Alior Bank Sa Unsp/Adr

Good morning, ladies and gentlemen. Welcome very warmly at the Alior Bank quarterly conference.

Iwona Duda, CEO, will make presentation first, then Maciej Brzozowski, the CRO, and Dariusz Szwed, the COO.

Welcome and I pass the floor to Iwona Duda, CEO. Welcome everybody at Alior Bank at our first conference in a new year.

So we have pleasure to present results, performance for the first quarter and the first good news.

The net profit was at the level of 108 million zlotys compared to the first quarter last year.

It is a big improvement.

At that time it was 70 million, whereas the first quarter has always been treated, I mean, Last year, it was non-pandemic quarter. It was before the pandemic, before all the constraints, all the restrictions. And in the first quarter 2021, The ROE was also at a very handsome level of 6.7%. And compared to the first quarter 2020, it's much higher.

At that time, it was 4.29%. Now, cost-income ratio in the... It was... 26.1%. And according to our updated strategy, we want to go below 46%.

Sorry, the ratio was 46.9%. So we are very close now. and when you have to remember that we the first quarter of this year we paid a contribution to the banking guarantee fund so this ratio excluding this contribution to bfg would be at the level of 39.8 and the cost of financing was down from 0.02% in the first quarter 2020 to 0.22% in the first quarter this year.

So this is very positive and visible.

how we manage to achieve that first of all sales growth reduction of credit risk and responsible cost cutting I mean operating cost cutting and we have already got used to the operations in the pandemic environment we are trying to do our best to adjust our product offer and service offer to both corporate customers and retail customers to encourage them to do banking as much as possible.

Once again, I would like to tell you about very good Financial performance in the mortgage loan segment.

In the first quarter, the sales of mortgage loans was at the level of 7 for 6 million in value terms, up by 58% on a year-to-year basis. And the bank's share of... The market was at a level of 4.2%. And we also recorded the high sales of higher purchase loans. And despite tough market environment in first quarter 2021, the sales of higher Purchase loans was up by 5% on a year-to-year basis and total 0.98 billion. And then the sales of lease products were at the excellent level in first quarter this year, the lease sales. Total 717 million, up by 39% on a year-to-year basis and 5% on a quarter-to-quarter. And also very handsome performance of Alior Fund Management Company. The net sales in the first quarter this year was at the level of 218 million in value terms, whereas the total value of funds under management of earlier fund management company was up by 114% on a year-to-year basis, up to the level of 1.35%.

And then when it comes to Tier 1, it is at the level of 13.4 and then...

Tear at the level of 15.27%, which is much above the regulatory minima. And the cost of risks being stable in the first quarter 2021, COR was down by 18% on the year-to-year. In total, 243 million compared to 296 million last year. And in the first quarter this year, COR remained at the low level. 1.59% against 1.93% in first quarter 2020. And then, of course, we can talk about the quality of the portfolio, of course, in the light of the statutory moratoria.

More about this later on.

And then regarding to other financial performance details, first of all, total assets went up by 4.4% on year-to-year basis. Now we reach 79.9 billion zlotys.

And we are very happy with the increase of the number of customers online. This is 639 customers, up by 25% on year-to-year basis.

And because of our specific nature, the fact that we offer digital technologies, which in our opinion are more and more intuitive, user-friendly,

As you can see, our assessment is backed up with the increase of the number of customers online. And now the level of deposits is 63.3%. And then when it comes to the business customers, also growth in this area more than 5%.

And then the business customers total 243,000. Retail customers small decline when it comes to the gross loans at the level of 62.1 billion. but there are various trends here. The cash loans are declining slightly, but when it comes to mortgage loans, very handsome performance, up by 18%, and then consumer finance loans up by more than 30%, to be more exact, 31%.

And the value is 3.9 billion zlotys. And I would like to draw your attention in particular to the slide, especially to the graph on the left-hand side. You can see the...

the improvement by leaps and bounds compared to the first quarter last year. So, the more we are happy with 108 million of net profit this year. So, this is the graphical presentation how we achieved our financial performance regarding Tier 1 and RCR. Tier 1 was up by 464.

compared to the regulatory minimum.

And the LCR, which is liquidity, now at the level of 180%, also much above the regulatory minimum.

And then...

the climate challenges. This is a part of our strategy. We want to intensify our activities. The bank wants to be more involved in the environment-oriented activities.

We have already the first good results.

We sold the loans worth 4.2 and more than 3,000 new contracts. And a very important event was the signing of the agreement with the National Fund of Environmental Protection and Water Management. We are one of the eight first in the top eight banks, first banks that decided to be active in this area. Of course, to serve our customers well, to offer superior customer service, we need to be a model bank so that the customers could follow into our footsteps. And let me just give you two examples. We now have the new environment friendly format of the branch offices our branch offices are made of recycled materials we offer we build into the branch offices we use walls of the trees that are fast growing. And then in our offer, we have various products targeted at retail, micro and corporate customers. And based on the data, the best seller is the eco-installment product. Now when it comes to awards and distinctions, This is probably not of so much interest to the analysts, but our bank is appreciated. It must be noted. So the activities of our brokerage house is well appreciated. Let's go to the next slide. And this is the implementation of the updated strategy. I mentioned most of the ratios already, but when it comes to NPL, Please know that earlier had quite high level of NPLs, and we are doing our best to reduce this level, which is visible in the digits, in the figures, and this is our target for the year 2022, and We believe that direction is the right and we are already approximating ourselves to the targets. Now the business and operations. I would like to thank all the employees of the bank. Hard work, rolled up sleeves, we wouldn't be able to celebrate today. So without our key account managers and first line personnel, it wouldn't have been possible. So I will focus on the major products. So in fact, the mortgage loans, this is a part of our strategy. building relationships with the customers and also building safe portfolio. On a year-to-year basis, the mortgage loans were up by 58%.

Last year, our share of the market was below 2%.

Now it is at the level of 4.2%.

So, in fact, this level of 4.2 seems to be the

the figure which reflects one year of hard work of portfolio building.

This is good. I believe this is a good prospect for the future. We are very happy that customers pick up our offer when it comes to the size of our loan, this is the flat line, so we had to make the criteria of making the loan available, we had to make them more stringent because of the pandemic environment, so the small figure which shows

slightly negative value. We believe that this is flat. We believe that with the vaccination campaign growing and the rebouncing of the economy, we also in this segment, in the loan segment, we will record better performance and then consumer finance loan we've always been strong in this segment and we are excellent performance five percent growth on a year-to-year basis worth more than one billion zlotys and also the very handsome growth in the number of

customers.

So I believe that no doubt that for us the key indicator in consumer finance area is the fee and charges income, which is quite good. And then 750 million, this is the value of the mortgage loans and looking, bearing in mind that this is almost end of April and the value that we want to achieve, which is 300 million worth of mortgage loans per month. We are very close to this 300 million per month because in March we recorded a value of 290. So these are not empty words.

The number of mortgage loan applications which exceed 2,000 applications

No doubt that we are on the right track and the performance should be already better in April. Then when it comes to... We want to strengthen our relationships with the customers. We want to make these relationships permanent.

And then when you look at the number of... Retail customers, this is a flat figure, but please remember that in the fourth quarter we merged with T-Mobile and there was an overlap of customers and after cleansing up the database, then the number of New customers would be 53,000 just to play fair. So when you clean off the T-Mobile customers, the trend might be slightly different. And then other targets, the targets we set ourselves. So in the first quarter, the number of mobile customers is maybe

Not so high, but on a yearly basis, this is really satisfactory. So these days the customers use more and more often the web applications.

Let me emphasize on this slide and perhaps these are the new activities implemented by our personal but the multi-product nature of our offer. This is a unique idea very well perceived by the customers and also by

the personal of our partners.

And when we analyze, historically speaking, the standard partner outlet had two legs. One was the cash loans. And We wanted to offer not only one product, which is cash loan, but we wanted to offer a few products to such customers, to such borrowers of the cash loan.

We want to offer this multi-product feature, not only in the partner network, but also in our own network. And then NPS, I would like to pause here a minute. We are doing very well in terms of NPS.

And please note the improvement of our image and also the brand perception.

We had some challenges in 2018. 19 when the lending market was difficult for us and certain ratios were negative but now the customers can see that brand building was at the highest level and the customers started to appreciate our

efforts and I believe that the times when Alior Bank had to face the one-off challenges and it's already behind us and now the customers appreciate our efforts. corporate loans in the first quarter the small smes plus micro it's one point 18 billion on a year-to-year basis. And there was a slight decline because of a more stringent approach to risk. But on the net basis, the earlier sales at the level of 1.8 billion gives no doubt spells good for the future.

And I believe that next quarter the results will be at a similar level.

And talking about another segment is the enhancement of transactional feature of our banking services, so this is a combination, the connection of the customers' accounting segments and there was a slight distortion in the first quarter and the number of the customers paying.

Social security contributions and making tax payments from our accounts, it's still increased. And I believe that the performance in this segment will be better and better. I will give you reasons why.

When you look at the micro segment, Then all the KPIs we set, they are up. We are very happy with that.

It means that the customers survived through the pandemic times and they took advantage of the support of external institutions. They use their accounts actively, they pay their liabilities.

use the payment cards issued by Allure Bank. And we are very close to the customers in tough times. We were active with the The anti-pandemic shield, the financial shield PFR 1.0, now we are involved with financial shield PFR 2.0. And no doubt that the customers took advantage of these government schemes. And they used these financial instruments and paid out the monies that were offered to them through public aid.

And then another program which is coming to an end, but there will be

Another addition, I mean the thermal efficiency improvement loan. We are going to extend this loan coverage to even more provinces and we would like to attract, to lure new businessmen

and we have enhanced the reach of the SELFI-based business loan and we enhanced the loan limit from 200,000 to 600,000 and hopefully the customers will appreciate that

And taking into account the harsh environment, we also cut the fee and charges cost by 50%.

Hopefully, the customers will appreciate it.

There's one more thing I want to discuss. It's something that we attach much hopes to it. There is a wide range of possibilities here. The customers can decide what to choose from the whole range of our offering.

I think that the customers will appreciate that and it will attract new customers to come to our bank.

As we have mentioned before, we also want to develop the companies which are in our group. Alior Leasing is doing quite well. The company has made sales about 717 million zlotys, which is 39% more than in the first quarter 2020. Since last June, we have seen the more demand for these products. There was some decline when the pandemic broke out but after that the trend is going up again.

The leasing receivables were 5.6 billion zlotys. It was

higher by 1.0 billion income when compared to the first quarter last year. The number of customers has grown significantly, 71,000 customers we have now, which is nearly 17,000 more than in the first quarter last year.

Naturally, the number of contracts has grown.

It is 95.5 thousand. Today, it's 12 thousand more than in the first quarter last year. which is the open funds we manage, has grown by more than 114%, which is quite a lot, isn't it? Alior TFI keeps selling a lot, and it is reaching sales of some 218 million zlotys. This makes us

happy because what we are offering through TFI is well received by our customers they put their money in the fund perhaps in exchange of some deposits which may not be the best possible instrument to invest in but for us

It is a very good result and our appetites are even higher than that. Just a few words about the brokerage office. First of all, great thanks and appreciation to us, to the staff.

If you look at the KPIs, they are all good and promising. The brokerage office makes quite a significant contribution to the total result and performance of our bank. All the time we keep improving our offering.

You may have heard quite recently from the media that we are going to increase our business abroad so the number of customers keeps growing and they are increasingly strongly related to our bank.

They get individual advice and support and assistance. So this distinguishes us on the market. We use the potential of the skill and competence of our staff. And the growth of assets continues. It's a good trend.

So, well, that seems to be all from me now.

Ladies and gentlemen, as regards credit risk, I would like to show you a couple of things that happened during this first quarter.

Here you can see a summary of...

The cost of risk is quite low in the first quarter of this year. This graph on the left hand side of the slide shows the credits and the NPRs. In the first quarter we had 14.48 and now it's 13.13. This is the result of our policy to change the quality of the portfolio, which is expressed in the NPRs. Below that, you can see the NPRs are split into business and individual customers.

Both these numbers are declining, as you can see, 23 to 22 and 8.36 down to 7.43 on the individual clients.

Now, once this happens so quickly, what is the consequence? provisioning declines also as a result of our deliberate policy, this is just a consequence that has to be accepted. Now, if you look segment by segment you will see that the coverage on the individual customers is 59% and the business customers the coverage is 49.10. And there is no dramatic differences here. This is the effect of our policy. And the next slide shows in more detail this curve here showing the period of the whole year. This level is very low, which is good for us.

We're happy about that.

The question is why this happens so. As I told you at previous presentations,

We were explaining the components taken into consideration when designing the model we have adopted for our policy.

There were defaults, LGDs and other components were included.

The lending policy was made stricter just to caution

the COVID impact. And now all these factors are still taken into consideration, which is all related to the macroeconomic performance of the national economy.

When you compare that to last June, the situation is much different. At that time, everyone was just scared by the COVID pandemic, and now we can see that this is not that bad really, and that the international economy was doing quite Well, during this tough pandemic time and then the next thing we have to mention is that we did some steps to anticipate certain risks.

whenever any new business is done.

Another thing mentioned before by Dariusz is that we are changing our product mix.

We are going to continue The growth of the mortgage loans.

I am happy that these relations within the balance sheet are changing this way. because we want to improve our results, of course, and keep the risks at a safe level. Now, as regards the risk costs, you can hear this slide shows the breakup into business and individual customers. Here you can see the first In the first quarter, the business customers had a little bit higher risk, but once you reduce the NPLs, that cost has to show up somewhere, and that is where it is reflected.

Again, I'm glad that the costs are going down, not only because the economy outside is improving, but also because of our efforts.

Well, we expected that many people would stop repaying their loans. That was again cushioned by the shields. Individual customers were also given some support, some shield support.

And they performed better than we had expected and we had been afraid of. So these are all factors that shaped the overall situation in the bank.

And this slide will show you the quality of the credit portfolio.

These are long spans of time shown here since the end of 2019 and the same trend can be seen in the individual and corporate segment of clients.

That is very positive and it shows that our policy on the quality of the individual loans and transactions and the rescheduling, rearrangement of our portfolio and the NPLs produce better and better results.

As you've noticed, we have already mentioned a lot of items here, so the profit and loss account just shows what we've already mentioned. The net performance has improved. thanks to lower overhead costs, lower risk costs and stronger provisioning. This 31% is the improvement on fees and commissions. Of course, if we want to improve our fees and commissions, performance is normal, is quite natural in the environment of low interest rates.

But of course the environment of low interest rates is no good for us and especially for that profile of bank which Alio has adopted.

So the current, the low TSUE is caused by the consolidation of bank loans.

We, of course, keep monitoring this situation. We will identify the trends and address it.

As regards the operating costs, when compared to the same quarter in 2020, well, we have included the Bank Guarantee Fund Premium in it because the overhead costs were in fact lower.

Our risk cost was cut by more than 18% and we expect in the coming quarters to continue this interest margin growing trend.

Now, credit portfolio structure.

Well, this has already been partly discussed, but now have a look at the total credit portfolio. It's the relation. between the business loans to retail up to 50%. This relation has not changed against the previous quarter, but if you look at the first quarter 2020, you will see a change.

It includes these effects that were discussed before by Madam President and Dariusz. As regards the retail segment, you will see here that the housing segment grew by 36% and now it's 38%. There is a small change quarter on quarter in the

The loans, which I mentioned that before, and this is a good news, at least for the risk people. Now, business clients, the structure here is not much different when you look at it quarter on quarter, but what All your leasing is growing now and makes us happy because these are in fact leasing services, credit in fact. It should be expected to keep growing.

It's a bit different in terms of the risk cost. But anyway, this is a good news.

23% right now.

It's even more than in the previous quarter. Now, the incomes on our operations in the first quarter of 2021 The income was 506 million, 344 million on individual customers.

And the basic main categories here is the income on fees and commissions, especially in the environment of low interest rates. It's good. Banks have to face it and they have to cope with it.

That happened in Europe sometime before this trend came to Poland later on. But Alior, like most other banks, has a higher income on the fees and commissions.

That is quite a natural phenomenon and I think we have to accept it and we will improve this performance whenever it is possible. We can't change it, we can't do it now because of the low interest rates, but hopefully we will do it sometime in the future. Now, the next slide shows the interest margin, which is resulting from the bank's policies on coping with the low interest rates. Altogether, it was 745,094.

It was the year of other items, interest incomes.

Another phenomenon I have discussed before, the interest margin, as you can see on the top right, 67%. Cost of financing very low, 0.22%. It would be nice if we had that. result last year anyway better now than never credit to deposits the curve is declining in the first quarter of 2020 it was 87.5 then there was covid slump COVID-related decline, quite easy to explain. Consumers were not so eager on drawing loans. Then it went up a little bit in summer and early autumn when the restrictions were relaxed.

And then again we have a decline and right now we can see that people are less quick on drawing new loans. I hope that the COVID pandemic seems to be

are going away slowly. So many million people have already been vaccinated. Many had COVID and are all right now. So probably this situation will improve quite a lot. In the second half of the year, maybe in the third quarter, we will see much better environment for the whole national economy and for banks too.

And I think all the businesses will start to...

develop quickly again. At the next slide, well, this has already been discussed before.

It's the quarter-to-quarter fees and commissions. And what is the composition of these incomes? Just components are shown here. So that would be all from me now.

Now about costs.

This is one of the things we are focusing on.

And you probably are familiar with our philosophy and policies. When you look at it year on year, the decline is quite big, more than 60 million zlotys.

When you compare the first quarter to the fourth quarter, most of the items here are lower, most of them, and the payroll costs We have dissolved some bonus provisions.

Now they are made again. That's why the cost is a bit higher now.

Then we had the austerity savings program.

We wanted to save

a lot. And this, our internal KPI, shows that we have managed to reach the target and we saved even more than planned. We put aside, we have set aside more money than we had planned.

So by the end of the year, I hope we will be We will meet the targets.

And now the slide that shows which factors affected our net performance.

We do not need to discuss that in detail now because each of these bars here have already been presented. But what is visually impressive it is that it shows how we reached the 108 million of profit now compared to the first quarter of 2020.

A quarter that was not even spoiled by the pandemic. And now I'd like

to show slide number 46, because I'd like to mention something else. This slide I want to show to you that all the efforts we've done in the very good recent quarters, including this one, can be reflected in our position on the stock market. This is the price of our shares on the market. As you can see, they are much higher than the VIG and that is something that makes us very happy. We hope it will continue.

And closing, I want to stress that we as the bank have to cope with many things and the one thing which is important

Perhaps not a big part of our business, but it's the Swiss franc problem.

But this is not our problem, in fact.

Thank you.

That's all from us. Please ask questions now. Quite a lot of questions have been asked.

Number one, what effect on the results of the first and fourth quarter was made by the small TSUE close? As regards the first quarter, the cost of the current returns was all the cost We did not make any modifications here. In the fourth quarter, it was 75 million and at that time you made 35 million extra provisions. Of course, we will monitor this.

But the provisioning we have now in the bank seems to be quite sufficient.

Some of the payouts were higher in the first quarter just because of the consolidation of loans. Next question. What effect on the provisions had the sale of NPRs? Well, I told you that before, but in numbers, about 2.2% point the effect was.

Which bank?

Which guidance for the COR the bank has now? Yes, it is important and I'm glad to say about that, but the guidance is that the target we have adopted will stay at 2.2% for some time. From now, our actual results are even better, but once we cannot predict the future very precisely, we prefer to be on the safe side and more conservative. Hopefully, things will go well and I hope that the economic environment will improve.

be better than the guidance.

Considering the reduction of costs year on year, it seems that you have already reached 50% of the target. Is it possible to do better?

I've mentioned that before. Our ambition is to deliver what we have planned, what we have promised.

But of course, some cost items have been moved in time. So the situation is not exactly as you described in your question.

But we are keeping our promises and we want to do not less than 120 million. And right now we are a little bit above that target.

That's why we're not seeing there's going to be any problem with it later this year. And 120 is a strong target.

If it's more, then of course we will be even more. satisfying.

What about the corporate portfolio in the risk terms? The NPR's reduction is not too big. So what are your plans for the future? Well, of course, our plans, as I said before, we will try to keep reducing the NPRs in all segments including corporate. The corporate when it's high is difficult to manage because you cannot use many instruments and policies.

The growth of provisions is caused by these measures we took to reduce the NPRs.

So our strategy is to keep reducing that level but you have to be careful you cannot do it suddenly because I also have to look at my chair presidents because you know we have to

I have to go steadily, wisely and carefully. That's how it is.

The bank, what is the COVID-related provisions?

level.

We have not made any separate COVID-related provisions. We just have provisions as we've described them to you, but there is no separate provisioning for the COVID.

And one more.

The proportion of the guaranteed loans in the portfolio quite a lot are secured with guarantees. In the micro segment, it's 76%.

In the new loans, it's about 96%.

And the small segment is about 60% of the new sales.

Thank you very much for the questions and the audience for their attention.

Thank you very much. If you have any questions later on, please send them over to us, to our contact addresses, our investor relations and the press office.

Thank you for now.