Bank Polska Kasa Opieki SA
WSE:PEO
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Good afternoon, everyone. Thanks, everyone, for joining us here in Warsaw as always and also those that follow the broadcast online. And as always, we here with Mr. Michal Krupinski, CEO of Bank Pekao; and Mr. Tomasz Kubiak, CFO of the bank. Again, welcome, everyone, to the Q1 presentation.
And we'll kick off the presentation in the usual manner, going through the business highlights, key financial performance and then open for the Q&A first in the room and then also on the line.
Okay. So good afternoon, everyone. We think we had a very good quarter, a very good continuation of strong operating trends.
If we can turn to Page 3 of the presentation. Of course, we were hit by regulatory challenges, not unexpectedly, but the amount was rather unexpected. And we will dwell more on this in a minute. At the same time, excluding regulatory challenges, we see a net profit growth of 14%. Strong commercial revenues in line with the strategy, in line with what we have foreseen in the strategy. And particularly, we are convinced that the bank has become much more acquisitive. Acquisition has, in the past year, not been the very strong advantage of our bank and we have become much more acquisitive. So retail client acquisitions up by 40%.
A lot of what has been achieved in the past 2 years as regards to sales was sales to our existing customer base. But with this number, what we see is we are opening up due to improvement of processes better customer experienced, better visibility. We have been able to move and become much more acquisitive, and this is both for retail as well as corporate customers.
This acceleration in lending growth. We see very strong pipeline in corporate banking. So we are quite -- actually quite positive on this year as regards to the lending growth and we see breakthrough in SMEs as well as corporate.
This all has been achieved and we are in the most transformational year of this bank since many, many years, a lot of projects and initiatives, and this has all been achieved with excellent cost control, excellent operating cost control. We are growing our costs below CPI inflation in spite of us being able to invest heavily in projects and infrastructure.
We think what has been achieved so far up-to-date on digital and operational transformation is already bearing fruit, and I will tell you more about that as well as outlook on business development.
So again, Slide 4, positive jaws as regards revenue delivery and cost management, robust double-digit growth in all strategic segments, good progress on digital and market-leading risk management with a historically low cost of risk of 35 basis points.
Slide 5, let me just give you a snapshot collectively of what we consider key achievements in numbers. I already talked about acquisition. Smart growth in products that we want to grow, including consumer loan volumes, up by 15%.
Corporate total assets of our mid customers or mid clients, so the companies serviced out from our regional centers outside of Warsaw, we're growing almost 20%. Very good penetration and cross-sell, which speaks for an increase of revenue per client.
Very good progress on digital. We had a number of innovations introduced in this first quarter. I will tell you more in a second but particularly, year-on-year, 31% growth in our mobile banking active clients. And at this point, 36% of loans, and this is granted cash [ loans ], 36% is through digital channels. This is quite an achievement.
Business efficiency over the past year, we are -- we will do more in this quarter. We have launched group redundancy program, which will generate up to PLN 100 million in savings starting next year, but we already generate savings as well already in the third and fourth quarter of this year. There's more to come as regards savings. We are generating significant value for our investors.
In terms of retail and private banking, so we see actually highest levels of growth in revenue from a decade -- in the last decade. In terms of things that have been introduced, there is a unique current account opening through a selfie and mobile apps. Actually, not many banks in Europe have this feature.
Recurring payments with BLIK, our Polish payment standard.
New websites, ATM contact-less withdrawals.
Mobile PeoPay authorizations of transactions. You would be getting a text message, SMS, before to authorize. Now we can do it through our payment at PeoPay. Very useful and very handy for our clients. Very unique sale model -- sales -- point of sales in the branches. There is more to come. We will actually be introducing new innovations in the next months and we will keep you updated on those. So later, there will be even more focus in retail.
On customer acquisition, our intention is to speed up on gaining market share in consumer loans. Smart growth cross-sell mortgage loans. Very good growth and monetization of bancassurance, I'll tell you more about it. And leadership in private banking.
On corporate and SME, as has been already discussed, greater focus on SME and mid-market share -- mid-market growth. We have been able to maintain leading position in large corporate banking. Very good pricing discipline. But I think there's still headroom -- there is still room for improvement with regards to margins and this is something that we are working on. And this leads us to revenue growth in the key products of 17% in mid, 8% in SME, 18% new customer acquisition in SME.
Fantastic growth in leasing. Let me turn you to this numbers here, this is middle bottom of the page, 51% growth year-on-year in leasing, probably a market record.
Good FX revenues from our corporate clients, but some of you have alluded to, I think, in your pieces of research, we think there's still quite a lot of potential on this front.
I suggest Page 8, we skip this. This is a testimony to the trust given to us by a number of clients, including most sophisticated global investors who want to work with us on their landmark transactions here in Poland.
As regards to key strategic initiatives, Page 9, let me mention just some of them. First of all, we are introducing sales force effectiveness project or program for our retail. This is something that has been done by some other banks, in some cases, leading to 20% improvement in efficiency. First of all, this has to do with greater decentralization and delayering. This is something that we are currently working on. So we are eliminating unnecessary hierarchy with how you run your branch network, which leads to very good operational and cost efficiencies. Secondly, separation of front and back office. Some of our competitors have gone through that already. And better tools to support our customers.
We have an expectation that the revenue, retail revenue per FTE, will grow by 30%, thanks to this project and some other actions that we are undertaking. With more time devoted to customers and with better rhythm of sales, there will be improved profitability, better geo-localization of branches and improved profitability of individual branches.
This is a tricky transformational project. It has never been done in the history of this bank.
Likewise, for client value management, we are bringing in improvement in credit fast-track governance and documentation, better, simplified credit process, better client acquisition, client mapping, better understanding of clients' -- customers' journey, better identification of the most important client and prospects. So here, the idea is how you allocate your resources better, generating a much better, deep multiproduct relationships with your client. I'm talking to investment corporate banking.
We have come to the conclusion we can do much better particularly as regards mid clients, it's a big market in Poland. Unfortunately, we are not top 3. We should be top 3 and that's why we are investing. We are growing almost 20% in this regard. You can realize much better returns than fast-growing local companies. And because of our presence, our product offering and the fact that competition is there, you also see a very good market opportunity. We want to be in this market and we want to invest more.
So we aim to boost our number of existing clients by 1,000, maximize employee time on client engagement and commercial activities instead of unnecessary internal bureaucracy. Client activities steered towards client -- towards maximization, better processes, better cooperation with our risk department.
In terms of other transformational projects, there's been already 50 processes identified and executed as regards automatization and simplification. This has to do with both products such as new current accounts as well as back office functions and processes. So we are making quite a bit of progress, which helps us not only improve our processes, but also release labor force.
In terms of progress achieved, we have been able to speed up credit approval processes starting with consumer loans, which, in our view, will help boost sales very quickly and is already actually underway. And strategic target would be also to unleash value both retail as well as [ micro ].
We will put greater focus from now on, on SME as well as corporate banking. We will have, as I said, first positive effects of labor force release already this year, significant savings of PLN 100 million starting next years from our cost base.
Further delayering, we are becoming much more flexible as an organization, much more -- less bureaucratic, agile. People start working in Agile, innovative, being able to introduce new products quickly and much better integrated. We are quite unique in Poland where we can -- we have the widest product offering, in my view, of all banks starting with student loans where we also actually are doing very well. I think we have a slide later on that shows you how much progress we've done with young people, 13 to 17, leading to the most sophisticated [ LBO ] financing. So I was recently in a meeting with one of the largest global private equity players. And he said that in terms of structured [ LBO ] transactions, there's no other bank that can beat our product offering in PLN here in Warsaw. So this shows you the vast capacity that we have in this regard and product expertise -- knowledge of our people.
So coming back to Page 12 -- I'm wondering if analysts want to go through awards and events slide. No? Awards and events, recognition by market and industry experts. Maybe we skip this.
But coming to our slide on Slide 12, year-on-year, we are growing 8% in loan growth. This is within the strategic range where in November of 2017 we said we would be growing 7% to 8%. Strong commercial revenues, very good cost dynamics. We are growing below inflation, below CPI inflation, which gives a very good expectation of us being able to go below 40% cost of income; cost of risk at very low levels and disrespecting (sic) [disregarding] the BFG charges, we are achieving 9.1% ROE.
We still are upbeat and we confirm our guidance as regards ROE for 2020, which should be at 12.5% assuming stable interest rates.
So now I will ask Tomasz to go through detailed financial performance, and I will come back to you on business development and our plans.
Thank you very much. So we recorded a net profit of PLN 242 million, heavily impacted, of course, by the regulatory charges, which more than doubled. This is more than PLN 200 million additional cost in this quarter. But if we would forget a little bit about those regulatory charges, it would be a great quarter, a solid quarter of net profit delivery, mainly over 13% -- 14% practically dynamics mainly due to 3 things. First of all, very strong revenue growth in core business. This is around 10% in core business. Second of all, strict cost control and risk control. And third of all, some pickup in volumes, continuation in retail and the pickup in corporate volumes.
Now if we look at the gross operating profit, it went up by 9%. And the dimensions, positive growth effect is something that is driving this profit. So revenues going up by over 5% and costs being, let's call it, flat. Some of the cost items that we have got are related with KNF charge. This charge has doubled so without this charge, we would be decreasing in costs. We'll go into that.
If we talk about revenues from the next slide, you can see that core revenues went up by 6%. If we decompose those -- these revenues year-over-year growth between, let's say business, lines, you would see that retail is growing more than 12 -- has grown 12% and total commercial bank by 10%.
Where revenues have increased are mainly in, I would say, treasury. So first of all, we have a lower sale of AFS portfolio by around PLN 10 million. And then we have a lower yield on the bond portfolio because of the bond that repriced last year and because of the bonds that we sold last year. This is more or less PLN 20 million, let's say, year-over-year lower income from the securities portfolio with a lower yield by, let's say, 20 basis points. I think we reached the minimum level there where our yields are now close to the market ones. We're waiting for the market to a little bit pickup and looking forward for better revenues also in this side.
Then moving to net interest income. NII is growing by almost 8%. Our ambition here is to probably reach double-digit growth by the end of the year. At the same time, we recorded 4 bps increase in margin and a flat margin quarter-over-quarter.
And then NIM evolution is presented on one of the bottom graphs where you can see that actually the commercial impact related with the positive asset mix and the growth of the margin on the lending side and on the deposit side year-over-year is offset by mainly the bond portfolio. And the same type of growth you're seeing on -- if you look quarter-over-quarter, we also had a positive impact of around 2 basis points on the business side and it's been offset by the drop of the yield and higher liquidity level in the first quarter. So we had a little bit higher growth in deposits, which were invested in securities. And this has, on average, a lower margin than the overall margin on the banking side.
If we look at the volume growth, we are continuing our double-digit growth on retail with special focus on the key products. So mortgages growing -- zloty mortgages over 11%; consumer loans, 15%.
We have recorded a pickup in corporate, especially in the last quarter. The volumes went up by over 2.3%. And we expect a pickup further in corporates, maybe even reaching double-digit growth by the end of the year.
If we look at the deposit side, we're continuing or even speeding up in the growth in retail. So retail deposit is going up by 13% year-over-year. We continue optimizing the funding structure, so much higher growth in retail. And that consequent, I would say, maybe not deleveraging, but keeping constant rating on the price on the corporate.
Mutual funds are going up by 6% despite a tough situation on the market and gaining market share.
If we look at the fees then. Fees went up by 2.6%. There were 3 positions, which were quite strong: so they're card fees, which we built versus last year; over FX where we're concentrating a lot of costs out, they went up also double digit; and there were lending fees, generally, mostly related with the corporate pickup.
A tough situation on the mutual funds market. The market-related fees were down mainly because of the brokerage. The brokerage fees were quite weak this quarter. And also we have -- we are seeing customers migrating to electronic channel, which is always putting a little bit of a pressure on the current account fees. But generally, fees dynamic, 2.6%. Recently, we've been seeing a dynamic of almost 4% and our ambition is for sure to exceed the 4% growth on the fee side.
If we look at the costs. Costs were flat year-over-year, especially due to HR costs. They were impacted positively both by the voluntary leave program and some one-off reduction in the first quarter in the variable compensation part of the fee and lower provisions simply than the previous quarters. You had some effect of moving costs due to IFRS 16, that's some PLN 30 million between amortization and non-HR costs. But generally, those 2 positions grow by around 4.8% year-over-year.
As you know, we also introduced the redundancy program. We agreed with the union of people that will be 2 groups of people that will be touched with those programs with some 900 people that will definitely leaving contracts and with 620 that will be leaving -- there will be changes of contracts. The provision that we have announced in our current report is somewhere between PLN 70 million and PLN 90 million covering both of those two. And we expect within the next year of around up to PLN 100 million lower HR costs due to this program.
The last maybe not so pleasant, but issue related with costs are the regulatory charges, which, as you know, doubled. There are 2 elements that are impacting us on the regulatory charge. One is the very unfavorable structure of contributions toward BGF (sic) [ BFG ]. So there's a much bigger contribution versus last year and versus the target structure of funds towards the resolution fund, which is a one-off. And such a structure is penalizing banks that are generally having higher corporates there because it's -- the basis for establishing the contribution to individual banks is based on end of 2017 data. So there is a lag of 2 years for distributing. And the basis are liabilities excluding covered deposits and then excluding equities.
So at the end of 2017, we had quite high market share of corporate deposits. We've been reducing that quite systematically during the next years.
And our expectation is that, of course, the overall contribution to BGF (sic) [ BFG ] will be increasing during the next years, but we expect our contributions to fall not only as a percentage of sector, but also in nominal terms because of lower share in corporate deposits and some deleveraging in already in 2019, but also because of the structure of the contribution, which is more favorable for us for the next years.
In terms of risk. Cost of risk, 35 basis points, a very, very low level here. We would maintain our guidance given at the beginning of the year that the cost of risk will be somewhere between 40 and 45. So this is simply a very good quarter as it was in the first quarter last year. You know that we also closed some NPLs in the first quarter that was another 5 bps impact on top of this 35. So with the sales of NPLs, the cost would be around 30 basis points.
Capital and liquidity are -- remain at stable levels, so Q1 at 15.5%. If we include the 25% profit, it would be around 16%. Total capital ratio, over 17%. Quite decent liquidity ratios, over 140% in LCR. And loans to deposit below 1. So here, everything under control.
Yes. So summarizing, we think that this was, of course, excluding those BGFs (sic) [ BFGs ] not -- contribution that went up depending -- that was quite a solid quarter of results. Without BGFs, the net profit would grow by 14% year-over-year.
That was thanks to good commercial revenues, 10% growth especially in retail. We also are speeding up verily in client acquisitions. So not only good results today, but also investing in the future of the bank.
Acceleration in the lending, especially in corporate. So very good dynamics in retail and acceleration in corporate.
Strict cost control, and this is the third quarter in a row where we are showing very good cost dynamics and the positive jaw effects.
And as you know this is a transformational year for us, and we're continuing this digitalization and finalizing of the projects that Mr. President was presenting to you. So this everything, and thank you.
Yes. Thank you, Tomasz. So in terms of where we see business development, if you allow me maybe a couple of minutes. First of all, Slide 27, strong robust volume growth across the business lines, of course, the highest with retail and SMEs. We're talking year by year. We do see a very strong growth in corporate. As you recall, we had a little bit of a slowdown in growth in the past quarters and this is mainly due to repositioning of our balance sheet, meaning a greater focus on mid-segment. We have a cut down exposure of some of the least profitable clients including public, municipal and some of the large caps.
We, too, have ROE, which is -- we have ROE maximization as our main indicator and therefore decisions taken. But we believe this is all under control, given as I was saying a minute ago, in corporate banking, we see actually very strong pipeline, good product penetration.
In terms of retail banking, 27 (sic) [ 28 ], on mortgage lending, second undisputed position in the market in mortgage lending. But since you see the numbers in graphs, maybe just quickly through -- I will go through selected commercial initiatives. So we have been able to launch new credit workflow improvement. There's much greater automatization of mortgage loan agreement using the data that has already been previously collected and introduction of some kind of calculator for our relationship managers for the sales force, for advisers plus pricing policy maximizing profit. This left a boost of 18% revenue growth and a reduction of 60% of paperwork required.
On cash lending, our -- Pekao is 70% higher year-on-year as regards volume growth in the entire sector. So quite a strong growth here. You might argue and we can cover some questions about the past 2 quarters. We actually think an introduction of new tools, risk tools and greater automatization will provide greater boost to cash loan sales in the coming weeks and months and we already see a breakthrough in this regard.
Let me also stress something we have discussed again in this room -- already in this room is we are still not matching the most aggressive of our competitors as regards risk for cash loan products. So we are only increasing gradually our risk appetite. We have decided we first need to have all the available tools to be able to grow massively, but we think there's still quite a bit of headroom and market potential in our cash lending product.
We also have a good pricing tool, increased availability of preapprovals and the new credit workflows. So this leads us to stronger revenues, 4x higher than revenue growth versus 2017.
In terms of customer acquisition. Again, we are very happy. We think we are on a good path to actually surpass 400,000 new current accounts this year. We are also gaining market share in mutual funds where we grew our AUM.
We think we will, as you know the space very well, investment product sales is still under pressure given the market situation. We actually had a new person on the Management Board overseeing investment product, making sure we cooperate better between the different entities to the product origination and structuring as well as sales and we are working on making our product offering simply better for customers and clients. The new sort of structured products with capital guarantee are actually selling quite well.
On bancassurance, assurbanking. Our cooperation with PZU increased CPI penetration. The mortgage increased CPI penetration to our cash loan product, actually quite growth here. And you can say, from a very slow base, we do see improvement as regards new customer acquisition through assurbanking with PZU. So I think it all works very well, including the fact that we now offer sort of special offer to our client accounts available in 100-plus branches of PZU in Ukraine. New assurbanking offer is through PZU channels, online channels of our multicurrency card for people who purchased travel insurance with PZU ahead of summer vacation. So quite a big improvement here, but there's still a lot that needs to be done.
In terms of corporate banking. Again, we think this is a very solid pipeline, good culture of cross-sell. Time will just need to pass until the whole organization is in a good shape and prepared and this translates into an even greater deal flow of profitable business for us.
As regards SME banking, we think very strong growth. A lot has been done in terms of streamlining of processes. A lot still needs to be done. Don't forget, we are improving the processes. We are introducing new front end for customers and clients including in SMEs. We are improving the risk process. We are adding a lot of product specialists throughout Poland to our SME RMs and -- SME RMs and corporate banking RMs. So there are much -- the intention is for our RMs to be much better equipped -- first of all, much better equipped with information coming from different sorts of databases, being able to have much more thoughtful discussions with our client. The idea through our credit value management is to have a greater mapping of client needs, better client selection focusing on the most profitable relationship both ways and clients that have ambitions to grow even further and use our banking capabilities and product capabilities at scale. This will, of course, require personnel changes. We are hiring from the best corporate investment banks including outside of Warsaw in the regional centers by the big wave of new people coming from the best banks. Greater focus on jobs and positions facing the client. Still a lot to be done as regards to back office functions, streamlining in corporate banking and SMEs and a greater cooperation model with risk without unnecessary duplication of filling out the forms and duplication of everything required for the risk approval process.
In terms of other things to highlight, I don't want to maybe go too long. I think we already discussed leasing and the record in Slide 34 and the best improvements we have in leasing and factoring. Actually we're growing by a stunning 51% in leasing. So quite a great improvement there. Through a better cooperation with the bank and personnel changes at leasing, we've been able to achieve very good earnings growth as well as in factoring. I think there's still more that can be done on treasury products, but we do see great improvement of 12% in FX revenues from corporate.
We didn't have a chance to discuss with you our digital innovation initiatives. Let me just flag some numbers. So first of all, we've been able to grow by 18% log-ins to PeoPay, 20% mobile money transfers, 8% term deposits through electronic channels and an increase to 36%, I think I already discussed this increase of 36% of consumer loan sales in electronic channels. This is all, of course, bearing fruit.
In general, we will be investing even more in our payment app. I'm personally a strong believer of payment apps and a strong believer of our payment app. It has very interesting biometric functionalities. Clients like it. It's very handy.
I discussed a lot with industry experts, I've been recently traveling and meeting our peers in Europe, Asia and the United States last week and we discussed about the different trends for banking, for payments, branches and apps in general. So you will see I think more positive surprises from us in terms of payment that we will be allocating greater resources, adding new functionalities, adding new products and using payment app also as a tool to expand overseas, I mean outside of Poland. But there's more to come in the future.
So again, to wrap up. Of course, we had an unfortunate event with increased BFG contribution, which is affecting our numbers negatively.
At the same time, we continue to show good trend in terms of revenues, volumes and profits across the different businesses. So this is number two.
Number three, this is a very transformational year for the bank. Our personnel needs to both be able to deliver very good, in some cases, such as retail bank records record growth and transform the bank at the same time.
We think transformation is already bearing fruit. We've been able to automatize 50 processes and there's greater cross-sell in some of the products that have fully gone digital.
At the same time, we do expect through hard cost -- employee cost through redundancies as well as in time costs and streamlining of processes, we will be able to show substantial financial savings starting next year but generating substantial value for investors.
So thank you very much. I think that's it from us. At this time, happy to take any questions you have.
Let's start first with the questions in the room and then we'll follow up with those on the line.
Maybe a question on the resolution charge because it seems that not only The Street was unfavorable for you, but also the level of the resolution funds charge was quite high. And I was just wondering, do you understand what was the reason why the resolution funds charge was at such high level?
Partly. The methodology for establishing is not very, I'd say, simple. It's taking a lot of things into consideration. But in simple words, we looked at our market share because, first, a good thing to remember is that in order to -- once BFG establishes the level of the charges for the banks for 2019, then they distributed the amount in banks and they use actually a year -- data from 2 years behind. So the end of 2017 data was the one being the basis for setting that.
So when we looked at our data, we had, for example, a peak of market share in corporate deposits exceeding 14%. Now it's closer to 12% at the end of 2019. So this peak was actually one of the reasons. And I would name this as the main one.
And if you think that some of the banks have disappeared actually versus 2017, their resolution fund was actually allocated amongst the other banks with another contribution. And then if I look at the year forward, then it should go down. So I'm expecting actually that even at such a share of contribution would be maintained for 2020, I would expect still that nominally, I would pay less than this year. But I expect that the general contribution structure will also change.
Well, you see, I think there's a couple of elements. So first, well, indeed, we were taken by surprise. Second, it's not nice to see roughly 7%, 8% of your last year's reported profits to, what is the right word, to evaporate. Of course, we do have -- we are a bank operating in this environment and we are fully compliant and we will not be appealing to the decisions.
At the same time, you know well how decisions are taken, what the methodology is. Because of the sizable number of corporate deposits in 2017, we were affected, most of all banks. We, however, see that our characteristics will change and has already changed, which makes us believe we will not be the odd one out standing out and being affected that much.
There is a lot that needs to be improved, in my view, also as regards to timing and consultation, both for BFG [ letters ] as well as kind of decisions on dividends -- consultations on dividends and margin buffers because we -- it's not only us, but of course, investors community and you should also not be taken by surprise. So we have been actually, first of all, trying to understand the methodology. We have been sharing our view as well. At the same time, we would probably encourage the regulators to be able to advance some of the decisions because increased contributions at the time where budget is happening through then there's market guidance, et cetera, do not help. And this is not about us, I think this is for the entire sector.
So this is, indeed, something that requires some work because it's not only about the overall profitability of the sector. I wish we had higher profitability, I wish the sector had higher profitability. And we should probably not be measured up against European banks. That's -- 40% of them do not make for the cost of capital. But against the best banks in CEMEA and some of the top banks in the world. And while everyone of us can do simple calculation, if it was not for the banking tax as well as increased contribution to BFG we'd already be at 15% -- 16% ROE bank. I think in general, we think there's question of profitability.
Second question is the question of predictability of such decisions and this is something where we also spend some attention and have very good discussions in terms of us being able to flag it with the regulators.
Two questions on costs, if I may. Would you mind splitting the savings on personnel costs by this voluntary leave program that happened last year? And how much was there a drop in variable compensation?
Variable compensation was a few millions, at PLN 30 million. And the other effect was voluntary leave. Those effects are mixing a little bit because in Q1, we also hired some additional IT people, which bring additional costs, but with the voluntary leave program, we have reduction and we managed to reduce in total. The variable was like a provision.
And maybe just a few words about the margin outlook for the loan corporate.
Yes, we expect to keep the guide. So we want NIM to grow, total net interest income may be even double digit or with an ambition of double digit. We want to keep our guide on the NIM, so that year-over-year we will be increasing by at least 1 quarter. So somewhere between 4 and 8 basis points increase in the margin in the next years, which will be a function, first of all, of positive contribution of the business. Of course, if corporate speeds up then the asset mix effect will be smaller, but we are also improving the margins on individual loan products, then I don't expect any more drops on the security even versus the first quarter some positives on the securities because we've been waiting enough to reinvest some of the bonds that matured because the yields were very low. They have fixed operation fees, so there might be positive gains on that.
Question about fees. Because you mentioned that you want to grow more than 4% year-on-year in fees. And what period do you refer in that? And is it possible without an uptick in capital markets fees?
Pawel, can we will switch to the fees slide? Right, so if you look at our fees dynamic during the last quarter year-over-year, that is the chart downside and it's eliminating some accounting impact that we had last year, which was moving the fees either between NII and fees and commissions which is no longer there this year. We were having a dynamic somewhere between 3% and 4%. And on this side, the model was -- the capital market fees, let's say, were impacted by, I would say, by brokerage activities, mainly lack of execution of transactions in the investment banking area. Simply, some of the transaction relates to here, I would expect that we are able to rebuild this in the next quarters. I'm quite convinced that we will be able to keep good the dynamics and FX fees, on lending fees and on card fees. Current account fees, probably this is a line that will be more flat, the one on the top. I hope I answered your question.
With those group asset, you were pretty vocal about not being interested in the assets of the [ Górnoslaski ] bank. This seems like a big risk for the sector. How do you see the situation evolving because I think regulator and Prime Minister both hope for some private market solution, but as you mentioned, you are not interested and I do not see other Polish banks interested or being vocal about it. So how do you see the situation evolving?
So thank you for this question. But let me just say I'm CEO of the bank, not a commentator, right? So I will need to be very aware of the fact that there's -- there are limits to what the comments can be on our side. At the same time, first of all, we remain and nothing has changed since my Bloomberg interview last week. We are not interested. We are not in a way actively pursuing. We don't think there is strategic rationale for us. So we have not been involved in processes that were -- I mean the market M&A processes that were publicly talked and discussed about.
Second of all, in general, I am of the view that this has become somehow a protracted story and a protracted process because it's not only the last past months, but it's been a couple of years of some uncertainty and not perfect performance. And maybe I will stop here.
Now in terms of the future, I really need to decline here to comment because, again, I don't think this is our job to discuss the future of other banks' assets. From my perspective, we are not interested, of course, and I agree here with the Prime Minister, market's solution -- and I already said it on the Bloomberg interview last week, I am of the same view, market solution would be the best solution -- markets solution. At the same time, it's difficult from a private equity funds' perspective and public markets' prospective to make the expected returns. Because even with, say, super healthy, fit banks and we consider ourselves a super healthy, fit bank, as you can imagine, we wish we have been able to present to you 16%, 17% ROE today and we cannot. Some of it is because of our still-unfinished transformation, but some of it is because of regulatory charges. So finding a market solution in a sector that doesn't make, on average, is very equal -- is very close to making further cost of capital. And even the best banks of subsidiaries of one of the best global banks doing exactly everything by the book with great business models, Polish very good demographics, banking sector penetration, ability to buy innovative banking products, even with all of the low cost of risk approaching 40% for best-in-class banks, all the features you might have, even the best banks are not able to make an ROE of 15%, right, which means that it's difficult to attract the necessary capital.
Last see this player enter this market 9 years ago and since then we'd rather have players looking opportunistically at less healthy assets and not a serious bet on the market. So what I'm getting at is I think it is difficult to find a market solution in an environment that doesn't help the market get the market return. And maybe I will stop here.
Tomasz, do you have anything to that? Does that answer your question or not really?
Yes. Thank you.
Do we have any more questions in the room? Otherwise, we'll go to the questions on the line.
I guess not. So first question and a couple of those from analysts from London, first coming from Autonomous. If we can then provide estimate, what sort of cost savings do we expect in 2019 already with the recently announced headcount reduction program.
I would more concentrate on the 2020 cost reductions because the ultimate dates of those release will be somewhere in October, if I remember well. So we are talking about some impact in the fourth quarter of this, which will be probably offsetting more at this stage some of the hirings and specialized packages like IT that we want to make at the rise of -- the annual raise of salaries that our customers are having and then more effects in 2020.
Two more questions coming from Morgan Stanley, and this relates to MREL and debt issuance. Do you anticipate any debt, potentially subordinated debt issuance in the future?
So I think that still the market conditions in Poland and subordinated debt are quite good. We've really been having late issues during the last 2 years, around 150 basis points for subordinated debt, I think that is the a nice price. So we might consider continuing still using the local market for those.
And then we don't plan MREL issues apart from subordinated debt this year, so once the date of the final entrance into course of MREL will be, let's say, stabilized because there's been also some discussions in the European Parliament of moving this date forward, we'll then set the final stage for the nonsecured issue -- nonpreferred senior.
And the last one also from Morgan Stanley relates to dividend. How long do you intend or are you willing to maintain the payout of roughly 75% from 2018?
Thank you. We've anticipated already that we will be moving in the higher ranges of the dividend policy that we've presented for this year and for next year, if you look at it from the capital ratio of perspective, if we include the 25% profit for 2018, we would have Tier 1 close to, let's say, 16%.
Then our annual growth is consuming more or less, let's say, 100 basis points of capital and then with 25% net profit [ leaving ] every year, that's giving a positive effect of another, let's say, 50 bps. What I'm saying is that we will consume more or less 50 basis points due to the growth and due to the 75% dividend policy, which within 2 years we should reach our 14.5% Tier 1 ratio.
That's it in terms of Q&A. So we would like, again, to thank everyone for coming in and joining us on the line and obviously solicit questions also.
Thank you very much. Very humbled that everyone is here today.
Thank you very much.