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So good afternoon, ladies and gentlemen. Welcome to third quarter results conference of Bank Millennium. We have the privilege to start the season -- reporting season of Polish banks. Management Board of the bank is represented today by the Chairman, Mr. Joao Bras Jorge; and Chief Financial Officer, Deputy Chairman, Mr. Fernando Bicho. As usual, we'll start with short presentation of our results followed by Q&A session. So I give the floor to CFO, Mr. Bicho.
Thank you. Good afternoon. Thank you for coming and for attending this conference. We will start just by making a brief update about the process of acquisition and merger with Euro Bank. As you can see on Page #4, we completed recently another very important milestone of this process, which was the legal merger of the 2 banks that took place on the 1st of October. So since that date, we have one legal entity but still 2 separate operational systems. And we are now preparing for the -- another important milestone, which is the operational merger, which continues to be scheduled for November 2019. And so if we will succeed, we believe, we will be able to achieve in record time, the process of negotiating, closing the transaction, making the legal merger and the operational merger of the 2 institutions. In this context, the quarter was marked by heavy work connected with this legal and operational merger while at the same time, not neglecting the efforts of continuing the organic growth that we have been already showing in previous quarters and which continues to be shown in the third quarter, despite the complexity of managing this integration process. In financial terms, the acquisition of Euro Bank, of course, has some extraordinary financial impacts.
3 months ago, we mentioned day 1 impact in terms of provisions that were booked on the acquired at fair value Euro Bank portfolio. And in the third quarter, the -- we had growth in the integration costs of Euro Bank, which reached PLN 44.3 million and some additional provisions, which brought the gross negative impact from this event to PLN 52 million in the third quarter, PLN 42 million on a net basis and this is important just too, of course, excluding the impact of ongoing consolidation of Euro Bank. It is just important to know these numbers because later on, in several comparisons that we are doing, these numbers are important in order to separate what is extraordinary from the ongoing impact.
Also, a reminder that we are showing on Page 6 that the acquisition of Euro Bank allows significant growth in the physical presence of the bank in Poland with a combined network of 833 branches after acquisition, including 200 -- more than 200 cities where the bank was not present before. And in which total of around 4.5 million people are living. And also, allowed a better diversification of the branch portfolio where 55% of the branch network is located in a smaller towns up to 100,000 inhabitants.
Now moving to the financial performance of the bank. I just -- before this meeting, I was just summarizing some big numbers where we are now after the acquisition of Euro Bank. And now we are a bank with almost PLN 100 billion of assets, in fact PLN 98 billion of total net assets, around PLN 80 billion of customer friends -- PLN 90 billion of customer friends, sorry. PLN 80 billion of deposits, close to PLN 70 billion of loans and close to PLN 9 billion of equity. So this transaction and the organic growth that we have been showing are allowing us to achieve a bigger scale.
I will skip the tables that are on Page 8 and 9 that summarize the main aspects of the profit and loss and balance sheet items because -- in more detail in the next pages, they will be shown.
So starting with Page 10, where we are going to showing the main highlights of the first 9 months of the year. We had in the third quarter a net profit of PLN 200 million, which represents a growth of 15% quarterly if adjusted for one-offs. The accumulated net profit of the year reached PLN 534 million, which is -- includes already an impact of PLN 124 million from these extra costs and the provisions connected with Euro Bank acquisition. The reported ROE is at 9.2% and if we adjust the ROE by some of these extraordinary factors, the adjusted ROE would be at 10% and the cost-to-income at 46%. The consolidation of Euro Bank since the 1st of June, of course, significantly increased the growth of the volumes when compared with 1 year ago. So -- in most of the items we are showing the growth with and without Euro Bank. So starting with operating income, we had a growth of 25% year-on-year of which Bank Millennium organic growth was 12.3%.
The major driver of the revenues continued to be net interest income, which grew 30% year-on-year or 13% without Euro Bank. The total cost also grew by 30%. This is not only the effect of the consolidation of Euro Bank, but it's also the effect of integration costs that are already being faced. The growth will be 24% without this integration cost or 8.5% if we would take Bank Millennium without Euro Bank and integration costs. Also, in the third quarter, we already made the -- an initial reserve for potential returns of cash loan fees. After the European Court of Justice ruling of the September. The total amount that we booked is PLN 53 million, which is split between net interest income, PLN 21 million; and the remaining PLN 32 million in other operating costs.
Regarding the asset quality, the quality remains good and stable. The cost of risk naturally is higher than before due to the fact, apart from the extraordinary events, we also have a change of the structure of the loan portfolio. So we have now a bigger share of consumer loans and total loans, which, of course, drives up the cost of risk when measured at basis points over total net loans. The liquidity remains very strong. The loan to deposits fell to 86% and the capital ratio is continue, also, strong above 20% already incorporating the net profit of the first half of the year.
Page 11. The ROE adjusted, as I mentioned, in the first 9 months of the year is at 10%. And in terms of the net profit on a quarterly basis, we have an increase of 15.3%, despite the fact that we had these additional integration costs, but on the other side, we also did not face this so much big level of day 1 provisions connected with Euro Bank. On operating income, the growth on a quarterly basis was 1.2%, excluding Euro Bank or 16% including and year-on-year 12.3% excluding Euro Bank.
The costs on Page 12. Here we are providing different metrics in order to break down the impacts that we are having on the cost base due to the consolidation of Euro Bank and due to the integration costs. So if we exclude Euro Bank, so our -- the personnel cost of Bank Millennium grew 11% year-on-year. So that is comparable with the growth rates that we showed in previous quarters. And the other admin and depreciation costs in Bank Millennium grew just 2.1%. And while the contributions to the banking guarantee funds grew 25%. So if we exclude the effects connected with Euro Bank and integration costs, we have a growth of 8.5%, which we believe is a reasonable growth for the times that we are leading specially in terms of pressure on the personnel costs side. The total cost growth with Euro Bank and integration costs, which 30.4% or 23.6%, if we exclude the integration costs.
Naturally, the integration costs are growing quarter by quarter. In the third quarter, we booked PLN 44 million of integration costs, as we already explained several times, the integration costs will be incurred between 2019 and 2020. But what we can say for now based on what we already booked so far and also what we expect to book is that we will not exceed the amount that was initially forecasted even if there is a chance that the total integration costs will be lower than initially projected.
On the cost to income side, the -- excluding all these effects, extraordinary effects, we have the cost of income relatively stable at 46%.
Moving to the net interest income on Page 13. It is visible that the acquisition of the Euro Bank is accretive for the net interest income and for the net interest margin. The net interest margin in the quarter grew to 2.99%. As I said, this already reflects reserve maybe in NII of PLN 21 million. This is not a reserve for September, this is a reserve done in the quarter. And the other PLN 32 million were booked in provisions for -- in other operating costs. So we can say that although this is not exactly already the full quarter without any impact from this decision, it already affects to a large extent, the impacts on an ongoing basis of these decision of the European Court of Justice. The margin in the quarter of deposits -- due to the cost of -- the average cost of deposits slightly increased mainly due to the fact that we have the full consolidation of Euro Bank during the quarter instead of just 1 month. On the other side, it's also visible, the jump in the average yield on loans in the quarter as a result of this full consolidation of Euro Bank. On the net commission income side, we have an overall growth of 3% year-on-year, 1% excluding Euro Bank, and we have more or less the same trends.
So the only thing that is not helping the overall growth of fees and commission income is the commissions coming from investment products in capital markets, which still show a growth versus 1 year ago. Although, the good news is that the volumes stabilized versus the previous quarter.
On the other side, we have a solid growth of the commissions from cards, insurance and loans.
On Page 14, the cost of risk excluding day one impact, year-to-date is at 61 basis points over total net loans. As I mentioned, no relevant changes in terms of the quality of the loan portfolio.
And in terms of liquidity, very strong liquidity indicators and also, capital ratios continue to be strong and strengthened by the incorporation of first half net profit.
Moving now to the business highlights of the quarter. We achieved in the third quarter a very important milestone of our activity, which was we crossed the number of 2 million active customers in retail. This was a clear target that was being pursued for some time. This means that during the last 2 years, we show a growth of 41 -- 421,000 customers, active customers on a net basis in the bank. We had a plan of growing 600,000 during 3 years between 2018 and 2020. And so we are clearly showing faster than originally planned growth of the customer base. In fact, we had the second best nominal growth of all retail clients excluding M&A effect. During the last 12 months we had a gross growth of 297,000. During the first 9 months of the year, we showed sales of over PLN 3 billion of cash loans and of mortgage loans. And also, significant growth in deposits in retail, excluding Euro Bank of almost 18% and 5% just in the third quarter. On the company's business, loans to companies continue to grow at double-digit close to 11% and deposits also growing strongly by 23% year-on-year. With Euro Bank, the retail deposits are growing 37% year-on-year and the sales of cash loans, including Euro Bank crossed PLN 1.5 billion in the third quarter.
On Page 17, we're also breaking down the growth with and without Euro Bank of several portfolios. Of course, there is the portfolio where we have a stronger growth after Euro Bank acquisition was the consumer lending portfolio, which more than doubled. Without Euro Bank, the year-over-year growth is at 22%. And on the deposit side, we have an overall growth of 33% year-on-year or 19%, excluding Euro Bank. The structure of the loan portfolio continues to change. So we have almost 20% share of cash loans in total loans and almost 30% share of mortgages in PLN in total loans. On the other side, the process of dilution of the FX mortgage portfolio continues. The share of FX mortgage of Bank Millennium in total loans was 20.2%. And additionally, we have the 1.5% and that came from Euro Bank. In terms of the non-deposit investment products, as I said, the only -- the good news of the quarter is the fact the volumes stabilized so at least this can help to invert the negative trend in terms of fees and commission from these products.
Page 18. Again, just to highlight, 2 million active customers in retail without Euro Bank, a consistent growth for already many years. It's the confirmation of our organic growth strategy in which we plan to grow by 600,000 in 3 years, clearly, ahead of pace now with 421,000.
On Page 19, it's a new slide that just to illustrate, in relative terms, how we are growing versus Polish banking system in terms of individual customers, current accounts and debit cards between the second quarter of 2018 and second quarter of 2019. And the main take from this page is that in terms of the number of individual customers, we -- excluding M&A effect, we had the second place in terms of growth with a 14.7% market share. The sixth place in terms of the growth in the number of current accounts and the fourth in terms of the number of debit cards. These numbers are very important because we are trying that this growth of the number of customers is really based on transactionality, and for this, the opening of the current account and of the debit card are crucial elements in order to keep that relationship.
Page 20, some more details about the retail numbers. Again, very, very strong numbers. Of course, influenced by Euro Bank acquisition but even without, the growth is very significant. Especially the growth of PLN mortgages, which are growing 20% year-on-year without Euro Bank, and the growth of customer loans, 21% growth on gross basis, excluding Euro Bank and overall, a 48% growth of total retail loans after Euro bank acquisition. Same strong numbers are shown in retail customer trends in which only the investment products are not following the general trends. The third quarter was the strongest in the last 10 years in terms of mortgage loan sales with PLN 1.1 billion of disbursements. Cash loans, slightly lower than in the second quarter, but still in Bank Millennium above PLN 1 billion on top of which -- and additional Euro Bank sold PLN 525 million cash loans during the quarter.
On the digital side, the trends are kept. A growth of 20% of active digital customers during the last 12 months and 34% of mobile customers, 52% share of digital channels in the number of cash loans originated in the third quarter. And 25% share of digital, current accounts opened, in total number of accounts opened in the third quarter.
On Page 22, main highlight goes to the transaction -- to the revaluation that was done of our stake in PSP owner of BLIK system. As a consequence of that revaluation, we booked in the third quarter PLN 45 million of evaluation of our stake in the results on financial operations. And again, a significant growth in the transactions in -- not only in BLIK, but also in mobile contactless payments, which is really exploding versus the numbers that were shown exactly 1 year ago. The corporate business is not influenced by the acquisition of Euro Bank but it's keeping its sustainable growth, with double-digit growth of loans, 11% year-on-year, especially fueled by loans to companies, which grew 14% while the growth of leasing and factoring was this time lower than the average. And on the deposit side, especially the growth of current accounts with a growth of 28% year-on-year is fueling the growth of company's deposits above 20%.
The leasing sales dropped in the quarter, but on an accumulated by the first 9 months of the year, are growing 3% with PLN 2.5 billion and factoring turnover still grew 8% year-on-year.
New solutions and achievements are continuing to be implemented on the digital front as we are illustrating on Page 25. More recently, things connected with the implementation of PSP too, but also the new digital experience that we gradually implemented in our Millenet and mobile application. And finally, goodie also continuing the growth rate of downloads, 1.3 million since the beginning of the app and new functionalities being regularly introduced. So these are the main highlights of our results of the third quarter. Now we are available for questions. Thank you.
Who wants to open?
Marta Wasilewska, Wood. If I could ask for the update in terms of the integration costs split, how do you expect they will outlay for '19 and '20? If we are to keep the original amount as a base case? And just a question of whether the IFRS 9 provision adjustments upon the first inclusion of Euro Bank assets is somehow incorporated into those integration costs?
So as we mentioned -- as I mentioned, in the next few quarters, we are going to continue to book the integration costs. We believe that the bulk of integration costs will be booked between second half of 2019 and first half of 2020. We cannot be precise about the split but we still -- but we keep still the view that from the overall amount at least 40% will be booked this year from the overall amount. But also I mentioned today, that it is possible that the overall impact on P&L will be a little bit lower than what we had originally projected. We -- I remind that we have shown an estimation of the integration costs of PLN 350 million. And now based on the current estimation it is possible that this amount will be a bit lower. So -- which also decreased little bit, also, the impacts this year and the next year. We cannot be much more precise than this. Part of integration costs are also connected with the consequences of the operational merger. And so we need to go step-by-step. The next step, very important, is the operational merger that is scheduled for November. And depending on that, we will also have the scheduling of the next restructuring charges. But so far, again, in this point, we do not have surprises. So we rather expect to be below the additional amount. And then, of course, next year, we also will start to appropriate the first synergies from the deal. So next year, we'll have a combination of in-field, relatively high integration costs but at the same time, we will start to appropriate part of the cost synergies, still too early to say if one will offset the other, exactly. I think that we need still some more months. So after the fourth quarter we'll make some update on this. But clearly, we already expect some offsetting of the integration costs of next year by the synergies that will start to be captured.
Regarding the -- we do not -- regarding the IFRS 9, we do not treat these extraordinary provisions as part of the integration costs. So these are completely 2 separate items. Of course, there are at one place -- one part of this is purely accounting but there is also another one -- another part, which is connected with the fact that after acquiring this -- the bank and -- the fair valuing the loan portfolio of Euro Bank, we also need to apply the methodologies and that we have in place in Bank Millennium to the Euro Bank portfolio. And so this is not only a matter of day 1 impact, it is also a matter of uniformization of the criteria and of the parameters and of the definitions of default and so on and so on that needs to be uniform between the 2 banks. Now it's just one bank anyway. So -- and this effect went through the second and third quarter. We believe that from now on, we should come to a much more, let's say, normal situation from the fourth quarter onwards. This does not mean that the price of the provisions will be exactly the same as it used to be before, but these extraordinary impacts on the -- connected with IFRS 9, we believe that most of them were already booked within the second and the third quarter.
Okay. Maybe another question on net interest income because you booked quite a sizable NIM expansion. At the same time, it looks like it was purely driven by lending side. You've -- deposit pricing remains fairly stable. Can we expect that going forward, Bank Millennium will take advantage of the other very liquid balance sheet position? And taking advantage of the fact that the competitors are cutting and communicating further cuts into the deposit offers? And the pricing you offer to clients leaves a lot of relative room between you and the main players. Can we expect that Bank Millennium will further increase NIM, maybe because of the deposit spreads expansion?
We still see some room to improvement in the average cost of the deposits. The -- in this third quarter, from this slight increase of 3 basis points, I would say that 2/3 is due to full consolidation of Euro Bank and 1/3 due to small increase in the average cost of Bank Millennium. So we still see a chance of having some further improvement. It's true that you have -- we have a huge excess of liquidity so in fact we -- it gives a lot of space to manage the cost of the deposits. On the other side, by growing the customer base as we are growing, this is also fueling the growth of the deposits, right? So when we are putting inside so many customers, it's obviously -- that is not just a matter of -- the deposits also tend to grow just by the fact that we are having a significant growth in the customer base. But we still have some expectation that these average costs still can decrease. Although, I would not say that it's going to be the major driver of the improvement of the NIM. We may increase, we may improve several basis points, these average costs for sure. But I would not take the conclusion that this by itself -- because what we gain on the asset side, probably versus the market rates, is bigger in the deposit side, we have much less space we want to manage.
Just following on integration, you have reiterated the integration costs, but would you like to reiterate the synergy target, which was 33 for this year and 134 for 2020.
The synergy target?
Yes.
Yes. We -- for the year -- so we are now going through the process of reviewing and validating all the synergies that were initially calculated, which of course is an exercise that we need to do after acquiring the bank and after merging the bank, right? So -- and we are still going through this process, so we still do not want now to update the estimations regarding cost synergies. It's easier to assess the integrations costs in the cost synergies, right? Because the cost synergies are also dependent on decisions, which are also dependent on specific analysis that is still being done as we speak. So I believe that in 3 months' time, when we present the fourth quarter, we will be able to make a more clear guidance about synergies for the year 2020. But for sure, we already will have visible synergies next year on the cost side, especially on the admin cost side. Because it is the first to appropriate, but it's still too early for me to be more precise than this for the next year. I think to a -- we believe that, to a large extent, synergies will already offset the integration costs, but I'm not able to be more precise than this.
Because [indiscernible] as we announced [indiscernible] we were focusing in speed, trying to have less impact in terms of the customers. And then because of that, starting just the integration, calculations a little bit faster. Even the sharing of some of that, it was just possible after the merger, after the legal merger. So we see some suppliers authorizing as soon as there was the ownership control, but not all. So it's going to be a mix between cost structure of suppliers, administrative costs being outsources, let's call it like that. There is also, I would say, a delay in other costs because, although we were -- it is really, really in beginning. So as soon as we were thinking that we could make the transaction a little bit earlier. So the transaction, when I call it transaction is even the signing of [indiscernible] we were forecasting that could be possible a little bit before the summer so all the process is a little bit before and it and already with some synergies already at the end of this year but now it will be...
Yes. We're talking that most of the construction could happen immediately from the beginning of 2020, which will mean that almost we'll be kind of almost fully, not full, but to a large extent, normal year in terms of -- it's obvious that it's not possible to do it. Part of the restructuring costs are still going to be incurred during the first half of the year. And the consequent savings are appropriated a little bit later than what was originally planned. So that's why we need to somehow upgrade synergies for 2020 due to this slight delay in terms of -- although, it was a very tight schedule. So it's not it was humanly impossible to do even quicker than what we are doing, but I think most important for the market, in our view, is what will be the steady-state of the synergies, which will be most likely 2021 and this is the guidance that we will try to be more precise in the next quarter.
Maybe to end the topic of cost from my side, if you could look at Page 12. There you have I think interesting slide on the dynamics of cost. And I am especially interested in the cost of -- pro forma cost of Bank Millennium, which was PLN 196 million. If you compare this to what you were reported in the first quarter for 2018, it was on average less than PLN 160 million. So you have, like dynamic of cost of more than 20%.
No. We have 11% growth year-on-year cumulative, and...
So maybe let's put it other way. If I deduct from this PLN 480 million the integration cost, this is like a normal running cost for the future.
[indiscernible]
Because the total cost was PLN 480 million, and there was -- the only one-off in cost was this PLN 44 million.
Already with Eurobond, yes, you are right, yes..
Yes. But before [indiscernible] it's obvious that sometimes here when we are talking about the integration, and we spent this last weekend to make the last [indiscernible] year so before making the full migration that will happen in 2 weeks' time. We are always reminding everybody that first, we integrate and then we upgrade because it's the only way to make a transaction like this. So this -- all this in the cost adjustment that we will do to capture the value of the transaction will be then after years.
And so if I just may go on with a question about the small [sway] if I can. And I wonder how come that you booked PLN 33 million provisions for the -- all the cases before the third quarter and PLN 21 million from just a single quarter for the third quarter. And it seems to me there was a very little towards history and very -- quite a lot in the provisions in the third quarter. And I wonder whether you are using like different models to estimate how much you will pay back on?
No, no, no. I think first of all, let's look at the numbers and then different thing is about to do the split. So I think what -- the most important is that we have PLN 53 million reflected in our accounts already, PLN 53 million. We don't know to which this person money is going to be paid, okay? We don't know, nobody knows. We know that -- the only fact that we know is that there is a decision from the European Court of Justice from September. This is one fact. And second, we also know that there may be the need to return past commissions that were charge, not only from the current year, but also from previous years, right? So these are the facts that we have. We still do not have -- I think any -- nobody has still full clarity about the exact way of returning these, what -- and so, what we thought was that was important to neutralize the issue for the future, right? So this is the first thing that we are neutralizing. This problem is not going to grow. It does not mean that we already started to return the fees because it's necessary some time to prepare the operational systems in order to make this return, right? So this will happen until the end of the year, but we already started to immunize against the ongoing returns, and this is one part. We don't know how much we'll have to return from 2019 or '18 or '17, we don't know. But we have to do something in the third quarter. So the best -- we do not have a sophisticated model for this. I think there was not even time to do that. So I think what we did was, we booked an amount, which we believe that at least reflects some expectations of returns that we may need to do regard if -- what should be the split between NII and other operating costs. To be honest, this is something that does not worry us too much because what matters is the impact if we put it on one line on another line. I think it's more a presentational issue than any substantial issue. We believe that ...
That was the logic of thinking as well for us, in NII, and then we component what the amount that we foresee [indiscernible].
Yes. We believe that it makes sense if it is from the current year to deduct it from the NII because it's -- we are still in the current year. I think it was not -- we have more difficulty in doing this for previous years because it would mean to correct an NII that was already closed, and so that's why we believe that somehow there should be a split between impact on NII and the impact on other operating costs. But this was just an initial assessment that we wanted to do in the third quarter. If there will be any different direction or conclusions, of course, we will adjust for the future. But I think the most important is that we already thought that we should do something based on this verdict. Just to be clear, this PLN 21 million is not exactly a quarterly impact, but it's -- in our understanding, it's the majority of a quarterly impact.
So the PLN 53 million is third quarter?
No, no. The PLN 53 million -- it's PLN 53 million. It is about -- we are not saying about 1 quarter or whatever. We are saying this is -- it's the reserve that we thought we should make now based on the available information. As you know, there are still some question marks about implementation.
Okay. I tried to estimate anything -- it tried to estimate -- to come up with my own number, and I think that one of the most important assumptions is whether you assume that you should start repaying these provisions from 2011 or from 2016? And then whether you should use effective interest rate or [indiscernible] and then what process you assume to -- in what process you would be returning that fees, could you comment on this assumption?
It is exactly the 3 critical issues that are relevant to assess the final impact. As you know, there's still not clarity about all the 3. So that's why we need -- we have to make our assessment and to show that we are doing something. But still, we need to give time to -- for things to clear up.
Can I just have a follow-up -- I have another question, but just to have a follow-up discussion to what Kamil have asked. Could you maybe -- because I understand that this is your estimate and for now, you're fine with the provisions. As I understand, you made this provision using the effective interest rate methodology rather than the linear model. Am I correct?
I would say, slightly in a different way. If not -- it is proportional to the amount that is being already paid.
Okay. So this is more like effective interest rate rather than linear model, yes, to the amount that is extended?
Yes, yes, yes. In terms of [indiscernible] the season was about proportional -- was about a proportionality. It was not about linearity.
Okay. That's fine. That actually clarifies a lot. But just shifting to another topic, your fees and commission result. Of course, in the third quarter, it seems to be still supported by strong insurance fees that may not be fully recurrent, but you included a number of clients of Euro Bank that, of course, carry a completely different client profiles, Millennium Bank's old clients. And clearly, when we look at the accounts maintenance, the usual daily banking fees, we haven't seen much of a pickup because Euro Bank wasn't generating any. Do you think you will be able to cross-sell those clients and increase their transactionality and daily banking, so your fees and commission results could benefit from that? Because a simple sum of the parts suggests that Euro Bank clients will never be fees and commission clients. But could you share the outlook for 2021? When do you think you can start to price the clients as your Millennium clients? What is your outlook for that?
We believe that, that will take time. So with -- now that it's true.
No. I understand, what...
You said the repricing. So we believe that will not be by repricing. So it's one of the biggest doubts that we are in beginning is that if the customers where the same or not. So if the customers were the same, just with a different banking relations or if the customers were completely different. And today we can see that the customers are the same. And for that, of course, we extrapolate Raison customers that are common customers. So we have common customers. It's not a very large number, but it's statistically relevant. And they have a completely different behavior among the 2 banks. And they have in small cities and big cities, and they are every daily transactors with us. They are heavy digital with us and not with Euro Bank. So it's clear that the difference is more the type of relation that they have and not so much the customers. So that's why also the value proposition that we have for the joint bank, it's -- if you take out cash loans, it is mainly the Millennium one. So these allow us to think in a very optimistic way about how we are going to do to the new customers that we are going to be able to attract. We have a lot of plans to how to upsell and how to convert these customers. But my -- from my previous experiences, this takes a lot of time, and it's not very easy. So it's not just to go and suddenly increase the maintenance fee or charging on card is not so easy. It's a process that it's easier to start with by new customers or by converting to new products, and usually, it takes some time. And when I say some time is years. It's not something that we can see in a year time.
Okay. So let me have a follow-up question. Do you think -- given your average pricing for the client, do you think you have room to reprice your old customer base of Millennium with some small tweaks in the fees and commission tables for them?
We think that not yet. So it's -- the gains of customer acquisition are still so big that we would not like to decrease the speed of the customer acquisition. And then -- and the way that we build our value proposition, we exchanged this potential fees and commissions versus the full banking relation with us. And with the full banking relation with us allows us to upsell and to sell consumer lending and a lot of more things. So it's -- when we will reach a more incumbent situation, probably, yes. But at the moment, it's -- it looks too early. So with this capability of acquiring more than 20,000 active customers looks like it's paying more than what we could charge in a couple of fees about debit cards or maintenance of accounts, we think. Some areas, we will have more immediate gains in some transactions like cards because then we start to be a bigger player and when we apply to our portfolio. In insurance, also, probably or for sure, we will have bigger gains by combining pricing but also to extrapolate the techniques of those banks to each other, we think, yes. But I must also confess that one of our main focus is also not to lose the volumes because every time that you have a transaction, there is always attrition and less of focus on everything. We are very proud up to now so -- because up to now we were able to keep the both sides very focused in organic growth and in commercial activity. We know that now in October, it's going to be more difficult because it's when you are training everybody and you are changing system so it's not so easy and it's -- although, we prepared it very well and we are very confident about the migration, there will be always problems. And so, also, there will be some turbulence in the second part of November.
And we are -- so we are prepared to have a little bit lower sales in the fourth quarter as a consequence of all these preparations. Because this is normal. It's even the physical impossibility that if people are being trained to work on the new systems, obviously they are not spending that time selling something to the customers or serving the customers, right? So that's why the fourth quarter -- I think the good thing is that we were able, until the third quarter, to mitigate potential negative impacts on the ongoing activities on both banks in most of the items. It is not always perfect, but in most of the products, and we were able to offset it -- to avoid it. In the fourth quarter, we are prepared to have some impact.
Slightly.
Slightly. Yes. I am not minimizing -- I am not [indiscernible] the expectation but I am just saying that, obviously, in the quarter that was such a heavy concentration of changes as we are going to have during this fourth quarter, obviously, there is always some impact in terms of sales.
The good thing also is important is that although we have office and other areas restructuring, we decided to make it a little bit later to just initiate after the migration. And the network is not like that. So in the network, we already have meetings combined, we already aligned, we are already have the decision in terms of structure of command. So we are going to change contractual everybody before the year-end, the new incentive system. So in 1st of January, everybody will work, aligned under the millennial structure, millennial modus operandi and styling.
I will take [indiscernible] to answer 2 questions that came in the meantime. One is about still this small [sway], if we have plans to offset, at least, these negative impacts and, of course, that we also -- in terms of the implications for the product structure and sales? Obviously, there will be some conclusion that will be taken. So that's -- the products that will be sold somehow can partially offset the fact that these commissions are not going to be booked anymore. How much can be offset, it's still too early to say. But obviously, the impact that will be felt will be the next several months, if not after 1 year, these will be leveled out. And then we will have a new ways from which the growth will happen. So -- but of course, we will -- we are also considering some adjustments in terms of our product offering that can at least partially mitigate these impacts. The other question is about FX mortgage. If there was -- if we saw any increase -- if we saw increase in the legal cases. And if we expect to book some provisions on these in future quarters. So we -- so what we can say is that we continue to have new court cases coming. We do not see a significant growth after these recent events in recent months. Of course, the number is higher than last year but it's not significantly higher. So this is one thing. In terms of our assessment, we will be doing our assessment on a regular basis. This ruling of European Court of Justice from the 3rd of October still -- was not fully clear, first thing. And as also very recent and I think it's needed more time to be able to more properly assess its implications and also to which extent it will have influence on local court's decisions. And so we will do -- we will be doing our assessment of the implications and also of the potential developments and then we will see -- we will conclude if we need or not to make any provisions associated with the court cases. So this is what we can assess for now. Again, the decision was already in October. There is still a wide range of interpretations about this decision. So it's not so clear as the cash loan -- and the cash loan decision was completely different, by the way. This one is was an answer to 4 question, it was not a holding about the specific case. And so we will need to continue to assess the developments and the implications and then based on that, we will take a conclusion if provisions are needed or not.
Could you provide us with the split of cost of the risk between Euro Bank and Millennium Bank, of course, without this extra provisions from Euro Bank?
So Bank -- without Euro Bank, year-to-date cost of risk is close to 52 basis points of the total net loans. And with Euro Bank, it is 61 excluding this PLN 88 million of provisions, PLN 81 -- PLN 89 million, PLN 81 million in the first -- in the second quarter and PLN 8 million in the third quarter. In terms of trends, the third quarter was still not the ideal quarter to be able to fully assess what is the norm -- the new normal due to the fact that we were applying the methodology of Bank Millennium to the Euro Bank loans. And the complexity is that we are calculating provision over a portfolio that was fair valued. So it's not exactly the book value of the loans in Euro Bank accounting. It is the fair value in consolidated books of Bank Millennium. So it is the first complexity. And the second complexity is also that -- partially, there's also some compensation coming from other lines, especially from the net interest line. So I think we still need to -- most likely in the fourth quarter, I believe, to have a more normalized view about the provisions for -- that are coming from Euro Bank. Also because sometimes we have some seasonality of the provisions for -- of the provisions for cash loans. So what we can say is that on a quarterly basis and especially looking already in the recent month of September, we consider the provisions of Euro Bank very much more normal in line with what was historically happening in the bank on stand-alone basis. In Bank Millennium side, in the quarter, we had a little bit higher provisions than in the previous quarters for mortgage loans. Although, we are starting from almost a very low base so it's normal there maybe few quarters with little bit higher. And also cash loans, we also have a little bit higher than in the previous. So this is also a partial reason why the third quarter total amount of provisions is little bit higher than the average that we were showing. In corporate, as you can see, no relevant surprises, and the numbers are very comparable to previous quarters.
And do you expect higher impact of this small [sway] on your net recent -- net interest income in the fourth quarter than in the third,? Like more than this PLN 21 million? Because you said in the press conference that net interest income would be similar and you said that, like the volume growth decreasing the cost of funding would probably improve that.
I think what we can say is that it is still possible that the NII in the fourth quarter will probably be very similar to the third quarter, overall NII, because although we still may have a little bit higher impact, full quarter impact from this [sway]. On the other side, we will have natural growth of NII. So we believe that it is possible that fourth quarter NII will be very similar to the third quarter.
In terms of amount?
In terms of net interest margin. We think that net interest margin will tend to be somewhere between this 2.94% and 2.99%. 2.93% is where we tend to be in terms of net interest margin according to our current estimation. Already after this.
No questions from here. I have 2 from Internet from Anubhav. He is wondering if you can comment on portfolio quality of Euro Bank, assuming we have now better clarity on the consumer book of Euro Bank? This is one question. And another also on Euro Bank effect, can we expect some higher growth in our volume dynamics? Can we share a view on the new production in terms of profitability?
Regarding the first question. I think that in terms of where the portfolio is versus expectations, we have not reasons for now to conclude that the portfolio is worse than what we analyzed before. Different thing is about the cost of risk because if we apply a different methodology on the same portfolio, it may happen that sometimes we made provisions quicker than what was done before. It does not change the final -- on the long term, does not change the picture but can change the timing sometimes of recognizing provisions and sometimes -- and this is a possibility of applying a different methodology, this is one thing. And also about the timing of the recognition of the defaults because each bank has a different methodology, and sometimes the triggers may be stricter in one place than in the other and as a consequence we start to make provisions a little bit earlier than what we would do otherwise. So we may have some differences more connected with this methodological aspect. But structurally, I mean we cannot say that the portfolio is substantially worse than what we originally expected. Of course, it's a cash loan portfolio, for a large part and also an important part of mortgage. It's a portfolio that we are knowing better and better, but this is what we can answer for now.
If I can answer. Now the -- it's obvious that there is going to be smaller transformations in terms of the, I would say, the profitability or, at least, the visible profitability of new production. So it's between the way of millennial to see the market that some small gray areas of higher risky customers that usually are charging much higher commissions also with the new environment that this commission is to be returned if there is early repayment. So I would say that there is going to be slightly changes in terms of the profile of production of Euro Bank. It's going to be a visible transformation, something that's going to be visible now, not at all. But maybe there is going to be -- or we are already have couple of decisions and now with the new environment, probably there will be slight changes in terms of some more risky segments, some usage of third-party sales channels and some compositions of the product with a very, very high commission and very low interest rate will also change to a more balanced mix between the commission and the interest rates. So this will happen for sure. But...
Fine-tuning.
But -- so it's not -- it is something that is going to be then -- first of all, it's already been done as soon as we also changed the management. And this will be also combined with some new possibilities that we will have under the Euro Bank portfolio because millennial is quite good in terms of behavior models. So we can apply the models that we have inside of the Euro Bank portfolio, also the change of the mix of the channels with a little bit more digital. So all of that will also change. Although it's always very -- everybody is very skeptical as we as well in terms of synergies on revenues because in costs are easy but in revenues are always more difficult. But there is always some potential in terms of cross-selling the ideas between the 2 banks.
Thank you. More questions? We have nothing from Internet. So last call here. No, I don't see. So thank you for participating in this conference and we invite you already for next one. Thank you.