ING Bank Slaski SA
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Good morning. Good morning, ladies and gentlemen to this Q2 and H1 2021 summary conference. Let me introduce the panelists. Brunon Bartkiewicz, CEO of ING Bank Slaski; Bozena Graczyk, Vice President of the Board, CFO; Daniel Szewieczek, Head of Savings and Investment; and Rafal Benecki, our Head Economist.
I will host the conference, Piotr Utrata, I am the Spokesman, and I will host this with Iza Rokicka, Head of Investor Relations.
Not to drag on, let's move to the content since there's a lot to be said. I -- let me hand over.
A lot to be said today indeed, and we'll do our best to leave some space for you to ask questions, because that's a key point. A brief introduction on my part, then Rafal on macroeconomics. That's something we usually do at the end of H1. Then private banking sector and issues related and that's something that will be tackled by Daniel. Thank you for being with us, Daniel. And then the details of financial results by Bozena.
So now let's -- let me not drag on and move to the content, the business model works. There is financial stability. The main assumptions are focus on quality of services towards clients and increase in client number.
Alongside that, we have an increase in transactions and client that is an increase in all kinds of functionalities being carried out by our clients. And that's related to their expectations of us, that's something we have to live up to, and we are managing to do that. We are living up to the expectations of a growing group of customers that we are bank services too.
This should translate, and that's something we're going to present to you -- that should translate into a stable, but not necessarily low increase in the basic elements of the balance sheet that should be balanced, because that's the strength of a bank's balance sheet. It should be balanced -- and P&L values.
So according to the assumptions of the model, we should have a stable increase in our income and costs. Let me draw your attention to that. That is a growing efficiency -- cost efficiency, that is continuous improvement, is an important element of our activities.
I hope that our presentation shows this rather strongly. And the main slide is Slide 7 in that area that we would like to show you. In the market in the last 10 years, a lot has happened. But I hope that this shows you very simply and clearly, that an increase that is comprised of so many elements and details is working.
An important factor, which is presented in Page 4 and 5 is that, in spite of the challenges that is the pandemic situation, zero interest rates, the bank levy, all these elements are external factors. But the model is operational. It works. Functionalities and services that we offer to our customers are quarter-over-quarter improved and getting ever better, and this is how we operate, and we are going to continue along these lines.
A lot of elements -- if there are further questions, and we are happy to answer them -- a lot of elements are being modified because there is an ESG revolution going on and a lot of functionalities working within that area are being modified. I think we are very well prepared for that process. But as of today, we are still missing some regulatory details. So this is something that we rather point towards and -- so that you are aware of our declarations and our policies in that respect.
Our CSR activity today called sustainability and governance-related elements, i.e., are presented clearly and in a very simple, understandable way, mainly in our annual reports. In any case, that's where we are ahead a bit. But still, we are happy to take your questions.
PNL 1 billion in net result, rather low-risk costs, that's related to last year, because that was rather high last year. And other elements are in a strong growth stage in a long term trend. So no surprises here. This growth dynamics is significant, and that's reflected, and a fact that's rather rarely taken up.
But let me draw your attention to this, nevertheless, that is a market -- the market share and its Slide 10. These are tables for -- aggregate tables. Please have a look at a stable growth in our market share, because this is how this model is supposed to work. This is not about huge leaps, this is not a race, this is about building a strong organization in terms of services.
And that area lets me once again stress that our efforts are geared towards building strong high-quality services and good reputation among our clients, clients who really vote with their transactions that they entrust us with and through recommending us to their relations, and this definitely works.
This is reflected in the numbers and in the trends that you can see in the presentations, and I think it's clear in the results for Q2, H1. I think you are much better at reading these numbers than I am, so let me not doubt our intelligence in that respect. I'm very happy with these results, and I'm sure that our employees can be proud of these results. These are very good results. And it's clear that the machine is operating efficiently, and our employees are enthusiastic, and they understand our goals.
That's all on my part. Let me now hand over to Rafal.
Good morning, ladies and gentlemen. Good morning. Thank you very much. Let me share macroeconomic forecast. So let me mention a few issues, although I don't have much time.
Let me start by saying that this year we started with a forecast for GDP growth and inflation growth over the consensus and this scenario has been realizing quite efficiently.
And we assumed that the economy is growing resilient to the impact of the pandemic, and we actually exited a recession in the first quarter, and that's thanks to a strong rebound in industry. And in the second quarter through the ban on -- that is removal -- scrapping of lockdowns. And data shows that now is services that are rebounding more quickly and commerce is rebounding a bit more slowly.
This year we are expecting 5.5% -- 5.4% GDP growth we increased our forecasts in May and we stick with it. We are of the opinion that the Delta variant is a risk, but not a significant. Only analyzed the case of the U.K. there is a low rate of hospitalization and low mortality, which means not so significant impact on the economy.
And the peak of the Delta variant was at a stage where when 50% of immunization, was the rate, which is the current situation in Poland actually. Now, so we assume that the impact of the new variant is going to be limited also in Poland. That's why we assume 5.4% increase in GDP this year.
For 2022, we expect a GDP growth at 5% or more percent. The economy is going to be led by a continued rebound of the economy and investment in consumption and growth in this consumption. We also see a fiscal impulse twofold one -- double one. So on the one hand, the European reconstruction fund investment and also the Polish Deal, which overlaps with European reconstruction fund, but there's also a fiscal element.
And we assume that there might be another social program due to the calendar, and that will be an additional impulse. This is why we're talking of this 5% in terms of growth. If we're talking about the structure of GDP, then I'd say that the main factor of the rebounding economy now is consumption, but also an investment is looking up.
In the next 2 years, we expect investment to be surprisingly positive. Data for Q2 has been rather positive, optimistic, and we are seeing an investment wake up -- waking up in companies, which is not yet reflected in a credit action.
But in terms of -- that's in terms of corporate issues, but that's not strong enough yet to contract inflation, but it's visible in the public area. We assume that investment will be growing, although rather slow -- more slowly than was assumed in the national program, that's in the public sector, one in the private sector, we -- it might be surprisingly optimistic.
We also assume that we see some movement, some activity and demand for loans. It's not very visible in the corporate area here, because there's a drop of 5%. But this structure might be better in terms of GDP structure than in the previous years. But remember that the last 6 years has been an inflation generating trend. So it's too late to reverse that inflation trend. So in terms of economic growth, we are optimistic. In terms of inflation, we assume 4.4% and next year 3.7%.
In terms of inflation, there is no post-recession drop as it usually happens. This is related to the long term anchoring of inflation in the Polish economy related to the GDP structure that I mentioned as well as transitory factors. We are dealing with an increase in regulated prices, a rebound in prices of raw materials and some disruption of supply chains, which is positive for inflation and the expectation of inflation in -- the inflation rates in enterprises.
So we assume that an inflation will stay with us for another couple of years. In 2021, as I said, we expect 4.4% on average and next year 3.7% of an average. It is expected to be lower next year, but this is nothing to rest assured, because CPI shows the lower pressure of raw materials. Still the inflation will stay high -- the pressure will stay high.
Not all inflation cost elements already clear, some of them will become clear in the second half of this year. Late this year and early next year demand elements will be late bear. And long term elements like the economic model of the last few years has been inflation generating and we see that there is a high expectation of inflation. So there is a cost pressure.
But companies are noticing this rebound in demand and they have this investment delay. So there is a tendency to translate these high costs into inflation and this is a visible trend. So in this high -- heightened inflation will stay with us for a number of years. We also draw your attention to the cost of labor.
Growth in remunerations will be higher than expected, and we add EUR 1.5 million in inflation remuneration migration. So our inflation forecasts have been higher than the Central Bank consensus for a long time. In terms of interest rates, the Central Bank is going towards increases. They're doing it a year-on-year back. But generally, they are declaring increases. This is visible in what the President says. They -- he started by saying that there were no increases expected, then started saying that they are envisioning some increases and 5% inflation. It stirred up some discussion in the council, and we expect a first increase in late 2021, which is higher, faster than the consensus, but we assume that the Central Bank is going towards that.
The Monetary Policy Council quoted a few assumptions, conditions necessary for increase of interest rates. And we assume these will be met. So this year the first condition is a low impact of COVID-19 on the economy. And as I said, the U.K. example shows that these impacts, these costs are rather limited.
Then secondly, let me draw your attention to the that the Central Banks in the region are saying that the inflation risk currently is higher than threats of impact of COVID on the economy. And with every next wave the impact of COVID on the economy is lower and that will be reflected in the rhetoric of the council i.e., I would say.
And thirdly, they want to see demand pressure in the economy before they increase the rates, and this is already see -- visible in our models and then they want to see an -- the inflation rate above the goal. And forecast of the national bank shows that's 2023, inflation rate stands at 3.5 and it does not a factor in certain elements. So we expect most of these conditions or all of these conditions to be met still this year, and that's when we expect an increase in interest rates. And moving an increase in January -- I'm sorry in December 2021. But still that's going to be lower than before the pandemic.
In Hungary we've seen 2 increases in rates in the Czech Republic one and actually, we are -- we see a following of the Hungarian model, but with a certain delay. They started saying that -- their Central Banks started saying that they are not afraid of higher inflation, and now they're saying that they are going to increase rates until inflation becomes stable. This is the situation in that region. The main Central Banks are also talking about ending QE and they're all already implementing scrapping of QE.
And as I said, we expect also a phasing in of increases of interest rates, but still they're going to be lower than before the [indiscernible] by the end of this year. Thank you.
Good morning, ladies and gentlemen. Now a few words about our private banking segment at our bank. But before, I will tackle the private banking issues. I will talk about total deposits made by retail customers.
I decided to share this information as our private banking is not a boutique private banking, targeting affluent customers bringing a lot of cash to manage them. They are growing together with us. The majority of our private banking customers, they started with a very small segments on their accounts and together with the professional and business activity, they were growing and expanding.
So let me present what is our customer base. We have about 4.5 million customers. We have -- the largest group is the retail segment, the mass segment. We have also the premium segment. These are customers who aspire to become as affluent in terms of the assets and in terms of their turnover and transactions made with the accounts to multiply their wealth, and we have the affluent customers -- segment of customers at our bank as well.
The threshold is from 1 million invested in investment facilities. So taking a closer look at the professional and financial path taken by our customers. We have to say that the base for calculation is always the deposits made of their accounts.
As I'm an expert in the segment, I'm very happy about money being deposited on our retail accounts. So just in the middle, you can see a graph, which is a very varied, but it shows an upward trend. These are deposits made in our accounts starting from June 2020 and ending in June 2021.
We can see some kicks. So this is the time when the remunerations are credited to our accounts. But the level of remuneration is higher and higher, we are very glad about this trend. If we were to analyze what is the base of these deposits, taking a look at our customers, which have at least 100,000, we can see these increases. They are visible on the left graph.
But taking a look at all customers with deposits over 10,000, we also can see an increase. So we can see that both segments are growing in terms of the value of the segments and the accounts made at our bank.
So that's great because it gives us -- gives them some room to take investment on financial decisions both in terms of loans and investment. And accumulating the financial cushions for the future.
So we also present a graph and statistic, which makes us really happy. This is -- these are the increases of balances on the accounts. You can see that this increase is significant that shows that the base is sufficient in order to make transactions and accumulate cash.
So the offer for affluent customers -- it is something which is floating and that assists our customer from the very beginning of their investment journey through this medium segments to premium and private banking. So when our customer uses private banking solutions, the offer in our case is not very extended.
We try to concentrate on 2 things transparent solutions and facilities, which with a moderate level of complexity that does not exceed standard level of complexity, both for people offering these solutions are general customers. So these products and facilities are, let's say, not very much fancy.
And the second rule to follow is that despite we talk affluent customer segment, our aim is to serve these people through remote and online channels. Of course, as we share with you, we have private banking centers, we have dedicated assistants and advisers, 90% of them are certified. And we encourage our customers, and we've build specific solutions for affluent customers available online and through remote channels.
People who dispose of large assets, they have quick access to their financials from every place in the world, and this is something which is at the heart of our attention. We tried to use the model, which serves our customers in a very boutique and private banking way. So that's all when it comes to our offer.
I would like to stress some things when it comes to the use of investment solutions by our customers. We can observe an increase in the number of customers using our investment solutions, which is supported by low interest rates. Of course, MiFID solutions and MiFID regulations has a lot of security mechanisms embedded in it, and this is principle that we try to follow.
Nevertheless if somebody would like to take a look at the statistics of the saturation with investment solutions in given customers' segments, you can see the difference in -- for example, the way people buy securities, buy private banking customers in comparison to mass segment when they are not very interested in securities.
And the total share of investment solutions is different from segment to segment -- 48% for mass segment to a total different number in private one -- to 19% in private segment. So we do our best not to increase the level of risk for our customers.
So this is the source of the specificity of our bank. That is why we share with you this objective picture of interest rates and return on investment in our stable financial investment instruments with high return on investment after 5 years.
o the pressure on risk investment is not embedded in our offer. We try to establish a long term stable relationships in terms of our investment facilities, education and responsible banking. We have such investment solutions, which are concentrated on high awareness of our customers. So as our customers could invest responsibly.
Digitalization, another important aspect. We have an adviser, he was not targeted, and he was not provided for the affluent customer, but it is very popular there and some popular saving goals -- a robot which was not investment -- which was not plan for the affluent customer. And investment goals, which are digitized as well.
The era of private banking with many people available on paper and excel files is over. Digitalization is there on the side of the assistants. So all tools are fully automated and available to the assistant, but as ING, we also tried to make up solutions and create solutions to support all customers including affluent customers. And robot advisers are supported by advisers, especially in private banking. As I've 90% of them are certified in the banking -- private banking segment. In that way we secure our customers.
So to wrap-up, our offer is relatively simple without any complexities fully digitalized. So as to support our customers also these who have over 1 million of assets with the support of assistants, for example, while creating an individual portfolio. They can meet in face to face, but primarily they can use it remotely. Thank you.
Good morning. So I will try briefly some of our financial results, taking a look at the structure of our results after this Q2 of 2021 and the dynamics of growth and the manner how we perceive the increase in volumes, I may say, which is also presented on our slides. that our strategy, as Brunon Bartkiewicz said before, is highly efficient, is working, and it's not short term, it's long term.
As you can see, both during the market disturbances as during the pandemic and because of the business cycles that we're fluctuating, we proved with our results that we record consequential growth, and we're very consistent, even in the event such as pandemic.
So from that perspective, our result -- our net interest income -- our net profit is at the level of PLN 650 million with net interest income -- with the net profit for the first half of the year at the level of PLN 1 million. That may seem impressive, but that is first and foremost proof and evidence that our strategy is efficient.
The dynamics of our financial results is due to lower provision balance because the cost of our provisions went down by 67% year-on-year. I will explain why, but it's also a solid -- a effect of a very solid total income, especially a very solid net commission income. And during the 6 months of this year, comparable to the underlying period last year.
I can see that in our results for the first quarter, they mirror better market and economic activity due to releasing of winter restrictions. We can see a rebound and the number of transactions made by our customers as well as high quality of the loan portfolio.
As a result of all these changes, we can see a dynamic rebound in our net income and higher ROE. Our report ROE went up by 64 percentage points year-on-year. And when it comes to the capital due to revaluation reserves, it is at the level of 13 point -- is at the level of 888 basis points.
We can see a positive dynamics, which is very -- which makes us really happy, especially in the 0 interest rate conditions. The dynamics of our net interest income, which are to higher corporate volumes. As you can see from our results loans went up by 11% year-on-year in this quarter, by 3% deposits, by 8% year-on-year and in this quarter by 3%.
Our net interest margin is at the level of 2.44% at the same level is staying flat. As during the last quarter, the cumulated interest margin is 2 48%. Of course, it went down for obvious reasons, and this drop was by 34 basis points. Having -- taking a look at LTD, during the last 2 quarters, it's improving at the end of June is 82.6%, so we went back to the levels from the end of 2020. We're still below the levels from last year, so from -- before the pandemic.
And now I think that it's a highly emotional element. So our fee and commission income, this income improved significantly by 33% year-on-year and the second quarter it reached -- after the first half of the year this is an increase by 26%, so I think that this is a strong growth.
When we take a look on the left part of this slide showing accumulative 6 months dynamics of fee and commission income, we can see that each category of this line is improving considerably year-on-year. If I were to characterize name the reasons behind the growth and individual aligns. In terms of fee and commission income I would have to concentrate on increases of commissions and fees related to FX transactions and cards.
Consequentially, with reference to what was said before, it is an effect of the number of transactions and activity of our customers. The transaction volumes are increasing and the transactions values as well.
In the context of Q2, this is an improvement by 32%, we can see a linear growth year-on-year. When it comes to the result of -- from cards, we increased the number of cards issued year-on-year and quarter-on-quarter. Year-on-year, it's an increase by 5%, so a solid growth here. And when it comes to the growth in the number of -- card transactions went up by 34% year-on-year. And the current quarter, we have recorded a great result due to sales of insurance, it's an increase by 15% quarter-on-quarter and as much as 24% year-on-year.
To the greatest extent, as you can remember from our previous conferences, these positions are growing along with expanding loan portfolio. But I would like to mention that in this quarter, we can see some positive contribution on payments due to our leasing activity.
And maybe let me stress here that our leasing portfolios in the financial -- in the total financial market, they are growing. In the first half of this year, the volumes went up by 36% and by 91% at our bank. And the sales of new contracts amounted to the record-breaking number of PLN 3 billion.
When it comes to the growth in terms of the payments for bank accounts, everything that happened already happened, and we have mentioned -- we mentioned that during the last conference as well, this is an effect of an increase of payments in the corporate segments and in the update of the fee and commission schedule.
It's worth mentioning here that we recorded a drop of payments related to securities market, it's by 10% quarter-on-quarter, less and 4% quarter-on-quarter it is related to the brokerage activity result and that stems from lower activity of our customers due to lower number of transactions on the stock exchange number.
This quarter, the cost amounted to PLN 622 million, of course, quarterly drop. It doesn't come as a surprise due to the seasonal burden. In the form of BFG and other bank levies, our costs went up by 4% this quarter-on-quarter. We owe to the increase in the total administrative costs.
It will not come as a surprise. Consequently, I will have to repeat it also in that category. On one hand, we are still investing, and that is why we carry out a lot of projects which generate costs. On the other hand, this cost position reflects the increase in inflation translating into an increase of different cost categories also this direct cost.
I think it's worth commenting the cost dynamics, especially quarter-on-quarter, when it comes to the personnel cost when they went up by 15% and what are the components of this increase? There are 2 of them, on one hand we have higher level of employment at the bank -- more FTEs and the number of employees went up by 600 people. That means 7% growth year-on-year. And let me remind you that these dynamics reflects also the effect of increase in remunerations, which were approved in April, 2021.
So to sum-up our operational efficiency, let me stress that the costs to income ratio is 47% it improved quarter-on-quarter and year-on-year. From the perspective of all 5 quarters, presented in our presentation it is the lowest cost to income ratio, which was recorded in that period.
And the next position of our profit and loss accounts was the cost of risk. We understand that we were positively surprised by the -- our cost of risk, of course, it amounted to PLN 90 million this quarter. Whereas once again it's evident our slide that this amount includes PLN 61.6 million of result provisions, which were -- which were due to the resolution of stage 3; PLN 51 million they come from their retail segment provision; and PLN 11 million from corporate segment.
This quarter, we reserved net provisions of the value for the macroeconomic provisions PLN 33 million. It's an effect, which is visible in the corporate segment mostly. When analyzing the structure of the cost of risk, you can see that the effect of improvement of the macroeconomic data is visible, we also see that.
But despite the fact the pace of resolution of macroeconomic provisions is much lower than the pace of raising provisions due to the macroeconomic data for the first quarter. Of course, it's very difficult to manage the credit risk having on mind all this sources of uncertainty. The previous business cycles showed that macroeconomic effects are visible -- are postponed in time.
Let me remind you that during last 6 quarters, so from when pandemic started, we have raised PLN 231 million of provisions for macroeconomic changes due to our managerial updates.
Let me comment the provisions for CHF loans. As you can see in the total 2021, we didn't raise any provision. We think that they are sufficient as they are and they reflect the actual situation. And condition of this portfolio, that's makes -- that but you can see that the value of this provision went down by PLN 16 million this quarter versus March 2021. We owe it to 2 differences and FX rates. Our provision is denominated in CHF. So it is prone to some fluctuations. So in result it is neutral from the perspective of our PLN -- NPL.
We think that the performance of our loan portfolio is satisfying, both when it comes to the quality of our loan portfolio, and the part, which ?- which was under moratorium and those were exempted from that. I can say that the quality of our portfolio as our bank, but also when observing, the results of the total sector our condition is better that we could expect at the same time a year before.
And I think that's effect of the quality of loan portfolio is higher than even the most conservative risk employees could expect and could assume, having on mind the market disturbances that we've observing for the last 18 months.
And a short comment about the portfolio quality. At this moment the share of non-performing portfolio and the total loan portfolio is 2.8%, we can see some improvement and the share of this portfolio by 39 basis points due to the finalization of the transactions of sales of Stage 3 portfolio. But even without the sales we can observe the improvement of this ratio.
On the other hand quarter-after-quarter, we are improving the provision coverage ratio in this stage. As you can see, net this ratio went down as a direct effect of the sales of non-performing portfolio.
And the last comment about the capital adequacy, our TCR is 18.8. It's 7.1 basis points above the market requirement, which is 11% for us. Judging the prism of dynamics, we can see the consumption of our capital ratios due to risk-weighted assets due to intense increase of loan portfolios as this consumption amounted to 52 basis points this quarter and this ratio went down by 72 basis points.
So from this perspective, we can see some solid capital position.
And in fact, let me wrap up here. So these were the financial results of ING Bank Slaski after the second quarter of 2021 and after the first half of the year, of course. And now let's have the Q&A session.
Right. Let's move to the questions then. We have already received a number of questions. Please ask more of these. Let me start with the mortgage loans and the sale, because that was mentioned in a number of questions.
In Q2 this year, there was a record -- Q2, rather, was a record in terms of sale of mortgages. And there's a slight drop quarter-to-quarter in your bank. Is your appetite going to change this quarter? While fixed rate sales have been dropping, why is that?
Well, indeed, this has been a record quarter, and no our policy has not changed indeed. Our share in sales is very significant. Fixed rate should not surprise anyone since as let's say, close to 0 rates or fixed element, there's a significant -- there's a difference between the percentage rates for fixed and changeable rate, which means that clients have a choice.
So when -- since there are periods where the fixed rate is -- seems more attractive or less attractive to clients and is the client's decision and choice. So the important thing is that we present the offer in a very clear, transparent way. So it doesn't mean anything that's the situation is as is and the share is lower.
Let me not evaluate this economy and economics wise because I'm not the client. The thing is that the client makes a decision and this should not raise eyebrows. This is not related to any changes in our policies or our tactics as a bank.
Continuing on loans, but in a wider perspective your macroeconomic forecasts are optimistic in terms of investment. How would that translate into loans volumes and the corporate segment this into next year?
Like you expect, we expect the market in investment loans to be good. But pay attention to the fact that a lot of the investment will have diverse sources of funding and functions of contractual functions, assistance functions, et cetera, but we expect an acceleration in corporate loans. We are rather optimistic also in terms of the formation, shaping of the markets in the retail segment. Outside investment.
Let me just add on top of that I looked at the details of investment -- of the investment segment and the data -- the optimistic data for the first quarter, there was an increase after a very deep drop. At this point, this rebound is varied. Currently, we can see a growth in investment and obvious investment like that is the segments that fared rather well during the pandemic like transportation, warehouses, retail -- rather real estate and other.
But this situation is not perfect in terms of exports industry that fared well. But the newest data from the economy shows that this investment awakening -- I think this is a good expression to picture this -- shows that the value is much lower than 10 years back, but the ratio is still rather high, higher than 2015.
We think that, as I said in the beginning, the private investment can be a good -- a positive surprise and investment could be slightly lower than officially planned. Because we looked at the recovery fund, we looked at the Polish deal, and we see that over -- there's a lot of overlap, that's number one.
And secondly, we are afraid that if the investment is geared towards more local authorities, local entities, might mean that the number of projects will be not as big as expected. I think we are in for a positive surprise and private investment. While and if we're talking about corporate loans we expect a dynamic at a level of 0 and next year we expect around 5%, which means an improvement, because currently it's dropping between -- through 4% and 5%.
So we are cautious about these forecasts. Last years have not been very good in terms of investment and but still there is data bringing about some cautious optimism rather in [indiscernible] may be more and leasing. But with the improvement of the economic situation are going to move in that direction.
I think that leasing is a very good first sign, and we hope that this is the element that -- shows that that's the direction the market is going to head towards. But of course, that overlaps with what Rafal said, that is we have these islands of growth. But we hope that these -- all these elements, these factors like public investment and many delayed private investments will finally be realized and we're going towards a more in a positive situation.
You forecast a growth in inflation and rates and at the same time, you keep the lowest market exposure to interest rates. So as a result, the bank might not profit from a hike in the interest rates. So how do you see that? Let me add a second question on top of that, and that is in the interest result in this context.
Well, first, the rates are not yet growing. They might grow. And the sensitivity data is not being published. And our policy in that respect is rather stable and cautious. And I'd say that the element of the expectations in terms of interest rates is shaping. At this point is being shaped only, and I would not demonize it. And I'd say that the situation is much more complex than it would -- than it might seem like, it seems to be reflected in the question.
In terms of forecasting, it seems probable, but still it's going to be a complex issue. Let me add on top of that, that indeed, in a situation when interest rates were dropping, our interest income and our margins were less sensitive than the banking sector average.
Indeed. We have been saying for a long time that we have a very advanced interest rate risk management strategy. We have a high rate of hedging. And with this assumption with hikes and interest rates, this sensitivity will also be different than the average in the banking sector.
Let me refer you to our annual report because, indeed, we are obliged to present the sensitivity there, but there's an important commentary to that, so that you understand how to read and to those values. In the annual report, we quoted the sensitivity at 125 basis points of hike PLN 490 million. But what's critical is to fully understand what -- how these values were calculated, because in our calculations, the hike by 125 basis points was not a shock. It was phased in along the year in a monthly system.
And in the first year, the -- this was in the first year of the increase. So this is the absolute minimum value showing the effect of these calculations with the assumptions that we made. So any impact of a full increase, annual one, depends on a change in the hedging strategy. And any other elements like the dynamics in the loans portfolio, and the pace and the number of hikes. So we are showing you the value from the annual report. But the actual sensitivities are much, much higher.
But without that perspective, let's wait for their publication and possible changes in interest rates because we are currently talking about certain sensitivities, but detached from the market reality. Let me stress that whenever you compare things, please pay attention to differences in the assumptions of the model scenarios, because the impact the results of the calculations very strongly. So comparing apples and oranges might not give you a reliable result absolute values between banks are really not very significant. I think that's what the CEO is trying to say.
Sticking with the interest income, can we note why the interest income from loans have increased so insignificantly, although there was a significant increase in volume between quarters and a longer quarter -- one day longer?
Well, I understand this question. Answering this, let me draw your attention to Slide 25 of our presentation where we show the interest costs and incomes and changes in the margins, both on the active and passive side. And let me refer to our hedging strategies, which are related to this, because our hedging relations, macro cash flow hedges both referred to both the passive and active side. So please do not look at profitability and income. Look at both sides of the balance. And please look at the net worth, which has been very stable in the last quarters.
Well, my understanding is that this refers to -- let me just comment by saying that calculating the assets of a bank are a much more complex than a simple calculation, addition and deduction. Because this presentation of Q2, H1 is a photo that we took at 6:00 in the morning of river that flows next to our house and based on that, we compare it to a photo taken 3 months back. So please look at this from the point of view of this river metaphor. Because it seems that you expect us to equip you with all kinds of tools that would give you the capacity to forecast our results. In practice that is unfortunately impossible. Please understand that. This is indeed why we do not give you our forecasts.
There are a few questions about the commission income, but I think this was addressed during what Bozena said. So let me move to administrative costs. The question is the following an increase in other administrative costs in Q2, what was the most significant impact?
I think I already answered that in this case, these are costs related to all kinds of projects and normal management of the bank with a growth of our scale of activity of operations.
There's also a question concerning the pressure on the remuneration -- the salary pressure, do you feel that?
Yes, definitely. And in some professional subgroups, there is a very strong pressure.
Also NPL sales, the question is, is such high sales from a high provision. Is that because of high provisions level or better prices? Why is that to result?
Well, I think it's difficult to answer this question very simply, because such a process is always a tender process. And as you know very well, we have a very cautious policy in terms of provisions raising. Please factor in that last year, there were no sales transactions due to the pandemic. So with the passing of time, stage 3 loans have an increased coverage with provisions. So this factor also has impacted our results in terms of sales of NPLs.
But taking into account the scale of the transaction, indeed, this result due -- in relation to the scale of the provisions. And this is how it impacted the risk element that is almost PLN 62 million. So compared to our regular activities, this quarter was a seasonal one due to the pandemic. But this is a result of a delay in time due to the pandemic making it impossible to carry out a routine classic operations in this period where we are used to do these things.
All right. Let's move on with the questions then. So a question about dividend. And the ING conferred, the right to dividend 100% of results for 2020. What is the technical possibility and probability of payout still this year. And the policy has been focusing on the balance sheet and not the maximization of dividends. How do you see that in the context of this year and the context also of the assumptions for the balance sheet?
Well, the surplus is as assumed, and it's in line with our growth, and you will be informed. In due time, we will tell you -- what, when and how. But at this point, we had to do this because that's a regulatory requirement. So please assume that as of today, we cannot inform you about what and when. The fact that the dividend for 2020 due to our -- the decisions of the authorities of the company will be paid out, we will see when.
CHF question, what is the approach of the bank to CHF programs? And do you want to partake the KNF proposed scheme rewarding for the proposals.
Yes, according to the resolution of the assembly, and we sent that. That deals with CHF loan takers on our scenario.
Are we happy with the TFI ownership structure in the context of the strategic options announced by the group?
Yes. We are happy with the structure. Indeed, the decision by NN, in terms of NNIP, is a decision of NN.
There is question to Daniel in the context of his presentation. So do private banking customers have an access to complex investment solutions or only to the simple ones.
We are concentrated on the simple product offer for 2 reasons. Firstly, as a distributor, we have to understand our products thoroughly. And secondly, our customer has to understand them as well. And we focus on the environment of the -- digital environment and mobile app where offering such solutions even to affluent customers. So complex structured products would be complicated. So we do not see any high demand from the side of our customers. That's why we are focused on sample products.
There was another question with regard to what the Rafal said, I think. From what you've said, it will resolve that investment in Poland will stem mostly from energy and fuel companies investment. How does it relate to your green objectives?
This is the reading for now reflected in the numbers mentioned by Rafal. So our optimism is not based on energy and fuel companies. But of course, public, state owned companies. Of course, they were also included. These are investments that will be carried out in this field, but our declarations in terms of financing of energy and fuel companies are quite obvious due to our declaration, as we've announced. By the year 2025, we will not finance any entity, which we deem as a coal-based company. This is a precise mention and information and definition of this coal-based entity, these is not limited to mines and power plants, which are coal-based.
So our policy has been established, and we started to announce it clearly. And it's widely known. It's something new that we announced this year is that also entities who are gas companies, we came to thinking that we will limit this portfolio versus the level from the end of 2019 by 2040. So that results from our understanding that gas is a natural transitional source of energy, which will be used in the total energy transition that we're facing and that Poland is to face.
So if there -- as we have mentioned in our policy, this is an element, we have stated what we want to do. But at the same time, we enumerated some specific endeavors, which are separated and which aim at creation of green energy, they will be strongly supported by our bank. This is why we declared PLN 4.5 billion portfolio for 2023 and a lot of supporting auxiliary activity.
So if you point -- I'd like to draw your attention to the energy transition of energy entities in Poland. And a lot of interesting solutions is ahead of us because we will function in totally new environment. Some companies that now are -- according to our qualification, our so-called coal and lignite-based entities, they will become green in the short term. Of course, this is the character, the nature of this financing.
So this is not any political declaration on our side. This is to declare what is our perception of our urge and our need to send direct message to economic entities, to let them know what is the direction for the future. For the competitors to let them know whether the changes they should align to. This signals where you made quite clear in 2015, we were perceived as loonies then. And now we know, and it became clear that we started to send messages to this network and that our idea now materialize. And it's even faster than we envisaged that in 2015.
So despite the fact that still, we have this -- we are guided by this idea to support our customers in taking right economic decisions, and we see that need. And I think that our message is clear, and it's measurable and it's adequate to the market conditions. So if somebody is to finance itself, but there stay to be coal and lignite based company. They are out of our scope.
Coming back to the question with regard to net interest income, do you feel some margin pressure and cash loans?
Yes. We can observe some movements and that's a perspective, but it's not -- we are not entering into any price war. Of course, there is some pressure from the side of the market and its inherent. And even good quality of a competitive market, we are not afraid of competitors because that would mean a weakening of the banking system. And I think there is no such a school like competition.
There was a specific question about our balance position. What is the reason behind this high balance due to deterred income tax -- deferred income tax?
It's a highly specific question I have to admit. But in the context of movements between tax settlements, tax clearance and deferred income tax. It's a natural flow, resulting from the front time zones and absolute values of accounting records and fiscal records, especially in this interim period, this difference is maybe lower or higher depending on the period. This is item in our balance, which is something natural that is self-calculating, in fact, and it has nothing to do with any specific events.
So I think we have the last question, a quarterly number of branches of ING is going down by a dozen quarter-on-quarter. What about the future of the network due to the expanding digitalization and growing number of mobile transactions?
The number of branches is going down for 10 years, and it's a stable decrease, and we are talking about it during every conference. So this downward trend is stable. It doesn't make any sense to speed up the process, because at the background of all these operations there are our customers who got a accustomed to certain things -- and our employees. So that is why we try to predict such movements ahead, not to risk a situation that would cause that our employees would end up without any alternative. So that is why we have to announce such steps ahead and be very careful.
I've already mentioned in the material element of our strategy is that, elements related to the optimization of scale and the cost producing element. This is not the whole element. It doesn't exhaust the topic. There are cooperators, partners, their partners, their interest. And we cannot do anything -- we cannot undertake any abrupt steps not to risk there is stress or uncertainty. That's why we are moving forward with stability and carefully, we'll leave some time for our employees to predict the future and to prepare for it. And we've been doing it for 10 years already, and we will following that direction. Of course, because of the total market changes.
But internally, we stopped using the name branch because branch, the name that we got accustomed to, it doesn't reflect the nature and functionality and the flow of processes which are carried out in these items. These are meeting points more. And I think that meeting point, that reflects the nature of this place.
And I think that exhaust the question. Due to the fact that we can see a growing number of electronic transactions, and let me add here, and we can observe a heavy decrease in the number of cash transactions, but the functionality of what used to be a branch became meeting points. So now we have just in the middle of a long term transformation, which is nothing -- no surprise. We've been -- that trend started about 10 years ago. It was visible what happened last year and at the beginning of this year. And we are adapting. We're evolutionary company rather than revolutionary one. So I don't want to make any abrupt steps.
Okay. So now the last question. Please make it precise, what are the expectations towards the interest rates in Poland?
Our forecast assume an increase by 15 basis points -- from 15 to 25 in November. And next 75 basis points in 2022. So 1.25 at the end of the year. This is our forecast. According to our market consensus this is slightly below that. These are forecasts, which are made by an independent group of macroeconomists at ING Bank Slaski Bank itself. It doesn't -- it doesn't confirm that. This is a prediction made by an independent unit. Yes, and I highly appreciate that. So please remember that this is not any hint for our customers what is the interest rates path for the future.
Of course. So that was the last question. Thank you very much for your presence for this conference, and let's see each other in 3 months. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]