Bank Millennium S A : - good business results, third consecutive quarter of significant positive net result

Consolidated results of Bank Millennium Capital Group for the 1st half of 2023. In the first quarter of 2023 consolidated net profit of the Bank Millennium Group was positive for the third consecutive year and amounted to +106 mln PLN. Net profit in the first half of 2023 amounted to +358 mln PLN, and adjusted for the costs of mortgage loans (1 747 mln PLN after tax) and with hypothetical bank tax (203 mln PLN) would amount to a record 1,418 bn PLN. In effect of the combination of digitisation and the best multi-channel quality of service awarded with the Golden Bank 2023 title, the Bank's effectiveness remained at a consistently high level.

-Although the costs related to the portfolio of FX mortgage loans (provisions against legal risk, costs of amicable settlements and legal costs) were still a significant brake on the Group's increasingly profitable core business, in 1H 2023 we achieved a positive net profit of 358 mln PLN. - said Joao Bras Jorge, Chairman of the Bank Millennium Management Board.

- Also in business terms it was a good six months. In the retail segment, we confirmed our ability to compete in the Consumer Finance area - in the Q2 alone the value of cash loans sold reached 1,6 bn PLN. In the first half of the year, the number of active customers increased to 2,949 mln (+26 thous. q/q): 2,62 mln of them used online banking and 2,37 mln were mobile users. In corporate banking, we focused on the use of BGK guarantees, which resulted in a record portfolio of over 3,9 bn PLN of loans covered with guarantees. We have introduced new digital solutions, among others the bank's team has built a mobile app for companies, completely new in terms of technology, with a new design, focused on user convenience, with great personalisation capacity.

We have consistently reduced the portfolio of FX mortgage loans and the risks associated with it. We continued to offer borrowers individually negotiated amicable solutions such as conversions into PLN, prepayments or collective "settlements". The number of voluntary settlements in Q2 reached 924 (1 730 in 1H). Since the launch of the program in 2020, we have signed nearly 19,5 thous. settlements (32% of all currency and mortgage agreements active at the time). In effect of negotiations, final judgments and other natural factors, the number of active FX mortgage loans decreased in Q2 2023 by almost 1 400 (to 35 417) - added Joao Bras Jorge.

The following developments of the 1H of 2023 are particularly worth emphasising:

• NII increased 6% q/q (1H23: up 21% y/y) despite gradually declining market interest rates; this was chiefly due to lower deposit cost although the combination of increasing size and profitability of the securities portfolio with changing loan mix also had a positive impact; y/y growth of quarterly NII remained solid at 13% but continued to decelerate fast due to the high base effect;
• quarterly NIM improved to an all-time high of 485 bp from 458bps in 1Q23 due to the abovementioned lower cost of deposits (2.75% in 2Q23 vs. 2.91% in 1Q23) and changes on the asset side of the balance sheet;
• cost efficiency remained high owing to a combination of a steady increase in the digitalisation of our business and relations with clients with stronger growth of revenues vs. costs, the latter benefitting from lower regulatory charges; headcount remained broadly stable (number of active employees up 102 or 2% since end of June'22), optimisation of the physical distribution network continued (own branches down by 28 units or 7% in the last twelve months) complemented the increasing share of digital services (digital customers: 2.62 million, up 8% y/y, number of active mobile customers: 2.37 million, up 13% y/y); total reported income grew 13% y/y in 1H23, while reported opex fell 34% y/y, benefitting from lower regulatory costs (BFG/IPS charges totalled PLN372mn in 1H22 vs. BFG cost of PLN60mn in 1H23); opex adjusted for regulatory costs was up 15% y/y in 1H23;
• loan portfolio decreased in 2Q23 (net/gross loans: -7%/-6% y/y respectively and -2% q/q each) with contracting FX-mortgage portfolio and to a lesser extent selective corporate lending being the main reasons for the drop; loan book w/o FX-mortgages was down 2% y/y and flat q/q; FXmortgages continued to shrink fast (-46% y/y, -19% q/q on reported basis) on a combination of FX movements (PLN gained 3% vs. CHF in the last twelve months), repayments, provisioning (in line with IFRS9 most of legal risk provisions are booked against gross value of loans under court proceedings), write-offs and amicable settlements; as a result, the share of all FX-mortgages in total gross loans decreased to 6.1% (BM originated only: 5.5%) from 10.4% (9.6) in the same period last year;
• non-mortgage retail portfolio was up 2% q/q and up 4% y/y owing chiefly to improved origination of cash loans; in 2Q23 origination of cash loan reached a record PLN1.6bn, up 16% y/y, with 1H23 origination at PLN3.2bn, up 25% y/y; BM's market share in origination in 1H23 stood at 10.8%, above 9.8% in 1H22; 2Q23 origination (disbursements) of PLN mortgages improved 7% q/q, but remained well below this in same period last year (1H23: PLN1.9bn, down 55% y/y); BM's market share in originations stood at 8.9% in 2Q23 and 10.1% in 1H23 vs. 10.5% and 13.4% in 2Q22 and 1H22 respectively;
• loan book quality improved with NPL ratio easing to 4.5% from 4.7% at the end of March'23 following methodological changes in PLN mortgage portfolio; supported by consumer NPL sale, these more than offset the adverse impact of the relatively low loan origination and contracting loan book; retail segment where NPL ratio dropped to 4.8% from 5.1% was the source of the improvement, while corporate segment saw NPL ratio ticking up to 3.7% from 3.4% (chiefly an outcome of decreasing denominator, i.e. loan portfolio); NPL coverage improved to 73% from 68% at the end of March'23 and 70% at YE22); cost of risk dropped to a mere 27bps in 2Q23 (1H23: 45bps vs. 1H22: 37bps) owing partly to PLN36mln pre-tax profit on NPL sale;
• customer deposits were flat in the quarter but were up 5% y/y with retail deposits up 2% q/q and corporate ones down 6%; trends in deposit mix change halted with share of term deposits easing to 35% from 36% at the end of March'23 (33% at YE22 and 18% at YE21); the liquidity of the Bank remained very comfortable with L/D ratio easing further to 74%;
• AuM of Millennium TFI and third party funds combined continued to increase q/q (up 8% in 2Q23); at over PLN6bn they were also up in y/y terms (+13%) for the first time in many quarters;
• capital ratios improved visibly (Group TCR: 14.8%/T1:11.7% vs. 14.1%/11.0% respectively at the end of March'23) and therefore a surplus over the required minimum levels (12.7%/10.2% respectively) widened further; the improvement was achieved organically through optimisation of both risk-weighted assets and regulatory capital (lower negative contribution from revaluation reserve among others);
• MREL requirements were lowered by BFG in June 2023 as expected, following the reduction of Pillar 2 buffer by KNF in December 2022; together with the Bank's improved capital position these contributed to the fulfilment of interim MREL (excluding CBR) as of June 30, 2023 and to a reduction of the gap towards interim MREL + CBR.

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