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

Ladies and gentlemen, welcome to OTP Bank Second Quarter 2026 Conference Call. 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. Good morning or good afternoon, depending where you are, and thank you so much for joining us on this mid-summer day. It's very warm here in Budapest and very sunny and unfortunately, very dry. So in a way fighting the elements. Now if we follow the usual -- we are going to follow the usual process. So we are going to show you the presentation, but the presentation is also available on the website, so you can download it. And first, I go through a reasonably brief presentation, and then we will have a question-and-answer session. So we may just start going to Page 2, the kind of high-level features or most important messages. They have not changed. So I don't think we should dwell on these. We continue to deliver on those lines. Page 3, we try to summarize the situation and make sense of the numbers because in order to be able to understand the underlying business development, we need to somewhat specify which numbers we are looking at. If we just look at -- looking at only the reported numbers, that is HUF 306 billion profit after tax in the second quarter and HUF 483 billion, half profit after tax for the first half and looking at the quarter-on-quarter and year-on-year development of these numbers is not particularly insightful. One big problem with these numbers in order to make some sense of them is the usual one, which we have been facing for a number of years that this extra profit tax and the bank tax and the -- in general, the supervisory fees across the group, they all have to be booked at the beginning of the year. And since the size of these numbers have grown, unfortunately, quite extensively during the last couple of years, this is actually -- it has a huge impact on the quarterly distribution of profits. On top of that, the extra profit tax keeps decreasing throughout the year as we continue to fulfill the requirements in order to reduce or kind of be able to have the discount on the extra profit tax. Therefore, we kind of show you the prorated or adjusted numbers where we show the numbers as if these extra burdens were evenly distributed between the 4 quarters throughout the year. And those are the numbers what you see on this page in the upper left corner in a kind of darker green color. Now these numbers are much more meaningful than the reported ones. However, they also require some further kind of consideration. The first one is due to the fact that the half exchange rate moved so much, the have appreciated so much during the last year. So year-on-year, in order to fundamentally understand what's going on in terms of the business performance, we may -- it may be better to look at the FX adjusted numbers, which are not affected by the exchange rate changes. So if we compare the first half of this year to first half of last year, this adjusted number shows 2% decline. But in an FX-adjusted level without the impact of the exchange rate changes, in fact, profit went up by 4% after tax. year-on-year first half. Now taxes increased quite substantially, and there are 2 sources of that increase. The bigger one, obviously, is the extra profit tax doubling from last year to this year. In the first half, it's almost HUF 30 billion plus tax. The other country where we are subject to increased taxes is Ukraine. In Ukraine, the corporate tax increased from 25% last year to 50% this year. So therefore, the taxes line, which includes all of these went up 22%. Now that leads us to the profit before tax numbers. And on that line, again, FX adjusted, we see 8% growth year-on-year. That's somewhat better. But even this number includes this kind of one-off burden, which we had to book in the second quarter for the mortgage -- for the rate cap in Hungary, which has been with us since the beginning of '22. But previously, the method applied by the previous government was that in every 6 months, they extended the program with another 6 more months. So therefore, we kind of gradually step-by-step recognize the potential loss of this. Now the current situation is that legally, there's no end to the rate cap. This, we understand as an interim situation because discussions are ongoing between the government representatives and the banking association. And our expectation is that eventually, this is going to change, and they will come up with a solution, which creates a more fair system on the level of society and the solution which is actually according to the legal requirements in Hungary because we believe that the current solution is not. Therefore, we have taken legal actions, obviously, and we are going to continue to do so in the future as well. But nevertheless, I mean, the best solution is if there's a fair outcome of this rate cap, which I mean, shouldn't have happened, but it has and it should be fixed. But it hasn't been done yet. So tactically, we had no other choice than booking the full potential loss for the remaining maturity of these loans. And that was the equivalent of HUF 30 billion pretax, and most of this was booked as a risk cost. Now if we had not had this, then the profit before tax growth compared to last year would have been 11%. So this kind of 11% is more or less what can be considered as a kind of business as usual underlying performance improvement. And that looks markedly better than the minus 7% or the minus 2% or the plus 4%, plus 8%, but you can pick a number, but we believe that the 11% is probably the closest to the actual development. Now let's have a look at the details of the P&L lines. Again, on this FX-adjusted manner, and this is the middle section of this slide. So net interest income year-on-year has gone up by 19%. That's a pretty solid performance. This is a result of strong organic loan growth. Last year, we had 15%, and we guided for this year, maybe similar level to last year. But the good news is that the first half of the year was 8%, so some acceleration. And even within the first 6 months, the second quarter was stronger than the first. And that means that year-on-year to end of June this year compared to end of June last year, the growth was 17%, again, FX adjusted. That's loan growth volume. And on top of that, net interest margin also improved somewhat compared to last year. And these 2 together, plus obviously, the strong and even more profitable deposit growth, especially in retail resulted in almost 20% year-on-year net interest income growth. However, fees and commissions, only 3% and other net noninterest income actually negative 21%. So what happened here? Fees and commissions used to grow faster. So what happened on the fees and commission lines, 2 reasons. One, the bigger one is that in Russia, fees and commissions actually declined by 17% year-on-year. The other smaller impact came from the fact that we had to delay the legally possible fees and commission increases in Hungary. You may remember that we were strongly requested to voluntarily delay the fee increases by the previous government somewhere last year. And therefore, those kind of annual fee and commission adjustments in retail, which we typically do in Hungary happened only at the end of June and not in January. This has a smaller impact. And the other line, the other income line, which was actually negative, minus 21% was primarily negative again because of Russia. Russia, this line declined by 32%. So this is -- this reflects the declining volume of this transactional business, what we have in Russia, which is primarily coming from European corporate clients who make transactions, and that's a reasonably high-margin business. But this is declining in line with the overall decline of trade volumes between Russia and EU counterparties. So that's our kind of external environmental trend. And this is something we are not going to fight. So this we accept and we are not proactively selling this. So that, in a way, this is okay. Maybe some of you might be a bit happy to see that because that shows that our Russian activities actually declining in that sense and actually, our profits are also year-on-year started to decline. So that's why the total income growth is only 10% despite the fact that the net interest income growth year-on-year was 19%. And that net interest income is obviously the majority of the -- I mean that's the biggest part of the total income. So this 10% is due to these factors which I just explained. Now operating expenses went up 17%. And this doesn't look very good, to be honest, and we are not very happy about this, that operating expenses went up 17% and income only 10%. Again, despite the fact that actually the core part of income, which is net interest income, grew more than expenses, 19%. But certainly, on this expense growth trajectory, we are actively working on this. So this is one of the management focuses to slow down this rate of growth, and we are working hard to have a materially lower number for next year of the operating expenses growth. Okay. So on the right side, you see the ratios, which are related to the guidance what we have given, and we decided to change the guidance or modify the guidance in one occasion, and that's the net interest margin. I mean, given that we -- the fact for the first half is 4.61 and considering all the environmental factors, we believe it is actually quite likely that the net interest margin is going to be higher than last year. But that's probably not a huge surprise to you. All the other lines, we haven't felt necessary to modify the guidance, but you can see what -- where these numbers lead to. And maybe the risk rate requires some further elaboration. As I mentioned, this kind of one-off cost of the interest rate cap extension to maturity, the HUF 30 billion cost, most of it appeared as a risk cost as a credit risk cost. And obviously, that increased the risk cost rate and the risk cost line. So without this impact, the risk cost rate, the credit without Russia, I mean, would have been -- this 42 basis points would have been 21 basis points. And that is without Russia and the Ukraine and Uzbekistan. So this kind of 42 basis points, what you see here as risk cost rate for the European countries was kind of under the fundamental part was actually only 21 basis points, which is not very different from the reference period last year. Okay. So Page 4. It just gives more details of the -- of the P&L line. So you see the numerical values as well, but I already talked about the most important column, and that is the one somewhere in the middle, showing the year-on-year FX adjusted growth rates. On Page 5, you can see the technical details behind this pro rata recognition of -- sorry, prorated recognition of the extra charges. So if you are interested, what we actually booked and reported for the first half was HUF 173.5 billion and what actually should -- what falls on this first half period if we kind of evenly distribute was only [ 75.9 ]. So that's the explanation of this kind of difference. Before we dwell into the details of the performance of the group, let me share with you some information and some thoughts regarding the potentially most exciting recent development, and that is that we finally agreed with the owners of Luminor of buying the bank. So we signed an SPA with Blackstone and DNB Bank. And I mean, we are obviously very excited about this. The price, we are -- obviously, we are not able to disclose anything other than what available is publicly. However, we agreed with the sellers that we can actually share this one information and the -- as you can see here, the purchase price was said below the book value. Again, this is not -- potentially not a new information because DNB Bank already kind of published the expected loss on their investments in their books and from that, some of the analysts already kind of calculated the price. But or roughly the price or the price range or something like that. And this is what we can tell about the purchase price with an agreement from the sellers. Now on our side, the rationale is, well, obviously entering 3 new markets, which are quite developed Eurozone markets, both in terms of penetration, in terms of income per capita and in terms of banking services, these markets are very advanced in terms of digital services. And that's part of the excitement what we have. I mean, to be able to compete in such an advanced market. Now this acquisition, we have been saying that we like to be or the optimal position in Central Eastern Europe, in the smaller countries is to be #1 or #2 maximum. Now Luminor is not #1 and #2. But we consider this potential acquisition as creating a growth platform in these countries. And obviously, our intention or aim is to challenge the market leaders and that can be done through organic growth, but that also could be done through further acquisitions. So this is obviously something we take into consideration when we look at this transaction strategically. Again, we are not able to share with you insights, but we may go as far as if we find the management team very competent and capable and strong, the current management team and the IT developments, what they have achieved during the last couple of years is also very impressive, and there's a visible result of that. Luminor actually recently came out with a very new and we consider it very good and very competitive new mobile app, which we believe will considerably strengthen the ability to compete in the retail segment in the country, primarily in these countries. Now in the next couple of slides, you can see the kind of publicly available information and the kind of pro forma combination of the assets. So if you were to combine these assets just pro forma at the end of the first quarter because those are the most current numbers which we have available publicly for Luminor, then it would be like 12% of the total assets, 14% of total loan book and 22% of total loans, total mortgage loans. So actually, mortgage is the strongest part of the Luminor kind of business activity. Also very interesting that the -- if we were to combine with Luminor now, actually, the total -- I mean, 50% of the loan volumes would be in the Euro zone. And that's this is potentially important from -- not just from the kind of primary business, but also from this perspective, maybe for rating and it has kind of wide potentially positive effects on us. On the following page, you see the detailed information on what available is publicly for Luminor and also for the market. You can see from the penetration numbers that this indeed these markets and the whole regions seem to be more similar to developed Western European Eurozone markets than what we typically have at the moment in our portfolio, and that is reflected in the kind of higher mortgage loan penetration and the much lower consumer loan penetration, I mean, this kind of 3.5% is closer to the most developed Eurozone countries like Germany, Netherlands and so on. Specifically Luminor, the return on equity is not particularly strong. I mean, if you -- we look at the last year numbers, 8.6%. This is much less than the comparable 2 larger and 2 smaller banks, what you can see on Page 3 at the lower right corner. These are the banks which are active in -- across the regions, so directly comparable to Luminor and Luminor falls behind in terms of return on equity. So why? I mean, again, just from outside in, if you look at the numbers, in terms of net interest margin, they seem to do well. In fact, it's better than the market leaders. But in cost-to-income ratio, they don't compare very well. And the -- I mean, that a not so good performance in some aspect is always a potential opportunity to improve. So this is obviously a theoretical at this stage, opportunity to maybe improve the profitability ratio of Luminor in the future. Now Page 9 shows this kind of the level of digital maturity of the markets and the scarcity of branch coverage. As you can see in all the 3 countries, Luminor itself has 18 branches only. So it's already primarily digital. And again, with this new mobile app, which they just came out, it's called Luminor Blue, we believe that they will be able to compete even more effectively on the digital front. So that's -- I mean, what we can say about the story. Obviously, we have to go through the approval process, and that is going to take some time given that it's ECB and also the authorities in all 3 countries, which are relevant here. So it is going to be a process taking some time, but we do everything on our side and on the side of the sellers to make it as fast as possible. And we very much hope that the process will be objective and fair. And in that scenario, we don't see any major roadblock to success. On Page 10, we go back to the kind of usual series of slides, starting with the story in Hungary. So the Hungarian results were even more affected by the one-offs what I kind of explained. I didn't explain the quarterly decline on Page 3 on the group level, but I'm going to do it here because the reason for that came from the Hungarian numbers. I mean, there were 2 events or 2 factors here. One, I already talked about, and that's the interest rate cap we booked. And again, it was HUF 30.4 billion pretax and HUF 26 billion after-tax impact. All of this was obviously in the core in Hungary. Plus on a quarter-to-quarter basis, there was another line, which impacted the quarterly difference. And that is the -- on the kind of other income side. the fair value adjustment of the subsidized loans. Now this is a rather large and growing portfolio. It's now more than HUF 2 trillion. It's like HUF 2.2 trillion, HUF 2.3 trillion and growing portfolio in Hungary in local currency in Hungarian Forest. I mean it's getting closer to EUR 5 billion equivalent, right? Now we have to fair value adjust this portfolio. And also if there's any kind of swap interest rate swap related to this portfolio, also those swaps have to be fair value adjusted because we can only do hedge accounting or I mean, I would rather say hedge accounting cannot be done if the underlying asset is actually mark-to-market on a fair value adjustment basis. So this is rather big portfolio. And if the yield curves shift and change their shapes, then the quarterly impact can be actually quite sizable. And what happened was that in the first quarter, we had HUF 20 billion plus. And in the second quarter, we had HUF 20 billion minus impact coming from this. And that created the difference of HUF 40 billion between the 2 quarters. And in Hungary, on top of these 2, there is -- we also revaluated negatively some investment in subsidiaries, but that only has an impact on the numbers in Hungary on the local numbers. On the consolidated level, they are eliminated, so they don't appear. They actually appear positively because they create a tax shield in Hungary. So the impact of this is actually positive somewhat because of the tax shield on group level. But the other 2 obviously appear on the group level as well, the HUF 26 million and the HUF 40 million and these 2 were the reason behind the quarterly decline on the group level as well. And they are also the reason behind the quarterly decline on the quarterly level in Hungary. Now the good news is that in Hungary, despite -- I mean, in the first 6 months, so if you take the 6 months altogether, then this fair value adjustment of subsidized loans had a very small positive impact, HUF 1 billion or so. So the good news is that on a kind of year-to-date level, there's not much impact, but on a quarterly level, there is. But -- and the other good news is that actually, if you compare the first half of the last year, again, this pro rata prorated recognition of one-offs, then the increase in Hungary was 15%, even including the cost of the interest rate cap, right? And that obviously comes from, a, from the improvement in the net interest margin, which you can see here on this slide and also from the very strong growth in the portfolios. I'm going to talk about that, the growth rates of the loan portfolio and the deposit portfolio, both are very positive in Hungary. Now one more remark on this slide, the credit risk cost rate in Hungary was 55 basis points in the first half, which is much higher than -- I mean, higher than last year. Now again, the entire growth here was due to the fact that we booked most of the cost of the interest rate cap prolongation here in -- among the risk cost. If this was not there, if it didn't happen, then -- or it had not happened, then we would have had 1 basis point credit risk cost rate in Hungary, so pretty stable portfolio. Okay. A few more details in Hungary, Page 11, you can see the growth of the home start program. It continues. Second quarter was just as strong as the first in terms of new applications. And so far, we haven't heard about modifications of the conditions. So as far as we understand, the program continues. And as usual, when there's a surge in demand and especially when the demand is shaped by availability of subsidized programs and subsidized loans are typically more complicated to process in terms of applications than market-based loans because clients have to approve their eligibility and the structure is usually more complicated. It requires more longer and deeper and more skilled interaction with clients in these situations, typically, our market share increases. And indeed, this happened during the first half of this year. Our market share from new production of mortgage loans went up from this kind of low 30s, which we used to have to close to 40%, which is also something we are quite happy about. Following page shows the other retail segments and how they fare. Okay. Cash flow has continued to be strong. The baby loan program continues. Again, we haven't heard about changing conditions. There's one interesting number here. It's the market share in retail deposits. As you can see, there was some decline in the second quarter, which also shows up in the year-to-date numbers. So we ended the year last year, 41.2%, and we went down to 40.4%. Now this is in our understanding, due to a technical -- a development that a digital bank, which is active in the region started to localize its client base, and they switched the IB numbers of their Hungarian clients to Hungarian. And apparently, in our understanding, they were actually part of the total market number at the end of '25 and the first quarter, which was, in fact, not quite a case because they were part, but with a 0 volume. So technically, this localization and the deposit volumes of this digital player who has clients in Hungarian clients starts to appear in the overall market numbers technically from most of it at the end of June. We don't know exactly, but our understanding is that most of these volumes appear at the end of June, but maybe some part are going to come through in July, maybe August. But certainly, by the end of August, we should see the impact on the total market numbers coming from this technical reporting change. And that resulted in this decline. But overall saving market share increased, but that is just May numbers, so that's not June. Okay. Corporate, a few words in Hungary. It looks good. Again, we were probably one of the very few banks last year who started to grow and the growth rate even last year was quite strong in large corporate and in micro small. Now the good news is that the large corporate growth continued into the first half. And the even better news is that micro small accelerated quite substantially. We have 14% growth in 6 months in micro small corporate loans in Hungary. And as a result of this, our market share continued to increase in terms of loans to Hungarian corporates and now it reaches 22%. A brief overview of our non-Hungarian operations. So these are the foreign group members or outside Hungary group members. I mean, the overall performance is quite stable, I would say, in terms of profitability. We will go more details into volume growth in loans and deposits in the coming slides. But if just looking at the profitability, it's typically stable with some exceptions. So the exception -- the biggest improvement we see in Uzbekistan in terms of return on equity compared to last year. And that's due to the fact that the share of consumer loans, which have higher margin than other loans increases, plus we managed to somewhat optimize the the cost of funding, the deposit rates and the cost of deposits. And that translated into better margins and that translated into higher earnings. Now on the negative side, we have Russia, where we have a trend like decline in profitability. And this is linked to the fact that what I kind of explained at the beginning of the presentation that income, the fee income and other income lines declined in Russia in line with the decline of these overall activities, this transactional activities of our primarily European corporate client base. We also have decline in case of Ukraine, but that is not at all related to the business performance. As you can see, return on equity went down from the kind of high 20s to 17%. But that's due to the fact that the corporate tax doubled. So last year, we had 25% this year, 50%. And even with 50% corporate tax rate, we made 17%, which is kind of okay. The other kind of smaller magnitude decline happened in Serbia. In Serbia, that's not as drastic, but there's also a kind of rate cap primarily for consumer loans, which was introduced last year. And that to some extent, this actually contracted our margins in Serbia. So that is -- that's why we have somewhat lower return on equity in Serbia than last year. Now going back to the kind of cross-section slides, maybe one briefly looking at the margin. So there was not much but 3 basis point improvement, at least it's positive quarter-on-quarter in the net interest margin. And you see the biggest components of that. So Hungary was unusually in this period, negative, but the reason behind that was not that I mean, product level margins declined, it was because there is a surge in the overall total assets. So the nominated 6% growth quarter-on-quarter on the balance sheet, and that came primarily from intragroup placements. So intergroup -- so I mean placements of the subsidiaries in Hungary increased quite substantially, and that's obviously a close to 0 margin activity and also corporate deposits had quite a surge and that also a relatively low margin liability side product, especially compared to retail. And so this kind of composition impact in Hungary. Uzbekistan was positive and the other 4 basis points came from, again, composition. So the lower-margin countries had lower growth and the higher-margin countries at higher growth. Rate sensitivity to the euro rate and half freight, they have not changed much. So EUR 120 million to 1 percentage point to the euro and HUF 23 billion at 1 percentage point to the half rate. Looking at volume dynamics, we are quite happy to see this slide, slide again, 8% growth in 6 months and the quarterly increase was 5%. So there's acceleration in the growth rate compared to the first quarter. And you can see the particularly high performance, highest Ukraine and Ukraine decided to kind of turn on the tap and I mean, the growth rate is high. Nominally, this is not -- you can see the nominal numbers in terms of growth. So this 18% growth in Ukraine was nominally less than 10% of the nominal growth in Hungary. So -- but I think this shows our commitment to the country and I believe that business can be done profitably in this -- even in this environment, and we also consider this as an investment into the future of the country. Obviously, the biggest country is Hungary, Bulgaria did very well, double-digit growth in 6 months. And in Bulgaria, this is the kind of post Eurozone recession impact. And in Hungary, this is primarily fueled by the housing loan subsidized program, 17% growth in the first half in 6 months in mortgages in Hungary, right? Now the only kind of laggard here is Uzbekistan. So I showed you that in terms of profitability, Uzbekistan, in particular already started to improve. But in terms of growth, and they are not there yet. Now the new development here is that we have changed the CEO. So we have a new CEO, who is a Hungarian gentleman who joined 2005, I guess, to my team in finance and he is a very seasoned and very good manager. He has been the CFO, the Chief Financial Officer of Ipoteka since we acquired it. So he's taking over the leadership of the bank. And we -- especially personally me, I believe that this is going to give the right boost to the performance. And I personally expect visible improvement over the course of the -- even the next 6 months compared to what we have achieved so far. Deposits, year-to-date, 6%, again, strong. especially strong in Hungarian retail and in Bulgarian retail, which are very profitable. I mean these are the potentially the most profitable products across the group. So that is certainly very important. So overall, a good picture. Quarterly numbers, I'm not going to dial or kind of detail. But again, I think the headline is that 5% first 6 months, loan growth was 8%. Second quarter was 5%. So there's some acceleration in the growth rate that we have seen. In terms of portfolio quality, stable, coverage also stable. And again, the risk cost rate, second quarter was higher, but that was due to the fact that we booked this one-off charge for the rate cap as the risk cost, most of it. In terms of capital position, 17.6% Tier 1 ratio. You can see that is strong. You can see the year-to-date development of the factors and the decomposition. So the kind of profit -- the normalized profit generated 1.9 percentage points common equity Tier 1 percentage point Tier 1 equivalent. So that shows the capital generation potential. Yes. In terms -- I mean, is it high? Is it low, 17.6%? You may -- I'm sure there will be questions about this. I mean, we believe that this 17.6% is somewhat higher than the optimal. If we believe that the optimal is that we want to be at the kind of one of the strongest in this pack in this group of comparable banks. And now we seem to be quite at the kind of an outlier in the higher end. [indiscernible], obviously, because of the large exposure in some high-risk countries, they may not be the best benchmark here. But the good news is that we found the solution, and we hope that we -- I mean not just hope, we believe we find a solution which actually creates value for shareholders, and that is an acquisition, with the Luminor acquisition, we believe will bring this ratio to this range with the kind of target compared to these banks. In terms of liquidity, I mean, liquidity remains stable. Loan-to-deposit ratio 78%, liquidity coverage ratio above 200% and stable funding above 150%. And in the second quarter, we made a benchmark Tier 2, and now we moved the benchmark up from HUF 500 million to HUF 1 billion. So this is -- this was our largest ever issuance, and we consider it quite successful. So that further strengthened our not just our capital, but also our liquidity position as well. Having said that, we are still not very much levered. The leverage is quite low. So if you look at the total wholesale debt to total assets, it's 8%, which we consider still quite low. We were -- I mean, in 2008 when the global financial crisis hit us, hit us hard, that was actually 25%. So this is -- you consider comparatively low still. There hasn't been much movement on the rating. However, we are potentially optimistic in terms of the future coming from 2 factors: one, that the new -- the economic policy of the newly elected government in Hungary are obviously, we believe rating friendly. So obviously, they will also have to deliver and not just set targets and policy frameworks, but a good framework is important. Delivery is even more important. But that that makes us optimistic in terms of potential future rating developments. And the other factor is, I mean, obviously, buying an asset in 3 Eurozone countries with a better rating than ours should have a positive impact on this consideration as well. Another outside in perspective on us -- I mean, I'm sure it's not a big thing for you because you are investing in many very successful large global companies. But for us, it was actually quite important that our ranking in the Forbes Global 2000 improved considerably. And now we are in part of the elite group of top 400 entities, corporate entities. So that's something we are quite happy about. And then some more kind of self-marketing slides. There's not much change on this, Page 26, 27. We have seen these. We continue with green lending. So on 28, you can see you may remember that we set this target to reach HUF 1.5 trillion equivalent of green loan stock. We did that in '22. We overachieved at the end of '25 and -- but we did not stop. We didn't want to stop. So this has further developed and now we are close to HUF 2 trillion green loan stock volume. That's -- I mean, that's getting closer to HUF 5 billion. And maybe a few words about expectations. In terms of macro, I mean, there's volatility, I'm sure you are also very much subject to coming from the war in Iran and the strategy -- the U.S. strategies regarding that difficult situation. And so therefore, expectations are volatile, so to say. But if we put that -- and plus it's the heat and the drought and the scarcity of water is -- actually, it's a current issue in Hungary. But nevertheless, we believe that it's not going to have a major material impact on the overall kind of forecast numbers for this year. So we still believe that these are the the expected numbers. Now what we see kind of as a kind of regional trend that we have had a couple of years when Southern Europe, the Mediterranean has done better and the kind of Central or Northern Europe has been somewhat not so better, but some normalization seem to happen. So the Mediterranean seem to, at least in our portfolio, where we focus on seem to kind of slow down somewhat and Central and Northern part of Europe starts to kind of perform somewhat better. So there's some normalization on this growth difference what we have had during the last couple of years. Other than that, we don't see a major impact on the macro other than what we kind of talked about that potentially higher energy prices translate into higher inflation and higher rate environment, at least temporarily as long as the conflict lasts in the Gulf. In terms of guidance, we decided to modify some of the guidance in one respect regarding the net interest margin. Again, it's I think we can reasonably safely predict that the net interest margin this year is going to be higher, exceed last year and not just to be around it. On all the other lines, we keep the previous guidance and you can judge yourself whether the risks are up or down on those lines. There's a bunch of other cross-section slides going through each line of the balance sheet -- the P&L, sorry. So if you have interest or if your questions or target that I'm going to talk about but not part of the formal presentation. So I'll finish here. And I'd like to ask you to ask your excellent questions.

[Operator Instructions] The first question is from Gulnara Saitkulova, Morgan Stanley.

When it comes to Luminor, where do you see the greatest opportunities to create value under your ownership? At the same time, what do you see as the key execution risks associated with the acquisition, both in terms of integrating the business and operating in a market where OTP has not previously had a presence. And you mentioned that you aim to become #1 or #2 in the Baltic market. However, the Baltic banking market is highly competitive. There are well-established Nordic incumbents as well as digital challengers such as Revolut. What do you see as OTP's and Lumina's key competitive advantages in this market? And how do you plan to strengthen Luminor's competitive position over the medium term? In addition, on the Slide 8, you highlighted that Luminor's cost-to-income ratio is materially higher than that of the Baltic peers. What are the main operational levers you intend to pull to improve the efficiency and narrow this gap. Do you think this will require a material upfront investment from your side? And are there any areas of the business of Luminor where you can see scope for improvement or the profitability?

Wow, that was a very detailed question. Now -- well, what I said exactly was that we would like to challenge the market leaders. And if you look at the numbers, they have 12% market share across the Baltics in terms of loan, the #2 player is 21. So that's quite a big gap. And this should -- I mean, as an aspiration, this gap should be closed or at least should decline. I mean that's -- what else would be a target to buy a bank than to grow it, right? And again, I don't think it's a secret that we may look into other acquisition opportunities in these markets. to strengthen the position of Luminor through acquisition. It's typically not easy to grow through market shares organically. That's usually a very costly exercise. Nevertheless, possible. Now all of your other questions, I have answers to more or less, or we have strong views on those, but I don't think I'm able to share with you. I mean we have a nondisclosure agreement. So I cannot tell you anything, which where the information comes from other than publicly available sources. So at this stage, we are -- we won't be -- I won't be able to have an answer because operational levers and so on and so on and how to improve the cost-to-income ratio would mean to share with you information, which I'm not allowed to do, right? So this is -- so therefore, I think we have to -- in terms of communication, we have to remain on that level. So if you go to Page 8, I think it's very clear that there's an opportunity. If bigger banks and even smaller banks can operate with a much lower cost-to-income ratio, then there may be an opportunity to improve this. But to be -- but I'm not in a position to share with you where, if at all, we see opportunities, right? Because I mean it's just -- I mean, we have not closed the transaction. And in terms of risk of integrating the bank, I don't see. I mean we have done this -- I mean, we acquired 14 banks in the last 12 years, and many of them were in new markets. And some of them were much, much less developed in terms of the market where they operate, in terms of the supervisory environment they operate and in terms of their operations or management. So I think the risk of integrating Luminor to OTP Group is much less than the risk what we have faced in most of the cases in this -- during the last 12 years throughout these 14 acquisitions, either because the country and the entity was less developed or -- and/or because we actually had to merge entities. There's no merger here, right? So it's just -- we only had to include it into our kind of group activities. Plus, again, I think this is -- you may consider this sensitive, but maybe not because -- I mean, you know the names as well of the management team. We consider the management team quite strong. So we -- no, we consider this as low risk in terms of integration to the group. I'm sorry, I'm just not in a position to answer your very detailed and very pertinent questions, I must say. Indeed, these are the right questions to ask. And these were the questions what we asked ourselves when we did the due diligence and when we did the modeling of the expected financial performance.

The next question is from Gabor Kemeny, Autonomous Research.

Can I please follow up on Luminor. I think the way you phrased it that you were hoping for a fair and objective approval process here. How concerned are you that this may not be a case? I mean some of your approval processes in previous M&A deals like Slovenia has been dragged on for quite some time. We saw some press reports about OTP's Russian exposure coming up. So your views on this would be interesting. Secondly, on your point of high advanced digital adoption in the Baltic markets. I mean, what is your point here? I mean, does this mean that you might actually not have too many low-hanging fruits to save on costs? Would this mean that the rest of the organization can potentially learn from the more digitally advanced Baltic operations? Or could this mean that like how do you think about the physical branch -- the physical network of 18 branches? Is this the optimal level? Your thoughts on that would be helpful. And then finally, on the home start program and Hungarian loan growth topic, what are your latest thoughts about the sustainable growth rate here? I think you mentioned on a previous call when we spoke about it that the mortgages could potentially grow at a double-digit rate even without the subsidies, but it would be interesting to hear your thoughts to what extent are we seeing a front-loading of demand ahead of the market potentially moving to standard rate?

In terms of the approval process, indeed, it's a very -- I mean, put it this way, the nature of OTP Group is somewhat politically sensitive in the Baltics. And we have to -- I mean, and we openly acknowledge that sensitivity and take it very seriously. So this is -- so we -- I think we have to put an effort into transparently communicate what we do, how we do it and why it's not -- it should not be a problem for any of the Baltic countries and some and somehow communicate the story, our strength, what we have achieved, what we typically bring to a country and what we could bring to Luminor and also our commitment and dedication in supporting Ukraine and taking the risk there and being potentially the most active non local banks in terms of growth rates and everything. So I think we have to make a good effort to create a transparent and fair view of the group and somehow focus on the facts and the objective parts of the story. We cannot, and we don't want to be kind of politically involved. But as we have seen across Europe, cross-border acquisitions can develop into local -- can become part of local political discussions or agendas, right? In case of much bigger countries, we have seen that happening. And that's -- I think this is unfortunate in Europe. This is not healthy for Europe. But this is there. We have to take it seriously, and we will take it seriously. Obviously, we have consulted with the local supervisors and with ECB prior to this transaction. And also these discussions made us believe that objectively, there doesn't seem to be any potential big roadblock to a transaction. But nevertheless, it will take time, and we have to manage this process or kind of contribute to this process as much as we can. I think this is what I can say at this stage. In terms of the nature of digital development and why I think it's good because you are as strong as you competitors make you, right? You get better and stronger by competing with better and stronger competitors. So actually, it will be a potential mistake to stay out of one of the most developed markets digitally in Europe because then you are not part of the real happening, right? And yes, I mean, the -- I'm sure we will learn from these markets and learning, which we can apply in some other parts of the group. But I also believe that we can contribute from quite broad experience what we have in terms of different geographies and market situations and potential developments. The [indiscernible] Start Program, I mean, I think the first question, I mean, your question was very good, but even more exciting question, I think, is how long this is going to continue. And so far, we don't see the end of it. So we haven't heard any plans to change the structure or the level of subsidy or whatever. So this is certainly -- as far as we can tell, this continues. And obviously, the longer it continues, well, there will be -- I mean if -- I mean, we take this commitment by the government to join the Eurozone seriously. The time line what they said was quite short in 3 -- in 4 years. So by 2030, they want to be ready to join Eurozone. And that means that that assumes a quite rapid fulfillment of criteria and a normalization of the rate environment quite rapidly. And that means that the difference between the kind of subsidized rate, which is kind of maximum 3% for clients and the market rate is not going to -- is going to be less and less different. Therefore, as we go along in the future, I mean, go more into the future, the difference should be less and less between the subsidized and the market rate. So in this sense, I mean, that means that the attractiveness of the program, if it doesn't change, is going to diminish because this relative attractiveness is going to be less and less and the potential negative impact should the program end or be substantially changed be less and less. But I think it's still reasonable to assume if in a kind of business as usual environment, we should be in the kind of lower teens, I mean, around 10%, 15%. Having said that, if we look at what happened in Bulgaria closer to joining the Eurozone and after joining the Eurozone, I mean, we have very strong loan dynamics. We have had like 2, 3 years of more than 20% growth in Bulgaria mortgages. And we are still -- I mean, year-on-year, we have 35% as fast as Hungary, right? Now Bulgaria mortgages are special because they're the benchmark is the deposit rate, and that's on the market and that's 0. So it's very specific and rather cheap, but still strong growth. And and Bulgarian penetration level is twice as much as in Hungary. Housing loans to GDP in Bulgaria is around 40% in Hungary, it's still around 7%. So if you -- if we believe in this recession scenario, policy scenario, then maybe even without this subsidized structure in a few years, we can get to 20-plus percent. I mean that's what the experience in Bulgaria suggests, right? We'll see. But for us, the more immediate question is that how long is it going to continue? And that we don't know. I mean, the current subsidized structure.

The next question is from [indiscernible]

I would like to ask about the Russian situation. You mentioned decline in profitability. But I want to check if the bank in Russia handles oil and gas payments from Western Europe to Russia. If you can give some color on this. And the broader question is what are your expectations about a resumption of upstreaming of dividends from Russia?

As we have been clear about this, we do cross-border transfers between European counterparties and Russian counterparties and counterparties in Russia and European counterparties, typically serving our clients in European corporate clients in Russia within the framework of the sanction rulings and rules and being extremely focused and rigorous on compliance. I mean we -- exactly what clients and what details I probably should not go into more details on this, but we -- I mean, strategically, by far, the first and most important target or goal is to fully comply and especially to the sanction regulations. So everything what we do is within the context of detailed sanction regulations. And whenever there's a potentially sensitive transaction, we do consult with the relevant authorities I mean, outside Russia. So that's what I can say on this. Dividend upstreaming, we will submit an application for dividend payments based on the first half results, and we are hopeful that they will be approved and we can resume the dividend payments. So we are going to try. I hope silence means sufficient answer. So maybe we can go to the next one.

Yes. The next question is from an attendee joined via phone. I open the line. You'll receive an automatic message about it. May I ask the name and the company please.

It's Jovan Sikimic from ODDO BHF. I was just interested in what about, let's say, your earlier thoughts on expanding the footprint in Central Asia, if it's still valid? And after [ Romino ]deal probably will not take as much capital as initially thought. Can you give us a bit of an update about capital returns going forward, I mean, in terms of potential new share buybacks this year?

The attractiveness of Central Asia has not changed. We continue to consider the region attractive, and we continue to look into every meaningful opportunity in the region. Sure. that's not a guarantee, obviously, for any new event or transaction. But our interest remains, and we are going to continue to monitor these markets and seriously consider opportunities if they come up. In terms of capital returns, I mean, our approach to share buybacks have not changed. So we announced them when we receive an approval from our supervisor. And -- but I think it's fair to say that we are going to submit application, but I'm not -- as usual, we are not telling that how much and when only at the time, only on the day when we receive the regulatory approval. In terms of -- I mean, the other part of capital return is dividend, obviously, I think I can say as much as that this acquisition does not change our dividend aspirations, so to say, or our views on how much dividends we intend to suggest to pay. Having said that, we don't have a formal dividend payment policy and the payout ratio target. But I think it's fair to share with you that our internal thinking and discussions, this Luminor transaction does not change how we think about future dividend payments.