ING Bank Slaski

A warm welcome to our meeting dedicated to the results of Q3 2023. I'd like to introduce the people at the table, Brunor Bartkiewicz, the CEO, Bożena Graczyk, Vice President, responsible for finance, Iza Rokicka, responsible for investor relations, ESG reporting, and market analysis. My name is Piotr Utrata. I'm the spokesperson for the bank. And now over to Bruno. Good morning. It seems that our results in Q3 have not come as a surprise to you. That's what I gathered from comments from this morning. And that's probably the case. I'd like to assure you, however, that apart from the fact that the results are in line with expectations and that the numbers numbers related to growth and dynamics of commercial balances show that technical recession does happen during the growth stage of Polish banks, including ING. But I'd like to assure you that it's not as boring as numbers would suggest. Many things are happening, and what we're happy about in particular is, let me repeat myself, this boarding quarter was a further quarter of the implementation of our strategy, and many things happened to this result. I think no point in quantifying, prioritizing, but the growth of the number of clients right now at a stage where there's a lack of momentum in the market, this looks really good. Market share looks really good. Of course, there are volatile corporate deposits. We are seeing faster mortgage lending based on the 2 percent mortgage that we're not participating in. This is the government program. But these are short-term events, transitional events. In all other aspects, however, we have stability, linear, predictive implementation of our strategy. I would also like to tell you that what we're dealing with is that in many areas we are seeing a significant change in the behavior of clients. Transactional profiles of clients are changing. the use of mobile devices in generating not just the simplest transactions or orders. The phone has become the key tool for relations between banks and individual clients, but phones are also getting more important for corporate clients. But what we're also seeing is that, in a way, clients are embracing digitization, they are happier to use smartphones, digital devices. We have reached a certain stage of maturity. That's just a signal for you. We'll be coming back to this new trend, new behavior in the coming quarters. This is relevant because this is yet another stage of technological change in the behavior of our clients. Some things are the new normal and they are mature. For us, This entails new challenges, new directions. We are going to talk about new projects, but preparing for new ways of assessing the bank operations by our clients, new technologies, the transformation of our infrastructure comes to the fore, but also the client-facing instruments come to the fore. In October, we have demonstrated the new version of Moje ING, My ING. This is a new tool that is embraced by our clients, and that's important for ESG as well. This change that we've been talking about for years is so important that it's part of the bloodstream of the bank. But a lot of work is still ahead of us because the requirements, queries, doubts as to the needs of our clients, from the largest to individual clients, and the smallest businesses. This is expanding, so many initiatives in this respect. As a result, we have to introduce ESG aspects into our bloodstream so that we can fulfill our mission to support our clients in making important decisions. And ESG brings a lot of such important decisions that our clients have to make. Volumes. Well, you can see what they are. The horse has four legs, basically. the future that we are not going to comment on, but we have been indicating to you that an economic slowdown is right next to us. We're just waving goodbye to it, passing it, overtaking it in a way. We're hoping for faster growth, not just because the bank is making money on it, but because these are aspects that are important for our clients. The cut in interest rates will mean lower revenues for the bank, but this should be offset by the high economic activity of many clients. So we are optimistic about the future, and we are happy with The fact that what is not very convenient for the bank, what has yielded the highest results, is slowly over. The result, 1.5 billion almost in Q3. That's the gross result. 4.1 billion for nine months. P&L dynamics compared to last year without cleaning don't make any sense. I pointed out the results of 2022 were an outlier and did not reflect the work of the bank. This was based on some decisions such as the mortgage moratoria, so no point in making comparisons against last year. That's why we have been providing this information in detail. so that you know what was the impact of these changes on results. The result is still structurally high due to the interest rates, but that is also changing, as we know. Let me emphasize again that we welcome these changes. We are happy to see them. no point in me talking anymore. You have read our results. I will be delighted to take your questions if, after a very sophisticated and detailed explanations from Bozena, you will have any questions, in fact.

Good morning. I will try to be very brief as well, talking about what happened, especially in our P&L and results in the quarter three. So to sum up, quarter three, we've had net 1,162,000,000, which was consistent with the market expectations. That's the means that we're a predictable bank and we are developing in a stable manner, as expected by the market. Over the nine months, our net profit, 3,170,000,000. Seeing the credit moratoria and regulatory costs, I would like to draw your attention to the fact that we've had a 10 percent growth of our results in interest rates thanks to higher volumes and an improvement of our margin. The highest results from the remaining revenues, we've had 151 million, vis-a-vis what was a lot lower last year. And let me comment this item. We see, on the one hand, a very positive impact of the currency derivative transactions, and that's the outcome of the activity of our treasury and financial markets. But you can also see, on the other hand, in quarter three, we noted an accounting adjustment, and I wanted to emphasize that, due to the ineffective hedging transactions. That's an accounting adjustment also due to the fact that it will reverse with time. It purely results from the fact that there is a mismatch between the overestimation periods of the security instruments and the hypothetical derivatives that are subject to our security. of our security and the amount of 100 million slots that you can see in quarter three will be reversing over the next six months, whereas it will not be a linear process. It will depend in particular on how the market interest rates develop. And that inefficiency is the result of the sudden change of interest rates of 75 percent and the quick reaction of the curve due to that change. Now, certainly, lower regulatory cost is something that we have spoken about so many times that I don't need to dwell on this anymore. But also, please note the lower cost of risk, 19 percent this year as a result. Of all these changes in our P&L account, we have accumulated ROE of 21 percent, so we are adjusting it as usual to take into account the macro cash flow of the hedge. Now, we have the interest outcome. We have 10 percent increase. Year by year, that's 6 billion already. Seeing our balance in quarter three alone, that's 2 billion. Our accumulating interest margin in quarter three is 358. It grew by five base points quarter by quarter, but the quarterly margin for interest rates is on a comparable level. level vis-a-vis the previous quarter, and that's 371. Let me also remark on the loan-to-deposit ratio. It's below 80% after quarters three, 78 and 1%. And that's the level which is the outcome of what's happening in the structure of our balance sheet. This year, we are noting quite a lot of dynamics on the deposit volume, 5% growth, where there is a low demand for loans. The volumes have grown only by 2% year to date. The fee on commission income, looking at the nine months of this year, we've seen 1.6 billion zlotys. So it's a growth of 2% year by year. And what we're seeing here and noting is the continuous improvement for payment and credit cards, debit and credit cards. We commented on that before. This is both higher number of transactions in terms of the number of transactions, but also the amounts of these transactions. Hence, we are seeing such big increase here. Also, in particular in this quarter, we can see an improvement of the results in the financing. And that's a corporate loan segment, especially in this quarter. And what's also very good news to us is that we're looking at the increase from the distribution of participation units, which reflects the positive trends on the investment fund market. Now, costs, expenses. I perhaps will not dwell on the regulatory costs. They dropped by 45%. And the phenomena that came into play this year and last year, this is something you're quite well familiar with. But our own expenses have grown over the nine months, year by year, by 15%. You can clearly see the impact of inflation. So the increase of salaries, but also own expenses practically for item you can see the impact of inflation and the growth of price is particularly in IT, but also property administration costs. Now, cost of risk, 151 million this quarter. These costs are lower this quarter than the quarter before it. And now looking at the macro effect, It's practically nonexistent right now. We can see a slight shift due to the macroeconomic data that impacts the retail and corporate market differently. We're looking at practically excluding the macro data impact in this quarter. the macro factors have contributed positively, 51 million, whereas last year this was a contribution increasing the cost of risk by 200 million. As a result, our accumulated cost of risk, excluding certainly Swiss francs, is 40 base points, and in the third quarter alone it's 38. And you can also see here Looking at the quality of our portfolio, we see total stability, both when it comes to the share of stage two loans and the gross portfolio. And here you can see quite significant stability in the provisioning ratio. as well. Now, for the capital adequacy, you can see 16.56. There was some negative dynamic. These are some risk-weighted assets that came into play, newly granted loans specifically that are not yet effective in terms of capital but are secured with properties. On the other hand, we have the clear one that's dropped by 17 base points. That's the outcome also of the discrepancy in terms of time. Looking at the fact that for accounting provisioning, we're looking at the status from end of year, but for IRP method. We're looking at the current values. This will neutralize once we see the financial outcomes from 2023. So as a matter of fact, it's also a transitional situation. We've had 194%. We have quite a lot of liquidity buffers. We just need to increase our credit activity. That's all from me. Thank you very much. Can we have some questions, please? All right, Q&A then. Let me start with the first question. In recent days, another commercial bank is joining the group of banks offering the safe loan of 2%. Is ING going to join that group or not? We have not taken a decision to that end, so I can neither confirm or deny. It would be good if the situation was clearer for us around this program. So we shall sit and wait for a while. Yes, we have more details regarding the question about these mortgages in BankPL. What is the sales of these loans like? Is it true that clients are more likely to take 2% mortgages in other banks? The 2% mortgage is quite specific or it's addressed to a specific group of people, which means that not all the clients are eligible to participate or to apply for this mortgage. But we definitely see an increase in interest in mortgages in the group outside the 2% mortgage. I do think that to a great extent we're looking at standards, perhaps outcome of suspending the needs to finance properties for many people. But also, on the other hand, we're looking at quite intense increases in property prices. So therefore, the group of customers that want to make money on the growing prices are also becoming active. I think that even without the 2% program or its equivalent, we're looking at at quite significant changes on the property market, regardless of whether this program continues or not. And that's an increasing trend. A question from the room. Can we please have the microphone? Hello. I have two questions. the government adopted the preliminary draft for extending the mortgage moratorium. What would be the cost for your bank? Have you estimated that? And another question, the perspectives on the cost of risk. Since we're already almost behind the economic slowdown and we're waving it goodbye, should we then expect a decrease in the cost of risk? The credit moratorium, we do have some estimates. It's very difficult to evoke them, one, unless we're sure whether these regulations are going to come into force and in what form they are. Against the backdrop of the banking sector's opinion, let me perhaps quote the position of the Polish Banks Association. The criteria that have been put into place are criteria that will not exclude many borrowers. As a sector and ourselves, we also believe that the fund for support for the borrower that has 1.3 billion at the end of September should be, should serve the purpose of supporting the borrowers rather than extending the mortgage moratorium in the form that precludes the economic factors from coming into play. So from this point of view, we're preferring to see what regulations come into force, and then we will be sharing our estimations. I understand that you are also familiar with the estimated range of mortgages in the Polish portfolio. those up to 400,000 and 800,000. These are quite significant figures. So in this version, this is a massive program, especially for the up to 400,000. Point two, let me draw a wider macroeconomic picture here. The cost of risk and the problems of entities will not disappear together with revival, economic revival. Quite the contrary. Statistics will demonstrate that in an undessorted economic cycle, which I must admit we haven't seen for a while because we've recently, over the last two decades, always seen a quite significant intervention of the states. But when we look at pure data, a deterioration or an occurrence of problems in practically every segment, predominantly in a smaller enterprise segment, These become apparent especially two years, up to two years following the end of the stagnation. So I'm avoiding the word recession, like the plague, because it's a technical term. But we're perhaps saying goodbye to the economic slowdown, but that does not mean that the credit portfolio will immediately improve. Quite the contrary, we should be expecting data on the worsening of this landscape in terms of small islands, perhaps not to a large extent, but not on a big scale. But we will be seeing those components. There is a bit of a shift in terms of time, just like with the cost of inflation. We already see that the inflation is dropping, but It weighs quite a lot, especially the cost of salaries, and we can see that there is also a delay in terms of how the effects of it are being visible, are being seen. The cost of employment in Poland is still very, very high. Thank you.

In the context of this question, I think we can ask a related question. see any increase in the interest among people in the use of the borrower support fund. We've seen that. This was a result probably of the reminder of the existence of this fund by the media. So we did see it. But when the fund was supported with a big sum of money, now from quarter to quarter, the number of applications is dropping. How long? We don't know. But if you connect these two elements, the fact that the shock is slowly over, the shock stemming from rapid increases of interest rates, and the economy doesn't like any shocks. So the shocks are slowly over after the increase of interest rates. slowly behind us and the repayments will start dropping with high momentum of salary increases. You can't expect the situation to get worse for borrowers. There's not much logic here. Of course, there are Black Swan events where people are not able to pay off their debts. This is basically for reasons related to life, divorce, loss of a partner, or sickness. With the high level of interest rates, they are maybe more pertinent, but things are getting slowly back to normal in inverted commas. The borrower support fund is the most just mechanism that addresses the needs of people in a difficult situation, people who need support. So the mass popularity, the mass impact of assistance from the borrower support fund is not that significant. Falling interest rates, higher salaries should help borrowers. And the fund is the place where you can get support if you find yourself in the most difficult circumstances as a borrower. Do we have any other questions from the room? So I would like to sustain my opinion, the opinion of Mr. Bartkewicz, that the moratorium does not address a significant problem. It's not the best tool for the job, basically, for helping people in dire situations. Now, questions from? the Internet. Does ING expect further drops in the sales of mortgages on a variable interest rate? Yes, it's natural. When interest rates are falling, that's a simple approach, but we are thinking about this situation. This trend is quite visible. The share has dropped to 80 percent in Q3. It's still 80 percent. So we think that in the awareness and behavior of our clients, they have adopted the right thinking that a fixed interest rate has benefits for clients. It does entail benefits for clients. It's a good aspect when you are dealing with lower interest rates. So we are not forecasting very significant cuts in interest rates to 1.5 or 2% over the next few years. And there are housing needs to be addressed. So there will be a transitional period when variable rate mortgages get more popular, we are not seeing in behavior of clients and in the comparison of our situation to the market bigger differences, which means that we are using Viron. This is not something that deters clients, the fact that we're using Viron rate. Transitionally, clients are calculating the repayment amounts but awareness is rising, awareness of the advantages of a fixed rate. So we're getting to a form of balance. We have been selling fixed rate mortgages for five years, and it will be up to the client to make a decision whether they want a fixed or a variable rate. The fixed rate has been with us for long enough for clients to be able to make an informed, conscious decision. There has been a change of behavior, and it should be up to the client to make a decision about which kind of rate they are interested in. Now, corporate loans. Do you see higher demand for corporate loans and in investment loans specifically? The interest in investment loans expressed verbally has been noticed. It's been the case since the beginning of the year, but it did not translate into higher lending. volume of loans for working capital needs has been going down, and this was linked to an escape from inflation and its related costs. So businesses have been increasing their inventories. Now they are looking to improve efficiency, so they're getting rid of stocks because the purchase prices of raw materials will continue to rise. rises will be much lower. So the PPI indicator is better for us than CPI. So these elements mean that what we're seeing in corporate loans is not true as such because this is too much of an aggregate. Working capital is going down. There is interest in investments, on the other hand. Whether you can see it significantly, well, here and there, but we wanted to cascade to the entire economy. So we remain optimistic, but it is an optimism based on experience. And from a pretty positive outlook on the world this autumn, the situation in the Polish economy, but the wave is still not upon us. It needs time. It needs convictions. It needs credibility. You need to be able to believe in the stability of the economy. We are missing some activity for exports. And we could also use important state investments. We're waiting for that, but you know very well and I know very well that it's up to decision-makers. Another question? What is the bank's position on the interest of businesses on the Viron rate loans. We don't see any difference between Vibor and Viron. The indicators are just as good. We're not trying to guess which one is better. Even in the midterm, no one can tell us which indicator has nominal values that would differ. So we are not seeing any major threats for absorption. As you've seen on the amended roadmap of the National Working Group, NGR, and My colleague has been sitting on this group. I'd like to thank Bozena for fantastic work, a great job on the NGR, the National Working Group. In the amended roadmap, it is assumed that, in principle, all entities on the financial market, including primarily banks, will be producing on the basis of Viron rather than Vibor. from the 1st of July 2024, VBOR will no longer be used for loan production. So our experience that says that clients are accepting Viron as a reference rate is a good forecast for what's going to happen. We all expect that the market will be flooded with new information about new banks switching to loans based on Viron. That's what we expect. Thank you very much, Brunon. You have also addressed another question. about the extension of VBOR until 2027. Well, I did not comment on that. I only commented on the 1st of July 2024. And of course, it is important whether VBOR will be extended until 2027. We as a bank welcome this decision. We are very happy about it because, to a large extent, this mitigates risks related to a speedy roadmap. The previous draft, the new map, gives us much more predictability and stability, us and our clients. Let's move to a different topic. consider recommending the payout of dividend in 2022. We promised. We are still thinking about it. Perhaps Bozena, you can comment on it. Considering the passing time and the materialization of risks, And the KNF has warned us against this in the dividend letter. We started talks with the KNF, the Financial Supervision Authority, on the possibility of paying dividend for previous years. But it's a very early stage, so let's not comment any further.