Mbank Sa

Hello and welcome to our conference presenting the results of mBank Group in the third quarter of 2024. The speakers today are Mr. Pascal Ruland, Chief Financial Officer, Mr. Marek Lusztyn, Chief Risk Officer and Arkadiusz Walcerowski, economist from our macro team. Please use the chat to ask your questions. We will start the Q&A session after the presentation. We can start.

Thank you very much. Welcome also from my side to our Q3 call. And for us, Q3 stands for positive records in our business model. And also we took another important step forward to close our SwissRank legacy topic. But now we start with our highlights on slide three. And on this slide, I would like to outline three topics. First and foremost, total quarterly revenues at record level exceeding for the first time 3 billion of Polish Zloty, so more than 1 billion total income per month. This leads to an ROE higher than 40% in our core bank, and that is really something we are very, very proud of. And second, we see an acceleration in our Swiss franc settlement program. coupled with declining numbers of new and pending Swiss-rank-related court cases, which is a good proof that we are heading in the right direction. Third, we are back in a growing mode. Loan growth is visible 5% year-on-year, and extraordinary is our historic mortgage loan sales in this quarter, which exceeded 3.3 billion. Before we go into the details of the financial result, I would like to briefly point out two strategic topics. So let's stop for the first one on slide five. Even if this slide is kind of self-explanatory, while we're developing every time our offers, please turn your attention to the middle part in orange. With our platform, we are now reaching 5,000 clients, but this is still in the testing and learning phase. Our teams are working hard to launch at full scale before Christmas, so with 1.5 million products, and almost every one of our clients will have access and the opportunity to shop. This big launch will be supported by campaigns and we expect that this service adds value to our customers. But we also know that we need to listen carefully to implement the feedback step by step to improve our platform. The second strategic topic I would like to highlight is on slide seven. Please focus on our personal financial management functionalities, short PFM, right hand top. We are constantly expanding those functions. And apart from standards like overview of expenses and receipts, we provide our clients with functionalities that support them to take care of their financial health. And that means building greater awareness of their finances, but also giving them the ability to plan their future. In Q3, we introduced a few important improvements, also one in the area of retirement planning, which was immediately welcomed by our customers. As a result of several efforts to make our tool more useful, we've recognized the jump of number of users to nearly 1.9 million. And on this journey to provide knowledge and visibility regarding our customers' financial situation, we will continue. And now let's jump into the financials on slide eight. As usual on this slide, I also will provide you with an update of our guidance for Q4, and I will provide a high-level outlook for 2025. Let's start with our total income. As said already in Q3, we reported the highest total income in history. It increased by 9% quarter on quarter. But you also can see that a major driver between the two quarters has been the impact of credit vacations. Less demand than expected have resulted in a net release in Q3. Excluding this impact of credit holidays, And also cleaning our one-off in Q2, which was KUKE, 164 million, our revenues still went up quarter by quarter by 1.9%. NRI adjusted for discredit vacations grew 1.6% quarter on quarter. And at the same point in time, we've seen a slight decrease of our net interest margin from 4.4 to 4.3, but without any specific driver rather than broadly. Also, our net fee and commission income increased quarter on quarter, especially due to higher commissions from bank accounts and net result on payment cards. Other income in Q3 was also higher than Q2 if you exclude this KUKA one-off, and it was mainly supported by the increase of net trading. Forward-looking, in Q4, we expect for our NRI, excluding the impact of credit holidays, to be a bit lower than the level generated in Q3. This means for the full year, we expect to be higher than a year ago, even taking into account the negative impact of the credit vacation. Our total net fee and commission income in 2024 is supposed to be higher than 2023. In Q4, our net fee and commission income is expected to be slightly weaker, but this has a seasonal effect. As a result of all of it, we expect total income in 2024 exceeds noticeably 11 billion Polish zloty and will be closer to 12 billion Polish zloty, which is a historic mark for us. For 2025, we expect a slight decrease of NRI, driven mainly by expected interest rate cuts, and our net fee and commission income is expected to grow further steadily, based on our new products, fee tables, and also the expected higher tensionality of our clients. Overall, we expect therefore revenues to be slightly lower in 2025 than 2024, but well above 11 billion Polish zloty. Moving now to the total costs. The total cost of the group increased by 4.1% quarter-on-quarter. The cost increase was driven by material costs, reflecting mostly higher marketing and consultancy costs. In Q3, we reported an again extraordinary cost-income ratio of below 26%, And in Q4, this ratio is likely to increase. But for 2024 in general, we expect to remain below 30% cost-income ratio due to our persisting high interest rate environment we are working currently. For 2025, we expect due to new initiatives, but also inflation-related pressure, a low double-digit cost growth. And the cost income ratio will increase, therefore, but will stay well below our below 40% target. The cost of risk in Q3 were 62 basis points and is below our strategic target, and Mark will elaborate on that fact later on. In Q4, we expect an increase of the cost of risk, partly due to seasonality of corporate write-offs. But for the full year, we guide around 60 basis points cost of risk and maintain mid-term our view cost of risk of 80 basis points. Coming to the Swiss franc related risk, we increased our legal provision by 971 million. And as guided, this is significant. but lower than in the previous two quarters, and also Mark will explain the details in a few minutes. Due to the complexity and various dependencies, you know it's every time hard to guide, but we do our best here. So from today's perspective, we expect Q4 between a similar or slightly lower level than Q3. Therefore, it will stay significant. But based on our current estimation of the remaining risk, we expect every following quarter supposed to be lower than the previous one, while we are approaching step by step the end of a long story. As a result of all P&L items, you see the net profit reached 573 million, which translates into an ROE of 14.9%. If we exclude the impact of the FX legal provision, we have generated the strongest quarterly net operating result in the history of MBank. Comment on the tax rate. This, we calculate in accordance with IAS 34, stood at 41.8% and was, as in the last quarters, heavily influenced by barely deductible costs of our legal provisions. And now let's move to the balance sheet on the next slide. End of September, total assets were higher by 3.6%. Cost loans to customers increased 2% quarter on quarter, while customer deposits went up by 3.2%. Both business segments contributed to these increases, and I will go into details later on. And now let's go into the capital ratio development on the next slide. Both capital ratios, Tier 1 and TCR, remain at comfortable levels with the buffers, and you see it highlighted in gray, above the minimum KNF requirements at 4.76 percentage points and 4.31 percentage points. Now, very briefly, going into the development left top of the slide. Since the beginning of 2024, Tier 1 capital increased by 5.6% versus end of 2023. And this is mainly due to the inclusion of our net profit of the first half. Our Tier 2 capital went down, as you can see, mainly due to regulatory amortization and FX devaluation of our Tier 2 instruments. Consequently, the own funds of the group increased by 1.4% year to date. The total exposure, risk exposure, as you can see left bottom of the slide, increased. A quarter and quarter increase in RWEA was fueled by business development and the amortization of securitization transactions. Forward looking into Q4, our tier one ratio is expected to decrease due to three factors. The first one, We expect a negative impact from model and regulatory changes in RWEA. Here we expect 6 billion of RWEA increase as a result of a final regulatory decision on PD, CCF and LGD. And this is related to our portfolio subject to AIR-B model. Further business growth will also fool RWEA. And last but not least, RWEA amortization of our securitizations executed in 2022 will continue. Those three items will be partly offset by a new securitization transaction based on corporate loans, with an estimated impact on RWA reduction by over 2.5 billion RWAs, and the inclusion of our profit from this quarter. To sum it up, the surplus over the KNF requirement will be well above our strategic target of year-end buffer of at least 2.5% on the Tier 1 ratio. And now looking beyond 2024, there are two regulatory driven changes which I would like to guide while those are expected to be significant. First, our RWA is expected to increase due to CRR implementation by around 6%. And please use this as a rough guidance as key technical standards are at the start stage and the final impact is still uncertain. The second topic I would like to mention is still in decision process with the banking authorities and has a material change on the RWA to be expected and is known as GDD. Here, the timing and impact will depend on the decisions of the banking authorities. So this might be even later than 2025. But having said that, even if it's in 2025, we expect to stay above our strategic target of at least 2.5% on tier one ratio by end of 2025. And now one last sentence on the capital ratio. It is our aim, while the Swiss franc-related risk step-by-step is reduced, that we are operating a capital ratio which is closer to our strategic target, while we would like to put our capital to work. Moving to the right-hand top of the slide, as you can see, also we meet comfortable AMR requirements with a ratio of 23.3%. And this is also due to our latest transaction, which I would like to comment briefly on the next slide. Slide 11 shows the successfully launched 500 million senior preferred green bond. The transaction for us was an overwhelming success. We were almost six times oversubscribed with more than 200 investors submitting interest for the bond in a volume close to 3 billion euro. This is the best feedback we can have and a very good basis for the following slides. We're excited to tell you about an upcoming capital markets innovation from us, and we are working on finalizing our additional tier one transaction. This will be not just the first one for us as mBank, but also the first broadly distributed AT1 for the Polish market. And as most of you likely know, it's just possible since end of last year because the law was passed. We are doing this transaction in order to strengthen the capital base and position us for further growth in volumes and market shares. We have corporate authorization to do a transaction up to 1.5 billion Polish zloty and the transaction is being done in Polish zloty in order to support the development of the Polish capital markets, but also we minimize IFRS P&L volatility if we do it in the local currency. We expect strong participation in particular from our colleagues in the Polish capital markets community. And we appreciate that. While this transaction will open up a new tool for the banking sector to support the economic growth of this country, our book building will close on the 15th of November. And with this good news, I'm now handing over to Marek in our FX mortgage details.

Thank you, Pascal. So, as you can see on the following slide, it was yet another quarter with strong provisioning for Swiss franc mortgages. We were also very active with respect to the continuation of the settlements program with the clients. Overall, we have concluded by the end of September 19,500 settlements. but we carry on even faster in October. And I'm happy to say that we are not slowing down. We have concluded over 1,100 settlements in the month of October standalone. As you can see on the slide champion, Overall, cumulative value of the ethics-related legal risk that we have created so far is almost 16 billion zloty, out of which 7.9 remains on the balance sheet, and the other half has been used to complete the verdicts that we have received from the courts, as well as to conclude the settlements. Overall, the value of the Swiss bank mortgage loans stood at less than 1% of the total loan portfolio. We see Slowing number of new tort cases entering mBank. It is down 46% year-on-year. We also do not see significant increase of the lawsuits related to the repaid contracts. It's also good to highlight that this was the first quarter in which the number of actual settlements concluded was larger than the number of contracts still open in COTS. And since we are coming to an end of the active population, As Pascal already alluded to earlier, we expect that following quarters provisions will be gradually smaller and smaller. And this brings us to the following slide, which you are very much used to, which is the breakdown of the core business and non-core, showing how strong performance in core business we have demonstrated the first nine months of 2024, and Pascal, over to you.