mBank SA

WSE:MBK

Earnings Call Transcript 2018-Q3

[Joanna Filipkowska, executive]

[Foreign Language] Great. Let us start, ladies and gentlemen, we are past Q3. The results will be given to you by CEO, Cezary Stypulkowski; Deputy CEO, Andreas Böger, too; and the macroeconomic standing will be communicated by Ernest Pytlarczyk. Over to you, President.

[Cezary Stypulkowski, executive]

Okay. So let me limit my speech to introducing my colleague, Mr. Böger, here. The main income lines are robust, let me just say, and the rest will be given to you by Andreas.

[Andreas Boeger, executive]

So you see, we even share the microphone. So let's do some shared comments also. So looking at the third quarter, the net profit came in a bit shy of the last quarter, with a difference of less than PLN 2 million. So net profit at PLN 285.3 million compared to PLN 287 million in the last quarter. When we compare profits, I think it's very important to look at the income lines, and we come to this, because in the last quarter, when it comes to net other operating profit, there was a PLN 21 million [debt] delta between the 2 quarters. So basically, the last quarter was stronger by PLN 21 million, when it comes to net other operating income. As the President was saying, we're looking at historically high net interest income and historically high core income, but I would also look at this more in detail when we come to the more detailed slides, to which I would, I think, jump in some minutes. Let's go to the next slide. When we look at business development, because I think what is very important to mention is that the client acquisition story we're having is still very much intact. It is in corporate and also in retail. Because, you will see this when you analyze our numbers. The numbers are driven by very high volumes and very high -- basically, client activity. And with this further acquisition of new clients, we're basically building the base line for having further new and prolonged client activity in the future. Obviously, what we always do in the quarters, we mention some of the highlights, some of the highlights in terms of how we help our clients leading their life and making life easier with financial services. The one thing is account opening, for example, via video chat right now. But also, you have might have seen it in the press, that together with Allegro, we now have an API that you, where basically online sellers can within a very short time frame get access to credit, so to mBank loans. And this is now -- this is now live and within 3 minutes, you can have the money on your account. In corporate banking, we're further focusing on K3, and also on the effectiveness of the processes we have, especially, also when it comes to lending. But also, we were launching Qlips, that's an interbank solution, where basically you as a private client, you're saying, "I want my invoices from provider XY in my account," and then this provider will send the invoices via mBank. It's not like direct debit, but you as a client are actually seeing that you have these invoices and you click in, you want to pay. So we think this is further adding to making the life of our clients easier and making us more relevant. But I think now we move to Page #9. And we move to the development of the business. So as I said before, we are transforming the growth of the number of clients into business activity and into volumes. You see this in overall loan volume, which over the year grew by roughly 70 -- 7%, and in the quarter, grew by 2.5%, excluding foreign exchange. For corporate, in corporate on the year, a growth rate of roughly 10%. That is very strong for corporate, so we have a very good year in corporate in volumes, and especially also the last quarter, with 3.7%, has also proven to be very strong here. Retail. Retail, roughly 6% for the full year, 1.6% excluding FX in the quarter. In retail, the growth always looks a bit more slower because we have the Swiss franc portfolio that is going down. Non-mortgage loan portfolio went up by 3.3%, that's the red bar you're seeing. And the traditional mortgage loan portfolio in Polish zloty even went up by 5.5%. This is part of the PLN 34 million you're seeing there. The Swiss franc portfolio itself is now below CHF 4 billion; it's at CHF 3.97 billion, so we passed the CHF 4 billion mark, I think, in August, and it's down by CHF 88 million for the quarter. This is all better explained if you really look within new business, that's the next slide. New business, extraordinarily high in mortgage loans, as in the last quarter, at PLN 1.2 billion, with basically 45% growth rate year-over-year. That's very strong. If you look at non-mortgage loans, we remain on the record level we have shown in the last quarter, and that's basically also up 41% year-over-year. Looking at corporate, up by 8% in the quarter and up by 9% in the year. The percentage of investment loans is still roughly around 30%. So part of the driver was investment loans. But to preempt one of your questions, investment loans, we think the economy is maybe still under its -- under its potential when it comes to this. Leasing. Leasing, I think needs a bit of explanation, because in leasing, actually, the volumes are up when we look at the portfolio. The portfolio is roughly PLN 10 billion now, and it's up by nearly 3%. But what we are doing in leasing is next to the seasonal effect that you have a little -- a little bit less contracts, we've also adjusted some pricing mechanisms in part of the leasing business. So that is leading to basically a bit lower volumes and lower contract or not -- lower amount of contracts, but not lower volumes. Let's go to deposits. And in deposits, here again, when I said the client growth transforming into more business, and more business here with the strong focus, as always, on transactionality. So more than 4% in the quarter, growth of customer deposits, and more than 13% in the year.

Corporate, you see the numbers here: 7% in the quarter and 12% year-over-year. This quarter, we had a roughly equal increase of term deposits and current accounts. It was even a bit stronger on current accounts. Important here for -- even, sorry, even stronger on term deposits. So basically, a bit of the reversal of what we've shown in the last quarters. What is important here for us is we then measure if the margins are still stable. And the margins were stable and the margins were not deteriorating. So having a bit more term deposits, I think we discussed it like a year ago, if clients come and they want term deposits, they get term deposits. But maybe it's not the most aggressively priced term deposit, but if it fits their investment strategy, we're obviously here to take the money. Looking at retail. Retail deposits up by 3% in the quarter, and there, I would just look at the green bars, year-over-year, current and savings account, so what we see as transactionality, up 16.6%. Slight -- the margins in retail in the quarter were even slightly up. Looking at income. And total income, I think we now come to the things that I've said needs a bit of explanation also. Core revenues are at a record level, and the key driver of this was net interest income. So to start with net interest income, the green bar, year-over-year, as I said, 13.3% and in the quarter, up 5.6%. So the total number was PLN 902 million. I think this is the first time we passed the PLN 900 million mark for net interest income. And it's PLN 48 million more than in the quarter before. Now we come to net fee and commission income. Net fee and commission income is weaker in the quarter. Net fee and commission income is weaker by roughly PLN 10 million in the quarter. And it has various drivers, and I think it's very important to explain this. Because the key things we look at net fee and commission income is obviously, that they should continue to be driven by our client transactionality and especially in times of strongly growing loan books, also, the fees on credit should earn -- should increase. Fees on cards have increased in the quarter. And also when it comes to credit commissions, the credit commissions in cash have increased, but you know how it is in effective interest rates. If the maturity of the loans is longer than it was in the quarter before, basically you have to adjust for this, and this is why the whole credit commission in cash, I think, in [ corpo ] for example, is down by PLN 2 million and overall is roughly down by PLN 5 million. The other drivers why net fee and commission income is weaker in the quarter is mainly driven by capital market activity. So it comes from lower brokerage activity. It also comes from lower activity when it comes to debt and equity issuance, and also when it comes to fees in portfolio management. This is something where it's not easy to steer, because you are basically relying on capital markets. And sometimes you have good quarters, sometimes you have quarters that perform less. We can also take a deep dive on this, we even did this with the -- with journalists this morning, let's look at page, I don't know, if it's 26 or 27, my -- I think it's 20 -- so Page 26. And this is 26 now. Because on the left side, you see our income from fee and commissions. And let's start at the bottom. Credit-related fees is up 13% year-over-year, so that's the PLN 93 million coming from PLN 83 million.. You also see payment and card fees being up 11% over the year, and you also see accounts and money transfers being up 10% over the year. This is the thing where we look at and where we see how healthy the fee and commission income is, and we think it is healthy. On the other hand, you obviously see what we have done with the mFinanse transaction. That's the black bar that is going down from PLN 46.6 million to PLN 16.8 million, where the delta is PLN 29.8 million. This is exactly when you were asking half a year ago what is the effect of the mFinanse revenues going out? We said it's roughly PLN 100 million per year. So you see this is the PLN 30 million per quarter. And obviously, the delta we see when it comes to brokerage activity and securities issue, that's the red one in the middle, now at PLN 24.8 million, vis-à-vis 34 -- PLN 35.9 million in the year before. So I would say, if you look at this, all engines are healthy and intact, with the exception of obviously the one-off in mFinanse. And obviously, the activities that are more capital markets related. I think this was adding to some -- some more clarity to the net fee and commission income. So we go back, please to Page #12. Then next to net fee and commission income, and maybe if we add net fee and commission income and net interest income, because this is core income, which we highly steer, we have an increase of PLN 38 million in the quarter. Then we come to trading income. Trading income is affected by roughly PLN 10 million less revenues from foreign exchange. This is due to just less activity and also less volatility that we have, that we have seen. Now we come to the item at the bottom, the minus PLN 5.7 million, because I think this explains the swing and why revenues are also actually only stable quarter-over-quarter. The other operating income in the quarter is at minus PLN 5.7 million. Various drivers here: Some legal provisions, provisions for untaken vacation days, et cetera. So the usual things you have in this category, but we didn't have the strong positives that we had in the quarter before. Because in the quarter, we had one-offs, the one was from a real estate we sold in what is called Garbary, so basically in Poznan. And the other thing was that out of the old insurance transaction, out of the mFinanse sale, that we had PLN 19 million of revenues in the -- in Q2. Revenues for Q3 were only PLN 7.9 million. So basically, this explains the delta of PLN 21 million. Without this delta, the revenues would have increased by 2% quarter-over-quarter. And also, if you look at the yearly growth rate here, 5.3% year-over-year, but also Q3 last year, at PLN 18.6 million positive, including also some releases of [eurozone] reserves we built before, but they were released. And if you adjust for this, the revenue growth is 7%. So the other side of revenues is always cost. This is the next slide. And in cost, I think here, when we go through cost, you see the key theme that the management here is always stressing, that we are continuing to invest, so we keep on investing. Where do you see that we keep on investing? Let's look at the blue line, at material costs. Material costs are up by PLN 12.3 million in the quarter. And let me explain to you the 3 drivers we have behind there. And they actually make up for even a bit more than the PLN 12.3 million. On the one hand, the delta is PLN 4.8 million in consulting, consulting and other services. This is due to some strategic projects we're running, but it's also due to that we updated our EMTN programme, for example, because we did -- we did a bond issue. It also is due to some regulatory must projects. It's due to the project of how we transform our insurance business from group insurance into individual insurance, so basically fostering for still having revenues in the insurance space, so this is this PLN 4.8 million. It is PLN 2.7 million more of marketing expense. This year, we have put a lot of emphasis on marketing expense, because if you see growth rates in mortgage loans and non-mortgage loans, that are north of 40% year-over-year, they have to come from somewhere. And if you have a branch-light business model, obviously, you need to look at expense for IT, but also expense for marketing. IT expense in the quarter was flat, but marketing was a bit higher. But we always view marketing as an investment in future business. And the last one is PLN 5.5 million higher infrastructure cost for logistics and also for rent. Because you might know that we are actually improving the model of our branch network, and we're also increasing to some extent the physical outlets we have, in order to smartly grow where we think we're underrepresented, and where we think we can get better traction for clients who either enter the banking market as new clients or want to go into more complex products, like mortgage loans, et cetera, where we think it's still important to have some physical touch points. We should also talk about amortization. Amortization is back above PLN 60 million. This is what I told you last time in the quarter, when I said we had a drop in the cost of amortization, but this will not last. Because last time, it was just that some amortization life spans were ending in Q2, but we now have a new amortization, and it's again back up at PLN 62 million. So that leaves us with a normalized cost-income ratio over the 9 months of 45.2%, and normalized cost-income ratio last year around this time was 45.9%.

So going from costs to the risk result on the next page. There also, going back to what we discussed in the last quarter, in the last quarter, we discussed that the second quarter risk result and loan loss provisions were exceptionally high, especially in corporate. But we also said you shouldn't judge, especially corporate, on a single quarter. And we've said that for corporate, it should be lower, but for retail, it should continue to trend upwards. And this is exactly what we are seeing in this quarter. So corporate LLP is from PLN 108 million down to PLN 53 million, and retail going -- still going up. If you look at cost of risk, cost of risk in the quarter actually was 82 basis points, which gives us the first 9 months result in cost of risk at 80 basis points, and we think that we will end up the quarter with a cost of risk that is close to 80 basis points. The next slide, I think the loan portfolio quality, we have explained the cost of risk, the NPL ratio moved from 5.1% to 5.2%. But I think it's not very significant to actually explain. Let me go to capital ratios. Capital ratios, we still continue to enjoy very strong capital ratios. Capital ratios are 3.5% above the minimum for KNF. So that's strong. We've also discussed, I think even last time, but I would like to stress this, that going into the year, into the next year, we think that capital ratios might go down. They might go down because of LGD floor that might come in the future. It might go -- it should go down, hopefully because we use more capital for business. We have IFRS 16 in front of us, which will also have a slight effect on capital ratios. But anything that you will see from next year onwards will still be above regulatory minima, and you know we have discussed that we want to keep at least 150 basis points above the minima for Tier 1 and for Tier 2, and this we will also keep up. So but just when in the future, you see capital going to, I would say, a bit more normalized levels, I think nobody should be surprised. And we will still be a very strongly capitalized bank. Looking at LCR. LCR, you see finishing at a very high point at the end of the third quarter. This is because we were preparing for payback of various tranches of intragroup funding to Commerzbank, which will be finished in Q4. So basically the -- we will then have only a very minimal funding relationship with Commerzbank, which only will be in one sub-loan, subordinated loan, but there will be no more senior loans outstanding. We did this with 2 things. On the one hand, we collected deposits in a very cost-efficient manner, so we didn't do abrupt things. So this is why LCR is slowly creeping up. And on the other hand, we took the decision, end of August, to issue EUR 500 million of unsecured bonds in the capital markets. It is an issue where we thought about market timing. We could in theory also have done this at the beginning of next year. But looking at the capital markets in August, I think the window the management chose, printing a deal end of August at quite tight spreads, Euribor plus 90 for a 4-year deal, and if you also compare ourselves to where other Western European banks have printed around this time, I think it's a very good result. And there have been some household names which even printed at some, at similar or higher spreads. So this was the decision we took to just make sure that once capital markets are benign, they have a benign view on our credit and also on the country, we are ready to print. This would be it from my side. Maybe to summarize, so what is my takeaway from this? Strong client acquisition leading to strong volumes and leading to strong NII. NFC, we have discussed, but the client growth patterns from the business, we also still see intact from, in net fee and commission incomes. Revenue flat quarter-over-quarter, but one should take in mind the PLN 21.2 million delta in net other operating income. And LLPs are down, as we discussed in the quarter, but year-end, we are saying it should be -- the cost of risk should be close to 80 basis points. And with this, I hand over to Ernest.

[Ernest Pytlarczyk, executive]

[Foreign Language] Very quick update about economy. We see that this effectiveness, economic effectiveness, was enriched in the second quarter. This was normalization of the increase. What we saw, it was above the potential, this is between 3% and 4% in Poland, maybe a little bit more. So we see the third quarter, 3 -- 4.6%, and it's going to be 3.5% at the end of next year. And maybe without any external shocks, this economy should balance itself. But we do not have any -- some signs of external imbalance. So taking current situational labor market, this dynamic of 4% should be maintained for the next year. It's very important what's going to happen abroad, because the third quarter for us was a challenge more than we have realized, because most of all, we had very low increase in Eurozone, of just above 0. And quite a lot of problems when we talk about the automotive sector in Germany. So in October and November, we should see some reaction of this uptake of this sector. So it should also be reflected in the Polish data. In the next year, it's important to know that the fiscal situation is very good. And when we talk about the fiscal situation and EU accounts going into the Polish economy, it's quite high, I think it's 2% on fiscal thing, and the budget is close -- quite conservative assumptions. And there are some buffers. It's a lot to being said about inflation shocks. And therefore, the next year it would concern more the entrepreneurs. I think that the final client will not [in] that. So in the whole structural process, it's 1%. So it will not violate it. I think that there are sectors where up to 7% in the cost structure, you will see it. But I think it's too few to talk about inflation shock. So in next year, this inflation and the Monetary Policy Council rate, it's quite tolerant. So it will not react up, and it will not react down. So if the Council did not increase, there will be nothing to go down. But we have to -- we forget, that we have volatile floating exchange rates. So when we look at what was happening over the last years, there is nothing happening on the foreign exchange, it's flat out. So I will not be there -- maybe the zloty would deteriorate a little bit. We see just a -- [so a] tendency, but this is very, just 1 or 2 figures. So we shouldn't look into it as an economic phenomenon. We have positive point, we talk about the Polish debt, especially in the next months to come. The tariffs distorting this economic growth in Europe, so the economic wars. This is the -- plan that we are in the basket of this better developed economies. So we are in the middle of a better period for the debt market, and we do maintain our recommendation that all Polish debt will prevail. And a few words about the corporate sector and household sector. We are very -- we expect very similar dynamics on the previous year, as it was in the next year. The increase of loans, it's quite wide. It's not current working capital credit. These are mergers and acquisitions which are outside the Warsaw Stock Exchange. Definitely, there is consolidation. The question of the raw material market, employment market, and we are still optimistic when we talk about the territory of mortgage loans. We think that this consolidation on the Polish market, labor market, will help, so in the prospect of this low interest rate, which should support this market. And we talk deposits, I think we keep repeating it for some time. And the recent event, connected with unpleasant situation on investment market, this is just the support for bank deposits. So I think we will not have problems to get cheaply, big amount of deposits. I think that from the whole situation in the investment fund sector, so if somebody are going to be winners, it would be definitely the banks who will get cheaper financing. Thank you very much. We would like to invite you to ask questions.

[Unknown Analyst]

So I would like to congratulate you on this record levels. Coming to what Ernest said, the winners have been the banks versus the funds. I am interested in your plans as to the Supermarkets, and the question, the distribution fees, what's going to happen next in this business, because you do not have your own asset management and the banks are closing here?

[Cezary Stypulkowski, executive]

Well, until now, we were just a streamlined business policy. So we were just talking about this philosophy was, I think, that we are talking about MiFID 2, and the way, how to earn money, how to make money. I don't want the bank to be the factory of asset management. As to the principal, we have the assumption that we can be a convenient distributor, who -- which supplies the client the best product on the market. And it's not just the question. It just gets also the interest, and so on. I think, generally speaking, this is better for the bank. Coming from the fundamental assumption that is the basis for our strategy, meaning, less product-driven bank, more customer-driven bank, so this is philosophic assumption. I don't exclude from the regulatory question, issues or revenue issues, that we will have some kind of form of umbrella fund to be created. But generally speaking, we will talk about external partners, about the support to the client, and what's best for them. And in that context, Supermarket will defend itself. But we have to be realistic here. This is a product which is quite good, but it covers a narrow group of clients. It's not so common. So as we -- after this trauma of current experience, we will resume this thing. So some synthetic products for profiled clients, there will be existing, but it's not that we have the plan to buy TFI.

[Unknown Analyst]

So I just would like to come back to the topic that we've discussed a quarter ago, that is more visible in this quarter. And I think this is a problem of this sector, not just the mBank. But this unfortunate operations season, so the costs are increasing more than revenues. I remember last quarter's conclusion that with the costs, you don't want to do anything, because the bank concentrates on the revenues. And it's okay, but this revenues are increasing, slower and slower, not only with mBank.

[Cezary Stypulkowski, executive]

Well, let's not over exaggerate here. We have one off year, we took a decision. Without taking part in this consolidation process, I may say straight that this is the last year's experience, which showed that looking into closing 200 branches, it's not our specialty, but creating 20 branches that will supplement our network, this is something that we can do. In this sense, I think, that in the year that we have one-off income, one-off transaction, assumption concerning not to lose the pace without taking part -- without participation in the consolidation process, is justified from my point of view. And as long as we are able to justify this cost internally, and I think that we do not have a structural problem. Sometimes it's a bit better, sometimes it's worse, a bit higher or a bit lower. But if we wanted to do it, this cost could relatively be adjusted. So let's manage, not let's cut. We are one of the few banks who -- which opened branches. And within all of this, we've got the lesson learned from last year's experience. I mean, the approach to one of the options after acquisitions, that we have in our research, that we have relatively high recognition in some group of clients in the towns of 60,000 inhabitants, where we are physically not present, and this is connected to some marketing expenses. So this is -- when we look at the clients, it goes, acquisition goes very well, and it is followed by the deposits and some products. Obviously, some of it will appear in a long-term basis, because our acquisition mainly is concentrating on young, younger clients in the future. So the -- I benefit from what was done before for the mBank. So I hope that I will not be worse for my successes.

[Unknown Analyst]

So coming -- staying within the cost topic, it was nearly 100 increase of FTE. So the question is could I have a comment on the trend? Is it a trend? Or how about this employment? So I think that maybe it could happen on the -- so these FTEs, will they stay? Or do they have influence on the payroll costs? So do they offer the -- they were still in 3 quarter -- Q3 and will they appear in Q4?

[Cezary Stypulkowski, executive]

So we do not assume some employment reduction. We assume that we should adjust ourselves. So if you create branches, you have to increase -- employ some people. I think that just looking at the business model that we have, if you evaluate it according to other banks' models, it's a mistake. And the answer is yes, we do not say that we are going to grow significantly. But we do not say that we are going to reduce FTEs significantly. Obviously, there are some initiatives in the bank that generate costs on this, which will mean a reduction in -- of employment in some parts of the bank. So there is our automation of operations, robotization. So just a simple example. I think that at the moment, we think we must significantly increase employment and significantly increase remuneration. Because we think that this is very important channel in the bank, so -- I mean, the contact center requires completely different level of knowledge and skills than the call center used to require, given sensitivity, even given the financial support, technological support. I am deeply convinced that here, there will be revolution, because really, our basic client, which -- who at the moment, this is 59% of login, this is via mobile application. So if you lost it, it will -- if it's got lost, it will end up in the contact center, and he must get prime advice on the product level. And that means that this model will change. And thinking in the categories that the contact center, there will be just part-time people or students with the rotation 25%, it will not work. So there are a few areas where we have to count -- take it into account, and this is going to be like that.

[Unknown Analyst]

Your comment on amortization. Your investment spending also increased quite substantially in the last year, also this year. And I wonder what is your expectation about the future amortization expenses? What could be the level in next year? Whether do you expect a substantial increase here?

[Andreas Boeger, executive]

Yes, you are right. Our investments continue to grow. And not all investments then actually have hit the stage where they are basically in use and depreciated. So I think there will be a further trend upwards in depreciation. Yes, but we don't give a guidance on where this will go, but this will continue with the business growth we have, and with investing. Then obviously, if you start to invest more, if you invest more now, then in a year's time, et cetera, we will have higher depreciation, I think that's the answer.

[Unknown Analyst]

[Foreign Language] I have a question regarding the cost and the project that you have closed. Is there any influence on the delta -- cost delta? Does it have or will it have an influence on operating cost? Because the paper said this was sponsored by Commerzbank. But this project, which was in the study phase, does not encumber the bank. In total, it will be covered, because this is the third quarter, it is covered by the Commerzbank.

[Cezary Stypulkowski, executive]

There are some items like, part -- some people stayed with us, and we propose to them additional training process, since they will be our employees, and these costs are connected with us. So but these are not significant costs, mainly on HR side.

[Unknown Analyst]

I have a question about NPLs. Because on Page 13 -- 14, you said that this NPL is dropping down. But in the whole portfolio, retail portfolio, this NPL is quite flat-out. So I understand that in this consumer part, they are increasing. So do you take more risk? Or it's aging and you don't sell? And is this hypothesis true, that these NPLs in an unsecured retail portfolio are increasing?

[Andreas Boeger, executive]

Take NPL, okay. Yes, I think I've got it. Yes, so what is happening is that the nonperforming loans on the mortgage loan portfolio are trending slightly downwards. You see this on Page 15. And you are also seeing that basically retail is slightly trending upwards. We are always talking about 0.1%, but that's, a small trend is there. And what is correct is, and this also corresponds with the higher cost of risk, is that the business we are now writing is, in the structure of the new business, it's just different to what we have on the book. Because we are writing more non-mortgage loans that we actually have on the book, and these non-mortgage loans then leads to higher loan loss provisions and higher NPL. So basically there is a trend, which you're rightly saying, that the proportion of the non-mortgage loans in our NPLs is growing, but this is basically the driver behind higher net interest income.

[Unknown Analyst]

I have a question on this, I notice that coverage ratio for the Stage 3 retail loans keeps increasing. I mean, I wondered -- from say, 61% to 66% during 2 quarters. And I wonder where -- do you -- where is this coming from? And do you expect that this coverage will keep increasing? Because if you had not increased the coverage here, the cost of risk would be like PLN 200 million lower throughout the last 2 quarters, so this is quite material. If you can...?

[Andreas Boeger, executive]

I cannot explain this to you right now, don't have the data. So we would have -- we can get back to you, but I don't have the data right here.

[Unknown Analyst]

[Foreign Language] One more question from my side, about the interest margin, net interest margin. I think you've given this information, maybe you could remind, what would be net interest margin without Swiss franc portfolio?

[Andreas Boeger, executive]

Net interest margin without Swiss franc portfolio would be 283 basis points -- one second, it's 285 basis points here, but so it's roughly 30 basis points higher. And we have -- maybe another comment on net interest margin. So net interest margin should trend higher because the Swiss franc portfolio is diminishing. And we are filling up with other business that doesn't have the same structure, and especially as the business -- and the business has higher margin. I think the net interest margin we are showing here is similar to what we had last quarter. It depends on the way you calculate it, and the way if you calculate with average volume, end volume, et cetera, as we are growing very strongly in each quarter, the NIM seems to be rather flat. But if you run a different calculation, you can also see increasing NIM. So internally, we are also seeing this, the new business we are writing has better margins than the old business.

[Unknown Analyst]

[Foreign Language] Sorry about being so obsessed with the topic, but looking at Page 36, looking on the upper left-hand graph on Page 36, I can see a contribution of the data segments, which should ideally thrive even if we factor in the PLN 30 million delta in bank assurance fees revenue, the growth should be visible, but it's not. It's Page 34, Appendix, retail banking and retail results. I'm trying to make sense of all the trends across businesses and segments. Because what with such a good lending and such a strong customer growth, it seems the business should make more money as a segment. But if you leave out the bank assurance, it's PLN 530 million, but there is no growth to the speak of, it's flat. It's a question about the structural problem, I think.

[Cezary Stypulkowski, executive]

Well, well, undisputable -- it's undisputable that the retail is growing, customer deposits and stuff. And the segment's results is not growing. Maybe it's a matter of the higher cost of risk and operating cost. Because the -- revs growth might be consumed by OpEx and the cost of risk.

[Andreas Boeger, executive]

As I said, the investments we have taken and the higher cost, they are to a large extent also in retail. So this is why on the first-hand side, the retail segment here is the most effective, effective when it comes to the cost base. On the other hand, we have also spoken about the one-offs. And the one-offs being there. I think the negative one-off, for example, is roughly -- I don't know if we show it, but it is PLN 7 million reserve, for example, for legal provisions, which is totally in retail. The one-off that we had in Q2 versus Q3 when it comes to, because of the mFinanse project, the delta is roughly PLN 12 million. So PLN 12 million plus PLN 7 million plus the investments, et cetera, I think that explains, basically, the delta in the trend. It doesn't explain the last million, but I have already explained more that this delta is, so it should trend upwards. But this is why you see that a mixture of investment and the one-offs, which was Q2, was retail, show this in segmentation.

[Joanna Filipkowska, executive]

[Foreign Language] If there are no more questions from the audience, there's a question from [ Anna Marshall ] from the Internet. So capital utilization, specifically dividends from 2018 earnings in the context of your medium-term aim of 50% payout versus growth.

[Cezary Stypulkowski, executive]

We've continued to declare a 50% payout, obviously subject to the individualization of the dividend capacity, which is being imposed on the Polish banks by the KNF. And somewhere in between, you know, the dialogue with KNF and our ambition to pay 50%, which should be sufficient for us to grow as we plan. So basically, the payout declared is our ambition. Whether we will be able to pay at that level, heavily depends on the KNF. To be perfectly honest, I doubt whether we will be in a position to negotiate with KNF, the 50% payout in the context of our Swiss franc portfolio being still on our books in the magnitude of current.

[Joanna Filipkowska, executive]

[Foreign Language] Any other questions, ladies and gentlemen? If there are none, thank you very much. And let's continue over a cup of coffee in the lobby. Thank you.