ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2021-Q3

[Piotr Utrata, executive]

Hello, and welcome at the results conference dedicated to the Q3 results of 2021. Let me introduce the presenters today: Mr. Brunon Bartkiewicz, the CEO; and Bozena Graczyk, Deputy CEO and CFO; Iza Rokicka as well will be accompanying me in hosting and is responsible for Investor Relations.

Now I give the floor to Mr. Bartkiewicz.

[Brunon Bartkiewicz, executive]

Hello, and welcome, ladies and gentlemen. We are summing up the Q3 of 2021 in ING Bank Slaski. We do await a great number of very relevant questions from your side. We shall try and focus on answering them more than on reporting our results. That should be no surprise to you, so they do not require lots of comments on our part.

Ladies and gentlemen, Q3 has been a little bit uneven. And I'm sure since the Swiss franc question hasn't been really answered, the communication of financial results of the country and national economy has been rather unsure as well pricing, interest rates, construction development, pricing boom in housing development, these have been the questions of a lot of debate and evaluation, plus the area that we have been focusing on for quite some time now, 7 years to be precise, i.e., how strong economic growth, good financial standing can translate into investment in the private sector and the -- among the enterprises, so that they can provide a good basis for Polish competitiveness.

This also applies to the growth of investments in the areas that allow us to think ahead in medium and long term of economic development of our country.

The results of Q3 aren't really conclusive because we are noticing the first signals of increasing growth and investment processes. However, that investment growth is noticeable in -- well, important sectors, however, not in the sectors that provide for long-term competitiveness, i.e. transportation and warehouses and logistics in general. These are crucial, of course, and these are all the more crucial after the downfall of last year. However, they do reflect directly high consumption and high economic growth in general.

The declarations that we have heard, opinions of our clients that we have heard, clients that have commenced investment processes so far, give us the basis to think optimistically about the 2022 investment intentions. But the intensity of long-term investment processes isn't that much. In 2023, the future of private investments is unclear because the results show less of sensitivity or less of a propensity to invest. We do -- are seeing a delayed public investments. The results here are rather low.

Also, the entrepreneurs are pointing to some inflation -- on lack of clarity in inflation ambient to difficulties and the access to raw materials. We are on a better standing than Germany or Czech or Czechia. To be fair, where this dependency on the, for example, famous digital chips is more of a problem. We haven't been seeing this in Poland, but this lack of stability is noticeable in our economy. So we do are concerned with public investments slowing down because this could overlap with investment wave in 2022. However, we do hope that the investments will be growing stably in the near future.

As for our company, we do want to cooperate in long-term Polish economy support. We have improving our intentions in this matter for decades now. The relative stability and larger dynamics of financing and funding financial entities as a bank has been clear and across the board really. Therefore, we -- because we do finance investments, leasing, factoring all the actions that provide for better liquidity of financial growth, we want to be here. We do respond to all the questions raised regarding high dynamics, and we do want to ensure you that this is not about us taking up deeper risks. We see ourselves as distributors of social capital towards the more competitive branches of Polish economy that built its competitiveness in turn.

So we're not being -- we are being selective in terms of entities financed. We also, with full disclosure, declare which branches of national economy are not to be financed by our capital due to the enhanced risks or due to the climate risks that don't allow for assuming more risk in the long term. This practice and lending has been pretty correct so far, and our market share has been growing for a number of years, stably.

Next slide, if you please. I'd like to point your attention to the fact that the bank is -- prioritizes stability of growth and not one-off increases because these do not favor operational optimization. So we're not going to show any spikes here. However, we will continue the trends that are positive. Some -- a promise we made 25 years ago, and we keep by -- and we are keeping our word.

We see the growth in volume here. I will not read out the slide, of course. All the numbers are at your disposal.

The liquidity uptick from 2020 due to the economic programs nationally applied is clear. And year-on-year, the lending growth has been at PLN 18 billion deposits, PLN 10 billion, which means that we are putting to work these deposits in the most effective way. This inflation uptick is there. It's not at the level that we would prefer here at the optimal structure of our balance, but we do have time. We are not rushing ourselves in this case, and we shall manage.

As you can see on this slide, all asset production engines that we possess are working effectively. They're working in overdrive compared to the market, but I'm sure that this is a signal that the market will follow and that lending will apply the funding dynamics will apply to the entire market. We are seeing the positive trend in Q3 versus Q2 anyway already. So doing our job, earning money by providing -- by being trusted by our clients is eventually positive for the financial result. And we do -- and you do know these results. You can see them right in front of you. The net income -- the net profit increased 60% year-on-year. This is rather clear. Last year, this result was much worse due to risk costs and sudden reduction of interest rates. So the 60%, I think, is rather obvious. And of course, this is not going to replicate itself in the upcoming years. But I'm guessing, about 10% shall stay with us.

So that's about it for the resume and sum up of risks and profits and losses. And I hope that it's clear that we're implementing our strategy correctly. Now in terms of business goals, there's a lot of items to discuss. I'm not going to read them out. These are mostly internal matters. However, we live the issues that our banks -- our bank must live with. Q3 has been a calm, calm sea, so to speak, in terms of health of our employees. And in October, I must say we've had more infections among our employees than in the previous 3 months. So we are not stopping at building awareness, raising awareness among our clients and employees staying fully transparent in terms of our business model. We are indebted against our employees because we have been stalling a little in moving towards hybrid work models because the fourth wave was rather unclear and its rhythm was unclear.

But it is done at this point. So we can say that our employees are more -- have more clarity at this point regarding how our work is going to look until the end of this year. So we recommend reading Page #10 of our presentation.

Let me move on to Page 11. After quarter 3, this page must have drawn your attention. Interest rates are increases and also Swiss Bank indexed mortgage loans, and I will move on to that. And during the Q&A session, we might have a bit of a discussion on that. I expect questions about the sensitivity of this result to changes in interest rates. And I'd like to invite all the questions, and we are prepared.

As for Swiss francs, we have been doing that for 2 weeks. We are showing 262 as a number of contracts, and I know that you're interested in that. These are yesterday's data, and they -- and today, we have 286 as of today. This is a number of contracts as of today. It doesn't require too much of sophisticated calculation to know that we had an increase of 24 contracts from overnight. And this is the thing that we'd like to comment on.

PKO BP has much more experience than that. And as you know, we have been implementing a similar program with the same kind of patterns of communication and patterns of operations. And we will be very eager to see how this is being developed and how certain legal issues are going to be resolved and we do hope, of course, that this will accelerate that process of settlements. Because let me reiterate, it is high time this uncertainty were taken off the shoulders of the banking sector, and we promised to do that and make a contribution because the problem of Swiss franc indexed, loans has been building a lot of confusion among our customers in that regard. And I do hope that we should really be heading towards a solution of a firm kind of solution.

And let me reiterate again that we are happy to welcome questions, and let me hand over to Bozena. And Bozena, do remember that we're going to need time for questions.

[Bozena Graczyk, executive]

So hello, and a very good morning to you. Let me wrap up the financial results of our bank in Q3. As you saw from our reports, then net income has been PLN 689 million. And after 9 months, it's PLN 1.6 billion. That's 60% of increase year-on-year. And as Brunon has said, this is only slightly lower by under PLN 19 million versus the pre-pandemic year 2019. So this growth result has improved by 52% year-on-year. That's PLN 748 million. And within that, the income has increased by PLN 389 million, and there has been a decline by PLN 524 million.

You can see an economic rebound in our results, and this is reflected, in particular, in activity undertaken by our customers and higher transaction rates. And also, we have noticed an improvement in the quality of our loan portfolio, and all of the positive developments have been taking place in both the retail and corporate sectors, and the hikes in the financial results have translated in our improved ROE, which has improved by 1.2 points to 10.8%. And ROE adjusted by revaluation reserve has reached 24 -- 0.24.

And we can say a lot about interest income. It has improved by 5% this quarter, and this has already increased above PLN 1.24 billion, and a lot has improved.

And let me draw your attention to the increased and revived lending. In previous quarters, we saw significant increases in the retail sector. And in this most recent quarter, as Brunon has said, we have seen the lending stepping up in the corporate sector, and the lending balance has grown by PLN 3.5 billion quarter-to-quarter and PLN 6.5 billion new lendings since year beginning. And if we add to that PLN 3 billion up in lending portfolio in retail sector and as much as PLN 8.5 billion since year beginning, then we would know that the value of our lending portfolio has increased by PLN 15 billion since the beginning. This is the highest increase.

On the other hand, the deposit balance has not been growing as quickly because it's PLN 2.5 billion the quarter-to-quarter and PLN 13 billion this year. And these changes in the structure of the balance sheet have meant that the loan to depo has grown to 8.5%. And that means -- yes, we can hear some echo. And this is the highest loan-to-deposit ratio since quarter 3 2020, 85.8%. So this improvement in loan to depot has resulted to a global structure of balance sheet, and it has also improved the profitability of our assets growing by 8 basis points quarter-to-quarter and 2.8%.

On the liability side, as you can see, we have had a slight change of customers' assets. And with no change in interest rates, we have improved the structural financing costs, 2 basis points, 26 of basis points as value of financing costs. As a result of all of those changes, our quarterly margin has grown by 9 bps. This is 25.3%, almost flat, if we compare it on a year-to-year basis. And our accumulated margin is 22.48%.

And in the context of the changing interest rates that we saw after the 30th of September, this is the lowest level of margin that we recorded in this particular economic cycle. And I think this is a good moment to comment on our sensitivity, sensitivity of our interest income to changing interest rates.

And considering what has happened, we are not yet ready to comment on yesterday's announcements, but we are fully prepared to make a comment on the sensitivity of our interest income to changes in interest rates that happened in October. That was 40 bps to 0.5%. And since yesterday, we have known that this hasn't been the highest increase in interest rates this year. And what can I say? I don't think that we have taken you by surprise. Our estimates are very similar to those that we saw in public domain after the change in interest rates was announced.

And I must say that when we're providing you with information about the sensitivity of our interest income. We need to say that this is changeable over time, and it depends on a number of market factors such as the profitability curve on the situation in the business sector. And it also is a derivative of the multitude of interest rates over a section period of time.

So with our baseline assumptions that we adopted, our interest income over 12 months, starting from quarter 4 over the first 3 quarters of 2022, this will be PLN 140 million, PLN 180 million of growth vis-à-vis the situation without that interest rate increases. And we need to also say that these estimates are not quite comparable across banks. And we know that different banks adopt different guidelines and assumptions.

As regards yesterday's decision adopted by the Monetary Policy Council, as I said earlier, it is too early for us to give you a responsible calculation. I think we need a bit more time to think it over in terms of the impact on -- of the changing profitability curve. And also the impact of these changes in interest rates and maybe potential other changes and how it may impact the business situation and also overall situation in the banking sector.

If I may move on to the fee and commission income. We have positive changes there. In quarter 3, the fee and commission income has grown by another 6% since the last quarter, and all the positive changes in this category of our profit and loss account have led to a 1.25% of growth year-on-year. And as you have noticed in today's comments, what deserves particular attention is the growth of the FX performance. So the value of foreign exchange transactions has grown by 33% year-on-year and as much as 11% quarter-on-quarter. And this is a result of the activity of our customers, particularly our corporate clients.

And other very strongly contributing factor in fee and commission income is the commission on accounts. And we are dealing with a number of phenomenon. So we have the growing value of funds deposited, we have a growing number of bank accounts as such. And also this year, we saw certain revisions in the fees in our table of fees and rates.

Let me draw your further attention to the commissions on financing, and Brunon has drawn on attention to that before. So factoring commissions also draw attention, they are derivative of our increasing market share in this product. And also, we are very satisfied to see the growing number of transactions and the number of credit cards issued, which translates into a positive growth in this item.

And very briefly, a few words of comment about our costs. These costs have amounted to PLN 694 million, and they have been flat quarter-to-quarter. If we look at the cost of dynamics, this has grown by 6%. And you see that on Slide 16, this has been a result of labor costs resulted to higher employment growing by 476 FTEs over the year and also this results from higher salaries. As a result, the cost to revenue income is 41.5%, and this has been an improvement, both quarterly and annually.

As for the write-offs to cost of risk, this has been PLN 18.4 million this quarter, and the quarterly risk margin, 23 basis points. And as you see that in our presentation, we also included 16.5 recognized provisions for the macroeconomic situation in the corporate sector. That's PLN 11 million and PLN 5 million of in the retail sector, the release provisions.

And as we said during the last quarter, there has been an improvement of macroeconomic data that impact the credit risk parameters. And as you can see in our release provisions we see that the rate -- the growth rate is lower versus the one that we saw when we were creating these provisions because of the pandemic situation.

And maybe let me just add that towards the end of Q3, we have PLN 214 million of provisions in terms of changes of macro scale also related the changes in management that we introduced.

And a few comments about our risk related to Swiss franc mortgage loans.

PLN 37 million is our reserve for the -- PLN 314 million for Q3, and that's the reserve compared to PLN 289 million in the previous quarter for the legal expenses. This change is due to the foreign exchange modification. As I explained last quarter, due to the reserves created and we parallel move the portfolio within this common result.

As Brunon has already mentioned, currently, we are revisiting and reanalyzing the assumptions made a year ago, while we are creating the main reserves for the Swiss franc action risk. So our decisions to enter a mass settlement program provide for -- or force us to tread cautiously in estimating the reserves, so that we cautiously assume they could increase in Q4.

In terms of portfolio -- loan portfolio quality, the Stage 3 loans are decreasing. 14 basis points is the value. This is due to the betterment of this index due to the increased activity of this loan portfolio as such.

I would like to also mention that in Q2, we have -- we sold some irregular loans and a number of reserve coverage in Stage 3 increases due to this and the entire portfolio, that's PLN 62.7 million by the end of September. This is the highest reserve coverage that it's been for the last 7 years. So we feel very safe from the standpoint.

In terms of capital adequacy. By September 30, it's 17.26 percentage points above the required level. In total capital ratio by 87 basis points, it has decreased in this quarter due to the lending. Now if we're discussing the capital ratio, on 20 November, we will have the Shareholders' Meeting, General Meeting, and we shall discuss the dividends for 2020.

PLN 663.5 million will be initially earmarked for dividend payment. 5.10% gross per share.

I think that would -- that closes our presentation, and we are open for your questions now.

[Piotr Utrata, executive]

Thank you very much indeed. We do have questions, and 2 topics predominate Swiss franc settlements and interest rates. So let's start with interest rates then.

Could you please be more precise whether this sensitivity to October increased by 40 basis points, that will have -- whether this will have repercussions on the net result?

And also some other sensitivity-related questions have appeared. So maybe we can count on some brief comment there on what Bozena has mentioned during her presentation. What's the rate of repricing of our assets and liabilities regarding the interest rates? What's the main driver in the change of interest in open bank accounts offered by ING and in terms of the interest income? I think that's about it.

[Brunon Bartkiewicz, executive]

Ladies and gentlemen, I assume that the mechanisms are rather well known, but if you want us to go back to basics, then we have viable interest rate loan. We've got the rate adjusted in function of the interest rates being modified. Let me tell you as well that our bank usually uses the fixed interest, both in mortgages and in cash loans. So our activity is rather swift, but we do not disclose this information.

As for the repricing of loans or liabilities, it depends on whether a bank, our bank, in this case, has deposits that are either of core character or fixed-term deposits. We really do not possess any fixed-term deposits. Most of these are core deposits. So we are entitled to their change depending on the market situation. This is what we offer our clients. Since the deposit base is constructed this way, we need to abide by information obligations here. This requires us to act with a certain delay, both in terms of increasing and decreasing interest rates because that's how -- that's what the law mandates us in terms of delaying such actions.

In terms of the grade of changes or magnitude. Well, this is all usually impacted by the market situation. And in this market situation, we are a bank that protects the interest of its clients. So we do what's beneficial for our clients. It's hard for me to tell, and nobody will able to tell how the rate of adjustment of interest rates in the given bank is comparable to other banks. We react in unison, so to speak. We do have our scenarios. We do have our basis forms of action, but they all depend on what's going on in the market, both in terms of volumes and our competitors' reactions.

This is a response that you'll get from any other bank. It's no secret that the rate of interest rate adjustment is another topic. Last month, my answer would have been different. We had no idea how these would turn out. November is upon us, then it comes December, very special months. We have our plans for reaction. 40 basis points adjustment is pretty much different than the 120 basis points different, and this is for every bank, an important matter.

As Bozena said, for 40 basis points reaction, a 30 basis points adjustment has -- requires a different reaction, a 120 basis points reaction. So what Bozena has said, for 40 basis points adjustment, we've got different calculations then simple -- then a simple multiplication.

We're not precluding, we're actually preparing for a scenario based on the Monetary Policy Council decisions. Well, we're not saying it's impossible that the interest rates will be adjusted again in December. And yet for core deposits, we need to act with a mandatory delay. That's the fullest answer that I can possibly give you, and I'm fully aware that it doesn't allow you to make comprehensive calculation as it is impossible for us as well.

[Piotr Utrata, executive]

We've got another question on the interest rates and the curve of profitability change. So the sensitivity of regulatory capital to possible changes.

[Brunon Bartkiewicz, executive]

Well, it's not linear. We would must say that first. It depends on how the curve fluctuates as it's further end and how the maturity and assets and synthetic instruments react. Our macro cash hedge appraisal does have impact, but only on our reported capital. So it does have an impact on ROE, but it's rather neutral from the standpoint of own capital and TCR index.

As for the securities portfolio that is appraised with OCI, it is impacted by the quality of capital and own capital. So this nonlinearity of interest changes has an impact on both reported and regulatory capital. What I do can tell you is that given the changes in October and in November, well, from this perspective, our reported ROE will improve. This is due to the macro cash flow hedge and derivatives appraisals being different now, and TCR will decrease, I assume.

Here, let me tell you that yesterday's decision of the Monetary Policy Council has made that farther end of the curve has switched from 2.3% to 2.8%, which does have an impact on appraisals. And at this point, I think this is the fullest comment that I can give on sensitivity.

Yes. Let us take a look at the curves. The market is discounting now is -- take full advantage of the increased interest rates and anticipating 2.5% to 3% interest rates. Once these 2 increases have happened, the market usually anticipates further increases. So we're sort of chasing the rabbit, now as a market. And it's interesting to see how these interest matters are unfolding.

I think the 2021, 2022 period is going to show us a lot of interesting situations.

[Piotr Utrata, executive]

I'm sorry that was Siri being smarter than I am. Okay. Let us move on to the Swiss franc loans settlements. We've got questions on how many active CHF loans are there.

[Brunon Bartkiewicz, executive]

4,100, if I'm not mistaken, active agreements, if I'm not mistaken.

[Piotr Utrata, executive]

4,500, that much? I thought it was 4,100.

[Brunon Bartkiewicz, executive]

4100 active Swiss franc loan agreements. And 2,886 applications made until today morning. I'm sorry, I can't divide in memory.

[Piotr Utrata, executive]

Now we got a question for lending. Q3, is the Q3 increase seen as sustainable? And are we seeing a slowing -- a demand slowing?

[Brunon Bartkiewicz, executive]

It's not fully sustainable. It's not going all into green energy, but I'm assuming that's not what the question was about. We're not fully aware because most of the lending decisions regarding economic entities and a these decisions are made by the clients well in advance. And during our uncertain periods, these are suspended, sort of thing. And it's not like they're -- the clients do make lending decisions swiftly during certain times and uncertain times, they delay. This applies to economic entities as well as well as for individuals.

So apart from this usual turnover component that's starting to look pretty well, which shows that our clients are developing well, it also points to the fact that mainly the medium-sized enterprises have lots of capital to finance investments from the money amassed. And we're taking a look at the statistics of investments and investment lending. This is not the same thing. We're counting on an economic growth period to appear that would contribute to some normalcy in turnover action, working capital, leasing loans, these are all turnover instruments. So we're counting on this new investment wave to come. We've been waiting for it for the last 7 years. We have been declaring that it wasn't -- that it was going to be -- it had to be -- it had to improve. And this is something for the future to arrive.

We have -- we can't really foresee the future from this standpoint. Today, I can tell you what's going to happen in Q4, but not in Q3. I can tell you everything. There's a lot of components here, but we judge on the basis of what we've said before that the year 2022, both in individuals, among individuals and enterprises will be strong due to investment loans offered to economic entities that's already been declared.

And we do hope that the burden of this process of semi-finished goods containers from China resources and so, we do hope that this won't impact the growth very much, and we do hope that the stagnation that we have seen in, for instance, German economy will not spread over to other countries, and we do hope that our business will be going smoothly. And do note and please read our comment on that, we would love to see strong investment activity in elements that still our competitiveness.

For instance, in areas which promote export, something that should be happening. But we remain very optimistic when it comes to increasing lending for businesses in 2022. And we are somewhat dubious about 2023. And a lot depends on whether or not the delays in public investments are going to persist or whether public investments will go back to their regular level. And you probably know more than I do, why certain investments -- public investments have been delayed vis-à-vis our predictions that we made 1 year ago or 1.5 years ago.

[Piotr Utrata, executive]

Let us remain within the area of lending and loans. We have questions about mortgage loans with fixed interest rate, so Page 24 of our presentation. And the question is, have we noticed any growing interest in mortgage loans with fixed interest rates? And how big is our portfolio?

[Bozena Graczyk, executive]

Well, yes, let me take this question. You can see it very well that interest in this quarter, 5% of our sales were fixed interest rate loans. That was less than in second quarter when there was 7%. And I don't want to go back to history, where even half of our quarterly sales was related to fixed interest rates. Our portfolio of mortgages with fixed interest rates is PLN 8.3 billion at the moment.

[Piotr Utrata, executive]

Are these loans that have been extended since the start? Yes. So that's portfolio. As for volume on the bond, that's PLN 7 billion at the end of September. I'm ready for this question.

[Brunon Bartkiewicz, executive]

Yes, ladies and gentlemen, the situation is quite straightforward. Let me put it this way, we would very much like to see education or understanding awareness to be very widespread. But when it comes to paying, well, home is important, but a loan is not so important to customers would pay attention to the size of installments and predictability of installments.

And if the curve deviates very much from today's interest rate, so to speak, then what happens is that the indicator that relates to the loan installment with fixed rate interest rates, this seems much more expensive versus the floating interest rates and then the customers would opt for the latter. And then when we calculate the price values for fixed and floating interest rates at a bank which has the largest share of fixed rate interest rates.

So then we see a situation when last year, we had almost 50%, and the curve looked very much. In 2019, we had 56%. At some quarter, there was a moment. And today, it has dropped to 5%, as this chasing the rabbit game has stabilized and especially when we chased the loans and the longest tails.

For the last 2 years, we saw a situation when we have the monetary policy council shifting interest rates and the long tail would shift even further than interest rates. The situation would be that customer perception would be as follows: that the installment would look less attractive. So if interest rate increases will not make this curve very steep, this is another very nice Polish word derived from English. So anyway, if this curve becomes more steep, then we will go back to patterns, and the size of installments will begin to grow.

And it is quite obvious that all of us would like to see a situation where before the changes, all of the customers would take all of the fixed rate loans, and that would go towards 150 bps in the quarter. This would be quite sharp.

But let us leave some elements to the market because if we fiddle too much with the models, then we're going to hurt ourselves in this pattern. So it's mostly about the narrative. So let the market respond. And as the situation comes down, this will take some time. We're going to fight with high inflation for quarters and years. And then eventually, we will get back to fixed interest rates. But as of today, we can expect the share to be rapidly changing.

[Piotr Utrata, executive]

Now let us move on to topics around cost of risk. As for Q3, what has had the greatest impact on the changing macroeconomic models when it comes to risk?

[Brunon Bartkiewicz, executive]

If you look at where the impact is and where it's highest, it's highest in the corporate segment. And undoubtedly, the major impact factor that has influenced the situation where the GDP grows. And this is not a change of models, Incidentally, it's a change of parameters.

And wrapping up, I could say that the change in GDP rate was actually the major factor that led us to resolve and release the macro reserves this year.

[Piotr Utrata, executive]

Cost of risk further, there is a question about interest rate hikes and inflation and growing energy prices. Considering these, do we expect this to influence our cost of risk in the next quarter?

[Brunon Bartkiewicz, executive]

But there will probably be some impact. And we have done a study of the last 2 years. And we know that it is not very significant. If we talk about the cost of energy, so the cost of energy in the cost structure, for most of our customers, this is not a major share. So even very steep hikes of energy costs that we have observed, well, and with 2% of share and even if it grows by 50%, then this share would grow to 3% with other things being equal. So this is not a murderous sort of impact, so to speak.

Our involvement in energy-intensive elements is rather low. So this element would not impact the quality of our customer portfolio. However, let me draw your attention to the background of this pattern, and I have been trying to highlight that for some time. So price -- energy price increases are a compound of many elements.

When we think about those climate-oriented changes that have been happening in the background, these climate-oriented changes will impact our businesses in terms of costs and profit and loss accounts because this will impact energy costs and also investments in prosumer green energy and cost of packaging replacements and the cost of waste management and so on and so forth.

And do notice that there is another element that we might be underestimating that means the growing wave of pressures that might eliminate suppliers that are the so-called brand suppliers. So if we are worried about certain data readings and the cost of energy, electricity is a visible element in our profit and loss counter part. In real life, there might be a much stronger factor. That will be the response from business partners and the mutual reactions between business partners.

[Piotr Utrata, executive]

Let us have another question about inflation and operational costs. Do we see any risks in terms of inflationary pressure and payroll pressure in our situation?

[Brunon Bartkiewicz, executive]

Yes, of course, we do with this kind of inflation and with this kind of payroll inflation. Well, let's be open about it. There isn't a single entity on the market that wouldn't feel that pressure. So we are one of them, and we, of course, feel it. And it's not about wages and salaries increases, but also the increases in overheads, and we can see that in the cost dynamics over the 9 months of this year.

The operating costs and overheads are going to grow as a result of inflation at ING, following changes in services and changes in wages and salaries. We're talking about pressures, mood sentiments, tendencies. But this will not transform into realities very often. If we have a payroll inflation at the rate of 9% to 10% among the largest businesses, this doesn't mean that we will see an immediate impact here. But these pressures do exist, and we need to respond accordingly with our management actions. Well, yes, this is quite obvious.

Do note that it is fairly easy to increase prices today. The demand is strong, and there have been some upheavals with supply, maybe not very radical, but this has been noticeable. And we have a situation where limitations in the supplying network have -- are relatively easily transferable to prices and consumer markets. This is where we are as a consumer. So regretfully, what we have seen is that the situation has been in full swing, and the situation is happening.

[Piotr Utrata, executive]

We have another question to fine-tune your statement about the increase in lending and loans in the future. Higher interest rates, do they lead to higher down payments in loans or not? And is that going to be a factor that will drive the growth of lending volume in the future.

[Brunon Bartkiewicz, executive]

At the moment, we can't see any radical changes in the earlier repayments of loans, and we analyze this on a periodical basis. And at this point of the cycle, we haven't seen any changes in this regard.

Let me put it this way, ladies and gentlemen, with this level of increase in interest rates, I wouldn't expect too much impact on the quality of our portfolio or on the growth of our portfolio or on any action that might transpose or change our financing profile. I would be more concerned about some other components such as inflation rather the interest rates alone. This might put some businesses off taking investment decisions. But once the decisions have been made, and there are some cases in progress, I can't really see too much change, and I cannot find a logical explanation why this might happen.

If somebody decides to build a house or buy a flat, then an impact of 1 percentage point will be negligible, unless they are buying their emptiest flat for rent. But this will not shake the market. What will shake the market will be the number of consents for land development companies, and this is a barrier which is much stronger.

[Piotr Utrata, executive]

And one more question to fine-tune the settlements. This is Slide 10 of our presentation. Are we proactive with settlement arrangements vis-à-vis all customers, including those that were litigating against? And what is the situation like?

[Brunon Bartkiewicz, executive]

Well, our offer is targeted at -- well, we are not proactively approaching those customers because those customers have already decided to go for another form of settlement. So I'd like to say that these are active borrowers. That means that they haven't repaid our loans and they're not litigating against us. So that's it. We do understand the relevance of this topic and that we need to tread lightly -- softly here, but that's our position.

[Piotr Utrata, executive]

Now regarding our capital position and the buffer and the dividend. 600 basis points do not seem relevant compared to other Eurozone banks or CEE banks, do you consider -- are you considering actively higher dividend?

[Brunon Bartkiewicz, executive]

Bozena has already commented on that. We're speeding up our actions on the 2020 dividend payment in an extraordinary way, may I add because via the extraordinary meeting of shareholders. However, we are still bound by the Financial Control Authority directive here. However, for 2021 dividend, because we're still operating on the 2019 levels, we're still waiting for the financial control commissions guidelines, which will be decisive. Therefore, we're waiting for the information on the regulatory buffers here.

Now in terms of the capitalization of Polish market being too much. Yes, that's true. That's true at this moment in time. We're waiting for the financial authority guidelines. We're going to adjust our dividend policy to our strategic goals as well, and this has been always our policy.

[Piotr Utrata, executive]

We're running out of questions. However, I do have one more. Whether in 2022 in the context of increasing interest rates and inflation, we can count on positive cost income bracket being still positive?

[Brunon Bartkiewicz, executive]

Let me answer in this way, I'm the person policing my own policy declarations and not making comments on this matter. The positive bracket, the positive range here is for us to -- is mandatory for every Board that's serious about its job.

[Piotr Utrata, executive]

This is where we've run out of questions. Thank you very much, and we can invite you to the beginning of February's next result commission on Q4. Thank you so much.