Santander Bank Polska Sa

My name is Agnieszka Dobrzycka. I'm responsible for investor relations at Santander Bank Polska. I'd like to welcome you at the presentation of the preliminary financial results of Santander Bank Polska Group for 2023. Today with us, we have our CEO, Michał Gajewski, our CFO Maciej Reluga and Wojciech Skalski, the management board member responsible for accounting and financial control division. I'd like to mention that throughout the conference you can send your questions via email to agnieszka.dolbrzycka at santander.pl. I'd like to give the floor to our CEO now. Hello everyone once again. Welcome at the presentation of the non-audited financial results. After the fourth quarter of 2023, let's start with the net profit. In my opinion, we generated a solid net profit and proved that our mission of helping customers prosper is reflected both in the social and financial dimension. even in the context of persisting regulatory and systemic challenges. Today, I would like to say a few words about our new strategy as well. But first, let's start with our performance. So last year, we recorded the gross profit of 6,850,000,000 lots. At the same time, the tax burden was 2.7 billion lots. while total regulatory costs amounted to additional 211 million zlotys, so the total burden was nearly 3 billion zlotys. In Q4 alone, we generated the net profit of 980 million zlotys. Now let's go to slide 7. As a group, we provide services to over 7.5 million customers, out of which over 4.25 million are digital customers. In Santander Bank Polska alone, we have 5.9 million customers, including 3.5 million digital customers. Year on year, the number of digital customers grew by over 6.4% and mobile customers by almost 19%. Customer deposits. totaled 209 billion zlotys and grew by 7% year-on-year. And the gross loans portfolio year-on-year grew by 4% to over 165 billion zlotys, and assets grew by 7% year-on-year to 276 billion zlotys. And now slide eight, key financial results. Of course, I will discuss the results in detail in further slides, but now let me highlight the key items. The net profit of the group in 2023 was 4,831,000,000 zl. In Q4 alone, the net profit was 980,000,000 zl. The net interest income of $13,116,000,000 grew by 36% year-on-year, and in Q4 alone, the net interest income was $3.4 billion. Net free income in 2023 was over $2.7 billion in Q4, $710,000,000. Total income was $16 billion. This is an increase of 29% year-on-year, and in Q4 alone, the total income was $4.2 billion. The TCR for the group was over 18.36%, and the Tier 1 for the group was 17.18 million percent. And for the bank alone, 19.62%. The return on equity for the group was 20.3%. As you can see, our capital position has been still kept at a high level. slides 10 to 12. Those slides describe the general information about individual segments and new products for our customers. So maybe let's go straight to slide 13 that shows some business data. We have 5.8 million accounts for individual customers, up by 5% year on year. In Q4, we opened 114 personal accounts, while in the entire year, 461,000. On an annual basis, accounts in Polish slotted grew by 3.4%, while foreign currency accounts by 10.5%. In Q4, we sold mortgage loans worth 2.9 billion lots that is 22% more than in the previous quarter and in the entire year we sold 7.6 billion lots worth of mortgage loans that's up by 7% versus 2022. The share of fixed rate loans and new sales in quarter four was 87% and in the entire 2023 the share of fixed rate loans grew from 59% in January to 89% in December. So the total share of loans with adjustable fixed rates for five years in the entire PLN mortgage loan portfolio grew to nearly 29% at the end of December 2023. In Q4, cash loan sales totaled 2.4 billion blocks That's better than in the previous quarter. And in the entire year, we sold loans worth $9.7 billion. That's better by 4.8% year-on-year. The level of lending in remote channels has been growing. In quarter four, it was 71%. Net investment fund sales was 1.3 billion slots in quarter four, while in the entire year, 4.7 billion slots. So our retail assets in 500 TFI at the end of the year were 18.5 billion slots. Our market share was 10.9% and it grew by 1.6 percentage points versus the year of 2022. In the S&E segment in quarter four we opened over 16,000 business accounts. In total, we opened over 67,000 accounts for small and medium enterprises during the year. SME loan sales grew by 25% year-on-year, while quarter-on-quarter, we recorded a growth by 10%. And in total, in 2023, we granted 5.4 billion lots worth of small and medium enterprise loans. In business banking, we recorded good performance in terms of lending. We recorded the growth in loan and deposit balances on an annual basis. We also increased income on transactional banking by 67%. We also recorded a double-digit growth in FX income and our loan and leasing income by 12% and 18%, respectively. In terms of corporate and investment banking, income from transactions and credit markets grew materially by 80%, and income from trade finance services also grew by 79% year-on-year. Now let's move on to slide 15, gross loans. As I said, at the consolidated level, the gross loans portfolio grew by 4%, and in quarter 4 alone, it grew by 5%. 1% versus the end of September 23. In our both subsidiaries, leasing and factoring, we recorded a double-digit growth, so it's a very good development of our business. You can see the details in slides 31 and 32. Customer funds, customer deposits grew by 7%. That's over 209 billion slots at the end of December. On a quarterly basis, deposits slightly decreased. Deposits grew by 12.7 billion slots. The group can boast excellent liquidity. The consolidated LCR was over 218% at the end of December.

Page number 17. Profit and loss account, our net interest income and net interest margin. The net interest income was $14.1 billion. In Q4, it was $3.4 billion, which was better in Q4 by 1% quarter-on-quarter. Interest income quarter-on-quarter decreases slightly, while interest expense reduced by 8%. As you can see, as we expected at the previous conference, the annualized Net interest margin throughout the last year was stable and amounted to 5.4%. Slide number 18, net fee income. The growth year-on-year is 6%, and the net fee income totaled $2.7 billion. In quarter four, it was $710 million growth, and it was also a sizable growth compared to quarter three by 6%. Year-on-year, we saw really good performance when it comes to fees, especially insurance fees, foreign currency fees, asset management fees, and brokerage fees. Quarter-on-quarter, we also saw really good results when it comes to asset management fees, brokerage fees, insurance fees, and leasing fees. When it comes to consumer bank, the net fee income grew by 3% year-on-year and 12% quarter-on-quarter, primarily under the credit and insurance line. Line 19, income. Total income was $16 billion, which represents a growth of 29% year-on-year. The income on other operations was still driven by actions taken to make settlements with FX mortgage borrowers. For the group, the cost of these settlements was $313 million, while in Q4 alone, it was $24 million. At the end of December, across the group, we had 9,300 settlements signed. For the bank, it was 7,700, which represents nearly 24% of the Swiss franc portfolio as at the moment of, compared to what we had at the moment of starting settlements. In 2023, we made 5.1 thousand settlements, and 405 of these were made in Q4. Operating costs, slide number 20. These costs total 4.7 billion, and they were flat year-on-year, given the lower regulatory costs. If we eliminate regulatory fees, these costs were growing by 19 percent during the year, driven primarily by inflation, pay, increases IT costs and building maintenance costs. Staff costs increased by 26%. First of all, this was the follow-up of the pay increases that we introduced in September 2022, as well as those that we made in September 2023. This was also driven by the cost of the long-term share-based incentive scheme, as well as accruals for bonuses that we made for really good performance for 2023. In Q4 alone, costs increased by 2%, while the depreciation increased by 4% in Q4. The cost-to-income ratio for the group is 29.5%, but for the banks, This is 27.1%. Last year, for the group, it was 37.9%. Provisions, slide number 21. The net balance of loan loss provisions after four quarters at the consolidated basis is 1.1 billion dollars, which is 28% higher than the year before. This growth was driven primarily by the impact of the economic situation on the condition of our loan portfolio. The cost of credit risk after quarter three fall was 0.72%. The key drivers of the net balance of provisions are as follows. In the retail and SME portfolio, we saw stabilization of past year payments. In the corporate portfolio, we saw some deterioration of selling for some selected customers. And the third driver was the sale of the NPL portfolios, worth $314 million in principle in Q4. And that has a positive impact on our bottom line of $31 million loss. The NPR ratio at the end of December was 4.58% on a consolidated basis, and for the bank it was 4.44%. Let's talk a little bit about the banking tax and the regulatory costs. That's slide 22. As I said, the burden was $2.7 billion, of which $1.9 billion was paid in corporate income tax and $782 million in banking tax. Additional regulatory costs totaled $211 million. Coming up, 2023 was really good with that solid financial performance. We improved our net interest income. We boosted our income streams. We saw the growth in sales volumes, especially when it comes to mortgages. When it comes to our business, I think that both quarter four and the entire 2023 were really good. Taking this opportunity, I would like to tell you a little bit about our new strategy. 2023 was the last year of our three-year strategy that we were pursuing before. It was also the year when we were working on a new strategy for the bank. And this is related, of course, to our strategic planning cycle both in the bank and across some kind of group. Of course, we are part of the global Sun Thunder group, but we operate locally in Poland. So we can align the strategy to what we are doing here. We can adjust it to our market where we are. The focus of our new strategy is on people, on customers and employees. We're focusing on building the best possible experience and invoking positive emotions in collaboration with the bank. We believe that this is the best route to build sustainable profitability for shareholders. And thanks to this, we can actually achieve excellent financial performance and meet our ambition of being the most profitable bank in poland our strategy is based on three pillars the first one is total experience and this embodies the our belief that customer satisfaction and employee engagement are paramount to succeed financially. We focus on building customer experience and employee experience. We believe that this can make us distinctive, that the work on total experience is something new that will make us stand out in the market. So that we are the best both employer for our people, but also a tier one bank for our customers. And thanks to that, we will be able to generate the best possible return for our shareholders. The second pillar is total digitization. We think that we really have to accelerate the digitization of our processes, services, and products, both for our customers and our employees. but our internal processes in the bank. And we want to do it fully responsibly, not only as a responsible corporate citizen, but also thinking about being responsible towards the business environment, communities, but also being compliant with all the legal requirements and being consistent with ethical, top ethical standards. These are our ambitions, but in order to achieve it, we can avail and leverage the possibilities and technological solutions that the group provides us with. And that's why I've been saying that this local strategy is consistent and fitting to the group's strategy. More about the strategies available on our website. So now, let's move to questions and answers. The floor is yours, and thank you for this part.

Okay, so there are a few questions. I will try to group them, but maybe let's start with the dividend. Can you see the regulatory risk that the dividend for 2023 paid in 2024 may be decreased by the interim dividend that you paid in 2023? And second question, will the dividend paid in December decrease the dividend paid in 2024, given the fact that it was an interim dividend? So the interim dividend did not come from the profit of 2023. It was paid from a part of the dividend reserve to which almost 100% of the dividend from 2022 was moved. And the third question. will the bank discuss the opportunity of payment of the 100% of dividends with the regulator because the baseline scenario is payment of 75% of the dividend? Well, as you can see in the data published today, the preliminary data, show that we have met the criteria for 75% because the NPL ratio is below 5%. The Swiss franc share of Swiss franc loans is below 5% and even below 3%, I believe. So we meet the criteria for the payment of 75% of the dividend. This is Those are the guidelines that the KNF published for the entire sector, but we haven't received an individual recommendation. We expect it to be received from the KNF soon. So, as we could see in 2023, we are still of the opinion that our capital surplus is very high, even too high when compared to the expected risks and capital needs given the growth expectations for the next year. So we assume that theoretically payment of some profit from the previous years that we have in the dividend reserves could be possible. But this will be the subject of our discussion with the regulator. Today, we are still expecting the individual recommendation for the distribution of profits for 2023. And there was a question about reduction of employment. I'd like to say that we are not planning any redundancies. First of all, we want to grow. And we believe that our strategy is the strategy of growth. So we are not planning any staff redundancies. And when it comes to Court of Justice of the European Union decisions, our situation is adequate. We believe that we will demand the return of economic capital after indexation. And as I said, 85% in our opinion is the adequate level.

It was also my question whether we expect additional costs of this provision. Now, this provision takes into account all the costs that we are expecting in the case of the legal situation we do think that the settlements are better and we will be continuing on that track in our opinion this is the best solution both for the customer and for the money there's an interesting question about the trunk to reduce the headcount it appeared again so a few people are thinking about it and considering that. But of course, let's move on. The revival in corporate loans, when do we expect it? And if we expect it, our forecast for the loan growth is in the order of 8%. But for the companies, for the businesses, we think that it might be even a two-digit growth. Yes, we expect a revival. And some health vendors were already seen last year. And 2024 might really materialize with this. And the investments are growing. And this will be fueled by the private sector. And this will stimulate the demand for loans. So we expect, yes. Let me talk about the cost of wealth. In Quartus IV, there was a usual, similar, you had a sizable sale of NPRs. Is the cost of 85 BIPs a good indicator? No. We keep emphasizing that the sales of the NPR portfolio is something's been by the market situation. We don't have any guidance. We are just looking at what is happening. When it comes to guidance for the cost of risk, let us go back some time. In the past, we used to say that the cost of risk over the cycle is in the order of 80%. In our previous strategy for the three years, We were referring to the average before the pandemic, slightly below 80%. And that's what we delivered. It is slightly above 70%. If you look at our targets and KPIs of our strategy for the next few years, we are also saying the band expected for the next three years, and that's 70 to 80 bps. That's what we were saying before. And this is still something valid for us, given our balance sheet. What is the opinion of the management board about the new mobile application? Because you can see the decrease in the number of mobile customers. When outlining slump number seven, I was saying that the growth in the users of the mobile application was 19%. I don't see any decrease here. But let me comment on this. This application was already available across the entire 2023. But in September, we had the max rollout. And the MPS was the first decrease But in our opinion, this is more a follow-up of the migration process than the assessment of the very app and the follow-up of the customer experience they have with the new app. Each change, also the change of the application, is also followed by a decline. And when you have much rollout, the customer satisfaction is falling and only afterwards it goes up slowly but surely. And this is the assumption that when we introduce the new applications that we will see a rebound clearly. We take efforts to make this experience better. In the autumn, there were some events, incidents, but that was not related to the mobile app, but to the breaks in services, other technical services, which impacted the customer satisfaction. Also, what they experienced with the mobile app. The NPS was, our NPS was among top three after 2023. So we are among the leaders. The implementation of the mobile app was something that we introduced because customers were saying that our previous mobile app was something to be improved. And that's why we introduced the change. We have to work on that continuously. And we are all aware of this. that it does not meet each and every need our customers have. And we do have to take efforts to improve mobile app. And this year we'll be focused on this as well. There were two other questions. Let me discuss those related to net interest margin. Can we find out what are the reasons why you are maintaining the net interest income just like in the previous quarter, even though there was a decline in interest rates? And there are a few reasons to that. One, the lower cost of deposits. Yes, that's one of the reasons. After the first decline, we adjusted prices of our deposits. And we took into account the possible further cuts. Was it driven by the deferred repricing of loans? Yes. That's what it was. To show you the scale, you might remember each quarter we tell you which part of the balance sheet is based on the fixed rate. Either we have the fixed rate assets or we have floating rate assets, but they are hedged by swaps. And that was 28% after quarter three. In quarter four, it was 32%. The other 68% of the floating rate. And if we look at the turners and the repricing periods, one third is based on one month rate. Nearly half on the three months And there is quite a lot on the six month, based on six month rates. So not all the assets have repriced yet. And this is not yet reflected in our results yet. So there is this deferral. And of course, it will continue and To some extent, this is neutralized by higher volumes and sales. So we have the flexibility in our performance to interest rates. And now, the sensitivity to changes in interest rates, in our case, if they move by 100 pips, is 500 million. This is related to interest income from the bonds portfolio. We were saying that we were hiding our balance sheet with the top transactions. We were also extending the duration of our bonds. But as you know, the bonds market is very volatile. I hope that this explains why we had to stay by NIMS. And you might remember that in quarter two, we were saying that it should stay at the plateau for subsequent quarters and what is happening. And now a question about remuneration. What percentage of the total staff costs is represented by bonuses and so on? Last year, bonuses and equity-based schemes represented 20% of the total remuneration cost. And the equity-based instruments represented 10%. These bonuses and these schemes based on equity instruments depend on the performance against the budget. And the extent to which we exceed our budget. But that's, these were the values last year. And moreover, as I said during my presentation, the 26% growth in staff costs was related to the fact that in 2022, we revised salaries, we increased the pay, and that was only in September, and that was carried forward to 2023, while in 2023, we introduced the pay increases only in September, which was also reflected in the higher cost for quarter four. And of course, we had the provision, the accruals made for the payment of bonuses. And made the fact, and that actually made Quota 4 to reflect all those elements in the line. There are two more things. It seems to me you've already just mentioned what could be the level of provisions for Swiss francs in 2024. In our opinion, at the end of the year, this is the adequate level of provisions that we already have in place. And there is one more question or more suggestion or request, how to reflect certain things in our annual report when it comes to Swiss-run things. But I don't think we have to look into the annual report. We always try to describe it properly where we are showing the cost arising from the active switch rank exposures. And this is the line. And in other operating costs, we are showing the cost of those switch rank exposures which are not active. That is those which were cleared. The other element of the operating costs are the cost of legal services. But these are internal costs. Can it include staff costs there? No, we do not show them separately and we do not allocate it as a cost because this is an internal staff cost. This is an element of staff cost. And there's also a question about the number of new lawsuits. The growth after four quarters is 5.6. And this is for all four quarters. From June and September, this was 1.4 thousand. We can see that there are a bit fewer lawsuits than before, than at the beginning of 2023. We can see that our program of settlement has been working. What are the output fees and commissions But we don't give guidance in this respect. But you could see clearly last year that it was a really good year. And that we also had a really good 2004 in this respect. And we pay a lot of attention to have this item growing because it's independent of interest rate changes. And let me say one more thing. What is the sensitivity of the net interest income and net interest margin to the changes in interest rates at the end of 2024? I don't understand this at the end of 2020. Over the 12-month horizon, that's what we are quoting, and that's how we have described the sensitivity, the total sensitivity of NII is in the order of $500 million. And of course, that would materialize gradually in the upcoming quarters, assuming the stable balance sheet structure and size. And of course, we would neutralize that. And there is one question about credit volume. Previously, there was a question about businesses, now about consumer and mortgages. We think that the trends will continue when it comes to the sales of these products. And that's it. There are no more questions? No? There was a repeated question about the sensitivity to interest rate changes, but I actually just received it when you were actually answering that question. So thank you very much.