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

Good morning, ladies and gentlemen. I'm thrilled to welcome you to the financial results presentation of PKO Bank Polski after the first half year of 2025. Dariusz Chorylo, Investor Relations Head. The bank will be represented by Krzysztof Dresler, Piotr Mazur and Chief Economist Officer of the bank.

Good morning, ladies and gentlemen. Mr. Midera is on holiday. Warm greetings. We have Krzysztof, Piotr, PKP in abbreviation. We will give you an insight into second quarter's results. So let's go to the summary slide that opens our presentation. This is a good and robust quarter. The increase in number of customers plus 60,000 people, we are also clients of the bank. Customer savings, that is the fuel for credit action, are on the increase. Quarter-to-quarter, delivered 3.8% increase, reaching PLN 639 billion. This made it possible to continue activation in financing for the general public and economy with 10% increase on a year-on-year basis, PLN [ 547 ] billion, 9% increase. Nonperforming loans, moderate level, just above 3.5% with a decline on a year-on-year basis and quarter-to-quarters. CET is adequate. We are ready to speed up the investment pace and financing increase being Poland's biggest bank. Speaking about profitability, cost efficiency is very important. It is important to highlight that we efficiently manage risk. Risk cost -- cost of risk right-hand side bottom corner, we are at a similar level, but we increased financing. We also increased our market share, slight change, 37 bp. PLN 5 billion is net profit. ROE, we are according to the target outlined in our strategy. It was 18%, plus is that we delivered 19.4%. Net interest margin, we have started the process of declining. It is moderate, not positions in assets and liabilities. Have been revaluated, but we can see a small decline quarter-to-quarter. But we have positive dynamics in the first quarter in a year-on-year basis. Cost discipline is particularly important for us. Cost income 31% for the 6 months and below 30% -- below 29% in the second quarter of this year. Speaking about macroeconomic outlook, this is -- Piotr is going to speak about the economic environment.

The first quarter and first half of the year, very good and improving. Second quarter delivered a visible results. The increase of macroeconomics, 3.4%. We don't know the reasons, but higher investments and robust increase of consumer demand. Good market situation. Unemployment rate a bit higher than in original forecast for this year, but this is related to methodology rather than deterioration in the labor market. The labor market is still stable. Incomes in household is growing much higher than forecasted at the beginning of the year. So there are greater appetite for credits and the quality of credits in this segment. And on top of that, during the second quarter, according to our initial expectations in the financial plan for this year, lower interest rates in a bigger scale than we expected, 50 basis points rather than 25 since May, another step in July. This interest rate reduction is the fuel for the appetite for credits and higher credit action in the second quarter of this year that was apparent. It is not credit boom, but improvement of economic conditions and environment. It will happen in consecutive quarters. Economic growth will also increase in the second half of the year in 2026, and investment boom 2-digit growth in the quarters to come, second part of this year and the first part of the next year. Consumer is still pretty strong, which should yield further credit action increase in the market. And we are improving our forecast especially in home loans and mortgages in Polish zloty. We are returning to 2-digit growth forecast in this segment for 2026. It is worth noting that new credits in June in Polish zloty, PLN 8 billion, the best ever since the beginning of safe credit program. Macroeconomics is good and improvement in the first part of this year. What we are expecting is to see the continuation of positive trends in the quarters to come until the end of next year. The bigger demand for credit and the better assets, the better for us. There will be a challenge associated with interest rate reductions.

Thank you, Piotr. Net profit, foreseeability and sustainable repeatable result is very important for us. It's a high quality for us. One-offs burden did not impede our growth quarter-to-quarter and year-on-year increased dynamics. It is related to the fact that clients are willing to use our services, which makes us really happy because we do it for the economy to use credit, deposits, services and all products for the economy and for the clients. At the end of the day, we can deliver a robust economic result. At the end of the day, it is designed to improve dynamic credit action development. So foreseeability is high on the ranking list. Income growth and business growth in comparable conditions, we can see promising dynamics, the basic activities in quarter-to-quarter and year-on-year comparison to keep the dynamics in positive trends and reflect the growth of activity scale. So there is no tactics. It's the result of hard work to create the best possible offer at affordable and attractive prices that cover all the necessary costs and produce results to the owner of the bank. Speaking about net, interest income, that was, already mentioned. Second quarter, a slight decline of the margin. It was signaled before. Not all the positions have been revaluated in this presentation, but this is a proof and a prompt. The interest rate of the general bank has changed and the reference rates changed and our rents are correlated. And you can see there is this apparent delay. This is a moderate revaluation with a time delay. You can see it in quarter-to-quarter presentation, although net income margin declined, but net income has been sustained and delivered as we promised. It's healthy growth that shows that clients use our credit products and deposits. It's best demonstrated on this tabulation. This is the financing. We'd like to say that gross financing on a year-on-year basis delivered 2-digit dynamics. Quarter-to-quarter, 2.5%, which also makes us happy. What is the fuel for this financing is the acquired savings, 13.7% on a year-on-year basis and a higher increase quarter-to-quarter, 3.5% higher than dynamics of financing. So we can see that we are building a strong balance position to fuel this acceleration in main macroeconomic parameters to be a part of this process. Speaking about particular segments, we start with top-hand right side corner. What makes us happy is that corporate clients are also with us. We were perceived as a general public banks, but corporate clients are using our services more and more often. We solidify our position. We go stronger and stronger, and we'll be developing as it was outlined in the strategy. Financing for corporate clients is increasing 8.7% year-on-year and 2% quarter-to-quarter. Corporate clients deposit, we have also increases, higher dynamics compared to financing. Speaking about the finances we provide for specific business entities. Energy transformation is pivotal for us. So we have defined our appetite for 20% of financing for energy transformation. Polenergia is one of the examples. We invest. In Baltic offshore farms and thus, we are the co-lead manager of Eurobonds in sustainable development, EUR 750 million. And the contribution of our Czech division was substantial in the process of acquisition of this client. So we'll be presenting the biggest transaction so that you can see how we deliver the results that are most important for us, the strategic goals. Speaking about retail, as Piotr mentioned, if I started with market share in consumer credit, we exceeded 20%, which makes us really proud. Retail clients use our products and services in credit domain, and we have improved both offer and processes, and we are determined to increase availability to our offer to make it better and better. And also, mortgages delivered our position improvement by 13 bp quarter-to-quarter comparison, bearing in mind that the new sales are attached to high dynamics. Year-on-year, this is 45% in dynamics. Quarter-to-quarter, 10% plus. And it is in both segments, in mortgages and consumer loans, cash loans. So you can see the adjustment of the offer and making it available and attractive to our client, which results in the fact that clients can deliver their objectives easier because this is what we count on because the growth shows that there is a plethora of clients that use our services. We have 12.3 million clients who use our offer. That's the best confirmation that what we do makes sense. Speaking about retail deposits, there is 6.5% increase, and we have solidified our market position. It's a strategic objective. What is worth highlighting is the mutual fund dynamics. Year-on-year comparison delivered almost 40% dynamics is one thing. The other thing is that the position improvement in savings is associated with a strategic pillar and the change of behavior and awareness increase among our clients and the fact that we can offer investment funds that complement traditional savings, deposits and bonds. So it shows that there is increase of awareness, and we are ready to deliver this objective step by step. Mutual funds share in the market increased to 22.12%. Speaking about fees and commission income, it increased by 1.9% quarter-to-quarter as it was signaled before, the first quarters of last year were associated with one-off settlements, especially associated with cards. So dynamics does not fully reflect the basic drivers that make us really happy. And we have moderate optimism when looking into the future with regards to dynamics in the domain of fees and commission income. This is a kind of a confirmation for us. We're searching for the answer confirmation whether the services we're offering to the customers are attractive for them because the trends are most important. If these customers are using our channels in both channels, also products, for example, ForEx products, exchange and brokerage, this means that in the long term, in this position, we can have a positive outlook, and this is also happening indeed. Also, the element of funds and brokerage activity is also has a significant increasing meaning here in the result balance, and cost effectiveness also is very important. We perceive it not from the perspective of pure cost discipline or the so-called cost cutting, but our perspective is based on the undertaken strategic actions to improve effectiveness. It's a whole stream of actions where we identify areas for example, manual action or, let's say, we switch bots to some kind of solutions based on AI on LLMs. And step by step in this scope, we are going to keep and search for this cost effectiveness. The costs this year are 2 elements, adaptation to this inflation aspect, inflation indicators historical, but also we have -- it's the first year of the strategy. So some of the strategic initiatives are burdened with higher costs at the start. So kickoff costs here are emerging. But quarter-to-quarter, the dynamics year-over-year is going down. And as we have signaled this year, probably finally double digit or high 1 digit, we shall see, but we want to function in this range below 10% in terms of dynamics. So here, for us, it's a reason to be proud. Even though we have very active strategy in terms of activating credit actions, we are able to maintain high discipline in terms of cost effectiveness. We are still very active in terms of emissions. In connection with MREL, we have issued in June further debt. We have published the current report this week that we are planning Tier 2 up to EUR 2 billion in the third quarter and probably within the end of the year in the fourth quarter, one more emission issuance we will have to implement to maintain these parameters that are necessary to continue the action, the credit actions, this dynamic development of the balance. And moving on to risk. Piotr?

Good morning, ladies and gentlemen. I think that cost of credit risk are not surprising. We have a very dynamic increase in credit actions, and credit write-offs are in a stance that was imported at a very low level. And a quarter ago, we've been saying that our write-offs on nonfinancial assets will be going down, and this is exactly what's happening. And the quality of the credit portfolio is improving. Stage 2 and Stage 3 are going down. At the same time, the coverage of reserves is increasing. I want to emphasize especially the level of risk in cash loans, which is going down. It is at a record low level now, showing that the new sales is located in segments with relatively low risk. And we also show very good results in mortgages. For 3 quarters now, we have had a positive result in write-offs. In the second quarter, we've created over [ 2,200 ] million write-offs for ForEx loans. And this coverage of coverage increased above 150%. I have to say that I have not thought that we are able to create write-offs above 100%. But as we can see in this segment, this is possible. And we are really happy with the fact that there is a drop in the number of court cases. There is an increasing number of settlements achieved in courts. Also, we have this effect in mediation applications. In second quarter, our capital indicator ratio increased, the surplus we have above the regulatory level is very high. It allows us to dynamically continue the increase of the credit action. Also, the confirmation of the fact that we are conducting very dynamic business increase, but in a safe, secure way for shareholders and the results of European stress test where PKO Bank Polski is in one of the front -- in the front line in terms of the resilience to stress situations. All of this thanks to the solid and reliable work of all the employees of PKO Bank, which I want to thank. Thank you very much.

Thank you, Piotr. And to sum up, we are at a solid, reliable foundation consistently, we keep supporting the credit channel, both the Polish economy, also the society. We assure funding and secure savings. This is important. We have a solid capital stock, which allows us for credit actions that accelerate in connection with the macroeconomic parameters that in the second half of the year seem to be -- to increase, especially the investment assets. We have a solid liquidity reserve. We are able to manage risk. In this scope, I think this is one of our best areas in this market. We have a wonderful crew, which is not afraid of ambitious objectives and undertakes the pursuit of the objectives. And together, we implement them. So I want to join gratitude. On behalf of the Supervisory Board and the whole Board, I want to thank all of you and our employees, and we are at your disposal in answering any questions.

I invite, ladies and gentlemen, I want to invite you to ask questions.

Kamil Stolarski, Santander Bank. I want to congratulate this increase in credit, especially this consumer loan that is increasing 18% year-over-year. It seems to be faster -- growing faster than the market. Gentlemen, you have mentioned that it is making available these loans in a simpler way. I'm wondering what is the simpler way because at least in my statistics, PKO BP over the year, loan increased by PLN 7 billion. And in the market, it's PLN 9 billion. So you're, let's say, taking most of this cake. What is the reason for that? Also quarter-to-quarter, there is an increase -- fast increase of the retail loan than the institutional loans. So can the institutional loans somehow increase faster than the retail in the coming quarters? Is this not an assumption? And last question, PKO SA mentioned during their quarterly results that this increase in corporate loans in that case, PLN 3 billion resulted from taking funding from EBI in the balance. In PKO also, does this increase in corporate loans partially result from increase of foreign investment?

In terms of the simplification, we have a strategic initiative. I don't want to speak too much into detail, but all the credit processes are subject of analysis. And so we have -- we substitute subprocess into processes. We also work with manual ones. This simplifies our actions. This is regarding the simplification. I'm sure that we will continue these actions. This is visible in every parameter. We're able to replace bots with LLMs. We are able to expand the bots. We're also able to include call center where earlier it was not included. And to a strong to high degree also, we consolidate the market, not only the banking market, but also we see tendency that some customers consolidate their obligations in terms of installments, which were not really displayed in the banking sector. So all of this, we cover 33% of data in terms of retail customers. So we've got fantastic recognition in terms of profiling risk and approved actions. Piotr here very strongly -- keeps a very strong eye on this. And even though we're gaining market share, as we've declared, we're going to explore new areas like buy now, pay later, et cetera. We see that perhaps the space at the level of the cost of risk in the strategy we set as 70%, 90, we keep this level that is not changing actually. And this is the result of this fantastic selection process. We are -- we keep a really strong guard of this, and this grants the comfort to work forward. And therefore, we see that we have no problem there. Simply, we do it really well. And this is obvious because the scale really matters here. And our coverage in terms of data that we are handling that we have versus even the cash loans in the balance still it's nearly twice as much. So we've got space to simply improve the process, make the offer more attractive and continue the increases.

I would like to add that every quarter, we increase our customer base preapproved. So ones for whom we know the risk profile and this allows us to expand our customer base. Thanks to this share. We increased our market share.

Answering your second question, historically, of course, we have the perception that we are a retail bank. So therefore, we have accepted this challenge in this strategy. And we want to let's say, fight for this corporate market. For us, a natural channel for strengthening our position -- market position is the energy transition. There we are active, we will be active. This is only just starting, and we are just accelerating. So can we increase? Technically speaking, I will be the happiest person in this country if such data if we reported such data. But of course, here, statistics in the retail, we are very strong, and it's difficult to answer this way. Nevertheless, if such a situation takes place, I think also the colleagues from the retail department will strongly support the corporate that such a situation takes place. We are looking in a balance -- have a balanced perspective. We are here to provide funding in a reliable and a wise way to all those who need it and whose risk profile indicates that without major problems, they will repay the loans because this is not our money, right? It's the money of our customers deposits this way. In this perspective, we are a universal bank at the disposal of everyone. And this is the result of our work and our appetite to also balance corporations is really corporate is really strong.

And from a macro perspective, also, if I may ask in terms of corporate versus retail loans. We have to remember that on the one hand, the expected strong increase in investments, even a double-digit increase suggests that corporate loans would accelerate the pace of development of growth of retail loans. We have to remember that the competition in some segments are funds. They are sort of cannibalizing the corporate loan. And there's also increased external funding of enterprises in Poland, increased share of funding from outside from abroad. Leasing is dynamically developing can also consume part of this growth potential. What was visible in our forecast systematically, we believe that even with such investment growth in this investment boom breakthrough. Corporate loans probably only transiently can develop in a double-digit pace and rather not in the scale of the following years. The scale of the whole year, they won't keep growing faster than household loans.

And the third question, we purposefully mentioned in Slide 14, the largest transactions for you to be able to have a closer look at them and answer in a slightly different way. We are active in the loan market, in currency loan markets. We have branches. In terms of foreign branches, we also have office that is larger than we have now. So there also we have appetite to -- for this credit channel, loan channel to be reinforced and strengthened. We have cases, maybe not in the scale that was asked about, but we have cases that confirm the fact that this is a good concept to be global to follow this context of branches because we are funding not only our customers that function in these markets, but also local ones for whom the risk from the point of view of our criteria is okay, so this channel for us is absolutely expected. And I tactically understand this that somebody might have done it this way. That's why in the 14 slide, we've presented the largest transact transaction we have.

Andrzej Powierza, Citi, Handlowego. Congratulations on the results, especially the margin. So let's start with this one. Net interest income looking for assets and weaker points. Are you happy with deposits in your bank in the market and interest rates lowering? How can you translate it to deposit costs?

Net interest income. So NII supervisory test, not interest income. So this is the measurement of this index that was introduced last year, we discussed it every quarter ever since we introduced it. So in this sense, we declared that we take up activities that are the time buffer because we speak about the time buffer when it comes to repricing that is related to interest rate decline. Pricing is the same. There might be some shifts between quarters. What hasn't changed from my perspective, what may potentially change is the terminal rate, it might be a bit higher versus strategy. We assumed 3.5% in the strategy. So the access line might be a bit different to the one that we have outlined and have updated. But activation of sales of mortgages that are based on fixed rates, improvement of the offer and similar activities, fixed rate improvement in the bond portfolio, plus bridging the gap. Well, it was not a gap, but IRS and derivative improvement serve the purpose of these results that we can see today. And let's remember, variable rates are not coherent because there are different references like 1 month, 3 months, 6 months, depending on the internal distribution. So this kind of revaluation of the assets might be a bit delayed versus the interest rate lowering by the Central Bank. As I said, the net interest income should be no lower than last year, and we would like to sustain this opinion. We might bring you surprises looking at the consensus and looking at the reality. Deposit repricing has been done cautiously, too because this is savings. And when speaking about market shares, we want to have this fuel to finance credit by deposits, including retail deposits. So we introduced high interest rate long-term product, and this is the direction that we'll be strengthening. Not only do we speak about client portfolio, they can buy products and save this way. But long-term financing is all influenced by this because it prefers long-term individual deposits without recognizing the short terms. So we've been proving repricing point to point. Deposit repricing is not automatic. It's internal discussion reflecting competitive advantage. It's assets and liabilities committee discussion that is ongoing and periodical. These topics are not easy, but we have a wonderful media of people that work with us. We'd like to thank them because their prudent and diligent work makes it possible to communicate as we communicate today when it comes to net income and margin.

And the second question, mortgages. Kamil was asking about details and your activity in consumption -- consumer credits. I'd like to ask about home loans and mortgages. There are 2 numbers that go hand in hand. Intermediaries, how active are they in selling your mortgages? And what is the external clients participations that you sell mortgages to? And the market, how much is it influenced by price? Is the price a decisive factor for the clients and banks contribution to the market? Or are there other factors? And digital mortgage, advancements, how much can it be a business breakthrough? Or how much can it be just a gimmick?

Speaking about intermediaries, we are below the market average, 50%, 60%, depending on the period, 60% if we look at long-term average. We work a lot, as you might have noticed. We have group offers that we promote. This way, we want to have intermediaries as auxiliary from the point of view of clients because the sales channel is pretty costly. We need to realize that. Why clients take loans with us? It's not only the price that matters. The scale of increases that we have, we need to have a real outlook on the numbers, facts and figures. We don't have more and more people to work with us. So this process is critical. Time is very important. And we have to do great work that is not visible for you, like internal process reengineering to face this influx of applications. I'm looking again at Piotr because when we look at retail client share, be it a mortgage or cash loan, when we compare it with the data in risk management, we can say that the client has already been gained by the bank to different extents. So I believe that's the situation.

There is an opinion in the market that PKO Polish banks processes are flexible. Some banks specialize in specific client groups or commodities or real estate. PKO Polish bank is a broad scope bank. They can finance all kinds of investments, even difficult ones. And we excellently manage risk, and we don't increase risk here. It's a competitive advantage on top of the fact that we have the biggest networks of divisions in the country.

The biggest network. Digital mortgage was developed in a hybrid model. A client may discuss it with the bank division and if they want to establish a physical contact with the bank clerk. It's not like one mortgage process standard for everyone and the digital mortgage covers it all. There are at least 2 measures. How much is the coverage in what we do, what is the scale of the business that is covered by digital mortgage. Not all segments are covered by digital mortgage. We've got a road map of things to attain, like 40% of the whole pool of all the segments. And thus, we define our appetite. We don't see and don't classify credits to digital mortgage if there is the yes in the bank division. But still, the digital mortgage has played its role. Will it be a model totally based on digital mortgage? Probably no. As you know, availability is the pillar that comes high in our strategy. It is associated with the model of operations in bank divisions rather than the depletion of the number. Finances are becoming more complex, comprehensive, difficult. And bank divisions have to work with the client in a holistic model and advisory capacity to speak about finances, loans, credits, savings. So there is much room to act. The matter is complicated, and this digital mortgage is not an adviser at all. But once you get counseling, you can take many steps simply and do it in digital mortgage.

Digital mortgage is a cost-saving factor because this process is a little bit complex and quite costly. And digital mortgage makes it possible to deliver more with lower costs.

And the last question, your competitor, PKO SA has plans to change in their capital group. So investors are thinking about bancassurance. And perspectives of this business model where the bank is the owner of an insurer, the model that PKO BP has had for years. Well, looking at the contribution of 2 companies that are in the group versus consolidated results, it's difficult to speak about a spectacular result. So the question, are you happy with insurers contribution to your results? If not, why? And what are the plans in this respect, in this regard?

We have bancassurance, which makes us happy. We give more products to our clients. We are flexible. This is a factory of products, if you will. There is a demand. It's not an excessive rider in addition to core products. These are necessary elements in leasing, for example, and other credit-related products, be it life related or commodity-related products. Do we have bigger appetite? Yes. We want to introduce more products from the group. So we have bigger appetite. We'll be working on this. As you can see, markets are divided. Markets are normally divided. So the scale of operation shift should be prudent in order not to have bad products whose profitability does not cover risk cost curve, not to introduce too much risk is a basic thing. So we need to be prudent and diligent, and we try to act this way. So it's a priority to continue in a prudent way, observing the risks. We have a natural advantage that we more and more often, it will be more and more visible. Credit risk and insurance risk correlation produces good results. And we are perfect data manager, data of our clients. So we should make the most of the competitive advantages, and this is what we are working on.

I've got a question also from our viewers. And the first question refers to credit sanctions in terms of the free loan, especially in terms of the free credit in terms of the scale of losses and whether we have created a reserve in this -- on this account.

We have not created a reserve on this account because we've got very good legal opinions that indicate that the bank has the right to draw interest on the account of commission. Secondly, the number of lawsuits is going down. 90% of cases were winning and the value of the loss cases is within PLN 1 million in total. And a few quarters ago, it might have seen that this problem may be significant from the point of view of the banking sector. Today, however, it seems that looking at the number of cases that is going down. Also, the court rulings, it seems that we don't need as for today to create write-offs on this account.

We also have a question regarding the non-authorized transactions.

Unauthorized transactions, we -- 2 years ago, have undertaken intensive actions towards protection of our clients against different kinds of attempts to fraud, financial fraud. Now we are enjoying the fruit of those actions. We see that the number of claims is going down systematically, thanks to the fact that we've applied technology to protect our customers. As for unauthorized transactions, we've created write-offs in the amount of PLN 125 million, and they've sort of burdened the result in the second quarter and the category of the result remains.

Part of our viewers also have technical problems joining the Polish version of the chat. Therefore, we don't have too many questions now. Here, we also want to invite everyone if you want to ask a question, this is the right moment to do so. And I would also like to add 2 questions, one referring to the perspectives regarding reserves for CHF credit loans, what can we expect?

Well, we're repeating this year that we estimate that this year is the last year in terms of such a scale of write-offs. We see it in the number of losses. We see it also in the number -- in the fact that we are having a lot of settlements. So this is the last year in which we're creating such huge reserves. Also, of course, in the coming years, some may be created, but nonmaterial ones, not important ones, looking at the perspective of the recent years when we were creating these reserves.

Also, the other question for those of our viewers who did not have a chance to listen to it, the perspectives for corporate loan, how do we perceive this in the coming quarters?

It seems that the economy is developing, and we also participate in this. We're participating and the credit action is dynamically developing. We're sure that we shall continue this trend.

I believe now we can finish the Q&A session from our side. We should try to also, as soon as possible, upload the presentation to our website. Please excuse if you have a problem to join. Thank you very much, and see you in a few months in November. Thank you very much.

Thank you.