Erste Bank Polska S.A. ($EBP)

Hi, ladies and gentlemen, it's 9:00 o'clock. So we're starting. My name is Agnieszka Dowzycka, I'm in charge of Investor Relations at Erste Bank Polska. I want to welcome you to our press conference of financial results after the first quarter of this year. We're doing it for the first time as Erste Bank Polska after the rebranding that happened over the weekend. I'm here with Michal Gajewski, the CEO; and Maciej Reluga, Vice President of the Management Board at Erste Bank Polska. Let me remind you that throughout the conference, you can send out your questions by e-mail. My e-mail address is [email protected]. You can ask your questions using the link. Michal, over to you.

Thank you, Agnieszka. Welcome, ladies and gentlemen. Good morning. I'm happy to have you join this press conference. Just Agnieszka has said, this is the first performance presentation we're delivering as Erste Bank Polska, and it's a symbolic moment for us. It marks the start of a new chapter with renewed energy and the values that come from being part of the Erste Group. In a moment, we will walk you through our financial results. But before that, I would like to highlight that the first quarter was a period of very intense work related to rebranding and the integration with the Erste Group. It was one of the most complex operational projects carried out in the Polish banking sector, and the process was delivered on schedule in a safe and stable manner. And what's most important it was seamless from the customers' perspective. Our focus remains firmly on our customers and on the continued improvement of our offer and service quality. Now turning to the results. Gross profit for the first quarter amounted to EUR 1.860 billion, over the same period, our tax and regulatory charges totaled EUR 1.423 billion. The net profit for the first quarter reached EUR 1.28 billion. We'll now be moving to Slide 4 with the information on customers. We have more than 6.1 million customers who currently have 4 million digital customers, nearly 5% more year-on-year. And the vast majority of them, 3.4 million actively use our mobile application. This represents an 8% increase year-on-year. At the end of March, customer deposits amounted to PLN 228 billion, while customer funds, including investment funds totaled EUR 259 billion. The gross loan portfolio stood at EUR 172 billion and total assets reached EUR 304 billion all in zloty. Slide 5. As mentioned, a, net profit after the first quarter, the net interest income reached over EUR 3 billion net fee and commission income, PLN 772 million representing a 6% year-on-year increase. This was a record quarter for this line. Total income was close to EUR 4 billion higher than a year ago. So despite the decline in interest rates over the year, total income is slightly higher than a year ago. We maintain a strong capital position with return on equity of approximately 20%, so an attractive return for shareholders, excellent liquidity, LCR at the end of March exceeded 200%. 6 and 7, Slide 6 and 7, when we talk about the business and customers in numbers. In retail banking, we currently maintain 4.9 million personnel accounts in zloty, almost 2% more than a year ago. In the first quarter alone, we opened 132,000 new accounts, an increase of 18% year-on-year. We granted EUR 3.9 billion in cash loans. This is 35% more year-on-year. This was a record quarter for cash loans with a record monthly volume of over PLN 1.5 billion in March. We never had such an excellent sales result in cash loans. Now mortgage lending in the first quarter has amounted to EUR 2.6 billion, including over EUR 1 billion in March alone. Retail investment funds reached approximately PLN [ 5 ] billion, up 28% year-on-year. So very good... SME, we opened over 22,000 SME accounts in the first quarter. That is 9% more than a year ago. We extended EUR 1.4 billion in loans to SME customers that's up by 12%. We continue to expect digital lending process for SMEs. The volume of loans granted fully online, increased by 126%. Corporate banking. Customer activity in remote channels continues to grow. We also recorded a 9% increase in loan volumes and 8% increase in credit limits in this segment. So we can clearly say we are -- we're seeing an improvement in customer activity in the segment. CIB that is corporate and investment banking, we delivered very strong investment banking results, and so we further confirmed our leading position in the market. Slide 9, gross loans. So we're moving to the balance sheet. As you can see at the consolidated level, solid growth, 7% year-on-year. This line amounted to PLN 172 billion. In the appendix that is Slide 26, we show the continued strong performance in new loan origination. You should especially look at the cash on sales.

Now customer funds, PLN 259 billion while the deposited loan totaled EUR 228 million. The deposits of personal clients increased by 4%. But due to an important piece of news because our deposits are growing by as much as 10% as a consequence, the mix of deposits changes favorable for us. And the end of March term deposits accounted for 26% of total deposits while a year ago, it was nearly 34% investment funds reached the level of nearly EUR 31 billion throughout the end of March, and that was grown by 23% year-on-year. Profit and loss, Slide 11. Let me start with net interest income. It totaled nearly PLN 3.1 billion, and it was lower than a year ago by 3.6%. We all know the reasons. Interest rate cuts, the decline in interest income is offset to some extent by the quicker decline in interest expense, which reduces the pressure on this line of our profit and loss as the result -- on an annual basis, interesting income declined by 8% by cost by 22%. Interest margin in quarter 1 was 4.53% and reduced by 11 basis points, primarily driven by the interest rate cuts from the market. Now, net fee income, all time high EUR 772 million. And there is a clear improvement year-on-year. But also quarter-on-quarter, we can see a growth of 3%. We are happy with how active our clients are we can see that there is a lending growth. There is also growth in fees for asset management, brokerage activities for loans, for FX and cards. And this is also an element of diversifying our income makers given the falling interest rate environment. Slide 13, our income. For the seventh quarter in a row, our income total close to PLN 4 billion. So once again, despite the decline in interest rates, we can see income staying sound. In quarter 1, the total income increased year-on-year, which, of course, is really good news. When it comes to the top line of income statement. The mix of income reflects the expected shift. So we have the shift from interest and noninterest income. We have more favorable, in my view, diversification of income sources. And what is important, noninterest income in total income that share increased by a few percentage points up to 23.3%. Slide 14 operating expenses, EUR 1.7 billion in quarter 1, of course, there were many one of factors impacting that, first of all, the contribution to banking guarantee fund because -- and there is a significant difference in that levy, of course, that was also impacted by the cost of integration and rebranding. If we stript it off all these elements, quarter-on-quarter costs increased slightly by 0.2%. What is important and just to preempt your questions, in quarter 1, the integration costs, both of EUR 24 million, while the cost of rebranding, and you could see that reflected on our branches in our app, that was PLN 67 million. Slide #15. Net balance of provisions. On the consolidated level, the balance was EUR 144.5 million. The cost of risk, 37 bps. And that means staying in a good stable level. The quality of loan book is good and resilient to what is happening in the economy. The key risk factors have been stable. The NPL 3.6%, and that's improved compared to what we saw a year ago. Last year, it was 4%, let me remind. We haven't witnessed any significant one-offs that would impact the net balance of our provisions. As you can also see, we sold nonperforming that was EUR 164 million, and regained -- and our gross gain on that was PLN 53 million. So wrapping up, Slide #16 $1.8 billion in gross profit, of course, taxes much higher. That is why our net profit was EUR 1.028 billion. Of course, we had the cost of legal risk and foreign currency mortgages of EUR 166 million. Our effective tax rate was 42.2%. When it comes to our business, a record high net fees, really good sales and the activity levels of our clients. So we actually capture the business momentum, really good at this quarter 1. And of course, we can see growth in all activities in remote channels. We have a good growth. When it comes to new clients. We acquired to 14% more clients in the select segment, that is the segment for affluent clients. We saw the growth by number of clients by 15%. So this year has started very well. We are now embarking on a new stage. We have a new ground but we keep our high effectiveness. We, of course, we want to build on the tradition of Erste Group. And this way, we want to strengthen our market position -- from myself and now the floor is yours. Agnieszka, do we have already any questions?But the first question, let me actually cited it's a general question to you. How is integration with Erste going? Of course, I can still remember -- but it's not the first radio we are fighting in. We experienced [ Santander ] before. In my opinion, this integration is going really well. we can see both the trust of the shareholder to us. We also can see that we are sharing the best practice. And we are listened to -- we -- it's not only us who is listening. So in my view, the integration is going smoothly. We do it in a professional way. And I would say, that's it. There are also questions related to macro economy and there are a few questions about the cost of risk above Swiss franc and net interest income and costs. Let me start with macro economy. And there is a question about the inflation and GDP and the impact of conflict on the Polish economy and what will be the impact of all that. But quite a lot of -- quite a lot of things have changed since the last and meeting we had, and we do not always present the scenarios because it all depends on the length of the conflict. But this is a scenario called a slight risk in which the GDP growth declined by a few percentage points. For the time being, we are moving more to the other scenario where we reduced the GDP from 3.8%. Inflation stayed not changed. We know this is the effect of the actions taken by the government. And this is all the follow-up of the growth in commodity prices. And because the inflation is going to roll, but we envisage that maybe one more cut by 25 basis points. And that will be without change. The dynamics of the loans and the deposits roughly 7%. Maybe the loans will grow quicker like to date. And that -- and there are many risk factors, and the cost of risk there, of course, this is all driven by macro economy. And because we do not change our macroeconomic outlook, our guidance remains unchanged. If the stress testing scenario materialized, we would be moving towards the upper end of the band. But for the time being, when it comes retail customer, what was happening in the quarter 1, when it comes to credit card payments, there is not much change when it comes to customer behavior. When it comes to businesses, it seems to us now the starting point in the financial condition at the moment, makes us not to see too many threats at least in the macroeconomic scenario that we outlined, even if it was to be a bit worse, it seems that the cost of risk should be under control. Do you have any more dynamic -- detailed questions, please go ahead. And then a question about Swiss franc. It's quite a general question. Of course, you have a lot of information about that in our financial report when it comes to disputes we are having. I can say that we are actually consistently progress in making settlements with clients. We try to find solution satisfactory for both party. At the end of March, we signed more than 13,000 settlement agreements. We also gave you the cost of those solutions in 2026, and that's all available in our report. We can see that the claims when it comes to FX loans that the number of claims has been declining compared to previous quarters because now it's roughly 12,500 cases. When it comes to the coverage ratio, we have at nearly 184%. Given the last decisions of the European Court of Justice with regards to the free loans. So that actually went unnoticed. But the European Court of Justice clearly state its is view on a free of charge loan, a free of charge accommodation that was clearly stated and the risk is eliminated. It was confirmed -- and let me remind you that we were also pursuing the same strategy of actually interrupting the such statute of limitations. In its last decision, the European Court of Justice confirmed that it was justifiable to reject those claims. And we think it's the big success of us that follow that route. When it comes to the dispute for the principle of the loan, it seems that the last decision of the court makes performance more attractive because of all that because this is the quick and predictable conclusion of the dispute. So there is more optimism after quarter 1. Also, you have more decisions. Next question about net interest income and net fee income and our expectations. As you might know, we don't give you any precise guidance on what is going to happen. But I think we provide you quite a lot of information every quarter. So you could actually project those lines. And we were talking about mid-single-digit dynamics. In quarter 1, it was 6%. So as expected, the net interest income is a more complex story. But if you -- if you take a look at our guidance from previous years, the sensitivity of the net interest income to a cut of 100 basis points with the stable balance sheet is in the order of EUR 213 million and the growth in the balance sheet should actually neutralize that, and that's all reflected in net interest income. If you look at the net interest income over the last 5 quarters, I'm not -- no big changes. The net interest margin compared to the last year's 40 basis points lower, but the interest rate work out by 200 basis points and we communicated. So I don't think there was anything coming as a big surprise the share of loans for the fixed rates in total loans states as we communicated last quarter, over 60%. And now it is worth adding it because sometimes you -- why it stops at 58%, 60%. But this is due to structural reasons. We also have started the portfolio with short tenures and we also have some short-term loans based on 1 month survivor. Some of the cash loans are based on rep rate and we keep part of the portfolio is a buffer for prepayments. So in the future, we shouldn't expect much. But of course, we will take efforts to neutralize the decline in duration of our hedges. And we want to keep the effectiveness high.

We have another question about costs. What will be the dynamic and the cost of integration in 2026, how will they be distributed? I'll take this one. The cost of integration apart from the rebranding costs amounting to EUR 250 million, we've communicated those, we'll have an equal amount applicable to integration this year. This is, of course, an estimate, but this is considered a maximum amount. We will provide more details in the next quarters. Maybe now, tell you how the cost of rebranding will be distributed in the first quarter, that was about 1/4. And in the following quarters, it will be slightly different. We assume in the second quarter, it will be -- it will consume about 50% of the total amount. And then 12.5% in quarter 3 and 12% in quarter 4. Apart from the amount that is included in the report for the first quarter, that cost will be distributed evenly. We don't have any more detailed estimates in terms of amortization will most of those costs are related to OpEx, there might still -- we might still see something in 2027, and we'll, of course, inform you accordingly. Total costs, as you think, the first quarter, the one-off, not only rebranding and integration, but primarily BFG, they impact the dynamic of cost. And if we exclude them, just like me, how I've said that quarter-over-quarter, the cost line is not changing. This year, the total cost increase will be about 4%, 5% if we exclude all the one-off items. There is also a question regarding consumer loans. We don't charge interest on the cost of loans. We have not been doing it for years. Despite the fact that since 2014, the regulation -- we believe that the verdict of the European Court of Justice is contradictory to the standing of the European council, our government presented before the European Court of Justice. However, we have this verdict in place. The European Court of Justice that charging interest on the loan that was allocated to the noninterest part of the loan was not allowed. At the same time, the value of money and time exists, and we're still analyzing the verdict and what it could mean to us. But more likely, there will be more questions submitted before the court in February, according to the verdict, the free loan sanction could be applied in specific circumstances. This case is still pending and will still be subject to interpretation. We have the second in -- after the verdict of the Court of the second instance in 2023, we've already won 3 cases in that respect. So we will see how this evolves. We have another question about the capital and issuance that -- how will the fact that the group will no longer be subject to the TLAC requirement following the change of the strategic shareholder affect the bank's capital policy. We're not subject to TLAC. Of course, we are bound by the MREL requirements. They are lower than TLAC. And in short, this means lower issuance. Most probably, we'll do them in August. The amount, I can't really tell you this depends on the growth of balance sheet and the risk-weighted assets and we will decide on the amount closer to the date, whether we do it domestically or outside of Poland. This will depend on the market conditions. This will not be an AT1 issuance. Looking at our capital situation, we don't need that, that issuance will be senior loans preferred, most likely. In terms of capital, then yes, we still believe that the capital surplus is solid. Capital levels are high, we'll be in contact with the regulator. In terms of retained earnings, that's clear for the years where the criteria were not met. They will be retained in the capital. Our capital ratio is high. And to address the growth that we see. We have the capital for that. And the surplus is high, we'll definitely be talking about it in the future. Those are all the questions that I've received. We can close the conference. Of course, I want to remind you, whenever you have a question of -- whenever you have questions, you can contact us offline. Thank you very much. Thank you for your questions. Have a good day. Goodbye.