ING Bank Slaski

morning. A very warm welcome to our conference in the course of which we are going to be summarizing 2023 and the fourth quarter. Birolon Bartkiewicz, the CEO of ING Bank Śląski, Bożena Graczek, our Vice President Responsible for Finances, CFO, Rafał Benetzky, the Director of the Macroeconomical Analysis, and I am joined by Iza Rokicka, responsible for Investor Relations, Market Analysis and ESG. Bruno, excuse me, please take the floor. Good morning. A very warm welcome to you, ladies and gentlemen. Welcome to this marvelous 2024. May it bring more success to all of us than 2023. Why am I saying that? A word of introduction. 2023 was a year that obviously triggers a number of emotions Nonetheless, as I see it, that was a year where we actually had a relatively low market activity in general in the economy. That is a relative thing. Rafał is going to comment on it in his presentation, in his part of the meeting. It was a very specific year. Why? Because it is yet another year of relatively weak loan activity driven by demand. This is something that is worth emphasizing. A low propensity for crediting and considerable turbulence of aggregate market flows. All of that has translated into considerable turbulence to balance sheet statistics, which in itself generated new challenges and needs for adjustment. It was also a year where we had yet another phenomenon of considerable risk factor, that is legal and regulatory instability with regard to the economy as such, but also the banking sector. In all probability, banks have been affected to the greatest extent with such schemas. I believe that this was a year when a lot happened in terms of regulation, but mainly in the form of announcements and deliberations and negotiations, something that in no way supported the situation of the banks or preparations of what the Polish economy needs. That is a pull forward to illustrate the overall situation in large aggregates. We have been repeating what we had been going through overall. The deposits submitted with the banking sector totaled 575 billion zlotys. I'm going to let that sink in, 575 billion, in comparison with the individual deposits, 35 billion and the businesses, 66 billion. Now, with regard to the four-year accrual, should we deduct from that the deposits involved with the Social Security Authority and local governments and other non-banking institutions? That accrual totals 13 billion. The accrual of deposits was colossal. accrual of credits or loans has been kept to the bare minimum, which obviously has its consequences. A change to the overall profile of banking sector balance sheets and long-to-depot ratios dropping. The banks have been truly dependent on derivatives and other financial instruments used to generate funds on National Bank of Poland accounts. As a result, we are ending up with something that I'm truly bothered by, a relatively low ratio of credit to GDP, dropped by 20 percentage points. At the end of last year, it was approximately the drop, actually, in total 33%. That is the amount of credits to the non-financial sector to GDP. And that obviously is worrisome, and it translates into the overall situation of the bank and the necessity of the bank making adaptations or adjustments. Obviously, all these changes are of great importance. Now, the deposits with our bank year to year have grown by 13 billion, nearly 13 billion. Thank God, the stock exchange and investment fund market was very attractive. We recorded nearly 4 billion in accrual, including different values. Credits and loans grew by just under 2 billion zlotys. Those are statistics. that we actually do not want to get used to because they are far from desirable. That obviously drives our great optimism and expectations of 2024. I hope that Rafa will be able to convince you that we do have a sound basis for optimism. And there is another thing I would like to point to. The year 2023 has truly shown a pickup in the technological development tempo affecting different areas of life, financial services included. We obviously all associate that with the phrase of the year 2023. And it is repeated so often. that it actually has been out of proportion in terms of the artificiality or intelligence indeed. Nonetheless, 2023 has shown that despite all challenges, regulatory uncertainties included, do not have the time to wait for the technological debt to pick up. We have to introduce changes, both with regard to IT foundations, so to speak, and freeing up organizational structures of material impediments, to put it very To put it in a very general term, we have to truly cloudize our operations, so to speak, and we are about to proceed to changes in our distributional channels. Yes, it goes without saying that the old waves are still there. They are being slowly shut down. as proven by cash transactions closed in our branches. But the new is on our threshold, and this is something we have to prepare for. This is something that was truly important to our 2023 operations. Now, with regard to our performance, you can read, and I'm sure you have read all that was prepared for you. Bozena is going to introduce you to details. I know that the provisions for credit risk may trigger your doubt. Nonetheless, I wish to assure you that we have been planning no great change. We are remaining conservative and traditional. Safety and calmness. I do understand that you may have found it as something of a surprise in terms of our decisions concerning the dividend. Bojana is going to comment on that as well. Obviously we have had a gap in terms of the accrual of financial activities dynamics and hence our dividend related decisions. Now we're going to move to macroeconomics, the overall trends, and we are going to obviously listen to what our excellent macroeconomic analysis bureau is telling us with Rafał at its helm. Bożena is going to be talking about our performance, our financial performance with a specific pivotal focus on issues that might be of particular interest to you. Thank you very much for this introduction. Now, with regard to the predicted trends in 2024, we have, well, the year of slowdown followed by a pickup is behind us. Now, the tempo dropped slightly in the fourth quarter. saw that the fourth quarter data has shown us that consumption is not really growing. We are definitely in the midst of investment, which was a bright spot for the year 2023. Nonetheless, the weakness of export has been apparent, connected to what was going on in the German economy, and we are not in a great at a great place at this time. 2024 is a year of more opportunity, but we have to count on ourselves to put things bluntly. German economy is going through cyclic and structural difficulties. Cyclic, for example, the lack of possibility of generating a fiscal impulse and with regard to structural issues that ties in with expensive energy, and the automotive market. So we obviously have to understand that this is reflected in the loan market, which ties in with income. Certain statistics are not very popular with the society. Nonetheless, there are foundations to improve consumption in terms of income and general mood. The potential is there. albeit it has not yet happened. Now, we do know that consumers are cautiously optimistic. Nonetheless, they have a propensity for saving. I believe that affordability and prices of certain commodities and services may be behind it. We have to be aware that certain frozen accounts may be actually unfrozen. We do know that war is still at hand. So the society is showing a high propensity for savings, for saving in general, as Bronan told you. We should not expect any kind of consumption boom in 2024. We can be cautiously optimistic, predicting a 3% increase rather than a 1% drop in 2023. Now, with regard to investments in 2024, we have recorded a 3% growth, slightly below one half than what we had recorded last year, the structure of investments may change. In 2023, we were dominated by the energy sector and transport, mainly the gas pipe infrastructure. Now, investments focused on a very narrow community of companies mainly managed by the State Treasury. We do hope that the situation will improve in 2024. We are obviously also taking the EU funding into account. The graph in the bottom left part of the page shows the EU funding. 1.3% of GDP is going to be fed to Poland. Without the national recovery plan, that would be zilch. Nonetheless, if we add the green bar there too, the net balance of grants and loans will total 2.7% GDP compared to 2.1% in 2023. There is an improvement there. Funds are going to be coming in in December, followed by April and October. So we are truly hoping on the effects, the multiplication effects, bring some kind of effect. We also hope that not only large companies and state-owned companies, but also the medium-sized companies are going to take advantage of it. We do hope that the Polish economy's potential is going to be unblocked. The share of investment in GDP had been dropping in 2023. It was very low, approximately 17%. And apart from national investments, domestic investments, we also see a potential for a growth in foreign direct investment. We have been talking to investors from external companies. Yes, we are definitely perceived as number one in terms of investment sharing, but we are also preparing for a new European and global deal. I know that some countries want to have their manufacturing processes closer to the borders, I know that many investors had been waiting for the results of Polish elections. They are definitely going to be moving their manufacturing processes here, but in all probability only in the second half of the year. So in all probability we will have to wait for that. Now in terms of interest rates and inflation rates, now we are expecting that we are going to go down to 2.5% in terms of the minimum. We know that disinflation... signals are there. We already have seen that the base inflation has been dropping. The shocks of last year have been dissipating. That also translates into our base inflation rates. That plus the propensity for saving, probably we can assume that inflation in Poland will drop to 2.5% in the first quarter, but then it is going to grow to 5% or 6% towards the end of the year, because some of the inflation factors have been have been frozen, such as, for example, the VAT on food. So we may expect a net effect of inflation of 4.5% to 5%. Yes, the cost of labour and the minimum remunerations, minimum wages are definitely going to be affecting the inflation rate, keeping it high. Now, what will the Monetary Policy Council do? Now, the reactions have already changed. In the US, for example, You may actually expect a decrease of 100, 150 basis points in Romania, 150, a similar effect in the Czech Republic. So we are going to be reducing the rates by 25 percentage points, which is absolutely symbolic. And last but not least, energy investments of great importance to our bank as well. We took a look at the cost of emission of so-called high energy and high emissions on the Polish market. That's on the left. Today, Polish companies are spending 1.8% of GDP on the emission rights. We are purchasing some of our emission rights outside and 8% from our own government. Now Poland is now spending 1% of GDP on green projects, very little. So we are spending very little on green investments, very large sum of money, excuse me, on emission rights, which means that ETS, is actually penalizing us for the slowdown of energy conversion over last years. Now, the Czech Republic is in a similar situation. They are actually purchasing a specific percentage of emission rights outside their own borders. How do we get out of that? We have to keep investing in green energy. Until the end of this decade, you can actually used 45 billion in loans and 35 billion in grants from the EU to support such green investments. So you can support each and every investment with a loan, which means that we can get out of the situation that we have placed in by high energy and high energy costs. Good morning. Let me say a few words about what was going on in our financial performance in the fourth quarter and 2023 in general. A lot has been going on. So, starting at the top, our net profit in the fourth quarter totaled 1.27 billion zlotys and commentaries have proven that this has been a the effect of changes to certain expectations and the low cost of risk. I'm going to talk about it shortly. 109 million, that was our increase, 9%, quarter to quarter on quarter. And should we segment the growths, I would like to primarily point out that in that particular quarter, We had reversed the correction for amendments we made to interest rates as introduced in the third quarter, 190 million quarter on quarter. As said before, our cost of risk dropped by 85 million zlotys quarter on quarter. That is the effect of changes to macroeconomic decisions concerning our provisions and sales of our irregular portfolios that allowed us to generate 24 million zlotys in net profit.

At the same time, despite that trend in the risk costs, we managed to generate 105 million provision for CHF portfolio related risks. Also, our general cost in the P&L grew by 126 million, with a major contribution from the restructuring provision amounting to 66 million. If we look at the dynamics of our results across 2023, it's a record-breaking result.

for the growth from year to year. But let's remember that last year this result was covered by high costs resulting from credit holidays. If we were to clean up our interest rate for the effect of holidays from credit vacation