Ladies and gentlemen, thank you for standing by. I'm Poppy, your conference call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the first quarter 2023 financial results conference call. 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 and CRO, and Ms. Diana Mazurchievici, Director, Head of ESG and Investor Relations. Mr. Tetik, you may now proceed.
Hello. Thank you very much for joining us. Poppy, I'm here, as mentioned, with my colleagues. After a brief presentation, we will try to answer your questions. During this call, maybe it's a premiere for us at least, we have also investors from DCM, or analysts from debt and capital markets. We will try to, how to say, organize ourselves better for separate calls to answer your questions and to listen to your observations better in time. Hopefully, if we will be able to manage the logistics until then, we are planning to do our next call and representing June results in a video format. At least you will be able to see ourselves and presentations live on screens once we set everything.
After a relatively, I would say, good year for Romania in 2022 with over 4.7% GDP growth. Still Romanian economy, with the, let's say, highest level of economic confidence indicators, increase of exports and also increase of foreign direct investments, shows signs of stability and continuity. Definitely, there is still a lot room to pursue because although our per capita income had been growing substantially in the last couple of years, still we are below our peers of Western European countries. With the Recovery and resilience funds, and several aspects which we will try to present also the change in corporate banking, investment, industrial environment, the prospects also for this year are quite good.
We don't see much of a talk about any, let's say, recession, maybe a slowdown in economic growth. Romanian economy seems to deliver economic growth also this year. Inflation also had been on a decreasing trend. We are following Eurostat numbers, so it's already 12.2% end of March. We are coming close to 10% most probably end of May. Energy prices almost at their, and especially gas and electricity, much lower than last year's. Petroleum prices being also lower. With the summer's agricultural input effect, the inflation pressures will probably ease down.
This end of the year, we are expecting to see a single digit number, which gives us also kind of confidence in National Bank of Romania's policy, where expectations are that the interest rate cycle has been peaked. From now on, we don't expect maybe one, but most probably none increases to support economic growth. This is also seen at ROBOR and local market interest rates. There's quite a rapid deceleration or reversal in the interest rate. Banking sectors first quarters had not been as good as to the previous years because of the high interest environment and high lending growth. There are several aspects.
Definitely in retail, we see lower demand due to high interest rates, but also a lot of mortgage lending had been accelerated for the last quarter, actually last days of 2022 because of the changes in the fiscal regime. Starting with 2023, VAT on residential transactions had been increased to 19%. This motivated customers, banks to accelerate their last quarter lending last year. On the other hand we see corporate lending picking up, but also corporate deposits picking up. Companies in Romania maintaining their liquidity position, they are investing further with or without European Union funds of state aid. We see how to say, a growth of last year's 12% of total assets.
This year, most probably the growth will be single-digit, but most of the growth will be coming from corporate lending, as we expect. The numbers so far showing this. On the other hand, despite the interest rate increases, inflationary pressures, we see still a positive trend in NPL generation. NPL, non-performing loans are well below 3% at 2.66%. We don't see any, let's say, trend change there, even the month after the first quarter. I would like to come back to our numbers. We had been also reading a couple of analysts, how they interpreted. We try to give some guidance and clearance on the numbers. Definitely during Q&A or after our call, if you have any questions, please do not hesitate to contact us.
I mean, for us, the first quarter of this year had been more or less in line with the banking sector trend in Romania, growth in corporate lending, deceleration in retail lending. Still we managed to let's say present for us, at least from our point of view, a strong profitability in line, actually even slightly higher than expected budgeted levels. Our net interest income reached over RON 1 billion, with quarterly net fee and commission income a quarter billion RON 250 million. There is an increase in operating expenses as compared to last year, but part of it is also kind of a spillover effect related to the increases which we have seen in the last couple of quarters during 2022.
Our cost of risk had been at negative level, at -24 basis points, with net interest margin as compared to one year ago, higher by 40 basis points at 3.2%. With, what's it? A solid cost-to-income ratio of below 47%. We managed to deliver exceptional return on equity, 34%. If you had time to read our budget proposal approved by the general shareholders' assembly, you will have more, let's say, guidance about where we see ourselves at the end of the year. As I said, although I cannot give much of information about how second quarter is going ahead, I can basically confirm that we are in line with our budgeted numbers further ahead.
Also there are the in-decrease in the interest rates in interbank and international local markets, sorry, is improving our risk indicators and also financial position. The first quarter of the year, if you include also the profit, we closed at 17.22% Tier 1 capital ratio. Our total capital ratio is at 19.86%. As you may know already, public information also, in April, following Easter holidays, we managed to tap the markets for our MTN program, attracting EUR 500 million from investors to support our capital base and ESG growth. When you look at the income structure. I guess I forgot to tell, but the presentation is already uploaded to the website of the bank.
In case you cannot access it, you can always drop an email to Investor Relations address, so we will forward the presentation or the link to you. Our net interest income as compared to last year's first quarter increased by 27.3%. Net fees and commissions income, almost 15%. The changes in the net trading income and net gain and those from financial assets more or less netting each other off, have helped us to show the profitability that we have presented. The trend of decrease that you had been also sometimes asking last year's net interest margin, especially when we started paying higher interest rates to deposits. Thanks to stabilization of what's it? Our current account base and also diversification of the deposit portfolio.
Higher lending rates, with the repricing, our frequent repricing, assured us to deliver 3.2%, 320 basis points, net interest margin. We had been continuing our activity, whereas, in terms of lending, despite the decrease in the demand, especially on the retail, as we, as I said, due to interest rates, hesitation or problems of maybe eligibility. In the SME segment, because of the upcoming IMM Invest, IMM Invest programs, most of the lending had been postponed. We will see, both with us and rest of the banking system, more accelerated growth in the second and third quarters of this year. But loans to companies in general had a good performance of increase.
Our deposit base was also quite solid. The ones who had been historically following us, you may remember that usually during the first quarter of each year, our deposit base was either stable or slightly decreasing due to tax payments, dividend payments and so on. This year, we have seen a continuous growth in deposit base, which continues also in the months ahead. Our retail banking portfolio in retail loans, as I mentioned, it was more or less stable. The support of retail customers to deposit base is significant from our point of view. If SME and corporate banking, let's say, the pause in SME banking had been compensated by corporate banking, and we see more in pipeline for the next quarter, the next months ahead.
Our NPL ratio, NPL coverage ratio, according to EBA definition, is close to 200%. Well, say, if we look at the NPL coverage ratio for PAR 90 , including mortgage or real estate collaterals, it is close to 130 basis points, 130%, sorry. NPL ratio is below market's average. It's 2.40%, 240 basis points. Our loan provisions had been slightly increasing during the first quarter by 1.3% for the banks itself, whereas we have the bulk of the production. Thanks to some strong recovery from corporate loans and also adjustment of the PDs, as we do quarterly, we do have a minus, let's say, cost of risk.
We are estimating that for the year, the guidance will be still between 50 to 70 basis points. Well, our budget is over 100 basis points, but we are planning, I mean, we will be adjusting the numbers, informing you during the course of the year, based on the trends of the market. Our solvency capital ratio is at almost 20% at the end of March, at the end of the first quarter. Our risk-weighted asset density is at 40%. Our liquidity, as you had been seeing, for the last year's quarters, is quite strong with loan-to-deposit ratio of 55% and with LCR at 345%. Definitely, the extra liquidity from MTN program will be also helping us.
I don't want to enter into too much of details of the GSM decisions that you have already in written. We have decided partially to increase our share capital and then give also shares dividend and decided for a share buyback plan. On that, then we are also absorbing by merger BT Building, which owns some real estate where the bank itself is the tenant. This year most of the investments, our investment budget will be going to technology side, digitalization, with especially focus on our application, wallet application, BT Pay, which became the most popular application payment channel in Romania. And we are expecting BT Pay to become our main banking platform for as a digital channel with our customers.
During the first quarter, all subsidiaries of the group had been performing well, contributing to the bottom line. The only one not generating new business, Idea Bank, that we are now under the license of Idea Bank, building our digital bank. Hopefully, towards the end of the year or early next year, we will be launching our first digital banking platform at Idea Bank. Other than that, all subsidiaries had been seeing stable growth and profitability in our case. I would like to stop here and leave the floor for Q&A. As I mentioned, in case we cannot answer any question on the spot, we will try to update the presentation or come back to you directly once we have the answer. Thank you very much.
The first question comes from the line of Le Phuong, Hai Thanh with Concorde. Please go ahead.
Hi, thanks for your presentation. Just couple of questions from my side. The first one would be on your NIM outlook. If I heard it correctly, you don't expect that much or that significant change in monetary policy for this year. I was wondering if we may have seen the peak of NIM already, maybe in the first quarter. Or do you see a chance for an improvement from this level? Also on the capital side, I saw that your regulatory equity Tier 1 declined in absolute terms. I'm not sure about the changes, the transitional changes because of the regulatory change. I was wondering if there was any negative impact in the quarter, and if we should expect any further negative impact apart from what you have guided so far.
My third question would be on retail lending. You said that, it's weak and you expect to pick up maybe in the second or third quarter. I was wondering if you still expect it to go down further from Q1 level and then go up or maybe like from this level that we have seen in the first quarter? Thank you.
Good afternoon. Hi. Actually, I also read your comments today. Thank you very much. First of all, coming back to net interest margin outlook. As you know, our big chunk of our retail lending had been adjusted with a gap due to IRCC, which entered, I mean, the most part of the interest rate increases repricing had been reflected starting with January and starting with April. On the other hand, we are not expecting any significant increase in net interest margin. I would say that most probably, we will be stable around these levels. Possibly once we see a, how say, we are sure about the trend in the interest rate decreases, then we start also adjusting our deposits interest rates.
We might be benefiting from a temporary increase which in time again in a competitive market might be adjusted. Shortly, you can say that, we can say that, it will be more or less around this level. In the capital, as you said, big, I mean, the impact is coming from the how say, not application because of the regulations of the transitory filters and treatment of reevaluation. There is nothing more to come. Actually, we see a positive impact from the reevaluation now. As you, as you know, most of our portfolio except RON 1 million, except EUR 200 million, our portfolio is available for sale.
We see, especially in the second quarter and from now on, the impact will be on the positive side, hopefully on the positive side. In retail lending, we see some interest coming back. We don't expect numbers of 2021 or early 2022 this year. On the other hand, I think we have started growing our base portfolio on the net, but with much smaller steps. Again, this year, the increase will mainly come from SME and corporate lending. I don't know if it answers your question.
Yes. Perfectly. Thank you.
Thank you.
The next question comes from the line of Brzoza, Robert with PKO BP Securities. Please go ahead.
Hello, everyone. Thank you for the presentation. I have three quick questions. One is on the risk-weighted assets. Could you explain the reason for like a RON 3 billion increase quarter-to-quarter in risk-weighted assets given the flattish development on the customer loans? Second, regarding regulatory costs, should we expect the level from the 1Q 2023 to be representative for also 2024, potentially for 2025? Three, are there any new developments regarding second half of the year and regarding the dividend payments? Could we think of it as depending to some extent on the development of government bond yields, second, on the growth in the deposit base in the domestic banking system? Thank you.
I will start with the last one. I mean, here I would try to refrain from any, let's say, commitment or date. Definitely we are comfortable about our business growth, but also capital position and capital generation possibility. As we have also the strong recommendation from European and local supervisor authorities. Coming back to what you said, I mean, until we see certain changes in the market trends, at more, how say, better comfort from interest rate environment and also a relaxation on the authority side, we would rather maintain our position. Also we are aware that both our shareholders and investors will appreciate. On the other hand, this is also a challenging year with MREL requirements and several market volatility.
I think we are creating good value to for shareholders, but also to our bond investors now. I would say this is mainly the issue. Coming back to. Sorry, your second question I forgot, I have to admit. If you can repeat.
There was two on the regulatory cost, and one was also on risk-weighted assets increase quarter-to-quarter. Thanks.
Yes. Risk-weighted assets, the main increase is coming from, I mean, part of it, smaller part I would say, is coming from lending growth. Mainly it's coming from reevaluation of the fixed income portfolio, where with the decrease of interest rates. Yes, we had been also replacing some of the portfolio. Regulatory costs, we don't have.
On the regulatory cost, Robert, is this related to the expense with the guarantee fund, warranty and resolution fund, or what exactly?
My question is whether the current level of the regulatory cost, especially the deposit insurance scheme, is sustainable more or less going forward. It's been down year-on-year.
The calculation of the deposit guarantee scheme is quite complex. And how to say? There is not a simple formula to present at least over the call. We don't expect, I mean, as you remember, last year it increased as compared to previous year. It decreased this year. It is very much related with the composition of deposits, with the type of customers, and growth, market share, and so on. We don't think that even if it will increase next year, it will not be having such a significant impact on our bottom line. When we do our budget, we are including factoring this in.
Right. Can I add one more question, please, on your risk cost guidance? Because correct me if I'm wrong, I understand you have improved your guidance to 50-70 basis points. The question is it on the consolidated basis? Because on the standalone budget, you if I recall, you said 90 basis points on average. Second, if I'm right with this assessment, then maybe you can clarify in more detail where this improvement is coming from. Thank you.
Robert, this is, how say we maintain our guidance of 90 basis points. As I guess, in the calls that we have discussed, this is not a target that we are really want to meet. It depends very much on the economic developments. So far, both Romanian economy and NPL generation or customer behavior fared better than we have forecasted. I would say that we maintain 90 basis points in order to also calculate forward looking our capital ratios and for reporting purposes. Depends very much on the recoveries that we might or we might not have. I would not change your model or I would not suggest changing models now.
Got it. Thank you very much.
Thank you.
The next question comes from the line of Sechel, Io ana with BRK Financial Group. Please go ahead.
Good afternoon. First of all, congratulations on your quarterly results. We have seen that the CEO, Mr. Tetik, has stated that Banca Transilvania is aiming to increase its market share in the coming period. Could it be a new acquisition targeted by the bank? Perhaps an expansion into other markets or other regions? That's my question. Thank you.
Thank you very much. Thank you very much for following also my declaration. It's, I'll say at least I can start with what we will not do. We are not planning to go to other markets. We are not going to extend our reach out of Romania. We think that in Romania there is still a lot to do in terms of banking and financial markets. It's a challenging environment, but we had been without any complacency or arrogance, I would say that if there will be commercially, financially viable options, opportunities, we will definitely look into it. We are focusing more on organic growth. At our size now, I'll say acquisitions of smaller banks don't change our business model or strategy too much.
When we I mean, doing acquisitions 10 year, eight years, seven years ago, it was different. Now we will be much more careful. It should be very aggressive transaction for investors and shareholders. Yes, I mean, if there will be an attractive target, we will look into it. Still maintaining organic growth is the main scope.
Thank you.
Ladies and gentlemen, there are no further question at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you very much for joining us. I hope we were that clear so that no more questions were needed. Please, if you have any observations or questions, do not hesitate to contact our investor relations address. I'm saying this also comfortably for you to know that our executive management is following the address as well, so that we make sure that answers are being provided at the right level in due time. Diana had been doing a good job there. We will try to come back to you in short time if you have further questions in the coming days. Other than that, looking forward to meeting you in the upcoming events or during our next call, as I said, which we hope to organize as a video conference.
Thank you very much.