Good morning, ladies and gentlemen. I would like to welcome you at our conference for the first quarter of this year. I would like to introduce to you CEO, Brunon Bartkiewicz; Bozena Graczyk, CFO; Iza Rokicka, the Head of Investors Relationships; Yolanda Alvarado Rodriguez [ph] the Chief Accountant of the Bank. Thank you very much, Brunon. Please take the floor.

Thank you very much, Piotr. Yes, will you click for me, Piotr, yes please? Ladies and gentlemen, the first quarter featured, to say straightforwardly, a few interesting themes, and I would like to preview on them. In terms of macro data, the element which undoubtedly can be seen on the market, it is much acceleration in the mortgage production of first quarter, and we see this global wave in housing construction and mortgage, which really were a bit delayed first as construction, but now they speed up. And in the time to come, we will have more information about the first quarter, and more and more data will confirm the fact. But this growth in mortgage lending is significant, and this production in mortgage lending is significant. And the growth in this market is really in good two-figure numbers. And this also impacts us, because we produced more mortgages in the first quarter 2018 versus the first quarter 2017. Yes, this is more than twofold growth in mortgages production on our part. And the entire market really moves up. And on this market, and it's also visible, more and more concentration is visible. And we see this chart, where you have six basic players, so the basic players in the mortgage market, and you know them perfectly. But when we compute the production volume of the six players, then they account for [indiscernible] 92% of the production of the entire sector. And this for some time has been growing up, and it's really visible with this activity. Because we have the main or the primary player of Pekao [indiscernible], and then we have much follow-up. So that's why the biggest take the biggest share in the market, and this long-term will impact it. And of course, the players will be…

Yes. Very briefly, because you've said a lot about the financial results of the bank in the first quarter, I would like to pay your attention to the fact that good, I would say even very good, net income from the perspective of the booking method of the BGF contribution. You can see that the net income went down by 12%. If we spread it over time, the net income would go up by 5% quarter-to-quarter and 4% year-on-year. So from that perspective, we are happy that our net income systematically is growing, but also it translates into very good ROE results. We are over 12%. I would like to stress that, even though it went up by two percentage point, which is the result of the one-off costs that you've heard before, still it is at a very high level. Our cost to income ratio also is slightly higher than it was in the fourth quarter. It is the result of higher costs, but still it is a very good figure, 46.5% after settling with the BGF costs. And in our opinion, this is a very good ratio, in our perspective. In terms of structure of income that we present on Slide 15, if you look at income per category per business line, they systematically grow quarter-to-quarter, but also year-on-year. Both in the corporate business line, but also retail business line, total income versus the fourth quarter went up by 2%. And here you've seen it, and you commented on it in the morning. So I think that here I would like to say that we have PLN37 million income that we realized on the sale of different - that securities. We've sold them from the two portfolios, from the portfolio available for sale. This is the name that…

Questions first from the room, and we will give you the microphone. We will pass the microphone, so please ask your question to the microphone, and then we will respond to the Internet questions.

Lukasz Janczak, Ipopema Securities. I have a brief question about the costs and the salary raise. From the April 2018, is it comparable for the salary raises we had last year, or is it just similar? I would like to be able to assess the impact of the salary.

It was higher than in April last year, but smaller than in September 1, so closer to the September one .

I have a question about IT costs, because one-off outlays activated in the balance sheet usually, so are presented in the assets. And I would like to ask why you put them into the income statement. So it was investment, yes, you treat it like that?

No, we didn't put it on the assets, no. We didn't impair any intangible assets, no, explaining this movement on our part when you remember our policy as regards impairment and depreciation of intangible and tangible assets, and we have this limit much higher than in other banks. And this is why we have one-off. We gave this limit or not, I don't know, and it results in one-off possibility to include in the costs also significant outlays. And please remember that the international standards are very restrictive as to putting on assets different license fees, so the ones presented in income statement should be presented there.

I have one more question about deposit campaign. Could you share with us the volume of the deposits, the total of deposits you welcomed by this campaign by the end of March, significant amounts? And I believe that you - with 2.5, you are to sell them until the end of June, yes, or are they to expire in June?

No. until June, we have campaign, and it is for four months. So the last pool of these funds is to expire, actual to extinguish, in October. And the volume of the price, no, we are not to give you this information.

I would like to come back to Slide number 16 with the interest result, so net interest income. I would like you to explain this change in the first quarter, because we cannot see it in the interest cost, but it's no increase. But here, you see that, quarter-by-quarter, they went up by PLN35 million, more or less. And even if we--.

In interest cost, net interest cost, when we take the difference of days, they would be lower, the interest - but versus four quarter, yes, because first quarter was shorter. Yes, the first quarter was shorter.

Yes, I know, so PLN4 million up.

No, down. No, down, when we take the rate of 90 days, yes?

Yes, but I'm talking about net interest income, because PLN35 million-plus quarter-by-quarter last year, and I think it is the consequence of volumes. And when we add up the mandatory provisions and the number of days, so PLN31 million of interest income, then this growth would be up by PLN5 million. So something happened in this income here.

So, I said that we have some margin pressure, yes? Yes, so I explained to you that largely on the income part, it refers to derivatives.

Please look at the note concerning the structure of interest costs and income. You will see PLN16.6 negative hedging transactions, which are the element of regular trading activity and derivatives. In the notes, I think we have PLN16.6 million versus positive impact we saw in the first quarter last year, which was PLN12 million. So when you offset it, you see the delta in this change. It is crucial, and it really impacts what we present on this slide, which is the slide showing our net interest income and margin for the entire structure. So, it's not only these elements. You have here the amount if we level up first quarter versus fourth quarter, you have PLN37 million. And we [indiscernible] that, when you compare the dynamics of the last quarters, because volumes go up, but they continue to go up, but we have this situation where the margin itself, the net interest margin, goes up on the loans, but this growth is slower.

So between the lines I would like to say you, but please don't get accustomed to such big growths in interest income because it's one of the drivers stops functioning now. Yes, so please, it's three quarters ago we said we were expecting much competition and decline in margins, yes? Please remember that, for three quarters, we have been mentioning it, and these margins actually go up. So this competition is not as strong as we expected it to be, and this is also the follow-up of this lack of private investments.

Another question on my part about marketing costs. Can you see seasonality here, or is it that quarterly fees are just stable quarter-by-quarter?

We make them flat, but volatility is as you can see it in the quarterly reporting. But we don't have something that we accumulate all marketing fees in one quarter, and in the next quarters there is nothing to follow. That's not our practice. We just level it out. But when we activate a big campaign, as it was for the savings campaign, then these costs start to be - and start to be visible as it was in the fourth quarter last year.

Good morning. I have a question about the net interest income, fee and income-income, which was very good in that quarter. From what I understood, you said that the lower costs on fee and commission was due to technical shift of the costs to marketing costs.

Yes, they are recognized in comparable terms. So when you look at that slide, you can see the proper trend, except for the cash back costs, while still, as you remember from our previous discussions, we can see here a seasonality in settlement. We see it in certain quarters.

In the notes, I don't think you had this information, because I didn't see such information, such difference. I understand that these costs on the fee and commissions are seasonally lower in the first quarter.

PLN22 million of costs in the fourth quarter, PLN11.5 million in the first quarter. This is the seasonality we can see between the fourth and the first quarter. This is on Slide 17.

Yes, but in the first quarter in 2017, you had PLN17 million.

Okay, so this is a strongly technical question.

Another question related to fees and commissions, insurance income, which went up so strongly quarter-to-quarter. If you can comment on this, is it a level that we will see in the subsequent quarters? Is it a new types of insurance that you added to the products?

We still add insurance products, and you can see the growth rate here is very high. And you remember in the - we've seen the drop related to regulatory requirements. We couldn't offer group products. Now, we are in a normal production.

Maybe another question about NPL loans for corporate business lines. If you may comment on this, because we've seen the sale of the portfolio, of the nonperforming portfolio, of I think PLN80 million. If we add this, then we can see a strong increase here even compared with the opening balance. Was it for big corporates or on SME, in which sectors maybe?

In fact, we didn't observe any particular phenomena for the corporate portfolio. We didn't see any significant one-offs. This is a normal trend due to the structure of our loan portfolio.

If you look at - because as I understand, you refer to Slide number 20. Maybe it's not so well visible. I think Slide number 19, you can see it very well. If you look at the risk costs for the corporate banking, and the cost of risk margin cumulative, but the cumulative one is quite well presented in the first quarter, the third quarter 0.51%, and the first quarter 2017 0.29%. So we can see an increase here, as I commented before. It was in the first and in the third quarter. Also because in the second and third quarter, we also observing what's happening on the market. We, on the one hand, paid attention to the review of the portfolio and the establishment of NPLs, but also we released - slow down the production in the areas which were encumbered with higher risk. And the higher risk was due to these characteristics of not really balanced development of the economy in Poland. So, lack of investment with strong deployment of capacity and accumulation of investment in the short-term 2012. Let me remind you that year, and everything is obvious. Here, you - and the shortage of labor. This is a difference between the year we have now and 2012, accumulation of potential investment in short-term combined with a very strong utilization of capacity and shortage of labor because we don't have Ukrainians in Poland anymore. And this is a dangerous situation, and we've been thinking about it. Somebody who decides to open a big construction may encounter a barrier which will make him unable to meet his commitment. This is the major element of 2012, but now this is large-scale. But also, it's not only limited to road construction. This is in a dangerous element, and we've been talking about this for two years now. Maybe we do not articulate it that much, but we've been talking about it for two years. So we are prudent here. Our increase in activity for corporate loans, our dynamics, is colossal, but this is stopped now because there are dangerous elements here.

You should look at the relative value of costs is PLN58 million. If we exclude the first quarter 2017, this is the lowest risk cost in this segment. So, it is - also shows, but it only shows that the provisioning coverage either went down or is comparably flat.

Is it the level that for you is satisfactory, this provisioning coverage ratio?

Yes, from the perspective that our approach to IFRS-9 implementation is based on prudent assumptions. In this context, you should look at the provisioning coverage and cost from the perspective of that's at stage 3, this provisioning coverage is stable and is not subject to significant changes. You refer to the sale of the portfolio. You should know that we had only PLN1 million of positive income on the sale, because this is also defect that we, the banks, less and less, we also sell portfolios that are provisioned for. We sell portfolios which are effectively provisioned for. So on the one hand, the corporate banking segment is subject to stronger impacts of the transition from the stage 2 to 3, because these values are more sensitive from the relative PD change perspective. And it translates into higher volatility, especially for the corporate portfolio.

These are not the biggest entities, referring to the other part of your question.

CEO, you've mentioned about the elimination of the dynamics, of the cooling down the dynamics in the corporate segment. I would like to ask about the mortgage loans. Do you also plan, or do you also think about including some - about stopping these dynamics, or maybe you will be more selective?

No, we don't see any risk element here. Our criteria of granting loans are sufficient and conservative.

Okay, one more question. Do you have any estimates for the issue of MRL? And what's your approach to the estimates that we will say are publicly available sector-wise from PLN50 billion to PLN130 billion? These are the numbers, that these will be the issues of bonds.

In my opinion, yes, I think we are in this range.

But to which figure, the bottom one or the upper one in terms of your--?

Yes, we've recognized. We have a plan. This is a quite remote perspective, 2023, but we have a plan, but this is not - we do not publish it. It's too early to announce that. But this is not the fact that will paralyze us. I sleep calmly.

You said that there is a disproportion between public investment and private investment. Why this proportion is a problem, is an issue? Why this imbalance makes some problems? Is it combined? You've said that there is a risk of accumulation of investment and that the contractors will not be able to meet their commitments.

This comment applies to public constructions, which need a lot of resources. I'm not talking about human labor, but also about raw materials, seal, cement, et cetera. But also, lack of increase in private investment means that corporates work at the top of their production capacities. The level of utilization of forces, labor forces or production capacity is very high and has been like this for a long time now. With the normal conditions and the necessity of functioning in the international trade, and international competition is the foundation of our element, it should translate into the fact that the entrepreneur is not focused on keeping his sale, but should invest to enlarge it and to concentrate all his powers to increase his competitive edge, but also to sell more and more product. And this is happening in Poland, to a lesser extent. If today all entrepreneurs, for various reasons, come to a conclusion that this should be happening, and they will start to invest, they will encounter the same barriers, so shortage of human labor, shortage of raw materials, glass, cement, et cetera, et cetera. This should make prices go up, as you can see. Prices do not go up, so this is an additional argument to show that something is happening here. This may mean that we don't see higher prices, but still it doesn't mean that, in many sectors of our economy, such as construction sector, hotels, which is exploding rapidly, increase in construction costs is off 20%, 30% year-on-year. So if you calculate the business model, and suddenly you have to increase your costs of a very important element by 20% or 30%, and on the other hand, even given this increase, is not able to find the resources, then the business model collapses. And this…

You can find [indiscernible], you can find income, but not for time. But why these private investments? Why they don't go up as you expect?

Oh, I'm not that wise, sir. This is the area which I don't really want to have you hear it from my knowledge, still having some scraps of knowledge in this regard.

So this headcount increase you're observing, is it specific for Bank Slaski, or is it across all banks and will be observed across all banks?

Oh, yes. A large number of this growth, a large volume, it is that we shifted for HI structures at our organization. And actually, in the first period, they require new resources. You need professionals. You need agile cultures. You need pace cultures. You need to rebuild the organizational framework. As far as I know, all the banks want to shift to these agile structures. Welcome.

We had a special session in July, I think - no, in May last year, so I thought this was already defined.

So, Katowice, but how - can you say it in Polish? It's a different organizational structure which makes us reconstructure, rebuild - revamp our product development area, where we combined all forces, IT operations, product developers, [indiscernible] - sorry for my jargon - into one construct based on scrums and tribes. And these are, yes, very nice, very nice Polish phrasing, yes. I'm sorry, but I will not be able to translate tribes into Polish because, as far as you know, the only word which comes in Polish, it is [Foreign Language] in Polish, which is [indiscernible] also in English. A set is a group of our mate. Yes, I really would like somebody who would like to work on such a tribe or pack of wolves, for example. So I'm very sorry for English terminology, but all the words follows with terminology. And these are just self-regulating teams, so eight-person group with specific scope of activities which we call the target, also purpose, purpose. Sorry, in English, it's very nice when you use the [indiscernible] for English, and this team is to self-organize to have maximum effects. So we create micro-company with specific purpose, specific objective, and with agile structure. Each organization which tries to have many improvements and changes, transformations, so gradually each organization is to change across the world, because it's not really a new concept. So we said in May, as well, that the master pattern - so for inflection of it, it was with Spotify company, which introduce it for the first time. And really, our employees, not me but my colleagues, visited Spotify to see the structure, to see this organization, and to see this experience in implementation of this concept. But maybe we can discuss it at a different session, or when I am in Katowice, you can see it in Katowice. So I invite you, please come, because in Katowice, [indiscernible], please come also to see their rooms, because architecture was where the layout is completely different.

I would like to refer to first net interest income, but about outlook. I would like to ask a question. So it should decline, but the savings effect should fall down, which was given as one of the reasons of the change in this income, unless you decide in the second half of the year to start with a new campaign. And I would like to ask about the factors of your decision. I think the problems you mentioned, but I think you would like to build up a better capital base in the second half of a year.

Maybe not really capital, but our obsession is about growing the number of clients, yes. I'm not going to hide it. And another element, it is that we say today how to build future for the coming five years in terms of balance sheet structure, which path to follow. And also, I would like to stress, as Bozena mentioned, we have discussion from the low level of loan-to-deposit ratio. So we have sufficient deposits to cover our lending, but our lending goes up significantly, and when you see it, we are close to the level, or even at the level of PLN10 billion increase year-to-year. So we need to have the best, stable bid on trust - yes, I would like to emphasize it - deposit base so that the funding costs are low, because each bank, which really pushes too much lending and forgets funding, has this problem. You know the situations. You know the banks I'm talking about. So these two elements should be balanced. And as you know, we are the bank which first takes [indiscernible] deposits, and later knows at what pace is to produce lending. And because this pace of lending is so strong, as we've mentioned earlier to you, and you can see it in our market share as it grows. So we need really to envisage how good our deposit base is, because these are clients, and clients actually build - comprise first deposit base. It is not that we are to use fair market funding. We will use funding, but for long-term loans when we have time to do that. But we are not to say that we want to fund ourselves from the entities which are really price-sensitive, for example local government [indiscernible], because you have tender every year, and you…

Mr. President, one more about the mortgage loans, because after this rise in first quarter, was demand on the market still visible in this segment? What would you envisage? What would you project for this group?

After so many years on the market, yes, we show especially this first slide to you, because this first slide explicitly is to show that we are of the opinion that there is no drive which would decrease the pace of mortgages production this year, or lower it to the level below a few thousand one. But today, BLIK was proclaiming that the number of applications, 18.5, yes, quarterly, in April, when you think about market comment. So we want to suggest to you that, as to future, although we don't have the cumulative data for the market for April yet, it is for BLIK, for Amron, the data are available for them. And [indiscernible], we don't have this data, so we share only with you the information we know, which means that, as we can see, that this is to be record year of mortgages in this 10 years' time. We will go over PLN50 billion, yes. You think Amron formula, yes, which we always present to you, but we don't have this data today. Amron prepares their data after publication of results by banks, yes? But PLN50 billion is to be broken, I think. All the symptoms are there, and these are big volumes. And not to worry you - bigger numbers were seen once in our history, yes, weren't they?

One more question. Do you expect some movements on the regulator's part as they see it also as regards stopping first lending?

I don't see any reasons why it should be culled down, because the demand on the market is pretty strong. But some risk, really enormous risk, concentrates in developers' sector, but not in individuals when we talk [indiscernible]. So really, taking ahead, being ahead of your next question, we don't fund developers, which seems to be consistent wrap-up of this topic.