Bank Polska Kasa Opieki SA
WSE:PEO
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[Interpreted] Good afternoon, ladies and gentlemen. I would like to welcome all the analysts, investors and all those of you who are connected online, and I would like to invite you to the press conference on Q3 results.
We have the CEO, the President, Leszek Skiba; Vice President, for Finance, Pawel Straczynski; and VP for Private Banking and Investment Products, Jaroslaw Fuchs.
[Interpreted] Good afternoon, ladies and gentlemen. On this very slide, you see the most important factors that we have indicated as factors that have influenced what's been happening in this quarter. First of all, we are proud to have had a very -- a good quarter for corporate and enterprise banking volumes have increased significantly, and it was close to 20%, which is one of the highest values of this kind in the sector.
We are also continuing high pace growth through our digital channels, and it's very important for us to maintain the fulfillment of our strategy. We are also continuing our digital transformation. For example, improving our mobile application. Of course, not only, but we will focus on that.
My colleague, Jaroslaw will talk about private banking and how we have added to our offer this quarter, we have added bonds, treasury bonds, and we will also talk about the cost of risk. It's at a stable level. Of course, there has always been fears around recession, around the macroeconomic situation recently about the war in Ukraine, but we are showing that the cost of risk remains stable and low.
On this slide, you will see our Q3 results. There was a fall by PLN 544 million. And this comes from the fact that there has been the so-called credit vacation, so to speak, which translates into PLN 2.4 billion gross. This is the payment moratoria or the credit vacation, as I have mentioned. That's one of the most important factors.
Pawel Straczynski, my colleague, will tell you the details, but we have increased loan volumes in the Corporate segment. And there is a -- however, when it comes to retail banking, the situation is a little bit worse, but the cost of risk remains stable.
Our strategy is based on 4 pillars: one is called customer, and we are very happy to see further growth in the number of our mobile banking customers. Right now, we have 2.7 million, and our target is 3.2 million -- 2.7 million, our target is 3.2 million. Our ROE is low due to moratoria. And our lower income also is reflected in our cost to income. However, our cost of risk is less than our targets. In our strategy, the target was 50 to 60 points.
On this particular slide, we are showcasing our increase in the scale over 30%. Corporate loan volume of 24%, enterprise banking, and 38% new current accounts, and we're talking here about retail customers. So you can see that this part of our activities around businesses, around enterprises in this difficult period is going strong.
We are also dedicated and committed to our digital transformation, and we're doing this via growing the number of customers in our mobile app. It's been 15% up 2.7 million right now, and the digitalization rate is growing. It's an important rate for our strategy because this rate talks about the number of processes that our customers can fulfill using remote channels.
So 2/3, 65% of all the importance major processes in retail banking can be achieved through online channels. So for those processes, customers don't need to visit the branch. We have also the -- we'll have 80% of cash loans that are being granted online. At the same time, we have been improving our mobile app. It's very good as it is.
But we want to make it the best, and the only app that our customers may need to do everything and anything around their assets, around their money. We have a special widget for investment products which allow people to invest, manage their funds, invest their money without using any other apps. They can also see their investment account, their bonds, their fund products. So this app allows all those functionalities, and anyone can use this widget to adjust the app to their own needs and so that they can manage their funds better.
Of course, personalization is a big trend out there in the market, and we are really happy that our app allows this very smoothly. We have changed our information architecture to make it more intuitive. It's very much based on personalization. So every customer can select what's most important for them, and they will see the most important elements easily in the app.
We have also seen other results in enterprise banking. For example, our leasing portfolio has grown. It's grown by 26% for SMEs, 16% for mid companies and 45% is our factoring portfolio. That's the growth. So this shows you how active we are, our Enterprise division, our Corporate division in case of large corporates, we have really seen very large transactions. Important for ESG. For example, we have a revolving facility for ESG financing for Tauron which is a big corporate.
But on this slide, you can also see some other partners that we assist.
To sum up, this slide shows you all the information concerning ROE. Of course, this -- if we exclude the moratoria, it shows us a good result. Of course, cost to income has also been affected. But what's important for us is our digital transformation and/or digitization rate. So we can achieve our targets and we can see a big chance that these goals are going to be achieved by 2024. So for example, increased the number of active mobile banking customers, and to achieve and grow our digitization rate. Our ESG strategy remains something that we're also committed to, and we think that everything will go smoothly when it comes to this particular strategy being implemented. Jaroslaw.
[Interpreted] 25 years of private banking at Pekao. This is a very special year. This year, we are looking back at all the things that we have achieved together with our clients, especially that this business is very much based on trust and customer relationships. We have won a number of awards throughout the years. This year, we have won the Best Private Banking in Poland Award, the Global Finance Award as well. we have been nominated by the International Banker Awards for Best Private Banking.
So well, this goes to show that for years, we've been doing our job that we've been appreciated both by our customers and our peers. Right now, we have nearly 9,000 customers, but it's my ambition that by 2024, it's more than 10,000 customers. And again, what we offer, in terms of investment product, it's a very broad portfolio. I would say one of the broadest in the market, if not the broadest, we have added treasury bonds recently. So let me tell you about some data for Q3 over PLN 2.5 billion in sales of investment products, over PLN 4 billion of assets that we help consult. And we manage over PLN 23 billion, and we have 200 newly opened private banking accounts.
And let me just say that on October 1 this year, we started offering treasury bonds. Actually after years of these bonds not being on offer, they have come back. In the first month, we have sold over PLN 300 million of these bonds. And we're only selling these bonds via online channels, so over 6,000 transactions, and around 25% of sales is new money for us. And of course, this means new customers coming in.
And one has to stress that we have prepared and developed a very good, a very transparent and simple process that customers follow to buy those treasury bonds. It's a step-by-step process that takes less than 5 minutes from registration to the purchase of treasury bonds. It's a really short process, and I think it's a very interesting, exciting and simple solution for investing in treasury bonds.
But 25 years of private banking is also about looking at things differently. Looking at things from a more human perspective, we have managed to develop a few very interesting projects in the area of art, branding. And we're going back to our roots. Pekao, we'll say, for over 40 years, used to collaborate with the Polish School of Poster Design. We've had best poster designers and creators working with us, very soon, there will be a nice publication celebrating all the posters that were developed and created during that period.
But we are one of the first universal financial institutions or the first universal financial institution that tokenizes art. We have NFT. And we've been collaborating with Rafal Bujnowski, who painted for us a special work. He selected 440 elements from this studio wall. And those 440 elements or graphic elements will be printed on cards. And all the information that are normally printed on the payment card will not be on the face of it, will be on the other side of it, which is very innovative. One of the first solutions like this in the world, and every card has an NFT token. So for example, you can put your element into the entirety of the picture.
But this is only reserved for holders of those cards. When we're talking about art branding, I have to tell you 1 more thing. Recently, we have introduced our bank into the metaverse. We have the PeoPay gallery, where you can buy arts, where you can buy pieces of art and admire them in the metaverse. It's a very unusual approach to the world of art business, banking and private banking. Thank you.
[Interpreted] Right now, let me briefly give you an update on macro and financial results. Indeed, for a few months, we've been living surrounded by the vision of the Polish economy being kicked into recession. After Q2, the media have been reverberating with news of the contracting economy. And GDP in the first quarter had -- the dynamic was around 8%, but then things have changed. But still, I would say nothing dramatic has happened yet, at least in the Polish economy. We are right now in a cooling period definitely, but it mostly concerns and affects the Construction sector, but the Construction sector follows its own cycle, and it's very much linked to the monetary policy. So definitely, the links are working.
We can see certain signs slowing down in retail and in consumption. The industry does not show that, the industries that actually do slow down, are those that are high energy-intensive or gas-intensive sectors. The crisis or even recession are more of the events that I talked about in the media.
In fact, in the macroeconomic context, there is no change and hard macroeconomic indicators, so they are strong for the time being. And the real test will come at the end of the year. However, we need to keep in mind that the situation is quite dynamic. A lot will depend on the weather, on fiscal response and on the balance that looks better in Europe. So there is a tendency of rising up the forecast for Europe and Poland.
Also we'll see how the recession develops, but we think it's going to be more a technical event rather than a phenomenon that affects labor market or results in a wave of bankruptcies. So that would be it as regards to the real economy. And interest rates will result from the condition of this real economy. So it seems interest rates are likely to stay on an increased level for somewhat longer if there is no hard slowing down. Probably it will take us longer to bring inflation to the target, longer, meaning 2, 3 years.
The peak of inflation is still ahead of us. We know that a lot would depend on administrative decisions. We also have to take into consideration a number of factors that are linked to phasing out the fiscal shield but also prices of energy and gas will affect inflation. The announcement of more restrictive fiscal policy from the Monetary Policy Council and the Central Bank will be seen as factors that lower the risk. So there should be no concerns that this might be something that drives inflation or the interest rate.
I think we are now at the moment of certain -- steady level in terms of interest rates. For the time being, the bar is quite high. We need to take into consider any surprises that may come from inflation. We know that the peak will come in a few months. But also another thing to factor in is the stability of the exchange rate. And there might be some anomalies in liquidity, but this is very much dependent on what will be decided by the Monetary Policy Council.
However, all in all, we think that interest rates should not grow significantly. Maybe we are even at the very end of the growth cycle. What matters is that the ex ante real exchange rate is close to what we have here. We also received signals that the real policy mechanism is functioning, mortgage loans, cash loans are quite active with significant contracting also some things related to money supply. That's it from me.
Over to Mr. Straczynski.
Thank you very much. Ladies and gentlemen, the result of the third quarter was affected by 3 major factors. The first very positive was a significant growth in the interest result. This contributed to the results by over PLN 1.4 billion. And this was caused by net growth and interest margin. In the third quarter, this margin was at 400 points. Two factors that also participated in the result, and had a negative contribution, were payment moratoria.
And secondly, posting in our books, the provision in accordance with our assumptions. We assume the participation at 85% in payment moratoria, which necessitated establishing a provision of more than PLN 2.4 billion. And another factor was the joining by the bank of the system of protection for commercial banks, and payments to the fund for support to borrowers.
This had a negative contribution to the third quarter result at PLN 208 million. Those negative effects were mitigated by the tax shield. And here, we had a positive contribution of around PLN 300 million. Because of one-off effects, net profit dynamic is negative. We recorded a decrease by 404% return on investment -- return on equity, 4.9% for the quarter. But Tier 1 is at 15%.
Gross operating profit compared with 9 months, previous year, was up by over 15%. Income from operations more than 11% in operating costs. Without the negative impact of provisions on optimization of head count is at 6%, which is notable, and significantly lower than the current inflationary situation might indicate. Interest rate without the impact of moratoria growth by almost 54%, taking into account the 24% of the previous element and the interest margin 400 points.
Volumes, both in terms of loans and deposits. We live in 2 parallel worlds, so to speak, now. One world is retail. Here, we call negative dynamics. The portfolio of loans dropped compared with the previous year by 6%. And obviously, the greatest impact of this negative contribution was affected in mortgage loans. That was by about PLN 2 billion. And other retail loans -- in the case of cash loans, the decrease is on this slide, not significant. Depreciation, about PLN 800 million to PLN 850 million. So the shrinking of the mortgage loan portfolio over this amount can be recognized and seen as surplus payments made by our customers.
In the case of corporate loans, here, portfolio growth dynamics is at 19%. We exceeded the value of PLN 100 billion as portfolio value. It was at almost PLN 106 billion. And the growth, to a large extent, concerns the loans granted to businesses. In the case of public sector, the dynamic is basically 0. In the public sector, we do not have any growth. We maintain there a stable portfolio.
In the case of deposits, the situation is similar. Stable level of retail savings with a decrease by 1%. In the case of investment funds, this is something that we mentioned at our previous conference. In the case of investment funds we see withdrawing of funds by customers and dropped by over PLN 4 billion. The situation is quite opposite in corporate deposits with the growth there at 16%. We interpreted the data as showing that the offer of our bank with regard to deposits. This is a market level.
On the one hand, it is not significantly better than what the market in general offers. And on the other hand, it is not worse than the average in the market, which means that our customers do not choose to withdraw their funds from our bank and transfer the funds to other institutions offering higher interest rates.
Stable results from fees and commissions. With more than 7% growth there in all segments, basically, except for 1, we recorded growth. And decreases were recorded in asset management fees and brokerage management fees. The cost that I mentioned, growth at about 6%, which is significantly lower than inflation. And let me remind you the information that we gave you after the second quarter.
In the second quarter, we recognized the additional operating cost as a result of reclassification of IT expenditures in previous years from CapEx to OpEx. And that was the impact of more than PLN 8 million -- PLN 9 million on operating costs. The equity situation of the bank remains very good. Tier 1, as I mentioned, is at 15%. The total capital indicated 16.8%, which is significantly above the regulatory minimum requirement and the criteria set for dividend payment at 50% and 75%.
In September, BFG informed us about a new path of reaching the target level of MREL, which was set for the bank at 18.9%. We have more lenient targets for midyear, which means that the bank is not forced to place subordinated loan issuance in order to meet MREL requirements. Our MREL issuance target, which we set at PLN 7 billion. In order to achieve the required MREL and accumulate certain surplus remains unchanged, but we will react on an ongoing basis to the market situation and to the indicators and indices. Based on that, we will decide our dates and volumes of issuance.
As regards liquidity and financial situation, we remain here at stable, safe levels. LCR at 168%, NSFR at 142%. We have loans-to-deposits ratio at 81%. Leverage ratio, very similar to the previous quarter at 7.3%. Risk costs in the third quarter, 51 points plus 6. These are the costs related to provisions for COVID and for foreign currency mortgage loans, and that remains at a stable level comparable with the second quarter, and within the range that was set by our strategy. The cost of risk between 50 and 60 points. NPL ratio, also at a stable level since last year. In the third quarter, 5.7% and coverage ratio at 89%.
Impact of the government program supporting borrowers, which is recognized now in the result of the bank, the payment moratory at PLN 2.4 billion, contribution to the borrowers support fund at PLN 166 million, and joining the commercial banks protection system where we have the costs recognized at PLN 482 million related to the change of loans -- pledged letters, and joining the institutional protection system.
So that was an overview of key results and key factors and ratios. Thank you so much.
[Interpreted] We have finished the presentation part of our conference. And now let us move on to questions and answers. And well, our guests who are here in the room offline are the first ones to ask questions, but the answer is no. No one in the room has questions.
So let us now move on to questions that have been submitted to us online, digitally. There is a number of questions. So let me start with this one, about interest margins. There is a question about projections for this particular margin for the future? And when are we expecting it to reach its peak?
[Interpreted] Well, it is indeed something that's an area of uncertainty because you can either say this value is already at its peak, and it may fall. But some people are -- there is a hypothesis that the peak has been reached, and the fall is going to be very slow. So there might be a certain flat level. Right now, what we're seeing is that the level of or interest-related income is being high, and depending on what first -- what happens with WIBOR may not have such a great influence on our net interest margin. Customers move from accounts with low interest rates. They move their funds to deposits. And this process is, I would say, the greatest factor that limits net interest margin.
But I would say what's happening is not because we pay more because interest rates go up, it's simply the fact that free money, let's say, goes towards deposits, goes from accounts to deposits regardless of what the level of deposits was initially. It's simply -- the level is simply getting higher. And this is a significant factor. That are -- lowers net interest margin across the whole sector.
[Interpreted] The following question is about moratoria or suspension of loan repayments. The question is, is participation lower than expected. And if it is, maybe some of the provisions, some of the reserves that were created in Q3, it was PLN 2.4 billion, more or less, maybe some of these reserves, provisions might be reversed in the coming quarters.
[Interpreted] Well, the level of participation of customers in the moratoria program. Well, we assume that the participation would be 85%. According to data that we have from the sector, we believe that the actual participation level is around 60% at our bank. Well, at first, when this initiative was introduced for some time due to technical reasons, we couldn't provide an application that customers could fill in for the entire period of the moratorium. So maybe -- there might be some customers who already applied for 2022, but they couldn't apply for any more, but they might that they might apply again for 2023. There was 8 days where we couldn't make, let's say, a full length of application available.
And when we come to the conclusion or when we see that the participation level, when we see it's not growing, well, because right now, we -- at Pekao, we're not significantly varying from the benchmark. But to get to 85% of participation? Well, there's still a way to go. And if this reserve that we've created for the moratorium, if we think we no longer need it, then of course, it may be dissolved or it may be reversed. However, if there are any additional initiatives or programs around moratoria, of course, these will be supported by separate calculations. So it's not going to be an additional cost or anything like that. We would do some new calculations. And we would inform you that the previous reserve left this and this amount, and if there are new reserves or new costs related to any payment moratoria, then we would do new calculations.
[Interpreted] Bloomberg Intelligence is asking about capital levels and our significant growth are of loans for enterprises. How -- to what extent did it influence our capital? So how did this dynamic increase of loans for enterprises? How did it influence capital?
[Interpreted] Well, as you know, we -- in Q3, become involved with a large consortium loan for PGNiG, which is a Polish gas and oil company. And it's a significant amount. Let's say, the commitments reaches or goes into billions of Polish zlotys. However, the nature of this funding is tangent and -- well, this commitment will not -- well, to us, will not have a significant impact on any future periods. This loan have guarantees from the straight treasury.
And of course, it's all according to the new and special law that was adopted for this particular purpose. So the part of the loan that is subject to state guarantees are not included in our concentration ratio. And terms and conditions of the loan are -- I would say, market conditions and the margin has been calculated according to our current costs. And apart from those sizable loans, we also have some loans and some facilities that have been renewed. Like, for example, Tauron, there's a revolving facility. And I'm talking about those big-ticket items that have influenced our dynamic in the third quarter.
But I would say we don't have any specific calculation pointing to a specific amount of that and that level of million of zlotys. This is something that I cannot quote off the top of my head, and how it influenced our results, but I need to remind you that our commitments and those big-ticket items, those big loans are short term. And these commitments will not have a significant impact on our future interest-related results.
[Interpreted] There's a question from the EBRD. Are we expecting that the COVID quick fix is going to be extended into 2023?
[Interpreted] So it's about limits or caps set on treasury bonds or bonds.
[Interpreted] So let me answer this. There is a certain lobby -- or some lobbying activities coming from Polish financial institutions. And there is a -- so there is a certain lobbying for it, and the government and all the competent institutions are aware of the fact that this is what the banking sector expects. So there are some lobbying efforts. So now let me combine EBRD and Bloomberg Intelligence questions into one because it's all about MREL. So these questions are whether we're planning to issue despite high costs, the entirety of a declared amount of PLN 7 billion or maybe we are planning to introduce a change to our dividend policy, maybe to issue less.
[Interpreted] Just like I said during my part of the presentation, in order to fulfill the regulatory requirements, it would be enough to issue at the level of PLN 3.5 billion. And as we were planning this issue at the level of PLN 7 billion, we wanted to fulfill the MREL but we also wanted to build a safe margin, let's say, or a safe cushion, but all decisions around MREL issues will be taken based on what we know about the market, what we know whether we can place what we've issued.
Right now, I can't see any signs that might indicate or force us to place those issues and have trouble placing those issues in order to fulfill the requirements, whether it's going to reach PLN 7 billion, we will see next year. As I said, PLN 3.5 billion is enough to fulfill the regulatory requirements. Today's levels of regulatory indicators -- today's levels don't allow -- well, it's -- nothing indicates that we would lose our dividend ability.
Of course, it's always maintaining our dividend -- the ability to pay dividends, and we always have to balance it with regulatory requirements, but nothing indicates that we would lose disability. And if -- our issues are unsuccessful, someone might ask that maybe we would have to change our dividend policy. But right now, I don't see any reasons for this happening. And hopefully, next year, no such reasons will occur so that we -- hopefully, we will not have to change our dividend policy. As the Management Board, we want to be stable from the point of view of dividend. We want to pay dividend to our shareholders somewhere between 50% and 75%.
[Interpreted] I have a question from Miroslav Cerman. What part of the growth of loan portfolio for enterprises results from the increased demand for funding from energy and gas distribution companies?
[Interpreted] We have a certain extraordinary situation. This extraordinary situation consists in something that we repeatedly mentioned, and something that was reflected in our modified credit policy. And namely for this transition period of the difficult situation in the energy sector, we lifted the prohibition of trading in coal.
You know perfectly well that 2 large companies from energy groups, that is PGE Paliwa from PG&E Company and Weglokoks. Those 2 companies started importing coal from abroad. And this coal is intended to ensure energy security for the upcoming winter. By lifting the prohibition of trading in coal. We were guided in this decision by the need to ensure or to create the opportunity for ensuring such funding.
And on the other hand, these are also significant amounts. Obviously, it is not only Bank Pekao SA that finances this kind of activity. But we will be the second bank and the first bank, in terms of financing corporations will be a significant element of the entire process of funding such purchases. After modifications to the credit policy. We received the request for funding purchases of coal from minor companies. This is 1 big area.
And the second area that I already mentioned, is the entire gas sphere that relies on PGNiG. However, we do not record any growth or requirement from energy distributors. We do not see any significant increase in applications or inquiries whether we would be able to ensure funding for this segment.
[Interpreted] We have also a question from Marta Jezewska. What is the scale of positive impact of the quick fix Tier 1 and Tier 3 in the third quarter?
[Interpreted] Maybe we will -- if you allow us, maybe we will answer this question after the conference. I do not have the data at hand.
[Interpreted] That was the last question. Do the guests in the room have any questions? They shake their heads. So thank you very much for your participation in our today's conference. I would like to thank the presenters, the Management Board of the bank. And I close this conference.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]