Banca Transilvania S.A. (TLV) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Banca Transilvania for the financial results. At our customers' request, this conference will be recorded. [Operator Instructions] I now hand you over to Ömer Tetik, CEO, who will lead you through this conference. Please go ahead.

Good afternoon. This is Ömer Tetik speaking. I'm glad that you are with us and hope that you are keeping up well, getting used to the new normal. And I hope that this will not become the norm for the medium and long term, although we see lots of changes and even more changes about the -- what will remain, what will change, what will transform due to coronavirus situation and afterwards. It has been an interesting first quarter for us because as usual, month of January is quite silent, I would say, in terms of new business developments in Romania, it is a little bit up post-Christmas holidays, Winter holidays and so on. And usually, March -- the month of March was when the new production and heavier new business generation would have started. But this year, starting with the very beginning of March, we were hit by the lockdowns. We were hit by the growth in the numbers all around Europe. And I think the measures taken, although economically, we are still lagging behind to take new measures and to take some -- I'll say, to give some good direction to the market. Romania was one of the good examples so far in terms of the health care situation, although the infrastructures and health care system is not that well developed, still the measures taken in terms of the emergency situation, lockdowns helped to keep the numbers quite under control, which is -- if you look at competitive numbers, Romania is doing better as compared to its peers and other European countries. Also, our first focus during the month of March was issuing definitely business continuity under safe conditions for our staff and for our customers. That's why we were one of the first banks, if we are not -- if not the first bank, announcing measures in terms of staff safety but also in terms of postponing payments including credit cards for 2 months so that a few hundred thousand customers where we are happy that we have a very good market share. We are the market leader in credit cards and generally, plastic cards and debit cards as well. We said that they shouldn't bother to come to the bank branch if they don't have the online banking instruments yet. On the other hand, we have seen definitely growth of e-commerce and some of the shopping in the day later on. We said that we should be accessible and available for our customers 7/24 during this period so that we will give also a message of continuity, normality to them. Definitely, people reading news, watching TV and panicking about what may happen, their businesses, where they work or where they are the business owners, their business is shutting down. We wanted to ensure that Banca Transilvania is the market leader but also the company, the bank, which is issuing almost 1/3 of payments, both online and through its network in Romania will continue its activity and assure their safety, both financially and personally. And our measures were well appreciated by the customers and by our personnel. I guess as an employer and as a business partners, we have proved again that we are a reliable institution. And we say that and hopefully, it will be -- this is considered to be another investment for the future -- immediate future. What we have done initially was a 2-month postponement, which we prolonged for another month, 2- to 3-months credit card payment postponement. Then also up to 9 months, we postponed the installments of ongoing loans for our SME and retail customers. And we said that with -- for mortgage loans, the delayed interest amount will be recovered in the next 60 months without charging interest on interest even if the existing emergency ordinance would allow us. And we offer this private moratorium as an option to our customers even if they may not be subject to public moratorium, which is regulated and strictly, how would say, administered by the emergency ordinance. And I would say -- I will come to the numbers as well with regard to the restructuring. Also, we started offering more services online. Some of our digitalization efforts, which was a kind of a road map, became an emergency, and I'm glad that our technical teams, our technology personnel has managed to offer account openings online. And we started offering more features in our wallet application in BT Pay. And also, we started distributing digital cards through our BT Pay and meanwhile, using the physical courier delivery network for the customers who would rather not come to the agencies. We have seen also a huge increase in the utilization of our ATM and multifunctional device network. Customers definitely prefer to use them more. And also, we started the cash withdrawal with an SMS without a card in our ATMs so that if you have a BT wallet and a functional mobile phone, you can withdraw also cash without card considering that some of -- for some of the customers, cards might be expiring. The expiry of the card are coming or might be some technical deficiencies. So we said that they should have full access to their accounts and to their transactions during this period as well. And it has been because of the public moratorium, it has been also a huge demand on new account openings, including for the technical unemployment proceeds to be encashed or for other benefits to be encashed. And we have seen that there was a huge number of new accounts opened during this period of time, although we also offered online opening to customers. Some of them prefer to come to the bank, also the first contact, which helped us to get to know them in the first days of corona crisis. We are also very much aware of the fact that before we saw the health care and the health crisis, we will not be able to address the economic issues, the financial issues with a greater focus. That's why BT, as part of the community, had been supporting local hospitals, local medical staff with direct donations. We also imported ventilated masks and gloves from different countries. And recently, we joined forces with 3 large companies from Romania: eMag, Mobexpert and Bitdefender, where we launched a campaign of donations. And so far, thousands of individuals and companies have donated over EUR 3 million there. And we will -- we are continuing the campaign. And all the proceeds of this campaign is being used to buy equipment for the medical personnel and health care institutions and being donated. We are also -- coming back to the restructuring numbers, so far, numbers we see, both from retail customers and from company customers are below our budgeted estimated numbers. Although it was quite challenging for us to have a budget presented to our shareholders' assembly last week, still we try to put best efforts and best estimates according to the data we so far have. But the real -- the numbers that we had was the real number that we have so far show that the restructuring requests are still at single digital in terms of percentage of total portfolio, although we budgeted up to 25%. And in retail, we see 5% to 6% of the customers asking for a type of restructuring. And in the company segment, including large corporates down to micro lending, slightly below 10% of the customers so far asked for postponement of payments or restructuring. These numbers kind of support the ideals of Chief Economist, Dr. Andrei Radulescu, about the V-shape recovery with the contraction of GDP -- Romanian GDP between 4.5% to 5% this year and with a recovery of 5%, maybe 4% to 5% next year, last quarter of this year, contributing quite strongly to the recovery effort as well. And we see as also -- as per the official declarations, regarding the pandemic, the numbers are reaching the peak level if they didn't peak out yet. And there is already a discussion about the fact that starting the 15th of May, Romania will go out of the emergency state to a lighter alert state. Businesses will start opening. Everybody's most favorite sectors, hair salons and hairdressers, they are going to be allowed again. The only big issue in terms of labor force as well is that schools, the fact that they will not be opening this year, it will create further pressures on the labor force. And some of the mothers or fathers have to stay at home to support online learning efforts or just to take care of their kids. I will -- the presentation that we collected it in terms of information about what we have done and how the first quarter is finished is already on the website of the bank. If you didn't have access -- if you didn't access it so far, you can also do it now or after the presentation. I will go briefly about the numbers, and we will try to address your questions in order to offer a better picture. We were following also our peers, both from Romania and out of Romania. Definitely, it's very difficult to give guidance about the quarters, about the months to come. And most of the numbers, so far, we had in the -- even in the first 2 months of this year, they are not relevant anymore when we look at our customers as well. I mean all the scorings, all the models, all the IFRS models that we have, they might -- they may not be very relevant. But coming back to our financial numbers, performance during the first quarter, our net interest income is RON 660 million. The net interest income has been impacted by the POCI which is by a significant number. But also by the interest or the installments that we started postponing mainly from credit cards, where we have a large portfolio. The net fee and commission income, we were expecting the step regulatory reductions of our regulatory obligations to kick in. But it was, as per our previous plan, as our volumes were increasing, we were quite sure that we will compensate for it. However, with the COVID situation, some profitable transactions for us, the volumes decreased. But on the other hand, we started offering some services free of charge to be accessible to our customers and also offering more cash and to keep more cash in terms of bank notes in our buffers, issuing them, created an extra burden on the commission -- net commission income. But this -- giving the assurance, the comfort to the customers, we see that it created less pressures, not only on us but also the whole banking system in Romania. We have also started changing our models in the first quarter in terms of provisioning, an IFRS model, which actually created additional provision booked normally first quarters of the year. We don't have much provisions booked. But this time, our numbers in terms of provisions grew. Without recoveries, our cost of risk is over 100 basis points. But because we had also, in the first 2 months, good recovery, our cost of risk is seen as 40 basis points. We are still at a comfortable level of capital ratio with -- at 18%. And we are also -- with the numbers that you see, I would like to underline, they don't reflect any of the so far announced relaxations or other inputs from European banking authorities, European Central Bank or in National Bank of Romania. So the numbers are as you see them, and they are not relaxed as per the official announcements. We will see -- assess the situation and come back to this later. We want to have a better picture of the markets, our customer situation and then decide how much or if it will be necessary to implement those buffers and relaxation. So in the first quarter, again, our NPL ratio, PAR 90, is quite stable at 2.8%. We had been seeing some growth in terms of asset generation both in the lending and also in the fixed income. Our profitability has been impacted in the first quarter also by the market to market due to the fluctuation in the markets, in all the financial markets. In April, so far, we have recovered most of it so that second quarter is coming -- starting with the month of April, seems the markets are slightly more stable and the most -- at least the volatility is reduced. Also, although it's not yet -- I mean it's not included in the first quarter results, as you know, Romanian Government launched the [ EMENA Invest ] SME Invest Program. This is a total of RON 15 billion, almost EUR 3.5 billion for new lending to SMEs, working capital and investment loans. And we are happy to see that over 65% of the customers so far opted to utilize the loans through Banca Transilvania. We are looking forward to sign the convention with the National Guarantee Fund and start servicing those customers so that we can see some new business in the second quarter as well. I will not go to further details of the numbers and try to answer your questions. My colleagues are also on the line included and hope that we will answer your questions on the spots. If not, we will come back to later, either posting the -- within the presentation in our site or by an e-mail. Thank you very much so far for listening to us, and we can switch to Q&A.

[Operator Instructions] And the first question is from Hai Thanh Le Phuong, Concorde Securities.

Just a couple of questions from my side, particularly on the moratorium. So if I understand it correctly, the deferred interest that you offered to clients, so are you booking them still on the NII? Or will you defer it further and then we may saw a delay in the payments? Also, I would like to know if there will be any negative one-off that you can maybe disclose to us regarding the moratorium. And the other part of my question would be on capital needs. So could you state like what is the capital requirement currently that the NBR set to you?

Hello. I will take over the -- to answer the part related to net interest income. So first of all, with respect to moratorium, even though the interest payment and principal is postponed for the couple of months or even 9 months at the maximum, that doesn't mean that we don't book interest at all because this is a matter of cash flow, and we're booking interest according to the effective interest rate competition. Of course, depending on the individual structure of the loans and the fact that some loans have a shorter maturity and 9 months for a loan that is -- has a maturity of, for example, 1.5 years could mean that it's a longer-term compared to the overall maturity of the loan. It may be the case that we need to book an adjustment to the present value of that specific loan. But at this point in time, we cannot give the guidance as to how much such an impact would be because we haven't still finalized to process the loans and to see the quota of clients that are in those specific situations. So we have budgeted, however, a number of loans. And our assumption is that most of the loans will have an impact under 1% in terms of the present value impact. And what we -- Ömer already mentioned in the beginning of the presentation, we have assumed in the budget, a slightly larger number or percentage-wise of clients coming to us and asking for postponement of principal and interest than what we see right now. So in the budget, we have until now budgeted an impact of RON 200 million, but we think that sort of it was like a pessimistic scenario that will not happen in reality. This is the answer to the first part. I know that Mihaela wanted to pick up the capital outlook with the related question, which was your second question.

Yes. So for the second question, when it comes to the Tier 1 capital, they are the requirement of the NBR without considering any kind of possible easing. So whatever EBA is mentioning greatly and also our Central Bank was mentioning that they would consider, we were not taking anything into account as possible. So the requirement for Tier 1 is at 10.05%, while BT is having, as of the end of March, 15.5%. And when it comes to the total ratio, again, with all the buffers included, the NBR requirement is at 14.5% and BT is at 18.7%, again, as of the end of the first quarter. These figures mentioned for BT at the end of the fourth quarter already including the proposed figures to be distributed as cash dividend even if they might happen or not happen or depending how the situation is going to be until October 1 when the payment date was approved by the shareholders' meeting to take place. And it's also including, let's say, a lot of items, which were considered like extra steps to be taken according to the, let's say, historical way in which the capital requirement has to be implemented according to CRD IV.

The next question is from Mr. Catalin Diaconu of Raiffeisen Bank.

So I have 2 questions. The first one would be about the cost of risk. So cost of risk was 50 basis points, which was actually a bit of a positive surprise given the current environment. So when we should see the jump in cost of risk in the coming quarters? And how do we stand right now versus your outlook in the budget, so around 230, 250 basis points? And what would be the drivers for the variation. And the second question would be related to the moratorium. So if the version of the moratorium with no interest and needs to interest would be paid, how do you assess the potential impact? Not necessarily numbers but at least to have a plan or to have a bit of color on what could happen immediately.

Thank you very much. Ömer, again. The idea is that, as I tried to mention, we had a -- without recoveries, our cost of risk has have -- has reached 105 basis points in the first quarter. I mean you asked for a jump, so you already offered the -- you said -- you mentioned the jump. So you offer the guidance, so you are expecting a jump. But I think we will see it throughout the next 2 quarters, second quarter and third quarter. We think that's the budgeted level as we already put in the budget around 230 basis points is quite well covering, which what may happen. But as the number of restructuring requests are much lower than what we have estimated at least in the -- even answering today, hopefully, the wishful-thinking side, we might not be reaching on that point. We will see definitely after coming back, after the opening up the economy. When the customers will have more direct access and conversation with the bank, we will be able to assess this much better. Your second question was -- sorry, I couldn't catch second question.

So if the debt moratorium would become -- or would be passed as the version in which there is no interest and interest for any kind of loans, what could be the impact? Yes. So want a little bit of a color.

Yes. Thank you. This is already what we announced for our own customers. So even if the law will allow us, the legislation will allow us, we will not apply. And this is already budgeted. As George, before he mentioned, the impact on the net present value of those loans under ever defined private moratorium or public moratorium is going to be below 1%. So that the numbers -- the impact is already budgeted in the finances of this year, the full impact.

And just one more question from me. So could you please restate what you said about the moratorium? So up until now, you said 5% to 6% from retail and 10% from corporate applied for the moratorium.

Yes. It is -- was around 5% to 6% of the retail customers, household customers and 10% of the company customers, which includes from micro up to large corporate. That number in terms of company customers is much more evenly distributed. So it's not smoothing out one segment to another. But again, these numbers as the program -- just -- programs are just being launched. People are assessing their own financials. These are not final figures, and we will be able to give a better guidance only at the end of the second quarter.

The next question is from Lucian Albulescu, IPOPEMA Securities.

So from my side, I was wondering if you could just detail a bit of this SME guarantee-lending program. Can you say what is your share? I think you mentioned 65% in terms of number of customers, but in value, can you disclose it? And then can you disclose the split working capital versus investment in the program? And one thing which I couldn't understand even though I went through the norms, but can a company that applies for -- an SME that applies for a debt moratorium, can it get a -- can it still get a loan from this program?

As I mentioned, the correlation with the National Guarantee Fund for SME is not being -- is not yet signed. And -- but we don't expect -- we have an educated guess about this so that I don't expect many changes. So the total fund, the limit of the total program -- sorry, of the SME Invest Program is RON 15 billion as publicly announced. And all the banks, more or less, were distributed an amount kind of corresponding to their market share, market share in terms of SME lending. That's why we have also, so far, a total amount of RON 3.5 billion limit from this fund. We think that it will be redistributed and probably also the total amount in the next months or quarters will be readjusted upwards. So when I say about 60%, 65%, it is corresponding both the numbers of application and also total amounts. Total amounts -- and what is surprising for us is that we were expecting the request to be heavily on the working capital, but we see that there are -- the investment loan requests are much higher. So 2/3 of the requests are investment loans, 1/3 is working capital. We have to take these files up because now the applications are done at the fund. It's a state fund. And then the files will be delivered to the banks as per the customers' request, the choice of bank. And once funds will decide which are eligible and delivered to us, we will also have a better assessment to understand what is the allocation between working capital and investment loans. But if this will keep up, it's a good surprise. It's a positive thing that customers are heavily interested in investments, in new things so that seems that at least those companies will apply. They solved their working capital issues or they don't consider it as an emergency, at least for that moment. The SME definition for the program is as per the European Union Regulation. So it is almost covering part of the large corporates for Romania, I would say. But the total number, I guess, will not be enough, and it will be -- we assume that it will be expand or a new program of its type will come out. And there are some -- and if you will request not to have any ongoing insolvency, not to have delays, so a certain type of rating, not to have delays over a certain number of months for different amounts and different types of customers so that this fund is aiming to support customers, companies or businesses cover goods and better than good and better without coronavirus situation.

Okay. So we should already see probably in the second quarter, these new loans being recorded in the balance sheet?

This is our aim. I mean we would like to be able to take over files as soon as possible. And then how to process and grant this fund, I think this is what also the economy need. So I think in the second quarter, you will see loans granted.

The next question is from [indiscernible]

Just a quick follow-up on the EU funds you mentioned earlier. Just for my understanding, is this sort of an SME or lending program that goes through the different banks? And what kind of spread do you allow to make on those kind of launches? Curious to know that.

Indeed, as you said, this is a program established, how say, by the government, running through the state fund, which is the state funds for SME loan guarantees has been established just prior to the previous financial program. It's a local program. It's not involving European Union or EU funds. There are some other initiatives, which is going to be announced soon based on the EU front. And I would say, the program is being run through local banks. Most of the banking system is part of the program already. And there are loans for working capital, loans for new investments for -- working capital amount can be up to RON 5 million and up to 3 years, and the interest rate is fixed at 3 months, ROBOR plus 2.5%, and it is 100% subventioned by the state. There are also, for the smaller companies, micro companies, there are working capital loans of up to RON 1 million with 90% guarantees from the state, again, with the same financial terms and conditions of the 36 months maturity and ROBOR plus -- 3 months ROBOR plus 2.5% interest rate, which is again 100% subsidized by the state. There are investment loans for companies up to RON 10 million, 80% covered by the state, up to 6 years maturity with -- well, up to 1.5 years grace period. And the interest rate is fixed at reference rate plus 2% ROBOR -- 3 months ROBOR plus 2%. And again, the interest is 100% subsidized by the state. So that information, now I cannot comment if it's also in English, but the funds website, if you look in IMM Invest Romania, the funds website at least in Romania, has all this information quite clearly, including also which that the amounts distributed, which banks are -- they're quite transparently established. I don't know if I managed to answer your questions.

No. That's very helpful. And then you mentioned earlier also that the total size of that fund is EUR 15 billion and then you're getting EUR 3.5 billion of that. Did I get that number correctly?

Yes. It's EUR 15 billion is the total amount, 1-5 billion, and EUR 3.5 billion is allocated to us. But we will be making -- we are already actually discussing with the fund after they will finalize the first phase of this program to increase the amount because as you see, the customers when it's about -- when there is a SME or microlending management, the customers definitely would like to work with BT. And I think we can do a good job servicing more customers if you will have more access to better limits.

Got it. Okay. And then the 65% number you mentioned, is that just a number of application processed? That's not the value, correct?

This is not processed by us. These are the applications done to the fund. They didn't reach us yet. They will be -- they will come to us.

Got it. Okay. That's very helpful. The next question I have is on your capital. I just wanted to know what the sensitivity of your capital adequacy is to FX. So say, for every depreciation of the RON against the euro, what sort of impact would that have on your capital adequacy given that you have some FX loans on your balance sheet? Just curious if you have that number right now.

Well, thank you for the question. The point is that, that sensitivity is to be considered as the open FX position that the bank might have. So to the extent that we have FX loans but we have also FX resources, as they are quite overlapping and so we don't have any kind of open position there. We can say that this, let's say, exchange rate fluctuation is hardly having any kind of impact when it comes to the capital adequacy ratio, as we are usually not keeping any kind of open positions in our balance sheet. So we are naturally hedged when it comes to the currency structure of our balance sheet.

Okay. All right. And then the other question I have is on the trading loss you have on the profit and loss account in the first quarter. Just trying to understand what led to that, is that FX? Is that interest rates? Just any color on that would be very helpful. And what do you expect on that going forward as we progress into the year based on the trading environment that you can kind of foresee?

So when it comes to the P&L, we have an impact which is a mark-to-market negative impact where it had to do with the volatility in the market of different instruments, interest rate-wise, market price-wise. And there, the majority of that volatility already was recovered from what we have seen during the month of April. So these would be the comments to be made there.

Okay. And then lastly for me is on the digital side which is an area where you've made a lot of progress, and I appreciate the detail that you've provided on this call. I just wanted to understand that as you see a lot or more customers using more of the digital technology platform now given the COVID-19 lockdown, and you subsequently offering a lot of services for free to allow that sort of adoption and also to support the customers, do you plan to reinstate those fees back later on post-COVID-19? Or would you leave them free in the foreseeable future because you feel there may be some long-term benefits to do that? I just want to understand your strategy around that and sort of how that could shift your fee income or ability to generate fees on that going forward?

Actually, because of both, let's say, customer expectations, fintech and other digital banking competition, we were already on the part of remodeling our pricing. And as we announced in the last call, I guess, in the half year call, we were mentioning that we are launching packages. Now definitely, we are not trying to promote. We don't want to take customers' time to explain those packages. And when they come for new products, selectively, be it an account opening or transactional features, we are not trying to consider the business but more of the service. But all these new accounts are also -- hopefully, they will become, at least some of them, will become leads for us for packages that we will sell because we are -- step-by-step we were already giving up on charging a few way here and a few way there. And we were saying that, okay, you pay like in the telco, you pay, I don't know, RON 10, RON 20, RON 50 per month and you have unlimited or this much of transactions, payments, cash withdrawals free of charge. And this is what we will continue promoting. It's easier to promote. It makes customers much happier and comfortable. It's much more transparent. And it didn't impact. I mean we started doing it without SME customers at the end of 2018. In 2019, we went quite aggressively on that. And we just -- we were starting with retail customers, and what we see is that customers are actually opting out for the packages, which creates a good value for the bank as well. And also, they become more profitable for us. This didn't impact our profitability before coronavirus negatively. So that now the impact is here. But after the normalization, hopefully as soon as possible for everyone, we will be discussing these packages with those customers. So we don't see it as a long-term or medium-term loss. And we will come with new features as well. I mean, we try to address -- sorry, for interrupting, we try to address must-have services, transactions for the customers, not necessarily nice-to-have features. And then we will also add up those which are either being already developed but not launched or under development. I think our packages will become also much more attractive for the customers.

The next question is from Simon Nellis, Citibank.

I have 3 questions. The first one is a bit of a technical question. I think you mentioned that you've budgeted RON 200 million being the potential NPV impact from moratoriums. Can you just tell us where that would be reflected in your budget guidance? Is that -- I mean, is that going to hit the impairment line? Or is that shown somewhere else? And I mean, so far, you're saying what, 5% to 6% to 10% of your retail and corporate loan books or clients are affected, what percentages were you kind of assuming under that RON 200 million? That's the first question.

Okay. So this is part of the net interest income line in the budget. And as Ömer was mentioning at the beginning when he was presenting, the way in which we were considering that the number of restructurings are going to come from the clients, that it accounts for around 25% of our portfolio to request such restructuring and postponement of different payments.

I understand. So that's -- so you're far away from that so far. Okay.

Yes.

Yes. My second question would just be on the dividend. So I think you mentioned that you -- the dividend reduction for your proposed dividend for last year, it was excluded from your capital, is that right?

I mean from the computation of the capital adequacy ratio, yes. So the capital adequacy ratio, which is computed for the end and is presented in our presentation for the end of March, is considering that the RON 600 million cash dividend, which was proposed to the shareholders' meeting to be paid as cash dividends and for which the vote was to have a delayed payment date until October. That was considered like not part of the capital which was taken into account for the ratio computation.

Okay. That's very clear. And are you deducting on a quarterly basis the dividend deduction, I mean, on top of that, or is it just the annual?

No. No. No. That, we are speaking just about the one related to 2019 results. We were not having until now any kind of, let's say, policy in terms of having quarterly or during the year, any kind of dividend to be considered. That was not in our --

The capital adequacy, sorry.

Yes, the capital adequacy ratio was usually presented both including and excluding the profit of the year on a quarterly basis, but without considering in any way potential dividend to be paid out of it.

Okay. But the capital adequacy that you reported, 18%, I think, or something...

18.7% includes the payment of the -- that includes the first quarter profit, and it excludes the or -- yes, deduct exactly the dividend for 2019 results.

All right. I think I got it now. And then my last question is just on OpEx. I think you're guiding for like a 14% decline in OpEx this year, can you just provide more color on how you're going to achieve that? I think OpEx actually grew year-on-year, right, in the first quarter?

Partially, it is happening due to, I would say, it was high pressure on the labor cost, definitely this year, that will not be the case. There will be experts, also authority's recommendations, I would say there are very strong recommendations, changes in the incentive schemes, making most of them 0, including the -- most probably for the management and executives. Then there are postponed -- there are some investments we are going to postpone either -- they may not be relevant for the new business model we may have or we may do it at a different price, at a different cost in the period to come. That's why we say we are going to be very attentive on the cost control as well. But also when you make the comparison, you should bear in mind that -- during last year, our cost base has kind of increased, but this year, the decrease, so-called, was much more stabilization of the cost base, not necessarily decreased. When you compare to the numbers from last quarters, actually, the changes are minimal. So that some of the inflationary effects and some of the extra costs that we have due to coronavirus, we are trying to -- we are planning and budgeting to compensate with the cost -- strong, tight cost controls that we have.

Okay. But am I correct in saying that you're guiding for -- or in your budget, you're guiding for a 14% decline in the stand-alone OpEx? Is that potentially at risk, that guidance?

Sorry, can you repeat again?

Am I correct in saying that you were guiding for a 14% decline in OpEx at the stand-alone bank level in your budget?

Well, we are maintaining it. We are...

You're maintaining it? Okay. So cost should come down over the coming quarters clearly then, do you feel comfortable saying that?

Yes. Hopefully.

The next question is from Jim of [indiscernible] Group.

Yes. Maybe I'll follow-up, by the way, on the operating strategy discussion here. You had an increase in Q1, did you have any crisis-related increases in -- or one-offs in the operating expenses in March now? And then secondly, I would appreciate some more details on the risk cost and what led to the 105 basis points in risk costs in Q1, excluding recoveries? And is that from migrations to Stage 2? Or is it Stage 3 already? What do you expect for Stage 3 for the rest of the year and the NPL ratio in 2020? And do you expect to see it rise materially only in the next year, in 2021, following the moratoria? And then lastly, I'd appreciate if you could tell us how the fee commission income developed at the end of March when the lockdown was already in force? And what do you expect for Q2 now?

We are going to take the questions one by one. So the first question regarding the OpEx. George, please comment with the answers.

Yes. Can you please -- I had some noise on the line. Can you please repeat the first question? I will take it, on the first.

Just on the operating expenses, if you had some extraordinary effects related to the crisis now in March?

Okay. Okay. Yes, indeed, we had some extraordinary impact from the point of view of expenses in March. But it's not -- it wasn't material compared to the overall, let's say, quantum of operating expenses, especially related to the initiatives to prepare. The fact that we prepared the staff, we prepared the location, we have contributed to our, let's say, local hospitals and also to the clients' safety. And as I mentioned, there were expenses, but we are talking about, I think, in the first quarter up to EUR 1 million impact, which is not significant in the overall, let's say, picture of the first quarter because we just started those initiatives. I mean, if we compare the month of April with the month of March, we had much more larger impact from that point of view. But in the first quarter, it wasn't that figure. Okay. So other than that, we had some, of course, impact, if you want to call it like that. We started a significant decrease in the expenses with travel because we stopped traveling. But again, because we had only a couple of months of -- or a couple of, sorry, days of the quarter being represented in the overall picture of the first quarter. It's not a significant impact in the first quarter. We will have a more significant impact from that perspective in the month of April and May because we travel less.

Okay. So a positive impact, then more in April and May?

Yes. So it's a positive and a negative, yes, yes.

When it comes to the second question which was related to the cost of risk, there, as we were mentioning also in the previous call, we were having beginning of April, we -- even though we are not yet seeing any kind of shift when it comes to the client repayment behavior and, let's say, the request coming from clients were registered more or less during the month of April. So in March, we were not yet having really any kind of move between stages because clients were still behaving in the same way. We were considering the deterioration in the macro ratios in general. So everything, what we have set aside, are like general kind of provisions. We will consider -- considering anticipating, let's say, things to happen throughout the year. So this is how we came to the 107% gross cost of risk for the first quarter. And according to the budget we were having -- or we are having for this year, the total cost of risk on a yearly basis, we were considering also like being somewhere in the range of 2.6%. This -- in this way, we were more or less anticipating to book significant amount of provisions already in this year and not to pass, let's say, a lot of the burden for the 2021 results. Definitely, these assumptions and the situation has to be confirmed by the way in which things are going to happen throughout the year. But this was the way in which we were building the budget for this year, and we were anticipating and looking at different figures.

I'm sorry. I just wanted to ask on the NPL ratio. If you see the trajectory now peaking this year already or then next year?

So we were anticipating higher shift for 2020 in the moment we were computing the budget. However, it's -- really it's for the first time in the lifetime of BT as well, like the rest of the banks of this work. So whatever was anticipating has to be the improvement throughout the year, that it's going to be like that. But the way in which we were looking during the month of March at the situation, we were anticipating the highest hit during 2020. And, yes, to the situation to improve for 2021. But it's a matter of definitely adjusting at what the reality is going to prove like being.

Right. And I guess you...

I think in the fees and commission, would you like to take that one, Ömer, please?

Okay. Sure. But also, again, we would like to reiterate that, Mihaela said already, George explained, that we are trying to estimate based on the challenged industries and businesses segments, and we will try to impact for all the things that we know and we can, I'll say, have a good estimate, a good judgment. We will try to definitely book this year. That's why our budget was quite different as compared to our normal delivery. I would also -- coming back to the fee and commission structure, as we said that we were partially impacted, I mean, the -- if I may say so, 1/4 of the negative impact came maybe from regulatory changes and the adjustment of the fee and commission scales to the [ offshore ]required ones. But then there was quite a significant cost because in the first couple of days of the crisis, everybody was rushing for toilet papers and flavors to make bread and also cash from the bank, became even supplier of cash for the Romanian banking system and imported significant amount. These transactions: importing, issuing and also delivering, increased our cost base quite significantly, which was not a normal activity. And then also number of operations, number of transactions which were profitable, decreased significantly. [ Balancing ] I can see decreased more than by half. And this also decreased our commission income. Although, on the other hand, higher e-commerce volumes increased some of the fees that we paid. So net commission income in the month of March was quite severely impacted with normalization of things. And as I mentioned, moving more to the packages that we do already very successfully in the SME business. If you do it also in the retail, we'll hopefully smoothen out as we planned, as we budgeted that segment. I shall take the last question and for rest questions -- rest of 2 questions, definitely, you can come back to us. Mihaela is going to answer as quick as possible. Thank you very much.

And the next question is from Daniela Mandru, Swiss Capital.

From my part, I need some clarification to be sure that as well what you presented here. First of all, regarding the stock expenses, from my understanding, the stock expenses increased quarter-on-quarter by 15% at the individual level, due to the fact that some bonuses were postponed from Q4 to Q1 2020, this is correct?

Daniela, I don't think that we have mentioned anything like this in our call. And in fact, the comparison to the end of the year was rather having a different figure than the one you were just mentioning.

So stock expenses quarter-on-quarter increased by 15%. Now the question is, why this happened?

But you're comparing first quarter of last year with first quarter of this year.

Comparing Q4 with Q1 '20.

First of all, yes. First of all, the increase is due to the fact that the salary increases in Banca Transilvania happening in -- after the first quarter of the year, historically. So all the past increases in terms of salaries are happening after the normal -- after the shareholders' meeting. So they -- you have the effect of those increases reflected in the second quarter, of course, the third and the fourth. So comparing the first quarter of this year with the first quarter of last year will actually reflect the fact that we had salary increases in the course of last year, which are effective this year. And there is a component of bonus payment, but that's only reflected in the fact that bonuses that are paid and are actually communicated to the staff in the beginning of the year. They have a way of booking them, which is proportionate to the number of the months that are in the year since the date it was communicated because, as you know, we have...

George, just a second please. Daniela, I'm not also sure if we are clear on the numbers, but what we will do for that, we will, I will say, modify. We will clarify and modify the presentation so we can see -- so everyone can see because I think there's a misunderstanding or misinterpretation of the numbers, and I don't want to give a wrong information on the phone by misunderstanding the question. We will come back on that, and everybody can see it on the presentation.

Yes. I will come back. Maybe I made a mistake. I don't know. Maybe I input it incorrectly, the numbers for Q4. Okay. And now, can you explain, at least to me because I didn't understand, what happened to the net interest margin in the first quarter? Why it decreased by 15 basis points?

Ömer was mentioning at the beginning of the call that an important figure there is coming from booking expenses, which are part of the net interest income part. So we were having a couple of, let's say, postponement of payment and some POCI amounts, which were influencing the net interest income for the first quarter of this year.

And this amount of POCI, what is the amount of POCI expenses booked in Q1?

So it was RON 46 million.

Yes, RON 45 million. But also during this kind of volatility, 15 basis points of net interest margin, I don't want to, how do I say -- say that -- I don't want to undermine it, but other than that, that was a big change, I would say, considering relatively higher interest margins of Romanian banks in general, including ourselves. But the biggest impact is, Mihaela has said, I said at the beginning, it was coming from POCI.

Okay. Thank you. And now you are saying that the restructured loans, the actual figures are much lower compared to the budgeted one. Now do we have a revised figure for the full year? Because you said that about -- in the initial bullet, you said that about 25% of the loans will be restructured. Now with what figure to expect?

Daniela, we are -- we didn't have necessarily a target of -- we didn't have necessarily a wish to have a target of restructured loans. We thought based on our market reading, based on our discussions with our Chief Economist and our customers. This was our best estimate. However, so far, it's a very short period of time. So the numbers are much below, well below this 25%. But I repeat again, in order to be able to give a better guidance, some indications on our shorter expectations, we would like to see the second quarter. If the numbers from the first quarter or if the numbers so far will keep up, we'll prevail, then we will have definitely better years.

Yes, okay. And now regarding the SME investment program, this is included in the budget? I suppose, no.

Sorry.

Regarding the loans through the SME investment program, these are included in the budget?

No. They are not included in the budget. We were estimating that there might be some programs, but we didn't know the shape and size of it and the budget we have proposed before seeing the numbers and results. So hopefully, this will add up. It will definitely depend on how the rest of the customers will behave and what will be our new business generation strengths and capacity, but also if we can deliver as per the numbers existing, definitely, it is on top line.

And if I understood correctly, these new loans from SME investment program for Banca Transilvania could reach EUR 3.5 billion?

Lei, lei.

RON 3.5 billion.

RON? RON?

The program for the -- note, the program is RON 15 billion, which is equivalent of EUR 3.5 billion. I say this usually for our foreign analysts so that they don't have access to Romanian news. But our limit allocated by the [ municipal ] was RON 3.5 billion. And hopefully, we'll have it modified. Thank you. Okay. Thank you very much for joining us and for listening to us. We will have also the transcript of the conversation posted at our Investor Relations site. I guess, Mihaela's team will give you the access details when and if necessary. And if you have further questions, definitely, send us -- post them to us, and we will try to answer quickly. And hopefully, we will be hearing each other at better circumstances and healthier situation once we finish the second quarter. Thank you.

Thank you.