Alior Bank Sa Unsp/Adr

Ladies and gentlemen, this is Dominik Prokop from Investors' Relations and Supervision. Welcome to everyone to the conference of Alior Bank after the third quarter 2024. At the very beginning of our conference, we talk about the results of our bank and the main message will be presented by the employees of the bank, which is the CEO, Grzesiek Olszewski, Tomasz Miklasz, vice president, CRO, and CFO. And in the second part, after the presentation of results, we'll move to the Q&A session. However, before I give the floor to Grzegorz, I would encourage all of you to ask questions during the first part of the presentation, and therefore it will be able to fluently move to Q&A. So, Grzegorz, the floor is yours. Thank you, Dominik, thank you. Ladies and gentlemen, welcome to the results presentation for quarter three. Let's move on to figures that you all know very well. We tried to talk about the context of the figures. When we talk about revenues, which is exceeding the forecast of the brokers' agencies, this is due to the consistent realization of the strategy in the area of risk, which means we lowered the profile, we changed the asset structure so that we maintain a strong business dynamics, which means so that we maintain the cash loans or the business customer segment. This is what we are still doing. Macro, well, not everything is in our favor, which we'll present in a second. However, the risk profile of the bank We managed to successfully reduce that, and it brings us some tangible results, which will be discussed later on by the President Tomasz. When we talk about commission results, then President Gibała will talk about that. This is a result of the consequence of accounting. We are trying to maintain this result at a similar level. And we assume, especially in the business customer area, we assume a long-term development. In other areas, we did not perform a deep pricing. However, we are gaining new clients. Let's keep in mind that in a situation of high interest rates, we have to remember about acquisition, about getting new clients with regular payments. I'll talk about it later on. When we talk about the indicators, I would like to drive your attention to decreasing NPL. We see the increase of the volume of working loans, of performing loans. Also the gross loans volume grew and assets as well. I believe that Alior is well prepared for the improving macroeconomical situation so that we can benefit from it, especially the second pillar of our strategy, which is the business customer. We want to build on that. We have some impressive results already, which we'll talk about in a second. I believe we are one of the most effective banks. CI33.4, then ROE, COR, very, very good result, below 1%, and this is all the result of a really well-prepared strategy. This is the direction we are going into. And at every press conference, we try to explain it in a transparent way. But you can see clearly the benefits already. When we move to the retail customer segment. 1.5 on loan sales, 1.5 billion, close to 1 billion PLN on mortgage loan sales. Dynamics year on year is more than 1.4 billion. And we are a leader in this segment. We've only improved that. And the increase of customers year on year, this is plus 18%. And in the total number of regular customers is also growing. In the higher mobile culture, we have also started with our flagship service AlioPay. We have just started this month the first campaign promoting this product, since the product is already available to the customers and to the potential customers who would like to benefit from it when we talk about the business opportunities that we had this quarter first of all that would be the safe 2 safe mortgage we have benefited from that from the very first day then the increase of sales increase of mortgage loans above really above possibilities. I mean, so far, Alior Bank has not been calibrated so that we could generate such sales. So, for us, this is a huge success.

Asset increase to 176 billion.

That means that we have a lower profile, 17. 17 billion, sorry, excuse me, then 1,200,000,000 of the volume of positive decisions on the safe mortgage. And then by the end of September, we had 6% here in the share of in agreement signed. However, right now, on the 5th of October, it's above 12%. Let me go back to the market share. It's 2.3%, and now the agreement signed, it's 12% and even above. Then cash loans. It used to be crucial, it is crucial, and it will still be crucial. Over 50% of share of remote sales. But the first quarter, it is the first quarter since a long time when assets are on a higher level than in the previous quarter during our last conference. I told you that we've slowed down here, but this is the first quarter where this portfolio grew, where at the same time we have repricing and maybe a bit weaker sales in the third quarter. However, what is important is repricing. Repricing has been done. We see that we are able to sell cash loans in a more effective way. And that's why we use that momentum. Consumer finance loans, that is also an important part for Alior Bank. The sales of CF loans is on a very good level. The fact that we are recognized among our partners, we put emphasis on our innovation and that means that in the first quarter, as I mentioned, we decided to let it go due to repricing and now we can see that that strategy was the right one because the market still would come back to us and that really happened. When we talk about the relationship with our customers, retail customers, we have year-on-year increase, quarter-to-quarter increase. We are especially here in the management board happy with the systematic account inflows increase so that this... grows together with our bank. This is also confirmed by the number of accounts as well as the increase of the number of mobile application users. We have a quarter. Quarter by quarter, we're growing by several thousand. It's a very good result when we take a look at the market. At the same time, we are going consistently through the evolution. We are changing this mobile application. We are adding on next services. And we're improving sales services. This is, as a result, we have plus 50% of the sales here. Right now, we are mobile bank. exclusively for part of the services. We hope that this channel is going to be the dominant channel. The bleak transactions grew by 40%. That shows that we are becoming a first choice bank for a greater number of customers. Then the second pillar, when we are supporting entrepreneurship, which is business customer segment here, it's crucial that we are defining certain goals and we are meeting those goals. We are growing 2.5%. fold faster than the market up to 5 million PLN, which makes a difference for us because we are able to have the full relation with the client so that we have a product there and a deep relation. We are diversifying here. We used to be recognized mainly as a bank. We are still recognized as a bank that understands the sector of housing, of construction, real estate. So we are growing in trading as well, quicker than market. So this is also a part of the strategy of the bank to diversify our activities so that we are adjusted to different possibilities. When we talk about sales of non-loan products, one of the key things in the strategy, so this is the relation with the business customer, but also non-mortgage, non-loan products. So in order to make this relation strong, as you see, it's over three-fold increase when we compare this year versus last year. In order to maintain effectiveness, we have to We have to simultaneously have this increase in market share. And as you can see, it's being done in the retail customer. We have remote processes that are able to service our clients quicker. We are able to take the burden away from the bankers. And in the third quarter, we have seen a dynamic increase in the remote dispositions. It's over 60% right now. And now when we take a look at this good trend in those remote services, it is right now over 60%, as I said, about the mortgage decision. It's good because on the one hand, it's a quick decision for the banker who is working on the process itself. But also it gives us a better quality and the control over the risk process and the possibility to forecast the risk costs for the future, which has this multidimensional meaning that we managed to implement in the retail segment. goal to build on that segment and we have consistently improved that. Moving on to the performing portfolios in each structure we can see that we have an improvement so that is we are growing faster than the market that's a very good information. The performing portfolio Year to year, we have those 20 million commitments. So the market is slowing down. We're growing. For us, this segment is between 20 and 60 million. That's the segment that is crucial for us. It's threefold greater dynamic, and it's a great achievement here. But we are also looking for possibilities, for chances here. Since we haven't been in this segment, we are now using this possibility to the maximum. So over 60 million, exceeding 60 million, we are also trying to build the assets. When we take a look at the balance of assets, Year on year, we have minus 17%. Quarter on quarter also. We are systemically reducing this balance. At the same time, we are taking care of the balance of performing balance. It's a good news since we are performing the transformation with the weaker macro.

So I am an optimist and I'm convinced that this is, well, looking at various factors like the situation on the market, a good prognostic for the bank. and a good signal insofar as how we can tap into the opportunities appearing with the speed of economic growth in our country. Improvement of effectiveness, improvement of processes, this is a critical thing. Alger used to be a pioneer insofar as opening account. Now we are a pioneer. In combining this account on Selfie with other options, this is important because there are various channels for people to enter into contact with banks, also with the use of the mobile phone, but also With the help of a human being to quickly open an account and to implement this process, this is a very important thing for us. When we counsel individual customers with the sales of different types of loans, we get the biggest amount of cash out of that. We make available new ways of identification like M. citizen or new possibilities of FX exchange with the use of Blink. This is a big simplification for customers and this is a great chance for the bank to get means thanks to Blink. So, increasing this relationship. We have made it available for all clients. There was a promotion campaign in October. for this product. Active quarter insofar as CSR, this is quite surprising insofar as ranking of the banks when we are looking at the assets and our activity insofar as our activities for inclusiveness. including people who have come to Poland, remembering how important it is so that people who are in Poland, who have adapted themselves, who've entered the market, it's important for their children to enter the process of education with the cooperation with UNICEF and the U.S. Embassy. We have promoted a very difficult, but I think quite important exhibition from darkness to light within the implementation of the strategy of the second pillar of supporting entrepreneurship. We continue our business breakfasts with entrepreneurs. This is a very important element of the discussion of understanding the needs of the customers. understanding where do they need support and building our brand within micro, small and medium enterprises. And our prizes or awards that we received are the consequence of the results when we look at the number of implementation and the speed of implementation, the third pillar, the modern bond within the ESG strategy. We concentrate on social activities, but also within governance. This is quite important for us insofar as KPIs related to dividend. We want to be transparent. We want to fulfill the highest standards within corporate governance. And we want this to happen with the benefit for the shareholders, first of all. And we approach environmental issue seriously. We work on it. We try to tap into the business potential related to energy transition in the country. So this is all from me. And now I give the floor to Tomek, who will discuss risk area. Thank you, Grzegorz. Tomasz Miklas, risk area last quarter and the entire year. This is not only the good result of the bank and very good sales result, but also very good results within risk. Insofar as tier one in capital, over 15%, TCR over 16%, 3.5 billion, the third quarter it's plus 140 base points insofar as within issuance of 400 millions that you know about it fulfills the requirements that are imposed on the bank at the same time as we communicate that we plan to have an additional billion of additional issuance because the old bonds will expire, so we plan new issuance. Insofar as LCR and NSCFR, they're on a very high safe levels, 188 and 140% with regulatory minimums on the level of 100%. Before I move to discussing results for the third quarter within credit risk, a short piece of information for you. What do these results result from in this area, the good results?

The first, the credit quality transformation.

Within the years, it has improved. In 2019, the default rate, so the percentage of our portfolio that enters the default was 5%, and then year after year, it decreased this year 2.5%, so a reduction of over 50%. The second thing is structural transformation. Grzegorz talked about used opportunities within mortgage loans, looking at... those years the share of mortgage loans has grown from 21 to 29 percent in our loan portfolio so this has a great impact also on risk and npl reduction besides the improvement of our portfolio the sales are going up in time we reduce non-working non-performing portfolio In the years 2019, 2020, it was over 1 billion zloty. In 2021 and 2022, it was almost 2.5 billion of reduction each of these years. This year, until the end of third quarter, 900,000. But the year is not over yet because these activities are not symmetrical over the quarters. So we'll be summarizing it in the future. Now, NPL indicator at the end of third quarter, 9.39% from the historical level of maximal at the end of 2022, almost 14.5% in 2020. So a reduction by one-third. So we are not slowing down insofar as the cost of risk dynamic improvement in time. So 2020, 2.8, 2022, 1.5. So this year, the first three quarters, 1.16, one of the lowest, if not the lowest level in the history of Allure Bank, with some positive events. One of events after the second quarter, we have communicated positive events. In the third quarter, we also had a group of positive events related to positive restructuring of corporate clients, which resulted in the fact that real money came to the bank in this process. Within the improvement of the situation, the clients were able to go back to assess the clients, that the clients are in a normal situation and there is no threat to repayment. Insofar as this year, we do not expect that the cost of risk of the group would go over of 1.1%. A similar result on a similar level is expected in 2024. And in the average, in the midterm perspective, we expect stabilization of the cost of risk at the level of 1%. If we go deeper, the results of the cost of credit risk, NPL quoted quota is being improved. It's not only in years, but every quota brings another improvement. If we look at business lines in the segment of individual customer, very good level, market level, business segment, 1571% with dynamic improvement. This is an area on which we concentrate to reduce this level. The coverage... provision coverage very stable in the entire group and the costs of risk as you can see quotas at the end of last year were higher levels. This was the time when dynamically percentage rates were growing and we had to get adapted to interest rates were growing and this has improved our credit portfolio that resulted from our organic activities. This year this is a moment when clients have adapted to higher levels of interest rates and this has translated into our results. The last two quarters, the cost of risk below 1%. If we would correct it with the one-off events, there was an improvement. Also, if the cost of – there are very good results, very good improvement. Insofar as risk, very strong capital position, a lot of improvement, very high safe liquidity and consequent improvement of quality of credit portfolio, loan portfolio, and we decreased the cost of risk and NPL. Thank you very much. This is all on my side. Thank you, Tomek. Hello, ladies and gentlemen.

Allow myself to start with a slide with income statement and simplified one. One billion four hundred forty-five in bank activity

However, one technical comment. You see the dynamic or the comparison, quarter to quarter, or three quarters of this year compared to last year. I would like to remind you, and you remember it perfectly well, that last year we looked into loan vacation, or the support of commercial banks, which is also mirrored here. So this is a simplified approach, and this dynamic is a bit shaken here. And in the subsequent slides, we will have normalized results. What I would like to comment here, looking at this slide, The interest rate margin, 6.16 in this quarter, net interest margin, 5.93. The second value is very close to what we have informed you about earlier. And the third quarter, over 6%, this nominal difference in the third point is visible, 58 million. Some of it is because of re-estimation of our portfolio. But other reasons is the growth of financial income, some of this increase in income from financial assets and other elements. because of better yields that we get on those papers and on those securities. And the third factor that explains this difference is our hedging strategy that we can say that quarter to quarter we have the amortization of the portfolio and it takes away less in the interest rate cost. If we compare these, this is the result of 200 millions and it's being improved this is why summarizing these factors we have the highest interest rate margin what is worth mentioning is return on equity it's almost 28 percent and the effectiveness of the bank with CBI factor 33.4%.

Now, the percentage result.

Well, I kind of informed it. However, I would like to draw your attention to the right top corner in the financing costs. We have here expressed it in the percentage, quarter on quarter. So it's 231%. If you take a look at the middle top graph, you see the nominal decrease. The difference is due to the service on those bills, it's around 3.5 million per month. As we also informed you earlier on, we are constantly actively participating as one of the main market players in deposit market. And we are adapting our policy to this passive balance sheet and to our competitors, as well as to what monetary policy tells us. We've been talking about it since January quite actively, and we're one of the first ones to optimize financing costs. What's worth mentioning is the deposit which is maintaining above 80% all the time, which is aligned with our aspirations because we would like to have a greater part of the deposit base working as a loan portfolio.

than fees and commissions.

Maybe a word of comment to start with. We tried to present it in a transparent way, the commission results, quarter on quarter. And now the nominal value is the decrease. You can see the decrease. However, some of you already have noticed that, in fact, those additional 41 million in the trade result. This is the result of accounting of FX transactions and the movements there. So if we add what we have here in the result, trade result, then we are on the very similar level to the third quarter. We are working on that. We want to stabilize it so that it will be reflected in the Commission result. However, we owe you that comment since we want to be transparent in our presentation. Well, as all of the Commission income is concerned. For several quarters now, we are stabilizing it. We do not introduce big changes. We are hoping for an increase of the relations here in the individual client. We hope it will be appreciated and be reflected in the interest rates. That's why we talk about plus 200 million per quarter. Now, costs. Maybe in two steps. The comment on the middle graph.

When we talk about the whole total costs year on year,

Then the dynamic is, as we've informed you before, 16%. There is an inflation pressure still, and it is reflected somewhere in the activities of all the banks, I believe, in the market. I believe we are somewhere in the middle of the sector. But when we talk about the employee costs year on year, that's 17%. We, as an employer, try to follow the market and to maintain, to still be an attractive employer in this macroeconomic environment. When we talk about administrative expenses, well, according to the previous assumptions and announces, Announcements, excuse me. We all know that rents and lease are growing. Marketing costs are growing. This is absolutely an aware decision here when we manage our marketing budget. And those administrative expenses include additional provisions for legal settlements. And each quarter we update this line when we see that there's a need to update than we updated in the additional provisions for legal settlements.

More you will see in the comment to the balance sheet.

When we talk about the next quarter, then it will probably depend on the inflation levels. I believe our base

Speed of our monthly costs is around 150 million.

Of course, there are events like legal risks or inflation. These may impact the situation.

We'll communicate on that to you.

Going away from this slide, C2I, 33%. When we take the total, then it's 35% for quarter three, which is a very good result, meaning that we are the market leader. When we talk about the strategy on the financial targets that we've declared to you, as you can see, they're significantly better. However, just to comment on that, taking profitability into account, which looks very good in an annualized way calculated, whether this is the profitability and the effectiveness, whether this is cost effectiveness, and when we also take increases in capital into account, but also the work that we've done that Tomek mentioned on the risk. If we also add to it the liquidity indicate on the good level, I believe that we can say that we are somewhere midway of our strategy. And I believe that the bank is really, really well prepared to the increase of liquidity. equity and to Polish economy. Here we have a slide with our key points after this quarter. I'm not going to discuss this again because that was already covered during the whole presentation. And now questions, Dominik.

Thank you very much.

We have quite a number of questions on dividends. In the strategy, the bank assumes lack of dividends payout. So the question is, because of this profitability, Would you consider a bit less conservative approach to the dividends from the income of 2023? Let me come back to February this year. When we communicated our strategy, we did say that we are determined, the management board as well as the whole team, to pay out the dividends by Adior Bank. And as we said, responsibly, we want to build our capability to do that after 2024. And as you can see, this determination, we still aspire to do that. We would stick with that declaration. However, please keep in mind that the bank that is not paying out dividends but has it planned needs to consider the regulator's consent as well. So we are sticking to our strategic perspective. Thank you very much, Radek. Next question.

What kind of contribution to the ECL?

was the ECL provisions. Well, that was close to zero in the third quarter, and the result that I presented to you with is the result of the improvement in portfolio and corporate clients, and not ECL.

Thank you very much, Tomek.

How does Buy Now, Pay Later service is working? Is the interest in this product growing? Well, yes. And what are the volumes? As I mentioned, for all the customers in September, we've noticed the increase of interest. Well, October is already finished. It's around 20 percent of new limit of increase. When we talk about new limits, the promotional campaign is just starting. We are talking about millions and not dozens of millions. We are just starting with the promotional campaign of this product. It is developing as expected, which means we assumed internal implementation first and then implementation for all the customers who have the resources in the bank and then the third element that the third element that's implementation for the customers that still are do not have those resources in the bank according to all your pain so everything goes according to the strategy thank you very much guidance for the cost of risk midterm has been agreed on stop be Is it an ambition or is it a real target? Does it also mean that the real clinic of portfolio and NPL are behind us, as it used to be in the previous years? I hope that for the previous quarters, We've accustomed you to the fact that we are reporting real goals and not ambitions. Then clearing of the portfolio. Well, we still want to have NPL. And it's not finished yet. However, if the context of the question is that it would have a negative effect on the costs of risks, then this is actually included in the cost of risks that we've reported to you. When we talk about corporate client segment, we see more opportunities than risks in comparison to the previous quarters. Wonderful. Thank you, Tomek. Another question. What is your forecast on the reference interest rate decrease, reduction in the coming years? Well, ladies and gentlemen, we are in the process of budgeting the next year as well as the next coming years since August this year. These are the requirements of the group that we are functioning with. And our Office of Macroeconomic Analysis told us after the reduction of 75 BPs in September, now the path looks like that. We are expecting, of course, assuming that the reduction of inflation, the decrease of inflation will continue. So it will be 5.25 by the end of 2023. Then 2024 is closer to 4%. That's how we see it. And then we are preparing our forecasts, assuming 3.5% or around 3%. That's our base path. However, of course, we have to have a number of assumptions here. One of them, decrease in inflation. But this is what we've assumed.

Next question.

Is the hedging strategy that is being implemented by the bank, will it allow to mitigate for the revenue shortfall? Yes, to put it easily. However, when we take a look at the number of interest rates and the level of interest rates,

It is around 200 million due to the hedging strategy is given back in this strategy.

Within the whole year, it's 800 million. But when we take a look at the previous year and at the whole year, and when we take a look at the forecasts that I've mentioned, we are talking about 300, 400 million That will be next year due to our depreciation of our hedge portfolio. So just to sum up, for sure, yes. However, you have to remember that there is quite a... amount of the loan portfolio with a fixed rate, because quite a big part of this mortgage loan, 80-90%, depending on the time window, is with the fixed rate. And it is similar with the cash loan. So I believe it's an effect of a natural hedging. And with such a forecast of interest rates, we are expecting some revivement of this volume. Thank you very much, Radek. What is the volume of NPL loan was sold in the third quarter? sell that in the third quarter. That was due to the increase, the improvement of NPL was due to organic work. Now the employee cost dropped by 3% here, quarter to quarter, even though that we had an increase of over 100 jobs. Well, it's a good question. I mentioned about year-on-year 18%. And quarter-to-quarter, we have decreased a drop in the nominal value. The question whether this is because of the provisions on holiday or that would explain that. However, quarter-to-quarter, it can vary still because we are during the implementation of the strategy.

Thank you very much, Radek. And the next question. Administrative costs have gone up by 7% quarter to quarter, although in the previous quarters there were provisions for disputes. Is... Are there one-offs in the third quarter, or this is the new increased level of costs? Maybe I'm going to go back to the monthly costs as we see them. 150 million, as I've said, and we need to assess the legal risk insofar as disputes or inflation generally understood, which appears in various ways in different lines. We are talking about 160, 180. taking into account current information. But remember that cost might be quarterly a bit disturbed or seasonally because of BFG. every year. Thank you very much, Radek. And the next question. What happened with the risk cost in the retail segment in the third quarter compared to second quarter? 112 BP versus 84 BP. Could you explain this trend? Of course. The results of the second quarter in the retail quarter, we have communicated the specific amount. This resulted from a very positive result of NPL portfolio sales. But if you look at the greater horizon with the positive disturbance, the trend is actually decreasing quarter to quarter. Thank you. Thank you very much. Tomek, we have exhausted the... list of questions i would like to thank everyone for the participation in today's conference so we would like to thank our ceos and please feel invited to this event in the