Powszechna Kasa Oszczednosci Bank Polski Spólka Akcyjna (PKO) Earnings Call Transcript
August 13, 2026
Earnings Call Speaker Segments
Good afternoon. I appreciate if you could mute as we hear some about this background. So again, let me welcome you at the follow-up call following our Q2 results. We have quite strong team on our side with Jakub Niesluchowski, who will take majority of questions and [indiscernible] answering our topics concerning macro. As usual, we suggest to go straight to Q&A session. We have the formal presentation 3 hours ago. So we are ready for your questions. Gabor please.
Can we confirm your messaging on net interest margin, please? What I gathered from your comments earlier was that it's in a positive trend and you see possible upside going forward, if you could confirm that and elaborate. And just on the Q2 dynamics, this 4 basis point expansion in the clean NIM, can you elaborate on what drove that? I noticed then a drop in your hedge derivative costs. But yes, any further color would be useful.
Jakub, if you could.
Yes, sure. Gabor. So just to confirm and maybe reiterate how we see the NIM going forward for this year because for this year, what also Piotr indicated, we assume that our NIM -- sorry, interest rates will be at 3.75%. And with this assumption, and we work with this assumption in the context of NIM that the NIM adjusted NIM for second quarter, as you saw, is slightly higher, this 4 bps higher than in the first quarter. For the next 2 quarters, we see that the NIM -- we are now in the stabilization phase or period of NIM in the context -- as I look in the context of next 2 quarters. So it might be slight changes of NIM. I refer here to 43%, so these adjusted levels by a few bps. So not, I would say, very significant moves. So here, I will call maybe stabilization. And in this context, what we commented also management and Board commented, we expect that the NII will be flat with positive upside for the whole year of 2026 in comparison to 2025 due to stabilization of NIM and growth of our balance sheet. So this how we see going forward for the third and fourth quarter, NIM around the level which we had -- adjusted level, which we had for the second quarter, maybe with some changes by a few bps. And in the context, what you mentioned and asked actually the change of NIM, adjusted NIM in the quarter. One is, of course, volume growth and further optimization of deposit base, as you also seen significant decrease of cost of hedging. And so these are, I would say, the main points which allow us or areas which allow us to increase the NIM, adjusted NIM quarter-to-quarter.
We have [indiscernible] sorry, [indiscernible], you were the first one, please?
First of all, congratulations to the results also for the volume growth. I have a couple of questions. Maybe I will ask them one by one, if that's not a problem. First one on volume. Again, I think this question has already been asked today, but very strong volumes, double-digit growth this year is almost certain. But the question is, what are your expectation for the next couple of quarters? I mean -- and how much do you think in terms of corporate lending, how much of this growth is related fully to the EU funds, safe funds and so on? And how long can it last? -- for how many years? I mean, what is the second round effects on, for example, smaller companies? Because I guess, a material part of the demand currently comes from larger companies. So general, volume growth over the next couple of quarters and drivers.
Here, maybe I will ask [indiscernible] first to comment on the general market perspective.
Yes. So we see growing demand in all the segments actually. And recently, at least in our books, there has been double-digit growth in all the segments as regards corporate lending. And we believe it may be continued going forward, and it is not related only to utilization of EU funds and growing crowding in effect instead of crowding out effect that was visible earlier. There are other factors driving investment activity in the Polish economy stronger other than utilization of EU funds. And we believe it will last maybe not only for the next few quarters, but even for years. And we also see cyclical recovery in Western Europe, in the euro area. Monthly data for the last few months from major European economies have been encouraging. So we believe that key export markets for Poland will be doing better. So we also believe in cyclical recovery of investment activity in the private sector in Poland. So we see many reasons to expect continued solid, at least high single-digit growth of corporate loans in Poland over the next few -- next few quarters or even years. And we don't think it is related only or mostly to utilization of your funds. And please remember that the recovery fund for Poland, availability of the recovery fund for Poland will not end by the end of this year. The loan part of the recovery fund will be still utilized beyond 2026, and there will be some additional funding needed for projects confounded by the loan part of the recovery fund. So we don't expect any sudden stop of the lending activity in the corporate segment. On the contrary, we think that even with somewhat lower annual growth rate for total investments in the Polish economy that we expect for the next year, for this year, 10% for the next year, around 2%. Even with such lower growth rate for total fixed investments, we believe corporate loans may be growing at least as strongly as this year.
Yes. And if you look also what [indiscernible] actually showed you during the conference at the Page #8 of our presentation, so the corporate lending for next year is projected for 6.5% in comparison to 6.8% for this year. So there is no, I would say, major change in this context. And if you look on our activities, so we crossed when we also showed 17% market share financing for corporate customers. And also in the context of our strategic goals, we have appetite for more. So for sure, this is also one of our priority, as we also indicated during our conference. So we have -- we want to balance our activity between retail and corporate. So for sure, there's also attention and focus on the corporate to not stop. What is, of course, encouraging on our side, it's very high increase year-to-year of investment loans, which we also shown in the presentation. And for the large corps, not the biggest one, but large corps is 35% year-to-year. So it's very significant. And this also allowed us actually to have such significant growth of corporate lending year-to-year.
Yes. Second question is on net interest margin. Correct me if I'm wrong, but you have an assumption of interest rate in Poland next year at 3%. Is that right? That's correct.
So we assume that after the transitory increase of the inflation rate later this year and in the first 2 months of 2027, later on, inflation will quickly go back to the target of 2.5% and even below in the second half of 2025. And that's why we think that contrary to what the market is pricing in, if you look at FRA curve, the Polish Monetary Policy Council will not hike rates. later this year or in 2027, but will resume rate cuts in the course of 2027. And we assume 3 rate cuts of 25 basis points each starting from May 2027. And we believe, again, contrary to market expectations that the risks to this scenario are tilted to the downside. And we do not expect that the Polish MPC could consider a rate cut, a single rate cut as soon as in September this year at the nearest meeting before the wave of inflation increase in later months of 2026. So that's our view on rates. Baseline scenario is free rate cuts by 75 basis points in total in the course of 2027, driving the reference rate to 3%.
Okay. And in that scenario, what will be your net interest margin at the end of the period? I mean what is your current sensitivity, whether this is higher or lower than it used to be, also given the fact that you quite significantly reduced the cost of deposits at the end of the quarter?
Yes. Okay. So first, in the context of our sensitivity, what we actually show and present a static one, meaning for 1-year horizon. So in the second quarter was [ EUR 488 million ], but please remember that it is static and shift by 100 basis points. And now we are starting the process of planning for the next year 2027. And -- but assuming what [indiscernible] said that and forecast that we will go down from 375% to 3% -- of course, there are many variables here. On the one hand side, what will be positively worked is hedging because if you look from, I would say, nominal point of view, over 50% of our balance sheet is hedged, natural hedge in the form of mortgage loans, now even consumer loans, securities and also hedging with derivatives. So of course, it will roll positive. So for now, what I can say is if we'll have this 75 basis point guide in 2027, we still see the margin will be above 4% in 2027.
Yes. Understood. And last detailed questions on the second quarter results. First is on personnel costs. The headcount is up 2% year-over-year. Costs are -- HR costs are also 2% year-over-year, which means that basically the average salary is flat. So is it related to, I don't know, no hikes this year or some other bonuses assumptions? And what is the expectation for the second half of the year?
So what we actually from a few years, introduced to be from the -- also employees' point of view, more predictable from the management point of view, yearly revision of remuneration. Of course, always the scale depends on the many variables, but it's also perceived for this year. Actually, we are now in the middle of this process. So what you can expect starting from end of third quarter and then fourth quarter, increase of personnel expenses also due to the verification of remuneration of our employees.
And last question from my side is on provision releases in mortgages. It was the seventh consecutive quarter with releases here. So what is the outlook? Do you still have some kind of ammunition here to release the provisions?
Actually, it's hard to, I would say, now predict because it's not necessarily, I would say, plan that each quarter will release provisions provisioning there. It also will depend on the performance of the portfolio.
[indiscernible], please.
I have 3, and I think the last one would be pretty straightforward and simple one. So just starting with the corporate side of the business. Just trying to understand your loans are growing at a rapid pace. In last few quarters, your customer deposits aren't growing in the same vein. Is it part of optimization or that's also kind of helping the NIM? That's one. Second, just on the mortgages side, I understand in March and April, there was a huge influx of refinancing of loans, which the data was suggesting. So in a sense, how -- what's the trend that you're seeing in terms of loan -- in terms of fixed versus variable rate, what you're seeing? And what's the margin trend in a sense, how are you seeing margins in that product? And lastly, just if you can confirm, I guess, on the call, a CFO at last was talking about cost guidance for this year. So if you could just repeat that, that would be pretty helpful.
Right. So going to the first question about the corporate lending versus deposits. So where is our focus? Our focus is on the one hand side, on the asset side, retail 2 main products, mortgages, consumer loans and also corporate book. And then on the liability side, looking also from the angle of our strategic goal, individual customer savings. So as you can see, we grew our market share predominantly on the liability side on the retail deposits, on the asset management business. So this is our focus. On the corporate side, we don't fight for deposits. So you rightly spotted, we don't want in this segment, fight with price for the deposit because there is no need. If you look on our -- from our LCR point of view, loan-to-depo point of view, there is no need actually to increase the prices and fight for the deposit. And as a matter of fact, also you rightly spotted, it's positive from the NIM perspective. So we don't have just to end any fixed goal how much in the context of the market share we want to have on the corporate deposit side. It's rather kind of balancing volume, meaning if we need more, we are able to go to the market and gather more deposits if there is a need to do it.
Sure. Just one small follow-up before you go to the mortgage question. Just looking at the investments, like you had presented like -- thanks for presenting that investment loan Y-o-Y growth. Would that mean not -- I guess, just trying to look from the corporate deposit perspective, if those loans are growing faster, would that mean that deposit base for the corporate would not grow as fast as it has done in previous years? Or do you think it's -- those would not be related in some sense?
I would say it might be the case because it also depends how much our retail deposit base, which is actually largest share of our deposit base, at what pace will the deposit base grow -- retail deposit base will grow with these deposits are more sticky. So in this context, we prefer to have retail deposits than more, I would say, variable corporate deposits. So on the liquidity side, we are on the safe side, still having, I would say, a large buffer of liquidity, which we can also use for further lending next, of course, to our very, very good capital position. So -- but again, if there will be a need, we are able actually also to gather and increase levels and shares on the corporate side. Second question was, if I catch correctly, it was about fixed and floating loans in our loan book.
Yes, mortgage side, specifically on the mortgage side.
Okay. On the mortgage side, if you look end of second quarter on our loan book, we had 47.4% of loans, which are based on initial fixed rate for 5 years. In the context of sale in the second quarter, it was 63% new sales based on mortgages with initial 5-year fixed rate. Is that.
Yes, you've answered it. Just a follow-up was on the margin side, I think how we are looking at the margin spread on the product actually as a whole? Because on the call, I was hearing to CEO, CFO, and they were talking about you're not that keen on refinancing. You're looking at people -- your customers more rather than refinancing from the other banks. So just trying to understand the spread in a sense, like trying to look at broader picture on the ROE. So if you could briefly comment on that.
Sure. So we -- indeed, our refinancing level is lower than, I would say, market average and numbers also showed by part of our competitors, at least, they actually told what is the level of the refinancing. And here, we also, what is important, leverage of our presence, not only in big cities or bigger cities, but also outside big cities. So we can actually limit here, especially on the retail side, the pressure which are on the loan side, if we talk about the mortgages. Of course, there are banks which are now fighting for regaining market share. So for example, one of example is [ Millennium ]. They for a long time have their challenges with capital. Now they are back on the market, and we see that they are growing our market share, but also others like [indiscernible] like ING, and they actually, in some cases, propose customers very low margins. So we are not there. we are not fighting. Of course, we are actually adjusting our pricing dynamically. However, it's more about, in our case, structure of the sale because we want to have more fixed rate loans, meaning initially fixed rate loans because it's natural hedging in the context of interest rate risk. So we're actually adjusting, I would say, margins between floating and fixed just to have the structure of the new sale, which we want rather than competing with extremely low margins sometimes proposed by our competitors.
And sorry, the last thing just on the cost, I think we should be very brief actually.
So it was actually told during also conference, looking at current dynamic, we see it's mid-single digit may be skewed towards slightly mid- high single digit. However, due to, for example, what I already mentioned, a revision of remuneration. So you can expect that the personnel costs will grow in next periods.
Yes, I can add here that we will continue initiatives connected with the development of the bank towards targets specified in the strategy. And of course, we keep high discipline in business as usual cost connected.
Gulnara please.
So I just wanted to follow up on the competition. So have you seen any material shifts when it comes to Q2 compared to Q1 and at the beginning of the Q3? Because some of your peers mentioned the spread compression on the corporate side. And when it comes to the competition, where do you see the greatest competitive intensity, how [indiscernible] is responding, especially when it comes to the corporate and household lending? And maybe a follow-up on the capital allocation. As the volume momentum continues to remain strong, how should we think about the capital allocation going forward? Should we expect the dividend payout to be towards more the lower end of your range, potentially closer to 50%? Or would we -- would it be fair to expect it to be somewhere in the middle at the full year results?
Okay. So maybe let's start with the second question first. So on the one hand side, we haven't -- for now, we don't change what we communicate that we see the payment levels between 50% and 75%. And each time, it's dependent on, first, Polish FSA dividend policy. So we actually receive it usually in December. So this year, for the next year, we'll receive the general policy in December and then individual policy most probably in February. So first -- and sometimes Polish FSA is changing, for example, the conditions for the payment of the dividends. However, we -- in our capital management, we want to be able to pay out the dividend. So this is actually our main goal. So also in the context of capital buffers, we actually look not only on the minimum levels, but also on the dividend levels and we keep buffers over dividend levels. But maybe also comment in this respect. After increase of countercyclical buffer, which will take place by the end of September this year, the minimum regulatory levels will be the same as the dividend payment levels. So Polish FSA may be tempted actually to increase the dividend payment levels of TCR, Tier 1 ratio and CET1 to actually be higher than the minimum regulatory levels. However, we also work to be prepared for such scenario. As you can see, we are actively managing our capital position. So we already actually included this information in our presentation that we printed Tier 2, our first inaugural Tier 2 in euro. And today, we received the information and approval for Polish FSA to include this instrument in our capital. which is good news and pretty short period as for Polish FSA for such approval, plus we did securitization. And also in this context, it's not our last word. We see securitization and also capital instrument issuance as our now regular tool of capital management. So in this context, actually, we, for sure, want to keep our capacity to finance our customers and economy and also pay out dividend and be able to pay out the payout dividend. For now, it's too early to tell you and indicate if -- what will be the exact percentage, taking into account that we are still -- don't have a Polish FSA policy. Unfortunately, I would like to have it now. Plus, of course, now we are just starting planning for 2027. We'll see what will be the volume growth, how much we can and want to issue capital instruments if needed, do securitization. And then we'll see how much we have in the context of potential dividend payment. So for now, it's too early to tell you exact, I would say, percentage. But we still want to be within the range, 50%, 75%.
I believe Krzysztof would like to comment.
Yes. I can add only Gulnara, that, of course, finally, it's a voice of the shareholders, and you will decide finally what is the precise number. And even if we assume something between -- in the middle of the corridor, we have to be ready for maximum payout ratio, taking into account, as an example, the budget deficit and things like that for the next year forecasted by [indiscernible] of 6.7%. That's why even if we assume in the main scenario, something in the middle, we have to be ready for the maximum payout due to professional assessment of potential needs on our shareholders.
Gabor, I believe you have additional question.
And Jakub sorry, question about the competition.
Yes. Sure. So indeed, we see the competition, I would say, especially on the corporate side -- because from my perspective, the biggest competitive change in the last, I would say, quarters is that 2 banks actually are back on the market. Here, I mean Millennium and [indiscernible] after some years of working with their capital position, especially. And that's visible. So they are competing actually now, and it's predominantly also visible on the corporate side. There are banks actually who are entering new segments as, for example, local government segment. Historically, it was [ BGK ], so [ Polish Development Bank ], which has the biggest market share. But then it was us and [indiscernible], second biggest bank. And now we see [ ING ], [ Millennium ], [indiscernible] for example, in this segment, offering low margins hauling volumes. So this is actually visible there, which, of course, impose some pressure. On the corporate side, we also see some pressure, but here, it's sometimes easier because we look on the whole relationship with the customers. So we are not looking only on the margin, but how much other business we can do with the customers as, for example, cash management, treasury products. And then we are looking from the ROE on the customer. With local governments is more difficult because usually it's a tender and you have only loan as a product, not without cross-sold. So I already commented in the context of the consumer -- sorry, retail customers on the mortgages, we see that some banks are actually more active offering low margins. And as you can see from their statements, they are even refinanced in the context of new sale, refinancing is 40%, which is, in my opinion, not, I would say, healthy. It's better to focus on the financing new needs of the customers, not refinance the existing volumes, but it's my point of view. And there, we see also some pressure. But as I indicated, we don't want to take, I would say, part in this and go such low with the margins. We more balance the margins of the product between variable and fixed rate loans just to keep the part of the initial fixed rate mortgages at the level which we want in the context also of natural hedging. of our NII.
And can you follow up on the capital benefit? What type of benefit in terms of the size can you extract from securitization? And maybe just a follow-up, given you mentioned the budget deficit and the upcoming budget, what is your current outlook for the corporate income tax for Poland? Do you think they will stick to 26% for next year? Or do you think it will -- there is a risk of potentially remaining at the higher levels?
Okay. So in the context of first tax, so I believe -- so for now, our base case is that we stick to the -- what is already written in law. meaning that we actually will be on the path to 26% for the next year, 23%, 28% and onwards with parallel reduction of the banking tax starting next year. Of course, we see in the public domain voices about maybe increasing the tax, meaning go for 30% in 2027 and maybe onwards, but it's voices from the [indiscernible] coalition party. However, this is also kind of view which we have is that most probably President will not sign it due to, I would say, election period next year. And President, as you know, is from another or different political angle than current rolling coalition. Of course, we cannot be sure. But for now, our base case is that we will go with the path of the tax changes, which is already written in law. Securitization. So for now, as you look, we did 2 transactions. So from the TCR point of view, the benefit of current securitization is around 30 basis points, so 27 out of the new transaction. And the original amount or benefit from the first transaction as a pilot transaction is it was 5 bps, but this transaction is amortizing. So also the benefit is also amortizing. But now it's around 30 bps. As we look from the European market point of view, the average level, which we see it's around 50 bps, which European banks have out of SRT securitization. It's not, I would say, any hard limit for us. But I would say it's kind of indication, which we have. And on our side, we will plan securitization for also next year. The scale for now is hard to, I would say, determine, but we still have room for capital represent optimization at this angle, both on the corporate, but also on the retail portfolio side, as, for example, consumer loans.
Gabor.
A follow-up on capital. You mentioned various moving parts in the requirements. You've also been taking action. What do you view as your internal capital target at this stage? And in relation to that, what is your view on your level of capital surplus?
So how we manage the capital. We are looking actually on the dividend levels because we want to pay out dividend. And then our minimum buffer is 100 basis points over this level. But of course, if we plan for -- in the next we usually look on the -- of course, it's a financial plan is for 1 year, but we look at minimum in the horizon of 3 next years. We want to keep enough capital to be also able to finance in the context of capital allocation, of course, our volumes development plus any regulatory actions still to be and comply with dividend levels plus at least 100 basis points. Now we are in the situation, as I mentioned, that we don't know, unfortunately, if Polish FSA will increase the dividend levels after September, taking into account that the minimum regulatory levels will be at the level of dividend levels after increase of countercyclical buffer. And that's why we are now using and developing on our side, capital management tools to be able to react pretty quickly if something will change on the -- also on the regulatory side and react on the volume -- in the context of volume growth to actually keep the buffer, which I mentioned.
Just to confirm the numbers here. So 14.4% is the total requirement right now? Yes. For the 75 you want at least 100 basis point buffer.
Yes.
15.4%. And on a pro forma basis, you're at around 17.8% is that roughly?
So currently looking from our levels point of view, we are now at the group -- we have it, 16.8% from TCR point of view. 14.4%, which you mentioned is the criteria for dividend payment. So we want to be minimum 100 basis points above this 14.4%. However, we expect that we -- or we, Polish FSA can increase this level, meaning the dividend payment level. And as you can see, for now, we have also a comfortable level of the surplus to accommodate it. However, in the context of new year, we, for sure, will plan another Tier 2 transaction and securitization transaction actually to keep capital buffer on our side.
Okay. So 15.4% as it stands, which may change. But on a pro forma basis, you are at 17.8%. So you have 340 basis points of buffer.
So adding securitization and Tier 2, then yes, you are right.
Okay. Right. And I mean, still a decent surplus.
Yes. But here it's also preparation for potential increase of the dividend levels on our side.
And please remember, Gabor, that we have a significant portion of bonds in the balance sheet and the valuation, the sensitivity of the valuation is reflected in the capital. Now we have a positive in the first quarter, negative. There is an extra -- of course, if we talk about long-term buffer, this 1% means that we should be over this 1%. But if we look from the perspective of time that we need time to add the capital from retained incomes or to go to -- with the issuance or securitization, it takes time. In practice, it means that this 100 bps is the threshold internal one, which is a signal for us to do actions, but we do not keep only 100 bps surplus because of the fluctuations and this time differences and the need of time to really reflect in the capital instruments.
But also, we are actively managing our -- what Krzysztof mentioned, the potential impact of that fixed income securities, which are from the accounting point of view, included in their valuation excluded through other comprehensive income. So if you look on our securities portfolio, around 23% now is valued through fair value also. Rest is valued according to amortized cost. So -- and we actually changing, including more instruments from the accounting point of view in the category held to collect and valued through amortized cost to limit the potential impact as we see it now of valuation through capital and as a matter of fact, then impacting own funds.
Mehmet, please?
If I may just come back to the cost point for a second. I think I heard mid-single-digit to high single-digit outlook earlier. Please correct me if I'm wrong. But -- and you mentioned the revision of remuneration -- staff remuneration and the continued initiatives within the strategy. Was this for 2027? And secondly, if so, how would you expect the second half of this year to look given the first half is running at just around 1% year-on-year?
So the outlook which we presented is for 2026. We haven't given outlook for 2027. But in general, I would say we are now in the period of normalization of cost dynamics. meaning after years of high inflation and double-digit growth of cost base. Now we are in the single-digit territory. Also as we look now in the context of 2027, how much is too early to say as we are ahead of our planning for 2027. So for 2026, we still see mid potentially to high single digit. As we mentioned, one is revision of personnel cost in the context of revision of remuneration of our employees. Also what Krzysztof mentioned is that, of course, we are leading a number of strategic initiatives. on our end, and this is actually priority. So we are able to actually have slightly higher cost, but assuming we'll have benefits in the future in the context of our business. And of course, as you can see also, we are more active on the marketing side, which is also one of the pillars and supporting our volume growth. So this is also an area which we actually increased our cost, but in the context of benefit on the volumes and core revenue side.
Okay. Can I just confirm if there's a date typically for the staff cost remuneration changes? You mentioned you do this annually once.
There is no, I would say, an FX date, but usually it takes part in -- that takes place in the third quarter. So now we are, I would say, in the middle of this process.
Okay. That's very clear. And then secondly, just on the CHF provisions, which are now coming down nicely. Consensus currently has [ EUR 1.5 billion ] approximately for this year, and that would imply a little bit of an uptick in the second half from the second quarter number. I don't know if you can guide on this, but I was just wondering if you would see this as reasonable or if you think the second quarter run rate, which is close to [ EUR 300 million ] is what we should be working on as a base?
In the context of further provisioning and what I would say, kind of consensus is 1.5, I would say, on our side, it's data-driven. But if I look on this [ EUR 1.5 billion ], it's reasonable. But if it will be [ 1.2 ] or [ 1.5 ], for now, it's early -- too early to say because, again, it's data-driven on our side. But for sure, we want on our side, and we believe on our side that it's the last year of significant CHF provisioning.
I do not see any further questions. So thank you for your participation and hope to see you soon or in also probably somewhere in Europe or U.S. Thank you.
Thank you very much.
Thank you.
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