mBank SA

WSE:MBK

Earnings Call Transcript 2023-Q1

[Joanna Filipkowska, executive]

Good afternoon, ladies and gentlemen. Today, we will present the results of mBank Group in the first quarter of 2023. The speakers today are Mr. Cezary Stypulkowski, Chief Executive Officer; Mr. Andreas Boeger , Chief Financial Officer, for the last time with us today. Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist.

With that, let's start.

[Cezary Stypulkowski, executive]

So I want to introduce yourself, Pascal Ruhland, who is -- as it was in a public domain already announced, he will be our next CFO. As you know, Andreas is departing us to take over very important position in the Commerce Bank Group. And Pascal, who by the way, was with us some years ago already, returns back, if I may say, and he will take over as of first of May.

So he will be the sort of the new first counterparty to many of yourself. At some point, we'll organize person-to-person meetings of Pascal with a group of interested people. And I think that, that will be the more formal introduction with -- to Pascal. He is with us today. I think that's the good platform we need to introduce himself to our analysts, investors and the people who will be on a regular basis meeting with him in the next years.

First quarter. Well, to -- as you know since many quarters we strongly believe we have an exceptionally strong business model and client base, which generates significant revenues for the bank. And we believe that will be continued, but the first quarter itself was very strong. Net interest income has grown on quarterly basis by 6% and net fee and commissions slightly above 7%, though first quarter of last year was weaker, I may say, comparing to the previous but still, we believe that fees and commissions will continue to be in a reasonable level.

Efficiency, which we are very proud of, on a quarterly basis, cost income ratio 33.4%. And very important aspect, which unfortunately, we have to report on a quarterly basis of how much money we put aside for Swiss franc saga to this quarter as it was preannounced a few days ago, we put aside PLN 808 million. That will be explained during the course of today's presentation, show the gross profit that means what we have produced in our core bank was PLN 1.316 billion.

At the same time, we've been able to keep the capital ratios at the level comparable to last year that will be explained later on. The balance sheet figures are, I would say, rather flattish. That means the loans have grown by 1.1% on a quarterly basis. So in the context of 2023, we have to admit that there was even, I think, slight that was 1.3% less than the end of first quarter last year. Well, we are benefiting from the internal deposits. The bank is growing its market share with this balance sheet item on a quarterly basis, it's 3.9% higher on an annual basis. This is almost 12% higher than the previous year.

Let's move on. Well, what's worth to mention is that the total income has reached PLN 2.5 billion, PLN 2.561 billion significant growth compared to the previous year. As I have said, I think that this is partly driven by the net interest income, which we have signaled last quarter or end of last year that it stabilizes, but we are still benefiting from the growth of this line. Cost-income ratio on the annual basis, as you see, if you compare , we are running right now on the core bank and core bank, it will be even lower. The reported figure is 38.7%. But when we normalize the contributions to BFG, this is lower, 32% was last year and comparing to this year, 28.7%, respectively and reporting 33.4%.

Net profit in the core business, that means to that -- I would say, not taking into account the Swiss franc portfolio. We have increased this by 41% compared to the first quarter of last year reaching almost PLN 1 billion. If we calculate our return on equity based on the capital used for the core bank and the net profit, which we have generated on this capital that is, as you see, very attractive figures of 33.5% generated as a general equity in the core business.

On the capital side, despite all these events, which will be still commenting, we are, I would say, keeping the capital ratios that like to be stable level with some, I would say, reasonable surplus about the capital minimum set for the mBank.

Well, we're in the times where ESG is one of the major topics, which, you know -- analysts, suppose the banks to report. I think that talking about this prospective few issues, which we are really focusing on. One is the security of our systems, we have introduced during the course of the first quarter the new functionality on our mobile application, which is the verification of identity of our employees. A number of problems which happened in Poland have related to the situations where someone is pretending to be the bank employee.

That's the reason that we introduced this functionality, which allows the customer to be fully aware about the person he's talking to from the bank and the customer needs to confirm that he's aware in the mobile application, which I think adds another layer of security to mobile applications or -- to the mobile applications of our customers and to the context, which are generated by the bank part, potentially criminals vis-a-vis the banks. So I think that that's something what is in line with our overall strategy to make our systems as secure as possible.

First quarter is usually the annual event of Great Orchestra of Christmas Charity, which we are supporting since 6 years, I believe now. I think that we just renewed the contract with the Charity, I think last October. We continue to support both with our own funds, but the most important is that we are able to mobilize our clientele, and we also provide all the logistics to the charity this year, again, our clients and us we contributed slightly more than 10% of the overall revenues or collection of the money which has happened in the first quarter of 2023.

We have -- we believe that we are one of the leading ways in terms of providing financing to the Green Energy and one of the, I would say, top events in the 2023 was [indiscernible ] which has -- was involved in construction of flagship solar and wind project. Flagship for those of you who are not aware, the Central Poland, and this is effectively the part of the old mining of the brown coal. So I think that capacity is in the magnitude of 200 megawatts, as I understand but there will be some questions, Marek will need to explain. And on top of that, there are some new developments, which obviously you have to have some humbleness in yourself.

But since these issues are more and more important, we just a few days ago got the new rating from Sustainalytics , which has been slightly improved compared to the previous year. We are one of the top -- sorry, top 6% worldwide, I understand that this covers 1,000 banks. So we are very proud to obviously, the management criteria are still in the development, but it's better to be -- sort of championing this than on the tail side, my feeling is that in this respect, bank, as we have signaled already is well positioned. And I think that you know we really focus not on the announcing, but also delivering on this front.

We also have been started to be the member of Bloomberg Gender Equality index, which also again covers a number of financial institutions. I think that we are starting reasonably well, and I believe that in this respect, the bank will be providing more and more information in the future. Buying base, I would say, not particular changes. We continue to acquire both on the retail and the on the corporate side. I have to say that we are very -- we sense that our acquisitions specific to the younger generation in Poland is very strong, and we will be, I think, in the maybe reporting 2023, we will be more specific about the demographic profile of the new acquisition of customers.

Market shares, as you see on the right side, the deposits are flowing. On the lending side, while there is some stabilization of our market share. On the enterprise side, we -- as we used to be between 8% and 10%, depending on the part of the -- or the side of the balance sheet. Mobile banking, which is sort of emblem of mBank, continued transfer of clients on the mobile applications, very strong position in the [indiscernible], which I think sort of capitalizes the mobility and its usage since this is the application which basically is used by the mobile users. We are clearly #2 after PKO BP and the growth of usage of this application is very impressive.

We are adopting new measurements for the description of the active clients. Currently, we are using these monthly active users which is not only specific for the banking sector, this is popular measurement. In our case, as you see over the last few years, there is a growth, obviously, in some other banks the growth rates for the monthly active users can be higher because they started later. But I'm -- what we see and what I think is the most important is the fact that more and more transactions, more and more interaction with the bank, starting on the mobile application or in digital channels as it is reflected on the right or, I would say, southeast side of our Chart 7, this ratio is going up and we believe that this almost 87% of the retail process is being initiated in the digital channels is something what differentiates us, not only in Poland, but I think the worldwide.

The next is sort of the wrap-up, which you will be addressing then we are moving to the -- to something what organizes our reporting in our meetings with yourself over the last few years.

Mostly, the Swiss franc portfolio, and for this, I will pass to Marek to go through to details.

[Marek Lusztyn, executive]

So we need to start the presentation of the Swiss franc portfolio from underscoring that the first quarter of 2023 was clearly led by the full-scale settlement program that was rolled out by mBank to ritually all clients that are having active mortgage loan with Swiss francs with us. And as of today, we are proud to report that we have over 5,000 settlements concluded by now.

And since we have started the full-scale settlements program roughly 5 months ago, it shows that we are visibly running at the speed of roughly 1,000 settlements amount since the inception. Looking at the level of risk exposure with respect to the Swiss franc portfolio. We would like to highlight that the overall exposure on the net basis adjusted for the provisions created decreased to roughly PLN 1 billion that constituted 4% of the overall total loan portfolio.

Looking at the coverages. That was one of the best-in-class -- if not best-in-class among the peers with 61% of portfolio provisions for legal risk. And if you would consider also the capital, which is allocated for the noncore unit that stood at PLN 1.4 billion at the end of Q1. That in total brings us to a value of PLN 9.5 billion that is cumulative value of capital allocated for noncore and cumulative value of all cumulative value of Swiss franc related recoveries provisions created since the beginning of Swiss franc saga.

And to give you comparatives to that. That is about twice as much as we would need to convert all the active Swiss mortgage loans into Zloty if we will have to convert them at the FX rate at which -- at inception, basically, we have twice as much protection against legal risk coming from that portfolio as would be needed to convert all the active portfolio into the [ KNF ] Chairman proposal.

We also see some inflow of individual cases still into the courts that stood at roughly 1,200 thousand cases that arrived in Q1 against the bank, but this is clearly smaller than the number of settlements concluded at the time.

Also, when we -- when you look at the number of active mortgage loan contracts which are still outstanding, we are happy to show the decline by nearly 20% compared to the end the 2021, the current number of active Swiss franc mortgage loans stands at PLN 38,800 at the end of the Q1.

And then going to the next slide, that is the usual performance of the mBank business split into core and non-core. I had commented on the non-core performance, in particular from the provision perspective.

And on that, I hand over to Andreas to comment on the core business performance.

[Andreas Boeger, executive]

Thank you very much, Marek. So as previously stated also by Cezary, the core bank is really strong. Before I go into details, I would maybe take one topic upfront and let's briefly look at Page 8, because you have seen that in the quarter, we have quite a high effective tax rate. And I maybe explain this beforehand. You know we are applying IAS 34. So IAS 34 means that for interim financial statements, we're estimating effective tax rate for the full year. And then obviously, in the full year, there's no more estimation because we know how much taxes we paid. What we've done in this quarter is we have obviously estimated effective tax rate, but we took the Swiss francs out. The effective tax rate without Swiss francs would have been 25.9%. and then the PLN 808 million Swiss franc charge we booked in Q1, we treated as fully nontax deductible. That is a conservative approach, but we think that's the right time to do it like this.

And this is why the effective tax rate right now is at 17% and as I said, this is all about estimations and obviously, towards the year-end, we always have final tax rates but as I've seen also some comments, and we're expecting some questions on this. I think it's good to explain it here. It is IAS 34. And I think people were very nice to put together financial statements because it's also explained on Page 34 in the consolidated financial report, that's more of a coincidence, but if you want to see what we do on the IAS 34 look into the English version of the consolidated financial statements that is then on Page 34.

With this, let's go a bit into the dynamics of the quarter into the details. So we're on Page 13. Loan volumes, Cezary already said it, we were roughly flat in the quarter. You see corporate is here a bit up with 4.5%, but that's mainly reverse repo and by sell-back transactions. The core corporate portfolio at PLN 50.3 billion, that's like, I think, 0.5 percentage point down, so basically flat.

Retail, you actually see a minus of 1.3%, but in this minus -- so the minus is in total PLN 900 million, but it has minus PLN 1.1 billion in FX mortgage loans in. So the core portfolio was even growing a bit. But also on the core portfolio, we see that people who actually have money on deposits or have excess cash, also tend to repay loans early and we have discussed this at length that this might also contain strong traces of credit vacations, which the government imposed on us and clients, obviously, it seems not everybody needed the money, but they spent the money on just repaying the mortgage loans.

Let's go to the new lending business. New lending, as we have discussed in the last quarters, the mortgage loan new sales is strongly down, but we have seen -- now if we look back at Q4 was a low point, we are back at around PLN 700 million, where we think we'll build from there, but we're not aggressively also going after that business, rates are high due to inflation. The market is tight also due to credit vacations because the market is not liquid. People are not -- are not incentivized to sell their home if they are under credit vacations.

Yes, maybe one thing to remark, we had a steady increase in the fixed rate loan proportion of this. And this quarter was the first quarter where the fixed rate production in mortgage loans was higher than 50%, so we're a bit higher than 50% here. Nonmortgage loans up in the quarter, down year-over-year. So picture that was to be expected. As you know, our focus also here is not to gain market share, but the focus is to have a good margin here on the nonmortgage loans, and that's also what we want to have in the future. PLN 2 billion, I always say in the quarter is actually quite a good production. Well, if that's below or above PLN 2 billion, I would maybe look at the margins here for the next quarters.

And the similar picture we have in corporate. You know that we like to run a tight portfolio. You see that K1, for example, is the low PLN 1 billion on the new sales and renewals. And that was also then weaker prints, but all at healthy margins, that's good. And on leasing, we in general, see good dynamics, and you see this over the last quarters.

Let's go to deposits. Well, if the loan-to-deposit ratio, you've seen on the slides before, is 67.2% and the flat -- loans are flat. Something has happened in deposits, and Cezary was already mentioning this. We still see very good fine inflow in deposits, 4% over the quarter and nearly 12% over the full year. In corporate, it's less pronounced. But what we really like in corporate, it's strongly transactional. We have PLN 1.3 billion more of deposits in the last quarter, we see the money is on current accounts, also next to term deposits, and we benefit from the good technology we have, good client base and good transactionality here.

Well, similar to retail, obviously, retail is shifting a bit later, but we have PLN 6 billion more -- PLN 6.1 billion -- PLN 5 billion more in deposits in the quarter. Out of this, roughly PLN 4 billion is shifted or is in term deposits and we still have inflows in current and savings accounts. So that's also good. And over the full year, plus 16%, that's PLN 17.9 billion new retail money in 1 year. I think that shows that the business model is really very, very strong.

How does this translate into income, income on the next page, what total revenues at record level. You heard that the record level. Clearly, the biggest driver is net interest income. Net interest income, roughly PLN 120 million higher than in the quarter before. There is a special effect because we did verify the assumptions on the credit holidays. There's a PLN 52 million positive effect on credit holidays. We will, in the next quarter, obviously, the credit holiday. It will be more -- less and less pronounced. So there will always be small effects, but I think that's the biggest one. Maybe to just recap, currently, 80.9% of the whole portfolio is under credit vacation with, on average, 7.2% installments per for the whole life cycle that leads to a volume that is under qualification of PLN 24.9 billion. And what we have in our assumption is that 82.5% of the overall volume of clients will come with an average of 7.7% installments. But you also see this in the disclosure documents. We're very transparent here on this.

Next line item is net fee and commission income, well stronger than in the fourth quarter, but weaker than a year ago. A year ago, I would like to remind you, we booked the deposit fee for balances as of year-end. That was PLN 40 million, obviously, now is in the corporate sector. Now with high interest rates, we didn't charge this to our corporate clients at the year-end. So that obviously makes a change. The income side for net fee and commission income year-over-year is a bit weaker, but it's mostly also higher net fee and commission costs. They are not always linear but I think in general, PLN 500 million per quarter is also a good guess for what is to come over the next quarters for this year.

Maybe one brief explanation also on what is in mBank, minus PLN 28.7 million. It's mostly from the losses of financial assets and liabilities. What did we do? For PLN 49 million, we have sold low-yielding bonds we were holding. We're always trying to, on the one hand, derisk, on the other hand, if we get rid of low-yielding bonds, we can actually invest the money into higher-yielding items, and that also explains why on the right side, you, for example, right upper hand, you see that the interest income from non-loan interest assets also a strong increase because we're optimizing the portfolio here on a steady basis.

Maybe to finish on the income, I've already guided a bit on net fee and commission income, so roughly stable. NII will remain strong, but we think this is a very, very high print. We have discussed about it. There is pressure on margins. So for the next quarters, we would expect this to be, to some extent, lower than what you've seen here.

Finally, let's go over to cost. So the cost rise is below the inflation rate. So that's on the one good, but costs are clearly still rising. Efficiency is excellent, as Cezary already said at 33.4% reported, normalized is even below 30%. So that's a good starting point into this. If you do the comparisons, first quarter last year was a very, very low baseline to start with, but let's briefly go through, I think, the 2 major items.

The one is staff cost of personnel down quarter-over-quarter, but up year-over-year. Well, and this is more the -- PLN 330 million is more natural than the PLN 290 million because, obviously, we employ more staff. You see this year-over-year 184 more people, mainly in compliance areas and oversight areas and also, obviously, we did salary raises because of the very high inflation. Administration cost is also up by PLN 29 million quarter-over-quarter. Main drivers here is administration and real estate and IT. They make up for even more than the PLN 29 million, so also other cost items have been lower, which is also not a bad sign.

To summarize the cost side, obviously, we had EFG, PLN 183 million in the quarter. We do not expect that we have to pay into a deposit guarantee scheme for the next 3 quarters. So we think this is -- this extraordinary item will stop in the first quarter. Well, and obviously, with the BFG here. I think this is the highest for what we now see, this is the highest print in total cost over the year for the next quarters. So no extraordinaries on BFG, but obviously, other cost items will rise over time also following the inflation we have in the country.

And with this, I hand over to Marek Lusztyn, the CRO.

[Marek Lusztyn, executive]

Thank you, Andreas. So if you look at the results from the loan loss provisioning point of view, we've had I think slightly higher cost of risk than in the previous quarter. That stood at 79 basis points. That's PLN 238 million. That was primarily driven by slightly higher provisions for retail loan portfolio, while on the corporate loan portfolio, we still spot that relatively low write-offs. If we look at the overall portfolio quality, mBank loan portfolio stood almost flat as far as NPLs are concerned, quarter-to-quarter. Also, there were no material changes with respect to coverage changes.

Also, when we look at NPL by segment, we see a slight decrease in the corporate portfolio, a slight increase in the retail primarily driven by the small increase of NPLs in the mortgage book that is driven primarily by the fact that the book is relatively young. Looking at the capital and liquidity ratios. We are still having a very significant buffers over the minimum capital requirements at 287 basis points total capital ratio adopt the minimum requirements at the end of March.

And with all of that, that we have discussed with respect to developments of loans and deposits. Loan and deposit ratio dropped by almost 9 percentage points year-on-year to 67%, primarily driven by the increase of the deposit base. So that end up in ample liquidity at mBank Group letter with liquidity coverage ratio at 224 percentage points that is sort of 2x the minimum Basel III requirements from that -- for that ratio.

Also, the net stable funding ratio is improved year-on-year and quarter to the quarter, it stood up at 155% compared to 150% a year before. And this brings us our Chief Economist commenting on the macro-outlook for Poland for coming months.

[Marcin Mazurek, executive]

Thank you, Marek. Good afternoon, everyone. So strange days came just to quote the title of the movie picture. Poland is in a falling GDP growth, up since the second quarter of 2022. I mean here the momentum, not only the dropping annual growth rate. At the same time, labor market stays strong or very strong. It seems that it is strongly limited from the supply side. So the overall reaction if the slowdown is going to be continued, it's not going to be, I would say, rampant. We are going to still have a very strong labor market. There are more and more signs nowadays that consumption is close to the bottom. Business activity indicators are turning up. We had a lot of fiscal transfers in the first quarter, connected mostly with tax refunds.

The consumers should feel better. We just wait for lower inflation to stop the negative dynamics of real wage growth. And I think it's going to propel economy in the next months. Still, we have to wait for the final print for the first quarter.

It's going to be the worst in 2023, we estimate right now minus 1.2% but various models indicate that it may even be lower. Afterwards, as I said, the direction is upwards, but still do not expect fireworks because still the whole 2023 is going to be at 0.4%, and this forecast hasn't been changed for months. What is also strange is in current environment is that the slowdown lasts 4 quarters. And yet, we haven't seen any reaction in our core inflation rates.

Core inflation is indeed enjoying high momentum, and it's not really changing. Inflation is falling mostly on base effects and on the lesser dynamics of food and energy prices. But yet, we reached the top, inflation is going to be falling to around 10% in the year's end. And we think that core inflation -- and high momentum of core inflation is going to be rather encouraging MPC to leave rates unchanged at least till the end of the year.

Relative to monetary aggregates, I don't think that anything meaningful is happening here because everything was well flagged in recently reported [indiscernible]. So we are seeing that corporate loans are losing momentum and household loans already lost momentum. And it's a good, I guess, time to try to look for signals of a turnaround. It is possible that new mortgage offered by the government is going to give reasons for such a turnaround.

In the meanwhile, we are enjoying a quite high deposit base the divergence because growth rates of deposits and loans are mostly visible in household sector in the right-hand side graph. As far as financial markets are concerned, it seems that we are going a bit sideways and I think that direction is quite clear. We are heading into lower market rates within a year or 2 market rates will be lower than they are right now. But given the fact that the market right now also prices in quite substantial easing of monetary policy until the end of the year, I think that yields may go a bit up before they start again, trending down.

As far as PLN is concerned, I think it's -- everything that is evolving according to the forecast because as we pass the peak in EUR/PLN rate, we are seeing some appreciation of the Polish currency. Well, it's not fast. And I guess it's going to be continued, but rather gradually. I think that the recent movements in EUR/PLN are mostly triggered by unexpected improvement in current account balance.

All in all, perspectives for PLN are still rather bleak, some tightening, some appreciation ahead, but still no fireworks.

[Joanna Filipkowska, executive]

Thank you, Marcin. We have some questions from the Internet. I will try to ask them in some topics. Do you see an increase in the number of motions for the history of payments from Swiss franc borrowers following the ECJ opinion?

[Marek Lusztyn, executive]

Well, we have not noticed a material increase of the new lawsuits after the ECJ opinion. You can see the statistics of -- on the slide and basically what we have seen in April as we speak, is not [ up ] higher than the previous quarter results.

[Cezary Stypulkowski, executive]

I'll talk 1,200 thing which we have. In first quarter, we think that the biggest inflow was in January and that contradicts with the assumption in the question.

[Joanna Filipkowska, executive]

To discuss MREL issuance needs by the end of 2023.

[Marek Lusztyn, executive]

I can do it. So basically, it has not significantly changed compared to when we have discussed this in the past. We plan to 1, up 2 issuances this year. To benchmark insurances, that's up to basically PLN 500 million per year. So we don't foresee us issuing more than EUR 1 billion into tickets in -- by the end of 2023. Of course, prevailing market conditions around from the issuances because than 2nd tier related for example, Swiss franc is and the geopolitical situation is clearly [ there ].

[Joanna Filipkowska, executive]

Is the resolution funds charge of PLN 182.9 million a final number? Or you are still waiting for the letter from the BFG with the final level?

[Andreas Boeger, executive]

Thanks for the detailed questions. It's final or not final, it's final for mBank S.A. And BFG has an interesting timing on this because we just got it this week. It's also mBank Hipoteczny received the letter, but they received a little later. So there will be PLN 1 million less most likely over the full year. But materially, that's it, and we are happy that we did receive the letter.

[Joanna Filipkowska, executive]

I think you already mentioned, but what is the net interest margin NII outlook for upcoming quarters?

[Andreas Boeger, executive]

Yes. As we said, it will remain [indiscernible] mindful that there are most likely higher deposit costs and also that the loan production we're doing and the volumes that are there are actually quite low. So on the other hand, what we do is interest rate risk management is a daily effort right now. So we're looking at the portfolio. I have said before, we're looking at low-yielding assets and we're replacing those [ with ] higher-yielding assets. We're looking at the term structure, that is the daily optimization. We had a strong upward trend. We are obviously trying to keep it, but the long-term trend on this is more downwards. And as [ expected ], the first quarter most likely has the highest NII. First quarter also has the smallest number of business days. So this is all in the details, but the trend is generally slightly downwards.

[Joanna Filipkowska, executive]

Can you please explain the drivers of Tier 1 drop quarter-on-quarter?

[Andreas Boeger, executive]

Well, you've seen that [ trail ] also increased a bit, but I think I would just like to remind you that the COVID quick fix did expire and the COVID quick fix, that only is roughly, I think, in the last quarter, we benefited by 40 basis points with this. To remind you, this is the negative valuation that we have in the whole to collection for sale portfolio. There was a mitigating factor in that. And the mitigating factor is now erased. There's no mitigation in this at all and that, I think, is the major -- biggest driver. We also discussed it in the last earnings call, this was expected. And yes, under this background to have the PLN 290 million and to be roughly flat, I think that's a good result on the buffers.

[Joanna Filipkowska, executive]

Also connected with this topic. Do you consider more active hedging in order to lock in current high interest rates for longer?

[Andreas Boeger, executive]

Yes. With the more active hedging, I mean, what we do is, as I said, it's a daily effort to look at the interest rate position of the bank. We have lower-yielding assets maturing from the past. We are investing in some tranches in where we are rolling models. We are not aggressively running an interest rate position, but obviously, we're not only running the bank in short term, but part of the bank is longer term. And it is always a debate of how much we actually want to put here into these buckets, you've seen that the whole to collecting for sale portfolio had a high hit last year. We have recovered well. So there is some space, but we try to have a balanced approach, but part of the balance sheet obviously is also reinvested into longer tranches.

[Joanna Filipkowska, executive]

What is the expected cost of risk for 2023?

[Marek Lusztyn, executive]

So as it's shown on the slide, with the outlook, we expect the outlook to be slightly negative for cost of risk. So we expect the cost of risk to be like in the range of 80 to 100 basis points for the whole year.

So there is also a related question that I can take up simultaneously because there is also a question related to the quality of the credit portfolio, and we have been asking to see an increased level of overdue loans in retail portfolio mortgage and consumer. So I mean, we see a slight increase in the nonperforming loans in the mortgage and consumer subsegments of the portfolio.

But it is not something that is, I would say, out of the history because the level of impairment losses that we have seen, for example, in Q1 2022 are roughly the same as in Q1 2023 as far as retail is concerned. What needs to be flagged is that with the increased level of interest rates, combined with high inflation that particularly impacts food and energy prices. There are some segments in the portfolio where customers see the disposable income shrinking, but this is not something that is, I would say, of particular worry at this point in time. It is ticking up a bit, but I would not call it, say, increased levels. And we also see that this is something that is very much in line with the market trends for the overall banking sector in Poland.

[Joanna Filipkowska, executive]

Thank you. CFO mentioned that the new mortgage production is 50% fixed rate. What is the share of fixed rate mortgage loans in the portfolio?

[Andreas Boeger, executive]

Yes. That is also slowly evolving. It's obviously evolving a bit faster than the new sales because also part of the existing portfolio is actually a part where the clients are shifting from floating rate to fixed rate. On the overall stack of the full bank, we are below 20% still, but that is a growing figure here.

[Cezary Stypulkowski, executive]

We are seeing new [ indiscernible ] from the Swiss franc...

[Marek Lusztyn, executive]

Because it's worth highlighting, as Cezary said, that part of our offer on settlements front to the Swiss franc borrowers is a fixed rate that is like 99% for 5 years fixed which is one of the elements that we use to convince the clients to actually have lower installments better than compared to today's mortgages. So that the overall payment burden is a bit lower than compared to newly taken zloty loan.

[Joanna Filipkowska, executive]

Now, we have quite a long question. I will read it in the whole. Gross loans of CHF 24.5 billion (sic) PLN 24.5 billion or 13.5% total loans benefit from credit holidays. The negative impact on your PNL is material, as shown on Page 16 of your presentation. Why then do you choose to treat this as an insignificant modification? What would be the impact if you treated it as significant modification?

[Andreas Boeger, executive]

Yes, I think that's a very technical question. First of all, it's not CHF 24.5 billion. It's PLN 24.5 billion, these are the loans that are under vacations. The thing with the significant or insignificant modification that actually is an accounting term. Obviously, for us, the number is significant, but if you look at a loan that has a 30-year lifetime and 360 installments, that 8 of these installments over the lifetime of the loan don't come, and that's more the dimension you have so it stems from IFRS 9 and its accounting -- it's in the accounting world and say, the industry view on this, and I think it's good to take that long-term view of 360 installments and if something doesn't happen that's why it's called insignificant. It does not mean that the PNL effect is not material. It's very material to be very clear, and we're not discounting this at all, but it more comes from the accounting world here this approach.

[Joanna Filipkowska, executive]

Thank you for this explanation. And now we have some questions about court cases. How many out of 18,840 individual court cases related to loans that have been already repaid. And what is the percentage in relation to inactive mortgage loans?

[Marek Lusztyn, executive]

So basically, as it comes to the pending court cases, we have 18,800 of pending court cases in total and out of this, less than 20%, that is roughly 3,500 of those cases related to the rebate portfolio.

[Joanna Filipkowska, executive]

In case of CJEU holding was in line with Advocate General opinion, would this prompt a need for a one-off provisioning, as mentioned recently by new Head of ZPP?

[Cezary Stypulkowski, executive]

I think that, that's the issue, which I think is still being discussed. The question is the wording which will be used when you look into the Advocate General opinion basically calls for the local legislation or usage of the local jurisprudence or local -- leaving this to the subject to the local courts. I personally believe that Polish legislation provides answer to these questions. And I think the full clarification of which they actually will go, will take some time. But I don't think that it will be just almost instant necessity to buffer short of the verdicts in the future.

[Joanna Filipkowska, executive]

And I think last question on ESG, how many percentage points mBank has in the GEI index?

[Marek Lusztyn, executive]

Good to have a question that is not Swiss franc related. Our -- in Bloomberg Gender reporting framework, the overall score of GEI is almost 76 points and we need to highlight -- we are proud to highlight that the fund that was assessing this gave us very high scores on -- actually on disclosures calls because the [indiscernible] for disclosure stands at 98%. And also where we score very high is the dimension of equal pay and gender pay parity where the score of mBank is 94%.

So that has improved actually as far as equal pay and gender pay parity. It has improved year-on-year by almost 12 points. And also the -- we have significantly improved as far as inclusive culture is concerned when the score went up by almost 7 percentage points. And then overall score has improved also year-on-year.

[Joanna Filipkowska, executive]

Thank you. One last question just came. Are you planning AT1 issuance?

[Andreas Boeger, executive]

Not at the moment.

[Joanna Filipkowska, executive]

Okay. Thank you very much. I think we've covered all the questions. And I think, Andreas, will have some final remarks.

[Andreas Boeger, executive]

Good. Yes. Thank you very much. As I was having the honor of the last 24 quarters of presenting to you, I would like to say some words at the end because I would like to thank all interested parties, the investors, I would also -- and analysts, I would like to thank for the personal meetings we also had, for the questions you had to ask as the Management Board, also to me for the professional challenge, for the exchanges, one-on-one where I also try to quiz you sometimes, to broaden my horizon where I also learned a lot because this actually helps us to reflect. It helps us to reflect to run the bank, but it also helps us to reflect on the quality of disclosures, on the quality of the financial statements.

And also thanks to you, I think we have, for the last at least 10 years, won The Best of the Best for the best financial statements or highest quality financial statements. So I think that's a very positive note on which I can here depart. I wish you all the best for the future, and thanks for the last 6 years.

[Joanna Filipkowska, executive]

Thank you very much. Thank you for your attention, and have a nice long weekend. Bye-bye.