Ladies and gentlemen, thank you for standing by. I'm Basilios, your course call operator. Welcome, and thank you for joining the Banca Transilvania Conference Call to present and discuss the First Quarter 2025 Financial Results. 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, Mr. Cătălin Caragea, Deputy CEO/Chief Risk Officer, and Mr. Aurel Bernat, Executive Director, Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.
Good afternoon. Thank you for joining us for this earnings call for the first quarter results of 2025. Indeed, we are at the limit of the maybe timing, but we wanted to delay the call a couple of days in order to be able to have the results of the presidential elections, second round, in order to be able to discuss on the facts, not only on our results, because we know that last six months Romania, Romanian economy, and investors for Romania, they were in kind of a freeze. Everybody was focused on the political situation. Now, as maybe we passed through this challenge, I would say in a strong manner, Romanian citizens announced their preference pro-European, pro-West, and they wanted to maintain democratic constitutional reforms going on. Now, definitely, our focus will be on economics.
The first step, important step with the elections worked out well, but still there are a lot of challenges in Romania, especially with the twin deficits. Both the Ministry of Finance, National Bank of Romania, banking sector, private sector will need to prepare for the necessary measures, fiscal reform, although we do not like to discuss about fiscal code changes, fiscal reforms. Still, I guess everyone would like to assume its own part in this responsibility in the new plans, which will happen, in order to avoid the potential risk of a rating downgrade or pressure on the borrowing cost of Romania. We are thinking that the key thing from now on is the establishment of the new government as soon as possible, hopefully until mid-June, but not later than end of June, so that decisions can be taken and implemented, including this year.
I will let Aurel give more details on the macroeconomic situation, but there are also a lot of good news in terms of tax collection, in terms of revenues. Although still high on the inflation side and on the budget deficit side, we see stabilization. All the, let's say, small, let's say, one-offs impacting will be fading out soon. The first quarter for us was definitely atypical with some one-offs, including the integration of OTP. That is why a linear arithmetic comparison of our results from the first quarter extended for the whole year might not be correct nor fair. Last year, in the first quarter, in 2024, first quarter, we had a couple of positive one-offs. This year, we had also some maybe negative one-offs, which we will be discussing further when we come to the cost of risk, NPL and OpEx side.
The most important thing is that we did not benefit from OTP synergies. It was only for one month out of the whole quarter, which we are already feeling in the coming months afterwards much more strongly. We remain committed to the budget, which we proposed to the General Shareholders' Assembly and approved by the shareholders, which means that we want to deliver a bottom line of RON 3.9 billion with return on equity around 25%, with strong loan growth, and definitely continuing to become, to remain the locomotive of the Romanian economy in the financial sector. We are also very happy about the results of our subsidiaries. We will be discussing about this further. Now I will leave it to Aurel for a quick macroeconomic update.
Thank you very much, Ömer. I will be reverting to some of the details that you already mentioned. First of all, we have to say that we remain to our main narrative regarding the Romanian economy and being an optimist player in this economy, based on obvious at least two factors. One of that is still the largest economy, one of the largest economies in the region. The second thing is that we had a strong growth during the last 10 years in terms of GDP. During last year, we had a slowdown of increase. We have a real growth of 0.8%. During the first quarter of this year, we encountered growth of 0.2%. Judging on the long term, we see a slowdown starting with 2019-2024, in which the overall growth was approximately 1.8% on a yearly basis.
The public debt to GDP, despite the fact that we are talking much about it in terms of last year's increase, we are still on a stable track, having 54% debt to GDP level, which coupled with relatively high wealth in the CE region, meaning that we have a GDP per capita somewhere around 80% from the European average. This gives us future potential for growth. Nevertheless, it's also the time to speak about the twin deficits that were already mentioned by Ömer. In 2024, we had the highest government deficit of -8.65%. It was the highest among the EU member states. For 2025, we have a target agreed already with the European Commission of -7%. From what we are seeing until now, as a positive data, is that during April, we had somehow a steady balance of expense.
On the other hand, in terms of revenues, the state increased its revenues by 16% during April. On the trade deficit side, we are seeing a slowdown of this evolution, which is negative during the last couple of years. We had year- over- year 26.9% as of March this year compared with February when we had 35.1%. In terms of inflation, it decreased from 5.5% at the end of 2024, having now 4.9% in April, mainly driven by services and mainly driven by services upwards with 6.99% and downwards by the non-food items. It is worth mentioning that last week, at the last week's meeting of the National Bank of Romania, we maintained the interest rate at 6.5%.
Now, in terms of banking sector overall, we see a strong growth in terms of lending, single higher digit in Romania compared to the lower one, the European average for the corporate sector, and the households have an almost 10% increase, which comes after a very good start from 2023 onwards compared with the average of 1.7% at European level. The deposit side also looks good. Traditionally, we have a higher level of loan to lower level of loan to deposits compared to European standards. In Europe, we have a 92% loan to deposit ratio compared to the Romanian one, which is at 67% currently. On the household side, also the deposits increased, the deposits increased with 10.7%, being somehow linear during the last couple of quarters.
We have to also pay attention to the Fidelis program, which is a government bond program designed for individuals, which is now on a monthly basis run in the market. For the first three months, they reached together approximately RON 9 billion. In terms of NPL ratios, we are having at the entire sector level 2.4% NPL, which is strong but comparable to our peer group. In terms of capital, we are still way above the European average, 20% and higher compared to the 17%. Since lately we talked much about the tariffs and the impact of U.S. decisions worldwide, we also prepared a slide in which we present the main partners in terms of exports for Romania. We have to keep in mind that more than 66% of the total trade is run towards the European Union member states, such as Germany, Italy, and France.
They are the top three commercial partners of Romania. The U.S.A. overall has an impact of 2.47% for the Romanian market impact. Mainly what we are exporting is machinery, transport equipment, and manufactured goods. The two of them represent approximately 60%, 60% of the total exports. In a nutshell, we would say that even though the impact is low, we can consider it as a positive side of the future bilateral trading because this is an area in which Romania can grow in terms of increasing its trading opportunities. I will now give the floor to George for the business performance and return in a while. Thank you.
Thank you very much, Aurel. Coming back to the performance of the bank, as Ömer mentioned a little bit earlier, I think it's important to note a few things that happened in the first quarter of the year 2025 and which affected the way we look at the financials, and the most important of the things is the integration of the OTP group. I will reiterate once again how we compute the effect of the OTP group into the financials before we start the analysis on the business performance because this is important to note. As opposed to the previous years when we had a situation where we were entering into a closing of a transaction somewhere at the beginning of the year, around April, and we were closing the transaction and merging with the businesses acquired in December of the same year.
In this case, we have a situation where we closed the transaction at the end of July and we actually merged with OTP Bank and the companies primarily at the beginning of the year 2025. Therefore, the effect of the merger was split into two years. We have most of the integration expenses coming in play booked both at the level of OTP Bank and at the level of the BT individual booked in the year 2024. Also, the bargaining gain in terms of revenues was booked in the year 2024 at a consolidated level. We have some integration expenses that were affecting the first quarter of the year 2025, both at the level of OTP Bank, which affected the consolidated results, and the level of the bank, which affected the individual results.
Again, we do not see into the individual results of the bank, the results of OTP Bank in the first two months of the year 2025. We see them starting with 1st March 2025. I will give you some more details along the way as we go to the financials. Going to the financials, first of all, I would like to say that we start the first quarter with a very good evolution from the point of view of the business results, with pre-provisioning operating profits, which at the level of the consolidated results show an increase of 10.5%. Individually, we grew by 5.9%. What does that mean? First of all, net interest income increased quite handsomely, 27.1% at the level of the consolidated results. This is above the level of the increase in the first quarter of the year 2024.
However, when you look at the net interest income at the level of the bank with the 15.9% increase in the first quarter of the year 2025, we are below the increase of the year 2024. Again, I remind you, we do not have an increase from the point of view of the contribution of OTP, which includes the full three months of the year, but only one month. One month of OTP contribution. I will give you more details when we talk about income. If we were to adjust the results for the full two months of the contribution from OTP, this increase would be 23%, which is above the increase that we have in 2024.
Going further, when you talk about net fees and commission income, the increase at the level of the consolidated results is 13.2%, and at the level of individual results, 9.7%. Here, we do have a small contribution from the OTP clients that we brought into the bank, but this is very small. It is just 1% at the level of the overall results that we booked in the first quarter. We do have an increase in the transactions that are processed for the BT clients, which is the main engine for the growth of the business. We have a 16% increase in the number of transactions processed in the first quarter.
We do have a one-off negative effect from the integration of OTP because at the level of the loans, when we transfer the collaterals of the loans that we brought from OTP, we had to pay some commissions to register the collaterals with BT instead of OTP. That effect is reflected in the first quarter, and it was RON 30 million. If we go further on and we talk about operating expenses, here we have the main effect coming from the integration with OTP because in the first quarter of the year, we had approximately RON 70 million expenses coming from the integration with OTP, RON 50 million booked at the level of the consolidated results, and RON 20 million booked at the level of the individual BT bank.
Going further, we do have a net result in the first quarter of the year impacted by an increase in cost of risk. What I want to say, and Cătălin will detail a little bit later in his presentation, this is not due to an effect that is throughout the business lines. It is due to some few isolated clients. If you look at the financials, you can see that when you look at the segment reporting, we had some individual mid-corporate clients that had some problems for which we have adopted a prudent approach, and we increased the provision level. Cătălin will get more into details on this as we go forward with the presentation. When you talk about net profit and you look again at the comparison with the first quarter of last year, at consolidated level, you see a decrease of 22%.
I remind you that in the first quarter of last year, we also had a closing for the transaction to BCR Chișinău from Moldova. That had a one-off positive effect into the consolidated results of RON 133 million. If we had that effect taken out, the decrease would have been only 12% quarter- on- quarter at the consolidated level, which is much smaller than the decrease at the individual level. In terms of overall evolution from the point of view of net interest margin, we do have a small decrease quarter- on- quarter, but the net interest margin remains strong. We do not have any reason to believe the net interest margin will decrease below 300 basis points. That was reflected in the budget for the year 2025.
With the results that we have, even though we did have this one-off effect, the cost income ratio at the level of both consolidated results and individual results remained very strong. If you take away the effect of this turnover tax, we are around 44% throughout the two periods, annualized, of course, which is a very good result when we compare it with our peers as well. In terms of return on equity, with our results, double-digit in the first quarter, we are way above the averages for the banking system in Romania or for the European banks. As you could see in the presentation that Aurel made, the banking system is around 18% with 21% at the end of last year, of course. With 21%, we maintain a very strong return on equity position both at the individual level and also at the consolidated level.
Now, going further in the presentation, I would like to focus a little bit on the balance sheet before we go into more detailed analysis on the revenues and expenses. Here, if you take a look at the evolution of the balance sheet, we do have an increase in terms of total assets in the first three months of the year, 6.7% at the individual level. If you look at the consolidated level, you see that actually the total assets remain quite flat in the first three months. At the individual level, of course, this is due to the incorporation of the business from OTP. If you look at the increase in terms of loans, we had some sales in the first quarter of the year because, of course, at the individual level with 14.7% increase, this is primarily driven by the OTP Bank acquisition and integration.
Taking a look at the consolidated results, we do have an increase of almost 2%. That is in a quarter where the focus was not on sales, but was rather on the integration of the OTP business. Overall, deposits from customers do not grow at the level of the consolidated results, but they do grow at the individual level due to the integration of the OTP results. You see clearly what we have been saying in previous discussions, that this integration of the OTP Bank will bring a significant increase in terms of gross loans to deposit ratio. We do manage to increase this ratio to almost 62% at the end of March 2025, which is almost a 5% point increase versus last year. Also, at the consolidated level, there is an increase of almost 2 percentage points in the first quarter.
In terms of NPL ratio, with 2.5% at the end of the first quarter, we are around the ratio for the average for the Romanian system, which a little bit earlier in Aurel's presentation, you saw it was almost 2.5% as well. Capital position is very strong for the bank. Of course, here you'll see more details in Cătălin's presentation a little bit later. Now, going further, let's have a little bit of details in terms of trends in income. Here, the most important thing is the fact that we do have an increase in net interest income, and that's 15.9%. That reflects only one month of OTP, as I mentioned earlier. One month of OTP, what does it mean? One month of OTP, it's a result that it's around RON 50 million. If we had the first two months, the increase would have been even higher.
It would have reached over 20% in terms of net interest income. That is not the point. The point is that we stand by what we said in our budget presentation. Even though we do have only one month of OTP result here reflected, we estimate that our growth in terms of net interest income and the synergies that we will see on the revenue side from the OTP acquisition will be seen in the following months after the first quarter. In terms of net fees and commissions, an increase of 9.7%, as I mentioned earlier, is slightly affected by the commissions related to the transfer of the collaterals from OTP, which were approximately RON 30 million in the first quarter. However, if those would not have been present, we would have had a double-digit growth, of course, in the first quarter as well.
We do have a very nice increase in the number of clients in the first quarter of the year with 130,000 clients, new clients coming into the bank, except for the ones that we transfer or in addition to the ones that we transfer from OTP. Even though we changed the structure of the commissions, it will help actually grow the base for net fees and commissions income together with the increased usage of the products at the level of the bank. Going further, net trading income, an increase of 17.5%. This is due primarily from a fix. I think more than 85%, 88% is coming from a fix with the clients, which reflects the increase of the use of products from our clients.
If you look at net gains and losses from financial assets, we do have RON 68 million reported in the first quarter, which is a decrease of 44.1% versus the previous year first quarter. This is due to the challenges in the market in the first three months of the year. It is coming primarily from the fair value of the instruments that are valued to the fair value to the other component of equity. Looking again, as I mentioned, at net interest margin evolution, even though interest rates varied on the market in the last five years and one quarter, as you can see on the graph, we managed to maintain a net interest margin which was quite stable for the bank with a rate that is above 330 basis points for the first quarter of the year.
Our estimate is that we will not drop below 300 basis points for the year 2025. In terms of the structure of the income, we maintain a pretty stable structure, very similar to the one that we presented in the previous quarters, with the main contributor being net interest income of 72.1%. Going further into the analysis, we take a look at the trends in the operating expenses. Here, the main contributor to operating expenses is the personnel expenses. We had in the first quarter of the year RON 577 million in terms of personnel expenses, which is an increase of 19.6% versus the first quarter of last year. However, I want to go a little bit into details because this is important to note.
First of all, we do have an effect coming from OTP because we have taken approximately 600 people from OTP that are remaining with us. This is affecting the personnel expenses increases. We do have an effect coming from an increase in terms of the increase of wages driven by inflation. Now, looking at the market, we know that in one year, wages increased by approximately 10%. Due to inflation, the real increase is actually approximately 5.7%. If you take this into consideration together with the increase of OTP colleagues, we account for approximately 13% of the overall increase in personnel expenses at the level of the bank.
What I want to mention is, even though this increase in personnel expenses happened, if you take a look at the graph that is on the right-hand side, you see that the efficiency of the employees as reflected in the assets that are managed by the level of the employees increased in the period of three months since the end of last year. In terms of other operating expenses, with an increase of 19.3% or RON 354 million, RON 76 million of which is actually the turnover tax, increasing versus the amount of last year, which was RON 65 million, as you see on the graph. We do have an effect coming from the integration of the OTP business, which was reflected at the level of the bank, as I mentioned a little bit earlier. That is approximately RON 20 million.
If you take a look at the cost-to-income ratio, cost-to-income ratio was quite stable in the last years. Even though we did have this one-off in terms of expenses at the beginning of the first quarter, we do manage to maintain, if you take away the turnover tax, 44% cost-to-income ratio at the bank level. Now, having said that, I'm pretty sure that you will get more details from Ömer on the evolution of the business, and I'll give the floor to him.
Thank you, George.
Indeed, I mean, we had been repeating about OTP integration and its impact, but if you look at the first quarter results of loan growth, where we have seen 14.7% growth of our lending portfolio, actually, even if we exclude OTP portfolio, we had 2.9% growth in retail lending and 1.6% growth in companies lending, which for the start of the year are actually quite good. Definitely, our network and several business lines being also focused on the good integration of the OTP customers, we did not have our, how to say, all resources 100% allocated for new sales. On the other hand, there was also the postponed elections impact in the markets that we have also mentioned.
Usually, traditionally, our business growth is picking up in the second quarter and mainly happening in the last quarter of every year, with the second and fourth quarter of each year making more than 60% of the total lending and our business activity. As we said at the beginning and looking at the questions that you have posted, we are still committed to the loan growth. We do not see it. I mean, we understand the concerns, and we will be very active in the market. Still, if you look back in the first quarter of this year, we see even in the first quarter of this year, actually, we see the growth in the increase in the appetite of retail customers. BT has granted almost 100 new mortgage loans every day, reaching more than 5,400 mortgage loans. Also, we see in consumer lending, we had good results.
Also looking back at what Cătălin will present, safe growth, but still strong growth in unsecured lending as well. There is also the new Noua Casa, the new house program announced so that we think that it will boost the market. Now, with the interest rates quite still low and also high competition, high liquidity in the market, we think that housing lending, mortgage lending will be picking up for the rest of the year as well. We are definitely also proud of our growth in the cards business. We are almost 7.5 million cards already. We are, as we had been in the last couple of years, the main payment institution in Romania from salary and pension payments to, how to say, commercial transactions, e-commerce.
Our payment systems are offering us also an upper hand to grow further in the company's business, SMEs or mid-corporates or large corporates as well. The lending is still, I would say, balanced, although we have seen in the last couple of years a bit of more growing trend of preference from the companies for foreign currency lending. It is mainly related with the cost of borrowing, but the recent, very recent in the second quarter increase in the exchange rate, I guess, also will be discouraging for companies giving a sign about the, how to say, potential cost of having foreign currency loans. We will be maintaining our naturally hedged position on the loans and deposit sides as well. Deposits growth mainly came from OTP portfolio with very high liquidity and high interest rates. We did not want to be very aggressive.
This we said also, I guess, when we met, when we discussed the end of year, end of 2024 results. Definitely, Fidelis program of the Minister of Finance, where the Minister of Finance is borrowing directly from households, is also becoming a strong competition, but still having good, how to say, liquidity results. We did not want to start a new trend in the banking sector by changing our interest rate and pricing strategy. We are so far comfortable with the numbers that you see in our presentation. We see also, how to say, quite balanced distribution between time deposits and current accounts. Actually, current accounts we consider as core deposits, and they had been an important pillar for our liquidity management, but also net interest margin. Companies we see are much more attentive. They are looking for alternative ways of investing their extra liquidity.
But still, also we see a good core current account base there as well. I will leave it to Cătălin to discuss about the risk.
Thank you, Omer. When coming about capital position, in first quarter of 2025, we did not see any unexpected events. However, there are a few events that are visible in our figures. One of them is the OTP integration in the bank. Although here you are seeing the group consolidated figure, previously you are seeing also the capital ratios for the banks and the loan where you see the effect of the OTP integration. And if you remember in the last calls, we announced that we build up capital for the bank in order to observe this integration. This is visible now.
When looking to the, however, what we can mention from a broader picture is that our capital ratio is still above our risk appetite, internal risk appetite, and around our minimum announced guidance of the 20%. If you are looking to the RWA density, at bottom right chart, you will see in 2025 a slight advance when coming about the credit risk RWA. We would like to mention that this is not coming from portfolio quality, but this is coming from a pure fade-out of general regulatory exception on the sovereign exposures, which is applicable for the entire market. What you cannot see in the figures, because this did not affect our group, is the Basel IV. For the banks and the loan, as we announced also in the previous call, the Basel IV effect was neutral, whereas for the group was slightly positive from an RWA perspective.
Basically, the actual figures confirm our expectation that were announced throughout 2024. For the entire year or for the year-end, we expect to see the capital position at a comfortable level above, again, our minimum 20% announced target and guidance. If we move further to the asset quality, in first quarter, we see a small advance in the asset quality indicators, both NPL and cost of risk. This is on a base of two events. One event, when looking to the NPL ratio, mainly it's the OTP integration in the bank. The majority of the NPL ratio upside is coming from this portfolio. Why? Because when we incorporated in the bank the OTP portfolio, this came with a slightly higher NPL rate than the bank due to a pure base effect.
When coming about cost of risk, here we see for the first quarter a small advance, which is, again, this is the second one-off event that I was mentioning. This is coming for few mid-corporate customers, which defaulted into the quarter. However, this is still keeping the cost of risk within around our guidance, and we've seen our, let's say, targeted for this year, maximum targeted 1% of the cost of risk. Of course, someone might say, "Okay, but this is a trend or this is not a trend." We are closely looking to the trends because these are more important than the one-off events. At this stage, we do not see any trends which will go outside of a normal or go beyond a normal or a normalized portfolio trend in the current economic circumstances.
Therefore, we see that for year-end, both ratios, MPL and cost of risk, will be kept within our guidance. I'll say that this is for the REIF side. As I mentioned, we just had less than four weeks ago our GSM. Based on our proposals, our shareholders approved the distribution of cash dividends from the profit of the year 2024 in an amount of RON 1.59 billion from the net profit reserves for 2024. Gross dividend share amount is RON 1.73 , and the distribution will be 13th of June. Registration is 16th of June, and payment date is 30th of June. For the budget, total assets growth had been approved at almost 14% and loan growth of over 19%, including OTP. Profit before tax RON 4.6 billion. Growth of 12.7% as compared to 2024.
We will be investing CapEx investments mainly around RON 840 million this year, mainly IT, infrastructure, and digital initiatives, but also definitely in our other projects in the bank as well. The share capital by incorporating the reserves from the net profit of 2024 will be increased by new 173 million shares with a nominal value of RON 10. This means that it's around 19 shares will be distributed for every RON 100 with the registration date of 18th of July. A share buyback program had been approved for 5 million shares, around 0.55% of total number of shares. A bit less than previous years, also based on the fact that the price has increased and the needs are lower. We don't have the special bonuses like for the integration and other special events.
We will be continuing also our stock option plan this year with 5 million shares. We are happy that despite maybe stressful two weeks, also recently, shareholders' confidence trust is there. We are thankful to our investors and shareholders for supporting us in our endeavors. I hope that we will be so far delivering good results, good returns. We will be continuing similar yields and returns for our shareholders as long as definitely Romanian and financial markets will allow us. About sustainability and digital, Aurel, if you can say a few words.
Definitely. Thank you. I will be touching sustainability a little bit. In March 2025, we published the sustainability statement of ours. The main thing is that in this reporting, we have the carbon emissions on all the three scopes. What is relevant is that we have a strong data quality score of 2.95.
In terms of green asset ratios, you have the metrics both for stock and flow. You can visit our website, see the sustainability statement, and so on. In terms of sustainable finance, this is something that we did not quite deep dive during the previous call of ours concerning 2024, but it is good to be mentioned. We have a green loans portfolio of RON 1.7 billion, 60% higher compared to 2023. The mortgages also had good traction. 5.27% of our mortgage loans are green. One fun fact I would mention, one out of two financial leasings granted by BT Leasing go towards electric or hybrid vehicles, amounting to north of RON 1 billion in total. In terms of community care, we have a CSR budget of more than RON 80 million in 2024.
This means this can be translated in more than 450 projects in education, culture, and sports all across Romania and also Moldova. Touching briefly on the digital side of ours, we are more than happy with the developments of BT Pay and BT Go. BT Pay, as you know, is designed for retail customers and BT Go for the corporate side. In BT Pay, we introduced AI assistance, and also we launched BT Pay Italy, which grants IBANs and also digital cards and instant transfers for all people located in Italy. On the other hand, BT Go already surpassed 300,000 customers. As for comparison, BT Pay has more than 4.1 million retail customers. BT Go has 310,000 corporate customers. It is a very successful story on both sides. Always happy to show them on the screens. I will go back to you, Ömer. Thank you.
Thank you, Aurel.
We continue our focus being an active partner and taking an active role in all financial sectors, in financial markets, in products and services in Romania. We have also several definitely good news. On the bank side, we managed the successful integration in record time with OTP, thanks to great efforts by our colleagues. We have also successfully completed the merger of Victoria Bank, BCR Chișinău, with Victoria Bank in Moldova. Victoria Bank continues its consolidation efforts. The next step for them is the transaction, which is already signed with the acquisition of Microinvest. Microinvest is the largest microlending company, bigger than many other banks in Moldova with 40,000 customers. It's a good contribution. We think that it will replicate the success story of BT Microfinanțare or even will be a best practice in this sense in our group.
Definitely important news, maybe the most important strategically came from BT Pensii, where we finalized the takeover of the third pillar from BT Pensii. We are now in the process of approvals and authorizations for the second pillar, private pensions. Pillar Two and Pillar Three are very important. They have a very important role in our strategy, both in terms of development of our customer base to offer, how to say, a better, more stable future to our customers, but also to support the development of capital markets in Romania. I would not like to enter into the detail of each subsidiary. You will see them in the presentation, but also I can, let's say, happily say that BT Direct, one of our subsidiaries, which we were not sure to go ahead with or not, has excellent sales results with, how to say, record levels of sales this year.
Salt Bank, our fully owned subsidiary, but also a competitor in the banking sector, has reached over 500,000 customers in just 12 months. As they are launching new products and services, we are sure that they will definitely be, let's say, frequent, maybe receiver of the awards like Best Use of Technology in Retail Banking, which they received in London from an independent jury. I would like to, how to say, say that we shall leave some time for Q&A. Some of you have posted to the platform. The presentation is already on our website in the investor relations page. In case you cannot reach it, please do not hesitate to contact us. In case you will not be able to post questions, you did not post yet, you can always come back to us. Our colleagues from investor relations will try to answer as soon as possible.
Thank you.
Ladies and gentlemen, at this time, we'll begin the question and answer session. You may submit your written questions using the ask a question window in the webcast. One moment for the first question, please.
Hello everyone. We have the first set of questions coming from Miguel Dias, covering Banca Transilvania for Wooden Company. Given the evolution of the loan book in the first quarter of 2025, do you still view 8% year- on- year for the entire year? How is the second quarter shaping? Do you see stronger growth, or is the loan book expected to grow more in the second part of the year? Another one, also related to the guidance, you previously guided for up to 80 basis points in terms of cost of risk for the financial year 2025. Does this change your stance on cost of risk?
Thank you, Miguel, for both questions.
As we tried to answer during the presentation, we are still committed to the long growth numbers mentioned. Yes, we are expecting in the second half of the year a higher activity because due to, let's say, political instability and concerns and also seasonality, the first quarter, second quarter, the first quarter especially, was not that productive. We also had our focus on the OTP integration. We might have missed some opportunities, but which we will try to grab starting from second quarter. I do not want to enter into the numbers of second quarter because it is, how to say, this is a limited video conference, not open to all investors or shareholders, but I can tell that second quarter results are looking better from all perspectives, from the bottom line to the sales.
Already within the mood in the market, we are expecting a very strong June. Second question was related to the cost of risk. Yes, I mean, actually, we had been discussing this internally a lot. It had been a long, let's say, sequence of years where it was growth and good news. Maybe we were not ready also emotionally for any, how to say, one-offs in the NPLs or cost of risk. We see what happened in the first quarter. As I said many times, there are one-offs. We do not see any drastic trends or concerning trends in the NPL generation or cost of risk. I would say that we are committed to the 80 basis points, but I will let also our Chief Risk Officer add.
Indeed, what we see currently, as I said also previously, was due to these one-off events on a particular segment, some mid corporates, but these were just a few. If we are looking a bit more in depth on the private individual segment here, we are seeing a positive trend rather than a slightly negative. Yeah. From this perspective in private individuals, the forecast from current standpoint looks promising. When looking to the legal entities, here we do not see adverse trends. We saw, as we are speaking also in the past calls, we saw some slight upsides on particular segments like these more volatile or more cyclical industries, but this is normal in the current economic environment.
Our guidance and our baseline scenario is still at 80 basis points as it was announced, but we would not be worried if this would be fluctuating between 80 basis points and 100 basis points, which would be from our perspective a normal trend.
Thank you. Next set of questions comes from Jovan Sikimic from ODDO. Can you please explain the decrease of capital ratios versus end of year 2024, and how significant was the impact from CRR3 implementation? How big, in your view, is that new turnover tax for banks will come in the future? What is the reason for the corporate deposit outflows at the group level in the first quarter?
I will take the first question related to the capital position. Basically, I will reiterate what I said earlier. If we look to the bank standalone, the decrease in the capital ratio is not an unexpected event.
This is purely given by the OTP integration. As a matter of fact, we build up the capital in order to absorb this M&A process. From Basel IV perspective, we did not see any adverse impact. Contrary, for the bank standalone, it was a neutral impact. For the group, we rather saw a positive effect.
Next, I will start with the last one with the corporate deposits outflow. It has multiple factors. One is related with the precaution of the companies to reimburse, to use their liquidity to reimburse their loans or to prepare the entrepreneurs with a higher, let's say, dividend payouts. On the other hand, during the OTP integration, also some of the customers preferred to close their loans when switching to BT to start the lending process from zero. We see that some of those motives do not exist anymore.
But also, as I said, we were not very aggressive in pricing strategy, especially state-owned institutions, state-owned enterprises. They either moved deposits to other banks or they paid dividends as well to the shareholders. The second question I just forgot.
It was related to turnover tax.
Turnover tax. I mean, actually, based on the previous discussions a couple of years ago, it was supposed to be the last year of turnover tax on the banking sector, which we sincerely do not think that will happen. Most probably, banking tax for a while will remain. On the other hand, the impact on the state budget or for the management of budget deficit is not that much. However, we do not expect it to disappear, nor do we expect it to increase.
Both the newly elected president and his, let's say, preferred choice for prime minister, they were mentioning that the fiscal reform should be meaningful and focus on mostly collection of not being collected. Our, how to say, opinion is that that will not be the case to increase.
Next question comes from Badis Chibani from Neuberger Berman. Can you please give us your view on potential downgrade of the Romanian sovereign rating?
I mean, now, definitely, we are a bit more relaxed on that. We don't think that in the short term, it is the risk. I guess both the rating agencies and our Western partners of Romania are following closely tax collection, budget deficit growth, inflation, and other numbers. They don't want to also risk social or economic stability.
I think rating agencies have now a period of expectation to see which government, when will be constructed and what kind of fiscal reforms or other reforms they will implement. In the next quarters this year, we do not see the risk imminent. On the other hand, indeed, if the Romanian government authorities do not take the necessary steps, it is there. It is a risk. We are doing different scenarios for it. However, as I said, as a Romanian bank, definitely exposed to Romania, with all our interests, we will also assume our role in order not to reach there.
Okay. Next question comes from Daniela Mândru, covering Banca Transilvania for Swiss Capital. At the standalone level, deposit guarantees increased at a much higher pace compared to the advance of deposits. Can you please provide an explanation for this development?
Indeed, as you can see in the financials, the expenses with the deposit guarantee contribution increased by approximately 40%, while deposits increased by only 6.2%. However, if you are to look at the variation of the deposits year- on- year, by comparing with the first quarter, the increase is higher in terms of deposit by roughly 30%. What's on top of the 30% to get to the 40% may be some variation in terms of the way the authorities are computing the contribution to the deposit guarantee fund to reach their target quota for collection for the certain year.
Next question comes from Anton Berg from Coeli. What is your longer-term plan, 3+ years , to lower your cost-to-income ratio? What do you think you can reach in the longer term? What are your main hurdles to get there?
We have seen a couple of more questions regarding the benchmarking of cost-to-income ratio and how do we stay. Indeed, I mean, a couple of years ago, it was meaningful and attractive when we were mentioning that we want to keep it at 45%. Now we see in the region, banks are going towards 40%, even slightly lower. Our biggest, definitely, challenge here had been the inflation, starting with salary inflation. I mean, Romania started suffering not from unemployment, but a very low unemployment ratio and high competition among the employers for competent staff, for educated personnel, where definitely we need a lot of resources. We are budgeted, we want to go below 45% this year. Our long-term ambition, and three years is quite a long term for Romania, is to bring it below 40%.
Here, partially, the investments that we do now, acquisitions that we did, and the growth at the existing customers. I mean, we are looking to the decrease of the cost-to-income ratio from both sides on the revenue generation that we want to now with 23% market share, 6 million customers. I mean, using data analytics better, we want to grow further in the existing customer base while growing. On the other hand, we are including from our first line front office, contact center, and some other support functions. We are already testing different applications, AI, in order to decrease our cost, in order to, how to say, not to depend on human resources for repetitive routine tasks. It is already known that we have already slowed down, almost frozen our recruitments because we think that use of technology helps to increase efficiency already.
So far, this is what I can tell.
Next question comes from Solena Gloaguen from Insight Investment. Can you please provide for your CET1 ratio sensitivity to a local currency depreciation? Can you confirm the tenor of your exposure to the Romanian government? Related to that, what is the market value adjustment of your financial assets not having more impact on your P&L in the first quarter when we had lots of volatility in the market on Romanian assets?
I will take it step by step.
If we would be thinking to, let's say, an immediate effect by mid-year, the effect on the capital ratio would be below 1%, which at the current capital adequacy ratio levels can be easily absorbed, not taking into account that by mid-year, we are building up capital out of the, in general, we are building up capital out of the profiting corporation. From this perspective, we do not have reasons for concern. The second question was, the second point was, Diana?
Yes, the second point was related to the tenor of the exposure to the Romanian government bonds.
The average duration is still at the same level like in the past, around three years. When coming about the impact out of the fair valuation, here, in general, we are having two impacts.
In general, we are looking to the sovereign bonds, which are kept at the fair value through other comprehensive income because the portfolio, which is kept at fair value through P&L, is limited and has limited impact. Looking to the portfolio, which has direct impact in the reserves, if we will see a negative evolution of the ratings, this will have an impact which will go again below 1%. We are expecting here if it will be between 50 basis points and 1%. When coming about the second effect, which might be the, which is the impairment, this we already booked several reserves in 2024. Here, in case of an adverse evolution, the impact will be negligible. This being a direct impact in P&L.
Next set of questions comes from Cristian Petre covering Banca Transilvania for NN Pensii.
Are there further OTP integration costs to be booked? In the first quarter, you booked RON 50 million at consolidated level. Regarding cost of risk, what would you say is a reasonable level on medium term? And in respect of the treatment of the fixed income portfolio, how would increasing yields influence you?
When we talk about the integration cost, indeed, we did have RON 50 million expenses with the integration booked at the level of consolidated results and also RON 20 million individually. We do not think we are going to have anything more coming in in the next quarters related to the integration being finalized at the beginning of March. What was the third question? Because I think I covered first and second.
The treatment of fixed income portfolio, how would increasing yields influence?
Okay.
From the point of view of the fixed income portfolio, the effect is, first of all, split differently depending on the type of the instrument that we have. The ones that are held to collect, an increase in yield does not have a direct impact into the P&L. Whereas the ones that are held at fair value to the other comprehensive income, as Cătălin was telling us, they will have a negative effect in terms of the position that we show into the other comprehensive income. However, for a limited period of time, that is not taken into consideration into the own funds as reported to the central bank. We do benefit from some period in which we do not have an impact at this point in time from this negative impact into the equity.
Also, I mean, I do not want to be on the, how to say, naive side, but because we have even less than three years duration, around 2.8 years-2.7 years, I mean, increasing the yields also gives us the opportunity while our liquidity is growing, deposits are growing to replenish the portfolio at higher rates so that the impact is not only at the existing portfolio, but also somehow, although I refrain from saying positive about high interest rates, it has a positive impact on the net interest income from this perspective.
Thank you. Next question for Dmitri Tikhonov from MEIG. In the case of a sovereign downgrade, what impact could it have on your risk-weighted assets and capital ratios?
This I already mentioned.
If we will see an immediate, let's say, adverse evolution when coming about the sovereign rating, this will be concluded in a decrease in the capital ratio of around 1% or up to 1%, I would say.
Next question comes from Domenico Maggio covering Banca Transilvania from Jefferies. Do you have different scenarios if only one rating agency does that and/or all of them downgrade to high yield?
This is not necessarily linked to or triggered like a direct effect from the rating of the agencies, but to the interest rates. Yeah. Basically, this is linked with what is the evolution of the markets.
We have another question from Kathryn Lennon from Bank of America. What is the breakdown of drivers for impairment this quarter?
This I already mentioned. The impairment is beside the regular inflow that we observed also throughout the past year.
These were these few events which basically brought a slight upside in the cost of risk, which brought it to 1% for first quarter.
Okay. We have an additional question coming from Cristian Petre from NN Pensii regarding the cost-to-income outlook figures. Are these at individual level without turnover tax?
Outlook is presented without turnover tax.
Sorry, to repeat again.
Okay. Sorry, technical challenges. From the point of view, of course, cost-to-income outlook, we do present this without turnover tax because we need to have a comparison with our peers on the market that do not have this turnover tax. We do, from time to time, take a look and present the ratio with the turnover tax included as well.
Thank you. We have a question from Marianne Mihalka from Evert Gent Investments.
If the high yields are prolonged, have you considered the lower dividend distribution or even not paying dividends at all, or maybe issuing more MREL bonds?
I mean, if the high yields prevail without rating changes, rating improvement is quite a far-fetched outcome. If we maintain the rating, the impact on the bottom line is actually slightly positive. If the interest rates will increase very drastically, it will put, I mean, there are a lot of if clauses here. It will put pressure on cost of risk building. We cannot replenish our portfolios at the new high rates, so we do not generate enough new business, be it on the fixed income or lending side. We might think, but this is, in any case, one of the, let's say, options at any time for any bank in any geography.
If things do not go well, definitely dividend distribution should be adapted. So far, we do not see it as an outcome or necessity. On the other hand, especially even now, I would say that if you look at where our bonds are traded, the bond investors are treating us fairly well. They have good trust. If there will be a trade-off, our first option will be issuing more bonds. This is as much as the new business generation is needed. We assure the, let's say, prudential growth of the bank. So far, we do not have any change in our plans for the next years. I mean, I hope we will continue, as we said that we are committed, we will grow our risk-weighted assets healthily in a strong manner that we will need to make also some new issuances of MREL.
Thank you.
We have no further questions coming from investors. I will now revert to management for the final comments.
Thank you very much for being with us. If, due to technical reasons or whatever purpose, you could not address your questions, please continue sending them to us, and our investor relations will try to answer. Indeed, comparison between 2000, I mean, every last year had been with some one-offs or different events, starting with COVID, war, energy crisis, then acquisitions, integrations, and so on. We would like to give more clarity in case we could not provide so far. We are glad that, as we said, the election cycle has finished, at least for a couple of years, Romania will not need to have elections.
Once we have the new government, hopefully, including us, everybody will go back to, let's say, deep work so that we can bring back Romania where it was, kind of a pillar of stability and a high-growth country. Looking forward to meeting, hearing you on the second quarter results when we finish the first half results. I guess we can give more clarity on the trends and a better outlook for the second part of the year. Take care of yourselves. All the best. Thank you.
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 your telephone. Thank you for calling, and have a good evening.