Bank Millennium SA

WSE:MIL

Earnings Call Transcript 2018-Q1

[Artur Kulesza, executive]

Good afternoon, everybody. Welcome to Bank Millennium first quarter results conference. Let me introduce Chairman of the Management Board, Mr. Joao Bras Jorge. We have also deputy Chairman and CFO, Mr. Fernando Bicho; and Grzegorz Maliszewski, Chief Economist. My name is Arthur Kulesza. I'm Head of IR. Traditionally, we start with short presentation showing our main features of results first quarter followed by Q&A session. So I give the floor to CFO, Mr. Bicho.

[Fernando Bicho, executive]

Good afternoon. Thank you for coming. Thank you for attending this conference webcast and we have today the presentation of the first quarter results and we start with some highlights of the results.

First, I should say that we had very good beginning of the year, especially in business terms, which is also promising for the results of the current year. And I would start by highlighting some of the main financial numbers, which are shown on Page #4 of our presentation.

During this first quarter of 2018, we had a net profit of PLN 155.3 million. This represents a growth of 10.5% versus 1 year ago, supported by solid strength of improvement of our core revenues with net interest income higher by 6.2%, commissions higher by almost 4%. At the same time, with some cost growth by 5%, but also benefiting from lower cost of risk versus what we had a year ago, although not significantly lower. In terms of net interest margin, also an improvement versus 1 year ago to 2.51%. And cost to income, assuming distribution throughout the year of the upfront payment of the resolution fund fee, the cost to income adjusted is at 46%. As I said before, we benefited from relatively low cost of risk during the first quarter at 44 basis points over total net loss. And our ROE adjusted also by the regular distribution of this resolution fund fee would be close to 10%, at 9.7%, despite the fact that we once again retained the full net profit of the previous year. So -- but still we have an ROE close to 10%.

As I said before, we had a very good beginning of the year on business terms. On Page #5, you can see some of the main numbers. I would highlight the continuation of the very solid trend of the growth of active customers. We had a growth of 152,000 active customers in retail on net basis in the last 12 months and 40,000 just in the first quarter, followed by also the solid increase in the number of online and mobile customers, which already crossed 1.2 million. Customer funds this quarter driven by strong growth of retail deposits that year-on-year growing by almost 8% supported by the growth of customer funds from individuals at exactly 8%. The good deposit growth of the first quarter, as I said driven by retail especially due to the success of our savings accounts campaign. Loan growth excluding FX mortgage grew almost 13% year-on-year, while at the same time we had a decrease of the FX mortgage portfolio by almost 17%.

As a consequence of these trends, we continue to have a huge excess of liquidity with loan-to-deposit ratio close to 81%. A very good quality of the loan portfolio according to the latest information that we have. We have the third lowest impaired loan ratio among top Polish banks at 4.9%, already according to IFRS 9 methodology with a significant level of coverage of this impaired or stage 3 loans ratio by total provisions at 76%. And last but not the least, further improvement in our capital position. And we finished March with a total capital ratio of 24.4% and a Tier 1 ratio at 22.3%. And this puts us almost 6 percentage points above the current minimum threshold for total capital ratio.

So moving now to some more details about the financial performance and going directly to Page #7. Net profit grew 10.5% year-on-year, PLN 155.3 million in both quarters. This year and last year we were booking upfront the contributions to the resolution funds. Although, this quarter still based on estimations because we still did not receive the final information about the final amount, but we based it on the overall amount that is expected to be collected by this fund during the current year. ROE at 9.7%, again, adjusted with this contribution adjusted through time. Growth of core income by 5.5% year-on-year and growth of operating cost also by 5% keeping mostly the same trends of previous quarters, namely, stronger growth of personnel cost close to 9%. Cost to income still holds on very well. Cost to income at 46%, with a small decrease of the number of branches, when compared with 1 year ago.

Moving to Page 8. Some details about net interest income. Year-on-year we had a growth of PLN 6.2 million, a small drop versus the previous quarter, which is fully justified by shorter quarter by 2 days. And also by the decrease of the remuneration of reserves in the Central Bank that was decided in the beginning of this year, which also affected our net interest income. So these 2 elements fully explain the drop of net interest income. Additionally, there was also a small negative impact that comes from the introduction of IFRS 9. So I would say that like for like, even we had a small increase of net interest income versus the previous quarter. We also had a small increase in the average cost of the deposits, driven by this successful savings accounts campaign. We see these as a temporary effect. At the same time, we also can see a clear improvement of the average remuneration of loans versus 1 year ago, with the average remuneration of loans close to 4.2%.

On the commission sides, we had a strong quarter, with fees at PLN 173 million, a growth of almost 4% versus 1 year ago and with the improvement also especially in this quarter coming from commissions connected with accounts service and other and the insurance.

On Page 9, regarding asset quality. We have shown here in this graph the evolution of the impaired loan ratio. Also including the initial adjustments to IFRS 9. And as it is visible, of course, we had a small increase of this impaired loan ratio on the 1 of January by adopting a little bit more restrictive IFRS 9 standard. But on the other side, during the quarter, we had an improvement and we finished the quarter with the impaired loan ratio, which now in this -- now corresponds to stage 3 ratio, in fact, at 4.9%, with improvements in all the portfolios that we are showing here.

The beginning of the year was benignant. In terms of cost of risk, we had overall cost of risk of 44 basis points of our total net loans, so PLN 4.6 million below 1 year ago and 7 basis points below 1 year ago. We -- as I mentioned before, we have a very strong coverage ratio of the impaired loans by provisions -- by total provisions at 76%, which of course is much higher by more than 10 percentage points than the previous coverage ratio of impaired loans by provisions that we had last year under IAS 39.

FX mortgage portfolio continues to shrink. This time more than 16 -- almost 17% reduction, in fact, during the last 12 months.

Page 10. Capital adequacy, that the capital ratios have been going up significantly, especially it is impressive that the improvement during the last 12 months. We moved from levels around 18% of total capital ratio to 24.4% now, which places very much above the current minimum thresholds, 6 percentage points above the total capital ratio threshold and 7 percentage points above the minimum Tier 1 threshold. And so here what we can say -- of course, most of these improvement in this quarter was driven by the decision of the shareholders meeting to retain the net profit of the last year in our funds. But we still continue to create conditions in order to be able to pay dividends in the future and this buffer that we are building, it can be important for that purpose.

Moving now to the second part of our presentation, more directed to business results.

In Retail Banking, we had the strong growth of active customers. So as you know, we have even more ambitious target for the growth of active customers in the next 3 years than what we had in the previous 3, which was already very aggressive, but this is going in the proper direction, so a growth of 40,000 net in the first quarter. A growth of 7% of retail deposits in the first quarter, mainly driven by the savings account campaign. Record sales of cash loans PLN 769 million, 38% above 1 year ago, also very strong sales of mortgage loans almost at the same level of PLN 748 million plus 75% versus 1 year ago and 1.2 million active users of online and mobile.

On the corporate side, record quarterly factoring turnover of PLN 4.6 billion plus 22% year-on-year. Leasing sales higher by 16% year-on-year. Overall total loans to companies, including leasing and factoring grew by 9% year-on-year and also followed by significant increase of transactions made by our corporate customers.

On the innovations and quality side, we continued to receive different awards and market recognition, which in this time translated into the first position in Net Promoter Score ranking in the award of The Most Innovative Bank for 2017 and also -- and the recent award of Website Without Barriers.

Moving to more details on the -- our business evolution. On Page 13, we can see the evolution of the loan portfolio with solid growth of consumer loans in the first quarter but also loans to companies, while mortgage overall is growing less, although PLN mortgages are growing more than 20% year-on-year. As a consequence, we continued to change our asset structure bringing down the share of FX mortgage, which at the end of March was at 29%.

On the customer deposit side, strong quarter for retail deposits. Overall year-on-year growth of 5.5%. The huge excess of liquidity also allows us to be more strict in terms of the pricing of the deposits with the exception of the campaign that I already mentioned. In terms of other investment products, year-on-year a growth of 22%, 3% growth in the first quarter despite the fact that we had during this period the introduction of MiFID II, which required a lot of effort and adjustments in the bank's processes, but despite that we managed to continue to increase the volumes under management.

On Page 14, some more details about retail. So we are reaching almost 1.7 million active customers in retail, supported by strong growth of accounts, customer funds and payment cards. Total customer funds are already above PLN 50 billion. The pace of growth of active retail customers is very solid. Quarter after quarter, we are showing the capacity to significantly grow our customer base in an organic way. And this is followed by the significant growth of the number of current accounts, which grew by 218,000 versus 1 year ago, and the number of debit and credit cards, which grew by 284,000 versus 1 year ago.

Page 15 shows similar picture, although even better than what we were showing 1 and 2 quarters ago, with the steady growth of active customers in online and mobile, which crossed 1.2 million plus 17% year-on-year. And also the significant importance of the online and mobile for the origination of cash loans representing already 37% of the loans in terms of starting the process of granting these loans and the same similar level for overdrafts.

On Page 16, the change of the structure of the retail portfolio is visible, so the drop of the FX mortgage by more than 16% year-on-year has been supported on one side by the FX rate, but also by higher price of early repayments in our FX mortgage portfolio. On the other sales, mortgage loan sales have been at a strong level in the last 3 quarters allowing us to reach a market share in the origination above 6%, growing 75% versus the first quarter of last year, and contributing to a 22% growth of PLN mortgages year-on-year, followed by a 12% growth of consumer loans year-on-year. Cash loan sales with a record quarter, PLN 769 million, a growth of 34% quarter-on-quarter and 38% year-on-year.

Moving to the corporate side on Slide 17. Total corporate deposits grew 6% year-on-year, although we had a small drop quarter-on-quarter. But the most important is the growth of current accounts by 20% year-on-year and which is being the driver of the overall growth of corporate deposits. Loans to companies grew by 9% year-on-year and 2.2% quarter-on-quarter. On the yearly basis, the major drivers were still factoring and leasing, which grew at double-digit base. And this is being followed also by increased transactionality of our corporate customers as shown by the increase in the number of transfers, FX transactions, guarantees and so on.

On Page 18, leasing sales had a very good quarter, PLN 802 million plus 16% year-on-year and factoring turnover also very good growth, 22% year-on-year.

And finally, on Page 19, again, an illustration about the new solutions that we have been implementing in our Millenet and mobile application, which are contributing to the significant success that we are also having on the digital side. Thank you very much. Now we are available for questions.

[Michal Konarski, analyst]

Michal Konarski, mBanku. If we could talk a little bit about the net interest margin and actually more about interest expense of Bank Millennium. In the first quarter, looking at the net interest margin dropped to 0.1 percentage point quarter-on-quarter. And it seems that the bulk of it actually should be attributed to the interest expense of this net interest margin drop. And I was just wondering, there was retail deposits gathering in the first quarter. You've got a pretty good situation in terms of the loans to deposits. Why was the decision to start gathering the deposits, given such a good situation with lots of deposits? And what we should expect going forward? Should we expect that the net interest expense, I mean, interest expense should still be growing over the next quarters? Or we should see some stabilization and tasks somewhat margin rebound going forward in the next quarters?

[Joao Jorge, executive]

I must confess, I know that you are -- all of you are big friends of net interest margin, but I must confess that we are more fans of net interest income. So for us the combination is important. And sometimes, the volumes also matters and not only what we will be making by units, so not only the margin. It's true that we are, let's call it, even over liquid, and that's why we have not been growing in terms of I would say time deposits of corporate side. We have been performing quite well. We don't show these details, but we have been performing quite well in terms of current accounts of corporate, but we are not doing nothing special in terms of term deposits of corporate. When we are going for more the small the savings, let's call it, in retail, even if we don't need these liquidity, we see it as a long-term relationship building with the customers. We realize that we have a little bit more pure retail deposits than our net of market share. We see these when we pay a higher cost in terms of guarantees or guaranteed fund of deposits because it's seen as a low deposits below the EUR 100,000 -- a little EUR 100,000. So it means that it's really massive retail and we want to keep building these. And so if we have a long term also goal of building a strong market share of deposits of individuals, independent of the needs of financing for lending. Of course, there is sometimes a price to pay when we are capturing volumes and there is a strong expectation that later on, we are able to reverse these to more profitable products or to more, let's call it, less aggressive pricing. There was some increase on the pricing of term deposits in the end of the quarter last year. I think I commented even when we talk about the nano results. And then there was not this decrease in our case, so there is this -- I would say there is this increase of the market prices in terms of term deposits with our own campaign. With our own campaign affect, we are going to reverse the total market costs, let's see it. Because we also see it a little bit higher price that is paid in term deposits in the market. Although the expectations is that there will be flat rates even for longer time than 1 year ago, but I would say this.

[Fernando Bicho, executive]

Just to add that, we should not forget that this campaigns usually are valued for 3 months’ time, right? So we're not saying that we're not going to continue with the campaigns, but we're just saying is that each campaign for each customer has a validity of 3 months. So -- and then there are always some adjustments that can happen. So not necessarily these small increase of the average cost of deposit is going to continue. It will depend a lot on our strategy and the management of the cost of this campaign. But the campaign was very successful. It helped a lot to the growth of deposits during the first quarter. And I think this is good news. And also looking more for the future, the excess of liquidity that we have currently, of course, somehow it's not the most optimal structure to maximize net interest income. It's true, but on the other side, it gives a lot of room for future growth without any restrictions, both on liquidity and capital side.

[Lukasz Janczak, analyst]

Lukasz Janczak, IPOPEMA Securities. Could you explain the significant increase in new cash flow and sales? Did you change your risk capital or maybe are open more to external client base?

[Joao Jorge, executive]

No, we are at the level that we always wanted. For several quarters I was saying that our goal was 250 per month, although we were not achieving at all. Now we achieved these. And we are surprised with how fast it was. I don't -- we don't have a reason for that. We are doing the same things. We are doing -- the risks are the same. Mainly there was a growth in terms of new to the private customers, so customers that they never had a loan with us. I can tell you so net -- new to the product customers, so the customers that are making the first cash loan with us, 80% of them are with a relation higher than 1 year. So our customers used to work with us and 30% of them never had a loan. So 70% of them never have a -- they don't have an active loan, sorry, 70%. So it means that 30% have a loan elsewhere. And so we are quite happy from the risk side. So this is good news. Why is this working so fast in 1 quarter? We think it's the -- our retail network have these a lot, so it's 3,000 individuals. So when they start to work, it's 3,000 at same time. We trained a lot last year. Last year, we were training a lot. Also we start to advertise for the first time. So probably there was -- there is also this media impact. And we saw these growth in terms of mortgage 3 quarters ago. So it was the last -- in the second part of last year, we saw the growth of the mortgage and we stabilized on the PLN 750 million and we are stabilizing. So we didn't saw a drop in the other market, so it looks like we are going to stabilize at these levels in cash loans, which is very good news because it really shows that we will be growing in terms of lending and these will be positive. Of course, we need to have the impact of the decrease of the Swiss franc portfolio that also if there is a natural part, it is by decreasing of the FX rates. But also there is an active role in our part trying to early amortize as much as possible. So we'll have these 2 impacts, but we believe that they will be very positive.

[Dariusz Gorski, analyst]

Dariusz Gorski, BZ WBK. I'd like to discuss with you the relative dynamics of revenues and cost, they are almost the same and they were not before. And within this context, what are your thoughts on the cost growth outlook? Your wages grew by 9% this quarter.

[Joao Jorge, executive]

Although in percentage they are the same, the wages are not the same. So at least it will increase a little bit the result. If I would give a guidance, which I don't give, I would say that I'm more optimist on the growth of the revenues. And we think that there will be somehow a reduction of the growth by based off the costs. So it's like these. But we never haven't -- you know it very well that we never had it a big focus in specific cost cutting, so it's even when we reshape the network, we were more looking for the customer trends and the change in demography. We never were going through a cost-cutting process just for that. And we really believe that the strategy of this bank is based on growth of revenues maintaining the cost structure. Of course, it's very difficult to maintain such cost structure when you are in a country that there is 0 unemployment and the salaries are growing at 7%. So it's very difficult. Because even in the administrative costs, a lot of cases, we are talking about personnel costs inside of the contracts of administrative costs because you are talking about security, [ training ], postal, distribution, cash management and transportation. So we are always talking about a lot about services that have a huge personnel or labor competent, let's call it like that. But we think that we had very strong results in terms of business results, but that as we leave not only by the sales, but also by the stock, the impact in terms of income will accelerate. And we believe that the impact in terms of cost will somehow decelerate, even growing, but at least in percentage base, we hope that we will decelerate.

[Dariusz Gorski, analyst]

And second question on the cost of risk. Is this coin provision is this a thing that will stay for forever? I mean, PLN 7 million, approximately? So this is first question. Second is, isn't it a little bit -- I know you're learning IFRS 9 and everybody is. So what are your initial thoughts? I mean shall we expect a 40-odd basis points cost of risk going forward, assuming conditions are the same?

[Fernando Bicho, executive]

So about this first question. So we will have now these adjustment then of interest going through provisions, but also -- its release will also go through provisions, right? So this may through time could slightly decrease the overall provisions. But I don't think it will be a major difference in terms of the overall level of provisions. I think regarding the implementation of IFRS 9 standard, as you say, and as we said in the morning to the journalists as well, we are still in a learning process. And this first quarter, where the standard was introduced, was a quarter where we did not see any relevant deterioration in any of our relevant portfolios. And so it means that it's not the ideal quarter to assess the implications of the implementation of IFRS 9, right? Because in a quarter where nothing happens, it's [Audio Gap] difficult that the IFRS 9 forward-looking, let's say, impacts will be visible, right? So that's why I think we should not just jump to the conclusions that just because the 1 quarter was low, that all the quarters will be like this. We also cannot forget that there was an initial adjustment in the level of provisions on the 1st of January, which is not shown in the P&L, it's shown through equity, all the banks at these adjustments and more or less all the banks had, which is also somehow can also -- in the very short term, can also limit the negative or the volatility of the provisions. But I think it's still too early to take a conclusion regarding the final impacts of IFRS 9. What we can say is, so far we don't see deterioration in the core portfolios, meaning, corporate loans, consumer loans, FX mortgage even perform better than in previous quarters the same, PLN mortgages also very well. So we did not see any deterioration. And as a consequence, we had finally this 44 basis points, which nominally, it's not much below what we had 1 year ago, right? Because it's only PLN 5 million less than what we had 1 year ago. But we still think that we should somehow in the medium term or let's say somehow come back to these levels of around 50 basis points where we were for a long time under the previous standard. So of course, in the short term, we are not seeing anything bad but we will be learning with the standard and the standard will be more volatile as well. I think what is good is that with the new standard, we were able to have not only low cost of risk, but also reduced the ratio of impaired loans over total loans. Of course, there were also some write-offs in the quarter, but still we managed to be again below this 5%, let's say, threshold. And additionally, there is a level of coverage because we are using also the level of coverage is in total provisions of stage 3, 76% we think is a -- it's a good coverage.

[Unknown Analyst]

Have you considered leaving some portion of 2017 net income undivided because we have evidence of some banks, let's say, this year you're paying dividend from the 2016 net income, don't you see any upside coming from this?

[Fernando Bicho, executive]

No, our decision was straightforward and clear. So we did not split. So the decision was to fully retain the net profit in own funds. So we will not come back to the distribution of the 2017 net profit.

[Unknown Analyst]

Going forward, would you consider, let's say, leaving some net income -- some earnings undivided so that you can pay this dividend later?

[Fernando Bicho, executive]

We may consider. I think most important for us is to create the conditions to allow coming back to normal dividend distribution. I think this is the most important. And we have to believe that the methodology is known because KNF very early this time announced the principles for the dividend policy. So assuming that they will stay the same at least for 1 year. We know what are the rules. And so everybody knows what we should fulfill in order to be eligible to pay some dividend from 2018 results. Of course, the threshold is not the only -- it's also important. There is -- every year there is an update of the capital threshold, so we also cannot forget about that. But we know which is the way to go in order to create conditions for the distribution. We don't know if it is going to be already from the 2018 net profit. We cannot guarantee that, but it is visible that we are going into the proper direction because one of this criteria, this share of FX mortgage in total is decreasing. We are now at 29%. It also depends a lot on the price of amortization of this portfolio, but also on the growth of the remaining portfolios. How fast we can dilute it to get to the next threshold of below 20%. It will not happen this year organically, but we know the direction, right?

[Unknown Analyst]

About that acquisition of deposits. Do you -- how long should it last? Because I think that you are currently having some attractive powerful clients, what time does it expire? Or what time the cost of funding can go down for you in total figure?

[Joao Jorge, executive]

To know that when the cost will decrease, it's difficult. We believe that this will slow down now. But this does not mean that we are going to stop what we are doing commercially, because commercially, we think that makes all the sense. And we believe that we are building a stronger franchise for the future. And these will go in parallel will all of these development in lending and then we think this is a good strategy. And we think that it is in -- universal banking is impossible to try to maximize the sweet spot in everything at the same time. So it's important to have these trends, these momentum of growing. And especially, if you want to have a strong, small retail typical saving you need to do it this with time.

[Michal Konarski, analyst]

Maybe one follow-up question from me regarding the sale of the cash loans. What trends do you see in terms of the pricing of the cash loans? And do you see any deterioration of the pricing or stabilization? If you could tell us something more.

[Joao Jorge, executive]

Yes, we see 2 situations. So it's -- somehow there is a small deterioration, I would say. And I think because there is a huge trend of all universal banks trying to sell more and more cash loans. And so the more the consumer bank -- consumer finance-type of banks, they need also to compete. One part, I think it's not a big issue, so it's like you need to give a better prices to the customers that you know well. And then if you go to these new type of -- new to the product type of banks and ratings 5 to 6, so it's -- then it's right. Then I think it is -- you are making lower price, but much better risks. So the gains are much -- they are very positive. The problem is more on these strong consolidations campaigns that we are seeing. And here sometimes there is also a price effect and here they can be little bit worse because then you are putting some customers that have 11, 10, 9 rating, so it means that the risks are higher and you are still making big ticket. So I would say that I see some deterioration of pricing. But for us we are not concerned because as you know we work more with our existing customer database. And also, there is a very strong momentum in the economy. So it's -- I don't see the concerns for us and maybe even for the market because there is a still stronger momentum in the Polish economy, so I don't see a huge increase of impairment. So it's not a risk, but there is some decrease on pricing, I think, yes. Not huge, but we are kept at 10% maximum interest rates, so it's -- I think, it's still okay.

[Michal Konarski, analyst]

Could you actually quantify what is the margin pressure, let's say for the last 6 months? Let's say on your products, what was the offer 6 months ago against right now?

[Joao Jorge, executive]

We don't believe.

[Fernando Bicho, executive]

I think we can answer the following. For this growth, we have the contribution of different drivers. One of them was a promotional campaign, relatively simple on one side, which has implicitly a little bit lower interest rate versus what we were doing previously in terms of origination. So this is one thing. But this is not bad especially when we are getting new customers to the product or consolidating the exposures that our customers will also have, right, because we cannot assume that we are able to at the same time to get those loans or to consolidate those loans at the same pricing levels of everything that we had before. It's not realistic to assume that there is always -- in order to attract these customers, we need to also to attract -- to have a more attractive pricing. So for this small decrease of the overall remuneration of the cash loans we have on one side, the effect of the promotional campaigns. Second of this consolidation initiative that in which we also need to give a more attractive overall interest rate. But this depends also a lot on how important are each of the drivers for the overall origination. I think that the success of recent months was mainly the fact that with one promotional campaign specially, we were able to attract more loans that we would otherwise do. And we believe that these additional volume even if it has a little bit lower pricing is much better than to preserve the old overall pricing, but with a much smaller volume. If you remember in the previous -- there were quarters in which we were originating PLN 500 million, PLN 600 million of cash loans. But when we look at the overall portfolio, it was not growing significantly, right, because as we grow, the price of amortization of the existing loan also starts to weigh on the overall growth. This time, we are able to show still a 12% growth year-over-year, which is I would say very well, very good and additionally according to some market indicators that in the meantime we also started to look more closely. We are getting a higher share of the origination of new consumer loans than what we used to do to have 1 year ago. In recent months, we had a share of origination above 5%, which is unusual for us because usually we had around 4% the share of origination. Again, it's just a few months, but it's a good sign, that it is one of the good signs that we see in this growth. It's not only the volume, it's also that our share of the overall origination of the market grew in recent months and we -- of course, we are focusing on keeping that.

[Michal Konarski, analyst]

Okay. And did you may be losing out a little bit your credit risk requirements for the clients now? Okay. And very last question, I promise. Regarding your very good capital position, do you think about some acquisition in terms to utilize excess capital and then -- and not to change the requirements by KNF because you never know what will happen actually next year regarding, for example, this recent buffers and other things here?

[Joao Jorge, executive]

I was still thinking about acquisition and cash loans, but never mind. The strategy was present in due time and even now we always present also the strategy that we present 3 years ago, so to really be clear about what we were saying in every 3 years, look, it's true that for the first time we are saying that our focus is organic and we take a look about opportunities. And this is -- so it's not -- and this is new. It is not to say this -- so we are saying this for the first time so it's, of course, we need it. We think that the feet needs to be very, very well done because then we are talking about -- we are acquiring -- we acquired in the last 3 years 300,000 customers. 300,000 active customers is almost a small bank. We have in our target for the next year, 600,000 customers, so this is -- and, of course, you know that -- I think we already explained here that and our strategies you need 4 years to the customers to mature. So again, we are talking about acquiring 600,000 customers to have the impact of what it would be already a reasonable small bank, we need to wait then 4 years, so it takes time, of course. But at least, we are starting to make mature the ones the customers that we acquired some years ago, which means that we believe that the strategy that we have now is enough to deliver the growth and the profit that we compromise ourselves. If there is something that is at the right price that these fit in terms of the strategy, that is value-added, that is not dilutive but...

[Fernando Bicho, executive]

Accretive.

[Joao Jorge, executive]

Accretive, then we'll see. But just one question about the cash loans because I think it's important. Please remember that our models are somehow quite -- it's not easy for us to change our models because even we are IRV and everything. So for us to change models and it's a process that also involves -- if it is, of course, a significant change, but needs to have approvals and everything like that. So it's not -- and we are more depending on models and their preapproval offers than we are -- we always explain that we are not very good to attend to a customer that appears in street. So we are not very good in a normal income process that person appears. So we are quite good is to analyze what the customers are doing with us.

[Unknown Analyst]

And maybe on cash loans if I may about distribution channels. Do you see any change in -- well, you originate this cash loans for the online or physical branches or has anything changed?

[Joao Jorge, executive]

So from 1 side, we keep the -- every part of cash loans originated online, so it's -- or at least that they start online. There are 37% yes, 37% of the cash loans are started online or via mobile, so they can be -- end up by a courier or something, but which is a good percentage. But I must tell you that we are also happy because a lot of the new acquisition that we were doing, they also come from the branches and this was very good. So what is happening now is that we have a kind of a process that we are moving more and more the easiest sales to the easiest channels. And so it's -- and there's always a challenge because it's like from branches to go call center from call center to Internet and even now it's from Internet to mobile. And these -- so it's -- as you know, we are mainly operating for ourselves. We are considering now to make some tests in the future with some third parties but it's something that we are still thinking about if we're going to do or not. So the acquisitions of cash loans is our own network. And yes, so that's it.

[Marta Jezewska-Wasilewska, analyst]

Marta Jezewska-Wasilewska. Just follow-up on your cost of risk. Just if you could help me understand what happened this quarter with your retail cost of risk and provisioning? Was there any change in the models? Was there sales of the portfolio? Why is it so low? Why it dropped? I think it's -- was it on the market side more or on the consumer lending side?

[Fernando Bicho, executive]

So first, on one side, we had in part of the market, even we have a small release of provisions during the quarter because in fact the portfolios have been performing better even, so there was even slightly negative. I can tell you, for example, in FX mortgage portfolio, the cost of risk was negative in the first quarter. But still, even with these, we -- even there were some provisions that were done during this quarter that also supported some of the write-offs that we finally did during the quarter. So even with these, we finally finished with over a lower cost of risk in retail than 1 year ago. But truly, as I already mentioned before, both in mortgage but also in other retail. For example, in other retail, which is typical, essentially cash loans, not only but essentially cash loans, we have an average cost of risk close to 200 basis points. So sometimes it goes a little bit up and down, but on average, let's say it is around 200 basis points. This has not changed also significantly in the recent past. In corporate, the same situation, we did not face any relevant deterioration of relevant exposures that we had so also it was relatively benign quarter. So again, there was nothing extra -- I mean, it's a bit lower than probably we were expecting, a little bit, but it's probably 6 basis points lower than what we would expect because I think that we were always thinking about around 50 basis points. And again, as I said, we are still very fresh from these initial adjustment of IFRS 9. So I think for you to take proper conclusions, I think we need 1 or 2 quarters more. We need to compare with every bank, all the banks because I think it is also important to see because each one does according to different methodologies and -- but for now, the situation really is I can say is benign for the current year.

[Marta Jezewska-Wasilewska, analyst]

And maybe just a follow-up on net interest income. What was the impact of IFRS 9 there?

[Fernando Bicho, executive]

It was relatively small. It was less than PLN 5 million. So what I wanted to -- when I mentioned that it was just to show that, of course, nominally, we had a drop of NII versus the previous quarter, but if we adapt to these 3 factors, shorter quarter by 2 days, plus lower remunerations of reserves from [ MBP ], plus these small IFRS 9 impact. I think small for us, I'm not sure if it will be small for all the banks. These in fact much more than eliminates the drop. I'm not saying it was a fantastic quarter in terms of NII, I'm just saying that it was not a drop if we take like for like NII, let's say in this one.

[Unknown Analyst]

If I may be ask 2 questions still unanswered because the other I think were answered already, which came from Internet following [indiscernible] but more to the future. What dynamics do you expect in the coming quarters and in the medium term given the stable for longer interest rates. So some forecast for NIM and NII?

[Fernando Bicho, executive]

So first of all, I should remind that we never expressed the hope of having higher interest rates in the short term. So we never guided, we never hoped. So from this side no surprises for us. Even I can tell you that we budgeted the year with flat interest rates. So I think it was a good budgetary decision for us, that we were not counting with the support of higher interest rates to make our budget for the current year. Having said that, and despite this small drop of NIM on a quarterly basis, although it's still higher than one year ago, structurally, we would expect NIM to go up. If everything that we are doing will deliver the results that we expect through time, NIM should go up because on the asset side, we are changing the asset mix especially growing higher yield loans especially consumer loans. In mortgage, we are replacing lower margin mortgages by newer, higher margin mortgages in P&L because the average spread of the FX mortgage book is much lower than the new origination that we are doing in PLN. So this is also accretive for NII as time will go through. In corporate, where we always said that it's more difficult that there is a lot of competition, it's true but the spreads are not deteriorating versus what we were having. So from the asset side, this should be supportive. Second element is securities portfolio. We -- from this side, I will say this year is relatively neutral. We have average yield on our portfolio that we were already having in some of the previous quarter so I would say that here, it's more a volume affect than anything else. And the third is from the deposit side. We had a downward trend of the average cost of the deposits, which now was temporarily interrupted with in the first quarter, mainly due to this impact of interest costs from the savings account campaign, but we see these. We are not obsessed in correcting these trend, okay, so we are not promising that next quarter, we already will show a lower average cost of the deposits. But we know that this gradual change in the deposits mix with higher share of current accounts and savings accounts in total will leave us to have average lower cost of deposits, or better saying, average higher margin on to deposits. And so through time, the combination of these effects should translate into an increase of NIM, if interest rates will not be capped.

[Artur Kulesza, executive]

Thank you. And one more question from Internet also from JP Morgan, about commission fees. Can the 2% quarter-on-quarter fee income growth continue for the rest of 2018? If yes, what are the key drivers?

[Fernando Bicho, executive]

So here I need to remind that usually we have a very good first quarter. So the first quarter is not exactly the average of the year. We have some fees that concentrate in the first quarter. So we are not -- we cannot say that the next quarters in terms of fees are going to be higher than the first quarter. What we think is that on a structural trends way, we will have year after year higher fees than in the previous year. So our focus is not beating on a quarterly basis, the previous quarter or whatever but it's rather to every year after year to show a sustainable pace of growth of overall fees and commissions. What -- most of the things are controllable by the bank. What is volatile in the overall fees and commissions of the bank are the part connected with the capital markets, especially the fees that are coming from investment products, which are subject to the mood and to also the net inflows to the funds, and to lower extent, some regulatory things that happened in the past such as interchange fees but we are not now thinking about anything special to happen in the near future. So most of the flow of commissions is relatively, let's say, stable. So I would say this structure we will also expect through time and with the growth of the business, transactions of customers, we expect also fees to follow that business growth.

[Artur Kulesza, executive]

Thank you. No more questions via Internet. Are there any from here from the room? I don't see. So thank you very much for participation here and see you after next quarter conference we will have you via Internet present with us in July. Thank you.