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

Good morning. I'd like to welcome you very cordially to our quarterly conference. We're going to talk about our results, our financial performance about what surrounds us. Today, we have a hybrid meeting. We have participants sitting here in the head office at Kasprzaka Street and some of you are joining us remotely. So once again, I'd like to welcome everybody very cordially. The agenda is just as you see it here on the screen. We'll talk about what the bank has achieved in the Q1, what the macroeconomic environment looks like. We'll talk about -- we'll respond to your questions, if in fact, you're going to have any questions. The most important information. Ladies and gentlemen, Q1 was not a typical quarter. So had life gone along a normal path, there wouldn't have been the outbreak of war, and so the entire organization was organized in order to help our employees, families and the refuges from our sister bank -- and Ukraine bank. And so I won't drill down into the details, [indiscernible] talked about that during the annual conference. And so many of us were -- volunteers were helping out to provide this aid, and there was a lot of real commitment in. So I'm grateful to the overall BNP Paribas Group, which gave substantial financial support for our activities. And that means our refugees were able to feel just at home if one can say that. And so despite the outbreak of war in Q1, we announced our strategy for the period from 2022 to 2025. This is the GObeyond strategy. And so this is an important moment in the history of the bank. We finished -- wrapped up the Fast Forward strategy. We've begun the execution of the new strategy. Q1 is the first quarter during which a portion of our organization has been operating under Agile@Scale. And so we have a large number of employees in multiple tribes. And so we had to work out new approaches to follow as a result of the war, and we had put in place various solutions. And so it's very important for us to be agile. And this is much more the case as opposed to enter a project approach. We are a business, and this is not something that we should forget. And so we have positive commercial trends in terms of volume. We have major growth in terms of attracting new customers. This is also something that's quite positive. If we look at our deposits, we've seen growth here. So basically, the bank has expanded -- has grown in Q1 quite clearly. As a result, we have robust financial results, and we can start with the net profit PLN 278 million. So this is an increase of 69% year-on-year. This is a major growth, and this is a high result. Of course, it continues to be burdened by some of the provisions linked to the mortgage loans and portfolio denominated in Swiss francs. As I said, we have positive volume trends on the lending side. This is important to us. As I can go back several quarters. We were trying to catch the wind in our sails, and this was a challenge. And now we can say that with respect to the peer group, we actually have demonstrated quite solid results. So we have growth in the double figures quarter-on-quarter, year-on-year, and so we'll talk about that in just a moment, and we'll talk about that in detail. As I mentioned, the strategy is now in the execution phase. We have 4 pillars. So together this is about people doing this together. So this is a pillar about our human resources. And you have examples here of some of the numbers that reflect the execution of the strategy and some of the implementations that we've been able to confirm. I mentioned that we have a large number of employees who are very heavily involved and engaged in the voluntary work for our customers. And this shows that the organization is strongly rooted in values and we will not remain indifferent to a crisis -- the refugee crisis following the war. We have new implementation of technology. I was smiling because we were rolling out BLIK on the phone. We're not the first bank to do this, but we do have it. We've distributed a small clip -- a short clip, that's quite humorous in the social media, and we're very pleased to have BLIK by phone, and our customers were waiting for that. And so as a bank that has grown as a result of a number of mergers and acquisitions and in a few places, we had to catch up to the rest of the market. And this is actually happening. We have the chatbot, which is something that fields questions, inquiries from customers. We're working a lot on cybersecurity. Prior to the outbreak of the war banks were put in a stage of heightened vigilance, because we were afraid that we could become victims of cyber-attacks linked to Russia. We can knock on [ paneled ] wood. And we can say that nothing bad has encountered us, but certainly, we're more vigilant. And we're ready, we're better, and we have greater safeguards. If we look at the development and to growth -- so this is the up pillar, we can say that we are the first bank that offers a 10-year fixed interest rate mortgage loan. Up until now, the market has been offering financing for 5 -- fixed interest rate for 5 years. We also offer that, but now we have for a 10-year period. And we can see that customers are starting to prefer. And we can see that customers prefer the 5-year period for fixed interest rates. We also have product lines for innovative companies. We understand this risk. It's different from mature companies, but we believe that this is a very interesting segment with major growth potential, and we would like to support this segment. And if we look at the positive pillar, this is sustainable development. This is at the very focal point of our attention. We've seen volumes of financing we've granted, having grown very strongly. And we can see that in our structures. We have sustainable -- sustainability-linked loans. This is something that we'll continue. Naturally we're pleased to receive some awards here, but this is not a surprise. And so I've mentioned our engagement, our commitment to helping people in Ukraine because of the war and I said that I wouldn't drill down into the details. But you can see on the slide here, we've been -- given support by the group. And I'm very pleased to be a member of a group where this group has not been indifferent to this war. And we have employees from UKRSIBBANK, and we've provided support to them. And so in Warsaw, we have a command center for UKRSIBBANK, and so we have 10s of employees from there, and they're providing the support, services, and we're providing support to them there. And we were very quick and flexible in terms of helping refugees in terms of bank accounts. So you can see that we've set up more than 45,200 personal accounts and some 30,000 almost in March alone. And soon, we'll probably have $300,000 in total. And we can say that this is a skill. We have a language skill. It's a sophisticated linguistic skill and will help our customers from Ukraine during their sojourn, during their period of living in Poland. So if we look at some of the digital statistics, everything is going up. So that means it's following the right direction, going in the right direction. So we're very pleased. So in some areas, we can see the rate of growth is faster. In other areas, it's a little bit slower. Certainly, the market has taken -- has onboarded our solutions like GOmobile internet. And so basically, our transformation will continue. We're all utterly convinced that the development of remote channels and automation and digitalization of internal processes. These are the proper growth directions, and they're firmly rooted in our GObeyond strategy -- the new strategy. And so now if we take a look at our activity. Our commercial or business activity or sales activity, regardless of which term you'd like to use to term this, to describe this. You can see that in most of the quarters -- in most of the categories, the first quarter was a growth category. If we look at personal accounts, we've been able to ramp up the pace of acquiring new customers. So we have cash loans to a lesser extent, this is true of mortgage loans. One area that's under pressure. Those are investment products and asset management. And so the interest rate -- increase in -- interest rate hike means that some of the customers are choosing more traditional forms of investing their surpluses at the beginning of the war. A large portion of the funds was paid out in cash as people were fearful of uncertainty, I think. And so not all of that money came back to the sector. And this is money that I think will come back to the sector as deposits will be more attractively priced. And here, you can see some major transactions with big corporate customers. I think it's worth mentioning the loan for Wirtualna Polska, which is a sustainable linked -- sustainable-linked loan. And so we believe in subsequent quarters, we'll have more such loans. So if you look -- take a look at the volumes, we can see higher market shares in terms of loans and deposits. And we can say this was very market growth, especially on a year-on-year basis. And we're very pleased by the loan activity, volume increase, and this shows our development. But the deposit side of things is also very important, and so I would anticipate that in this area, we will continue to grow, especially if we look at retail customers. The number of customers has grown in the quarter. It's grown year-on-year, above 4 million in a very clear basis, and so this is something that also pleases us. So now if I take a look at specific results, you can see net banking income is on the rise. It's very clear growth. You can see the provisions for Swiss franc loans. And we can say that it was a little bit higher than in Q1 of last year. But we can say that this is not a substantial amount compared to the previous year. And so we can say that we had to add some -- we had to pad the provisions, and that's something that we'll continue to accompany us for some time. We believe that costs are under control, even though costs have grown. We know that we are facing inflationary pressure. We're also facing expectations of pay raises. And so we've done a traditional round in March. We always do this in the first quarter where we give raises and give payment bonuses. And so we'll flexibly react to the labor market situation. We know what's happening. It's a demanding situation. And for some time, it will continue to be such -- in such -- it will continue to have those attributes. We also have the Polish deal, where some employees have lost net amounts of their salaries. And in some cases, we don't have enough qualified people in terms of the needs of the overall market. If you look at the net profit, as I said, it was PLN 278 million. You can see on the white bars, what the net profit would have been had it not been for the Swiss franc provision. And so this is a theoretical value. So let's stick to what we've actually reported, the PLN 278 million, and you can see that it's much higher than we saw 1 quarter ago -- 1 year ago -- in first quarter. And so we can see that we have a slight decline in costs. Cost of risk is under control. And I think that's about it. If you look at our net interest margin is going up. And this is not surprising. Having in mind the interest rate hikes and then we have ROE at 10%. On one hand, that's something that appears to be positive. On the other hand, we'll see what the upcoming quarters will accrue us -- because we're in a situation where there's a lot of volatility, unpredictability for a large number of reasons, and we'll probably talk about those reasons today. So let's go on now to the macroeconomic issues.

So thank you very much. Welcome. I'll start with the positive information. It seems that the high rate of economic growth around 8%, this is something that we saw being continued in April or at least it didn't subside very much. But having in mind the increase in the prices of commodities, materials and components, raw materials and softer market conditions around the world and greater uncertainty linked to the war in Ukraine, well, the subsequent quarters, subsequent months, we'll probably be softer. So the pace of growth will probably grow a little more soft. It will become softer. One of the things that's not good or disquieting in the current situation is that this slowdown will be accompanied by inflation that's high and perhaps even inflation whose pace will be picking up. And this will lead to erosion of the real income -- income in real terms, I mean, disposable income that households have. And it might deteriorate the overall allocation of capital across the economy. So the inflation we're grappling with right now will be with us for at least more than, well, 12 months -- 14-15 some odd months. And so this will have an impact on the banking sector and the financial markets. And having in mind this high inflation -- double-digit inflation that continues to pick up the pace, that's why we have interest rates moving upward. So the May hike is not the last one. And so the governor of the National Bank of Poland spoke quite clearly as did other members of the monetary policy board that we should anticipate a continuation of the upward swing. So the tightening of monetary policy. So higher interest rates will affect the household loan segment. And the softening demand for loans is something one could observe at the end of last year, the first quarter of this year. And so it's certainly the case that this is something that will continue. It won't be an especially high amount of demand for loans amongst the household segment. But in subsequent months, we will see continuing, we'll see corporate loans growing, especially, amongst the large corporates or the demand for working capital loans, because the cycle in which we find ourselves sees increasing inventories. And these inventories have to be financed, at least for the next several months. So this is something that will continue to transpire over the next several months. And this is where I'd like to wrap up my discussion at this time. Thank you.

As already stated by Przemek, the financial results of the first quarter of 2022 were solid. Credit grew by 15.3% year-to-year. Deposits grew by 13.2%. Net result grew by 69% year-to-year, reaching the level of PLN 278 million. NBI grew by 27.5% year-to-year, mainly boosted by the good performance in terms of net interest income under the impact of the growth in the loan portfolio and also the increase in the interest rate. Another good quarter in terms of fees and commission, which grew by 21.6% year-to-year. Costs were in not control, but you have to keep in mind that costs were affected by the normalization of BFG. So cost grew by 16.5% year-to-year, excluding the impact of BFG normalization. So costs grew by 11% year-to-year. Cost/income ratio reached a level of 52.8%, decreased by 5 basis points year-to-year. We have slightly adjusted our level of provisioning in terms of mortgage and portfolio, and we booked additional provision in the amount of PLN 83 million. And cost of risk is fully under control, reaching the level of PLN 79 million in the first quarter. As regard to loan portfolio, which grew by 15.3% year-to-year. The growth reached the level of 3.5% quarter-to-quarter. So main driver in terms of loans growth is the corporate loan portfolio, which grew by -- which grew by 4.8% quarter-to-quarter, very good performance. Individual loans portfolio grew by 3.9% year-to-year, lower dynamic compared to the corporate loan portfolio in Q1, plus 1.7%. As regard the FX mortgage and portfolio, we slightly adjust the parameters of the provision, and we booked PLN 83 million additional provisioning. And we are keeping on negotiating with our customers. So what we have to remind you that out of 3,000 customers, we have contacted since the beginning of the negotiation already 625 customers accepted the offer. The deposit grew by 13.2% year-to-year, plus 5.9% quarter-to-quarter. The good dynamic in terms of corporate deposits, which grew by 23.2% year-to-year and 11% quarter-to-quarter. Lower dynamic regarding the customer deposit, which grew by 1.6% year-to-year and a slight decrease quarter-to-quarter, 0.4%. Investment product had been impacted by the interest rate hike. As a result investment product decreased by 23.6% year-to-year and 24.4% quarter-to-quarter due to the performance of the debt fund. Net banking income grew by 27.5% year-to-year, under the impact of the interest rate increase, growth in loan portfolio and good level of activity with our customers. Quarter-to-quarter, plus 13.6%. As regard the net interest income, year-to-year had an improvement in the margin. So the margin grew from 2.46% to 3.02%. Quarter-to-quarter, net interest income increased by 16.1%, resulting from the growth in the loan portfolio and interest rate increase. However, lowered NII as regard the hedging product by PLN 72 million. Another good quarter in terms of fees and commission. So year-to-year, fees and commission increased by 21.6%. Quarter-to-quarter, I would say, a stable level. So reaching the level of PLN 301 million, boosted by a good performance in terms of cards due to the settlement with Mastercard, Euronet and Visa and also a good level in terms of asset under management and the sale of structured product. Net trading income slight decrease year-to-year, minus 4.6%. Quarter-to-quarter increased by 7.7%, resulting from the good level of business with our customers and a lower negative valuation in terms of IRS. As regard the net investment income compared to the previous quarter, I will say, in the first quarter, we didn't sell securities. And you have to keep in mind that in Q4, we sold securities, which result in the losses. Operating expenses grew by 16.5% year-to-year under the impact of the BFG normalization, increase in the salary, higher cost in terms of tax reforms and additional costs in terms of consulting, so which result in such increase. Quarter-to-quarter increased by 9.9% if we are excluding BFG normalization, so a slight decrease by 10%. Now I'm giving the floor to Wojciech about the cost of risk.

So if we take a look at the loan portfolio behavior in Q1 in 2022, the costs and risk are very stable. So the cost of risk is 36 basis points, PLN 79 million. That was the result of 2 factors occurring at the same time. So the bank posted provisions as a result of -- well, that was in amount of PLN 117 million because of deteriorating market conditions. We also had PLN 65 million in provisions released from 2021, and that reversal took place as a result of the cancellation of change in the law where the recoveries expected on loan portfolios for farmers. So if we take into consideration these 2 figures on a net basis, this is a figure of PLN 52 million versus the overall cost of risk of PLN 79 million. So we can say the normalized cost is below PLN 30 million. Of course, we continue to maintain provisions set up in previous years for COVID. This is some PLN 200 million. We haven't made any reversals nor have we set up any additional provisions. And we believe that in the current circumstances, this is an area where we should have some potential reversals in the future. If we look at the exposure or the exposure to small companies, micro companies, retail companies and the bank's exposure as a result of their activities in Ukraine, Belarus or Russia was very limited. And so in Q1 of this year, it wasn't necessary for us to set up any additional provisions. So we believe that this -- we won't go to 0. Of course, with the percentage of loans which have impairments, but it does seem to us that the level is very safe at 3.4%. We believe that this is improving in each one of the segments. And this is a result of several facts. So the portfolio of the regular performing loans is continuing to work. We're also making recovers. We're down to PLN 3.1 billion. This is the lowest level, normally speaking, in terms of NPLs in the bank, and we continue to see very small new amounts coming into restructuring. So we can say that at this point in time, the situation is correct, it's proper and it's been stable for a longer period of time. And so if we think about coverage, there's no major changes. So if we look at Stage 1, this is proper as long as the portfolio is growing and Stage 1 is growing, then Stage 3 is diminishing. Stage 2 is being maintained. This means we're in a safe situation. And of course, in Q2, this might fall a little bit the coverage because we'll sell a portion of the nonperforming portfolio, and it's usually got a very high level of provisioning. And so there shouldn't be any additional impairments because the level of provisioning is against the price basically that we usually have a positive impact for the bank. So thank you very much.

Capital ratio decreased in the first quarter due to 2 factors. So the first one resulting from the increase in our loan book, so additional RWA and in parallel, a decrease in our equity due to the negative evolution of our bond portfolio. However, capital ratios are still above the minimum requirement.

So we're now gradually coming close to wrapping up the presentation, and then we can move on to the Q&A session. This slide reminds us of some of the key parameters, the KPIs. When we talk about our strategy, some of the parameters that we'd like to -- these are parameters or the figures that we'd like to achieve -- target figures at the end of 2025. I won't dig down into this. I can say that we live in exceptional times, times that are very unpredictable, difficult. They represent a burden, a mental burden. It's very difficult to foresee the future, both geopolitically and macroeconomically. I have no doubts whatsoever that their darker clouds coming close to the Polish economy. And we have inflation of 12.3%, probably 15% had not been for the shield. We have interest rates rising, and that means there's going to be less demand for loans primarily amongst retail customers. There may be some challenges amongst customers in terms of debt service in all segments -- in various segments, we don't see it yet, but we don't know what's going to happen, and we don't know how and when the war in Ukraine will come to an end. We're hearing more and more about ideas, projects and proposals from the government providing a to borrowers. And one of the things that is disquieting and should disquiet us and concern us is that the bulk of these costs should be covered by the banking sector. In a country where we have a market economy or a country that would like to have an economy that's where -- these are not signals that fill in with special optimism nor does this narration, which continues to perpetuate that if there's a problem, then we should take money away from banks and help other social groups -- other groups. So I think this banking sector in uncertain times should be healthy, stable. It should be capable of generating debt money and should be capable of feeding the economy and generate profits that will build the equity base. It should not be a source of short-term assistance for various stakeholders. I won't maybe get into this polemic in terms of whether or not customers should take responsibility for their decisions or not for their decisions or if that responsibility ultimately should somehow be shifted to other market players. I'm sure that you are aware of my opinion in this matter. And so we have to be prepared mentally and financially and operationally for a variety of surprises in switches. And so next quarters and years are becoming more and more difficult. Nevertheless, I am convinced that the bank is well poised and it's capable of operating in demanding times, volatile times. We show that during the COVID-19 period. We showed that we are a technologically sophisticated bank. And we're also capable of dealing with cyber-attacks. So there's no reason for us to think that we wouldn't be able to deal with these more difficult times. Nevertheless, we do see those darker clouds appearing on the horizon with respect to the entire economy. And that would be it in terms of the presentation. I don't think traditionally, we're not going to talk about the activities of the various business divisions. This is available in the materials. So I think we should go ahead and look at the responses, the questions-and-answer session.

I would like to ask you for a broader comment about the preliminary government proposals in terms of providing aid to borrowers. What would that mean for the sector? What would that mean to have a bigger borrower support funds and credit vacations? And what do you think about WIBOR? Can you imagine some other benchmark that would be more just that would be able to replace WIBOR?

So I'm going to avoid making any precise reactions to these proposals because these proposals aren't precise. They're more slogans. And the prime minister has said something about the subject 2 weeks and 1 day ago at the Congress in Katowice. And since these are general or vague statements and haven't been stated precisely, it would be very difficult to say precisely what the impact would be. I can say that this can only be a negative impact for this sector. So adding money to the borrower support fund, my opinion is this fund has some PLN 600 million, practically speaking, from the moment when that fund was set up, it has not been used -- or used only to a marginal degree. So adding additional money to that fund until that money is used, that would seem to be unnecessary, not to say improper. And perhaps there are other forms, you could borne money to that fund and not necessarily make additional contributions to that fund to make sure that the costs would not be borne solely by banks. If we think about loan vacations, credit vacations, I understand that idea. There's a lot of sense Nevertheless, my opinion is that we shouldn't have an automatic mechanism, regardless of the situation, regardless of somebody's ability to service that's on a timely basis, then everybody could utilize these vacations, credit vacations, that's not how the world should work. And so I'm very much in favor of the bank being showing empathy and looking at the situation, scrutinizing the situation of every single customer, but I do not believe, however, that general availability of vacations amongst people who are capable of servicing their debts with no problem whatsoever or having in mind those people who have taken out multiple loans to buy apartments for investment purposes. It doesn't seem to me that a solution of this sort would be needed by the market. Of course, more precision has to be provided here. The question is, if you use this vacation as a customer, who we have to reclassify the credit or loan exposure and what we have to set up a provision. And today, there is no response to that question because we don't know the specific nature of these loan vacations, what that would mean legally. And then finally, the question about WIBOR. I'll look at Michal, and I'll ask him to give a comment about what could, in fact, replace the WIBOR benchmark. But let me say the following. This is not the problem. It's WIBOR or something else. The problem is that the interest rates are much higher than they were. So changing WIBOR could maybe release some of the emotions. And perhaps this would reduce the income of the financial sector, but that's not the essence of the matter.

Well, what else could I add? The replacement of WIBOR with some other benchmark is not controversial. We've been preparing for this to happen for several years. It's part of the general European trend. But the question is, what is the new benchmark to be? Based on what type of transactions -- what type of transactions will be used to determine that benchmark? And who will be responsible -- who will be the administrator of this new benchmark rate, because we've also heard about an option, a backup option that the new benchmark would be POLONIA. But generally speaking, the rule is that every interest rate based on overnight rates after it's cleaned up a bit or smooth, it will be closer to the official prime rate of the Central Bank or than a 6-month WIBOR rate, which today is also discounting future increases or hikes in interest rates. So it's discounting them to some extent, whether we talk about the governor of the National Bank of Poland or other members of the monetary policy board, which had talked about that.

So I think we can go on to the online questions, and I'll go ahead and read these questions, and then we'll respond to those questions. Collectively, we have several questions from [ Martin Chapelisky ]. Is the bank worried by the Tier 1 line to 1%? Do you want to take some efforts or actions as a result of that? And what are your expectations in terms of the further growth of lending activity? What are your -- what -- how do you see your growth against the market? Do you want to grow faster than the market or the same or slower in which segments? And what about the fixed mortgage loans, how do you differ from other products where you have this 10-year period. So does the bank have the intention to increase the deposit rates? And do you see a moment in time where the growth in these interest rates would be stopped. And so I'll ask Jean-Charles maybe to begin.

I'm going to start with the capital ratio. So capital ratio are under pressure, mainly due to the deterioration of the bonds portfolio valuation. So it has a significant impact. As we take further increase in the interest rate, we can expect further decrease in the valuation of the loan portfolio. However, I would be very balanced. So we are not expected that the impact on the capital ratio will be higher than 2.01%, okay? I understand that these figures have been selected because below such level, we will bridge the minimum capital requirement. So more is not at all the situation. We have also to keep in mind that in the coming months, we are going to recognize net result of 2021, and we are going to recognize the results of the first half of the year, okay, later in the year. And also, we can expect a decrease in the growth in loan portfolio, which will have an impact. So to summarize, we expect further deterioration in the coming months, but we are taking also some initiative to avoid any bad news. So we'll be careful in terms of capital allocation in terms of growth and additional initiatives are already launched to compensate the negative impact of the valuation of the bond portfolio.

Now a few words about the expansion of lending later in the year. We know it's a difficult situation. We believe that demand for loans amongst retail customers will fall. So it will be lower -- we'll have lower credit worthiness, especially if we look at mortgage loans. So I would anticipate that the rate of growth will fall off. And then in CIB customers or SME customers and corporates will probably borrow more in terms of working capital loans. So we do see room to grow to develop and we have a lot of aspirations. Will this be faster than the market? Well, we'd like to grow faster than the market, what happens, we'll see. If we look at the sales of fixed interest rate loans, this is growing gradually. 44% of our loans were sold with -- at fixed rates. So the tenor that's dominant is 5 years, even on the cost for a 10-year loan is basically the same. So customers continue to think in such a way that if I take a loan for a longer period of time and the interest rates could fall and then I'll be stuck with a higher interest rate. This is actually something that's more speculative, but this is a step in the right direction that more and more loans are being extended with a fixed interest rate. So will you improve your allocation? Of course, we're going to react with respect to the market interest rates and the expectations of customers and also to have in mind our own liquidity needs. So generally speaking, we will react flexibly. So these products -- talk about stopping them, will the interest rates fall? Well, it depends on what's going to happen with the market interest rates. So we can have and espouse various theories in terms of where the monetary policy board will say stop. We can ask any number of analysts and economists, and we'll get that same number of responses as the number of people we ask in terms of what the inflation rate is going to be, what's going to happen in the economy and then you would either slow things down or stop them cap them. I think that's about it in terms of the questions that were posed by [ Martin Chapelisky ]. Here, we have a question from [ Katja Reise ] about provisions for possible deterioration in this scenario. I think we talked about that during the presentation itself. The same is in terms of what you'll use to replace the WIBOR benchmark. And we have business that are Poland. How do you think about the increase in deposit rates in order to satisfy the government preferences? And what about the various incentives to raise those deposit rates? So once again, we have a topical area that's very difficult for me. I'm an economist by, and I'm a liberal in terms of my convictions I was raised as an economist. And so I don't remember coming times with [ astrology ]. I want the market to determine we have a very competitive banking sector. And I'm convinced that the competitiveness common sense mean that at the proper time, interest of deposits will grow to a rational level and government intervention in terms of the government asking people to raise deposit rates or enacting loss. This smells like centrally planned economy. We've had that, and that didn't come to a good end to an outcome. And so I certainly wouldn't want the government to steer prices, control prices in a competitive industry. I wouldn't want this to happen or have to happen. And I'm personally convinced that banks will raise deposit rates as they want to have stable liquidity amongst their retail customer base and the government intervention will not be needed. And that's about it. I think on that subject. Here, we have a question from Lukasz Janczak. So if we look at the end of -- at the end of Q1, is it possible that you have to -- will you be released from the split of profits for 2021. If we look at the FX loans dropping below the 5% threshold, that's at the consolidated level at the level of the bank itself as an entity, it's around 5%. And it's certainly going to fall if we look at the percentage of FX loans. But in uncertain times, if we look at the reactions of the KNF, it's very difficult to make a statement about what could be done with the distribution of profits. What will be the level of the capital ratios if we look at 100% loss on bonds at the end of Q1 2022? It's definitely a tough question. So I'll give it to Jean-Charles.

Some of Tier 1 ratio and above 15% in terms of TCR.

Santander, Having in mind the conferences of BNP Paribas. If we look at ag and food, what is the likelihood of famine in the world?

I personally don't feel that I have such a high level of expertise -- expert knowledge. I've asked our experts what they think about this reality about famine across the world. Ukraine and Russia are major exporters of Ag products, primarily meal, cereals. And so grains. There's going to be a problem here. And so perhaps a change in nutritional habits. This might seem paradoxical, if you eat more meat, then you eat less grain. Well, actually, the less meat we eat, the less grains I've heard this theory. I'm laughing a little bit because it sounds -- I don't eat meat almost at all. I don't see myself as carnivores exclusively, but our experts haven't indicated that in the short-term that we have this phantom or this risk of a famine. But if we don't come to terms with everything in terms of climate change, there are risks. If we look at CO2 emissions, if we look at the generation of electricity, we know for a number of other sources. There is a risk of the end of the world if we're not going to take active efforts. We're going to have an end of the world event coming up, and that would be at full stop.

So if you look, the interest rate income is growing slower than the market. And then the hedging on fixed rates will actually lower your sensitivity.

Well, I'm going to ask -- I'm going to ask for your vigilance and to correct me if I'm incorrect. There are several reasons of this. One, we have a policy of investing in securities that are focused on stabilizing our income results. So we are conservative investors. To a large extent, we're trying to hedge our interest rate risk, and that means when interest rates fall, then we're more resistant to that consequence. And if the interest rates grow, then we don't have a benefit to the same extent as our competitors. That's the strategy we've embraced, and this is one of the major factors, so the structure of our portfolio is such. And then the level of hedges against interest rate risk. And so the value of the portfolio is relatively large. We have bonds from PFR and [ PGK ], which we subscribed for during the pandemic, and we want to support the Polish economy. And these are fixed rate bonds. I haven't used that term in the past, but also they have a fixed interest rate, a fixed yield, and that's one element. The second element is that our loans for personal finance, those are fixed interest rate loans, and we've been following that policy for many years. When we lend money to customers, we have a fixed rate. That means we're not catching benefits from an increase in interest rates from the existing portfolio. I think that's about -- did I --

Then we have banks are informing about higher employee salaries for their employees. What's going to happen with BNP Paribas?

Well, every year, we did a round of raises. We do this once a year. We do this in March. And so in real terms and as a percentage of the salary fund, it was more -- it was more than double what it was usually the case. And so it's my impression that most of our employees have accepted the raises we offer with satisfaction. Of course, we'll remain flexible in terms of reacting to pay proposals perhaps in the course of the year to somehow violating that rule that we followed for many years. But -- if necessary. But banking is a matter of the people, and we're going to care for our people, both in terms of the flexible model of work, they're paying their compensation, the career growth, career planning and their training, all of those other things, both here in Poland and across the world.

What was the average increase in wages in March?

In March, I'm not sure if we disclose that type of information. I don't think we've done that up until now, so I'm not going to respond to this question in a specific manner. I think we had some pretty solid growth in pay.

Santander. Is today's macroeconomic scenario, does it mean that BNP Paribas is revising its appetite for risk and for growth and in which areas?

I've had the impression that we talked about that to some extent. Business Insider, Poland, what was the impact of the increase in bonds portfolio on the capital ratios in Q1 2022 and in Q4 2021?

The impact of the negative valuation in Q1 is equal to PLN 1 billion. We have to keep in mind that we have COVID-19 quick fix adjustment. So we are coming only 60% of this negative valuation in the financial equity.

The next question is from IPOPEMA. What's the cost of the settlement agreements with your clients in CHF? Does the bank plan to propose these types of settlements to more customers? So I'm trying to come back to that slide. There was a slide on that subject. I'm not sure if there's anything else that we could add. When we talk about those --

Question vis-a-vis what's on Slide #18.

No, I don't think so the topic in the following. We're negotiating individually with the customers and depending on the characteristic of the loans, so meaning the year granting, which means also the fixed rate, which has been renewed, many parameters. So the costs are totally different. So we cannot disclose specific figures in terms of individual negotiation. All the loans are different.

So ladies and gentlemen, that was the final question that had flowed to us that come in. And so it's now afternoon. And so there is room to ask one more question, if possible. So there are no more questions. So the benefit of coming here, then we can give you a coffee, we can talk behind the seasons and I can respond to any additional questions you here in the room have. And so I hope that one quarter from today, we'll have more people here. It's nice to have a face-to-face contact with you. It feels a little bit different. So we'd like to thank you very much for your attendance, both remotely and in-person. Take care of yourselves. I wish you a lot of good health, and I can't wait to see you when we see you in one quarter from today and many other opportunities. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]