Bank Polska Kasa Opieki SA
WSE:PEO
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Good afternoon, everyone. And thanks for, I would say, the big crowd despite relatively, I would say, busy day here in the banking sector in Poland with the reporting season from [ few banks ]. So thanks very much for joining us this afternoon. My name is Pawel Rzezniczak, and I lead the Investor Relations team here in Pekao. I'm joined today with our CEO, Michal Krupinski; as well as CFO, Tomasz Kubiak.
So before we kick off with the presentation, we wanted first to go with an outline of the key achievements in the sector as well as our KPIs, and then we go more into detail about our financial results as well as development in the business, and we'll follow afterwards with a Q&A session.
Okay. So because we're running late by 6 minutes, we can say good afternoon. It's after 12, but good morning for those of you dialing in from North America and LatAm. Do we have people joining from Latin America? No? Maybe? Maybe? Could we? We have some investors from LatAm as well.
So let me quickly run you through the numbers. Our agenda for this afternoon is the following. I will quickly go through the key achievements, then Tomasz Kubiak, our CFO, will put more light, will shed more light on the key financial figures, and we will also be able to tell you a little bit about our achievements as regards to business developments and the trends we see for the market.
We think it's been a very good quarter. We think, we grow in the products we would like to grow. We are very consistent with the strategy. Our profitability is up by 12% year-on-year on reported figures. When we look on the comparable basis, we are already at 9%.
What we like about the numbers, and again, this is very consistent with the strategies, is the NIM expansion. We also believe we will be able to expand net interest margin by 1 or 2 basis points going forward, per quarter, and we will tell you more about that in a minute.
Despite of a big burden of regulatory costs as well as tax burdens, as you know, Polish FDIC is also affecting our results, particularly in the third quarter, where we have contribute to BFG. We have a very big improvement, very significant improvement in ROE. And we continue to guide you towards ROE of 14% within the lifetime of the strategy. And this is despite of what we consider a delayed interest rates expansion.
We had a record quarter in key retail products. We clearly outperformed and outpaced volume growth of the sector. Very good pricing discipline with respect to retail and the key products, but also in corporate investment banking. We already see a big growth with respect to SME lending, SME product, including leasing new approach to our customers and clients.
This year was a breakthrough -- or this quarter was a breakthrough, with respect to retail banking. I truly consider our new current account offer as the one which is best in the market. And we already see tangible results in this regard. We only launched the product on 21st of January. Marek, was it right? I'm talking to our head of -- 25th of January. We had a press conference when we launched the product. We already sold, up to this date, we sold 100,000 of new current accounts. And to put you into perspective, the bank was able to sell between 50,000, 60,000 in the past years, net. So we have clearly surpassed this after 3 months of sales. It is a very big milestone.
We do see an ongoing transformation with respect to our digital and electronic channels. We're growing by a stunning number of 40% in mobile banking, which is very consistent with our strategy. We have already become a leader in Poland in mobile banking. We are also -- we also had a 1 month, I think, the month of February, where we were clear leader with respect to mortgages.
We will also tell you more about initiatives targeted at cost efficiency, including our voluntary leave program, which we have just launched, which will lead to a reduction in terms of FTEs by 1,000 FTEs this year only and will lead to a reduction in cost base of PLN 70 million from 2019 going forward.
We were able to maintain very strong balance sheet and very resilient balance sheet. We, in this quarter, we have confirmed our guidance and took a decision -- in fact, we took a decision, so that the Supervisory Board on the dividend payment, which is close to 100% in terms of dividend payout. And we also shown very good figures with respect to cost of risk. A 41 basis point cost of risk, I consider as a normalized figure. We think we will maintain this throughout the year. So please do consider last quarter's number as a one-off because we have, in fact, been able, because of IFRS introduction and IFRS 9 introduction as well as some other changes, including changes with respect to our auditor, we were able to maintain and have a very clean balance sheet going forward, which effectively means we did additional provisioning last quarter of last year. So we maintain a very robust funding liquidity profile. And this was also a year where we -- also a quarter where we have put forward a very good or the best in the industry proposal for the dividend payout.
So going to -- maybe I will quickly go through our main KPIs. Profit is up by 12.9%, depending on how you calculate this. This leads us to conclude we maintained our guidance for profit for this year at double-digit, at least. And this is thanks to better income generation in specific segments. But we do have an increasing momentum in all segments of our activities.
ROE is up by 35 basis points, and this is in spite of higher regulatory costs, always with respect to our bank way on negatively in the first quarter of this year. Very significant NIM expansion, 6 basis points. We do believe in 7 NIM expansion this year going forward.
The cost is also up, which we don't like, and this is because of increase in variable costs for the personnel costs, which we are also addressing by voluntary leave program, and higher marketing spend. This bank, despite of being #2 retail bank in Poland, was not even in top 10 in terms of marketing spend. And we will -- we are matching the industry standards. In this regards, we have become more visible, and this is already reflected in the volume of sales of our critical and most important products. Very, very prudent cost of risk, with a low cost of risk, significantly below fourth quarter, significant growth in key retail loan volumes, including the number of customers and using our mobile electronic channel growing by 40%. So we were able to achieve better penetration in this regard. Strong revenue growth achieved across the commercial bank, and with the pick-up in investments, we expect this to continue to grow.
I will now turn over to Tomasz and he can go through detailed financial performance.
Sure. So thank you, Michal. So net profit, up by 12% if we compare to the last first reported quarter. Of course, as you all know, this quarter, first quarter is always weaker because of the BGF costs that are booked one-off. Those are the costs that are related to the resolution fund and they are always for the full year but they're booked in the first quarter.
In this presentation, we have for, let's say, better explanation of the numbers, we also assumed that we made a pro forma net profit, which is assuming that Pioneer and [ Exelion ] would be consolidated in 2017. So this will allow you to better see all the dynamics of net interest income, fees. And this is something that we have also in our financial statement. And based on such a dynamic, the dynamic of net profit is around 9%. So that is a comparison if Pioneer would be consolidated in 2017. And all the figures that you will see in those presentations, fee dynamics, cost dynamics and all the other are referring, actually, to the comparable numbers.
If we compare quarter-over-quarter, of course, we are down. But if I exclude the impact of the BGF and of the sales of NPL, we are more or less at the same level, which I think is quite an achievement because, usually, the fourth quarter is cyclical and has much, much better fees than the first quarter.
In terms of gross operating profit. Gross operating profit is 3.5% year-over-year. Operating income going by 4.3% and costs by 5%.
Now moving to operating income dynamics, you can see them on the next slide. Pawel, if you could -- thank you. So the growth in operating income is 4.3%. I think the level below our ambitions, but if I try to decompose that profit into what is coming from the commercial bank and what is coming from the other components, I see the following. The commercial bank revenues are growing by 7%. That is 6% in retail, around 16% in SME and 7% in corporate.
Now the things that are pulling down our growth of operating income are 2 main components. First of all, there is the change of the obligatory reserve interest rate since the first quarter, more or less PLN 10 million, PLN 11 million impact. And the second element is the famous repricing of our treasury bonds. As you remember, we had a big maturity of more than PLN 2 billion of bonds, high yield, in the first quarter, in April last year. And this contributes to another PLN 10 million to PLN 13 million of lower income. So without those 2 noncommercial effects, our revenues are growing in the pace of 7%.
The key, of course, driver of our results, and this is not changing since the last quarter's net interest income, which is growing by 1.2%. And net interest margin is growing by 1 basis point quarter-over-quarter and 6 basis points year-over-year. Now there is one thing that I would like you to know on the net interest income. During -- after implementing MSSF 9, we have some shift, presentation shift between the fees and commissions and net interest income. So some of the revenues that were previously shown in the fees are now presented in net interest income. This is an amount of around PLN 16 million. So this is why our fees are a bit weaker, net interest income is a bit stronger.
But then if you look at the composition of the quarter-over-quarter dynamics of the net interest margin, you can see the following. So the element of this shift is around plus 4 basis points on the margin, the obligatory reserve is around minus 2 basis points. Then in the first quarter, and you will see it later in the presentation, we are keeping higher liquidity than in the previous quarter. So our LCR has increased to around 135% versus more or less 120%. This we realized through getting additional deposits and placing them in, simply, liquid bonds. So more or less, PLN 3 billion of additional assets, that will not bring in net interest income, but generated more liquidity, was impacting the first quarter. And this had an impact, just a technical impact, on the net interest margin by minus 5 basis points just because the assets were higher, and there was no, let's say, income economic related to that.
So if we exclude those elements, the pure commercial effect that we have on the net interest margin is around 4 basis points. And this is the effect of the higher asset mix that we're having, the improvement of the interest rate on the loans as well as the growth of the loans. So 4 basis points is the economic impact that we had in the first quarter if I take out the other elements.
In terms of what is driving our net interest income is, of course, the dynamic of the lending portfolio. And we are seeing a continuation of the trends that we had in the fourth quarter. So another quarter of record-high sales in the loans, both in, I would say, putting together mortgage and consumer lending. Consumer lending, year-over-year, growing by more than 20%. So the key lending products in retail are 14%. And this dynamic was also kept in the first quarter 3.3% growth.
On corporate, we are growing almost 4% year-over-year, with a 2% decline in the first quarter. This is generally the realization of the strategy that we had. So we are concentrating on the model of getting, I would say, more cross-sell, less volumes, concentrating on realizing the deals, concentrating of the -- on the customers, which are generating the return on equity that is in line with our benchmarks.
On the deposit side, we are growing over 7% on retail lendings and 13% on corporate. Of course, on corporate, fourth quarter is always cyclical, so there is a slight decrease in this quarter, but that is a, simply, cyclical effect.
Fees and commissions. Now fees and commissions are dropping by 4% year-over-year, but you have this effect on the lending fees that is related with the movement between net interest income and fees and commissions. Without this, we would have some positive growth on the lending fees. We are also very happy about the fees on the capital markets, particularly in the sales of investment products. Those sales have increased very much in the fourth quarter, and the first quarter is also a continuation of this growth.
What is under pressure the most, I think, in the first quarter, and this is where we are not particularly happy with, are the fees on the cards. Now the fees on the cards have increased -- decreased generally because of the cost of card processing. Those -- the income on the fees is growing very, very well, but the cost of the fees of the cards processing has slightly increased. This is also a factor of our contribution to the cashless Poland fund, which at this stage we are still contributing money, but since the second quarter, we are starting to getting -- to get benefits on this because of sales of the [ POS ] to the customers, which are done -- refunded by the fund. So -- and the cards, there -- this is an element, which we are very much working on. We see future in the [ POS ] sales. But this quarter was, unfortunately, weaker here.
Costs. Now costs has grown by 5% year-over-year and decreased 1.4% versus the fourth quarter. Of course, we are talking about comparable figures. Now the growth in the -- as it was anticipated by Michal, the growth in the non-HR cost is relating simply with higher advertising spending. This is the main position, which we are taking. Our advertising spending was much, much below the market levels. We are, let's say, catching up with this systematically, and this is the main reason of the growth.
In terms of HR costs, the salary, the basic salary costs are flat year-over-year. And we don't see pressure here at this stage. What has increased is the variable part of those costs, and this is also related with the expected in 2019 pension, increase of the pension fund contribution. As you know, in Poland, there will be a hike in 2019. And since we will pay majority of our, let's say, NBOs, in 2019, we are already accruing today for this higher pension costs increase. So those are the major reasons behind the cost increase.
Now what is our plan in terms of cost management in, let's say, going forward? Because as you remember, in our strategy, we were generally planning to keep the cost income below 40%. And that implies the fact that we have to keep costs at the level of inflation.
Now first step that we've done already in the fourth was the optimization of the numbers of branches, which will benefit -- is starting to benefit this quarter and will bring benefits going forward. The second important point that we were anticipating, and we have managed to speed up those process, are the optimization process related to -- with the back-office functionalities. So simply, as you know, we are -- we have implemented a lot of robotization process already, 20 process up to today, and we know that we will complete additional 30 process at the end of this year. We have also -- are finalizing the process related with simplification on the mortgage process. Those are a lot of, let's say, basic activities that will be centralized and will be automated, will come from even paying out but also valuation of the mortgage and all those activities that are done. And we are also finalizing the simplification of the credit approval process in the micro segment, which was quite heavy during these years.
Now because of that -- those process are to be completed within this year, we have started opening of a voluntary retirement program. That is a program that will be -- that is being appointed to the people that have achieved their retirement age also because of the shortening of the -- the lowering of the retirement age in Poland. And thanks to this, we will be able to go down by more or less 1,000 FTEs year-over-year.
So this year, a lot of employees who gained rights for their retirement will have the offer of participating in this program. We see a very high approach to this program of the people. We're talking about more or less 80%, so like, 900 people will probably join this program this year. And the effect of this program will be the following. We'll be able to benefit, more or less, PLN 70 million of costs -- of personnel cost reduction related with salaries and add-ons to the salary. Already, in 2019, the expected costs that we would bear of this program in 2017 will be around up to PLN 40 million. This year PLN 40 million, and let's say, more or less, PLN 70 million benefit since 2019. So in 2019, '20 and so -- and going forward.
So the NPV of, let's say, this project is extremely benefit. We are able to do it because of the optimization projects that we are realizing, both let's say related to robotization, mortgage process optimization and simplification in the credit process. So -- and I think thanks to this, we are quite confident that we will be able to achieve our cost-income ratio below 40%, as we were anticipating in this strategy for 2020.
Now in terms of cost of risk, I think the key messages have been said. So we are around 41 basis points today. This -- our cost of risk was, as you remember, [ constellating ] around the level of 45 basis points during the last 2 years, so that quarter is very good. Also, NPL ratio at stable level. If we would use IFRS 9, then quarter-over-quarter, it would be more or less stable at the level of 5%. And coverage also remains at high levels.
In terms of capital, we are remaining strong capital position. So Tier 1 at 16%, and total capital ratio at 17.1%. Those are the capital levels that allow us to pay 100% dividend in -- for 2017. So we're keeping strong capital ratios. As it was anticipated before, those capital ratios still don't contain the profit that we had on Pioneer consolidation, the PLN 400 million that you remember. So this profit will go into capital after the [ GSM ]. So there is still some buffer, let's say, for the capital ratios.
If you look at our liquidity ratios, we are also keeping them stronger. We've increased liquidity to 135% LCR, and that was an effect that was kept throughout the whole first quarter. So there was a shift in the regulatory minimum from 80% to 100% on the LCR. We consequently also wanted to keep a higher buffer on top of our minimum ratios. So this is why we've increased our liquidity by more or less PLN 3 billion, what is having more securities as I was explaining in the net interest margin.
I think this is the key messages from the, let's say, pure financial. Then I would give the voice to Michal on the business development side.
Sure. Thank you, Tomasz. So I will run you quickly through main drivers of this significant growth that we have.
If you can turn to Page 18. First of all, we had another quarter of record sales after fantastic quarter of last year -- of last quarter of last year. We concentrate on net sales, and we have very good pricing discipline. We're growing at almost 7% in terms of net sales volume. There is enhanced customer experience where we are very much moving towards electronic quick loan processes. We estimate a number of clients having access to that being above 1.6 million. We continue to generate a lot of new credit lines in electronic channels, including being more than 28% of total origination and 13% if you look by volumes. Above 28% in units and above 13% if you look by volume.
Very good or actually excellent mortgage origination where we are very quickly closing the gap to the market leader. You might assume who the market leader is. And in fact, in February, we were the market leader in February for mortgage. And we are doing this, maintaining better margins, trying to work with PZU or actually working with PZU on cross-sell with respect to bancassurance, which improves our own profitability on the product. There's also a lot of efforts spent by, including by people present in this room, from IT and support functions on making sure that the process is simplified and we have the most -- the quickest time to decision in the market. And we believe this is why we are growing very significantly with respect to mortgages.
As regards growth in other product lines, very significant growth in consumer loans, above 21%. As I explained, very big growth in mortgage loans. I think you can see the trends both -- as regards the both products in our graphs presented on Slide 19.
There is a significant increase in the pace of growth as regards investment products. By significant, I mean 8.3x year-on-year increase in investment products. And this is thanks to the Pekao TFI mutual fund new sales increase. We are also selling PZU product in our branches and it's -- that product is selling well. But it also has to do with a new offer of SCDs, which grew by almost PLN 200 million. And this was done despite of some effort needed for the rebranding after we have closed the TFI transaction.
We are also very happy or extremely happy with the sales of our new current account, Konto Przekorzystne. I'm wondering how you can translate it into English, so I will not give it a try. But after we have launched the new account, we already sold 100,000 of new account. We are also growing significantly in savings account. So this is a very significant increase in both stock and new sales as well as gross sales.
As regards digital banking, we are already leader in contactless payments, continued very good dynamic, active client numbers growing by 40%, new functionalities added. We are currently testing BLIK as an add-on to our mobile banking platform. The number of active clients in electronic banking also grew by almost 10%. And we spent a lot of time and effort on innovation with respect to digital payment, testing new functionalities including biometrics, direct contacts to bank advisers, a lot of efforts spent here, which makes us think we are becoming a market leader, both in terms of numbers, but also in terms of innovation in this regard.
We continue to grow in corporate banking. A lot of time and effort is being spent on cross-sell, including leasing, factoring, transaction banking, which we consider very promising areas of growth for what is already a leading franchise in corporate banking. We also spend a lot of time with our clients, entrepreneurs, corporates on topics related to split payments, for example, where we do provide people with dedicated help line and training.
We were again a leader in investment banking where we [ led ] a lot of significant beneficial transactions for our clients, including some of the largest P2P transactions, tender offers as well as tailored financing transactions. So we maintained the perception of being the most sophisticated corporate bank -- investment bank in Poland.
As you recall, in our strategy, we are putting a lot of effort on SME banking. We have a dedicated part of the firm and a dedicated Management Board member. Tomasz Styczynski is leading the effort here, and we are convinced this is already working out very well where we grew in loan sales by an outstanding number of 40%, including -- and 14% in volumes. This requires a lot of effort in terms of change of our acquisition model, procedures. But we do see profitability improving and tangible results. We have -- we're growing 3x in terms of new customers. New loans are up by 40% in SME banking, and this is becoming a significant business line for us.
What I will do, I will skip the awards section because I'm not sure there's a lot of interest in our awards sections, and this leads me to conclude.
Once again, thank you for being present here and listening to what we have to say. We will be happy to take any questions you have. Thank you.
We have some questions from the Internet in case you don't have any questions here in the room.
Let's maybe first offer the opportunity for those in the room, and then we follow on with some questions that were asked by a few analysts already on the line.
It's Marta Czajkowska-Baldyga, Haitong. Can I ask about outlook for the cost of funding for the next quarters? What do you see? What will you do with this liquidity? And will this put the pressure on the net interest margin?
So we don't see pressure in terms of cost of funding, in general. What we simply did in terms of increasing liquidity was acquisition of additional deposits and placing those deposits in liquid assets, mainly in government bonds, which generated simply additional bank of liquidity that we can use at any moment, and we try to keep this liquidity for the whole period. But this is something that didn't generate -- didn't contribute nor positively nor negatively. So more or less, the effect of this was neutral for our P&L. We don't see, at this stage, any pressure coming from the deposit market. And I think, in the long term, we will not see, because there will be the MREL requirement and banks will, in a few years, have to issue bonds for this. And also, we can see that the number of mortgages banks will be increasing. And also, I think banks will be able to get additional liquidity through those channels. So in a long term, I don't think there will be much pressure on the deposit side, of course, in those market conditions that we have today.
And maybe just a comment, a few words about the corporate segment lending. There was a drop in that respect at your balance sheet. Is there any pressure on margins that you see and you just withdraw to keep your ROE higher?
We are concentrating in corporate as it was anticipated, not on the volumes, but on the relationship with the customer, on the cross-sell with the customer, and on getting the right return. If we had, let's say, sectors like public sector or sectors where the margin -- or very large corporate, where the margins are low enough not to give us a dedicated return, we don't fight for those volumes, let's say. And this is the main part, what is most important for us is to participate in all the projects that is structuring deals and cooperating with all the customers that are giving us the dedicated return, but also that will -- that have the potential of giving us those returns. This is especially so we don't lose volumes, for example, on the mid-segment where, usually, you have the full cooperation with the clients, a lot of large corporates as well. But there are segments simply, which we don't, let's say, see as strategic because of lower margins, that is the simple story.
Maciej Marcinowski, Trigon. Please correct me if I understood wrong, but you said that your cost of risk at the end of last year was too high and you expect this level, 41 bps, to maintain through the whole 2018, right?
We do not provide guidance on the cost of risk in general. At the same time, what we stressed is we do consider a slightly higher cost of risk, which is still one of the best in the sectors. I'm referring to the last quarter of last year to be a one-off because we did additional provisioning on exposures, which we have now been able to resolve successfully. So we do expect our cost of risk to maintain at the level which is reflected in our first quarter numbers. We do not expect the cost of risk to go up to the levels of last quarter of last year.
The cost of risk is something that, let's say, especially in the quarter-by-quarter basis, is not something that you always, let's say, fully control. We are not changing the risk appetite of the bank. We are not putting more risk to that. It's also always a subject of, let's say, quarterly volatility and macroeconomic conditions. But the levels that we observed during last years, on average, of around 45 basis points, somewhere between 40 and 45, are the levels that we see in those macroeconomic conditions that are sustainable.
[indiscernible]. I would be grateful if you could tell me how you perceive the current valuation of the company on the stock exchange.
You mean from a share price perspective?
Yes. PLN 116 a year.
We are -- we were up this morning and we will -- we continue to watch the share price. I think, on the comparable basis, we do not think we are trading significantly lower to our peers. We, obviously, watch very carefully sentiment towards the -- what is considered emerging markets, and we understand we do have index shareholders invested in our stock as well. We think, first of all, we have a very good momentum as regards results. We continue to be very consistent with the strategy where, as we have shown, we have grown significantly in the areas that give us the highest profitability. We stand out positively towards the market as regards dividend payment, which -- and the actual dividend payout. So when we talk to investors, this is perceived positively. We are one of probably 2 banks in Europe that have almost 100% dividend payout being the large banks in Europe that do offer this high dividend payout to our shareholders. We also have -- we also see that there is a gap to be closed vis-à-vis the consensus, which the consensus from you is significantly higher where we have a very positive, biased and good consensus in our regards. So I think the consensus could always be higher because of the positive earnings momentum we have gained. Obviously, we understand there is uncertainty from our shareholders vis-à-vis discussions on the potential tie-up with Alior Bank. And given this uncertainty, we aim to conclude our discussions without me now telling you whether we are leaning towards any of the solutions that might be the tie-up, meaning, if we do a transaction, and what could be the potential scope of this transaction. But because of this uncertainty, we aim to resolve our discussions and conclude them by the end of this quarter. So giving a very strong earnings momentum, giving the fact that we have the highest payout ratio in the entire sector, giving what we have just stated as regards cost reductions, including voluntary leave or voluntary retirement plan, which will lead to us building significant value for investors, PLN 70 million from next year going forward. We think we need to resolve an outstanding uncertainty that is clearly out there. Obviously, we do not have full control over sentiment on the global equity capital markets. But we are, in general, as a bank, because we're also, a size -- we're a big player in investment banking here in Poland. We are, in general, bullish on equities globally. We do consider we can -- we have a gap to be closed as regards the current valuation and we are hopeful this will be achieved going forward.
Jaromir Szortyka, PKO BP Securities. I also have a question on the mortgage segment. Recently, one of your competitors shared with us positive outlook in terms of new mortgage sales. Obviously, you've done very well in the first quarter this year. Would you share this positive view for the full year in terms of mortgages sale?
We are focused on keeping up the current dynamics and see no reasons why it wouldn't -- we wouldn't continue the trends. I think February was the month when -- where we beat the whole market in terms of mortgages sales. We were #1 in the market. This is because of the focus, but also because of a lot of changes in the process that we did. We are selling mortgages through call center now, even we've introduced the videoconference selling of mortgages. So there's been a change -- set of changes in the process that is -- that will, let's say, facilitate that for us, and we see positives here.
And maybe just to clarify, the cost savings you expect from the employment optimization, it's 7-0 starting from 2018 or 17, 1-7?
7-0. 7-0 if you, let's say, take into account more or less the drop of 1,000 employees and multiply it by this [ average ].
Also, bear in mind so when you come back to the slide, I think it was Slide 18 where we've shown -- which slide was it where we've shown the cost savings?
14.
14. So when you look at Slide 14, there is a number of initiatives that we put in place in order to not only keep costs under control but also to cut the costs. So first of all, we took measures to close down 66 least profitable branches, and it was already last quarter of last year. Secondly, we have a lot of ongoing initiatives aimed at streamlining and [ automatizing ] existing processes. So we intend to be using robots in at least 30% -- 30 processes already this year. There's, frankly speaking, a lot of work put out by our teams in this regard. This will lead not only to better customer experience, which will get reflected in sales, but it will also lead to a chance of significant cost reductions and a chance of freeing up existing human resources. Thirdly, we have a very concrete step that we took, and this is related both to the regulatory, namely, quite significant number of people, our employees are eligible for early retirement and they took this chance and took a decision, which is voluntary to be leaving. Obviously, in order to keep the sales momentum, we will be replacing some of the FTEs in sales, although a significant majority of FTEs released come from back office, but this is only one step. So going forward, comes 2019 and '20, we will be watching very carefully our internal needs with respect to human resources because of factors I just explained. So first of all, it's internal processes improvement, but also, when you come back to our numbers that we are showing on mobile and electronic banking, we see an existing trend with our -- some of our customers and clients having a very strong preference to electronic digital channels as opposed to traditional branch-based banking. And therefore, we will be analyzing on a rolling basis, monthly, quarterly basis our existing sales force and sales network. We have an internal project that is aimed at, say, preparing the target model for our sales network. So the questions that will be asked is what the branch should look like? What should be the scope of branch? How many branches we should have in the long term? Whether we should have more franchisees or not? This is the kind of questions that we are asking ourselves, and we will -- we'll be -- we are aiming at launching results of our internal exercise starting next -- early next year going forward. So don't -- so this is the first step, but it's probably only the beginning. We are not in a position to, say, speculate and give you target numbers on the target employment and cost levels. At the same time, we do maintain our guidance and we want to have cost of income below 40% at the end of lifetime of our existing strategy.
Lukasz Janczak, IPOPEMA Securities. Just a quick question from my side. Do you have any credit exposure to, or receivables from, sale of NPL portfolio from debt collector, GetBack?
We have 0 exposure to GetBack. We have, in the past, dealt with several players in the debt collection industry. We took a view we should be very conservative as regards lending to this particular -- depending, obviously, on the company. But as a result of that, we have -- we don't have any exposure, which I think, in my mind, also reflects the fact that we have good processes in place. We did have some of current GetBack holders buy bonds through our broker but the numbers are very marginal and, in our mind, do not pose any risk, not even a reputational risk for us because we have not actively been participating in sales of GetBack securities.
Mateusz Krupa, Erste Group. I've got a question, which is linked to what we heard from other Polish bank's CEO, and he's especially afraid about the real estate sector exposures and he said that he's not increasing the exposure to this sector. As I can see from your exposure, it is the second highest and it increased to almost 14% from 10% in 2015. Do you see any specific threats to this exposure? And the second question to this is what are your expectations on the private investments going forward next quarters?
So on the first question, we still remain bullish on -- or maybe we should start with the second question. We are bullish. And [indiscernible], our Chief Macro, is here. We are still bullish on -- or we are bullish on Polish GDP, which we think will grow by about 5% this year. And we also bullish on potential pickups in private investments. What we saw is that public investments started to grow. We think there are 2 impediments for private investments, and the most important one is lack of labor source -- or labor force. This is feedback we have been getting from significant number of our clients. Second is -- but this mainly I think reflects to past years and not -- is not something we feel today. But I would say, in the past, there've been many changes in the regulatory, which in the long run were beneficial for Polish corporates, yet in the short term always posed some uncertainty. But I think this got resolved, so finding sources, good factors of production in the labor force is, in our minds, the biggest impediment to a stronger pickup in private investments. But we do have good a good pipeline in -- mainly, this is reflected in investment lines, which are used -- you saw our growing investment loans, which are growing at teen percent. As regards real estate, and this is also related to previous questions on mortgages. So we have record numbers on mortgages, yet, we are still bullish on residential. We also think, as compared to the previous cycle, from a regulatory standpoint, banks are better prepared to face any potential issues that might be out there going forward when the macro deteriorates. What is significant, as you know, as you very well know, our exposure to CHF is marginal. As regards commercial real estate, we -- yes, we are, indeed, a large financier to commercial real estate, yet, we have traditionally been very picky as regards our clients. So, for example, I'm of the view we tend to back larger developers, larger firms in very specific markets. We have less of an exposure on, say, smaller developers in -- as compared to other banks in other smaller cities and towns. So this makes us think we -- our portfolio is sound, has -- no problems have yet been reflected in as regards the portfolio. At the same time, obviously, we see a very big growth in commercial real estate. We are watching this very carefully. And we think that our exposure to the sector should not and will not go significantly higher. What we saw, at the same time, is some appetite from other banks and financial institutions to be buying exposure in commercial real estate in the secondary market. So we -- this is in line with our strategy. We have also been able to syndicate some of our existing lines to other banks. So that makes us -- and this was not an issue with the actual exposure or the client or not an issue with our overall view on the market, but rather, a very opportunistic, yet strategic, coming from our originate-and-distribute approach effort to distribute some of the risk. And we will continue to be distributing some of the risks in areas and for clients where we think the risk-reward plays out to our favor.
Do we got any more questions here in the room? Otherwise, I will pass to some questions on the line that we received to the presentation. So if not, then we've got couple of questions. Obviously, many have been already addressed by the room. So a few of those may be focused more on the outlook. And first we received was on NIM, if we can provide a bit more outlook on how we see NIM development over next quarters.
I think we addressed that. We're saying about 1 to 2 bps improvement per quarter.
I think one other was also about the outlook and our guidance in terms of EPS for the year.
So we are keeping our ambition of around 10% growth in net profit in 2017, and I think nothing changes here.
We think -- well, we think the first quarter numbers speak for themselves. And this makes us think giving very good improvements in NIM. Strong growth in volumes, very good cost of risk and macro, this makes us think we will certainly be able to stick to our guidelines, if not beat the guidelines this year.
So one more question. I don't if we covered extensively, but we discussed fees and commission outlook in terms of what we expect in the development in the next quarters.
Well, I think as you saw the trends, the most important are the following. We will keep the trends, for sure, on the sale of investment products. That will be an important generator and improvement in our fees. The cards will increase, for sure, because that -- the first quarter is still the quarter where we are incurring the costs related, especially with the Paperless Poland. And now we will start benefiting from this so that is the second factor that will push the fees forward. The third element is still something not yet, let's say, present, is the cooperation with PZU on the bancassurance. We expect this to start taking benefits in the second half of the year. So those are the main, I would say, pillars that will allow us to grow in fees.
So I think that's the main questions received on the line as well. So unless there's anything more to add from anyone on the -- in the room in terms of Q&A, I think we'll conclude our presentation.
Thank you very much.
Thank you very much.