ProCredit Holding AG ($PCZ)

Ladies and gentlemen, welcome to the ProCredit Holding Q1 2026 Results Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The replay of the conference will be published on the Pro Credit Holding website in the Investor Relations section. [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 first quarter 2026. My name is Eriola Bibolli, I am the Chairperson of the Management Board of ProCredit Holdings, and I'm joined today by Christian Dagrosa, our Chief Financial Officer. The slide deck accompanying this presentation is available on our website, and a recording of this call will be made available in the coming days. Before we begin, let me draw your attention to the customary disclaimer regarding forward-looking statements, which is included at the end of the presentation. We expect today's earnings call to last approximately 30 minutes. Following our presentation, we will, as always, be happy to take your questions. I will focus on the key developments of the first quarter, provide an update on the progress we are making against our strategic road map and offer some broader context on the macroeconomic environment. Christian will then take you through the group business and financial results in greater detail, including the key drivers of our performance in the first quarter. Overall, we see a solid start to the year, very much in line with our expectations, confirming the trajectory outlined at our Q4 earnings call in March. Loan growth has continued at a healthy pace with particularly strong momentum in our micro and retail segments, which remain central to our strategic positioning. This growth is increasingly supported by ongoing improvements in our operating model and the early benefits of our digital initiatives, which are gradually translating into stronger underlying business dynamics. Operating income has shown a promising development, increasing by approximately 5%, driven in particular by positive trajectory of net interest income by now. One of the most encouraging developments is the continued acceleration in client growth across all segments, which serves as a key leading indicator for our franchise. The expansion of our client base, especially in retail and micro is fundamental to building a more granular, scalable and profitable banking platform over the medium term. In particular, our micro enterprise client base grew by a strong 10% in just 1 quarter, more than 3x as much as in the first quarter of last year, supported by a clear strategic focus in this segment across our network. At the bottom line, the group results broadly reflect these dynamics. Solid operational performance continued investments in our strategic transformation and the usual seasonal effects observed in the first quarter. Overall, profitability is developing as expected with a return on equity of 8% and a cost income ratio of 71%. Finally, as previously communicated in our last earnings call, we remain fully committed to our dividend policy. We proposed a dividend of $0.47 per share, in line with that framework. This slide now rather serves as a snapshot of all KPIs, most of which I just covered. Let me just add that loan portfolio quality remained broadly steady compared to the beginning of the year. Capitalization remains at a solid level of 12.9% CE, although slightly reduced year-to-date. Also, let me note at this point that we have not yet performed the IFRS 5 reclassification of Profit Bank Ecuador. We rather expect this to happen later in the year. Let me now turn to our geographic footprint and recent developments across our markets. We have delivered solid growth dynamics across markets and segments with particularly strong performances in Ukraine, Kosovo, Bulgaria, Bosnia and Albania. Overall, market conditions remain supportive for further expansion and deeper segment penetration. We continue to benefit from rising income levels in our markets, resilient private consumption and sustained flow of foreign direct investments. In addition, structural convergence towards EU ongoing infrastructure investments and improving financial inclusion are further underpinning demand for banking services across all regions. While the outlook for our region remains positive, we continue to operate in an environment of elevated geopolitical uncertainty. The war in Ukraine remains the most significant source of risk for the region with ongoing attacks on energy infrastructure, which continue to affect both households and businesses. Christian will come back to this point. At the same time, while the human tragedy continues to unfold, we and our colleagues in Ukraine have welcomed the approval of the EU financing package of approximately EUR 90 billion, which provides important funding support to the country through 2027. The recent escalation in the Middle East adds another layer of global uncertainty, particularly with respect to energy markets and overall investor sentiment. At this stage, however, we do not see any direct material impact on our clients nor operations. Historically, our micro and SME clients have demonstrated a high degree of resilience to external shocks, including energy price volatility and supply chain disruptions, as seen during COVID-19 period and the disruption of Russian gas supplies. While we do not currently observe any structural deterioration in the operating environment in our markets, we continue to monitor these developments very closely, and we assess any potential indirect effects on our markets. As mentioned earlier, one of the highlights of this quarter is the emergence of a new dynamic in client acquisition, reflecting stronger business focus on micro and retail client segments, supported by increasing automation of our front-end solutions and processes as well as important improvements in the internal frameworks and workflows. In the micro segment, we onboarded approximately 3,500 active clients in the first quarter averaging more than 1,000 customers per month, representing an increase of around EUR 2,600 compared to the first quarter of 2025. These clients are already contributing meaningfully to the growth in both loan and deposit volume while enhancing the granularity and the resilience on both sides of the balance sheet. Our retail client base increased by around 8,600 active clients, which represents a solid start, but it is still well below our ambition. We expect a more pronounced acceleration over the course of the year as we further roll out our retail value proposition in all subsidiaries across the group. In this context, we successfully launched our new mobile banking application in North Macedonia and Albania during the first quarter, making another important step in scaling up our digital retail banking platform. Let me then briefly reiterate our outlook for 2026. The first quarter provided a solid base for our ambitious plans for business expansion in this year. We continue to expect loan growth in the range of 12% to 15% in our core markets, where we continue to see attractive profitable growth opportunities despite the turbulences in the global energy markets and supply chains. Our approximately 7% return on investment expectation is based on several drivers like income growth, continued costs from investments in digitalization and a number of one-off effects, including impacts related to the anticipated Ecuador divestments and the temporary elevated tax measures in Ukraine and Romania. It also reflects new run rate costs from the euro introduction in Bulgaria and the RWA efficiency measures, which we expect to fully materialize in the course of the year. Christian will give you an update later on. We expect the cost income ratio to remain on the level of 2025. In the medium term, our objective remains to the loan growth portfolio below -- beyond EUR 10 billion, while significantly increasing the number of clients across all segments. At the same time, we aim to improve profitability to an ROE of around 13% to 14%, supported by scale, digitalization and a more granular balance sheet. Operationally, this should translate into a material improvement in cost efficiency with the cost income ratio moving towards 57% mark. The first quarter provided further confirmation that we are on the right path with accelerated client growth, continued balance sheet transformation and steady progress in our digital rollout. With this, let me pass the word to Christian for further details.

Thank you, Eriola, and good afternoon also from my side. In terms of loan growth, we continue to maintain the high pace over the last 2 years and accelerate particularly in the lower volume segment, micro and retail that provide higher yields and greater scaling potential. . Our Micro client portfolio grew a strong 10.5%, adding more than 15% to the top line growth figure. And retail loans added almost 30% to total growth, growing by 5.4%, both in housing and consumer loans. Year-on-year, we have grown 43% in micro and 25% in retail, which has helped to grow the share of these segments in total loans by 3 percentage points to now 19%. Considering the contribution of the small segment, which also shows for structurally better yields than medium clients, some 86% of the first quarter growth came from higher yielding segments and their share in total loans grew by 7 percentage points over the last 2 years since the inception of our new strategy. It is encouraging that these dynamics are increasingly more accelerating across our network as they move the balance sheet transformation forward. On deposits, the key takeaways are similar. Our growing focus on the micro segment has brought good deposit growth from micro enterprises, which has helped absorb the seasonal outflow from SME accounts that is typical for the first quarter. More importantly, micro enterprise deposits add granularity and are typically held on current accounts. Increasing the share of site in savings deposits remains a strategic priority for the group as it supports a structurally stronger net interest margin profile. More than 60% of the year-on-year deposit growth of almost EUR 900 million came in the form of these deposits, marking a significant turnaround from prior year growth dynamics. Operating income developed positively, increasing 4.7% year-on-year, supported by solid net interest income growth of 8.6%. This marks an important inflection point compared with the previous year when operating income was still declining due to pronounced repricing effects from lower policy rates. With these effects now largely absorbed, underlying volume growth is beginning to translate more clearly into earnings momentum. The anticipated impact of the euro introduction in Bulgaria and the RWA efficiency measures outlined in our annual outlook during the previous call, explain why the income growth has not been more pronounced. These effects add approximately 2 percentage points to the run rate cost income ratio, which has therefore remained broadly stable year-on-year. Now looking more closely at net interest income. Year-on-year growth of EUR 7.3 million or 8.6% was strong and reflects the solid business momentum achieved over the last 12 months. As illustrated in the graph below, negatively pricing effects have now become relatively modest, allowing underlying volume growth to translate more clearly into meaningful income gains. Volume effects contributed more than EUR 13 million to the asset side, while the impact on the liability side remained limited to approximately EUR 3.5 million. The net interest margin remained stable year-on-year despite higher levels of subordinated debt and structural wholesale funding, demonstrating that these effects have been effectively absorbed. Quarter-on-quarter, net interest margin was approximately 7 basis points lower than in quarter 4, primarily due to adverse day count effect corresponding to a low single-digit million euro impact on net interest income. Move on. Net fee income declined year-on-year by EUR 1 million, as expected and in line with the explanation provided in our outlook for the year. The introduction of the euro in Bulgaria on January 1, 2026, and is expected to support higher trade volumes and enhance the country's attractiveness for foreign direct investment, creating meaningful medium-term opportunities for the group. In the near term, however, the transition has reduced fee and commission income potential particularly in foreign exchange transactions, which had a low single-digit million euro impact in the quarter. In addition, the introduction of [ Sapa ] and several of our markets have led to lower margins on international hard currency payments. Fee expenses also include costs related to loan guarantee and insurance programs for which there is no corresponding income. These expenses increased by EUR 300,000 year-on-year, primarily driven by the expansion of the Mega framework and a synthetic securitization transaction in Bulgaria, both of which contributed to improved RWA efficiency. Operationally, we continue to see steady growth in fee-generating transaction volumes, supported by our focus on expanding the client base and further enhancing our product offering, including trade finance. At the same time, we are focused on strengthening the House Bank concept by deploying a structured cross-selling strategy to deepen client engagement and increase wallet share. Costs increased moderately by approximately 5% and primarily driven by personnel and IT expenses. While headcount remained broadly stable since quarter 1 '25. The increase in staff cost reflects higher average wage levels. IT-related expenditures also roles alongside higher depreciation charges, which are mainly attributable to increased amortization of internally developed software assets. The cost income ratio remained stable year-on-year. As previously highlighted, this reflects the inclusion of new underlying hedging-related expenses supporting RWA efficiency as well as the impact of the year introduction in Bulgaria together. These factors contribute approximately 2 percentage points to the run rate cost income ratio. Moving on to loss allowances, which remained well contained at 14 basis points on an annualized basis. This represents an increase compared to the first quarter of 2025, when we still benefited from a net release of provisions. In the current quarter, roughly half of the additional loss allowances were recognized at the level of our Ukrainian subsidiary. Reflecting emerging risks associated with intensified attacks on the country's energy infrastructure and their impact on certain clients. Despite this, our Ukrainian portfolio continues to demonstrate strong resilience in an exceptionally challenging environment. The default rate as of March 31, 2026, stood at a low 2.3% broadly returning to prewar levels. The ongoing conflict in the Middle East represents an additional emerging risk factor for the global economy and international supply chains. We have conducted a preliminary portfolio assessment to identify clients with more direct exposure to the region. These exposures amounting to approximately EUR 10 million have been added to our watch list, although they are currently showing no signs on the performance. I will not repeat Eriola Bibolli comments on client resilience and periods of global volatility, but they are very relevant as this resilience has consistently been a key strength of our group. At the same time, we remain mindful that potential disruptions to supply chains and energy prices may have some impact on some of our clients down the road. Given the inherent uncertainty around the duration and intensity of the conflict, this will continue to be closely monitored and assessed on an ongoing basis. Moving on to portfolio quality. I will not dwell on these credit risk indicators as they remain broadly stable. We have some increase in Stage 2 as we cautiously transferred exposures of around EUR 130 million related to SMEs operating sectors with high sensitivity to oil and gas prices. As the risk profile of these exposures has not changed, the impact on provisions of these transfers was largely immaterial. Now turning briefly to second performance. I would also highlight the improved results at ProCredit Bank Ecuador, which has returned to breakeven after a prolonged period of underperformance. For the 2 core segments, ROE was around 11% and cost income ratio around 60% with portfolio growth rate of 2% to 3%. And finally, on our capital position, our regular capital remains broadly stable in quarter 1, whilst RWA show an increase by around EUR 140 million. This figure reflects quarter 1 business growth as well as an EUR 80 million increase in operational risk-weighted assets due to the annual recalibration of this indicator. Worth mentioning, we continue with the execution of RWA optimization measures, which led in quarter 1 to a decrease in market risk RWA. Including quarter 4 profit attribution, the CET1 ratio at the end of the quarter stood at 12.9% and on a pro forma basis, that is including also quarter 1 profit, 2/3 of it CET1 ratio stands at 13.1%. And now to conclude, coming back to the messages at the beginning of the call. Let me summarize a solid start to this year with accelerated growth and the higher yielding, lower volume client segments, micro and retail. Financially, we start to see emerging structural improvements, particularly in our net interest income that led to an increase in operating income by 5% year-on-year. On the expense side, we remain disciplined, but of course, continue to invest particularly in IT and our digital product rollouts. We continue to monitor the situation in the Middle East very closely and assess the potential impact on our clients on an ongoing basis. Our guidance for the year of around 7% ROE is confirmed and also concludes the anticipated effect from the planned divestiture of our bank and Ecuador. And finally, we also remain committed to our medium-term outlook and see potential for around 13% to 14% ROE plus upside from Ukraine. And with that, I conclude the presentation and open the floor to your questions.

[Operator Instructions] The first question comes from the line of Milosz Papst from Edison Group.

I have 2, if I may. Firstly, can you tell us maybe more about the current interest rate ceilings in Bosnia and Kosovo and to what extent is the fact your business? And secondly, do you have any expectations in terms of the magnitude of the positive impact on your loan growth in Bulgaria from the your adoption you've mentioned possibility of higher FDIs and do you have any particular expectations in terms of the extent of loan growth acceleration.

Thank you, Milosz, for your questions. On the interest rate ceiling in Bosnia and Kosovo, let me remark that the ceilings, first of all, they're integrated, obviously in our broader interest rate risk management framework. I don't have the exact effects now at hand. What we are doing in many of our markets does not only include Bosnian cost of voice. We do not necessarily pass on the entire Euribor on to clients. There is always a delta that we maintain to effectively manage interest rate risk. So for example, if the Euribor is right now 2% at this point, probably it's an amount somewhere between 1% and 1.5% that is passed on to clients in the case of Kosovo which allows visibility in case deposit rates were to increase, but that's just as an example. On Bulgaria, the more immediate impact on the on loan growth in Bulgaria for now remains to be seen, to be honest with you, we have grown strongly in Bulgaria in the first quarter. It's around 3.5%. We don't want to attribute everything to the euro introduction since the underlying dynamics in this bank have been strong before. But naturally, we do expect continued or increased foreign direct investment in the country, which will drive business growth and increase the demand for financing, especially in SMEs.

The next question comes from the line of Marius Fuhrberg from Berenberg.

First one will be on the net interest margin. When do you expect the higher share of the higher-yielding segments to reflect an improving net interest margin as of now, it looks -- or it is quite stable right now? Second question on cost side. How much of the announced one-off costs that you and were already excluded in Q1, should we expect a significant step-up of costs through the remainder of the year? And the last question on Ecuador. Do you expect any changes with regards to the purchase price or is that fixed as agreed in March following that Ecuador turned positive in profitability. And finally, with the planned cost regarding the Ecuador strip off coming as expected.

Thank you, Marius. On the net interest margin, let me remark that we essentially already see improvements now because what we managed is to absorb structurally higher interest expenses on the whole on the holding due to additional subordinated debt and additional wholesale funding that was taken in the course of 2025 without a reduction in the net interest margin. So it is already driving margin stabilization. Of course, we foresee that the net interest margin would start growing as the balance sheet transformation moves. That as we clear the balance in transformation is a process that doesn't happen overnight. We have now increased the share of the higher yield segments since the end of 2023 by 7 percentage points. We believe that especially in this year, we will find a new growth dynamic, especially in the micro segment that will further enhance this dynamic. And on retail, the growth pattern is still mixed with between consumer lending and housing, obviously, with very different interest rate profiles so we expect the dynamic to intensify that will -- that should translate into higher net interest margin supported, obviously, by the initiatives on the deposit side where we want to attract more deposits. Also let's be reminded here that here only in 2025, we have begun showing the dynamic we wanted to see, meaning growing predominantly in side deposits as opposed to TDAs, which was the case in '22, '23 and '24. So that's on that point. On the costs. Indeed, quarter 1 is always relatively slow in terms of costs because some of the initiatives that drive the business, I would specifically think of marketing costs, but there are many others. They typically materialize in the second and third quarter. Besides, obviously, we continue to drive important IT initiatives. So I would, at this point, not expect a stagnation at this level, but of course, for cost to increase not excessively, but somewhat steadily in the coming quarters. However, we do count on operating income to grow faster and so that we see gradual improvements -- structural improvements in the P&L. On Ecuador, all statements that were made at the beginning of the year remain valid. There's no changes expected. The agreements that were made, they need to be formalized going forward, but there are no changes in that. So everything that we said in our outlook report remains valid.

The next question comes from the line of Andreas Pläsier from Warburg Research.

My questions. Firstly, on the loan growth, should we expect here an acceleration of the loan growth, which could support the NIM. And second question is regarding the NCI development. You have some headwinds in Q1 due to the effect from Bulgaria and Super introduction should we already expect a positive development in Q3 and Q4 year-on-year? That would be my questions.

Thank you very much for your questions. Regarding the loan growth expectation, I support that the structure of loan growth, it is of utmost importance for this year and for the medium term. And this is one of the main levers to support not just sustaining but increasing the net interest margin. I report that in the first quarter, 80% of loan growth came from granular segments, micro, retail nonpurpose and small zones, which is precisely what we have targeted as a structure. And this was a strong contribution to the stability of the net interest margin on the asset side perspective, and we have targeted a similar structure of growth for the remainder of the year which is expected to further accelerate the more we advance with process simplification in the lower-end segments and the further rollout of the loan origination tool in the subsidiaries as we speak. Regarding the second question on the impact on the Bulgarian euro conversion and the introduction and implementation of SEPA payments in 5 of our countries, including the expected migration to SEPA and Serbia this month. The impact, I'll say, is mixed in particular, in Bulgaria, we reported that we lost significantly fee income, in particular, FX related fee income, which was in a rather severe magnitude. At the same time, SEPA payments already has a negative impact on the fee income for the group because it's a reduction on the euro payments across Eurozone and we felt already in all the countries where Seba has been introduced rather a reduction in the fee income with a few markets in particular North Macedonia that remains rather neutral. Whether we have a positive or negative impact on the SEPA payment depends sometimes on the floors that the domestic regulators impose on SEPA payment fees based on which the picture what the impact this country by country varies and aggregated on the group, as I said, the impact of these 2 developments was negative. At the same time, we have mentioned in the call in March, that we have a strong focus on stabilizing the net fee income as a potential pool of diversifying our revenue and the key focus is there, it is on accelerating on trade finance facilities. And at the same time, we have introduced a project of launching investment and insurance services to our retail and SME customers with insurances, we are already in the feasibility phase, and we hope we can roll out the services that can start yielding fee income in the second half of the year.

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

Thank you very much to analysts for the engaging questions and for their continued coverage of our group. If there are any further questions following the call, please feel free to reach out to our Investor Relations team and Adena and her colleagues will, of course, be happy to assist you. We look forward to speaking with you again at our next results presentation on August 13 for the quarter 2 results. We hope to welcome many of our investors at our AGM on June 3. Thank you very much, and have a good day.

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