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.

Global Booking Act by 2025. This is an overview on market positioning. As I already signalled, there was a drop on the lending side. We also lost some market share on the retail side, comparing to the previous decades. And so that's the factor which we signalled. And the corporate side is more or less less stable. But that is something that is worth mentioning. I think that We continue to grow our mid-market and SME sector on the corporate side and very successfully growing the number of clients respectively. Also, the lending book on this front is growing. Mobile banking, I don't think that requires any specific comment. The bank has a very strong position, more clients are moving on the mobile, but obviously the pace is slower than it used to be. uh what is very important and this is the uh southeast part of the of the slide 12. this is the share of processes in retail banking are initiated by the clients in digital channels it has reached already 87 and this is major reasoning of our uh of our very should I put this, successful cost management. I have to say that that's something what over the years profit the bank with benefits mostly on the cost side. So we are able to support more than 5 million clients with a relatively small network because the customers are moving, as you see, between 2020 and 2023. This is 20% increase of initiation of the transactions by additional channels. As you see also, you know, as a kind of an example, non-mortgage products, you know, how much of them we are concluding on the mobile device and how much on the in the internet and you know you see this the process of switching from between the internet and mobile which you know i'm a good example this guy says old-fashioned they're using computers but i'm using just a mobile um to wrap up i think you know I don't think that, you know, this qualified audience requires, you know, very much of an explanation, unless you want to.

I would like to, thanks, that's also a hello from my side. I would like to not repeat what was said, but give to one or the other line a bit of background so that we have a record income that was said and also the driving force is our net interest income. But maybe two words to the drop of the net fee and commission income, which is close to 10%. Here, I would like to remind us all that in 2022, we have charged deposit facility fees towards the outstanding balances at the end, as well as end-of-month fees, which were strongly connected to the negative interest rate. Pure focus on corporate customers on our side. But while the interest rate environment has changed, the justification for those fees diminished. The fee income, if we look into our details, were stable year-on-year, so we coped with the drop of the fees from zero interest rate. but we recorded an increase of fee expenses and this is driven by volume and obviously also by higher prices. That's definitely something which is worth to mention on this slide. And also on the costs, as said before, we have a cost increase by 13% if we adjusted for the one-off contributions in 2022. And just to recap, we are talking about adjustment of the gross support fund of 171 million and the protection scheme with 428 million. And then we are left over with the 13%. The general driver is inflation, but also our projects, which we obviously try to embrace in order to continue our success story, and therefore we have material and personal cost increases. Nevertheless, as said, and this is the most important from our perspective, And it's connected to how we operate. We have a very efficient business model and this leads them to the cost of income ratio of 28.5%, which is very low currently and extraordinary. And that's nothing which we should treat as a new normal, but it shows how we operate. On the LPs and costs of risk, this is higher than in the previous year, as you see here, but we also guided that in Q3 that Q4 will be extraordinary and especially driven by one-time effects, which will be elaborated by Marek later in more details. Jumping to the pre-tax profit, which is 970 million, and then you see the net result, which is kind of symbolic, with 24 million Polish zloty left over. This is a result, especially by the high ETR we are having, so the effective tax rate, and this is due to the fact that the majority of our Swiss-ranked legal costs are not tax deductible. and with this said let's jump to the next slide 14 the summary of the balance sheet here i would like to draw your attention to two observations on the balance sheet the first one is the drop in gross loans to our customers by five percent if you would deduct the rundown of our legacy swiss rank portfolio as the system mortgage portfolio decreased significantly driven by provisions repayments settlements but also by final verdicts the gross loans year and year has a decrease of less than 1%, and then we are in line with the market, or even slightly better than the market. That's the first observation on our balance sheet. The second one is, please look to the equity and capital ratios at the bottom of the slide. Everything improved versus 2022, despite the already mentioned significant burden of the Swiss franc review provisions. And next to our great core business performance, as mentioned already with our E of 40%, this is a result of our very successful capital management. And if you go into the details we have shown this year, for example, improvement of the valuations of our debt securities. improved our value of unrealized losses in our cash flow hedges, and we executed the largest ever securitization in the CEE region in order to support our capital position. And with this said, and while slide 15 is more or less repeating what I already mentioned, I'm handing over to Marek for the specific details.

Okay, thanks Pascal. So as already highlighted in the introductory speech of Cesare, 2023 brought us the highest ever write-offs on the Swiss franc mortgages. So basically, if you look at our figures, the whole bank and its entire employee population worked the entire year to hand over all the profits back to the very small group of Swiss franc borrowers. But this led us to the significant reduction of the value of the mortgages That at the end of 2023 constituted just 1.6% of the total loan portfolio. And that in comparison. was 23% in 2015. If we look at the coverage of Swiss rank portfolio legal risk with respect to the active portfolio, it reached 100% of the gross bonds on the balance sheet at the end of 2023. And if we look at the number of active cases, Out of 85,000 Swiss franc loans granted overall, 39,000 is fully repaid, and only a small fraction of that is incurred. And out of those remaining, we have 4,000 final credits. we have reached 13 000 of settlements most of them actually reached in 2023 so we remain with 28.6 000 active swiss franc contracts out of which 62 percent is in court but we are also happy to say going to the next slide that we are quite successful reaching also the settlements with the clients who are in income. But if you look at the statistics shown on slide 17, the number of settlements reached in Q4 23 was the highest ever, it was 3.4 thousand in the quarter, And by now, as we speak, we still keep on settling with the customers. The number of settlements, as we speak, is over 40,000. Also, what's worth commenting on is it was the first quarter in which the number of long contracts in courts, pending cases, so to say, decreased quarter to quarter. And answering maybe as we discussed, the Swiss rank topics also one of the questions that we have in the Q&A because there is a question if we expect additional Swiss rank costs coming from ECJ rulings from December. And the question is mainly about the risk of higher statutory interest for borrowers, and have we seen any chance in the jurisprudence in that regard. So we basically expect further provisioning for Swiss franc portfolio, but not of the magnitude that we have seen in Q4. We expect Q1 booking to be below what we have seen in in Q4 and in that specific December verdict of the European Court of Justice, they have pointed out that penalty interest accrues during the retention period. This may affect the value of interest that we owe to the client in the future and potentially the provisioning, but it needs to be underscored that domestic law

uh domestic case law has not yet uh clarified on the issue so this is still to be uh to be seen over to you on the performance on the core bank yeah um i'm taking uh this so slide 18 here you can see on the left side what embank is capable of uh without the swiss rank and just to repeat two numbers which are on this slide the core group generated close to 6 billion of cross profit and 5 billion of net profits That means it doubled almost just in one year. And this really confirms the extremely high income generating capacity of our operations. And as the consequence you see at the bottom, we reach an ROE of the core group of 40%. But with this said, let's go to slide 21. into the details of the quarter. So Q4 2023 proved to be a very good quarter, despite the impact of interest rate cuts in September and October in 2023. While I believe this slide is best to follow up also with a guidance from us, I will comment on our view for the upcoming quarters along those lines. Starting with revenues, we generated in Q4 record high revenues plus 7% quarter-on-quarter thanks to effective management of the cost of deposits. NIM increased further to 4.31% in Q4. As a result, we have again seen an increased NRI despite the mentioned lower interest rate levels. While we expect interest rate remains stable 2024 in Poland, a slight decrease in NRI in the upcoming quarters is in our view likely. We expect loan volumes rebounding, but at the same time, margins and deposits pricing might have reached its peak. Furthermore, in 2024, we may again see some negative impact of the extended credit vacations, which would harm our NRI. However, the impact should be lower as eligibility will be limited. A decrease of the net fee and commission income versus Q3 resided from increased commission expenses as for the full year. And as repricing towards our customers has a time lag after divisible cost increases on our side, we expect a slight grow of our fees in the upcoming quarters here. All in all, we expect to defend the mark of 10 billion Polish zloty for the total income also in 2024. Turning to the costs, costs are a huge focus of us, which was reflected in the group's cost-income ratio in this quarter of 27.5%. A quarter and quarter cost increase by 10.7% was driven by material costs, here in particular the areas consulting PR and IT, personal costs due to early increases of salaries of our staff, plus the increased employment and higher costs of training, and last but not least, depreciation of intangible assets. In the upcoming quarters, we expect a continuation of the inflationary, but also strategic cost increases on a similar level what we have seen for this year. To sum it up, despite the cost increase, we expect to stay well below our strategic target of cost income ratio of 40% in the upcoming quarters. On the loan loss provisions and fair value changes in Q4, we increased significantly. As guided last time, this is the result, and Marek will go into details of model recalibration and LAPs for a couple of individual corporate exposures. And our strategic guidance forward-looking of around 80 basis points cost of risk remains also stable for the upcoming quarters. On the cost of legal risk related to Swiss Franc, Marek already commented on it, forward-looking, and you already saw the impact we've seen in the last quarter. To sum up for the quarter, due to the significant cost of the Swiss franc lead risk plus the cost of risk in Q4, the group generated a quarterly net loss in the amount of 20 million policy slots. Here, why the tax line in Q4 is special, and I also saw that there was a question, I will give some background what happened in our tax line in Q4. We have three factors that had a positive impact on the income tax. The first one is tax deductible costs of settlements concluded in Q4. While we had the highest amount of settlements so far, the costs were the highest, and this is positive while we can tax deduct it. The second is that DTAs for our estimation of the Swiss rank settlement costs. So we updated our model while we are more successful than we estimated, and this also has a positive contribution in our tax line in Q4. And the last topic of these three is DTA from a Supreme Court administration verdict concerning the cancellation of mortgage loan agreements in Swiss franc. We received it last year, 6th of December, and this verdict indicated that the only way to reflect cancellation is to adjust revenues received on loans for past periods as they have never been received. So the income we received in the past and the tax we've paid in the past, we reverted. The tax law introduces a limit to adjust this previously recognized revenues for the last six years. And that's what we have done as the third conclusion. All the three topics have a positive impact and the impact is circa 250 million zloty and reflected in our Q4. While we have covered now almost the most important development, I will this time in the following slides just touch about the most important topics. And if there's something missing, please don't hesitate and raise a question later on. Directly jumping to slide 24. You can see on this slide, the loan trend continues to be negative. For Q4, we have 117 billion loans to customers, and two observations are important on this slide from our perspective. The first one, gross loans to retail customers. visible right-hand bottom of the slide, excluding the already mentioned rundown of the Swiss franc non-core portfolio and clearing out the FX effect, the portfolio grew by 0.5 percentage points. So our core business in retail is growing. Second, looking into loans and advantage to corporate clients, visible right-hand top of the slide, we see a decline of 4.9%. This drop was driven by gross repo and buy and sell back transactions with banks. which decreased sharply in connection with the balance sheet optimization at the end is typically. Excluding this reverse repo transaction and also clearing FX movements, the corporate portfolio grew by 2.1% quarter on quarter. So also here the core business is growing. These are the first traces of the rebound of our core loan portfolio and also then our attempts to gain higher market shares in 2024, because we expect going forward a single digit growth in our core retail and corporate loan portfolio. And this should aim also for slight increases of market share. Let's go to slide 25, which provides the new lending. Here I will deep dive on the mortgage loan developments and briefly comment on the general outlook of the new sales. The sales of new mortgage loans jumped in Q4 2023. The sales were driven by the Safe Credit 2% program as you can see left hand corner of the slide. We started granting 2% safe mortgage loans on the 14th of September and stopped accepting the application on the last business day of 2023. We received more than 50,000 applications and the success is based on our fast reaction that we are the first bank with a digital application system, which is known by mBank that we are very fast on implementing digital solution and also our payout process were very fast. A large part of the application has not yet been launched in 2023 and will be processed in the first quarter of 2024. The total 2% safe mortgage loans dispersed in 2023 exceeded 900 million, and we expect of the total program, it will come up with 2 billion of Polish zloty, and therefore we expect a significant increase in the first quarter. Due to the large scale of the safe loan sales, the share of perfectly fixed interest rate Polish mortgage loans have increased significantly on our balance sheet and amounts to 23.5% in December 2023 and confirms our strategy to increase the fixed rate part. Also, the new project which is proposed by the government, Flat4Start, could, if it comes, then boost further the mortgage loan market in 2024, and also we feel well positioned to support our customers. All in all, we expect the new mortgage loan sales in Poland to increase versus 2023, and also on the non-mortgage loans, we expect a slight growth in the following quarters, connecting with the lower interest rates and rising consumption. On the corporate loan side, we expect growth fairly over the market, and the market currently expects 3%. Corporate lending will be supported, especially then by the reviving economy, which we expect for this year. So the rebound of our core loan portfolios in 2024 is set with this expectation from our side. Slide 26, I would jump over because we talked already about our deposits, and I'm going to slide 28, total cost and efficiencies. Quarter and quarter as well as year-on-year significant cost increases are visible. And it should be noted that our cost increase, as I said, not just inflation driven, but also reflect many ongoing businesses and regulatory driven projects. This results in higher expenses, mostly for IT, security and marketing, and additional personal expenses for newly hired employees as already shared at the beginning from Cesar. The important measure for us is to stay best in class on the efficiency. So we really will have a careful look on the cost income ratio development of MBank's group, which currently is amounting to 28.5%. And going forward, this is the way that we believe that our cost increase will be similar to what we've seen on the growth rate in 2022 to 2023. And that is including a regulatory cost increase, which I would like to comment very briefly. so for the deposit guarantee fund we don't expect a change but to the contribution of the resolution fund we may see increased demand due to the replenishment of the fund after the resolution of getting bank but we have not received any official information from bfg in this respect but this is our expectation and with this last pna guidance i'm handing over to marek for this website thanks pasco so

Here on the loan loss provisions and the cost of risk, in Q4 2023 the net impairment losses were higher than in the previous quarters, but as we have guided in the preceding four quarters, The cost of risk that we've seen in the past were unsustainably low. So we have seen normalization in Q4 2023, and this was primarily driven by a number of one of effects impacting both retail and corporate loan loss provisioning on the retail side. We have seen recalibration of the existing models and implementation of the new qualitative criteria for transfer to stage two. That was implementation of the new prudent filter to ensure consistency with the group-wide approach. And that needs to be seen as further proof of prudent risk management, which led also to the higher long-term provision coverage for our clients with increased risk. On the corporate side, we have seen two isolated cases. going into the default, but we already see some improvements on those going forward. If we look at year-long loan provisioning and cost of risk, overall for 2023, cost of risk amounted to 93 basis points. as compared to our strategic target of 80 over the mid-field. And if adjusted for those one of effects, the cost of risk in 2023 adjusted for those factors mentioned below would amount to 73 basis points. And I repeat those higher cost of risk in Q4. We consider them one-offs. We don't see a deterioration of the overall quality of the portfolio. As you see from the portfolio figures, also the coverages have improved. The level of non-performing loans remains stable. As far as the prospects for moderately positive. On the retail side, very low unemployment and inflation going down combined with expected salary increases will support the LLPs and cost of risk for retail segment. On the corporate side, a pickup in GDP growth leads us to expectations on the improvement on corporate earnings. And therefore, all things considered, for 2024, we maintain our strategic target for cost of risk to be around 80 basis points. If we go to slide 31 to finish off with our capital and liquidity position, as Cesare already alluded to, the liquidity of bank is extraordinarily high. So we have plenty of liquidity that we can employ for for our clients. And also, despite these massive write-offs that we have performed in 2023 for the Twistrack Mortgage Portfolio, the buffers above minimum regulatory ratios actually significantly improved. So as you can see, not only the total capital ratio that went up but also the distance to minimum requirements was considerably higher than it was in the previous quarter and compared to a year-on-year basis. As we have already briefly commented, that stems from an extraordinary capital generation capability of the core business, actions we have taken in order to securitize risks, additional issuances performed over 2023, and very significant reduction of the add-on for Swiss franc mortgage risk that at the end of 2023 was reduced by KNF and ECB to zero. That is also the way the regulators see the risks in our portfolio of Swiss franc mortgages going forward. And with this, we hand over to Marcin to comment on the outlook of the Polish economy for 2024.

Thank you and good afternoon. So basically, we are not talking right now about whether the economy is going to jumpstart, but we are trying to come up with ideas how fast it will be growing. So we are after the draft in economic activity. So consumer moods are very good compared to what we've seen in the last year. Unemployment rate is very low and it's going to be only lower. We expect GDP growth to be 3.5% in 2024. The major source of growth would be consumption. Of course, it's fully sustainable in the short term. And within the next few quarters, also the global economy is going to jumpstart and also export activity is going to rebound. With that, inflation has been falling recently. But it is highly likely that it will reach a trough somewhere around March or April. And afterwards, as economy rebounds, also we will be back at some sort of inflation pressure. We are not coming back to 20% inflation, but higher single digit numbers in the year end are highly likely. Therefore, we do not see any risks with regard to cutting rates by the MPC. We think that rates would be stable. And we also are seeing signals from the MPC that even though inflation would be very low in March, I think it would be around 2.5%, it is not going to trigger any reaction because this comeback to target would be temporary. So MPC overall stays quite hawkish. In terms of evolution of monetary aggregates, we are still seeing a lot of deposits, but on the credit side, situation is slowly improving. Senior loan officer surveys are suggesting that demand for credit, both consumption credit and also investment credit, is on the slight rise. We stay optimistic given the fact that the leverage ratio among firms and households is low compared to the previous cycles or very low. So we are kind of positive with regard to the credit action. But of course double digit numbers are not going to be achieved. As far as the government debt is concerned yields are slowly falling, reflecting mostly the push for lower rates in the global economy. The major risk right now concerns supply, and this is linked to the fact that budget deficit is projected at quite hefty levels in 2024. As far as Zloty is concerned, we see that we are in a period of stability. We do not expect any significant depreciation going forward. Quite the contrary, we expect Zloty to be a little bit stronger. That would help the disinflation process. As far as the fundamentals are concerned, of course, these are fundamentals and they do not change frequently. What we are seeing right now is that Poland is enjoying good press among international investors. And what is most important for me here is that there is a growing interest domestically in the fact that Poland would be able to compete on a high level with other countries. So the sentiment in Poland is improving and it's very important because we Poles used to be quite negative with assessing what's going on in our country. So this is certainly a positive phenomenon. Thank you.

Thank you, Marcin. We received some questions from our analysts and investors. Some of them have been already commented, but let's begin with the question of Jaromir. Thank you, Jaromir, for your questions. Two of your competitors recently announced plans to reduce their workforce. Your employment increased by 4% year-on-year in 2023. What trends can we expect in the future?

I'm taking this. Hi, Amir. As I said, we have one of the most efficient business models, and it's visible in this slide especially that we are best in class in the cost-income ratio. We are one of the least and leanest banks in Poland when it comes to the number of employees. And we will definitely continue also with investing in further growth of employees in order to boost our businesses. So do not expect any significant reductions here.

It's one thing which, you know, you should be aware with the growing number of clients moving into digital channels. Obviously, we are having shifts within our employment. Plus, definitely, you know, the regulatory burden costs us also in terms of the growth of the workforce. Opposite to some other banks which optimize the branch network under the circumstances, we don't have that much of a space in this. in this respect, so I would say balancing between these two elements, you know, this is the way we manage the bank. In this respect, I think that this is my advice to analysts, you have to look, you know, at the mBank slightly differently than, you know, for the classic network-based banks.

And if you look into the two quarters and the increase we've just seen, and we also stated on the slides, IT is obviously our source of being efficient, and that has the highest share of FTEs. And second share is then on our business, and we especially focused in the retail area also to extending our SME offerings also to our international branches. And this is the second biggest FTE increase we have seen so far. So just to give you a more granular picture on why we invest in a group of companies.

Thank you. Do you see any signs of rising interest of your corporate clients in investment loans?

Here it needs to be said that it is not yet the case for the Q4 because the big increase you see visible here on this slide is driven by structured finance deals. But in talking to our sales forces and to our clients, we expect an increased demand for 2024 on these loans.

Do you expect any material impact on capital ratios coming from new CRD-CRR rules? If yes, could you roughly comment on the scale of such impact?

Okay, I will take this one. It will be slightly higher than today. Primarily due to the operational and market risk methodology changes, but overall we expect this not to be substantial. The overall increase in capital requirements driven by Basel IV based on current quantitative impact studies and analysis we have performed shall not exceed 5%. However, I would like to underscore that it is very preliminary. The final implementation and impact assessment has not been concluded yet, neither in mBank nor in the other banks. Some of those outcomes may vary depending on the final supervisory decisions and Q&As on the number of implementation questions which are issued to the EBA, as well as further risk-weighted assets optimization efforts. But overall, we don't expect this to be substantial.

Thank you. Then the last question from Ula Adamson. When is it reasonable to expect Swiss franc costs to end? Which quarter? Is it feasible to expect those to finally come to the end by second half of 2024 or 2025?

I mean, it's very difficult to give a conclusive answer to that. If we look at, first of all, slide 16, which is currently displayed, the top right hand side chart if you subtract the cases in codes which are fully provisioned from the active contracts and you take into account what we have commented on the settlement progress outlook for 2024 as of now we have roughly only 10,000 active contracts that are not yet in court and not yet settled. So if we compare this to 85,000 to start with, that's definitely way closer to the end than to the beginning. The second indication on that, I think it's clearly what we have commented on already, that is our supervisor's approach to capital buffers for this portfolio, because with extraordinary capital buffer for Swiss franc mortgages reduced at the end of 2023 to zero, it's also a clear indication that the end is at sight. But we have also made remarks with respect to the jurisprudence and case law on the number of open topics with respect to final rulings on the matter, and given the large number of the court cases which are still open, it's very difficult for us to give you the final, definite answer on that. Thank you, Marek. As far as the provisioning is concerned, we basically look at what's up there, and further increases will be case law driven and data driven.

What is worse to mention, I think, is the fact that If the current active portfolio will be translated into Zloty from the inception of this contract, that will cost us 3.5 billion. That's something what is, so if we talk about, you know, something what I used to name as a farther reaching solution which you can rationalize, that means, you know, all the Swiss-ranked life contracts are being switched into Zloty. From this perspective, and I will not exclude that there will be some rationalization of the approach in Poland. That means that the new government, after consolidation of its power, potentially will be a good counterparty to the discussion about legislation in Poland. difficult to say they didn't announce anything on this front but that is something that is desperately needed in public and we are as an industry we are lobbying for this then obviously the question is you know how how this legislation will be structured for the time being the only reference we have is the initial proposal or the former proposal of KMF, which Marek referred to, which assumed that, you know, there will be equalization of the contracts between these bank holders and Zloty.

And on this, it's also important to highlight and underscore once more that these 3.5 billion Zloty cost is part of 8.2 billion of overall provision. So this is included in the existing 8.2 billion provision and it is not on top, it's part of it. So as you see from the numbers here against the current case law and against what we've seen so far in the data, we are really well provisioned with this 100% provisioning at the end of 2023 is one of the best in class in terms of the peer group being the banks with materials which run portfolios.

We just received one more question on dividends. So can you comment on potential dividend policy beyond 2024?

Well, we continue to aspire to be at 50%. That is something that we haven't changed. Obviously, the circumstances are very important for us. One aspect which we have to take into account, I think, that I just referred to, much depends on the level of provision in 2024. Because obviously we want also to retain some earnings for the future growth of the bank. So there is sort of a dependence, but strategically the bank, the management board is declaring 50% dividend payout. We believe that the bank has its growth potential. And we know how to employ the shareholders capital. And we are returning, you know, as you've seen, on the core business, 40%. So, okay, maybe it's not sustainable, rather not. But definitely, you know, the bank, the profitability of our core business is very strong. And, you know, there will be a possibility we'll employ part of the earnings and part will be paid.

And that means that it's a reasonably ultimate solution towards the Swiss franc problem is from the regulatory point of view a prerequisite. As you may see, there are some institutions in Poland where this problem is relatively smaller that are given a green light to pay out the dividend, even given the current jurisprudence on Swiss francs. So we take once more this removal of the extraordinary capital buffers by the CNF and the ECB as an important signal into that direction.

And another question from Marta. Can you comment on potential plans for MREL instrument issue in 2024?

Yeah, so slide 47 exactly. Here you see that we are well above the limits. and we also gave you the information that the limits might be revised then in april officially when we receive them from the college also our feedback on the ethics of another one which is fading away but nevertheless we said in our last transaction on the non-profit senior that we will be a frequent issue Therefore, you can expect from us also this year one issuance benchmark trade up to 500 million, which would support obviously also on the emerald part. But that's our current plan, despite that we're meeting very comfortable the emerald limits.

Thank you. And with that, we covered all the questions. Thank you very much for the questions and for the attention. We will publish our next results at the end of April, just before the long May weekend. So thank you very much again and have a nice day. Bye bye.