ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2020-Q1

[Piotr Utrata, executive]

Good morning. I'd like to welcome you to the conference of ING Bank Slaski, dedicated to the results of Q1. I'd like to present to you CEO, Brunon Bartkiewicz; Bozena Graczyk, Vice President responsible for Finance; Iza Rokicka, responsible for Investor Relations, is with us; and Maciej Kalowski, also Investor Relations.

My name is Piotr Utrata. I'm the spokesperson for the bank. You can ask questions during our video conference using the conference system.

Thank you very much, and over to you, Brunon.

[Brunon Bartkiewicz, executive]

All right. Can you hear me now? Welcome, ladies and gentlemen. We have the Q1 results. We'll present to you the numbers after the first quarter, understanding that these numbers are not that much of an interest because you're interested in the future situation, considering the COVID-19 pandemic.

On Slide 4 of our presentation that you've had the opportunity to study, we are showing some measures that we've taken. We know from experience that the key concern of yours is how the bank is involved in the shield programs of the government. The key concern of ours are the interests of our employees and customers. If we don't have well-motivated, healthy employees, we will not be able to serve the customers. So this is our key priority. Our employees are most important at the moment, not just protecting their health, but also their comfort, well-being, because we are functioning in a different working environment. All of us are working in this new environment than before. Not to take any more of your time, I'd like to say that in my opinion, we are dealing with it well.

With regard to our customers, in the numbers of Q1, you will not see much in terms of the behavior of customers. The lockdown started on the 13th of March, just to remind you, so March was a pretty peculiar month. And I'd like to say that March was a month of market panic, a lot of cash payments, also in foreign currencies, a lot of ForEx activities. It's visible in the numbers. It happened in March.

In April, we are dealing with much more stability. The number of visits, payments in and out is down to the level of -- in April itself, down to half of what we saw in the similar period of last year or the beginning of the year. The numbers for January and February were very high in this respect.

Another important element for you are deferred payments of capital installments, repayments. The applications that we have received and processed suggest that the numbers are significant, but probably surprising for you, ladies and gentlemen, because they're not that high. The people who've gained the deference decision for cash loan, 33,000 cases. In other groups of customers, the numbers are considerably lower. Also for leasing, there's a big interest in deferring repayments.

Another program that is of interest to you is the PFR program. You are asking about it because indeed here, cash is flowing to businesses. The number of entities that have received positive decision of PFR, this is the Polish Development Fund, PFR. And PFR is operating very efficiently. They've started the program and started processing applications very quickly. Among our customers, 8,000 businesses have received a positive decision. The funds that have been promised are PLN 1.9 billion. And in the accounts of our customers, we already have 6,750 businesses. They have received PLN 1.715 billion. So the program is ongoing. It has been launched a bit more than a week ago, but it's implemented really quickly. And these are significant funds that we're talking about. I have to admit that the value of 8,000 approvals, and there are not many rejections, I would say that I expected more.

And I'd like to conclude by saying that the numbers have been shared with you. But as you all know, the number of granted subsidies and the value of funds in our bank are the highest in the country. So we can draw some conclusions about the entire portfolio. The BGK programs have been launched. They are operational. They have not translated into a big number of operations, but they will be very much needed in subsequent stages of the approach and mitigation to recession. The value of contracts signed as part of the second program, the liquidity guarantees of BGK, this is an amount of close to PLN 200 million.

The results of Q1 have been shaped primarily by the cost of risk. We've had to create under IFRS 9 some special provisions for the impact of macroeconomic indicators. The value of the newly created provisions related to macroeconomic situation, which is related to COVID-19 pandemic in Q1 of 2020, we're talking about PLN 145 million.

The second big item, which can be a surprise to you, but after some conferences of other banks, it is not, are the additional costs related to BFG contributions. I think I will hand over to Bozena to tell you more about it. And then I assume that you will have questions about it, so I will not elaborate on it right now.

I assume that our traditional slides, 5 and 6, are clear to you. They point to the continuation of our activities. As I said in Q1, you can't really see the impact of the pandemic. You can't really see lower interest rates. You can see very little of the lower interest rates. In Q1, we are also dealing with strong growth of the number of customers because we started the year very strong. So even a weaker March did not shape the value of these positions. So it's difficult to draw some conclusions on the results of Q1. You can't really say what next quarters are going to be like. Q2 will be very different. That's for sure. It will be very different from Q1.

Concluding, Slide 7, information, which has been disclosed. It's not a surprise anymore. The gross profit, PLN 377 million, and it has been heavily impacted by PLN 145 million provisions.

Let me just emphasize that we all know relatively little about the future. We never know much. But in this situation, we know even less because there's a lot of volatility, a lot of indicators. So if you expect us to tell us what the economy and the results are going to be like in the future, how long lockdown is going to go on for, how many people will have the disease in Poland, don't expect us to tell you that. We don't know. We cannot speculate. We cannot guess. Speculating is unhealthy in this situation. It does not contribute to stability that we care the most about at the moment.

And that's it. The key indicators, the key financial data of, as you can see on Slide 7. As you know, I don't talk about the numbers that speak for themselves. You can read these numbers much better, and I don't have to do it for you.

No major comments, no major factors that would disturb the trend of our development. Our bank is a long distance bank, let me reiterate. We are looking after the interest of customers. We're doing that also during the pandemic. Important elements for our customers are available in the remote banking capabilities. Our customers are reacting wonderful. Our employees are doing their utmost to ensure the comfort and security of operations.

So in Q1 numbers, there are no big surprises. It's still very dynamic growth of the number of customers, the value of loans, value of deposits. Probably, particularly, the deposits are important. There will be major changes coming up in subsequent quarters, and we're doing what we should be doing to mitigate the consequences of the turbulence, to make sure there's less volatility so that we avoid the economic turbulence, and all that to go back as soon as possible to our regular, normal economic activity to cost the -- cut the transformation costs.

Due to the economic turbulence, we're dealing with a lot of adjustments going on for a number of quarters or even years. The consequences of the current turbulence will be visible in the midterm. So please do not expect to see all the consequences of the recession process are going to end within this year. It will not be like that. And based on our previous experience with recessions and crises, I'm not talking about how deep the downturn is going to be, but please remember that many elements visible in the bank's results will be visible when we are going out of the recession.

Bankruptcies of companies usually happen when the economy is kickstarting again, just as restructuring processes are not happening at the beginning of recession, it's later on in the recession.

That's it. Not too much to comment. If you look at the impact of COVID -- if you don't look at COVID, it was one of the best quarters in history, if not the best quarter in history. The market share of our bank confirms that. I assume that the improvement of the services for our customers is a major event, but I think it's not that much of interest to you.

In Slide 11, I'd like to point out to you that as of this year, 2020, we have changed the segmentation and presentation of the results in this respect. Our service of small companies, which was shown as part of retail in the past, has now been moved since the beginning of the year to our corporate part. So now it is part of what we call business banking. So that means all companies, from the very small ones all the way to the huge ones, except for the largest, which is our Wholesale Banking segment, all strategic clients. But all other companies fall under business banking these days. This is mostly due to technological considerations and because self-employed people and sole traders find that within the Polish and European regulations, they are treated more and more like legal entities are treated. So in terms of how the law treats them, they are moving away from being treated as individuals and more as companies. That's why we would like all the companies to go through a very similar system of regulatory issues, such as know your customer and so on and so forth. And that also includes the different functionalities that they have access to. So this is a change we have done. And hopefully, in this presentation, we have made it possible to see very clearly how this has impacted the different components of our performance. This doesn't really change anything in terms of the overall performance, of course. But in terms of its distribution, it does.

Now without wanting to dwell on the less important details, I'm going to give the floor to Bozena Graczyk. Bozena, over to the performance, please.

[Bozena Graczyk, executive]

Yes. Ladies and gentlemen, we're supposed to comment on Q1 performance. And these are historical data. They show how the bank performed in a very variable situation of Q1. And Q1 probably was completely different from the rest of the year.

Now if you look at the financial data, we can see the figure of PLN 267 million, which is less than the year before. But if you look at ROE, it is still above 10%. If you compare that with the provision ratio, the indicator is over 12%. Now given the current market situation and macroeconomic situation and the 2 reductions of the rates and the fact that the costs are going up, including regulatory costs, the cost of risk, as a result of the pandemic, also on the rise and so forth. Having said all that, we can see that we don't think that in the coming quarters, ROE will be as good. PLN 61 million year-on-year for our gross performance, and the cost of risk has increased by PLN 122 million in the meantime. So there are these 2 trends, and they can be explained with high cost of risk, which went up by PLN 170 million in the same period, and the PLN 147 million of that was adjustments due to changing macroeconomic scenarios. All of that would have to be connected with the consequences of the pandemic.

About the regulatory costs, BFG and the Financial Supervision Committee. PLN 176 million, the figure for this year, which is a growth of 7%. And looking at Q1, regulatory costs are 23% of our operating costs. That shows how that impacts our financial performance overall and how that impacts the banking sector as a whole.

Now moving on, you can see we are at PLN 1.152 billion in terms of our interest performance. But our net interest margin is now at 2.86%, and this reduction was contributed to -- by a number of factors. Let me give you an idea of how it was shaped. Now we had one interest day fewer this quarter, which basically means the quarterly margin goes down by 3 percentage points. The reduction of the rate happened on the 18th of March, and that also had a negative impact.

And if you looked at our balance sheet, you have probably noticed that its structure has changed considerably. This is due to the events that are happening now. For example, especially in the second quarter, we have significantly increased our investment in securities. During this quarter, they went up by over PLN 6 billion, and they are now about 23% of our balance sheet, whereas it was 21% at the beginning of the period. This is due to the changes in the structure that we are carrying out.

Now we sold over EUR 1 billion worth of bonds with a yield of over 4%. And again, the interest margin reflects that. Now it's worth emphasizing again the things that you know from our day-to-day reports, namely there should be more pressure on our interest margin. The rates will be slashed more in the coming quarters, and you know what the influence of these 2 reductions will be. It will be between PLN 170 million and PLN 220 million in terms of our interest performance, negative PLN 220 million, of course.

Now all of you have been emphasizing that this item has gone -- has become more significant. And it's a 13% growth of revenue, which is now PLN 359 million. And year-on-year, the growth are double-digit in pretty much every category. This is mostly thanks to a high-volume of transactions of our customers in all the segments, both in retail and corporate. You can see it clearly in our revenues and fees. And even the reduction of revenue from card transaction is not due to a smaller customer transaction volume but due to higher transaction costs, which result from a changed model and the outsourcing of the devices because the volume grew by 15%.

Now about our costs. PLN 775 million was the total, which was a growth of 7%, as the regulatory costs went up by 7% and the other costs, which are under our control, grew by a similar value, 8% year-on-year. Regulatory costs, as you know, are a particular burden on our performance as the growth of PLN 11 million to the tune of PLN 176 million results from the charge for the restructuring funds and the annual KNF contribution and also the quarterly deposit guarantee fund contribution.

And again, we have 7% of G&A. Personnel costs have gone up, which is a result of wage increase last year. And also that we take this opportunity to say that in April 2020, we also increased our employees' wages. As Brunon said before, we have also seen increases due to our regulatory projects and IT projects in recent times and particularly due to our projects aiming at increasing IT security. These costs have to be incurred in order to be able to run this business safely and securely. Now this sounds like an obvious thing, but I'm saying this because I want to make sure that we are working on our cost-to-income indicator. Adjusted data show our adjusted C/I at 43.5%, which is an improvement. It was 44.9% in Q1 2019. In other words, what we want to achieve is for our operating revenues to grow faster than costs. The bank is growing, so obviously the expenses have to go up as well.

Now a very important topic to understand our financial performance this quarter and in the coming quarters, namely the cost of risk. We have PLN 147 million of the negative impact of changing macroeconomic assumptions, and that's seen in retail and corporate. PLN 97 million is in the corporate and PLN 49 million is in retail, as you can see on the slide. And the quarterly cost of risk was 97 basis points. Now this individual impact of the macroeconomic effects, if this was to be removed, then the cost was at a very decent level, which was actually one of the lower ones over the past, say, 5 quarters.

Every quarter, we review our macroeconomic factors, and this adjustment has never been so big as it was this year -- this quarter. In the coming periods, there could be further adjustments of the macroeconomic indicators. Given this scale of uncertainty and the dynamic changes in the economy, I don't think anyone would like to forecast the actual impact of macro on our bank or any other bank for this matter. So these losses have to be considered as preliminary, and we will be keeping track of the macro indicators. We're also looking forward to receiving the National Bank of Poland macro data. It will probably be the basis for working on them in more detail.

Now after the outbreak of the pandemic, different European institutions issued recommendations that are important in terms of understanding the IFRS 9, and 2 issues were raised. The impact on the cost of risk and the so-called loan vacation, which is postponing the repayments for both retail and corporate clients. And the recommendations are clear. This postponement is not a premise to reclassify those loans as Stage 2. And that was a very important statement from the point of view of automatically interpreting the growing PD in the light of the new requirements. And that's one of the effects that's going to be the subject of our analysis in the coming quarters and will probably be reflected in our financial performance in the coming quarters since it has not yet been reflected after Q1.

Now the second important element is including the macro factors in our cost of risk. And here, the ECB emphasized that how the macro parameters should be included in this in terms of a short-term risk. And long-term trends have to be included. That's -- as it's said in the guidelines, and it has to be emphasized. It's very important because that should alleviate the short-term shocks going both ways, both in terms of the short-term cost of risk and also evaluating the credit standing of individual clients is very important that when evaluating credit risk for clients, it is recommended to take into account the temporary character of liquidity problems and also to include any state aid and financial support provided by the government in the period of the pandemic.

So all these elements will influence the modification of the approach of the banking sector and our approach over the coming quarters. From this point of view, I think that our description of PLN 147 million as a preliminary estimation based on a market consensus, which was available at the end of the quarter.

If I were to comment on the risk structure of our portfolio. On Slide 20, you will see that the irregular nonperforming portfolio share in the total portfolio is at a level of 3%, stable. What you can see is a bigger share in -- of Stage 2 in the gross portfolio. To you, it doesn't come as a surprise, I guess, because the change of parameters, macroeconomic parameters have its impact. You can particularly see it in the corporate portfolio, up to 9.3%, up by 1.8%. And it is entirely attributed to the change of macroeconomic parameters because these parameters influence the change of PD, and this served as a trigger for moving from Stage 1 to Stage 2, and that is particularly visible in the corporate portfolio. You can see it to some extent in the retail portfolio as well, but the base of retail loans has increased considerably, mitigating the negative impact. Anyway, the share is a reverse trend compared to the previous quarters. It is a result of the change of macroeconomic indicators. In terms of provisioning ratio, Stages 1, 2 and 3, the result of macroeconomic changes resulted in higher provisioning ratios, achieving very high levels.

Reading your comments in the morning, I would like to comment on our capital adequacy levels. The consolidated capital adequacy ratio has gone down by 1 percentage point. Two factors have to be mentioned. Negative pricing of financial instruments, 47 basis points. This is a volatile element of capital change. This is because of mid-office spreads and credit swaps, which are a result of the turbulence in March related to the pandemic, and this element of volatility will persist. It's hard to assess at this moment how sensitive this element is. And the 81 basis points attributed to the balance of loans in Q1. The capital indicator does not take into consideration the decision of the general assembly of shareholders at the beginning of April, where 100% of our financial result is in the capital. If we consider that, we would have a growth of 89 basis points.

Looking at the slides, I'd like to once again show you the LCR, 141%. You can clearly see the influence of funds from customers that translates into investment decisions, leading to higher share of government bonds in the balance sheet.

That's it for financial results in Q1, and we're looking forward to your questions and comments.

[Iza Rokicka, executive]

Let's move to the online questions. Let me just ask once again, please ask your questions through our online tool. You can also send an e-mail to investor relations, and we will provide answers to these questions as well.

Let's start with 2 questions in terms of loan vacations. What is the number of applications for the vacations in housing loans, leasing and cash loans? And what is the percentage value of the portfolio? And the second question, what is the share of loan vacations in the loan portfolio?

[Brunon Bartkiewicz, executive]

The number of people who have had their applications approved with cash loans, I have already given that number, 33,000 almost approved applications. You can treat that term as that's the number of applications altogether because we have very few rejected applications in consumer loans.

The total value of deferred repayments, we don't call them vacations. It's a postponement of repayment. That's 10% for customer loans. That's well below what other banks are reporting. I'd like to indicate that in our particular case, a vast majority of the deference is for 6 months. In the case of mortgages and mortgage loans, it's 6,200. And here, the share in the portfolio is much lower, that's 3.5%, 3.5%. The vast majority is a postponement of repayment for 6 months.

In the case of leasing, the situation is a bit more peculiar. As you gather, in the case of leasing, we have many more applications than customers, because customers are applying separately for every leasing contract. So here, we're dealing with considerable amounts. Leasing naturally is more prominent. You have the most applications related to leasing in other words. In here, the number would be -- the number of applications is around 12,000. Let me look it up for you. They come from -- not to mislead you, let me look it up. They come from 5,000 customers who have been approved, 12,300 applications have been approved, as I indicated.

[Iza Rokicka, executive]

We have quite a lot of questions about the interest results. What is the impact of the small -- the so-called small judgment of the European Court of Justice? And is the bank sticking to its guidance of PLN 30 million a year? That's related to the judgment of the ECJ.

[Unknown Executive]

Let me reply to the second question first. Yes, we are maintaining our guidance. In terms of the impact of the small ECJ ruling on our result this year, no changes. In terms of the impact of the small ECJ ruling on Q1, in this context, they are proportionate to the estimated annual impact.

Let me also add that from the point of view of the reserve, the provision that we have created at the end of Q3, which was PLN 17 million, right now the provision is around PLN 12 million at the end of Q1. So it was consumed in a small way.

[Iza Rokicka, executive]

Further question related to the interest result, the lower interest rates. The impact of lower interest rates is much lower than the sensitivity of the interest results presented in the annual report. What is the reason for the difference?

[Unknown Executive]

I think it's not a question that you can answer in an unequivocal and simple way. There are methodological differences. The estimation that we have implemented at the beginning of April includes all the factors that we know, the shape of profitability curves, expected margin volumes, credit spreads. So from this point of view, this analysis that we have carried out in terms of the impact of interest rate cuts was based on different assumptions than the ones that we would have assumed during the standard assessment of sensibility at the beginning of the year because the world changes.

[Iza Rokicka, executive]

The interest rate cuts was 25 basis points, while the rates fell by 100 bps. Why are deposits not changed much, the deposit interest?

And the second question, the impact of interest rate cuts, does it include the change in the interest of deposits?

[Unknown Executive]

Well, we have to remember, ladies and gentlemen, that there is nothing automatic here. If we were to do things automatically, you could assume that there would be an average median market price. All the banks would apply it the same way, and there would be a level of reaction that would be homogenous. But there are differences. We start from different points. There are different tactics that banks supply in this respect. There is the effect that you're looking for is as follows. With a base interest rate in the market following the monetary policy council, we have 50 basis points. Our basis rate for the core saving product will be 25 basis points at the moment. At the moment, that is the decisions that we've taken.

From the point of view of ongoing monitoring, you can guess that our reduction of interest by 25 basis points was based on the decision of the interest rate cut. And the reaction to the second rate, this is still binding on us. This is what other banks are calling space. And I say that it's not a mechanism that tells you that there is an interest rate cut by 100 basis points by the Monetary Policy Council. And we follow suit, we do the same cut. That's also relative to the negative interest rates.

[Iza Rokicka, executive]

Another question related to the interest rates situation. You have reported a negative result from the debt papers in the same period the prices of Polish bonds increased. So that's I guess linked to the hedge.

[Unknown Executive]

As I mentioned before, in the case of fair value hedge, we are dealing with enhanced credit swaps and spreads between BT offers, and they have resulted in the negative impact.

[Iza Rokicka, executive]

Moving on to the cost of risk and IFRS 9. There are several questions asking to share some information about the data used for the macro scenarios.

[Brunon Bartkiewicz, executive]

We shall not make this information available. Please bear in mind the very high variability for this period. So please bear that in mind. And remember what Bozena said before, this is the opinion consensus as of now, taking into account a longer perspective, according to the BA recommendations. And in the coming months, there'll be further important events that impact these forecasts, and we are talking about forecasts reaching out up to 3 years ahead. But given the level of uncertainty that we have today means that any comments on our part would be irresponsible thing to do.

[Iza Rokicka, executive]

There's a question on Stage 2 lending. And could you tell us which sectors were revised and reclassified from Sector 1 to Sector 2?

[Unknown Executive]

Now that adjustment of PLN 147 million was a macroeconomic adjustment, so it did not pertain to particular sectors. It pertained to the impact of macro factors on the PET and the reclassification from Stage 1 to Stage 2, has to bear that in mind. So no corporate sector was treated in a special way. This just results from a model approach to macro indicators in every stage. I understand the question behind these questions is you would like to share some of our knowledge with you on which sectors have seen what level of downturn. But we are now talking about results after March. Now the reduced sales in March compared to February, for example, given the sample that we have of about 75,000 businesses, that's what we analyzed. However, I'm not sure we should be sharing this data with you, because on the basis of these data, one might draw very wrong conclusions, very far-reaching conclusions. And there is a number of reasons for that.

Number one, clearly, in March and April, we have seen a strong weakening of the ability to sell in sectors such as traditional services, for example, and hairdressers, for example. And there's -- it's even worse for restaurants and bars and so forth. So these are the sectors where the downturn would have been the biggest. There's a lot of difference in how the reduction dynamics changed from February to March vis-à-vis March to April. And if you compare April to February, these changes are quite different. Then there are other sectors where sales are growing. Printing, for example, and the wholesale trade, which has taken over some of the functions of retail. For example, wholesalers started selling things in retail times online using their own logistics. A wholesaler who provide suppliers to bakeries will these days also sell baking flour in retail, for example, to retail customers using online channels.

So this picture -- the picture of the situation is quite uncertain. There have been some significant downturns in some places, but I would like to draw your attention to the following. If we use the data that you now have from the PFR and from us, if you look at the number of PFR applications, you might wonder why the number of the companies applying and the value of the financing allotted is so small in relation to the total number of businesses on the market and in relation to what the media are saying about alleged breakdown on the market. We would have to wait a week or 2 weeks more, but it seems to me that the downturn in sales has not been as significant as the media are saying. The number of companies who have seen reductions of over 20%, which means they can apply for the PFR funds, the number of those companies have not been that large yet. Mind you, you can apply for the PFR funding after your April financial results. The PFR acts within hours of the application form being filed and the funding is made available within literally hours. So given the fact that companies may apply with their April results and April already saw the weakening, so the data we should see in the PFR reports should be taken as a guideline. The PFR has prepared a huge amount of funding. PLN 75 billion will be allocated going through the banks and banking channels. So anyone who would like to apply for this funding, which is, to a large extent, a subsidy, it means that there will be an accumulation of applications.

So if April was the weak month, and May and June, we'll probably see a smaller reduction. For example, if a hairdresser can reopen their business when the lockdown is reduced. As you can see by my hair, I'm looking forward to hairdressers and barbers being reopened. Anyway, these reductions, the slump will be much smaller. In other words, if they were to file for PFR, the hairdressers would have done it by now because they have seen the biggest reduction in their revenues in April. So I would like to draw your attention to this, and I would like to ask you to be patient. Drawing conclusions from such short time frames and average data, which is all we have, doesn't reflect the situation fully.

You have probably learned by now that banks have not seen that many applications for restructuring. Obviously, there are companies who have gotten trouble, and there will be more of those applications, I suppose. But the percentage of the utilization of the PFR or BGK funding so far seems to be much smaller than we may -- that we might have predicted judging on the basis of media reports.

[Iza Rokicka, executive]

Now the postponement of the repayments of loans has contributed in an improved situation in this respect, I suppose.

[Unknown Executive]

So this is a bit of a broader comment to what we're, I suppose, trying to read between the lines from what we were telling you. But you will not see everything I've said in the cost of risk and in the performance figures. And it is not yet there. I think I should be looking at the camera, not at Iza. Iza, if you could sit closer to the camera, I would be looking in your and the camera's general direction.

[Iza Rokicka, executive]

Moving on. If the BIG has the information that somebody has used the loan vacation, will that impact the evaluation of that particular customer's credit rating by you?

[Unknown Executive]

The debate with the regulator has already been concluded. It is expected that the banks -- no, you are calling it a vacation, which is a wrong term. It's the postponement of the repayments. Yes. We take note of that, but this is not the same as default. You have to remember that. It's just another record in the database, but this is not a blacklist, so to say. Banks need to be able to analyze the customer's cash flow. So this is the -- these are the amounts of liabilities, of payables that the customer is now postponing, and we have to relate that to their revenues. So this is just another record in the database. And in the future, this will be even more important when modeling risk for the particular customer to see their real cash flows or the lag thereof and the temporary character of what we are all going through, as we assume. Applying for or being granted the postponement of repayments is not considered default.

[Iza Rokicka, executive]

How important are the BGK guarantees for your credit application evaluation processes?

[Unknown Executive]

The BGK guarantees are very helpful tool when there are liquidity problems on the part of the customer. Right now, there is only limited interest in this tool. But in a recession situation, the banks and the clients need to have a very large toolbox that allows us to act quickly. So right now, there are only few agreements signed with the BGK, but that does not mean that the tool is irrelevant. On the contrary, it is going to be very useful, and we will need it very much in the coming quarters and years, both the banks and the customers. And the 80% coverage by BGK of this new exposure also translates into LGD for this exposure.

[Iza Rokicka, executive]

Is this the best security that can exist?

[Unknown Executive]

So this BGK formula is very important. We need tools. But the fact that we are not using the tools should make us happy, but we should be even more happy that we have these tools at our disposal, and we need many such tools.

[Iza Rokicka, executive]

Let's now move to a different subject, the issue of deposits. You've had a lot of growth in deposits in Q1. Is it a result of active bank policy? Or is it an expression of trends in the sector? Loan-to-deposit ratio below 90% and LCR above 140%, are these levels comfortable for the bank?

[Unknown Executive]

This is a result of the situation in the market. It's not a trend that we are shaping. It is a result of a market situation that you can easily gather, and it's easy to draw conclusions about the immediate future in this respect because if companies are not spending and they were selling, if they're not investing, if customers are consuming less and there's an inflow of resources, the trend is going to continue. The PFR campaign will result in a lot of deposits coming to banks. In Q2, there will be a campaign on cutting mandatory provisions in the banks. So the river of resources was flowing, and it is still flowing to the banks.

[Iza Rokicka, executive]

In the equity of the bank. The bank has PLN 2.6 billion of total revenue related to securing cash flows. With the assumption of ceteris paribus, over which period this fund will be released?

[Unknown Executive]

I don't have precise information at the moment, but we're talking about several years. This is the NPV of several years of the pricing of such instruments.

[Iza Rokicka, executive]

A question about operating costs. Do you have a plan to optimize these costs? And what can be the scale or the magnitude of this?

[Unknown Executive]

We do have it, but we're not disclosing this information publicly.

[Iza Rokicka, executive]

What supporting actions is the banking sector expecting from the National Bank of Poland, the regulator and the government? Which supporting actions is the banking sector expecting from the regulators, the National Bank of Poland and the government?

[Unknown Executive]

Well, I really don't like the fact that we are speculating in the media about the outcome of such discussions, which are ongoing, and they're very welcome. We are talking about some elements. But during the pandemic, the cooperation -- I'd like to emphasize that the cooperation with the regulators, in general, not just the PFSA, but the cooperation is very good. The frequency of meetings is very high. The topics of the meetings is, however, not something that we should be discussing in the media because the interpretation will not contribute to a favorable outcome of these conversations.

I am really impressed because the willingness to serve the stability of the Polish economy from all the stakeholders is very high, and banks are also acting very ethically, morally, looking after their customers during these conversations. So the conversations and speculation about how banks are trying to profit from the pandemic, that has nothing to do with reality, with the truth, and I'm in the heat of things.

[Iza Rokicka, executive]

What is the chance of a bad bank being set up in Poland?

[Unknown Executive]

This is not an initiative of the union of Polish banks. This is something that we've been talking for years. We need the toolbox to deal with the situation. And this institution has worked in many countries when we were transitioning from the stage of crisis to the next stage. And banks should have the possibility of dealing with bad assets in order to finance the economy, which is starting to grow. This is the essence of this idea. This is not a new idea. It's been around for a long time. Institutions like that have existed in the past after the previous financial crisis. Some of the work has been dormant for some time because everything has been going right. But right now, of course, you have to remember that banks are also part of the economy. Banks are fulfilling a specific function. And add to it, yet another fact, the element that can keep us in the recession or extend the recession is a situation where banks, like other businesses in the market, can be -- can get in trouble. If we are helping others, perhaps, we will have to help some banks in the future. But the pattern is that the entities that are helping banks are other banks. So a major weakness of some banks is weakening all banks. That's how it works. So we need the toolbox to address. This is not something that we need urgently, but we need the toolbox. It's worth considering it. And we should not talk about it any further apart from this theoretical statement, which has been discussed in many circles nationally and internationally over the last 10 years.

[Iza Rokicka, executive]

Let me read three or four questions on a very similar subject. Recently, you have increased the minimum own contribution for mortgages. What is the appetite for risk? And how has it changed? What is the demand for loans in recent weeks?

[Unknown Executive]

Number one, the duty of banks is to protect the deposits that have -- they've been entrusted with. The economic duty of the banks is to allocate the capital generated in deposits to those areas and those businesses, which can survive, entities, businesses or individuals. That's the duty of banks. The fact that we are supporting entities, which are experiencing turbulence is another subject. I know this is a very difficult subject to understand, but also during the crisis, it's very important for us to maintain common sense.

At the moment, we have strong volatility in security in terms of what's going to happen to many indicators, prices of real estate, unemployment. It's natural for banks to adjust its policy of lending so that we don't have a situation where loans are granted to entities that will not be able to service these loans. That would be counterproductive compared to the duties that I have mentioned. So remember that a bank is not an entity that is giving money away. We're lending money. This adjustment of lending is a standard behavior. In Q1 already, we have adjusted our policy to the market situation. We were very active in the real estate market. I will not talk about specific market shares, et cetera, because those of you who are following the results, you can see for yourselves how active we are and how many customers are benefiting from our mortgage lending, particularly right now.

The demand for loans -- well, I would put it this way. What happened in Q1, you can see what's going to happen in April and May is obvious to you. I don't have to reiterate it. We all know that it's not the right time to take out loans. In addition, I would say that for many businesses and entities who can afford to and have no problems acquiring funds, it's the time to pay off loans, and that's happening. In Q2, demand will have to be significantly lower compared to the demand for loans in Q2 of last year or even in Q1 of this year. In January and February in Poland, not many people were aware and I was not even aware about the impact of the COVID-19 pandemic on our country. I'm not reinventing the wheel here in any way. I'm not surprising you. If you need any confirmation that the demand for loans in Q2 will be lower, it will be lower. And what about subsequent quarters? I don't know. I don't know. It's going to depend on the recession and crisis situation going to get into, but we are ready for it.

[Iza Rokicka, executive]

A more general question. How can the behavior of customers change in the post-lockdown world? And what are the strategic decisions taken by the bank to meet the challenges and expectations of customers?

[Unknown Executive]

Again, it's about forecasting. This question is about forecasting. Many trends that we've observed over recent years have been altered significantly by the COVID-19 pandemic. Things are speeding up. I'm repeating about what everyone is seeing. Digitization, remote operations, buying, making decisions, contacting the public administration and contacting other businesses, that's digitization that is speeding up.

Banks in Poland, we were definitely -- I may sound a bit arrogant, but we have been focusing on digitization for a long time. So customers can get in touch with us, can transact with us. Everything can be done by remote contact. During the pandemic, we see a clear acceleration of these processes.

Around this time last year, the number of cash payments daily was 9,000 in our branches, physical branches. In February and March, there was some panic. People were paying out money. They wanted cash. And the number of daily payments in our branches was 7,000. 9,000 compared to 7,000. In April, it's much less. In May, it's much less. We are talking about 4,500. 4,500 to 9,000. There is acceleration. The number of operations through BLIK, the number of e-commerce transactions. I'll come back to that in a moment. The number of transactions with debit cards. It all shows how strongly customers are migrating into this channel. The number of loan applications, the PFR campaign, it's digital. It's electronic and has been devised within 3 weeks. The number of questions, inquiries from customers about remote transactions. Our campaign, stay at home, help the senior in transacting. It all contributes to the digitization of banking services, financial services. It's accelerating. Is it something new for us? No. Is it something that we wanted to take place? Yes. Because it's more convenient for the customer, and COVID only demonstrated that in a spectacular way. Does it mean that the role of the branches is changing? No. We keep saying that the branch is a place to meet. It's a place of meetings. This is somewhere that the customer can come and talk about important subjects, not to transact. That's how we've been rebuilding and refurbishing our branches, and we see that it's working.

As part of the COVID situation, many visits to our branches after the panic has subsided our conversations about specific subjects. Am I right to think that it's good to buy some real estate? Is it a good time to do it? That's a conversation. What can you do with? Another conversation. And that's clear. This is the change that we're dealing with. But you should not infer anything from this situation about the new normal. It's just an acceleration of the trends that were with us before. COVID has simply demonstrated that it's more convenient. It's better, because you don't have to take a bus to visit a branch. But it's also more convenient because, right now, it's difficult to do it because of the lockdown. I should stay at home. So that is the most important element.

But the conclusions from the pandemic, the benefits for the productivity of our organizations, there are plenty of such advantages to be drawn from this situation. But the main conclusion for us from the point of view of how we're serving customers, all transactions and operations that still require face-to-face contact have to be automated so that we can work faster. And it does not mean that customers will not have access to physical meetings. But it has to be available electronically. If not, you can go to a branch. So from the point of view of distribution, that is the key message. But let's not create a vision that the world will be completely different afterwards. The fact that young people are helping senior citizens to switch to electronic channels, it's working. And it's a fact. And it's very good. It's to the benefit of the seniors. Basically, we are alleviating the problem of -- or mitigating the problem of digital divide, the exclusion of certain citizens.

[Iza Rokicka, executive]

We are now running out of questions. So if anybody would like to ask about something else then this is the last chance to send the question to us.

Do you agree with the opinion of some people in the market that the profits of the banking sector this year may be close to 0?

[Unknown Executive]

I have no idea, and I have no idea why we should even bother talking about it.

[Iza Rokicka, executive]

In Q1, the bank didn't have any provisions for the CJEU. Will these provisions be developed in Q2 and to what amount?

[Unknown Executive]

We are operating in line with our methodology. The adjustments of the provisions will result from the actual situation and our methodology. So we have to wait for our performance for Q2 to see outwards. In other words, there were no reasons to develop these provisions in Q1.

[Iza Rokicka, executive]

Thank you. We have now concluded the Q&A part.

[Unknown Executive]

No questions in the e-mail? All right. Thank you for watching this video conference and have a nice day. Goodbye.

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