of current accounts and the number of cards. On Page 22, we would like to highlight another milestone that was achieved in July. We have reached 3 million active mobile app users. And additionally, we have now 3.2 million active digital users, so including mobile app plus Internet, which represents 95% of our active retail customer base. So the growth of active mobile users was 8% year-on-year. And we have 2.57 million customers that are mobile-only users. Page 23. Most sales of banking products take place via the mobile app, which confirms the high level of adoption of digital tools and customers growing confidence in remote processes, and we have been regularly showing these figures. So already 89% of share of digital in cash loan sales, 76% in current accounts, 90% in junior accounts. During the third quarter, 31% of current accounts were opened online. Page 24 illustrates a number of other secure, convenient and smart digital solutions that allow to build long-term relationships with our customers. And on Page 25, we also would like to highlight the development of a coherent and orchestrated contact channel model that enables the bank to deliver a consistent and seamless customer experience regardless of the channel that they use to contact the bank. So the mobile app, the helpline, chat services and branch network, all are functions of a cohesive ecosystem. Our goodie platform continues to grow. In this quarter, we would highlight the increase by 18% of the number of users of the return in purchase service. Moving to corporate. We keep a robust momentum in terms of corporate financing, translated into this growth of 25% of the corporate loan portfolio, especially driven by loans to companies, 35% growth, followed by a growth of 22% in the outstanding factoring and 11% in leasing exposure. In terms of origination, origination in the first 9 months of the year was 25% above last year. On the deposit side, we would highlight especially the double-digit growth of current accounts by 13% year-on-year, which illustrates a significant increase in the relationship with customers, not only through lending, but also through other transactional products. On Page 28, you can see also the numbers from leasing sales, which have grown by 22% year-on-year and factoring turnover that also during the first 9 months of the year also has grown by 22% year-on-year. This effort in the corporate segment including small, medium and large enterprises is supported by new solutions and also by day-to-day operation as it is illustrated on Page 29 with different offer of guarantees as an example. And finally, on Page 30, the increase in the corporate business, of course, is also being supported by further investment in expanding online channels and digitizing key corporate banking processes, including a significant percentage of loan agreements signed electronically and also issuance of guarantees electronically and a significant share of foreign exchange transactions concluded through our Millennium Forex Trader platform. These are the most important highlights of our third quarter and 9 months results. So now we will go through the questions. Thank you.

Thank you very much, Fernando. I think you deserve a bit of time to take of your voice. It's a bit croaky, everyone hears it. So let me start from maybe not so obvious, but a question that I think Mr. [ Bras Jorge ] will be delighted to address. They relate mostly to loans and deposits. First question is about, there has been a significant slowdown in year-on-year growth in corporate deposits. What was the reason behind it?

It was mainly just -- we don't provide the breakdown here. But if we would -- we see -- we have the breakdown. Okay? So it's increase of current accounts and decrease of time deposits. So it's just a pricing issue. So a bank like ours have always the big discussion about what should be in terms of how to stimulate the growth of deposits or not. And for us, it's already clear that the retail, we should keep stimulating and should keep developing the positioning of the bank as savings bank because it's bringing time deposits, savings account, later on investments in pension products and everything like that. On the corporate side, it's a little bit different discussion because deposits are usually more price sensitive and not connecting with the daily banking of the companies. So I would say that in the corporate side, in time deposits, we are very much opportunistic by the situation and the pricing, and we are not aggressive at all there. And for us, the main concern is how we are developing in current accounts, and this is developing very well.

First, just once again to stress, we have a very low loan-to-deposit ratio. So it's 58%. So it does not make also sense to overpay for time deposits from companies because we have already a huge excess of liquidity.

Staying in the subject of lending, you are very active in SME financing. Aren't you afraid of midterm cost of risks?

So although the question was about SME, I would separate also SOHO, small and then SME. SOHO and small, at least according to my knowledge, is the most difficult area to have healthy lending product and then strategy because usually the models are not as good as they are for retail and for the credit of individuals. And there is -- it's not possible to have also -- even if it is very well prepared and digitalized, but it's very difficult to not have -- to have a full personalized and credit underwriting as we will do for SME, even if it is with a very string processes. So here it is difficult. Of course, a lot of the business done recently, not only by us, but by the sector have been leveraging in BGK guarantees. These guarantees are changing. So they used to be on COVID times and then they changed after COVID times, and now they will change again for more to give priority for dual use. So they will change a little bit, and we need to adapt ourselves in the sector for that. But for the time being, we have been prudent. It's a sensible area. So we need to see what are the changes that we need to do with -- in an environment with higher interest rates. In terms of SME now, in terms of SME and more mid-corporate, we believe that our underwriting capabilities are strong. We are growing well, and we are not concerned about the loans that we are doing. If in due time, we need to make a preemptive revision, we will do it. So it's part of the game and to reassess the exposures that we have. But for time being, we are quite -- and this is the area where we are growing in corporate loans. So it's SME mid-corporate area. And we are quite confident about the sectors and the companies where we are growing.

Thank you. So a more general question. What is your appetite on deposits until year-end? And will you be more active on the retail side?

Very curious question. In the quarter, if you see the numbers in the quarter during the summer, so we were pursuing a strategy of cost reduction. At the same time, there was some inversion of the expectations of interest rates. So the growth in terms of deposits and savings account was not so big as we would like during this quarter for retail. So it's probably that we will be a little bit more active. And it's a quarter with a lot of liquidity. And also, we have been also promoting a lot of pension products. And so I would say that we would be more active, but we don't have a specific target. So liquidity is very, very strong in the bank. And by no means, we will make actions of window dressing. So what is important is to still grow in mass retail deposits where the customers tend to have a relation where they place also their savings. So it's not...

All right. Fernando ready? Ready. Okay. So I propose to suggest that we go quickly through questions, which are specifically related to our 3Q results. There aren't that many, which speaks very well for the quality of disclosure. First question, reason for 20 basis points increase in consumer NPL ratio in Q3.

So on a regular basis, so we continue to grow the consumer loan portfolio. Consumer loan portfolio is also the portfolio that has higher NPLs. Usually 2 times a year, we sell NPLs usually in the second and fourth quarter. In the third quarter, we did not sell NPLs. And also as far as I remember, we also did not make significant write-offs. So it's normal that in quarters where we did not sell NPLs, there is a small increase in the NPL ratio. But usually, this is reversed when we actually sell them. So I would say here, we don't see any signs of deterioration. It's just normal part of the business and not -- and some quarters have the effects of the sale of NPLs, others not. So I would say this is the main explanation.

I would call it a bit of a seasonality or cyclicality, right? Because they rise, we sell. Do you expect any unusual effective tax rate in Q4?

The technical answer would be that not -- otherwise, we would have adjusted already the estimation of the effective tax rate after the first 9 months because actually, what we are doing at the end of each quarter is to try to estimate the full year effective tax rate. So the tax rate that you see now after 9 months is the best estimate of the tax rate that will happen for the full year. Having said that, of course, we are subject to some items which can make a difference in terms of the final tax rate, such as sometimes in the legal related costs, part of the costs can be tax deductible, others not. So it always depends on how much such costs are actually incurred in a particular quarter. So there's always a possibility of having some differences on a quarterly basis. And of course, the calculation that was done at the end of third quarter assumes that the corporate income tax rate for banks will drop from 30% this year to 26% next year. If this would not happen, this would force us to do a revaluation of DTAs in the fourth quarter. And so then this could provide a different final effective tax rate. So I think this is the answer.

Very clear. Thank you. Let's now go through capital and dividend-related questions, and then we go to interest rate and consumer loan. First question, 35% payout has been accrued for first half '26. Shall we consider this as a dividend from the full year '26?

To remind, in our strategy, we had targeted to return to dividend payment in 2027 from the net profit of 2026. Our dividend policy is to distribute net profit dividend between 35% to 50% of the net profit. So the final decision about dividend payment will always depend on the guidelines and recommendations of KNF regarding dividend policy of the Polish banks that usually comes around year-end. So what we have done in the third quarter was to request permission to consider 65% of the net profit of the first half in the own funds, keeping open the possibility to distribute 35% of the net profit, but always depending on the final recommendations that will come from the regulator that will be done only around year-end.

Do you plan more securitizations in the future?

So we have done since 2022, several synthetic securitization transactions with different portfolios. It's an effective way to manage the growth of the risk-weighted assets. There has been a market for this. Also, what is good is that we have seen different types of investors being interested in participating in these transactions from supernational entities to private equity investors. So last one was done with IFC now in the end of September. And so going forward, we will always consider synthetic securitizations as a way to optimize risk-weighted assets and to manage the levels of capital ratios that we want to achieve.

Thank you. Now a very technical question. What is your current level of P2G? When do you expect KNF to update P2G calculations for you? Would it lead to an increase or decrease?

So the current level was disclosed, I think, in the end of last year, which is almost 0, almost 0. So it will not decrease for sure because it's almost 0. It can increase. We will only know probably until the end of the year, which is the timing that usually we receive the final decision from the regulator. Of course, the P2G is also relevant for the dividend distribution policy. So this is one of the elements that are included in the thresholds that are usually defined by KNF. So we will also have to take that into consideration when finally proposing the distribution of the net profit from 2026.

Fernando is going to continue. Now, we're moving to questions, which be related to interest rate and interest rate sensitivity in general. What is your interest rate scenario? And what would be the NIM and NII outlook for the next 3 to 4 quarters in case of stable rates? What is the sensitivity of NII to 100 basis points rate movement?