Earnings Call: Q1 2021

May 5, 2021

Yeah, ladies and gentlemen. Welcome to the conference call with the management of Ottergo Bank AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After May I now hand you over to the Ethicco team, who will lead you through this conference. Please go ahead. Good afternoon, everyone. My name is Herbert Jurenek, and it is a pleasure for me to welcome you to our earnings call on the Q1 2021. As most of you know, I joined as new CEO beginning of May, and I'm here today with Jonge, our previous CEO Markus, our CRO CFO Garnesh, our CRBO and CIO as well as Edda, our Head of Investor Relations. I will now briefly update you on the changes in the management team and then hand over to the team who will guide you through the rest of the call and the Q and A session afterwards. I now kindly ask you to turn to Page 3. As disclosed earlier, we are in the process of setting up a new management team, which will consist of 3 management board members. Jonge and Markus will remain on the board until the end of May to ensure a smooth handover. The search of our new CRO is progressing well, and I'm personally confident that we will be able to announce the new composition of the team as well as the split of responsibilities in the next couple of weeks once the respective governing bodies of Article have approved on this. Thank you very much, everybody. I'm looking forward to engaging with you during the upcoming investor meetings and earnings calls. And now I would like to hand over to Jonge and the team. Talk to you soon. Thank you, Herbert. Welcome and good afternoon, everyone, and welcome to our Q1 2021 earnings call. The usual slide with regards to the summary is the 3 boxes. If I kindly ask your draw your attention to earnings and dividend part. So in the Q1 of 2021, Addeco posted a net profit of €5,000,000 We had a cost of risk of €4,100,000 And we actually had an operating result of €11,300,000 which is actually down 21% year on year, but one has to take into account the one off cost of the management changes as well as the ramp up of the pro rata bonus pool and the accruals for the Q1, which were not done in 20 20, but were actually taking place in 2021. With regards to return on tangible equity, we have currently a figure of 3.1 percent and we had posted earnings per share of €0.25 or €0.25 And I trust all the shareholders have already received the first tranche the dividend of €0.36 which were actually paid out yesterday. With regards to asset quality and containment, the second block on this slide, I'm glad to report to you that our non performing exposures have further reduced, standing at €230,000,000 at the end of the Q1. Our NPE ratio stood at 3.3%. And if you take into account only the on balance loans, the NPE ratio improved to 5.7% from 5.9% at year end 2020. Another important element I would like to highlight is the exposure in Moratoria. At year end 20 20, we had €164,000,000 At the end of the Q1, this figure basically remained stable at €165,000,000 But one has to take into account that there was a prolongation for an introduction of a new moratorium in Serbia, which had an impact of roughly €30,000,000 on the overall exposure under moratoria in the Q1 2021. Something we should all be and we are very proud of is that overall portfolio behavior remains incredibly stable. Over 93% of our portfolio remains without any overuse, so current with all payment requirements. In terms of the coverage ratio, the provision coverage, we ended the year with 73.6%. This was actually slightly improving to 75.6% at the end of the Q1. The 3rd block at the bottom of the slide with regards to funding, liquidity and capital, the funding situation remained incredibly solid. We have €4,750,000,000 of customer deposits and then RSCR still above the 200% mark circa 204%. With regards to the capital ratios, and please bear in mind that the dividend payments not just the first unconditional tranche that was paid yesterday, but also the foreseeable the conditional part of the €39,600,000 which I will highlight a bit later some details on, these dividend figures have already been deducted and the profit for the Q1 has not been incorporated yet into the capital ratios and Adeco stood with a CET1 ratio of 20% and IFRS nine fully loaded still 19.2% at the end of the Q1. I kindly ask you to turn to Page 5, please. Here, brief update. As you are most probably all aware, we have successfully completed the AGM on the 26th April. It was a virtual AGM. The participation the shareholder participation has been very, very strong. We had over 77% of the outstanding shares actually being represented and voting at the AGM. All the resolutions, whether proposed by the Management Board or by the supervisory board, have been approved and adopted. And Peter van Gross has been elected to replace Herbert Turenek, who became the CEO of the bank and has stepped down from his role as Deputy Chairman of the Supervisory Board at the end of the AGM. Peter Van Gross has been elected to replace him in our Supervisory Board. Now with regards to dividends. So the first tranche I have already elaborated on, that was the maximum that was allowed under the current ECB guidance to be paid and that we have completed and executed. With regards to tranche 2, conditional 1, I would like to highlight that it's conditional only upon that neither recommendation of the ECB would in the company view conflict with a distribution of dividends nor a legally mandatory distribution restriction is effective or applicable. So the AGM has actually authorized the management board of the bank to actually pay out as soon as the ECB guidance is revised or lifted. With regards to the guidance going forward, we have already provided at the beginning of February the midterm guidance where we have guided towards an annual dividend payout of circa 60% of net profit. This does not include any potential payout after the completion of the SREP for this year and potentially having the accessibility of excess capital, which was not included in the 5 year plan that we have disclosed in the beginning of February. Last point on this slide with regards to the environment. I don't think I need to highlight to anyone how challenging the environment remains. We are still calculating and expecting a V shaped recovery in the second half of twenty twenty one and we are actually waiting for the latest economic forecast from the Vienna Institute in the coming weeks. And once we implement those into our forecast for the year end, I'm sure in future earnings calls, further details will also be shared with you. With regards to slide 6, thank you. I would just like to it's a usual slide with the Tahoe meter where we actually indicate what part of our overall gross performing loan book is in the focus segments. By the end of the Q1 2021, we have reached 66%. We have guided towards and this you see on the left hand side of the chart to the midterm target of 90%. I remain confident that once the economic situation stabilizes, we will be back to making bigger improvements in terms of percentages than what we have seen in 2020 and in the Q1 2021 with regards to the focus book gaining its share in the overall gross performing loan book of Barico. On the right hand side of the chart, you see that the gross yield per segment despite of the ample liquidity available in the region, we have actually maintained the yields relatively stable, slightly decreasing in consumer, while slightly improving in SME in the Q1 compared to year end 2020. On Slide 7, I would just like to highlight to you on the top left hand side of the slide, the SME and consumer, our focus segments, how the portfolio have developed in the Q1 versus the Q1 2020 year end 2020. You see that in Consumer compared to the year end 2020, the portfolio has actually remained stable, lower by €6,000,000 While in SME as well, we have maintained a relatively stable part despite the auto repayments of just over €1,000,000,000 €1,055,000,000 in terms of the end of quarter 1, 2021. One interesting element is the new business year to date. This is in the bubbles below the or between the two bar charts. You see that we had in our focus segments roughly €800,000,000 €797,000,000 new disbursements in 2020. And we had €238,000,000 new disbursements in the Q1 2020. And we have basically replicated that. And please bear in mind that in the first quarter 2020, corona actually stopped and we have tightened the underwriting criteria in the 2nd or 3rd week of March 2020. So that was actually a relatively strong start of the year that we were reporting on back then in the Q1 2020, while we have almost matched that performance in terms of new disbursements in the Q1 2021 at €229,000,000 of new disbursements. Last message on this slide before I hand over to Ganesh for the next two slides is the non focused portfolio development. You see that basically we had a decrease compared to year end 2020 of circa €30,000,000 or €27,000,000 to be exact of the large corporate and public finance portfolios. And we had roughly €30,000,000 EUR 29,000,000 to be again exact EUR 1,000,000 decrease in our portfolio in mortgages and this was basically because we had no new business in mortgage and public. We had some short term new disbursements in large corporates, but this is really short term loans trying to make use of the ample liquidity that the group has and to ensure adequate risk reward profile in our portfolio. But in general, according to the repayment schedule and the contracted repayment, the portfolios in the non focus have continued to shrunk. And without further ado, I kindly ask you to follow Ganesh's guidance on the next two slides. Thanks, Chongar. Good afternoon, everyone. I'm glad to share some insights around business growth and our digital capabilities. Please let me start by highlighting that our new business growth in both consumer and SME has recovered well from the lows during the pandemic and have achieved new disbursement levels of 92% of quarter 1 2020 in consumer and 101% in SME despite impacted by partial or full lockdowns in many of our markets during Q1 2021. Our performance shows that our business model is not only resilient, but also has adapted to the customer needs during the pandemic. On Page 8, our key strategic business pillars to accelerate incremental profitable growth in our focus areas, consumer and SME, has remained consistent. Our first pillar focuses on driving sustainable core business growth through alternative channels with white label partnerships, point of sale lending, bank at work and remote advisory channels with higher risk adjusted margins achieved through risk adjusted pricing. We are seeing 29% of new customers' loans from consumer are generated in the alternated channel bank at work in Q1 2021. The second pillar is about expanding our business through innovative digital solutions and provide customers the best in class experience, convenience and speed and doubling our digital business. Our digital contribution of 34% of consumer loans, driven by web loan launches in Serbia and Slovenia and 26.2 percent contribution in SME loans in quarter 1 2021 is a clear testimonial of our progress in digitalization. The final pillar focuses on increasing operational efficiencies and driving cost reductions through branch transformations, better process digitalization and faster time to decision and time to cash processes, while remaining prudent with our risk appetite reflecting the targeted costs of risk evolution. In quarter end 2021, we have also progressed well in ongoing branch transformations involving an enhanced customer relations roles of all branch staff to sell loans and transforming 10 branches into 4 hubs. This is supported by resizing of branches and our workforce to increase branch productivity. We remain convinced that all these strategic pillars will serve our customers in better way and would continue to transform our business model to drive profitable organic growth in the focus areas for the group. Now moving on to Page 9. This page builds upon how our enhanced digital loan capabilities supported by a strong risk engine and M Banking capabilities have evolved and are already acting as a business multipliers transforming our business model in consumer and SME during the Q1 of 2021. On the top left side of the page, our customers already today allow our end to end online solutions of consumer cash loans with the virtual branch experience in Croatia. We would further enhance our loan in risk engine with online PSD2 supported income verifications. After a successful launch of web loan application in the Q1, we can originate digitally initiated loans followed by initiate offers for customers in Serbia and Slovenia. We are planning to launch it in all countries where regulatory restrictions, at least for the time being, do not allow our end to end digital processing and require final physical signature by customers in a branch. We will extend our mBanking solution in Croatia and Slovenia with mLoans, which is a quick way of sending simple end to end cash loan solutions for existing customers via the app, which has already proven to be successful in Serbia. Furthermore, we are working on launching a consumer point of sale product throughout our region with new partners this year, which should enable us to generate customer acquisition 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 white label loan solution for our partners and thereby enable them to offer loans to their customers in the next years starting already this year. On the SME front, our simple and guaranteed platform, which has significantly reduced time to decision, has already been further enhanced with functionalities such as loan prolongations and multipurpose frames during Q1 2021. We have plans to further automate and integrate credit bureau and risk engine and provide a tailored solution to our customers. To summarize, digital transformation is more than important than ever, especially in the times of lockdowns and economic uncertainties. We are therefore accelerating our efforts to improve our digital value proposition, and this is key to continue providing strong differentiation to the other players that are active in our region. Please let me hand over to Marcus. Thank you very much, Ganesh. This is my last time to present to you the financial and risk update for Adeco Group, and I'm very happy to report to you for the Q3 in a row a very strong result, which actually is significantly better than our initial expectations assumed in our business plan for the Q1 2021, considering the crisis we are currently in. Moving to Slide 11, where we see an operating profit, which is reported with $11,300,000 for the Q1 2021, which is $3,000,000 lower than in the Q1 2020. But recent results needs to be considered under different circumstances. Today, the loan book is $300,000,000 lower than 1 year ago caused by the pandemic crisis, where we decided during 2020 to apply a prudent risk management approach to new business, resulting in lower assumed growth in our focus segments, by non focus segments, shrinked according to plan and even faster. Net banking income, the result is with 6.4% lower compared to the Q1 2020, while in line with our planning assumptions, where lower interest income base has also been partly mitigated by lower costs for interest expense. The Q1 2021 operational expenses are in line with internal assumptions as well, actually even better since additional costs related to recent management changes are already fully covered. Risk costs compared to the Q1 2020 are significantly lower. Since the Q1 2020 was also impacted by an IFRS nine macro parameter post model overlay of $13,600,000 This all results in $5,000,000 profit after tax in the Q1 2021, while maintaining a very strong capital position of 20% on a transitional and 19.2% on a fully loaded IFRS 9 basis for CET1 and total capital, where intended dividend payments are already fully deducted. Let's move to Slide 12, starting with the net interest income on the top left. While the lower loan book is EUR 300,000,000 compared to the pre crisis Q1 2020 is causing lower interest income, the resulting excess liquidity from reducing the non focused portfolio, which couldn't be invested to that level we were planning into focus during the crisis, had to be invested in either lower rated high quality securities or even kept with National Bank on negative rates, causing that the net interest margin went down year on year by 12 basis points, partly already compensated by higher share of overnight compared to term deposits. Net fee and commission income is still partly impacted by the crisis, but also here fully in line with internal expectations, reflecting the gradual ramp up of financings, where we close to 97% repeated the result from the Q1 2021. The transactions are still a little bit lower and we are hoping for, but we are expecting that this is also being ramped up in the following quarters. The OpEx was already mentioned where savings on advisory costs on traveling and marketing compensated to be in line with expected results. The credit loss expenses comparing Q1 2021 with the Q1 2020, which itself was impacted by an IFRS nine one off on a like for like basis is with $4,100,000 by $3,300,000 higher than the Q1 2020, mainly caused by the consumer segment, which I will explain in detail on later slides. Overall, the cost of risk is significantly better than we were planning for the Q1 2021, of course, positively influenced by state subsidies, moratoria and internal restructuring. On Slide 13, you see a very robust asset quality. Overall, 93% of the portfolio is without Elays on a very stable level, except for consumers where we see a deterioration in the 1st bucket 1 to 30 days past due, while all other buckets are stable or even improved, where of course, moratoria and internal restructuring helped a lot. On Slide 14, you see a stock of 100 and $65,000,000 remaining moratoria, which is 2.4% of the total gross exposure, which is stable compared to the Q4 2020, while number of clients with moratoria increased by circa net 900 compared to the last quarter, caused by newly introduced moratoria in Serbia for consumers. The highest share of moratoria is still with SME and large corporates and in Slovenia. On Slide 15, the moratoria development is provided, showing on the right hand side the EUR 30,000,000 increase from the newly introduced moratoria in Serbia and provides on the left hand side the expected developments for the 2nd and third quarter of the current stock of $165,000,000 moratoria, not considering potential new moratoria, which might be in discussion in Serbia, also in Slovenia. Besides being closely in touch with clients still in moratoria and in defining right measures post moratoria, we very carefully monitor the development of our portfolio based on the moratorium status. On Slide 16, you see that out of total CHF 6,900,000,000 gross exposure, the portfolio of clients in post moratorium status consists of $852,000,000 end of the Q1 2021, of which 88% kept a stable days past due status considering the migration period by the end of the first from the end of the Q1 2020 to the end of the Q1 2021, so 12 months, 5% improved and 7% worsened its days past due status, which is $56,000,000 in absolute amount. Comparing this on the right hand side with the post moratorium stock end of November 2020, which was 935,000,000 dollars and the ratio of 8.3 percent of clients worsened their days past due sales over 8 months from the end of March 2020 to the end of November 2020. The ratio we have currently of 6.6% end of the first quarter with a 12 month migration period can be considered as very positive and promising. Comparing further the post moratorium sub portfolio with the non moratorium portfolio, which is shown on the right hand side on the bottom, where the ratio of clients which worsened their days past due over the last 12 months is on a significant lower level with 2.6%, it is obvious that the focus has to be continuously on the performance of clients in post moratorium status, which became our daily bread and butter. On Slide 17, it becomes even more detailed in looking into the business segment, what are the root causes of certain developments. This slide shows for the total portfolio, for the consumer segment, for the SME segment and for the non focus segments separately for each of their sub portfolios, which are the clients in moratoria, the clients in post moratoria and the clients without moratoria. First, their distribution into IFRS nine stages and secondly, their delinquency development over the last 12 Considering first, the total portfolio, which is the 1st row in the chart, Out of the portfolio of clients in moratoria, the share of clients in Stage 2 under IFRS 9 is 40%. And out of all clients in post moratoria, the share of clients in Stage 2 under IFRS 9 is 23% and significantly higher comparing this with the non moratorium clients where the share of IFRS clients in Stage 2 is at 9%. Only for the post moratorium sub portfolio, the ratio of clients, which worsened at ASPAS2 over the last 12 months is with 7% by 2% higher than the ratio of clients, which improved their days past due status. For all other sub portfolios like moratoria and non moratoria, the ratios of worsened versus improved days past due is very balanced. This is slightly different for the consumer segment, where we have a similar distribution over the IFRS nine stages, like for the total portfolio, while the ratios of clients which worsened their days past due status over past 12 months is significantly higher than those which improved their days past due status. For post moratorium clients, we have 13% worsened versus 4% improved. And for moratoria clients, we have 10% worsened versus 6% improved. For the SME clients, a significant higher share of Stage 2 clients under IFRS nine with 55% is observed for the moratoria sub portfolio, but also for the post moratoria clients with 24%, which also explains that moratoria and internal restructurings in the SME segment helped to keep the days past due migration on a very low level, indicating on the other hand also that certain impacts from the crisis are potentially still outstanding. Nevertheless, all the developments are so far much better than expected, being approved that measures taken are very effective to maintain the asset quality on a high level. Slide 18 confirms the developments already outlined where Stage 3, the nonperforming exposure clients, improved further down by $14,000,000 to $230,000,000 with a coverage of 76% and even 120% considering the collaterals. The IFRS 9 Stage 2 portfolio slightly improved, even considering that regulators introduce for the consumer segment a very conservative approach, which is to be reflected in early warning systems linked to Stage 2 migrations. On the right hand side, you see the performing loan expected credit loss coverages, which remained stable with 2.1% with a level of 10.9% for Stage 2 clients and even higher coverages for clients in moratoria, covering expected loss assumptions over the next 12 months respective lifetime. Slide 19 provides the Q1 2021 risk costs of 4,100,000 dollars which on a like for like comparison to the Q1 2020 is $3,300,000 higher as I explained impacted by a one off, which is mainly coming from the consumer segment, while SME and non focus segments even performed similar or better considering that further provisions have been released. Although the cost of risk was 12 basis points on net loans is significantly better in the Q1 of 2021 than expected, it still doesn't allow for the time being to conclude that the pandemic crisis impact will be much lower than the guidance for the full year we already provided because the dynamics of the post moratorium behavior will be fully visible only in the second half of twenty twenty one and even might last partly into 2022. Considering also, on the other hand that the recovery of the economy might be slightly delayed caused by new lockdowns, moratoria, etc. I'd like to finalize the risk and finance update with Slide 20, showing a very strong capital position of 19.2% on a fully loaded and 20% on a transitional IFRS 9 basis for CET1 as well as for the total capital. It's a very stable risk weighted asset development. Within these ratios, intended dividend payments are already fully deducted. With that one, I would like to hand over to Songa. Thank you, Markus. As a wrap up before we go to questions, we just wanted to highlight 3 important boxes again on Slide 22. Firstly, that we reiterate the 2021 outlook that we have been both Markus and myself referring to that we disclosed beginning of February. Let me just repeat it for the sake of the record. Gross performing loans at SEK 3,500,000,000 circa SEK 3,500,000,000 at year end 2021 with circa 5 or over 5% growth intended in our focus segments. Net banking income remaining stable at the circa €235,000,000 that we had in 2020. Our operating expenses will be below €174,000,000 And please bear in mind when you compare apples to apples that this includes a circa €9,000,000 cost that we expect for the bonus pool of the variable tariff to be paid for 2021 for the staff for Atea with Ateco as well as the AQR costs that are expected once the actual process hopefully in the coming weeks is initiated by the ECB. With regards to CET1 ratio, the 4th arrow in the first book, we remain committed to be to stay above the 18.6% on a transitional basis. And with regards to the credit loss expenses, I think Markus has once again provided ample details why we believe that we will be low the 1% on net average loans and advances to customers for the year 2021. Now with regards to the next steps, and this is these four bullet points have, of course, been aligned with Herbert as well that the task number 1 is complete the new setup of the management team. He alluded towards that, that he will keep the markets up to date with regards to development. The second one is setting up programs and actions accelerate the transformation of the banking group, which both Marcus and myself will be eagerly observing as shareholders of the group. Of course, executing and successfully executing and closing the AQR process once it has been officially initiated remains a very high priority and has to remain a high priority for the management Board and the supervisory Board in order to ensure the much sought after level playing field with regards to our Adequos capital ratios and obviously with regards to strengthening the digital propositions that were also highlighted in today's presentation for growth as well as optimization further optimizations of the costs. The half year results call is scheduled for the 11th August exactly at 2 p. M. And before we hand over and we go to questions, may I just thank 4 different stakeholders for their support over the last 2 years since we have been a public entity. First, thank you and this goes to all the analysts who have covered and continue to cover Adeco. So thank you. And I make this point on purpose before your questions, hopefully having an influence on the toughness of your questions. But I would like to thank Anna, Simon, Laden, Hugo, Yovan and David for doing such a professional job and continuing to challenge us as a Board and highlighting where we should be focusing on with our efforts. The second group is clearly to the investors who remained through thick and thin through a very challenging 2020 have remained trustful in Allico and in our stories and have supported the efforts of not just the management board, but everyone at team Allico. The third one goes to specifically the unsung heroes, Edgar and Consti, who have once again proved that all the night shifts trying to put together the best in class presentation for a Central European Banking Group, a focus group, has been not in vain. And it's highly, highly appreciated because without you guys, we would not have been able to disclose to the level of professionalism that hopefully we have achieved. And last but not least, everyone at Tmallico. So these results we are presenting the 3 of us, but it's 2,643 people who have been through the challenges of home offices, all the pandemic macroeconomic toughness and problems have proven once again that they believe in the story and they work very hard to produce the results that they are very proud to present to you. I thank you very much for your attention. And of course, we remain available for questions. Thank you. And we've received the first question. It is from Anna Marshall of Goldman Sachs. Your line is now open. Please go ahead. Good afternoon. Thank you for the presentation and for the kind comments. Two questions from me, please. Firstly, on asset quality. So given what you mentioned with regards to moratoria, potential being extended and seeing the dynamics so far, when would you expect kind of a more well, NDA ratio basically to increase? And when would you see the peak? Could it come only in 2022? And then the second question is on core income and perhaps specifically on NII. In terms of the drivers of the trajectory in the remaining quarters of the year, Is there anything else on top of such drivers as, say, loan volumes picking up even more, yield trends, macro recovery. For example, do you have any scope for to optimize the interest expense further? Or is there anything else basically? Thank you. So Ana, I would start, Marco speaking, with the first question related to the asset quality. This is a very good question, and it's not so easy to answer. The reason is there are many factors which are impacting the behavior of the portfolio. On the one hand side, these moratoria state subsidies, whatever we see here, are very helpful to at least overcome the situation and have a certain part of the portfolio. And as long as they are supported from that side, we are on a safe side that there are no migrations and they prevent also migrating. We pick then after this official moratoria are expiring internal approaches for those kinds only where we believe they need a bit of more time than what the moratoria provided to make sure that we are really having the best balanced approach. We are not supporting clients where we see already there is no chance. So that's where we this is also regulatory required that is the unlikeliness to pay, where we are moving them very quick into the nonperforming. So that's why I believe and that now it starts in the Q2. You have seen the remaining moratoria. And it depends this is the second factor. Will there be new moratorium introduced? Yes or no? We hear certain rumors from here and there. From Slovenia was the last one what we heard. So it depends a lot on if they will come further. This is more a delaying process. It helps to a certain extent, but also delaying certain impacts. But what we see also, and that's in the internal assessment what we are doing and the way how we are approaching those clients overall being in very close contact with them, especially on the corporate side, but also on the consumer side. While on the consumer side, you cannot so individually manage it like on the corporate side. That's why also the impact is already more visible on the consumer side. So coming back to your question with the peak, as I said, the full impact will be visible in the second half of twenty twenty one. While we will see, I believe, in already certain more indications now in the month May, June, that's what I believe in. But really to assess it 100% is the second half of the year, which also under the assumption that the V shape will hold, now that's the next one where the macro assumptions we will get very soon. And first indications tell me or tell us that the GDP growth, what was expected originally in late months of last year, will not be to that same level. It will be a little bit lower, which then comes and to answer this also how we model this into our IFRS nine into 2 components. So as I explained it also last time, there is an operational cost impact due to the migrations I was explaining before, but you have also a release impact coming out of the changes from the macro in the performing loan portfolio. And when this level of macroeconomic improvement is not on the same level like it was predicted by the end of last year. This positive impact will not be at the same magnitude. So it will be a little bit less. On the other hand, the operational impacted cost of risk is performing better, will be lower. So my guess is and my hope is that we are ending up better than currently even the guidance is. But for the time being, it will be too brave to correct these guidance. We still need to get more bit more data points from the Q2 and then maybe even the Q3. I hope it answered your question. And now with regards to the interest income and interest expense. If I kindly ask you to turn your attention to Page 31 or Slide 31 in the presentation, it's in the appendix or the additional materials where you see the gross yields per quarter for the 2 focus segments as well as the non focus segments on the right hand side of the chart. In terms of the consumer segment, maybe Ganesh can also then add a word. We have actually introduced some approach with regards to the risk based pricing approach. So we are confident that the drop in the pricing, in the yields of the consumer in the new business, dropping from 7.3% to 6.8% is actually justified because we are underwriting better quality customers. With regards to the SME, you see that there was actually a good improvement from 2.9% to 3.3% in terms of the yield of the new business. And that is basically because we have been the new platform and it's basically digitalizing the process as much as possible makes it less price sensitive. So we remain confident once the growth is coming back to the markets, we have the capabilities to actually make up for some of the ground lost in terms of NII compared to the Q1 2020. That's with regards to the NII. With regards to the interest expenses, I'm careful with that one because the last three or four calls we said that we believe it is bottoming out with regards to how much gain that further gain there can be in terms of having less interest expenses. Now with this €4,900,000 that we had in the Q1 2020, I do believe this is roughly the bottom. The main reason for that is because the share of Avista deposits in the overall deposits volume has to be maintained at an adequate level as well to ensure the sustainability of the funding base going forward. These deposits have proven to be incredibly sticky over the last years, but at the same time having an adequate share of term deposits is something that we also continue to focus on. I hope I have or we have answered your question, Anna. Yes. Thank you so much. Thank you. Then we go to the next question. It is from Johan Pykiewicz of Reitenbank. Your line is now open. Please go ahead. Markus Truonger, thanks for the call and for all the previous calls. So and wish you all the best for your future. I would have 2, 3 questions, if I may. First of all, on risk costs. In the Q1, the consumer segment brought a bit higher cost of risk, I mean, it's above the average of last year. So I suppose it has to do with this worsened, worsened overdues that I think Markus explained before. But just maybe if you can explain it once again. And how would you see it, let's say, going forward? 2nd of all, there was at least according to presentation, the consumer loans have lower spreads in the Q1, but in SME, it was higher. So does it have to do with the change of disclosure? Or what's behind? And the last one is on fees. I mean, if you compare with other peers, I mean, Adeco has been a kind of a bit lagging behind. Of course, you cannot rely on securities, asset management segments. What's your strategy going forward? I mean, are you going to do you plan to, I don't know, change the fee tables in order to compensate for NII? Or what's the strategy at least in the midterm? Thanks a lot, and all the best once again. Thank you very much, Francois, for the wishes, and thanks for your questions. I'm starting with the asset quality related, the risk cost related one in the consumer segment. We have it on Slide 19 in the attachment, right, where you have the consumer business. The reasoning of this, you're right, it's related to the bucket 1 to 30 days because that has an impact on our behavior scorings, which is normal and natural everywhere. And this is causing also migrations from Stage 1 into Stage 3. We don't see that much migrations to the nonperforming exposures, which is a very good sickness. So our early collections is still working very nicely. So that's why we hope even that with these increase, what is even this one is better than we were actually expecting, yes, that the power we have there in the collections is continuing that we overall over the following past over the following quarters that we can confirm this performance and which will help us then also maybe to beat the year even more than what or that we are beating the guidance for the full year. But as I said, for the time being, we would like to understand a bit more for the next 2 to 3 months and maybe within also the Q3 how these migrations are continuing and if we can keep on performing with the same quality as we have done so far. Okay. So if I can just answer the second question. Thank you very much for the question. On the consumer side, we as also shown here pointed out, we have launched risk based pricing in multiple markets. We are attracting better quality customers. Therefore, also has an impact on the yield overall. But I believe it's the right balance we have to have a sustainable business growth going forward. On the fees, basically, we are looking at various strategies to actually Fritofor accelerate our packages, our primary packages and also mixed packages overall on the current accounts. So that's just to increase our NCI. But also, we are focused on looking at also transactional basis where the fees can be increased and wherever it's applicable to be increased, we are looking at all the options we have. Hope that answers your question. Okay. Appreciate it. Thanks a lot. Thank you. Thank you. The next question is from David Loycek of Wood and Company. Your line is now open. Please go ahead. Thank you very much. Thank you for the presentation and for the kind words as well. My question is regarding deposits, I would like to ask because I see in around Slide 33, I see that direct deposit or the cost of funding decreased by substantially. And my question is, do you think your overall cost of funding can go over this year and potentially going forward as well? Sorry. And what would be your outlook for NIM in terms of or seeing this, what would be your outlook for NIM for this year? Thank you very much. Okay. May I take the questions? Thanks, David. It's Jonghor. You rightly pointed out on Slide 33. On the right hand side, you see that basically the largest decrease in terms of cost of funding came from the Austrian and German direct deposits where we have monitored the situation and have continuously reduced it basically month by month or every second month the rates while observing whether there is any unexpected outflows because we cut the rates further. There we have closed the Q1 at an average of 37 bps in terms of the funding cost. My expectation is with the ample liquidity that is available in the German and Austrian markets, that could be further reduction of a few basis points, but nothing dramatic, I would foresee. 0.1. 0.2 with regards to the network and the deposits, that's where the share between the Avisda and the term deposits balance comes into the equation. My expectation is that this circa 30 basis points is something that we will also see in the quarters going forward. I do not expect a radical decrease neither an increase in this regard, maybe a few basis points, but nothing else. With regards to the NIM, we do not provide the guidance for 5 years, but we do not provide short term year end financial or NIM figures in terms of the short term guidance. And I hope for your understanding. Understood, understood. Thank you very much. And also, I mean, good luck to you and Markus in your future endeavors as well. Much appreciated. Thank you. The next question is from Leiden Boddig of Erste Group. Your line is now open. Please go ahead. Good afternoon, gentlemen. Thank you once again for the call, for the performance. And thank you for the kind words towards analysts. And I wish you to, of course, Songur and Markus, all the best in the future roles, you might assume. And my questions got answered actually, but I just want maybe to confirm also to myself, would it be fairly fair to assume that, for example, on the fee and commission side, because we have seen a lot of mortgage lending demand across the region. So with Adeco being only decreasing that, also would that be also part of the missing result that could have been if you will proceed to not proceed, if you will be still pursuing the mortgage lending rights? Mani, in my view, that's difficult. Hi, Mani. And thanks for the kind words on your side as well. I think that's a theoretical exercise. What would it be mortgage? I think most of the fees that are missing and we have seen that it is related to missing transactions and new volumes in terms of the guarantees being far less in demand than they have been in pre COVID crisis in terms of the SME. With regards to bank assurance business and the new loan volumes that drive the bank assurance fees that we have generated in the past, that is also something that is missing. The new board, I have no information on them trying to introduce or revise the new strategy in terms of for the banking group. And Herbert, I think made it very clear in all his statements that it's about acceleration of the unsecured consumer and unsecured working capital SME financing that is that will remain in the focus of Alikou. With regards to fees related to mortgages, that's not something that we have contemplated. Okay. Thank you. Thank you very much. Thank you very much. And once again, all the best. Thank you. Stay well. You also. Thank you. At the moment, there are no further questions. And we've received another question of Simon Miller of Citi. Your line is now open. Hi, gentlemen. I couldn't leave without asking a question. Hope you're all well. My question would just be on the dividend policy going forward. I think you said that you're planning to pay out 60% of earnings. Is that an ongoing payout. Is that kind of the new dividend policy? And I think at that level, you would still have potentially significant excess capital, particularly if your PPG was lowered. Can you just maybe elaborate on how you're thinking about dividend policy? That would be my first question. Any question actually? Thanks, Simon. If I may, so basically the guidance we have provided with regards to that's related to 60% of profits. And with regards to the excess capital, we have not included any figure with regards to because we don't know the outcome of the SREP and the AQR. And this figure could Andrew, I think your analysis is absolutely right. If one assumes a level playing field in terms of the P2G of 4% being lower than even the P2R of 4.1% that we have received back in October 2019 from then the Austrian Financial Authority and will be reviewed by the ECB this year once they have completed their SREP and AQR processes. Then the group could be with excess capital, which then as a shareholder, I will trust the management board at that time will decide to do the honorable thing and return value to the shareholders. Okay. So basically the message is a 60% kind of ongoing payout ratio and then once the regulatory issues become clear, maybe pay out some excess capital. Okay. That would be yes, that would be a right understanding in my view. And then just on Slide 49, I see there's still kind of ongoing Swiss franc litigation potential problems, maybe not litigation, but legal laws in Slovenia. Can you quantify what the potential impact of this Slovenian draft legislation would be? No, we have not sorry. No, in terms of the legislation is basically in such a draft form, we have not been able to quantify it. You see that the development that the overall Swiss franc portfolio is down to €103,000,000 This is on slide 49, you were summarizing referring to €103,000,000 of which only €22,000,000 is basically Swiss franc related NPEs. In Slovenia, this sort of draft legislation has been talked about for a number of years and cases and kind of in my view common sense always prevailed. For our understanding right now the draft is still at a very early stage and is very unclear in terms of calculating any potential impact. Okay. That's clear. Yes, all the best both of you going forward. Thank you. Thanks. Stay well, Simon. Take care. Bye bye. Thank you. We receive the follow-up question of David from Boit. Your line is now open. Thank you. I'm sorry this is my last question, but on Slide 31, I noticed that in consumer, the yields of new business loans decreased some 50 basis points, while in SMEs, it has increased from 40 basis points, if I see well. So could you probably talk about that a little bit and tell us what's behind that? Thank you. Hi. Thanks for your question. So basically on the consumer segment side, we as I mentioned also before, we are launching we are accelerating digital channels. There also we have launched risk based pricing. So we are attracting a better customer segments to have a more sustainable and also risk prudent portfolio insight. So that is a strategic update what we have going forward. And we believe it's more sustainable as we do. Yes, and that's basically why you see the EU difference there. Okay, understood. Thank you. Thank you. As there are no further questions, I would like to come back to you. We have a question on the webcast from Thibault Nader at Wellington. Hi, team. Congrats on a great job last year year to date. Quick question. 20% of the balance sheet is now in cash, another 20% in securities. Deposits are still growing, so excess liquidity will only grow. In light of the changes in yield curves globally, are there any opportunities to redeploy that excess liquidity at better yields? What is the current yield on your cash balance? Thanks and hope to see you soon. Well, I'll try and answer Thibault's question. Marcos, jump in please if I leave anything out. Thanks for the kind words Thibault. As a large shareholder, your compliments are much appreciated. With regards to the questions themselves, so the yield on cash is somewhere between 0 and 10 bps or minus 10 bps, sorry, 0 and minus 10 bps depending on, of course, the country specifics. With regards to the overall yield on financial assets, it's basically bonds and cash included is somewhere in between 0 50 basis points is the answer to what are the yields. Are there opportunities to redeploy that excess liquidity at better yields? Well, the market comes back and we can go back to the over double digit growth in terms of our focus segments. I think that's the best use of the excess liquidity. By the way, we have introduced where the local legislation allows also charging fees for certain deposits above a certain amount and to not our great surprise, but we have not seen any deterioration in terms of the values. It was or in terms of the volumes, it was more remaining stable as customers are basically keeping the money and do not seem to mind even paying fees for it. I hope we have answered your question Thibault. And knowing you in person, I think you would ask a follow-up question if we didn't. Good. We have another question from Brad Linpenbaum. What are the plans to lower costs? Does Article plan to change its headquarter or branch footprint? I think that's a question that would be best answered at the next earnings call if it's asked rather than us speculating on that. Arne, Dennis, you would like to add something that's No, I think going forward, we'll come back to the next earnings call. All right. Operator, there's no more question in the webcast. And we haven't received any further questions via the telephone lines. If there are no further questions, I'm just waiting for 20 seconds if anyone else wants to still ask. If not, then I think we have said all the nice words to each other that at least on our side we wanted to. Thanks very much for your attention today. Much appreciated. I wish you I'm sorry, there's one more question. Oh, there is one more question. One more question from Brett. Are there plans to divest the mortgage portfolio? We have looked at that pre corona in terms of accelerating the exit of the mortgage portfolio. At that time even at that time, it was challenging to get adequate return with regards to compensating the loss of income that we had. And the question was what to do with the excess liquidity and the decrease in the RWAs that we would immediately realize by exiting such portfolio. At that time, it just didn't make sense. So we actually looked at it very thoroughly and then we stopped the initiative. In corona, not many people were knocking on our door with regards to their interest in buying mortgage portfolios or those who were, I think, were definitely not considering a win win situation that would have been worthwhile also for Adeco to consider. So hence, as the situation normalizes and the growth in the focus segments picks up, that is a very straightforward way of creating, if needed, capital RWA and liquidity to finance the growth in the focus. No more questions. I hope we have answered Brad's question. So if it's no more questions, then thanks very much. Stay well, stay healthy, and thank you for your trust in Addeco and your attention today. Bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You