merzbank AG(US:CRZBY)2023-05-17 19:52Financial Data and Key Metrics Changes - The company reported a strong start to 2023 with an operating result of €875 million, a 60% increase year-over-year, and a net result of €580 million, nearly doubling from the previous year [3][16] - The cost-income ratio stood at 65% for Q1, aligning with the target of 60% for 2024, while the CET1 ratio improved to 14.2% [4][18] - The underlying net interest income (NII) increased by 4.5% compared to Q4, driven by higher rates on floating rate and short maturity instruments [20][24] Business Line Data and Key Metrics Changes - The Corporate Clients segment showed stable performance with a healthy bond business, while the Private and Small-Business Customers (PSBC) segment improved its contribution from the securities business [19][36] - Underlying NII for PSBC increased by 23% or €114 million, while mBank's operating result reached €262 million, a 49% increase year-over-year [36][37] - The Corporate Clients segment achieved a record operating result of €539 million, with interest income up 36% year-over-year and costs down by 8.4% [41] Market Data and Key Metrics Changes - The company noted a gradual increase in mBank's deposit beta, reflecting stable central bank rates in Poland at 6.75% since September [22][37] - The total volume of deposits increased year-on-year but decreased from the previous quarter due to seasonal factors and inflationary pressures [35][66] - The company observed a shift from sight deposits to term deposits as customers sought higher yields amid rising interest rates [35][66] Company Strategy and Development Direction - The current focus is on enhancing the new business model across customer segments, particularly through the expansion of the sector-specific advisory model for large corporates [6][14] - The company aims to achieve a cost-income ratio of 60% by 2024 through ongoing efficiency gains and prioritizing investment programs based on business cases [10][14] - The company is committed to sustainability, having confirmed targets for carbon emissions reduction and joining the Taskforce on Nature-related Financial Disclosure [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in reaching 2023 targets but acknowledged the need for discipline in addressing major business challenges [7][14] - The outlook for 2023 includes expectations for NII around €7 billion, significantly above the initial estimate of €6.5 billion, with a cautious approach to deposit beta increases [24][44] - The company anticipates a mild recession and expects a risk result well below €900 million, assuming the use of top-level adjustments [30][44] Other Important Information - The ECB has approved the company's first share buyback, with a planned payout ratio of 50% for 2023 [5][14] - The company reported a low risk result of €68 million in Q1, reflecting high credit quality and resilience in its customer base [30][31] Q&A Session Summary Question: Deposit beta expectations and breakdown - Management indicated that the deposit beta was 15% in Q1 and expects it to rise to 35% over the next three quarters, with a cautious approach to retail and corporate deposits [46][48] Question: Loan book performance and consumer loans - The loan book in retail is growing in line with the market, and management remains cautious about consumer loans due to risk management considerations [49][50] Question: Coverage expectations for Polish FX mortgages - Coverage ratio of 61% is deemed sufficient, but future rulings from courts will determine if additional coverage is needed [51] Question: NII peak and future guidance - Management believes Q1 NII may be the peak for the year, with expectations of slight decreases due to deposit beta pressures [56] Question: Mix of dividend and buyback in payout ratio - The company plans to split the 50% payout between dividends and buybacks, with further updates expected after Q2 [57] Question: Deposit volumes and optimization - Management expects stable deposit volumes for the remainder of the year, with shifts from sight deposits to term deposits [65][66] Question: NII trends and competitive rates - Management clarified that the NII trends are consistent with market movements, and competitive rates for term deposits have driven shifts in customer behavior [73][74]