Santander Bank Polska Sa

Good morning. It's half past ten. We'll start today's conference. My name is Agnieszka Dobrzywka. I'm Head of Investor Relations at Santander Bank Polska. I would like to welcome you at the presentation of the preliminary results of Santander Bank Polska for 2024. Today's presentation will be presented by Michal Gajewski, CEO, Maciere Luga, CFO, Wojciech Skalski, Head of Financial Accounting and Control Division. Before we start, I would like to remind you that you can ask questions via the link provided online and also you can send emails to my email address, The presentation we will discuss today is available at the website of Santander Bank Polska. And now let me hand over to our CEO. Good morning. Welcome at the presentation of the non-audited financial results after the fourth quarter of 2024. I'd like to highlight that those are preliminary data, while the full Audited report for 2024 will be published on the 25th of February. This was the first year of implementation of our new strategy. In each of the three pillars, which are total experience, total digitalization, and total responsibility, we've been working on strengthening our market position and our brand. We will continue supporting our customers We will keep taking care of our stakeholders and we will also keep building value for our shareholders. Last year we generated the gross profit of 7.3 billion and quarter for the gross profit was 1.5 billion. In 2024, the tax charges amounted to 2.8 billion zlots, including corporate income tax of 2 billion zlots and banking tax of 819 million. While the total regulatory costs amounted... And the tax regulatory charges totaled 785 million zlots, so we can see that our bank contributes a lot to the state treasury. In slide number seven, we can see the general operational data As a group, we provide services to over 7.5 million customers. The number of digital customers keeps growing. In Santander Bank Polska alone, we have 6 million customers, and the growth in the number of digital customers is nearly 8%, and mobile banking customers grew by nearly 13%. Customer deposits grew by 11%, $232 billion. The gross loans portfolio grew by 9% to $180 billion. The assets grew by 10%. Customer funds totaled $256 billion and grew by 12% year-on-year. Slide 8. Key financial results. Net profit of the group for 2024 was $5.2 billion. In Q4 alone, the net profit was $913 million and was charged with additional legal risks connected with Swiss franc loans. The net interest income was $13.9 billion, up by 6% year-on-year. In Q4 alone, it stood at $3.6 billion, up by 1%. This is the previous quarter. Net fee income totaled 2.9 billion plus, growing by 7% year-on-year. In quarter four, it was 726 million and was higher by 2% when compared to the same period of 2023. Compared to the previous quarter, the net interest income paid at the same very high level. Total income was 17.1 billion plus, growing by Our capital position, as you can see, is very high in space. Return on equity was 20.4%. We can vote for excellent liquidity. The LCR at the end of December was 215%. Slide 10 to 12 show general information about individual segments, new products offered to our customers in 2024. So I'd like to go straight to slide 13, showing business data. We have 4.7 million accounts for individual customers, up by 4% year-on-year. In Q4, according to our estimate data, we opened 110,000 new personal accounts and policy letters. During the year, we sold mortgage loans worth $11.2 billion lots and in quarter for a loan, $1.9 billion lots worth of mortgage loans in quarter for a loan. Almost 97% of the portfolio was based on adjustable fixed rate and the total share of loans was adjustable fixed rate loans. And the entire mortgage loan portfolio grew to nearly 42% at the end of December. And as a reminder, in September, it was 39.5%. In Q4, we granted cash loans worth $2.9 billion. Up by 18% versus the previous year. And in the entire year, we sold... Cash loans worth 11.4 billion slots, up by 18% year-on-year. Investment funds, net sales in quarter four totaled 1 billion. Retail assets at the end of quarter four were 24 billion slots. And our market share, almost 11%. In the SME segment, we've been developing dynamically as well. In quarter four, we opened almost 19,000 business accounts for SMEs. And in quarter four alone, we opened over 69,000 accounts. In quarter four alone, we sold loans to SMEs in the total amount of $1.3 billion, and in the entire year, $5.3 billion. Lease sales in 2024 was 4.2 billion slots, which means a growth by 11% here on your business and corporate banking. Credit volume grew by 12%. Credit limit sales grew by 16%. As you can see, we have also a double-digit growth in FX income. In trade finance, we grew by 25% year-on-year. Derivative transactions, very good growth. ECM services, also an impressive growth of 63%. And now the balance sheet. Let's start with loans, slide 15. I have already mentioned the growth in gross loans at the consolidated level by 9%. and 1% quarter-on-quarter.

Slide number 16, customer funds, deposits. They grew by 11%, and at the end of December, they totaled $232 billion. Comparing that year-on-year, the deposits grew by $22.7 billion. Profit and loss accounts, slide number 17, net income and margins. Net interest income totaled 13.9 billion dollars, growing 6% year-on-year. Interest income increased by 4%, while interest expense decreased by 1%. In quarter four, the net interest income totaled 3.6 billion dollars, growing by 1%, while the interest income grew by 2%, while interest expense increased by 4%. The net interest margin, annualized on a quarterly basis, was 5.27% in Q4. Slide number 18 outlines our net fee income. In the whole year, that was 2.9 billion zlot, and that's the growth by 7% year-on-year, including the growth driven by the activity of our clients in Transaction fees, credit fees, insurance fees, which grew dynamically by 9%. It's worth highlighting that we did it without growing our fees and charges. And that reflects how active our clients are. In quarter four, we continued earning high net fee income, just like in quarter three. Slide number 19. Income. Total income is was $17.1 billion and that was the growth by 7% year-on-year. If we deducted the effect of the so-called payment holidays, then our total income grew by 8% based on our preliminary data. Operating costs. Waterfall showed that we are really effective and the Total costs in 2024 were $5.1 billion. That was driven by high contributions to the banking guarantee fund, inflation, salary reviews, and a higher cost of services. Staff costs increased by 6% year-on-year. Administrative expenses, as we deduct regulatory expenses, they increased by 6%. The operational effectiveness ratio, that is cost-to-income ratio for the group, is at 29%. And for the bank itself, it is 28%. Provision for loan losses. The net balance was $983 million at the consolidated level. And in the quarter four alone, it was $75 million lost. The cost of risk in quarter four were approximately 60 basis points. And this balance of provisions after four quarters was lower than recorded in the previous year by 14%. And that's the effect of the good credit quality that we've been witnessing. In 2024, we sold debts worth more than $2 billion, which gave us the gain of $248 million. And that's the impact on the gross profit. In Q4, we sold the NPLs worth $831 million with the gain of $99 million. The key risk indicators remain at a satisfactory level in our opinion. The non-performing portfolio is at the phase 11. It does not account for more than 4.4% of the whole portfolio. In quarter four, we updated our parameters for calculating provisions. And this, thanks to the good quality of our loan books, actually reduced our net balance of provisions. Slide 22. I've already mentioned the regulatory costs, taxes, And the total burden related to that, and that was 3.1 billion in 2024. Tell me knock the year by number 23. Let me just highlight the costs related to legal risk across the year. That was 3.1 billion. In quarter for alone, that cost was more than 1.4 billion. So wrapping up, I think that 2024 was a really solid year for us. We continued growing our net interest income and fee income, and they continued nicely. They grew nicely. And I'm really happy with the growth in fees driven by the activity of our clients. Transactional fees, credit fees, insurance fees, which grew by 9%. Let me highlight again that we... Biggest fees grew without changing, raising our fees and charges, which reflects how active our clients are and how good relationship we have with them. When it comes to our business, I'm also happy with our performance. Our market shares grow and they grow profitably. And this is really something that bodes well for this year and thereafter. quite often ask us about our credit volumes. And as I've said, we are happy that we are growing in a profitable way, dynamic way, that we outpace the market, that we do not do it at the cost of higher risk. And we have the profitable growth both in loans and deposits. Thank you very much. And now the floor is yours. We've already got some questions.

We received 20 questions about numerous issues, Swiss francs, macroeconomic situation, margins, net interest income, capital dividends, loan provisions. So if anyone of you wants to ask any questions referring to those issues, please wait until we answer and then ask questions if our answers are not satisfactory. Okay, so maybe let me start with the questions about Swiss franc denominated loans. With the current status, I'll tell you about the settlements, claims, maybe let's start with the settlement in our final report and in our flash data we can also see that at the end of the year we made 13,000 settlements pre-court and those made after the case was filed with the court. And in Q4, we had 3,700 settlements. We offered settlements to 98% of active customers, including those customers who filed claims with the court and those who did not. We will provide the full data in our financial statement, but according to the data at the end of December, we can see that the group received claims totaling 7.9 billion lots. When it comes to the number of claims from customers who repaid their loans fully, We will provide the exact data in the report, but for the time being, it's 15%.

Okay, so that's it about...

with Franks and free credit function and VBOR. When it comes to VBOR, the growth in the number of cases filed is minor. All the decisions, rulings of the court are favorable to the bank. In the majority of cases, those decisions have been legally binding. And the request for securing the claims has been also rejected by courts, so the courts are quite uniform in their interpretation and decisions. We know that questions were filed to the European Court of Justice as well, but we cannot see any grounds to challenge the board agreement. The public side also expressed their opinion openly in the same manner they cannot see any grounds for challenging legal agreements and it was expressed also in the position filed with the European Court of Justice in October when it comes to free credit function we can see high activity from customers who buy consumer liabilities. Another portion of questions was filed with the European Court of Justice. For example, about the proportionality rule in Poland, we know that minor breaches even can be challenged. There are also questions about the activity of the entities that buy liabilities and whether they act legally.

But as I said, we do not have a lot of cases like those.

Well, when talking about funds, there is a question between the reported cost of risk today and the level of provisions in the current report. Well, the decision on the review of provisions parameters in December, the impact was roughly 1.2. The rest of the difference relates to legal costs, court costs. And we had this difference. So we can move on. And macro. There is a question about the impact of the impact of the impact from the EU. We've been assuming that the lending growth will accelerate in 2025 and this will be primarily driven by in the sector of businesses, corporate and this of course will be driven by the acceleration in investments. in 2025. And this is backed by the European funds. I cannot tell you how much percentage points will be counted by the funds flowing from the EU, but there is this interconnection. The acceleration in the corporate loans segment from 5% to roughly 7-8%, based on our performance, you can see we are growing faster. And the total growth of loans across the economy will not be that quick because we had this one-off, that is the 2% loan impacting the mortgages in the first six months of 2024. So there might be some slowdown and we assume that the quarterly sale should be more closer to what we saw in the latter part of 2024. And that's quite obvious. And referring to the next question, that the loan for the start program will not be continued and what will be the impact on our sales of mortgage loans. We assume that. So we expect the volumes, as I've just said. And there is a question about corporate loans. How did you manage to grow once again in corporate loans above the market? Well, let me tell you that we did not just manage. It was a purposeful, deliberate strategy of our bank to strengthen our position in this area. And as you can see, we did our job well. Our corporate and business banking division performed well. I will not be revealing any secret of ours, how we do it to outpace the market and the growth. Now, of course, we try to grow with our existing clients. We propose them new solutions, but all the efforts that we've taken first to build the proper business model to review it, to build the strategy for the corporate market. This actually yields fruit. We have the momentum. We want to continue growing in that segment. It's a very interesting one. I think that we are becoming a leader, definitely a leader of growth. But we want to be a leader on that market when it comes to services to corporate clients. The other part of the question, but we didn't see any nervousness. We can also see that. Talking about balance sheet, there is a question about deposits. I will come back to that when answering the question about the margin. So maybe now a few words about the capital and dividend. There is a question referring to our capital surplus. Do we want to grow organically or in any other way? What will be the dividend paid? And there are some other questions related to the dividend. Our dividend policy is consistent. We think it's our duty to share our earnings with our shareholders. We haven't received an individual letter from the KNF. There was a general letter addressed to the market. Of course, we keep talking to the regulator and we will be seeking the approval for dividend payment. And with regard to capital, there is one minor question. What is the expected impact of the CRR-3 on the capital ratios, Wojtek, please? In the case of our bank, we will see a positive impact. roughly several basis points, and that refers to each level, Tier 1, Core Tier 1, and total capital ratio. Both on consolidated and standalone level, the impact will be similar. The key factor which stands behind it is because the credit risk requirement decreases because of a lower waste for denominating loans in foreign currencies, for example. And there will be a lower requirement for operational risk as well. Now let's move to the net interest margin and the outlook for the interest rates and then for margins and the sensitivity of net interest income to changes in interest rates. Now let me start. We expect that the first interest rate cuts will take place in the middle of 2025, in July. The scale of cuts will be roughly 100, 125 basis points, and the cuts ought to be continued, in our opinion, in 2026. And we realize that there is a lot of uncertainty. The market pricing changes quite dynamically. And we've been getting ready for the scenario. The question is also about the increase of our hedging quarter on quarter. Yes, we increase our hedges quarter on quarter. The share of fixed rates in our balance sheet, both for the customer and based on hedges, now we have that 50%. And we give you the figures, quarter and quarter, so you can see the regular growth. At the end of 2023, it was 32%, almost 40%, and now it's 50%. Apart from increasing the net scale of hedging, especially when the market reacts, the other rates are attractive. We are at a close peak of interest rates and of course we keep hedging our balance sheet and we supplement the hedges that actually are unwind and because we have some hedges with shorter duration. So we try to renew the maturing hedges and to actually enter into new hedges. Our sensitivity remains more or less the same The change of 100 basis points, the cut of 100 basis points, the net interest income sensitivity is in the order of $340 million. Of course, based on the fixed balance sheet and that's the difference in margins of roughly 0.15 basis points. But, of course, the interest rate cut will be, to some extent, neutralized by the growth in our balance sheet. And what else? And the positive for quarter zero. And the growth in margin in quarter four. As you can see, the mix of our balance sheet was as it was in quarter four. And despite the fact that there were no special offers for deposits, we still have that flow of deposits. Deposits are, of course, profitable. Maybe they give us a bit lower margins, but when we take the volumes of deposits quarter on quarter, at the end of December, we see a bit worse NIM than actually we have in the course of the quarter. So these changes were not material. And because the inflow of deposits was not driven by special offers, part of that actually will be stable, sticking to our balance sheets. We don't know to what extent, of course, what portion, but definitely some of that will stick to our balance sheets. I think I exhausted the questions related to NIM and NII. And there is a question about long-term funding ratio. Okay. It's 42.8.

Operating cost in 2025. Well, we cannot provide you the detailed data, but the discipline we showed in quarter four we want to maintain it. We want to keep our income over 30%. And as the history shows, we will be heading towards total cost around the level of inflation. We do not want to exceed that level. And then there are questions about the cost of credit risk. Why the cost of provisions was low in Quotas 4, a few questions about that, and the question about guidance for 2025. Well, I tried to explain that, but maybe Maciej will be better, so I would have to reiterate what Michal said in quarter 4 well it happens every quarter but in quarter 4 we sold NPLs so we do it each quarter but last time we sold more over 800 million slots and the second element is the review of risk model parameters in quarter four and used a very good quality of the portfolio. We improved the parameters and it resulted in 106 million of savings as far as I remember. So those are two significant things and the third one, the most significant, in general, Not only in quarters fall, but in general, we can see that the situation of our customers and the macroeconomic situation is very good and we cannot see any significant cases that would be in distress and the quality of the portfolio is good. Will the situation be maintained in 2025? Well, the macroeconomic situation suggests so. So we cannot see any significant changes for the nearest months when it comes to risk factors. But there is high uncertainty around the situation of exporters. But When it comes to the macroeconomic situation for 2025, it is favorable. The cost of credit risk will be at a similar level, maybe a little bit higher. But looking across the cycle in our strategy, the band between 70 and 90, in the current situation, we will aim at the lower end of this range. Do we have any more questions? We have a question about the coverage, 127%. Coverage of the active Swiss franc loans portfolio, 127%. I don't know if we answered the question about the capital, namely the significant level of capital buffer and what you about the dividend now maybe let's say a few words about the organic growth well we will focus on organic growth because we do not have any plans for growing in any other way than organically we showed that we can grow in a profitable way and organically and this is our main line of growth as I said we want to maximize payment of dividend we are in dialogue with our regulator and we want to focus on organic growth and As we can see, we are able to do that in a profitable way. Agnieszka, do we have any more questions? In the meantime, no, I have no more questions. Okay, so if you have any more questions, feel free to contact us. And let me remind you that in a few weeks, we will publish the annual report with all the information. And now, thank you for today.