Santander Bank Polska Sa

Hi ladies and gentlemen, my name is Agnieszka Dobrzycka. I'm in charge of investor relations at Santander Bank Polska. Welcome everyone to the presentation of the results of Santander Bank Polska after the third quarter of 2023. This presentation will be conducted by Michal Kajewski, CEO, and Maciej Ryluga, CFO of the bank. We're here with Wojciech Skalski, financial controller. Before we start the presentation, please let me remind you that you can ask questions or you can also send them to me directly. The presentation is available at the website of Santander Bank Polska Investor Relations. Michał, over to you. Hi again, welcome ladies and gentlemen to the presentation of the results of Santander Bank Polska after the third quarter of 2023. Let me start by saying that we're consistently delivering our mission, that is to help customers prosper. And as you will shortly see, this is reflected in our results. The results confirm that our business model is robust and we are delivering as planned. As of the end of September, our gross income, our gross profit was 5.3 billion. The levies over that time, they're a significant item. Those levies totaled 2 billion, and that includes CRT, 1.4 billion, and banking tax, 587 million. The regulatory burden was an additional 203 million. After three quarters our net profits is 3 billion 850 million and in quarter three itself it was 1.5 billion. Let's move on to this slide now. As a group we serve over 7.5 million customers out of which 4 million 250 000 are digital customers. In CBP itself, we have over 508 million customers. That includes 305 million digital customers. And year-on-year, we see that number go up 7%. When it comes to app users, the increase is of 14%. Customer deposits over 210 billion, that's up 11% year on year. Gross loans up 3% year on year, up to 164 billion. Assets up 6% up to 278 billion. Customer funds 227 billion, that's up 12% year on year. Slide eight now, just very shortly, I'll be talking about the performance in detail later. So the group's net profit for the first nine months is 3.8 billion. Net interest income is over 9.7 billion. That's up by 42% year on year. That's net of the credit holidays effect. sorry, if we exclude the credit holidays effect in quarter three, the increase is of 19% year on year. The net fee income was over 2 billion, that's up 3% year on year. Total income was 11.8 billion, that's up 33% year on year. Solid capital position Groups TCR 20.61%. For the bank, it was 23.96%. Tier 1 was 19.14%. For the bank itself, it was 22.25%. Very important information for the analysts, Groups Return on Equity was 19.3%. Going forward to slide 10, shortly about the customers, 3.5 million digitally active customers, including 3.1 million retail customers, 7% more year on year. We have 2.7 million customers actively using the application. the number of mobile payments is also going up. On slides 11 and 12, we're presenting the new offer and how we support our customers. Let me draw your attention to three highlights. The first thing is that we rolled out a new application And in our opinion, in the feedback we get from the customers, also, the app is more intuitive, more user-friendly. And as you know, we're strongly focusing on improving our customers' experience. Almost 2.6 million customers have migrated to the new app. We also implemented feature for business customers in the app. That's for sole traders. Important change for corporates. We have instant payments in euros. It takes less than 10 seconds to make them. So let's talk about the business dynamics. In retail banking, we maintain 5.8 million individual accounts. This is 6% more than last year. In quarter three, we opened 132,000 personal accounts. That is 25% more compared to the previous quarter. Year on year, the number of personal accounts in PLN went up. The increase was also observed in the FX accounts. In terms of loans in the retail segment, mortgage loans fell 2.4 billion. That is 45% higher than in the previous quarter. Overall, over nine months, we sold 4.8 billion worth of mortgage loans. We clearly see customer preference in terms of the fixed rate. In the new production, the share of fixed rate loans was 85%. That's in the third quarter. At the moment, in the total mortgage portfolio, the share of fixed rate loans at the end of September, that share was 25.6%. Cash loan sales in Q3 were 2.4 billion. That's up 3% year-on-year. We see cash loan sales is on the rise, especially in the digital channels. So here we're observing growing dynamics. More and more customers choose that channel. TFI net sales in the third quarter was $1.2 billion. Retail assets managed by Santander TFI at the end of Q3 were $16.7 billion. Our market share is rising, going up to 10.6%. In total, over nine months, net sales on investment funds was 3.1 billion. In SMEs, we opened 15.5 thousand business accounts. Half of them were open in the digital channels. More and more customers choose that way of opening accounts. We opened over 51 In terms of loans, we have an increase here by 11% year-on-year, more or less comparable to what we saw in the previous quarter. Business banking, good results, good performance. We see growth on the assets and deposits side, higher profitability in transactional banking. And in what refers to investment and corporate banking, we see growing revenues from trade finance and the credit market. I will now be moving to talk about the balance sheet items, growth loans. As I've mentioned, we see growth here of 3% to 164 billion. I've talked already about retail and SME. In SMEs, that growth is of 4%. For corporates, that's 18%. Leasing, that's an increase of 10% year-on-year to almost 14 billion. In factoring, we have a significant increase, 11%. Customer funds. 11% growth year-on-year, 10%. 210 billion blocks. So quarter on quarter they increased by 5%. And the group can boast of excellent liquidity. The consolidated RCR was 206%. So the group, the bank alone, it was 180.35%. Let's move to slide number 17, the profit and loss account. The net interest income was $3.4 billion, which was 6% higher quarter on quarter. Quarter on quarter, the interest income grew by 6%, while the interest expense grew by 5%. As you can see on the slide, The reported annualized net interest margin in quarter three was 5.37%, and as we've expected, it remained flat on the previous quarter. The net fee and commission income, that's slide number 18, it grew by 3% year-on-year and totalled 2 billion RON. Year-on-year, We saw good performance when it comes to credit fees, insurance fees, and FX fees. In quarter three, the net fee and commission income was only slightly lower than in the previous quarter. Quarter on quarter, we saw really good performance when it comes to the account fees, insurance, and leasing fees. Let us move to the next slide. Number 19, income. In total, the income was $11.8 billion, which represents the growth of 33% year-on-year and 9% quarter-on-quarter. And as I've already mentioned, this is the follow-up of good performance under the interest and fee income lines. The income of other operations. Let me tell you a couple of words about our activities taken to make settlements with the mortgage borrowers. The cost for the group of those settlements was $302 million plus, and in Q3 alone, that was $35 million. Actually, by September, we signed 7,300 settlements And that represents nearly one-fourth of the active Swiss bank portfolio. And now cost. They reduced. And the reason is because we had lower contributions to the banking guarantee fund and the fact that in 2022, we posted substantial contributions to the institutional protection scheme, which were $446 million. If we exclude the regulatory levies, the cost increased by 15% year-on-year, driven by inflation, salary adjustments, and IT costs. Stock costs increased by 22%, which reflects the change in remuneration and the cost of the long-term incentive scheme that we launched in quarter one this year. In Santander Consumer Bank, the operating costs increased by 7% in quarter three year-on-year. Staff costs increased by 5% and administrative by 4%. Despite the growth in costs, the cost-to-income ratio for the group was really good. below 30%, let me just remind you that last year it was 41.9%. So we can see that we take care of cost discipline all the time. Provisions, on the consolidated basis, the provisions totaled 894 million on a consolidated basis, and they were higher than a year ago. This is driven by the economic situation and the condition of our loan portfolio. The cost of risk for 12 months after three quarters was 0.77%. What were the key factors impacting the provision line? The first one is our continuing slighted higher delinquencies in the retail portfolio. The other factor was the stable level of delinquencies and downgrades to the NPR in the SME portfolio. In the corporate portfolio, we saw that, overall, there were some downgrades of customers from stage to the stage two and three. We also saw part of the non-performing portfolio were 125 million in principal. And that has a positive impact on our performance of $22 million. The NPL coverage ratio is a bit higher, because it is 59.1% at the moment, the banking tax. And as I said before, $1.4 billion in corporate income tax, nearly $600 million in banking tax, plus the regulatory costs of $203 million plus. So wrapping it up, another good quarter for the banks. We improved our net interest income. We improved our income streams. We can see that Our sales performance and business performance is really good. And that, of course, translates into our bottom line. We keep focusing on taking actions to help our customers prosper, to bring financial effects. We will be continuously upgrading our mobile application that we've just introduced. So our performers confirm that our business model is sound. So thank you very much, and now the floor is yours. OK, let me start with the questions we already got. But first of all, we have questions about dividends, NII. and in the impact of interest rate cuts, and the impact of the new proposal for the credit holidays, as well as our judgment of the post-parliamentary election environment Well, we always underline that we have a significant capital surplus, over $12 billion. So even taking into account most negative or adverse scenarios in terms of Swiss francs, or in terms of growth financing. Even taking into account all the risks, potential risks, our capital position is solid and we are determined to share the dividends with the shareholders. We are in talks with the regulator at the moment There is no meaning here that we could share with you. But we are fully determined in the process. We have the capital surplus. We have the dividend fund, as you know. And we will continue the talks with the regulators. In terms of the credit holidays, I wouldn't like to talk about uncertainties. There are a lot of question marks here. This is just a proposal and it was put forward by the current government. We're fully convinced that the borrower's support fund, that's the way to go to help the borrowers in distress. This is the third proposal with the criteria in terms of remuneration and wages. As you know, a lot of those borrowers that applied for credit holidays in the past, they made overpayments, so they could have easily repaid their debt without having to avail of the credit holidays. So we want to help those borrowers who actually need help, the borrowers in distress. That's all about credit holidays. The post-recent election, the environment around that, no, we don't want to enter into the political issues. I think we have that we can operate in any environment. I believe in the skill of my well-qualified team. That brings effect. We're not focusing on the expectations towards politicians. There are a few other questions about net interest income. and I'll try to answer them. And there are more questions about Swiss francs, about the pace of making supplements and the paid loans as well. When it comes to net interest margin, and in the report we provided the impact of the first cut by 75 bits, now it's 100 bits. So the question is about our sensitivity. Let me just remind you that in the same report, we already provided the sensitivity to the movement by 100 bits over a 12-month horizon. And at that point, it was estimated from 500 to 700 million slots. That is why after the next cut by 25 bits, we have not issued the report because we deemed that we provided the figures in the report. And other questions was what is the impact on the photo for performance given the cut? And there is also the question whether the Net interest income takes into account of any positive effects of hedging. Can they be quantified? But I will not quantify them. But as earlier has been said, and today, we've told you that there is some information that can actually figure out how much it can be. As I said before, the sensitivity to interest rates was high when the interest rate hike cycle started. Then, when the hike ceased, then the sensitivity was gradually confined. So, of course, the effects of DAGs are there. Recently, I also mentioned that the share of fixed and floating rate loans changes. Two years ago, it was floating to fixed 95 to 5, and now we have fixed rate loans roughly at 30%. So of course, all that fluctuates depending on the market conditions. This is the effect of both higher sales with the fixed rates. But also, we are continuing having part of our balance sheet. And we provide the sensitivity to the movement by 100 bits on a constant balance sheet basis. And of course, you can estimate how much it can grow. We've been growing quarter three and then some actions were neutralized. How quickly are we going to reprice our asset size of the balance sheet? We've already mentioned that some time ago. On the credit side, Well, we don't have many loans based on six-month Viber. Usually, it's a three or one-month Viber. The three-month Viber is just for mortgages. And that's what we are having primarily. So when it comes to loans between one and three months, this is even with some share of loans based on six-month Viber. So there will be repricing over those time horizons. If we take the whole balance sheet, the share of the product based on six months Viber is growing. So then we will not actually be wrong if we say that this is really the reprice along with the repricings of one month, three months, and six months products. And that's probably it. Is there anything else when it comes to details, please ask. But I think that the details we provide lead us to forecast the interest income. We do not really give any guidance from ourselves how going to be in quarter four or in the subsequent quarter as some questions go, but we do not share such figures, but we actually share information about the sensitivity on the liability side of the balance sheet. Of course, we are proactive and we are changing the deposit pricing and we made it quite quickly in response to the interest rate cuts. within days, if not hours. And actually, we can say that we've been expecting the cut. Maybe not to such an extent. So we reversed the deposit curve before six months, three months deposit. we actually reduce the interest rate on these deposits accordingly. There is another question referring to that theme about outlook. But there will be another meeting of the Monetary Policy Council. There will be new projections for the GDP. And we think that there might be another cut till this year in November. And then we envisage and that the changes will stop for a couple of months because we think that the inflation will be declining quickly to the targeted level. So it will be more difficult to calculate. Of course, the first step is easing when it comes to de-inflation, but then it will be more difficult So this is our outlook for the interest rates. But of course, we take into account what the market is pricing in, and we take this into account in our operations. So let me close on that. And now let me answer the questions about SWIFT funds. Let me remind you that we have 8.4 settlements signed in the group, 7.3 thousand in the bank. And as we are writing in the report, the cost of settlements this year has been 300 million Zloty. We propose the settlements to the majority of our customers, both those who filed the lawsuits against us and those who have not. So we've signed settlements covering nearly one fourth of the active food front portfolio. We started the whole process in 2022, actually towards the end of 2021. And our strategy that we adopted is still being purchased. And it is based on the recommendations from the chairman of the Polish Financial Supervision Authority, KNF. And we treat our customers the same way, whether they have Zloty or Swiss franc loans. So we think that the proposal of the KNF chairman is a fair one in social terms. And we are not changing our approach. So we are proposing what is recommended by the chairman of the KNF. We haven't seen any major growth in lawsuits. At the same time, we can observe the first rulings of decisions of the regional courts or Supreme Court that deem the bank's claims warranted when it comes to the unlawful enrichment. And this is about the surplus accounts compared to the paid out capital. And we think these are the first positive decisions which actually destruct this ruling practice applied by common courts so far. But it will take time before common courts take notice of that. But this confirms that But the statement that the banks are not entitled for any remuneration for the capital paid out say that there is a different stance, that the banks might be entitled. So it's favorable. So we keep thinking that settlement is better than the court case litigation. And we will be pursuing our strategy continuously. Okay, looking at the questions, I'm trying to combine ones that are similar. We have more questions about the dividends and about credit holidays, but we've already answered those. There's an interesting question. I don't have an answer for here on paper. What is the sensitivity of credit moratoria to, interest rate cut by 100 basis points. I can, however, come back with that information after I double-check it. I think it's worth saying I mentioned the borrower support funds and I think that despite the fact that in the third quarter we see an increase in the applications for the borrower support fund. And we know that because of the credit holidays, people actually decided not to apply for this fund. So if we assume the credit holidays are not introduced, the scheme is not introduced, we forecast the number of applications to the borrower support fund will go up. It offers aid to those borrowers who experience financial problems. So we hope there will be more applications for the borrower support fund than for credit holidays. Net trading and revaluation income, why was this high and higher than in the second quarter? In the second quarter, it was actually much higher than in the first quarter. It was much lower than in the first quarter. We see there some one-off there and some FX income. Operating costs, there is a question about the amount. We have around 50 million, as far as I remember. There are more questions coming in. about the dividend, moratoria, the coverage in terms of number and value. We're talking about the moratoria. Not much higher than what we gave you at the beginning. Then we updated our estimates. At the end of 20.64.7, that's volume-wise. So 36.9 and then, no, sorry, that's 63.9, then 64.7. The effect of the wages review. Do we see the effect and the outlook for operating costs for 2024? And our expectations here. What can you say? We'll watch the environment. We hope it will be better in terms of CPI. But as we know, this effect is lagging. In 2023, the CPI is going up, but it's still high. In terms of the macro environment, we expect it will be favorable. The labor market will not change. There will be wage pressure. Hence our expectation in terms of the CPI. But we're disciplined. We're well disciplined when it comes to cost wherever we can. And the cost in 2024 will be a combination to all the factors that I've mentioned. And let's talk about it in January when we present the results after the fourth quarter of this year. There is a question about the cost of credit risk considering our macro outlook. the disclaimer here is that what we're talking about the credit risk cost you know it had been verified positively the financial standing of our customers was good much better than we had predicted at the beginning of the year because we were entering recession with high CPI and high interest rates. So we can see that our customers managed the environment. And now our outlook for the macro environment is positive. She finds herself rival because of the consumption, because of rising investment. The only risk I would say that's important for the exporters is the situation in Germany and the outlook for the German economy. But the interest rate has lower CPI. In terms of risk charge, I think taking that into consideration, we can be optimistic. I think it could actually go down. This effect could be delayed. However, as we have said, there were a few cases in the corporate segment that were negative, but we remain optimistic in terms of 2024, looking at our macro forecast. There was a question about the cost of supplements. We've never really provided that separately for consumers, but we will have that checked. And we will The number of supplements, that's what we provide for the bank, 7,008.4 for the group. Have you seen any growth in the cost of claims and complaints related to consumer loans and the fee of charge loans? claims and complaints related to consumer loans and the issue of free of charge loans. And the idea that some law firms have. We haven't seen really any response from customers, but we will have that analyzed thoroughly. There is another question about the growing number of requests for support from the borrower's support fund. Let me check the answer to that. Give me a second. I've mentioned that in Post 3, there was some increase when it comes to the request for support from the Borough's support fund. And this growth was from 1,663 to more than 1,700 requests. And this was up to the value of $512 million. But the utilization so far has been small. And we've been taking into account that once the payment holidays solution is not available, then customers who have problems with the repayment will lead to the growth in the number of requests for support from that fund. And there's a question that I don't really know an answer from the top of my head. What is the share of the loans with the value over $50,000? This is something that we have to check. And probably the last question. And I'm assuming that all the previous questions Is there any headroom for reducing the manpower? I would say that we do not envisage any downsizing, any actions like that. The stock costs, of course, represent an important element of the total cost to the group. operating very effectively as a group, and including our operations as a bank. So we have not been thinking about any actions like that. Agnieszka, is there anything else that we missed? Or is there just one more question about the decline in topical ratios for the group quater on quater. So I think this is the effect of the growth in the denominator and the denominator. So these are all the questions. I haven't received any more. And I think that we might be closing our meeting today. Thank you very much. And we'll hear you next time, maybe here in reality at the end of January. There will be a conference about our performance, about the performance. And towards the end of February, we will issue our annual report. Goodbye.