Alior Bank Sa Unsp/Adr

Good morning.

Dominik Wrakow, Investor Relations. I would like to welcome all of you to this results conference after the first quarter 2023. As always during our conferences, the first part will consist of our results and major trends behind those results, and this will be presented by Grzegorz Olszewski. Olszewski, VP of the Board, Radomir Gibała, VP of the Board CFO, as well as Tomasz Miklas, VP CRO.

And then the second part will discuss or will be devoted to Q&A.

But before I give the floor to the first speaker, I would like to remind you that you can ask your questions already during the presentation, and thanks to some of your questions that you'll post, we'll be able to smoothly go into use the chat, and Grzegorz, over to you. Thank you so much, Dominik. Good morning, ladies and gentlemen. Welcome to our results conference for Q1. I believe that the results, well, this is something you've already seen, you've already managed to acquaint yourself with, and I will just tell you about some of the directions that we're following, how We're going to shape our future and how we're going to try and shape and manage our results into the future. When it comes to our results, it's mostly adjusted by the borrower's support fund plus We also created additional provisions for the credit moratoria. This is something that's outside of our control. So we created the provision, the reserve, and it seems that this will be it when it comes to provisions. But, well, the credit moratoria have been going on for quite a while already. So we believe that what we've already estimated here with this provision should basically cover everything that's going to come up. Our interest result mostly comes from interest rates and our... Well, our commissions-related results grew 9% year-on-year, and in our strategy we will also focus on improving customer relations so that our customers can use our payment cards more often, so that they can use Blick to pay more often, so that they, for example, use some short-term loans, so that... we get more fees and commissions and improve our customer relations. What we've been stressing for many quarters now, and we've been trying to explain this to you and present it as one of our strategic goals, is improvement of the quality of our assets. And we've been doing it for quite a while successfully. our NPL 9.8, which is a very good result. And, of course, as part of our strategy, we assumed that it would be less than 10%. And given the market and given this economic slowdown that we've been dealing with, we believe that it's a very decent result and we'll continue to work actively on the business side, on the risk side as well, to make sure that the quality of our asset only improves. Our costs are well under control, ROE very high when you look at it. And indeed, if we generate good results, our capital base will be, of course, better and better. And we'll continue to maintain our indicators, equity-related indicators under control. And hopefully, this year will be even better. than the previous ones. The results that we are presenting to you today are absolutely necessary in the sense that the sector, this bank, generating good results, this is absolutely key for the banking sector so that our economic growth can sort of go back, so we can go back on the path of economic growth. including thanks to different sectors, including the banking sector, also thanks to the energy transformation in this country. So it's very good to see stable profits, stable results, because now we can use this period to enhance, strengthen the health of the banking sector. Allior Bank does not have Swiss francs denominated loan portfolio, which for us is an opportunity. So we can offer extended lending. So our performing loans, despite from pressure coming from interest rates, we've managed to maintain it at the same level. And further on, I will show you the volume of our non-performing loans and actually this indicator has fallen, which is really important from the point of view of the quality of our portfolio.

When it comes to our results in the business customer segments, very good results.

We are supporting businesses, we deliver funding quicker, we curb credit risk and we've become more competitive. Our sales channels are getting better and better and we are very selective when it comes to larger loans so that we can have our share in consortium kind of funding wherever we feel it makes sense from the point of view of our ROE. When it comes to NPL, not only in the retail sector, we have been, of course, trying to lower NPL in the retail sector for years in terms of business customers, in terms of the enterprise sector. It's not that easy to lower NPL, but we've managed to go a long way thanks to our risk department and, of course, everyone on the business side, because they've been actively building a good quality portfolio. It makes sense to note that we have a good standing among developers. We are number two. according to the Polish Real Estate Developers Union, for swift decision time, for good customer service. So it seems that even though there have been some difficulties and people have been less interested in buying residential units or they simply couldn't get a loan, So they've postponed their residential needs, but these needs have been accumulating and I would say the interest is going to pick up in the coming quarters. So now let's move on to some numbers. Let's look at credit limits for SMEs. Year on year, we've posted growth of nearly 60 percent, asset balance over 10 percent. When it comes to the micro segment, and in the micro businesses segment, we have not been as aggressive due to the economic downturn always hitting micro businesses first. We were very careful in Q1. We mostly focused on rebuilding our volumes and we managed to do that successfully. When the economic situation improves, When cost pressure lets up a little bit, I believe that the micro enterprises segment will continue to be attractive for us. So we're not letting it go, of course. But first of all, we're focusing on small and medium enterprises grow our decent volumes.

When we look at our credit limits in regular service, we see very good dynamic.

So this transformation is really important for us, you know, creating a very good solid asset base and so that we can actually transfer or replicate what we've already done with retail customers. in the enterprise sector. And, of course, I think it's very important for you, when you look at our assets, to see a significant growth in terms of assets in the business customer sector. But it's always about quality. So we're very selective, and we're selling mostly to preferred industries, the industries based on which we want to build and grow our portfolio. So all these factors actually bring us closer to building a versatile bank with a healthy portfolio. In order for this to happen, we of course need to better understand our customers. We need to get them to use our products more and more. because then it helps us curb our portfolio risk and of course it increases our commissions. So our approach, we've adjusted our approach recently. We have introduced some changes leading to better dynamic in customer relations in Q1 compared to Q1 last year. we will continue so for example one of our services is called bank connect and it illustrates very well how you can build good relations between the bank and its customers so we will continue in this vein and let me also point out where this growth comes from we are taking over some of the activities from our sales force and we try to automate our customer service and our bankers have more time to devote to customers who need that. We also automate risk-related processes And now 20% more decisions are taken automatically in the small and medium enterprise sector. And we will continue, of course. We will keep it up in the coming quarters. We have secured funding. We have enough skills and competences to take this forward. technological leap in the business customer sector. We have been very active and actively acquiring new customers in our campaigns. We were pointing out the main benefits of our offer. We have a number of marketing campaigns going across many channels. We're promoting our services. products for enterprises and businesses, which is a big change of direction that brought us partially at least those great results. When it comes to retail customers,

and the retail segments.

Really, what makes us very happy is the way we've been selling our consumer finance loans. The growth has been 30% year on year, but when it comes to loan sales in remote channels, 50%, which is a very good indicator, which goes to show how actively We have been acquiring customers into our online banking and our mobile app. This is very important for us and our growth is over 20%. And transactions, the number of transactions is growing. So people are not just logging on for the sake of logging on, but they are actually performing various tasks. transactions, thus making their relations with the bank very healthy. Last week we received an award from the world leaders in banking and insurance, and we have been selected as the most innovative bank for last year, which makes us immensely happy, and we owe it to many implementations. We were one of the first ones to implement innovative solutions, both in retail and business sectors. And we have earned the image of a trendsetter. So now, again, moving on to numbers, let me show you our perspective. So, sale of mortgage loans it's at quite a low level and we're expecting that the second half well after the new uh two percent interest rate loan that will sort of boost the market and we'll see more volume we'll be ready for that of course our offer is ready and of course much will depend on all the formalities from the point of view of the Polish National Investment Bank, BGK, but we'll be ready to roll out this loan, those mortgage loans very quickly because this is our opportunity. As I said, we are very selective. We're going to look for opportunities to build a nice asset base of mortgage loans. So now let's talk about cash loans. We have been working on remote channels. We will continue to work on our processes, to improve our processes, to be as much as possible omnichannel. Compared to Q1 last year, definitely our cash loan is on the rise, which, of course, when we compare Q4 last year to Q1, we've seen We managed to reverse the declining trend because in the last month there was less demand for cash loans, but we're rebounding. So hopefully, together with our work on process efficiency, we'll lead to good sales. And of course, as always, we're interested in high quality of our portfolio.

sales of quarter rates. I think that's something you might be interested in. Why in the first quarter we have sold less of those loans than in the previous quarters? It's very simple. We did not participate in this kind of price race. We decided that from the perspective of profitability is pointless. We of course focused on those more profitable areas like

sales of cash loans.

We think that the market is going to normalize. If it comes to this pressure, it will be still present, but not as much as in the first quarter of this year. Very important from the perspective of the durability of relation with the client, from the perspective of portfolio quality. We've got more and more clients with systematic payment. I would like to put your attention to the use of so-called VAS payments for highways. This is a growth of at least 60% that shows us that this application is well perceived. The clients use vases that we use. It's about 40% of growth. Growth of transfers about 40%. It's the increase of clients about 40%. This is a good dynamics we want to keep up with. We have this growth well. and develop from the perspective of the branches and channels as well. So educating the clients for the use of those We have also focused on the compatibility, on the use of preparation products that will answer the interests of entrepreneurs. So we will be able to provide financing. We see that as a business chance, opportunity. That's what we focused on in the first quarter. I also like the sale of investment funds, among others this Allure Fund, which is responsible and following the needs, which is a responsible fund from the perspective of investment strategy that it realizes. to acquire well results, very important is a place of work, building a modern working culture. And one of the key things is opening our university, also with the aspect of sustainability um signing up there and concluding the agreement with um that has strengthened the eastern side of poland which was which i think was a lot um which have which was affected strongly by the war in the ukraine we want also to use the to use the potential of universities, the regions, and to use proper educational programs to acquire talents to work in Alierbank. This university is also the development of our workers, reskilling, which is financed by not many companies in Poland. This is a great opportunity for people who hasn't yet worked in the technological areas, using own resources of the people who know the bank, who can develop themselves in technological area. Modern workplaces also help on our project, the female leaders of our banks who promote health among men and women because that's very vital because I am sure that engaged workers who feel well in the working place have better financial results. If it comes to innovation, one of our key projects we focused on and which we develop, there's a lot of talking about ChatGPT. We've got our own InfoNina, which efficiently leads next and next talks and tries to solve the problems of our clients. In connection with mobile banking, telephone contact is very important for our customers and clients who use our mobile app, who have any question about our bank. The most frequent channel was the telephone contact. There's a possibility for shortening these talks by automatizing them. We try to do this and we also try to grow the assets or making time of waiting longer. We don't want to do this because that's worse for our clients. So we've got our InfoNina, which we will develop further. The innovation area is very important for us. We work on the We work on the services that allow us for this short service among the individual clients in the second part of the year. This perspective from our side will be implemented mostly based on the AliorPay, which we are about to share for everyone in the next half of the year. Also, to those who do not yet have a relation with AliorBank commission results, This also shows a high quality of exchange. When it comes to the broker balance, we've had a second place. We moved from the ninth place. A lot of awards in the first quarter. This is, of course, due to hard work of all the other workers. Slowly coming to an end, we put a lot of pressure on gaming. That's what makes us one of the best-known banks among the young people. That's because we are in gaming. We use modern ways of communication. and we reach this group. We still continue our participation in key gaming events to make the young clients aware of our presence, which will surely affect our long-term relation with clients. So very well results. dynamic upward trend if it comes to the cash loans with a higher profitability than the rate loans.

We still lead consequent risk policy.

Thank you very much. So our Our actions made that in the first quarter. And after the first quarter, we can again say that our results were very good. And if it comes to the capital area, tier 1, 1426, 561 points over the elimination levels, TCR factor. 1536, 437 points. So it gives us 2.2 billion over those minimums. This short-term factor 139, long-term factor 135. If it comes to the cost of risk of Aliorbank in the first quarter, core of group 161 and a similar level from the previous level 157. We also communicated with the guidance in level 9 with the perspective of materialization of such risks. We do not see those risks to materialize. Our bank shows a lot of resilience for the current situation in the market. I think those risks may occur in this year, but we'll look optimistically into the future. If the situation won't change at the next publication, we'll be ready to update our guidance. Consequently, we reduce 9.6% at the end of the first quarter.

by 400 points in the perspective of two years.

We are not about to change our perspective here. We want to reduce this factor as much as possible as we look into certain factors and certain areas. In each quarter, there was a certain growth.

From the perspective of business client, by 300 base points from the last year.

So as you can see, in every quarter there is an upward trend. We've got a great 55% NPL level. And there is a situation by 6% from the last year.

and also on the business lines on the safe levels.

Costs of risk in each quarter, 161 in this quarter, 157 in the previous quarter. As you can see, after a certain growth, in the half of the last year since three quarters, despite the situation is very complicated and definitely not macroeconomic. We can see the stabilization and these levels are very good. In the sector of individual client, we can see by a certain growth in the half of last year. You can see even a better situation in the segment of business client. Very good results basing on our historic results. Summing up, if it comes to the risk profile of other banks, we've got a very strong and getting better capital situation. Consequently, upgrade the situation. of risk from quarter to quarter. That's everything from me. Thank you very much. Radek, I pass to you. Good morning, ladies and gentlemen. Some key information we had here. A few comments from me, starting from the balance of profit and loss. Net result, 36 million for the first quarter of 2023. After correcting, which which we decided to implement because of the credit moratorium. That would be 375. And after that correction, it is 11 million PLN gross.

It goes with a stable level of notifying about the credit moratorium.

In our opinion, that should exceed this reserve for this year. If it comes to this correction, as we observe this tempo that hasn't been less but has kept on the same level, I think we succeeded. If it comes to the result, as you can see in this factor part of the table, as Grzegorz already mentioned, very good. Very good revenue on a capital level. Realized if it comes to the capitals that we already have for the 31st of March, as it was already mentioned, we still want to build a base. So versus our aim in a strategical perspective, which is about 13%, we should expect that in a perspective of the whole year, there won't be such a big growth. But I think that plus 13% more than the capital cost right now, we think. Of course, CTIA, as we keep the... the market environment in this formula we have right now, I think this is the aim which is surely to be achieved. As I mentioned, there's some basic amounts in the PLN that are on the next slides. I will move forward.

So starting from the, as you can see in the left-up corner,

Revenue has been stabilizing, as we have already indicated, or assets and interest on our assets is being re-estimated. And we have noticed some stabilization. So for two, three quarters, we have been repeating that net interest margin has been plateauing. Right now it's 586. But I would like to focus for a little bit on what's even more significant, because it shapes the future, namely cost of funding and interest income. Between the first and the second quarter, look at the dotted line, there was a very quick trajectory of increase rate hikes. So between the first and the second quarter, there was a little bit of a turbulence. And then in the coming quarters, situation has been stabilizing. And again, we're cautious. However, we are optimistic in giving you this message, namely interest rates When it comes to deposits and acquiring funds from customers, when we're talking about interest rates, they have been stabilized or may even be declining. So that's factor number one that is making us optimistic.

Secondly, there is the hedging effect.

So the IRS portfolio has been, let's say, subject to amortization, so we'll not feel the negative effects of it. And thirdly, we've been seeing migration, customers migrating from current accounts to deposits. In our case, it's around 30%, so it's... So, the market forces are still in play. We will see what comes out. But, well, there is less – well, the growth of – or the increase of cost of funding is not as dynamic. And well, when it comes to our cost of funding, it's at a very high level. So I would say we have reached its peak. So we expect that it would be remaining more or less on the same level for the quarters to come.

When it comes to loans to deposits or loan to depot,

is well, over 80%. This is good news.

And just like my colleague Grzegorz said, generally, the loan market, the credit market is plateaued.

So for us, it's a good result that 80% of our deposits are actually working in the form of loans.

So again, looking further into our results, commissions and fees, we are happy to see this year-on-year, quarter-to-quarter.

Year-on-year, it's one-digit growth, 9%. which is mostly driven by better results of CX transactions, 23%, and the rest of this result is also resulting from seasonality.

So I would say in other segments the situation is similar, the same, except for maybe brokerage commissions.

We see some moves made by our competitors. We're also looking at our chart of fees and commissions and trying to look for balance between

competitiveness and, of course, our desire to influence our costs. So, moving on. As we have mentioned before, we have been sticking to our guidance, namely average annual inflation rate. Of course, there was a one-off

extraordinary reserve or provision towards the bank guarantee funds and the restructuring fund 57.5 million it's a provision for now and we're expecting a similar amount and you will see that in the quarter for the first half of this year and when it comes to some additional Some additional data, definitely wages are growing, so the cost of wages is growing 9% year on year, and it seems that it's very much on trend. This is what we see all around. And all the other costs that we're talking about here, of course, are logistical costs, building infrastructure, maintenance costs, of course, higher utility bills, higher prices of security services, and of course, costs of marketing or IT have been growing as well. Let me just give you a small adjustment, especially that not all the costs have been let's say, launched both on the OPEX and the CAPEX side. So in the quarters to come, we will continue to update you and we will show you how we are going to get to our cruising altitude, as I call it, when it comes to our costs. But again, you should not expect any significant variation, anything more significant than the level of average annual inflation rate. So, the main financial targets, as we were presenting our strategy two months ago with a horizon 2024, we have annualized our ROE level after one year, so we are maintaining this goal both in one-year and two-year perspectives when it comes to cost to income. Things might be changing a little bit. I've mentioned some of our strategic initiatives and the launching of some of our expenditures. Tomek, my colleague, told you about our equity. We have very satisfactory levels and we have quite a significant cushion. TCR, in note 33, you will find, you will read that subject to financial supervision authority approval, we have counted our result for last year into our equity. So as of the 31st of December, the number has grown to 16%, and then the IFRS was reconciled at 9, so we finished at a level of 15.4%. When it comes to credit risk, Definitely my colleague Tomek, I think, exhausted the topic. Cost of risk being at this level in such a demanding environment as well as NPL being one digit. This is very good. So now we would like to thank you for your attention and we're waiting for your questions. Thank you so much. I see that there's a number of questions coming in. your equity situation is very good. So assuming that you'll maintain it across or throughout 2023, is there a chance that the board would recommend dividends to be paid out as soon as in 2024? According to our strategy, our ability to pay out dividend will have been reached after our strategy has been achieved. towards the end or at the end of 2024. So for now, we're not deciding on anything, especially that there are still some potential risks ahead of us. But as I said, we have to rebuild our base so that we are able to grow. off of it. So for now, no decisions have been made, especially that 2023 is still ongoing. The following question. What are your expectations from BNPL and deferred payments? Well, it's a very good question. We have been communicating certain things to you and you were wondering like how much we were going to make on it, because you want to illustrate that and reflect that in your models. Well, in the second half of this year, we want to deliver this service to all of our customers plus to our prospects or potential customers. And of course, depending on which month we're going to launch it, hopefully it's going to be sooner than later, closer to the first half of this year. The volumes that we expect to see are going to be something like a few dozen million zlotys and we want to acquire thousands of customers. But we want to build this portfolio again in a deliberate, measured way. so that it's like something that complements our offer, our offer of payment cards, loans and so on and so on. Also, you need to remember that unfortunately the banking sector has it more difficult to deliver such a service because it's much more heavily regulated than typical lenders who are not banks. So when it comes to this form of financing, we are very cautious. Of course, this means some hiccups for customers, but I would say it makes sense for the banking sector companies to offer BNPL. So several dozen million at the end of the year and several dozen thousand customers.

Right.

So do you need MREL instruments? Do you have to issue one billion to comply with the regulations by the banking guarantee fund? Well, given a great result last year and the current quarter, Our demand is, let's say, lower than we communicated before, so we are planning to issue some instruments, but at a lower level. We're going to go to the domestic market with it, maybe even before the holiday season, the summer holiday season.

Thank you. Selling CF, customer finance loan.

It's gone down. Is it because of lower demand or is it because you're tightening your policy? I've already talked about it and mentioned it in the first part of my presentation. may have declined a little bit when it comes to consumer finance loans, but for us it was really important to maintain our business model and to be selective about it. In the second quarter, we assume that we'll go back to the volumes that you're used to seeing from us, especially that we have some advantages technological advantages, so we don't want to engage in a price competition or a price war.

Grzegorz, the following question.

Have you analyzed your exposure to office real estate and commercial real estate, especially the risks related to this segment in the States, in Europe as well? Of course, we've been analyzing this all the time. So we take a portfolio approach, we analyze different parts of our portfolio and every customer over 3 billion zlotys is being reviewed individually, their financial standing and their outlooks. For now, we don't see any heightened risks to our portfolio in commercial real estate and it's been reflected in the results that we've So NPL in the business customer segment and our cost of risk reflect that. What is the gross value of your portfolio of residential mortgage loans compared to Swiss franc denominated mortgage loans as of the end of the first quarter 2023?

So when it comes to the value in our balance sheet, as we look at it, well, loans that are, let's say, at risk, I would say 1.9 billion. And the most critical portfolio is one denominated in Swiss francs.

And to us, in our case, it's 130 million zlotys before reserves, before provisions have been launched. 106 million, that's the balance. But as we said, after Q4, we have 50 percent of it is covered by provisions. Thank you.

Following question.

In Q1 2023, you have seen a slight increase of NPL in retail loans. So do you see any similar risk for mortgage loans or CF? We don't see that. In the first half, we saw some. Last year, we saw some increase, but actually the last quarters, have actually seen improvement of our cost of risk. So this slight growth, 0.1 percent in NPL quarter to quarter, that's natural given the size of our portfolio. It's not alarming at all. We haven't seen anything alarming.

Thank you very much, Tamak. Another question. What is your outlook on the NII and NIM factors and the personal costs and operational costs in the next quarters of 2023? Right. I talked about it a little bit in one of our previous slides. To sum up, if it comes to net interest margin, it seems some kind of variation. If it's somewhere between 5.7, 5.9, that's what we expect to report in the next quarters. Once more, the main factors that determine this result is, first of all, the financing costs and the premium paid for the means and the migration rate to the deposit portfolio. In our case, this is a lowered hedge accounting. To the personal costs and operational costs, as I mentioned before, we assume This growth each year, of course, apart from one-time events, this growth on a level of average yearly inflation. Thank you very much, Radek. Next question. What is actual guidance for risk costs in 2023? Well, basically, I answered that question during the presentation. If it comes to the Guidance 1.9, we assume that there will be some risks connected to the economic situation. Right now, we do not see them occur. What we expect, as we maintain this conservatism, let's say, they may occur in the second half of the year. We do not change this guidance, but in the next publication, if the situation won't change, we will show you the updated guidance. Thank you very much, Tomek. Next question. So the upward trend in the mortgage loans was lower than in the previous year. What's the reason? Can we see a better upward trend in the next quarters? Right now, there are still movements that do not really variate from the trend. We expect very rapid improvement in the second half of the year when it comes to the volumes of mortgage loans. So right now, nothing very important from the perspective of the policy of the bank has not happened, apart from the fact that, of course, this kind of policy of price adjustment, we had to do it. due to the challenge coming from the transfer from Vibor to Viron. Maybe we reflected that a little bit earlier than the rest of the banks. But I think this adjustment of level is right now happening with all the banks. So I think this may be a factor of something that would really strongly affect this approach. I don't think that there was no such thing. where we'll have the selective approach and we'll see the growth in mortgage loans. Grzegorz, next question.

When can we expect a derivation in the commission loans?

as long as the level will stay stable. Coming from the perspective of our portfolio, as I've been talking, as it's trying to change from one contract to other rates, so we're talking about the third quarter, Right now, we may say about the result between 20 and 40 million. I'm thinking about the next quarter. That's, of course, only assumptions. The final result will be, of course, dependent on the level of rates and and the profitability rate and the long-term transactions.

Thank you very much, Radek.

Well, in the first quarter of 2023, was there a sale of NPL portfolio? No, we did not realize that in the first quarter.

Thank you very much.

Can we observe a growth of applications for the credit moratoria? It is not bigger but stable, just like with our rates and assumptions. It was just stable. That's why we decided to enlarge the reserve and the participation rate.

Thank you very much.

Can we assume in the whole year that the dynamics of payments and provisions noted in the first quarter of the 2023, is it possible to be kept stable? We will of course do everything to prepare the best compromise between the

and the profitability.

We'll try to do as much as we can, but the base scenario is that the level is about 200 million per quarter.

Thank you very much.

And next question. How big were the raises of salaries and when did they happen? We can see this growth year from year on the level of about 10 percent. Is that actually the situation? This growth reflects what we have in the balance, I mean the profit-loss balance, the overall activities. It is difficult to say that these were certain months. This trend is reflected in the bank activity throughout the whole last year. So, in total, that's how it looks in every year.

Thank you very much. And next question about MREL.

Do you assume lack of realization of MREL aims and what may happen if such thing will happen? Of course, we do not assume such situation. We treat the situation very seriously. As I said previously, our need was lesser. We are about to fulfill those aims in this year.

Thank you very much.

These were all the questions. Thank you very much for the presentation. Thank you very much for your answers. I would like to invite you to contact the department with all the questions you may have. Thank you very much.