ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen, at the results conference for -- bank's results -- preliminary results for fourth quarter 2018 and for entire 2018.

We have Mr. President, Brunon Bartkiewicz with us; Mrs. Vice President, CFO, Bozena Graczyk; Vice President in Charge of Risk, CRO, Patrick Roesink; and Chief Economist of the Bank, Rafal Benecki. And we also have Jolanta Alvarado Rodriguez, the Chief Accountant of the Bank; and Piotr Utrata, the spokesperson.

So we may start. Mr. President, please take the floor.

[Brunon Bartkiewicz, executive]

The microphone, please. Sorry, but I cannot hear without the microphone. I'm very sorry but I cannot hear the speaker because the microphone is switched off. Yes, let's wait a few seconds because some gentlemen are still arriving.

Hello. Yes. Welcome. So I will say it like that. 2018, which we are wrapping up with the fourth quarter of this year presenting unaudited results. It was a year -- a good year for us and of quite significant or intensive growth, to say like that. And this growth primarily is based on continuing the growth of acquired clients and, say, transactional volumes so there's a stable strategy accomplishment or delivery, as I emphasize from time to time, which we specified like exactly 15 years ago. So this is effective delivery and along with a stable growth in the number of clients. As a matter of fact, across all segments and sub-segments, as defined by us, combined with higher activity per client because the active client becomes even more active, following the new trends because they are [ wealthier ], they are not aware.

So this translates into faster and faster growth in nominal terms of the primary values and also percentage values. And it should evolve as it's planned. So this style, which we have -- and we can observe it now. As a result -- what is a crucial element it is that 2018 did not see any bigger distortions in lending. So lending proved powerful. It's a record year in terms of lending growth. Our bank, in nominal terms, it has grown by PLN 16 billion year-on-year. So when you compare it with the items or volumes in exposure, which happens in the market, which you can see in Poland, then you are aware that there's a significant lending growth that year, and dynamics was pretty crucial. As we stated 3 years ago, we were going to follow the optimization strategy of a balance sheet buildings so -- to make balance sheet more stable. And this was to be based, among others, on increasing the loan-to-depo ratio. And this ratio, year-on-year, it goes up by 3 percentage point.

So what's the situation in 2018? And I will not say that this process is closing. But we are approaching a situation where this balancing -- so better adaptation of big aggregate data in our balance sheet is to approach the area where we have bank liquidity in place. As a result, in 2018, we managed to keep high profitability of our business at such high growth. And some ratios -- capital ratios -- yes, sorry? Welcome, gentleman. Yes, we've almost finished. Yes. Yes, we are sorry, for what? So with profitability, we managed to keep it ROE 12.5%, earlier, 12.6%.

So as you can see, these are the same volumes almost. And the cost-to-income ratio is falling down. But the high growth makes us optimizing the capital -- we have these capital ratios. They are declining, approaching the level which we want to have as an optimum one requirements plus some slight buffer, but not to exaggerate also in that area.

And also, this makes us come to the other topic of payment of a dividend of 30%. There's another slide which Bozena will be presenting to you. But optimizing the capital volumes and capital utilization, we are close to the level which is required for us to be able to pay out the dividend at a level of 30%, which agrees with our long-term plan because we don't want to reduce our stated growth also of lending. So we need capital within organization to fund this growth and sustain this growth. And as a result and to wrap up, because the other elements are the consequence of what I'm mentioning to you -- so as a result -- but I would like -- because I have really the pleasure to give it to you, the gross profit. So the profit before tax for 2018, it is PLN 2.33 billion. And the net profit, PLN 1.5 -- PLN 1.525 billion.

And the market shares, you can read on the slide. But please don't be surprised that they are growing. And one figure, which I will select because in these aggregates, which we show to you on Slide 8, it's not really noticeable. It is over 10% share in the PLN mortgage portfolio, which we were discussing when the share [ in the sale ] at 16.8%. Then this growth is really visible. So please look that in terms of mortgages, it is these mortgages, denominated in PLN, then our market share went over 20%.

This is as far as much on my part of the sum up of what happened in 2018 when you let me then having this long-term practice of our year. At the beginning of the year, we want to introduce to you our very fine situation, our opinion on the macroeconomic situation. So Rafal, please take the floor.

[Rafal Benecki, executive]

Thank you very much. Last time, when I was presenting the macroeconomic assumptions in August, I was saying growth -- about 5% growth. But without exaggerating and these expectations sustain, last year, the growth in domestic product was often 5%, but we are prepared for plus 5.1% over the consensus because we expect the growth of 3.6% and 2.5% next year. And the main reason of slowdown, it is lower demand in Poland. That was the main driver so far. And you cannot expect the consumption to grow as much after 2 years. And also investment projects will go further, but at a slower pace. But the main threat in variable, which we comment before cost that it is external environment. Because recently, we've had optimistic consensus that Eurozone slowdown is temporary, caused by one-offs. And one-offs will expire soon. But the optimist is extinguishing, and we don't see any revival signals for the global trade. And we follow thoroughly what is happening in trade because that's important for the Eurozone because we are more open economy than U.S.A. ones.

But it's important for Poland also because of a share in the delivery chain. So the global trade slows down and you cannot see any revival symptoms. It's cyclical but still, it's also worsened by the trade wars. And we thoroughly follow the variables which describe these changes, the indexes, the sector, global ones, local ones. And you can see that for the time being, we don't see any improvement here. An optimistic scenario assumes that this slowdown in Eurozone is to continue by the end of first quarter, and then it will rebound. But this is really an unknown, and we are more pessimistic than the consensus provides because cyclical and structural slowdown in international trade will occur and will also affect Poland. And this impact is not to be certified this year. But in 2020, we'll see it more.

As to the components, so gross domestic product and demand, and you can see it on the subsequent slides starting with investment projects. They went up last year at 7.3%, now 5.7%. We see -- with the risk on the lower part. As regards investments by companies, so managed by the state treasury and private ones, they improved, to some extent, in 2018. So the speed was 10% -- below 10%, but much worse by smaller companies. So the right diagram, so the predictions for the coming quarters are rather pessimistic, you can say it there. And assuming that we follow the path of this right diagram, so the great line -- they gray line, you can see the investments can even close to 0 in the second half of this year. And this reflects what's happening abroad because the biggest exporters or investors are there because exporters do say that, too.

And public investments -- public outlays. So on the right, we are showing to you our place as to the usage of euro funds. And before Lehman and after Lehman Bank -- so after Lehman, we were just at the beginning of the cycle of using the euro funding. So you can see, the arrow showing that it was coming up. In terms of utilization of those funds now, we are at the peak. So generation of high growth of public investments will be difficult. And last year, let me add, it was 25% for public and 34% private. So considering that we are at the peak of using them, you cannot have the same traffic in investments. And for private, as you could see on the earlier slide, the predictions for the second part of the year are rather pessimistic. So we have 5.7%, but with the risk on the lower part.

As regards the consumption, so Mr. Smith's expenditure. The last 2 years, it was consumer boom supported by the labor market situation and the benefits. And we do believe that this growth in consumption this year will be around 3.7%. So a bit slower than last year. But the risk is that it will be even stronger. And our intuition -- so we have more fiscal impulse here. And we assess it in the budget to be generated about PLN 15 billion or PLN 20 billion. And this can be delivered this year and next year. Partly, this year as one-off tax reliefs and also next year so that good dynamics of consumption can be sustained, and the risk for forecast is on the higher part.

And wrapping up, we expect growth of 3.6% this year and 2.5% next year. And this year means that we have quite peaceful slowdown. But next year, it will be deeper. And the main threat, it is external environment. We do believe that the rates will not change because we keep this scenario of unchanged interest rates, and we think their curving down will be the next move towards the end of 2020 or at the beginning of 2021.

[Patrick Roesink, executive]

Hello, everyone. I'm going to tell you a little bit more about the credit risk management at ING. As you know, over the past many years, we have been growing our credit portfolio faster than the markets. Yet, at the same time, the quality of the portfolio has just remained stable. We often get asked the questions by regulators and also by those rating agencies, how do you do this? Well, let me tell you a little bit about it. My answer then is always, it's not a single thing. Actually, there are multiple things, multiple elements that we're doing. And I will mention 4. The first element is actually the risk awareness and the risk culture at ING. We're not effectively tolerating excessive risk-taking at ING. And this is set at a tone and actually echoed throughout the entire organization and also expressed in business KPIs.

And one other thing I think is relevant is that when you look at our employees, we have long-standing employees. So they have seen various cycles. And also it means they are not in for, let's say, a quick buck where they would after a couple of years move on to the next, let's say, bank. So the second element is actually the fact that a large part of our growth is coming from existing clients, lending and non-lending clients. And obviously, we know more about these customers. So we are in a better position to estimate their credit worthiness. The third element, culture and speeds. And then I think speed of making decisions. You'll be surprised that often it's not the, let's say, cheapest offer or the offer with the loosest credit structure that one is to do, but it's often the ones that is the fastest. And if you are applying that in a consistent way, it can become a competitive advantage. And if you look at [ France's ] retail obviously, mostly of our decisions are automated. And -- but also, in this -- the CSME and this -- the mid-corp area, we have the vast majority of those decisions are also automated. Plus, we have, on the ground, in various locations, good, experienced, risk hands-on business staff with relative large mandates. So they are also just able to take the credit decisions fast.

The final one I wanted to mention is actually good old-fashioned risk-management practices. So here, we're talking, of course, about refuse scenarios, constant measuring. So almost on a daily basis, we have a full insight in all aspects of our portfolio. We have an early warning signal model for SME. Mid-corporates also is running on a daily basis. I think what also sets us apart from the rest is that we're actually really viewing each industry on a quarterly basis. So we're having a full insight as to -- at our, say, those performance within those industries as well as the industry itself, trends and so on. And on those basis, we say this might take a difference than those credit policies and so on. At the same time, we are also involved in things as, of course, testing. So if we're going to read to into new areas, we will first test this out whether it makes sense from both commercial and to risk point of view.

So going to the last slides of mine. That is #16. So looking at this year, I think from a risk management point of view, we keep on doing what we have been doing before. This means, of course, running various tests, various scenarios, doing our quarterly reviews of these industries; and if necessary, change our acceptance criteria. Of course, we're also looking at new sources of data. So besides the obvious, say, there is credit bureau. We, of course, are interested in all kinds of data that could give us more information on the credit worthiness of our customers. And of course, we are experimenting with our innovation, such as machine learning, AI and so on, in line with the aspirations of the bank.

So I think this sums it up of what I would like to say.

[Unknown Executive]

Thanks, Patrick.

[Unknown Executive]

[Foreign Language] As you can see, we're continuing the process of presenting to you all members of our management. We are doing that because we believe that the quality of management, so our skills, the skills of a team, are also important to you when assessing our company.

Now let's briefly sum up the activity in our core areas. So a short sum up. We won't go into details that -- they're in the material that is presented. But the retail and the corporate area are the 2 main business signs. So maybe just a reminder if we're talking about increasing the number of clients at the end of the year because these are the clients that generate everything basically in our organization. So in the retail part where we serve over 4.8 million clients with the net growth of 260,000. This is, all the time, the same number that we're supposed to grow at 250,000 each year. This year, there's 260,000. And here, we've got the elements that you also know from other banks. So the elements of new regulations on inactive clients and closing those relationships. But these 4.8 million retail clients include 375,000 small businesses. So the entities that mainly are -- sell proprietorships.

In the sub-segment that we call the entrepreneur segment, that's 375,000. That's crucial. Not to mislead it with the number of the SME and mid-corp in the corporate line where the clients served our -- the companies with a turnover of PLN 4 million a year. These are also the companies with more complicated structure of decision taking. So they are now a 1% decision, but more complex structures. So over there, the number of clients served, that's 62,000 and the increase of over 3,000. Apart from that, we've got also a group of strategic clients. So house banking in our setting which covers several -- the biggest companies, international, Polish, British and financial institutions. This is to, let's say, explain our business lines. An important element in our business lines is the increase in number of clients and their activity. But the activity that shifts -- move to remote services. Of course, there is an air amount of control, of scalability of our operations. But we are deeply convinced that shifting clients to digital channels is simply more convenient to them. And if it requires more efforts to teach or to prepare clients, how to do that, the effort is simply worth it.

So on this slide that you have behind me regarding the retail business line, we've got almost 1.8 million clients for now, functioning in the mobile channel. And more and more clients are moving now to the only mobile channel. But over a year, they make almost 63 million transactions that was -- last year, the increases of 40%, 50% year-to-year. Please note how big the change is. Looking at our population of 5 million clients, the clients are strongly shifting, even not to the electronic channel, but to the mobile one. As you know, our intention is to achieve a situation where on this device, the client can do basically everything. We're not at that level. But we are at this level of stable, small activities. But applying for loan or granting the loan is already in the mobile channel, as Patrick mentioned. On the other hand, there was a huge growth in operations made with payment instruments. Not to mention just cards because these are not only cards. But when we are talking about each year, Google Pay, Apple Pay, maybe not exactly a card. But we've got, in fact, selection of payment operations in traditional shops and e-commerce where the traffic maybe is slow, but it keeps on growing. And it also translate into the operations at the branches and cash operations. It contributes to their decline. We are supporting it strongly. But that's yet another year where we've got a drop of cash deposits and withdrawals at the branches of 15% or 18% depending on the channel. And we've got this phenomenon. The first year already where the withdrawals from ATMs are also declining sharply. So these are the elements showing how much the operations have changed and the distribution of the client traffic shifting to the electronic one. And these are big figures and -- especially if we look at 2018. Of course, in the material, you'll find the information for both lines, actually, for the 3 business lines about the -- how strong the element of the purchase of products. That they like the all-traditional time for it, how much it changes. I don't like it because the client is taking advantage of the offer. I have the problem with wording it as buying products, but the sale of products, of the possibility of getting the offer. And the service desired by the client in remotes -- digital channels is already covering large areas. Of course, for us, this is the effectiveness element that is mainly driven by the customer convenience.

In all those aspects, I would like to emphasize that 2018 was the year where all lending engines have been working at high pace, starting from entrepreneurs and some micro-raising, micro-factoring services through payments transactions. And also, the related shifting to transactional systems, also the loans in PLN. Our competitive advantage is that the amortization of loans in Swiss franc is of no impact on us. In your comments, you're already emphasizing huge growth of loans to corporate clients, SME in particular. It's -- that's a nice growth, it's true. And because in 2017, in the third and the fourth quarter, we've been thoroughly reviewing the companies, which depends, to a large extent, on tenders. And as a result of this review, we suspended our activity. I am just not talking about this because we've been mentioning it already in the third and fourth quarter last year. I'm mentioning this also because the growth was quite specific to those actions. And because not every -- or actually, each such growth entails certain instability. You can recall 2018 now.

So this is the sum up, functioning in the business line. I'm trying to keep as much time as possible for your questions. But I'm aware that you're mostly focused on Bozena not only because of the fact that she's much prettier than I am, but the fact that you're interested on -- in financial data. And Bozena is definitely in the know here.

Bozena, please take the floor.

[Bozena Graczyk, executive]

So from the very beginning, from the early morning, we have been reading your positive comments on our business accomplishments and results. So in this positive tone, I would like to sum up the results of the fourth quarter. So as you can see on our slides and in the reports, in the quarter 4, we had net profit of PLN 450 million. And this means that this result of fourth quarter is to be the biggest profit, maybe it will be prophetical, but over 30 years of our bank and without any one-off transaction involved. And with such good results in quarter 4, our net profit for 2018 was PLN 1.6 million and up by 9% from the last year. And truly to say, we are very happy with this result and with this growth because this growth notably matches our average results, the midterm results plans. So every year -- average of every year, it was 11% year-by-year. And for the last 5 years, so it was like 10% over a year.

And I would like you also to see our efficiency profitability ratios because cost-to-income ratio was 44.5% and an improvement by 32 percentage points. It is the best result ever for our bank.

And one of the key ratios -- so with profitability, so ROE ratio, which at the end of the year was 12.5%, one of the best ever for Polish sector for the banks in Poland for this year 2018. And this is also the highest level for our bank.

In terms of net interest income. So in quarter 4, it was 4% growth quarter-to-quarter and the annual growth was 11%. And it's well-deserved, as Brunon said, to the growing volumes of client transactions in loans and deposits. Because over last 12 months, loans went up by 18%, deposits by 13%. So when you see quarterly margin, it fell down by 2% to PLN 2.92 million. And as you could see from our slides -- financial slides, it has evolved by the decline in securities, which is calculated to the amortized costs. And this [ smaller ] income is driven due to the fact that in fourth quarter, some portfolio matured which actually generated higher results, and the investment rate on the market is also lower. When we think about cumulative margin for 2018, it was 2.93%, improved by 5 percentage points year-to-year. And of course, it was possible because we had higher loan-to-deposit ratio. And we also have diversification of the portfolio with different interest rates. And loan-to-deposit ratio, as we said at the end of 2018, it was 86.7%, improved by 3.8 percentage points from the previous year. And in quarter 4, we saw a slight decline of this ratio. But as you can see on the diagram, we can say that it's seasonal decline following the deposits coming at the end of the year.

And as you remember, in quarter 3, we had a very high level of 90% already for this ratio. When we talk about fees and -- fee and commission income, so it was mainly driven by interest. And this year, we are very happy about the manner in which our fee commission income evolves because in 2018, it was a growth of 9%. And we see that it's really exceptional accomplishment compared to the Polish market. And as you can see on the Slide 23, the drivers are many. Because in every type of fees and commissions, we have positive growth, except for investment products or mutual funds. But I think it was underlined many times. It shouldn't be a surprise to anybody considering the current market situation.

As regards for the quarter itself and the fees and commission income, interest income improved. And this is driven mainly because the FX transactions improved for corporate segment, first of all, and positive impact of the commission income and the result of reversal of the provisions established for all [ key ] last quarter. As regards operational costs then, in quarter 4, it was PLN 560 million, up by 7% over 2018. And this follows the cost dynamics year-on-year for 2018. And the main driver of this risk cost drive was personnel costs. And to recall over 7 -- 2017 and 2018, we made 3 salary increases. And last, in April 2018, and the next annual one is planned for a previous year.

From the comments, we could see in the morning, for you, it was a surprise about the personnel costs, how they evolved. But I would like to clarify that this is related to revaluation of our provisions due to annual settlement of KPIs. And I don't want to say that they were not accomplished. But they were accomplished at a slightly lower level than in the record 2017 year. And the KPIs -- I mean, both financial and nonfinancial ones because it was ambitious objectives set -- objectives targets for 2018. They were accomplished. But for comparison in 2017, this average level of accomplishment, it was 110% and 2018, it was 105%.

So this data makes the change. And also, another driver, it is the change in the share price. We revalued the value of the phantom shares, which we are offering as the -- as our remuneration to our key employees. And some of you also noted this amortization growth. And this higher cost was related due to shortening amortization for some property elements of the bank.

So this wraps up the main lines of our income statement. And now having Patrick with us, I would like him to comment on the cost of risks.

[Patrick Roesink, executive]

Yes. Just the cost of risk as you need in this Q4. As you can see, of course, it's settled down at PLN 98.5 million. But I think the most important thing is to look really throughout the years. And they can see that the, let's say, average risk cost margin is at 52 basis points. So very much and is comparable to last year. Well, this PLN 98.5 million is made of -- indeed of very low risk cost on this Corporate Banking side. And this is actually -- that is caused by a number of large releases. In one individual case, actually, we had taken then these provisions in Q3. And it turned out that it was thankfully resolved in Q4. And for the rest, we have not seen a lot of new inflows in stage 3. So this is also one of the reasons.

When looking at retail, here, we can say that's the -- we had in Q3. We had, of course, the portfolio sale. So this is also what you should take into account if you don't have -- in Q4. And what we're seeing is a slight increase in stage 2 for the small entrepreneurs. But this is in line with our earlier messages which has been given, I think, in Q2, I think it was that we are seeing that portfolio slightly, I'd say -- slightly worsening.

So -- and I think looking at the next slide. Well, so I think everything is pretty stable. We're looking at -- of course, at the NPL ratios. And the stage 2 of the -- this portfolio, I just explained, is the [ SPS ] for retail. And yes, for the rest, I think it is -- also just the coverage ratio of stage 3 are pretty stable as well. So nothing much to add there.

[Unknown Executive]

[Foreign Language] Maybe I will add something about capital ratios. Both Tier 1 and Tier 2, this year, improved by 36 percentage points. And this is caused by retaining some profit for quarter 4 and improvement in collateral for corporate loans, which is visible in quarter 4. So our ratio -- consolidated ratio this year, at the end of the year is 15.6%.

And let me recall that in October 2018, we acquired EUR 100 million of a subordinated loan. And we reported it in the current report that at the end of January, we received the approval by Carnet to have it included in our tier -- capital ratios. And this impact of this subordinated loan on our TCR and solvency ratio will be 55 base points. And using this opportunity, I will say once more what Brunon said and what was published today as a current report that the intention of the bank is to recommend to the general meeting to pay out the dividend of approximately 30% from the net profit.

And on Slide 28, you can see the details as to Carnet requirements in terms of Tier 1 ratio and consolidated ratio, capital ratio. And we satisfied both those requirements to pay dividend at such amount.

And to conclude, availing to this opportunity that we meet for the first time in 2019, I would like briefly to say something about the changes to accounting standards. Last year, it was IFRS 9.

Now I would like to say about the impact of IFRS 16 lease. And this comes into live as of 1st January this year. And as a matter of fact, it concerns agreements for the banks or lease agreements and releasing of car fleet. And so far, these items -- cost items were in income statement as elements of operational costs. And as of January this year, we are required to present them on asset start to have the current value of the future fees, which are discounted with internal funding rate, so incremental borrowing rate.

So we have assets at discounted value presented. And in our liabilities, we will have such liabilities presented. And what does it mean for the income statement? It means only that, that assets will be amortized as the property and liabilities will be repaid. But in the income statement, we will have interest item following the discounted value of this liability. Because assets goes up, we estimate that as -- at 1st January, our fixed assets will be like up by PLN 50 million discounted value. And this will be negatively reflected in the consolidated Tier 1 ratio and the total one as well and the solvency ratio. And we estimate it will be like 10 base points.

So please expect some different structure of the income statement items. But this standard also introduces a change being slight but still impact on financial results because it's not really -- depending on the amortization periods, we will have the same impact of lease costs as presented before plus the total amortization costs and funding costs. But we assume this impact not to be big and should slightly improve the cost-to-income ratio. So just as introduction and after the first quarter, you will see more details because it is a standard applicable to all companies. So it will be visible across financial results of the banking sector and all other businesses using operating lease, which was presented as of balance item. And as of this year, it is presented on balance.

So that's about the summary of another piece. And now I would like to give you the floor for questions.

[Unknown Executive]

So maybe let's start with questions from the Internet. We've got 2 of them. Regarding the branches in prime and then the related costs and the risk costs. So the first question about the branches is as follows, let me read it.

The closing -- what is the reason for closing 13 branches in last quarter 2018? Can it lead to lower cost in 2019? Should we expect further reduction in the number of branches in 2019? Will lower headcount in branches will translate into higher headcount in the head office related to the operations? And also, the higher amortization in the last quarter last year, was it due to the closing of branches?

[Patrick Roesink, executive]

According to what we've been presenting for many quarters to you now, the adjustment of number of branches, so the new distribution model has been going on for many years now. The current model, of course, [ relevant ] adjustments assumes that as of the end of 2020, the bank will have 300 branches. So for 6, 7 years now, we've been closing the branches according to long-term plan because such a number of branches is sufficient and adjusted to the implementation and model that we have. So we've been doing it for years now. Of course, that entails a certain headcount reduction. But it's not that if we are closing a branch that -- there is a specific number of people laid off. Because, to a large extent -- also we have that -- for example, we are closing 3 smaller branches, but we create instead one bigger branch with better access parking. But we've been discussing it already on many occasions. In the meantime, we are also changing the functionality and the layout of branches to have the possibility of more, let's say, private conversation with our adviser. The newest type of branches is allocated in Warsaw, one in Arkadia Shopping Mall and the other one in [ Kunasar ] -- in the [ Kunasar's ] location, I don't know if it's a complex or buildings or blocks of flats. In Katowice, that's the branch in [ Zarizia ].

So these already -- branches at slightly different layout but should have been entrusted in the ergonomy of branches and different navigation. Why we are using [ bolt-on ] so and so. I'll explain it now. The number of employees is dropping, along with the increase in effectiveness apart from 2018 because we've got growth in headcount by 37 persons, maybe not FTEs because some of them are temporary workers. But this increase is due to huge labor intensity of many regulatory processes [ KUIs ] included. But apart from that, the bank is implementing the strategy of adopting our capacities to other model. So the bank is growing, but the number of employees stays more or less the same. However, these are not the same people all the time necessarily.

So this is the model that we've been implementing and that it will have a new touch, let's say, in 2019, 2020 due to the fact that the number of cash transactions is dropping in our branches, another year of 15% to 18%, depending on the operation. That also changes demotes -- and similar functioning of our branches. Was it all when it comes to the first question?

[Unknown Executive]

And depreciation and amortization.

[Patrick Roesink, executive]

Well, no. It's not related to closing of branches because closing of branches is actually reducing the number of branches in the network and has been down for a long period now. And these are different assets, elements. So this faster amortization is due to resigning for certain devices that you've been using so far and the fact that we are shifting to outsourcing, also ATMs included here.

[Unknown Executive]

And the question about risk costs?

[Unknown Executive]

The trends in this portfolio in 2018 and -- versus 2017.

[Patrick Roesink, executive]

Well, actually, the thing that I am able to say is that actually, the cost of risk for just a more [indiscernible] was and is of very good quality. And also actually it is very stable. And I think that's much as I can say now.

[Unknown Executive]

[Foreign Language] So now the questions from the room, please. The microphone, please.

[Unknown Analyst]

I can hear. So I've got a question about the depo in the retail, a huge nominal growth just happened. And that was at the market growth? Or were you the beneficiaries of some market events maybe? That's the first question. And the second question is about lending this year. I know you don't like commenting on this one, but -- so the person said talking about the dividend payout that we are not -- you're not expecting to decrease lending. And is it about PLN 16 billion at this pace? And maybe something to Rafal, you're not concerned about a downturn in the economy. And my question is about fees, the card fees. These are net figures and not gross. I've got problems of calculating the provisions for the office staff, consumer and competition protection. I remember that those figures have been variable. So your comment, please?

[Unknown Executive]

So let me answer the first 2 questions. Starting from second one. We want to continue growing stronger in lending. But I am not commenting anything specific about the nominal figures. So the PLN 16 million is the historic figure, for staff. But definitely, we want to keep the growth above the market level. That's what we've been doing for 1,000 years or so. And also in our materials, they have the indication that we're expecting the lending growth on the markets to decline. So we are not forecasting such a huge growth as last year to take place this year. Please note that I said that in 2018 that none of such streams of lending production. And there were no disruptions and there -- it was going at full speed. So it's not that we've got the growth above all. And also as Patrick said, we've got the growth while maintaining the quality and forecasting the risks because our exposures are not 3-month exposures. So we need to forecast in advance. And my comments regarding the review of the portfolio in the third and fourth quarter of 2017 was to show that we are not focusing on growth at all costs. And we are not commenting on a specific level of growth. So now I'm not giving you any grounds for forecasting the lending growth in 2019. Of course, we've got our plans. But 2019 does not seem to be a clearly or easily forecastable year and also in the already propriety funding market.

[Unknown Analyst]

And the first question about deposits.

[Unknown Executive]

When it comes to deposits, there are certain elements that -- certain events that took place in 2018. First of all, disruptions in investment products and the situation which was a shock to the market as of the 13 of November. And of course, those elements impacted our functioning. So the increase of deposits this year, it won't be a surprise because they're the same structure for the markets. So it was higher than expected because those disruptions led to the situation where a bigger number of entities, so we had a bigger inflow of funds to the core products as savings accounts, for example. But also, please pay attention to the fact that we've been implementing a stable strategy. We do not have an ad-hoc actions in that scale. But of course, we've got a huge -- we are an important player in deposits and savings accounts and a strong competition. And in terms of deposits, we are not taking part in that as such. So at some point, the deposit offers that first to 3.5%, 3.8%, it did not make us decide to set our -- even our promotional offers at such levels because they wouldn't be generating -- wouldn't be profitable for us. And these are rights for the liquidity panic, but it is impossible to have profitability with such rates. But maybe some competitive or something need to do it. And the third question, maybe Bozena will answer.

[Bozena Graczyk, executive]

As you remember, in the third quarter, we established a provision for [ Wakik ] at approximately PLN 40 million. And the entire program was settled in the third quarter. Our final settlement amount was slightly higher than PLN 30 million, higher by approximately PLN 3 million and which was reflected in the adjustment of income on cards in the fourth quarter. And we also have less income here due to free-of-charge services related to ATM withdrawals. And that's approximately PLN 2 million or PLN 3 million and also, the increased mailing costs are not included in these items. And the value of card transactions is growing. The costs are growing as well. But when we -- apart from just one-off items, we've got a positive increase, even net increase on those income.

[Unknown Analyst]

Continuing the topic of loans, I would like to return to mortgages, what's going on in mortgages because the status was slower. Is it due to extinction of -- expiry of the governmental program? Or is it that the bank made its policy most of you?

[Unknown Executive]

No, it's not a governmental program because we are not participating in them. But some -- but the structure has been adopted to some extent, but quarter-by-quarter, you see -- but more banks come to mortgage market. And I think at other conferences, you can see that the banks which were really passive. So less active way just to come back to the game as players. But the mortgage market of a real state funding market is a market of big players, let me emphasize it once more. As we forecasted earlier, when the capital norms go up and how to call them burdens -- higher burdens for the sector, then we can see that you can also recognize it on the real estate market that we have a sector. When we talk about the sector, I don't like it but you do. But for banking sector, we just have such of a breakage. We have smaller and bigger players. And I'm not saying it with some optimism because to tell you the truth, the process will continue. The process that some banks cannot operate on the Polish market because they would be forced to leave this market, to exit this market for a bigger -- it is better short-term. They have it better and we are among the larger ones. We should be happy. But meet in the long-term, this is not a good solution for our country. So this competitive edge, artificial competitive edge, I'm not happy about it, really.

[Unknown Analyst]

I have a question to Slide 34.

[Unknown Executive]

Okay. How far you end? Okay.

[Unknown Analyst]

No, don't worry. I would like to ask about the driver between the decline on the first slide, on the first diagram with the second diagram going up?

[Unknown Executive]

Yes, it's the result of cleaning inactive clients in quarter 4. But this was not last year. So I would like...

[Unknown Analyst]

That's why I'm asking about that.

[Unknown Executive]

Okay. We sped up the action of cleaning inactive clients. And for entrepreneurs, it's relatively pretty fast to see -- to notice them. And it was in the fourth quarter. Now we will have it like flat-like more so you will not see such distortions in trends. But the growth was slower in terms of our activity. If the clients, who are not active, they don't have lending. They don't have deposits. They don't make transactions. So it is across all lines at the bank.

[Unknown Analyst]

I have 3 questions. One out of curiosity. The bonus for fourth quarter, the situation of parent company was really prominent, discussed by the market, and there was a comment by their group. [Foreign Language] And have you cut the bonuses as they did? Was there impact? Is it about these KPIs, which you mean? And the second, whether win together or lose together, whether due to the settlement, we can expect some costs to be incurred by the Polish ING branch?

[Unknown Executive]

It was easy in your questions. And in the very final statement, there is no ING branch in Poland. I'm sorry for the simplification. I would like to emphasize it once more pretty strongly, we are a Polish bank. ING is our owner. But it's not -- but it's like branch-like. So the penalties relating to settlement with the prosecutors -- but the prosecutor's office does not impact the subsidiary in Poland and not on the bonus of our staff.

[Unknown Analyst]

Okay. I do understand.

[Unknown Executive]

That was easy until you had this really difficult question. It's true that ING Group really operates through branches, also in the units or entities being really powerful and flows through to a large degree accept deposits of unprofessional clients. But the true is also that ING Bank's loans is the only larger entity being subsidiary where ING Group is not the owner of 100% and where the entity is listed. So we are exception in the entire structure of the group, but the impact is that we are bound by the loss which are set locally. So subsidiaries are in Moscow, in Germany, Australia. But their ING 100% stake. But here Poland, Turkey, especially Poland, the ING does not hold the entire stake.

[Unknown Analyst]

And 2 more questions on my part. So the interest margin outlook, it's difficult for me to reaffirm my access whether it's to improve or deteriorate because IFRS 9 impact is -- and you can calculate it differently, and you, for a few times, mentioned that you are not to default -- you are not to spare the costs using the risk costs. So -- and because of margin, you have to grow. So my question really comes down to the margin.

[Unknown Executive]

Yes, margin is more complicated because margin, level of margin is, to a large degree, mirroring the situation of the market. We are saying we are not to buy our activity or dynamics using -- I don't know how to cut it, using dumping task. We will be always in the market. And when you see our prices, you can follow them. You can see that we are in market. It's not that we buy, we don't cause competition pressure by offering products as lower rates. To tell you the truth, this price driver is of lower and lower significance on the market. Now the difference in base interest for products is pretty leveled. Telling you, since the rally, except for some exceptions of November, for example, which we've mentioned. Yes, so is the statement. But out to future outlook, in my opinion, you have many data to draw conclusions. But sorry, we are not to help you directly because, as we said, so is the formula. We presented to you our practice in that regards so that we don't present the data for outlook and -- directly. And the last question, outlook again of operating costs?

[Unknown Executive]

9% this year, 8%, 9%. It's any of our engines. Driving force cost is to be switched off because we had comments last year about project costs, salary costs, increases continued so to salary raise continued.

[Unknown Analyst]

So this 9% of costs 2018, so it's no longer driven by that?

[Unknown Executive]

[Foreign Language] I'm afraid but I -- to my regret, as Marek Kondrat said once, I will -- I know but I will not share it with you. I'm sorry. But it's not like that -- but to help you to some degree, let me say it like that. We are striving after being on the market to the lowest degree -- bringing you the surprise to the lowest degree. So just to speak like using round words, the inflation and the growth is important. But our intention is to try to adapt salaries of our employees to salary inflation earlier, so in advance and not later. And I hope this is standout because it's much more difficult to manage and keep highly motivated staff, stable staff.

Please, have a note of it. When other pays better and we follow up. And it's much easier to say we do salary raise earlier than others are to do because motivation level is much different in -- but in cost, there is no much difference. It's just temporary shift. But it's better to be before than after. And second, when our income starts to be with high activity and good situation on a high level, then there is a moment to do investments. Because then, we don't distort the trend, but we avoid -- try to avoid the situation. When we have accumulation of investment [indiscernible] and project, when the market goes down. So politically speaking and results-shaping speaking, this is what I would like to present to you. Our role is to be proactive and to flat our trends -- flatten our trends, so then it's easier to manage. And we know that good situation should be utilized, taken advantage of. But it's not to think or to have extraordinary profit and later, within the cycle, to go down with them. Expenditures are good when income goes up. When they are slower -- when income is slower, then it's not a good moment to have high costs.

So with this philosophy, this is all I'm going to tell you. I am not helping you very much in numerical terms, but I do believe that it's good that you should understand the philosophy behind our action, which we promised to you. I refer to it -- what Bozena has said at the General Meeting in 1994. So 5 years after opening the banks -- I think at the bank, which was in '89. And from the very beginning, in February of that year, we were the entity. So 30 years ago. Some people remember that we had 9 regional banks at that time. But seeing your expressions, nobody remembers that now.

[Unknown Analyst]

Yes, from the books we know it.

[Unknown Executive]

Yes, you know it from the books.

[Unknown Analyst]

So you'll answer it.

[Unknown Executive]

Yes, yes. Some of us -- but some of us experienced that.

[Unknown Analyst]

I would like the slide about fees and commissions. This is my favorite one today. Yes, the colorful one, maybe that's why. Yes, like -- yes, I like. But about the FX because over-average FX result, and I would like to ask about this multiple currency. Why is it so good? Why is it a recurring result?

[Bozena Graczyk, executive]

Yes. Maybe I will refer to some more detailed data, but they are confidential. So maybe I will start, okay? And you will just finish. Generally, as you can see for a few quarters, this income goes up constantly. And this is the effect of both our innovativeness as to capacity to use multi-currency products. So retail clients and corporate clients. I will only say that in 4 quarter, it was really visible in the corporate sector. But in retail, it doesn't mean that they were lower, but systematic growth following the growth inactivity in volume or transactions. Yes, I do uphold the statement.

[Unknown Analyst]

I would like to ask about deposits because over liquidity in the sector is visible in the sector at your bank, at majority of banks. Can you see some promises for lowering the funding costs because 2018 saw some stabilization? Can you like fight for it?

[Bozena Graczyk, executive]

Let me say it like that. When we look at some macro issues, only you're right. Yes, but because CPI starts to fall down. Elements are as they are. But when you look at the offers -- so for cost savings elements in the market, you will see that -- you will notice that our offer is pretty attractive. But it's not really -- it does not translate into acquisition. But it's hard to conclude on that basis or make some statements that something can happen here. But as a matter of fact, as to call balances, our basic competitors have lower interest in offer. Yes, we are somewhere between the key elements -- the key basic banks and the banks trying to compete in terms of prices. We are just somewhere in the middle. Yes, there is some element. I'm only commenting on the figures. Yes, say it clearly because the prices for the basic savings products among the banks with B, with M because it's more than one, so you can just draw conclusions and ING is just far in the middle.

[Unknown Executive]

Would you like to get a more specific answer? So we're in an uncomfortable situation here. Do we have any other questions?

And we do not have any new questions from the Internet, so I think we can finish now. Thank you very much for today's conference.