Cembra Money Bank AG (CMBN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Full Year 2024 Results Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Holger Laubenthal, CEO. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us this morning. It's great to be here for the presentation of our full year results for 2024. I'm here with our CFO, Pascal Perritaz; our CRO, Volker Gloe. And as usual, look forward to walking you through the presentation, and then we'll take your questions. So let me start on the first page with the key messages. So we're 2/3 roughly into our '22 to '26 strategy, and we're pleased with the continued execution that has allowed us to deliver record results last year. First, net income and net revenues were up substantially at 8% and 7%, respectively, driven in part by strong rebound of the net interest margin. Second, we're happy, and like that revenue comes -- revenue growth comes from both business lines, particularly strong in Payments. Next and importantly, we're seeing real intangible benefits from our transformation, and this is both visible in terms of our product suite and resulting customer benefits as well as -- and this is the fourth point in our key metrics. Cost/income ratio has reduced materially to 48.1% with a strong H2, which keeps us on track for our 2026 target. Point 5, our loss rate is in line with the long-term trend and a result of very deliberate optimization for profitability by optimizing the triangle price, risk volume as we've discussed in the past. With this performance, last point, we confirm our long-term target and are pleased to propose a dividend increase of 6% to CHF 4.25, which is an expression of confidence in the sustainability of our earnings, as well as a reflection of our strong capital position. Let's take a closer look at the results for '24 on the next page. Net income just over CHF 170 million, plus 8% with strong profitability focus as we've been very selective where to grow and a slightly reduced receivables driven by consumer loans. Revenues have grown nicely, and we're pleased with the increase in card fees post Migros migration, confirming the robustness of this portfolio. Our transformation is also driving cost/income ratio improvements with a particularly strong second half. And the ROE came in at 13.4% with a strong capital position. And again, in line with our policy, we're proposing a dividend of CHF 4.25. I'll give you an overview a bit on the next page in terms of how we delivered across our product lines and in our markets. Personal loans, again, consistent with our profitability focus and a somewhat soft macro environment, we've been very disciplined in our underwriting. At the same time, we're pleased how the team continued to deliver quite well on pricing. In Auto net financing receivables are up 1%. The new platform is rolled out, a bit more on that later. We also continued strong pricing focus here. Cards revenues have been quite strong. Our proprietary card program and co-brands have seen nice growth in terms of number of cards, and Buy Now, Pay Later fees are up. TWINT-pay-later is now fully rolled out across all partner banks and a bit more on this in the next slide. So when we launched this transformation as part of the new strategy in 2022, the technology transformation really, if you recall, had a dual purpose. First, was clearly efficiency, productivity, cost-income ratio, and we'll talk about that a bit more later, but equally to enhance our value proposition, both with our customers and our partners, to make it easier and more seamless for them to engage with us. And here, we're really making progress across the board. I wanted to share a few examples. So with the new auto platform, already we're 20% to 30% faster in processing files, and we expect further improvements with coming releases. That's really a meaningful improvement of value for our partners, and we're pleased to hear how they like that. We now have CHF 3.2 billion of assets on this new platform, and we significantly improved productivity, as I said, more on that later. Our app, we're really pleased with that development. We've got over 450,000 enrollments. We continue to systematically enhance it with new self-service features with new insurance products that have come live aligned with our core propositions. It's also -- we have our auto customers on this app. So it really becomes a central point of engagement for our customers across the board. Digital savings products about a year in, really been a great success. The migration here is completed as well, CHF 1.3 billion of deposits on this new platform, and really a nice enhancement of our direct-to-consumer proposition, expanding our product offering in a category our customers really care about. Pay Later feature with TWINT, as I said, fully rolled out, seamlessly integrated into the customer journey in this app to set up for good growth here going forward. So really good progress in transformation and digitization across our portfolio and across channels and partners and customer touch points. So with that, let me hand over to Pascal for a more granular look at the financials.

Thank you, Holger, and good morning, everyone. I'm pleased to report on our strong financial performance, with both top line and bottom line showing significant growth. The success is driven by combinations of the improved net interest margin, greater efficiencies from our transformation initiatives, and the continued disciplined risk management with a focus on profitability. With that, let's dive into the details. The 8% increase in net income to CHF 170.4 million is due to a strong increase in net revenue, plus 7%, driven by the improved net interest margin of 5.6% and partially offset by a loss ratio of 1.1%, in line with the long-term trend. The 7% increase in net revenue to CHF 550 million is the result of the repricing measures started 2 years ago, which continues in 2024, leading to a 15% increase in gross interest income across our business in 2024. This was partially offset by the increase in interest expense following the continued rolling of the funding portfolio and the changing interest rate environment. Commission and fees income amounted to CHF 170 million. This is up 1% with the largest contributions coming from the credit card business. Holger will provide more details in a few minutes on the loss ratio. The operating expense increased by 1% to CHF 264.5 million, with realization of initial cost savings from our transformations offset by restructuring costs and continued strategic investment, mainly the rollout of the Auto core banking platform, as mentioned by Holger before, and investments in our IT infrastructure. Cost/income ratio declined by 3 percentage points to 48.1%, respectively, as of first 6 months of the year, 50.4% and the next 6 months of the year second half at 45.8%. Let me now explain how the net interest margin develops. As said, net revenue up 7% in 2024 compared to 1% in 2023. As you can see on the walk on the left side, 2024 was the turning point with the CHF 30 million increase in interest expense more than offsetting by the strong growth in interest income of CHF 64 million. As a result of this, the net interest margin rebounded from 5.2% to 5.6%. Following the successful repricing, the change in the interest rate cap from January 1, 2025, the reductions of the SMB as a policy rates and our portfolio rebalancing with focus on high-quality assets, we expect the net income to stabilize -- the net interest margin to stabilize in 2025. Let's move to the financing receivables and the yield. The net financing receivables came at CHF 6.6 billion, with yield improving across all products. The 1% decrease was mainly due to a 4% drop in the net financing receivables in the personal loans, reflecting the continued selective underwriting and disciplined pricing in a softened economic environment. From our decades of underwriting experience, it's critical to navigate in this environment with a sound risk reward balance and continued calibrations between risk pricing volumes. In 2025, we expect the personal loans assets to return to growth through portfolio steering measures by focusing on higher quality assets using analytics to attract most profitable of the customer segments as we successfully did for credit card migrations, aligning incentives and further growing online direct channel. In the auto loan and lease business, net financing receivables grew by 1% to CHF 3.2 billion. Despite lower car registrations in Switzerland and despite a drop in used car price in Switzerland, our auto assets continue to grow also due to our diversified portfolio and supported by our new leasing platform. Credit card net financing receivables decreased by 2%. Adjusted for calendar effect, the card assets remained stable. With measure in place, we are confident to return to asset growth target in 2025. Now, I would like to hand over to Volker for the risk performance.

Yes. Thank you, Pascal. We saw already in the P&L that loss provisions came in at CHF 74.2 million, which is then translated into a loss rate of 1.1% and we deem that to be in line with the expectation that we stated midyear that we would lend around 1% loss rate. At that time, we also mentioned already that we don't look at credit risk and losses in isolation, but rather manage for a sound risk and reward balance. And we saw on the previous pages an increase in yield and also a NIM of 5.6%. So I guess, that's the context how we look into risk management as part of managing for the overall profitability. When it comes to the portfolio details and dynamics, we still observe in the current environment to be kind of slightly affected by recent cost of living increases. And here, we are thinking about the rental cost and housing cost, health or health insurance expenses. So in some exposed customer segments, this then might affect debt servicing capacities. And as the post-COVID asset growth that we have been seeing on the balance sheet is now maturing into this more softened economic environment. Hence, or consequently, we have already adjusted our underwriting procedures for also a risk and reward balance that is sound in the future. It's part of our DNA to continuously optimize that and to be diligent, selective on the areas of growth, and then also gradually move the portfolio towards higher credit quality segments. In this recent environment, we also observed the customer demand towards longer contractual durations on loans. And it probably needs to be seen in the context of our own repricing activities, where customers manage their monthly expenses by moving towards longer contractual terms. This is a dynamic that we addressed in the second half of '24 as longer contractual terms lead to insufficient time for our collections activities to be executed before writing off loans that have been falling into arrears. So in simple words, that we observed more and more accounts where we couldn't exhaust collection activities before writing them off. Hence, we implemented and updated the synchronization of collections procedures and write-off procedures to allow for sufficient time for validating an asset's collectability prior to the write-off. But this has an effect on our metrics. So there is a one-off benefit of CHF 6.7 million on the loss provision for '24. But there is also an effect on the delinquency metrics. As these metrics -- as these assets where the collectability is not evidenced yet will stay longer on the balance sheet. Hence, we normalize in the graph on the upper right for this effect. So if we want to look into the NPLs in a like-for-like comparison, we could compare the 0.8% with the 0.9% from '23 to '24. Once more, I want to stress the point that in our DNA, it's the constant optimization of this triangle, these dimensions of growth, credit risk and pricing. And we continue to manage the portfolio towards profitable segments, with an elevated credit quality and by that, calibrate the overall portfolio towards our midterm targets. For '25, we should then on the loss picture, not expect something that is very different to last year, meaning that loss performance is not expected to materially change from current levels. And with that, I would hand it back to Pascal.

Thank you, Volker. Let's move to the operating expense. The personnel expense declined by 2% to CHF 134.8 million. This is reflecting the ongoing streamlining of our organization. The decrease was mainly driven by lower number of FTEs, partially offset by severance costs and restructuring programs. At the end of 2024, the number of FTEs stood at 812. This is a decrease of 90 FTEs or 10% compared to 2023. Cost for professional services increased by 18%, and this is mainly due to some additional outsourcing expense, and the continued strategic investments. The marketing expense decreased by 15%. This is due to lower spend on card retention post migrations. Depreciation and amortization decreased by 2% to CHF 26.8 million. This is mainly driven by decommissioning of software. Overall expense variance was driven by lower capitalizations and pensions fund cost. In combination, this results as a significant decrease in cost/income ratio to 48.1%. Operating expenses in 2024 included around CHF 5 million of one-offs related to restructuring activities, mainly restructuring cost of CHF 3.2 million and CHF 1.6 million U.S. GAAP as a pensions cost, with the restructuring costs not expected to incur again. Let's talk about the trend related to the cost/income ratio. Holger mentioned in this opening about the improvements of time to decisions as an example in the Auto business. As you can see on the left side, we realized significant efficiency gain in the course of 2024 through our transformations and our operation excellence strategic initiatives. For 2025, we expect CHF 15 million to CHF 20 million cost reductions and the cost/income ratio at or below 45% and this is driven by the following items. On one side, the nonrecurring restructuring expense I mentioned before should not incur again in 2025. Second, the group average number of FTEs stood at 857 in 2024, and we expect the full run rate benefits from our 2024 measures to materialize in 2025 P&L. Third, lower amortization expense in intangible assets expected in 2024, with some capitalized intangible assets reaching the end of their amortization period. And finally, over time, the strategic investments are expected to slightly reduce to decline in 2025, 2026 compared to the period 2022, 2024. As a result, we expect this cost-income ratio at or below 45% in '25, and we are on track towards a 39% target or below by 2026. And this is fueled by continued growth, higher automations with further streamlined organization from operational excellence initiatives and lower strategic investments. Let's move to the balance sheet. On the asset side, the 1% reduction in net financing receivables was driven by the selective growth and the focus on profitabilities, mainly in Lending business, as we discussed. On the liability side, the funding decrease largely reflect the trend in financing receivables and the shareholders' equity as we increased by 3% with the net income contributions for 2024, partially offset by dividend payment in April 2024. Moving to funding. Group funding portfolio decreased by 3%, although reflecting a lower trend in receivables, following the successful launch of our digital savings offering. Retail deposits increased by CHF 451 million in 2024. This retail funding increase allowed us to reduce over funding source, leading to a more robust funding profile reflected by an improved NSFR to 123%. End-of-period funding costs increased slightly from 147% to 153%, and this is mainly due to the rollover historical funding replaced at slightly higher price. The end-of-period funding costs reduced compared to the mid-year 2024, so June 2024, driven by the continued ease of monetary policy at the Swiss National Bank started in March 2024 and accelerated since June 2024. In 2025, based on the current interest rate environment, we expect the funding rate to stabilize or slowly reduce with lower interest rates for new funding offsetting the increase raising from rollover of funding raised at the time of negative policy rates. Moving to capital. Cembra remains very well capitalized with a strong Tier 1 ratio of 17.9%. The final Basel III standards have a negative impact of 0.5 percentage points on the capital ratio from January 1, 2025, onwards. This effect is actually at the lower end of previously disclosed indicative range of 0.5 to 1 percentage points. Risk-weighted assets remained stable. And given the Cembra's solid financial performance, the Board of Directors will recommend a dividend of CHF 4.25 per share at the general meeting on April 24, '25 -- 24th April '25, and this is representing a payout ratio of 73% and an increase of 6% on the previous year for the dividend. The 2024 financial performance is driven by a consistent execution on our strategy. Looking ahead, we remain focused on sustaining this good momentum, strengthening marketing positions, steering our asset portfolio towards sound risk balance, realizations of efficiency and delivering our strategy and financial targets by 2026. With that, I hand over to our CEO, Holger.

Excellent. Thank you, Pascal. So look, as we're heading into 2025, we wanted to also provide you with a brief update on the environment and how we see it. And look, we said, we like this space. We're deeply embedded in the Swiss economy and as a leading player in financial services by providing credit to consumers to fulfill their aspirations and enabling thousands of retailers, car dealerships and other partners to successfully conduct their business. We play an important role in this economy. Without credit, there can be no growth. So as I said, we like this space, and I won't go into a lot of detail on this page, but just a few key messages for you. First, the Swiss economy remains in good shape, continues to show strong resilience, which is a good place to be. Unemployment is low, inflation under control. We like the regulatory framework and institutional reliability. Second, the lending markets you see on the top right are healthy with continued growth along GDP, as we've said before. And given our product breadth, our diverse distribution channels and partnerships, both in the personnel as well as the Auto business, we're well positioned to participate in this growth in '25 and beyond. Third, on payments, we're playing in the segments that are growing, whether that is with our diverse cards and co-brand offerings or with our partnerships such as TWINT. And importantly, here, too, we see the need for credit that remains intact. And again, we're in a good position to continue capitalizing on it. So in summary, fundamentals of our market remain attractive. We like the space. We're in a good position to play and continue to succeed. We also want to continue on the next page to give you an update where we stand with regard to strategy execution and the key metrics that we're tracking. And as you're aware, we're delivering our strategy along 4 key programs. And we're building on our core strengths, our DNA. Here, we've continued to deliver well, this year with strong discipline in managing growth risk price triangle, as we said, and a clear focus on profitability. In operational excellence, we feel good about the progress that we're making. A lot of these have already been talked about today. In addition to the auto platform, we're very pleased with the growing presence in Riga, center that provides top quality services to the group, strong access to talent as well as with our progress in decommissioning legacy systems to simplify our technology landscape and architecture aligned with our strategic ambition. On the commercial side, business acceleration and new growth, strong performance in pricing, again, underlying the strong value proposition of our product and the strength of our teams, our relationships in the market. And we've shown how we simplify and digitize customer engagement and customer journeys, such as developing our app as a central engagement tool for all our customers. With regards to culture, we streamlined the organization. The new setup is working well. And in a year marked by significant productivity measures, we again achieved Great Place to Work certification. That's something we're particularly proud of this achievement and the feedback our teams are giving us. We've done a tremendous job this year, and we're very pleased about this recertification. So you see on the right how this is reflected in the financial metrics with good performance in '24. Again, most of these we talked about, and we were on track for the 2026 target. So let's bring this together on the next page and our outlook. Look, with the progress that we've made last year, with the visible improvements in productivity, with the efficiency gains, with the digitization of our front end, we really have gained some traction and momentum. And that's how we talk about 2025, leveraging that momentum as we head into the last couple of years of our strategic cycle towards our strategic ambitions and targets. And that's what this year is going to be about. In operational excellence, the new platform is out live with all dealers. We're excited about this new way of working, the efficiencies and process improvements, strong proposition, we will continue to build on that. We also look to drive continued benefits from decommissioning and leveraging our strong presence in Riga. In the lending platform, we're pleased with the performance last year with a strong profitability focus that's paying off. This focus will remain important. And at the same time, Pascal talked about our objectives that we're well on track in terms of driving deeper engagement in specific segments and channels to shift into growth again consistently in this business unit. Payments, we're excited about the over 2 million customer base, a tremendous opportunity to accelerate cross-sell and we will further broaden our product propositions with our partners, both existing and new ones and introducing new features and services around our product base. So what this means for 2025? We expect net revenues at least in line to -- grow at least in line with GDP, stabilization of the net interest margin. We will see continued improvement in cost income, with the full year at or below 45%, solid loss performance, stable versus 2024, ROE 14% to 15% and the targets through 2026, you see on the right-hand side. So in summary, a very strong year in 2024, significant progress across strategic initiatives, strengthening our commercial position as well as driving efficiencies. And with that, we're in good shape to achieve our 2026 target. With that, we look forward to taking your questions.

[Operator Instructions] The first question comes from the line of Mate Nemes from UBS.

I have a couple of questions, please. The first one is on the net interest margin. You mentioned that, you expect the net interest margins to stabilize in 2025. I just wanted to clarify, whether you mean stabilization at 5.6% that you printed in 2024, or at a slightly higher level, perhaps exit run rate as shown in H2? The second question is related still partly to interest income and to risk. I think Volker, you mentioned that you're shifting or adjusting the profile a little bit towards lower risk exposures. And I'm just wondering, what is the implication then for interest income and NII? Are we going to see perhaps some pressure on yield in personal loans or credit cards and that is perhaps offset by somewhat lower cost of risk going forward? Is that the right way to think about it? And the last question would be on capital allocation. Clearly, you had 50 basis points better-than-expected Tier 1 ratio. Also, the Basel IV impact is at 50 basis points, the lower end of the previous guidance range. So that just suggests you should be in a position to have quite meaningful surplus capital in 2025. Could you share your thoughts about capital allocation? Are we likely to see perhaps somewhat higher payouts, maybe special dividends? Or do you have aspirations perhaps on the M&A front? And if so, are there perhaps interesting targets on the horizon?

Thank you for the question, Mate. Let me just set this up quickly, and then I'll hand over to Pascal and Volker to run through the specifics. Look, the way to think about the first 2 questions, NIM, net interest margin, interest income risk equation, this goes back to our DNA, right? We manage these metrics in combination quite regularly to optimize the profitability, right? And that's the way to think about it. That's also why we guide around the ROE for the full year, as we've explained. But let me hand over to Pascal and Volker to go a bit more into detail on these questions.

Yes, Mate. Regarding the first question, the NIM is expected to stabilize at current level actually at around 5.6%. And as I said, it's on one side, following the successful repricing, but we also have the change in interest rate cap. We have as we expect on the other side, some reductions slowly the reductions on the cost of funds, as mentioned. And of course, with the portfolio rebalancing and we focus on high-quality assets, maybe some segments a bit lower price. So in total, net interest margin to stabilize in 2025 at current level. For the second question you had, as I said, I hand over to Volker.

Yes. Thank you, Mate, for the question. And you rightly highlighted that we have already been taking measures to adjust our underwriting policies to get better access to segments that have a higher credit quality. What I nonetheless want to highlight is that it's not given that price is the only measure to get access to these segments. So it's not kind of a one-to-one equation that we should assume here. And as Holger also mentioned, in the end of the day, we are kind of managing this triangle. We want to get the volumes in. We want to get them in at the right price and at the right risk level. This is the constant optimization. And as mentioned, we have been taking measures. These measures obviously apply on the new volumes that we take on the book, which is also the reason why I've been highlighting when it comes to the expectations for '25, there is not the immediate change that we would see because it needs to creep in slowly on the portfolio. And hence, we have been saying that we don't expect a material change from current levels when it comes to the loss performance in '25.

Regarding your last question, Mate, on capital and capital allocation. So we don't have any change in our approach to capital management. Obviously, the priority #1 is organic. And then we said as well, we want to return to our to some asset growth, which will require a bit of use of the excess capital. Our second approach has always been an opportunistic case for business development, M&A remain and, in that sense, to have smaller excess capital could help. And if 1 and 2 are not available, then obviously, payout of extraordinary dividends or buyback could be last options. We currently have no plan for the last one.

[Operator Instructions] The next question is from Daniel Regli from ZKB.

I have actually 3. One is on cost income ratio. One is on the net interest margin, and one is then again on the credit quality. And sorry here, maybe it's a little bit of a follow-up to Mate's questions. So first on the cost/income ratio. So you aim to be at below 45%, and you aim to be at below 39% in 2026, so 1 year later. So can you maybe just help me understand a bit the bridge between '25 and '26? What exactly are the moving parts here to get from, let's say, below 45% to below 39%? And then on the net interest margin, I was just wondering, obviously, a good performance on the net interest margin in this year. However, we have seen the Federal Council already reducing the maximum rates beginning of this year. And probably given the moves we have seen by the Central Bank and expected further moves by the Central Bank, most likely we will see another reduction in maximum rates towards the end of this year or in H2. What do you expect would this have in terms of margin impact for, let's say, 2026? And then last but not least, on the credit quality. Obviously, we have seen a slight pickup in the loss rate at 1.1%. And if I understand it correctly, it would have even been 1.2% adjusting for these one-offs. I think you mentioned CHF 6.7 million one-offs. Can you just first tell me these one-offs, did they happen in H1 or H2? Or were they spread across the whole year? And secondly, shouldn't we then kind of in the short-term, expect a slightly higher loan loss rate, particularly looking at the nonperforming loans measures and the kind of 30 days due measures?

Daniel, thanks for the questions. And again, I'll let Pascal and Volker take them respectively.

Yes. Thank you, Daniel. First on the cost/income ratio. Obviously, we are pleased with the progress we are making and our ambitions toward the 39% -- at 39% or below by 2026. As we discussed, the cost/income ratio although is a ratio in a sense, we clearly expect some revenue growth going forward. As mentioned on the page on the cost income trends, 2 to 4 points would come from the denominators and the rest from the nominators. Clearly, in the context of 2025, I think I listed the expected improvements coming through the nonrecurring restructuring expense, the full materialization in '25 P&L of the benefits from the 2024 measures for the past measures, some lower amortization expense and ultimately other strategic investments. And I would say for 2026, look, it's a bit of more of the same. We are not stopping our efficiency program. So we continue to look at where we can further optimize our organization, streamline our organizations. We will look at carefully at our project portfolio as well. As we know, we had a quite significant investments for the first 3 years for strategic programs. It means coming more to the usual run rate of project cost. With that, we are confident to come to the 39% -- at 39% or below.

Sorry, can I maybe quickly follow-up on this one? Just this CHF 15 million to CHF 20 million cost reductions you state for 2025. So will they kind of be -- will they be fully visible in the 2025 cost line? Or is this kind of the exit run rate of cost reductions you will have achieved by year-end 2025?

We expect the CHF 15 million to CHF 20 million to be fully realized in the P&L in 2025.

Okay. And then more to come in 2026?

More to come, so depending on the development of the revenue lines and on our continued project initiatives.

And then just restructuring expense, you don't plan any for 2025 anymore, I heard you say?

Currently, we don't have plans.

On the third question that you asked, Daniel -- first of all, thanks for the question, and it's about the one-off that relates to the synchronization of the operational collections' procedures with the more financial write-off procedures. This is a change that we have been executing on in the second half of the year. So not in the first half and consequently, it's not an effect that has been rolling in over time. And I probably need to go a bit more also into the details to explain then the link into the delinquency metrics that you have been rightly observing and highlighting. And so what we have been doing is we are giving ourselves more time for collections measures to materialize before writing off accounts. So we validate the collectability of accounts better before we charge them off the balance sheet. Hence, we are keeping these accounts for a longer period on the balance sheet. It might give them the positive effect, the timing effect or the one-off effect on the P&L, but the portfolio metrics, so delinquencies, NPLs, these are balance sheet metrics. So we see still this -- still see these assets on the balance sheet. Hence, we see the delinquency development. That means that, even with higher delinquencies that we are now seeing in these metrics, it would not lead to the conclusion that mechanically or automatically, also the loss provision going forward would increase. As mentioned, it's just a mechanical impact, one on the P&L and the other one on the balance sheet. Hence, we also are kind of giving the guidance saying that the loss performance, there's no material change expected to current levels.

And Daniel, regarding your second question on the net interest margin. So first is, obviously reductions in the max interest rates also driven by ease of monetary policies from the SNB. So obviously, this is driven by lower SNB as a policy rate, which would also have a positive impact in the meantime on the interest expense. So in total, we guide for 2025 with the net interest margin to stabilize at current level. And I think this is a good level of net interest margin we are ambitioning.

But can you maybe give some kind of color on what do you expect for 2026 in terms of net interest margin? I assume that the reductions on the Central Bank rates are more immediate and then obviously, the effect on the asset side or the yields is kind of comes with a certain time lag. Thus in the moment when Central Bank reduces rates, it kind of helps you a bit on the net interest margin. But in the moment when the Federal Council reduces the maximum rate, it should kind of negatively affect your net interest margin. So is this more or less, correct? Or would you disagree with this statement?

Look, ultimately, the net interest margin is an important KPIs we are tracking. And we want to stabilize in the current level. As we also said, it's ultimately not only a pricing topic, it's a pricing, it's a commission level that we pay, it's portfolio mix. So we also look at the net interest margin in the overall context of the risk pricing and volumes. And as I said, it's clearly an interest margin with the objective to stabilize in the current level in 2025.

And Daniel, another way to think about this, right, these things, as you're alluding to, right, obviously, there can be shifts from one quarter to another. But think about it this way, we were at very similar levels in previous low-interest rate phases as well, right? So it's a number that we're managing towards, as Pascal is saying, with various levers and hence, the guidance on stabilization.

[Operator Instructions] The next question comes from the line of [Serge Roser ] from Lombard Gautier.

I would like to come back on this cost/income ratio topic. You mentioned before that 2026 the improvement will be more or less about the same as we will see in 2025. But when I look to the improvement, it looks very different. You improved your cost/income ratio by 300 basis points in 2024. You target another improvement of 300 basis points in 2025 and then 600 basis point improvement in 2026. So this tells me that, you are too cautious for 2025, or it's very back-end loaded in 2026, and I don't know for what reason. Can you help me to understand -- disappropriate -- oh, my God, improvement in 2026 and 2025?

First of all, I wanted to remind again, we are talking about the ratio. And for the first time here, we are also introducing in our indications in absolute numbers, the CHF 15 million to CHF 20 million. So look, the 45% we are referring to for 2025, we said at or below. And honestly, yes, it depends on to some extent on the development on the revenue. We have also given a guidance, at least in line with GDP growth, the net revenue. And we are focusing on what we are controlling. But that's why here, we have some flexibility in the cost/income ratio the way that we have indicated in 2025. No change in our ambitions. As we said, we have a clear path how to come to at 39% or below by 2026. We have a set of actions, which have already been fully triggered as we discussed in 2024. By the way, we have shown a 15% reduction in FTEs over the last 18 months, 10% the last 12 months, the streamlining of the organization and the other measures I mentioned. So yes, 2025 at 45% or below and depending a bit on how ultimately the revenue will develop in the next 2 years. We are confident to deliver the ambitions, the efficiency targets and the related cost/income ratio at 39% or below.

We have a follow-up question from Daniel Regli from ZKB.

I have another question or 2, if I may. Just one on Buy Now, Pay Later and the second one on kind of the growth outlook. On Buy Now, Pay Later, I remember you have been talking about portfolio optimization with H1 results. Can you maybe talk a little bit about what do you expect from Buy Now, Pay Later over the next, let's say, 12 months? Have you concluded with this portfolio optimization exercise? And can we expect Buy Now, Pay Later to return to growth in the next 12 months? Or is this kind of still ongoing? And then secondly, obviously, we have seen financing receivables down slightly year-on-year. What do you expect going forward? Is this also kind of an ongoing thing that we should expect the balance sheet numbers to rather, let's say, be stable or slightly down while margins are kind of improving? Or do we see a return to growth there as well?

Yes. Thanks for the follow-up questions, Daniel. So look, Buy Now, Pay Later, you're right, right? We spoke about it at midyear that the ongoing portfolio optimization and that's certainly still been the case a bit in the second half. But if you look at it, we merged the businesses. We concluded the merger of the 2 businesses. We have an organization that's set up to -- on a new baseline to grow and that optimization effectively, as you said, is done. The big picture here, right, we were quite pleased with the payment's performance overall. We've had a great year in terms of revenues for that business unit. We do still see that excitement with the 2 -- well over 2 million customers. And if you look at H1 and H2 and then in the second half, the fee side in Buy Now, Pay Later did grow 3%. So we did regain some momentum and traction there, and we plan to leverage that into this year. And again, we gave clear guidance as to the CHF 10 million to CHF 20 million net income contribution by 2026, which we're happy to reiterate again today. So that's on the Buy Now, Pay Later side. More generally, your growth question. Look, as we explained before, right, what you've seen in personal loans in the last year has been quite deliberate. We talked about the triangle between risk growth and price and managing that for profitability. And I think that's exactly what we've done. And so in a sense, that's been quite deliberate. At the same time, as we also alluded to, #1, we have a growth ambition for all our businesses. And secondly, we are planning to return this business to growth as well. We gave an overall guidance, right, at least in line with GDP from a revenue perspective. And we have specific measures in place around the personal loans business to return to growth in terms of some of the things Pascal mentioned, with specific segments where we see growth opportunities, as well as certain channel incentives and salesforce incentives. So those plans are in place, are ongoing. And so the short answer is yes, we do plan to return to growth in that business as well.

Can I just quickly ask a follow-up question on the Buy Now, Pay Later business. Can you give us some kind of indication where we stand today? Obviously, in 2 years, you want to have CHF 10 million to CHF 20 million net profit contribution. But is it breakeven today? Or is it -- yes, what -- how much is the gap to the CHF 10 million to CHF 20 million?

Yes. So I would say, Daniel, we have all the ingredients and actions in place to make it into that range. And hopefully, that gives you some comfort. So we adhere to the guidance, and we reiterate the guidance.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Holger Laubenthal for any closing remarks.

Excellent. Thank you, operator. Thanks, everyone, for dialing in. It's been a pleasure. We're excited about the 2024 results, record net income. I think we've got the right actions in place to deliver 2025 as well, reiterating the '26 guidance. And so with that, everyone, have a great day, and we'll talk to you soon. Thank you.

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