Bank Polska Kasa Opieki S.A. (PEO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome at our conference presenting the results of Bank Pekao S.A. Group focused on a presentation of our results for 2022 and the first quarter 2023. CEO, Leszek Skiba; Vice President of Finance, Pawel Straczynski; and Vice President for Corporate Banking and Investment, Jerzy Kwiecinski. Leszek Skiba, the floor is yours.

Thank you very much. In this slide, we would like to show you what is important for our profit. And in terms of the whole 2022, we are very happy about the growth in the Corporate segment, high growth dynamics in large corporations and business sector. It shows that the part of our business address to business -- to corporations, we called good growth. Secondly, digital channels. We introduced new improvements, changes to our PeoPay application, and we will give you some more details later on during the presentation. We are happy that digitization of the process of moving to digital channels is moving on track as scheduled. Thirdly, we present a responsible approach to risk management, and we decided to increase our provision for loans in Swiss francs. We participated also in governmental programs, support for the banks, which contributed very positively to our results in 2022. We maintained our risk cost at a low level. By definition, we are a conservative bank in terms of level of cost of risk. Throughout 2022, our profit amounted to PLN 1.718 billion. We had PLN 1.6 billion impact of new provisions for mortgage loans, which explains for -- which explains the decrease which we recorded compared to 2021. We've already mentioned that we are very happy about the situation in business and corporate banking, good dynamics in terms of new sales with risk cost remaining low. In terms of strategy, which focuses on our 4 pillars. First, with regard to clients, we are growing. Active customers in mobile banking grew to 2.8 million. Our target is 3.2 million. ROE towards our target of 10% by 2024, without the impact of interest rate changes, but with a strong impact of one-off events, risk cost at 43 percentage points and 44.9% earnings. Volumes. 8% growth in the volume of large Corporate segment, and MID plus SME growth by 16%. We are very happy that we have an increase in the sales of new accounts in retail banking -- 554,000 new accounts in retail banking, which shows that our application is attractive to customers, and our efforts to improve it payoff. And it is also well seen by the customers as compared with other apps, in particular in the context of the banking maturity report. That is the factor which drives the effectiveness of our solutions. As regard to digital channels, this growth of 2.8 million PeoPay active users represents 15% growth. Digitization rate, which is important to us, which explains the percentage of processes that can be handled in our bank, offer the possibility of being completed in digital channels. Currently, this rate stands at 69%, and our target is 100% by 2024. And the third element here is the transition with the sale of cash loans to remote segment with 78% being sold by digital channels, which is also a very good result in terms of efficiency. Now we have 3 slides showing some details on our PeoPay application. Personalization with elements which we have offered to children for the time being, very soon where there will be personalization for teenagers. We invest a lot in making our application attractive to young generations, to children, teenagers. Personalization options. This is what we want to offer. The second novelty will be a purchase of e-TOLL that is for A4 and A2 motorways. We want to offer the possibility to pay the toll for travelling on those motorways, and all that should be supported by PeoPay application. The third element which we are offering is a new exchange -- currency exchange which is based on a better presentation, nice appearance in order to make it as attractive as possible to the customers. We are making our PeoPay application more attractive and more functional to make it better for customers. Very briefly about our ESG strategy. This year we issued PLN 8 billion ESG bonds of our customers. PLN 4.3 billion represent financing by bank loans related to sustainable projects. I would like to remind you that our target for 2024 is at 22 billion bonds. We are on track to achieve this target when [indiscernible] green financing in our portfolio. And at the same time, we keep under control the high emissions funding. We recorded a slight growth here, but that was due to the fact that we had this transition and temporary funding of coal trade linked to our responsibility for counteracting the energy crisis which we experienced in winter. The second pillar of our ESG is support for volunteering. It is a characteristic of our bank that our employees are strongly involved in volunteering for a number of causes and activities related to the corporate social responsibility, environment protection and other causes that the bank support by providing funding for the project and by including work dedicated to them in work time. We have more than 8,000 work hours dedicated to this kind of activity, which is above the target, which we said while preparing this ESG strategy. The year 2022 was characterized by strong involvement of our employees in providing assistance to refugees from Ukraine, Ukrainians on the border and then various parts of Poland. This activity was very intense, as you can see in those numbers, and I appreciate this involvement of our employees. Thank them for this kind of engagement on top of the standard professional duties. Our team takes responsibility for what is happening around us. As regards [ VAT ] pillar, the gap -- the pay between women and men is very close to our target for 2024, and it is very important for us to achieve this target. And in this slide, we also boast our ratings. Our effort in implementation of the strategy is recognized by the institutions that grant writing to -- based on the assessment of activities by financial institutions. So very briefly now about our green transformation program. Just like any financial institution, we are pursuing a project of fulfilling all our disclosure applications in accordance with carbon footprint disclosure requirements. We design our reporting to make sure that the reporting processes are as standardized as possible, and as automatic as possible so that they do not represent an extra burden on the bank, while at the same time being fully aligned with legal requirements. It is very important for us that all responsibilities and duties are fulfilled in the most efficient way possible. To end this part regarding our strategy, I can say that we are aiming at achieving our strategy in terms of ROE this year. And in 2022 we had the impact of one-off events. We had an increase in cost-to-income ratio and 2 other important ratios. Active mobile banking customers show a growth in digitization rate. We do not see any problems or issues that would hinder us in achieving our targets, a similar strategy. And over to my colleague.

Thank you very much, ladies and gentlemen. Let me start by saying that Bank Pekao S.A. is the biggest and strongest corporate bank in Poland, in particular with regard to servicing large customers. Last year was a difficult year not only for the economy, but also for companies, because of the turbulence that we felt dealing with post pandemic crisis and additionally affected by the effect of Russian aggression of Ukraine, as well as effects of a very strong energy crisis. But here, I would like to say that we and our partners, our customers and business sector worked well, and this good cooperation translated into good results of the bank in this regard. Just to give you some numbers. Operating income without the result on our liabilities, grew in 2022 by 12%. Gross profit grew by 8%. And it is worth noting that if we take into account all income, nominally, it grew by 2/3, and to be specific, by 67%, the largest growth in our bank and among all divisions. We recorded very good results on our treasury activity and we are a major player here, the leader in the market of this type of services in banks in Poland. Our results on exchange transactions, the core product on FX Spot. Here, income grew by 32%. And other trading, the growth was at 22%, and that included the result of our response to the demand, the requirement on the part of our customers. Despite the difficult market, we continue to support corporate customers. We provided them with funding with non-treasury bonds, and here we were up by 8% with revenue. In transaction banking, we were also up by 32% last year. So it was a substantial increase. Now a few examples how we support our customers, our partners with payment processing and transactional banking. Domestic transfers that are performed with the Elixir system, were up by 7%. We follow our customers, and as a result, the number of cross-border transactions was up by 33%. We had a major increase in the volume of mass payments, Pekao Collect transactions, 17%. And perhaps the last number is not that spectacular, but this is worth noting, the number of direct debit transactions that were processed was also growing. This is probably the weakness of the Polish payment market. Fairly smooth percentage of payments. Just 0.1% of payments are going through the direct debit transactions. But even in this difficult area, we were able to grow by 2%. Another thing that I would like to draw your attention to, is international trade and international banking, so trade finance. Polish economy was growing at a very dynamic rate, and so, the export accounts for more than 30% of Polish GDP. Polish companies expand on international markets, and we follow them there. For instance, the newly issued guarantees and sureties related to cross-border trade were up by 8%. Last year was quite exceptional when it comes to documentary products, whether this is LC for export or import, or bank guarantees. Well, in the documentary products, we were growing at the rate of 38%. We also noted a major growth in import letters of credit here, that we were up by 9%. And we had a very significant number of invoices that were purchased through our Open Financing Platform. This is an important product because this product targets major companies, major customers, and it supports them in their efforts to work with the trade partners, especially smaller companies. And on this platform, the volume was growing by 30%. So supplier finance is something that we are going to definitely focus on over the next few quarters. Now we selected a number of transactions to give you a better picture of our engagement. We may say that our bank supports all major deals in the Polish corporate market, and this is true for both business customers and public sector customers. As our CEO, Leszek Skiba said, we are very much engaged in the green transition process, and we are committed to support that, and this is well illustrated by the transactions that we show here. For instance, syndicated loan for Tauron Polska, or the green financing facility for R Power or Stigma, one of the largest Polish PV companies. So we are part of it, and we actually have other transactions on the radar. We provide financing for the major structured transactions, and I think that it's worth to note the largest deal in the Polish banking market in terms of individual engagement of the bank for a Polish oil and gas company. And another deal was with Enea, and yet another one with the Diagnostyka. So we are trying to meet our customers' needs, who are looking for funding. Last year, it was very visible, but they were looking for a short-term financing, and this is something that we were providing to our customers. We are also engaged in financing of public projects. And definitely, we are the leaders in the market. A good example is a program for Polish airports and many transport products for the cities like buses and trams or trains, but also financing needs of the local governments, for instance, the bond issue for the city of Zabrze. We are also present in the financial markets. And here, a good example is financing provided for Volkswagen Financial services or for Kruk, the largest operator in their sector, and another sector of the economy with Robyg and their financing. So I think that it comes as no surprise that we got a lot of international awards in the recognition of our efforts, like Best Investment Bank in Poland and the Best Treasury and Cash Management award. We were also awarded as the Best Corporate FX Bank and the Best Trade Finance Provider. And the market definitely leads the way -- the bank definitely leads the way in the Polish market when it comes to trade finance. So I think that it really is important to mention that we are a major player in financing of the real estate market in Poland. I do believe that other awards will be coming our way in 2023. So let me shortly summarize all the activities that we have been doing in our -- in my division. So despite the fact that we hold the leadership position, we continue to grow our market share in corporate loans and deposits. It is our ambition to uphold the leadership position in the Polish banking market. We are efficiently implementing our ESG strategy. As our CEO said, during the next few quarters, we are going to be focused on ESG activities since we believe that it will be a good offset to the cyclical slowdown, which is currently becoming visible in Poland. And another thing is that over the next few years, financing and funding will definitely switch towards ESG-related projects. It is our intention to continue to expand our international banking and to support our customers who are very much engaged in international markets. We intend to focus on the quality of our customer service. We want to be not only the largest corporate bank in Poland, we want to be recognized for the top quality service that we provide to our customers. And finally, we want to make sure that our people are also happy at work, that they are satisfied, and they continue to be more and more engaged. We believe that engagement of our employees is growing because, otherwise, we would not be able to present such excellent performance numbers to you. Thank you.

And now we have 2 slides that depict a macroeconomic situation. During the past few months, we've seen some improvement in economic indicators, And it is probably more visible with consumer situation than business situation. However, it is our expectation that the improvement will become visible over the next few quarters. Our estimate is that, in 2023, GDP will grow by 0.8%. So after the first quarter that presumably is the most difficult, we believe that there is some recovery. In addition to that, we believe that 2023 will be the year of disinflation. It is our conviction that in the last quarter of 2023, the inflation will be at the single rate again, single-digit. And the market expectation and our expectation is that, as a result of disinflation, we should be able to see some interest rate cuts, probably a very tiny one, like 0.25 percentage points, but most likely at the end of the year. So we are fairly optimistic looking forward over the next few quarters. We believe that we should see more recovery in the economy, and at the same time, the inflation is likely to decline. And over to Pawel.

Ladies and gentlemen, net profit for 2022, PLN 1.718 million. It was driven by key drivers that, in our opinion, were very much like one-off drivers. Our net interest income was up by PLN 4.5 billion, and again, we consider it an one-off event, and this is the direct implication of the high interest rates. And this additional net interest income compared to 2021 was, in a sense, consumed to finance regulatory programs that were brought in, in 2022. What I have in mind is the loan repayment vacations, so payment moratoria on the loans. At the end of the year, we were verifying our model, but calculated our provision. As a result, we were able to release over PLN 450 million from the provision, and therefore, the model participation was reduced to 76%. Effectively, that had a negative impact on the net profit estimated at -- under PLN 2 billion. And what we have seen during the previous quarter -- the fact that we joined the system of commercial banks, and as a result, the borrower support fund. Altogether, they accounted for PLN 650 million. And one more important factor that we should factor in, is provision for foreign currency mortgages. At the end of 2022, we updated our model. We had to revise the key parameters, so the value of claims and likelihood of the winning claims. And we had to do it for 2 portfolios, for the one that is still working and the one that has already been paid off. So as a result of these calculations, we had to open additional provision in 2022 for the Swiss franc mortgage loans portfolio, and the provision was for PLN 1.450 million. I will discuss the situation with the loan portfolio later on. But these slides that I'm showing right now are well familiar because they show the key highlights on our profit and revenue. The dynamics was down by PLN 450 million. And if we compare Q4 2022 with Q4 2021, we see that the result for 2022, Q4 was up by 28%, which is nearly PLN 200 million. I think that it's worth to mention that the gross operating profit in 2022 compared to 2021 was up by nearly 40%. But if we compare just Q4 to Q4, we see that the operating profit was nearly twice as high as in 2021. And the result on the operating activities was also up by [ 20%, 26% ] year-on-year basis. And Q4 to Q4, we were up by nearly 68%. The operating expenses were up by 2.9% year-on-year basis, and I will discuss more the cost details later on during the presentation, when I will cast more light on the cost side. Interest profit for 2022 at a record level of over PLN 10 billion. Here, the reported dynamic is over 41%. But if we exclude the result of payment moratoria, the dynamic would be at the level of 80%%. Equally high margins. Interest net average margin in 2022 amounted to 404 points versus 2021 with -- that is 89 points more. Taking into account the reported values, but after excluding the impact of payment moratoria, the margin is high by 165 basis points. As regards on quarterly results, the interest margin net versus the fourth quarter is higher by 226 points on reported numbers, taking into account the payment moratoria that is 151 basis points up. Now information about volumes. Retail loan portfolio decreased compared with 2021 by more than 7%. And here, the main impact comes from mortgage loans. The new loans, given the current market situation, does -- do not allow us to bridge the gap resulting from natural amortization and overpayments. We do not see any mass scale overpayment of retail loans, but we do notice that the phenomenon does exist. The second component of the portfolio where we see a major decrease on other mortgage loans -- Here, I think the portfolio of retail loans shows the result that does not surprise us. As for corporate loans portfolio, year-on-year growth by 6%. At the end of the year, we are close to PLN 100 billion, which is slightly lower than the value reported at the end of the third quarter, where we were above PLN 100 billion. The decrease is at about 6%. But let's just remember that the third quarter was strongly affected by our engagement in loan projects that were short term and that were intended to provide the country and to provide energy producers with fuels. This is what Leszek and [indiscernible] mentioned in their presentations. On the side of savings, retail deposits grew year-on-year by 3 percentage points, reaching the amount of almost PLN 120 billion. And corporate deposits and own issues had the growth of almost 20% with the portfolio reaching a value of almost PLN 103 billion. Profit on fees and commissions higher by 4.5% compared with last year. And we repeatedly mentioned this major driver which contributed to the lower dynamic and namely the decrease from fees on asset management and brokerage fees. In the fourth quarter, we also observed a tendency of downward trend in fees for keeping the account and other banking fees. Let us remember that in 2020, unlike in 2021, no longer charged the fee for the balance on accounts -- for excess balances from our customers. So it is natural that the dynamic of income on fees and commissions is lower. Operating costs, as I have mentioned, grew by 9.2%. And I think it is worth noting because the dynamic of operating cost is higher than inflation in December, which was at 16.6%. Headcount costs grew by about PLN 200 million, which is roughly 10%. And the contributors to that were increases of salaries in 2022, but also a slight growth in employment in the bank in 2023. We should also remember that if we look only at cost of personnel, we may reach somewhat mistaken conclusions because a part of this growth in personnel cost is refinanced by lower costs in third-party services. For example, when we have transfers of people who were previously on the B2B contract or offered our bank services as third parties. And now some of those people are regular employees of the bank and are reported under the personnel costs. The second very important factor, which contributed to the operating cost of 2022 was almost PLN 170 million contribution to the fund of support for borrowers that was incurred in the second half of 2022. And the third factor, which had a somewhat lower impact, but we will see a greater one in 2023, was the growth in operating costs in real estate -- maintenance of real estate. And I mean, here, mainly cost of electrical energy and heat energy, which have already affected the level of operating cost of the fourth quarter. Very good capital situation of the bank, both capital ratios, Tier 1 and TCR at significantly higher levels in both cases, around 6 percentage points above the regulatory minimum. And both at levels higher by 2.5 or 2.7 percentage points, then the criterion for the dividend payment, namely 75%. That was the criterion set out in our strategy as the limit for dividend payment. As regards to MREL requirements, we meet them. MREL 17.6%, that was our result while the regulator set the target for the end of 2023 at 18.9%. In order to achieve this level, we plan to issue relevant bonds. Before this conference SP release -- from the bank has been released, PLN 500 million will be the value of bonds issued under this program. While the entire value of the issuance in order to meet this MREL target is estimated this year at about PLN 7 billion. And of course, we will keep the market in the form of our new issuances. The volume of individual tranches will be adjusted to the current situation of the bank and to the current market situation. Cost of risks. In the fourth quarter at low level of 39 basis points, excluding, obviously, the additional write-offs on mortgage loans in foreign currencies throughout 2022, cost of risk stood at 4 to 3 basis points, which is lower than assumed in our strategy, ranging from 50 to 60 basis points. If later on during the Q&A session you have any questions on that, I would like to say that we expect growth in risk costs in 2023. But we do not expect to exceed the upper limit of risk costs, the one at 60 points. Risk coverage ratio is very similar to what we had last year and the last quarter. If we exclude this additional write-off and reclassification and Swiss franc loan portfolio, we are again stable without any extraordinary event. After restatement of the provision and additional write-offs throughout 2022 to the tune of about PLN 1.6 billion, Bank of Pekao S.A. has the provision of PLN 2.1 billion with today's valuation of the portfolio. Today's meaning the balance sheet date 31st December 2022. The addition of portfolio in Swiss francs at PLN 2.6 billion, which gives us a coverage ratio at over 80%. And that is the highest level among banks, which so far has published the financial report. The reasons for this write-off and its main driver have already been mentioned. A restatement update of the key parameters to the model. And in our assessment of the level of the write-offs when we started 2023, gives us the sense of security, stability and a certain comfort with regard to making decisions, above all with regard to the settlement program, that is a future event, but the Management Board has the will to come up with a broad program of settlements for our customers, and this will has already been expressed. Now we are working on the details of this settlement program. So this level of write-offs gives us the feeling of security that the year 2023 will allow us to come up with a settlement program. And to finally resolve the issue of Swiss franc loans in our banks without, hopefully, any additional charges on top of the planned levels related to the update of key parameters of the model. So the current level gives us the stability of funding the program of settlement from this write-off. And a very brief recap, and our CEO mentioned that, and the RVP also highlighted that we have an excellent growth rate in the corporate segment. The retail segment has come to a standstill because of the macroeconomic factors and the market forces. So the second half of 2022 showed very clearly that retail is not going to be driving force. However, the corporate segment has been offsetting that and it exceeded our expectation. We had a high pace of growth in digital channels. As our CEO mentioned, we improved our apps, and we had a record high sales of new current accounts during the second half of 2022. We believe that responsible risk management and responsible management of operating costs helped prepare the bank for anything that may come in 2023, which means that we have sufficient level of provisions for Swiss franc mortgage loans and for the payment moratoria. And we keep the standard cost of risk at the record low level despite very unfavorable economic environment. Thank you for your attention.

Thank you. Now it's time for questions and answers. But before we move on to that, let me start to the technical things. We have a question about our report. [ Camille ], let me be very honest with you and everyone else, we do have some rules that we need to follow when we classify revenue to individual segments and result explains it all. When you actually compare 2021 to 2022, the main reason is the tremendous increase of interest rates, so interest rate hikes. This thoroughly covered in detail in the report. And then there is another question about our margin. Our interest margin has been growing quarter-to-quarter. No, it's not a case. If you exclude the effect of the payment moratoria, we were down by 30 basis points to 4.1, and this is in line with what you heard from Pawel earlier, interest margin was high during the vacation last year. But now we actually see that deposits are becoming more like term deposits. And now turning to the questions.

Now 25% of deposits are the term deposits, and are there any actually trend that's expected here?

Well, in our opinion, the deposit offering is sufficiently competitive compared to the products that are offered by our peers. If you look at our financial statements, you will certainly note high liquidity of our bank and our decisions regarding the deposit products that will determine the net interest margin in 2023. These decisions will be made on the basis of 2 things. First, we will look at the market environment and the proposals of our competitors. But another important factor is liquidity situation of the bank and swift response to either high or low liquidity. In 2023, as our CEO said, we expect just one interest rate cut at the very end of 2023. Therefore, when we were doing our projections for 2023, we were really thinking that the interest margin -- net interest margin will be determined to a large extent by the average weighted rate offered for deposits which will be determined by the current nominal rate, but also the evolving structure of the deposits. And this is solely up to the decision of our customers.

Since we speak about margin, the question is, were the pricing of the current loan portfolio to higher -- adjust for higher interest rates has been already finalized? Or can we still expect some improvement?

I think that this is a fairly straightforward because if you look at the interest rates, they have been stable for a while now. So this is certainly what's going to happen with that portfolio. Management Board recommend that the dividend will be between 20% to 75% of the net profit. Well, we are still waiting for the recommendation of the Financial Supervisory Authority.

And now the tricky question, what is in favor of the upper range and what is in favor of the lower range -- of the lower end of this range?

Well, this is a very interesting question. In 2023, we need to meet MREL requirement. And as I explained earlier, it is our intention to meet that requirement through the issuance of the specific bonds. So this is the debt that will be dedicated strictly to that. But as we know, the market environment is not conducive. It's not easy. That was the case last year, and it continues in 2023. So the recommendations regarding the dividend need some further thinking. We still have a while to actually finalize the recommendations. And once we prepare the actual recommendations, we will definitely look at these 2 things. So the capital security of the bank and the certainty of meeting MREL requirements, because we have 10 months to make sure that we comply. And the Management Board is definitely committed to pay out the dividend in 2023 in line with the strategy. And the strategy says that the dividend should be within the range from 50% to 75% of the net profit. So this is what I may say at this point. Our trading performance triggered a lot of interest, especially in Q4 and especially FX segment. I'm not sure if we want to get into the details here, but I want to draw your attention to the fact that we had a major write-off for the legal risk related to the Swiss franc portfolio. And as a result, we had some designations for hedging of this portfolio, and I'm not sure if we want to provide more details on that.

There is another question, but I think that Pawel answered that when he discussed the commission. As Pawel mentioned, we weighed some commission on very high corporate balances. We know that the interest rates are very high. So this question has already been answered.

Now another question. This is more about the volumes. So what do we expect in 2023, which segment is going to be more robust? And another question, that the retail has been declining at the rate higher than the market. So in terms of the market expectations, let me say that the market expectations are going downward for the retail and corporate segments likewise. It is true that in our case, the retail segment has not been as strong as we might have expected, especially when it comes to the mortgages. And there's a number of things that are responsible for that. We are actually working on simplifying our mortgage lending process. And I think that we made it very clear during the past month that we were not getting involved in the price wars. We know that competitors in the market, sizable banks and even the larger banks, when it comes to mortgages, they were really fighting with their prices. So we decided that, given our circumstances and the liquidity position and all the transactions that we had in the large corporate segment, were especially the contract that we had with Polish oil and gas when we had to make PLN 10 billion available. Well, finally, the decision was made that we are not going to get involved in the price wars and the mortgage lending market. As a result, the dynamics of our mortgage loans was not as good as the market average, but our expectation for the next year is that we should be able to be in line with the market. In terms of volumes, we expect the downward trade, so that -- the negative territory. But in terms of the corporate banking, it is our aspiration to grow at the faster rate than the market and we are going to have positive volumes, despite the fact that the market is going to shrink.

If I may add to that, we do recognize that the economy is slowing down, perhaps there will be some recovery during the -- towards the end of the year? The beginning of the year was still okay, because we were closing the deals that we started to work on in 2022, but we did not close them in 2022. So this is like deals that were carried forward. But the overall slowdown in the economy is actually visible, not only in the Polish economy, but in the global economy. The main reason is the interest rate hikes in the Eurozone and also in the U.S. market. As a result, that backfires at consumption, and since the consumption is declining, than there is less demand for financing expressed by the corporate customers. And we understand, but we will feel the pain. However, it is our ambition to keep our volumes in place and also to increase the volumes. And as I mentioned earlier, we are focused on following our corporate customers in the international markets. And this is a fact, but we see more and more Polish companies -- not only Polish companies that are controlled by foreign entities, but strictly Polish companies are venturing out to the international markets, and we will follow them there. So we believe that this trend will continue. As you know, the supply chains were disrupted during the past 2, 3 years. And as a result, some of the manufacturing operations are bring back home to Europe and Poland, is going to benefit from that. However, these efforts and these shifts call for additional financing. We see that need arising with our customers. So we believe that such products will require funding, despite the fact that the interest rates continue to be high. And we also believe that there will be more green financing. There is a huge interest in green deals. And this is not only caused by the fact that the electricity and commodity prices were very high during the past few quarters, but simply speaking, the companies want to make sure that they have reliable electricity supplies and heat energy supplies overall. Therefore, there is a very high interest in energy-related projects. Therefore, the prospects for the future, especially for the large major corporations, but also MID corporations and even the small enterprises. Overall, I should say that prospects are fairly good. We tend to believe that at the end of 2023, Polish economy and the Polish market will get additional boost from the European funding that will be coming under the banner of the Cohesion policy since the local governments and also the central government will be working on the projects that have EU funding provided. And there is also the recovery -- national recovery plan that is still pending. Obviously, once this is finalized, it will be additional boost. But please keep it in mind that the Polish government has decided to actually provide pre-financing for such activities and projects through the Polish development fund. And we will actually see that with our customers, whether corporate or even local government customers.

We have some more questions. First of all, payment moratoria. So what was the actual participation in the value at the end of the year? And next, do you believe that this program will be further expanded, because we read about it in the media?

Ladies and gentlemen, as I mentioned during the presentation, our anticipated participation rate was 85%, but we reduced that to 76%. And in our opinion, 76% is sufficient to cover the cost of payment moratoria for 2023. We have not disclosed the actual participation level yet. We believe that it can be misleading. So we share with you the anticipated level of participation, and we believe that this is a reliable information that can be used. Let me remind you that we are the only bank in the entire sector that at the end of 2022, was able to release provisions for payment moratoria, where other banks had to establish additional provisions for payment moratoria. And we are well known for being very conservative player when it comes to set risks, and we clearly demonstrated that when we were establishing provisions for payment moratoria and for the foreign currency mortgage portfolio. I think that we proved that we are not overly optimistic, and we are very conservative and realistic when it comes to the estimation of the provisions that are needed to cover our risks. So our philosophy is to be prepared for the worst that may come, and not to live under the stress and false expectation that the situation may turn out better than it's actually to be. So once again, the current participation rate at 76%. This is the basis for the provision calculation. In our assessment, it should be sufficient to pay the cost of payment moratoria in 2023.

I would just like to add that we do not expect this to continue this year.

And there are also a few questions regarding our offer of savings bonds distribution. How we are moving on with that with the prospects for 2023? This year, we launched the sale of bonds in our branches and we expected this to drive sales volumes. In 2022, sales were at over PLN 600 million. We are now at PLN 1.4 billion. We see that customers continue to show interest in the bonds we offer. I wouldn't like to make any forecast as to whether this dynamic will continue or decrease. It is hard to predict, and I think -- in this regard. But I would like to emphasize that the result on sales that we have are satisfactory levels. And we hope that this dynamic will at least remain as it is without going down. But we do not expect any significant growth in the dynamic of sales of this product. Please also remember that it is also an element of making our mobile application more popular, which we consider to be excellent, and we want to educate the market about the functionalities offered by it. And we are the only bank that offers this.

There are a few questions regarding Swiss franc loans. We are talking about not only the portfolio of active loans but also loans that were repaid over the past decade. Do we expect the customers whose repayment is over, might return with some additional claims? Do we assume any compensation for the principal that was the opinion of Ombudsman the bank should not charge any compensation?

Pawel has already said that we feel safe, but maybe we can address those points. We have a multi-scenario analysis from very optimistic models to very pessimistic ones. The amount of the reserve that we planned of the provision that we set up -- according to our knowledge, as of today, this amount of our provision is pretty much in line with the current rulings. The parameters regarding payment on principal or lack of payment on principal compensation for customers who repay their loans within 10 years or within a shorter period, all those considerations are included with appropriate probability weighed in our model. And considering various scenarios, we, as the management board, reached the conclusion that the current level of provision at PLN 2.1 billion, is the optimum amount of the provision that allows us to bring to an end, finally, the topic of loans in Swiss francs. If any extraordinary events occurred, we, of course, cannot exclude that. We have to be prepared for such scenarios as well. I can just say that if we project this financial plan for 2023, we can accommodate those developments. And the current level of provision gives us the feeling of security uncertainty that we can offer a good program of settlement. And on the other hand, our customers whose loans are still working and those whose loans have already been repaid, well, we assume that both groups of customers will make those claims, and we will be prepared to finance the final settlement out of the provision that we have established, and thereby solve the Swiss franc issue finally.

There is another question about prospects for operating costs in 2023, excluding regulatory costs.

Yes. And with regard to operating costs, for sure 2023 will not see such low dynamics as we had in 2022. Inflation in December was 16.6%. We are starting in March negotiations with employees regarding salary increase, pay rises still this calendar year. We already had some impact on operating costs in the fourth quarter that is heat and power. We know now cost of energy because they have already been contracted. You know perfectly well that we cannot benefit from the lower cost of energy that were offered to micro businesses or households. We have to pay for energy at its market price. And we expect that the increase in operating costs in 2023 will be in 2 digits. So we should not delude ourselves that might be otherwise. But our activities, in particular, with regard to the most sensitive costs, namely personnel costs -- our activities here aim at not increasing employment in the bank, optimization of the use of our resources. And a good example could be given in connection with growth in credit action in terms of volumes and value in corporate and retail banking and a significant weakening of sales in retail. So we are able to support corporate banking with those employees who previously were involved in retail banking. In 2023, we do not plan to increase remuneration levels in the bank. The structure of bank personnel and outsourcing costs will continue to be optimized. To sum up, 2023 will see 2-digit dynamics close to inflation rates. And we, as the Management Board, are doing all in our power to make sure that the dynamic -- growth dynamic is as low as possible.

And that exhausts our list of questions. Thank you very much. Our results have been in the public domain for the last 13 hours, but this is annual report and the ESG report is extensive. If you have any new questions, please get in touch with us. And please feel invited to the next conference. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]