Erste Bank Polska Sa

Good morning. Welcome at the presentation of financial results of Santander Bank Polska Group for the first half of 2024. My name is Agnieszka Dłuszczycka. I'm head of investor relations at Santander Bank Polska. Today, the results will be presented by our CEO, Michał Gajewski. Maciej Reluga, member of the management board responsible for finances and Wojciech Skalski, Head of Accounting and Financial Control Division. I'd like to encourage you to ask questions via the link available on the website or you can also send questions directly to me at dnieszka.dobrzycka at santander.pl. So let's start with the presentation and then we will hold a Q&A session. Good morning. Thank you, Agnieszka. My name is Michał Gajewski and we will start the presentation now. After the first half of the year, we have generated a good net profit and I am optimistic about the next quarters. I am convinced that this year will be satisfactory for our customers and shareholders. despite the persisting regulatory challenges. Briefly speaking, after the first half of 2024, we recorded the gross profit of $3.2 billion. In Q2 alone, we generated the net profit of $793 million. At the same time, the tax burden was $1.267 billion. while the total regulatory costs amounted to $272 million. So the total burden in the first half for our group amounted to $1,539,000,000. Let's move on to slide seven with general operational data. As a group, we provide services to over 7.5 million customers, out of which over 4.3 million are digital customers. Santander Bank Poland itself has 5.9 million customers, and the number of our digital customers grew year-on-year by 7%. We have 3.6 million of such customers. And in terms of mobile app users, we recorded a growth by over 13% year-on-year. Customers' deposits totaled 215 billion zlotys and grew by 7%. The gross loans portfolio also grew by 7% to over 174 billion lots, which means an increase in the market share by 50 basis points in one quarter only. Assets grew by 8% year-on-year up to 283 billion lots, and customer funds grew by 10% up to 237 billion lots. In slide 8, you can see the key financial results. I will discuss the results later. Now let me highlight the key items. The group's net profit was 2.4 billion zlot, net interest income was 6.7 billion zlot, customers' deposits total 1.7 billion zlot. On a comparable basis, both net interest income and fee income remained at a similar level as in the first quarter. Total income was $8.3 billion, growing by 9% year-on-year. TCR was 17.8%. Tier 1 was 16.7%. Our capital position remains high. Return on equity for the group was 19.1%. And the group can boast excellent liquidity. The consolidated LCR at the end of June was 200%. Slides 10 to 12 refer to new products for our customers. So maybe let's go straight to slide 13, selected business data. In retail banking, we have 6 million accounts for individual customers, up by 5% year-on-year. In quarter two, we opened 110,000 personal accounts in Polish Zloty. On an annual basis, accounts in Polish Zloty grew by 4%, while foreign currency accounts by 10%. In quarter two, we sold mortgage loans worth 2.7 billion Zloty, which is less than in the record-breaking quarter, the first quarter of this year, but The previous quarter was marked by a 2% safe mortgage loan program, and in quarter two, such loans accounted for only 23% of mortgage loans. That's why the sales dropped in this product line. In the second quarter, almost all of the portfolio was granted at an adjustable fixed rate, namely 95% of mortgage loans. Total share of loans with adjustable fixed rate for five years in the entire mortgage loan portfolio in PLN grew to nearly 37% at the end of June. Cash loan sales in quarter two totaled 3 billion lots, up by more than 16% versus the previous quarter. In the entire first half of the year, we granted 5.5 billion PLN of cash loans. Net investment fund sales was 900 million zlot. In the entire first half of the year, net sales reached 3.1 billion zlot. Retail assets of Santander TFI were 21.6 billion zlotys. Our market share has been growing. Now it's almost 11%. In the SME segment, we're also acquiring new customers. We're opening new accounts, nearly 15,000 new business accounts for SME customers. SME loan sales totaled 1.4 billion zlotys. up by almost 10% versus the previous quarter. In business and corporate banking, trade finance and leasing income increased by 10% year-on-year, and credit income also has risen. Credit limits grew, and types of new limits in factoring, leasing, and trade finance also have grown. We have higher income from M&A. consulting when it comes to corporate and investment banking, income from capital market services grew, and we have also a significant growth in trade finance services. Income on transactions in the institutional clients department increased by double digits, mainly 21%. Slide 15, I have already referred to gross loans at the consolidated level by 7% year on year, and four percent quarter on quarter we're growing faster than the market and we also recorded a nice growth in terms of leasing portfolio 2016 customer funds seven percent growth in customer deposits in the first half year and the daily deposits stood at 215 billion blocks

In a year, the deposit grew by $14.6 billion. $2.1 billion of that was the growth in business deposits, while $12.5 billion in retail deposits. Now let's talk about our real financial performance, net interest income and margin. The net interest income in Q2 was $3.2 billion. and declined by 3%, and that was driven by the impact of the short-payment holidays, which accounted for $134.5 million. If we trip it off, the net interest income grew by 1%. In the first six months, interest income grew at the pace of 4% year-on-year, while interest expense reduced by 2%. The net interest margin for the two quarters annualized on a quarterly basis was 5.8.7%. If we trip all the said treatment holidays, it is 5.28%. OK, then. Net fee income. It grew by 9% year-on-year. In the quarter two alone, it stayed flat on quarter one. Year on year, we saw really good performance when it comes to asset management fees, insurance fees, ethics fees, account fees. Quarter on quarter, we also saw good performance when it comes to ethics fees, insurance fees, and asset management fees. Summarizing our income lines by 19, in the first half year, total income stood at $8.3 billion, which has grown by 9%. If we adjusted that by the payment holidays, the income grew by 10%. Interest income grew by 6%, driven by interest rate changes, fee income, and fee income, which grew by 9% year-on-year. Income and other operations were actually driven by the actions taken in advance to make settlements. And the cost of those settlements in the first half year was $35 million. Now let's talk about cost, slide number 20. Total cost for the first six months totaled $2.6 billion. which is the draw by 11% year-on-year. And that was burdened by the Banking Guarantee Fund payments of 253 million zloty. Last year, it was 175 million zloty. If we strip off these costs, the total cost grew by 9% compared to the last year, driven primarily by inflation, salary adjustment, and IT costs. Staff costs, they increased by 7% year-on-year. And that reflects the adjustment of salaries in September last year. That also reflects the cost of the long-term incentive share-based program that we launched. In quarter two alone, the total cost decreased by 9% compared to quarter one. If we strip off the banking guarantee fund cost, That was $206 million. The costs grew by 3% quarter-on-quarter. The cost-to-income ratio for the group at 31.1% was really a sound one. Now provisions slide 21. The total provisions for the expected credit losses on a consolidated basis totaled 611 million slots for the first six months. And approximately 380 million worth of provisions was created in quarter two. The copy risk has been stable in the order of 70, but when the balance of provisions in the six months of this year was slightly higher than in the corresponding period last year. And there was the one-off factor. We introduced the triggers for cross-bank retail and SME exposures to stage two. And this is a change consistent with the practice applied on the Polish and European market and recommended by the European regulator. After that change, we are actually in the same market. The quality of our loan portfolios are good, in our opinion. We also observed stabilization or even some slight improvement when it comes to the key risk indicators such as the NPL-SURE, NPL coverage ratio, or the Lincoln Seat Rate, or the cost of risk. I've already discussed bank index and regulatory costs at the outset of our presentation. These levies are So very high for the whole sector. So summarizing our performance in the first six months, you can see that on slide 23, we already mentioned interest income and cost and our income line. But this slide also shows the cost attached to the legal risk that we faced. After two quarters, that was $1.5 billion. And then quarter two itself, it was $1,215,000,000. And that's what we had to put in place in provisions. Summing up, that's been a good six months for us. Another quarter in a row when we kept high net interest income and net fee income. When it comes to the business, I think it went well in the six months that we actually growing our customers. We've been growing organically. We've been recruiting new ones. And that's about 12 for the second half of this year. Thank you very much for listening to me. And now the floor is yours. Let's have the questions and answers session. Let's start with the questions we've already received on mailer, but let's suggest we go this way. I would suggest our CFO much easier look at parts with questions referring to our net interest income sensitivity. What is the sensitivity of the NIM to the move on the interest rate curve by 100 bps? What will be the sensitivity of NII due to new NII short limits? And the third thing is that the governor of the MVP recently made a statement on the interest rate cuts, and now that they should be expected in 2026. And we also have a higher outlook for inflation in 2025 than before. And the question is, what are the implications of this for the macro outlook for our NIMS and our OTEs? So, Maci, if you could answer these three questions. Can you hear me? Yes, we can hear you. There's no echo, but you've heard the questions, right? When it comes to net interest margin and sensitivity of the net interest income, it's in the order of 300 to 350 million euros. Of course, assuming that we have a constant balance sheet, but looking at the statistics, what part of the loan portfolio is based on the fixed rate or fixed rate that is hedged, it grows a few percentage points. In the middle of 2024, this gives us 40%. When it comes to the regulatory limit, NII SOC, We've already seen the change sensitivity. We are within the regulatory limits, so we don't have to do anything extra because of that. But depending on the market landscape, we are getting ready for the lower interest rate scenario. And that's about the third question. When it comes to expected interest rate cuts, We expect it to be 20% if it does not materialize, then what we have already done should be enough to fit into the net interest income stock limits. Our sensitivity should be okay. We do not give you any guidance for NIMS or ROTIS. It would be too far-fetched going to...

outline the scenarios what might happen with our key indicators thank you okay so now maybe i will take over and i will answer questions about the front loans the first question was about provisions that exceeded 100 percent coverage level so Do we expect any comments from the regulator about the optimal coverage level? I have to say that we have never received any expectations from our regulators. Of course, our regulatory authorities monitor the situation in the banks, but We have never received any decisions taken at the external audit level. We have never received any comments or suggestions in that matter. I don't know what the situation in other banks, but we have never witnessed anything like that. Of course, in the second quarter, we topped up our provisions We now exceed 100% coverage level. We think that this reflects the situation on the market and this reflects the situation at court and behavior of our customers, both those that sign settlements with us and those that go to court. What's the number of foreign currency mortgage loans granted historically ever granted in Santander Bank Poland group. In total, in Santander Bank Polska, we had 62,000 such agreements. I would have to double-check that, but I think that's the right figure. In Santander Consumer Bank, 27,000. What's the proportion of active lawsuits concerns loans that have already been repaid. Those that are at court. When it comes to our bank, this is about 7%. When it comes to inactive customers, where about 7% of them went to court. In Santander Consumer Bank, I do not have the data. I will have to double check, but I don't want to express my opinion. I would rather check that first before telling you. Okay, so now let's move on to the next group of questions. Long-term funding ratio. There are two questions. How much is it according to your estimates and how do you plan to reach the required level? And what's the new long-term funding ratio at the end of June 2024? So I'd like to hand over those questions to Maciej. At the end of June, it was around 40%. So we are in line with the target, which was 38%. And in the future, well, it depends on many factors. First, how the mortgage loan portfolio grows, how our RWA grows, together with our entire loan portfolio, because this affects the capital and dividends. So depending on that, we will need certain issues for TILAC, MREL, and this will impact long-term funding ratio. And if it turns out at the end of the day that we will be below the level of 40%, 2.5 years from now, we will have to make additional issues.