mBank SA

WSE:MBK

Earnings Call Analysis

mBank's Strong Quarter Amid Challenges

mBank reported a robust second quarter despite facing high legal costs related to mortgage loans and the impact of credit vacations. Group revenues slightly declined due to credit vacations costing PLN 257 million, but excluding these effects, revenue grew 7.7% quarter-on-quarter. The bank's net profit reached a historic high when excluding credit holidays and forex impacts. Guidance for 2024 includes total income of PLN 11 billion and a cost of risk expected to stay below 70 basis points. The bank also decided not to pay dividends this year to strengthen its equity position and aims to resume a 50% payout from 2025 earnings.

A Historic Quarter Amidst Challenges

This recent quarter marked a historic moment for mBank Group, achieving the strongest net operating result in its history despite significant challenges. Legal costs related to mortgage loans and the credit vacation impact were notable hurdles, yet the company managed to navigate these effectively.

Revenue Performance and Future Projections

mBank Group's revenues faced a slight dip due to the credit vacations, affecting them by PLN 257 million. However, excluding this impact, the revenues actually increased by 7.7% quarter-on-quarter. The net interest income (NII) grew by 3.5%, supported by both loan and deposit products. Forward-looking, mBank expects the NII to be slightly higher than in 2023, despite the continued negative impact of credit vacations. Total net fee and commission income is also expected to rise, aiming for a historic PLN 11 billion total income in 2024.

Cost Management and Risk Provisions

Total costs for the group, excluding comparative contributions, rose by 5.5% quarter-on-quarter, driven mainly by marketing expenses. Nevertheless, the cost-income ratio remained extraordinarily low at 27%, with a strategic target of staying below 40% for 2024 due to high interest rate levels. The cost of risk increased to 58 basis points in Q2 but is expected to remain below 70 basis points for the full year. mBank also recognized significant legal risk costs related to loans indexed to foreign currencies, amounting to PLN 1.03 billion in Q2. Despite this, a lower impact is anticipated for the second half of the year.

Balance Sheet and Capital Ratios

The company's balance sheet showed robust performance with an increase in gross loans to customers by 4.1% quarter-on-quarter. Both retail and corporate segments contributed to this growth. Capital ratios remained comfortable, with Tier 1 and total capital ratios well above regulatory requirements. Buffers above the KNF minimum requirements were higher than 4%, indicating a strong capital position.

Retail and Corporate Segment Growth

The retail segment saw an upward trend, with gross loans to retail customers increasing by 2.5% quarter-on-quarter. This growth was driven by both mortgage and non-mortgage loans. The corporate segment also showed positive momentum, with loans and advances increasing by 7.9% quarter-on-quarter. The company expects single-digit growth rates for the retail segment within the market for the year.

Focus on Deposits

Total deposits grew by 2.4% quarter-on-quarter, primarily driven by retail deposits. The company strategically maintained stable margins on deposits while attracting inflows, focusing on optimizing total income without aggressive pricing. With current accounts representing 79% of the group’s deposits, mBank aims for single-digit deposit growth in the upcoming quarters, supported by an expanding customer base and increased wages.

Dealing with Swiss Franc Loans

mBank continues to grapple with the legacy issue of Swiss franc loans, which has historically created a significant financial burden. Legal risk provisions related to these loans reached PLN 1.03 billion in Q2. A notable number of settlements were reached, and the number of active cases started to decrease for the first time since the beginning of the Swiss franc saga. However, the issue remains significant and complex, with ongoing efforts to mitigate the related risks.

Guidance and Strategic Outlook

Looking ahead, mBank expects to operate in a moderate growth environment with GDP growth driven by private consumption. Inflation is expected to stabilize near the National Bank of Poland's target by 2026. Anticipating no rate hikes, the bank forecasts a potential rate cut in 2025. For the lending growth in 2024-2025, mBank aims to increase its market shares while expecting the market to grow between 4% and 5.8%. The strategic focus also remains on maintaining strong long-term funding ratios and continuing to pay dividends starting from 2024, aiming to pay out 50% of earnings.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen. Welcome to our conference where we will present the results of mBank Group in the second quarter of 2024. The speakers today are Mr. Cezary Kocik, acting CEO for the first time in this role. Mr. Pascal Ruhland, Chief Financial Officer; and Mr. Marek Lusztyn, Chief Risk Officer; and Mr. Marcin Mazurek, Chief Economist. Cezary, over to you.

[Unknown Executive]

Good afternoon. I would like to start from a small introduction and some -- my thoughts about the future of mBank. And after that, I will just, of course, ask Marek and Pascal to develop that in a more detailed way and give you all the figures so that some few initial comments regarding our strategy.

So the current strategies up to 2025. So just after holidays, we will start develop a new strategy, what we are going to finish during the next year. And that's -- we have start to our preparation to do that. But of course, before the strategy will be prepared, it will take some time. I would like to share with you some of my thoughts about the most important things for mBank and short and medium term.

And from my perspective, I would like to address 4 points. And the first is equity. And the most important goal for myself is to strengthen our equity base as you know that past was highly influenced by a provision for Swiss franc. And due to that fact, we can say that majority of our results were consumed by these provisions.

So due to the fact, for sure as a bank, we don't have the strongest position in the market, but now we try to do that. Probably, you noticed that last week, we informed the market that we've changed our dividend policy for the current year, and we are not going to pay any dividend at this year.

Just it will positively impact our equity ratio like more or less 50 basis points. On top to that, we are going to -- also all other instruments which are available on the market. At that moment, we exclude only issuing new sales, but the rest, including AT1 and further securitization transactions are on our agenda. So we will very concentrated on them to strengthen our equity position. While we are doing that, of course, we are doing that because we believe that the 2 very difficult years are behind us, and now we are ready to get back on track as this bank was built by the organic growth.

And we always used to progress in our market share and volume faster than our competitors. Now we would like to continue this after this 2 years, which were marked by huge Swiss bank provisions. Now we believe that we are on the -- such position that we can just fight for our market sales and -- even and led them to the level which will be much bigger than we used to have in past.

So this pet thing is just we would like to continue the current performance because as Pascal will tell you about the details, this is crucial for us and especially for the first point because this quarter we're heated by 2 things as a legal provision for Swiss franc, but also we booked negative effect of loan holidays.

Despite that, we have the highest from many quarters, net results. And that is also the way how we would like to beat our equity by retaining this year, the whole, but even in the next year, a significant part of our earnings. And last but not least, what is very important for the bank, we would like to focus further on Swiss franc mortgage portfolio.

Probably you know that up to now, I was responsible for managing settlement program in mBank. And I would like to continue as a person responsible for that because, in my opinion, the most important thing for a future of mBank is to solve the Swiss franc problem due to the negative impact, but also it's created a huge problem for us or, let's say, good planning as the negative impact was always difficult to predict.

And this is this 4 points, which will constitute my agenda for short and medium future before -- as a core management, we will manage to develop it and get acceptance from our supervisory board for our new strategy. And after this short introduction, I would like to pass to Pascal. But of course, after the presentation, together with Pascal and Mark, I would try to handle all your questions. Thank you very much. And Pascal, please.

[Pascal Ruhland, executive]

Yes. Thanks a lot, Talend also hello from my side, and we jump directly to Slide 7 to our financial summary. And on this slide, I also will give you then the guidance for 2024 results. And as said already by chart, Q2 has been a very good quarter for us despite high legal costs related to mortgage loans and despite the credit vacation impact.

Let's start with our revenues. Group revenues declined marginally in Q2 as they were impacted by the credit vacations in the amount of PLN 257 million and a brief sigma on the credit vacations. In our financial statement in Q1 2024, we provided the estimated costs related to the extension of the credit holidays in the amount of approximately PLN 350 million. The currently recognized amount is well below the initial estimate due to lower usage of this option by borrowers than we have had expected. Excluding this impact of Credit Holidays, revenues went up by 7.7% quarter-on-quarter.

Strong NII adjusted by credit holidays grew 3.5% and this result is supported by both products, loans and deposits. Also, our net fee and commission income increased, especially due to higher net result on payment cards. Furthermore, we have been benefiting from an extraordinary effect in other income, which is related to a recovery of a receivable guaranteed by [indiscernible] in connection with the final court judgment, which was favorable for the bank and amounted to PLN 164 million.

Forward-looking, we expect for our NII to be slightly higher than 2023, which includes already the negative impact of the credit vacations. Our total net fee and commission income is supposed to be higher also than 2023. And here, we expect a slight growth quarter-of-quarter as we have seen it now between Q1 and Q2.

As a result, we are now aiming to be PLN 11 billion total income in 2024, which is for us a historic mark. Moving to the total costs. The total cost of the group, excluding compare contribution increased by 5.5% quarter-on-quarter. The cost increase was mainly driven by material costs reflecting higher activities in certain areas, but especially in marketing.

As a result, we gained again an extraordinary cost income ratio of 27%. And here, as I always say, this should not be treated as the new normal because our long-term strategic target is below 40%. But for 2024, we will stay well below the strategic target due to high interest rate levels. Going to our cost of risk.

In line with our earlier expectations, cost of risk increased in Q2, mainly in the Corporate & Investment Banking segment, in which we reported net releases of LLP in Q1. Cost of risk of 58 basis points is well below our guidance for 2024. And due to the very favorable first half of the year, we guide for the full year below 70 basis points cost of risk.

The cost of legal risk related to loans indexed to foreign currencies recognized in Q2 reached as Cezary was saying at PLN 1.03 billion, and Mary will share details later. And as you know, due to the complexity and dependencies of this topic, it's not easy to provide guidance. But as of today, we expect for the second half of the year, a lower impact than in the first half of the year, but it is expected to stay very significant.

As a result of all the P&L line items, mBank Group net profit reached PLN million. And also, Cezary pointed that out, and I would like to bring it in perspective. If we exclude the credit holidays, if we exclude the FX impact. We have had the quarterly strongest net operating result in the history of the bank.

The effective tax rate, which is every time a bit odd calculated under IAS 34 hereby is at 41.3% and is heavily influenced by barely deductible costs of our Swiss franc provisions. Let's move to the summary of the balance sheet on the next slide.

Here, I would like to draw your attention just on one observation on our balance sheet. As indicated in our Q1 call, we expected to grow our asset side, which is visible in our gross loans to customers by an increase of 4.1% quarter-on-quarter. Both segments are contributing to the growth, and I will go into details later.

Normally, I also would draw your attention to the capital ratio development, but this I will now do on the next slide, which is new and has the aim to show all regulatory capital requirements at a glance. As you can see on this slide, both capital ratios, Tier 1 as well as the total capital ratio are at comfortable levels.

Our buffers above the KNF minimum requirements are higher than 4%. They are in 4.6%, 4.35%. And now where we briefly jump into some details. Since the beginning of 2024, Tier 1 capital increased by PLN 126 million or roughly 1% versus year-end 2023, mainly due to the inclusion of 50% of the net profit generated in Q1.

While Tier 2 capital went down by a bit more than 18%, mainly due to amortization and FX revaluation of Swiss franc. The total risk exporter, as you can see left bottom of the slide increased. The year-to-date increase was mainly driven by an increase of credit RWA, mainly due to our growth of customer business and the amortization of our securitization transactions. Also, we have seen increased operational risk ROA due to higher income leads.

And now this is very important and Cezary out. These numbers do not yet include the change of the dividend strategy. So also, we do not have yet in these numbers, our net profit of this quarter included Furthermore, we have conducted already, as you see on the right-hand bottom, an extension of one of our existing securitization transactions in June, and we plan to close another securitization transaction in the coming months.

These actions will support our capital position in the second half of the year. Our expectation for Q3 Tier 1 ratio will be broadly similar to current levels and a bit lower towards the year-end. And why is that the case? And I would like to bring all effects into order. In the second half of the year, we expect higher RWAs due to results of our business growth, which is the most important one.

The second thing, which will hit us in Q3 is an implementation of a regulatory definition of new definition of default, and Mark will elaborate a bit later on. And lastly, our amortization of our equations, which we have executed in 2022 will follow up. These 3 things are largely offset by the dividend retention and the new securitization plan for the second half of the year.

So I repeat, we expect Tier 1 buffers above regulatory requirements to exceed 4% both to the end of Q3 and to the end of Q4. And this is well in line with our strategic target of having buffers of at least 2.5% on the Tier 1 ratio. As you also can see on this slide on the right-hand top of the slide here, we meet MREL requirements with a ratio of 22.8%.

And despite that we have a very comfortable buffer, we are aiming for an annual issuance of the second half of the year in our benchmark format. And with this, I'm now handing over to Marek for the FX mortgage details.

[Marek Lusztyn, executive]

Okay. Thank you, Pasta. So as you can see on the following slide, quarter-by-quarter, we are increasing the protection against legal risk of Swiss franc in Q2 2024 brought us another over EUR 1 billion write-off, which increased the coverage of the portfolio to 130% with respect to the active portfolio. We have had on the balance sheet at the end of June 8 of legal provisions created for the FX loans.

And in total, the cumulative value of foreign currency related legal list provisions stated by mBank since the beginning of Swiss franc Saga amounted to almost PLN 14.6 billion. The difference between PLN 14.6 billion and PLN 8.4 million is the realized loss due to the realization of the final converts and the settlements that we have concluded with the clients. On the top right-hand side, you can see the evolution of the active portfolio of the Switzerland cases.

So starting with 85,500 disbursed loans originally, we are down to only 23,400 active contracts, of which 74% are by now in core. And as we said, they are more than covered by the existing provisions. We are addressing the issue with ongoing settlements, can make this move to the next slide.

As you can see on Slide 11, in Q2 '24, we have concluded another 1,850 settlements has roughly the same number in Q1. the total number of settlements was going up to over 17,000. We are happy to report that it was another quarter where the number of incoming cases was falling down so it's good to remark that we have had a larger number of settlements in this quarter than the number of incoming cases.

And on top of that, the total number of outstanding incoming cases marginally decreased compared to the previous reporting period. That was also the first time since the beginning basically of the Swiss bank Swiss transact the number of active incoming cases was actually reducing. Pascal, back to you.

[Pascal Ruhland, executive]

Then on the next slide, exactly very briefly. I mean the main observation is that the core business of the group with an ROE of 40% and a gross profit of PLN 2.7 billion is stronger than our FX mortgage-related burden.

And this is especially visible if you look at the black bar and bank group with an ROE of close to 10%. Let's move to Slide 14, our loan development. We see the expected rebound on our loan portfolio visible in both corporate and the retail business. And I would like to bring that now EBITDA in perspective, start with corporate clients. Loans and advances to corporate clients increased by 7.9% quarter-on-quarter.

The increase was in large part driven by reverse focuses. The core corporate loans went up by 1.8% quarter-on-quarter, and the loan margin, as you know, we're very much focusing on our margins remained stable in Q2 and was significantly higher than a year ago. Forward-looking, we expect to grow fairly over the market while keeping our margins at high levels.

Moving to the Retail segment. The upward trend in loans to literal clients initiated in Q1 strengthened in Q2. Long-tenure declines went up by 1.2% quarter-on-quarter. Gross loans to retail customers, excluding noncore portfolio and excluding the negative impact of the credit holidays increased by 2.5% quarter-on-quarter.

And the increase was fueled by both products, mortgage loans and non-mortgage loans. Important for us as well here the margin development, while we have a fairly stable margin in our retail segments. Going forward, we expect growth single digit within the market for this year, but we are aiming for more.

On Slide 15, with our new lending business, I will focus just on the market products like the other trends I already covered indirectly with my messages. Left top of this slide shows a slight drop quarter-on-quarter in mortgage loan production. And here, I would like to highlight that the sales of mortgage loans in Q1 were largely driven by the disbursement from applications for the 2% safe mortgage loan program governed by the government.

And between September 2023 and June '24, we sold in this program, PLN 2.3 billion of mortgage loans, so we managed to capture roughly 20% of the addressable market. In Q2, mBank shared a new mortgage lending in Poland surged to 12.6% and on our introduction of a bit more attractive pricing.

So we compensated the runoff of this subsidized program with our core franchise. For us, it is important that we use our capital, especially to our own clients first of all. And this is also visible in our statistics as around 80% of the sales are contributed to our existing customer base.

Now let's go from loans to deposits. Total deposits increased by 2.4% quarter-on-quarter. And the quarter-on-quarter increase was driven predominantly by retail deposits, thanks to inflow of funds on current and saving accounts, which is important to note while the more expensive term deposits are largely stable.

Here we follow our strategy to optimize total income, and therefore, we are not too aggressive in pricing deposits. Our margin on deposits remained stable while we attracted inflows. At the end of Q2, current accounts represented 79% of our group's deposit, which confirms that we are really a premier transactional bank. In the next quarters, a single-digit deposit growth is expected to be driven mainly by the retail deposits, supported by growing customer base and increased wages and salaries of our clients.

The total income slide I did cover already in our P&L now, and therefore, let's jump directly to Slide 18, and we're looking to the cost developments. Starting with the normalized cost income ratio of the book visible in Teberight-hand top of the page. The cost/income ratio adjusted for a few things.

So annual contribution for the resolution fund we adjusted, we adjusted the credit vacations, and we adjusted also the positive one-off of [indiscernible] reached 27%. and this shows how effective our business is operating. Derived from this efficiency, now looking to the cost drivers. The operating cost adjusted for the BFG contribution increased quarter-by-quarter 5.5%. And we have 2 drivers.

The first driver is in green staff-related expenses. They rose 4.3% quarter-on-quarter, especially due to increased wages and salaries driven by higher variable part of remuneration and higher employment. And the second driver in blue, material costs increased by 16%, and this quarter-on-quarter increase was especially resulting from marketing costs; three, flatting more or less our increased activity in the area with TV campaigns.

And that is the most, I would say, we currently have on the cost side. Our outlook based on our current cost/income ratio, expect further growth of our operating costs in the second half of the year. And important to note is it's not just inflationary driven. We also have new sales initiatives.

As you know, we have the marketplace with Morila. Also, we have a mortgage loan sales via a mobile app. So we invest in sales initiatives. And also we face in the second half regulatory costs with respect, for instance, of Do, which will be funded. The group's cost income ratio is expected to remain well below our strategic midterm target of 14%. And with this, I'm handing over to Marek for the cost of risk.

[Marek Lusztyn, executive]

Okay. Thanks, Pascal. So as you can see, year-on-year, there is a decrease in the land impairment of the portfolio. There is a quarterly increase of cost of risk Q1 to Q2, but it happens after exceptionally low cost of risk of Q1 that was on the back of the number of one-off factors in the corporate portfolio. Q2 brings normalization, so to say, of the cost of risk in both segments.

We are coming after a series of relatively high write-offs in retail driven by the historical developments. Now we see that cost of risk in retail as well as in corporate -- normalize also the reason of our lower guidance for year-end results. We are guiding around 60 basis points for the overall cost of risk of 2024. That's going to be significantly better than the cost of risk achieved in the previous years and previous quarters.

Second quarter of 2024 is to an extent, impacted as well by a number of one-offs in tactical Credits valuation adjustments, thanks to the beneficial macro changes which is unlikely to continue in Q3. And that's the reason of the higher guidance for the following quarters. Can we go to the next slide, please?

As far as the loan portfolio quality is concerned, there is a slight uptick in the NPLs in particular on the corporate segment. This is driven by a number of older corporate loans and that were reclassified to nonperforming. The reasons were specific for each of those exposures, name specific, not anything related to the industries overall.

We see quite a good environment supporting the corporate and retail credit quality. So we do not expect this to be beginning of the proration trend, rather we attributed to the one-off [indiscernible] . On the next slide, as it comes to -- sorry, we missed the one that was typically there on the capital and liquidity and as fast as capital remains excellent with significant but about the regular for Riminiva, and this one brings marching respect to the [indiscernible]

[Marcin Mazurek, executive]

Thank you, Mark. So fast forward to the economy. So we are still operating in a moderate growth environment. We have been very clear and directional in guidance here. We are guiding towards 3.5 million growth this year, and this forecast has not changed. GDP growth is based solely on private consumption, but still would stop up for improvement of household balance sheet this consumption is going to improve in the following quarters. The main laggard in economic growth is construction activity that awaits the new round of financing.

We do not see any dangerous processes on labor markets, the demand for labor is lower than it used to be, but it partially may have been reflecting automation and robotization of the Polish economy as the labor become less cheap than capital, still unemployment rate steady. Inflation has reached a trough in March, we were guiding that it will be in March. And afterwards, inflation is post poised.

We accelerate before it settles down close to NBP target in 2026. In such circumstances, NBP is not going to catch rates this year, they may start thinking about cutting rates in the first quarter of 2025 and then do a first rate cut in the second quarter of 2025.

Turning to monetary aggregates. Everything is evolving as expected. So slowing, but surely, the positive growth in corporate sector is slowing, but it's still positive. We are seeing an absent in corporate financing. But still, this is very moderate. As far as household loans and deposits are concerned, we see still a high year-on-year growth of household deposits, but the momentum seems to be fading, and it poses, I would say, a good starting point for further revival of consumption.

Also credit activity in nonmortgage loans is slowly driving as well. So it's also a good prospect for consumption going forward. Turning to interest rates. Polish bonds are stable, risk-wise asset swaps for our types recent global developments and bond yields lower. As I'm speaking, 10-year yield is around 5.4%. So this makes a strong improvement from the last quarter. And last but not least, exchange rate.

Exchange rate is stable or slightly appreciating. We think that there's not maybe appreciating forward towards for '20. The main reason behind this is rather strict monetary policy compared to other central banks and also a good sentiment for the Polish currency. As far as fundamentals are concerned, these are fundamentals so they are ranging quarter-to-quarter, still they are quite good.

[Joanna Filipkowska, executive]

[Operator Instructions]

Thank you, Martin. Now let's look at the questions that we received. So the first one, what is the approximate level of long-term funding ratios?

[Marcin Mazurek, executive]

Yes. I'm taking this question. I mean, first of all, it needs to be said that mBank, we are one of the most frequent issuers in the market. And therefore, we are also in a very strong position to fulfill these requirements. And we have currently a very strong ratio, which is beyond 50%. And I just want to remind everyone, there was a statistic among the top 8 banks by end of 2023, and we have been the one with the highest long-term funding ratio. So it's currently not a concern of us.

[Joanna Filipkowska, executive]

The second one, what is the share of fixed rate mortgage loans as a percent of the total mortgage volume.

[Cezary Kocik, executive]

So the fixed share mortgage loans currently on our mortgage loan book in the [indiscernible] is a bit more than 30% of our corn books.

[Pascal Ruhland, executive]

But just think from a new sales, it's more than 50%. So it's gradually moving in this direction.

[Joanna Filipkowska, executive]

Thanks again. mBank met soft NII requirement. If not, how far is the bank from meeting.

[Pascal Ruhland, executive]

I mean the requirements, we watch surely closely saw also in the last months and we are meeting those thresholds comfortably. So there is also the same as long-term funding ratio, nothing currently of a concern for us.

[Joanna Filipkowska, executive]

Should we consider 50% dividend payout from 2025 earnings.

[Pascal Ruhland, executive]

Yes. So also from my side. So we have changed the dividend assumption for 2024, as said already, to strengthen our capital in order to capture growth. And for 2025 onwards, we have not changed our aim to pay 50% of our dividend. And please believe us. We are coming in the morning to this bank in order also to make our shareholders happy. And therefore, we are aiming from 2024 forward also to pay dividends on our dividend strategy.

[Adam Pers, executive]

National bank capital position being a constraint to unbank strategy so far.

[Marek Lusztyn, executive]

Yes, that I tried to elaborate in this introduction that last 2 years were suffering from not enough risk-weighted assets, which could be utilized to our loan book growth. And now we believe that it is behind us, and we are focusing on the growth of our portfolio.

[Joanna Filipkowska, executive]

Thank you. Are you planning to book more Swiss Bank provisions this year?

[Pascal Ruhland, executive]

I guess I have covered already. So our view and our message today. And I make this disclaimer. This is every time on where we, I would say, complex topic to guide the next quarter is that we expect for the next half of the year, second half of this year to have a lower impact than what we have seen in the first half, but we expect that this stays significant cost. The next one, I think we also covered but let's, again, I say it when the new strategy will be published.

[Cezary Kocik, executive]

For sure in 2025 because 2025 is covered by our current strategy -- at this moment, as Sue will start working on that from September. It's difficult to give you a precise date, but probably, it will be accepted by superior on June or maybe September, but September is the rate as well.

[Joanna Filipkowska, executive]

What are your expectations for the lending growth in 2024, '25?

[Marek Lusztyn, executive]

I'll take this one. To start of our presentation, we are providing the outlook on the market growth. So it's between 4% and 5.8% in 2025 by different segments. And as Cezary setting his opening speech, our ambition for -- as of 2024 to 2025 is to increase our market shares. So we consider those figures that you see here, that is the expectation of the Polish banking sector growth as kind of the floor for our ambition. So it's not going to be lower than what we see here.

[Joanna Filipkowska, executive]

Thank you, Marek. Could you elaborate more on the hook one-off booked in this quarter.

[Marek Lusztyn, executive]

Okay. So that's on me again. the coops a positive one-off in our other operating income into PLN 164 million. Noted that we have recovered from receivables due to favorable final court judgment in the case that we have had with KUKA on the case that was back from 2008.

[Joanna Filipkowska, executive]

Do you consider updating 2025 guidance outlook?

[Cezary Kocik, executive]

From our perspective, this is a bit early to tell that in general, why we now reach this EUR 11 billion of [indiscernible] income level. That is our next challenge to also compete with this level despite a lower interest rate environment, which we are expecting to have in 2025?

[Joanna Filipkowska, executive]

What is the sensitivity of NII to 100 bps drop in market interest rates.

[Pascal Ruhland, executive]

On this data sensitivity, I just want to put out the disclaimer because hard to compare between the market participants while it is heavily dependent on customer behavior. But on our side, the sensitivity of 100 basis points rate cut is PLN 665 million, and of which, while we are operating in 3 currencies, 60% is related to the coasts roughly 400. And if you compare that to our total NII contribution, we are talking about less than 10%.

[Adam Pers, executive]

Cost of risk guidance of below 70 bps would imply a significant growth in the second half. What is the main driver here?

[Marek Lusztyn, executive]

I believe I have answered to an extent on that already. I would say the base in first half of 2024 is extraordinarily low, and we expect that to normalize in the.

[Joanna Filipkowska, executive]

What has caused the increase in risk-weighted assets? Any extraordinary factors like in Q1, what would have been the CET 1 ratio if including H1 net profit has been included.

[Marek Lusztyn, executive]

So the first half of that question was answered with Pascal already.

[Pascal Ruhland, executive]

Yes. I mean there is extraordinary nothing. If it back to RWA we see our businesses growing plus then also the operational risk RWAs. They are also going -- and the third thing which we currently see on a steady level, but we are working with new securitization against it is that we see by running off of the replenishment period of our securitizations that we have in RWA and this will be counteracted by new securitizations.

And I bring that now into perspective because I really try to give you an expectation for the second half of the year, Q3 and Q4. So we will have a growing RWAs due to the fact that we are aiming for business growth. We will have further impact on regulatory topics like the new definition of default, Marek will elaborate in a second on that.

And thirdly, that our securitizations will run off. And why we guided that this will have not a major impact on our current capital stack our minimum requirements versus the KNF requirements is because if we then include our net profit in our capital plus, if we include the 2 securitizations. So the one we just closed and the one we expected to close in a few months, this would be then counteracting those trends.

[Joanna Filipkowska, executive]

Last quarter, management declared that mBank's NII reached its high in this great cycle, yet the second quarter...

[Pascal Ruhland, executive]

Yes, I just need to say, I mean -- and I also said it in financial meetings when we talk with you about our performances. I'm every time surprised how mBank is capable of managing the deposit stack. And there is definitely a technical advantage versus our competitors in it.

And I still would say it has reached its peak, even though that I was wrong for a few quarters because we are really anchoring currently on a very high level.

[Joanna Filipkowska, executive]

What do you aim for such values for long-term funding ratio at this stage? How many bps on NIM cost this expensive policy?

[Pascal Ruhland, executive]

And currently, this is not a condones because currently we are meeting this long-term funding ratio. Therefore, there will be not a short-term impact on any of our profitability levels.

[Joanna Filipkowska, executive]

Should cost growth base remain at double-digit level in '24?

[Pascal Ruhland, executive]

Yes. So we guided already by end of the year also in the last quarters, and I still repeated it today, that we expect the operational costs grow similar between 2023 and 2024. So that means double digit of our operational costs.

[Joanna Filipkowska, executive]

And what is the level of customer participation assumed in the calculation of credit holidays?

[Pascal Ruhland, executive]

On the credit holidays, I mean, we adjusted this assumption based on the inflow we have seen. And you have that in our financial statement on Slide 18 -- on Page 18. And currently, according to our assumptions, customer whose long represents 87.9% of the value of the eligible portfolio, will or already have in some parts applied, and they will apply on an average of 3.4 months.

And that is the core assumption, how we come up to this roughly PLN 260 million on the qualifications.

[Joanna Filipkowska, executive]

In the last question, what is the absolute ceiling or Swiss bank mortgage book coverage? How much more is cost to cover all existing and repaid loans.

[Marek Lusztyn, executive]

It's a very good question. And I believe that it's actually quite difficult to precisely answer on that because also -- and we see that there are some still ongoing changes in the jurisdictions on that. So it's, I would say, as I said, very file to give the final number, that is the absolute dining.

[Pascal Ruhland, executive]

Yes. But you see on the KPI itself, and that is something we point out. We try to be here on the conservative side. That means we are -- in terms of the KPI, the coverage ratio leading among the banks who've had severe portfolios. And at the same point in time, you also see us guiding that it is not yet over. But while we're guiding it is less impactful. But if you compare that to our core business, obviously, the topic is step by step, not completely away, but it is less harmful for us.

And that also gave us the confidence, as we pointed it out and try [indiscernible] repeated today in his vision for the bank that we feel comfortable now to also capture more market share by growing our asset books. And this should, I would say, round up the question towards the Swiss rent provisions.

[Joanna Filipkowska, executive]

Thank you. I believe we covered most of the questions. If not, we will cover them offline. Thank you very much for your attention and for your questions. Thank you, guys, for your presentation and see you in October.

[Cezary Kocik, executive]

Thank you very much.