Santander Bank Polska Sa

So my name is Agnieszka Dobrzycka. Together with me, there is Maciej Reluga, Michał Gajewski, Wojciech Skalski, and Carlos Polaino. When it comes to technical issues, I would like to ask you for asking questions through the email address or asking them via webcast. We will read out the questions either during the presentation or within the presentation. Hello ladies and gentlemen. Welcome and I am very grateful for meeting you here also indirectly. May you live an interesting time. This is a Chinese curse. And we do live in interesting times. The pandemic has shown us how quickly we have to redefine everything, our modus operandi. And the recent weeks have shown us the impact the pandemic has on the P&L of the bank. Financial results show two realities. In January and February, those months were great. We kept them event and going. While March was at the opposite extreme, we saw far lower activity of our customers. So please bear that in mind when looking at the quarterly results. We're looking at the world before and during COVID-19, and those are two different realities. We have quickly adapted to the new rules of the game. I'm very proud of our people. Over 6,000 of our staff switched to working from home over just a few days, and that includes those employees working in our call center. We greatly appreciate how quickly our customers switched to online banking. We were fast to implement the new regulations regarding customer service at our branches. And we simplified processes. We make sure our customers have access to everything they need online. Customers still visit our branches to a lesser extent, but they still do. We also manage to implement the solutions within the government aid package to help our customers deal with the adverse economic effects of the pandemic on their business. We are now at the next stage that is more operational. We want to maintain, our focus is to maintain the revenues and the financial results of the bank and to minimize the adverse effect of the pandemic. Our priority is to maximize support for our customers, our staff, the economy and society. We're working on a number of solutions to support our customers in their liquidity situation and job retention. We continue to work with the Polish Development Fund. We'll be making an announcement in that respect very very soon we've signed an agreement with bgk and we participate in the bgk guarantee scheme we keep introducing digital solutions to encourage our customers to switch towards online banking we educate our customers especially the elderly customers how to access our electronic channels We're actively engaged in supporting hospitals and those working in the medical field. Together with our foundation, we started a fundraising campaign. It's called We matched every PLN paid, and in effect, we donated over 5 million for medical equipment to 23 hospitals in Poland. The entire Santander group is committed to helping fight COVID. Yesterday, the group announced it's allocating 100 million euros for solidarity initiatives against the coronavirus. And we are part of that commitment. Let's move on to the presentation. We're starting with slide number five. At the end of March, gross loans went up almost 7% to reach $153.2 billion. Customer funds went up 4% to $169.7 billion. Assets up to exceed $215.9 billion. At the end of the quarter, our market share in growth loans was 11.9%, while in deposits, it stood at 11.6%. Our whole group together with Santander Consumer Bank holds a portfolio of 7.21 million customers, including 5.1 million customers with Santander Bank Polska. We have 2.61 million digital customers. Let's move to slide six, basic financial highlights. One of those impacts is our results, and I'll be talking about them in detail now. The first one was the BAG contribution with impact on operating costs. The amount is $287.6 million, including almost $40 million to the Guarantee Fund and $248 million to the Resolution Fund. a higher amount than what we saw last year. Another item, another making an impact is the provision for legal risk in other operating expenses. That's over 47 million worth of provision for the partial reimbursement of fees on prepaid consumer loans. No such provision was raised in quarter one 2019. The third impact is the cost of reimbursements related to the prepaid consumer loans of 52.6 million. That's an impact on our net interest income. Another item, one of item is the provision for expected credit loss. That's a post-modal adjustment. It arises from worse economic outlook. It's the highest item and it amounts to $119 million. Then we have provision for employment restructuring at Santander Consumer Bank. It amounts to $5.6 million. That's for provision for employment restructuring. Net interest income up 1.7%, and excluding the impact of the reimbursement of the portion of fees, it was up 5%. Net interest income up 5%, and it reached 1.63 billion. After quarter one, fee income was 538 million, and it was higher by 3.5% year-on-year. Total income at the end of March went up slightly. Underlying total income went up 2.6% to reach almost 2.25 billion. Profit after tax after quarter one reached 171 million and was much lower year on year, almost 50% lower. Underlying result was 2% higher compared to 2019. Let's move to slide number seven, where we see our solid capital position exceeding the regulator's expectation. Return on equity, as you see, at 8.5%. Underlying return on equity over 10%. Very good liquidity position And LCR at 140%. Loans to deposit at a very good level. Let's move to slide number eight. Business growth. But as I said at the very beginning, first quarter consists of two different realities. We must divide it. We must divide January and February for March. But we have some good news here still. The account, as I wanted, for example, we have an increase of 47% in the number of holders. That's an increase year on year. At the end of March, 1.9 million customers had that account. We also recorded an increase in cash loan sales by 10% year-on-year, sales increase in remote channels. Comparing quarter one 2020 to quarter four 2019, there was a decrease. However, comparing quarter one 2020 to quarter one, 2019, there was an increase of 10%. March was much different to the two previous months. We see differences in the week the pandemic was kicking in. And so the difference in average daily sales between the first and the second half of the month was as much as 60%. The retail deposits at 7%, the amount in our balance sheet is 88.5 billion at the moment. 700 TSI, In March, much so an accelerating wave of redemption, especially in corporate bonds. So the net assets under management were very much under pressure. At the end of March, we had 12 billion worth of assets under management. The good news is over the last week, we saw increasing net sales. So there is some rebound here. Slide number nine, digital channel. As I have mentioned, we're adding new functionalities. Our customers are quickly adapting to the remote channels. So there are more solutions now available in the digital offer. We serve our customers quicker, even quicker than before. We invested a lot in the fourth quarter to increase the capacity of our remote system. So we could say that though we didn't really expect the pandemic to be as heavy as it is, we are prepared to continue with this heavy traffic that we're seeing online. at the moment, and we're prepared to continue like this in the longer time horizon. At the end of March, we had almost 4.6 million customers with access to online and mobile banking, 2.6 million active digital users that's up 9% year-on-year. This includes 1.6 million mobile users that are up 17% year-on-year. We had 25 million mobile transactions that's an increase of 65 versus quarter one 2019. we see a rising share of digital channels in overall sales not only in march but even at the beginning of the year, and this refers primarily to personal and business accounts, 30% of all account sales happen online. Year-on-year account sales went up over four times, and in terms of business accounts, almost 12 times. 25% of cash flows are now sold online. Those proportions, of course, changed between February and March, but the sales were still very high at the beginning of the year. Let's move to slide number 10, where we have information on the SME segment. Here we see a 30% growth in sales of installment loans. We recorded the highest sales in February. SME financing went up 9% year-on-year to almost $14 billion loss. We have a new process, smart loans, and 5.7 thousand customers have availed of this process with $652 million worth of financing. As I said at the beginning, we are showing, I'm going to talk about it again, we're on slide number 11, how we're supporting our customers in the time of the pandemic. You see the four main areas here on the slide. The first is about remote communication, electronic channels, We have launched a dedicated service for our customers to help customers switch to remote banking. We provide support to individual customers. And at the end of March, on the slide you see the data for April also, but at the end of March, we had individual customers pass over 15.5 thousand applications to defer principal installment payment on cash loans and almost 7,000 applications for the same on mortgage loans. And this trend is definitely accelerating in April, as you get to see on the slide. The vast majority of those applications are approved. Also for the customers, that head slide, a day past due. Support for business customers. By the end of March, we had received 5,000 applications for freezing a loan repayment for three or six months. 7.5 thousand approved applications to free lease installment repayment. For our business customers, we implemented the automatic deferment for two months on some products and we offered waiver on selected credit fees. Business and corporate banking. Here we again have a very positive picture of the first two months. Transactional banking revenues, term deposits increased as well, just like factoring revenues. We are still optimizing cost of deposits. also in this area, and the volumes of deposits and cash in current accounts grow. Another thing that we would like to boast about in these difficult times is that we received an award from Bank Gospodarska Krajowego BGK for the highest sales in the market of the state aid program Business Max for SMEs and small corporates. Here, our market share was 45%. In corporate and investment banking, trade finance revenues grew by 15% year-on-year, and cash and liquidity management by 33% year-on-year. We co-arranged the first issue of green bonds in Poland with a total value of $1 billion. And we also acted as sole intermediary broker and financial advisor in a public tender offer, which was the second largest tender offer in the history of Polish capital markets and the biggest one in nine years. So these are the good news. We also took some special measures in March. We intensified our daily contact with our customers. Our bankers contacted over 35,000 customers, and in order to do that, we used various digital channels such as Skype for Business, email, telephone. We also held sectorial and international webinars for customers, for these customers who wanted to find out what kind of aid they can get from us. We extended agreements from two months for credit facilities, which are due in the month of March to June. And this was done in a simplified credit process and involved no fee. We also implemented waivers for capital installments for credit factoring and leasing products. These were three and six months. Also, this was done for big corporates. And last but not least, Together with BGK, we launched guarantees, not only for small and medium enterprises, but we also signed an additional agreement for a guarantee for big corporates. Now, let's move to the slide number 16 and let us look at the balance sheet. Gross loans went up by 7%, 153.2 billion slots. Mortgages up by 6% year-on-year. Lewis Frank mortgages portfolio went down by 9% year-on-year. PLN loans up down by 7% year-on-year. Cash loans up by 21% year-on-year. And in total, in Santander Consumer Bank, gross loans went up by 7% year-on-year. Of course, we reported a drop in mortgages in Swiss francs, and excluding mortgages, SEB loans would have gone up by 10% year-on-year. Slide number 17, total customers found up by 6%. And of course, this was impacted by the situation in mutual funds where we reported a drop. Total deposits increased by 7% year-on-year. Retail deposits 7% up. Business deposits 6% up. And deposits grow, especially in current deposits, very significantly, 22% up. In saving accounts, 18% up year-on-year. Slide number 18. Net interest income as of the end of March was 1.63 billion zlot. In quarterly terms, there was a negligible drop in that. Here, I would like to say what influenced the situation. We received supplementary re-explanation by the president of the Office of Competition and Consumer Protection, WOKIC. concerning the judgment of the European Court of Justice on the early repayment on consumer loan or credit, which shows the linear method of calculating the reimbursement as the recommended well. And I would like to underline the fact that we have acted in line with this recommendation, just like other banks. We also reported there was a cut in interest rates by MPC and decreased activity of customers. And also, we had reinvestments in debt securities at lower yields. On the other hand, taking a look at the positive elements, we see a continuing trend in interest expenses, a drop of 8.2. And if we take a look at that year-on-year, 12.5% down. In the first quarter, the annual SNIM was 3.32%. This was five beats lower versus the previous quarter. And excluding the impact of the change to the linear method, the margin would have grown. Slide number 19. Fee income up by 3.5% year-on-year. And in quarterly terms, there was a negligible drop. to the level of 538 million slots in the first quarter. This line in the P&L has been impacted by the pandemic situation and the general situation reported in the second half of March 2020. We reported lower result in credit cards. We have had a one-off transaction in the fourth quarter. related to the higher cost of retail intermediary settlement. All this influenced the fee income. In terms of ethics fees, this was a decent result, 14% year-on-year and 10% quarter-on-quarter. In the second half of March, in our Santander Exchange, there was a lot of turnover and also insurance went up by 28% year-on-year. And we reported an increase specifically in brokerage fees, up by 62% year-on-year. In March, we also reported some decent increases. In Santander Consumer Bank, Fees went up by 11% year-on-year, and quarter-on-quarter, it dropped by 19% due to lower commissions from credit cards and higher costs of retail intermediary settlement. Now let us look at slide number 20. Income table, 2.24 billion slots. In underlying terms, if the increase was 3% year-on-year. Excluding one-offs, there was an influence by a change in fair value of Visa Corporation. So this change contributed negatively. This was the impact of almost 30 million slots. And this was included in the performance of other financial instruments. Also on the derivative market and FX markets, there was a situation that contributed to the general situation. We also booked a profit on sales of debt securities. Now, the slide 21. Slide number 21, costs are under control year-on-year. Underlying costs, excluding BFG and provisions for the verdict of the European Court of Justice and the provision for retracturing, even down slightly year-on-year, and quarter-on-quarter, the increase would be of 2%. Administration costs at 574 million affected by the legal risk provision. We have lower administration costs if we include regulatory costs, quarter on quarter. We see lower marketing and maintenance costs. At SCB, the operating costs are similar to the level observed last year. quarter one 2020, we booked a provision for staff restructuring at five million. That's at Santander Consumer Bank. Let's move to slide number 22, loan loss provision and credit quality. Quarter one saw a much higher level of provisions compared to the previous quarters. with provisions at $466 million, and that includes the $55 million raised by South America Consumer Bank. There is the additional item, the largest item, $119 million, that's for the expected credit loss. This is a post-model adjustment. We decided to raise this additional provision due to the high uncertainty around COVID, especially in terms of the scale and the time horizon of economic slowdown, and the impact, the uncertainty around the impact of the financial aid package from the government, the economy, reopening and so on. We do not have enough data to make reliable projections. Excluding the additional provisions, the credit portfolio behaved in line with the expectations and the risk charge would go up a few basis points even without this additional post-model adjustment from 85 to 88 basis points. And this is due to individual cases where the situation of one corporate customer has worsened. Non-performing loans and coverage are at a similar level to last year. Let's move to slide number 23. We see much higher contributions for BFG and KNF, total of 295 million PLN for the first quarter. This includes the Revolution Fund. NPL sales at 272 million at Santander Bank Post and 282 million at Santander Consumer Bank. Coming up, slide 24 and 25. This quarter, as I said, presents two different realities. Before the pandemic and during the pandemic, so before the pandemic kicked in, we saw very high results, and we saw the situation worsened once the pandemic started. Increasing total income for the quarter, it's 2.6%. Higher net interest and fee income, 4.6%. We will be supporting the economy, our customers. We're not changing our customer-centric strategy. We are here for our customers in the good and bad times. and so we're not changing our strategy. Thank you very much, and now we're opening the Q&A session. We have some questions already. I will start from some of them. I'd like to put them in some groups in order to grasp the gist So a question concerning volumes, one of them comes in English, the other one comes in Polish. At the end of the quarter, did you see any significant disbursement or drawdowns in the corporate sector because volumes seem to be strong and what's going to be the credit dynamics in 2020? When it comes to the first question, The answer is positive. The activity increased, and February was quite strong when it comes to increase of loans. And when it comes to the total, to the entire 2020, I think that the most reliable answer is that we don't know what will happen. This is the first time when during the announcement of financial results, we do not provide any macro presentation. We do not know what will happen next month when lockdown finishes and what the next measures will be, how soon we will have a rebound, how long we will suffer from shocks. And from the perspective of loans, we don't know what is going to be the demand for loans, how many applications for repayment fees we will we will receive. We don't know how many credits with guarantees we will have. So these are all unknown. So I wouldn't like to provide any guidance at this stage. And I hope that after the second quarter, the situation will slightly clarify and we'll be able to tell you something more. The second question, how the bank reacts to the current situation. I think that the CEO has already covered that quite extensively. So we're going to do with customers what we're going to do now. Another question concerns a provision for Swiss franc mortgages. and additional provisions in the first quarter, whether we have raised anything. Maybe I will take this question. In general, when it comes to the portfolio provision of the big SUI, so the legal risk provision under indexated loans, denominated loans, well, the methodology of the portfolio provision has not changed versus what we contained in the annual report. As you know, this provision was asked the value of this provision was estimated taking into consideration many assumptions that influence the amount. And we are still monitoring the ruling practice on a regular basis. At the end of the first quarter, there was no significant deviation from our assumption. And in the next quarter, we're going to have the next review and its results will be published in the semi-annual report. The third question is quite technical, and it tells you about 15 million of negative impact in the operating income, other operating income. This is note number eight in the report, and there was a line talking about releasing provisions for lawsuits. So the question is what kind of lawsuits we had in order to release provisions. So there was nothing like that. We had other assets in SDB, and I think that this note, number 8, should be read together with note number 12 because there is a similar element but it is negative. So these two factors level off. So that's it. And the settlements were related to contracts of credit installments. Another question concerns provision. Asset quality, what economic assumption is the 190 million provision based on? And what are your expectations for 2020 in terms of risk charge? Does it include any effects related to the borrower support measures? For example, moratorium, repayment moratorium and guarantees. Okay, let me take this one. Oh no, let me move to the macro assumption in the model. We did the portfolio analysis of the portfolio and watched the behavior of the customers and tried to project their future situation. And according to this analysis, there is much higher risk on the corporate and SME side. That's why most of this provision you're asking for actually relates to those segments. we didn't really include any GDP forecasts or jobless rate. In terms of funding outlook for 2021, we're not giving you any provision, but it doesn't necessarily have to imply that loans are going down. We see, in fact, higher utilization from some customers in preparation for those more difficult times. So projections in terms of utilization. are based on the scarce data that we have, and there's so much change. So it's difficult to provide reliable projections. What is your approach to mitigate the interest rate cut? You see the cost of deposit, And interest costs, you've probably seen on the presentation that those are going down year on year by almost 12%. And quarter over quarter, we've actually done some repricing. And there is some space, some room for maneuver. You've seen that in some positions, in some items, fees and charges, in fees and charges, you see significant activity of our customers. High insurance sales, there's lots of traffic there. A lot's happening in terms of FX income. We are taking advantage of all those opportunities that are coming from the customer's activity. We will be actively engaged in those financial aid schemes. They will help us improve the quality of our assets. And that relates to both BGK and their guarantee, as well as the financial shield of the Polish Development Fund. It will help us, but most of all, it will support our customers. In terms of BGK, and the Polish Development Fund guarantee that they are subject to the banking tax, that the price takes account of that tax. What about the PLN and your portfolio and the impact on the portfolio? And what about the number of lawsuits? You know, in the last few weeks, our customers have been less active. Quarter four, 1,058. Quarter one, additional 370. So, Zwater is depreciating. But we're not seeing that this has a significant impact on the number of defaults. It's difficult, as I said, to provide some reliable projections for the future. for potential changes. We will have a program of cost optimization. Of course, our priority right now is to keep up the FTEs and the remuneration for our employees. But of course, we will see what the future shows. Currently, we have no plans about the reduction of staff and any potential decrease of remuneration, but we see many other possibilities to optimize costs. When it comes to additional support from the government, there is a very thriving cooperation between regulators and banks. This concerns regulatory requirements and support for businesses. And this cooperation is developed together with the National Bank of Poland, the KNF. Twice a week, we hold meetings where we comment all the material issues for this sector. The KMF, Financial Supervision Authority, is very active. They are supporting us in the dialogue with other regulators as well. When it comes to any additional support, well, we are talking about the banking tax, of course, and about any potential other solutions. Of course, we would like to limit the tax when it comes to new exposures and the exposures that are related to aid programs. But all in all, we think that the programs, the SHIELD, the programs developed by BGK a proper response to the situation. Of course, we are going to see what happens in the future. These programs are targeted not only at our customers, but also at us. Of course, we have to be very flexible in our reactions. We are quite fast in changing our systems, and we are fully aware of the fact that we need to be speedy here, we need to be and we need to be a distributor of these aid funds. In fact, we are a transmission bond between companies and the government. When it comes to repayment fees, I have the data already. The question was, How does the number of the applications regarding the repayment freeze translate into the percentage of the portfolio? So as of the end of March, mortgages and cash loans was some 4%, and it has grown to some 10%. And in SMEs, currently it is some 20%. It used to be 10. Coming back to provisions, the provision of 119 million is related to Santander Bank Polska and CB. This is Santander Bank Polska. It stems from the division of provision. So to a large extent, this is corporate banking and SME. And one more question concerning provisions. I will find it. Let me find it. And in the meantime, I will mention the question concerning the cut in interest rates and our approach to that. I must say that for some time already, even prior to the pandemic, we had been conducting a research in the Santander group, and there are several markets where we report negative interest rates. So we were looking at the reactions of our colleagues on these markets where the interest rates are negative, how these markets behave. So, you know, this is not only the matter of the recent weeks. We already have some plans of preparing ourselves to such cuts in interest rates. Of course, all this happened faster than we had expected. And the situation accelerated a little bit, but we have a plan in place. We are not beginning the situation with carte blanche. we have some experience of our colleagues, for instance from Spain, who are acting in this environment very efficiently. And there was a question that is related to risk charge. It has a thesis included even if we neglect this 119 million the costs are high and the guidance was 80. so you know i must say again that we are not providing a new guidance in this environment right now On the slide number 22, which shows risk charge, if we exclude 119, cost of risk is up by three bips. And at the same time, I'd like to underline the fact that we had a one-off, big one-off in corporate banking. In other lines, when it comes to the quality of the portfolio, in the first quarter, we didn't record any significant changes. Of course, the situation might change in the second quarter, so we will see what happens. And coming back to questions concerning the principal, in the first quarter, Has anything been included in the calculation of principal when it comes to the income of 2019? Was there any other factors that influence RWA? So we were publishing everything on an ongoing basis. Recommendation of the government is to have 50% of income in the reserve principle and to leave the remaining part in the undistributed profit. When it comes to RWA, there was a significant impact of the FX rate because all the FX mortgages were influenced by the FX rate. So there is a series of this additional 119 million slots worth of provision. Does it relate to Santander Consumer Bank and Santander Bank Polska? We have already said that. So the initial analysis points out to higher risk in corpora. So the majority of that provision was raised in this segment. So we've already answered how many applications we received for the repayment fee. We have. And I think we've answered all the questions. Agnieszka, are there any more? Last questions have just come in. The revision of model, what sort of impact will it have on the provision? We will see the macro projections at the end of the second quarter. what the risk is some particular accounts and then we'll see what the impact is i understand you know there are many questions that are sources of driving at the same what is the guidance for the provisioning for 2020 but we've said the scale of uncertainty you know starting at macro and going to micro is so large that we're not going to give you any guidance today Okay, so we've answered all the questions. So I think we can close this question and answer session. Sorry, I think I've just re-read one of the questions, and I think I provided the wrong answer. The question is whether we included profit to the capital for 2019. We got KNF approval for that, and we did, and we included that in one of our current reports. So, yes, affirmative. The answer to that question is affirmative. Okay, so we don't have any more questions. So I think we can close this presentation. If you have any questions, any doubts, please contact us by phone or by email. Thank you very much. Thank you very much and stay safe. See you or hear you next time.