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

Ladies and gentlemen, thank you for standing by. I am Poppy, your Chorus Call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the year-end 2023 financial results Conference call. Please note that the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Omer Tetik, CEO, Mr. George Calinescu, Deputy CEO, CFO; Ms. Luminita Runcan, Deputy CEO, CRO; and Mr. Aurel Bernat, Executive Director, Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.

So thank you very much for joining us, ladies and gentlemen. Dear friends, we are here to present you, in the first part of our presentation, 2023 financial results. And then we will be continuing with a brief presentation of our latest M&A transaction and then switch to Q&A, hoping to answer your questions. The presentation is already uploaded in the site Investor Relations section of our bank. But if you need any further information or a follow-up later on, please do not hesitate to contact our Investor Relations colleagues as well. I mean looking back at 2023, not only 2023 in the last couple of years. I will say that we are not just only comfortable but also proud of the results that we have delivered. As you have seen, in the last couple of years, even without acquisitions, we have managed to deliver double-digit growth in our lending portfolio. Deposits -- customer deposits have been on constant growth when -- even when it was the hot topic discussed within European and U.S. markets. We have a very stable and healthy loan-to-deposit ratio. Our business growth, volume growth also induced stable growth in net interest income, we benefited from, I would say, growth of the interest rates, but also stable current accounts, salary accounts type of funding that we have. But also, we are mentioning this each time. I mean except, I guess, 2020, each year, we had been having very strong growth in our net fee and commission income. This is coming in the wake of several regulatory limitations or decreases in this segment but our business growth, number of customers' growth is helping us to deliver better results, which also definitely bring us to a situation where our return on equity is very strong, and we are now delivering this high return on equity with also a very high capitalization ratios. I would like to let Aurel to tell us a bit more about 2023, maybe a bit about 2024. But indeed, we have been -- as we had been saying, it was a difficult year, which we and most of the, I guess, financial sector, managed to finish successful.

Prepared to start by telling you that 2023 was a challenging year. So somehow, that's the message that you are also sending, Omer. It was a challenging year. On the other hand, it was a good one for us. And if we jump a little bit to the Romanian economy, it seems that even if we had a robust GDP growth during 2023, it was still appreciated by both investors and the market overall because it was higher than the average European one. On the other hand, as you might see in the slides, considering consumer prices, we had a short increase or a small increase of CPI. During the last quarter of last year, we have a CPI of 7%, which if we are judging it historically, it's somehow level in which we see an equilibrium right now. We have despite also the European market. So overall, it comes down in terms of CPI. The market is more stable now. So from the 2 perspectives, we remain still confident in terms of 2024 and in terms of future growth. In February, we had the Monetary Policy Board meeting at the National Bank of Romania. They kept the policy interest rate at 7%. We foresee that in the current environment in which we still have to see a decrease of inflation as well as a pickup in the economic growth. And in terms of interest rates, we see it has stable level at this 7% right now. From the lending perspective, even though we had slower start of 2023, we ended up in lending terms quite positive. The corporate lending increased in December 10% compared to the same period of last year, and it is much stronger than what we saw and what we recognized in the European Union. On the other hand, the household loans also picked up better than the downward sloping trend of European Union, giving us, by the end of the year, an extremely strong loan-to-deposit ratio of around 67%. When I'm mentioning us, I might prefer myself to the Romanian landscape. From the deposit perspective, both corporate and household deposits increased double digit. From the corporate deposit side, the good thing is that significant number of deposits are overnight. So it means that for the banking industry, it is access to funding at low cost. On the other hand, as we see it's positive compared to the European Union's level, which was negative on the corporate side and slightly positive for the household. Overall nonperforming loans ratio remained low. This is something which is, let's say, common for our peer group within our region compared to the Czech Republic, Hungary or Poland. Net assets increased to RON 800 billion. Capital adequacy ratio is within the Romanian banking sector continues to be well higher than above the European level as well as in the perspective of return on assets and return on equity. The return on equity being more than 20% at the end of last year. George, you have the floor, thanks.

Thank you very much. So from the point of view of the performance of the business at the bank at -- and also at the consolidated level, we can say that the bank exceeded its target set in the budget on almost all areas. We have a very nice growth in terms of net interest income throughout the year 2023, both at the bank level, at a consolidated level, the increase being approximately 18%. Net fees and commissions income increased at the bank level with almost 11%, exceeding RON 1 billion for the first time in the history of the bank. We were at RON 1.1 billion at individual level and almost RON 1.3 billion at the level of the group. On the other hand, expenses [indiscernible] with the increase being led by expenses in terms of staff costs and also the ones determined by the investments that we did in our increased capabilities in terms of software. And on the staff side, we can say that this is led both by the staff increases but also by the inflation in terms of salaries. However, I would like to mention that we -- even though increases in expenses were present, we managed to keep a cost-to-income ratio lower than last year both at the level of the bank and also at the level of the group with the cost/income ratio being around 45%, which is a very good level for the bank of our size. In terms of the evolution of the result for the end of year with almost RON 2.5 billion at the end of the year 2023. The bank is above the budget and almost 15% over the result of the last year. And at the group level, this is even higher in terms of percentage evolution versus the previous year, almost RON 3 billion in terms of net result for the year 2023. When we go to the evolution of the balance sheet, we see that, again, here, we have an excess over the budget, both in terms of total assets and in terms of loans evolution with -- you've seen a little bit earlier the increase in terms of loans at the level of the Romanian banking system and at the level of the European banking system. And here, we can say that we are above our market average in terms of loans evolution. And you can see in the following pages split on the corporate versus household loans and deposits, and both in terms of households and in terms of corporate loans, we are above our peers. Whereas in terms of deposit on customers, we are at par with the evolution of the market in Romania with a 15% increase in year 2023. In terms of -- this increase in assets was happened in risk -- prudent way, cost of risk for the bank in the year 2023 remained almost flat. There is a slight increase in terms of cost of risk net to almost 0.5% in the year for the bank and 0.6% at the consolidated level. Return on equity remains at -- above 20% comfortable levels. Again, here, we are having capital ratios that we present here, including the results for the year 2023. Of course, the final numbers for the year will be decided after the shareholders' presentation when the shareholders will decide on dividend distribution. But here, if you look at the capital ratios, at the end of the year, the bank exceeds 23% both a consolidated and at the individual level in terms of total capital ratios. If you look at the trends in income structure, as I mentioned before, besides the net interest income, net fees and commissions income, we also are having an evolution. In terms of net trading income and net gains from financial assets, which is driven by the market evolution. Overall, if you take these 2 elements into consideration on the total, you see that actually, we have a positive evolution versus the previous year. And also the fact that this is supported by a very strong performance in terms of launch to household and [ loan increase. ] And if you take a look at this and compare it to the previous slides where Aurel presented the evolution on the level of the overall market, you see that we are well above the peers, both in terms of loans to households where the market was around, I think, 1%. And also in terms of companies where the market moved to almost half [ that ]. In terms of deposit, as I mentioned, overall, 15% part of the market. This is coming from companies. And I think Aurel mentioned this is a form of funding, which is cheaper because it's mostly on current account and overnight. We are very careful in terms of analysis of the analysis -- the stickiness of these deposits. And we -- according to our analysis, we can say that Banca Transilvania has a very good track record in terms of core deposits for this current account and overnight deposits.

I will try to give some insight about our business performance in the -- during the last year. The ones who participated to our call at the beginning of the year, you might remember that we were mentioning that the loan growth was stalling and actually demand was quite low, although we have been constantly growing our customer numbers, our account numbers, our card numbers, the loan demand has recovered with a decrease of inflation and some stabilization with some better. So we see from the numbers available that we not only increased our retail loan book 22% more than -- our new production was 22% more than 2022, which brought an increase of 8.7%. Still, we also, I would say, have seen that our market share, both in mortgage lending, credit cards, overdrafts, consumer lending has increased. We are happy to have reached 3.8 million customers and 6 million cards at the end of the year. On the other hand, last year also with the boost of government-led programs and European Union led Recovery and Resilience programs, definitely on the SME and corporate banking, we have seen a higher growth as compared to previous years, which is good for the economic development of the country as well because until 2022, especially, most of the lending growth, most of the banking sector growth was coming from consumption, consumer loans, consumer-related loans. So we see more and more investments, which give us definitely more optimism about Romania as well. We are the main partner of the Romanian state in government-led SME invest, MME invest type programs, or start-up nation type of programs. Also, we see more where we are trying to get also our market share. And we expect also as a guidance, if I may say, this growth to continue also during 2024. Not only because of the programs available but also due to the fact that having elections, not only in Europe but also in Romania, I guess there will be more projects and liquidity and ideas available in the market. While we are discussing -- proudly discussing about our business growth because last year had been a lot of discussion about capital position, liquidity position with risks assumed. And as I said, we are not only comfortable, but proud of our results and what we have delivered.

Thank you, Omer. This brings us to the risk area, where we are proud to speak to we are going to have a very strong and robust risk policy to be aligned with the business objectives of the bank. Everything that we are going to present to you today are very well complementing the strong financial results already mentioned by our -- by my colleagues. I would start with to emphasis the fact that all the figures that we are going to present to you are based on a very robust underwriting policy which is centered on very simple but strong principles such as dispersions, for instance, we have been following this principle for quite a long period of time, and we are proud to see the results of this very, very strong principle. We do not have within our portfolio any concentration in terms of business lines exposure, products or geographical areas. We do not have concentrations in terms of values or economic sectors. And this brings me to the graph related to the cost of risk in the bank. We are at a very comfortable level at the end of 2023 reaching 0.64 basis points at group levels and [indiscernible] very steady over the past 3 years. The provisioning -- the stock of provision increased both at the individual level and at consolidated levels. The figures are presented on the graph on the right side of the of the slide. If we would compare the stock provisioning in the bank, you would see that December 2023 versus end of 2021, the provisioning stocking phase in which the provisioning increase was smaller than the pace in which the loan book of the bank increased in the same period. What is to be mentioned is the fact that stage 1 increased in this period over 60% at individual level mirroring and correlating with the increase in the loan book of the bank. When it comes to the NPL, what is to be mentioned is the fact that at the end of December 2023, the bank reached a level of 1.98% in terms of NPL, which is better than the local market average by more than 0.6%. This is another reflection of the constant prudent approach of the bank that I've already mentioned. Also, I have to add the fact that even in this downward trend of NPL, the provisioning remains constant, giving us and our shareholders the comfort about the way in which we are managing the assets of the bank. When it comes to PAR 90, the figures are presenting on the right side of the slide. The evolution of PAR 90 is mirroring the evolution of NPL. Here, we were benefiting of good recoveries and also by market trend in terms of loan book increase. We have observed in 2023, a slight increase in terms of PAR 90 ratio mainly in retail and SME. And this is due to the inflationary pressures that these type of clients have been sent when it comes to this evolution. When it comes to capital, my colleague already mentioned the fact that the bank enjoys a very comfortable capital position as it's shown in the graph. We have a very strong and stable capital base, mainly due to the fact that the bank is using for a long period, the instrument of profit capitalization over time. Everything that we are presenting to you here is constructing [ 2023, ] is taking into account, and this is due to the fact that before the shareholder meeting, we do not have any information about how the shareholders are going to decide upon the appropriation of profit. This is to be discussed in 1 months' time at the relevant competence. Therefore, the surplus of capital that we are seeing here, it's very comfortable about the minimum threshold asked for -- from BT by the regulator. And this leaves the bank a good flexibility in terms of adapting its strategy to potential negative market movements or on the other hand, to support the continuous ambition of the bank in terms of growth. What I would like to mention is the fact that in 2023, we have increased our tier 2 capital position as an effect of a subordinated loan that we have attracted from the market in June last year. I think -- this brings me to liquidity. Here, we have been presenting the market very strong liquidity indicators for a very long period of time. You see here the loan-to-deposit ratio, which is current -- at the end of 2023 at 60 -- 56.7%. We have a very strong LCR and also a very strong NFSR. This is a proof of the trust that the Romanian depositors have -- is the fact that we have a well-balanced management of very high liquidity -- high liquid assets, sorry. And the last information from my side would be related to MREL. The bank fulfilled its requirements when it comes to MREL. To MREL indicator, you have been seeing us on the market last year with -- in a couple of occasions. We are proud to see -- to show you that we have met our final requirements at the 1st of January 2022 on a total and subordinated basis and the figures presented here allows you to see how we have done that.

I mean, although we have been having good internal capital generation with our profitability, and a strong capital adequacy ratio even before due to MREL requirements and new regulations, we somehow managed to open the markets last year in April after Crdit Suisse and other events. We were the first bank tapping the market, glad to see a large number of investors, institutional investors from different geographies being interested. It was a costly transaction. But also, it was our aim that we should start being in the market -- being present in the market and start establishing a benchmark for ourselves, as a yield curve for ourselves. As you see in the graph presented, I guess, we managed to benefit from market improvements in terms of cost of funds in this segment. But also, we are also glad that this gave us certain discipline and certain, let's say, new ideas and opportunities. For example, the EUR 200 million Tier 2 that we have done with IFC and AIIB is within a, let's say, green finance, green mortgages framework then we have established and finalized our sustainable finance program framework. And in November, we went to the markets again. So we will -- as you will see in the next, I would say, slides, we do have a very comfortable position now but also because we had been in the market and we established a investor base already in this segment, if needed, for similar or smaller amounts, I think we have there to tap maybe about news from the rating agencies, [indiscernible] if you want to mention.

Definitely. And I would like to start with a great thank you for all the partners that subscribed in our MREL programs. I will get back to this subject when we discuss about sustainability, and I will address all the many things that we have towards everybody. From the ratings perspective, we also have some great news on this side. We are rated both by Moody's and also by Fitch. You have all the details in the presentation. In a nutshell, what is important that both agencies recognize our robust capital and solid profitability with ample liquidity. We had the feedback from Moody's that BT has adequately managed risks despite the general news that we have appetite for growth, both organically and also through acquisitions. And you have some references towards the OTP acquisition, which most probably will hold up more minutes at the end of our presentation. On the other hand, you have all the details from Fitch rating agency, which reaffirmed its long-term rating at BT of BB+. And also, we consider the acquisition of OTP as being neutral for the credit ratings and modestly strengthening our position as a leading domestic lender. Going towards sustainability, I will spend a couple of more minutes on our MREL program because it is closely linked to sustainable finance. During 2023, we published our first sustainable financing framework in November last year, which was endorsed by a second-party opinion. We attracted RON 500 million -- EUR 500 million, sorry, for our first sustainable bond out of which 87% was subscribed by investors, we dedicated ESG investing policy. This is the moment in which I would very much like to thank all our partners, meaning both external and as well employees of Banca Transilvania for which for whom at least, it was the first project of this kind. For Banca Transilvania, by the way, it was -- '23, it was the first issuing year of MREL. And also to all the more than 20 countries -- partners in more than 20 countries, which subscribed our MREL program. Overall, last year, we issued EUR 1.5 billion. We had, during our last issuance more than 6x oversubscribed [indiscernible] irrelevant and also, thanks for all the IFIs that supported us and we support further on - will also be relevant and significant. For more ratings and scores, you have a list of improved scores from Sustainalytics. From Refinitiv, for instance, we had a score of 81 out of 100, which places us on the 49th place out of more than 1,000 banks, which they assess, 3 out of 5 from FTSE Russell. Also, we have a maximum score from the VEKTOR, from ARIR, from the Romanian Investor Relations Association for the fifth consecutive year. And also during November 2023, we joined the Diversity Charter. We were part of the community as well. We are committed to support via Transilvania, which is, by the way, an invitation for all of you who wish to visit in a non -- or in more traditional manner, you want to visit Romania. BT was the main partner of the European Cultural Capital in Timisoara last year. And we launched a program named FIT - Finance for All, a financial education program that would be a foundation in, let's say, money management, asset management and so on for young generation. From our financing impact over the last year, you see the green loans that we granted to companies during '23, which amounted to more than EUR 1 billion, 40% -- RON 1 billion, 40% higher than what we had in 2023. Also, the renewable energy projects, which increased 2,000 -- 200% was special climate projects, including water and so on -- water efficiency and so on increased 4 times. Overall production of green loans for '23 up to '24 will be targeted at RON 3.5 billion. From the retail perspective, our green portfolio is represented by 15% of mortgages granted last year, which qualifies as green and we are emphasizing on it. Some interesting numbers are those from leasing financing, which credits are -- which leasings are granted by better leasing in which 1 in every 2-leasing financing is addressed towards electrical vehicles or hybrid ones. And overall, 30% of the total leasing portfolio is targeted towards electric. Another slide from the sustainability point of view, this is something traditional that we are presenting you is the 2 areas that we cover, and we are extremely successful health care and agriculture. In health care, we have an over 40% market share in health financing with more than 70,000 customers. On the agriculture side, we are the first bank in Romania with a dedicated division, more than 20% market share and 40,000 customers. We believe in this type of engagements because they are both sustainable. But on the other hand, they gives us a sustainable base of customers with, let's say, special needs or at least special needs to cover by the bank.

So while we are very proud of our physical network with more than 500 branches throughout the country. And we believe that this gives a better chance of financial inclusion and chances of business growth for us. Still, we are trying to also offer the best-in-class technology, both in our branches, locations, but also any -- during an interaction with our customers. BT Pay, which we launched as a internally developed wallet application is becoming more and more our online digital banking interaction channel with our retail customers. Already 60% of the cards issued by BT are already enrolled in BT Pay. We also have different types of accounts like round-up accounts, savings accounts, exchange rates -- I mean, foreign exchange transactions, travel insurances through BT Pay. And we have seen almost 30% growth last year in terms of users. We are also happy to see that actually, more than 100,000 -- almost under 105,000 teenagers are customers of BT Pay Kiddo. They are obviously our future customers. So also, we are learning from them because we are enhancing the capacities of BT Pay based on the observations and requests we receive from the customers. That also made it one of the most used and with the highest rating applications in Romania -- digital banking apps in Romania. On the other hand, at the end of last year, we have launched BT GO for our -- starting with small banking customers but it will be kind of a BT Pay equivalent for us for the corporate banking -- company banking segment. There are already more than 1 billion late payments. But one of the strong parts of the application is that we also help our customers, especially small businesses, to issue their invoices with all the desires and also ambition of the government to increase fiscalization in the economy and to decrease the cash in circulation. This is when it was brought by the new fiscal legislation, the obligation to issue invoices for all companies. Most of the small business, micro businesses were not ready for that. So our application automatically help with that, and we are developing. This is -- as it was BT Pay 5, 6 years ago at the very beginning, it's baby steps but growing exponentially. And we believe that it will be also another success in digital growth for our bank. We are also partly pioneer in instant payments in Romania, and it increases our business volumes. It attracts more customers to us because we are the first and most widely available bank to do so. And also, it helps us with the operational efficiency that we are searching for. Coming to our financial group. I would just remind that our -- one of the latest acquisitions, Idea Bank Romania, we recently re-branded as Salt Bank. Salt in Romanian means jump, leap, and we are targeting to offer a leap, jump in their experiences of interaction with the bank that they have. It will be a competitor to BT, and we are targeting to launch their first application, digital banking app towards the end of March or beginning of April. Other than that, BT Asset Management, BT Leasing, BT Microfinantare, BT Capital Partners are only the market leaders in their segments, either the largest financial entity in that segment or one of, let's say, one of the ones at the podium. We see also good opportunities of growth, and we are investing a lot in BT Pensii. Victoriabank, on the other hand, itself, self-financing, self-managed institution, small assets that we manage with the local management there together with EBRD, but when we look at the -- I'll say numbers about 2024, I have seen also some questions, we will start answering them immediately. We are committed to offering similar growth numbers. I was recently listening to a podcast by a prominent investor and he was saying that there are some companies underpromising, overdelivering. Sometimes I have this feeling that we are much more prudent than market opportunities. But on the other hand, with all the challenges geographically, geopolitically and macro economically around us, I think it's good to be prudent. We believe that we are trying to be more realistic. On the other hand, this year, in 2024, we are committed to delivering similar numbers, similar growth in our numbers that we have delivered so far. I will switch to OTP acquisition. And then in Q&A also, we have seen already a couple of questions related to that. OTP Bank, OTP Romania, owned by OTP Group Hungary, is the tenth largest bank in Romania with profitable bank operationally with 400,000 customers. It is nationwide presence, and also it is very strong in central Romania and in Bucharest, where we are looking forward to increase our market share. Their profitability was lower than us bottom line because of the funding costs. They were not -- because of their high loan-to-deposit ratio. So when we just look at that, with a good retail and a diversified and strong, healthy retail SME banking portfolio, 400,000 customers, it's a very good acquisition, very good placement for our excess liquidity, excess capital, and it will help us to create a lot of synergies. Most of the details about the synergies we will be offering you after the closing. We try to refrain from mentioning anything certain before the closing, not to put ourselves in a difficult situation in front of Competition Council of National Bank of Romania or other authorities. But among, let's say, all the target discussions or options, this was the best one that we could ever get. We have acquired not only OTP Bank, but also OTP Asset Management and OTP Leasing. OTP Leasing has been one of the highest growing leasing companies. And OTP Asset Management, their fund management, asset management is something that we like. And we have seen also that this time here, we are not acquiring only businesses, but also -- or customers, but also people, very competent. We like the idea that it's a small but high-growth bank. They have the hunger that -- the dynamics that we always look for. That's why we will be having access also to a very good base of personal new colleagues there. But also, as I said, mainly the interest was their healthy and large loan book, which we can finance by ourselves and then also their geographical distribution, which gives us upper hand in some of the geographies that we want to grow. We have -- I mean it's -- there is a pro forma of numbers that presented here in the presentation, we will discuss, most of you will ask more in the Q&A. But obviously, we think that besides the bargaining gain, and I would say, short-term synergies, the main thing is that in the medium term and long term, there will be a lot of, I would say, cost and revenue synergies that we will generate. It's a very good and accretive transaction for our group. Timeline is a bit more different than what we have experienced so far. Usually, we have been signing SPAs in the autumn of a year and then merging the bank fully operationally and legally at the end of next year. So considering the fact that we signed a transaction on 9th of February, we are now in the process of obtaining regulatory approvals, and there are a couple of more transactions in the market, as you know. So it will make authorities much more attentive on all the details. We think that in case we will manage to get -- obtain the regulatory approvals in second quarter of this year, latest next year, first quarter, we should be finalizing our merger. As I said, both operationally and legally, we will not run another banking entity, but also we are comfortable that our team internal resources, but also the partners that we work with, we have gained enough experiences. I mean this is a table that when we look, we also understand what we have done and what we have managed in the last couple of years. But since 2015, starting with Volksbank, Bancpost to Idea Bank to Victoriabank, [indiscernible], OTP Bank, we have strong experience in banking acquisitions and integrations. We have acquired capital partners, [indiscernible], charter investments, which became [indiscernible]. Idea Bank came with Idea Leasing. So in the segments of interest, we are becoming a market leader not only in banking, but also, I'd say, our people are well trained and experienced to make quick and efficient integration.

I [ will now ] go through details of the financial numbers that you -- as we do, you read and you can interpret. We have the questions here in front of us. We will try to answer as many of them as possible. If anything we miss or we are not clear enough, please do not hesitate contacting our Investor Relations, as I mentioned. I mean I have a question here, if I may continue, from Hai from Concorde asking about the risk environment in 2024. How do we see it? Sorry?

We have some support, technical support in order to read the question and everything, if you wish.

We will go ahead like this. Sorry for jumping in. So lending activity, we are assuming will continue strongly, especially on the corporate banking and SME banking side. In retail, we are expecting similar numbers to last year. But on the other hand, as I said also during the presentation, our colleagues also mentioned, it's an election year. So there will be a lot of support programs. There will be a lot of infrastructure investments. So it will be strong year in terms of lending, most probably. Hopefully, we will have the capacity, not only banking, but as a country, to execute most of these opportunities. And now I will let the questions to come in.

[Operator Instructions] The first question -- the second question comes from Miguel Dias with Wood & Co. And I will read the questions in groups. In terms of rate cuts in 2024, how many cuts do you currently expect? And by when?

I mean this also we were discussing last time in our teleconference. Nation Bank of Romania didn't act as fast as -- unintentionally, with the policy -- as fast as Western European or Central Banks or ECB or Fed. We think that they will be also following same policy because as during the last monitor report indicated, there is expected GDP growth also very much supported by consumption, so they don't want this to impact severely negatively inflation numbers, not to create a vicious cycle of itself. That's why, although we think that Romania will see some rate -- reference rate cuts this year, we don't expect it to be very frequent and too sizable. Last time, when we were discussing for end of September results, there were expectations of Fed or ECB rate cuts even end of the year or before end of the year or at the beginning of the year. We see that this is not happening that's why we refrain. But definitely, when we made the budget and we gave this guidance, we are expecting around 50 basis points cut this year.

The next question is from [ Anton Berg ] with [indiscernible]. Thanks for the great results. Well done. Can we expect any provision [ reviews ] in 2024?

As regards to provisions, we do not expect increases in the provisions of the bank. Maybe we are going to see some sort of reversal depending, of course, on the market evolution. But the impact of either action is not going to be significant.

We were increasing our provision coverage, and we are each time repeating that. Considering that we are a retail and SME bank, it is normal to have cost of risk closer to 100 basis points. But thankfully, thanks to good management, diversified portfolio and good customer behavior, we didn't experience this. It helps in Romania. We don't have also unemployment. Unemployment is technically 0. So people being paid, they also pay their dues forward to the banks. But we don't expect revenues incomes significantly from provision reversals. We will grow our business and -- passive. We will create, hopefully, new health risks which we have to cover also with our provisions. And we don't have big tickets to be recovered. I guess Miguel from Wood had a list of questions. If you could go ahead with them, we will -- we would like to answer them. We could try to answer them.

The next question from Miguel Dias with Wood & Co. And I quote, "Cost came a bit hot. Was it just due to inflation or as well headcount increase? What is the headcount at the year-end, please? And a second question, "Non-loan loss provision. Why did you book such a big amount? And what does it relate to? Legal provision perhaps due to OTP acquisition, meaning you aren't hurting their legal issues or perhaps the Volksbank case."

I mean I will let George to develop further. But as he mentioned, indeed, our OpEx growth came, especially on the bank side, from investments that we pursued, but also a 5% increase in the headcount. I mean, our headcount increased 5%, not as much as our OpEx increase, but there has been pressure definitely on the wages side. We have closed the year with -- at around 10,000. I don't have the exact number, but 10,000 employees. We are considering that, I mean, instead of being focused on one single indicator, we are focused on many of them, including the growth numbers of expenses, including for employee efficiency. I mean how much our business grew, how much our headcount grew, but also, we are looking at our cost income ratio, which is still, I would say, healthy. And the nonloan loss provisions, actually, with the last question that you asked, you answered your own question, I would say, Miguel, thank you, it is related with the Volksbank acquisition. I mean the price of the transaction, if we will close it and we will book it, it will include this kind of provisions itself. It will not be -- we will not provision it for the merger under BT's books.

I can go a little bit into more detail. So we indeed are around 10,000 or 9,500 active employees at the end of the year. And to develop it a little more on the Volksbank case, we have provided partially the interest and the penalties related to the Volksbank case. Again, following up on a prudent approach to -- that the bank has been showing in the last years, even though we have good chances to still turn it around in the next legal, let's say, events that will happen on this case because this is not finished, we have decided to provide partially that amount. And in the financials, we will put a lot of disclosure around this as usually.

Yes. This also, I guess, answers the question of Robert from PKO BP Securities who's asking the same. So this is related with the Volksbank case that is still going on. We can go to the next questions.

Continuing with Miguel Dias. [ COR ] came in a bit higher than the lower end of the guided range, 50 bps. Why was that? Are you starting to see some signs of asset quality distress? What is the P&L EBA definition figure as of 31st December? And could you please provide some guidance on outlook for 2024?

So answering to Miguel question, we will provide you the NPL by the finish via e-mail. So you'll have it on your desk immediately after the conference. And when it comes to the cost of risk, I've already answered the question in my presentation. So we have seen some signs of deterioration in terms of NPLs on retail and SME. But so far, we do not see them as impactful.

And actually, our NPL, as per our definition, at the end of the year, is below 2%. It's 198 basis points. If that was the question.

Okay, Omer.

And we would not -- or we don't see any increase in that. Also we know -- we also know on our skin that local regulator and international regulators are very much closely following this indicator. So -- but more details, Miguel, we'll try to supply through Investor Relations. Let's go to another question.

His final question is, could you provide some insight on the deposit spike in Q4 2023? Why it happened? Is it outflows from smaller banks to TB -- to BT? I can imagine why it happened, but would like to hear your take on this.

There is a positive seasonality cyclical movement. At the end of each year, we see our deposits, especially from -- due to the, I'll say, holiday periods, shopping and credit card payments, us having the widest POS acquiring network as well, and we are -- us being the main bank of SMEs, the highest salary card paying bank, so this -- with the highest number of salary accounts, so we see always at the end of the year, an increase in the deposits, which somehow starts to decrease not aggressively, but a part of it at the beginning of the year due to tax payments or different other payments. This is -- but because of our business growth, this year, the growth has been even faster. So we are just happy for it because it impacts not only for 2023, but also 2024. It brings in lower cost of funding and higher net fee and commission income for us. Thank you.

The next question is from Robert Brzoza. And I quote, "Could you provide some additional color on your dividend policy outlook especially in light of the OTPRO acquisition?"

I don't remember by whom, but there were a couple of questions if OTP is a cash transaction. Yes. We don't need to tap the markets, we don't need to borrow or ask capital from shareholders for the acquisition of OTP, first of all. Second, OTP itself is, how you say, a regulated bank, a regulated group. So they had been also maintaining high capital ratios in Romania and at the group level, including also respecting the MREL requirements. So there will be some temporary impact, but it will not change our business plan or game plan too much. We will be proposing the new, how you say, structure of cash and share dividends soon to our Board of Directors, which should be approved by shareholders. But I don't want to necessarily mention a number. On the other hand, if you look at our guidance and some of the numbers that we presented, you can understand. So we think also in the wake of what's happening all around Europe with the bank's buybacks and cash dividends, we understand the expectations. And I'll say, within our -- I'll say, business growth plans, we will be trying to comply with the expectations, but I don't want to tell a number. But we will -- at least what I can confirm, we will not propose stopping dividend payments or giving up on the dividend payments this year.

The next question is a follow-up question is a question from Simon Nellis with Citibank. And I quote, "Can you please indicate the targeted cost synergies and any revenue synergies from the acquisition of OTP Bank Romania?"

At this point in time, we don't think that we could enter the details. Again, looking at the transaction price versus the reported financial data, you can get some idea about the bargaining gain. You can, I'll say, comparing our -- how I say, external liquidity -- excessive liquidity versus their loan book gives a good idea about, obviously, also revenue synergies. As I said, we are not -- I would say, they have 100 branches, over 1,700 employees in the bank. We also need to grow. So part of their network we will maintain. There will be also colleagues at their head office that we consider suitable for our needs. But details about the synergies and the transaction structures and how we see the next integration and post-integration period, we will be able to provide you only after the closing of the transaction once the asset belongs to us because otherwise, we will be discussing about the bank of some other shareholders, exactly. We are discussing about competition now.

The next question is from Daniela Mandru-Petrovici with Swiss Capital. And I quote, "Could the acquisition of OTP and the resultant increase in capital requirements potentially restrict the bank's ability to contribute cash dividends in the future?"

Thank you, Daniela. It's always pleasure reading your analysis, not only about us, but the answer is very short. No. I mean, it doesn't restrict our ability to pay cash dividends.

The next question is from Cristian Petre with NN Pensii. And I quote, "Bargaining again from OTP will be taxed. Can you detail a little bit on loan growth for 2024 and on fees and commissions?"

So from the point of view of taxation, I think it's clear that starting with the year after we acquired Volksbank, bargaining agreement is not taxable. That's actually one of our arguments in the legal case against [ enough ] that actually, the spirit of the law was not clear, and they clarified it in the 2016. So no bargaining gains taxable starting in 2016. So for OTP, this will not be taxable. You remember that on Bancpost, even though the bargaining gain was quite small, it wasn't that big, we didn't have an issue with anybody from the tax authorities from that point of view. And then when we go to expectations in year 2024, we do expect to have double-digit growth in terms of net fees and commission income. Our business is growing. Our number of clients is growing. Our channels and the way we work with our clients and the products that we put on the table for them to use payment channels is increasing. So we do expect a double-digit growth. And also on the loan side, we expect a growth, maybe not that high as it was for the year 2023, but we expect to grow in line with the market in Romania in this year as well.

The next question is from [ James Bannan ] with [indiscernible]. And I quote, "Why is the forecast CAR so high, 27%?"

So James, I think we mentioned, both myself and my colleague, Luminita, in the presentation, 27%, it's a number. It's before we have had a shareholders meeting where we decide on the distribution of cash dividends, if there will be any. So that number will be subject to discussion in the shareholders' meeting. And after that, we'll know the final number for the year 2023.

Incorporate in CAR.

Yes. And we've put in pro forma the entire profit for the year 2023 in this computation.

We have a follow-up question from Daniela Mandru-Petrovici with Swiss Capital. And I quote, "Given that the annual weighted average rate for MREL-eligible bonds and subordinate debt issued in 2023 is approximately 8.6%, what strategies do you intend to implement to lessen the effect on the net interest margin?"

I mean, definitely, our wholesale liquidity position is comprised of several things, including 0 interest-bearing current accounts, [indiscernible] accounts, but also this expansive MREL bonds. We have increased our lending. We are also looking for opportunities of lending partially in foreign currency, although we don't have much appetite there. And also our latest, let's say, transactions that we did in the market with our bond issuances have been at lower levels. So we will be kind of -- from now on, we will be forcing or decreasing the cost of borrowing there while maintaining a high growth of assets, including acquisitions where we can place our funds partially. Also, we are benefiting from different hedging and forward instruments that we can use it also in terms of local liquidity. There are a lot of repeat questions. If -- for the sake of time, I would try to gather a couple of questions. Anything that we don't answer, please excuse us, and we will, how you say, insist that we will come back if we switch anything. But I think we don't need to go over the same questions. I see that from Mr. Jan [indiscernible], there is a comment about the OTPs synergies when they kick in. The [indiscernible] OTP itself will exist, hopefully, after closing, only for a period of 6 to 9 months. So it will be mainly impacts in BT's books, but we think that the impact will be seen mainly next year. This year, part of the bargaining gain definitely will be also has diminished by the cost items of integration that we will incur. So we think that the positive impact will be seen once we have the legal and operational merger of both banks. Related to -- from [indiscernible] Cristian Petre is asking about the banking tax, 2% banking tax. Did we give any guidance?

We didn't until now. We can, we could. I mean, our estimation for the year 2024 is around RON 200 million impact.

RON 200 million.

Yes.

So it is less than -- at around EUR 40 million impact for this year.

But again, this is an important point that we want to take because maybe you will see it in the first Quarter. There is a big debate with the auditors, with the big 4 companies, where to put this tax. And the current opinion is that it shouldn't stay in income tax at this point in time. So it may hit the operating expenses line in terms of other taxes. So fortunately, this treatment will be agreed for by the auditors for all the banks in Romania. However, it may affect the way you look at different tax from the region from that point of view because other banks don't have tax on turnover.

There's a, how you say, there are a couple of questions in regard to government bonds, how we book and the change in equity numbers. I guess there is a question from Simon related how our equity increased more than the operational numbers. Actually, it is kind of related because as we were mentioning each time, and this is our -- has been our policy strategy. Our fixed income instruments are kept as available for sale. They are mark-to-market on a daily basis. So the negative or positive impacts you can see under equity immediately. So our story was never similar to what was happening in different banks in U.S. or Europe where they were keeping them as held to maturity, but not doing mark to market. That's why I would say, better interest environment in the last quarter decreased the negative impact of the portfolio, which helped us to increase our equity. So this is the main item. And I would say in our financials, financial reporting, you can see very clearly what is this impact, the definition of it and how our auditors are also seeing it. And we think that it was safer, more prudent, and it helped us to increase our -- I'd say, credibility during tough times last year when we went to the markets for MREL instruments. The fact that we are having this, I'd say, available-for-sale policy. And there is another question if we will see a gross profit of EUR 100 million or not from OTP transaction. I don't want to comment on the bargaining gain, as we call it. As I said, you will see it once after the closing, we will go for shareholders' approval for the merger more details there. After each acquisition, we need to -- I mean, the buyers, they need to make also an analysis of the real net asset value that should -- that will be, I mean, kind of a purchase price analysis. That will be done by a third party as well in this evaluation. Yes, there is a bargaining in that I don't want to mention now is the number. But we are -- I mean, this is not a commodity that we sell -- we buy or sell, we are going there mostly for the customers and for the long-term relation because when we look back also to the long list that we showed to you, with Volksbank, with Bancpost, with Idea Bank and so on, we have seen that over 80% of the customers remain with us, and they even increased their number of products. Now they have more products and services from BT. So this is our aim. I mean this to create medium- and long-term value. There are questions about cost of risk, net interest margin, cost to income. Partially, we have put them in the presentation. The rest, you will be seeing at the end of March when we will be sending the convening notice for our GSM with the budget proposal. It's under construction mostly finished, but still we are doing the final detailing on that. So I would say, in terms of basic guidance, I would say that in terms of business growth and in terms of revenue growth, we are targeting a similar path compared to 2023 in most of the numbers. We don't expect a jump in cost of risk. We don't expect a jump in NPLs because as I said, in Romania now, the problem is not job creation or unemployment. It's not comparable to previous crisis in 2008, 2009 or even earlier. Economy is functioning, growing. Businesses are recruiting. They are paying salaries, people, obviously, inflation is stabilized. And also, although it's not nice to live in an inflationary environment, we have been recently going out of inflationary environment. So we are kind of well trained in terms of Romanian population and Romanian companies to adapt ourselves, which you have seen in the GDP numbers, in the macroeconomic numbers and also in the total numbers of the financial sector. I would let -- as I said, if I -- if we skip any questions, please excuse us, and please come back to us. We will try to detail it, but all the questions that I see are mostly repetitive ones, similar to the ones that we answered. On the other hand, soon, as I said, you will see also our budget proposal for the 2024. And in general, starting with our customers, investors and stuff, I can assure you that we will not disappoint anyone also this year. Thank you very much for listening to us.

Ladies and gentlemen, following the conference call, we would like to announce you that the Investor Relations team in Banca Transilvania will send you a short survey about the content and format of the conference call. Thank you for your input. The conference is now concluded, and you may disconnect. Thank you, and have a good evening.