Santander Bank Polska SA

WSE:SPL

Q1-2025 Earnings Call

[Agnieszka Dowzycka, executive]

Good morning. My name is Agnieszka Dowzycka, I'm Head of Investor Relations at Santander Bank Polska. I'd like to welcome you at the presentation of financial results of Santander Bank Polska for the first quarter of 2025. Today's presentation will be presented by Michal Gajewski, CEO; Maciej Reluga, CFO; and Wojciech Skalski, the Management Board member in charge of the Financial Accounting and Control division.

Before we start, I'd like to remind you that during the presentation, you can ask questions through the link online and also by sending the e-mail directly to my e-mail address. So now let me hand over to our CEO.

[Michal Gajewski, executive]

[Interpreted] Good morning, Michal Gajewski speaking. Welcome at the presentation of the financial results after the first quarter. We have had good months, both in terms of financial performance and implementation of our strategy that brings tangible benefits to our customers, employees and shareholders. Moving on to the results. In quarter 1, we generated the profit before tax of PLN 2.3 billion by our tax and regulatory charges were over PLN 1.1 billion. The group's net profit was PLN 1.7 billion.

Let's go to Slide 7 with general operational data. Just to remind you, as a group, we provide services to over 7.5 million customers. The number of digital customers keeps growing. Currently, in the group, we have 4.5 million of [indiscernible] customers and 3.7 million of our customers use our mobile banking application.

In Santander Bank Polska alone, we have 6 million customers. And as I said, the number of digital customers has grown by nearly 7%, year-on-year. And we have a double-digit growth in the number of mobile banking customers by nearly 11%. Customer deposits grew by 13% and amounted to PLN 237 billion. The gross loan portfolio year-on-year grew by 8% to over PLN 182 billion. Customer funds totaled PLN 314 billion and grew by 12%. The customer funds totaled PLN 262 billion, growing by 13%.

In Slide 8, you can see key financial results and the key items, as I already said, the group's net profit in quarter 1 was over PLN 1.7 billion. Net interest income was PLN 3.6 billion, up by 6% year-on-year. Net fee income totaled PLN 748 billion and grew by 3% quarter-on-quarter and year-on-year. So the total income was PLN 4.4 billion, up by 7% year-on-year. Our capital position remains high. Return on equity for the group was 19.5% we have excellent liquidity. The consolidated LCR was over 209%.

Slides 10 to 12, you can see that our activities across all business segments and new products for customers, but I would like to go straight to Slide 13 to talk a bit about selected business data. Let's start with retail banking. We operate 4.8 million accounts for individual customers, up by 4% versus the previous year, and we opened 113,000 personal accounts in Polish Zloty. Cash loans, very good sales performance, 15% more than in the previous year, PLN 2.9 billion. Lots of cash loans. Mortgage loans.

We sold mortgage loans worth PLN 1.6 billion. It's a weaker result than the previous year, but we know that the market has been much weaker than in the previous year. When it comes to mortgage loans, it is worth saying that almost 97% of new sales was based on an adjustable fixed rate. So the total share of loans with an adjustable fixed rate in the entire PLN mortgage loan portfolio grew to 44%. And just to remind you, in December 2024, it was 42%.

In quarter 1, net investment fund sales was PLN 500 million as Santander TFI fund assets at the end of quarter 1 were about PLN 24.3 billion. So our market share is maintained at the level of around 10%. In the SME segment, we opened over 20,000 business accounts, much more than in the previous year. We have also good performance in terms of SME loan sales, PLN 1.3 billion. Lease sales also recorded a very good performance, PLN 1.2 billion to SMEs.

When it comes to business and corporate banking, we have also double-digit growth, new credit limit sales up by 22%. Credit volume grew by 12%. FX income was also very strong. In the corporate and investment banking, we have a double-digit growth, 23% in the ECM services. And we also recorded a significant growth of 12% year-on-year in the treasury transaction.

In Slide 15, I have already talked about loans. In this slide, you can see individual business segments that contribute to an increase of 8% year-on-year and 1% quarter-on-quarter in gross loans at the consolidated level. Customer funds, Slide 16. Just to remind you, our customer deposits increased by 13%, which amounted to over PLN 237 billion at the end of March.

Now Slide #17, net interest income and margin. And in quarter 1 net interest margin was PLN 3.6 billion, growing by 6%. In quarter 1, we had the slight decrease. Year-on-year, the interest income grew by 8%, while interest expense increased by 11%. The net interest margin in quarter 2 annualized on a quarterly basis totaled 5.14% despite the slight decline is still high. It was negatively impacted by the growth in the balance sheet as a result of the inflow of [indiscernible] margins and a slight decline of income on assets in the foreign currency assets as a result of lower exchange rates.

Slide #18, net fee income. We record here growth, which makes us very happy. The net fee income totaled PLN 748 million, growing by 3%. Year-on-year, we saw really good growth and provisions from management fees on the asset management up 14%, insurance fees and brokerage fees, which grew by 80%. I also mentioned that we had a good growth in account fees in quarter 1 and by 11%, which is driven by the number of transactions made by our clients. So this growth is worth noting. -- especially as we have not changed our prices at all. So this is all driven by the level of activity of our customers.

Total income. Slide 18, it is PLN 4.4 billion growing by 7% year-on-year. On a quarterly basis, the income is flat. Slide 12 presents operating costs. In quarter 1, the cost totaled PLN 1.5 billion, growing by 14%. This is the result of higher contributions to the banking guarantee fund. To remind you, in the last year, in quarter 1, we paid contributions to PLN 206 million in that levy. So that's the growth.

If we compare to the previous quarter, the total cost having excluded the regulatory cost decreased by 2% -- of course, these costs were driven by inflation and the salary review. The staff cost increased by 7% year-on-year, but despite that, the operational effectiveness ratio, that is the cost-to-income ratio of the group is 34.8% and for the bank alone, it is 34.3%. So it's a really robust one.

Slide #21 outlines, loan loss provision. It was a good quarter. The net balance of loan loss provisions on a consolidated basis was PLN 252 million. A year ago, it was PLN 232 million. The cost of credit risk is 60 basis points. The net balance of provisions in quarter 1 was 9% lower than the net balance a year ago. And this is the effect of continuing good quality of our loan portfolios. We also sold part of our credit receivables worth nearly PLN 500 million and the gain on that transaction was PLN 18.7 million.

The risk indicators remain at a satisfactory level in our opinion. The nonperforming loans account for 4.3% of the total portfolio, and there were no one-off events that would have an impact on our net balance of loan loss provision.

Slide #22 shortly summarizes the banking taxes the regulatory cost. And as I mentioned, the regulatory costs totaled 1.1 billion in quarter 1. So to sum it up, Slide 23. We think that quarter 1 was a really good one for the bank. We kept our interest income at a good level. We improved the net fee income. As I said, we are particularly happy with fees earned on the number of transactions our clients make, transactional fees, credit and insurance fees. And let me reiterate that it was without any changes to our pricing.

And it makes us optimistic when it comes to the activity levels of our customers. When it comes to our business operations, we recorded good sales volumes, which indicate further development opportunities, and they are -- they bode well. So that's my presentation. And now let's go to the question-and-answer session.

[Agnieszka Dowzycka, executive]

[Interpreted] We have some questions. We have the first questions. And [indiscernible] would you like to start?

[Unknown Executive]

[Interpreted] The first one, when it comes to the Swiss francs and the adequacy of our provisions as for Swiss francs exposure, let me remind you that at the level of the bank, its 137% and 126% for the group in our opinion, this is adequate and sufficient level. Is it worth speaking -- we've been also been tracking the number of lawsuits.

I might not remember, but at the end of the last year, the number of lawsuits was 21,537 and now it's 21,519. So the number is lower than at the end of quarter 4. So this is a clear decline. Okay. That's about Swiss franc. While the question referring to our Minister of regional funds and the windfall tax on banks. We do not comment what the politicians say, especially in the election campaigns. We will not be commenting on what the minister said macroeconomic [indiscernible]

Well, the one question refers to potential impact of trade tariffs on both loans and the quality of assets as well as other elements. I'm just sorry for being so [indiscernible] it was just an English question. We are not changing our macro scenarios. And let us remember that the negative potential impact of the trade war, we have a positive impact of changes in the fiscal policy in Europe, especially in Germany. So we cannot see any changes and probably the risk is down.

When it comes to corporate lending for a few quarters, there has been quite a decent growth that we recorded. And quarter 1 is always a bit weaker. This is because we are -- but we are optimistic about growing in upcoming quarters from the risk perspective angle, we wouldn't like to suggest that it should be worse, and we expect that this relatively low level that we recorded in the first quarter will continue. There shouldn't be any major changes. We should be within the ranges indicated in the strategy.

[Unknown Analyst]

[Interpreted] The another macroeconomic question refers to the outlook for interest rates and for the coming years and has it changed in the recent 3 months. And there's also a question about the changes in the U.S. tariffs will have an impact on us.

[Unknown Executive]

[Interpreted] Our view on interest rate change in the short term because since the last conference of NBP's governor, Mr. Glapinski, they cut and was shifted, and we might see even the first cut in next week in May. And third, we expected that in July. But the cuts overall, we have not changed our outlook for the level. So it will be rather sooner than much more or more in the deeper cuts. So if the risks for the growth materialized earlier in the inflation outlook was different, then we might see deeper cuts.

But our in-house view is that interest rates will be a bit higher than what is priced in by the market at the moment. But let's wait for another conference for the decisions taken by the Monetary Policy Council in May. And let's see what's next.

[Unknown Analyst]

[Interpreted] We also have a question about NII and the sensitivity of the net interest income. And there were a couple of questions about indicators?

[Unknown Executive]

[Interpreted] NII and the sensitivity of the net interest income. Every quarter, we provide the statistics on their share of fixed rate loans in total loans. And as you know, for a couple of recent quarters, our strategy of reduced sensitivity has been pursued. At the end of 2023, the share of loans with a fixed rate was in the order of 30%. At the end of March, it is 52%. So it's over 50% and it has been growing bit by bit quarter-on-quarter for the recent couple of years. Of course, this is the result of a couple of elements.

There is a bigger share of fixed trade loans sold in currencies and this is also the result of our strategy of hedging against the interest rate cuts. And we do it via IRF. As a result, the sensitivity to interest rate cuts and to the interest rate cuts today is a little bit about PLN 300 million, PLN 320 million. And I'm talking about the cut of 100 basis points cut against the fixed balance sheet value. In the meantime, there are more questions.

[Unknown Analyst]

[Interpreted] Growth in loans portfolio?

[Unknown Executive]

[Interpreted] So I have mentioned how the portfolio grew in quarter 1. Today, we are not providing you with any forecast, but we have the pipeline of loans. We have a lot of credit agreements that we've been signing. So the demand is high. Of course, we expected that due to the EU funds and public, private investments. And we can see also the same in the leases that the demand has been growing. We have been a strong leader in 2024 in this area. And we aim at keeping that top 1 position. And I think that in this area, we have a competitive edge over other banks.

When it comes to our position with respect to the purchase of Santander by Erste Bank, I can only repeat what we published in our comments. Banco Santander confirmed that a few entities have been interested in buying Santander Bank Poland and that Banco Santander is in talks with Erste Group. But of course, it has been also highlighted that it is not certain whether the agreement will be reached. So that's the only comment I can make today.

If you want to read more, please refer to the -- to our communication.

[Unknown Analyst]

[Interpreted] And there was a question about the outlook for the bank for 2025.

[Unknown Executive]

[Interpreted] It is very good despite the turmoil in the worldwide economy, we think that the Polish economy is resilient and Polish consumers and Polish businesses are able to manage their businesses also in uncertain times. And we think that this translates into positive outlook of the financial sector. So let's go back to interest rates because there have been a few questions about that as well. The long-term funding ratio, how much is it? At the end of March, it was 44%.

[Unknown Analyst]

[Interpreted] Next question, what is the NII, slightly above 4.40 more or less? Has our hedging strategy changed given what is priced in by the market? And one more question about deposits? What the cause of an increase in term deposits? Has the bank implemented any special offer?

[Unknown Executive]

[Interpreted] So now maybe hedging strategy, let's start with that. I told you what we've done in the first quarter. Our strategy remains flexible. So we are continuing that and the scale of our activities depends on what happens on the market. And we are very flexible in that matter.

Growth and deposits. As Michal said during his presentation, while discussing NIM, we had an increase in term deposits. We provide services to our customers in line with our offer. There was some increase. And of course, those term deposits are a bit more expensive and all of that leads to a lower margin, but we have not made any special offers. We had a special offer for savings accounts, but this contributes to interest income, and this contributes to better relationship with our customers. Do we have anything else?

Sensitivity, once again, do we have any more questions, Agnieszka?

[Agnieszka Dowzycka, executive]

No, I cannot see any more questions. I think that you covered everything.

Okay. So thank you. Please read the report for more details or contact us if you have any more questions, and have a nice long weekend.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]