Erste Bank Polska S.A. (EBP) Earnings Call Transcript & Summary

My name is Agnieszka Dowzycka, I am Investor Relations Director at Erste Bank Polska. I want to welcome you all to the presentation of Erste Bank Polska Earnings after the first half of 2026. This presentation will be led by Michal Gajewski, CEO; Maciej Reluga, Board in [indiscernible] Strategy and Investor Relations and [indiscernible] those member in charge of finance and accounting division as CFO, [indiscernible] has rather joined work in June 2026. [Operator Instructions]

Thank you as much time just like Agnieszka, [indiscernible] is our new CFO. I have a reminded pleasure of welcoming him and let's start that presentation. So we have just completed our first [indiscernible] quarter operating entirely at Erste Bank Polska. It has been a very intensive period from introducing our customers to our new brand and for our [indiscernible] because we're positioning the new brand on the Polish market. In our opinion, and I tell you why I think so, the customers and the [indiscernible] market welcome to this change. And I have evidence for that brand awareness ratios keep growing steadily after just 8 weeks of marketing campaign. We achieved double-digit brand awareness among polish [indiscernible] consumers. At the moment, filing three poles recognizes the Erste brands. And let me remind you, in January at the [ output ] spontaneous market over and [indiscernible] with [ 10% ]. But we have through investment that we overly [ communized ] in the first quarter we have delivered a pressure [ 21 ] percentage point increase in a very short period of time. Our focus now is continuing to build both brand awareness and for the brand and consideration for our part to fully leverage the acquisition potential and we see after the results of the second quarter the acquisition is going -- our ambition remains the same. We want to be the best bank for both customers and shareholders. And already today, even the market cap and Group 20 index the #1 private bank listed under [indiscernible] exchange when [indiscernible] banks and #3 in the week [indiscernible] this reflects that the market's appreciation of our business model and the quality of our customer level. We built our competitive advantage and solid foundations about efficiency secure stability and excellent experience of our customers. And we stay [indiscernible] with the strength and value of the Erste Group. We remain the best bank in talent for customer experience by Euromoney and this is very potent it drives us [indiscernible] forward to drive acquisition but also the loyalty of our customers. Net fee and commission income has always been our strength. And the first half of the year has totaled PLN 1.5 billion, which is 5% more year-on-year in Well, of course, year-on-year, we had a 3% lower on a [indiscernible] basis. There was a number of factors to that. The reference was in the negative adjustment of the NII by PLN [ 71.2 million ] mainly due to the European costed noninterest cost finance loan. The net interest margin for [ 2 ] was 4.9%. But like-for-like, excluding the european [ compensate ] judgment. It has not changed compared to the previous quarter. Now Slide #12. Net fee and commission income has always been our strength in the first half of the year has totaled PLN 1.5 billion, which is 5% more year-on-year. In quarter 2, the net fee income was stable yet impacted by temporary factors. Let me explain why it was slightly lower compared to quarter 1 which is a special offer just the SME segment. Without the impact of that, we would have seen another record high quarter. In quarter [indiscernible] loan, we aquired nearly 40,000 new customers and accounts. And as I said, we have more than 600,000 customers in this [indiscernible] profitable segment [indiscernible] the net fee income was first all driven primarily by credit fees, which increased by 22%. Asset management fees, which [indiscernible] by 33%. Insurance fees, which increased slightly by 13% and assets [indiscernible] which increased by 6%. You can see the quarterly recurrence in our performance, and that's been sustained. That is why we have a predictable bottom line. And this was very important especially in -- given the interest rate cut cycle and the [indiscernible] element of our income decertification. Slide 14, income. -- for the eighth consecutive quarter, our income pool roughly PLN 4 billion. We are pleased that despite major interest rate costs, our income remains high. In the first half year, we exceeded BRL 8 billion in total income. This is 1% better year-on-year and 2% quarter-on-quarter. I've mentioned how interest income and noninterest income impact our position. Income from other operations also show even performance thanks to higher gains on financial operations and dividends. Trading income revaluation really doubled growing up to PLN 254 million, which reflects our operations in the assets from the [indiscernible] market. Now let's talk about costs. Slide #14. Open costs were PLN 3 billion in the first half of the year. Of course, there were a few factors impacting that. The main driver where the cost of integration in the [indiscernible] that we communicated before, but they also give us good acquisition effects. But this is also driven by high contribution to the bank guarantee [indiscernible]. The branding cost in the first 6 months totaled PLN 175 million, of which PLN 67 million in quarter 1 and PLN 108 million reported to integration costs, PLN 107 million in the first half year, PLN 25 million to PLN [ 41 ] million in quarter 1 and PLN 83 million in quarter 2. And we sustain our deceleration when it comes to cost across the year. on quarter excluding the additional cost, both costs were lower than in the previous quarter. Our cost-to-income ratio -- on a like-for-like basis, it was 28.7%, excluding integration [ rebranding ] and [indiscernible] onto bond cost what we saw in the first half year. Slide #15, risk provisions and the quality of our portfolio. On the consolidated [indiscernible] balance of provisions for expected credit losses of PLN 250 million in quarter 1 alone, it was PLN [ 105 ] million. The cost of it was around 35 basis points. The quality of the portfolio with NPLs of 3.6%, and that's improvement compared to the previous year when it was 3.9%. We have good performance of loan portfolios. We also consider good results of the sale of NPL portfolio. In quarter 2, we saw the portfolio worth nearly PLN 180 million, with [indiscernible] on the gross gain of PLN 65 million. Slide #16 is the summary. So in my view, we [indiscernible] strong performance. As you can see, we have not been focusing only on rebranding and integration, even though it takes some of our attention, of course, but we continue to grow. We are active in business. We are acquiring new customers. We implement new solutions when it comes to products and services. We do not put our investments on hold. We keep our cost discipline. And we have the capacity to absorb the additional costs while growing. The quarter 1 was stronger. We had the gross profit of PLN 1.9 billion, which is 5% higher quarter-on-quarter. The net profit totaled PLN 1.2 billion which is 14% higher. I keep talking about the impact of profit income tax at each conference. But you have to be aware of that at last year, it as PLN 1 billion in corporate income tax. In this half year, it was PLN 1 billion and PLN 480 million. The effective tax rate was PLN 39.7 million and 39.7% in this quarter. And in the corresponding credit was 24.5%. Total income was signed a narrow [indiscernible], thanks to robust interest and noninterest in terms of it depression on [ NII ]. Costs were mostly driven by the cost of integration and the branding but [indiscernible] well invested money. Now the process risk stayed low. In my opinion, we had really good business activity when it comes to the acquisition of new customers. In the first 6 months, we acquired more weaker customers in a higher number by 17%. And we also see the number of [indiscernible] customers and actual customer standards. We keep working on delivering our ambition, which is to be the best bank for customers, employees and shareholders. We built our new brand on strong foundations and the strength of first group. And we are looking forward to the future to the coming quarters. That concludes my presentation. And now the floor is yours. [ Martin ] has picked up the questions.

We have repeated a lot of questions, and I'm trying to put the capital growth. The question we had by far they actually touch on all the aspects of the P&L and this kind of set for remain to the balance sheet. There also and some questions about [indiscernible] , we also engage you to ask more questions, but we try to address the one lease already and we specify something like now in the communication. We have a question how that for you, your impression to be in is the group after the first quarter and do you see any [indiscernible] growth. As I said, that we continue the first is operating entirely as the Bank Polska and the first impression is that -- this is financial group that really understand this part of [indiscernible] that understands the market that has huge revision growth rate and support the growth actually fully supported and I appreciate the quick decision. I appreciate the cooperation. I have very good impression that to identifying further growth opportunity. We have very good [ probation ] with the other countries within the group. We've been having some balance tying compensation regarding the [indiscernible] strategy. So I can assure you that my compression is very, very good. We see that also this is reflected in our financial performance, [indiscernible] financial perfromance. But also, if you look at the customer acquisition we not resulting [indiscernible] on the integration project or entering agenda. But as you see in the presentation, we still invest [indiscernible] in the future, in the acquisition of new customers. And we do what we've already been doing, we want to generate profitable growth. We don't want to an focus on enhancing the market share. Second question is also related to the rebranding. In terms of debt costs of the rebranding, how can you tell us the proportion of this call that was a one-off and which will become a picture in your cost base? In terms of the one-off takes investment, is very specific. Before in the earnings call, we mentioned PLN 250 million for rebranded for 2026, and we [indiscernible] the plan and the distribution by quarter is very similar to what we've already communicated. And this is a one-off because that for 2026, because this amount included the physical rebranding of branches. Anything else you'd like to add [indiscernible]?

I think this is a very good investment. And the size of this investment, they are well beyond my expectations. We are very data driven so [indiscernible] when we measure awareness, consolidation. So we have very specific measures for that and we see growth here. The marketing strategy is elaborated together. We have the lessons to learn some other markets in Central Eastern Europe. it is a core role much focus on [indiscernible] product campaigns. The brand value is ethical [indiscernible] banking. This is very much the heart of the group and the strategy. The first pillar we like to choose, financial health, regular [indiscernible] building, investment capital and in showing [indiscernible] for our customers. These are new element within very [indiscernible] as we've develop and together with the group, and we very achieved the experience the group has in the remaining countries at [indiscernible]. You see the first very good results, especially in asset management, our new offer related to regular investment. And let me just remind you that we might lead to democratizing the investment that occur. And this all exceeded -- but the market response excluded our expectations. Customers can start investing a little as PLN 10 as the [ 100 ] customers per day start investing over 15% of transactions are to amount above PLN 200 million. This low threshold to start investment, it proves [indiscernible] to be a very good idea. So can I [indiscernible] first question about my question is very much entire the implementation of the strategy in the Polish market been very good results.

Another question is about loan [indiscernible] time, first time volumes and then credit margin. Credit dynamics. What sort of dynamics are you expecting side in 2020 than in 2027?

We expect the same similar dynamics that was observing now. If I will despite our forecast for loan growth this and next year, about 7%, [indiscernible] 2027, slightly lower be due to the investment at investment [indiscernible] the turn of the year and then the dynamic will be slightly [indiscernible]. But we are [indiscernible] structure of growth in 2026 and 2027 million. And I think the micro environment will still be supporting this. And we'll come back to this when we talk about the risk cash. Now credit margin [indiscernible] 2 other Polish banks coming. I'm not going to comment on what the other banks commented. Base at the pressure on credit margin is [indiscernible] out? Do you experience that you competitive pressure, right? [indiscernible] what is this both the observation of the tax made, or [indiscernible]? [indiscernible] tough to ask the other of the question. Well, for us with all intensive, we are all consistent in terms of credit margin, and we remain consistent. Some banks were [indiscernible], maybe their share of this is actually comment if it wasn't the right way to go. We, in the second quarter, we said that the credit margin pressure was there. We'll see about the second half of the year.

We have another question from [indiscernible], and then we follow to get the form and the earnings day of other banks one other banks cemented that is expected net improve in the second half of the year. Are you optimistic as we are going at to you answer this question, please.

Yes, of course. First of all, also hello from my side, and thank you, Agnieszka, for welcoming me on this call. Generally, we saw that the net interest income started to reverse and to develop positively in quarter 2. So we saw an increase in net interest income. And this despite of the charge of the European Court of Justice ruling, which amounted to around PLN 71 million. On the lease specifically, we saw also this [indiscernible] Court of Justice ruling amounted to 10 bps charge on the NIM. But generally, without that, we were about flattish, and it also reflects the stopping of the decrease of the interest rate environment in general. So this is one factor playing on the NIM. On the other hand, Michal already mentioned in the presentation. We saw a very good volume growth on both sides of the balance sheet, which, of course, was then supported to NIM development. And then if you go a step deeper in the structure of the interest rate blocks in the balance sheet, so a further increase of our investment books due to the very strong growth of our deposits. So this contributed positively on the NII and NIM. And there are also also a slight increase in the duration of the [indiscernible] book, which also contributed positively. So to sum it up, yes, there is a reversal of the trend on the NIM to be observed.

Thank you. One another question, once again, [indiscernible] The question is about the of net fees. And there was a specific question what the reason for the weaker performance when it canteen quarter 2, but I think that's already been addressed by our CEO in his speech. And we were talking about the special offers for the SME that is heading, [indiscernible] call over to you.

Yes, right. I only can confirm generally, I would say, see the strong suit of Erste Polska weaker second quarter in that respect, but I want to remind you that we are still on a positive growth path year-on-year was due to the already mentioned promotions on the SME and micro segment, which is a segment where we [indiscernible] believe it's really worthwhile the investment. So generally, we see are a focus point of our sales continue to be a focus point. And if I want to point your attention to still some quite impressive growth figures. So fees from asset management are up 30% year-on-year, guarantee fees up 303%, credit fees and brokerage fees also solid double-digit growth year-on-year and foreign exchange fees around the mid-single digits up year-on-year. So I think general trend very positive, a little dip attributable to the investment we made into future our earnings.

Thank you very much. The next question refers to asset management. [indiscernible] indicate your asset management as one of the growth various post acquisition, typically in any specific steps? And there was also a question about the change in the business model of [indiscernible]. In the communication, we increased that because of the control by an anti-[indiscernible] and the implementation of new model. What would be the specific changes? And how is it to impact the sales and interest and fee income, sorry? Is the new distribution model means that the remuneration Polska Group change for the sales of investment plans. And she is actually drive the growth in fee income. We keep working on that model. Of course, we have the goal -- we have to compare to other countries in the CEE, especially compared to the Czech Republic, we can see how the performance might really grow. And we have the huge knowledge on the part of Erste Group. And we have the use knowledge of our neighbors how to do this poses. The first action in this area that we've taken, which I've already mentioned, are those actions related to the [indiscernible] of investments. And we already can see the first effect, tangible ones. But in the long term this is related to 4 pillars of financial resilience or financial health, which are the element of the overall group strategy. And it's not only about regular savings, but also regular gradual building of investment equity. And there is a huge compete. And the group actually -- can actually contribute a lot of new solutions, which will also have a positive impact on our financial performance. And that's the assumption that we work having in mind. All those actions are to lead to the growth in our business and profits from that business. Okay. Thank you. Maybe when it comes to the last part of that question, does it mean that change the bank is remunerated for the sales of investment funds and whether the share of fee income should grow? I would say, yes, probably -- I would give you a positive answer to both questions, but that will come at a later stage. And let me highlight what we reported in the current report. Because of this reason, TFI will cease to be a consolidated on a full basis on a full basis, it will be just an asset presently. So we will not really see the impact. But I think that this is quite clear in the context of our communications. And all this will happen once the transaction is concluded costs. [indiscernible], I will ask you to respond to this question. Do you sustain your outlook for cost that is PLN 250 million of cost of integration in the branding and the organic growth in cost of 4% to 5%? That's the first question.