Powszechna Kasa Oszczednosci Bank Polski Spólka Akcyjna ($PKO)

Good afternoon. Thank you for joining our follow-up call for First Quarter 2026 Results. We have with us Krzysztof Dresler, CFO; Piotr Mazur, Chief Risk Officer; Jakub Niesluchowski, Finance Director, and IR team. And I already see Michal Konarski ready to ask the first question. Michal, floor is yours.

Congratulations on the results. Actually, I've got 2 questions maybe for the beginning. First one, I would like to ask about the M&A. Actually saw that one of the biggest Polish financial companies, PZU, recently announced that they are acquiring insurer in Ukraine. And of course, they've got business over there already, but there is also like the ambition of the state to acquire bank in Ukraine. And you've got a small bank in Ukraine. And the question is if you would consider an acquisition, which would also be in line with expectation of the state. This is the first question. And the second question may be about the fee income. I was wondering what should we expect in terms of the dynamics in fee income this year, but maybe also in future, I was wondering, you've presented recently a lot of nice initiatives. I mean, Allegro, Zabka. And's I was wondering what do you expect from these initiatives? When they should contribute? What would be the impact, let's say, in 2 years' time on your net income dynamics? So those 2 questions.

Let me answer the first question and maybe Jakub will start with the second one. Actually, as you know, we have on board a team who is dedicated to M&A transactions and analysis. Being the largest bank in this part of Europe, we have to analyze different options from different perspectives. What if we acquire a financial institution, what if such institution is acquired by our competitor, what does it mean? What is the change of the landscape? We name the strategy #1 and full stop. From this perspective, we also analyze different initiatives. That's a general view on M&A. As far as Ukraine is concerned, we have a bank there and the first -- very first and the most important step for us is the peace over there and the quality of peace, in fact, not the peace itself. And if the quality of this is accepted, we can participate in this rebuilding and reconstruction of Ukraine having what we have now. If we take into account the fact that all supranational projects or flows could be provided by us here and settled and clear by the KredoBank in Ukraine, that's one aspect. We can leverage our current position, and we can scale this current position without M&A. Another aspect is connected with an appetite of our corporate clients here in Poland to take part in this rebuilding in Ukraine. We have limits, credit limits. We can assess properly the credit situation, and we can provide proceeds or limits here in Poland, even if they are going to extend abroad activity. And of course, the last probably perspective is Ukraine itself and potential consolidation. Of course, that's a closed country in terms of relations, financial trade, and we can promise that we will analyze everything. But we know what is the cumulative result of our presence in Ukraine is still negative. And from this perspective, we have to be cautious because in an organic way, we can add to the balance sheet PLN 60 billion, what we did in the last 4 quarters. From this perspective, the first option still for us is organic growth and the capital adequacy or the capital surplus over the minimum dividend minimum or, let's say, capital adequacy ratio, which is dedicated for us is slowing down. What means that we can utilize or deploy the excess capital in the best way, generating the value for shareholders in the best way we can. Still, we can do this.

And going to the question number 2, concerning fee income. So indeed, we had a very good quarter, but please remember that the first quarter, especially on the capital market side, is usually strong, resulting from -- on the one hand side, for example, the fee for accounts in our brokerage house, we are taking once in January. That's one point. Second point, what was good from the business perspective, the trading volume was record high in the first quarter on our side. So -- but looking ahead, we expect indeed to further increase, especially our income on the side of the mutual funds and also capital markets on the one hand side, also gradually increase the fee income connected with the customer activity. So if I -- for now, based on first quarter, looking into ahead, I would say we are talking about mid- to high single digit year-on-year for 2026. If nothing will happen because as you perfectly know, for example, in March, despite the fact we actually gained our market share in the first quarter -- sorry, year-on-year on the mutual funds side, we have other market participants, we have outflows which then translates to the fee which we have from mutual funds business. But for now, I would comment in this way, in connection to the initiatives which we are taking, as you mentioned, for example, Allegro, please remember that we are on the initial stage. As we said today, we are before launching the second phase of the project with Allegro, in which then we will be actually acquiring Allegro customers. And then the level and translation of our results will depend how effective we will be on the cross-sell side, meaning how -- which products actually will be able to attract customers and then as okay, current account is an obvious one. But then you have consumer loans, mortgage loans, investment products. So for this year, please do not expect any pickup in resulting from these cooperations. We have -- for now, it's, I would say, negligible, but if you look on the offer -- our cooperation with Allegro and the offer for the customer, we have the cash back for customers for purchasing on the Allegro and payment from our account. So it's kind of -- not kind of, but it's cost which we have for this...

What Jakub is mentioning, we have to first really check what is the clients' behavior because we don't know whether our clients will go for this cash back or not, it's a very small fraction of the total amount, probably partially, yes. But yes, the test we will have in the summertime and the autumn, and we will be much more experience than now.

So this year, we treat more as a kickoff and test and also on our side, what type of customers we'll be able to acquire and if we will be able to bank this customer.

Krishnendra, please.

I have 2. One on the NII. I guess just trying to understand the NII guide. I guess with Q4 results, you talked about flattish or like flattish NII. So when you talk about flattish NII, is it a range that you talk about, like minus 1% to plus 1% -- or how should I look at it? And just on that -- just staying on the NII, I guess, if I adjust for the days, NII for Q1 would be up slightly Q-on-Q. If I adjust for the 2 less days, I think it's up. And in that regard, are we seeing the trough in the trough in your NIM margin? Just we have one rate cut, which happened in March. How should I think about margin going forward in the quarters? And should we expect NIM to broadly remain stable at this range or broadly closer to this range? That's the first question. Second is on the cost actually. I think your cost performance was pretty good this quarter. Just trying to understand on the personnel expenses and on the overhead, are you running any program which has led to any efficiency? Because I believe there was an increase in wages in September. I believe that should have led to some increase in the personnel expenses, but that seems to have -- doesn't have any impact, I guess, in this quarter. So is there any efficiency thing that we should look at? And how should we think about cost guidance for the remainder of the year?

As far as net interest income is concerned, yes, we refer to deliver maybe not declare, but that's our effort, and we will try to deliver net interest income flattish. What means here that [scanning] shouldn't be too wide 1 or 2 percentage points rather than 5 or 10. That's a plan to simply replace the lacking part of interest margin by interest income from new volumes from hedging and from the balance sheet management from the interest rate perspective. And interest margin, yes, we will see because it's a function of the market situation, the structure of assets, repricing long-term interest rates because we also have a bond portfolio and we replace partially. And what we can do, we will continue the strategy to hedge our sensitivity of interest rates, that's not only due to stabilization of interest margin, but also to deliver and to be below the requirement, which is called soft NII supplier Supervisory Outlier Test, simply the test to stabilize the sensitivity of interest rates. Yes, flattish to flattish and the scanning grid should be narrow rather than the wider one.

From the margin point of view, if you look -- margin will be still under pressure of the rate cuts, which we had because not the whole portfolio has repriced already. That's one point. So looking from the whole year perspective, so as we look -- as I look from the margin, which we have for the 12 months, including first quarter of 2026, there is close to 4.6%. However, for the whole year, we expect that it will be lower. So still, there will be pressure on the margin.

The cost side. Yes, that's the personnel expenses. Actually, we will have adjustments year-over-year. It's connected with inflation. We just started the talks with unions. And I tried to explain during the conference that the first quarter is not a good proxy for the whole year. We have some part of costs which are connected with development initiatives and due to the specificity of the projects running -- we run in a bank, the second half of the year, we will see higher dynamics on cost side. And yes, adjustments, we will see, but we created some reserves to cover extra bonuses, and that's why the situation in the first quarter is more flattish than it should be without that.

Just 2 small follow-ups. I think it should be pretty smaller. So just on the NII part, just trying to understand, you talked about hedges and investments. So do you disclose how much of the hedges or the investment is going to get replaced this year? Just trying to mechanically understand the NII or NIM movement. That's first. And second is just on -- just staying on the cost. Like have you kind of in past provided a breakup of how much is your initiative or spend or future-proofing kind of a cost versus the regular cost kind of growth. So if you kind of split it and break it down, that would be just helpful in trying to understand that trend. I know Q1 might not be a good proxy, but just in sense of what this was last year and maybe could it be similar compared to last year and this year?

Let me start with the second question, and then Jakub probably will explain better this hedging strategy. We prepared the breakdown of cost -- the dynamic, how we see. If we have 50-50, there's [BAU] cost connected and connected with development, that's more or less true.

From the hedging perspective. So if you look in the context of the hedges, so still around PLN 20 billion [lots] of hedges will mature this year, and we will replace if needed with the new transactions. Krzysztof already mentioned, we are also under regime of European risk measures as soft NII. So anyway, we'll have to comply with this regulation. So it also triggers hedging, but predominantly, it's our, I would say, strategy to minimize the impact of the interest rates. But -- and from the securities portfolio point of view, which is another important part of our balance sheet also in the context of stabilization and hedging of the interest rate risk, we still for the remaining part of the year, expect around PLN 20 billion, slightly over PLN 20 billion of maturities of the securities.

Annual replacement.

I just had one more, but I guess I'll just wait if there's any other question. I'll rather -- I'll follow it up.

Go ahead.

Yes, sure. Sorry, just one on the cost of risk part, I guess cost of risk remains to be benign. And I just want to understand the consumer cost of risk that is -- I know it's not that big a part of your book. It tends to be going up and up. So is it because of the mix shift impact that you're seeing? Or is it pretty normal of it going up over the period? I understand the inflation and other things and a lot of moving parts are around, but just trying to understand what's the driving force behind that part of risk. Cost of risk are they going up in the few -- in the few last few quarters actually.

That was explained by Piotr during the conference, but if you need some more, Piotr or me or...

I would say that we're forecasting that in the coming quarter, the cost of risk on the consumer loans will be rather flat. And this is what we see in the first quarter. This was an extra PLN 30 million what we provided due to the implementation of the new model. So you will not see this in the next quarter. So I'd rather predict that probably the second quarter, we will see the lower number in this line.

Simply, to be maybe more precise, cyclically, at least once a year, we have to revise the model for calculating provisions and based on refreshment on regulations, internal regulations, which are touching this segment of our business. we've made this adjustment of model that's a one-off. And then in next quarters, we shouldn't see higher level of that.

Do we have another questions? It looks like this will be one of the shortest I see Michal, please.

Maybe just one follow-up question. Regarding the capital position and looking at maybe what you are seeing internally, the demand for the corporate loans and capital needs, do you think you will be able to maintain the payout ratio of dividends in the upper range of the, let's say, requirements if they don't want to change or rather you see it as more becoming cautious going forward. Yes.

Our ambition -- let me -- Jakub answer this. Our ambition is simply to do our best in terms of providing proceeds to the economy, both families and corporates in Poland. We estimate the contribution from investment side to GDP double digit, almost 11%, and we are ready to provide credits and to support our clients. And this is a natural way of utilization or deployment of the capital. From this perspective, if we can keep the pace of development of the loans, we cannot promise the higher level of corridor. We should be within the corridor, 75% to 50%. We started securitization transactions to optimize better. We have another instrument, and we will, for sure, optimize the capital structure. But I can't -- if we are happy on the dynamic on the loan book, I can't guarantee the highest possible level for the dividend because we can deliver better to our shareholders from the credit channel. That's the feeling now.

Maybe I will add 2 points. Please remember that this year, the countercyclical buffer will go up by another 1 percentage point, which also means that if we take and look at the current Polish FSA dividend policy, then the minimum regulatory capital ratios will be equal to the dividend ones. So we have some expectation that Polish FSA may increase the dividend payment criteria for TCR Tier 1 and CET1 ratio. Of course, the question mark is how much if they will do it. But next to what Krzysztof mentioned concerning securitization and other tools are Tier 2 transactions. If you look back, we did Tier 2 transactions last year and in 2024. We also plan another Tier 2 transaction for this year. And still we have enough buffer for the lending. And please also take into account that if there will be a need in the context of volume development, business growth and also dividend payment, we have also AT1 instruments in hand. And additionally, please remember, we are not paying out 100% of our profit, 25% stays in our own funds.

Okay. Maybe one follow-up question. As we see from -- I think I don't know, like 2 or 3 years in a row, PKO BP is setting aside some capital to dividend capital. And the question is -- it doesn't seem like you plan to use it or maybe I'm wrong. Why to do so? Do you plan any extra dividends? Or is this some kind of strategy?

I would say, I don't know if Krzysztof if you want, Krzysztof you're muted, but, if you are answering the question you are muted.

Okay. I'm sorry, Jakub. We define the corridor in the strategy, and we keep this. That's not our decision. That's a decision on the side of our shareholders, and we are ready for different scenarios if we have to reengineer the capital structure. As Jakub mentioned, we are ready. We opened new markets. We decreased margins for MREL, credit bonds, and we extend the diversified geography to be ready for different options, and we will, for sure, continue that. Even if we have to place Tier 1 capital, we will be also ready for that. But if you ask whether we have planned this year to do this, I do not have such a plan.

We like flexibility, let's put it this way. So it's not the first time when we actually allocate the part of the profit to the dividend capital. Please remember also that we have still PLN 9.4 billion on the solo level undivided or retained earnings. But as a matter of fact, it's without any immediate intention to pay out. We pay out 75% now. We only paid advanced dividend once when we were not able to pay out dividends out of 2022 profit. And then we were able to use this dividend capital. It's more, I would say, in the context of flexibility, but I would say, not without immediate plan to utilize this capital.

The last chance for questions. I don't see. So thank you for participating in the call and hope to see you soon on one of the conferences.

Thank you...

Thank you, and bye-bye.

Thank you very much. Thank you.