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

Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the first quarter 2025 financial results. 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; Mr. Catalin Caragea, Deputy CEO, Chief Risk Officer; and Mr. Aurel Bernat, Executive Director of Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.

Good afternoon. Thank you for joining us for this earnings call for the first quarter results of 2025. Indeed, we are at the limit of the maybe timing, but we wanted to delay the call a couple of days in order to be able to have the results of the presidential elections, second round in order to be able to discuss on the facts, not only on our results because we know that last 6 months, Romania, Romanian economy and investors for Romania they were in kind of a freeze. Everybody was focused on the political situation. Now as foresay, maybe we pass through this challenge, I would say, in a strong manner Romanian citizens announced their preference pro-European, [ pro-West ] and they wanted to, I'll say, maintain democratic constitutional reforms going on. Now definitely, our focus will be on economics. The first important step with the elections worked out well, but still, there are a lot of challenges in Romania, especially with the twin deficits, both Minister of Finance, National Bank of Romania, banking sector, private sector, we'll need to prepare for the necessary measures fiscal reform, although we don't like to discuss about fiscal code changes, fiscal reforms. Still, I guess, everyone would like to assume its own part in this responsibility in the new plants, which will happen. In order to avoid the potential risk of rating downgrades or pressure on the borrowing cost of Romania. We are thinking that the key thing from now on is the establishment of the new government as soon as possible, hopefully, until mid-June, but not later than the end of June, so that decisions can be taken and implemented, including this year. I will let Aurel Bernat to give more details on the macroeconomic situation, but there are a lot of also good news in terms of tax collection in terms of revenues and although still high on the inflation side and on the budget deficit side, we see stabilization and all the, let's say small, let's say, one-offs impacting will be fading out soon. The first quarter for us was definitely typical with some one-offs, including the integration of OTP. That's why a linear arithmetic comparison of our results with -- from the first quarter extended for the whole year might not be correct nor fair. Last year in the first quarter, in 2024 first quarter, we had a couple of positive one-offs. This year, we had also some maybe negative one-offs, which we'll be discussing further when we come to the cost of risk, NPL and OpEx side. But the most important thing is that we didn't benefit from OTP synergies. It was only for 1 month out of the whole quarter, which we are already feeling in the coming month -- in the months afterwards much more strongly. So we remain committed to the budget which we proposed to the general shareholders' assembly and approved by the shareholders, which means that we want to deliver bottom line of RON 3.9 billion with return on equity around 25%, with strong loan growth and definitely continuing to become -- to remain the locomotive of Romanian economy in the financial sector. We are also very happy about the results of our subsidiaries. We will be discussing about this further. Now I will leave it to Aurel for a quick macro economic update.

Thank you so much Omer, I will be reverting to some of the details that you already mentioned. First of all, we have to say that we remained to our main narrative regarding the Romanian economy and being an optimist player in this economy based on obvious atleast two factors. One of that is still the largest economy -- one of the largest economies in the region and a second thing is that we have the very strong growth during the last 10 years in terms of GDP. During last year, we had a slowdown of buff increase. We have a real growth of 0.8%. Then during the first quarter of this year, we encountered the growth of 0.2%. Judging on the long term, we see a slowdown starting with 2019, 2024, in which the overall growth was approximately 1.8% on a yearly basis. The public debt to GDP, despite the fact that we are talking much about it in terms of last year's increase, we are still on a stable track, having 54% debt to GDP level, which coupled with relatively high wealth in the CEE region, meaning that we have a GDP per capita somewhere around 80% from the European average. This gives us a future potential for growth. Nevertheless, it's also the time to speak about the twin deficits that were already mentioned by Omer. In 2024, we had the highest government deficit of minus 8.65%. It was the highest among the EU member states. And for 2025, we have a target agreed already with the European Commission of minus 7%. From what we are seeing until now, as a positive data is that during April, we had somehow a steady balance of expense. On the other hand, in terms of revenues, the state increased its revenues with 16% during April. On the trade deficit side, we are seeing a slowdown of this evolution, which is negative during the last couple of years. We had year-over-year 26.9% as of March this year compared with February when we had 35.1%. In terms of inflation, it decreased from 5.5% at the end of 2024, having now 4.9% in April, mainly driven by services and -- mainly driven by services upwards with 6.99% and downwards by the nonfood items. It's worth being mentioning that last week, at the last week's meeting of the National Bank of Romania, we maintained the interest rate at 6.5%. Now in terms of banking sector overall, we see a strong growth in terms of lending single higher digit in Romania compared to the lower one, the European average for the corporate sector and the households have an almost 10% increase, which comes after a very good start from 2023 onwards compared with the average of 1.7 at European level. The deposit side also looks good. Traditionally, we have a higher level of loan to -- a lower level of loan to deposits compared to European standards. In Europe, we have 92% loan-to-deposit ratio compared to the Romanian one, which is at 67% currently. On the household side, also the deposit increased, the deposits increased with 10.7%, being somehow linear during the last couple of quarters. We have to also pay attention to Fidelis program, which is a government bond program designed for individuals which is now on a monthly basis run in the market. And for the first 3 months, they reached together approximately RON 9 million. In terms of NPL ratios, we are having the entire sector level, 2.4 NPL which is strong but comparable to our peer group. And in terms of capital, we are still way above the European average, 20% and higher compared to the 17%. Since lately, we talked much about the tariffs and the impact of U.S. decisions worldwide. We also prepared a slide in which we present the main partners in terms of exports for Romania. We have to keep in mind that more than 66% of the total trade is ran towards the European Union member states, such as Germany, Italy and France, they are the top 3 partners, commercial partners of Romania. U.S.A. overall has an impact of 2.47% for the Romanian market impact mainly what we are exporting as machinery, transport equipment and manufactured goods. The two of them represent approximately 60% 6-0 percent of the total exports. In a nutshell, we would say that even though the impact is low, we can consider it as a positive side of the future bilateral trading because this is an area in which Romania can grow in terms of increasing its trading opportunities. I will now give the floor to George for the business performance and return in a while. Thank you.

Thank you very much, Aurel. So coming back to the performance of the bank. As Omer mentioned a little bit earlier, I think it's important to note a few things that happened in the first quarter of 2025 and which affected the way we look at the financials and the most important of the things, it's the integration of the OTP Group. I will reiterate once again how do we compute the effect of the OTP Group into the financials before we start the analysis on the business performance because this is important to note. As opposed to the previous years, when we had a situation where we were entering into a closing of our transaction somewhere at the beginning of the year around April. And we are closing a transaction and merging with the businesses acquired in December of the same year. In this case, we have a situation where we closed the transaction in the end of July, and we actually merge with OTP Bank and the companies primarily at the beginning of the year 2025. Therefore, the effect of the merger was split into 2 years. So we have -- most of the integration expenses coming in play, booked both at the level of the OTP Bank and at the level of the BT individual booked in the 2024. Also the bargaining gain in terms of revenues was booked in the year 2024 at a consolidated level. And we have some integration expenses that were affecting the first quarter of the year 2025, both at the level of the OTP Bank which affected our consolidated results and the level of the bank, which affected the individual results. Again, we don't see into the individual results of the bank the results of the OTP Bank in the first 2 months of the year 2025, we see them starting with first of March 2025. And I will give you some more details along the way as we go to the financials. So going to the financials. First of all, I would like to say that we start the first quarter with a very good evolution from the point of view of the businesses at with pre-provisioning operating profits, which at the level of the consolidated results show an increase of 10.5%. And individually, we grew by 5.9%. What does that mean? So first of all, net interest income increased quite handsomely 27.1% at the level of the consolidated results. And this is above the level of the increase in the first quarter of the year 2024. However, when you look at the net interest income at the level of the bank with a 15.9% increase in the first quarter of the 2025, we are below the increase of the year 2024. But again, I remind you, we do not have an increase from the point of view of the contribution of the OTP, which includes the full 3 months of the year, but only 1 month. So 1 month of OTP contribution, and I will give you more details when we talk about income. If we were to adjust the results for the full 2 months of the contribution from OTP, this increase would be 23%, which is above the increase that we have in 2024. Going further, when you talk about net fees and commission income, the increase at the level of the consolidated results is 13.2% and the level of individual results 9.7%. Here, we do have a small contribution from the OTP clients that we brought into the bank, but this is very small. It's just 1% at the level of the overall results that we booked in the first quarter. We do have an increase in the transactions that are processed for the BT clients, which is the main engine for the growth of the business, and we have a 16% increase in the number of transaction process in the first quarter. And we do have a one-off negative effect from the integration of OTP because at the level of the loans, when we transfer the collaterals of the notes that we brought from OTP, we had to pay some commissions to register the collaterals with BT instead of OTP, and that effect is reflected in the first quarter, and it was RON 30 million around. If we go further on, and we talk about operating expenses here, we have the main effect coming from the integration of the OTP because in the first quarter of the year, we had approximately RON 70 million expenses coming from the integration of the OTP. RON 50 million booked at the level of the consolidated results and the RON 20 million booked at the level of the individual BT Bank. Going further we do have a net result in the first quarter of the year impacted by an increase in cost of risk. But what I want to say and Catalin will detail a little bit later in his presentation. This is not due to an effect that is throughout the business lines. It's due to some a few isolated clients. And if you look at the financials, you can see that when you look at the segment reporting, we had some individual mid-corporate clients that had some problems for which we have adopted a prudent approach, and we increased the provision level. Catalin will get more into details on this as we go for the presentation. When we talk about net profit and you look again at the comparison with the first quarter of last year, a consolidated level, you see a decrease of 22%. But I remind you that in the first quarter of last year, we also had closing for the transaction to [ BCR ] Chisinau from Moldova. And that had a one-off positive effect into the consolidated results of RON 133 million. And if we had that effect taking out the decrease would have been only of 12% in quarter-on-quarter at a consolidated level, which is much smaller than the decrease at the individual level. In terms of overall evolution from the point of view of net interest margin, we do have a small decrease quarter-on-quarter, but the net interest margin remains strong. We don't have any reason to believe the net interest margin will decrease below 300 basis points. And that was reflected in the budget for the year 2025. With the results that we have, even though we did have this one-off effect, the cost-to-income ratio at the level of both consolidated results and individual results remain very strong. If you take away the effect of this turnover tax, we are around 44% throughout the 2 periods annualized, of course, which is a very good result when we compare it with our peers as well. In terms of return on equity, with our results, double-digit. In the first quarter, we are way above the averages for the banking system in Romania or for the European banks. As you could see in the presentation that overall made the banking system is around 18% with 21% at the end of last year. Of course, with 21%, we maintained a very strong return on equity position both at the individual level and also at the consolidated level. Now going further in the presentation, I would like to focus a little bit on the balance sheet before we go into a more detailed analysis on the revenues and expenses. And here, if you take a look at the evolution of the balance sheet, we do have an increase in terms of total assets in the first 3 months of the year, 6.7% at the individual level. But if you look at consolidated level, you see that actually the total assets remained quite flat in the first 3 months. At the individual level, of course, this is due to the incorporation of the business from OTP. But if you look at the increase in terms of loans, we had some sales in the first quarter of the year because, of course, at the individual level with 14.7% increase. This is primarily driven by the OTP Bank acquisition and integration. But taking a look at the consolidated results, we do have an increase of almost 2%. And that in a quarter where the focus was not on sales but was rather on the integration of the OTP business. Overall, deposits from customers don't grow at the level of the consolidated results, but they do grow at individual level due to the integration of the OTP results. And you see clearly what we have been saying in the previous discussions that this integration of the OTP Bank will bring a significant increase in terms of gross loan to deposit ratio. We do manage to increase this ratio to almost 62% at the end of March 2025 which is almost a 5% cash point increase versus last year. Also, at a consolidated level, there is an increase of almost 2 percentage points in the first quarter. In terms of NPL ratio, with 2.5% at the end of the first quarter, we are around the ratio for the average for the remaining system, which a little bit earlier in Aurel's presentation, it was shown it was almost 2.5% as well. Capital position is very strong for the bank. And of course, here, you will see more details in Catalin's presentation a little bit later. Now going further, let's have a little bit of details in terms of trends in income. And here, the most important thing is the fact that we do have an increase in net interest income, and that's 15.9%. Now that reflects only 1 month of OTP, as I mentioned earlier. One month of OTP, what does it mean? 1 month of OTP, it's a result that it's around RON 50 million. If we had the first 2 months, the increase would have been even higher, it would have reached over 20% in terms of net interest income. But that's not the point. The point is that we stand by what we said in our budget presentation. And even though we do have only 1 month of OTP results here reflected, we estimate that our growth in terms of net interest income and the synergies that we see on the revenue side from the OTP acquisition will be seen in the following months after the first quarter. In terms of net fees and commissions, an increase of 9.7%. As I mentioned earlier, its slightly affected by the commissions related to the transfer of the collaterals from OTP, which were approximately RON 30 million in the first quarter. However, this is also -- if those will not have been present, we would have had double-digit growth, of course, in the first quarter as well. We do have a very nice increase in the number of clients in the first quarter of the year with 130,000 clients, new clients coming into the bank except for the ones that we transferred or in addition to the ones that we transfer from OTP. And this -- even though we changed the structure of the commissions, it will have actually grow the base for net fees and commissions income together with the increased usage of the products at the level of the bank. Going further, net trading income, an increase of 17.5%. This is due primarily from fix. I think more than 85%, 88% is coming from a fixed with the clients, which reflects the increase of the use of products from our clients. And if you look at net gains and losses from financial assets, we do have RON 68 million reported in the first quarter, which is a decrease of 44.1% versus the previous quarter -- previous year first quarter. But this is due to the challenges in the market in the first 3 months of the year, and it's coming primarily from the fair value of the instruments that are valued -- fair valued to the other component of equity. Looking again, as I mentioned, net interest margin evolution, even though interest rates varied on the market in the last 5 years and 1 quarter, as you can see on the graph. We managed to maintain a net interest margin, which is quite stable for the bank with a rate that it's above 330 basis points for the first quarter of the year. And our estimate is that we will not drop below 300 basis points for the year 2025. In terms of the structure of the income, we maintain a pretty stable structure, very similar to the one that we presented in the previous quarters with the main contributor being net interest income of 72.1%. Going further into the analysis, we take a look at the trends in the operating expenses. And here, the main contributor to operating expenses is the personnel expenses. We had in the first quarter of the year, RON 577 million in terms of personnel expenses, which is an increase of 19.6% versus the first quarter of last year. However, this, I want to go a little bit into details because this is important to note. First of all, we do have an effect coming from OTP because we have taken approximately 600 people from the OTP that are remaining with us. And this is affecting in personal expense increases. And then we do have an effect coming from an increase in terms of the increase of wages driven by inflation. Now looking at the market, we know that in 1 year, wages increased by approximately 10%. But due to inflation [indiscernible] increase is actually approximately 5.7%. So if you take this into consideration, together with the increase of OTP colleagues, we account for approximately 13% of the overall increase in personnel expenses at the level of the bank. What I want to mention that is even though this increase in personnel expense happened. If you take a look at the graph that is on the right-hand side, you see that the efficiency of the employees has affected in the assets that are managed by the level of the employees increased in the period of 3 months since the end of last year. In terms of other operating expenses with an increase of 19.3% or RON 354 million, RON 76 of which is actually the turnover tax increasing versus the month of last year, which was RON 65 million, as you see on the graph. We do have an effect coming from the integration of the OTP business, which was reflected at the level of the bank, as I mentioned a little bit earlier. And that's approximately RON 20 million. If you take a look at the cost-to-income ratio, cost-to-income ratio was quite stable in the last years. And even though we did have these one-offs in terms of expenses at the beginning of the first quarter. We do manage to maintain -- if you take away the turnover tax, 44% cost-to-income ratio at the bank level. Now, having said that, I'm pretty sure that you will get more details from Omer on the evolution of the business, and I'll give the floor to him.

Thank you, George. Indeed, I mean, we have been repeating about OTP integration and its impact. But if you look at the first quarter results of loan growth, where we have seen 14.7% growth of our lending portfolio. Actually, even if we exclude OTP portfolio, we had 2.9% growth in retail lending and 1.6% growth in companies lending, which, for the start of the year are actually quite good. And definitely, our network and several business lines being also focused on the good integration of the OTP customers. We didn't have our, how to say, old resources, 100% allocated for new sales. On the other hand there was also the postponed elections impact in the markets that we have also mentioned. And usually, traditionally, our business growth is picking up in the second quarter and mainly happening in the last quarter of every year with second and fourth quarter of each year making more than 60% of the total lending and our business activity. So, foresay, we said at the beginning, I'm looking at the questions that you have posted. We are still committed to the loan growth. We don't see it -- I mean, we understand the concerns, and we will be very active in the market. But still, if you look back in the first quarter of this year, we see -- even in the first quarter of this year, actually, we see the growth in the increase in the appetite of retail customers. BT has granted almost 100 new mortgage loans every day, reaching more than 5,400 mortgage loans. But also, we see in consumer lending, we had good results and also looking back at what Catalin will present safe growth, but still strong growth in unsecured lending as well. There is also the new -- [Noua Casa ] the new house program announced so that we think that it will boost the market. Now with the interest rates quite still low and also high competition, high liquidity in the market. We think that housing lending, mortgage lending will be picking up for the rest of the year as well. We are definitely also proud of our growth in the cards business. We are almost 7.5 million cards already. We are as we had been in the last couple of years, the main payment institution in Romania from salary and pension payments to, I would say, commercial transactions, e-commerce, our payment systems are offering us also an upper hand to grow further in the company's business, SMEs or mid-corporates or large corporates as well. The landing is still, I would say, balanced, although we have seen in the last couple of years, a bit of more growing trend of preference in -- from the company's foreign currency lending. It is mainly related with the cost of borrowing. But the recent -- very recent in the second quarter, increase in the exchange rate, I guess, also will be discouraging for companies giving a sign about potential cost of having foreign currency loans. We will be maintaining our naturally hedged position on the loans and deposit sides as well. Deposits growth mainly came from OTP portfolio with very high liquidity and high interest rates. We didn't want to be very aggressive. This we said also, I guess when we met -- when we discussed the end of year -- end of 2024 results. Definitely, the Fidelis program of Ministry of Finance, where the Ministry of Finance is borrowing directly from households is also becoming a strong competition, but still having good liquidity results. We didn't want to start a new trend in the banking sector by changing our interest rate and pricing strategy. And we are so far comfortable with the numbers that you see in our presentation, we see also, I would say, quite balanced distribution between time deposits and current accounts. Actually, current accounts, we consider as core deposits, and they had been an important pillar for our liquidity management, but also net interest margin. Companies we see are much more attentive. They are looking for alternative ways of investing their extra liquidity, but still, also, we see a good core current account base there as well. I will leave it to Catalin to discuss about the risk.

Thank you, Omer. When coming about capital position, in first quarter of 2025, we didn't see any unexpected events. However, there are a few events that are visible in our figures. One of them is the OTP integration in the bank. Although here, you are seeing the group consolidated figure previously, you're seeing also the capital ratios for the banks and the loan, where you see the effect of the OTP integration. And if you remember in the last call, we announced that we build up capital for the bank in order to observe this integration, this is visible now. When looking to the -- however, what we can mention from a broader picture is that our capital ratio is still above our risk appetite, internal risk appetite and around our minimum announced guidance of the 20%. If you are looking to the RWA density, bottom right chart, you will see in 2025, a slight advance when coming about the credit risk RWA. We would like to mention that this is not coming from portfolio quality, but this is coming from pure fadeout of general regulatory exception on the sovereign exposures, which is applicable for the entire market. And what you cannot see in the figures because this didn't affect our group is the Basel IV. For the bank stand-alone, as we announced also in the previous call, the Basel IV effect was neutral, whereas for the group was slightly positive from an RWA perspective. So basically, the actual figures confirm our expectation that were announced throughout 2024. For the entire year or for the year-end, we expect to see the capital position at a comfortable level above our -- again, our minimum 20% announced target and guidance. If we move further to the asset quality, in first quarter, we see a small advance in the asset quality indicators, both NPL and cost of risk. And this is on a base of 2 events. One event when looking to the NPL ratio, mainly it's the OTP integration in the bank. And the majority of the NPL ratio upside is coming from this portfolio. Why? Because when we incorporate it in the bank, the OTP portfolio, this came with a slightly higher NPL rate than the bank due to a pure base effect. When coming about cost of risk, here, we see for the first quarter a small advance, which is -- again, this is the second one-off event that I was mentioning. And this is coming for a few mid-corporate customers. which defaulted into the quarter. However, this is still keeping the cost of risk we've seen around our guidance, and we've seen our, let's say, targeted for this year, maximum targeted 1% of the cost of risk. Of course, someone might say, okay, but this is a trend or this is not a trend. We looked -- we are closely looking to the trends because these are more important than the one-off events. And at this stage, we don't see any trends which will go outside of a normal or go beyond the normal or normalized portfolio trend in the current economic circumstances. And therefore, we see that for year-end, both ratios, NPL and cost of risk will be kept within our guidance. I would say that this is for the risk side.

As I mentioned, the adjusted less than 4 weeks ago, our GSM. And based on our proposals, our shareholders approved the distribution of cash dividends from the profit of the year 2024 in an amount of RON 1.59 billion from the net profit reserves for 2024. Gross dividend share amount is RON 1.73 and ex-date for the distribution will be 13th of June. Registration is 16th of June and payment date is 30th of June. For the budget, total assets growth had been approved at almost 14% and loan growth of over 19%, including OTP. Profit before tax, RON 4.6 billion, growth of 12.7% as compared to 2024. And we will be investing on CapEx investments mainly around RON 840 million this year, mainly IT, infrastructure and digital initiatives, but also definitely on our -- in our other projects in the bank as well. The share capital by incorporating the reserves from the net profit of 2024 will be increased by new 173 million shares with a nominal value of RON 10, means that it's around 19 shares will be distributed for every RON 100 with the registration date of 18th of July. And a share buyback program had been approved for 5 million shares, around 0.55% of total number of shares a bit less than previous years, also based on the fact that the price has increased and the needs are lower. We don't have the special bonuses like for the integration and other special events. So we will be continuing also our stock-option plan this year with 5 million shares. We are happy that despite maybe stressful 2 weeks also recently, shareholders' confidence, trust is there. We are thankful to our investors and shareholders for supporting us in our endeavors. And I hope that we will be so far delivering good results, good returns. We will be continuing similar yields and returns for our shareholders as long as definitely Romanian and financial markets will allow us. About sustainability and digital, Aurel, if you can say a few words.

Definitely. Thank you. I will be touching sustainability a little bit. In March 2025, we published a sustainability statement of ours. The main thing is that in this reporting, we have the carbon emissions on all the 3 scopes. And what is relevant is that we have a strong data quality score of 2.95. In terms of green asset ratios, you have the metrics, both for stock and flow, you can visit our website, see the sustainability statement and so on. In terms of sustainable finance, this is something that we didn't quite deep dive during the previous call of hours concerning 2024, but it's good to be mentioned. We have a green loans portfolio of RON 1.7 billion, 60% higher compared to 2023. The mortgages also had a good traction, 5.27% of our mortgage loans are green. And one fun fact, I would mention 1 out of 2 financial leasings granted by better leasing go towards electric or hybrid vehicles amounting of north of RON 1 billion in total. In terms of community care, we have a CSR budget of more than RON 80 million in 2024. And this means this can be translated in more than 450 projects in education, culture and sports, all across Romania and also Moldova. Touching briefly on the digital side of ours. We are more than happy with the developments of BT Pay and BT Go. BT Pay as you know, is designed for retail customers and BT Go for the corporate side. In BT Pay, we introduced AI assistance and also we launched BT Pay Italy which grants IBANs and also digital cards and instant transfers for all people located in Italy. On the other hand, BT Go already surpassed the 300,000 customers. As for comparison BT Pay has more than RON 4.1 million retail customers, BT Go has 310,000 corporate customers. It's a very successful story on both sides. We always happy to show them on the screens. I will go back to you, Omar. Thank you.

Thank you Aurel. We continue our focus being an active partner and taking an active role in all financial sectors, financial markets products and services in Romania. And we have also several definitely good news. We managed on the bank side. We managed successful integration in record time with OTP, thanks to great efforts by our colleagues. We have also successfully completed the merger of Victoria Bank -- BCR Chisinau with Victoria Bank in Moldova. And Victoria Bank continues its consolidation efforts. The next step for them is a transaction which is already signed with the acquisition of Microinvest. Microinvest is the largest micro lending company bigger than many other banks in Moldova with 40,000 customers. It's a good contribution. And we think that it will replicate the success to of BRD.ro Refinantare or even will be best practice in the sense in our group. Definitely important news, maybe the most important strategically came from BRD Pensii, where we finalized the takeover of the third pillar from BRD Pensii and now in the process of approvals and authorizations for the second pillar. Private pensions, pillar 2 and pillar 3 are -- they have a very important role in our strategy, both in terms of development of our customer base to offer us a better, more stable future to our customers but also to support the development of capital markets in Romania. I would like to enter into the details of each subsidiary. You will see them in the presentation, but also I can, let's say, happily say that better direct one of our subsidiaries, which we were not sure to go ahead with or not as excellent sales results with, I would say, record levels of sales this year and Salt Bank, our fully owned subsidiary, but also a competitor in banking sector has reached over 500,000 customers in just 12 months. And as they are launching new products and services, we are sure that they will definitely be, let's say, frequent maybe receival of the awards like best use of technology in retail banking, which they received in London from an independent journey. I would like to say that we shall leave some time for Q&A. Some of you has posted to the platform. The presentation is already on our website in the Investor Relations page. In case you cannot reach it, please do not hesitate to contact us. And in case you will not be able to post questions, you didn't post yet. You can always come back to us. Our colleagues from Investor Relations will try to answer as soon as possible.

[Operator Instructions]

Hello, everyone. We have the first set of questions coming from Miguel Dias covering Banca Transilvania for Wood & Company. Given the evolution of the loan book in the first quarter of 2025, do you still view 8% year-on-year for the entire year? How is the second quarter shaping? Do you see stronger growth? Or is the loan book expected to grow more in the second part of the year? And another one also related to the guidance. You previously guided for up to 80 bps in terms of cost of risk for the financial year 2025. Does this change your stance on cost of risk?

Thank you, Miguel, for both questions. As we try to answer during the presentation, we are still committed to the loan growth numbers mentioned. And yes, we are expecting in the second half of the year a higher activity because due to, let's say, political instability and concerns and also seasonality the first quarter, second quarter -- the first quarter, especially wasn't that productive. We also had our focus on the OTP integration. We might have missed some opportunities, but which we will try to grab starting from second quarter. I don't want to enter into the numbers of second quarter because it is -- obviously, this is a limited video conference, not open to all the investors, shareholders, but I can tell that second quarter results are looking better and from all perspectives from the bottom line to the sales. And already with the mood in the market we are expecting a very strong June. Second question was related to the cost of risk. Yes, I mean, actually, we have been discussing this internally a lot. It had been long, let's say, sequence of years where it was growth and good news. So maybe we were not ready also emotionally for any, I would say, one-offs in the NPLs or cost of risk. We see what happened in the first quarter as I said many times, it's one-offs. We don't see any drastic trends or concerning trends in the NPL generation or cost of risk. So I would say that we are committed to the 80 basis points, but I will let also our Chief Risk Officer to add.

Indeed. What we see currently, as I said also previously was due to this one-off events on a particular segment, so mid-corporates, but these were just a few. If we are looking a bit more in depth on the private individual segment here, we are seeing a positive trend rather than slightly negative. So from this perspective in private individuals, the forecast from current standpoint looks promising. When looking to the legal entities, here, we don't see adverse trends. We saw, as we are speaking also in the past calls, we saw some slight upsides on some particular segments, like this more volatile or more cyclical industries, but this is normal in the current economic environment. So our guidance and our baseline scenario is still at 80 basis points as it was announced. But we wouldn't be worried if this will be fluctuating between 80 and 100 basis points, which would be from our perspective a normalized -- a normal trend.

Next set of questions come from Jovan Sikimic from ODDO. Can you please explain the decrease of capital ratios versus end of year 2024? And how significant was the impact from CRR3 implementation. How big in your view is that new turnover tax for banks will come in the future. And what is the reason for the corporate deposit outflows at the group level in the first quarter?

I'll take the first question related to the capital position. Basically, I will reiterate what I said earlier. So if we look to the bank stand-alone, the decrease in the capital ratio is not an unexpected event. This is purely given by the OTP integration. And as a matter of fact, we build up the capital in order to absorb this M&A process. From Basel IV perspective, we didn't see any adverse impact, contrary for the bank standalone, it was a neutral impact. And for the group, we rather saw a positive effect. The next...

I will start with the last one with the corporate deposits outflow. It has multiple factors. One is related with the precaution of the companies to reimburse -- to use their liquidity to reimburse their loans or to prepare the entrepreneurs with a higher, let's say, dividend payouts. On the other hand, during the OTP integration also, some of the customers preferred to close their loans and when switching to BT to start the lending process from 0. So we see that some of those motives do not exist anymore. But also, as I said, we were not very aggressive in pricing strategy, especially state-owned institutions, state-owned enterprises, they either moved deposits to other banks or they paid dividends as well to the shareholders. The second question, I just forget.

It was related to turnover tax.

Turnover tax. I mean, actually, based on the previous discussions a couple of years ago, it was supposed to be the last year of turnover tax on the banking sector, which we sincerely do not think that will happen most probably banking tax for a while remain. On the other hand, the impact on the state budget or the -- for the management of budget deficit is not that much. However, we do not expect it to disappear nor we do expect it to increase and both the newly elected President and his, let's say, preferred choice for Prime Minister they were imagining that the fiscal reform should be meaningful and focused on mostly collection of not being collected. Our, I would say, opinion is that will not be the case to increase.

Next question comes from [indiscernible]from Neuberger Berman. Can you please give us your view on potential downgrade of the Romanian sovereign rating.

I mean now definitely, we are a bit more relaxed on that. We don't think that it's -- in the short term, it is the risk, I guess. Both the rating agencies and our Western partners of Romania are following closely, tax collection, budget deficits growth, inflation and other numbers. And they don't want to also risk social or economic stability. I think rating agencies have now a period of expectation to see which government when will be constructed and what kind of fiscal reforms or other reforms they will implement. So in the next quarters this year, we don't see the risk imminent. But on the other hand, indeed, if Romanian government authorities do not take the necessary steps, it is there. It is a risk. We are doing different scenarios for it. However, as I said, we -- as a Romanian bank, definitely exposed to Romania, with all our interest, we will also assume our role in order not to reach there.

Next question comes from Daniela Mandru covering Banca Transilvania for Swiss Capital. At the standalone level, deposit guarantees increased at a much higher pace compared to the advance of deposits. Can you please provide an explanation for this development?

So indeed, as you can see in the financials, the expenses with the deposit guarantee contribution increase, while by approximately 40%, while deposits increased by only 6.2%. However, if you are to look at the variation of the deposits year-on-year, by comparing with the first quarter, the increase is higher in terms of deposit by roughly 30%. And what's on top of the 30% to get to the 40%, maybe some variation in terms of the way the authorities are computing the contribution to the deposit guarantee fund to reach their target quota for collection for the certain year.

Next question comes from Anton Beck from [indiscernible]. What is your longer-term plan, 3 years plus to lower your cost-to-income ratio? What do you think you can reach in the longer term? What are your main hurdles to get there?

We have seen a couple of more questions regarding the benchmarking of cost income ratio and how do we stay. Indeed, I mean, a couple of years ago, it was meaningful and attractive, and we were mentioning that we want to keep it at 45%. Now we see in the region, banks are going towards 40%, even slightly lower. Our biggest definitely challenge here had been the inflation starting with salary inflation. I mean, Romania started suffering not from unemployment, but a very low unemployment ratio and high competition among the employers for competent staff for educated personnel, where definitely we need a lot of resources. We are budgeted, we want to go below 45% this year. Our long-term ambition is -- and 3 years is quite a long term for Romania is to bring it below 40%. Here, partially the investments that we do now, acquisitions that we did and the growth at the existing customers, I mean we are looking to the decrease of the cost-to-income ratio from both sides on the revenue generation that we want to now with 23% market share, 6 million customers and using data, data analytics better, we want to grow further in the existing customer base while growing. And on the other hand, we are including from our first line front office contact centers and some other support functions. We are already testing different applications AI, in order to decrease our cost, in order to, how to say, not to depend on human resources for repetitive routine tasks when it's already known that we have already slowed down almost frozen our recruitments because we think that use of technology helps to increase efficiency already. so far, this is what I can tell.

Next question comes from Solena Gloaguen from Insight Investment. Can you please provide for your CET1 ratio sensitivity to a local currency depreciation. Can you confirm the tenor of your exposure to the Romanian government. And related to that, what is the market value adjustment of your financial assets, not having more impact on your P&L in the first quarter when we had lots of volatility in the market on Romanian assets.

So I will take it step by step. So if we would be thinking to, let's say, an immediate effect by midyear, the effect on the capital ratio will be below 1%, which at the current [indiscernible]. We are building up capital out of the -- in general, we are building up capital out of the profit in corporation. So from this perspective, we don’t have reasons [indiscernible]. The second question was, Diana?

Yes, the second point was related to the tenor of the exposure to the Romanian government bonds?

The average duration is still at the same level like in the past, around 3 years. And when coming to the impact, out of the evaluation, here we -- in general, we are having 2 impacts. And in general, we are looking to the sovereign bonds which are kept at the [indiscernible] portfolio which is kept [indiscernible] is limited and has limited impact. And looking to the portfolio, which has direct impact in the reserves, if -- we will see a negative evolution of the ratings, this will have an impact, which will go again below 1%. We are expecting here if it will be between 50 basis points and 1%. When coming about the second effect, which might be the -- which is the impairment, this we already booked several reserves at -- in 2024. So here in case of an adverse evolution here, the impact will be negligible. This being an impact -- direct impact in P&L.

OTP integration costs will be booked. In the first quarter, you booked RON 50 million at consolidated level. Regarding cost of risk, what would you say is a reasonable level on medium term? And in respect of the treatment of the fixed income portfolio, how would increasing yields influence you.

When we talk about the integration cost, indeed, we did have RON 50 million expenses with the integration booked at the level of consolidated results and also RON 20 million individually. We don't think we're going to have anything more coming in, in the next quarters related to the integration being finalized at the beginning of March. What was the third question? Because I think I covered first and second.

The treatment of fixed income portfolio, how would increasing years influence?

Okay. So from the point of view of the fixed income portfolio, the effect it's -- first of all, split differently in -- depending on the type of the instrument that we have. So the ones that are held to collect an increase in yield doesn't have a direct impact into the P&L, whereas the ones that are -- held at fair value to the other comprehensive income as Catalin was telling us, they will have a negative effect in terms of the position that we show into the other comprehensive income. However, for a limited period of time, that is not taken into consideration [indiscernible]. And we will benefit from period in which we don’t have an impact at this point in time from this negative impact into the equity.

But also -- I mean, I don't want to be on the naive side, but because we have even less than 3 years duration, around 2.8 to 2.7 years. I mean increasing the yields also give us the opportunity, while our liquidity is growing, deposits are growing to replenish the portfolio at higher rates so that the impact is not only at the existing portfolio, but also somehow although I refrain from saying positive about high interest rates, it has a positive impact on the net interest income from this perspective.

Next question for Dimitri Tikhonov from MEIG. In the case of a sovereign downgrade, what impact could it have on your risk-weighted assets and capital ratios.

This I already mentioned, so if we'll see an immediate, let's say, adverse evolution coming about the sovereign rating this will be concluded in decreasing the capital ratio of around 1% or up to 1%, I would say.

Next question comes from Domenico [indiscernible] covering Banca Transilvania from Jefferies. Do you have different scenarios if only 1 rating agency does that and/or all of them downgrade to high yield.

This is not necessarily linked to the -- or triggered like a direct effect from the rating of the agencies, but to the interest rates. So basically, this is linked to what is the evolution of the market.

We have another question from Catherine Lennon from Bank of America. What is the breakdown of drivers for impairment this quarter?

As I already mentioned, so the impairment is -- besides the regular inflow that we observed also throughout the past year. These were these few events, which basically brought a slight upside in the cost of risk, which brought it to 1% for first quarter.

We have next question -- an additional question coming from Christian [indiscernible] from [indiscernible]. Regarding the cost-to-income outlook figures, are these are individual level without turnover tax.

Outlook is presented without turnover tax and [Technical Difficulty]. Sorry, technical challenges. So from the point of view, of course, cost-to-income outlook, we do present this without turnover tax because we need to have a comparison with our peers on the market that don't have this turnover tax. But we do, from time to time, take a look and present the ratio with the turnover tax included as well.

We have a question from Marian Mihalca from Evergent Investments. If the high yields are prolonged, have you considered the lower dividend distribution or even not paying dividends at all or maybe issuing more MREL bonds.

I mean if the high yields prevailed without rating changes rating improvement is quite a far-fetched outcome. But if we maintain the rating, the impact on the bottom line is actually slightly positive. If the interest rates will increase drastically, it will put -- I mean, there are a lot of if clauses here, it will put pressure on cost of risk building and we cannot replenish our portfolios at the new high rates. So we don't generate enough new business, be it on the fixed income or lending side then we might think. But this is, in any case, one of the, let's say, options at any time for any bank in any geography. So if things don't go well, definitely dividend distribution should be adapted. So far, we don't see it as an outcome or necessity. On the other hand, especially, even now, I would say that if you look at where our bonds are traded the bond investors are treating us fairly well. They have good trust. So if there will be a trade off, our first option will be issuing more bonds. But this is as much as the business -- new business generation is needed and we issued, let's say, prudential growth of the bank. So far, we don't have any change in our plans for the next years. But I mean I hope we will continue as we are -- we said that we are committed, we will grow our risk-weighted assets healthily in a strong manner that we will need to make also some new issuances of MREL.

Thank you. We have no further questions coming from investors. I will now revert to management for the final comments.

Thank you very much for being with us. If by -- due to technical reasons or whatever purpose you couldn't address your questions, please continue sending them to us and our Investor Relations will try to answer indeed comparison between -- I mean, every last year had been with some one-offs or different events, starting with COVID, war, energy crisis than acquisitions, integrations and so on. So we would like to give more clarity in case we couldn't provide so far. We are glad that, as we said, the election cycle has finished at least for a couple of years. Romania will not need to have elections. And once we have the new government, hopefully, including us, everybody will go back to, let's say, deep work so that we can bring back Romania, where it was kind of a pillar of stability and high-growth country. Looking forward to meeting hearing you on the second quarter results when we finish the first half results. Then I guess we can give more clarity on the trends and a better outlook for the second part of the year. Take care of yourselves. All the best. Thank you.

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 survey about the content and format of the conference call. Thank you for your input. The conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.