Earnings call transcript: Bank of the Cow SA achieves record net income in Q1 2025

Bank of the Cow SA reported a record-breaking net income of 6.4 billion in its Q1 2025 earnings call. The bank’s strong financial performance was bolstered by a 14% increase in its deposit base and a 6% rise in its loan portfolio. Despite lower interest rates, the net interest result grew by 9%, and the interest margin increased by 6 basis points. Trading at a P/E ratio of 5.95 with a market capitalization of $583.52M, the bank’s stock experienced a minor decline, dropping 0.58% during regular trading, with a slight decrease of 0.07% in aftermarket trading.

According to InvestingPro analysis, the bank shows promising fundamentals with several key strengths. Discover more exclusive insights and detailed valuation metrics with an InvestingPro subscription.

Key Takeaways

• Record net income of 6.4 billion for Q1 2025.
• Loan portfolio and deposit base saw significant growth.
• Continued development of digital banking solutions.
• Voluntary redundancy program to affect 500 employees.
• Positive outlook on Polish economic recovery.

Company Performance

Bank of the Cow SA has demonstrated robust performance in Q1 2025, achieving a historical net income milestone. The bank’s strategic focus on expanding its loan portfolio and deposit base has yielded positive results, with growth figures of 6% and 14%, respectively. The bank is also investing in digital innovations to enhance customer experience and maintain competitiveness in the financial sector.

Financial Highlights

• Net Income: 6.4 billion (record-breaking)
• Loan Portfolio: 6% increase YoY
• Deposit Base: 14% increase YoY
• Net Interest Result: 9% growth despite lower interest rates
• Interest Margin: Increased by 6 basis points

Outlook & Guidance

Looking forward, Bank of the Cow SA is targeting a dividend payout of 50% of its net profit and plans to issue 1-2 benchmark issuances in the European market. The bank anticipates continued economic growth and is preparing a new strategy to be launched in April. Management is also expecting potential interest rate cuts in the second half of the year.

Executive Commentary

CEO Cezaras Stepukovsky emphasized the bank’s commitment to dividend payouts, stating, "We are committed to dividend payout." He also acknowledged past performance issues, noting, "The bank failed to use its potential in past years." Chief Economist Ernest expressed optimism about the banking sector, stating, "We see a favorable environment for banks."

Risks and Challenges

• Personnel costs are rising, necessitating cost management strategies.
• The bank is implementing a redundancy program affecting 500 employees.
• Economic conditions remain uncertain, with potential interest rate cuts on the horizon.
• The bank must continue to innovate digitally to remain competitive.

Bank of the Cow SA’s performance in Q1 2025 reflects its strategic initiatives and market positioning. With an overall Financial Health Score of FAIR (2.18) according to InvestingPro, the bank remains focused on growth and innovation while navigating potential economic challenges. Unlock complete access to over 1,400 detailed Pro Research Reports and exclusive financial metrics to make more informed investment decisions.

Full transcript - Adams Natural Resources Closed Fund (PEO) Q4 2024:

Cezaras Stepukovsky, CEO, Bank of the Cow SA: Very warm welcome at the presentation of annual results of Bank of the Cow SA. We have Cezaras Stepukovsky CEO Marcin Gadomski, Risk Manager Degmarovoynar and Erudm Nest Petlarczyk, Chief Economist. Over to Zadar Stukhovsky. Good afternoon, ladies and gentlemen.

I was not allowed to go straight to the Q and A session, But let me announce it right now that in a group like this one, we will focus on questions rather than presentation. So we will just now start with a general background. And the message for you is generally that the bank recorded a relatively high result And that is a recurring feature, of course, apart from interest rates and the consistently achieved result on interest where we do feel this sensitivity. Although 2024 showed us that even in the environment of declining interest rates, the bank was able to improve its profit, including margins. And that’s something that should be appreciated.

Structurally, the bank has this position. We do have a certain revival of credit action, although it is not yet at the Ernest’s level of expectation. And he will talk you through that in greater detail. In my opinion, the key message to this audience now is that deep down at the end of the year, we have a temporary situation and probably within the first quarter, we will see the rebuilding of our result. And then probably, the dividend question will come up.

We are committed to dividend payout and the new ones that appeared related to the earmarking to the dividend fund that is still not decided and that results from the conditions of uncertainty in which we have to function and when we have to be prepared for a variety of scenarios. And you have already described all those numbers better than I can recall them. So I will skip this part focusing rather than comments, which in my opinion are relevant. With regard to Tier one, it’s mainly rebuilding after CR3 through the reduction of burden on operating risk. And this decline was linked to the better result of expansion.

You need to have just the right amount of capital, not too much, not too little of it, and we have just the right amount of capital. Cost of risk maybe is a category that evolves and we do that intentionally with very low cost of risk, historically speaking. But also, we have to admit we have the conditions of suboptimal development. As a result, the bank was losing its market share rather than gaining it. We do not want to aspire to get to 100 points.

We will hover around 50 plus. And that’s something that in my opinion with regard to hitherto experience and the numbers you might be used to is changing. But that results from our intentional informed action. NPL is something where we came back to 4.5%. Last year, exceeding 5%, we reached a certain dividend related barrier.

As for the revival of credit action, well, I would put it this way, it does exist. It is not yet something that would match the appetite of Earnest. The critical point for us is that we are growing in those places where the bank seems to have the potential corresponding to its fair share. Cash loans, That’s the area where our market share is twice lower than our intended first share, and that’s where we would like to develop. But also the cost of risk there is different than elsewhere.

It all has to be done reasonably, and we are not definitely skewed to borrow. We have deposit oriented customers who tend to be overworked rather than aspirational. So we need to find an optimal formula that will not distort our risk profile while at the same time allowing us to grow faster, 22% last year as you were able to see. Meat caps, MSP is another area where the bank seems to be growing faster, and that actually has happened. We can actually say that in any customer segment, the growth was corresponding to our market position, our competitive position in the community of analysts.

Among analysts, I can say that the bank is pursuing its strategy from past years and has reached all the assumptions formulated earlier in the environment of lower interest rates, which has to be borne in mind. And if I were to make any comment regarding this strategy, I would say that it has failed to take advantage of the market potential that emerged as a result of some other institutions, which I know quite well, trying to stay afloat. We could have been slightly more aggressive in going towards the market in the past years where everybody else was burdened with the burden of Swiss franc loans. I think that maybe some other major item that is worth mentioning now is that in the retail segment, we have entered miles and more with some promise and we would like to develop our presence there. We do have this product and we need to be able to take advantage of its potential.

Therefore, here’s the message. Well, I would like to say that we are still at the embryonic stage, but we have this new world account. We are discussing now the pace at which this product should develop. And these discussions are being held with our partners, so that’s something worth highlighting. Then mortgage, again, we are still at the fledgling stage, but it is something that banks unavoidably have to get into.

We are quite advanced in this product with respect to some restrictions that we have imposed. First of all, we need to develop a distribution channel that will be then systematically tested. In ESG, those of you with whom I have had the pleasure of communicating in my previous incarnation know my opinion on this. Staying put, the reality seems to be getting close to the message, original message. I talked very clearly about lack of realistic approach, too much hype, too much zeal that surrounded all the discussion on the topic.

Now it seems that there is some rationalization around the topic. I’m far from agreeing with what I hear from across the ocean where they keep saying drill, baby drill. And of course, as a result also, the attitude of American banks seems even suspicious. On the other hand, good signals come from the European Commission, which yesterday released something as part of deregulation. And that means that the role of banks as institutions responsible for everything, we are expected to be policemen, experts.

We are expected to put the noose on our own neck ourselves. But the role of banks in this regard does exist. And in those conditionals conditions of rationalization, I feel a missionary

Ernest, Chief Economist, Bank of the Cow SA: Against the reality of the bank and the economy, because I think all the declarations such as net zero in five minutes, etcetera, well, I believe is something that everyone now realizes cannot materialize, especially given the geopolitical circumstances that Europe has found itself in. Nevertheless, important steps have been taken. We have published our first report to that end, and I do understand that a year ago, most likely, this would be the main focus point of analysts. But still, nevertheless, we should go back to the fact that the P and L is important. The balance sheet is important.

Equity is important. And ESG is very important, but not the most important. We have developed a pack of knowledge. We’re reaching out to the clients. We’re seeking partners that would help us with this attitude.

That’s where we see our strengths. Now what has been a challenge to the previous strategy and the one that we’re currently completing and summarizing is the fact that the bank has had to reinforce individual client acquisition, especially from in in the young pool. The the the demography’s destiny slogan that I’ve been using for about eight to ten years, My colleague, Ernest, has brought this with him to this institution. I believe this has been successful. I appreciate the fact that this acquisition has been a success.

We we need to make sure is that following this acquisition, we have transactions, which is not easy when we have these clients. We have incurred some costs. In terms of dynamic revenue, that’s not a very perspective big perspective, but we need to remember about this. And I think that during the Italian era, the bank might have overlooked that slightly during the Italian reign. Let me emphasize.

But that has been taken place, systematically overseen, and I think that what I can say is that the potential to bring forward the to the bank the new generation of clients is there. We have created quite decent apps. I appreciate that against the backdrop of my prior experience. I can say that some of the major design mistakes for app designers have been avoided. That’s a very robust solution.

The key is to now cover our total portfolio of clients to have them covered by the bank mobile apps. That was one of the goals of our strategy, and it has been attained. However, this is still the coverage is still relatively smaller than in the key banks. So these are things that, well, perhaps are of less importance to the environment we’re communicating with at the moment. But there’s one thing that I would emphasize still with reference to the changes that are taking place in channels applications.

What’s key is the business profile and making it possible to have a dual account that’s both for private use and for business use alike, especially for people who have their businesses and who are sole traders. But without that, it will be very difficult to attract such customers. We have some distance against the leaders. That’s, that must be said. But customers are very sensitive to price these days, not quite so loyal.

So there is some hope that, thanks to the changes that have been put in place, we will be able to acquire those customers more successfully and increase that business share. The bank also attaches great importance to that, and it needs to be seen because we consider it important that the apps ensure a customer’s good recognition of all the issues that are being dealt with with the bank. So the ability of being able to pinpoint the, the location of these pipeline issues in the in the decision making process, that’s something that we’re looking at to develop. And I don’t think that there is a significant gap as compared to the competition. You have a list of transactions that I’m sure you’re aware of.

The ESG strategy written back in 2021 has been put in practice. And looking back, of course, gives us a different outlook, slightly more distant one. But, but it’s these are issues that perhaps were of a bigger importance two, three years ago than today. But you could say that we’re covered here in most of the ratings. The MSCI is one that I’m more familiar with and Sustain Analytics, you could say 01/23 is perhaps not a record.

The ’23 is not a record, but you need to look at the type of bank that we are. And in my inauguration letter, I also outlined that we’re a Polish bank. We have specific types of clients, and we have to assist them rather than abandon them. And that is the difference between the banks that are strongly set in the local market and want to work with their clients and those that have mostly looked at better ratings. So you could say that the declarations concerning environment own emissions, green bonds, these have been achieved.

And I believe that the focus on new sources of energy and financing has been declared but also has been illustrated with the transactions that the bank has participated in over the last period of time. So from that point of view, we are, I believe, quite fulfilled. And the educational process inside the bank has also taken places. And I would say that our resources and our communication skills in terms of persuasion advisory skills has increased significantly. And I am convinced that being where we are and looking at the changing regulatory environment, the bank will be very well positioned to correspond and assist well the profile of clients that we have in our portfolio.

So now we will hear Ernest’s testimony concerning our products. Now for the years to come, the forecast is higher rather than lower. We’re above the consensus. So the first digit is four when it comes to the GDP dynamics. So it’s rhetoric to a certain degree despite the structural problems we can see in Poland that there is some kind of a revival.

It’s a cycle. It’s important for the Polish economy. Now what’s important is departing from the Black Zero in Germany and everything that’s happening and where the EU is being stimulated to spend more from the budget. All of that has bears some, tremors, some meaning. But we have our idiosyncratic factors.

We have high deficit and we have quite significant investment needs that have to do with our energy transformation. And that’s going to be a slogan that is going to reoccur over the next few years to come. It’s starting now. We are following very closely how the recovery plan funds are being spent and how the application procedure is progressing and how the disbursements are being made. This has already been launched.

So I think the end of this year might witness two digit dynamic. We were in the green already at the end of 2024. Also, the consumption pattern from last year will be probably changed. Consumers were mostly frightened, and they postponed buying fixed assets. Now it seems that the willingness to buy fixed assets has increased definitely.

Last year, it was mostly about supplementing savings. So customers were using the fact that they had high income, but high inflation actually brought a gap to the realistic value of people’s savings. So it looks as though using the historical pattern of growing consumption as disposal income is growing and strong investments will be reinforced from one quarter to another. We shouldn’t be speaking just about the perspective of this year because, what’s happening in the investment area is looking out to 2026 and 2027. That’s going to be the main arena for these events.

And for our bank and for the banking sector in general, as indicated by our CEO, this will be the main component of growth. When we look forward, percentage interest rates are quite high. We never expected them to be lowered for a long period of time. Then the authorities’ comments have inclined us to think that, yes, perhaps they would cut something in the second semester, but we were far from looking at 200 points because it’s hard to increase them when you’re on a growing trajectory. We have also the inflation component in service prices and the salary increase has not been filled through that end yet.

The strong zloty is a significant factor, but it’s not sufficient yet to neutralize inflation. Interest rates, it would be worth mentioning, that are objectively quite high at the moment, and perhaps you could adjust them slightly because they are the highest in Europe. And most definitely, aside Ukraine and geopolitical factors, there is an influence of this disparity,

Cezaras Stepukovsky, CEO, Bank of the Cow SA: Okay. So let’s move on to our balance sheet and the structure of our results. If we look at credit volumes, loan volumes in general, the growth is at 6% and the split between retail and corporate, that’s 7% versus five In retail, the thing to bear in mind is that with respect to mortgage loans, the beginning of twenty twenty four still was marked by the effect of selling the safe loan. So the loan was artificially pushed up by the settlement of that effect. On the side of loan, cash loans, we have 10% year on year growth with good new net sales of 22% year on year.

Corporate loans, here we have two elements to mention, Mead and SME, which grow at 11%. And on the other hand, we have large loans that growth at slightly above 1%. And here, we are expecting projects and the national development plan to gain momentum. We expect that in the second half of this year, we will have a slightly bigger growth of large loans. With regard to deposits, here, the deposit base increases by 14%, split more or less evenly between corporate and individual investment loans at over ZAR 17,000,000,000.

This $17,000,000,000 includes about $11,000,000,000 of treasury bonds. The total of that sales represents a growth of over 50% year on year. When we talk about deposits, I should also quote LCR 239%, loans to deposits 66%. And if we look at our deposit base and deposit offer, we can see that they were structured to support acquisition of new customers. 338,000 was the net growth of account volume.

If we move on now to the result on interest, here we recorded 9% growth year on year. Let’s remember that this happened in the environment of lower interest rates. And in this environment of lower interest rates, we consolidated or increased our margin on interest by six basis points. If we look at how this happened, on the one hand, we had rather selective policy on the deposit side. We optimized the costs.

We had an increase in current deposits. And we also had a growing share of loan products and fixed interest rate papers. About 30% were those with fixed interest rates. In the new portfolio, the percentages are higher. And we, of course, also pursue a hedging policy.

It has already been mentioned that we can expect potential decreases. Our sensitivity to name is about twenty, twenty five basis points with each drop of interest rates. About 25% of the portfolio of our bonds this year will be revalued, which will have a positive impact on NIMFA at about 10 basis points. If we move on, interest bearing assets and interest rate on those assets decreased by 15 basis points year on year and in liabilities twenty percent twenty basis points down. Now another line which we pay increasing attention to and on which we pay a pin increasing hopes.

Quarter to quarter here, we recorded almost 6% growth quarter to quarter. A significant share in this growth came from commissions related to activities in capital market like asset management brokerage services, which grew by about 21%. And as regards assets under management, their value year on year was higher by about 33%. Commissions on loans, that’s a line which we will watch closely and we hope this growth to be somewhat high, especially if there is an increase in corporate loans. Costs to income.

If we consider the costs, we can mention two aspects. One is cost related to fixed assets and depreciation. Here, the growth was 3% below inflation. The other thing to consider is personnel costs, which grew clearly more year on year. And there are a few elements worth mentioning here.

One thing is something that has already been mentioned, the effect of one off bonuses paid out for the results of 2023. And the other element, which needs to be highlighted in the category of personnel costs is a voluntary leaving program. We announced this program in the bank, and about 500 people will leave the company in the upcoming quarters, mainly in the first and second quarter this year. Taking into account the number of people declaring the will to participate and the criteria, we established a provision of PLN66 million for this program. The last element which contributes to personnel costs is indexation adjustment of salaries remuneration for our employees.

A 34% result here is better than our strategic goal. Over to Martin now. Thank you very much. Good afternoon, ladies and gentlemen. As for cost of risk, they are at a relatively stable level.

Last year, that was 48 basis points, which was below our strategic assumptions of reaching slightly over 50 basis points and slightly lower than what we recorded in previous periods. It is worth noting that cost of risk in the fourth quarter were to a large extent determined by write offs on one big client in our capital group. And if we look forward, we assume that cost of risk should be stable going forward, remaining at about We have high employment, increasing salaries. We also expect some revival of exports from across Western border. And you know that enterprises have to grapple with growing cost of energy, cost of labor.

We expect to remain stable. And as Cesare has already said, recently, the bank has been growing relatively well in unhedged loans, micro in SME. The results are even better, which can naturally affect the structure of our portfolio. As for NPL, which is a ratio very important for the Financial Supervision Authority, We are below 5%. So we are able to be flexible in shaping our dividend policy within the adopted strategy.

And the bank will operate so as to keep this ratio below 5%. The action that we took in the fourth quarter on the one hand related to selling receivables under payables under NPL, and there were some write offs and defaults dropped as a result. As for capital position, it is in line with our assumptions because the target level of Tier one capital ratio is 14%. That is with a buffer because the regulatory minimum is 9.5%. And we expect this year and next year, we expect the buffer for business cycle risk to increase by 1%, one point five %.

So we are prudent here keeping a safe buffer in our capital ratios. And if we look back at the end of last quarter, we can see that the ratio dropped from 0.7% dropped by about 0.7%. And on the one hand, this was related to RWA on operating risk. As you might know, this

Ernest, Chief Economist, Bank of the Cow SA: ratio is calculated on

Cezaras Stepukovsky, CEO, Bank of the Cow SA: the results achieved in the past transition from 2021 to 2022. Hence the change. Then there was an increase in loan portfolio, which was another 2%. We expect the ratio to grow in the following quarter by about one percentage point. We have the impact on our capital market of about 50 basis points, and that qualifies as operating risk.

So we have a certain reversal of the growth effect in line with those regulatory requirements. And if we keep in mind that some results from the beginning of this year will be reclassified as belonging to the second half of twenty twenty four. We will recover our safe position. MREL has a buffer of about 1.5% with respect to the minimum requirement. And we’ll continue to build the portfolio

Ernest, Chief Economist, Bank of the Cow SA: for the liabilities eligible and covering the requirements of MREL. As you know, the buffer will be growing for the anti cyclical risk. But on the other hand, there is a strong communication to the banks that at least 8% of the required should be covered by instruments other than Tier one, which means that over the course of the next two, three years, perhaps we should increase the volume of these MREL equities by about 4,000,000. So €500,000 issue this year or next year. And now, Dagmara, over to you for a brief wrap up.

So yes, to wrap up, looking at the repetitive net income, that’s billion, and that’s a historical record breaking outcome for PKO. BRL6.4 billion was the minimum. The credit moratorium accounts for the difference and the Swiss franc credits. What needs to be said is that we are happy in the revival of the lending portfolio and the increase in the lending by 6%. We have also reinforced our market position and the share on the deposit and the lending side alike.

We are safe in terms of equity. And to sum up, our intention is to earmark 50% of our profit towards the dividend and the rest 25 to the dividend fund. Just a word of comment, the dividend fund is at the discretion of the management board and the supervisory board, but still, we have no individual recommendations from KNF, from the supervising authority for dividends payable for 2024. So hence, this proposal on our part. Thank you very much.

Thank you. So the q and a session is launched now. First, perhaps people in the audience, thank you very much for being present. Any questions? Santander (BME:SAN).

The dividend fund, let me start with that. So management board, supervisory board, and the supervisory authority or not that? And the second question, when will the board take a decision? Is it only up to Alior, when we have clarity then that’s when the management board decides, or is it more complex than that? I will give you a partial answer.

Yes. To a certain degree, you could say that this is the right interpretation of our intention, and this is a consequence of when we’re talking about it. So it has a potential to be backed 75%. The structure that we are proposing signals that already, but there are certain issues that we need to take into account still, looking at the circumstances, the stage of where the discussion is about the strategy, the dialogue with the PZU (WA:PZU). And therefore, we have created a mechanism that’s relatively flexible and that allows this payout for KNF.

But still KNF, the supervisor authority has not yet issued the instructions on the possibility to pay out dividend. According to the measurements that were applied last year, we are there, 75%. Whether these requirements will be modified in one way or another, all that is up to the benevolence of the financial supervision authority, KNF. Okay. One more question, last from me regarding the costs.

So the overheads mostly, they have been growing for two subsequent years, twenty percent. So that’s $1,200,000,000, 1 of it will be about 3,000,000,003,100,000,000.0. You can compare it to Santander, which has 2.4 and M Bank one point six. And the intro was only for the purpose of asking you whether this is an area that should be further analyzed at the bank, or is it such an important area, equally important as many others? Well, as a person that has analyzed a few institutions in the course of my career, I can say that BKO has a certain problem here that it’s having to face in one way or another.

The cost of hiring, the cost of employment is one of the most important components of our cost portfolio. We have collective bargaining tools that the outcome of some negotiations that have that that have been done and that were done a few years ago, and it’s automatically indexed. It has this inbuilt mechanism. So the way I see how these costs of employment grow, well, that’s a derivative of that phenomenon. So it’s both true for people covered by the collective bargaining and the staff.

For staff, we have withdrawn from these arrangements. But for the collective bargaining, we are dialoguing with the trade unions that are covering a lot of the employees because seeing such a rigid mechanism as has been adopted well, that’s not something I’ve seen before. So there is a significant challenge there. And to that end, I may say that there is no structural cost problem because the terms, the conditions in which the banking sector is operating these days are allowing us to manage this. But with a sudden decrease of interest rates, the consequence could consequences could be quite serious for the bank.

So I will not be hiding the fact that this is something that we are focusing quite a lot of effort on. The other side of the story is that for years, this bank was under investment. Blame it on the Italians. I don’t have to explain that to the people who are present. And I believe that from that point of view, well, certain costs that will not be recurring are costs that we need to bear.

But the observation that you have shared is quite to the point. There is a challenge there. Thank you. The fact that we have disclosed the program of voluntary redundancies and 500 people volunteered, that’s also the fact to to testify the fact that we are mindful of this and and mindful of the bank’s effectiveness. I can also ask some online questions here.

So in the more in the results category, there is a question concerning the volumes. There has been a change on our side. And the question is what the reason was here, Ernest, for you increased optimism in terms of volumes, especially for the credit loans and corporate loans. Especially for the credit loans and corporate loans in particular. Our forecast is for two digit growth in the last quarter of this year.

But whether the dynamic of the loans will come to fruition, it’s hard to, it’s hard to determine whether it will not perhaps move to next year. We have growing recovery fund consumption, which are a substitute to lending to borrowing for people. The initial forecast was that there would be a grant and then there would be a market like lending scheme, but it’s now been changed. So the corporate loans have been pushed out from the market by the recovery plan funding. A few questions on the dividend outside of what has been said.

In our current report, we said about 50% net profit, so maybe some inaccurate calculation, 12.6%. It was also said that this requires further dialogue with the Financials Provision Authority. The dividend fund will also be part of the regulatory capital before the disbursement. There is a question concerning Swiss franc. Is it the end of the settlement program?

What are the perspectives and plans for that end? For Swiss francs, until 2024, we signed about 700 settlements. Regarding the future, we will be continuing the settlement programs with our clients. These settlements are going quite well. There’s quite a lot of interest on part of the customers.

So depending on what the situation will be and what will be happening on the market, what the law will potentially bring, what the competition will be doing, we will be reacting to that. But I wanted to say that we will be continuing the settlement program.

Cezaras Stepukovsky, CEO, Bank of the Cow SA: We also have a question about long term funding ratio and possibly some comment on this. Well, now this ratio is just under 36%. Forty % is the level which will apply from the end of next year. At the beginning of applying this ratio, we will need liabilities at over SEK 2,000,000,000. And that is probably the best prospect at the moment of this ratio becoming effective.

Later, it will probably shape dynamically. And there are also a lot of transitional conditions how capital surplus should be treated, for example. As of the reporting date, the December, we need to have some elements that will have to be included in 2024. Probably the sector will continue discussions about how this ratio will play out in the future. And the numbers will also help us in this.

In risk, we have two questions. One, about very low cost of risk in retail in the fourth quarter. Was there any material impact on PLN from the sales of non working loans? Well, let me start with sales. We sold almost 700,000,000 NPLs, and the impact was at the level of the group because partially we also had that in mortgage, just under 30,000,000.

And as regards retail, the cost of risk in retail consisted of two elements. We had standard but slightly lower than recorded in the previous quarter’s cost of risk, which is close to the average but just under it. And here, the decisive element was that we periodically readjust parameters PD, LGD. And as part of this periodical update, we had more beneficial factors related to risk compared to the previous parameters. Hence, we had some write offs.

And regarding results, there was a question whether we would like to share a more detailed estimate regarding the impact of success fee on our business in the fourth quarter because this element of commission was surprising. Yes, it was about 50,000,000 or 60,000,000. Are there any questions from the room, from the audience? I have three brief questions provoked to some extent by the ones asked earlier concerning settlements. Now you round up the number of settlements in thousands.

So you we cannot really get the number of quarters. How many settlements were concluded in the fourth quarter? Maybe we will return to you with the exact number. And the second question will be about the forecast for loans. In mortgage loans, you expect a slight growth this year compared to last one.

You expect a slight acceleration with a forecast of very moderate decreases of interest rate happening at the end of the year. So what should drive this acceleration in mortgage loans? Just as you were saying that lowering of interest rates and on the other hand, we can see the downward adjustment of housing costs. We wrote this mini essay on this week or two weeks ago about 300 settlements in the fourth quarter twenty twenty four. And when can we expect your new strategy?

We are targeting the April, but that will depend on the developments in PZU because we are an element of the PZU group. So naturally, our ideas have to be aligned with our partners from PZU. And as you know, PZU has declared its intention to verify a revised possibly the strategic assumptions announced in December. So, if the these announcements materialize, we will, with some delay probably, translate them into revision of our strategic assumptions. However, I would like to underline one point here.

I treat PKO strategy as a working tool. I call it a test strategy. In a way, my vision of BKO, which I presented repeatedly, is that the bank failed to use its potential in the past years. I have watched this bank for many years now, and I think that in the past, its potential was greater than its market position. So I would like to bring about a situation where we know about ourselves more and within the timeline of two years, assuming as Erna said, growth in the market, we need to check our capability of organic growth.

So it will be a working strategy, as I call it. Of course, we will have to take care of building buy in, But it’s going to be something with long term effects, and that’s going to be linked to our Centenary in 2029. It’s not very frequent in Poland that there are institutions with a tradition of one hundred years of surviving in the same legal form for a century. So we would like to link this longer term forecast with building new identity and with consolidating our market position. And the strategy for 2025 and 2026 is just rehashed long term plan.

And there is also a question about our attitude to the debt market from the perspective of T1 and T2 and our plans for issuances. Oh, yes. Martin has already talked a bit about that. We plan one or two benchmark issuances in the European market concerning RAL. That is for 2025 and 2026.

And if we look at our capital strategy, we have 0.5% percentage point as our Tier two level. So potentially, that would be about €7,000,000 That’s what we’d like to issue. And probably a similar amount could be issued on T1. But as you have seen so far, our capital position is okay. A bank with such a market position in Poland, taking into account also the potential of the Polish economy and the need to familiarize the market with the need to accept the market.

Our bank should be a frequent guest in international markets even if the balance items do not fully justify it as yet. That was my strategy with Bancanflop, but that was my strategy in M Bank. And I think once we get all the calculations done here, that will also mean this kind of presence with the bank is flooded with money. It doesn’t change the fact that its market position and especially the fact that it’s a very serious corporate bank justifies its more frequent presence in capital markets. Obviously, this strategy needs to be fine tuned, taking into account both our balance sheet proportions and a certain sequence of actions, the development of the markets, costs.

Nevertheless, I can freely say that we do have this intention. We also have a question regarding complex matter. Maybe this will be this is the result about mortgage results. The profit, which is the result of tax differences, we do recognize tax assets linked to Swiss franc loans. But this is a question which would be better answered by email, whether we expect the bank to recover its profitability in the near future.

The mortgage bank, what the reason why its profits have been negative for the past years. It’s basically won those Swiss franc loans. This is the only among mortgage banks that does have this portfolio that was from before the merger with BPH. That was not a typical integrated bank. Now the business of this bank consists exclusively in issuing letters that result from excessive liquidity in the market.

But the bank is running a project aimed at sorting out the balance sheet, which this project should be completed this year so that the balance sheet of this mortgage bank is similar to those of other mortgage banks in Poland. Any other questions from the room?

Ernest, Chief Economist, Bank of the Cow SA: A question to Ernest and the CEO perhaps summing up this meeting today. Gentlemen, if you could please compare your attitude today to the one from our previous meeting regarding the balance of risk and opportunities for the bank and the macro balance. Has it changed negatively or positively? How has your assessment changed? I think it hasn’t drastically changed since, what, for a while now.

And I can use this term that this is a favorable environment for the Pang, for the banks. The interest rate parameters will not drastically differ this year. And let’s remember that there was quite a significant downtrend since the holiday. This was three or four months, for us that it took us to calculate, we can be reassured in the knowledge that these amounts are quite significant. It was first done in November 2023.

We saw the potential of the banking sector and how significant the transformation was. In the macro picture, we kept 3%. It was 2.9%, but it’s hardly ever this accurate. We have similar forecasts for in the as a front digit. So when we look out to Europe, Europe is starting to look a little bit better.

And there is the elephant in the room. That’s Ukraine. And if that is, you know, drawn to a conclusion, like a peace long lasting peace treaty. So whatever happens in Ukraine, there will be a warming up for, like, risk related bonuses, etcetera. Poland could be the proxy in the game, for geopolitical topics and and emerging.

It is already seen a proxy trade of some sort, but to sum up, perhaps a little bit more optimistic. Well, I’m constantly in dialogue with Ernest, so it’s not like we can differ significantly in our opinions. I share most of his suggestions. Perhaps I should refer to to the question marks that I can perceive here. So I share the opinion that, brutally speaking, any type of resolution of the Ukrainian conflict should have a positive outcome.

The more long lasting it is, at least on the surface, the better for us. The question is how it’ll translate at all to the relations with the EU. And if that means some sort of reconciliation with Russia, well, then I believe that would trigger a boom in Europe. Now that, of course, is a political dilemma, and I’m far from trying to form an opinion. But that’s how I imagine the markets would receive any change in that regard.

Now this another point, I would say that things are moving forward a little bit more slowly than I expected because there is this phenomenon of pushing out the banking sector by the distribution of the recovery plan and the BGK Bank. And the that’s all more or less reasonable. And the client pool will be supportive for the big investment. And if that is the case, there will be more loans issued. It’s very difficult to predict whether there are not or not this will be the case.

And the third aspect, what will be the consequences of what’s going on in America? When you listen to the US President, you could draw a different conclusion each day. But the actions that are being

Cezaras Stepukovsky, CEO, Bank of the Cow SA: taken

Ernest, Chief Economist, Bank of the Cow SA: appear let’s use correct words. Well, whatever I have learned before, he’s in contrast to that. So being able to predict the consequences of the customs war that he has now launched is very difficult for me. You need to look at the fact that The US didn’t used to have high customs rates. The starting point was relatively low.

So it was not going to drastically change the economy, but it definitely is going to change the narrative. And it is not without meaning to the to human behaviors. Now what are the what is the point of these, of these moves? They could have very short term positive outcome, but in the long term, they do not strengthen the American economy. I am convinced that very soon, perhaps this will not sound very credible at this point, but the EU is looking at being quite a significant net exporter, but and there’s a surplus trade surplus, but there’s a trade deficit on the side of services.

And so the capacity of the European market has really developed the the market of social media and the services that are linked to the Internet. So the fact that the world is now fragmented is not going to be beneficial for The US. If they threaten with customs or sanctions every time, everybody will, you know, start to go around and and sort things out for themselves. Let’s take Mastercard (NYSE:MA) or Visa (NYSE:V). If, well, I can see that happening already.

There needs to be a different management model. Globalization ends, and there are consequences to this. So, ironically, what this could mean is that Europe is going to have to come together and work out its own solutions in different areas. So far, we have not been very disciplined because they did things. You know, our people went and things got delivered, and we have this feeling that things were consistent in the Western Hemisphere and Europe.

What’s it going to how is it going to impact the the the the future events? Well, when we look at having customs for European cars, for example, maybe there’s mostly German automobiles that we’re speaking about, perhaps Volvo (OTC:VLVLY). So both Mercedes and BMW (ETR:BMWG), well, they sell about a hundred thousand cars a year, don’t they? So they’ll be more expensive, but people who buy BMWs and Mercedes in America are people who, well well, part of them are aspirational, but those are people that have money. It will just be more expensive for them.

In mass terms, it maybe have some impact. So what’s it going to mean? Well, don’t know. We don’t have much export to the state. So for us, it’s not going to mean anything really.

But via the European transmission, this could have an impact. So there’s a couple of factors here that could weigh more or less as to where we’re going to be. So what’s happening in the East could have a positive outcome. I do not suspect that this would escalate further into a more negative phenomenon. Correct me if I’m wrong.

But on the other hand, on the other side, there are some more question marks there. And I think, slowly, we can see the overregulation in Europe, and this has been discussed in the background, as a result of what’s happening in the world, there is some reflection happening in this area, and it will have an impact also. So all in all, I would say, in the short term, we sustain our conviction that the Europe’s that Europe’s economy will grow. Midterm, we’re talking about the possibly impacting factors, One factor that could play a role is, I would say, the narrative around the expected, decrease of interest rates by the National Bank depending on how balanced it will be and the conviction of Polish m SMEs as to whether or not this is the right time to invest because that’s where the potential lies. So it will be a determining factor as to whether or not these big projects financed by the recovery plan and the official sector, whether they will revive the appetite of SMEs, which are in fact going to be the execution squad for the large projects.

So another question, excellent one, that we will address at our next meeting that’s devoted to strategy, and that will be in April. Thank you so much. I think we’re at this trajectory already. Thank you. To be continued.

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