Ladies and gentlemen, thank you for standing by. I am Poppy, your Conference Operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the year-end 2023 financial results conference Call. Please note that the conference is being recorded. The presentation will be followed by a question-and-answer session. You may submit your written questions using the Ask-A-Question window. At this time, I would like to turn the conference over to Mr. Ömer Tetik, CEO; Mr. George Călinescu, Deputy CEO/CFO; Ms. Luminița Runcan, Deputy CEO/CRO; and Mr. Aurel Bernat, Executive Director, Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.
Hello. Thank you very much for joining us, ladies and gentlemen. Dear friends, we are here to present you, in the first part of our presentation, 2023 Financial Results, and then we will be continuing with a brief presentation of our latest M&A transaction, and then switch to Q&A, hoping to answer your questions. The presentation is already uploaded in the Investor Relations section of our bank, but if you need any further information or a follow-up later on, please do not hesitate to contact our Investor Relations colleagues as well.
I mean, looking back at 2023, but not only 2023 in the last couple of years, I would say that we are not just only comfortable but also proud of the results that we have delivered. As you have seen, in the last couple of years, even without acquisitions, we have managed to deliver double-digit growth in our lending portfolio. Deposits, customer deposits, have been on constant growth, even when it was the hot topic discussed within European and U.S. markets. We have a very stable and healthy loan-to-deposit ratio. Our business growth, volume growth, also induced stable growth in net interest income. We benefited from, I would say, growth of the interest rates but also stable current account, salary account type of funding that we have. But also we are mentioning this each time, I mean, except, I guess, 2020.
Each year we had been having very strong growth in our net fee and commission income. This is coming in the wake of several regulatory limitations or decreases in this segment, but our business growth, number of customers growth, is helping us to deliver better results, which also definitely bring us to a situation where our return on equity is very strong and we are not delivering this high return on equity with also very high capitalization ratios. I would like to let Aurel to tell us a bit more about 2023, maybe a bit about 2024, but indeed, we have been, as we had been saying, it was a difficult year, which we and most of the, I guess, financial sector managed to finish successfully.
Thank you, Ömer. And hi everybody. I was prepared to start by telling you that, 2023 was a challenging year, so, somehow that's the message that you are also sending, Ömer. It was a challenging year. On the other hand, it was a good one, for us. And if we jump a little bit to the Romanian economy, it seems that even if we had a robust, GDP growth during 2023, it was still appreciated by both investors and the market overall because it was higher than, average European one. On the other hand, as you might see in the slides, considering, consumer prices, we had a short increase, or a small increase of, CPI, during, the last quarter of, last year. We have a CPI of 7%, which, if we are judging it historically, it's somehow, level in which, we see an equilibrium right now.
We had this spike also in the European market. So overall, it calmed down in terms of CPI. The market is more stable now. So from the two perspectives, we remain still confident in terms of 2024 and in terms of future growth. In February, we had the Monetary Policy Board meeting at the National Bank of Romania. They kept the policy interest rate at 7%. We foresee that in the current environment in which we still have to see a decrease of inflation, as well as a pickup in the economic growth and in terms of interest rates, we see it as a stable level at this 7% right now. From the lending perspective, even though we had a slower start of 2023, we ended up in lending terms quite positive.
The corporate lending increased in December 10% compared to the same period of last year, and it is much stronger than what we saw and what we recognized in the European Union. On the other hand, the households' loans also picked up better than the downward sloping trend of European Union, giving us by the end of the year an extremely strong loan-to-deposit ratio of around 67%. When I'm mentioning us, I refer myself to the Romanian landscape. From the deposit perspective, both corporate and households' deposit increased double-digit. From the corporate deposit side, the good thing is that significant number of deposits are overnight, so it means that for the banking industry it is access to funding at low cost. On the other hand, as we see, it's positive compared to the European Union's level, which was negative on the corporate side and slightly positive for the households.
Overall non-performing loans ratio remained low. This is something which is, let's say, common for our peer group within our region compared to the Czech Republic, Hungary, or Poland. Net assets increased to RON 0.8 billion, 800 billion lei. Capital adequacy ratios within the Romanian banking sector continues to be well higher than above the European level, as well as in the perspective of return on assets and return on equity, the return on equity being more than 20% at the end of last year. George, you have the floor. Thanks.
Thank you very much. So from the point of view of the performance of the business at the bank and also at the consolidated level, we can say that the bank exceeded its targets set in the budget on almost all areas. We have a very nice growth in terms of net interest income throughout the year 2023, both at the bank level and at the consolidated level, the increase being approximately 18%. Net fees and commissions income increased at the bank level with almost 11%, exceeding RON 1 billion for the first time in the history of the bank. We're at RON 1.1 billion at individual level and almost RON 1.3 billion at the level of the group.
On the other hand, expenses increased as well, with the increase being led by expenses in terms of staff cost and also the ones determined by the investments that we did in our increased capabilities in terms of software. And on the staff side, we can say that this is led both by the staff increases but also by the inflation in terms of salaries. However, I would like to mention that we, even though increases in expenses were present, we managed to keep a cost-to-income ratio lower than last year, both at the level of the bank and also at the level of the group, with the cost-to-income ratio being around 45%, which is a very good level for a bank of our size.
In terms of the evolution of the result for the end of year with almost RON 2.5 billion at the end of the year 2023, the bank is above the budget and almost 15% over the result of the last year. And at the group level, this is even higher in terms of percentage evolution versus the previous year with almost RON 3 billion in terms of net result for the year 2023. When we go to the evolution of the balance sheet, we see that, again, here we have an excess over the budget, both in terms of total assets and in terms of loans evolution. With you've seen a little bit earlier, the increase in terms of loans at the level of the Romanian banking system, and at the level of the European banking system.
Here we can say that we are above our market average in terms of loans evolution. You can see in the following pages, split on the corporate versus household loans and deposits. Both in terms of households and in terms of corporate loans, we are above our peers. Whereas in terms of deposit on customers, we are at par with the evolution of the market in Romania with a 15% increase in the year 2023. In terms of this this increase in assets was happened in a risk prudent way. Cost of risk for the bank in the year 2023 remained almost flat. There is a slight increase in terms of cost of risk net to almost 0.5% in the year for the bank and 0.6% at the consolidated level. Return on equity remains at above 20% comfortable levels.
Again, here we are having capital ratios that we present here, including the results for the year 2023. Of course, the final numbers for the year will be decided after the shareholders' presentation when the shareholder will decide on dividend distribution. But here, if you look at the capital ratios at the end of the year, the bank exceeds 23%, both at consolidated and at the individual level in terms of total capital ratios. If you look at the trends in income structure, as I mentioned before, besides net interest income, net fees, and commissions income, we also are having an evolution in terms of net trading income and net gains from financial assets, which is driven by the market evolution. Overall, if you take these two elements into consideration on the total, you see that actually we have a positive evolution versus the previous year.
And also the fact that this is supported by a very strong performance in terms of loans to households and loans to companies. You see here the increase. If you take a look at this and compare it to the previous slides where Aurel presented the evolution on the level of the overall market, you see that we are well above the peers, both in terms of loans to households, where the market was around, I think, 1%, and also in terms of companies, where the market moved by almost half the percentage point that we have for the bank in 2023. In terms of deposit, as I mentioned, overall 15% at par with the market. This is coming from companies. I think Aurel mentioned this is a form of funding which is cheaper because it's mostly on current account and overnight.
We are very careful in terms of analysis of the stickiness of these deposits. And we, according to our analysis, we can say that Banca Transilvania has a very good track record in terms of core deposit for these current account and overnight deposits. So I will try to give some insight about our business performance in the during the last year. The ones who participated to our calls, at the beginning of the year, you might remember that we were mentioning that the loan growth was stalling and actually demand was quite low. Although we had been constantly growing our customer numbers, our account numbers, our card numbers, the loan demand has recovered with a decrease of inflation and with some stabilization, with some better foresight on the consumer side, especially on the last two quarters.
So we see from the numbers available that we not only increased our retail loan book 22% more than, I mean, our new production was 22% more than 2022, and which brought an increase of 8.7%. Still, we also, how to say, have seen that our market share both in mortgage lending, credit cards, overdrafts, consumer lending has increased. We are happy to have reached 3.8 million customers and 6 million cards at the end of the year.
On the other hand, last year, also with the boost of government-led programs and European Union-led recovery and resilience programs, definitely on the SME and corporate banking, we have seen a higher growth as compared to previous years, which is good for the economic development of the country as well because until 2022 especially, most of the lending growth, most of the banking sector growth was coming from consumption, consumer loans, consumer-related loans. So we see more and more investments which give us definitely more optimism about Romania as well. We are the main partner of the Romanian state in government-led SME Invest, IMM Invest type programs or Startup Nation type of programs. Also, we see more funds being directly diverted towards infrastructure projects where we are trying to get also our market share.
We expect also, as a guidance, if I may say, this growth to continue also during 2024, not only because of the programs available but also due to the fact that, having elections not only in Europe but also in Romania, I guess there will be more projects and liquidity and ideas available in the market. While we are discussing and proudly discussing about our business growth, very solid numbers, I would also like to give the floor to Luminița because last year it had been a lot of discussion about capital position, liquidity position, risks assumed. As I said, we are not only comfortable but proud of our results and what we have delivered.
Thank you. Thank you, Ömer. This brings us to the risk area, where we are proud to stick to the policy of the bank, which says that we are going to have a very strong and robust risk policy to be aligned with the business objectives of the bank. Everything that we are going to present to you today are very well complementing the strong financial results already mentioned by my colleagues. I would start with credit risk management in the bank, where I would like to emphasize the fact that all the figures that we are going to present to you are based on a very robust underwriting policy, which is centered on very simple but strong principles, such as diversification, for instance.
We have been following this principle for quite a long period of time, and we are proud to see the results of this very, very strong principle. We do not have, within our portfolio, any concentration in terms of business lines exposure, products, or geographical areas. We do not have concentrations in terms of values or economic sectors. And this brings me to the graph related to the cost of risk in the bank. We are at a very comfortable level at the end of 2023, reaching 0.64 basis points at group levels and 0.49% at individual levels, very steady over the past three years. The provisioning, the stock of provision, increased both at the individual level and at consolidated levels. The figures are presented on the graph on the right side of the slide.
If we would compare the stock of provisioning in the bank, you would see that December 2023 versus end of 2021, the provisioning stock increased by 26%. The pace in which the provisioning increased was smaller than the pace in which the loan book of the bank increased in the same period. What is to be mentioned is the fact that stage one increased in this period over 60%, at individual level, mirroring and correlating with the increase in the loan book of the bank. When it comes to the NPL, what is to be mentioned is the fact that at the end of December 2023, the bank reached a level of 1.98% in terms of NPL, which is better than the local market average by more than 0.6%. This is another reflection of the constant prudent approach of the bank that I've already mentioned.
Also, I have to add the fact that even in this downward trend of NPL, the provisioning remains constant, giving us and our shareholders the comfort about the way in which we are managing the assets of the bank. When it comes to PAR90, the figures are presenting on the right side of the slide. The evolution of PAR90 is mirroring the evolution of NPL. Here, we were benefiting of good recoveries and also by market trend in terms of loan book increase. We have observed in 2023 a slight increase in terms of PAR90 ratio, mainly in retail and SME. And this is due to the inflationary pressures that these type of clients have been seeing. But we do not have any significant concern when it comes to this evolution.
When it comes to capital, my colleague already mentioned the fact that the bank enjoys a very comfortable capital position as it's shown in the graph. We have a very strong and stable capital base, mainly due to the fact that the bank is using for a long period the instrument of profit capitalization over time. Everything that we are presenting to you here is constructing on the presumption that the entire profit of 2023 is taken into account. And this is due to the fact that before the shareholder meeting, we do not have any information about how the shareholders are going to decide upon the appropriation of profit. This is to be discussed in a one-month's time, at the relevant competence. Therefore, the surplus of capital that we are seeing here, it's very comfortable about the minimum threshold asked for from BT by the regulator.
And this leaves the bank a good flexibility in terms of adapting its strategy to potential negative market movements or, on the other hand, to support the continuous ambition of the bank in terms of, in terms of growth. What I would like to mention is the fact that in 2023, we have increased our Tier 2 capital position, as an effect of a subordinated loan that we have attracted from the market in June last year. I think this brings me to liquidity. Here, we have been presenting the market very strong liquidity indicators for a very long period of time. You see here the loan-to-deposit ratio, which is currently at the end of 2023 at 56.7. We have a very strong LCR and also a very strong NSFR. This is a proof of the trust that the Romanian depositors have in Banca Transilvania.
More than that, what I would like to mention here is the fact that we have a well-balanced management of very, very high liquidity, high liquid assets. Sorry. And the last information from my side would be related to MREL. The bank fulfilled its requirements when it comes to MREL indicator. You have been seeing us on the market last year with a couple of occasions. We are proud to show you that we have met our final requirements at the 1st of January 2022 on a total and subordinated basis. And the figures presented here allow you to see how we have done that.
Yeah. I mean, although we have been having good internal capital generation with our profitability and a strong capital adequacy ratio even before, due to MREL requirements and new regulations, we somehow managed to open the markets last year in April after Credit Suisse and other events. We were the first bank tapping the markets. Glad to see a large number of investors, institutional investors from different geographies, being interested. It was a costly transaction, but also it was our aim that we should start being in the market, being present in the market, and start establishing a benchmark for ourselves, a yield curve for ourselves. As you see in the graphs presented, I guess we managed to benefit from markets' improvements in terms of cost of funds in this segment.
But also, we are also glad that this gave us certain discipline and certain, let's say, new ideas and opportunities. For example, the EUR 200 million Tier 2 that we have done with IFC and AIIB is within a, let's say, green finance, Green Mortgages Framework. Then we have established and finalized our Sustainable Finance Program Framework. And in November, we went to the markets again. So we will, as you will see in the next, how to say, slides, we do have a very comfortable position now. But also, because we had been in the market and we established the investor base already in this segment, if needed for similar or smaller amounts, I think we have where to tap. Maybe about the news from the rating agencies, Aurel, if you want to mention.
Definitely. I would like to start with a great thank you for all the partners that subscribed in our MREL programs. I will get back to this subject when we discuss about sustainability, and I will address all the many things that we have towards everybody. From the ratings perspective, we also have some great news on this side. We are rated both by Moody's and also by Fitch. You have all the details in the presentation. In a nutshell, what is important is that both agencies recognize our robust capital and solid profitability with ample liquidity. We had the feedback from Moody's that BT has adequately managed risks despite the general news that we have appetite for growth, both organically and also through acquisitions. You have some references towards the OTP acquisition, which most probably will hold up more minutes at the end of our presentation.
On the other hand, you have all the details from Fitch Ratings, which reaffirmed its long-term rating at BT of BB Plus. Also, it considers the acquisition of OTP as being neutral for the credit ratings and modestly strengthening our position as a leading domestic lender. Going toward sustainability, I will spend a couple of more minutes on our MREL program because it is closely linked to sustainable finance. During 2023, we published our first sustainable financing framework in November last year, which was endorsed by a second-party opinion. We attracted EUR 500 million for million euros, sorry, for our first sustainable bond, out of which 87% was subscribed by investors with dedicated ESG investing policy.
This is the moment in which I would very much like to thank all our partners, meaning both externals and as well employees of Banca Transilvania, for which, for whom at least, it was the first project of this kind. For Banca Transilvania, by the way, it was 2023. It was the first issuing year of MREL. And also to all the more than 20 countries, partners in more than 20 countries which subscribed our MREL program. Overall, last year, we issued EUR 1.5 billion. We had, during our last issuance, more than six-time-oversubscribed book, which was extremely relevant. And also, thanks for all the IFIs that supported us and which support further on will also be relevant and significant. For more ratings and scores, you have a list of improved scores from Sustainalytics.
From Refinitiv, for instance, we had a score of 81 out of 100, which places us on the 49th place out of more than 1,000 banks which they assess. 3.5 out of five from FTSE Russell. Also, we have a maximum score from the sector from ARIR, from the Romanian Investor Relations Association, for the fifth consecutive year. And also, during November 2023, we joined the Diversity Charter. We were part of the community as well. We are committed to support Via Transilvanica, which is, by the way, an invitation for all of you who wish to visit in a non-traditional or in a more traditional manner, you want to visit Romania. BT was the main partner of the European Capital of Culture in Timișoara last year.
We launched a program named FIT, Finance for All, a financial education program that would be a foundation in, let's say, money management, asset management, and so on for young generation. From our financing impact over the last year, you see the Green loans that we granted to companies during 2023, which amounted to more than RON 1 billion, 40% higher than what we had in 2023. Also, the renewable energy projects, which increased 200%, while special climate projects, including water and so on, water efficiency and so on, increased four times. Overall production of Green loans for 2023 up to 2024 will be targeted at RON 3.5 billion. From the retail perspective, our green portfolio is represented by 15% of mortgages granted last year, which qualifies as green. And we are emphasizing on it.
Some interesting numbers are those from leasing financing, which credits are, which leasings are granted by BT Leasing, in which one in every two leasing financing is addressed towards electric vehicles or hybrid ones. And overall, 30% of the total leasing portfolio is targeted towards electric. Another slide from the sustainability point of view, this is something traditional that we are presenting you, is the two areas that we cover and we are extremely successful: healthcare and agriculture. In healthcare, we have an over 40% market share in health financing with more than 70,000 customers. And in the agriculture, on the agriculture side, we are the first bank in Romania with a dedicated division, more than 20% market share and 40,000 customers.
We believe in this type of engagements because they are both sustainable, but on the other hand, they give us a sustainable base of customers with, let's say, special needs or at least special needs to cover by the bank.
So while we are very proud of our physical network with more than 500 branches throughout the country, and we believe that this gives a better chance of financial inclusion and chances of business growth for us, still we are trying to also offer the best-in-class technology both in our branches, locations, but also during any interaction with our customers. BT Pay, which we launched as an internally developed wallet application, is becoming more and more our online digital banking interaction channel with our retail customers. Already 60% of the cards issued by BT are already enrolled in BT Pay. We also have different types of accounts like roundup accounts, savings accounts, exchange rate, I mean, foreign exchange transactions, travel insurances through BT Pay. We have seen almost 30% growth last year in terms of users.
We are also happy to see that actually more than 100,000, almost 105,000 teenagers are customers of BT Pay Kiddo. They are, how to say, our future customers. Hopefully, also we are learning from them because we are enhancing the capacities of BT Pay based on the, how to say, observations and requests we receive from the customers. That also made it one of the most used and with the highest rating applications in Romania, digital banking apps in Romania. On the other hand, at the end of last year, we have launched BT Go for our starting with small banking customers, but it will be kind of a BT Pay equivalent for us for the corporate banking, company banking segment. There are already more than RON 1 billion lei payments.
But one of the strong parts of the application is that we also help our customers, especially small businesses, to issue their invoices with all the desire and also ambition of the government to increase fiscalization in the economy and to decrease the cash in circulation. This is when it was brought to by the new fiscal legislation, the obligation to issue invoices for all companies. Most of the small businesses, micro businesses, were not ready for that. So our application automatically helps with that, and we are developing. This is as it was BT Pay five, six years ago at the very beginning. It's baby steps, but growing exponentially. And we believe that it will be also another success story in digital growth for our bank. We are also, how to say, pioneer in instant payments in Romania, and it increases our business volumes.
It attracts more customers to us because we are the first and most widely available bank to do so. And also, it helps us with the operational efficiency that we are searching for. Coming to our financial group, I would just remind that one of the latest acquisitions, Idea ::Bank Romania, we recently rebranded as Salt Bank. Salt in Romanian means jump, leap, and we are targeting to offer a leap, jump in their experiences of interaction with the bank that they have. It will be a competitor to BT, and we are targeting to launch their first application, digital banking app, towards the end of March or beginning of April.
Other than that, I mean, BT Asset Management, BT Leasing, BT Microfinanțare, BT Capital Partners are already market leaders in their segments, either the largest financial entity in that segment or one of, let's say, one of the ones at the podium. We see also good opportunities of growth, and we are investing a lot in BT Pensii, Victoriabank. On the other hand, itself, self-financing, self-managed, profitable institution, small asset that we manage with a local management there together with EBRD. But when we look at the, how to say, numbers about 2024, I have seen also some questions. We will start answering them immediately. We are committed to offering similar growth numbers. I was recently listening to a podcast by a prominent investor, and he was saying that there are some companies under-promising over-delivering. Sometimes I have this feeling that we are much more prudent, the market opportunities.
But on the other hand, with all the challenges geographically, geopolitically, and macroeconomically around us, I think it's good to be prudent. We believe that we are trying to be more realistic. On the other hand, this year, in 2024, we are committed to delivering similar numbers, similar growth in our numbers that we have delivered so far. I will switch to OTP acquisition. And then in Q&A also, we have seen already a couple of questions related to that. OTP Bank, OTP Romania, owned by OTP Group Hungary, is the 10th largest bank in Romania with almost EUR 21 billion assets. It's a profitable bank operationally with 400,000 customers. It has nationwide presence, and also it is very strong in central Romania and in Bucharest, where we are looking forward to increase our market share. Their profitability was lower than us bottom line because of the funding cost.
They were not because of their high loan-to-deposit ratio. So when we just look at that with a good retail and, I mean, diversified and strong, healthy retail and SME banking portfolio, 400,000 customers, it's a very good acquisition, very good placement for our excess liquidity, excess capital. And it will help us to create a lot of synergies. Most of the details about the synergies we will be offering you after the closing. We try to refrain from mentioning anything certain before the closing, not to put ourselves in a difficult situation in front of Competition Council or National Bank of Romania or other authorities. But among, let's say, all the target discussions or options, this was the best one that we could have get. We have acquired not only OTP Bank, but also OTP Asset Management and OTP Leasing.
OTP Leasing had been one of the highest-growing leasing companies. OTP Asset Management, their fund management, asset management is something that we like. We have seen also that this time here, we are not acquiring only businesses or customers, but also people, very competent. We like the idea that it's a small but high-growth bank. They have the hunger, the dynamism that we always look for. That's why we will be having access also to a very good base of personnel, new colleagues there. But also, as I said, mainly the interest was their healthy and large loan book, which we can finance by ourselves. Then also their geographical distribution, which gives us upper hand in some of the geographies that we want to grow. I mean, there is a pro forma of numbers that presented here in the presentation. We will discuss.
Most probably, we will ask more in the Q&A. But I would say we think that besides the bargaining gain and, let's say, short-term synergies, the main thing is that in the medium term and long term, there will be a lot of, how to say, cost and revenue synergies that we will generate. It's a very good and accretive transaction for our group. Timeline is a bit more different than what we have experienced so far. Usually, we had been signing SPAs in the autumn of a year and then merging the bank fully operationally and legally at the end of next year. So considering the fact that we signed the transaction on 9th of February, and we are now in the process of obtaining regulatory approvals. And there are a couple of more transactions in the market, as you know.
So it will make authorities much more attentive on all the details. We think that in case we will manage to obtain the regulatory approvals in the second quarter of this year, latest next year, first quarter, we should be finalizing our merger. As I said, both operationally and legally, we will not run another banking entity. But also, we are comfortable that our team, internal resources, but also the partners that we work with, we have gained enough experience. I mean, this is a table that when we look, we also understand what we have done and what we have managed in the last couple of years. But since 2015, starting with Volksbank, Bancpost, to Idea ::Bank, to Victoriabank, BCR Chișinău , OTP Bank, we have strong experience in banking acquisitions and integrations. We have acquired Capital Partners, Țiriac Leasing, Certi nvest Pensii, which became BT Pensii.
Idea::Bank came with Idea::Leasing. So in the segments of interest, we are becoming a market leader not only in banking, but also, how to say, our people are well-trained and experienced to make a quick and efficient integration. I wouldn't go to details of the financial numbers that you, as good as we do, you read and you can interpret. We have the questions here in front of us. We will try to answer as many of them as possible. If anything we miss or we are not clear enough, please do not hesitate contacting our investor relations, as I mentioned. I mean, I have a question here, if I may continue, from Hai from Concorde, asking about the risk environment in 2024. How do we see it? Sorry?
We have some support, technical support, in order to read the question and everything, if you wish.
We will go ahead like this. Sorry for jumping in. So lending activity, we are assuming will continue strongly, especially on the corporate banking and SME banking side. And in retail, we are expecting similar numbers to last year. But on the other hand, as I said also during the presentation, my colleagues also mentioned, it's an election year, so there will be a lot of support programs. There will be a lot of infrastructure investments. So it will be a strong year in terms of lending, most probably. Hopefully, we will have the capacity, not only banking, but as the country, to execute most of these opportunities. And now I will let the next few questions come in.
Ladies and gentlemen, at this time, we will begin the question and answer session. You may submit your written questions using the Ask a Question window in the webcast. The second question comes from Miguel Dias with Wood & Co. I will read the questions in groups. In terms of rate cuts in 2024, how many cuts do you currently expect and by when?
I mean, this also we were discussing last time in our teleconference. National Bank of Romania didn't act as fast as, I mean, intentionally with their policy, as fast as Western European or central banks or ECB or Fed. We think that they will be also following the same policy because, as during their last Monetary Policy Report indicated, there is expected GDP growth also very much supported by consumption. They don't want this to impact severely, negatively, inflation numbers, not to create a vicious cycle of itself.
That's why, although we think that Romania will see some reference rate cuts this year, we don't expect it to be very frequent and too sizable. Last time when we were discussing for end of September results, there were expectations of Fed or ECB rate cuts even end of the year or before end of the year or at the beginning of the year. We see that this is not happening. That's why we reframe. But definitely, when we made the budget and we gave this guidance, we are expecting around 50 basis points cut this year.
The next question is from Anton Berg with Coeli. Thanks for the great results. Well done. Can we expect any provision reversals in 2024?
As regards to provisions, we do not expect increases in the provisions of the bank. Maybe we are going to see some sort of reversal, depending, of course, on the market evolution. But the impact of either action is not going to be significant.
I mean, we were increasing our provision coverage, and we are each time repeating that. Considering that we are a retail and SME bank, it is normal to have cost of risk closer to 100 basis points. But thankfully, thanks to good management, diverse portfolio, and good customer behavior, we didn't experience this. It helps. In Romania, we don't have also unemployment. Unemployment is technically zero. So people being paid, they also pay their dues forward to the banks. But we don't expect revenues, incomes significantly from provision reversals. We will grow our business and, how to say, we will create, hopefully, new health risks, which we have to cover also with our provisions.
We don't have big tickets to be recovered. I guess Miguel from Wood had, how to say, a list of questions. If you could go ahead with them, we would like to answer them. We could try to answer them.
The next question from Miguel Dias with Wood & Co. And I quote, "Costs came a bit hot. Was it just due to inflation or as well headcount increase? What is the headcount at the year-end, please?" And a second question, "Non-loan loss provision, why did you book such a big amount and what does it relate to? Legal provision, perhaps, due to OTP acquisition, meaning you are inheriting their legal issues, or perhaps the Volksbank case?"
I mean, I will let George to develop further. But as he mentioned, indeed, our OPEX growth came, especially on the bank side, from investments that we pursued, but also a 5% increase in the headcount. I mean, our headcount increased 5%, not as much as our OPEX increase. But there had been pressure, definitely, on the wages side. We have closed the year at around 10,000. I don't have the exact number, but 10,000 employees. We are considering that, I mean, instead of being focused on one single indicator, we are focused on many of them, including the growth numbers of expenses, including per-employee efficiency. I mean, how much our business grew, how much our headcount grew. But also, we are looking at our cost-to-income ratio, which is still, I would say, healthy. And the non-loan loss provisions, actually, with the last question that you asked, you answered your own question, I would say, Miguel, thank you.
It is related with the Volksbank case. Not related, nothing related with OTP acquisition. I mean, the price of the transaction, if we will close it and we will book it, it will include this kind of provisions itself. It will not be we will not provision it before the merger under BT's books.
I can go a little bit into more detail. So we indeed are around 10,000. We're 9,500 active employees at the end of the year. And to develop it a little more on the Volksbank case, we have provided partially the interest and penalties related to the Volksbank case.
Again, following up on a prudent approach that the bank has been showing in the last years, even though we have good chances to still turn it around in the next, let's say, events that will happen on this case because this is not finished, we have decided to provide partially that amount. And in the financials, we will put a lot of disclosure around this as usually.
Yeah. This also, I guess, answers the question of Robert from PKO BP Securities because asking the same. So it is related with the Volksbank cas that is still going on. We can go to the next questions.
Continuing with Miguel Dias, COR came in a bit higher than the lower end of the guided range, 50 basis points. Why was that? Are you starting to see some signs of asset quality distress? What is the P&L EBA definition figure as of 31st December? And could you please provide some guidance on outlook for 2024?
Answering to Miguel's question, we will provide you the MPL definition via email. So you'll have it on your desk immediately after the conference. And when it comes to the cost of risk, I've already answered the question in my presentation. We have seen some signs of deterioration in terms of NPL on retail and SME. But so far, we do not see them as impactful. Thank you.
Actually, our NPL as per EBA definition at the end of the year is below 2%. It's 198 basis points. If that was the question, no, he would like to. And we wouldn't possibly we don't see any increase in that.
Also, we also know on our skin that local regulator and international regulators are very much closely following this indicator. But more details, Miguel, we will try to supply through investor relations. Let's go to another question.
A final question is, could you provide some insight on the deposit spike in Q4 2023? Why it happened? Is it outflows from smaller banks to BT? I can imagine why it happened but would like to hear your take on this. Thank you.
There is a, how to say, seasonality, a cyclical movement. At the end of each year, we see our deposits, especially due to the, how to say, holiday periods, shopping, and credit card payments, us having the widest POS acquiring network as well. And we are us being the main bank of SMEs, the highest salary card-paying bank, so with the highest number of salary accounts.
We see always at the end of the year an increase in the deposits, which somehow starts to decrease not aggressively, but a part of it, at the beginning of the year due to tax payments or different other payments. But because of our business growth, this year, the growth had been even faster. We are just happy for it because it impacts not only for 2023 but also 2024. It brings in lower cost of funding and higher net fee and commission income for us. Thank you.
The next question is from Robert Brzoza. I quote, "Could you provide some additional color on your dividend policy outlook, especially in light of the OTP RO acquisition?" Thank you.
I mean, I don't remember by whom, but there were a couple of questions. If OTP is a cash transaction, yes, we don't need to tap the markets. We don't need to borrow or ask capital from shareholders for the acquisition of OTP, first of all. Second, OTP itself is, how to say, a regulated bank, a regulated group. So they had been also maintaining high capital ratios in Romania and at the group level, also respecting the MREL requirements. So there will be some temporary impact, but it will not change our business plan or game plan too much. We will be, how to say, proposing the new, how to say, structure of cash and shared dividends soon to our board of directors, which should be approved by shareholders. But I don't want to necessarily mention a number. On the other hand, if you look at our guidance and some of the numbers that we presented, you can understand.
So we think also in the wake of what's happening all around Europe with the banks' buybacks and cash dividends, we understand the expectations. And, how to say, within our, how to say, business growth plans, we will be trying to comply with the expectations. But I don't want to tell a number. But at least what I can confirm, we will not propose stopping dividend payments or giving up on the dividend payments this year.
The next question is a follow-up question. It's a question from Simon Nellis with Citibank. And I quote, "Can you please indicate the targeted cost synergies and any revenue synergies from the acquisition of OTP Bank Romania?"
At this point in time, we don't think that we could enter the details. Again, looking at the transaction price versus their reported financial data, you can get some idea about the bargaining gain. You can, how to say, comparing our, how to say, extra liquidity, excessive liquidity versus their loan book gives a good idea about, how to say, also revenue synergies. As I said, we are not, how to say, they have 100 branches, over 1,700 employees in the bank. We also need to grow. So part of their network, we will maintain. There will be also colleagues at their head office that we consider suitable for our needs. But details about the synergies and the transaction structure and how we see the next, I mean, integration and post-integration period, we will be able to provide you only after the closing of the transaction once the asset belongs to us because otherwise, we will be discussing about the bank of some other shareholders. Exactly. We are discussing about competition now.
The next question is from Daniela Mandru Petrovici with Swiss Capital. And I quote, "Could the acquisition of OTP and the resultant increase in capital requirements potentially restrict the bank's ability to contribute cash dividends in the future?"
Thank you, Daniela. It's always a pleasure also reading your analysis, not only about us. But the answer is very short. No. I mean, it doesn't restrict our ability to pay cash dividends.
The next question is from Cristian Petre with NN Pensii. And I quote, "Hi, bargain gain from OTP will be taxed. Can you detail a little bit on loan growth for 2024 and on fees and commissions?"
So from the point of view of taxation, I think it's clear that starting with the year after we acquired Volksbank, bargain gain is not taxable. That's actually one of our arguments in the legal case against ANAF that actually the spirit of the law was not clear, and they clarified it in the year 2016. So no bargaining gain is taxable starting 2016. So for OTP, this will not be taxable. You remember that on Bancpost, even though the bargaining gain was quite small, it wasn't that big. We didn't have an issue with anybody from the tax authorities from that point of view. And then when we go to expectations in the year 2024, we do expect to have double-digit growth in terms of net fees and commission income.
Our business is growing. Our number of clients is growing. Our channels and the way we work with our clients and the products that we put on the table for them to use payment channels is increasing. So we do expect a double-digit growth. Also on the loan side, we expect a growth maybe not that high as it was for the year 2023. But we expect to grow in line with the market in Romania this year as well.
The next question is from James Bannan with Coeli. And I quote, "Why is the forecast CAR so high, 27%?"
So James, I think we mentioned both myself and my colleague, Luminița, in the presentation, 27%. It's a number. It's before we have had the shareholders' meeting where we decide on the distribution of cash dividends if there will be any. So that number will be subject to discussion in the Shareholders' Meeting. And after that, we'll know the final number for the year 2023.
It incorporates the entire profit.
Yes. And we've put in pro forma the entire profit for the year 2023 in this computation.
We have a follow-up question from Daniela Mandru Petrovici with Swiss Capital. And I quote, "Given that the annual weighted average rate for MREL eligible bonds and subordinate debt issued in 2023 is approximately 8.6%, what strategies do you intend to implement to lessen the effect on the net interest margin?"
I mean, definitely, our, how to say, liquidity position is comprised of several things, including zero-interest-bearing current accounts, salary accounts, but also these expensive MREL bonds. We have increased our lending. We are also looking for opportunities of lending partially in foreign currency, although we don't have much appetite there. And also our latest, let's say, transactions that we did in the market with our bond issuances had been at lower levels.
So we will be kind of from now on, we will be forcing or decreasing the cost of borrowing there while maintaining a high growth of assets, including acquisitions where we can place our funds. And partially also, we are benefiting from different hedging and forward instruments that we can use also in terms of local liquidity. There are a lot of repeat questions. For the sake of time, I would try to gather a couple of questions. Anything that we don't answer, please excuse us. And we will, how to say, insist that we will come back if we switch anything. But I think we don't need to go over the same questions. I see that from Mr. Can Özgüzel, there is a comment about the OTP's synergies when they kick in.
How to say, OTP itself will exist, hopefully, after closing only for a period of six to nine months. So it will be mainly impact in BT's books. But we think that the impact will be seen mainly next year. This year, part of the bargaining gain definitely will be also, how to say, diminished by the cost items of integration that we will incur. So we think that the positive impact will be seen once we have the legal and operational merger of both banks. Related to from NN Pensii, Christian Petre is asking about the banking tax, 2% banking tax. Did we give any guidance?
We didn't until now. We could. I mean, our estimation for the year 2024 is around RON 200 million impact, RON 200 million.
RON 200 million lei.
Lei, yes.
So it is less than or at around EUR 40 million impacted for this year.
But again, this is an important point that we want to take because maybe you'll see it in the first quarter. There is a big debate with the auditors, with the Big Four companies, where to put this tax. And the current opinion is that it shouldn't stay in income tax at this point in time. So it may hit the operating expenses line in terms of other taxes. So fortunately, this treatment will be agreed by the auditors for all the banks in Romania. However, it may affect the way you look at different banks from the region from that point of view because, well, other banks don't have tax on turnover.
And there is, how to say, there are a couple of questions with regard to government bonds, savvy book, and the change in equity numbers. I guess there is a question from Simon related to how our equity increased more than the operational numbers. Actually, it is kind of related because, as we were mentioning each time, and this has been our policy strategy, our, how to say, fixed income instruments are kept as available for sale. They are marked to market on a daily basis. So the negative or positive impact, you can see under equity immediately. So our story was never similar to what was happening in different banks in the US or Europe where they were keeping them as held to maturity but not doing market- to- market. That's why, I would say, a better interest environment in the last quarter decreased the negative impact of the portfolio, which helped us to increase our equity. So this is the main item.
I would say, in our financial reporting, you can see very clearly what is this impact, the definition of it, and how our auditors are also seeing it. We think that it was safer, more prudent. It helped us to increase our, how to say, credibility during tough times last year when we went to the markets for MREL instruments, the fact that we are having this, how to say, available for sale policy. There is another question if we will see a gross profit of EUR 100 million or not from OTP transaction. I don't want to comment on the bargaining gain, as we call it. As I said, you will see it once after the closing. We will go for shareholders' approval for the merger, more detailed there.
After each acquisition, we need to, I mean, the buyers, they need to make also an analysis of the real net asset value. That will be, I mean, kind of a purchase price analysis will be done by a third party as well, this evaluation. Yes, there is a bargaining gain that I don't want to mention now as the number. But we are, I mean, this is not a commodity that we sell and we buy or sell. We are going there mostly for the customers and for the long-term relation because when we look back also to the long list that we showed to you with Volksbank, with Bancpost, with Idea::Bank, and so on, we have seen that over 80% of the customers remained with us. And they even increased their number of products and services that they were getting from the previous bank.
Now they have more products and services from BT. So this is our aim, I mean, to create medium and long-term value. There are questions about cost of risk, net interest margin, cost of income. Partially, we have put them in the presentation. The rest, you will be seeing at the end of March when we will be sending the convening notice for our GSM with the budget proposal. It's, how to say, under construction, mostly finished, but still we are doing the final detailing on that. So, how to say, in terms of basic guidance, I would say that in terms of business growth and in terms of revenue growth, we are targeting a similar path compared to 2023 in most of the numbers. We don't expect a jump in cost of risk.
We don't expect a jump in NPLs because, as I said, how to say, in Romania now, the problem is not job creation or unemployment. It's not comparable to previous crises in 2008, 2009, or even earlier. Economy is functioning, growing. Businesses are recruiting. They are paying salaries. People, how to say, inflation is stabilized. And also, although it's not nice to live in an inflationary environment, we have been recently going out of inflationary environments. So we are kind of well-trained in terms of Romanian population and Romanian companies to adapt ourselves, which you have seen in the GDP numbers, in the macroeconomic numbers, and also in the total numbers of financial sector. I would let, as I said, if we skipped any questions, please excuse us. And please come back to us. We will try to detail it.
All the questions that I see are mostly repetitive ones, similar to the ones that we answered. On the other hand, soon, as I said, you will see also our budget proposal for 2024. In general, starting with our customers, investors, and staff, I can assure you that we will not disappoint anyone also this year. Thank you very much for listening to us.
Ladies and gentlemen, following the conference call, we would like to announce to you that the investor relations team in Banca Transilvania will send you a short survey about the content and format of the conference call. Thank you for your input. The conference is now concluded, and you may disconnect. Thank you, and have a good evening.