Alior Bank SA

WSE:ALR

Earnings Call Analysis

Alior Bank's Solid Q1 2024 Performance

Alior Bank reported a strong Q1 2024 with a net profit of PLN 578 million, up nearly 60% year-over-year. The bank's assets grew by 8%, reaching over PLN 91 billion. Notably, the bank achieved a low NPL ratio of 1.65% and a robust ROE of 24%. Moving forward, the bank expects its cost of risk to remain below 1% for the year. Key initiatives included a focus on mortgage sales, increasing mobile banking adoption, and ESG improvements. The outlook remains positive with no expected significant changes in cost of financing or ROA in 2024.

Strong Start to 2024

Alior Bank kicked off 2024 on a high note with impressive financial results. For the first quarter, the bank reported a net profit of PLN 578 million, marking a nearly 60% year-on-year increase. This substantial growth in profit reflects the bank's ability to enhance its operational efficiency and competitive position in the market.

Robust Asset Growth

The bank's total assets grew to over PLN 91 billion, achieving an annual growth rate of 8%. The performing loans volume rose by over 9%, reaching more than PLN 61 billion. This growth can be attributed to the bank's strategic focus on lending, particularly in mortgages, which positively impacted the risk profile.

Declining Non-Performing Loans

Alior Bank successfully reduced its Non-Performing Loans (NPL) ratio to a record low of 1.65%. This marks a significant improvement from previous quarters and showcases the bank's effective risk management strategies. The cost of risk came in at a very favorable 0.68% for Q1, and management anticipates this will remain below 1% throughout 2024.

Solid Retail Banking Performance

Retail banking experienced a notable transformation, with an impressive 20% year-on-year increase in sales of checking and savings accounts. The bank also saw significant digital engagement, with a 36% increase in BLIK transactions and 22% growth in motorway journey payments via the Alior Mobile application. Sales of mortgage loans amounted to PLN 1.6 billion, supported by attractive customer promotions.

Challenges in Corporate Lending

Despite strong performance in retail banking, the bank faced challenges in corporate lending due to low demand. Many businesses are hesitant to invest amid economic uncertainties, particularly related to increasing operational costs. Consequently, only a third of surveyed businesses expressed intent to invest using bank loans. The bank is adapting by enhancing its digital services and efficiency.

Strong Financial Metrics

Return on equity (ROE) stood at a striking 24%, benefiting from a solid capital base that is about 40% higher year-on-year. The net interest margin (NIM) has slightly declined, but remains robust, indicating strong pricing power in the market despite competitive pressures. The bank is projecting a stable performance in NIM as it continues to grow its mortgage portfolio.

Cost Management and Operational Efficiency

Operating costs increased by 8% year-on-year, driven primarily by employee compensation. However, the bank has shown resilience in managing costs effectively. The cost-to-income ratio remains attractive at slightly above 30%, reflecting ongoing efforts to optimize operational efficiency while supporting business growth.

Outlook and Forward Guidance

Looking ahead, Alior Bank expects to maintain its strong financial trajectory with continued asset growth and profitability. The management has set an ambitious target for the cost of risk, projecting it to stay below 1%. Furthermore, as economic conditions stabilize, there is optimism for improved demand in corporate lending, particularly as public-private partnerships emerge through government initiatives.

Earnings Call Transcript 2024-Q1

[Dominik Prokop, executive]

My name is Dominik Prokop of the Alior Bank's Investor Relations. Welcome to this conference that will summarize the results of Alior Bank for Q1 2024.Just like the last time, in the first part of this meeting, we will talk about the bank's results and trends. Grzegorz Olszewski, CEO, will be the speaker together with Tomasz Miklas, Vice President and CRO; and the CFO Mr. Gibala. In the second part after the presentation, we will have time for Q&A. Before I hand over to Grzegorz, I would encourage everyone online to ask questions in the first part so that we can move smoothly to the Q&A.Thank you. Grzegorz, over to you.

[Grzegorz Olszewski, executive]

Thank you, Dominik, and good morning. Welcome to this presentation of our results for Q1 2024. We will go through the presentation, and I will try to discuss what is behind the figures. You can see the figures on the slide, very good results in Q1. Our results were charged with a contribution to the BFG resolution fund of PLN 40 million. Adjusted by the BFG contribution, the result would be better than in Q4. But of course, in our business, we do have to take into account all the expenses, so we are reporting the result as was PLN 578 million.NII and NFC grew year-on-year by 15% and 1%, respectively. We are not being overly aggressive with NFC, especially in acquisition of retail as well as micro firm clients online. And these efforts have paid off as you will see in the presentation.Moving on now to the slide, which gives you a snapshot of our position and the trends in our core business, that is lending. The bank's assets were over PLN 91 billion grew 8% year-on-year. The performing loans volume was more than PLN 61 billion, up by more than 9% year-on-year. In addition to our business operations, we are making efforts to change our risk profile, pursuing the strategy as designed. The NPL was record low at 1.65; COR 0.68%. Tomasz will speak more about COR later on, and he will discuss our guidance for the coming months.ROE of 24% and [ Radomir ] will describe the cost side as well as the NIM, which is lower but still very strong. You will recall that we are rearranging our loan portfolio mix by adding mortgages, which has a positive impact on risk. Regarding CoF, it remains very low. In addition to the cost of risk and the reduction of the NPL, the decrease in CoF is probably the biggest revolution we have gone through. We are a young bank and still we are reporting a lower ratio than most of our peers with a bigger customer base of relationship-based customers.Moving on to our retail customers. Following our strategy, we have been migrating our clients to mobile banking. We are upgrading our mobile app and our customers are acknowledging this trend and using mobile banking more and more. We were selling mortgage loans actively last quarter, PLN 1.6 billion, and consumer finance sales remained stable year-on-year, 1.3% -- PLN 1.3 billion. The first quarter of the year underperformed due to price wars. Speaking of the sale of mortgages, the sales remained affected by the program supporting the sale of mortgage loans, save loans, 2%. Our total portfolio is record high at PLN 20 billion -- 3.8% market share, quite strong.Moving on to cash loan sales. Our assets decreased around 3% in terms of cash loans year-on-year. And there were 2 drivers behind that, cost of risk, the customer risk profile. We cannot change the risk profile without changing our credit policies in relation to the customers we are lending to, which is why we are moving on with this transition in respect of the customers' risk profile. Second driver, price. Certainly, digitization of our processes and the availability of loans remotely makes the price pressures strong, which is why we need to strike a balance between 2 important drivers trying to grow the sales of the cash loans, in relation to risks, while keeping it attractive price wise.Moving on to the consumer finance loans. This was a good quarter, less good than Q4, but that's only natural due to seasonality, yet it was much better than Q1 2023. We doubled the numbers, which is a very good result. The portfolio has been growing as we've been selling consumer loans. And we see an increase in the number of consumers using those loans, thanks to our acquisition efforts.Moving on to acquisition, very good sales of savings and checking accounts. Konto Jakze Osobiste, the sales grew by nearly 20% year-on-year, number of customers with regular payments into the accounts, up 5%. These numbers demonstrate that we are becoming a bank of first choice for our customers who are increasingly using value-added services. Nearly 22% is the growth of the number of motorway journeys and tickets paid through the Alior Mobile application, 20% growth year-on-year when it comes to the transfers audit in the app, 30% increase, 36% increase in the number of BLIK transactions. These are very good numbers, which represent or reflect the growth of relationships and transactions handled by the bank, which reduces our service costs and has a positive impact on our NFC.Of course, these changes are not yet revolutionary, but yet they are quite strong. And another strong trend that has become quite stable in the last few quarters, especially in the last quarter, acquisition of retail customers growing very fast.Moving to business customers. This segment business customers remains under strong market pressures. Demand remains low, looking at loans. We are prepared with a strong capital base, we are prepared to contribute to an improvement in lending, but economic numbers do not bode too well. Demand from businesses is low. Private investments may be the lowest this year in a long time, according to some surveys, only 1 business in 3 is considering to invest using bank loans. But at the bank, we have seen some important developments that I'd like to stress. We are focusing on digitization of our processes and customer service to make our relationships with customers stronger.And this implies that our processes for microphones have been automated up to 70% and a lot of instructions or orders of customers are handled automatically, year-on-year, 50% more. So the vast majority of orders are handled remotely, which reduces the workload of our sales forces and lets them focus on acquisition and sales of loans. Sale of accounts online grew by more than 100% in the micro segment. The sale of BankConnect service, which links the bank [ closely ] with customers grew, the sales grew by more than 60% year-on-year.Let's look at the assets. The assets have remained stable, yet in Q1 year-on-year. The share of consortia decreased significantly in new sales, PLN 600 million less year-on-year sold through consortia, which means that our margin after the cost of risk increased across all segments by double-digit figures. So on the one hand, we have lower cost of risk, better quality of sales of corporate loans. On the other hand, we have seen a reduction in the big tickets as we are focusing more on selling to the segments where we can earn a better margin, which is quite significant.And then our share in the portfolio of performing loans grew modestly for a second quarter in a row, net however, of the construction and real estate development segment, which was our strong focus historically. So outside these segments, we are moving more boldly to build up our market share, which gives us more space to handle end-to-end customer relationships and to focus on cross-selling to customers and to earn bigger margins on those relationships. And we have a better understanding of our customers, which significantly reduces potential future risks.The balance of assets in collection dropped significantly by close to 18% year-on-year. Customer acquisition would not have been possible without automation of our processes, opening up of, well, opening of accounts within a record short time of 3 minutes handled remotely. That's a very short lead time for a corporate segment. We were the first bank in Poland to implement the BLIK functionality for business customers. We have new -- a new high application to support our customer relationships, which, of course, implies better understanding of clients and a lower cost of risk.Regarding retail customers, two implementations were key, one involves the development of the Alior Pay functionality and top up your accounts where you can transfer cash into your Alior Pay account and the funds can be used for 30 days for free without interest and then interest can be paid by installment. In the mobile app, we implemented some educational content to support and educate our customers and to build relationships. The Alior Bank application aspires to do more than provide banking functionalities in the traditional way. This is our main channel, which we want to develop to communicate actively with our customers.Corporate social responsibility. Alior University has operated for a year now. It's an educational platform for our employees. We were very active educating our branch employees. We reduced the work time on the front end with customers by 2 hours, and we are focusing on improving the quality of customer service. The Golden Banker ranking shows that we moved from #4 to #2 and we believe the branches are important to remain in the top 3 this year. So we are really focusing on education to improve the competencies of our bankers over the coming months.We were rated -- ESG rated by Sustainalytics. This was an important journey for us, as we were preparing to be rated. We improved our corporate governance practices. We are at medium risk level. And of course, we want to reduce the risk level according to our plans, we will go step by step to reduce our risk profile at the bank and to reduce the risk profile in sustainability terms. And we do believe this will be a major driver, to ensure that Alior Bank gets an investment grade in the future to reduce the cost of funding and to make us even more credible as a bank.So these were our business or operational results. That's all from me at this point. Tomasz will now discuss risk.

[Tomasz Miklas, executive]

Thank you, Grzegorz. In risk, like across the bank, we've had a very good quarter, starting with our capital position, Tier 1 was nearly 17%, the TCR was nearly 17.5%, PLN 4.2 billion and PLN 3.4 billion above the regulatory requirements, slight drop quarter-on-quarter because our loan book is growing. But as you remember, Q4 results were not included in our equity, because the management board decided to recommend that the shareholders pay out a dividend. Tomorrow the shareholders' meeting will discuss that. Liquidity ratios, LCR, short-term liquidity 177% long-term, NSFR 141%, both ratios well above the regulatory requirements at 100% for both.Moving on to cost of risk. As Grzegorz said, NPR -- NPL is a record low 7.65%, improving strongly quarter-on-quarter from 8.6%. Thanks to, among others, the project we have mentioned on other occasions, sale of non-performing corporate loans on the European market. This project was partly settled in Q4 2023, partly in Q1 '24. And there were other initiatives we took over the past quarter to improve the NPL. Cost of risk in Q1 was 0.68%, a very good figure, better than the annual average of 2023, improved by positive developments, including debt enforcement and collection of corporate customers, helping us or adding PLN 20 million to reduce the ratio. But even net of those one-offs, the cost the risk was 0.85%, which is very good.Now to give you a picture of the long-term transition we have gone through, in 2020, the cost of risk was 2.8%. That was PLN 1.7 billion of cost of risk per year. In 2023, cost of risk was 0.98%, slightly above PLN 600 million. So over the years, we have reduced our cost of risk by nearly PLN 1 billion, as you can see reflected in the financials of the group. Looking forward, as regards the future, the cost of risk this year should not be above 1%. We do not see any serious elements that could disturb this improvement trend, which we have demonstrated for some time.As for the risk of credit, you can see the NPL cost after quarters, in 2 quarters, a very strong improvement by 1.8 percentage point. As for the post segment NPL for retail customers, a very good result, a very good market result. And as for the business customer, we have a lot to do. But you can see that quarter-on-quarter, definitely improved, and the last quarter has seen a dynamic change. As concerns the NPL provision coverage, the result will drop in the first quarter because of the reduction in the first quarter, especially in the business customer at the mid level. Reducing NPL, we begin with the oldest transactions.And the cost of risk segments, the top right hand corner, the last 4 quarters, as you can see in each quarter, the cost of risk has been below 1%. And we expect that in 2024, this level will not go above 1%. As for the cost of risk in different segments, in retail and in corporate segments, in both, we observed an improvement quarter-on-quarter, which allies to what we have been communicating to you for some time.Summing up the risk issues, we have very good capital and very good liquidity results and a consistent improvement in our assets situation, which you can observe both in the result because of the improvement in the cost of risk and the improvements in the NPL, which has received the best historic results of 7.65%.Thank you very much. I hand over to Gibala.

[Radomir Gibala, executive]

Good morning, everyone. Let us begin with a simplified balance and loss account, and let me draw your attention again to the net profit of PLN 578 million in the first quarter, which is almost 60% better year-on-year, which is transposed into annualized return on capital of 24%. If we relate that to the balance sheet values, you can find it in Slide 40, this ROE index has been received on the value of average capital of the past 2 quarters, which is about 40% higher year-on-year. So we are improving our capital base and the ROE index is also getting improved.Let me focus on some items in this particular slide and the year-on-year aspects, and then we will look at quarter-on-quarter. If you look at year-on-year results and our percentage results, you will observe an improvement of 15%, which is PLN 166 million in nominal terms. And there are 3 aspects influencing this result on the interest cost, there has been a positive impact of our hedging strategy and the year-on-year result, of course, which is above PLN 120 million in plus. And then the other positive impact is the balance sheet improvement, mostly in interest assets which is PLN 130 million. And if we reduce that by the overvaluation effect of our portfolio after the interest rate reductions, which took place in the fourth quarter of the previous year, you will see a simplified explanation why there is this improvement in the interest assets.We have been observing the drop from the peak in net interest margin, but in nominal terms, in year-on-year dimension, we keep growing. And if we look at the quarter-on-quarter, you can observe that in the next slide in the top left hand side, we have the interest cost, which is decreasing. The result is better on the papers and lower on the portfolio. Why is the difference? The PLN 60 million plus, which translates into improvements from one-off events in the fourth quarter, you may remember in the previous credit holiday would have to be improved and also [ overvaluating ] of other reserves. And the remaining [ 30 ] refers to another tour of the valuation of the portfolio and a shorter quarter, a slightly short quarter, a slightly shorter -- slightly shorter first quarter.Now if we look at that in the quarter-on-quarter results, as Grzegorz already mentioned, 5.95 if we compare that to [ 6.08 ] which is the normalized value in the fourth quarter after the one-off occurrences deducted, which demonstrates that we have observed the peak and you can see that in this particular graph, it is quite noticeable, compared to the financial cost -- in connection with the financial cost, which keeps going down, not as strongly as it used to, but it is going down.So let me say a few comments about the offer to the retail customers. For the past 2 months, which you may have noticed, we maintain the 7% interest on the savings account. And that is the result, the trade-off that we want to maintain. On the one hand, a very attractive offer of savings for our customers. And we also encourage the customers to keep banking with us. So that's the way how the offer is set up, and you can already see that in the number of current accounts, which the customers are opening. So we are making all the efforts to retain these customers and keep banking with us.Looking at the graph below in the conditions, in which we function right now, we keep maintaining our efforts to have a good index of the loan-to-deposit ratio. It is a relatively high -- it is a relatively high ratio compared to the market, and this is our strategy to maintain this strong ratio level, we want to be active and we want to grow stronger than the market. And the previous year, there was a 5% growth, now we have 7% quarter-on-quarter. We do not have full results as yet, but we assume that the growth will be stronger than the market.As for the commission, result of fees and commissions, picking up on what Grzegorz mentioned and our activities in the retail aspects, we want to keep the transaction, the relations in nature, and we maintain the level above PLN 2 million per quarter and that's how it transpires year-on-year. As for quarter-on-quarter, there has been a change in the currency exchange results. But if you look at the total commission, the table of payments, fees and commissions should be encouraging and that is the idea to keep growing it with the customers so that the customers keep transacting as much as possible in the macroeconomic conditions, in which we find ourselves.Now costs -- operating costs, 8% growth year-on-year. We can see that in the whole picture here, you can see a certain slowing down of the inflational trends. But if you look at employee costs, we still have a 2% growth. What we observe in the sector, we have a certain average ratio of growth for the sector, but we observe that also in the economy as a whole. It seems that the inflation target seems to be feasible. But as for pay, it keeps growing by 2 digits. And we experience that aspect in the banking sector as well. And our banks wanting to maintain a competitive position in the labor market and to develop our strategic initiatives, the growth is still quite noticeable.Whether subsequent growth will take place, it will depend very much on the labor market situation, also the trends which shape inflation. But what we find encouraging is that the work that we carry out in the general and administrative costs, there's a certain stability and a drop quarter-on-quarter. We keep working in the area of rents and payments, possibilities of improvement. As for cost to income ratio, it is at a good level, whether normalized or reported. These are quite good results, slightly above 30%.As regards the strategy, when we look at the fourth quarter, we have obtained the ratios envisaged for the year, which includes the recommendation of the payment of dividend as well earlier by 1 year. We can see that programs are carrying on, and we're implementing this strategy, but we are also starting a new perspective, which will be announced at the end of this year. We will show the directions of development and the initiatives for the next strategic period.We end this presentation with this general slide, which shows the assets and improvements in the bank. And we would like to ask you questions.

[Dominik Prokop, executive]

We have the first question. Vis-a-vis the value of assets, the cost of Alior Bank are fairly high, fairly high compared to other banks, including the C/I ratio. There are high cost of employees as well. Does Alior Bank plan, reducing costs, what costs could be reduced in 2024?

[Unknown Executive]

Let me develop the comments, which I already offered in the description of the slide related to costs. Let's go step by step. It seems that our costs compared to assets, and let's put an asterisk to that. It will be better to compare that to the portfolio because a large part of the sector is the securities. So we might make a correction. The asset mix that we have right now compared to the sector produces one of the highest commission and markup rates. And we have about 30% cash loans, which have a very short redemption period. So to retain the customer, we have to recover the balance.We grow in the mortgage loans, which should improve the ratio ultimately. But as far as C/I ratio is concerned, whether we compare to the previous financial years or to the banks which function in Europe, that the ratio of 34%, 36% is still very attractive. However, as for the employee costs, we see that the costs grow, but we also grow both in terms of the portfolio and in terms of the assets and in terms of the core activities.So answering the responses in the labor market, we have to take our decisions, but we also grow in the most important part of the assets. So it seems that our strategy in this regard is bearing fruit and it focuses on growth. And as Grzegorz mentioned, there is a certain shift from the traditional to mobile channels or remote channels generally. This is a very good question. I'm happy that it appeared, because mostly, we talked about the cost of risk so far. Now you're getting more and more convinced that the cost of risk is at a stable level, and we have gone through a good transformation.As for the business model, it should be -- we should explain a certain issue. The fact that we conduct a transformation in the risk area doesn't mean that it will be done by itself, the reduction of NPL, the transformation of the credit risk processes will not be done by themselves. It has to be done by the people. And so the human element is still very important at this stage of the development. We are a bank which grows, and our base and the business model is focused on retail very much. So we have the structure [indiscernible] 1/3 of the channels are loans, 1/3 are the mobile -- the remote channel and 1/3 are the partner branches.In cash loans, the branch channel is still very important, especially that the sale in branches is higher still than in the remote mode. Historically, aspect is important, a large part of the clients in the accounts without fees have developed a base of customers that still use branches. And this channel is still important in our servicing model. We're not able to give it up. So that's why the relation of remote customers to the total group of customers is slightly smaller.And the third area is the support of business. We are improving the digitization of that channel, 80% of orders takes place remotely. So that shows the result of our efforts. We want to keep reducing our costs, to be quite responsible, not yet, because the freed-up resources we want to use for growth and that's the assumption of our strategy. We keep analyzing all the cost items to make the model as effective as possible. And we can see that the number of branches is going down year-by-year, but we do it slowly so that it doesn't take place at the cost of a decrease of the risk level or increase of NPL or the lower dynamics of loans or the asset books resulting from the growth of assets in the bonds section. We are, therefore, following the strategy quite consistently.

[Dominik Prokop, executive]

The next question. Alior Bank has noticed a spectacular quarterly drop in the NPL loans in the HP sector. What is the reason for that?

[Tomasz Miklas, executive]

Thank you very much for that question. There are 3 reasons we mentioned the Marco Polo project, which is the sale of a package of NPL properties in the European market. Some of that was done in the previous year, some in the first quarter, but now you see the result in our ratios. The second reason, there was an internal project, which helped us write off a large part of the corporate loans. And the third reason and the -- in the recent quarters, you are communicating we have a good result and the cost of risk because of the ongoing restructuring processes and debt collection purchases in the corporate sector.And that was very much an evidence in this quarter as well. The processes are faster. It goes more strongly. And so the NPL keeps going down. So these are the 3 reasons for the drop.

[Dominik Prokop, executive]

And the next question. What ROA and what cost of financing are you expecting to report in the future?

[Unknown Executive]

Considering the consensus around the interest rates in 2024, assuming there will be no change, we are not expecting any significant difference or change in cost of financing or in ROA. But importantly, as we can already see in the NIM, we have been growing where we want to grow. That is in mortgages and fixed rate loans. This was actually the design of the previous program to present safe loans. Here, we rely on 5-year contracts, which are lower than the current [indiscernible].So if another program is offered with a similar design, we'll probably see a modest decrease in margins. At this point in time, which is good for the coming quarters because we will definitely see some rate cuts in future.

[Dominik Prokop, executive]

The next question is, to what extent did the drop in NIM in Q1 2024 by 26 bps result from a bigger volume of mortgages in the portfolio? What is the expected NIM in 2024 annually?

[Unknown Executive]

Let me go back to the slide with our NII, which presents Q4 as well. Let me remind you, there were -- the provisions were released against the credit holidays as well as provisions against bank assurance and the big CJEU judgment, PLN 30 million. Another major driver unrelated to monetary policy was, the reset of interest on our assets in Q4, continuing into Q1. So going back to your question, the current figure, slightly below -- below 6% is our target, as we've been saying over the past quarters with the footnote regarding the mortgage sales. And I go back to the previous question, if we produce more mortgages and more fixed rate loans, our NIM should be affected to a small extent.

[Dominik Prokop, executive]

Next question. In the context of litigation due to the so-called sanction of free credit loans, how many customers have sued Alior Bank today?

[Unknown Executive]

Regarding the number of actions, regarding these loans, there are not many, in relation to both our loan book and the volumes at the bank. You've been asking this question a lot. So let me reply. Last quarter, we said that we are winning in most court cases, and this has continued. The scale is still low, but ourselves in the sector consider this very seriously. We have learned the lesson across the industry with respect to the [ Swiss franc ] loans. As the sector, we are changing our offering actively mitigating potential claims relating to the different aspects of loan contracts.For instance, last -- well, 6 months ago, we eliminated the reference type from our contracts, which was a potential source of claims. We are actively amending contracts in response to the new court cases filed by mostly law firms. After the termination of the loan, customers have 12 months to file a claim regarding the so-called sanction of free credit. So this mitigates the risk over time.Second point, the sector, the industry -- or the Polish Bank Association is very active in this field. They are talking to the regulator regarding potential amendments to the consumer credit act to improve the situation and to keep things in check to mitigate the risk at a very low level.

[Dominik Prokop, executive]

If I may follow up on that. Let's not fall into the trap of propaganda spread by companies that want to make a lot of money, law firms. They are trying to take advantage of some legal loopholes to challenge long-term contracts with banks. [indiscernible] has been used to this for this purpose, the courts, however, have not -- have not consented to that. Now customers in Poland know how much money they will be paying in installments. What is the credit of -- with the cost of credit, they have information available through all channels, they have the support of the financial ombudsman and the Competition and Consumer Protection office.So the whole system in Poland gives the customers a safety net to make sure that they accept their liabilities, in full knowledge of what they are and that they can perform the contract as drafted. The attempt to challenge the contracts have been made, but the outcome of such attempts has not been yet very, very obvious for clients, and I hope this continues. What is the -- why did the lending income drop by PLN 65 million quarter-on-quarter? While [indiscernible] gained [ 9 EPS ].

[Unknown Executive]

It's the third time somebody is asking a very similar question. So let's look at maths. The difference is PLN 65 million, [ PLN 30 million ] is a one-off impact of Q4. The remainder includes PLN 15 million, which we think is due to a lower number of days in Q1. And then interest on loans decreased after the October and September decisions, PLN 75 million in Q1, added up, and you get PLN 120 million, now deduct PLN 55 million attributable to growth in our portfolio that yields the PLN 65 million Q-on-Q difference.As I said when discussing the NII, we had -- have seen a positive impact from hedging PLN 122 million year-on-year. So increase year-on-year, driven mainly by growth of the portfolio, 7% year-on-year.

[Dominik Prokop, executive]

Next question. Have you made your deposit offering more attractive in Q1?

[Unknown Executive]

Yes. I've mentioned that, but let me expand how is our offering attractive? We are offering 7% within the term of the promotion. This is an offer for new clients subject to certain transaction-related criteria. This is why we have seen an increase in checking and savings accounts supported by an attractive price mix and marketing.

[Dominik Prokop, executive]

What are the bank's expectations regarding the interest rates over the next 2 years?

[Unknown Executive]

Well, once again, this year it seems the consensus is the rates will remain unchanged. And let me follow up on what our macroeconomic experts are saying. Next year, we are expecting the rates to be around 5%.

[Dominik Prokop, executive]

And a follow-up question. How will you explain the still small growth in demand for bank loans other than mortgages?

[Grzegorz Olszewski, executive]

Well, as I said at the beginning, investments remain record low. If you look at the contribution to GDP. And consultancies have been surveying businesses, apparently, a small proportion of customers are considering to invest using bank loans due to the growing costs. For instance, the minimum wages and in general, the payroll have grown across the corporate sector. Hence, businesses are not considering to invest as they have to manage their growing cost base. The operating expenses in the absence of stability or predictability of the future mix of expenses.First, the legal environment has to stabilize as well as the economic environment. It's not helpful that there's still war waged across the border to the East. And there's a lot of uncertainty about the future of the war, that's another factor. Regarding consumer loans, the share of consumer loans or the proportionate rate of consumer loans to GDP in Poland is among the highest as a percentage, the delta, the gap to the European average, however, is obvious in corporate loans for 2 reasons. First, low investments, that's the structural reason. And the other driver is that businesses show a strong aversion towards lending than in many other European markets due to the environment. If the environment stabilizes, there will be more appetite for loans.And the National Recovery and Resilience Plan is expected to drive investments, both governments' investments, PPPs, public private partnerships as well as purely private investments as companies are more interested to invest. There'll be more demand for lending.

[Dominik Prokop, executive]

Next question goes to [indiscernible]. What was MRL term in -- at the end of Q1?

[Unknown Executive]

10 to 0.75, and the other MRL was more than 22, way above the regulatory requirements.

[Dominik Prokop, executive]

That was our last question. Thank you so much for speaking, and thank you for being with us today. All the best and see you soon.