Powszechna Kasa Oszczednosci Bank Polski Spólka Akcyjna (PKO) Earnings Call Transcript & Summary

Good afternoon. Let me welcome you the follow-up session following our Q4 2024 results. We have strong management team with our CEO, Szymon Midera; CFO, Krzysztof; Chief Risk Officer, Piotr Mazur; Chief Economist, Piotr Bujak; [indiscernible], our Finance Director; and our IR team. As usual, we propose to go straight to Q&A session.

So we are ready and I already see Michal Konarski ready to ask the first question.

I've got one maybe technical question because today, during the morning conf call, we've heard that you are expecting at least or about the same net interest margin in 2025 as in 2024. Looking at the quarterly margin, net interest margin, it was really, really impressive increase of it during the year. And it was also followed by the increase of the total assets, total balance sheet. And if you would assume that the same net interest margin in 2025 as in 2024, like mathematically, it would imply a huge drop in the quarterly net interest margin by the end of the year and implying really kind of strong sensitivity to the rate cuts. And I just wanted to learn if you are meaning more like stable on 4Q level net interest margin or actually, we should expect this drop of quarterly net interest margin still like assuming some balance sheet growth in 2025, it would imply net interest income growth. However, this net interest margin would massively dropped during the year.

So if maybe I will...

Please go ahead.

So I would say I would use more the [ language ], which not less than the margin which we had at the end of fourth quarter. So I will use more here refer to fourth quarter margin. There are a few elements, which makes us more positive in this respect, even assuming rate cuts next year. This is still, I would say, effect of rollover of portfolio, the securities portfolio at the higher rates. But this is one thing. Second thing is still decreasing cost of deposits with maturing higher rate deposits and also decreasing hedging costs. This is actually these elements which we see on the side, which will support NII and NIM going forward. On the volume growth should allow us actually to compensate the potential rate cuts, the volume growth, which we assume on the loan book. That's, I would say, another important element, which should actually allow us to keep the margin -- the net interest margin on a relatively high level. And of course, as you've indicated, in case of rate cuts, we will come to the point when the margin -- quarterly margin will start actually to decrease. But we do have, I would say, these elements, which I mentioned, which from my point of view, we should -- are more on the, I would say, optimistic side saying that not less than the fourth quarter margin.

Okay. So it would imply actually that annual net interest margin is about to increase still and quite much, during 2025.

Our information wasn't so precise as your question. We simply said that we shouldn't be lower than annual margin next year. That was -- you should analyze this information comparing to that -- to our previous guidelines where we said that we shouldn't be lower than 1 quarter result end of 2023. That's why current guidance means that we are higher than that previous one, that's the information. And we don't -- we are not in a position to disclose very precise information in terms of interest margin, where we're going to go be because it's a lot of questions where we are. For us, the main challenge is simply to be ready for interest rate cut, one aspect, but the most important thing to be ready to support our clients in volume growth to finance the economy, companies, but also the society. That's the main goal for us. From this perspective, the mix of assets we will see will define interest margin and interest income. But we do -- we are not in a position that we're going to share precise information where we're going to be end of 2025 in terms of net interest margin, not less than that what was reported.

Okay. Fair enough. Just one more question, last one from me about the dividend. I would like to ask what are the chances that we could see some extraordinary dividend from this dividend capital that was set aside during the last AGM. You've got very strong capital position...

Yes, we keep the same answer unchanged that we are ready to answer what you expect in you as shareholders. Our range is 75% to 50%, but you will decide what is the level. If the level is different than this range, we are ready to meet this requirement.

Okay. And what would be the sustainable payout ratio assuming...

Again, the strategy, we shared this as a financial pillar that we're going to deliver 75% to 50% dividend payout.

Okay. We are waiting for another question. Gabor, please.

Yes, a few questions from me. Maybe starting with costs. I think you talked about double-digit cost growth this year. Can you please clarify if this included the expected increase in the bank guarantee fund charges? And what kind of cost growth shall we model excluding that?

We expect that the charge of [Foreign Language] this guarantee fund is PLN 600 million, a bit more. That's an amount. This year, as I said, it should be double-digit growth. A significant part of this growth, we classify as costs who have an investment context to support strategy and strategic initiatives because it's a kickoff year for the strategy. Next years, 2026, 2027, we expect to be in this range inflation plus. What currently means 5% to 10% dynamic in terms of all the costs -- total costs.

And just to add, part of the increase is simply also carryover effect from the last year, that's, for example, for our personnel costs. So this also you should take into account.

And if I might add, if you look at the disclosures of other banks so far, it looks like double digit is the sector dynamic at this moment.

Okay. Sure. So 5% to 10% excluding the BGF or still...

5% to 10% for next years, 2026, 2027. This year, double digit, including this BFG.

Including, okay.

But just to add, okay, we expect increase of BFG costs this year due to comeback of guarantee fund. And for the next years, so the increase of BFG costs will be not as significant as this year due to the fact that we expect that in the next years, we will actually, as this year, we will pay both and contribute to both, resolution fund and guarantee fund for 2026, 2027. So the delta between 2025 and 2026 will be not as significant as for 2024 and 2025, due to guarantee fund.

Okay. Right. And moving to NII maybe. Can you share some details on how you expect the securities income to develop this year? I mean what sort of NII tailwinds do you expect from rolling over your securities book presumably at still higher interest rates?

Yes, that's -- of course, we do not answer this question to simply said what is the contribution to interest income from securities in this replacement. We don't know the future. And we know what is the amount we're going to refinance or replace this year. And of course, the question is what will be the level of fixed rate that moment we're going to replace. But what we can say, we still have a portion of securities, which we will replace this year, what should give a positive impact on interest margin and also interest income, of course, because of the difference between the coupon we have now versus coupon we observed from the market now -- up to now, but we are talking about the future from this perspective, we are not 100% sure what is the amount or what is the level of fixed rate for selected bond maturity we're going to buy in the future.

There are a few moving parts indeed. My final question will be on the buybacks. When you commented this morning, I believe you said that there is some work going on around this, but you can't...

In the strategy, as you remember, we classified that we are ready and we informed that we are ready to -- for payout as a dividend and we specified the range. But also we shared information that we make some preparations in terms of buyback if we are asked for -- by the shareholders to make a buyback. From this perspective, now currently, we are in the position that in next days, we should receive individual information from SEC about the individual payout maximum ratio, and we will start talks with shareholders, what is the schedule and what is the expectations in this regard. From this perspective, we are ready if there is a question and need, but it's not something we are -- we have on the table now.

If I may, Gabor, remember also that nothing changed from the respect that the recommendation of KNF limits total distribution regardless of the form, where the dividend and buyback, it must be within the limit set by KNF. Buyback, we wait -- work for some time on the idea simply to have flexibility in the future to first accommodate the appetite of investors as they may have differ interest and they may prefer a different way of distribution and also to be able to react to the market conditions.

Yes. Yes, that's all fair. And for the sake of argument, do you think the state treasury is open to PKO doing buybacks?

My personal view is yes.

But that's only personal view.

Exactly.

If you're going to get this information, you should call to the state treasury and ask. We don't know actually. We are professional guys and we have to prepare the bank to be ready for such a transaction. It doesn't mean that we will support this, so we will do some actions. That's not our goal simply to select the method -- the way how we're going to reengineer the shareholder structure, for instance.

Do we have any other questions? Marta, please.

Just a small follow-up question on NIM and NII. If you could do that, can you share with us the average duration of your bond portfolio, so we have a bit more intel on how we can think about the yield rolling?

There is an information about this in our financial statement. It's #30 in the table where we have some breakdown and where we are in terms of duration, this year versus that what we reported last year, and you will see changes and having in mind what is the maturity of the bond tranche, you will probably have the chance to simply recalculate what is the duration. That's what we published already in the financial statement.

Just a technical one on Swiss mortgages. So given that your coverage ratio now is well above 100%, I was just wondering at which moment will you be able to convert the risk-weighted assets allocated for this exposure from 150% to maybe either 40%, 35%, which is for the usual mortgages or 0. So do you already make such conversions on the side of risk-weighted assets? Or what will trigger that?

I would say that risk-weighted asset is not a problem for us in this sector because today, our exposure is relatively low. And based on the CRR3 regime, we will be able to do this in 2025.

Okay. So I'm just asking from the perspective that you probably should get some benefit from the release of some risk weight...

From the capital side, if the question is whether we should have a benefit from the capital side is a different story, because creating these provisions, we simply reflect this write-off in P&L from this perspective, there is not an additional effect on the capital side that we withdraw this part once again from the capital. We do not make a capital charge, it is a P&L charge.

I understand that the question is about the capital charge. But because the portfolio is today relatively small, it will be a material impact for our capital requirements. This is no...

Okay. So -- and then the write-off of some risk-weighted assets connected to those Swiss mortgages is then also not -- will not have a big boost to your capital neither? Okay.

Yes.

Do we have any additional questions? I do not see. So in such case, thank you for participating, and we are ready for answering your questions if you have any later on bilateral basis. Thank you, and have a great day.

Thank you.

Thank you.

Thank you so much. Bye.