Erste Bank Polska Sa

Good morning, everybody. My name is Agnieszka Bawrzycka, and I am in charge of investor relations. I would like to welcome you at the presentation of the financial results for the third quarter of 2020. Together with me, there is Michal Gajewski, CEO of the bank, Maciej Roluga, CFO, and Wojciech Skalski, responsible for the management accounting area. Mr. President, before I hand over to you, I'd like to mention one technical fact. Please send your question to my email address or use the link that is published on the website. Please send your questions during the presentation. CEO, over to you. Thank you, Agnieszka. Welcome at the presentation of financial results of the Santander Group Polska. This is yet another time when we are holding this meeting remotely. But unfortunately, again, the times continue to be extraordinary and the situation is still unusual. We all see how the pandemic has affected our behaviors and habits. Now the key aspects we focus on is safety, mobile solutions, and digital channels. We are continuously adjusting our business to all that. This is why the development of digitization and business transformation will be our priority in the upcoming months. We want our sales processes to be safe and easy, both from the perspective of employee and customer. We are still doing our best to ensure all kinds of support in the context of the result of the pandemic. We can see in the third quarter, we could see that the customers again started to visit branches. In the third quarter, we reported footfall at 95% of the footfall reported at the pre-pandemic times. And this is why safety of our people and customers in branches is for us of utmost importance. Of course, you can find out more about our initiatives and actions related to social safety at the beginning of our presentation, so I strongly encourage you to have a look at the initial slides. But today's meeting is more about the financial performance of the first quarter. This is why I would like us to go straight to the slide number 13. As you can see on the slide, as a group, so including Santander Consumer Bank, we are providing services to 7.2 million customers, out of which 5.2 customers in Santander Bank Polska. Together with SEB, we have 2.9 million digital customers. Our deposit portfolio has increased by 10% year-on-year to reach 167 billion slots. Westland's portfolio is over 148 billion slots. Assets stood up at 222.8 billion slots, up by 9% year-on-year. Now, slide number 14. Before I go on to comment on the financial performance in greater detail, I wish to remind you that over three quarters, we have had several events that affected the underlying profit. And, of course, the details of that are available in the presentation and the report. When talking about the underlying profit, we take into account the stable level of bank guarantee fund contribution, and we also exclude the following from the profit after three quarters, cost of returns of fees on the early repaid consumer loans, ethics of the so-called small and big European courts of justice, additional loan loss provisions that we raised in the previous quarters. So, If we take into consideration all the above, in the first three quarters, attributable profits stood at 956 million slots and was 40% lower year-on-year. In underlying terms, it was 18% lower. In quarter three alone, net profits was at 479 million slots, up by 57% versus quarter two, mainly because of higher fee income, lower loan loss provision, and higher income on the sales of bonds. Net interest income after three quarters stood at 4.48 billion slots and was 9% lower year-on-year. The result was, of course, negatively affected by interest rate cuts and lower demand for credit. In quarter three alone, net interest income was at 1.38 billion slots, and it was 5% lower quarter on quarter due to the fully visible effect of interest rate cuts. Fee income in quarter three was record high and reached 552.7 million slots. After three quarters, fee income was at $1.58 billion and was at that similar level that the one reported the year before. In comparison to quarter two, fee income was up by 12%. Total net profit stood at $6.46 billion and in underlying trends was down by 6.7% year-on-year. However, if we compare quarter three to quarter two, total net profit went up by 2.5%. Return on equity in underlying terms was 8.9%. It's worth adding that apart from the generated profit that is in the numerator, the denominator is also very important because in the denominator we have profits retained in the previous year in line with the KNF recommendation for the entire sector. He couldn't pay out the dividend, unfortunately. And return on assets is at the level of 1%. We have a very strong capital position. Our Q1 capital was at 16.76 million percent, I'm sorry, and this year at 18.7%. Now, let us go to slide number 16, our customers and numbers. On the slide, you can see the customer's activity broken down by segments. Of course, the activity of customers was on the rise in the third quarter. The volumes are on the rise, especially in digital channels. And the number of mobile app and online banking users was on the rise as well. The number of logins to electronic and mobile banking went up by 6% versus the first quarter, and transactionality was up by 13%. In mobile only, it went up by 30% versus the pre-pandemic times. Also, In the business segment, we can see that the number of users of digital channels has been on the rise. Multi-channel communication center is also as busy as it was before the outbreak of the pandemic, but we can see that the share of video calls has increased. Before the pandemic in January and February, it stood at 2%, and today it is at 6%.

Let us move to slide number 17. we've been developing our proposition. Of course, you can see the details on the slides, but talking about new things, parents can open an account for their children online and provide them with a card, and the whole verification process is fully remote. For companies, we provided eVadia, That is a digital guarantee, thanks to which companies can participate in tender auctions without extending their own funds for bid bonds. And we also provided a solution for clients who lost their regular earnings due to the pandemic. We actually provided them... with the cancellation of card fees for three months. Let us move to the next slide, and let's look at the selected sales data. Slowly but surely, we are rebounding our sales, especially compared to the quarter two. Of course, we are still missing volumes to be at the pre-pandemic levels. But in quarter three, the sales of cash flow stood at $1.4 billion. If we compare that to the last year, it is lower, but the quarter three was definitely better than quarter two. And so the growth against the quarter two was by 13.5%. The sales over the remote channel is growing and in quarter three it accounted for 45% and this is 80% more than in quarter one. The net sales of investment funds stood at 1.6 billion at the end of September. This is 2.5 times higher than a year ago. In quarter three, the sales of net funds was the highest on the market. but we also had a lot of redemptions then. But the value of net assets increased by 21% since the collapse of the markets in March this year. In the segment of SMEs, we increased financing to companies by 2% year-on-year, and it stands at $13.7 billion. And we also have 14,000 new clients and new business accounts in business banking. As a result of the pandemic, as well as as a result of the support available from different sources, the demand for loans declined. The sales of loans decreased by 8% year-on-year, while the number of transactions overall compared to quarter to increase by 10%. The number of FX transactions done on the eFX platform increased by 9% year-on-year. Corporate and investment banking, really good performance, higher by 122% when it comes to the income from transactions in financial markets, while the income from cash management and liquidity services increased by 45%. The income from issues and the pairs of shares increased 67%, and we actually participated in The IPO of Allegra at the Warsaw Stock Exchange being the joint book runner and co-offering agent. Let us move to the balance sheets like number 21. The details with regard to loans. The portfolio of loans in gross terms increased by 1% year-on-year for Santander Bank Postal while for Santander Consumer Bank it decreased by 5%. On a consolidated level, it decreased marginally, standing at $148.2 billion. Both mortgage loans, cash loans, and SME loans have been growing slowly but surely. And if we compare it quarter on quarter, there have been no major changes. But the balance of business loans is lower than in the previous year. We have not re-built the balances since the previous quarter. Some of the clients used the support they were provided with to repay their loans. And sometimes consumer banks, excluding mortgages, decrease by 4% year-on-year.

Slide number 22, customer funds. Customer deposits went up by 10% to almost 167 billion slots. The improvement was mainly thanks to business deposits up by 16% in quarterly terms, which was up by 2%, and retail deposits increased by 6%. Here, there were no changes quarter on quarter. Of course, the great majority of aid from financial sheets and other aid tools was offered after the first half of the year, and this is why in Q3 we no longer see a significant increase in deposits. Assets under management went up by 11% year-on-year. And this was due to the outflow of funds from TFI and assets repricing at the beginning of the pandemic. In Q3 alone, funds went up by 11%. Now, let us go to the P&L. After three quarters, fee income went down by 9.2% year-on-year and reached over 4.47 billion slots. Lower income stems, among others, from three interest rate cuts. Also, the situation was affected by a slowdown in lending, especially in the SME segment. In quarter three alone, net interest income was at 1.38 billion slots and dipped down by 5.2%. Quarterly dynamics of net interest income decreased by 12% over quarter two. The main reason for the decrease was the portfolio of individual and corporate receivables portfolios that had been affected by the interest rate cuts. interest costs were going down faster than revenues, and in quarterly terms, they went down by 44%. This results from the continuation of the transfer of balance of term deposits to current accounts in reaction to interest rate cuts and changes in the deposit pricing offer. In quarterly terms, the annualized net interest margin for quarter three was at 2.66% and was lower than in the previous quarter, when it was at 2.88%. The main factors that influence net interest income and net interest margin in quarter three were interest rate cuts, decelerated lending as a result of the pandemic, flexible management of the pricing offer, and lowered profitability of bonds with a concurrent increase of the portfolio. Now, the next slide. fee income in quarter three alone was record high and reached 553 million slots. This was 12% higher versus quarter two. Fee income yesterday stood at 1.58 billion slots and was at the same level as last year. Taking into consideration the effects of the pandemic, this is quite a decent result, I must say. Fees went up in almost all categories. The most visible growth was reported in brokerage fees, up by 64% year-on-year, credit fees up by 12% year-on-year, debit cards up by 5% year-on-year, and insurance fees up by 2% year-on-year. Fee income in St. Andrew Consumer Bank in the first three quarters went up by 39% as a result of a wellness related to the adjustment of provisioning models for return of insurance fees, and We were also talking about that at the previous conference. In quarter three alone, the fee income went up in SCP-330 versus quarter two. Now, slide number 25. Total income up to three quarters stood up to 6.46 billion slots and in underlying terms went up by 6.7% year-on-year. In quarter three alone, total income was at 2.13 billion slots and was higher by 2.5% over quarter two. This increase in the quarter was related to a decent fee income and higher profit from the sales of treasury bonds. Now, slide number 26, cost. As you can see, administrative expenses are under tight control, and after excluding regulatory costs, administrative costs are 13% lower year-on-year. Staff costs are lower than in the previous quarters, although they are not as low as in Quarter 2. We continue working on a number of cost initiatives and review investment expenditures.