Alior Bank Sa Unsp/Adr

Good morning. My name is Dominique Prokop. I'm responsible for investor relations at Allier Bank. Welcome at the presentation of the Allier Bank's results for 2021. Due to the pandemic, we continue to hold online meetings. I am very I'm pleased to introduce our management board that will deliver the presentation during the first part of our meeting, and then we'll take your questions. Mr. Grzegorz Olszewski, our CEO, Mr. Gibała, our CFO, and Mr. Brzozowski, our CRO. Let me turn the floor to the CEO. Good morning.

Today we meet to summarize our financial performance for 2021.

Dominik has already said that Radomir Gibeła responsible for finances and Maciej Brzozowski responsible for risks are with us.

Today we are going to We will discuss the main highlights of 2021 and we will offer some comments regarding the outlook for the coming quarters.

Given the current macroeconomic situation, let me say that Alierbank has no exposure towards East. Therefore, as of today, we are not identifying any risks that may substantially affect our operations, specifically our lending portfolio. I will revisit the question of the situation beyond the eastern border later during the presentation.

And now in 2021, the revenue amounted to 3 billion 640 million. Q4 was 935 million. And I would like to draw your attention to our commission and that has improved compared to previous years and that is important given the fact that the interest rates were in the downtrend. So this is what we want to work on. Our interest income improved in Q4 as a result of the interest rate hikes.

And we continue to see the positive impact of the interest rates hikes, although not to the same extent as it was the case with the first hikes. Now, moving back to Q4, nearly 100 million profit, 182 adjusted net profit, excellent performance shown by Alior Bank in terms of one-offs.

There are some things that actually get us all prepared for 2022.

We made the decisions to establish additional provisions for the legal risk related to mortgages. And also for our Romanian operations, we will discuss that later. And we also took care of the... commissions that are related to the provisions that are related to the European Court of Justice ruling.

Now, key indicators.

2021 was a growing year. Our assets were up to 83 million. Our lending portfolio was up, and the same happened with deposits. We see the first results of the interest rate hikes.

Customers are actually paying attention to the fact that the interest rate on saving accounts has been up and deposits are going up. But now the loans will become the challenge because the creditworthiness of the customers will be depleted.

But nevertheless, we will work towards building up our loan volumes. When you look at NPL 1175 down by 271, that's an excellent result.

Portfolio optimization, loan portfolio optimization with the growing volume sets us on a very good path for the future.

One of our key jobs now is to optimize NPL. so that in the deteriorating macroeconomics environment the bank is well prepared to thrive with higher interest rates, with possibly higher unemployment rates. This year we also made some optimisation in the business customer area and that should also have a positive impact on our overall performance. Now, I want to draw your attention to cost-to-income 43.5%. One of the best results across the banking sector in Poland, Alior, is in a sense a lightweight bank, in a sense that we are technology-driven. And as a result, we are less giving in to the cost pressure. We do acknowledge the cost pressure. pervasive in the market and we will continue to invest to make sure that we are able to keep cost income ratio at the low level in the future.

We want to be lightweight digital bank that will continue to optimize its cost base for Q4 was also very low and it stayed low throughout 2021. So these are very good results for the bank. If you take overall picture like risks, costs, return on capital, and return on equity, this is very good picture.

We see the bank that has capacity to generate very good value for the shareholders. And that's what we intend to continue looking forward into the future. The bank continues to work on our offering and our approach in the ESG area. We do recognize challenges, but we also recognize opportunities and we keep thinking how to monetize that, although we do it in the consumer finance area where we provide financing for photovoltaics. Well, we are part of this process, so we are selling loans, so that's also the way to generate additional value for shareholders. People or human aspect is also important. We do have responsibility for our people, for our employees, and monetization is also one of the key imperatives for us. We believe that monetization within ESG will be topic that will become more and more discussed. So how to build the bank that is environment friendly?

When it comes to the ESG area, Alior is well set.

We are a paperless bank. If you look at our banking outlets, you can tell that we stand out in the market. We don't need papers to sign the documents and therefore we reduce paper consumption. In the back office we use authentic signature and that helps reduce costs.

So these solutions really help us keep the cost base under control.

We will continue to make all the efforts to remain on the paperless side and continue to use digital and electronic solutions. We are well prepared for that. We offer products in the environmental protection area. We also recognize the trend that our customers are more and more interested in sustainable development and environmental protection, but also work-life balance, so human aspects, so how to help our customers better manage their finances. at the time when they are overwhelmed with the numerous apps and all the buzz out there, so that they feel safe using their banking apps. We also support our employees. We offer support sections to join, and we also offer mental support, especially during the pandemic time. But we believe that it's going to stay with us for a long time.

Now, key products.

2021 showed the growth of the mortgage loans. It's not only record high year for the entire market, it was also a record high growth of the mortgage volumes in the earlier banks. something that we are going to focus over the next few months. We have nearly 3% market share, but our ambitions go way beyond that.

And in the retail bank, we want to make sure that we are growing there.

And if you look at the cash loans and mortgage loans, we want to keep them in balance because that will help us better manage the risk.

You may not be a strong universal bank that is able to thrive in the low interest rate environment and high interest rate environment likewise.

So mortgages are the products that perform best in Poland, and we are able to develop best relationship based on mortgages. Therefore, in quarters to come, that will be one of the key products in the retail area. Starting from yesterday, we have new product offering available in Warsaw and the neighboring areas. We are happy. going very aggressively about the urban market. We do appreciate the fact that the interest rates hikes curbed credit worthiness of the customers, and that will affect residents of the large urban agglomerations. We understand that. So far, we've been present beyond the major agglomerations, but now we want to build our portfolio in big cities with good scoring. So that's the target for this year. despite the fact that the macroeconomic situation is not very conducive.

Cash loans. Our share is over 11% and we keep improving the quality of cash loans portfolio.

And it's not only about the existing portfolio that we tend to optimize and we sell off the non-performing loans. But in addition to that, we are optimizing the sales efforts to make sure that the quality of the portfolio keeps growing. That's truly important. So NPL has improved, but it is our goal to reduce NPL to prepare the bank for the more difficult times that may be on the horizon. So we will continue investments and automation processes in the lending area, also relationship-based banking and lending to our own customer base.

However, we will also...

develop our acquisition and we will build the volume without all those things we are not able to take the leadership position in this market segment if you are not reaching out to customers beyond your customer base but together with customer finance and installment high purchases we want to take advantage of the capacity that we are having right now. Well, I've already mentioned consumer finance. This is an important area of our business. We are a true leader in the market. This is a huge success of the Alior Bank. The number of customers new customers that we were able to attract as a result of the customer finance. It is something that we value. It is important. We want to keep it in place. We see that the cost of the loans is getting higher for the customers because of the interest rate hikes. But Alior has the best process.

And in the sales outlets where customers are actually using consumer finance loans,

show trust and confidence in us, not only our partners and customers. So we believe that we'll be able to keep our position strong despite competitors that are emerging. We do have a stable position in this segment.

Relationship with customers.

I've already mentioned that.

But to build lasting relationship with customers is all about good quality loan portfolio.

And it's also about good results in the commission. and fees areas.

And we need to be also mindful of the interest rate hikes impact on our customers. To look at both customers that have regular job contracts or run their own businesses.

Personal account, current account, konto jakże osobiste offers a number of advantages that are well appreciated by the customers.

Polish people went out on vacation in winter, now

motorway or highway payment application and the application that helps them pay for tickets will be definitely appreciated. So we understand that we need to personalize the application, we need to take advantage of VAS and If we don't develop that, it would be really hard to offer a friendly and attractive mobile app that would attract customers. Therefore, we are going to push for the growth in the digital channels. In 2021, we were up by 20%, the number of... transfers made with the app has been growing and that actually provides the evidence that we do have conversions from the customers from traditional banking to mobile banking and we do have more and more blicks.

The new project on blick? This is one of the bigger projects implemented together.

We run it together even with the competitors. It proved to be very effective, great success and a great element of the e-commerce, extremely popular here. and it has a chance actually to replace plastic cards. Definitely, I believe this may happen. Proximity Blink will be used for mobile payments. The conversion here, when we look at the customers using the mobile applications, is increasing. In the next presentations, we will see the bigger number of the mobile customers than the customers online using the traditional website of a bank. Poles like using mobile phones and these mobile applications are developing, growing and they deliver new extra services that enables easier life. 2021 development and increasing of the coverage area of clean air offer. This is one of the areas that we work on. It allows actually for the monetization of the whole mortgage, sustainable approach to the business, remote sales. We all the time work here to service customers in 360 way. So no matter whether the customers are in Poland or abroad, they have to be properly serviced, be it in the branch office, mobile, internet, online activities. So it's very important for the bank to be able to service customers from various points. The pandemic proved that customers may turn out in various life situations and the Internet Bank can service customers in various situations and contexts. The proximity blick I already mentioned, revolutionary project, contactless blick, C payments, chance to replace plastic, increase the security and safety and comfort of the customers. It's enough to have a mobile phone, probably in the future it would be a watch, and you can pay via Blik. Instant card tokenization. Coming back to plastic, this is one of the areas where we have to continue our activities. We have to optimize them in the cost way. And we have to introduce new play, new trends. Young customers not always want to use plastic. They want to pay through their mobile phones. And that's quite understandable and clear. That's why we are going to develop the digital channels. We will digitalize the forms of payments. We will also adapt the mobile applications. I was talking VAS today. VAS is very important, but if the application has too many VAS and it's not personalized, it will not bring any extra value to the customers. That's why personalization is very important. Personalization where customers may adapt Alier Mobile application to their preferences will be of paramount importance.

Individual clients, let me refer to the current situation of recent days.

There is a brutal war ongoing in Ukraine. It's a war of Russia against Ukraine, and there is a huge number of people going, passing through the borders, and Alirbank decided to simplify the opening the account.

Only passport will be needed.

provide service in the Ukrainian language and we prepared special offer for the accounts, current accounts, no fees for current accounts, for debit cards, for exchange of money because people who come to Poland they have money taken from home they don't know the Polish financial system so we don't want to create an extra risks for them and that's why we want to offer no fee banking system for them. As of 4th of March, we will launch the mobile banking in the Ukrainian language. Alior Bank online in the Ukrainian language will also be possible. And we will offer the kantor walutowy, the exchange exchange. for the Ukrainian customers. As I said, 360 service also offered for the customers coming from Ukraine. For people who need help and support in these difficult days, we offered these special services for them. Let me refer to rubble. All your bank is no longer accepting payments in rubbles. There is no possibility to exchange rubbles, so you cannot buy rubbles in our exchange office. Development of the business customer segment. Let me start with the volume of credits of loans.

Without this, Alior will not be able to grow dynamically.

Today, we have a selective approach. We look at the industries that can bring good return and growth, good qualitative growth that could actually improve the relationships with our customers. This will be discussed in the next slide. This is also the year of the loan portfolio optimization. That's important. In order to be able to grow properly, we wanted to structure the credit risk area. We improved the process. We optimized certain processes. We will invest further in automation systems to get ready for the increase of the loan portfolio in the business customer area. So automation of processes improved already processes. When you look at the market, Alior is one of the leaders when it comes actually to the loans for the micro customers. Number of cards, active cards increased by 7%. No cash, cashless transactions. In growth by 16%, the volume of transactions, non-cash transactions, 24% growth. So not only the number, but also the volume of non-cash transactions translated in a positive way in the results of bank. Without that, the commission results will not be able to be built. in the area in the times of the low interest rates, it's very important and this relations with customers is very important and we will invest strongly in mobile banking and internet online banking. One of the additional services that we are about to start offering is the accident and healthcare insurance, something new for the customers. great attractive conditions, cooperation with PZU. This is the offer for the business customers. They can enjoy great conditions if they are Allure Bank customers. Therefore, the smaller companies will be able to

support their employees.

They can offer the medical packages, coverages, something that used to be available mainly for big companies will be now offered by our bank for the business customers, smaller business customers, and we do hope that it will improve also the quality of the offer for our customers. So We are going to support the business customers. This is one of the more important projects, our cooperation with PZU, and together we will be able to grow the business customers. So far, we focused mainly on the assure banking, bank assurance services, so that was the cash loans and mortgage loans insurance or automotive or tourist insurance. Now we move on to the new segments.

Coming back to the corporate segment, we will remotely service the business customers.

differs from the individual customers. It requires better relations and the consultants, but consultants become more and more independent and customers become more independent. Therefore, the mobile banking must become more intuitive so that customers can actually use the remote channels. And the new sales in automatic decision increased by 119%.

And this is the trend that must be continued strongly.

We have to invest in so-called decision-making engines for the individual and banking customers, availability of loans, quick loans. We have to optimize processes. improve the quality. As a result, we will have better happy customers and a better loan portfolio.

Now talking about business.

That was about business and now credit risk. That will be discussed by Maciej.

Thank you.

As the President stressed, it was a very good year for the bank. We have very good financial results. In terms of credit risk, it was also a very good year.

We were doing really well.

Let me first stress that we are quite consistent in implementing our strategy. We want to structure our portfolio in such a way to improve the quality of the assets, to have the better portfolio so that we have the safety buffers ready in case of potential risks. As I discussed already during the most recent conferences, I discussed the situation of the Alior Bank. This is the summary of everything that is happening. Let me stress something that was said already by the President. Aspiring to change the risk for credit portfolio, loan portfolio to be more resistant towards the market challenges. The mortgage loan portfolio is growing. I stressed many times that it's a stabilizing factor, so it's a good factor and we are happy that it is happening. We stressed it already in the first part of this presentation. What else has been done? The top left corner diagram. We reduced dramatically the number of the interest loans. 1448% in the fourth quarter of 2020 and 11.77% at the fourth quarter of 2021. It's a huge reduction. There's a value.

is really significant and important for the bank.

Lower, you see the decomposition, so how it was all structured. In case of the business customers, we have quite a high level, 20.83%, but it was reduced from the level of 23.22%. individual customers, 8.36 in 2020, and we decreased it to 5.90%. It was a huge challenge for the bank to improve the quality of our assets and the composition of the assets and the quality of the loan portfolio. Right now, these activities in upcoming years should actually have the better results and it should work now for our income and profitability. Cost of risks, COR risk costs. Well, you can see this. The bank was not ready for maybe not optimization, but to achievement of the minimum cost of risk. You can see on this slide, on these two diagrams, at the same time, bank increased the NPL reserve coverage ratio 55.92. That's the result of the fourth quarter of 2021. We started from 55.18 in 2020. It proves that we were not saving on risk.

NPL profession coverage in segments, the lower diagram, you see 65.69% in KI.

So in retail segment and business corporate segment is 51.65%. And on the right hand side, COR risk costs as of the fourth quarter of 2020, this is a flat curve. So there are no peaks and this proves the consistent stable policy in the cost.

risk-cost management. So we may say this curve was really flattened. And an interesting chart that you see down there below, cost of risks for retail and corporate segments.

Q4 shows that the scissors are opening.

3.57% corporate segment, 0.2%

and retail segment. And I think that it explains it all. I've already explained the chart.

Now, what happened?

In terms of COVID and our expectations for the last year, the situation played out much better. There was a lot of uncertainty in the market. We didn't know what to expect, but it turned out that people were sitting on cash, both individual customers and corporate customers. As a result, we were able to fend off any negative developments or increased defaults.

In addition to that, there was a huge support from the government. We had credit vacations. and some other points of support that help us align our curves, especially for the retail customers. Another thing for retail customers is about our approach to reducing NPO. In the retail segment, principle is that we do a lot of such loans and this year we were able to actually show positive results and positive results help reduce

core cost in this segment.

So that explains the bottom curve in the right hand slide.

So if you eliminate these effects then we are able to flatten the curve and that's also a good sign because it shows that cost of risks are kept in check, it's all reasonable. And cost of risk in the corporate segment, well, here we've done two major things.

First of all, we've taken the inventory of all the NPLs.

We were writing them off. So that's a major cost for the bank, and that puts weight on the risk cost. The other thing is about COVID and the overall situation.

We made a decision to make adjustments for... commercial properties.

We know that offices sit empty and therefore the value of office assets go down so we made the relevant adjustments and as a result the curve was climbing up to 3.57. If we were to taking that off, these adjustments, then the curve would be almost flat for the past two quarters. So that really shows our approach to risk management, how we approach it and how we go about it in simple terms. And what's the thinking behind our decisions?

Obviously, I need to mention the lending action.

and lending processes, we are very mindful about it and we want to make sure that our lending is safe.

Now, the next slide explains how we approach costs of risks.

Last year, I was telling you that we see a lot of uncertainty in the market. And today I may say that the uncertainty is even greater than it used to be. We actually learned how to live with COVID, but now uncertainty comes from someplace else. Now look at the left upper corner. 2019 and 2021 1.60. You may say that the entire sector has improved. Yes, the entire sector has improved, but the entire sector has not done everything that we've done. And I explained that on the previous slide. So that was our strategy. We followed that. It was not our intention to reduce cost of risks at any price. And I think that it showed positive results this year. And we will see that in the years to come. So you see the risk costs at the upper chart. Now, what was the distribution in the business customer segment and the individual customer segment? Well, you see the charts at the bottom. So quarter by quarter, 3.57, I've already mentioned that. Where it comes from, just look at the bars. And for individual customers, and I've already explained why we were down to 0.20. And I don't want to discuss the Q2 2021 event because that was a high value. But if we cut it off, then we have a very nice declining trend for the individual customers and stable situation in the business segment. Now, the question is, what kind of risk costs to be expected next year? It's hard to tell. We had interest rate hikes. The inflation was growing. So this is all understandable to all economists and the banks and market players know how to respond. Now, you might have been asking the question, what about the end customers? Are they going to default at the greater rate because of the tightened interest rate policy? Well, these developments are well known to the banks, so we know how to respond. We know what needs to be done. The interest rates go up. We can actually improve our performance and we can manage that. But yesterday we had 261,000 refugees from Ukraine. We don't know what would be the impact on the economy in the short term, long term, whether it's going to be positive or negative. There is, again, huge uncertainty around here. But if we assume that the macroeconomic impact would be moderate, so no radical effect, then my presumption is that our core should be in line with what we have today. Obviously, it's more likely that it goes up than it goes down. But as I said, the situation is so volatile now that it's really hard to predict what's going to happen. Now, what we've done with the risk so far, with all the changes that we introduced and the fact that we deployed buffers, Under normal situation, we would have very good starting position for 2022.

This is fairly simple, but this is DPD 30 plus.

So these are customers that default up to 30 days.

And then it really shows that Nothing was going up here. We actually acknowledged the Q4 was going down. There are no volatile movements here. So that helps us better manage all these things.

And the same is true for business customers. So here...

We may say that results are quite good and actually this is the situation that is manageable and you can manage the risk.

But we have huge uncertainty because of the Ukraine situation. And on top of it, we also have regular post-COVID implications. So with post-COVID implications, you might have expected inflation because of the huge influx of money into the economy. You might have expected that because of the interest rates that customers with loans will be under pressure. But for the time being, we are not seeing any negative developments. But you need to keep it in mind when you manage the risk in 2022.

Now, capital.

Tier 1, 11... 1255, so we have 405 basis points above what's required. TCR also with a nice buffer, 366, and we are at 1416. And also, for all the error ratio, we are in the safe territory. LCR and NSFR, we are much above the minimum 100% that is required. So we have a very reasonable approach to liquidity management. Now at the bottom right corner you see decomposition of change in TCR in Q4. You see all the developments here and that explains why we had this reduction.

The first square or rectangular shape that shows minus 4.47.

It's nothing unusual. It's about hedging of the bond portfolio. Actually, the whole market felt that and that was typical development for 2021 for many banks. And the final thing that is important here is 0.51. That's the change in the risk

weighted assets. So again, let me emphasize that in terms of the risk, the situation was favorable.

In 2021, we were able to sort out a lot of things on the risk side. And as our CEO said, we believe that we are in good shape to continue healthy banking operation in 2022. So thank you and over to Radomir, who's handling finances. Well, thank you and good morning, everyone. Let me offer a few comments about our financials. So the first thing to look at is income statement and the main items will be discussed later.

But first, I would like to comment on Grzegorz' slides. Q4 and the net result, adjusted net result, 182 million after one-offs is 100 million.

And here we would like to show you how in Q4 the result would look like without adjustments.

But when we look at PLN, we need to transparently show adjustments and where they go.

So let me start with the legal risk and the cost of that. So provisions for the rulings of ECJ. This is one of the major challenges for the banking sector today. And therefore, we've decided to add the line to the income statement.

We show the provisions that we made for that, 21 million after Q4. And additional comment, just to cast more light on that,

slightly over 100 million.

This is the Swiss franc portfolio. So that's the model that we structured looking at the bank's performance and also recommendations of the Polish Union banks.

So the next adjustment is ECJ, and this is shown in operating expenses. So this is where we wanted to attach a buffer, as Grzegorz mentioned, discussing the risk. This buffer, we believe, is needed because of the assessment that we make of the situation. We listen to the regulator. We look at the jurisprudence. and to make sure that we get into 2020 in a good shape and safe we decided to add 36 million net for so-called ecj provision now the smoke ecj provision now the next uh the third provision that we inserted in Q4 is at the income tax level. You can tell looking at the number quarter to quarter. This is because of our results, but also because of our, like we had to write off our assets. In Romania, we've been operating for a few years. Not a big scale, but we did have some presence there.

And our model in Romania was subject to a review by the entire management.

So we are looking into it. We want to see what can be corrected there and modified. But nevertheless, despite the fact that we want to continue the business there, we decided to write off some impairments in 2021 due to Romania's operation.

Now, you often ask about our sensitivity. So again, 265 basis points.

Our estimates show that next year that should bring 700 to 800 million zloty. Now, we look at the balance sheet. We also make some projections of the cost of financing.

And as Maciej explained, we also take a ceteris paribus look.

In other words, we presume that the macroeconomic environment should be fairly stable. But as we know, it is no longer stable because of the dreadful situation beyond the eastern border.

But right here, we are showing our estimates based on our best knowledge.

When it comes to the return on equity, we assumed a 5% very conservative approach. 7.7%, this is after the full 2021.

When it comes to the interest results, we can... that we expect the double-digit result for this year.

But, of course, bearing in mind all the assumptions mentioned. Now, let me move on to the interest results. The portfolio, as Grzegorz mentioned, portfolio that was already undergoing decomposition because we are increasing the share of the mortgage loans. We try to make the portfolio more and more balanced. But it's working actually better and better. Third, vis-a-vis the fourth quarter of 2021, it's 50-plus million more. But we are re-estimating this. portfolio a bit slower so the results the full result of the growth in terms of interest rates will be visible after the full first quarter of this year you can see here and it's perfectly known that so far

We operated with ultra-low interest rates in the first three quarters.

And now moving on to the right side of this diagram, interest margin, we say 375, if I remember well, for the whole portfolio. for the whole year, but already now you can see over 4%. So we may assume that once we maintain higher interest rates, Aliorbank will return to the maybe, if not record margin, we will return to one of the biggest margins on the market. So it is related to the financing costs and the final results will be strongly correlated. It's growing and we decided due to relationships with our customers, we decided actually to anticipate increase of the interest rates. We decided actually to have an offer in the saving accounts and it was welcomed by our customers and this cost is growing in the fourth quarter. Of course, bearing in mind the last decade, it's still at the record low level, but we expect actually that in 2022 a slight increase of this cost.

And now the third connected aspect, loan-to-deposit ratio. It is slightly dropping because we took

Some deposits and savings, that's why it dropped now to 80 plus percent. Our ambition is to improve this ratio, to increase it so that the biggest possible part of our assets can actually work as the loan portfolio. This will be soon visible in the interest margin. Let's move on to the commission income, year-on-year 20%.

We are proud of this result because throughout the period of the low interest rates, we did our best. so that customers can appreciate what we offer both in leasing, insurance, and daily banking activities, as Grzegorz discussed. According to our assessment and initial estimates, it's one of the best results.

let us actually take it as a more balanced approach. Because if the interest rates increase, the interest rates will work for us historically 80%. Now it's a little bit less. But we hope we can do our best as a bank, as management board, so that this commission income result and we also see it as a proof of our customers who want to stay with us, who see the value in the offered service.

Let's move on. And talking about P&L, we have to discuss costs.

We stick to the cost discipline, 1.6 billion result. This is actually a bit lower. Very good cost-to-income ratio, 3.5%.

This results from the range of savings.

We had also smaller payments to BGK, BFG contributions. and some banks have already shown bigger cost, higher cost after the fourth quarter. However, we've managed to close the very ambitious cost budget. But looking at the inflation and inflation pressure on the employees market, IT market, real estate management market. All these have to be taken into consideration. That's why the costs will probably no longer be maintained at minus 400 million per quarter. We plan increase of the costs, but looking at these numbers, we are I'm quite certain that these numbers will grow quicker, both when it comes to the commission and interest rate results. So we still keep this cost-to-income under control, and that's quite a comfortable situation for the bank.

Now, every quarter, we refer to our strategy this year.

Certainly, we are going to develop the new or start working on development of new strategy. This will be a horizon, but we want to actually inform you where we are with the implementation of the existing strategy. without repetition of what has been said. 83 billion assets. We are going to reach 89 billion zlotys. It's 6% growth year on year. And this is the assumption that we want to have as much as possible of the loan portfolio. This should work for the results. number of customers. Grzegorz already showed you in the slide. It volatilizes, it changes, and it results from the fact, from technical issues. And of course, we have a big CF customer base, which is changing quarter to quarter. But we have ambitious plans, both for individual and business customers. As Grzegorz said, all the time we deliver

values and assets.

Are we?

7.7%.

We still declare the ambitious double-digit growth with the assumptions mentioned before. We hope and we believe it's going to be realistic. When it comes to the interest rates margin, 4%, this is the goal. And for the fourth quarter, we were almost there. If the macroeconomic situation remains the same, we think that this result should not be endangered. Cost of income below 46%, even though actually everything that I discussed, the cost base

I believe that we will be able to maintain these levels. COR and risk costs, cost of financing, 0.19%.

I discussed the fourth quarter already. Probably we will have to follow the market and the competitors, how they respond to the situation. There are many questions, many uncertainties when it comes to the monetary policy. We have to be flexible, but we want to inform already know that these numbers may grow slightly. And the last slide in the presentation, just, you know, some important messages for the result presentation. I will not read them out. Let me just move on to Q&A session. We are there for you. We have quite many questions, so let us start. a screening of the individual customers portfolio have you done it bearing in mind the sensitivity sensitivity to the towards the situation in the ukrainian and russian market are you monitoring the situation in the east what can be the scale of your portfolio here of course we did it i believe that majority of the banks decided to go for this analysis we actually did it before the world started The scale is not big, 0.2% of the loan portfolio. This is actually the loan portfolio very insignificant. And our approach was going in the approach to help the customers who've got to develop and generate turnovers. But because of the scale of the portfolio, we wanted actually to... protected somehow. The scale is not significant. We are going to take a closer look at each and every individual customer in order to help them if there is a need for that. So basically, we have it under control.

Thank you very much.

Next question, please, about the loans, the legal write-offs for the FX mortgage cards. Please, could you describe the value of this portfolio, where these loans have been given, whether you made any provisions for that as a bank? So far the bank made provisions for the started legal actions and now we decided to have the provision for the future legal actions and litigation. So we are very prudent in this area and in the fourth quarter it was 15.1 million zlotys, that was the provision.

2.8 billion zlotys and only 0.2% is about the credits in Swiss francs.

Majority of the credits were given after 2010. That's why I was discussing the generations of loans.

Let me summarize it in the following way.

The low share of the loans in Swiss francs, the portfolio actually comes from the periods where there were no drastic currency exchange changes. That's why the number of litigations is lower than expected on the market. Currently, 19 percent on the market. In case of earlier bank, it's 0.3 percent of the disputes.

Thank you. And the next question. The requirement for the credit risk went up by 0.3% but the impact of RWA was 51 percentage points. So what happened in Q4?

What was driving RWA up and PCR down? Well, I explained that during the presentation RWA And this risk requirement is all about the balance on derivatives. So that was the main driver.

Thank you. And the next question is again about the risk. What is the outlook for cost of risk for 2022?

In the presentation, you said that it will be similar to 2021, so 160 basis points, but the target 190 basis points is still there. Why the difference? Well, for two reasons. Today we have a situation in Ukraine. We don't know how that would impact our economic performance and the interest rates hikes. So we have interest rate hikes and inflation is still something that is uncertain. Now, the strategy that we had was delivered

even more than anticipated.

But if predictable macroeconomic situation sustains, then cost of risk would not be different from what we had. But I cannot actually say for sure, but it's going to be very low because of the current situation.

Thank you.

What kind of contribution to the bank insurance scheme would be expected next year?

Well, the president of the Bank Insurance Fund has already announced

what to expect, and we believe that it will be anything between 70 to 90 million zlarys.

Do you intend to reduce the margin on consumer loans and mortgage loans?

In terms of mortgage loans, we will take a very selective approach. We will be looking for the customers in the regions that are important for us in terms of relationship,

and the income of the customer, and also quality, so reduced risk or no risk of defaults in the future. And then better, more transactionable collateral.

So this is where we want to be competitive.

And when we speak about competitiveness, that brings us to the margin, but competitiveness is not only about the margin, it's also about a good insurance. It's also about fast processing of loan applications and this is what we have been working on and we continue to do so. So we will optimize this process to make sure that we stay competitive. The margin on consumer loans.

Well, here the bank will sell cash loans with a good margin to make sure that the return for investors is high.

But depending on how the situation unfolds in the market, we will respond. We have to be proactive and we have to react while watching what competitors are doing. So if there are any movements in the market, then we will be responding to make sure that the balance of the cash loans is high because this is the highest margin product in the bank.

And the next question is about NPLs and what industries you had to

write-off NPLs in the corporate segment. Well, here we were not looking at the industries. That was not a criterion that we followed. So I cannot give you any precise answer to this question, because we were not just looking at the industries. So we basically looked at the exposures that went to collection. And based on that, the decision was made whether we write it off or not.

Thank you. And another question.

So how come that the FX result was improved in 2021 Q4? It was up to 80%. while Q3 was 71 million.

Well, FX exchange in Q4, well, it was up because of the higher transaction rate.

When we look at 2021 as a whole year, we believe that it was more like a one-off event. We don't expect such a big difference in the coming quarters.

Thank you. And the next question. Do you see a growing competition in the deposit market?

Do you expect further interest rate hikes? And if so, what would be the targeted level in this cycle? Well, we do see that competitors are launching the new offering and as each peer bank we are reviewing the situation frequently but in our opinion there is no high pressure on the deposit prices and we believe that the situation will not be changing at the very fast rate obviously we are aware that the interest rate hikes may continue the last week consensus was four percent Let me just add to that in terms of the product offering or deposit offering. We decided to reach out to the market earlier than competitors. Today, we see competitors offering higher offers, but our liquidity position today is so stable that we don't need to be very aggressive about deposit products. We want to focus more on acquisition and relationship. So our proactive approach was effective, it worked out well.

And the next question, a very general question.

Given provisions made in 2021 Q4, do you see any other areas of your operations that may be subject to provisioning in the future?

As of today, we do not see such areas that would need provisions.

However, given the tragic conflict that spills out in the Ukraine and given the pandemic that continues, well, we are facing the time when the risk is always higher.

with any projections. Okay.

How much COVID provisions are still left, those that may be released in the future?

Well, COVID provisions for the first basket were retained for one and two

We updated our parameters and we decided to give up on COVID provisions and we implemented new models that address macroeconomic scenarios, especially the risk related to the interest rate hikes. And in simple words, we may say that for level 1 and level 2 the overall write-offs were retained at the same level.

Okay, and the next question. Do you plan in 2022 to change your employment

contracts for your employees, in other words, going from B2B contracts to regular employment contracts? Well, I think that the trend goes the other way around, especially in the IT sector. People prefer to have the B2B arrangement. Given a lot of restrictions and restraints in the banking sector, we do see that it is more difficult to have B2B arrangements many times. But I think that looking at the entire banking sector, we still have a high rate of regular jobs and employment contracts. We do have people who have regular employment contracts.

And therefore, in the area of technology, we can take advantage of other forms of collaboration in terms of the legal contracts, but would not affect our strategic goals.

Today, we are not really thinking about any major change of our model. And please mind that we work in the banking sector, and we do have some regulations that we have to comply with when it comes, for instance, banking secrecy laws. Thank you. Well, I believe that we exhausted all the questions. If you have further questions, you are encouraged to contact us through the Investors Relations mailbox. And I would like to thank the Management Board for their presentation and answers to questions. Thank you.