Bank Millennium - positive net result and significant improvement of capital ratios in Q4 2022

- In Q4, despite high costs related to the portfolio of mortgage loans in foreign currencies, we achieved the long-awaited positive net result (+249 mln PLN), which shows the strength of the Bank's core business. I believe that this is the beginning of a return to sustainable profitability and a swift completion of the Recovery Plan and the Capital Conservation Plan. In the process of rebuilding the Bank's capital position, we use existing internal resources – we pursue business goals, we have made two synthetic securitisations of the portfolio of corporate receivables and SMEs, we benefit from the reduction of capital requirements by KNF. As a result, capital ratios returned to levels significantly exceeding the required minimums. We focus on the implementation of the business strategy for 2022-24. We have implemented several important initiatives, and the vast majority of indicators monitoring the achievement of objectives indicate a positive trend. We are on the right track to keep the promises made in the strategy – said Joao Bras Jorge, Chairman of the Management Board of Bank Millennium.

- We are still open to individually negotiated amicable solutions with mortgage borrowers in CHF. In 2022, we concluded 7943 settlements (1312 in Q4), and since the beginning of 2020, when the process was launched on a large scale, nearly 18000 settlements. As a result, the number of active foreign currency mortgage loans decreased in 2022 by nearly 9600 (there are now 38011), which is a very good result in an extremely unfavourable environment – added Joao Bras Jorge.

The following developments in Q4 2022 in our opinion, worth underscoring:

• NII adjusted for cost of credit holidays marginally contracted in q/q terms after six consecutive quarters of q/q growth; y/y growth was at robust 63% but started to decelerate;

• quarterly NIM contracted to 463bps from 479bps in 3Q22 mainly due to higher cost of deposits; asset yield continued to improve although at slower pace;

• slightly contracting loan portfolio (net/gross loans: -3%/-2% y/y) with the biggest 7% q/q drop in the corporate segment (generally lower risk appetite, this quarter amplified by early repayments, disposals and write-offs); retail portfolio was down 2% q/q and down 3% y/y with falling mortgages being the reason; credit holidays, low origination (4Q22: PLN0.9bn, FY22: PLN6.6bn, down 34% y/y) and early repayments undermined PLN mortgages, while FX-mortgage continued to shrink (-30% y/y, -15% q/q) on a combination of FX movements, 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 8.9% (BM originated only: 8.1%) from 12.4% (11.4%) in the same period last year; non-mortgage retail portfolio was marginally up q/q and y/y owing partly to relatively stable production of cash loans (4Q22: PLN1.4bn, FY22: PLN5.4bn, down 3% y/y);

• high 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; stable headcount (number of active employees up 80 or 1% since 4Q21), ongoing optimisation of the 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: 2.52 million, up 11% y/y, number of active mobile customers: 2.24 million, up 17% 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 (excl. cost of credit holidays) was below 33% in 4Q22 compared to 47% in the same period last year while adjusted C/I ratio (excl. credit holidays and costs related to FX-mortgages) remained low at close to 30% compared to 47% in the same period last year;

• broadly stable loan book quality (NPL ratio of 4.45% at YE22 vs. 4.54% at the end of September’22) with cost of risk remaining moderate (45bps vs. 56bps in 3Q22 and at 44bps in FY22) owing partly to NPL sales (4Q22: PLN45mn pre-tax); trends in quality differed somewhat in the main segments but the denominator effect (decreasing value of gross loans) played more significant role this time; retail segment saw a slight uptick of the NPL ratio despite the sale of NPLs but the value of stage 3 actually decreased in the period; in contrast corporate segment saw NPL ratio dropping to 3.1% from 3.8% at the end of September’22 following a repayments / disposals and write-offs of credit exposures; NPL coverage improved to nearly 70% from 69% at the end of 3Q22;

• customer deposits were flat in the quarter with retail deposits up 3% q/q and corporate ones down 5%; retail deposit mix continued to gradually change with term deposits accounting for 29% at the end of December’22 vs. 15% at YE21; the liquidity of the Bank remained very comfortable with L/D ratio easing further to 78%;

• capital ratios significantly improved (Group TCR: 14.4%/T1: 11.3% vs. 12.4%/9.4% respectively at the end September 2022) and were back above required minimum levels as highlighted earlier; positive net result for the period (and consequently a decrease of the ytd loss), much improved valuation of the bond portfolio and last but not least a significant 8% q/q drop in RWAs (securitisation transaction reducing RWA >PLN1bn and reduction of corporate credit exposures) contributed the most;

• AuM of Millennium TFI and third party funds combined were marginally up q/q and crossed the PLN6.4bn with y/y contraction rate slowing to 28%.

Results of the Group are also available here: Investors relations - about the Bank- Bank Millenniumlink otwiera się w nowym oknie