Mbank Sa

Good afternoon, ladies and gentlemen. Welcome to our conference where we will present the results of MBank Group in the second quarter of 2023. First, I would like to introduce our speakers today. We have a new speaker, Mr. Pascal Ruland, Chief Financial Officer. Pascal, welcome on board. Thank you. And our speakers, who you know well, whom you know very well, Mr. Czaristy Pułkowski, Chief Executive Officer, Mr. Marek Luczny, Chief Risk Officer, and Mr. Marcin Mazurek, Chief Economist. Let's start.

Okay.

Well, that's the sort of regular message from our side. fabulous operational results and unfortunately financial outcome is not that as rosy as the operational can suggest. So on the positives, no doubt that we continue to have strong net interest income. I would say to some extent better than we expected since we expected flattening of this line already the previous quarter, but it still performs reasonably well. Some small drop in net fee and recent commissions, partly due to the higher cost, partly due to some less active balance sheet. Overall costs have been growing in a reasonable a pace cost income. I don't think that requires any type of a comment. I don't think it's sustainable in a long period of time, but obviously we are benefiting on one side from high growth of our income. On the other hand, I believe reasonable cost management. Cost of risk will be commented, I would say, below our guidance. And then the name of the game in the second quarter was the cost of the legal risk related to the heritage portfolio. If you've been fully familiar with, that was a write-down of 1.5 billion slots, which is a huge amount of money. That will be explained since I can imagine that there will be a lot of focus on this issue. There is profit that is excluding some items on the Swiss franc issue and taxes. I have to say this, I think the highest ever. So that only confirms the operation of the bank is performing very well. I already sort of commented that the balance sheet is slowing down. The long growth was negative. Deposits, I think, as a consequence of our very strong liquidity position and management of our margin, I think, you know, was under some pressure, but we don't consider this being an important development. If we can move to the page four, that summarizes to some extent, you know, the first half of the year. I would say not that much to be commented on this particular one. I think that the most impressive is obviously the returns which the bank has been able to deliver on the core business, which is extremely high. And I have to say, obviously, the question whether it's replicable, the answer is not necessarily, but I have to say the core business is performing extremely well. Out of this, I think, you know, the cost income, I think, you know, it's not that much quarterly development, but it shows that we are, in the course of this year, able to keep, you know, the cost income ratio below 30%.

I think it's the current development, but I believe that

Obviously, in a longer period of time, it's more problematic. But as you know, since I was the bank and it's a long period of time, cost income is an important factor in our management and our approach to how to steer the business. Despite these quarterly movements, when you look into the customer deposits, we are still growing. There is almost 10% growth compared to the previous year. What is worse to mention is that under these circumstances, despite this huge cost on the legal front, obviously to some extent also due to the fact that our balance sheet on the lending side has been shrinking, we've been able to keep or even increase our capital ratios. Talking about some major developments, I would say I will focus just on one. You know that we have launched this year, beginning of this year, I think we started our asset management company, the TFI. Our intention is really to focus on longer-term savings of our customers, the demographic profile of our customers. from a long-term perspective, we believe that we have to provide them with strong asset management products. The anchor of our offering for a number of years was transactionality. Many of them are in their 40s, and we believe that that's the right time, and I would say their financial position also justifies that they have to start to think about the longer-term perspective. And as a consequence, we have to assist them with the product range, which will be addressing this longer-term perspective. By the way, I don't know how many people are today on this call. 89. Because I wanted to offer the book, Your Long Life. for those who are present, but 89 copies I don't think I have. But this is important for our internal management, because all employees of the bank have been granted this book, which I strongly recommend, and this is sort of a current gift from the bank. So we will check whether we have enough in the storage. But this resonates to some extent to this campaign which has been launched, which is Happy with Age, and I strongly recommend for the locals go to the cinema theatres because I think this is mostly displayed there and I have to say it's very impressive I like it you know despite the fact that I was not personally involved in you know designing this. The next one I would say you know well we continue to have the reasonably good acquisition of new clients both on retail and the corporate side obviously there are some cleanups um because uh some dormant accounts are being closed there's more focus on this issue from our perspective than it used to be in the past to some extent due to the fact that you know your customer is a different level of um of uh requirement uh in terms of uh keeping pace with the client's identity, you know, change, etc. So we are very much focused on this issue. And as a consequence, you know, the nominal numbers of clients can vary over the years, over the quarters, but I strongly believe that we are still keeping pace with the acquisition of new, specifically younger clients. Corporate clients, you know, well, I would say We are very much satisfied with the current pace. We grow the number of mid-sized companies in Poland, which is our focus, both on the upper end and lower end. And in this respect, on the corporate side, we are witnessing a very strong presence, despite the fact that, as you see, Our loan book is shrinking, mostly due to, I would say, less presence in the top companies in Poland, specifically in the state control. Well, I will not specifically focus on this M-Bank as an icon of mobility, But what I would like to stress, and this is, I would say, a result of a number of years of endeavors in this respect, and I think that the product which we have offered to the clients and the systems which we have on the distribution side, this is the growing importance of digital channels in our client relationship. We are witnessing the situation that almost 87% of our contact with the clients is being initiated in digital channels. It's not perfect yet, lots of work is in front of us, but definitely in this respect, and we know that from mostly McKinsey studies and Finalta, that in this respect bank differentiates to, I would say, most of the players in Europe. With this, I will pass to our new kid on the block. He will be overexploited today because this is his debut. And my strong feeling is that we are working together for already three months. But I have to say Pascal was with the bank already a few years ago on the extended program back in 2017-18. So he knows the bank, so he's a new kid on the block, but mostly recovered kid on the block. Pascal, I'm passing to yourself. Don't be nervous.

No, no, no. Thank you very much. Thank you very much for this round of words, handing over, and hello to everyone. I'm happy to present the financial details. On slide 8, financial summary, and starting off with the total income in Q2. Revenues have increased by 7.7% quarter in quarter. And this is especially driven, as already said by Cesari, by our net interest margin. We are very proud of, if you look into the bottom of it, that we currently have a NIM from 4.33%. And this is an improvement quarter by quarter of 0.49 percentage points. And this proves really a very strong competence in managing our deposit base in both business lines. Together with a slightly weaker net fee and commission income, this builds the highest quarterly total income in the history of this bank. Total costs of the group, excluding obligatory contribution, increased by 5% quarter in quarter. especially due to personal material costs which are hampered by inflation nevertheless the reported cost income ratio of 26.1 percent confirms still superior cost efficiency and also fights this inflation pressure on the cost side loan loss provisions and failure changes increased 7.5 percent quarter and quarter especially due to LLPs in our retail banking and Marek will elaborate later on on the details. Legal risk provisions related to Swiss rank mortgage loans in the amount of 1.54 billion as Cesare said it materially burdened our financial results of the Q2 and is especially impacted by the ruling of the court of justice of the European Union in the KC 520-21, as well as further updates of our model parameters. We will go into details later. Just one word on the difference what you see here as booking versus what we've announced in our current report on the 23rd of June. It's about 20 million. Why? Because we have seen more settlements than anticipated, and this is actually good news for us, but therefore also the number is slightly higher. As a result of the P&L items Q2 generated a profit before income tax in the amount of 75.8 million and small net loss is recognized of 15.5 million. But the message is strong of this quarter and also for the half year because the significant burden of the Swiss strength related bookings in the first half of 2023 we are showing still a positive result thanks to our very profitable business. Before turning to the balance sheet, two technical comments. And I also saw that the tax topic is already discussed. Our effective tax rate, and I would like to remind everyone that we follow IAS 34, and while the majority of our Swiss-rank related provisions are treated as non-tax deductible, this relates to a very high ETR of almost 77% for H1. And it's important to note why we see it reflected also in our financials. The second technical comment is that we have a restatement of our valuation of the credit link notes related to our synthetic securitization transactions. And the reason is simple. We want to follow market practice. Therefore, we're just swapping account lines. Currently, we have it in net fee and commission and net interest expenses. And previously, we have reflected it in our LLPs. Turning to the summary of the balance sheet. And here I would like to draw your attention to the capital ratios while we will discuss the loans and deposit development later in the presentation. As of the end of the month of June, the TCR as well as the Tier 1 capital ratio stood at higher levels than the shown previous quarters on this slide. And here I would like to remind everyone that in 2022 we had to bear a burden from external effects of in total 5 billion. and its amounts from Swiss franc to credit holidays and also IPS. And this year we have significant burden from the Swiss franc related provision increase. Despite that, you see our capital ratios increasing and that's the result of a very successful capital management in combination of a high profitable business. And with this said, I'm handing over to Marek with respect to the Swiss franc details.

Thank you, Pascal.

So if we look at Q2 Swiss franc perspective, our legalist provisions related to Swiss franc mortgage loans amounted to over one and a half billion Zloty, and this is something that materially burdened otherwise excellent financial results of Q2. Why we had to book such a material provisions? That was the cost resulted from mainly the change in the distribution of the expected court verdicts after the judgments of the European Court of Justice of June that concerned remuneration for the use of capital by the clients. We have also updated settlement program cost and we have considered execution of final court verdicts and cost of concluded settlements. So if we look at the overall coverage ratio of the active portfolio at the end of Q2, that brings us to 75.4%. That is best-in-class coverage if you compare us with the peer group of banks with material Swiss franc portfolios. If we would consider also the FX mortgage loans capital buffer that is imposed on top of the regulatory ratios, our coverage would stood at 85.2%. What needs to be remarked as well is that the share of the Swiss franc mortgage portfolio in our total loan book decreased to 2.9% from 5% at the end of 2022. And the total value of provisions for legal risks at the end of Q2 reached 7.3 billion zloty. And if we would consider the cumulative amount of provisions created since the beginning of the Swiss franc saga, that would bring the amount to 9.6 billion zlotys. If we look at not only the coverages, but actual actions we are performing to address the issue, The settlement program that we have launched at the end of 2022 is ongoing. We are quite happy with the results. At the end of Q2, we have 7,100 settlements. June was the month when we had the highest ever number of settlements signed, over 1.3 thousand settlements in the month of June alone. And what also is important in the context of the verdict of the European Court of Justice in mid-June is that we haven't seen small settlements Apologies for that. After the European Court of Justice verdict, we haven't seen a drop in customers' appetite for settlements. So also the month of July was actually the second highest number of settlements ever signed in a month. And this overall brings us, as we speak, to over 8.1 thousand settlements signed to date. And with that, I hand over back to Pascal to comment on the excellent performance on the core business if we carve out the Swissran portfolio.

On this slide, 11, I just would like to highlight one KPI. Here at the bottom, our return on equity, which reached 41.7% in H1. This is a significant number and shows our excellent profitability And I guess we do not see a lot of other institutions who can show something like that. Nevertheless, we in a total picture, and that was what Mark already reflected on, have still the Swiss franc mortgage loan business next to us, which completes this slide. Let's go to the details of our performance on slide 13. You can see on this slide that the loan trend continues to be negative as outlined by Cesare already. The negative trend has structural and strategic reasons, which I would like to bring in perspective. Starting with the retail side, we have in Q2 a decrease by 2.1% quarter in quarter, but excluding the FX effect, 1.9%. And the main driver is the mortgage loan book. And here we have the structural topic that the mortgage loan portfolio was impacted by declining. Swiss franc portfolio and deductions resulting from the cost of legal risk related to the Swiss franc mortgage loan portfolio. And this alone sums up to 1.5 billion as a structural effect we're having. Moreover, what we also observe is that we have overpayments still of all our Polish mortgage loans. and this has strong traces towards credit vacations so that the receiving end doesn't need to have financial stability rather than gaining financial surpluses and paying back the loans. Turning to the corporate loans on this slide, excluding FX effect and excluding the buy and sellback transaction, actually corporate loans increased slightly quarter on quarter with 0.6%, year on year also minor 0.2%, This stable development is a result of our very selective approach of granting loans in order to preserve the high quality in our loan book, which we have gained in the last two or three years. And this is also proven for this quarter while we see a slight increase in our margins. Going to slide 14, this provides our new lending business, which shows positive developments in three out of four subproducts in the latest quarter. Visible is especially our rebound of the retail mortgage loans, left top of the slide, increased by 69% quarter on quarter. But compared to the previous year, the market is far away from being at the levels before the interest rate hikes. But important to note from our perspective is here that our fixed interest rate Polish mortgage loans now accounting for more than 50% of the sales. And this leads to an amount of 18.3% of fixed mortgage loans in our portfolio in June. And our strategy is also to pursue this path with attractive pricings toward our customers to grow the book further. A separate topic is the 2% safe credit program, which brings in addition some revival into the housing loan market, which is not yet visible on our site at this page, why we declared readiness to this program on a later stage, and this will be Q3 2023. The currently described positive developments, we also expect to continue then in the next two quarters, but this will be largely offset by our shrinking loans of the non-core segment, which gives you then the trend for the full year. On our non-mortgage loans, you still see there's not a lot happening because we are still in a high interest rate environment. And here our focus is to have a decent margin and not to gain market share. Therefore, the two billion we are currently seeing in the last two quarters is also our expectation for the upcoming two. What is noteworthy is that our new sales are now over 60% channeled digital, and the main driver is our mobile application, which brings from an efficiency point of view exactly what we want to achieve. Now focus on the sales of corporate loans. In Q2 2023, we went up by 19%. Very good is that all customer groups are affected and especially term loans and overdrafts are increasing. Finally, M Leasing continues to have a good performance. The value of newly concluded contracts increased by more than 26% year on year and we are well above market. In the corporate environment, we expect slightly growing loan book in the second half due to this already started increasing momentum. Let's turn to the next page, page 15. To comment the deposit volume, it is important to note that our aim is to maximize the total income from deposits. So it's every time a trade-off between volumes and margin. And as we already elaborated, we optimized our margin in the last quarter due to our comfortable liquidity situation. While we have gained year on year, and this is visible on the left hand bar chart, more than 50 billion more deposits from our clients. And this gives actually a very strong position to optimize pricings. And this is what we have done. Therefore, the slight decrease in deposit volume was actively managed. By the end of 2023, the group deposit base is likely to remain stable or slightly growing. That's the expectation. Following up with the next slide, the total income slide. Record level of income, almost 2.7 billion income in one quarter, as said, is a historic high. And let me briefly bring that in perspective on NRI and NCI development. As outlined before, respect to our deposit pricing strategy, you can see on the right hand top that our net interest income is stable and we gained the positive momentum in optimizing the interest expenses. And this is visible at the bottom. The trend of deposits I already elaborated on, so one word on the non-deposit source, which is also driven because we paid back parts of our outstanding debt, and that's the explanation. Let's have a look at the net fee and commission income with our Q2 result at 488 million Polish zloty. On the year-on-year development, I would like to remind us all about some structural changes. So we charged in 2022 deposit facility fees towards especially our corporate clients for year-end balances and as well also monthly fees which were connected to the negative interest rate environment but we are now in a totally different environment the justification for those fees diminishing and that's the major trend year-on-year we witness on the quarter imported development we have a slightly higher net fee commission income, but it is overcompensated by higher net fee and commission expenses, and this is especially driven by higher costs of services. Looking forward, we do not change our guidance of Q1, so 500 million per quarter is what we expect, so we will expect a slight increase versus the Q2 figure you currently see. Turning to slide 17, cost rise is below inflation levels this is the good news nevertheless if you're looking into the details the operating costs adjusted for the bfg contribution booked into one increased by five percent quarter and quarter now we are at the level of 704 million the main driver is personal expense it is visible in green you see 3.6 quarter and quarter and 18.3 year on year This is due to wage increases, which will continue because we would like to keep our key people. And it is also not worthy that we are perceived as one of the best employers in Poland via our results of the pulse check. And that's just another cornerstone. which are not anymore that visible. And we are aiming or we are just seeing for half year 28.5%, which confirms our best in class efficiency. In the following quarters, our operating costs are expected to increase versus Q2. But from a total cost-based point of view, we're expecting to be lower than 2022, while we do not expect to pay into the IPS and for support fund in the next two quarters. And therefore, we have a structural difference. With that said, I'm handing over to Marek for the LAPC.

Thanks, Pascal. So going through slide 18, let me comment first on loan loss provisions and cost of risk. And I will also tackle maybe on the fly one of the questions that we have on the on the list regarding the the guidance for the cost of risk for second half of this year so in q2 for for retail banking we have seen a material increase of the cost of risk the increase was driven mainly by the recalibration of our loan loss portfolio model to reflect the latest macroeconomic assumptions and the level of observed delinquencies. And that was largely offset by the outstanding results of net impairment losses for corporate and investment banking that were actually not losses but profits in this quarter. and they were positive at 46 million versus flat result of Q1 in that segment. The lower LLPs are primarily due to the efficient management of the debt collection and the structuring portfolio. which contributed to the non-recurring release of some of the provisions established in the previous reporting periods. And we consider this largely to be one-off. So the cost of risk that we have seen for corporate investment banking segment recognized in Q1 and Q2 cannot be extrapolated for the following quarters. So, despite our entire loan portfolio having high quality, we do not see the major risk in our corporate portfolio at the moment, but the overall cost of risk for the second half of this year is expected to be higher than what we have seen in Q1 and Q2. And that's obvious to say that the level of the LLPs will also depend on macroeconomic developments, including the impact of inflation and the level of rates that will impact our clients in the following quarters. But overall, compared to the results of the cost of risk that we have seen in the first half of this year, our outlook for the second half is slightly negative. Going to slide 19 and having a deep dive on loan portfolio quality, despite the economic slowdown seen in Poland and our major trading partners, we see Good asset quality due to the non-performing loans ratio only marginally increased to 4.1. And it was significantly lower than the overall NPL ratio in the sector that was at 5.7 according to Kenneth data. We have seen a slight increase of NPL ratio for retail loans that were from 3.7 to 3.9, but that was primarily driven not by the higher amount of interloans, but largely by the decrease of the retail exposure volume, but about 2 billion zloty. So it's basically the denominator's effect. Also, if we look at the coverage ratio for Stage 3 and POSI, it was slightly increased from 52 to 53 percentage points. And the overall coverage ratio for loans in Stage 1 and Stage 2 went up to 71%. And last from my side, capital ratios and liquidity position, also answering some of the questions that we have seen in the Q&A, why the capital ratios have actually improved. What we need to remark is mBank is one of the three banks in Poland that have this so-called ethics mortgage loans add-on, overimposed by the regulators to put at par banks which are having standardized and internal rating model based regulatory capital calculation and we are of the later group and that capital requirement related to FXML add-on was decreased by KNF and ECB decision in June. It was lowered by almost 60, 58 basis points to be precise for total capital ratio at the group level. And that combined with outstanding internal capital generation capabilities from the core business allowed us to improve the overall capital ratio compared to the Q1, despite one and a half billion right of the Swiss bank portfolio. And last but not least, as you can see on the right hand side of the slide, excellent liquidity ratios, both in terms of the LCR perspective, that's to sign if you can't be above 200 basis points and very well about the regulatory capital minima, that stable funding ratio. And with that, I hand over to Marcin to comment on macro-outlook.

Thank you, Marek. Good afternoon. So economy is at the crossroads right now, but I mean it in a positive sense. It is highly likely that the second quarter is going to mark the turnaround in GDP growth, so we will turn from negative to positive. It will be a slight positive number, but we have to start with something. Consumer moods are better and better, but they fail to spend more. We think that the reason lies in real wage growth. It used to be negative. In July, it turned positive. So it's up to two or three months when consumption spending will be on the rise. And to be honest, it would be the main driving force behind economic recovery that we are forecasting right now. The other part would be based on private investment activity because it stays strong despite high rates. At the same time, we observe that the labour market stays super strong, unemployment rate is still falling. We see only minor drops in employment in the enterprise sector. 20,000 people laid off is just, I would say, nothing compared to the scale of deceleration of GDP growth. Inflation is falling, but it's fair to say that low-hanging fruit has been gathered so far, so the process of falling towards the target would be much harder from now on. But nevertheless, the MPC decided to take stock of inflation developments. And here we are changing our scenario. So far, we expected MPC to cut rates in 2024. Now we move forward this first rate cut to October, since MPC clearly communicates that current inflation below 10% would be sufficient level to start cautiously lowering rates. We cannot disagree here, so we are going with the flow. In terms of deposits and credit on the market, It mostly reflects our accounts, our bank accounts, so there is plenty of deposits in the market. We are seeing some turnaround in credit activity and I would say the worst situation is on the corporate credit. It's suffering from the negligible amount of investment credit and also it's under the spell, under negative spell of shrinking current financing due to the fact that corporates are slowly getting rid of inventories. As far as rates are concerned, Expectations for quite aggressive MPC cutting cycle brought government bond yields to the lowest level since Russian invasion. We don't think there is much more room left for further drops. That's why we also expect that the European rate reached its local minima. From now on, we expect slotted to be a bit weaker, reflecting a little bit more, a little bit too high eagerness of MPC to cut rates. And last but not least, due to the fact that Poland has become fashionable of late, we decided to add some structural issues. Right now it boils down to four graphs. So summarizing it, Poland still is a growth story and will be a growth story since it is very, very competitive in terms of hourly labor costs. You can see that on the right-hand side upper graph. At the same time, even though unemployment rate is low and even though demography is, I would say, not very good going forward, we still have some juice left to catch up in terms of labour activity rates. So in terms of labour supply in the individual term, there may be some room for manoeuvre to increase labour supply just to properly grow forward. Last thing to note, well, there are various measures of competitiveness of the economy. Our favorite is the balance of international services. You can see quite clearly on the bottom right hand side graph that there is a growing surplus in services rendered by Poland. And I think it speaks for itself. That's why Poland is very competitive in, I would say, areas that would be very, very fashionable going forward.

Thank you.

Thank you, Marcin. Now let's go to the Q&A session. So the first question is about the sensitivity to 100 BIPs decline in base interest rates. So what is the sensitivity in NII and NIMA?

Yeah.

Sorry, I'm taking this question. It is also outlined in our management report of the first half of the year on page 62. And I'm just saying that because I would like to bring our sensitivity into perspective. What you can see there is that we show on a 100 basis point shift in static balance sheet approach that we are affected by 670 million. But important to note is that within this shift, just 55% roughly, are respected to Polish Zloty through the shift we are currently discussing and also margin described that we see some interest rate cuts at the end of the year, so half of that. And while this is a static approach and obviously has therefore ups and downs, you cannot take this as a Strict guidance, this is just as an anchor point, while customer's behavior is highly sensitive as well as also pricing strategies to what's the topic. But to give you a sensitivity in our management report, it is reflected. But out of the sensitivity you see, it's just 55% on policy related.

So what is the NII outlook for next quarter? Is there any room for positive surprises similar to the second quarter of 2023?

So as guided with our very high net interest margin we just received this quarter, we believe that this is largely exhausted. Therefore, together with the expected rate cuts, we believe that it will be slightly lower, not dramatically, but slightly lower.

So another question to Pascal, what is the guidance on cost growth in 2023?

So the operational costs will follow the growth path we've seen in Q1 and Q2, but the total cost base, and this gives you then for your estimation, maybe the correct guidance, will be below what we have seen in 2022.

If I may add to this issue, we think that

um when it comes to cost we are trying to manage this you know also in respect to our our ability to generate the income and obviously some one-off type of cost we can accept as long as they will not impact our longer-term perspective in terms of you know disciplining the bank via the income ratio so i will not over focus on you know the costing this year i think that you know they will be under the control but there are some investments in terms of you know building though specifically in people which i will not exclude that they can lead to some one-off type of spending, which we originally haven't envisaged in the beginning of the year or during the course of the year. I don't want to be very precise. I'm just saying that, you know, let's not over focus on this extremely low cost income ratio, which I believe, you know, is the guidance, as I said. But what is very important, we are trying to manage this line. in a longer period of respect, not just on a quarterly or annual basis. So the costs which are sort of determined in the longer period of time are of our special interest and special focus.

Is there any change in the cost of risk outlook for 2023? What does MBank see for 2024 in terms of assets quality and risk costs?

I have partially answered that while presenting. Outlook for Q3 and Q4 is slightly negative compared to what you have seen in the first half of this year. and we expect that 2024 is going to be roughly similar to 2023. We expect a slight improvement in the quality of the retail portfolio in 2024 that's going to be compensated by the longer-term effect of economic slowdown on the Corporate portfolio also taking into account this one of effects that I was alluding to before.

So about this one of impact, what was the level of one of impacted provisioning release in corporate segment?

So the biggest one of impact in corporate portfolio in Q2 was a single name effect that was slightly above 70 million slots.

Was higher delinquencies reported in mortgage or consumer lending?

We see this in retail book of M-Bank similar to the general trend since in the market that is actually the delinquencies are seen all across the board.

um is m bank budgeting any costs related to deposit guarantee fund contribution to bfg in 2024 um we are budgeting in but it is not significant and we are talking about a very low double digit number so because what um what needs to be to be said is that uh

As you have seen in 2022, the BFG Council has decided to lower the coverage ratio for DGS from 2.6 to 1.6%. And as of December 2022, the level of funds gathered in DGS accounted actually above 1.6, 1.77% of the covered deposits, to be precise. So they exceeded the target. So the contributions in the following years, provided that there is no change in the decision of DFG Council, that we do not foresee at this stage. The contributions in the following years will not materially change and will entirely depend on the dynamics of the convert deposits.

By European standards, you know, the coverage is relatively high.

Uhm, it seems that there was an awkward revision of capital ratios reported in the first quarter of 2023. What was the reason behind this? Actually I yes we we put the answer in the in the chat. I will read this. The reason was the retrospective inclusion of the first quarter 23 profit into own funds after the KNF approval.

Uhm?

Another question, will you start offering 2% subsidized mortgages?

Yeah, I would say a demographic problem of our clients definitely forces us, if I may say, to offer that type of product despite all the questions around the structure and and the development in the market. Clearly, there is interest on the side of our clients, as you know from the previous presentations of the bank, also the strategic presentation. The demographic profile of our clients is just in the range of the age brackets which have been declared in this product by the official sector. So we will be ready. We aim to be ready by mid-September with an offer. We witness some interest on the side of our clients.

Mike, would you like to add something?

Can you comment? Was the use of borrower support funds on the rise in the second quarter 2023?

No, we have actually seen a decline in the customer interest of using that fund.

What is your ambition when it comes to the number of Swiss franc settlements signed?

The more the better.

You know, look at me, you know, who got the last Chinese process? I'm under the circumstances with the jurisprudence. By the way, I want to say to those of you who are less familiar with the details of the jurisprudence which has been built around the Swiss bank portfolio involvement, if that will sort of survive in a longer period of time, the ETC, the European Court of Justice line, can adversely impact, in principle, the European banking. It's not just Poland. We are like a sort of proxy for what can emerge as a strong customer protection in the product, which is long term. and you know with the implications for the management of the balance sheets of the banks so i have to say i'm just warning not only the polish officials but also the european officials uh that it's not beautiful it's not just limited to the political environment as a consequence you know the more settlements we can we can reach with the clients the better it will be for the bank obviously there is a cost attached which we have to manage.

We have another set of questions about Swiss franc provisions. What are your expectations for Q3 and Q4? What is the probability of further model updates that increase risk provisioning going forward?

So we expect that The provision that we have created in Q2 in response to the negative verdict of the European Court of Justice is actually the highest as far as 2023 is concerned. We expect that Q3 and Q4 will also bring some increase in provisioning. in response to the developments, both in terms of the number of cases, jurisprudence and settlements offered to the client. But we expect them to be much smaller than what you have seen in Q2. And actually, we expect also them to be smaller than the number that we have created in Q1 this year.

Is there an increase in the number of legal cases coming from Swiss franc mortgage loans already paid back or settled with customers? What is the current level?

The vast majority of the claims that we get is from active portfolio. And if we look at the most recent proportions of active versus repaid claims that we receive, we don't see the proportions of the repaid actually being higher than historically.

Is NBank noticing an increase in the level of loan history taken by the clients, which would imply a higher level of legal cases in the perspective of the following months?

Yes, there is a small uptick compared to what we have seen in last year, but the increase is small, it's actually in low teens percentage points wise.

It seems that the new volumes in mortgage lending in PL were still in the downward slope, quarter on quarter. Was this intentional?

Well, there are two aspects. One is that, you know, what we have witnessed in the market, there was some slowdown, not only by our clientele. That's one. The second, I have to say that, you know, the legalities around the mortgage business in Poland are problematic. That is the position of the banking sector, and I'm responding to this question not only in the capacity of MBank, but also representing the banking association. I have to say there is a pending discussion to which extent with the lack of solid jurisprudence, with the questioning almost of everything, you know, and I would say even conflicting messages from the official sector, to which extent we will be able really on the solid basis to offer that type of a product to the clients in need. And as I said, mBank is in a very specific position because we have very strong and very loyal and very sticking clientele, which is exactly at the age of people with a strong intention to purchase form of housing. And I have to say that dilemma is in front of us. I have to say that there are some aspects which are related to our understanding of you know what's the future of the product it's the overall appetite of the of the clients though as i said our clientele is at the right age bracket so definitely there will be interest the third element is you know the jurisprudence and and i would say uh overall from this response judiciary which is in this way So all this does not give enough comfort. That does not mean that the bank's intention is to withdraw from the product. I think that we have to assist our clientele. Marek, would you like to add something to that?

Okay, the question on net interest margin. If I'm not wrong, you have been keeping cautious short-term outlook on net interest margin since Q2 2022. However, since then, it's appreciated by 70 to 80 pips. Was it rather the deposit side which outperformed your expectations? How should we read it this time?

To be perfectly honest, yeah, this is much more the deposit side. So I would say, and as I signaled already in my entry statement, I think that, you know, the stickiness of our clients as a consequence of our transaction, you know, transactionality, they are growing funds since the income levels of our clients are growing as well plus the systems which we use which allow us to individualize approach to the clients all these contributed to this phenomenal growth on the net interest income whether this is sustainable the response was already in place you know we are cautious we will continue to purchase but we will manage

Do you see the trend in declining share of term deposits in the retail segment sustainable?

It's difficult to respond to that question. I think that we are in a situation where automatic client decides. As I said, we have in proportion to our overall retained deposits market share, we have a relatively higher level of the money on the checking accounts, and this is a result of mostly our premier transactionality. We believe that, you know, that creates a stickiness, which is an important factor, but still we want, we allow and we encourage clients to put money into the longer term play. with the interest rate which reflects our liquidity position.

Would you like to add something? Two things maybe, because we're discussing the great progress in terms of deposit and this is something which especially is also leveraged by our digital position to really dig into our data sets and to understand our clients' behavior in order to also optimize then our offers towards them. This is one of the drivers why NIM overperformed. And secondly, towards the slight downward trend on the term deposit, I just reconfirmed This is not yet easily forecastable because we every time face more circumstances in the market, competitors' behaviour in order to manage our total deposit. As said, our aim is to have a total income increase and that is then the gain between volumes and margin.

What is the share of fixed loans in total outstanding loans compared to one to two years ago?

I mentioned it during the presentation, it's roughly 18% currently. We started to offer two years in 2021, the product. So it's now migrating from 2021 from zero to 18%. And last year we had at the same time, 13%. So it's on a growing trend and this is also our strategy.

18% of the retail portfolio. Exactly. What is the average duration of the investment book?

Well, I'm new. That's definitely something I also witnessed. We do not disclose the topic towards the market. But while you can get some points within our disclosure to give you the confidence on our duration in total, it is slightly below two years you can then judge out of our data that we are delivering towards you.

and that's the the answer but this in total includes the whole to collect and the whole to collect for sale portfolio thank you very much we covered all the questions uh so thank you all for the for your attention and we wish you great holiday those of you who would like to get the promised

a copy of the book new long life should apply to johanna and you know the distribution will work both english and polish version one copy surplus okay thank you very much