Mbank Sa

Good afternoon, ladies and gentlemen. Welcome to our conference where we will present the results of M-Bank Group in the second quarter of 2024. The speakers today are Mr. Cezary Kocink, acting CEO for the first time in this role. Mr. Pascal Roland, Chief Financial Officer, Mr. Marek Rosztyn, Chief Risk Officer, and Mr. Marcin Mazurek, Chief Economist. Cesare, over to you.

Good afternoon. I would like to start from a small introduction and some of my thoughts about the future of EnBank. And after that, I will just, of course, ask Marek and Pascal develop that in a more detailed way and give you all the figures. So, a few initial comments regarding our strategy. So, the current strategy is up to 2025. So, just after holidays, we'll start to develop a new strategy, which we are going to finish during the next year. We are set to our preparation to do that. But of course, before the strategy will be prepared, it will take some time. I would like to share with you some of my thoughts about the most important things for mBank in short and medium term. And from my perspective, I would like to address four points. And the first is equity. And the most important goal for myself is to strengthen our equity base. As you know, the past was highly influenced by provisions for Swiss franc. And due to that fact, we can say that majority of our results were consumed by these provisions. So due to that fact, for sure as a bank, we don't have the strongest position on the market, but now we try to do that. Probably you noticed that last week we informed the market that we changed our dividend policy for the current year and we are not going to pay any dividend this year. It will positively impact our equity ratio, like more or less 50 basic points. On top of that, we are going to use also all other instruments which are available on the market. At that moment, we exclude only issuing new shells, but the rest, including 81 and further securitization transactions are on our agenda. So we will be very concentrated on them to strengthen our equity position. Why we are doing that? Of course, we are doing that because we believe that two very difficult years are behind us. And now we are ready to get back on track as this bank was built by the organic growth. And we always used to progress in our market shares and volume faster than our competitors. Now we would like to continue this after these two years which were marked by huge Swiss franc provisions. Now we believe that we are in such a position that we can just fight for our market shares and even enlarge them to the level which will be much bigger than we used to have in the past. So this third thing is just we would like to continue the current performance because, as Pascal will tell you about the details, this is crucial for us and especially for the first point, because this quarter we were hit by two things, a legal provision for Swiss franc, but also we booked negative effect of long holidays. Despite that, we have the highs from many quarters, net results, and that is also the way how we would like to build our equity by retaining this year the whole, but even in the next year significant part of our earnings. And last but not least, what is very important for the bank, we would like to focus further on Swiss franc mortgage portfolio. Probably you know that up to now I was responsible for managing settlement program in MBank, and I would like to continue as the person responsible for that, because in my opinion, the most important thing for the future of MBank is to solve the Swiss franc problem. due to the negative impact, but also it created a huge problem for us for, let's say, good planning as the negative impact was always difficult to predict. And this is this four point which will constitute my agenda for short and the medium future before we as a whole management will manage to develop it and get acceptance from our supervisory board for our new strategy and after this short introduction i would like to pass to pascal about of course and After the presentation, together with Pascal and Marek, I will try to handle all your questions. Thank you very much. And Pascal, please.

Thanks a lot, Czarek, and also hello from my side. And we jump directly to slide seven, to our financial summary of Q2. And on this slide, I also will give you then the guidance for 2024 results. And as I said already by Czarek, Q2, has been a very good quarter for us despite high legal costs related to FX, mortgage loans, and despite the credit vacation impact. Let's start with our revenues. Group revenues declined marginally in Q2 as they were impacted by the credit vacations in the amount of 257 million Polish zloty. And a brief side note on the credit vacations. In our financial statement in Q1 2024, we provided the estimated cost related to the extension of the credit holidays in the amount of approximately 350 million proles. The currently recognized amount is well below the initial estimate due to a lower usage of this option by borrowers than we have had expected. Excluding this impact of credit holidays, revenues went up by 7.7% quarter on quarter. Strong NRI adjusted by Credit Holiday School 3.5%, and this result is supported by both products, loans and deposits. Also, our net fee and commission income increased, especially due to higher net result on payment cards. Furthermore, we have been benefiting from an extraordinary effect in other income. which is related to a recovery of a receivable guaranteed by KUKIN in connection with a final court judgment which was favorable for the bank and amounted to 164 million Polis Lotti. Forward-looking, we expect for our NRI to be slightly higher than 2023, which includes already the negative impact of the credit vacations. Our total net fee and commission income is supposed to be higher also than 2023, and here we expect a slight grow quarter of quarter as we have seen it now between Q1 and Q2. As a result, we are now aiming to beat 11 billion Polish Zloty total income in 2024, which is for us a historic mark. Moving to the total costs. The total cost of the group excluding compulsory contribution increased by 5.5% quarter on quarter. The cost increase was mainly driven by material costs reflecting higher activities in certain areas, but especially in marketing. As a result, we gain again an extraordinary cost-income ratio of 27%. And here, as I always say, you know, this should not be treated as the new normal because our long-term strategic target is below 40%. But for 2024, we will stay well below the strategic target due to high interest rate levels. Going to our cost of risk. In line with our early expectation, cost of risk increased in Q2, mainly in the corporate and investment banking segment, in which we reported net releases of LLP in Q1. Cost of risk of 58 basis points is well below our guidance for 2024, and due to this very favorable first half of the year, we guide for the full year below 70 basis points cost of risk. The cost of legal risk related to loans indexed to foreign currencies recognized in Q2 reached, as Jarek was saying it, 1.03 billion. And Marek will share details later. And as you know, due to the complexity and dependencies of this topic, it's not easy to provide guidance. But as of today, we expect for the second half of the year a lower impact than in the first half of the year. But it is expected to stay very significant. As a result of all the P&L line items, Embank's group net profit reached 422 million. And also Charik pointed that out, and I would like to bring it in perspective. If we exclude the credit holidays, if we exclude the FX impact, we have had the quarterly strongest net operating result in the history of the bank. The effective tax rate, which is every time a bit odd calculated under IAS 34, hereby is at 41.3% and is heavily influenced by barely deductible costs of our Swiss-Francois provisions. Let's move to the summary of the balance sheet on the next slide. Here, I would like to draw your attention just on one observation on our balance sheet. As indicated in our Q1 call, we expected to grow our asset side, which is visible in our gross loans to customers, by an increase of 4.1% quarter-on-quarter. Both segments are contributing to the growth, and I will go into details later. Normally, I also would draw your attention to the capital ratio development, but this I will now do on the next slide, which is new and has the aim to show all regulatory capital requirements at a glance. As you can see on this slide, both capital ratios, Tier 1 as well as the total capital ratio, are at comfortable levels. Our buffers above the KNF minimum requirements are higher than 4%. They are 4.6, 4.35. And now, very briefly, jumping into some details. Since the beginning of 2024, T1 capital increased by 126 million, or roughly 1% versus here in 2023, mainly due to the inclusion of 50% of the net profit generated in Q1. While T2 capital went down by a bit more than 18%, mainly due to amortization and ex-revaluation of Swiss rank debt. The total risk exposure, as you can see left bottom of the slide, increased. The year-to-date increase was mainly driven by an increase of credit RWA, mainly due to our growth of customer business and the normalization of our securitization transactions. Also, we have seen increased operational risk RWA due to higher income levels. And now this is very important, and Charik pointed it out. These numbers do not yet include the change of the dividend strategy, though also we do not have yet in this numbers, our net profit of this quarter included. Furthermore, we have conducted already, as you see on the right hand bottom, an extension of one of our existing secularization transactions in June, and we plan to close another secularization transaction in the coming months. These actions will support our capital position in the second half of the year. Our expectation for Q3 tier one ratio will be broadly similar to current levels and a bit lower towards the year end. And why is that the case? And I would like to bring now all effects into order. In the second half of the year, we expect higher RWA's due to the result of our business growth, which is the most important one. The second thing which will hit us in Q3 is an implementation of a regulatory definition of new definition of default. And Mark will elaborate a bit later on. And lastly, our amortization of our secularizations, which we have executed in 2022, will follow up. These three things are largely offset by the dividend retention and the new secularization plan for the second half of the year. So I repeat, we expect Tier 1 buffers above regulatory requirements to exceed 4%, both to the end of Q3 and to the end of Q4. And this is well in line with our strategic target of having buffers of at least 2.5% on the Tier 1 ratio. As you also can see on this slide on the right hand top of the slide here, we meet MRL requirements with a ratio of 22.8%. And despite that we have very comfortable buffer, We are aiming for an annual issuance of the second half of the year in a benchmark format. And with this, I'm now handing over to Marek for the FX mortgage details.