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

We are really happy to share our results today. The headline message is we are not just simply growing quickly, we are growing profitably. After 9 months of '26, the evidence is there. We have gained market share across all our key products. We've delivered record earnings, and we further strengthened our capital position. I will begin with the balance sheet on Slide 4. The figures on this page illustrate the strength of our franchise on both sides of the balance sheet. On the left-hand side, gross loans increased by almost 18% year-on-year to EUR 164 billion. This growth clearly outpaced the market and drove further gains in market share. In the third quarter alone, gross loans increased by more than EUR 10 billion. This was the highest quarterly increase in our history. The right-hand side shows equally strong momentum in customer deposits. Our deposit base grew by 19% year-on-year to EUR 255 billion, supported by sustained inflows into current and saving accounts. So overall, this demonstrates the strength of our franchise and our ability to grow the business in a balanced and sustainable way. Slide 5 shows how this balance sheet growth translates into revenues and operating efficiency. The revenue chart on the left provides the clearest starting point. Total revenues in the first 9 months reached the already strong level recorded a year ago. This was achieved despite a significant less supportive interest rate environment. The average NBP reference rate was around 1.6 percentage points lower than in the comparable period. Strong business volumes supported us to offset the resulting pressure on net interest income. And importantly, after reaching its low point in the second quarter, our net interest margin began to recover in Q3. The chart on the right shows that we combine this revenue resilience with disciplined cost management. The normalized cost-to-income ratio stood at 31.6% -- and the key takeaway, therefore, is the strength and scalability of our operating model allows us now to generate record revenues even in a less supportive rate environment. Slide 6 brings us to profitability. Strong operating performance translated into record profitability. Net profit for the first 9 months reached almost CHF 3.1 billion, an increase of 24% year-over-year. And this is the best 9 months in our history. The improvement was supported by the strong underlying performance of our business and also by the significant reduction of our Swiss franc legal risk costs. At the same time, we absorbed a higher fiscal burden following the increase of the corporate income tax in Poland in 2026. But despite this headwind, return on tangible equity exceeded 21% from 20% a year earlier. And this brings me now to capital on Slide 7. Growth only creates value if it is supported by a strong balance sheet. And who could know that better than we, we have been on a diet during our Swiss franc times. Our capital position remains solid with comfortable surpluses above regulatory requirements and ample capacity for further growth. Our capital position was supported by the inclusion of the part of the first year of the earnings and by the risk-weighted asset relief of the generated securitization we completed in August. The EUR 250 million AT1 issue completed in September was already reflected in our MREL position, but is not yet included in own funds at quarter end. Once recognized, it would increase the Tier 1 ratio by approximately to 14.5% on a pro forma basis. Overall, we remain comfortably capitalized, and this provides the capacity to fund further profitable growth and supports our intention to resume dividend payments. The commercial impact of this growth is visible on Slide 8. The market share indicators show continued gains across all our strategic product categories. The strongest progress was in household mortgages, where our share increased by 1.1 percentage points in just 1 year to 9.7%. And these are not isolated quarterly movements. They really reflect the sustained strengthening of our competitive position and a tangible progress towards our ambition in 2030 of achieving at least 10% market share in every of our key products. And let me now move from the 9 months overview to the third quarter performance in detail. And Q3 confirms that we are not only growing rapidly, but doing so profitably, efficiently and on the foundation of our very resilient balance sheet. And with that in mind, let me now turn to the P&L on Slide 10 and explain the main drivers. Beginning with revenues, total income rose by almost 4% quarter-on-quarter to EUR 3.25 billion. Net interest income increased by 9% to a record EUR 2.7 billion. The increase was supported by strong business volumes, disciplined deposit pricing and improving asset yields. Importantly, and in line with our guidance, net interest margin recovered by 10 basis points to 3.57% after reaching its low point in the second quarter. Net fee and commission income also reached a record level, increasing by 4.4% quarter-over-quarter to EUR 594 million. Consequently, the reported cost-to-income ratio improved to 29.1%. Loan loss provision and fair value changes increased to EUR 261 million, bringing the quarterly cost of risk to 67 basis points. And this increase was primarily driven by one single corporate exposure, and I will return to this topic on Slide 16. At the same time, legal risk costs related to mortgages declined to EUR 78 million. And all these together gives us a record quarter, a record net profit of EUR 1.1 billion. Having reviewed the P&L, let me now turn to the commercial engine behind it, new lending business. Starting with mortgages, the upper left chart shows the most important development on this page. Mortgage sales reached a record EUR 8.2 billion in just 1 quarter, an increase of 33% quarter-over-quarter. Growth was driven primarily by mBank Poland, where production increased by more than 40% quarter-on-quarter and was further supported by our Czech and Slovak operations. Mortgage production reached all-time highs, both in Poland and across our international branches. The share of fixed rate mortgages continued to increase from 59% in July to 72% in September. At the end of the quarter, fixed rate products represents around 48% of our outstanding PLN retail mortgage portfolio. And moving to the left chart. Non-mortgage sales remained strong at EUR 4 billion. Overall, retail loan production reached approximately EUR 31 billion in the first 9 months, an increase of around 47% year-over-year. On the right-hand side, corporate lending production amounted to EUR 14.2 billion in Q3. The quarter-on-quarter decline followed an exceptionally strong Q2. On a 9-month basis, production increased by 19% to EUR 41.5 billion. Production increased across all major corporate categories and all client groups. So that confirms our growth is broad-based and scalable. And now very important, there are 2 considerations which I would like to explain when looking at this expansion. First, we are not just pursuing volume at any expense of any value. Growth is concentrated in established client relationships and in businesses that meets our return and margin requirements. And the second observation is that this growth is highly scalable. Our predominantly digital retail and corporate processes enable us to absorb this materially higher volumes without a corresponding increase in headcount. This strong production is now very clearly visible in the loan portfolio on Slide 12. If you focus on the bar chart on the left, gross loans increased by 6.5% during the quarter and are almost 18% higher year-on-year. Mortgages were the strongest contributor, increasing by more than 10% quarter-on-quarter and by 24% year-on-year. Other retail loans also continued to grow. And as a result, our core retail portfolio, excluding the noncore book, expanded by 8% during the quarter and by almost 20% year-on-year, reaching now EUR 90 billion. The corporate loans increased by almost 5% quarter-on-quarter and by over 16% year-on-year, reaching EUR 72.8 billion. And the market share indicators on the right confirm that this growth is really creating value for us. We gained share in household loans, PLN mortgages and enterprise lending. Slide 13 completes the balance sheet picture by showing the development of our customer deposits and investment products. The chart on the left shows that customer deposits increased by 2.5% in Q3 to almost EUR 255 billion. On a year-on-year basis, growth reached 19%. Retail current and savings accounts were once again the principal driver of growth. So these inflows support our favorable funding mix and help us maintain disciplined funding costs. And at the bottom of the page, you can also see the continued expansion of our investment offerings. Assets and investment funds distributed through mBank reached EUR 18.9 billion, including EUR 6.2 billion managed by us by our MTFI. During the first 9 months, MTFI's assets under management increased by EUR 1.7 billion, driven by positive net inflows and also solid performance of our investments. Overall, the deposits and investment products confirm that our customer relationships are further deepening and provide a strong and diversified funding base for our continued profitable growth journey. With loans and deposits covered, Slide 14 links balance sheet expansion to revenue and margin development. So please focus on the income chart on the left. Total income increased by nearly 4% to a record EUR 3.25 billion. The main driver was net interest income, which increased by 9% quarter-on-quarter to an all-time high. The most important development, as I already highlighted 2 times, is visible in the margin chart on the right. Net interest margin recovered to 3.57%, reversing the downward trend of the previous quarters. The improvement was supported by higher average yields on loans and debt securities together with a higher share of loans and interest-earning assets. Net fee and commission income also reached a new quarterly record, up 4.4% from Q2. Payment card fees were the main contributor, supported by higher card usage during the holiday season. Net trading and other income was negative, mainly because of the special items related to customer protection. In Q3, we recognized along EUR 112 million of customer protection related costs and closed with those bookings open risk in the field. This amount includes EUR 65 million related to the UOKiK proceedings concerning modification costs. We did not receive a fine yet, but based on fines in the sector recently received, we derived our expectations. Furthermore, we included EUR 14 million relating to unauthorized transactions in which we found an active agreement with UOKiK in Q3. So both cases are expected to be economically closed. We also recognized EUR 33 million of legal risk provision related to free loan sanction. And as this is a broadly debated risk in the sector, allow me now to provide our color of the risk assessment. Free loan sanction remain a source of concern for us and for the banking sector, and everyone is watching it very closely. However, our exposure is significantly lower than that of many of our peers. The loan portfolio that we potentially see affected represents today less than 1% of our total retail book. And there are a few reasons, but 2 I would like to mention why this is the case. The first one, we stopped originating the product in question in 2023, and we were among the first banks doing that. Second, our presence in the non-mortgage lending segment is smaller than our overall retail market share. And it is also important to look at the litigation track record. To date, we have won the vast majority of the lawsuits filed against us. Nevertheless, we have built legal provisions for potentially future negative rulings. And now difficult to move away from this special topic to the central message back on the slide. We have seen in Q3 record net interest income, record fee income and a recovery of net interest margin. And let me now turn from revenues to the cost base on Slide 15. Our priority remains here every time unchanged to fund growth and innovation while preserving the tight control of our cost base. And in Q3, operating costs remained broadly stable quarter-on-quarter despite our continued investment in the franchise. And looking at the main cost categories, there are 2 things noteworthy. First, our personnel expenses declined by 4.5% quarter-on-quarter, mainly due to the release of provisions for outstanding holiday entitlements, so a clearly one-off driven effect. Second, our amortization by contrast increased by 14.6%, reflecting faster amortization of selected systems. For the first 9 months, total costs increased by 7.5% or if you exclude BFG contribution by 7%, and this mainly reflects higher personnel expenses and continued investments in technology and security. Our strong revenue generation, combined with this disciplined cost management resulted in a cost-to-income ratio of 29.1% in Q3. And for Q4, we expect a seasonal cost increase, and we positively update our guidance of the cost-to-income ratio. We expect to stay below 33% cost-to-income ratio in the full year. From efficiency, let me now turn to credit risk on Slide 16. In Q3, impairment losses increased to EUR 261 million, so 67 basis points cost of risk. And this increase was driven primarily by a significant provision for a single defaulted corporate exposure in the construction sector. So no broader deterioration in the portfolio quality. And as a result, the cost of risk in the corporate segment increased to 89 basis points. Excluding provisions related to this single exposure, the group's cost of risk would have been approximately 40 basis points in Q3, while the corporate segment's quarterly cost of risk would have been remained below the Q2 level. On a 9-month basis, the group's cost of risk would have been around 10 basis points below the reported figure. The retail portfolio continues to perform very well with cost of risk remaining at 50 basis points despite sustained loan growth. So overall, despite the increase in Q3, the cost of risk remains below our through-the-cycle assumptions, and we, therefore, reiterate our full year '26 guidance of approximately 55 basis points cost of risk. This sound underlying risk profile is also visible in the portfolio quality indicators on Slide 17. Across the page, the indicators point in the same direction. The group's NPL ratio improved to 2.9%, supported by portfolio growth and the sale of impairment loans. Asset quality improved in both major business segments and the Polish zloty mortgage portfolio continued to perform particularly well. The NPL ratio for individual mortgages declined further. Coverage levels remained prudent. Total coverage, including Stage 1 and Stage 2 provisions increased, while the coverage of defaulted exposures remained close to 50%. So these metrics reinforce our confidence in the quality and resilience of our overall portfolio loan book. Having covered the developments in all important account lines already, we skip the next slide and close the financial review with capital management, starting with Slide 19. And the central message is that we manage capital proactively using our broad toolkit to support growth and optimize our capital structure. During Q3, we completed 2 landmark transactions. In August, we executed a synthetic securitization of EUR 1.1 billion commercial real estate loan portfolio. This was the first CEE transaction backed exclusively by a commercial real estate lending package. Across our 6 securitization, the cumulative reduction in risk-weighted assets reached year-to-date EUR 8.6 billion. In September, we successfully placed our EUR 250 million AT1 transaction, and this was the first euro-denominated AT1 issuance by a Polish issuer. Demand was very strong, and we were very happy, 7x oversubscribed and very broad allocation. And we hope to have opened the market for more Polish issuer to support the growth of the Polish economy in the end. The transaction was already reflected in MREL ratio at the end of September and its recognition in Tier 1 capital remains subject to relevant approval process and is expected in Q4. The third element on the right-hand side of the planned transition of the -- on the right-hand side of the page is the planned transition to the foundation internal rating-based approach. In September, we received a non-objection from the Polish FSA and the implementation, therefore, is planned for Q4 2026 and is expected to reduce risk-weighted assets by approximately PLN 10 billion in Q4. Collectively, these actions optimize our capital structure and expand our capacity to finance profitable growth. Turning to Slide 20. You see that our capital position remained comfortably despite the 2% countercyclical buffer comes in at the end of this quarter. Risk-weighted assets increased only marginally during the quarter as the impact of strong business growth was largely offset by the capital relief generated by our securitization. And given the recent volatility in global and Polish government bond markets, let me also provide some context on the sensitivity of our capital position to movement in bond yields. The average duration of our treasury bond portfolio is below 2 years and shorter than the market average, which limits the impact of rising yields. At the end of September, the negative valuation of debt securities measured at fair value through other comprehensive income amounted to only EUR 29 million and was therefore fully immaterial to our capital position. This limited sensitivity reflects the structure of the portfolio. Approximately 90% of the bond interest rate risk managed by us in the treasury is held in portfolios classified as hold to collect, so in line with our intended investment strategy. And here, our capital base, therefore, remains very robust with ample headroom to support business expansion and our planned shareholder distributions. And now let me summarize the financial review with our 4 messages of the quarter. First, growth. Loans increased by 18%, deposits by 19% year-on-year. In Q3 alone, the gross loan portfolio increased by more than EUR 10 billion, the highest quarterly increase in our history. This was broad-based and translated into further market share gains. Second, profitability. We delivered the highest net profit in our history, record revenues, all-time highs in both net interest income, net fee income and the rebound in the net interest margin. Third, strategy execution. We continue to develop solutions and services that enhance the client experience and simplify everyday banking while maintaining best-in-class efficiency and disciplined risk management. And fourth, capital capacity. retained earnings, securitization and the AT1 issuance provide a strong capital foundation for continued growth and future shareholder distributions. And finally, let me set these results now in the context of our full year outlook. Following our strong performance in the first 9 months, we expect full year revenues to be around 2% above the 2025 level. We expect the cost-to-income ratio to remain below 33%. We will continue to manage credit risk prudently as the business expands and expect 55 basis points cost of risk for the full year. And we expect business volumes to continue to growing faster than the market. So to sum it up for this quarter, we enter the final quarter with record earnings and improving margin and robust capital position, and this gives us all confidence in delivering our full year objectives and continuing to create value for our shareholders. And with that, I'm now handing over to Marcin for the economic outlook. And afterwards, we are happy to take your questions.

So we are now operating in a quite strong economy. GDP growth is hovering around 4%. We estimate that it's a little bit above the capacity of the economy, so output is positive. It is -- we are now close to the top of the cycle. So the next quarters are likely to bring a little bit less of economic growth. We estimate that even though this year, GDP growth is going to amount to 3.9%. Next year, it will be closer to 3%. The main reason for that is slowing investment activity and also slower consumer activity. But as for now, consumer confidence indicators stay high. We are not seeing any changes in the labor market. So labor market is very, very stable. Wage growth is amounting to 6% nominally. So it's also more or less consistent with price stability in the long term. However, recently, the economy was struck with a cost shock driven by oil prices and most likely also in the coming months, food prices. And right now, this shock is going to elevate consumer price inflation to more than 4% at the start of 2027. And this elevated growth of prices is going to last at least several months. So there is a high chance for this to translate into broader price pressures. In that vein, we expect MP's Monetary Policy Committee to increase interest rates by 75 basis points in order to keep core inflation stable. It is now running at 3%. Also, in this quite strong economy, we are seeing that the monetary aggregates are strong as well. Credit activity is going quite fast, deposit activity as well. But as the economy is slowing down next year, we also expect credit growth to slow down as well, but still the growth rates are going to be decent. Government bond yields have risen of late. There are at least 2 culprits for that. So first of all, higher inflation and expectations of higher rates. Secondly, we are seeing also asset swaps that have widened recently, reflecting partially higher sovereign risk. And last but not least, we are seeing that in the international market, there is more and more competition going on for capital also from the part of enterprises involved in artificial intelligence investment. So this is also putting pressure on yields right now. In these circumstances, zloty is under slight depreciation pressure. As I'm speaking, we hit PLN 4.40 in Europe. This depreciation pressure may be kept in the next few months. So this is also one of the reasons why we think that MPC is going to decide to increase interest rates just to keep this depreciation pressure in Czech.

Thank you very much, Marcin and Pascal. And now we start our Q&A session. First, the first question on the current sensitivity of the NII to a 100 basis point change in interest rates.

Thank you for the question. So it has barely moved from our Q2 information. So we are talking about, again, PLN 700 million for 100 basis points move in all rates. And what I stress it every time as we also have operation in Czech and Slovak, plus also that our business in the corporate segment is U.S. dollar and euro heavy. There is the majority of the PLN 700 million, roughly PLN 500 million related to a Polish rate move and the other PLN 200 million roughly is attached to the other currencies we're working...

Now we have a list of questions from [indiscernible]. So I'll start with Q4 pipeline for corporate lending and -- where should we see your next quarter's level of mortgage origination after such quarter?

Yes, that's a good question. So I mean, for me, what is very important, and I stressed it when we start with the last topic, more than EUR 8 billion of new sales on mortgage loans that is extraordinary. I also said in the speech, the question which comes first is how actually you achieve that. And luckily, this counts for all our businesses, not just for mortgage loans. We're achieving that with our existing clients in the majority. So we know them, and they are taking more and more and more our services and our capacity into consideration. And secondly, how actually can you really get this on the street because obviously, normally, if you increase such strong and on the mortgage loans, it's more than 70% higher production than last year, we are running a very digital operation. So this bank is really as a platform concept built, and therefore, we can cope with that. That means for us, and you have seen that the market high single digit has grown, and we have double-digit growth. Therefore, we are capturing market share. And this is our expectation forward-looking as well. And we don't see from today's perspective, any difference in the latest prints of our new sales that this should fade away. So the conclusion is we expect to grow faster than the market. And here, it means double digit.

So given such loan growth already at this stage, what do you think about 2030 targets?

Our 2030 target is to bridge the 10% in all our core categories. And for us, we have not a clear view when it will happen, but we would definitely want to exceed it. But one other thing is also very important, that was the main message of this quarter. We are growing profitably. So for us, it is not just chasing volumes at any price. If there is not the margin attached to it, which we need to grow profitably from a shareholder perspective, then this is something we would not pursue. But luckily, we are currently seeing lots of opportunities to further profitably grow.

Okay. Now some more detailed questions about our results. Can you explain rising interest income from securities despite visibly lower balance in Q3 versus Q2?

Yes. So the balance of the debt securities has increased slightly between the 2 quarters. So that is actually the explanation to it. And also the NII in general is one more interest rate day in the third quarter versus the second quarter, and therefore, you also get an NII uplift.

What we see in the statements is the decrease of the balance, but the average balance.

The average balance has increased exactly slightly. And that is then maybe not visible on this chart, but it is the fact that we have on average a higher and therefore, also more supportive income based on the portfolio.

What are the costs of the latest large SRT and where are they booked?

So I mean, we are not in detail discussing obviously the cost. How do we derive actually if we do an SRT and if it makes sense for us, we every time measure RWA efficiencies. So how much does it cost us when we securitize a portfolio together with lots of investors. And in this transaction, we had a significant portfolio of investors who were interested to partner with us. And then we compare what is the average we can earn with our different client groups. And this is plenty of headroom. So it is increasing our efficiency to do currently securitization. That has changed also over time because as we started 3.5 years ago with our first securitization, the clear message was that we need to have capital relief because here, we had been under pressure of the Swiss franc legacy risk, and now we are really looking into pure efficiencies.

Can you share your view on 2027 EBIT, especially NII volume growth and cost trajectory?

So as we guided 2026 that we are 2% higher than 2025 in terms of total revenues, that is supported especially by our volume growth and therefore, full and NII trajectory. So we also expect in Q4 higher NII than in Q3. In the fees, we expect that the normally seasoned lower fee in Q4 versus Q3 is also coming in. But extrapolating that into the next year and also into the next years, we expect revenues is growing faster than our cost base. And therefore, net profit is supposed to be in the next year stronger than what we have seen this year. And that is how far we can go currently with our guidances.

Apart from securitization, were there other factors that contributed to the lack of growth in the credit risk requirement despite the increase in the portfolio?

Not other factors which would be massively mentioned. So we really saw an increase of credit risk by our business lines as they grow their customer base. So this was an increase. And on a similar magnitude, we saw the release of the securitizations compensating that.

Do you see any effects of AI adoption on your cost base?

So on AI, that's very interesting. I mean you know us as one of the most digital banks in Europe. So doing a step back from AI in general, and we invested every single year also as we have been under pressure with the Swiss franc environment heavily laying on our back, we invested every single year more in our infrastructure, more in our capabilities of delivering digital services. And that means also here that we are heavily investing also in AI AI-related use cases. We have use cases broadly implemented. We have not obviously every of those use cases entertained externally because there is a competitive edge also to it. But a few of them as we use it in complaints management or even in our finance operation that you can't ask the tool about any of these figures, which makes it very convenient for the CFO to find them in plain language your facts as a result. We are not seeing AI as an efficiency driver. We are seeing NI as an enabler for further growth. So for us, the tools and also the capabilities our colleagues in our house can use is less of reduction cost-wise driven rather than funding the further growth without adding additional colleagues to our journey.

Why did the CET1 reduced quarter-on-quarter, noting just 1% risk-weighted assets growth. What is the pro forma CET1 ratio for Q3 profit? What does the pro forma capital ratio include? And do you expect MREL supply in Q4?

Yes. Starting off with the MREL supply, we are not expecting in Q4 MREL supply, but we are conducting probably next year 2 senior nonpreferred issuances in the amount of total roughly EUR 800 million. We will probably split that in half. And the first MREL supply you could expect from us is around Q1 next year. Coming to the capital trajectory, what we've seen, and this is every time retrospective than done that we include retrospective half year's results in, obviously, our capital ratios. Therefore, the capital ratio has increased every time with a time lag. And that is the, I would say, major answer why we see a slight drop because we have applied that retrospective. If we now would pro forma next to the 1 we have announced in the speech that this would bring us to 14.5% if we pro forma include it. If you would then also on top, add up the currently net profit we have generated in this quarter, this accounts again of 0.5 percentage points.

Can you elaborate on the strong growth in retail mortgages, especially? What are we doing different versus peers, which is helping gain market share?