Erste Group Bank AG (EBS) Earnings Call Transcript & Summary

Hello, everybody. Welcome to -- everybody that came from CEE on [Foreign Language]. [Interpreted] My name is [Margaret T], and I'm heading Enterprise Communication of Erste Group, and I will guide you through the press conference today. The results will be presented by CEO, Peter Bosek, Alexandra Habeler-Drabek, COO and CFO, Stefan Dorfler. The presentation will be held in German, you can ask your questions in German as well as in English. I'd like to pass the floor to Peter Bosek.

Good morning. I guess you can say good morning at 11:00. Thank you very much for the large turnout, very pleased about the interest coming from other countries outside of Australia. And in particular, I would like to also welcome our Polish colleagues. We are here for the first time for our half year press conference. So I think that you're aware of the fact that this has been a very exciting first half year because we have managed to enter the Polish market. In autumn of last year, we informed you about the fact that we had completed our strategy and that we have been interested in entering the Polish market for some time. So we're very pleased that we were able to announce on the 5th of May that we had agreed with Santander and that the Santander Bank Polska which we acquired. So actually, we will acquire 49% of this bank. This still gives us the possibility of full consolidation to appoint them as the Supervisory Board and to name all the Board members. And In addition, we'll also acquire the Asset Management company that is in part a subsidiary of the bank and partially belong to Santander Bank. Now there is, of course, a situation where -- we will be transformed as a group. As you know, over the past few years, we have operated very successfully in 7 countries. I think that the figures that Stefan Dorfler will be referring to in more detail. These figures are extremely positive for the first 6 months of this year. But of course, due to the market entry in Poland, we are now coming to a completely different level. Poland is one of the biggest economies of the European unit. It's our biggest market with 38 million inhabitants. And if you look at Poland and its economic development over the past 30 years, it's been clearly one of the biggest success stories in Europe. Poland has annual growth rate of more than 3% in the past. And the outlook for the years to come will always provide for economic growth of more than 3%. We are in a situation where there's a good internal demand, domestic demand has also a lot of development -- research and development, especially in banking that are very experienced and well-trained employees because American banks started operating there very early. So on the banking side, it's a very interesting market. And like I said, Poland is definitely a poster child of the European economic development, not only because the training of people there is extremely good and that also the mindset with respect to work is at an extremely high level the acquisition of Santander Bank Polska for us, well, what does it mean? It's the third largest bank in Poland. It is the largest privately owned bank because the first 2 banks belong to the government. And what we have been able to do in our negotiations with Santander to acquire a 49% stake. Now if you take a look at the KPIs of the Polish bank, they have 6 million customers, close to 10,000 employees, it's about our credit book there large loan book. And we as a group after we get all the approvals from the authorities, 2/3 of our customer portfolio will be outside of Austria. So that is quite strong significant statement and a strong commitment to this region of Europe, because we are convinced that it is the best region to be in Europe because this is where economic growth is happening and because there's also a good long-term prospect that is suitable for banking. Polska has a very strong retail arm and a strong corporate arm, so I believe that it is worth mentioning what we are focusing on, what we're looking forward in a positive sense. What you see on this slide, as the result of the excellent work of our customers in the markets on the corporate side. In recent years, as Stefan has always succeeded to work in -- to be leading in the region in terms of the bond business and the equity business. This is something that actually happens quite a lot so that we are in the global ratings, but we are the fifth largest when it comes to covered bond issuance. And we know the league tables of our potential colleagues in Poland, who are also leading in the area of debt and capital markets and debt and equity capital markets. So what we are going to do is we are going to come up with a capital markets powerhouse in Central Europe, which is very good for us because you know that we are interested in building a capital market infrastructure in the countries where we are operating because we are firmly convinced of the fact that the capital market infrastructure is a prerequisite for long-term economic growth. And this was in a position where the region that we have been operating in, we now have a good or an excellent position even in Central Europe. And I think this is extremely positive for the future outlook. Of course, there's a lot that needs to be done now. And I would like to use this opportunity to thank all our employees in the group because the workload has really increased in the past months. So we have already achieved a lot, and there's a lot that's still ahead of us. So it's a major transaction means that where we had the signing of course, and then there's the closing. So the closing is when the bank really belongs to us. Now we've just signed the purchase agreement with Santander and the phase in between is about getting all the required approvals and authorizations, also the approvals of the local Polish supervisory authorities, KFN -- KNF and also some additional approvals from the European Commission and to trust approvals, but also other approvals in countries where we are working indirectly through our savings banks. So we need to be antitrust approvers from them. And I can tell you that all the supervisory authorities, including the European Central Bank. That is, of course, the authority that has the oversight. So they have a -- it's not that they look at the oversight. So of course, they are all very supportive. And I think it's a positive momentum because that's the biggest cross-country M&A acquisitions since 2014. And in Austria, it's the biggest transaction that our company has been doing in another country. So as far as we can see, we are on track in order to obtain these approvals. And we believe that towards the end of the year, we can have the closing and then the 49% of Santander Bank Polska will belong to us and then we'll also have the ownership of the asset manager there. If you take a look at the first half of the year, and of course, Stefan Dorfler will be reporting about this in more detail. We are extremely happy that we have managed to build up so much capital. You know that we are refinancing this transaction without the need for any capital increase. And that has also been 1 of the reasons why the capital markets reacted so positively because we have the same number of shares of 410 million shares, and we'll have higher profits and this KPI, the earnings per share is, of course, highly relevant for us. And this is only possible if we have the possibility of generating capital and we can only generate capital if we have profits. So this is why we are so pleased that the common equity Tier 1 is now at 17.4%. And it's also a very positive fact that volumes in Central Europe have developed positively in the past 12 months. We already reported that housing finance in the Czech Republic and in Slovakia and partially also in Austria, has begun to increase again in some countries such as Romania, we are seeing positive growth in consumer lending and that has led to an increase not only in the loan volume, but also the net interest income because the interest rates have developed positively, and this has led to a better result. Something that's also very positive is Asset Management, the development of asset management and that's also a phenomenon of the capital market structure that we are trying to implement and deploy in the region. You know that Erste Asset Management has always played a very strong role in the past 12 months. We made 2 minor acquisitions in the area of asset management. And this is why we now have assets under management to the amount of almost EUR 96 billion. And if the markets develop more or less positively, we will probably soon cross EUR 100 billion limit. Of course, there are also other activities that we consistently pursued such as -- as you can see here, continuing to bet on securities of savings plans, investments in asset management products because we think this is a suitable instrument for our customers. So they don't need to worry about the volatility. So if the markets develop positively, they will buy less and in the long run, this leads to the best results. So we continue to develop additional models that help us facilitate online banking for our customers in the Czech Republic, we developed a George, which is a digital assistant, which makes online banking easier to handle. So we have close to 2 million customers for George. The feedback is very positive, but you know that we normally use the customer feedback to develop our products further, so step-by-step, we're going to also implement this and roll it out to other countries. Our corporate variant of online banking has also been further developed and we now have more customers, and we are also beginning to roll it out to other countries. So I believe that essentially this is something that you're already familiar with. So this is what we are doing. This is our day-to-day efforts to improve our services to our customers. And of course, we will continue along this line, this is where we place the emphasis to ensure that the existing customers in the various countries we're operating in will have a better service quality and now I'd like to hand over to Stefan.

Thank you very much, Peter. Ladies and gentlemen, a cordial welcome. Very nice good morning. First of all, I would like to talk about the operating result, the operating income and talk about the specific figures. In the first half year 2025, and we always compare this period with the same period in 2024. We increased our operating income by 2.7%. So we had a better net interest income and in an absolute way, an increase in the fee business, which is very pleasing because this plays a very important strategic role for us. And we wanted to have a balanced field in the medium term. All other fields are negligible. What do we expect for the rest of the year? In the second half of the year, and I'll come back to that when talking about volumes. In the second half of the year, we will benefit from higher loan volumes, which I will describe higher credit volumes in Central and Eastern Europe. And following the last signals of the central banks, we expect a rather stable interest environment. You know that ECB expected downgrades of interest rates. But an hour ago, we saw that the Erste interest rate is 3.6%. And this means that we cannot say goodbye to any inflationary trends. And this is why ECB will have to analyze the situation and thinking about reducing further interest rates below 2.2%. In Eastern Europe, the situation is similar. Just let me highlight the Czech Republic, the prime rates are 3.5% at the moment. Looking at the cost side, of course, this is also influenced by the environment, which I just mentioned. Alexandra will come back to asset quality. But in all countries that we're doing business in, we have very strong labor markets. We reported that in the past years and the situation hasn't changed so far. This also means that we have pressure on the salaries of our employees. And this is also reflected in personnel costs, which have also significantly risen in Austria. In absolute terms, we see an increase in costs that's currently compared with the increase in operating income. What do we expect for the rest of the year, we expect this trend to level out because in the first half year, we have one-off bookings. So for example, contribution to the deposit organizations are booked in the first half year, but it's much too early to give a detailed outlook to 2025 -- the whole year 2025. We had very promising future-oriented investments in the past 1.5 years. And as far as our business is concerned and also efficiency is concerned, we expect the first effects for 2026, and we'll continue to inform you about that. What is very pleasing for me and what is very important for our group and for controlling and steering our group is that we have a very balanced development as far as loans and deposits are concerned, asset and liability side. This is the basic prerequisite for serving our customers, our private customers and corporate customers and supporting them, the liquidity situation and the risk situation is a basic prerequisite for that. I have reported several times as there is a certain feeling what we feel at ease. So [90%] as far as the loan deposit ratio is concerned, is a very pleasing one and we want to do perfect business within our customers. I personally expect that as far as the loan side is concerned, we hope for certain effects that I -- will I -- I will describe later on. That is to say, we can use our excellent liquidity situation for business with our customers. And we do hope to support our investment cycle that we expect for the near future. As far as the investments are concerned, you know that Erste Group is very strong in all countries and has a very good position in the private customer business and corporate customer business. Let me continue with Peter already mentioned. We see the first time for a more sustainable loan growth. What is the reason for that? We see different situations in the individual countries, and these different figures depend on the public sector and the large corporate companies basically in our region and what is very pleasing also in Austria, we see a higher demand in housing loans, which has been subdued for certain time due to various reasons in some Eastern and Central European countries, we have double-digit growth rates based on a lower basis and in Slovakia, for example, the figures were very good last year, and we see an increase this year of 7%. This makes us optimistic that in our core business in retail and in housing, we will be successful. And this is also supported by consumer lending. This is a very sustainable growth path and I don't want to exaggerate that because interests are much too high at the moment. As far as Austria is concerned, we'll see how the further development will materialize. We have good demand, corporate demand in Austria, but this is not relating to long-term investment, but short-term investments and we do hope to have long-term investments following a German investment plans, but we have good demand in revolving business on the corporate side and the mortgage business was already mentioned. This is very important for us that it's a sound business that we have a good asset quality, and this is where Alexandra comes in.

Thank you very much. My colleagues already mentioned that we have a rise in credit volume. What is not rising is risk costs. You all know the left bar, it was the COVID crisis, the beginning of the COVID crisis followed by other -- by several years, which were not characterized by this bar not in Austria and not in Central and Eastern Europe, we had extremely low interest risk costs at the beginning of 2024, a difficult economic environment in Austria and fill that in our portfolio, we had 18 basis points. And looking at the first half of 2025, that's the green bar at the right-hand side. If you look at this bar, we are slightly below 2024 at 16% at an annualized basis. And this means that we book the same risk costs in the second half of the year as in the first half. So we have 16 basis points at the end of the year. See what is the cost of risk costs. In 2024, I told you that in Central and Eastern Europe, we had 0 risk cost net that were booked and everything was caused by Austria. And this is what we expected for 2025. We expected higher risk costs and higher defaults in Austria, but slightly lower than 2024, and we expected an excellent risk profile in Central and Eastern Europe, but not the net 0 that we saw in 2024. And this is what happened in the first half year. The situation in Austria improved. Looking at the first half year 2025 and comparing it with 2024, bookings in NPLs went down in Austria, went down markedly. But we remain conscious. The environment in Austria remains to be difficult. You all know that. And the economic recovery could take longer than expected a longer than desired. But nevertheless, we see a recovery in Austria in a year-on-year comparison. Central and Eastern Europe, credit situation is very good, and this hasn't changed so far. So let me continue with an NPL ratio. NPL ratio at group level is 2.5%. This is slightly below the level at the end of 2024. And this is also the level that we expect for the end of this year. Looking at the individual countries, you see that the situation is very good in the Central and Eastern European countries with just 1 exception mainly Romania and here, we are talking about isolated cases in the agricultural field after draught periods and also hit by the war in Ukraine. So these are isolated cases and it's not an indication that our portfolio deteriorates. As far as Austria is concerned, what are NPA inflows in Austria. It's some cases from commercial, real property, but the volumes are lower. And we hope and expect that this recovery is continuing, maybe not dramatic -- dramatically, but sustainably so that we achieve an NPL ratio of 2.5% at the end of the year. Our risk cost guidance was taken back. Originally, we expected up to 25 basis points. But in view of the excellent first half of the year. Where we didn't have to dissolve FLIs and stage overlays. So we see a market improvement year-on-year. And we're very confident and our risk-cost expectations amounts to 20 basis points. Back to Stefan.

Thank you very much, Alexandra. This were the components that can be characterized by the waterfall chart, 2025. I already said before that operating income and operating expenses are balancing out. We have slightly higher costs in the first half of the year and risk costs have already been described so far. And they are slightly lower than last year. So we had a slight reduction. In other business, we had a better result than last year. And last but not least, how many of you know that minorities has an bivalent story they are green if the savings earn less and red if savings banks earn more. So what you see here is the reflection of the weaker results in Austria in total. If we compare 2024 and 2025, not in relation to the net result, which is very good. But year-on-year, it is not a spectacle. What is not unspectacular is the development of our equity. Peter already talked about the basic pillars. And allow me to make a few comments that differ from what I said in the previous years. You know that I am -- I always commenting our capital ratio and in connection with liquidity. And I always say that this is the way to support our customers. This is the basis of acting offensively and supporting industrial and private customers. Of course, this is still true, but there is another aspect, which I would like to highlight this time. The acquisition in Poland can be done without any capital increase. I don't want to go into technical detail, but I nevertheless wanted to explain what the drivers are that will make us fit for the end of the year for the full integration of Santander Polska without increasing capital. On the one hand, it's, of course, profitability. This is logical. The central driver of capital generation is profit. And we see that this materialized in the first half of 2024, and also the profitability of minorities as far as they are reviewed and audited. The second major input is that we temporarily and want to emphasize that we temporarily reduce distribution, profit distributions. We are not having any share buybacks. And in 2025, we will pay out a reduced dividend. We will -- we accrued up to 10% of our net profit. So we will pay out a dividend but a slightly lower dividend. So if we have a net profit of EUR 2 billion, you can calculate that this will be between EUR 0.50 and EUR 0.75 per share. But this is the cap. And this was already discussed with the regulator. And there are several other issues that are very important in this respect. It is how we steer our balance sheet. In the first half year, we haven't set any measures and in no country will we stop our active customer business. But what we will do is we will have AT1 emissions, which we did in the second quarter. And as far as bond positions are concerned, we will strengthen our position combined with securitizations, we will aim at achieving the goal earlier than planded. By the end of the year, and we said that we will have a 13.1% CET1 ratio, including the consolidated Poland position. Of course, it is not the goal to have 13.51% but markedly higher. Due to good developments in the first half year, we have 18.25% more for the existing Erste Group if we deduct 4.6% for the first consolidation of Santander Polska, we see that we already higher than 13.6%. We will see how the situation turns out because you also have to take into account certain risk components, and I'm optimistic that we will exceed this figure and start full momentum with our Polish colleagues in the Polish business. So let me close with the guidance for 2025. All the things that you see here have already been mentioned. Nevertheless, let me summarize here. We increased our expectations for credit growth by more -- about more than 5% from plus 5%. We hope that we can increase interest income. You see in the first half year, it was 2.7%. The second half of 2024 was very strong, and we are very conscious and we announced a better result than 2024. Some analysts might know it will be markedly better. We are somewhat more conscious in this respect. Let's have a look at what -- how things develop. The risk costs have already been mentioned by Alexandra in detail. The return on tangible equity will be more than 15% by the end of 2025. Distribution ratio has [payout] ratio has already been mentioned, and CET1 ratio was already described. I think, not only in our existing business, we will prepare for the coming months. But we are also very good equipped for the market entry in Poland, which we are looking forward too. And I think we have the economic strength to do that market entry. And -- but on the other hand, we have high respect in view of this task, it's a large country that we are entering and we have respect as far as this integration is concerned.

Okay. Allow me to summarize. At first, we are working intensively to obtain the necessary regulatory approvals until the end of the year. And as Stefan and Alexandra are looking forward to working with our Polish colleagues. Of course, we are also continuing to implement our strategy. So we want to achieve progress in the area of digitization, online banking. We are trying hard to get an even bigger footprint in asset management because we believe that this is extremely important in this region, and we have a large number of activities apart from the acquisition in Poland that we are driving forward in the various countries where we are active. But let me summarize, of course, this is happening in a geopolitical environment that is quite challenging, as we know. It is characterized not only by volatile markets, but also a lot of problems in terms of communication on other continents, but we are fairly convinced that the region we're operating in still have us a lot of growth potential and a lot of innovation. There's so many well-trained people all over Europe. And we really are convinced that Europe deserves to develop a new self-confidence. And I think it would be a good idea to not so much follow every tweet that happens across the Atlantic on the other side of the pond, but we should focus on what we can do here on this side of the Atlantic in order to promote the economic development in all of our countries in Europe in general. We are trying to set a good example and we're trying to lead the way courageously. We are ready and we'll continue to invest in CE in that region, and we can only do that because we have a good basis of confidence with our customers. We're doing everything to ensure that this stays that way, and we are looking forward to, hopefully, by the end of the year, we'll get the final approvals of the closing. Thank you very much for your attention. We're looking forward to your questions.

[Operator Instructions] The first question to [indiscernible] Saleski from XYZ.

Thank you. I have 3 questions. And as you might guess, they all will concern about acquisition in Poland. Firstly, you have the largest bank in Czech, Slovakia, Austria. In Poland, we will be the third player. That's why I want to know what is your approach to increasing market position in the future. Will Erste be open to acquiring other banks in Poland in the future? Or do you want to focus on organic growth. That's my first question. The second question, Polish Financial Supervision Authority would like to maintain the practice of dual listing for owners of large Polish bank. Is Erste Group considering a debut in Warsaw in this case. At my last question, Santander Bank has a Bancassurance business joint venture actually with alliance in Poland, we know that Erste has been cooperating with Vienna Insurance Group in 4 years and in every market. Will that mean a change in Bancassurance partner in Poland as well. That's all.

On a very short notice, too early, too early, too early. But coming back to your first part of the question in terms of being becoming the third largest bank in your home country. It was always our strategy over the last 20 to 25 years that we would be within the first 3 biggest banks in the country. We are extremely happy that we got the opportunity to enter the market, we're taking over this 49% something that mostly because it's the third largest bank and the biggest privately owned. So far, there was no other possibility. This was by far the best opportunity we got even over the last 20 years to enter into Poland because obviously, the government still has the view that they would like to keep the other 2 banks and let's see if there will be some kind of market momentum in the future and the government will change its view. From our perspective, it's very clear that for the next 2 to 3 years, we will take very much clear about to integrate, so to say, Santander Bank Polska because it's a huge acquisition in January. As mentioned before, it's the biggest transaction -- M&A transaction in Europe since 2014. So at this point in time, we are definitely not making up our mind to -- for another M&A opportunities in Poland for the next 2, 3 years. Having said that, of course, we have a strong belief in organic growth. This is what we have been doing in most of our countries, you're right. From time to time, we also took the opportunity for inorganic growth in our existing countries like Hungary or Czech Republic or the last 2 to 3 years. But we believe there is a strong growth momentum in Poland also in retail banking and in corporate banking. So we fully rely on the growth capabilities which are definitely proven when you look at the financial results of Santander Bank Polska in organic growth in the next years to come. The second question dual listing, yes, too early. I mean it's clear that we will be keep the listing of the local entity if it make sense to have a dual listing, let's see, but we highly appreciate the role of [Austria's] Stock Exchange is playing in Europe because in Central and Eastern Europe, it's definitely from the leading stock exchange. It is a higher market capitalization in the Austrian Stock Exchange. The just Austrian Stock Exchange is a little bit higher in trading volumes, which is very much related to our own share, but too early to charge. The last part of your question related insurance business, that's definitely too early. I think the cooperation between Santander Bank Polska and Allianz is going away. You're absolutely right. The other countries, we have our preferred partnership with VIG, which is also working very well. So we will cross the bridge when we are there.

Next question [indiscernible] please. Use the microphone, please.

I have a question. In your press release, you are referring to the fact that the bank taxes have increased by almost 50% with a windfall profit tax or excess profit tax. There's no end in sight in terms of these taxes. Do you believe that this will become a permanent tax and internal tax as the typical for Austria. And on the other hand, with such a high tax burden, the profitability will, of course, be reduced. And the opportunities to grow in other Central and Eastern European countries. And if further acquisitions will be slowed down. So it is not only yes, but all the Austrian banks will find it harder to acquire other banks in the growth markets. So I'd like to have your comment on that. And the Austrian Central Bank emphasized in an event about a month ago that the second half of 2025 will be used to in order to focus more on the fine-tuning of the digital euro. So we think there will be an app on the phone. And what the consumers expect of this is that it won't cost anything. Well, I have my doubts. Do you have your doubts as well.

Well, let us move on to the first part of your question, the banking tax. I fully share your view, but -- there is 1 thing that I see differently. The Austrian government has promised that this increase of banking tax will be limited to 2 years' time. And I believe that this will be the case. This is a federal government that will live up to its promises. Now let's take a different look at things a different perspective. Of course, you are saying that this will limit us in terms of future acquisitions. Also our competitors will be hampered in making acquisitions. But it's not only about that. It's also about how we can support economic growth through activities. And I think in Austria, it is important because this is the third year running that we have a recession as we all know. And if you take a look at our profit and loss statement, our income statement, it is quite obvious that we have a higher tax burden than we do have risk costs we paid more than 900 million bank taxes in all countries, including Austria, but we only have EUR 400 million risk costs. And it is my understanding for banking industry that our core competence in terms of economic growth is that we keep loans to corporate customers who will then invest and produce economic growth. Now if we pay higher taxes and risk costs and risk cost is actually a translation of transformational risk for borrowed capital. We don't have any equity risk, but we have borrowed capital risk. And this is why the risk costs -- well, we're not afraid of those. That's part of our business. Banks have no risk costs, well, there's something you miss. But if you pay twice as much taxes as you have risk costs, well, you're probably an ATM for the fiscal authorities and not a lender. And well, this is a question that needs to be addressed by those who've implemented these banking taxes. Now in terms of the digital euro, I think it is quite well known that the digital euro is a solution that has no problems. The cost of implementation based on a PwC study, just EUR 22 billion. I think is some initial resistance in European Parliament on the subject because the question whether it makes sense to have this digital euro, but I think the dynamic doesn't happen in Europe because if you take a look at the development of stablecoins in the United States, well, I think this can actually change the rules of the game in a completely different way than maybe people expected in the past 2 years. And I think that this is a situation we need to keep monitoring and whether the digital euro makes sense, but I still don't understand whether it makes sense. But maybe this is me.

[indiscernible] from Bloomberg.

Can you hear me?

Yes.

Okay. So I have 2 questions since -- since I come from Belgrade, I would like to ask, do you see an interest in the coming period in strengthening your presence in the Austria region in countries for former Yugoslavia, either through acquisitions in the countries where you are already present or by entering new markets? That would be my first question. And the second one is what do you see as the dominant trends in the Serbian banking market over, let's say, next 5 years in terms of further market consolidation and service development, technology or some other aspect.

When it comes to potential M&A transaction from our side over the next 2 to 3 years, as mentioned before, we are now fully focused on the acquisition of Santander Polska. We have lot of respect in front of this acquisition. And as Stefan rightly mentioned we are -- we are, of course, in a situation where we are building up capital and this is necessary to manage our existing portfolio. So for the next 2, 3 years, I don't see too many -- I don't see any activities on our side. The situation when you asked about Serbia in general, I think volume growth has increased over the last years because you see a lot of investments in Serbia. I think if I remember correctly. So still the majority of investments. So around 55% is coming from European Union, but you have also investments from other continents. And I think that in general, the economic development in Serbia is going quite well.

The next question comes from [Hosanna Osman].

From Romania from [indiscernible] most of my questions will be about the results in Romania. We saw some contrasting figures in Romania in some aspects compared to other markets. So can you please explain the decline in loans and deposits, especially in the second quarter in Romania. How was the decline in loans impacted by public sector business volatility despite the fact that actually, you had a strong growth in consumer loans. Also, why the deposits was the explanation for the decline of deposits? What happened with large companies and the public sector? And maybe because we speak a lot about the public sector, was the overall impact of the public sector problems that we have in Romania with huge deficits. What's the impact on your business? Maybe you will comment also on the fact that the government doubled the banking tax despite the fact that they promised to reduce.

I would start and then maybe Stefan can take over being very close to Romania. I mean generally -- of course, you are right that the economic development in terms of budget deficits and all these kind of environmental stuff is not great, which is, of course, not a super prerequisite for growing banks there. But having said that I mean, we are in a situation that [indiscernible] is a very stable institution and we definitely want to drive organic growth there. This is also the reason why on the retail side, we started several campaigns last year which were quite successful. We are investing a lot in kind of loyalty schemes, digital banking. So we really try to improve the service level of our offering for retail clients. I think in the corporate area, we have always been doing quite well there. So I think [indiscernible] is also in capital market business and typically corporate banking, they're doing well. Our appetite for other acquisitions is mentioned now for bank and for other banks, potential banks in Poland. It's not existing at the moment because we are very much taking care about Polish acquisition when it comes to bit different.

Yes. Maybe a couple of very brief comments structured in 3 parts. First one, specifically your point on the latest developments that we both have been touching upon in the analyst call and also today, with the weaker quarterly result in terms of volumes. This is purely due to one of you touched upon it in public sector and large corporates. So the underlying trends in Romania on the lending side. And then yesterday, the retail Board member, just I guess it's perfect update. Latest numbers is very strong. We have good -- we have good growth on the consumer lending side on the back of winning over new clients as Peter was describing, but also mortgage lending is doing okay. That's, I would say, okay, it's not the strongest market, obviously, as you can read from the other markets, but it's okay. The second point is, of course, a big topic. I mean, it's absolutely no doubt that the debt levels, as we saw them forecasted for Romania of this year around 8% to 9%, if I'm not misjudging. This is something which everyone knows is not sustainable. And of course, also the Romanian decision-makers know that. That's why they have been implementing quite substantial austerity measures. I understand that the markets are starting to win some confidence. I'm very closely watching the spread levels that Romania has in the market, there was a massive increase, and it's now kind of stabilizing. And I'm sure if the market gains confidence in the budget deficit management, this will further improve. And the third part is on Erste's [indiscernible] sales. In terms of profitability, we are extremely happy with the performance of the Romanian bank. The colleagues have done a tremendous job there, both on the client side as well as on the profitability side. So we try to help the situation in the country on the clients as well as in contact with public decision makers. And hopefully, they will manage a turnaround soon.

And the banking tax, do you have an estimate for the amount you're going to ...

It's perfectly building on what Peter said, more generally, be it on the Austrian or other banking taxes. I think at this point in time, it's very much a part of the overall austerity measures. You know that it's not so to say, too much banking specific, although, yes, there is a concrete banking level, we have it fully incorporated in our outlook, both for the local bank and for the group bank. And let's see how it further evolves. We know that it starts basically I think with August. If I'm not mistaken, 1st of August, it kicks in. And at debt levels, it's absorbable. We are not happy about it, as you can imagine, but it's at a level that we can swallow and I hope it will not be, let me say, further discuss the debt levels. Now we simply accept it and move on.

Can you publish the guidance upgrade for the group. Can you say how is Romania in line with this -- with this upgrade? Do you see a possibility for a bigger loan growth in Romania and also for the net interest income in line with what you expect for the group?

So Romania in terms of financial performance compared to the others, what you mean or?

The goals for the targets, how they impacted the target upgrade. That's how I...

Yes, part of it. An excellent performance in the last couple of years. Also on the risks, I think Alexandra, very strong and no, I think Romania has been -- if you look at the history of the Romanian entity in Erste Group, I'm sure you're very well aware, I really could hardly be happier about what has been achieved in the last couple of years. So excellent performance also this year we expect excellent results, I think, both net and operating.

And one more for Alexandra. Just one, what perspective for the risk costs do you see in Romania? And also since we had a increase in NPLs 3.5. I think it was the only market because sure of agriculture situation. What measures do you expect to reduce this.

We are constantly -- we're having constant measures to manage our NPLs and workout strategies and recoveries. And as Stefan also mentioned, this first half of '25, we've seen very strong recoveries, mainly in Austria, but also in Romania, we have seen and over the time. And we are working and we are quite confident that we will lower the 3.5% NPL ratio in Romania that have seen by half year that it will go down until year end with the classical toolbox that we have in restructuring. So working together with the clients trying to get them up, trying to have them upgraded recoveries, collection, all these topics. Overall, we are also maybe just one because Stefan also mentioned it, overall, we think that Romania will be able to also stay within the expected risk cost budget for the full year.

The next question comes from Mr. [indiscernible]. I hope I have pronounced it well, and then we go to the online questions.

Yes. Thank you. But I think every question I had has already been answered.

Perfect. Then we will go to some of the online questions. [Operator Instructions] There was a whole bunch of questions that arise from [Carolina Visota from Grupa VP]. It's 27 questions. I apologize that we cannot answer all of them. And I will ask only a few of them because most of them are too soon, which were very concrete on the Polish acquisition. But I will ask 3 of them. What are Erste group's long-term plans for the Polish market, will Poland become the strategic market of the group on par with Austria or the Czech Republic. That's the first question. The second, does the acquisition of the bank size -- of this size pose any risk to Erste Group's financial stability, what safeguards are in place. And the third, how would you describe your cooperation with the Polish Financial Supervision Authority. Has the acquisition process been smooth from a regulatory standpoint?

Okay. Let me start with the last part of the question, so the cooperation and the work we are hearing on our [table] with the Polish regulator kind of is doing great, so they are treating us very, very professional with a high level of respect. So it's fair to say it's a pleasure to work with them point number 1. Point number 2, you asked the strategic importance of Poland, this is the biggest country.

Financial stability.

Sorry.

Financial stability. This was last...

Question number 1 was about, is it easy to say a strategic country like Czech Republic, of course, it's our biggest market. It's the biggest country we are operating in, and it's the biggest investment we ever made. So I think this is -- this will definitely answer your question and will be an extremely important role in our group. The question of is it adding risk I mean, of course, every kind of investment is related with some kind of risk. But as Stefan and Alexandra and myself mentioned several times to mitigate this risk is very much strong -- to have a very strong capital position, which we succeeded already to build up point number 1, point number 2, and other kind of mitigation of these risk is with our colleagues in Poland have succeeded to build up a very successful bank in all financial indicators, well, in terms of profitability, in terms of number of client growth in terms of quality of client service. So they are really doing great and building the opportunity to buy such a bank, which is in such a good shape is also kind of mitigation of risk in entering another country.

The next question comes from [indiscernible] Suda from Business Insider. How do you assess the Polish banking market? What factors were decisive regarding the acquisition of Santander Bank Polska. What are, in your view, the biggest risk related to the Polish market? For example, what is your take on discussions about windfall tax or legal risks to LIBOR-related contracts.

Yes. I mean, I think we mentioned already several times how positively excited we are about the Polish banking market in general because the banking market is -- the reason for the fact that the Polish banking market is very interesting is because Polish economy is doing so well. And this over the last 30 years, and we are 100% sure with the next 30 years because the structure of the economy and the level of education in the country and the attitude in this country, they are just doing great. The entering another market in the European Union, this is typically risk, which are, of course, always around consumer protection, so this is something we experienced in -- especially in the retail banking area over the last let's say 20, 25 years that you always confronted with kind of court decisions when it comes to consumer protection. But to be also very clear, of course, it's not our goal to end up with our clients in front of the court -- of course, we always try to through all our products and all our terms of conditions in a 100% compliant. This is our way how we try to mitigate these risks, of course, from time-to-time, opinion from [course] of the regulator can change. This is nothing that we can influence too much, but this is kind of part of our normal business. And when it comes to banking intake, I think we already answered it several times that this is something we don't like, but we have to deal with.

Maybe just as a very brief wrap-up adding to your comments, Peter, and to the colleagues in Poland asking this question. On 2 levels, we have been and will be our and we'll be looking at all those risks on the 1 hand, of course, on the operating level locally in Poland, our future colleagues are dealing with all those matters with an enormous level of responsibility. We are aware of those risks. There's always risks associated not only with such an investment, but doing the business there. But in the same moment, the upside potential on the opportunity side, I regard is much, much higher. And the second one, I just wanted to add, Peter, on the -- from the perspective of the overall Erste Group diversification of risk. This is exactly the feedback that we got very quickly from many analysts, and you can read the respective statements. It's, of course, an improvement because as I think the other journalist Margarita was asking, where do you see it in a position. Yes, we have a very strong Czech market. Yes, we have a very strong Austrian market. We have a strong Romanian market. But obviously, the diversification on different pillars is much significant -- it's much more improving with the add-on of the Polish market. Yes, we will have risks here and there. But the overall risk position is, I guess, in the long run, substantially improving this way.