BNP Paribas Bank Polska SA

F:82MA

Earnings Call Transcript

[Przemyslaw Gdanski, executive]

Good morning, ladies and gentlemen. On behalf of the Board of Management Board of BNP Paribas, I welcome you to our conference devoted to the results of the bank, not just quarterly results, but annual results. I welcome all of you here in our new green headquarters, but also all those who are with us remotely and participate in the meeting online.

The agenda of the meeting is relatively typical. So I won't be discussing it in detail. So let's now get to the key highlights.

Let me now start with a reflection -- but in spite of the fact that our bank has achieved profit last year, this profit is definitely not satisfactory, as is the return on equity that we've achieved at the level below 4%. We know very well that our investors expect the return that, at least, covers the cost of capital. If we assume that at the level of 10%, we have not managed to earn enough to cover the cost of capital. And this is very frustrating because the results of the bank would look completely different if it weren't for a number of external burdens, external, and the cost of provisions related to legal risks for CHF loans -- mortgage loans. And I will probably be going back to that a few times, but the level of burdens that Polish banks have been -- or banks in Poland have been subjected to, has exceeded the limits of imagination.

Really, the banking sector, banking system has really weakened. The level of capital is low. There are banks that have noted losses last year. The system is not uniform, which is also worth remembering, different participants of the market are in different conditions. And I think we should be thinking responsibly and with care about the future of the banking sector. But this meeting is not about the condition of the banking sector, but about the results of our bank.

So as you know, and as you can see, the net profit has been PLN 441 million, of which PLN 253 million is the net profit for Q4. So relatively, Q4 was a good quarter from the point of view of the profit. But this was also the quarter when we've already noted the signals of the slowdown of the economy, and that was visible in the loan volume that fell year-on-year. And I think that the slowdown will be with us also this year. And this is, again, something that must be remembered if you -- when we think about how the banking system should be regulated this year and in the coming years.

The income, you can see, has grown. Again, this growth would have been much higher if we hadn't had to take into account the cost of credit holidays that have been really significant, but it was a growth year.

We have been implementing our strategy, the GObeyond strategy. It was the first year of that strategy. We approved the strategy in March last year, soon after the breakup of the war in Ukraine, and we've been methodically implementing it. Yesterday, we described our -- the implementation of the strategy to the Supervisory Board, the KPIs. Here, you can see just a few KPIs that are related to the 4 pillars of our strategy.

So the #up pillar, that is acceleration of digital competencies. We are becoming a bank that is even more digitalized, a number of interesting initiatives that have already been implemented. GOdealer is one of the most visible ones, but not the only one. We have received 2 important prestigious rewards from Newsweek and Forbes, which shows that also as regards the quality of our customer relations, we are going up.

The #positive pillar is also important for us. In general, it means just in -- operations that are in line with sustainable development. So we've noted an increase in green loans in our portfolio, and we are here, in fact, above the trajectory that is to lead us to our strategic goal, 10% of green financing by 2025. And I hope that we will be able to achieve this goal or even exceed it. Also, last year, we received a rating at the level of 10.9% (sic) [ 10.9 ], which is the highest level of sustainability rating in Polish banks -- among Polish banks in Europe. And that means that what we do is compliant with ESG rules and principles, and we treat this area very seriously.

As regards the pillar #stronger, we continue our IT transformation. We can see our huge project that we call GoCore, which means severe change of main systems in the bank. We've spent quite a substantial part of our budget devoted to that last year. We have improved the level of operations per employee, but there is still room for improvement there, definitely.

And as regards the pillar #together, which is mostly about people. We are really satisfied that the NPS score has improved among our employees. We measure it regularly. There also shows the level of engagement of our employees, and we are on an up-line trend, which in times that are so strange, so uncertain, is something really good and is the reason for satisfaction because it shows that we, as managers, we work with our staff in the right way, and that translates into a situation when they see this bank as a place where they want to work, where they want to engage and then where they can develop.

The digital statistics in the visual form, so we can see the increasing the number of customers using our remote channels. That's particularly visible in Gomobile, our mobile app, which is efficient, not too sophisticated because one could really argue whether it makes sense to include different bizarre functionalities into banking apps. I think that the simplicity is really a value and we can see 30% increase in the absorption of Apple Pay or Google Pay solution and a significant increase in BLIK transactions, which is especially a good solution for e-commerce payments.

If we look at the evolution of a number of KPIs quarter-on-quarter, first of all, we can see that the dynamic of acquisition as regards personal accounts is lower. And that's caused by the fact that the bank has sort of changed its strategic thinking and shifted more towards the clients from higher segments, more transactional and therefore, more valuable for the bank. And we then don't want engage in races about who has more personal accounts reported. We really want to focus on the quality of the customers we get.

As regards the retail loans, well, we will see what we can see. This is really a collapse of the market of mortgage loans and significant decline in consumer loans of different types. That's particularly visible in the figures for new sales. And the reasons are obvious, high interest rates, the economic slowdown that leads to uncertainty. The ongoing war, which also makes this uncertainty even greater. Customers are simply not prone to taking up loans, are more prudent in their expenses.

As regards mortgage loans, you know the situation very well. We are one of the banks that said that this year, we only give fixed rate loans, no floating route -- rate loans. We are also preparing to implement instruments that are -- that will be based on the new rate. And we are active members of the working group that is to develop the transition of the market benchmark towards [ Veron ].

As regards to corporate banking, that was definitely a good year. We've managed to acquire a number of valuable customers and we can clearly see the increase in transactionality. If you look at the payment volume, that has grown both year-on-year and quarter-to-quarter. And traditionally, last year, we have managed to close some huge transactions with big corporate customers, high-value transactions that, in effect, increased both our market share and were beneficial for our results.

Now this shows the growth rate in our loans and deposits. I should like to note the increase in the deposit base derives from all the customer segments, we took a prudent approach to liquidity management. We decided that in those uncertain times, we need to have a solid liquidity buffer, hence, a dynamic growth. For a number of months, we have been optimizing the cost of our deposit base, and this will have a positive impact on our P&L.

As regards lending, year-on-year, we grew. We maintained our market shares. The first 3 quarters, as I've said, saw an increase. Q4, however, slowed down. We acquired more customers. But as I said, year-on-year, we noted a slight -- a rather -- quarter-on-quarter, we noted a slight decrease due to our intentional measures and the decision to terminate our relationship with customers who are not willing to do daily banking with us.

Now let's look at the results, the net banking income. Had it not been for the credit holidays, it would have been 1/3 better than a year before due to an increase -- a strong increase in commissions, a good performance of our Global Markets segment and an increase in the interest rates. In all of our income lines, we reported a growth last year. Expenses increased both quarter-on-quarter and year-on-year. However, net of one-offs, the expenses were driven by one-offs, especially the contribution to the IPS, in the Institutional Protection Scheme. Without those contributions, the growth would have been relatively acceptable in the high inflation environment that we live in.

The cost of risk, as such was very low. Our portfolio is sound. We continue reviewing the portfolio, and there's no reason for concern as Mr. Kemblowski will mention in a moment. In Q4, we also set up additional provisions for the Swiss franc loan portfolio. We have a good coverage ratio. And you may be asking again, is it all? And I will say the same, as usual, it is probably not yet at the end of the story with Swiss bank loans. Will probably continue for a number of quarters to come.

The net profit, as you can see, compared to last year's loss, net result in 2022 was solid with a strong year-on-year increase. But again, as I said in the beginning, we have much bigger aspirations and a much bigger potential.

Cost of risk, I've mentioned the cost of risk before. ROE, the return on equity, 3.9% is the reported ROE, net of the cost of the credit holidays, ROE would cover the cost of capital, but there are a number of factors which hurt our ROE. Our net interest margin stabilized as we reported last quarter already.

Now looking at this picture, I should like to point out the top right-hand corner, which shows by category, all the different components that eroded our profit, the components that are nonbusiness related at all. On the one hand side, we have the cost of the Swiss franc loans, which is a legacy item, I should say. We will go back to the Swiss franc loan portfolio when we discussed the settlement program. PLN 900 million was the cost of credit holidays, adjusted by PLN 70 million in Q4. That's, in plus, but still PLN 900 million. If you add up all the different components, you get a neat PLN 2 billion. So this is a terrifying picture.

I think the industry, which is the bloodstream of the economy, which has strategic importance to the economy, it shouldn't be subjected to such huge burdens which prevented from rebuilding its capital base, prevented from actively supporting the economy and the customers.

Given the diverse nature of banking institutions in Poland, we are running a systemic risk, a point I would like not to dwell upon because I don't want to spoil the mood.

Net profit grew by 150% year-on-year, but the net profit is a function of the performance of the bank itself and the burdens we have had to carry on our shoulders and the provisions against Swiss franc loans that we had to set up.

That's all from me at this point. And now, Michal Dybula, will discuss the macro view.

[Michal Dybula, executive]

Good afternoon -- good morning, ladies and gentlemen. Thank you, Przemek.

Well, last year, GDP grew by nearly 5% year-on-year, but we all know that starting last spring, we have seen a fast slowing down of the economy and economic activity. We started last year with a 10% year-on-year GDP growth. The year closed at around 0. And most likely, over that time, the downturn that started will continue into the coming months, at least looking at the statistics.

However, let me focus on the longer term because the future is not all that pessimistic. According to available data -- hard data from the economy reported for January and most of the forward-looking indicators suggest that the worst time was Q4 2022. That was the worst moment. So the months and quarters to come should bring a gradual rebound recovery of economic activity with GDP growth.

One of the key fundamental factors or drivers of improving economic activity is inflation. Starting in March, inflation will start to drop sharply, mainly due to external global factors, lower fuel prices, commodity prices and the base effect, which means that inflation will be dropping. What is also important is that the inflation expectations of businesses and households are dropping. In fact, we were monitoring closely last year and continue to watch on the plus side of the inflation expectations seem to slow down.

Speaking of inflation, I should mention domestic factors, which go beyond the global context and the global price pressures. Domestic factors will continue to drive higher inflation this year and maybe next year. Salaries continue to grow at a double-digit rate and the prices of services will continue to grow in the longer run. And this will be the key factor preventing a sooner cut of interest rates and of the hike cycle. Double-digit inflation will stay with us preventing that.

The financial markets, as you know, still show increased volatility given the many global and local factors at stake. Volatility will continue high for a longer time. Last, but not least, the banking industry as Mr. Gdanski mentioned in his introduction, the banking industry sees a drop in demand for lending across all segments, not only in households, but also in corporate lending. The economic downturn and high interest rates will prevent recovery of demand for loans. So we are facing difficult times, but the worst is now behind us. The biggest downturn is slowly starting to phase out.

Thank you. And now over to Jean-Charles.

[Jean-Charles Aranda, executive]

Good morning, everyone. First, as already highlighted by Przemek, 2022 was a very challenging year, financially burdened by many unexpected factors. So creation of IPS, additional contribution in Borrower Support Fund. However, we were able to grow in the business. So loans portfolio grew by 4.2% year-to-year. One important topic, we strengthened our liquidity position. So deposits grew by 18.4% year-to-year. One good information compared to the previous presentation, we're able to improve our capital ratio. So Tier 1 ratio reaching the level of 11.28% in December.

In terms of financial results, I'm not going to enter into the detail. I think [ Przemek Gdanski ] already gave a lot of information. So the main one, indeed, the net result reaching the level of PLN 441 million. Net banking income growing by 11.3% year-to-year, 2 main information. So the first one related to NII, significantly impacted by the cost of the credit holidays, so PLN 895 million. And the second information related to net trading income, very good result, net trading income, so growing by 19.1% year-to-year, supported by the volatility of the market.

Expenses are under huge pressure, first, inflation plus all the additional regulatory costs. So costs growing by 19.5% year-to-year. If we exclude our BFG and IPS, I would say, cost order control, plus 11.6%. Cost/income ratio reaching a level of 56.8%. We book additional provisions for FX mortgage loan portfolio in the amount of PLN 740 million. And cost of risk in the amount of PLN 275 million. So the quality of portfolio is there. So no alert.

Coming back on the loan portfolio. So overall, the portfolio grew by 4.2% with 2 different trajectory. The first one related to corporate business, so strong performance in 2022 despite a slight decrease in Q4. As you know, for individuals, the demand was affected, demand was very low and the decline in retail load is in line with the market.

In terms of structure of our loan book, I would say the good news is that the CHF mortgage portfolio is representing only 4.1% of our book.

Let's have a focus now on the FX mortgage and portfolio. So we increased the coverage ratio. So we book additional provisioning, and the coverage ratio is reaching 46.2%. The amount of the provision PLN 1.2 billion. But one other good news is that we are keeping on converting the CHF mortgage loan with our customers and we are not observing any slowdown during the 2 last weeks. I think it's an important information. So conversion are there, and we are keeping on working hard on this topic.

Let's have a focus on the deposit. So we took the opportunity in 2022 to strengthen significantly our deposit base, our liquidity situation. So liquidity for deposit grew by 18.4% with a different speed depending on the business. One of the good news in the fourth quarter is related to the fact that we are able to stabilize the share of the term deposit, so reaching 31.1%. So slightly lower than in Q3. And during the 2 last months of 2022, we stabilized the cost of the deposit. So we reach a sort of plateau, and we are now trying to improve as much as we can the cost of the deposit. The overall situation in the market has changed, and there is less downturn on the market in terms of liquidity. So we are taking this opportunity.

In terms of investment product. Obviously, it has been significantly impacted by the interest hike and the crisis. So there was a significant drop until the third quarter and rebound in the fourth quarter. So we are rebuilding the scale, hoping that no additional bad news will come in the future.

In terms of revenue, net interest income, so supported by the growth of the portfolio interest hike, NII grew significantly by 39.7%. But as a consequence of the credit holidays impact, NII grew only by 11.2%. I already shared with you that we stabilized the cost of the deposit, is visible on the right side of the slide, and we slightly increased the margin in Q4 when you look at the normalized margin, neutralizing the impact coming from the credit holidays. And in Q4, we readjust our estimation in terms of impact coming from credit holidays. So we released PLN 70 million.

In terms of fees and commissions, I would say the situation normalized over the year, a slight decrease in Q4 with a decrease in revenue mainly in terms of cards, insurance and sales of deposit certificate. Net trading income, very good, I would say, information. So strong results during the year and in Q4 as well, supported by high volatility. So net trading income increased by 19.1% year-to-year with very good performance in Q4. And on top, we have to mention that in Q4, we had higher revenue on derivative result and some positive valuation has been observed in terms of share and IRS hedging.

In terms of costs, costs were really under pressure. It's not new. High inflation, additional regulatory costs. So Borrower Support Fund -- IPS, correction. So costs grew by 19.5% year-to-year, 11.6% if we exclude BFG and IPS. So the trend is, I would say, that the costs are under control -- remain under control. We have a seasonality effect in Q4. But if we notarized unexpected effect, we are below inflation. What is also important to highlight is that we are keeping on changing the model of the bank and the number of safety is decreasing quarter after quarter.

[Unknown Executive]

Now the quality of the portfolio and the cost of risk. Let me start by saying that both the quality of the portfolio and cost of risk remains stable at an acceptable level. The cost of risk in 2022, the cost of risk was about 30 basis points, which is much less than the market average, mainly due to the continuation of the situation where in all segments of our business, Stage 3 was limited. We talked to our customers before starting debt enforcement or selling NPLs because we do that, too. All in all, Q4 brought 20 basis points of cost of risk, which was very low, but there were also additional operations, which we present on this slide. We could not look -- keep up the COVID quick fix anymore of PLN 200 million. That provision was released.

Another significant item was a provision against the portfolio of agricultural loans at PLN 65 million. In 2021, a new law was adopted, which limited the possibility of enforcing debt of this kind. In 2022, that law was reversed. So it made no sense anymore to maintain that provision. But we also had some opposite operations as well. We picked customers who are very sensitive to potential economic developments. On the one hand, institutional customers. For example, customers who reported high consumption of gas or other energy carriers. On the other hand, individual customers, as effective interest rates increased, we selected individual customers with active mortgage loans who could potentially have trouble repaying their mortgages where it's not for the credit holidays.

Now if you look at mortgage loans, the normalized cost of risk for mortgages was PLN 69 million over the year. What we did on top of that is the interest rates were increased or raised significantly. Credit holidays were, therefore, offered. Now some customers covered by the credit holidays who applied for the relief could have had problems repaying such loans. However, the vast majority of customers did not face that problem at all. And so the creditworthiness, the ability to repay the debt was completely stable.

So we picked a group of fragile customers and set up a provision of PLN 104 million based on the parameters that we set as appropriate. As you can see, PLN 104 million where customers could potentially have problems repaying the debt, that's 9x less the provisions we had to set up against the overall credit holidays program. And we also analyzed that sample of customers that pool quite accurately. And these provisions are very safe, where it's not for the credit holidays, the cost for the bank would have been much lower.

From my perspective, there's no reasonable grounds to continue credit holidays because our customers, the vast majority, have the ability to continue repaying the loans.

Number three, where this risk to materialize given the group of customers whose ability to pay the loans is limited, that is already addressed. If the credit holidays expire this year, I hope they do, in 2024, we will be covered for the potential non-repayment of loans due to high rates as we set up provisions in 2022.

Regarding the quality of the portfolio, it's very stable, 3.3%, that's the NPL ratio. Across all segments, our ratios remain very stable. Whether you look at loans to institutional customers or individuals, the nominal NPL is PLN 3 billion, following a significant drop over the past few years, but now this will be less easy to improve the NPL because the portfolio now includes the most difficult loans. So it is not really possible or hardly possible to continue improving the NPL ratio. Our NPL ratio is the second best in the industry. Any ratio below 3% would be hard to achieve.

Another question is, do we need it? We have to strike a balance between the risks we accept and the risks would actually materialize. The coverage ratios in all stages are adequate. If you look at the share of the stages in the portfolio, on the left-hand side, the top picture shows that Stage 2 is rising, which is only due to our efforts to prepare for any potential future risks. All our customers, both institutional and individual whom we put in the fragile group were moved to Stage 2. So the risk is not materializing, but we are covered in case it does materialize.

Concerning the coverage ratio, it's about 61% for the entire portfolio, up to 62% for the individual customers' portfolios due to the part of the mortgage loan portfolio, where we picked customers who may potentially have trouble in the future. And they were put in Stage 2, which means that the overall coverage across all stages increased to the number I quoted.

Capital adequacy. So a few words about the capital situation. So I would share with you that end of year, I gave positive information. So we improved the capital ratio. So I'm focusing on the Tier 1. So reaching the level of 11.28% due to 2 parameters. I would say we launched specific initiatives in terms of RWA optimization, meaning that we are speaking about sustainable solution for RWA and we benefit from better valuation of bond portfolio.

[Przemyslaw Gdanski, executive]

And this is the last slide before we open the Q&A. We live in times of uncertainty. That's the key word, the buzzword we hear a lot these days. We know that the economic slowdown continues. We don't know how long and how deep it will be. We hope to go back to trajectory of growth this year. Inflation remains high, but we are reasonably optimistic, expecting that inflation may drop already this year, which would be welcomed. Next year, we may see first, interest rate cuts.

A war is ongoing beyond our border. We are closely watching the developments, but even the military experts do not know how and when it ends. If Ukraine prevails, that would be a great incentive for the Polish economy as well. But when will it happen, we don't know.

There are new risks emerging in the sector. Intellectually or ethically speaking, they concern me a lot. For instance, the risk of court claims undermining the legitimacy of WIBOR. I don't have to explain that what it -- if the courts ignored the position of the National Bank of Poland of the Polish Financial Supervision Authority, and if the courts canceled agreements based on WIBOR, that would wipe out of the banking industry in Poland. I hope that doesn't happen. The industry has the financial security institutions on the side -- on the bank side. Now those institutions have issued opinions in favor of our position, which still means that the transition of the benchmark is a complex and high-risk development fraught with operational risks.

So the environment is very uncertain. The industry is weak. The capital base has been eroded, and it will take time to recover. This is an election year, which again raises concerns. But I do hope that the decision-makers will remain reasonable. But we will continue to do the right thing. We will continue to digitalize the bank to improve our ICT infrastructure. We are focusing on improving the quality of customer service with our very ambitious strategic objectives. And I hope we will deliver as planned.

We are still focused on sustainable development and on transactions that support sustainable development and especially energy transition. So we will continue doing what we have to do. We will be monitoring the reality around us, and we will be responding to whatever appears -- comes up in the public space, and we would offer our comments according to the best of our knowledge and according to our values. And I wish us all that it is a good year for all of us.

And now let's start the Q&A session. So first, let me ask, are there any questions here in the room, and then we will go to the list of questions that we have online.

[Unknown Analyst]

I wanted to ask about the prospects concerning lines because you say that this -- the West is behind you already, but we can still expect that over the next 2 quarters, the situation will still be difficult. So how do you assess the volume, both in the retail sectors, individual customer sectors and in the institutional customer sector? Will you still see the decline? Or will we see the rebounds?

[Przemyslaw Gdanski, executive]

Well, Nobody knows the future. I am more optimistic as regards corporate loans. And I even assume that we will see some growth, obviously different in different segments. But I do not expect a quick rebound of mortgage loans. I think that consumer loans will be still under pressure. But here, again, a lot depends on the results of GDP dynamics and how that will influence the general mold, to what extent real income will go down and to what extent they will stop falling with the decline of inflation. There shouldn't be any sudden developments and any sudden good developments in that respect, but I'm generally optimistic.

[Unknown Analyst]

Bloomberg [indiscernible]. I will be asking about what you've said that you won't see the quick rebound in mortgage loans. This is just a matter of demand with high interest rates? Or is it also that banks will not be willing to grant such loans because of the regulatory and legal risks because you've had an opportunity to see what the general advocate of the European Court of Justice thinks about your litigation against customers? There are also new ideas such as loans at 2% or 0%. Is there some thinking now starting in the legal departments of the banks how to construct such loan agreements and whether to give such loans at all?

[Przemyslaw Gdanski, executive]

Well, it's difficult for me to speak on behalf of the entire sector because the sector, as I said, is not uniform. And I have also mentioned that earlier that the mortgage loan has turned out to be the most toxic banking product, which nobody has expected. Because even if the loan risk, credit risk was still -- it was all the time at a decent level, some legal risks have materialized. We know -- we all know about the Swiss franc risks. In the case of Polish zloty loans, we have credit holidays attempts to undermine the WIBOR benchmark. So I think we will be very cautious in granting such loans -- mortgage loans.

And as regards the loan agreements, we will construct them in such a way that they are clear, transparent, easily understandable. But whether it is possible that this condition and situation of such approaches to obligations to -- is it possible to construct an agreement in such a way that it is absolutely resilient to all attempts to undermine it, well, I doubt it is possible.

[Unknown Analyst]

And I wanted referring to what you've said about the difficult situation of the sector as such. I wanted to ask, do you expect that there will be a greater willingness of investors to leave our banking market or our market in general? And in this context, how will BNP Paribas act, assuming that you stay on this market? How do you see your chances for acquisitions or perhaps faster organic growth?

And another thing, what will be the risk appetite on your part this year, taking into account the fact that GDP is growing relatively slowly but perhaps there are some opportunities? There is a number of very weak players on the market.

And the last element, what are your limits as regards the risk appetite? For instance, is the capital issue a limit to growth?

[Przemyslaw Gdanski, executive]

So I will start maybe with the issues related to risks and then about consolidation. So I always believed, and I still believe that regardless of how difficult the times is, there are still good valuable customers with good risk profile, and we do have risk appetite and the willingness to provide loans in all the segments.

Our capital situation is better than it was a quarter ago, but it still means that we will be very prudent and reasonable in managing this capital. So this probably is discussion less about risk -- credit risk, but rather about whether proper, this particular loan is properly valued, whether the loan is extended to a customer that treats us as his transactional partner. And therefore, the organization has more definite DNA, if you like, by looking at return on equity for every Polish zloty of the loan granted, the regularity and permanence of the relationship.

As regards the appetite of investors of leaving them or for leaving the market and our own appetite, well, nothing has changed on our part. We have completed the process of acquiring banks on the Polish market with the completion of the Raiffeisen acquisition transaction, and we are not going to purchase and need more banks.

Of course, we are looking around to see new technologies, new business models, maybe new platforms. And this type of transaction is something that I wouldn't exclude or MRI transactions, or maybe our own initiatives in those directions.

The group is very attached to the Polish market. I think it was yesterday or the day before, we announced the creation of an IT hub in Poland that is supposed to employ 250 IT experts working for the group or over the world, but they will be based in Poland. As you know, in Poland, we have a dozen of group subsidiaries, some of them belong to the bank, some of them are just our sister companies. So we're not even thinking about leaving the market or buying another bank.

As regards to other investors and other banks, well, all I can do is speculate and it seems to me that if there were serious partners to buy such banks, those -- they would be able to find those who wish to sell a bank in Poland. The issue will be the price because the valuation of the banks is very heavily burdened with this unpredictability and all those developments that were to be addressed at external banks and, in fact, affected the internal bank's results and rates of return.

[Unknown Analyst]

And my question is about accounts because you've seen the significant decline in the number of accounts. Was it the decision of the bank, as you have mentioned, to just cleanse the portfolio? Or rather maybe other factors influence that as well, such as, for instance, the customers from Ukraine decided to give up your accounts or maybe there were some other reasons?

[Przemyslaw Gdanski, executive]

Well, we haven't really seen a significant decline in the number of customers or accounts but we regularly sort of cleanse our deposit base. Maybe review would be a bit of word here because we review the portfolio of our customers, and sometimes we decide to conclude the cooperation with those who don't really work with us. We also do other -- have other ways of acquisition where we look actively for customers who would like to do banking with us who would be active and maybe not just using a single product only.

As regards the portfolio of Ukrainian customers, I don't really see anything significant happening here that would result in a significant change in the numbers.

Now we can move on to the questions we received online. There's quite a list. First question or 2 related questions. [indiscernible], "Are you planning to issue MREL here? If so, how big and when?"

Number two, [ Jaromir Szortyka, BM PKO BP ]. "Could you share more details on the initiatives the bank has taken to optimize its risk-weighted assets, RWA?

[Jean-Charles Aranda, executive]

So I'm going to start with me MREL. So MREL, the plan based on the current situation is to issue MREL in Q4. But I would like to remind you that we're under SP, so we'll do it with the group. And the range from PLN 2 billion to PLN 3 billion.

And the second question about RWA optimization. So we have different topic, not entering too much into the details. It's obvious that we have reviewed the data quality, which I want the standard topic. So we look at our database and we clean the data because sometimes it has an impact on the RWA calculation. We implement umbrella insurance for mortgage loan, okay, which was a way to release the risk weight. So these are some topics like that, that -- which would generate a positive impact on RWA.

[Kamil Stolarski, analyst]

Kamil Stolarski, Santander. According to Bloomberg, where Bloomberg reported in mid-February that BNP is considering to pull out of consumer finance in Central Europe, Romania, the Czech Republic, et cetera. How -- what are your plans in consumer finance? BNP Poland, are you happy with your current market share in the banking sector in Poland?

[Przemyslaw Gdanski, executive]

Let me take that question. It's important to note that the operations planned by the group to pull out in the countries you mentioned, these are very small operations. Our Polish consumer finance franchise is big in the context of the group. One of the biggest that the group has in the different countries, and it is fully integrated with our bank. So we are not planning to pull out.

On the contrary, we are planning to grow, and we are growing this business organically, not through acquisitions, but we are also innovating quite heavily, and we will be ready to share more details soon.

[Unknown Executive]

Kamil Stolarski, Santander. What is BNP Polska's appetite to continue lending to farmers? The year-on-year drop in mortgages, was it 99% due to credit holidays? Minister Kowalczyk is considering credit holidays for farmers. PKO has announced a bigger initiative in that segment. What is the approach of BNP Poland?

Another question from [indiscernible]. What is your perspective on credit holidays for farmers as an idea, as a concept?

[Przemyslaw Gdanski, executive]

That's the questions I like. You're asking them, which shows that the imagination of decision-makers has no bounds. It's important to note that the Polish farming industry has had a number of phenomenal years. Last year was particularly successful for farmers. There's no structural problem with repayment of debt. So farmers simply do not need credit holidays.

Well, in this case, Minister Kowalczyk has been open to enter into a dialogue with our community, our industry. That dialogue showed that potential credit holidays for farmers would probably kill quite a number of cooperative banks. As a result of the dialogue, it is our expectation, our impression, our hope that this idea will not be implemented and that it is not a risk.

We still have an appetite to continue financing the food and agro industry. We have made some strategic movements approaching or rather turning to customers who are higher up in this food chain, so to speak. So processers, exporters of food and agricultural products. And this has largely been done, and we will continue with that.

As regards PKO BP, we are ready to compete with any bank. Maybe it's a good thing that competition in the market will grow in the segment of lending to farmers. This will only put more pressure on everyone to be more innovative and more inventive.

[Kamil Stolarski, analyst]

Kamil Stolarski, Santander. BNP is required to increase its free float of BNP Polska by the end of 2023. Are you working on it? Or do you want to extend the deadline?

[Przemyslaw Gdanski, executive]

Let me remind you 1 more time that this is a commitment of the group, BNP Paribas, because BNP Paribas -- it's for BNP Paribas SA in Paris. It is not our commitment. So this question should be asked to representatives of our group because we have nothing to add on this point.

[Kamil Stolarski, analyst]

Kamil Stolarski, Santander. What is the outlook when it comes to the NII in the coming quarters?

[Jean-Charles Aranda, executive]

Usually, by principle, we are not sharing any outlook. But I will say, strategically, having in mind that also we have many uncertainty in front of us, minimum target will be to be stable, but also having in mind that it's always better to be better.

[Unknown Analyst]

[ Robert ], [indiscernible]. Could you comment on the government's program of a 2% loan? Will you join the program? Do you have any doubts about the program? That's to the CEO. Should anything else be clarified for the bank to be safe offering such loans because those loans will be for more than 10 years each?

[Przemyslaw Gdanski, executive]

When the program is ready, we will look at it very carefully, and then we will decide whether or not we are interested. We are -- well, it's too early to tell to have a clear opinion.

When it comes to the program. Well, I don't want to comment. I would rather not comment on the idea of the leading opposition party to offer 0% loans. I don't think loans should be granted free of charge. 2% is also below the market price. But this is a special year indeed. And it's not the end of those ideas yet.

[Unknown Executive]

Four questions about CHF loans. Let me ask 2 questions first. Two questions from Kamil Stolarski. "Looking at your target coverage ratio of CHF loans, what is your target? Because now the coverage ratio is 40%. What is your target?

Second question, "What is the weight in the model of this scenario where the loans will be invalidated?"

[Przemyslaw Gdanski, executive]

Let me take the first question first. We don't have an optimum in mind. Clearly, our coverage ratio is quite solid. Other banks have -- some of the other banks have bigger coverage ratios. But as I've said, it's not yet the end of the story with the Swiss franc loans. Those provisions reflect the number of new court cases, the expected number of court cases, the number of settlements signed, the expected number of settlements. They are all estimated using a very sophisticated model. If the input for the model changes, the amount of provisions will also change.

On your second point, the majority of provisions that we've set up are for court cases and the risk of invalidation of loan agreements.

[Unknown Analyst]

And 2 further questions, I'm [indiscernible]. What the level of provisions for Swiss franc loans and the percentage of the coverage of this portfolio, you believe to be safe and target? And how much may it cost to get to that target level?

And the second question, is the litigation related also to the foreign currency loans or only denominated loans?

[Przemyslaw Gdanski, executive]

I think I have responded to the first question. So I can't really add anything to that.

As regards to litigation and the court cases initiated, concerned both the loans extended by the former BGZ Bank and those extended by the former Fortis Bank. So these are different categories of loans.

[Unknown Analyst]

Is the increase of the NTI can be treated as the equivalent of the NII related to the hedging policy? At ING, it was a similar situation and the bank transferred some of the trading results to the interest results, so the interest income.

[Jean-Charles Aranda, executive]

We are presenting the result. This is the first topic. It's much more coming from the way we manage our over-liquidity in euro, which is more or less specific to our banks. So we have a significant over-liquidity in euro. And in the past, we conclude FX swap. And in the third quarter, the costs were really high. We have decided to change our strategy. So meaning that the negative impact -- I will try to make it easy. The negative impact, which was visible in the past in the natural income is now, to some extent, translated in NII, okay, but we stopped concluding FX swap. And by doing so, the negative impact is lower by not doing FX swap.

[Kamil Stolarski, analyst]

Kamil Stolarski, Santander. Why is that evolve the loans for companies, corporate loans fell 10% quarter-on-quarter? Is the sale of mortgages -- will the sale of mortgages remain in the coming quarters at the level of the fourth quarter of previous year?

[Przemyslaw Gdanski, executive]

As regards to the first part, the inventories in the economy have declined. They changed into cash, and they were -- that was used to pay the debts. And that really happens every year. The scale may be different.

As regards the question about mortgage loans and the market of mortgage loans, I don't really expect any significant reverse of the trend, at least not very soon.

[Unknown Analyst]

Yes, Is the bank planning to give access to individual customers, the sale of treasury bonds of the Ministry of Finance following the -- in the footstep of PKO S.A. and PKO BP?

[Przemyslaw Gdanski, executive]

Currently, we don't have such plans.

[Kamil Stolarski, analyst]

Santander, Kamil Stolarski. What is the guidance for the cost of risk for 2023?

[Unknown Executive]

Well, in principle, such forecast of cost of risk is not something that we would present and taking into account the fact that the situation in our portfolio is stable and we measure very accurately the portfolio of institutional customers, group customers, the individual customers' portfolio on individual case-on-case basis.

And also taking into account something that we would like to continue that for a long time, we haven't had a situation in the bank that we would have an incident with the customer to which we would be significantly exposed and to the risk of which we would be exposed. Main provisions that are created are related to the entire portfolio or very low individual provisions because some -- there are some customers defaulting, but generally, we have very few entries into Stage 3. That's a limited number of loans, and we would like to continue this trend. Whereas, obviously, there are certain risks if the interest rates keep growing -- keep increasing, the mortgage loans, maybe -- may pose a threat. If the GDP growth is limited also in micro or SMEs, among them, maybe companies that were able to operate with the loan that carried a low interest rate, but when the GDP is limited and the interest rates are higher, such companies may get into trouble.

But generally, everything in our books and calculations of the cost of risks and the impairment value or the value of the loans, and deteriorating value of the loans, all that looks very good in our books.

[Unknown Analyst]

Well, you are pausing the floating rate mortgage loans. Aren't you afraid of the risk that in a few years, they may be undermined with -- in a few years as the loans carrying very high -- very, very high rates?

[Przemyslaw Gdanski, executive]

Well, I understand that the question is about fixed rate loans. Well, first of all, we extend very few such loans. So even if such a risk might materialize, that would not concern a huge part of the portfolio. And then if the interest rates go down, it can always be refinanced to either a fixed rate, which is different rate or can be changed into a floating rate.

But then again, are we afraid? When you ask if we are afraid, well, nothing will really amaze me now. But I cannot be worried all the time because I would be just stressed. And since we are having such a nice day, I don't want to focus on those concerns and fears too much.

[Jaromir Szortyka, analyst]

Jaromir Szortyka. Is repricing of the loan portfolio to higher interest rates has been completed? Or is there still room for improvement compared to Q4 of 2022?

[Jean-Charles Aranda, executive]

I think a permanent job we have to do. So it's a view that the part has been done. And we are keeping on working on this topic permanently. And on top, I would like to add that we have also to analyze the full relation with the customer sometimes. So okay, on one side, potentially, no repricing. But if we are able to grow or to improve the cross-sell, it has to be considered. But repricing, combining with cost saving, is a permanent topic.

[Unknown Analyst]

PKO BP, what's the level of the customer participation in credit holidays?

[Jean-Charles Aranda, executive]

69%, 70%, not in terms of number of customers, but in terms of volume of loans subject to credit holidays.

[Przemyslaw Gdanski, executive]

Ladies and gentlemen, that was the last question. I hope we haven't ignored any of the questions. So I'd like to thank you very much for all the questions. Thank you for being present at our meeting, and I invite you to contact us. I wish you a lot of health, optimism and all the best. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]