Ladies and gentlemen, thank you for standing by. I'm Constantinos, your conference call operator. Welcome, and thank you for joining the Banca Transilvania Conference Call to present and discuss the first semester 2021 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Ömer Tetik, CEO, Ms. Mihaela Nădășan , Deputy CEO, Head of Financial Institution Markets and Investor Relations, and Mr. George Călinescu, Deputy CEO and CFO. Mr. Tetik, you may now proceed.
Hello. Thank you for joining us. Hope that you had your summer vacations, managed to travel a bit and enjoyed the summer of 2021. We will try to give you some brief insight about Romania, Romanian banking system, and then we will go deeper in Banca Transilvania's numbers, and definitely, we'll try to answer your questions or listen to your observations. In case we will not be able to answer for any reason at this very moment, we will come back to you. Mihaela and her team will take over and come back to you. We are trying a new platform. I hope that our voices are being heard well, and also the Q&A will be on an online platform, so that we will be trying something new. Let's see how it goes.
As regards to macroeconomic situation, as you might be following actually, Romania is very much in line with the European and global trends, but actually in some numbers positively passing the global trends or averages, especially in the second quarter. If you looked at the numbers, the GDP of the country grew 13%. This is definitely coming from the fact that lockdowns heavily affected last year in the second quarter Romanian economy. Quarter-to-quarter comparison might not be very correct, but still, we are expecting the economy to grow between 6%-7% this year, throughout the year, despite the ongoing discussions, debates on the Delta variant and what might follow with the fourth wave. The macroeconomic and monetary situation is quite stable so far in Romania. National Bank of Romania maintained the policy rate.
They want to see more, how to say, profound changes in the GDP structure, bigger pressures on the inflation on the prices because, so far, especially in the second quarter of the year, main growth came from consumption, which grew almost 25%. This didn't create that much of a inflationary pressures on the prices. Plus, Romania is also having its best years in terms of agricultural production. This is a year with record production. When the prices are also relatively high in global markets, so the economy will be benefiting, but also the fact that we are not importing heavily agricultural products will help also to the local economy. The budget deficits have been growing. Now it's around 4.3% at the end of the first half of the year, and this is passive.
Partially from the growth programs, partially due to the tax incentives granted, but with the EU funds, with the rebound of real economy, we will be recovering this budget deficit, hopefully. We see quite good efforts on the fiscal discipline from the government side. On the money markets and fixed income markets, we have seen that the yield curve is getting steeper and 10-year bond yields have increased more than the short-term yields, which gives us the belief that ROBOR will be also quite stable in the next three to six months. We will be expecting a sign from the National Bank of Romania in terms of the monetary policy change. This helps definitely the economic growth, lending, savings. Despite the high tax, savings are increasing.
We see also activity in the capital markets in Romania, where the domestic stock market is at a record high as for its Western and European and U.S. equivalent. Banking system has been quite robust. During the pandemic last year and also this year, the banking system lendings have been growing quite fast, and only in June we see month-to-month, 1.4% growth of non-governmental loan book and more than 11% growth year-on-year. The growth is coming definitely mostly from main lending. Also supported by the government programs like SME Invest, Agro Invest, and so on. Contrary to the expectations or the initial forecast early last year, the NPL ratio so far is below 4%. Banking system is well capitalized and well-provisioned.
The biggest challenge remains still the financial inclusion and to increase the bankability of SMEs, smaller companies, our households, and that will increase most GDP ratio, hopefully to similar levels of European Union. Deposits have been also increasing. It's a good sign that we had been mentioned also last year. Romania, until last year, entered each financial crisis or any cycling with a very high loan-to-deposit ratio with low liquidity and dependency on liquidity from external partners and markets. In the last couple of years, loan-to-deposit ratio went below par. Now is actually around 68%. Although the lending activity has increased the loan-to-deposit ratio by 0.6%, which is still insignificant, still we are at very comfortable levels. This also shows the possibility of both the households and smaller companies to meet their debt obligations to banking system or to other parties.
Coming back to BT, we had been quite active last year in the governmental programs. This year, we have built our strategy that we come back to normal lending, normal banking activity. We have seen a very strong growth in retail lending in terms of number of operations. In the company side, from micro-lending up to the large corporates, actually 60% of the loan activity is being supported by government programs. 40% is our own initiative, and we are getting more and more active when we have a real sense of the markets and see our customers, how they reacted, how they stay after almost one and a half years of pandemic and financial crisis. We have been over 6,200 companies this year have been obtained grants or loans through the grants of government program this year.
The most active ones being SME Invest and Agro Invest. When you see in our presentation IMM, just read it as SME. This is our main segment. Also with the pandemic, the digitalization efforts that we have been spending has accelerated. Now, we can comfortably say that almost 70% of our retail customers are digitized. They use at least one of our business solutions. BT Pay, our wallet application, has tripled its number of transactions. We have been launching several different options and opportunities. I don't want to bore you with all what we do there, I guess we are kind of leading the digital transformation, digital adaptation in Romanian market with number of contactless payments reaching 27 million in the first six months with BT Pay, our wallet having almost 1.5 million users.
Our customers using heavily our digital help and omnichannel support channels to interact with the bank. This is also valid for company side, where we are more interacting or offering them alternatives to our network. On the other hand, we are also happy to see that BT's network with 100% capacity is back to work, and we are almost at the point that we will see again crowds of customers with different transactions or different requests. This is our strong point. We trust our network, and also we need their presence because they had been a driving force for our growth. They are fully back in the front line of our financial and commercial growth. In terms of financial performance, I don't want to just read the numbers that you already have seen or might have seen.
We have delivered quite a strong profitability with, I would say, very prudent provisioning policy for the loan book. Although the decrease in interest rates, monetary policy in general is putting pressure on our net interest margin. What we are maybe losing there, we have been mostly compensated from net fee and commission income, which grew very strongly. This almost every three months when we are discussing with analysts and investors, this is what we say that this was our maybe weak point. Now we are at a very reasonable and comfortable level, and we see further opportunities. Customers are doing more and more their transactions with us. Our interactions with them are becoming profitable.
This helps definitely at the end, the bank to deliver almost 19% return on equity with a cost-income ratio below 46%, which is quite a good practice, even if it's not best practice in this part of the region. In Romania, we are the best practice. With RON 46 billion loans and RON 94 billion deposits, our loan-to-deposit ratio is at 49%. We are enjoying the trust of the customers. We are enjoying the transactional volumes and fee incomes generated by them. Definitely our focus from now on will be accelerated growth of lending book so that we can provide more interest income for the liquidity that we have. Our capital ratio, if we include also our profits for the first six months, is at 23.6%. This is beyond regulatory minimum levels, beyond even our budgetary levels. It gives quite a good positioning for organic growth.
If there will be further acquisition, definitely M&A activity that we are interested further on. Our net interest income had been, if you compare first half of 2020 to first half of 2021, our interest income grew by 5%. Fee and commission income that we were mentioning grew 27%. Trading income, due to well management of our fixed income portfolio grew over 45%. We also see the pressures on the operating expenses, especially from the human resource side. Romania, both demographically and also economically becoming a more expensive market. I think with some adjustments we have been doing, we are offering good conditions, good benefits to our employees. They ensure the good results of the bank that we are presenting to you.
There has been some impact from postponed benefits that we were supposed to grant as per 25th years celebration of the bank early last year. Due to pandemic, we decided to postpone for potential reasons. This year we are allocating those benefits, some special loyalty premiums to our employees who are working five years, 10 years, 15 years, and so on with the bank. This is mostly a one-off, of which the impact will fade in the next years to come. Our loan structure, as you know, is mainly in local currency. We are kind of naturally hedged in terms of our foreign exchanges. Also this improves customers' payment performance, payment ability as well. We don't see any change unless there will be a clear and precise plan to enter European Monetary Union. We will be focusing on lei.
In terms of loan quality, our NPL over 90 days is at 1.96%. It's below 2%. NPL coverage ratio, if you include also the real estate collateral, it's close to 130%, which as I said, it also gives a comfort that we are well provisioned and well prepared for the growth to come. In terms of liquidity, I have already explained. By the way, our presentation that we are using as a guidance now, it's already in our website. If you didn't access it, you can definitely access it now. Our strong points have been always retail banking and small business banking in Romania. Our retail loan portfolio reached RON 25.7 billion at the end of June 2021, with 3.1 million active customers. Only in the first six months of this year, we have granted over 100,000 retail loans.
This comes also from the fact that both with our network of branches, POS, ATMs, we are quite an available bank, accessible bank for them, not only just through digital channels. If we look at the digital customers, actually we have 2 million digital natives, 2 million customers using at least one of our channels, as I have mentioned already. In SME banking, in small business banking, we have a loan book of RON 6.5 billion with over 350,000 customers. Last year, the boost from SME Invest in the nearest program has been crucial to reinvigorate and to keep alive this segment. This year we see that our customers are already coming for their own investment of working capital needs, and the payment performances are very good. There are almost no customers left from moratorium.
If you look at the payment performances, we don't see any, let's say, alarming levels. In corporate banking, we have 11,000 customers. We have been growing also in the slightly larger tickets this year, especially in the utilities, FMCG, manufacturing, healthcare, communication. These sectors will remain our interest together with the renewable energy. I mentioned already that our capital ratio, even if you don't include the profit of the first six months, is over 20%, with the profit included, it's 23.6%. We will be continuing our growth organically. We are prepared and trained for that, but on the other hand, we are also thinking that the consolidation in Romanian financial sector will continue. We'll be looking to maybe smaller banks, maybe to leasing companies, in order to, let's say, extend our reach and to use our capital better.
When it comes to sustainability, I have to admit that we have one of the best leaders of support of sustainability. He's in Romania among us. I would like to give the floor to Mihaela to tell us a few words on our sustainability efforts.
Yeah, maybe we are going to repeat part of the information which you already have seen on our website or we were publishing in previous press releases. What we have started this year is definitely to be much more vocal and much more transparent with regard to all the initiatives we were having in that respect. The fact that we were having already since 2008, all kinds of programs which were designed in order to increase energy efficiency when it comes to investment projects of our clients, of our SME clients. We continued with different partnerships with other investment funds, also for energy efficiency, mainly when it comes to municipality projects that were started in 2012.
We entered also the retail side of green loans back in 2015, and what we can say now is that we expanded everything what is meaning sustainable kind of approach within the analysis of all the loan contracts and the loan arrangements we are having now with our clients. Besides this, we are transforming slowly everything what is plastic in our interaction with clients into green kind of banking. Virtual cards are going to be, let's say, the drivers when it comes to the new portfolio for cards, which Banca Transilvania is offering to its clients. These are a couple of features when it comes to the green, the environmental part of the sustainability topic.
When it comes to the social part, only the very nice words which Ömer was saying with regards to the managers of the bank are to complete the scene here. Looking at the structure of the human resources in Banca Transilvania, you are going to see that diversity and equal chances is, let's say, a practice for us for already a significant number of years. We are going to pass this practice and these good examples also when it comes to the relationship we are having with our clients. In this respect, to different programs, we are supporting everything what is related to women in business and entrepreneurial approaches coming from different layers of the society. Trying to bring, let's say, the financial inclusion at the table each and every time when we have the chance.
While for corporate governance, you have maybe seen the scoring, the ratings we were obtaining with regard to the transparency of our reports. Definitely, we are doing our best to improve everything what we are having there, not only with regard to the financial reports we are presenting, but also with regard to the entire activity of the bank and in terms of the way in which we are organizing our shareholders meetings and we are interacting with all the stakeholders of the bank. Thank you.
Thank you, Mihaela. Just before we close our presentation and switch to Q&A, we are also very happy to see the growth of our subsidiaries. Before closing the first six months actually, BT Asset Management was just slightly under RON 5 billion assets under management. If you look at the consolidated numbers presented also to you, our subsidiaries are having significant contribution. They are adding almost RON 350 million to our operating income and over EUR 1 billion to our total balance sheets, to our total assets. We see continuous potential in terms of the third pillar of the pension funds, in terms of asset management, leasing, but also our micro-lending company, let's say BT Microfinanțare, is having a tremendous performance despite all the challenges that they had. They are not only growing, but they are growing profitably.
These days, you might see also a couple of photos if you look at the presentation throughout the corners of the pages. Actually, these are some pictures from our new head office. Since June 2021, we are in our new offices and from couple of different buildings, we have gathered all our staff back into new head office. It's good to see that over 80% of our personnel is coming to office, so we are working from work and also our personnel is enjoying the much better conditions of the new head office. Hopefully, when everything with corona will be over, we will be organizing maybe an investors event and we would like to host you in our new head office maybe in 2023. Thank you very much. I would like to switch to Q&A. There is an online platform, I understand, that we will be taking questions.
Me, Mihaela, and Georgiana will try to answer as many as possible during this earnings event.
Ladies and gentlemen, at this time we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Hai-Anh Tran with Concorde. Please go ahead.
Hi, can you hear me?
Yes, we do.
Okay. Thank you for your presentation. I just joined the call, so sorry if you already answered my questions. Just a couple of questions from my side. The first one would be on stage two loans, because I observed that they increased quite a bit in the second quarter, and I was wondering if there was any special cases or if as a quarter you really deteriorated to that level. My second question would be on costs. It seems like even on a quarterly basis, your costs increased as well, and I was wondering if you could elaborate on your outlook. What shall we expect in the coming quarters? The third one would be on NIM. Whether you could elaborate on your NIM outlook for the rest of the year. Thanks.
Hi, could you repeat your third question? Because unfortunately we were not able to get it properly. The third one, the last one.
Yes. It was on interest margins, like how is your.
Okay
outlook for the rest of the year. Thank you.
Okay, I'm going to start with your first question. Maybe you remember that we were mentioning that we remained conservative in terms of provisioning policy, and this is the reason why we were shifting some exposures, looking at potential risks arising in the future, but without any kind of signs when it comes to a repayment deterioration. This reflection is, in fact, also in the way in which the weight of stage two loans was growing. Otherwise, it would have been quite impossible to set aside provisions for performing loan books. This is for number one. For number two, the operational costs, Ömer was mentioning some details in his presentation. Definitely we are keeping them as much as possible under control. As you know, we were always looking at the cost, not like a single item, but in correspondence with the income.
What we are controlling is the cost-income ratio, and we intend to keep it at reasonable levels. Definitely, if we compare the figures for operational costs also with last year, last year, we were not having that much of, let's say, activities. There were a lot of savings happening because of the lockdown. Part of this growth is coming due to the base impact from last year. It's part of this quite high growth space you are seeing this year. We were having that loyalty program for people working with the bank for a large number of years, which should have happened, and those amounts should have been paid last year, but we postponed it for this year.
Plus the fact that, yeah, we are continuing with all the investments when it comes to the digitalization of the bank, improving all the systems we are having, trying to improve not only the interaction with clients, but also internal kind of processes and flows. This is something what is going to continue, but definitely we are going to keep it well under control, so that we are keeping the cost-income ratio at levels which we committed in front of our shareholders.
Still we are, with the level at least, we would say that we are comfortable for a fast-growing bank. On the other hand, as Mihaela was saying, last year, suddenly after February especially, we stopped training, we stopped advertisements, we stopped marketing activities, projects with consultants. Several different things have disappeared from our day-to-day activity. Indeed, suddenly we had to spend some bucks on masks and gloves and plexiglass, but they were not that significant. It's not very, let's say, maybe fair to compare semester to semester. On the other hand, in Romania, this is the general issue, especially on the human resources side. The cost of employment is increasing and technology is not just itself a solution because it's also a costly investment, although we are heavily investing there.
I guess your last question was related with the NIM. Yes, while we are enjoying our liquidity to grow from deposits, we are also very committed. We have said this a couple of times. We are not going to exit until things will get so drastic. We do not want to quote negative interest rates to our customer deposits. We do not want to penalize Romanians coming to a bank, trusting a bank, and making deposits there. This is something that we have to develop further. This is part of the financial education. We almost see it as our marketing cost, and we actually cover part of the expenses there from the increase in the net fees and commission income that we have been always mentioning. What we think is that both the ROBOR and monetary policy rates, most probably in the next three months at least, will be stable.
Maybe towards the end of the year or early next year, national banks may give the first sign of changing the direction in the policy rates. This will have its impact on the interest rates in general. It will impact the fixed income markets on the other end, for banks like us having heavily lei loan portfolio with variable interest rates, it will also help us to increase our net interest margin. We didn't grow our assets, loans very aggressively in the last one year. We are the market leader in terms of growth as well, we didn't want to be over aggressive. Every day when we have the comfort of economic data, of the financial data from our customers, we will be accelerating our lending growth, which will also have a positive impact on the medium.
Okay. Thank you.
The next question is from the line of Blue Wood. It is Alexandros with Wood & Co Please go ahead.
Hello. Thanks for taking my question. I would like to ask regarding cost of risk, maybe reverting a bit to the question from my colleague previously on stage two as well. I think in your budget and your guidance, you were assuming around 120-130 bps cost of risk. In the first half it has been about 50 bps and quite volatile from one quarter to another. Should we still assume this level that you have in your budget as a full year guidance? Is it still reasonable? A second question regarding fees. In your budget as well, you had a small decline year-on-year, it seems that first half trends are moving well above these expectations. Maybe a reason behind this strong performance compared to your initial assumptions. That would be useful. That's all on my end. Thank you.
I will start with the second one. Second question. Last year, if you may remember, during this period, we have opened certain channels which were fee-based commission earning, free of charge to our customers. We have postponed payments. There was no activity. Definitely part of the increase is coming from the revival of the economic activity of our customers. Part of it is coming from increased volumes. We are very attentive. This year, actually, we are also accelerating in terms of volumes and number of products, what we do on bank issuance or what type of other needs our customers have. That's why, although we will not promise, we will not commit to 25% growth every six months.
We think that still there is room for double-digit growth couple of more years to come for BT in terms of fees and commissions income, despite the challenges that we have from as regards to the decrease of interchange fees of different regulations. Still, as we grow our number of customers, as we grow in terms of account volumes and deposits, this helps us a lot. That's why we see the customer profitability itself, not just from the interest income point of view. We see it as a role of itself, and we try to take the best part of this role for each customer, who is trusting us. In terms of the cost of risk. Indeed. Maybe we have made a tradition of being more prudent each year in terms of expectations.
Last year, this year, all the talk was about increased NPLs and need for provisioning. We try to address this. There are not really too many one-off. We had been also changing our rating model, which impacted on the upper side the cost of risk. Now we are comfortable with it. I'm not sure if we will be going towards 120 basis but closing of the year will be slightly higher than where we are between 80- 100 basis points, I guess.
Yeah. Here just to add something, what we were also mentioning earlier this year is that all those clients who benefited of the public moratoria are still monitored by us. Still repayment behavior is very fine. Yeah, we are waiting for the third quarter and fourth quarter prior to confirming that indeed, we have passed without negative surprises the crisis generated by COVID. This is also one of the reasons why we are not changing, let's say, the expectations when it comes to a more conservative level of provisioning. We are going to be able to come with more details and to have a clear picture once we are closer to the year-end, and we have a confirmation of the economic performance of our clients.
Thank you.
The next question is from the line of Cristian Popa with NN Pensii. Please go ahead.
Hello. Just to make sure, regarding cost of retail, you are saying around 80- 100 basis points for the whole year?
This week would be something what we could anticipate now, looking at how the portfolios are performing. We are not coming with any, let's say, kind of budget rectification or any changes on the budget. It's an assumption based on the current standing of the situation.
Okay. Just to make sure, what was the estimation in the budget? 120 or something like?
Yeah.
110.
110. Thank you. Regarding dividends, is there any plan to distribute any dividends this year, taking into account the position of the NBR and other announcements made by other banks?
Yeah. Maybe you have also seen that we have convened a shareholders meeting in order to approve a dividend topic. Definitely, we were checking with authorities. We are coming with a balanced, let's say, proposal in terms of how much cash dividend we are proposing to be distributed. The shareholders meeting should take place in September. Yeah, we are assuming that it is going to approve the dividend proposal prepared by the bank's management.
Okay, I got it. I see it now. Okay, thank you.
Thank you as well.
The next question is from the line of Simon Nellis with Citi. Please go ahead.
Oh, hi. Thanks very much for the call. I'm going to ask, I think, the question I usually ask, which is, how can you have such high other income this quarter? Is that sustainable? That would be my first question. Second question would just be on M&A.
Sorry, can you repeat the first question? Because we lost the line. How can we have what? I didn't get that. Sorry.
Such high trading and other income. I think your trading and other income is in excess of your fee income this quarter.
Nellis, you have one more question.
Yeah. My other question was just on M&A. I think there were some press reports that you're finalizing a transaction to buy Getin's business in Romania. Can you just share with us the logic of that transaction and what it can bring to you? Any other potential transactions that might be there?
Sure. I will try to answer the first question. Definitely, due to our liquidity, an important part of our balance sheet is in fixed income. We are not trading too much or significantly out of Romania exposures. Romania has been trending well. Our treasury has been managing well. We managed to catch, based on our know-how, experience, our connectiveness to the local market. When yield curve was moving, we did the right moves. That it helped us with the trading income. In the other income, if you look at our balance sheet, actually our loan portfolio, most of it is coming from recoveries usually, either asset sales or other types of recovery. This is not something we can predict. We are not trying to make our budget, but it has been quite stable. I hope this answers the first part of your question.
Yeah. There are also some revaluations of some investments which are going to the P&L. The majority of our T-bills is being reevaluated through the equity. There are also some positions which are going to the P&L, and they also positively contributed to the other income positions.
And then—
Okay.
—as regard to Idea Bank. Actually, it is a different type of acquisition that we did. Until now, what we have done is either portfolio buying or going towards bigger market share. On the other hand, we have liked both the team in Idea Bank and what they manage, because in a couple of problematic years, they had been quite good survivors, creative. They did establish a good flow, a good know-how in leasing and creating some receipts from leasing. Which their bank was financing. We would like to obtain this structure, people, and know-how from them. Also we are now assessing very carefully, thoroughly, to follow maybe the footsteps of several other bigger banks who did it in Western Europe, having a separate digital bank.
A separate digital banking entity. We are trying to see who did what kind of mistakes and what worked, what functioned. Our digital banking, digital transformation strategy had been always the best early adopter. As a local group, we don't think that in banking you can really easily innovate new products or services. We can innovate procedures, loans, the type, how you service your customers. We are looking from Singapore to Canada to all the best practices. We have kind of an idea about what to do. If we will get the necessary approval, at the end we will be addressing also Romanian diaspora, Romanians living abroad. We are speaking about a couple of Romanians living abroad. It's not the only target. It will be a fully digital bank without physical presence because we don't need a smaller BT. We have already Banca Transilvania.
We think that a simpler, easier to deal with bank might address a part of the customer segment who might have reluctance working with BT.
Just in terms of phase, we have submitted all the requests for approval to all the regulatory bodies in Romania. We are now just waiting to receive their approvals, and then closing can take place.
We are expecting the closing to take place towards the mid to end of the last quarter of this year. In October, November, actually early December.
Sounds interesting. Okay. Well, thanks for that. Actually, one more from me, if I could. Could you just update us on the Moldovan situation, how the business is going and any steps forward in terms of your court issue there?
Yeah.
Your legal issue.
There have been some, I guess, good political news maybe from Moldova, although, we are not in this segment of the country. On the other, we think that there will be some transformation adapting to Western European standard loans of business making. We haven't been in the court yet. Let's see. Our file has been dragged for quite a long time. We are trying to get more information about what and when will be happening. On the other hand, the bank itself is fully operational, decently profitable. Our colleagues are doing a very good job there launching new product. Actually, Victoriabank has been pioneers in launching new housing loans, credit card wallets, credit card structures, contactless payment. Just during last 18 months, with the help of BT Capital Partners, our investment banking boutique, and together with Victoriabank, we had been doing bond issuances for small municipalities.
Actually there is kind of a parallel universe that the bank is doing its business in accordance with the plan strategy with quite encouraging numbers. There is this litigation which doesn't progress. We are expecting now things to settle down, to see the changes, we will try to contact authorities to move to any direction, to a more clarity because, as you are asking maybe every quarter when we have this call, we are asking almost daily. We are also reporting to our regulatory bodies in Romania that's something that's creating a discomfort for us.
Understood. Thank you very much.
On the other hand, the bank is doing quite well.
Thank you.
The next question is from the line of Robert Brzoza with PKO BP Securities. Please go ahead.
Hello, everyone, thank you very much for the presentation. Obviously, by now, most of my questions have been answered. A quick few follow-ups, if I may. First, on the internet bank, I couldn't hear clearly. Did you say that you're going to apply for a separate banking license and to open a separate, so to say, web-based bank? That's first question. Second question on OpEx and employee remuneration. Could you say how much of the quarterly increase in costs was related to those, one of the bonuses being paid out, and whether the remainder is a sort of expected run rate for the remainder of the year, or do you still expect to further raise wages in the second half of the year in Romania? On dividends, the third question, would you be willing as you said, there are M&A opportunities rather in the middle-sized banks available.
Compared to the historic payout, would you say it's possible that you would raise the dividend payout ratio, say, next year and going forward? Finally, my last question on the cross cycle expected cost of risk. I believe you stated recently it's around 100 basis points in the medium term. Did it change somehow? Did it perhaps improved as it was the case in other regional banks? That's from me. Thank you.
I guess I remember I tried to note all the questions, but in case we will skip anything, please ask again. As regards to the digital, the online banks, we don't need to apply for a new banking license because we are waiting for the approvals of acquisition of Idea Bank. Once we have the approval, actually, we have that banking license. Definitely, we have to convince the regulatory body, and all the controlling bodies that we will be able to manage two banking licenses for different niches, or for a new niche with new banking license. Indeed, as I said earlier, if we do a digital bank, we want it to be really digital. We don't want to be a bank which is also offering digital services or channels.
Otherwise, it doesn't make sense for us to have another traditional bank like ourselves. That's something. This is something that we can share more plans and clarity only after we close the transaction, hopefully in the last quarter of this year, towards the end of the year, we will come back with our plans. There are several examples of it, in Western Europe, in Canada, in U.S., where big banking groups have a smaller entity, which is doing full banking, through a separate entity. This is the roadmap that we have. If I can give you a hint, this is the hint, actually.
In a way, you're already acquiring an existing online infrastructure and a new banking license as well.
No. We are acquiring a bank, on which we would like to embed. If our plans will function, if everything will be okay, we will be after the closing. Again, I have to make a lot of disclaimers here. Once we have the approval and we have the closing, we will be moving the traditional banks, the traditional Idea Bank with its personnel, with its people and portfolios to BT. The empty shell, the banking license that we will keep that, we will build up on it.
All right.
Okay. The next question was with regards to employee remuneration and what would be, let's say, the expected run rate in terms of growth. On a yearly basis, you might have seen that we were definitely increasing the salaries of our staff, at least with the inflation. We were having a couple of years in which we were having shift, let's say, when it comes to the structure of the staff, employing more people, more specialized people, IT specialists or data mining kind of specialists. That kind of trend is going to definitely continue. What we are seeing or what we are foreseeing like normal growth rate for our staff cost is somewhere around 6%, 7% as the run rate for staff related cost.
What would be impact of the bonus, please? If you can share it.
Figure wise, there were like RON 42 million.
It's less than EUR 10 million.
Yeah, exactly.
Just less than EUR 10 million.
Yeah.
Okay.
Okay. With regards to the dividend, I'm not sure we were capturing well the question.
This loyalty bonus is related with 25th year of the bank granted to people having five, 10, 15, 20, 25 years with the bank. It's not a recurrent event, just another disclaimer from me.
Yeah.
Sorry.
Okay.
Yeah. Okay. With regard to the dividends, somehow we were not really getting your point in that respect. We were always mentioning that dividends are going to be paid out depending on the growth expectations of the bank. Definitely looking also at M&A possibilities, and making sure that we are not having the bank inefficient by keeping too much capital in the bank. A combination of an expected return on equity and a minimum acceptable from the management perspective of the capital adequacy ratio.
Where we have also EBA, European Banking Authority, and National Bank of Romania's prudential guidance regulations which may come, they did in the last 12 months. There might be restrictions or strong recommendations that we have to comply with. It's not a good time to give a dividend, cash dividend guidance. If we will also manage to, what's it, meet our expectations to grow in an expected manner, we still have enough capital, more than enough capital. If things will go south, and there will be pressure on the loan portfolio quality, we are having a lot of excess capital that we don't need to tap the shareholders. Which is our base case scenario and that we believe in, that things go back slightly to normality. We grow still our loan book close to double-digit levels on a yearly basis.
There will be quite good room because we are creating enough internal capital to pay cash dividends. For 2021, 2022, we should be discussing when we have more clarity enough to give a weak guidance to anyone.
Your last question was with regard to the cost of risk. Yes, for the time being, we are keeping that expectation that across the cycle, cost of risk is somewhere between 100 and 120 basis points.
Okay. Thank you very much.
Thank you as well.
We would like to take the last question, if possible. Further questions, please do not hesitate to address our investor relations addresses or us directly. Let's take the last question, please.
The next question is on line of Patrick Christian with NN IP. Please go ahead.
Hello. Can you comment a little bit on the net interest margin outlook and how do you see the end of the year and following quarters? Thank you.
We were trying to address this topic also earlier. Definitely looking at high liquidity we are having, but also at the growth potential in the market. We can say that this level of the net interest margin is more or less a minimum floor, and that to the extent the reference rate is going to potentially grow closer to the year-end or beginning of next year. Definitely we are not foreseeing any kind of additional rate cut. This is a minimum from which we can see just, let's say, a growth related to the net interest margin. This is also connected to the way in which we trust that the loan-to-deposit ratio is going to improve, becoming a little bit more efficient. Right now, we are below 50%, and this means that, yeah, we do have a lot of liquidity, which we have to manage.
Clearly, as the economic expectations for Romania are improving and we are forecasting GDP growth of 7%, 6% on a couple of years basis. The level of new lending should be on a growing path, and this will trigger a more efficient balance sheet and definitely also improve net interest margin.
Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you very much for bearing with us, listening to us. I hope that we managed to clarify some of the questions. As I said, if you have any other observations, or remarks, or questions, please do not hesitate to contact us. We are looking forward to come back to you once we have the third quarter results available. There will be more maybe news also with regards to Idea Bank or the year-end number guidance. We will be, as you know, beginning of September, we have our general shareholders' assembly, upon which we will be providing some more news to you. If needed, we can also organize a call. I hope that all of you will stay safe and take care of yourselves.
I'm looking forward to meet most of you, every one of you, at Investor Conferences that we used to have in different weird parts of the world. I hope that in 2022, we will have this chance. Thank you very much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a good afternoon.