Bank Millennium SA

WSE:MIL

Earnings Call Transcript

[Operator]

Welcome again. Welcome to Bank Millennium 4Q '24/2024 Results Presentation. Today's event will be hosted by -- our Chairman of the Board and CEO; and Mr. Fernando Bicho, Deputy Chairman of the Board and CFO. In the interest of time, we know there's a competitive events right after hours. We try to briefly present the results, and then we will obviously be ready to answer all your questions. Over to you.

[Fernando Bicho, executive]

Thank you. Good afternoon. Thank you very much for attending this meeting. As usual, around this time of the year, we present the preliminary results of the previous year. And until the end of February, we will publish the audited financial results. So let me start with the main financial achievements in the fourth quarter and in the year 2024, starting with Page #5. We had in the year 2024, a net profit of PLN 719 million, which represents a 25% growth over the profit of the previous year. If we exclude extraordinary items, both negative and positive in the last 2 years, we would have shown net profit of PLN 3.2 billion, which would represent a growth of 7% versus 2023.

The result was supported by a strong net interest income, which grew 7% year-on-year. And in the fourth quarter grew 1% versus the previous quarter, with the full year 2024 and also fourth quarter '24 net interest margin at the level of 4.35%, excluding the impact of the credit holidays. Core income grew 6% year-on-year, also excluding impact of credit holidays. The reported cost to income was at 37.6% adjusted by extraordinary items at 30.8%. The cost of credit risk was still low and better than expectations at 40 basis points over total loans and the NPL ratio stood at 4.5%. We closed the year with solid levels of capital ratios. The core Tier 1 at the end of December was at 15.1%, and the total capital ratio was at 17.6% which gives a surplus over the minimum requirements over 5 percentage points. In fact, the surplus will be even higher if we would take already into consideration the cancellation of the solo P2R buffer, which was previously at 1.47% and that was eliminated already after a regulatory decision that was received already in January 2025.

Also, worth mentioning is the enrollment of the P2G buffer that we also communicated to the market in December 2024. In this context and reminding that in the third quarter, we had already included in non-funds the result of the first half of the year. In the Shareholders' Meeting of 2025, where we will propose the retention of the full year net profit of 2024, assuming approval of this proposal and incorporation of the second half net profit in two owned funds. This will represent an additional impact of positive impact of 90 basis points in the Tier 1 ratio.

Regarding MREL, we are fulfilling the requirements with a significant surplus. And regarding the new long-term funding ratio, at the end of '24, it was at 28% and still clearly on track to achieve the targeted level in December 2026.

I will skip Page 6 and 7 that present in a snapshot, the key profit and loss items and other key indicators of our activity as they will be shown throughout the presentation. And so I will go directly to Page #8, where we have just a final summary of the implementation of the previous strategy. 2022, 2024 that was called inspired by people, where, as we show, we have outperformed on the majority of the ambitions and most of them even delivered health of the plan. And this happened both on the commercial activity side, where especially we highlight the higher-than-planned growth of the active customer base in retail, and we closed the year already with more than 3.1 million active customers in retail against the target of 3 million.

Also the share of digital customers in the active retail customer base, which already crossed 90% and stood at 92%. The significant growth of the share of digital channels in terms of sales, which was already at 76% in the end of the year. On the financial indicator side, the net profit, excluding extraordinaries, much above also the target, we had PLN 3.2 billion the cost to income at 30.6% on an adjusted basis. And return on equity correct calculated over a conservative base, including all the FX losses that we booked in the past, still very high at 18.5%.

And finally, the NPL ratio also below the original target and stood at 4.5% and the share of FX mortgage loans, which dropped below 10% before the deduction of the legal risk provisions and which was the factor that triggered also this expiration of the P2R buffer that has been imposed in the past on the bank.

Moving to Page 9. Here, we show the evolution of the reported net profit on a quarterly and yearly basis. In the fourth quarter we had a net profit of PLN 173 million. And without extraordinary items, it reached a record level of PLN 904 million, which -- and this represents a growth of 20% versus 1 year before. On a reported basis, as I mentioned before, a growth of 25% of net profit in 2024 on an adjusted basis, a growth of 7%.

On Page 10, we can see more details about the evolution of the net interest income, which without credit holidays was still in an uptrend and grew 7% year-on-year in 2024. And in the fourth quarter, when compared with the previous quarter, the growth was 1%. We also had the final assessment of the cost of the credit holidays, which triggered another release of provision of around PLN 45 million in the fourth quarter. So at the end of the year, the final gross cost of the credit holidays stood at PLN 113 million.

For the improvement of the NII continues to contribute resilient income coming from the loan portfolio, a gradual drop in the average cost of the deposits. And as a consequence, the net interest margin has been quite resilient. And in the fourth quarter stood at 4.37%. On the net fee and commission income, there was in the year, just a small drop of 1%. In the fourth quarter, the drop was a little bit weaker of 5% in which some items such as cars, investment products have largely offset some drop in the bancassurance commissions.

Moving now to the cost side. The trends are the same as in previous quarters. So overall, in the year 2024, we had a growth of total costs by 13% year-on-year, mainly if you were -- by the growth of staff costs by 16% and slower growth of admin costs by 11%. On an adjusted basis, the cost-to-income ratio was at a very similar level of the previous year at 30.8%. Throughout the year, the number of employees was relatively stable, minor changes, and there was a small drop in the number of total branches.

And regarding the asset quality, we had a very good fourth quarter, supported by sales of NPLs that generated pre-tax positive result of PLN 74 million. And this has contributed to the fact that in the fourth quarter, the cost of risk was close to zero, in fact, negative in return and positive in corporate, but overall, close to zero and brought the overall cost of risk in 2024 to 40 basis points of our total loans, which is almost at the same level of the previous year, which was 39 basis points.

In terms of the quality of the portfolio, the sale of NPLs helped to decrease the NPL on the consumer lending side. And -- but overall, the NPL ratio was slightly better at 4.5%. Regarding capital, on Page 13, we already mentioned very solid capital ratios, especially a core Tier 1 of 15.1%. In the quarter, we completed another synthetic securitization transaction, which largely contributed to offset higher risk-weighted assets. I already mentioned the regulatory decisions regarding P2G and P2R and the steel incorporation of the second half net profit will add 90 basis points to the Tier 1 ratio.

CRR3 will have an initial negative impact on the capital ratios. And of course, in the course of time, we will provide those impacts and also to mention that, of course, we are already considering the future introduction of the countercyclical capital buffer in the second half of '25, which will increase capital requirements by 1 percentage point. The important is that this recent decrease of the P2R buffer, we also expect that we'll have positive influence in the MREL requirements later in the year. So as you can see on Page 14, we have now a substantial surplus of MREL Tria over the minimum requirement, almost 8 percentage points surplus. And the -- in terms of the other indicator that also we are now presenting on a regular basis, the long-term funding ratio, we continue to take the steps to achieve the regulatory required level by the end of 2026, mainly through the issuance of covered bonds and we should mention that in 2024, our mortgage bank subsidiary already issued PLN 800 million of covered bonds.

Last but not least, the liquidity position of the bank is very strong. And apart from having an LCR at 370%, we have a very low loan-to-deposit ratio at 64%. Regarding FX mortgage on Page 15. We continue to have an accelerated pace of downsizing of the FX mortgage portfolio. So in Swiss francs, so excluding FX impacts, the portfolio decreased by 26% year-on-year. And when we look at the portfolio, deducting the FX mortgage legal risk provisions, it already represents less than 2% of total gross loans.

Regarding the provisions, as we have previously announced already 2 or 3 weeks ago in the fourth quarter, they were very similar to the previous quarter at PLN 483 million. We finished the year with an outstanding amount of provisions against for legal risk of PLN 7.7 billion, and this represented 122% of the outstanding loan amount. Regarding the recent trends, in the fourth quarter '24, we had the lowest quarterly inflow of new court cases over the last 3 years. And at the same time, it stood below the number of settlements with clients, which reached 1,261 against 1,191 in inflow of court cases.

We continued the significant effort to reach amicable settlements with clients. Overall, since the beginning of this effort, we reached almost 25,900 settlements, which is equivalent to 42% of the number of active agreements that we had at the beginning of the Saga in the end of 2019.

Moving now to the second part of the presentation. And regarding business results and starting with Page 18. On looking at the full year numbers, we would highlight the solid growth of deposits by 9% year-on-year. Consumer loans grew 7%, PLN mortgages 3% and investment funds, significant growth of 35%. We achieved even higher liquidity surplus at over PLN 42 billion from the commercial activity. And the loan-to-deposit ratio at 64%, as I already mentioned. On the other points that are worth mentioning is the number of active retail customers, which reached 3,148,000 of which 92% digitally active.

In terms of sales, also both cash loans, mortgage and leasing had significant growth rates versus the previous year. More details can now be seen starting from Page 19. Looking at the dynamics of the loan portfolio on a net basis, we had an overall growth of 2% or 4% if we exclude FX mortgage loans, which have been decreasing at a very fast pace. And looking at the breakdown we see that PLN mortgage portfolio grew by 3%. Loans to companies grew 5% and consumer loans by 7%. So all this three main categories, we have already single digit, but still already growth.

On the customer deposits, the 9% growth was driven by the 14% growth of retail deposits, while we had a small drop of corporate deposits as we will see later on. And in the investment product is a very strong year with a growth of 35% overall of which for the growth of our Millennium TFI subsidiary grew by 45% of the assets under management that already crossed PLN 11 billion.

On Page 20, looking some additional data on the retail side. The retail customer funds grew by 16%, mainly driven by the growth of investment funds followed by a balanced growth, both of current service accounts and time deposits. The mortgage sales grew by 22% year-on-year, although dropping in the fourth quarter. And in the cash loan sales, the growth was 11% year-on-year with a market share above -- close to 11% in the full year with some drop of origination in the fourth quarter, which is also partially due to seasonality.

On Page 21, we see a steady and solid growth of new customers and accounts of around 30,000 to 40,000 a quarter. So in the full year, we added 146,000 active retail clients on a net basis to our customer base. Also with solid growth on the micro business segment, and of course, then the number of current accounts is following this acquisition of customers with a growth of 180,000 current accounts and a growth of 64,000 clients.

On Page 22, highlights of the several important figures from digital usage. We have now 2.9 million active digital users, which is a growth of 8% year-on-year and they represent 92% of the active customer base. Of this 2.65 million are active mobile app users, which represents a growth of 7% year-on-year. And last but not least, also a 38% increase in the number of [ blik ] users, which stood at PLN 2.16 million in the second half of 2024.

Page 23 summarizes some of the top initiatives in digital in 2024 regarding retail, including the implementation of a currency exchange platform in June, the redesign of the app and the introduction of the [ Big politer ] solution. And on Page 26, the numbers about leak with continuation of the significant increase of active users by 35% and number of transactions made through good cash back service by 50%.

Moving now to the corporate side. The year '24 marks rebound in corporate activity as we made a growth of 5% in loans to companies on a gross basis, which contrasts with the contraction of 8% that we had faced in 2023 when we were still taking significant steps to improve the capital ratios and to reduce the risk-weighted assets. This growth was relatively evenly distributed between loans to companies, which grew 5%, leasing, that also grew 5% and factoring, which grew 7%.

On the company's deposits, they slightly dropped year-on-year by 3%, but actually, the composition is better as we had a growth of 7% in current accounts, while time deposits fell due to tighter price management. In terms of transactions with corporate customers, they continue to increase. We would highlight mainly the growth of 11% in FX transactions as can be seen on Page 28. And in terms of sales, the significant growth of new leasing sales by 24% year-on-year.

Then Pages 29 and 30 summarize a number of initiatives and developments that we have implemented for our corporate banking customers, which is also part of the effort to significantly boost our presence in the corporate segment, and this includes loans with different types of guarantees and also different digital developments that are allowing us, for example, to have much more transactions and services provided through digital channels. The same effort is being done for micro business where also different initiatives are being done in order to implement new services in terms of digital banking, including new value-added services, cash loans and new processes. So we finish here the highlights of the results of the fourth quarter and full year 2024, and now we will go through the questions. Thank you.

[Operator]

Thank you very much. Now it's more of a fun part for the audience and a bit of a heavy lifting for us. And as usual, I suggest you do the heavy lifting, and I can take the light questions if there is any. Okay. I suggest we do FX because they are FX mortgage related because there are just a few, and then we go over to the results. So in terms of FX mortgage questions, let's do the technical one. How much of the 42,300 remain?

[Fernando Bicho, executive]

We have the majority of the loans -- of the repaid loans were repaid until the end of 2014. So the exact proportion, I'm not able to say, but probably around more than 60% or so of the repaid loans were repaid until the end of 2014.

[Operator]

Another technical question, which is actually very obvious. What would be the cost of all the 23,000 mortgages currently in court declared invalid and without the compensation for the use of capital. This is the scenario that is already...

[Fernando Bicho, executive]

The loss that we would have if all the cases that are in the court would be lost because as you remember from the methodology that we are applying, we are creating provisions not only for the loans that are in the court, but also for an estimated number of future court cases that still can come. So it exceeds the amount of the loss that we would have in case we would lose all the cases that are already in the court.

[Operator]

So in other words...

[Fernando Bicho, executive]

I will not enter into the details about what is the amount that we have created for the potential losses connected with future court cases. I will not enter into these type of details. We are not providing these details. But of course, it's obvious that the numbers -- and it's even possible to derive some partially the numbers. But it is obvious that the provision largely exceeds the amount of expected loss of the court cases in case we would lose 100% of them.

[Operator]

Okay. Now a more general question on Swissis. Could 2025 be the last year of material costs related to FX mortgages? And there's a similar question. Do you expect FX provisions to go down in 2025 after the government's new reform?

[Fernando Bicho, executive]

I will start answering and then Jo will complete. I think it is visible from the current report that we issued today that there was a clear drop of provisions for legal risk versus the previous year. So actually, the drop was close to 30%. So when we look -- so from this perspective, the provisions in 2024 were already significantly lower than in the year 2023, where we think that was the year of the peak.

On the other side, it also should be mentioned that at the same time, we faced higher other legal-related costs that are connected also with this problem, which combined made the full impact of the costs connected with FX mortgage to decrease by 9% versus the previous year. So provisions dropped significantly. But overall, the total cost, including legal court related costs and so on, dropped by 9% year-on-year. So our expectation -- and of course, we have to say that a part of these provisions were driven by things that -- by developments that happened during 2024 that we had to provision for. Otherwise, the provisions would have been even lower than what we would have booked. Having said that, we expect unless there is again some negative development on the legal front or any other extraordinary event, if the trends will continue, we expect to have a continuation of this decreasing trend, although the overall cost will still be material during the year 2025. But if nothing else will change, this should be the last year where with a significant impact on the bottom line of the bank.

So this is what we can say based on the recent trends, based on what we are already assuming in our methodology. We always have to leave this note that it is based on no further negative developments or surprises on the, let's call it, legal regulatory side.

[Unknown Executive]

During this process on Swiss francs, we have been always being very clear, trying to not have very complex methodologies, not even creating models. So we always explained that we were assessing the reality, and then we were projecting using the reality. So it's -- as we were losing in the courts, the probability of losing, of course, it's incorporated in the models as we have flows of court cases also, we gain capacity not only to put this in the model, but also to forecast future cases as our methodology have. And we have been always being very clear also the amount that is lost in the court decisions needs to be calculated under the cases that we are having.

So also -- and these have been changing also during the time from penalty interest, for example, from additional commissions. So all of that have been changing. We are very constant. So we have been making provisions and also having the costs in a very regular basis, instead of having once or twice big adjustments to the process. And even on our conversations with the analysts, we have been asking to avoid some metrics. If you remember, not far away, there was this discussion of 100% of the book as if that would be relevant at all. And we were always explaining that this was completely irrelevant -- that was -- this was completely irrelevant. And so it's -- you know what we are doing.

So we are keeping this view of the negotiations. Also in the negotiations, there was a lot of questions all the time, what was the formula, what we were offering. And we were explaining that we have a team of negotiators that we were going case by case, that we would negotiate before the court, in the court, after the court, we were always helping and we believing that the amicable solutions was the best case to unwind all of the saga. And this is what we have been doing.

But mainly, as Fernando said, we believe that our operational work is far away. So there is still even with the new law, if the courts are more easier process faster. It is impossible to change everything from one day to another and suddenly instead of 5 years to be 5 days, this is not possible. So of course, there will be a time that we will have a major decrease and one day, even not financial impacts, but still operational work on that. And we believe that we are reaching the moment that we will see visible decrease of this financial impact.

[Operator]

Modification Okay. Okay. So okay, sticking to still remaining in the subject, there was a question about what is driving other modifications and what outlook do we expect for this line in 2025?

[Fernando Bicho, executive]

So this is partially connected with the FX mortgage agreements. So when we are booking the costs of the negotiations in two lines, depending on concrete characteristics of the proposals, Part of the result is booked in FX results. Part of the cost is booked in FX results. Another part is booked in result on modification and because of some acceleration of negotiations in the fourth quarter, that's why there was a bigger impact in terms of result on modification in the fourth quarter.

Going forward, to be able to say -- this will largely depend on to which extent we will be able to keep the pace of settlements with clients and what will be the distribution depending on the type of negotiations that is being done. So generally speaking, we would say that it will tend to decrease, but we treat this as a part of the cost connected with the FX mortgage. And we say this because the number of active customers continues to decrease at a fast pace. And -- but although partially, this is compensated by settlements during the court proceedings. But so generally speaking, the trend should go down, but it's very difficult to project exactly how much down it can go because it depends on, to which extent we will still be able to sign settlements with customers.

[Operator]

There's also a question about another source of risk, namely PLN risk, you comment? The question is, what do you expect the government/supervision could do about the pending PLN legal risk?

[Unknown Executive]

So the question is we expect -- the word expect and could. So I expect -- I don't expect anything, because we will react to whatever is going to be then, what could do a lot. So the authorities could do a lot. The question is if they're going to do or not. at the moment, the problem is not material. So today in the morning, Fernando said to the press that we had only three decisions, court decisions and the three of them favorable to the banks. However, of course, this is a risk business at the moment or at least an uncertain business. Unfortunately, the spread today, mortgage credit in Poland have a commercial spread higher than 2%.

In Europe, the majority of the markets have below 1%. And this is, of course, embedded the legal risks that today to make a credit agreement to consumers have in Poland. And we are waiting to see a bigger clarification to be able to do a little bit of more of mortgage as well. But I think that we will, meanwhile, also to dedicate more attention to business loans, and this is also according to our strategy, but there is also a lower demand for mortgage loans. So it's a mix between the market and also the lack of activity of the banks versus the uncertainty that they have to make mortgage loans. So it's a kind of a combination.

But we were expecting that the change for the new index would be already done with the government already issuing bonds with the new one, and already with the legislation with the conversion from Vivor to this new index. things are a little bit delayed, but we think that as everything will be done in the proper way, these risks could be -- could or disappear or could increase and then the banks also will take a position what to do because, of course, if we look about the percentage of mortgage or a percentage of loans of families versus GDP compared with the rest of Europe, of course, it's less than 1/3 what we have here in Poland. So the possibilities to finance families, especially in an environment that with low unemployment and a visible increase of real wages is, of course, very big. So there is a huge potential of the market in terms of the credit part for families, but we need a better legal framework.

[Operator]

Capital. What would be the Basel IV impact in first quarter '25? And there's another question one by one.

[Fernando Bicho, executive]

So as in the current report that we published today, we are not putting yet the quantification of the impact, because it's still not totally assessed. I can say that it is negative, but we will probably already when we will present the audited financial statements, which will take place on the 20th. So the incorporation of the second half net profit will add an estimated 90 basis points to our Tier 1 ratio.

So for us, what does it mean? It means that we still continue to be focused on this target of having a Tier 1 ratio around 15%, which was the one that we announced in our strategy. It does not mean that every single quarter will be at 15%. But still, the implementation of CRR3 will not jeopardize this target that we have clearly put in our strategy.

[Operator]

Now moving to results. Market share in mortgages declined further. Is this a bottom? Or would you scale down further?

[Unknown Executive]

Maybe it's a bottom. But as I said, it's -- we also would like to see some clarity. It looks like the working group is finishing above this new index. So it's -- I also don't see -- there is a huge potential, but of course, the potential to be materialized. We need also to see a different environment. As you know, we are not very much a product bank. So we are -- our driving force is customer acquisition. Customer acquisition is, as you know, in every year, we put 150,000 new active customers in our customer base.

Then through cross-selling and upselling, we -- year after year, we increase the relations with these customers under our calculations, it takes around 40 years to maximize the cooperation, but also, of course, the revenues that we are able to have with this relation. And this is our specialization. So we serve our customers on the transfers, credits, deposits, first with the current account, then the time deposits and the savings later on with the investment fund and the pension product. So it's -- this is our philosophy and also our way of working with the customers. So as soon as there is room to do more mortgage, we will be there.

[Operator]

Question, Fernando, to you. What other debt securities apart from [indiscernible] have you invested in and what duration?

[Fernando Bicho, executive]

So we have a huge excess of liquidity, both in Polish zloty and in foreign currency. So we -- in foreign currency, especially in euros, we are also diversifying our bond portfolio by investing in several...

[Unknown Executive]

Our strategy will start to deliver results, and we will see a strong growth in our small, medium companies. And with that, we will have a balance. But it's obvious that one thing we will not do. We said serving the customers also to help them to save is a relevant activity of banking. So it's -- we don't need to use everything in credit.

So it, of course, depends also the cost. But as you know, our major deposits, they came from retail. They came from mass market retail. So it's a composition of current accounts and a little bit of savings account and time deposits. And this needs to be done even if there is not a credit product to be issued. So it's -- if we receive these amounts, they are received in a cost that even if we buy bonds is still very profitable. So that's fine.

[Operator]

Were there any costs related to branch closures in the fourth quarter?

[Unknown Executive]

No, no, no, it's not material -- this kind of costs. Since the beginning, we also explained that we would reduce branches by the trends of the consumers and not as a program to cost cutting. As we have been progressing in our digitalization road map, we have been closing, and we will keep in a very smooth pace to close branches. We call it the digitalization of channels. So as our customer base is also becoming more digital and needing branches. So we will adjust. But there is not, from one side, a big cost, but also there is not a big gain.

So it's -- I would say, it's a smooth process even because you need to remember that with our ambitions in corporate also, we will increase the corporate team, the underwriting team, the compliance team to serve all of these customers. So it will be a balance between the digitalization and optimalization of retail, although serving much more clients and serving much more clients and more transactions and everything, but in a more efficient way. At the same time, also being acquiring midsized corporate customers across Poland, which, of course, will require reinforce of the teams.

[Operator]

Again, a technical question. What was behind bancassurance fee drop in fourth quarter?

[Fernando Bicho, executive]

I think I would remind that first in 2023, we made a transaction where we sold 80% of a subsidiary that provides agency services in terms of selling of insurance. And this agreement started to be implemented, of course, not on the date when it was signed, but sometime later.

So we knew that the commissions from bancassurance just by execution of this agreement in the future would be lower because we sold 80% of that company. This is the number one. Number two, Also, we need to take into consideration that we have also been adjusting to the new recommendation, new guidelines issued by KNF, which entered into force in July '24, July 2024. So there are also -- this also implies some adjustments in the product and some adjustments also in the economics of the product that has also had some impact. So I would say that this is -- these are the main explanations that we -- that are behind this drop.

[Operator]

Remaining in the area of fees, what is your fee outlook for 2025?

[Fernando Bicho, executive]

It's still -- it's flattish, I would say. It can be slightly down, slightly up. But here, we will not yet show a material change. Of course, with the future growth of the business, we expect that also the commission flow may improve with more transactionality, more lending activity and so on, but EUR 70 million EUR 74 million in the sale of the NPLs.

[Operator]

Okay. Moving to the final part of questions, which are outlook related. The usual question, what is the outlook for NII and loan growth in 2025? What segments do you see as most attractive as João part already answered?

[Fernando Bicho, executive]

So maybe I will start. We are -- we have, let's say, cautiously -- cautious but optimistic view regarding NII for 2025 expectation. Of course, I have to say that the recent two quarters were even better than what we were expecting, because originally, we had expected that interest rates also would start to go down already in 2024. They didn't. And so we also, of course, benefited from that. There is also here a question regarding the deposits costs, if we expect them to trend down further. Yes, but it will be, let's say, gradual adjustments. It's not, let's say, big moves that we expect here. But if interest rates will go down, of course, the deposit costs will also tend to go down.

[Operator]

Cost of risk, subject which did not appear frequently. Cost of risk remains below the midterm guidance. Any reason why it should increase in 2025?

[Fernando Bicho, executive]

There is always a reason that as we will change the mix of the loan portfolio, even if the -- each portfolio cost of risk would not change, there would be a change overall for the bank. Of course, it will be something gradual. But as we will increase the share of corporate in total loans, and we will decrease the share of mortgage in total loans.

By definition, there should be some increase in the cost of risk. Traditionally, we always said that we expect cost of risk around between 50 to 60 basis points. Actually, during the last 2 years, we -- it was much better. It was at around 40. The sales of NPLs were also relevant to put this cost of risk lower than expected. But I would say that our base scenario continues to be somewhere around 50 to 60 basis points, although for the time being, the outlook is quite benign and can be further supported in case interest rates will start to go down.

[Operator]

There's also a question on the outlook for costs, IB OpEx, meaning an IB without BFG.

[Fernando Bicho, executive]

So that in the next 2 or 3 years, we should face lower legal-related costs, right? So we know that there will be a moment where part of the, let's say, recurrent cost growth will start to be offset by dropping, let's say, legal-related costs. Again, it's -- we will have to monitor this. It's very difficult to say precisely from which moment in time it will start to go down. But in summary, we still expect double-digit growth. But if nothing would change and also with the inflation starting to go down again this year, we would expect that then, 2026 will be already a year of single digit. And we cannot forget also that the strategy that we announced implies some additional costs. So it's not an investment. So it's not possible to, let's say, to decrease costs at the same time that we have such an ambitious strategy.

[Joao Jorge, executive]

And still on the regulatory framework, there are also some indirect costs that the banks are obliged and rightly so to comply. So, it's in terms of know your customer and land proper mechanisms for the sanctions, in terms of reinforcement of cyber security, all now of the resilience of the operations from door and everything. So it's -- these are constant, backup systems to be able to be online to have these backups for customers and everything.

So it's clear that this will keep consuming investments. And this is a process that, of course, from one side, we try to have more clean process, to have more lean systems to reduce the offers as well to have less products, less complexity. But of course, this is a process that all the banking system will keep investing and we will keep reinforcing especially in some areas of Europe that are more target, and so they need to be more robust.

[Operator]

Okay. It looks like we finally -- I mean, we got into the end of the question. And as usual, Fernando draws the last question which he considers we did not answer. Okay. So there's a question about so-called free credit sanction. Question is -- excuse me, let me find it. Could you provide update on SK, so free loan sanction loans? How many -- as of fourth quarter '24, what was the value of claims? How many final verdicts lost and how many won?

[Fernando Bicho, executive]

So in the audited financial statements that we will publish on the 24th of February, we will provide more details about the different litigations, including this one. So we will have the, let's say, the update of the numbers that we already published in the previous quarters. I can refer to, let's say, to the preliminary numbers. So -- but please take them as preliminary because they are still not audited. So -- but in -- at the end of December, we had around 1,300 lawsuits in -- regarding this free credit sanction and of which we -- and then from those that were already decided, which were around 124, we won 106.

So these are the statistics, let's say, that I can already mention in advance. Of course, it's a topic that we are paying special attention, and we will be providing regular updates to the market each quarter about the status. But so far, these are -- this is the results. So we have this number of cases and around...

[Operator]

I believe we got to the end of the list in case you think otherwise or you think we failed in addressing the questions or explaining our numbers, obviously, do please call us and contact us. Otherwise, it's time for closing remarks.

[Joao Jorge, executive]

Okay. This is the moment that I try to get you out of some ratios and some numbers. Of course, your job, and we understand very well is trying to assess the valuation of the existing company. And our job is to explain what is the intrinsic value of what the company does planning in the future. So as you know well, we have in 2022, a very difficult year. So it was the year when the combined credit holidays, completely unjustified and unpredictable law with the Swiss franc Saga made us break the capital ratios and start a recovery plan.

2023, it was a year where we combine the execution of the recovery plan with all the actions some more visibles like the issuing of MREL bonds, some less visible as the daily management of risk-weighted assets in terms of corporate, but it was a time that we were executing the recovery plan, but simultaneously also going through our strategy and our commercial approach. 2024, it's a year that we are very proud because from one side, we [indiscernible] a recovery plan. It looks like it was a long, long time ago, but it was just before the summer.

We finished the year delivering as it shows in the presentation, the strategy goals that we had for the strategy of 2024, namely the profitability, the growth in terms of customer base, the digitalization road map, even the risk parts with reducing below 10% the share of the Swiss franc portfolio in the total credits. And besides that, it's very visible how profitable is the business model of the bank. So we have PLN 3.2 billion as, let's call it, profit from the business. So when it adjust from extraordinary items. And this was achieved. So even this growth versus last year in the year where we had operating with 1% less in interest rates than 2023. So this is extremely good.

We launched the new strategy that we presented in October to all of you. We are now moving very fast on this strategy. A lot of things that we planned to do, they were already executed, migration of the companies, the small companies that were in retail, joining with the small companies that we have in corporate, building a new segment of micro companies that we are going to serve better, and we have big expectations on that. All the improvements in terms of corporate, building new teams, but also building a new workflow of credit that allow us -- that will allow us to serve better our customers and also speed up the credit development in SME.

And at the same time, also, as you know, the ones at least that operate in Poland, we also reinforce our value propositions for the affluent clients with a new account, with a new offer, very well received. So we are, I would say, commercially, we are presenting the results of last year, but commercially, we are already leaving 2025 with a very good beginning of the year, and we believe that we will be able to show during the next quarters also already some signals of the new strategy and the commercial activity that we are doing.

[Operator]

Thank you very much, Joao. Thank you very much, Fernando. Speaking of the next events, you may know that our first quarter results release is scheduled for the 12th of May. We also will have a corporate event, namely AGM, which [Technical Difficulty].