Bank of Cyprus Holdings Public Limited Company (BOCH) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Bank of Cyprus Conference Call to present and discuss the First Half 2024 Financial Results. [Operator Instructions]. And the conference is being recorded. At this time, I would like to turn the conference over to Mr. Panicos Nicolaou, Chief Executive Officer. Mr. Nicolaou, you may now proceed.

Good morning, everyone. Thank you for joining our financial results conference call for the period ended 30 of June 2024. I am joined by Eliza Livadiotou, Executive Director of Finance; and Annita Pavlou, Manager, IR and ESG. After my introductory remarks, Eliza will go into more detail on our financial performance, and then we will be happy to take your questions both during this conference call and afterwards. I would like to start by briefly reminding you of our powerful equity story and our cost trends on Slide #5. We are the leading financial group across banking and other financial services in Cyprus, which is a highly liquid and concentrated banking sector, and we operate in a supportive macroeconomic environment. The Cypriot economy remains strong, delivering good growth, proving once again its flexible and resilient characteristics. We have strong levers under our control. Our diversified business model, our ongoing cost discipline, our robust asset quality and our strong capital position, all support our commitment for attractive shareholder remuneration by continuing delivering sustainable mid-teens ROTE or reported equity over the medium term in a normalized interest environment. In fact, today, we are targeting distribution for 2024 at the higher end of our payout range of 50% market conditions allowing. Slides 6 and 7 show an overview of the macroeconomic environment. We operate in a strong, diversified, mainly service-based economy that exhibits continuing growth. Based on the latest projections of the Ministry of Finance, economic growth is expected to be around 2.9% in 2024, outperforming eurozone average. This is underpinned by the strong tourist activity. Lower unemployment, improved public debt to GDP and decelerated inflation. Let me now deep dive into each enabler. Tourist activity in the first half remained strong and similar to prior year levels, despite the geopolitical uncertainty. Likewise, tourist visits for the period January to May 2024 were 3% higher compared to the corresponding period in 2023. Public debt to GDP continued to improve to 76% as of the end of March 2024 and remains well below the euro average with the latest projections indicating that by 2026, upping debt to GDP will be below 60%. The unemployment rate decreased to 5.7% in Q1 and is now considered that economy operate at almost full employment. On the other hand, consumer inflation continued to be impacted by energy prices, but have now come under control. And Cyprus inflation stood at 3% in June 2024 and is expected to average around 2.5% for the year. The resilience of the Cypriot economy is reflected in its credit rating as the country has an investment grade rating by four credit rating agencies. Let's now turn to Slide 8. The group's continued strong financial performance in the second quarter. Net interest income in Q2 remains strong on the back of high rates and ample liquidity, declining only modestly on prior quarter to EUR 207 million. Our continuous focus on cost management and strong income kept the cost income ratio low at 32%. Cost of risk at 54 basis points remained below our normalized provision range reflecting robust portfolio performance in the second quarter. As a result, the group generated a profit after tax of EUR 137 million. All in all, as is shown on Slide 9, we achieved a ROTE of 23.7% for the second quarter, which is equivalent to almost 30% of ROTE on a 15% CET1 ratio. This is the sixth consecutive quarter of delivering ROTE over 30% on both metrics, demonstrating the sustainability of our business model. Our second quarter earnings per share of EUR 0.31 are feeding through into strong growth in our tangible book value, up 21% year-on-year despite the payment of EUR 0.25 of dividends just completed in June. We are delivering our shareholder remuneration. As communicated in the past, we have a very clear path of rebuilding shareholder remuneration. We started with a small dividend payout of '22 earnings. We were the first bank in the region to recommence dividends and thereafter proceeded with a more meaningful 30% payout ratio 2023, equivalent to an 8% yield. This distribution corresponded to a fivefold increase in cash dividend, which, as mentioned, we have already paid, and the commencement of our inaugural 25 million share buyback. Turning now to Slide 10. As a reminder, in June 2023, we had our inaugural investor update event. As we are currently on our first year anniversary event, we wanted to update on our progress on the promises we have made. It is clear that the group has made considerable progress across key metrics in performance and delivery of shareholder returns. Moving to Slide 11. Our key financial metrics of net interest income efficiency, cost of risk, asset quality and capital are well ahead of the 2024 target we set in February 2024. All in all, we generated a ROTE of 23.7% for the first half of 2024, translating to strong CET1 generation of 214 basis points before distributions. Capitalizing on the strong performance and on the back of a supportive macroeconomic environment, we are upgrading today our 2024 and 2025 financial targets. As shown on Slide 12, we are upgrading our NII expectations to around EUR 800 million in 2024. For 2025, we expect that NII will exceed EUR 700 million. We will discuss the drivers in more detail on Slide #14. Our cost to income ratio is expected to be below 35% for 2024, reflecting mainly higher than anticipated income. For 2025, despite lower income gradual decline in interest rate, the cost to income ratio is expected to stay below 40%. On asset quality, we expect the NPE ratio to remain below 3% for 2024 and below 2.5% for 2025. Our cost of risk is expected to be around 14 basis points for 2024, and we deemed a normalized level of 14 to 15 basis points for 2025. Lastly, given the stronger profit generation, we expect significant CET1 generation of over 300 basis points per annum before any distributions. Moving now to Slide 13. All this support a stronger ROTE and distributions for 2024 and 2025. For 2024, we expect to deliver around over 19% on a reported basis, which is translated into a ROTE of over 24% or 15% CET1 ratio. For 2025, the group expects to deliver a mid-teens reported ROTE corresponding to high-teens ROTE on a 15% CET1 ratio. We maintain a clear focus on delivering sustainable returns to our shareholders. Supported by our continued progress towards our strategic targets, we are now targeting distribution towards the higher end of our payout ratio at 50% for 2024, subject to market conditions and required approvals. Any proposed distribution account to as well as envisage allocation between dividend and buyback will take into consideration market conditions as well as the outcome of our ongoing capital and liquidity planning exercises at the time. Going forward, given our strong capital generation, we expect to review our distribution policy with the full year 2024 financial results in the context of prevailing market conditions. Let's focus on the key drivers of our net interest income target on Slide 14. Compared to market especially FY 2024, the interest rate environment turned out to be more resilient than initially anticipated. You can see the charts on this page, how expectations evolved since January 2024 at the time of our full year 2023 financial results. In conjunction with the positive deposit behavior, both on mix of deposit and because of deposits we have been experiencing, we now expect a net interest income of around EUR 800 million. In 2025, we expect net interest income to decline on projected lower interest rate and a higher cost of deposits compared to 2024, as depositors may look to lock in higher rates despite rate cuts. I will quickly take you through the key drivers of our upgraded NII guidance. We now expect the cost of deposit to average to around 35 basis points for 2024 from the current levels of 32 basis points in the first half. We continue to allow for a change in mix with time and net deposits increasing from 33% in June to around 43% by December 2024. On the lending side, we reiterate our expectation of low single-digit loan growth in 2024 and 2025, supported by economic growth. Wholesale funding costs will increase to reflect the full year impact of the 2023 MREL issuance and the 2024 issuance of green bond. Finally, we will continue our hedging activity to reduce the [indiscernible]. This will come and close in 2024, but will support future revenues. And we'll continue to carefully grow our fixed income portfolio to around 70% of total assets subject to market conditions. Turning now to Slide 16. In the context of evaluating how best position the group to achieve its long-term strategic targets and deliver sustainable value to shareholders, the Board of Directors has been assessing how to enhance liquidity of the ordinary shares of the group, which are currently listed on the London Stock Exchange and Cyprus Stock Exchange. Following extensive communication with the Group's stakeholders, the Board of Directors has reached a view that the listing on the Athens Stock Exchange in conjunction with a delisting from LSE, will yield a number of long-term strategic and capital market benefits. This includes enhancing the group profile among the relevant investor base focused on the region, enabling investors to directly compare their formats with the regional banking peers, attracting long-term institutional holfrtd with the more focused market ecosystem of ATHEX and providing scope for inclusion among indices over time. Taking into account this benefit, the Board of Directors of the group believes that listing of ATHEX and then delisting from LSE has the potential to enhance the liquidity of the ordinary shares for the benefit of the shareholders. The ordinary shares of the group will continue to be listed on the CSE. In the coming weeks, we'll [indiscernible] why we are making this recommendation with the proposal to be put to shareholders at the forthcoming AGM to be convening in due course. Subject to shareholder approval, necessary regulatory approvals and market conditions, the Board expects the listing and delisting to take place in autumn 2024. I will now hand over to Eliza to take you through our financial results for the period in more detail.

Thank you, Panicos, and good morning from me, too. Let's now start with providing some details on the half 1 highlights on Slide 18. During the first half of 2024, we recorded a profit after tax of EUR 270 million, of which EUR 137 million in the second quarter. This corresponds to earnings per share of EUR 0.31. This strong performance was the outcome of resilient net interest income evolution, continued cost discipline amid inflationary pressures and a low cost of risk. Our liquidity profile remains robust post the full repayment of EUR 2 billion of TLTRO. Around 30% of our assets are cash balances with Central Banks, while our deposit base continued to increase by 3% year-on-year to EUR 19.7 billion. In April, we successfully issued EUR 300 million MREL eligible Green Senior Preferred Notes, thereby finalizing our MREL requirements and including a comfortable buffer. This issuance was the first ever green bond insurance by Bank of Cyprus, representing an important step to lead the transitional Cyprus to a sustainable future. On asset quality, our NPE ratio decreased for the first time to below 3%, specifically at 2.8%, while our coverage improved further to 85%. Focusing now on capital metrics. Rapid capital buildup drove our CET1 ratio to 18.3% and total capital ratio to 23.3% as of 30th June. And finally, in July '24, Moody's upgraded the bank's long-term deposit rating by 2 notches to investment-grade Baa1, being the highest rating achieved since 2011, which is a further validation of the group's transformation into a strong, diversified, well-capitalized and sustainably profitable institution. Slide 19 shows a detailed income statement of the group. I will not go through every line shown here, but as I will be discussing the drivers of our profitability in the following slides. So let's start with net interest income evolution and its key drivers on Slide 21. Our NII for the first half of '24 stood at EUR 420 million, up 17% year-on-year, benefiting from higher rates, ample liquidity and a well-managed cost of deposits. On a quarterly basis, NII stood at EUR 207 million, declining modestly on prior quarter. Please bear in mind that in the third quarter of '24, NII will experience a further decline following the 25 basis points rate cut in ECB depo rate in June '24. Our net interest margin, excluding the impact of TLTRO remained strong and stood at 3.70%, down 20 basis points Q-on-Q. The NIM and NII dynamic is explained by a number of factors. Firstly, the hedging activity for the reduction of our NII sensitivity, which resulted to a decline in the effective yield of liquids by 15 basis points on the prior quarter. Secondly, the gradual repricing of the loan portfolio. As a reminder, over 95% of our loan book is variable rate with around half of it linked to Euribor. The effective yield of the performing book declined modestly by 6 basis points. Thirdly, better-than-expected deposit trends facilitated by the very liquid Cyprus banking sector. This is evidenced by the evolution of our cost of deposits, which remained low at 34 basis points. And lastly, our cost of wholesale funding increased due to the issuance of the Green Senior Preferred Notes in April at a coupon rate of 5% per annum. Let's now turn to Slide 22 to provide you an update on our hedging activity. In the first half of the year, we added EUR 3.4 billion of hedging, clearly on track to meet our 2024 target of EUR 4 billion to EUR 5 billion, subject, of course, to market conditions. A large element was through received fixed interest rate swaps, whilst we continued our investment in fixed rate bonds and the use of reverse repos. These actions had a relatively small cost on the half 1 NII of around EUR 10 million. We believe that the hedging we are carrying out will support future revenues, and most importantly, will result in lower rate sensitivity. Simultaneously, about 1/4 of the Group's loan portfolio is linked to the bank's base rate, which provides a natural hedge against the cost of deposits. Overall, these actions have led to a reduction in net interest income sensitivity to a parallel shift in interest rates by 100 basis points by EUR 27 million compared to year-end. On Slide 23, you can see that deposits increased by 2% on the prior quarter and 3% on the prior year to EUR 19.7 billion. We're encouraged that the shift in deposit mix towards time and notice deposits is progressing more slowly than we expected. In the second quarter, it remained flat Q-on-Q at 33% of the total. And if you look at the breakdown of our EUR 19.7 billion deposit base, you can see on the bottom left chart that 80% of our deposits are from Cypriot travelers. Additionally, cost of deposit levels were well managed, which remained low at 34 basis points, facilitated by the very liquid Cypriot banking sector. As a reminder, the sensitivity reached 10 basis points change in the cost of deposits results to a change in NII by around EUR 20 million, whilst the percentage point change in the deposit mix towards term deposits impact NII by around EUR 2 million. Moving now to new lending on Slide 24. The group extended EUR 1.2 billion of new loans in the first half of the year, up 10% on the prior year, while maintaining strict lending criteria. As a result, the gross performing loan book grew by 3% year-to-date to EUR 10.1 billion. We reiterate our guidance of low single-digit loan growth for 2024 and 2025, supported by economic growth, but we also know that growth is subdued by repayments. Slide 26 provides a summary of noninterest income. On this slide, we would like to highlight that noninterest income remains an important driver to the Group's profitability, covering more than 75% of total operating costs for the second quarter. Net fee and commission income improved by 5% on the prior quarter, reflecting higher nontransactional and transactional fees. The net insurance result was also up by 30% on the prior quarter, reflecting mainly better claims experience and reduction in the loss component of the insurance contracts in life, in line with IFRS 17. I would also like to remind you that FX gains are volatile profit contributors. Lastly, we also reiterate our expectations that net fee and commission income will grow broadly in line with economic growth in both 2024 and '25, and that non-NII will continue to cover between 70% and 80% of total operating expenses. Moving now to Slide 32, which provides an overview of OpEx. Our cost-to-income ratio of 30% in the first half of the year was supported mainly by strong revenues and continued focus on our cost base. Total operating expenses in the first half increased by 4% year-on-year, reflecting inflationary pressures mainly on staff costs due to salary increments, cost of living adjustment and rises in employer contributions. On a quarterly basis, staff costs remained broadly flat, whereas OpEx increased by 15% due to higher marketing and professional fees. Turning now to Slide 33 on cost of risk. We continued robust performance of the credit portfolio, along with the improved macro assumptions in the first half of the year drove our cost of risk to 31 basis points. On a quarterly basis, cost of risk stood at 34 basis points, up 7 basis points Q-on-Q. Additionally, we incurred impairment of EUR 17 million in the second quarter relating to the REMU stock of properties due to the aging of the stock and increased impairments on large, specific illiquid properties. During Q2, there was a reversal in provisions for pending litigation, claims and other matters of EUR 7 million, primarily relating to the release of provision on a claim following the closing of the investigation by the commission for protection of competition. Now let's move to capital on Slide 35. The bank's capital position remains robust. Our regulatory CET1 and total capital ratio, net of distributions at the top end of our distribution policy, stood at 18.3% and 23.3%, respectively. On a pre-distribution level, our CET1 ratio increases further to 19.5%, reflecting our organic CET1 rate generation of 214 basis points. As Panicos mentioned earlier, for 2024, we are now targeting a distribution towards the high end of our payout range of 50% subject to market conditions and required approvals. Moving now to Slide 36 and asset quality. The NPE ratio decreased to 2.8%, achieving early our 2024 target, reflecting low inflows and high curings as well as write-offs. Our NPE coverage improved to 85%. And when including tangible collaterals, NPEs are fully covered. Moving to REMU now on Slide 37. REMU is our engine to manage the stock of properties acquired from defaulted borrowers. As you can see, REMU repossessed stock decreased by overall EUR 72 million during the first half of the year to EUR 790 million as of 30th of June. With balance sheet derisking completed, the inflows are expected to remain at extremely low levels, and our focus will be on delivering sales. We remain on track to achieve our 2025 target of reducing the REMU stock of properties to EUR 500 million. And we continue to sell on average close to independently asset open market value and above book value. I will now hand back to Panicos for his closing remarks.

Thank you, Eliza. Moving to Slide 39. In the first half of 2024, we delivered a ROTE 23.7%. And as a result, our particularly strong performance in the first half supported an upgrade of our 2024 and 2025 targets. We now expect to deliver a ROTE on a reported basis of over 19% for 2024 and mid-teens for 2025. In this period, we are targeting distribution at the higher end of our payout range at 50% for 2024, subject, of course, to market conditions and required approvals. Lastly, it is a Board of Directors intention to propose to list the Group's ordinary shares on the ATHEX Stock Exchange and to delist from the London Stock Exchange with an aim to enhance the Group's market visibility, making it more accessible to a new pool of investors. Further details will be provided in due course. This concludes our presentation. I will now open the floor for your questions.

[Operator Instructions] The first question comes from the line of Boulougouris Alexandros with Euroxx Securities.

Congratulations on the results and the guidance. A question on dividend policy. You mentioned the dividend for 2025 will be reviewed with the results in the end of 2024. Should we expect something higher than the 50% that's targeted for 2024, given the high -- the substantial capital generation, which seems to be heading also above expectations and we see other regional banks and many European banks getting closer to the 70% payout ratio. Is this something that would be possible to assume on your end? That's my first question. The second question is, again, regarding dividend policy, the mix. Should we expect a similar split between cash dividend and buyback as we saw in 2023 regarding the 2024 guidance? And one third question regarding the NII sensitivity, if I may. Once you achieve the target of EUR 4 billion to EUR 5 billion in hedging, what should we assume in terms of sensitivity, sorry, something similar like we saw with a reduction currently? Is it reasonable to assume for 2025?

Okay. Thank you, Alexandros. The first question was on the dividend policy, as it's kind of premature to comment on the payout ratio post 2025. But over the longer term, we'd like to align with the sector because we are not -- on NPEs. We are not an outlier on returns, quite the contrary. And of course, we don't want to be an outlier on the shareholder remuneration, given, as you said, a strong capital generation and existing high capital buffers. So we take quite about time. We have a clear path. The path started with 14% in 2022, moved to 30% in 2023. We -- as we said, we target the higher end of our existing dividend policy, which is 50% for 2024. And with the full year results, the Board will review its new dividend policy. But it's pretty much on track for me to mature any new payout ratios. But yes, we don't want to be an outlier versus the market versus peers. On the mix, yes, I think given the liquidity of the stocks, you should expect that the main instrument to [indiscernible] will be dividends. But the mix and timing will also be subject to Board approval by the year-end. On NII and hedging, Eliza?

On hedging, as you see on the slide, we are guiding a target of EUR 4 billion to EUR 5 billion additional hedging this year. We spent most of it actually in half 1. From then on, I mean, this takes us very close to the outlier test that the regulators are looking at. We will need to take stock, Alex, as to whether we continue or not to hedge. So it actually likely dependent on rates. Hedging at the current forward rate makes less sense than hedging in the Q1 or early Q2 level of rates. So we can't guide on that point yet. It's a function of market conditions.

Okay. Very clear.

We won't be widely off the outlier. We'd be very, very close anyway.

The next question comes from the line of Cruz Hugo with KBW.

I have a few questions. Share of term deposits in your guidance assumes it goes from 33% to 42%. That's quite a big acceleration compared to recent quarters. So are you being too conservative here? And are there any other areas in your guidance where you're being conservative? So that's question number one. On the delisting and releasing options, do you expect it to have any material kind of one-off impacts on -- or recurrent impacts on your cost base? And then finally, a question on the very strong decrease in the stock of NPEs in the quarter. Can the stock continue to decrease in the coming quarters? What kind of trends are you seeing there?

Okay. A more general comment on the depos. It's -- the reality has proven to be much better than what have expected so far. Both in terms of volumes, you've seen that they have increased 3% year-over-year, but also in terms of actual costs, we still remain a little bit conservative for 2024 and especially for 2025. For 2025, we keep our previous assumption where we assume the cost to increase a little bit fair than versus 2024. From a sensitivity point of view, every 10 basis points of deposit of cost is roughly EUR 20 million of NII. Going forward, we prefer to observe the behavior of the depositors as market rates continue to reduce before we change our basic assumptions. And we want to see much lower ECB rates than 3.75% before doing that. But we expect gradually to be able to pass the rate cut to the depositors because simply the fundamentals of the market has not changed. I mean very liquid, very concentrated market and it's pretty obvious that we have resiliently low cost in combination with increase in our double-digit volume and base. So we feel comfortable on our deposit assumptions. On the listing and delisting, if I understand your question correctly, I don't expect any material cost that would change anything of our basic assumptions. On the top of NPEs, generally, our asset quality is very robust. Stage 2 are coming down. Coverage of stage 2 is decreasing. The NPE ratio is moving faster that we anticipated, 2.5% this semester versus 3% that we have our assumption for the year-end. And we expect this to remain below 3% and below 2.5% in 2025. So we'll also be comfortable with our NPE assumptions and estimations. I mean if you made a math -- if you made a math on that piece, I mean, on Slide -- there is a Slide on NPE, 75% of our -- EUR 70 million of our NPEs out of the EUR 294 million, EUR 75 million, it's actually 0.7% our reperforming fees. So if you in a way assume that these NPEs will actually be cured in the next year or so, then by itself drives the ratio closer to maybe lower. So we'll be comfortable on that metric as well.

And on listing costs, we don't expect any material one-offs. They are absorbed within Q2 mostly numbers already.

The next question comes from the line of Alonso Estudillo with Deutsche Bank.

I have two, if I may, just a follow-up on NII. As you said in the guidance for '25 looks quite conservative. Especially, I'm interested on see two things. First, how would hedges would impact as long as you have that decline on the rate versus what you have right now? And second, if you think still deposit is going up, which is quite different to the message that I have got from many banks in Southern Europe, while they are already seeing the deposit cost in the front book even being stable or even going down pretty soon. How do you think on that? And my second question will be also a follow-up on NPEs because with the levels of coverage that you have right now, would you think of accelerating sales write-offs? Or on the other hand, could you just take advantage for getting cost of risk lower than what we have right now?

Okay. On the NPEs, I will -- you should expect an organic reduction because the size of the NPEs left actually do not justify the cost of doing, let's say, unauthorized sales. So -- and it's kind of diversified NPEs. But you should expect less up to 2.5% in 2025, as we already guide. In terms of double digit for 2025, I think I mentioned before that we didn't change our previous basic assumption, which assumes a little bit increase on the current deposit cost, which is already extremely low. I mean, if the cost is extremely low the deposit cost for bank of Cyprus for NPEs and the volume is going up. So our assumption, which I said before is maybe consider conservative. It's that the cost will increase a little bit in 2024. And in 2025. And there will start the reducing as the rates start to drop. So we prefer to keep this assumption for the remainder of 2024 and 2025. And as we see the pace of rates reduce will then consider this assumption.

On hedging and on NII impact. Our hedging -- our average hedging cost yield is at 2.8%. So depending on your rates, you can do your math from there on the impact of P&L.

Sorry, with the new acquisition a purchase that you are going to hedge or no that again which would be more or less?

It's what we've got today, but we've started the vast majority of the hedging for this year already. So this is the [indiscernible] remember this point, this 2.8% is a blended average. We started, I think, in Q3, Q4 last year. So this is a blended average of the hedging which gone over a period of more than 12 months now.

The next question comes from the line of David Daniel with Autonomous Research.

Congratulations. Three kind of topics. The first one, and apologies for going back. Just on NPEs, was there any one-off items like big-ticket items that led to such a reduction in Q2? And then related to the prior question, I guess, is there any reason why you're not taking maybe a bit more action on the REMU stock. So I guess you see good progress on NPEs. REMU is taking a bit longer to tick down. I can see that the year-end targets, but you've got a lot of capital. I'm just wondering why you maybe are not being a bit more aggressive there. The second one is just on capital. Could you just clarify Basel IV and the impacts there and the potential timing? And the third question is on M&A. Now I realize you might not be able to say an awful lot, but we've clearly seen great interest in the Cypriot market and seeing the headlines. I guess the question is with so much capital. Is there anything defensive actions you could take if there was to be an approach by a Greek bank? And just any views on the subject or M&A plans that you might have would be interesting to hear.

Okay. Thank you for the questions. On the NPE, the Q2 are -- there are no one-offs. There are natural curings of great performing NPEs to we have in stock. In terms of REMU, I think we continue following the same strategy. For the first time, we are less than EUR 800 million. I mean remember that we have been EUR 1.5 billion in 2020. So we are after our target. We aim for EUR 200 million per year and EUR 500 million by year 2025. So we are on track. And as we [indiscernible] NPE ratio to 2.8%, practically in all [indiscernible] and I think the target is pretty feasible. On capital and Basel IV, I think we don't expect any material impact at all.

Comes into effect on the first of January next year. So we will be disclosing the impact, if any, at year-end, but we don't expect any material changes to our capital position.

And last comment on general topic, M&A capital usage. I will take you a little bit back and I would say that as a management, our priority was to build the safe, sustainable profit organization. Given that what we see and the stock profitability, we are there. So we reach to that point. Our focus has shifted favoring towards remunerating our shareholders after so many years that we are not doing so. So remuneration of our shareholders will continue to be our top priority and especially to sustain attractive shareholder remuneration and payouts in the medium to long term. So this is #1 priority. Of course, we need to grow in business plan organically. We know and you know that we have large market shares in many aspects, but we did grow in [indiscernible] International banking. Its almost 10% of our performing book aligned with what we have guided. Asset management, wealth management and of course, invest more on digitizing the economy. So having said that and having said that organic growth is our best plan as a management team. It's our beauty, of course, to look where that we can achieve any of our goals faster by any inorganic roots, but it has to make both sense strategically and financially. And of course, without this changing the risk profile of the group and without putting at risk our ability to provide attractive remuneration to our shareholders. In terms of interest from the market, of course, I cannot comment on market speculations. Our asset management is to manage the bank and deliver the best value for our shareholders.

The next question comes from the line of Demir Jen with Woden and Comp.

Yes. So I actually have two. The first one is the change has started, its slow in terms of volumes and fees. I was wondering if you could talk about the reason as to why that's the case? And the second question is on the margins. And now we have sort of spec visibility on the deposit pricing. Do you also have a better sense of where the margins could settle than Euribor goes back to 2% level which happens to be the contract level in terms of various discussions when everything is settled down. So those are the two questions.

Sorry, apologies for interacting. It is very hard to hear you. Can you please repeat the questions? I'm really sorry for this.

Mr. Jen, can you please be closer to your microphone?

Yes. Is it any better now?

Yes. Thank you.

No, that's all. That's my microphone. So the first question was the year started slower in terms of volumes and fees compared to your guidance. So I was wondering if you could explain the reasons behind that or at least talk about them a bit. And the second question is on margins. We obviously have more visibility on deposit pricing these days. And I was wondering if you also have a better sense of where the margin could settle when the Euribor rate normalizes perhaps around 2% or so.

Okay. On the volume and fees, I'm not sure if the volume you refers just to [indiscernible] but on the loans as well. But assuming that you are referring to the non-NII component. I will say that Q1, Q2 is better than Q1, so we are taking up. And we do expect net fee and commission to be broadly in line with the economic growth. In fact, if you exclude the one-offs that we have in last year, in Q1 and Q2, and the FX volatility, if you do the math there, you will see that last year H1 and this H1 are partly the same. So going forward, in the medium term, we will continue to grow our non-NII component from the non -- from the insurance business. We have included two more future contributors of non-NII, which is the first one is a genius initiative. And the second one, it's our new affluent but proposition, which we call privilege. So again, reassuring that we expect net ship commission for this year and next year to be broadly in line with the economic growth. Okay, in terms of industrial review, you also asked about the volume growth for loans. I don't know if this is a question, but if this is a question, I think, in terms of volume growth for loans actually had a good first half of the year. We are 10% in terms of new lending, higher year-on-year. The performing book growth 3% versus last year. So we are aligned with what we have guided the market, and it's important here to mention that our initiative, which comes to International banking, our Shipping & International portfolio, it's more than 10% of the new lending and approaching the 10% of the total book. So this, again, is in line with our expectations for growth and diversification.

On net interest margin, I mean, our markets now in Q -- in half 1, it was at 3.79%. Based on the current rate on the weighted expectations in the presentation, which are pushing slightly higher than what the market currently expect. We've seen this stabilizing at the 3% mark each. Obviously, this needs to be adjusted for whatever you would take on forward rates.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Nicolaou for any closing comments. Thank you.

Okay. Thank you all for your participation and your questions. As always, myself and the team are available to take any offline questions and provide more clarity or topics that you would like to talk about. Have a nice day and of course, enjoy the break and holidays as well. Happy holiday to you. Thank you all very much.

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