AB Artea bankas (ROE1L) Earnings Call Transcript & Summary

Good afternoon, dear listeners. Welcome to Siauliu Bankas' Investor Relations Conference? I'm Paulius from NASDAQ Vilniaus, and I'll be moderating today's event. We will start with a presentation from the management, which will be followed by the Q&A session. Please be informed that this webinar is being recorded and will be available for a rewatch on NASDAQ Baltic YouTube channel? [Operator Instructions] I'm pleased to introduce today's presenters, CEO of Siauliu Bankas Vytautas Sinius and CFO, Donatas Savickas. Dear Guests, please, the floor is yours.

Well, thank you, dear investors. Welcome to our summer webinar of the first half results of Siauliu Bankas Group. Myself and colleague Donatas will be happy to present our performance update as well as always to answer to your questions. So let's get started with our presentation and update on the first half results. So I would say the record quarter of a bank's performance with a EUR 24.1 million of net profit. That led to EUR 43.3 million during the first half of net profit, and that's 47% growth. And the operating profit grew even faster. That was 59% growth. Our performance, obviously, based and was supported by the growth of loan portfolio. So that's the first. The second one, which is obvious, the dynamics of the EURIBOR, which also stimulated growing income. Worth mentioning that this income probably is not on that extreme compared to the other banks; larger banks have reported their results, which is in times higher compared to our performance. And that's due to a much more our balanced situation between loans and deposits. And as an outcome of that, and after additional explanations, discussions with authorities, we observed that there would be no windfall tax for '23 for Siauliu Bankas. So it means that there will be no additional tax burden on our books. Also important event during the quarter, the Moody's observed our progress and upgraded our rating to Baa1, and that's I would treat as a good achievement in the current environment. And we are happy to be among other equity listed banks on the top notch with the best tradings. Talking about our integration of retail businesses with INVL Group. I would say it's performing pretty smoothly according to the plan. So it's many activities that is going on related with that, both some hard stuff and soft things like culture merger and initiatives related with that. So I would say we are performing in line with our projections. And as it was informed earlier, the first December is the day when we're expecting to act as a one entity with merged retail businesses. Well, talking about efficiency indicators also due to the strong profitability, we are outperforming some of the key performance indicators and profitability through the return on equity and efficiency cost of income is substantially stronger than the initial targets. And we expect it to end this year as well with substantially higher performance on those 2 indicators as we initially presented. Capital & Risk indicators most likely will be on the indicated levels or around them. So let's move on to the macroeconomic situation update. Again, I would say, interesting announcement recently about GDP development, which is more positive than initially were expected from the second quarter. So it's up by 0.9%. It's increase in GDP compared with the first quarter, 2.5% decline makes a bit more positive outlook to year '23. And if we would look to the graph when we have 0.5% growth according to the European Commission projections. Initially, that was considered as very optimistic indicator, as a very optimistic forecast. Now it potentially could come to the truth. So most likely, we could be balancing around 0 or slightly positive. Of course, everything depends how the third and fourth quarter would perform. And yes, also we would also say GDP development makes us a bit more positive compared to the beginning of the year, making our projections on a bit more conservative outlook. On inflation, again, as we expected, the inflation is going down. So the 7 months in a row, the inflation is moving down and now reached 7.1% in July. And I would say if there would be no unexpected drivers that could drive inflation up such as energy prices shocks or grain price shocks or supply chain distractions, so most likely, we will have continuously declining inflation and as it was projection moving closer to the 2% level not this year, but most likely in 1 or 1.5 years. Low unemployments and consumer confidence, I would say, provides a good sentiment for consumers continue to consume. And that's one of the resilient factors for our GDP also to grow. So overall, I would treat that consumer confidence is strong. And as you can see in a graph even stronger than average on EU. So growing salaries allows us to see this as a good base for our mainly credit products for the private individuals and the performance shows that it's both good on the lending side, as well as on the quality side of the loan products. With industry confidence index slightly below the EU average, shows that our company is still a bit more hesitant and more cautious compared to the peers in EU. However, the situation, I would say, also in the industry and, I would say, in general, is improving in the sectors that were much more impacted by the potential recession in the EU and the U.S. markets now are coming back and the resilience of the businesses in Lithuania seems to be quite sustainable, and for the longer term and companies able to adapt to the challenges that they are facing due to the different impacts coming from inside or outside the country. To comment on the real estate, I would call that this booming period has stopped, and now we are moving a bit more slower growth on a real estate development. Of course, there are some differences in residential and in offices. So residential, I would say, still remains with a lower figures, but still quite solid. So new projects are being developed. We're also financing. And the mortgages, as you also will see later there is a decline in the volume, but still continue to be provided and the markets, despite the environment which is not most favorable for the mortgages, still is provided to the clients. All right. So let's go to the portfolio and to drill deeper firstly the whole portfolio and then later to some elements of the loan book. So the stable growth during the second quarter and a bit stronger than compared to the first quarter, also give some optimism that the year would be -- that the year will be finished with a strong double-digit growth. Initially, we were expecting and projecting our capacity of growth slightly lower. Now we see that the opportunity in the market is potentially higher. Therefore, we will use our capital base to expand further on the loan growth. So all the major loan positions reflected positive growth. So in absolute terms, the corporate loans provided the largest increase by EUR 40 million. And on percentage side, the winners are consumer lending, so the growth there is the fastest during this period of time. Mortgage line, mortgage growth is -- the growth has declined compared to the '22. But still, as I mentioned, remains really active. And I would call that customer sentiment to consider the mortgage is still active, but the way they make decision is not that fast as it used to be in '21, '22, when the decisions were made faster due to the overall environment to make decisions faster. Now it's a bit more hesitant and clients even applying and making requests for the mortgages they're hesitant to sign an agreement and wait for probably some events in the future that will be more favorable for them. The good thing that the yields on loans continue to grow, and that's mainly on all floating rate instruments. And that's as we initially mentioned, this additional income generation stream for our P&L. Let's move on to the corporate financing side. There is sustainable growth during the last quarter but much more substantial growth in interest rate during this period. So the interest rates moved up to 7% on the newly signed agreements and that led to the portfolio level of yield at 6.1%. So that's the income increase, I would say, rather substantial. Despite that interest rates are increasing, I would treat that client capacity to serve the loans remained pretty strong. And we were all the time concerning about the potential increase in our nonperforming loans. But so far, situation is, I would say, good. It's flat, not growing. We will see more data on that later in the presentation. Well, and despite that the market also grew approximately 10%, overall market grew by 10%. We managed to increase our market share by 60 basis points as the first quarter results since the information is a bit lagging behind on the market. And that led to 12.8% market share increase in the corporate lending. So we are moving towards our targets to grow our market share and to be more and more visible player in the markets and to become stronger in that sector as well. Let us move on to the mortgages and the consumer financing. I would say, overall, it's a good thing for the bank that we have roughly diversified businesses as a universal bank, different type of lending instruments as well as commission income. So in this situation, it's really benefiting since the mortgages are slightly underperforming compared to the other instruments, corporate and consumer financing and the consumer financing shows opposite to mortgages development, so strong growth. So the mortgages is 21% lower compared to the growth level than in '22. So probably we're remembering that this period of time was a pretty booming period, and we're showing extremely fast growth on our mortgage loan. So on a yearly basis, you see still 33%. But the growth on a quarterly and year-to-date basis is 5% and 10%, respectively. So still, we're experiencing growth, but not that extreme as it was 1 year ago. And naturally the same trend with interest rate that it's picking up quarter-by-quarter and still positive impact -- still impact to the [ rolling drive on ] and reach the newly signed agreements at a level of 5.7%. And on the portfolio level, it's approaching to 5% yield. What else on the mortgages, yes, still the previous fast growth reflected on our increase in market share and still, I would say, rather substantially by 1.4 percentage points. And that's more than 6% market share at the end of the first quarter of our bank. On the consumer side, I'd say one of the most successful quarters in our history with a strong growth of -- on a quarterly basis, 10% on a yearly basis, even 36%. So strong performance mixed with our cooperation with our partners, with our marketing campaigns, with our interaction with the bank as a sales channel. So a mix of different instruments led to significant growth during the second quarter. And with that, we still maintain really strong and high yield on the portfolio. And on the new agreement signed during the second quarter, we even have increased our interest rate up to 10%. And that's a good result, having experienced such a growth in competitive markets to maintain or even to increase our interest rates. So let's go on to the daily banking. So it's also, as I mentioned, diversified structure of different type of incomes. And as always, most time in life, there is some good trends and some weaker ones. So starting with weaker ones, I would call that despite the cash operations, it still remains as a top 3 position in our net fee and commission lines, but it has a tendency to go downwards. And there's a number of events that's stimulating this trend downwards on the cash operations. The recent one is mainly related with stricter sanction risk management related limitations that were implemented in the bank. So that leads to a smaller income generated from that activity. Also, the obviously negative impact on the payment services, despite that we have a flat development there, we have lower income from international [indiscernible] payments that also impacted mainly by the restrictions to some regions and our risk appetite management to managing -- mainly managing sanction risks. On the other hand, a positive at the other payments outweighing the decline in international payments and compensate that with the other part of that services. Also on a positive side, I would say the continuous growth of a number of clients and becoming active clients is a positive, as well as migrating to the higher value of services that generates higher income for Siauliu Bankas. So that's either the more advanced and more value generating for the clients' service packages or credit card itself. So those sales are generating higher return. And we consider continuing that path and that on a longer run, we are sure would compensate that those lines potentially still have a pressure in the long run to be drivers of fee and commission income. Important element, which is each year, I would say, becoming more and more important. This is a development on the digital agenda. So the new initiatives also is continuous. So the first thing that we just recently upgraded is the access to our e-channels using all the user names, it's mainly from a user experience the new thing, so still very safe access to the bank, but with less information needed to [ drive in ] for the clients, entering all our electronic channels as well as we're now testing and most likely this month, we launched the so-called e-PIN or electronic pin for the payment cards that could make faster and simpler the process of renewing or getting the cards -- payment cards for the clients. As well for the business clients is a renewed open banking solution, which is important for our partners to walk to the bank through open banking. So it's much more convenient structure of the data that how companies through open banking can operate with us. And the last but not least, the project that we are already several quarters in, it's the digitalized card in the phone, as we're expecting, and we're making testing works with our IT provider. And at the end of the year, we're expecting to launch both for the Google and Apple interfaces. So the development in digital continues, and we're expecting that this agenda will continue to be strong in our plans. So with that, I would pass the word to colleague Donatas and later probably, will join you back to answer your questions.

Thank you. Okay. Thank you, Vytautas, and good afternoon, the investors. I would still like to start commenting slide about Funding & liquidity with the news that make our access to broader markets easier. In June this year, modest investment rating agents, upgraded bank long-term deposit rating to the highest level in Siauliu Bankas' history and it should be noted that this upgrade was made despite uncertainty and slowing economy. And the fact that consistent and balanced growth of Siauliu Bankas, that means that such strategy is paying off and it's important achievement for us and confidence boosting indicator for clients and for investors as well. So as I mentioned, this upgrade makes our access to the markets easier. And we're using this opportunity by issuing subordinated loan this quarter, but the main source of funding remains deposits, both term and demand deposits. During the quarter, we saw a continuing shift from demand deposits to term deposits. And it is understandable that when savings become -- became a good investment opportunity for depositors, they are moving to the more attractive instruments. In the meantime, we also continue using other in terms of funding. And during this quarter, we repaid part of TLTRO loan of EUR 150 million and the remaining EUR 400-plus million will be repaid either in next year, in the middle of next year, or we'll use opportunity to repay arrear and which alternative we will choose, it will depend on the market situation. So both options are available right now. Cost of funding continue to grow up, and we expect a similar trend in the coming quarters as well. And the same time, the liquidity risk metrics such as LCR ratio stands at same level of 225% and loan-to-deposit ratio is very balanced, and it's close to full balance and it is almost 98% at the current moment. Yes, we could move on to the next slide. And it's about operating expenses. Naturally, as the bank grows, both parts of OpEx is growing up, main part of salary expenses grew by 17%. And the main factor for that increase was the continuing growth of headcount and the impact from regular annual salary review that was made in the second quarter. Operating costs increased. Other operating costs except salaries increased by 28%. And the biggest part of that expenses are IT. And IT expenses is growing, as bank launches and implement initiatives related with the digitalization and all systems that requires automatization and efficient management, whether it would be the sales enhancing systems for regulatory or compliance systems, they all relate with the IT expenses. And despite the growing expenses, the operational efficiency is maintained at a very good level and which is currently 35%. Talking about capital & risk management. So probably first, I would start with NPE metrics. So we see that it increased in the ratio a little bit. In absolute terms, it increased [ noticeably ], but when we try to find what drives such increase, we could not observe any systematic shift what we saw during the second quarter. So several customers became nonperforming for us. But we hope that they could get back to their loan after some healing period. And no conclusions can be made about any systematic [indiscernible] so far. Cost of risk in the first half is at 0.4%. It's slightly above our target 0.3% for the whole year, and we expect if situation will remain as is right now, so we will follow the plans and no adjustment should be made in that part of expenses. Important and very important metric for investors, especially is the capital adequacy ratio, which is, obviously, it has a direct connection with a possibility for dividends. As the bank grows, it requires more capital to maintain such sustainable growth rate. And due to the fact that bank is profitable, so these earnings allows us to fund our growth and to share some extra profit with investors. And [ first ], sharing could be more generous if we wouldn't have increased from regulatory requirements. Usually, we had one limiting factor of capital adequacy ratio requirement. But in the last few years, another factor that becomes as obstacle to share dividends appears such as MREL requirement. Abbreviation MREL stands for Minimum requirement for own funds and eligible liabilities. And this ratio is growing up and when we see our current level and making forecasts towards the year-end and beginning of next year. We see that we will have only a very thin margin above requirement. Therefore, that would be -- will be the main limiting factor for dividends, which is -- which could be above our dividend policy. But dividend policy level mentioned in dividend policy is the main target, and we are pretty sure that we will be able to meet these promises that we made in our dividend policy. Let's move on to the last slide of our presentation before the Q&A session. And usual graphs and tables with updated figures, and I would like to mention that in May, companies as Invalda INVL, Tesonet [ Global ] increased their shareholdings in Siauliu Bankas following the implementation of the second series of the transaction with EBRD. And still here left to complete the share acquisition processes. And as of today, out of 18% shares that are going to be sold by EBRD, 12% already have been sold. And worth to note that together with these changes that we anticipated in advance and we present future shareholders shareholding -- biggest shareholding structure. So we see the founders of the bank that are on the bigger shareholder list, they are also increasing their stakes in the bank. When we follow the trend of the share price movement, we see that it was not obviously optimistic. But one of the biggest reason was that this trend was influenced by some pressure from one institutional U.S.-based investor, who sold its stake during the first half of year and should be mentioned that he sell what he wanted to sell, exit from Siauliu Bankas. And this supply was well absorbed by the market. And we see that the number of shareholders that currently stands slightly below 20,000 shareholders, probably they absorbed such supply. That's all from my side regarding the main part of presentation and in our Q&A session, we will be happy to answer your questions.

Thank you, Donatas and Vytautas for the presentation. I will take a moment to say that it is already available on the NASDAQ Baltic website as well as on Siauliu Bankas' website for investors. So now we will proceed with the questions. Before that, I will -- I would like to remind you that you can submit the questions in the question box of your screen, either with your name or anonymously. So the first question is, what is the goal of the subordinated bonds issue? Does it support growth or other reasons?

Yes. Well, thanks for the questions and other questions, it seems so there would be some of them popping up continuously. But answering to the question on subordinated debt, I would say it's both. So we would say we started with the some regulatory requirements, that we needed some additional Tier 2 capital to mainly comply with the subordinated MREL requirements. On the other hand, we have additional amounts of that instrument that will be allocated to the growth, it's in the range of EUR 10 million. So that would be purely for the further growth reason. And the other thing is the better structure of the capital layers. So we are introducing larger Tier 2 capital, which is less expensive than the Tier 1. And that would allow to comply with the dividend policy easier and to optimize the capital structure. So I would say the reason is for the both purposes to comply with regulatory requirements as well to use opportunity to grow in a market, which is still, I would say, despite all the volatility, still rather favorable.

The second question is why the bank's performance and share performance have been average? Does management consider a share buyback option in 2023?

Well, so a few questions in one. So I would not say that the performance is average, I would say, on our capacity level, and we are utilizing our balance sheet as much as we can and the performance as we presented with a 60% operating growth with the return on equity 19%, I would say it's pretty strong. So the performance is there. The stock price is not always correlates directly with the performance. We're expecting to catch up continuously, and we presented to the investors the reasons why. Even considering that the growing capital and even if you are slightly below the book value, you are still with the growth of capital in the balance sheet, we continue to grow the price of the share as well. So overall, I would say the performance is good and the perspective we see as a positive in the market to grow for our bank. Therefore, the share performance should catch up. And compared to the peers in the Baltics, so our performance was only 5% lower compared to the strong players. So it's not that significant for that period of time. And talking about buybacks. Yes, we have allocation of some amount to that. And we're now in discussions and the process with the regulator to clarify the usage of cash buybacks. And once we receive this permission, will be available to utilize that option in the market, especially if the share price would be not in the sufficient level. So -- but we are coming closer to this usage of the cash buybacks potentially in the end of this year.

Could you please review what are the growth strategies for the future?

Yes. Good question and probably not expanding too much, but mainly mentioning several key drivers for our growth in the future. So as our base, still we will continue to use our credit-related instruments and growth in income generation from the credit instruments. So there, we have a strong history and we are performing pretty well today. And I would see that's a good base for the future growth in that area as well. The other part is the retail offering together with INVL, both client base and the products. I think this is the good mix of the additional part of the products provided mainly to the private individuals. So we expect the growth there. It's, of course, not a short-term target. It's a long-term ambition to be a strong player in the markets in the retail business, covering main client needs, such as daily banking lending products as well as investment and savings. So with that transaction, with that merger, we fully will be capable to be able to offer bank to current and the new clients. With that related, I would say, development on the capital markets business dimensions, so there we see the potential to grow. And this again also the current strength of Siauliu Bankas and together with expertise that are joining us from INVL, I see the strong area of additional income generation in there. And as enabler to make that happen, I would say that the continuous digital and technological improvements is in our agenda and it's a part of our future strategy, which we are now working on, as was mentioned last time. We're continuously working and seeing this transaction with INVL as not only transaction that enlarges our institution, but also that renews our strategy and builds the new way of running bank as a much more modern and future clients and future needs oriented bank. So I would say that's, in short, the strategic growth areas, potential strategic growth areas of our institution.

Thank you for the answer. How do you anticipate that windfall tax influencing the bank's return on equity and return on assets? Has the bank made any adjustments to its long-term financial targets or strategic plans due to the introduction of the windfall tax?

I'll take this question. I see a lot of similar questions coming and it's understandable because it is a new topic and it was described that it will affect banks very significantly. Despite the fact that the law itself was passed in May this year, but it was not so easy to understand how the calculation should be made. And therefore, we made consultations and wait for explanation from the tax authorities regarding the very concrete questions. And after we get it from tax authorities and estimate, what is the situation of Siauliu Bankas, we came to a conclusion that no impact for the 2023 will be for Siauliu Bankas at all. So there are is no need to make adjustments to return on equity or return on assets. With regard -- because this windfall tax will apply for 2 years, it's still too early to estimate the exact impact for 2024. But it could be the case that it could be 0 as well. And it depends on the [ speed ] how new loans will be granted to the customers of Siauliu Bankas and what interest will be paid for depositors. But even the best scenario will not be implemented. So the impact will be quite small, and we estimate it will be, in any case, below EUR 10 million for the next year. But again, we will follow this situation and keep investors and market updated on this respect.

Thank you for the answer. Now let's move on to the next one. Siauliu Bankas lending to businesses has been strong in contrast to the underlying market. Were there any specific sectors that drove growth in this half of the year? Or was business lending growth kind of broad-based?

When we look at the exposures that were disbursed and the second, what affected our loan portfolio growth, we could not distinguish any particular sector. So as the bank portfolio is well diversified, so the new loans are also following the same trend with no concentration on any particular segment. So answering your question straightforward, this is kind of growth broad-based.

The deposit market is arguably highly competitive now. Do you expect any easing of that competition in the remainder of the year?

Short answer to that would be No, because this competition will remain probably at the current level or could be even more intensive because as you probably know, the government is having the initiative to move state-owned companies and institution funds to the Central Bank, and they have the time line for that. And the -- which companies, when should they move their funds to the treasury account with the Bank of Lithuania. So we will know -- we have no direct significant impact to Siauliu Bankas, but we're making assumption that probably it will affect other bigger banks and probably they'll be more willing to compete with -- to the depositors. We are positive that the competition will remain quite intense as it is now, but we are used to this. We have good experience competing with the top of the depositors and having to remind this situation that we have broader possibilities to find alternative funding. So we are pretty sure that we will have success in that competition.

Thank you for the answer. After a strong first half of the year, is it reasonable to expect some moderation in net interest margin in the second half of the year given that deposit prices are rapidly catching up with EURIBOR and demand for term deposits is increasing?

It probably will continue.

Yes. So probably I touch a little bit in the previous question that the situation will -- with the deposit prices will continue. And as not all depositors repriced during the first half. So we will have increase in interest expenses, and therefore, net interest margin would be moderated as it was expressed in the equation formulation.

Thank you for the answer. And now we have a couple of questions submitted at once. We will skip the first one since it was covered in previous questions. So what is the reason that only a relatively small portion of 90-plus days past due loans in Stage 3 bracket are mildly provisioned? Is it due to the collateral of these loans? Have you reposited the assets? And are you monetizing the collateral within these defaulted loans already or how come the provisioned amount has stayed stable over time for these loans?

Widely broad and detailed questions. So the main reason that about the mild provisioning of Stage 3 loans are usually the [indiscernible] and Siauliu Bankas has a long-time tradition to help our loans with good collateral. And regarding the second part of the question, have you repossessed the asset? So probably the answer is no because if we repossess an asset, then the exposure will disappear and then we would have the real estate, but it's not the case at the moment. We are not using such practice because the quality of loan, as I mentioned, remains quite healthy, and we see no signs of systematic deterioration of these loans.

What impact does the ECB's decision to not pay interest on minimum reserves have on your NII?

Sorry for the delay. So we -- it's quite a new decision that it was announced on the few days ago and our initial estimation that it will give a negative impact to our net interest income by EUR 50,000 per month.

Thank you for the answer. What's the update on retail business merger with Invalda?

Yes. And we have touched a bit that topic on update, but to expand a bit more. So as we plan. So according to the process, we, on the first of December should become as a one merged entity. So different things should be executed before that. But according to the process, we are going according to the plan. So there are still licensing with Central Bank of Lithuanian and SB is progressing, and we're expecting to receive that shortly for the newly established Siauliu Bankas asset management company which the part of the business will be transferred. So as I mentioned earlier, there's a number of project-related things happening. There's a hard things as an IT system integration, and I'm also happy about that, the progress that continuously in green, and there's no major concerns on IT side, which is always important element in transactions like this. And on the soft part as well as, a lot of development in our organization. So both organizations are preparing for the merger not only technically but also as a culture. So there's a number of development from HR perspective, on a managerial perspective is going on, even such a soft thing as a participation is in 1 United Summer Festival, both organizations going to take part this month. So that shows that the work is, I would say, progressing smoothly. In some cases, we're already acting as a one team and that increases chances that the most of the value will be utilized successfully. Anyway, so technology is one thing, but behind that, it's a human beings who interact with each other and provides a real value. Therefore, I would be expecting that everything is moving according to the plan. And from the first of December, we'll be able to work as one organization. The parallel to that is the strategy development, and we've decided not to make the merger as the merger itself but also to develop and work on the strategy. So currently, we're internally in discussions within the bank and with the Supervisory Council on a strategy development. So once we're ready for that, we'll definitely bring that to the investors as well.

Thank you Vytautas for your answer. Would you expect to maintain or improve the loan portfolio growth in the second half of this year in comparison with the first half of the year?

To make short, I would say, in general, I would say, to maintain the growth. So that's our target because the first half was rough intense. So probably there will be some deviations most likely the consumer lending will be not growing the pace it was. Potentially mortgages would grow faster than the first 2 quarters. So we see those trends. But definitely, it's hard to predict how the market will develop, how the private individuals will react to the further development in the internal and external impacts. But overall, I would say it's maintained. It's expected to maintain the growth as we have since we have additional capital to that. So that's a good sign that there was no internal restrictions to make a bit faster growth if we would see that the market is favorable to that.

Thank you for the answer. Before moving into the next one, I would like to take a moment to say that we're getting quite a lot of questions. And if there will be any of the questions that we won't be able to answer right now, so Siauliu Bankas will be more than happy to receive it via the contacts that you can find on the Investor Relations website and they'll be happy to answer those right away. So do you still expect to pay back the final TLTRO tranche at maturity in September of 2024? What stops you from paying it back earlier? Is it duration matching that you have done on the asset side? What margin do you currently have to pay on the outstanding facility?

I tried to touch this topic during the main presentation, but I could summary to present right now. So main scenario is to repay at maturity in September 2024. But we are open to see whether it's profitable or not because the fact that ECB decision of the pay interest on minimum reserves would affect our decision. So we will estimate other alternatives at each alternative repayment deal. With regard to what we paid to the outstanding facility, it's the calculation of the cost of funding is quite complicated. And the final interest rate is -- becomes clear at the repayment date. Of course, we're making a accrual proportionately each month. And I prefer to not disclose this figure. But I assure you that we are monitoring whether having such facility is beneficial for bank or not. And the fact that we are keeping these funds that say that its business -- it's a profitable business for the main.

A big part of investors do not understand that subordinated bond, even at such high interest rate is a win-win deal for the bank. Could you please shortly explain that?

It is a good statement and the question both I would say it's correct that the subordinated debts, even in the range that we attracted in range of 10% is better to have -- and that is generating additional value for the bank, especially when currently, we're generating close to 19% return on equity. In the longer run, we said that our target is to maintain around 15%. So that's one of the fuels that is needed to run the bank. So liquidity is a one factor to have a source of funding, but another one is the capital and the Tier 2 capital, which is subordinated, that is really applicable to that. And the other part of that is that the regulatory requirements probably is not always intuitive for the investors how it changes and how it attracts part of the capital and locks part of the capital to fulfill the different type of requirements but that is coming mainly from the Central Bank of Lithuania, from ECB or so-called [ SRB ], that are in-charge of MREL requirements. So all those components require some part of the capital. And the sub debt is the one of the very good instruments to balance not only the most expensive equity part, but also to have additional layer of sub debt. So as I mentioned, even with the 10% plus sub debt, it's worth to run the business and to attract new loans instead of not doing that. So yes, that's a correct observation. And I believe there are more and more investors that clearly understands that and follow that lot.

Thank you for the answer. Do you see the need for additional Tier 1, Tier 2 bond issues?

What -- with regard to the Tier 2 bond issues, we reached our appetite level, maximum appetite level. So there are no useful reasons to make an additional Tier 2 bond issues. With regard Tier 1 bond issues, so it could be the case, and we're considering that. But in order to take positive decision, we have to see the bank for such type of instruments in the market. And so we're evaluating Tier 1 bond issue question, but the decision is not taken yet.

How does Siauliu Bankas plan to leverage its technological capabilities to improve operational efficiency and cost effectiveness.

Yes, that's a broad question, but an important one since the technological element is critical and probably essential for the future bank. I would give the answer through the angle that the sufficient scale, especially on the retail type of business is critical to be efficient on the technology side. Only having -- if you need to make investments and we need to make investments, where we will make investments, the prerequisite to that is seeing that there is a scale, which will provide later on the cost efficiency and the ability to generate profit from diversified income portfolio. So that's our aim to continue investment in technology and through the growth, both on the corporate side and on the retail to achieve that, to achieve cost efficiency and operational efficiency.

Thank you for the answer. How does Siauliu Bankas plan to manage interest rate risk and potential yield curve fluctuations in the current economic environment?

So interest rate risk is not new for the bank, and we managed to deal with it during [ COVID ] -- it was a history of Siauliu Bankas and, of course, earlier, the bank was smaller and not so complicated and probably the tool that we used for our interest rate risk management would be simple, more simple. But as the bank grows and complexity increases as well, we need to use more sophisticated instruments. And currently, we are implementing a system, which allows us to measure interest rate risk more precisely and to use the best instruments for that, including derivatives and so on, but it's not a unique situation what we having right now, it's not unique. We show the buzz that we are managing, we are able to manage interest rate risks successfully and get from that risk profits. So it's not about avoiding risks. It's a question about how to translate that risk into the profit within limits, which is set in advance.

And this had been the last question of this session. As I've said before, I would like to remind you as well that you can always reach out to Siauliu Bankas Investor Relations Department. You can find a context either on NASDAQ Baltic website or on Siauliu Bankas' Investor Relations website. And I'd like to take a moment and thank the panelists; the CEO of the company; Vytautas Sinius and the CFO of the Siauliu Bankas company, Donatas Savickas, and all of the guests who have listened, submitted the questions and that are actively checking in on the company's results. So -- and also this recording will be available on the NASDAQ Baltic YouTube channel a few moments after this event will conclude. So thank you all, and have a nice day.

Thank you, everybody. Bye.