Earnings call transcript: Bank Pekao reports strong Q3 2024 performance

Bank Pekao SA (TICKER:PEO) reported robust financial results for the third quarter of 2024, showcasing significant growth across various segments. The bank’s net profit reached PLN 5.2 billion for the first nine months, with a return on equity (ROE) of 21.5%. Despite the absence of specific earnings forecasts, the company’s stock saw a notable rise, with a 2.85% increase in its price, reflecting positive investor sentiment.

Key Takeaways

• Net profit of PLN 5.2 billion for the first nine months of 2024.
• ROE improved to 21.5%.
• Digital channel growth led to over 90% of cash loans sold remotely.
• Loan portfolio increased by 8% year-on-year.
• Stock price increased by 2.85%.

Company Performance

Bank Pekao demonstrated strong performance in Q3 2024, with notable improvements in key financial metrics. The bank’s net interest income rose by 8% year-on-year, while fees and commissions increased by 9%. The loan portfolio and deposit base grew by 8% and 6% respectively, indicating healthy business expansion. The bank’s strategic focus on digital transformation resulted in over 90% of cash loans being sold through digital channels.

Financial Highlights

• Net profit: PLN 5.2 billion for nine months of 2024
• ROE: 21.5%
• Cost-to-income ratio: 34.5%
• Net interest income: Up 8% year-on-year
• Fees and commissions: Up 9%
• Loan portfolio: Grew 8% year-on-year
• Deposit base: Increased 6% year-on-year

Market Reaction

Following the earnings call, Bank Pekao’s stock price increased by 2.85%, closing at PLN 117.25. This price movement positions the stock closer to its 52-week high of PLN 107.4, reflecting investor confidence in the bank’s performance and strategic direction.

Outlook & Guidance

Looking forward, Bank Pekao anticipates strong growth in corporate lending, expecting two-digit increases. The bank is also preparing for continued interest rate cuts and focusing on digital transformation. Additionally, the bank plans to engage in MREL active issuance, aligning with regulatory requirements.

Executive Commentary

Cezary Stypułkowski, CEO, emphasized the bank’s leadership in the bond market, stating, "We are the bond house in this market. That’s our claim. We are number one." Ernest Pytlarczyk, Chief Economist, highlighted economic prospects, predicting a 4% GDP growth in 2024 and an investment boom. "The time of tightening is over... Now the consumers started to go shopping," he added, indicating a positive economic outlook.

Risks and Challenges

• Potential impact of interest rate cuts on net interest margins.
• Challenges in managing the Swiss franc mortgage settlement program.
• Economic uncertainties that might affect loan demand and repayment.
• Regulatory changes impacting capital requirements.
• Competition in the digital banking space.

Q&A

During the Q&A session, analysts inquired about the bank’s corporate loan growth strategies and mortgage refinancing trends. The management addressed the progress of the Swiss franc mortgage settlement and highlighted a potential transaction involving Alior Bank, which could further enhance Bank Pekao’s market position.

Full transcript - Bank Polska Kasa Opieki SA (PEO) Q3 2025:

Cezary Stypułkowski, CEO, Bank Pekao SA: Good afternoon, ladies and gentlemen. Welcome at the presentation of the financial results of Bank Polska Kasa Opieki S.A. Group after nine months. We have our CEO Cezary Stypułkowski, Dagmara Wojnar, CFO Marcin Gadomski, and our Chief Economist Ernest Pytlarczyk. Good afternoon, ladies and gentlemen. We will briefly discuss our financial performance and later we are standing ready to take your questions. I just want to start with a disclaimer that we ask you to have some understanding about the upcoming transactions. We will have an opportunity to present a short wrap up during the meeting of the shareholders as part of the agenda. Therefore, I do not want to have answers duplicated. I am not going to be very dogmatic, just saying no. What happened over the past three months? It was a good quarter, our profit was up and these data was released this morning.

I think that the most important changes with our lending activity, it is true for the entire sector. We do have a feeling that we were able to jump a bit higher in terms of market shares, especially on the corporate side. We uphold a strong capital position. The bank has been stable in this regard for many years. What is critical for Bank Pekao SA is improved digital penetration amongst our customer base. This is happening as we speak. Perhaps the pace is not one of my dream, but we do see progress. Net profit that we reported is very robust. Now, looking at the capital, it is also solid. You may say that it’s very decent and it would be really hard to say that it was excessive cost to income. I think that the bank is holding very well.

We fully appreciate the fact that the banking sector is under the cost pressure and this is mainly because of the BFG charges. The cost of risk is below our projections and the growing loan portfolio. These are the basic metrics for the past quarter and I may say for the year to date. This is what we are really proud to say, that we are growing at the two digit rate across all the strategic area. On one hand, this is cash loans where we are underrepresented and micro financing where the bank was also somewhat standing aside. Wherever we had a strong position, which is like the mid and SME financing, that’s truly decent growth. This is a nice picture. All the business lines have contributed to this good landscape that emerged after nine months of the current year.

We are truly happy to see that eventually, after years of stagnating fees and commissions, the bank was able to generate growth of 9% during the current year. From the viewpoint of our prior communication six months ago, when we presented our strategy, we are definitely scratching the horizon. Perhaps we haven’t gone beyond the horizon yet, but the trajectory to target seems to be within reach of our capabilities and the current positioning of the bank. This is not something that I’m going to discuss in great detail because this is probably not the information that is most critical to the analysts here. This is a range of our accomplishments for the past quarter and I believe that the most important highlight is investment banking advisory and equities.

We do want to have stronger positioning in that area and there are some changes in our solution to the corporate and sector and small enterprises likewise. With regard to retail customer, we continue to improve onboarding process and facilitate the documentation processing. To be honest, I was quite surprised with today’s reading of Newsweek. That shows that we are really charging ahead in terms of how we are being perceived as the retail bank, both in our real branches and the mobile offering. Mobile offering counts because we are the underdog. We are catching up with the leaders and we are acquiring active mobile banking customers and we are selling more through that channel. We know that is going to be the key element of our strategy. A number of important deals that we closed during the past year.

I need to emphasize that we are the bond house in this market. That’s our claim. We are number one. The deal of European Investment Bank definitely should be highlighted. This is an important demanding partner that’s entering the Polish market with the financing in zloty. We were able to raise PLN 1 billion in that deal. It is definitely a good idea to think about Bank Pekao SA as the leader in corporate financing in various counts. Now let me turn the floor to my colleague. No, first let me turn the floor to Ernest. We would like to make the accounting of our projections for the current year. We were predicting 4% GDP and it’s going to be less, more likely, most likely. In terms of the diagnosis of the direction where our economy is heading to, I think that we stand right.

We do see the recovery in the investments. As our CEO pointed out, the growing lending volumes are triggered by the investment plans that the corporations started to work on. The other part of the story is consumption demand. The consumption was a black horse of this year in Europe. Consumption is picking up when the inflation is going down, especially when the cost inflation is going down because it gives more room to consumers. The time of tightening is over. It was 2024 when we had to tighten the belt. Now the consumers started to go shopping. The consumption is up this year. Another thing that is important to note on the right hand side, the environment, macro environment is really doing poorly. Europe is slightly above zero and the Germans announced their data today and they are straight at zero. They are stagnating with their economy.

Historically our key driving ports for the economy is weakened. Export. Export was actually doing less because of the situation of our trading partners and the strong zloty. Nevertheless, the economy is holding strong. It is growing. We expect 4% GDP next year. We expect a major accelerating in investments. It could be even called a boom. It would be in a sense the outcome of the recovery plan cumulating and the interest rates cuts. We believe that the interest cuts will continue. The inflation will be actually hovering over the target and the inflation will stop being a problem across Europe. That should translate into further adjustments by the National Bank of Poland. Consumption, we believe, should stand at 4% and two digit growth of investments in certain quarters of the year and that should fuel the lending volumes.

Next year we expect two digit growth in lending, especially in corporate loans. I believe that this is a fairly conducive environment for our banking business, which will help offset and compensate the interest rate cuts. The interest rate probably will go down to 3.5%, perhaps a bit higher, but it’s not going to be a zero interest rate environment. In that environment, banks are going to do pretty well. That would be all from me, thank you.

Dagmara Wojnar, CFO, Bank Pekao SA: You.

Cezary Stypułkowski, CEO, Bank Pekao SA: Ladies and gentlemen. More details about numbers. Loans were up by 8% in total. As we heard, all business lines contributed to that growth. Cash loans keep growing and this is where we are selling mostly through the digital channel, remote channels, over 90%. Small and medium enterprise loans are going up too. What happened last quarter, and it is continued, is growing loan volumes for large corporate customers, 19% up on a year to year basis. I think that it’s worth to note that we are strongly acquiring new customers, especially for mid and SME loans. The customer base growth was approximately 900 during Q4. Now moving on to the deposit side. The total deposit base was up by 6% year on year. This is where we are also acquiring customers. We are acquiring a lot of young customers under 26 years of age.

Because of the attractive sales of our investment products, as you may see from that chart, investment funds were up by 30% year on year. We open up approximately 130,000 current accounts for young customers. These are retail customers, and 50% of these accounts were for people who are really young. Now looking at the net interest income. The net interest income was up by 8% year on year. Let me just say that we are facing the declining rates environment and to the extent possible, we are trying to offset the interest rate cuts. We are on one hand growing the volumes and at the same time we are modifying our product mix and we actively manage our deposit base. The interest margin was up 2 basis points. As I said, the volumes and the product structure and the decreased cost of deposits contributed to that.

We also mentioned that our NIM in terms of sensitivity to interest rate cuts is like 15, 20 basis points down per 100 basis points cuts of interest rates. This slide we have been showing consistently because it really illustrates our sensitivity to interest rate changes. The actual sensitivity to interest rate cuts will be the end result of our capability to adjust term deposit rates. Now, commissions and fees we were growing up by 9%. This is the third quarter in line when we were growing our fees and commissions by two digits nearly. The major contribution comes to the capital market commission. This is asset management, this is brokerage services. We are also growing our margin on FX transactions and this is mostly the outcome of the growing volume. We do see the uptake in the fees and commissions on loans as well. Loan volumes are growing.

Dagmara Wojnar, CFO, Bank Pekao SA: Cost-to-income ratio 34%. Here we have signaled that, taking into account the strategy and the place where the bank is now, we will have to face some expenditures in infrastructure and technological outlays. Hence, depreciation is growing slightly higher than personnel cost. OpEx and depreciation gross 14.6%. Human resources costs 4.8%. Cost of risk. Maybe Marcin will address this. Thank you, Doctor. As for cost of risk, as has been mentioned, that cost remains at a stable level for three quarters this year. The number is very similar to what we recorded last year, and the level is below what we stated in our strategy. Just to remind you, it was 65 to 75 basis points. This is the market level. We see in general in the market that cost of risk is relatively low, lower than what we saw before the COVID pandemic.

In particular, in the retail section of the market with individual customers, there is just a small part of clients who face difficulties in repaying the loans. There are also some parameters used for assessing credit losses. With adjustments to these parameters, we have those costs significantly lower. At the same time, in the corporate segment, the results are also below the levels to which we are aspiring, but close to the normalized levels. In previous quarters, they were slightly lower but still below our assumptions. As for NPL, which on the one hand shows the risk in our portfolio, but on the other hand is one of the dividend calculation parameters, we see there has been nothing unusual happening recently. Things are rather dull and boring and quiet. I will not comment on this. Further, back to Dagmara.

As for capital, we maintain a strong capital position with surplus both in CET1 and total capital ratio. As for MREL, we also have a surplus in meeting our requirements. We are going to be an active issuer in the upcoming periods. As for MREL, to recap, increase in recurring net profit 10% year on year. Reported profit PLN 5.2 billion for nine months of 2024. This growth is achieved on the income side. On the one hand, we have greater volumes of both loans and deposits, 8% and 6% respectively. We see a growth in interest income plus fees and commissions. ROE at 21.5%. Cost-to-income ratio 34.5%. We are accelerating. We are pleased to see that loan volumes grow in the second consecutive quarter. In the third quarter, they grew faster than in Q2. The CEO talked about this. Cezary talked about this.

We are consolidating our market position in some parts of the market by increasing our market shares, commissions almost 10% for the third quarter in a row. All these elements contribute on the one hand to improving our credit offer, supporting our customers better, and being a partner in their development. On the other hand, we keep in mind building the value of our shareholders. Thank you. Thank you very much for this presentation. We will open now the Q and A session. There are three banks reporting the results today. Kamil Stolarz, Santander Bank Polska. Congratulations on cost-to-income and fees growth, and also congratulations on the growth in corporate loans among the banks that have so far reported the results. mBank only showed minimum growth here and today at the conference. Mr.

Bogusławski said while commenting on the situation, the bank said that margins on corporate loans grew even down to 18 bps on individual deals. How come Bank Pekao SA has this growth that is clearly greater than anywhere else? Is this 18 bps, this thing driven by Bank Pekao? I say we will not comment on the numbers and margins so deeply. I can say that we announced in our strategy that, first of all, following Ernest’s advice, we said that the market would become more dynamic and we prepared for that with greater mobilization of the resources, with deeper penetration of customers. Bank, as you know, for a couple of years was on standby, if I may call it so, and probably this broader approach to customer acquisition, not focusing on state-owned companies only, resulted in a diversification of the range of clients and diversification of risk.

Price does play a role. Of course, it is not just margins grow and volumes grow. No, that is not the case. It seems that all in all, given that we had a small downtick in net income quarter to quarter, not a major change, but that was affected. Also, margin was affected to some extent. This is not the only element. Revaluation of the portfolio of government papers. There are some things happening at the same time, but I wouldn’t be so quick to make generalizations about margins. Colleagues in the markets signal changes, but we had some low business cycle and everybody has some dry powder to use. It’s hard to say whether we are on the eve of a major war. It’s hard to predict.

I was even surprised that the bank, while it had a very strong capital position and its competitors were under major pressure of loans. We failed, at least from my perspective, to capitalize on this advantage. Now, to the extent to which we can expand the spectrum of our corporate penetration in the segment where we are simply good, we have good products, we have good personnel, and now we simply have to utilize those resources better. That is it from me. Maybe you want to add something. I would say that as Cezary highlighted, mobilization and coordination of our sales, CRM, and other activities, very active involvement of Senior Management, also some process-related changes. All these brought their effects. We see that the price pressure continues to be high, competition is stiff, and if you look at standalone credit products, we can have some doubts.

If you look at the balance sheet of the bank in total, you see still some room for improvement. We try to keep our margins. Whenever the competitive situation forces us to do so, we react. We are doing fine and we look comprehensively at the entire relationship with the customer. Thank you for this comment. I also have a question about financing in mortgage loans. ING said that more than 10% of sales was mortgage financing. mBank said that many more customers came to them for refinancing than left them to seek financing elsewhere. Is there any acceleration here? What is the policy of your bank towards refinancing of the portfolio? What ambitions do you have to collect the debt? Indeed, we see that refinancing is becoming increasingly important. We have seen some dissonance in recent years between sales of mortgage loans and sales of flats and housing.

This resulted from the fact that refinancing became more active in the market. We also see a certain growth here. However, as of now the growth is not material. Yet about half of the portfolio here are safe loans, so there is no motivation to seek refinancing. This is the phenomenon which we are following closely. It is not as pronounced here as in other banks yet. However, it is definitely something we will have to look at in the future because we see diverse attitudes of various banks which are becoming very active in refinancing their own customers. We are more selective in our approach. We check whether so far the clients had just one mortgage loan or whether they have a stronger relationship with us. The phenomenon on the whole is much lower than in other banks. Maybe I will make a more general comment.

Given that we are at a stage of declining interest rates, we can of course expect strengthening of this phenomenon. Also, from my experience elsewhere, I can say that there are some markets, especially those saturated markets, where refinancing is actually the name of the game. Some banks may position themselves in such a way so as to aim at refinancing the existing loans which are characterized by being proven to some extent. There are markets where a large part of that market is built on this type of product, and there is no such great supply of new money. The market is also more monopolized. This is not what we see here in this market, but also a lot of loans were sold at a fixed interest rate. Something will happen here, but we do not know yet what.

Cezary Stypułkowski, CEO, Bank Pekao SA: Any other questions from our audience in the room? At any time we can come back to your questions. Let me read the question that we got online at the conference back in June. The bank claimed that 70,000 payment bands will be sold. What is the end result of that action? To be honest, I’m worrying too but I cannot answer this question. I think that we have to get back with the answer through a separate channel. We will do that. Now let me combine a few questions. We already explained the fact that we are actually reducing our sensitivity to interest rate cuts by 5 basis points.

Dagmara Wojnar, CFO, Bank Pekao SA: Why?

Cezary Stypułkowski, CEO, Bank Pekao SA: What is the reason for that? Is there any competition in the deposit market? What is our sensitivity to VAT and declining interest rate environment? Okay. We showed that our NIM is sensitive by 15, 20 basis points per 100 basis points interest rate cuts. The actual was 15 basis points. This is a slight change. We speak about the rent. During the past quarter we increased slightly the share of assets with fixed rate. That’s about mortgage loans and bonds and other securities. As far as deposits are concerned, since about 18 months we have had very active management of the deposit side of our balance sheet and as you can tell during the past quarterly presentations, the deposit side helps us offset the impact of the interest rate cuts.

The deeper the cuts, the less room we have to maneuver and how NIM is going to land in the future. It all depends on how we are going to respond with the term deposits given the upcoming interest rate cuts. We have one more question about the numbers. Do we have any guidance for upcoming quarters regarding the costs of legal risk of Swiss franc denominated mortgages? In terms of the costs of risk, let me start with the historical background. In April we implemented yet another addition of the settlement program. The settlement program is progressing quite well. We targeted and we address the majority of the targeted population. We observe that in terms of the incoming lawsuits, we have more lawsuits that are about the lost mortgages. We are tracking the parameters on an ongoing basis and we will respond accordingly.

Is it the end of the provisions and is it the end of the Swiss franc mortgage story? I believe we haven’t reached that point yet and time will tell when this point in time, when it comes. We have another question. Please quantify possible changes of SIT based on our performance. This is simple arithmetic. Are we going to come and vote? No, let’s let people crunch the numbers. We will find out something about ourselves. Okay, we got another question about Pisa 2 PKO transaction. Our CEO mentioned that on the 6th of November we have general meeting of shareholders and we do have an item of the agenda about this transaction and it will be available on our investor relations website.

If you are not able to participate in the streaming, the question is when we expect legislation and the decisions on the Alior Bank and what would be the exchange parity? As I said earlier, it is our intention to speak about the transaction to the general shareholders meeting at great length, and therefore I would rather refer you to the 6th of November. Let me just say that we have little control over the legislative process. We expect it to unfold duly. Hypothetically, I assume that it should come to a close by the end of this year. Following this assumption and given the structure of the transaction that has been presented in the term sheet, I believe that Q3 is also a good timeline for closing. In terms of the exchange ratio, it’s premature to answer this question. Any other questions from the room? Good afternoon.

Andrej Povira, City Handlowy. I have a question about the cost structure and specifically personnel cost structure. Is it possible to estimate roughly what % costs are attributed to the IT personnel? I don’t think that I have such data breakdown at hand. Perhaps we will come back to you offline with this piece of information. There is a handful of technical questions. I will address them on a one on one basis. Thank you so much for your attention. As we said, on the 6th of November we have general shareholders meeting. We don’t have the date for the publication of their annual report. Normally it happens in February, but obviously our Management Board will be available to you during upcoming investors conferences. Thank you so much for your attention.

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