ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2021-Q1

[Piotr Utrata, executive]

Welcome, ladies and gentlemen. Welcome to the conference on the performance of ING Bank Slaski in Q1 2021. Let me present Brunon Bartkiewicz and Bozena Graczyk, who will go with us through the announcement of results. We have co-host Iza Rokicka, Head of Investors Relations. [Operator Instructions] My name is Piotr Utrata, and I'm the bank ombudsman.

Brunon, let's start.

[Brunon Bartkiewicz, executive]

Thank you very much. Welcome, ladies and gentlemen. Beautiful day, sunny and warm, and it's very boring day for ING Bank Slaski. As the results are well-known to you already, you've been observing them and commented on them. There are no surprises there. So let me make a short summary and make some general remarks.

First and foremost, first quarter of 2021 was about our care for our employees as the third wave had a great impact on our small community. We had a lot of people suffering from COVID-19. However, thanks God, almost all of them recovered. So -- but we still care for them, and we still are concerned with the pandemic and the health and security of our employees.

The condition of economy is also well-known to you. So I will not go into too much details. Should you have any questions, we'll be more than happy to answer them or present my views on -- remind you on the main topics for us.

The first quarter was a quarter of high efforts and strong efforts and hard work, mostly from home, but it was very intense. It was an intense quarter for our bank. A visible element in the results of Q1, something that is striking, and the most important elements. This is high dynamics of lending activity in comparison to the market average. Secondly, and for sure, you have already commented on them, number of employees -- increasing number of employees and operating costs related to that. And for sure, higher number of primary and retail customers.

Bozena -- so anticipating the questions of our audience, I will present some details and Bozena will present some financial results to give us more time for Q&A.

Let's start from our clients. Assets always the most important. We can see gross increase of our new customers. It is slightly lower than last year, but what -- and that, for sure, results from the fact that the choice and selection of bank is not our major problem nowadays. And for sure, 0 interest rates. This is another factor that makes it more difficult for our customers and clients to get orientation between banks. So we can see these number are flat. The number of our primary customers, but let me remind you that the definition of primary customers include stable amounts being rooted to the account. So that means that this is an amount of money coming from different sources, which is disposed for everyday life. And if the value of these amounts is distorted, the customer loses its primary customer status in our records. So we can observe increased number of customers, which -- who start to get irregular payments to their bank accounts.

Last year and in the first quarter, however, we don't know all data, but something which we are talking about for a long time. We are the bank, which is the most -- which sees the most dynamic growth in the lending activity, which was confirmed in the year 2020 and in Q1 of 2021. So this element that we are outperforming the banking market is still true. This trend is that we are growing faster than the market. We get confirmation for that.

And I would like to point out that our growth is the fastest on the market in corporate loans as well as in retail loans. So these 2 conditions cause that we can see our increasing market share that was presented in our presentation. We always try to present a longer perspective because it doesn't make any sense to talk about market share in short and midterm, so we can see a stable trend despite all disturbance that we've been discussing. Even at the time of pandemic, our corporate loans sometimes decrease, but all in all, we can see a fast growth in that respect.

When it comes to retail clients, we -- our growth is also the fastest on the market. Of course, in 10 years' perspective, there are 2 banks that grew more in nominal values, but there were a lot of banks that went through mergers and acquisitions. But in the perspective of last 10 years, Santander and PKO BP were the 2 banks, but organically, our growth is the fastest.

And the third aspect, which is of -- which might be of your concern, is the growing number of employees. Let me point out that the increased number of employees, it has 2 sources. The first fundamental source is the actual increase in the number of employees related to KYC and CDD. So in they are involved in regulatory activities to meet very strict standards. And during last few quarters, the number of full-time employees went up by 3 FTEs. And this is a significant growth, but we need all these people in order to meet all this European, American and national standards.

The second aspect is an element for internal decision. We can see a significant increase in terms of IT specialists. So we rerouted people who were outsourced and services, which were outsourced and which used to be disclosed as cost, and we tried to shift them to FTEs. So our full-time employees, that results from the market dynamics. And we think that move is indispensable. It doesn't mean that the bank doesn't choose other forms of cooperation, partnerships and mandate contract leasing agreements and so on and so forth, but we think that it is of high importance to build and strengthen a stable team of employees. This 300 FTEs increase, it is not reflected in costs. That, in combination with high increase that we planned, we have -- and we realized in -- of April 2020, and which we -- and we didn't give up on that. That gives the effect that you can observe.

Apart from KYC and so-called DCC (sic)[CDD] internalization, as we call it, the internalization of employees, IT specialists, we follow the same trend of global decline in employment, which is also disclosed in our financial statements. So it is evolutionary change consisting in the decreasing number of branches and consequential decreased number of employees.

The first quarter was another one, which was highly dynamic in terms of the number of transactions, cash transactions. So crediting and withdrawals rolls and through ATM and CDM transactions. So the first quarter of this year in combination with payments introduced, we can see another heavy impulse in the customers' behaviors who are not interested in these forms, which are not recommended at the time of pandemic.

I will not read all these tables and figures because I'm sure you can do it on your own. Our market share is clear to you. Our business development, it's quite clear and precise. Should you have any questions to me or to Bozena, we are here at your disposal and we'll be more than happy to respond to all of them.

Bozena, the floor is yours.

[Bozena Graczyk, executive]

So let me wrap up the results for the first quarter. In terms of our net profit, it is PLN 385 million. Net income went up by 39% year-on-year. It's great dynamics, it's plus 39% year-on-year. So we can see that it is due to lower reserve balance.

The cost of reserve went down by 50% year-on-year. As we can see, this is an impressive increase in net profit, but it -- we can see the negative impact of pandemic on the results. We can see it through the prism of our total income despite our commercial balance. We have -- still have to disclose a lower interest result year-on-year.

The cost of risk is much lower than we observed before in the year 2020. We are moderately optimistic in terms of the rest of this year. Of course, we have to remember that the first quarter is the time of the third lockdown. And we are still convinced that in terms of the cost of risk, we still have to be cautious and we take this cautionary approach. We are observing the dynamics of macroeconomic data. And thanks to that in Q1, the cost of risk is PLN 20 million of negative result due to macroeconomic change. This is a result of our adjustment of GDP forecast due to the third wave of pandemic and delay in the -- of the pace of vaccination.

When it comes to our ROE, we can see that our recovery of net profit this quarter allowed to go up by 44% in terms of our ROE. It's the level of 1.1. And we relate our ROE after the adjustment for revaluation reserve. We are approaching the magical amount of 10% of ROE, and we think this is a healthy response of our financial results to -- and a sign of efficiency of our operations.

Let me comment on what happened in our total income. You can see that this quarter, our total income went down by PLN 1 billion. It's a result of another shape of the profitability curve and steepening of it. Especially, it was dependent on our hedge and our revaluation reserve that went -- that decreased and that affected the total net income.

As for our interest income, we can still see the impact of the 3x decreasing interest rates. Our result has declined by 1% year-on-year despite the rising lending volumes, 6% year-on-year and deposits of 18% year-on-year. As regards 1% of decline of the quarterly interest income is -- this results from the short time of the quarter, 2 days fewer in quarter 1. And with our performance, this will be reflected, and it translates into those negative trends -- the negative trend. And we need to remind everyone about the pressure on profitability from investment portfolios as a result of the reduced interest rates and the lower profitability rates of new investments in treasury securities.

As for interest income, the loans declined by 0.6% quarter-to-quarter. This is quite explicable because the quarter was shorter by 2 days. As regards to the income on the investment portfolio, it has declined by 3% quarter-to-quarter. And then we are dealing with a smaller number of days per quarter. And as well as a declining profitability of the portfolio, you may remember that we have a maturity of high-margin securities coming up, and they are replaced by lower profitability securities.

As regards further results, we can see the outcome of all of the changes on the liability side, and the levels are somewhat higher. However, it is also a matter of a shorter quarter again. As a result of all of those changes, our interest margin has shrunk by 10 basis points, hitting 2.43%. And wrapping up, out of those 10 basis points, 6 basis points result from the short quarter and the remaining 3.5 to 4 result from a lower profitability of securities mostly.

At the end of the quarter 1, loan to depo rate amounted to 81.5%, slightly changing from 1 quarter to another. And a very short comment on our results in commissions. And this result has improved by 19% year-on-year, and we are very happy to see this improvement. When you see at the growth rates year-on-year, then each category of this income line has increased. And we have seen increases from 10% to almost 30% in categories such as bank accounts. And, in fact, when we look at the year-on-year dynamics, then we will see the highest increase in bank account fees, PLN 25 million year-on-year up. And there are some other categories that have, on average, grown by PLN 10 million year-on-year, mostly on the capital market. Mostly this is due to the thriving brokerage activities and also commissions on funding provided to clients, mostly corporate clients.

As regards the dynamics of quarterly -- quarter-to-quarter commissions, this has slightly shrunk by 1%. And of course, we are comparing this from the perspective of a one-off income increase -- income in quarter 4. Let me remind you that we had a one-off settlement of our card operations and a decline on our brokerage activities as a result of a breakdown that happened in December last year.

Let me mention a serious change that we introduced in quarter 1, it's a new functionality within our ICBS system, which allows us to settle customer transactions 24/7. And this functionality is fully online and it's unique on the market, we believe. And we also hope that this will be a serious facilitation for our customers and their transactions. And we hope that this will translate into higher activity and higher transactionality of our customers in all segments -- business segments.

As regards operating costs. This quarter, they totaled PLN 821 million, out of which PLN 180 million are regulatory costs. Our own costs that are influenced by the bank, that was PLN 641 million, and they have remained flat vis-à-vis quarter 4. They have gone up by 7% vis-à-vis the first quarter of last year. As Brunon has said before, as you can see by the growth rates, we have seen an increase in personnel costs. And as we said, this results from the pay rises last year as well as growing employment, so 5 -- 6 FTEs year-on-year.

As for the 6% decline of cost of operations and general management, we see this as a result of a number of elements. In 2020, we optimized our costs, and we continue this process. We also have the result of our savings of living and operating within the pandemic. And notably, as regards quarter-to-quarter changes, we also have varied dynamics resulting from different projects existing from 1 quarter to another, and this entails a changing dynamic of costs related to those projects rather, yes.

As for regulatory costs, you can see we're dealing with a 2% increase, in particular, 44% up. This is the Polish Financial Supervision Authority costs, and down by 2% BFG Cost Bank Guarantee Fund for deposits. As a result of this cost dynamic improvement, our C/I has resulted -- has totaled 45%. We believe this is still a satisfactory figure.

As for cost of risks, I think a few number of -- a few comments are due. In the first quarter, PLN 121 million. And as I mentioned before, this includes PLN 22 million of costs related to our macroeconomic assumptions, and we consistently adjust our macroeconomic projections quarter-to-quarter once in a quarter, and this follows the changes in the macroeconomy. And in this year, this has seen a negative result vis-à-vis the GDP forecast as a result of the third wave of the pandemic.

As for risk, after establishing serious results in quarter 4, we did not need to adjust for those reserves this year. As for cost of the risks in the corporate quarter, this has amounted to PLN 61 million, which is 3.4 basis points vis-à-vis the risk portfolio. And we believe that our loan portfolio in terms of risk is at a very good level, and despite the lockdown. You know that starting this year, some business people, our customers from special segments can use the moratoriums for loans and our clients have used moratoriums only for PLN 40 million.

Our cost of risk in the retail segment has stood at PLN 68 million. That's 47 basis points. And the cost of risk in this segment continues to be influenced by credit loan moratoriums, and we observed it to a different extent vis-à-vis previous quarters. And as a reminder, as for non-statutory moratoriums, they have almost disappeared from our balance sheet at the end of March. We accepted the last applications by the end of September. And by the end of March, they have all expired. And our customers continue to enjoy the statutory moratoriums. And we also observed a declining scale of applications in this regard.

So wrapping up and looking at the evolution of the cost of risks in quarter 1 and observing customer behavior, who are returning to repayments after the end of moratoriums and considering the lower -- considerably lower demand for PFR subsidies, we are moderately optimistic as regards to cost of risks this year, but we still need to observe the situation for the coming 2 or 3 quarters to be able to really give a full assessment of the impact of the pandemic and macroeconomic changes on the condition of our loan portfolio.

As for the quality of our loan portfolio is concerned, the share of loans qualified to Stage 3 has improved by 7 basis points, mostly at the expense of the corporate segment -- or the credit goes to the corporate segment. And this phenomenon should not really be surprising in our portfolio. And of course, as regards major corporations and major corporate clients, the quality of loan portfolio during the pandemic has improved. Those companies have been faring better during the pandemic.

As for the retail segment, I need to remind you that the impact on the Stage 3 loans has been under the influence of the government measures, and we still classify them to Stage 3. As for the coverage of Stage 2 and Stage 3 loans, then for the last 3 quarters, at least, we have seen an increase in the coverage of those 2 categories.

And finally, a short commentary about capital adequacy. Our total capital adequacy ratio has stood at almost 19%. It's 7.8 percentage points above the required level of 11%. And you can see from this slide how we have presented the total capital adequacy ratio in connection with the interpretations. And we have retroactively adjusted the indicators based on our annual data and also on the basis of the general shareholders meetings data. And you can see the preliminary reported data and adjusted data at the level. At the beginning of this year, it was 19.52%, and declined by 72 basis points this quarter. And this is connected with the substantial increase of the loan portfolio, in particular, the mortgage loan portfolio, which originally in -- until the collateral has been established have had higher weighing risks -- risk weights.

So this has been a summary of our developments in quarter 1, and we are ready to take your questions.

[Piotr Utrata, executive]

We have quite a few questions now, but we encourage our audience to ask further questions. Let me begin with a question about Brunon's commentary on the increasing number of customers.

What is the reason why customers have stopped putting money in ING Bank Slaski or transferring?

[Brunon Bartkiewicz, executive]

They have not stopped transferring money. Well, that would be really too far-fetched to say this. The point is that in order to define primary customers, we define them as customers who have regular wages and salaries flowing in. So more or less the same amount coming in within the same periods of time. And this is why I was talking about distorted or disrupted regularity because the odds are then -- in the first quarter, our many customers had problems getting the inflows that they were used to. But let me just say that in April, the situation has considerably improved, and that's why this was probably related to the shock of yet another lockdown wave.

[Piotr Utrata, executive]

Thank you. As regards the volumes of deposits, and in particular, with strategic customers, what is the reason of the strong year-on-year decline, 25% down in strategic customers' deposits. What's the main reason?

[Unknown Executive]

By and large, that situation is as follows. As you know, 1 year ago, we were living in a different world of the deposits and lending across the banking sector, and Poland was more or less balanced. And the loan debt ratio was more or less growing on the market. 1 year later, we are in a situation when we have low dynamics of lending -- lending growth. Well, we are a bit of an exception from the rule. And we have really serious increases of deposits in corporate customers' accounts and in wholesale banking as well. Accordingly, banks have taken decisions to introduce certain fees in that respect. And the vast majority of them, including ourselves, have also considered or introduced fees.

The results of this payment is that at the end of the quarter or at the end of the half of the year, these balances go down significantly. But it doesn't mean that during the month, they are not much higher. And in case of the largest strategic customers, that looks like that. So jumping to any conclusions based on the observations from the very end of month is not -- we can see some drop, of course, but this is result of these transactions, the average monthly balance is much higher than last year.

[Piotr Utrata, executive]

Thank you. Another question about net interest income. What is the reason behind the increase in the net interest income despite this shorter quarter?

[Unknown Executive]

Please take into account another element, which is an increase in our deposits, which went up by 5% quarter-on-quarter. What we observed in interest and the interest costs, that's the reason of that.

[Piotr Utrata, executive]

And then now on net commission income, why it is under seasonality? What's behind it?

[Unknown Executive]

This is due to the feature of the product. We can observe it always during the first quarter that depends on the scale of financing that due to its short-term nature, these are exposures year on up to 1 year. So this result gets accumulated in the first quarter.

[Piotr Utrata, executive]

Now a few questions with regard to the cost. Maybe let me start from the first one. What is the reason behind a seasonal change of IT cost? We could see a rebound in the first quarter? Please comment on the drop in it costs year-on-year.

[Unknown Executive]

As I mentioned before, on 1 hand, in 2020, we had to deal with the cost optimization and savings, which translated into the IT cost. On the other hand, as I've mentioned before, we have different dynamics of implementation of projects and costs. That's why we incur them in a different manner. So please do not perceive this IT cost through the prism of quarterly changes because they do not give the full image of the trend in the annual cost. They result from, on one hand, from the phenomenon and we could observe in 2020, some optimization of cost and savings. And on the other hand, a changing dynamic of implementation and realization of different projects affecting the cost.

[Piotr Utrata, executive]

And now 2 questions with regard to the personnel cost. First one, what is the scale of increase in remuneration for employees planned for 2021? Is it higher or lower than in the previous year?

[Unknown Executive]

The bank typically takes a decision about the increase in remuneration of employees. As of the 1st of April in 2021, the bank did not undertake such an activity. Of course, we can see some promotions, people coming and leaving, but we didn't plan the annual increase in remuneration. As we could see it last year in 2021, there was no reason for that because the remuneration of our bank's employees were in line with our policy in that respect.

[Piotr Utrata, executive]

And now a question about the precise number of FTEs. So the number of FTEs went up by 500 year-on-year. And how many KYC employees did you employ? How many IT specialists? And what was the decrease in other functions and divisions?

[Unknown Executive]

The total increase in the number of employees, it was 506. At the end of this quarter, we had 366 KYC employees. And the number of internalized employees in-sourced services, there are 243 employees year-on-year. Of course, another -- the next day after disclosing such information, the number will change. So let's concentrate on the range of the number, not on the precise numbers.

[Piotr Utrata, executive]

Do you plan any additional employment in regulatory area?

[Unknown Executive]

Yes. And -- but I will not disclose how many people we are going to employ.

[Piotr Utrata, executive]

And the last question with regard to cost. The target size of the distribution network, do you have any plans in terms of the target numbers of branches?

[Unknown Executive]

We don't know the ultimate number. Let me put it like this. A lot of your questions is a sign as if there were some one ideal model of distribution system. And it's not true. Of course, you think that there is -- it's like you thought that there is some target model of our distribution system. No, we adjust it to our current assumptions. So from the last -- for the last 11 years, you know the direction we are heading. You know our plans. If you take into account the dynamic change in the number of transactions and the form of functioning of the bank branches.

I'm not talking about bank offices, we're trying to -- not to use a word [Foreign Language] We try to replace it with meeting point. It's not -- no longer a brand. Bank branch, it's a meeting point. So the number of these branches, the dynamics of the numbers that confirms the trend that we follow. We've been talking about this for 10 years that it is within -- in line with our policy to reduce the number of servicing points. So these traditional branches, not the small points of service and commercial centers, we wanted to reduce the number from 450 to 300 until the end of 2020. And we will continue that process, but we don't know the target, the final number.

If I were to disclose a precise data, that would do more harm than good because this number change all the time. So please do not deliberate on the target number of branches because there is no such plan. We try to adapt our model to be as effective as possible. And the current model -- according to the current model and the current adequate number of the meeting point -- banking meeting point or points where you can perform some cash transactions, this is under constant evolutionary change, and this is a downward trend.

[Piotr Utrata, executive]

Thank you very much. Another question with respect -- with regard to cost. Contrary to other banks, the restructuring compulsory contribution is higher this year, year-on-year, than any other banks. What is the reason behind that?

[Unknown Executive]

Let me say like that. The construction of the total contribution and the total contribution for BFG looks like that, during last few years, the contribution of large banks is increasing significantly. The contribution and the share of the top 5, the largest contributors during the last 2 years went up. So between 2018 and today, it went up in total contribution from 56% to 68%, more or less. The share of next 5 largest banks is still at the level of the range of 23%. So that means that the top 10 banks contribute about 90%.

As you can see, these mechanisms have been rationalized, but they are dependent on the relative size of the bank and its market share. They include other aspects, evaluation aspects, which are promoted by -- which promotes the banks with the highest ratios of capital coverage and solvency.

The share of ING Bank Slaski, as at today, it has been increasing significantly. So consequently, our contribution to that fund is increasing as well. Today, it's slightly above 10%. So it is at the level of which we can feel. So you can ask why 2 or 3 years ago, our contribution was too low rather than asking why is it so high now. So this is -- that results from the construction of this contribution.

So let me point out, once again, this very significant aspect. If we are increasing, if we are optimizing our capital ratios, which are very high in Poland for many reasons. We do not have relatively highest level of solvency which is, if it's too high, it is also -- of liquidity, which if it's too high, it is also a sign of being ineffective. We're trying to be as effective as possible. So as we grow in the market, our contributions go up as well, but the largest banks pay 2/3 of this contribution. These are consequences of the concentration of the banking sector, and this trend will continue throughout the coming years. So it's not up to us that results from the construction of the total idea.

So the largest banks in Poland are still relatively small and require high requirements from medium banks, that causes trouble. So we are going down if somebody outperforms, it is forced to go down. So this is the mechanism of this contribution.

[Piotr Utrata, executive]

Thank you very much. Hopefully, that is clear now, and no 1 will ask additional questions. The cost of risk. We have some co questions for higher precision. What is the reason between higher cost of risk in corporate segment versus Q4? Does it stem from any standard adaptation of behavioral risk models?

[Unknown Executive]

I would put it like this. The cost that we disclose now in the corporate segment, including PLN 22 million of adjustment due to macroeconomic and GDP forecast, this is not a question about an increase, but the low level of the cost of risk. If you follow the average from 2019, the cost of risk was 61 bps and now it's 34 basis points after the adjustment by macroeconomic forecast. Let me remind you that in the corporate segment, we can observe some phenomenon, which are one-off. So some provisions that were released, that causes the dynamics that was visible in Q4 2020.

So we are dealing with some of -- some one-off phenomena resulting from some stage of free customers debts were repaid. And on the other hand, this is an effect of the -- of our standard model. We didn't introduce any amendments to this model. The cost of risk is at a lower level that we could observe in individual quarters of 2020. As you can remember, that was we could observe negative macroeconomic forecast affecting the cost of risk and how this -- so that's why we had PLN 22 million of negative impact.

[Piotr Utrata, executive]

And let us carry on the cost of risks and the quality of loan portfolio. What is the perception of the quality of loans that are returning from deferred repayments on moratoria, any changes in customer behavior here?

[Unknown Executive]

Our observations, much like in other banks, have been positive. We do not see any major deterioration in the portfolio resulting from a situation where the customers were under moratoriums of all kinds. And after completion of the moratoriums, they would be returning to regular repayments, most of them. So this portfolio has behaved very well considering the pandemic-related problems and something that could have been accepted and assumed in the context of macroeconomic performance.

I think we can really start talking about this, more or less. However, we did see double dips in other countries. So customers who were leaving the government aid programs, and then they would stumble. So we cannot really say that this is fully the case with us. This phenomenon, we're unlikely to see that. But in the meantime, we have had some signals from the global economy. So the question about the future behavior of those portfolios is more of a question of how, as an economy, we are going to recover the impetus post-COVID.

Well, and to be frank, nothing really bad has been happening in the economy here. Looking at the experience of other countries that have been more experienced in entering the post-pandemic phase, we can say that there are no major reasons for concern nowadays. We should rather expect a booming or higher economic performance in a few periods to come. So talking about this particular subject, I think there might be more concerns related to the inflation rate, which might be associated with this phase of natural rebound and recovery where -- as the economy recovers its impetus.

And it has never really been paralyzed, to be frank, because it was operating quite well, to be honest, during the pandemic. So we need to bear that in mind as well. So it's not the case where we have one economic phenomenon or one observation as such, individualized and taken out of the context. A single phenomenon does not really show any dangerous signals. So the customer involvement is really okay. We have not really seen any disruptions vis-à-vis the situation before the moratoriums.

[Piotr Utrata, executive]

Questions about Swiss francs and also cost of risks, what is the stage of the situation of the bank when it comes to settlements with customers, are you going to establish more provisions for this purpose?

[Brunon Bartkiewicz, executive]

Ladies and gentlemen, let me say the following. The current situation and the uncertainty of decisions in this regard, actually this stops customers from moving on to settlements because of the existing uncertainty. We have signed a few settlements with customers, and we had willingness declined from a few dozen customers. But for the time being, everybody has really been waiting, taking a wait and see approach until something has been finally resolved. And we would like to see the Swiss franc problem to be really solved sooner rather than later because this uncertainty has been dragging on, and it's really having an impact on the situation. So I think it's high time someone solved it.

And I think nobody perhaps wants to really make a final decision, I'm afraid. And this is really trying and taxing on us. For the time being, we have assumed that the head of the PFSA and his decision. We assume that this is a baseline variant, and we are relying on this. And the number of applications and court cases is not large enough to have change our approach in this perspective. So we haven't needed to adapt or adjust our provision in that respect, as Bozena said. And we will remain at this level up until the next stage comes. So our coverage with provisions is 35% at the moment. And we have the highest coverage ratio in the banking sector in -- with regard to the total exposure rather than the dispute, and we should really take this perspective.

And as we told you in quarter 4, those provisions were established assuming that the plan presented by the Head of PFSA is implemented. So as long as this plan is being implemented, we will not have any need to make major adjustments to our provisions, but we will, of course, respond by assessing the scale of risk of that portfolio. And if need be, we will introduce the necessary changes.

[Piotr Utrata, executive]

Another question from a different area. Could you please be so kind of comment on the potential dividend payments from profit and in 2020?

[Unknown Executive]

Well, I think I should really refer you to PFSA because the PFSA has actually adjudicated on that. And its communiqué actually covers -- how do I put it, a ban on paying out dividends and then talking about dividends by the first -- the end of the first half of this year. So Polish Financial Supervision Authority is quite likely to achieve another communiqué. You know the decision of our general meeting of shareholders. And to be honest, we are waiting for further instructions in this regard. And our bank today is not planning to convene the extraordinary shareholders meeting in the context of PFSA's decisions. But like I said, let us wait and see what the PFSA decision brings.

[Piotr Utrata, executive]

And a few more questions. I will read them one by one. With our P&L, so would your bank be interested in taking over retail assets that [indiscernible] is planning to sell?

[Unknown Executive]

The power of our bank lies in organic growth, and operation of a takeover of assets would need to make sense because the essence of our business is to be efficient, performing efficiently. And these are the 3 sentences, which I think, exhaust what I need to say about this.

[Piotr Utrata, executive]

Moving on to the next question. Quite tricky. Why haven't you made a transaction on your bonds, leveraging high prices as Bank [indiscernible] did in the first quarter?

[Unknown Executive]

Well, it's because our bank optimizes our plans in the medium- and long-term rather than short term. And this is why we're applying our hedging strategy targeted at long-term goals rather than short-term speculations that would bring short-term results. We do not have to optimize or demonstrate any major changes. I think 25 years ago, we agreed with investors that our bank is going to be a predictable bank and in the long run. A short-term profit actually means a negative impact in the long term. This is quite obvious.

[Piotr Utrata, executive]

And a request to -- could you please explain the major change in macro cash flow hedge in this quarter?

[Unknown Executive]

If you compare the curves, profitability curves, in 2020. And the change in the shape of this curve starting from quarter 1, and it really started changing quite a lot. And that means that the market is assuming that interest rates will grow. So in the situation, when we have macro cash flow hedge. And what is in the capitals, this is a variable lag from IRS transactions. This means that when this curve, this income curve changes the way it has, then we would have a negative impact to market value and in connection with the profitability curve. So the fair price.

And this is very much part of a discussion of how the market has been referring to decline in curve. And I think quite a few PhDs or even Masters' thesis could be written about the market projections that have been released in Poland in the course of the last few months. So why don't you compare the shapes of curves that were available 3 months ago, 6 months ago. And now when you have been considering narrowing of asset swaps in the first quarter, this will facilitate the answer to this question. That means why this mechanism has worked in this way -- or rather than in this particular way with us.

[Piotr Utrata, executive]

Now you have announced changes related to private banking customers in the first quarter. What -- how much -- how big part of your business is that?

[Unknown Executive]

We have never really made announcements in that regard. We have never shown those figures. So I feel somewhat apprehensive about having to discuss it right now. Perhaps we could, may be, agree on a presentation 3 months from now, so that everybody has access to these data. Would that be fine?

Yes. Okay. One more slide next quarter. And we will invite a guest. We have [Martin] or [Daniel], who could talk about that. This would be the most precise element.

[Piotr Utrata, executive]

So 3 more questions are left and if there are any other questions, please submit them right now.

ING Slaski is the only bank in Poland indicating an increase of compliance costs in such a transparent way. Is that part of ING policy and ING Group's policy?

[Unknown Executive]

Well, to some extent, it is, yes. Because our group, after our, so to speak, adventures with AML and compliance issues. We have been pursuing a major project for 5 years to be fully compliant with the existing legislation and the projected legislation. We're very much part of ING growth, and we also believe that investing in this particular field means that we locally adapt to the legislation, which maybe if it is not yet in force in Poland, it is going to be in force in Poland. And these are major items and banks in the west of Europe have been very expressive about that, and this is very much part of our organization.

[Piotr Utrata, executive]

Is ING planning to return quickly from remote working to on-site working? And have you already consumed the benefits of that?

[Unknown Executive]

Yes. It's a transition from home office or remote working to on-site working. Well, ladies and gentlemen, we are very much proponents of the hybrid model, and this has been our experience. We have always focused on our teams, teamwork and our teams within our organizations are networked. And consequently, what we have seen as a result of the pandemic is that it is possible to maintain a heavily networked organization with strong teams and strong points or hubs going hand-in-hand with remote work. So on site, vis-à-vis remote work is not clear cut black and white. And we are really very much in favor of continuing a hybrid model as we are getting ready for the post-pandemic situation. And subsequent elements of the post pandemic situation that have already been announced will be relying on hybrid work, and this is how we are going to operate.

So the distribution network has been operating without any major changes apart from those transformation changes. And we are going to be flexible with regard to access time and response time. We have practiced a number of variants in pilot studies. Our teams that tend to work online, they do not need to be directly working with customers face-to-face. We'll continue their mode of operation. The mode of operation are different. They vary on the nature of the job and so on and so forth.

If you want me to generalize, then, I would just say that we will rely on the hybrid system with the assumption that at least 2 days per week will be inside the office for every person and every team. So you're asking if we have already adapted to that. And I think the underlying question is, are we going to pay less rent for office rental owner? I'm not going to actually expect that because, again the essence of our organization has high-efficiency and performance rather than reducing short-term rental costs.

But I have to admit that we use the current time of the second and third wave on pandemic in order to reconstruct our offices in Katowice, and we're planning the same in Warsaw. So we do our best to prepare for hybrid work. But up to now, the organization is functioning depending on the level of threat for our health because health and security of our employees is the most important to us. So as we started in March last year, we didn't have -- we didn't stick to only one form of work. Some employees were working remotely, some from office and they adapted. And we are in the same situation now.

Do we expect any savings in rent? No, because together with new options, we assume that the bank will participate in creation of adequate working condition at home for each and every employee. But the bank, at the same time, it's some devices and equipment for hybrid work. This hybrid form of work needs adaptation of the firm organization processes, the software that we work with. And we are doing all that now. So savings in the surface, it's nothing compared to the total costs that are ahead of us. This is just the tip of the iceberg.

[Piotr Utrata, executive]

We had another question about corporate deposit portfolio. What share of this portfolio matures in the second quarter? How many corporate deposits, which we got last year mature now? Do we have any statistics?

[Unknown Executive]

Of course, because during second wave of PFR subsidies is underway. Of course, we had to prepare the infrastructure and software, and a lot of people are dealing with these topics, but we have new financial shields and new KRS conditions. So we didn't publish any special statements. I think it would be more rational to assume that because PFR shield funds were rooted in April, May and June, we can expect that we will see some change this year. But what will be the direction? We expect the return at the level of 57% for -- in 2 years, but I would feel more comfortable if we, for example, talk about 6 months after May when -- or 1 year after the peak payments from PFR from the last year. So May, June or July this year. So we will see how this money were rerouted. Of course, that concerns all markets. When it comes to PFR funds, our share allocated during first wave was 14% all in all. And in the second wave of PFR, it was about 13%. That was our share in total PFR funds being rooted within financial shields. So this is a nationwide problem, and we need some time to observe the trend.

And our share, this is of this range. Plus we should add the effect of redemptions that will concern part of these funds.

[Piotr Utrata, executive]

And the interest margin, can we assume that it will improve starting from the next quarter?

[Unknown Executive]

So we invite you kindly to the next conference. We would like to do everything for you, but it's impossible.

[Piotr Utrata, executive]

So that was the last question for today. Thank you very much for your presence and for all questions. Should you have any additional questions, we are available for you via e-mail or telephone. Thank you a lot. Goodbye.

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