Ladies and gentlemen, thank you for standing by. I'm Constantinos, your conference call operator. Welcome, thank you for joining the Banca Transilvania Conference Call to present and discuss the year-end 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.
Hello. Welcome to our earnings call. Thank you for joining us. I'm sure for most of us, the focus, the attention is somewhere else about the conflict or the conflicts surrounding us. Our thoughts, prayers are with the ones, innocent ones and civilians in those affected regions. I hope also, the ones participating are safe and we don't have anyone, any beloved one affected by the events. Definitely, we have to also focus on day-to-day business is maybe the best way to fight with the events of conflicts of the world. Coming back to our call, we have re-released our results on Friday morning, already announced. We have received a couple of feedback.
Many thanks for the appreciations and also observations that you did. We did indeed have a very strong fourth quarter performance. It was a quarter of growth, at the same time, it was also a quarter of our cost control project starting. When we look at the profitability, if you take out the Microinvest bargaining gain, actually the business results also in terms of generating revenues and profits were also exceptional. We had throughout the year, we had higher loan production than 2024. Organically, we had incredibly good strong sales in leasing. I mean, we are happy to see our leasing subsidiary after a couple of acquisitions is becoming one of the most senior and significant financial institutions lenders in Romania.
We have increased our number of active customers. We had been entering into new, let's say segments in investment and pension. While we were doing, let's say our business growth, Romania was also affected a lot by the political events and fiscal consolidation. We also started maybe, this time taking even the example of Romanian government, we started paying much more attention to our OpEx, which gave good results. We didn't give up, or we didn't make compromises on the well-being of our staff and of our customers, definitely. I will touch base on Net Promoter Score issue as well a bit later.
With, let's say, cost-to-income ratio, if you take out the impact of the banking tax, cost-to-income ratio below 40%, I think we are on the right track. We will continue our effort on this segment. I will let Aurel to give you a brief info about Romanian economy. We will go back to the business results.
Thank you, Ömer. Very briefly about what we saw during 2025. First of all, we start with the relatively high wealth in CEE, we still have some convergence there to go towards the European Union average. One thing that is important here is that we feel that perhaps the next stage for Romania will be internal convergence due to the large investments that are taking place nowadays in terms of infrastructure, both highways, railways, and the energy infrastructure. This will mean that the internal discrepancy is being somehow shadowed during the future next years. This will also increase our GDP per capita further on. The general government debt, we have the numbers for the third quarter of 2025 without having it for the end of 2025.
It was approximately 59%. By the end of this year, it should be marginally above the threshold that we are presenting. In terms of inflations, we had the spike during mid-2025. We closed the year with 8.6%. What we are expecting is this inflation to drop after the second part of this year because also the pressure from the increase of VAT will slowly fade away. Relevant numbers in terms of economy is the GDP growth last year with 0.6% growth and the ten-year Romanian government bond yields, which decreased to an average of 6.7%. We still make our bets on the Romanian financial intermediation because it lags behind.
It's below 25%, which is measured as loans to overall GDP. This is something that will provide us further potential for growth. In terms of government deficit, we closed 2025 with 7.65% deficit. This is lower than the 8.4% agreed with the European Commission and keeping in sight that we have all the fiscal packages launched, fully deployed this year. It should also decrease during 2026. Trade deficit is on a good path of decreasing, supported by lower level of imports and higher exports. Two reasonably important numbers are the Foreign Direct Investments. They grew 45% year-over-year during last year. The second is Remittances, which grew approximately 5%.
These are important for the Romanian economy because on a long term, it will give more boost to the investment side, despite the fact that we indeed believe that consumer consumption will also rise during the second half of this year. The banking sector evolution during last year was a favorable one, both for the corporate and also for the household. The corporate loans were above the European average, and the corporate deposit side was in line with that average as well. On the household side, we had a more positive evolution, both for loans and also for deposits, much higher than the European average. In terms of non-performing loans, the non-performing loans reached to 3.4% of overall banking system.
It's the European way of measuring it. Tier 1 in terms of capital, we are above the 17.6% at the European level, now having 21.5%. Looking forward, we still maintain our previous GDP growth expectations of 1.67% since we don't have all the contributors for the last quarter and the last year overall. This is due and we are maintaining the 1.67 also due to our belief that investments will keep on rising and Romania will be a much better deployer of European funds as well.
Inflation, we believe that it will go towards a lower level than today, towards a 4.3-4.5% due to the reasons that I already mentioned, fade away of the 2025 impact. Unemployment, monetary policy, here we believe during the second half of this year we'll be having two or three cuts in a row, so below the 6.5 that we are currently having. The opportunities are very important to be at least addressed. We have the OECD accession within the final stages, and also the resilience funds, which from EUR 21.6 billion we still have to deploy or to attract around EUR 10 billion. Also, the SAFE and the cohesion mechanism are still there.
The ratings remain stable, meaning that we preserved the BBB-, and the outlook that we have. In a nutshell, the year might look positive, if obviously all the investments-led economy will prove to be as we believe it is. Thank you for it, now I'm going to George.
Thank you very much, Aurel. Now going to the business performance of the bank in the year 2025. I think Omer mentioned the last quarter was a very good and exceptional quarter. We can take a look at the financials to see that in the last quarter, we finished with the profit of RON 1.4 billion, which is 7% higher than in the third quarter of the year 2025. Of course, we had one-off in the last quarter being the acquisition of Microinvest, which brought a bargaining gain of around RON 120 million. Even not taking that into consideration, still the third quarter was a very good result.
Overall, throughout the year, if you take a look at the profitability of the bank, here I want to focus actually on some big numbers because we have a lot of information in the presentation. The bank finished the year to both individual and consolidated level above the budgeted numbers. If you take a look at the individual level, we exceeded the budgeted net result by RON 177 million, around 4.5x in terms of increase in percentage points. This is driven both by the organic growth but also by the M&A activities that we performed throughout the year.
Here, if you combine the net interest income and net fees and commissions income, we have double digit growth throughout the year 2025. A very good control of the costs leading us into the position of finishing year better than expected in terms of bottom line, even though we had a quite significant increase in terms of the impact of the new turnover tax level, which is double versus the one when we started the year. In terms of overall capital adequacy ratio and cost of risk, Cătălin will have details, more details in the previous slides. I'm moving to the trends in income.
If you take a look at the trends in income, approximately 70% of our income comes from net interest income, which is a trend that is very common on the Romanian market. Taking a look at net interest margin of the bank, you see that we managed to maintain a stable net interest margin in the year 2025, both at individual level and also at the group level with 3.5 and 3.92 respectively. In terms of net fees and commission, we do have a growth in the year 2025. The growth is driven by the increased volumes in the transactions that the bank processed throughout the year by approximately 20%.
In terms of transaction income, this is driven mainly by foreign exchange transactions, which increased by 90% in value and around 11% in number in the year. In terms of net gains and losses from financial assets, the result was stable in the year 2025 when compared to the previous year and is driven by our following the strategy to balance the portfolio of fair value to OCI versus held-to-maturity components in the P&L. In terms of the operating expenses, we do have the main contributor to the operating expenses is the personnel expenses.
Here, you can see that we were mentioning in the previous quarters that the increase at the beginning of the year, which was due in significant part to the merger with the OTP and bringing in the teams from that merger. You can see that in the last quarter, taking a look at the growth quarter-on-quarter, this has decreased quite significantly. If you take a look at 11% increase at the individual level over the year and 4% at group level throughout the year 2025. In the last quarter, the increase was 5% at the individual level and of 2.6% at the group level.
In terms of other operating expenses, of course, as I mentioned before, the biggest item increasing is this turnover tax, which from almost RON 270 million increased to almost RON 500 million in the second part of the year, primarily. This increase is 81% at the level of the bank and 73% at the level of the group. If we do not take this into consideration, the increase in OpEx, it's around 13% at the level of the bank and 15% at the level of the group. Banking sector cost-to-income ratio remains at around 48%.
If you take a look at the cost-to-income ratio of the bank, we see that the bank finished the year with 44.4, including this turnover tax, which is below the level of the banking sector. If you take out the effect of this turnover tax, we get below 40% in terms of cost-to-income ratio at 39.41% for the year 2025, reflecting a very good cost control as Omer mentioned a little bit earlier, and helping us to finish the year with a result that is above the budgeted result. Ömer?
Thank you. Thank you very much, George. Coming back to our business, as a credit institution, when we look at the loans growth in 2025, definitely we had the positive impact of OTP, which helped us to grow our loan book by almost 23%. Even without OTP loans, the loan portfolio that we transferred from OTP, we had almost 13% growth, which is higher than 8% growth of the Romanian banking sector. We continued growing on all segments although most of the accelerated growth came from large corporate and larger small corporates.
We were benefiting especially while we were growing on the loans side by doing our loan-to-deposit ratio much more efficient. When we look at the deposits growth, actually numbers of OTP in consolidated reporting has been included. Without OTP, our deposit growth had been 8.8%, almost 9%, which is very close to, which is much higher than the GDP growth and higher than the market average when our largest competitor was, I guess, Romanian government with the special bond programs. It's looking to, let's say, GDP growth or savings growth, I would say that we did quite well.
We have been in retail banking, we have reached 4.4 million active customers and I would say our customers are very much digitalized. BT Pay is one of the main tools Romanian population is using for day-to-day transactions, for asset management, for pensions and for any other financial needs. How to say? In terms of the loan growth last year, indeed, because of the relatively weak first two quarters, more than half of the growth came from consumer lending, but still, over 58% of our loan portfolio in retail banking is in mortgages.
We are continuing, despite the, let's say, low margin and high competition, situation in mortgage lending, we are focusing on it and we know that, for cross-sell, upsell, it's one of the key products that we hit and we will have. Going back to, how to say, mid-corporate and SME segment, last year, we have reached over 530,000 active customers, also with the customers coming from OTP. We are very much happy about the retention of OTP customers, in small and medium-sized segment. It was over 90%. Also, in the same segment, BT Go, our mobile banking application, maybe one year ago, we were mentioning 30,000-40,000 users, user companies.
Now we are speaking about almost 550,000 companies using BT Go for their corporate banking, company banking needs, this is something that we envision to grow further. Almost over 1/3 of the Romanian startups are starting as BT customer and remaining as BT customer, more than 50,000 companies, micro companies are financed by BT during last year. With our digitalization efforts and offering also non-banking financial services to those customers help us to increase the wallets of these customers as well. Large corporate had been in the last five years, but especially last two years, had been the star of our loan growth.
We have been the main bank in terms of project finance, infrastructure finance, and we had been, let's say, one of the leading banks in syndicated loan market. Because of the, let's say, conversion of Romanian growth from consumer-based to investment and production-based, which is in the medium and long term, very healthy for economic well-being, BT had been and is taking an active role. From a bank which was maybe 10 years ago, slightly active, shy of large corporate banking, now we are the market leader and both in our portfolio and also within the market, BT's voice is being very much heard. When we look at also, how to say?
Sectors of interest like Agribusiness or Healthcare, in Healthcare division, based on the accounts, we have almost 50% market share. Agricultural division is also serving 1/3 of the agriculture production of Romania. NPS, this had been, how to say? Because we are a high-growth company doing a lot of mergers and acquisitions integrations, we didn't want to lose our focus from the customer satisfaction. We are glad to see that, based on independent studies, now, we are the in Romanian banking sector, we are at the first position in terms of Net Promoter Score. 85% of even passive customers are becoming our promoters.
These surveys are being done by third parties with, let's say, sampling of more than 150,000 customers. I think offering a profitable growth story and keeping customers and e-employees happy is a very ambitious target that we managed to attain every year in the recent years. I will go back to Cătălin for the risk part.
Thank you, Ömer. When looking to the capital position, on both sides, BT Group and bank standalone, we can see a very similar image. The bank, it's holding on a continuous basis its minimum guidance of 20% when coming above the capital adequacy ratio, with the bank ending the year at 22.71%. A significant evolution throughout 2025 was the issuance, the first time issuance of AT1 instrument, which aimed to diversify the on fund structure of BT, together with the self capability of the bank to strengthen its capital position through the regular incorporation of part of its profit.
If we are looking to the RWA density, we can see a very stable image throughout the last 5 years and in 2025 as well. It's, it can be observed a slight up drift from 38% in 2024 to 41% in 2025. It is being given by the regulatory fading out of some temporary provisions when coming about the RWA calculation methodologies. Together with the slight increase in the market risk RWA, this being an outcome of the AT1 issuance, which is creating a small FX position on the bank balance sheet.
If we go further, we introduced a new image here where you can see a much more detailed evolution of the, of all, capital adequacy ratios, starting from CET1, ending up with the total capital adequacy ratio. At the simple calculation, what can be observed here following the issuance of the AT1, that the gap, the buffer, or in other terms, the MDA restriction, equalized for each and every of the three ratios. This showing a very much more balanced capital structure of the bank. Because up until now, we are following more strictly the total capital adequacy ratio, which had the tiniest or the smallest buffer.
Now we can look to all three of them because the, the buffer from the minimum requirement to the, to the reported level, to the actual level is more or less the same. Yeah. This being also part of our capital management strategy to balance the structure. When looking to the asset quality, we can say that throughout 2024 when looking to strictly to the NPA ratio, we ended up with 2.4%, which is still, and we are still keeping the position below the market average, which the market is at around 2.7%.
If it would be to compare, if you remember from the result from first quarter, where we had positioned of around of 2.5%, I was explaining at that time that around 30 basis points are attributed to the incorporation of OTP Bank. Basically at the end of 2025, the bank succeeded to keep the level, so without having a idiosyncratic increase, purely having the increase in NPA rate only from the OTP integration. This of course is reflected also in the risk cost ratio, which basically met the guidance of 60 basis points for the bank standalone, 70 basis points or at the group level, from a starting point of 1% in first quarter 2025.
This showing again the strong asset quality that the bank is having given the also considering the circumstances in the environment. When looking to the liquidity position, the bank also succeeded on a basis of strong loans growth to increase its LTD ratio, still having a lot of room to further support the financial intermediation in the country, as we still believe that the 65% loan to deposit is bringing us the opportunity for further loan growth. When looking to the MREL capacity, as we are continuously announcing that we are targeting a minimum 50 basis points buffer on top of the minimum requirement.
Here we are also on the basis of the new issuance of the AT1 to have more than comfortable buffer in December being 265.67 basis points. When coming about the credit ratings, in 2025, BT witnessed an upgrade from Moody's and reconfirmation of the Fitch ratings. Of course, on the other hand, the outlooks have been adjusted in line with the sovereign rating. However, the ratings from both Moody's and Fitch are showing the strengths in balance sheet capital position of course and the financial position of the bank and the group as well.
Thank you, Cătălin. In terms of capital markets, we prepared a couple of slides in terms of how we behaved as expectations and what we delivered so far. You see that during the last five years, we were between 30% to 40% payout ratio. Last year paying a dividend of 7.5% computed both by the year, the yearly dividend and also the previous year's one. We maintain the same approach because it gave us leverage in also developing our business as it is, it supported our growth, and the level of 30% to 40% reflects our vision in terms of cash disbursement.
During last year in the international markets, we had the AT1 which was debut for us, a first issuance in EUR 500 million. A perpetual non-call of 5.5. We were impressed, we are thanking all our investors for the reception of this issuance. We had an order book at its peak of more than 6 x, the final subscription was more than 5 x oversubscribed. Also for the local market, we had the largest bond issuance in RON 1.5 billion. It was subscribed 50% by the Romanian institutional investors. Couple of words about sustainability. You have the main metrics in terms of ESG rating.
What is important is that we continue, our endeavor with the FIT program, Finanțează-ți viitorul . This is a financial education program, and we want to emphasize on it, and also Via Transilvanica through which we promote the Romanian tourism. In terms of sustainable financing, we have the entire range from green mortgages to green mobility and the corporate side of green financing. You can see the numbers as displayed right now. Going back to the BT Financial Group.
Thank you, Aurel. I think it's important to take a look and to view the whole group to consider also the contribution of the group at the level of the consolidated financials. If you take a look at this new type of information that we included, you will see that the group is starting to have a bigger contribution towards the overall consolidated results when you compare the year 2025 with the year 2024. For example, if you take a look at the total assets of the group, you will see that the contribution of the group increased from 8% last year to 10% this year.
If you take a look at net profit by BT Group, you will see that this contribution also increased in the year 2025. Looking at this, you'll see some companies standing out and being exceptional. Here, I think Ömer mentioned at the beginning of the presentation that the leasing business had a tremendous result in the year 2025, and also the Moldova subsidiaries that group together all the companies are bringing an increased consolidated contribution. This strong collaboration across the group is bringing revenue synergies, increased client coverage and will result in the full capitalization of our network effects. Going forward, I'll ask Aurel to comment a bit on the individual company's evolution in the year.
Well, we have very good highlights for each and every subsidiary. We start with BT Asset Management, which reached to more than 500,000 customers. This was a target for all of us to increase the investment side. BT Capital Partners as well remain the leader of the Bucharest Stock Exchange for the second year in a row, and also the first in terms of bond markets. Here we are emphasizing much on our digital footprint as well. BT Pensii finalized the integration of BRD Pensii acquisition, both for the second and for the third pillar. Here we are also taking into account more than RON 10 billion asset under management.
Inno Investments also had an interesting development because now it has its own business in terms of alternative investment funds with BT Property, which is a real estate alternative investment fund. ECC has also growth of double-digit in terms of total assets and a very good benchmark score within the companies in the industry. BT Leasing has already been mentioned by Omer because it not just had the largest number of M&As in the market, but it has double-digit asset growth last year and relevant increase of almost 100% in terms of net profit. BT Broker is a new business line for us. You have the numbers as well.
It has significant synergies and still a long way to grow and to develop. BT Mic, 52% market share in microfinancing. It is a major player in this respect. As we mentioned previously, it has a very good concept which worth mentioning each and every time, which is BT Stup. Victoriabank finalized the acquisition of Microinvest, 28% of total assets growth. Salt Bank, which the small team of IR is always mentioning it as in our meetings with different investors. It is a true competitor of other digital banks available in Romania. Gross loan portfolio increased 3x . BT Direct as well with a double-digit increase.
Overall, we believe that the bank and its growth is a stable and powerful one, but these satellites within the group will also contribute to larger numbers as they are already are.
As we are trying to present the numbers, we also re-receive questions. There are also some questions about guidance for 2026, even 2027. Soon, we will be coming with the AGM notification where you will see also the budget proposal attached to it. As much as what it limited, let's say, idea, how we see, how we propose as the management, executive management to board of directors, who will decide and propose later to the shareholders. Numbers are as you see at this page of the presentation. We still consider a high single digit loan book growth, more or less equally fast in on all segments. We are not anchoring ourselves here to Romania's GDP growth necessarily, which is an important aspect, factor.
We had been growing faster than GDP, and as we have mentioned many times, Romania is under-banked. The, let's say, banking sector loans to GDP ratio is quite low. We don't want to anchor ourselves to a number, which we had been actually year on year overpassing. We estimate our deposit growth to be at around 6%, coming back to one of the questions there, about how we will balance net interest margin, if the interest rates, official interest rates will start decreasing. We are not the most, I mean, we are a very liquid bank. We enjoy salary accounts, we enjoy the fact that almost 43% of our customer deposits are in current accounts and savings accounts.
We are also in the term deposits, we had not been very aggressive or as competitive as some of our competition did. Still, we enjoyed a solid deposit growth. This is also one of the let's say, steps that we are taking within the market existing market conditions. Net interest income is expected to grow at around 7% and net fee and commission income around 13%. We are at net fee and commission income, we are reaching levels which are how say, could be considered best practice. A couple of years ago, we were comfortable saying that we will be growing this double digit, and we are doing so.
With regard to our revenue growth, but also OpEx control, cost-to-income ratio, including the banking tax, should be around 45%-46% without banking tax below 40%. Cost-to-income ratio, we estimate to be around 70-75 basis points, which will, this will help us to offer slightly above 20% return on equity and strong capital base, with a over 20% capital negotiation. I guess, we could go to the questions. I will ask Diana to read the questions, and we will try to answer in the time available.
Hello, everyone. Thank you for connecting. We will go straight to the questions that you're submitting to the platform, and we will start with a set of questions coming from Domenico Maggio from Jefferies, around risk management and capital management. Domenico wants to know the latest guidance on capital erosion from the removal of transitional benefit related to unrealized losses on sovereign portfolio. The capital figure, does it include the second tranche of dividends amounting to RON 700 million? If the capital adequacy ratio target of 22% is also valid for 2026. In respect of provisioning, he wants to understand the reasons behind the spike of provisioning in the last quarter of 2025.
I will take this question. I will just try to make one single answer for the capital adequacy ratio. As we presented, we ended up for the banks and the loan at 22.7. Current capital adequacy ratio, we are estimating with a maximum 2%.
Decrease in the capital ratio due to the process of phasing out the temporary provisions, the regulatory temporary provisions. Basically the same figure that we announced also last time. In the current figure, yes, the RON 700 million are already in this figure, this amount, so the dividends have been already included in the Q3 figure. It is since Q3 figures, we are seeing it. The minimum guidance it's as Ömer announced earlier, and we always announce it minimum 20%. This is what we are targeting. We are targeting, and this is our risk appetite, the internal risk appetite statement that we are targeting on a continuous basis to have a minimum 20%.
The fact that we are having a bit higher ratio, this is also to support the business growth, of course. This is I think I covered all the questions around capital adequacy ratio. Coming about provisions, as I said, Q4 was one of the lowest in terms of risk cost for the banks and the loan, as well as for the Group. Only that for the Group, we had a newcomer in our Group, which was the Microinvest Incorporation, this brought a small upside in the provisions for the Group overall, which was around 70 million RON out of the adjustments for the incorporation of Microinvest in the BT Group.
From a pure, risk cost evolution, this was one of the lowest, quarter. It was the lowest quarter among all the quarters in 2025.
Thank you. Next questions comes from Christian Petre and then Pensii. Can you please provide your guidance on the medium term in respect of cost of risk and cost-to-income ratio? I suppose that the guidance for net interest margin, fees and commission and loan book growth was already revealed by Mr. Tetik.
As we were trying to offer some insight about the budget that we propose, perhaps if we think that high single digit, hopefully a nice surprise above double-digit growth of loan book is possible. We see quite a good pipeline, especially in the company segment. On the other hand, cost of risk, we don't see any, let's say, warning signals in our portfolio, but also in general banking sector. We think that we will be maintaining it around 70 basis points cost of risk. Reiterating again, although it's not going to be budgeted like this, doing retail banking, small business banking, micro-lending, 100 basis points cost of risk would be actually a normal level of delivery.
Still, thanks to the strength and resilience of Romanian companies and households, we managed to deliver better than this. Our net interest income is going to be 7% higher, and fee and commission income very much supported by the higher transaction values, now higher transaction volumes, sorry, Bancassurance revenues growth, and also customer growth. We are expecting 13% fee and commission income growth.
Couple of questions coming from Miguel Dias, analyst at WOOD & Company. Regarding capital allocation, are you sticking with approximately 40% Payout Ratio? In case of no Mergers and Acquisitions in 2026, could we see a higher Payout Ratio? Next one, what would you proactively do to protect net interest margin once the National Bank of Romania starts to cut rates probably late 2026?
I mean, well, say I already briefly touched. Definitely, we are very careful about our liquidity management. Coming back to, let's say, lower rates versus net interest margin, and both our treasury and business lines have been successful in managing also low interest rate environment. I mean, if you remember, before and during pandemics also in Romania, we have seen volatility in the rates, low rates then higher and again lower until the war in Ukraine started. I guess, we have quite flexibility in terms of funding ourselves from the customers. Lower interest rates also decrease the pressure on negotiated rates with larger customers. We are trying to definitely hedge ourselves with especially growing on the longer-term investment loans and mortgage loans.
The other question was related to dividend guidance. Yes. I mean, now everything is what's happening around us, even if it's not that close, it impacts the markets, from energy prices to, let's say, capital markets. It makes us to be a bit more prudent. I mean, we don't foresee, we are not participating to any process currently of any merger or acquisition. As I said, in a few days, you will be seeing our proposal together with the AGM notification. We will be at or close the levels that we had been delivering lately.
Thank you. We have another set of questions coming from Daniela Mândru from Swiss Capital. In terms of modeling the 2026 figures, Daniela would like to know how would we characterize 2026? As a consolidation year following strong profitability, or do we see scope for a re-acceleration of profits? Second questions, do you see scope for continued support from trading and securities revaluation gains in 2026, or should we treat 2025 market income as above normalized levels?
I mean, as for the first question in terms of, let's say, I don't think that re-acceleration or aggressive acceleration of profit growth would be possible. As we have already mentioned, well, see, we consider ourselves quite ambitious in the current market conditions. On the other hand, there are a lot of economic, fiscal, and social challenges that Romania and Romanian customers face. I think, going forward, we will, our focus is delivering over 20% Return on Equity, not just trying to do transactional or opportunistic moves in our portfolio. 2025 was another good year. This doesn't mean that 2026 will be bad. We just provided the guidance.
We don't expect also exceptional growth in profitability, considering also the fact that we are growing mainly on the corporate and company segment where the margins are lower and competition is higher. Let's say we are investing in the medium and long-term business sustainability of the bank, not at the cost of profitability, but not easy to increase. The other question was about the trading book. I mean, trade as a fixed income portfolio or trading is not our main activity. We are not an investment bank. We are quite a traditional commercial bank, and we are very proud of it. Well, say, we are not budgeting or filling the gaps in the budget from the trading income.
Definitely, there will be positive impacts, if we'll see the interest rates decreasing. I mean, this my personal opinion, maybe my colleagues also will share, that we do not expect a very fast decrease or this year of interest rates. I mean, we don't expect them to increase, but we don't think that National Bank of Romania will rush to decrease rates, having still challenges of inflation.
Next questions come from Andreea Playoust at Mirova. One, what would be your credit exposure to investment funds? Is private credit a potential risk for the Romanian banking system? Secondly, what explains the strong increase in trading income in 2025?
Our investment and exposure to investment funds is below RON 1 billion. It's less than 0.5% of our balance sheet. This is definitely changing if you do an investment. We are not very aggressive as regard to private credit. In Romania, private credit is not that developed, and we are not exposed to it. We don't do it in any of our businesses, but also, we do not finance companies doing private credit. As I was saying to Daniela's questions, we see it more on the investment bank side, and we like to finance real investments, real businesses, not necessarily alternative financing sources. We had been very, let's say, careful about this part.
Again, the second question was.
Trading, volumes, trading income volumes.
Trading income volumes, obviously depends on the volatility, but still Romanian markets are relatively offering stability of Western European markets with the returns of emerging markets. We do not expect a jump, and as I said, we are not trying to allocate big expectations or budget on it.
One question coming from Simon Nellis from Citibank. Please elaborate on the credit risk environment and your guidance in terms of cost of risk, why it is increasing from almost 60 basis points to 70 basis points. Given the slowing economy, would you say there is a risk of even higher cost of risk this year than you guide? Which segments do you expect a deterioration in asset quality?
I will take this question. From 60 basis points to 70 basis points, I would say that this is not necessarily deterioration. This is within a normal margin of error. We are expecting a slight up drift in the risk course, of course, because we are also expecting an increase in the portfolio. On the other hand, the macro environment is not the most predictive, so we are trying to stay on a slightly conservative side. Although, as also Ömer mentioned, we believe that a normalized risk cost for the current economic environment and in this region, it's at around of 100 basis points. If we are looking to the portfolios, where do we expect deteriorations?
We wouldn't say that we expect in a particular segment
We expect to that the portfolio trends in terms of delinquency to be maintained at the current levels. This is our current expectation.
Thank you. We have a next question from Jovan Sikimić from ODDO . Local M&A market, what is your view regarding future market consolidation?
The question is coming from the fact that we had been the most active participant of the co-actor of market consolidation, not only in banking but also in leasing and in asset management, in pensions. I'll say now as compared to 10, 15 years ago, number of banks in Romania is almost by half decreased by half. Opportunities are getting more and more difficult. We see international groups trying to do consolidation at the regional level. We are looking for opportunities further. We are also reiterating it as maybe as a marketing pitch that leasing, asset management, pensions are let's say key interest areas.
Also in banking sector, if we will have any opportunity, if there will be a bank coming to the market for sale, definitely we will, we will be there. That's why also we are very careful of our capital positioning, and the factor of acquiring and integrating, is still within our structures, and we are ready to use it if we will have any opportunities. It will not be as fast as it had been until now.
Next set of question comes from analyst Marian Mihalcea. What are your expectations regarding the turnover tax going forward? Do you anticipate this tax being reduced or removed starting with 2027? Second, how do you expect personal expenses to evolve in 2026 relative to the average inflation rate? Last one, has BT begun integrating artificial intelligence agents into the day-to-day operation? Do you expect cost efficiency?
Uh, uh, I would say net interest, uh, going back to, uh, net interest, uh, margin, we are expecting, uh, net interest margin, uh, to be stable, maybe slightly, slightly higher as I, as we were saying that our growth is coming from corporate segment, and, uh, it is very competitive and, uh, lower interest rates, uh, prevail in, uh, in this segment. Uh, then, uh, in terms of our, uh, how say, in... Sorry, Diana, can you repeat again? Because I lost the questions in first one.
Yes. It's about the Artificial Intelligence, about the turnover tax.
Turnover tax going forward, I mean, as per the declarations of the government, in 2027, it should be either decreased or abolished. I hope they will keep their promises. Unless Romania will solve its budget deficit and other fiscal challenges, unfortunately, we are an easy target, we are not going to, let's say, make a budget on wishful thinking. On the other hand, this is our expectation because it makes the life of our customers, the products and services that we give to them much more, much more expensive.
In 2026, I mean, despite the fact that last year we have integrated OTP and increased our headcount, with certain measures of efficiency, which is also related with your other question, with regard to AI. We expect very slight increase to, let's say, flattish growth in human resource expenses. It will not be the trend that you had been seeing with us in the last years, where we had double-digit growth of our salary expenses. As the last question was implying, we are having, how say, a strong use of AI that are, how say, from back office to compliance, from audit functions to programming itself, developing and programming itself.
We are using agents all around the bank. We do a lot of re-skilling programs. We do also a lot of trainings for our personnel. We have initiatives for the proposals of new agents or, let's say, automation of different processes, which definitely pay back. It's how say, it is a accelerated cycle because we started with baby steps early next year. Both the technology and our know-how is growing fast. We also learn from other banks abroad, in Romania or abroad, what they do, so it's easy to adapt and implement. It will be a big part of our, let's say, talk from now on as well.
You will see also, when we propose the budget, there are, how say, good amounts, I would say strong amounts, of technology, spending, CapEx, which is mainly related, with the efficiency, with AI and with the investments that we do in technology.
Thank you. We have follow-up questions from Daniela Mândru . Following the additional Tier 1 issuance, should we therefore assume a structurally lower but more resilient Return on Equity profile? Do you still see scope to move back towards mid-20s returns rates despite the enlarged capital base?
Mid-20s were, let's say those were the good days. I think, going forward, we will be delivering 20% plus minus with few changes of return on equity, which we consider a good return, not only in financial sector but any sector. Well, say if there will be economic improvements and we see, let's say change of mood and peace around the region, then, definitely, if possible, we will be happy to deliver mid-20s return on equity. Our guidance would be 20%.
You will have a couple of questions around the dividend proposals, but I guess this was already answered. I will now give back the floor to management for final remarks. Thank you all for submitting your questions.
Yes. On behalf of our management team, our colleagues, thank you very much for joining us, especially during such stressful and difficult, challenging days. As you see, regardless of the, let's say, changes in the economic or political directions, we are committed to deliver good returns and we are committed to grow. We are also aware of the responsibility that we have, because with our market share and presence, Romanian growth is also very much related to our growth and vice versa. We are comfortable that the management team, with the support of shareholders and investors, will continue doing so. I hope, again, all of you stay safe and looking forward to see you when we announce our first quarter results.
Ladies and gentlemen, following the conference call, we would like to announce 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 for calling and have a good afternoon.