ING Bank Slaski

Good morning ladies and gentlemen, welcome. We're presenting the results of the first quarter 2022. being very straightforward as everybody can see what the results are. So I think that our results do not generate any excessive doubts or any unexpected emotions. But let me offer you a couple of comments and then Bożena Graczek will lead you through the figures and then there will be time for the Q&A session. My first comment, we have always underlined that the aim of the bank in the economy with its mission is to provide the stability. Banks should be stable. And I think that the results after the first quarter show our stability. Banks are here. to offer a stability in order to stabilize the situation in the economy, specifically in the periods of strong tendencies connected with the unpredictability. So banks are here to offer stability. And we deeply believe that the events of the first quarter accumulated uncertainties and unforeseen events And under the operating scheme of banks, the banks in Poland, including our banks, the banks have implemented the element of stability in the environment around us. The banks are here or are the intermediaries of the monetary policy signals to prevent the cyclical events in the economic situation leading to predictability and the proper operation and functioning in the economic system. Inflation is the major challenge economically that we have ahead of us. It's not a civilizational challenge, but economically it's the major challenge. How can banks transmit the signals of the monetary policy? And to what extent is the monetary and economic policy, to what extent are they coherent? You need to judge. However, in my judgment, we do not address inflation in a coherent manner. What's more, I would say that we signal the society stating that inflation is unavoidable and that its growths are unavoidable in the months to come. We've seen such signals already, for instance, end of last year, but quarter one this year made these signals and unpredictability unprecedented. The war and the Russian aggression in Ukraine despite of what many people say, is an element of surprise. The use of wall or the use of economic elements in order to wage the war is visible. War is always an economic conflict, but the cause of the war in Ukraine is an obvious surprise to many, and specifically, it deepens the wave of uncertainty. How can we combat the signals of uncertainty in the economy? Well, we need to eliminate those elements which are here, which are possible to be eliminated in order to reduce the uncertainty level and achieve the greater extent of stability in the eyes of the basic entities operating on the market, including those who steer the economy. So far, there have been too many signals like that, and at the time of the outbreak of the war, they overlapped, and that's why the confusion, the confusion which produces many assessment evaluations, which according to me, are not really related to the management, to the mitigation of huge inflation tensions in place. In this last quarter, on the basis of the war, the brutality, violence, and our being the border country with the war-aging country, we've already seen panic. This panic was visible in the shape of the cash panic at the end of February, beginning of March. The number of transactions and the volumes of transactions, cash transactions, ATM payouts and cash registers payout. They were huge, much higher or comparable and even higher than at the beginning of the pandemic. The reasons for this panic were Not that many, because the supplies of cash in any currency whatsoever were undisturbed, but the panic was there. So the level of the emotional pressure in our society was huge. Thanks to the collaboration, the banks, including the National Bank of Poland, coped with the problem. So the panic slowed down, calmed down, but still we have more cash payouts, which is probably not a signal of a panic. It has nothing to do with transferring funds abroad, It's the result of what we have on the market, so the hot money scheme. When the society believes that inflation that has impact on them directly, that this inflation is 12% and that it's going to continue, the society thinks where to keep money and they search for places, for investments, where the value of my money can increase. So consumption spending is on the increase, investment in goods which are needed or not needed at all, but they are of interest among consumers. Decisions like that are accelerated. People consume more. That's also visible in the accelerated decisions on the loan repayment. That's what's clearly visible. That was already visible in quarter four, together with an increase of interest rates. First quarter 2022 is the same, and that will probably continue over the next quarters, two or three. So we have the inflation loop. The more we talk about inflation, the more it is in place with us. That makes the level of unpredictability grow, including in the banking sector. Given the situation, some beliefs that were presented in the programme of the Prime Minister, those were presented last week at the conference, they minimise a bit the unpredictability. being the reaction of monetary authorities and economic authorities. That's good news because we reduce some element of unpredictability, especially in the environment where they are many. The impact of those programs on the banking system, they are unknown. We can estimate the values, but we cannot be sure about the final result. The impact on economy, let me put it this way. We need to remember what's the aim of the monetary policy and what's the aim of the fiscal and financial policy. counteracting the sources of inflation. Can the monetary authorities impact inflation levels? That's debatable. That's a debate among economists and politicians alike, and it's not easy to measure. What's important is the fact that that as much as we can, we should limit the pro-inflation and pro-panic signals. I think that's the challenge that we're facing, and that's my appeal to you. So the limitation of the social impact of inflation for all those most impacted by inflation, by the cost of electricity or cost of food, cost of loan servicing, Yes, we support that. And this group should be supported. That's the obligation, social obligation of the state. If the state decides that the costs of this protection should be borne by banks, it's all right. But we shouldn't at the same time indicate or claim that banks are the source of inflation, which is not true. And the final comment. viable replacement. It's expected to a certain extent, because the definition of reference points should be applicable. But viable rates and future solutions, law-driven solutions, should not be challenged, in my opinion. What these changes will look like, we'll see. And we'll provide data. We'll provide background. We'll discuss. We'll strengthen the power of messaging. But in the current situation, the act of challenging the credibility of the banking sector is not a good approach. What we need is a pure regulatory rulings and approaches. Looking at the first quarter, which was very uncertain, I need to state that other elements of the stability in our system, the level of digitization, the number of electronic elements, loan granting, interest in loans, number of clients, they were not different than in the normal economic and strategic situation. repeat our obligation is to be stable and we remain stable the first quarter is the proof for that and the second quarter is going to continue that way of course we do not know the result of the second quarter specifically that we have some regulatory uncertainty which is difficult to take into account in our plans because it's unpredictable to us as well by nature that will be As much as I'm concerned, I would like to say it's good, it's not hopeless, but the major issue is the war and the suffering of people. The impact of war on economy is not clear, especially that it overlaps with other elements like like difficult supply chains that we face. So the transformation of the economy, production economy and service economy in Europe and in Poland is going to continue. We are optimistic. We think that emotions connected, economic emotions connected to the war, they will have a stabilising and mitigating effect. Of course, we need to continue focus on the war and its victims because the war continues. And let me express my thanks to our organization, our employees for this huge work on supporting those who suffered because of the war. What's ahead of us are challenges this year and next year alike. But we are still optimistic. We will cope with the challenges. Still, we need to reduce the number of unnecessary signals, unnecessary micropanic events, because the goal is always the same, the interests of our customers and clients. And it's difficult to generate healthy economy over a long period of time if we raise discussions on the basics, especially in the environments or communities which do not use figures. Talking about hundreds of millions of people who cannot repay their loans because of the increase of the reference interest rate of the NBP is too much. It's overdoing. It's harmful. Thank you.

Now let's hear some numbers. Good morning. A few comments about our financial results in Q1. Let me begin with the most obvious piece of information, our net profit, 793 million zlotys after Q1. It's 106% improvement year on year. As you can see in the structure of our This is due to the improved result on commissions and net interest income. This has improved our ROE, and this is 17.5%. And a few words more after adjustments, it's 16.5%. Now the net interest income, the dynamic growth of interest rates and our dynamics of loans. It's 15% and 9% respectively. This has improved our net interest income for Q1. It's 20% growth quarter to quarter and 49% year on year. And as a result, our margin quarterly has increased by 55 basis points, reaching 343. It's worth also commenting on what's happening in the structure of net interest income and expenses. and the impact on our net interest income and the macro cash flow hedge strategies. I think you know that we have IRS transactions, accruals. And in this strategy, when interest rates were falling, the macro cash flow hedge has a positive contribution. When the interest rates are rising, it has a negative impact. In Q1, we still have 124 million net income that have contributed to the NII as part of the macro cash flow hedge strategy. As you look at it historically from the moment the interest rates started rising, this contribution has been going down quarter to quarter. The structure and the strategy influences costs or expenses and income. You can see it particularly well on the top graph, slide 11, where our cost of financing, in spite of rising interest rates, has improved as a result of the macro cash flow hedge strategy directed towards liabilities. And it also influences the profitability of assets and net interest income. I think you can also see the impact of the pricing of IRS in our revaluation provision. It is going down, of course, and it's about the pricing of NPVs of all financial flows based on profitability curves during the application of the hedging strategies. So you can see that the valuation has gone down both in Q4 and Q1 of 2022. And I think in this situation, it should be obvious that the impact of net income from macro cash flow hedge on our result will be going down as time passes. I would also like to say that our macro cash flow hedge strategy is something that we're doing consciously. It's how we are managing risks in our ledger. And it's not about optimization in the short term. We are working on stabilizing our results in the medium and long term. I would also like to say, and you have probably noticed it already, that from the end of April we have increased the interest rates on our accounts four percent, up to 200,000 zlotys on the account. The fee and commission income increased by 25%, 534 million zlotys quarterly. As you can notice looking year on year, this has been allocated to foreign exchange results, a 47% growth year on year. And from quarter to quarter, we are continuing to see rising volumes and transaction activity of our clients, both in the individual and corporate sector. This is about the value of transactions, which are rising very fast. A similar development in the card result, 49% increase year on year, and this is also a result of the activity of our customers and clients. We're noticing the rise in the numbers of cards issued, but also in the current inflation circumstances, the values of transactions is going up. Specifically, in corporate, we are seeing a major increase of commission from the granting of financing. This is a direct result of higher demand for loans among our clients from this segment. We are also seeing 26% growth of fees from insurance. This is due to the rising portfolio of mortgages, and the account maintenance fees, 13% growth year on year. in consequence of the rising number of accounts in the corporate sector. Although I think here it's also worth commenting that particularly this line of our fee and commission income will not continue to grow that much in subsequent periods. We already mentioned that because we have a negative correlation between fees for account maintenance and the interest rates levels. The only negative, if I can put it that way, in terms of dynamics year on year of the fee and commission income was linked to the equity market, but I think that's obvious in the context of interest rates and the geopolitical situation. Now, with regard to our operating costs, 931 million zlotys. As with every Q1, this increase of cost is particularly visible with regard to regulatory costs, regulatory expenses, 38% growth, The contribution to the fund for resolution, also the guarantee fund contribution has grown 94% growth. And in this category, you also have the payment for the Polish Financial Supervisory Authority, the KNF, 22 million zlotys, 15% growth year on year. With regard to our own expenses, the dynamics here year on year was 6%. We are seeing a rise in IT expenses, and we've already discussed that many times. This is due to all sorts of projects that are underway, also investments in our IT infrastructure. As part of the costs of operation and management in Q1, you also have additional costs related to our grants to Ukraine, 6.5 million zlotys in Q1. Let me also refer to our communication after Q4. From the 1st of April 2022, we have increased the remuneration, the payroll in the bank. This ties in with rising inflation, and I think it's worth mentioning that in 2021, Payroll at the bank did not increase, so this growth takes into account the period that elapsed between previous pay rises at the bank. One other comment you may want to ask about it. In this quarter, for the first time in some time, we have noticed a drop in FT's, 85% We are outsourcing certain 85 units. This is a result of outsourcing that we've notified you about earlier. Cost of risk. 151 million, you can see it on the slide, 56 million in provisions for macroeconomic changes, 36 in retail banking, and 19.5 in corporate banking. That's how it adds up to 55.2 This is a result of the revision of our assumptions. The impact this quarter is visible in relation to interest rates particularly. In the results of Q1, we have 9 million zlotys profit from the sale of corporate loans. Perhaps one other comment related to changes of models. You can read it from our quarterly report. This applied to a mortgage portfolio on the one hand, considering how quickly inflation rates are rising and how dynamic are the growths of interest rates compared to the period when we've been looking at the indicators. So we've added additional conservative element to our modelling to reflect the correlation between interest rates and the PD. indicator, which can be particularly relevant to mortgages. On the other hand, as part of annual backtest processes, we've identified a surplus conservative aspect of our model, and we've adjusted the model as well. And the overall impact is the additional cost of provisions of 18.5 million zlotys. In terms of the quality of our loan portfolio, you can see a lot of stability, very good results, very good indicators, no clear symptoms of the situation worsening in any of the segments. Of course, the share of loans in stage three is related to the NPL transactions that I mentioned before. Improvement in retail, particularly in the mortgage portfolio, can be attributed to the ending periods of classification for stage three people who've enjoyed grace periods as a result of government policy about capital adequacy our result here was 15.2 percent I think it's worth mentioning that you have 97 basis points of a lowering of this indicator. It is an adjustment of a historical indicator. 85 basis points as a result of Q1. A number of factors are to blame. You have the drop of Tier 1, the RWA, and this decreases the Tier 1 capital. And perhaps a few words of comment about the LCR indicator. It has gone down at the end of Q1 to 126%. As Brunon explained earlier, this drop can be attributed to the cash panic that happened in Q1. That's one factor. And another one is the rising obligatory provision as of the 31st of March, which has hampered our short-term liquidity by 3 billion zlotys. This increase was important from 2% to 3.5%. And another element that contributed to this indicator is the IRS transaction hedging that channeled through three to four clearinghouses. In Q2, this indicator will be considerably higher. March is a period where a lot of changes happened at the same time. I think that's where I will end my comments about the financial results and will be happy to take your questions now.

yes ladies and gentlemen let's move forward to questions i will try to group them according to the topics if possible or as much as possible so let's start from the balance sheet and the loans and i would combine two questions the first one do we want to make any extra comments as regards the repayments of mortgage loans versus what Bruno has just mentioned? And how do we see the loan market this year? And how do we want to operate on that market versus dynamics? I will start from the second question, our operations on the market and our approach to the market. Stability, that's number one. High activity, that's number two. So, growth is an element of our regular operations. That's why we attract clients, that's why we acquire clients, so that they use our services. So, I cannot imagine that our dynamics is any way to be lower. We want to follow the market dynamics in that matter. There are many discrepancies, but remember that the strategy of the bank is to function in a strongly decomposed portfolio of various loans, various products, various client needs. So in quarter one, you can see individual quarters. You can see that some of that portfolio grows slower and some other portion of the portfolio grows faster but the total of the portfolio in the bank is on the increase but the composition of that portfolio is strongly diversified and it changes over time. Advanced payments and early repayments, specifically mortgage loans, Yes, we can see an increase here. Early repayment, full repayment, repayment two-fold faster than normally. And I mentioned that during our conference about the fourth quarter, this practice continues. It's on the growth and it will continue in April. We saw it in April already. It's connected with this hot cash on the market. Since people truly believe that inflation is going to grow and the interest rates are going to be higher, we are again facing a situation where The acquisition of mortgage loans, although there are fewer, but we are still an important player on the market. This acquisition mainly goes directly towards the fixed rate loans. And we had the same situation two years ago when over 50% of our production was based on the fixed rate. Right now, starting from February, We again have a 50% share of mortgage loan following the fixed rate scheme. In April, it's been growing and the share of fixed rate loans in the production accounts for 66%. So when the clients can choose fixed rate for five years time or floating rate, well, we have it in the offer and clients can choose. Of course, clients make very decisions on the basis of the current level of the repayment instalment. And that's why also the fixed rate loans are on the increase. That's a structurally important element. And again, from the perspective of stability, we offer the choice to the clients, fixed rate versus floating rate. And we are pretty effective in that. It's all variable depending on the levels of increase of interest rates. But let me repeat, the share of fixed rate loans in the new production in April is 64%. The share of fixed rate loans versus the entire loan portfolio, it's 14%. We also have a significant percentage of loans which originate from Swiss franc loans and are, by means of the settlements, converted into PLN loans. And one third of these loans are loans with a fixed interest rate. It's not rocket science to claim that in the future this share is going to be only higher. Uncertainty is huge on the market. And the problem of Swiss franc loans is huge as well. We as the society various organizations and the society we haven't worked out this problem yet this problem the problem of swiss franc loans and very uncertainty they are still high thank you in the context of your answer brunon fixed rate loans, mortgage loans with fixed rate. What's our pricing? What's the difference between the percentage rates offered for fixed and floating rate loans? That mainly depends on the viable rate, three-month, six-month, and five-year viable rates. They are getting close and closer. The difference is at the level of several basis points, not percentage points, basis points. A few, a bit more than 10 basis points. From the perspective of the client, the cost of the installment is not that different among fixed rate and floating rate. But the provisions for the future, perspective of the household income, how much people need funds for some extra activities, that's also taken into consideration by clients. So that's why clients opt for a fixed rate loans. One more detailed question. any cases of rejecting an application to transfer a floating to fixed rate loan because of the too low credit worthiness? I don't know whether we are capable of answering this question here and now. It's difficult to answer that question. If somebody is in trouble already, then the form of conversion will not change much, truly. So if somebody is under the restructuring process already, it's reasonable to claim that there will be no option to switch between the floating and fixed rate. But as of today, it's clear and obvious that the number of people with disturbed relation between their income and repayment isn't increased, but still the number of such cases is not high. And the bank has its conservative approach to evaluate the creditworthiness of its borrowers, which has an impact on the quality of the portfolio, as you can see. But as of today, we do not see any major statistical problem. Of course, we are getting ready to the growing numbers of entities of customers facing problems with repaying their loans because we have a an increase of inflation and interest rates, and these are significant growths, and the situation of clients and customers is changing as well. But as of today, the problems occur where there is an increased burden connected with interest rates, but also some additional events happen, like death, divorce, disease, loss of employment. Statistically, they follow the schemes. It's just the increase of interest rates that fueled up the situation. I will come back to one topic that is pretty symptomatic. Talking about millions of clients who face difficulties with the repayment of mortgage loans because of the growth of interest rates. I do not know where these figures come from. These are not facts. Somebody is interested in fueling up the emotions. purely an emotional game. It's fake news. And the dissemination of fake news in the situation that we are in, that's generating panic. So someone who does things like that, someone who makes such claims, should know that they would bear consequences and the responsibility for what they do. You mustn't do it. It's time that social media and different fora, NTV, In all that sources, people should feel the responsibility for their words. And please refer to figures and numbers. Take a piece of paper and a pencil, check the figures. They are publicly available. Everybody knows them. Everybody has access to them. Note them down, calculate. It's time for being responsible. Responsibility is the word. Please be responsible. Thank you for that comment. And to close this topic of mortgage loans, one more short question. Is there a difference in the size of the portfolios as regards the loans granted in 2021-22 versus the rest of the portfolio? Well, it doesn't work that way, ladies and gentlemen. Each portfolio has its characteristics. That's what modeling is based on and big data are based on. We have portfolios and we arrange these portfolios into packages depending on the date of granting and other elements describing the client, describing the borrower. And each product, from the perspective of credit risk, excluding the fraud elements, because they can disturb the picture. But if we eliminate the fraudulent element, then in every single portfolio, we have a certain scheme of activity. And the quality of the portfolio, especially if we have a long-term portfolio, We face very certain circulations and certain characteristics. So drawing conclusions today on the quality of the portfolio that was produced in 2021, it's premature. It's too early. According to the old learnings, if the loan disintegrates over the first six months or nine months in the old times, that was classified as fraud. So come back to the basics. It's our profession, and we need to draw conclusions. And all historic analysis shows that the period of three to five years are needed to see the quality. Yes, I know your intentions, people. contracted their loans at certain conditions, and now there is a huge increase of their installments. But please remember that there are some buffer elements incorporated there. An increase in the interest rates is not the source of inflation. Inflation is easy transferable. So if your costs grow, you can easily transfer these increased costs to the next elements of the chain. Plus, the levels of inflation are then transferable into the levels of salaries. The size of the installment, if it's on the growth, and if my income grows as well, so for my well-being, nothing much changes. My income is growing. At the same time, the cost of living is growing, but it doesn't mean that my well-being is in the destruction. And in the period of inflation, the well-being being disintegrated, well, it happens a bit because inflation is not a good phenomenon. Because not everything can be transferable that easily to the next element of the supply chains. I know I'm explaining a complicated matter, because economy is complicated as such. And economy is a calculus when 2 plus 2 equals 4. But you... cannot view comments from the perspective of politicians. Just take a piece of paper and a ball pen and count. Economy is the science on rational management. So be rational in thinking, calculate, use data, count. Fingers are our friends.