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Edited Transcript of PEO.WA earnings conference call or presentation 7-Aug-19 10:00am GMT

Half Year 2019 Bank Polska Kasa Opieki SA Earnings Call

Warsaw Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank Polska Kasa Opieki SA earnings conference call or presentation Wednesday, August 7, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michal Krupinski

Bank Polska Kasa Opieki S.A. - President of Management Board

* Pawel Rzezniczak

Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group

* Tomasz Kubiak

Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division

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Conference Call Participants

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* Kamil Stolarski

Santander Brokerage Poland, Research Division - Head of Equity Research

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Presentation

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Pawel Rzezniczak, Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group [1]

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So good afternoon, everyone. Welcome those joining us here at our corporate headquarters in Warsaw and also joining us on the line today. Welcome, everyone, to Pekao Q2 2019 results conference. As always, we are joined by Michal Krupinski, our CEO of Bank Pekao; as well as Tomasz Kubiak, CFO.

So without any hesitation, let's kick off on the presentation. I will pass over to Michal Krupinski to run us through the results in more detail.

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [2]

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Sure. Yes. Welcome, everyone, and also those joining on the line. Good afternoon. We had very robust results in the second quarter, very good results in half, in the first half year. We delivered 11% recurring profit growth. And we have returned to double-digit ROE achieved in the second quarter, ROE of 10.1%. What is very important for us today is to show you that we delivered very strong and increasing expansion in lending volumes. We're growing lending volumes by 9% and 12% commercial revenue growth. We are convinced we have delivered on volume and growth expansion, and we think that those positive trends will be sustained and strengthened over the coming quarters.

Strong growth in lending, commercial revenue growth and net profit is -- has been achieved with a very big focus on cost dynamic. We are growing our costs below inflation, below CPI inflation. And this is despite of the fact that we have a transformational this -- yes, this year, we're investing a lot in both internal back-office transformation as well as we have shown an ability to launch a lot of products in the spirit of being the leader in digital transformation and leader in digital channels this year. I will come back to that in a minute. So very good progress as regards digital transformation. Overall, we are happy. We think the results are very good and robust and give us a good foundation for further growth this year as well as within the lifetime of our strategy.

So 11% on Page 4. Positive jaws are in effect. So we are growing operating -- we are growing revenues much faster than cost, and that's why we have almost double-digit, 9% increase in operating profit growth. As been said earlier, robust double-digit expansion in lending, a lot of tangible actions executed as regards our transformation this year.

Turning to retail and private banking. We are growing significantly in key products such as mortgage and consumer loans, growth of 17%. We are becoming market leader in merchant acquiring, almost 100% growth in sales of point-of-sales, so we are big foundation of a program for cashless Poland. We have also launched an interesting initiative where you can actually acquire point-of-sales at our branches.

Strong growth as regards micro clients, almost 30% sales growth with respect to micro clients. We are increasing penetration of bancassurance product by 75%

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Left-hand side, this shows you increase in growth of current accounts. Two messages here. First, we have actually upgraded our level of ambition. We aim to open 0.5 million new current accounts this year, which will be a very good foundation going forward, and we will use the ability to up-sell customers and clients. The bank is becoming more and more acquisitive across the product lines.

Big focus on younger clientele. We are growing 26% with respect to the younger clientele, and we've been able to change demographics as regards our younger clientele. This quarter we have also launched a new card, which we called Revolutionary Card, not to be confused with other cards offered by fintechs. We are currently a clear market leader, 700,000 credit cards sold and first place in different rankings.

As regards digital banking, I would like to draw your attention to the fact that we have increased the number of active clients by 21%. The definition is unique client with at least 1 log-in over the period of 3 months. We currently have almost 1.4 million. We are growing 22% with respect to consumer loans, offering digital channels. Almost 40% is already offered in digital channels. We were the first bank in Poland and one of the first in Europe to have offered a opportunity to open your current accounts both for retail and small businesses through selfie and this is actually playing out very well. We have invested a lot in the payment app, lot of different features offered, new functionalities, transactions approval, click cash payment for customers, chat functionality. This is -- there's a very big focus to invest in our payment app. We believe this will be a key determinant of our competitive advantage going forward. And we have a unique innovation -- we're a very innovative bank, and innovation in our case is measured by time-to-market, so we have a very quick time-to-market in this regard. This means we can, first of all, increase the NPS. We have been increasing the NPS. We have been increasing the perception of us being an innovative bank, including for younger customers and clients. Second of all, this gives us a chance to release additional resources in traditional channels, including the branch network.

As regards corporate and SME banking, again, very good double-digit growth in SME and MID, this is supported by a very strong corporate pipeline, big focus on profitability and cross-sell. We are growing, in particular, with respect to our midsized clients, almost 20% growth SMEs, leasing factor in growing -- leasing growing at 35%. This is record growth in the industry. This gives us a chance to get a better cross-sell and increase revenue per client and increase revenue per relationship manager, very much in the spirit and in line with our strategy.

As regards the most important deals, we have maintained a perception of being a truly international bank, expert in most sophisticated transactions, including leverage buyouts, ability to underwrite big financings for market leaders in Poland as well as a big focus on more important strategic projects for our clients, including debt corporate, debt capital market, syndicating financing. We have also been leading with respect to sustainability. I would like to draw your attention to the fact that we are part of a consortium financing the largest wind farm in Poland as well as our cooperation with IFIs, including EBRD, EIB. We have been offering very interesting pilot projects for clients together with IFIs that want to increase efficiency, energy efficiency, and we will continue to do so. We will invest even more and expand our balance sheet and capital in green projects.

So strategies, is underway. And I wanted to spend a couple of time and some time in 5 or 6 slides on why we believe, first of all, in the Polish macro, and second of all, why we believe in the successful implementation of our strategy until the end. We are currently halfway through our strategy. So first of all, we think there's still a convergence story with respect to Polish macro. Macro has been driven -- GDP growth has been driven by consumption, first of all. We believe that 4.5% GDP growth is possible. There will be some leveling out going forward in 2020, but we still think there is, first of all, big household consumption. Second, despite of an increase in recent years with respect to wages, as you know, wages has been growing by double digits in the Polish economy, there's the potential for catch up.

As regards levels of debt, both for households and more significantly for companies, for corporates, there is still a lot of potential for catch up. What we put here on Slide 10 is a comparison between Poland, other CEE countries as well as average in the EU and we think that this gives us space for even further growth. Of course, the employment ratio will be a challenge, giving change in demographics as well as something that we have been also watching carefully that always plays to our advantage is sustainability of pickup in private investments. So this is also something that we have been watching very, very carefully. But we think we have strong pipeline in corporate banking, and this is reflected by the strong GDP growth as well as pickup in private investments.

Strategic initiatives that support further revenue growth, we are convinced with the results today. We are showing an increased revenue growth as well as propensity and potential for further revenue growth. We think the strategic initiatives will support, first of all, revenue growth; second of all, operational effectiveness. And across the different product lines and across the different areas of activity of our bank, we have delivered on a number of initiatives. There's still a long way to go in terms of, first of all, current actions as well as targets. So going to a retail bank, we have been spending a lot of time implementing a better motivational scheme for our sales force, and we think this is at work, a better rhythm for sales, support tools, that support both sales as well as the time to decision on the risk side. Such projects normally lead to an increase in efficiency, measured by retail revenue per FTE of 30%, and we aim to achieve it in 2020 given the current strategic project that we have.

On the corporate banking side, there's streamlining of processes. There's delayering, including both retail and corporate. We have been able to lower the number of regions that we cover, lower the number of people in the hierarchy. We have delayered the organization, and actually, what we have done is already bearing fruit. There's a greater focus on marking clients' needs. There's a greater focus on better network coverage and acquisition of new clients, both in retail as well as in corporate banking. We think this will mean an increase in efficiency measured by corporate revenue per client of around 20% next year and will even further support growth as regards revenue.

We are ready with open eye, open API. We are -- we have been spending time digitalizing postsale documentation, which should give an additional boost as regards enhancement of our digital offer, increase of time in -- decrease of time in terms of real time processing. The overall philosophy is streamlining of processes, better client experience, simplification, and this is something that we have been spending quite a lot of time as regards our digital banking offering.

On business efficiency, we have implemented, as you know, as you very well know, group redundancies. We have centralized back-office functions. There's a greater streamlining and consolidation of our group structure. We used to have 4 brokerage licensees. Now it will be done within the bank, all of the brokerage activities. This is not an area that as you very well know, given technological changes and situation of global capital markets that would grow spectacularly. And that's why we need to focus on costs. We have around 50 initiatives for non-HR costs. And we will also be focusing, going forward, in the next quarters on even further optimization of both unnecessary bureaucracy and red tape and the processes, to speed up processes, but also HR costs.

And last but not least, this is very important. We are introducing new fast track for loans starting with retail loans but also SME and corporate. We are of the view, and I am personally particularly convinced, that banks in an increasing way will be competing by time to yes, as regards risk decisions. So we are doing our utmost to speed up the credit risk workflow, shorten time to decision. This is what our clients both on retail, particularly SMEs, micro companies expect from us. And this gives us a new unique opportunity to first of all, have better profitability, better customer acquisition, a very big focus on the risk workflow. And we think though all of those changes will support even a stronger revenue growth and even a stronger operational effectiveness and cost discipline going forward.

As regards acquisition, again, we are growing almost 20% on new current accounts, 20% in SME and mid-clients, big increase in -- good growth in consumer loans volume. We think this will speed up going forward. Also, thanks to the processes that we have implemented on the risk side, a strong almost 20% growth with respect to mid-corporates increase in cross-sell.

Again, big focus on digital, as regards mobile active clients but also launch sales through click, through digital channels. We have, as you very well know, downsized the number of branches. We have increased revenues per FTE. We have downsized the number of full-time employees. And we will continue to review both branch network through ways of geolocalization as well as we will further focus on optimization of our HR costs up until to 2020.

So we, as I said, we are halfway in our strategy. When you look at the final slide for me at this point, Slide 13, we had assumed a CAGR of 7% to 8% growth. As regards loan volume, we're growing faster by 9%. We had assumed commercial revenues to grow at least 10%. We are growing, in fact, at 12%. We keep costs below CPI inflation, and we will continue to keep costs next year below CPI inflation, which will give us a good expectation to fulfill one of our most important targets within the strategy, which is cost to income below 40% and as of end of next year. We have been able to keep cost of risk under control. I know Tomasz will also talk about it. We still -- we believe we will end this year at, say, 40 to 45 basis points area. We didn't have significant one-offs. We maintain very prudent with respect to both actual decisions on the risk side as well as overall risk appetites going forward.

As regards profitability and guidance, we want to grow -- we want to have profit higher than last year's profit this year. This is despite of, first of all, BFG charges; second of all, despite of restructuring provisions. And we want to meet the target of PLN 3 billion net profit next year, which would give us an ROE of 12.5%. (foreign language) which meaning that the rates become flat.

So to sum up, very good quarter, robust results, strong loan growth, and -- which we think will grow even faster. Very good growth momentum, we have been able to do it without increasing cost and without increase in cost of risk guidance.

Thank you very much. Tomasz, over to you for specific results.

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [3]

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Thank you very much, Michal. So looking at the net profit itself on equal basis, so we have a dynamic of more or less 11% year-over-year, both looking at the quarter and half year results. We are very happy about this quarter, I think very good acceleration of dynamic of revenues, costs under control and also cost of risk under control. So all items going the right way. One, one-off event in this quarter, provision of PLN 85 million of -- related with redundancy, something that was already published in the current report.

If we look at the contributors of that, revenues were growing the speed of 7%. If we look quarter, quarters, year-over-year, with the costs actually at the level of 1%, excluding the effect of the provisions. So having this put together, we have the positive jaws effect, which contributes to our gross profits growing actually double digit, both after 6 months and looking at the quarters.

If we look at the speed of the revenues, the main driver of the growth of revenues is our core business activity. That was a great quarter for corporate. They have increased significantly the revenues, both in terms of loan volumes, but also with the FX business with cross-sell. So corporate after 6 months is growing with a speed of 13%. Retail is not slowing down, so they're keeping the double-digit base of growth of revenues 11%, and SME with a base of 9%.

What part of revenues was dropping, it was mainly related with the financial markets activity, so we have simply much less sale of IFRS in this half of the year versus what we had previously. And we had a systematic repricing of our bond yield, which actually stabilized in the first and second quarter. So it reached more or less a level of 2% of, if you look at the whole portfolio, so not much for the future of debt repricing will take place. So we're at the bottom, one could say. But those are the 2 elements that actually slow down the total growth of the revenues to have core revenues at the level of almost 7.5%. But the commercial growth of the business is the key driver of our results.

Now in net interest income, looking from the accounting side, grew by 9% year-over-year and almost 10% looking at the quarter. NIM was flat during this quarter. This is because, actually, if you look at the quarterly dynamics of the volumes, there was equal growth of retail and corporate loans. Simply, corporate has speeded up a little bit in the corporate growth, practically as it was anticipated. In the next quarter, we will continue an improvement in the NIM side, which year-over-year increased by 4 business points. We are guiding at least 1 basis point per quarter, both from the asset mix but also from the repricing of the deposits, which we expect to bring FX in the next quarters.

Looking at the volumes. What I already anticipated, retail growing at the speed of 8%, corporate 11 -- sorry, 10%, and corporate at 8%. And if you look at the quarter, the dynamics they are close, so corporate has speeded up, growing mainly in the core segments with a 10% growth in key products.

On the saving sides, we are growing very nicely in retail, so a 13% year-over-year dynamic in detail volumes and also a 6% dynamic in mutual fund business, assets under management, which means that despite, I would say tough market conditions, we are still growing the assets under management.

On corporate, we are very much working on the pricing, so we are acquiring all the business on the current account. But in terms of term deposits, big tickets, we, for sure, have optimized very much the pricing in the last quarters, which should help us in the following quarters in improving NIM.

Fees are growing by 2.6% year-over-year. There are 3 big drivers of the fee growth. One is the FX business, so this is related with cross-sell. And here, I think the target is to have a double-digit growth throughout the whole period. We are also growing in lending fees quite a lot and in the card business. All those fees are growing very nicely. The fees that are going down are related with the brokerage activity mainly, and the mutual fund decrease in fees in asset management as well as in current accounts, especially on the retail side.

In terms of costs, we are keeping costs under control. So despite spending money for the transformational projects, we are managing to achieve savings both on the HR and non-HR cost side. So overall, without the impact of provisions last year and this year on the redundancy as well as voluntary leave program, we would grow cost by 1.2%, 1.3% year-over-year. So as it was anticipated, we managed to finance investments with savings.

Risk. Risk remains under control. Cost of risk on, since the beginning of the year, is around 40 basis points. This quarter, 47, but that's nothing specific. It's more a type of prudent approach on, let's say, putting additional provisions throughout the whole portfolio. No individual case is significant cases impacting our ability. So here, everything in line with what we were guiding since the beginning of the year. NPL ratio, increasing coverage a little bit -- sorry, NPL decreasing, coverage increasing a little bit. And of course, the hot topic of the Swiss franc portfolios. Here, please remember that this is not our problem, so we have more or less PLN 3 billion of total Swiss franc loans. But if you decompose those into the index, so I would say the most toxic in terms of what we are -- what is being discussed, we have PLN 12 million of indexed loans, so this is 0.4 of the whole Swiss franc portfolio. The remaining part is denominated, so we're talking about 20 new agreements, in fact.

Capital ratios. Tier 1, 15.8%. Total capital ratio after including the full subordinated debt where we have already the consent of the regulator would be 17.6%. Loans to deposits, safe, below 100% and LCR at more or less 120%, with NSFR 127%. So very safe balance sheet, no negative tendencies here.

I think this is everything from our side. So as Michal was saying, that was a very good quarter not only from the transformation side and the customer, but also financial side. Speed up in revenues growth, speed up in volumes, costs under control, prudent approach to cost of risk, which is also under control. We are heading for realizing our strategic targets. Thank you.

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Pawel Rzezniczak, Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group [4]

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Thank you. Thank you, Michal. Thank you, Tomasz. As always, after the main part of the presentation, we would like to invite for the questions, first, for those joining us here in Warsaw and then also questions from those on the line.

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Questions and Answers

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Unidentified Analyst, [1]

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Maybe one question about your guidance for this year and for the next year when it comes to net profit. My rough calculation suggests that you need to report like about PLN 700 million of net profit for the third quarter and the fourth quarter, and further grow by PLN 700 million to get the PLN 3 billion next year. And my question is what could -- what would be the biggest drivers behind this massive growth in net profit?

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [2]

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Sure. So first of all, as you know, we are, and as Michal was saying, we are finalizing now our transformational projects. So this is related with phase 4 effectiveness, this is related with client value management in corporate and new operational (inaudible) brands. So and actually, in the third and the fourth quarter this year, we are doing internal pilots of -- for dedicated regions and for dedicated areas, and we are running a full scope implementation during -- for the next year. This, for sure, will be a big booster in the growth of the revenues and then a much bigger efficiency in business and much faster growth or a speed up in growth versus what we see today. This will be, of course, fueled by a lot of tools that are being implemented. This relates to credit risk workflow. This relates also to pricing tools. This relates to all the tools that are supporting the business for -- including management information and including compensation systems. So it's a lot of tools that are being concurrently implemented, finalized, tested that will be boosting the revenues next year.

The second element is the cost optimization. So a lot of -- we've been running a project this year to identify a lot of savings, both on the head office and outside. That's streamlining of process that's looking for a lot of saving both of the HR and non-HR side. And all those initiatives are being currently implemented, they will run at full scope next year. It requires very simple things sometimes, like implementing the duplex in some of the printing, the massive printing devices, but it also includes more sophisticated things like in-sourcing some type of activities where we are, this year, building competencies, hiring people, which we are able to in-source certain activities, and then next year we will not have the cost of outsourcing. So a lot of cost optimization actions will allow to practically keep even I will say flat costs year-over-year.

The third thing is BFG. We have been hit very much by BFG this year, for sure, are unproportionately versus our balance sheet, our size and our exposures and our risk exposures. We, I'd say, understand what are the impacts. And they are, I would say, in an H, one-off. So we expect that the BFG for the sector will grow next year, maybe even probably even double digit. But in our case, we expect a decrease in the costs of BFG even up to PLN 100 million. So those are -- and the last element is, of course, keeping cost of risk under control. We were assuming up to 50 basis points the cost of risk, so a speed up in revenues. We will not have those elements related with repricing of the portfolio of ones that we have this year and so on, which was -- because they are just like close to 2%, so there, it doesn't have too much downside risk. We will have a stronger growth in the business for sure, and we will keep costs under control.

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Pawel Rzezniczak, Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group [3]

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Any more questions?

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Unidentified Analyst, [4]

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Maybe one more question from me, about the cost of risk in the second quarter. We observed some increase in the corporate segment. I guess can you comment on this, whether this is some sector specific provisions or some, let's say, single exposures?

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [5]

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No, it's not anything specific on a single segment. It's more, I would say, a more prudent type of approach to -- so building up a little bit provisions throughout the portfolio, increasing the coverage. Let's put it like this. Of course, it sometimes refers to a few names concentrated, maybe more concentrated in the construction and building sector than in other, but generally, throughout the portfolio. This is in line, let's say, to what we were anticipating. I remember that, speaking about the first quarter, I said, please don't keep this cost of risk as something that will be sustainable, but please also don't panic when the cost of risk is closer to 50 basis points. That's a normal type of quarterly cyclicality, but generally, everything in line where -- with what we were guiding.

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Unidentified Analyst, [6]

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Can you explain and maybe just share with us your thoughts about deposit trade cut and the impact on your NIM that you were mentioning during the...

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [7]

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Well, we see our competitors which are decreasing pricing in deposits, some of -- both on retail and corporate. We have also been trying to do that in the last, let's say, months. This is something that started at the end of last year, but we are continuing this both on the retail side and corporate side. And that kind of optimization was giving some, let's say potential for, say probably 1 bps NIM improvement in the next quarter and maybe in the following where more and more deposits to price.

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Unidentified Analyst, [8]

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But the guidance about the NIM didn't change over last few quarters, but the deposit declining rates, we were hearing I think the first time you mentioned that. And the repricing started yet in this quarter or last month's -- last quarter. What is the offsetting factor on your NIM then?

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [9]

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Well, there were -- first of all, the decrease of the bonds, this is on the yield of the bond. And this is, let's say the yield of the bond portfolio went down year-over-year by like 20, 30 basis points to a level of -- when talking about the full scope. So this is an element, for sure, which was touching the NIM. Second, if you look at quarter-over-quarter, at least in this quarter, you don't have the impact of the asset mix that much because retail is growing at a pace more or less similar to corporate, 2.5% versus 2.2% if you look just for those 2 quarters. Of course, in the long term, our strategy is to grow faster in retail and to concentrate on the higher risk to return in yielding assets, but we are having great pipelines this year in corporate, and we are taking the occasion to pick the growth, of course, concentrating very much on the prudent risk management in this area.

So this quarter, for example, the asset mix was not helping on the asset side. In the longer term of course, it will, adding up on the deposits, and the bonds will no longer be, let's say, pulling that down.

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Unidentified Analyst, [10]

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Just a question on Slide #29 and your improvement in margin on mortgages that you shoulder year-on-year. My question would be what was the starting level comparing to the sector margin at Pekao SA? Were you above or below or just in line with the sector, when -- where you see...

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [11]

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There is no big discrepancy between banks because this is a market which is almost partly covered by intermediaries. So people have the occasion to compare and you are not improving. What we are doing because we are improving our pricing tools, so to measure -- to better include in the pricing the levels of the earnings or the LTDs of the clients and to more, let's say, change the margin within that scope to better benefit low-risk customers and to correctly price higher-risk customers within those segments and this is allowing for some improvements in the yield.

There are of course, banks which are touching different segments of mortgage loans, so much more risky. There are probably banks such -- in niche segments where the margins on the mortgages can be up to 3%. But in normal business, let's say, the largest 3, 4 banks are probably touching the levels closer to 2% in terms of the margin on mortgages.

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Unidentified Analyst, [12]

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And just a question both the average ticket of the consumer loan.

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [13]

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Well, that is something which doesn't significantly grow in our case or is more or less stable. So we are more concentrating now in the consumer loan segment on the pricing. So we are reviewing also this risk to risk return and looking at the ability of the customers. The risk profile, we are adjusting very much pricing there and concentrating a lot of that on the pricing, particularly, but not increasing risk, I'll say.

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Unidentified Analyst, [14]

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Could you comment, how do you currently perceive the sector risks, especially linked to the FX mortgages and the 2, let's say, list at troubled banks involved?

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [15]

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Yes. So of course, we are watching the development. As regards the potential verdict from the ECJ, as we have shown here, this is marginal for us. I think with Slide 11, which shows you the index related FX loans, and this is, indeed, we are talking about very select, very small number of cases. We are not experts in European law, although I did work in European institutions and studied European law at some point. I think there are better experts, including here in the room. But we will continue to watch the situation related to that carefully. We do not expect regulatory burden to increase. And we think we have reached a steady state as regards with tax, for example. We hope there will be some alleviation as regards resolution fund contributions that Tomasz has just referred to for next year, and this is based on also our changing asset mix. As you know, we were hit quite hard because of a large number of corporate deposits back in 2017. So giving the change in assets mix, we think there will be an alleviation of at least PLN 100 million to us. We are not in any discussions as regards potential mergers or acquisitions, notwithstanding the -- some of the targets that you probably had in mind.

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Unidentified Analyst, [16]

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(inaudible) I would like to ask question about relationship Bank Pekao with small and big business, especially in the area which where a lot of company during the last 20 year was bankrupt because of low level of technology and other reason. For a country, it's very important to establish a lot of organization, business organization, small or a little more. And I would like ask, is there a strategy of the bank supporting that area, maybe special way of supporting to establish new organization, business organization.

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [17]

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So first of all, we are members of many business organizations, including Poland-wide and specific regional business of chamber, chamber of business. Second of all, our SME strategies had worked. We had wished we could grow faster, but we don't want to grow faster unless all of the systems are implemented, including credit workflow. So we think there's still a lot of potential in our SME business. There's still a lot of untapped potential in micro. As you know, this constitutes the largest value for one of the largest untapped value pools in the Polish banking sector. So to the previous question on our, say growth prospects but also guidance for 2020, we will be spending an increasing amount of time on cash loans where we do not match the industry yet as it includes both tenders as well as average ticket size. This needs -- there is some learning by doing, so we need to have all the systems in place in order to match the growth of some of our competitors. I will not mention their names. And it's the same for our micro and SME clients. As soon as all systems are in place, which will be in the next 3 to 4 quarter, we would, 3 or 4 quarters for -- across the bank, we will be able to release additional resources but also grow at a much higher pace.

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Kamil Stolarski, Santander Brokerage Poland, Research Division - Head of Equity Research [18]

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I have -- Kamil Stolarski, Santander. I have a question on loan growth output for 2020 because it seems that this year net interest income was mostly driven by loan growth, and you keep going at simulate at (inaudible) retail and corporate. And even though, do you still -- do you expect this loan to grow, to slow down or go up, taking into account your risk appetite and what you see on the market?

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [19]

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So this year we were saying even up to 10% loan growth and we are close to that, taking into account the good conditions. During next year, retail, probably sustainable, double-digit growth. Corporate, high growth in core segments. So in MID segment especially and easing probably and so on. With -- and then large corporate will largely depend on the appetite, your underinvestment and so on.

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Kamil Stolarski, Santander Brokerage Poland, Research Division - Head of Equity Research [20]

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Question on costs. I don't know if I understood correctly, but the guidance is for flat cost in 2020?

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [21]

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Yes. So we might achieve flat costs if we realize all the saving ambitions that -- and if all the -- our saving realization will work out, that they will even more than compensate the growth of the cost that is related with both strategic programs implementation as well as normal inflationary raises.

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Kamil Stolarski, Santander Brokerage Poland, Research Division - Head of Equity Research [22]

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Can you please remind the guidance for the impact on, just on the cost coming from those, these layoffs? That could mean...

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [23]

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It was a cost -- it was an impact of up to PLN 100 million.

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Kamil Stolarski, Santander Brokerage Poland, Research Division - Head of Equity Research [24]

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And then the potential outcome from these 50 non-HR initiatives, do you have any estimate for...

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Tomasz Kubiak, Bank Polska Kasa Opieki S.A. - VP of the Management Board of Financial Division [25]

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It's somewhere between PLN 50 million and PLN 80 million.

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Kamil Stolarski, Santander Brokerage Poland, Research Division - Head of Equity Research [26]

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My final question is on Alior bank, because the share price is, let's say, 40% below it was a year ago when you called out the -- when you said you are not interested, would you be interested at the current -- is there any topic right now?

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [27]

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So if you want a short answer, the answer is no. We are not interested. It was a strategic on our -- I think it was the right decision. We are doing very well on the stand-alone basis. We had expected at the time, 2 years ago, when we started discussions that we can speed up transformation process through a, that the potential merger could be a catalyst. It was not achievable given conditions, and we don't regret it. And we are doing very well, I think, as regards both results and underlying transformation. So we are not in any discussions with any bank on potential merger or acquisition.

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Pawel Rzezniczak, Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group [28]

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Do we have any more questions here in the room?

I guess no, and we are either in a lucky or unlucky position, but we don't have any more questions on the line. Blame it for holiday season or busy reporting calendar today in European banking sector. But looks like most of the questions that were on the line were covered already by guests in the room. So for my side, as always, invite any additional questions to the IR team here at Pekao and the usual contacts. Thank you, and I would like to pass also for the final remarks to our CEO.

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [29]

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No, once again, thank you very much. I think we are delivering on the strategy. We have proven very robust revenue growth, which, in my view, will increase furthermore, while maintaining cost discipline as well as sustainable cost of risks.

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Pawel Rzezniczak, Bank Polska Kasa Opieki S.A. - Head of IR, Strategy & Corporate Development Group [30]

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Thank you very much.

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Michal Krupinski, Bank Polska Kasa Opieki S.A. - President of Management Board [31]

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Thank you.