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

Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus Call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the 2021 annual preliminary financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Omer Tetik, CEO; Ms. Mihaela Nadasan, Deputy CEO, Head of Financial Institutions and Financial Markets and Investor Relations; and Mr. George Calinescu, Deputy CEO and Mr. Tetik, you may now proceed.

Hello. Good day, good afternoon or good morning. We are glad being with you but we would have all preferred most probably not to be discussing financial numbers and figures in such an environment -- in such a humanitarian and geopolitical crisis. We're all concerned. It's actually second consecutive year. And although we are proud and happy that we can announce such strong and solid numbers, we cannot be happy about it looking around and reading the news. However, we will try to give you a brief information about the 2021, most of you already know. And then we would like to leave more time for the Q&A session. I'm sure that there will be part of interesting questions to come. In case we will not be able to answer your questions immediately now, we will come back to you. Also, the presentation is already being uploaded to the Investor Relations part of our website so that you can check even more comprehensive information there. And 2021 with COVID challenges and pandemic related problems, was the year of growth for Romania and the economy as well, over 5.5%, almost 5.6%. We have been seeing a very strong and solid growth in consumption and acquisition in housing, also new investment decisions, the resilience and structuring program has been approved. Romania started receiving the first tranche of those funds, very important side of the funds. So all the, let's say, the market indicators except maybe the precious one, the energy prices, thus the increasing inflation. Macroeconomic developments were in favor of Romania, Romanian economy and Romanian businesses. We have finished the year with 8.3% inflation and our budget deficit started, thanks to growth in GDP and thanks to better management of physical sites, those have just started to be under control and decreasing. All along the emerging markets, Romanian fixed interest rate started to slightly increase. Last year, Romanian Central Bank has been much more cautious in terms of change of monetary policy. The changes they had been showing already in the last couple of months very strongly in terms of their view. Definitely, we are following the geopolitical developments and its impact on macroeconomic indicators to understand how is the monetary policy decision will be modified or implemented from now on not only in Romania but also in European Union, U.S. and in other emerging markets. Banking sector has been having a good year I would say, after probably 2006, 2007, so the first year when almost all banks were profitable. The loan growth was almost 15%, and the strongest growth was on the corporate loans with 20%, which is a good indicator of confidence, economic growth and the future potential. Household loans continue to grow as well at a low -- slower pace, just below 10%. Meanwhile, NPL ratio was going down below the 4% target -- 3.8% target, finishing the year at 3.47%. Romanian public had been continuing also savings and it's actually, especially when we come to this kind of base, we say, it's a nice problem to have because the loan-to-deposit ratio of Romanian banking system, Romanian public, finance institutions is below 70%. It's 68% -- it's around 68%. This gives the confidence of liquidity confidence in the sector and also the necessary financing for further growth. Coming back to BT. The second year of COVID-19 pandemic, we continue to be the main partner of government-led programs, be it in many invest -- AGRO Invest or other non-reimbursable grants and funds. And actually, we have intermediated under SME Invest program, over 4,000 -- 4,200 loans. And the amounts granted were together with AGRO Invest close to RON 3 billion, RON 2.7 billion. And we have been also an active partner in the HoReCa, Hotels, Restaurants and Catering industry schemes, where more than 20% of the customers opted their grants to be intermediary through accounting in BT. And obviously throughout the 2021 all the moratoria conditions had been fulfilled. So no loans were left in moratoria conditions. In retail, we have been growing both on lending side and on the digitalization side of the account so-called, BT subscriptions had been exponentially moving. We are -- you see that 2.7 million of our customers are totally both in retail and company segments are fully digitalized. They have at least one channel of digital banking from BT. And we are also very proud of our wallet application, BT Pay, which became top of the mind among customers. The most downloaded and utilized application as per the app stores of different operating systems. And we have continuing our efforts in online boarding on different investments in automation and robotics. Our chatbot, robots has been serving millions of customers and thousands of -- hundreds of thousands of different types of questions -- during last year. We have seen, despite the pressure, especially in the first part of the year on the net interest margin, we have seen a growth in net interest income to RON 2.7 billion. And we are again happy to see that all our efforts in terms of salary, card, digitalization, account services, cash collection and so on, is paying itself back in terms of high growth in fee and commission income. 5, 6 years ago when we were discussing about this item that we were seeing that we would like to see continued double-digit growth, but now actually we are -- you can say that the team has delivered best practices in the market in terms of fee and commission income better than our peers regionally and locally. And the growth of 23% on fee and commission income growth up to revenues of RON 800 million. Our net profit was RON 1.78 billion, much higher than the initially budgeted because, at the beginning of the year, be it on the vaccine side, on the variations of COVID or other governmental programs and the customer sentiment, we were not that optimistic maybe. Our bottom line was to help also with lower than budgeted cost of risk. And we managed to deliver a cost-to-income ratio of below 50% at 48%. Our gross loans are now at RON 56 billion with deposits from customers at RON 103 billion. We had one of the low loan-to-deposit ratios in the market. This is high liquidity, but most of this liquidity is staying without it's 0 interest rates for its current accounts and bringing up the fee and commission income, transactional income that we had been mentioning. And we have -- our capital adequacy ratio, it includes also our profitability is over 24%, which is very comfortable level of further growth and further investments. And we have seen definitely also pressure from increasing operating expenses, especially inflation, impacting cost of materials used, salaries and other expenses that we use. But also comparison to 2020 might not be very relevant because, in 2020, most of the operating expenses of the bank were close to 0, as we didn't make aggressive investments, renovations, travels, customer visits, events or other types of spending. So although the operating expenses increased 17%, we managed to deliver good growth of net profitability of the bottom line. We are continuously a bank naturally hedged in terms of foreign currency position, I would say. Our deposits and loans are very much in balance, and they are mainly in local currency. We see together with a higher inflation and the volatility in the market, customers stopped at least converting their deposits in leu but still our -- more our deposits are mainly in leu, and we are continuously financing local companies, households or institutions also in the local currency. Our NPL ratio par 90 is below 2%, it's 1.77%. And the coverage ratio is 125%, it includes also the collections that we have. Without collections we are close to 90% provision on coverage. And I guess we are also a good practice because not all the banks are listed. You don't know all the numbers, but we had a good [ practice ] in terms of nonperforming loans, ratios and management of collection activities from customers. Our retail loan book reached RON 27 billion with 3.3 million active customers. And only in 2021, we have granted over 220,000 loans, and we are already a trend setter, a market leader in terms of digitalization. We have seen also last year our customers made over 1.2 billion transaction with the card issued by BT. BT will pay our wallet expense 250,000 payments per day, which is much beyond our initial target when we were launching -- investing in our BT Pay application. It was -- it became also how big, an encouraging factor. We are investing more and more now. With this volumes and number of transactions, number of customers, we are learning a lot. We have a lot of data to -- make -- which help us to invest more efficiently, more clever in the further digitization of the bank. In the SME, as per our definition -- BT definition, our loan booking et cetera close to RON 7 billion, it's over 375,000 customers. The growth was over [ 8% ] of the lending and it continues to -- we ask the main bank of small- and medium-sized enterprises in Romania be at their establishments on their first loan or different types of bank product or financial products daily. We are also happy to see our corporate loan portfolio increasing strongly and also very healthily to over RON 15 billion. With medium and large corporate segments, we are serving over 11,000 customers, both on the private and public sectors, quite balanced, and we don't -- you know that we prefer always diversify risk and smaller tickets. And we see that some transactions maybe last year we have missed are -- they were not part of our business strategy. And the large corporate, mid-corporate departments are also having this very important responsibility starting from last year to be pioneers in ESG actions, where we had -- from time-to-time giving you more information in terms of our sustainability, sustainable banking efforts. So if you include the profits of 2021, our total capital, total equity is [ RON 10.8 billion ]. That above the minimum capital adequacy ratio of 8%. We are around 23%. And we are also -- as you will see in the presentation that we have posted, we have good results and good allocation of different capital requirement items as per local or international supervisory body's requirements. As you -- last year, we have finalized the acquisition and takeover of Idea Bank. Currently, in Idea Bank, we are doing 2 streams -- important streams. One part is kind of excavating the bank, taking customers and portfolios towards BT, a project which we will finish in the next 6 months. And another thing is that we are establishing the only local fully digital bank of Romania. We are aiming to launch our first product package early next year to customers. And it will be not necessarily a big competitor to -- or not only a competitor to BT maybe, but compared to fintechs -- different banks, we are addressing a certain customer segment, and certain segment that. We will give you more information. But it will take some time for us for Idea Bank, which is, after we also rebranded to be a sizable, significant part of our portfolio. We have also -- before the end of the year, we have finalized and then signed early 2022 the acquisition of Tiriac Leasing. This is a segment we have been mentioning a lot during our last years of conversations with you, with analysts and investors, that we see a big potential in leasing consumer finance and factoring. It's a very good complementary product. It has a very good distribution channel with own car dealership network. We are now expecting the approvals of Competition Council for the transaction. But it will be both in terms of new asset generation, placement of our existing liquidity and developing our business in a specific segment. It is a very good fit as we consider. I'm pleased to highlight about sustainability. Because she is our champion and leader of sustainability in the sense. They have been doing a lot. We will be coming with more and more news. I also kindly ask you, if and when you have time, please check our website, where we are trying to explain our activities, our standing, our approach. If you have any comments or requests, we will be very happy to accommodate.

Yes. So well, while we have just a ton of information on this slide, including in the presentation where we are mentioning what we have done in terms of green lending during 2021 and also what kind of major directions have been taken by the bank in terms of ESG. I would like just to underline once again that despite Banca Transilvania, it is initial DNA of being a bank for local SMEs and the entrepreneurs. And for micro companies, we were from the very beginning a strong supporter of everything what includes and it's unique when it comes to having access to financial services and trying to come with the right products, which were clearly benefiting clients and clientele to be a very responsible venture in the relationship to our clients. It is exactly what have been the whole kind of initiatives over time from organizing difference of -- kind of a club with -- where we were trying to educate our clients to hire them or building business trends. We are going to continue doing this exercise, helping them to understand what ESG's meaning. This would be like a separate and very important stream, which comes along with our -- and therefore, to have more and more green products or very clearly dedicated products in order to support really important investors and having business endeavors and trying to be as present as possible, which both education and banking services and products for what our clients are needing in terms of the ESG approach and so what a responsible banking distribution is meaning.

Having said that, that definitely most -- now mainly our focuses will be on social. We are also at BT and the Romanian business community, we are focusing a lot on the humanitarian support efforts together with local and international partners for the refugees. So far, the big bulk of refugees didn't enter Romania, but we are expecting in the coming weeks, the numbers to increase. But I may -- happy to see that Romanian public, Romanian government and private sector institutions, they all mobilize in very good manner exceptionally to kind of welcome -- to host the refugees. Going back to our business at the group, and with that, I will be finalizing the presentation slide. BT, our financial group has reached over RON 125 billion total assets. And our -- if you look at the policy, different segments from consumer finance, leasing, asset management, capital partners, micro financing and pension, all our subsidies are delivering good profitability, good market share, increasing market share and good potential. And we will be investing further in different segments of financial sectors from now on. Hopefully, we'll be also coming back to you with more sizable, interesting numbers from our Idea Bank journey. As I mentioned, we will be rebranding the bank soon. We are in the party -- period of preparing to the new brand identity. We will also be informing you. I would finish the presentation here and try to allocate the rest of our time to the questions that you will or you may have. Thank you very much.

[Operator Instructions]The first question is from the line of Pulitika Divo with InterCapital Asset Management.

Well, I think the obvious first question should be about your exposure to Russia and Ukraine. If not directly, do you have an idea on how many of your clients are mainly exposed to these countries? Yes. And then we can go with other questions.

I mean the sanctions and that I would say, what we were considering 2, 3 years ago, excessive attention of the local authorities for payment, transactions with Russia, Ukraine had been actually making all the banks very prudent. But we don't -- I mean there are a few of our customers whose business might be impacted by the changes, by the geopolitical changes, especially in the maybe grain trading or technology. But it will not be any -- in terms of exposure, it's not even in the management part significant. We had been avoiding a lot -- also not having a bank in those geographies. We're limiting that in terms of compliance actions, that's why we stand aside.

I would like to add here that a confirmation of what Omer is saying is also the fact that we hardly have any kind of banking relationships. Meaning no correspondent banking institutions in those countries, which are usually coming hand in hand with the commercial need of our clients. So this is clearly a sign that our clients are not to engage in the commercial business or are not having significant volumes with the partners coming from that part of the world.

As you know, Republic of Moldova has closed the business relations -- economic relations with Russia. And we own Victoriabank, which is in terms of total out assets, equity and contribution to the bottom line is below 1.5% of our total group site. Here because we have imposed all the Know Your Customer regulations, compliance regulations of BT Group, also to Victoriabank. I have to admit that our colleagues in a couple of -- in the last 2 years, they have been also losing market share. We are not the third largest bank there anymore. And although the market is very small, we are now the fourth bank because we had to let go certain businesses, certain customers. So as for our calculations and analysis, I can confirm that we don't have any significant, I would say, any, but try to limit myself to saying, any significant exposure to those geographies.

Great. And 2 more questions from my side, if I may. The first one is actually about your expectations in terms of central bank behavior and interest rates this year. I know this is a very hard question given everything that's going on. But I would just like to hear your opinion on the situation and how you think this might impact your interest margins? And the second question, if I may pose it right away, is about your future provisions. Could you talk about your expected cost of risk this year? Well, this probably excluding any major disturbances around the war. But just -- I wanted to have an idea on whether everything related to COVID was over. And if you think this year could be normal, so to say, in terms of cost of risk.

Thank you. I will start with interest rates. Indeed, it is very difficult, I mean to estimate because, if the war wasn't happening, we will be seeing that most probably another 100 basis points increase was already priced in or very much expected in the market. The increases of the benchmark rates, market rates help us because our lending portfolio is heavily variable interest rate. It's repriced every 6 months. So any interest rate increase would have had a positive impact on our net interest margins, considering that we are financing ourselves with current accounted below interest rates. So that any market rate variable rate increase would be adding up and we have made some calculations also on the kind of payment capacity of customers. So around these levels, interest rates being increased another 100 basis points doesn't put any significant pressure on the NPL generation on the portfolio of us or of other banks in Romanian market. But now I guess due to the concerns related to economic growth, supply chain issue that counts, investment and consumer sentiment, my personal opinion, I cannot even say that I guess -- if you see 10% in the same table each other opinion, but my personal opinion is that, increases of benchmark rates or reference rates will be a bit slowed down. There will always be discussions on these aspects also internationally, as you see. But otherwise, as I said, separate study [indiscernible] constant interest increases actually are helping our bottom line to grow. Coming back to cost of risk, I mean it will be part of our budget exercise in maximum 4 weeks. Then we will be converting our general shareholder assembly in April. We will also present the budget there. All the COVID-related matters are already out of the -- out of concern, I would say. Even in the public opinion, since 2 years, first time during last week, we don't see much of news on TV on media about COVID. So Romania's health care situation is doing well. Customers, both corporate and retail bank as well, as I said, their liquidity position of banking systems, customer deposits are much higher than pre-COVID levels. On that then, I assume that both you and me, we have seen a big financial crisis, a pandemic related-crisis and now the regional war. So it's very difficult to estimate what may happen next. On the other hand, we are estimating that considering that we are very much positioned in retail, micro lending, Internet banking, we will be continuously budgeting, targeting and managing plus/minus 100 basis points cost of risk.

The next question is from the line of Nellis Simon with Citibank.

Yes. My first question would be actually just back on risk cost. What was behind the large jump in risk costs in the fourth quarter? I'm always surprised by the short swings in risk cost. If you could elaborate a bit there. And I have a few other questions as well. So I just list them out and then we can go through them or do you want to go one by one?

I will try to answer the question related to fourth quarter. Actually, our third quarter was quite low. And also in our -- during our September's results to the conference, we have mentioned that we are readjusting our models and calculations so that we will be coming back to it. I don't think the word reasonably is correct, but more rational, pragmatical, of course the risk, which happened actually kind of go up. Fourth quarter should be taken into consideration within the average of third and fourth quarters.

Okay. Okay. And the next question would be on your equity. So I saw that decline quarter-on-quarter. Is that just security marks going through OCI? I was surprised that the equity didn't rise over the quarter.

It depends on the quarter, but maybe it's related to most of the business payment update. And then as you mentioned, it is the fixed income portfolio going through OCI.

And what was your dividend -- is that in fourth quarter?

No, that was fourth quarter -- yes.

Yes. and then just what is the -- I guess you haven't announced the dividend out of '21 but what was your thinking on dividend for this out of last year's earnings?

Again, from Financial Times to Bloomberg based total of prudential approach from the supervisory body. So unless there will be -- there won't be any changes. We will maintain. And as you have seen, we are having quite a good -- quite comfortable equity position. And it will be more or less in line with what we have done in the last couple of years. I don't want to -- I have to refrain from giving you a percentage or an amount from -- but partly, this is something that we consider as part of our usual part of business.

Okay. And could you give us a little indication of how you're thinking about fee growth, cost growth and volume growth going into this year? I guess you'll publish your full budget at some point, but if you can give us some idea of what you're thinking, that will be helpful.

Exactly. I mean less than a month's time -- during last week of March, actually, we will be presenting the budget proposal to be approved at the shareholders' assembly. I will say that, it will be very difficult to deliver 20-plus percent growth in fee and commission income. But on the other hand, you see that, our number of customers are increasing. Our product range, bank insurance revenues are increasing. So this definitely a double-digit growth will be in the budget in terms of fee and commission income. Our net interest margin, I mentioned, is very much positively affected by the interest rate increases. You can all those arithmetically calculate how much it will be increasing this year, even if you don't grow the loan book, but we are saying that we will continue our lending growth above the GDP growth of the country, about the average market growth. So I think that it will not be wrong to say that we will come in bottom line very close at around numbers that we have already delivered despite maybe some other challenges coming from expenses side, as you mentioned, because we have already increased -- they're always increasing the salaries of our personnel. We see that everything we do cost us more and -- is it -- big banks are due to not -- just very efficiently controlling our cost. That's why we delivered less than 50% cost to income ratio. And I can tell you that, it will be the same. And it will not -- in no case, we will not budget a cost-income ratio above 50%, probably closer to what we delivered in 2021. But but I think also, we don't want to -- so we don't see the necessity of cost cutting now as we have business growth and potential to be -- grow our business.

That's very helpful. And then just on the risk cost, you were saying around 100 basis points plus or minus is what come back to normalized levels, yes?

Yes.

[Operator Instructions] The next question is from the line of Boulougouris Alex with Wood & Co.

Yes. A quick question on the cost and the wage growth. I see the staff costs on a consolidated basis were up around 20% in 2021. How much of this was related to wage growth and I assume there was an increase in employee head count as well or not? And maybe if we can have any color on 2022 wage growth if possible? And a second question regarding net interest margin. I guess the trend we saw, as you said, mathematically, we can more or less work it out as the portfolio reprices every 6 months. But I guess the trend we saw in Q4 is the start of this repricing with NII increasing on a Q-on-Q basis by double-digit levels, correct? I mean, could we assume NIM going through 3% and above in 2022?

In the fourth quarter, there was also a combination of the housing loans, the repricing impact, lending growth and also type of products the customers have been choosing in third quarter and fourth quarter, shorter term and high interest rate product. Our credit card business increased a lot, so a combination. I will come back to your first question and answer it more or less at the same manner because the 20% growth, I don't have the exact percentages in my mind now. But partially it's coming from delays, postponed bonus and incentive payments from 2020, as you may remember that we were not allowed to decap on the results. Partially, it was related to head count growth, which was around 5%, 4% increase in terms of head count. We have been also I would say, adjusting salaries, both with the performance and inflation. So it's a combination of many items obviously. So it's -- we don't expect it to repeat if -- that the further question we don't expect it to repeat in 2022.

Yes. Just a follow-up question regarding loan growth. I see in your presentation regarding public sector financing, that there was an increase of 50% year-on-year as you want to support the development of municipalities. Could you clarify how much is public related finance as a total at the moment, more or less?

So you mean like a total amount, it's like 1-point-something billion. But yes, it depends -- usually it's short term. So this kind of outstanding balance sheet are going to have a high variation throughout 1-year period or a 1.5 year period. So we are -- we haven't changed too much our profile in terms of getting into too many long-term kind of investment projects when it comes to public finance. But we are more and more active in the short term or medium-term kind of plan clearly being involved also in all kind of rich financing schemes, which are related also to projects where new funds are going to be involved at a later moment in time.

Okay. Great. And maybe one final question for me. I mean I know it's too early to say -- to mention anything but the high inflation and high under pressure that's very fast to your clients. Do you see any, I mean, preliminary -- probably too early but, if there is any preliminary indication that this could lead to some NPLs? Or is too soon to suggest something like that? Or...

Indeed, too soon to mention a number, definitely, how the wage inflation is putting pressure. But on the other hand, also, we have seen that across the sectors, there is an adjustment. I mean actually, salaries are increasing, production costs are increasing, sales prices are increasing. So somehow, it's kind of matching environment. I guess at some point, which we don't think that it will be very soon, energy prices will be stabilized. Even if they will not decrease but they will be reaching a certain limit of increase. Then the inflation will be positively and downwards affected, if you also go back to the pricing or cost strategies of also ours and our customers.

And here I'm going to add a little bit what we were mentioning also in previous calls that the fact that the wealth position, the savings position of Romanian both population and company sector is looking much more better compared to what we were seeing before the previous crisis. It's going to help them weather better and have, let's say, a better cash flow or during this initial period when inflation was I think that much and until it's going to get to a more normalized level. And the same kind of an approach was valid also with regard to the complete crisis where, again, the fact that people were having some savings, were having some reserves, was helping them to have a much better repayment behavior. And we were hardly generating the new NPLs during that period, even though we were clearly cautious and we continue to monitor the portfolio very closely. The same monitoring is going to continue for nowadays. Only that -- yes, it's important to mention that the savings and resource structure our clients are having is going to have them be better off out of this potential new credit risk crisis related to the higher inflation rate.

Your next question comes from the line of Unger Thomas with Erste Group.

I would connect to the previous question. You were talking about the inflation, and I would specifically kind of ask about energy price inflation -- will be expected energy prices to stabilize. But do you see any risks for the portfolio from energy prices from the crisis in Ukraine now spilling all over and affecting your clients, corporates, but the retail book? Is that -- has that changed your perception of risk of your outlook for costs in 2022, although, I understand that you can't specifically talk about your outlook right now? Then on the Q4 results, the trading result was quite weak in the quarter. Do you expect that to recover in the coming quarters? And the...

I'm sorry Mr. Unger has been disconnected -- his line -- he has dropped his line. I will move on. Hold on a second, please.

I'll take other questions because I will -- going to answer the question once he will join us back.

[Operator Instructions] We will now proceed with Mr. Unger's question.

I don't -- I just dropped out of the call. I don't know if you heard my questions before and if they've been answered.

No. We didn't answer. So we wanted you to reconnect Otherwise, would have you connecting us directly, but it was related to trading. One question was related to inflation and energy price expectations and how it will affect our credit performance, loan book performance. The other one was to be trading result. I don't know if there was anything else.

That's it. And those were the questions that I had exactly, yes.

Okay. So I will take the first one. I mean itself -- energy sector, it's so affected that we don't have act issues, we don't have direct exposure. This is something that we always refrain now with the Green Deal, green economy. We are looking out -- as we're trying to gain confidence and develop this portfolio. We didn't start yet. But on the other hand, how shall we see that main indicators. The packages, the 8 packages of Romanian government, so far active on to month of April, they prolong it at the end of April, helps so that the yield, deal, the real cost is not immediately on the public or small companies. It will be through the budget deficits kind of value to be in time. But if it's going be prolonged, it may put pressure on that. And we think that also customers would be discussing to adjust their pricing. They will try to be more efficient, maybe, they will different -- attempt. So we don't see a huge jump -- a significant jump this immediately or in the first half of this year due to energy prices. If definitely prices will continue increasing and then there will be any other measures to be taken, we have to reanalyze all the situation. But as I said, in most of the cases, except agriculture that is fertilizers depending very much on the gas prices, or the other sectors. The cost in energy cost increases is important, but not necessarily main item in the -- in our customers' cost base. Related to trading income, as we have Mihaela here -- the financial market -- I'll let her to answer.

So yes, what is -- or what can be mentioned is that, for sure, when it comes to the FX trading side, that was an item where we are going to see very nice growth also during 2022. With all the volatility we are having now on the market that there is no doubt that things are going to continue in the same way. Clearly, when it comes to trading related to the fixed income instruments, their things are very much related to how market conditions are, and BT is going to be very careful always not to, let's say, jeopardize future spending and the quality of the bond portfolio looking on the midterm or yes, for the entire lifetime of the bond portfolio, just for obtaining short-term trading income. So this was a strategy and the policy we were applying forever in our treasury activity, and we are going to continue with this approach.

The next question is from the line of Mandru, Daniela with Swiss Capital.

I have one question and a follow-up question. The first one regarding the increase in the net loans portfolio for this year. Should we expect another double-digit growth for this year? And the second one, regards the cost to income, which reached [ 48% ] if I remember well, your target was around 45%. And I'm not sure if I understood well that your target has been adjusted up to 50% now.

I will start with the cost-income ratio. No. We didn't adjust our target to 50%. So as I said, I'm refraining to give certain numbers before -- announcing our budget. But I'm saying that cost to income ratio in the worst case should be at around 2021 level. So it's -- we are not targeting an increase.

Sorry. And in the best case scenario. This is the worst case.

Daniela, we haven't published yet the budget. So...

Too many scenarios, indeed. But also in terms of the overshoots, I may be recalling wrong that our target was slightly above 47%. So yes, we overshoot it. And we have our own targets, but it's not, has argument, but it doesn't matter now. Still if I look at the announcement by international regulatory bodies, it's quite decent. It's not one of the best cost to income ratios in the European banking sector. Definitely, we are not entering into complacency, and we want to improve it. On the other hand, we do acquisitions, we do investments, we do what say -- we are a high growth company. So we are focusing more on the revenues than growth, not just on the cost base. This is one thing. The other question was -- so you know -- this could...

The increase in net loans.

The increase in net loans I -- again, not like the real budget indication, but I don't think that we will be having a similar growth, but it will be very close to double-digit growth.

Very close, yes. Now I'm asking about the cost to income because I'm struggling to see what would be your profit in this year, are increasing a lot of the salaries, a lot of the other operating expenses. And the best I can get is a 43% cost to income. So that's why probably, so your worst-case scenario, I don't know from where to count. Just so this is -- that's why I insisted on this...

I understand. You will see all these very clear when -- that's right, it's a bit more than 3 weeks once we announce our budget. And I don't think that there will be a disappointment of that.

Yes, function of this, yes. Yes. But okay. And do you have -- I don't know -- I'm not aware of the fact that you have reversed all the excess provision for COVID-19 this year. So if you have something left to reverse next year -- this year, sorry.

No. Daniela, we never said something like this. We've said that there are no longer loans under moratoria. And that, let's say, the NPL ratio was not coming to the levels we were initially anticipating or we were preparing for. In terms of releasing provisions, no. There were some releases last year, but we haven't released the bunch of provisions which were set aside according to, let's say, the adjustments which we have brought to our provisioning policy, starting with 2020.

I mean it's -- we didn't change our prevention provisioning policy. Nor we didn't drastically change our models. So I wanted to say, if it was misunderstood that there are no loans under moratoria, but provisions of the loan books model that then...

Okay. So you provisioned well because I give you the example of BRD. They reversed EUR 25 million. That's why from this provision. That's why I'm asking, if you have something to reverse.

I wouldn't like to discuss about competition, but even for them, in their side, it's not a big amount.

It looks like there are no other questions now in the queue from the information I'm having here.

Yes, indeed. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments.

Thank you very much for being with us, listening to us. I hope that this craziness will stop soon and we will come back to a peaceful, healthy spring that we have been missing for a long time, I will be discussing about -- under decent, normal, peaceful conditions with you. And looking forward to hear from you also. If you have any other questions, please do not hesitate to contact us or Investor Relations team. Stay safe. Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.