ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2019-Q1

[Unknown Executive]

[Interpreted] I think we can start already. I would like to welcome everyone to our summary of the first quarter. I'd like to introduce to you Brunon Bartkiewicz, the President of the bank; Bozena Graczyk, Vice President in charge of Finance Division; and we also have Joanna Erdman, in charge of Strategic Clients, Financial Markets Division and ecology-related matters. So this green arrangement here that we have, green setting is an element of today's presentation. If [indiscernible], Investor Relations Jolanta Alvarado Rodriguez, Chief Accountant. Let's start, Brunon.

[Brunon Bartkiewicz, executive]

[Interpreted] Good morning. Welcome. I can see you're tired, so we've got great news for you. I'm very satisfied that I can tell you in the first quarter of this year nothing of significance happened at the bank, it's perfect therefore. So we've been repeating this statement for many years, so this is how it should be at the bank. So nothing new is happening. Therefore, it's good news.

On Slide #4, I know you already know the numbers, know the figures. You've already discussed them. I know they are of no surprise to you, apart from one figure, so the effective tax rate that we'll explain to you in detail. But these are -- this is required by norms so we'll explain to -- it will become a standard in the coming years.

The most important element that I would like to draw your attention to is the fact that we've been maintaining the growth rate of lending volumes. It's been even accelerating. As you can see, total credit volume, when we compare to the first quarter of 2018. So this is an 18% growth. So therefore, you may calculate quite easily that the growth rate is quite [robust], over PLN 16 billion increase in lending in nominal terms year-on-year and their related effects.

We've managed to achieve it despite several elements. I'm sure we'll discuss them. So this is -- okay, we see the increasing competition in lending and the willingness of other banks who would like to also grow in that area. Now there is no deterioration in NIM growth rate, and a drop here is due to the number of calendar days. That's the real reason. When we look at this fast growth, you shouldn't be surprised that we are also moving in the loan-to-deposit line. Every quarter we're discussing this item and we're commenting that in 2018 we had quite unexpected -- we've been observing quite unexpected growth of deposits market, which is due to several factors. It's -- this also impacted in the same quarter -- in the second quarter but also throughout the year because of certain assumption on the interest in market. But in general, in the sector, we can see a significant growth of deposits in the banking sector. We had several disturbances in 2018, which can be treated as one-offs. I mean some volatility around investment products and November incident but in terms of long-term trend we've got growing deposit in the banking sector.

An important element that we would like to draw your attention to is the fact that year 2018 and the first quarter of 2019 is closing the loops. So high growth of -- in number of clients translates into very, very high growth of number of transactions effected with us. So due to the fact that those transactions -- and by transactions I mean also buying additional products. Due to the fact that they're in the digital channel mainly, we've got the right balance between the increase of cross-sell income. I'm always talking about mid- and long-term perspective. It's not quarter-to-quarter. This would be difficult to comment on. But in strategic terms, we managed to achieve these items. So we've got a surge number of transactions processed by our bank in terms of transfers and other operations.

We are able to control the elements that generate the cost growth or human factor costs related. So I believe we are dealing with a dynamic growth number of clients and the fact that we've been working for a number of years on this growth and that the clients now are getting more affluent results in the high growth of number of transactions and therefore a significant increase in income.

So despite this competition-related tension, our effective margin in all aspects is at solid level. So actually, we are now working on the correct digitization of our activity to be able to properly control the cost growth. It's significant. But taking into account the growth rate of other factors, we believe that this growth is also -- costs is also acceptable. So we are focusing on maintaining the high growth rate and a level of operating efficiency that translates into nice figures in terms of return on assets and return on equity. But also, this high lending growth, compared to other European Union member states, it doesn't generate such high return on equity so as to ensure maintaining this high growth rates long term due to significant pressure on the entire banking sector. It's being discussed in different -- by different newspapers. Definitely, I'm one of the bankers who believe that we've got a problem with it as a sector, as the economy, long-term perspective. And as you've noticed, it's getting more and more difficult to obtain ROE at approximately 10%. Our figure is quite different from our peers, but this distribution into big and profitable banks and small and less profitable banks is more and more visible now each quarter.

Cost-to-income ratio, especially if we back the costs beyond the control of the management board, so -- excluding the bank levy and regulatory costs, they're moving in the right direction. But when it comes to regulatory costs, I'm sure it's being commented on by other banks. That's a significant burden. The rest of the figures, Slide 5, 6, 7. This is the consequence of what I've mentioned.

So now maybe briefly on Slide 8, our market share. Our traditional slides maybe in slightly different layout. It's -- I think that's nicer. Okay. I'm not the one to decide on the aesthetics. It is nicer. Who said that?

Okay. Thank you, Asha. Okay. I believe there should be more orange and less of other colors, but that's -- okay, in green, it will have green in a moment.

So if we take the perspective of 10 years, so our share in main aggregate is almost doubled. Of course, much higher growth in retail banking. But of course, you know why? Because 2019 it's still the year coming after the long period where we're not participating in Swiss franc mortgage loan markets.

This just -- these are my comments. I think that this is a special quarter in terms of that we don't have any specific developments. That's why we decided to invite Asha, who will tell us about definitely a more sexy topic.

But I would like to also conclude that apart from the social responsibility aspect related to sustainable growth, I would like to emphasize that sustainable growth aspect is also about long-term generation of income and positioning of the bank over the next years. It's not something next to charity. It's more of an investment into business that will be a significant business in the recent years.

When we were talking about long-term investments, definitely, sustainable growth is the priority that we invest in, even though it's difficult to assess its profitability or its nature. But whatever -- if something is a big business, we should try to learn about it in advance, so that's how we see it. That's how we approach the topic of sustainable growth.

And then Bozena will tell you about all the details of growth of interest margin, effective tax rate and so on. I should -- you may take the floor.

[Joanna Erdman, executive]

[Interpreted] Thank you, Brunon. For us, the sustainable growth is a business topic as Brunon said, which nicely combines the responsibility for decisions and choices of our clients. We're operating with a long-term mindset, and sustainable growth is a strong element of our strategy not only for the years to come but over long term. We are operating in 4 groups. We've got the initiatives at the bank for the enterprising, bank of equal opportunities, bank of green investment and eco-aware bank.

I would like to tell you mostly about the bank of green investments, what we do and how we do it externally. But now maybe just to mention certain initiatives in the remaining 3 categories. So the bank for the enterprising, group of initiatives supporting entrepreneurship and supporting young people in building their awareness and financial responsibility, being able to manage their finance, their businesses, their start-ups or the existing businesses. And if you are observing our marketing campaigns, then slogans that we have, so it's best to do your own business or the current campaign of the opportunity for setting up a business through Moim ING -- And here we also have ING for children, a foundation when it comes to educating. And ING Art Foundation supporting young Polish artists in their financial development by advising, by showing how to run their business because it's not an easy topic for them.

The bank of equal opportunities. So we want to be a bank for each client. So literally, we are removing architectural barriers in access to our branches. So by the end of the year we want 90% of our branches not to have those barriers such as stairs or some narrow doors should be removed. It's not an easy task. The most difficult settings are still ahead of us, but we're also working on the communication with clients. So the plain language campaign [foreign language] to communicate clearly, transparently without small prints and the banking jargon.

Also bank, which is ecologically aware, what we do for ourselves, for our employees, so the organization that is part of the ecosystem. So all the projects write to eliminating plastic bottles. We no longer have them in our head office or branches. Segregating waste. Energy originating from green certificates, but also employee initiatives like car sharing, bicycles. These are the initiatives we've been promoting. Also, our employees have many ideas.

And finally, a bank of green investments. As you probably noticed, in 2017, we have adopted a declaration, an environmental declaration. It's a document which is in itself a manifest resulting from the fact that we feel responsible, accountable for our impact on the ecosystem that we operate in. It's also linked to how we are supporting our customers and clients in their choices and decisions that may have an impact on the environment. This declaration means that we very specifically defined the areas where the bank will not commit itself. It will not engage or will pull out, of course, respecting all the obligations and contracts with our customers. We talk about the whole area of coal economy, mainly hard coal. By 2020, we want to retain no more exposures to coal. We are sure that we can do it. We have already had talks with our clients to understand our decisions. We made joint decisions so that our change is not controversial to our clients.

Since 2015, we have not been cooperating with coal companies, we can call them that. This is mainly due to the risk profile. This has always been a difficult task for us. So the declaration signed in 2017 simply strengthens our actions that we initiated much earlier.

And now an issue that we believe very strongly in, and it's very visible. I'm on Slide 12 right now. We are promoting electromobility. We think that the electromobility nicely ties into trends. On the one hand, you have the pro-environmental topics. If you look at the markets, primarily, of passenger vehicles, you can say that electric and hybrid vehicles will replace ultimately a conventional internal combustion-powered vehicles. And we want to be present. This is not just due to our business responsibility, but also due to what the CEO said. This as an attractive piece of business for us, and it's interesting in pure business terms.

The second trend that we see in electromobility is a trend linked to the sharing economy. What I mean is that when we're talking about electromobility, we are talking about mobility as a service where any solutions that promote car sharing. Car sharing primarily based on electric vehicles, this seems very interesting business-wise. We have signed 2 framework agreements on cooperation with Innogy and Tauron. These are contracts that provide for cooperation on the development of infrastructure, charging stations and, on the other hand, access to fleet.

The vehicles are leased -- charging stations are leased with Tauron. We already have 23 charging stations. We're planning to have 100. By the end of the year, we're going to have 40 and 20 EVs. Nissan Leaf, they are mainly visible in Katowice, but also Lódz and we're planning to add more of them in other major cities. This nice combination of orange and pink, I think the fleet is highly visible.

With innogy, on the other hand, we launched early in April a service of car sharing supported by the innogy go platform. Right now, we have 30 points where you can charge EVs. These are BMW i3 vehicles. And ultimately, the fleet will reach 500 vehicles. It's developing very nicely, mainly big cities. So right now, mainly in Warsaw. We are very visible. The service is boosting our attractiveness. I think it's also attractively priced. 1 kilometer cost you roughly PLN 1.19. I think all the barriers when you are using electric vehicles, the charging time, reach and access to infrastructure, all these worries are slowly alleviated in cooperation with innogy and Tauron.

And for example, when we are talking about charging, it takes 40 minutes for BMW i3, but you can then drive for 180 kilometers. I think it's a very attractive offer for conditions in the cities, and they are pictured by the public.

Mobility as a service is being developed not just on the basis of cars but also electric scooters and bicycles. We've had bicycles before. We want mobility in urban areas to be simple for our customers, to be automated with easy access via an app and with no risk or concerns about what I have to do with the car. Do I have to look for a parking space? Here, scooters or any other devices of the kind offer a lot of flexibility, and they complement the entire service. Of course, we are also working on our own fleet of cars, over 1,100 cars that we're going to replace with hybrids and EVs by 2022. By the end of 2022, we plan to replace all of our fleet. This is our message to the world, proving that we are very much convinced that electromobility is the future.

And the last slide, before I pass the floor to Bozena, I will now talk about Slide 13. Of course, we are working not just to promote electromobility. That's why we have my air campaign, #mojepowietrze. Eco loans made available to retail customers in February. You can see the anti-smog tower in Kraków. It's a result of cooperation with Daan Roosegaarde, a Dutch architect. It's an element of my air campaign and our responsibility for protecting climate and the environment.

But we're also very much present in areas linked to products. Green bonds are the example. This year, the Ministry of Finance has organized a third green bond program. We have organized this program in cooperation with 4 other banks. It is a very successful issuance, 10- and 30-year-old bonds. Oversubscription. A strong signal to the market that this is the direction to choose. Particularly in Poland, government bonds, treasury bonds are currently key, but investors are more and more interested in the subject. So we'll probably have more inquiries about corporate bonds.

Of course, wind energy, photovoltaics, renewables, in general, this is something that continues to be within our interest. Wind farms have had their ups and downs. Right now is a moment when everyone is waiting to see how regulations are going to evolve. Prices of green certificates are a litmus test. We are keeping our hand on the pulse. A very attractive part of our business activity for us.

I think that's all. I'm at your service if you have any questions at the end of the presentation. Thank you very much. Over to Bozena.

[Bozena Graczyk, executive]

[Interpreted] I will now talk about the financial results. As Brunon indicated before, the first quarter for us was a very good quarter in terms of our financial results at every level.

If we now move to Slide 18, I will briefly discuss our results. We achieved PLN 325 million in Q1. It's a very good result, particularly with significant growth of regulatory costs. In spite of this growth, our result was improved by 1%. If we average BGF costs for 4 quarters, at the bottom of the slide, our net result raises by 9% year-on-year. I think it's a very, very good result showing the growth in every element of our operations, banking operations.

When we're talking about ROE, as we already had, it's at a very high level. Continuously, ROI (sic) [ ROE ] is above 12%. Plus, it's a record result in the banking sector, and it's very difficult to copy for many other market players.

I think it's also a good opportunity to explain the effective tax rate, what happened to it? The reason why we changed our approach and the rates was the growth of BGF contribution linked to mandatory restructuring. It rose significantly compared to last year. And as a result, the tax costs per quarter are uneven. The result of the costs that are cumulative is decreasing in Q1. In Q1, the result is very high. If we were not to make the change that I'm going to discuss, our effective tax rate for Q1 would be 31%. The -- when we're reporting it's 26%. We have taken advantage of an option offered by accounting standards, standard 34, which allows us to average or flatten effective rate if there are changes between quarters. This is an option that means that, since the beginning of 2019, we will always in Q1, 2, 3 and 4, calculating our effective rate based on average rate for the year.

You can see the positive impact, around PLN 21 million, and is a result of the recalculation of our results in terms of taxes from 31% to the rate of 26%. As a result, we are enjoying more stable financial results, which are not disrupted by one-off reporting of high costs, which are not costs of generating income. I hope that you now have a fuller picture. Let me say that not all banks have used this option. It is an option. It's up to the management. We have made a decision that due to the significance of these positions that which are not costs of generating income, particularly in Q1, particularly in a situation where we've had so much growth of the BGF contribution on mandatory restructuring, we decided to introduce this rate to average, spread out the tax burden to all quarters.

We now move to Slide 19. Our net interest income has improved by 2% quarter-to-quarter and by as much as 14% year-on-year. The NIM is PLN 1.010 billion. The growth should be attributed, particularly to rising business volumes of the bank, 18% growth of loans, deposits growth of 15%. Our quarterly interest margin was 2.89%, was flat year-on-year. And in terms of the change of this margin quarter-to-quarter, the drop of 7 basis points can be explained with a quarter that was shorter by 2 days. Our cumulative net interest margin is at a stable level.

And a small comment on the loan-to-deposit indicator. As you can see on the graph, we have a seasonal drop of this indicator in Q4. In Q1, we are back to those -- that are more like usual, 89.4%, an increase of 3 percentage points compared to the similar period last year.

In terms of fees and commissions income, our results improved by 3% year-on-year. It is PLN 327 million quarterly. This item is a position that has a very positive influence on our positive -- on our financial results. Year-on-year, all items are improving, apart from the ones linked to the equity market, but I think we all know why it's happening, so. And considering market trends, I think it's not a surprise to anyone. The biggest dynamics are factoring in leasing commissions, insurance commissions and those related to credit cards. The growth are a result of our consistent improvement of our offering, number of clients and biggest -- bigger transaction value of customers.

When it comes to our cost presented on Slide 21, of course, you can see a drastic growth in regulatory growth, but this has been already published in our current reports. So you know what has happened in the first quarter. The BGF costs totaled PLN 149 million. That's a growth by 77% year-on-year. Adjusted contribution for the compulsory resolution fund was PLN 131 million, which is a growth of 125%. Of course, this is not the only element of the growth of regulatory costs because also in the first quarter the cost of the PFSA supervision increased. The total were booked in the first quarter based on the information received from PFSA. In 2019, that's PLN 16 million, up this year by 45% because last year the costs were at PLN 11 million. So it shouldn't be a surprise for you if I say that our operating costs are under very high pressure regulatory costs.

And as you can also see in the slide, the BGF costs increased by 77%. And should we exclude the regulatory costs, then the remaining cost of the bank grow by just 5% year-on-year. And if we also take into account that suggests BGF costs that -- the increase of -- in regulatory costs than our cost that we are managing, as mentioned [indiscernible], the bank increased just by 2% year-on-year.

And of course, to wrap up this cost perspective, the dynamics of the cost-to-income ratio, if adjusted by one-off recognition of BGF costs, then our cost to income, that's 44.9%, up by 1.6 percentage point year-on-year. And now for a summary of risk costs. Provision for credit risk in first quarter was PLN 125 million, which means that the quarterly risk costs is at 47 bps. And the cumulative for last 4 quarters, that's 53 basis points. As you can see in the slide and also on the financial statements, in this quarter, the bank sold PLN 135 million nonperforming corporate loans and an increase of PLN 10 million this quarter.

Of course, you can see here, especially in the retail banking, the continued volatility of risk costs. We discussed that already at our previous conferences. That's a direct effect of IFRS 9. I think we issued already, get used to the fact that those costs can change quarter to quarter. Therefore, we prefer the perspective of cumulative costs for 4 quarters, which are much more stable. And also, to present -- somehow to bring more details in what could also be an important element impacting the volatility of risk costs, so I would like to emphasize once again amendment of IFRS 9 regarding recognition of macroeconomic data impacting [indiscernible] with ING Bank shall secure updating macroeconomic ratios each quarter. We believe that's according to the best market practice. And also in the first quarter of this year, we've done such an adjustment based on our current assumptions for macroeconomic ratios. And we believe and also our model suggests that the biggest favorable impact is a change of the unemployment rate and interest rates forecast in short term, they partly impact -- lower risk costs in the first quarter.

I also would like to encourage you to maybe have a look at the annual report disclosed in March because in one of the notes we're also talking about the sensitivity of macro scenarios, the expected loss, depending on the sensitivity of the macroeconomic scenarios and the optimistic base scenario and the stress scenario. So this coupled with my comment here will give you a broader picture when it comes to IFRS 9.

If we're talking about the quality of the lending portfolio, then the share of nonperforming portfolio in the total portfolio is very stable and significantly better than in the entire banking sector. Definitely, we should look here at the coverage ratio for Stage 3 loans, and it's dropped to 57.3% versus 59.6% in the previous quarter. That's a direct result of the sale of nonperforming loans portfolio. So after this sale with the highest provisions led to improvement of this ratio.

And when it comes to structure of coverage ratio for Stage 2 loans and for ING Bank Slaski Group, the share dropped to 9.9%. And also, the coverage ratio for the entire bank dropped to 3.80%. Here it's direct linked to the improvement of macroeconomic data because there is lower percentage of Stage 2 loans because reclassifying to this stage depends on the relative change of PD to the loan granting date.

And the last commentary about the capital adequacy at the end of the first quarter, our consolidated capital ratio, that's 15.82%, up by 22 basis points. And so favorable effects, one, decreasing this ratio in the first quarter, we are able to recognize the result of 2018 in capital ratios due to the fact that we had the general meeting still in March. And due to the PFSA decision, we were able also to recognize the subordinate loan taken in the fourth quarter in our capitals.

Also lending growth and growth of risk-weighted assets led to consumption of already 0.81% of total capital ratio for the increase of our lending growth and risk-weighted assets.

I think that would be it when it comes to summary of our results. And now time for your questions.

[Unknown Executive]

[Interpreted] Maybe first question from the room. We've got also several questions also from the Internet. Maybe first your questions, if any.

[Unknown Analyst]

[Interpreted] I wanted to ask about costs in the first quarter. With favorable result of 2% with the loans growing by almost 20%, was the first quarter like relatively low? Or should we -- like seasonal effect or should we treat it as a benchmark or as a one-off result?

[Brunon Bartkiewicz, executive]

[Interpreted] We always emphasize that -- I mean it's up to you to draw conclusions from the result for a given period and possible implications for the future. So I believe you should still take into account the growth over several quarters and not just 1 quarter. That would be my advice to you.

In a particular quarter, there are always one-offs, but for several quarters, the situation is more average, so that should be the basis for your forecast.

[Unknown Executive]

[Interpreted] Okay. So a question from the Internet. Let me read the first question, but I think Ms. Graczyk has already answered that one. Weighted risk -- cost risk declined in the first quarter. So the question was in English.

[Bozena Graczyk, executive]

[Interpreted] When it comes to what happened in the first quarter in the retail portfolio, I think I'd already answered that question in my presentation. First of all, we are not presenting forecasts for future risk costs, but as a rule we don't see any -- we don't have any concerns both for the corporate or retail portfolio because should there be any, we would mention them.

[Unknown Executive]

How do you plan to handle competition as most banks intend to sell more of these products?

[Brunon Bartkiewicz, executive]

[Interpreted] I think this is a question for me. If you look at the growth in lending in terms of retail loans, non-mortgage, I think we find it on Page 28, right.

I hope that you pay attention to very dynamic growth. This is not the expense of our margin. So question, what we think about it? Yes, we think that in most subsegments of lending in general, there will be an increased level of competition in the market. This is what we've been seeing for some time now. This is mainly attributed to the fact that those banks who had lower dynamics, larger banks, are back in the game. If you look at the increase of lending in the group of our main competitors, I hope that you see that there are significant levels of growth of lending compared to relatively low level of activity in previous years.

I'm not going to give you the names, but I think you know why some banks have had to withhold lending for some time in the past. Of course, many banks in Poland are enjoying or have to live up to capital requirements particularly related to the dividend policy for banks.

And I'd like to pay your attention to the fact that to a large extent, in all the aspects, the calculation of RWAs on lending bank levy, capital requirements, you don't see major changes. The only thing that changes in the government and regulatory approach are the burdens that Bozena discussed in detail. So lending is about the fact that in order to survive and generate return on equity, you have to stimulate lending. It has to be profitable because if lending is not profitable, then the cost of capital related to the speeding up of lending is higher than the P&L gains from this. So this is a pretty schizophrenic situation. Many banks are forced to choose their path.

Originally, many of them chose to slow down lending and to move their operations towards government bonds, treasury bonds. We did the exact opposite. We speeded up our lending, decreasing our involvement in treasury bonds and adjusting the deposit action to that. We've been talking about it for some time now. I think more and more banks, after the transformation, can now afford to boost their lending, and this is what we are observing.

But why the rise in lending does not translate into lower margins and income? This is because banks cannot afford this at the moment. One aspect I wanted to point your attention is that we assume that, to a bigger extent, not just the size of the loan portfolio, but also the size of credit products by banks, will focus on the group of largest banks, the group of largest banks. This is the pretty famous 8 banks that remain in the market. So please, analyze the trends.

I think you can see that. If not, I recommend very much that you analyze changes in the mortgage market, where you will clearly see which banks are increasing the speed of production, which are growing slower, but you will also notice that, apart from the key players, the market is nonexistent. And I'm sad about it. I'm not very happy that this is the situation that we are facing.

[Unknown Executive]

[Interpreted] One more question I think has also been addressed.

I think lending saw a noticeable [ boom ] decline in this quarter especially. How do you see margin developing in coming quarters?

[Bozena Graczyk, executive]

[Interpreted] I think I already replied to this question in terms of what happened to the quarterly margin. It dropped by 7 basis points. We see that it's resulting from a different number of days. This is how sensitive we are that if we're missing 2 days in the quarter, it has an impact on our margin. You can see that as part of a longer trend, our margin is stable, and it will remain so.

I don't know, Brunon, if you want to add anything.

[Brunon Bartkiewicz, executive]

[Interpreted] Yes, I'd like to emphasize once again that I see no reason why the speeding up of competition would impact lower margins on the product because I'd like to point out that banks have a problem with generating the return expected of them. I don't want to oversimplify. I just wanted to say that the fiercer competition will mainly increase burdens from the bank levy that banks will have to pay. But do not expect, and I don't think you can expect, that this will be simply beneficial for customers where interest rates of loans will be lower. I don't expect it to happen. The space for this kind of competition is nonexistent.

[Unknown Analyst]

[Interpreted] Mr. President, sometimes you commented on risks in the sector in the midterm in the corporate sector. I'm talking about year 2012. Could you update?

[Brunon Bartkiewicz, executive]

[Interpreted] No. I don't think that it's not like in 2012. We said that one of the key elements that we see and is of concern to us is very high growth of GDP with very relatively low investments from the private sector. And nothing really changes here apart from the perception that we have been verifying for some time now.

We used the think that the low interest rates with high GDP supported by major investments will go towards achieving a situation where we would see higher interest rates but with continuous high GDP growth. And we talked about it, but this variant is out of our forecasts. So any lower GDP growth in future years will -- is not something terrible. It will slowly go down, but we should expect that interest rates will go down in this period. So we have a 50-50 base scenario, which is a change compared to last year or more so from 2 years ago. And this is a change. But any reasons for concern are none as pronounced the year 2012. We remember what happened in the housing sector. If you wish, after the first 6 months, we will produce an update on the data, macroeconomic data, particularly from the housing and construction service. I think you as analysts should be monitoring the situation as you should be monitoring external circumstances that we discussed the last time.

And in the construction sector, one thing should be noticed. It is paving way for a certain trend. Lower levels of construction permits. This is a pronounced change. If it is confirmed in subsequent months, we will see a clear trend in terms of the future that will come to be in 2 or 3 years' time. This is the lag we're talking about between the permit and construction being concluded. So this is very important. It has an impact on GDP.

New initiatives in terms of rising consumption, I would say that we see that the result that we noticed after 500-plus was very clear. As years pass, it is less important for the dynamics of GDP growth. It can be combined with the fact that we already mentioned, this huge growth of -- extraordinary growth of deposits in the banking sector. We think that 500-plus, its intermediate impact in the growth of pay is now translated into higher deposits, not higher consumption, but we'll see how much of the money is spent on holidays. We'll see how much of the deposits are spent during the holidays, and we'll know that roughly when we'll be announcing the results of the first 6 months of this year. In August, we will be able to tell you more about it. We're talking about the background of how we are monitoring the market.

In terms of sectoral issues, disruptions, we don't see any. Right, Asha?

[Joanna Erdman, executive]

Of course, we are monitoring very closely what's happening in the market. As Brunon said, the experience of 2012 showed that the construction service is particularly sensitive, but we don't see anything brewing in the horizon.

[Brunon Bartkiewicz, executive]

You all know that we need to monitor public investments, roads, railways. They're very important.

[Unknown Analyst]

[Interpreted] I have a detailed question about prices of deposits. I'm lost whether the prices in your price list are important or not. The change you're planning for the 3rd of July, what part of the deposits will it impact? And what will be size of this change? I understand that customers already know about it.

[Brunon Bartkiewicz, executive]

[Interpreted] Customers know about it. You don't know. Indeed, this part of our savings product is covered by a core rate and not promotional rates, but this is a significant amount. We will not talk about specific numbers. Most of them, almost all of them, are based on the core interest rate, so they will be revalued. One thing to bear in mind, the most recent cut in interest rates by the Monetary Policy Council happened in March 2015. If you remember this cut -- I will -- can use the numbers of our main competitor in the market PKO BP. I'd like to remind you that at that point in time PKO BP lowered the interest on savings accounts by 100 percentage points. Along with the change effective on 3rd July, we will reach 100 basis points over 4 years. So what PKO BP consumed in one go, we are consuming in 4 changes of interest over 4 years. Full explanation is that we are changing the trajectory of interest rates. We assumed the cycle to go slightly different in 2015 and '16. Right now, after verification with the basis scenario of 50-50 in terms of the development of inflation and projections of inflation changes, in our opinion, this change is well justified. Right now, in the base scenario, we have to assume that the interest rates are just as likely to go down as up. We think that this change makes sense. From a practical point of view, I'd like to say that we are reaching the changes that our competitors affected much quicker, much earlier.

Microphone, please. So I will leave those calculations to you, for the ratio how much of core contributes to the structure, but it's a major part.

[Unknown Analyst]

[Interpreted] I don't know how to ask a question so as not to be perceived as rude.

[Brunon Bartkiewicz, executive]

[Interpreted] Okay. Go ahead.

[Unknown Analyst]

[Interpreted] One -- I've got some comments. The bank say that they do not do dirty things, but sometimes the transactions are structured in a way that even if the client doesn't have such a clear structure history, then structured in a way that we perceive it differently and somehow manipulate the data.

[Brunon Bartkiewicz, executive]

[Interpreted] Okay. We take it seriously. So just to be precise, our definition of the coal policy, even though that's not the name, is that we do not finance the entities which are -- depend on coal and their activity. However, if this entity, Tauron would be an example here, if this entity is involved via a different -- a separate entity which is -- does not support the activity of the former but supports its transformation towards the mix, but again, just to emphasize, a completely separate entity, then we'd be hypocrites not to finance it. We want to impact the economy, the economic transformation as fast as possible towards the model that we believe is the right one. Again, the right one in our perspective. We do not say that we know best. But in the economy, there are different entities and different opinions. So we will not be earning on the market which will become more and more attractive for the banks because this would slow down technological changes and progress in terms of moving to the mix. So this is our warning. You should expect lower profitability on our side here because we'll not be taking part in the game which over long-term horizon is detrimental and unethical. So we are serious here. Every such entity is specifically identified, and we're withdrawing from the funding which so far has been significant one in our portfolio. So here you would need to supplement it with -- and the clean production.

And this is what we've been doing for several years now.

[Joanna Erdman, executive]

And our responsibility for the fair and ethical funding lies also in the fact that if we look at sources of the energy sector in Poland, these are conventional fuels like over 80%. And now if we decided not to support the projects which are eco clean, then we wouldn't be able to commit to supporting the energy transformation. So that would be counterproductive. But we have a disciplined approach here, and we are financing only the projects which are separate and run by separate entities. We also monitor the flows of -- in accounts, dedicated certain products. So it's not our opportunistic approach, it needs to be transparent and well monitored by us.

[Brunon Bartkiewicz, executive]

[Interpreted] We may be perceived as arrogant, but let me explain it. If you look at our market share, different elements of it, then you can see that our share in corporate lending market is over 11%. So we also actually feel the responsibility of what we do and what we declare we want to do, but the basis for our functioning is transparency, especially when it comes to our professional business partners. So here we are aware of what we're stating. We won't be doing it. We're not joking. That would be just counterproductive. That would be unfair.

So if you talk to our clients, if they want to tell you that they're our clients in the energy sector because the coal policy does not cover just this sector. However, being the major element, I can assure you that each entity financed by our bank knows what is our perception and attitude and what they can do with us as well. So by 2025, our financing of coal-based companies will be 0.

Microphone, please. I can't hear the question. Microphone, please.

[Unknown Analyst]

[indiscernible]

[Brunon Bartkiewicz, executive]

[Interpreted] Kickbacks are not prohibited in Poland. Now they're called incentives and investments. Yes, of course we are earning on that, and this is a change, here the figures and the approach to the market. And we've already commented how we think those changes will affect the structure of the entire mutual funds market in Poland. That was discussed in detail when we've been explaining to you the reason for our investment, which is, by the way, not terminated yet in investment partners.

[Unknown Analyst]

[Interpreted] When it comes to funding coal energy, what is the share in bank assets? And when it comes to costs, will there be higher or lower pay rises for the employees?

[Brunon Bartkiewicz, executive]

[Interpreted] Any difference in cost pressure, we usually have pay rises on 1st of April. So that's already the best.

[Unknown Analyst]

[Interpreted] So then the answer should be easy. And I wanted to ask about the mortgage bank. Are there any assumptions, plans of how much assets they should -- it should have?

[Brunon Bartkiewicz, executive]

[Interpreted] Yes, of course. Of course, we've got very precise assumptions and plans. That's a different thing. We've got detailed plans from the very beginning, and we are fully compliant with the business plan approved by way of the operating license of the PFSA, but I don't think this information has been disclosed.

But in principle, we are not replying to such questions, but you should have no problems calculating it on your own. That's not complicated. Definitely, if you talk to others, that should be precise already.

Now pay rises for employees, of course, yes, they already had them. We don't know all the details about our positioning in the market, but our assumption is that, that's in line with our remuneration policy, and our policy is continuously implemented. Also the employment labor market in Poland is significantly changing, and I believe that requires major adjustments. We're also working on them, but we will inform you about them already when the changes take place and not when we are planning them.

And again, could you repeat the first question?

[Unknown Analyst]

[Interpreted ] Coal funding, coal industry.

[Brunon Bartkiewicz, executive]

[Interpreted] Looking in Slide 45. Asha and Bozena?

[Joanna Erdman, executive]

[Interpreted] Here we've got our lending exposure per industry. Yes, on Slide 45, we are providing here our lending figure. Taking into account that we have not been financing for long time any correlated assets, then we may assume that it's energy-related, whatever is the dirty energy. So the exposure, this exposure under the contracts, it doesn't mean that it's the utilized exposure. While in the previous slide, you've got the utilization. I may also add that we now have 4 minor clients that with their coal-related exposures some have the exposures by 2025. So we're also discussing with them the possible early termination that's for clients per group of almost 60,000 corporate clients.

[Brunon Bartkiewicz, executive]

Of course we have got other co-companies in different industries, like in logistics and production of machines and devices but this is again even lower. Because, what we are calling coal industry, we are not talking about mines but the entities that are somehow coal base and generates the majority of their income based on coal. That's a very wide scope. Also, transport company are dedicated [indiscernible] is also within this group.

[Joanna Erdman, executive]

[Interpreted] Now the chemical industry, if for their own purpose they have the coal-based plant, then we are analyzing what's the share of this production and their overall business. And yes, we've got some chemical companies in our portfolio because we believe that the energy transformation for this industry will take a while. So we need to terminate certain projects under contractual commitments. But it's still earlier than 2020, 2025. So we'll be compliant with our eco declaration.

[Unknown Analyst]

[Interpreted] And a question, Slide 24, if I may. In the top right-hand corner, you can see that the increase of this year versus dividend is decreasing. We know why? And the bank is growing at 11%, 12%, so it will be consumed most probably.

Two questions here. Should there be a dilemma, dividend or growth, were -- what would be your decision? Maybe with such growth also for the sector now and maybe ING was never afraid to take different decisions. Maybe ING will now slow down if the others are accelerating.

[Brunon Bartkiewicz, executive]

[Interpreted] We will slow down when the risk elements will drive our policy. And should that be the case, then probably we'll go the other way. So we'll be taking advantage of the situation, but there are no such factors.

Now we want to generate and maintain the growth rate of our lending. We believe that's the right strategy because we are together with our clients of the economy. The dividend would be a benefit for the owners, but we believe that they also benefit from the profitability growth. So the slide is presented in such a way as to draw your attention to this element.

And this dilemma culturally of all the financial institutions in Poland, not only of us. And not to giving any specific decisions here, and it is -- these are also not always just our decisions, but me personally, I believe that it's the bank's responsibility to correctly grant loans in such a way as to generate the capital to increase the condition -- to improve the condition of the economy.

I never had in my agenda the obligation to pay out the dividend as this is not my reason for action. That's just me. That's my personal opinion. So my opinion, it hasn't changed for years. But if there is a problem and proper framework setting and is that the bank which is properly managed, and I think ING is such a bank which is properly managed, such a bank should be able to meet their obligations towards all stakeholders.

First, the economy, because these are the clients and also the employees and shareholders. We should be capable of performing that. If we're unable, then this is a problem for the economy as a whole. If the most effective and profitable bank in Poland should have problems with combining all those things, and we've never had an excessive dividend payout, then that's a serious problem. Yes, I have to admit that this is one of my concerns. But should they need to choose -- well, there are many elements to support banks in this respect. Many firms, many principles. Poland is just using a small extent of opportunities for the banking sector to correctly separate the macroeconomic aggregates. Of course, the banks are the earning factor here, but they should be also supported from time to time. Otherwise, it will be problem for the economy.

[Unknown Analyst]

[Interpreted] A quick detailed question. I think a quarter ago, you said, Mr. President, about a portfolio of bonds with high yields which was about to mature or -- if you could comment.

[Brunon Bartkiewicz, executive]

[Interpreted] Yes, we did talk about it. This was a bond portfolio in October, November. Let me remind you what it's like. Money is coming in. The bank, at some point in time, in line with regular practice to optimize all indicators, invests in bonds. And the principle, typically, is that the bank holds bonds until maturity. This is the replication portfolio. The longer interest rates are low or are going down, the bigger is the repricing of the repricing portfolio because the bonds we bought 10 years ago mature, and we can replace them with 10-year bonds, for example, but the bonds today will not have the same interest rates as those ones from 10 years ago.

10 years ago, we were in 2009, right. So we are extinguishing the replication portfolio in bonds in this respect. We are less dependent on replication portfolio. But from point of view of building the treasury bond portfolio and the replication model, the same philosophy applies. We are using swaps partly, et cetera. So not overemphasizing this element, of course, it is the case that we are exhausting the replication portfolio in terms of how we manage assets and liabilities.

We already have 4 years of interest rates that have not changed, they're slightly up and down, but they're not that different. The exhaustion of this momentum does happen, but the impact on margins, because I think this is what your question is about, is lower.

[Unknown Executive]

[Interpreted] Any other questions from the room? Because I still have one question from the Internet. Back to OKO.

[Unknown Executive]

A comment about lowering the interest on OKO accounts. Can we expect anything like that to happen with corporate customers?

[Brunon Bartkiewicz, executive]

[Interpreted] We have no comment.

[Konrad Krasuski, analyst]

[Interpreted] Konrad Krasuski, Bloomberg. I don't remember about what you said about PPK. Are you interested in this program? Would this program be interesting to you? Do you think it's sexy or not?

[Brunon Bartkiewicz, executive]

[Interpreted] An investment partners is an active player in the PPE market and has an intention to go into employee pension plans.

PPK. We as a bank have no right to be involved in the PPK program. Let's just make it clear.

[Unknown Executive]

[Interpreted] Any other questions? If not, I think we can wrap up. Before I let you go to lunch, let me point out the green plants. They are purifiers of air, very environmentally friendly. They remove harmful elements from the air. So please do not forget to take one home with you. This is a living plant that you need to water. Thank you very much.

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