Bank Millennium SA

WSE:MIL

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. Welcome to 3Q '22 results call. With us, we have our usual presenters, Mr. Joao Bras Jorge, Chairman of the Board and our CEO; and also, Deputy Chairman of the Board, Mr. Fernando Bicho. We will follow the usual pattern. First, we'll have a brief presentation of the results and then a Q&A session. We'll start and we'll be available for questions. Over to you, Fernando.

[Fernando Bicho, executive]

Thank you. Good afternoon. Thank you, once again for having the interest on our bank and for attending this presentation. Today, we are going through the third quarter results. I will start very briefly with Pages #5 and #6, which summarize some main key numbers of the recent performance of the bank. On Page 5, of course, the highlight goes to the significant growth in net interest income, which is driving the growth of our operating revenues, while at the same time, covering also the additional costs, including some extraordinary costs that we have throughout the year, but we will elaborate on this more in detail later on in the presentation.

Also, it is visible the impact of the provision for the credit holidays in the third quarter of this year and also the continuation of the reduction of the FX mortgage portfolio as can be seen on Page #6 as a combination of settlements with customers and also additional provisions for legal risk. Without these, we see still a relatively good loan growth of 6%, excluding FX mortgage. And also, despite all the turbulence that we have been facing during the current year, the bank is able to continue a solid business activity, which translates, for example, in the significant growth of the number of active customers of 195,000 year-on-year, 54,000 just in the third quarter and also an impressive growth in the number of online and mobile customers, reaching almost PLN 2.5 million. 

We will start this presentation by providing updates on credit holidays. When we made the presentation of the second quarter results, we have already explained that in the credit holidays they would be implemented. At that time, we have provided a range of 75% to 90% of potential take of eligible borrowers of these holidays. During this quarter, we created a provision of PLN 1.42 billion of the upfront cost of the credit holidays, which corresponds to an assumption that 80% of the eligible borrowed amount will take these holidays for 8 months. The cost was booked in a separate P&L line, and at the same time, decrease the outstanding balance of PLN mortgages, and that's why you will see a significant drop in the growth rate of PLN mortgages, which was due to this balance sheet impact.

This assumption that we took to create the provision compares with actual participation rate in the third quarter of 66%, although we should say that the September participation rate was higher than in August. So for the time being, we are keeping this provision, and we will review the assumptions when closing the 2022 accounts. Also, to be clear, the application for users of credit holidays is not a trigger of loan reclassification to stage 2. We also believe that we are fulfilling the conditions not to pay additional contributions to the borrowers' support fund. Moving to Page 8, we show some key figures of the first 9 months. First of all, the significant increase in the net profit of the bank, excluding extraordinary impacts by 127% year-on-year supported by a growth of 75% of net interest income, while fees dropped by 2%. The adjusted cost to income reached a record low level of 32.6%. The cost of risk in the first 9 months of the year reached 44 basis points over total loans.

On Page 9, we can see the evolution of the results of the bank during recent quarters. On the top right, you can see a clear improvement of the net results without extraordinary items. So our net profit in the third quarter would have reached PLN 705 million. If we would exclude extraordinary events, including credit holidays and provisions for Bigger risk, which shows the capacity of the bank to generate organic results and organic capital. On the left side, of the page, the evolution of the results broken down between reported and extraordinary items and which translated in the third quarter into a loss of PLN 1 billion due to the significant negative impact of the credit holidays, which exceeded on a net basis, PLN 1.1 billion. So it is visible also here that without this extraordinary impact, this would be already the second quarter in a row where the bank would have shown a positive net result.

I mean, in this case, without the credit holidays, which means that, in fact, already in the second and in the third quarter, the bank was able to generate a positive result even after creating additional provisions for FX mortgage legal risk. In the second quarter, the extraordinary event was the additional -- The contribution to the institutional protection scheme and in the third quarter was the impact of the credit holidays.

On Page 10, we show the continuation of the positive trends in terms of the net interest income, which grew 8% quarter-on-quarter. In the first 9 months of this year, 75% year-on-year as a combination of continuation of increase in the average yield on loans, but also partially offset by the increase in the average remuneration of the deposits. Still, this translated into another improvement of the net interest margin by 31 basis points in the quarter to 4.79%. In terms of net fee and commission income, the evolution was negative.

We have, on one side, a drop of 13% quarter-on-quarter, which was largely driven by a provision for return of insurance fees following recent approval of a new law in Poland, and this affected the fee and commission income in the third quarter by PLN 18 million and also brought down the year-on-year comparison, and now we are showing a decrease of fee and commission income by 2% year-on-year. So on one side, the improvements on, for example, payment cards fees during the recent quarters were not enough to offset this extraordinary impact and also the decrease of the fees for investment products due to the significant downturn of the market. 

Moving to Page 11 on costs. I think we have been able to show good control of costs in an environment of very high inflation. So, if we look at the costs, excluding the contributions to banking guarantee fund and to institutional protection scheme, the cost growth was 11%, both on staff costs and other admin costs, helping to bring down the cost-to-income ratio on an adjusted basis to 32.6%. Regarding asset quality on Page 12, we continue to show solid credit quality with an impaired loan ratio of 4.5%. The cost of risk increased in the third quarter as we were already expecting. We have a much higher interest rate environment and this affected especially the consumer loan portfolio, where we noticed some increase of impaired loans and also increase in the cost of risk. Also partially in PLN mortgage due to the fact that until the turn of the second and third quarter, we had some increase in the requests for the borrower support fund, which we treated as a trigger of impairment. This number has now dropped after the implementation of the credit holidays.

On the other side, we should stress the still very good quality of the corporate loan portfolio. We have not faced significant deterioration in the recent past and this has helped to keep a very low cost of risk for the corporate loans portfolio, including leasing and factoring of 10 basis points annualized for the first 9 months of the year. Also to add that during this third quarter, we did not have, let's say, the positive contribution of the sales of NPLs that, for example, we registered in the second quarter. On Page 13, regarding liquidity, very solid loan-to-deposit ratio of 81%. Regarding capital ratios, we had the expected impact from the credit holidays. So, we had a drop of the capital ratios to 12.4%, total capital ratio and 9.5% Tier 1 and common equity Tier 1 ratio, which brought our ratios below the minimum required levels where the gap is around 139 basis points for the Tier 1 ratio. So, the driver of this was the significant provision that we have created for the credit holidays.

And as we explained on Page 14, without this impact of the credit policies, we would have shown a positive net result in the quarter. We have, in the meantime, launched the initiatives to improve the capital ratios. Our goal is to increase the capital ratios comfortably above the minimum required levels through a combination of further improvement of operational profitability and capital optimization initiatives, including the management of the risk-weighted assets, including securitization of loan portfolios. We are also temporarily not paying the banking tax as we have launched the recovery plan, which also translates into additional temporary savings. So, this is the way we are planning to bring back in a relatively short period of time the capital ratios above the minimum required levels. 

Now an update about the FX mortgage portfolio on Page 15. So we continue the efforts to decrease significantly the FX mortgage portfolio. On the top left of this page, you can see that the portfolio in Swiss francs was reduced by 5% quarter-on-quarter and 18% year-on-year. As a consequence, the FX mortgage portfolio after legal risk provisions that are allocated to this portfolio represents already less than 10% of our total loans. I mean, the part that was originated by Bank Millennium. At the same time, we continue to build the provisions for legal risk in the third quarter. The impact on P&L was PLN 447 million, so slightly below the previous quarter. And the balance sheet value, the total balance sheet value of provisions against FX mortgage legal risk reached almost PLN 4.9 billion. As you can see on Page 16, this was the sixth consecutive quarter where we managed to reach more than 2,000 amicable settlements with customers in terms of conversion of the loans to Polish Zloty.

Also, it was the sixth consecutive quarter where the number of amicable settlements was significantly above the inflow of new court cases. So we had 2,175 amicable settlements against PLN 1,335 million inflow of new court cases, which, by the way, was the lowest since the first quarter of 2021. Of course, the negotiations also came with a higher cost, especially because we had to face adverse market conditions, namely the significant depreciation of the Polish Zloty and also a higher interest rate environment in Polish Zloty. Altogether, we managed with the increase of the provisions on one side and decrease of the book on another, the total stock of provisions for FX mortgage legal risk represented already 41.3% of the total loan outstanding, gross loan outstanding as of the end of the third quarter of 2022. 

Moving now to the second part of the presentation regarding the business development. On Page 18, we have some key numbers, a growth of PLN loans of 6% year-on-year. The number of active digital customers reaching EUR 2.5 million, some rebound in the business with companies and also a solid growth of deposits. Details are in the next pages. So starting with Page 19. Overall, the loan portfolio on net basis grew 2% year-on-year or 6%, excluding FX mortgage loans. As it is visible, the driver of the growth of the loan portfolio is still PLN mortgages, although partially affected by the creation of this provision for the credit holidays, which deducted to the outstanding balance of the loans and also some rebound in terms of loans to companies. The structure of the portfolio continues to change with a gradual dilution of the weight of the FX mortgage portfolio.

On customer deposits, a sound growth of 8% year-on-year, [ faster ] in corporate, 22% against 3% growth in retail and on the other side, a drop in investment products as a consequence of the very adverse market conditions and also net redemptions in recent periods. In terms of business, the quarter was still good for consumer loans. In fact, level of origination above PLN 1.5 billion in the third quarter, meaning that year-on-year, the level of origination is just 6% below the first 9 months of last year. On the other side, it is visible on the deceleration of mortgage loan new sales, which dropped 36% versus the previous quarter. And overall, year-on-year, in the first 9 months, we had a drop of 19%, and this drop will be probably even more visible in the fourth quarter.

On Page 21 we stressed the continuation of the growing number of retail clients, which grew by 50,000 in the quarter and 190,000 during the last 12 months, which is also well illustrated by the significant number of growth of current accounts by 163,000 year-on-year. The digital change continues to be visible. We reached 2.5 million active digital users, a growth of 13% year-on-year. We have 2.2 million active mobile users, which is 18% above 1 year ago. And also 87% share of customers active in digital channels, who looked into the bank on mobile devices. And finally, and last but not the least, also recently, we reached more than 2 million customers per month logging into the mobile app.

As a consequence of this digital development in the bank digital channels are becoming even more important in terms of shares in acquisition of clients and also share in total sales. So, for example, during this third quarter, we had an 81% digital share in cash loan sales, apart from 94% share in sales of term deposits and also already a high 35% digital share in acquisition of current accounts. We had a record-breaking increase in the number of current accounts opened online by as much as 71%. The same progress is seen on Page 24 in terms of BLIK payments with 1.5 million BLIK users in 2022 so far, which means a growth of 30% year-on-year. Also, we are trying always to be in the leading pack of banks in terms of digital developments and in this case, we were the first bank to start testing the BLIK pilot solution together with PSP. Further developments are illustrated on Page 25.

We would just highlight, as an example, that the mobile authorization in branches that was implemented 2 years ago has translated into having the possibility to conclude 10 million operations in the branches in this way, which has allowed us to save 250 tonnes of paper. The same effort of digital solutions is being developed regarding small business and corporate clients as it is illustrated on Page 26. During this period, we were awarded by Global Finance Magazine as the best integrated corporate bank site in Central and Eastern Europe. On Page 27, [ Goody ] continues its progress this time, growth of 111,000 app downloads just in the third quarter of 2022. Moving to corporate on Page 28. We have some growth this quarter of corporate exposures despite a strong focus on optimization of risk-weighted assets and also a solid growth of deposits. We also see a gradual improvement in transaction activity, namely in domestic transfers, a growth of 3% and FX transactions growth of 19% year-on-year.

On Page 29, regarding leasing and factoring, some deceleration in the growth in leasing, so overall, still levels of origination higher than in the previous 2 quarters. But in the first 9 months of the year, a drop of 4%, while in factoring, we had an increase of factoring turnover by 3% year-on-year. And finally, on Page 30, we continue to provide additional solutions to our customers this time also continue to make available the new BGK crisis guarantees program, which replaced the liquidity guarantees that were available until the 30th of June 2022 and also implementing new loan products also in comparison with the IB Group. So these are the most important aspects of our third quarter performance. Now we will be answering your questions. Thank you.

[Operator]

Thank you very much, Fernando. Questions have arrived meanwhile and very few of them relates to the past our actual results. Actually, the only one that is truly referring to that is a question about the RWA increase in the quarter and analysts are asking for the explanation of this.

[Fernando Bicho, executive]

So in the third quarter, apart from loan growth, we had a number of methodological adjustments and way of calculation that has the impact in terms of the variation of the risk-weighted assets. However, this does not compromise our effort of optimization of RWAs, and we expect it to be visible in the nearest quarters. So we had here some one-off impacts in terms of the way of calculation, the risk-weighted assets, but this does not destroy our objective of improving RWA. This effort especially being focused in the corporate segment.

[Operator]

Thank you. The remaining questions concern effectively 5 areas. One is the outlook. It's the usual sort of questions about [ NIM ], fees and lending. Then there's a handful of questions about credit holidays, recovery plan and FX. Any wishes or desires in terms of that? Okay. So let's do the [ NIM ] questions first. A couple of analysts or participants were asking for our outlook for [ NIM ]. And in this context for depot costs in light of the recent developments. One asks a very specific question; "When do we expect a monthly [ NIM ] to peak?" Which I think we may not necessarily be willing to answer. There was also a question about fees, what we think will happen to fees, in particular, lending fees.

[Joao Jorge, executive]

So maybe I will start, especially on deposits. We talked several times about this in these quarterly results that in the first phase of the hike of the interest rates, it's possible to not go immediately reprice to deposits, so there is an automatic mechanism that reprices the loans. And then the deposits, they go a little bit lower on later as it is exactly the same when there is rate cuts that the credit are immediately adjusted and the deposits are taking some time. But this is also a question of consumer behavior. So, up to 3.5%, there is a level of indifference in terms of the consumer for time deposits. But when you are at 6%, 7%, 8%, then of course, there is an activity from the clients to shop around for deposits and to look for better solutions. We believe that the biggest impact in terms of looking, in terms of hiking interest rates of the deposits were in July.

Now, we are in a more stable environment, so the offers of the banking system is already quite aggressive, and we will stay at these levels. It's obvious that even if we stay at these levels in terms of pricing offering to the clients, we will have some increase in terms of cost of deposits. So first of all, there is the maturity of all deposits and then the new deposits, but also there is a shift in terms of the allocation or the composition or the mix of deposits. During COVID times and after with interest rates at 0, there was a huge increase of current accounts and a big decrease of time deposits. As time goes by on high interest rate environment, there will be a reverse of this trend. And we will go to a more normal balance between current accounts, savings accounts and then time deposits.

So we understand that how to manage the deposit pricing is crucial for the profitability of the bank hence we will manage it as prudent as possible. But it's obvious that there is a trend of growing the cost of deposits, but we believe that it'll be a very slow trend. It's important also to understand that from another side in credit, especially adjusting the risk to a more recessive environment also and cutting out the lower ratings. Also in terms of the credits, there will be a trend of reducing the margin. So it's smaller. This trend is obvious. But in order to accumulate higher interest costs for lending to customers, there is always a tendency to have a slightly decrease, especially in consumer lending.

[Fernando Bicho, executive]

Just regarding the [ NIM ]. So of course, we still are going through a very volatile environment in terms of interest rates and in terms of market expectations regarding interest rates. Just a few weeks ago when we were expecting interest rates to remain stable and then even to drop in the end of next year, we were assuming that we were reaching the peak levels of the [ NIM ]. Now we have a different picture. So we cannot say that we already reached the peak, but also as it was already explained, we will also have some ongoing repricing of the deposits, but we cannot expect significant increases of the [ NIM ] in the near future with the current environment. Regarding fees. So there is a specific question about the -- After this adjustment of the loan fees that I mentioned with this provision for return of insurance fees.

There is a question about what would be the low -- The average -- The ongoing loan fees for the next quarters. So as I said, the impact was PLN 18 million. That's why we are showing loan fees of PLN 32 million in the quarter. So without this, it would have been $50 million. So we would say that we would be somewhere between PLN 45 million to PLN 50 million per quarter, taking already into consideration this impact.

[Joao Jorge, executive]

In terms of an outlook, we are positively surprised in terms of consumer loans. So more or less 1 year ago, we started to have some changes in terms of risk criteria, some prudence in terms of the measures and the filters and also how to calculate the credit capacity of the customers. But in a positive way, we see good production of consumer loans. Of course, even with a more prudent approach, there will be an increase of cost of risk in the future with a more aggressive or more with high inflation and a little less optimistic outlook, but we were quite positive in terms of this production mortgage. We are foreseeing some improvement, but it will take a while to go back to the levels of 1 year ago. And there is some seasonality also and usually, mortgage production, starts to be more positive in the beginning of the year.

So, there is obviously some seasonality. But of course, the levels are very depressed due to high interest rates and also probably some prudence in terms of the clients related to the real estate prices. We are seeing a very strong dynamic in terms of corporate lending. We, unfortunately, are not taking this opportunity because of this prudent management of RWAs. This is more short-term lines. It's overdrafts, factoring, working capital. This also shows some more difficulty in terms of companies, of managing their cash flow. We are quite confident about the risk levels that we have in our corporate portfolio, but it's important also for the sector to assess well how the companies are going to be refinanced in Poland. In general terms, for us that we are mainly focusing in retail, we see consumer lending as still positive and some rebound in terms of mortgage, but with difficulties to go to the levels of last year.

[Operator]

Thank you. There's a handful of questions relating to credit holidays. If we could confirm whether this is 60% of value or number. If we could comment on the tax treatment of credit holidays and it was a question about methodology, but I think this is pretty straightforward.

[Fernando Bicho, executive]

Yes. So I think we were very clear in our report, but I will repeat. So we considered for the provision, 80% of eligible amount, not number of borrowers, but eligible amount, which is what matters for the calculation of the provision. In terms of tax treatment, of course, we consider this as, let's say, a tax deductible. However, this does not mean -- There's another part, which is that as this goes to DTI and the DTI exceeds 10% of our equity. So of course, there is also a large part of this tax effect, which is lost when we make the calculation of the capital. So in terms of capital, the impact was close to the gross impact of the provision and not to the net impact of the provision.

[Joao Jorge, executive]

Just a clarification because to be more precise because if it would be in terms of numbers of customers, the number would be much lower. Because as can be expected, it's the customers with higher instalments that are requiring the credit holidays. Also there is a question if it is -- so as Fernando said, very clearly, so the average of the 2 months is August and September 66, but you also informed that September is 69. So this is in all the instalments that could ask for holidays, the credit holidays, 69% [inaudible] in September, exactly. And we believe that at the end of the year, so we would have already 2 quarters. We would be ready to assess not only how it was because this is quite easy, but also why it would be the rest of the next year.

[Operator]

Okay. [ Otoman ] has just given the number of the average for September, so it's easy to calculate August, and that was one of the questions, which we don't need to answer anymore. There was also a handful of questions about the recovery plan, whether we could add much more color on the initiatives that we are taking and about the timing. There was a handful of questions about the developments of our capital ratios. If we could share any thoughts or plans for that regards.

[Fernando Bicho, executive]

So what we can say, we have a plan which, if we execute could put us in the third quarter of 2023 already above the minimum capital requirements. It's a combination of, as I mentioned, operational results, meaning which means impacts that what we are projecting is positive net result each quarter because we are not assuming other events such as IPS in the second quarter and credit holidays in the third quarter. So our projection without events like this show the possibility to generate positive net results, which means that we start to organically generate the capital or even considering the further provisions for FX mortgage loans. So this is one important aspect. The second one is all the work connected with optimization of capital through optimization of risk-weighted assets and especially through asset securitization that we are going to do between this year and the first half of the next year.

So there is a combination of actions. I will not enter into details of each one because some of them are under preparation. But our projections show that it is possible to reach these levels above the minimum required around the third quarter of the next year. Of course, because there's one question connected with this, of course, the limitation that we are putting in terms of business development is connected with the growth of corporate loans, especially large corporate loans. This is the main restriction that we are applying in terms of business. We are trying to avoid to have any other impacts in terms of our business activity. What else?

[Operator]

The FX mortgages the elephant question potential implications of the ECG ruling, whether we are analyzing the income, whether this would have impact. And also that was a very specific question, whether we are assuming remuneration for capital in our provisioning methodology.

[Fernando Bicho, executive]

So I will start. So first is a question about tax deductibility of the provisions. And what I can say is that for now, we are not considering the tax deductibility of the provisions that we are creating, although we are fighting for that. But in a conservative way, we are not reflecting it in the methodology, although we think that there are grounds to make it happen. But again, this will be a long process and a long fight. The second is about -- There's also a question about further provisioning in future quarters. I just would like to remind what are the crucial factors that drive the level of the provisions. One is the inflow of new court cases. This is, let's say, the major driver. And the second one is also the probability that we are signing to win or to lose. Of course, this probability now has been getting worse and worse due to the fact that Polish courts are rolling in a very high proportion against the banks.

And so as a consequence, the probability of losing now is already at a high level. So it means that through time, it will have less impact in terms of the provisioning level. These are the 2 major drivers. Additionally, we are assuming, and we also wrote this in our financial report. We have a component of remuneration of capital, but which is very low for the time being. So, we assume a probability of remuneration for capital in our provision calculation, but we are conservatively, for the time being, assuming low probability, although trying to demonstrate the fairness of such approach in the legal proceedings and especially in the European Court of Justice. And so the answer is -- I think I answered all of these questions. I think that's it because there's another final question which I think, which is what will be the impact if we would lose the case that is in the European Court of Justice. We still have some time until the final decision. Last week, we had the hearing in the European Court of Justice, there will be opinion of the general Advocate of the European Court of Justice on the 16th of February.

And then we will still need to wait several months, probably between 4 and 6 months, for the decision of the European Court of Justice regarding that topic. So we are not expecting the clarification of that point until that time. And even we don't know if it will be clarified at all during those court proceedings. But this translates for us in the continuation of the strategy that we have been doing, which is to continue to develop the effort to negotiate with the customers.

[Joao Jorge, executive]

So maybe just the additional comment. So from one side, as with the simplicity of the methodology that we have, you can see basically a quite stable level of provisions, sometimes can go up and sometimes can go down. But in a very smooth way and very much based in exactly what Fernando said, which is, at the moment is more the number of cases even because as more decisions are being taken, the probability of losing is starting to be achieving the maximum. So it's starting to be stable. We were very proud that we were able to achieve again a big number of settlements. This is important because it's obvious that from one side, as the [ fiber ] rate is higher. It's more difficult to attract customers to make a conversion. As the Zloty is weaker, it's more expensive for the customer and also for the bank. This process is becoming -- Of course, as time goes by, the process is more difficult. And also the number of customers that have active loans in Swiss francs is also the customers that have been already approached more than once, and they are less open to make a settlement.

We always try to explain that we don't have a unique formula to everybody that we are approaching the customer to see his own solutions. Sometimes the solution is specific because he wants to early repay and close the issue. Sometimes he wants to sell the asset, the house, other different situations happen. What we start to be also happy is the numbers of settlements that we are achieving with the court cases already. So, of course, these numbers are much smaller than not so visible yet as the numbers that we have of customers that are not in court with us. The process is extremely complex because it involve lawyers and some of the lawyers have success fees. Some of the lawyers have mass customers. So it's not -- and even the layers of the bank, they are more trained to fight than to reach a settlement. So it's a process that we have been doing, but we are happy. We also -- we were already able to make inclusively a group settlement. A law firm that made a settlement for a group of customers that this could be also a good solution.

So we don't think that one day, we will come here in the results presentation, and we will say that the problem is solved. This will not happen. But as time goes by from one side, we increased the provisions in the steady way. From another side, we're making settlements. We decreased the number of loans. We are already below the 40,000. So it's -- I think that, although we're very costly and hard work, we are going in the right direction in terms of solving this program. There is a question in terms of assessing what will be the impact of the negative decision of European Court in our view, at least when we look to this issue from Poland, a weak part of the negative impact is already incorporated. So if you understand the discussions of the lawyers and the expectations of the customers and even the discussion on the press, the scenario of non remuneration is somehow embedded in all the situation. It's very difficult to predict, but I would say that there is an unbalanced situation. So if the decision would be positive, it will be extremely positive for the banking sector. If the decision is negative, it will be negative for the banking sector but not in the same way. 

There is also a question about [ Mural ]. So what we can say about [ Varel ] is we also were very clear in our quarterly financial report that for the time being, we are below the minimum interim level. And for us, we have, first, the priority to reestablish the capital ratios at the minimum required levels as soon as it is possible. And after that, on the top of that, to do the necessary step through issuance of bonds or whatever, that will allow us also to comply with the level of morale. Obviously, the net result of the bank also affects the gap of [ Marel ]. So when we have a loss like we had in the third quarter, it increases the gap by the amount of debt loss. But again, our plan is very simple. We have a plan of restoring capital ratios above the minimum required levels in a comfortable way and then to do the necessary additional actions in order to comply with [ Model ]. Of course, ideally, this should happen until the end of next year, but also we will need to take into consideration the market conditions and everything that will happen until that time.

[Fernando Bicho, executive]

I believe we have largely answered the questions. I mean some are very, very particular. I mean, relating to tiny P&L items on balance sheet, so I will probably take them offline.

[Joao Jorge, executive]

There's just one more that I would like to answer. This is also a question about how much from which moment we could I mean, what would be the moment from which we could start talks with regulators about waiving the recovery plan. So I think this -- what we understand is that we need to bring back the capital ratios in a comfortable way to the minimum required levels. So, we are not able to say how much time it takes to exit the recovery plan procedures. So for the time being, we need to leave it open.

[Operator]

Let's check if there's more. A question about P2 because there was a question about.

[Joao Jorge, executive]

In the presentation, it is clear what is the level of P2R that is being considered as part of the minimum capital requirement. This is clearly shown on Page 13, where we have the -- what we call FX buffer, it's in fact, this [ PTI ]. So we are not making any comments about evolution of P2R because, as you know, every year, we have an update, which is done by our regulator, by KNF. So usually, it happens in the fourth quarter. So when there will be any news about the applied [ Pillar 2 buffer ], we will inform the market. But for the time being, we are making our projections, assuming no change in the P2I.

[Operator]

All right. Gentlemen, thank you very much. Any closing remarks from your end?

[Joao Jorge, executive]

Now just starting from the beginning. Credit holidays were the only reason for us to launch the recovery plan. The impact is done, we were conservative in terms of what we announced first, then what we book, we will make the necessary adjustments at year-end. Swiss franc -- the legal environment is aggressive. There's no way to change it and to say differently, we believe that somehow this is heavily discount here already in Poland. We have our plans with very strong legal defense, regular provisioning for the legal risks and to settle as much as we can and we need to remember also that it's very easy to have a mathematical mind.

But as a consumer, a settlement today in a country with 17% of inflation can be better than a court decision in 10 years. So it's normal that even customers that refuse settlement 6 months ago, now they can be open. We do this in a regular way. We have a special team for that. We track everything that we talk, that we offer, that we discuss and this takes time, but it's very profitable for us. Recovery Plan, capital [ marel ], Fernando already said everything. It's our core and biggest priority. We are executing our plan. And inside of that plan is, of course, the capacity to generate results from the natural business.

We are already at a level that we were planning in the past to be that is when we have the capacity to deliver results that cover the provisions and the settlement costs and the legal cost of Swiss francs. So we are at this level. So it's our belief that what we present today was our last loss. And from now on, we will be in a capital building situation in organic way, very smooth. Internally, also, we are quite enthusiasts with some numbers. I know that with the analysts are less popular these kind of numbers, but we are very close to achieve 3 million customers.

This was a target that we were having for 2024. It's quite important because it's only with a very strong customer acquisition that we can make normal business without overpaying deposits without compromises of risk in consumer loans and all of that. So we are quite -- Also in terms of digitalization, the process is going quite well. This can allow us also to go to next movement in terms of efficiency because only when you have a digitalized portfolio, then we can go while reducing the footprint, I don't needing so many people to make the same business, et cetera.

So we think that although not enthusiastic quarter. It was a very solid quarter and with strong results. Also with some milestones in terms of our strategy. So it's very important to be able to make at the same time the recovery plan, but also not jeopardize the future of the bank. And so customer acquisition, digitalization, solid business is good for us.

[Operator]

Gentlemen, thank you very much for your time, for your answers the question to the viewers. Obviously, thank you very much for your interest, time as well. And are your questions. As usual, we remain open to any further issues or any further questions that you may have. Otherwise, thank you very much, and see you in approximately 3 months. Thank you.