Dear ladies and gentlemen, welcome to the first quarter 2024 conference call of OTP Bank. This conference will be recorded. As a reminder, during the presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to László Bencsik, Chief Financial and Strategic Officer. László, please go ahead.
Thank you. Good morning or good afternoon, depending where you are. Thank you for joining us today on OTP Group's 2024 first quarter results conference call. As usual, the presentation which we are going to use is available on the website, so you can download it. But in the meantime, we keep on projecting it together with this, we see. So, looking at the first quarter results and the kind of high-level messages we like to communicate about ourselves, I think on a high level there has been no change. And all those factors, if anything, became more transparent and more articulated in terms of our market share in the region, in terms of our profitability, liquidity, capital position, all getting stronger and stronger, and commitment remains solid and stable for ESG targets.
Now, if we look at the numerical results for the whole group, we achieved HUF 240 billion after-tax profit. Now, as we previously indicated, we have changed somewhat the presentation methodology of our results. We don't intend to use these kind of one-offs or adjustments anymore unless something really huge happens in terms of badwill or a huge gain or loss on selling an asset. But most likely, these adjustments will just disappear. So there will not be a kind of separate adjusted profit. This obviously does not have any impact on the underlying accounting standards, approaches, methodologies, and the structure of our kind of underlying financial statements, only have effects on the way how we present them when we communicate with you. So we are going to show less or no items as one-offs, basically. And everything goes into profit after tax.
Now, some of you may like it. Some of you may not like it. I don't know. It might probably cause some inconvenience by we are kind of moving from one to another one. We try to do everything we can to ease and facilitate this change. And in the analyst tables, in the Excel tables that we have on the website and also in our written Word document quarterly report, we presented the numbers in both kind of presentation methodologies, the old and the new. And we have in the Word document a page close to the end which describes in detail how we reached the kind of new methodology or new presentation methodology. Numbers were 2023, starting from the old ones. And if you have any remaining question, please don't hesitate to contact our IR team, and they will be helping you to understand the changes.
But I hope this is going to be for the better. So therefore, we don't show anymore this kind of adjusted numbers, only the profit after-tax numbers. On that line, we had a 23% year-on-year increase and almost 2x improvement compared to the fourth quarter. The kind of lead indicators, net interest margin stayed at the level of the 4 Q, which is good because 4 Q is quite a good level, especially compared to the first quarter last year. Now, this quarterly change, as we explained during 2023, was driven by the changes in Hungary and the rapid rate normalization in Hungary, which improved substantially our NIMs in OTP Hungary. Risk cost was actually positive. So we released provisions primarily in Hungary but also in Croatia. This was due to the usual IFRS 9 kind of forward-looking macro expectations update.
As long as we move ahead in time and the macro expectations improve quarter by quarter, we should have somewhat less provisions. This was exactly the case. It's obviously the opposite. Should the macro expectation deteriorate for the future, we should provision somewhat more. That's what caused this negative number, sorry, this kind of release. The other factor, which is very important, and I'm going to talk a bit more about this, that risk cost started to normalize rapidly in Uzbekistan. Therefore, overall group level, we have less risk cost, and the profitability of our operation in Uzbekistan is getting to the level we expected it to be this year.
Now, nevertheless, we obviously booked the kind of previous one-off items, namely the special tax, bank tax in Hungary and the windfall tax in Hungary, which after-taxed these two items, as you can see on the page, was HUF 39 billion. There were other items across the group which were booked as costs in one go in the first quarter, despite the fact that, I mean, fundamentally, they should have been spread over the whole year and accrued. But due to the accounting rules, our auditor insisted to book them in the first quarter. The biggest of these items was the deposit insurance fee in Bulgaria, which amounted to HUF 11 billion equivalent in the first quarter. These are all negative numbers. Altogether, we had HUF 27 billion equivalent of after-tax profit kind of impact booked in the first quarter, which really kind of applied to the whole year.
So if we were only to account in the first quarter one quarter of those, then the first quarter after-tax profit would have been HUF 283 billion and the ROE close to 27%. So that's the kind of run rate. If we were to accrue these one-offs in the first quarter, then we had had this number as after-tax profits. Next slide is about the P&L decomposition, but there's nothing new on there, so maybe we skip to page five where we talk about the Hungarian performance. Here, the after-tax profit was HUF 50 billion. Margin stayed close to the fourth quarter number, which is good. Cost-to-income ratio continued to improve. As you can see, this was the kind of largest released item in terms of risk cost in Hungary. So therefore, the risk cost rate was actually negative. That means it contributed to the profit of the entity.
Most of these kind of one-offs appeared in Hungary, HUF 40 billion. So again, if we had this HUF 40 billion evenly distributed over the year, then the first quarter result would have been HUF 80 billion , HUF 30 billion more than in the actual number. A few words about the kind of business performance in Hungary. And on the retail, we see a very positive development in terms of demand. Both mortgage loan and consumer loan, namely cash loan demand, increased substantially in the first quarter. So if you compare to last year's first quarter, then the new contractual amount, so that is the new loan contracts, which were the amount of the new loan contracts that were signed with clients, in our case, for mortgages, increased almost 3x . And for the entire market in Hungary, it was more than 2x increased.
Therefore, our market share from new production, from new contracts, actually increased and exceeded 36%, as you can see on this slide. On the consumer lending side, cash loans, similar positive development. Our contractual amounts increased year-on-year by 67% and the market by 48%. Therefore, our market share from new contractual amounts increased. Now, we may not have the same magnitude of improvement for the whole year, but it is definitely a strong start of the year. And especially in housing loans, in mortgage loans, it's a herald of a much stronger performance than last year, which was rather weak. I mean, last year was a kind of substantial drawback. Almost 50% decrease happened last year compared to 2022.
We may not get back to the 2022 level this year, but we can easily get up to 40%-50% growth compared to new production last year. And that's, I think, on both sides, on the mortgage loan side and on the cash loan, retail cash loan side; these are good signs for increasing economic activity. It means that consumption-generated loan demand is increasing. Consumption is increasing, retail consumptions. And households are ready to start investments. And therefore, retail investments, which are mostly done in the form of housing, start to pick up. So that's an overall good early sign of economic recovery, I think. And certainly, these numbers are better than what we originally expected, I would say, considerably better than what we expected at the end of last year. In terms of the saving markets, I mean, as you can see, our deposit share increased.
And the good news is that actually retail deposits grew 3% in this one quarter for OTP. And that's, again, a very good improvement compared to last year. I mean, more about this later on. The next slide talks about the corporate situation. Now, this is quite a contrast to what we see in retail because in corporate, we don't yet see an increasing loan demand. And this is not just Hungary. Across the Central Eastern European countries, we see a rather kind of mild or limited demand for new corporate loans. Typically, corporate clients are doing very well financially. They increase their cash reserves, and they rather pay back existing high-interest rate credit lines as opposed to utilize new ones. And they seem to be somewhat more cautious or somewhat delaying new investment decisions.
That's what we see in Hungary, and that's what we see in all the other CE countries. Therefore, corporate loan demand and loan growth has not yet manifested. This is probably a second step. We see that clearly already happening in retail. Again, not just in Hungary, but you will see that basically across the region, that retail loan demand started to pick up. I guess corporate loan demand will come in the second wave. When exactly? Probably second half of the year, but it is kind of hard to tell what exactly the kind of time delay, the time difference between these two revivals, retail loan demand and corporate loan demand, will be. Maybe there will be also differences country by country. Now, if you look at the financial performance of the entities outside Hungary, I think the picture is very positive.
All of these entities contributed positively. The big turnaround here is clearly our newly acquired bank in Uzbekistan, Ipoteka, which kind of booked HUF 11 billion equivalent of profits in the first quarter. That translates into almost 30% return on equity, which is higher than what the whole group made last year. So now, I think we are getting to the level in Uzbekistan what we expected when we brought the bank. We are very happy to see these results coming through because a lot of our colleagues are working there hard to make this happen. The potential certainly is very large.
I kind of mentioned at the beginning that in case of Bulgaria, there was a rather large item, HUF 11 billion equivalent, the cost of the deposit insurance fees, which were for the whole year booked in the first quarter in the form of HUF 11 billion. So if we were to adjust with that, then the kind of quarterly result, the kind of run rate is more around HUF 50 billion. Well, just a quick look at the different P&L lines. In terms of net interest income, 30% year-on-year growth. And without acquisitions, if we include the acquisitions, then it was actually a 40% year-on-year difference. Obviously, in the first quarter, NKBM, the newly acquired Slovenian bank, was only included for February and March. So in last year's results, NKBM was not included yet in January.
And then the other item which was missing from the current group a year ago is Uzbekistan. Uzbekistan, we consolidated it in terms of revenues in the third quarter, so in the first half of the year, in the basis we were missing. So kind of without the fact of acquisitions, 30% year-on-year growth in terms of NII and quarterly 2%. We have some noise in different cases. In Hungary, we have this slight decrease. But to be fair, it's rather an I mean, fundamentally, it's an increase because there was a quite big positive one-off effect in the fourth quarter, HUF 13 billion. So this minus one development was despite the fact that the base was HUF 13 billion higher just due to technical one-off elements. So actually, this minus one decline translates into HUF 12 billion improvement if you take out this kind of base effect.
And that is due to the kind of growing retail deposits effect primarily, which is quite positive. Bulgaria, the quarterly and the yearly growth is especially the quarterly growth is not driven by NIM. It's driven by volumes, a very strong volume dynamics. Quarterly basis, in Ipoteka, there's a technical reclassification between revenue lines. And this is going to be permanent. So you will see that the margin what we have in Ipoteka is the likely kind of run rate. In Russia, there was an improvement, but again, more than half of it was related to technical negative one-off appearing in the fourth quarter. And then basically, that's it. Net interest margin-wise, again, Hungary more or less stable, which is good. And here you can see the quarterly improvement compared to a year ago, which is very strong.
In general, in the kind of euro or euro-linked countries, we have kind of year-over-year improvement and quarter-over-quarter more or less flat rates. And there's this improvement in Ipoteka in Uzbekistan, which is, again, technical, but it will remain with us. So this is a kind of permanent reclassification of certain revenues. And there's more than one where there was a big drop year-over-year in the net interest margin. It's not really important for the overall group as such because it's quite small. But as a story, I think it is very, very interesting. I don't remember seeing such a huge improvement in one year or decline in one year in a rate environment. In Moldova, a year ago, in the first quarter of last year, the base rate was 20% or higher.
Today, at the end of the first quarter, it was 3.75%. Incredible improvement and recovery in terms of the rate environment. And today, it's actually lower than the Euro , which I did not expect to happen a year ago. Talking a bit about volumes and starting with loan volumes, overall, 1% FX-adjusted performing loan growth. Romania was negative. We showed the Romanian numbers more or less as if everything was normal. You have to take into consideration that we already signed the share purchase agreement. This bank is about to be sold. If you look at our financial statements, then actually the Romanian operation is shown as for sale and therefore is not consolidated as a line by line. Nevertheless, we showed the dynamics as if it was normal.
But if we take out Romania, which we will most probably during the course of the third quarter this year, then actually with Romania, the growth was 2% on the group level. I think the most important number here is probably just because of the sheer size of the portfolio as in Hungarian mortgages, which in one quarter increased by 2%. But this trend, which I just explained that we see strong dynamics in consumer lending and in mortgages across the group, I think it's quite visible on this slide that we had in the first quarter 4% growth in one quarter in consumer loans and 3% in mortgages. And as you can see, corporate growth overall negative and rather muted across the board.
That's the comment I made that it seems that corporate loan demand revival will have a kind of time lag compared to the retail one, sorry. In terms of deposits, overall group level 1%, so not much has changed. But very importantly, Hungarian retail grew 3%. I mean, this is fundamental for the profitability of our Hungarian business and has a rather material impact on the group level as well, again, just because of its size. So that's also quite important what you see here, 3% growth just in one quarter. You probably remember this was one of the pain points. It used to be one of our pain points in Hungary and for the whole group that for a period of more than a year, retail deposit growth was actually negative in Hungary.
That was extremely painful for us given that we don't pay much interest on these deposits. And therefore, they have a strong profit contribution. Fee income, year-over-year, without acquisitions, they went up by 14%. First quarter, they went down quarter-on-quarter 9%. I mean, there's always this seasonality. In Hungary, we have one-offs as usual each year. So the one-offs were actually together I mean, we had positive one-offs in Q4 and negative one-offs in Q1. And the difference in one-offs is HUF 4.6 billion negative, so actually more than the decline. And usually, the fourth quarter is just seasonally worse than all the other quarters. The other kind of bigger item here is the last one on the list, the fund management.
You probably remember that during the fourth quarter last year, at the end of the year, we received a management bonus due to the very strong performance compared to the market of the asset management company. Other income, next slide. In Hungary, there's a decline. This is going to be a recurring item during the year because last year, we had this very steep decline in the rate environment. That induced a positive fair value adjustment revaluation result in the baby loan and subsidized mortgages volumes in Hungary. Altogether, for the whole year, the impact was HUF 80 billion. That HUF 80 billion is unlikely to appear this year. In fact, the first quarter fair value adjustment was negative.
So while last year in Hungary, we had this strong positive contribution from the fair value adjustment of the subsidized products, this year, we expect kind of ±0, so some fluctuation around but more or less stable levels. So this is going to be a structural difference between last year and this year. And therefore, other income, especially in Hungary, we expect to be much lower than the one last year. Costs, we are 9% up without acquisitions, FX adjusted, compared to the first quarter last year. I mean, this is still due to the high inflation, especially last year. And most of the wage increases actually happened in the second quarter last year. So the kind of annual wage inflation impact is fully included in this year-over-year comparison of the first quarter numbers. And the good thing is that Hungary slowed down.
So Hungary is only 4%. Last year, it was one of the highest. So I think we have succeeded in slowing down the OPEX growth in Hungary. In most of the other countries, it's typically the year-on-year growth is just inflation and primarily wage inflation driven. There's one country where we have a negative number. It's in terms of year-on-year change, Albania. In Albania, we concluded the merger at the end of or before the end of last year. Now we are realizing the cost synergies. This -13% is the sign of these cost synergies being manifested. In terms of risk costs, again, very benign, actually positive number release in the first quarter. As I said, most of this release came from Hungary.
The good thing is that Uzbekistan is down to HUF 8 billion, which is a substantially lower level than last year. It's still a kind of high risk cost rate, 2.5%, but much lower than what we had last year, above 10%. So now we are still not exactly where we want to be. But I think the progress is very positive and actually quite fast. In terms of portfolio quality, quite stable. Actually, the ratio, Stage Three ratio was flat. But if you take out Russia, Ukraine, Uzbekistan, the kind of higher ratio countries, then we ended up improving 10 basis points in the Stage Three ratio. We continue to, as much as allowed by regulation, be on the more conservative side of provisioning. So that has not changed, at least compared to our peers.
In terms of capital, the first quarter, the slight increase in the Common Equity Tier 1 ratio. You see here the kind of waterfall, what happened exactly and what elements contributed to this change, positive and negative. Basically, nothing particularly exciting. I mean, there was this 20 basis point minus effect, which you may not expected, the regulatory changes. That's just the kind of normal phasing out of the transitional adjustments, what we have in our capital structure. The next slide is about the liquidity situation. Again, if you look at our liquidity ratios, well above requirements, well above peers. Liquidity Coverage Ratio, 243%. That's Net Stable Funding Ratio, 159%. And overall, net loan to deposit ratio, 73%. Another kind of interesting number on this page is wholesale debt to total assets. So the ratio, which at the end of the first quarter was 7%.
I think it's interesting to look into the kind of historical perspective. In 2008, when the financial crisis hit us, this was 25%. Actually, wholesale debt at that time was 25% of the total liabilities. The loan to deposit ratio, 127%. We are obviously much, much more liquid and better funded than today than then. We did one issuance, a senior preferred, at the end of January. That increased our MREL ratio, which you saw on the previous slide, to 26.2%. We don't have any maturity this year. There are two papers which come into the call date window, a senior preferred and a Tier 2. We'll make the decision what to do with this in time and accordingly.
Depending on what happens with these and other factors, we expect to do one or two more MREL eligible issuances this year and maybe some further private placements as we did last year in order to more diversification of our funding base, so higher diversification in our funding base. In terms of ESG, I think we are progressing well on our green targets. We primarily kind of approach it in a constructive way and in a way of kind of increasing the green loan book. Despite the overall lack of growth in corporate loans and very low new demand, we managed to increase the green loan stock in the group by kind of almost 10%, 8%-10%, HUF 101 billion equivalent, which is a good thing and a good step in the right direction. In terms of our expectations, not much has changed.
The macro expectations remain pretty similar to what we presented you at the end of when we published the year-end numbers. Therefore, the management expectations, we decided not to change them. I mean, so far, I think we are on a just so, I mean, they remain as they are. Maybe some color and comment to them without actually factually changing them. In terms of loan growth, as I explained, retail loan growth is quite dynamic and strong, even stronger than we originally expected. On the other hand, corporate is not there yet, corporate loan growth. This is below our original expectations. Retail is doing better. Corporate is doing somewhat worse. Net interest margin, first quarter was clearly better than last year. Last year, we were at 3.9% for the whole year.
The first quarter this year was 4.3%, which equaled to more or less or almost the same as the last quarter last year. This is somewhat better than we originally expected. This is just related to the fact that the rate cuts have not happened yet. They are pushed ahead in time. Then later, the cuts happen. So the higher, the longer, typically the better we are, especially in Europe. But we are at a point with the HUF rate sensitivity that it doesn't really matter. So in this kind of between kind of 6%-8% or 5.5%-8% range, our sensitivity is actually very low. Cost-to-income ratio, I think first quarter was close to 45%. From below, it was 44%. So that's in line with what we expected.
And risk profile, again, the risk cost rate in the first quarter was better than last year. But what we originally wanted to say there was that portfolio quality in general, we expected this year not to be very different from last year, except Uzbekistan where we expected some improvement. And indeed, that's what's happening. The underlying portfolio quality seems to be quite stable as it was last year. And we already see improvements in Uzbekistan. And we have a lower ROE than last year. But in the first quarter, that was due to these items which we booked in the first quarter, which I talked about at the beginning. But they actually apply for the whole year. So if we adjust with that and if we were to accrue those cost items, then we would be actually pretty close to last year's 27%-28% level.
I think that's all. This is what I wanted to say in the presentation. I'd like to give you the opportunity and actually ask you to ask your very good questions. Thank you.
Thank you, ladies and gentlemen. We will now begin our question and answer session. If you have a question for our speaker, please click on the raise hand icon or press star nine on your phone's dial pad. The first question is from Máté Nemes, UBS.
Thank you for the presentation. I have three questions, please. The first one would be on net interest margin or more specifically on interest rate sensitivity to euro rates. Would you be able to give an update on that front, better that has changed? Any color on that front would be helpful. The second question is on operating costs. It seems like countries like Bulgaria, Croatia, Slovenia are still showing quite elevated cost growth in the double digits year-on-year. So I'm just wondering whether you're seeing any offset to that, or is that perhaps driven by base effects in Q1 versus the remainder of the year? Any color on that would be helpful. The last question is on capital. Obviously, your CEO and chairman made some comments with regards to potential acquisitions and the bids submitted.
I'm wondering if you could perhaps comment with regards to the lowest CET1 capital ratio that you would be comfortable with running the bank, even if it's on a temporary basis. Thank you.
Okay. No. In terms of interest rate sensitivity, there's no big difference compared to what we talked about beginning of March. So I mean, the way I phrased it, which was maybe somewhat controversial or not fully understandable, I'm not sure. But I said that assuming a static balance sheet year-end last year and the kind of expected yield curve, the NII change would be around 13% in the EUR and HUF volumes. So that was the kind of sensitivity to the expected changes in the rate environment. Now, if we talk about deviations from this, so what happens if the rate environment doesn't change in line with expectations, but it's either more or less than the sensitivity? Again, as I said, in HUF terms, it's quite low.
So 1% point kind of difference compared to what expected is would not have a material impact on a group level, really. The euro sensitivity is quite strong there. So one percentage point is equal to EUR 140 million annual NII for the whole group. So that's all the euro interest rate position across the group. Now, that declined, it used to be EUR 160-180 million during the course of last year. And that's due to the fact that we are buying fixed assets, securities primarily. And we buy some IRSs. So we are kind of gradually reducing this euro rate sensitivity. And it has come down from a kind of EUR 180-190 million mid-last year to EUR 140 million annual NII impact by one percentage point.
OPEX in Bulgaria, again, in Bulgaria, we had this HUF 11 billion one-off cost, which we had to book in the first quarter. That's the deposit insurance contribution. Therefore, the cost-to-income ratio went up to 41%. But the run rate last year was 31%. So in Bulgaria, we are running on kind of low 30s cost-to-income ratio, which in my world, that's a good number. And actually, I think that we can be rather satisfied with that, especially if we compare to the enormous transformation work that we are doing in Bulgaria. It's not yet that visible, but that bank is changing extremely fast. And I think pretty soon we will come out to the market with all the new developments. Internally, it's already a quite different bank than a few years ago.
And that was driven by the merger with SocGen , which is a very different culture, I would say, from the DSK Bank and really infused our organization with a fresh and new dynamic energy. Plus, we have a new CEO there since the end of 2020. So these together, I think, put the bank in a very swift modernization path. Against Slovenia, the first quarter was 45%, but last year we were at 37% in terms of cost to income. So that's more the kind of run rate. I think that's a reasonable level. And in Slovenia, we are still in the process of the merger. So we expect to finish the merger most probably end of summer, September. And then cost synergies will be realized after the merger. So if anything, we expect improvement in the cost to income ratio in Slovenia. In Croatia, 48% year-on-year improvement.
Serbia, 37% year-on-year improvement. Last year, first quarter was 40%. Actually, Serbia, like five, six years ago, was at 70%-80% cost-to-income ratio. So this is the country where we improved most in terms of cost efficiency. That's obviously due to scale economies and the synergies we realized through the two mergers and two acquisitions that we have done recently. So I could go on because also the smaller banks do rather well, right? I mean, Montenegro, 39%, Albania, 42%. These are decent numbers, right? I mean, okay, more than what declined because the margin went down, the net interest margin. I explained how much the rate environment declined and a strong decline in margins. So that's not cost increase. That's just kind of revenue decline due to external rate environment impact. And then we have Ukraine, 30%. Uzbekistan, 32% cost-to-income ratio.
I don't see, to be honest, problems in terms of efficiency. If anything, we are improving gradually. The only country which is in a way outlier is actually Hungary, right? But Hungary is kind of because in Hungary, we have a higher cost to income ratio. It's improving, but still higher. But to be frank, the Hungarian operation, especially the net interest margin and the cost to income ratio, this cannot be compared to the other group members that we have. And it can also not be compared to other banks in Hungary, for instance, because this entity, OTP Core, on one side is the Hungarian banking activity, but on the other side, this is the kind of holding entity as well. And these two functions are merged into this one core.
These are very I mean, in terms of investments into subsidiaries, it's almost HUF 2 trillion, which sits there in the Hungarian balance sheet. These assets are not interest bearing, right? Then we have like HUF 2-2.5 trillion equivalent of kind of group liquidity pooling going on, on which we, again, don't have. There's a very small margin on that. Then there are all the additional MREL and other capital elements which we have to issue, which are very expensive. And they are also sitting in the Hungarian kind of balance sheet. Plus, we have the cost of actually managing the group, which is part of the operational cost of the Hungarian entity. So we don't want to confuse you with another adjusted core number, right?
So we are not kind of presenting these numbers, but we obviously run internal calculations to quantify the impact of OTP Hungary being also the group holding entity. And if we were to separate the impact of being the holding entity of the group, and if we were to only look at the Hungarian activities as related to Hungary, then the net interest margin in the first quarter would have been 4.1% as opposed to the 2.75%, which we actually report. And the cost to income ratio would have been 43% as opposed to the 52% what we report. So again, I think if you look at the cost to income ratios across the group outside Hungary, I think they are rather okay. And if we look at Hungary, this 52%, it looks high compared to some other banks in Hungary and also compared to our own group members.
But if you adjust with the impact of Hungary also being a holding center, then we go down to 43%, which is kind of in the middle of the group in terms of cost efficiency. Acquisitions and what is the lowest Common Equity Tier 1 level where we are still comfortable? Okay. After the first quarter last year, we were at 14.3%, if I remember, 14.5%, somewhere there. I mean, that was because we just finished our largest ever acquisition in Slovenia. Now, unfortunately, that was the time when a kind of small financial crisis started to boil. And that's when we had the Silicon Valley Bank. That's where we had in the US and some other banks. And that's when Credit Suisse went down. We were still okay. But personally, I didn't feel that comfortable to say that. I mean, luckily, there was no kind of global financial crisis.
But we were about to buy Ipoteka, and we were kind of 14.3%. Come on, CET1 Tier 1. If a global financial crisis started on that day, really, then we would be still quite okay. But then we would have been on a kind of lower end of our comfort range, put it this way. So that's the factual evidence, right? I mean, in terms of our kind of comfort level. The problem is with Common Equity Tier 1 ratios is that it's always relative, right? Fundamentally, these numbers unfortunately don't mean much, right? There's very little scientific evidence about this kind of 8%, right, which was just decided 40 years ago or 35 years ago somewhere. And therefore, intrinsically, this ratio doesn't tell much. But it does tell a lot in terms of the requirements compared to the capital requirements.
So I think if we are at kind of 14%-15%, we are still well, well above capital requirements in terms of Common Equity Tier 1. However, if you look at other banks, which is the other kind of potential measurement angle, because we are compared to other banks, then it's kind of I mean, Common Equity Tier 1 is still okay, but we don't have alternative Tier 1. So a kind of 14%-15% alternative Tier 1 is a rather lower number in Europe. And we do want to be considered as well capitalized, right? So that's a kind of conundrum. And it's a problem that all the banks, there seem to be a I think it's just a crazy competition who's going higher with capital adequacy ratios.
To be honest, I don't understand why, kind of, but we are clearly not big enough in Europe to be a kind of leading voice. So we have to adjust to this environment. And we do we would like to appear as well capitalized compared to other banks in Europe. And that means that, unfortunately, we have to be much more we have to have much more capital buffer about the minimum requirements than we would normally want it to. And I don't know what to do about this. I think this is a general problem in Europe that banks are going higher and higher. Partially, obviously, it's driven by the expectations by the supervisor. And part of these expectations are not even visible.
I think this is a strong contributor of Europe not being competitive in terms of, I don't know, inventions, market behavior, efficiency, and so on and so on. So I think it has a huge negative impact on the kind of overall competitiveness of Europe. If the banking sector is so risk-averse runs in such a high equity base and so, so much risk-averse, I'm afraid this is not the optimum for the European societies and the economies. But I don't think we can do much about that. Sorry for rambling around this, but I really feel personally concerned about this. So long answer to short question. Sorry.
Thank you, László. That's been very helpful. I appreciate the views.
Thank you.
Thank you. The next question is from Gábor Kemény, Autonomous Research.
Hello. Just to continue on this topic, perhaps, what is your thinking about issuing AT1 capital to diversify your capital structure? And that may be phrasing the capital planning, capital question a little bit differently. How high capital ratios would you tolerate? I mean, there must be a level where you feel that it might be impacting your ROE too much. Another question would be on deploying your capital. I mean, what is your current thinking here? I think the CEO talked about an autumn decision on this deal. If it does or does not happen, what ways would you see to deploy capital from here? So that is on capital and capital return. And then another question, please, on loan growth. Can you comment on the pipeline? How does the pipeline look going into the second quarter, well into the second quarter now?
I mean, just given how you performed in Q1 and last year in Q1, it's hard to see how you would not get to the double digits in terms of loan growth this year. But any color would be welcome. Thank you.
Thank you. AT1. Indeed, it's kind of all Western European banks use this. None of the Eastern European banks use this. It is expensive. And I think there's a kind of additional premium put on potential Eastern European issuers. Last year was difficult for this instrument. Actually, currently, the market is really good, it seems. We are open to this if we can make this expensive I mean, certainly cheaper at cost of equity, but more expensive than what we would love to pay as an interest for an instrument like this. If you see a good use of the additional equity, then yes, we would issue.
At the moment, we don't. So I don't think we change our strategy so far that we only wanted to use this if there were a strong or clear usage of that capital. In terms of acquisitions, I mean, and the capital deployment, indeed, our chairman here talked about this opportunity. The opportunity is there. I think he has told everything. So everything what we were willing to share. So on this specific deal, I don't have anything more to say. More on a strategic level, we remain growth-oriented. So I mean, first thing is just stability, right, and the kind of conservative foundations in terms of capital liquidity, provisioning, and returns, provisioning margins and returns. And then we want to capture every potential opportunity which creates shareholder value to grow, and organically and inorganically. And we have been doing this for a long time.
Especially, I think the last 7, 8 years have been particularly successful in doing this. We don't want to give this up. So we continue to look for opportunities. Now we have an opportunity here. Again, we want to create shareholder value. It's much easier to explain to ourselves that we create shareholder value if we buy something in a country where we have already a presence because then there's a cost synergy. Or if we enter a new market, which is in a very early stage of banking sector development and therefore provides a huge growth opportunity, like our last acquisition was in Uzbekistan last year. But that doesn't mean that we are not open to buying assets in more developed countries. They have to come at a very convincing price. So I think it's down to price, right?
If the price is at a given price, we believe that we clearly create shareholder value, then we are happy to consider. And this is the situation where we are. But this is just one opportunity. So we continue to look for others. And there will be, I believe, other potentials during the course of the year, which we will get engaged in order to explore them. Loan growth, again, in terms of I mean, loan growth expectations and guidance. As I said, we decided not to change the guidance, which we made at the beginning of March. And so in terms of loan growth, FX adjusted organic performing loan growth volume maybe higher than in 2023. In 2023, we had 6%.
Now, the first quarter, as we looked at it, was, I mean, without Romania and rounded up 2%, including Romania and rounded down to 1%, so I mean, around 1.5%, which in terms of retail was a very strong start of the year, as I explained. But in terms of corporate, it was actually a very weak start of the year, not due to our efforts, but due to the market environment. And I think if we are right and the second half of the year will be much stronger in corporate loan demand. And if this retail demand growth continues over the course of the year, which we expect to do, then it might be kind of visibly more than last year's 6%. That potential is there. I think we will know more when we talk about the first soft numbers in August.
That's fair. Thank you, László.
Thank you.
Thank you. The next question is from an attendee joined via phone. I open the line. Please press star 6 to unmute. If you would like to join the meeting, please press star 6 to unmute.
Hello. Again, this is Robert Brzoza from PKO BP Securities. I hope you can hear me. Thank you for the presentation, first of all. I have one quick question regarding the fair value adjustments, which was the issue which was raised during the presentation. I did understand this HUF 80 billion+ positive impact as mostly coming from the compression of government bond yields on the local market. Hence, I got a little bit surprised by the outlook implying that there would be no longer be during 2024 another, at least partial, repeat of this positive impact, which we had seen in 2023.
So my question is, is this not that much dependent on the compression of the bond yields, or are there other factors at play? For example, you're not expecting the bond yields in Hungary to drop that much as they did during 2023. Thank you.
It's actually complicated because these subsidized structures are fixed for five years, and then they reprice every five years. So it's actually it's not just the overall level of the yield curve. It's also the shape of the yield curve and the change of the shape of the yield curve, which matters. And the closer we get to the next repricing event, the more the fair value is affected by the change in the yield curve at the kind of longer-end change in the yield curve and less by the short-end.
For instance, compared to the end of last year, the long-end increased, the short-end decreased in half, right? So that overall, on the whole portfolio, resulted in a small negative number. I'm not sure if it's clear? Are you here?
Yes, I'm here. I'm just considering your answer.
I mean, last year, the entire yield curve shifted downwards, which had and that had a positive fair value adjustment. So the value I mean, the mark-to-market value of this cash flow has increased. But what happened during the first quarter compared to the year-end in the half yield curve, that the long-end went up and the short-end went down?
Right. So in other words, you expect this sort of behavior to persist during the year. Not much of a compression on the long end of the curve. That's my understanding, if I'm correct. Thank you, anyway.
I mean, there will be each quarter, there will be some amount, right? Plus or minus, depending on when it happens, the magnitude and the changes in the shape of the yield curve. But even the inflection so it is a quite big portfolio, and it has been generated over a couple of years. And the repricing is at different stages with different structures. So it is actually a pretty robust calculation of what comes on this. And one thing is sure. Unless there's a similar to last year magnitude of downward shift of the entire parallel shift of the whole yield curve, which is very unlikely, then we are not going to see the same levels of positives, right, what we had last year.
Each quarter, there will be some plus, some minus, maybe, but it's not going to be. We don't expect this to be very material for the overall result. Last year was really exceptional in that sense. It was quite material.
Right. Got it. If I may have one more this time on the resets related to the subsidized portfolio, which would be beginning particularly in the baby loan segment, would you have any rough estimate of how much over the entire year that could support the Hungary core NII?
Yeah. That's included in our NII expectations, right?
Right. Okay. Thank you. And maybe last one. Given that the cap on corporate deposits expired, would you be expecting now the yield, the average rate offered to migrate upward to become closer to the level of the domestic interbank rates, perhaps, starting from the second Q now?
Yes. That has a small negative impact on our expected NII. Yes, exactly.
Right. I appreciate the answers. Thank you very much.
Thank you.
Thank you. The next question is from the analyst of Goldman Sachs, Mikhail Butkov.
Good day. Thank you very much for the presentation. I have a couple of questions. The first one is on Uzbekistan. I think that during the AGM and some articles referenced the comment with regards to Uzbekistan and the return on invested capital. So could you please maybe give a bit more color? How do you define it? In your view, is that equity plus some provisions, or yeah, so any color around that? And maybe more broadly, what returns do you see in that segment? The second question is just if we could clarify once again for net interest margin. The sensitivity to the euro was clear.
But in Hungary, what are the remaining moving parts which will, yeah, which may determine the next few quarters and maybe beyond that, the development of net interest margin in Hungary? And lastly, on OTP Factoring recoveries. So what is the balance of those receivables maybe managed by OTP Factoring? Is that basically the stage three loans, or it is a broader definition or a different definition? Yeah. Thank you very much.
Uzbekistan. I mean, if you look at the first quarter number, the return on equity in the first quarter was 29%. Yeah? We brought this bank at 0.5 book.
Then the question is what you do with the unexpected losses that we had during the second half of the year due to the low global cotton prices, the very cold winter and very bad harvest, and the death of the fish in the fisheries due to not having gas during that cold winter. So I mean, so if you and then I don't know how you want to treat that. But basically, if you say that we brought this bank at 0.5 BUK, and now it's making 29% on BUK, then I mean, investment could be kind of 50% return, right? Return on investment first quarter. Okay. Was it your question?
Well, yeah, more or less. I think that there was some range referenced in some press articles. But yeah, I think that that was.
What was that change?
I think 25%-30%, what was mentioned on invested capital.
No, and we seem to be better than that already.
Okay. Okay. That is clear. Thank you.
Thank you. NII development in Hungary, again, I think what I told last year that on a yearly basis, we expected assuming a static balance sheet of year-end last year, so no growth over the course of this year, we expected roughly a bit higher than 30% improvement in NII year-on-year. In HUF. In HUF NII. Now, that's not the same as the Hungarian NII because part of the Hungarian NII is not HUF-related, but EUR and other currencies. So just taking the sensitivity to the HUF and the HUF NII year-on-year, like 30%, something higher than that growth. And that hasn't changed much.
I mean, the fact that we seem to operate on a somewhat higher rate expectation now than what the plan was based on doesn't have a really material difference compared to that expectation. And that's why I said that in this range, in this between 6%-8% rate environment, in that ballpark, we don't have much interest rate sensitivity, right? We are in a rather neutral position. If you just look at the kind of nominal NII growth year-on-year, first quarter this year over first quarter last year, then it was 53%. So overall, Hungarian NII went up by 53% compared to the first quarter last year, right? Now, it's not going to I mean, this kind of yearly difference will be less and less, obviously, as the NIM, the net interest margin, improved a lot last year.
But I think it's a good start of the year. Factoring recovery yeah, basically, we sell to our factoring unit in Hungary all the non-performing loans. So all the Stage 3 loans are there, especially retail. So that's the normal procedure for a very we have been doing this for 20 years. And typically, we have a kind of higher recovery than the original level of provisioning. And that's their target to achieve that. And that reduces the risk cost.
Okay. That is very clear. Thank you. Thank you very much.
Thank you.
If you have a question for our speaker, please click on the raise hand icon or press star 9 on your phone's dial pad. As there are no further questions, I hand back to the speaker.
Thank you. Thank you very much for joining us today. Thank you for your very good questions.
I wish you all the best, good health, good first part of the summer. We come back early August, I think on the 9th of August, we plan to have the next quarterly report. I hope you will join us then as well. Till then, all the best and goodbye.
Thank you for your participation. The first quarter, 2024, conference call is closed now.