ING Bank Slaski

Ladies and gentlemen, welcome to this conference, in the course of which we are going to be discussing the financial performance for the second quarter. Brunon Bartkiewicz, the CEO of ING Bank Śląski, Bożena Graczyk, Deputy CFO and Rafał Benecki, our expert for macroeconomic analysis. My name is Piotr Utrata. I am the press spokesperson. Now over to Brunon. Good morning, ladies and gentlemen. Since we are quite predictable... It is quite weird that we are holding a press conference because the media have already been publishing commentaries. Now we are only be clarifying topics requiring explanation, not that many. I would like to point to certain components that have not been commented on today morning. in today morning's press. The bank has been growing in terms of client volumes. Those are not really the accruals from the phenomenal times of five years ago. Nonetheless, the growth here on here in terms of individual clients, over 60,000, also 10,000 small and medium-sized enterprises or economic units or economic entities This is all about changes between banks, not to mention 100,000 new primary clients, individual clients, individual customers that we consider the bank to be their primary bank, and this has been indicated by their moves. Those are statistics that bring us great joy. They are not greatly visible. Nonetheless, our bank strategy is all about stable growth, and that growth has actually been retained in today's rather dormant times. Now, the other aspect I would like to draw your attention to is all about the over-liquidity on the market, a new wave of over-liquidity. Given what has been going on in the first six months of this year, it has become apparent that throughout the banking sector, the accrual or the growth of deposits of 154 billion on the overall market, whereas including assets at 180 billion were the credit campaign of 160 billion zlotys, which means that we have been contributing such statistics to the process of growth. The Longue Depot is quite low. Today, loan-to-depot is 75.6%. The market, 68.7% in comparison. That, ladies and gentlemen, is something that we consider a part of the financial stability or risk, correlated risk. This also shows the relative weakness of the Polish banking sector in comparison or against GDP. Rafa will be commenting on it, which ultimately means that we have been, we have had reduced activity given the relative good use of operational assets. The non-investment in entities, this is something I've been talking about over the last six or seven years, Rafa, am I right or not? And that is the topic that we have been commenting on. It is also very important that the banking sector is being pushed out of the overall crediting market or funding market because there are other sources, including the state budget and EU funding sources. As a result, the credit campaign volumes over the span of six months have not been exactly rosy. because of the constantly growing over liquidity. Now, if we take a close look at banks, we are going to find out that there is a marked difference between the behaviors of these aggregates over the first and second quarters, as if a watershed were just about to happen. In our banks, it all boils down to the fact that in the second quarter of the share, we have experienced a greater growth or accrual of loan-related rather than deposit-related liabilities. Obviously, over the last years, it is quite regular. On the other hand, this means that we are overstretching. On the one hand, we have been experiencing a growth in credits or loans. Statistics are not mind-boggling. Nonetheless, we are now starting to exceed GDP, which ultimately means that those signals are becoming a certain source of optimism, given the non-optimistic waves, because the component of the rather moderate Economic growth is going to be commented on by Rafał. This is why we have decided to ask him for a commentary. This is a good moment to observe. This ultimately means that our bank, as you have yourselves noticed, will be retaining its market share. And with regard to the aggregates that have given rise to the greatest non-aggregates, balancing of individual items, the share in the market has ultimately been growing both in the private or individual and corporate client segment. Now, we do have the greater activity period, which we have been using for purposes of improving effectiveness and improving efficiencies in terms of effectiveness targeting projects. We used to be talking about digitization. That is no longer the case. We are just improving our efficiency. Digitization is a word that has overall lost its meaning which means that we are going to be focusing on transactions with the Transactions, let me emphasize, transactions engaged in by clients with the use of banking staff are actually dropping. The volume is dropping. I am not going to be talking about cash operations here. Nonetheless, that is also quite an interesting moment where the average daily value of a deposits generated by banking staff has dropped below 10,000. Ten years ago, that was 7,500 or 7,700 a day, not to mention payouts, cash payments. cash payouts are associated with the cash desk operator. Well, today it's 3,000 today, whereas 14,700 daily 10 years ago. That does not necessarily mean that the cash payouts have been moved to ATMs. Nonetheless, simply people are no longer using cash. because the number of transactions at point of sale and transactions in general are growing. Nonetheless, they are definitely becoming cashless. reflecting the overall trend of improving efficiency. Now, if you're interested in cost, administrative cost included, as in any case of growing inflation environments, we have to consider the in-house cost and the cost of services provided by other entities. We are not really dependent on other growth factors. Inflation obviously translates into a high remuneration rate, which in turn translates into high employee or employment costs and the high cost of services provided by third parties, which means that we are currently facing the trend not to mention IT expenses which in all probability we would want to engage in faster but for a number of reasons the process is not as dynamic which means that this is probably a good time for large-scale business investments in stable systems. This has been confirmed by the labour-consuming rates, not to mention the fact that we have actually noted a redundancy of 270 staff here on air. We are simply trying to adjust to The overall market conditions, those are structural changes. we are not really applying any moves to match the overall market prosperity issues. Now, there is another issue that we ought to consider here, that is the low activity and the perspective of lower economic activity, which means that we are obviously experiencing certain island-based tensions in the corporate sector. Now, once the cycle flattens out, once the curve flattens out, or when the curve starts picking up, only then do we notice these isolated areas of threats to a number of entities. In terms of the loan repayment issues or loan repayment, we don't really see a turbulence here, whereas with regard to liquidity for a variety of corporate clients, the number is not that great. Nonetheless, those turbulences are there. which ultimately means that we are moving to the predictive phase of forecasting cost of risk despite the relatively good service quality. Hence, the blending in of the cost of risk with the dropping number of NPLs. Now, on the pages of our report that Bozena will comment on, we are supporting on the overall application process in recognition of risk factors and in recognition of the topic that was of particular interest to you, ladies and gentlemen, i.e. the additional provisions or commissioning for CHF related expenses additional components are the growth in income na I am among others related not to mention the growth in asset management and growth of revenue on other areas has already been noticed now with regard to the growth in expenses the overheads among others and administrative cost have has arisen from the outside world or third-party services and IT costs we have not increased our employment or headcount. The cost of risk is definitely increased, and given what Rafał is going to, is about to say to you, these isolated islands, isolated areas of threat can definitely be a possibility, and we are going to respond by establishing provisions. There are no sector weaknesses we have noticed, no distinct trends. Those are isolated areas Those are components that can be referred to as certain turbulences to corporate operations for overall market condition related reasons or mismanagement because obviously difficult times require proper management. These times are difficult for a number of companies for the corporate sector, which ultimately means that we have actually noticed mismanagement, not to mention overinvestment, overinvestment in comparison with the current demand, which ultimately means that sales generate liquidity tensions. That, however, is quite a normal or regular situation. Phase to phase, we have not sold any NPLs, which obviously did not contribute to or did not generate, excuse me, no, it did not alleviate the cost of risk. This is all I would like to say at this point. In terms of the rest, do consult the first part of your conference kit. Now we are going to move to a fascinating, hopefully, story about how we i.e. our experts see the overall macroeconomic set of circumstances, the bittersweet or salty and sour story of the environment that we are operating in. So Bozena will talk about it. Now over to Rafał.

Thank you very much. I just wanted to say a few words about the forecast for the Polish economy and investment. And that's a very important component that impacts loans and the share of loans in GDP. The economy is in a revival stage. In the fourth quarter, GDP grew by 1% early this year, 2% second quarter, almost 3%. the main driver of this economic improvement is internal demand. The risks are mostly domestic as well. On the level of the country, we are hoping that the consumption dynamics will continue thanks to the high rate of growth of income since the 90s, the highest. We're quite afraid to look at investment. The forecasted investment is close to zero at the risk of being negative. This has more to do with shifts after the KPO update. I will talk about it in a minute. The threats are mainly external. There is a slowdown in China, Europe, and also lately in America. Soft indicators imply that there is a small level of revival in the German industry, but also globally. The parallel drone, to compare it to 2018, shows why it's happening. Other than the weakness of China, it is important to also recall that when the trade wars began, just talking about customs translated into a detrimental impact on the economy. So, like I said, this is visible in the German industry, but also globally. Now, in the US, It doesn't seem that there is such a high risk of recession, as might be visible from the market reactions on Friday and Monday. There is a leap in unemployment, which is greatly linked to the influx of immigrants, which is quite considerable in America. But there is still quite a lot of demand for jobs. an increase of unemployment and a slowdown in the increase of remuneration, which is something we could only dream of in Poland. It looks as though the American economy is going to have a soft landing rather than a hard recession. However, the projections have been less optimistic, so we need to also revise downwards our projections of GDP. Right now, the forecast says 2.5% to 3% growth. Next year, it's looking more like 3% or 3.6%. We have been able to avoid the heat wave of increasing forecasts of GDP when other teams actually lifted them up. We are not trying to correct them nervously downwards, but we are seeing that a deterioration of the situation and it's 3.6 next year to 2.5 this year. The main reasons for that is delays in investment and a stalled development globally. In-depth comments about investment in Poland lately. and a few words about forecasting here. We have lately developed quite a lot of research, 30 interviews with enterprises. We asked them about various investment plans, areas where they want to invest. So, first some figures and then conclusions from the study. The share of investment of Poland's GDP has been decreasing since mid-last decade. It used to be close to the EU average. Now, the discrepancy is growing, and it's almost two percentage points. If we break it down to entities, we have a downward trend, especially in the enterprise investments vis-à-vis the EU average, but even more so vis-à-vis the region's average. Now, public investments are close to the EU average, private even higher, but their share is the smallest. Now, if you break it down to type of assets, we have a downward trend vis-à-vis the EU and the region in machinery and equipment, but also buildings, intellectual property. research and development as well, but we know here that this could have been impacted by tax reasons. So, in brief, it looks as though the decrease of share of investment in GDP vis-à-vis our neighbours and the EU average has been impacted or has impacted to a large extent enterprises and the sector of machinery and equipment. That's a very disturbing fact and there's quite a concern around it because 80% of GDP We're talking more and more about the middle income trap and we need to redefine it and talk about high income trap. But we are still researching this topic. Now we'll go back to that. Now, regarding the forecast of investment projections, we have studied the topic and analyzed the data and it looks as though the main barriers recently have been institutional instability in law and unpredictable taxation. But going forward, it looks as though the future investment cycle will be even more linked to EU funds. Because before the pandemic, there was a choice between the EU grant and the loan. And inflation was low, so the interest rates weren't that high. And now, it's either co-financed EU grant and KPO the Polish national program grant. And then inflation plays a role as well. So, definitely, the option of EU money is more favorable, and it will be more and more linked with EU funding. Now, we have updated our projections for EU funding that we can see here at the bottom of the slide of getting, actually obtaining the funding. So the national KPO program will not really cover the gap in structural funding. The new update that appeared before the holiday shows that some of the funding has been shifted to 2025, 2026. So the balance is 1.9 vis-a-vis versus 2.3. So the investment projections should be very cautious. Our projection is around zero. Even there is a risk of this being in the negative. If we look at various sections of the economy, we can see there are some public tenders in the railway sector, road sectors stalled. Yes, infrastructural projects are going on, but it's not looking very good. And the housing sector is in the red. We can see that there are, however, construction sites that are being launched. So all in all, the projections for investment is zero, at the risk of it being negative. But next year, we're looking at a potential growth of investment by about 7% to 8%. Let me go back to the topic of middle income trap or high income trap. The main reason for that lies in demographics. So availability of cheap labor is soon going to end, so there is a drop in the flexibility of our economy. And the experience of other southern EU countries also seem to tell us a story that the growth is weaker than expected after the 80% of GDP is achieved. There is also the slowdown in Germany that's a factor. So the economy needs to be more capital intensive rather than labor intensive. And we have been talking about this a lot. Now, from the point of view of the banking sector's business, it's a very important component, leaving room for an increase of loans. Companies are being rather cautious, and let's hope that the new cycle of EU funding will revive investment. We have lowered our projections actually two months ago, and we can see that investment can be weaker this year. So overall investment projection zero to pick up next year. A few words about inflation and interest rates. The lowest inflation is already in the past. It will jump to 4.5%, 5%. The peak is going to be March next year, rather below 6%. One important factor was in July, and the energy prices are slowly normalizing, as well as gas. but this has added on another 1.3 percentage points. Tariff policy will tell us whether there will be a future leap in September. Right now the retail prices are about 30% higher than wholesale prices. We are hoping that the next leap will be slower than expected, so we're assuming that peak is going to happen in March, and it will be about 6%. The baseline inflation will not drop. It stopped at 3.6%, and that's a concern to the central bank. This is mainly caused by the prices in the service sector, but also the prices of merchandise is a factor here. It used to be stagnant, and Commodities prices used to even contribute to deflation, but it's not happening at the moment. Central banks around the world are now starting the cycle or it's more advanced throughout the region and in developing countries. We're looking at lowering the rates in the US and additionally in Europe. And we believe that there will be a decrease in the Czech Republic. The central bank will be delayed with that decrease. We're assuming that it will be 75 points next year. Discussing the issue of high-income trap also impacts our interest rates debate. It should be 4% rather than 5% in Poland. Whether this will be achieved in 2026, well, that depends on whether the NRP will generate an impulse for the inflation. But like I said... The mid-range projection is 4%. And we believe that discussing the lowering of that may happen in the second quarter of 2025. the following months. That sums up my intervention. Just to wrap it up quickly, there is a slow pickup of the Polish economy, could be one of the better growths in the EU, but there are some risks on the side of investments, NRP. But we don't believe that the situation is quite as bad as the market situation seems to be implying in the treasury bond sector. But we do see the risk for 2025, 2024, 2025. We are hoping for a revival in 2025. Then there will be some decreases, but rather than late in the cycle. Thank you.

Okay, I will try to summarize the financial performance of the bank for the second quarter. The net income, 965 million zlotys, that's 12% lower than last year. It goes without saying that the credit vacation or credit grace period definitely has an impact 170 excuse me 221 million zlotys that was the net worth of the of the vacation now we all lowered that 170 million based on the current estimates now the share or the rate of usage of the grace period in june and july had an impact now should we correct Our performance, to recognize the aforementioned, then we would definitely have a similar performance to last year's. Now, the six-month performance, 1.98 billion zlotys. That's a 2% drop here or there. Should we eliminate the grace period effect, we would actually have a performance 4% higher than last year. Now, it goes without saying that the performance for the first six months had been impacted by the higher interest performance, 290% more, 7% growth. The Commission performance also of 9% year-on-year growth. On the other hand, this is something that Brunon told you we have increased our operational cost by 215 million in general to 12% year-on-year, excuse me, 2% year-on-year, not to mention the overall performance of 180. And now, in terms of the overall performance, ROE also corrected to recognize the cash flow hedge at 21%. The cost to income is 44.6%. Now, let us take a closer look at the interest performance. It goes without saying that we have to recognize the credit vacation or grace period. Now, should we correct the interest performance to recognize it? In terms of year-on-year six-month credit, growth, that's 12% increase over 4.3 billion over that period. This is our performance for six months. It is also worth mentioning that our accumulated interest margin in the second quarter was 2.64%. It remained at a comparable level in comparison with the previous quarters, whereas the interest rate margin had actually been increased by five base points. Now, Brian had already mentioned the loan-to-deposit ratio, 2.6% in the second quarter. A slide... improvement in comparison with the previous quarter. Nonetheless, obviously, those are very low levels in terms of the overall balance sheet optimization. In terms of the commission-related performance, 1.6 billion zlotys in the first six months. That's 9% increase year-on-year in Now, in the second quarter, 571 million commission-rated or in commission-rated income, and that performance is similar to that we recorded one quarter ago. Now, charge and credit card performance is truly extraordinary. That is associated both with the number of cards and the number of transactions over the six We have also noted higher performance in terms of funding and also the brokerage activity, 26%. on here that goes for the participation units as well nonetheless in terms of investment fund in terms of the investment fund related performance that is we have actually recorded a 51% increase here on here those are the most important components of what we have achieved now the costs for the six months were 2.3 million zlotys. That is a 12% increase year-on-year, and as said before, that is primarily associated with the overall overheads and third-party services. That's 16% to 18% year-on-year. That is closely related to the growth in labor costs and remuneration costs and the third-party services that we need to run our bank operations. Now, this increase has come as no surprise. We told you before that operational costs will be affected by the inflation pressure and will be moving towards the cumulative inflation-related components. Now, 9% was the increase of employment-related costs. As said before, from April the 1st, we increased remuneration, the salaries, by approximately 7% this year. And we have also recorded a 13% growth in the banking tax. Now, regulatory costs have also been increased. have not really impacted our performance in terms of any growth, the FSA costs included, related costs included. Now, with regard to cost of risk, 318 million zlotys, 53 million for the retail sector, the remaining part that goes to the corporate sector. Bruno was talking about it extensively now with regard to the increase of risk in the corporate sector has arisen from our prudent forecasting and assessment. On the other hand, we have had these isolated areas of the less positive economic growth. That would also be a driving force behind the revenues. financial performance and liquidity performance rates or indices have actually caused a worse financial standing. This is why we have established extra provisions. We believe that this is a natural phenomenon. It is also predictable. We have been taking a closer look at the fluctuation rates of the past. This is exactly the kind of thing that gives rise to higher risk rates. Now, in terms of the corporate sector, the normalized risk rates are regular. This quarter, we established 26 million zlotys for purposes of provision for CHF-related issues. We have also been taking a look at what was going on in the client sector and the conciliation procedures, we have also been taking a closer look at judicial decisions. We have, among others, corrected the cost estimates concerning interest that is added to judicial decisions. In effect, we have reached 116% of risk coverage. We have seen that in the banking sector, analogous rate has reached 100%. So the risk is truly covered there in terms of provisions. Now, in terms of portfolio quality, as said before, also in connection with the increased credit risk and the risk exposure for Tier 2 and 3. We have seen what has happened in Stage 3. The rate there has reached 3.2%, growing by 37 base points this quarter. I believe that this is another thing that I would like to draw attention to in the corporate sector. Should we take a look at the Stage 3 provision related sector? Well, I believe that our performance proves that even those cases that we reclassify for Stage 3 have been properly taken care of. and the basis is really good for provisions. Now, capital adequacy, we have reached 15.42% in liquidity. We have achieved great performance in terms of risk-weighted assets. Now, in terms of the liquidity, Well, on Tier 1, I believe that it is worthwhile mentioning that we have paid out a dividend in the first quarter. That was paid out as a result of the decision made by the shareholders' assembly. As a result, our performance dropped by 79 base points. We have also been quite active in terms of risk-weighted assets, a drop of 72 base points. On the one hand, this has arisen from the growth in credit volumes, not to mention the migration of credit related risk. that has translated into the overall liquidity ratio. So I believe that is all in terms of the overall commentary. Let us now move to the Q&A session. Thank you very much. Congratulations on your performance. I have a number of philosophical questions, if I may, but also detailed questions. What about your market share? Let's move to page five. Some banks have told us that they are now, they have been observing a growing demand for credit. Until 2022, those shares were growing more rapidly than on the market. And then 2023 came, and specifically in the last quarter, the bank has been losing. In the retail segment specifically, you have actually been very, very close to market trends. You are not keen on talking about the future. Should that trend pick up? Should I assume in my Excel sheets that we are going to be returning or revisiting pre-2022 rates or are we going to be quicker or faster or beyond? But if you are not happy to answer that question, would you please care to comment on the difference concerning the pre-2022 and post-2022? Well, that makes me smile. We are not trying to help you in any way in filling your Excel sheets. That is our strategy, so to speak. Now, the growth is an inherent part of our business model. Past events, pre-pandemic events should be considered regular. That regularity, that normalcy, was reinforced by the fact that quite a few banks had been experiencing capital or equity-related problems, as a result of which the sector could not really afford to engage in credit campaigns. This is something we took advantage of. Now, conclusions. Well, since Q4 2019, We have been experiencing stagnation on the corporate credit market. That stagnation actually truly exploded in later years because companies had been expecting higher inflation. They were increasing their stock or their inventory in order to anticipate inflation. that activity had been, credit activity had been, or credit campaigns had been very inactive. Whereas today, those credit campaigns are much more active. Nonetheless, those isolated areas of increased activity have not necessarily affected areas that we are particularly interested in. Hence, the rather weakened credit campaigns or our lower share in the market. Now, as the waves of economic growth spread throughout the economy, rather than throughout isolated growth areas, we are truly hoping that our regular market practice will allow us to revisit normalcy. This is why we are not really dependent on those isolated areas in terms of growth and credit campaigns throughout a period of a generally weaker economic dynamic. The more the dynamic spreads throughout the economy, the more inclined we are and the more likely we are to go back to business as usual because high activity is our business as usual. in combination with stable balance sheet management.