mBank S.A. (MBK) Q4 FY2025 Earnings Call Transcript & Summary

[indiscernible] Conference call covering Q4 and full year 2025 results. Joining us for the presentation are Cezary Kocik, Chief Executive Officer; and Pascal Ruhland, Chief Financial Officer, who will walk you through the group's financial and business performance. Following the presentation, we will move to the Q&A session, which will be joined by Marek Lusztyn, Chief Risk Officer; and Marcin Mazurek, Chief Economist. So now I would now -- I would like to hand over to Cezary Kocik, CEO of mBank.

Good afternoon, ladies and gentlemen. Welcome to our conference call for Q4 financial results. In today's presentation, I would like to walk you through our outstanding results in 2025. While Pascal will discuss the results for the fourth quarter and outlook for 2026. 2025 was a year of a strong performance across all key dimensions. Our 4 major developments that I would like to focus on, we achieved faster than the market growth of business volume, which allow us to further strengthen our market position. The expansion of the Loan portfolio was driven mainly by a very strong acceleration in Loans, Mortgage Loans sales. While on the liability side, we recorded a significant increase in deposits, supported by a stable interest to transactional accounts. As a result, both loans and the deposit base increased a double-digit rate, 10% for loans and 14% for deposits, clearly outpacing the market and translating into market sales gain. Second, 2025 was the best financial year in mBank's history, with a net profit of PLN 3.5 billion. We also delivered profit before the tax exceeding the level of PLN 5 billion, supported by record total revenue of PLN 12.4 billion. Importantly, the revenue grew by [ 12% ] was achieved thanks to higher net interest income despite interest rate cuts during the year. Net fee income also contributed positively. This was reflected in our material improvement in return on tangible equity, which increased to over 20%. It confirms the high quality and sustainability of our earnings. Third, in 2025, we continue our efforts to strengthen our capital base. mBank's own funds increased by 19% year-on-year, which is over PLN 20 billion. This growth was driven primarily by a full earnings retention, which allow us to organically build capital to pave the way for continued growth. In 2024, we're the first bank that executed the broadly distributed 81 capital bonds out of Poland. In 2025, were again, in the power front of the market being the first to issue euro-denominated Q2 instruments from bond. Consequently, our capital ratio remains safely above the regulatory requirement. Tier 1 ratio exceeding the minimum by 4.3 percentage points. Finally, we made very strong progress in reducing regular risk related to Swiss franc portfolio. We continue to keep a very strong pace of settlements with Swiss franc borrowers. As this reminder, our key priority. The number of concluded settlements increased by 31% year-on-year, reaching more than 32,000 cases. At the same time, we will serve a consistent downward trend in the new and pending court cases. It led to a lower cost of [indiscernible] related to portfolio of PLN 2 billion, less than half of the amount booked in 2024. We are clearly on the right track to close this topic very soon. I'm also very proud of the progress that we are making in our digital journey. In 2025, we introduced a number of new solutions for clients. But I will mention 2 of them. Digital Mortgage and the Smart [indiscernible]. In 2025, we completed 2 pages of the Digital Mortgage roll out. Initially, we enable our existing clients to refinance their mortgage loans from other banks. In the second phase, the offering costs further expanded to improve more complex scenarios such as financing purchases on the secondary market. Importantly, the entire process is conducted end-to-end in the mobile app with credit decisions available in only 15 minutes. Moreover, mBank was [indiscernible] bank globally to introduce smart payment [indiscernible]. The device was developing a cooperation with [indiscernible] and Mastercard. It combines contactless payment with health and activity to action, supporting our broader focus on clients in [indiscernible] and physical well-being. In line with our 2026, 2030 strategy to speak ahead, we aim to achieve market shares exceeding 10% in key products by '24. In Household [indiscernible], our market share increased from 7.8% at the end of 2024, to 8% in December 2025. If we focus specifically on the Mortgage front, the increase is even more pronounced. Our share moved from 8.4% to 8.7%, even though our Asset Mortgage portfolio was shrinking faster. In Household deposit, we also improved our position, increasing cover market sales to 8.6%. It was driven mainly by strong inflows into current accounts, as [indiscernible] truly transactional bank. Our market share in loans to enterprises remained stable year-on-year at 8.1%. Despite higher leverage during the year, the Corporate portfolio decreased in December as a result of lower utilization of the current financing by our Corporate clients, the trend we observe every year. What is more in Q4, we have set a decent level of [indiscernible] that was visible in a total engagement but has not yet converted into balance utilization. The drop was only temporary, and the level of Corporate portfolio is already raising again in January and February. Market share in Deposits from Enterprise stabilized 10.3% remaining close to our strategic threshold. Now looks how the sales of loans performed last year. In mortgage lending, it was another record break in [indiscernible]. The sales went up 38% year-on-year to PLN 14.7 billion. The increase was recorded in all our markets or Czech Republic and Slovak. Fixed rate mortgages dominated new production, accounting from 70% to more than 80% of the monthly sales. At year-end, fixed-rate loans represented 54% of our outstanding PLN Mortgage portfolio. Sales of non-mortgage loans grew by 21% to PLN 13.7 billion, another record high number. Finally, in Corporate ... [Technical Difficulty]

Ladies and gentlemen, please stay with us. The team is just reconnecting, we're having some technical difficulties.

So I would like to apologize for our technical problems, which we solved, but it took us some time. So I will continue starting from the Slide #10 because I believe that, that was the moment where we were cut it off. So coming back to our presentation. In the mortgage lending, this was another record-breaking year for mBank. The sales were up 38% year-on-year to PLN 14.7 billion. The increase was recorded in all our markets, Poland, Czech Republic and Slovakia. Fixed rate mortgages dominated in production, accounting from 70% to more than 80% of monthly sales. As of the year-end, fixed-rate loans represented 54% of our outstanding mortgage portfolio. Sales of non-mortgage loans grew by 21% to PLN 14.7 billion , another record high number. Finally, in corporate lending, we saw a clear acceleration with new sales up by 23% to PLN 49 billion. Growth was balanced across all client segments, supported by higher demand for working capital and investment financing, the strongest momentum coming from structured finance, particularly in the renewable energy projects, fully aligned with our strategic priority. The results of our sales effort are reflected in the growth of loan portfolio by over 9% year-on-year. Our core retail loans, excluding FX mortgage loans expanded by over 13% driving the market share increased by 0.5 percentage points to 8.1%. Our market share in mortgage loans in [indiscernible] increased even more by 0.7 percentage points to 8.9%. At the same time, loans to corporate clients increased by over 7% year-on-year. Now let's have a look at development of mBank deposits. Total deposit base reached PLN 229 billion, up 14% year-on-year. The main driver was continued inflows into current [indiscernible] savings, which grew by around 20% year-on-year. This reflects healthy growth in active clients and strong transactional activity, giving us a very stable, low-cost funding base. Corporate deposits also grew strongly rising nearly 10% year-on-year, supported by healthy business activity across SME and large corporate clients. As shown on the graph, this performance translated into higher market selling Household deposits. While in Corporate deposits, our market share declined slightly in pricing optimization, but remain safely about the strategic 10% threshold. Let's move to TPL items for 2025. Total income reached the highest level in mBank's history of almost PLN 12.5 billion, up by nearly [ 5% ] year-on-year. Net interest income rose by 4.5%, supported by higher loan and deposit volumes, a large bond portfolio and effective interest rate management. Our net interest rate margin declined to 4.05% by [ 50 basis points ] compared to 2024. The decrease reflects a lower average yields on the loan portfolio and lower rates on central bank placement, driven by interest rate reduction by 175 basis points during 2025. Net fee and commission income increased by 12% year-on-year, driven by higher transaction volumes, a growing client base and stronger product sales as well as 2 minor one-offs. Moving on to the costs. Our operating costs increased by around 13% year-on-year. Personale costs were 10% higher year-on-year. This was a function of employment which rose by 230 FTEs, as well as salary increases introducing 2024, 2025. Material costs increased by 11% year-on-year mainly due to a higher IT and security expenses related to the project and price increases. Marketing spending also rose because of the communication activities linked to the implementation of our new strategy. Depreciation increased by 11% year-on-year, driven by our continuous investment into IT software. Additionally, in 2025, contribution to bank guarantee found almost doubled due to end-of-relief from payments to the deposit guarantee scheme. Turning to the right side to -- the right of the slide. Despite the higher cost, we maintain excellent efficiency level. The cost-to-income ratio reached 31%, well within our strategic threshold of 35%, showing that we continue to operate with a very efficient cost structure. Going to our cost of risk. Our cost of risk remains low, reflecting the high quality of our Loan portfolio. Loan loss provisions were up by nearly 30% year-on-year, mainly due to the strong growth of the portfolio, defaults of the individual exposures in the Corporate portfolio and a very low base in 2024. Our cost of risk in 2025 rose by 8 basis points, but remained well below our strategic target of [ 80 basis points ]. Strong repayment discipline of our clients, supported by a favorable backdrop in macro bedrock and NPL sales contributed to a lower NPL ratio of 3.5%. On the back of all these developments, mBank profit in 2025 reached PLN 3.5 billion. This is the best ever bottom line of [indiscernible]. Losses in the noncore segments fell sharply from PLN 3.4 billion, that remains material at PLN 2 billion in 2025. Consequently, return on equity reached 70.9% and return tangible equity, 30.8% in 2025. At the same time, royalty of the core business, excluding FX Mortgage segment amounted to 37.2%. These profitability metrics confirm strong earnings power of mBank and its ability to generate value for shareholders. Last year, again, we made a significant effort to further improve our capital position as its foundation for future growth. In June, we executed first-ever broadly distributed euro-denominated Q2 transaction from Poland, in the amount of EUR 400 million. In October, we continue -- we concluded our 5th synthetic securitization transaction based on a portfolio of PLN 3.8 billion. We also used the ramp-up options in their previous corporate transaction. Moreover, we included our net profit for the first 3 quarters into our own funds. In 2025, our funds increased by almost 19% to PLN 20.7 billion. At the same time, [indiscernible] rose by PLN 24.5 billion, driven both by higher business volumes and turbulatory changes, including the CRR implementation. Consequently, our capital ratio decreased with this year at 16.3%. Capital buffer remains safely above regulatory requirements with 4.7 percentage points for [indiscernible] and 4.3 percentage for Tier 1 and TCR. Finally, as we are already inform 2025 earnings will be retained to support further loan growth. Let's now turn to the summary of legal risk related to FX Mortgage Loan portfolio. The slide shows the positive trends are continuing. First, the number of settlements rose sharply to over 32,000 at the end of 2025, an increase of [ 9,500 ] year-on-year, reflecting our continued focus on settlement as set top priority. Second, Q4 was 8th consecutive quarter of declining in to [indiscernible], we saw declines for both [indiscernible] and to paid loans. And third, the number of pending court cases continue to fall across both active and repaid loans. The figure dropped by 63% to less than 6,000. As you can see on Slide 19, we are very successful in reducing the risk related to FX portfolio, both the value as well as the number of active contracts declined significantly. At the end of 2025, only less than 6,000 contracting [indiscernible] act, I would like to underline that Q4 was the 8th consecutive quarter of declining legal risk costs. In 2025, we're booking total PLN 2 billion of provisions less than the half of the amount from 2024. This drove the cumulative FX rate regards cost that we booked since 2018 with a massive amount of PLN 18.6 billion. Thanks to our continuous efforts to actively reduce the risk related to this portfolio we are optimistic about the level of provision in 2026 and they should no longer be a massively abundant for our results. Before I finish my presentation, let me briefly summarize the take aways. We deliver a very strong business growth in line with our strategic targets. Our financial performance was outstanding with a record high revenues and profits. Our return on tangible equity of [indiscernible] clearly shows strong profitability and efficient use of Capital. We strengthened our capital position giving us the capacity to continuing growth and gaining market sales in a key product. Finally, we made a very good progress in reducing Swiss franc-related recoveries, bringing us closer to the end of this long saga. Altogether, this strong performance is a solid momentum to continue executing our full speed ahead strategy. Now I hand over to Pascal.

Thank you so much, Kocik. And so let's move now to the fourth quarter after so many, I would say, extraordinary records. I will follow up on the Q4 because also we have delivered here the highest ever quarterly net profit and I would like to go briefly to the account lines to provide you some insights and afterwards also an outlook for 2026. Let's start with our revenues, which remain above PLN 3 billion in the quarter. Net interest income is just slightly down, reflecting the rate cuts. Respectively, net interest margin, as you can see, is from 3.97%, down to 3.474%. The decline came mainly from interest rate and line environment and the first lower average loan yield; and second, lower yields on floating rate securities and also our Central Bank exposures. But very important here, if you relate to the drop in NII and the net interest margin to the very steep cut of 175 basis points in 2025, you see that this is kind of modest, which confirms our effective interest rate and balance sheet [indiscernible]. Net fee and commission income remained solid in Q4. The slight decline quarter-on-quarter was entirely driven by a Q3 one-off of PLN 42 million of Mastercard. If you clean that most fee categories improved in Q4. Net trading and other income declined by [ 60% ]. This decrease was mainly driven by a sharp drop in trading income, reflecting losses on hedge accounting and a weaker result on our equity instruments. Total costs, excluding compulsory contribution rose 9% quarter-on-quarter. And here, this is kind of seasonal and the main driver here is, as you know, personnel costs because they increased 11%, driven by year-end provisions for [indiscernible] holidays, severances, bonus accruals and also higher headcounts. Despite that increase, cost income ratio shows a healthy 33.1%, so below our strategic thresholds. Moving to the other piece, they increased by 25% quarter-on-quarter. Despite this increase, which was mainly driven by the year-end review of the corporate exposure, our cost of risk clearly show a healthy book. The cost of legal risk related to foreign currency index loans was PLN 379 million, so down from PLN 455 million in Q3. This is the 8th consecutive quarter of decline in legal risk provisions. And Kocik already went into the details. So I just conclude the positive trend is visible. And as a result, we delivered PLN 1.2 billion profit before tax in Q4, while the net profit exceeded PLN 1 billion. So it's more than 30% up quarter-on-quarter. The low Q4 ETR, so effective tax rate of around 14% reflected an increase in deferred tax assets, driven mainly by the revaluation of DTAs, following the corporate income tax rate changes. Consequently, in Q4, we see a very strong profitability with an ROE of 19.5% and a return on tangible equity of 22.6%. To conclude this slide, now I would like to flag an accounting change we introduced in Q4. We adjusted the booking of FX stock transactions related to corporate clients in 2 P&L line items with NII and net trading income. Negative swap points generated by these transactions, roughly around PLN 190 million, were reclassified from NII to net trading income, improving NII therefore and reducing net trade income. This adjustment applies only to 2025 as this product was introduced in that year. And we have obviously restated the previous quarters accordingly. Let's move now with this message to the very important expectations of 2026. First, in '26, we will operate as everyone knows, in a lower interest rate environment following the 175 basis point cuts in 2025, with expectations of further declines. This naturally pressures our net interest income. However, we expect to offset partly this impact and therefore anticipate just a slight reduction in total revenues. Fee and commission income is expected to remain resilient supported by ongoing portfolio growth, higher client transaction activity and continued expansion of our transactional banking offering. The pace of growth will normalize compared to the exceptionally strong 2025 base which also included approximately PLN 85 million of one-off items. Second, we expect our cost-to-income ratio to stay below our strategic threshold of 35%. In '26, cost growth will be mainly driven by higher personnel expenses, increased investments in our strategy and security projects and higher BFG contributions. Additionally, as you know, we invest very much in our capital. So CapEx on business and regulatory initiatives will result in higher amortization. Third, we anticipate that FX-related legal risk costs will be less of a topic to talk about in 2026. The Swiss franc portfolio, as we have shown, is shrinking steadily and the number of new court cases continues to fall. Finally, we aim to grow market share with business volumes expected to outperform the competition. Our focus will remain on mortgage lending and on corporate financing in Wealth stream segments, where we see strong potential and our clear competitive advantages. So overall, 2026 should be a year of stable financial performance, disciplined cost and risk management and sustained business call. And now we're looking forward to your questions.

Thank you very much, Cezary and Pascal. Again, apologies for this short break. And now we can start the Q&A session. We covered them -- some of them already in our speech, but I will read all the questions we received. So the first one is about our tax. What part of the DTA of PLN 118 million created in 2025 falls on corporate income tax?

So I'm taking the question. So with respect to the corporate income tax change, we have a real valuation of the deferred tax assets which had purely on that matter, PLN 118 million effect. So everything is related to the income tax rate change. But there are 2 other positions also which currently support our Q4 number just to complete the picture so that you can get the numbers correct. We have recognition of the R&D tax relief also in Q4, which is amounts to PLN 36 million and has also a positive impact on our tax line. And also, we have hired DTAs from a larger number of settlements, which are reflected in our model, which also roughly adds up PLN 30 million. And with that, it completes the page.

Thank you. What is the level of the free loan sanction provision and provision for unauthorized transactions?

So as we normally also discussed, we're very much following as everyone else, these 2 matters. And for us, obviously, the risk which is related to those public is very much in our focus. And currently, we feel very well provisioned.

Next, we have a series of questions from Johan. So I will read them one by one. This is the end of extraordinary effects on the regulatory capital ratio? Or should we expect something in 2026?

So basically, this is largely the end of [indiscernible] we have seen in the capital. This was primarily driven by regulatory changes that we have applied at the end of 2025. As far as additional effects affecting capital ratios in 2026, we have to mention that we have received the final decision from the supervisory authorities on model changes related to the implementation of so-called definition of defaults. And the way we calculate days past the implementation of that is done for the first quarter of 2026. We can't estimate that further impact on risk-weighted assets in the range of up to 5% of the overall risk-weighted assets. And beyond that, at this moment, we see no further regulatory changes to the risk-weighted assets in 2026.

Thank you very much, [indiscernible]. What was the share of refinance loans in the new housing loan sales in Q4?

That was very low. That was a 1-digit number. So in percentage, of course. So it's that much less than 10%.

Reason for minor deceleration in corporate lending in Q4, already covered by Cezary during the speech or can we add something?

We see a very positive trend in new loan agreements. And as I mentioned, it is still not visible in balance sheet at the end of the year. But I believe that we will give you much more detail after the Q1 results because that it should be in majority affected in our balance sheet at that time.

Okay. Now the question to Marcin. Can you remind us what was the reason for a sharp downward revision of the base rate outlook by 100 bps to the terminal rate of 3% shortly after the CMD.

So thank you. Let me put some light on this because -- well, at the time of CMD, we were believing that the economy is reaccelerating, we would see a somewhat higher rate than expected by the consensus. Very shortly, we believe that with economy gaining momentum. We also believe that labor market is going to gain momentum and wages are going to stop falling in a dynamic way. So we thought that the path of inflation in 2026 would be rather upward sloping. After that, we had a series of downside surprises. We had the new data with respect to labor demand, we had the new data of CPI regarding services and goods inflation. And we saw that the momentum is somewhere else. So basically, we've seen that -- well, the second China shock is spending over to a large extent to the trade dabbles prices. Right now, this pricing goes at around minus 5%, 7% in CPI. And also, we saw that despite upswinging in economic activity, we are seeing the call-ups, the decrease in labor demand. So there is some kind of automation going on. So it's rather picks in favor of continuation of falling growth dynamics going forward. In this vein, we believe right now that inflation will be very, very low in 2026. Therefore, we expect rates to be at 3% at the end of the year. The consensus started the year at between [ 3.5, 3.75 ]. Right now, the market pricing is at around [ 3.25 ], so it moved to our direction.

Thank you, Marcin. And the last question of Johan, net interest margin, NII outlook for 2026. I think also all covered by Pascal during his...

Maybe on the NII, as we guided lower than 2025 due to the interest rate cuts, but it will be compensated partly by our volume gains, which will then support our NII forward looking. I just want to reiterate that on the data NII, which is obviously the main driver for all of us to see how sensitive we are for further rate cuts and relates to what Marcin was saying, are we closer to the 3% as the market consensus about 3.5% that we have not moved too much by end of the year because currently, we see that NII on our side of 100 basis points rate cut on PLN 680 million. And as you know, while we [indiscernible] in various currencies just a bit more than 50% are related to the real Polish slot. And there we're talking a bit more than PLN 400 million. So that stays on our side, which if you compare it to the overall contribution to the bank via the last 12 months, is a very digestible number. And also was shown in Q4 results, as I was mentioning it, that we are very resilient currently with respect to rate cuts.

And I would like to add anything on our current guidance for Swiss franc costs in 2026.

No, we have said that the trends are in our favor. Obviously, that is the most important thing because it's based on a model. And therefore, we are very confident that the most is behind us and that we have seen in 2025, the last significant year.

Can you explain the CET1 move quarter-on-quarter?

Yes. So that CET1 quarter-on-quarter is basically increased due to the application of the new approach to the population of risk that includes capital for the -- losses due to the [indiscernible] primarily driven by this operational risk recalculation by [ 5.5 per order ], and that was driving the common equity by PLN 0.6 billion. The increase to the operational risk calculation follow the publication of the final European parking [indiscernible] technical standards regarding the operational risk -- this impact is expected to decline in the following years. We expect this to decrease by PLN 1.5 billion in 2026 or -- but this is something that we phase out completely on the time.

A question on the tax expense, what's already covered. So another question, can you provide details why NPS increased in Q4 and what drove the increase in Stage 2 loans in Q4?

Yes, thank you for the question. So on the NPS increase are 2 drivers. The first one is we have had isolated a number of defaults in [indiscernible] portfolio, few clients from household appliances, real estate and energy industries, which we consider one-off events. And at the same time, further increasing the way we approach the credits, we have implemented a collective staging that covers some aspects of climate risk assessment. And that resulted in a transfer from Stage 1 to Stage 2 of approximately PLN 4 billion of exposure that was primarily seen within the corporation.

And the last question from Kamil Stolarski, would you reiterate revenue and cost growth guidance for 2026, given in the strategy presentation.

So in the revenues we have today more or less we guided because we said 2026 will be slightly below 2025. And on the cost, there is no major reguidance. Here, we expect, as we have seen it in our strategy presentation to continue the investment cycle, which is very important for us because we want to deliver value to our clients with state-of-the-art technology and therefore, also state-of-the-art products, and that is our major aim in spending the cost the right way.

Thank you very much. This was the last question. So thank you for the attention and questions, and see you in -- at the end of April.

Thank you so much.

Thank you.