Poland's mBank expects lower interest income as Q1 net profit drops

By Patrycja Zaras

GDANSK (Reuters) - One of Poland's top lenders, mBank, reported on Friday a 72% fall in first-quarter net profit, hit by provisions related to a dispute over Swiss franc mortgages.

Net profit dropped to 142.8 million zlotys ($34.4 million), from 512.3 million zlotys in the same period last year, missing analysts’ average forecast of 206 million zlotys.

However, the bank said core revenues were back on an upward trend thanks to an increase in net interest income (NII) and improving net fees.

It said the cost of risk, which stood at 79 basis points, was within the guided range, with more of its Swiss franc mortgage portfolio covered by legal provisions. The cost of those in the first quarter amounted to 808.5 million zlotys.

Hundreds of thousands of Poles took out mortgages in foreign currencies, mainly in Swiss francs, attracted by lower interest rates, but were then left paying far bigger instalments than expected after the franc soared against the zloty.

Many mortgage holders took banks to court, with some lenders offering out-of-court settlements.

mBank said its number of active Swiss franc mortgage loan contracts as of April 19 was 38,826, down 19.6% from the end of 2021. It said nearly all active loan holders had received settlement proposals.

The bank has reached a total of 5,050 settlements.

Looking ahead, the bank said decelerating loan volumes could impact interest income, while wage and inflationary pressures weigh on operating costs.

An upward trend in customer numbers and transactions may be offset by a slowing economy and weaker demand for banking products, it added.

"We're for sure not expecting two things: continued growth of net interest income and significant improvement of margin," the bank's chief executive, Cezary Stypulkowski, said on a conference call.

According to the CEO, the bank is aiming for about an 80 basis point cost of risk for this year but he also warned that "loan activity in 2023 will be under certain pressure".

The bank confirmed it was still planning to launch two MREL issues this year, though expected for later in the year.

($1=4.1557 zlotys)

(Reporting by Patrycja Zaras, additional reporting by Mateusz Rabiega; Editing by Clarence Fernandez and Mark Potter)