Santander Bank Polska S.A. (0DVR.IL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of preliminary results of Q4 2025 of Santander Bank Polska. I'm here with Michal Gajewski, CEO; Maciej Reluga, CFO; and Wojciech Skalski, Financial Controller. I'm in charge of Investor Relations at the bank. Throughout the presentation, you can send your questions using the link or you can send them directly to my e-mail address, [email protected]. Michal, over to you.

Ladies and gentlemen, welcome. Welcome to the Erste Group. We've just come through an intense period of communicating some of the most important milestones in our bank's history. We have finalized the sale of SCB to the Santander Group, which took place on the 23rd of December. We've changed our shareholder to Erste Group that happened on the 9th of January. And on the 22nd of January, our Extraordinary General Meeting approved the change of our name to Erste Bank Polska. The next step will be the KRS registration planned for the second quarter. And when that happens, we will begin with the rebranding process. For bank, 2026 marks a significant development opportunity. Erste Group's entry into the Polish market is a clear sign that the banking sector in Poland remains attractive to international investors. More broadly, it confirms that Poland is viewed as a country with solid economic fundamentals and very good growth prospects. This creates a supportive environment for long-term strategic investment, and that is exactly the nature of the transaction by Erste Group. For ourselves, for a bank, being part of a strong international banking group active across Central and Eastern Europe will allow to make better use of the cooperation potential within a region to share know-how and to tap into a wide base of business experience in the region. In particular, of course, in the corporate segment, new opportunities are opening up for us. A lot of our customers are starting their international expansion. They already have branches in Central and Eastern Europe. Regardless of the change in our main shareholders, we remain fully focused on our customers and continually improving the quality of our services to generate value for our shareholders. Coming back to the results. Today, we're presenting unaudited financial results for the 4 quarters of the year. And just like last quarter, we are referring only to continuing operations, meaning without SCB. Let me start with the key figures. Profit before tax from continuing operations, PLN 8.260 billion. Tax and regulatory charge for this period was almost PLN 3 billion. The group generated net profit of PLN 6.463 billion. In Q4 alone, that was PLN 1.571 billion. Slide 7, general operating data. Just to remind you, we serve over 6 million customers, 3.9 million digital customers, almost 5% more than a year ago. When it comes to the number of mobile customers, that is up by 8% year-on-year. At year-end, customer deposits stood at PLN 230 million. Our total assets were PLN 380 billion. Slide 8, key financial results. Continuing operations only. Net profit from continuing operations, PLN 6.463 billion. Net interest income reached PLN 12.703 billion, that's up 4% year-on-year. In the fourth quarter, it was nearly PLN 3.2 billion, broadly in line with the previous quarter. Fee income amounted to PLN 2.95 billion, an increase of 6% year-on-year. Q4 alone brought in PLN 752 million, 4% more than in the previous quarter. That was a record quarter for this item. Total income exceeded PLN 16 billion, up 4% year-on-year, with the fourth quarter delivering PLN 4 billion, that's higher than in the previous quarter. Our capital position remains strong around 20%. Return on equity, 23.6%, excellent liquidity. LCR at the end of December, 219%, good -- cost-to-income ratio, 30.3%. Now about the offer, new products and initiatives. Let me just give you the highlights. We introduced a new investment fund, Prestiz Dollar Debt Fund. We expanded local comfort insurance. We're running a pilot for international euro transfers using BLIK. For young customers, we launched a referral program, a dedicated communication platform and an education campaign under the slogan [Foreign Language]. For SME customers, we enable deposits via Euronet cash deposit machines. We launched new insurance products, [indiscernible]. We have strongly focused on digitalizing in this segment. We -- that includes remote document signing and digital prelimits. Throughout last year, we continued enhancing our customer experience, not only in the app, we rolled out our first Euro cash machines. Customers were very -- they were very much interested in that rollout. We also introduced the new Samsung Pay digital wallet. We are the leader when it comes to payment solutions. It remains our priority. We now have 3 million active cards in digital wallets, generating almost 43 million transactions per month. So that is very popular among our customers. Slide 13, starting from retail banking. We manage 4.8 million current accounts in PLN. When it comes to cash loans, we granted PLN 12.6 billion in cash loan, 10% more than last year. Q4 alone reached PLN 3.2 billion, a record year for cash loan sales, which we're, of course, very happy about. In mortgage, we're back on a growth path. Now new mortgage lending reached PLN 10.3 billion. For the full year, nearly 96% of new production was on a temporarily fixed rate. And the share of temporarily fixed rate loans in the total zloty mortgage portfolio rose to almost 60% at the end of December. Retail investment funds reached over PLN 30 billion, growing 28% year-on-year and 8% quarter-on-quarter. Our market share stands at 10.2%. SME segment, we granted PLN 1.3 billion in loans to SME customers. Digital lending is accelerating. The volume of fully digital SME loans increased by 87%. This, of course, impacts the cost of the process. Leasing, again, performed very strongly, PLN 4.5 billion in sales, up 8% year-on-year. In Q4 alone, that was PLN 1 billion in sales. Business and Corporate Banking credit volumes increased by 8%, FX income by 10%. Customer activity in digital channels continues to grow. Corporate and Investment Banking revenues from capital market services, up 40%. Trade finance revenues grew 23%. Institutional revenues of the brokerage office were 30% higher year-on-year. So very good performance of the CIB brings very good business to our bank. Now let's turn to the balance sheet, Slide 15. Gross loans, PLN 167 billion, 4% up year-on-year. On Slide 25, in the appendix, we show a continuation of the strong performance in new lending. As I mentioned earlier, very good cash loan performance, mortgage sales. We have more detail in the annex. Customer funds, Slide 16. Total customer funds as at the end of December, PLN 261 billion, an increase of 5%. Customer deposits, PLN 230 billion, up 7% year-on-year. In Q4, we saw a slight increase in balances, both in current accounts and in term deposits compared with the end of the previous quarter. Corporate deposits grew by 8%. Here, within this, we see term deposits increased by over 5%, while current deposits rose by 11%. Public sector deposits with an increase of 7%. I've already mentioned investment funds, very good performance, the value of almost PLN 31 billion. Slide #17, profit and loss. Net interest income, PLN 12.7 billion, 4% up year-on-year. Interest income grew by 3% year-on-year, while interest expense by 2%. Looking at quarterly results, you can see that across each quarter in 2025, this was at the same level despite fixed interest rate cuts. The net interest margin on continued operations was 4.64% in quarter 2 and declined by 24 basis points, both, of course, as a result of changes in market interest rates. Now let's talk about the net fee income. That's Slide #18. I've already mentioned that this was all-time high in quarter 4, 6% growth year-on-year. We saw really good growth in fees from asset management, insurance and brokerage activities. Quarter-on-quarter, we were very happy with the card fees, which grew by 15% quarter-on-quarter and brokerage fees, which grew by 21%. Slide #19, total income, PLN 16 billion here and grew by 4% year-on-year. Let me highlight that when it comes to income from other operations, that is noninterest income, non-fee income, that income grew nearly by 1/3. Slide #20, operating costs. Total costs at PLN 4.9 billion. And as you might remember, we had higher costs related to contributions to the banking guarantee fund. If we exclude the regulatory costs, the total overall grew by 7%, driven by inflation, salary costs across all performance-related bonuses as well as due to integration costs posted in quarter 4. If we strip off regulatory costs, administrative expenses grew by 5% year-on-year and 4% quarter-on-quarter. We can see that the administrative costs are close to the inflation growth. And of course, I can assure you that we do control this cost item. So our cost-to-income ratio, as I've already mentioned at the beginning, is slightly above 30%. Slide #21, loan loss provisions. And here, we also have a reason to boast a little bit. At the end of quarter 4, the net balance of provisions for expected credit losses on a consolidated basis was PLN 586 million, while the average cost of risk was -- 37 basis points, which is the historical lowest in our history. The low net balance of provisions and the decline in that balance was driven on the one hand from the good and stable quality of the loan portfolios. Also, that was also supported by good economic landscape that actually impacted the parameters we used to calculate provisions. The net balance of provisions declined also because we modified the criteria defining the material growth of risk. So we had to increase our charges last year by roughly PLN 130 million. The nonperforming loans account for 3.7% of our loan book, which is a good ratio, and this is specifically important when we are talking about dividend policy. In accordance with our process, we also reviewed our parameters and models we used to estimate expected credit losses. As a result, we wrote back PLN 27 million worth of provisions, and this confirms the good quality of our loan book. We haven't recorded any major one-off events in quarter 4 that could impact the net balance of our provisions. On the next slide, you can see that we sold nonperforming debt worth PLN 568 million, and which gave us the gross gain of PLN 112 million. Slide #22, summary of the banking tax and regulatory costs. As I said, these costs this year were nearly PLN 3 billion, in quarter 4, PLN 480 million. Slide #23, where we summarize our performance in quarter 4 and the year. Let me highlight that our stand-alone profit after tax, which is the basis for paying out the dividend was even higher than the one we report, that is -- we report EUR 6.4 billion and the stand-alone net profit that will be the basis for paying dividend was EUR 6.7 billion. In the table, we also show the costs related to legal risk, and that was EUR 1.6 billion this year, and that's 29% less than a year before. Our effective tax rate was 20.9%, and that was impacted by the regulatory cost and the cost of legal risk attached to FX mortgages as well as the recalculation of the deferred tax based on the new corporate income tax rate, and that was EUR 173.5 million. When it comes to our business performance, I'm happy with our results. We had record high net fee income as it reflects that our clients are very active that they use remote channels. We can see the growth in the number of mobile banking transactions and we increased the number of customers in the segments that are important for us, that is SME by 4% and Wealth Management segment by 18%. The net interest income in quarter 4 is close to what we saw last year despite fixed interest rate cuts. So this means that we prepared ourselves very well for this falling interest rate environment. And even though its impact was negative, it was much refrained. We have made our balance sheet strongly resilient to interest rate [indiscernible]. And that bodes well for 2026. So wrapping up, we closed a very important stage in our history of Santander Group, recording solid results. We are ahead of a new chapter. And I do believe that we will be even more effective when working with our new Austrian shareholder. And that's all from myself, and the floor is yours.

Good morning, Maciej Reluga here. We will try to group the questions asked during our CEO presentation. And please stand your questions. Let me start with the question related with Erste Group. Have you noticed any business areas that Erste focuses more than you used before? Yes. You know very well that we are a universal bank. We've been actually servicing all customer segments. And this gives us the advantage because if something does not work in one segment, then we can offset that by performance in another segment. Just like before, in our strategy, we want to stay and keep the nature of our bank as a universal bank. We have very good growth in the customer segments, which are most profitable. I mentioned SMEs and wealth customers. These are definitely the segments that we would like to grow further, leveraging the experience of Erste Group. Also in the corporate segment, large corporate segment, we notice the potential because investments have been accelerating. And there is also a big difference between debt financing -- private debt financing between us and the rest of Europe. And so in our opinion, this gives us a chance to grow further financing we extend. You know we've always been doing that in a profitable way. We know what is the cost of capital. We do not take part in the race just to grow the market shares without profitable growth. We've been tracking what our competitors do, and they write loans below the banking tax level, but we still are able to grow in a profitable way, building relationships with our clients. And they can see -- notice that these relationships give them value. So wealth customers, SME corporations, these are the areas that we will keep focusing on. But if you look at the mass segment, we focus on most profitable products that is funds in current accounts. And we also sell more and more insurance and cash. This refers to capital. The CET is nearly 20%. And what is the plan for using that? And the related question, what is the planned dividend payout in 2026? We need conditions to pay out 75% of profit in dividend. And as you know, this is the starting point. We have not taken a decision yet. You know our history. You know that in the recent years, we've always paid out dividend, a solid one. It's always been preceded by arrangements made with financial supervision. And this time, if we are to do anything, we have to talk to financial supervisor, but we meet the conditions for paying out 75% of the profit. Of course, we have quite a big capital surplus, more than PLN 9 billion. You might remember that in previous years, we were giving approval for paying part of the retained profits for the years when we met dividend requirements. So we will be talking to the banking supervisor, and we will be thinking how to use it best. And I mean the surplus. Okay. And there is one more question about the growth in balance sheet and the loans. The expected growth in loans in 2026, what is our opinion about it? How -- what do we think about the mix of growth? And what segments are we going to grow in? Are we particularly interested in any segments? And when it comes to corporate loans, are there any specific sectors? As I said, we've noticed a big potential for the growth in lending. We noticed there is a growing demand. We noticed the growth in investment. We also compared ourselves to the share of debt in corporate financing, business financing. All those indicators are good, which -- and they indicate a potential. Polish companies face the challenge, which is growing their productivity and effectiveness. Without automation, digitization of processes, which require capital outlays, this will not be possible to improve their effectiveness. So when talking to our clients, we can see they are more and more interested in investment loans. And we expect even bigger demand. This refers also to the SME market. We've done quite a lot there in recent years, not only talking about digitization, but also when it comes to excelling our models of financing, especially for micro and midsized companies. We have record low cost of risk. This is a difficult segment. You really have to get knowledge about that segment, and you have to be wise to finance that sector. We know how to do it. So our share in that market is growing. And this is something that our new shareholder appreciated. because they want to use our experience and models that we've developed. When it comes to personal individual clients, we had record high growth in cash loans, and we will continue to develop that product. It is very important to reduce unit costs, in this case, the cost of processes. Across the market, we can see there is a lot of competition price-wise. We are not going to be part of that raise. We are going to always mine the cost of capital and to stay profitable. So financing the transformation, and we've been good at that in recent quarters that is financing of the defense sector and also the initiative related to automation and digitization of processes and enterprises. We will also finance the expansion of our clients to the Eastern and Central Europe. We view it as a big chance, as a big potential because the vast majority of our clients have much more business there than in Western Europe, where Santander has its strong footprint. We have a strategic collaboration agreement with Santander. So there will be still support for the development of the business of our clients.

So now about deposits and our strategy to attract and maintain retail deposits, especially in savings accounts beyond special offers. And what do we think about deposit mix going into 2026? Let me answer this question. Our strategy is to provide good savings and investment offerings for our customers, not only in terms of deposits, even in the performance for 2025, you see the inflows to TFI, and that is likely to be continued. So we will have -- and we have a strategy ready here with the new shareholder. In terms of deposits, our strategy recently was to do 3 things simultaneously. They're quite difficult. That was to maintain customer satisfaction, the depositor satisfaction, maintain relatively low cost of deposits. And after 3 quarters, we had the best ratio in that respect on the market. And simultaneously, we wanted to maintain our market share. And we succeeded, as you can see in the figures today. You don't see -- we're not presenting here customer experience and satisfaction. We don't see the NPS. But the 3 elements that I've mentioned, we have delivered them. And we will continue. We'll put more pressure to boost current deposits. The market is growing fast, and we want to grow faster. The structure current versus term on our part compared to the market, it looks quite good, but I think we can improve it because current deposits are growing faster than term deposits, especially with lower interest rates. In terms of term deposits, again, you know that the better -- how we reprice term deposits in relationship to the scale of reference rate cuts or LIBOR, that ratio was very high at the beginning of the cycle, that was much above 100%. Now we're getting to the end of the cycle, and this ratio is going down. However, it is still close to 100%. So in 2026, the strategy that brought about the results you see today will be continued with focus on current deposits. And in relation to this, we have the question about net interest income and net interest margin and our outlook for 2026, our outlook for the rate sensitivity in 2026. So nothing to add to what we said before during the conference. The sensitivity is the same. 100 basis points of sensitivity is about PLN 250 million-ish. The balance sheet is growing. The sensitivity is relatively lower than it was in the year back. We've been working on our resilience. The share of temporarily fixed rate is almost 30 -- sorry, 60% at the end of December 2025. So it's not surprising that NII has been stable over the last quarters despite the interest rate cuts. In terms of rates, in 2026, we're expecting 2 cuts by 25 points, and we will continue with our strategy here. Now the cost side, we have quite a few questions here. Let's start with a more general one or the one-offs maybe, and then we'll give you a more general overview. Fourth quarter cost of integration, about PLN 70 million. What sort of integration costs can we expect in 2026? A few questions about the same thing really. So let's take this quickly from our financial controller. The last question is about specifying the cost of rebranding, as I understand, PLN 250 million is the impact on the results of the gross cost before tax, that's about PLN 300 million. How will that be distributed per quarter? What will happen in 2026, 2027? We are not presenting that on the slide. Well, our intention was to show you the impact on the result in gross terms. So PLN 250 million is the estimated cost of rebranding before tax. What will happen in time? Well, as we said, we are planning to rebranding in the second quarter and the cost of rebranding costs, the cost of physical rebranding, changing the logos, changing the colors, changing the names in various IT systems, they need to happen relatively fast. So this element of rebranding cost will be made in the second quarter, the bulk of it this year. Now promotion, media campaign that's already happening. This is the cost that will be distributed throughout the year. And some of it relatively small may still appear in early 2027. So that's about rebranding. Beyond rebranding, will there be any more costs related to the integration? Yes, of course. But because this is quite complex and because we're talking about elements that will require further procurement to continue to provide services in collaboration with Erste Group, some alignment when it comes to systems with the new group or alignment with local suppliers. We're not yet ready to give you a reliable figure and we'll be coming back with that when we present the results for the first quarter of this year. There is a question whether this PLN 250 million, that's the impact. I said that already. That's how I started to answer. Most of it will be made in 2026 when it comes to the brand promotion. When you leave the one-offs, what about the cost dynamics in 2026? We had a comment to that. Our distinctive feature, the strict cost discipline, nothing changes in this respect. First of all, our target is to maintain cost to income at this excellent level around 30%. The guidance for total cost, we can say today that we don't want to differentiate from the CPI expected in 2026. Now the cost of risk, our outlook here, are there any specific macro factors that you closely monitor for potential shifts in credit quality?

Let me take that one. There was a time a few quarters back when we were observing some variations when it comes to our customers' financial spending, whether they were importers or exporters. This was related to the strong PLN and the demand and the situation in Europe. We had stagnation without any serious rebound when it comes to volume or demand for export products. And this is when we closely monitor the situation, whether that was likely to persist. Well, I can say that the situation is stable. We're getting out of the trough. The PLN remains strong, but we're seeing some rebound in Europe, particularly in Germany. But in my opinion, this also shows that the adjustability of our customers' exporters are amazing. And we can safely say that this particular area does not require close monitoring. The situation here is stable. That's one answer. Now the first part of the question, cost of risk, 2026. You probably remember in our strategy, the cost of risk, we have guidance for 3 years. We did that in 2023. That's 3 years back. That was 70, 90 together with SCB. But as we're presenting in Slide 21, historically, SCB gives us about 10 or 15 points. So we need to subtract that in the first step, it was quite a wide bracket because it was for 3 years. Now we're talking about guidance for 1 year. And when it comes to the economic cycle, this year, it's actually being forecasted as quite a good one. 2025 in terms of cost of risk was unique, very low levels. So it would be difficult to give guidance with improvement. I would say that this will be stable if we had to give you some brackets that would be about 10 points up not more than 50. That's how I would put it. Next question, FX mortgage legal risks and the cost, our assessment of the remaining exposure related to FX mortgage legal risks. Well, the first thing, our provisions reflect the situation. In the balance sheet, you see slight minor portfolio, about PLN 0.5 billion. We're not giving any guidance here. This is the end of the story, positive results, the last ruling from the European Court of Justice, we see it as a positive sign. And here, we see on the asset and liability side, we see fewer lawsuits. The ruling from the 22nd of January, actually the court confirmed that may use set off in the same proceeding. They confirmed that we can raise a set of defense even in the same case when the borrower is challenging the validity of the loan agreement. So as I said, this is the end of the story. There will be other regulatory aspects that are likely to get more attention in the future. Let me -- well, let me just add, this does not mean that we won't be raising any provisions for Swiss franc loans. This is the end of the story, which means we're at the statistical tail of this. But this financial impact will be phasing out, but it's not quite the very end.

Well, there are a few detailed questions about ratios, NII and [indiscernible] at the end of 2025. I think this question results from the context of dividend. I can tell you that they were below the levels required for dividend payment. So there is a big buffer. NII before and [indiscernible] below close to 10%. And most likely in our annual report, we'll give you the more exact figures.

There is also a question of the long-term funding ratio requirement. Have we met it at the end of quarter 4? Well, this requirement formally was not in force. It is to come into force. But yes, we were below this threshold. And in the second half of the year, in quarter 4, we very effectively price our issues that we conducted in order to meet tier [indiscernible]. And that will help us. And there was a question on balance sheet hedged against the interest rate risk. I think we've already answered that. But just a question about the balance sheet. The nearly 58% of our loans are at the temporarily fixed rate. So we've already said that.

I think these have been all the questions that have been sent and asked. So thank you very much for this. We are starting the new year, the first month has passed. We are very optimistic when it comes to the future and the cooperation with the new shareholder. And I do believe that this is going to be another year of growth and really good performance. Thank you very much.

Thank you.