Santander Bank Polska Sa

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 Thunderbank Polska Group for 2020. Together with me, there is CEO Michał Gajewski, CFO Maciej Reluga, Financial Controller Carlos Toleno, and Wojciech Skalski from the Management Accounting area. My name is Agnieszka Dowrzycka, 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 quarter four, 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 might find the details in the presentation and in the report. 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 this represents the profits retained in the last year, which was in line with the KNF recommendation, and it's considered the entire sector. Return on 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 a high excess here.

Now, let us go to the slide 16.

And on this 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 4 alone, the number of calls went up by 11% on quarter 3. Now let us comment on slide number 17.

As I 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 the 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 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 of loans for banks increased by 1% year-on-year, and it slightly improved quarter-in-quarter. For some other consumers, 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 stuck thing to thing 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 mid-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 forecast 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 stemmed 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 our 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 slots, 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 quarter four alone, income was at 2.2 billion slots and was higher by 2% on quarter three. 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 the 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 lost. The other factor is the increase in other operating costs in Q4 in relation to a raising provision for legal risks linked to FX 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 spendings.

provisions by 27. The net loan loss provisions for expected losses after four quarters stood 1.7 billion and 63 million compared to 2019 when it was 1.2 billion. Of course, the growth was driven by the pandemic. In quarter four, the net balance of provisions stood at $456 million. The main drivers impacting this balance are as follows. First of all, the additional provision created due to some post-model adjustments. As you might remember, for bank, it was nearly $120 million in quarter one. At the end of this year, the charge is $88 million. So actually, it was maintained. Of course, the reason is uncertainty as to the developments, the scale of the slowdown, its timeline, and the impact of expiring stimulus packages. But of course, the adjustment refers to the corporate loan portfolio. And in this case, we reflected the deterioration in the clients standing in stage two provisions, and this refers to the most vulnerable sectors to the pandemic. The second driver was the periodic update of provisioning parameters, which led to the growth in provisions by 45 million . The first thing is the moratoria, and there are two aspects to that. We refer to that both in our report and in the presentation where you can find more details. The first aspect are the non-legislative moratoriums that were provided for the portfolio worth $21.6 billion. At the end of 2020, nearly 90% of that support expired. Today, at the beginning of February, it's nearly fully expired. When it comes to the quality of that portfolio, the overdue payments, more than 30 days, I observed, for less than 5% of the portfolio. There is a clear growth in risk for that part of the portfolio. But the portfolio not covered by the moratoria discloses better risk than a year ago. The other element are non-legislative moratoria surveys. under the so-called Shield 4.0. And they covered a portfolio worth 250 million zloty. At the end of the year, it covered only 10% of those moratoria were expired. They will be coming to an end in the upcoming months and weeks, and we will be able to tell you more about that at the next presentation. At the moment, we've created roughly 90 million worth of provisions for that portfolio, in line with the regulatory rules. We can say that the majority of that portfolio, more than 90%, was the continuation of the private, non-logistic moratorium. At the moment, our activities focus on the portfolio with expired moratoria, and on the sectors which were most impacted by the pandemic and lockdown. Let us move to slide number 28. As I've already mentioned, the regulatory costs increased by 40% and stood at 436 million slots. The banking tax, 602 million slots. Corporate income tax, 644 million slots. So we can see that these charges are huge across the banking sector. We also saw the NPL portfolio in quarter four, both in the bank and in Santander consumer. These transactions referred both the retail portfolio and the corporate portfolio. Summarizing, it's quite an obvious thing. It is obvious that it was difficult, but we adjusted ourselves to the new reality quite well. If I was to summarize the whole year, which was characterized by differences in quotas, I could put it this way. I think that we really adjusted ourselves quickly to the difficult situations. We introduced new digital solutions. And we definitely fast-tracked the digitalization plans of ours, which is probably the only good thing about the pandemic. It is worth emphasizing that both us and the entire banking sector helped clients by providing them with the public and private moratorium. We improved the distribution of public aid through our electronic banking channels. We also were very active when it comes to the PSRs and BGKs bond auctions. Of course, the performance fell short of our expectations. There were many developments beyond our control. There were deep interest rate cuts. There was an increase in regulatory cost contributions to BFG, and we had higher provisions. It was really a difficult year with many challenges. But on the upside, we can see that the sales is growing nicely. The number of transactions is on the rise. More and more of clients use remote channels. This makes us optimistic when it comes to the upcoming periods. We think that with each next quarter there, economic situation will stabilize while the experience that we gained in this period will help us to build our competitive advantage and even better relationships with our clients. Thank you very much. The floor is yours. Now it's time for questions and answers.

We have already received some questions. I have tried to group them somehow, and I will try to start from questions regarding the risk. Some about capital, dividends, cost of financing, and then the hot subject, the Swiss francs. So, cost of risk. There are several questions about that. either the details from the quarter four, why the release of the provision from the COVID-19, the model adjustment, whether the release stems from the fact that the situation is better than we had expected or some other factors. There are some questions regarding the expectations for 2021 when it comes to risk, cost of risk. So there are several similar questions. I think that Michal has already mentioned, but I will try to clarify certain things. A part of the COVID-19 provision has been released, but the adjustment has been visible in the segment of corporate customers. The weakened situation of the corporate customers has been reflected in the provision and this all has been related to the COVID-19 pandemic because some sectors have been affected by the pandemic. Some parts of the provision have been released indeed, but another part has been allocated to the cases, let's say COVID ones. So these are the customers that have been severely affected by the COVID-19 pandemic. When it comes to guidance, of course, nothing, not much has changed versus what we had been saying previously in the previous quarters because there are many uncertainties and unknowns. We are monitoring our actions and we are focusing on moratoriums that are going to expire soon and the sectors that have been affected by the pandemic. If we were to provide a guidance regarding cost of risk in 2021, we would say that these may be lower, but they are not going to rebound to the pre-pandemic levels. I think that the pre-pandemic levels are more likely to be reached in 2022. I think that's it. And when it comes to the questions regarding cost of risk, There is a question whether our ambition is to grow faster than the market. I think that in some segments we are likely to grow faster.

A few questions about capital and the growth of the capital ratio quarter on quarter. Okay, let me start from the beginning. What was the reason for the growth quarter on quarter? First of all, I think I should refer you to the annual report that will have the pillar three disclosures, the details informing you about the capital. It will be published quite soon, in a mere three weeks. And I think this is quite a quick disclosure of the annual report, because some banks will only publish them the quarter four results. It is worth saying that when it comes to the allocations of profits from 2020, half of the single profit for half one of Santander Bank Polska, that's 192 million zloty to be taken to the capital ratio at the end. There is also a question about capital requirements. When it comes to the total capital ratio, tier one is 9.2. And there is also a question about the dividend and the question about the likelihood of us paying the dividend in the second half of the year. Well, we can't say anything more because we are waiting for the decisions of the regulator. That will be issued only in the middle of the year, and then we will be able to find out whether we can pay it out or not. But as you might remember, we still have the retained profits from 2018 and 2019 that potentially could be distributed if the regulator permits that. if they will apply the sectoral solution or the individual solution. And that will depend on the standing on the individual banks and on the capital position of theirs. It is also worth adding that we are in a dialogue with the regulator. We meet with them. And we are talking about our wish to execute our dividend strategy.

So if only the KNF agrees to that, then in quarter two, we will want to pay the dividend.

Another question regarding the net interest margin and the potential room for lowering cost of financing. I think that net interest income and net interest margin should improve, as Michal has said. In quarter three 2020, the interest income reached its bottom. And I think that all this will be influenced by the improvement in the credit margin, but all that assuming the revival in lending. The cost of financing are still low, and there the room is quite limited. I was mentioning that a quarter ago that in SCB we have longer maturity period, And the process may be postponed to the first quarter in 2021. And this is also reflected in the quarter four of 2020. When it comes to NIM, the most important unknowns remain unchanged. The scale of demand for credit or the scale of actions regarding the PFR, all that influences the liquidity process. The demand for credit influences net interest margin. And this is what Michal has said in the context of the performance of the quarter four.

Now about the Swiss francs. Michal really outlined this. While we are at the table and we are talking about it, our representatives take part in the work of all the streams. Of course, the key risks relate to legal aspects. This is a portfolio which, in the case of our bank, has been repaying nicely. It's of good quality. But we realize and appreciate the legal risks in place. There are also legal risks attached to the KNF proposal. That's why we are in the dialogue and an attempt to find solutions which would mitigate the risks as much as possible. We are at the table. We are in the course of talks. We are trying to find a solution. Definitely, we have to run a survey among our clients so that we know exactly what we can and what we are going to propose. We're going to also run a pilot. Just like other banks, we think that the decision is serious enough, and if we decide for that, we would like to have a decision of our annual general meeting for that. Today, it's premature to talk about us joining the program. We have to have the results of the survey of the pilots And finally, we have to have the decision of the Supreme Court. And we need the decisions of the experts who are deciding on that. Once we have the three elements, we will be able to make our calculations under individual scenarios. And depending on the outcomes and the impact, then we will be able to decide whether we would like to recommended to shareholders or not. But we need time before we take this decision.

When it comes to lawsuits in Swiss franc cases, as Maggi has mentioned, we would like to refer you to the annual financial statements and the report. We have some provisions there. which stems from the general situation in the market. I don't know whether there is anything else.

There is a question regarding the risk of charge, the risk charge.

The question is what influenced the increase in credit provisions? We need to remember that the COVID provision is a post-modal adjustment. There is no doubt about the fact that the COVID and the economic situation influence the level of provisions. If we exclude the extra provision that is out of the model, it does not mean that the remaining provisions are not influenced by the pandemic. The sectors that have been affected most severely, I think that it is easy to say that this was hotels, property, and these were the most affected ones. When it comes to moratoria, how many provisions are there under the statutory law? This was 250 million slots of Shield 4.0. And I think that it will be key to see what will happen in the nearest future. When it comes to non-legislative element, on the small part of the portfolio, we have a high increase in risk. But looking at the entire share of loans, the overdues exceeding 30 days per due, excluding the exposures that were under moratoria, are lower than last year. So it means that the scale is similar on the entire portfolio.

There is also a question referring to the SCB provision for collective redundancies. And about the answer and the questions about whether this is another restructuring stage, yes. When it comes to the detailed data for Swiss franc cases and the provisions for that, that's already been covered. There is a question about the pay-to-criterion for dividend. Well, we've already mentioned that. But we said that just like for the sector, it's about the value. Are there any other questions? Operating costs. Yes, there was a question about operating costs. Well, of course, we continue our saving programs. But they are not so wide-scaling as to put on hold our growth. Of course, we are more focused on further development of remote channels. But when it comes to operating costs, We have some ideas, and we've learned some lessons this year during the pandemic when it comes to the space, office space we use, and how we can optimize it, and also the hybrid work of model. I don't want to go into details now, but all that makes up a better cost efficiency. And we expect that in 2021, we will be able to see effects of that. There's also a question when the effects of manpower restructuring will be visible in 2021 or 22. Well, in 22, we will see more effects. But in 2021, we'll see some results. Talking about costs, apart from obvious things that we will continue our cost-saving initiatives, we also know that there are a couple of elements impacting the costs that are difficult to forecast, like BFG or the uncertainty related to foreign currency loans. Excluding that, The guidance could be that cost in 2021 should be lower than in 2020, excluding these additional elements that I have mentioned. We've been working on improving our mortgage process. We sell more and more loans at a fixed rate. And when it comes to the market share, We are maintaining it. We can see that when it comes to the new sales, it is a little bit under pressure, but it is a very important product for us. As I've said, we have more and more of these loans sold at a fixed rate.

Agnieszka, is there anything else? Yes, I have just received some questions. Outlook, the key income in 2022. Fee income. Then a question regarding Swiss francs in the Supreme Court. Why do we have to accelerate the decision? The date provided by the Supreme Court makes us accelerate our works. This is the quotation from press agency. Next question, what is your objective regarding the branch network? And these are all the questions. Okay, so we are still optimizing the branch network. We are monitoring the trends. We are monitoring what is happening on a high street. We are monitoring the number of customers and what is happening in big cities. We also have franchise programs in place. And they have been launched. They are already in place. So this is something that we continuously have on our agenda. We are optimizing our works. So we have many initiatives in the pipeline. We have many digital end-to-end processes. The customer is very rarely made to come to the branch. Everything, almost everything is is possible to be done digitally. So it will influence the footfall at branches. Our strategy is an omnichannel strategy. Of course, we want to keep our market share at branches, but not necessarily at that high scale. When it comes to the quotation of press agency, this is about the acceleration of launching the survey, accelerating works and the scenario and the conclusion of works within streams. Because, you know, we have to have the data in order to be able to make some decisions properly. I was not mentioning acceleration of the decision-making process, but acceleration of collecting the data that is necessary to be able to do that, to recommend certain scenarios. We know that there are certain banks that have already prepared their survey. They had previously made some calculations because they had access to some data earlier than us. we still don't have this data that we need. And we need this data to be able to offer some solution to the shareholders, but we are working on that. There were Swiss francs, branches, and fees. Okay, so what is the guidance for the increase in fees? If we were to offer... this would be mid-single-digit growth. Okay, I have no more questions. All right, we don't have any questions as well. So thank you for the presentation. Thank you for the attendance. And remember that we are always happy to take any questions. Please send any questions to my email box. The annual report will be published on the 23rd of February, so in almost three weeks' time. Thank you for the attendance and talk to you next time.