Bank Millennium SA

WSE:MIL

Q3-2025 Earnings Call

[Dariusz Górski, executive]

Good afternoon, everyone. Welcome to Bank Millennium results call. We're very happy to be starting Polish Bank's 3Q earnings season as such a strong note. With us, we have, as usual, Mr. Joao Bras Jorge, our Chairman of the Board and our CEO; and Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. Fernando, over to you.

[Fernando Bicho, executive]

Thank you. Good afternoon. Thank you for attending this meeting. As usual, we will guide you through the presentation that we released today in the morning, highlighting the most important aspects from the financial and business performance of the bank and the Bank Millennium Group in this third quarter and first 9 months of the year.

So starting with Page #5. We reported a net profit of PLN 855 million after the first 9 months of the year, up 56% versus 1 year ago. In the third quarter, we had a net profit of PLN 345 million, which is higher by 82% than 1 year ago. The net profit of these first 9 months, excluding FX mortgage related costs, was at the level of PLN 2.34 billion, growing 2% year-on-year. These strong results translated into ROE in the third quarter annualized of 15% and the 9 months ROE of 14.2%. The results were supported by a resilient net interest income, which despite the fact that we are having already lower interest rates.

The net interest income was up 7% year-on-year on a reported basis and 3% up year-on-year, excluding last year's impact of the credit holidays. The 9 months NIM was at 4.1%, decreasing 26 basis points year-on-year despite decrease of the 3 months WIBOR rate by 98 basis points. The adjusted cost to income was at 35%. The cost of credit risk continues to remain low and in the first 9 months reached 32 basis points over total gross loans, and the NPL ratio was stable at 4.2% as in this quarter, there was no sale of NPLs.

The capital ratios improved in the quarter, mainly as a consequence of the incorporation in own funds of the net profit of the first half of 2025 after receiving regulatory approval. Consolidated total capital ratio stood at 16% and the core Tier 1 and Tier 1 ratio reached 14.4%. So we are keeping significant buffers over the minimum regulatory requirements.

The same is happening with MREL requirements where we are also keeping a significant surplus over the minimum required levels. The long-term funding ratio is hovering between 33% and 34%, still clearly on track to the targeted level by the end of 2026. And last but not the least, we continue to have a significant excess of liquidity as the loan-to-deposit ratio at the end of September was at 58%.

So moving now to more details. So first, a quick look at Page #8. As usually, every quarter, we are showing the status of the achievement of the targets and objectives, both from a business perspective and from a financial and risk perspective that we have set when announcing the strategy for the years '25, '28, value and growth strategy that this was announced around 1 year ago.

And as it can be seen from this page, we are on the track to achieve these goals. Of course, this is still the first year after the announcement of the new strategy, but it is visible that the business goals related to increase of the number of active customers in retail is growing according to the plan. We have now more than 3.2 million active customers in retail. Also the share of digital in the active retail customer base is over 93% now.

And on the other side, already visible growth in the number of business active clients and also corporate loan volumes, which is especially visible during the third quarter.

On the financial side, the ROE improving versus the last year with 9 months ROE annualized at 14.2%, while in terms of the NPL ratio, we are trending down in order to be below 4% in the near future.

Moving to Page 9. We are showing the evolution of the results since the fourth quarter 2023, over the last 8 quarters, and it is visible the improvement on the reported profitability in this quarter, PLN 345 million growth versus the previous quarter. And in terms of 9 months, so the growth of 56% that I already mentioned. The net profit, excluding extraordinary items, was at PLN 743 million. So -- which is still a relatively high figure. And overall, when we compare the accumulated net profit without extraordinary items this year versus last year, we are growing 2%. Operating income was relatively stable in the quarter.

And moving now to more details on Page 10. We see that the net interest income is showing resilience despite the gradual decrease of the interest rates. I should remind that the level of interest rates at the end of September, the intervention rate or the reference rate of the National Bank of Poland was at 4.75% and was further cut in the beginning of October to 4.5%, while 1.5 year ago, we were at 6.75%. So the NII was stable versus the previous quarter. And when we compare the NII this year versus last year, we have a growth of 3%, excluding the effects of the credit holidays.

Of course, the net interest margin is trending down as interest rates are going down and stood at 3.95% in the third quarter '25, an average of 4.1% for the 9 months of this year. It is visible that on one side, a lower remuneration from loans as a result of the fact that the part of the loan portfolio is indexed to market rates. And so there is a natural decrease on the average yield of the loans, but at the same time, a relevant decrease in the average cost of the deposits in the third quarter by 14 basis points.

Net fees and commission income performed better than in recent periods, actually the best since the first quarter of 2024, growing 9% quarter-on-quarter and in accumulated terms being just 2% below 1 year ago as a consequence of still much lower fees from bancassurance when compared with last year.

On Page 11, operating costs are still growing double digit. Total operating costs grew 15% year-on-year, but just 11% if excluding the costs connected with the banking guarantee fund. In particular, other administrative costs were up just 7% year-on-year. So we can say that most of the cost growth versus the first 9 months of 2024 is attributable to higher regulatory costs.

Moving to Page 12. The quality of the loan portfolio remains solid. NPL ratio stable at 4.2%. Cost of risk, 32 basis points over total loans in the first 9 months of the year. And last but not least, another increase in the coverage ratio of NPLs by total provisions from 72% 1 year ago to 78% at the end of September this year. As I mentioned before, no sales of NPLs in this quarter. And on the top right, the evolution of the NPL ratios for different portfolios showing either a decreasing trend or stability.

Capital adequacy ratios at comfortable surplus despite the new countercyclical capital buffer, which increased 1% in September and another 1% will increase in September next year. But as it is seen, we have a surplus over 4 percentage points in terms of total capital ratio over the minimum requirements and the surplus of 4.6 percentage points in terms of Tier 1. As I mentioned before, the capital ratios in the quarter improved versus the end of June, mainly as a consequence of the recognition in own funds of the first half net profit.

The same picture for MREL with -- on Page 14 with still a very comfortable surplus over the minimum regulatory requirements, very strong LCR. A very high share of debt securities of liquid assets in total assets due to the significant excess of liquidity that is measured by the loan-to-deposit ratio at 58% as of the end of September.

Regarding FX mortgage, we continue to see a fast downward trend of the outstanding portfolio. Year-on-year in currency, so excluding FX variations. We have a decrease of the portfolio by 34%. And currently, FX mortgage gross exposure after deduction of the allocated risk provisions represents just 1% of the total gross loan portfolio. The provisions against legal risks were lower in the third quarter versus previous periods and stood at PLN 394 million for the Bank Millennium originated portfolio in line with the announcements that we made 2 years ago in a dedicated current report. So the outstanding balance of legal risk provisions as of the end of September was close to PLN 7 billion.

In this quarter, we had 2 positive trends from one side, a continuation of the lower inflow of new court cases, which for the first time in 5 years, were below 1,000, more exactly 904 new court cases, while the number of settlements was above 1,200 and within this number, a relevant number of in-court settlements. So all in all, we have already signed since the beginning of this process, more than 29,000 amicable settlements with clients.

Not much change in terms of the main assumptions regarding legal risk. So in fact, the provisions during the current year are being driven by other related costs and not so much by the inflow of the court cases as until now, the inflow has been more or less in line with the original estimation.

Moving now to the second part of the presentation regarding business development and with the main highlights on the Page 18. We would highlight, first of all, the high growth of customer funds, both deposits and investment funds, and the growing customer acquisition. And please remember that we are always reporting the customer acquisition on a net basis and not on a gross basis. And so we are adding on average, around 150,000 net growth of active customers in the retail.

We also in this third quarter are showing strong dynamics in corporate lending and which is already translating in a double-digit growth of the loan portfolio. And on the other side, stable and relatively high origination of consumer loans and an inversion of the trend in mortgage origination with a much higher already production in the third quarter compared with previous periods. So these trends translated into a total deposit growth of 12% year-on-year, a consumer loan growth of portfolio of 3%. The loans to companies' portfolio growing 12%, investment funds growing by 39% and the number of active customers reaching 3,234,000, of which 93.5% are customers that are digitally active.

On Page 19. Despite this evolution, we still have year-on-year a small decrease of the net loan portfolio by 1% and this is due to the fast amortization or reduction of the FX mortgage portfolio and also to some contraction of the PLN mortgage portfolio due to lower origination from previous periods and also some higher early prepayment rates. As I said, anyway, the new origination is going to allow sooner or later to stabilize the size of the portfolio and then to resume a growth also on this segment.

The stronger growth of corporate loans that we expect to continue, of course, will contribute to a gradual change in the structure of the loan portfolio with a little bit going -- a decreasing share of PLN mortgages offset by growing share of loans to companies, leasing and factoring, while consumer loans should keep more or less this share that has currently.

On the customer deposits, both retail and corporate grew at double digit during the last 12 months and investment products, a significant growth over 30%, allowing also our asset management company, Millennium TFI to cross the level of PLN 10 billion under management.

On Page 20, we can see that cash loan sales are stable year-on-year but allowing us to reach a market share close to 11% in terms of the new sales, while there is a clear rebound in the sales of mortgage with origination in the quarter above PLN 1 billion.

On Page 21, in the last 12 months, we had a net growth of 136,000 active customers in retail and in particularly, a growth of 41,000 just in the third quarter. And at the same time, we see acceleration of the growth in the number of active customers from micro business or individual entrepreneurs, which grew by 5,000 versus the previous quarter. And the growth of number of customers is also followed by a growth of the payment cards by more than 200,000 in the last 12 months.

Page 22. The high quality of the digital customer experience is enabling the growth of the active user base. I already mentioned, this threshold of 3 million active digital users that was reached in September. This means 3 million customers that log into mobile app or to Millenet on a regular basis. From these active digital users, 70% are mobile-only users. And we see the growth translating into a 6% growth of active digital users and a 9% growth in active mobile users, which already reached over 2.8 million, and a growth of 8% in mobile-only users. So we believe that very soon, we will be celebrating also another threshold of 3 million active mobile users.

On Page 23. We continue to promote convenience, mobility and security as key drivers to -- for our clients to adopt digital solutions. And we are here showing very strong numbers, for example, 2 million e-commerce users in September, making e-commerce transactions, 2.18 million users -- BLIK users in the third quarter, more than 18 million P2P transfers and 260,000 Good Start 300+ applications.

Page 24, we show the share of digital channels in different sales processes, which continues to grow. So for example, 56% digital share in current account acquisition in the third quarter '25. Also 84% digital share in credit card sales, 88% in cash loan sales.

Page 25. Digitalization is also supporting the omnichannel approach. As examples, 30% of customer requests were handled by AI-based solutions, 586,000 orders were authorized at the branches via mobile app instead of physical paper in the third quarter 2025.

On Page 26, we continue to develop our goodie platform and intensifying promotional activities. In this quarter, we would highlight the 29% increase year-on-year on the transaction values made through the goodie cashback and a 25% increase in the number of transactions.

Moving to corporate. Page 27. So we have achieved a double-digit growth of loans to companies and gross loans to companies in the last 12 months, a growth of 12% year-on-year, fueled by 19% growth of loans to companies, 11% growth in factoring and 4% growth in leasing. The origination of loans to companies accelerated to 15% quarter-on-quarter in third quarter '25 with a share of investment loans at 42%. And I would remind that one of our targets is to achieve a higher share of investment loans in our corporate loan portfolio close to 25% by 2028.

Company's deposits have grown 5% quarter-on-quarter and 16% year-on-year. And in terms of transactional activity, we would highlight the stronger growth of factoring that can be seen on Page 28. And growth in the factoring turnover by 11% year-on-year, while leasing sales were still slightly down when compared with last year by 2%.

So these are the most important highlights of our third quarter and 9 months results, and now we will go through the Q&A session. Thank you.

[Dariusz Górski, executive]

Thank you very much, Fernando. Thank you very much for all the questions that we have received so far. We'll be reading them out shortly. To give you a bit of a breathing space, I think we start from Mr. Bras Jorge, and there's a lot of questions about volumes on loan and on the deposit side. Fernando, you will go for questions and prepare for the other ones.

Corporate loan book and corporate loan growth has attracted a lot of attention and a lot of praise, the questions suggest. So I'll start from the first question, which is normal. Corporate loan growth was meaningful quarter-on-quarter. Was there any seasonal effect, one-off? How sustainable can this be going forward?

[Joao Jorge, executive]

There is no seasonality here in this process. We believe that what we should be now expecting is around these levels in the next quarters to come. Sometimes, it's -- we were seeing already this progress in terms of production in the previous, even we said that, although it was not yet visible in the increases of the volumes, we were already seeing the signals. Today, we are already seeing the signals. So we grow more or less 12% corporate credits.

But in terms of production, year-on-year, we have 100% higher than the previous year. Just also to give you a flavor, if we would divide these in terms of ticket size, we would have 1/3 below PLN 30 million, another 1/3 between PLN 30 million and PLN 100 million and then another PLN 30 million higher than PLN 100 million. So it means that we are doing what we explained on the strategy.

So we are working in SME sector, across Poland, supporting 44% of the lending in corporate was then in investment loans. So we are supporting modernization of factories, new warehouses, new technologies, new investments that our customers are done -- doing and across different regions and across also the sectors and the size because it's very important to understand that since the beginning, we were explaining that we would not be the bank of the huge transactions of the national projects, but we would be a bank exploring our close relations with the family business, with the midsized corporate in the different regions in Poland.

[Dariusz Górski, executive]

Thank you. Sticking to corporate business and corporate book. Are you seeing any opportunities to grow your corporate loans portfolio inorganically? What is the plan of expanding activity in the corporate segment as announced earlier versus limited growth in the corporate sector generally in Poland?

[Joao Jorge, executive]

We are capturing our size on our presence, let's call it like that. So it's -- during the recovery plan, we were preserving capital. So we were maintaining the relation but reducing our credit exposure to our customers. Now we are taking it back. So this is -- so even if -- first of all, the sector is growing. So we will see the other banks presenting as well, but there is some growth in the corporate sector. But it's natural that also we would be capturing our own space.

Inorganic is a little bit difficult. So inorganic would be or buying a portfolio or buying a bank specific in corporate, we are much a believer of cost synergies that revenue synergies. But -- so we don't see any space to make a good transaction. Our strategy is different. We explained in the previous sessions also with the analysts and investors that we were dedicating also the most talent teams from IT to develop new workflows of credit to improve the time to yes in the corporate side, that we were reinforcing the analysts and the writers to be able to have also faster time to yes and also that we would improve the Internet services and the payment systems that we have to companies.

So we would go more on this direction. So improving our skills, our tools and exploring this proximity to the customers instead of trying to buy positions in syndicates or to buy portfolios or even to buy something else.

[Dariusz Górski, executive]

Thank you very much. We're moving to mortgage business and mortgage book. In Q3, Millennium returned to quarterly mortgage shares above PLN 1 billion. Do we expect it to remain around this level. Last time the CEO suggested that selling mortgages is not the most profitable business for the bank due to potential bigger risks?

[Joao Jorge, executive]

So there was some improvement in the environment, we believe from one side decision of European Court of Justice. And also, we see the progress in terms of the national group of the substitution of the [indiscernible]. So it's -- I think we explained also that maybe in the previous quarters, we went a little bit too much in terms of the restrictions that we have. At the same time, lower interest rates, there is also more demand. So we are more comfortable now. We need to monitor in still the situation in a proper way, but our risk assessment for the time being is a little bit more positive than it was in the previous quarters in terms of potential of litigation for mortgage in zloty.

We are comfortable to this level. It's between PLN 1 billion to PLN 1.5 billion, maybe even more than PLN 1.5 billion, it could be seen in the future. Of course, it's crucial also that the business to have healthy spreads and good risk criteria, but this is what we are seeing at the moment in the market. So we are comfortable to the level that we are doing and even to do it in the future a little bit higher.

[Dariusz Górski, executive]

Thank you. Another question, which relates to mortgages is on refinancing fixed-rate mortgages. Could you comment on customers' willingness to refinance fixed rate mortgages. It seems to be -- it seems that the process is speeding up.

[Joao Jorge, executive]

So the experience and -- from the customer side, but unfortunately, sometimes even from the authorities about the importance of the mortgage products, but also the importance of the maintenance and respect of the rules and the loss in the long run to have a healthy mortgage business, sometimes it's not the highest in Poland, and there is still a learning process. When we have a fixed rates, it's very important for the customers because it's -- they have known and stable installments to pay. But it's obvious that if the interest rates go up, they are protected. But if the interest rates go down, they have less advantage, and they don't capture immediately at least the benefits of the interest rates going down.

One possibility to do this is trying to refinance, of course, with the falling of interest rates, there is more activity of the refinancing. You know us, when we were starting a long time ago, the negotiations of the settlements in Swiss francs, a lot of times the analysts were asking, but what are the rules, what are the criteria, what are the discounts, what is the FX that you convert? And we were always explaining that each customer is a customer that is a life behind though there is a discussion to find a solution that is good for the both sides. And here is exactly the same.

So it's -- if the customer wants to refinance and wants to discuss with us, and of course, we have the systems and the people capable to do this, we're trying to find what could be renegotiation that is good for both parties, and that could be a reduction, but also a prolongation of the fixed period or can be another solutions. But -- so it's clear that there is an increase of this tendency. And we think it's natural because the interest rates, they decrease a lot. There is still some space. We see it as a terminal rate 3.5% in reference rate of NBP. So let's -- until arrive to this level, probably we will see still right of negotiations or early repayments or something like that.

[Dariusz Górski, executive]

Sorry for this, our translator apparently broke into our line. A bit more -- not philosophical, but a bit more, say, strategic question on mortgages. Where are you in the digital mortgage process? Some banks announced progress here recently.

[Joao Jorge, executive]

Keeping in the philosophical aspect, management is making choices. And it's clear that we made a choice to allocate a lot of resources to corporate side does not mean that we would not develop the digital mortgage process, but it means that in terms of the priority, it's -- it will not be our first priority. We believe that the digital solutions in terms of payments and daily services. It's crucial and brings a lot of advantage. The digital mortgage process is positive. But as you know, there is a lot of limitation.

So if there is only 1 borrower, if there are 2, it's more complex. So it's not a plain vanilla case that we can use for everything. So we believe that we will have a solution in the near future, but I would not say that it is our priority in terms of digital development for services for our customers at the moment.

[Dariusz Górski, executive]

Thank you. Now we're moving to the liability side. Is the 3Q level of corporate deposits sustainable? Or do you expect some reduction in the next quarter or at the end of the year? What was driving the significant quarterly growth in deposits in 3Q, both retail and corporate? Have you increased prices? What is your deposit strategy for the next quarters?

[Joao Jorge, executive]

We do not want to limit our development of the deposits business by the lending. The deposit business per se is a profitable business. It's a combination in the individuals more savings accounts and current accounts. In corporate, it's more current accounts and then deposits and deposits sometimes is some institutions that they have excess of liquidity in a regular basis and then, so they go more looking for coating for time deposits. We didn't change anything in our strategy. There is sometimes some seasonality also in terms of December moment. So there is some seasonalities in the market.

Also in terms of the corporate, the half year or the preparation of the half year, there was a little bit of more competition in the market. And this quarter, we saw it less. So it was -- corporate deposits were at cheaper prices. So we end up to have it in more in a natural basis. But it's important also. So at the same time that we are not having a policy of increasing the time deposits as per se. So it's -- but it's natural for example, we are growing in retailing investment loans in the 30% year-on-year and already for some time.

So it's natural that these customers that are also making their investments with us are also bringing some time deposits with us. But in a regular basis, even this quarter, the growth was more healthy in terms of current accounts, even than the normal time deposits. So no change of strategy, just a natural growth that -- and also with our intention of not limiting the growth of deposits by the loan portfolio. So because the deposit -- the deposits are a strong revenue pool in the Polish banking system.

[Dariusz Górski, executive]

Thank you. Very sorry for keeping or staying in the subject of volumes, but we are very meticulous and devoted to us answering each question, so sorry for that. Last question about the volumes. Any signs of pressure on margins on corporate loans since all banks want to grow in that segment?

[Joao Jorge, executive]

So we see, yes, yes, yes. We see a little bit year-on-year, I don't know if it is 15 basis points or if it is 20 basis points, but there is some pressure in terms of corporate lending. But at least in our bank, we always prefer if it is to make an adjustment to make it in price and to make it in risk. Because when we make it in price, we know that we will charge 15 basis less, and that's it. When it is in risk terms, what we put in jeopardize is 100% of the loans. So it's much better to do it like that. So it's -- we are not a price maker as well. So we are just conquering our space.

So we will take -- we try to differentiate ourselves by the closeness to the customer, understanding their business to be fast. That's why we are so much in medium-sized tickets, but we will operate in the margins of the market. And it's true that we saw this year-on-year decrease of the margins of the market.

[Dariusz Górski, executive]

Thank you. It's now time to bring back Mr. Bicho into the game. So now for a change, let's talk a little bit about the results. What kind of outlook should we expect for the NII in 4Q '25? What is your view on the cost of deposits and loan yields?

[Fernando Bicho, executive]

So first, we are still reporting a relatively low sensitivity of our NII in the next 12 months versus a decrease of the interest rates. So we believe that our NII in the fourth quarter will still be resilient despite the cut of the interest rates that took place in the beginning of October. Of course, there is still a risk of a further cut in November, which, of course, then can have some additional impact.

As we already said, we -- our forecast is that interest rates will go down to 3.5% by mid next year. This is our, let's say, our assumption that this trend will continue. And then we believe that -- and then our assumption is that the interest rates will stabilize at that level of 3.5%. So what we expect is in the fourth quarter still for the NII to be resilient.

And regarding the evolution of deposit costs and loan yields, so starting with the loans, we have part of our loan portfolio at fixed rate, namely more than 40% of the mortgage loan portfolio has a temporary fixed rate, almost all the consumer loans have a fixed rate. So this provides some temporary protection, of course, with the exclusion of these early repayments of the mortgages that are at fixed rate, of course.

On the other side, on the -- we also have a large bond portfolio and part of the bond portfolio is also at fixed rate. And so this also provides some protection for some time against cuts of the interest rates.

Regarding the deposits, we are already showing an adjustment in the average cost of the deposits in the third quarter. So it's already visible, a decrease of 14 basis points just quarter-on-quarter. We know that our cost of deposits still compares a little bit higher than the average, which is -- which has the good side and the bad side. So the best side is that, of course, it is what it is. We are paying a little bit on average -- the average cost nominally seems a little bit higher than the average. But at the same time, it also means that we have more space to decrease going forward.

But the deposits, and especially the savings accounts, promotions that we are doing is also one important way of attracting new customers to the bank. So we cannot see just isolated the pricing of the deposits because this is part of, let's say, a comprehensive strategy of increasing our presence in the -- especially in the retail segment.

So all in all, NII relatively resilient in the fourth quarter. The NIM, the net interest margin will tend to go slowly down. But there is going to be a moment where it also -- we expect that it will be visible that this decrease of the interest rates will start to be offset by growing volumes, especially on the lending side. And so we cannot look at this only from a static perspective. We expect that the acceleration of the loan growth, which, of course, provides higher yields than the bond portfolio will bring sustainability to the levels of the NII and will offset the reductions of the interest rates that we are still forecasting to take place.

[Dariusz Górski, executive]

Thank you. Now interesting question. Higher origination of mortgages did not translate into a growth of portfolio. Amortization seems higher than in the past. What are the main reasons?

[Fernando Bicho, executive]

It's exactly connected with the previous comments. So as interest rates go down, there is a higher -- there is an increase in the early repayments by customers or because -- one of the reason is refinancing. Another reason may be that in the meantime, they have the financial capacity to make early repayment of parts or the whole loans. So this is just something that could be expected when we enter into this cycle of downward trend in terms of the interest rates.

[Dariusz Górski, executive]

Thank you. Consumer protection. In the report, the provision for consumer protection is PLN 45 million. What exactly is included in the PLN 45 million amount?

[Fernando Bicho, executive]

So this is the continuation of the creation of provisions for an open consumer protection-related topic, which was described in the previous report, and it continues to be described in the current financial report, which is connected with so-called unauthorized transactions. This is a pending procedure from the Consumer Protection Authority against basically all the banks. The proceedings are being prolonged in time. In June, we made an assessment of the potential consequences of, let's say, a decision and we booked a provision of PLN 37 million.

In the third quarter, as the process still was not finished and still may be prolonged until the end of the year or even to the beginning of the next year, we made another assessment. We took a more conservative view, and so we increased the provisions by this PLN 45 million. So it's connected with the same situation that was reported in the end of the second quarter.

[Dariusz Górski, executive]

Were there any one-offs in other operating income to offset the PLN 45 million provision for consumer protection? Were there any one-offs in other operating income to offset PLN 45 million consumer protection provision?

[Fernando Bicho, executive]

In other operating income?

[Dariusz Górski, executive]

Other operating items so consumer...

[Fernando Bicho, executive]

No, not that I remember out of the normal. So in the second quarter, there was, but not in the third quarter.

[Dariusz Górski, executive]

Probably the one hint from us is that this other operating cost line, remember, there's also residual FX mortgage related costs. And in 2Q, these costs were in high 60s. In 3Q, they were 20s. So this is offsetting also somewhat this line.

Would you comment about NPL ratio in the corporate segment, reasons for increase in 3Q and subsequent decline? What is the outlook for cost of risk in the corporate segment?

[Fernando Bicho, executive]

Increase in third quarter last year. I don't remember -- I think in third quarter -- third quarter last year, there were 2 isolated cases in 2 nonrelated exposures, which increased the ratio at that time, exactly. The -- so we can say that in the last 12, 24 months. What we have in terms of NPLs in corporate are added isolated cases and not very significant, let's say, very significant cases.

So of course, this also contributed to increase a little bit to the cost of risk for corporate because -- but this is also a consequence of having a relatively smaller corporate business, right, that if we have a smaller corporate business, if we have 1 NPL or 2 NPLs, it's immediate to be noticeable in terms of the cost of risk of the segment. As we will grow, of course, each isolated case, we will not have such visibility as we have now. But as I said, until now, isolated cases in different sectors and for completely different reasons, so we don't extrapolate general deterioration on the corporate loan quality.

[Dariusz Górski, executive]

Moving further down. The question is -- there's also a question about the NII and net interest margin outlook when rates stabilize. But I think you largely covered that unless you want to elaborate? When interest rates stabilize, what sustainable NIM...

[Fernando Bicho, executive]

So as I -- I think -- as I said, the NIM will still tend to go down, but this does not mean that the NII goes now, right? Because we have also the volume -- for example, our situation. We have a loan-to-deposit ratio, which has been decreasing through time. So now at the end of September, we have 58% loan-to-deposit ratio. So it means that we have a lot of gathered deposits which liquidity is being invested in bonds and NBP bills. So obviously, the margin that we are getting from these is smaller than the margin that we would get from loans.

What we expect is that in the future, loan growth will accelerate. And part of this excess of liquidity will be deployed to support lending growth. And this change will be supportive for the NII. Of course, it will be -- it will consume capital, of course, it's not -- no doubt about that, but we'll be supportive to stabilize the NIM.

So the NIM still has some space to go down. So I would say it will be probably going down, still 20, 30 basis points through time. But then there will be a moment where as soon as we will start to, let's say, recycling this excess of the liquidity into lending, this volume effect will stabilize also the NIM. But more important than the NIM, to be honest, for us, is the level of the NII. This is where we are focused. So our main revenue stream, and so far, it's proving extremely resilient.

[Dariusz Górski, executive]

Thank you. Moving to the inevitable still subject of FX mortgages, but more so cost related. I will not read all the questions. There aren't many though. Do you expect FX mortgage provisions to reduce further in 4Q '25? Any tangible guidance for 2026? Do you still expect '25 to be the last year of CHF provisions? How much CHF provision is ahead of us? These are the 2 and we have more.

[Fernando Bicho, executive]

And if we expect to use any positive tax effect to upfront FX mortgage process...

[Dariusz Górski, executive]

This is an interesting question. Yes, yes, yes.

[Fernando Bicho, executive]

So I would try to combine this. So first, the trend continues to follow, let's say, the guidance that we have done in previous periods, namely the overall costs related to the FX mortgage are going down visibly year-on-year. So if we look at the first 9 months of this year, and we compare with the first 9 months of last year, we see that the total gross costs related to FX mortgage decreased by PLN 750 million or 32%. And this includes provisions, related costs, legal office, court costs and so on.

So 32% decrease versus 1 year ago, of which provisions are lower by 12%, but also the provisions now are covering not only the existing court cases, they are also covering additional costs and also future settlements. So there is a visible downward trend, especially when we look at these overall costs.

In terms of quarterly charges of provisions, third quarter was below PLN 400 million, so it was lower than what we have been incurring so far. We do not give guidance on a quarter-by-quarter basis of the level of the provision. So because we did not promise that each quarter, the provisions will be lower than the previous quarter. This for us is not important. For us, what is important is to show that when we will reach the end of 2025 that we can say that we can observe that total costs continue in a downward trend. This is one thing.

And second, and I think more important is to the assessment, how much is still before us to cover in 2026. And so based on the information that we have now, we still believe that 2025 is the last year with significant -- very significant financial impact on our P&L. This does not mean that there will be no cost in 2026, but they will be -- they should be clearly lower than the ones that we are still showing during the current year.

So unless something extraordinary happens in terms of courts, jurisprudence or the law that is being, let's say, divided to be applicable to Swiss franc mortgage loans, which according to the current tax that does not, let's say, create something completely new. So excluding any unknown factor, this should be happening next year.

In terms of fourth quarter of this year, so -- and on another side, we -- of course, we can say that we are interested in getting over the -- this impact as soon as it is possible. So what I can say for now is that the fourth quarter will still be relevant, most likely. Fourth quarter is also the moment of truth, also with the audited accounts. So where we are checking very detailed every single driver and parameter of the methodology that is behind the creation of these provisions. So the fourth quarter, we are not signaling lower provisions than in the third quarter, not at all. What we would like is to in 3 months' time when we will come to present the preliminary results of the first -- of the year to confirm that we still expect this significant decrease of the cost related to FX mortgage during the next year.

It is true that in the fourth quarter, there is going -- if the increase of the tax will be confirmed, which impact, of course, will be very negative for the next year. However, there is -- it implies a revaluation of the deferred tax assets during the -- until the end of this year. So the law is still not finally approved. And we need to make very detailed estimation about the time structure of the DTAs in order to make a proper valuation -- revaluation of the DTA. So we cannot provide now any guidance regarding the number.

What we said is that in our financial report that we published today, so we will carry out this assessment after the act is signed and in the positive financial impact on the net result can be significant, right? So -- but still, we cannot comment on concrete amounts. We are still before more detailed calculations and also seeing the final shape of the law, which should be known until the end of November.

[Dariusz Górski, executive]

Yes. Thank you. So this covers the DTA-related questions but sticking to CHF for a while. There's a question, what other related -- what other costs related to CHF mortgages are there? I would direct you to our front part of the report. There's a lot of details there. They're all remunerated and there are numbers so you can satisfy your first there.

[Fernando Bicho, executive]

Yes. But generally speaking, so we have -- the total costs are broken down between provisions for legal risk, which includes existing court cases, future estimation of court cases, assumptions regarding how many settlements will be done with clients in the court and out of the court, includes additional costs connected with verdicts that invalidated loan agreements, including court related costs, sometimes statutory interest and other costs, cost of legal representation of the claimants and cost of the counter claims that we are obliged to file against the clients in order to protect the original capital and court related costs.

[Dariusz Górski, executive]

Thank you. Now a question, strategic one. Could you update us on your inorganic ambitions? Can they buyout of minorities be possible or a combination with a corporate bank?

[Joao Jorge, executive]

So it's -- in our case, it's -- what can I say on this part? It's just that if a potential transaction in a hypothetical scenario appears to us, we will study with the focus of mainly cost synergies. So we believe in transactions and operations that bring cost synergies, and transactions per se a little bit more difficult to justify, especially because we, as an institution, known by efficiency and digitalization and process-oriented mindset. So this is the value that we bring for the table.

But we don't see these kind of transactions in the horizon. And so meanwhile, what we are focused is in our strategy that so far, so good. So it looks like it's working, at least in the results that we are bringing today. And through that, we pretend to keep bringing value to our shareholders. So the strategy, the name is value and growth. So we bring the growth in terms of the business that will be translating on the value for the shareholders and all the other stakeholders.

But any kind of transaction, the hypothetical, we don't see any space even because we need to -- the transactions that we saw up to now in the market were more a change of shareholders than a real M&A transaction. So it's not -- although very positive because they show the value that the Polish market has and also the high appreciation and the expectations for the Polish economy.

[Dariusz Górski, executive]

Well, you are holding the mic. What prevents Millennium from paying dividend already from '25 earnings?

[Joao Jorge, executive]

So keep this hypothetical. So what would hypothetically prevent could be the leverage ratio. But once again, we were very clear in our strategy that it's clear the plan to apply to the authorities to be authorized to pay dividend in 2027 on the results of '26. This we are extremely committed. And this is clear our target. This is in everything that we do, this is inside.

If besides, of course, the approval of the authorities, KNF, the regulator, but what -- looking for our capital position, different ratios, limitations and everything in hypothetical when we put everything together, the leverage ratio may be.

[Dariusz Górski, executive]

Very clear. Thank you very much.

[Fernando Bicho, executive]

First, of course, each year, we need to wait for the guidelines of the supervisor, right? So in that...

[Unknown Executive]

Yes, you are absolutely right.

[Joao Jorge, executive]

Besides the direct authorization, case by case is also the guidelines of the supervisor for the sector in that year. You are completely right.

[Dariusz Górski, executive]

Gentlemen, the end is nearing. Two questions and one question actually about a very technical on RWA growth. Credit RWA was up 6% quarter-on-quarter, while net loans grew only 1%. What is driving the difference?

[Fernando Bicho, executive]

Yes. It's a fair question. The -- we had an increase of risk-weighted assets over PLN 2 billion in the quarter. And there are 2 drivers. One -- 2 main drivers. One is the lower benefit from securitization transactions than in the past, which are already in amortization period. And so as they -- as we have less loans covered by such securitizations, we have an increase of the risk-weighted assets related to the loans that were under those that securitization. So this immediately is responsible for around the growth -- for around PLN 1 million growth of risk-weighted assets in the quarter.

The other part is connected mainly with the corporate portfolio, which also increased more than PLN 1 billion in terms of risk-weighted assets, mainly as a consequence of the growth of the loan portfolio itself, but also some changes in terms of the risk weights assigned to the consumption of capital assigned to our factoring business due to a combination of changes that were done during this quarter. So these were the 2 drivers for the relatively high increase of RWAs versus the growth of the loan exposure. And of course, the loan portfolio did not grow much because we had still a contraction of the PLN mortgage, which has a very low -- much lower risk-weighted asset -- risk weight.

[Dariusz Górski, executive]

So the mix is changing simply to some extent.

[Fernando Bicho, executive]

Yes.

[Dariusz Górski, executive]

A very unusual question because it relates to goodie, I think we need to ask this question, let me read it and answer. Would you comment about business case behind cashback platform between goodie and BLIK?

[Joao Jorge, executive]

Yes, there is not much to comment. But the service -- the value-added services that we put in the bank systems, are in general, connected with transactions and payments. And so goodie was startup that developed quite well in terms of some smart shopping, namely cashbacks and things like that, discounts, cashbacks and this kind of information. It's an autonomous company. But with the BLIKs, any cooperation makes sense to us because it's connecting payments with advantage and discounts and cashback, so it makes sense.

This is with the digital world, a lot of things. Our customers know that they can pay in our app, they can pay tolls in highways, parkings, top-up telephones and things like that. And this could be an interesting service if then with a proper customer experience.

[Dariusz Górski, executive]

I'm tempted to say that was the last question, but there's one that arrived late. Return to dividends. Do you plan to return to paying dividends with a 30% payout ratio or another level?

[Joao Jorge, executive]

Yes, Fernando says that...

[Fernando Bicho, executive]

So our dividend policy is 35% to 50%. So when we will be able to restart -- I think we would start probably, starting with the...

[Unknown Executive]

Probably with the low very interval...

[Fernando Bicho, executive]

Yes. And then going up even because, of course, as you're seeing, the business growth is developing quite well. And by that, it's natural that things would go up. And so the usage of capital would be well used and also in the developing out of the business.

[Dariusz Górski, executive]

Gentlemen, looks like we covered the vast majority of questions.

[Joao Jorge, executive]

There is here a question about buy now pay later.

[Dariusz Górski, executive]

True, true.

[Joao Jorge, executive]

You don't want me to answer. So because the question is if we are satisfied. And the answer is yes, is not yet. So it's -- so the answer is not yet. Sometimes it takes time, but the first impacts are not so positive as we thought. But also, I remember that the transfers, P2P, when we start in BLIK, also they didn't develop so much as we -- as for example, the payments in e-commerce. And so sometimes the rush moments or the initial moments are not so strong as we were forecasting. So we were forecasting enthusiasm from our customers on that, and we are not seeing that yet.

[Dariusz Górski, executive]

You see IR is being scrutinized by CEO and CFO. So that's Bank Millennium. It's not an easy job as you see yourself. Fernando, maybe...

[Fernando Bicho, executive]

Yes, there's a question about long-term outlook of cost of risk bearing in mind acceleration in SME lending.

I think this year; we still see it very positively in terms of the cost of risk. So after 9 months, we have a cost of risk of 32 basis points over total loans. In the fourth quarter, it is possible that we will conclude another sale of NPLs. Usually, we do 2 transactions per year in the second and fourth quarter. So it's still possible to have another transaction in the fourth quarter. If that will happen, it can be supportive, both for the NPL ratio and for the cost of risk. So we are assuming that this year, we will likely finish not -- lower than 40 basis points over total loans.

And for the next years, of course, we have a gradual change in the structure of the loan portfolio. We can also -- we also do not -- cannot expect forever that sales of NPLs will be so accretive.

So we are assuming that most likely, we will come back to this usual guidance of 40 to 50 basis points of out total loans as time will pass. But this is what we can say for now. When we will enter the new year, we will probably come back to this guidance.

[Dariusz Górski, executive]

Gentlemen, we extended the time of the call over 1 hour. So I think it's time for closing remarks from Joao.

[Joao Jorge, executive]

Very well. So thank you for attending to this conference and also to following the bank and assessing also our results and performance as we have been doing quarter-by-quarter. The results are positive on a year-on-year basis, at least we assess it as that. We are quite confident also for the future. We will have, in terms of tendency as it is known, lower interest rates, probably up to summer next year, stabilizing at 3.5% with a high -- very high probability, higher taxation. From another side, of course, we will have lower costs or much lower costs of Swiss francs. And also the volumes keep growing in retail deposits, customer acquisition, investment funds, recovering on lending and cash loans and mortgage. And also in terms of corporate, we believe that we will not only be able to maintain this pace. But then in the next years to come, even to be able to present higher growth that we are presenting at the moment.

So we are quite confident. We -- in the end of 2024 when we were presenting the strategy in interactions with different analysts and even investors and everything that there was this discussion about it. If the bank would be capable to have the skills and to have the know-how to explore the commercial banking in terms of SME and mid-corporate banking, we have been presenting quarter-by-quarter also with the progress that we are doing in this area, also explaining different systems, recent development, recruiting different people, also deploying the people that was already with us, but that we're working with some constraints in terms of usage of capital.

The results now presented are quite positive. So I think that we are in a moment that we are quite confident about the strategy and we are quite confident about delivering the results and the view and the transformation even of the bank that we presented in our plans for 2028, and we will invite us for the end of the year that will be end of January, yes, with high probability or first days of February, I don't know.

[Dariusz Górski, executive]

We're still due to announce.

[Joao Jorge, executive]

Yes, yes.

[Dariusz Górski, executive]

So you'll hear from us on this matter, hopefully, shortly. Thank you very much, gentlemen. Thank you all for participating. Thank you for your interesting questions. And apologies for the morning issues with dispatching the results. Again, have a good weekend, and speak to you soon. Thank you very much.