Good morning and welcome from Baden-Baden, ladies and gentlemen, to our financial year figures 2025. My name is Franziska Randt. I'm the Head of IR Department, and I have the pleasure that today here with me is our CEO, Sebastian Hirsch, and CFO, Martin Paal. Welcome. We will start with the presentations, and right after that you will have the opportunity to ask questions. Without further ado, I will now hand over the floor to Sebastian.
Thank you, Franziska. A warm welcome from my side. Thank you, ladies and gentlemen, for joining our earnings call today. Ladies and gentlemen, looking back at 2025, the year was once again shaped by a challenging environment and ongoing geopolitical tensions, and it seems to be persistent. Despite these challenges, we successfully navigated our business through the year. Let me briefly summarize last year's performance step by step. First of all, we are proud to have achieved the goal we set for 2025, even though the forecasts were and remain difficult. With group earnings of EUR 71.8 million, we have delivered under tough circumstances. Above all, we increased our profits quarter after quarter last year, which I will come back later. That said, we also remain self-critical. We are not there yet, and we know we must do better.
We know that we need to increase our return on equity , but 2025 was an important milestone on our path. We are not at the finish line yet in terms of profitability. Secondly, geopolitical tension, macroeconomic uncertainty, and the highest level of corporate insolvencies in two decades created a complex environment, which we navigated well. Our loss rate remained at an elevated level of 1.7% compared to the historic average level of 1.5%. We were able to almost entirely offset this by a significant increase in our operating result before damages. At the same time, we remain confident. Even in a tense macroeconomic and geopolitical environments, we remain firmly in control. It is one of Grenke's strengths to deal with such situations. Third, a major turning point was the good development of our cost-income ratio.
This is not a one-off event, but rather a reflection of our commitment to increase our profitability by efficiency. It demonstrates that our digitalization program, our strict cost discipline, our process optimization and automation in conjunction with our strategy, with our growth strategy, are delivering results. Fourth, with a clear strategy and the right team and a well-defined roadmap ahead, we are confident in our path forward. With Isabel Tufet Bayona joining us as new COO in September, our executive board team is now complete. Welcome, Isabel, again. Number 5, for us, 2024 was also a year in which we manifest important fundamentals and brought critical unresolved issues to a close. It was particularly important for me that we also delivered the final purchase of our remaining franchise company and the initiation of the sale of our factoring segment.
Finally, we have achieved again a solid growth in the past year. With EUR 3.3 billion, it's technically a new record because we never have achieved sales figures like this before. The crucial thing is that we have recorded the future income through our contribution margin 2 , and that the portfolio will continue to generate in the coming years with rising income. That's the foundation for our ultimate goal. We are aiming for 10% return on equity after tax by 2030. This is a path and not a walk in the park, a combination. Our compass needle is pointed in that direction to a double-digit return on equity . Again, 2025 shows that we are on the right track. Ladies and gentlemen, this slide reflects the balance sheet substance and the growing income of recent years.
You can see how our new business growth translates into our annual figures. Our leasing receivables are growing constantly, and we have surpassed EUR 7 billion last year. This is important since it is expressed in the increase in our operating income to now more than EUR 660 million. We won't stop here. We continue to set ambitious growth targets because we are convinced to believe, especially in uncertain times, that leasing is the solution of necessary small-ticket investments for small, medium enterprise, entrepreneurs, doctors, and the public sector. It's more than leasing volume growth and operating income. Our focus and mission are clear. Increase our holistic profitability and grow our return on equity to a sustainable double-digit level, as I mentioned. It means specifically we are aiming for 10% in 2030.
To achieve that, we have three key levers that are important for steering our business. First, operating income, as shown before. Second, our operating cost. Third, risk and risk management. You may know them already since we introduced and presented this logic last year. Proper capital allocation is equally important because return on equity is not only a question of the group perspective. We brought it down to each subsidiary, to each unit. On the top is our ultimate KPI return on equity . Let's move on step by step. Operating income is expanding. We've seen that two slides before. This part is driven by volume growth and margin in our business, and we express that in our contribution margin 2. The continued expansion of our leasing business directly drives operating income.
There's a second reason why growth and leasing volume from a strategic point of view is important and a strategic pillar for us. By standing with our customers and partners, even in that challenging times, we build trust, reliability, and long-term partnerships. This strategy has a long-proven track record in past crises. We can outperform the market and gain market shares. When it comes to our cost structure, we not only feel that we are on the right track, but the figures also prove it. We are now seeing the results of what we have constantly focused in recent years. Income growth should exceed cost growth by a factor of minimum 1.5. With an increase of only 7% year-over-year of our cost against an increase of more than 14% of our income, we have outperformed that goal last year.
Now we must do everything we can to ensure that cost-income ratio does not rise again. At the same time, lay the foundation for further efficiency gains, not least through digitalization and constant re-evaluation of our processes right through controlled self-disruption. Every euro spent must contribute to our return on equity. At first glance, it's not that easy. Therefore, every euro spent must add value in terms of customer benefit or competitive advantages. If we are unable to determine this, we must also have the courage to consciously decide not to do certain things. We are starting doing this and want to continue it, because in addition to digitalization, this mindset is central to success in our small-ticket business. Ladies and gentlemen, over the last quarters, we have reported extensively on the topic of risk.
Yes, it remains an important factor for us too. On the one hand, we cannot ignore developments as evidenced by the significant increase in risk provisions. Exactly. We can also say with conviction that we can handle it. Exactly. We have the data and the tool to assess the current portfolio sensibly. Above all, however, we can draw the necessary conclusions for the future because two facts are decisive. Firstly, yesterday's insolvencies cannot be changed, not even by me, even if I'd like to do. Secondly, the crucial element is to determine whether these developments are systematic and whether the structural changes are taking place. What does that insight mean for us when our customer, namely a small medium enterprise, submit a leasing request to us today? This is happening more than 10,000 times a week, a leasing request.
That's a critical point where we can make a difference with data-driven insights. Today, we can reject a request what we would have approved based on yesterday's data and knowledge. That is what we have done. We have become more selective and cautious when it comes to accepting new business in that environment. However, this also means that in case of doubt, we now accept slightly lower growth rates for new business. With regards to development of our risk provisions, I would like to underline that also the increase of almost 50% looks somewhat steep, but not all of it will end up in real defaults. Martin will tell you more about in detail later.
I would like to make one point clear based on our empirical evidence and my experience, it would be the best and the most stable in principle if we consistently set aside 1.5% each year as risk provision in good times and bad times. As an entrepreneur with a long-term perspective, this leads to a fair picture, which is also confirmed by our statistics. You can see this level in the dotted line on the right chart. Of course, this is not compatible with IFRS regulations and accounting principles. That is why these fluctuations are also part of the picture to a certain extent. It is important to take a step back and classify the deviation from the normal level in good times and bad times, and then to keep a cool head in times of both of overperformance and underperformance.
It means today, yes, our loss rate is higher than long-term average of 1.5%, as mentioned and explained. First, we have seen worse, and we feel confident to be able to steer our business also through these times of uncertainty. Second, the fluctuations are not nearly as severe for us as elsewhere, because we have strong safeguards thanks to our diversification. Adding all three components, income, cost, and risk, we are able to increase our group earnings to roughly EUR 72 million last year. Our return on equity after taxes remained at the same level of 5.2%. Nonetheless, we are back on right course to improve profitability. What I mean by that, I will demonstrate you on the next slide. Ladies and gentlemen, challenges are not new over the last couple of years, so to say.
2024 was also such a year. The sharp rise in insolvencies at that time meant that our quarterly profits in the second half of the year and even into early 2025 were relatively low, you may remember. Here comes an important fact and maybe the most important one for 2025. We have been able to increase our group earnings steadily quarter-over-quarter, every quarter throughout 2025. This underscores the fact that we have regained the necessary momentum to increase our profitability. It proves beyond doubt that we have made it. We initiated and we executed the turnaround in our earnings, thereby laying the foundation for improving our return on equity on the path to the target of 20-30%. With that, I would like to hand over to Martin for more details for the last year's figures.
Yeah. Thank you, Sebastian, and also a very warm welcome from my side. As Sebastian laid out, 2025 was a challenging but also successful year for Grenke. Following our strategic levers, I'd like to start the financial figures for 2025 with our operating income side. Looking at our top-line performance for 2025, we saw continued solid growth in our leasing new business, reaching EUR 3.3 billion after EUR 3.1 billion in 2024. Mainly driven by our top three markets, Germany, France, and Italy. The increase by 7.8% is a strong signal as we were and are operating in a macroeconomic environment of high uncertainty, volatility for businesses. In Germany and France, we saw an overall contraction of the leasing sector, and despite these challenging circumstances, we achieved significant new business growth in these markets and were thereby able to expand our position.
Our third-biggest market, Italy, we grew in line with the market development, maintaining our leading position. As just mentioned, the improvement of our top-line performance in 2025 was largely driven by our strong growth in the DACH region of 13.7% on EUR 96 million, of which our home market, Germany, made up the lion's share. Also Western Europe and Southern Europe saw solid increases in a continuously challenging environment, growing by 8.5% and 8.9% respectively. In contrast to these positive developments, our Northern Eastern Europe region experienced a normalization of new businesses coming in some 5% below last year's results. This development is mainly attributed to two factors. Firstly, a base effect after very strong growth in the previous year in this region, which was significantly above long-term average.
Secondly, the sudden end of subsidies for e-bike leasing in Finland and an adjustment of our reseller network in the U.K., which resulted in a softer new business there. Our future core markets, on the other hand, in the other regions, however, continued on their anticipated steep growth trajectory, increasing new business by 21.2% or EUR 41 million. Driven by a strong performance in the U.S. and Australia, our future core markets developed steadily and according to plan, continuously gaining momentum. After this detailed view of our top-line performance in 2025, let's now move on to our operating result before settlement of claims and risk provision. Under the impression of elevated insolvencies in our markets and a high cost-income ratio at the end of 2024, we set out to improve our cost efficiency in 2025.
Accordingly, we applied strict cost discipline measures, and we are vigilant regarding our spending. At the same time, we continued necessary investments into our future, such as into further digitization. These investments, especially into our digital infrastructure, are now showing first effects and will continue to add to an improved cost efficiency. At the end of 2025, we can report our measures are working and showing significant effect. In 2025, we grew our operating income by 14.7%, driven equally by higher net interest income from our existing portfolio, as well as by improved profits from new and service business, including disposals. In other words, the growing new business of the past years translates increasingly into a solid operating income supported by our most recent new business. Looking at our cost development, we see clearly the effect of our efficiency measures.
Our cost base increased by only 7%, mainly driven by higher staff costs remaining significantly below our operating income growth. Consequently, our operating result improved by 26% compared to last year, while our cost-income ratio improved by 4 percentage points to 55.2%. We are proud to have achieved such significant increase in the operating result before settlement of claims and risk provisions and strongly improving our cost efficiency. Increasing profitability will continue to be our path in 2026. In 2025, the high level of macroeconomic uncertainty, erupting conflicts, and disruptions to global trade continued to impact our customers. Accordingly, insolvencies and defaults remained elevated, and while we saw a stabilization of defaults throughout 2025, they, however, remained on a high level.
We took measures to address this development, working closely with our customers to enable them to fulfill their contracts. Still, the impact of these insolvencies and defaults showed in our figures. Our settlements of claims and risk provisions rose, as Sebastian already lined out, from EUR 131 million to EUR 196 million in 2025, resulting in a loss rate of 1.7%. Despite this steep increase, risk provisions in stage 3, which contain our non-performing loans, increased by some 23%. What I would like to stress, even though our loss rate remains elevated at 1.7% above the long-term average of 1.5%, our coverage ratio in stage 3 remains stable at almost 60%. In other words, 60% of the non-performing lease receivables were and are already provisioned for.
As mentioned in earnings calls throughout last year, we've already accounted for higher loss rates in our newly settled leasing contracts. Let us now come to our capital allocation, and I understand this is a topic that many of you are eager to hear more about. For that reason, let me start with the most important message right away. Our equity is growing, and we have sufficient headroom for continued growth over the coming years. Consequently, we do not plan a capital increase in the midterm. With an equity ratio of 15.6%, we have continued to improve the use of our existing capital, striving for a more efficient capital allocation. We'll continue on our path of retaining roughly 75% of our profits while paying out 25% in dividend, further expanding our equity base as a foundation for future growth.
Given our growth targets and our clear bottom line focus, our current structure provides sufficient headroom for the years to come. Coming from the equity to debt capital, we continued our proven diversified funding mix strategy. Relying on our four debt pillars in 2025, senior unsecured made up around 43% of our debt as we issued our next two benchmark bonds of each EUR 500 million in May and September 2025 at a 5.25% and 3.875% coupon respectively. We view this as a success on many layers since firstly, it shows the trust of our investors to invest in Grenke bonds. Secondly, our own credit spread is coming down gradually. Thirdly, and most importantly, we are raising sufficient capital for our ambitious growth targets.
Furthermore, I am happy that we successfully launched our first bond of AUD 125 million in August last year, underpinning our strategic ambitions in Australia as a future core market. The deposit business of Grenke Bank remained an essential pillar of refinancing for us, covering 31% of our debt. Asset-backed refinancing, such as through ABCPs and global loans, made up 17% or roughly EUR 1.2 billion. Here, it's worth mentioning is a new global loan of EUR 200 million by the German state-owned investment and development bank KfW, which was granted early 2026. This underlines the strong trust and good reputation Grenke has regained in recent years. With the proceeds, we support SME customers in Germany with favorable leasing conditions, enabling investments in their businesses.
Lastly, our most recent pillar, external bank funding, accounted for 9% of our refinancing. In this category falls also the EUR 150 million revolving credit facility with our Italian cooperation partner, Intesa Sanpaolo. We are well equipped with our funding mix to finance our growth ambitions and maintain a strong cash position. Ladies and gentlemen, allow me to provide you with a short summary of the financial highlights that I just presented. What is most important, we achieved a modest group earnings growth to roughly EUR 72 million and met our guidance of EUR 71 million-EUR 81 million for 2025. This achievement was driven by a strong increase in operating income, outperforming our cost development and vastly compensating for a higher loss rate. In the volatile macroeconomic circumstances we are operating in, this is a real success.
Our return on equity after tax remains stable. Of course, we are not satisfied with that. We still have some way to go, but we are making clear operational progress toward greater profitability. With that, I give back to Sebastian.
Thank you, Martin, for your remarks and also thank you to your team, to Franziska, for giving us that structure. May you guide it as a navigator on the right track. Pretty impressive, having that structure. Ladies and gentlemen, it's only March, and there have been already so many events that cause a high degree of uncertainty. At this stage, we don't see any immediate impact of the recent strike against Iran or the bombardments in the region on our business. We remain in close contact with our colleagues in Dubai. Most importantly, all our employees are safe, and for the time being, our local operations continue without major disruption.
However, the extent to which ongoing conflicts, such as those in Iran or Ukraine, may affect supply chains and consequently economic growth in our key markets, Europe, cannot yet be fully assessed. We will continue to monitor developments closely as the situation evolves. Also, we can neither control nor influence these developments. We will continue to focus on our business and how we can steer through it successfully. Regardless of the terrible wars, and I personally pray fervently for peace in the world, but also in peace, one thing will remain: the world is changing. Technology is changing faster and faster. Competitiveness for regions, countries, companies, as well as small and medium enterprises, are decisive. There's a need to invest, and leasing is one part of the solution. Last year, 324,000 investments became true because of our partners and us with leasing.
This is the way we will continue. We are aware of, by the way, we are part of a changing world and need to disrupt ourselves in technology, processes. Not only our customer's world is changing. To summarize the outlook for 2026, it's driving on sight . That has nothing to do with caution, but with common sense. This also includes the fact that we issued our first benchmark bond in 2026 a few weeks ago, as Martin mentioned, with foresight in order to secure liquidity for our new business, but also with the experience gained in the recent years of actively exploiting relatively calm capital market windows. Even if you accept that the excess liquidity will probably cost us a small single-digit million EUR amount in additional interest expenses over the course of the year.
One thing is certain, this decision has already proven to be the right one and has also been incorporated into our forecast. For 2026, we aim to reach a group earnings between EUR 74 million and EUR 86 million and a leasing new business, a growth of between EUR 3.4 billion and EUR 3.6 billion. As a basis for these targets, we assumed a range in our loss ratio between 1.6% and 1.7% and a cost-income ratio of 55%. We will continue our profitable growth path, utilizing our strength and expanding globally. Ladies and gentlemen, now it is important to drive on sight , as I mentioned, but it's only one part of the matter. It's at least as important to be clear in the long-term goal. Our focus remains clear.
As I mentioned, we are aiming for 10% return on equity for 2030, and we want to achieve a double-digit return on equity on a sustainable and regular basis. This means that we must increase our return on equity, our levers. We must increase our return on equity 1 percentage point every year. Yes, this will be a challenge, but a challenge I'm convinced and confident we will master. We continue to focus all our efforts on our bottom line profitability, namely our group earnings. To achieve this, we continue to review and optimize our processes, further digitize where possible, and make sure to use the potential of new technologies such as AI. Equally important to us is the continuous growth of our leasing portfolio globally. Yet we will not grow at the expense of a higher risk profile.
We are and we will be selective in our approach regarding markets, customers and margins. We will also take market opportunities. At the same time we want to use our existing capital base more efficiently. Allow me to make clear what Martin mentioned. It's very clear for us that we do not need any additional equity in the midterm to finance our growth ambitions. Our focus is to expand return on equity and with retained earnings, building the capital foundation for growth. Thank you very much.
Thank you, Sebastian. Thank you, Martin, for your presentations. Ladies and gentlemen, we will now enter into the Q&A session. Now, depending on which link you join us, you have the question to ask either an oral question or a written question. For the written questions, you are free to use our Q&A function that you can find.
If you want to ask an oral question, you can use the raise hand button at the top of the screen that you're seeing. Once I call your name, we will unmute your line. Please do not forget to unmute your device as well. With having said that, I see there's many hands already that have been raised. First one, Marius Fuhrberg from Berenberg, please go ahead. We will unmute your line. You should be unmuted now.
Thanks for taking my questions. Actually, a couple of them with regards to the guidance. For 2026, you basically guide for a flat cost-income ratio. Considering that your top line will probably grow on the back of expiring lower volumes automatically, basically, what exactly is driving the cost line accordingly so that you expect flattish cost-income ratio instead of a further improvement? The second question is regarding your new business guidance. You mentioned that you will not or that you deliberately sometimes do not accept new business in order to keep your portfolio clean. Have you considered a more dynamic pricing instead of declining requests and accepting lower growth rates?
Because when you price higher, the CM2 basically should remain unchanged. Then a last question from my side is the franchises. Sorry if I missed that, but did you mention that you bought back the last franchises? For the P&L, should we expect no minorities going forward?
I would like to start maybe with the new business guidance. You're absolutely right. It's possible you can drive our business with pricing, with the conditions and at the end it will express in our contribution margin 2. On the other hand, you can also say, "Okay, no, and we don't do the business." We would like to care for the overall risk portfolio, for the overall risk mix, at that time. As I mentioned, we do both. We has also take care that pricing is. Let's say you have to be very careful with pricing because we would like to have good risk portfolio. We would like to have the very good rating, so to say.
They are not willing to pay the highest price and the highest risk premium. We will avoid, let's say, worse business. Then pricing could be also dangerous. Then you're running in an adverse selection that we would not like to do. It's not only about pricing, it's more about a clear risk assessment. A contribution margin more or less stable over the group average. I think Martin will say something about the cost-income ratio. He made one point there. We have one impact which will be part of our P&L that year.
The last double cost in terms of our digitalization program, moving into the cloud on the one hand and having no physical data center on the other hand, and that will run off by end of that year. There is a double impact we have that year in our thing. So the cost of cloud and at the same time the let's say old cost depreciation of our data center, and that will be not the case in 2027 and in the ongoing years. The other things I think you will go for it.
Yeah. Thank you, Sebastian. I'll just follow up on your question on the cost-income ratio. Sebastian already mentioned the cost side. It is also driven by FTE growth, where we are really careful.
On how much FTEs we will add to our current FTEs, but this will also be part of the cost of the cost growth. The other side is the income side. If you have a look at our P&L in 2025, you saw, for example, a large part of gains and losses, or especially gains from disposals, which we do not expect at that range going forward. This will then lead to a lower growth rate in terms of the income side. Taking both together, we will end up with this cost-income ratio for 2026 with a guidance of around 55%. Your question on franchise. Yes, you are right, we have bought the last franchise with one caveat.
There's one minority stake of our franchise in the U.S., of the former U.S. franchise, which is near to be closed, but that doesn't have such impact. From the franchise side, the minorities will leave, so to speak, our balance sheet. However, since last year we have new minorities, namely the 17% stake of Intesa Sanpaolo in our Italian company, which will be going forward have some effect on the equity side of the balance sheet in terms of minorities, and also when it comes to the income side or the result of non-controlling interest, minorities here.
To make one point clear, in the U.S. it's managing directors. There's no institutional investors or something like that involved in the franchise company.
Okay. If there are no follow-up questions, we have the next person in line, Roland Pfänder from ODDO BHF please. Your line is unmuted now. Please also unmute yourself.
Yes.
Thank you.
Good morning.
Morning.
Some questions from my side. I would like to come back to operating cost growth. Looking at your staff costs, I think they increased close to 9% more than new leasing business growth. Midpoint leasing growth, I think it's 6% for the current year. What would we need to expect for a staff cost growth? Is there any chance that it's 5% or lower? What's your planning on this number? I think it's important point. Second, you touched on AI disruption. Did you pencil in any disruptive effects on small or medium companies going insolvent the next some years out of this movement, or is it not yet into your figures? What are your expectations here?
The third question on your equity ratio. Could you maybe mention the buffer you still have regarding the level your rating agencies are requiring? Thank you.
Yeah. Good morning, Mr. Pfänder. Let me start right away with your first question on the operating cost side regarding staff. What I can say is that we plan for staff costs of not double digits, so we really expect a single- digit growth. I would say something between 5% and 10%. To really land at the end below 5% is, from my point of view, too optimistic from today's view. But somewhere single digit, but between 5% and 10% would be worse planning figure. On your last question on the equity, on the regulatory equity ratios. Well, we have last year had some transactions, especially the Intesa transaction that I just mentioned, other smaller transaction which put a lot of goodwill on our balance sheet.
That doesn't affect our balance sheet equity ratio, but at the end, the regulatory capital ratios, which has to be deducted from this technical point of view. That was one reason or the most important reason why our regulatory capital ratios have come down to 15.2% currently. For what is regulatorily required, we have around 150 basis points headroom, and we feel pretty comfortable with that. We are using all optimization figures from our data quality to always make sure that we have enough headroom on our regulatory capital ratios.
Yes. Thank you, Martin. Thank you for your question. I believe that AI is more an opportunity also for small, medium enterprise and especially for the small ones, maybe to deal better with all the regulations we has to fulfill, especially in Europe, maybe to bringing down bureaucracy internally. We call it "Don't run your bureaucracy crazy." AI could be very helpful and especially for small, medium enterprises and the small companies, it's not that easy to find employees at the right time, right place, and therefore AI could be very, very helpful. Of course, there would be a disruption and a huge disruption.
Overall, I see more opportunities, as it was always when a technology disruption was pretty strong in the past.
We have the next question in our audio line from Tobias Lukesch from Kepler Cheuvreux. Your line is being unmuted. You can go ahead now.
Yes, good morning. Thanks for taking my questions as well. Three questions if I may. One on costs. I realized that the selling and admin costs were down 2% quarter-over-quarter, and that compares to a kind of seasonal increase of 10%-25% in Q4 over the last four years. I was wondering, you know, like what was driving this? You mentioned some efficiency gains, but it would be great if we have a bit more. On the capital side, maybe two follow-ups. I didn't fully grasp the comment on the minorities with Intesa, so maybe you can highlight again, you know, what is changing for 2026 compared to 2025 minorities.
In terms of the regulatory buffer, you just mentioned the 150 basis points based on a 15.2% equity ratio. Could you please also here, you know, like elaborate a bit more what’s requested by the regulator, why you think a 150 basis point buffer to which level is sufficient? Because, you know, thinking in bank terms, we usually see more a reference to the SREP ratio, CET1 ratio , where we usually see 250 basis points plus as a buffer taken by management. On the loss rates, I was wondering you mentioned the 1.6%-1.7%. After having reported 1.7%, you're highlighting the high defaults, you're highlighting the uncertainty.
What makes you believe that this number goes down this year? Maybe you can also give us a split about the regional trends that you're expecting. You say you factored in a kind of 1.5 normalized cost rate. I think that is potentially also for the CM2 margin calculation. How do you think that this will evolve? Yeah, with a 60% coverage ratio, I was just wondering, you know, like how regulator is looking at that, because I remember you saying that in general it's not so easy to collect the residual value of defaulted assets. Thank you.
I'm sure that Martin will add some more details. At first, quite easy answer for the first question regarding to the cost in Q4. The effort for selling, especially for selling is the highest one in Q4, and therefore you will always see a bit more cost linked to that. The new business is very strong in Q4, and also in Q4 we are laying the foundation for the next year in building relationships with new dealers, with existing dealers and so on. There is something like a correlation that you have always to keep in mind, especially when you look to the selling costs.
Regarding the loss rate, the loss rate is a tricky thing, as I mentioned in my speech. A loss rate of 1.6% or 1.7% means at the end of the day, with the rising volume we have, an increase of bad debts of non-performing loans of 10%-15% at the end of the day. It means a decrease in loss rate. It looks like a decrease in loss rate. It means not a decrease in new defaults because we expecting more or less the same level of defaults in comparison to last year. We are not expecting an increase as we saw last year and in the second half of the year in 2024 compared to the previous years.
Compared to last year, it's more or less a slower increase, but overall it's an increase. That means at the end of the day, the loss rate looks stable. Martin mentioned it in the chart, and that is very important. You have always to look in the balance sheet. What is the level of risk provisioning overall, and what is the difference between risk provisioning last year, this year and the year to come? The difference is expressed in our P&L, and this difference divided through the leasing volume is our loss rate. It looks stable, but overall we are expecting the same level, more or less the same level as we saw in the last year.
Also from a region perspective, the sum is more or less the same over the region. We expected South Europe and also France, as it was expressed by Martin in the chart, will be nearly on the same level.
Yeah. Thank you. Let me just add one comment to the SG&A you just mentioned. Not directly in effect in the fourth quarter, but which was steadily increasing and will also increase over the next quarters and years on SG&A is everything related to our cloud infrastructure. Usage fees for cloud services, license fees, everything that builds up the foundation for example, our platform business that we are now enforcing with our transaction of B2F that we acquired last year, bringing these platforms to other countries, Italy, Spain and other countries are to follow. What is also in effect over the last year in SG&A was on the legal and advisory costs, given the transactions that we performed, selling, factoring, buying and purchasing B2F and this transaction together with Intesa.
There are various effects driving SG&A in last year. Let me answer your question regarding regulatory capital. We as a financial institution and not as a bank are sure that 150 basis points buffer is enough, and we are also as always in contact with our regulatory bodies like BaFin. We do not see an issue here with this capital buffer of 150 basis points. Your question on the minorities of Intesa in more detail. If you have a look into our balance sheet in last year, we saw a minorities in the equity capital of roughly -EUR 20 million.
That was the equity of all the franchise companies that we have now assumed in last year. Now you see a swing, so to speak, to EUR 66 million plus in equity. This is basically what we have to account for the 17% stake of Intesa holding on our Italian company. That's the swing that you see in minorities from a balance sheet perspective.
We have a follow-up question from Marius Fuhrberg in our audio line. Your line is unmuted, Marius. You can go ahead now.
Yeah, thanks. Another question on your midterm targets of 10% return on equity until 2030. I mean, looking at your equity right now, EUR 1.4 billion, and let's say you have raised this until 2030 to EUR 1.6 billion or so. That basically implies that you are targeting your net income to more than double to a ballpark area of EUR 160 million, right? Can you give us a little bit more color on the backgrounds of that? Especially also with cost growth, I mean, the top line growth is basically quite self-explanatory, but I mean, you're targeting for a stable cost-income ratio right now. In order to reach the 10% ROE, one driver of that will probably be a normalization of risk costs.
How do you think of costs in the mid term, please?
Yes. Of course. From a mid run, you can do it like you did to say, okay, what's maybe our equity in 2030 going forward. I think it's a bit easier to take today's equity. It's EUR 1.4 billion, as you mentioned. Let's assume a 10% return on equity. It means EUR 140 million. When we see today the roughly EUR 70 million, it's a lack of EUR 70 million. Okay? When we're talking about normalization and risk, it's a minimum EUR 20 million. We have now 20 basis points, the 1.7 loss rate to 1.5 loss rate. Normalization of risk is one part, but the smallest one.
When we have this in account for the EUR 70 million, we have EUR 50 million to allocate, and then we can make a huge mathematics or something like that, but we can make it easy. Divide it by two, and the first block is income, and the second block is cost. On the one hand is to improve cost-income ratio further with all the things we mentioned and we have to do. We are talking about EUR 25 million in impact on the cost-income ratio from today's perspective. On the other hand, we would like to improve our income, means growth, a stronger income growth and a cost growth and cost-income ratio, so to say. This linked income and cost, you know it.
You can say 25% is growth, more effective growth, more income, a stable margin of contribution margin. The other half is cost efficiency gains and of course a normalization from a long-term run-up in risk. We will see fluctuations year by year, as we've seen in the last couple of years. That is part of the game. I mentioned that. That is a very simple way to think about that. Maybe, in reality, it comes to, okay, it's EUR 30 million in income and just EUR 20 million in costs or the other way around. That is not the size. The size is that in each of the levels, we have to make our homework further.
I guess, development of cost-income ratio, the development of income, especially in the last year, proves that we are on the right track.
We have another follow-up question from the audio line from Tobias Lukesch . Your line is unmuted, Tobias. You can go ahead.
Yeah, thank you very much. Just touching back on the capital question. Thanks for that. I mean, if I understand correctly, I mean, on your report, you were kind of consuming 200 basis points of capital of regulatory capital ratios, basically, both on the total and on the Tier 1 . I was just wondering how much of that was driven by consolidation effects and which was just, you know, like on the operating business.
On the requirements that you have and, you know, like since you, let's say, consumed the kind of 150 basis points buffer you had in easily two years, I'm just wondering why you are now so outspoken about being able to internally fund the additional growth over the midterm, which potentially implies the next three years. I remember you saying in the past that, yeah, potentially at one point you would need more capital in the midterm. What's that? What has changed? Yes, you're cutting back a bit on the new business. That is understood. At the same time, loss rates get higher, RWAs get higher on the credit exposure. I'm just wondering how we square the circle here. Thank you.
May I start, let's say, to make one point here. You are right. We mentioned we have to think about a capital increase in the mid-term one, two, three years ago. We always said, okay, we need to clean the table in terms of all the M&A transactions. We always said we need to clean the table with the franchise companies. We need to clean the table in terms of factoring business. That was very important, especially to finish that in the last year. We have now a very clear view also in terms of factoring.
Then we said, okay, after that, we are able to calculate from a mid- and long-term run what is our capital need? Short- and midterm, and what is our growth pace, to being clear with the existing capital and when we exceed that growth pace , okay, then we will need capital again. With our return on equity target of 10%, we are not there yet, but we are improving. We would like to improve it year by year. A growth pace of 8%-10% is absolutely comfortable with our today's equity by increasing our earnings and our retained earnings in the same level of growth. That's important, and that I would like to make that clear. But Martin, you can provide more details with the basis point numbers.
Yeah. Especially with the first question, where comes the consumption from? Well, it was basically what Sebastian already mentioned. We had last year the transaction with Intesa Sanpaolo and other transactions which imposed an additional goodwill of roughly EUR 70 million - EUR 80 million on our balance sheet. Also, some intangible assets as well. All these goodwills and intangible assets have to be deducted from our own funds from a regulatory capital perspective. From these 200 basis points-250 basis points , at least 150 basis points-180 basis points consumption comes from these transactions, and they will not further or not higher impact the capital ratios going forward because we have not a plan next year to assume another goodwill of EUR 100 million from today's point of view.
This is the explanation why we are confident that we won't need equity in the midterm and why the capital equity ratio has come down over the last year. That doesn't worry us.
Thank you. There were a lot of questions that were already asked orally that I will also ask in the chat. Nonetheless, there are some questions open. In the interest of time, I will keep it short. One is about ambitions and the lower end of our group earnings guidance for this year seems somewhat cautious. How do we view that? Also, how do we view the development of the disposal gains going forward?
Yes. Ambition. Our ambition is expressed on the long-term target, I guess, and from a short-term point of view, it's not the easiest thing to give an outlook for that year, especially with the macroeconomic environment. We would like to grow our new business in the level we mentioned today with cautious but also with growth ambition, with the right level between risk and contribution. While that is very important for us, and we would also like to achieve a growth in profit again, to continue our path we did. We also know that the overall uncertainties are that high, and that's also why we have to decide to give us a bit wider range of EUR 12 million, not EUR 10 million as it was in the last year.
We are working on that every day and we will do the best to bring the best result for that year. Again, we are going for profit growth and, very important, the long-term goal ahead.
Mm-hmm. This answers partly already, the next question when it comes to ROE ambitions. Why does it have to be 2030? Why can't we achieve it earlier?
As I mentioned, it's not a walk in the park. It's a long-term goal. It's 2030. We need to make it step by step. It was a bit of pushback in 2024, to be honest, with a sharp increase of insolvencies. That's also part of the short-term story of assets. That's right. We are there where we are. It was important to improve the profit quarter by quarter last year, and we would like to continue that way. On the other hand, we need to find the right way to grow in several regions. We need to steer the overall risk assessment, as I mentioned before.
We need to make a long-term strategy step by step, because it's not the goal to achieve one time the 10% return on equity . It's the goal to staying on that level on a sustainable and regular basis to having a double-digit return on equity .
Maybe as a last question, since we're already past our time, regarding our own treasury shares, what our strategy are in this regard?
Yeah. In these times of macroeconomic uncertainties, we do not plan to cancel them right away. It's always good to have them as just an option if we would need them. Really a large if, because we mentioned quite a few times that we do not plan for a capital increase, but we could use them. As I said, what makes it unnecessary to do so currently is the share price, which is not attractive for us. Secondly, we have enough capital, so we do not really plan to issue them again to the market, but there is also no plan to cancel them directly right away.
In the interest of time, again, thank you very much for all your questions. If there are questions that weren't answered today, you're more than welcome to write us an email at investor@grenke.de. We're always happy to answer them. As previously communicated, please also note that we will not publish a Q1 new business figures since we will report this together with the Q1 report on May 13th. Please have that in mind. Today we have a meeting where you can meet us here in the lovely Baden-Baden, where the sun is shining, and ask lots more questions to the board and the supervisory board. It's on April 24th, so please join us there. This concludes our today's call. Thank you very much for your attention.
We wish you a pleasant day, a pleasant week, and I'll talk to you soon. Bye-bye.
Thank you. Bye-bye.
Thanks.