Bank Polska Kasa Opieki S.A. ($PEO)

Good morning, ladies and gentlemen. Welcome at the presentation of the financial results for the first quarter. We have Cezary Stypulkowski, CEO; Vice President responsible for Finance, Dagmara Wojnar; Vice President for Risk Division, Marcin Jablczynski; and Ernest Pytlarczyk, Chief Economist of the Bank. Over to Cezary.

Good morning, ladies and gentlemen. The first quarter was successful for the bank. We recorded net profit at PLN 1.2 billion. We feel a revival of credit action, both in retail and in corporate markets, maybe excluding mortgage loans, but that's a separate topic. We see increasing digitization of Pekao S.A. clients who historically followed the market with respect to this trend and the capital position remains very strong. I would like to stress here that we maintain a low level of risk cost although we assume that there might be a certain increase here. Anyway, the boundaries within which we move were defined more broadly than the current actuals. We see 11% growth in loan funding covering various categories. Return on equity continues at a decent expected level. Cost to income ratio is not set in stone in connection with the need to inject capital in the bank. But stays at almost 30.5%, excluding the effects of burdens of the first quarter, mainly in relation to the contributions to the fund for banking stability. We see the developments that relate to the principal lines in which Pekao S.A. has been not sufficiently invested in particular with regard to micro market, but the bank overall remains its strong position. It is worth stressing here that basically in all business lines, we see growing income, that is excellent news because commission inflows for the last 18 months have been growing and that applies to many areas of activity to the largest extent that follows from the developments in asset management market, but also in other business lines, we have seen an increase in revenues from commissions, which are extremely valuable to us. In terms of sales and retail, growth has been recorded in corporate banking, now we see particular robust income because the market is active. And in particular, large companies benefit from the funding that drive this process. I'm talking about this recovery and resilience program. This scale is slowly diminishing. We are generally on track with pursuing all our targets. We announced a 75% dividend distribution, which will be paid out relatively soon. And a number of events took place. I will not dwell on this. As for retail, where Pekao S.A. continues to be a serious contender to get a position among the top banks in Poland in terms of customer base service range and quality range, we are getting more and more visible, occupying increasing space. Our clients who use Mastercard can now use Live Nation and they can get privileged access to concerts and tickets to other popular events. We haven't managed to send our team to World Cup, but Pekao S.A. can send some of its clients to be spectators at the matches because we can afford that as rewards for using our card. I will not discuss all those details regarding the ways of offering our services or accelerating modernization of the bank, streamlining of client onboarding, and that's something that we have been doing remotely. And really major things that are worth talking about is the fact that we were the first bank that, together with BGK, allowed the clients to apply for de minimis security, mainly to medium and small enterprises. We also played a major role in BGK's project concerning defense spending. We also have a strong foothold. So that allows BGK faster and more efficient relationship with their clients. As for the number of active clients who use remote channels, first of all, mobile channels. This number is systematically growing. We attach a lot of importance to that. We lagged behind and we had a lot to catch up on. But here, things are improving. Also, cash loans are growing, cash loans that are sold digitally. And for this category of products, that's a very important parameter. We had a few spectacular transactions in the first quarter. They are enumerated in the presentation, so I will not discuss them in detail. Maybe apart from mentioning the fact that we signed an agreement with airports, the consortium include 3 banks and that was funding for the extension of [indiscernible] and the participation of PPL in the construction of a new infrastructure for air traffic in Poland. Over to my colleague.

When we talk about macro segment, we should start with the war in the [ Russian Gulf ] with U.S.A., Israel war against Iran. This war has a certain impact on our forecast. For the time being, the revisions of projections for Europe are not major, Poland distinguishes itself here against the European background. It has some domestic growth drivers. The channels of impact of this higher oil prices through consumers as long as consumers feel no immediate shortages, this crisis is not really Eurocentric. We tried to see the possibility -- the increase of energy prices in Europe that was not really significant enough to make this crisis Europe-centric. The U.S. is more affected by this. Nevertheless, some adjustments for Poland are needed. We will see this influence mainly through consumption because probably, the real disposable income will decline. And one important component of GDP should be watched carefully. We know that consumers respond very badly to overall European inflation by reducing the consumer spending. We see the developments in monetary aggregates. Lower interest rates are affecting both corporate market and households right now. Volumes growth in loan market is something that we can see and that will develop to a 2-digit growth in corporate loans. And the accumulation bolts in this year, there will be even more spending on defense. For the time being, that's 20%, maximum 30%, and that share will gradually grow. Also, there was a previous demand, deferred demand for mortgage loans refinancing. Now it's about 30% of new production. That accounts for refinancing. The portfolio that is at fixed interest rates relies on this. And if the current interest rate is higher than 1 percentage points then the interest rate at which the loan was granted that has to drive the market and that will drive the transition of customers between competing banks. As for interest rates and inflation, today, 3.2% inflation last month, the number was lower than expected by analysts. But that is due to how statistics treats the impact of fuel prices. I think there will be no major impact on the calculation of the Ministry of Finance in taxes. However, it will have implications for the trajectory of interest rates. We talked about 3 reductions in the market this year. Now the market is looking at increases. The rate might remain unchanged this year. But one way or another, we will see a real impact on the banks. Decent credit action already shows that this will affect Poland. Now economists estimate that the impact will be neutral for Poland, neutral meaning that if there are the right catalysts in place, we will see development, both in corporate and then retail market. So the environment seems likely to be good for the banks with the volumes and high interest rates.

Good morning. Now a few words about our results. We talked about us wanting to grow and accelerate. The growth of loans was 2 digits in the first quarter, 11%. Let me start with corporate loans. We said in 2025 that we were in for growth in loans in corporate market, and that would translate into the results of Pekao. And indeed, the corporate loans are growing both in large corporate sector, it was over 16%, and in mid and SME almost 14%. It is also relevant that we acquire new customers in mid and SME segments, that's over 990 new clients that we added recently. In retail, if we look at Pekao S.A., we said that we were underweighted in cash loans. So that was one of our strategic products. And this is the area in which we want to push this growth a bit stronger. That is another consecutive quarter where we have a 2-digit growth of cash loans. It is excellent news to us that most of cash loans are sold in remote channels. That is one of the elements of our strategy to make sure that those remote channels develop as well as possible. The CEO mentioned mortgage loans, we are at a slightly less than 3% growth year-over-year. Going further, savings, deposits of 5% growth, both in terms of retail and corporate. Now regarding the structure, it is changing slightly here because compared to last year, we have more current accounts. It's about 75%. Last year, they accounted for 72%. We open accounts as well. We have opened over 113 accounts premium and beneficial, and 30% out of the new ones are for young customers. We call them young, that is up to 26 years of age. And one more thing about investment funds. As we all know, taking the war that's ongoing. Most TFIs have witnessed some significant disruptions. We have been able to get shielded from that. And our loss has been relatively small. The analysis of the situation tells us that this is mainly due to the profile of our customers and the funds, the dominating types are low investment risk funds. Just as a formality, let me say that LCR is 238%, loan-to-depo 68%. Now going further to the NIM. Net interest income is lower by PLN 100 million, 3% year-on-year. We know that we have been functioning in the environment of decreasing interest rates. When we talk about our net interest margin, this is 30 basis points lower year-by-year with an average 3-month report of almost 200 basis points lower year-on-year. So looking at our margin here, the net interest margin, well, we can say that we are able to defend it quite well. What has impacted that? The active deposit policy on the one hand, but on the other hand, we are seeing growing volumes. You have seen that loans, SMEs and mid sector. And also looking deeper, we are continuing our hedging policy. Thus, there's one more component here. I said about that earlier. We repriced the portfolio of lower -- less beneficial securities to replace them with more beneficial, more profitable ones. So interest rates decrease translates into a 15 basis point decrease in NIM. Going further in charges and commissions. This is a 2-digit growth, 13.3%. The growth in commission income that I think is a historical high quarter-to-quarter comparing 1 year to another. And you can see that the growth in commission is visible in all the categories. So you can see commissions on the managing brokerage services, but we also see commissions on cards and loans growing. That's a result of our growing activity and increase in the loan portfolio. One more component that has contributed to this outcome is what we talked about earlier. In November 2025, we said we were going to change the charges and commissions tariff for retail customers. This has, in fact, happened. So quarter 1 of 2026 is the first full quarter that illustrates the outcome of this increase and illustrates that. Now for costs, operating costs, 7.4% increase year-on-year. You need to distribute them into 2 components. Those are overheads. Personnel costs increase of 4%. And that, of course, has to do with inflation and increased remunerations. But on the other hand, you have depreciation and amortization, and we were signaling earlier that these costs could increase. And that's the outcome of the bank's transformation, so increased IT costs, project costs, new strategy, slightly more active marketing activity. So like I said, these are -- this increase is slightly bigger. It is worth saying that quarter 1 has also witnessed the BFG and the financial provision authority charges included, and that's more than half of our basic costs in quarter 1. We know that BFG is also recognized in quarter 1. So the effect will not be seen in the following quarters. Okay. Over to Marcin, please.

Thank you, Dagmara. Good morning, everyone. As you can see, the cost of risk remains stable. We are moving more or less in the range of 30 to 50 basis points. And we have been seeing that for a long time, it's below the 65, 75 bps, which is what we've written in our strategy. What we can observe and what is also something that we've been seeing for a few quarters now is the exceptionally low risk cost in the retail segment. The market situation is very good in the labor market. There is a realistic growth in remuneration, which means that while we've slightly stunned consumption, we are not seeing consumption boom, the loan capacity is on quite a good level. Now in corporate part, the cost of risk is more normalized compared to what we saw earlier when we look at long-term trends. But this is also reflected in the economic indicators in 2022 and 2024 or early 2025, we observed the number of nonprofitable enterprises. Well, this was a historically good ratio. This resulted from various support measures that were put in place. Right now, these indicators reflect more the long-term trends, I would say. We are obviously observing the Hormuz Strait situation and how it impacts our portfolio. We do not see any alarming signs right now. However, highly energy consumption industries that use gas or diesel transport, ceramics, chemical industries see the outcome. But on the other hand, we're also looking at industries that perhaps can be indirectly impacted by the crisis, more specifically, industries such as textile, furniture, electronics and perhaps. And interesting fact here, the second group potentially sees the impact translate into financials faster because some chemicals or plastics are more expensive, and the demand for these products is mainly placed in Western Europe, and it has not really deviated for a number of years. So you can reflect -- you can see that reflected in their outcomes. Now when you look, we have a stable indicator of 4.5% of NPL. Let me also mention NII and [indiscernible]. As you know, for a few months, these are criteria that condition the -- to pay the dividend, NII, and it has quite a good buffer of more or less 10%, which impacts the ability to pay the dividend, and now moving back to that matter. A quick look on the net profit generation path in first quarter of 2026 and comparing it to last year. As we said earlier, we made a profit of PLN 1.232 billion, something that's worth mentioning is that there is an outcome of commission that contributes PLN 100 million plus. The interest rate net outcome is negative, but there are 2 elements dropping interest rates. On the one hand, an increased volumes of net on net, and that actually gives us a negative impact of PLN 100 million there. And what I said earlier, BFG contribution quarter-by-quarter, they are higher, PLN 110 million. And let's remember that in 2026, we are seeing an increased CIT rate, which also translates into PLN 100 million in our results. Now a few words about the capital. Equity, not much has changed, strong capital position. The CEO has mentioned 75% of net profit is something that we're going to pay out in the dividend. This proposal will be presented to our management and we are in compliance with MREL requirements. Two things that I wanted to stress here. Number one is we are updating prospectus. Right now, you can expect up to 2 issues of MREL this year, benchmark in euros, and we are planning also in late 2026 or early 2027 to implement, roll out the first securitization in the bank's history and in the group's history. And right now, over to the CEO.

There's not much I can add, really. Essentially, everything has been said. I think we will put ourselves in your hands and respond to questions. Let's just -- let me just present the -- many people are willing to say that this is our logo. But we were given that as the most dividend-paying institution in the stock exchange in 35 years. And this is the accumulation of the bank's results.

So if there are any questions later on, please do not hesitate to contact us. We will take them all. We've got a few people in the room. Please raise your hand if you want to take the floor.

You have lowered the GDP forecast by 0.2 percentage points. Could that translate into the loans and the cost of risk? My question refers to the context of the Middle East. Do you see potential implications of this uncertainty?

Okay. Well, that could not be the last word we were saying with the decreases, right? We're not sure what's happening, what's going to happen. When we see the mechanics, there are very simple dependencies. It all depends on how long the Hormuz Strait will be closed, right? That impacts the prices. And luckily, they're not shooting one another. So they're not destroying infrastructure. So perhaps, the markets are not panicking yet. It's a question of how many vessels are there and how much stock there is. But when we look at the stock exchange, well, we're looking at this impacting the oil prices. Now as an economist, I can see that a lot of the factors are local and internal. Both IMF and the European Commission has the highest forecast for growth for Poland. So I don't think we're quite that exposed, but you need to be humble on the other hand, you need to take -- acknowledge that this is a significant geopolitical factor, and it will impact the consumer. We are saying that already we've seen 1 or 2 months right now where perhaps the impact is not so major because it's the issue of end of winter, production for stock, but reserve -- but this will definitely become apparent and result in some sort of an adjustment. We're not panicking quite yet. There could be quite different outcomes. What Ernest has said, definitely, the world was moderately better prepared to face these events, and they happened when the season was ending, the heating season was ending. But when we take into account the fact that unlocking the Strait is key, but we don't know really how big a capacity has been excluded due to the losses incurred, right? That concerns both the Middle East and Russia. What's comforting in this context is that, well, [indiscernible] to Opec limited the production quota to specific countries, and they were different. There is an additional capacity that has been kept. Also in Europe, it gets some 20%, 30% of its oil from Middle East. I think greater squeeze can be felt on gas than on oil because at the moment, it applies to Europe of oil accounts for about 40%. U.S. and Norway, that comes from this direction, and about 50% of gas from the U.S. and Norway. Frankly, I'm most concerned about the fact that in the U.S., against the backdrop of an increase in fuel prices, there might be a situation related to unpredictable customs policy that leads to a customs explosion. They want to introduce -- but they might want to introduce some change of price of gas at the pump. And this can dramatically impact the price of fuel in Europe -- well, maybe not dramatically, but it can impact Europe because the capacity for availability, if we are blocked from Russian market and U.S. market gets blocked, it would mean a major issue for us. After 1983 and 1989, we felt a certain change in terms of dependence on Middle East oil. It was then that the reserves were built up, the energy agency was established and everybody tried to build up a 90-day stock. But the circumstances back in the day were different. Back then, there was a unilateral withdrawal of supplies suspension of oil to the Netherlands, I think. And at the same time, monthly supplies were reduced. Now we are talking about the possible blockage, plus and even more concerning matter namely, the scale of this traction that has taken place. In the gas infrastructure, the destruction seems to have been bigger than oil supplies and the gas is more centered. There is a smaller number of suppliers of liquid gas. So if that comes to pass, obviously, it may not remain neutral, but we are very far away from this scenario yet. What seems clear now is that the markets opt for a stabilization scenario. And well, sometimes situation develops from news to news. And what about distillates? They no longer fetch maximum prices. Yes, so probably there will be quite a few variable elements. As Ernest very aptly put it, the adjustment might not be the last one. There might be more developments.

Another question. On Page 18, you show a pretty slide. Could you please comment on which direction this structure might potentially go to? I mean the change of interest rates, 15% of assets and your exposure. Could you add a commentary on this? How you see the evolution in this regard?

All right. Let me put it this way, 100 basis points decrease translates into 15% decrease in NIM. Frankly, the capacity for absorption is slowly coming to an end. We still do have some room of maneuver on deposits. However, as of now, I would assume the figures as presented in the slide. Our policy is not of securing our balance sheet. We measured our sensibility to interest rates. And after this type of assessment of our assets, we get to secure our balance sheet. Also, we increased some short-term hedging in 1-year and 2-year time line. But otherwise, it's as Dagmara said. Let me also remind you that if we look at the results for 2025 compared to, say, market information that was published, the impact of the decrease of interest margin in Pekao S.A. was relatively minor. And as I said, the possibilities for further absorption are diminishing.

We have two questions that were asked online. One is about housing loans and the scale of refinancing of this portfolio. The balance is stable. And quarter-to-quarter, it even slightly goes down. Sales look quite well. So there is a question about the scale of funding and how we see in the upcoming months.

Well, with reference to what we said, what Ernest said in the macroeconomic introduction, it seems that the market overall, and we do not differ from the market. Well, maybe we are not so aggressive in refinancing as other banks. Well, that is now about 25% of production, the refinancing among banks. Probably, if we refer to new production, you have to an extra 10%, which is not shown as refinancing. Nevertheless, the banks reduce the interest rates on fixed interest rate loans. That follows from retention campaigns, which are often based on annexing existing contracts rather than new production and new contracts. We had a peak point in our bank in March. And since the crisis and the Hormuz Strait started, the prices have increased and quite significantly, the refinancing was slowed down as a result. So clearly, that depends very much on interest rates. And from the perspective of market analytics, the spread of 1% between the rate at which the loan was granted and the current rate in the fixed rate of interest loans is something that facilitates most refinancing activities. We can also analyze vintage data on interest rates and spreads, which refinancing applies. Also, in our case, we differ from most of the sector. We have this safe loan, 2%, which is non-susceptible to the risk of refinancing. The second question is about the free loan sanction in the context of this recent judgment of the European court. The judgment was issued a week ago. And this judgment is linked to the admissibility of charging interest on noninterest cost of loans. If you look at the Polish market, probably we will not find an established line of interpreting of this judgment. So we'll have to wait for lawyers to develop this interpretation. But if we look at the numbers, this topic, and that's something that we also covered in our financial statement. In the first quarter, there were more than 1,700 court proceedings, and the double value was PLN 48 million. Of that, 165 cases ended with legally binding rulings, and in 143 of those cases, the rulings were positive for our group. We also have this disclosure in our financial statement that we will follow the development of jurisprudence in Poland and interpretation of rulings related to those loans, and we will respond as appropriate to new developments. As of now, we cannot do much more than just disclose the current status in our financial statement and watch closely future developments.

We also had a question about CIT impact, was there also the effect of revaluation of assets from deferred tax?

No, this year, we did not include that in our recognized tax. We reassessed the asset when a regulation was issued that CIT would be higher from 2026. The full effect of a revaluation of CIT and the deferred impact was included in 2025. We did it as a provision.

I do not see any more online questions. Are there any questions in the room? If not thank you very much. Thank you. See you next time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]