ING Bank Slaski

Good morning. Welcome to our conference where we are going to sum up results for the third quarter. Let me introduce to you the people who are here with me. Brunon Bartkiewicz, the CEO. Bożena Graczyk, who is the vice president responsible for finance, CFO. Izabela Rokicka, investor relationship manager and ESG. Reporting, I am Piotr Utrata, and I am the spokesperson of the bank. Brunon, please take over. Welcome. As every quarter, But today, due to the celebratory mode, we will try to be more cheerful than the atmosphere around us. Quarter three is heat and floods, flooding. So a lot has happened from that point of view. A lot has happened also within the bank. Given the fact that we have projects, streamlining of processes, we have made a lot of effort in order to streamline the solutions that we have in the area of the security of our clients vis-à-vis the unceasing wave of attacks of criminals. and the search of a model that would perhaps that would make them even more fortunate. That's their action. These subjects are happening in the background. You can't see them in the figures. But the reason why I'm mentioning this is that the economic activity of quarter three has been rather insufficient, and that has been more of a mantra recently. This is another quarter in sequence that we're talking about, another year of low investment activity subsequently. So if there are reasons to be concerned, that is perhaps what we should be talking about. But as I know, that's not necessarily the focus of your attention here, at least, because perhaps you're seeing experts who deal with economy on a slightly higher level. But for me, managing a mid-level bank or perhaps slightly bigger bank on the domestic market, I feel concerned, deeply concerned about this. because time is the only thing that we mustn't waste. Now, for the bank's results, the increase of client transaction, everything is happening correctly. Of course, we are feeling the lower increase of client base because not much is happening in the market than the increase of your market share is not happening very fast either but for the transaction volume things are going really well very well as a matter of fact the number of transactions carried out by our clients mostly retail individual perhaps less so corporate given the all that I said just before still the changes are happening perhaps they're not The increase is not that of 30% or 40% like it was a few years ago, more of a 10% in terms of electronic transfers performed by clients or the debit transaction. So the ballpark is a 10% increase in this sector. But one... Components that are slightly different is the mortgage activity. So the far perspective of state intervention and what is referred to as aid programs, state aid programs, which means that there are some emotions emerging on the market happening for quite some time now. And these are the expectation of an increase in property prices, which then translates into an increased demand activity in the property sector. Given the short supply, this is causing the self-fulfilling expectations. But indeed, the mortgage sector is quite high. We're not yet at the peak that we had for the record year, but these volumes are quite high. The bank is maintaining its number two position. We are now back in... volatile interest ratio interest rate market for many years we did not have the changing interest rate on offer due to the shift in the attitude of regular regulatory authorities in the viron I'm sure you are aware of the phase one and phase two of social consultations. So, hence, we always emphasize it is our goal not to confuse our clients. So, at the moment, we are now also offering mortgages with changing... interest rate. It's not yet a record-breaking market but we're pretty strong and we're number two and still growing on this market as a second leader. In the corporate area which arises most concern there is hardly any increase here, but also in the markets in general, hence our attitude. Our share in the loans is the same, remains the same, even though there is hardly any production happening. Corporate clients, just as retail clients, have quite a lot of liquidity surplus and just a question of where to invest. either in real estate and properties or asset management products and that's an ongoing trend. Our concern is related to the low activity of corporate loans, and that's happening, and it's been going on too long, other than the adjustment to the inflation in the cash loans. Well, not much is happening in the corporate loans in the market, and that's been the case since Q4 2019. And we're in another subsequent year that, well, this is happening. The economy is still producing more or less 3% GDP growth, and the indexes are not too bad. It's just a matter of attitude. And what you conclude, I conclude that this 3% GDP is due to the momentum that we've had, and we need to really feed the engine to go forward. And this is insufficient to ensure the competitivity of the Polish economy, especially that quite important transformation projects such as energy production, energy transfer, armaments, and counteracting the trap of mid-level income. So the issue that our labor market is to a large extent saturated and suffering a deficit. So what's happening here is that there are colossal investment needs. And with no push, this will be quite difficult because the demand on the market is too low. And let me say that again, it's demand that's too low. So it's not the interest rates that are a problem. However, it is not helping that they are so high. So I'm also emphasizing that this is since quarter four 2019 that we've been looking at either decrease or a stable environment, So 2020 was more of a transition phase with COVID. Now, with the prolonging recession tendency. Hello. Welcome. I will continue if you allow me. So I didn't want to use the word recession. It has a different meaning in economic terms. But there is a certain level of stagnation on the market. vis-à-vis the needs that our economy and our society are demonstrating, this is unsatisfactory. And what's happening is that there are individual isolated elements or components of threat that could pose a risk to the stability of our corporate clients. So we can see some individual components. Perhaps, do I see any industries where there is a deterioration? I would say no. Some industries are doing better than others. However, There are some individual cases on the level of some entities where there are some disturbances. Whether or not this would be a sign of a breakdown of their sales or perhaps some unfortunate investments, well, in the times of recessions, these become more visible. I don't want to abuse the word recession. We're not... facing one, as a matter of fact, because we have a GDP growth year by year. So we can't really say that we have that. But we do see that, a slowdown. So when we observe that, we try to make provisions for that on the desired level. And I hope that you can see that we're a rather conservative bank. And I think the last 20 years have demonstrated that. So while the uncertainty... sustained we can see some disturbances and seeing that we provide for that I mean we make provisions and those are in on an increased level let me just remark again we cannot really see any sudden or serious crisis but we are reacting conservatively and perhaps slightly ahead of time because frankly speaking When there is a pickup, when the economy picks up, these imperfections, individual imperfections will be even more visible. Now, these figures are... seen. Nothing dramatic is happening, but we would want to make sure that we are ahead of time disclosing such phenomena. So, hence, those increased indices with risk costs. And you will be asking us about this, perhaps, but I've jumped ahead a little bit. bringing us forward to the discussion ahead. The rest is visible in the materials that you have received. I'm sure you have made comments about this and you have made comments about our revenues and costs. And I'm sure you have remarked, all of you, that there is an increased cost of risk. That's slightly less surprising to us than it is to you. But that perhaps is due to the fact that we know what's in the background which you might not know. And I think this is what the roles are here and the roles to play. Now for the remaining aspects. I think that you can study the materials presented, regardless of the fact that sales or new production or net changes are, I would say, quite gentle on the market, which brings us no joy because Unless you are moving forward, you miss out on development opportunities. And that's the most painful lesson. Seeing such interesting times full of challenges, we cannot seem to be able to go forward and I do understand that there is a threat of war and a difficult situation in Germany, which definitely is our most important trade partner. Still, internally, there's so much work for us to do that this should not be happening. So from the point of view of creating economic dynamics, we're looking at a phenomenon of negligence, and that's not a good thing. What else? Well, I think that would be it. I have commented on the attacks. We are seeing this. Everyone's now talking about it. Of course, we have cybercriminality attacks that are more and more... We have AI models that are being used, more and more sophisticated ones, very powerful and professional attempts to manipulate our clients. Hence, as you can see, the banks and our banks' response is quite straightforward, awareness-raising. I think that you have seen the campaigns An unprecedented campaign is happening right now. And some functional solutions and perhaps limitations of functionalities that increase security is also something that we're going to look at going forward because that needs to be done because the threat is out there. And it's quite significant. I'm not necessarily going to link this cyber security issue to the war outside. However, a lot of that activity is happening in circles which are definitely not friendly to the Polish national security. And that would be it. I don't think the rest of the figures are any surprise. Peaceful times mean that it's easy to do forecasting, which is an ailment of mine because I would love to come to you with a new creative surprise, but it's perhaps too calm. for my sake. I shall leave you with this, hoping that I will be receiving multiple questions in the next session. Now over to Bozena, who will guide you through the details very professionally, as usual. Thank you. Hello. Very briefly, just to leave some space for a discussion, quarter three net income is over 1.1 billion, and this is a result that has been close to the expectations. It's slower than last year. You can see that in our accounts this has been impacted by increased costs and provisions. I will make a comment on that later. And for our performance here, the net income is $3.6 billion. That's 3% lower than the year before. And if we were to adjust this for credit moratorium in quarter two and three, $150 million, then actually the year-by-year performance would be very close. What's really worth looking at is the big aggregates impacting our financials. We have higher interest rates, 8% increase, and commission, 122 million year by year, 8%. This is a significant increase, but on the other hand, challenges related to the level of inflation and the performance of our statutory measures. Our costs of operations are increasing 11 percent, 310 million zlotys year by year, and what I mentioned earlier is the higher provision level, 428 million zlotys, and that's also an increase year by year. From that point of view, we are maintaining ROE, which is high, accumulated. That's 20.5%. Our cost of income is 42. Total income is 42.6 after nine months. So we're looking at the interest rates after adjustment for credit moratorium. It's 150 million for negative impact After the second and third quarter, 110% increase year by year. Now, it's 6.6 billion zlotys in the quarter is 2.2, and that's 1% increase quarter by quarter and 7% year by year. Our accumulated interest margin in quarter three is 3.62, and that's 2%. base points of change with every last quarter and our interest rates quarterly margin is 3.61 and I think it's worth looking at our loan to depot in ratio and it's below the desired level still in our balance sheet structure, but the level is higher in this quarter than it was the last quarter in 76.1. And that, again, is also good news.

With regard to the commission rates, you can see that for nine months we have 1.8 7 billion zlotys, which is an 8% increase year-on-year. And in this quarter, 582 million zlotys in income, 2% up for the quarter. I believe that we can see growth across all categories of the commission income year-on-year. I would like to pay attention to 40% of charge and credit card-related income, not to mention the distribution of participation units and brokerage activities. These have grown by 26% year on year. Now, in terms of the operation costs or operating costs, you can see that for 10 months, 3.5 billion zlotys, that's 12% increase or growth. Ingredient factors include increased operating cost by 16%. This is due to a variety of items. That goes without saying. particularly inflation-related cost of building maintenance, advisory services, IT services, all of which continue to be under extreme inflation pressure. Payroll, 9% up here on here. This is something that we have been talking about during the previous conference as a result of the pay raise campaign of April this year. And in proportion, we also have the bank tax increase by 12% here on here. Now, if I were to comment on risks, Bruno had actually said a lot already. This slide shows the overall dynamic of the reserve cost, $349 million, excuse me, $349 9 million of provision of reserve risks or provision risks and 83% of disbanding in the retail sector. Now, with regard to the isolated island growth of risk in the corporate banking sector, it is tied in with the stagnation period that we have been observing for quite a while now. Now, as Brunon said before, we are assuming that as the macroeconomic situation improves, should it come true, the cost of risk is going to drop over successive periods. Whereas, in principle, our priority is to remain prudent and respond to all and any symptoms of the negative performance of our clients. We have excellent retail portfolio performance. Mortgage loans actually have a negative cost of risk, the net disbandment or repayment. This was affected by the portfolio behavior as such, but on the other hand, we also have the performance on the sales of passive loans. revenues. NPL sales in the retail sector gave us 57 million zlotys. In terms of the portfolio quality and provisioning, this is a natural consequence of what we were talking about before. The stage three performance in the retail banking has definitely had contributed to it, 32 basis points, quarter on quarter, and it has resulted from the NPL sales. Twenty-seven basis points has been contributed by the sales of retail loans. Now, we also have the Stage 3 provisioning ratio related income in the corporate sector. Irregular clients, excuse me, loans have grown by 41.1, by 0.4 percent at the end of the quarter, 5.7 percent. Now, we have also noted a number of shifts in the various stages. I believe that it is highly notable that the share of stage two in the gross portfolio in the retail loans is a result of our analysis of the overall impact of flood-related effects on the retail portfolio. As part of a good analysis practice, we shifted part of the loans to a provision of 11 million provision. pool. We have also reclassified quite a few loans to stage three, which obviously has reduced the coverage ratio or provisioning ratio, if you will, in this segment. The reclassifications are so-called early reclassification, which ultimately means that they have not yet passed their entire life cycle of irregular loans. Provisions do tend to grow over time for that stage on the one hand. On the other, it is also the result of excellent portfolio hedging or security. We also have the capital adequacy issue 14.98%. It has dropped by 44 basis points quarter on quarter, which has resulted primarily in the risk-weighted assets change, specifically when it, well, across all segments. But that is a result of model changes and changes the provisions of portfolio segments across different stages. A quarter ago, we promised you that we are going to comment on what will be happening as a result of the introducing of the MREL level, I believe. This is associated with the intricacies of provisions, of related provisions. The stage of intricacy and the fact that we are passing through different risk stages means that those are cautious estimates. Nonetheless, PCR-related effects ought to be positive across the board. up to one basis point. That is going the capital adequacy ratio as a result of introducing the CRR3, as the Speaker said. We are very much aware that the market has commented extensively on the change of capital or equity buffers. And we have also published a report proving that we are or suggesting that we are expecting a change to the system buffer. In our case, it's going to be 50, up to 50 basis points in Q4, 1% for that buffer. is going to be adopted for that buffer. On the other hand, our schedule also includes anti-cycle buffers for the future. In Q1 of next year, one percentage point, and by successive one percentage point, per quarter. Now, TCR related without P2G will be 11.5% at the end of next year, 12.5% at the end of next year, and it is going to continue growing by the end of 2026. I believe it is worth mentioning that we did something else. In early October, we issued the MREL, we took out a credit line as part of a non-privileged senior loan of €350 million for four years. I think that is all in terms of the main comment in a nutshell concerning our financial performance for this quarter. Now let us proceed with a Q&A session. We are going to respond to questions from the floor, followed by questions asked by our online speakers. Well, I must say that the introduction was rather gloomy with regard to your financial performance. You believe that interest rates are not the main driver of the underperformance or poor demand. for corporate loans. So what has to happen? We were very much hoping for national recovery plan funds and so on and so forth. What do we have to do in order for the demand to grow? What are we missing in the economic policy creation? That's question number one. And secondly, I have a related question. The debate is going on how many Treasury bonds can the banks continue buying, given the government needs. Don't you think that it is much easier to invest in 3.7% or central bank derivatives, 5.75% rate, rather than in any kind of loan? So how many T-bonds can you buy? And question number three associated with question one. So what is your opinion concerning retail sales opinions with regard to your cards or credit cards business? and other instruments. Do you believe that there is something wrong with the Polish consumer market or retail sales, or haven't you noticed a deep decline therein? Thank you very much for that question. Thank you for those questions. Very good questions, not really tying in with our bank. They are of the general kind, but I will try to take the chat to respond to the challenge. With regard to question number one, the poor investment engaged in by private entities in Poland. In response to the overall needs, well, this decline has been on since 2014. We are just closing a decade of a declining propensity for investment in Poland. This also ties in with the relatively high use of manufacturing capacity in Poland that we do have. Well, in services, it is not as apparent, but that is the general market impression. And those circumstances actually do arise in circumstances of insufficient employment on the market which means that all businesses ought to move to investment in order to replace production means with state-of-the-art solutions with limited labor and sin intensity and electricity intensity factors, albeit our companies are not very dependent on electricity prices. Nonetheless, the dependency is there. And given the electricity price increase forecast, this is what people should do. Astonishment comes as a surprise, which means that the response to the question, why is investment in Poland so poor, is rather complicated, which ultimately means that incentives to boost investment ought to be variable in nature or assorted in nature. Indeed, tax stabilization and other instruments, stability and other preferences applied by the government, i.e., a uniform energy policy, a uniform militarization policy, a uniform policy of following certain growth engines. Quite a few years have passed since the most recent government attempt. Nonetheless, for the past 10 years, we are not operating according to a clear set of guidelines. As a result, businesses are showing a preference for concentrating on the accumulation and retaining their scale of operation, rather than shifting towards efforts to scale their enterprises, both with regard to the range itself, i.e. exports, and in terms of capital provisions. Obviously, investment rates for the past 10 years are nothing optimistic. All changes ought to be introduced for purposes, for aforementioned purposes, legal stability across the board, clear-cut priorities. Regrettably, today's economy, unless the government introduces clear rules will not manage, will not be well, which means that we need priorities. Priorities are a much better solution than state intervention. It goes without saying that financing, low-cost financing included, ought to be of great importance to the overall situation. Nonetheless, The Monetary Policy Council operations and related credit performance can be traced over the last decade. So the cut to interest rates did not have any major impact on loan campaigns or economic growth. I wish to remind you that inflation had risen in the year 20, or inflation rose in 2019 already. So we have to convince our businesses that investments are worth their while. Each and every year of lagging behind, means that people are getting used to what is there, and that causes great grief to me. I believe that what we do need are clear-cut guidelines and operations that ought to be consistent in their implementation. This is exactly what we hear from the market and businesses. Now, a related aspect involves awaiting or expectation. Businessmen today, Polish businesses, are showing an exceedingly high propensity for saying, let's wait for the program, let's wait for further incentives, rather than taking matters into their own hands. Poland cannot afford economic growth of 3% year on year. Anyone interested in the 2025 budget in any way can see it very clearly. We all know that the economy is a very strictly defined organism. Without economic growth, we will not be able to maintain our budget. What we are going to need, well, we do need growth as the desert needs the rain. Now, with regard to September consumption or consumer rates, after August, September came as a surprise. Nonetheless, I would like to emphasize and point out, too, that consumption rates cannot be seen as the main driver for economic growth. It had been seen as such for excessive periods of time. We are definitely attaching greater hopes to Germany rather than Poland. Poland is actually doing well, specifically the post-summer holidays rates do give us hope. Nonetheless, we cannot forget that economic growth is not really driven by consumption. The consumer rates, on the other hand, tie in with increases to remunerations, to salaries, which is not really tied to the productivity of Polish economy. Now, given the lack of economic growth, what on earth are we to compete with? if not with productivity. As a result, Poland is not really perceived as an attractive target for investors over 10 years' perspective. We still have low labor costs and excellent workforce quality. Nonetheless, that excellent workforce quality is definitely a... well, brings a cold shower effect because... salaries have grown by 10%, 11%, 12% year on year. which is rather colossal. Nonetheless, we are very much aware that in the most desired areas, that increase is significantly higher, which ultimately means that it is not consumption or the growth in salaries are to carry us over into the modern area of long-term competition. Firstly, we have to focus on energy transformation, both in terms of... So it is about generation and transmission, but that will involve public works. And on the other hand... be it services or heavy industry, energy consumption will be growing because we are going to be shifting towards an electricity consumption-based economy.

If we want to be a country for big server farms, for example, well, that is a very energy high consumption industry. It consumes a lot. And that's quite obvious. So that's more or less the point. Another thing is armaments. Well, that's a big burden to the budget, but it's also a huge opportunity, frankly speaking, to modernize the economy, to make sure that... It gets the fourth, fifth, I don't know, sixth, seventh gear. Not sure what the gearboxes are in the most modern cars now, but that's generally what I'm looking at. Huge funding. And it's important that they cascade throughout the economy and push it forward. And the third aspect that I consider a priority as well is the cost of work and the scarcity of labor force. We will not be able to handle this. demographics are not really going to handle this or immigration isn't either because we're looking at excessive costs and social burden. If we were to attract hundreds of thousands, if not millions of new immigrants into Poland, where do we take them from anyhow? So that's... to a large degree, the response to your question, but that's how I see it in general. But the issue of the September readings of consumption indices, well, I'm glad that the ones in Germany are doing well. I'm always more glad to see that. Now, The level to which the normal commercial banks is being pushed out given... I take deposits from the bank and I invest them into loans on the market. Well, now we're quite far from this practice. Back in 2020, I also remarked that there was a shift in paradigm in terms of how money was flowing. So... interference of the state in that role, which disturbs the process and such a habit causes the outcomes that we are seeing right now, which basically translates into the fact that if the state borrows money from the bank and then the state gives out money more or less, perhaps less effectively, openly speaking, at least that's the view I subscribe to. But that's my own opinion. I'm just a simple economist. From the point of view of the whole balance sheet of banks, well, that is an excessive concentration on one entity. Assuming that the state treasury and the pricing of T-bonds, which are not dependent on the results and performance of the banks, well, that's utopic. Now, there are factors, and we have seen that, that might come from outside the state, which can quite certainly change the pricing and the evaluation of the T-bonds value. And therefore, a huge share in the banks, it's a certain risk. And that's an element of concentration. So from that point of view, we could think of perhaps looking at balance sheets of banks and seeing whether they are resilient enough. And where is the borderline beyond which investing in the Treasury bonds happens with a relative scarcity of other tools that are liquid and enough and appealing enough in terms of interest rates that could compete against treasury bonds but that is It's not the case that the banks prefer to invest in Treasury bonds rather than loans. That is untrue as a remark. But since there are no loans and there is a river of money flowing looking for its place in the economy, It'll concentrate in banks, in the property market, and only to a certain degree, and I know Sebastian will be unhappy that I've said that, but only to a certain degree will it become equity, because the level of instability and uncertainty and burning your fingers is still making waves. I have heard this many times, that banks prefer Treasury bonds because it's safer. I don't see it that way. That's not how I see it. I think loan-to-depot ratio that very often is something that we make reference to, which, by the way, is about 70% in the sector here in the country, is slightly improving. But that's not a very good practice in general. Let me repeat again. What we're looking here is, again, is something that could be perhaps turned into good potential. Poland is a country where entrepreneurs have relatively little debt. the overall sum of loans to entities versus GDP is on the level of 11% in Poland. And the EU average, and I know that they're decreasing those indices, is about 35%, right? Now... When these countries experienced significant growth and were solving their economic and social problems when they were emerging like we are now, these indices were on the level of 60%, 70%. So our banking sector is rather small vis-a-vis GDP, which is due to the fact that enterprises are not using their elbows strongly enough. I understand 3% GDP, hooray, but that's just a matter of attitude and outlook. Since we are an emerging country, a growing country, we should be having a 5% GDP growth, and we are not going to. And that's a dilemma. That is a concern to me as an economist, a humble one. But still, I've been in the area long enough to have a right to respond to your questions rather than just to say I don't know anything about it. Have I succeeded in responding to you and showing you my views? Thank you.