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

Good morning, ladies and gentlemen. Welcome to our quarterly results presentation. I welcome both the people in the room and those participating online. Without further ado, let us move on to the presentation of our results. You know the composition of our group very well. So I will not introduce my colleagues at this point. The agenda, as you see is behind me. It is fairly standard again. So let's move on to the key information about the second quarter 2026. Ladies and gentlemen, it was a very solid quarter for the bank. It has shown growth, increase of revenues in practically every revenue category. also significant increase in net profit on quarter-to-quarter basis. We achieved PLN 600 million of net profit, which after 6 months gives us a profit of PLN 975 million, the growing trend is also observed in credit volumes, both loan volumes, both in retail and corporate banking, SMEs with important exclusion of CIB area. We have maintained our interest margin, and I do believe it is an important achievement of our bank. We have worked to optimize it and we worked very hard. So the level we have achieved is the same as previously. And it is an important strategic challenge for us. Quarter-to-quarter, the ROTE indicator has improved C to I ratio has also remained stable. We will talk about that in a moment. Let's look at our strategic objectives. You are objectives, you are familiar with them, we have announced them as part of Accelerate 2030 strategy. Some good news -- we have some good news. The increase in client base in retail banking, we have an increase of 122,000 clients. Of course, this works towards our goal of PLN 1 million increase by 2030. So maintaining this kind of dynamics brings us much closer to that goal. As for CIB banking and corporate banking for SMEs, our portfolio has grown. We have not increased our market share though. Market is moving forward very fast, and we remain true to our principles of risk quality and the structures that we finance. Also, return on the capital is important for us. So the market is growing a little bit faster than our portfolio. Nonetheless, we are happy with our growth due to quality of assets that we took onto our balance sheet. The final reflection, sale of sustainable loans, we had a very good first half of the year. Once again, compared to the strategic objective, we have made significant progress, and we're moving in the right direction. Let me only mention that in the first half of this year, we have achieved -- we were able to reverse the negative trend in SME loans. We do all see very significant growth yet, but the reversal of the trend allows us to be optimistic about the future. The second element that is worth mentioning is the new conversion model for the clients who use our loans -- merchant loans to a full-scale banking relationship. This is working very well. As a result, we have 13% new accounts opened in our bank stemming from this particular conversion in this model. Let us move on. Our favorite illustrative look at the dynamics. As you see on the graphics on the diagrams, every element in includes very positive information. As you see, personal accounts, significant growth, double-digit quarter-to-quarter, improved attractiveness of both retail and corporate banking, major increase in mortgage loans and consumer loans. Now let us look at the volume dynamics. Let's start with the loan part. Here, the total portfolio growth exceeds [indiscernible]. Retail part of the mortgages and cash loans as well as merchant loans have reached record levels, nearly double-digit growth in SME loans in SME -- sorry cred banking, including CIB. One important thing worth mentioning is the reversal of trends in terms of the structure of loans in those segments. We see an increasing number of investment midterm loans, which is positive for both the economy as a whole and the bank, the durability of revenues that is generated by this kind of financing. As for deposits, I have mentioned our strategic focus on maintaining the interest margin and here, indeed, we have achieved a lot, however, at the expense of slightly lower volume. It is nothing to be concerned about because the bank remains very liquid over liquid actually, as is the entire market. Finally, increased number of customers, 122,000 new clients. That's a very solid 2.7% growth in retail part. It's one of our key strategic objectives, and I hope, I'm actually convinced that our ability to attract new valuable clients and maintaining the clients we already have. retaining our client base is improving. Now a few numbers from slightly different graphical presentation. The NBI so the result on banking activity -- the quarterly increase is over 3%, which is obviously a positive phenomenon. We intend to maintain cost discipline, strict cost discipline. We have demonstrated it in the past quarters, I do not expect many changes in this respect. It's also time I mean, the time of relatively low cost related to risk of Swiss franc loans, the cost of risk in that category remains on a very healthy levels. This cost of risk includes also some provisions established due to geopolitical risk and not relating to any specific customer risk. Now net and gross profit. I've already mentioned net profit, let's look at gross profit, the level is pretty much identical as in the second quarter of the previous year. And we know that the interest rate environment in the meantime, has changed. Key financial indicators. The cost income ratio after excluding regulatory costs has slightly improved, but it is not a breakthrough. The interest margin net -- as I say, we have maintained its stable level, and we see it -- we perceive it as an achievement for the bank. It's a positive thing. The cost of credit risk is still very decent and attractive. We do not expect any unfavorable surprises in the second half of the year. And the final diagram was the return on equity. This is it from me. And now I would like to give the floor over to Michal.

Good morning, ladies and gentlemen. Despite the war in the Persian Gulf, the second quarter was really pretty good for Polish economy. The preliminary estimates concerning GDP growth will be published on Friday, However, given the acceleration in both industry construction and very solid results of commerce. It would seem that the growth rate is closer to 4% than 3.5% as it was in the first quarter. What is important here is that it is not 1 or 2 factors supporting our economic upturn, it's really a wide spread wide spread growth, which includes external demand and competitiveness of Polish exports. All those elements foster economic growth. Of course, risk factors in the nearest future, the nearest quarters or years are abundant. Certainly, political aspects are the factor that one should always keep in mind. However, looking at information and data concerning domestic economy and orders in the industry, we should be cautiously optimistic with regard to the economic upturn in the coming months and quarters. In the second quarter, despite increased prices of energy carriers inflation did not stifle the economy. We know that reducing the intermediate taxes and imposing a maximum price cap on fuels allowed maintaining inflation close to the NBP target. But there were other factors as well, reduced price of food and not much pay and demand pressure. So while the purely local factors, should not increase inflation in the coming months, either it should be noted that the external effect, the externalities, not only the price of energy carriers, but also agricultural produce may cause an increase in inflation in the second half of the year. I do believe it is important from the perspective of future decisions regarding interest rates. Chairman Lapinski, surprised us he was surprisingly lenient during the June meeting. Nonetheless the growing prices of raw materials worldwide, given the last month, it is quite improvable that interest rates would be reduced during the next meeting, especially since the economy does not really requires this kind of monetary stimulation, the economic climate remains strong. And as for the banking sector, we definitely expect the previous trends to continue quick growth of demand for loans in all the main segments, be it consumer loans, be it mortgage loans, be it other types of loans all the types of loans have been growing rather quickly. We are entering the period of a slightly larger base from the previous year. So possibly the dynamic in the coming months will be a little smaller or a little lower. But there are no indications that the loan demand would diminish. This is it from me, and it's over to President, Konieczny.

Good morning. Ladies and gentlemen, let's take a look at the financial results that you already know. But let me attempt to give some comments to some of the lines. Q2 is growth in the scale of operations. You can see higher loan volumes. You already heard about it. and the continuation of the balance sheet, some plus a stronger capital position. That is a very important element in the bank balance sheet because it allows us to restructure the revenues of the bank with the changes of interest rates, the whole sector needs to restructure the revenues. To a larger and larger extent, it's based on growing loan volumes and strong work on protecting the interest -- net interest margin that we heard about. In Q2, we managed to maintain at the same level compared to Q1. Q2 is also very good in terms of interest and commissions, apart from regular flow in this category. This was also a quarter marked by one-off events, 2 big transactions that influenced the value of reported results. In terms of costs, this is yet another quarter of financial discipline. In Q1, we've had one-off payments for the bank guarantee fund. In Q2, we are maintaining a disciplined dynamic, and it shows that we are looking after increasing costs. It does not mean that we're not spending and not investing. It just means that we are looking at the profitability of these investments, the return on the costs that we have to incur. Moving on to the bottom of the table. I'd like to point out, this is something that has already been mentioned, but let me reiterate. If you look at gross profit year-on-year, the cost discipline and the rebuilding, the restructuring works at the level of gross profit, the process is ongoing. This is not the end of the process. This is an ongoing process, but the direction is good. And the difference on the net profit demonstrates that the bank is working in a situation of higher tax rates and the impact of these tax rates on the bank's operations. Now let's take a look at the loan portfolio. Both on the corporate and retail side, particularly in this quarter in the retail part, we've had dynamic growth in retail banking. This was a result of a very good quarter in terms of selling mortgages, but also a high momentum of sales of broadly defined consumption funding. I mentioned that we are very happy with very good results, but we also see that we have to run faster because the market is very fast. So the good results that we have recorded in Q2 allowed us to maintain our market shares. However, this is something that we are focusing on. We want to grow the market share. The CHF mortgage loan portfolio. For some quarters now, we've had a similar trend. In Q1, we've seen stabilization and now we have a lower number of claims against the bank. That's one of the characteristics of the quarter and another thing is that we're looking at the parameters of the models that describe and are applied to the transformation of developments in the actual situation in terms of court cases and all the work going on in relation to CHF mortgages and the impact on the financial results, we altered one of the parameters of the model. This is the unit value of loss on a closed case of a CHF mortgage. History shows that the loss compared to real costs incurred by the bank, it is lower as it turns out. So we decided to alter this parameter. We introduced this change into the CHF model. Considering these 2 issues, less cases in real terms. So we have less CHF claims against the bank that is growing, and we have revised the parameters of the model. And as a result, the write-offs, the value of write-offs was lower. In terms of customer deposits, this is a very interesting area of the operation of the bank. This is where the bank is working very hard, focusing on 3 elements. Let me repeat it again, a large element of the revenues is the net interest margin. And this is where it happens on the deposit side. So this was where we were focusing on margins, volumes and the calibration of the 2 elements. And also, it was about working on the transformation of a part of these resources. You cannot see it here. but we wanted to focus on customer investments. We know that this was growing in this period because we want our customers to find the best place for their savings, be it the bank or services and products sold by our asset manager. So a very good quarter in terms of margins. In terms of volume, we maintained a similar level to the previous quarter. I mentioned investment products, a very good quarter in terms of the assets that we manage, another quarter of growth. You have to look at the situation in tandem with deposit management policy. It's one of the investment products that we offer to customers so that customers have choice, and they can allocate some resources to the instruments that offer the highest return on their investments. And this is something that the bank is not willing to pay at this moment. Net interest income, 3 factors have contributed to the result in this quarter. lower interest rates. We have the volume effect that we mentioned. We have the margin effect that we already talked about. And another important element, the judgment of 23rd of April. The bank complied and it re-estimated future interest income related to consumer loans, it was PLN 30.6 million. That was the part of the footprint that influenced the interest income of the bank. Well, there are 2 aspects here, complying with the judgment and another thing that it basically shows that were it not for the judgment, our net interest income would be even higher, and our margin would be even higher. The result of fee and commission income, a very good quarter year-on-year and quarter-to-quarter. Here, 2 streams of our operations mattered. One is organic work on transactions with our customers, the operations carried out by our customers, supported in this quarter by one-off events related to what was happening in CIB. Net trading income, it was a normalized quarter, pretty stable no one-off events this time. So a quarter directly linked to low wallet in the market environment, higher competition and higher volume of operations. So those are the 3 factors that contributed to this result. Let me remind you that just like in the part of results that we are reporting in terms of fees and commissions from time to time, we see one-off events, one-off transactions, and this is what happened in the similar period of last year. So the dynamics year-on-year have been impacted by the fact that last year in the same period, we had good one-off transactions in CIB, which influenced the reported dynamics. In terms of costs, I think the key takeaway is that we are further working on our costs for yet another quarter. We announced our strategy and we keep reiterating that the bank is very prudently managing its investment resources and operating resources directing funding streams into the areas of operations, which offer the biggest opportunity for desired change. And that's how we are shaping the cost base. Mindful of the discipline. It does not mean that we are going to reduce these costs significantly. They will be rising. This is the impact of the market by taking action to lower the dynamics of the growth. One of the things we're doing is the continuation of our work on the optimization of employment structure. This is yet another quarter where we are slowly, systemically optimizing. These are not big changes, but we are optimizing this cost item on the balance sheet.

So I believe this is it from me. Good morning, ladies and gentlemen. The cost of risk in the second quarter at the level of 34 basis points, 30 -- cumulatively 30 basis points for the first half of the year. All the segments have very limited cost of risk. And over half of those costs in the second quarter stem from changes in macroeconomic scenarios or additional provisions for unmaterialized risk for selected companies. We have selected those companies that were that could potentially feel the impact of the situation in the Middle East. It is a total of PLN 46 million out of PLN 81 million. We did not have any one-off events, any major loans that would be moved into the third basket in the corporate path. So on this side, the situation is very stable. You can see it in impaired loans or NPLs level, nominally, it is only PLN 2.5 billion now, 2.6%. So same quality is maintained across segments. There is no volatility. There is no change, major differences between segments or within any segment over the first half of the year. The situation is stable in all the phases. The only thing that requires explanation is increase in loans in Phase II. This stems from the fact that as we categorize the clients and prepare additional provisions for the potential loss in the future. we have shifted those potential clients from basket 1 to basket 2. Coverage is very stable. We plan to sell some NPLs in the second quarter, we sold some, and we plan further sales in Q4 of this year. Again, we do not expect any increase greater than what we've seen in Q2. And we will proceed with the same quality portfolio in the same in the second half of the year. Now equity Well, in context of equity, I do believe there is 2 information that is worth mentioning. Second quarter is historically the quarter and dividend policy and is realized. So the bank has paid the dividend. And on the other hand, we have strengthened our equity position by increasing our capital ratios, as you can see on the diagram. In general, our activities in the area of capital strengthen the bank and make it ready to absorb the planned announced, declared. And well, realized increase in loan volumes. I think this I will stop here. Very well then. Inevitably, we are approaching the end of the presentation part. Ladies and gentlemen, a few considerations, a few reflections regarding the future. We will continue focusing on implementing our strategy. We have a very precise trajectory plan that will lead us to realizing the objectives announced in the strategy acceleration 2030. The main tenet is growth while maintaining strict cost discipline. I do expect that in current favorable macroeconomic conditions, we are going to grow, increase the scale of our activity, the scale of our business and move forward. Having said that, the world is unpredictable. We know that the geopolitical situation is uncertain. So far, Polish economy has not felt any major impacts of current geopolitical realities, nonetheless, we cannot exclude the possibility that something is going to happen in the future. macro perspectives are very optimistic as you have seen. And the area that requires vigilance and focus is and mindfulness are regulatory issues and legal risks related to protection of consumer interest. Here, of course, we all know the story of the most recent -- or maybe not most recent, but the famous judgment by European Court of Justice from September, which is very far from logic in its provisions and which was surprising to the banking sector. One can also be concerned about political risks that stem from the budget situation and elections perspective. The extended election campaign for parliamentary elections 2027 are likely to start even in the autumn of this year. As you know, elections usually carry very populous promises. One such promise was already announced in a public [indiscernible]. Nonetheless, I remain hopeful that our politicians will maintain common sense and remember that our sector is already burdened by the highest CIT tax for other industries, it is 19%. For us, it is 30% this year. So again, this is the area that requires mindfulness, vigilance and hope possibly a dialogue with the authors of this idea if such opportunities arise. So in summary, economy is good. We are growing. We want to continue to grow, increase the scale of our operation, and we want to look into the future with reasonable optimism. Thank you. Very well then. Thank you very much. Let's move on to questions.

Do we have any questions from those present in the room.

[Foreign Language] I'm from Citi. I have 4 questions. from 4 areas. The first is about the ECJ that you have mentioned, what was the financial impact on the financial results on the second quarter? You said 36, but I think the report presents a larger total amount. Could you please clarify?

Well, the impact estimated by the bank is PLN 42 million, if I remember correctly, and it is comprised of 2 items. First, is the one that has the greatest impact on income -- interest income is PLN 30.6 million. And it is the amount that stems from changes in repayment schedules for clients and implementation of the judgment from April 23. The other amount is provisions for any potential disputes and that is -- this is about estimates related to the past.

Excellent. My second question is about technical aspects and growing with the market. What did you expect in the future that you would accelerate that the market would slow down? Will you overtake the market at any point?

Well, this is a question that is somewhat strategic and somewhat philosophical. The market is very competitive, and the level of competition translates into both the margins and other fees and charges related to loans but also to approach the financing structures offered to clients. And while we are and will remain flexible with regard to prices, we are not just a single market creator. We do not intend to accept excessive risk or risk that we see as excessive be it business risk, be it risk stemming from financing structure that should be adequate to what this financing is and what risk it entails. So -- we do remain faithful to our DNA, which is rather conservative. And we watch the market we can see significant flexibility in terms of risk acceptance from certain mark participants. We are not going to challenge and raise them in that regard. As we look at a pipeline and a perspective, I do assume our growth is going to accelerate in terms of assets, but we are focusing on maintaining the highly of assets and adequate returns. Excellent March.

My third question concerns investment products. I have seen your slide with investment assets and the numbers were growing. But if I remember correctly, previously, during your favorite graphical illustration, there were some negatives on sale of investment products. Could you please elaborate a little bit on what was happening with sales?

As you have very rightly noted, these 2 slides put together show a certain shift in the bank's focus in internal management processes, the bank is now focusing more on building volume of assets and following that retention and reduced repayments and amortizations, we focus on that rather than selling no funds. This is related to the fact that we really are reconstructing the revenue structure because our profits are related mostly to revenue, not so much distribution. So when you see -- when you look at these 2 diagrams together, you will see the change in focus.

And my final question is about costs. On 1 hand, the level of cost should not be surprising given the general stability of the quarter. But if we look at annual dynamics or year-on-year dynamics, we can see that it is significantly above inflation. I understand that part of it is investments that you have already mentioned. But could we have a few more -- ask for a few more details about the areas where you invest and when are you expecting any returns of those investments?

Well, we could answer in the following manner. The vast majority of the bank's funds are invested in the areas that were declared when the strategy was communicated. Back then, we have declared that the bank will allocate every year, a similar amount to investment activity supporting the strategy implementation. We also talked -- we also said that -- in the first phase, we will predominantly invest in internal processes and customer-facing processes to support implementation of product sales. This includes actions related to building partnerships that we perceive as very important, especially from the perspective of what we said today about the growing customer numbers. Also building product and process-related solutions related to the retail strategy declared in the second quarter, the Z generation banking. Those are the areas we directly invest in right now. Large portion of the investment funds is allocated to meeting the growing regulatory requirements, increasing regulatory requirements. So besides direct investments into the area of customer-facing work, quite a large chunk of funds is invested into the bank, which is a public trust institution maintains compliance in terms of technologies, processes and products. So this is the investment part. In summarizing in order to combine these 2 streams in the most clear and comprehensible way. The best example was launching, expanding and modified processes related to our acquisitions, relationships partnership-based acquisitions. Funds were allocated. They are being depreciated now. And we see a growth -- net growth of the number of clients of the bank. So these activities are interrelated, interconnected. And in future quarters, we will talk about further allocations and further changes in products or processes. At the end of the day, the type cost structure would mostly reflect the costs related to technology because this is the cost type that is most important here. As for cost dynamics, as I've tried to tell you, after operating costs, the growth in business means more cost. If we have more clients, they need more queries to BIK, we have to print more cards for the clients. We have to prepare more services stemming from the growth in scale.

You also mentioned the inflation element that contributes. And the third element, Well, there are 2 things happening here. The cost base of the bank to a large extent is the cost of human capital, human work. And here, the dynamics of raising cost of work is above inflation. If you look the situation in the last 12 months or longer. So on the 1 hand, the bank responds by investing in human resources, -- on the other hand, and I mentioned that when talking about costs, we are continuously optimizing the cost. So there are many elements. I would not like you to just remember that the costs are going to go down, they will continue to grow and above inflation because of the elements that I mentioned. Do we have any more questions in the room?

Yes. I have a question about the interest margin. You talked about liabilities being the focus. What is the situation on the side of assets? Are there any opportunities for improvement in terms of maintaining the interest margin?

Well, to be very blunt, the market is extremely competitive in every asset category. So maintaining our margin, not reacting to the market would not be supportive of our growth plans. So this is a task that is very difficult with this dynamic and competitive market.

Thank you very much. For some time, you are withdrawing or less focusing on the mortgage market now -- do you see any remaining legal risk related to mortgages. And why would banks like after finishing granting loans based on LIBOR rate. Why would the banks like to use the reference rate of the NBP rather than the post indicator. What would be the advantage of this for banks. And another thing, the dynamics of provisions for CHF mortgages, what about euro mortgages or Japanese yen, perhaps I heard about such loans existing.

Well, let me start from the latter part. We do not have any loans in yen. We don't have euro loans either. So FX loans includes everything, but mainly CHF or almost exclusively CHF the first part of your question. Well, the situation is that we have dramatically limited our mortgage operation when we had so-called loan holidays that invaded the market. We thought that this development was wrong and unnecessary. The interest rates have fallen since. There are no more holidays. So a risk of a repeat situation according to analysts is very low. Of course, there is some probability because some decisions are unpredictable, but we have decided that the lack of activity in this area compared to possible risk would be wrong. So we have returned and with some momentum -- is reflected in our results. In terms of the NBP rates, I think it would be good for the customer to be able to select the indicator used. The central bank interest rates in my opinion, carries a lower legal risk. It would be difficult to question its integrity or legality. Unlike it is with other indicators. We know the situation with WIBOR, fortunately, the ECG judgment confirmed the integrity and reliability of WIBOR. But we don't know what's going to happen in the future, sometime in the future, someone may question the new reference rate. That is a big question mark. But the likelihood of someone questioning the central bank rates is much lower.

Can we have a mic, please? I have 4 questions like Andrey. The first one is about the bigger number of consumer loan customers who are transformed into your full customers. 122,000 new customers in the 6 months. This is the net addition. So 1/5 starts with a consumer loan 13%. That's 1/6 rather than 1/5. How do you quantify Mr. President, the reasons behind this offensive and the effectiveness. I mean these are loans that are granted to people who want to buy a TV rather than looking for a bank account. So it's pretty difficult to turn these customers into your full customers. What are you doing?

Well, I'm not going to reply to this question, professional secret, right? Well, this is a new approach mixed with elements of technology, which means that someone who bought a TV in the past starts wondering whether they will use the bank's offering to a large extent. So basically, this is a foot in the door, there's TV that gets us started, and then we take action to increase the conversion of those customers into full customers. But I don't want to go into the details.

Right. Second difficult question about investment products, new products. This is something that Andre asked about. If you have customers whom you'd like to move from the deposit part to the investment part, improving your balance sheet and adding income from commissions. Unique products that are friendly to people who don't know what an ETF or an investment fund is. So can you elaborate on what you're going to do to convince customers to change their savings account to an investment product, some form of an investment service. Several banks have a number of big projects that are focused on exactly this.

Well, there are a number of things happening here. One thing is what you are talking about, the bigger number of products that we offer. We're not offering anything that is extraordinary, the whole sector is offering a similar scope of products. But what matters is the profile of our customers. Our customers tend to opt for loan products and here, our offering is embraced by customers. This is products that are bought by our investors. Where we are developing is in 2 areas. We're focusing on education. We want to educate encourage the spell doubts related to products with a different investment profile. And this is a big chunk of the work that we are doing.

And Secondly, we're working on investment products, the structuring of these products? Is it about savings, deposits structured?

This is not about unique products per se that is driving. So the dynamic right now is powered by debt products. Customers understand what interest rates are about. They know how they work, and they're looking for such products. This is not sufficient. So we're putting a lot of work into education and raising awareness and achieving conversion to other products.