Erste Bank Polska Sa

Hello, ladies and gentlemen. This is 11.30, so let us start. I would like to welcome you to the presentation of the financial performance of the Santander Bank Polska Group for 2020. Together with me, there is CEO Michał Gajewski, CFO Maciej Raluca, financial controller Carlos Poleno, and Wojciech Skalski from the management accounting area. My name is Agnieszka Dobrzycka, and I'm in charge of investor relations. CEO, over to you. Hello, ladies and gentlemen. Michał Gajewski here together with me. There is Maciej Raluca. This is the first presentation of the financial results this year. We are going to present the non-audited financial performance for 2020. We've been through a period of many hardships and challenges. The entire banking sector, just like the economy, has adjusted quite quickly to the requirements and customers' preferences. The key elements that have become our priorities have been safety, mobile solutions, and remote channels. We can see that although customers come to branches again, their footfall is definitely much lower than previously before the pandemic. We're conducting analysis on that, and we can see that in Q4, the footfall in our branches was at the level of 72% of the pre-pandemic level. Of course, this is highly compensated with the use of digital channels. We are staying together with our customers, and we want to provide them with full and complex support. during this difficult period of the pandemic. The details of our aid actions were covered during our previous conferences and of course they are presented on the slides in our presentation. I'd like to mention the key initiatives. We took care of our customers by offering them a possibility to defer loan repayment, and we provided the customers with a wide range of products. We made sure our employees were safe, both physically and socially. And on top of that, we donated $5 million to hospitals in the wake of a charity campaign that we ran together and we organized with our customers. The details are presented on the subsequent slides, but now let us jump to the slide number 13. As a group, together with Santander Consumer Bank, we provide services to over 7 million of customers, out of which over 5 million customers are serviced in Santander Bank Polska. Together with Santander Consumer Bank, we have almost 3 million digital customers. Deposit portfolio went up by 10% year-on-year to reach over 170 billion slots. Gross loans, I would say that this is flat year-on-year as it stood at over 114.3 billion slots. The trends within loans and deposits at our bank reflected what was happening in the market in 2020. The assets went up to over 229 billion slots, up by 9% year-on-year. Now let us go to the next slide, slide number 14. Just like in the previous quarters, we had several one-offs that influenced the underlying results. You may find the details in the presentation and in the reports. When talking about the underlying, we take into account two factors. We need to consider the contribution paid to Bank Guarantee Fund and excluding from the profits the effects of the small and big Court of Justice of the European Union and additional provisions for the expected credit loss and legal risk. After four quarters, the attributable profit was 1,037,000,000 slots. In underlying terms, it was 21.7% lower. In Q4, net profit stood at 81.5 million slots and was affected by higher provisions for legal risk and restructuring provision. Net interest income stood close to 5.9 billion slots and was some 10% lower year-on-year. Of course, this was negatively affected by the interest rate cut and lower demand for credit. After four quarters, net fee income was 2.16 billion slots and was at a similar level year on year, which, bearing in mind the pandemic situation, should be perceived as a decent result. In quarter four alone, net fee income was exceptional and stood at almost 570 million slots. Net total income was at 8.6 billion slots and in underlying terms went down by 7.6% a year. Quarter-on-quarter total net income was 2.2% higher. Return on equity was 8.1% in underlying terms. It's worth mentioning that apart from the profits... this year that we have in the numerator, the denominator is also what counts here because it represents the profits retained in the last year, which was in line with the KNF recommendation, and it's considered the entire sector. Internal assets in underlying terms was at 0.9%. We have a very strong capital position, much above the expected levels. Our Tier 1 capital was above 18% and TCR over 20%. The minimum levels here are 11.2% for car and 9.2% for Tier 1. So we can see that we have high excess here. Now let us go to the slide 16. And on the slide, you can see customer activity in the specific segments. Customers are more and more eager to use remote channels, as I have mentioned at the very beginning. The transaction volumes here are on the rise, and the number of users of remote channels is also rising. When we see the number of logins to mobile and online banking, it is continuously going up. Last year, it went up by 19%, and in the mobile app alone, by 30%. Transactionality in remote channels went up by 18% year-on-year. We can see that our helpline reports an increased number of calls. In quarter four alone, the number of calls went up by 11% on quarter three. Now let us comment on slide number 17.

As I've said, we do a lot of things to improve our proposition. We launched the process of opening the personal account based on a selfie. There is a new insurance, Spokojna Hypoteka. The companies can use new methods of authenticating their payments on the internet. That is strong authentication. And corporate clients can use the new version of iBusiness24 and they can use Also, they qualified signature in many different processes, not only to sign loan agreements, leasing. Slide number 19. If you look at our business and sales in quarter four, we can see that slowly but surely we are rebuilding the volume that we saw prior to the pandemic. In retail banking, the sales of mortgage loans was on the rise for another quarter in a row. In quarter four, we sold loans worth $1.2 billion. When it comes to the sales of cash loans, we sold the volume of $1.4 billion. Comparing that year on year, of course, there is a decline. But quarter on quarter, it is improving and rebuilding. It's an 8% growth compared to quarter two. We can also see that the sales via remote channels are on the rise, reaching 44% in quarter four. Investment funds. The sales stood at 1.2 billion slots in quarter four, which is nearly 2.5 times more than a year ago. If we look at the market, the sales in quarter four was one of the highest on the market in the SME segment. The lending level was similar, just like in the previous quarter and the year before. It was more than 13.6 billion slots. In this case, we saw a nice growth in business accounts by 14,000. We also saw a really good sales of leasing, which increased by 17%. In business and corporate banking, the sales of loans increased by 10%. We had really good performance when it comes to services for exporters. The turnovers on the ethics platform increased by 30%. And prep finance saw the growth in sales by 21%. In investment banking, the income on transactions in financial markets also increased. Income from cash management and liquidity services increased by 64%. The income from services related to share issues and purchases nearly doubled. Let us move to the balance sheet, slide 21, the loan portfolio. As we know, the demand for loans started to decline starting from quarter two. The portfolio loans for banks increased by 1% year-on-year, and it slightly improved quarter-in-quarter. For some consumer, it decreased by 8%. So on a consolidated level, at the end of December, it was unchanged, standing at 148 billion lots. What we've observed in quarter four is also the low usage of credit lines. especially in the business corporate segment. Customers are quite active when it comes to raising financing from support programs. So the demand for lending for the bank loans were much lower. What makes me optimistic is that some companies are already asking about new financing, especially from such sectors as manufacturing, sales, or services for industries. So we can see that some business people are starting to think about investment. We can see a strong growth in the portfolios of our leasing and factoring companies. The portfolio of the leasing company grew by 6% year-on-year and stood at over 10 billion slots. The value of sales was 5.4 billion slots. 30% of that was related to SME sector that increased by 30%. The factoring company also saw the growth in the turnover and its portfolio increased by 10% to 6.1 billion slots. Our focus for 2021 indicate that the loan portfolio is going to rebound And the forecast for the growth in the sector over 4% is something that we are willing to support and share the view that this is going to happen.

Now deposits, a slightly different story because they went up by 10% year-on-year to reach 170.5 billion dollars and the improvement owed to the growing number of retail deposits up by 7% year-on-year, 2% quarter-on-quarter and business deposits up by 13% year-on-year and 4% quarter-on-quarter. In Q4, the number of deposits went up by 5 million, and current deposits up by 14% quarter-on-quarter, while term deposits went down even by as much as 21%. Investment funds went down. year-on-year, by almost 4%. This stems from the outflow of funds from GFI and discount on assets in March and April. And despite the drop, we managed to retrieve our position, and we are currently at the level that we had at the beginning of the year. Since March last year, net assets went up by 34%. In Q4 alone, mutual funds went up by 11% and a lion's share of that comes from a new production and one third of that from the changes of valuation. Now, let us comment on the P&L. Net interest income after four quarters, it went down by over 10% year-on-year and stood at 5.88 billion slots. Lower incomes stand here, for instance, from the interest rate cuts and accelerated lending, especially in the segment of business loans. In quarter four alone, net interest income was $1.4 billion, 2% up quarter on quarter. In line with what we said at the last conference, It seems that net interest income reached its bottom in quarter three and should report an upward trend in the upcoming quarters. Here, I would like to mention that the quarterly dynamics of net interest income decelerated a little bit, but at the same time, interest costs went down 22% quarter on quarter. The annualized net interest margin for Q4 remained at the previous level and stood at 2.66%. When compared to the previous year, it was 71 bits lower. In quarterly terms, NEM was flat, but we reported different tendencies on both sides of the balance sheet. Of course, we had further drop in financing costs, slightly more in Santander Consumer Bank than in Santander Bank Polska, due to the profile of maturity of TAM deposits. Also, the credit margin went up by several basis points. The third element that I wish to mention is that these positive trends in terms of NIM were accompanied by a drop in the margin on their remaining assets, mainly the treasury bonds, because we held much more of the latter due to the over-liquidity that we have already mentioned. Now let us go to the slide number 24, fee income. This stood at 2.152 billion slots, which is, I think, a decent result, taking into consideration we operated in the pandemic environment. And quarter four alone, it was also good and stood at almost 570 million slots. Quarter four turned out to be 3% better quarter on quarter and 5% better year on year. The increase in fees was reported in all the lines, especially on capital markets. Also, brokerage fees went up visibly, credit fees up by 6% year-on-year, and debit card fees up by 10% year-on-year. In quarterly terms, at a consolidated level, The only drop we reported was related to insurance, which was because in Q3 we had several one-offs in the consumer bank, and I had commented on before at the last meeting. Total income, slide number 25. After four quarters, it stood at 8.65 billion slots and decreased by 8.6% year-on-year. On a comparative basis, total income went down by 7.6% year-on-year. In Q4 alone, income was at $2.2 billion and was higher by 2% on Q3. Here, the increase in the quarter was related to a decent fee income and a better net interest income as well as higher income on the sales of treasury bonds. Now, let us see the costs. Here, in the quarter... we can see that costs went up by some 400 million slots. This is not because of the increase in our fixed cost basis, but it stems from several extraordinary factors that include costs related to a restructuring provision for severance pay for employees covered with collective redundancies. This is the amount of 153.6 million slots. The other factor is the increase in other operating costs in quarter four in relation to a raising provision for legal risks linked to ethics mortgages, 209 million slots. And the third element is the legal risk related to the return of a part of fees for consumer loans in the amount of 69 million slots. Underlying costs? down by 8.8% year-on-year, and this was the result of savings in the selected cost items. After excluding regulatory costs that went up in 2020 by 40%, administrative expenses were 13% lower year-on-year. Staff costs after excluding restructuring provision related to the announced collective redundancies, went down by 10%. And we are continuing, of course, our work on a number of cost initiatives, and we are constantly reviewing the investment spending.