Earnings call transcript: mBank sees strong Q2 2025 growth despite rising costs

mBank reported robust financial performance for the second quarter of 2025, highlighted by a significant increase in net profit and revenue. The Polish bank’s stock rose by 1.02% following the earnings release, reflecting investor confidence despite higher operating costs. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculation, with strong fundamentals supported by a GOOD Financial Health score of 2.89.

Key Takeaways

• Net profit more than doubled year-over-year, reaching 1.7 billion Polish zloty.
• Revenue increased by 7.1% to 3.2 billion Polish zloty.
• Mortgage loan sales surged by 33% year-on-year.
• Operating costs rose by 15%, yet the cost-to-income ratio remained below 30%.
• Successful issuance of 400 million euro in tier two bonds.

Company Performance

mBank demonstrated strong financial health in Q2 2025, with substantial growth in both revenue and net profit compared to the previous year. The bank’s performance was driven by a significant increase in mortgage loan sales and corporate lending, particularly in the renewable energy sector. Despite rising operational costs, mBank maintained a low cost-to-income ratio, underscoring its operational efficiency.

Financial Highlights

• Revenue: 3.2 billion Polish zloty, up 7.1% year-over-year
• Net Profit: 1.7 billion Polish zloty, more than double the previous year
• Return on Equity: Improved to 19.9%
• Net Interest Margin: Slight decline to 4.12%
• Net Fee and Commission Income: Increased by 11% year-on-year

Market Reaction

Following the earnings announcement, mBank’s stock price increased by 1.02%, reflecting positive investor sentiment. Currently trading at $19.78, the stock shows remarkable stability with a low beta of 0.19. InvestingPro analysis reveals additional insights through its comprehensive Pro Research Report, one of 1,400+ detailed company analyses available to subscribers. The market’s reaction suggests confidence in mBank’s strategic direction and financial health despite the challenges posed by rising costs.

Outlook & Guidance

Want deeper insights into mBank’s valuation and growth potential? InvestingPro subscribers get access to exclusive financial metrics, Fair Value calculations, and expert analysis that go beyond surface-level data. mBank anticipates full-year revenues to exceed 12 billion Polish zloty, driven by above-market loan growth in both retail and corporate segments. The bank expects 2025 to be the final year with a significant impact from FX mortgage legal risks. A Capital Markets Day is scheduled for September 23rd, where mBank plans to unveil a new strategic direction.

Executive Commentary

• CEO Cesare Kocic emphasized the importance of mortgage loans, stating, "Without offering mortgage loans, it’s almost not possible."
• CFO Pascal Ruland expressed confidence in sustainable growth, saying, "We are well positioned to deliver sustainable growth."
• On regulatory compliance, Ruland noted, "We meet very comfortably the thresholds."

Risks and Challenges

• Rising operating costs could pressure profit margins if not managed effectively.
• Legal risks associated with FX mortgages may continue to impact financial results.
• Economic uncertainties and potential interest rate changes could affect lending growth.

Q&A

During the earnings call, analysts inquired about the bank’s mortgage products, salary adjustments, and provisions for unauthorized transactions. Executives confirmed the ongoing attractiveness of their mortgage offerings and addressed concerns about cost management and future growth in fee and commission income.

Full transcript - mBank SA (MBK) Q2 2025:

Conference Moderator: Good afternoon, ladies and gentlemen. Welcome to our conference where we will present the results of Enbank Group in the 2025. The speakers today are mister Cesare Kocic, chief executive officer and mister Pascal Ruland, chief financial officer.

Cesare Kocic, Chief Executive Officer, mBank: The cost of legal risk related to FX loans is going down each quarter. We are successfully reducing the risk related to this portfolio. This achievement highlight the strong performance of mBank in the first half twenty twenty five. We are confident about our ability to beat on this momentum going forward. In first half twenty twenty five, we were focused on the expansion of our business volume.

The sales of mortgage loans increased by one third on a year on year basis, while on a quarterly basis, it increased by 48%. The vast majority of ZOTA denominated mortgages starting first half, were fixed rated with monthly share ranging from 74 to 84%. As a result, fixed rate loans accounted for 48% of the total PM mortgage portfolio at the June. Sales of non mortgage loans in first half were higher than in the corresponding period of 2024 by 23%. In q two, non mortgage lending remained strong, showing an increase by nearly 5% quarter over quarter.

Turning to corporate loans, that’s increased by 23% year over year with growth observed across all customer segments. The strongest growth came from structured finance loans, particularly those related to renewable energy financing. In Q2, corporate loan sales declined by 13% quarter over quarter, primarily due to the drop in structured finance activity following an exceptionally strong QM. The results of our sales efforts are reflected in the growth of the loan portfolio by 9% year over year. We are seeing a strong activity across all client segments.

In Q2 twenty twenty five, the mBank’s loan portfolio expanded by 4%. Also driven by both segments. In the retail segment, we saw a solid growth in both mortgage and non mortgage loans, thanks to a strong increase in the new origination. As committed, we are still enhancing our market shares across all key products as presented on the right hand side of the slide. These results clearly demonstrate that the growth of our household and corporate loans portfolio is outpacing the broader market, which is our major strategic priority.

Now let’s have a look at liability side of our balance sheet. Here, we recorded a growth of 10% year on year. It was primarily driven by retail current and saving accounts, which climbed by 15,000,000,000 or 13% year over year. Corporate current accounts also contributed significantly, increasing by 3,000,000,000 or 8% year over year. Again, we proved to be the premier transactional bank.

On a quarterly basis, total deposits increased by 3% with growth recorded again in above customer segment. As shown in the chart on the right, the, the solid performance translated into higher market shares in household current deposit. With the loan to deposit ratio below 65%, we are in excellent liquidity situation. Therefore, in the area of corporate deposit, we are focused on client transactionality and satisfaction, but there is a little need for us to compete aggressively on price. For this reason, we had a small decline in the market shares in a corporate deposit this quarter.

Now let’s have a look at our P and M. In first half, total revenue rose by 7.1% year over year. All key revenue drivers, net interest income, net fee and commission income, and net trading income contributed to this increase. Net interest income in the first half rose by 3.7% year over year adjust after adjusting for the impact of a credit holidays in 2024. This growth was supported by higher loans and deposit volume, a larger bond portfolio, and effective interest rate management.

Net interest margin declined slightly to 4.12%, reflecting a sharp rise in average interest earning assets and lower yields following a rate cut. Net fee and commission income grew by 11% year on year, driven by increased transaction volumes, larger client base, and strong product sales. Additionally, q two included an upfront fee of 43,000,000 Polish zlotre from an exclusive bank insurance agreement with Unica. Net trading income surged by 62% year over year, benefiting from strong foreign exchange results, thanks to high market volatility, higher gain on derivatives and hedge accounting. Net other operating income declined by 89% year over year in the 2025, primarily due to one off gain of 164,000,000 in Q2 twenty twenty four related to a refund of a loan insured by Cooker.

In first half, 2025, the mBank’s operating cost rose by 15% year over year. The main driver was a higher contribution to bank guarantee fund, reflecting increased payments to the resolution fund and to the instatement of charges to the deposit guarantee scheme. Excluding BFG contribution, operating cost rose by 10.8% year over year. Tax related expenses increased by nearly 12%, driven primarily by a rising headcount along with a base salary adjustment. Material cost increased by 7% with the largest rise in IT, marketing, consulting, and security.

Depreciation was up by 13%, reflecting investments in ongoing and completed projects. Finally, our efficiency was excellent with the normalized cost income ratio maintained below 30%. Now let’s move on to the cost of risk. As you can see, it remains low, reflecting the high quality of our own portfolio. Our customers continue to demonstrate a good payment discipline supported by favorable macro environment.

Cost of risk after first half stood at 46 basis points. The resilience of our asset quality is confirmed by a strong decrease of our NPL ratio to 3.5%. On the back of all these developments, the mBank net profit for first half twenty twenty five reached $1,700,000,000 per result, over two times higher than last year. At the same time, excluding the non core segment, the mBank’s net profit reached 2,800,000,000.0. In q two alone, net profit rose 36% quarter over quarter to $959,000,000 Polyozot.

Consequently, the mBank’s return on equity improved to 19.9% in q two and through a four of our core business stood at thirty, 34.1%. The mBank’s return on tangible equity reached 25.322% respectively in q two and the 2025. Now let’s discuss our capital position. On annual basis, our own funds increased by 17% and reached 17,900,000,000.0 Polyozot, driven by retained earnings and the issuance of AT1 Capital. In June, we successfully issued Q2 bonds in the amount of €400,000,000 which has not been included into own funds yet.

After obtaining the consent from the Polish FSA, the issued subordinated bonds will improve the total capital ratio by 1.4 percentage point. At the same time, our total risk exposure amount rose by 28% to 120,000,000,000. This growth resulted from our strong business growth as well as regulatory changes, including implementation of CRR in the q one twenty twenty five. Consequently, at the June 2025, our CET1 reached 12.8%, tier one capital ratio 14%, and the total capital ratio 15%. These levels provide comfortable buffers above the Polish FSA minimum requirement.

Let’s move to a summary of legal risk related to Swiss franc mortgage loan portfolio. Slide 12 shows the positive trends are continuing in this area. First, in Q2, we significantly sorry, in Q2, we signed nearly 2,700 settlements with Swiss franc borrowers, bringing the total number of settlements to over 28,700 as of the June. And currently, we have, almost 30,000 such as settlements. Settlements offered to borrowers involved in the legal disputes contributed to a reduction in the number of court cases.

Second, Q2 marked a sixth consecutive quarter of declining inflows of a new Swiss franc related lawsuit. This decline was driven by lower number of cases relating to active loan contracts. The number of new cases regarding prepaid loans still remained at around 500. And third, the number of pending court cases continue to decline across both active and prepaid loan contracts. In first half twenty twenty five, we managed to reduce the risk related to FX mortgage portfolio even further.

As shown on the left hand side, the balance sheet value of Swiss franc mortgage loans dropped to only 127,000,000 Polish zote and the share in the loan portfolio fell to just over 1%. At the same time, number of active contracts declined by over 88%, driven by 35,000 to paid contracts, 11,800 contracts closed after the final court rulings, and 28,700 contracts settled with client. As a result, at the June, the number of active Swiss franc contracts stood at 10,000. In Q2, we booked 44,000,000 Niger risk provisions, bringing the total amount of FX related risk cost since Q1 twenty eighteen to billion, roughly equal to M Bank’s own funds. Q2 was the sixth consecutive quarter of declining credit risk cost.

As our current strategy horizon is coming to the end, we would like to emphasize that we deliver all financial target that we set in 2021. In September, we intend to announce a new strategy with an updated set of targets for 2026 to 02/1930. Now let me summarize the key takeaways after 2025. We maintain a strong momentum in both lending and deposits with annual growth of 10% for both categories. This translated into further gains in market shares.

Our reported net profit increased and return on tangible equity exceeded 20%. This performance reflects our robust core revenue generation, industry leading cost efficiency and the prudent credit risk management. The successful issuance of subordinated bonds will further strengthen our capital base, enhancing financial stability and supporting sustainable growth. We have also made steady progress in legacy Swiss franc matters. Settlements continued at a healthy pace and litigation volume declined, enabling our gradual reduction in a legal cost provision.

With this, I hand over to Pascal, who will discuss the Q2.

Pascal Ruland, Chief Financial Officer, mBank: Thank you very much, Cag, and a warm welcome also from my side. Let me continue with highlighting our exceptional performance in Q2 on this slide, slide 17. MBank Group delivered its strongest quarterly results to date, and that means achieving record revenues, achieving record operating profit, and a record pretax earning. Total revenues reached 3,200,000,000.0, marking a 5.5 increase quarter over quarter and a 10.6 rise year over year. This was driven by solid growth in net interest income, which benefited from a larger loan portfolio and improved derivative results.

While the net interest margin edged down to 4.12%, our core lending and deposit activities remain resilient and continue to support our growth. Fee and commission income surged by nearly 16% quarter over quarter, driven in part by a 1 off 43,000,000 fee from our strategic partnership with Unicom. Excluding this, underlying fee growth was still very strong, 7%, supported by increased activities in payment cards, FX transactions, and credit related services. The net trading and other income rose by nearly 30,000,000 quarter over quarter, mainly due to a sale of our real estate on Prulevska Street in Warsaw. Looking ahead, revenue performance will, of course, depend on the interest rate trajectory.

And currently, assume a 50 basis points cut by year end. Therefore, we expect now full year revenues to exceed 12,000,000,000 Polish zloty and including then a surpass of our 2024 results. On the cost side, we maintain discipline, keeping our cost to income ratio below 30%. While total cost rose 8% quarter on quarter, the main drivers are seasonal marketing and IT investments. In the second half, we expect further increases, particularly in personal costs lifted by recruitment and spending related to our strategic initiatives.

Based on the two trends, our cost income ratio is on the upward trajectory, but we will stay for the full year below 35%. Loan loss provisions declined sharply by 22%, reflecting a 50% reduction in the corporate segment provisioning. However, we keep our view as current geopolitical situation is uncertain and prepare for potential weakening. And therefore, as a result, we maintain our full year cost of risk guidance of around 70 basis points. The legal risk costs related to FX loans continued the downward trend as set by Cavec, 544,000,000.

And this marks now the sixth consecutive quarter of declining legal risk provisions, a trend that we have announced and is expected to continue. All of this translates into a net profit of 959,000,000 and a return on tangible equity of around 25%. These results underscore the strength of our diversified business model and our ability to deliver value in a changing rate environment. And now turning to slide 18, and this is something we are, at mBank, particularly proud of. Six months after establishing the AT one instrument for the Polish market, we became also the first bank in Poland to conduct the public issuance of tier two to international markets.

The €400,000,000 issuance was met with an overwhelming demand, nine times oversubscribed with a 3,600,000,000.0 order book from over 200 investors across Europe, Asia, and The Middle East. This allowed us also to tighten the spread by 40 basis points versus initial guidance. It is the largest tier one, tier two transaction from CE Region in the past five years. And this transaction not only strengthens our capital base, but also shows that investors have confidence in our strategy and in our financial resilience. Finally, let’s take a look at our outlook and the remainder for 2025.

As I already was saying, revenues supposed to exceed 12,000,000,000 and surpassing 2024 levels. Our capital position will be further reinforced by the inclusion of the tier two instruments and a planned securitization for the second half of the year of our corporate loan portfolio. We expect above market loan growth in both segments to be continued. And importantly, we believe 2025 will be the final year in which FX mortgage related legal risk materially impacts our results. So in summary, we are well positioned to deliver sustainable growth, maintain strong profitability, and continue creating value for our shareholders.

And let us together now conclude the presentation with an invitation to all of you, an invitation to our Capital Markets Day on the September 23 in which we are presenting our next strategy cycle, and we would be delighted to host you at our event. Thank you for the attention, and now we are looking forward to your questions.

Conference Moderator: Thank you very much, gentlemen. Let’s start the q and a session. The first question, is to Marek. What was the cost cost cost of o point five percentage points decrease of NPL in corporate business segment?

Senior Executive, mBank: A very good point, and thanks for that for that question. That decline of, corporate, nonperforming, loans is actually driven by a number of, of factors. First of all, is a strong, increase of the corporate portfolio to start with that was growing by 2 and a half billion quarter on, on quarter. That, improves the denominator, but also, there was a impact on nominator because we have seen a decline in impact corporate loans by nearly 200,000,000, which was supported by the sale of nonperforming corporate loans by over 100 millions of it combined with successful restructuring activities. So, Olin, we were working both on the nominator and the nominator of that of that figure successfully bringing three and a half percent, Olin.

Conference Moderator: Thank you. Next question. Does Enbank meet a sort NII and long term funding ratio requirements?

Pascal Ruland, Chief Financial Officer, mBank: Yeah. Let me take this question. So I’m starting off with the long term funding ratio. And as you know, we are one of the more most frequent issuer into the markets also shown now recently. And I just want to announce that this is nothing of a concern for us because we already meet today the thresholds which come into place 2026 on the long term funding ratio.

And a similar answer to Sot NII because also here, we meet very comfortably the thresholds. So also something which is not a concern from our perspective.

Conference Moderator: Right. Can you give us some sorry. Sorry. Not this one. What is the outlook for net fees and commissions in upcoming quarters?

Pascal Ruland, Chief Financial Officer, mBank: Yeah. On the net fee and commissions, as we have announced since a few quarters, we now see that our business model is continuing in terms of delivering step by step further fees. And now we have seen a quarter which was extraordinary good, and I also explained it was driven by a one off. So if you would exclude this one off of Unica of around 40,000,000, we expect to exceed also the next two quarters, the 500,000,000 fees, and it should be then a positive contribution step by step.

Conference Moderator: And the next question, the same question about the outlook for operating expenses in upcoming quarters.

Pascal Ruland, Chief Financial Officer, mBank: Yep. On the operating expenses, we have guided that it will further be on the rise due to especially our additional demand for colleagues who support us, especially in the IT, but also in the Salesforce, and that will increase the operating expenses forward looking. Nevertheless, as we also guide that our business is very well developing, we see our cost to income ratio very much, I would say, competitive and keeping our very good position, and we expect that the full year will stay below 35%.

Conference Moderator: And next question from Kami Stolarski. What is your opinion about attractiveness of Polish lot in mortgages for banks? Some banks, for example, BNP, Millennium seem less willing to originate mortgages.

Cesare Kocic, Chief Executive Officer, mBank: So in our opinion, just being the big universal bank, without offering mortgage loans, it’s almost not possible. So we believe that the product itself is attractive, and, it’s connected with a huge cross selling to our customers. But, of course, we very carefully observe a legal environment because this is a Polish phenomenon that we are not afraid of, credit risk, in terms of, mortgages. We are only thinking about the legal risk. And but we still believe that the worst is behind us and the Swiss franc saga is going to the end.

And we also very carefully look at viable cases, but up to now, we believe that there is not an interest anybody, especially country and society to, causes financial crisis. And we see the full support from a state, from a a supervisory institution, and that’s why I believe that we will continue. That’s but if it is a core product and without offering the mortgage, we will see a huge channel to after we spent the money for acquisition of customers, we will lose them to to competitors. So for us, it’s a core product in our offer, and we are going to continue.

Conference Moderator: Thank you. Can you give us some details about salary adjustment mentioned before?

Cesare Kocic, Chief Executive Officer, mBank: So just a slight increase, which till we we had a quite significant inflation. So it was just only and we always do some something that we spread our increases for two years. We are not doing everything in one shot, it was, I would say, a punctual, you know, increases with just to to come up with the the inflation level, but, not for everybody inquiry, but only for for the most valuable employees. So the the results are normal, increase which we, in some amount, experience each year.

Conference Moderator: Thank you. K. Next question about k one volumes. Is the level of k one volume sustainable, rebound in q one, or was there any extraordinary effect?

Cesare Kocic, Chief Executive Officer, mBank: In volumes in k one, I believe that, we are at the beginning, because for this many years, the k one segment was artificially reduced by us, especially the lending activities due to our equity constraints. And as we said now, once we solved the equity problem in our bank and also reduced the Swiss franc risk, we want to grow in terms of the market shares. And, this is not concentrate on a specific segment or a a group of customers. We just, would like to go both and, and let our market shares in each categories and each segment. So so that I believe that we will continue.

Conference Moderator: Thank you. Next question on capital impact and, risk weighted assets. Is there anything special in the second half outlook for for risk weighted assets growth for the 2025?

Senior Executive, mBank: I guess this is, the one for me. So, basically, in in in first half of, 2025, we had implemented a number of, changes driven by regulatory requirements, and that was mix of the CRM free implementation that led to around 3,000,000,000 increase in our risk weighted assets, and there were also some minor changes coming into the internal models on the back of supervisory recommendations coming from both KML and ECB. This is a medical we are on the group wide set of internal models for for credit risk. And as it comes to the outlook for the 2025, we do not expect anything material at this stage, but also, please be mindful that we remain in the decision process with, authorities on some, model changes related to the implementation of a certain, recalibration. I’ll see the definitions of, of default, and, STP becomes with, such a regulatory approval, there is a, some uncertainty that is related to what the regulators may ask us to to do as it comes to, model model changes.

But apart of apart of that, we do not expect anything else than, than that. At the same time, the timing and the details of that, supervisor decision remain at this stage uncertain.

Conference Moderator: Thank you. Was effective tax rate a bit higher than usual in the second quarter?

Pascal Ruland, Chief Financial Officer, mBank: I mean, if you compare it, obviously, you see that it’s a bit higher. But here, I want to make two statements very strong. So first of all, if you would deduct the special item of Swiss franc from our side, which is very much distorting the ETR, then a fair assumption of the ETR for us is, as for most corporates, around 25%. And while items we have on our p and l, especially the Swiss franc, and the vast majority are tax deductible, you see then the distortion happening in our ETR. And for sure, on our side, the biggest one is the FX loans, which are distorting.

So nothing extraordinary to report on this quarter, but just an explanation why our tax rate is, fluctuating and, driver is Swiss franc mortgage loan legal risk.

Conference Moderator: Thank you. Any other one offs in fees in the second quarter?

Pascal Ruland, Chief Financial Officer, mBank: No. In the fee side, we see just a trend, I would say, from all our businesses. Nothing which extraordinary like we would have had it with Unica, which was around 40,000,000. Is that repeating? No.

It’s our flow.

Conference Moderator: Thank you. Can you provide a rough 2026 outlook on revenues and target loan growth?

Pascal Ruland, Chief Financial Officer, mBank: And here, we invite you to our strategy day on the September, where we also will give you then, next to our strategic cycle together then with the strategic cycle, and ambition level for the next years.

Conference Moderator: Thank you. Does the bank make provisions for unauthorized customer transactions, case Millennium, and provisions for Escobar? If so, how much?

Senior Executive, mBank: Okay. This is the one I will take. So on yeah. I’ll authorize the transactions. So we have created roughly 21,000,000 of the provisions for the potential refunds to the customers for past unauthorized transactions.

And we are in the process of discussing with authorities with respect to the binding decision, for the, for the proceedings. As, as of now, this provision amount corresponds to the, terms that we have included in our, application to the to the authorities. And as it comes to the the second part of that of that question that is a free long sanction, we are creating provisions for individual cases As it comes to 2025, we have created 6,800,000 of provisions in q one and 5,800,000.0 zloty of provisions in q two for free loan sanction. And, the overall amount for free loan sanction provisions stands at, 34,000,000 zloty as of now.

Conference Moderator: Thank you. What is your take on outlook for saving and investment products? Deposits keep growing visibly faster than lows, loans. What changes do you anticipate for brokerage business?

Cesare Kocic, Chief Executive Officer, mBank: So I believe that, in terms of the dynamic, the dynamics are very similar. Of course, deposits are bigger than launch in our balance sheet. So in, absolute values, yes, that’s right. But we are gradually shifting from this that we collected more deposit than loans. As we said, the last four years, we were in a capital constraint.

So it was very difficult to, growth in terms of, loan book with the same speed, like, in terms of deposits. But, now we try to, change it. Of course, there is also the market, and we have to look at the micro aggregate that, still deposit are growing in Poland relatively faster than loans. And this is also what we need to bear in mind. But, of course, we would like to, you know, have a little bit higher loan to deposit ratio than 65, and this is, what we were stealing the bank in the future.

In terms of brokerage business, you know, I believe that in terms of the acquisition of new customers and also from activity that that required on our platform, we are very satisfied. So in terms of brokerage house, we just want to continue in the same direction, in we are because also the product offers is complete. So so that, we don’t see any changes in front of us in terms of a brokerage house.

Conference Moderator: Thank you. Can you please comment on the profitability of your contract for difference product?

Pascal Ruland, Chief Financial Officer, mBank: Yeah. Here, we are not different, than, I would say, other market participants. So with this, we would keep it.

Conference Moderator: Thank you. And I think the last one, what is your view on competitive environment now? And what do you think about as the group transaction with Banco Santander? Is it going to change the landscape?

Cesare Kocic, Chief Executive Officer, mBank: In my personal opinion, not because, you know, the Santander was or is because it’s still hasn’t changed the name. So a very efficient bank and I believe that as they saw so very reputable bank. So it is rather the change of heads between two groups and but on operational level, this unit, which we still call Santander Polska, will be the same efficient as it used to be in the past. So for us, it’s, not significant change, maybe just in terms of a small group of Spanish and German slash Austria customers, there will be, something, which we need to look carefully. But, generally, we expect that it will continue continue more or less as it used in the past.

Conference Moderator: Thank you. It was the last question. So thank you very much for your questions and attention, and, we hope to see you in September. Have a good day.

Pascal Ruland, Chief Financial Officer, mBank: Thank you very

Cesare Kocic, Chief Executive Officer, mBank: much. Thank you very much. See you soon.

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