ING Bank Slaski SA

WSE:ING

Earnings Call Transcript 2019-Q4

[Piotr Utrata, executive]

Good morning. I'd like to welcome you to our conference on the Q4 and all of 2019. Brunon Bartkiewicz, the CEO of the bank; Bozena Graczyk, Vice President responsible for finance; Rafal Benecki, Chief Economist. We have the Chief Accountant, Jolanta Alvarado Rodriguez with us. Iza Rokicka, Investor Relations; Maciej Kalowski.

Over to you, Brunon.

[Brunon Bartkiewicz, executive]

Welcome, ladies and gentlemen. We'd like to present to you the preliminary results for 2019 and for Q4. We don't think there will be any major disturbance with the final results. But for process caution, we're making this statement. We have a number of points. I think you have enough questions and doubts because there are issues that need to be explained so we're running a bit late, so we're trying to be brief. And we'll leave you some time to articulate any questions that you may have.

In this difficult period, what was happening in Q4, and in our case, everything was fine, no changes. Production, the machine is manufacturing, producing. Everything is stable. Everything is good. And this is conducive to optimization. An element that may be something that you find doubtful, the ROE, the capital situation. ROE is lower than the year before. The key explainer here is not the efficiency of the bank, but the reevaluation reserve, its size. We're managing to maintain the ROE in this trend. That applies to all banks in Poland. ROE is going down across the board. But this year, we have this additional element of the interest rate curves and their impact on the reevaluation reserve. And we'll explain that in a moment so that you can include this factor in your reports.

The rest is according to plan, as I explained. We pointed to the caution-based approach to corporate loans, particularly high-value ones, in light of what we expect, a slowdown of economic growth. Every element of slowdown involves some disturbance, particularly among business clients. And this is visible in numbers. This element has been compensated to a large extent with our high activity, mainly in retail. But as you can also see among the largest corporate clients, we have increased lending with securitization against real estate. High dynamics of loans was maintained. The quality of the portfolio that we've had for some 18 months or so, we've already indicated in Q3 '18 we're a bit more cautious in the financing of corporates.

I'd like to point out that in spite of this cautious and safe approach to the financing of corporates, we are growing much faster than the market. And this means that we will make some more remarks on that

[Audio Gap]

for loans with low investment, activity of enterprises is relatively low. It's not something that is joy to me. I think we can say that we've lost activity -- we've lost the opportunity to improve the competitiveness of our economy moving into economic slowdown. The peak of the cycle is behind us, and we've not developed competitive advantages for the coming years. And that's a sad conclusion, but we've been talking about it for some years now, so you're not surprised, I guess.

Other elements are at a similar level. I hope that you were not expecting any big changes in terms of the net interest margin. We indicated that the reduction of interest on core savings accounts will anyhow be absorbed by margins going down in replication portfolios. We were not expecting any major changes at the time as far as the curve of interest rates is concerned.

I'm hoping that you can understand what I'm saying. I'm not going too far into jargon. The curve has flattened out or even bent in some moments, so this is not just an impact on the reevaluation reserve, but it does influence the replication value for core deposits portfolio.

But the activity of customers, the number of customers using remote channels, automatic systems, the granting of loans on an automatic and semiautomatic basis, all this is in line with our schedule, and it's yielding expected results. As a result, it's yet another quarter of stable growth for the bank, according to special schemes.

Some minor disturbances, we will explain that. They're related to the Court of Justice judgment. But we've weathered this small storm in Q4. And in principle, we have built the right levels of provisions for anything that can happen. And they are included in our results.

In conclusion, we are finishing the year -- let's focus on the volumes now. We have year-on-year growth of loans, 13%. As you can see, retail loans, particularly mortgages, are growing to the tune of 20 -- 22% year-on-year. Much lower growth in corporates. That's an intentional act.

Then you have deposits. Here, we are expecting a pretty significant change for macro and various other reasons. There are some deposits that will go to the banking market. The interest -- the investment, sorry, funds will absorb some of them. We're happy with the investment fund activity in 2019.

Our sister company -- how should that be? NNIP, you know this transaction has taken place. Quarter-after-quarter, we are moving in a stable way. We have net profit. The exact amount for 2019 PLN 1,658.7 million, which is a year-on-year growth by 9%. I hate expectations like this, but fine, let it be like this. What is important for us is that, in our opinion, as a bank, we think we are pretty well prepared for macroeconomic change that lie ahead. Q4 was perhaps even excessively typical for what lies in store for us.

And I will hand the floor over to Rafal. He will briefly explain our macroeconomic assumptions. And please also discuss Q4, Rafal, because it was interesting in terms of the conclusions that we can draw for the future.

[Rafal Benecki, executive]

In Q4, the Polish economy went into a deeper economic slowdown. We are not sure if perhaps there were some one-off events, particularly on the manufacturing side, but this is what lies in store for us in 2020, in our opinion. And our reason, a weaker internal demand is to blame and some impact of the slowdown from the Eurozone, but the balance is different than we had yesterday from the Central Bank. The main reason, in our opinion, is the slowdown in internal demand, the phenomenon of economic growth in Poland and in the region. We carried out this analysis. We used a panel of 4 countries of the region, and we looked at why the economic growth was so resilient in Poland, Czech Republic, Romania and Hungary compared to the slowdown in German industry and in the Eurozone.

And this analysis suggests that we're using 2 growth drivers: internal demand and exports in our region. This is a feature of southern countries. In Poland, we've had that in the past. The resilience of the region to the slowdown in Germany can be attributed to the fact that labor markets behave differently than to date. We have record low unemployment. We have 2-digit growth of pay. Large consumption growth -- large increases of minimum pay in the public sector, 2-digit growth of pay in most countries apart from Poland. In Poland, we have record transfers, and that's one reason for the resilience of the region for the slowdown in Germany and in Europe.

Second, the structure of exports. We use the data of Groningen University, which define value generated in exports. Poland is relatively poorly exposed to Asia. The exposition is -- the exposure is much lower than in Germany. Germany suffered because of the trade war. Poland is more exposed to the internal market of the EU. And that's important because the internal market of the European Union is hurt less than in the crisis from 2012.

And thirdly, the economies of the regions have not lost short-term competitiveness in terms of pay. In Romania, some sectors are already losing market share, but the region is using internal demand and exports.

We have 2 engines of growth. And as a result for Poland, this means that our engine, this internal demand is getting weaker at the moment. And hence, we expect slowdown in 2020. We are going weaker for 2 reasons: The impulse from social transfers is weakening earlier than expected. Consumption is slowing by 1 percentage point. It's happening earlier than expected after the 500+ program.

Investments will also be weaker in Q4. The surge in investment will not be lasting. The changes in investments in Q4 can be attributed to the finalization of energy projects, [ Yabozno ] for example.

Other signals that we see in coming from the economy suggest that investments are poor, and they will continue to be poor. We see corporate loans not really performing very well. The lending will go down. Also, construction industry will be weaker. Private investments will be impacted by regulatory and tax risk and new burdens. This element of demand in terms of private investments will be poorer. In 2020, they will slow down significantly.

We also think that we are behind -- we've already passed the peak of EU projects, and public investments will go down this year as well. This is visible in the dynamics of the disbursement of EU funding. EU transfers have gone up by 67% in 2018, and they started going down at the end of 2019. And that will be the case in 2020 as well.

In brief, we expect 3% economic growth in 2020. In some quarters, we can have below 3% economic growth. The reason for the slowdown is internal demand. The social transfers impulse will not be as strong as before, and that's earlier than expected. Public investments will go down, and that can be attributed to this change in the cycle of EU investments. We expected a significant slowdown of the economy in the second part of 2020 and in 2021. It's materializing earlier than expected. So 2020 will be a poor year. In 2021 and 2022, the situation may improve. We expect another momentum -- more momentum to be generated by EU projects.

Some improvement in terms of private consumption is also to be expected, although we will not be looking for 5% economic growth in the coming perspective because we can't expect such an impulse from social transfers as before. And we are afraid for private investments, which were pretty low in this economic cycle. That's it.

[Bozena Graczyk, executive]

Before we continue with more detail, I strongly recommend getting familiar with the presentation, but let me underscore one thing: Our bank is optimizing our model on midterm and long-term perspective. So we kind of just report that 2019 was sacrificed for better results in the future. It was business as usual. It is business as usual for us. And we cannot see any jeopardizing of long-term strategy when it comes to investment. It is all to the plan.

It is also related to the fact that cost optimization is related optimization of cost models, and our clients is going to the plan, too. And I hope the figures in our presentation only shows that is true.

Now over to the topics which, I'm afraid, you are most interested in. Let's start with a short summary of our financial results. PLN 450 million of net result in Q4. This is roughly what you estimated for us in that quarter. And thanks to that, our total result of 2019 grew by 9% up to PLN 1.569 billion.

Looking at financial results. As a matter of principle, we should be happy. We are happy because of better operational efficiency. Our C/I ratio up by 4.5 percentage points. ROE, excluding the effect we mentioned, which is the change on regulatory reserve, stays at the level of 12.8%. This is how we view it. And we think it is high, considering the challenges out there for us and for the whole industry.

Looking at Q4, we should be view it in the context of what happened throughout 2019. We should also include one-offs, which had negative impact on the whole industry, including on our financial results. If we only get limited to the negative phenomena related to the tribunal and the KNF, we should stress that the cost increase is nearly totally tax-inefficient, which lowers the net financial result.

Were it not for the one-offs, we could have bragged with a record-breaking ROE, which could have been 13%. Our cost-to-income ratio would have been better by 1 percentage point, and the net result could grow further. So we should remember about the context of financial results and the profitability of the total banking sector lowered [ in ] short-term perspective.

Well, we should also view the Q4 results in the context of what happened in CJEU. We set up a provision of PLN 17 million for loans repaid before September of the previous year. The provision was set up assuming linear returns to customers. In Q4, on top of that, we adjusted net interest income by PLN 21 million, which is due to the linear -- the difference between linear and effective settlements of the portfolio. We are also showing why we need this adjustment, and the adjustment is now being made virtually by all banks. Effective settlement of net interest income means that the fees and commission income is proportionate to the involvement, not to time. As a result, at the start, the net interest income is higher than it was in the linear scenario.

When it comes to early repayments, this slide shows that if the repayment is in mid period of the contract, then 23% of the commission is paid by the customer. This is a major difference. And hence, according to our estimates of prepayments of loans we expect in the future based on historic data, we made an adjustment of PLN 21 million. Just to give you a full picture, this adjustment is tax-effective because it only -- it is only due to a different kind of settlement of our income, different [ than ] linear. So this is the summary of the so-called small CJEU judgments.

When it comes to the large -- the so-called large CJEU judgments, the banking sector changed the approach to estimating provisions. We did it, too. We included many assumptions largely based on our professional judgment. We still miss statistics of what we can expect in CJEU jurisprudence. We don't really know the percentage of customers who go to court and put into question the contractual provisions of -- related to the loans.

We can assume various scenarios when it comes to the number of cases in courts. And when it comes to various courts' judgments. Apart from the opinions of our courts, we are also based on opinions of law firms, which, to the best of their knowledge, can estimate the probability of various judgments.

We are now speaking about 3 different scenarios. We decided that the adjustments of provisions for CHF loans will be created by risk costs. It will be an LGD adjustment, which means that the provision, which so far was presented and remaining liabilities, was transferred to risk costs. We also decided to continue presenting all CHF-denominated loans and CHF index loans in Stage 2.

Also, since there is already a dedicated provision for these cases, we changed the approach to our exposure in other CHF products. As a result, at the end of the year, we have a provision amounting to PLN 45 million, covering 4.8% of the gross loans portfolio, including about PLN 10 million as a provision for disputes concerning repaid exposures, and PLN 35 million for the portfolio, which is already in court or will be as we expect within the next 4 years, because this is the time horizon for our estimates.

Moreover, since all CHF loans are classified as Stage 2, it gives us another PLN 4.6 million provision for this portfolio. It is also fair to say that at this stage, all provisions for CHF loans are not recognized as tax-deductible costs. But we do not know whether we can continue the situation in our future.

Speaking of net interest income, as you can see, it stays at the level of the previous quarter. It was also affected by the negative phenomena. Adjusted by PLN 21 million, as I said before. Then our quarterly margin, out of 3.02% we reported at the end of Q3, go down to 2.92%. If we adjusted it by one-offs resulting from nonlinearity, then it would be 2.97%. It is still lower than in the preceding quarter, also because in Q4 results we also include the effect of prepaid loans and the return of -- repayment of commissions and, as Brunon discussed before, lower profitability due to replication portfolio and securities. Loan-to-deposits ratio at the end of Q4 was also affected by the seasonality we mentioned before.

Fees and commissions income in Q4 was PLN 345 million, which was plus 4% year-on-year, mainly because material increase in loan commission, growing 10% year-on-year, also commissions on insurance grew 18% year-on-year, and card income grew by 13%. If we compare 2018 to 2017, the fees and commissions income grew by 5%.

Now speaking about expenses. The quarterly expenses reached PLN 591 million, growing 4% year-on-year. There is a slight reduction in Q4 against Q3. It is because of 2 phenomena: On the one hand, it is because of transferring the cost of provisions for disputable cases from operational cost to risk costs. And on the other, the one-off provision costs I mentioned resulting from add-on cost of provisions related to internal restructuring of the bank, where we set up a provision in the preceding quarter.

Year-on-year, the expenses grew by PLN 171 million, which is 7%, but it is fair to say that the regulatory costs grew by as much as 24%. And all our costs we have control over grew 6% year-on-year.

Now to the cost of risk. In Q4, it amounted to PLN 164 million, which was lower than in Q3. The cumulative cost for 4 quarters was 54% (sic) [54 bps ]. The lower risk cost is due to lower costs of corporate banking. But the growth in this segment was due to record-breaking risk cost in Q4 of the previous year.

In retail banking, the quarterly cost was PLN 103 million, including the positive effect of irregular loans portfolio sales, where we reported a profit of PLN 24 million. On the other hand, as you probably already know, this additional PLN 21 million on retail banking cost due to change of the presentation of disputable loss provision in CHF segment.

Speaking of the portfolio quality and provisioning, these are strongly impacted by the portfolio growth. And corporate banking, it grew a bit. And you perfectly know why. The portfolio growth wasn't there in Q4. So the index grew a bit. In retail banking, the reduction is due to sales of irregular loans portfolio.

Speaking of provisioning, a lot has been going on here. When it comes to share of Stage 2 in our gross portfolio, let me just draw your attention to retail banking, which is strongly affected by the changes I mentioned before related to CHF loans portfolio. It translates into material growth of provisioning in Stage 1 and Stage 2 because we transferred all CHF provisions onto this portfolio.

Speaking of Stage 3, in retail banking, the provisioning ratio got down because of the sales of irregular loans portfolio. Were it not for that, it would have stayed the same. There's also a drop in provisioning ratio in the corporate portfolio, which is due to changing structure of this portfolio over the reviewed period.

Now about our capital adequacy, in Slide 28, you have it at the level of -- the growth of it at the level of 1.47 percentage points. It is because of a subordinated loan amounting to EUR 255 million included in it, we -- and part of the net profit for Q3. As a result, our total capital adequacy is 16.93% at the end of Q4.

This is it about Q4 results in a nutshell. You know it from our report that it is the intention of the Management Board to make a recommendation to the Supervisory Board and to the general meeting to pay out 30% of dividend based on earnings of 2019.

Thank you very much. Now do you have any questions?

[Bozena Graczyk, executive]

Well, we've presented for not even half an hour, to the plan.

[Unknown Analyst]

Let me start with a very simple question. Could you please explain to us this gimmick with reevaluation reserve? What is it all about? How did you create it? To what amount and to what extent it was excluded from the ROE you reported? So by how much ROE is lower if you include it?

[Bozena Graczyk, executive]

Well, there is no gimmick here to speak of. It's just a way of presentation. What we've seen in 2019, including Q4, is related to interest rates and the growth of volumes included in macro cash flow hedge. The revaluation reserve amount materially grew over that period. As a result -- well, it's part of the equity, so if we calculate the ROE based on all equity components, including the revaluation reserve, then at the end of year, the ratio would be 11.6%. If we exclude the reserve from the basis for calculating the ROE, then the latter grows.

We published ROE of 11.6% against the previous 12.4%. And it shows a large impact on the revaluation reserve as a component of the equity, which is -- and derivative of the change of fair value of the equities portfolio classified to valuation by equity and the part of fair value of derivatives, which are a part of macro cash flow hedge. So the 2 determine the change and the volume of revaluation reserve, and the latter, in turn, increases the face value of the equity. But it's also subject to amortization and time change. It depends on many factors, including volumes and the interest rates.

[Unknown Analyst]

Why the drop in ROE?

[Bozena Graczyk, executive]

That's why we have the drop of ROE just to be more precise...

[Konrad Krasuski;Bloomberg;Reporter]

Konrad Krasuski from Bloomberg. I've got 2 questions: One, about mortgage loans because the dynamics you've shown was quite high, and the CEO mentioned that the security for those was stable profile real estate. Well, the question is, to what extent it can be continued and this growth can be continued? To what extent the income of the Polish population is going to continue the growth, knowing what happened 10 years ago?

And another question is about the infamous CHF exposure. Well, my assumption is that nearly 5% of the portfolio can be lost because of court cases. The majority of banks assume it at the level of 2%. The Association of Polish Banks in turn say, "Well, nothing changed. Go on repay your loans." Do you think this message by the Association of Polish Banks is right? Couldn't it jeopardize the reputation of the whole industry?

[Brunon Bartkiewicz, executive]

Well, I -- my dream is to talk about something more interesting than that, but well, okay. And to questions one, I mentioned mortgage loans for the biggest economic entities, which has nothing to do with what we define as mortgage loans. It is related to financing large ventures like a buyout of a logistics center or an office building. And there, you might have certain concerns whether that area, that part is stable. And let me just assure you that we are very picky here, so our position is strong.

Well, coming back to the gist of your message or question, yes, our mortgage lending is going strong. Let me just add, because I think it might be very interesting for the journalists among you, that we even have months where the mortgage lending for fixed rate is higher than for the changing rate. That's how things are.

Can we see any danger here? Well, we could if -- as you rightly observed, we calculated that the credit worthiness or, as I believe was the subtext, the decreasing income of our customers or increasing the insolvency ratio due to unemployment, growing divorce rate and so on, well, we do not assume such factors. We do not include them in our macroeconomic plans. The dynamism of increase of pension income is dropping. But just like Rafal mentioned, this effect is not visible now.

Another element of doubt is related to the artificial production of shifting resources to the real estate market, the mortgage market, from loans and deposits markets related to buying real estate for rent.

But I think the majority of production is still largely on the primary markets. For instance, we can see a larger supply, including the supply of mortgage loans, outside the typical hubs, investment hubs, more on the outskirts of big cities. Not only Warsaw, Krakow, but also other cities.

So looking at macroeconomic data, it might raise concerns. But if you drill down, you can see that the situation on the housing market is not what you would expect because the demographic and geographic profiles are a bit different. Apart from investors, there's the wave of people who now can afford to buy an apartment for a loan. And these are not investors. These are just primary market customers.

The distribution of and the way of operating of all these entities is according to what we thought. So a possible question about a possible abrupt -- a drop in value of real estates might be in order, but we do not expect any sudden bubble or any sudden demise on this market.

[Konrad Krasuski;Bloomberg;Reporter]

Are you talking about the dynamism of the market or ours?

[Brunon Bartkiewicz, executive]

We can see that the market is not that volatile. We don't really know very much what it will be because there's still more and more money in people's pockets, and it will be getting more and more difficult to unblock this money for the deposits. So we cannot expect the interest on deposits going to grow exponentially.

Look at Q4, many banks decided then to lower the standards in deposit rates or deposit products. So I think the wave direction is different. Well, this is it roughly about the mortgage loans. Speaking of our dynamism, you know the answer.

Now about CHF. I don't want you to draw conclusions that there's a benchmark for -- pattern for covering the Swiss franc portfolio. I will not hide that. For a bank like ours, we always want to be in a safe position. We want to be safe, and we want to have buffers, and we have the comfort where we can build. There's big comfort, as you have stated yourself, being very frank, does not cost us that much. But as some presidents of other banks have stated, we are not the point of reference for other banks.

If we look at coverage for other banks, they could not do that. They could not do what we are doing. So we are not a point of reference. And I don't know if our coverage level is excessive. I feel a little bit that it may be, but I don't know what kind of excess we're talking about.

But it's also not that our approach is the only one that is correct. We should have sufficient provisions. The level of insecurity in the market is pretty high at the moment. We don't know. But if there is anxiety, the principle is to create sufficient provisions.

What does sufficient mean? Well, ultimately, 120% of the portfolio seems to be sufficient, but this is a murder in broad daylight. So I don't want to draw conclusions. We can all express our opinion on the situation. We're not saying in any way that our truth is the only truth because it's our truth. But what we're trying to say we are aware that at the moment we have the coverage of portfolio with provisions highest in the market. But you should not expect others to follow suit and have the same level of coverage. We feel comfortable. I think that's the conclusion. And I would not like to talk about others.

I feel comfortable with many visions. That's how I put it. I like to work with facts. And as we stated after the previous quarter, let's not try to react nervously. Let's see what subsequent quarters are going to bring. We've just seen some elephants running in front of us. There was some dust that was raised by this event. So let's wait. Let's ask passersby what they think about it.

What we know for sure is that courts adjudicating on these matters don't seem to be interpreting the cases in a uniform way. This is what we expected. After the Court of Justice judgment, if you recall, we said that the level of anxiety has not been dealt with. It's at least the same as before the judgment, and that is confirmed in the current situation.

[Unknown Analyst]

A question related to Swiss francs. Madam President said that you will have a different approach to CHF mortgage holders. What did you mean?

[Brunon Bartkiewicz, executive]

Well, what I meant was that we are changing the way we are presenting provisions related to CHF cases. We also read media reports, ladies and gentlemen. We're trying not to take sides in any media disputes. That's not our role, I think. I understand what she meant. Journalists are always asking if banks have uniform conditions for settling with customers.

If we have any schemes for settlements, when are we going to trigger settlements? What percentage of customers are positive about settlements? The dust is still suspended in the air. Let's wait.

[Unknown Analyst]

A question again about CHF mortgages. Did the entire portfolio go to Stage 2 or only the disputed mortgages?

[Brunon Bartkiewicz, executive]

The entire portfolio was moved to Stage 2, and we've been doing that for some time now. It's not just in Q4.

Do we have any questions from the room?

[Unknown Analyst]

Legal costs, the legal risk after the Court of Justice judgment. Can it speed up consolidation? Or is it just a droplet in the sea of problems faced by banks that just increases costs?

[Brunon Bartkiewicz, executive]

There isn't a direct link, I guess, but I think you already know that for some time we've been pointing your attention as a bank and as the Polish Bank Association to the fact that the profitability of the Polish banking sector, whichever way you define it, is going down, and it's been going down for some time. Over the last 12 months, we could say that the profitability of the Polish banking sector as a whole is one of the lowest in Europe, if it is not the lowest. So over 5, 6 years, from the highest profitability, we've gone down to the lowest profitability. It's been going down in Poland, growing in other countries. One element in the region. What did I say? In Europe?

Well, let's talk about the region. In the region, not just in Western Europe, because we're also talking about Western Europe. The Polish Bank Association is presenting materials that are sent to the KNF. So there's some tension related to ROE.

What is ROE ultimately? The return on equity is a nice indicator that defines profitability. At some point in time when ROE goes down below certain magical values, you have a problem because this means that banks are not able to reproduce their equity, and they have to introduce major changes, for example, to cut lending.

And is the Polish banking sector at this stage? Well, in terms of numbers, yes. We are seeing capital barriers in this respect. They can be attributed to a number of issues. Defining RWAs in terms of commitments is high. Capital requirements for RWAs is high. And the ability to generate profit is high. So we have a number of elements that contribute to the profitability going down in the Polish banking sector.

More elements of anxiety that translate into capital buffers or any burden on the P&L may lead to a situation that when a bank is not able to generate sufficient ROE, the bank or its owners will look for a different entity to take over. If that's what you mean by consolidation, all right, we can call it this way, but there's the element of intention.

A typical consolidation or a merger is about 2 entities merging to create bigger value. Here, we have a specific situation where 2 entities are merging or there is a takeover to escape from a certain trap. If the Court of Justice burden just feeds the flame of transformation, that's the conclusion you can draw.

So if you're asking me, sir, if the Court of Justice situation may lead to some banks falling into the trap of excessively low ROE and thenceforth they should merge with a stronger entity to try to address the problem as part of a larger entity, this economic situation does exist.

Is it materializing? It's a different kettle of fish.

[Iza Rokicka, executive]

We have some questions from the Internet about the small Court of Justice judgment.

The first one comes from PKO BP: The adjustment of PLN 21 million, will it be repeated in subsequent quarters?

[Bozena Graczyk, executive]

The adjustment of PLN 21 million applies to the current portfolio for the date of statement. So it changes the profile in -- for some loans that will be paid off prematurely. This way, the adjustment will move in a rolling way to subsequent quarters, but the value will be lower because we've already adjusted the existing portfolio to the expected values of line settlement.

[Iza Rokicka, executive]

Second question from Societe Generale about small Court of Justice: Do we stick to the earlier statement that the impact on interest -- net interest result is PLN 30 million?

[Bozena Graczyk, executive]

Yes, we are sticking to that.

[Iza Rokicka, executive]

Let's move to a question about the big Court of Justice judgment: At the end of Q3, ING had provisions of PLN 24 million for Swiss franc cases. At the end of 2019, the reserves amount to PLN 45 million. Where does the impact of PLN 8.9 million on the result come from?

[Bozena Graczyk, executive]

Historically speaking, as I indicated, we've been creating more provisions for Swiss franc loans. And we explained that before. This was a matter that, even before we started the portfolio provision, we've had provisions for Stage 2 CHF loans and any contagious loans related to the fact that borrowers had CHF loans. So we've consolidated this amount in the portfolio provision, and that includes the disputed amounts from previous amounts. So PLN 8.9 million is a result of settlements related to a changed approach to the setting up of a portfolio reserve in line with current rules.

[Iza Rokicka, executive]

A question about the sale of retail loans: Why are cash loans going down? Why did they go down in Q4? Is it related to the adjustments related to small Court of Justice judgment? Should we expect growth this year in terms of cash loans?

[Brunon Bartkiewicz, executive]

Better sales in terms of the future? The answer is simple: no comment. Any special reason for Q4 performance? No. Let's move on.

[Iza Rokicka, executive]

A question about mortgages: It's an online question from a journalist. There are ideas to limit the sales of mortgages, ideas from the government. Do you see arguments for that?

[Brunon Bartkiewicz, executive]

On the one hand, in the sector, sales are going up. But margins have also gone up, and this may suggest higher risk. And the banks have been declaring that they're going to be more reserved in terms of their approach to mortgages. That's what they said to the National Bank of Poland.

I think you have to help me, Iza. I don't see the essence of the question.

[Iza Rokicka, executive]

Do you see arguments for restricting lending of mortgages, mortgage lending? This is the idea from the government. Do you see any?

[Brunon Bartkiewicz, executive]

Well, frankly speaking, I don't know any government plans related to the lowering of mortgage lending. I will not comment as a result. It's difficult for me to elaborate on the latter part of the question. I already talked about the analysis of the real estate market for individual customers.

[Iza Rokicka, executive]

Two more questions. Deposit rates have gone down for businesses, but not just that. To what extent is this the result of the optimization of the balance because of the BGF contributions? To what extent will it be maintained in the coming years? And will deposits for retail continue to fall?

[Brunon Bartkiewicz, executive]

In Q4, we did not cut any rates for deposits. I don't know who noticed that. Is the question about the market? Right. So we have to separate what's happening at the bank and what's happening in the market. In the market, some banks have cut interest rates, but it's not our duty to comment on what other banks did.

The second question was about corporate deposits and BRR grounds. We did take action. I don't know why we are being asked about it. It's an element of optimization that everyone does.

[Foreign Language] Next year. It's in the future, in 2020. Well, having said all that, it seems that we are in for a large influx of deposits. It's because there will be a sizable amount of money flowing to individual customers, and the consumption will not grow at that pace. So it gives us a potential growth of savings, and the savings have to be allocated somewhat. So it's fair to say that's -- reasonable to say that they won't go to the stock market. They will go to the deposits market.

Anyway, the question is when. And the question is, are there any alternatives for entities with this disposable income? Well, there are some like, for instance, buying an apartment for rent, by buying a house in Spain, it will be there. Buying house in Portugal, too, and so on and so forth. It's somebody else's money. So I'm not in a position to comment on it.

But considering a large macroeconomic aggregates here, it's reasonable to think that there is an influx or not to say inundation or flood of, not to sound biblical, of money in store for us, and the money will go to the banks. And the rest is what Rafal said. It's all in line with the basics of macroeconomics.

I cannot see any premises for a growth for deposit rates. With all due respect to inflation, the bank at this stage can be defined as a commercial institution. Well, if I cannot sell a product, I won't raise its price. It's as simple as that. But I can understand what you're coming from, that the inflation is coming, and it will be very high. And we can see that it will be above the Monetary Policy Council target.

At the same time, the deposits -- the rates [ on ] deposits are dropping, but this is a normal part of the economic cycle. It looks artificial. It looks a bit unnatural. But frankly speaking, for the last 4 years, we've been saying that this -- the course of this cycle was less than perfect as was the situation where inflation is around 4%, and the Monetary Policy Council says, "We are not raising the rate until the end of our term." But this is up to the council, and this is up the President of the National Bank of Poland. We include these decisions in our forecasts. And we say -- our economist say that, in line with RPP's declarations, we cannot see any -- we cannot forecast interest rate changes by the end of 2021 or by the end of their term of office.

[Iza Rokicka, executive]

And the last Internet question from the Capital Fund: What is the difference between your REL requirements and the requirements in the case of banks with the Polish capital?

[Bozena Graczyk, executive]

Well, the formula is very same. So to this end, there is no difference. Our REL level is a derivative of basic ratios and buffers resulting from Pillar 2, which are not there in our case. Hence, our requirements, our REL requirements is lower than in other banks.

[Brunon Bartkiewicz, executive]

And well, there are no rules that there are any regulations dependent upon the composition of -- or the shareholding structure. So such a formula would not be legal, frankly speaking.

[Iza Rokicka, executive]

Is it possible for your mother company to take over the REL requirements?

[Brunon Bartkiewicz, executive]

I think it's still too early to say. Maybe after Q2 or maybe after Q1 even, we'll be able to give you more detail on that.

[Iza Rokicka, executive]

Now let me ask about the sector because you said you expected a small deluge in deposits. So my understanding is that the financing cost is going to drop? Will it improve the net interest margin or not?

[Brunon Bartkiewicz, executive]

Well, the basic element is ROE. The basic element and the basic challenge for the banks at this stage is the equity. Sorry that I'm not answering your question directly, but I'm being as direct as I can.

Any other questions that you might have? If there are no other questions, this is it, end of the official part. And now feel invited for lunch. Thank you.

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