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

Hello. A warm welcome to Pekao S.A. We're very glad to be able to host you in this exceptional day when we are going to present to you the details of our new strategy. Some information about the plans and assumptions for the next three years, we will present that by the whole management gathered here with us, and I'm glad to welcome representatives of the media, both here on the 27th floor of the Pekao Tower as well as on the other side of our broadcast. So I would also like to welcome analysts and our staff and all the visitors. Ladies and gentlemen, our meeting will comprise 2 parts. The presentation of the strategy and part 2, we're hoping to hear your questions. And we will try to respond to them. So there will be a Q&A session. Important information for those who are connected online; analysts and journalists, you can send the questions to a special mailbox, [email protected] and also the broadcast window can be used to ask questions. So Cezary, over to you.

Good afternoon. Thank you, Pawel. So reaching beyond the horizon, we want the bank, Pekao Bank to excel and grow and go ahead. So this slogan really reflect our appetite for growth, our ambitions. This is the confirmation of the bank's capacity that can grow organically. We need to clearly say that in the past years, Pekao maintained the same level of the market share, we would like to go back to growth and to increasing our market share. We're looking at a very complex environment, perhaps less so in Poland, but the global events and trends that we're looking at have a significant impact on how we're functioning, what we're doing and what we're going to be doing. So our assumption is that the main leverage here that's going to pull us ahead, hopefully, is the dynamic of key segment growth and key product growth and the availability -- accessibility of bank, improved interaction between customers and the bank and operational efficiency that will be strongly supported with the availability of technological solutions and the changed culture, better decision-making, courage and cooperation. We will start with brief reference to the trends, market trends that we're looking at. They are quite complex. And then following from that, we will talk about the bank's mission and vision, and then we will present the pillars and the strategic dimensions and what constitutes the backbone of our intention for the next 2 to 3 years to come. I said 2 or 3 years, this is a relatively short-term strategy. We're looking at 2029 as the perspective. So that's 100th anniversary of the bank, and we will be starting the progression to the 100th anniversary with that perspective. So financial goals to be presented, which I believe are of specific interest to you. And -- so let's move to the strategic challenges and trends that the bank is looking at. And as a matter of fact, the whole financial environment is looking at perhaps even broader -- in a broader sense. First of all, is the volatility of the environment. We're looking at practically permanent change. We're looking at a lot of change in the demographic structure of the society, and that's relevant to our bank, the evolution of the banking sector from -- starting from product sales, optimal concentration and offers client centricity and very big technological changes. In the Polish circumstances, we are being confronted and that's good news with a group of large strategic investments that the banks will try to participate in. And these trends will definitely have a big impact on us. So let's start with volatility, perhaps point to the key -- 3 key major factors; going through COVID inflation, the Ukraine conflict of the Russian aggression and we have now the Trump's taking over the office with all the ramifications of it. The main would be turning away from what has been promoted for the last 30 years, and that's globalization. So the segmentation of International Corporation, if you can even talk about corporation using these terms. And Anarchy [indiscernible] that you can see with your bare eyes and you can see that this phenomenon will also have an impact on what's happening in the global economy. And it will definitely translate to a certain slowdown, economic slowdown globally that might not necessarily translate into the Polish situation here in field. Another factor is deregulation. Over the last years, we have been looking at continuous inflation, pan-European, but also domestically, we have deregulation, the initials of it -- the initiating phase. I believe that the regulatory peak has already passed. I think probably 2024 was a breakthrough year from that point of view. We have seen attacks from lawyers on to banks. Politicians have also not been neutral but perhaps a slight moderation of that narrative is going to happen. Now over the last few years, and that's also a regulatory aspect, we have seen some unrealistic regimes concerning ESG, so the sustainable development aspect. And that has consumed a big proportion of the energy in the banks. I want to be clearly understood, I'm not undermining this from the point of view of the goals of it, but the means used, especially regulatory means perhaps could raise some doubts. So this deregulation trend could potentially contribute to a certain increase in innovation or perhaps investment and might pull us away as the banking sector and also us from the great effort that was being made in order to meet the regulatory and reporting obligations. Those were the obligations imposed by the state on the bank. Now demographics. Let me just recall, remind you, I have been using these terms for years, demography is destiny. So this is true for the country, but also for an institution such as the bank. Banks serve a majority of the population, a few million people in our case and their demographic profile to a large extent, influences the way the bank functions and the society functions. The key element is that society is aging. 29% of citizens will be over 60 years of age in 2050. What's good news is that people who retire or who reach their retirement age 60, 65, this year is relatively low in Poland, still, they maintain -- they continue their professional activity. And that is a certain hope that we might not be at the edge of the cliff when it comes to work supply. This will also be moderated by an influx of foreigners, which will mean that banks will have to position themselves differently and prepare and offer also for those clients. Pekao S.A. historically was the bank of Polish immigrants. So perhaps -- immigrants. So perhaps we will be the bank of immigrants in the future. So naturally, our customers' clients are older. This is publicly known and looking at the aging population, we need to continue the acquisition of young clients. And also looking at the age profile of our clients, not just us, but also others. We need to treat this as a priority. And that's the issue of creating products that would help clients to accumulate capital after they have terminated their professional activities. This might perhaps be more of a personal remark, but once I draw the line from my banking experience in a few decades that I've been working here, the most significant change is the shift from -- looking at a bank as a seller of products to the more client-centric approach. And that's a shift that has happened over the last decade or so, maybe 1.5 decades. There's some distance that we have to catch up here. So this client centricity rather than thinking from the point of view of the products that we offer, it's probably the main challenge that retail banking has to look at, and that will also be a challenge to us, and we need to identify with that. There are some statistics that determine and demonstrate that in every age group, the customers are likely to have more relevance of their offer, to look for a more relevant personalized offer, something that's better matching their predefined or imagined needs. And from that point of view, we'll have to calibrate our offer and tailor-make it to make sure that it's relevant to specific age groups depending on the products, needs at a specific point in time. And that's probably the most difficult process that retail banking will have to undergo and also looking at ways of motivating staff. What's important here is NPS, if this is high, then the sales conversion is bigger. Customers are closer to the bank. You could even say -- McKinsey study say that this translates into the profitability of the bank. And client satisfaction translates to the profitability of the bank, but it also has a positive impact on the return from capital. So that increased loyalty is important to us. We have loyal clients. They have been with us for many years. We cater for them both in terms of our service and branches and digital services. And also the range of products that we offer is important, thanks to the fact that we cooperate with PZU, we are a part of the group. We have access to insurance product. And I am very much an advocate of bank insurance solutions. I think there is no better solution for individuals than to opt for that. And the algorithms that we are looking at increasingly that define the degree of personalization of products mean that you can do your business quicker and more efficiently as we speak. So what's happening is an unprecedented technological revolution, it will definitely have an impact on financial institutions. Historically speaking, banks have absorbed new technologies very well. We have some heritage as a sector. However, what's on the horizon here is GenAI, which revolutionizes our current experience -- customer experience and the opportunities to a much greater extent than Internet did at some point. So it could be a breakthrough moment, a bank such as ours could perhaps be helped to make up for certain gaps that existed in the past. It will be used to improve the efficiency of processes, management customer relationship, aggregation of data, improving employee skills. And that last aspect is very important. Without an increased awareness of employees concerning the changes that are to come, change will be more difficult and working will be more difficult. That's why we consider it important and we treat this trend as an important trend. This will also be helpful from the point of view of cybersecurity, although possibly the other side thinks the same. Criminals are also looking for their pathways, but I'm convinced that from this point of view, we will have some more support from the new technologies. And last but not least, if we managed to adopt these new solutions effectively. It will be for us and for our competition, a source of competitive advantage. We're hoping that it will be one for us. Polish specific conditions in the upcoming years as such that there will be a major transformation in investment. As we know, historically, the level of investments in Poland has been relatively low. And now we are looking forward to a number of transformative programs in transport, in energy and logistics and these programs of transformation will be supported with EU funds. However, the element of commercial funding and the implementation of these will be significant. Average annual amount can be PLN 200 billion to PLN 300 billion higher than in 2021, 2023, mainly in big companies and in public sector as principal consumers of those investments. We estimate that the amount will be significantly higher than in 2021, 2023. That implies a significant growth for the banking sector, and they would like to participate in that growth, even more than just participate. The segment of corporate banking involving large transformation projects on the horizon now. You have the main directions specified here, where corporate loans will be major features. Here, our priorities -- give major priority to these. Normally, the component of any strategy is the mission and the vision. And we see ourselves as a bank that supports its customers at each stage of life cycle, journey of life, whatever we call this. We like the name of journey for this. From the beginning till the end and also from local businesses to global corporations. We will bring together our century tradition with our forward-looking vision. We want to be a universal bank of preference for Polish market, leader in intelligent and smart financial technologies that support users in their life and business journey. The word journey is significant here. We are creating a place where the development of passionate employees will translate into a unique experience of our clients. You have both the technological and personnel component. And it is not just perspective of our clients, but also that of our employees. The change that is driven mainly by technology must concern both clients and employees. And we need to send a strong message that we follow, the needs of the customer rather than the market preferences. We will want to create a higher level of determination in pursuing goals. We want to achieve our targets but we have to be realistic. The targets, goals have to be formulated ambitiously. And then we need to be consistent in pursuing them. Strategically, we have the growth ambition, which has to translate into a certain increase in market share. We have some roots. We are a bank, which has a relatively well-established market position, even more than that, probably one of 2 oldest banks in Poland because this 100th anniversary that is just around the corner is a tradition that we have to draw on even with all the evolution that has taken place. We have managed to be the leader in net acquisition in retail banking in recent years. We have also managed -- after a slow beginning, we managed to activate customers increase their usage of mobile applications. We have 1.4 million growth in the number of customers using mobile apps in recent 5 years. Also, PeoPay has taken off. This is very important in the context of changing demographics because we have recently acquired a relatively significant portion of young customers that is aged under 26. This is very important because now we have to make sure that they remain active. Acquiring those customers is one thing and making sure that they keep using our services is another. We have over 500 branches across the country. And I think in each municipality, their value has to be redefined. They have to be rethought so that they play a social function in the communities within which they operate. It doesn't mean that all branches will remain in the current form, their future development will depend on how active customers and specific communities are. And to what extent they remain something of interest to our customers. A good sign is that in recent years, we have managed to increase the gross written premium by 67%. We will make sure that, that keeps growing. And Pytlarczyk will talk you through the details of that plan. In Corporate Banking, we assume to be -- we are #1. Every second company in Poland has some account in Pekao S.A and that is a very solid foundation. Corporate Banking seems to be the key element in the coming 2 or 3 years, the key lever driving growth. And for many years, the bank has been paying out dividends. This is the characteristic which is appreciated by clients, especial investors, and we will uphold the capacity to pay out dividends. Let's move on to more detailed assumptions of our strategy. We have 3 pillars that will organize our activities and 9 strategic directions, which will be presented by my colleagues. Growth is of key importance here. I have already covered it to some extent. And we can say that behind those strategic directions. We have initiatives. We have measurable goals. But for obvious reasons, the whole range of detailed solutions will not be presented at this meeting, but they also constitute banking secret, which we want to keep secret. Now a brief introduction to those pillars, and then we will continue on strategic directions. First of all, growth. We want to increase our assets, revenues, customer base and maintain profitability. The bank has had high profitability in recent years. We know that the interest rate environment contributes to maintaining this. Personalization of value for clients is essential here. The ability to customize the offer so that it corresponds to conscious or unconscious expectations of our clients. You can see, in this slide, a series of numbers. This is already available, so I will not dwell on this. The second thing is maximization of the use of synergies with the PZU Group, both in sales and maintenance and retention of our customers, but also with respect to costs, given the scale of our operations, which is basically comparable, we will try to make the best possible use to the greatest possible extend of this relationship. Within the banking group, we also have some companies, that are 100% subsidiaries of the bank that are active in leasing and factoring. And in this sector, the potential for collaboration with SME sector and micro enterprises is much greater than this collaboration at present. So we can enhance this cooperation. In Corporate Banking, we have high expertise, a lot of good experience, very solid sector studies and risk analyses, the cost of credit, cost of risk were relatively attractive. So we will try to remain leader in this field, although there are many companies aspiring to gain this position. But we will try at least to defend our position. The second pillar is availability or accessibility. The key element here is the principle that banking solutions follow customers rather than imposing it's solutions on customers. This is a cultural shift. After many generations in the banking sector, resulting from the maturity of our customers and from the expectations. Now customers value personalization, and we need to address this expectation. The key to success of Pekao S.A for retail customers is omnichannel approach. It is not developed to the degree which might be expected at present but this omnichannel approach and integration of customer journey within the bank will probably be the most important challenge in the upcoming years, in Retail Banking. We will return to this when talking about strategic directions. I would just like to highlight one thing, namely that we deeply believe that the new technologies that are to a large extent already available but are still in the experimenting versions is conversational banking of new generation. Here, the bank would like to play a role. Maybe that will be another lever for us, helping us to modernize in the near future and maybe bridging some gaps that emerged in the past as lack of investments in Retail Banking. NPS, that's the name of the game. We have to be perceived as bank of choice for our customers, the bank that addresses their needs, and a good evaluation by customers will translate into good financial results. The third pillar of our strategy is efficiency or agility. The bank needs a good data system. Dagmara will talk you through this. Here, we need to make a lot of effort within a short time. Hopefully, the new and available technology will help us to sort out the structure and manner of using and consuming data. And then ergonomization of key processes. Here, we have a lot of -- to catch up with -- because in the upcoming 2 years, we will stop this journey, and it will continue beyond this time horizon. And that will imply another major effort, which will hopefully result if it is successful, which will result in a major reduction of cost. Our ambitions in this regard depend also, to some extent, On the pace at which will be able to digitize and automate processes. And then something that has never been -- can never be ignored that is disciplined aspirations and ambitions in achieving goals. Now I would like to hand over to Marcin, who will explain where we see ourselves in the context of ESG.

Thank you. Good afternoon. The issue of the environment, social and governance remain one of the key factors of our strategy. We want to be the leader of the transformation in Poland. But what's important is that we want to be pragmatic and realistic. Specifically, we will take into account the current economic situation, the needs of our customers and also the regulations and requirements in this area. We believe it is the regulator's job to shape the policy for climate transformation. And we've been looking at a change. The EU is shifting away from the bureaucratic refinements in various procedures that predominantly were our key focus of concern and the huge reporting obligations. The ESG reports have really been the majority of our reporting package. Now when we look at competitiveness and growth, we will be responding to the needs of our customers. We will be building adequate services and products. And then we will develop the plan for transformation and finance those transformation needs. Our strategy provides for PLN 9 billion for the new green financing. From the point of view of regulatory requirements that are still relevant to us, we are obliged to prepare the plan of transformation for climate neutral operations in our area of operation. Now for the social aspects, Cezary has already remarked that what we care about is to create modern, engaging and aspirational workplace. We will be building that based on the culture of equality, respect and diversity. We want the dialogue with our employees to be alive and authentic. Moreover, we want to also increase our voluntary activity. This is part of our employees' opportunities. It will be enlarged. What we care about as well is to take part in the economic education of the society. We believe this is one of the key components that we can bring forward and contribute for the benefit of social development. For the goals of our employees, we want at least 1/3 of our higher management to be women. And we want to curb the remuneration gap at below 5%. For corporate governance, we want to have full transparency, both in terms of communication with the market but also with our customers. We want them to know why we prepare specific products or services for them. We want ESG to be integrated with our management system by an adequate ESG policy. We want to develop a methodology to assess the risk in ESG. We promote ESG issues in our supply chain. 90% of our suppliers as a result, will act according to our supplier ethic code. Now over to Wojciech.

Good afternoon. Thank you very much. Let me talk you through the pillars. The first is the one of growth. We want to focus on organic growth, and that is to increase assets, revenue and the number of customers. Now, the first thing to do is to support the activity of our customers by looking sensitively at the changes throughout their lifespan. We want to focus on the customer perspective. We want to respond to their expectations at every point in their life. So we shift from the product sales paradigm to the client centricity paradigm. This is necessary to adequately formulate our offer and to properly define the service model for these customers. So we address issues related with demographics. We want to deliver possibilities of common finance management wherever they need it. Like we said when we defined our mission, we care about being able to accompany our customers at every point in their journey -- life journey, that will make Pekao, the bank of first choice. Clients will be able to comprehensively satisfy their needs in a manner that is intuitive and modern. What is it that we want to achieve up to 2027? We want to increase the number of active customers by 15%, that is 700,000 customers, and we want to increase the number of people who are below 26 by 1.4 million. How are we going to go about it? We have some good experience in the expansion of the offer for young customers. We want to develop it further, and we want to precisely target our marketing to reinforce the identity of this bank as one that supports young people. What we care about is not just to get these clients but to also get them to be loyal and to remain with us throughout their life journey. We will focus on building a comprehensive offer for people that are active both professionally and privately, we want to focus on people between 27 to 50. And our unique offer will be matching their needs and the lifestyles of these customers. And that's thanks to the cooperation with our strategic partners. Number three, we will deliver solutions that will make it possible and easier to jointly managed finances. We wanted to make it possible to our customers to accompany them when they create couples but also support multigeneration families when they manage their finances. We will also look at tools for the long-term perspective, thinking about personal finances and investment. We want to support our customers when they accumulate the capital that is necessary to have a fulfilled retirement. We will make it possible for self service, but also via our advisers. And last but not least, we want to tap on the -- our presence in smaller towns to activate individuals or micro enterprises present there, we will simplify and tailor-make our offer, we will shorten the processes, and we will redefine the role of branch managers. Going towards our second pillar of growth, we will attach a lot of importance o our synergy with the ensuring company and increased the bancassurance offer. This will, in turn, increase the satisfaction and loyalty of our customers. On the other hand, it will also increase the commission level for the bank. We have behind us the strongest insurance brand in our Polish market, #1 -- the #1. And we have already proved that we can effectively persuade customers to use insurance products that are linked to banking products. Now we want to make a breakthrough for areas that have not been yet linked to banking products, they are stand-alone products. Introducing this to our strategy means that we're planning to increase the provision for -- by PLN 1 billion for the premium. How are we going to achieve that? Based on the good experience that we've had so far on the linked products, we want to add new types of insurance. We will extend the offer of stand-alone products that include other types of insurance; health insurance or investment and savings products. We will increase the tailor-made aspect of these products. Customers will be flexible on how they select and choose these products, we will increase the offer in all the banking channels, including personalized messaging via the preferred channels for specific client groups. Thanks to that, among others, we will possibly sensitize our customers to their insurance needs and key points in their life, but it will also create the insurance awareness among our customers. We will also optimize and develop our self-service services to deliver tools for independent management of these processes; by our customers, they will be able to do a lot of that independently. For corporate clients, we see potential for synergy with the PZU Group. We can offer a unique comprehensive financial offer. We can cooperate in structuring transactions. We can manage their presence in the debt market. We will be the main participator of the PZU presence in such transaction. Thank you. Over to Robert.

Many thanks. There are 2 points I'd like to make. First of all, the group's perspective and corporate banking. So for the perspective of the group, Pekao S.A is one of the biggest financial groups in Poland. Services of the bank or our daughter companies support our customers, small micro enterprises up to the biggest corporations. We put a specific emphasis on leasing and factoring services. That's caused by the fact that we're quite aware that for SMEs or for micro enterprises, these products are frequently first choice, when they think about the financing of the current operations or development, factoring our standpoint is our position is strong already, but we believe that it can be reinforced, especially among SMEs. Our cooperation with big companies has made us strong, but we believe that by integrating this factoring offer with the offer of our bank, we can grow specifically in the area of SMEs. For leasing, -- there are a lot more serious strategic challenges ahead. Our position as a leasing company is not as we want it to be, given our position as outstanding as the bank in the sector. So we want to further integrate this offer with the leasing offer that we want to put forward, but we also want to explore all the potential available business models in the area of leasing, and cooperate with such customers that have not yet had any contact with us. How do we want to go about it? By developing technologies that will support us in data management, also customer data management, and we want to automatize decision-making processes. What we also want to tap on to a much greater extent is our relationship with the suppliers of investment goods. Customers might expect that the lease offers could be present in remote channels much more than before, such as electronic banking or mobile apps. It could also be expected that we would combine or integrate the lease -- portal's lease websites to our banking website so that we can improve the customer experience for those that, in fact, use such services. Now moving on to corporations, corporate banking, enterprises. Our goal here is to grow significantly in terms of volume and revenue profitability. Despite the uncertainty that we can see, which is visible both from the point of view of the economy and politics. We do believe that we're on the verge of large investment -- large infrastructural investment that will be very important for the Polish economy. Combined with our knowledge and experience and determination in this sector and our ambitions, are bound to result in significant growth for this area. Pekao S.A., as a bank, has a strong capital equity position and has appetite for risk. So when we add our unique competence in investment banking, well that is bound to lead us to increased volumes and loans. And this will be our goal, like I said before. So these are the areas of the economy that are of specific interest to us; energy, logistics and transport; and industrial processing; and chemical industry; food industry or minerals are the most important areas for us here. Here, we want to be an unquestioned leader in terms of syndicated loans, consortium building or underwriting, in particular, in those major transformation projects. And how we want to support achievement of those goals? Well, first, by processes. Already now, we are working on processes that will combine the efforts for the front office, analysts and our sector or macro analysts so that we understand the transactions better. We are able to structure them better, value them better. Secondly, specialist funding. Here, our position is strong, but we want to enhance it further by using the support of foreign investors willing to invest in Poland as well as Polish investors who are considering foreign expansion together with us. Thirdly, treasury. And again, there are areas in which we are leaders already now like corporate debt issuing or ForEx. But you want to focus on security of customers by greater use of hedging transactions using interest rate, price volatility hedging and thirdly, local government. Again, that's another area of significant in our operations. We are strong there, in particular, in terms of local government infrastructure, those infrastructural projects at local level, ones in which we are leaders, we want to enhance this position, be even stronger theere, drawing on the well-developed network of our branches there. Now I would like to hand over to Blazej.

Thank you, Robert. We are moving now on to the second pillar that is availability or accessibility. We want to transform our service completely. We want to have an integrated service model. We have a good mobile application, one of the best available, one of the largest network of branches. And now the key element will be to build a new integrated servicing model that will put together the capacity of modern technologies with the potential of mobile app and our network of branches. Here, we will bet on high-quality conversational banking with intuitive dialogue available at each stage of the servicing, that will boost interest in digital transactions. among younger customers, but it will also address the need for simplicity among elderly customers. Here, we see the potential for building a competitive edge that will be a major driver for increasing the number of transactions concluded by our customers. And also that will make the use of bank infrastructure more efficient. Therefore, the resources in branches and contact center and the remote channels will all improve. How are we going to achieve this? Well, first of all, by smooth and coherent processes that use modern CRM tools that are supported by AI. PeoPay will be the main contact point with the bank, offering a new conversational interface, both by text and the voice. We will implement a new version of PeoPay, PeoPay Lite, for people who prefer simplified, more intuitive applications. We will offer this version to customers who are less advanced in terms of using digital solutions and to the elderly customers. We will try to convince them how they can use those channels. Also, we will use GenAI as the support for our employees and branches. And in the second stage, after additional training provided to our employees regarding the use of AI, we will offer this within PeoPay Solution. It is our ambition to develop our contact center to the level matching the best in the world, also by increasing the use of AI. That will imply redefining the role of our branches in terms of the education for clients and optimization of services that will be based on geolocation optimization, branch area -- branch surface adjustment. We plan that we will have 4.4 million customers and the number of voice interactions with our bank will increase threefold. Then within this availability pillar, we will make sure that our activities meet the expectations of the clients. So we will focus on end-to-end comprehensive model of managing customer experience. We have learned how to measure customer satisfaction in all segments and all channels. We have an increased NPS, but it is still below our ambition. So this year, we want to elevate it to a higher level. We will improve the skills of our employees. And that will allow us to identify new needs of the customers and areas that require some improvement. In the next step, we will focus on using this knowledge in a systemic manner so that we can address those identified client needs. And consistently improve our services. Then we will have a far-reaching simplification of the language that we use in communication with clients and we will simplify the layout to make them understandable to clients. We will also review our complex processes in order to simplify them. We believe that customer experience regardless of life stage, type of activity, preferred contact channels will all be addressed and customers will receive professional service. We want to be leaders among the best banks in NPS and the mass segment. Now over to Dagmara.

Good afternoon, ladies and gentlemen. Cezary mentioned 3 strategic pillars. And now we will talk about efficiency. And the first strategic direction here is ecosystem of data. Now our bank relies on a number of various systems that support customer service, risk analysis or accounting and financial services. The variety of those systems means that integration of data remains a major challenge. As part of our strategy, we will develop a foundation of the modern ecosystem of data, which will be understood as an integrated environment of systems, technologies and processes. We will pursue the objective of becoming a data-driven bank. The new architecture will be created based on the best market solutions. We will treat data as a product, as an asset, a service with a strictly defined parameters of quality that will allow us to achieve synergies between data and AI solutions. We also implement a new model of information management. This model will provide the foundation for effective implementation of the strategy. It will also support personalization of customer, support cost efficiency as well as accelerating our reporting. Gradually, we will transform our bank towards becoming an autonomous bank. Over to Marcin Gadomski.

Good afternoon, ladies and gentlemen. Dagmara has introduced us into the first part of efficiency. And I would like to talk a little bit more about aspect of this pillar. In the 1950s, the U.S. started building motorways with a complex program to connect the whole country and major cities across it. Then those roads were not really maintained now when you look at roads in the U.S., and they are quite efficient. But in many places, there we will require renovations or restructuring. And the situation in the Pekao is quite similar. We have quite efficient IT infrastructure. We have quite efficient processes. Our infrastructure is stable, yet in some areas, improvements are needed. If we look at processes, as my predecessors have already signaled, there are some stumbling blocks or sharp turns, which prevent us from operating as small as we could. The operating model will be the program that will allow us to address those issues, simplify the processes to let us operate much more efficiently. In recent years, we have invested in digitalization of retail. Now we will focus on corporate and SME segments, where there is still some work to be done. The next stage will be preparation of a certain road map for investments and changes in IT in order to build a more modern, more efficient architecture that will allow us to be ready to face the challenges of the future. We'll start designing this road map quite soon. And by the end of this year, we will have a clear plan of investments and changes for the upcoming years. The cloud. The cloud allows us to reach beyond the horizon. The bank is already in the cloud. It has a series of applications that operate in the cloud, some that were written natively for the cloud as being operational in line with the rules valid in the cloud. Yet we would like to transfer some of existing applications to the cloud. And for new ones, we will want to change our approach. We will consider the argument against using the cloud whenever we have a new implementation. AI has been with us for a decade or so. Generative Artificial Intelligence has been around for 2 or 3 years, and Generative AI, for like 3 months. So the situation is changing very quickly. We cannot afford to disregard those trends. For me, Artificial Intelligence and what has been happening in the last months or years, is not evolution. That is actually a revolution that is a change of paradigm. That is a shift from traveling by road to flying to democratization of flying that allows people to move from one continent to another within hours rather than weeks, as was the case before. That is why we want to focus on building AI competence center. We want to invest both in people and in solutions. We want to be up-to-date with what is happening in the market and keep abreast of those most interesting solutions that we want to use in our bank. The things I have just mentioned would be impossible without our employees who are our most valuable assets. We will continue to invest in training them and supporting them with state-of-the-art solutions, including those that use AI. LinkedIn Learning is already available to all our employees. We want to promote proactive and ambitious attitudes of people who are willing to take on challenges, who are willing to take up responsibility. And as the Americans say, we want to promote a can-do attitude among our staff. All those initiatives taken together will allow us to achieve the goals that Dagmara will present.

We have talked about the pillars and directions. Now it's time for some figures. Polish economy is now on growth path. GDP within our strategic term is estimated to be at 3.5%. And the main source of this GDP will be investments that will grow 8% in 2025. And at a similar level in the following years. As for interest rates we assume them to start falling down in 2025 and to become stable at 3.5% in 2027. As a result, the profits of the sector and high over liquidity will support modern technologies and support of key sectors of the economy. As regards inflation, it will reach its peak this year, and then it will go towards NBP target of 2.5%. As for our bank and profitability, we plan to use a number of drivers to build profitability of the bank in order to achieve higher return on equity and to minimize the effect of declining interest rates. How are we going to achieve this? We will change the structure of our credit portfolio towards product would generate higher margins. We also want to change the structure of our revenues in order to obtain higher commissions. And at the same time, we want to increase our market shares in strategic areas. All that will be supported with marketing expenditures. We will invest in technologies and infrastructure based on AI, cloud technology and cybersecurity. As my colleagues have said, we will support our customers' activity at every point in their life journey. And at every point of their company's development. In terms of the loan volume, we want to grow by 4.6% annually, which will give us PLN 450 billion a year. We want to change the structure of the balance sheet towards the more profitable and more margin-producing sectors. So loans, micro and SMEs. Now for the Corporate Banking, we have a great potential that can tap on our knowledge our expertise, and we're hoping to use the funds from RP. Now for Commission's result, the key drivers of growth will be the increase in loans, increased saturation in insurance project leasing factoring and the increased activity and transaction level of our customers. High profitability and optimization of the capital structure will allow us to keep the dividend option. Our policy assumes that we will pay dividend up to 50%, 70%. We will be active on the financial market too. We are planning the MREL issue for EUR 2 billion, and we will explore new instruments that are -- have been available for a year 81. For the liquidity profile, our situation is very comfortable. LCR is over 200% with the minimum regulatory being 100%. And if you have appetite for risk, it's 130% million. So this allows us to finance ambitious growth in loans. And we will ambitiously grow in the loan portfolio, but we want to optimize the risk-weighted assets and we will perhaps reach out for the securities. Now over to Cezary.

So this is a wrap up really to explicitly say what our goals are. Some of you have already had the opportunity to study those in the presentation that we have published. Our goal is to grow our capital, our equity by about 18%. That's a stretch I realize with the decreasing interest rates, this could prove to be a challenge. Still, as Dagmara has just said, a slightly different credit mix, high level of liquidity, all of that should make it an ambitious but feasible task, something that we are able to achieve. Cost and income ratio, we are hoping that it will be about 35%, but albeit, perhaps while we implement the strategy, a small revision could be made. We do realize that the level of investment that we are going to put in process to keep the bank up to the speed when it was slightly behind, will be lower, 65, 75 basis points is the cost slightly higher than before. That was the estimate, but the credit mix will be different as it was said before. And the dividend payout I'm not going to repeat. We have always been a dividend bank and will remain to be one if our results are even better, we might even pay more. Thank you very much, and we're open to questions.

Thank you. Now is the time when we wait for your questions, you can communicate them via the Internet. We are waiting for questions from analysts, journalists. [indiscernible]. You can also communicate your questions in the broadcast window. Are there any questions in the room please? If so, we will give the floor to the audience first, Mr. [ Grasovski ].

My question goes beyond the strategy of one Bank. The 3 banks that are being supervised by the state have declared 18% as a goal at a similar time frame. And the Prime Minister just said that the management Board of strategic treasury companies, and banks are strategic companies, should not be thinking about maximizing their profits. And so I would like to ask the President of the Board and the Board, how do you see this 18% against the backdrop of the new tasks that the Prime Minister has given you?

Well, I have studied this intervention, thanks to Bloomberg. But it would be -- my -- any comments would be too early. We have our shareholders. And at least a certain degree, we need to fulfill their expectations. And you might recall my article from 5 years ago about a slightly different perspective on stakeholders. That is -- well, equity is not the only criterion that accounts for the accountability for the management board. So there is an article about that on [indiscernible].daily. I encourage you to consult it. That was a long time before the Prime Minister said what he said, what you are referencing.

We have another question.

Good afternoon, [indiscernible]. Simpler questions, 2 questions. How much is the bank planning to spend on investment in the strategy? And the second one, you mentioned that your presence as the shareholders in PZU is a stronghold. So the other side of the coin, to bancassurance is assurbanking. How do you see role -- your role here.

Okay. Assurbanking. Let me start with that. It is no secret that I have worked for PZU, and I am deeply convinced that this model that will be dominating is bancassurance. Banks have a much better contact with customers on a daily basis. We are in dialogue, and we're constantly interacting with the customers. We -- this is not something that the insurers enjoy. So banks will be structurally better as the channel for communication with customers. But on the other hand, it will work not so well in other direction because via the distribution that insurers have, well, that's mostly digital, isn't it, globally. They follow banks. And the agency layout is not really conducive to that. The links here are not tight enough and the discipline that banks have and various limitations of the world that we have, that makes it slightly difficult. So bancassurance is definitely the goal. Now spending on technology. So far, in our CapEx, we spend about PLN 500 million to PLN 600 million a year. In our strategy, I think it can be expected to grow slightly. How is it going to translate into the dynamics of our costs? Well, we can assume that the cost -- administrative cost and the overheads will grow -- no, the CapEx and operational costs will grow, but the CapEx will be held under control. We are hoping that these expenses will be rationalized and perhaps we will be able to consume better that opportunity. Now we need to actively look at the [ current ] cost/income ratio and figure out to what extent the projects that we have on the horizon will absorb the funds and perhaps we will decide to opt for a high level of spending, but that's only after we've defined specific expenses. So that was the point that I was making earlier.

[indiscernible], you talked about cost synergy related to the cooperation with PZU. Now my question is what are the bank's plans. And how do you assess the potential savings from that synergy? And what is your basic synergy on the interest rate margin net First question.

We don't not really have a clearly defined pathway. PZU has new management. We're in dialogue with them. We have known each other for years. And the attitude is very reasonable. For example, in my hometown, there is a branch of Pekao S.A, neighboring to the PZU branch, about 80 meters apart. Ours is about 800 square meters, 600 too much. And there is -- it's probably 600 square meters, which means 500 too big. Those are simple things, right? If we can sit down together and look at the infrastructure that we have, that in itself can account for a lot. In our bank, we assume that over the next 3 years, we will be able to get rid of a lot of office space. We quite simply have brand just dating back to the 90s. We need to do something about it. It will trigger some costs, but we will be able to retrieve a lot of the operational cost that's now currently lost.

Okay. So the net interest rate margin, our responsiveness to the drop translates into 25 basis point decrease. These interest rates will drop. The reference is [ 5.75% ] right now. We go to 3.5% in 2027. So what seems natural is that the dynamic will be downward, right? Although, like I said, we are taking measures to minimize the drop of the interest rate margin. So we are changing the structure of our products to have one with higher margin. You saw this in the slide, even the effect will be compensated for in 3.7%. And that's not the only thing that we're doing to remedy that situation.

Next question, please.

Let me go back to return on equity. There are more banks that estimate 18%. Can I have some explanation, why is everyone hoping for the same? Is it the same market, the same institutions? Or what is a matter?

It's not given by the ministry. I can assure you of that. They take various formulas to achieve this result, but we do operate on the same market. So it's not as if we are introducing a revolution. And here, but one thing needs to be said, our estimates are slightly more optimistic, Ernest Pytlarczyk, who's Head of Research here and present here is optimistic, and we follow his sign posting here. So there isn't anything specific that makes me lean towards 18% rather than 17% personally. But what I would say is that, well, this is where we are and with the current volatility that we are looking at, let's be honest, it's more art than it is science, isn't it? Regardless of the models that the analysts are using here or the ones that we are using, you need to be mindful of how the economy will develop and what the volatility will bring volatility that we referenced to earlier in our presentation. And to what extent there will be a shift in those very ambitious investment plans because we feel already that they're not really happening at the rate that they were going to happen. Still, having said that, if you reach beyond the horizon, you need to be ambitious.

Okay. Another question. You said at the beginning, sir, that you're looking to see an increased market share. Your changed trajectory will grant you that. Where specifically are you looking to have your increase market share? Because in the strategy itself, it doesn't seem to be clear that there's consumer finance loans and then micro enterprises, anywhere else?

Yes. I think your assessment was valid. Those are the main areas where the bank is still undervalued vis-a-vis its fair share of the market. And I think from this point of view, there is some space to still reach out for. This has been also covered by Dagmara and Robert. This is the area in the corporate part. We know that we are going to face important competition -- strong competition and it will be more of a volume-based approach. But let me also point out that we haven't really increased our market share for years. What you said was, we should opt for organic growth. I want to explicitly say, and I did say that at the beginning of my intervention, to a certain degree, we want to test the bank's capacity to achieve organic growth. Whether it's by ambitious goals, modernization, more proactive and culture of delivering, we can perhaps push forward our market share. It's not a miracle that we're hoping for. It's not as though you can change your market share over 2 years, unless there is a dramatic price and wars, which sometimes happens in insurance, right? But maybe referring to what Cezary said, the 3 elements, cash loans, micro segment and SME segment. There in loans is increasing from the present 34% to 38% by 2027, with significant overall growth of the volume. This is also where we will look for growth. Now maybe over to our online -- No, we have one more question from the room.

[indiscernible]. I would like to ask whether the development of a holding by PZU is the most beneficial solution for Pekao? And whether the structure of your owner influences your strategy, your future? And then an additional question. Do you see already now in a major interest in loans with variable interest rates in the expectation of declining interest rates?

I had the chance to have some conversations about loosely understood concept of holding, not from the perspective of CEO of a bank, but from a person who has been following the market closely for a number of years. It seems that this prospect makes sense. At the end of last year and at the beginning of this one, we had a dialogue with PZU regarding the best possible formula of using capital within the joint structure of Pekao Group, including its various subsidiaries. And that also came up in the context of our involvement in Alior. This discussion is ongoing and a very idea to restructure the organization seems sensible. There are a lot of questions asked online. We have a Marcin from investor relationships, so over to you -- there was one more question about the growth of interest in loans with variable interest rates -- not in mortgage loans, here, fixed interest rate dominates. And in consumer loans and cash loans, yes, there is a certain increased activity but with variable interest rates.

And online questions. Now thank you very much for the pre-pandemic attendance here in the room, the greatest interest in our financial parameters focuses on reduction of C1 to 3%. Are we considering higher dividends in this context, if our ROE remains high, and this level is now close to 15%?

We look at this ratio, Well, maybe start with KNF guidance. It allows payment of up to 75% of dividend. We assume significant growth in the following years. If the situation allows us if that is possible, we will talk about higher payment of dividend.

Another question that was asked online, regards our brokerage activity in the context of XTB activity in the market. Do we have any comment regarding our strategy on brokers activity?

Yes, recently, XTB has been the brokerage house very visible in the context of new products and initiatives. So we are following closely what's going on there. And also in the context of what kept recurring throughout the presentation of our strategy, namely looking at things from a client's perspective and considering client journey, we see major needs for long-term savings. And all initiatives that go in the direction of promoting long-term savings, including some savings schemes that are automated, if I may call them like this is something that we are considering very closely right now.

We have a lot of questions to similar effect. I promise I will ask all of them. We released a strategy once in 3 years. So no question will be left unanswered. One question here regards our bancassurance activity. Can you tell us more about the development of the insurance segment? Does the strategy assume development of model in which you have a separate leg but focus on insurance? Or will all the insurance activity will be linked to PZU. The second option is something we considering we will rely on the expertise provided by PZU. And we believe that the product that PZU is able to offer, we will be able to sell efficiently tasting them into our existing offer. On the other hand, in the context of profiling client needs. Undoubtedly, there are areas where banks have some advantages. So this dialogue and the process of arrangements here, we'll have to intensify. We have some achievements from the past year. I talked about 60%, 70% growth in written premium in the past years. So we are targeting PLN 1 billion. And we have great -- we want to have a greater presence of stand-alone products. That will entail an open dialogue with PZU. But the danger here is that probably some distribution channels of PZU might see that as competition. But we are within the same group, we have those arrangements, and we will operate along those established lines.

I have 2 questions. Regarding the graph on Page 29, which I believe is extremely interesting. Can we see this graph? Very interesting for analysts. It shows very simply the path along which you want to arrive at your ROE. Where do you show in this graph the increase in cost of risk in which column? Whether you show here increase in market shares in selected products, and where do you show this graph the expansion of your margin? That's my first question regarding this graph. And the second one is more technical. Do you expect that in 2027, your margin, which is risk-adjusted will expand taking into account the neutral scenario of interest rates? Or do you prefer to increase your market share sacrificing the expansion of the margin, where that will be consumed by increase in the acceptable risk cost?

Let me start with the second question. To some extent, yes. If we talk about the bank wanting to confirm its ability to grow. And on the other hand, says that the growth is likely to grow. And the mix is likely to change. Of course, we are unable to state precisely what it will look like in 2027 we take into account all the assumptions that you have just mentioned. This is all subject to our studies and our thinking about development, but we prioritize growth. Well, yes. And regarding my first question, volumes, market shares. There was a question about cost of risk in other -- and what else market share, market shares and volumes. If you are interested in details, unofficially after the conference, we can give you more details regarding individual columns in this graph.

Yes, before we start the unofficial part, we want to make sure that everybody who is present can still ask questions no hands raised for the time being, Polish Press Agency is the base scenario for Pekao just organic growth is the bank may be interested in acquisitions or mergers and acquisitions. Will you aim at dividend ranging 50% to 75%?

Yes. So we have 2 questions. Yes, our scenario for the upcoming 2, 3 years is a scenario of organic growth. That is the preference. And I believe that consolidation of a bank around measurable goals is of greater value to the bank than any acquisition. All the more so, if we consider that the acquisition capacity of the bank, is always a function of taking advantage of the synergies. Now the bank is not prepared for that yet. Hence, the greatest focus on organic growth. Of course, if within the PZU Group, we reached the conclusion that there are some extraordinary circumstances which are conducive to such an approach that cannot be excluded, but these are decisions that go beyond strategic freedom of the management Board of the bank.

One more question asked online by representatives of the media, [indiscernible] Bank Mattley. How does Pekao perceive its presence in the group in the context of the presence of another bank there?

But I didn't answer the second question, which was about the dividend. The issue of dividend has to be seen in 2 dimensions. The first is that the key for the banks to increase their dividend is the dynamics. We need to keep a certain portion of our equity in order to be able to grow. So far, we haven't taken into account any capital from the market. We didn't have a need for any capital injections from the market and less acquisitions occur, that's not likely. But for the time being, the bank has a strong capital position, as Dagmara explained. If Poland saw very significant credit expansion then we might expect that the level of profit retained in the bank could be lower, but we do not make this assumption. We think we will stay within the 50% to 75% range, if there is no major change. And of course, that will also be the result of our dialogue with the financial supervision authority, that is becoming increasingly transparent. In the past that was rather checkered pattern of developments. But for the time being, the bank seems to have significant leeway. In the past, we paid dividend as promised. But if we say that we care more about growth, we focus on the range between 50% and 75%, leaving ourselves space for maneuver, as a result of the developments and our balance sheet.

And Bank Monthly, another question. Your perception in the context of the presence of another bank within the group.

As we said in December, and as Mr. Classic said and I myself said, this is the dilemma of PZU Group from the perspective of equity allocation. How in such a group that consists of banks and insurers under the regulatory conditions that are available, the available capital can be used. The answer to that question will determine the development in the market. And this dialogue is underway. More questions online? No?

No questions from the room. So we -- yes, there is a question from the room. In your strategy, you dedicated a lot of places to technology. So what is the difference compared to the past 4 years in terms of cost? And will that be a significant burden on cost in 2026 and '27?

Let me comment on CapEx as such. There are a number of things that we want to do in bank. We want to have this data-driven bank. This program is only at its initial stage where we are modeling you want to do. We are preparing the road map of modernization of the bank. It will take us a few months to devise this plan. Then, we will we be able to talk about specific numbers. As of now, I can say that our CapEx will be significantly higher than they used to be. The proviso that I made when talking about cost-to-income ratio depends on the answer to this question. I regret very much. But today, we do not have a very precise plan regarding CapEx and IT. We do not have certainty that the way in which we are spending the money is the optimum manner or not, how much CapEx will we have? So in other words, whether there will be a chance for growth of the bank and catching up with the leaders in terms of digitization. Hence, my very hard provisio here reservation that this amount can be reviewed. We are considering an increase in expenditure. There's a lot of investment that was never made during the Italian era and a lot of opportunities wasted from the point of view of digital revolution that has taken place. We were very much far behind the leaders. In recent years, we have managed to catch up a little, but we are not yet fully satisfied with where we are, and we are quite aware that some expenses will have to be made. Okay. And regarding one of the KPIs for Pekao, for the young people. I understand the offers twofold for the young vis-a-vis other retail customers and also against the backdrop of the market, right? Well, for the young audience customers. We have increased them 1.7 million already. And that's the last 3 or 4 years. We have increased their share in our general client database, and that's proportionate vis-a-vis other banks as well. And also, what is independent from us. We were awarded. We were one of the -- we were the only bank that was awarded with a Golden Banker for Young Customers. So it shows that we have the competence to get the young people on board. So how is being positioned for the youngest, of course, children, it's linked to the parent, 0 to 6 because then as the customer grows, the app will come in and the offer will also grow with them. So for 6 to 13, there's a certain level of independence, of course, on the supervision to parents and then 13 to 18 there is even more independence. And then automatically, we get an adult client as they transit. And that's different to the other markets because other banks will require amendments and contracts or changed account numbers, et cetera, we don't. Well, it is with jealousy that I look at that because and I appreciate what has been done in the bank. The 1.1 million clients that we have acquired over the last 4, 5 years is a big achievement of the market, and I think of the bank. And I think that there's a lot of capital that we have managed to create. We still don't have a lot of revenue from them. But we need to take care of that and make sure that they are transactional even at a young age. And the key -- what are key important is that they transact Insurance, it's supposed to be PLN 1 billion, the provision here. What was the result? And the second thing is a question here but nothing was said in the presentation about this. And I wanted to ask you whether you are looking at the possibility for a foreign expansion in any form. I will disclose that we will not be opening branches abroad. But we will get organized. There is an idea that we have to assist our customers abroad. When we are ready, we will let you know. But what Robert has said before, we have a significant proportion of customers that really feel like it to a smaller or bigger agree to expand beyond the borders of our country. The bank that has a relationship with every second customer, every second enterprise in the country has to or will have to form such an offer. And I think next year, we will be able to tell you more about this. Now we would like to bring back the glow of Pekao S.A. We might be the bank of immigrants and immigrants alike. So that's what we're thinking about. But we have a few pillars, some directions, some platforms that will help us cover the strategy, but that's still at very early days. Now I can say that we're looking at PLN 700 million. That's the scale that we want to achieve over the next 2 years.

Next question. IT expenditure, I understand we cannot talk about specific figures, but can we talk about a ballpark that you are thinking of a minimum or the maximum IT expenditure and the strategy.

At this stage, I wouldn't really want to disclose any specific amounts. Thank you very much. I have a figure in my mind, but I won't disclose it yet.

Okay. Perhaps during our next conference then. We will wrap up here the Q&A session. We will also finish our meeting today. Please also continue informally. If you're connected online, you can join us in 2 weeks on the 30th of April, you will have the announcement of the results. And I casually invite you to it. Thank you very much. See you again.