Dear, ladies and gentlemen, welcome to the conference call of Banco Transylvania. At our customers' request, this conference may be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to the management of Anka Tran Suzania.
Please go ahead.
Hello and Thank you for joining us in the second attempt to have the Q1 of 2021 financial Statement related press conference call. This time, unfortunately, Omer, our CEO is not attending the call. She was having some meetings with clients around Romania, in fact, in the already scheduled for this week. And we said that real economy is very important. So he's continuing his trip.
And I am here together with our CFO, Jorge Collines, when we are going to try to present results for the Q1 and also we are going to try to answer your questions. We would like to start by apologizing once again for the technical Problems we were facing Monday during the call. Yes, a couple of times we were thinking that you are able to hear what the operator was transmitting you, but unfortunately, there was a problem which was not and fixed in due time. So coming back to what November was starting to present I want to talk to you on Monday a little bit about the macro development in Romania. For sure, you have a lot of For details in that respect and yes, we are coming just with a Couple of confirmations with regard to how financial development, economic development in the country was taking When it comes to real economy, we had a strong rebound and let's say, the V shaped recovery seems to We are having in our presentation, which is available on our website, a couple of graphs, which are Giving you some interest with regard to how the real economy is having the evolution and very relevant indicators like the energy consumption or the fixed investments, which proved to be on a highly upward trend during the first quarter of the year.
Coming closer to what, let's say, economy and macro indicators, Meaning for the banking sector, we would like to mention that in terms of the monetary policy, we are currently expecting That the Central Bank is going to keep the policy rate around the current level, which is 1.2 It might be that another potentially 25 basis points cut could follow, but we are not really, Let's say, you're betting on something like that. We would anticipate some stability in this respect, Especially looking also at how the inflation target is being set. When it comes to the Exchange rates, we were facing a depreciation, but for the local currency, but the pace was, Let's take quite well under control. It was a very linear one without shocks or without Unexpected, very important, an aspect which we were mentioning also in the past like one of the increases when it comes to the absorption rate, which rose by 7 percentage points during the Q1 of this year. When it comes to the banking sector dynamics, as you might already know, we were having a Nice growth in terms of private loans, in terms of corporate exposure.
So all in all, all the areas in the economy, being them corporate clients or retail clients, were having growth when it comes to the outstanding exposure. In terms of nonperforming ratio, even though, Yes. Everybody was looking with a lot of attention to what is happening in that respect considering last So, year's lockdown and the public monetorias, the public and the private monetorias, which were Applied in the banking sector in Romania, so people or analysts were anticipating that NPLs could have been on a rising trend. However, the level is still below 4% also at the end of February. We don't have yet to proceed with the end of March, but things look like being under control.
On the deposit side, the growth continued during the first And we are having a very high liquidity in the banking sector below to the deposit ratio declining to Less than 70% across the banking sector with significantly higher liquidity when it comes to the 6 sector so segment, sorry, not only the local currency component, but the FX side It's also bringing a lot of activity to the market. When it comes to Banca Transylvania and What we have done in the Q1, as you were able to see also in our press release, we were trying to have all the engines prepared started in order to support all the new initiatives taken by the private economy. And besides going with all the programs which were offered to the market by the bank, we were also an this year. So here we are talking about an additional program when it comes to the Guarantee scheme for SMEs, so called M and A Invest, which was started last year and which Continues with the second phase or continues with the second phase. This year, we are having now a new initiative, which She's looking for the specifically the agricultural sector as part of this SME Invest program.
Then there is a program for leasing, there is a program for factoring and we are having then a program for which is a continuation of the first house program for individuals in the past, which is nowadays for The Newhouse. And this is one of the important players and having quite important tranche is allocated under Under this program. Important maybe to mention a little bit, if we are talking about this government program, also about The public moratorium, which was ended like in majority of the cases At the end of last year, but the let's say, the new items added to the puppy moratorium for last meeting clients who were not which were not accessing the full period of 9 months during last year To get that extra month, which was the difference between what they took and the 9 months which was allocated in the initial program to take it during 2021. Here we I can already mention that when it comes to Banca Transylvania, the amount of clients entering This program is very limited and we are talking about less than €150,000,000 of local currency, which Currently under this public moratoria, while everything was, let's Public Moratoria at the end of last year was finished and we are not having them as ongoing kind of other morapolla kind of exposures.
What we were saying last year that we The budget, Jorge will give you some details with regard to how much we were budgeting to spend for every single digital initiatives and meaning in our banks, and it's not only about what we are offering to our clients, but also the way in which we are trying to increase internal efficiency so that we are able to process faster and to provide Higher quality products and services to our clients. If most probably you were able to see that this time we are having a So yes, it might not make sense to lose too much time with the details regarding the different items of The P and L and of the balance sheet, what we can say in general is that we are quite comfortable with the way in which We were able to capture the opportunities in the market during the Q1 of this year. And that, in fact, Potentially, a little bit conservative way in which we were acting last year is proving to have been correct With the way in which we were able to shape the balance sheet structure and the P and L We will see nice growth when it comes to the pre provisioning operating profit a lot Or not necessarily a lot, but if we are comparing just Q1 of last year with Q1 of this year, You should take into account that during last year, we were having beginning of March the shock of the lockdown, It was quite an unexpected event for the banking sector and which was having an impact when it comes to the financial So that some of the movements and evolutions during the Q1 of last year was somehow out of the low when it comes to a normal evolution for our different P and L position.
In terms of loan structure, more or less, we continued with the same very, very Well diversified in terms of exposure, customer wise, product wise, sector wise. So we are continuing to mitigate the credit risk by making sure that we are not overinvesting in any of the Understand that sector wise, we are having a dedicated approach when it comes to the sectors which are meaning the We are bringing the highest potential positive evolutions for the Romanian economy. Here we mean agriculture, IT, infrastructure. So we are trying to concentrate on these areas, which are really adding value for the Romanian economy. When it comes to
the loan
quality, Part 90 It's at the same very good or well managed level below 2% with a coverage ratio in The way in which we were having recovered also in the previous years. For the deposit side, we Previous strategies and policies, and We continue to pay a lot of attention to that area as well, concentrating on how we are keeping and managing A very constructive and sound relationship with a wide range of clients, being it for the Credit side or for the deposit side. If we are moving, let's say, to the corporate Sorry, the capital structure of the bank, as you can see, we are very well capitalized with a very sound Capital ratio on all the segments and according to all the definitions. Again, together with Georgia, we are going to provide details with regard to how 2020 profit was proposed to be distributed in our for that meeting, which was also taking place at the end of April. And then Last but not least, we are going to be much more vocal with regard to our ESG initiatives in the market and potentially you have seen our ESG report published So for the first time in a very, let's say, complex manner and covering several chapters, We are going to come with a lot of updates and with a lot of details regarding the actions and the ways in which BT understands to be an active player in this respect, not only with regard to how we are behaving as a corporate In Romania, all the values which are related to sustainability.
I would stop here with and then we are going to continue with the Q and A session.
Thank you, Michalia. So Michalia mentioned A little bit of details on the evolution of the Q1. I will go a little bit in detail with the plan for 2021. They were detailed in the budget approved in the Shareholders Meeting. And especially, I will focus on what we had.
I was mentioning that we'll have a focus this year on Innovation digitalization. And I will mention that out of the total approximately ZAR400 1,000,000 on Budget for investment proposed. 2 thirds of this budget is proposed to be allocated to investments It's the highest percentage of an investment budget allocated To IT and digital initiatives that we have, I think, since I turned to the IT 7 years ago, so I'm happy that really we have a focus this year on IT and digital initiatives. With respect to other items of interest related Through the budget for the year 2021, I think it's important to note that we have proposed I would say, mildly optimistic in terms of the evolution. It takes into account What's the matter?
I was saying, in terms of the evolution that is expected for the economy of Romania from macroeconomic point of view, With the positive growth in terms of asset size and especially in terms of loan book With the planned increase also of the loan book of Makata and Sefania to Gross amount of KRON 47,700,000,000 From the 44,000,000 that we ended up the year with, while total assets are estimated to be Increasing to approximately R115,000,000,000 at the end of this year. In terms of key ratios, we will maintain a balanced approach that The banks had throughout last year with return on equity, Which is almost 13% at the end of this year. Of course, this will be Highly dependent on the ability of the bank to distribute results throughout 2021, We have not taken into consideration these deals and distribution because we don't know at this point in time if we will be able to Have the decisions made by the Central Bank on the distribution of dividends lifted by the end of the year? But should that happen, we are prepared to distribute dividends and it's our intention To do so, and if you look at the shareholders meeting proposals, actually, the results of the year 2020 was Speaking to 2, 1, it was proposed and approved to be distributed to a share capital increase to the shareholders.
This will take place throughout the year and one was kept in to us, especially in view of With the expectation to have this decision on dividend payments Maybe they'll be released by the end of the year. Should that happen, we will ask again for the shareholders' meeting and Discuss with the shareholders the dividend distribution, which will be similar to what we had in the previous years. We want to maintain the same pace sort of business distribution if we are allowed to do so. We have the capacity. We are very well capitalized.
We have put aside in the reserves such
Thank you.
And the first question is from Hayden Jane from Cowen. Your line is now open.
Hi. Can you hear me?
I guess it's me. So the presentation will be answered. Okay. So thanks for your presentation. Just few questions from my side.
The first one would be on the NIM outlook. So I was wondering If this figure that you had in the Q1 already reflects the interest rate environment like all the rate cuts that happened So far, and what is your NIM outlook moving forward? And my second question would be on personal expenses because It grew quite substantially year over year. And I was wondering if this is related To wage increases or how much was it due to the wage increases then how much was it due to the increase in the number
Okay. So we are going to split the answers. I'm coming on the NIM with the details And Georgi will take over the personnel expenses part. So when it comes to the NIM, yes, indeed, it incorporates The majority of the effect related to other cuts because there is some time since the last cut was taking place. But in addition to this, please do not forget how liquidy that we are and the level of the loan to deposit ratio.
So it is highly dependent on this exercise liquidity. And so we are Hoping and we are, yes, giving our best to come with a higher pace when it comes to placing loans to the market And to make sure that the absorption of the excess liquidity is going to happen at a slightly faster pace compared to the past.
With respect to the personnel expenses increase, I want to point out that the Q1 of the year includes some one offs related Two initiatives that were discussed and agreed of the employees in the last year before the pandemic And which were not able to be put in place because of the pandemic. With respect to some loyalty bonus That was to be paid out celebrating 25 years of history of BT to The employees, which have some tenure for the land, unfortunately, we couldn't implement this program last year because You remember very well that we were prevented from engaging to stock option plan Initiatives and also we had quite aggressively engaged into cost control initiatives We didn't know what the impact of the pandemic will be on the financials. And now since we had a release in terms of the We brought up this agreement that we had with our oldest and most For senior and trusted employees that we will take back this program And this cash on amount, which in Q1 was R25 1,000,000, That represents actually the amount that was due for last year, which we couldn't book. And until now, we don't have significant increases In the gross wages of the employees, the last increases that we had was, I think, in February last year.
Since then, only maybe some summary for retention purposes increases took place.
Yes. And just an addition that Staff wise, in terms of number of staff, we were having just like increases in that respect and everything was The majority of them were related to what digitalization is meaning. So we were growing a lot the teams which are working in the
Okay. Thank you. That was very helpful.
The next question is from The next question is from Simon Nellis, Citibank. Your line is now open.
Hi. Thanks very much Yes, I would be interested in just an update on asset quality. I was a bit surprised to see such a large Provision reversal. Could you just let us know why you feel comfortable enough to release provisions? Have you released any of the macro Forward looking provision, just what's the ground there?
And then maybe an update on just the moratoria exposure that's
Yes. So I'm going to start with the first part and then George will come with some add ons, let's say. So the point is that when it comes to the repayment behavior of the clients, their situation is very well under control. And With the, let's say, monitoring actions we were taking already in the last quarter of last year, we have seen that, in fact, The number of clients exiting the public moratorium was not facing any kind of problems for the time being and that the repayment Profile of the client remains as it sounds as yes, we were counting, Nevertheless, we were prepared for the work. What we were mentioning in the previous conference calls was that we are going to be, let's We are closer to having the final statements in this respect more towards the half of this year or potentially the because companies were still enjoying some liquidities in their account, which they were able to set aside during the 9 months of public moratorium they were enjoying last year and to the extent their economic activity was hurt.
This is not going to be already very visible in the Q1 of this year. This is, let's say, one aspect. And then for the second aspect, Giorgia will come with the details.
This is you know very well that quality is formed by 2 elements. It's So one qualified collective assessment of our loan portfolio, which takes Impact at the beginning of the year, but also it's borne by an individual component of assessment, especially for the loans that are in stage And for this part, we benefited in the Q1 of some recovery from Some clients in the corporate sector. And more often, normally, Historically, we weren't able to book anything in this respect in the 1st 3 months of the year because of Cut offs and the audit taking place and this individual assessment Impact being sort of an adjusting event for last year. So whatever we found in the 3 months of the independent individual listed clients, It's already booked, but we booked in December financials. So that's why maybe you see only A reversal because from a macro point of view, which affected the collective assessment, pretty much things were flat.
We had some recoveries on the individual level. We couldn't book anything on the individual level because those were booked in last year.
Already in December. Yes, and if you're going to look, as Georgios I was mentioning at, let's say, historical quarters, you are going to see that for the last couple of years. 1st quarter costs with provisions were usually reversals as auditors are having now quite consistent this The approach of making sure that whatever they are seeing at potential sites during the 1st couple of months during the For the next quarter, we will be Yes, we might see the final way in which The pandemic is going to be reflected in the quality of the loan book just towards the Q3 of this year. We are nevertheless monitoring closely all clients and all exposures, and we hope that as we have seen in the Q1, if the economy is going to have rather limited compared to what we were initially anticipating.
Okay. That's quite clear. So just to confirm that there were no release This is a collective provisions.
No, no, no.
So nothing substantial.
And then if I could ask
just on cost growth, because I think you have around 15% Cost growth penciled into your budget, but you've obviously been performing better than that. I think you kind of discussed it before, but Can you explain why costs should accelerate going forward?
So It's a factor of what I mentioned a little bit before. Our investment budget It's not reflected only in investments. It's also reflected in maintenance costs and all After we finish the investment on those IT initiatives that I detailed briefly at the beginning of the presentation. And if you look at the base comparison, We are comparing our budget for 2021, which includes also some initiatives related to Acquisition of new business in the year 2021 with the base case, Which is heavily affected by cost cuts in 2020. So we had even though the Q1 of 2020 was actually sort of business as usual from a cost point of view.
In the last 3 quarters of last year, we put the brakes quite heavily on those investments and costs. This is why You see an increase, but an increase with the comparison to a cost control environment, Which is not very conductive to growth for the bank. So nowadays, we're coming to what we've seen Maybe in 2019 in terms of investments and initiatives in BT with a comparative Amount of cost to the previous year before the pandemic.
Okay. That's clear. And then just one last one for me is on Moldova. Can you give us an I think you had some political or regulatory risk there, right?
Yes. But unfortunately, we don't have any kind of news. No, David. Or maybe it's not correct to say it. Unfortunately, it might be also So it might be that they were acting last year a little bit too fast without properly assessing all the aspects.
And now they I'm just, yes, trying to not do anything. And yes, we are also hoping that things are going to be just with positive outcome. However, we are prepared with everything what would be needed in terms of having legal advisers and everything correctly in place. But yes, there were no additional actions when it comes to any kind of authorities there.
Moreover, the business in Victoria Bank is growing quite nicely. So The bank didn't have any issues in terms of losing clients or losing business After this allegations of whatever procrastura Prosecutor's office were made public last year. So
Okay. Thank you. Yes.
Thank you.
The next question is from Robert Nada, PK Securities. Your line is now open.
Hello, can you hear me?
Yes, we can hear you.
Hello, everyone. Yes, I have 2 perhaps repeated questions. First, could you Provide maybe more detail because I'm not sure if I understood the outlook for the net interest margin. I understand the dilutive impact Of the excess liquidity, but still I would be interested if the repricing impact, especially on the mortgage loans, Has already been fully priced in on the portfolio level? So that's the first question.
The NIM outlook in more detail. And secondly, about the expected cost of risk or provisioning charges this year. I understand that you might have quite a conservative, again, budgetary assumptions of close to DKK600 million, if I'm not mistaken, of provisioning on the bank alone level. But still, I'm a little bit surprised because that would imply a very significant increase in provisioning cost Over the remaining three quarters of the year. So where do we actually stand, if you could Comment in more detail on the provisioning outlook.
I understand that in the end, You expect to do much better than the outlook outlined in the budget. The question would be How much better? And additionally, if you could reveal more some figures about the first NPL formation and how did it compare to the pre COVID past? Thank you.
Okay. Thank you for the call. Yes, I was coming to the net interest margin. Whatever repricing was, is already So when it comes to the previous cut, it's already in. That's for clarification.
When it comes to the cost of risk, indeed, we are, As usual, we are conservative, and we want to make sure that we are Properly assessing potential risks, and we intend to show that we are able to provide A certain bottom line while making sure that from a risk perspective, we are well covered. So these were principles which were guiding our We throughout the entire existence of our bank. The same way we are asking for this year, and we intend To remain with these principles, definitely, we are not going to exaggerate with overprovisioning if We are going to see that after the second, the Q3 of the year, things are really just going on upward And things are, let's say, just performing extraordinary. When it comes to the level of the cost of which was budgeted for this year. In fact, we are within the limit we were mentioning that cost of risk should be throughout an economic cycle.
So between 110, 120 basis points. Definitely, we are still on a more conservative side thinking that we are just in the 2nd year after the pandemic. If, let's say, we are if it's going to be confirmed that we are in the first in the year of new Economic cycle, definitely things might look better. But yes, again, repeating my separate point ourselves, We are within the range. We were mentioning always that it's according to our provisioning policy and the IFRS 9 We are consistent, let's say, with previous statements and with our provisioning policy.
When it comes to the NPL formation during the Q1 of this year, we are happy to say that we were not seeing Any kind of reverse in terms of trends. So there were no, let's say, real hiccups. On the contrary, things were moving just in the way in which we were dissipating with some sectors having significantly better Results compared to others, definitely whatever is linked to The hospitality sector is facing some problems, but they were not Our exposures sector wise are not that significant, so that trend wise, we are not facing any kind of
I have a follow-up question on the state of The NPL resale market, I mean how is this market doing and whether you intend to make any potential
It was heavily affected by the fiscal regulations, which prevented banks that are in a good Sort of fiscal tax position to engage in sales of that they will change that legislation, but I guess that the government had other priorities for the pandemic and all these activities around the pandemic did not focus on solving this until now. We did have promises, as I mentioned, and We are periodically reminding them, but yes, it's not on top of the Agenda of the current government, unfortunately. Right. Thank you.
Thank
you,
Yes. Maybe just, Let's say, an observation. Whatever kind of extra questions you might have after finishing to relevant answers seen in due time. But yes, we are still available if there are going to be extra questions now.
Thank you very much for taking my question. And now, you've talked about the asset quality and the NPL ratio and how it remains quite stable. What do you expect For the NPE, NPL ratio for the rest of the year now going into you could talk about Q3. Do you feel that the NPE ratio could remain below 4.5%, 5% or what is your And then on capital, the capital ratios, what is the dividend that It was set aside in capital. And also what do you expect in terms of RWA inflation for this year.
Are the RWAs risk weighted assets expected to move up with loan growth Or any other factors that you anticipate for 2021? Thank you.
Yes. So when it comes to the Quality and NPE levels, indeed, we are hoping and we are working towards Keeping the ratio below 5%, so that would be a level we are targeting to keep for this year. Hopefully, the economy is going to continue the trend that we are seeing now. And if it's Going to continue like this, then yes, we are more or less or more than less comfortable that the NPE can stay below 5%. When it comes to the capital adequacy ratio, maybe I'm going to answer First, the last question.
We are as usual, there are a couple of items which are influencing the risk weighted assets or the allocation of capital and one of them is related to The operational risk, which is, yes, more or less going in line with what the bank activity is as an evolution on a 3 year basis. So usually, we are having some updates there and some increases of Needed capital, the same is happening when it comes to the market risk where by the growth of All the portfolios related to market risk definitely also risk weighted assets part is growing. On the lending side, It's going to be just in line with the portfolio growth. So we are not going to shift the strategy towards more Capital intensive kind of exposures. When it comes to the dividend part, so As you could also see maybe if you are looking on our website, there is a presentation we had At our shareholders meeting, and there we were having mentioned that like half of the profits of last year Could be used for dividend payout in cash to the extent, yes, The regulators are going to allow such an exercise.
And half means
Okay. And that's reserves in capital already.
Yes. We have a follow-up question from Robert Nader,
So one follow-up question, if I may, On the general administrative costs, I've noticed that you had a declining advertising costs in actual terms. And given that you want to gain business and presumably market share, what would be the Expectation for the coming quarters, would the level of marketing expenses return to pre COVID average? And then would it imply that the subsequent quarters run rate Administrative costs would be by at least $15,000,000 to $20,000,000 higher?
Yes. So what you were mentioning in your question, that's in fact the reality. So we are expecting marketing to what 2019 levels were meaning. And if you are looking at the budget for this year, you are going to see That is the situation. So I don't have now the figure for the Q1 in front of me, but Georgia might have it or we can comment on it later on.
But for the whole year, we are anticipating that, yes, the expenses with that part Of making sure that we are properly presenting ourselves to the market is going to be at the correct level in order
The next question is from Christian Parson, please. Your line is now open.
Hello. Can you detail a little bit on the net trading income on
Well, it
has a lot to do with the way in which the market in general was having the evolution. And So both of them were contributing positively to the income when it comes to what trading On the fee side, again, we were having a nice growth, which was related to The increase of the economic activities in the country and the BT was keeping and potentially increasing a little bit of market share So in principle, market conditions combined with an increase in economic
Thank you. No further questions.
The last question is from Simon Lieferang. Your line is now open.
Hi. Thanks so much. I think you may have mentioned this, but I must have missed it. Can you tell us how much if there's any dividend accruals taken out of capital in the first
Yes. So there is no proposal to have the Between BRL 550,000,000 BRL 600,000,000, I don't know now exactly the figure, which was proposed and kept under reserve, so not distributed as the stock dividends, but kept under reserve so that it can go out like cash dividend if permitted. But we were not and I apologize if we were not properly understanding the previous question in this respect. We were not diluting The card level with this feature is still in, but the dilution would be like a couple of basis points or less than 20 basis
Okay. So the dividend hasn't been deducted from the proposed dividend hasn't been deducted from Caraballo. Okay. And you are very well capitalized, would I guess you're still in a good position to do further M and A. Is there any transactions that are potentially interesting on the horizon?
So we were always mentioning that to the extent it's going to be something which is making sense and it can add Thank you. To BT, we are going to look at those transactions and yes, we are going to or we continue to be active there.
Okay. So you're still looking that there's nothing kind of buy that might executed soon?
Yes. So we are well prepared if conditions are proper.
Okay. Thank you. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:]
Thank you, Oswald. And I think we Good, thank everybody for participating except if there is another urgent question. So please let us know if there Is there anything additional which you would like to have explained now? Otherwise, we thank you very much for participating in this Colin, we apologize once again for the yes, the misunderstanding on Monday and the fact that You have to readjust your agenda to connect today once again.
We have a follow-up if you have some time for Mr. Nader again. Okay. Your line is now open.
Thank you very much for taking this question. Actually, we had one, it's about Risk weighted assets, again, I wasn't sure if I understood it correctly. On the group level, Between the end 2020 and 1st Q 2021, the total owned funds have decreased, Well, the total capital ratio has actually improved by 40 bps, right? So this implies that risk weighted asset Went down quite considerably. My question is on the group level, what has been behind this move?
Did you experience a lower
Well, I need to double check because I don't have now all the details. We should I'm back with an answer by email because I don't know exactly how the evolution for the entire group was when it comes to the different allocation of capital. So that's something I we have We'll come back to you. I don't have an order to get the data.
Thank you. That's it.
Thank you as well.
We have no further questions.
Okay. Thank you once again. And yes, we are looking forward to meeting you and greeting you at the next conference call. And hopefully, everybody will be will stay safe and sound. And yes, hopefully, we are also going to enjoy some summer holidays this year.
Thank you very much.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.