Powszechna Kasa Oszczednosci Bank Polski SA

WSE:PKO

Earnings Call Analysis

Guidance and Positive Trends Amidst Challenges

During the Q&A session, executives relayed key information to analysts about the company's performance and future expectations. There's a generally positive outlook on the quality of the portfolio and expectations for stable provisions for 2024, noting robust SME performance despite high-interest rates. Net interest margin (NIM) improved slightly due to faster-growing asset revenue and lower hedging costs. The NIM sensitivity has risen to PLN 1 billion, with a possibility of a flattish NIM in Q4 despite a potential rate cut. Additionally, there was a mention of a dividend payment expectation for 2022, up to PLN 1.6 billion, with a decision anticipated by year-end.

Introduction to the Earnings Call of PKO BP in Q3 '23

PKO BP, a key player in the banking sector, held their earnings call to discuss the Q3 '23 financial results. The call was chaired by top management including the CFO, Chief Risk Officer, and the head of IR, among others. They chose a direct approach, encouraging an open Q&A session with analysts and investors after the presentation was delivered earlier in the day.

Positive Portfolio Trends and Credit Quality

Management reported a positive trend in portfolio quality, with record low non-performing loan levels indicating excellent credit quality. The outlook for 2024 remains optimistic, suggesting that the quality of the portfolio will continue to be robust, and the cost of risk for Q4 is expected to fluctuate within a reasonable range but won’t significantly deviate from Q3 levels.

Improved Net Interest Margin and Sensitivity

PKO BP saw an improved net interest margin (NIM) increase by 6 basis points due to faster-growing asset revenues outweighing the cost of financing. The bank's sensitivity to interest rate changes also rose, with a potential impact of PLN 1 billion in response to a 100-basis-point shift. This change was largely attributed to the short repricing period for the bond portfolio. The company's mortgage book displays higher initial fixed income rates, stabilizing the interest rate sensitivity from the liability side.

Stable Outlook for Net Interest Margin

The CFO stated that there is a possibility for net interest margin to remain flattish in the fourth quarter, though this will depend on the behavior of the deposit base. Looking forward, the cost of hedging is anticipated to continue declining, which is expected to support the NIM through 2024, potentially maintaining it at the levels seen in Q3 '23.

Swiss Franc Mortgage Portfolio Provisions

Management addressed concerns regarding the Swiss franc mortgage portfolio. Provisions made in Q3 were deemed appropriate and in line with their model. A potential recalibration of provisions may occur in December, but significant adjustments are not anticipated unless there is a substantial change in the legal assessment of the portfolio. This reflects confidence in the handling of any related legal issues and the stability of provisions associated with the Swiss franc mortgage portfolio.

Dividend Expectations

The bank has approached the Polish Financial Supervision Authority (KNF) about dividend payouts for 2022, hoping for a positive review of their previous decision. If the outcome is favorable, they plan to pay up to PLN 1.6 billion in dividends. A decision is expected by the end of the year at the latest, indicating the bank's confidence in their financial position and ability to distribute dividends.

Tax Deductibility of Swiss Franc Provisions

PKO BP clarified that there has been no update regarding the tax deductibility of Swiss franc loan provisions, with no expectations for changes in the next year’s planning. This uncertainty in tax legislation is a factor investors should consider, influencing the bank's provision expenses and after-tax income.

Outlook for Loan Book Growth and Strategy

The company originally forecasted a 7% increase in their loan book for the sector next year, which may be revised downward to mid-single-digits based on a higher expected interest rate and economic growth assumptions. Despite a conservative cost of risk range set for 2025, current strong portfolio performance may lead to an adjustment of the strategic plan, indicating management’s confidence in maintaining lower provisioning levels in the longer term.

Earnings Call Transcript 2023-Q3

[Dariusz Chorylo, executive]

Good afternoon, ladies and gentlemen. Let me welcome you at the follow-up call after presentation of Q3 '23 results of PKO BP, we have a strong team with 2 board members, our CFO, Marcin Eckert; and Piotr Mazur, our Chief Risk Officer; [indiscernible], Head of Finance Division; Piotr Bujak, Chief Macroeconomist and our IR team, [indiscernible]. My name is Dariusz Chorylo, I'm head of IR.

[Dariusz Chorylo, executive]

As usual, we propose to go straight to the Q&A session as the presentation was delivered in the morning, I believe you had an opportunity to get familiar with it. So please, we are ready for the questions.

I see Michal Konarski has the first one. Michal, we are ready for your question.

[Michal Konarski, analyst]

Yes. Michal Konarski from mBank. And first of all, congratulations on really exceptionally good results. And actually, I was wondering if you could give us some update maybe on net interest margin sensitivity, how it presents now? And maybe just a few words about cost of risk outlook maybe for the fourth quarter as well because it's usually seasonally weaker. However, we see that the trends are really good this year and maybe there won't be any seasonality in the fourth quarter. But also, I would like to hear anything if you can add on 2024.

[Dariusz Szwed, executive]

So I would like to propose that the first question would -- the first answer related to cost of risk, and I will pass the voice to Piotr and then a couple of follow-ups on net margin, right? So, please go ahead.

[Piotr Mazur, executive]

As we presented during the today morning presentation, we see still a good positive trend in relation to the portfolio quality, the new sales, the NPL level is on the maximum low level. I agree that the third quarter, the time that you, I would say, review the portfolio, you have to agree with the auditor, but I don't expect a material increase in the quarter 4. It could be then maybe some 10%, 20% higher or lower, but still portfolio behaves very good. And the outlook for 2024 is still positive. We were worried about our SME segment. However, they performed, I would say, excellent, and I'm very surprised how they behave in this macro situation and with this high interest rate situation.

[Marcin Eckert, executive]

Right. So then hello, good afternoon. I will comment about NIM and sensitivity, so the question about it. So on the one hand, as you know, we were able to increase our NIM in this quarter by 6 basis points. The main drivers was that the revenue on the asset sides grow faster than the cost of financing, and here is actually lower cost of hedging, one of the major points impacting better margin. And looking on the sensitivity point of view, as you can also read in our financial statement, it increased. Now it's about PLN 1 billion for a starting balance sheet. That's important starting balance sheet or the move of 100 basis points.

The main reason of increase because it was increased about PLN 200 million was a short-term period for pricing for a bond portfolio, and it was a major position. Why the sensitivity in the third -- and the end of the third quarter was higher. Also, what you can observe on our balance sheet regard the situation that term deposits dropped and increased current deposits. It also actually then increased sensitivity on our side -- on the asset side.

Now looking on the liability side, it's more stable than -- and also hedging -- shorter repricing of hedging. So these are the main points actually, which impacted an increase of sensitivity. But on the other hand, you have to remember that looking forward, of course, again, what is not captured by this measure, which we present is that in the next quarters, we again will be supported by decreasing cost of hedging on the one hand, and also will be supported by maturing of part of our portfolio and repricing with portfolio at higher yields. And also what is kind of shield again as growing fixed -- initial fixed income mortgages, which now is at the level of 23% of the mortgage book already.

And the increase will actually continue due to the fact that the program saved mortgage loan, 2% is based on this initial 5-year fixed rate, and this is actually a predominant part of our current sale of mortgages.

[Michal Konarski, analyst]

Just maybe one quick follow-up question. Is it possible still that given your guidance, the net interest margin in the fourth quarter could be flattish, I mean, plus flattish? Or should we expect actually after 100 bps rate cut some drop in net interest margin in the fourth quarter?

[Marcin Eckert, executive]

I would say it's a chance that it will be plus flattish or I would say, flattish. But of course, it will depend on how our deposit base will be behaved, although we actually took steps on our side and we modified our offer just to follow the cut of interest rates. And here, what also should play a role is, again, decreasing cost of hedging. So this, I would say, another point here, which should support our NIM.

But here again, it will depend how we'll be able and our customers will behave in terms of predominantly retail deposit base, right? Because we decreased the share of term deposits, will also support us just to actually not to increase so much the cost of deposit base.

[Dariusz Chorylo, executive]

Lukasz, please.

[Lukasz Janczak, analyst]

Yes. Just maybe one question on the Swiss franc mortgage portfolio and current level of provisioning. The question is how we should look at the current level of provisioning, whether do you think this is fully sufficient to cover the risk also for the, let's say, 2024? And in which scenario you would be somehow forced to increase the provisioning substantially. I'm not talking about like PLN 500 million, a couple of billion Polish zloty. What scenario would require this kind of additional move?

[Dariusz Szwed, executive]

Piotr?

[Dariusz Chorylo, executive]

Piotr, you're muted.

[Piotr Mazur, executive]

I would say that on the quarter 3, provisioning is correct, it doesn't mean that it's in line with our model. Today, it's too short time to make any prediction how it will behave on the end of the year. The number of court proceedings, I would say it looks as we expected, it's a little bit higher, but we predict this in our model. We think that maybe the -- will be need some recalibration in December, but I don't think so that it will be material amounts related to the amount which we provided in the quarter 2.

What should be happened to provide material provisioning for this line, I would say, for sure, if there will be a material change in the, I would say, legal assessment of our situation. Today, we see a rather positive trend in this situation. So we don't expect that it will be required.

[Dariusz Chorylo, executive]

Jovan?

[Jovan Sikimic, analyst]

I have a follow-up on margin. I think Bloomberg quoted CFO saying that net interest margin 2024, should be at the level of Q3. Can you just confirm it because I think it will be substantially positive, right?

[Dariusz Szwed, executive]

Yes. I can confirm during the presentation of our results for Q3. I've been asked by Bloomberg representative, and we do believe that take into account the adjustments and measurements on our side, we are going to apply towards our balance sheet. We believe that the NIM for 2024 should be comparable to the levels we do have on the third quarter.

[Jovan Sikimic, analyst]

Okay. And if I may, another one, you have approached again KNF with the dividend proposal, right?

[Dariusz Szwed, executive]

Yes. Approximately 2 weeks ago, we've heard from the official statement from Santander Bank Polska that they've been allowed to pay the dividend for 2022. Since we do believe we have a comparable situation to Santander, the day after their announcement, we have contacted KNF and also we provided KNF with our official request to revise the initial decision about 2022. And we are following contacts with them, and we hope to receive the answer during 2023 with a positive outcome for making the payment of the dividend or advanced dividend payment, we are allowed to pay based on the decision of the General Shareholders meeting for 2022 in the form of advanced payments amounting to up to the level of PLN 1.600 billion. So this is our expectation to actually to be able to pay the dividend for the 2022.

[Jovan Sikimic, analyst]

Can you repeat the decision is expected to when?

[Dariusz Szwed, executive]

They don't have an official, let's say, official deadline for providing us with a decision, but we hope to receive this decision by the end of this year at the latest, I would say.

[Dariusz Chorylo, executive]

Gabor?

[Gabor Kemeny, analyst]

A short question from me, please. I saw some indications about the Swiss franc provisions receiving tax deductibility potentially. Can you expand on that a bit?

[Dariusz Szwed, executive]

Jakub, maybe you can take this question.

[Jakub Niesluchowski, executive]

Sorry, I didn't -- can you clarify your question?

[Dariusz Szwed, executive]

Deductibility of the Swiss franc provisions?

[Gabor Kemeny, analyst]

Yes. So right now, the provisions are obviously not tax deductible and that saw some public discussion, which I think one of your peers quoted as that the provisions will become tax deductible. Any views or updates on that?

[Jakub Niesluchowski, executive]

So actually, we do not have any -- for now any tangible update on it. And if it will come into the force or become reality, we don't know. So currently, we do not expect or assume take into account planning for the next year that we will have this tax deductibility.

[Gabor Kemeny, analyst]

Okay. And another one is just a follow-up on margins. You talked about the cost of hedging. But I think the latest indication was that you expect PLN 400 million lower cost in the second half relative to the first half. Is this still the case? And would you have an indication for how you develop the -- how you expect the cost of hedging to develop next year?

[Jakub Niesluchowski, executive]

So actually, yes, we can expect, I would say, when we compare the second half to the first half, at that level. So as I comment for the fourth quarter, again, will support actually increase of net interest income and also net interest margin. And for now, I can comment that for 2024, again, it will be substantial, I would say -- or decrease in cost of hedging in 2024, which will support our NIM. And as Marcin said, that's why it's one of the factors which will allow to keep the margin in 2024.

[Dariusz Chorylo, executive]

Veronica, please.

[Unknown Analyst]

Yes. I'd like to ask a follow-up question on the comment regarding the NIM ended being at similar levels in 2024, 3Q '23. Just kind of to explain what the main drivers behind that is, given the sensitivity that you just provided of 200 basis points rate cut, and also kind of on top of that, what do you see, therefore, is a sustainable margin level in a normalized 4% rate environment?

[Jakub Niesluchowski, executive]

So as I mentioned before, the one of the factors, which will support the NIM in 2024 will be a lower cost of hedging, that's the one point. Second point is adjustment of cost of deposit base. So we already made steps on our side to do it. And we also will do it in the next months or quarters. It will depend on the interest rates on the market on the one hand. On the other hand, I also mentioned that part of the portfolio of fixed income instruments will also mature and that will be replaced with higher rates but it's another factor which will support actually our NIM.

Third point is natural hedging resulting from fixed -- initial fixed income mortgages. So it was to support NIM in falling rate environment. So that's -- I would say that is another element, which will support NIM going forward. So here, I mean 2024. And of course, what we also expect for the next year that we will have an encounter some development of volumes, which means that the liquidity, which we have will be utilized for also more for loans done for securities. That is another, I would say, element which should translate and support NIM in 2024.

As you can see in our macro forecast for the next year, which you -- this information you can find in the presentation, we assume for at least for now around 7% increase of loan book for the sector for the next year. So -- and we, of course, want to take our share. And we are here rather optimistic taking into account that this year was also -- this 9 months was very good when we talk about and look on our market shares, when we increase our market shares, both on the corporate side and also retail side.

So that's -- my answer to the question concerning the factors impacting NIM and supporting NIM actually in 2024. The second question concerning normalized NIM in -- you pointed out 4%, something like that. If I understand...

[Unknown Analyst]

Yes, exactly.

[Jakub Niesluchowski, executive]

So I do not have, I would say, right away question -- answer, sorry, for your question. So we'll look at it. So we rather look on our NIM based on our macro projections and our current situation.

[Unknown Analyst]

And also just following up from your macro assumptions then from the presentation, you say that you expect loan growth at 7% for the sector in 2024 and some of your peers expect something much lower than that, around 2%, 3%. What is driving this difference? Do you think between PKO's higher loan growth view for the sector?

[Dariusz Szwed, executive]

Piotr, maybe you will take this...

[Piotr Bujak, executive]

Yes, I will cover this. Piotr Bujak, I'm Chief Economist at PKO. We -- first of all, we had somewhat lower interest rate level assumed for the next year. It was based on the assumption that we will have political status quo. We have somewhat different political situations on new challenges regarding fiscal policy. And it seems that the Polish MPC may become somewhat more hawkish than we assumed earlier. And now we tentatively assume that interest rate part will be maybe 100 basis points higher than assumed earlier.

So we will probably revise down our predictions regarding volumes growth to maybe mid-single-digit level, 4% or 5% for total loans growth. We've -- no revision for corporate loan book and stronger download provision for PLN mortgages and maybe to a smaller extent for consumer loans.

What else may explain the difference? Maybe we are a bit more constructive on economic growth than our competitors, than other large banks in Poland. As far as I know, our production for economic growth is somewhat higher for the next year than the consensus. So this also may explain the difference.

[Unknown Analyst]

Perfect. And I just have one last question, if that's okay. Your cost of risk is trending well below your strategy for 2025, the range of 70 to 90 basis points. So would you say that this range is conservative? Or is there any expectation that provisioning will trend up to that level by 2025?

[Dariusz Szwed, executive]

I would say that our provision level in our strategy, this is long-term prediction. So because portfolio is, I would say, in a good shape, we observed so low provisioning level. We will think about revise our parameters in our strategy. Today, we didn't make decisions like this. However, I see space for some reduction in this line.

[Dariusz Chorylo, executive]

[indiscernible].

[Unknown Analyst]

And congratulations on the results. My first 2 questions on the Swiss mortgages, so on Page 20 of the presentation, you disclosed that 55,000 motions were submitted and represents 54% of entitled CHF customers. So first question, this is -- this number includes also customers who already repaid their Swiss mortgages. And then second question here is, what is the overall participation rate of the Swiss mortgage customers either in settlements or in the mediations? Basically, the question is, is there a big overlap between the mediations and those who applied to courts?

And then also a small clarification question on the mortgage holidays. So from the accounting perspective, what would trigger the necessary reflection of that in the accounting statements. So the cost related to this holidays. What would be [indiscernible] yes. When from the accounting perspective that will be necessary?

[Piotr Mazur, executive]

So maybe I will ask further questions related to the Slide 20. The number doesn't include the loan -- what was already repaid. However, the number of court proceedings from this portfolio is very, very low. So today, we have, of course, in our provisioning model that some customers will go to the court. However, the number is relatively low. In relation what is the percentage of the court proceedings and the voluntary settlement as is presented on the slide, in the quarter 3, we had about 3,000 new court proceedings.

And in the same time, we had as well about 3,000, the new voluntary settlements. So it's -- today, it's, I would say, very close numbers.

[Dariusz Szwed, executive]

So with respect to the credit holidays, I would say this is quite difficult to predict the final outcome because as you know, the government most likely would change in Poland due to the recent election process. We've been -- we've seen the draft of the new regulation related to credit holidays for 2024 been published this week with some assumptions resulting in the installments and extension of those holidays for 1 year.

Our previous -- and we are currently, let's say, evaluating the outcome of this for our bank. The previous research and the calculations we've made was amounting to approximately PLN 1.300 billion as an impact for 2024, depending when exactly these credit holidays would be announced based on the assumption that it would be comparable to the last year regulations.

We would have to recognize them at the moment once this law would be passed by the Polish Parliament and would be signed by the Polish President, which probably would not happen in 2023. But we don't know. We simply don't know because the first session of the new parliament would happen on next Monday, and then the parliament would establish themselves and probably will take some time to normal -- to start the normal work on this type of the loss to be adopted by the government, but we don't know whether this would be supported by the new government.

So assuming that this new law would be passed, probably the outcome can happen or can be recognized most likely in the first quarter of 2024, but it is not decided yet. And in my opinion, the chances are half-half whether this will be introduced or not. So depending on the situation, obviously, we would recognize this in our balance sheet and good provision is appropriate.

[Unknown Analyst]

Just a small clarification question on the first one on the Swiss mortgages. So just what is the overlap ratio between the customers who gave us some lawsuits and also those who submitted motions. Is there overlap at all between these 2 groups of 28,000 people and 55,000 people for its minimal.

[Dariusz Szwed, executive]

I think the current situation is that there is not such an overlap at all because half of the people are concluding the voluntary agreements with us, go to the court. So I would say this is not the real situation. We've been asked during the presentation today about the situation when someone has concluded the voluntary settlement with the bank, and then paying back with complaints that these voluntary settlements was not appropriate for this. And we just had one example of such a client for 34,000 of voluntary settlements concluded.

So I would say that there is not such an overlap because people choose to go to the court or conclude the voluntary settlements or do nothing. So there are 3 groups of people.

[Dariusz Chorylo, executive]

Alan.

[Alan Webborn, analyst]

Do you have any visibility on operating costs for 2024. I mean clearly, you're running up nearly 20% 9 months ex regulatory costs and I think your view of average inflation is about 11% for this year. So is that sort of 11% a base at which we should be thinking for next year's operating expenses? I mean, you keep saying that the main driver of operating expenses is inflation. And presumably, it's inflation towards the end of '23 to '24. So is that right? Or do you think you've got some better opportunities to make efficiencies from the increased digitalization and so on next year? That was the first question.

And the second question, and clearly, I think you're telling us that from a macro perspective, the figures that you've put in for banking sector growth are somewhat too high and you're going to revise them down. And then at the same time, you're saying that part of your flat NIM guidance for 2024 is related to volume growth. So can you give us an idea of what sort of volume growth you've baked in to your view of stable NIM for next year?

And actually, if the volume growth is not up at the sort of 7% level, does that mean your net interest margin is actually going to come down a bit. I mean, clearly, I can see I know it's only a macro forecast, but you've got, I think, 14% loan growth in mortgages and yet the -- I think, the envelope for the subsidized mortgages is almost being used up. So there's clearly uncertainty on the retail side in terms of what demand is going to look like. So can you give us an idea of how important volume growth is to keep your NIM stable because clearly, you're an outlier versus the market even outside of hedging. So I'd be interested in your view on that as well.

[Dariusz Szwed, executive]

Jakub, could you take this question.

[Jakub Niesluchowski, executive]

Yes. So looking on the first question, we are now in the planning process for 2024. And however, also taking into account that we are in the middle or maybe not even in the middle of realization of our strategy, which requires actually some additional spending on our side as we decided to carry on pretty extensive number of -- a large number of strategic initiatives to address all the pillars of our strategy.

And next year, we do not expect because we will be still in the middle of optimization. It will come in the next years as we assume for -- actually as a result of at least part of our initiatives. So I would say preliminary that we should expect -- we expect some double-digit growth next year. But the scale is still actually in, I would say, planning process on our side just to please take it into account.

And concerning volumes versus -- because one important thing here is that what Piotr said, the revision actually results from the fact that we expect now higher interest rates than we actually expected yesterday. Let's put it this way, after the decision of our monetary counsel.

So on the one hand, taking into account that we can expect some lower volumes on our side. But now we expect higher interest rates for the next year, which will support me. So I would say, from this perspective, it will at least be neutral, not saying positive base because important remark that we commented and about NIM with the assumption that our reference rate at the end of 2024 will be at the level of 4.5.

Now preliminary and here Piotr can also comment, we have grounds to expect higher interest rates than the 4.5 at the end of 2024. But on the other hand, a lower volumes.

[Marcin Eckert, executive]

So some NIM will be higher. NIM will be higher. NII should be stable or maybe be even higher because the positive impact of higher rates than previously assumed may be stronger than negative impact on volume growth. But we are still analyzing the situation. So I think the best assumption at the moment is that NII will stay broadly unchanged. The same as was expected earlier. That's my take on this from a macro perspective.

[Dariusz Szwed, executive]

Gabor, do you have additional questions or you still keep -- you had raised?

[Gabor Kemeny, analyst]

All right. I don't.

[Dariusz Chorylo, executive]

Okay. So Marta, please?

[Marta Jezewska-Wasilewska, analyst]

Yes. Can I just ask...

[Dariusz Chorylo, executive]

Marta, if you could speak up, we hardly hear you.

[Marta Jezewska-Wasilewska, analyst]

Sure. Is that better? Can I just ask about the level of dividends out of 2024 that the management would feel kind of comfortable with. You mentioned that 100% dividend payout would be already possibly potential from 2023. So what would be the level that you would feel comfortable?

[Dariusz Szwed, executive]

Yes, I would say that we were always thought about ourselves as a dividend company, and we do believe that having the ability to pay the 100% of the net income for the given year in the form of dividend would still remain our approach towards -- this opportunity towards the investors. Obviously, everything would depend on the dividend policy announced by KNF for 2023 going forwards and our individual decision received by KNF. So we are -- I would say that we would be happy to pay probably between 75% to up to 100% depending on the situation, but this should be taken into account the eventual decision of KNF. So this range is the range we talked about the opportunity to make this type of payment for this year.

[Jakub Niesluchowski, executive]

If I may add, I would say 2 points here. One point, we still haven't received any updated annual levels for the next year, which also made next dividend policy better might need some way payout ratio on the one hand. On the other hand, please remember that most probably first in 2025, [indiscernible] will come into force and may have an impact on our capital requirements. This also is another -- will be another, I would say, important factor, which will then determine the Management Board decision and recommendation concerning payout of dividends.

[Marta Jezewska-Wasilewska, analyst]

Okay. Perfect. And another question is to [indiscernible] on cost of risk, if I may. I mean, I remember that you used to say that the cost of risk is kind of counter if the economy is good, then you make more provisioning for the bad times. So I just wonder if that is applied for next year or you still hold to your kind of more [indiscernible] guidance on cost of risk?

[Piotr Mazur, executive]

Sorry, could you repeat? I didn't capture.

[Marta Jezewska-Wasilewska, analyst]

Sure. I mean, you've always been saying that when the times are good, it's better to do more provisioning for the worst times kind of -- so I wonder if that applied to next year or this is still not valid?

[Dariusz Szwed, executive]

I would say that, as I mentioned during the presentation that our provisioning cover is very, very high. So we provide enough provisioning for the good and bad, and even a very bad time. So we are on the safe side.

[Dariusz Chorylo, executive]

Do we have any additional questions? Gabor, should I assume that you want to ask another one?

Oh, Michal, please.

[Michal Konarski, analyst]

Yes. Maybe one more question from me. Actually, also relating to a bit of cost of risk. Should we expect anything more in terms of the provisioning related to Ukraine? How the things are going over there? Do you have to put any CapEx over there to rebuild branches how it's going...

[Piotr Mazur, executive]

Yes. I would say that in relation to the credit provisioning, we are very, I would say, surprised -- positively surprised how the portfolio behaves. I had to know the meeting last week with the management board from Ukraine. And I expect that the customer situation will be worse. But today, we see that there is more payment from the customer. They have provision increase.

So the situation looks very, very good. And I'm really surprised how they behave. We had some losses in relation to the infrastructure, but the amount is immaterial from the Credo Bank perspective. So from our perspective, is really completely immaterial.

[Michal Konarski, analyst]

All right. And maybe one more question from me regarding M&A. Maybe if you could give us some kind of color why you resign from Bank Pocztowy take over is just -- I don't know, you are not looking for any M&A targets overall or it just didn't work out? And any color would be great.

[Dariusz Szwed, executive]

So with Pocztowy, we have announced the situation, but we have stopped our due diligence process and, let's say, finished the process in total. As you know, we are a minority shareholder in Pocztowy, already coming from many, many years such as minor shareholder there. I would say that the main reason was that we were not able to establish the final, let's say, conditions of this transaction, taking into account the overall better off situation of Bank Pocztowy between the moment we have started the process. And then at the moment, we have concluded this process.

And this was the main reason why we have a step out from this transaction. With other M&As, as our CEO said, we are always looking for all the opportunities available. And we do have analysis on what is suitable for the group as such. This -- we are not talking only about the bank sector, but also financial sector institutions like leasing and factoring companies. But we will announce further steps in this respect once there will be something to be announced, right? So we do not comment in details what are our plans with this respect.

[Michal Konarski, analyst]

Okay. So maybe one more follow-up question from me. So if there is no conclusion in terms of acquisition of remaining stake in Bank Pocztowy, do you consider actually like disposing what you've got currently or the future of this stake. Yes.

[Dariusz Szwed, executive]

Our current agreement with the Polska allows us to, let's say, go together with Pocztowy once they would decide to sell this asset to someone else. So depending on the outcome of -- and the decisions of the major shareholder in Bank Pocztowy, we can make up the decision to go with them and sell our stake as well. But as far as I know, there's not such a decision yet.

[Michal Konarski, analyst]

Then you put it on the stock exchange, for example, just least?

[Dariusz Szwed, executive]

I'm not sure whether these are the current plans of the major shareholder, and I don't think we are in a position to actually evaluate this opportunity for them.

[Dariusz Chorylo, executive]

Do we have any additional questions? If not, thank you for participating and I hope to see you next time. Thank you.

[Dariusz Szwed, executive]

Thank you very much. See you all next time in the next quarter with very good results of Bank Polski, all the best.

[Marcin Eckert, executive]

Thank you.

[Piotr Mazur, executive]

Thank you. Bye-bye.

[Dariusz Szwed, executive]

Thank you.