Bank Polska Kasa Opieki SA
WSE:PEO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
136.15
190
|
| Price Target |
|
We'll email you a reminder when the closing price reaches PLN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good afternoon, everyone. It's 12:00 here in Warsaw, and we warmly like to invite you to our Q3 results of Bank Pekao. As always, I'm joined today with our CEO, Michal Krupinski as well as Tomasz Kubiak, our CFO of the group. And in a usual pattern, we'll go through key highlights of the quarter, our strategic progress and then we move to a detailed discussions on financial performance of the bank.
So with these few words, let's kick off, and I will pass to Michal Krupinski to open the presentation.
Yes. Thank you very much. It's after 12, so good afternoon to everyone here in Warsaw and also people joining on the line. We think we had a quite solid, good results in the third quarter. And so far, we have achieved very good strong momentum in the first 9 months of 2019.
Turning quickly to pages, Page 3, strong momentum in revenue growth and very good cost control, which is in line with our strategy. I would like to draw your attention to the fact that we have, again, met the strategic goal of 10% recurring profit growth. So double-digit profit growth and very good ROE for the third quarter of this year of 11.7%.
Good expansion in lending volumes. We will go into the details in terms of the split in lending volumes in a minute. But it's almost double-digit, 9% expansion in lending volumes, which is reflected in a 12% growth of commercial revenues and speaks to the fact that we are increasing cross-sell, and we are increasing -- particularly in the corporate segment, we are increasing a ratio between noncredit and credit revenues.
We have been very disciplined as regards costs. So cost is below continually -- or continuously. I think it should be actually continuously in the translation. But continuously, we are below CPI inflation. And this is despite of the fact that I believe we spend an adequate amount of resources on internal transformation. So despite of the fact that we do spend quite a lot on upgrading our IT systems, making sure that it is easier to switch to digital, we still maintain very good dynamics as regards costs.
We had a record level of customer acquisition in retail, which is reflected in the numbers. So 134,000 new current accounts, which is growth of 18% year-on-year, and 244,000 new active mobile banking clients.
Turning to Page 4. So again, very strong growth in commercial revenues. 13% gross operating profit growth. So the positive jaws between revenues and cost is at work and good double-digit lending expansion, which we think will be sustained over the next quarters.
Turning to retail and private bank, very good strong pace of commercial activity. I would particularly like to draw your attention to a couple of things, which is, first, commercial revenue growth of 12%, 16% revenue growth in mortgage and lending aggregated. Good deposit volumes increase, which is related to a record-level acquisition. And when we talk about acquisition, I would like to draw your attention to the fact that we are particularly scoring very well in terms of younger clientele. So our Konto Przekorzystne for younger customers is actually in terms of acquisitions growing much faster than for clients above 26 years of age.
In terms of other very important numbers, which also increased fees for us, I would like to draw your attention to a much better penetration of bancassurance, growth of 73% year-on-year, which is mostly related to very good insurance penetration within our mortgage product as well as merchant acquiring where we have launched a new number of products. We are supporting the program for Cashless Poland, and we grew 56% in point-of-sales terminals.
I already told you the fact that we are growing 18% in gross sales for the new current accounts and 26% for clients below 26 years of age. Our new process for opening up accounts using selfie has actually had a stellar record, a very good feedback from customers in Poland and internationally. It is also now possible to open an account by selfie if you are a micro enterprise. And we will also be rolling out this functionality for other groups of customers.
So moving to where we stand in terms of digital banking year-on-year, this is Page 6. Year-on-year growth of 36% in clients of -- for mobile banking. We will be investing even more in our mobile app, and the details will come very soon. Starting first quarter of next year, we will make additional investments into the mobile. We are strongly convinced that this is a very good -- first of all, it's a very good product. Second of all, we're strong believers in the growing importance of our mobile app and any bank's mobile app for your retail customers and moving towards a super app. We will be increasingly investing even more in what we call PeoPay 3.0.
We have also increased penetration of loan sales in digital from 31% to 36%. It's still not the level that we want. We think we will increase even higher. We have been investing in front-ends. Particularly, I'd like to draw your attention to our omnichannel approach, which we think is the best in the market.
Moving to corporate and SME banking. First of all, we have been very strategic in terms of picking the right segments of the market. I would particularly like to draw your attention to 3 facts: number one is very strong growth in what we consider to be the middle-sized clients, our mid parts of the market. There are sizable companies, Polish companies that we cover from outside of Warsaw. So not from Warsaw but we have a number of corporate centers, and we are -- and they are high-ROE clients. We're growing almost 20%, 70% growth in terms of revenues in our mid segment.
Good client acquisition as regards SMEs, so clients with annual turnover about PLN 5 million and spectacular growth in leasing, factoring and treasury products. So again, this is within the spirit of increasing cross-sell, making sure we have a very good ratio between noncredit and credit revenues. And we are particularly happy about the expansion.
We are also happy, you have us -- it's here on Slide 7, bottom left of the page. There's a graph that shows the increasing revenue per client and cross-selling for our corporate banking clients.
In terms of key commercial initiatives in the third quarter of this year, we have increasingly been trying to make sure that there's a very good cross-sell and penetration of the retail banking for corporate banking clients and vice versa. And this is also at work. So one of the example is expansion of mobile payments for corporate clients with Garmin Pay and Fitbit Pay.
In terms of most important transactions, we have named only a handful of them. But I would like to draw your attention to the fact that we are -- we remain the bank of choice for most sophisticated transactions, including structured finance, including leveraged finance and recaps for a number of clients, both Polish and international.
So to wrap up, Tomasz, our CFO, will guide you through our very specific numbers, but we think we had a good quarter, solid revenue growth, double-digit growth in net profit. It was not an easy quarter in terms of regulatory, and we will also speak in a minute as how we see impacts of ECJ rulings, both as regards to upfront payments as well as the CHF topic, how we see BFG, Polish resolution fund contributions going forward and the general macro environment. But we think we are on the right track to fulfill our strategic numbers and expectation for this and next year.
Over to you, Tomasz.
Thank you very much, Michal. So starting on the strategic review. Those are the main KPIs -- achievements in Slide #10, which I think Michal has summarized. So efficient, a very good quarter in terms of acquisitions, a very big focus in corporate and mid customers and SME customers. This is the areas where we were growing. We're also improving the sales force effectiveness, the revenues per customers or the revenues per FTE. All those metrics are improving, as you can see.
On Slide #11, those are the standard path of our strategic targets. So I would say the main points are on track, both in terms of revenues, dynamics of the business, of the volume growth, of the cost dynamics that we are seeing. It's important to note that this year, our ROE is pushed down by higher contribution to BFG, restructuring costs and also then provision made for the European court ruling on consumer loans.
Moving to a detailed financial performance. So that's Slide #14. As we achieved the net profit of PLN 1.481 billion after 9 months, this quarter is PLN 656 million, nominally higher than the third quarter last year. But also on comparable basis, we're growing at the speed of about 10% recurrent profit. This profit -- this quarter has been supplemented by a provision of PLN 29 million on the ruling of the consumer loans.
Now the key drivers of our revenues, that's I'm sure a significant and a visible increase in the dynamics of revenues. So we are speeding up revenues, looking at the dynamics quarter-over-quarter since 2018, that's an 8% dynamic in revenues. And also, costs are kept under control. We are still keeping costs below inflation, and those are our strategic targets and that positive jaws effect that was mentioned by Michal is one of the key elements that is driving our growth.
Now when speaking about revenues, I'd like to mention a good dynamic of core revenues and also the great dynamic of our business revenues. So business is growing at a speed of somewhere between 11% and 13%, corporate 13%, very good dynamics. We believe they are sustainable. And that's the main driver of us achieving our strategic goals also for next year.
What has been pushing us in terms of revenue dynamics last year -- this year is for sure the lower sales of available-for-sale portfolio. And we don't expect here big hikes during this year. We've been also having some repricing of the investment portfolio following the sharp decrease in yields that we observed on the European markets and Polish markets this year. And some repricing effect was visible also in our NII. But this repricing, I would say, is over. And as you can see on the chart, the margin has stabilized.
Now in terms of NII growth quarter versus quarter. So versus last year, we've increased the speed of growth in NII. So it's almost 11% right now. NIM is flat quarter-over-quarter, but that's an effect of 2 things. First of all, that some of the fees are taken out from NII following the European court. So that's the consumer loans effect that was already present in the books in September apart from the provision. And we had some closing on one of the workout agreement, which penalized for around PLN 4 million, the NII. But apart from this, loans are quite having good margins effects. And we are seeing the effects of repricing on the deposits that was mentioned. So without those, let's say, one-off effects, margin would be growing. Perhaps the good dynamic on corporate loans is also not helping the asset mix, but generally, NII dynamics is something we are very happy with.
Now in terms of what is driving that is, of course, the loan volumes. So retail growing at the speed of 9% and corporate 7%, overall growth in loans 8%, but very big focus on core products or core segments. So as it was mentioned in corporate, that's mid-corporates and SMEs. In retail, that's consumer loans and P&L mortgages, all of those products growing double-digit.
On deposits, we are concentrating on the growth of retail as it was in previous quarters, but we're also working very hard on the margins, both in corporate and retail. So in retail, we're having a big push coming from the current accounts, which are having good dynamics. But we are also working on the pricing on term deposits. While on corporate, we're very focusing on repricing term deposits and not taking liquidity when we don't need so. But overall, we're happy with the dynamics and also with the increase of retail funding in our books. That should help us not only in the margins but also in BFG contributions if the proportions on resolution fund would be kept as they are recently kept.
On the fees dynamic versus last year, we are growing almost 4%. So we're coming back to the dynamic of 4% on the fees. And we believe this is sustainable. Year-over-year, the dynamics is 3%. We're growing in FX, we're growing in cards fees, we're growing in lending fees. Those are the main contributors that are helping us to grow in the dynamics fees. And it seems to be going in the right directions.
In terms of costs, costs are growing, excluding one-offs, year-over-year, with the dynamic of 1.6%, slightly higher this quarter, dynamic 2.3%, but still well below inflation. So I think we spoke a lot about restructuring, about a lot of cost initiatives and also about investment initiatives and what is working out as we are really keeping those costs well under control.
In terms of cost of risk. Cost of risk, as you see, NPL ratio kept flat at around 5%. Good coverage ratio, so coverage keeps to be quite high. And I must say that this is something that is very important for us during this quarter because you see 2 quarters of cost of risk, let's say, below the average that we've been seeing in the last quarter, so 46 basis points in this quarter. But what is very important for us is that we want to keep a good level of coverage, especially before any slowdown would keep us. So despite the fact that the cost of risk is after 9 months 41 basis points, we would still guide you somewhere between 40 and 45 because we are trying to keep a nice coverage in the portfolio.
In terms of capital ratios, Tier 1 at 15.5%; total capital ratio, 17.2%; LCR, 125%. All those ratios are showing that the bank is run in a safe way, in a balanced way and keeping the buffers to be in the position to even speed up the organic growth.
Referring to the latest risks that have -- at the -- that have been showed out after the third quarter, we should mention 3 things. First of all, something called the small -- TSUE as we say in Polish. So the European court verdict related to returning the fees on consumer loans when the customer is repaying early the loan.
First of all, I would like to point out that Pekao is well positioned versus a lot of other banks due to 2 or 3 things. First of all, our fee levels have never been high for the customers. So we've been always paying quite -- charging quite low fees on the consumer loans. We've been far, very far from the most aggressive customers. So this is why we think that the impact for us will be quite limited on this. Second of all, the share of the consumer loan portfolio has been relatively small versus the share in the loan portfolio. And you can see this presented on the chart on the right side.
And the last element is that we see -- and we made a provision of PLN 29 million for the returns of the last year, but we estimate that the impact for next year should not exceed PLN 100 million on the net profit. Although I would like to stress that that's mainly an accounting effect that will be reversed fully probably a 3-year horizon.
Just to let you understand, the fees that were taken -- that are taken on consumer loans are spread in time. When the customer was repaying early their loan, the fees went automatically -- the remaining unaccrued fee went automatically into the NII. So that's a reason why NII will, let's say, quickly feel the pain on this in the sector. However, in our case due to low historical fees and relatively low level of fees, we are quickly able to regain that element. But of course, it takes time because those fees are accrued in time.
The second element is the Swiss franc mortgages. And here, that's a risk, let's say, within the sector. Although we assess that legally, the European court verdict didn't make a big legal change. But of course, it makes the change in terms of attitude. And we have no provisions on the portfolio level related with this verdict at this stage. Of course, we are provisioning individual cases upon the probability of their winning or losing but no portfolio approach. And the discussion on this is being -- has been started in the banking sector as well as between the auditors. And probably, we will have the outcome by the end of the year of the first outcomes of this discussion. So this is something still in front of us.
The last thing is the BFG contributions. As you remember, we have been assuming that the BFG contributions should fall by around PLN 100 million for us next year, and we've been assuming this upon the main assumption that the proportion between the resolution fund and the deposit guarantee fund will be reversed backwards from a one-off contribution this year to the levels more or less visible historically or levels related to the target structure of those funds, so more or less 30% to 70%. And our bank has a liability structure, which makes us quite dependent on the general structure of those funds.
Now upon some preliminary information that the banking sector is receiving, it seems that next year, those proportion of contributions will not be the target ones but still the percentage of the resolution fund will be, say, significant, so either similar to last year or maybe a little bit less.
So due to this, probably PLN 100 million will not be possible as a positive impact, although we do still assess that the general contribution to BFG will be lower this year -- next year versus what we paid and what we will call next year, yes.
Okay. So summarizing the results, I think this was a very good quarter for us, so 10% dynamics of recurrent -- recurring profits followed by good growth in volumes, 8% growth in lending volumes, very good business revenues income. That was a very also successful quarter in terms of acquisition of new customers. We have increased very significantly the acquisition. We have also very much increased the acquisition through electronic channels and mobile active customers. And that's positioning us very well in terms of forward-looking evolution.
Thank you.
Thank you very much, Michal, Tomasz, for your commentary on the Q3 results.
With this, maybe we'll open now for the Q&A session. And as always, we'll start with the questions coming from the room and then we'll pass also for those addressing questions through our online channels.
So maybe one question for me on cash loans -- on provision rates for the cash loans. Could you provide the details and assumptions you took for calculating of this provision? I mean the provision was only 29 compared to the annual impact of up to PLN 100 million, let's say. So the question is what percentage of clients did you assume will apply for the refund and what way of calculating, whether the time or capital base for the refund.
We took a -- so referring to the last page, we took the more conservative one, so assuming this one but the final turnout will be there. We have taken a period since 2011 in terms of period of the returning. We have assessed the probabilities of the return of customers, depending on the amount and of the time. So if the amount is high and the time is relatively, let's say, new or not long, then the probabilities were the highest, say, 20%, let's say. If we had a small amount, then those probabilities were lower. So that was a big work on the analytical team. We also looked at all the historical returns that we were doing following any events that were taken. And that was, I think, even more conservative. What I would like to stress is that historically, and I think that's the most important factor, historically, the fees were quite low. So the fees were often 1% at this level with -- if you look at our average size of the ticket, it doesn't make the amount that high. And I think that's a big discretionary factor. Then the biggest effect, as I was saying, is the accounting effect at the end of the day, so that something was put upfront -- or not upfront but one-off, let's say, into the P&L, which will no longer have pace, although that's also a conservative assumption. So I will say it will not be more than PLN 100 million, it might be less.
Maybe a follow-up on the consumer verdict impact. The PLN 100 million, this is pretax or post tax?
Post tax. Up to PLN 100 million.
Maybe one more follow-up question on this. So what is the way you want to, let's say, rebuild the loss from -- coming from this, I mean, from the revenue side? Or do you want to find some savings on the deposit costs or in the other areas?
That's -- at this stage, it's not that easy to say how this can be, let's say, offset. In a longer term, in a longer term for sure, working of the fees or taking down some promotions on the fees might be possible. So giving such an example on the press conference, where a lot of the effects of that impact is related when the customer is rolling over a loan. So for example, he's applying for a higher amount of the loan. Now usually what was the case is that he was repaying the original loan and taking a new one. Now the way we were acting usually on this is that we were not charging him with a fee or we were charging him with a very low fee or a promotional fee on the new loan because he was repaying the old. Now in such a situation when we will give back part of the fees, probably we will not keep the promotion on the new one because at the end, the fee should be, let's say, constant for the safe life of the loan. So those are the type of, let's say, economic activities that we will act. But they will not have such a quick impact from the accounting point of view because nothing will be -- not be realized one-off as it was before, yes.
And I think also to address your point, well, we do see that the market will be compensating by, first of all, lowering deposit rates, which has been happening since a couple of quarters. And as well as we might expect repricing, which is also actually something that we have been doing since some time now.
So maybe a question on cost of deposits. You were able to cut the deposit pricing in the third quarter, and the question is whether you see any additional room for further cutting deposit prices.
I think that's an ongoing process. So especially in our case where a lot of our term deposits are not kept in the saving deposits form but our 3 to 6 months term deposits. So when we start, let's say, adjusting the pricing policy, it takes a little bit of time for the term deposit portfolio to reprice, both upwards or downwards. So that's something that is working differently. And that is, let's say, very privileged in a crisis type of situation, where if you need to reprice upwards, then you don't have such a fast P&L impact. But generally, it's something that will still have some positive impacts in the next quarters.
I would like to ask about the cost of risk because I think that they were quite high in the retail sector and low in the corporate segment, which is quite counterintuitive to the recent macro trends. And the second question, do you keep the target of PLN 3 billion of net profit next year?
Sure. So in terms of cost of risk in retail segment, we were doing some writing off of some of the loans, and that's simply created some provisions. So additional provisions in the range of few PLN 20 million. And that was the reason why retail was higher, not more defaults but simply writing off some old cases. In terms -- so that was generally the reason. And in terms of the level of cost of risk, okay, 46 basis points is maybe a bit higher than what you saw in the best quarters where we had 35 basis points. But I wouldn't, let's say, overexaggerate that this is a high level of generally cost of risk. I think that's -- we were guiding for this year 45 basis points, up to 45, let's say, between 40 and 45. So that we are still well below those levels after the quarters. In terms of strategic targets, for sure, we are in the phase of, let's say, understanding the impact of the TSUE so the European court on consumer loans and on the BFG on those strategic targets. For sure, that's somewhere, let's say, TSUE is PLN 100 million, BFG can be somewhere between PLN 70 million, more than we are -- or PLN 70 million or PLN 50 million. We will see the final proportions. And for sure, those are the revenues and costs that will be higher next year than we initially anticipated. And we're at this stage, took -- now at the stage of analyzing and seeing if there's any way to compensate that or not. For sure, it will not be easy because the targets that we have been setting were very ambitious. So it's not that easy to cover, let's say, additional, let's say, regulatory costs that we are incurring.
Maybe just a follow-up on this cost of risk in retail. What was the reason of, I think, these old cases? And was it related to consumer or to mortgage? Because I don't know if my numbers are correct, but it seems that the cost of risk in retail is simply doubled from PLN 70-something million to PLN 150 million this quarter.
It was related to consumer, not to mortgages, but the type of consumer loans. And some, as I was saying, some old cases that were not fully provisioned. We have written them off from our books and simply increased that provision from high numbers to 100% when you write it up, but not to mortgages and not to consumer loans.
And a question from me, once again, about Idea Bank.
Can you speak up, please?
A question about Idea Bank.
They presented yesterday.
Yes. But their share price went down 40% from the last time when we met. And the question would be, is this attractive level for you to once again look into it or not?
Listen, we haven't really looked into that recently, so difficult for me to comment.
But it's not that we are looking at the daily price or value and saying, can we do a deal or not. We are concentrating on organic growth at this stage.
So maybe a follow-up question on M&A because you mentioned during the previous conference about mBank. So was there...
It's M&A.
Okay. So what's the reasoning behind this particular target?
I think it's very initial. We only learned from the public sources a couple of weeks ago. We think we have a fiduciary responsibility towards our shareholders to make an analysis upon which we can take decisions, but no decisions have yet been taken. It's really very different -- it's very initial stage as I cover from public media.
Do we have got any additional questions from the room? Otherwise, we've got a couple more questions, I think. A number were exhausted already. We've got 2 more questions from the online.
So there's nothing. Maybe we'll just go through those couple of questions. How do you see the fee outlook given relatively strong performance in Q3? How do you see this -- do you see this dynamic as sustainable in the following quarters?
We will not change the guide on fees at this stage. We were saying that our ambition was to keep a 4% dynamic increase, and we want to -- at least 4%, and we want to sustain that. And it seems that we are going in the right direction.
And second question is from the same, Goldman Sachs, I should mention that before. How do you see the outlook on NIM going forward?
I think we are happy with the NII dynamics because generally, if you look at quarter versus quarter, that's almost 11%. Also thanks to the speed up in corporate loans, where we were losing, thanks to the quite of the asset mix effect but having a nice NII dynamics. Still we see the potential on the deposits and the repricing on the loans side. So TSUE verdict of the consumer loans effect will be, of course, somehow offsetting the potential growth. But NIM at least should not be falling, and we will be still trying to target this 1 basis point per quarter effect, if possible.
One more question this time from Autonomous Research. How do you see your lending appetite in retail and also competitive landscape in retail sector in the next quarters?
So I think we had a number of questions on the internet, in particular, around sales volumes, particularly in cash retail. I think there are a couple of points, too. First of all, we have become more automatized through -- given the internal systems. As regards the process of actually processing the loans and granting the loans and disbursement, which means we have recalibrated our approach somehow, sometimes limiting our appetite for risk. That's number one. Number two, we have taken a number of efforts, first of all, on the pricing side, where our pricing has gone up, which we think compensates for volumes as you saw the numbers, 14% growth in commercial revenues as regards to the product. And number two, we have just launched -- 2 days ago, we have launched a new marketing campaign aimed at cash loans, and this is a very right season. We think it's a very good campaign. We think it's a very good product that will reap benefits. Tomasz, do you want to add anything?
We strategically want to grow, as you know, in consumer loans and mortgages and at least keep up or even speed up the dynamics. And in terms of corporate, that's mid-segment and SMEs and those are the crucial segments where we want to grow with double-digit dynamics that we're keeping up there. We're doing everything to grow in those segments, and we're transforming and doing a lot of projects to speed up that growth.
So maybe I'll just say that I think we went through all the main questions we've got through online channel as well. If there's anything that is left untouched through the sessions, as always, we welcome any additional questions to your IR team. And thank you, everyone, for joining us online and those in Warsaw.
Thank you very much to everyone and look forward to talking to you again. Thank you.
Thank you.