Earnings call transcript: Polish Bank reports record Q1 2025 profit

A leading Polish bank, currently showing signs of undervaluation according to InvestingPro analysis, reported a record net profit of $740 million for the first quarter of 2025. With a market capitalization of $100.1 billion, the bank showcases robust financial performance despite an increasingly competitive banking market. Revenue grew by 5%, or 7% when excluding the impact of a loan vacation program. The bank’s focus on technological innovation and sustainable development, along with a strategic shift towards affluent customer segments, has positioned it well for future growth.

Key Takeaways

• Record net profit of $740 million in Q1 2025.
• Revenue growth of 5% overall, 7% excluding loan vacation impacts.
• Expenses decreased by 3.6% quarter-on-quarter.
• Strong market position in corporate and institutional banking.

Company Performance

The bank demonstrated a strong start to 2025, achieving record profitability in the first quarter. Revenue increased by 5% compared to the previous quarter, and by 9% year-on-year, indicating solid growth momentum. InvestingPro data shows the bank maintains a healthy 6.45% revenue growth rate and an attractive PEG ratio of 0.3, suggesting good value relative to growth. The bank’s overall Financial Health Score of 2.91 is rated as "GOOD" by InvestingPro analysts. The bank’s stable net interest margin and improved cost-to-income ratio, now below 40% after adjustments, contributed to its robust financial performance.

Financial Highlights

• Revenue: Up 5% quarter-on-quarter, 9% year-on-year.
• Net Profit: $740 million, a record high for the bank.
• Expenses: Decreased by 3.6% from the previous quarter.
• Return on Equity: Above the cost of capital.

Outlook & Guidance

Looking ahead, the bank anticipates challenges in maintaining profit growth amid a cycle of interest rate reductions. With its next earnings announcement scheduled for July 24, 2025, and an impressive dividend yield of 6.03%, the bank remains optimistic about the Polish economy’s robust growth prospects, projected at over 3.5%. For deeper insights into the bank’s valuation and growth prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports. The bank plans to unveil a new strategic plan by the end of 2025, focusing on sustainable and smart development.

Executive Commentary

"Polish banking market is doomed to grow," remarked an unnamed executive, highlighting the bank’s confidence in the sector’s potential. Another executive stated, "We want to support [efficiency] with technology, improve our key ratios," emphasizing the bank’s commitment to leveraging technology for enhanced performance.

Risks and Challenges

• Interest Rate Environment: The ongoing reduction cycle may pressure profit margins.
• Market Competition: With 29 banks in the market, competition remains intense.
• Macroeconomic Factors: Economic conditions and EU fund allocations could impact growth.

The bank’s strategic shift towards affluent customer segments and its focus on technological innovation and sustainable development are key drivers for its future growth, despite the challenges posed by a competitive market and a changing interest rate environment.

Full transcript - Bnppl (BNP) Q1 2025:

Bank Executive (Senior Management): Year on year we can talk about the base effect. But 23% of growth in mortgage loans plus retail and personal finance growth gives us reasons for optimism. You can also see a few examples of major transactions that we have either organized and provided loans or we were just a lender or arranger and lender. This also gives us some reasons for optimism, although it is not really time for euphoria quite yet. Our discussions with corporate clients indicate that the uncertainty in terms of geopolitical situation, the trade war unpredictability of Donald Trump’s policy makes many of them hesitant to invest more aggressively.

At the same time, we have a huge inflow of EU funds that should become a seed for investment projects. So well, I’m always optimistic and I hope that in coming quarters we will see investments grow. And we hope that we will see a growth that will translate into investment financing. As for volumes, a few words of comment in terms of loans. I already mentioned the growth.

I mentioned stopping the decline in the retail part. This is also a reason for joy. As for deposits, we manage our deposits margin very carefully and as a result, the volumes. So the fact that we have noted a minor decrease quarter on quarter is not a reason for concern. What is important is a slight growth in individual customer deposits.

As for the number of customers, we have an overall decline here. I would like to stop at that for a moment. We are consciously clearing out our customer database in terms of retail clients. We terminate relationships with those clients who for many months, quarters or years remained dormant, inactive despite our attempts to get in touch, convince them to work with a bank more actively, they remain inactive. Keeping such clients on the books doesn’t make sense.

It is costly. It forces us to recertify and so on and so forth. And the bank does not have any tangible benefits from them. So the total number of clients has decreased. But the positive aspect is that we have an increase in the affluent customer segment and in wealth management segment.

So the customers that are potentially or realistically more profitable and who usually cooperate with us on a much broader scope. Finally, quarterly results with graphical illustration. So I have mentioned a robust increase in revenues. I will not repeat the numbers, but you can see that if we factor out the loan vacation or credit vacation, we could be talking about 7% growth. As it is, we talk about 5%, slightly above 5%.

Year on year, 9% growth. Expenses, I have already discussed, minus 3.6% quarter on quarter excluding BFG. This is certainly a positive factor. Increase Year on year increase 3.1%, once again excluding BFG. The cost of risk was relatively low.

We have only had 65,000,000 encumbering our profit and loss. Now let me be straight. It’s not over. The sad Swiss franc story will remain with us for a while. There are some signs that its scale may decrease but there is a lot of uncertainty here.

We know that Swiss franc law is being prepared but we do not know what it will be, when it will be proceeded by the government. And we don’t know when it would be adopted and what would be its final wording. The draft bill is four pages. Comments and proposals for amendments are 300 pages. So the final wording of the Swiss franc law is a massive question mark, just as many other things in the geo economic space, especially worldwide.

Net profit, great dynamic year on year, even greater quarter on quarter. It’s a record result in our entire history which definitely makes all our colleagues happy. And of course the entire board.

Michal Dubois, Economist/Financial Analyst: Cost to income ratio Because of the cost of BGF in the first quarter, we have seen the increase of this ratio. But this is still a decent result if we adjust or factor out C2I of this element. We went down to below 40% and that’s what we will continue to work both parts of that. And the cost discipline that has been bringing positive results would not only be continued, but in some areas will even be intensified. Net interest margin on net basically with slight decline here again because of the dynamics of interest rate.

The peak of the margin interest margin on assets is probably already behind us. The cost of risk here, we are a little bit traditionalists, the lowest on the market, both percentage wise and in nominal terms, which confirms that we are a bank that manages the risk very, very well, a bank that has managed to build a safe, stable loan portfolio in all its parts, resilient to different types of uncertainties and even shock phenomena. ROE you can see here on the graph. And I’ve already mentioned about this figure which is higher than cost of capital.

And now, Michal Dubois, who brings us into the world of great economics. Good morning. The economic and macroeconomic situation, the first quarter of this year was probably lower than the end of twenty twenty four. But most of the indicators forecasting the economic situation indicates that the revival of our economy will continue. The main factor, probably the most important one, which I believe will be the key driver of our growth in this year, is the gradual and ever so faster use and adoption of EU funding that came to Poland over the last ten or so months.

It will be a real driver for the growth not only in terms of capital outlays but the generally economic situation in our countries. Risk factors mainly external. I think that right now we don’t have the full knowledge what American trade policy is going to look like, what kind of prospects that entails for global trade and also for Polish experts, what the impact of this policy will be on Polish experts. But when we’re talking about the external environment it’s also worth mentioning not only in minus or negative aspects but also the aspects that may drive the economic situation upwards. Rearm Europe program important from the point of view of ensuring cheaper financing for our defense efforts.

Another definite it is also a definite easing of fiscal policy in the coming years. Of course, we have to fight budget deficit because but the faster you do it, the less beneficial it is for the current economic situation. So again, the in plus risk as well as the acceleration of outlays on the development of infrastructure planned by Germany is an important factor. And our businesses should also benefit from that. Definitely inflation is not going to be factor limiting consumption in this year and in the following year.

Here the data turned out to be lower than expected at the beginning of the year. And after July, we are all sure that inflation will definitely decrease when the effect of the last year’s energy and electricity price increases will fade away as well as the impact of the increase of VAT on food products. And therefore, I believe that starting from July inflation will relatively quickly get closer to the National Bank of Poland goal. So lower inflation, lower interest rates of the process of easing the monetary policy has already started. It’s already begun.

It will be continued in the coming months. And I think well, we don’t know. We cannot be sure to how mild or systematic, gradual this cycle of interest rate lowering will be. We might face some stops in that process, some breaks in that process. But from time to time the interest rates will go down and will become low but not low enough to pose a threat to the stability of the exchange rate.

And I think that the paradigm that the NBP will follow will be maintaining the real interest rate above zero and thus stabilizing the exchange rate, Polish zloty to euro. Faster economic growth, lower interest rates, that would probably translate into bigger demand for loans in all segments, including those where our most recent data are not as optimistic as mortgage loans or corporate loans. And I’m talking here about the changes in the volume. In the coming months, we will probably see an increase here. And let me stop here and hand over to my colleague.

Good morning. We’ve heard a lot about the results of the first quarter. So I would just like to draw your attention to some elements just to complement the information that you have already received. So if we look at the first quarter and changes in the balance sheet, the first it’s the next quarter of growth in terms of the balance sum and its main components. So we can see the continuation of the trade that we witnessed last year when the dynamics of client deposits was higher than the growth of loan growth.

And that also is in line with what we have been observing in the big macroeconomic flows in the economy where accumulation of clients’ funds on banks’ accounts did take place, and we believe this will be happening this year as well. What makes us happy is the growth of number of loans. The first quarter is also a quarter where we could see the full strength of 81 transactions that we concluded in December and therefore strengthening our capital base. It is also a quarter when decisions have been taken. And on the division of profit, as you remember, the bank recommended and the company’s authorities accepted the division of profit 50 to 50, thus further strengthening the capital base of the bank and making its balance sheet ready to absorb the business growth.

If we look at what was happening on the loss and profit results, the first quarter, definitely greater dynamic of income compared to costs, which is also always something that makes us happy, the dynamic of revenues based traditionally on interest, but still in the first quarter strengthened on net trading by net trading income that has grown year on year in a significant way. We’ve already mentioned costs, so I will just focus on the Swiss francs. 60 5 million was recognized in the accounts of quarter one. And as we’ve already heard, it’s not the end of the story. And if we look at our history at how the impairment losses related to that portfolio developed, the first quarter is usually the quarter of lowest values in this respect.

We must remember that. So just to sum up, the best quarter results in the history of the bank, $740,000,000 net profit. If we look at our loan portfolio, two things that makes us happy. Well, certainly returning to the growth path in corporate banking area and stopping the decline in individual customer banking, the decline that was mainly caused by mortgage loans issue, and now that situation has stabilized. Swiss francs portfolio, the first quarter is the quarter where the ones of the most important elements that we keep monitoring, the number of new claims, new that come into the bank.

That number decreased compared to quarter four of last year. And thus, it gives us some hope that the situation with Swiss franc loans portfolio will stabilize, but we are still here in the sphere of great uncertainty. And again, if we look at the history of Swiss franc loans, whenever there are some discussions in public sphere about certain legal solutions, the activity of law firms with respect to such cases increases, and that may lead to the growth in the interest among customers in such litigations, in such claims. But still Q1 is the quarter where we have noticed decreasing the number of new claims. It’s also the quarter when we continued the settlement path which is always better than litigation, court litigation.

And here we had the good result of 6,600 accepted negotiation proposals, number of settlements reached, and the provisions for Swiss francs is now in the amount of 3,000,000,000 swathes. As regards clients, customers deposit, let me just draw your attention to just one element. The main theme we work on apart from the interest net interest margin is also working on changing the structure of financing and putting more emphasis on financing acquired from individual customers, which does not mean that we are trying to reduce our activity in corporate sector. We are talking here about our work and efforts on just changing, reshaping the structure. We do it gradually.

And what is a good sign is that we continued on that path in quarter one and it is visible in our results. When we talk about deposits, a very important element in our offer for customer are investment products, yet another quarter of strong growth in this respect, both quarter on quarter and year on year. And among our customers, our customers traditionally are very interested in unit linked sorry, portfolios linked to debt instruments. Very briefly about net interest income. As regards our interest activity, a good quarter, a good year, year on year.

But quarter on quarter, when we look at the figures, we must remember that December was somehow the December results were distorted because of the settlement of credit holidays. If we adjust that impact, the net interest income on core activity were stable and strongly supported by bank deposits activity and the result on hedging transactions. Net interest margin, stable, as we’ve already heard. Taking into account the changes of the interest rate cycle, we are beyond or behind beyond the peak of net interest margin. In the net fee and commission income, again good results particularly in the card business sector and asset management.

In the loan area, It is also related to the stronger development of our loan portfolio, which is not yet at the level we would like it to see. And therefore, the net fee and commission income was at a slightly lower level. And

Bank Executive (Senior Management): I do believe this is it. We also had a few transactions that were pretty much a one off. Investment activity. Here we have very strong results both quarter on quarter and year on year. They are focused in two areas of the bank.

One of them is ALM Treasury. The bank was expecting a change in interest rate policy, so we were hedging those positions. Hence, those positions contribute to our profit and loss in the first quarter. Same goes for the CIB banking. We had a number of one off transactions and we have also leveraged the used the market situation.

We have intensified our trading activity in the first quarter. If we look at transaction activity in this area, you can also see a major growth year on year and decent growth quarter on quarter. In expenses area, there are two most important elements. The first, this is the quarter when we traditionally recognize regulatory costs, which naturally distorts the annual trajectory. And the second, if we factor out regulatory fees, our expenses growth is below inflation.

This makes us happy, of course, but, of course, we do not remain complacent. We continue a keen interest in that area. Here, I would like to give the floor to Wojtek to discuss credit risk. Good morning, ladies and gentlemen. Both the cost of risk and impaired loans in the first quarter of twenty twenty five remain very stable and very quiet.

What does it mean? It means that we have not noted any major impaired loans either on corporate side or SME side. In terms of retail loans, those were being repaid very well. As a result, we have 12 bp 27,000,000 cost of risk and a very stable situation in terms of impaired loans. We still have a nominal value of three 200,000.0 zw and this is the level that should really be a target level.

We certainly are not going to try and make it lower. As for individual phases the situation once again is stable both phase one, two and three. But it’s not just before because of the stage or phase but also the loans in individual client segments. The one thing I would like to point out is the bottom right corner. Here you see that a coverage, NPL coverage was decreased but this is stemming from the fact that impaired loans or nonperforming loans that we have written off the balance sheet had 100% provisions.

So when you look at the numerator and denominator, what remained on the balance sheet simply had less coverage. And this is the only reason why this level has decreased. And I think this is all. Pierre, over to you. Ladies and gentlemen, as for capital position, like I have mentioned earlier, it is very strong.

All the indicators, all the parameters are met with a good buffer. The most important was the decision about the distribution of profit for 2024 and payment of dividend. The dividend was paid on May 9. And this closed the dividend cycle of 2024. The second element that we have already mentioned is that this quarter we are working under the new rigor of three.

In our case its impact is about 3,300,000,000.0 waters. One element that remains uncertain is the publication if it happens and the potential impact of RTS which as of today remains uncertain as both timing and scale. So this is it as far as capital position of the bank is concerned. This brings us to the end of the presentation. Now allow me to offer a few words about what we expect in the future.

We talk about uncertainty at every opportunity. The uncertainty, of course, exists and it will probably remain with us. We have to learn to live with it, anticipate the possible scenarios and be prepared for any case. Situation in Poland looks more optimistic than it does in many other places in the world. We do believe that the economy is growing rather robustly this year, 3.5% and more.

Next quarter should be similar. The inflow of EU funds should stimulate investment that we need. We do see areas where large scale investments are really needed starting from energy transition through digitization to, of course, defense. The interest rate decrease cycle has started. From the perspective of the banking sector income, it is a certain challenge and we feel well prepared for that challenge.

What we see is a very strong competition in the market. We all feel it. This translates into margins, especially in SME banking and corporate banking. It also translates into very aggressive structures that we have not seen before and that are not encountered in other EU countries. We have 29 banks and relatively low demand for loans.

So as a result everybody is fighting for their share in this small pie ferociously. I mean, that’s reality. What is important is further growth of transactional clients, acquisition of transactional clients in every segment, but in particular individual clients, retail clients. Building retail volumes, but the ones that are valuable, that have a positive impact on our indicators, especially return on equity. We will support sustainable development.

We will support energy transition. We do believe it is absolutely necessary for Poland to maintain its growth rate and become a truly competitive economy in Europe and worldwide. We will look for new use cases for AI technology both generative AI and recently the increasingly popular in debates and conferences form of AI which is agentic AI. It’s difficult to translate into Polish yet. So efficiency is important for us.

We want to support it with technology, improve our key ratios, key indicators. This is the final year of the current strategy, the go beyond strategy. We are working on a new strategy which hopefully we will be able to announce at the end of this year or at the beginning of the next year. I would like it to be a growth and sustainable development strategy, sustainable, smart and responsible development. This is it.

Thank you for this part. And we can move on smoothly to questions and answers. I, of course, always encourage questions from the room because they have like natural priority. Good morning, Huber Vidovsky, WNPPL. Two questions.

First is about the strong market competitions. How could recent ownership changes in the banking market influence it? Will it become even more acute? And how do you assess the new player on the Polish market? And secondly, net profit growth dynamics that was achieved in higher interest rates environment of previous quarters?

Will it be possible to maintain in low interest rate in coming quarters? Let me start with the first question because I will be more happy to answer it. As for the second one, I will be more politically correct. So first, the fact that such a major transaction happens in a Polish market is a very positive sign in terms of perception of our banking market. We have not seen such a situation in many years.

I look at it not from the perspective of Santander is leaving, but from the perspective of a new major European player is coming in that is focused on Central And Eastern Europe. For Santander, Poland was not a strategic market. If you look at a map, it’s not a bank that is strongly rooted in Central And Eastern Europe. Southern America is a more natural territory for them. So their withdrawal does not stem from their dislike of Polish market because they had very good results in recent quarters.

This is exclusively for strategic reasons focusing on home markets. On Erste, on the other hand, for that bank, is filling in a massive gap because that bank was present heavily in Central And Eastern Europe, but it was not present in Poland and now it will be. Frankly speaking, I do not expect much change. I mean Santander is a well managed bank, efficient and profitable. So I assume that the new strategic shareholder will simply allow them to continue as they go.

They will certainly implement changes that would be closer to their policy in various areas like loans. ERSE is known as a very conservative bank. They are also less involved in corporate and institutional banking business as opposed to Santander. I mean, ERCE is hardly a global bank. Their presence and geographical scale are smaller.

So I would expect less activity here, which opens some room for growth for the banks for whom corporate and institutional banking, the CIB, is core activity. And we are among those banks. As for competitiveness, well, as we know Santander will keep Santander Consumer segment, which means that the number of competitors in the area of consumer finance will increase by one because ERSE will certainly want to operate in this market. And the Santander owned bank will also remain in place. So time will show how this transaction is going to go, whether it would cause some turbulence in Santander Bank Porska as such due to systemic change if nothing else.

But it is definitely a positive signal for investors worldwide.

Michal Dubois, Economist/Financial Analyst: And the second question was more forward looking how the profits and interest rates, how will that work? I’m not sure I can really answer that because of course the reduction of interest rates may translate into the reduction of net interest income which should be compensated both with volumes and maybe noninterest profits. As we could see, the first quarter was very good in terms of net trading income. But definitely for this sector, lower interest rates pose a challenge in terms of maintaining the growth dynamics and profit growth dynamics. Do we have more questions from the room?

Morning. Andrej Povirja, Citi Handlova, Brokerage House. Two questions. One, to continue the subject of what after Erste? And my question would be the following.

Do you expect that it might cause a domino effect in the Polish banking sector leading to similar transactions? And the second question referring although I know it may be too early to ask about your new strategy, but maybe I would ask about your reflections, your thoughts about those various strategies recently published by other banks, what was interesting in them, perhaps what you found missing and where BNP would like to be different. A very interesting questions, an avalanche, right? This transaction shows that Polish banking market is attractive for investors who are not present here and that you can actually sell a bank at a very good price. I think there are banks that would like to be in Poland at a certain scale, be present in Poland at a certain scale but it’s difficult to find a bank that would like to be sold.

So we can now get into those speculations who could be for sale. We might be thinking about the same banks here and I would not mention them where either the scale is not there or there are challenges on the part of the leading shareholder. But then again, I’m not in the minds of those shareholders to know to what extent that particular transaction may stimulate them to finally take a decision that they aren’t willing to take for many years. But the case of confirms that there would be investors somewhere who would be ready to pay quite a good money for a decent share in the Polish banking market. Polish banking market is doomed to grow.

If we look at the ratio of loan to GDP we are at the very end of the list in European Union. And I can’t see the reason why this is so. We don’t have the corporate bonds market well developed. And it’s really the banks are just this is a simplification but they are the only supplier of loan into the economy. And still that share is quite low.

So one might say poor market because the loan share is low. I would say this market has to grow. So it’s a good time for Poland. We are being talked a lot about. We are perceived also thanks to the president.

He’s a strong country, strong economy, important economy in Europe. So if the situation behind our eastern border stabilizes a little, we might witness a great interest in the Polish economy, in Polish businesses, let alone the role that we may play in the reconstruction of Ukraine when that becomes real. And I think that Polish banking sector will grow. It is attractive. And we all hope that certain intervention inclines are now behind us.

Well, we can always have a situation when politicians decide to announce another credit holidays or make it difficult for us to finance defense effort. But we do hope that such ideas will not come back. And definitely, ERZTE believes that. They believe that’s already behind us. And I think that there are also investors who think along the same lines.

But as we hear it in the song, It Takes Two to Tango, if someone wants to buy, there must be someone who is willing to sell. And the question also is about the PZU strategy vis a vis the banks that insurance company controls. As I understand, we are not yet clear about that. But that might create a situation where we could see another such transaction if the decision is taken to sell the bank outside the group. So that’s all.

And what was your second question? Our strategy. And what is in those other strategies? Okay. I won’t tell you anything about our strategy because first it’s not ready yet.

It has not been approved. It has a certain shape but definitely it’s not complete. Of course, we are looking at the strategies of other banks that have already been announced. And what we can see there is a very coherent picture. Everybody says ROE 18%, cost to income ratio 35.

The more efficient banks are even talking about the growth of that indicator. And everybody talks about growth of business and growth in the number of customers. So all those strategies point to growth which also shows that we perceive the Polish market as a market with great growth and development potential. Of course, it’s not that simple because if we added up the numbers of customers that all the banks want every bank wants acquire, then we would fall short of the number of citizens. But that shows that the competition will be very strong.

But it also shows that we are looking into the future with optimism. No bank has yet entered the market with the strategy of reduction, shrinking, high specialization at the expand of the volume. So it seems that this model of banking just works on the Polish market. So I understand we can now go to questions from online. The first question, what is the value of SOTA NII indicator and the indicator of long term financing for the bank for Q1?

So let me answer that. At the March, SOTA ANI was 3.95% and it’s again below the 5% requirement. And the level of long term financing indicator is significantly above the 40% requirement. So both indicators in our case are on a very safe level. What is the guidance for future quarters for net fee and commission income?

So these forward looking questions that they are always difficult because it depends what life will bring, one can say. Because if we assume that the loan activity, our loan activity will grow because the market will allow that, we may assume that fee and commission income supported with loan activity will be continue the positive trend. But to what extent this is certain? We’ll see. Normally, the economic growth is conducive to activity of customers, to transactionality and also loan activity.

And that is something that translates positively into positive net fee and commission income. Another question, guidance. What is the guidance for cost of risk in future quarters? So let me hand over to the expert. If we mean here and when we say the situation in quarter one was very stable and that we did not record any one off huge risk situations, we also have to emphasize that that means that all the processes related to monitoring, early warning, restructuring and at the end of the day sometimes debt recovery that they are all working properly.

Now if we look at our portfolios then on the one hand it seems that the risk of individual customer portfolios here the risk is very, very small but they might lead to some significant increase in the cost of risk. And it’s similar on SME and corporate side but there are two issues I would like to draw your attention to. One, on the corporate side this may always happen like a one off default which potentially may increase the cost of risk. Today we can’t see anything like that but it doesn’t mean it is not happening. It doesn’t happen.

It does happen statistically from time to time. Right now we are monitoring and studying what may be the potential impact of the trade war that is happening right now. But again, we have been doing that before in terms of sectors, exports of the company by the companies that we finance. Also in retail segment, we also carried out such studies, such monitoring vis a vis credit holidays what may be the impact of NPL loans at the end of credit holidays once that is concluded what will happen then. So this is something we will have to take into account.

It’s still an open issue. So these are all questions. So if there are no more questions from the room, very few questions. But the conclusion is that our explanations and presentations are getting more and more clear. Thank you very much for being here both here in the room but also online.

And we invite you again to our next meeting when the Q2 results are announced. Thank you very much.

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