Santander Bank Polska Sa

11 o'clock. My name is Agnieszka Dolżycka. I'm responsible for investor relations in Santander Bank Polska. I'd like to welcome you today at the presentation of the financial results for quarter three 2021. Together with us today are Michał Tajewski, CEO, Maciej Raluca, CFO, and Wojciech Karski, responsible for the financial accounting area. During the presentation you can ask questions via the internet or you can send the questions to my email agnieszka.dlżycka at funtunder.pl and after the presentation we will answer the questions and now let me hand over to Michał Gajewski, the CEO. Good morning once again, Michał Gajewski speaking. Welcome at the presentation of the financial results after three quarters of the year. From the point of view of the core banking business, I can say that this period was successful. There are a few challenges in the sector, but we stay optimistic. We expect that in the next quarters, business loan volumes will still grow. especially in the corporate segment. But before I go to the results, I would like to burst with some success. Yesterday, we received two awards. We have been ranked the first in the Business Friendly Bank by Forbes, and we are also ranked third in Friendly Bank ranking by Newsweek in the traditional banking category. It is very important for us that we recognize and that our activities and services for retail and SME customers are visible on the market. Recently, we have also received a financial provider of the year award. And now let's discuss slide number seven with the results. As a group, we provide services to over 7 million customers, out of which 5.4 million is services from Santander Bank Polska. Together with Santander Consumer, we have over 3 million digital customers. The deposit portfolio grew by 6% year-on-year and totaled $177 billion. The gross loan portfolio grew by 2% year-on-year to nearly $152 billion. assets grew by 5% year on year and totaled nearly $234 billion. Customer funds grew by 9% year on year, and this is currently $197 billion. And now slide number eight. In quarter three alone, we generated a net profit of $544 million. That is twice as much as in the previous quarter. When compared to Q3 of the previous year, the net profit grew by 13%. After three quarters year-to-date, the profit attributable to shareholders was over $918 million. On a comparative basis, so excluding a few factors and assuming a fixed level of BGF contributions, the attributable profit grew by 22% year-on-year. You may find the details about comparative data in the presentation and in the reports. The net interest income in Q3 alone was $1.44 billion, and when compared to Q3 of the previous year, it was better by 4%. It was $4.2 billion year-to-date and was lower by 5% year-on-year. The net fee income in Q3 was $635 million. It grew by 15% when compared to Q3 last year and by 6% quarter-on-quarter. Year-to-date, the NFC income was $1.85 billion. It increased by 17% year-on-year, which is a very solid result. Total income of the three quarters was $6.6 billion. It increased by 3% year-on-year and slightly dropped on a quarterly basis. When compared to quarter three last year, the income grew by 5.4%. ROE was 4.1%, and on a comparative basis, 8.4%. And the group has a significant capital surplus of 12 billion zlot, while the bank has got over 13 billion zlot, which, of course, significantly impacts ROE. At the end of September, we had a very strong capital position, much above the requirements. Our T1 was over 18% and TCR was over 20%. Slide 10. Let's talk about our customers now. The number of digital customers is growing, as you can see. We already have 2.6 million digital customers and 327,000 among SMEs and 20,000 among large corporates. The number of mobile users is also on the rise, currently over 2 million. The number of mobile banking transactions is also growing. In quarter two, you had over 40 million retail transactions and 3.5 million SME transactions.

We've been continuing expanding our offering, and that's reflected on slide 11 and 12. Let me just mention a couple of new things. The first thing is that since July, we have been issuing eco-friendly cars made in 85% of upcycled plastic. We already issued nearly 400,000 such cars. We also launched a module in our mobile application that enables easy savings called MyGo. After two months, the number of registered users was more than 100,000. We also launched the AutoPay service for individual and business clients. For essence, we introduced the text message authorization of the product. We've been actively supporting large corporate focus on international expansion. We keep organizing webinars for clients interested in exports to the UK. And our third portal is Bank of China and the Dubai Islamic Bank Joint Trade Alliance. Now let's discuss slide number 13. Let's talk about retail banking. Here we posted mortgage loan sales reaching an all-time high after three quarters. After three quarters, we sold mortgages worth $6.4 billion, and in quarter three alone it was $2.8 billion. Compared to quarter three 2020, we sold twice as many mortgage loans as before. In Q3, in September alone, it was nearly $1 billion loss, and this is the best monthly outturn in the history. After three quarters, we sold $5.3 billion worth of cash loans. In Q3 alone, it was $2 billion loss. And so far, this has been the best result. On a year-on-year basis, this is more by 37%, and quarter-on-quarter by 8%. We keep posting high sales through digital remote channels, and after three quarters, this reached 44%. The sales through buy-by-click accounted for 16% of the total sales of cash flow. The net sales of investment funds at the end of September stood at 2.9 billion dollars in the quarter of the year alone. It was... 338 million, which was one of the highest on the market. The assets of managed by Santander and TFI at the end of quarter three totaled 19.2 billion slots. In the SME segment, first of all, we saw really good sales of Weezing as their sales increased here by 21% quarter on quarter, totaling 915 billion slots. In quarter three alone, the sales of credit products stayed flat, as before. In business banking, we posted 32% higher sales of credit limits. We also posted good results when it comes to services for exporters. The turnover on the FX platform increased by 41%, while the utilization of the fixed finance limits increased by 43%. In corporate investment banking, we saw robust growth in the capital market revenues. We also posted higher revenues from advisory at the time of mergers and acquisitions. We are also actively participating in transforming the energy sector by financing photovoltaic farms.

And now let's talk about balance sheet. Slide 15, gross loans portfolio grew by 3% for us in 2017. Sometimes the consumer dropped by 5% as a result of the consolidated level. As I said, we have a 2% increase year-on-year. That is almost $152 billion. I have already talked about loans in the retail segment, while in the SME segment we recorded a growth in the loan portfolio by 6% year-on-year, which resulted to a large extent from higher drawdown of existing credit lines and business banking loans have been at a similar level as in the previous year. And the largest company segments, the loans grew by 6% year on year. Um, I mentioned good performance of leasing. We have a growth by 12% in the leasing portfolio. The net sales was $5 billion and grew by 34% year-on-year. The factoring subsidiary recorded also good results. Its portfolio increased by 23% year-on-year up to $6.4 billion. We are optimistic about the upcoming months. In the retail segment, the double-digit growth in mortgage loans is likely to continue. While in the consumer loans, we will continue this positive trend observed in previous quarters. When it comes to business loans, we can see further improvement. New sales of loans is already at the pre-pandemic level. Weak growth in the balance sheet in this segment results from higher repayments than usually. According to our current macroeconomic projections, total loans in the sector will grow by 4.9%, including by 3% for businesses. Slide 16, customer deposits grew by 6% year-on-year. This results from annual growth in retail deposits by 6% and business deposits by 7%. At the end of September, this was over $177 billion. A year-on-year deposit grew by over $10 billion. We can see a material growth in savings accounts and current accounts, and at the same time, the term deposits are on the decrease. At the end of quarter three, investment fund assets were higher by one-third year-on-year, and in quarter three alone, there was an increase by 3% quarter-on-quarter. slide 17, net interest income and net interest margin. The net interest income in quarter three alone was $1.44 billion. And when compared to quarter three of the previous year, it was better by 4%. Year to date, it was $4.2 billion and was lower by 5% year on year. In quarter three, the dynamics of interest income was $1.2 9%, whereas interest expenses dropped by 4.8%. Annualized net interest margin at the end of September grew by 5 basis points to 2.64%. This results from three factors, a decrease in interest expenses on deposits due to further decrease in the volume of term deposits, Secondly, acceleration in cash loan, mortgage loan, and corporate loan sales. And also a decrease in the value of investments in debt securities, which mitigated the negative impact of this portfolio on the net interest margin. As we said before, when it comes to the net interest margin and net interest income, quarter one has been the weakest so far, but there has been a progress. And we hope that the interest margin will improve in next quarter as well. This may refer to our current report after the Monetary Policy Council's decision on interest rate hikes. We published a report and we stated that the impact of the interest rate hike on our net interest income can range from $1 $300 million to $350 million in our bank and from $35 to $45 million in Santander Consumer. Of course, those are the figures for the next 12 months, assuming a steady balance sheet. Net fee income, we can say that we have been successful in this line in quarter three and We had a growth by 15% to 635 million when compared to quarter three. And here today, the net fee income was 1.85 billion. It increased by 17%. The good news is that higher fees are visible across all business lines, both in retail and business banking.

Income. Total income after three quarters stood at $6.6 billion, increasing by 3% year-on-year. On a quarterly basis, they slightly declined. In the quarter three alone, the total income totaled $2.25 billion. And as compared to the quarter last year, they increased by 5.4%. We are happy with the fact that the higher income results from the higher activity of our business clients. Slide number 20, operating costs. In quarter three, total costs declined by 25% compared to quarter two and by 16% as compared to the third quarter last year. Staff costs, both compared to the previous quarter and to the third quarter last year, remained flat. Administrative expenses increased by 1.6% as compared to quarter two and by 2.2% as compared to quarter three last year, given the higher business activity. Other operating costs declined by 65% quarter on quarter. One of the reasons were lower provisions for legal risk related to FX mortgages. As you know, in quarter three, we created provisions for that purpose, and the reports are available in the report. The other reason impacting that level were the FX differences. Now let's discuss slide number 21. Net balance of provisions on the consolidated basis was lowered by 38% year-on-year and totaled $224 million. Altogether, since the beginning of the year, the net balance of provisions was $850 million, which is lower by 35%. This is the effect of destabilization and lower cost of risk in individual loan portfolios, including retail and SME. The key reasons that impact the net balance of provisions are as follows. One of them is the stable share of past due credit exposures. and the low level of entries to NPLs. Another reason, after a lot of uncertainty related to economic situation of the contact clients, we observed the improvement in their ratings. Thanks to that, we actually decreased our allowances for the performing portfolio. On the other hand, we had to reclassify some cases to the NPL portfolio and thus to increase our provisions by 56 million. Additionally, in quarter three, we sold the NPL portfolios from the retail and business segments. The total amount was $330 million worth of principal. And this has had a positive impact on our performance of $16 million. And thanks to that sales, we also reduced our NPL portfolio. The coverage ratio for the NPS is safe at approximately 60%. Of course, we monitor the risk on an ongoing basis, especially when it comes to the exposure subject to the expiring assistance programs. A little bit about taxes and levies and regulatory costs. After three quarters, all these levies to DFG, K&E, the National Depository of Securities, a total of $250 9 million slots. The banking tax levy was 450 million slots. And the corporate income tax totaled 567 million. So these were huge costs. Let me just add that among the biggest taxpayers, we ranked as third in the sector. And in the overall ranking of all the companies. And that's only the corporate income tax. So summing up, slide number 23, that was a good quarter and really good nine months. Quarter-on-quarter, we've been performing better and better, and this is reflected in the growth in the net interest income by 2.3% quarter-on-quarter, solid fee income higher by 6% quarter-on-quarter, and the growth in the net profit by 13% as compared to quarter-free 2020. We've been building consistently our business with lots of determination, and we do hope to see a higher pace of lending growth in particular. The sound macroeconomic data are good in our opinion, which makes us optimistic when it comes to the upcoming quarter and about good prospects for the solid year-end figures. So the floor is yours, and you're welcome to ask questions.

I currently have no questions, so it's an unusual situation. Let's wait a moment. Maybe we will get some questions. We are happy that the contents of the presentation and the CEO's speech clarify everything, but let's wait a moment. Yes, there is one question. I will read it out. Marta Tchaikovska asked a question. What's Santander's ambition in consumer loan and mortgage loan sales? Are the levels from quarter three sustainable or they resulted from less active players on the market? So what's the outlook for 2021? What's the outlook on the cost of risk for the next year? And what's the Santander's opinion on keeping the cost of risk for the nine months? And what will be the impact of all of this on the payment of dividends? What are Santander's plans on settlement and FX mortgages? Are you planning to take into account the KNF proposal? And the costs seem to not be under pressure. Is it possible to keep the level of cost at the same level in next year? And there were... No questions, and suddenly we must discuss the entire P&L account. So that's a nice set of questions. So maybe let's start with settlement, then cost, and then Maciej will discuss the rest. So as regards the settlement, of course, we are working on that issue, and we are also taking into account the KNF proposal. We are developing our technological solutions together with the KNF. We have a team of IT specialists that works on the process. And if shareholders agree to that, agree to our participation in the program, We want to make sure that everything will run smoothly and that the main issue is the connection with the arbitrary court. We have very advanced works on that, but we have not taken the final decision yet. We must have certainty in terms of legal matters because there are a few unknowns. And there is also this issue whether the settlements should be tax deductible or not. This is a very important aspect in terms of our performance. We are also in an ongoing dialogue with our customers and we also wait for the decision of the Supreme Court, we also take into account the verdict of the EU Court of Justice, for example, in the Hungarian case. In our opinion, this has not been publicly debated on enough, but And in our opinion, the first instance court should take into account those two recent decisions of the Court of Justice of the European Union. And this is about the first question. Then the costs. Of course, we are looking at the market regularly. We know the pressure on staff costs. We are competing with other companies, especially in the area of technology. We are competing not only against other players in our sector, but we are also competing against fintechs in order to keep our talent within our organization and get new talent from the market, but We think that regulation of staff costs is our business as usual and salary reviews. We are researching every area of staff costs. We have always had very good cost discipline and we would like to keep that next quarter.

When it comes to the dynamics of the sales of mortgages and consumer loans, well, we would like to maintain it. We would like to keep winning new market shares and to expand our market shares in this area. We can see that we have a good proposition because we've been acquiring more and more customers, new ones for the bank. So we don't only sell these products to our internal customers. So we would like to continue this really good upward trend that we saw in the previous quarter. The rest of the questions, if the CFO could take it over. But once we see our, when we look at the sales of our loans in the pre-pandemic time, we really can see that we can still grow it even more as compared to that period. And now other questions from that the outlook for the fee income for the next year. We mentioned that a couple of times that in 2021, we actually have witnessed a couple of trends. That is the economic revival, which is followed by the growth in net fee income. And the other element impacting that is also the review of our schedule season charges, when that is reflected in our year-to-date net income. Looking at 2022, we're sure to think that this is going to continue, and we believe this is realistic. When it comes to the other element, We will not see so big double digit growth, but we hope to continue the growth. And we hope for continuing this trend. Next question, the first of the outfit for the cost of risk. Can it be maintained at the level it is? We've also mentioned that before, that in 2022 we expected dividend to the pre-pandemic level and 2021 really goes well for us. Whether we will be able really to come back to the pre-pandemic level, we will see, but we can see that the quality of the loan portfolio is quite good. The first quarter was a bit negative in this sense, This was due to one big law of provision created at that time. If we assume the continuation of the macroeconomic scenario as it is, the provision should be under control. And of course, there are a few risk factors. We also have high inflation. We know that the businesses are capable to transfer the higher cost onto the price of their goods and services. We see the growth in the cost of wages, energy, and so on. So we should really take this into account and envisage the growth in higher sensitivity. But all in all, the situation looks quite good, but I cannot give you any specific figure when it comes to the cost of risk. That's it. So what we've been saying that up to date on the free shipping like that. Next question.

Do we expect that the lack of offering or mortgage loan customers will impact the dividend payment. The CEO refers to that with respect to mortgage loans, but the dividend, well, every bank should be approached individually because the Swiss bank mortgage loan portfolio is not so significant because What's more important is the ability to absorb risk and the level of capital. We are able to take into account various risks and still be able to pay the dividends. We are awaiting the supervisory guidelines and We discussed the rest because we received one more question in the meantime. But we've already talked about that, the turmoil in the logistics sector, the increase in the energy prices. I think that I discussed that and We must take that into account. We must take into account sensitivity of individual customers. Expected loss provisions. There will be more provisions for FX loans. We are analyzing the situation each quarter and we take relevant decisions, but in quarter three we raised a provision for individual cases. And we plan the review of the model for the next quarter. And we have a list of questions in English. So I will translate that. What's the sensitivity on interest rate hikes? So at the bank's level, 40 basis points, as we said, in the next 12 months, the net interest income would grow by about $300 million. In order to keep the steady balance sheet, we need to change the pricing of deposits because some customers may be more sensitive. But when we look at LPR at about 200 it may be not so easy to keep the balance sheet at the current level and everything depends on the market situation in our opinion the key issue is to provide customers with full investment and savings offering and next week the maybe there may be the next interest rate hike or maybe some time and further in the future so with the next Each next interest rate hike is more likely to change deposit pricing, at least at some point. Currently, we're not at that point. And since the interest rate hike, what was the change in deposit pricing? There was no change in deposit pricing. On the asset side, if we are talking about the impact of 40 pips on the net interest income in the next 12 months, the number of assets under the new repricing, which was three months and six months,

Well, first of all, it's already mentioned. There's one more question. What is the current level of provisions for FX mortgage portfolio? Well, let me answer this question. When it comes to the individual provisions, at the end of September, we had $979 million in provisions for that purpose with the breakdown between Santander Bank Polska with 180 million in Santander consumer. When it comes to the collective provisions for these losses, we have 464 million at the end of September. So altogether, it was 1.4 billion altogether in provisions. both for when summing up individual and collective provisions. And continuing on one more issue. There was a question about the cost of risk. That was outlined during the presentation, but let me add to that. provisions raised, uh, for the legal risk related to ethics, most non portfolio. We had 97 million in quarterly alone, 73 million of that in the bank and 24 in some kind of consumer. Moreover, the net balance of provision was impacted also by ethics differences and that impacted this level negatively by roughly 40 million. The net balance of these provisions for the FX mortgage portfolio for the legal risk and the net balance of these provisions when it comes to FX risk is hashed. So this negative impact of $40 million is mitigated under the FX conversion costs. There is also a question about the partial release of provisions. Well, it is a bit more complex. We release provisions. We always release some provisions. This quarter, we show it in a higher amount because we release provisions for the denominated loans. both under the collective and individual provisions line after the decision of the Supreme Court that deemed that there were no abusive answer clauses. And that was a very important element. That's what explained the whole issue. But actually here, you can imagine a number of different situations. First of all, closed claims, shifts between individual and class actions. There also might have been some loan repayments. But the main element in explaining that increase is that release of provision for those denominated laws. Now, we don't have any more questions. That's all that we can see. Yes. OK, Donna, thank you very much. And we are available to you if you have any more questions. So have a good day.