Ladies and gentlemen, Welcome to OTP Bank's conference call regarding the financial results for the first nine months of 2025. Please be advised that the conference will be recorded. Kindly note that all participants will be in a listen-only mode. Following the presentation, there will be an opportunity to ask questions. At this point, I would like to hand over the floor to Mr. László Bencsik, Chief Financial and Strategic Officer. László, the stage is yours.
Thank you, and thank you everyone for joining us today. Good morning, or good afternoon, depending on where you are. Let me jump into the presentation. As usual, the deck is available for download on the website, but we are also projecting it parallel to the conf call. Maybe we go to page three, where we have the most important numbers. Yes. First of all, we have this kind of noise in the data due to the fact that most of these extra taxes, or all the extra taxes in Hungary, were booked in the first quarter for the entire year, and some other supervisory fees as well in various other countries. Therefore, if we want to properly capture the business performance, then we need to accrue those costs over the year.
You can see two sets of numbers: one at the bottom with gray, that's the reported, and then the other set of numbers with green, where between the quarters we have accrued, allocated evenly, this one-off costs. If we look at these kind of accrued numbers, then the first nine months was HUF 886 billion. That's like EUR 2.2, 2.3 billion, 5% up last year, first nine months. I mean, the actual business performance was stronger than that. If you look at, for instance, the pre-tax profit, then this growth was already 8%. That's due to the fact that the extra taxes, primarily in Hungary, increased a lot. We put these extra taxes, the bank tax and the extra profit tax, into the tax line. On that line, just in Hungary, the extra profit tax increased by HUF 38 billion on year.
That's a major factor, actually, in the profit after tax number. If we were to look at the operating profit year-to-year performance, then it was actually 16% up for the first nine months. Obviously, risk cost was somewhat higher, as you can see on this chart, on the credit risk cost rate and the total risk cost rate. Having said that, most of this kind of extra risk cost is coming from Russia due to volume effects. The Russian risk cost rate was 7.6%, so that's part of this kind of consolidated number. If we were to take out Russia, Ukraine, Uzbekistan from the risk cost rate and the credit risk cost rate and the total risk cost rate, we would get quite similar numbers to last year, actually.
I think it's safe to say that we have had another strong quarter in the third quarter of this year, and there's no reason to believe that the following quarters will be anything worse. We remain quite optimistic regarding the current trend, the current run rate, and also the potential future developments. This profit growth has primarily been driven by, and especially the operating profit growth, by volume growth. We indicated at the beginning of the year that we expected more than last year's credit growth. Last year, we had 9%. The good news is that already at the end of the nine months of this year, the year-to-date performing loan growth was 10%, and it's going strong. I think it's fair to assume that we will not just have a higher number than last year, but materially higher, substantially higher growth rate.
This seems to be the run rate at the moment. Return on equity, again, this kind of accrued ratio, 22.7%, cost to income 39%, below 40%, very good. Net Interest Margin stable. I already a little bit talked about the credit risk cost rates, which are higher than last year, but mostly driven by the contribution from Russia. The following slide is rather technical. It shows this kind of difference between the reported and this kind of accrued or even recognition special items. I am not going to dwell into this, but that explains this almost HUF 37 billion difference between the two numbers. Let me go to the core performance, OTP Hungary. Again, 5% up year on year, but this extra profit, the windfall tax increase, is primarily here or substantially here in Hungary.
The pre-tax number, again, with this even recognition of the one-off cost, would have been 15% up. After-tax profit 5% up, pre-tax profit 15% up year on year. This was primarily driven, again, loan growth and some margin improvement. I mean, last year, first nine months, the NIM was 2.84. This year, 3.09, and a slightly increasing quarter by quarter. Here you can see this kind of detailing of the extra burdens in Hungary, and you can see how much the windfall tax, the extra profit tax increased. Last year, we paid HUF 7 billion altogether, and this year we expect to pay HUF 54 billion. There was a strong increase in the transaction tax as well. The tax rates were increased last year, and they became effective late last year. The impact is actually quite substantial for this year.
Having said that, there's plenty of good news regarding our performance in Hungary. If you look at the recent novelty on page six, this is the Home Start Loan Program, another subsidized mortgage program, which started in September this year. You can see, I mean, if you just look at the stock numbers, the impact is relatively modest, given that it only started in September. If you look at the applications, you can see how much the applications increased. The September level was kind of three times, more than three times an average monthly level. This is a very popular program. It provides opportunity for clients to take mortgage loans at 3% fixed. This is what they pay, and we receive an interest rate subsidy. With that subsidy, it is actually a reasonably profitable product.
It is clearly beneficial for clients, and it's also a profitable product for the banking sector. Now, this means that the current run rate of, let's say, annualized 12%, because the first nine months, as you can see on this chart, mortgage loan growth was 9% year-to-date. If we annualize it just roughly, it's like 12%. This 12% annualized run rate can increase, and we definitely expect this to increase for the next year, for the next 12 months at least. That can be up to, I mean, high teens, even closer to 20%, at least till the end of the second quarter next year. If you look at the other product segments in Hungary, consumer loans going strong, almost 39% higher contractual amount in the first nine months of this year than last year. Our market share is very strong.
Now, this is a quite attractive profitability product. That's one of the profitability drivers for us in Hungary. Having this strong market share and having this strong growth rate, this is quite good news. Our market share recently increased. The other kind of important market share number on this slide, I think it's in the kind of lower right corner, 41.4% is our market share from retail deposits. It's, again, quarter on quarter increased a little bit. You may remember that the first half of the year, a large chunk of retail government bonds were repriced, and that caused some reallocation of funds by retail clients. The good news is that we seem to be able to manage this transition well, and our market share again started to grow in deposits. Corporate is probably even more exciting.
It does seem to be that finally we see a turnaround in corporate loan growth, especially in micro and small. As you can see on this chart, micro and small, year-to-date growth rate was 12%. Large corporate or total corporate, 5%. That is a big improvement compared to 2023, 2024, where volumes were basically flat. We read this now as an indicator of a potential turnaround, at least in our client portfolio. Obviously, this trend reversal has been supported by the current subsidized scheme, which is called Széchenyi Card MAX+ scheme targeting micro and small corporates in Hungary. Our market share is very strong in this product. Due to all these changes, as you can see on this page, we reached a historic high in terms of our market share to Hungarian corporates, loans to Hungarian corporates above 20%, historically highest number.
Very good news. We are very happy about this. On page nine, you see some of the, or well, all of the non-Hungarian bank performances. I think it's quite solid across the board. Maybe the only kind of glitch is in Uzbekistan. We talked about this. As you can see, both the nominal profit declined materially compared to last year, and the ROE also went down. I mean, this is something we discussed in detail in previous presentations. We had to limit the volume growth of consumer loans for quite a long period, for almost one year, until we fixed the IT infrastructure and then kind of restarted the growth of consumer lending somewhere in the second half of the second quarter this year. And these results are very strong and very, very promising.
I will show you in a few slides, I will show you the details how well new production is building up in Ipoteka Uzbekistan. I am very hopeful that starting from now, quarter by quarter, we will be able to improve our performance and reach back potentially to previous levels. The name development, that inherent margin development, again, it is fairly stable, quarter on quarter, even on a basis point level. Since the beginning of the year, five basis point improvement. The improvement is primarily coming from Hungary. Hungarian margin keeps improving, while in some of the other banks in Uzbekistan, where cost of funding increased, in Bulgaria, where it is a euro rate environment, and this is due to the euro somewhat lower rate than last year overall, and Serbia having some hit. Primarily, the improvement, as I said, was driven by Hungary improvements.
Let's have a look at the volume trends, the performing loan volume trends across the group, 10% year-to-date. We do not have any reason to assume that growth slows down. It's actually quite the opposite. In Hungarian mortgages, we expect definitely acceleration in the first quarter, in the last quarter, in this quarter. Also in Uzbekistan, as you can see, this 13% increase year-to-date is not evenly distributed between the quarters. First quarter was flat, second quarter 4% growth, and third quarter 9% growth just in one quarter. This is when we are kind of up to maybe not 4, but a much higher speed than previously. The other, I think, important development is Ukraine. As you can see, somewhere at the end of last year, we decided to be more active in lending in Ukraine, and that resulted in more than 50% growth in consumer lending.
Obviously, this is from a relatively low base, but nevertheless, we started to grow. Also, corporate and leasing started to grow meaningfully this year. This is in line with our kind of strategic decision to be active on the lending side in Ukraine, obviously selectively, but we believe that there's a well-defined, actually broad segment of clients who are quite able to take on some leverage and loans. Maybe a few more words about the Uzbekistan development, because this is important for us strategically. As you can see, on this one, you see the cash loan volume changes and disbursement numbers by quarters and our market share. We had this difficult period starting from the first quarter last year, which period pretty much ended a year after. In this time, we lost market share. Our operating results declined, and our profits declined.
I believe we have reached a turnaround. As you can see, our market share started to grow in the third quarter. You can see how much we were able to ramp up production of cash loans. We believe that we are giving these loans based on sound understanding of clients' creditworthiness, and it is well supported by data. We feel confident that these are going to be quite profitable vintages, what we are churning out. In terms of deposits, again, a strong performance year-to-date, 9%. Just to remind you, the net loan-to-deposit ratio of the group is 74%. Nominally, we have 50% more deposits than loans. Despite the somewhat lower growth rate, the actual nominal increase was substantially more in deposits than in loans. The group level kind of liquidity situation improved due to this.
The primary drivers here are in Hungary, core, and Bulgaria, and in retail. These are the two countries where we have dominant market share in retail deposits, around 40% in both countries. In both of these countries, retail deposits are very profitable. This is a kind of growth and profit engine of the whole group, retail deposits in those two countries. So far, so good, quite strong performance in both sides. In Bulgaria, there is an additional big event. By 1st of January, Bulgaria finally joins the eurozone after around 25 years in a currency board, in a successfully fixed currency regime. Very well deserved. We expect further positive ramifications from the accession to the eurozone. The only, I mean, where we had decrease, it was Uzbekistan. Again, funding, especially retail deposits, is quite expensive.
The volume growth in retail loans was not as strong as we originally planned for. Therefore, we scaled back somewhat the deposit volumes in order to optimize for profitability. Again, recently, as the volume growth recovered, we again started to somewhat increase deposit volumes. This is subject to pricing, basically. On page 14, credit quality, again, stage three ratio compared to the end of last year, improved compared to the second quarter, flat, and a strong coverage, as you can see, in comparison to some of the other players as well. There is no major development on that front. In terms of capital adequacy, 18.4%, which is still a decline compared to the end of last year. That is mainly due to the Basel IV impact, which kicked in 1st of January , 90 bps -.
There is still 20 basis points transitionary measures being outfaced by the end of this year. The kind of fully loaded number here, if you fully load with the changes expected till 1st of January, then it would have been 18.2 basis points. Nevertheless, strong and well above regulatory requirement. In terms of liquidity, I mean, quite liquid. The Liquidity Coverage Ratio, 235%. Again, the minimum required is 100%. During this year, we started with a Tier 2 in January, and then we have done two covered bonds, very successful. We were quite happy with the pricing levels. And a senior preferred, an offshore yuan bond, another one. We are trying to diversify our investor base on that capital markets as well. Now, this is the kind of internal performance, and then some reflections in the mirror, right? How others see us, first of all, rating.
There have been many upgrades. Moody's was the very recent one. They improved the counterparty rating of OTP Bank to A3. The senior preferred bond, the negative outlook disappeared. It is Baa3 stable. Also, the Tier 2 rating improved to Baa1. Previously during the year, S&P improved our rating. There, the senior preferred rating is BBB , which is actually a notch higher than the sovereign rating, which is triple BBB- , the Hungary sovereign rating. I think this is a rare event that a bank is rated higher than the sovereign. I believe this is very, that's the realistic situation. Scope Rating even higher. We have a fixed rating for Ipoteka Bank, Uzbekistan Bank, which also improved during the year. They have been through a very successful issuance.
They just printed a bond recently, which was very well received by the market. Page 18, that's the we like to show this one. This is S&P kind of capital global market intelligence unit. It's just a financial comparison of financial performance of the largest European banks. Last year, we were number one. This year, number two. Next year, we want to get back to number one as well. EBA stress test 13. That was done during the early part of the year. We are in the first kind of one quarter of the participants. Just very recently this week, there was an ESG upgrade. MSCI upgraded our ESG rating to A. I mean, forward looking, we are I'm sure you will ask questions about that.
As usual, we will share with you our expectations, our guidance for next year when we present the annual numbers. That is going to be the first week of March, as usual, on a Friday. I will not talk much about next year. I think it is clear that we have a strong momentum, and there is no reason to believe that this strong momentum should deteriorate. I mean, especially if we look at the macro environment, on a very high level, we expect basically GDP growth improvements in most of the countries where we operate. Where it is not improving, the kind of slowing down is quite moderate and from quite high levels. Bulgaria slowing down to 3%, Croatia to 2.9%. These can be better numbers, to be honest, because the recent data in these countries actually outperformed our previous expectations.
Maybe Uzbekistan also slowing down. In the case of Uzbekistan, again, the latest GDP data was much better than what the market expected. Even these countries are doing well. The biggest kind of improvement in terms of GDP growth is expected in Hungary, where, I mean, next year, our expectation is 3%. It's an election year. Consumption, the order of the strong consumption, is going to further accelerate. We do not expect further decline in investments. This actually seems a quite realistic expectation to go up to 3% after three difficult years, 2023, 2024, and 2025. The short-term expectation, we decided not to formally change them compared to what we did at the end of the second quarter. I think it's very obvious that loan volume growth, which is already 10% compared to 9% last year. This nine-month year-to-date, 10%.
I mean, obviously, we expect the run rate to continue or even somewhat improve, as I said, in case of Hungarian mortgages and in case of these big consumer loans, for sure. We are not just going to have a higher number, but I think it is going to be a materially higher number in the loan growth. That is going to have obviously positive impact for next year's earnings. Margin, again, I mean, it is actually very stable. Again, no reason to believe that it is going to be otherwise. Cost to Income Ratio, this is where we kind of improved the guidance at the end of the second quarter. Now the new guidances are close to 41.3%. We are still below 40%. I think this is, again, quite likely. In terms of risk cost, the Risk Cost Rate, actually, first nine months was higher than last year.
Again, this was primarily driven by especially the Russian volume growth and higher rate there. ROE 22.7%, again, strong number. I mean, the denominator is obviously much bigger than last year. We are accumulating capital fast. That's the reason behind the return on equity, somewhat lower still this year than last year. In terms of capital actions or capital strategy, I'm sure, again, that you will have questions, but we will keep our usual custom and announce how much dividend payment the management will propose to the AGM next year when we present the annual numbers first week of March next year. What we do now, we are executing this buyback program.
We did HUF 60 billion half at the beginning of the year, and then we started another HUF 150 billion program at the end of April when we got the second package approval from the central bank. We are at HUF 88 billion, and we continue this program. That is pretty much the kind of short presentation going through the highlights, so to say, of the year or the third quarter. Please, if you have questions, ask them, and we try our best to answer.
Thank you, ladies and gentlemen. We will now proceed with the question and answer session. If you wish to ask a question, please use the raise hand icon or press star nine on your phone's keypad. The first question is from Gábor Kemény Autonomous Research.
Oh, hi. Thank you for your thoughts.
The first question would be, I would pick up on your points on loan growth, please, which is indeed pretty strong, I believe, 12%-13% annualized as of Q3. Yeah, I was kind of blown away by the Home Start numbers you showed on page six by the applications. Seems like there's a broader, strong trend. How do you think about the loan growth outlook going into 2026, accelerating towards the mid-teens, possibly the high-teens? Is that conceivable? Related to that, do you think your NII growth will be kind of proportionate to the loan growth, or would you like to highlight any possible changes in customer spread, securities income, which could shape your NII going forward? My last question would be on M&A. I believe you were linked to Forte Bank in Kazakhstan recently in the press.
Can you share any views about your appetite to enter into Kazakhstan, please? Thank you.
Okay, yeah. I mean, I share your enthusiasm regarding loan growth. I think this is, as you said, a stronger rate. If you look at the forces, the current forces shaping the future trajectory of the loan growth, they seem to be positive, right? Certainly, Hungarian mortgages, very clear. Certainly, Uzbek consumer loans, these are trends, kind of new trends which have already been set, and we expect them to continue. The other positive development is in Hungary, right? The Hungarian corporate started to grow finally. I think it's kind of we believe that now it's actually a new trend, yeah? All the other countries are doing well. The GDP numbers that I showed, we expect to get stronger or remain at elevated level.
Again, allow me not to give a concrete guidance for next year because just kind of policy-wise, we are not doing it now. I think your observation is very correct that the run rate is 12%-13%. The factors which may influence the future growth rate seem to be rather positive. I mean, and that is obviously supportive for NII. In NII, there are two factors which are very important here. One is actually deposit growth, and more specifically, deposit growth in retail, and especially in Hungary and Bulgaria. These two countries have been growing quite strong. Bulgaria joining the eurozone, so then its conversion. We might end up having somewhat higher kind of one of the kind of current account volumes as well. In Hungary, disposable income growth may accelerate given that it is kind of pre-election period.
There are various kind of disposable income increasing factors for various parts of retail. That is also kind of marginally positive. In Bulgaria, we are going to, when they join the eurozone, the current 12% reserve rate is going to go down to the eurozone 1%. Currently, we do not receive any interest on the 12% reserve rate. That is going to be a boost. Plus, we have the kind of replacement of the kind of old low-yield Hungarian government bonds with higher-yield ones. That is also a kind of supporting factor. Again, in terms of NIM, without Net Interest Margin, without giving a numeric guidance, I think the kind of factors which influence the NIM, forward-looking, seem to me to be rather supportive. Plus, there is this big plus.
It does not seem to be the case that the euro rate is going to plunge substantially further. The reasonably stable euro rate going forward is, again, the support for the name in the euro-related part of our book. Sorry, I cannot comment anything specific regarding M&A. In terms of geographies, I mean, we have been clear about this before that we consider Central Asia as a region with high growth potential. We consider the whole region attractive. We are quite happy with what we did with the investment in Uzbekistan despite the difficulties that we faced. I think that is okay given it is a new market and we brought a bank through privatization. Yeah, I mean, the region we quite like. The country you mentioned is part of that region. No specific comments, sorry.
No worries. Clear enough. Thank you.
Sure.
Thank you. The next question is from an attendee joined via phone. I open the line. You will receive an automatic message about it. Please press star six to unmute.
Hello. Good afternoon, everyone. And thank you for the presentation. I have a couple of questions related to growth outlook, if I may. First of all, I've seen that in a number of locations, be it Russia, Serbia, Croatia, you had been facing some somewhat negative regulatory environment, which affected both fees as well as NII development. I'm wondering, what do you think what the future holds in those countries and maybe some others where the credit growth is pretty high, like Bulgaria? What do you think in general, the regulations, how that's going to affect the growth going forward? Second question also related to growth is on Slovenia.
Probably, if I'm seeing right, your year-to-date loan book growth after the merger is somewhat falling behind major competitors, I believe. If you could comment how you're going to, in a way, fix the situation and come back to a more growth-oriented strategy there. Thank you.
Yeah, I mean, there have been some macroprudential measures, Russia, Uzbekistan. We usually welcome macroprudential measures because they make lending kind of more rational business. It discourages players who have, in some cases, very different risk appetite than we have and can kind of do harm to the market. That happens, right? Macroprudential measures, we are usually happy with, even if they slow down somewhat the overall growth of the market and so on. We welcome them. Now, Serbia was different. In Serbia, the measure was that it's a forced lowering of the consumer loan APRs, right?
All the banks were strongly suggested to voluntarily decrease their APRs, the interest rates of consumer loans to clients who have less than the average wages and income. That's very harmful. That's a distortion to risk-based pricing. It's a kind of rude interference into the market conditions. It's a kind of mixed basket. In Serbia, this change, it's not going to slow down lending. It's going to boost lending, obviously, right? Because it means that we have lower rates, potentially higher demand. Now, Slovenia, I mean, Slovenia, the problem is pricing. Some of our competitors, and unfortunately not exactly the small competitors, follow pricing strategies which are very difficult to understand, put it this way, what was the economic rationale behind that. This is a challenging situation. We try to do our best.
I mean, the other thing that I mean, this is a country where we recently got a new CEO, a very dynamic and very experienced colleague who has very ambitious targets and aspirations. Even with this comment, I think kind of 6% year-to-date growth, I mean, annualized 8%. It is actually a well-developed eurozone country. I do not think that kind of 8% annualized run rate, growth rate is not kind of acceptable in a way in a eurozone mature market. Having said that, again, this is probably the country where we have the biggest challenge in terms of pricing behavior of some of our competitors.
Yes, understood. May I also maybe revisit the case for subsidized mortgage lending in Hungary? During the conference, I just want to confirm if I got it right. I think a figure of around 20% annual rate was mentioned.
I just wanted to specify, did you allude to the segment or subsegment of Hungarian subsidized mortgage outstanding, or was it the figure which was related to Hungary for all outstanding loans? I presume you referred to mortgage segment, but I'm not sure whether that was the total mortgage segment or the subsidized mortgage segment only. Thank you.
Yeah, as I said, I think today as well, that the current run rate without this Home Start Program was annualized 12%. Our original expectation and early experience regarding demand suggests that this 12% run rate can improve. I said, yes, that it can be for the next kind of till the end of second quarter next year, at least can go up to high teens, even close to 20%. We do not know exactly, but it is very clear that acceleration should be expected.
As I shared with you, the early data do support that previous assumption. This number refers to mortgage loans altogether, mortgage volume growth in Hungary. Not just the subsidized, but total.
Yeah, got it. Thank you very much. That's very helpful.
Thank you.
Thank you. The next question is from Simon Nellis, Citigroup.
Oh, hi. Thanks for the opportunity, László. Just a few questions from me. I guess the first one would just be on risk cost and how you feel about the outlook going forward. I think risk cost has been a bit more elevated than in earlier quarters, the last two quarters. Just would be interested in hearing your thoughts about any imminent risks or lack of risks going forward. Maybe let's start with that one. I have two more, if that's okay.
Yeah.
I mean, if you look at the third quarter risk cost, HUF 57 billion, HUF 29 billion came from Russia. And that's just related to the, I mean, the nature of the product there. With the consumer lending, it's growing, and it's a high kind of normal risk cost level. And I mean, profitability is really strong there. So it's not a concern at all. And other than that, we increased provisioning in Bulgaria. It's related to consumer loans as well, primarily. But it's, again, within the expected range and quite okay. And we have strong loan growth. And we actually had a corporate, actually two corporates in Uzbekistan, which resulted in another couple of billion more. So these are the kind of focus points of the provisions that we created.
We do not see a reason to be worried, or we do not see a change in the kind of underlying portfolio quality dynamics anywhere. No.
Okay, thanks. Could you update us on the core banking system upgrade and if there are any implications for cost growth going forward there on that front?
Cost growth? No. No. We are actually doing very well. The first two products, I mean, very niche products, and it is kind of small volumes, but they actually started to operate. So far, so good. We are progressing according to plan. We are happy with the vendor. We are happy with the system. I mean, it is a lot of work. The problem with core system replacements is that the positive business impact is not that obvious, right? Because you typically do not have a whole range of new functionalities.
It's just a simpler and more efficient and easier to develop environment in a more sustainable environment. No, we don't expect cost to increase due to this at all. In a kind of midterm scenario, there might even be, or I mean, we expect a kind of overall reduction in the total cost of operating this environment. I mean, usually costs we like to talk about when we manage to reduce them. This is at least, but the expectation here is not that we are going to have a huge peak in the OpEx in Hungary because we introduced the system. No, that's not the case. The extra effort, extra expenditure and cost which is involved with the core banking system replacement, it's already there in our cost structure this year. The full team is engaged. No additional cost increase.
And hopefully, midterm, when we are done, there might be some improvement in the cost structure even.
Thanks. And then just one last one on the capital return. So I think you have an ongoing buyback. If that buyback completes before the year end, would you do another one, or would we expect some new news on capital return only with the full year result?
We haven't decided on this. But I mean, we seem to be strong in capital generation. And if you ask me, the share is still undervalued. So I'm quite supportive personally to continue the program. But we are not close to the end. So we were only, maybe there's still, we brought back HUF 88 billion, I think. And so there's still quite some to go.
Super. Thanks very much.
Thank you so much. The next question is from Gábor Bukta, Concorde Securities.
Hi. Thanks for the presentation. I have two questions. First of all, just follow up on capital allocation. So I think you have executed around 60% of the current share buyback program. And if you won't finish it until the year end, is it possible to extend it, or what's going to happen with the remaining shares? Because I'm a bit concerned about how you can execute by the year end because the liquidity of the stock is relatively low versus what you should buy back on market. And the second question is regarding the provisions, but not on loan provisioning, rather than on the Russian bond portfolio. Because as far as I know, as I see, the provisions you created for Russian bonds amounted to 97 million forint by the end of the quarter and stopped setting aside any provisions for these bonds. What is your strategy?
And once you think you created any provision for this bond, how would you see when you will relieve those provisions of the coverage? Thank you.
Yeah. I mean, the extension of the program is possible, but it requires supervisory approval. I mean, given the level of capital adequacy and all the numbers around our performance, I don't see why this would not be given if we were to ask for it. So yeah, it is possible, but it requires approval. Indeed, this kind of 79% coverage on these bonds, which majority of these bonds are actually paying regularly interest. That's a question. We increased this coverage based on the very firm requirements of our supervisor. So this is conservative. And to be honest, I don't know. I mean, this reflects the current view.
There will be an event in early December, the first of the bonds, which are kind of performing at the moment. We have a repayment date. And so this is going to be the first principal repayment. And if this happens without any problem, then we don't see any we don't foresee any problems. So if it does indeed happen, then I think that's going to be a kind of trigger point where we have to discuss with our supervisor if they want to change or don't want to change their view on the required level of provisions or required level of conservativeness regarding these bonds. So I mean, and this is just assuming the status quo. Obviously, if this terrible war ends and the sanction environment potentially changes, then there's, I believe, an even bigger room to release these provisions.
But today, I mean, the official answer is that this is the level of what we decided conservative enough to reflect the situation and to respond to our supervisors' requirements.
Thank you.
Thank you. If you have a question, please use raise hand icon or press star nine. The next question is from Mate Nemes, UBS.
Yes. Good afternoon, and thank you for the presentation. I have just a few questions left. The first one would be on corporate lending on slide eight. Heard you clearly that this might be the green shoots we're looking for in terms of the turnaround in corporate lending, the 5% year- to- date. Can you talk a little bit about the nature of the corporate lending here? Is this essentially pent-up demand for investment type of loans, or we are not quite there yet? That's the first one.
The second question would be on growth of the various countries. It's clear you are seeing really high loan growth in a number of markets, including Bulgaria, including Russia, including Hungary. Can you talk about perhaps the mix of effects you're expecting, both in terms of top line and then bottom line in the next few years? What sort of weight did you feel comfortable with for one or the other operating country that are currently showing high growth? And the last question would be on the Cost-Income Ratio guidance. I think you've been quite clear that the FX-adjusted organic performing loan-boring growth north of 9% is basically not a problem. And that's just a conservative guidance. Is it also the case for the Cost-Income Ratio, or shall we expect the usual sort of strong seasonality in the cost base in Q4?
We could see that 39% pro rata number deviate materially. Thank you.
The large corporate growth is not investment-driven. That's mostly working capital, to be honest. We don't see a big new investment cycle coming. There's still a potential upside. I don't think this is going to happen in the next six months. At least working capital demand is getting there. Where we see actually more fundamental growth is the micro small segment, which is kind of, and these are the typical kind of small Hungarian midcaps, put it this way, which are more consumption-driven and more kind of retail-oriented. There's actually new investment on their scale, obviously. There's kind of capacity increase as well in line with the strong growth in consumption. I think that in the micro small segment, there's underlying fundamental, I think, improvement.
On a larger corporate, it's not yet a new investment cycle. Now, this mixed effect, again, I mean, there are two clear pockets or segments where we expect acceleration. It's Hungarian mortgages, and there's big consumer loans. That's clear. And Hungarian corporates started to grow after kind of two, three years of kind of zero growth. And Ukraine started to grow as well, which was, again, not growing much. We're actually declining 2022 and then kind of flat 2023, 2024, and started to grow this year. So this now seems kind of strong across the board. And if you further adjust with Hungarian mortgages for the next year and for Ipoteka consumer loans, if you just kind of increase this year-to-date to the run rate, the quarterly run rate, then I think you get a picture which reflects the current situation.
And I don't see why there should be big shifts in the mix, except if the war ends. If the war ends, then Ukraine can be substantially stronger. I mean, there will be a huge opportunity then, and that opportunity will only be kind of constrained by our risk appetite. So I think this is the kind of potential further structure change in the future should the war finally end, which I hope is near. Cost-to-income ratio, I think the usual kind of seasonality can be expected. So the rate will be somewhat more, the cost-to-income ratio will be somewhat higher than the first nine months. But we already improved the guidance because we originally expected the original guidance was higher than last year. Now it's around last year.
I mean, we tried to do our best and not to have too much seasonality, but some seasonality is actually quite natural. So yeah, somewhat higher than 39.3 is realistic.
Got it. That's very helpful. Can I just follow up on the second question on the mix of effects and then very, very helpful color there? Do you see any areas where you feel like this or the other market may be running too hot or certain product groups, and that perhaps might not be sustainable at these levels beyond the next two, three quarters?
I mean, the last three years, the kind of fastest growing was Bulgarian mortgages. And that's actually quite a ride what we have seen there. And there came macroprudential measures, which somewhat calmed down, but not too much the growth. So this is a question, and we expected slowdown this year.
And the growth rate actually exceeded expectations. So I think if you look at page 11 in the kind of across the group growth rates, it's Bulgarian mortgages, where I think it would be natural to slow down. Yeah.
I see. That makes sense. Perfect. Thank you.
Thank you. The next question is from Nathan, they joined via phone. I opened the line. You will receive an automatic message about it. Please press star six to unmute. Please press star six to unmute.
Hi. Good afternoon. Given the credit market running quite hot and spreads level being quite tight, are you considering AT1 issuance, or is that a possibility only if M&A opportunities come up down the line, as you suggested in the past?
Issuance of?
AT1. Additional AT1. AT1.
AT1 No, no. I mean, AT1, again, this is the earmarked reserve for a potential big acquisition, right?
So if a big acquisition happens, then we issue.
Okay. I thought maybe given where spreads are and, yeah, different players doing their AT1, it could have been a good timing also for you, but seems like not. Thank you. And for next year, maybe in terms of funding, would it be favorite currency euro? Or I mean, you talked before about diversifying your investor pool, etc., etc. And you currently have deals with different currency out there. So just wondering.
We are typically opportunistic between dollar and euro. And as you see, we have started to open up to Chinese yuan and so far offshore. But we always swap back to euros. So whenever we issue FX on a group level, we swap back to euro because that's kind of one of the core balance sheet currencies of the group.
Gotcha. Thank you.
Thank you. Thank you.
Thank you so much. If you have a question for our speaker, please use the raise hand icon or press star nine. As there are no further questions, I hand back to the speaker.
Thank you very much. Thank you for participating. Thank you for your very good questions and for your interest. I wish you all the best, and I hope you join us and we present the annual results early March next year.
Thank you. Goodbye.
Thank you for the participation. The first nine months, 2025.