Ladies and gentlemen, thank you for standing by. I am Maria, your chorus call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the first quarter 2026 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, good afternoon or good morning, based on wherever you are. Thank you for joining us today. I appreciate your time and your continued interest joining our calls and sending us questions. Before we start our presentation, I would like to give just a brief update about our sometimes challenging environment, not only in Romania but also given the political instability that we are facing now, definitely it adds up as a backdrop. When we look at the numbers from the fiscal consolidation, still elevated inflation, and some political uncertainty, we could say that both the private sector, banking sector, but especially Banca Transilvania, have been doing quite well in terms of business growth, new businesses, and profitability and capital generation, value generation for our shareholders. First quarter results, as you already have seen last week, were quite strong.
Also supported by the merger and acquisition activity that had been quite active last year, both in Romania and Republic of Moldova , helped us to grow our net profit 30%. Even without the acquisitions, when we look at the revenue growth and cost control, we are quite happy and comfortable with the existing trends. We see growth in non-risk income, banca ssurance, and payments. Only in the first quarter, we have opened almost 150,000 new accounts, both corporate and household customers. Numbers are going according to the budget, and we have also delivering, as it was seen already in the capital markets, good returns for our investors. I'll say we are still comfortable with the budget, which was approved also at the last general shareholders' assembly at the end of April, together with the dividend payouts and the new board members.
We think that markets already shown confidence in our business model and in the results that we can deliver by exceptional interest in April to our new bond issues, which reached EUR 1 billion. As far as we know, it's the highest number from Central and Eastern Europe so far. Also mainly based on the methodological changes, but also due to our robust growth and strong results, strong capital positioning, Fitch Ratings upgraded our rating to BBB. If we look at the trends further, we think that with our digital banking applications, BT Pay and BT Go, plus strong customer satisfaction and confidence, in the coming quarters, we will be continuing to deliver good and strong results. I'm sure that challenges in Romania, with which we are almost familiar with since last two, three decades, will have minor impact on our business development.
I will ask Aurel to give some brief update about Romanian economy and banking sector trends, then we will come back to our numbers and results.
Thank you, Ömer. I will follow up on your words describing the Romanian environment, meaning that we have a kind of a blend between positive and some less positive novelties around us. I will start with the positive one in which we still remain one of the main countries in Central and Eastern Europe in terms of future development and attraction for foreign direct investments. We had a strong growth between 2015, 2025, less during the year of 2025 and 2026. Nevertheless, the GDP per capita reached the level of 78%, which is a relevant one compared to the levels that we previously had. Now, what we are seeing as a positive side is that within Romania, we have large discrepancies among the regions, Bucharest and the western side of Romania being well above this average, at least Bucharest, but the rest of the country is lagging behind.
We see this as a potential future development for us because somehow there will be a disbursement of wealth between the regions. In terms of GDP, during the first quarter of 2026, it decreased by 1.7%, unadjusted series or -1.5% adjusted ones. These are directly linked to all the fiscal measures that were taken by the government. Nevertheless, it had a positive impact for the budget deficit, as you can see in the second chart. It narrowed down to 1.03% during the first quarter of 2026, almost half compared to previous years. You see also the forecast that we are having until the end of 2026, as well as the annualized forecast keeping inside the first quarter of this year. If we talk about twin deficits, in terms of trade deficit, we've also decreased it with 9.3% year-over-year, which gives confidence in future trends.
The current account deficit is also on the positive side. Not that much in terms of financial intermediation, for which the ratio is still slightly above 20%. Once again, as I mentioned, it is a blend between positive and less positive information. This one is also a positive in terms of future potential development. In terms of inflation, we are in a higher inflationary environment due to all the measures that we discussed in the previous calls of ours. They relate to last year's hike in VAT and other measures such as the capping or the release of capping energy prices and so on. We are at around 9% year-over-year in terms of inflation. Most probably by the end of this year, it should drop as all the previous measures will have the fade away effect later on this year.
The public debt to GDP remains at a lower level than from the European average. The pace in which it increases is also slowing down. For the year end 2025, we were at 59%. Foreign direct investments had a slightly negative pace. We had a decrease from around EUR 1.8 billion to EUR 1.1 billion, partially compensated by personal remittances during the first quarter of this year, which had a 16% increase compared to the previous year. For the banking sector, it seems to be still a relatively good year in terms of corporate loans. We had an increase of more than 5%. It seems like corporate lending is picking up on a national scale. Households as well, well above the European average.
The deposits have a tendency of better momentum after having this dips during late 2025, slightly below the European average, but the households are compensating far more than on the corporate side. Strong asset quality, the EBA risk metrics compute for 3.1% non-performing loan ratio below other thresholds such as Poland, for instance. In terms of capital adequacy ratio, Tier 1 is still high, 22% for the entire industry. Now, when it comes about our outlook, we revised the real GDP increase to 0.2%. The growth forecast definitely keeps in insight external shocks such as the Iranian war, political uncertainty, which comes also with currency depreciation, higher inflationary environment, and many other examples in this respect. The bottom line is that consumption remains weak, but we have a switch between consumption and investment starting with the first quarter of 2025. This is something still relevant today.
It represents also an opportunity for developing the local economy instead of being based only on consumption. As good news during this year, we see the completion of OECD accession because we closed 24 out of 25 chapters. Also in terms of trenches from the resilience fund or even European funds or safe funds, we have relevant numbers. What is most important is that fiscal discipline and policy should continue. These are essential anchors for macroeconomic stability, things that were mentioned also by the rating agencies. Now I give the floor to George for the business performance, and I'm thanking you very much.
Thank you very much, Aurel. We start the first quarter of the year 2026 with a very strong performance, which is continuing the trend that we showed in the last quarters of the year 2025 as well. We have a lot of numbers on this slide, we'll focus only on a few of them, leaving some of the information for the Q&A if you want to go into more detail. I will start first with the fact that our net result in the year 2025-2026 first quarter increased by 25.6% in the first quarter at the individual level and 30% at consolidated level, showing a very strong result also on the return on equity for the first quarter, with 19.5% at the level of the bank and 20.7% at a consolidated level.
What we want to point out is, for example, that if we would take into account the fact that we approved the payment of dividends, the return on equity for the first quarter of the year would have been a little bit higher, reaching 20.37% for the first quarter at the level of the bank. When we talk about net interest income, net interest income reached above RON 2 billion at the level of the group. This is a 5.6% increase versus the previous year, the same period, and at the individual level, with 8.7% increase, we're at the level of the guidance given for the budget for the year. This increase was mainly volume driven, and as you will see, it's driven by the fact that our loans-to-deposit ratio increased.
You see here on this slide at the individual level, we do increase by one percentage point and at group level by 1.21 percentage points. Fees in general increased as well. Ömer mentioned we have new clients, more than 140,000 in this period, bringing a good increase in terms of fees and commissions, while the structure of the fees and commissions remained pretty unchanged in the year 2026. In terms of cost level, if you take a look at the evolution of the cost, 17.7% increase at the level of the bank, and this is driven primarily by the fact that the turnover tax increased from 2% at the beginning of the last year to 4% in the year 2026.
We will go into more details on the cost slide. If we focus on the balance sheet, we can say that, as I mentioned before, the increase in loans-to-deposit ratio is driven by the increase in loans, with loans increasing 2% at the level of the bank and 2.2% at the level of the group, bringing about an increase in loans-to-deposit ratio both at individual and also at group level. Assets increased by approximately 1.2% at both the level of the bank and also at consolidated level. If we go forward and then we look at the evolution on the income statement and we focus first on the income, we see that with 65% approximately contribution to income at the level of the bank, net interest income, we sit around, let's say, the best practices in the banking sector.
Non-risk revenues totaling around 35%, providing revenues and features of a truly universal franchise for a financial entity. In terms of net interest margin, we can say that we remained at a level which is approximately constant throughout the last quarters. If you take a look at the level of the bank with the 3.43%, we are very close to what we ended the year and what we had last year as well. At the level of the group with 3.93%, we're also very close to the numbers of the year 2024 and 2025. In terms of evolution of net fees and commission here, we note that we have double-digit growth in both individual and consolidated results.
This is an outcome of the strategy that we have in terms of our subscription-based approach for the products that we sell, leading to higher numbers and volumes of transactions with our customers and also to a growing client base. On net fees and commission we have on the card business over 8 million cards in circulation, the largest POS network, and a very good and solid base of merchants. We see also in the large corporate segment an increase in the area of supply chain financing and other non-cash activities such as letters of guarantee or letters of credit. In terms of trading and FX income, the increase in the year 2026 in the first quarter is driven by increase in foreign exchange activity from our customers.
We do have also significant increases in terms of other net income, which are not presented on this slide. They represent bank assurance revenues, where we have reinforced this revenue stream in the year 2025 with reconsidered incentive schemes and a streamlining of operational processes and platforms, including also in the BT Pay and BT Go platforms these type of services. If you looked at the evolution of the P&L into the detailed financials, maybe you would have noticed that we do not have a contribution to the Deposit Guarantee Fund in 2026. This reflects the current funding position of the Romanian Deposit Guarantee Fund, which has reached its target level in accordance with the EU requirements.
Under the local and EU legislation, this allows the authority to suspend the annual contribution for one given year without eliminating the legal obligation to contribute in future periods if the need be. The framework is in place, for this year, we do not have a contribution, neither to the Deposit Guarantee Fund nor to the Resolution Fund. In terms of operating expenses, as I mentioned before, we do have an increase in the first quarter. If you take a look at the personnel expenses with 11.5% at the level of the bank and 9% at the level of the group, this is driven primarily due to some inflation-related adjustments, which this year were reflected as a one-time bonus, not as a percentage increase.
On the bank level, due to the fact that we have the employees coming from OTP joining us, approximately 200 people, in the month of March last year, you can see here a full quarter, whereas last year we had only one month reflected in the P&L on the personnel expenses. For operating expenses with 32.5% increase, the main contributor to this increase is actually the turnover tax with RON 115 million. This year, we have a RON 90 million increase versus the amount of last year. As I mentioned, and I repeat here for the benefit of all the people that are listening, the percentage increase is from 2%-4%.
If you take a look at the evolution on the OpEx line without this impact of the turnover tax, you will see that actually the increase is approximately 8% in the first quarter at the level of the bank. Whereas at the level of the group, we have a decrease in terms of operating expenses in the first quarter, approximately 6%, reflecting the fact that we did have, again, OTP at the level of the group reflected in the first quarter of last year. We managed to consolidate OTP in the bank, reducing significantly the expenses associated with them. What does it mean that from the point of view of cost-to-income ratio, both at the level of the group and also at the level of the bank, where we sit around 48% in terms of cost-to-income ratio, including the turnover tax.
However, if you take away the effect of turnover tax, we drop to 41.6% at the level of the bank, which remains comfortably below the Romanian banking sector average. I will stop here and leave some of the questions for the Q&A session, allowing Ömer to continue with the evolution on the business side.
Thank you, George. When we go back to how, say, our core business, retail and corporate banking, I would say that in retail, we are on track with the budgeted numbers. We have grown our loan book of 1.3% in line with the market. As I have been mentioning in the previous calls, and there are also some questions about this. Indeed, Romanian markets became very competitive, highly competitive, kind of decoupled from the inflation or interest rates situation in the market. We are not necessarily entering into a price war, but still we are happy that we are the first bank of choice for retail customers when they want to get a consumer loan, credit card, or mortgage loan.
We have granted in the first quarter more than 2,800 mortgage loans of almost RON 1 billion, and consumer loans also grew by RON 2.5 billion. The good thing is that the growth in the online lending through BT Pay application has increased over 56% as compared to last year. More than 20,000 loans have been granted just through our mobile banking application. This number we are expecting to grow in an accelerated manner from now on, and most of the activity, especially on credit cards and consumer loans, to switch to online lending, which helps us also with the OpEx and better management of the documentary side. We are also happy still to have a quite diversified loan book in terms of both currency and product distribution. Slightly over 40% of our retail loans are consumer loans, and the rest are mainly mortgage loans.
Credit card lending, although the numbers are very small, it's one of our hook products in terms of current account management, CASA accounts, the merchant network, and doing some corporate banking and SME banking on the other side. We are seeing that this also increases our foothold, and our deposits had been also stable. We have seen some switch from CASA accounts to term deposits as the inflationary pressures make customers to be more attentive on the developments, but also customers are investing in Fidelis program of the government or different funds where BT Asset Management and BT Capital Partners are definitely beneficiary. Also, again, I have seen a question about the commission income growth, where we see a huge impact from our asset management activities and bank assurance growth.
Plus, definitely in the group level, we see higher activity, including our two acquisitions in Moldova and our large acquisition accomplished last year. In retail banking, we are also very careful about the demography of the customers, and we see we have 1.1 million Gen Z customers. For the customers below 30 years old, we are the first bank of choice, including traditional and neo banks. This is a huge potential for growth for us further. Going back to corporate lending. Corporate loan book is growing at an accelerated pace, thanks to European Union funds, government programs, and also further appetite from the companies to invest in their own infrastructure or production capacities. We have grown almost 2.5% year to date in the first quarter, which is well above the market average.
We see also quite a pickup in the activity of SME lending, we have close to RON 28 billion in SME lending loan book. We see also agribusiness and healthcare divisions are growing strongly. These are our two business lines that we invest in terms of customer retention, human resources, and products, their contribution was altogether almost RON 800 million in the first quarter. This shows that in the specialized business units, we produce, but also we have further potential to grow. We are also thinking about maybe some new specialized business line units. In corporate lending, our loan book is almost equally distributed in currency side, around 44%, 45% is in RON, the rest is in foreign currency.
This is also due to the fact that in foreign currency, prices are more competitive and the cost of borrowing from a bank is lower for the customers. As our large corporate and multinational portfolio is increasing, we see this loan growth not as a risk for foreign currency position, but healthy and profitable growth. Corporate deposits are mainly in local currency, slightly increasing, and 21% of the total deposits are in foreign currency. We see growth of activity through BT Go. Almost RON 500 billion payments had been done through BT Pay. Coming from, let's say, two years ago when we were announcing that we have 10,000, 15,000 customers, now all our customers almost are digitalized through BT Go, and its ratings are also very strong in the App Store. We are increasing our activity in business cards as well.
I guess our colleagues from corporate banking are doing a good job in extending all potential areas of business growth in Romania. As the infrastructure investments, energy investments, green energy investments are increasing, we see also a growth in the syndicated loan market, structured finance, where we are not just a small participant, but in most of the transactions we are the lead arrangers or mandated co-arrangers. We became, for larger customers, the bank to go as well. It makes us proud and also encourages us to do more. These accounts are coming with vertical integration because it brings smaller companies in their network or salary accounts. It helps us to grow other business lines as well. Despite higher inflation and slightly higher interest rates and pressure on the fiscal consolidation, we don't see much of a, how to say, accelerated trend in NPL, non-performing loan formation.
I will leave it now to Cătălin to give you more details about the performance of our portfolio and the quality.
Thank you, Ömer. I will start first with the capital position of the bank and the group as well, which is showing, as usual, a solid position being above our targeted level and our risk appetite, namely 20% on both pictures. You could observe that in Q1, we witnessed a drop of the capital adequacy ratio on all levels, this being almost entirely due to the process of the fading out of the transitional arrangement that we have benefited two years ago. As you probably remember, the bank is within a three years process of fading out these transitional arrangements, and this year, starting in 2026, was the steepest one. Of course, as we announced also throughout 2025, we have been building up capital in order to absorb this regulatory transition process.
The capital, it's absorbing the business growth, which is usually coming from both retail and large companies. It was one question I would answer right now, which is linked with the RWA density. I would like to highlight the fact that the RWA density increase is solely given by this transitional arrangement. Here I'm pointing out towards euro-denominated sovereign bonds whose risk weight increased from 10% to 25% out of this transitional arrangement. If we move further to the MREL requirement, we see the same picture and the same evolution. While at the end of the year, we were holding a buffer of 385 on top of the minimum regulatory requirement. At the end of first quarter, we are still within our risk appetite.
As you remember, we are targeting to have on a continuous basis 50 basis points on top of the minimum regulatory. Here we are having this buffer still on top of the minimum regulatory. The drop being given similarly as for the capital position by these transitional arrangements. However, I would like to mention that this RON 1 billion bond issuance, which is bringing in the eligible liabilities approximately RON 250 million more eligible liabilities, when looking to the similar picture of December 2025. This is not yet included here because this bond issuance was settled in second quarter.
If we move to the last picture of the risk position of the bank and the group, we'll be looking to the asset quality, which if we start first with the NPL ratio, we are seeing a slight advance in the NPL rate according to EBA definition, from 240 at the end of 2025 to 255. The reason for this slight advance in the NPL ratio is given by one of default in large corporates. I would like to mention that the rest of the portfolio, it's behaving very similar with the past year, so we don't observe any adverse evolution. Although the external environment, both internally in Romania and outside, is not the most favorable one, still the portfolio up until this moment is showing a good resilience.
If we compare with the market, we are keeping this positive gap against the market, the market at the end of first quarter being at 283. We're looking to our figure, we see that this constant gap against the market that's showing also this constant better portfolio quality than the market that BT is holding. Cost of risk, it's showing a better picture than the first quarter from 2025 when in 2025, just as a reminder, we were witnessing a 1% risk cost ratio, which 1% is still a normalized one for Romania as according to our definitions.
At 70 basis points for the bank and 80 basis points for the group, this is 100% in line with our budgeted figure. This is a figure that we are still using as a guidance, of course, being linked also with the budget that was approved by the General Assembly meeting last month. We are still guiding towards this figure. If we look to the distribution per stages and the provisioning coverage, we see a constant picture. You might see at the group level a slight advance in the stage 2. This is given mainly by the acquisition of the Microinvest portfolio at the end of last year, in Moldova, which of course, through the definition of their business model, is having a slightly higher share in stage 2. This is part of their normal course of business.
That tip on the risk side, I will hand over to Ömer for the general decisions.
Yes. As you might have followed, at the end of April, we had our general shareholders meeting where obviously the shareholders approved distribution of cash dividends of RON 1.4 billion, which is corresponding to RON 1.28 per share as cash dividends. The ex-date for these dividends is 15th of June, with the distribution to be on 30th of June. Also our budget had been approved in terms of total assets growth of 6.4% with loan growth of 8.5% and profit before tax RON 5.1 billion, a growth of 6.1%. As I mentioned, I'm looking at the results so far, we are quite comfortable in our commitment to deliver these results.
Shareholders also approved the issuance of 157 million new shares at the nominal value of 10 RON each, which will be contributing to our capital base. Meanwhile, there was the new board members approval, the board of directors approval for the mandate of four years with quite strong competence levels. Some of the names people following Romanian markets might know. We have also, besides existing board members as Mr. Georgeta, Mr. Gueorguiev, and Ms. Bordea, and Mr. Predescu, we will be having Ms. Nistor, Mr. Lionăchescu, and Mr. Torgie as the new members. Obviously, also shareholders approved a buyback program of 5 million shares for our stock option program. That's corresponding to 0.46% of the total shares of the bank at the maximum price of 45 RON.
This amount is the maximum, and limit is not a target itself, but based on the performance of the bank, this is the program that we use to incentivize our staff and personnel at all levels. It's quite a strong performance in the stock exchange so far this year. I guess the results presented for 2025 and expectations for 2026 gave incentive to shareholders where based on what we delivered, we are happy that we didn't upset. I have seen some questions about dividends. We will be coming back to that. We had been maintaining our payout ratio at 30%-40% range and rest of the profit adding up to our capital base. If we can actually think about the dividends that we paid in the last autumn, we are reaching almost over 55%.
We are again thankful to investors, both retail and institutional side for their trust and support, which is reflecting itself in the performance of BT at stock exchange. For sustainability, I am coming back to Aurel.
Thanks again. Very briefly, I will touch on two main things. First, ESG reporting. We published our second sustainability statement fully aligned with the CSRD requirements. This is a strong step in the quality of reporting. The second thing is our green asset ratio, which continues to improve compared to the last year's figure of 11%, now we are in 2025 at 13.3%. This reflects a faster alignment of new lending with the European taxonomy. On the financing side, two main projects that we can take in front of you. We remain highly active. We acted as a mandated lead arranger for green financing of EUR 460 million, a major renewable energy project, one of the largest in Central and Eastern Europe. In addition, we also contributed with approximately EUR 40 million to the expansion of LEED Platinum certified office buildings in Bucharest.
Last but not least, we continue to promote inclusion. We hosted in March the Accessibility Beyond the Limits program. This was event in Cluj, which reinforced our commitment to accessibility and also inclusive design. Going back to digital, this is also your slides, Ömer, and thank you.
Yes. Thank you, Aurel. Obviously, BT Pay is so far let's say both the best practice and the most favorite wallet in Romania. We have also confirmation from credit card settlement companies that BT Pay, in terms of business volumes, is in the top rankings in Europe, not only in Romania or in CE region. We see high growth in our mobile and NFC payments and fund transfers, but also BT Pay is helping to our growth in fee and commission income by offering both bank assurance and asset management products. Since late last year, BT Asset Management products are accessible through BT Pay, and this has a very positive impact on our fee and commission income growth.
We have a lot of new features, most of them you are already familiar with, but from insurance to eSIM and trading accounts, BT Pay is policy now becoming a super app for Romanian households for all ages, growing also very strongly on the juniors and kid accounts. 90% of the transactions of BT Asset Management are now done through BT Pay, and we are also growing our pension sales quite strongly through BT Pay. BT Go, our, I would say, rather younger and newer all-in banking platform for companies, for entrepreneurs, has almost 600,000 enrolled companies, and 85% of these companies are active almost on a daily basis with payments and different transactions. Volume of transactions has reached a number that I checked, actually, once I saw it in the presentation. I checked to be sure that I was mentioning 511 billion routed through BT Go.
It's quite a strong figure. As I said, the rating of the application is also very good, so that I'm happy to see that both the customers got used to it and also we managed to address the needs and requirements of the customers at a relevant level. The product itself is growing continuously. We will be investing further. Our aim is to make this super app for companies and entrepreneurs out of BT Go. Going back to financial group performance.
Thank you very much, Ömer. We will focus only on the, let's say, the main and biggest numbers that jump from this page. I will start with BT Capital Partners, where we do have continuing leadership in terms of brokerage market with over 26% of the BVB market share, and BT Asset Management with asset under management over 10 billion RON. If you take a look at other companies that had a very good evolution in the first quarter, we talk about BT Mic and BT Broker, where net profit increased by 28% and 35% respectively. In the neighboring country, Victoriabank and Microinvest contributed significantly to the evolution and consolidated result. Victoriabank net profit increased 31% quarter on quarter, and it's the number 1 bank in the Republic of Moldova with instant payments business to business.
Microinvest joined the group at the end of last year, and it's present with over 50,000 clients. For the first time, you see it in the first quarter results reflecting one full quarter, and it's contributing to the increase in some of the ratios that you see at the group level for the year 2026. I will stop here, and then maybe we can move to Q&A. Thank you.
Ladies and gentlemen, at this time, we will begin the question and answer session. You may submit your written questions using the Ask a Question window in the webcast. One moment for the first question, please.
Hello, everyone. Thank you for connecting. We have first questions coming from Simon Nellis, MD in Equity Research with Citigroup. Question number one, do you expect contribution to the Deposit Guarantee Fund to increase at some point in the future, and if so, to what level? Secondly, consolidated fee income is growing a bit faster than the parent bank. Do we expect the annual growth in fees to also be higher than the 13% growth that was budgeted for the parent bank? What is driving the strong growth in fees?
Thank you, Simon. As regards to the first question with the Deposit Guarantee Fund, indeed, it's a calculation based on the market share and growth of deposits share. There is no exact transparent formula, but numbers are being delivered to us. It is kind of priced in. We do not expect any change in the calculations, but as long as we grow our deposit base, which we aim to, the contributions might be also pro rata increase. However, as I said, in our business model and pricing, it is already embedded. The second question from me was as regards to the net fee and commission income growth. There are several factors which is also making it more sustainable.
It's not depending on one business line or one subsidiary. The fact that now we are having Microinvest and former BCR Chișinău in our balance sheet in Victoriabank's numbers. We see BT Asset Management, accelerated growth thanks to contributions through BT Pay and our bank assurance business is on a continuously growing trend. There are several factors which are contributing. We have recently launched our ETF as well. We will see its impact in the coming quarters. Perhaps say, on the other end, as I have mentioned also with regard to the interest rates, it's still a very competitive market. We might make some adjustments in our fee schemes and structures in order to maintain competitive advantage. Still we are always committed to, I would say close to or low 2 digits growth in our net fee and commission income.
Thank you. Jovan Sikimić, senior equity researcher with Oddo and Raiffeisen, has submitted several question. First, net interest margin seems under pressure on both assets and funding sides. Where do you see it going forward? Any reasons behind the staff cost growth in Q1?
Thank you very much for the questions. With respect to net interest margin, we do have pressure, but as I mentioned, with the increase in terms of loan-to-deposit ratio, we managed to actually keep the ratio almost at the flat levels. You will see if you take a look at the graph that we presented when we talked about business performance that even in the periods where benchmark interest rates were increasing or decreasing, BT managed to keep a constant level in terms of net interest margin, both at bank and group level.
In terms of the increase in staff cost in the first quarter, I think we mentioned, when we commented on the evolution of the results, a small amount is due to the inflation adjustment, which for the first time this year, we didn't increase salaries as a percentage, but as a one-off amount for the more disadvantaged portion of the staff. The second part is related to the fact that we have OTP staff joining us at the level of the bank, in the first quarter with full impact, where it was in the last year, we had these 200 people only for one month.
Thank you. We have follow-up questions from Mr. Sikimić. Where do you see the risk-weighted assets per total assets density after the expected jump to 46% in Q1? What would be your comfortable CET1 ratio over the cycle?
As I was saying also during the main presentation, the RWA density, we are still expecting to increase in 2027 only, following the last step of the process of phasing out the risk weights for the euro-denominated sovereign exposures. For this, it's not an expectation, something that we know for sure that it will occur is from 25% to 50%. This is something that for which we are accounting into the capital planning and so on. Other than that, we don't expect an RWA up drift in terms of RWA density. When we are talking about CET1 and what it is through the cycle, here it's a bit different than the risk cost because here we are managing through our capital planning. Yeah. Here I would mention what is our risk appetite. Yeah. Our risk appetite is that for all the ratios that we have. Yeah.
CET1, Tier 1 or total capital adequacy ratio to have on a continuous basis a buffer of around of 2% on top of the minimum regulatory.
Thank you. Last two questions coming from Mr. Sikimić. On the dividend side, why the stock dividend component was way above the cash dividend from 2025 earnings compared to previous years? Last one, how do you see the loan growth this year given recessionary and high CPI environment?
I will start with the business, I mean, loan growth part. As I said, we are still comfortable committed in our budgeted numbers of growing our loan book 8.5%, because indeed, both the fiscal consolidation, higher inflation put a pressure on household incomes. We see higher growth in mid-caps and larger companies. We had been mentioning also in our latest calls and different discussions that Romania is going through a transformation. It is quite painful, definitely, but it is also necessary. From a consumption economy, consumption-based growth, we are switching to production-based growth and investment-based growth. I guess, and as we follow the projects ongoing and in the pipeline, we will be able to deliver these numbers. It's also in terms of, obviously, customers are not also looking just for the interest rate, but they are looking also for speed, for availability, accessibility, digital applications, and platforms.
We have a, I would say, competitive advantage. We are in their top of mind. That's why it helps us to grow faster than the market. If there is demand, we are very well positioned to capture it more than our competitors. As regard to the payout ratio, as we were doing the budget, definitely we started doing the budget in the autumn, and until we reached October, many things changed. Since then, until GSM, our General Shareholders Assembly, there were other challenges. We wanted to have higher reserves. We have reserves of almost RON 700 million retained earnings distributable at one point, as we did last year in autumn. We don't want to make a commitment here, but if business performance continues like this and also economic indicators improve, we might be coming back to ask opinion of shareholders.
We're still saying that our stock dividends, the stock distribution is almost as cash because shareholders, and we see that especially on the institutional side, shareholders are enjoying having the shares which is a good performance in the stock exchange.
Thank you. Next questions come from Cristian Petre, NN Pensii. Please comment on the capital ratio decrease. What are the main factors, and what are the minimum levels required by National Bank of Romania? Did you notice any change in corporate behavior after Ukraine war started?
Thank you, Cristian, for the question. The drop in the capital ratio, as I said during the main presentation, is solely linked with the transitional arrangements which are fading out, this being at between two and 2.5. So is nothing unexpected. If we look to the total capital adequacy ratio, you'll see it also in the presentation, the minimum regulatory is level it's at around of 18%. So being at the end of first quarter above 20%, we are basically holding this 2% buffer according to our guidance and risk appetite statement. Going further to your question linked to the Iran war, the answer is no. We didn't see yet any adverse effect in our portfolio.
To be honest, this is also too early at this stage to see something. Usually, when an effect over a credit or a loan book is seen, it's seen with a lag from the triggering event. However, also what we are also seeing in other discussions with our investors, it's a matter of timing. Dependent on how long this conflict will last, this will create a positive direct correlation with the effect on the portfolio. For the time being, so far so good.
I have a question from Firebird Management, Steven Gorelik. What needs to happen in the economy to have a more serious impact on the loan quality than we have seen so far to go above the 1% cost of risk?
It's true, although because can be at the first sight, the distance between 70 basis points and 1% is small. This is not so small. In order to see an effect over 1%, I think should be two-folded impact. One is the external one, which of course is not controllable by us. Here, we would like to see it not lasting too long, neither the internal hiccups that we have today on the political stage, but also the external effect. Yeah. Then should be corroborated in order to see it above 1% with our internal ability to originate loans, but also to manage the loan book. It should be two-folded effect. One of them, we are controlling how we are originating loans and how we are managing the current portfolio. The other one we don't control.
Once these two are getting in the wrong direction in these scenarios, we might see it above 1%.
I will also add something as possibly the so-called great financial crisis from 2008, 2009 had been a good lecture, good lesson for households, for smaller companies. We see that afterwards, the payment behavior, saving behavior has changed. Over 1% or over 100 basis points, the cost of risk we have reached only during COVID times. It should be a very disruptive event, and during such moments of periods, governments, multinational, let's say bodies, European Union, they start finding solutions as well. I mean, besides this, definitely as Cătălin Caragea said, what we do, how we do, there should be a huge external disruption for us to have this kind of a jump.
Still, when we look at the payment behavior recently with all the inflation pressures and also, I would say, sudden changes in trade relationships, we see that our customers are faring very well and respecting their obligations. Romania has also what to save from. We had been leader of European Union in terms of food waste or in terms of consumption growth. These are decreasing, normalizing, actually. It gives also some saving space and performance space to households and smaller companies.
Thank you. David, a credit analyst with Autonomous is asking a couple of questions. First, what would be the impact of first quarter profit on CET1 if not included? What are your issuance plans for the rest of the year? What is driving the reduction in other expenses, and details in respect of income related to financial assets at fair value through P&L?
The first question was related to the profit impact. First of all, it's not included. Usually we are following a two-step approach when coming about profit inclusion in the own funds. The first step, which is the mid-year and the final last step, of course, at the end of the year. If today we would be including the profit in the own funds, most probably we will see between 1% and 1.5% increase in the total own funds ratio. Second question, Diana, could you please help me with one? You take it? Okay.
The second question was related to the reduction in other expenses in the first quarter of the year 2026 versus last quarter of 2025. Here, I think, the answer is pretty clear. We have been and we are engaging to cost control initiatives. We monitor very closely where the biggest items are increasing. As we mentioned before, we will continue the cost control initiatives in the year 2026 as well because we want to, let's say, combat the effect of the increase in the turnover tax into the P&L, which is quite significant as you could see in the presentation. When we talk about the details of the reduction in income related to financial assets, fair value through P&L, I think this is purely related to the activity of the treasury, and it's seasonal. It doesn't mean there is a trend or something happened.
Overall, the amounts are, if you count the whole year or the whole period of last year versus this year or what we forecast for this year, we are within the budgeted amount of what we put forward to our shareholders, both last year and this year.
On the issuance plans?
We are planning to be present in the markets. Definitely, any issuance depends on our loan growth and indicators. We are also expecting some either transitory or permanent changes of regulations from European Central Bank and European Banking Authority, which may help us to modify our issuance plans. As we had been saying every semester, every spring and autumn, we will be active in the markets with different types of instruments and different types of maturities in order to create our yield curve, in order to be a present issuer for the asset managers, for the investors, and also to be able to present ourselves better.
Okay, next question comes from Robert Brzoza with PKO Bank Polski. What was the average NPL formation in Q1 2026 versus last quarter and year-over-year as compared to first quarter of 2025?
If we compare with the first quarter from 2025, when we also had one-off corporate default, we are seeing a quite similar evolution, however, slightly better in 2026. This was on a basis of slowing down the NPL formation on micro and SME segments, whereas on retail it was kept stable at very low levels, and in corporates we are seeing this one-off and, I would say slightly higher default rates. If we compare with the end of the year, the Q4, due to this one-off event, of course, in Q1 2026, we are seeing a higher formation. If we would be excluding this one-off event, retail, it's stable. Micro and SME, again stabilized, normalized in some areas, slightly going down, and corporates keeping a slightly higher trend.
Thank you. We have several questions coming Irina Răilean with Mosaic 8. Net interest income on mid-corporate segment has dropped slightly. What drove this decline? Is the construction loan jump concentrated in a few large PNRR public infrastructure tickets or broad-based? Lastly, do you expect the deposit migration from current accounts to term deposits to continue also in 2026? What is your net interest margin guidance for 2026?
The net interest income decrease in mid corps is not significant, it is based on the rather slower growth of the lending activity. We are not concerned about this. Coming back to your second question where the construction loans, whether it grew, mainly it is related to infrastructure. When we say infrastructure, it is roads, hospitals, mainly. Some also energy investments included. We do also have policy construction loans on logistics and very few, also due to the legislative obstacles now with the new law, some residential developments as well. Coming back to your question, yes, it is mainly on the Recovery and Resilience Program-based infrastructure lending. Your other question is about the deposit guidance. As I said, we are still orthodox about our strategy. We do not enter into a price war.
In deposits, we are not the highest-paying bank, but we do offer other services. When the customers, especially on the retail side, they make their choices, they look at the accessibility, they look at the trustability and strength of the bank. I guess we are quite a strong household name, which is being also confirmed by Brand Finance, independent brand evaluation international company, has put us as the second strongest, second valuable brand in Romania and as the first bank in terms of this ranking. Our brand's strength, BT's brand strength, is actually a global leader, not only in Romania, but for all their analysis. As if we do offer other services, we do offer shorter access to financing our, as I said, our credit card portfolio, debit card portfolio with merchant network offers a lot of advantages to customers.
I think we have through cross-selling, through addressing the wallet of the customer, we position ourselves better than just offering a couple of percentage more. Our guidance is still stable, close to 350 basis points this year for net interest margin, and we do not see any change, despite the fact that in general, we are growing on the larger corporate, which is lower margin business, but it brings also a lot of current account activity and salary accounts, as I said.
Thank you. We have a follow-up question from Autonomous. Why did the total CET1 capital requirements rise in the first quarter of 2026?
This was the regular update of the calibration coming from the National Bank of Romania, which entered into first starting the 1st of January 2026. The rise was quite minimal, couple of basis points, around of 20+ basis points. This being a normal evolution, being solely linked with BT growing in size.
Thank you. Follow-up questions coming from Oddo. What would be your view on turnover tax in 2027 and 2028?
Thank you, Ioan. I'll say there is the, let's say, the legislative part of it, and there is our expectation into it. According to the emergency ordinance which approved the turnover tax, the tax from next year should not prevail. Considering still fiscal consolidation efforts, challenges of Romania with budget deficit and strong profitability of banking sector, starting with us, I think we are an easy target to hit in this sense. In 2027, I would expect banking tax to be maintained, hopefully, from Ministry of Finance to government and other authorities, they will come to their senses and not create extra burden on banks and banks' customers through this tax. I would factor in starting with 2028 it to disappear, but next year, most probably we will have it further.
No further questions. Thank you everyone for being with us tonight. I would return back to management for final comments.
Thank you very much for joining us, and thank you very much for your interest and support. Your questions also help us to pay attention to the matters which matter the most. If anything was left unanswered, please do not hesitate addressing Diana and her team through investor relations. We will try to address your questions in time. I hope to see you after three months with the results of second quarter and news, hopefully better news in terms of Romanian politics and macroeconomic developments. Until then, I wish you all the best. Thank you.
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