Alior Bank SA

WSE:ALR

Earnings Call Transcript 2019-Q3

[Unknown Executive]

Good morning, ladies and gentlemen, we would like to welcome everybody as the press conference, which is devoted to the third quarter financial performance. It will be chaired by -- moderated by Krzysztof Bachta, the President, the -- and then CFO; and Marek Szczesniak, who is CRO. So after the presentations, please feel free to ask your questions, and thank you for coming.

[Krzysztof Bachta, executive]

So thank you very much. We are going to get down to business immediately. And then there will be a Q&A session. And we are sorry that we are obstructing the view, but please help yourself to the handouts.

Frequently, there were questions about capital ratios. And then regarding the capital injection. In short term, we do not -- absolutely, we do not envisage that we have now the dividend capacity, which we mentioned already one year ago. So we have reached this dividend index.

Now regarding the level, it is the highest level in 3 years, 163. And then PLN 125 million, which is the net profit, and it was the -- fueled by the ruling of the Court of Justice of the European Union ruling. And then the ROE ratio at 7.4% in the third quarter. Then operating costs are under control. And by the end of this -- of the year, we expect that this CI ratio will be at a very handsome level of 38.9%, down by 3 percentage points compared to the third quarter 2018.

Now regarding the loan volume, it is in line -- it is on track, in line with the plan. And then regarding the deposit base, it's now being -- it's stabilizing now. And we are -- regarding the cost of financing, we can improve by 4 percentage points, but there is further consistent improvement, especially in the deposit base.

And if you look at the Tier 1 ratio, it's up. It's gone up very nicely since the beginning of 2019. So the requirement is now 25 basis points lower. So the surplus will be PLN 819 million of capital surplus. So there is no need of potential capital injection. So in the -- within the time horizon of the newest strategy, we will be able to operate with the current equity basis.

Now regarding the impact of the ruling of the Court of Justice of European Union, we decided to recognize differently the impact of the ruling. So there were some historical returns [ with ] PLN 57 million. It is -- it was posted in the line impact on other operating costs. And this is, of course, only the presentation layer. And this is just bringing in line the methodology, to make the methodologies consistent.

Now one more word regarding the provisions. As of today, the level of historical provisions, it is driven by the trends. So after the ruling of the Court of Justice of European Union, there was a big increase in the number of lawsuits, of complaints. So this is a trend. But after some time, this will become not an increasing trend, but a declining trend.

Now regarding measures that we take to improve the cash loan portfolio, the first most obvious is, wherever it is possible, we convert commission into interest rate. And of course, from the bank's perspective, it is more effective solution. Wherever it is possible to increase interest rate, we are doing that.

And also, the profitability model changed and also consolidation model changed. So before the decision of the Court of Justice of European Union, we were applying different strategy to this extent. And of course, we are taking every possible step to adjust to the new model, to harmonize with the new model. And then cheap consolidation models, we have withdrawn. So now the current consolidation offers are not differentiating anymore. So we are applying new economics.

Regarding the credit card, the new idea is that in some situations when customers need cash, instead of credit card, we are offering, for example, a revolving loan, which means that we are trying, to a larger extent, to protect cash loan portfolio, which is a part of our new CRM strategy. Because we have the simplified processes, we have fast-track approach based on our CRM knowledge.

And previously, it was a positive phenomenon because we were generating additional profits. But it is not any longer like that, that's why we want now to protect cash loan portfolio. We want to protect against premature payback.

Now regarding distribution model improvement, so the internal consolidation is not as profitable as it was before. So we are going to take advantage of the possibilities related to the PSD2 directive. So we want to fully utilize the -- our lending products, especially the assessment of the credit risk. And we intend to implement tools which are based on the information under the PSD2 directive. We will be able to implement a more effective lending process.

And then we want to educate the branch directors, brand -- sorry, branch managers, bankers and partners to -- and explain to them the new business model and to show them new directions, new paths to follow.

Regarding the net financial performance, net profit, PLN 125 million. And then revenues, excluding the impact of the ruling of the -- this ruling of the Court of Justice of the European Union, so here, you have with and without -- and the impact of the ruling on the net profit.

Now regarding the key financial ratios. NIM ratio is 4.39%. And without the impact of the Court of Justice ruling, it is 4.39%; and with, it's 4.63%. So generally, without certain operations, it will be on target because we planned NIM ratio to be at the level of 4.7%. So this interest margin is improved.

Now regarding the CoR ratio, it's gone up by plus 0.20 percentage points. It's now at the level of 2.08%.

And regarding prizes and awards received in the recent months, we are very proud of the mobile banking and Internet banking. Then the second place, we occupied the runner-up position in -- and no doubt that this is thanks to the improvement of the customer service, better contact with the customer. There is a contact -- every possible channel of contact has been improved.

And we were granted the first prize in the mobile banking category and also the first place in the online banking category. And the second place in the traditional -- in the transaction banking. And as we announced before, we added mortgage loan. We expect that it will grow in quarters to come.

And then regarding the sales to the micro businesses, there is -- in the micro segment, it is a transient decline, which was caused by loan policy -- lending policy tightening. So we need to adapt to harmonize the customer profile with our expectations.

Regarding retail customers, no doubt, we are very happy that every customer acquisition channel, including the personal accounts and also cross-selling, so each of these lines is going up. I believe personally that cross-selling of consumer finance products has still quite substantial potential.

So sometimes, it is not always related to the specific product, sometimes it is more based on the relationship with customers. So if the customer buys a higher purchase, the customer takes a high purchase loan to buy skis, sometimes he doesn't associate this alone with the bank.

And then you can see further improvements on a year-to-year basis. I'm talking now about building lasting relationships with customers. We are simply switching to the customer segments with higher profitability rates.

And then you can see that there is -- on the right-hand side of this graph or this diagram, you can see the number of new current accounts with transactions, the number of new current accounts with regular inflows. Then you can see that the growth rate of digital channels has been invariably at high level.

And our mobile application has been very highly rated by our customers. The application star rating is 4.6 out of 5. And Google Play rating, it's 4.3 out of 5.

So we have recorded a 60% increase on a year-to-year basis in the number of customers who are using Alior Bank mobile application. And the customer service in our channels in Alior Bank-owned branches and also the partnership branches, they can boast very high NPSs.

And we want further to improve customer service. And the measures here include, among others, iKiosks. And through the iKiosks, we want to bring customers into the digital world. So the iKiosks also perform the educational role. When you instruct the customer how to perform an Internet transaction using an iKiosks, then he is likely to do it also in Internet banking.

Regarding other developments in the third quarters, except for consumer finance segment, where there are new and every quarter we have new things being introduced, but we are cooperating with new partners. And then, of course, we had to harmonize our activities with the PSD2 directive.

And then new thing is the foreign currency exchange functionality. And this virtual exchange office is -- was very well received by the customers. Already, 20% of the transfers is performed by using this application. So regarding the turnover of the currency exchange functionality, turnover went up by 30%.

Now regarding micro business customer increase, it is up -- it was up by 20%. And also, there was a visible increase in the share of new accounts with a debit card.

Another piece of good news is that we are able to acquire more and more micro customers through the Internet. So the 33% share, which is the last, the highest peak, it's not a one-off event. It turns out that the customers are acquired online and it is more convenient for them. So we believe that this is a sustainable effect.

And we are also very happy with selling the basic account, which is 4x4. And then also, we use the website called www.zafirmowani.pl, which is also a channel for micro customer acquisition.

Now regarding the guarantees. We maintain 90% of the high level, according to the recommendations of the Bank Guarantee Fund.

And also an important point which I want to make now is that in the SME segment, we also restructured our portfolio. We are reorganizing size network and the network should acquire more medium, mid-sized and large customers. We don't want to have only big-ticket transactions, which are -- usually have one-off nature.

Furthermore, we want to improve our risk assessment process in the fourth quarter. The automatic decisions, lending decisions for micro, small segments, the lending process will be fully automated for the loan value up to PLN 3 million.

So here we have to tap the existing potential. So you can see that now the customers who have the credit relationship with us, they also have a transactional relationship with us. So we want, of course, to achieve 100%. And the first effects will be visible quite soon.

And then regarding the credit brokers. Now we want to tell you what are our new strategy focus. Concerning the year 2022, we want to increase the share of medium and small customer segments. And this will be, of course, at the expense of the large customer segment. So despite handsome sales, the percentage share is going to decline.

Next point, the acquisition of new customers. We are very happy -- we continue to be happy with the acquisition of business customers. And then we have the cross-selling of transactional banking services. And we are now focusing more on the customers who -- with whom we have relationship that they should also use our transactional banking services, which it is -- we apply a simple trick. We enable the customer to get hooked up to our bank systems, so the internal systems of the customer are connected to our systems. And then the customer is more happy with our services, also uses our services more. And at the end of the day, it increases customer loyalty.

Now I would like -- before I close, I'd like to tell you about the issues related to our offer related to the EU funding and public funding which -- and these are funds offered in comparison with the BGK. So one of the programs is the Creative Europe Guarantee for the customers from creative Industries. And we believe that there is a big potential, and there are a lot of loan funds applications.

Then the second guarantee is called Biznesmax. And then the third is the thermo -- is the loan for thermal upgrading of thermal modernization of the buildings. There are 3 areas in Poland, 3 provinces, which is Lower Silesia, Lodzkie and Podlaskie provinces, which are supported by this thermomodernization funding.

And now financial performance. Regarding financial performance, my colleague has already mentioned, quite a few of them, but now I will walk you through profit and loss account. Then quarter-to-quarter, regarding net interest income, 2%. So previously, we had 8%. But this was unusual.

Now regarding the trading net income, it was disturbed by the shift of the provision for historical returns. Then operating costs under control. Then net profit, PLN 125 million in this quarter, third quarter.

And when you look at the volumes, here, you can see that the -- on the deposit side, further increase of the retail deposits, PLN 6 billion on a year-to-year basis. And then slight decline in the business segment, down by PLN 1 billion. And furthermore, in the business, on the credit side, you can see that increase stabilized on a year-to-year basis.

Of course, there is new manufacturing activities, new sales, but there are a lot of changes both on the risk side and corporate network side. We are entering new industries, of course. This reorganization, reengineering, led to the slowing down of the manufacturing activities.

Now regarding net interest income. Still, it is mostly driven by the cost of financing, which is improving, but also good new production activities. But of course, this is distorted by the ruling of the Europe -- by the European Union Court of Justice. If not the ruling, then it would have been by 8 basis points higher.

Regarding the fee income, net fee income, it's in line with our focus. There is a certain pressure exerted by brokerage fees and slightly better performance of credit cards, generally payment cards. And then there is also improvement in the foreign exchange transactions.

Regarding operating costs, as I said, under control, at the low level. And we believe that in the quarters to come, the operating cost will be hovering around PLN 400 million.

Regarding credit risk, I pass the floor to my colleague, Marek Szczesniak. Marek?

[Marek Szczesniak, executive]

In 2019, the loan portfolio value has gone up. In the 9 months of this year, the balance was up by more than PLN 3 billion, of which PLN 1.6 billion in retail loans. And almost PLN 1.7 billion business customer loans.

And regarding the retail customers lending portfolio, loan portfolio, the percentage breakdown, stable. The cash loan is predominant. Then in the business segment, more changes in the 9 months of this year. The values of the lease portfolio of the Alior lease has gone up by PLN 1 billion, which is 3%.

And the same goes for the micro business segment, also more than PLN 1 billion growth, almost 3 percentage points increase of this segment in the total portfolio.

And then the -- in the large -- in the corporate segment, it's down by 3%. And this is fueled also by the implementation of the new strategies, which we are going to pursue also in the years to come.

So we are now working on the proper structure of the loan portfolio. We are trying to reduce the impact of the large exposures. We want to diversify risks, not only in individual industries, but also at the level of individual exposures.

And when we look at the quality indicators of the loan portfolio, so nonperforming loans has improved. And also, the cost of risk index has improved.

And we should emphasize 2 points here. Regarding the retail segment, regarding NPL index and cost of risk index, we have continued a very handsome trend of reducing these 2 indices compared to the third quarter 2018. So both of these indices went up, and this is a result of very consistent and careful focus on retail segment portfolio based on very methodological analytics.

And when you look at the portfolio structure, then you can see that the cost of risk, which is 1.51%, it is a positive index. So we are going to continue to upkeep this very handsome level of this index.

The second fact that I want to stress is the growth of the cost of risk, the NPL rate. This is, first of all, a result of the foundry organization of the portfolio and the whole process of risk management in this segment.

During the year, we have launched some transformation processes. And we've changed the approach to our business clients. And the first number -- task number one here is the good recognition of the quality of assets, the correct qualifications. And this growth we have seen, the growth of these rates, is important.

It's important also that the proper classification is important so that the bank can immediately launch this -- take measures which are adequate for the developing situation. So we are doing it very consistently, very carefully and we will continue this policy in the future.

Now as regards the provisioning coverage. Well, it's important to say that we've seen the growth of this index in both the individual client segment and in the business client segment. In the latter segment, we've seen more than 5% point growth of this rate, which, from the viewpoint of the bank's stability, must be considered a good news and good fact.

I have mentioned a lot of reviews of the asset quality and reclassifications. So at the same time, we've done reviews of the processes and functions in risk management. During the year, we have done a lot of changes in these processes and in the rules of risk evaluation in both individual and business segments.

In the individual segment, I would call these changes something like an optimization -- spot optimization, spot improvements, wherever it was necessary, because this trend we've seen is good. And no major changes were required, just smaller improvements.

As regards to business client, these changes can be called a profound transformation, a reorganization of the functions and processes in risk management. And these changes affected lots of processes in business client risk management at the level of underwriting, monitoring and debt recovery. All of these changes were done in parallel. They are also involving those related to acquisition, to the risk value assessment. And as you can see, these changes in many fields were quite extensive.

We've made our risk policy see more strict. And we have also changed some things in the Agro sector, we've reduced the maximum exposure limits for the individual debtors. We've changed the maximum, maximum consolidated exposure limits. We have also structured the method of risk assessment in different customer groups. So we've also had to change the structure and the levels of the competence limits.

On the side of the collateral, we have reviewed all the process. And as a result of that and of the back test, we have reduced the recovery rates for some collateral groups. And we've also improved the process of valuation and monitoring the collateral value.

We should also stress that we've done some organizational changes. In the second quarter this year, we started a dedicated team of highly qualified analysts, whose task was to measure the risk of our biggest customers, of our biggest exposures, the consortium loans and structured transactions.

And also this year, we have set up a team for the sectoral analysis. And these people coordinate work on building and expanding our competence on the risk and business side as well.

I've mentioned that these changes were also done in the post-sale functions, especially in the credit monitoring and the restructuring and debt recovery. So these changes were, first of all, involved in monitoring the particular clients. And we are trying to reach a situation of much more efficient process and to improve the process of defining the prevention and downstream process so that we can mitigate some risks that pop up here.

And in the recent months, we've worked on -- we focused on the efficiency of our processes, credit processes and on automation of selected functions. And also, we have improved our control functions. In the risk area, we've started a unit which is dedicated to the vertical control function. In the first place, the controls of the credit risk processes.

We have also started a systemic platform to control of the second level controls. This platform allows us to start automated database-related controls, which online, in real time, monitor everything according to these new rules. And wherever any irregularities are screened off, they are being analyzed more manually by the dedicated teams.

Now as regards the credit risk increase in the business segment, I've mentioned before, we need to stress that these extra costs are pretty concentrated, first of all, in the large corporate portfolio. As you can see in the screen, this segment is largely the Agro segment.

Now on the right-hand side, you can see that the composition of the cost of risk indicator in the third quarter. And here you can see a major share of -- or major change in the total portfolio, the Agro of course, but also the effects of these changes, that is the improvement of the process of evaluating the collateral and the results of the back tests. So we've seen a temporary growth of the cost of risk, which you can see in the curves there, 36 basis points.

The next slide shows the evolution of the portfolio of the large corporate credits in this year. So first of all, it's important to say that, first, you can see nearly PLN 1.5 billion of the repayments. This is a natural effect of depreciation of this existing portfolio.

But also, these are so-called supported activities, the effect of the improved monitoring prevention and better work on the existing portfolio and also an effect of the strategies that we've adopted for certain exposures in order to reduce these exposures or, to a lesser extent, to just back out of these exposures before they generate higher risk or whenever this concentration is considered too high. Nearly PLN 0.5 billion of the renewals during the year, we've reported. And about PLN 400 billion of -- PLN 400 million of new sales.

And then focus on the quality of the credit portfolio in the business sector. The reorganization of the credit risk assessment, this caused a reduction of new lending action. This is a temporary effect, and we are already working on transforming the structures and the sales processes. It's clear that changes in the risk policy lead to a better assessment and evaluations.

But the performance of these loans, that it is also important to skillfully build an active portfolio and acquire new clients with good risk profiles. That's why in the second half of the year, we started broad measures to expand the sales structures. And in the recent weeks, we've worked together with our business and risk teams to -- in order to better target the clients and more careful planning of our credit portfolio.

The slide shows some information on our renewable energy portfolio. In our case, these are the wind farms. Here, I want to stress that during the 9 months of this year, the portfolio value dropped by PLN 100 million. This makes much less than 1.5% point in the whole volume of the credits.

Now as regard to prospects and the quality of this portfolio, I must say that the situation today is good. The whole portfolio is being paid back on time, there are no delays. The credits are being paid back as planned and sometimes earlier than that. And this is because of the good financial standing of our clients. And that is because of the very good prices on black and green energy on the market, the green certificates and the prospects for the regulatory prospects, which are now in place in this industry. So this segment, which was often raising some doubts, now today is -- looks very decently, and we have some hopes with it for the future.

Now provisioning here. Since this is the long-term exposures, so the provisioning has -- is safe, and it stays at a little over 16%.

The next slide shows the -- something that you have already seen many times, because this a dynamic indicator, the default rate. And here, you can see that we are continuing a very good trend of improving the quality of credit portfolio in 2 main segments we've got, the cash loan for the individual clients and in the micro business segment, too.

And this trend will be carried on in further quarters. It is very important -- very good work on this -- in this area is now producing good results.

And the last slide in this presentation, the prospects by the end of this year. Well, net interest margin is 4.7% perhaps. Well, perhaps 4.5% by the end of the year.

The cost income is 41%. This is something we have announced before. We're trying to deliver that by the end of the year. And the cost of risk, we expect that we can reach the level that we announced before, which is about 3% in the year.

And the credit volumes, PLN 5 billion. That is something, well, after these 3 quarters, can be easily reached. So we will be all right with here, too, by the end of the year. PLN 5 billion is quite, quite within our reach.

As regards the longer perspective, more strategic perspectives, we will release them to you in the first quarter of the next year.

And in this case, at this point, I invite you to ask questions.

[Unknown Analyst]

I would like to ask you if you believe that the effect of this European court ruling will have an effect on your...

[Unknown Executive]

We -- this is an estimate, we cannot calculate it very precisely. But judging by the historical data, by the historical consolidation, well, that would be about a loss of about PLN 80 million without mitigating mergers. But -- so we're going to from the perspective of some recovery of this European court judgment, we will manage to fill it up, this gap. Because to have to work on higher rates in the portfolio, sometimes is needed for it.

[Unknown Analyst]

You've said in your report that operating costs were PLN 29 million of dissolved provisions for the employment costs, how much of that was...

[Unknown Executive]

It's easy. If you look at the results this year, we've just dissolved some reserves to pay the bonuses to the people, and these are being calculated every quarter. Nothing extraordinary here. But this year's results will be lower, that's for sure. But the PLN 29 million in the third quarter, so this amount keeps growing. So we just look at the incrementally added.

[Unknown Analyst]

And I have a question for the Slide #30, the share of large corporates and portfolio. Slide #20, sorry. Between quarter 3 and 4, there's a huge decline in the large corporate segment. Any big repayments are expected in the fourth quarter or not?

[Unknown Executive]

Well, we are seeing a temporary decline in the corporate client segment, large corporates. And that is a natural phenomenon that when you make such a huge reorganization and improvement of the processes and if you implement a more conservative approach and if you focus more on the quality of your new lending. Well, that, of course, means that we expect that in the fourth quarter, we will have some growth in relation to the third quarter, of course. But this effect results from 2 things, some repayments in this portfolio. Yes, we will see some more in the first quarter next year, from investment loans. And this is one effect. And the second effect is the sales growth in the small- and medium-sized segment. So these 2 factors reduce this share of the large corporates.

[Michal Konarski, analyst]

Michal Konarski, mBank. My question is that the results next year will be affected by the European court judgment. So will you be able to keep -- to continue the growth of the PLN 5 billion growth in the next year?

[Unknown Executive]

Well, as regards to next year, we will come back to it later on. From the capital point of view, there's a surplus of PLN 819 million. And then if you consider the lower requirements, that will certainly not limit our credit lending at all. But in the long run, we will try to make it bigger. So PLN 5 billion will be good. But in the further years, we expect these amounts to be a bit more, a bit larger.

Microphone, please.

[Michal Konarski, analyst]

Will your capital shrink, perhaps, or not?

[Unknown Executive]

Well, today, we've got a good reserve. So we are safe on this side. So profitability is not in any -- at any risk next year, no.

[Michal Konarski, analyst]

What about the costs and -- guidance for costs and income rate? When I look at it in a general way, if you want to reach the 41% in the whole year of 2019, the simple calculation shows that you expect a slight decline in the administration -- administrative costs in relation to the very good third quarter where you were dissolving some provisions. Can you elaborate on that a little bit more? Will these savings be permanent? Or you can think of dissolving some more provisions?

[Unknown Executive]

As regards to the fourth quarter alone, yes, we expect lower costs as we have predicted. But we also expect all sort of effects resulting from dissolving the provisions. At the same time, we are reviewing our cost efficiency and the permanent costs are -- we try to reduce them. So we expect that next year, the cost base will be lower at the beginning of the next year.

[Michal Konarski, analyst]

And just one more question, please. In the third quarter, you've seen a decline in the -- in some fixed time credits and retail deposits. So it looks like you have been stopped here by something on the market. Did you see any declines in the deposits by the end of the quarter or not? Because it looks that like there have been some changes in the behaviors of your clients. Is that right?

[Unknown Executive]

As regards the corporate governance part -- corporate side, we deliberately have given up financing with this type of credit. But also, the deposit base is more concentrated. So this is quite a deliberate action, which allows us to reduce our price rates. But from the viewpoint of liquidity is quite adequate and sufficient for us.

On the deposit side, we expect a lower deposit costs in the retail segment. So we are now relying on financing by the savings account to our customers who are transferring money every month to the accounts. In this way, we are getting extra money.

As regards to time fixed deposits, well, the deposits are growing and it's quite sufficient. As for our needs and expectations, it's not often that you can do these 2 things at the same time.

[Michal Konarski, analyst]

Was that a reduction that involved the whole banking business or not?

[Unknown Executive]

As a matter of fact, well, we are regularly and steadily, probably in every month, we introduce some reduction in our offer. From the systemic point of view, the prices we can offer to customers -- let me say this, if you look at our -- the savings accounts we offer, it was -- first, it was 2.7, then 2.5, now we're at 2.6 for customers who make regular payments to their account. So this offer -- what we offer now is at lower prices than before.

We also manage to combine quite efficiently 2 goals, sometimes around counter to each other. This is because of -- thanks to our deliberate policy, the change of structures and a reduction of the concentration of deposits. And if you look at the retail liabilities, we have seen a permanent growth of stability in the retention rates and early repayments and higher share of the loyal clients who are very good for our liquidity management.

Year-on-year, it's 14% more of retail deposit base, which, at the same time is more stable and we get it at a lower cost. So that we see that this money is slowly -- the same money we can get it, in fact, much cheaper. So despite the lower rates, we are all right on this, too.

[Michal Konarski, analyst]

Just one -- just 2 more technical questions. Did you have any provision -- dissolved provisions, because the category other shows a positive amount?

[Unknown Executive]

Well, that has been described in the report. This is the settlement of the SKOK.

[Michal Konarski, analyst]

And one more, Slide 33. Am I right by saying that in this situation, the average maturity of your portfolio is 4.5 years? Is that right?

[Unknown Executive]

Well, the level of 9 months performance, this maturity periods are not all the same across the portfolio. So you could not say that. But we're around 3.5 and a little bit more than that [ year ]. That is because of the structure of our involvement, the exposures in the real estate. And this slide also says that we are steadily and consistently exchanging -- or changing this profile in the course of our work with the existing customers, present customers. We are introducing new goals regarding the appetite for risk to make it safe.

[Unknown Analyst]

I would like -- I have follow-up questions concerning the cost of risks in the third quarter. So in the retail segment, there was a cost of risk increase. So what are the reasons for that? And were there any changes in the risk models? Could you please comment on this?

[Unknown Executive]

Well, the trend has been unchangeable, has been stable. So on a year-to-date basis, in the retail segment, the cost of risk is declining, has been declining. So no revolutionary changes took place. But having said this, it is not that the portfolio is self-propelling, so without the focus on this portfolio. So each product, each of the segments in the retail segment. And it has the new targets for the spot transactions. We always compare, use almost 20 risk profile indices. We carefully study. We carefully analyze. We implemented new improvements in order to minimize the side effects of lower sales and to improve the indices.

[Unknown Analyst]

What about the 2020 year time perspective? What are the possible shift in the cost of risks?

[Unknown Executive]

As you can see, the results of the implemented activities, especially in the business segment at the operational level, there are already yields of our measures that we implemented. But in order to see a visible improvement of the cost of risk in the business segment, these effects will be felt in midterm. But we have assumed that the cost of risk will be reduced successively.

And objectively speaking, I believe that no one of you would like to hear from me that the cost of risk will be half of what is now next year. But thanks to the regular work, regular efforts in mid-term, we will be able to achieve the cost of risks at the level of our long term, which is driven by our risk appetite, which is written in our new strategy.

[Unknown Analyst]

So regarding the negative impact, in order to offset the negative impact by the end of 2021, is that thanks to the measures listed in the slide or also other measures?

[Unknown Executive]

So they will be product-related but also cost of financing measures, but also cross-selling measures because there's a quite substantial potential here.

[Unknown Analyst]

So I understand that there will be a cumulating effect.

[Unknown Executive]

Yes, that's true.

Any other questions from the floor? There's one question from the web. Do you upkeep the dividend payout, 25%, for the year 2019?

So regarding this ambition, I don't remember me announcing such ambitious target. But looking at the indices indicator, dividend indicator, we have the capability. But if you compare our sales to top other aid banks and also taking into account the expected growth in the macro segment, and then you just ask, do you have enough equity for growth? So we, as the management board, we are not going to propose dividend payment at the end of 2019 having considered all these factors, which were mentioned.

Okay. Thank you very much for coming. Thank you. Bye-bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]