ING Bank Slaski SA

WSE:ING

Q3-2025 Earnings Call

[Piotr Utrata, executive]

Good morning. Welcome to our conference, during which we will present our performance in the past quarter and in the past 3 quarters as well. [Foreign Language]. My name is Piotr Utrata, and I'm the spokesman of the bank.

Michal, over to you.

[Michal Boleslawski, executive]

Good morning. This quarter was kind of a boring, predictable quarter without any exciting events, but that's what I think is expected of a bank, to be stable and to continue its strategy. And this is indeed what this quarter was like.

The most important things that I would like to draw your attention to is that the bank has been growing in terms of the number of customers, especially in the retail segment. And the growth was 135,000 year-on-year. We have now reached nearly 4.7 million customers. On the corporate side, the growth was 18,000 year-on-year, bringing this to nearly 590,000, which means that we are developing our market share by attracting new businesses and new individuals to work with us. This is very important because we are very active in close -- in the closing accounts that are not used. So what I'm giving you is actual acquisition of customers. These aren't any passive customers that don't use our services.

In Q3, the growth of mortgage loans is particularly noteworthy. It was very good and very fast in Q3, and we are in the second place after PKO BP on the Polish market with a year-on-year growth of 46%. Our share in new sales is 18%. We are also doing well in cash flows. It's PLN 1.9 billion, which is 26% more than in the previous year. This isn't the share of the market we would like to see. Right now, the market share is 5.8%. A significant part of those loans is granted online.

Mutual funds are yet another area that's not worthy, with a growth of 33% year-on-year to PLN 22.6 billion. 3/4 of that was generated by net flows rather than the changes of the valuation. Our share in the market is 7.1%. The only area where there is more activity for corporate customers is in the area of factoring where the growth, which is posted on this slide, in our case, was significant compared to the market growth, which means we are increasing our market share. We're in the third place in the market. But if this trend can be maintained, we will be better than that.

For deposits, we are growing along with the market. We are not growing particularly faster because our lending to deposits ratio is very important to us. We could be getting more of them if we could translate them in all areas to loan, which is only possible on the retail side right now.

Now with loans, the growth is weaker in corporate, it's PLN 0.3 billion in the past quarter, and this is because of a number of things. And for the third quarter running or maybe even more than that, maybe even before I came to the bank, the investment of the private sector in the Polish economy is not growing. I'm not referring to the state investment. I'm just talking about private investment.

Now the second characteristic element has to do with the structure of our portfolio. We have a lot of lending, whereby we finance other financial situations, and all of them have the same strategy for loan to depot. We have over PLN 6 billion in terms of this investment. And these balances are growing.

Now we are hoping right now that the situation will improve in the future. But from the market point of view, we cannot see that improvement happening yet. We're also looking at margin levels that we are not interested in anymore. Sometimes, there are about 18 basis points or maybe 40 basis points. That's below the bank tax. As a result, we don't see any sense in participating in these transactions. We have to maintain some level of profitability even if you do get some cross-selling effect from those transactions.

So these are the key elements, key things that we want to draw your attention to, including the mortgage loans, investment funds and other things that were particularly good this quarter. Like I said, corporate loans were a bit weaker and deposits were neutral.

[Bozena Graczyk, executive]

When talking about these phenomena, let me discuss the financial results. I'm always very happy when I can say that our financial results are in line with the consensus because that means that we are a predictable bank that operates in line with the market expectations, and we don't surprise people either one way or another. And this also happened this quarter. Like Michal said, it was quite a calm quarter, a quarter of steady growth in the areas where we believe we need these growth from a strategic point of view, where we're looking for the value growth, and that translates into our financial results.

So for Q3, we had a 1% growth of our net income year-on-year, with over PLN 3 billion after the 3 quarters, which is 7% year-on-year. When we look at the structure, these growths are mostly happening as a result of what's happening on the commercial side, and both assets and liabilities changes. And also including the macro data, especially the interest rates. So in this quarter, the growth was mostly seen in our overall income, with a 5% growth over 9 months.

Another contributing factor was the reduction of the cost of risk of the 9 months, it was PLN 653 million, which is 24% down. Now in this quarter, our cost of risk was PLN 251 million, which was more than in the second quarter, but I'm going to tell you why in a moment. Another contributing factor is something that you pointed out, namely -- this is yet another quarter with very good results in terms of FX transactions. And this mostly pertains to derivates-based transactions.

Now if I were to summarize our net interest income, let me just tell you that it was nearly PLN 2.2 billion, which is a 1% growth quarter-on-quarter. And this is a result of good trends in the net balance sheet volumes, like Michal said, the loans went up by 2%, deposits by 7%. And so our quarterly interest margin was down 5 basis points to 3.15%. And our cost of financing was kept at a level of 2.03%.

What we are seeing is the effect of the changing interest rates. The sensitivity of the balance sheet to those reductions is present in our bank and it's also typical of the wider banking sector. As you remember, both long term and short term, we are seeing our macro cash flow hedging strategies that take effect and they stabilize our interest margin, and we can indeed see a positive contribution this quarter compared to what happened when interest rates change. We have a -- the pricing of the assets and we also have a growing role of T-bonds that also have a positive contribution in the interest margin.

Let me also talk about our sensitivity to the reductions of interest rates. You may remember that in the past, we said our sensitivity, given a fixed balance sheet, we have about PLN 130 million. But as the rates went down, the sensitivity goes up a little bit, so it's a bit higher, but it's still at a market level.

What we also have to mention is our interest concerning the changing interest rates. There is a varying sentiment in the market, especially short term potential changes in Q4. Our macroeconomic team believe there will be no more interest rate changes before 2026. Ultimately, they should be at the level of 4%. This is the current expectation. But naturally, we are waiting for the decision of the Monetary Policy Council.

Our LTD was at 75.3%. This is the result of a slightly different dynamic of deposits and lending. 66.8% is the typical loan to depot on the market. So as a result of that, as Michal said before, we are more selective when looking at these growth, especially looking at the assets that do not generate the necessary margin.

For fees and commissions, after Q3, it's nearly PLN 600 million, 5% increase in FX, 4% this quarter from cards and a 3% contribution from insurance. And this is mostly related to our increased lending.

I also need to comment on what happened year-on-year to these 9 months. The biggest contributing factor, which is 11%, is the capital market, especially the growth of the assets of investment funds, and that's up 33% year-on-year, 7% for insurance and 6% for the current accounts that are related to the activity of our customers.

On the cost side, not much has really happened in Q3. We had PLN 1.246 billion in terms of costs, which is a slight reduction on the previous quarter. And there is a slight movement between the different categories of costs. But it pretty much remained flat quarter-on-quarter. There is an increase in cost of remunerations. We gave pay rises to our employees this year. We have increased our marketing costs to PLN 11 million. But on the other hand, we reduced other operating costs that are of a more periodic character or temporary character. And in this quarter, as you know, we had a provision of PLN 18 million for a penalty, and that's also part of the cost.

Cost of risk, as I mentioned, PLN 251 million this quarter, PLN 200 million applies to the corporate banking segment and PLN 51 million to retail banking. I think what matters here is the fact that in the previous quarter, we had 2 positive developments that lowered the quarterly cost of risk, positive contribution of sales of irregular liabilities and the positive impact of macroeconomic data, which has changed the trend in this quarter, particularly in corporate banking, where macroeconomic data and their impact on the cost of risks have caused an increase of cost by PLN 21 million.

What matters is also that we have a very satisfactory low level of cost of risk in our retail banking segment. The quarterly margin of cost of risk is 26 basis points. In corporates, it's a bit higher, but you can see that the comparison of Q3 '25 to '24 shows you a considerable drop in the cost of risk. We are prudently valuing our loan portfolio and we are looking at all the risks that we identify quarter-to-quarter in line with the standards of accounting.

In terms of the quality of the portfolio, irregular loans share is unchanged, 4%. We have a very good quality in retail contribution of mortgages is 0. It's a very healthy portfolio. In corporate banking, systematically, the share of nonperforming loans is a bit higher. In Q3, we are at 6.2%. This is a result of the cautious policy, particularly in Stage 3 in this quarter. Our coverage with provisions increased to 52.4%. Movement compared to previous quarters is linked to the sale of nonperforming receivables.

In terms of our capital adequacy, you can see the total capital ratio of 14.85%, which is 81 basis points lower. The key contributor risk-weighted assets. The increase in loans portfolio in this quarter, particularly in terms of mortgages, requires time so that it would be effective. That's why newly granted loans always impact negatively in the first period and then it eases out. Let me also point your attention to the fact that we did not include the interim result. So this is a transitional period and the indicators are lower as a result.

Let me just remind you that we have received a Tier 2 loan. We're waiting for the KNF approval. Tier 2 loan will be included in our capital ratios and it will increase the ratio by 80 basis points. And it's worth emphasizing that minimum levels of our capital ratios, and in this sector, are under the influence of the increase of the anti-cyclical buffer. So TCR is referred to 12.5%. And you should keep that in mind from the point of view of minimum levels and the surplus of our capital.

I think I'll end my short presentation here, and we'll be looking forward to your questions. Thank you.

[Iza Rokicka, executive]

Let's first take questions from the room, and then we'll proceed to questions asked online.

[Unknown Attendee]

[Ryszard ] Kolasinski, Polityka Insights. How will you explain increased costs of interest funding?

[Unknown Executive]

If we're talking about nominal costs of funding, they are [ 203 ], and that's the same level of costs that we had in the previous quarter. But the total value is a result of the increase in volumes. So nominally, it's the same level. I meant the annual dynamics.

Are you satisfied with the answer? Or are you still waiting for an answer?

[Unknown Attendee]

I wanted to ask about the full year dynamics, which factors are relevant?

[Unknown Executive]

The change of funding cost is related to increases of the levels of interest rates, all the activities related to the core rate, all of the promotional activities that we offer to customers and market behavior. So we always analyze the market situation in detail. We look at the behavior of interest rates in the context of our promotional offers and increasing volumes.

[Iza Rokicka, executive]

Right. Let's ask a question online from interia.pl. Corporate loans, why is the demand so low?

[Michal Boleslawski, executive]

Well, the reasons are the same as for the last 9 years. There are no investments in the private sector. This is what I explained at the beginning. But we also talked about it last quarter and 2 quarters ago. The government is making arms purchases. There are loans related to energy infrastructure, but it's not the type of loans that will change the situation in the economy in general. It will not boost demand. So the main reason, I would say, and we talked about it, identified it, it's the overregulation of the economy, to such an extent that businesses do not see any sense in investing, and they do not see opportunities that the investments would generate higher returns or higher profits. They are specifically afraid of the reporting obligations and other elements related to the market.

I mean energy prices, for example, they do not see a clear perspective related to investments. So they are reluctant to invest. Some of these programs, some of these requirements have been frozen, but they did not -- they have not disappeared altogether. The discussions are still ongoing. So the environment is highly unpredictable, and it's difficult to invest.

And let me emphasize, we see that some increase in corporate loans, this is something that we have noticed, but it's invisible because this is offset by a loss on the side of financial institutions, which are consolidating in their own funding activities -- funding their activities, and they are increasing -- decreasing the funding needs in our bank, but this is not a level which would be adequate to a situation where the economy would be picking up because of investments.

Also the dropping interest rates, we don't think that any drops of interest rates is a reason for businesses to start investing. There are other elements that have to be addressed first because the cost of funding is not most important here. It's not the main factor.

[Iza Rokicka, executive]

We're waiting for more questions, maybe someone from the room? Right. I will take it as a good token that our results are clear and predictable.

[Unknown Attendee]

My question is more general. If we have the time, I decided to ask it. What share in personnel costs are IT personnel costs? I know that this is a broad question. It's difficult to explain, but if you were to -- well, I'm trying to check what the IT costs in banks are, and I know there's a difference in terms of in-house IT outsourced CapEx related to IT. This is a missing element.

[Bozena Graczyk, executive]

I don't remember what is the cost of functional IT in our personnel costs. But in terms of IT costs in the structure of our costs is comparable to other banks, 14% to 15%.

[Unknown Attendee]

Roughly what percentage of personnel would be allocated to IT?

[Michal Boleslawski, executive]

25%, I would say, less -- 20% or thereabouts of the total employment of the bank. 1,350 people work in the IT department, but there are also other forms of employment that are not reflected in the head count directly.

[Unknown Attendee]

A question about the increase of CIT for banks. What impact do you see, CIT increase?

[Bozena Graczyk, executive]

Well, for next year, we are not disclosing this information because they are linked to the expected financial results of the bank next year. I can only reflect on some forecasts from August, the estimates of higher CIT on our bank. The -- it was presented in analytical reports at PLN 800 million. But I do not want to comment on that. I can only share with you how the state -- how you are analyzing the changed rate of the tax 15%, 16%, that was what the analysts were predicting the impact would be.

There is one other effect that will be visible in the net financial results of the bank, once the new rate is announced, is the recalculation of assets and deferred tax. This will depend on the structure, short and long term of provisional differences in assets and liabilities. Deferred tax is active in our bank. So recalculation with the higher rates changing over time. That's the difficulty of calculating. There will be an impact in other words. It's different for every balance date because the due dates of these assets and liabilities is different, but we expect that the revaluation of assets with the higher rates will have a positive impact. That's what we expect.

On the financial results in 2025, having a positive impact on ROE, but the revaluation -- a one-off revaluation in 2025 will have consequences in each year because in each year, we will have to recalculate all the other provisional differences according to future rates that will be known by then. And there will also be variables over time. And the imprecise nature of estimates, which is natural, will be working positively or negatively in the results of future periods.

So it's not just the cost of earning the money, but also how they will be repriced in deferred tax -- the positions in deferred tax. That's one of the biggest difficulties in estimating this position at the end of 2025 and in future years. But the first reflection of the correction of deferred tax will happen in the quarter when new regulations are adopted. So not yet, in other words.

[Unknown Attendee]

To follow up on that, if we assume the regulations are adopted in Q4, will that have an impact in Q4 already?

And a question about your dividend. Is there any guidance? Will you be at a similar level to the current year or maybe the previous years?

[Bozena Graczyk, executive]

No, I don't want to discuss the situation in other banks. Every bank has a different situation. But in principle, if these regulations come into force in Q4 then the deferred tax will be changed, and that will be part of the financial results in Q4.

About the dividend, it's too early now to talk about it. I'll have to ask you to bear with us and wait for our conference in January or February, which is when we traditionally talk about a proposed dividend as we've done every year before.

[Iza Rokicka, executive]

We have a number of questions from the Internet. Let's try to give them a shot. Polish Press Agency asks, in the current situation, can you exceed PLN 5 billion in mortgage sales?

[Bozena Graczyk, executive]

Let me have a look at Slide 19. We have exceeded PLN 5 billion this quarter. So I think that's it. So yes, the answer to the question is yes, we will.

[Iza Rokicka, executive]

The question is about your involvement in treasury securities. What are your prospects for the future when it comes to this?

[Michal Boleslawski, executive]

This is dependent on the level of lending. If we cannot generate the amount of corporate lending that we would like to see, and then our share in T-bonds and National Bank of Poland Securities will go up. However, looking at the current dynamics, we believe we can improve our loan to depot. There are reasons to believe that. In the sectoral data, you can see that T-bonds are growing in terms of their share, which is now more than 30%. The same with -- on a smaller scale is also true in our bank, and this is mostly tied to the loan to depot indicator.

[Iza Rokicka, executive]

The next question is, can you see any tendency for people to refinance their mortgages through prepayments?

[Bozena Graczyk, executive]

I have seen this question asked in other banks' conferences. When interest rates go down, you can expect people to pay up, and this is a phenomenon that can be seen in the banking sector. We have also seen it. To some extent, some people are paying a share of the loan. Some of them are paying back all of the loan. However, the value of sales in lending is very large in our case. So this element of refinancing is not really having an impact.

[Iza Rokicka, executive]

The next question is, what are your ambitions in terms of your interest income? Do you want to improve or maintain it?

[Bozena Graczyk, executive]

I think you know the answer, we never disclose any such guidance, especially for interest margin. We don't talk about it. But if you look at the long-term trends, in terms of the margin, it basically tracks the changes in interest rates, but we do have our macro cash flow hedging policy, and it works.

[Unknown Attendee]

I would like to go back to one of the questions from the Internet about the refinancing. What was the percentage? Because you mentioned PLN 5 billion. What was the percentage of the share of refinancing loans? In other words, of all of your loans, what percentage went into refinancing people's loans in other banks? And what percentage was new lending, new loans?

[Bozena Graczyk, executive]

It's a dozen percent or so.

[Iza Rokicka, executive]

There are no more questions asked online. Is there anything from the floor? If there are no questions, then thank you very much for taking part of the conference, and we'll be happy to see you in 3 months. The next conference will be in early February. Thank you.

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