Santander Bank Polska Sa

Hi, ladies and gentlemen, my name is Agnieszka Dobrzycka. Welcome to the presentation of financial results of Santander Bank World Cup in the first half of 2025. I'm here with the CEO Michal Gajewski, CFO Maciej Reluga and Wojciech Skalski, financial controller. Before we start, let me remind you that throughout the course of this conference, you can send out questions using the link online or you can send them directly to my email box. The presentation is available on the website of Investor Relations at Santander Bank Polska. Thank you, Agnieszka. Ladies and gentlemen, welcome to the presentation. To begin, I'll address two transactions from the last quarter. I'll start with the largest one, announced on the 5th of May, the planned sale of a controlling stake in SBP to the ERSA Group. Of course, this is subject to regulatory approval It will most likely be completed around the end of the year. This is one of the largest transactions in the history of the Polish banking sector. We see it as a great advantage for customers. When this transaction is closed, we will become part of the one of the largest groups in Central and Eastern Europe. As the group has a deep understanding of our region's realities, and like ourselves, they focus on building long-term relationships and delivering the best customer experience. At the same time, they invest in innovation, digitalization, and mobile services. A major advantage of this change will be enhanced international cooperation and the ability to support our customers in newly and highly promising markets. We will offer new opportunities while continuing to ensure the best possible experience for our customers across all business lines. I want to emphasize that the shareholder change process does not affect our current business operations as reflected in our results. We continue to follow our strategy, operate under the same principles, the same team, and the same mission to help customers prosper. Regarding the name and logo change, it's too early to discuss this. but you know we have experience in managing such projects and when the time is right we will inform you. We will carry out this process efficiently respecting the needs of our customers and our employees. The second transaction announced on the 16th of June is the sale of 60% of SCB shares to the Santander Group. All details were provided in the public current report. And this transaction affects the presentation of our financial results for the first half of the year. SCB is presented as discontinued operation. For the purpose of this conference, I will focus the The management report and financial statement include figures for both continued and discontinued operations. However, for the purpose of this conference, I will focus primarily on the figures for continued operations. That is excluding SCB. Moving on to the results. In the first half of the year, we generated $4.12 billion in gross profit. Our tax and regulatory charges amounted to $1 billion. 1.8 billion. The group's net profit for the half year was 3 billion 74 million with the second quarter alone that was almost 1.4 billion. In the report you see discontinued operations and it shows the loss of 378 million and this includes FCB's results and the deferred income tax related to the sale of Santander Consumer Bank. Including this change, the net profit was $2,752,000,000. And in quarter two alone, that's $1,018,000,000. Let's move on to slide seven with general operational data, where we remind you that we serve over 6 million customers. The number of digital customers continues to grow. We now have 3.9 million. The vast majority of whom that is 3.2 million use our mobile app. The number of digital customers has increased by over 6% year on year, and the mobile app users by more than 10%. At the end of the first half of the year, customer deposits totaled $221 billion and the gross loan portfolio stood at $163 billion. Total assets amounted to $315 billion. Now, slide 8 with key financial results. And again, reminding you that today's conference covers financial results as presented in the financial statement that is excluding discontinued operation. So again, slide eight, the group's net profit from continued operations in the first half of the year was 3.1 billion. In the second quarter long, It was nearly $1.4 billion. Excluding discontinued operations, net profit for the first half of the year was $2,752,000,000. And in Q2, that was $1,018,000,000. Net interest income reached $6.35 billion, up 7% year-on-year. In Q2 alone, that was $3.4 billion. Compared to the previous quarter, net interest income remained at a similar level. Net fee and commission income amounted to 1.47 billion, an increase of 6% year-on-year. In Q2 alone, this figure was 744 million. Total income reached 8 billion, up 8% year-on-year in Q2 alone, It exceeded $4 billion, a 2% increase quarter-on-quarter. We enjoyed strong capital position. Return on equity for continued operations was 21.9%. The group maintained excellent liquidity with a consolidated RCR of nearly 200% at the end of June. On slide 10 to 12 we show you new offerings introduced for customers where we go across our business segments. So let's move straight to slide 13 about selected business data. We start with retail banking. We manage 4.8 million personal accounts in PLN. That's 2% more than a year ago. In the first half of this year, we opened 212,000 new PLN personal accounts. Cash loans. We issued 6 billion slots in cash loans in the first half of the year. That is 9% more than a year ago. In Q2 alone, we issued 3.1 billion slots. This marks a record-breaking quarter for cash loan sales, which we're very pleased about. The value of newly granted mortgages was $4 billion loss. In the second quarter, it was $2.4 billion, and that's less than last year. But let me remind you that we're comparing against a very high base due to the safe mortgage 2% program. However, on a quarterly basis, as we're showing in slide 25 in the attachment, we're seeing a rebound in the market, and this is the best quarter for mortgages in the past four quarters. Similarly to last year, 97% of new mortgages were granted at an adjustable fixed interest rate. The share of fixed rate in the total portfolio reached 45.9%, and in March of this year, that level was at 44.2%. Now, net sales of investment funds. totaled 1.4 billion. Retail assets under management of TFC reached approximately 26 billion blocks. Our share in the market is over 10%. Let's move on to the SME segment. In the first half of the year, we opened 36,000 new business accounts. Q2 alone, we opened 16,000. The values of loans granted to SMEs in the first half of the year was 2.7 billion. Leasing, very good performance. Sales reached 2.4 billion. That's up 80% year on year. Business and corporate banking. Sales of new credit limits rose by 11% year on year. Credit volumes increased by 9%, while FX volumes by 12%. In corporate and investment banking, the revenues from capital market services doubled, while the revenues from treasury transactions were 17% higher year-on-year. It's important to say that we received the award for best investment banking pilot at the Euromoney Awards for Excellence And so we were recognized by an international panel of experts. They named the best investment bank in Poland. We have a very short position here.

You have different segments contributing to that, including the distant teenage business. In the third half year, the gross loan portfolio stood at $163 billion. In slide 25, we are showing that we continue really good sales of cash loans, SME loans, as well as really good sales of mortgages. Slide number 16, customer funds. I've already mentioned the deposits of $221 billion. Investment funds stood at $26.5 billion, growing 20% year-on-year and 6% quarter-on-quarter. Overall, customer funds, that is deposits and investment funds, totaled $247.5 billion. Transparency net interest income and margin, we are moving to the profit and loss accounts, The net interest income totaled $6.4 billion, growing 7% year-on-year, while quarter-on-quarter, the net interest income remained flat, growing only slightly. Net interest margin for quarter-two, annualized on a quarterly basis, as you know, for continued operations, totaled 4.89%. Just for information, we are showing the margin for both continued and discontinued operations. It is 5.0.4%. Net fee income, really good information here. The net fee income totaled 1.5 billion dollars, growing 6% year-on-year. And the growth against the previous quarter was 2%. So we see good pace of growth, and we have the continued growth trend, especially the fees for asset management, insurance, ethics, and brokerage fees. Those are really good results. On a quarter-on-quarter basis, we show good performance when it comes to ethics fees, but also card fees and brokerage fees as well. which grew quite nicely, quarter on quarter. Let me highlight, and it's worth stating that, that this is all driven by the bigger number of transactions done by our customers. We did not introduce any changes to our schedule of fees and charges. Slide number 19, income. I've already mentioned that eight billions was growing 8% year on year and 2% quarter on quarter. Let's move to slide number 20. In the six months, these costs totaled $2.5 billion, driven primarily by high contributions to the banking guarantees. If we exclude regulatory costs, the total costs grew by 7% year-on-year, of course driven by inflation, salary increases, and the changes in service prices. Quarter-on-quarter, the growth was 1%. Compared to the previous quarter, total costs, excluding regulatory costs, increased by 1%. The pace of growth in quarter-to-loan remains low, and if we look at the cost-to-income ratio, it was 30.9%. And a year ago, it was 31% below in major change. 2021 loan loss provisions, the net balance of provisions for expected credit losses at the consolidated level, excluding some consumer, was $243 million. A year ago, that was $448 million. This decline is the effect of the high base that we are comparing to. Just to remind you, in the first half of 2024, the bank extended the criteria for classifying loans to Stage 2, which led to a one-off impact on the net balance of $124.5 million. We have a good effect of continuing good quality of our loan portfolios. We have a stable level of past due payments. We do not have a growth in the new NPLs. And we have a continuing large good level of recovery. All of that translates into the cost of credit risk, which is now 33 basis points. The key risk indicators remain at sound levels. The NPL share is at a safe level of roughly 3.9%. There were no one of major events in quarter two that could impact the net balance of provision. We reviewed the parameters as we do on regular basis in line with IFRS 9, and these are the parameters that we used for calculating provision. As you can see on the next slide, we sold non-performing portfolios worth $301 million worth. And that gave us the gross profit of $60 million. The banking tax and regulatory costs, I've already mentioned them. Out of the gross profit that we earned in the amount of $1.9 billion, the regulatory and tax levies stood at $700 million. And in the first six months, the gross profit was $4.1 billion, while the liabilities totaled $1.8 billion. Now, the summary on slide 23. Our performance after the first six months was down, and we are showing the net profit of $2.7 billion. also show the impact of excluding SCB from our group. And this loss on discontinued operations totaled $327 million. This results, first of all, from the way we recognize the deferred tax assets of $400 million. And this is the effect of selling some consumer bank shares. All the details were presented in the investor presentation that was published along with the current report in June, once we announced the transaction. Coming back to summarizing the six months, I'm happy with the date which confirmed the increased activity levels of our customers. This is reflected by the growing number of digital payments, the most payments, the big payments. The number of accounts we have is growing. We have 7.5 million accounts, including 4.8 million personal accounts. We are really happy with our net fees, and that's been growing quarter on quarter. Also, our net interest income improved. It's higher by 7% than a year ago. This reflects the activity levels and good condition of our clients. This also reflects the sound quality of our loan book and low level of provisions. When it comes to our business operations, we already mentioned the dynamics. And that all fits into the good trends. And we can see that it is going to continue in the quarters to come. And now let's move to the questions and answers session. Maci, if you could, please.

Let me start with Frank. We have two questions about that that could be easily addressed. What is the outlook for charges related to Swiss, to FX mortgage loans and now also provisions, when do you expect the provision cycle to end? So let me first highlight that we have the adequate level of provisioning. So our models are regularly reviewed by external independent auditors and the levels we're presenting now after the first half of the year is adequate. It is aligned with all the regulations and our internal models. Let me remind you the coverage ratio for our portfolio is 148%. Now the outlook. I don't want to enter into detail because as I've said, we have the right level of provisioning. We continue our settlement program. It's better to settle than to sue both for the customer and for the bank. And we continue to remain in that path. So strictly speaking, if we were to adopt provisions, we would have. Now, questions about the political landscape. What implications do you see from the latest presidential elections on the monetary, fiscal, and regulatory outlook for the Polish economy and the bank? And another question in the area, first, Report indicates discussion of additional bank taxes in Poland. What is your outlook on the already proposed regulatory actions and its impact on Polish banks? Well, starting with taxes, I don't want to comment on media speculation. We're working together with the Association of Polish Banks. The discussion is ongoing. However, we're not commenting on the press releases. It's really difficult to say and to talk about the impact. We have, our stance has been firm. We have the most burdened banking sector in Europe. and the world probably. So every time we have an earnings call, we always make reference to the regulatory burden. They are very high. So any additional charge will only have a more impact on that.

When it comes to politics, I wouldn't like to comment on that. I wouldn't like to refer to any political issues. I can only say that our new shoulder has the experience. They've experienced some political But what is most important for us is economics, economies. And our forecasts are really optimistic going forward. And we will come back to that in a minute, to the growth. But there is one more question, maybe, Wojtek, you could answer, with regard to the consolidation of some kind of consumer banks. What effects can we expect anything special in the second half of the year when it comes to sometimes consumer boundary consolidation? We actually commented on that quite a lot in our current report, as our CEO mentioned. I don't know what was the question driving at asking about special effects, but Referring to the information we published on the 16th of June, just to remind you, we still have to recognize income on that transaction if all conditions preceded are met, and that's 3.1 billion dollars. And it's a consequence that all the different tax assets will have to be recognized, and that's in the order of 180 million dollars. And that's a consistent in what we put in the appendix to the current report of the 16th of June. There are more questions about the volumes and in reference to our earnings calls, the quarter before when we were talking about the outlook for growth in corporate loans in the upcoming quarters. Um, what would be the supportive factors and what are the specific sectors. Well, the first quarter was when we had this growth at a smaller level, but starting from quarter three, 2024, we cannot complain about the growth. Of course, second quarter was a bit untypical and compared to year on year, um, And you had that on slide 15 for continued and discontinued operations. And you have some details there that confirm that both in SME, investment, corporate banking, the growth are going to be continued in quarter three. And our CEO has mentioned that before. I would say the growth are in all segments of the bank. And they're also seen across the sector. the demand that's been building for corporate lending. I don't know whether we could pick any specific sector because it happens across different sectors, but in quarters to come, looking beyond 2025 to 2026, definitely the sectors related to energy will be important. In 2026, we expect the solid growth in loans by 7% year-on-year Overall, the economic growth will be driven primarily by investments. It already is happening now. This will be conducive to loans. The lower rates will also support lending. We are optimizing, and let me just mention the loans for individual clients. The acceleration mentioned by the CEO in new sales by 2025 Really good performance when it comes to cash loans, and it bought 12 for us for the second half of the year. Moving on. There is a question, of course, about NII and NIM. And the question starts with the reference rate at the end of this year in 2026 and the implications. What is the sensitivity of NII and NIM? And so on. something with the reference rate, we expect two more cops in September and November by 25 bits. As we all know, the inflation was better than expected. And we will see that we will be close to the inflation target. This will actually support further cuts, and at the end of 2026, we expect interest rates in the order of 4%. Our sensitivity, we gave you information quarter on quarter. This year, it is worth mentioning what part of the sensitivity results from discontinued operations. We were saying that it's in the order of 300 million, then less than in quarter one. In the half year, this is $282 million for the group, and 10% of that is accounted by SCB. So on continued operations, the sensitivity is $250 million. And I'm talking about the sensitivity to a cut of hair by 100 bits. And that's the effect for 12 months, assuming the fixed balance sheet. And this sensitivity was reduced in previous quarter. Every quarter, I provide you the share of adjustable fixed rates in our portfolio. And what I have in mind are those sanctioned at the fixed rate and those hedged by swaps. And that's more than 53%. That's more than $500 a year. And that's really it.

We have a question now about the capital. Nihao, we have a question. Can you explain the negative effects on the capital in Q2? Well, if you look at the ratios, After the 30th of June, Q1 1351, and TCR 18.06. So there was a slight decline, and this is due to the increased level of the risk-weighted assets, quarter over quarter, that's around 3.6%. Total funds went out, went up by 150 million. We grew our business. This changed the level of the required assets and we look at the retail and the business segments. The required assets were also pushed by the growth of business and corporate banking. It was also impacted by the synthetic securitization transaction. The minimum levels are still met. We still have We still go much beyond the required TCR at the bank level. That's 10.3 billion above. So we're totally secure. And the decline was down to the increased level of the risk-weighted assets. And that was related to our ongoing business across customer segments. Talking about the capital, something that's important, mentioned by Voltech, when we released the current report, we were talking about the pro forma impact on the data as at the end of 2024, what the consolidation would mean we were talking 137 on consolidated data we're showing you on slide 8 what it would look like at the end of the year and we're showing you the difference now the last question that we received does the bank plan a provision on unauthorized transactions of customers, as seen yesterday in Lenin's case, and also provisions for the free loan sanctions. Well, you should read the note to the financial statement where we discuss the risk. We have about 25 losses where the bank is defendants. relating to the free loan function. We're monitoring this at the level of the entire market. We're also looking at the situation in our banks. The FedEx so far has been favorable to us, so we haven't made any portfolio provisions in that respect. But we look into each individual case. The bank has a $2 million worth of provisions for individual cases. And for us, this is adequate for this type of work. I don't see any more questions. Did we get anything in the meantime? Yes, I have a question. We have a question. Can we comment the trend underlying loss of provisions including discontinued operations? The credit provisions look low for this point in the cycle, it would be interesting to know whether you think that this level is adequate. And generally, what do you think about loan availability and the default rate? in the portfolio. Do you see any negative changes when it comes to the outlook for the credit portfolio? Sorry, this was my simultaneous translation of that question. Well, I will take that. We're very happy with the good quality of the credit portfolio. We have an Excellent. Our customers enjoy an excellent standing. They do very well with the economic landscape at the moment and they prove resilient to the development. We see improving financial performance, improving flows of our customers. We continue to review and update our models. Our models are regularly reviewed by our auditors and those models are also resilient and they've proved adequate in classifying customers. Our assumptions are positive when it comes to economic development. No one-offs. We're not expecting any major one-offs in the following courses. So we will continue this good level, and this, of course, impacts the level of provision. We have one more question. 53% of portfolio is hedged. What is the timing of that hedging? And we're talking about interest rate hedging. About two and three years. That's all the questions we've received. OK, so thank you very much. We don't have anything to add. Thank you very much and have a good day and have a good summer.