Santander 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.

After three quarters, the loan loss provisions were 1.3 billion compared to 956 million a year ago. The key drivers of the net provision balance in quarter three were as follows. It was the fact that the NPL portfolio was close to what we saw in the previous quarter. of the non-performing loans increased by 2%. In quarter three, we raised provisions worth 359 million, which is a decrease by 25% quarter on quarter. The share of credit exposures in areas decreased by nearly one-fourth as compared to the peak observed in this year. We keep monitoring the risk on an ongoing basis, especially when it comes to the group of clients affected by the pandemic and those clients who availed of the support programs. When it comes to the quality of the portfolio of customers that availed of the support from different sources, we will have more and more clarity with respect to that quality in the coming months and weeks. when the customers return to their regular repayments. We are focusing on this part of the portfolio that has the highest risk after the expiry of the moratorium, but we've been preparing our action plans in this respect to support these clients as much as possible. We have kept the collected provision as a result of the adjustment of our models, and that's 151.3 million. This is so because there is still uncertainty as to the further developments, especially when it comes to the scale of the slowdown, its time horizon, and the impact of expiring support programs. led us most to slide number 28, the regulatory costs. They increased by 36% and stood at $389 million. Last year, it was $285 million. This year, altogether, the total charge for the banks on the foot of the banking tax stood at $449 million. For our bank, it was $417 million, while for Santander Consumer Bank, $32 million. In philosophy alone, we saw only a small portfolio of NPRs in Santander Consumer Bank. So the good news is that this market still starts to rebound, but it was a marginal sale without any impact on our figures. Summarizing that, quarter, despite the difficult market and challenges related to the pandemic. The varying quarters and uncertainty prevailing on the market, it seems that we've been adapting to the new normal quite well. I think that we've performed in recent months quite well, especially compared to difficult quarter two. If we were to compare ourselves to what we yielded last year, it does not make any sense. The quarter-year loan makes us to sing along optimistic lines going forward. This is so because we had the growth in income up to $2.1 billion. We had a record high fee income. We had the decline in operating costs and the profit after tax that stood at $480 million, which is more than we earned in the entire first half of the year. Our sales performance is rebounding. The number of transactions is on the rise. We have new solutions and processes for our clients, the digital ones. Both our branches, our multi-channel communication center and the headquarters are working full steam ahead. We keep working from offices and from home. So our performance in quarter three make us optimistic about the upcoming future. They were really good. They make us optimistic, yet the challenges in the last quarter of the year are definitely ahead of us. But nonetheless, I'm staying optimistic, so now over to you for the Q&A session.

There are a number of questions already that we have in our mailbox, so we'll try to take them one by one. The first question regards the fee income under loans and whether there were any one-offs in the third quarter. So I would like to comment on what Michal has said already. In SCB, quarter on quarter, we have a major growth, and this also stems from the increase in business. quarter-on-quarter, but there is also one of intermediary fee and fee for partners. So this is some 20 million slots. Another question is about over-liquidity and deposits. I'm sorry for my hesitation. So the inflow of deposits and the growing over liquidity and their influence on net interest margin and whether we can see any need for introducing any fees and charges. So if it is inflow of deposits of our customers to whom we provide services and we have a wide range of services like savings and investment facilities for them, we are there to support our customers. And the influence on NIM does not mean that all this does not bring income. So even if our deposit is at zero, the reinvestment at a low yield is okay. even if the yield is low, it doesn't mean that it doesn't make sense. But one element that is significant to mention is that it's some big deposit balance sheet. We know that some banks have introduced fees for that in the market and if some customers transfer their deposits to our bank, just in order to avoid these fees without the banks, maybe there will be a possibility and there will be a need to react.

The next question refers to the payment holidays and there are a couple of questions referring to that. The one question is Do the customers are more and more interested in the solution proposed by the government? Will they be reported at stage three? I would say that at the end of quarter three, within the moratorium, we had a lot of that. Then there was a slight increase. We'll see really after quarter four, but comparing the moratorium, that we proposed earlier, the scale is different. So the figures are different. When it comes to stage three, there are still discussions underway. We know that we can say that if somebody avails of the moratorium of their payment fees, they are losing their job. This is a sustainable loss of income. Then it's stage three. But the question is whether that's permanent or not. And the auditors are still considering that, and we will be really having to decide on that when closing quarter four. How does a portfolio with moratoria payment reasons be expiring? There are two aspects to that. The first thing is that in the report and the presentation, You can see the number of clients that the bank recognized in the course of the pandemic. For Santander Bank Polska, you can see that on the page 27 of the report with the breakdown into individual portfolios. To show you the scale of the support for the clients, looking at the Percentage of the portfolio altogether, it was in the order of 19%. The grace period is in place and three quarters. But the expiries started for good in September. If you look at the active grace periods, now it's 6%. But for example, For mortgage portfolios, the grace periods accounted for 11.6, while the active grace periods account for less than 3%. So they are phasing out. And October is the month when it is really taking place. And we can see customers restoring their repayments. They are doing quite well, but we'll be giving you more details in quarter four. But this is happening just now at the turn of quarter three and four. And the restoration of repayments looks quite well.

And we have some questions regarding Swiss franc mortgages. This is a question in English in order to update on the current situation and the latest trends when it comes to the number of lawsuits and the probability, and the potential verdict of the Supreme Court. We'll see what happens, whether the ruling of the Supreme Court will somehow unify and align the line of verdict. And when it comes to the data, the figures, the number of lawsuits, the increase $689 in quarter three. In quarter two, we had $900 of them. So this $689 is divided into some $500 to the bank and some $200 for the consumer bank. In fact, when it comes to the probability and the number of cases, everything is included in the model. You can see that we haven't changed the portfolio provision. We have maintained it. And this shows that the probability regarding the line of verdict is does not deviate from the numbers assumed in the model. The number of lawsuits has not deviated much from the portfolio provision. And, of course, there was no significant change in the interest rate, FX rate. And since the reality has not deviated much from the model assumptions, there was no need to update anything. But, of course, in the fourth quarter, we are going to review the parameters, the assumptions, and the model itself. So we will see what the results will be. But, of course, it does not change anything. We are continuing our actions. we are receiving individual cases and we raise provisions for them. So we are acting in line with the methodology that we presented in the first quarter when the portfolio provision did not change and individual provisions were raised. We have 11 million of provisions for Stamford and Bramall postcans issued $18 million for Santander Bank Polska, and the previous quarter in Santander Bank Polska, we've got $34 million of provisions for individual cases.

There is also a question about the cost of risk and the quality of assets. Is it possible that we will see a rebound in the cost of assets? risk given the pandemic and the growing restrictions, and how does it change the outlook for 2021? Sorry for reading so slowly, but there are some questions in English. First, I will not tell you if that changes the outlook for 2021, and we have not provided you with any guidance for 2021 at all yet. Probably we will do it after quarter four, but there will be definitely a lot of developments in quarter four. Quarter three was positive, but we have to wait for the one or two months of full repayments to find out if the quality of the portfolio continues to be all right. Well, but let me emphasize that quarter four will be so worse, especially in macroeconomic terms, than what we thought before. But quarter two didn't have such a decline as expected, and quarter three showed quite a nice rebound, while GDP will be lower by 3% probably at the end of the year. The question is how long this will last, and We don't have an answer. We keep watching the situation and I think that I wouldn't provide you any guidance either for quarter four or next year given the level of uncertainty. We will be closing the year showing you our performance for quarter four in January and then we will be able to tell you more about the next year.

related to dividends. Of course, it is more about the recommendation of our supervisor. We want to pay out the dividend both from the retained profit and from the profit of this year. There is no change. We have a very visible capital surplus, all the ratios at very good levels. And as I have said, we think that this is our obligation to distribute the profit. So we keep this strategy in place. A question related to Swiss francs and provisions related to other banks. I don't think it's good commenting on that, because the question is about a lack of provisions in our banks versus other banks, which report very high provisions. The portfolio provision is modified if the reality differs from what has been assumed in the model. And I don't know what our peers have assumed in their models and what the results are for them.

So... There is a question about cost and the fluctuations in cost that the bank created the bonuses, the provision for bonuses. I think we explained that last quarter. We released provision for additional staff costs and that's why the sub-costs were lower, but in quarter three, these costs are higher. We don't have such a one-off, but we can see that we have the same situation as in previous quarters, and this reflects the slowdown in business. Does the bank create provisions for bonus for 2021? If yes, then at a lower level because the performance is worse. There is also a question, shall we, Expect more provisions for sub-restructuring, headcount restructuring. We can tell you that no decisions have been taken. And if we take such decisions, this will be disclosed. Dividend, the outlook for costs. I don't know if there are any other questions that we haven't answered, any other issue. Agnieszka, anything else that we might have skipped? No, really, everything has been covered. No more questions. If it happened that we skipped something because we had quite an inflow of the questions, we will be in touch and we will provide you with answers. Unless there is something really outstanding. So please let us know quickly by sending an email to Agnieszka. If there is something really that you cannot wait with getting the answer later than sooner.

Okay, Agnieszka, are there any other questions? Yes, I just received one from Michal Konarski. The question about mint. I'm sorry, I didn't get that. This was a question regarding NIM in the third quarter. Is there a trough in the third quarter? So I would say in general, yes, but there are many factors behind that. So it's difficult to provide a very strict guidance because the question is what will be the demand right now demand for credit we expected the rebound and the rebound was reported but only in retail not within the corporate segment so we will see what happens in the fourth quarter we will see whether the rebound continues or not also the second wave of the pandemic may cause another wave of um NBP, BGK, and other actions. This is yet another factor that may negatively influence the situation. And on the liability side, as we have mentioned, we limited the financing cost. This is also visible in the third quarter already. But some effects will only be available over the fourth quarter. In Santander Consumer Bank, what is worth reminding is that there are longer maturity dates for 10 deposits. So the change is happening right now and in some cases in the first quarter next year. So there is repricing when it comes to mass financing. So this may influence the NIM on the positive note. So I think that we may risk a suggestion that we have reached a trough, and in the upcoming quarters there might be some stabilization observed because the NIM has already brought on the

It was the impact of the one-off, when it comes to the fee income and front-end consumer bank. This was a one-off fee from the intermediary. The scale of that was several million, roughly 20 million. The very last question that was asked, there are no more, so that's all. Okay, then. Thank you very much for your attendance. And here we are next time when the publication of the performance for the next quarter will be by.