Earnings call transcript: PKO BP reports strong Q4 2023 profit growth

PKO BP, Poland’s leading bank, reported a robust financial performance for the fourth quarter of 2023. The bank’s net profit reached PLN 9.8 billion, driven by a 20% increase in core revenue year-on-year. According to InvestingPro data, the stock has faced significant headwinds with a -45.98% return over the past year. Despite economic challenges, PKO BP’s strategic investments in technology and innovation have bolstered its market position, though the platform’s Financial Health Score indicates some areas for improvement.

Key Takeaways

• PKO BP’s net profit for Q4 2023 was PLN 9.8 billion.
• Core revenue surged by 20% year-on-year.
• The bank’s cost-to-income ratio improved to 29.5%.
• PKO BP is focusing on digital transformation and customer growth.

Company Performance

PKO BP demonstrated strong financial performance in Q4 2023, with significant growth in core revenue and net interest income. The bank’s strategic shift towards digital services and advanced analytics has contributed to its competitive edge. PKO BP’s customer base grew by 220,000, highlighting its successful customer acquisition strategy.

Financial Highlights

• Net profit: PLN 9.8 billion
• Core revenue: Increased by 20% year-on-year
• Net interest income: Up nearly 8%
• Cost-to-income ratio: Reduced to 29.5%
• Return on Equity (ROE): 19.2%
• Capitalization: Increased by 19% to PLN 12 billion

Outlook & Guidance

Looking ahead, PKO BP is targeting double-digit growth in corporate loans and expects potential increases in mortgage and cash deposits. The bank is preparing for investments in energy transition and robotization, aiming to complete Swiss franc loan risk mitigation by 2026. PKO BP anticipates interest rate cuts starting in Q3 2024, which could positively impact its financial performance.

Executive Commentary

"We are going beyond traditional banking. We are seeking customers proactively," said CEO Shimon Miederra, emphasizing the bank’s commitment to growth and innovation. Deputy CEO Krzysztof Drezler added, "Our strategy is titled development and growth, which is about volumes, which is about customers."

Risks and Challenges

• Economic fluctuations in Poland could impact PKO BP’s growth.
• Potential challenges in managing loan quality, especially in the energy and automotive sectors.
• Adjustments to interest rate margins could affect profitability.
• The bank’s ambitious digital transformation strategy may face execution risks.

PKO BP’s Q4 2023 performance underscores its strong market position and strategic focus on innovation, setting a positive outlook for future growth. Unlock the full potential of your investment research with InvestingPro, featuring exclusive insights, Fair Value analysis, and comprehensive financial health assessments for informed decision-making.

Full transcript - Pimco Incm (PKO) Q4 2024:

Darius Horiouan, Director of Investor Relations, PKO BP: So good morning, ladies and gentlemen. It’s pleasure to welcome you to presentation of results of EKO BP for 2024. My name is Darius Horiouan, and I’m Director of Investor Relations. So we are joined today by CEO, Shimon Miederra, Krzysztof Drezler, Deputy CEO, Piotr Mazur, overseeing Risk Management and Piotr Boyak, Chief Economist. Hello.

So it’s been a year since I’ve joined the new board. And to be frank, we have ramped up and accelerated, and we are very excited to see increased loyalty of our customers. And this is what we are going to discuss today. We are on the podium. We ranked among top three banks in terms of NPS in retail and corporate banking.

We have accelerated business growth in terms of volume. We have also ramped up financial performance and all the makings of efficiency, profitability, cost efficiency. Hello, and welcome today. Today, we are meeting in a wider group, CEO, Drasler Mazur and Piotr Boyak, in a new hat who is going to share his macroeconomic outlooks today. So let’s get started.

I would like to stress our profound transformation we are now witnessing and full focus on customer needs. PKO is ultimately ready to follow and satisfy customer needs. We are going beyond traditional banking. We are seeking for customers proactively. Our partners, we follow customers anywhere they need banking products today.

So this is the quintessence of what we are doing today. We are undergoing profound transformation as we are building a brand new business model. We have done a lot. In terms of value creation, we are creating value for customers. We are boosting volumes.

We are also building value for shareholders. Let me just remind you that last year alone, capitalization of the bank was up by nearly 19%, PLN twelve billion. So we are speeding up today. We are deep diving into implementation of One. It’s a brand new strategy we have adopted, which will put the focus on the customer.

It’s not an outcome of our ignorance. And the Green Deal, it’s an illustration of going outside traditional banking infrastructure, mobile apps, branch. We are creating a new ecosystem and results will become visible in the next quarters. And right away, already today, you can see that our communication model with you is changing. We are showing you new elements.

And quarter by quarter, we’ll be showcasing you execution level of our targets and goals and all results of gross generalization of our targets. Now as to performance, it was a robust year. We saw the customer base growing by 220,000 and this growth

Speaker 1: of the

Darius Horiouan, Director of Investor Relations, PKO BP: biggest customer base and customer confidence. And let me stress once again that we saw an increase in the loyalty of the biggest customer base in Poland, what translated into higher savings, which were up by 11% in terms of savings. We have not only savings and deposits, but also unit linked funds and bonds. And financing of our commerce totals PLN 300,000,000,000. This has translated into higher balance sheet sum totaling PLN $5.22, EUR 20 5 billion and the capital buffer still exceeds four percentage points.

So Tier one totaled 17.39% and we can still think about satisfying needs of our retail and corporate customers, funding the economy and sharing our profits with shareholders. This business growth above market average, and I would like to stress it, we are growing faster today than the market, than our competitors, faster than the leading five Polish banks. This has translated into robust financial performance. We are very glad that we see an increase by 20% year to year in our core revenue. Net interest income has gone up by nearly 8%.

We’ve seen cost to income ratio going down to 29.5, and we have PLN 9,800,000,000.0 of net profit with full control of credit risk. And we have historically lowest credit risk at 39 basis points. And once again, what we find important, customers have good trust in us. This is these are our main stakeholders, and this translates into faster growth than under market. We have 1.8x faster growth in consumer loan and 1.2x faster growth in corporate loans.

We are growing faster than the market. So we are capturing more market share. We are consolidating the standing under bank and the Polish market. And we have very high profitability. Net result is up by 70% year to year.

Our net interest income and F and C has been growing faster than on the banking market in Poland. What translates into capitalization, which is up which was up by 19% last year alone, so this is billion for the last year. We are the most valuable company of the Polish stock exchange. So Fjall, now please present macroeconomic outlooks. Macroeconomic backdrop is creating favorable operating conditions for the bank, although it’s far from perfect.

In 2024, we saw GDP going up what has been reflected by increased demand for loans, whilst, assets were demonstrating high quality. And during the past quarters, ever since we have been experiencing the revival of the Polish economy after 04/2023, there were some downfalls. Economic revival in 2024 was quite atypical. On the one hand, we saw improvement, understanding of households, which benefited from lower inflation. On the other hand, lower inflation had negative impact on financial condition of enterprises, which is why differences in performance of different market segments and some differences in terms of the quality of assets in the household sector.

We saw robust demand for loans, while in the business sector, huge impact of lower inflation translated in higher demand for loans. In terms of asset quality, these macroeconomic trends were also reflected there. So the quality of assets in household sector was higher than in the business sector because rapid disinflation had an impact on the financial standing of household retail customers and deteriorated the standing of businesses. This year, we expect a breakthrough in economy, especially in terms of investment activity. The revival of the Polish economy, which started last year, should gain momentum and economic growth will be spread more evenly, what will have an impact on households and companies alike.

Recent data indicates that things are improving for businesses and we look forward to robust investment activity. Key role will be played by releasing EU funding for Poland and fundamental structural challenges for Polish economy regardless of EU funding, energy transition or the need to increase productivity in the face of

Speaker 1: diminishing

Darius Horiouan, Director of Investor Relations, PKO BP: traditional competitive edge of the policy economy, which was which used to be cheap labor. So structural challenges and trends in midterm will be increasing demand for loans demonstrated by businesses. The banking sector with an improved capital standing is able to satisfy this demand on a wide scale. So we expect revival of loan sales to businesses. So another major element of economic outlooks, which has an impact on the banking sector, is the condition of the labor market.

We so drop in the number of FTEs, but the unemployment rate is not growing. In recent months, it was going down, which has an impact on the quality of assets in the household sector. This positive trend will not be reversed. Quite contrary, it may be reinforced service indicate that companies plan to increase employment level later this year with economic revival. So we believe that unemployment rate this year will be going down what will increase the quality of household assets.

And final element of economic reality, which has an impact on the banking sector, interest rates. Most economists believe that the National Bank of Poland kept its rates stable last year, what limited uptake for loans, but at the same time had a positive impact on net interest income. In the next quarters or later this year, we expect interest rates to go down again. And in the base scenario, we assume that first slash will be introduced in Q3 by 75 basis points. And this process will continue during the next year where rates will be slashed by 100 basis points.

It should be stressed that in the past, rate cuts coincided with downturns, so they did not necessarily revive loan sales. But we believe that this time, rates will be slashed when economy is ramping up. And we believe this will animate and stimulate loan sales because like I’ve said before, capital wise, banks are ready to satisfy this demand.

Speaker 1: And the last few sentences of the comment, the table that is presented to the right that presents our baseline scenario for the development of the credit campaign. We believe that it is partly conservative, quite cautious. Please note, on the 21 hand, we consider acceleration of the increase of credits in general and in every key sector as compared with the previous year. So in our opinion, the mortgages in PLN should go up together with the consumption loans as well as the loans for the businesses. This is the increase to the largest extent as I told you earlier.

And the growth of credits, however, will be lower than the nominal GDP growth. So we believe that the actual growth of the credit campaign throughout the year, especially in the resumption of the decrease of interest rates can be even greater. Thank you very much. Let us move on. We are diving deeper in our business results.

And there is going to be a corporate part, which is a nonstandard approach to the presentation. You can see very good signals from the end of the previous year quarter to quarter. Credit campaign in the corporate sector went up by 5%. All over the year, we are at 5.5%. Nominally, it does not seem to be a lot.

But let us remember that a quarter or two quarters ago, one per percent increase in this area was considered to be a success. That is why we closed the year at the level above 5%, and it makes us really very glad. It allowed us to strengthen the position of the bank in the market as well as to increase market share in the sector deposits. And the growth here is a little bit over four percentage points. As every quarter, we present the most important transactions, corporate transactions in that period of time.

And I would like to note that it actually depreciates the quality of our corporate clients, but it also shows a significant diversification of the portfolio. Let us move on to Retail. And here, the growth was very dynamic indeed, and that was significantly above the market. In the retail credits, we went up at the level of over 12%. And it makes us really very glad that we can see the sales in consumer finance.

It is the cash loan, new sales year on year went up by 60%. And it all translates onto the increase of the market share, a significant percentage point of an additional market share in consumption loans and mortgages. And this is very consistent with what we’ve been talking about since the very beginning. It’s about the profitable business growth above the market as well as the strengthening of our position in the financial market in Poland. And now talking about deposits.

We have a several percentage growth year on year, and I want to draw your attention to our dominance in the market of the investment fund sales. It’s close to 40% increase of assets of investment funds year on year. We captured about 30% of new sales, We also strengthened our position by plus one percentage point in this area. I would like to thank very much the clients and employees, Poldet and Krzysztof. Thank you very much, Simon.

It is a great privilege and it is a great distinction for me to be able to present annual results of the largest bank in Poland but also the largest company, which is quoted in the stock exchange market with a capitalization that exceeded the pricing of the previous year when we were coming to this place and we were planning our activities to increase the value of the company. So we want to thank all the employees very cordially, everyone who contributed to that. We want to thank our clients, our customers who have been loyal to us. We really make an effort to expand our services and we try to be where the needs of our customers and clients can be executed. The net profit is at the level of billion, although there were some extraordinary events to the right, on the lower, we consider those extraordinary events influenced the net result in the amount of billion.

Now it is billion. The difference is not really significant, but the amount is really right, billion. This is what the write off was on the loss of value for the provisions in that Swiss franc denominated loans. Well, let us hope that this EPO pay, the Swiss franc EPO pay is already addressed. And this year, we already foresee some further actions to this extent.

However, we believe that 2026 is going to be the year which we will enter with a blank slate from the perspective of the mitigation of the Swiss franc risk. To the right on top, we can see the quarterly net profit and this is something which makes us really very happy. And this is about the predictability and stability of the result. Although, extraordinary items really are having an impact on us. It is not only connected with the cost connected with these with bank provisions but also credit holidays.

And we try to make sure that this result is as predictable as possible from your perspective. And there is a thing that I think that really makes us very glad, and this is about of this result. We led to the increase of the Basic Banking activity result by 20%. And that basic activity, which is made up of the interest rate result as well as the commissions result, constitute the main drivers for the strengthening of the financial position of the bank. And the results from the basic activity is now at the level of 728,000,000,000.

So this is the growth by 20% year on year. We can also see quarterly, quarter on quarter, we also were able to improve significantly the basic activity result. Without credit holidays, it is just 3.6%. Credit holidays, due to the fact that it had an impact on the result of Q2 as a special, well, provision we calculated for the compensation in Q4. In Q4, we added million because the actual real cost of the credit holidays was at the level of million.

So this is definitely something that we will keep stressing. The increase of the revenue from the basic activity constitutes a main objective, and this is what we are focusing on. And now talking about the significant increase of the interest rate result, we let you know that the interest rate commission profit margin did not show its peak after Q3. And this results from the fact that there is a balance structure that is still working. With the portfolio, we still have 190,000,000,000 bonds.

We still have part of the bond portfolio purchased at different points of time. And the exchange of those bonds by the bonds under the current conditions of interest rates makes the interest rate profits margin go up. So we still have some capacity at least to stabilize. In long term, we look at it, as Piotr showed, the macro economy is really inevitable. We foresee the decreases of interest rates and the bank is getting ready to grasp that.

However, the contribution of the interest rates result is really very high. I want to stress that when we look at seven largest Polish banks, although we as a retail bank have the contribution of the interest rate result at such a significant level in the structure of the result from the basic activity, the contribution of the result on interest rates vis a vis the entirety is on average lower than in other. So although we are a retail bank with a significant credit portfolio, other banks use the commission’s activity to a greater extent. And so last year, we noted a two digit result from FMC. So that is why we can stress that this growth is not really an interference with the table of the fees and commissions.

This is a transactional result purely. And we are really very happy that our clients want to use the services that we are offering. We try to improve that. That is why we are really thinking about the fulfillment of the dreams of our clients, customers, natural persons as well as businesses. And this is what Schumann mentioned, the digital mortgage.

This is a milestone towards the servicing of that basic dream of all of ours. Simply buying your own home. So these are the requirements that we are always going to have because we want our clients to use these services. The same goes for the credit card transactions. In every band, we are growing.

It is also important to say that the dynamics pertaining to savings is very important. We understand this in a broad sense. It’s not only about our deposits. It’s also about the TFI. It’s about bonds.

So we can see that when we look at the assets result in the portfolio of our customers, we are able to demonstrate that although the internal structure shows the shift of the funds from the timely deposits to current deposits because they prefer some liquidity in their pocket. But in long term, a significant amount of funds goes to TFI or bonds. It is very important because the brokers activity also contributes significantly to the commissions result. So these are the main result drivers for the two digit growth are important. Talking about the cost discipline, we are perhaps more precise when we use the wording, the improvement of cost effectiveness.

We spent quite much time in strategy to get the best possible result of the improvement of that effectiveness. As far as automatization or robotization is concerned, standardization of some functions. Our goal is quite ambitious. Within three years, we want to see the improvement without the increase of the number of jobs. But we simply want to get the result of cost effectiveness and we want it to be quite flexible.

So we are definitely intending to focus on that. This year, we also foresee what’s the first year of the strategy. There will be slight to the growth of cost. But at the end of the day, I believe that we will be moving around between 5%, ten % strategically. So the discipline and cost effectiveness will be kept by us.

We try to keep it at a very high level. Well, the post mentioned that when we compare it with a peer group, we can see that our level Sibaya is three d best. So we can see that the dynamics is not really overpriced. And there is another thing that we wanted to show to you. We are the largest bank in Poland.

We are the largest market cap in the stock exchange market and our comparisons are of an international nature. We chose six European banks. And please look that ROE that is really burdened by one offs. So differentiate significantly, that’s 19.2% as compared with Intesa Nordak, KBC or BNP Paribas. It shows that we are really on top.

When we look at the C by I, I really spent quite much time on it to show to you that we are really in a very good position from the perspective of the capital adequacy. We also, we have properly gathered, but from the perspective of ROE, higher capital, that’s not really helpful because we can get optimized by cutting the base and then ROE will be higher. But we are not talking about that. We are talking about a strategy of development and growth. We are here talking about the preparation of the bank for as good as the thing of the two upcoming investment waves as possible.

This is connected with energy and robotics. When we look at the cost of risk, how of these is happening under the conditions that the cost of risk in Europe is not really very low. Petr will talk more about it. But in Poland, it seems that it is a relatively low level. But from the perspective of Europe, we can see that it still can be developed and more can be achieved with this retail structure.

And my last slide is on our SG and A for the year. We are here in the double capital regime, if you will. The issuance that we do, in spite of a significant capital surplus that we report. It’s almost five percentage points now. We are forced to assure from the perspective of the resolution regulation.

Also in the liabilities market, We are a fixed participant in the market. We are a fixed player. We are not really focusing on high volume amounts. We are distributing it to avoid the market pressure and the buyout of the market. We try to be present in the European market in order not to take away the domestic market from other banks.

To the left, you can see also our work. Last year, for example, we met 600 investors and our work is giving very specific fruit because the profit margin that we paid was replaced in January. It was two fifty basis points. And now we got an offer of 105 basis points at a very difficult moment at the January. And I believe that we are now going to face up to the breakthrough at the level of 100 basis points.

To the left, we are showing what is ahead of us. Talking about the buffer, it is about the combined buffer. We can see the increase of the requirement of MRATRA. And I believe that we are prepared to do that. We are going to continue strategy of the presence of the constant presence.

And we will also update information about our bank of investors, both European and others. We also expanded our horizon to investors from other continents. So for the time being, that’s it from me. And Piotr, over to you.

Darius Horiouan, Director of Investor Relations, PKO BP: So good morning. Hello, and welcome. This is the first time in the recent history of this bank when the level of impairment allowance fell beyond and under PLN1 billion with the robust growth of the loan portfolio. So NPL321, this ranks us amongst the leading patents in Poland in terms of loan portfolio quality. We are at the top, and this is a reason to be proud.

I’d like to take this opportunity and thank employees of our branches because we owe it to you, employees of our corporations, of our subsidiaries, risk department employees. Great collaboration with risk department has underpinned the success of the market. We are in the lead. And like Krzysztof said, let’s look at the European market. And PKO Bankoforski looks quite decent.

And we are aligned to market results, but this is the Polish market with one of the lowest risk levels. The average figure for Poland is definitely much higher. So there is a lot to be done in that respect. So let’s go back to loan risk. We can see a slightly higher number of nonperforming loans.

And this is the after effect of energy hike and the slowdown on the German market, especially in the automotive sector. So we see a slightly higher number of allowances and non performing loans. Considering economic growth ahead, we believe that this is a temporary slump in quality. We don’t see any major signs of higher risk in this portfolio. But we are very happy to see how the retail portfolio is performing, both mortgages and consumer finance.

This is where we are growing and the level of NPL is dropping and the cost of risk is going down as well together with consumer finance where we have double digit growth and we are increasing government market share. And I believe it’s a major success, very safe and very dynamic growth in the loan sector. So this is an explanation why things are going so well in risk in retail. We are showing you for some time that we are investing a lot in advanced analytics. In 2024, nearly PLN 30,000,000,000 from new sales were driven by highly advanced machine learning models we are now using in our business.

We have moved our analytics to cloud to what improved our capability to improve our models? New models have greater potential to discriminate to boost sales without increasing the risk. We are also using advanced analytics in restructuring and efficiency is going up. And recently, we are testing the potential use of lease graphs and initial tests indicate that the results may be very promising. We have allowance worth nearly PLN 5,000,000,000, and we have increased coverage to 134%.

We are still maintaining very stable level of settlements, applications. Settlements is the key tool to manage this risk. Because as you can see, the number of port settlements is increasing. But what’s more important, on the right hand side, you can see that for the first time, we have a quarter with the number of litigation has gone down. So this is a great sign.

And last but not least, very strong capital position. We have four percentage points worth of excess over the dividend. We have space to ramp up sales of loans. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So ladies and gentlemen, we have decided taking this opportunity that results are truly robust. We have decided and we have published a strategy in Q4 last year.

The CEO has mentioned that we are going to update and bring you up to speed on execution of this strategy. We are going to update our aspirations. And we have decided very briefly to discuss our ambitions for this year. What should be highlighted is adequate preparation of the bank, which is well poised to embrace upcoming investments. The first wave is visible in volumes.

Perhaps you don’t see dynamic growth, but we see it day to day. We have addressed the key challenge of the Polish economy, namely energy transition. Piotr has mentioned it, robotization, automation of the economy. So there is room to capitalize on low employment level. The economy needs to get automated.

We have 47% of the national resilience plan allocated to Robertization Automation. So it’s been scheduled. Looking at net interest income, we’re not looking in terms of our appetite for NII, but we analyze it in terms of increased demand of natural persons in different segments of the economy because the bank will help them execute on their plans. Piotr has mentioned macroeconomic outlooks. It is possible that corporate loans will go up and it’s going to be a double digit figure, but we need to be poised for that.

And it will have an impact on net interest income. Perhaps mortgages will go up as well. Perhaps cash deposits will be up. We are ready for that as well. Looking at net interest income, we are ready for rate drops.

And if nothing major happens, I don’t see a dramatic slump in net interest income this year. So what we are focusing on are volumes considering that pressure on NII this year will not be significant yet. So we believe that volumes will be upward will have an impact on the net interest income. So revenue on investment fund, high customer activity, I’m talking about clients, corporate clients and retail clients in remote channels and in brokerage houses. One of the pillars of our strategy is better handling, better customer care throughout the entire lifecycle.

What means that the savings portfolio will become more complex as other segments will be embraced and included in the portfolio, including brokerage services. So this is something we are focusing on. And basic credit cards, which are performing very well, current accounts are also performing well. So core business for us is utterly important. We are not talking about speculative hike in fees and commissions.

We have subtrados of higher interest rates. In terms of costs, operating expenses, like I’ve said before, this year is the first year where we are implementing our strategy. So we have planned expenses and investments, which are booked as expenses and investments over a longer period of time. We are going to make intros into such channels as e commerce, pay now, buy later. We want to navigate easier in terms of marketing.

So BFGs, a 600,000,000 per year. We want to keep certain costs and expenses in check and visible inflation results. So over estimation of overheads and payroll expenses, which is why I have said that similar cost dynamics will be seen this year. It’s going to be a double digit figure, but in longer run, we would like to follow inflation plus trends. So Piotr has said everything about it.

We’re still exploring different options. Our strategy is titled development and growth, which is about volumes, which is about customers, which is about R and D to use this engineering term. So it’s room for testing buy now, pay later. It’s time to it’s a room and space to test new channels where costs of risks may be higher. So that’s why we have 70% to 80% base points worth of cost of risk in our strategy.

I don’t know how the economy is going to fare in the future. If the moderately successful scenario won’t be realistic, but two months ago, we were worrying if the after effect of the German recession will have a profound effect on the Polish economy. So we are trying to navigate the risk as best as we can. And the cost of risk of Swiss franc products, we have announced previously that we would like to climb the hill eventually. We hope that in 2025, we’ll be through this stage.

And this year, as we project, we will be addressing these costs, but we would like to have this chapter completed. And I hope you are great in Excel sheets so you were able to translate everything I’ve said into facts and figures. Thank you very much, gentlemen. To recap, so we are persistently implementing our plan, which is simple. We are consolidating our market position.

We are growing faster than competitors. We are capturing profitable market share, and this is the late motive of the past year. And we are very happy to see our customer base growth. And we are excited that we have more profound relation with our current customers. So we have climbed the podium.

We rank among the top three and it bodes very well for strengthening our ties with our customers and our performance for this year. And last but not least, this performance and its constituents, net interest income and F and C are growing faster than figures for competitors. That’s exactly what we want to achieve. We want to grow faster and more effectively than the market. So this machine is now running smoothly.

In terms of dividend payout, I can ensure you that we are meeting requirements of recommendations of payments up to 75%. We are still waiting for the decision of the Polish Financial Authority. So thank you very much, and we are here for you for Q and A session.

Speaker 1: My question is about credits, corporate loans. There was a trend that you’ve noted that in Q4, it’s about the dynamics in Q4 as well as the Piedigeres. I understand that at the level of one quarter, they are not connected. But I have a question whether there are sectors that from the perspective of the worsening of the quality as well as the dynamics that are diverging from that. Talking about the corporate market, we really can see growth.

We can see that clients gradually start reaching for the investment loans as well or the inflation leads to the increase of the current assets. As far as the risk is concerned, there were two large defaults, and I think that the market also noted growth in this area. There are two sectors here. The first one is the sector that is sensitive to the energy cost. One of the defaults was very clearly connected with this aspect.

And the other one is connected with the German market and automotive market. Ultimately, the sectoral structure of PKO Banakpolsky has diversified to that extent that we do not see a large problem with these areas. We think we believe that these were two significant defaults, but in the portfolio, we do not see any significant threats to sectors. Construction and transport are the sectors where we can see that the temperature in the portfolio is elevating. But the transport is serviced by us mainly through leasing, which is a safe product for Merger Bank and client.

And as the construction industry, our participation in the segment is relatively safe. A few words from the macro perspective. For a few quarters, the revenues in the companies was under a negative impact of a significant inflation decrease. It’s already over. On the other hand, the cost side was under the impact of the increase of the labor cost and that is connected with the increase of the minimum wages last year, significant dynamics of the energy cost.

These two elements are now already starting to set up different from the revenue as well as from the cost perspective. The financial situation of the companies are sure to be now much better than last year. And we can see it already in the first half data from businesses. My question was also about positive volumes in the credit campaign? Well, we look quite optimist with the pipeline of transactions in the corporate market.

It is very much different situation than the one last year when we were trying to chase the rabbit to be able to close to performance, this is also definitely better. It is also worthwhile stressing that the analyses from the macroeconomic perspective is presenting, those are independent analyses of the macro team. And they are conservative. It doesn’t mean that the dynamics of our corporate portfolio is a direct translation of the dynamics from the table of Piotr. It’s not really the case.

We have our own aspirations. And I guess that we are looking into the future more optimistically than what the table presents. And we also keep up the strategic objective that we told you about at the October, that in the area of corporations, we will develop faster than the market that we will be capturing to additional percentage points in the financing of the companies. If you have no more questions, and I see that there are no more questions, we have a question from our Internet audience. The first question is about the development of the interest rate profit margin in 2025.

I already answered that question. We have taken up a number of different steps in order to secure the interest rate result of the bank in longer term, Keeping in mind the fact that the scenario that is presented by Piotr in relation to the decrease of the interest rate is about 100 percentage points in 2025 in total. This is what we were getting prepared for. There were two elements. And the first one is the preparation, which is securing for the circumstances of the decrease.

And secondly, it is also worthwhile remembering supervisor outlier test. And it was introduced the measure was introduced last May. And it expects stabilization of the interest rate results from the banking sector, the sensitivity of the interest rate result. And in practice, it translates onto the stabilization of the interest rate profit margin. We still have some backup.

We still have some backup in order not to bring about a rapid decrease of the interest rate profit margin drop. We do not have a baseline scenario, that we expect that there will be a rapid decrease of the interest rate profit margin this year. No. We expect that it’s going to be towards the stabilization. It also means that the interest rate result will be translated on the basis of the activity.

We are not going to push the clients, but we will definitely help to solve their expectations solutions as well as their intentions, the current intentions. And the data from the beginning of the year confirm the stabilization Christophe is talking about. And we expect that the profit margin will be kept at the level of the one of 2024. A few words from the macro perspective, please note that the improvement of the prospects for the growth of the Polish economy that is now taking place in connection with the declarations that are being made by the new ruling coalition in Germany or in the European Union as well as the recent European Union as well as the recent forecast of the National Bank of Poland. These are the factors that increase the probability that the resumption of the decrease of the interest rates will take place later than what we assumed in the current baseline scenario.

And the total order of magnitude of decreases throughout the year will be lower than 75 basis points that is now assumed in our baseline scenario. There is another question about the profit distribution. The first question is about when we can expect the proposal of dividend and the other one about the probability of the buyback this year. And the strategy, we assumed that band 75%, fifty % and this is the order. We need conditions for the payout of 75%.

And I believe that very soon we are going to get an individual confirmation from the commission, but we will see what it is going to be like. But we believe that it is not going to change the 75%. So this is what we are going to be prepared for. And now it is the move on the side of the shareholders. We are ready to go forward with the process as soon as possible.

Buyback this year, we are working on this. We are prepared professionally. We simply have to service it, but I can’t really say anything about that. For the time being, we do not have any specific ideas. Another question about the CRR III reform and the impact on the CRR index in 2025.

It’s just 1% as far as the index is concerned. Next, technical question. Have we introduced part of the net result of 2024 in our regulatory capital? Yes. As far as the regulatory capital is concerned, we introduced $1,300,000,000 of profit from the first semester of 2024.

So we need the requirements for 75% to be paid out. There are also a few questions on the provisions for the Swiss francs in 2025. I think that the question was already answered, but perhaps we can repeat that if the audience needs that. We believe the 2025 as the last year when we are creating material write offs. And they will most probably be lower than in 2024, but we continue to see them at a significant volume.

But it seems that it is the last year and all the base is being saturated. That is why we believe that it is the case. There is a question about the share of the assets for the fixed rate in the balance sheet of the bank. We have two day measures. The first one is new sales because we addressed the question of securing ourselves for the circumstances of the decreased interest rates also by more active offering of a fixed rate in the mortgages, for example.

Here in new sales, there was some periods where almost 80% of sales was offered. Now with a fixed rate in the outstanding balance, however, which means in the whole balance sheet of the credit portfolio, it is a little bit over 30%. That’s how we exhausted questions from Internet audience. Thank you very much, and you are very much welcome to participate in the subsequent presentation. Thank you very much.

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