Ladies and gentlemen, thank you for standing by. I'm Poppy, your Chorus Call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the third quarter 2023 financial results conference call. Please note that the conference is being recorded. The presentation will be followed by a question and answer session. You may submit your written questions using the Ask a Question window. At this time, I would like to turn the conference over to Mr. Ömer Tetik, CEO, Mr. George Călinescu, Deputy CEO, CFO, Ms. Luminița Runcan, Deputy CEO, CRO, and Mr. Aurel Bernat, Executive Director, Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.
Hello. Thank you very much for joining us. I hope the connection and the view is good enough. We are here proudly, definitely presenting the third quarter financial results. I'm here with my colleagues, and we would like to give you some brief insight about Romanian macroeconomic situation and banking sector, upon which we will directly switch to the results of the bank, the business development, and definitely your questions.
Hey, everybody. We will then jump into presenting the macro details if the technology will help us. Okay. Yes, thank you. Oh, sorry for this intro. So from the economic perspective, we had an increase of GDP of 2.7% year-over-year, which is higher number than what the EU member states have. Also from the Consumer Price Index, we had a level of 9%, 9.2%, which is somehow an equilibrium level. Obviously higher than the EU average, but on the other hand, slowing down from a much higher trend. During last week, we also had the monetary policy meeting and the National Bank of Romania kept the policy rate at 7%.
So from this point of view, we still see the GDP growth influencing consumer prices and stable monetary policy. From the lending point of view, the corporate lending had a strong 8.5% increase, and which is higher than the European average. On the other hand, we had a slowdown in the household loans which flattened compared to the EU, which had almost 1% increase. Now from the loan to deposit ratio point of view, in September, we had 69%. This is a number regarding the entire Romanian banking sector. The deposits, on the other hand, were positive both for corporate and also for households.
On the corporate side, there was a strong increase of 9.9%, and for the households, 12.5%, which is a high level, might be due to macroeconomic and geopolitical uncertainties, which made the households deposit more. Last but not least, from the non-performing loans perspective, the ratio is 2.65%, which is at a minimum level currently. Return on asset, as well as return on equity, is strong, 1.88% and 21.1% for the return on equity, once again for the entire banking sector. I will give the floor for the business performance to Ömer. Thank you.
The first nine months of the year show very good results for Banca Transilvania, both at individual level and also at consolidated level. In the first nine months, at the bank level, the net profit is a little bit in excess of RON 1.85 billion, which exceeds a little bit our budget for the period, and keeps us in a very good position from the point of view of both net interest margin, but also from the point of view of cost-to-income ratio, both at the bank level and at the consolidated level.
When we talk about the evolution of the balance sheet, we can see that at individual level, the bank already exceeded its budget for the year in terms of evolution of loans, as well as in terms of evolution of total assets. Very good growth, especially in the last quarter of the year. Deposits from customers also are above the budgeted levels.
But this has been throughout the year. We've been performing very well in terms of deposits, bringing liquidity to the bank. From the point of view of capital, capital ratios are in a very good position, with 22.94% at the bank level, and 22.3% at the consolidated level. The bank is in a very good position to go ahead with the approved dividend payout, which already happened at the beginning of this month, with almost RON 0.9 billion paid out to our investors in dividends. So actually, remaining at this page, and this is the moment when I remember telling you that the presentation is already uploaded in the website, so you can have these numbers either in front of you or later you can consult them.
But, coming back to, rather positive story of Romania and Romanian banking system, I guess, due to our market shares, due to our size, due to our coverage, we are in a position to, benefit from the positive, developments in macroeconomics, but also to impact positively such developments by what we do, how we do. And, indeed, third quarter was, a quarter of very high growth. We have more than compensated, for the slowdown in the first quarter, and, especially in retail and SME loans, we have seen, very high growth.
Also, somehow encouraging that households in general started regaining trust in local currency, so that the trend of last year, where deposits were more heavily done in foreign currency, we see that they are being done in lei, in local currency. This definitely is in line with our strategy, now, in line with our balance sheet. And the numbers that we have, we are presenting now, and the numbers that we produced are very much encouraging us about what to do next. Our net interest income grew almost 19%. This is due to mainly loan growth as compared to last year, nine months, first nine months of 2022.
We see also, as we always mention, double digit growth in net fee and commission income. I guess we are, if not the only, one of the few banks in top 10 who has growth, and actually double digit growth in net fee and commission income. This is coming from number of accounts, new accounts that we are opening every day, number of transactions that we are doing. Although this is not related to third quarter, actually, last Friday, we had Black Friday, and through BT, through channels of BT, cards, POSs, ATMs, there were almost 8 million transactions in a day. This is a record. We are glad that both in terms of technical performance but also commercial performance, we managed to deliver such good numbers, historical number.
Our net trading income had been slightly low, but actually this is compensated by the increase in the net gain from financial assets. As I mentioned, our loan growth, especially in the third quarter, had been tremendous. We have seen retail loans, also, mortgage loans picking up with the new SME Invest, IMM Invest programs kicking in. We have recovered the backlog that we had been having. We maintain, as we always mention, a quite balanced, almost naturally hedged structure between distribution among currencies. We are still, as our deposit base is, we are mainly lending in local currency. If it comes to SMEs and retail customers, household customers, actually, it's predominantly in lei.
Deposit base have been also started to grow, picking up. This is, as you said, also somehow has an impact, and I guess we will see this more and more, being the bank with the highest processing power of cash, the largest ATM and POS network in Romania. With the new fiscal changes, we are expecting the account turnovers, account openings, use of current accounts to increase. So our deposits had been growing also healthily in the first quarter. Household deposits reaching, actually, almost RON 83 billion equivalent, and company corporate deposits reaching almost RON 44 billion. Our retail lending, as I mentioned, already, had been quite vivid, very agile, actually, do.
It was also, I'll say, a nice surprise that our network and also online channels have delivered by the production and processing capacities. And the type of products, services we offered were much more relevant for the market, as it seems. So we have grown our market share in retail lending and retail deposits during the third quarter. SME and corporate banking, just the new production so far this year is more than RON 16 billion. And we have also see the impact of European funds, SME Invest, IMM Invest type of programs, more and more. We also signed a new guarantee agreement with European Investment Fund, which will help us to support SMEs further. The total contract value is RON 1.5 billion .
Coming back to risk verse, indeed, with all the polycrisis and challenges that we discuss, thanks to also economic growth, almost zero unemployment, high growth of savings, we see that the bottom line is still good and performing well, but definitely there is a lot of work behind in terms of modeling, monitoring, and reporting. So I would like to let Luminița tell us a few things.
Thank you, Ömer. BT remains consistent with a strong and robust risk management framework, as shown in the figures presented to the market. I will highlight some of the key risk indicators that are of relevance from the bank's perspective, credit risk being the first one. BT enjoys a high and stable asset quality structure, and this is seen in a decrease in the cost of risk, which reached 0.25 at the end of September at the individual level, slightly higher at the group level, at 0.37. This is to be complemented by an NPL decrease, as presented in the slides. While the coverage ratio, the provision coverage ratios is building up, showing the prudent approach that the bank has already had in this perspective. The following indicator is the capital. BT is consistent in conserving its capital base.
The actual levels that we are presenting to you are well above the regulatory levels and also of the supervisory level, and this is an effort that the bank is pursuing in order to position ourself for further growth, for the next years. The last indicator I would like to highlight is the liquidity. Already my colleagues mentioned things about the deposit growth. Here, we, as in the last couple of years, we have very high liquidity ratio as an effect of the excellent reputation that the bank has and as a result of the sound liquidity management that the bank performs in these years. That brings us to the next topic of the presentation: sustainability.
From the sustainability point of view, we would like to highlight two important divisions within Banca Transilvania, which is the healthcare division and also the agriculture. From the healthcare perspective, we already have a market share of more than 40% in the healthcare financing, with more than RON 3.4 billion in loans. On the other hand, in agriculture, we are the first bank in Romania with a dedicated division and having more than 20% market share in this segment, with more than RON 5.5 billion in loans. These are extremely relevant from the sustainability point of view, because we are leaders in both sectors, and on the longer term, it seems to be something which will also drive our business further on.
Also, for a more sustainable Romania, we have the developments of different energy-related projects, as well as access to expert knowledge and financial resources through the specialists that we usually invite to different conferences, and we support our customers. These were the two aspects that we would like to emphasize on, and going further on, we will be discussing about digital.
We are, as we have also mentioned in our press release, we are happy to see that over 90% of our customers are using one of our digital channels. BT Pay, on the retail banking side, is going with very certain steps strongly towards 3 million active users. As I mentioned also in e-commerce and cards, payment systems, we have proved our market share also during the last week during the Black Friday event. But on the other hand, we are also investing based on our experience from retail banking, from households, also in the company sector. And we have recently launched BT Go, which is a wallet for companies, and we had been developing it for the last year or so, internally.
We will be adding some features into it from now on, and we have some nice surprises for the market. But on the other end, also, STUP, the concept that we have delivered, developed, is a good example of the phygital banking that we do. I mean, it's a physical location, but on the other end, STUP, through its online channels, is helping its more than 14,000 now members in the community. We are also doing a lot of events. Communication is mainly online. We do also online meetings. We put our clients or would-be customers in the SME segment, micro segment, together with different consultants, so that from company establishment to invoicing, from supplier supply chain management to business strategy and a loan file preparation.
We are assisting our customers or the members of the STUP community very actively. Just very briefly on the BT Financial Group. I mean, we have also seen that this year all our entities are very positively supporting our bottom line. In the next week or two, we will be launching. We will be announcing the new branding of Idea Bank, Idea Bank. And we are expecting them to start coming to market with their first batch of products in the first quarter of next year. The development and the tests are going quite well. We see percentage-wise good growth in our pensions with dependency.
But still, we are at the beginning, and we are looking forward to grow further with different opportunities. As you already know, with BT Asset Management, BT Capital Partners, BT Microfinanțare or Leasing, they are leaders in at least top three in their own segments in Romania. And these are all areas that we would like to invest further, even maybe looking for M&A possibilities, if we will find any. I would like to leave it here for the Q&A, so that we allocated at least half an hour for your questions. If I didn't see the list of questions, but if there are too many and we cannot we will not be able to address all your questions, please do not hesitate to contact our investor relations team.
Aurel, Diana, Vlad, they will be happy to provide you answers. Also, we will, If there are anything that not addressed correctly in the presentation, we will update and repost it. Thank you. So we can start with the Q&A.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. You may submit your written questions using the ask a question window in the webcast. One moment for the first question, please. The first question comes from Ronald Nagy with BTAM, and I quote: "We saw that you have approved another EMTN program at your GMS held in September. What, what are the issuance plans for the next year?
I'll say indeed, we have recently got the approval. We will be for a new program. As we said before, also when we went for the GSM, this is something that we would like, we wanted to get the approval of shareholders to follow the markets and to catch the best moments, so to offer us flexibility. We see still favorable markets. So, I mean, although we are comfortable at our capital ratios and MREL targets, we might do a transaction soon or in the first half of next year. As I said, it depends very much on investors' appetite, benchmark transactions that we will see. But it will not take long that we will tap the markets again. Thank you.
The next question is from Miguel Dias with Wood & Company. And I quote: "Thank you for the presentation and congratulations on the results. Couple of questions from my side. The first one is, new corporate loan origination, what are you seeing in Q4? Similar or better than Q3, 2023? Also, for next year, what are the expectations in terms of full year 2024 estimated growth? IMM Invest is fading at the end of 2023, but European energy transition targets and EU funds should bode well for corporate loan development, right?
So I mean, as we were mentioning, definitely this year, but also next year, the main growth in loan books will come from projects supported by EU funds, by recovery and resolution funds or local programs. Although the how say retail demand is also picking up. We are expecting similar types of IMM Invest, SME Invest to continue, because so far it had been very beneficial for the market. The loan performances are well, so that it doesn't create pressure on the state budget, government budget. But on the other hand, as you also said, energy transition or other EU funds should be kicking in. There are lots of projects which are at the auction stage, RFP stage.
So once they will start being addressed or mandated, there will be more demand for construction sites, for the mobilization of construction sites or for other working capital needs or investment needs. So next year, we are expecting also strong growth in the corporate lending. But I would like to refrain from mentioning any budget numbers now. We are. It's still under progress. We are trying to understand also the budget of Romania for next year to understand how fourth quarter will go. I would say in terms of corporate lending, including SME company lending, we are expecting Q4 should be at around the level of Q3, third quarter. So we will deliver strong new production there as well. Thank you.
The second question is: Increased mortgage loans not really visible on the board. Broader market. You are clearly outperforming the market in this segment. Where is this demand coming from? And do you believe this is a signal that mortgage market is waking up? Do you expect similar or even better mortgage loan book growth next year?
It will very much depending on the new stock, new production of housing coming to the market. So, indeed, we have seen an acceleration in the demand. This is relatively more in our side because we, we were very focused, and we managed to offer, let's say, good, relevant products at decent cost to our customers. Here, a mortgage loan is actually a package of products from bank insurance to current account services, credit card sales, and so on. That's why we managed to, let's say, replan our pricing strategy and increase our market share. We think that in general, mortgage demand has grown a bit.
This is also due to the fact that there are changes in the fiscal code, where for certain types of apartments, small apartments or residences, VAT there will be some VAT increase. So that, I think some of the households have accelerated their plans. But on the other hand, what we see next, next year, there might be no, how to say, more affordable projects coming to the market, which will also bring the demand back. This is also related with the fact that salaries, incomes have been adjusted. Inflation is kind of tamed and under control. There are expectations of decreases in interest rates, so it encourages. Also, you have seen, as also Aurel was saying, saving rates are increasing.
I think, with the actual current need of new residential locations, housing locations, the demand will be picking up next year.
Third question is: Are you sticking with the 50-70 basis points core guidance for full year 2023 estimated?
I mean, looking at end of third quarter, I guess, we will be closer to the lower end of the range. Although we don't see it as a target to reach from 25 basis to reach 50 basis, but usually, towards the end of year, there are some adjustments in the portfolios and the models. However, we don't, I mean, expect any surprise on the upside or towards the high end of the range.
The last question is from Miguel Dias is: Volksbank saga, why did you decide to book additional RON 100 million when guidance last quarter was that no additional costs would be booked in subsequent quarters? I do not think you were expecting a positive response by the ICCJ.
I mean, this is quite complex case that we are following through different directions and channels. But in order to give comfort and instead of discussing this as a pending item, having our current results, we were comfortable providing another RON 100 million. We are still positive. Our discussion with consultants, legal advisors, or our auditors are also in the same sense, but ICCJ is not the only authority or forum that will be addressing. So we will be considering the amount and the importance of it. We will be, I'll say, trying to defend our case as long as, as much as we can.
But on the other hand, it's an ongoing issue, so we wanted to just create from now on, only good surprises, not bad surprises. I don't know if George want to add something.
No, but we wanted to have a, let's say, an approach which shows the fact that the bank is very, very prudent from this point of view. Like you said, good surprises in the future, not bad surprises.
The next question.
Thank you. Miguel asked all the hard questions, actually.
The next question comes from Robert Brzoza , and I quote: Hello. What cost efficiencies would you possibly envisage at OTP Romania unit, should you acquire them OTP? And the second question is, was higher interest income Q- Q from loans an effect of new volumes, or did some categories of loans reprice upwards? Which then?
Coming to the first question, I would definitely refrain from mentioning anything because, as you know, from the public announcements done by the OTP Group, it's an ongoing process. During an ongoing process, we would avoid giving certain answers. Any acquisition that we did, be it banking sector or any other financial sector, brought us good cost synergies in terms of placing our excess liquidity at better rates, obtaining new customers whom we can do cross-sell, and actually managing a larger portfolio with almost our existing structure. Because if you look back at the acquisitions that we did, how much our asset base grew and how much our operational expenses grew, I think that we did more of the right things so far.
If there will be any transactions announced, definitely we are assuring our shareholders, investors that we are very attentive on the cost synergies, but also on the revenue side as well. And, coming back, the higher interest income, I mean, also our costly MREL issuances had been kicking in, in the third quarter, but indeed, new production had a positive impact. We started repricing our deposits and decreasing our funding cost. On the other end, also, as you know, especially on the household side, usually the loans in Romania have two or three years of fixed income, fixed interest rates, sorry, fixed interest rates, and then they switch to variable interest rates.
So there are also some loans which switch to variable interest rates at the actual current interest rate levels. So there are lots of factors, but it's not just increase of the from the lending, but also some decrease from the funding side as well.
Thank you.
The next questions come from Daniela Mândru , and I quote: "Please comment on the decrease of staff costs in Q3 versus Q2 at the IFRS individual level. What do you expect in Q4 in terms of staff costs? Where do you see cost-to-income ratio and cost of risk for 2023?" The second question: "How do you plan to partially offset the tax increases starting next year?
Okay. So, in terms of decrease of staff costs in the third quarter versus the second quarter, I think the second quarter is affected in a negative way because you look at expenses by the one-off expenses that we have of variable compensation schemes. We close them normally in the second quarter for the previous year, so there are various adjustments that kick in as a one-off. Whereas the third quarter was a normal quarter in terms of salary expenses. And fourth quarter, we may expect to have a quarter which is similar to the third quarter in terms of expenses on the staff costs. In terms of taxes, thank you.
Follow-up question from Daniela Mândru : "Please provide an estimate for the 2% turnover tax next year?
Yeah, as we said, also publicly, by no means we don't want to, how to say, increase prices or margins on the existing customers. So we don't want to do what has been done to us. Financial sector, banking sector is payer of substantial taxes. We are always mentioning the billions of RON that we pay every year, as profit tax or other taxes or contributions. As I said, last time, in 2022, BT Group was paying 1% of all profit taxes in Romania.
But due to our good profitability, which is still banking sector profitability is below other sectors' profitability if you look at return on equity, return on assets, still because it is much more visible and how to say in terms of total amounts, it's higher, or absolute amount is higher, we will just compensate it by growing our business further. We are still committed to maintain double-digit growth in our fee and commission income. And considering the new fiscal reform and the impact on cash volumes or digital payments how it will impact, we are, I guess, well endowed and prepared. We have our own cash processing centers. We have we manage the largest online payment or payment system channels in Romania.
So, by higher business volumes, we will be trying to compensate. The impact, definitely it's a because it's a moving target, is a percentage, but still, we are not planning to budget, at least I can tell you that, next year, lower numbers than that we did this year.
Thank you.
The next question is from Edward Lam, and I quote, "Well, on an excellent track record. Two questions, please. First, long term, since 2017, 2018, Tier 1 capital has been rising a lot, but gross leverage assets equity has also been rising. Can management give us an understanding as to what type of assets have allowed BT to lower risk weightings while adding assets? And second, short term, the equity base has suffered a hit through other comprehensive income, I think from rising interest rates affecting government bond values. Can management give any guidance as to what level of equity asset ratio they are comfortable level, and any other guidance on the bond book and capital position in general? Thank you.
Oh, thank you, Edward, for the questions. Very technical one. First one being the most technical of the two. I would just mention a couple of aspects that helped the bank to lower the risk-weighted assets of the bank, and for the technical details, if you allow us, we will revert to you via email. So when it comes to the type of assets that allowed the bank to decrease the risk-weighted assets, here is to mention the exposure that are collateralized with very good quality guarantees, like for instance, IMM Invest. More than that, the bank have started a process of risk sharing of the loan book, with very good names such as EBRD, IFC, and this type of high quality banks. That would be two main aspects.
The rest, the technical one, I will revert to you via email. And when it comes to the second, the second question, here, the approach of the management is the following: the percentage of this type of assets within our balance sheet are to remain where it is, so it's not going to increase. But when it comes to the hit, as you call it, over the, the capital here, the bank expects the implementation of the new, Basel IV reform. The text has been already released, and we expect the parliament to approve it. And from that perspective, you will see that, the bank will benefit from some transitional, transitional effects from that, from that perspective. Thank you.
Indeed, I mean, it helped in terms of total assets of, although it impacted our reserves negatively, our bond investments, but also on the loan book side. A lot of partnerships under government programs, EU programs, or partnerships with IFIs help us to have good quality, plus our retail lending is also itself well collateralized. Thank you.
I have a follow-up question from Miguel Dias , and I quote, "One last question, please. I think it is not secret that BT is well positioned in regards to OTP tender. How would a potential acquisition impact BT capital requirements and MREL? Thank you.
Thank you. I don't know if it's how says support or encouragement but for the process for the transaction itself, but it depends. I mean, definitely, it will bring some additional challenge but not at a high extent. It depends on the pricing of the transaction, because whatever we do or with whomever we do, it depends on if there will be a goodwill or not, how it will be calculated, when it will be acquired portfolio structure, what kind of guarantees or not there are. But looking at their numbers, they are manageable and digestible. And I think with good, let's say, track record of issuances, we, we can attract, if necessary, plus our own internal capital generation.
This year, we will be having quite good results at the end of the fourth quarter, which will help us also to meet the minimum criteria, even after the closing of any transaction. Thank you.
Ladies and gentlemen, in the interest of time, please be informed that the conference call is coming to an end. For any questions that might have not been answered, please contact the BT Investor Relations team. I will now turn the conference over to management for any closing comments. Thank you.
Thank you very much for joining us, bearing with us. And definitely, as already we have reiterated, if there are more questions, please do not hesitate to contact us. With some of you, I'm sure, we will be meeting at different conferences, investor events, that will follow and have a chance to discuss more. Hopefully, with regard to next year's budget, or any M&A opportunities, we can give you more insight later when we have certainty. Thank you very much. Stay safe.
Ladies and gentlemen, following the conference call, we would like to announce to you that the investor relations team in Banca Transilvania will send you a short survey about the content and format of the conference call. Thank you for your input. The conference is now concluded, and you may disconnect. Thank you for calling, and have a good afternoon.