ING Bank Slaski S.A. (ING) Earnings Call Transcript & Summary

Good morning. Welcome, everybody, on site and online. Let us give you our first quarter results. We have Michal Boleslawski, the CEO of ING Bank Slaski in a new role today; Bozena Graczyk, our CFO; Iza Rokicka, Investor Relations Officer; and Piotr Utrata, I'm the Press Officer of the bank. So Michal, over to you.

Good morning, ladies and gentlemen. I've been responsible for the whole bank for a few days. Now I'm still trying to get acclimated after coming back to Poland. Let me first tell you what's going to happen over the next 100 days. So let me start with the future before referring to the past. So over the next 100 days, we want to devise our strategy. It will be, for the most part, a continuation of the previous one. For many years, our bank has continued on a stability path. This is what we communicate to the outside world and our clients. And this is what we want to continue. Also, we are going to adapt to the market externalities, trying to face challenges that are coming our way every day. There's a lot of volatility coming from beyond the ocean and from our domestic situation. So over the next 100 days, we are going to set the directions to follow for the next years. Then for the next 100 days, we are going to get back to you with a strategy explaining what we intend to do, what we intend to grow and what we intend to focus on. We have a new private banking division. I can tell you that we've created it because we can see a large market opportunity in it. We are not yet a market leader in this area, but we would like to largely focus on it by focusing on succession, individual and corporate capital interrelations and tapping the demographic change going on in the Polish society. Now in 2025, for sure, we can say we can grow this very segment. We'll communicate all the details in due time. But you can already see that the division is there in our structure. The rest for the most part will be a continuation of what we've done before. I've returned to the bank after nearly 5 years. Before, for 12 years, I was part of the Management Board, and I'm happy to be back. Thank you.

Okay. Let us continue with figures. Let me tell you what happened in Q1. Let's start by commenting on our business volumes. There are many changes for the better with our credit volumes growing year-on-year by 6%, 2% year-to-date. Our main growth driver have been individual loans, in particular, retail loans, in particular, mortgage loans. In Q1, we were the second largest mortgage lender in the country with over 23% quarterly sales market share. Our sales has grown by 31% year-on-year and by 24% in this past quarter. This is quite an impressive result, I believe. The PLN 4.7 billion growth in sales of mortgage loans in this quarter is a record-breaking result for the bank. And the previous record was broken in Q1 2021, which was 4 years ago. When it comes to cash loans, we've seen 9% year-on-year growth as well. It's also a very positive trend. All in all, retail segment is based on large volume growth. Also, when it comes to corporate liabilities, the growth was 3% year-on-year for the most part, thanks to the facilities for our largest clients, 5% growth here is also very positive because we can see a growing interest in financing against the backdrop of the previous periods on the part of our clients. Let's hope it stays so because this is what we need as the overall economy and as a sector. Thanks to the volume growth, our market share in this past quarter has grown. In the corporate segment, at the end of Q1 was 12% in the retail segment, 10.1%. This goes to show that our growth was faster than the market average. Another positive trend I'd like to point out here is the growth of commercial balances, especially in this past quarter, where the growth of loan volumes was higher than in the case of deposit volumes. We have been looking forward to it because last time it happened in Q3 2022. Let's hope this trend continues because this will allow to streamline our LTD ratio and fight our over liquidity. On the passive side, we can see growing retail deposits with a growth of 8% year-on-year. Our market share improved, reaching 10.3% at the end of the first quarter. Also, there has been a very dynamic growth of extra balance sheet investments funds, 23% year-on-year growth. This is quite impressive too. Now when it comes to financial results, in Q1, it amounted to PLN 1.14 billion. For the first time in like forever in a long time, we reach the market consensus with our results. I'd like to congratulate everybody on the way they managed to estimate our results. Our result was 2% higher than last year. If we talk about major drivers, they include stable growth in the number of clients, volumes and consequently, income, thanks to the activity of our clients, not forgetting the macroeconomic situations. The net result is lower, but you perfectly know why it happened because of the growth of regulatory costs predominantly, the restructuring contribution being PLN 174 million, EUR 35 million as an annual KNF fee. And for the first time in 3 years, we have the guaranteed deposit premium, PLN 25 million in Q1. It was reflected in our results. Well, to sum it all up, our net profit and our efficacy ROE was 20.2% when adjusted for MCFH. It was as a result of growing costs, including the regulatory cost, our cost-to-income ratio amounted to 48%. Now a few words about the net interest income. After yesterday's Monetary Policy Council's decision, we are going to talk more about it later on today. But about the first quarter, the net interest income amounted to PLN 2.211 billion, which was 2% growth year-on-year and 2% reduction quarter-on-quarter, mainly due to a lower number of days in the quarter. It's ubiquitous for all other banks announcing the results for this past quarter. As a result, our net interest margin dropped to the level of 3.4%. While accumulated, it's 3.52%, which is 5 bps lower quarter-on-quarter. Credit to loan-to-deposit ratio, very close to the last quarter's level at 75%. Well, we wish for faster growth quarter-on-quarter. When it comes to fees and commissions, PLN 579 million is the results, which continues our growth, 2% growth quarter-on-quarter and 1% growth year-on-year. Also in our fees and commissions, we can see a contribution of 5% quarter-on-quarter increase due to standard settlement of linear fees taken in the first quarter, in this case for 2025 and then settled in time. As a result of mortgages, we recorded 7% growth in insurance products and 7% too when it comes to the participation unit distribution. In this quarter, we could see a slightly lower volume of FX transactions, hence 6% reduction in fees in that department, for the most part in the corporate segment. It also happens especially against the backdrop of volatility of foreign exchange rates, which has a bearing on the transactions of our clients. Speaking of costs, together with the bank levy amounted to PLN 1.398 billion, a 24% growth quarter-on-quarter, mainly due to the growth in regulatory costs because our operations costs outside the regulatory costs grew by 4% quarter-on-quarter and by 6% year-on-year. The cost of risks amounted to PLN 209 million, where PLN 186 million was in the corporate segment and PLN 23 million in the retail segment. Please note that in the corporate segment quarterly costs, PLN 52 million were due to macroeconomic factors. i.e., a lower GDP, which was factored in, in our provisions calculations. Let me just kindly remind you that in Q4 last year, there was a sales deal lowering the quarterly cost of risk. It's still not visible in Q1, hence higher dynamics of the corporate risk cost against the backdrop of the previous quarter. When it comes to the portfolio quality now, it has been stable with NPL for our retail portfolio staying very low. Despite the end of the credit vacation, we could see a very low cost of risk. In the corporate segment, the situation with NPL has been stable as well. At the end of Q1, it amounted to 5.9%. Our provisioning ratio has grown in Stage 3, which is only normal and much expected. Now about the capital adequacy briefly. Consolidated total capital ratio amounted to 16.14%, which was a growth by 47 bps. In the context of risk-weighted assets, we should factor in many issues, volumes and consumption as well as a result of implementation of CRR 2. This would be it for my part. Should you have any questions, we are your persons.

Let's first take questions from the audience. And meanwhile, we'll follow questions asked online.

Our macroeconomists estimate that in 2025, there will be 125 bps drop in interest rates with 75 bps for the next year. So this is what we've been assuming for our calculations too.

We said it many times, but for years, our bank has had a very stable management of the net interest margin. So irrespective of the cycle of the interest rates, we have a very adequate management of risk. As a result, all the changes might have a bearing on the dynamics of our operations, but they have a bearing on the customer behavior and their volumes as well. So our policy does not change in this area and is very much in line with our consistent policy we've had for many years, irrespective of interest rates cycles. I think no surprises here either. The clients' interest in specific kinds of interest rates depends on how they view the volatility of interest rates. The variable interest-based loans are subject to varying interest, which is also visible in this past quarter. In this quarter, the share grew to up to 30% of the quarterly loan sales. Our policy and our strategy, whatever the market trend has always been based on constant growth and acquisition of clients across all segments.

If I might add to that, this acquisition shouldn't result in any gyrations. We are not talking about a merger or a merger of the banks of any kind, just an acquisition of Santander in Poland. So we do not expect any volatility related to that.

I'd like to allude to Christoph's first question asking about the potential of lowering the interest cost. In 2023, when it happened, the average interest of deposits dropped at a lower rate than the interest rates. So what's the potential for changes for this oncoming year?

Well, honestly speaking, we are not separating managing risks from assets and liabilities perspective. We look at the total interest margin, and that's how we manage this risk in our ledger. Let's remember also that banks, unlike in previous cycles, have to use sort NII measure, and this depends on volumes, both in assets and liabilities.

What is the variability and sensitivity to changes to interest rates on both sides of the balance sheet?

So there is no unequivocal answer to your question. We are managing the interest rate risk jointly, and the price of liabilities depends on so many factors that it's just one of them the one that you're talking about. A few questions from our online viewers to add to the questions that we've had so far.

Sensitivity to the interest rate to the drop in interest rates.

We've been expecting this question. It's the most natural question that may come up after yesterday's decision of the Monetary Policy Council. And here, it's a new measure that it would be good to get used to sort NII. That's what I'm talking about. Our annual report is where we have shown that our sensitivity linked to this measure to the shock of 250 bps drop in interest rates was PLN 557 million at the end of last year. And in this report, we are also showing the sensitivity at the end of last year, and it amounted to PLN 719 million. I'm showing you these 2 measures to point that in the course of 2024, we have decreased our sensitivity to interest rate changes on our ledger. I think the numbers clearly show that. And it's a point of reference, but that's 250 basis points. And in this measure, it's good to remember that there is no linear link. It's not enough to use 250 basis points in connection to 100 basis points to estimate the result. And I think that you are also used to this because you are observing the behavior of our interest rate margin in different cycles of interest rates. When interest rates are dropping, the sensitivity on our ledger as a result of all the actions is lower. We estimated for 100 basis points in the first year, and I think that is also relevant here that I should mention, around PLN 130 million in year 1 for 100 basis points.

Continuing on this subject of a drop in interest rates, how will the drop influence sales of mortgages by the bank? Are you going to compete on the price of mortgages? Or are you going to increase margins?

Of course, this development is natural that the level of interest rates determines the interest in lending and specifically mortgages in every segment, whether we're talking about corporate or retail. Lower interest rates mean that creditworthiness improves, more customers are creditworthy. Always the cost of the credit is a result of supply and demand. So honestly speaking, we don't have a policy. Our goal is to increase our market share and to have a competitive offering of products, specifically mortgages.

And one more question in the context of results for Q1, the impact of new regulations on the capital requirement. Is it final or can we expect further changes?

We have informed you what we have been expecting as a result of regulatory change. We do not have all the technical standards available yet on CRR. So we are waiting for them. Then we need to address the regulatory uncertainty. We hope that we will have all the requirements of CRR 3 included in our calculation. So we're basically waiting for clear regulatory guidelines so that we could fully reflect the impact of CRR 3. In relation to this uncertainty, we are also cautious in estimating the values.

In relation to mortgages, is the bank working on digital mortgage? If yes, at what stage is the work?

With every product, and that includes mortgages, we are improving continuously our processes. We offer mortgages that are digital to a large extent, and we've been doing that for quite some time. But we are, of course, making the product even more digital. And this is influenced by many factors, including regulatory factors that may enable this end-to-end process based on all digital elements. So we are continuously working on optimizing the way we are offering our products and the mortgage product is one of our key products.

Can the bank explain to us how you're going to introduce loans based on Polestar or other instruments?

Well, I can refer to the road map that has recently been published as part of the Steering Committee of the National Working Group. You know that the offer of bank products, specifically credit products in line with the road map, products based on Pol STR should be launched in 2026. And the entire banking sector, us included, are getting ready to have this capability fully in line with the key assumptions of the road map that has been devised.

Some more general, something that Michal said at the beginning of the meeting. Private banking and investment. Will it grow organically? Or is ING Bank Slaski considering an acquisition to strengthen this operation? And question number 2, linked to question number one, what you said Michal, what are the main plans for the first 100 days?

Private banking is going to grow organically. Of course, if we spot opportunities on the market, we're going to explore them. That's what I can tell you. We're going to strengthen the areas related to investment products. We are going to address the distribution network, and we'll be monitoring the products that we're offering to our customers. The product mix will be adjusting this to the perceived needs of our customers. The details will be presented in July. With regard to the second question, key plans for the first 100 days. Well, key plans for the first 100 days, I'm listening to what our people are saying, what the bank is saying, what our customers are saying. I will visit all banks units. And on this basis, together with the new Board, because we have had 3 changes, apart from me, in the composition of the Management Board, we're going to present the assumptions of what we want to do in the coming years. If we want to change something, we will inform you in due course. I cannot give you any details yet. I do not want to do -- I have some thoughts in my heads. I can give a list of 10 or 11 such things, but I will keep the promise that I made to our organization, that first, we will collect information, then we will provide information about what we are planning to do.

The next question, Bloomberg is asking whether the new strategy will determine specific financial goals, such as roles, for example, that we've not done.

The new strategy will have precise financial objectives, yes.

A question on corporate loans pipeline. Are we seeing growth?

Let me start, and I will pass the floor later to Michal. As I mentioned in the key part of my presentation, we see growing interest of our customers with the credit products. We wanted this effect to materialize last year for various reasons, we've not seen it to the extent we desired. We see demand, we see interest, and we're very happy about it. We have positive developments in the macro economy, and this is conducive to higher demand. And we see that the pipeline is growing. We see it and we want to see it because it has to translate into higher volumes. But what we also see and we don't know it yet is that there is high interest in the level of lending, but we would like to see more investment credits because we saw that in 2022, and this did not translate into long-term trends related to the level of investment. If you're looking at the indicators that were recently published in the media regarding the level of engagement of credit in the balance sheets of Polish banks compared to state treasury bonds, it gives you a negative image because there is no other country in Europe, I think, which would have so little lending on balance sheets compared to what to what it could have. It's a great opportunity because we are deleveraged as an economy, and as a result, we can grow much faster if we believe that we can grow. This is linked to the lack of growth in investment. One of the reasons was just stated, high level of interest rates and the cost of financing. But first and foremost, the overregulation of the economy, which means that not just our economy, but also other European economies have limited appetite for investment and limited belief that investments will improve the situation of businesses. This is very early. We see these things. There is a lot of vitality in this market. But of course, banks want to have margins. There are pressures in this respect. The liquidity of the banking sector is huge. And we would like the situation to be different. I'm talking about the entire sector, not just our bank. But whether it's going to be like this, we'll see. The trend might be sustainably higher, and then we can talk about what's going to happen.

We still have a question on the share of mortgages in the fixed rate in the portfolio of the bank.

PLN 73 billion in the portfolio. We have PLN 24 billion of fixed rate loans, fixed rate mortgages. This is our stock at the end of Q1.

What happened to the islands? Do they still exist? Or is it all still?

Islands, I understand you mean very symbolically. A certain group of customers is, I guess, what you mean by islands in previous quarters. We're not changing our observations here, both our observations of the market and the sector. A natural element of the development of the economic cycle is that higher cost of risk onsets with some delay, and we see that happening. But there are no concerning developments. There are no special islands or any fields which would be of concern in terms of our credit risk.

What is our approach to spending on defense?

We are ready, and we are committed to participating in spending on defense as a bank, and we have already given proof of that. We want to be involved in such ventures because we think that we are a systemic bank, and we do not imagine things being done any other way.

Do we have any other questions from the room? I don't see. So thank you very much, ladies and gentlemen, for all your questions and see you next quarter. Thank you very much.