Santander Bank Polska Sa

So let us start. My name is Agnieszka Dobrzycka from Thunderbank Polska. I'd like to welcome you to the presentation of the financial results for the first half of 2021. Together with me, there is the CEO, Michał Gajewski, CFO, Maciej Roluga, and Wojciech Skalski from the financial accounting. As I have said, my name is Agnieszka Dobrzycka, and I am in charge of investor relations. CEO, over to you. Hello, ladies and gentlemen. This is Michal Gajewski. And today, this is yet another time when we're meeting here in this remote form. But I hope that starting from the next quarter, this is conditioned by the pandemic situation. I hope that we will make it. I'd like to start my presentation from saying that from the perspective of the bank's core business, the recent period of six months can be deemed as successful. The economic situation has been stabilizing, and we can already see some harbingers of the revival. Credit volumes still remain under pressure, especially in the corporate sector, but this will improve over time. We are hoping to see some improvement, and we're looking with optimism into the next quarter. Before we comment on the results, I would like to mention our charity fundraiser, We Will Double Your Impact. We run it together with our customers and employees. This time, we supported 16 children's psychiatry centers, to which we donated a total of 2 million blocks. You can get more details about this fundraiser on the slide number five. Now, let us go to the financial performance slide number nine. As a group, we provide services to over 7 million customers, out of which over 5.3 million customers in Santander Bank Polska. In total, together with SED, we have almost 3 million digital customers. Deposit portfolio went up by 4% year-on-year and stood at 173 billion slots. Gross loans flat at 148 billion slots. Assets are on the rise. Customer funds up by 7% year-on-year to the level of 192 billion slots. In terms of assets of the entire bank, this is the amount of 231.4 billion slots. Now, let us go to the slide number 12. I'm sorry, this is slide number 10. This is slide number 10. So, just like in the previous quarters, we had several events that influenced the underlying profit. And, of course, the details can be found in the presentation and the report. When we talk about the underlying profits, we take into account two important factors, and these are the BFG premiums as well as provisions for legal risks related to FX mortgages. At the end of June, attributable profits stood at 374 million slots, and in underlying terms, it went up by 8.7% year-on-year. In quarter two only, it stood at 223 million slots, which was 50% more than in the previous quarter. Net interest income stood at almost 2.8 billion slots, and it was lower year-on-year. And this drop came by low interest rates and low demand for credit. The income was over 2%. 1.2 billion slots and was 18% higher year-on-year, which is a solid result. Total income stood at almost 4.4 billion slots, 1.5% higher year-on-year. Return on equity was 3.8%. and 7.5% in underlying terms. We have a very strong capital position, much above their requirements, and our Tier 1 capital exceeded 19%, and TCR was about 21%. I'm going to reiterate that every quarter, I think, that the group has a substantial capital surplus. It is extremely large. So now, So as a group, it is almost 13 billion slots, and for the bank itself, it is almost 14 billion slots. And I think that there may be questions about the dividend payout, but let's not talk about it right now. We will take this potential question in the Q&A session. Now, let us go to this line number 12. And on this slide, you can see the activity of our customers broken down into specific segments. Each quarter, the number of users in remote channels is on the rise. This is 8% year-on-year, up both in retail and business segments.

The number of mobile users

and the retail is 18% up, 15% in SME, and 19% in Corvo. The number of transactions in mobile banking has been up over the recent months by 48%, and in terms of attribution to businesses by almost 60%. I think that this is not a major surprise because the customers are visibly using remote channels more and more eagerly.

On slide number 13 and 14, we are showing new things on our altar. We keep developing the work position. We organize educational activities. Let me just mention a couple of things. The biometric solutions to have mobile authorization of transactions, life insurance, for example, with the extended cover for photovoltaic devices. In the case of traders, we introduced a new way of verifying their identity when opening an account using the selfie. We also introduced e-blog and e-reasing solutions. There's also an option to take a business loan in a mobile application. In the public sector, we've been reinforcing our position. Subsequent local authorities use the time to bank with us. Let us move to our financial performance, and let's start with the financial data. Slide 15, retail banking. Just like across the market, the sales of our mortgage loans is on the increase. In the first six months of the year, we thought loans were 3.5 billion dollars. In quarter two, it was 2.2 billion dollars. Year on year, this is 76% and 56% growth quarter on quarter. June alone was a record high month with nearly $800 million of sold mortgages. Cash loss, there on the increase as well. The first six months, we saw cash flows were $3.4 billion. In quarters to a loan, it was $1.8 billion. And so far, this is the highest sales since the beginning of the year. Year-on-year, the growth is 44%, and the growth quarter-on-quarter is 15%. And when it comes to the sale through remote channels, the sales of net investment funds stood at 2.4 billion zlots. It slowed down a little bit in quarter two, but this was still 700 million zlots. And this was one of the best results on the market. The at the end of quarter two stood at nearly $19 billion. When it comes to SME customers, we are very happy with the sales of leasing and the sales of loan products. Because we sold prep products worth $1.3 billion. When it comes to business banking, even though the demand for loans was lower, we saw an increase in the sales of credit limits. We also saw good performance when it comes to services to exporters. We saw 4% increase in the turnover from the FX platform by 4% and 42% growth in trade finance. In corporate and investment banking, we doubled our revenues on the capital market and we also saw a robust growth in income from advisory provided at mergers and acquisitions. So we saw growth across all business lines. Slide number 17, growth loan. Across the six months, because of the pandemic and the support programs, the demand for loans was subdued. The growth loan portfolio in the bank increased slightly, but in the consumer bank, it decreased by 8% year-on-year. So on a consolidated basis, we saw a slight decrease down to 148.4 billion dollars. I've already mentioned the sales in the retail segment. In the S&E, we can see the growth in the loan portfolio, not as dynamic as in retail, but it's still 5% year-on-year and 4% quarter-on-quarter. And this is because of the better utilization of the existing credit lines. In business banking, loans are more or less flat. But in the segment of the largest corporates, the lending increased by 3% year-on-year. The leasing portfolio has increased by 5% year-on-year, up to $10.8 billion. The value of net sales stood at $3.3 billion increasing by 47% year-on-year. The factoring company also saw a growth in its turnover, and its portfolio increased by 27% year-on-year. What makes us optimistic is that business clients are more and more willing to talk about new lending. And there is a bigger and bigger interest in credit facilities. As I said, this makes us optimistic when it comes to the future. Our outlook for the growth on the market and in the sector is 4.8%, including 3% growth in business-minded. Now, let us go to slide number 18.

The customer's deposits went up by 4% year-on-year at the end of June, stood at over 173 billion slots. This stems from the yearly increase in retail deposits by 4% and business deposits by 4% as well. In annual terms, deposits went up by almost 7.3 billion slots.

Term deposits

are growing, current deposits are going up very dynamically. Investment funds are going up very dynamically, 44% up year-on-year, and this stems from record high net sales, but also the low base reported last year. Now, let us go to our P&L. Net interest income and net interest margin. After the first half of the year, net interest income stood at almost 2.8 billion slots. In quarter two alone, it was 1.4 billion slots and was 2.5% better quarter on quarter. In annual terms, net interest income dropped by 10%.

Annualized NIM at the end of June was 2.50, went up by 3%, and was 2.59%.

It was higher than a quarter ago. This stems from several facts. There was a drop in interest costs under deposits due to the continuing decrease in volumes of parent funds. accelerated sales of consumer and SME loans, but there was also the negative impact of the growing bond portfolio. As we have mentioned before, we are hoping to see some positive effects on NIM and NII in the upcoming months. Now, let us go to the slide number 20, net fee and commission income. I think that this is a very solid one. At the end of June, This was 1.2 billion slots, up by 18% year-on-year. In quarter two alone, the fee and commission income went up by 600 million slots, which in light of the visible effects of the pandemic should be viewed as a solid result. The increase in fees and charges is visible in all the lines, both in retail and business banking. Now, let us move on to slide number 25. Total income in the first half of the year went up to $4.4 billion, up by 1.5% year-on-year and 6.8% quarter-on-quarter. In quarter two alone, we saw an increase of all the other incomes. Other income lines went up mainly on the back of revenues and dividends. It was the 100 million slots posted in quarter two of this year. We're very happy to report core income related to the consumer business activity going up. Now, let us discuss the cost, slide number 22. If we look at that picture, and if we want to compare apples to apples, So with an increase only by 1% year-on-year and taking into consideration the inflation level, this is only a slight increase.

We have lower BFG premium.

Administrative costs are decreasing at a good-digit pace. And I would like to mention that even excluding the effects of the premium, we would have a drop in administrative costs by 2% year-on-year. Staff costs went down by 1.2% quarter on quarter. And we released a provision for bonuses in the last year, in the second quarter. And the fact that we are raising this provision this year, this is related to some positive effects that we can see and the profitability that we report. And this is why we want to pay the bonus to our employees. Total costs went up by 14% quarter-on-quarter, and in annual terms, they were up by 22%. Increasing costs in Q2 stemmed, among others, from an increase in other operating costs due to raising a legal risk provision related to the food bank mortgages in the amount of 518 million slots. And there was a breakdown of this amount, 423 million for the bank and 95 million for SGB. Now let us go to the slide number 23, provisions.

In quarter two, we have a drop of 5%, and this results from efficient functioning of the portfolio.

We reviewed the portfolios. We released 88.2 million of COVID provision.

And as I said, we have reviewed the model.

There are several factors impacting the provision in the first half of the year. This is the share of credit exposure. with a delay in the second quarter that's dropped by 5% quarter-on-quarter. And there was no need to raise a provision on the performance portfolio. Also, we do not observe any specific, any significant downgrades to NPL on the corporate portfolio. Also, we need to mention Shield 4.0 that was granted in the total amount of 410 million slots, out of which 60 million were active.

And even though we actually accept the Shield, they have to declare that they lost their social income. They... actually are capable to repay their liability. We saw also the non-performing portfolio of business and retail loans, 192 million in total in principle. And this had a positive impact on our bottom line of 12 million dollars. Of course, we keep monitoring on an ongoing basis. especially any receivables covered by the support program, also those available by the business client. And they will have to settle their amounts received under the first CFR shield. If you look at our fiscal burden, slide 24, the regulatory costs in the first six months were $225 million lost. contributions to BFG, the National Depository of Securities, and the like. The banking tax in the first six months stood at $300 million, and the corporate income tax was $354 million. So this was a big charge to our bottom line. Summarizing our performance for 2025, it was a good six months for our bank. But our economic environment, even though it improves, still makes us to be very agile in everything what we do to respond flexibly to any new development, especially when it comes to the pandemic. We can see the higher activity of our clients. We are rebuilding our business. And we do hope to see a bigger pace of growth in the lending area. We are so uncertain when it comes to the FX loans, and we have to increase our provisions and the macroeconomic data. This is actually confirming that we are bottoming out. The social sentiment is improving, and we are optimistic about the upcoming next half year. So now it's time for Q&A. Go ahead. We have been receiving questions already during the conference.

I'd like to start.

I'll start from what Miho has said about the principal and the dividend payout.

Because we've got a question about the payout, whether the likelihood of a 30% payout is still big, whether there is some likelihood of that.

We are talking about about the 30% of the profits in 2020. As Michal has said, we think that we have enough principal for payouts

and for covering some unexpected risk in the future. When it comes to the payout, our intentions do not change, and we want to pay the dividend in line with the regulator's recommendations. No formal decision has been taken, and of course, if there is a formal decision, we'll have the current report. And due to the legal structure of all the process, according to which we have a dividend fund, it is crucial to examine the interim statements. This examination will start with no delay, and we will inform you about the upcoming decisions. But as I have said, our intention is clear. We want to pay the dividend. The second group of the questions.

This refers to Swiss franc loans. And the question is about the stage the bank is at when it comes to potential settlements with Swiss franc borrowers and whether the bank expects subsequent provisions to be raised to legal worth and whether we have run a questionnaire among our clients. Let me answer this question. When it comes to the survey, let me start from the last question. 70% of clients are actually interested in entering into a settlement. 21% are not interested at all, and 9% of those clients answered, I don't know. So these are the results of our survey. Of course, we keep examining other proposals of settlement. We've been testing solutions. And we are testing this in such a way that we've been building certain functionalities in our systems, in our electronic channels. We are setting up with the cause of arbitrage at the KNF. And this is a big work of our technological unit and also our analytical teams. So in this area, we are doing a lot, but we have not taken yet a decision, the final one. As I said at our conference with journalists, today in the morning. We think that two conditions have to be met. First of all, we need to have a wide-ranging market consensus and commonality of the solution. And the second thing is legal certainty as to the implications, effects of signing such settlements. And our in-house lawyers think that only a settlement signed in common court or at the court of arbitrage of the KF gives us such certainty as to the legal effect of such an arranged culture and settlement agreement. What about the subsequent provisions for legal risk? Well, we think that the provision charge that we have now, we think they're adequate. We will also see how things are going to develop in the half of the year, we will see what is the outcome of or decision of the civil chamber of the court in the full composition. Given the today's levels of suits against us, we think that this provision is adequate. The sales of mortgage loans was really strong. Do you think you're going to increase the sales of mortgage loans in the upcoming months? Yes, we think there is a chance to sell more. We want to strengthen the sales. There is a big demand on the market for mortgages. And we think it's a chance for us

to increase our share.

We have many questions regarding the guidance. In fact, in all the P&L lines, let's put some structure into that.

Let's start from the risk charge. There's a question. Why did the bank release the COVID provisions and aren't you afraid of the frequent waves? Well, I think that all of us are aware of the fact that another wave of COVID-19 is very probable, but we can see that every subsequent wave of the pandemic contributed to minor effects in the economy. We also need to reiterate what we have seen what we have written in the report several times. We have post-modal adjustment and released the COVID provision, but we took account of all that in loan loss provisions. We reviewed the models every six months and the parameters in the model have changed so that we can't say that the provisions in the second quarter were lower because the the COVID provision has been released.

No, it's not like that.

We have included all these factors in our models because we have had a review. And I think that this is a significant element of the entire picture of the provisions for the second quarter. When it comes to guidance, well, the situation... seems to be quite good. Of course, if there are some risks, some uncertainties in macroeconomics and specific sectors, I think that we all know about them because we can see that the pandemic is still with us. But these several trends that can be observed in the second quarter should be reiterated. On the performing loads portfolio, that credits with arrears are on decrease. There are no significant downgrades to NPLs. On the NPL portfolio, there were several increases of the coverage, which contributed to increasing the coverage level, but the coverage ratio is affected by the fact that there's some decent repayment of the exposures. So I can say, to wrap it up, that, in fact, this is just too difficult to provide specific guidance because there are many unknowns. But I think that in 2022, we will... go back to the risk-charge ratio from before the pandemic, but we will see what happens in 2022 and in the second half of this year. So far, the trends have been good, and we can see that reflected in the provisions for the first half of the year.

I want to remind you that the first quarter was affected by a one-off, and the provisions were lower.

There was a question about the growing credit volume in individual segments. As I said during the presentation, the loans are going to grow across the sector by 4.8, according to our focus, and when it comes to business loans, by 3.10. We think that the dynamic growth will continue in retail and the demand for business loans in the mid-cap companies, not small and medium-sized, but the bigger companies, is going to revive. And this is also a question about the potential for growing our interest income primarily by increasing our activity levels and with the sales of law enforcement. The whole sector is facing over liquidity, so there will be a lot of competition. But we think this is our chance, and we can see opportunities for growing our sales and increasing our market share. We don't have yet really detailed data on individual segments and the growth in individual values. Let me go back to the risk charge because there are more questions about that. Let's try to talk about that in some climatic groups. What is the current level of COVID-related allowances up and relieving the $90 million. But there is provision in Santander Consumer Bank because they are going to review the provision parameters only in the second half of the year. We've done it in the second quarter, while in SCB, this is $31 million, and that's shown in the bar chart on slide 23. So this is the COVID provision in some consumer bodies. There's also a question, which segment was hit most by this review of and what was it about? It was a review of all parameters across the cycle in the mid-term. to take into account the effects of the pandemic. I think that the most important element was cash flow here. There is also a question about the dividends in capital. I think we've answered that. And going back to the guidance for net interest income. This is another question. Is there any further room for cost containment, especially when it comes to the cost of funding? Well, there are a few trends on the market. In quarter two, we had the decline of interest costs on deposits. And that was determined by the maturity profile of our deposits, especially some deposits. And the financing for FCB. That was mature in quarter one, and the full effects were visible in quarter two. The deposits with tariffs longer than one year were not many. So there will be some effects, but they will be immaterial, really. An important element is that credit mix on our books is it is going to improve as we expect. This should improve our interest margin. What we have in mind are consumer loans and SME loans, first of all. We can see a clear revival here in these two lines, and we hope it will continue. And there was another question related to a bit over liquidity in this sector. Of course, any services are invested in the liquid assets, but they are yielding less than average. So this is the factor that impacts our margin. But this is the purely mathematical effect, because we are gaining something on data as well. As we've said, we have a positive trend interest income and we hope for positive trends in the upcoming quarter. Counting on the revival of lending and keeping the cost under control because we are really doing our best.

Seeing permission then come.

Well, we can see that these lines are very good. In fact, in all the business lines, there are many long-term factors that stem from the changes in the schedule of fees and charges that we were trying to implement in a very efficient manner, and we were trying to communicate them in a good way to customers.

We have double-digit growth in, in fact, all the lines.

We hope that the business environment is going to change in a positive manner. If it does, I think that such good trends are going to continue. There is also a question about the tax rate, whether there is some specific reason for it being lower versus the first quarter tax. In the first quarter, it was 37. Now, in quarter two, we have 43. So 47 versus 43. There are two factors behind that.

There are some elements of the cost that are not tax-deductible.

In the first quarter, there was VFG and legal risk provisions related to FX mortgages.

In the second quarter, we don't have VFG, and we have dividends of some 100 million slots. So hence that difference between the second quarter and the first quarter. I think that this may be all that we have addressed most questions. No, there are no more questions. In fact, I haven't received anything. So that's all. Okay. So if you have any more questions or comments, we are ready to take them. More details can be found in the report, so I encourage you to read them. Thank you for your participation, and see you next time. Thank you.