BNP Paribas Bank Polska S.A. (BNP) Earnings Call Transcript & Summary

Good morning. I'd like to welcome you. I only see the cameras and sorrowful. I regret that we can't see each other. I may see the cameras, but of course, the conditions don't allow us to meet face-to-face. In just a moment, we'll walk through our results for Q3 and the first 3 quarters. We can say the results are satisfactory. The bank has moved forward. It has grown. And in just a moment, we'll go through the details. And so without undue delay, I hope you can see us. I hope you can hear us. If you can't, please let us know using one or another channel, and we'll try to improve the agenda is the typical agenda as is always the case for our normal results, and then we can go through presentation. As you know, so the bank has moved ahead. We continue to follow our strategy in a consistent fashion. And this means that this is transforming into satisfactory business results. And so in the field of transformation, business transformation, you have several examples of what we've done. We're very pleased by the rapid growth in the number of customers utilizing digital channels. This confirms, in fact, the quality of these channels as well as the quality of the work that we've done with the customers to persuade them that this is a channel that the future holds. In our retail banking, we had a record high sales level of personal accounts and high demand for mortgage and cash loans. What we're also pleased by is we see ongoing growth in corporate banking. The lending volumes are on the rise. Corporate customers have noted that there is economic growth, and they decided that it's worthwhile to invest, and so the economy is helping them in driving that growth. And so the number of customers has grown. We mentioned that we had topped PLN 4 million, now we have PLN 4,60,000, so we can say this threshold continues to be beaten, and we're waiting for the next thresholds to be beaten. The financial results are at the highest they've been since we've merged with the former Raiffeisen and so costs are under control and cost of risk are at a very low level, and we have a very solid lending framework, and that means that we've been able to maintain our costs at the low level in a sustainable fashion. And that means that, that result has grown quarter-on-quarter. But we've had some provisions for CHF or Swiss franc loans, so it's a pretty big bite on our banking result, but the profit is higher than 1 quarter ago despite this provision of some PLN 200 million. And so this graph shows the business activity. And so you can see graphically on the bars. You see growth in terms of personal accounts, payment cards, Also for retail customers, we can see greater customer acquisition, more payments taking place. So this is a pretty positive picture. And as was the case in previous quarters, we see some examples of big tickets, complicated deals that we've done for our customers. So we have financing for Raben, which is a green loan linked to their sustainable growth, our valuable customers growth. And so we continue to -- we'll see more and more of these type of loans to help them our customers transform. And so you can see that we have a big increase, 9.1% in gross loans. Deposits have grown slightly less to a lesser extent, but the bank is very liquid, if not a little bit over liquid. And so we, of course, try to optimize our results by having a reasonable level of interest for deposits. The number of customers has grown quarter-on-quarter, year-on-year. So we can say this is a totally positive picture. And so if we look at our Fast Forward strategy. Once again, we can show you examples of what we've managed to achieve under each one of these pillars. I won't walk through all of these examples. You have it in the materials, in the slides. And so we've -- I've already addressed the growth. We'll talk about them a little more in a moment. I would emphasize, however, that the bank is investing in digitization, technological transformation, and this is something we discussed in subsequent slides. And that means that we have more and more customers utilizing remote channels. And this is something that we're also pleased by. Another important example of our transformation is the subsequent stage of web banking for corporate customers for businesses. So we changed the brand some time ago, and we're working on the changes for SMEs. This is something that's being modernized and upgraded as a channel, and it's much more friendly for our partners. And this is something that we intend to continue developing. Another thing that I would like to discuss briefly is the fact that the intensive work we're doing to enhance our quality gives us a real measurable decline in the number of complaints. You can see the ones on the slide. So with mortgage loans, it's down by 35%, and for cash loans, it's down by 47%. So that means we have fewer and fewer of such complaints and that's not the end of the path. And that's something that we're going to continue to do. This is -- quality is one of our strategic priorities. If we look at sustainable finance and positive banking, this is a very important thing. It's going to be more and more important. It will gain importance. We'll focus on that in a coherent fashion. We've organized ourselves in such a way to ensure that every business segment to make sure that there's an awareness of our priorities in terms of sustainable finance, and we want to make sure that our offer continues to be enlarged, expanded. And so you can see that we have almost a 200% increase in the volumes of green funding in the first 3 quarters. The financing with Raben supports that. We're also expanding our network to ensure that it's available to various types of customers, people with disabilities. And we continue to work with customers utilizing sign language. And so the market really does appreciate the bank. Once again, we've received an award for being the best private bank and BNP Paribas has received an award from Euromoney as the best bank in the world as an important part of the group. We're also proud of that, and we're very pleased with that award. If we look at our income provisions and costs, as I mentioned, we've had an increase in the net banking income in Q3 of this year. You can see the amounts and optically here on this slide. The costs, as I mentioned, are under control. And so the provisions for CHF provisions 202, this is the biggest quarterly provision set up thus far. And this is a major challenge still. So of course, these loans were a much smaller portfolio for us than a lot of other competitors. We continue to work on this challenge, and it's hard to imagine that we'll be able to achieve a satisfactory level of resuming this portfolio. The cost of risk as such have fallen from quarter-to-quarter, some 32 basis points. And so it's one of the lowest levels in the marketplace, very acceptable. The outcome is that our cost-to-income ratio has fallen. It's not at a satisfactory level. This is something that we're going to continue working on to ensure that it continues to fall. I mentioned the cost of risk -- As I said, the situation is totally satisfactory. Net profit is higher quarter-on-quarter. Of course, this quarter was substantially burdened by the provisions for Swiss frac loans. ROE is 5%. Well, what can I say here? This is not a level that would satisfy us, that would cover the cost of capital. But in the current reality, having in find -- having in mind what happened in this quarter, we have to accept that it's satisfactory. But of course, it does not meet our aspirations. If we look at the macroeconomic environment, I'll ask Michal Dybula to take the floor. Thank you very much.

So the available data indicate that the economic growth continued from Q2 into Q3, and this suggests that we had a pretty good start to the last quarter of the year. And so we should anticipate that GDP growth will surpass 5% this year and will remain vibrant in the subsequent year. What's important here and what we should emphasize is that this growth rebound is broader than it was when we first started to come out in terms of consumer expenditures and exports, but we also see that investments are on the rise. It also seems -- if we look at the risk factors, the most important risk factor for market conditions, our supply side. So shortages of raw materials, commodities, components. And this is something that you can see in the price side pressure. And so inflation is on its way to 7%, and that's probably not the end of that picture. That's not where that picture will come to an end because we also have supply -- purely supply side factors where national -- central banks don't have a major impact on that. In the short term, we also see wage side pressure. And that means that there are very high expectations for inflation amongst households and amongst the businesses. In order to counter these inflationary expectations, the National Bank of Poland has started to normalize the monetary policy by raising interest rates in October. And so if we look at the statements made by the governor and other members of the Monetary Policy Council. It seems probable that another hike will take place prior to the end of the year and a continuation of this policy should be expected in the early part of next year. While the higher cost of money or the higher interest rate is a risk factor for credit demand, recently one could observe some positive trends on the banking sector. So we can say that the deleveraging pace has fallen. And we also see that demand for credit is picking up. What's also important in terms of the sustainability of this demand, we can see that the demand for credit has a vibrant base amongst corporates. And I think in subsequent months, this is something that will persist. So thank you very much.

Good morning, ladies and gentlemen. [Audio Gap] quarter, the trend in business remains very positive. Loans grew by 9.1% year-to-year and deposit grew by 4.3% year-to-year. Net result amounted to PLN 450 million, down by 20% year-to-year, mainly as a consequence of the increase in the FX mortgage loan provisioning. NBI exactly decreased by 0.1% year-to-year and you are gradually recovering over the year. Costs remain under control, so minus 2% year-to-year. As a consequence, cost-to-income ratio reached the level of 52.3%, down by 1.1 percentage point year-to-year. As already shared with you, we increased the level of provisioning in terms of mortgage loans. And as a result of the quality of our portfolio, cost decrease -- cost of fees decreased by 61% year-to-year. All the ratios are safe. As regard the loans portfolio. The third quarter was another quarter of growth in both segments, which is a good news. So overall, the loans portfolio grew by 4.4% quarter-to-quarter and 9.1% year-to-year. As regard the individual mortgage loan portfolio, the growth was 5.1% quarter-to-quarter and strong and significant increase year-to-year. The good news is that we are keeping and improving the situation in terms of corporate business and the growth was 3.8% quarter-to-quarter, 5.3% year-to-year. As regards the individual portfolio, the main driver remains the mortgage loans, which grew by 6.9% quarter-to-quarter and 25.7% year-to-year. Another good news coming from the cash loan, we will have an acceleration in the cash loan 3.4% quarter-to-quarter and 3.6% year-to-year. As for the institutional loans portfolio, a positive trend in terms of enterprise and very good performance coming from the leasing business. As regard the FX mortgage loan portfolio, the situation is as follows: So during the third quarter, we get 416 new court cases, 4 cases were closed. The coverage ratio provision to claims reached a level of 98%. We book, as already mentioned by [indiscernible] [ PLN 690.2 million ]. We have not taken any decision in terms of settlement -- program of settlement with our customers. However, we are working on a pilot based on indoor negotiation. The deposit grew by 4.3% year-to-year, with the fastest growth in institutional loans. So the -- in terms of individual deposit, so 5.5% year-to-year, 2.7% year-to-year for the corporate -- for the individuals. Another good quarter in terms of investment product. We grew by 3.9% quarter-to-quarter, 36.9% year-to-year. And Asset Management, very good performance, again. So 4.3% quarter-to-quarter and 42.2% year-to-year. So we are keeping the pace. In terms of structural deposit, no significant change compared to the previous quarter. So the main component remained the current account, which reached a level of 91.3%. We have already optimized significant cost of the deposit that is going to be the next subject in the coming quarter. In terms of ratio, no significant change compared to the past. And as already stated, the cost of deposit has been stabilized. Net banking income decreased by 0.1% year-to-year, as a result of the interest rate cut and the COVID crisis. The good news is that quarter after quarter, we are recovering. We are able to cover the gap in term of interest, thanks to the green loan portfolio. More specifically, in terms of net interest income, the margin decreased from 2020 to 2021 from 2.67% to 2.47%. In term of absolute amount, slight decrease by 1.6%. We have optimized the cost, and we try to adjust the pricing as well. So quarter-to-quarter on more specifically seen in the beginning of the year, the trend is very positive in terms of net income, mainly supported by the growth in both segments, so individuals and corporate. Fees and commission. So year-to-year, we increased by 13.6% positive trend. Excluding the fees that collected with the loan business, which has been impacted by the crisis, all the fees component increase. So the trend is very positive. Quarter-to-quarter, we were able to stabilize or to slightly increase the level of the fees by another 3%. Have in mind that in the third quarter, we didn't get any one-off compared to the previous quarter, so we were able to maintain and to increase a little bit the level of the fees in the third quarter. Net trading income. So year-to-year, decreasing by 7.7%, mainly as a consequence of the negative valuation of IRS hedging the portfolio at the fair value and also due to the lack of increase in the valuation of the share as we had in 2020. Quarter-to-quarter, I already explained the trend, which is at the negative valuation of the IRS. In terms of net interest income year-to-year increased by 57%, we have to keep in mind that in 2020 we had the negative impact coming from the valuation of the loans measured at fair value. Quarter-to-quarter, no significant change. Operating expense. So the costs remain under control, decreasing by 2.3% year-to-year. If we exclude the BFG, slight increase by 1.1%, I would like to impose 2 main components. So you know that we are automating and digitizing the bank. And as a consequence, the volume of the depreciation are increasing year-to-year. Another factor, we have more and more cost coming -- legal costs coming from the FX mortgage loan. And this is why we get an increase year-to-year on other expenses. So quarter-to-quarter, I would say no significant change. The main factor coming from this legal cost which explains the increase. And in terms of staff cost due to the overperformance in terms of sale, we have adjusted the level of incentive.

Thank you very much, ladies and gentlemen. Now I'd like to talk about risk. So we'll begin with the support programs for clients. And from the bank's point of view, this is something that's coming to an basically it has been wrapped up. We've provided support of PLN 5.7 billion, now 98% of the moratoriums have been completed. We've returned to the normal manner of operations, 95% of these customers have delays under 30 days. Basically, these are the customers from the point of view of risk are in phase 1. So the total limits we had agreed upon with BGK continue to be available, but they won't be utilized. If we look at the impairments, in 2021 Q3, we can say there's one fundamental comment. There's several very important contributing factors. There was limited restructuring and debt collection. So at the end of the day, the loan impairment over the entire period of 2021, we're very limited on one hand. On the other hand, we saw the sales of loans from -- with a PLN 36 million additional impact in the first half of 2021 when those irregular loans were sold. And then we had very good results in terms of the recovery of loans that had been impaired, which we had in stock from previous periods above all in terms of our institutional loans. In Q3, we can say, if we look at the performance of the portfolio, it's very stable. We had 2 one-offs in terms of inflows, we had provisions reversed in terms of the update of macroeconomic forecasts. On the other hand, we set up provisions -- additional provisions for loans classified as belonging to phase 3, having in mind a possible lower recovery on unsecured loans, which had been in phase 3 for at least 3 years. Whereas for secured loans, where they had been in that phase for more than 5 years. Despite that, the level of impairments is 32 basis points, so PLN 62 million, so similar to previous periods. If we look at the composition of the portfolio and the impairments, we can say that over the last year, we've been able to curtail that risk strongly. And this is a result of 2 things. One, if we look at the portfolio of NPLs over the last year, at least nominally, we've been able to reduce that by PLN 1 billion, so by more than 20%. And what I've drawn your attention to is the area of corporate loans, where the decrease was nearly PLN 600 million, but I would also draw your attention to the fact that we have additional incremental growth in the regular portfolio. And that means that we have an NPL percentage of 4.4%. And that means we've been able to reduce or stabilize these factor indicators across all of the sectors. And so if we look at the segments that we're working in, we can say that the quality of the portfolio is very stable. And in fact, it's even improving. And so it's my hope that we'll be able to sustain, maintain this trend. But our goal is not to achieve 0 because that would be an impossible goal to achieve. Now if we look at coverage in the various stages, phases or stages, you can see greater coverage for stage 3. This is a result of the fact that we have provisions set up in a highly prudent fashion for all of the loans where we have at least 3 years for unsecured loans for at least 5 years for secured loans. We also sold some of the assets in Q1, and there is a high level of provisioning for those loans, some 90-odd percent. And we can say that once again, this curve is trending up because the new defaults are limited in value, but we continue to set up additional provisions. If we look at the percentage of the various stages, this is mathematical constant of phase 1 -- stage 1 is growing. Stages 2 and 3 are following. And so in my opinion, as long as assets in stage 1 are on the rise and stages 2 and 3 are following, and the coverage with provisions is growing, that means that we're in a very safe situation, very safe set of circumstances. And I think that's about it on that topic.

Capital ratio remained well above the minimum requirement in terms of TCR on Tier 1. Quarter-to-quarter slight decrease, mainly explained by 2 factors: the first one related to the significant increase in the RWA and the second one, lower valuation of securities.

So ladies and gentlemen, we have the last slide, and then we'll have a session of Q&A. And to sum up Q3, we can say we have strong results, rising volumes. The profit has burdened with provisions for Swiss franc loans. And we anticipate growth. We believe that inflation will stay high. This means that we'll have higher interest rates, the challenge will be the increased level of contributions to the banking guarantee fund, probably. And then we're thinking about what's going to happen in terms of the evolution of the Swiss mortgage loans portfolio. And we're looking at business growth with responsible eyes. As I've mentioned in previous opportunities, we're going to continue to optimize our processes in the first of January. We're going to talk about being an agile institution. So we're talking about being agile at scale. And we believe that this will accelerate substantially the introduction, implementation of new solutions, and we'll be able to automate and digitalize processes. Quality is of high importance, paramount importance to us. And so we're making some pretty considerable progress. This work will be continued intensively, and we want to continue strengthening our position as a leader in the Polish banking sector in terms of ESG. One other piece of information that might be of interest to you: I've talked about our work on the strategy, our new strategy for 2021 to 2025. Our work is far along the way. But during the discussion, we made the decision to correlate the time of announcing the new strategy along with the strategy of the group, BNP Paribas, because we're a member of that group. Because we've grown strongly in recent years, and we're a material part of the BNP Group, the largest banking group in Europe. And so it's more logical if the group first announces its global strategy, and then we can announce our strategy towards the Polish market. So moving from the general to the specific. And so we plan to present our strategy in the first quarter of next year. This is not because of slowing down work or any type of distortion or disruption. So I understand none of you are owners of Alexis cars with a number of plates that have been announced by our security department, but we're going to say that work on our strategy is proceeding on schedule, but we wanted to correlate the timing with the announcement of the group strategy. And that's what we -- the final decision we made. And that's more or less it from my side in terms of our presentation. Now I think we can move on smoothly to the Q&A session and to allow myself to read the questions, and I'll try to respond to some of them myself. And in terms of other questions, then I'll ask my colleagues, one of my colleagues from the management team to provide a response.

So what is the sensitivity of your interest income to the changes in market risk? And so basically, it's up to around PLN 100 billion depending on the percentage switch. If we look at Paribas bank book, are you intending to raise the interest rates provided to deposits? Well, we're going to listen to what our customers have to say on this subject, and we're going to observe diligently what's happening in the marketplace, and we're going to react suitably. Today, I wouldn't like to give an unambiguous response. And the same is true in terms of whether or not the Polish Bank BNP Paribas is thinking about stopping from charging fees for accounts. And so basically, we have a client-centric approach. And this is something that will determine how we're going to conduct ourselves. We want to look at the overall set of relations with customers. We don't want to look at an individual product or have in mind only a single fee or a single commission that's charged. Why do you have such a low level of sensitivity to your interest results because of the move in the market interest rates? Well, this is a result of the structure in our balance sheet in our balance sheet. It's hard for me to comment on why we have a different level of sensitivity for different banks. It's probably -- that's probably why this question is being posed. I think that's more or less unless...

In terms of [indiscernible] methodology, I would like to emphasize that we're also assuming the change in the structure of deposit. So I don't know if the methodology are homogenous among the market, but it's one parameter we like to emphasize. So it's not only aesthetic balance.

So I think we have another good question to Jean-Charles. Does BNP Paribas Polska want to increase its cash flow hedge? What is the bank's approach to the subject? I'm glad to hear that you respond. Will you respond? I prefer to speak in English.

No, we have not considered this topic now. So no change in terms of macro hedge.

Here, we have a full set of questions, I see. The implied sensibility for 100 basis points after the most recent hikes is even lower than what the management had anticipated. Could I ask you to give a comment on the assumptions that you've made when you're calculating the sensitivity? I think this is also a question that we proposed to Jean-Charles.

Okay. The implied sensitivity for 100 basis points increase of rates is lower than the one that we previously anticipated, but we would make some comments about the assumptions -- some comments. We observe what is happening currently on the market and also the outcome of the discussion with our customers. I will emphasis 2 parameters. So it seems that the increase in the rate won't be fully replicated at the level of the pricing to the customer. So it's one parameter we have considered. And as well despite the significant over liquidity in the market, some customers started requesting or asking for remuneration of deposit. And overall, we have to be very careful not to be out of the market, so we are observing what is happening also among the market in terms of pricing for the customers. But I will say overall that the full replication of the interest rate will be very challenging. And despite the liquidity, no, I would say, change in the deposit pricing will be also very challenging. So we have considered such parameters.

Okay. The next question, how many provisions in Q3 has the bank released in Q3 2021? And how many provisions does it still have related to COVID? How many provisions were set up for stage 3?

We can say that they set off PLN 70-some million for COVID reserves provisions were provisioned, and we had new provisions of some PLN 80 million. One is for impaired or nonperforming loans and where we had the 3-year and the 5-year stage 3 period in terms of whether they're secured or unsecured loans. In terms of our stock, we can say that we continue to be within the PLN 200 million figure, but this is something that results from the macroeconomic scenarios, but also the provisions for various areas. For your portfolio, should we anticipate that new provisions will be set up for your Swiss loan portfolio? I've already indicated that the response is, yes, you can anticipate that there will be new provision set up for the Swiss franc loan portfolio to ensure that we'll have a comfortable level of provisioning. Does the bank intend to offer mortgages to customers, I mean, in terms of individual settlements to those customers? Well, we're doing a pilot program. And depending on the results of that pilot program, we will make the pertinent decisions about what we want to do. Here, we have another question. Joining the settlement program for Swiss francs would probably call for setting up more provisions, does the bank feel safe with respect to its capital position? Or would it be necessary to issue rights, new shares. We feel comfortable with the capital position of the bank. We're not considering at present any new rates offerings. And if we look at the program of settlements, well the bank has not made any decisions on this program. As I mentioned, we're only running a pilot at this point in time. The bank has indicated that it is doing a program for settlements, a pilot program. Are you closer to saying, yes, to launching this program? Are you going to do it on your own? Are you going to run your own rules? Are you going to follow the Polish FSE's rules? I don't want to respond to this question too much because to be closer to this solution, to be closer to that solution. At the end of the day, you have to make a decision. It can't be closer to or farther away from something. We'll make the decision at the right time. We're doing a pilot program right now. It's providing with a substantial amount of knowledge, and it will make us -- give us the ability to make a rational and reasonable decision at the pertinent time. Does the bank see higher interest amongst corporates to get financing for renewable energy source projects? Well, the bank's approach to financing renewable energy sources is generally positive, and this is part of our sustainable finance approach. To support sustainable growth, the energy transformation or transition in Poland, we want to participate in this actively. Does the bank see higher interest? I can say that the bank does see and perceive higher interest in various segments of its business. And we're talking about those type of projects where we're -- they're building large PV installations or wind parks, and we also see individual installations where we're happily financing in both categories, and we see volume growth in both areas amongst our customers. What sort of growth rate in loan categories do you anticipate in 2022? Well, we don't share our forecasts or projections with respect to the volumes or the results of the bank that the bank intends to achieve. We, of course, are planning to grow. That's absolutely true, and that's part of our current strategy, and it will be an important component of our new strategy. I can ask Michal to give a comment about the forecast for overall volume growth in the market. But in terms of what we plan or forecast for our institution, we can't give you precise information of that.

Thank you very much. Well, we anticipate that the trend, the growth trend on demand -- the growing demand for loans, we anticipate that this trend will continue and persist over upcoming months. It will depend on where the interest rates, the market interest rates will be at the end of the current cycle. And this is something that will be clear at the latter end or the end of the latter half of the year. And we can see that certain customers will be more sensitive to switches or changes in the interest rates. But if we look at the macroeconomic view and what we see today, we undoubtedly see higher demand for working capital loans amongst businesses across the market. And this is something that will continue to exist because the cycle of rebuilding inventories hasn't come to an end. We anticipate that at some point during next year, there will be greater demand for investment loans, credit facilities. And this is a result of the low base in this year, and we can see a pretty fast pace of production for new loans amongst corporate clients. And so we can say that this might be somewhere between 5% and 10% year-on-year. That's what our expectations are for next year. We'll probably see a rebound or growth in the volumes of consumer loans. And so the pandemic's forced households to make additional savings, and this is gradually coming to an end, and that means that there will be demand for consumer loans. And so we should anticipate that somewhere between around 5%, maybe a little higher, we might see demand across the market. And then last, but not least, we can say that mortgage loans denominated in Polish zloty was well. The situation will depend to a large extent on the -- where the interest rates land, I mean, the interest rates set by the Central Bank. But the volume growth will probably be above 10% compared to where we are today. And maybe it will be -- right now, it's a little bit more than 10%, so maybe it will be a little bit lower than 10% next year.

Okay. Thank you very much, Michal. So I'm looking at the tablet, where up until recently, I had a large number of questions, now my tablet is totally blank. So -- to the extent that there are no more questions, then I would propose that we go ahead and wrap up today's session. And I want to give you a little bit of time just to pose any questions -- any additional questions you have, but I don't see any. So I'd like to thank you for your attendance, your remote attendance. And so I hope that we'll have a moment in time that we're going to be able to meet in a single room, sit down together. We lack that. Be healthy, take care of yourselves, and we'll wait until we look forward to seeing you again in the near future.