Bank Millennium SA (FRA:1HN) Q3 2026 Earnings Call Highlights: 30% Profit Surge, Strong ...

Negative Points

• Net interest income declined 1% year on year due to lower interest rate environment, despite a 7% rebound in Q3.

• Legal risk costs related to FX mortgages and consumer loans remain a concern, with PLN211 million booked in Q2-Q3 2026.

• Consumer NPL ratio increased by 20 basis points in Q3 due to no NPL sales, though expected to reverse.

• Intense competition in corporate lending is tightening spreads, potentially pressuring NII growth.

• Potential increase in P2G requirement and uncertainty around dividend policy due to pending regulatory decisions.

Q & A Highlights

Q: What is the outlook for net interest income (NII) and net interest margin (NIM) over the next three to four quarters in a stable rate environment, and what is the NII sensitivity to a 100 basis point rate move? A: CFO Fernando Bicho stated that the sensitivity to a 100 basis point parallel move in rates is 2.6% of last-twelve-month NII, up from 2.2% at end-2025 but still relatively low. On outlook, he noted spread compression in corporate and gradually in mortgages, but expects double-digit volume growth in loans and deposits to more than offset margin pressure and support a sustainable improvement in NII. NIM rebounded to 3.52% in Q3, mainly on lower average deposit costs, and while further NIM expansion is not expected, the downward trend since 2024 has stopped. He added that market-implied rates point to hikes in Poland over the next 12 months, which would generally be beneficial, though the bank is largely hedged.

Q: Can you update us on the outlook for CHF mortgage provisions? Should we expect quarter-on-quarter declines going forward? A: CFO Fernando Bicho said results are in line with expectations, with pretax FX mortgage legal risk costs down 64% year on year in the first nine months. He expects costs to decline further, subject to monitoring the inflow of court cases and the pace of resolving the existing case backlog, and sees a further substantial drop unless a new event not currently in the provisioning assumptions emerges. The Q3 inflow of new cases was the lowest in five years, and the bank reduced active court cases by more than 2,000 in the quarter, aided by settlements.

Q: What is the provisioning approach and coverage for consumer loan legal risk, and how do you expect provisions to evolve? A: CFO Fernando Bicho explained two NII adjustments: PLN35 million in Q2 for ceasing interest on the financed non-credit part of loans, and PLN16 million in Q3 for returning interest charged since the April 23 ECJ verdict. In addition, provisions booked through other operating costs cover existing and expected future court cases, based on claim flow analysis. Total costs booked between NII and other operating costs in Q2Q3 reached PLN211 million, described as the bank's best current assessment. He noted most cases so far were won by the bank, but the bank is monitoring developments, including the September position of the Polish Banking Association and pending ECJ questions.

Q: A 35% payout has been accrued for first half 2026. Should we consider this as the dividend for full year 2026? A: CFO Fernando Bicho reminded that the strategy targets returning to dividend payment in 2027 from 2026 net profit, with a policy of distributing 35%50% of net profit. The final decision depends on KNF guidelines, usually issued around year-end. In Q3, the bank requested permission to include 65% of first-half net profit in own funds while keeping open the possibility of distributing 35%, subject to the regulator's final recommendations.

Q: Strategy 2028 mentions selected areas where execution must be reinforced. Which areas need improvement? A: CEO Joao Bras Jorge said the strategy is unchanged and the assessment was positive, but five areas are being refocused. The most notable course change is mortgages: the bank now has more ambitious targets, supported by the new long-term funding ratio formula, a more balanced portfolio after corporate growth, and the WIBOR-to-POLSTR transition. Corporate is being complemented with cross-selling and capital allocation to boost revenues on top of strong lending growth. Investment funds ambitions and resources were rescaled to grow above market and gain share. Fee income (addressing a gap versus top peers) and retail primacy are also priorities, with the latter more technical.

Q: Are there any AI use cases already in place or planned that could meaningfully affect the 2027 OpEx outlook? A: CEO Joao Bras Jorge highlighted the in-sourced call center AI bot as the biggest example: 45% of inbound calls (roughly 100,000150,000 per month) are handled by the bot, with 30% end-to-end without human intervention, allowing FTEs to fall from 770 to 700 while delivering the same service. AI is also used in anti-fraud and anti-money laundering, where it avoids large headcount escalation rather than cutting costs. He also cited a real-time recommendation platform covering 1 million of 3 million customers, now expanding to non-digital channels, as a major investment and potential competitive advantage. He cautioned that managing AI costs, not implementation, is the bigger challenge.

Q: There has been a significant slowdown in year-on-year growth in corporate deposits. What was the reason? A: CEO Joao Bras Jorge said the driver is a mix shift: current accounts are increasing while time deposits are decreasing, purely a pricing issue. On the corporate side, time deposits are price-sensitive and not tied to daily banking, so the bank is opportunistic and not aggressive on pricing. The main focus is growing current accounts, which is developing very well. CFO Fernando Bicho added that with a loan-to-deposit ratio of 58%, the bank has a large liquidity surplus, so overpaying for corporate time deposits does not make sense.

Q: You are very active in SME financing. Aren't you afraid of the medium-term cost of risk? A: CEO Joao Bras Jorge separated SOHO/small from SME. He called SOHO and small the most difficult area for healthy lending because models are weaker than in retail and full personalized underwriting is hard even with streamlined processes, and noted BGK guarantees are changing again, requiring adaptation. For SME and mid-corporate, he said underwriting capabilities are strong, growth is concentrated in sectors and companies the bank is confident about, and preemptive portfolio reviews will be done if needed. He is not concerned about the loans being originated for now.

Q: What is your appetite for deposits until year-end, and will you be more active on the retail side? A: CEO Joao Bras Jorge said the bank pursued cost reduction over the summer while rate expectations shifted, so retail deposit and savings growth was lower than desired in Q3. The bank will likely be somewhat more active, especially given abundant liquidity and promotion of pension products, but has no specific target and will not engage in window dressing. The priority remains growing mass retail deposits where customers also place savings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .