Alior Bank Sa Unsp/Adr

Ladies and gentlemen, a very warm welcome to our quarterly performance conference here at Alior, where the management board will give you information about the performance of the bank in the quarter.

Just like during the first conference, Artur Hołody,

the acting CEO of the bank, Tomasz Miklas, the Deputy President and Head of Risk, Radomir Gibała, Deputy President and Head of Finance Department, who will give you the details. In the second part, right after the presentation, we will move on to a Q&A. Before I give the floor to the CEO, let me encourage everyone who is watching and listening to us to ask your questions during the first part, and that will be a good segue into the second part of the Q&A.

Artur, over to you.

Ladies and gentlemen, a very warm welcome to this press conference where we summarize Alior's performance in the second quarter. We'll try to give you the results that we've obtained for the second quarter and also for the whole first half of the year. First of all, let me thank our customers for their trust in us and for our shareholders for believing in the future of Alior. And a big thank you to all the employees It is thanks to their work that we have achieved these very good results. The net profit for the second quarter is 586 million Polish zlotys, which is 16% up on the second quarter of 2023. Our net profit for the first half of the year is over 1 billion zlotys. It's 1.164 billion, which is 34% more than the first half of

The tier 1 ratio is at 17.12 and the TCR is at 17.53 and both are way above the regulatory minimums.

We have achieved a great success in terms of a significant decrease in the cost of risk, which amounted to 39 million zlotys in the second quarter, which is 74% less than in the second quarter of 23.

COR was 0.23% in Q2, and that's 0.71 percentage point down on the second quarter of the previous year.

Another success of the bank is that our NPL dropped to 6.78, which is 2.76 percentage points down over the past 12 months. In terms of our operations, the number of mobile app users is 1.2 million, which is 19% more than in late June 23. The number of customers with regular cash inflows into the accounts was 1.126 million, which is 61,000 more than at the end of June 23. In terms of mortgages, we went 14% up year-on-year to 681 million, and the portfolio of residential real estate loans was 19.8 billion, which is plus 22%. The total share of residential real estate loans has now reached 23.3%. In May this year, the bank paid a dividend of 577 million, which is 4.47 zloty per share. In May, the S&P rating agency gave us a BB-plus rating with a positive outlook. This shows that it's likely that we will achieve our investment plans. Thank you very much.

Let's now move on to the second part of the presentation. I will start with the

indicator part and then we'll move on to volumes. As I look at the key indicators I want to emphasize our interest margin which is 5.94 after the first half and if we take into account the long grace period it's one of the highest values on the market. Return on capital is another thing we want to emphasize. Return on equity is 24.5%, and it would mean 27% adjusted for the loan holiday, as we call it. And this is an annualized equity, which is higher by 25%. That's what's being used for this ROE here.

Now, the costs of risk. And all the other values will be discussed by Tomek in the risk part.

But as we have seen, this trajectory is upward in terms of being better rather than worse. And we've got CNI index of 36%. And that's very satisfactory for us in terms of the previous quarters and has remained at a level.

Now, moving on to the volumes in terms of assets, it's 80% up, but we are mostly happy about the working loans that are up 11% in terms of gross performing loans.

What we have on the side of the liabilities, we invested in our loan portfolio and that's mostly based on mortgages and also regular loans that are the drivers of this growth over the past four months. and edit surplus and goes into securities.

As we move on to mortgages, as you can see, there's a year-on-year growth of 14%.

Q&Q, we have a drop and it's hardly surprising. After all, we had the safe loan and 2% and that's where it seems to us that the bank used that opportunity very well. with sales at 3.6 billion in terms of the safe loans.

And as a result, we can see that our portfolio has grown by some 22%.

As we have been changing the asset mix, we paid particular attention to making sure we are growing as a mortgage loan player on the market.

And this is happening.

This is happening and it's giving us very good results on our balance sheet. Even looking at this normalized quarter, the fixed rate loan rate is what you can see in the bottom left-hand corner, and the structure is improving as well, and that translates into the complete portfolio, which is which consists on fixed rate mortgages that make up 24.4% of the total loan portfolio and that's a very good trajectory. In terms of cash loans, you probably know very well that we are one of the leaders in this segment and we have got a market share of about 10% in terms of volume.

And this is a similar level year on year.

But we are very clear in signaling to the market is that we care about a good margin and a good customer profile. And this is something that we are paying attention to in this market, which is slightly growing. You will see that we are trying to migrate our sales towards remote channels as well. As I move on to the consumer finance part, these are CF loans and This is a cyclic market with a peak in Q4. This is when consumption goes up, so as the provider of finance

We also use this opportunity.

Now, this is where we are maintaining our leading position. We've got a nearly 19% market share and we're very consistent in increasing our technological edge over the others based on what's available on the market for example you can verify your identity using the m citizen application and there's an implementation of the pestle number verification as well so this would be it for the loan part for consumers

Thank you.

Moving on to our business customer segment, we've got positive results here, but we can also see new challenges emerging for the second half of this year and for the next year.

5.6% is the growth of our revenues, up to 841 million zlotys in the first half. adjusted for the cost of risk.

The growth was 25.7% and the NPL was down by 4.31 percentage point. We have maintained a very high position in terms of our clients in the construction industry. About 10% of the market belongs to Alioro.

The same goes for the JDG segment, which is self-employed and has a 9% share. Our market share remains at 5% in total in spite of a

reduction there and we are preparing for new challenges in terms of the products and technology. In technology we want to automate the lending processes for micro companies and we want to emphasize mobility solutions for our business consumers. In terms of other areas we've got a renewable energy segments project and we want to participate in the energy transition that's going on. As a bank, we also want to finance infrastructure-related projects that tie in with EU funding, and we are also planning to increase the volume of our leasing as part of our Alior Leasing Company. Looking at our key efficiency indicators, the online sales in the micro segment went up by 25%, remote transactions by 31%, active bank connect services up by 84% and this shows that we are putting a lot of emphasis on IT, new technologies and innovation. In terms of stakeholders, including the media and the opinion-making circles, we have been recognized on many occasions. We have received a Pulse Business Award, money.pl award, but the most important piece of news was that our rating was confirmed by S&P. We received the BB Plus rating, but our upgrade, I'm sorry, our outlook was upgraded from stable to positive. Thank you.

The second quarter and the whole first half of 2024 will continue very good risk performance at Aliot.

The Tier 1 and TCR indicators are significantly above 17%. We have a big surplus above the regulatory requirements with 4.2 and 3.4 billion zlotys respectively. Same goes for the MREL indicator. We issued bonds successfully in the first half and we're considering another issue in the second half.

In terms of liquidity, the bank is improving and it's at very high levels.

Short-term liquidity, LCR, is shown on the right-hand diagram and the NSFR is also shown on the same diagram.

The regulatory minimums are 100% and these are 181 and 144 respectively. Another very good quarter for us. We reached level 6.78 NPL for Alior Bank Group. As you can see, we are continuing, and we have even recently accelerated the reduction of NPL versus the year 2020. This is a reduction from level 14.5 to level 6.8. In terms of risk costs, last year we achieved a very big improvement and we are below 100 base points when it comes to group risk costs. This year is even better. In the first half of the year, we reached level 0.46. Of course, it is supported by one-off events, which we talked about during the presentation of the results for the first quarter, but these events repeated in the second quarter. I am talking here about restructuring with a positive result of large corporate clients, as well as portfolio sales.

large clients and also from the point of view of the individual consumer. In terms of the cost of risk, it is expected to be at 65 basis points. and in the coming years and mid-term at about 80 basis points. As we move on towards the risk and the NPL improvement, recent quarters have seen a very dynamic improvement of these indicators.

As you can see, when we look at retail consumers, it's 3.46, which is a very good value.

better than many other banks.

And we are now focusing on improving our corporate NPO, which is about 11%. However, as you can see, we have seen a lot of improvement.

It has already gone down from 16%.

The cost of risk has improved after the quarter.

and it's not just in the bank but it's also in the business client line and the retail consumer line. To sum up the risk area at Alior, we are very good in terms of equity, we are very good in terms of liquidity with a lot of surplus above the required minimum. In terms of assets utilization, as we have in the past, improving this as we have in the past.

Thank you.

Thank you, Tomek.

Let me give you some words about our financial results. In the synthetic look at our income statement, I will emphasize some items later, but this is more general. The key message from this slide is that we are at 34% after the first half in terms of our income.

Our interest result was also better and our cost of risks are much better, which is something that Tomek described extensively. So we are minimizing those costs and we are trying to arrive at the market average. So this is what the quarter and the first half look like. There's also the money set aside for the credit holiday, which has been reduced recently. There is a lower number of requests for the loan holiday. There is less interest from the consumers, but we are obligated by the binding standards to adjust the figures accordingly.

Now, what we can also say is that we have a higher cost of legal risk, but that's, again, as a result of an increased amount of litigation. We believe that the Swiss franc segment, which is behind these values, it's 108 million,

It is now nearly 100% covered by the funding we have set aside. Now, for the interest margin, we should probably discuss this slide and especially the diagram in the top right-hand corner. is our adjusted interest margin at 6.22.

Now, what this results from is that we have the variable part based on Vibor, which is 100 base points less than last year.

That's about 100 million zlotys less in terms of revenue, but we are making up for it with increased volume. I think it's about 75 million in terms of growth.

Now, the cost of financing is also there.

We are using the benefits of the liquid market and we are optimizing this parameter to make sure we are as effective as possible as you can see it's significantly below 200 beeps it was at 191 in the second quarter so that's a significant

improvements year on year and quarter on quarter. When we talk about the volumes, I didn't say this before, but we have a very attractive offer for our retail customers, 7% in savings accounts.

This is a result of the transaction conditions and this is giving us good results. The number

of personal accounts is up by 20% and this was mostly growth achieved in the last quarter.

So given the very competitive market, We do believe this is coming across as a very interesting offer to the customers and that's why our acquisition of the market is high. So we're using this and we are maintaining the interest margin ratio.

There is also an influence of hedging, which represents 100 million difference year on year, which we already communicated to you. in the course of earlier presentations.

The middle line seems interesting.

It is the NIM minus COR, so the net margin minus the cost of risk. In case of the interest margin, we have observed stabilization and as regards COR, we've already heard that there's been an improvement compared to market values. We want to stress that because it seems a very attractive level and an indicator. What I would also like to draw your attention to is the credit to deposit ratio, which is observing a considerable improvement. In the loan-to-deposit ratio you can see a great rise because we want to continue building our loan book and exchanging as much as possible of the financing into loans. and this is probably one of the highest rates in the market, almost 85% of the loan-to-deposit ratio. As concerns the fees and commissions results, it is a stable We continue with the communication that we've mentioned many times. We want to maintain attractive retail conditions, attractive pricing tables which is appreciated by the customers and this result is slowly being transferred into the general balance sheet results. But in some part we believe it will also be observed in the number of transactions and will be observed in the income statement. There's been a change in the model of settlements with one of the card operators, which is mentioned in the footnote, but you have heard these communicates at different times and it is clarified to interpret the lines better. As concerns the costs, the banking sector and the whole of the economy is certainly under the influence of the inflation pressures. So year on year our costs have grown by 11%, 16% the employment costs. Some of the banks have already published the results, so we can see that this represents the general market trends.

What is optimistic?

Because obviously we work on all the items vigorously. There are certain reductions in property costs and rents and the maintenance of our headquarters or branches. You can see the reduction result, for instance, by decreasing the space in Gdansk.

Similar exercises will take place also in Krakow.

There's no use combating the trend. The hybrid model has become more and more widespread, and we will certainly use the opportunity in the days to come so that we obtain, on the one hand, attractive conditions for employees, but also savings. Similarly, with the network of branches, we keep working on optimizing the branch structure, both in terms of contracts and locations, as well as the number of branches. We grow in the indexes relating to IT or marketing.

The first one is relative to the

The growth in the bank, the whole of the sector certainly covers all kinds of expenses. As for marketing, well, this is also a derivative of the sales levels of the campaigns that we are involved in. This brings us to a very satisfying result Cost to income ratio, which is around 35-36%, which is considerably below what we had posited in the strategic goals. And now I hand over to Artur to talk more about the strategy. We would like to tell you a few more words about the financial targets and the strategy in the years 2023-2024. All the strategic objectives have been realized. and we assume today that our strategy has been quite conservative. The objectives have been met, but also in each of the items we have considerable good results.

And the L we've prognosed below 10% and we went down to 6.8.

As regards EOR, we wanted to go below 1.6 and we received 0.46%. Similarly, with other indices, we did better. than the assumption that we had made for 2025. So all the goals had been realized and improved, and now we're working on the new strategy for 2025-2027. The strategy will certainly be very ambitious.

Thank you very much.

This brings us to the end of the first session. We now move on to the question and answer session. The first question. What bank has the share of loans for the fixed interest rate? As we mentioned in the slide, 24% as regards our volume.

concerns the new mortgage sales, it is at the level of 76% of the fixed interest loans.

Thank you, Radomir. The next question, what was the approximate level of long-term financing after the second quarter of this year? At the end of the mid-year, 34% with relative to the recommended level. We lack a million. The level will be achieved in the future. Thank you very much. The next question, what part of the assets is at the level of fixed interest at the second quarter?

If we take into account the whole volume,

I mentioned the mortgages at the fixed rate, but also there are cash loans at the fixed rates and the second half, which is the hedging portfolio. Taking all that into account, we have to say it's about 30 billion zlotys.

Thank you, Radomir.

The next question, what is the outlook for the interest result for the second half of this year? Well, taking into account a certain consensus regarding the subsequent quarters and the environment where there would be no changes in the monetary policy, our NIM should be stabilized at similar levels than the ones that we have now.

Thank you, Radomir.

What is the sensitivity of the interest-realized 100 bps for the change in interest rates?

If we look at the fixed balance, and 100 bps.

It is a little above 200 million dollars in the horizon on one year until the end of the next quarter. NPL level went down below the 10% quite considerably, which was the target in the strategy. What is the further potential to bring the level even further down? Obviously, we want to go down below 5%, and the current structure of the assets makes it possible.

Thank you, Tomasz.

What is the impact on the capital indices by the CRR and CRD regulation?

According to our estimates, these regulations are still being modified, but it will be about 0.5 and 1 percentage point. As regards our bank, we have AME as one of the few banks in Poland.

So this effect in our case resulted from the credit risk and operating risk. What is the reason for the drop in the number of customers in the retail sector?

Well, let me try to answer that.

A large number of bank customers are the ones who use the installment loans. There is a big volatility in that particular group. there are seasonal variations because of the very nature of the installment loan. If you look at the presentation further, out of the 4.4 million, we have 1.3, 1.4 million who are the installment loans, and that certainly impacts the total number of customers.

Thank you.

Is there a space for bringing down the cost of deposits? Well, let's put it more broadly. We're looking at the cost of financing in the context of the possible change of interest rates. Obviously, there is a competitive game in the market and this has a huge impact on it.

When we look at the interest result, the average cost is the one that we keep improving and we are successful in that. It relates to the base of deposits.

which is the background of the particular indicator. We want to continue these activities and as has been mentioned previously, we definitely want to use the fact that the sector is quite liquid and with the change in the interest rates, we will be adjusting our actions. What was the positive impact of one-offs on the reserves' balance? If we excluded the one-offs in the second quarter, the result would be similar to our mid-term, which would be 0.8%.

What is the balance value in CHF loans and to what extent is it covered by reserves?

I think I already mentioned that in the presentation. It's 108 million, which is the balance value. It is almost 100% covered. The exact 98% of that is covered.

by reserves.

The planned MRL issue, what will be the size of the emission in the second half of this year, we consider between

300 to 350 million is the value of the issue. What is the outlook on the corporate loan sector?

The growth by 6% quarter-on-quarter is the highest quarterly growth over the seven-year period. What was the reason for that and what are the prospects for the future? This resulted from the activity in the market, from the work of our team and the corporate sector. As concerns the subsequent quarters and the next year, we are looking at a number of initiatives which we will want to bring improvement in the market. we realize that there will be all kinds of EU funds available which will be funneled towards the infrastructure sector, large projects which will be realized by corporations. And that's where we see the space for Alior Bank We will want to be in collaboration with other banks in terms of investing in the largest projects. We realize what scale we have. We will want to develop the corporate sector also in the development of renewables and the green economy. Thank you. Other banks say that they win most litigation cases. Is it a different situation in Aljur? If not... Why the reserve has been set up for 40% of the size of the suits? Well, we set up the reserves because we look conservatively, but we do win most of the cases, and I can confirm that we win most of them.

Does the bank meet the SOT NII requirement?

No, we do not meet that requirement. It entered into force in May this year. Most banks in Poland do not meet that requirement. Our plan for reaching the requirement, which has been approved by the Supervisory Commission, is the second half of this year.

Thank you.

And that is all as regards to questions, so I thank you very much for taking part in this Q&A session.