Bank Polska Kasa Opieki SA
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Ladies and gentlemen, welcome to the consolidated report of Pekao S.A. Capital Group for the Third Quarter 2021. At our customers' request, this conference will be recorded. [Operator Instructions] I now hand you over to the team of Pekao. Please go ahead.
Thank you very much. Good afternoon, ladies and gentlemen. Welcome to Bank Pekao 3Q results presentation. Today's conference will be hosted by Pekao's CEO, Mr. Leszek Skiba; CFO, Mr. Tomasz Kubiak, Management Board Member, Pawel Rzezniczak; and also Chief Economist and Digital Transformation Head, Mr. Ernest Pytlarczyk. Of course, the presentation is only conducted in digital format due to pandemic. The short presentation will be followed by the Q&A session, starting first from participants registered on the call. And then obviously, we will also answer your questions sent to us by e-mail. Let me now hand over to the CEO of the bank, Mr. Leszek Skiba.
Thank you very much, Marcin. Let me start with a few words. Today, we have a conference together with Tomasz Kubiak and Pawel Rzezniczak. It is the last time when we see Tomasz as our CFO. It's also an opportunity for me to say thank you very much for the long time in Pekao Bank. Tomasz was not only our CFO, but was Chief Manager in very important areas. For example, his role in the bank resolution was impressive. Thank you very much, Tomasz.
And this area, finance is going to Pawel. Pawel is well known financial manager. His knowledge in this area, finance area is well known. He is brilliant. And what is also important for me is that his experience and knowledge from the world outside financial from outside financial world is impressive, and I think it brings us experience from real economy, which is very important for the bank.
Now let me start with our presentation. Main message from us is that it is -- the third quarter is the quarter when we see and this is proud for us to show you that it is a time when we -- the recurring ROE at 9%, nominal ROE at 10%. This is the time of economic recovery and it is good to stress this information. We see improvement in business activity in all segments. We are proud of excellent enterprise banking, rebound in large corporate and strong retail performance. We increased our core revenues, potential for further improvement, thanks to continued good customer activity growth and interest rate hikes. And we have demonstrated strong control of operating costs. Also, cost of risk remains low and despite additional provisions in this third quarter, related to Swiss franc loan portfolio.
On this slide, you can see the growth in profits, net profit generation, higher in these 3 quarters in relation to -- comparing to number from 2020 on the level, the same level as in 2019. It is the return of our -- to the pre-COVID level despite low interest rate, good business performance and growth in volumes and cost control. Our 4 main pillars of our strategy: customer, it is the important number is the growth in number of active mobile banking customers to 2.3 million, the target is 3.2 million. The growth the growth in volumes and the growth in profits, ROE at responsibility regarding that, you can see that still, we see cost of risk under -- lower than our target, the level of 41. And efficiency, we are on the track to lower -- to have lower this ratio. The target is 42%. The last figure is 43.4% in the third quarter.
It is important for us to grow. The growth, you can see 10% of growth in loans on a yearly basis deposits 8% and the number of new current accounts, 4% is -- this number is higher in the third quarter by 160,000. It's also a time when you see growth of lending, very impressive growth in volumes in mid and SME segment by almost 20% comparing to the third quarter of 2020, you can see rebound in corporate segment in the third quarter and good trend in retail, 5% in a yearly basis and 2% quarter-to-quarter. It's also the time when you can see our digital transformation and improvement in ratio of active mobile banking customer by almost 20%. Digitalization rate is important for us. We stress that it is the ratio. This is the percentage of processes that customer can perform in digital channel. This digitalization rate is better by 5 percentage points from 50% to 55%.
And also the third quarter is the time when you can see the growth of digital -- tax digital sales, the growth by 9 percentage points. We are also proud to -- because you can see the impressive growth of SME and mid leasing portfolio in the third quarter and also factoring portfolio in SME and ME segment. And regarding efficiency, you can see positive operating jaws when the core revenue is growing faster than operating costs. Still, it is the time when we reduce cost-to-income ratio and the growth of revenues per FTE as a sign of our efficiency improvement.
Regarding responsibility, ROE -- our ROE much better than average in the sector. Cost of risk under control and is still opportunity to be surprised by the data. And the last part of this slide, you can see our determination to be active and not only perform our pledges from ESG strategy, but even overperformed in this area. Now I give the floor to Ernest.
Six months ago or even more, we presented our new strategy and this was a strategy, the first strategy that was presented in a post pandemic world. And this environment, all the assumptions are likely to persist going forward. What we see now is a start of the more tightening cycle. I don't think it's -- the last move marks the end of the cycle, it marks the beginning of the tightening cycle. We are pretty much with our expectations with what market expects and it's pretty realistic to think that Polish rates will go as high as 2.5%, 3% over the next few months.
Nominal growth should surprise to the upside. Of course, we have high inflation and is going -- is very likely to persist over the next few months, both due to local and also external factors. I think those external factors are even more important at this stage. But it all contributes to the pretty positive environment for banking sector, as you well know, because high nominal growth, higher rates and the last missing ingredient is pickup in investment activity.
This is definitely in the cards. We bet on a strong GDP growth, driven by -- not only by consumer, but also by demand from companies, investment demand, which is very important for a bank as ours because we have very strong corporate lag. To continue, let me stress also very important ingredients under our economic scenario. This is a very high nominal wage growth. which is additionally stimulated by some government policies, including changes in tax and transfer system, but also minimum wage hikes. It will contribute definitely to the safety of our portfolio. And also, we expect unemployment rate to drop pretty fast over the next months, quarters and even years, which is probably the best proxy to assess household vulnerabilities and our portfolio quality. So as you see, we are pretty optimistic, and we were pretty optimistic, and we continue to see a pretty rosy future over the next quarters and even years.
Good morning. Thank you, Leszek, also for the very pleasant words. So net profit in Q3 was PLN 631 million, a relatively solid result and supported by, I would say, core items that are really going well. So you see improvement in NII, which grew quarter-over-quarter, you see improvement -- further improvement in fees and commissions. You see drop in costs and good cost control. And you also see digital -- diligent risk management. And that cost of risk without the Swiss franc portfolio, which we created additional provisions would be below 40 basis points. So a very good situation. And this allowed for this nominal ROE close to 10%. And while spreading BFG throughout the year, that's around 9%. So a relative good quarter of numbers.
And I would then start from the Slide #15, which shows gross operating profit. And that gross operating profit year-over-year increased by 20%. And we have this thanks to, first of all, the income dynamic. Pure income quarter-over-quarter was flat, but NII and our core revenues went up by 4%. And the other revenues were simply a little bit higher in the second quarter. We, for example, in the second quarter, as you remember, had some dividends, some sale of portfolio income, but the core revenues growth is great. And we also keep the discipline on the costs or actually, we see the step-by-step the effects of the cost optimization actions, which we are taking. And quarter-over-quarter, that's a 4% drop in the cost side.
I would start from NII versus third quarter '20. We are having a 15% growth in NII, and that's a result of both volume growth but partly because of idea, partly because of commercial growth, but also further NII optimization. And you can see that, in this quarter, NII increased by 5 basis points. Forward thanks to the commercial activities. One was an effect of Idea Bank. You remember that the second quarter was like -- there was some one-off some Idea of -- related with PPA. This commercial growth of 4 basis points comes from, I would say, 3 elements.
First of all, it's the loan growth. So loan growth is substituting some of this liquidity surplus that was kept in bonds and that allows the NII to grow. We have also still some positive effects of repricing on the lending side. That's roughly 1 basis point. And then we have some one-offs with -- related with repayments of loans and that's causing also some additional around 1 bps impact on the NIM. So generally, very good trends in line with the strategy. And as you can see, this commercial effect since the end of the year amounts to 11 basis points. So we are realizing what we promised in the strategy in this area.
When discussing loans, this was a really good quarter of a pickup in loans. The quarter-over-quarter loan dynamic was 2%, but you see that Idea bank loans were -- have decreased by PLN 1 billion. So without this, we're decreasing, sorry. So without this decrease, there would be almost a 3% growth in the lending portfolio. And you saw previously, it was the mortgages that were growing and the corporate that was a little bit falling. Now mortgages continue their growth, but we have great pickup in the corporate side and also a fantastic growth in SME and mid-corporate, probably one of the fasts if not the fastest on the market in those segments. And we are extremely proud of that, and that's driving the loan portfolio. So good dynamics and good pickup on the loan portfolio, but NII growing even faster than the loan portfolio.
On the deposit side, we see, of course, further growth some drop in retail, but that's due to the idea side and then good -- very good dynamics on the mutual funds. We are also very proud of the fees, which actually reached PLN 700 million in the third quarter, so a new record on the fee side and the dynamic of almost 20% versus the third quarter of 2020. We are growing in a lot of lines in fee sales. So it's both lending fees. It's the current account fees, which come from some repricing and transactionality of customers, but very good results on the FX side, asset management stable. So we are seeing still good dynamics on the fees and server work on that is extremely important.
Costs. Costs have dropped by 4% quarter-over-quarter. You know that the annual dynamics of cost is not comparable because, first of all, we have additional Idea Bank costs, but also this is a year where when we are bearing the cost of the integrations of the 2 IT systems, and that's also the case in third quarter. But we have put a lot of initiatives in place. You know that in HR costs, you see the effects of redundancies, but in non-HR costs, that's a set of initiatives from real estate, cash management and things like that, and they are surely taken to offset a little bit this -- some of the pressure that will come from the inflation. So we believe we will show good results in this line as we have done in this quarter.
Capital adequacy 15.7 in tier 1, dropped by around 50 basis points. That's a result of 3 things that drop. First of all, it's the loan growth and also some of balance, which is signing the future loan growth. Second of all, it's counterparty risk, so some derivative transactions that gave some revenues, but also created some risk-weighted assets and we have also increased a little bit the RWA on operational risk due to what is in the sector. So due to those fees on consumer loans, which have been returning and are showing this -- the, let's say, models are sensitive to such sector data, but we believe this is still very safe and the good level of capital, which supports our strategic dividend policy. Liquidity on very safe levels.
Now I believe that one of the biggest surprises that we are having this year is the cost of risk. As I was saying on the previous presentation, every single quarter is surprising us even more. So that's really great information. Total cost of risk is 41 basis points in the third quarter. And I would say, even without Swiss franc, those additional provisions, we would be in the 30s and our restructuring process are doing great and no new defaults coming. You see also this NPL ratio, which is also showing a decline, so very good trends in cost of risk. And I would say, no pressure so far on this. We have a lot of still COVID provisions in our books, which create a buffer for any potential downside if it would potentially take place.
So summarizing, that was a solid quarter, 9% recurring ROE improvement in business and you saw lending a strong quarter in lending and surely, the capabilities of the bank to grow to take their recovery and to go on this wave of recovery. Increase in efficiency, that's visible both in core revenues growth, fees growth faster than the balance sheet, but also -- it's also a great cost of risk and the discipline in lending.
Now you -- as Leszek has anticipated, you know that and as you saw in the current reports that this is my last quarter of results. So it's a great occasion to thank everyone here, thank the investors for the trust. Thank the analytics for the cooperation. It was a wonderful period for me. I'm extremely happy with the chance that the share price recovered actually to the levels or slightly above the levels when I entered. So that I must say that's extremely important to me personally because, throughout all those years, we have been doing our best for the investors.
I must say that the Pekao team, and I would also like to publicly thank all my Pekao colleagues, but especially the financial division colleagues, which have been -- which are extremely professional. And I think we have one of the best teams in Poland. With extremely professional but extremely engaged people. And on a lot of meetings with you, I've been actually only a frontman of their works and of the backups and of the preparation and all the things that my team has been going. We -- I'm passing this further to Pawel, who is a very experienced CFO and the person very skilled and very analytical and we've been cooperating for the last 3 months, and I saw he's also extremely diligent and extremely diligent on the cost side, especially. So I'm sure you will see the same tendencies that were -- that have been visible so far in the bank.
So thank you, everybody, for the cooperation, and I pass the voice to Pawel. Thank you.
Tomasz, thank you very much. It was really an honor to work with you the short 3 months, but I think quite active. I am very proud to be from -- starting from tomorrow, the CFO of the second largest Polish bank. And I'm -- it's also really an honor to overtake the position of CFO from Tomasz. I am absolutely sure that the politic of strong cost control will be continued. And I can also confirm that Pekao should stay the bank who pays every year, the dividend who is willing to share with our shareholders with profit in every single year.
As you probably know, I joined the Board 3 months ago, overtaking the position of supervising the strategy division. But the last 7 years, I spent playing the role of CFO and also the CEO of Polish utilities starting from renewable energy sources over power electricity and heating. And the last 2 years, my role was not only managing the finance, but also creating the strategy of zero-emission politic, zero-emission growing scenario for PGE, the first -- absolutely first Polish utilities company. And as CEO of Tauron, the second Polish utilities company. In March this year, we have created the strategy for the next 3 years. The strategy based on some KPIs, which we observed, which we observe every single month. It's, of course, ROE. What about ROE Leszek and Tomasz told several times. I'd like only to add our goal by 2024.
This figure was based, of course, at main Central Bank interest rate 0.1 percent point. We estimated the sensitivity of consolidated net profit to an increase of interest rate by 1 percentage point by about 3 percentage points of ROE or in nominal about PLN 650 million. It means the goal, 10% ROE, we are going to achieve, we hope, much, much quicker than 2024. And I hope the current policy of our Central Bank will definitely help us to achieve more and more optimistic results, as a results, as figures presented in the strategy. The cost income ratio as KPI, the goal should be 42 percentage points for the third quarter -- sorry, for the third quarter, we achieved 43.4%. As Tomasz already said, as I said before, they are cost control will be this politic of strong cost control will be continued optimization of the operation cost.
The next KPI, the active mobile banking customers which the number of them should achieve the number of over 3 million by 2024. We expect the increase of our customers using our digital products. We can see every quarter, more and more customers use our digital communication channels for loans, for accounts and so on and so on. And what is also very important in June this year, we implemented our ESG strategy. We started with them what is also very important and should be -- Poland is now one of the country in Europe staying at the beginning of the energy transformation. It will be a huge industrial -- huge investment project, absolutely adequated to our ESG strategy. We are going to organize the financing for new sustainable projects for the next 3 years by at least PLN 30 billion. At least PLN 8 billion, it's our goal for direct financing; and about PLN 22 billion -- at least PLN 22 billion, it will be pure organizing of financing for such products.
We are definitely going to increase the share of green financing from 3.2% by the end of 2020 to over 4% 2024. And we are also going to reduce the financing for high carbon projects to less than 1% in 2024. It is what already told also very, very important goal for the management board is to remain dividend-paying bank. The range, which we have in our strategy is between 50%, 75% of our net profit. And definitely, our role is to achieve as good financial results that we can pay to our shareholders as high dividend as we can. Thank you very much.
Thank you very much for the presentation. Operator, we are ready and happy to take questions from our listeners, please.
[Operator Instructions] And the first question we've received is from Gabor Kemeny.
Thank you for the presentation. I have a few questions on your rate sensitivity, please. The PLN 650 million NII upside you are flagging, does this refer to the first year total NII benefit following the interest rate hikes? And could you comment on how you expect the sensitivity to evolve in the case of more than 100 basis points of rate hike with presumably some deposit repricing?
And then the other question is, I wasn't entirely clear on what is your base interest rate expectation? You seem to be suggesting the base rate would go to 2.5%, 3%. And somewhere as in the presentation, I seem to have seen 1.5% for '22. So if you could clarify what is your base case and how you expect your NII to develop under the baseline interest rate assumptions, please?
So maybe we start with the rate assumptions, okay? So rate assumption is we think that 1.5% was a level mentioned by NBP as a neutral one. We think rates will go much higher, 2.5%, 3%. So that's what market is already pricing in, we kind of agree with the direction and also the levels envisaged by the market.
Yes. So first of all, one should remember about, let's say, that the sensitivity generally, we are discussing in terms of NII is also always subject some of the assumptions, right? And you saw that in this low interest rate environment, a lot of current accounts -- term deposits have been flowed to current accounts. We are having in this simulation some of our, I would call it, most probable behavioral assumptions. And so at the end of the day, this net interest margin sensitivity for 100 basis points can be around, let's say, on conservative basis, around 30 basis points or on a more aggressive basis and can be closer to almost 40 basis points. So that's, of course, a big element that one should consider.
Also, when discussing, let's say, NII rate hikes impact, we look also on the impact of the fees because some of the fees have been imposed because of low interest rate and higher interest rate scenarios, they will partly go out. It's more tens of millions, not hundreds of millions, just to be frank. But -- and the third element is, of course, some of the impact on cost of risk. And I believe on cost of risk, we are extremely safe, but for sure, some impact of a few, let's call it, basis points could be observable in terms of this impact. Now we've been presenting the -- our, let's say, basic sensitivity to more or less the levels of rate increase as it happened today.
And for sure, the current liquidity situation is so that actually repricing of the deposits is not something necessary from the perspective of, let's say, our liquidity needs. But of course, if rates go, let's say, above 2% or above 1.5% then banks will start somehow competing also for the deposit side. So those deposits will be more and more valuable, just the deposit itself would be a product that is, let's say, generating revenues, which is not the case in 0 interest rate environment. And so some of those behavioral sensitivities will be different. So the sensitivity that was mentioned is, of course, true for the first, let's call it, 100 or 115 basis points hike, but will be a little bit lower if you start to think for, let's say, reaching 1.5% or even reaching 3%. This is the way, let's say, one should think of it.
Now it's probably not yet at the moment to be extremely precise on this. So what will be the impact of the first 100 and the second 100 and the third 100 because we will -- it will depend very much on the competition on the banking side and what other banks will start to do. For sure, today, they are in a good liquid situation. But for sure, we are one of the banks that will be privileged in this sensitivity, meaning it's probably one of the highest in the Polish sector and allows us to this wave of growth. That's how I would comment, let's say, that question.
The next question is from Alan Webborn, Societe Generale.
Clearly, a very good cost performance in the third quarter. But we do hear across the board, salary rises, high inflation, full employment. And I appreciate you've got perhaps the shorter-term benefit of redundancy programs and so on in place. But going forward, presumably, your cost growth is going to get somewhat higher than it is at present in the market that you're operating in. So could you talk a little bit about that? I mean I can see where the 42% cost/income ratio still is. But I mean, how do you put through a generalized salary increase? Are you going to do that? And how do you feel about the non-personnel costs as well going forward, never mind where we've come from? So that would be the first question.
The second question, in terms of your green financing ambition, do you fear that there is potentially a delay because of what's happening at the European level in getting the sort of green financing in place and getting projects off the ground? Or do you think this can carry on in Poland without that boost without that framework, if it does take longer to happen. That was the second question.
And the third question was if your economists are right and we're looking at net interest rates that you haven't seen in Poland for quite a time, when do you think there will be a structural change in demand? And when do you think, for example, that mortgages and consumer lending will start to slow down significantly as this becomes a bit more expensive relatively? That would also be interesting.
Maybe I can just start from the cost just to have the broader knowledge, of course. And this we have been also sharing with investors. Of course, some wage pressure and some, let's say, adjustment of the wages is something that generally for sure, happens. It's more a question of the magnitude and maybe it will be 3%, maybe it will be 4% in terms of salaries, but this we will finally see. But for sure, the situation in Poland is that, that the wage pressure is actually on -- the biggest on the lowest salary job. So on the minimum wage in practical terms. And that's not our case.
I mean -- and you also know let's say, our structural HR, our cost with a lot of people in the network also being long-term employees in this bank and also extremely loyal to this bank, which we, by definition, is very much important. But the competition on the Polish banking sector, on the jobs is, let's say, on the networks, which are shrinking is also, I would say, limited. So of course, there are pressures on areas like data analytics or like IT people, but it's not probably a pressure that is touching that globally, you have to do let's say, extremely expensive moves.
And also, probably, we've been preparing to a lot of things, how to optimize costs, and that's touching like I was saying real estate, but also, let's say, procurement process that we are also allowing to get some additional things. And please remember the integration with Idea Bank, where some of the costs will go down. And this creates some potential for the future, meaning not to see it as such a, let's say, big threat as a little bit you have described, right?
Yes, concerning your question about green financing. It's absolutely known, the current situation with the energy transition. It's now -- actually, no more transition, but revolution. Why? Because of the increase of the CO2 pricing -- prices. The problem now is the lack of ready-to-build projects, which were planned to be ready in about 2, 3 years. The necessity of the changing of energy mix of Poland because of increasing CO2 emission prices -- emission rights. It's now actually quite huge problem. But till -- during the next 5 years, definitely, the volume of new energy sources in Poland, low emission and zero-emission sources should be about between 3 and 5 gigawatts of gas, at least next 2 gigawatts of solar and PVs.
And until the end of 2028, we expect also about between 5 and 6 gigawatts of offshore. It's in total about EUR 25 billion investment, EUR 25 billion of CapEx, which means about PLN 110 billion, PLN 120 billion. So the potential of the CapEx volume, investment volume is it's really present. As already said, the necessity of a little bit speeding now of the project, it's also present. Our ambition, our goal is to be the first-choice Polish bank for energy transition and for green -- for the financing of green projects. What is also...
Can I just ask, do you think that, that -- you talk about the need to speed up these investments is what's happening at the European level actually likely to slow it down. I mean is it -- do you feel as a finance, there's somebody who is key to the financing of these projects, that is what's happening at the European level, negative in terms of getting these projects off the ground.
I think, Alan, if you are referring to the delays in acceptance for Polish COVID relief fund, it's only one sources of funding. So there are numerous others, yes. So to answer your question, we'll see, of course, the path, the trajectory is uncertain, but the direction seems to be quite clear and we would like to play quite active role if that answers your question.
Yes. It does.
There are definitely 2 main sources of the financing. You mean, generally, the funds coming from you, but also the very important, very important role will play also the financing from the Polish state. Please don't forget the 130 million tons of CO2 emission rights will be sold by the Polish state and as I know, for the next years, at least 50% of the income of the Polish state from selling of emission rights should be spent for energy transition for low and zero-emission energy sources. 130 million tons of CO2. It is 130 60, it's about EUR 9 billion every year, EUR 9 billion, 50% of this is EUR 4.5 billion. In my opinion, we cannot forget this amount. We cannot forget that finance -- one of the financing sources of the Polish transition will be the funds coming from also the Polish state.
Operator, do we have more questions?
Yes, we have more question. It is from Olga Veselova of Bank of America.
And let me ask several questions. One question is about costs in 2020. There will be several one-offs. If you could quantify for us each of them. And under one-offs, I mean the benefits from voluntary redundancies team, the consolidation of Idea and also the spike in BGF costs. Its rates if you could quantify each of these cost items in 2022. So this is my first question.
My second question is about NII sensitivity pricing rates. You mentioned PLN 650 million NII is positive impact coming from 100 basis points first rate hike. Correct me, if I'm wrong. Earlier, the bank was guiding PLN 700 million to PLN 800 million. So does this mean you just specify your guidance, you make it more precise? Or you lowered the guidance, so sensitivity has come down? Or maybe it means that PLN 700 million, PLN 800 million is total impact on NII, which will be partly offset by the navigation of some fees. So could you please clarify on that?
And my third question is about the management changes. Is it possible just to help us understand what were the reasons -- what are the reasons behind the changes in the management team as how changing, there is a change in Deputy CEO, if I can ask this question?
So let me try to take this. On Idea Bank, let's say, or on the costs, we are currently bearing about PLN 15 million, let's say, or between PLN 15 million or PLN 13 million additional costs related with realization of the project of integration. Of course, BFG costs, as you've mentioned, we will see what BFG will propose for the next years. But generally, I think one should be looking for levels closer to 2019 plus something, so higher than 2019 on the banking sector for next years. Then of course, there will be on Idea Bank also, let's say, some costs going down related with the integration and so some additional offset, but we will see, let's say, the final numbers once this happens.
On the sensitivity, when we discussed the net profit, we try to take into account also the impact on the cost of risk and also the potential negative impact on the fees. So I would say the sensitivity has not materially changed versus what we were showing previously. It's simply that we add also those new things.
And the last thing is related to my resignation. It's coming from personal reasons. I will look for new challenges. But I think, as I was saying before, one should not worry about, let's say, those changes because at the end of the day, it's the people and it's the culture, and it's the professionalism and it's the internal process that was driving the results, at least coming from the CFO area and all of those elements have been there. And I just wanted to assure you that in my resignation, there is nothing behind, meaning there's -- it's not coming from something that I disagree with something or we're doing something wrong or anything like this.
I've been here working for 20 years in this bank. I've been over 4 years in the management board. And I must say though during those 4 years in the management board, I didn't meet -- I didn't have a period of business as usual. I mean there were two strategies, a few M&A processes and a lot of transformational changes and which we've been engaged. And I think when shares have returned finally to the levels when I was becoming the CFO, I think that's also a good time for me for a personal change. And again, thank you very much for the many years of cooperation, and it's been an honor to me.
Yes. Thank you all please with the answers and also from our side. Thank you very much. It was a great pleasure to cooperate with you Tomasz so much and with your team. Thank you.
Thank you. There are no further questions at this time, sir. I would like to hand back to you.
We also have received some questions through e-mail. So maybe let's do it in a rapid fire fashion, given some time constraints. Some of them are duplicating what we already discussed. Of course, the main topic this quarter is the rate sensitivity. And I think Tomasz was quite kind of elaborate in discussing that. So maybe just the questions which could be interesting in hearing answers to them and which were not answered, is the sensitivity to rate hikes the same? Is it linear? For further moves, the furthermore we go. And this is somewhat interlinked to a pricing, which is very straight -- to a question, which is very straightforward. Thank you, Kamil. Do you expect to raise deposit rates?
I just want to say I elaborated a little bit on this linearity or that at a certain moment, it will not be that linear, of course, as I said. And yes, on deposits, maybe Leszek, you want to take it.
Yes. On the deposit, what is important to remember that we don't need new liquidity because in the sector, there is -- the sector is overly equipped. And what we can do with interest rate in deposits, we can use this as a tool to have more clients and/or to increase the number of funds sold to our clients. This is a kind of maybe not marketing, but the sale strategy, how to sell funds or how to sell new current accounts to new clients using these deposit opportunities. In this area, you should see our thinking about deposit interest rate because we don't need inflow of deposits now.
The other question was about our OpEx, let's say, outlook given the wage inflation. I think we covered this. The wage inflation for us should be lower than what we see in the economy. There are 2 questions, let me combine them into one on cost of risk. So first, when do we expect our cost of risk to normalize, our strategic band is 50-50, so we are below this band right now? And secondly, what is the chance of -- for us to start releasing COVID-19 provision, what is the level of the provision? Yes.
Yes, I would say let's say, more CRO-related questions, but for sure, at this stage, we don't have pressure on this cost of risk. And I must say we are -- as I've been stressing month-by-month positively surprised by this cost of risk. Now for sure, the economy in general, doesn't like rapid changes, right? So change of the interest rates, change of costs, generally, there are winners and losers and always you have both in your portfolio by definition. So and this is something that I would then also answer -- this element is an answer for what will be on the future with the COVID provisions, meaning we are keeping those buffers for a situation if those risks will materialize because there has been a very dynamic changes in GDP and in some of the circumstances.
GDP was negative, then it was very much positive. And we -- with discovered provisions, we are waiting for the situation to fully stabilize and to see if there's anything that will come out for the future. And once this uncertainty is achieved, that's the policy we've been keeping so far the decisions on releasing, let's say, those provisions will be there. This is in line with IFRS 9, which is actually looking forward for the macroeconomic conditions, which are from one side, very good now, but also uncertain, of course, right?
Well, one thing more is that we would be -- we'll not be fast in releasing because we would like to wait for new figures for the data in the next year. Still every quarter is the surprise as Tomasz said about is in relation -- in terms of cost of risk. And to keeping this provision, this opportunity to be sure that we are ready for more negative surprises.
Maybe just one clarification because I keep being asked, yes, we stated that sensitivity to 100 basis points increase in rates is 30 to 40 basis points. So that's just to be clear.
There's one question why our sensitivity is a little bit higher than on average in the market. Look at our balance sheet. We are a corporate bank, slightly to a larger extent with some of our competitors. So our NIM is a little bit lower than for some of our competitors. And that, I think, explains the question.
And maybe one question, which is not related to rate and the area we have not touched upon, and that is the impact on rising bond yields on our equity and TCR. Are we worried? And could we quantify the impact, please?
Yes. So we've been doing quite a lot of work during the last years to actually keep all the, let's say, bond investments or majority of the bond investments into the held to the old HTM. So held to collect portfolio and not held to collect and sale, which means that not that many bonds and sensitivities will impact the Tier 1 ratio. I think that sensitivity is more or less 100 basis points should be around -- so increase in yield should be around say, in the range of 30 basis points, I think, impact on the total capital ratio, if I remember well the figure, so not that big, right? And of course, of the long-term yields, not on the short-term yields. And please remember that the long-term yields were already let's say, pricing quite a lot since some time, right?
We have no further questions. Thank you very much for participation in the call. Of course, we will continue our discussions offline in your modeling and more specific questions that you might have. Thank you very much, and have a good afternoon and good evening.
Thank you very much.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.