Bank Millennium’s Strategic Capital Reallocation and Profitability Leverage in a Post-FX Mortgage Transition Era

Bank Millennium’s journey through the post-FX mortgage transition era has been marked by a blend of resilience and strategic foresight. Despite the lingering costs of its controversial FX mortgage portfolio—provisions for legal risk reached PLN 509 million in 2Q25 [1]—the bank has demonstrated robust profitability, reporting a 43% year-on-year net profit increase in 1H25 (PLN 511 million) [1]. This performance underscores its ability to balance risk mitigation with capital efficiency, a critical factor for long-term growth in a volatile financial landscape.

Capital Efficiency and Liquidity Resilience

The bank’s liquidity position has strengthened significantly, with a 4% year-on-year deposit growth and a loan-to-deposit (L/D) ratio of 61%, reflecting a liquidity surplus [1]. This surplus, coupled with a capital adequacy ratio of 16.5% [2], provides a buffer against future shocks and supports its strategic reallocation of capital. By reducing exposure to the FX mortgage portfolio—driven by low PLN mortgage origination and rapid repayments [1]—Bank Millennium has freed up resources to invest in higher-margin segments.

Strategic Shift to Corporate Lending

A cornerstone of the bank’s capital reallocation strategy is its pivot to corporate lending. New credit production in this segment surged 66% year-on-year in 2Q25, particularly in investment loans [1]. This aligns with its “Strategy2028: Value & Growth” plan, which aims to double the corporate loans portfolio to over PLN25 billion by 2028 [3]. The bank’s focus on mid-corporates and small businesses, supported by tailored credit products and streamlined processes, positions it to capture underserved markets while diversifying revenue streams [3].

Profitability Leverage and Future Outlook

The bank’s return on equity (ROE) of 13.8% [1] highlights its capital efficiency, but the path to higher profitability lies in reducing legal risk costs. Management anticipates that provisions for FX mortgage-related legal risks will decline in 2H25, with 2025 likely the final year of significant expenses unless extraordinary events arise [3]. This reduction, combined with cost discipline (targeting a cost-to-income ratio of 37% by 2028 [3]), should amplify net income growth.

Moreover, digitalization and sustainability initiatives are amplifying long-term value. The bank’s digital-first approach has driven an 8% year-on-year revenue growth in retail and corporate banking [2], while its PLN5 billion sustainable finance target and net-zero emissions goals by 2050 [3] align with global ESG trends, enhancing its appeal to a broader investor base.

Conclusion

Bank Millennium’s strategic reallocation of capital—from a high-risk FX mortgage portfolio to corporate lending, digital innovation, and sustainability—positions it as a compelling long-term investment. Its strong capital ratios, declining legal costs, and ambitious growth targets under Strategy2028 suggest a trajectory of enhanced profitability and resilience. For investors, the bank’s ability to leverage capital efficiency while navigating post-FX transition challenges exemplifies a forward-looking approach that balances prudence with growth.

Source:
[1] Press releases - About the Bank [https://www.bankmillennium.pl/en/about-the-bank/press-centre/press-releases/-/news/bank-millennium-in-2q25---good-financial-and-business-results-strategy%E2%80%9928-value&growth-on-track?id=33798631]
[2] Bank Millennium Strategic Resilience [https://www.ainvest.com/news/bank-millennium-strategic-resilience-path-declining-fx-mortgage-provisions-q2-2025-2507/]
[3] Bank’s Strategy [https://www.bankmillennium.pl/en/about-the-bank/investor-relations/bank-strategy]