Bank Millennium SA

WSE:MIL

Earnings Call Transcript 2024-Q3

[Unknown Executive]

[Audio Gap] As you can see at Bank Millennium, anyone can have a small moment of fame. So this is mine probably. Good afternoon, and thank you very much for joining. This is a very important day or event for us because not only we are presenting our 3Q results, which, as usual, continue to show the resilience of the franchise. But also today, we are presenting details -- [ unveiling ] details of our new 4-year strategy, which I'm sure you will find very interesting, challenging and I think we'll be totally in a different space in 4 years' time.

Today's agenda begins with Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. He will guide you through the details of our financial results and our business achievements in 3Q. Then a Q&A session will follow. We intend to focus on relatively short-term issues. Afterwards, we will have a presentation of strategy by Chairman of the Board and our CEO, Mr. Joao Bras Jorge. He will guide you through our strategic vision and the key enablers and challenges that we think we will face over the next four years. After that, another Q&A session will follow and then we intend to focus on strategic issues.

Without further ado, I would like to invite Mr. Fernando Bicho to the stage. The floor is yours, [ leisurely ] speaking.

[Fernando Bicho, executive]

Good morning, good afternoon [indiscernible] thank you very much for attending this presentation of our third quarter results. As usual, I will guide you through the main aspects of our performance during the third quarter and during the first nine months of this year. I will go directly to Page #7 where we can see the main financial achievements of the quarter and of the first nine months.

So we had the eighth consecutive quarter with a positive net result. The year-to-date net profit in the first nine months of this year reached PLN 547 million, which represents an improvement of 19% versus one year ago. If we look at the net profit, excluding extraordinary items, it reached almost PLN 2.3 billion, an improvement of 3% versus last year. The results of the bank continued to be supported on strong performance of the net interest income, that excluding the impacts of the credit holidays grew by 5% year-on-year and by 5% versus the second quarter of 2024. As a consequence, the core income also grew by 5% year-on-year. And the cost to income, excluding extraordinary items, stood close to 31%. The cost of credit risk was at 53 basis points during the first nine months of this year over total loans and the NPL ratio was stable at 4.6%.

This quarter was important. First of all, in terms of capital ratios. We had another improvement of the capital ratios already after the inclusion of the first half 2024 net profit into own funds. The Tier 1 ratio improved to 15.3% and the total capital ratio to 17.9%, which gives a very significant and comfortable surplus over the minimum regulatory requirements. On the other side, we have done another senior nonpreferred bond issue of EUR 500 million, our first green bond issue in September which allows us to increase substantially the surplus over the minimum required MREL level.

On this page, we just summarize where we are versus the main objectives that were set in the previous strategic cycle that is now reaching an end. I will not elaborate on this as we will have more details during the next presentation about the new strategy. But as you can see, we have achieved most of the targets that we have announced almost three years ago. When we look now at the evolution of the net results of the bank, so in the third quarter '24, we had a net profit of PLN 190 million, bringing the year-to-date net profit to PLN 547 million. And this represents a reported ROE of 10.1% or on an adjusted basis, ROE of 18.1%. The solid operating performance of the bank has allowed to cover comfortably, [ though ] still relatively high provisions for FX mortgage legal risk. And also, we see that the operating income excluding extraordinary items, continues to show a stronger resilience.

When we look into more detail about the drivers of the results of the bank, of course, first of all, the very solid and resilient performance in terms of net interest income. In the third quarter, we had a downward adjustment in the assessment of the cost related with the credit holidays. So we released a provision of PLN 44 million. But excluding the impact of the credit holidays in the second and third quarter, we show a very strong increase of NII by 5% quarter-on-quarter and by 5% in the first nine months of the year against last year. The recent performance has supported by relatively stable average yield on the loan portfolio, while during the third quarter, we had a decrease of 9 basis points in the average cost of deposits. Also, it should be mentioned that the performance of NII would be even stronger, if not for the additional costs that we have incurred during the last 12 months, first with the issue of senior non-preferred bonds in September last year; and second, with the several securitization transactions that supported the improvement of the capital ratio. So if we would exclude these additional costs during the last 12 months, Actually, the NII would have grown by 9%.

Regarding net fee and commission income, it was relatively stable on a yearly basis, just 1% down, but growing 4% versus the previous quarter. On the cost side, the trends are basically the same from previous quarters. So total operating costs still growing double digit, 13% year-on-year. The cost to income on an adjusted basis at 31%, which is a relatively stable low level for the last two years. And we have minor changes in terms of the number of staff and number of branches in recent periods.

In terms of credit quality, it continues to be resilient. The NPL ratio stood at 4.6%, with some pickup in the NPL ratio of companies, but at the same time, a decrease in the NPL ratio of consumer loans. So the cost of risk year-to-date at 53 basis points over total loans. So of course, a little bit higher than one year ago as we had already expected when we announced the full year results of 2023, but still within the expected levels. Also to add, in the third quarter, we did not have any contribution to the level of provisions from the sale of NPLs.

In terms of capital ratios, we continue to show improvement. So after the inclusion of the first half results in the own funds, the Tier 1 ratio is now again above 15% at 15.3% and the total capital ratio at 17.9%. And this means a significant surplus of 5.5 percentage points over the minimum regulatory requirement for Tier 1 and 5.7 percentage points the minimum requirement for the total capital ratio. MREL, I already mentioned as a consequence of the new issue in September, but also of the inclusion of the net profit of the first half in the own funds. On the liquidity side, very strong liquidity indicators, a loan-to-deposit ratio at 66%, which also creates a strong liquidity, cash and that puts us in a very comfortable situation for the new strategic cycle in terms of the lending growth, very strong ratios in terms of [ LCR and NFSR ] and also the liquidity profile translates into a share of liquid assets of 34% of our total assets.

Regarding the FX mortgage legal risk, the provisions in the third quarter were slightly below previous quarters at PLN 470 million for the portfolio originated by Bank Millennium, bringing the total outstanding amount of provisions to PLN 7.7 billion and this represents 111% of the total gross loan outstanding. The portfolio continues to shrink at a quite fast pace. So when we compare with one year ago, and excluding FX impacts, we have a decrease of the portfolio by 22% to CHF 1.5 billion. And if we deduct the legal risk provisions, actually, the share of FX mortgage is now very low already at 2.5%.

We continued the effort to reach amicable settlements with the clients, another successful quarter with more than 1,000 -- specifically 1,081 amicable settlements signed with clients, both out of the quarter and during court proceedings. The inflow of court cases was a little bit lower than previous quarters at [ 1,487 ]. And in terms of main assumptions regarding the provisioning, there were no material changes versus the picture that we have shown after the first half of the year.

Moving now to the second part of the presentation regarding the business development. So first of all, we would highlight the high growth of the deposits on a yearly basis, a solid pace of customer acquisition and also of the growth of the retail lending and of leasing origination. So in the end of September, we reached 3,120,000 active customers in retail, of which 91% digitally active. In terms of sales, strong sales of cash loans, which have grown by 12% year-on-year and mortgage loans that grew by 50% year-on-year and leasing origination that grew 26% versus one year ago. This translated into overall growth of the total deposits by 7% year-on-year. Consumer loans by 9%, mortgage in PLN by 5% and last but not least, a significant growth of investment funds portfolio by 41%.

Looking now in more detail to the components of loans and deposits growth. So on a net basis, the loan portfolio of the group grew by 2% year-on-year. But if we would exclude the FX mortgage portfolio, actually, the growth was 5%. Main drivers, consumer lending, and PLN mortgage, but also already the continuation of the first signs of revival in terms of corporate lending already growing by 1% year-on-year. The structure of the loan portfolio with no major changes, still with a bigger share of PLN mortgage at 49% and consumer loans almost at 22%. On the customer deposits, an overall growth of 7%, driven by a 14% growth of retail deposits, while at the same time, we had some drop in corporate deposits by 8% year-on-year due to tighter price management and also as you may understand, also driven by the huge excess of liquidity that we have now. Investment Products, a very solid growth by 41% year-on-year, also benefiting from positive market environment and of which our Millennium TFI grew by 50%. In terms of origination, the main focus goes, of course, for the origination of cash loans that during the last two quarters was especially strong, above PLN 1.9 billion, bringing an overall year-to-date growth of 12% and a market share of around 10.5% in new origination. In mortgage, the growth year-to-date is still significant, 50% although with some downward trend in origination in the third quarter. In the retail customer funds, also, again, the growth of overall by 16%, so also fueled by the growth of the investment funds.

The solid pace of business development continues to be proven by the solid pace of customer acquisition. We had a net growth of active customers in retail by 139,000 during the last 12 months, of which 38,000 net growth just in the third quarter, also followed by a solid pace of growth in micro business segment with 18,000 new customers net growth during the last 12 months. And this is followed, of course, by the significant growth in the number of current accounts by more than 100,000 during the last 12 months. Our competencies in digital banking continue to be extremely appreciated by our customer base, with the redesigned mobile app, really appreciated and we see this translating into solid pace of growth with 2.86 million active digital users, 2.6 million active mobile app users, translating into a 7% growth year-on-year and 1.98 million [ brick ] users in the third quarter, a growth of 15% year-on-year. The share of digital channels is getting more and more relevant in the overall sales, responsible for 84% of cash loan sales, 43% in terms of current account acquisition, 95% of time deposits and 52% of Junior accounts. And also, it should be highlighted the high double-digit pace of growth of [ brick ] transactions.

The convenience of our digital solutions is translating into a high number of applications than by our customers in different government programs, including the benefit for parents and also a number of simple functionalities that are also like recently, the [ surety ] transfers in the mobile app after the recent flat and mobile Signature continue to show the capacity of the bank to sustain the leadership in terms of digital solutions. And in terms of Goodie, the continuation of high double-digit growth in terms of number of transactions and in terms of purchases by cash back.

Moving now to the corporate side. As I mentioned, we already show signs of some rebound after a period of almost two years where we have to apply some temporary restrictions due to the active management of the risk-weighted assets. So we had a growth of 1% year-on-year of total loans to companies, including leasing and factoring and 1% just in the third quarter. On the corporate deposits, we have a decrease in the third quarter due to what I mentioned is [ titled ] "management of time deposits" because as you can see, in terms of current accounts, the growth year-on-year is still high at 7%. We maintained the growth of transactionality with our corporate customers, which translated into a significant growth of treasury transactions, FX transactions by 35% year-on-year and the growth of domestic transfers by 4% year-on-year. And as I already mentioned, a strong growth of origination of new leasing contracts by 26% year-on-year. We continue to expand the offer to our corporate banking customers, namely through development of the corporation with [indiscernible] also interesting to say that 75% of our FX transactions are already done through our Millennium ForEx Trader platform. The developments in digital, of course, also cover the developments in corporate banking with further developments in the mobile app for companies, especially in the third quarter with new functionalities connected with the card management conversion.

So this concludes the third quarter results presentation, and now we will go through the Q&A of the results. Thank you.

[Unknown Executive]

Thank you very much, Fernando. I suggest we start with questions from the room. If you have any questions and you want to ask, please raise your hand.

[Foreign Language]

[Interpreted] If anybody wants to ask a question in Polish, we'll naturally have them interpreted. So you may ask in Polish too.

[Unknown Analyst]

[indiscernible] First question, did you book any impact on the [ floods ] in the third quarter? Or do you see any of such events in the future?

[Fernando Bicho, executive]

From the floods, yes. We performed an analysis of our loan portfolio, both on the retail and corporate side. And we have not detected any material impact in our customer base coming from this unfortunate event. Of course, there are always in specific situations that may be addressed. But for the time being, the impact is not material. So there was no impact in terms of level of provision in the third quarter.

[Unknown Analyst]

And another question on your capital position. The quarter-over-quarter improvement, was it driven only by profit inclusion? Or was it something else happening in the quarter as well?

[Fernando Bicho, executive]

The main driver was the incorporation of the first half results in the own funds. But by increasing the own funds, also, we had some size positive effects namely the fact that the [ DTA ] excess over 10% of own funds become smaller. And as a consequence, this also trigger some additional benefit, not just directly from the inclusion of the own funds, but also indirectly through this fact. The variation of risk-weighted assets. It was mixed because we had some areas where there was an increase against others that have a decrease and so overall, really the major driver was the incorporation of the net profit.

[Unknown Executive]

Any further questions from the room? We have a few online but -- [ Marta ]?

[Unknown Analyst]

I may have a question about the NPL ratio in the corporate segment because it spiked in the third quarter. Was that a very isolated situation or we are fearing that it may sort of continue towards 2025?

[Fernando Bicho, executive]

It was a very isolated situation. It was one or two cases actually, which did not happen in previous quarters. So we were living already for quite a long period of time without any situations. Two of them happen now in the third quarter, but completely isolated, it's completely unrelated. And so we don't see this -- we don't treat this as a trend of the [ generation ], it just happened.

[Unknown Analyst]

And maybe a traditional question, hopefully, one of the last times and let's give it to the third quarter results rather than on the strategy. So a classic FX mortgage saga, what is the level of model assumptions that you have placed against your active and repaid portfolio and provided for in the current provision balance? That's the first question and I'll have one follow-up. Just so we stopped discussing the active growth portfolio coverage, et cetera, but to see for how much of more challenges to come you already are prepared?

[Fernando Bicho, executive]

Yes. Page 15. So the assumptions, as I said, they were not materially changed versus the previous quarter. So we are assuming that of currently active loan agreements are already or will be in the future in the court. So this is the first point, we have currently alive around 26,700 loans at the end of September. So actually, we are living outside a quite small number of active loans. So this is the first thing.

And the second, we are assuming that 24% of already closed loans, closed means repaid but excluding amicably settled loans are already or will be in the future in the court. We -- of course, in the recent months, the inflow of court case is slightly dropped. Of course, the share of repaid has increased. But still, in absolute terms, it's still relatively low. So that's why when we look at the recent history of inflow and we project for the future years, we are reaching these estimations regarding the percentage of the customers. At the same time, as I said, of course, we are continuing the effort of settling with the clients, both out of the court and during the court proceedings. But these are the assumptions that we are using right now.

[Unknown Analyst]

And as much as you have created already provisions for those percentages of clients from different groups already. You also seem to be booking legal costs separately as an ongoing cost. My question is of a different nature because one thing is the provision to be put forward. And we know that a lot has already been provisioned. But those court cases will probably last for another 5 to -- let's not put an upper limit. Will you create provisions for those legal costs at some point to end the saga? Or should we assume that those legal costs will be with you for at least another 5 years? Until the active court cases will just phase out.

[Fernando Bicho, executive]

We have different types of legal costs. We have the services of the legal offices that support us in each court case which, of course, will depend on further inflow essentially. We have the court-related costs connected with appeals connected with counterclaims and these numbers can change also depending on how the settlements will be done through time. So for the time being, we are not planning to create an upfront provision for such costs because also it's difficult to forecast which part of them will be actually incurred. As I said, we are achieving a relevant number of settlements during the court proceedings. If this trend will continue, this contributes to the decrease of the future legal costs, just as an example. So there are different actions that we are taking that will potentially make these costs starting to go down in one or two years' time. But for the time being, we are not planning to make any upfront of course, out of the question is the point that we will submit counterclaims in order to protect our rights to the additional capital that was disbursed whenever it is necessary to submit such counterclaims, and those counterclaims have a court cost.

[Unknown Analyst]

[indiscernible] I have one question about NII in the [ third ] quarter. Could you please comment what was the source of the improvement quarter-on-quarter? It was quite visible. And do you see some of them for further improvement of net interest margin in the short term?

[Fernando Bicho, executive]

So in the third quarter, first of all, of course, interest rates were stable. So this helped to maintain for longer, let's say, relatively high level of NII in our case, even it was a record level, actually, even if we take out the impact of the credit [ holidays ]. The driver of the improvement, excluding the credit holidays, was the combination of -- the average yield on loans was quite stable. And so with some increase of the loan portfolio, we have more contribution coming from the loan, from the loan portfolio. This average drop of cost of the deposits just imply that the cost of the deposits actually remained quite stable, although we -- but this was beneficial because it shows that we have capacity to gradually reduce the average cost of the deposits, but essentially, this came from -- on one side, some reduction of time deposits in corporate, but also some adjustments of pricing in retail. And then we have the continuation of the contribution coming from the bond portfolio, which is also relevant because we are sitting on a huge excess of liquidity. This excess of liquidity is redeployed between bonds and [indiscernible] and as long as interest rates have stayed quite high. Of course, this is also supporting our NII. But basically, on a quarterly basis, just looking at the quarter, the contribution from the remuneration from the loans, what was [ plays ] the main role.

[Unknown Executive]

Any more questions from the room? I take it as a no. Thank you very much. We have questions from the online participants. And as a reminder, if you want to ask a question, please use the webcast page on the website that you're watching us at and ask your question.

We have a very specific question, which goes what is your long-term funding ratio at the end of 3Q?

[Fernando Bicho, executive]

So we disclosed this in our third quarter report. It was slightly above 27%. And already including the senior nonpreferred bonds that we have done in September. In October, we completed the next issue of covered bonds of PLN 500 million for 5 years. This will add another 1.5 percentage point long-term funding ratio. So we will be somewhere between 28% and 29% during the fourth quarter. The target to be achieved is 40% on the 31st of December 2026. So we still have a lot of time to fulfill that ratio. And I think that the steps that we have taken recently show the capacity of the bank to fulfill that ratio in a normal way. So we have our plan and the ratio is going to be achieved. But at the same time, of course, as you could see, there is some, let's say, lower origination of mortgage. So we also will not have so much pressure from the denominator to achieve this target.

[Unknown Executive]

Let's get the FX-related questions out of the way, especially as there are not that many of them. What do you expect in terms of FX provisions in the remainder of the year in '25? And do you see them lingering beyond '26? It's a bit of a strategic planning horizon. But as I said, let's get it out of the way.

[Fernando Bicho, executive]

So I think we have the expectation that sooner or later, the level of provisions will start to go down. Actually, it's already going because if we see the slides where we show the evolution of the provisioning quarter-by-quarter. After the peak that we had last year for specific reasons that all of us know actually, for the first time since the fourth quarter of 2022, we had a quarterly charge of provisions less of less than PLN 500 million. Also, when we look on a year-to-date basis, the level of provisioning is, of course, already clearly lower than last year. Although on the other side, we have some increase of other costs related to FX mortgage, which -- but still the picture looks favorable in terms at overall costs, this year are lower than in the previous year. So we have some expectations that overall costs will trend down, but still will remain relevant in the nearest quarters. So for now, what we are anticipating is that next year should continue to show improvement but still impacts maybe relevant together with the related costs. From 2026, if nothing else extraordinary will happen, then of course, we would expect the provisions to clearly decrease versus the recent years.

[Unknown Executive]

We're doing very well in terms of time. So maybe three more questions. One is about the cost of risk, what do you expect on a steady state until the rest of the year in 2025?

[Fernando Bicho, executive]

So for this year, this, let's say, expectation of having a cost of risk around 50, 50-something basis points is still achievable, I would say. Going forward, the evolution of the cost of risk in the future will also reflect the gradual change of the structure of the balance sheet and structure of the loan portfolio of the bank. So as you will see from the strategy and as we will materialize the strategy in complete numbers, this will mean a higher share of corporate lending and of course, it's natural that with a lower share of mortgage and a higher share of corporate and related exposures there will be some increase in the average cost of risk, which probably will be around 60 or 60s, in the area of 60 basis points. level. But of course, it will not be, let's say, a jump from one moment to the other because the portfolio will be gradually built. But looking at the 4-year cycle that we have in front of us, it's natural that the cost of the risk will tend to gradually increase, but reflecting the change of the structure of the portfolio.

[Unknown Executive]

That is also a question about cost of deposits. Do you see room to decrease the cost of deposits closer to the sector average? What would be the time horizon for that?

[Fernando Bicho, executive]

Of course, when we add a level that we are [indiscernible] always space to decrease for us, it's not a matter of just looking at the pricing. We look at everything, but we look at the volumes, we look at the relationship with the customers, we look at the price, we look at the possibilities to redeploy this liquidity in assets that will provide positive results to the bank. So taking into consideration that we expect interest rates to go down next year. Obviously, we also expect that our average cost of deposits will trend down. If it will converge to the average of the sector or not this is not exactly our objective. I think we need to take into consideration that our structure of the deposits is different than the average of the system. We have much more retail deposits, we have much less current accounts from companies, and this makes a difference when we compare the average cost of the deposits between the different banks. When we forget about the structure, we are not so far from several other competitors in terms of average cost of the deposits. But the answer is it will trend down also in line with the decrease of market rates.

[Unknown Executive]

Two more questions, I promise. Because I said there were 3 and there's [ already a 4th ]. Could you guide us through the rate interest, rate sensitivity of your NII in '25 and in the longer term, could loan growth offset lower NIM already in 2025?

[Fernando Bicho, executive]

First, I think we already explained in previous meetings that in the short term, we have relatively high protection against the cuts of the interest rates due to the structure of the loan portfolio that we have today and the structure of the bond portfolio that also we have created through time. We expect that the first cut of interest rates will have a relatively mild impact in terms of the NII. If you look at our financial reports, we are disclosing the sensitivity of NII to changes of 100 basis points in the yield curve. And it was never so low. It's somehow between around 1% more or less. So it's really low. So I think that in the short term, short term means in the next 12 to 24 months, we have a relatively high level of protection because even when interest rates will go down, there will be, at the same time, some low-yielding assets or hedges from the past that will expire and that when disappearing or renewed will provide a compensation for some compression, for example, in the margin of the current accounts, which we inevitably will take place. So for the next year, we are quite optimistic about the evolution of NII. I think that the only thing that could jeopardize these would be a much faster-than-expected cuts of interest rates during the next year. But if we will keep the scenario that we are betting in, which is a cut of 100 to 125 basis points of interest rates until the end of the next year, this should be achievable.

[Unknown Executive]

And the final question was promised. What is the scale of claims against your bank questioning WIBOR and the interest-free loan and how many claims have you received? And what are the outcomes of the verdict so far? We're not avoiding difficult questions, as you see.

[Fernando Bicho, executive]

We are also disclosing in the Chapter 9 of our financial report that we issued today the statistics about both the situations. In terms of PLN WIBOR cases, the numbers are quite small. Only one final verdict that was won by the bank. So we don't see, for the time being, any relevant inflow of claims and of court cases.

Regarding the free credit sanction, the numbers have increased in recent months. The large majority of the cases has been still won by the bank. But of course, it's something that -- the concrete numbers are in the report. I don't have now them here in front of me, so I don't -- it's almost 1,000 court cases as far as I remember. And it's, of course, a topic that we are paying a special attention. But as I said, the large majority of the core decisions until now have been favored in favor of the bank.

[Unknown Executive]

SP1 Thank you very much, Fernando for your, as usual, very insightful answers. There are more questions coming, but we intentionally decided to move them to the strategic part because they are a bit of a long-term and strategic in nature. So now the time has come for the strategy. So I'd like to welcome and invite Mr. Joao Bras Jorge, Chairman of the Board and our CEO to the stage to share with us the strategic vision.

[Joao Jorge, executive]

Thank you very much for coming. It's a pleasure to be here today talking about strategy. It looks like we exit the recovery plan a long, long time ago. That truly was just before the summer. And now after the summer, we are here talking about the future. In the middle of April, we start working the new strategy we involve more than 100 top managers of the bank. And it's a privilege to be in organization and to serve on organization that we are from one side, handling the legacy and solving the problems. At the same time, addressing the customer needs and with that producing results. But also thinking about the future and planning what we are going to do in the next cycle of 40 years.

Avoiding -- by the way, this photo, I think it was in the two strategic cycles ago. If we would put in one slide, our strategy, this would be the slide. So we are committing ourselves to keep embracing innovation and with digitally delivering top quality of services to be the primary bank to individuals and companies. We are committing ourselves in this key strategic targets to maintain leadership in terms of quality of service performed by top 3 NPS to keep a very strong growth organic growth in terms of customer acquisition. Please remember that we track this as net active customers, and we aim to achieve 3.7 million active customers. We have the goal to achieve 70% of [ primacy ] of customers, which means customers that are considering and operating with Bank Millennium as their main bank, maintain our digital road map with more than 95% digital active customers to [ level ] the corporate lending volumes. At the same time, we have a very ambitious target in terms of quality of assets and being below the 4%, the NPL ratio to maintain a very high capitalized bank with high around 15% Tier 1, a high level of efficiency with around 37% of cost to income highly profitable with around 18% return on equity. Going back to the dividends, of course, constrained with regulatory environment, that is our intention to go back to dividends in 2027 and to maintain the top employer status.

In terms of individuals, mass individual, we will keep our activity of customer acquisition based on daily banking services with high quality of services and achieving the primacy. We will keep upselling from the mass market to the affluent business with a digital offer and with remote advisories, and we will also maintain one activity that have been very successful in the recent two years to acquiring more customers and developing higher relations in terms of -- [indiscernible] business. So self-employed, [ solar ] traders, not full accounting [ micro ] business. Today, we are already producing very significant credits and with a very high coverage around 93% of guarantees. So it means very interesting success that we want to keep in this segment.

In terms of corporate, we want to launch a new initiative in terms of small business to acquiring and building primary relationship with smaller companies based also in a digital offer and improving the value proposition and also supported by [indiscernible] and in terms of with [ corporate ], we want to leverage our already good relationships and good performance in terms of NPS to increase significantly our credit portfolio. In terms of enablers, it's the people and the people development, technology and resilience, the digital and efficiency, the compliance and risk management and sustainability.

Taking a moment to looking back in terms of our bank and the [indiscernible] perspective of 5 years. So the bank is [ now and by ] the strong quality of services. This is seen not only by the number of the words that the bank won, but also in terms of net performing score in terms of retail and in terms of corporate. This differentiation and quality of services in the last 5 years, the bank has the capacity to put it in terms of organic growth and in terms of development of the business. The compound average [ rate and ] growth of number of customers moving from 1.5 million to 3 million active customers and in terms of total assets, 9%, moving from [ 80 to 126 ]. Also, it's extremely important is that this growth was also visible in terms of profitability. And this is extremely visible in terms of net banking income that we moved from PLN 2.7 billion to PLN 7 billion and also improvement in terms of cost to income, of course, and adjusted return on equity. The position of the bank that, of course, these slides are very important because only when we know where we are, we understand where we want to go. It's very important to analyze that in terms of retail, the bank is already a very strong position in terms of lending, 9% in terms of mortgage P&L and 9% in terms of consumer lending and 9% in terms of corporate and already 7% in terms of total deposits of individuals.

In terms of corporate, the bank presented 4% in terms of total deposits of companies, 2% in terms of corporate lending and 5% in leasing and 6% in factoring. So it's visible already a very interesting position in terms of asset financing and a lot of the potential in terms of pull lending, pure lending in corporate. When we go back and see our previous cycles, it's also very important to understand the capacity and the track record that the bank has presented in terms of growth. So in all of these cycles and particularly when we look for 2015 to 2023. So this is only 8 years and in these 8 years, the bank doubled the size. So we moved from PLN 66 billion to PLN 126 billion, and we moved from 1.4 million active customers to 3 million active customers at the end of 2023. Moreover, if we have screen shot of the last strategy, we can see that despite all the headwinds that we had this time, the Swiss franc saga, the turbulence in terms of EU funds and in terms of some challenging legal and regulatory environments, the credit holidays, for example, and even the war in Ukraine, we can see that the bank has the capacity to deliver all of the long-term strategic targets that propose itself for the year of 2022 to 2024.

In terms of growth of customers in terms of digital road map, but also in terms of the profitability of the business model and in terms of the unwinding of the FX position. It's very important to understand also that during this cycle of three years, two years was passed in recovery plan. The bank has the capacity to present this performance mainly due to the capabilities that the bank has today. We have a proven model of customer acquisition that is a differentiation done by the bank through quality of service and this obsession of the client service with a very strong digitalization with the industry-leading governance not only in the transparency, but also in regulatory compliance. The bank DNA in terms of technology is very well known, the capabilities. So our bank have truly a very talented and skilled software house inside of our bank and the bank is known by attracting and developing good talent people.

Our view for the market, it's probably -- the main base is for the strategy that we are proposing and that we are presenting today. We forecast for Poland a very stable and a very profitable or interesting for banking business, economy environment. From one side, a very strong GDP, so always around 3% low unemployment, increase of disposable income and although a decrease of interest rates, a stabilization at the level that is still very interesting for the bank activity.

The banking sector, as you are very well known, have very good financial shape. The strong capital ratios, good portfolio quality and also liquidity. And our view for the market is very positive in terms of the volumes development. However, when we put together the scenario of interest rates, we can see that we have some movement from the deposit pool or deposit revenue pools for the assets, revenue pools, particularly the corporate lending. We [ will for ] this strategy, and this is very important because although the banking activity is interesting and profitable in Poland is also an activity with some risk environment and turbulence. So we go to this strategy also with our competencies to manage and to navigate under this environment.

In terms of legal and compliance risk, we can say that this is a challenging environment in the banking sector in Poland. As already, we were talking during the period of the results presentation, the risks from remaining FX portfolio. This puts -- exists but it's seen as a moment that they will be -- or at least the cost of this saga will decrease. There is still the challenges in terms of WIBOR in terms of the WIBOR reform, not only can be challenges in terms of cost but also legal risks. And there is still an environment of increased consumer protections, not only driven by the local authorities, but also by the European environment.

And in terms of capital, Fernando already addressed the topic of the long-term funding. But in terms of capital also there is an environment that of increasing of capital requirements that is also challenging for the bank. So our strategy is, from one side, in retail to be very ambitious in terms of customer acquisition, but in terms also of the share of primary retail customers. So not only we want to grow from the 3.1 million customers that we had in the first semester to 3.7 million. This means 150,000 net active customers per year, which is extremely high in the banking activity. But beside that, we want to move from the 60% level of primary relations to 70% of primary relations. Of course, the primary relations for the ones that are in the industries, this means a lot of additional business and a lot of not only cross-selling, but also upselling opportunities for the bank.

In terms of corporate, we want to move from PLN 30 billion to more than [ PLN 25 billion ] and also in terms of customers for 30,000 customers incorporate to 50,000. In this environment, also, we want to have a 37% cost-to-income level and an 18% return on equity with a very solid and risk position, maintaining -- or to achieve below 4% in NPLs and [ to where ] around 50% in terms of Tier 1.

Two slides on corporate and then 2 slides in retail. So in corporate, we want to reach 17,000 midsized corporate clients, leveraging the high NPS that we have in the segment. We want to level the corporate loans, as I said, so the total portfolio and to increase the market share over 5%. We want to increase the investment loans to over 25%. And we want to accelerate the growth of leasing to have a growth on the portfolio for more than 70% to PLN 12 million in 2028.

In terms of the small business, we want to have 7% of market share in terms of credit production. This, of course, produces very high annual increases in terms of deposits and in terms of corporate, in terms of lending, is 14% per annum growth, in terms of deposits is 10% per annum growth. Of course, in terms of deposits, a lot of [indiscernible] is also the additional business and the transactionality that comes with the credits.

For corporate, we have five strategic initiatives. So one concrete initiatives connected with the target customer base that we want to grow and that we want to deep our relationships. We have also a target -- a strategic initiative connected with the growth of the portfolio. These initiatives have two2 major investments. One is in terms of infrastructure. So it's a new digital credit process, new workflow of credit and new CRM tools. So a big investment in terms of IT competence and digital competencies, but also big reinforcement of the team in terms of relationship managers and business analysts that will use the relationships that we have and the ones that we will acquire to be able to have this growth of the portfolio.

In terms of investment loans, we want to have a specific guidance and fast track to specific loans. In terms of targets, some industries and also some opportunities of the usage of EU funds and support the energy transition. In terms of leasing, we want to leverage the capability that we already have and not only through cross-sell, but also by direct sales to have the growth of the portfolio. And in terms of small business, we think that there is a big opportunity. Now that small business, it's less physical relationship based, but more digitally value proposition based. We have a big opportunity here, and we want to have a [ different ] digital first service model that can make us to have 7% of the small business credit production.

Two slides on retail. So in terms of retail, we want to increase the customer base to 3.7 million customers, active customers with a primacy to increase to 70%. We want to grow in terms of saving and investment products. We have 1% more in terms of total customer funds. We want to grow in terms of affluent. We have an opportunity in terms of affluent and we want to grow this customer data [ basing ] 50%. We want to double the credit that we are doing in [ SoHo ], and we want to maintain our position in terms of customer experience and in terms of quality of service. It's obvious that when we look for the retail loan volumes, that is here a 2% per annum growth. And here, there is a clear decision or having some slowdown in terms of mortgage. So we believe that we need to give time to see clarifications in terms of lever of risks and in terms of more clarification what is going to be the final conclusions in terms of potential legal disputes. But we have still very ambitious targets in terms of consumer credit and in terms of credit cards. And in terms of deposits, we have 6% per annum.

In terms of strategic initiatives, we have six strategic initiatives for retail. Keep the leadership in terms of customer acquisition, build the primacy on existing customer base. And of course, with here having a lot of impact in terms of volume of products and services provide to customers. Growth on the customer funds, this big increase in terms of affluent customers that we want to have in our database and our customer base became the first bank for SoHo, strengthened the leadership in customer experience and orchestration of the distribution model. The orchestration of the distribution model, of course, not only provides to keep offering a good digital service to customers, but also -- with a 95% digital servicing for the retail, but also can be an opportunity to have some consolidation of our physical presences.

We identified the key success enablers in terms of people, technology, digital, compliance and risk and sustainability and I will go faster per enabler. So in terms of HR, of course, the main [ quarter ] is to acquire the talent and develop the talent that allow us to make the new strategy, namely this new investment in corporate areas. We want to maintain the top employer certification and also maintain the high level of satisfaction of employees because these combined with the point number 3, that is maintained the competitiveness and the compliance in terms of remuneration policy is the two main conditions to have a low attrition rate and only with high capacity to attract talent also competence in development talent, but also to have capacity to retain this talent is what is crucial allow us to have this capacity to deliver the strategy.

In terms of -- evaluate also the culture, I think the most important point is this last point, continues to build a lifelong learning culture. This is also all the need of reskilling that the bank needs to do to these people, especially in front of the changes that we will have in the future. And of course, improving the HR services and the experience that we provide to our employees.

In terms of digital, some highlights. The first point is [ refinancing ] the corporate team. So it means that if we want to commit to have this special attention to corporate, we need to commit also our IT resources for that, namely with the introduction of the new credit workflow [ when ] the corporate CRM.

In terms of cognitive banking, promote the democratization of [ usage of AI ] and also start to integrate it or continue to integrate AI components in our front-end and back-end processes. In terms of [ resilient ] and cybersecurity, this is, of course, a core concern of all the financial entities at the moment, a constant reinforcing of our capabilities and not only by the technical capabilities, but also the governance of these areas. We will keep also our cloud migration, and we will take a look and analyze the legacy systems that we have to be ensure that never mature or legacy technologies will be a blockage of our development. Keeping a data driven organization and keep introducing new solutions and new innovations that define us so well.

We will keep also our digital road map. I'm still on the time that the digital tool was used to find ATMs and branches. Then it was the time that was to check balances, then was the time to make some transfers, then starting to buy some products and looks like that today is to do [indiscernible] there. We had a lot of awards that is known, but it's more important than that is these numbers in terms of digital customers, but also digital sales.

To have a strategy without operational efficiency is a nonsense so we will keep ensuring the business digitalization. Business digitalization not only provide a better customer service but allow us to serve much more customers, much more interactions, much more transactions and with the same infrastructure. Of course, as already said, with the digitalization, with deployment of remote experts and with the usage of voice and chat boards, also, we can go through some optimization of the physical network. And in terms of operationally, I would say that we will keep our analysis of processes, always looking for simplification, standardization and automatization. And this can be seen as processes that we interact with the customers, but also in terms of optimization of the central functions.

Almost at the end. In terms of risk, we will keep mitigation and analysis in terms of the legal risks in the Polish banking system. All of us we know that the major risk of the Polish banking activity, unfortunately, it's not credit risk, but it is legal risk. And also, we will mitigate, analyze to be able to change as soon as possible or any potential changes in terms of consumer protection, state of the art and full compliance in terms of regulatory compliance, know your customer, and then team [indiscernible], strong credit risk management. We will keep the discipline on underwriting, and we continue to have a robust recovery process, mitigations and high priority for cybersecurity, but also digital routes and the mitigation in terms of capital management risks, particularly the implementation of [ CRR3 ].

In terms of ESG. So carbon footprint, carbon neutrality, one and two in 2030 and net zero in 2050. Also, we commit PLN 5 billion for a new sustainable finance projects, the social, the top employer I already spoke. So maybe the inclusivity and the effort that in a constant way we do to have accessible banking, particularly some cooperations that we do for external institutions that -- and associations of handicaps that also help us how to build solutions that have particular attention to this type of clients. And of course, supporting the local communities where we are centrally or even by branches and corporate centers.

In terms of governance, [ a big ] attention in terms of ESG governance and the contribution for the transition plan, but also to have a corporate governance that is state-of-the-art and that is fully in the new standards. In the second page, I would only would like to highlight, first of all, because this is well known, at least for the colleagues from the press. We have a very strong dedication on financial education projects with the bank and the foundation. Also, we have a lot of initiatives from our colleagues in terms of [ loan ] tiering that they have interaction in the local communities, improving the conditions of these communities. And maybe two additional points. our role in terms of the family business that we go through across Poland particular on these family business or midsized companies helping them to understand what is going to be the ESG targets and is going to be the migration of transition challenges and also our contribution for the eco innovation index in terms of the regions and in terms of the needs that we need to do to adapt to [indiscernible], fulfilling all of the targets in terms of climate environment.

Just a couple of closing remarks. So from one side, the bank have a longstanding track record of growth. The last cycle with the strong headwinds was a very good example on that. We have outperformed competitors mainly by these capabilities of the customer experience and the technology innovation. We have a very positive view for the Polish economy and that's why we are proposing this strategy because we have the competencies, and we have the opportunity to take this advantage in terms of the corporate, the big message is, of course, doubling the scale of our business, but also this new value proposition that we are going to do for the small business. In terms of retail banking is to maintain these very fast and solid growth that we have been presenting in the recent years. We present not only very strong business volumes but also profitability volumes or profitability targets with 37% cost to income, below 4% NPL, 15% Tier 1, and of course, the 18% return on equity. And I think I already went through this slide more or less. Thank you very much.

[Unknown Executive]

Thank you very much, Joao, for an impactful and concise presentation also for sharing with the audience how we're going to drive sustainable growth by either seizing new opportunities or leveraging on [ OpEx ] those who are in the room see that the stage is being slightly rearranged. So we are now approaching the final part, which is the strategic Q&A session. Fernando, I'd like to invite you to the stage.

Thank you very much. As previously, questions from the room will be somewhat privileged will come first.

[Interpreted] And as we said earlier, you can ask questions in English. These will be interpreted.

[Unknown Analyst]

A question on your ROE target. So you aim for 18% ROE in the environment of 3.5% interest rate. What would be your goal if interest rates in Poland went lower, let's say, to 2.5%?

[Joao Jorge, executive]

We never model like that. I must confess. It's, of course, depend -- also we had a big discussion about this, about what would be an adverse scenario. And of course, this also depends when it will be. So if it is going to be exactly the same track, the execute will be at the end or not. But we never had [indiscernible].

[Fernando Bicho, executive]

I think I would say, for sure, double digit ROE. For sure. Of course, probably not 18%, but still also clearly above the cost of capital, right? So still quite decent level and still allowing the generation of capital most likely that would allow us to achieve this target of coming back to dividend distribution from 2027.

But this is just a rough estimation. Of course, if the interest rates will go down, there would be different implications at the level of lending growth, savings and so on. So that also will have to be taken into consideration. So it's much more complex. But clearly, even in a more adverse scenario, we would still generate a double digit ROE.

[Unknown Analyst]

So maybe a follow-up on capital generation. What kind of payments did you put in into your target for Tier 1 and maybe also on dividend is an earlier dividend out of the question, like from 2025 profits, for example, and maybe what other inorganic impact on your capital, did you include in the 15% target because it doesn't seem to be that high, given the fact that you are already exceeding it as of 3Q '24.

[Joao Jorge, executive]

The policy of dividend have been clear. So we want to go back. We used to explain that it was between 35% to 50% so we want to go back. It's not realistic to be much earlier than this. So to believe that in 2026 on results of 2025, we don't believe that is realistic even so we need to see how is going to be the regulatory environment. So we are confident about what we are writing at the moment. And of course, it will be subject still on the regulatory environment. But we don't think that is realistic to expect to anticipate this target. Of course, we can consider other instruments.

[Fernando Bicho, executive]

So on one side, we are also anticipating the increase in the regulatory requirements. For example, the introduction of the countercyclical capital buffer of 2% that will come during the next two years, partially offset by the further decrease of our [ P2R ] buffer. So in our case, the impact should be lower than for some other competitors, but still, we are anticipating some trend of increase of the regulatory requirements. And then we have also the option to use or not further securitizations in the future to continue to manage the level of the risk-weighted assets. So we have different instruments at our disposal that will allow us to manage, to achieve that level.

[Joao Jorge, executive]

And depending on the cost level of instrument as well.

[Fernando Bicho, executive]

Yes. And also at the same time, we also have still before us, the implementation of [ CRR ], three that also will have some impact. So we are also anticipating that we need to have some cushion against some regulatory developments that will protect us. But this 15% creates, let's say, the perception of staying very much above the minimum capital requirements.

[Unknown Analyst]

So last question on capital from me. [ AT1 ], is it an option for you? I mean some of your competitors suggest that they could consider.

[Joao Jorge, executive]

That's why I said, depend on the cost. So it's sometimes if the instruments appear if it is a reasonable course, if it starts to be used, why not?

[Unknown Analyst]

[indiscernible] Securities. One question from my side on volumes. Looking at the dynamics you show, it seems that in the future, you will shift more towards corporate lending. So it will balance your current asset structure. But it seems that your competitors will do actually the same. So they will also focus more on the corporate side. So you actually already commented on several initiatives in the corporate business, but I still wonder what do you think will be the key to succeed in this race for the corporate clients to gain market share to onboard clients.

[Joao Jorge, executive]

So each bank have -- although sometimes we talk about corporate and not always the corporate is the same corporate. So some banks are very focused in very large companies with very large tickets, as you know well, we are more mid-sized corporate SME. So this is -- we have a network of relationship managers across all Poland. This is where we feel more comfortable where we believe that we have competencies. It's also where the NPS of our relationship managers make the difference. So in our case, we had still good relations, and we had still -- even during this period that due to capital constraints, we had the corporate portfolio reduction. We didn't reduce so much the profitability of the segment. And also we didn't reduce the relationships that we have and the business relationships that we have with the clients. What we have is an intentional reduction of the portfolio. Now with more capital, we can go in particular to some transactions that are long term. So we are going to use our capacities that we have today. We are going to use the know-how that we have been development in terms of the usage of European funds and the usage also -- or the investments that are needed to energy transition. So we are going to use the capabilities that we have, we are going to reinforce it. But we will not have a magic word now. I think that all the banks are in the sector, understanding that we are going to have an investment cycle in terms of companies in the Polish economy and everybody wants to take an advantage of that. because the recent drivers have been in the Polish economy have the consumption. And even the investment part have been, I would say, almost everything in real estate. So it was not entrepreneurial normal investment cycle.

[Unknown Executive]

Any more questions? Okay. In this case, I'd like to move to the questions that we had received from online participants. Let's do the straightforward and let's say, the [ quant ] ones.

There's a very direct question. How do you see your profits evolving over the next years? What kind of profit should we expect in 2028 given the 18% ROE?

[Fernando Bicho, executive]

Yes, we cannot enter into such level of detail. Of course, I would like to say that we should start with the [ tool ] but still, we cannot enter into this level of detail. I think it's relatively easy to derive, more or less, what levels of results especially -- I would say in a different way. If you look at our recurrent results, excluding extraordinaries, you see where we are today, right? If you will assume that the extraordinary costs will go down, but also at the same time, there will be some impacts from lower interest rates. You may end up guessing which type of net profit would be implied in a lower interest rate environment on one side, but also with much lower extraordinary costs on the other.

[Unknown Executive]

I see you managed to answer very intelligently. It was a difficult question. There's no growth without costs. So we also have a cost-related question, could you please update on cost dynamics? How do you see wage inflation [ evolving ] in the coming years? Do you see net cost-cutting potential in G&As or would they be offset by investments?

[Joao Jorge, executive]

It's very difficult to have a cost management in a country that have inflation plus a strong salary dynamics, especially in the banking activity that 50% of the personnel costs. However, we are trying to combine these with some reduction of presence and some reallocations. From our experience, most important is to keep investing in terms of process management because it's the only way that we are not obliged to increase the costs when we do more business. If we have strong processes and if we have efficiency on that part, then it's okay. Otherwise, if you make more mortgage, you need to have more people. If we have more cash flows, you need to have more underwriters, if you have more -- and then it's a very difficult game. So we will keep investing in digitalization, but also in process management. And that's all. But -- and what we need to make sure is that the costs will grow lower than the revenues.

[Unknown Executive]

There's a bit of a follow-up. Can you provide more color on the cost management, which we just answered, branch network targets and [ FTEs ]?

[Joao Jorge, executive]

We are not disclosing any target at the moment. We always say that we will do this not so much by the cost buyers, but by a change of the behavior of the consumers. We are seeing this change of the behaviors of the consumers. We have already our ideas. So we are going to execute it, but we would not go -- we would not like to disclose the number that with [ excited ] people even because the cost dynamics is we need to remember that every time that we get plain vanilla sales function, but we hire an IT person, sometimes the cost increase instead of decrease.

[Unknown Executive]

There are many questions and we have to pick the ones that -- repeat most of often. Here's a very specific question, does retail loan growth outlook of 2% per annum include the rundown of the CHF loan book?

[Fernando Bicho, executive]

Yes, of course. So that's why it seems relatively low, but of course, it's depressed by the almost disappearance of the FX mortgage portfolio on a net basis.

[Unknown Executive]

There's another tricky question. Why don't you show revenue KPIs for the bank? What do you do for the sector for 2028? What is the assumption behind the expected falling flattish sector revenues until 2028 despite quite a bullish loan growth going forward. You partly addressed that in the [indiscernible] right?

[Joao Jorge, executive]

So the dynamic of the interest rate is very relevant. So when you put in combination in the model, you need to have two parts first. First of all, we have current accounts that are not remunerated. Then you have a lot of consumer credits and then credit card credits, overdraft credits, that have a dynamic of pricing, especially these last two that I said, more connected with maximum interest rates than a normal market rate. Cash loans, it's more a market rate. So when you decrease the interest rates, we are also decreasing some of the ceilings, let's call it like that. That's why the impact, in terms of lending of retail is bigger. In terms of corporate, of course, we have a commercial spread that is on top of [indiscernible]. So you don't have this impact. In terms of deposits, it's also the combination of current accounts in corporate or some banks remunerate or not, either in retail, nobody remunerates. So all of these dynamics together make these changes.

Listen, we didn't say that the revenue pool of deposits [ disappeared ], we're not even there to say that they will not stay as the main revenue pool of banking. We didn't say that. We just said that reduces somehow the imports. But I think the only thing that somehow confuse people is the decrease -- or no, the slowdown of increase of credit in retail. But we need to understand also that this is the impact of the mortgage because the mortgage, the production is very high, and the amortization is very low. But this does not mean that the activity in terms of consumer lending, for example, somehow would slow down, not at all.

[Unknown Executive]

A little bit on the same subject. How do you see trade-off between a significant loan growth aimed at gaining market and margins? Do we expect to retain the deposits gathered thus far and redeploy them into loans once bonds expire. Are you assuming you should be paying deposits more than peers? We've sort of talked about it.

[Joao Jorge, executive]

Each one have their own strategy. I think Fernando was very clear when he explained that the average price per bank, it's also the mix that each bank has. So if I have a mix of high current accounts incorporate. For example, this mix is completely different than ours. Also, if you have more affluent time deposits, it's also a different mix. So for us, the model have been very successful because it allow us to grow. And for example, this year, we were almost offsetting not almost no, we offset the decrease of interest rates with the growth of the deposit volumes. So it's not -- what is important is what is your value proposition and your capability to grow and we should not limit the deposit growth to the credit growth. The only thing that you need to do is invest in bonds.

[Unknown Executive]

Questions are also coming with regards to a 15% Tier target, how much to be generated by earnings and how much [indiscernible] absorbed organic growth, dividends and other extraordinary effects at least roughly if possible. There's also a question about [ CRR and CRD ] impact, which ties into this subject.

[Fernando Bicho, executive]

So what we can say is that the growth of risk-weighted assets will accelerate through time. So it's not a straight line from today until the end of 2028. So especially driven by the growth of the corporate loan portfolio that also is going to accelerate through time. It's not going to jump from necessarily from one quarter to the other. It's not that it cannot be possible, but it's just not our plan, it's going to accelerate through time.

In terms of generation of capital, the base scenario, the best scenario is that it will be organic generation of capital through retention of the net profit of '24 and '25. And then the possibility of distributing from the results to be generated in 2026. This is the base plan, can be adjusted with more or less needs of securitization of assets because in the meantime, the transactions that we have done will start to expire, we can renew them or not depending on the way we want to manage the Tier 1. We have these alternatives also in the market in terms of other solutions also for the Tier 1, which also can be contemplated, although that we have currently no concrete plans regarding this. And so this is what we can say for now. We cannot be now very precise in saying what is exactly the growth of [ RWA ] that we are going to have on a yearly basis.

Regarding CRR3, something that is still being prepared. So there are still some doubts about concrete aspects of the implementation of CRR3. So the recovering environment is still not fully clear. There will be some downward impact. This is what we can have say now in the first quarter of next year, but which again will be gradually offset by the organic generation of capital that we will have by the management of the [indiscernible]. This is what we can say for now.

[Unknown Executive]

I think we're slowly running to the end of the list, but we have two more interesting questions. How does Bank Millennium plan to balance growth in corporate loans while maintaining risk cost discipline?

[Joao Jorge, executive]

[ Good ] and the right thing -- and good collateralization and effective recovery. So it's -- we have a very good experience in the recent years when we have to reduce our portfolio. So when you reduce the portfolio, usually, of course, you sell the good credits, the clients that are in a good situation, early repay and you stay with a more risky portfolio and this didn't happen with us. So we are quite confident that we have a strong risk underwriting capabilities. So we pretend to execute exactly this. It's obvious that is a challenge. And a strategy is not especially in our banks, something that we will just do when the results will come in 2028. So we will execute the results, and we will execute the strategy at the same time that we are achieving results. This also will help us to manage if the situation of the 2% interest rates will appear.

[Unknown Executive]

This is an interesting question, totally different. What does Millennium take on inorganic growth?

[Joao Jorge, executive]

We are not planning anything. So if there is an opportunity we have [indiscernible] to analyze it, but also we know that every time, even in a transaction, as we did in [ our own bank ] that we were able to condense the legal merger and the operational merger in just one year. At the end of the day, you have two years that you lock innovation. So during two years, you have blocked an innovation and new ideas and growth and everything. So the opportunity needs to be big enough to have two years of nonorganic growth. So if there is a bank that is big enough, cheap enough and it's a good opportunity, we are obliged to see it, but I'm not foreseeing anything.

[Unknown Executive]

I think final question would be, you have provided a list of main challenges, but which [ three ] you consider as key challenges for the successful execution of this strategy.

[Joao Jorge, executive]

We don't have a major -- I think our presentation, maybe it looks a little bit strange, why we have so many slides in enablers instead of targets because this is what really make the success of execution. So it's difficult to say what is going to be more difficult. But it's obvious that the shift in corporate, it will require a big involvement of all the organization. And that's why we explained that we will refencing some IT resources that we will have a special attention to attract talent. That's probably the biggest challenge that we are having as an organization, even because we know that keep doing something that we are already doing, for example, in retail growth. It's easier than to have a rebound in terms of portfolio growth, that just one year ago, we were decreasing. So maybe this is the biggest challenge. But there is also another challenge that all of us that are living in Poland we have, which is also the legal regulatory environment that is challenging.

[Unknown Executive]

Are there any questions you think we omitted? No, I think we covered. In case the audience are -- the participants feel that we omitted or neglected some of the questions, we're obviously happy to answer them after the event. I'll diligently go for these. And if we missed any, I will try to contact you directly. Otherwise, thank you, gentlemen. And maybe it's time for another set of closing remarks.

[Joao Jorge, executive]

No, I will not abuse of already short patience. Just to say that we are very happy to present this strategy. This strategy has been the work of a large group, as I explained, more than 100 people of top managers of the bank. We have a lot of time to mature about the strategy to discuss about the strategy to see the alternatives of the strategy. And this is our ambition, and we are quite confident about the execution that we are going to provide during the next 4 years.

[Unknown Executive]

Thank you very much, gentlemen. Thank you very much all for participating, especially for coming, [ some may not super shy of health ]. Yes, [indiscernible] thank you very much. Special thanks and kudos for coming. Otherwise, as I said, we, meaning [ IR ] assure service. And if you have any questions, doubts or desire to speak, obviously, do contact us. Thank you very much, gentlemen.

[Joao Jorge, executive]

Thank you.

[Fernando Bicho, executive]

Thank you.

[Unknown Executive]

For those in the room, there are refreshments served in the back. So please do come and join us.