Mbank Sa

Good afternoon, ladies and gentlemen, and welcome to our conference where we will present the results of M-Bank Group in the fourth quarter of 2023. The speakers today, as usually, are Mr. Cezary Stupukowski, the Chief Executive Officer, Mr. Pascal Ruland, Chief Financial Officer, Mr. Marek Rusztyn, Chief Risk Officer, and Mr. Marcin Mazurek, Chief Economist, who joins us virtually. You can ask your questions in the chat box. I will read them after the presentation. Cezary, let's start.

Good afternoon. As you see, record revenues, net interest margin going up, strong protection against legal risk. Unfortunately, only 24 million zlotys of net profit. The performance of the bank over 2023 was very strong when it comes to the core business, which we manage. record income that's the we surpassed 10 billion slots of of income which is almost 17 percent more than the previous year the most important contributor was the net interest income in the reaching 8.8 billion slots, almost 22% about the previous year. That has been very much driven by the active management of our margin, which has been elevated by almost, am I right? 47 basis points, yeah. So it's a significant growth specifically since we operated in the range of 4%. Fees and commissions can be lowered on a net basis, mostly due to the higher cost on the fees and commissions side. Nominal expenses have been lowered by 7.4% year on year. This is very much driven by the lower burdens which resulted from the base of 2022. There were higher level of payments to the VFG, APS, contribution by the banking sector to the protection scheme was an important factor. So, all in, when we take from the base the burdens I just referred to, the increase of the cost base was 17%, which was, I would say, above the inflation rate in Poland, but this was very much driven by our investments into the future, to some extent also by the fact that we have grown our workforce by 300 people. These exceptional revenues and reasonably well-managed cost base led to this spectacular cost-income ratio of 28.5%, which I have to say upfront that it's unsustainable at these levels, but definitely this is on the trajectory which Bank has proven over the years that, you know, cost-income is an important tool of our management, and we are year after year improving this number, though our target figure is to be below 40%. uh that's something what you know a strategy states cost of risk was slightly higher than the previous years 93 base points that reflects more cautious approach to lending and some cases which you know later on will be commented overall asset quality at recently good level NPLs ratio of 42%. So that's slightly higher than the previous year. And the rate could be four, as I recall. As I said upfront, reported result was only 24 million slots. That was result of legal costs which has reached the level of almost $5 billion, maybe $4.9 billion, which we put aside to protect the Swiss bank portfolio and everything what is around. This will be specifically commented during the course of this meeting. If we look into the bank at its core, we will not address the issue of Swiss franc portfolio, which is a heritage portfolio. I think the last set of loans have been offered to the clients around 2009, as I recall. And this I remember when I joined the bank and stopped completely the product. So returns of our core business are reaching 40%, so there is not much to be commented on this issue. What is worth mentioning on top of obviously this significant amount of money which we put aside is the pace of our settlements, which during the course of 2023 has accelerated. We piloted in 2022 a variety of options. I have to admit that we've been maybe too conservative at the early stage, blame it on me. But our attitude at that time was that, you know, we should share the consequences of depreciation of Swiss banks. These are these lots between the clients and the banks. And then there was the issue around equalization of the Swiss franc borrower's position to the Zloty clients. But unfortunately, the EU is put in spite of the European Court of Justice and lack of the action on the side of the Supreme Court in Poland and problems with the judiciary system in Poland. All these led to this messy situation in which we decided to more actively promote settlements and you know they have reached the level of 13.3 thousand at the end of last year the time figure is about 14 000. um as a consequence of this uh topsy-turvy situation which you which we observed around the legalities in Poland, and the fact that we have put aside a sizable amount of money, I have to admit that our management was very much focused on the capital position of the bank, that to some extent slowed down the growth of the bank, since I would say another factor was that the credit market was not very active last year. But definitely, year on year, our long book has a strength by 3.1%, excluding the foreign exchange effect, which is important having in mind the overall portfolio, plus some other lending positions. We have to admit that, you know, our active promotion of the lending was under the pressure, and as a consequence, our market share, mostly on the retail side, to some extent on corporate, which was more stable, has shrunk. What is worse to mention is that deposits are growing continue to grow. Last year it was less aggressive than the previous year, 6.5% year-on-year, reaching the level of 185.5 billion slots. There was some evolution of the structure of the deposits, more interest in the term deposits, but still we've been able to manage the the margin under these circumstances, most due to the fact that, you know, the transactionality of the bank is highly valued by the clients and as a consequence will benefit disproportionately of the transaction money in the bank. The capital position has been strengthened. As you see on the chart, both tier one ratio and the TCR has grown. We are significantly above the regulatory requirements, requirements respectively, 5.6 percent response and 5.9. What was important from the outside perspective, inside as well. is that the capital buffer on SwissRank portfolio, which was launched around 2016, as I recall, and it was a significant part of our capital buffering, was originally more than 4%. That one has expired. We got the respective consents from regulators. So, when you will be looking into a capital structure, this element is gone. Very much due to the fact that in the meantime we have built up this significant amount of buffering against SwissRent portfolio. So, the regulators showed our view that does not make any sense. in the future to continue with with this element of our capital structure uh we successfully managed to meet the criteria on the well as you remember i think we've reported on this i think this was the third quarter we launched the what was 650? 750 million US insurance in September. As a consequence, we are, I would say, on the safe side in respect to the requirements. Something I have to say, being a veteran in the market, I didn't observe. In the past, this is the loan-to-deposit ratio. I remember when I joined this bank, it was 140. So currently, we are at 61, and I have to say the whole market is, I would say, below 70%. Below or 70? More or less 70%. So that's something, what is a new phenomenon, and banks are, on one hand, obviously, that gives a lot of comfort. uh but on the other hand you know that's something to be proactively managed uh lcr 217 so that's not require any comments i believe uh customers you know customers still like us and they tend to to not only visit us frequently, but also the newcomers. New clients are opening accounts, both on the corporate and retail side. That's not much of a comment. Our strategy, Demography's destiny and the focus on the younger clientele works well. When it comes to the sort of a wrap-up of financial metrics. You see on these charts, you know, most of them have been already commented. I think that No, we don't think that this will require specific comments. One issue which I also need to stress is that we are operating within the framework of the strategy which has been adopted two and a half years ago, two years ago. And we revised this strategy. It proved to be, in principle, despite the significantly changed environment, mostly on the interest rate side. But the, I would say, pillars of the strategy have been affirmed. So we feel comfortable with the strategy which we have adopted. There are some changes, mostly on the ESG side. More, I would say, realistic and more, I would say, up to the current understanding of the dynamics of the sg debates and regulatory requirements which were not on the horizon at that time this has been adopted when it comes to the sort of a major business driven strategies we are progressing our development of pfm the personal financial management on the retail side we have launched the asset management company which started to be fully operational beginning of this year um we continue to acquire clients and clients are doing more digital are initiating transactions or concluding transactions on individual channels uh more and more frequently Corporate banking is sort of catching up with retail in terms of the digitalization. You have some internally used metrics to assess the progress, so the number of users logging into the systems, digital channels. is reaching, you know, almost spectacular numbers. And I have to say more and more, we are using digital channels also for the corporate banking activities. I would say, when we talk about uh mobile applications obviously we are in a different time at a different stage of the development it's not you know revolutionizing you know anything at this state at this moment it's more like you know individualization better customer experience based on interactions with clients they are very much reflected in the document which we presented to you. On ESG, if I may turn to Marek, because this is the most important or the reshaping of this part of our strategy, if you can make some short comments.

Thanks, Cezary. So, as I said, ESG strategy revision was part of the strategy revision that we have performed a while ago. It's built on three obvious pillars, environmental, social and governance. On the environmental side, We basically have three directions of travel. The most important one for us is the reduction of greenhouse gases emissions from our own portfolio, because this is the biggest leader that we have on the overall emission reductions. And we remain committed to use the science-based targets as a steering mechanism to get to net zero by 2050. Later on this year, the latest September, we are going to submit our targets for SBTI validation. But going to net zero is not only the reduction of the portfolio emissions, but it also deals with partnering with our clients. And on this, we have set ourselves ambitious targets, how to support our both corporate and retail clients with regards to that transition. And the last but not least, it's the lowest component of the emissions, but also we want to lead by example by decarbonizing in full our operations. We are proud to remain one of the highest ESG rated banks in Poland. Stainalytics gave us one of the best industry ratings worldwide. And it needs to be said that if it was not for the Swiss franc controversies, that would be likely even better. Going to the other two pillars of our ESG strategy, we remain committed to remain an attractive work environment that ensures diversity, equality, and inclusion. We have set ourselves ambitious targets with respect to gender balance as it comes to the succession programs where We aim at having a minimum of 45% of a given gender in the succession plan, cutting fake up to the best in class standards. Going further on improving gender diversity, we also set ourselves a target for gender representation our subsidiaries that you can see on the on the screen and as it comes to the social component of our interactions with the clients as i was already alluding to that we will continue working with our clients on the financial education and promote responsible management of the personal finance As it comes to the governance pillar, all our key managers and managers of our subsidiaries have and will continue to have ESG as one of the drivers of the objectives and results. ESG became an important element of our overall risk management framework, and this is included in the credit decisions and materiality assessment. And leading by example, we also, we also demand from our partners and suppliers to comply with 10 principles of the U.S.