Powszechna Kasa Oszczednosci Bank Polski SA

WSE:PKO

Earnings Call Analysis

Record Net Profit and Strong Loan Growth

In the first half of 2024, the bank's net profit surged by 115% year-on-year to PLN 4.4 billion, driven by a 236,000 increase in customers. Financing volumes grew by 9% to PLN 279 billion, and total assets rose by 10%. Retail loans, including consumer and mortgage loans, saw a 14% increase, with new sales of consumer loans jumping over 32%. The net income margin improved to 4.48%, and the bank's ROE reached 19%. Cost management and effective risk controls have kept the cost-to-income ratio stable. The bank's strategic focus includes expanding digital mortgage projects and maintaining robust credit risk measures.

Outstanding Performance in H1 2024

The company's net profit for the first half of 2024 surged to PLN 4.4 billion, representing a 115% increase compared to the previous year. This robust performance was accompanied by an 18% rise in core income and a notable increase in the net income margin by 0.17 basis points to 4.48%. Excluding extraordinary items, the net profit would have reached PLN 6.8 billion, with a return on equity (ROE) of 28.6%.

Impressive Growth in Retail and Mortgage Lending

The Retail segment saw tremendous growth, with consumer loans and mortgage lending increasing by almost 14% year-over-year. New sales grew by 32%, while the company captured close to 19% of the market share in cash flows. The mortgage segment particularly shone, securing a 25% market share in new mortgage sales. Despite the end of a government-aided mortgage program, new mortgage sales grew by over 40% year-on-year.

Effective Risk and Cost Management

The company's non-performing loan (NPL) ratio decreased steadily by 3.54%, demonstrating effective credit risk management. Additionally, the cost-to-income ratio continues to decline, with the company maintaining control over operating expenses. Provisions for Swiss franc (CHF) loans and other non-financial assets were prudently managed, with a significant portion expected to be recovered.

Customer Trust and Volume Growth

Customer trust and confidence have driven substantial volume growth, with the number of customers increasing by over 236,000. Savings within the group rose by 14.4% to PLN 562 billion, contributing to a 10% growth in total assets, now amounting to PLN 507 billion.

Digital Transformation and Strategic Initiatives

The company is making significant strides in digital transformation, particularly with its digital mortgage initiative. This project aims to simplify and expedite the mortgage process by offering a fully remote experience. Additionally, the company has seen strong sales in life insurance products, highlighting the success of its diversified strategy.

Corporate Segment Stability and Growth

The corporate segment reported a 30% increase in the balance sheet, with notable growth in leasing and factoring activities (over 20% year-on-year). Despite some consolidation among corporate clients, the segment continues to show high growth dynamics and potential.

Challenges and Future Outlook

The company is preparing for potential interest rate cuts, which may affect net interest income. Sensitivity to a 100 bps cut is estimated at PLN 740 million over 12 months. Additionally, regulatory changes expected in the next few years will tighten capital requirements. Nonetheless, the company's strong capital position and strategic initiatives provide a solid foundation for future growth.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome wholeheartedly to the performance conference for the first half of 2024. The performance will be discussed by the President, Szymon Midera, Krzysztof Dresler and Piotr Mazur. Mr. President, the floor is yours.

[Szymon Midera, executive]

Thank you very much, ladies and gentlemen. I am in a comfortable position, very comfortable because our performance is not only in line with our assumptions, but they exceed these assumptions. So welcome once again to the performance review after the first half of 2024.

We have shared -- traditionally, we have shared tasks. So traditionally, Krzysztof will present our financial performance and Piotr Mazur, who is responsible for risk, the part devoted to risk. So now let's kick off.

I'm happy that the number of customers of PKO BP who are fundamental and key to our performance, it has went up more than 236,000, thanks to the trust and confidence of our customers. Our volumes in financing has went up by 9% to PLN 279 billion, plus savings within our PKO Group 14.4% to PLN 562 billion. That translated into a 10% growth of our total assets.

We have PLN 507 billion for -- at the end of the first half of the year and entire growth is under full control of the credit risk. Our NPL is decreasing stably by 3.54%. And we have Tier 1 at the level of 17.15%, 619 bps above the dividend criterion, which makes us comfortable and we can expect dynamic growth of credit volumes. But also we will distribute our profits with our investors.

So how all of these financial results translated into our results. We're happy about an increase of our core income by 18%. And net income margin, an increase by 0.17 basis points to 4.48%. That gives us the net profit of the bank at the level of PLN 4.4 billion, 115% more year-on-year without any legal risk and risk from the side of CHF portfolio. That gives us a high ROE, 19%, without any extraordinary events, almost 30%. At the same time, all costs are under our full control. Our cost-to-income index is decreasing steadily and our credit risk under full control.

We are below 40 bps. So let me extend my gratitude to all our customers and employees because of these are reasons to be very satisfied. In terms of our Retail segment, we have recorded a spectacular growth for loans and loans volume year-on-year we went up by almost 14% in consumer loans and mortgage loans.

When it comes to new sales, this growth has reached over 32%. In cash flows, we managed to get close to almost 19% of the market share and we have increased our market share year-on-year by 1 percentage point.

In new sales, we have recorded 20% market share and in terms of balance, our market share is almost 30%. That is an evidence that our strategy to approach new customer is very successful.

Also, on the side of the consumer loan. In the area of mortgage loans, we have recorded 25% share in new sales. And despite the fact that at the end of Q1 we have finished distribution of the mortgage loan with governmental aid, the increase of new sales year-on-year has exceeded 40%.

For deposits, plus 7.3% and let me make -- let me stress that we have increased our market share in mutual funds by almost 40%. In mid August, we have exceeded PLN 50 billion in assets under management by PKO TFI.

Since the beginning of this year, we have acquired PLN 7 billion of new assets that gives us almost 30% share in acquisition of fund. So that makes us really satisfied. And once again, let me thank all our employees, in particular, to the employees of our retail network and sales network.

The customer is at the heart of our attention. It is fundamental for our existing activities and future strategy. We are obsessed with our customers. That's why we engage in projects like digital mortgage, we'd like to strengthen our position in the business.

We would like to get closer to almost 30% of share in new sales. And that's why we needed this project that we have been implementing consequently. So in April, we have signed a first mortgage loan agreement within this digital mortgage project. And now we are expanding and developing the project for other customer segments. And during the next quarters, we will be able to offer digital mortgage to all our clients and customers.

So the process will be fully remote. We understand the shift and behavior of our customers. It's an element of our deep digital transformation, which we develop within the bank. So we will naturally develop this digital ecosystem and mortgage ecosystem because we perfectly know that our customers are looking for apartments online, we want to integrate the process of looking for an apartment and applying for a loan in one place.

So all people, all customers applying for a mortgage loan and who need to wait for a long time for their credit decision and who need to tackle red tape and long process of documents handling.

Our customers are on the first, second, third and any other place. That's why within our Capital Group, we are preparing product solutions intended to satisfy the needs and requirements in a comprehensive manner. We would like to brag about great sales of our insurance products -- life insurance products.

So starting from April this year, we have sold over 20,000 of insurance -- life insurance policies to our customers. It's also an element of our strategy development of entire PKO Group, but it's also an element that will help us to stabilize financial performance in the future and build better result, better net interest income and other noninterest leverages.

Moving forward towards Corporate segment. We have recorded a stable growth of our balance sheet by 30%. And despite the fact that all signs tell us that our clients are consolidating their liabilities. They wait for a national resilience plan money.

We can see a great potential in this area. The loan -- the credit balance sheet has dropped by a few billion PLN, but we have recorded 2-digit growth and high dynamics of growth in SMEs and we are proud of that. When it comes to savings of our corporate clients, they went up by 14% year-on-year. And let me stress that in the field of leasing and factoring, we have recorded over 20% growth year-on-year.

So thank you very much for this part, and I hand over to Krzysztof, the floor is yours.

[Krzysztof Dresler, executive]

Thank you, Szymon. Now we are moving on to the financial performance. As our President of the Board mentioned, our net profit was growing at a fast rate year-to-year, PLN 4.4 billion for the first half of 2024. This is a great reason to be joyful. And on a quarterly basis, we are also happy to see that there is a stable trend. When we show performance from quarter 1 to Q2, we are 15% up.

In terms of extraordinary items they continue to impact our overall performance. And Piotr, I believe, will provide more insight, but we rely on our internal modeling. So this is a data-driven calculation and there are no major changes in this regard. So when it comes to extraordinary items, mostly for Swiss franc items, so we will need to show that and reflect that, and it will evolve depending on the customer behavior.

So if we put extraordinary term aside, our net profit will be PLN 6.8 billion for H1 2024. ROE reported for H1 20%, excluding extraordinary items, 28.6%. And our President of the Board mentioned that growth of our result on the core business was quite substantial, 20% up year-to-year. But I need to draw your attention to the fact that we've been really mindful of keeping that as a stable and sustainable trend.

So if we didn't really have the loan repayment relief in place, the dynamic would be sustained quarter-to-quarter. So we are really proud to announce such financial performance. And I believe that what we are showing right now really matters in terms of the stable business and banking operations.

The net income margin was improved. It's no secret that from the banking point of view, operations and the high interest rate environment gives you some upside, some -- in terms of the margin and also net income -- net interest income. So even though we did have this repayment -- loan repayment vacation than temporary relief, we were still able to raise the net interest margin.

So we continue to improve that result from quarter-to-quarter and our net interest income. Now we are sharing the structure of our assets. On the right-hand side at the top of the chart, you see that we were able to actually put a break, the slowdown of the asset valuation. Well, it's not for the repayment relief we would probably show the higher numbers than Q1.

So as a result of the previous interest rate situation was different, but now we see that the valuation has changed. And in terms of interest-bearing liabilities, we see that some surplus funds are being moved to TFI, so mutual funds. So this additional PLN 7 billion that we are able to raise it means that our customers change their approach to saving, but we do see some shifts between term deposits and current deposits.

And right here, the bank is trying to optimize liabilities. And therefore, the combined interest margin actually is still likely to grow compared to the numbers shown for Q2.

The commercial income. Well, this is the key thing to us. The higher interest rate will not be with us forever. And therefore, we have to be prepared to actually cover the costs by commissions charged, therefore, that should be a harmonious process. We are really trying to make sure that there is a stable dynamics in place.

So if you compare numbers year-to-year, you see that we are 15% up and the Q3, again, 2 digits up and that's how the bank is getting prepared for the upcoming interest rate cuts. So -- but performance is driven to a larger extent by fees and commissions income, where there is still room for repricing if needed.

For the time being, we haven't really changed our pricing and these results are really strictly transaction based. So we are really happy to see the growth. Now from the bank point of view, what really matters at the end of the day is the cost.

There are 2 types of costs that come to our attention. The costs that are more investment driven. So let's say, adequate pay that we offer to our employees. This is the investment that we make into the future because at the end of the day, people are actually driving the business. They are providing services to our customers. So we try to make the best possible investment in our human resources. Therefore, we keep our payroll adequate compared to the market.

So in the cost dynamics, you see 18% -- sorry, 11% up and that means that our wages were up, but we treat it as an investment. And on top of it, there is also a price pressure that we see in the general economy. But nevertheless, cost income was retained at more or less 30%, and we will try to continue this trend. We expanded our presentation format to share the information about liabilities MREL.

We have over 100 years of history of banking operations. We were always a deposit bank, we also had a surplus liquidity, but now the definition of liquidity evolve over time. And despite the fact that we have a huge portfolio of securities, and we continue to be very, very good position on liquidity. But nevertheless, when you look at the external requirements like MREL. MREL should be seen as a buffer that should protect you against some undesirable events in the banking market. It's not about us, it's about the overall banking market. So we need to be present in the debt market. And therefore, we had to place debt instruments.

And here, there is a listing of what we were able to place so far, and we will continue these activities on a cyclical basis. So we are going to revisit the debt market on a regular basis. This is something that should be noted and emphasized. In our current reports, we were reporting and communicating subordinated bonds that were issued in PLN. Piotr will cast more light on that, but we know that the capital requirements are actually growing, so the buffer is growing.

And we are sort of running ahead of the curve, trying to get prepared for what is likely to come. So that we don't -- we are always within the line. We were communicating earlier that at some point, the bank may have some challenges on the radar, it seems that during Q2, we were able to address the issue of possible trespassing over the regulatory standard for capital requirements and MREL.

So natural hedging is important to us. And obviously, with IRS, we are trying to have everything in place. So we are looking for the adequate solution in the balance sheet. But now when you look at the long-term financing ratio, you know very well that there is overall expectation that our mortgage portfolio should be funded on the wholesale debt instruments.

And that's ultimately the direction that we are going to head into. So we have to be prepared for that because we are the main player when it comes to mortgages in the Polish market. So one more thing. If you look at all the capital requirements that -- and if you take at least 2-year scenario and 2-year horizon, you see that probably 1 quarter doesn't have such a great weight. It's more important to look in terms of 2 years. The market has a certain capacity. We cannot launch a large volume on one occasion. We have to somehow distribute it over time. And hence, my previous comment that we are going to revisit that market on a cyclical basis.

Piotr, over to you.

[Piotr Mazur, executive]

Okay. The interest rates continue to be high, but we are able to keep a stable and low cost of credit risk. This is another quarter that really proves that quality of our portfolio is truly high. In Q2, we actually had to come up with additional write-down for nonfinancial assets.

And this impairment was about Swiss franc loans that were annulled by the courts. And as far as the other Swiss franc cases go, I'm not that certain. But right here, I'm quite certain that this PLN 200 million that we have in the provisions will be recovered sooner or later.

Now when we move to the next slide, where we really illustrate the quality across segments, we can tell that there is a slight increase quarter-to-quarter of the nonperforming loans and this is because we reclassified one of the major corporate customers.

But the overall sort of collateral because most of the transactions were leasing transactions where asset value is higher than the exposure value, therefore, the coverage -- provision coverage is fairly low. And as a result, overall coverage was down across the portfolio.

And in addition to that, in Q2, we sold one of the NPL portfolio, where the coverage -- provision coverage was very high, over PLN 350 million. So again, you can see the effect of that in the numbers.

Now expecting the questions that you may have. There are 2 major corporations in the market that are going through the restructuring process. And the questions may be asked about any anticipated impairments that may be required in the future. I don't expect that, let me say right away, but we may expect a slight increase in sort of seasonal increase in NPLs. So this is something that we may expect from the large corporate customers.

Now the legal risk and the cost of it. To be more transparent, we shared more information with you. So we showed more information about our mortgage portfolio in CHF. We show you actually the status of the mortgage loans. So whatever was paid off, whatever is still sitting in the court and what loans are still active.

And we also show the mortgage coverage as compared to the market. And to be honest, I was really thinking how to comment this slide to make it really very clear because the numbers can be quite impressive.

When in 2023 we had to have PLN 7 billion in provisions. I thought that this is, well, the story that we can put behind us and we will be able to recover some of it. Unfortunately, the life turn out differently, and we need to continue to have the provisions and establish new provisions. We cannot say that this is the end.

I believe that we -- for the next few quarters, these provisions SHF mortgage loan provisions will overshadow our portfolio and our results. However, this curve will be declining after a while because we continue to have more and more settlements in place. I think that we can claim a major success because in Q2, we were able to settle in many cases that we're sitting in the court for a long time.

And this is a success because on one hand, we actually take the burden of the court shoulders and on top of it, the customer had their case resolved much faster than in the court system. In Q3, our goal is to have an equal number of settlements to the number of new claims. And we are very likely to succeed here.

So this is the slide where we really want to really break about our advanced analytics. So the success that we score to our portfolio quality does not come on -- does not drop on your lap out of no where. It's been driven by people and technology and the creative approach to technology. This is how we increase the use of information, mainly in retail loans, 20x more information is fed through the system, which means that we had almost PLN 380 million of cash loans per year more in additional sales.

Another slide that you see here is probably difficult to explain, but the chart that we have on the right. But let me just say that this is a prototype. But what we really want to do is to have a digital information displayed in the visual format. And then we put it into the risk models.

And then we see the better quality of the risk models. Perhaps this is not very intuitive. But as a matter of fact, the technology that we have in the digital VGO and image processing is very much advanced. So we do see a lot of opportunities with the advanced analytics.

We are recovering the quality of our retail lending portfolio, but we apply the same tools to the corporate sector. We are the largest bank in Poland. We have the greatest outreach. We see billions of transactions and operations that are placed on the market. And as a result, we are able to see the transactions between customers and their customers and their suppliers or subcontractors.

We check the loyalty. And based on that, we may actually estimate the risk, and we may estimate the risk over time. And the final slide, really, is a testimony to our solid capital position, a very substantial surplus over the dividend payment criteria and the minimum threshold. But nevertheless, I have to tell you upfront that next year, the regulatory changes are coming up. And the regulatory changes are not to be more liberal just the other way around. The capital requirements will be tightened again, and we will have to face this challenge to get it.

[Szymon Midera, executive]

To wrap up. We can be happy. We have reasons to be satisfied because our performance in our core business has went up significantly. Our retail business is expanding, and we are keeping our net interest margin on track, and all that causes us from the perspective of net profit, our ROE, this performance is record-breaking.

So this lays a great foundation for future strategy. That's why you are more than welcome to join us for our strategic meeting at the end of October 2024 where the new strategy will be presented. Thank you very much. We are here for you should you have any questions.

[Kamil Stolarski, analyst]

Santander Bank, Kamil Stolarski. My congratulations on your net interest income that came as a surprise to me because it shows good trends from the perspective of net interest income and net interest margins. So to what extent did you expect such result?

Could you comment on the side of net interest income, PLN 150 million in 1 year and then -- of course, I mean the financial costs, the cost of deposit, because the cost of deposit has changed like in other sectors from 32 to 31 days. But you -- your performance is a few bps higher than the market. So are you going to continue this trend, could you explain the reasons behind this increase?

[Krzysztof Dresler, executive]

Thank you very much. Thank you for this question because that shows how we work because we manage net interest income on both sides of the balance sheet. And it seems that the liabilities and transfer and shift in terms of interest, you could think guided by our intuition that is easier, but it's not like that. We need to balance a few things. We need to maintain our deposits. But on the other hand, we need to build our price position.

So as our customers stay with us and are willing to stay. So this is -- that takes us a lot of effort at different levels. And of course, we introduced adjustments in all streams. And we also manage our product consumption. Of course, its our insider knowledge, and we can't share everything, but you may be sure that we will be concentrated on our liabilities and optimization of interest cost, but having in mind all solvency requirements.

So when it comes to our loan portfolio, it will -- whenever it forces to make our deposits more attractive, we will do it without any detriment to the net interest income. And when it comes to our portfolio, it's over PLN 200 billion in bonds, which affects significantly stabilization -- which is under the effect of stabilization of interest rate and our interest that results from the overestimation of securities. But when it comes to interests, it's in line with the market trends. We will continue this trend. We will manage our net interest income, higher interest rate from the perspective of business management -- business, which is based on interest rate, it's quite comfortable to the banking sector. Of course, there might be some negative effects in interest rate risk, but we cannot see them in our parameters.

We will continue to extend it is possible, and we will strengthen the interest rate drivers. But we apply comprehensive activities and fees and charges are able to take over whenever the market conditions and interest rate environment landscape changes.

[Kamil Stolarski, analyst]

And a question with regard to the last quarter because I wanted to ask about the cost of risk, PLN 201 million. I assume in my valuation that CHF-denominated loans will cost that the bank will not recover its assets. I want to confirm that PLN 200 million result from the situation. Is it so the PLN 201 million, this is a result of the legal proceedings, which were lost?

[Piotr Mazur, executive]

Our exposure amounts to PLN 300 million, and we have full access to these resources, we have mortgage collateral. We were very conservative. We're raising this provision. And what you're talking about that constitutes a separate portfolio, but it is under management.

[Kamil Stolarski, analyst]

And my last question with regard to last quarter about provisions for large corporate bodies because banks have the same exposures to the same customers, but they behave in a totally different manner. What is the reason? And my last question, profit distribution because you repeat that you have ambitious goals in terms of loans and you have excessive assets. And are you planning? And are you in contact with KNF and are you planning to pay out the profit and payout is it going to be in line with the market consensus? Or these requirements cause that dividend will be lower, the payout will be lower than this market consensus?

[Szymon Midera, executive]

Krzysztof, over to you.

[Krzysztof Dresler, executive]

Of course, we will continue our dividend policy. We have different investors. Some investors are focused on the growth of goodwill and some on dividends, 70%. This is the limit for today because if you want to go above it, you need to negotiate with the KNL of the financial authority, so our strategy is based on stabilizing our position and strengthening it when it comes to dividend and the level of dividend. It's not up to us.

We can only offer our recommendation. The recommendation will be based on the situational reconnaissance. If it happens that the dynamics of growth of volumes will be different than planned, we will take different decisions.

So for sure, we need -- we have some flexibility for now within the limits that are well known to all of you, 50%, 70%. These are the levels which are quite obvious, and they do not require any further discussion if we would like to go above that, that would mean that the launch of the investment phase related to national resilience plan, that would mean that it is postponed, and this is the place to optimize the capital base.

When it comes to the level, we will keep on a watchful eye on keeping the capital adequacy, and there are many, many challenges there.

[Andrzej Powierza, analyst]

Andrzej Powierza, Citi Handlowy. Two questions about your core business income that came as a positive surprise after the last quarter. But when we talk about interest income and the fact that the increase was due to debentures and maturity of former debentures from the past. Can we expect similar events in the coming months? Are you having any maturing tranches of bonds on the horizon?

And the second question about the net commission income, which was over 50% of your more on cards. It is very difficult to explain only in terms of higher number of transactions. Did you have any special events over the last 2 quarters? And if not, what is other reason apart from the number of transactions that you have -- that's translated into this growth?

[Krzysztof Dresler, executive]

In Q1, we have reported the settlement with the operator. And I think that it was not spread over quarters. It was reported in Q1. And here, we have performance for entire first half of the year. We are very happy with our number of transactions on cards and this is something which is of our interest. And core business -- income on core business and net interest income what we said by now, of course, our net interest margin for Q3 last month that it won't be lower than. We are far, far way higher.

We don't want to publish any forecasts. We have a large portfolio of debentures and the term structure is also readable. Of course, hedge accounting is maturing and it contributes to the interest cost. So this is the element that supports the result until the end of this year, and it will support our net interest income.

[Operator]

We have a number of questions from our online audience. The first question. How sensitive the net interest income is sensitive to any interest rate cuts by 100 bps?

[Krzysztof Dresler, executive]

Well, we communicated that in our reported financial statements. So the sensitivity to interest rate cuts over 12 months is approximately PLN 740 million. So that has been communicated. And since you asked this question, let me repeat again that right now, the regulator is really watching the stability of the interest income and they are less concerned about sensitivity of your interest income to the interest rates.

So in this context, they actually have this really shocking parameters and we do meet the requirement that they set. So we were able to align our structure and we were able to sort of readjust our assets and liabilities to be below the threshold.

[Operator]

Okay. New question. The new sales of mortgage loans in Q2. Any contribution of the loans from the extinguished subsidized lending program?

[Szymon Midera, executive]

In Q2, the contribution was approximately just PLN 50 million, but the total volume was PLN 4.6 billion in Q1 and PLN 6 billion loans across the total subsidized program. So practically speaking, Q2 did not include this kind of sales. It was not tangible.

[Operator]

Next question. Any change in your compensation policy would have a negative impact on the payroll costs?

[Szymon Midera, executive]

Well, we made the verification of the wages for Q3. And strategically speaking, we not only want to be the market leader, we want to be the trendsetter in the market. We want to be the best workplace, the best employer. So we are committed to invest in our people, and that will impact the cost dynamics when it comes to the payroll cost.

[Operator]

Okay. The loan repayment holiday has been the same as the current interest is the same as what we've seen for Q2?

[Krzysztof Dresler, executive]

Well, I think that it has been declining slightly. We were running our internal calculation to see what is the realistic interest in that form of support, but we were taking conservative approach when we were calculating the numbers for Q2.

Well, let's see, in Q3, this will certainly be addressed because we need to come up with the final numbers. If I was going to take a guess, I should say that our internal estimates were probably very much in line with reality, closer than what we were showing in the numbers.

[Operator]

Okay. And I had a question. Today, what is your WD?

[Krzysztof Dresler, executive]

So long-term debt financing is the ratio that will become mandatory in 2026, so we don't need to report that today. But we do have that. Just please bear it in mind that we need to take into account the long-term deposits when we do this calculation.

And therefore we will certainly take actions to make sure that we can extend long-term deposits for long term, not only wholesale instruments should be there because we should really encourage the general public to increase their saving propensity. So if we were to report today, probably the ratio would be in line with whatever is required and will be required.

But we don't do it, as not need that. So we are mindful of that. But when we look at our presence in the debt market and the wholesale debt market, well, the very fact that we made this step, it means that we are aware of that requirement coming into force very soon. And historically speaking, when you actually have to look at the process when you calculate the long-term debt ratio.

And obviously, the retail deposits will probably take precedence over wholesale debt, so we will have to supplement that with the wholesale debt market if we are not able to retain the same deposits from customers. Well, we are the largest mortgage banks. And therefore, mortgage bonds have the highest emissions, now about the risk.

[Operator]

So the higher default rates that you see, our NPLs rates, is the beginning of the trend or it was just insular case or cases?

[Piotr Mazur, executive]

Well, we made a survey of the corporate market in Poland, and we were tracking the performance of corporate customers for 2023, our Polish corporations. And unfortunately, we see that the situation has slightly deteriorated. But please be assured, in 2019, we were at a certain risk level, and then COVID was striking and everyone thought that it would be a disaster. But realistically speaking, a lot of money was actually fed into the economy and the risk level was down.

So right now, we are getting back to the risk level, but we had in the general macroeconomic environment in 2019. So we see that companies see that the consumer demand has been declining, the electricity prices, the payroll costs go up and the companies that have high leverage, their high leverage. They actually may struggle under the higher interest rate environment, but this is not to be alerted. In our case, this increase was, as I explained, because of the one customer that was reclassified.

[Operator]

Okay. What was the impact of NPL portfolio sale on your P&L?

[Piotr Mazur, executive]

In Q2, we sold 350 million NPLs and that contributed to over PLN 30 million to our net profit.

[Operator]

And I believe that, that would exhaust all the questions because all the other questions that we got online were addressed earlier. So I would like to thank you, and I would like to thank our audiences, and we'd like to have you back in autumn for the next meeting.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]