mBank SA

WSE:MBK

Earnings Call Transcript 2018-Q1

[Joanna Filipkowska, executive]

Good afternoon, and welcome to this conference, which will present the results of Q1 in mBank Group. We have CEO, Cezary Stypulkowski; and CFO, Andreas Boeger; and the macroeconomics will be outlined by our Chief Economist, Ernest Pytlarczyk.

[Cezary Stypulkowski, executive]

Unless you would like to start with your questions? Last time you refused, so we can just as well start talking right? Okay.

The situation looks good. We've made a profit, a bigger profit than in Q4 at that. But on a serious note, we are satisfied with a decent growth of our core income lines, NII and NFC. After a less successful Q4, they are both back on trajectory of our aspirations. So we are likely to hit a mark of PLN 1 billion of net fees and commission income this year. That's key.

We've reported a one-off. We've released information, and we can answer additional questions. The volumes may not be impressive, but they are quite satisfying, I think. Loans and deposits have both been growing by 4.7% and 6.6% (sic) [ 6.3% ] year-on-year, respectively. That's quite good. Our margin has risen from a low level step-by-step due to a number of drivers. That's less thanks to our deposits compared to previous quarters, although, that's still important. We have bigger balances in current accounts. And as usual, we have about PLN 2 billion of NMLs and about PLN 1 billion of mortgages sold.

We are always trying to be selective in the process, and we continue with this approach. A major factor that we consider and that may have slowed us down somewhat in the past is the relationship between the expansion of our new mortgages and the issuance of covered bonds. That's my dogma that I like to endorse. We have issued covered bonds in Q1 at EUR 300 million.

Concerning the capital ratios, I don't need to comment. The ratios have remained above the regulatory limits. The cost of risk in Q1 was largely impacted by mainly low corporate LLPs.

Points of perhaps less interest to you in terms of our mix. Well, first of all, I think we are quite smart in opening new accounts for SME customers, micro companies. This is going pretty well and improves our customer acquisition. That's new firms, new businesses, and there's much going on. This is a very smart process. What we did in retail, that's the first product of mAccelerator, CyberRescue. This offering has not been largely publicized or marketed by us. But if you have a problem with online security, you can call us -- call our hotline to get support. And we are offering this via a number of channels. It's still in the bud, but I think it's an important add-on to our soft strategy. We are focusing more and more on security, and we believe that mBank is more focused on security than our peers. We are trying to be very subtle in the way we worded but that's our purpose.

In corporate banking, we offer a new functionality, which was previously offered to retail customers, and we are quite unique here, namely, transactions can be confirmed in -- on mobile devices, and that improves security of our customers' operations. I don't want to talk about deposit machines for cash, but that's another point.

We have maintained our approximately 6% market share in retail banking and a similar share in corporate banking. Although, historically, mBank has had a stronger focus on corporate deposits, and I do believe that we can still optimize our NIM there.

As for the numbers, I don't need to explain about what you can see in this table. It's for you to read on your own time. The net interest margin has improved to 2.61%. Costs in Q1 were rather high. If you have specific questions, Andreas Boeger will be happy to clarify.

Our cost/income ratio remains our main guidance, although, of course, we realize that a lot of cost items are fixed and then, when times turn to the worse, our cost/income ratio might deteriorate. But we don't have that many fixed item lines after all -- fixed cost lines after all. And when we generate one-offs, we are happy to spend more because we are more certain looking forward.

Return on equity and return on assets are a function of all the other numbers, of course.

I've talked about our balance sheet growth so that will be all from me. After this brief introduction, why don't we move on to questions. We are here for you, unless you really have the pressing need to hear a brief summary as to our macroeconomic predictions, but I think it's better to just open the floor. Thank you.

[Unknown Analyst]

So let's talk about costs, which have been growing. There's a clear increase of IT costs quarter-on-quarter. How much is this due to upfront booking of project costs? And to what extent is it maintenance costs and recurrent costs, especially, that your revenue in Q1 was largely driven by one-offs, as you said yourself, because it's the cost level that catches the eye at first sight?

[Cezary Stypulkowski, executive]

But even if you ignore the one-off, revenue was quite strong.

[Unknown Analyst]

Yes.

[Cezary Stypulkowski, executive]

Especially NFC.

[Unknown Analyst]

So I'm going to ask about that later. But first of all, what cost base would be the recurrent base plus inflationary pressure going forward, net of BFG fees, net of costs that you believe are related to specific projects that you booked or invoiced?

[Andreas Boeger, executive]

Good. I think the straightforward answer isn't there, but the straightforward answer lies also in the cost-to-income ratio. I think that's the key to all of it. And let's spend a minute on income because I think income, if you look at it, core income, year-over-year, is up by 8.6%. Core income quarter-over-quarter is up by 2.5%, just in the quarter. The quarter had 2 days less so this, for our net interest income, is not positive. In the quarter, we had to digest that, for example, now, the minimum reserve for the Central Bank is -- has a lower yield. All of that are negative trends, but net interest income is only down 1.1%. And as I said, core income is up 2.5% in the quarter, and net interest margin has increased. So I think when it comes to the growth engines or the engine that is fueling the bank and for which we have to put also some effort in, the income stream, this is still very much intact. When it comes to cost, I think cost we should look at a quarter-over-quarter basis, and we should also look at a year-over-year basis because quarter-over-quarter, and let's look at the middle, at the blue bar in the middle, the plus 4.4% on material cost is basically only IT cost in Q4 and Q1, but Q4 was also quite low. If you compare Q1 this year with Q1 last year, IT cost is up by PLN 4 million, which I think is -- if you look at our IT-heavy business model and you think at how we generate revenues and how we actually interact with our clients, it's not something that is really out of the ordinary. But let's explain this a bit. I think, HR cost doesn't need to be explained that much, the green line, so let's stay with the blue line. So as I said, quarter-over-quarter, IT cost, and the IT cost was PLN 12 million more in the first quarter than in the fourth quarter; year-over-year, also an increase by 11.2%. That is -- I think it's 18.5% -- PLN 18.5 million roughly what is the increase over year-over-year, and that is basically driven by 3 different lines. The one line is marketing cost, PLN 7 million; IT cost, PLN 4 million; and also consulting cost, PLN 4 million. So this explains PLN 15 million out of this PLN 18.5 million. And I think if you have our business model, it's clear, if you don't invest in marketing and if you don't invest in IT, you're not growing the bank because we will not grow the bank -- we're not growing the bank by heavily having hundreds of branches, et cetera. We are a branch-light but technology-heavy model. On the other hand, when it comes to consulting, that -- these consulting fees, obviously, it's a question of cost management. But if you look at the kind of project we, as a banking industry and also as mBank, are facing, starting from IFRS 9, MiFID 2, GDPR, et cetera, this is just the new reality we have also when it comes to regulatory burdens. The overall cost picture, in terms of if you add personnel cost and material cost, did increase 5.9% year-over-year. So the increase you see, if you add the green and the blue bars and you compare it year-over-year, is 5.9% vis-à-vis core income growth of 8.6%. So this is still intact. Then we have left out the red bar so far, that is amortization. Amortization is also driven by IT amortization, so this is also amortization of basically new products, things we have brought to market. This is our investment in the mobile platform, in the Internet platform but also into processes where we have to optimize the bank. They are down in the quarter but up year-over-year. Having a number here at PLN 65 million is quite a high number, but I also don't expect us to go back to fully what we have seen in the first 9 months. So I think amortization, as we further invest into the business, is still -- will still rise. Having said that, as long as we have this mechanism, that core revenues, as I said, plus 8.6%, and costs are growing slower, we're still positive for cost/income ratio. And that's the way how we want to say -- how we want to manage the bank because we don't want to manage to just look good in a single year but to keep on investing.

[Unknown Analyst]

Why don't we talk about fees? It's a very good figure in Q1 partly due to the fact that your commission fee and commission costs went down. Is there any seasonality in it? Is it because you've been renegotiating your contracts? Because on the right-hand side, your business is growing; on the left-hand side, your costs are dropping. And they are dropping in relation to external distributors, among others. And the magic term, other, which is less transparent perhaps. So how much of that is sustainable, more or less, of course, given that activity of your customers may be volatile quarter after quarter?

[Cezary Stypulkowski, executive]

I remember when I joined the bank, I brought my London view with me, and I believed that commission income in the bank was disproportionately low. But our business model is also different from the leading banks like BZ WBK, PKO. They operate a card business and put it inside these numbers. We are paying for that. So on a net basis, 25% of fee and commission income is good. I used to subscribe to the golden rule, which I have since verified. I believe that we would pay our salaries with fee and commission income. That was my invention, my tool. But we still do that. We can pay our salaries with the fee and commission income. That's theoretically more stable. But going back to your question, clearly, we have the potential. We have, so far, been focusing on growing our customer business in expectation of growth of fees and commissions. That's obvious. But optimization of the costs we pay is now more in focus. We have a better capacity to compete. It is no secret that we have added new partners who provide ATM services to the bank, and that's been good for us. We are not expecting a revolution, but we will continue to fine-tune our costs, there's still room for that. We cannot also be excessively aggressive because, at the end of the day, we have a symbiotic relationship with our service providers in a way, but there is still some room. We are a relatively large operator when it comes to card transactions, but we do not have our own card infrastructure, so others provide that service to mBank. I believe that we have to focus on whatever we are good at. So to take your question, I think we still have some potential, but we are not expecting any spectacular growth. But our business will continue to grow. It is growing this year, it is growing in April. Would you like to add something?

[Andreas Boeger, executive]

That was the cost. Maybe that was the cost side where, the cost side, we have optimization. And also, Q4, we said that in Q4, Q4 was heavily invested also on the cost side. And on the revenue side, I think you'll see that it's across the board but also, driven by what is clearly seen also by the other figures. It's credit-related fees. And you'll see that, for example, on mortgage loans, investment loans. And mortgage loans are going up. And it's also driven by card payments, which shows the transactionality. So I think there's -- it's not a one-off character, it's a good -- it's a very proper income side, together with the optimized expense side. And the expense side in the last quarter was especially tainted by basically investments into the infrastructure.

[Unknown Analyst]

Could I follow up on fees and commissions, an additional question on the impact of your sale of part of mFinanse? PLN 46 million on the insurance business of the quarter, what's the perspective going forward? What is the quarterly number? How much of that income will not materialize?

[Andreas Boeger, executive]

So what we've done in the transaction, we have sold a part of mFinanse. mFinanse acted as an insurance agent for group insurance products. The quarterly revenue we see -- you see currently from this is roughly PLN 25 million. But obviously, this is a portfolio, this is a snapshot, at this point in time, and the revenues would -- anyhow, it's not that -- also in 5 years, this is PLN 25 million. But currently, it is roughly PLN 25 million per quarter. But there is a run-off profile. In terms of -- so this, you will not see but -- and now it's PLN 25 million, but it will be less over the next quarters. Against this, on the other hand, you see the strong one-off in Q1. And you will also, in the next quarters, over the next 6 years, see some other operating income we generate from this, from the transaction. Q2 accounting reasons, this is not shown in net fee and commission income, but this will basically be the replacement for this. It will be, over the next 6 years, a maximum amount of PLN 192 million, but this will also heavily depend on the performance of the portfolio. The same as the performance would, actually, currently, if you now close the book of insurance contracts, and you only look at this one book, at this vintage basically, and in 2 years, your client cancels the product, your fees will also be gone. And that's a similar mechanism that is also built into that transaction we have together with the purchaser. So it will heavily depend on the profile, how stable it is. So it will be a maximum of PLN 192 million, but you will see this always in other operating income, but it will be less than the PLN 25 million.

[Unknown Analyst]

If I could follow up on the share of mFinanse contribution to Q1 profits. PLN 220 million gross, that was your income from the sale of that company. The report says 100% that's reconciled with mFinanse, PLN 57 million gross. I understand that mFinanse, that's PLN 250 million plus PLN 57 million -- sorry, PLN 220 million plus PLN 57 million of taxation on the pretax profit. Is that correct? That was the gain on the transaction? The report says in detail which company -- so 100% consolidated, and mFinanse is one of those. PLN 57 million -- PLN 220 million that was booked in Q1 plus the transaction -- the gain on the transaction.

[Joanna Filipkowska, executive]

But that will be gone in Q2. The company stays with us. We sold only part of it, a part of the enterprise of mFinanse. But mFinanse continues to operate, and it will continue to generate revenue and profitability, we hope.

[Unknown Analyst]

I'd like to ask about the opinions you previously shared on the cost of risk. Cost of risk this year, according to your guidance, is about 70 basis points, although, at some point, you said this was not a conservative assumption. There were some other risks. Now it's 57 basis points in Q1. I understand that there's less transparency due to IFRS 9, but could you possibly update your guidance now because that would mean that the cost of risk in the upcoming quarters would have to be much higher than 70 basis points. But it seems that the trends and the quality of your assets, that's quite good, at this point.

[Andreas Boeger, executive]

Generally, on cost of risk, that is on Slide 14. We have 2 effects when you also compare this to last year, to the 61 basis points we had over the full year. On the one hand, we have IFRS 9. And I think we talked about it that IFRS 9 will, in a growing portfolio, add some more basis points to cost of risk and also it will add more volatility. The big volatility, we haven't seen in this quarter, but we will all learn from this, and we will see what IFRS 9 does. But this is too -- this is the first effect. And the other effect is that, as you know, when we look at our balance sheet steering, how we steer the business, it's very important for us that we manage the legacy Swiss franc portfolio downwards, which has a very low cost of risk but it also has a very low profitability for us, as we go into more higher-margin products and higher-margin products, especially on the retail side, when it comes to non-mortgage loan. So we will also -- next to the IFRS 9 effect, we will have a constant trend of retail, cost of risk going up. But on the other hand, against this, you will also see net interest margins going up. So overall, this will translate into higher P&L. What you see for the first quarter is obviously only a short snapshot. You see higher cost of risk of 92 basis points in retail, which I think is a significant increase, if you look at it over the last quarters. But as I said, this also has to do with increased profitability and different product mix. On the other hand, you see the 15 basis points cost of risk in corporate. And I think in corporates, it's very difficult to judge the cost of risk by a single quarter. And also the first quarter is a quarter where you normally -- you still have things that you also then book in Q4. And the first quarter is basically quite a short quarter when it comes to this, and it depends on just the seasonality also. And we have not seen a lot of corporate defaults happening in Q1, but that does not mean that we don't see this over the year because this is the business we are in also in the corporates. Not only in retail, we take more risk and have more cost of risk, but also in corporates, it's quite clear that we have plus have cost of risk there. So we would still say -- that, I think, is your question. Last year, 61, I would say for this year, it may exceed 70 basis points.

[Joanna Filipkowska, executive]

Any further questions?

[Unknown Analyst]

How are you planning to book the cost of the incentive scheme, about PLN 300 million, upfront or over time? Will it affect your profitability?

[Unknown Executive]

The structure of the incentive scheme is very similar to what we had before. The scheme is booked on an ongoing basis over time, and we'll continue to do that. So this will be a cost item every quarter. If you look at the details of our personnel costs, we have an item there, cost of remuneration paid in shares. So that's booked over time. The approval of this scheme doesn't mean that we are booking it upfront, it's booked every quarter, like we did before. It is nothing new really. The scheme that has been approved now is a continuation of the scheme we had in place. It's for the next 10 years. The previous scheme covered 2008-2018, this is now 2018-2028, but the structure and the booking approach is exactly the same.

[Unknown Analyst]

Cost/income ratio and your orientation to manage the bank based on cost/income ratio. I remember several years ago, the cost/income ratio deteriorated because your income grew less than your costs. Is there a scenario you envisage where your costs will drop so your revenue will drop? Do have the flexibility to cut your costs as well? Or is it just a rule of the thumb, especially at times when costs -- when income grows?

[Cezary Stypulkowski, executive]

We all know that the Polish banking sector has been surprisingly -- has been burdened with a number of new public levies. That's something hard to manage. But we continue to manage with the cost -- to manage the bank with the cost/income ratio. I think in retail banking, we have a structural advantage. In corporate banking, we are improving and implementing solutions to cut some costs. We are investing now, but I think -- well, I do believe that this bank has a structural potential to grow its revenue more than to cut its costs. We don't do what other banks do, we cannot close 30 branches. The number of branches has been stable. And in special circumstances, we are considering or deciding to expand the branch network. We have a much better brand recognition, and we are also under weighed in penetration of smaller towns, 60,000 to 150,000 inhabitants. We are less flexible -- we are less present there, and we could improve our presence because physical presence does play a role. This may change but it still plays a role. So we do not have the ability to adjust the branch network to the same extent other banks may. But for me, it's not about the perspective of others -- or rather, it isn't about any other -- but the main principle, the guiding principle is to grow the revenue, and our revenue has been growing. When it comes to customer acquisition in retail banking, we see a growing number of new young customers, and we have specific advertising campaigns targeting young customers. So we could ignore them and report better results now, and then my successors wouldn't benefit from the investments we are making now. But we are trying to maintain the intergenerational continuity.

[Unknown Analyst]

Your funding by Commerzbank, it has been fully replaced by now. I think there's just PLN 3 billion left across the group from PLN 20 billion-plus. Are you going to continue restructuring your balance sheet? Or is it a done thing? Are you done with that?

[Cezary Stypulkowski, executive]

Well, historical financing that we raised directly after the crisis was expected to stay in place for 10 years and to be repaid by 2018. So we are pulling out of that based on the contractual arrangements. We are replacing that funding with market money, with money raised through issues placed on the market. We still roll over some subordinated instruments with Commerzbank. But as a rule, given our present balance sheet structure and given our current funding base, we could actually get less expensive funding. We could switch to the funding mix that, for instance, Millennium uses, with a good -- with a positive impact on the P&L. But it has its downside because it increases the risk profile of the bank, and it also interferes with some capital requirements. As a rule, in 2018, we will fulfill our contractual obligations with Commerzbank. And we do some swap transactions with Commerzbank but not all.

[Joanna Filipkowska, executive]

If you have no further questions, we have some questions that came online. Does the bank or its customers have a material exposure to GetBack? And another question from [ Mr. Kozowsky ] of Raiffeisen, which you have partly addressed. What is the cost of risk range and cost of -- cost/income ratio that you would be comfortable with later this year?

[Cezary Stypulkowski, executive]

In cost of risk, well, as we've said, this bank's guidance is about 70 basis points. We used to believe in 50, but the mix of our loan portfolio has changed. We have a bigger proportion of high-risk products, so it seems natural that the cost of risk will rise. Will it be 60 or 70 or 72? Well, you cannot possibly expect us to be so specific. But this year, as Andreas said, this year is very likely to be good. No threat is looming on the horizon. After Q1, cost of risk was relatively low in corporate banking. LLPs were low. As for your first question, no, we don't think there's any material threat due to our exposure or that of our customers to GetBack. We've reviewed the portfolio, we've run an audit, and it doesn't seem to be an issue.

[Joanna Filipkowska, executive]

One other question from Raiffeisen. It seems that the bank's capital base is excessive. Still, the supervisor oversees your dividend. How would you like to improve the efficiency of your capital? Any acquisitions in mind?

[Cezary Stypulkowski, executive]

Well, this is a good point. The regulator is acting as a regulator should. Nothing has really changed when it comes to acquisitions. Our opinion is as follows. A potential target would need to be of a scale sufficient to justify the effort that is required by a merger. A merger is always a difficult process. We believe that we have the capacity for organic growth. We've enjoyed that for many years. We've been through an exercise with Deutsche Bank, as you know. And one of the reasons why we decided not to engage was that, in our opinion, organic growth would suffice and would allow us to remain focused on the profile that is acceptable to us rather than engaging in business lines that do not match the expected risk profile of the bank. We don't want the bank to be distracted by difficult and complex processes that would engage -- especially when it comes to an institutional merger rather than the acquisition of customers, that would engage and occupy a lot of our IT resources. Our advantage is that we are flexible, relatively flexible with our IT, and that we can adjust rather quickly. And if I may be bold enough to say so, we may set the direction of what is expected or what is inevitable in customer relationships. A year ago, we abandoned our dogma because we used to believe for years that the bank should only grow organically, and we decided we could consider some opportunities if those arise. But they must be really reasonable. The more focused we stay in our business profile, the better for the bank. So the potential targets should match that profile. So when it comes to banks with a balance sheet of PLN 30 billion, PLN 40 billion, PLN 50 billion, well, that's an opportunity. And if an opportunity seems reasonable to us, we may consider it.

[Joanna Filipkowska, executive]

One further question from Société Générale.

[Unknown Analyst]

For 2018, also any color on outlook for corporate portfolio growth would be helpful. Did you notice acceleration in investment activity in the quarter?

[Audio Gap]

[Cezary Stypulkowski, executive]

And the second, I think, is that diminishing Swiss franc portfolio also positively impact our overall NIM situation, not mentioning that we are able to tap less expensive money in international markets right now. So I would say all these elements, here and there, positively should impact our net interest margin. The second was on prospects of the corporate portfolio. I believe that the 6% growth which we have witnessed year-on-year, I think, to be continued. I think that -- I was talking to the credit committee members, and they are reasonably positive. It does not translate in a big way into the investment type of loans. One issue, which I think you know, it has been flagged by a number of the banks recently. There is some concern about some of the industries which, naturally, lead to some conservatism on their lending side. We historically have been clever enough to avoid the turbulence in the construction industry. But in principle, I believe that the 6%, 7%, which is currently being delivered, should be sustainable, unless Ernest will comment more favorably, which he usually does. I was requested to refrain the net interest margin because it has not been heard and, consequently, was not -- yes, okay, transmitted. So on the NIM side, I think that we still foresee the potential. If you look into the NIM buildup, I think that on the deposits side, I think we have still in a -- we are still in the process of slightly changing the mix of the funding from our customers. I think that we are very much privileged by the inflow of the retail deposits or retail money on our current accounts, which are relatively -- which positively impact the overall NIM. We can be more picky, I may say, on the corporate banking deposit acceptance. In a situation where we are a significant player, we are currently playing somewhere between 9%, 10% of the corporate deposits. I think that there is a scope of optimization which is possible on this front. The substitution of the money from -- which funded our Swiss franc portfolio, was bigger participation of the swap funding, should positively impact our net interest margin, not mentioning that we also are able to tap the money from international markets less expensive than we used to do. Just to remind you, the portion of the funding which we generated in 2013, which was the -- I don't remember whether it was CHF 200 million or CHF 300 million, it was under -- as I remember, the coupon was 2.5%. It's pretty obvious that today, it will not be 2.5%. So it's -- you have, here and there, a piece which, naturally, should lead to some improvement of our net interest margin. And on top of that, obviously, the Swiss franc portfolio is going down. And it was -- I would say, the way it was offered, 10, 12 years ago, to the customers was -- favored them, if I may say in this way. So the diminishing of Swiss franc portfolio also should positively impact. So I would say, all in, positive picture. And we are not complaining that much on the domestic competition.

[Joanna Filipkowska, executive]

Any further questions from the room? If not, thank you very much, and please join us for refreshments.

[Unknown Analyst]

If you could give us an outlook, Ernest, an upgrade of your outlook?

[Cezary Stypulkowski, executive]

Whilst you're here, Ernest, why don't you speak as well?

[Ernest Pytlarczyk, executive]

I spoke a lot at the last meeting. I dominated the discussion. After all, the discussion should focus on the bank. But okay, let me talk about whatever contradicts our view. We are quite optimistic. In our opinion, we are at a -- in a different place now than we were in 2012. There are many more buffers and cushions that could protect economic growth against negative drivers. These include: a strong labor market, strong consumption. I believe these drivers should come first, investments come second. They come because demand is strong, and the labor market is strong, and that helps to drive productivity. Of course, there will be some victims of that because consolidation in some sectors is inevitable. But I wouldn't jump to conclusions based on the performance on the stock market, which is not representative. Many sectors are not represented in the -- on the stock exchange, and they are doing very well on the Polish market, especially in exports of Polish production. So we are quite positive, in a time horizon of 1 or 2 years, public finance will be helped by the current conditions because the current mix is very good for public finance in terms of revenue. So within the time horizon of 2 years, I see no drivers that might undermine our credibility to investors. We have a balanced foreign trade, we have a surplus in net services, we are an exporter of services and we are not really at a risk of remaining stuck at a mid -- moderate level of revenue. This was a potential threat a couple of years ago, 7 years ago, but we are now participating in the German market cycles. So it's a European love story. We are much more focused on the region, and the legal market is strong. The monetary and fiscal policies are expansive, and that's different from 2012. I know that there's a negative sentiment around the construction sector. We are also very alert. But again, it's different for the construction sector now than it was in 2012. The construction companies are much more cautious running tenders. They were much more willing in 2012, but now they are very cautious because of the high prices of services and commodities. What could happen possibly is that the absorption of EU funding will be slower because it will be more expensive to use them to buy infrastructure under the circumstances.

[Cezary Stypulkowski, executive]

I have a question. After what you said, my question is do you still believe in your prediction about the -- about Poland joining the eurozone?

[Ernest Pytlarczyk, executive]

We are not going to join.

[Cezary Stypulkowski, executive]

Do you still believe if we have this very strong relationship and our markets are so close, well, this could be an argument against Poland joining the eurozone as well. But don't you think that the course of events take us to a more positive and a more -- and a sooner accession to the eurozone?

[Ernest Pytlarczyk, executive]

Well, the eurozone is often considered to be a panacea, and the countries that do not qualify, such as Bulgaria, would just like to join in because they would like to be more credible. Countries such as the Czech Republic, however, well, everyone was expecting them to become a member of the eurozone. But no, they want to be a Switzerland. They do believe in the national currency, and I still believe that this mechanism is good when push comes to shove because it helps countries to improve competitiveness and prices. Italy tested it once, and now they have a strong social pressure on trying again. In 2002, they had very strong depreciation of the currency, now they are trying to do that again. Look at the outcome of the Italian elections. That's what markets feared the most, but the markets didn't believe that this could possibly prevent the pullout from the eurozone. So I do believe that we have seen some social changes in Europe where nation states are rising -- on the rise again. Nation states are still the foundation of identification or identity. Maybe in a couple of years from now, in a couple of dozen years maybe, we will have a European identity. I'm not a great humanist myself or a human sciences guy, but I think that the mistake we made was that instead of introducing people to European culture, values and languages, we created an artificial European identity without a strong base, a strong foundation.

[Unknown Analyst]

So you believe money talks.

[Cezary Stypulkowski, executive]

Yes, money talks. And Poles, well, we are very pragmatic in Poland. When money flows, it's okay. When money no longer flows, then we remember other things matter. We don't like overregulation. Our European identity is very shallow.

[Cezary Stypulkowski, executive]

We are in open dialogue here at the bank, and we continue arguing, and we exchange our opinions and views. So please, join us for refreshments.