ProCredit Holding AG ($PCZ)

Ladies and gentlemen, welcome to the Full Year 2025 Results Conference Call. I'm Sargen, the Chorus Call Operator. [Operator Instructions] The conference is being recorded. The replay of the conference will be published on the ProCredit Holding website in the Investor Relations section. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Eriola Bibolli. Please go ahead.

Good afternoon from Frankfurt, and welcome to our call to discuss ProCredit Group's results for the Fourth Quarter and Full Year 2025. My name is Eriola Bibolli, and since the beginning of this month, I am the Chair of the Management Board of ProCredit Holding. This is the first time I'm speaking in this setting, and I want to take the opportunity to introduce myself. I joined the Group more than 20 years ago. And in many ways, my entire professional life has been shaped by ProCredit. Over these 2 decades, I have had the privilege of witnessing, firsthand, the very important role our Group has played in the development of the countries we operate. Since its inception, our Group has been dedicated to building strong, transparent and well governing banking institutions in countries and markets that were, in many cases, still in transition. In Kosovo where I worked for 2 decades. ProCredit Bank played an instrumental role in the reconstruction of the country, laying the foundations of the financial system architecture that was being established as well as to supporting largely the economic and private sector development through dedicated commitment to SMEs. At a time when the country had begun to rebuild its institutions and economic foundations. ProCredit Bank in Kosovo has consistently promoted transparency, responsibility, robust corporate governance, helping to build trust among clients, regulators and international investors, values that were not common in the market at the time. Equally important has been the Group's long-standing investment in people through extensive trainings and a strong institutional identity and culture. Over the years, thousands of finance professionals have grown and developed within the ProCredit environment. Today, many of them continue to shape financial systems across our markets by holding leading positions in financial institutions, international organizations and government entities. Taken together, the Group's impact in our markets extends beyond banking. It has contributed to institutional building, to sustainable economic development and help lay the foundations for more professional, more stable and more inclusive financial markets in the region. We have been part of that journey it has been both inspiring and deeply rewarding. And it is now privileged to take on this role at a time when the Group is entering the next stage of its development. Joining me today is Christian Dagrosa, our Chief Financial Officer, who I'm sure does not need an introduction. We expect today's presentation to take slightly longer than usual as we will provide a more detailed update on the execution of our business strategy, a journey that began 2 years ago. The slide deck accompanying our discourse today has been made available on our website. After our presentation, as usual, we will allow sufficient time for questions. Before we begin, let me also draw your attention to the customary disclaimer regarding forward-looking statements, which is included at the end of the presentation. Let me briefly walk you through today's agenda. I will start by outlining the key developments in 2025 and where we stand today in the execution of our strategic roadmap. Over the past year, we have made strong operational progress, while advancing our strategic transition and we'll provide some context around both. Christian will then take you through the Group's financial results in greater detail, including the key drivers behind our performance in 2025. Finally, I'll come back to the Group's outlook, both short and medium term, and share some broader context on the opportunities ahead. 2025 has been a year in which our strategy has firmly moved into execution mode. Loan and deposit growth was strong at around 13% without currency effects, driven primarily by the continued expansion of our core customer segments. This reflects both strong demand in our markets and the strengthening of our position with SMEs, micro enterprises and increasingly retail banking clients. 2025 showed a particularly encouraging progress in terms of the structural growth with more than 60% of new deposits coming from site and savings deposits compared to the previous year. We are now beginning to deliver on the greater granularity in our funding structure which will support stronger net margins over time. From a financial perspective, our results are in line with the updated guidance we communicated in Q4 last year. Return on equity is 7.8%, within the expected range of around 7% to 8%, but below our initial outlook for the year. Christian will cover the details, but the broader context of these results is shaped by the substantial investments in digital infrastructure, operating model transformation and the scaling of our retail banking franchise. The transformation of our technology and digital capabilities, which will shape, not only our retail banking, is progressing at an accelerated pace. Core digital service solutions have now been fully rolled out in ProCredit Bank Kosovo, which effectively serves as a blueprint for other banks in the Group. Launches in several additional banks are already underway, and we expect the majority of implementations to be completed during 2026. It is worth noting that we confirm our interest to divest our operations in Ecuador. We are confident progressing with these efforts, and we expect to finalize the divestiture during 2026. The transaction is anticipated to have a financial impact in the profitability of the group, which is reflected in the ROE for 2026. Overall, we view 2025 as a year in which the foundations of our strategic transition have been firmly laid, while the medium-term trajectory we outlined 2 years ago particularly the ROE target of 13% to 14% remains fully on track. And of course, we firmly intend to deliver on our dividend policy this year as well, and we plan to propose a dividend of EUR 0.47 per share to the AGM in June this year. This slide rather complements my summary on the performance, so I would note well. Loans grew at a solid pace, around 13% adjusted for currency effects, while deposits expanded at a comparable rate driven largely by retail customers and mainly inside and saving accounts. Asset quality is robust, even though our Stage 3 ratio increased and Christian will provide more insights. And our capital position remains strong with a CET1 ratio comfortably above regulatory requirements at around 13.1%. Taken together, these results reflect the banking group that is ambitiously growing its business, while making significant investments in its future operating platform, positioning itself to unlock substantial value for its shareholders. One of the most encouraging development since the launch of our updated business strategy in early 2024 has been the strong loan growth in the low volume segments. Micro business lending and smaller volume loan exposures have expanded particularly strong with volumes increasing by roughly 43% in the last 2 years. This segment is strategically important for us. It broadens the base of our SME ecosystem, creates a more granular portfolio structure and supports lending margins. In parallel, we have seen a clear acceleration in retail client deposits, which have grown by 40% since the end of 2023, reflecting our increased focus on this segment. Notably, much of this growth has been achieved without the full supporting infrastructure progress place, highlighting the significant upside for that potential as we accelerate these developments in 2026 and 2027. We are seeing clear evidence that the ecosystem approach we are developing across SMEs, micro enterprises and retail customers is beginning to gain traction. Our growth momentum is visible across the entire region we operate. All ProCredit banks is Southeastern and Eastern Europe are currently expanding their client base and loan portfolios are healthy, supported by favorable macroeconomic conditions and our strong positioning in the MSME segment. During the year, we surpassed an important milestone, more than 80,000 SME customers across the region. This underscores the strength of our SME franchise, where our ability to build and maintain trust-based long-term client relationships, combined with the high quality of our holistic banking services, creates a differentiated value proposition and high barriers to replication. At the same time, we are beginning to see the early impact of our renewed focus on digital retail banking. In the Group's early years, Retail Banking was actually an important part of our business model. Over time, the focus shifted more towards SMEs. Today, with the digital capabilities we are building, we believe we have a unique opportunity to reestablish a strong position in retail, this time as a modern digital-first bank. The macroeconomic outlook for our region continues to be favorable. Growth prospects in Southeastern and Eastern Europe remain significantly stronger than in Euro area. Many of our countries continue to benefit from structural convergence dynamics, strong domestic demand and ongoing foreign direct investment. Inflation levels have stabilized and remained comparatively moderate, while consumption and investment continue to support economic expansion. Another important structural factor is the continued momentum around EU accession processes in several countries. In Bulgaria, the adoption of the euro, which came into effect in January this year represents a particularly significant step which is expected to further stimulate investments, tourism and cross-border trade, while eliminating foreign exchange risk for business and financial institutions. The war in Ukraine unfortunately remains an ongoing human catastrophe, a major factor of uncertainty for the region and the continent as a whole. However, International institutions continue to show strong commitment to support the country and the entire Eastern flank and economic resilience has been notable. Regarding the impact of global development, the discussions around the new tariff system has had limited direct impact on our countries so far due to the limited interconnectedness of the economies of our countries with the U.S. economy. Notably, broader geopolitical tensions, particularly the recent escalations in the Middle East are creating a new wave of uncertainty for the global economy. While we are monitoring these developments closely, at this stage, we do not see direct specific vulnerabilities for our region nor for our core customer segments. As mentioned, I want to spend some time on strategic priorities in today's call to provide transparency on where we stand today and on what we plan to execute in 2026. Our strategy is built around 3 core priorities: profitability; growth; and positioning. Our focus on profitability is about unlocking the value that remains untapped in our business model. By expanding the balance sheet through a modern, scalable digital banking infrastructure, we can realize the full growth potential of our business. We can achieve stronger volume growth, while simultaneously restructuring our balance sheet into more granular and diversified positions, which will help improve margins on both sides. Additionally, deepening client engagements and improving strategic cross-selling will boost noninterest income across both current and future clients. Our growth focus is on scaling operations and attracting more new-to-bank clients. Over the medium term, we aim to grow the loan portfolio beyond EUR 10 billion and reach a critical size in each market as well as the critical size for the Group, overall. And finally, positioning. We aim to further strengthen our position as a leading bank for MSMEs by deepening the house bank relationships with our clients. At the same time, we are establishing a new identity as a regional digital attacker in retail banking, aiming to deliver a highly convenient and a trusted mobile-first daily banking experience. At the heart of this strategy is a triple-engine ecosystem created through the interaction of our SME, micro and retail customers. SME clients remain the cornerstone of our franchise. They form the backbone of our competitive advantage, our strong brand and the defining relationships in our markets. Through these connections, we gained deep insights into local business networks, including owners, employees, suppliers, their own social networks, all of whom represent potential retail clients. Micro businesses are often directly embedded in these supply chains with a highly automated operating model and the digital lending capabilities we are building, this segment can scale significantly and efficiently. We currently serve roughly 30,000 micro customers, and we see substantial room for further expansion. Retail Banking provides a strong foundation for our funding model. By tapping local markets, we are building a broad and diversified deposit base made up of granular low-cost balances. This does not only strengthens the stability of our balance sheet, but also creates opportunities to scale our lending, support SMEs and micro businesses and deepen our relationship with communities. In short, a retail-driven funding model allows us to grow sustainably, while unlocking long-term value. The strength of our triple-engine business model, SME, micro and retail lies in its ability to create both value and profitability. By working together, these segments create a mutually reinforcing ecosystem that allows ProCredit franchise to reach its full potential. The transformation of our digital capabilities is one of the most important initiatives currently underway, and it goes well beyond establishing a just strong retail banking franchise. At its core, we are building a scalable digital banking platform while maintaining full technological sovereignty and alignment with our responsible banking model. For clients, this means a fundamentally improved banking experience. A new mobile banking application for retail clients was launched in mid-2025, representing a major infrastructure milestone. It enables fully digital onboarding, seamless account opening and increasingly also straight through digital lending journeys for retail and micro clients. At the same time, new features are continuously being rolled out across markets for both MSME and retail clients. But more importantly, we are also transforming the way we operate. Our delivery model is increasingly organized around agile squads and product-oriented teams. AI-supported development tools and automation will help us accelerate increasingly more software life cycle and reduce time to market. From a technology perspective, we are modernizing the core banking platform and introducing micro service architecture with expanded APIs and a stronger data foundation. This will allow us to truly scale the business over the coming years. At last, let's have a look where we stand today. Over the past 2 years, we have focused heavily on building the capabilities and infrastructure required for digital scale. We have modernized large part of the core banking architecture and launched our new mobile banking application in 4 banks. Digital onboarding for retail clients has already been introduced and the first steps towards automated consumer lending have been implemented. ProCredit Bank Kosovo, as mentioned earlier, has effectively become the full implementation of this model, and it is our first bank with a mobile-first retail banking model in place. In 2026, our focus shifts to large-scale rollouts across the group. For retail banking, this includes deploying the new mobile app, digital onboarding and digital lending capabilities across the remaining banks. For MSMEs, we will launch end-to-end digital loan origination processes for micro customers, and we will introduce new Internet banking capabilities for SMEs. The remaining solution rollouts in 2027 include credit card functionalities and advanced CRM capabilities. Beyond the timeline, Digital innovation will continue to be a core focus for the group. It would be an illusion to think of digitalization as a one-off transformation with a defined end point. Rather, it is an ongoing process that requires constant refinement of our technology platform, operating model and customer experience. New technologies, evolving client expectations and regulatory developments, will continue to shape the way banking services are delivered. Our objective, therefore, is not to simply complete a set of rollouts and developments, but to establish the capabilities and organizational structures within our Group that will allow us to innovate continuously and to adapt quickly as the digital landscape evolves. Looking ahead, our ambition is to transform ProCredit into a Banking Group capable of generating returns on equity of approximately 13% to 14% and with potential upside. Several drivers will support this trajectory. First, scale, automation and operational efficiency as we expand the client base and reach critical size in each market. Second, we will deepen the SME house bank model, while scaling micro segment through automated processes. Third, we are building our retail banking into a regional digital banking franchise with a seamless mobile-first experience. Digital excellence will be the foundation for faster execution. Greater efficiency and more effective capital deployment. Meanwhile, our balance sheet will become increasingly granular as micro and retail exposures expand. From an operational perspective, our medium-term KPIs are clear. Grow the number of active clients across all segments, increase the share of micro and consumer loans, increase the share of retail customer deposits to 50%, mainly in current and savings accounts, drive digital usage above 90% among retail clients and ensure more sales are executed digitally. And finally, we continue to focus on capital efficiency, including reducing the Group's RWA density to below 60%. We have made good progress on this in Q4 2025, and Christian will share more details shortly. With that overview of our strategic progress and operating environment. I will now hand over to Christian. He will take you through the business and financial performance for 2025 in more detail.

Thank you, Eriola, and good afternoon, everyone, also from my side. Let me begin straight away with the development of our loan portfolio. We recorded strong loan portfolio growth during the year, with expansion across all markets and client segments. On an FX-adjusted basis, the loan book increased by 13.1%. Importantly, about 80% of that growth came from the lower volume segments that are central to the strategic repositioning Eriola just described. Micro lending expanded particularly strongly with volumes increasing by around 42% year-on-year. Retail lending also developed very dynamically growing by approximately 29%. As a result, the share of lower volume exposures in the total loan portfolio continues to increase meaningfully since the introduction of the new strategy in early 2024, the share has risen by 6 percentage points and now stands at around 48%. This reflects the increase in granularity of the balance sheet and demonstrates clear progress in executing the strategic shift towards a broader and more diversified client base. We also saw strong deposit growth during the year, essentially mirroring the strong development on the lending side. Retail client deposits increased their share of total deposits by roughly 1 percentage point during 2025. And and by about 3 percentage points since the start of the strategic transition. But the more important development concerns the structure of deposit growth. In 2024, the vast majority of deposit inflows still came in the form of term deposits which are relatively expensive, especially given the prevailing interest rate environment. This was one of the key reasons why refinancing costs were higher than initially expected, which in turn put pressure on margins and the cost income ratio. In 2025, this picture changed significantly. More than 60% of deposits came from site and savings deposits. This represents a clear improvement in the quality of funding growth and reflects the strengthening of our transactional banking relationships with clients. In our view, this is a tangible sign that the strategic transformation of our retail franchise is beginning to translate into funding benefits, which has already resulted in slight but steady expansion of the net interest margin in recent quarters. Looking at the income statement more broadly. Operating income declined slightly by about 1.1% year-on-year. The main driver was a decline in policy rates during the year, which has led to a reduction in net interest income despite the meaningful volume effects. Lower rates, particularly affected the return on liquidity holdings, especially balances held at central banks, while market deposit rates for customer funding remained comparatively elevated. This goes in particular for term deposits, which as just explained, were the major source of refinancing in 2024. On the positive side, interest income from customer loans increased by more than EUR 21 million or 5%, which would have been enough to offset the EUR 11 million increase in interest expenses. Also positive is that net fee and commission income continued to grow, increasing by around EUR 5 million year-on-year. This was primarily driven by higher transaction volumes and stronger foreign exchange business. This, too, is a sign of ongoing strategic execution and progress as client wallet shares are increasing, and we're expanding in areas that were previously largely underdeveloped such as trade finance. The cost income ratio remains clearly elevated at around 73%, reflecting 3 major factors. First, the strategic investments undertaken in the last 2 years, which from the basis of the ongoing transformation of the Group. Second, the persistently high deposit rates in the market environment, which drive higher interest expenses. And lastly, the continued big earnings performance of ProCredit Bank Ecuador, which accounted for a cost-income ratio of 135% in 2025. Let's move to interest income. In the fourth quarter, net interest income amounted to EUR 92.2 million, corresponding to a net interest margin of 3.3%. Compared with the previous quarter, net interest income increased by EUR 2.7 million, an improvement mainly driven by continued business expansion and increasingly stabilizing weighted average interest rates on assets. On the liability side, market deposit rates remained relatively elevated, which continues to influence funding costs. However, steady structural improvements in our refinancing has helped stabilize interest expenses to some extent. For the full year, net interest income declined by EUR 5.3 million or about 1.5% year-on-year with net interest margin at around 3.2%. The underlying dynamics are relatively straight forward. Strong loan growth drove a significant increase in interest income, but this was offset by repricing effect on assets and persistently higher pricing on the liability side. In addition, higher volumes of term deposits and subordinated debt led to volume-driven increase in interest expenses. While market headwinds are likely to remain, the quarter-on-quarter trends seen in 2025 are encouraging, and we are actively reinforcing the fundamental drivers of this progress. Let's turn to net fee and commission income. In the fourth quarter, net fees amounted to EUR 25.6 million. This represents an increase of nearly 7% compared with the previous quarter, and roughly 5% compared with the same quarter last year. The improvement was broad-based with payments, account maintenance fees, documentary business, car transactions and foreign exchange services, all contributing to the increase. For the full year, net fee and commission income grew by EUR 5.1 million or about 5.5%. Payment Services were the largest contributor, increasing by around EUR 2.4 million. Higher transaction volumes more than compensated for the slightly negative effect from the introduction of Saber payments in some of our markets. Foreign exchange transactions also continued their steady upward trend, contributing roughly EUR 2.8 million in additional income. And lastly, income from Documentary business increased by around EUR 1.3 million which represents a strong growth of 17% and reflects the progress we are making in deepening client relationships within the SME segment. The only area showing a decline was card services with a net contribution decreased by around EUR 1.5 million, mainly due to higher fees charged by card providers. Moving on. Personnel and administrative expenses in the fourth quarter amounted to EUR 91.6 million. This quarter included several seasonal and one-off items. For example, we recognized an impairment of around EUR 2.8 million related to certain internally developed IT assets that are now being replaced by new technology as part of the broader digital transformation. Marketing expenses also increased by around EUR 1.7 million, mainly reflecting targeted campaigns accompanying product rollouts, and IT expenses increased by approximately EUR 1.1 million as the rollout of new digital systems continues across the Group at an accelerated pace. Personnel costs rose around -- rose by around EUR 1.2 million in the fourth quarter, largely due to onetime effects like the recognition of provisions for untaken vacation as well as an increase in severance payments. Looking at the full year more broadly, personnel and administrative expenses increased by EUR 19.7 million or 6.5%. The largest component of this increase relates to personnel expenses, which rose by EUR 12.8 million, largely as a consequence of the significant recruitment efforts in 2024 when the Group added more than 700 employees. The remaining increases mainly reflect higher IT spending and depreciation associated with our investments in technology as well as branches. Turning to credit risk. In the fourth quarter, we recorded a net release of provisions of approximately EUR 5.7 million following the regular year-end update of risk parameters, offsetting some of the extraordinary provisions of quarter 3. Total balance sheet loss allowance now stand around EUR 188 million. The overall level of provisions increased during the year, primarily as a result of strong loan growth and certain credit risk developments. These increases were partly offset by write-offs and some currency-related effects. Management overlays are now at around EUR 50 million, post-parameter review, representing about 27% of total provisions. These overlays continue to provide a prudent buffer against macroeconomic uncertainty and potential credit risk developments. Now let's have a look at portfolio quality. Overall, portfolio quality indicators remain solid. However, the share of impaired loans increased in 2025 to around 3%. This development is largely related to several project finance exposures that we already discussed during our quarter 3 call. These exposures have now migrated from Stage 2 to Stage 3 which also explains the increase in the default ratio as well as the corresponding reduction in Stage 2 exposures. Importantly, this transition has not resulted in a material increase in provisions. Most of these projects related to renewable energy developments, the construction progress has been slower than originally anticipated. The main challenge has been delayed in implementation rather than fundamental project liability. Based on our current assessment, we continue to believe that these projects will remain economically sound once construction and electrification are fully completed. Now looking briefly at the regional distribution of results, the Southeastern European segment continues to represent the largest contribution to the Group's performance, adding almost EUR 100 million to Group profit. Strong loan growth and stable asset quality supported solid profitability across the region. Eastern Europe also delivered positive contributions also thanks to a strong FX adjusted loan growth of close to 20%, including strong business expansion in Ukraine. In both segments, ROEs are between 12% and 15% with cost income ratios at around 60%. Ecuador contributed negatively to the Group result, EUR 10.7 million for the full year. The defining deficiencies remain the same as in 2024, high refinancing costs, cap lending rates and a difficult market environment and with a deteriorated security situation. On a positive note, results have significantly stabilized in the second half of the year, and we expect the bank to breakeven in quarter 1 this year. We expect that stabilized earnings situation will provide a solid off ramp to achieve regulatory approval for the planned divestment. And finally, let me briefly address capital and risk-weighted assets. The CET1 ratio remained stable at around 13.1%. This figure already reflects the recognition of the results for the first 3 quarters of 2025. Capital levels, therefore, remains solidly above the regulatory requirements of 10.3% for CET1, 12.5% for Tier 1 and 15.6% for total capital. The total capital ratio increased slightly to 16.3% compared with the year-end level, mainly due to the issuance of additional subordinated debt. Risk-weighted assets increased in the area of credit risk, reflecting the strong organic growth in MSME and retail lending, and therefore, the continued execution of the Group's strategy. Basel IV impacts are already incorporated in the reported RWA numbers. Market risk-weighted assets declined by around EUR 200 million, primarily due to a new framework for open currency position hedging adopted by ProCredit Holding in late 2025. In essence, the holding acquires hedges for local currencies in its markets of operation to steer the maximum impact of FX changes to its regulatory capital positions. As a result of the first hedges acquired in December, RWA density decreased by around 3.5 percentage points to 62.9%. Looking ahead, we plan further reductions in market risk RWA, pending regulatory approval to recognize the remaining open currency position as structurally hedged. This structural hedge reflects the natural offset between capital held in foreign currency and RWA is denominated in the same currencies. While this hedging framework will have a negative effect on the P&L going forward, assuming regulatory approval, it is a capital measure with an attractive cost of capital for shareholders. To summarize, 2025 was characterized by strong portfolio expansion, particularly in the strategically important lower volume segments, continued growth in transaction-driven fee income and tangible progress in improving the structure of our funding base. At the same time, profitability remains influenced by the elevated interest rate environment for deposits and the substantial investments we are undertaking to transform the Group's digital capabilities and operating platform. With that, I will hand the call back to Eriola, who will provide some perspectives on the outlook for the Group going forward.

Thank you, Christian. Let me conclude then with our expectations for 2026 and the medium-term trajectory of the Group. In 2026, we expect our strong business expansion to continue driving meaningful income growth and net interest margin stability. Our balance sheet transformation will support this through faster loan growth in high-yield segments, micro, small and retail and a more cost-efficient deposit structure focused on current and savings accounts. In addition, the focus of this year remains on the following strategic developments. Number one, progress in digitalization transformation; and number two, implementation of the capital optimization initiatives, laying both the foundation for scalable growth and income generation in 2026 and beyond. On digitalization, I want to highlight again that our digital and technology transformation is central to strengthening our position as a leading bank for MSMEs and it is critical to our ambition to become a convenient, trusted, mobile-first retail bank across our markets. But this transformation will continue to require significant investment in 2026 and will influence our cost base in the years ahead. On capital optimization, Christian outlined our updated hedging framework. This initiative alone is expected to significantly reduce the market risk-weighted assets and enhance our capital efficiency essential to asset growth, but the estimated cost for this transaction are around EUR 6 million in 2026. Hence, these investments in digitalization and capital optimization, will weigh on return on equity this year, but we consider them essential to enable ambitious growth and long-term value creation in the years to come. In addition to that, the profitability of 2026 will be affected by a number of one-offs, but I won't go into detail. They are covered and quantified on a separate page in the appendix. In short, they include the expected P&L impact from the planned divestiture of our ProCredit Bank in Ecuador and headwinds from temporary tax increases in Ukraine and Romania. Overall, we expect profitability and cost efficiency to stay broadly in line with 2025. For ROE, we cautiously guide for a level of around 7%. Although, we estimate higher net interest income, stronger business expansion and progress in balance sheet transformation, factoring in the effects mentioned above, the level of ROE remains at 7% in 2026. What is important to us, though, we target strong loan growth of 12% to 15% for continued operations, assuming market conditions remain stable despite global uncertainties, including tensions in the Middle East. Currently, we do not see direct impact in our region. Our capital position remains strong with the CET1 ratio projected at approximately 13%. Let me conclude today's presentation by reaffirming our medium-term outlook and expressing our confidence in our ability to achieve our strategic targets by 2029. The progress we made during 2025 has been particularly important in this regard. During the year, we established the key foundations for the Group's transformation. We accelerated growth in our strategic client segments, made tangible progress in reshaping the balance sheet and importantly, advanced our digital banking capabilities at a pace that has already significantly strengthened our future operating model. With rollouts taking place across our network through 2026, we are eager to leverage these new capabilities. Looking ahead, we aim to grow the loan portfolio beyond EUR 10 billion, an important milestone but by no means the end point. As we continue to scale our SME, micro and retail ecosystems across our markets, we believe our franchise has the potential to grow well beyond this level. We also aim to substantially increase profitability, targeting ROE of 13% to 14% with further upside potential from Ukraine. The operational advantages of scale, digitalization and a more granular balance sheet should enable us to bring the cost income ratio down to roughly 57% over the medium term. We pursue these targets from a position of strengthened capabilities. The Group has now more advanced digital infrastructure, more efficient processes and greater organizational capabilities than ever before. We continue to invest in our people who remain the key drivers of our success. With committed teams across all markets and a clear strategic direction. We are well positioned to unlock the full potential of the ProCredit Group and deliver sustainable shareholder value in the years ahead. And with that, I conclude the presentation, and I open the floor for your questions.

[Operator Instructions] You have the first question coming from Milosz Papst from Edison Group.

Let me start with discussing your cost base in 2026. I think previously, the base case was that the extensive investments in the implementation of your new strategy were gradually coming to an end, which would have a stabilizing effect on the cost base, basically. Now the question is what do you expect for next year? Are there any incremental costs on top of what you expected, previously in terms of digitalization spend and headcount growth. Maybe you can also give us an update on the expansion of the branch network. And then you've mentioned that you've recognized impairment on internally developed IT. Does it mean that there will be incremental costs from some IT developments, which are done externally now. Maybe I'll stop there.

Thank you, Milosz. I will take this and see if Eriola has anything to add beyond that. Indeed, the messaging last year was that some of the really most radical investment programs were flattening out. This includes, obviously, the increase in staff as well as the expansion of the branch network. Both is true because in 2024, we added some 700, 800 people to our network. We significantly grew the branch network. These investments had visibly come to an end in 2025. Goes without saying that going forward, costs will continue to grow specifically on IT. That is clear. And on staff, we will have to increase on a need basis, right? But this does not mean another increase, such as we have seen in 2024. So this just to contextualize a bit the assertions we made in 2025 with going forward, costs will continue to grow. But we are much more focused on developing income side, structurally improving net interest margins, scaling the operations and therefore, having a healthy income growth that more than offsets the cost basis. And on the IT developments, we can share that the write-off that we undertook now, they are obviously also cleaning the way from an accounting perspective moving forward. We have developed new new systems internally. These are largely internally developed. But they're replacing the old ones, hence, the onetime write-off in 2025.

Okay, perfect. And then maybe the next question would be on how much of the increase in cost next year will be recurring versus one-off? I'm not expecting you to quantify it in detail, but I remember that you previously guided, I think, for the EUR 27 million increase, a EUR 27 million increase in additional network costs from office rent, depreciation, IT costs and marketing expenses, which were meant to be recurring. So can you give us some background on that as well?

Well, we have included a slide in the annex that covers in more detail the the one-off expenses that we expect for 2026. These include, of course, the divestiture from ProCredit Bank Ecuador, which we expect to be in a high single-digit to low double-digit million amount. We already covered the hedging framework, which will add approximately EUR 5 million to EUR 6 million in additional costs. We have -- the fact that Bulgaria adopted the euro, we will -- which is obviously beneficial for the country for financial institutions, for SMEs as a whole, the benefits that are reflected. It comes with an expected decline in net fee income in a mid single-digit million amount. And we have headwinds from the tax environment, specifically in Ukraine, which we once again introduced an income tax of 50% as well as Romania, which introduced a revenue tax of 4% here, we expect high single-digit to low double-digit million impact. So these effects alone, they -- yes, they can be added up to a sizable amount, and they're mostly onetime in nature or when they're not a onetime in nature, such as the hedging framework, then they provide tangible long-term added value and shareholder value. Then on the operating costs, I don't want to say too much. We will continue to invest in IT. This is, as Eriola said, not a onetime rollout of individual systems that once implemented, will stay forever. We have to continue investing in digitalization in the years to come. And on the other expenses, we will see moderate growth that is reflecting also the fact that we have ambitious expansion plans.

Okay. And understood. Yes. So I was smartly asking about potential one-off costs on digital -- on rolling out the digital infrastructure. So I understand that there will be no major one-off, let's say, product costs, which will not reoccur in the final years. It's more about continuous investments in the infrastructure, right?

Is more about continuous investments. Certainly, IT will be the area where costs will be increasing more visibly, while in most other cases, we expect moderate increases and what will not explicitly taking into account, which is rather a medium-term benefit is once digitalization projects are fully completed, our potential upside effect from efficiency measures that can be leveraged throughout the Group. This is not explicitly discussed and mentioned here, we don't foresee this to be happening in '26 or '27, but simply see this as a long-term upside and reflect this in our medium-term expectations.

I can add here announced to -- in part of your question, we do not plan further increase of the branch network. We have already achieved an optimum size of the branch network and the focus is now on the rollout of digital initiatives and the full utilization of the existing branch network, which complements the delivery channel for the customers and on staff increases, it is a moderate increase more on strengthening new capabilities on the digital product development side, retail banking side. But we do not see structural investments and increase in costs on the traditional banking channel.

Okay. Perfect. That's very helpful. And my last question would be on the sale of the Ecuadorian Bank. I know that you can't go into details, but can you give us a very broad sense of what initial buyers' interest you see for this asset? or is it too early to say?

Well, Milosz, at this point, we have agreed economic terms with a -- we have received an offer with specific economic terms to which we agreed in an informal way. We are now at a stage where we need to engage with the regulators. So all of this transaction remains pending regulatory approval. What we can say at this stage is that starting quarter 1, the entity will be classified as held for sale under IFRS 5.

Next question comes from Knud Hinkel from Pareto Securities.

First things first. Mr. Bibolli very nice to meet you for the first time. Now coming to my question, you say...

Mr. Hinkel your line quality was not good. Can you speak again?

Hello?

Now we can hear you again.

Okay. Probably because I am on traveling, that's probably the reason why the connection is not super good. Nevertheless, on my questions. On Page 11, there was a number that caught my eye that was that digital sales share should go up from 70% to 90%. Is my reading correct that this is one of your central initiatives going forward as new CEO, this is my first question. Are there additional strategic initiatives that you plan -- that you would outline here in this call. That would be my second question. Then thirdly, can you confirm, I mean, the return on equity will remain at the same level in '26 as in '25. But this is entirely due to higher investments as opposed to higher risk costs that were impacting the result at the [ five ] that would be my fourth question. And my fifth question is ProCredit was a little bit special always, a special bank in my view, will ProCredit keep it's ESG-focused approach to banking under your office, Mr. Bibolli. So that would be my five question.

Thank you very much for your questions. I confirm our ambition to continue with the digital transformation of the Group and the building of our new retail banking mobile-first model. And at the heart of such a model, we confirm that we aim to achieve a digital usage above 90%, meaning our value proposition is tailored around a convenient daily banking, and we expect our customers to transact digitally, up to 90% of the volume of transactions without reliance on other channels of distribution. And at the same time, we expect most of sales to be conducted digitally, which is a different dimension of digital retail banking. And this is a central initiative. At the same time, we commit that, up to 50%, 55% of our loan origination for granular lending in micro and in consumer loans to be done digitally in the next 2 years. And these are, for us, the key initiatives that we'll be focusing on going forward. There are other associated or related transformational initiatives. But in terms of capturing operational KPIs, these 2 would be the most important one, supporting the main objective to achieve and improve the medium-term ROE of the Group in the range of 13% to 14%. Then I would answer on your last question on the ESG focus. Clearly, ProCredit Group will continue to be an impact driven and sustainability-driven banking Group. We are anchored the way we do business is responsible, ethical, and we are committed to the ESG agenda and ought not change anything in the identity and the focus of the Group. Nevertheless, while we remain focused on sustainability, we are focused on the sustainability of our business model first, and this is why I underscored my priorities into strengthening the profitability of the Group, ensuring that the Group can achieve growth, and it's a fit for the future institution, and we achieve the positioning required in each market and as a small Banking Group. All of this anchored in an impactful and sustainability-driven business model. Can you please repeat the second question Mr. Hinkel.

Yes. My second question was on the ROE. So in '25 I think the ROE was impacted by higher risk costs. For the next year, you pointed to higher investment to digitalization and a number of special items. Can you confirm that this low higher risk costs resulting from portfolio issues or something in this area. So that was in my question.

Indeed you are right. Part of the ROE in 2025 was affected by the increased cost of risk that we already informed the capital markets in our disclosure in November 2025. The estimation for 2026 is that the cost of risk could remain at rather moderate levels. We do not see -- we do not foresee any one-off effect or increase enhancement risks. At the same time, the main drivers of the ROE this year would remain, I repeat, we would see growth in net interest income, and we'll see an increasing trend in the net interest margin. However, this would not be in the magnitude high enough to compensate for still required investments in the digital and technology transformation and the accelerated rollout that we plan to conduct in 2026 that would continue to weigh the OpEx in 2026. Then as Christian explained, we are undertaking measures to strengthen our capital base, which from the P&L perspective, they have material costs that in the short term that would affect the P&L, but they are essential and required to support the growth potential of the Group forward. And last, it is a combination of the other effect, as Christian explained, the planned divestiture of Ecuador, combined with the depleted fee income from Bulgaria and the introduction of SEPA payments in 2 of our countries and the increased tax rates in Ukraine and in Romania aggregated together are sizable, and they come at a time when we are still push to continue with our investments in digitalization because that's strategically and critically important for the Group. As a result, increased in net interest income would not be high enough to absorb and compensate for all these effects aggregated together. But we do not foresee in this picture an elevated cost of risk for 2026.

The next question comes from Marius Fuhrberg back from Berenberg.

Once again, on the cost side, please. The extraordinary effect that you mentioned on Page 28 of your presentation. Am I right to assume that basically all the effects above the tax effects are included in the cost income ratio. So when I deduct all those extraordinary effects, your cost/income ratio for 2026 would probably be more in ballpark area of like 68%, 69%. And a second question with regard to your NPL ratio, that jumped quite significantly in Q4 to 3%, while the cost of risk showed in that release of provisions. Was this all connected to the project delays, so the Stage 3 increase to project delays in, I think, it was Bulgaria. And how should we expect the further development of these positions? So when would these NPL result in effective cost increases? Or do you expect a recovery? So what are your thoughts on this?

Thank you, Marius, for the questions for joining today's call. On the cost side, we -- on purpose, we did not create a normalized ROE in cost income ratio. So I don't want to confirm this roundabout figure. But obviously, from a technical perspective, you're right, the tax expenses -- the income tax expense from Ukraine would not go into the cost income ratio. The Romanian tax in Romania is not an income tax per se. So this is booked in the administrative expenses, the revenue tax. But in principle, it's right also what Eriola said in this year, we plan to significantly increase core revenues from net interest income above all in structurally also from net fees, but there is the offsetting factor from Bulgaria, which is why net fees will likely not grow significantly, but the driver is, of course, net interest income. Then we have the increases in the cost base that are more strategic in IT, less on personnel, but some close to nothing in terms of the network and then the one-off effects that are the reason why both cost/income ratio and ROE are a bit stagnant. Obviously, without the one-off effect, we would see an improvement in both ratios. On the NPL it's exactly, as I said, the cost of risk impact was largely already absorbed in quarter 3 when we -- when these exposures that were already in Stage 2 were transferred into a higher risk class, and we provisioned prudently in this instance, and had already communicated then that should these exposures transfer into Stage 3, we would not expect any additional significant P&L effect, and this is exactly what happened in quarter 4, we transferred them into Stage 3 as the delays -- the construction continued not to be resolved. Now I cannot speak really about the expectation of further development of these projects. As I mentioned, fundamentally, the economically sound projects, how they will be dealt with going forward. We will have to see. We are right now focused on moving forward with electrification and construction. That is our focus. Otherwise, the NPL ratio without these projects is closer to 2.0%, which is as you know, for our market, is an extremely strong figure, and we don't expect any significant development from this year cautious, nonetheless, about the broader geopolitical environment and the tensions that broke out in the Middle East, naturally, this can have very broad global economic implications, which are not really specific to our markets, but our markets are part of the global ecosystem. But at this point, we don't see a significant shift here.

There are no more questions at this time. I would now like to turn the conference back over to Eriola Bibolli for any closing remarks.

Thank you very much to the analysts for the thoughtful and engaging questions. Today's call...

Sorry to interrupt you, Ms. Bibolli . We have a last note question coming from Andreas Pläsier from Warburg Research.

Only 2 questions left. Firstly, coming to your return on equity target in 2029. Should we here expect a more hockey stick development until 2029 or can we already expect a substantial improvement into the double-digit return on equity range next year? That would be the first one. And the second one is regarding your NII development. We have a positive development already in last year. Do you expect a strong contribution to your revenues in this year? Should we expect here also an improvement of the NII margin in 2026?

Thank you very much for your question. We do not foresee a further hockey stick on the ROE going forward to 2029. We have already indicated that the year 2025 and 2026 have been the years of the acceleration of our digital transformation and the rollout of the digital initiatives across the Group, which largely are expected to be implemented by the end of 2026, beginning of 2027. And as a result, the significant weight of the costs required to undertake these investments, it is already reflected in these 2 years. From the year 2027 onwards, we foresee further investments and improvement in the digital infrastructure, but we will see a stronger magnitude of growth in the net interest income and fee income, simply being able to scale a different level of growth and increasing not only the volume, but further improving the structure of growth towards high yield, low volume loans and further improving the cost of deposits, that would hopefully decrease the interest expenses on the deposit side. As a result, the expectation is to see further on a gradual improve of ROE reaching hopefully, 13%, 14% to 2029. And similarly, the answer to your second question on the development of the net interest income, we see further incremental improvements and increase in the net interest income and the net interest margin as a result of our successful progress with the balance sheet transformation and achievement of the targeted volume of growth in the right structure in the granular segments on both sides of the balance sheet that would enable the Group to just show a steady incremental increase, net interest margin, net interest income and ROE.

There are no more questions at this time. I would now like to turn the conference back over to Eriola Bibolli for any closing remarks.

Thank you very much again to the analysts for all your thoughtful and engaging questions today. Today's call, as said, was somewhat longer than our usual sessions, but we felt it was an important moment to take the time to provide a more comprehensive update on the progress we are making in the strategic transformation of the Group. We appreciate your interest and your continued engagement with ProCredit. If there are any further questions following this call, please feel free to reach out to our Investor Relations team. Nadine and her colleagues will, of course, be happy to assist you. We look forward to speaking with you again at our next results presentations on May 13 for the Q1 '26 results. Thank you very much, and you have a good day.

Ladies and gentlemen, the conference is now over and you may now disconnect your lines. Goodbye.