Earnings Call: H1 2021

Aug 11, 2021

Dear ladies and gentlemen, welcome to the conference call with the management of Otjikobank AG. At our customers' request, this conference may be recorded. As a reminder, all participants will be in a listen only mode. May I now hand you over to the APeCA team, who will lead you through this conference. Please go ahead. Good afternoon, ladies and gentlemen. My name is Herbert Jouraneck, and I would like to welcome you to the presentation of the half year results of Alco Group. Before we come to the figures of the current year, let me give you a status update on the recent changes in the management team and its consequences. As you know, with the beginning of June, a new management team was booked in charge here at Adeco Group. After 2 months 10 days working in this new composition, I can tell you that we cooperate very well together and that I'm happy about the progress so far. I, as the CEO, have a clear ambition and together as a team, we reached an agreement that we will accelerate the development of our group to further improve shareholder value. Consequently, we started the transformation program. This program consists of 3 pillars, and the overarching goal is to make Adeco the leading specialist bank for consumers and SMEs in our region. In order to achieve that, we will further improve our digital offerings to challenge our competitors. Our clear plan is to push growth in our focus business areas, consumers and SMEs. At the same time, we will prepare our non focused business, meaning large corps, public finance and mortgages for a faster rundown. Also, several cost exercises took place in the past. We as a team believe that we will be able to identify further growth opportunities to reduce no, further opportunities, I would say, to reduce complexity and to streamline our operating model. The goal is here to improve the cost base for the subsequent years. The 3rd pillar consists of a special topic from how we can further improve our NPE's position to 1 or more long term structural opportunities. The term of the program is defined for 18 months and we want to be focused. We will rank the respective initiatives by impact and by payback to decide on what and when they will be executed. The ultimate goal is here to create value for our customers and our shareholders. We will keep you updated about the progress as a part of our regular disclosures. Now let's go to the agenda of the results presentation. I will start with an executive summary. Garnish will continue with an update on business and digital. After that, Edska will lead you through the key financials, and Sadegh will present you an update on the risk situation. I will then wrap up the presentation with a sharpened outlook and open the Q and A session. How does our first half year look like? Well, our net profit improved to EUR 6,100,000 compared with a loss of EUR 12,200,000 in the 1st 6 months of the previous year. Out of the EUR 6,100,000, EUR 5,000,000 refer to the 1st quarter and $1,100,000 to the 2nd quarter. This result was very much influenced by lower provisioning at 0.3% cost of risk with €10,200,000 after the €29,200,000 last year. I want to add here that we as the new management team took a cautious view on risks, including legal risks. In this result, no release of the IFRS 9 post model overlay is reflected so far. The operating result increased by 2.1 percent to EUR 28,100,000. This development is based on a slow recovery in business activities in our region, and it includes the cost for the management changes and bonus accruals for the current year. The return on tangible equity is at 1.8% and the earnings per share are at €0.31 in the first half year twenty twenty one. The NPE ratio was reduced from 3.5% to 3.4% year on year. Also, the total NPE amount slightly increased from €230,000,000 in the Q1 to €238,000,000 This development remains influenced by moratoria. Overall, we saw a positive development on exposures in Moratoria during Q2 with the reduction from €165,000,000 to €105,000,000 Per Day will come back on that later on. The total business portfolio is stable with 93% of the portfolio without overduce and an MPE coverage ratio at 71.7%. Our funding situation is very stable at $4,740,000,000 customer deposits and liquidity coverage ratio of north than 200%. Also, our capital ratio is very strong at a transitional CET1 ratio of 19.8%, fully loaded at 18.9%. Now let's have a look on the macroeconomic environment. Can we go on? Yes. The GDP forecast that you see here based on the studies of the Vienna Institute for International Economic Studies. What is the biggest tier is that the economic recovery will be slower than anticipated. However, the overall economic environment is improving, and we already see a pickup in new business vis a vis last year. Our outlook is positive for the second half of this year, of course, with dependency on the development on vaccinations and lockdowns. The positive message for the near and midterm is that will continue to grow faster than the euro area in average. In our view, this is one of the last emerging markets in Europe. Let's go to the next page, please. This picture shows the development of the shift from non focus to focus business. This change process slowed down during the pandemic since 2019 and now stands at 69%. It's the clear ambition of the new management to ignite and accelerate the shift again to move to more attractive focus business. This is one of the main targets of our transformation program. Now I would like to hand over to Ganesh to give you more insights on the figures and our ambitions on the business side. Many thanks, Herbert. Good afternoon, everyone. I'm glad to share some insights around business growth on the next few slides. On Page 8, please let me start highlighting that our focus segments in both consumer and SME on the top left hand side of the page are showing positive signs of growth and are well on track to deliver more than 5% growth by 2021, as communicated in our 2021 outlook. The positive trends are also reflected in the new business growth in lending, which is up by 33% year over year in the first half of twenty twenty one. The good news is we are gaining on flow market share on consumer segment in almost in all key markets. On the non focus portfolio development, we have accelerated a rundown in all non focus segments and reduced the portfolio by $270,000,000 year over year. We are further looking into strategies for reducing our large corporate portfolios faster than planned. Additionally, no further new businesses were done in all public and mortgage portfolios. We believe this will help us to free up resources and further increase our focus in our core segments in Consumer and SME. Let's move on to Page 9, please. Please refer to the left hand side. These are our key strategic business pillars to accelerate incremental profitable growth in our focus areas, consumer and SME, and they have remained consistent. I would like you to highlight more our progress in our first half of the year on the right side of the page and showcase how strategic pillars translate into revenue growth and increased efficiency gains. We are looking at 4 key revenue growth levers. Our first growth lever is digital. I'm glad to inform you on Consumer, we have completed launching our digital lending platforms in all key markets, and it has resulted in rapid growth of our new business of about 36% quarter on quarter this year with a contribution of 38% on total sales 2nd quarter. We are convinced that our expanding business through innovation innovative digital solutions and provide customers best in class experience, convenience and speed is a key for our future growth story. Let's move on to the second lever. Our second lever is more on driving active customer base up. Our key growth initiatives through alternative channels such as bank at work and remote advisory are driving double digit growth in new customer acquisition and moreover, our investments in data driven technologies are helping us in better targeting our existing customers through few clicks lending mobile banking solutions and thereby driving cross selling up by 30% year over year. Our 3rd lever is pricing. With higher digital contribution, we believe we have reached a sweet spot in the risk adjusted margins for driving growth. The launch of risk based pricing, it will further balance them going forward in the second half of the year. The final lever is more driving the fee income up. In the first half of twenty twenty one, we have progressed well to drive the increase in our fee income supported by higher sales in lending and most importantly complemented by higher penetration of bank assurance and recent revival in tourism is really driving our payment fees. Last but not the least, the card sales will be boosted as we migrated to a new card platform. At the same time, our branch transformation initiative resulted in a reduction of 12 branches over the last year and focuses on increasing operational efficiency through enhancing customer relations roles of all brand staff to sell loans. On the SME front, firstly, our key focus is to drive high margin and address underserved segments digitally. In this context, we have done a few experiments to offer better services to micro SMEs through our digital platform and have seen promising results, which not only drives growth, but also increases our margins in the second half of the year. Secondly, we are also improving our digital end to end platform to provide more automation and faster services to our SMEs. To wrap it up, we remain convinced that all these strategic growth initiatives will serve our customers in a better way and will continue to transform our business model to drive profitable organic growth in the focus areas of the group. Let's move on to Page 10. This page builds upon the results of the growth initiatives, which I mentioned on the previous page. On the left side of the page, you can see positive growth on quarter on quarter in all key performance indicators such as gross performing loans of around 3%, the interest income of around 2%, net fee and commission income of around 13%, and most importantly, an excellent growth in digital 36%, clearly indicating the testimonial of our digitalization. On the right side of the page, we are also further increasing our operational efficiency and reducing our cost base. Previously, our Consumer and SME segment had different leaders and only cooperated on selected channels. By combining the 2, we have one sales force team and can leverage technologies and synergies to provide a seamless experience on both the Consumer and SME segments. Let's move on to Page 11. On Page 11, my key message is, on the consumer front, we have successfully launched customer friendly digital lending platforms for both new and existing customers in all the 6 NTPs in both web and mobile channels, all in just few months. Thanks to our agile framework and digital scalable technology infrastructure, it was made possible within such a short period of time. Our key focus on second half of the year is to accelerate our digital marketing to reach more new customer segments and optimize customer journey funnels to improve our conversion and drive more growth in digital business. Furthermore, we are working on launching a new consumer point of sale product throughout our region. And with new partners this year, we should enable us to generate customer acquisition in more cost efficient way and to provide upselling opportunities based upon data driven customer profiles and their behavior. Our existing open API banking infrastructure capabilities will enable us to create a white label loan solutions for our partners and thereby enable them to offer our loans to their customers going forward starting already this year. On the SME front, our simple loan and guarantee platform, which has significantly reduced time to decision, has already been further enhanced with functionalities such as loan prolongation and multipurpose frames during the first half of twenty twenty one. We have plans in the second half of the year to further automate and integrate the credit bureau and risk engines and provide an end to end digital solutions for micro SMEs. To summarize my growth session. 1st, we are clearly focused on revenue driven growth initiatives in both consumer and SME, and they are showing good positive signs of growth results in the KPIs. 2nd, as a specialist bank, we are taking future bets in embedded financing and constantly in the process of innovating, simplifying, offering a better service and value to consumer and SMEs. Thirdly, digital transformation is more important than ever, especially in times of economic uncertainties and our accelerated efforts to improve our digital value proposition is already transforming our business, and this is the key to continue providing strong differentiation to other players that are active in our region. Please let me hand over to Edgar. Thank you, Ganesh, and hi to everyone. Now on Page 13 to our financial performance for the 1st 6 months at a glance. On the left side of the page, you see the composition of the P and L for the first half of the year twenty twenty one. On the right, we printed key operational P and L drivers for the last five quarters. Starting on the left side, our first half twenty twenty one net profit amounted to €6,100,000 compared to a net loss of €12,200,000 in the same period last year. The net banking income, which is our key revenue driver, remained relatively stable during the 1st 6 months, predominantly thanks to a higher contribution from net fee and commission income, as Ganesh pointed out previously, despite the decrease of our gross performing loans, which is also driven by the pandemic of the last year. This is in line with our previous and current guidance for the year 2021. The year to date other income comprising the net result of financial instruments and the other operating result was also better than in 2020 due to lower restructuring one offs this year. On a like for like basis, our operating costs are down year over year. However, the reported operating costs are up 4.2% year over year due to three main reasons. First, the cost for the management changes of €1,500,000 have it pointed out already. 2nd, the accrual of a regular performance based bonus pool this year. As a reminder to everyone last year, no such bonuses have been accrued. And 3rd, a more normalized spending on marketing activities. Credit loss expenses came in much more benign than expected due to the resilient portfolio quality as today will elaborate on in detail. The other result includes an additional provision of €7,100,000 which reflects the new management team's prudent approach on legacy legal risks. As Herbert mentioned already before, our full year guidance for this year 2021 is unchanged since the additional legal risk provisions will be fully compensated by lower credit loss expenses. Now over to the right hand side of the page with the key operational P and L drivers and the development over the last 5 quarters. With the slowly increasing economic recovery and associated pickup in business activities this year, we started to inch up on both NI and NCI during the Q2, as Ganesh pointed out already. The costincome ratio as well moved in the right direction in the Q2 this year. Moving briefly to Page 14, where we show a more detailed view on the P and L and key balance sheet items as well as the usual KPIs. I will not go in all details on this page, but in a nutshell, the operating result improved by 2.1% year over year, driven by normalization of the other income position and by an initiated recovery on NI and NCI at relatively stable costs. The 2nd quarter improved on operational key metrics compared to the Q1 this year. The net interest margin or NIM decreased by 10 basis points year over year impacted by sizable excess funding position, which is also evidenced by the loan to deposit ratio of 74.1 percent with roughly half of the group's funding and liquidity being held in our largest market Croatia. So the tank is full for growth in Focus and NIM would naturally increase with the reinvestment of this available funding into growth of the Focus loan book. Now to Page 15, which clearly illustrates our strength strong capital position. Based on the financial performance, the overall development in terms of capital is predominantly related to changes in RWAs, driven by increased focus business and some short term bond exposures. The negative OCI development printed on that page, which we saw in the Q1 this year, has been almost fully compensated during the Q2. The year to date profit, so the €6,100,000 is not yet reflected in our capital ratios. The remainder of the 2020 dividend is already as it has been previously deducted. There are currently no changes in terms of capital requirements or guidance, meaning the 4.1% Pillar 2 requirement as well as the 4% Pillar 2 guidance remain currently accurate. The SREP review is expected to deliver a draft during the Q4 of this year as per the standard process. And now over to Tadeh for an update on risk management. Thank you, Edgar, and good afternoon to everyone. We'll start with Page 16, where we can observe a very robust asset quality with only a small part of the business segments being in delay. And decreasing share of the over 90 days as due bucket. We have achieved these levels despite expiring moratoria. As we will see in the further slides, expired moratoria are performing worse than otherwise portfolio. As Herbert mentioned already, the NPL ratio on total exposure slightly increased from the in the 2nd quarter from 3.3% to 3.4%. However, if we are comparing that to the end of the year, we see decrease from 3.5% to 3.4%. The main reason for this development is stems from an exposure reduction in the non focus area and from very limited nominal NPE inflows. This information needs to be balanced with the fact that some of the clients are still supported by the programs initiated by the local governments. However, this local support is constantly being reduced and is targeted mostly to the specific industries. As part of transformation program mentioned also before by Herbert, we are starting further activities to tackle NPEs with an ambitious target to achieve a material reduction for the loan. If we move to the next slide, you can see that our exposure in Moratoria has significantly decreased in the 2nd quarter and achieved EUR 100 and and €5,000,000 In relative terms, the share of total exposure in Moratoria fell from 2.4% to 1.5% during the 2nd quarter, And this is mainly driven by Slovenia, where the biggest, largest reduction was achieved. And on the other side, increase was seen in Serbia due to introduction of moratoria regulation in the Q1. However, the deadline to apply for this moratoria has ended has expired in April. The chart on the top right shows that this moratorium exposure is evenly spread among consumer, SME and large corporate and public business. While almost 50% of the remaining exposure in Muratoria is now in Serbia, which you see on the chart on the right down corner. If we go to the Page 18, we can see that development of exposure in Mauritius so far and the estimated reduction towards the end of the year towards the end of the Q3 is expected. So we expect that moratorium to drop to €47,000,000 while of course local governments could still introduce renewals or prolongation as they have done in the previous quarters. But currently, there is no information or discussion regarding any new prolonged moratoria in our region. On the right side, you see the moratoria exposure development as of the end of June versus the Q1 this year, which I have already mentioned in the previous slide. We see decrease of moratorium in Slovenia for 72%, followed by Croatia for 57%. And the only noteworthy increase was, as said before, in Serbia, where increase of moratorium for €20,000,000 came on top of the €30,000,000 increase in the Q1 this year. What is important is that we are constantly in contact with the client that are still in moratorium and we are defining the measures, both moratorium measures and we are carefully monitoring the development of the portfolio that is in moratorium. If we go to the next slide to see what is the performance of the portfolio in the moratorium and that came out of moratorium, we can see that out of €859,000,000 of expired moratorium, only €62,000,000 have worsened their position in days paid due compared to the starting position, which is the Q1 of the previous year. On the other side, we also see that €39,000,000 of exposure have improved since the Q1 of last year. So we can see that only €23,000,000 net exposure has worsened in terms of the space due. This is reflected in both the overall exposure and the ratio of worsened DPD to the expired gross exposure, which you see on the top right chart, and it's currently roughly 7% in the end of the second quarter. I consider that as a positive and current position over the 15 month observation period since the Q1 of 2020. As said before, our focus here remains on continued and tight monitoring of the performance of post mortuary clients and setting the necessary actions early if needed. Please go to the slide to next slide, to Slide 20, which illustrates how the outlined developments impact development in terms of IFRS 9 staging and coverage. Shares in Stage 1 and Stage 2 remain stable as did the exposure in Stage 3. On the right hand side, you see the expected credit loss coverage for performing business exposure. This remained at 2.2% a high level of 10.7% for Stage 2. We can observe a clear difference between clients in the moratoria and other clients. So the clients that were not in moratoria, reflecting the higher risk and for covering the expected loss assumption over the next 12 months. We can see that coverage for the clients that were in Moratoria have significantly higher coverage. This expected credit loss coverage is among the highest for comparable banks, showing our prudent approach in provisioning. And if you take on now the last risk slide on Page 21, risk provisioning, the risk cost for in the first half of the year was €10,200,000 and is reflecting what was described before. It is reflecting the portfolio dynamics and the operational portfolio development that turned out better than we were expecting. On top of that, it already includes the revised forecast, reflecting a slower economic recovery that is now expected for 2021. This 0.29 percent cost of free risk on net loans with consumer and SME naturally generating the provisions while we the development in non focus produces releases. And so to sum up, we observe an overall robust asset quality and payment delays are limited. The moratorium volume and share in the overall portfolio is decreasing and we expect further decreases during the 20 21. As said before, we are foreseeing that we'll come to the €47,000,000 of moratorium by the end of Q3. The loans that came out of moratorium haven't had material effect on our books. And as explained before, they are well covered. Risk costs in general are much better than anticipated, and they already include slower expected slower expected forecast economic recovery in this year. And regarding moratorium, we keep a watchful eye and on the uncertainties that can appear in that area. With that, I now hand over to Herbert for the wrap up and the next steps. Thank you, David. The pandemic is not over yet, and we are also dependent on the COVID development during the second half the year 2021. Nevertheless, we stick to our targets, which are depicted here on this slide. So gross performing loans around SEK 3,500,000,000 with at least 5% growth rate in focus net banking income stable at the last year's level operating expenses below $174,000,000 CET1 above 18.6% on a transitional basis. In addition, we took a prudent approach when looking at our risks and legal risk situation. On the back of this, we sharpened the target. We now include the other results containing the legal provisions together with the credit loss expenses and both together should now be less than 1% in 2021. On the dividends, we stick to what was approved in the AGM. Given the recent announcement of the ECB, we currently expect to pay up to €39,600,000 which is up to the €2.03 per share in Q4 2021 under the precondition that neither a recommendation of the ECB would in our view conflict with a distribution of the dividends Noah, a legally mandatory restriction will be introduced. Now what are our next steps? We will continue to focus and work on the transformation program to improve the bank. 2nd, we will continue to focus on the SRAP process and on the AQR process. The results of both are scheduled for next year. Also, we anticipate to get a 1st draft on SREP at the end of this year. On that note, I would like to mention that we have a very professional and fact based dialogue with ECB. And it's also a key priority for me as a CEO and the Intel team to keep it that way. The next earnings call is scheduled for the 3rd November to present you the 3rd quarter results. So with this, we would like to conclude the presentation. Thank you for your attention. We are now ready for your questions. Operator, over to you. Thank you. Ladies and gentlemen, and we will now begin the question and answer We've received the first question that is from Simon Nellis of Citi. Your line is now open. Please go ahead. Hi, everyone. It's Simon from Citi here. Thanks for the call. I guess my first question would be, as usual, on the dividend. So I think it's pretty clear you're intending to pay the EUR 2.03 per share. Do you see any potential hurdles to getting that dividend paid, approved, etcetera? And then just going forward, I think it's pretty clear as well, you're talking about a 60 percent payout. But can you also discuss what would need to happen to be able to maybe pay out some of the excess capital on top of that? And if issuance of Tier 2 is being considered? And then yes, my other question would just be on the amount of ECL overlay that you have that could potentially be written back if things return to normal, although it's looking less and less likely that that's the case? Thank you. Okay. Thank you for the questions. I would like to start with the first question on the hurdles of the dividend. So currently, we don't see any hurdles, but we are waiting on the final decision of the ECB. And from today's perspective, we anticipate and expect that we will be able to pay out the dividend as I described it beforehand. So, Edka, would you like to take the second question? Yes. Hi, Simon. Thanks for the question. So on the second one, what would need to happen to talk about excess capital? I think we need to, first of all, focus on the transformation program as Herbert lined out. And we need to conclude the topics regarding the SREP and comprehensive assessment as such. And on the basis of the outcomes, we can, of course, look at optimizing capital structure and then see what's to do with the excess. And of course, part of such discussion would be to look at alternative capital instruments in terms of Tier 2 or additional Tier 1. But that is too early to give you any more guidance on this. Iskall? Yes. If I may jump in, every quarter, we are reviewing whether Isil overlay is still valid. Under current uncertainties, we see it as appropriate level of overlay and we will assess or review that every quarter of what the actions will be regarding that. Can you disclose what the amount is though, just of these, the overlay? Rough figure. Maybe I jump in here. Simon, Edgar speaking. So if you take together 2020 and the first half of this year in terms of macro overlay, it's roughly EUR 16,000,000 to EUR 16,000,000 in terms of overlay booked through the P and L. Got it. And then just maybe one last thing for me. I see the provisions on the Swiss franc legal issues, I mean, are there more to come? Or is what's the outlook for this other result, Brian, maybe not just this the second half, but also next year? Or have you just conservatively provisioned against that legal risk? Yes. Thanks for the question, Simon. Well, just to get everyone on the same page, the topic at hand is not a new one, and it has been with us for quite some time already. Now the changes that triggered this additional legal risk provision can be summarized as follows in a nutshell. So first, we have further enhanced the model to calculate the provision in accordance with IAS 37. And that provision aims to cover both existing lawsuits already filed by individuals and those expected to be filed in the future years. 2nd, we have reflected the recent developments prudently, as Hapad pointed out before. And third, this, of course, also affects and therefore, requires an update of the expectations on Dynamics in future years. So to be clear, currently, we do not see this addition as a natural run rate going forward after comprehensive review of this topic. But this is based on the information that we know so far, and this topic is covered in terms of being monitored very clearly. So I hope that answers your question. Yes. Thank you. That's all for me. Thank you. The next question is from Johan from Raiffeisen. Your line is now open. Please go ahead. Yes, hi to everyone. Many thanks for the presentation. I have just 2, 3 questions. Cost of risk, I mean, if you look at the segments, it was a pretty high or sharp increase in consumer lending. I mean, I calculate like annualized quarterly cost of risk of more than 200 basis points. So what's the reason here? And this is now the new run rate on that, if you can maybe elaborate on that. And it shows that profitability of consumer lending has been decreasing because the yield level has been unchanged, right? And the second question also with regards to Swiss franc loans in Croatia. I think we talked on that a couple of quarters ago, but can you remind me how do you see this issue? Do you set aside something only for existing book or also to converted book? Because I think the vast majority rooms has been converted to 2015, 2016. Well, hi, Johnny. Thanks for the question. This is Edgar. Maybe I'll start with the Swissy topic since we just talked about it. So we are not just considering the existing exposure that we still have on our books. I think that's the straight answer. Yes. Okay, okay. Fine. But actually run rate going forward, it is hardly to predict, right? So how often are you going to revise your model? Because now all of us who are looking on Poland, for example, at the moment, it's kind of from quarter to quarter quite dynamic development, right? Do you have any calculation or any numbers about incoming court cases or whatsoever in that respect? Well, as you rightfully said, Johnny, this is a very volatile topic, and there is not a lot of fact on the table in terms of real decision outcome so far. So what we said before or what we did is a prudent approach, starting with a provisioning approach that includes what we have on the table and what we expect to have in the coming years. So this already includes a forward looking component as such. And this approach, by the way, has been aligned also with the auditor. Now of course, we need to monitor that to answer your question very clearly on a quarterly basis. But also as mentioned before, we currently don't see this kind of magnitude in terms of provisioning as a natural run rate. So this is new management took a preliminary on the topic. That's the outcome. Okay, okay, okay. It's fair enough. Thank you. Cost of risk coverage for the consumer business, I still have to answer. We are seeing decreased cost of risk in Q2 2021 compared to the 1 year before and still low NPL inflow in this consumer. So consumer is not behaving differently. What this change is micro overlay or the model changes that we implemented in the Q2 that drove up a Stage 2 portfolio, but otherwise we don't see higher NPL inflow or difficulties in that respect. So it was a part of, let's say, 2nd quarter provisioning was a kind of one off? 1 off. I would not say one off. I would say model driven. Model driven increase due to higher migration from Stage 1 to Stage 2, and Stage 2 has a higher level of provisioning coverage. Okay. Okay. And if I may just add one question on fees. I mean fees were pretty strong, so it's fine. It's also parallel to sector performance. But what's the reason why you haven't upgraded, I don't know, forward looking guidance on 2021? I mean, fee line is going up, I think, close to 10% year over year. So was it still not enough for you to, let's say, update the guidance on net banking income? Yes. Thanks for this question. I mean, we are looking at the since as you see, the pandemic has not fully eased out. So we are looking at the options as we progress overall for also sharpening the guidance there. Okay. Thank you. Thank you. Then we go to the next question. It is from Hugo Cruz of KBW. Please go ahead. Your line is now open. Hi. Thank you for the time. Quick questions for me. Just a more general question. Your new management team has been in place for a while. Would we expect a material change to the midterm targets in the near future? And if that happens, would you expect to those targets to require new restructuring charges? 2nd question, I see in Slide 7 that there's been a change of growth focus from consumer to SME. Is this more of a short term or a long term change? And if long term, do you expect that to impact your guidance for the cost of risk over the medium term? And then going back to the questions on dividend. When do you expect to hear from the regulators about how much you can pay? Will we have to wait for the AQR process to be finalized to get their guidance? Thank you. Okay. Thank you. Maybe I start with question number 1. As I've presented, we stick to our midterm targets. We sharpened it a little bit. And now we started the transformation program. And going forward, we as we progress with the program and also in line with our budgeting process, which will start in September for 2022. We will build our view on the midterm targets. And I mean the clear ambition I have as a CEO is I want to improve it, yes? I mean, we want to create more value with for the shareholders with our work. And that's the key ambition, if we change it, we change it upwards. And that's what we intend to do. So but we will see going forward on the basis of the transformation as it will progress. And with that, who is doing the second question? Hi, Hugo. On the restructuring charges, of course, when you look at structural changes and on a cost line, then you also look at restructuring potential restructuring charges. So we currently don't see an impact that cannot be balanced out of that. So in terms of full year guidance for the year to 2021, we currently believe there is room. So thanks for your question on consumer to SME shift of focus. I believe, as I mentioned in the whole my presentation on the growth session, we are actually strongly focusing on both consumer and SME equally. If you noted down all the 4 growth levers what I presented are actually on a consumer driven, which is basically digital price, fees and driving the customer base up active customer base up, are all key revenue drivers for driving consumer. So what I can say is that we both segments are equally important. Yes. And then there was a question on the dividend. Are you waiting for the results of the AQR to be sure that you can pay the dividend? No, no, no, no, no. That's not our intention. As I said beforehand, there was an AGM decision on the dividend payout. And what we currently anticipate and expect is that this will be put in place from the ECB. And if there are no unforeseen hurdles put up by the regulator, we our key intention is to pay it out in the Q4 of this year. The next question is from Martin Bulteck of Esther Group. Please go ahead. Your line is now open. Thank you. Good afternoon, gentlemen. Thank you for the call. So my colleagues pretty much ask all the more important questions. So please apologize for my bits and pieces from all of them. So just briefly back to the legal provisions. I'm reading on the Slide 51, the latest update is some Slovenian law submitted to the parliament. I guess you don't have any much detail, but what do you expect there considering the fact that the largest exposure of the your Swiss franc portfolio is actually in Slovenia? Do you have any further details? Well, hi, Mladen. This is Edgar. I think today came from Slovenia. He might chime in as well on the answer. So there is always something going on with regard to could there be a draft law, yes or no. The last knowledge that we have is that actually the law was rejected by the respective committees in Slovenia. So now what does that mean it's never going to come back? No. But at least for the time being, we don't see any increased risk here. Okay. Thanks. It's good to know that it was rejected. So maybe one question on the dynamics of this transition program. So I guess from the current transition program. So I guess from the current 68.7 percent in favor of Focus portfolio, do you expect that you can exceed 70% by the end of the year this year in the gross performing Focus loans? Well, it's a good question, Lardan. Thanks a lot. Of course, we are looking at many scenarios internally. But this is not part of our guidance for the year to 2021. So please understand. We will, of course, continue to update everyone on a quarterly basis. And once we believe it's time to add another disclosure, we'll do so. Because to me, it sounds that, let's say, with this new transition program in your ambitions, it might be that so called midterm period might be shorter or you might arrive quicker. I guess that's the target. Thank you for this. And also maybe a final question. So we have seen recent results from the stress tests performed by ECB, And we have seen the new methodology on Pillar 2 guidance and those buckets that are related to the capital depletion from the stress test elements. So I'm sure that you are not how should I say acknowledged with the exact procedure how the test and values it is performed. But is there any chance that you might did some calculating? And maybe you might get a sense in which buckets regarding the Pillar 2 guidance might be the AdiCo 1? Thanks, Martin. Very good question. I saw that disclosure. I think it was actually done by the SSM with an Excel and PowerPoint. So you're referring to that or PowerPoint to the PDF, you're referring to Page 23 and 24, I guess. So in that sense, of course, we don't have a crystal ball to know where we end up. What we know is that we need to be always up to speed in terms of calculation methodology. And this is also part of the comprehensive assessment, and we are preparing for that. Now do we know in which bucket we will end up? No. But if you look at the banks that have been covered and the attached axle is actually quite interesting, You see that banks in our region that, of course, are not the specialist bank as such are in the second and I think the reversal one of the other, the worst one in the 3rd bucket and none in the 4th bucket. So does that mean we won't be in the 4th bucket? I don't know. We will see. It's for sure a very interesting document, which also actually shows that the maximum below 2 guidance is 4.5%. So with our current 4%, we are quite at the edge of the maximum currently. Yes, exactly. Because I think whatever buckets you came in and I think maybe selecting from 2, 3 and 4, I would say rather closer to 3. So maybe I guess this is also related to the one of my colleagues' question on the potential payment of the excess capital. But also, as I understood, first, you will do everything regarding the transition process and then might revisit the question in the future. So as I would say, let's say, for another 18 months, we let's say, there's a low probability we could expect some excess payments. Am I right? Well, I think it's too early to provide you a concrete answer on that. So the transformation program that Geberd pointed out is based on 3 pillars, has an ambition to get impact and payback in terms of value generation within 18 months. And there is a stepwise approach. And each of those pillars, there is initiatives that will be handled on the basis of this prioritization. So I think since you're anyhow disclosing on a quarterly basis, we will disclose once there is new information to disclose. But Het, please chime in. No. But I think Edka very well summarized it. And from the tenancy, I think I made clear what our ambition is and what our goal is and the direction we want to take. And when it comes to capital requirements, we also believe that with a continuous healthy relationship and talking and working together with the regulator, we will do our best in order to convince them that our capital requirements needs to be revisited and reduced because we believe that the requirements are not appropriate for what we have in our portfolio. And we will do our best in order to reduce the capital requirements and free up capital. Okay. Thank you very much. Thank you for your time and all the best. Thank you. Thank you very much. Thank you. There are no further questions via the telephone line. So I hand back to you. Thank you, operator. We have a couple of questions on the webcast. I will read them out 1 by 1. There's one from Darinba Bodkulyak. The bank has low return on equity and worst results versus results of banks in the region. So please explain when we can expect an improvement of financial performance. Hi, Dalibor, and thanks a lot for the question. So we need to separate 2 different drivers in terms of the P and L and the return were 3 different topics. So first, our operational result is inching up and we're coming out of the global crisis we all have seen last year strong and business activities are picking up. So that's one topic. The second topic is, of course, with the transformation program, we want to boost that going forward and we want to also tackle the cost base, which both will help on the operational return. And that by following a prudent risk approach to keep risk provisions and the asset quality in check. Now with the significant amount or with a very strong capital position and the significant of equity, of course, that also influences the return as such. If you look purely at Q2 or the 1st 6 months, which includes Q2 as such, you also have to take into account the additional provision on legacy legal risks that we elaborated on before that we do not see as a run rate. The next question is from Ingrid Karbariq, Supercelliana. Hi. Could you shed more light on other results and leading risks? Are the EUR 7,100,000 of EUR 9,000,000 concerning Swiss francs, which countries are involved? Do you expect any more of these kind of risk Swiss francs in the future? Hi, Ingrid. Thanks for the question. I believe we have thoroughly answered that already since you posted the question. Here is another one from Shahin of Front Aura Capital. Could you please clarify what the bank's legal expenses are for? Hi, Shahin. I think that's also the same topic. So if you feel the question has not been answered, please drop us another note via the webcast. Then I received a couple of questions from Wolfgang Mateke of Mateke and Partners Asset Management, 5 to be exact. I will read them out and then we will answer them. Please elaborate a bit on the legal risks within the other results. I think that has been answered. What has been the cost of the management changes? The answer is €1,500,000 Did you see the stress test factors of the ECB? And did you reflect on these measurements mirroring on Alco Bank? Well, thanks, Wolfgang. That is a very good question. I think we covered that already together with Laden. Is RBI a competitor in your exposed countries, including the Serbia acquisition of RBI and to what extent? Danish? Yes, absolutely. The Fed process of the ECB towards year end 2021, What if this process runs into reduce reduction of Pillar 2 requirements for Allicore? Do you see a chance for an additional dividend? And if within year end 2021, the ECB responded what time? Thanks, Wolfgang, for the question as well. I think we covered that topic as well. So step one thing after the other. So step by step transformation program growth and for any excess capital, if any, we will then decide as a management what's best both for the company and the shareholders. Okay. Operator, I have no more questions in the webcast. And there are no questions. So in that case, I would like to thank you for your attention. And we look forward to the next earnings call, which will happen in 3 months' time. So all the best. Take care, and talk to you soon. Ladies and gentlemen, thank you for your attendance.