mBank S.A. (MBK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to our conference where we will present the results of mBank Group in the fourth quarter of 2023. The speakers today as usually are Mr. Cezary Stypulkowski, the Chief Executive Officer; Mr. Pascal Ruhland, Chief Financial Officer; Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist, who joins us virtually. You can ask your questions in the chat box. I will read them after the presentation. Cezary, let's start.

Good afternoon. As you see, record revenues, net interest margin going up, strong protection against legal risk; unfortunately, only PLN 24 million of net profit. The performance of the bank over 2023 was very strong when it comes to the core business which we manage. Record income, we surpassed PLN 10 billion of income, which is almost 17% more than the previous year. The most important contributor was the net interest income, reaching PLN 8.8 billion, which is 22% above the previous year. That has been very much driven by the active management of our margin, which has been elevated by almost 47 basis points, yes. There is significant growth specifically since we operated in the range of 4%. Fees and commissions have been lower on a net basis, mostly due to the higher costs on the fees and commissions side. Nominal expenses have been lower by 7.4% year-on-year. This is very much driven by the lower burdens, which resulted from the base of 2022. There were higher level of payments to the BFG. And yes, the contribution by the banking sector to the protection scheme was an important factor. So all in, when we take from the base the burdens that I just referred to, the increase of the cost base was 17%, which was, I would say, above the inflation rate in Poland. But this was very much driven by our investments into the future; to some extent, also by the fact that we have grown our workforce by 300 people. These exceptional revenues and reasonably well-managed cost base led to this spectacular cost-to-income ratio of 28.5%, which I have to say upfront that it's unsustainable at these levels, but definitely, this is on the trajectory this bank has proven over the years that cost-to-income is an important tool of our management as we are, year after year, improving this number. Though our target figure is to be below 40%. That's something that our strategy states. Cost of risk was slightly higher than the previous year's at 93 basis points. That reflects a more cautious approach to lending and some cases which later on will be commented. Overall, our asset quality has risen to the good level; NPL ratio of 4.2%, so that's slightly higher than the previous year, am I right, as I recall. As I said upfront, reported result was only PLN 24 million. That was a result of legal costs, which has reached the level of almost PLN 5 billion mainly which we put aside to protect the Swiss franc or its value and everything, what is around. This will be specifically commented during the course of this meeting. If we look into the bank at its core, and we will not address the issue of Swiss franc portfolio which is a heritage portfolio, I think the last set of loans have been offered to the clients around 2009, as I recall and as I remember when I joined the bank and stopped completely the product. So returns of our core business are reaching 40%, so there is not much to be commented on this issue. What is worth to mention on top of, obviously, this significant amount of money which we put aside is the pace of our settlements which, during the course of 2023, has accelerated. We piloted in 2022 a variety of options. I have to admit that we've been maybe too conservative at the early stage. Blame that on me. but our attitude at that time was that we should share the consequences of depreciation of Swiss franc vis-a-vis zloty between the clients and the banks. And then there was the issue around equalization of the Swiss franc borrowers' position to the zloty. But unfortunately, in the jurisprudence point, you have your Court of Justice and lack of the action on the side of the Supreme Court in Poland and problems with the judiciary system in Poland. All this led to this messy situation in which we decided to more actively promote settlements, and they have reached the level of 13,300 at the end of last year. The current figure is about 14,000. As a consequence of this topsy-turvy situation, which we observed around the legalities in Poland and the fact that we have put a sizable amount of money, I have to admit that our management was very much focused on the capital position of the bank. That, to some extent, slowed down the growth of the bank. I would say another factor was that the credit market in Poland was not very active last year. But definitely, year-on-year, our loan book was 3.1%, excluding the foreign exchange effect, which is important to have in mind, in the overall Swiss franc portfolio, plus some other lending positions. We have to admit that our active promotion of the lending was under pressure and, as a consequence, our market share, mostly on the retail side, to some extent, on the corporate, which was more stable, has shrunk. What is worth to mention is that deposits continue to grow. Last year, it was less aggressive than the previous year, 6.5% year-on-year, which is at the level of PLN 185.5 billion loss. There was some evolution of the structure of the deposits, more interest in the term deposits, but still we've been able to manage the margin under these circumstances, mostly due to the fact that the transactionality of the bank is highly valued by the client and, as a consequence, we benefit disproportionally off the transaction money in the bank. The capital position has been strengthened. As you see on the chart, both Tier 1 ratio and TCR has grown. We are significantly above the regulatory requirements, respectively, 5.6 percentage points and 5.9. What was important from the outside perspective, inside as well, is that the capital buffer on Swiss franc portfolio, which was launched around 2016 as I recall, and it was a significant part of our capital buffering, where it was originally more than 4%, that one has expired. We got the respective consents from regulators. So when we will be looking into our capital structure, these are the scope, very much due to the fact that, in the meantime, we have built up this significant amount of buffering against Swiss franc portfolio. And the regulators shared our view that does not make any dents in the future to continue with this element of our capital structure. We successfully managed to meet the criteria on the MREL. As you will remember, I think we've reported on this, I think, post the third quarter. We launched, what was it, EUR 650 million?

EUR 750 million.

EUR 750 million issuance in September. As a consequence, we are, I would say, on the safe side in respect to the MREL requirement. Something I have to say, being a veteran in the market, I did observe in the past, this is the loan-to-deposit ratio. I remember when I joined this bank, it was 140%. So currently, we are at 61%, and I have to say the whole market is, I would say, below 70%, more or less 70%. So that's something what is new [indiscernible] than banks are. On the one hand, obviously, that is a lot of comfort. But on the other hand, that's something to be proactively managed. LCR at 217%, so does not require any comment, I believe. Customers, our customers still like us. They tend to not only visit us frequently, but also the newcomers, new clients are opening accounts, both in the corporate and retail sites. That's not needing much of a comment. Our strategy, demographics, [ density ] and the focus on the younger clientele works well. When it comes to the sort of the wrap-up of financial metrics, you see on this chart, most of them have been already commented. I think that -- no, we don't think, this will require a specific comment. One issue which I also need to stress is that we are operating within the framework of the strategy, which has been adopted 2.5 years ago, 2 years ago. And we revised this strategy. It proved to be, in principle, despite a significantly changed environment mostly on the interest rate side, but I would say pillars of the strategy have been re-firmed. So we feel comfortable with the strategy which we have adopted. There are some changes mostly on the ESG side. More, I would say, realistic and more, I would say, up to the current understanding of the dynamics of ESG debates and regulatory requirements, which were not on the horizon at that time. This has been adopted. When it comes to the sort of the major business-driven strategies, we are progressing our development of PFM, the personal financial management. On the retail side, we have launched the asset management company, which started to be fully operational at the beginning of this year. We continue to acquire clients. And clients are doing more digital, are initiating transactions or concluding transactions in digital channels more and more frequently. Corporate banking is sort of catching up in terms of the digitalization. We have some internally used metrics to assess the progress. So the number of users logging into the systems in digital channels is reaching all spectacular numbers. And I have to say more and more, we are using the digital channels also for the corporate banking activities. I would say, when we talk about mobile applications, obviously, we are in a different time, a different stage of the development. It's not revolutionizing, I think, at this stage, at this moment. It's more like individualization, better customer experience based on interactions with clients. They are very much being reflected in the document which we presented to you. So on ESG, I think I'm going to return to Marek because this is the most important, further reshaping of this part of our strategy. If you can make some short comments, please?

Thanks, Cezary. So as flagged, ESG strategy revision was part of the strategy revision that we have performed a while ago. It's built on three obvious pillars: environmental, social, governance. On the environmental side, we basically have three directions of travel. The most important one for us is the reduction of greenhouse gas emissions from our own loan portfolio because this is the biggest legal problem we have on the overall emissions reductions. And we remain committed to use the Science-Based Targets as still a mechanism to get to net zero by 2050. Later on this year, the latest, September, we are going to submit our targets for SBTi validation. But going to net zero is not only the reduction of the portfolio emissions, but it also deals with partnering with our clients. And on this, we have set ourselves ambitious targets, how to support our corporate and retail partners with regards to their transition. And the last, but not least, it's the lowest component of the emissions, but also we want to lead by example, by decarbonizing in full our operations. We are proud to remain one of the highest ESG-rated banks in Poland. Sustainalytics gave us one of the best industry ratings worldwide. And it needs to be said that if it was not for the Swiss franc controversies, that would be likely even better. Going to the other two pillars of our ESG strategy, we remain committed to remain an attractive work environment that shows diversity, equality and inclusion. We have set ourselves ambitious targets with respect to gender balance. As it comes to the succession programs, we aim at having a minimum 45% of a given gender in the succession plan, cutting pay gap for the best-in-class standards. Going further on improving gender diversity, we also set ourselves a target for gender representation in managerial bodies of our subsidiaries, as you can see on the screen. And as it comes to the social component of our interactions with the clients, Cezary was already alluding to that, we will continue working with our clients on the financial education and promote the responsible management of their personal finance. As it comes to the governance pillar, all our key managers and the managers of our subsidiaries have and will continue to have ESG as one of the drivers of their objectives and key results. ESG became an important element of our overall risk management framework, and this is included in the credit decisions and materiality assessment. And leading by example, we also demand from our partners and suppliers to comply with the 10 Principles of the UN Global Compact by 2025. Cezary, over to you on market positioning.

As I already signaled and already dropped on the lending side, we also lost some market share on the retail side, comparing to the previous decades. And so that's the factor which we signaled. And the corporate side is more or less stable. That is something worth to mention. I think that we continue to grow our mid-market and SME sector on the corporate side and very successfully broadened the number of clients. Respectively also, the lending book on this front is strong. Mobile banking, I don't think that, that requires any specific comment. The bank has a very strong position. More clients are moving on the mobile, but obviously, the pace is slower than it used to be. What is very important, this is the [ analysis ] part of Slide 12, this is the share of processes in retail banking area initiated by the clients in digital channels. It has reached already 87%. And this is major reasoning of our very, how should I put this, successful cost management. I have to say that that's something which, over the years, profited the bank with benefits mostly on the cost side. So we are able to support more than 5 million clients, which is a relatively small network, because the customers are moving, as you see, between 2020 and 2023. This is a 20% increase of initiation of digital transactions via digital channels. As you see also, as a kind of an example, non-mortgage products, how much of them we are concluding on the mobile device and how much on them in the Internet. And you see the process of switching from between the Internet and mobile, which I'm a good example, guys that are old-fashioned in computing but are using just the mobile. To wrap up, I don't think that these qualified audience requires very much an explanation. I'll let you on.

Thanks, Cezary. Also, hello from my side. I would like to not repeat what was said, but give to one or the other lines a bit of background. So we have a record income that was said and also the driving force is our net interest income. But maybe two words to the drop of the net fee and commission income, which is close to 10%. Yes, I would like to remind us all that in 2022, we have charged deposit facility fees towards the outstanding balances at the end as well as end of month fees, which were strongly connected to the negative interest rate, a pure focus on corporate customers on our side. But while the interest rate environment has changed, the justification for those fees diminished. The fee income, if we look into our details, were stable year-on-year. So we coped with the drop of the fees from 0 interest rate. But we recorded an increase of fee expenses, and this is driven by volume and obviously also by higher prices. That's definitely something which is what I need to mention on this slide. And also on the cost, as I said before, we have a cost increase by 13% if we adjusted for the one-off contributions in 2022. And just to recap, we are talking about adjustment of the Borrowers' Support Fund of PLN 171 million and the protection scheme of PLN 428 million, and then we are left over with the 13%. The general driver is inflation but also our projects, which we obviously tried to embrace in order to continue our success story, and therefore, we have material and personnel cost increases. Nevertheless, as said, and this is the most important from our perspective and is connected to how we operate, we have a very efficient business model and this leads then to the cost-to-income ratio of 28.5%, which is very low currently and extraordinary. And that's certainly nothing which we should treat as a new normal, but it shows how we operate. On the LLPs and cost of risk, this is higher than in the previous year, as you see here, but we also guided that in Q3 that Q4 will be extraordinary and especially driven by onetime effects, which will be elaborated by Marek later in more details. Jumping to the pretax profit, which is PLN 970 million. And then you see the net result, which is kind of symbolic, with PLN 24 million left over. This is a result especially by the high ETR we are having, so the effective tax rate. And this is due to the fact that the majority of our Swiss franc legal costs are nontaxable. And with this said, let's jump to the next slide, 14, the summary of the balance sheet. Here, I would like to draw your attention to two observations on the balance sheet. The first one is the drop in gross loans to our customers by 5%. If you would deduct the rundown of our legacy Swiss franc portfolio, as the Swiss franc mortgage portfolio decreased significantly driven by provisions, repayments, settlement but also by final verdict, the gross loans year-on-year has a decrease of less than 1%, and then we are in line with the market or even slightly better than the market. That's the first observation on our balance sheet. The second one, please look to the equity and capital ratios at the bottom of the slide. Everything improved versus 2022 despite the already mentioned significant burden of the Swiss franc legal provisions. And next to our great core business performance, as mentioned already, with an ROE of 40%, this is a result of our very successful capital management. And if you go into the details, we have shown this year, for example, improvement of the valuations of our debt securities. We've improved our value of unrealized losses and our cash flow hedges, and we executed the largest ever securitization in the CEE region in order to support our capital position. And with this said, and with Slide 15 more or less repeating what I already mentioned, I'm handing over to Marek for the Swiss franc details.

Okay. Thanks, Pascal. So as already highlighted in the introductory speech of Cezary, 2023 brought us the highest ever write-offs on the Swiss franc mortgages. So basically, if you look at our figures, the whole bank and its entire employee population for the entire year to hand over all the profits back to the very small group of Swiss franc borrowers, but this led us to the significant reduction of the value of the mortgages to Swiss franc. That, at the end of 2023, constituted just 1.6% of the total loan portfolio. And that, in comparison, was 23% in 2015. If we look at the coverage of Swiss franc portfolio and legal risk with respect to the active portfolio, it reached 100% of gross loans on the balance sheet at the end of 2023. And if we look at the number of active cases, out of 85,000 Swiss franc loans granted overall, 39,000 is fully repaid, and only a small fraction of that is in court. And out of those remaining, we have 4,000 final verdict, we have reached 13,000 of settlements. Most of them actually reached in 2023. So we remain with 28,600 active Swiss franc contracts, out of which 62% is in court. But we are also happy to say, going to the next slide, that we are quite successful reaching also the settlements with the clients who are in court. But if you look at the statistics as shown on Slide 17, the number of settlements reached in Q4 '23 was the highest ever. It was 4,000 in the quarter. And by now, as we speak, we still keep on settling with the customers. The number of settlements, as we speak, is over probably 14,000. Also, what's worth commenting on is it was the first quarter in which the number of loan contracts in court, pending cases so to say, decreased quarter-to-quarter. And answering maybe, and as we discussed, the Swiss franc topic, also one of the questions that we have in the Q&A. There is a question of if we expect additional Swiss franc costs coming from ECJ rulings from December. And the question is mainly about the risk of higher statutory interest for the borrowers and have we seen any chance in the jurisprudence in that gap. So we basically expect further provisioning for the Swiss franc portfolio but not of the magnitude that we have seen in Q4. We expect Q1 booking to be below what we have seen in Q4. And in that specific December verdict of the European Court of Justice, they have pointed out that penalty interest accrues during the retention period. This may affect the value of interest that we owe to the client in the future and potentially the provisioning, but it needs to be underscored, the domestic case law has not yet clarified on the issue. So this is still to be seen. Over to you for the performance on the core bank.

Yes. I'm taking Slide 18. Here, you can see on the left side what mBank's statement involves, without the Swiss franc, and just to repeat two numbers which are on this slide. The core group generated close to PLN 6 billion of gross profit and PLN 5 billion of net profit. That means it doubled almost just in 1 year, and this really confirms the extremely high income-generating capacity of our operations. And as a consequence, you see at the bottom, we reached an ROE of the core group of 40%. But with this said, let's go to Slide 21 into the details of the quarter. So Q4 2023 proved to be a very good quarter despite the impact of interest rate cuts in September and October in 2023. While I believe this slide is best to follow up also with the guidance from us, I will comment on our view for the upcoming quarters along those lines. Starting with revenues. We generated in Q4 record high revenues, plus 7% quarter-on-quarter, thanks to effective management of the cost of deposits. NIM increased further to 4.31% in Q4. As a result, we have again seen an increased NII despite the mentioned lower interest rate levels. While we expect interest rate remain to stable in 2024 in Poland, a slight decrease in NII in the upcoming quarters is, in our view, likely. We expect loan volumes rebounding, but at the same time margins and deposits pricing might have reached its peak. Furthermore, in 2024, we may again see some negative impact of the extended credit vacations, which were [indiscernible]. However, the impact should be lower as eligibility will be limited. A decrease of the net fee and commission income versus Q3 resulted from increased commission expenses as for the full year. And as we're pricing towards our customers [indiscernible] after the visible cost increases on our side, we expect a slight growth of our fees in the upcoming quarters here. All in all, we expect to defend the mark of PLN 10 billion for the total income also in 2024. Turning to the costs. Cost is a huge focus of us, which was reflected in the group's cost to income ratio in this quarter of 27.5%. A quarter-on-quarter cost increased by 10.7% was driven by material costs in particularly the areas confiding PI and IT, personnel costs due to early increases of salaries of our staff, plus the increased employment and higher cost of training, and last but not least, depreciation of intangible assets. In the upcoming quarters, we expect the continuation of the inflationary but also strategic cost increases on a similar level what we have seen for this year. To sum it up, despite the cost increase, we expect to stay well below our strategic target of cost/income ratio of 40% in the upcoming quarters. On the loan loss provisions and fair value change in Q4, we increased significantly. As guided last time, this is the result, and Marek will go into details of model recalibration and LLPs for a couple of individual corporate exposures. And our strategic guidance forward-looking of around 80 basis points cost of risk remains also stable for the upcoming quarters. On the cost of legal risk related to Swiss franc, Marek already commented on it, forward-looking, and you already saw the impact you've seen in the last quarter. To sum up for the quarter, due to the significant cost of the Swiss franc legal risks plus the cost of risk in Q4, the group generated a quarterly net loss in the amount of PLN 20 million. Here, while the tax line in Q4, especially, and I also saw that there was regression, I will give some background what happened in our tax line in Q4. We have 3 factors that had a positive impact on the income tax. The first one is tax deductible costs of settlements concluded in Q4. While we had the highest amount of settlements so far, the costs were the highest, and this is positive why we can tax deduct. The second is the DTAs for our estimation of the Swiss franc settlement cost. So we updated our model while we are more successful than we estimated, and this also has a positive contribution in our tax line in Q4. And the last topic of this 3 is DTA from Supreme Court administration verdict concerning the cancellation of mortgage loan agreement in Swiss franc. We received it last year, 6th of December. And this verdict indicated that the only way to reflect cancellation is to adjust revenues received on loans for past periods as they have never been received. So the income we received in the past and the tax we paid in the past really brought it. The tax law introduces a limit to adjust this previously recognized revenues for the last 6 years. And that's what we have done as the third conclusion. All the 3 topics have a positive impact, and the impact is circa PLN 250 million and reflected in our Q4. While we have covered now almost the most important development, I will, this time, in the following slides, just touch about the most important topics. And if there is something missing, please don't hesitate and raise a question later on. Directly jumping to Slide 24. You can see on this slide, the long trend continues to be negative. For Q4, we have PLN 117 billion loans to customers, and 2 observations are important on this slide from our perspective. The first one, gross loans to retail customers, visible right-hand bottom of the slide. Excluding the already mentioned rundown of the Swiss franc noncore portfolio and clearing out the FX effect, the portfolio grew by 0.5 percentage points. So our core business in retail is growing. The second, looking into loans and advances to corporate clients, visible right on top of the slide, we see a decline of 4.9%. This drop was driven by reverse repo and buy and sell-back transactions with [ banks ] which decreased sharply in connection with the balance sheet optimization at the end is typical. Excluding this reverse repo transaction and also clearing FX movements, the corporate portfolio grew by 2.1% quarter-on-quarter. So also here, the core business is growing. These are the first traces of the rebound of our loan portfolio and also then our attempts to gain higher market shares in 2024 because we expect going forward, a single-digit growth in our core retail and core loan -- corporate loan portfolio, and this should aim also for slight increases of market share. Let's go to Slide 25, which provides the new lending. Here, I will deep dive on the mortgage loan development and briefly comment on the general outlook of the new sales. The sales of new mortgage loans jumped in Q4 2023. The sales were driven by the Safe Credit 2% program, as you can see left-hand corner of the slide. We started granting 2% Safe Mortgage loans on the 14th of September and stopped accepting the application on the last business day of 2023. We received more than 50,000 applications, and the success is based on our fast reaction. We are the first bank with a digital application system, which is known by mBank that we are very fast on implementing digital solutions and also our payout process were very fast. A large part of the application has not yet been launched in 2023 and will be processed in the first quarter of 2024. The total 2% Safe Mortgage loans disbursed in 2023 exceeded PLN 900 million. And we expect, of the total program, it will come up with PLN 2 billion, and therefore, we expect a significant increase in the first quarter. Due to the large scale of the Safe loan sales, the share of [ productive ] fixed interest rate, for these mortgage loans has increased significantly on our balance sheet and amounts to 23.5% in December 2023, and confirms our strategy to increase the fixed rate part. Also, the new project, which is proposed by the government, [indiscernible] if it comes and boosts further the mortgage loan market in 2024, and also, we feel well positioned to support our customers. All in all, we expect the new mortgage loan sales in Poland to increase versus 2023. And also on the nonmortgage loans, we expect a slight growth in the following quarters connecting with the lower interest rates and rising consumption. On the corporate loan side, we expect to grow fairly over the market and the market currently expects 3%. Corporate lending will be supported, especially then by the reviving economy, which we expect for this year. So the rebound of our core loan portfolios in 2024 is set with this expectations from our side. Slide 26, I would jump over because we talked already about our deposits, and I'm going to Slide 28. Total costs and efficiency. Quarter-on-quarter as well as year-on-year significant cost increases are visible. And it should be noted that our cost increase, as I said, not just inflation driven, but also reflect many ongoing businesses and regulatory-driven projects. This results in higher expenses mostly for IT, security and marketing and additional personnel expenses from newly hired employees as already shared at the beginning from Cezary. The important measure for us is to stay best in class on the efficiency. So we really will have a careful look on the cost/income ratio development of mBank's Group, which currently is amounting to 28.5%. And going forward, this is the way that we believe that our cost increase will be similar to what we've seen on the growth rate in 2022 to 2023. And that is including regulatory cost increase, which I would like to comment very briefly. So for the deposit guarantee fund, we don't expect a change. But to the contribution of the resolution fund, we may see increased demand due to the replenishment of the fund after the resolution of Getin Bank, but we have not received any official information from BFG in this respect, but this is our expectation. And with this last G&A guidance, I'm handing over to Marek for his insight.

Thanks, Pascal. So here, on the loan loss provisions and the cost of risk. In Q4 2023, the net impairment losses were higher than in the previous quarters. But as we have guided in the preceding 4 quarters, the cost of risk that we've seen in the past were unsustainably low. So we have seen normalization in Q4 2023. And this was primarily driven by a number of one-off effects impacting both retail and corporate loan loss provisioning. On the retail side, we have seen recalibration of the existing models and implementation of the new qualitative criteria for transfer to Stage 2 and that was implementation of the new prudent filter to ensure consistency with the -- of the group-wide approach. And that needs to be seen as further proof of prudent risk management, which led also to the higher loan loss provision coverage for our clients with increased risk. On the corporate side, we have seen 2 isolated cases going into the default, but already see some improvements on those going forward. If we look at year-long loan loss provisioning and cost of risk, overall, for 2023, cost of risk amounted to 93 basis points as compared to our strategic target of 80 over the midterm. And if adjusted for those one-off effects, the cost of risk in 2023 adjusted for those factors mentioned below, would amount to 73 basis points. I repeat. Those higher cost of risk in Q4, we consider them one-offs. We don't see deterioration of the overall quality of the portfolio, as you see from the portfolio figures also the coverages have improved. The level of nonperforming loans remains -- it remains stable as far as the prospects for 2024 are concerned, our outlook is moderately positive. On the retail side, very low unemployment, and inflation going down, combined with expected salary increases, will support the LLPs and cost of risk for retail segment. On the corporate side, a pickup in GDP growth leads us to expectations on the improvement on corporate earnings. And therefore, all things considered for 2024, we maintain our strategic target for cost of risk to be around 80 basis points. If we go to Slide 31 to finish up with our capital and liquidity position, as Cezary already alluded to, the liquidity of bank is extraordinarily high. So we have a plan of liquidity that we can employ for our clients. And also, despite this massive write-offs that we have performed in 2023 for the Swiss franc mortgage portfolio, the bankers have asked minimum regulatory ratios actually significantly improved. So as you can see, it's not only the total capital ratio that went up, but also the distance to minimum requirements was considerably higher than it was in the previous quarter and compared to year-on-year basis. As we have already briefly commented, that stems from an extraordinary capital generation capability of the core business. Actions we have taken in order to securitize risks, additional issuances performed over 2023 and significant reduction of the add-on for Swiss franc mortgage risk that, at the end of 2023, was reduced by CNB and ECB to 0. That is also, by the way, the regulators see the risks in our portfolio of Swiss franc mortgages going forward. And with this, we hand over to Marcin to comment on the outlook of the Polish economy for 2024.

Thank you, and good afternoon. So basically, we are not talking right now about whether the economy is going to jump start, but we are trying to come up with ideas how fast it will be growing. So how we are actively tracking economic activity. So consumer moods are very good compared to what we've seen in the last year. Unemployment rate is very low, and it's going to be only lower. We expect GDP growth to be 3.5% in 2024. The major source of growth would be consumption. Of course, it's fully sustainable in the short term. And within the next few quarters, also the global economy is going to jump start, and also export activity is going to rebound. With that, inflation has been falling recently, but it is highly likely that it will reach a trough somewhere around March or April. And afterwards, as economy rebounds, also we will be back at some sort of inflation pressure. We are not coming back to 20% inflation, but higher single-digit numbers in the year-end are highly likely. Therefore, we do not see any risks with regard to cutting rates by the MPC. We think that rates would be stable. And we also are seeing signals from the MPC that even though inflation would be very low in March, I think it would be around 2.5%, it is not going to trigger any reaction because this come back to target would be temporary. So MPC, overall, stays quite sluggish. In terms of evolution of monetary aggregates, we are still seeing a lot of deposits. But on the credit side, situation is slowly improving. Senior Loan Officer Surveys are suggesting that demand for credit, both consumption credit and also investment credit is on the slide right. We stay optimistic given the fact that the leverage ratio among firms and households is low compared to the previous cycles or very low. So we are kind of positive with regard to the credit action. But of course, double-digit numbers are not going to be achieved. As far as the government debt is concerned, yields are slowly falling, reflecting mostly the push for lower rates in the global economy. The major risk right now concerns supply. And this is linked to the fact that budget deficit is projected at quite hefty levels in 2024. As far as zloty is concerned, we see that we are in a period of stability. We do not expect any significant depreciation going forward. Quite contrary, we expect the zloty to be a little bit stronger that would help this inflation process. As far as the fundamentals are concerned, of course, there are fundamentals, and they do not change frequently. What we are seeing right now is that Poland is enjoying good press among international investors. And what is most important for me here is that there is a growing interest domestically in the fact that Poland would be able to compete on a high level with other countries. So the sentiment in Poland is improving, and it's very important because we Poles used to be, well, quite negative with assessing what's going on in our country. So this is certainly a positive phenomenon. Thank you.

Thank you, Marcin. We received some questions from our analysts and investors. Some of them have been already commented. But let's begin with the question of Jaromir. Thank you, Jaromir, for your questions. Two of your competitors recently announced plans to reduce their workforce. Your employment increased by 4% year-on-year in '23. What trends can we expect in the future?

I'm taking this, Jaromir. So as said, we have one of the most efficient business models, and it's visible in this slide, especially that we are best in class in the cost/income ratio. We are one of the leanest banks in Poland when it comes to the number of employees. And we will definitely continue also with investing in further growth of employees in order to boost our businesses. So I do not expect any significant reductions here.

There's one thing which should be aware was the growing number of clients moving into digital channels. Obviously, we are having shifts within our employment, plus definitely now the regulatory burden. Cost has also, in terms of the growth of the workforce, opposite to some other banks, which optimize the branch network under the circumstances, we don't have that much of the expense in this respect. So I would say balancing between these 2 elements, this is the way we manage the bank. In this respect, I think that you just may advice to analysts, you have to look at the mBank slightly differently than for the classic network-based banks.

And if you look to the 2 quarters and the increase we've just seen, and we also stated on the slide, IT is obviously our source of being efficient, and that has the highest share of FTEs. And second share is then on our business, and we especially focused in the retail area also to extending our SME offerings also to our international branches. And this is the second biggest FTE increase we have seen so far. So just to give you a more granular picture on why we invest in [indiscernible].

Thank you. Do you see any signs of rising interest of your corporate clients in investment loans?

It needs to be said that it is not yet the case for the Q4 because the big increase you will see visible here on this slide is driven by structured finance deals. But in talking to our sales forces and to our clients, we expect an increased demand for 2024 on these loans.

Do you expect any material impact on capital ratios coming from new CRD/CRR rules? If yes, could you roughly comment on the scale of such impact?

Okay. I will take this one. It will be slightly higher than today, primarily due to the operational and market risk methodology changes. But overall, we expect this not to be substantial. The overall increase in capital requirements driven by Basel IV based on current quantitative impact studies and analysis we have performed shall not exceed 5%. However, I would like to underscore that it is very preliminary. The final implementation and impact assessment has not been concluded yet, neither in mBank or in the other banks. Some of those outcomes may vary depending on the final supervisory decisions and Q&As on the number of implementation questions which are issued to EBA as well as further risk-weighted assets optimization efforts. But overall, we don't expect this to be substantial.

Thank you. Then the last question from [indiscernible]. When is it reasonable to expect Swiss franc costs to end? Which quarter? Is it feasible to expect those to finally come to the end by second half of '24 or 2025?

I mean it's very difficult to give a conclusive answer to that. If we look at the first of all Slide 16, which is currently displayed, the top right-hand side chart, if you subtract the cases in courts which are fully diligent from the active contracts and you take into account what we have commented on the settlement progress outlook for 2024. As of now, we have roughly only 10,000 active contracts that are not yet in court and not yet settled. So if we compare this to 85,000 to start with, that's definitely way closer to the end than to the beginning. Second indication on that. I think it's clearly what we have commented on already that is our supervisor's approach to capital buffers for this portfolio because with the extraordinary capital buffer for Swiss franc mortgages reduced to the end of 2023 to 0, is also a clear indication that the end is upside. But we have also made remarks with respect to the jurisprudence and case law on the number of open topics with respect to final rulings on the matter. And given the large number of the tort cases which are still open, it's very difficult for us to give you the final definite answer on that. As far as the provisioning is concerned, we will basically look at what's up there and further increases will be case law driven and data driven.

It's worth to mention, I think, is the fact that if the current active portfolio will be translated into zloty from the inception of these contracts, that will cost us PLN 3.5 billion. That's something what is -- so if we talk about something what I used to name as a farther-reaching solution as you can rationalize, that means all the Swiss franc contracts, like contracts, are being switched into zloty from and inception of that will cost PLN 3.5 billion. So from this perspective -- and I will not exclude that there will be some rationalization of approach in common. That means that the new government after consolidation of its power, potential will be a good counterparty to the discussion about legislation involved, difficult to say. They didn't announce anything on this front. But there is something what is desperately immediate in Poland. And we are, as an industry, allowing for this. Then obviously, the question is how this registration will be structured. For the time being, the only reference we have is the initial proposal or the [indiscernible] proposal of Department of KNF, which Marek referred to which assumed that there will be equalization of the contracts between these bank holders and zloty.

And on this, it's also important to highlight and underscore what's more that this PLN 3.5 billion cost is part of PLN 8.2 billion of overall provision. So this is included in the existing PLN 8.2 billion provision and it is not on top, it's part of it. But as you see from the numbers here, against the current case law and against what we see so far in the data, we are really well provisioned this 100% provisioning at the end of 2023 is one of the best in class in terms of the peer growth being the banks with materials which run portfolios.

We've just received one more question on dividend. So can you comment on potential dividend policy beyond 2024?

We continue to aspire to be at 50%. That is something that we didn't -- we haven't changed. Obviously, the circumstances are very important for us. One aspect which we have to take into account, I think, Marek just referred to, much depends on the level of provisioning to 2024 because obviously, we want also to retain some earnings for the future growth of the bank. So there is sort of a dependence. But strategically, the bank, the management Board is declaring [ 50% ] dividend payout. We believe that the bank has its growth potential. So -- and we know how to apply the shareholders' capital. And we are returning, as you've seen, on the core business, 40%. So okay, maybe it's not sustainable, probably not. But definitely, the bank -- the profitability of our core business is very strong, and that will be possibility to employ part of the earnings and part will be paid.

And as we said, it's a reasonably ultimate solution towards the Swiss franc problem is from the regulatory point of view a fair requisite. As you may see, there are some institutions in Poland, where this problem is relatively smaller that are given a green light who payout the dividend given the current jurisprudence on Swiss franc. So we take once more of these removal of the extraordinary capital buffers by the kind of the ECB as an important signal into that direction.

And another question from Marta. Can you comment on potential plans for MREL instrument issue in 2024?

Yes. So Slide 47 exactly. Here, you see that we are well above the limits. And we also gave you the information that the limits might be revised then in April officially when we receive then from the college also our feedback on the [indiscernible] which is fading away. But nevertheless, we said in our last transaction on the nonpreferred senior that we will be a frequent issuer. Therefore, you can expect from us, also this year, one issuance, benchmark trade up to [ EUR 500 million, ] which would support obviously also on the MREL part, but that's our current plan despite that we're meeting very comfortable MREL limits.

Thank you. And with that, we covered all the questions. Thank you very much for the questions and for the attention. We will publish our next results at the end of April, just before the long May weekend. So thank you very much again, and have a nice day. Bye-bye.

Thank you.

Thank you.