Alior Bank SA
WSE:ALR
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Good morning. Welcome, everyone, to the presentation of Alior Bank results for Quarter 1 2022. We'll begin with the presentation to be delivered by Grzegorz Olszewski and Radomir Gibala. Next, we are going to move on to Q&A. Grzegorz, over to you.
Good morning. Hello. Presentation of the results for quarter 1 2022, record revenues. This is what we need to stress. A very high level of innovation and improvement of the quality of portfolio of credits. This is what we distress.
Now moving on to our results of operational activities, record level of revenues, more than PLN 1 billion and PLN 862 million and provisioned PLN 191 million, 7% year-to-year in terms of improvement.
Net Profit PLN 226 million, adjusted net income for write-offs now. Taking into consideration the proportions we've always said historically that the portfolio of foreign FX credits in Alior Bank is smaller compared to the offer of other banks. And that warrants reserve is 230 -- PLN 23 million. It is on novelty that we've seen -- that we saw last year. These nonfinancial assets write-offs to the operations of the Bank's Romanian branch. And this write-off is something that concludes in the nonfinancial write-offs, and there won't be any new write-offs following. PLN 7 million of the reserve for the refunds resulting from early loan repayments. This is so-called small CJEU.
Now look at other ranges. As said, the digit was expected nearly 12%. We've been asked about COR how Alior performance fast under dynamic circumstances, especially when it comes to foreign exchange rate rising. And in this context, that mean drawing your attention to this incremental production of NPL 11.31% year-to-year and 2 percentage points smaller compared to the last year, and this is one of the strategic targets.
We wanted to kept stressing how important this particular ratio is for Alior and we keep improving the quality of the credit portfolio at Alior Bank.
In parallel today, and I am aced another 50, stable capital position and after having taken into consideration all the events. Quarter 1 cost/income is under level of 45.1%. In the following quarters, we anticipate lowering of this ratio, especially given the fact that one-offs are going to be of smaller and important especially when it comes to installment for PFG.
Now assets 6% increment quarter-to-quarter and the volume credit year-to-year. The volume of credits and the same tenancy and the same applies also to deposits. And in terms of interest rates rising, this will have its ramifications. Still, there is the growing tendency, and we'd like to keep this trend going. This is one of most essential factors for this factor NPL to be reduced.
Now in terms of COR. The COR is going to be under control. The rising interest rates is also coupled with the rising remuneration levels. So this is also coupled with a very positive, very sound economic standing, which does not result in a deterioration on the labor market. And this is also something boosted by what we do internally. Now in structure, we automize processes for credit. And we also boost our quality. So we go away from this more risky dimension vis–à –vis a better quality of credits.
Innovation is good at Alior Bank. It is illustrated by our performance in quarter 1, especially in terms of roll out. And this is something coordinated on the part of our teams. Personalization is very high on our agenda. So automation is there for our customers and repositories of permissions is also being developed. And we cooperate here very strictly with our partners. Knowledge is well translated into what our customers get in the offer. So the offering is well adjusted to customer's need.
There is also an ongoing automation of processes. This is again very important. This is not visible in our mobile arm. Nevertheless, it's something that we can see from the back office side. The automated decisions for SMEs for quarter 1 was at 37%. On the one hand, this means higher efficiency on the cost side at the same time, and this also have ramifications of over the quality of portfolio. And this is also reflected in our customers' portfolio quality and will be speeding up the automation of processes.
Importantly, we keep implementing the Voicebot on our hub task. 30% of all transactions are now being managed from this level. In the present quarter, Voicebot and other Voicebot is going to be -- it is being implemented also for transaction decisions for customers. So we want to merge the development of our mobile app with the growth of the mobile app. So the customer may be serviced very swiftly and very fast from the hot desk of the bank. Essentially, we need to further develop AI-based tools.
This quarter is also all about the rollout of the account for the youth as well as the development of the centers for an identity, identification. How do we see it? How do we look at it? This is very much about being able to identify yourself in various ways. This is something that we -- that will foster, and we'll roll it out regardless of who our customer is. We want them to be able to confirm their identities in a very convenient manner. This is something that we've already achieved via SMS, and this holds true for the installment processes. And again, the very area of customer service for people coming in to Poland from Ukraine. ESG will be largely bounded.
So speaking of which, in quarter 1, we focused on social responsibility. And it's going to be turned out. It was of importance for us. Alior Bank was one of the most prominent figures in the area of refugee assistance. Our support has been unprecedented in terms of our collaboration with local authorities. Education center was developed as within this framework. And this is something that we want to replicate in other cities and towns too. An assistance center is soon to be also started in Warsaw. We are hyperactive and so our employees. They keep supporting the refugees.
In terms of the offering, we've translated the app to accommodate what the needs of Ukrainian refugees. We got the help desk operating in Ukrainian towns are being opened also in Ukraine. This process has been streamlined in maximum terms to start once account is also possible via the tablet, especially incentives where personal number is provided to Ukrainians.
So as said, we are very active in supporting and providing aid to those who've already come to Poland and are in search for assistance for their financial needs. And this is something that we also do free of charge.
Now mortgage loans, one of our most crucial products. Towards 2021, we sent this has been a very important year for Alior Bank. We want our market share to grow. There are many turbulence and challenges. We've managed to achieve just this 3%. This is our share. 4% in terms of new sales. This is what we need to be speaking about.
Major factors. Aid dedicated order has been enhanced especially with Warsaw. In April, we've decided to copy the solution for Cracow, and we want this trend to be maintained. We are also looking forward to selling mortgage loans, especially via and within major markets.
We are mindful of the bank -- credit capacities in the bank of clients has deteriorated because of the interest rates growing. So this reduced capacity will be also aid factor for the decrease of the volumes of sales. Still, there is some buffer. There is still some room for maneuver. This buffer historically was small. So it is not as important over volumes as it might be. Still, it is also the sizes of the quality of the portfolio. Anyway, in the upcoming quarters, we'll try to boost our -- the offer of our board -- and we'll adjust. Of course, this trend of interest rates increasing is stable. Still, we want to streamline our processes in terms of credit capacity assessment. We'll be working on that so that it is ready as situation betters.
Cash loans, ladies and gentlemen. As said, we want to improve the quality of credit portfolio by and large. This is also associated with a number of challenges, in this respect. Our margin has to be good. Our rating has to be good. And this may also be decisive of a smaller portfolio 11.4%. That's our market share. The pressure from our competitors is high, especially following the growth of value of interest rates. Still, the market is well reinvigorated, especially when we compared it to the situation in January and February. Now moods are better, and there is still some appetite for cash loans to be taken. Remote channels are of essence for Alior Bank, and this is going to remain so, especially valid for cash loans and we want this chance to be well exploited especially in terms of our offering for cash loans.
In the area of consumer finance, we are the leader of installment credits. There are competitors, of course. Still, we have our loyal customers. And we want this cooperation to go further. This is very much a seasonal trend of importance in this segment. Next period should be better than the current one. Still, there were many uncertainties, of course, following the breakout of the war in Ukraine.
Quarter 1, like I said about multi-relations, especially when we talk about clients with incoming cash, and this is the segment also to be developed. This will be very much an illustration if the bank keeps growing for individual customers. We want to have these relationships to be nurtured in a regular manner. The number of current accounts is growing and has grown by 25%. And we are now right before the peak of the season, especially, this is something to be observed on motorways and health, and they are used.
People are now in a hybrid mode of working, and it is also connected with more tickets paid from the app. So there will be incoming money. On the one hand, there are other options generating added value. And now when it comes to the structure of how remote channels are used, we see that Alior mobile is growing and the mobile app is precisely the venue of contact. This is where we are going to get in touch with our customers.
The app is not only about reviewing the history of the accounts. It's also a very important tool to issue payments. Therefore, we are looking forward to see a further development here also including like for our mobile app users. Quarter-to-quarter growth is satisfactory and better compared to the trends previously, and we'll keep activating this area further. As expected, we'll have fellow rolls up that will improve how our relationships between us and customers are going to be in the future.
Now for the corporate client, quality improvement has always been our priority. Please take a look at the NPL, decreased 3.6%. Asset balance staying healthy year-on-year, which is an indicator of the good health of our portfolio. The automation of decisions is increasing and so is the efficiency. Therefore, we'd like to stay on that path.
Now let's take a look at the number of active clients across services, active banking cards, cashless translations, BankConnect app, more than 33%, an increase of customers using it increased by 33%. The volume of transfers made via the mobile app has also increased. So this means that in Q1, we increased the portfolio quality. We increased -- we improved our relations, our client and customer relations, which will positively impact both our commission results and our risk rates.
As you can see on this slide, more than a 200% increase in automated decisions in the small and medium enterprise sector. We show an increase to 36 months, the period of crediting on the bank account and online applications for credit will be preapproved. This means that our clients will be given a longer-term kind of product to increase the quality of relation.
We can definitely see the positive trend for all remote channels. In business clients, this is an increasing trend, no doubt. The development of credit tools, that is quick financing, quick decision will have a positive impact on it, and our appraisal of the segment is positive in a state, so which will have a positive impact on risk costs as well.
So record revenue approved relations, better innovations are implemented, we shall definitely stay as we stood up. We'd like to remain a digital leader that Alior Bank is at this moment. These are the tools that allow us to function internally as well. Our efficiency is increasing.
Now let's move on immediately to the financials. Radek, the floor is yours.
Thank you very much, indeed, Grzegorz. A lot has been discussed already. We have demonstrated a lot of financial data. Already, I'd like to present more details in this regard.
Now the net interest income -- net income, sorry, PLN 169 million or PLN 226 million without the previous corrections. The write-offs for nonfinancial assets in Romania had an impact here. We said that already past Q4, the intention then was to reorganize the business model and the supply to our branch in Romania. And this is the effect. So far, it's been negative for our balance sheet, the PLN 27 million write-off could be reversed though. It covers systems, applications, IT solutions that they will prove useful in the future. And this should bring us back on the asset track, so to speak. As Grzegorz has mentioned already, we don't see any further write-offs of nonfinancial assets incoming, so we shall continue to work on reorganizing the branch.
Now regarding the large CJEU, we have already announced that our NPL has received the new line, the legal risk costs. We have been informing you on how we act upon foreign currency mortgages, and we are observing an increase. We've got more than CHF 100 million mortgages. The bank was operational -- became operational post-2008, but we are still exposed to legal risk. The quantity increase the -- quantitative increase, litigations is important, but we decided to make a provision of PLN 23 million to mitigate possible consequences of -- financial consequences of these litigations.
And the increase of Q1 payoffs made us -- make the provision to our current standing. More comments I'll make regarding further slides, and this will apply to some of the components that you can see on this balance sheet.
Let me just tell you that we're aiming at a double-digit capital increase year-on-year. Today, it's about 12%. This is assuming the environment doesn't change. But well, every quarter, the economic environment is changing. It is fluctuating. But we do have the ambition to attain double-digit returns in this regard.
Let's move on to interest rates and the net interest income. The increase of interest rates have been good. It was good to us. But let me put your attention to the repricing of our portfolio and to the structure.
We have as many cash loans as we have mortgages, which with LIBOR increasing does have an impact on the positive effect later on in case of the net interest income. One needs to look at this in comparison with the interest margin and financing costs. The net interest margin is at 4.6%, almost already. Does make a difference in net calculations, but we can also see the increase of financing costs. Post-Q3, we announced that we had seen -- that we have seen the so-called COF. We were among the pioneers with better deposit offer. We simply anticipated increasing the upward cycle loans. And we have been increasing interest rates -- the percentages along the way.
The loan-deposit ratio ticked up by about 2 percentage points. It shows that more of our deposits are working for -- in favor of credit, having the market limitations. In this regard, that is not an increasing trend. Well, it only motivates us to increase the volumes and keep control over the risk.
The increase of the commission result, it was more than 20% increase after Q4, as you may or may not remember. The increase of the basic numbers here is less favorable, but it's 7% year-on-year, so from Q1 to Q1. And this applies to all positions. We do count on the transactability on our business clients and individual clients. We count on them paying for services to speak freely.
Also, we noted more than 20% increase in the foreign exchange and the foreign currency exchange services, which is understandable. Stock brokering results are also increasing just as leasing costs. We're not aiming at 20% here, but we are still developing this revenue line. We are in the upward time cycle. Now we're expecting some new developments in the monetary policy, which will allow us to increase the revenue in general.
Now in terms of costs, if we subtract the contribution that ever on the market needs to demonstrate the first quarter, our revenue increased by 12% year-on-year, but you can't escape the environment. We need to stay competitive. We need to stay competitive on the labor market, which means that labor cost, employee costs are rather high. Provisions for downtime is maintained. We see increased risk in marketing costs by PLN 7 million. Grzegorz has mentioned a lot of effort on our side in the marketing department, which causes money. We'd like to see the returns of this on the sales part and in the volumes, so to speak.
The so-called guidance for you, I think you can see that clearly, we quantified about PLN 250 million year-on-year. We should make it -- we should make the result. We're working constantly on staying efficient. But these costs are to work for us in the future. It's to be clearly, as Grzegorz has mentioned, innovation. We want to develop this bank. We want to bring you new products. So that's the cost. The cost/income ratio exceeded 40%. The ratio is increasing, but the quantifier is increasing as well. Therefore, we can stay within these barriers.
Now let us take a look at this table, and let's take a look at the goals that we set after the latest strategy update post-2021. The difference you can see stem from the COVID-19 pandemic, the consequences that we thought about. Now we'd like to communicate our goals, our yearly goals. We should work on this new strategic perspectives, because, well, the 2022 will finish in 3 quarters, and we'll be back here with a new strategic perspective. However, as we take a look -- as we're taking a look at the business volume, the assets are increasing PLN 89 billion. This is within a reach even though the credit market is down a little.
Current deposits double-digit, absolutely possible. You need to take a look at this in comparison with the financing costs, which is exceeding our goals already. The 4% that you said in a different economic environment is now 4.6% and will keep growing. It depends on the entirety of national economy and factors. We'll see about that in the future. But the impact, the external impact on our net margin is high.
Cost to income, we feel comfortable here. We can stay below 46%, significantly below 46%.
Cost of risk. Let us move on to the next slide directly to speak about this particular matter. Speaking of NPL, it is on a decreasing level. That's something that is very satisfactory also for our employees, 11.31%. Coverage ratio is not decreasing. So we are here very cautious as we manage our risks.
Let me also draw your attention to this bottom-left corner. There is a lot going on when it comes to corporate portfolio, below 20% decrease compared to the average market value. This is not a benchmark whatsoever. Still, there is some work to be done, and this is a trend to mindful of.
Cost of risk. Here, it is discussed on a separate slide. 1.33% past Q1 to be communicated. Now our macro environment. If it is taken into account for this to be communicated in quarter 1, there is no reason for that. Still, we need to be looking well ahead, and this is also something required by the International Accounting Standards. You can read more about it. Still, many events have to be seen.
This increase in interest rates has an impact over the cost of risk, clearly. Nevertheless, we are more about looking at the labor market, how remunerations keep growing. And this is still something that we keep registering the statistical data show as well. However, a slight growth is predicted in this respect. We want to tell you about it. This increase is fully manageable, 1.6% increase for 2022 in general, and 2023 has also been ended up. But quarter-to-quarter there is much volatility. Therefore, we need to stay cautious, plus 1.6% is something that we can be talking about that we can thereby declare. Of course, taking into consideration how the economic situation is evolving. And interest rates, by the way, are very much about grow the increase.
For retail and for the corporate side for business for corporate customers, there is a decrease. And there are, by the way, no signs to be able to have more reserves in this respect. We improve it a bit quarter-to-quarter. But at quarter 2 or 3 in 2021, this is a similar value. There are still more reserves that we are speaking about. When we compare it against previous quarters 1.33, but this is going to be different for the whole year, 30 points, i.e., plus 1.6.
Now for capital and liquidity, let's begin with the right-hand side.
NSFR, there is some decline for LCR. And this ratio is well above the minimum thresholds. And this is very much determined by the increase of interest rates, especially when it comes to obligatory reserve, which is also reflected in this ratio. Other grounds pertain to how we stand in financial terms. You may be following our current communication.
As others do and we all got the requirement of the financial supervision authority and to retain the buffer, and this [ line ] is here to mirror it. Even with this buffer, there is a significant surplus for this period of 30 points. For total capital ratio, we stand at 259 points. You see also the subsequent components of this ratio. TCR is about declining numbers quarter-to-quarter, for Q2 2021 is also decisive in this respect. And this is the kind of increase that I spoke beforehand, quarter-to-quarter, it looks very similar for this base factor. So as said, we are well above the minimum thresholds, including the buffer.
Next, we'd like to draw your attention to some crucial points. Stories, what we are focused on quarter-to-quarter, Grzegorz has been vocal about our innovation, about how we manage and improve efficiency and management especially given this inflation pressure that we keep observing. Historically, and now we've been working on the history of credit portfolio. That has not dwell on and there is issue too much.
And let's stop here, and we'd like to hear your questions. Thank you.
Many thanks indeed. Now over to the Q&A.
Can you tell us what is the reason why the costs of the management of interest rates from derivatives is -- has increased by 70%. Is this something that we need to be expecting for the upcoming quarters as well?
Thank you Dominik for this question. How we secure growth? There is a strategy for this, and we keep using it. When it comes to our interest rates result and others follow suit of course. If there are declining interest rates, there is some mitigation effect for the Bank. And this is something that you can read also in our financial reporting. We've got 20 billion [ U.S. ] transactions. From this, we have a fixed rate and there's another swap that we pay.
Grace period is 2.5 years. Just to give you -- just to provide you with somewhat more details on this case. You can also have a look at the balance sheet and in the financial statement to read well into it.
From the adjustments of capital, we reached minus -- PLN 1.6 billion below in capital. But if you look further on the grace period, on validity, how is this going to be for PLN 1.6 billion. It will make out PLN 600 million per annum.
Let me stress the following. Speaking of the volatility of our interest rate result, in this respect, we've always taken account of the result of NPL over the result, and this is something that we've communicated. So this has been adjusted accordingly. What you can see here is as mentioned in capital after adjustments. There is an insignificant part from bonds, but this is not a very important constituent of our portfolio.
Next question. What are the various outlook for the growth of credit volume for 2022?
I've already addressed this for individual clients. Of course, with interest rates growing, the volumes are going to be reduced, especially when it comes to mortgages.
The interest rates for credit -- for cash credits, it has its impact as the credit capacity is smaller part of individuals, but here it is going to be something somewhat smaller compared to the mortgages. And of course, this macroeconomic situation is going to be decisive on it. There are many variables that can play out for the Polish economy. So it's actually not to be predicted how it will play out for the credit volumes. Should economic stance being sound as predicted, then towards the end of 2022, we'll be able to demonstrate a positive credit volume.
What's the level of reserves for FX credit -- credits?
This is something that we are telling you about in separate documents in the balance sheet, you've got a separate note of it. 9,000 FX mortgages have been given, including Swiss francs and credits in Euro. And here there is this litigation risk, so reserves have to be substantial.
The reserves that we've developed, they take account of 14 litigations for Swiss francs, and that accounts for 2% of all litigations that we have. Just 0.4% all litigations, if we benchmark it against the whole portfolio, and this is also the result of the negligible share of CHF. It was also important that those credits were given away, and is slightly later stage. And bear in mind our history here in this respect, we were quite late to be given this CHF mortgages, and it produced certain ramifications. So we can have less litigations than others here.
The FX credit coverage is something very similar to what we have for PLNs to 0.2% and 40% for the default credits.
Are you expecting for the net FX margin to be growing in upcoming quarters?
Our outlook is pretty much the same as the one communicated during the previous conference. And this growth to 3.5 is going to produce the growth in PLN 800 million for interest rates. And there is this increase of PLN 100 million. These calculations -- taking into consideration, our strategy of securing U.S. transactions are going to be rolled out. So our checks will be done.
And let me reiterate on this occasion. Reservations are of that -- this does not take account of the recent communications as part of government. We will look into it as it matures, so it's hard to model it and quantify it and put it in quantitative terms. Nevertheless, we are showing that our -- we are showing it without taking this into consideration. So it will be slightly different to what we provided you with at previous quarter.
Next question. What are the initial appraisals of government proposals for loan payers, loan takers support and the so-called credit vacation in Alior Bank, especially in the context of the increasing mortgage market?
First off, on our side, we don't see any deterioration of the credit portfolio, mortgage portfolio. It does have a 0 impact on our strategy. Our sales will be aimed at new real estate and possible refinancing, taking into account permanently the quality of mortgage portfolio, of course.
It's good that there is this new legislative proposal. I understand that Alior will be part of this legislative process. The risk has been decreased. I feel that this is a good basis for creating an actual support scheme for the mortgage payers.
Next question. What are the expectations regarding deposits and their interest rates?
Picking up on what Grzegorz has said a second ago. We need to take a look at the real environment. So the interest rates on deposits should increase in the future. Alior was one of the pioneers in increasing the interest rates on deposits, that's why we have managed to secure an increased number of these. As an active factor of this market, we'll follow what our competitors do and react accordingly.
We've got one more question. Was the ECR decrease impacted by the provision, by the obligatory provision?
Yes. Well, the 12% decrease was the compulsory provision. Additionally, towards the end of the year, many corporate clients increased their deposit balance, and that was exactly what we saw in Q4 2021. The basis effect and the difference 1 versus 4, Q1 versus Q4 was perfectly noticeable and we had expected that. As for liquidity, it's safe.
One more thing. There was no -- sort to speak positive environment to a mass deposits between February and March, now it's being normalized, which gives us a good basis for further promotion of deposits among individual clients. The amount of cash is really high as we can see post or outbreak in Ukraine, but we are expecting further stabilization. No panic definitely.
Next question, and that's definitely not the last one. What kind of buffer Alior applied -- had applied before UKNF, Financial Supervision Authority recommendation?
Thank you for that. We went for 3.8%. The minimum was 2.5%. That was until 2021. Starting in January 2022, we went for 3.4%, and now we are applying the 5% as the supervision -- Financial Supervision Authority requires.
Next up, why is the interest result increasing slower than the market at 29%?
Okay. Let me explain that. I have told you a little already, but let's take a look again. A comparison could be made to the banks that secured decreasing interest rate mechanisms, and with increasing rates they decrease the impact of rates, and we recognize that in our interest result. The PLN 70 million is the consequence. But let me sum up the factors here because there is a certain mix of factors that are to be taken into account.
The financing cost in the first place. From Q3, Q4, we were increasing the interest rates. That's well visible in mortgages, 24% a year ago, 27% this year. That's the share of the mortgage portfolio. And let us remember the mortgages and their interest rates are lower than the average interest of the bank.
There's a certain migration going on also from investment loans for enterprises to turn over loans, down to 57% today. These operational loans have lower margins, but it's compensated by cross-sell and margin result later on, that's part of our strategy and tactics. We do want to stay within this safer segment of corporate business clients. Yet another factor that impacts the interest result is the -- are decreasing margins in response to the competitive situation. We want to keep this revenue engine running, but we need to stay competitive at all times.
Another question, gentlemen. Any NPL sales in this Q1?
Yes, and it's been revealed in our statement for Q1. We did not closed the NPL sales in Q1, but we have sort of finalized. We have closed the first batch of write-ins. In Q2, on the other hand, you can expect a further decrease in NPL -- in the NPL ratio.
Next question. What part of your credit portfolio is based on the fixed rate and which part is based on the 3M Index?
Today, we've got about PLN 6 billion fixed rate credits. These are consumer loans and 3-year long credits. So short-term products. The rest of them are all adjustable, usually adjustable to the monthly VBR index. We have commented on the publications of results of other banks and their reaction, that was a mix of factors. So I'll leave it at that. Thank you.
Do you still have any so-called COVID reserves, COVID provisions and what amount?
We've been replying that question every quarter really. With the publication of our results for '21, we turned down in Q4 the provisions for COVID-19. We do have provisions for macroeconomic, possible macroeconomic scenarios and delinquency rates increasing due to increasing interest rates. That's what I've commented while I spoke of the cost risk ratio.
Next question is the Romanian branch. It's possible that they will bring about negative impacts, either financial corporate.
The nonfinancial assets of our branch in Romania were written off down to 0. We do not expect any other write-offs, and we are reorganizing the model. So that's about it. Potentially in the future if the reorganization turns out well, these write-offs can be -- tend to have really positive.
Thank you very much, gentlemen. That was the last question. Thank you very much, ladies and gentlemen.