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Bank Millennium – improvement in cost efficiency, solid increase in sales of cash loans, unprecedent negative net result for Q3 caused by the cost of credit holidays

24.10.2022

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Consolidated results of the Bank Millennium Capital Group after 3 quarters of 2022.
In Q3 2022 consolidated net result of the Bank Millennium Group amounted to -1,001 mln PLN (-1,264 mln PLN after 3 quarters). The entire loss in Q3 resulted from incorporation, in advance, of costs of credit holidays imposed upon Polish banks in July of the current year. Without the holidays, despite high costs connected with FX mortgage loans and several significant extraordinary items, the Group would book a net profit of 152 mln PLN (743 mln PLN after 3 quarters). This was, at the same time, the second consecutive quarter in which core business results balanced out, with surplus, costs connected with FX mortgage loans.

- In Q3 we achieved negative result in effect of credit holidays but it needs to be stressed that business results are satisfactory and I am quite happy with it. The process of attracting new clients has been exceptionally good and I am convinced that at the beginning of the next year we will achieve our strategic objective for 2024 i.e. 3 mln clients. In a consistent and stable way we have been digitalising ourselves and our clients. Already 2 million people are actively using and regularly log on to the Bank Millennium Mobile Application Despite sales of retail loans clearly slowing down, cash loans increased by 8% q/q to reach the value of 1,5 bn PLN. Deposits recorded increase by 2% - said Mr. Joao Bras Jorge, Chairman of the Bank Millennium Management Board – In corporate banking we have attached high priority to servicing clients with strong relations with the Bank, we have observed increase in use of current account overdrafts and factoring. We are continuously prudent in risk management and implementing Recovery Plan and the Capital Protection Plan in a disciplined manner. First of all we are focusing on implementing projects in line with our effective strategy for 2022-2024.

- We are continuing concluding compositions with CHF mortgage borrowers. The sixth quarter in a row we have concluded with signing ca. 2 thous. compositions, even if some clients filed their cases in courts. In 2022 we signed already 6 631 such composition agreements (2 175 only in Q3), and the number of active FX mortgage loans decreased by more than 7800. In effect, this was the sixth quarter in a row in which reduction of the number of active FX mortgages was higher than inflow of new lawsuits. We will continue our activities within negotiations of compositions with clients – added Joao Bras Jorge

The key developments in 3Q22 that drove the y/y improvement of the results and which, we believe, are particularly worth highlighting are as follows:

  • continuing recovery of NII with 3Q22 bringing y/y growth of 90%;
  • continuing improvement of quarterly NIM (479bps vs. 448bps in 2Q22 and 377bps in 1Q22);;
  • stable loan portfolio (net/gross loans: +2%/2% y/y) with reduction of the FX-mortgage portfolio, lower appetitive for risk and RWA focus taking an increasing toll on q/q growth; retail loan originations slowed compared to 2Q22; disbursements of mortgages in 3Q22 fell to PLN1.4bn and were 19% lower than in the same period last year; in contrast, origination of cash loans improved q/q to PLN1.5bn but was 4% below this in the all-time high 3Q21; on a separate count, gross FX-mortgage book in PLN terms contracted 23% y/y on a combination of repayments, provisioning (in line with IFRS9 most of legal risk provisions are booked against gross value of loans under court proceedings) and amicable settlements; as a result, the share of all FX-mortgages in total gross loans decreased to 10.2% (BM originated only: 9.4%) from 13.6% (12.6%) in the same period last year;
  • improving cost efficiency owing to a combination of a steady increase in the digitalisation of our business and well as relations with clients with strong cost response to revenue pressures; falling headcount (number of active employees down 147 or 2% since 3Q21), ongoing optimisation of our physical distribution network (own branches down by 34 units or 8% in the last twelve months) complemented the increasing share of digital services (digital customers: 2.48 million, up 13% y/y, number of active mobile customers: 2.2 million, up 18% y/y); cost optimisation initiatives helped to control inflation driven growth in opex but also translated into much improved cost efficiency; reported C/I ratio dropped to 32.7% in 3Q22 from 45.2% in the same period last year while C/I ratio excluding BFG/IPS, FV portfolio, costs of amicable settlements offered to FX-mortgage borrower, legal FX-mortgage related costs and netting-off of FX-mortgage provisions on f.EB book eased further to well below 30% mark from c40% in the same period last year;
  • broadly stable loan book quality resulting in a relatively low cost of risk (56bps in 3Q22 vs. 35bps in 2Q22 vs. 40bps in 1Q22) with somewhat divergent trends in quality of retail (slight deterioration, particularly in the non-mortgage part) and corporate books (further improvement) and with no support from NPL sale this quarter; NPL ratio (4.5%) ticked up compared to end of December 2021 (4.4%) and 2Q22 (4.3%) partly due to denominator effect; NPL coverage remained practically intact at 69%;
  • customer deposits customer deposits increased in the quarter (up 2%) with retail deposits up 3% q/q and corporate ones stable; retail deposit mix continued to gradually change with term deposits accounting for 28% at the end of September vs. 15% at YE21; the liquidity of the Bank remained very comfortable with L/D ratio easing to 81%;
  • capital ratios decreased in the quarter (Group TCR: 12.4%/T1: 9.4% vs. 15.2%/12.1% respectively at the end June 2022) to below required minimum levels as highlighted earlier; cost of credit holidays was the main reason for the drop of regulatory capital; negative contribution from valuation of bonds through comprehensive income was lower after the drop of market bond yields; RWAs increased somewhat chiefly due to methodological adjustments;
  • AuM AuM of Millennium TFI and third party funds combined dropped 6% q/q to below PLN6.4 billion with y/y contraction rate at 33%.

Results of the Group are also available here: www.bankmillennium.pl/about-the-bank/investor-relations