OTP Bank Nyrt. (OTP) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to OTP Bank's conference call regarding the financial results for the first half 2025. Please be advised that this event is being recorded. [Operator Instructions] At this point, I would like to hand over the floor to Mr. Laszlo Bencsik, Chief Financial and Strategic Officer. Laszlo, the stage is yours.

Thank you very much. Good morning or good afternoon, depending where you are, and thank you for joining us today to the conference call following the first half results presentation. As usual, you have access to the presentation, what we are going to use today on the website, but we are also showing you while I'm talking. And the setup is the usual, I will attempt to give you a short summary presentation following this deck and then after that, you can ask your questions. So the key highlights regarding OTP Group have not changed so much and there's nothing substantially new on this slide but on Page 3, you can see the recent results. And there's some noise in the first half results. We already face this problem during the first quarter. I will kind of show you the details. But fundamentally, the situation is that there are certain expenses, namely the extra profit tax in Hungary, the bank tax in Hungary and another supervisory and deposit insurance and fee charges typically in Bulgaria, which accounting-wise, we have to account for at the beginning of the year. So they appear in the full amount in the first quarter. And in this regard, they are not accrued. Now it's even more complicated with the windfall tax, the extra profit tax because it is first boat as the initial maximum amount. And then as the year goes by and we fulfill the requirements month by month, which are required to reduce this amount due to the level of Hungarian government bonds, increase in our portfolio, we can over the year reduce this amount. So in case of the windfall tax, it's not just the accrual problem, it's also the magnitude of this expense, which kind of reduces over time as we go along the year. Now in order to better understand what's going on. We provided you with the numbers, which are more of a pro rata or accrual basis and kind of reflect these expenses base related to the period what we consider and therefore, probably reflect better the actual performance or well, I'm pretty sure they reflect better the actual performance. So on this slide and some of the following slides, you can see 2 sets of numbers. The one on the top are this kind of with adjustment of pro rata or crude numbers. And on the lower part, you see in gray the kind of growing numbers, which we're reporting. So if you allow me, I will try to explain performance following this adjusted numbers. And based on this, I mean, if we compare the first half result of this year to last year, then profit after tax grew 10%. And the biggest driver of this growth was operating profit. So operating profit actually increased 20% year-on-year. And the reason why we did not have 20% increase in profit after tax was that risk cost also increased compared to the first half of last year. And I'm going to elaborate on this change and the major drivers of this risk cost increase, which is also reflected in the ratios, but you can see on this page, so the 4 potentially most important categories, return on equity, first half of this year. So again, this prorated return on equity, 23.2%, actually pretty close to the number what we had for the whole year last year, 23.5%. Net interest margin rather flat, and it has been served for almost 2 years now. And this is in line with what we expected in line with the management guidance. And here we see, in fact, improvement is the cost-to-income ratio less than 39%. And so far, this is clearly better than what we guided for, if you remember the original management guidance was that maybe cost-to-income ratio can be somewhat larger, higher than last year. So far, so good. It's actually somewhat lower. And then on the portfolio quality side, there are kind of mixed messages because if you just look at the quality of the portfolio per se, then it's actually quite stable and this gradual decline of the Stage 3 ratio has very nicely continued into the first half of 2025. However, we did provision more. So we had a higher credit cost, risk cost than in previous periods and especially the credit risk cost rate ended up being somewhat higher than last year and definitely higher than the first half of last year. I'm going to elaborate more on this phenomenon during the remaining pages of the presentation. So maybe the more technical details on Page 4, trying to explain this difference between the reported in the prorated numbers. So if you look at the first 6 months, the difference between the HUF 519 billion, which was reported and the HUF 592 billion, the number which we explained when we try to understand the business performance. And here, you see line by line, I'm not going to go into details. It's basically reflecting what I just told about this difference. Now let's see a bit more detail what happened in Hungary in our core business on Page 5. Again, a similar problem appears in the Hungarian numbers, and we adjusted these. We looked at this prorated number, and it's probably better to explain performance following these numbers. So year-on-year, 4% improvement in profit after tax. And basically, the overall charges increased, especially the windfall tax. Last year, it was HUF 7 billion, this year, we expect HUF 54 billion. That's a big increase in this regulatory charge. And we managed to compensate that with higher operating income and also risk cost increased. So basically, a good growth in operating income counterbalance -- the fact that the operating profit counterbalanced the increase of risk costs and the higher regulatory charges. This was contributed by the net interest margin improvement. As you can see, this gradual kind of normalization or improvement of the net interest margin in Hungary continued. I mean we hit a low level 2 years ago. And since then, we have been kind of gradually improving. Actually, it was 3 years ago, we hit this minimum and then we are improving gradually. And -- I mean, the expectation is that some minor marginal improvement can continue to happen in the future. And if we follow the next page, Page 6, some further information regarding Hungarian retail. It's going well. So contractual amounts increased 11% in mortgages, 40% in cash loans and kind of stable market share in deposits, somewhat declining market share in mortgage contractual amounts. That's due to the fact that there's a very fierce price competition. Some of our competitors are pricing the fixed new mortgages below the sovereign yields. That's hard to understand how they can make profit on that. And we are doing this and therefore, there's some erosion in our market share, but pretty small one. And certainly, we believe that we maximize the value potential in this portfolio by doing this. On the corporate side in Hungary, you probably remember that we had 2 long years, '23 and '24 with very limited or no growth at all. So maybe, yes, Page 7. So the portfolio did not grow. And this trend seems to turn around at least in the micro and small segment. So as you can see, micro and small corporate loans increased 9% on the first 6 months of the year. That's a -- these are typically the Hungarian companies. And apparently, there's some growth in demand, which is definitely a good sign. And on the large corporate side of the coin, we also saw 2% growth, but this is not yet, I believe, the sign of a major turnaround in the trend there. We still experience a rather muted demand from large corporates for new [ growth ]. But on the back of this increase in the micro-small segment, our market share actually improved quite considerably, and we are, again, almost reached the previous highest number close to 20%. If we look at the performance of the foreign banks in the group, in general, I think we can characterize this as stable. In the euro or quasi-euro countries: Bulgaria, Slovenia, Croatia, and Montenegro, have certainly, we are facing a kind of margin headwind due to the -- rather a sharp decrease in the euro rate, which we have seen the last 1.5 years, obviously created a pressure on margins. And this is why we are seeing in these countries margin erosion. And that, to some extent, reflects in the return on equity numbers as well. But all in all, we are rather satisfied with the performance of our non-Hungarian subsidiaries across the board. Maybe just a short detour to the net interest margin story on Page 9. I mean, it's pretty flat. And you can see the major drivers -- I mean, Hungary, somewhat improving and then some erosion in Russia, Bulgaria, basically. That's the overall kind of breakdown of the NIM development. In terms of sensitivity, rate sensitivity, the HUF rate sensitivity continues to be very small, at least in this kind of 1, 1.5 percentage point range around the current rate, which is 6.5%. By the way, we expect this level more or less to continue till the end of the year. So we don't expect rate cuts in the HUF rate. So there's quite little sensitivity around this level. However, on the euro rate, there has been a sensitivity, and then we have actually suffered this. I mean, most of this sensitivity has already manifested because the euro rate has come down, right? We are down to 2% and that's already reflected in our numbers. But from now on, the kind of forward-looking sensitivity is EUR 125 million per 100 basis point decline. It's not -- it's asymmetric actually, so it's a somewhat bigger loss if it goes down then the gain when it goes up. So this is -- it's less than it was at the peak, but certainly not at the kind of historic minimum either. What we have now is basically growing deposits and also now that we are down to 2%, the probability of a further cut is much less when we were up at 3.5%. So -- and obviously, when we adjust the sensitivity -- the rate sensitivity, we do that by modeling the expected outcomes and trying to maximize profits given the different scenarios and their probabilities. And as the kind of obviously now another 100% -- 100 basis point decline in the euro rate is less probable than it used to be 2 years ago. So we take a somewhat bigger kind of interest rate risk, but it's not that big. I mean, I think the minimum was around EUR 95 million, EUR 100 million. In terms of volume developments, the first 6 months, 7% total for the group. This is FX adjusted. And that's certainly an acceleration compared to last year. Last year, the whole year was 9% altogether. And this year, during the first 6 months, we are at 7%. These numbers are not annualized. So that's the actual growth in 6 months. The guidance was potentially higher than last year growth rate. I mean last year was 9%, first 6 months, 7%. So I think we are doing pretty well to fulfill that guidance. And if you look into the kind of the interesting stories within this, certainly, the biggest turnaround happened in Uzbekistan in Ipoteka. You may remember last year, the consumer loan growth, which is the most profitable in the market and which -- and this segment was exploding last year. There was an explosion in volume growth last year. But unfortunately, we were not in a technical physical state of operations to follow that market growth due to the lack of IT capabilities. Now given -- due to the very hard diligent work of our colleagues there, we managed to fix the IT infrastructure. I mean it's not complete yet, but it reached the state as a level of development where now we can safely increase new production volumes, and it's not just increasing volumes, but it's also opening up to a broader scale of client segments. So as you can see, I mean, this 4% 6 months growth doesn't look very high. But if you look at the bottom of the page, first quarter was 0, second quarter 4% and actually June was 2%. So it's pretty much kind of backloaded. So there's a strong acceleration in volume growth. And I will have some more information on the following page. But first, let me -- just one word about the Ukrainian consumer loan growth, which is another segment when the war started or -- and after the war started, most of the banks, including us kind of slowed down loan production. But somewhere a year ago, beginning of last year, we decided to kind of rekindle, reinvigorate our lending activity and that strategy continues. So we are actually growing the consumer loan portfolio and also the corporate and leasing portfolios quite dynamically in Ukraine. Obviously, still from a low base, but the growth rate, I think, kind of reflects our trust in the future of the market there and certain level of optimism. Now Page 11. That's some more detail on what happened in Uzbekistan at Ipoteka Bank, more specifically in the cash loans segment, which again has been last 2 years, the highest growing and most profitable segment on the market. And as you can see, unfortunately, our market share declined, stock market share. But again, the good news is that the last monthly figure, June already showed some improvement. So in June, our stock market share actually grew, improved. And here, you can see the volume. So we actually, in June this year, we sold 3x as much as June last year. So that's the kind of increased capacity. And as I said, it's not just kind of volume and number of loans. It's also our ability to cover potentially higher risk segments or segments where risk management is not straightforward. You actually need more data, you need more analytical capacity, ability to establish whether you want to or willing to give a loan to a client or not and at what rate. So that capacity to differentiate and to run sophisticated models based on data, we managed to develop to the level where we can open up to other segments. Obviously, this development has not ended. I mean there's still a lot to do and there's continuous effort on this front. And the kind of promise from the management team is that market share will continue to grow in this segment for the remaining part of the year. But again, this is not just a promise. We already saw that in the numbers at the end of June, the first month after 2 years or 1.5 years when our market share increased. Regarding deposits, 5% overall growth in the group. But given our -- that we have a net loan-to-deposit ratio of 75%. So nominally, this is quite similar to the loan growth, while we had almost -- it's like HUF 50 billion higher in nominal terms, the increase in deposits in 1 year than the increase in loans despite the growth rate being lower in deposits than in loans. Now here, again, 2 very important segments on this chart, retail in Hungary and retail in Bulgaria, but especially in Hungary, where in these 2 countries, we pay very low or close to 0 rate -- deposit rates, interest rates on deposits. And therefore, from a kind of profit generation perspective, these are extremely important segments. And here, 7% growth in the first 6 months, Hungarian retail deposits, that's a very strong number. And if it continues like this, then it can further contribute to the net interest margin in Hungary. The red number in the middle of the page, Uzbekistan, and again, I think it requires some explanation. As you can see, this decline -- I mean, if you look at the last 3 quarters, fourth quarter was strong, first quarter was negative and the second quarter was flat. So basically, last year, we increased liquidity. We were quite kind of aggressive in deposit collection in order to create the liquidity base for the local currency lending growth this year, but that lending growth actually manifested somewhat later than we had expected last year. So we didn't want to sit so much on this quite expensive retail and corporate deposits. So we let some of the volumes to go out. And once retail, especially retail loan, but in general loan growth started to accelerate in the second quarter, we kind of stabilized the deposit volumes. And so this is again, it's somewhat deliberate what happened and follows kind of profit maximization strategy execution and as a result of that. Now a bit going to the portfolio quality and risk cost story, Page 13. So the good thing is that portfolio quality, again, stable across the group and Stage 3 ratio continues to decline. So that's a very good news, and that's in line with the guidance what we made -- that portfolio quality this year may be similar to last year. So in terms of the actual quality of the portfolio, we see that -- now what happened is that we actually provisioned more and increased the coverage on -- especially on the performing Stage 1 and Stage 2 portfolios. So as you can see, our coverage ratio on performing Stage 1 and 2, 1.9%. That's close to like HUF 500 billion provisions on performing loans, which is like, I don't know, 3, 4 normal years of provisions. That's why we have provisioned for the performing portfolio. And this level is, I mean, 3x of Raiffeisen and I don't know, almost 10x of KBC. So that's quite a conservative approach. And even on the Stage 3 portfolio, you can see that we have been rather conservative in our provisioning, which has always been the case for us. So we kind of like to be more conservative than less. And on Page 14, you can see some further detail why the actual risk cost was higher and where this additional provisioning went. Now we had 2 lines, 2 items, which were not related to credit risk, one that the rate cap in Hungary was extended. So there was a HUF 4.4 billion other provision in Hungary, and we continue to provision for the Russian bonds in Hungary and in Bulgaria, roughly HUF 5 billion, HUF 5.1 billion additional provisions. With these additional provisions, we went up to 79% coverage. Nominally, that's HUF 99 billion. So if the war was over tomorrow, sanctions lifted, probably this provision could be released. I wish that was the case and the war ended today or tomorrow. But that's kind of -- it's just a short-term potential positive impact if this terrible war ends. And then on top of that, we provisioned in Hungary risk on the credit risk. We -- on a granular basis on a client-by-client, corporate client-by-client basis, the colleagues looked at the portfolio and made an assessment what -- which are the clients who might be negatively impacted by potentially higher tariffs in the area and put additional provisions for the performing and for the nonperforming part as well. So this is -- this increase in Hungary reflects actually not the general provision increase or not a model-based increase, but a detailed review of the portfolio in terms of potential risk coming from higher tariffs. You probably know that Hungary out of the CEE countries is one of the highest direct export to the U.S. plus obviously, together with other CEE countries, there's a kind of secondary impact here, especially through the German companies exporting to the U.S. It has a kind of potential spillover effect on many CEE countries, including Hungary as well. And on top of that, in Serbia, we had IFRS 9 impairment. In Serbia, we adjusted the macro expectations negatively due to the recent kind of domestic political tensions, which on top of the kind of global geopolitical and tariff disputes in case of Serbia resulted in a somewhat bigger adjustment. So that immediately translated into higher IFRS 9 provisioning. And in Russia as well, it's partially the IFRS 9 provisioning, partially just the increase of the volumes of the consumer loan growth and the kind of relatively high normal level of risk cost rate on this portfolio, which generates an increase in provisioning. So higher risk cost, yes, and potentially higher risk cost rate for the whole year than last year. So in this sense, we are changing the guidance. But most importantly, we don't see deterioration trends in the underlying portfolio quality. So this higher risk cost is not coming from portfolio deterioration. It's coming from kind of extra conservatism and potential kind of forward-looking provisioning for somewhat worsened macro expectations in the region, which I'm going to talk about later on. Page 15, some information about the capital situation, 18% common equity Tier 1 and Tier 1 ratios, as you can see in this chart, well above requirements. And here, in this waterfall, you can see what happened since the end of last year, eligible profit minus the kind of the potential dividends, which are a calculation based on the EU directives and not and do not reflect our intentions, how much to pay or it's not a deliberate number. It's just a result of this calculation. But nevertheless, it includes HUF 132 billion dividend deduction, so 1.4 percentage point uplift. And then we had Basel IV at the beginning of the year. We talked about this after the first quarter results and then FX result in the capital itself and in the risk-weighted asset more or less hedged. So they cancel each other out. And then this kind of 7% growth in the total loan portfolio consumed 0.6 percentage points to 60 basis points of capital. And then the share buyback, which we accelerated. We did HUF 60 billion in the first quarter, and then we received approval for another HUF 150 billion buyback, and we have to deduct this from capital on the day when we receive the approval from the Central Bank's altogether for this year so far, HUF 210 billion deduction from regulatory capital due to share buybacks. Now there's always this discussion how high this number is. So to facilitate that discussion, we have the following Page 16. So here, you see some of our peers. As we always say, it's obviously the most important is to be well above regulatory requirements. But all banks are well above regulatory requirements across Europe. So just saying that is not very informative. And therefore, the more or less what we follow is that we want to look good. We want to look well capitalized compared to our peers. And here are some of our peers, which we consider relevant. They are the kind of multi-country banking groups who are active in our region where we are active. And since we don't have alternative Tier 1 paper, we -- or for us, common equity Tier 1 and Tier 1 ratios are the same. So this comparison, we tend to do on the level of Tier 1 ratio. which was 18%. Now if we include the transitional adjustments, which are going to disappear by the end of the year, that's 30 basis points. So if you load the 18% number with these transitional adjustments, then it's 17.7%. So maybe the 17.7% is the right number to compare on the Tier 1 leverage ratio to these other banks. And we look okay, right? I mean UniCredit is exactly at the same level, Raiffeisen with that Russia after deconsolidating Russia somewhat higher. Erste somewhat higher, but obviously, this number does not include the expected decline due to the acquisition what they are doing. So after acquisition, probably they will go lower than we are. I mean, KBC, Intesa is somewhat lower. So this is -- it looks okay, right? I mean it's clear that we are kind of at the top of this range, around the top of this range of comparable banks, which is okay, but there's still room if we were to acquire a meaningful target to go somewhat lower or somewhat more lower temporarily if it is justified. We like to show some external perspective as well or we like to look at external perspectives, and the more objective, the better. So there are 2 examples here. Page 17, these are the results of the recent EBA stress test. On the previous one, we were -- we ranked #4. On this one, we ranked #13. And I mean, the ranking, we typically look at in terms of the reduction in the common equity Tier 1 ratio in case of a stress test scenario. And the larger the decline, the worse the performance, obviously. So here, you see how we compare to the kind of same regional comparable peers or regionally active banking groups. We compare well, but the result was -- the ranking is somewhat lower than last year. It's not because our stress handling capacity decline is because others improved. I mean, certainly, as the euro rate is higher than it was when the previous stress test was done. Margins are better for Eurozone banks. They have higher profits. So the starting point of a stress test is higher. They have more risk and loss absorption potential because of higher earnings and margins, which is a good sign. I think in general, our interpretation is that it's good. The European banking sector is stronger, more able to absorb losses in case they happen in a stress scenario. Now the other external kind of source we started to look at, especially last year is S&P Capital's Market Intelligence, S&P Global Market Intelligence unit. They compare the listed 50 largest listed European banks based on actually a quite broad and relevant list of KPIs. And last year, based on the '24 performance, we were #1 in this list. This year, we are #2 based on the '24 annual performance. So that's pretty good. And I think this is rather objective external view on our relative performance compared to some other banks in Europe. In terms of liquidity and DCM activity, liquidity situation is strong. As you can see, the ratios, liquidity coverage ratio 230%, net stable funding ratio 152%, net loan to deposit 75%, leverage 10.3%, very low leverage. And these numbers compare quite well and quite conservative to -- again, to some of these other banks in the region. A quite modest call date profile. As you can see, if you compare it to total assets being at 100 -- well above [ HUF 100 billion ] now. And I mean, it's much less than a yearly earning what we have to pay back in the following years. And our activity was not -- was somewhat muted during the second quarter. We did at the beginning of the year, the Tier 2, and then we did basically an offshore Chinese yuan bond. This is not in million euro. This is in million yuan. So it's somewhat confusing, but it's in the current -- I mean, the numbers are in the currency denomination, what you can see there, we are not in the same currency. So in euro terms, it's around EUR 100 million. So it wasn't big, but we are trying to divest our kind of funding source and explore potential investors in the Asian markets as well. So this is a kind of important step. A few words about the future and what we expect. So if we look at the macro forecast, it's somewhat deteriorated due to uncertainty and the tariffs -- that's clearly negative, marginally negative. So as you can see, it's like typically around 50 basis point adjustment due to the expected somewhat lower growth given by the new global tariff environment. And that has happened basically across all the countries where we operate, except Uzbekistan. Uzbekistan doesn't seem to be directly affected negatively by it and growth is by far the strongest there. So we're very happy that we are present on that market and started to do very well in terms of performance as well. I mean Hungary, 0.6%. That's probably the biggest decline not too long ago when we -- before seeing the first quarter GDP growth numbers, we expected even close to 2.5% GDP growth this year. Now that's not going to happen for sure. Our best guess today or best -- it's not a guess, it's actually based on very detailed modeling. So our best estimate for the potential is 0.6% GDP growth in Hungary. I mean, Hungary and Slovenia is not very kind of rather slowing down. But the rest of the countries, Bulgaria 2.5%, Croatia 2.9%, Serbia 2.8%, Montenegro 2.8%, Albania 3.5%. So these are still quite robust growth rates and GDP growth numbers in a number of countries where we operate in the year. And finally, a few words about the guidance. I think going through this pack, it's obvious where we had to make some kind of smaller changes to our guidance. The first one related to loan growth, but may be higher than 9% last year. I think it still strongly stands. So after this good 7% performance in the first half, this is a very valid guidance. Flat margins, again, almost exactly flat, and this continues to be what we expect. Cost-to-income ratio, we were somewhat pessimistic apparently when we made the guidance and the original budget. We originally expected somewhat higher number than last year, the last year, 41.3%. Now we kind of given the first half year performance less than 39%, we kind of modestly put this wording that we expect the cost-to-income ratio to be close to 41.3%. And portfolio quality, I mean, the previous guidance was that portfolio quality or indicators or portfolio quality trends might be similar to last year. Now this, we have to clarify and actually break it down into 2. So in terms of the underlying portfolio quality, we still expect the previous trend to continue, and more or less stable quality, whereas in terms of risk cost and in terms of coverage, we expect somewhat higher risk cost rate than last year, last year, 38 basis points. So pretty much this was it, what I wanted to present. I hope it was useful. And please ask your questions and I try to answer them.

[Operator Instructions] The first question is from Máté Nemes, UBS.

I have two questions, please. The first one would be on the Hungarian net interest margin. It's clear you are seeing a quite consistent upward convergence in the margin there. And we are also seeing quite strong inflows on the deposit side, especially retail deposits. Could you talk about your expectations around those deposit inflows, how long those inflows could continue? And what those inflows and perhaps some other factors could mean for net interest margin, again, specifically in Hungary? And the second question would be on loan growth. We are seeing really good loan growth pretty much across the board on the retail side, consumer and also mortgages. What seems to be lagging in some of your larger markets I guess, notably Hungary and Bulgaria is stronger growth in corporate lending. I'm just wondering if you could give us a sense what do you see in terms of the pipeline? And when could we see more meaningful growth also in the large corporate segment?

on the back of the -- especially on the back of the retail deposit growth improves. And that -- I mean, we don't see a major reason why this could change, not -- certainly not short term. Elections are coming next year is election year. If anything, I think further loosening is possible. There's -- so I don't see consumer kind of tightening coming in the next 12 months. So I think the labor market is still okay, not as hot as it used to be, but still quite solid. And inflation has kind of moderated. So I don't see why this should change next 12 months. If all goes well, this can continue at this rate, but at least somewhat similar. So in this sense, we are quite optimistic. And obviously, that should translate into kind of marginally slowly improving margins in Hungary as well. Now loan growth, large corporate in Hungary, again, as I presented it, we have this -- maybe not this slide, but the one which shows the Hungarian corporate growth. Yes, if you go back this one. So this 2% in the first half, that's not -- it's not a turnaround in the trend, right? It's just a noise pretty much. So no, we don't yet see, especially Hungary, this turnaround in large corporate. A very kind of positive is the micro and small, which started to grow, and then these are primarily Hungarians. The micro and small companies are not the multinationals, right? And that's probably also driven by services and retail and trade flows and things like that. So on that side, I think we can say that something started to grow and happen. Now the question is where is the bottom of the investment cycle is? And have we already reached that or not? I wish I could say that I believe that we have -- that the situation radically changed in Hungary, not yet. Bulgaria is somewhat different. In Bulgaria, we -- the pipeline is actually strong. The Eurozone accession is going to happen 1st of January next year. That usually coincide with upgrades and increased investor confidence and higher FDI. So in Bulgaria, there's something happening, right? So in Bulgaria, we do see on the ground quite some excitement and potential. So I'm more optimistic about Bulgarian large corporate growth in the next 12 months than Hungarian.

The next question is from an attendee joined via phone. [Operator Instructions]

It's Jovan Sikimic from Oddo BHF. I hope you hear me right?

Yes. Loud and clear.

I have a question on this recently presented this home loan program in Hungary. What do you see the benefits for the bank? Where do you see, let's say, mortgage or housing lending picking up and what your, let's say, first take on that? And have you also considered this in your guidance for loan growth this year? Because I think -- I mean, I don't know whether it is rather story for this year or maybe for next year, but maybe would like to have your thoughts on that. And another one question also linked to loan growth. I mean you were clearly saying that you downgraded economic assumptions for almost entire footprint, right? But still, I mean, after 7% year-to-date, so 9% seems to be rather conservative, right? So do you see already some kind of slowdown in some markets? Or is it just, let's say, conservative assumption?

Well, the guidance was more than last year. Last year was 9%. We didn't say how much more. So maybe I wasn't clear. So I wasn't suggesting 9% expected this year. I said that the previous guidance, which was more than last year, more than 9% seems very likely, right? So it can be much more, right? And yes, I mean, we don't see slowdown certainly coming. So it's more than 9%. Now in terms of the specific program, it starts in September. It's very attractive for potential eligible clients. It's 3% fixed rate in HUF. It can be used for kind of new development and buying an existing property. The price of the properties of the kind of -- there's a cap on that HUF 100 million, and there are some restrictions on who can take the loan, but it's pretty broad. And so I think demand will be strong. Obviously, the pickup will be relatively slow because, I mean, so I don't expect September numbers to skyrocket, but it will take a few months, maybe 2, 3 months to reach kind of full potential in terms of volume growth of this. It's certainly going to push prices up because supply is not going to increase in such a short notice. But -- and I mean, it is a profitable product for us. So we are very happy to distribute it, and we will put a big effort in order to make it successful and to reach every interested eligible client. So this is certainly a plus for volume growth and it's a plus for earnings.

Yes, super great. If I may add just maybe one on margin outside Hungary, particularly in the euro area. I mean there was some, of course, some erosion as you stressed. At what point would you see kind of stabilization maybe thanks to deposit repricing and so on?

Well, it depends. I mean if there are no further rate cuts in the euro rate, then I think not much further erosion is expected.

The next question is from Gabor Kemeny, Autonomous Research.

A few brief questions from me, please. Apologies if I missed anything. I joined a little late. Firstly, on the provisioning, would you be able to share any views, any sensitivities to this possibility of the U.S. introducing secondary sanctions against Russia? I believe Hungary's exports could be potentially impacted here. I'm not sure if you've done some provisioning already but if you could share some sensitivities around this. Secondly, a very solid 18% CET1 ratio again. I would be interested to hear your latest thoughts on the M&A pipeline, please? And just finally, on András Sebok's appointment to Deputy CEO. Can you talk a bit about his role and how -- what his responsibilities are going to look like? Peter Csanyi talked about your increased focus on digital banking, but would be interested to hear your views on his appointment.

Secondary sanctions in terms of provisioning where? I mean, your first question.

Yes, yes, I mean, Hungary's macro being potentially impacted by the secondary sanctions against Russia that -- I mean, the indirect impact that would be the question. I believe the way I understand this would impact Hungary exports. That's why that was the origin of the question.

I don't think we export much into Russia. So I mean...

Not to Russia to the U.S., sorry, but maybe I misunderstood, but that's my...

Yes, higher tariffs because -- okay, yes. Well, I don't know. I mean that's -- again, the tariff problem, we actually dwelled very deeply into our risk people did. And in this case, we went through the Hungarian corporate clients, and we assessed the potential impact coming from primary or secondary tariff effects. So Hungary has -- actually pretty out of these CEE countries, one of the highest direct export to the U.S., as a percentage of GDP, plus there's a secondary impact through the kind of core European exports to the U.S. and supplying that. So the risk colleagues have gone through the portfolios and put extra provisions on a case-by-case basis. And this is the reason why you see most of the credit risk increase in Hungary. So that's exactly the result of this exercise. So we did that to our best knowledge, and it's already reflected in the second quarter numbers. And indeed, that's why Hungarian risk cost was higher in the second quarter than usual. On M&A, I mean, obviously, I'm not allowed to say anything other than the usual stuff that we are active, we are interested and we are engaged in discussions, parallel discussions. And we are hopeful that we can find somewhat a situation where we strongly believe that we create value for shareholders and then we do that. But there's nothing concrete we can report on at this stage. Now András Sebok is the successor of Peter Csanyi in the role of Head of Digital and IT division. So he has inherited exactly the same organization unit, which is it's digital banking in Hungary. So part of -- it's actually a mix of kind of IT operations, development and also digital banking, retail digital banking part of the -- and payments are there. So it's actually a combination of classic IT and digital plus some business responsibility as well, if this is what you wanted to hear.

Yes. Yes. Maybe anything on his objectives, near-term object -- like your objectives in the areas of IT operations development in the near future, anything new and notably?

We are in the middle of a huge IT transformation. We are changing the core system. We are changing the core security system. We are changing the card back-office system. We -- in-house developed the digital channels. So that's -- so it's quite a transitional development heavy period. So that's clearly potentially the primary -- the first focus is just to deliver on these initiatives and deliver them on time, on budget and with good results. And these are huge, huge IT chain. I mean the last time this happened was 30 years ago when the core system was replaced in Hungary. So he has to continue and finish those large initiatives. And on top of that, obviously, digital, digital, digital AI, better service levels for the digitally transacting clients and higher penetration in that segment. So, yes.

Yes, it sounds like a busy agenda.