mBank SA

WSE:MBK

Earnings Call Transcript 2024-Q1

[Unknown Executive]

Good afternoon, ladies and gentlemen. Welcome to our conference. Today we'll present the results of mBank Group in the first quarter of 2024. Today, as usually our speakers are Mr. Cezary Stypulkowski, Chief Executive Officer; Mr. Pascal Ruhland, Chief Financial Officer; Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist. Please use the chat box to ask questions. Cezary, you can start.

[Cezary Stypulkowski, executive]

Welcome. The reason that the welcome was so strong is because it was strong start to the year. And I would say for obvious reasons we are focusing very much on things which we have impact on, and that means the core of the business, but I can imagine it for yourself also by ourselves. The heritage portfolio, which is [indiscernible] is still hanging on, is an important factor of our results of the bank. So, as a consequence, I like the phrase which recently have been used by Marek, that whatever we earn on 5 million clients we lose on 86,000 contracts, which have been signed 15 years ago. It's, what should I say? I think that that's the reality we have to cope with. Some of you who know me longer know that I'm following a famous phrase by Hegel, which was what's real is rational. And obviously I'm still fighting.By the way, there was a great phrase by Karl Marx who was commenting on [indiscernible], and he said, philosophers until recently tend to interpret the world. There is a time to change [indiscernible] this. So we are here to do two things, to explain what has happened, and also to focus on what we can expect from the bank in the upcoming quarters. Overall, I would say the first quarter was reasonably good, reasonably good. That means that we've done fabulous results on the core. But when I'm referring to the previous quarter, effectively it looks that we have reached the point where the net interest income is getting flat. It was to some extent surprising for the markets, to some extent also ourselves, that we've been able, despite the fact that there was a lower of interest rates more than a year ago yeah, no, no, it was --

[Unknown Executive]

End of last year.

[Cezary Stypulkowski, executive]

Last, end of last year. And we've been able to keep net interest income relatively high. And even in the last quarter we have increased our margin by 6 basis points. So this line obviously more volatile in principle, but I would say worked very favorably for us. But when it comes to fees and commissions on a quarterly basis, it was pretty strong. But we are still disappointed that we are not reaching the levels of the previous year. The major driver of this are the cost side of the fees and commissions, the area where we are focusing our endeavors right now. And I think that we hope some improvement in the second part of the year.Cost of risk, which will be commented by Marek, I was checking the files and Marta has advised me that we didn't have that level of quarterly cost of risk since 10 years. So that's a positive development. Obviously the components of this will be explained necessary, and obviously with our guidance, I don't think that 17 basis points is sustained.Well, these were the positives. I would say on the balance sheet, in balance sheet terms, we are keeping the pace of attracting deposits. This is not the line which I would say is any, under the current circumstances the regulatory requirements, we don't have any incentive. We need to build up stronger deposit side, loan to deposit ratio is slightly above 60% with the impact potentially on leverage ratio. So I have to say on this front, we are just optimizing our returns.When it comes to the loans, I have to say there are green shoots of the, I have stress green shoots of the more positive view on the upcoming quarters. That means this is related to the pipeline, to the, I would say activities of our clients, more on the investment side I would say the regular working capital is not that much of a demand at this point. So this is kind of a [indiscernible]. And then we have PLN 1.370 billion of provisioning of Swiss franc, what should I say? Bleeding. So that's something what is a concern. On the other hand, we continue to have the very, I would say, strong pace of the settlements. As you know, we've been relatively late to enter the settlement program. But once we've done, I have to say in comparison to many other players, we are doing reasonably well. The big question mark is what's the cost of this? It's a separate issue.When it comes to the capital, which as you can imagine over the last few years were the major concern of this management, balancing between keeping the organization alive in terms of building up the new business and at the same time being deprived effectively for the ability to generate capital out with our own resources. That was problematic. We supported ourselves with the securitizations, which is the issue on the capital side.But as you see, in principle, the bank was able over the years to keep reasonably strong buffers about the required, the legal requirements in this respect. And I would say you can feel comfortable, though we would like to have more space for the growth.Key financial metrics, I would say most of the figures which you see are in green. So I don't think that that requires that much of a comment. I think it'll be more [indiscernible] really to respond when there will be questions. Clientele, I have to say we still attract new clients. I think that both retail, the retail bank and corporate bank are in a acquisition mode. And I have to say mostly due to the easiness and transactionality we are still able to get a very valuable -- new clientele. Our market shares are under the pressure mostly due to the fact that the bank is a constraint of our capital. We manage this very tightly. And that obviously translates into, I would say, less the potential growth rates which we exercise. When I say potential, that means the operations part of the bank would be able really to grow faster. But the, I would say capital management the team pace on which we were able to maneuver over the last few years kept us on alert.And that was the part of the answer why the market shares have not grown, but the bank has the potential. And I have to say we are seeing right now a much better environment, and we feel more confident that this capacity will be fully utilized. Mobile banking, what should I say? I'm just coming from the meeting on [ Bleak ] where we are like a star in terms of our clients are really making a lot of transactions. I would say we are #2 in nominal terms of. And Bleak is ultimate reference [indiscernible] mobile transactional. So that translates into something what is a very important aspect of building up our business model, which means initiating transaction on the, in the digital channels. And as you see over the years, and we are talking about since 2021 both I would say non-mortgage loans and the variety of processes. We are reaching the levels which are unaccessible for most of the banks which I know.For yourself, it's not that much the, I would say the business development issues. I think that what I will focus on, I would say, okay, PFM continues to be I would say focus for the, basically for the future. I strongly believe that that will be the new opening post 2025. But we are still investing, checking the waters, understanding better the client's behavior. We have more than 1 million people entering the PFM functionalities in our systems. But what I want also to mention is that some of you who are more local know that this great orchestra of Christmas charity is the biggest event in Poland in terms of charity and mobilizing vast population in Poland. We help them really to change the way they are collecting money. In our case, 800,000 unique users clicked on our application and that helped to collect almost PLN 14 million which was, which is I have to say, a significant amount, like 6% of all, I believe, payments, which have been done. Just our mobile, were -- mobile devices, on our application, which was just the confirmation that when we start something it works.And then I think that concludes my part. I will only focus -- no, I will now -- I will focus on one thing and then I will pass to Marek. We can move to the page 12. I'm returning back to my initial opening when I said no core bank, noncore bank. I think that's the very important message, you look into the ratios which the bank is able to deliver based on its business model. And you see the stellar results, it's very difficult even to comment because the income below 30% net interest margin at 4.43%. You see the cost of risk, that's a separate issue. All these translating into the return on equity, which is basically like a dream. But and then we are returning back. That will be part for Marek, to elaborate, and Pascal to elaborate on the cost of another risk which is, which I had initially and I -- as an opening I will say we already put aside PLN 13.6 billion, or as I said, less than 100,000 clients managing the bank, which has to service 5 million accounts.

[Pascal Ruhland, executive]

Before we go into the Swiss franc matter, I would start off briefly on Slide 8, not just to give you the Q1 result, but also as Cezary was mentioning it, to give a brief outlook, what to expect for 2024. And as Cezary already said it, Q1 has been proved to be a very good quarter for us. So starting with this page, you see that we have a record high quarterly revenue. This is really the highest we have seen in the history of mBank, and we are crossing PLN 2.9 billion. With a slight quarter-on-quarter increase of revenues was driven by higher net fee and commission income, combined with the stabilization of NII also as mentioned already.It is worthwhile to mention that we have anchored on this PLN 2.9 billion income in the last 2 quarters, which is really extraordinary. And the net interest margin, as you can see, is now at 4.37% in the quarter. Driver, as you know, also from the past, is especially our effective management of the cost of deposits.Now forward-looking. We expect for our NII to be similar to 2023, which already includes a negative credit vacations impact, this we estimate in the amount of PLN 350 million, and it will be reflected in Q2. Our net commission income, we expect to grow step-by-step in the next quarters as also outlined. Our total NCI is supposed to be higher than 2023. All in all, you can then see that we are well on track to defend our PLN 10 billion, which we crossed in 2023, also in 2024. Moving to the total cost briefly. Total costs of the group, excluding compulsory contribution decreased by almost 7% quarter-on-quarter due to seasonally lower personnel and material costs. As a result, we gained again an extraordinary good cost-income ratio of 30%, while the normalized ratio reached 26.6% and was better than in Q4 and Q1 in 2023.And as already noted, this is obviously something which is on long-term not sustainable. So we still believe in our target below 40%, which we consider as a sustainable cost income ratio. But for 2024, while we are benefiting from a high interest rate environment, we will stay well below the strategic target. On the LLP and cost of risk, you see in our quarter very favorable with PLN 48 million. The result was driven by a net release of corporate LLPs coupled with low provisions in the retail banking segment. We have not reported such a level as Cezary was outlining it, since Q1 2013. It reflects our earlier prudential provisioning, and Marek will go into details later on. That means for 2024, we expect a slightly better than 2023 LLPs and guide still around 80 basis points cost of risk. Cost of legal risk related to loans indexed to foreign currencies recognized in Q1, as already said was dragging us down with PLN 1.37 billion, and it's a combination of several factors, and Mark will go into details later on. One thing needs to be set, it is extraordinary that despite the burden that our core business is capable of eating that up. And why we saw it in the Slide 12, which was explained by Cezary because we have an ROE of almost 49% in the core business in Q1, which is significant.As our net profit reached PLN 262 million in Q1, there's at least a bit left over for us. And the potential legal provision for Swiss franc in the upcoming quarters, this is the big question every time, obviously depends on lots of different obstacles. And while we aim to guide at least the next quarter, as of today we expect that the Swiss franc provisions will stay significant in Q2, but we expect to be lower than Q1.Let's move briefly to Slide 9, to the balance sheet. Here I would like to draw your attention to 2 observations. The first one is, as indicated in our Q4 call already, we expect to grow our asset side. And here you see our gross loans to customers increased 2.4% quarter-on-quarter. Both segments are contributing to it, and we will go into details later on. Also as said by Cezary, why we see the freedom, our expectation is to further grow our assets. The second observation on the sheet, our TCR stands at 16% on a Tier 1 ratio at 14.1%. The drop is especially driven by the increase of RWA related to our loan growth and an amortization of our securitized portfolio. Despite this drop, the surplus reached 4.9 percentage points and shows our strong position to grow assets or to cover unexpected events. And with the topic unexpected I'm now handing over to Marek to elaborate on the Swiss franc portfolio [indiscernible].

[Marek Lusztyn, executive]

I mean given that we are discussing this on a quarterly basis for a couple of years, I would say it's difficult to say that this is unexpected, but this burden still remains with us. As you have seen, extraordinary core business results, but also extraordinary level of Swiss franc mortgage loan provisioning. In Q1, we have booked PLN 1.37 billion of legal risk provisions related to the FX mortgages. And they were driven by several model updates. We have taken a more conservative view with respect to a number of dimensions. Primarily we have updated the model parameters with respect to the future expected cost of execution of court judgments. And in particular, we have improved estimates with respect to the statutory interest cost in relation to the pending court cases. And we also acknowledge that there was this verdicts of the Supreme Court of April 25. And despite that, some doubts with respect to the binding cost of that resolution exist considering that they were taken by the newer, so-called newer judges only. So the judges appointed before 2017 refused to attend the hearing. And there were also a number of independent views on the matter. Conservatively, acknowledging that there is a propensity of the national courts to follow the Supreme Court jurisprudence, we have taken this into account into the provisioning model. And as a result, we have also excluded from our possible future scenarios, scenario in which the contract remains varied by the mechanism of the indexation is eliminated. So this so-called Polish zloty [indiscernible] scenario has been removed.So as you see from the slide that's currently displayed, the cumulative amount of FX rate and legal risk provisions created so far reached enormous amount of PLN 14.6 billion. And as we have commented, one of the previous investor calls, that's amount that is sufficient to run the bank of the scale of mBank is today. And as Pascal anticipated a while ago, we also expect that more is to come in further quarters in 2024, but we expect this to be overall materially lower than what we have seen in 2023. On the next slide, we show the performance of new court cases and settlements. And as active portfolio comes to an end, we see both a noticeable decline in the inflow of cases concerning active contracts and also the number of active contracts remains lower and lower. Also, we see a certain level of saturation with respect to the number of settlements that we sign up. But overall, we see that the number of clients are not [indiscernible] did not sign the settlement yet is getting slowly close to 0. So the degree of uncertainty with respect to the future behavior of that cost out is also gradually revoked with the time passing by and successful settlements that we are concluding with the clients. And also with respect to that Supreme Court verdict that I have this quarter also the degree of uncertainty with respect to the future evolution of the court cases has been removed. So all of that considered, we believe that the worst is behind us and even we will still hope with a number of cases in courts we expect that going forward that we have more fuel for profitable growth. And with that, Pascal, I hand over to you.

[Pascal Ruhland, executive]

Yes. Let's jump directly on Slide 14, profitable growth. Perfect. So overall, as expected and communicated, we see the rebound of our loan portfolio visible in both segments, and that is very important. This, I would like to bring in perspective, and I start with the corporate clients. Loans and advances to corporate clients increased by 4.6% quarter-on-quarter. To some extent, a significant quarter-on-quarter increase of corporate loans as a result of seasonality. At the end of the year, some borrowers repaid their loans and in Q1 we registered a material increase in the balances on overdrafts and especially structured finance loans. Next to this volume rebound, it is important to us that the loan margin in the corporate segment is not deteriorating by our initiative to aim for more. We even saw a slight quarter-on-quarter increase in the loan margin to now 1.81%, which shows our ability to grow profitable. Forward-looking, we still expect to grow fairly over the market, which is expected to grow by roughly 5%.Going to the retail segment. The downward trends in loans to individual clients observed since Q1 2023 [indiscernible]. In Q1 2024, loans to individual clients went slightly up by 0.6% quarter-on-quarter. And still, our loans to those clients were impacted by declining Swiss franc mortgage loans, the sale of NPLs and also PLN appreciation vis-a-vis the Swiss franc, euro and Czech koruna. Taking this in the equation, the gross loans to retail customers, excluding the noncore portfolio increased by 1.4% quarter-on-quarter and by 0.5% year-on-year. The quarter-on-quarter increase was fueled by both products, mortgage loans as well as nonmortgage loans. Also here, the margins on the retail loans did not deteriorate and remain stable. In Q2, we may see further increase in nonmortgage loan sales and a certain slowdown in mortgage loan sales as customers may wait for the next government mortgage program. All in all, for 2024, we expect a single-digit growth in retail loans.We go to Slide 15, which provides our new lending business. As you can see on the top of the slide, sales of new retail loans jumped in Q1 2024. Debt of mortgage loans reached nearly PLN 2.4 billion. That means we recorded the highest level of new mortgage loan sales since Q2 2022. The sales of mortgage loans in Q1 were largely driven by the 2% safe mortgage loan product. They represented almost 60% of mortgage loans to individuals. In total, we sold 2.2 billion mortgage loans within the 2% sale loan program. The coming months may be somewhat weaker in terms of inflow of new applications, while I said our customers might be waiting for the new government program, Flat for a start. To incentivize now our mortgage loan product, there has been better pricing offered in April under the promotion of mortgages, which means slightly lower margins. And the promotional offer will be most likely most be interested in particular for those customers who are not qualified for the new government program. Therefore, we expect the mortgage loan sale in Q2 to be higher than Q4 2022.Going to the sales of nonmortgage loans right on top of the chart, it reached nearly PLN 2.8 billion. It was the highest level of new sales since Q1 2022. Plus important to note is that the vast majority of the nonmortgage loans were sold through our digital channels more than 80%. Forward-looking, we see the Q1 volumes as the new normal or even higher. Briefly to the corporate sales, left bottom of the slide, the volume of newly signed corporate loan agreement in Q1 2024 decreased significantly by 18%. A quarter-on-quarter decrease can be attributed to the extremely high level in Q4 and was driven mainly by lower value of renewals, which is typical because these are achieving the highest volumes at the end of the year normally. In Q1 2024, an increase of newly signed investment loans was the driver. As already said, here we expect further growth in the upcoming quarters.And finally, our quarterly volume of new leasing contracts in Q1 increased by 9% quarter-on-quarter. The highest increase was recorded in financing cars and vehicles. And also here we expect to stay in the growth path.Briefly on the next slide to deposits. Total deposits declined by 1.3% quarter-on-quarter. This drop was driven by lower amounts on current accounts of corporate clients. The reason of the drop in corporate clients is related to a high comparative base of Q4. At the end of the year, the customers increased the funds on their current accounts, while in the first month of 2024 some of these funds were withdrawn to finance actively business activities and not to place it somewhere else. Despite this decline at the end of Q1 2024, the current accounts represent 79% of total deposit base of the group, which confirms that we are the [indiscernible], which also was indicated by Cezary with respect to the [indiscernible] numbers we are achieving. Thanks to continued active deposit management, we again managed to improve margins also in the first quarter, especially in the corporate deposit side. Forward-looking, single-digit deposit growth is expected to be driven mainly by retail deposits, supported by growing customer base and also the increased wages and salaries, which we expect to see.Slide 18, I would skip while I already discussed total income. Let's directly go to the costs starting on Slide 19. Starting this time with the normalized cost income ratio of the group, which is visible in purple right-hand top of the page. Here you see that we adjusted for the annual contribution of the resolution fund and the impact of the credit holidays. We reached 26.6% compared with 29.4% a year ago. This shows how effective our machine is running. Derived from the excellent efficiency, let's go into the cost development in detail. In purple you see the BFG contribution in Q1 2024 decreased by 19%. The drop of the contribution for Resolution Fund was driven mainly by better risk profile of mBank if you compare [indiscernible] with our competitors. In green, you see staff-related expenses declined by 2.2%. The drop was driven by decreased [indiscernible] compensation. So this is a seasonality effect.On an annual basis, staff costs went up by 13.2% and reflecting an increase in wages and salaries on our side, which was also driven by additional headcount. But it fairly compares to the wage growth we've seen in Poland in February, 12.9%, plus the inflation level of 2% in March. Jumping to material costs in blue. They fell by 18% quarter-on-quarter. And also here, this is a seasonal drop resulted mainly from lower marketing costs and consulting costs, which are naturally at the end of the year. On the annual basis, an increase was registered on all cost categories, except for PR expenditures. So this is a general trend we are following. And last but not least, in red, our depreciation declined by 2.3% quarter-on-quarter but was higher on a year-on-year comparison by 14.4%, which reflects early investment in our IT infrastructure. So all in all, our operational costs in the next quarters are expected to be lower than in Q2 -- Q1, which was burdened by the contribution of the Resolution Fund. But costs, excluding compulsory contribution will grow on a similar pace as 2023 through 2, 3 reasons. The first one, inflation-related material cost increases; second one, higher personnel costs driven by wage pressure we see and new employment in certain areas we will do. And last but not least, IT investment-driven depreciation is also expected to increase. But as said, the group's cost income ratio is expected to remain well below our strategic midterm target of 40% this year. And with this, I'm handing over for details of the cost of risk.

[Marek Lusztyn, executive]

Okay. Thank you, Pascal. So on this, I'm going to be brief, we had an excellent cost of risk results, as Cezary mentioned in his opening speech. It was primarily driven by the [indiscernible] in the corporate segment and the normalization of the cost of risk in retail. Going forward, you can see on the following slide that it also reflects on the group nonperforming loan ratio that was improved quarter-on-quarter primarily thanks to the active management of NPL in corporate portfolio. The level of mBank group coverage ratio remained. But quarter-on-quarter and last but not least, on the following slide, we confirm very solid capital and liquidity position of the bank, 490 points above the regulatory [indiscernible]. As far as capital ratio is concerned, LCR at over 200% shows an excellent liquidity position. Given also, I would say, even to an extent to loan-to-deposit ratios, you see there is a [indiscernible]. And with that, I hand it to Marcin with respect to the outlook on Polish macroeconomic situation.

[Marcin Mazurek, executive]

Good afternoon, everyone. So as before, I am the bringer of good news. So economy is evolving as expected. We passed the trough. And right now we are on a growth path. Consumption is on the rise and especially consumer moods are getting better and better. With the slowdown ended unemployment rate still stayed very low, reflecting mostly the still high demand for labor. At the same time, we had inflation coming back almost to NBP targets. So to 2% in March. So with that in mind, with nominal growth of wages at double digit, we have a very strong boost to real incomes of household. That's why we expect them to spend some more money in 2024. That is why we expect also that consumption is going to be a visible driver of GDP growth. Right now, we expect GDP growth to be 3.5% in 2024 and most likely followed by 4.5% in 2025.As far as MPC behavior is concerned, right now MPC is turning more hawkish than it used to be. So we still keep our view that rates in this year are going to be unchanged. The most likely date for rates to be changed coming only in 2025. As far as monetary aggregates are concerned, also the worst is behind us. We are seeing that the activity both on consumer and corporate side is on the rise with respect to credit. And at the same time, deposit activity stays at high level. So the whole sector seems to be highly liquid in terms of client funds.As far as the financial perspective is concerned, as far as government bonds are concerned, those are stable, and the movements mostly reflect the movements in global risk free rates. And it is worth to mention that all credit risk measures of government bonds remain at low levels despite the huge supply coming onto the market every month. Strong zloty is kind of a resemblance of more hawkish monetary policy right now. The zloty stabilized at around PLN 4.30 with regard to euro. Yes, it lost some of the momentum. But well, it seems to be well-supported right now. We think that there is a space to reach PLN 4.20 in the end of the year.As far as structural developments are concerned, I have nothing to say here despite the fact that I'm meeting more and more people interested in Poland. And whoever they meet, they claim that everybody is positive, so am I, so fingers crosses and go on.

[Unknown Executive]

Thank you, Marcin. We have several questions. We will now answer them. Some of them have been already covered. The first question is about the long-term financing indicator. "What would be the level of this indicator at the end of Q1 based on the rules presented by the KNF?"

[Pascal Ruhland, executive]

Yes, I'm taking that. So first of all, we said that if we're talking about our bank, we are one of the most frequent issuers [indiscernible] in the Polish market. Therefore we are very strong positioned to fulfill these kind of ratios. And if we were to take our end-of-year end of last year's statistics and the current proposed draft of the KNF, then we are among the 8 banks best-in-class, and we would reach the ratio. Therefore, this is currently no concern for us.

[Unknown Executive]

Thank you. "Could you share some statistics on legal risk in consumer loans? For example, number of litigations, value of claims binding predicts?"

[Marek Lusztyn, executive]

I will take this one. Actually we have several clients litigating with us with respect to the consumer loans. And currently there is 260 pending court cases. Historically, 20 were closed. And most of them were either closed in favor of the bank or discontinued by the clients. So far, as far as the consumer loans or legal cases are concerned, we have just last one. And as far as, the first instance judgments are concerned, majority in first instance are also given in favor of the bank. There is also a number of cases which are currently suspended. The value of clients for pending cases is around PLN 5 million. So it's insignificant from the point of view of financial results and is covered by established provisions.

[Unknown Executive]

"Does the risk-weighted assets growth in the first quarter reflects, to some extent, the impact guided for 2024 in the last annual report?"

[Marek Lusztyn, executive]

Maybe I will take this one as well. What we have guided in our management report for end of 2023, that was page 122, we expect the increase of risk-weighted assets due to a number of regulatory factors. As you may you recall, mBank is one of the banks in Poland at operating so-called advanced internal rating-based method that is not standardized by the model-based method of establishing risk-weighted assets. And on the back of that, we expect the number of regulatory-driven decisions for adjustments in the model, but Q1 was not primarily related to the model changes, they were more related to the business as such.

[Unknown Executive]

"And what is the effective tax rate expected in 2024?"

[Pascal Ruhland, executive]

So on the tax, I'm taking it. We showed in Q1 2024 this 39.3%. And as explained also in the last quarters, we are taking our tax rate based on IAS 34. So we expect for the full year, based on our forecast and tax rate and apply those tax rates towards our quarter. So currently this is the expected tax rate for the full year. But what you need to keep in mind is that we have with the Swiss franc, especially something which is almost an entirely not tax deductible and something which is up for fluctuation, as we said. So this is hard to predict which kind of number comes out. And this is the big question, how it is influencing our tax rate. If you would not take this Swiss franc into account, we would be as in a normalized environment around 25% of corporate income tax.

[Unknown Executive]

"Why do you keep the risk cost outlook at 80 bps for 2024 after a low Q1 and upgraded short-term outlook from neutral to positive?"

[Marek Lusztyn, executive]

As we said, the Q1 was extraordinarily low, we expect corporate credit risk to normalize in the coming quarters. And with extraordinary high cost of risk in the retail segment in 2023 we expect this to normalize as well in 2024, but we are also mindful that despite of a very positive outlook on the Polish economy that Marcin just presented, the number of the geopolitical risk remains. And we do not want to overpromise on that specific P&L right now.

[Unknown Executive]

"When do you believe Swiss franc mortgage provisions will finally sunset?"

[Cezary Stypulkowski, executive]

Sunset. They are sunsetting already. But there is no date which we can just share with you. I think that we've been taken by surprise by [indiscernible] Polish level. So we know one thing that we are over the peak of the problems, but we're much more confident that now we are on the bright side of the world. But by the continuation of our provisioning is in front of us, not in that magnitude which we have experienced over last few quarters. But being prudent and being better prepared balancing between the growth of the bank and, I would say, conservative approach things, the whole issues I would say not complex in terms of the legalities, but I would say it has turned into the area which was very much unexpected and which, as I used to say, undermines the paradigms of the banking sector. So that's the reason that we have to be very focused and continue to reflect what are the -- what is the jurisprudence, what's the activities and the clients, to which extent our settlement programs attract the response on the client side. So these are the very complex factors which we have to wait. And as a consequence, I will not say that there will be a particular date when we will say it's fully up. Though, as I said, I believe that 2024 is the year which I will consider as being the more or less going over the boundaries of the problems which has emerged in the previous years. So, patience, conservatism and intention to be on the safe side, which we manage over the years I think are the most critical. Marek, would you like to answer?

[Unknown Executive]

Thank you. "What participation does the bank assume for the PLN 350 million cost of credit holidays in 2024?"

[Pascal Ruhland, executive]

So we derive the cost for the credit holidays with the PLN 350 million on the actuals we have seen in the last program. And we also have showed it very transparently in our notes. But here it is for the additional portfolio higher than 80% participation rate because we were higher reflected by our customers taking that versus the average of the sector, and this is also managed into this number.

[Unknown Executive]

"What is the current sensitivity of NII to 100 bps drop in interest rates?"?

[Pascal Ruhland, executive]

So the sensitivity for this 100 basis points interest rate shift is currently slightly above PLN 700 million. And within this PLN 700 million, while we are in 3 currencies active, 60% or roughly PLN 400 million is related to the Polish market, so the Polish zloty interest rate environment. And if you compare that to our total NII income so far and take, for instance, last year's into account, then you see that we are less than 10% exposed to this risk, plus that we have seen last year 100 basis points drop. And this should give you the magnitude of how reliable you can compare that between the banks. And despite this drop, we have not seen a deterioration of NII.

[Unknown Executive]

"What is the expected impact of CRR and CRD IV regulations on Tier 1?"

[Marek Lusztyn, executive]

Okay. So maybe I take this one. We have performed the impact study on the Basel IV impact. mBank expects that there will be some uptick in the capital requirements, primarily due to operational risk and market risk that is fundamental review of the trading book. We expect that income not to be substantial. Based on the current estimates, the increase in the capital requirement driven by the Basel IV shall not exceed 5% of our overall risk-weighted assets. But please also recall, as commented in the previous answer with respect to the risk-weighted assets, that this is on the back of a number of supervisory decisions on PD LGD models which are related to new definition of default and also there is a number of EBA guidelines which are still to be issued with respect to the Basel IV. So this is a preliminary guidance. And as I said, some up, we don't expect to be substantial, and we do not expect this to exceed 5% of the current risk weighted assets.

[Unknown Executive]

"How much MREL funds is expected to be issued in 2024?"

[Pascal Ruhland, executive]

Yes. So before we talk about the expectation of issuance, it needs to be said and it's visible here that we meet fully fledged MREL requirements, including a significant pass out. So when we're talking about our issuances, we are not doing that solely because we want to meet MREL expectations rather than that we know that our investors want to see us as a frequent issuer. So even despite we are meeting that very comfortable, we will have this year a benchmark trade, most likely in the preferred senior format in the second half of the year and benchmark means then at least 500.

[Unknown Executive]

Thank you very much. We covered all the questions. So thank you for these questions and for your attention, and have a nice day. Bye-bye.

[Pascal Ruhland, executive]

Thanks a lot. Bye-bye.

[Cezary Stypulkowski, executive]

Thank you.

[Marek Lusztyn, executive]

Thank you.