Name is Sergey, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on a listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Thomas Sommerauer, to begin today's conference. Thank you.
Thank you very much, Sergey, and good morning to everybody who is listening in from Vienna. Today's call will be hosted, as usual, by our management, consisting of Peter Bosek, our Chief Executive Officer, Stefan Dörfler, our Chief Financial Officer, and Alexandra Habeler-Drabek, our Chief Risk Officer. They will lead you through a brief presentation detailing the highlights of the first quarter of 2025, and after that, they are ready to take your questions. Before handing over to Peter, my usual reference to page two of the presentation, which contains the disclaimer on forward-looking statements. With this, Peter, I hand over to you.
Thank you very much, Thomas. Good morning, ladies and gentlemen. Welcome again to our first quarter 2025 conference call. I will kick off the presentation with a couple of comments on the main topic of interest over the past days: our discussion with Banco Santander about a potential acquisition of a 49% stake in Santander Bank Polska. First of all, the transaction is by no means certain, but should a deal eventually happen, I can only repeat what we have said all along, that any M&A transaction will have to pass a high hurdle, namely making Erste a better bank in terms of profitability and growth, and importantly, also to broadly match profitability of alternative capital deployment options. In my mind, there also can be no doubt about the strategic rationale of a leading CEE bank entering the largest CEE market.
Our main focus, therefore, is to put together a transaction that also makes strong financial sense to shareholders, irrespective of whether we talk about EPS accretion, ROE, or royalty uplift, or return on investment. Should this transaction not materialize for whatever reason and no other options arise by the end of the year, we will go more aggressive on distribution, period. We will not run the bank at a CET1 level above 16% as we currently do. Let me now move to the first quarter. I'm on page four of the presentation now. On top of our Polish considerations, there was a lot of news flow to digest since the start of the year, and uncertainty became an even more prominent feature than it was before. There is one thing that did not change: our financial results remain strong.
While revenues grew only slightly year on year, quality was much better, as growth was driven by core income, essentially net interest income and fees, as opposed to being flattered by one-offs or better trading and valuation income, as was the case a year ago. Operating expenses were up in line with guidance, and consequently, operating result trailed last year's print by three points, resulting in an efficiency ratio of 48%. At this level, we are already well inside our full-year guidance. If we look at our operating performance quarter on quarter, it was exactly the other way around. Our seasonally lower revenues in the first quarter were offset by an even steeper fall in costs with a corresponding improvement in cost-to-income ratio. Back to the year-on-year analysis, risk costs remained on a moderate level without releasing any overlay or FLI provisions.
Even though year-on-year, we had to cope with higher banking taxes and provisions, some of them warm-off in nature, as evidenced by the weaker other results, return on tangible equity was already north of our 15% target for 2025. With this first-quarter performance, we are well on track to achieve our financial goals for the full year and confident enough to upgrade our fee guidance. We now expect fees to increase by more than 5% rather than about 5%. When we look at our P&L performance metrics in more detail on page five, two points deserve mention on top of the comments I just made. One, that the net interest margin yielded to gravity for the first time since the rate cut cycle has started, and two, that banking levies have increased quite a bit.
On both topics, Stefan will give you more detail later, but let me say just this: it's the logical consequence of NII consolidating amid falling market interest rates, while interest-bearing assets, including customer loans, are still growing, that these margin metrics slip somehow. A level of 2.4% plus minus a couple of basis points is still our best estimate for 2025. When it comes to higher banking levies, these were primarily driven by the new higher banking tax in Austria, which will be enforced this year and next year. The increased financial transaction tax in Hungary also contributed negatively. A final comment on risk: because the risk-cost ratio came down both quarter on quarter, as well as year on year, this was mainly due to better performance in Austria. Alexandra will tell you more about this shortly.
I have already briefly touched on loan growth, and I'm on page six in the meantime, but let me be more specific on balance sheet development in general and customer volume trends in particular. The latter have been encouraging, which is reflected in annual loan growth for the first time topping 5% in almost two years. Year-to-date, customer loans grew by 0.9%. Looking at the geographic distribution of loan growth, irrespective of whether we do this year-to-date or year-on-year, CEE, and especially the Czech Republic and Croatia, are clearly in the lead, while momentum in Austria was and still is soft as a result of the weak economic backdrop. In terms of business lines, growth was more pronounced this quarter in retail than in corporates driven by CEE. All this bodes well for delivering on our loan growth guidance of about 5% in 2025.
Customer deposits growth at 1.9% year-to-date and 4.6% year-on-year was equally reassuring. Year-to-date growth was driven by more volatile deposits from the public sector and financial institutions, while core retail and SME deposits took a little bit of a breather. Year-on-year deposits trends were more in line with what we are used to, with core retail and SME deposits outgrowing non-core deposits by a healthy 1.2 percentage point margin. To sum it up, volume trends are good. Growth is well balanced across assets and liabilities, with likely more even distributions throughout the year than we have seen in 2024. I also believe that we have some growth reserves as far as volumes are concerned, but given all the uncertainties, it's too early to upgrade the loan growth guidance.
Moving to our core balance sheet indicators on slide seven, thanks to our overall strong business performance, all parameters continue to be excellent. Our loan-to-deposit ratio of 89% reflects balanced loan and deposit growth, as already mentioned. Asset quality continued to be very good, actually improved quarter on quarter, driven by an absolute decline in NPL stock, something that last happened almost two years ago. This, of course, is good news. All the more as Austria was the main driver for this development, the same Austria that caused us some minor headaches last year, as you will remember, as we saw more defaults amid continued economic weakness. The asset quality situation across Central and Eastern Europe remained outstandingly strong.
NPL coverage, excluding collateral, also improved in the first quarter, supported by lower NPLs on the one hand and the lack of any releases of FLIs and industry overlays on the other. More about asset quality later from Alexandra. With regards to capital ratio, the picture turned around in a positive way compared to year-end. Back then, we reported a CET1 ratio of 15.3%, as the deduction of our third share buyback in the amount of EUR 700 million was binding into excess capital. Now we report a level of 15.9%, while the pro forma ratio stands at 16.2% and includes first-quarter profits. This step-up was in large part attributable to Basel IV implementation, which added about 80 basis points. The remainder came from internal capital generation. Consequently, our capital deployment options, ranging from M&A to capital return, are broadening further going forward.
Let us now examine the macro picture. I'm on slide nine now. With all the news from global trade tensions over the past couple of weeks, it's probably not a big surprise that our economy's streamed growth forecast a little, but by less than you or I certainly would have thought, mainly because our region has no big direct trade relationship with the U.S. and potentially could benefit from the German fiscal expansion that was also a key topic over the past two months. Since on this, beyond the headlines, we still know little detail, any positive impact cannot yet be fully reflected in the forecast. Given the fact that CEE is a significant manufacturing hub for German industry, I would certainly expect some positive spillover effects on our region. All other macro variables didn't change materially since we last reported two months ago.
Consumer price inflation is still forecasted to hover in the low to mid-single digit in the CEE region in 2025. Current account balances for most countries are set to remain balanced or even positive, with the only notable exception being Romania and Serbia. In many of our markets, especially in those that reported larger deficits in 2024, the budgetary situation is forecast to improve in 2025, which will help keep public debt in relation to GDP at sustainable levels. Given all the moving parts and also accounting for the uncertainties that are clearly out there, I think macro backdrop is good enough for us to grow the business in a very profitable manner in 2025. It also carries some potential for things to get better should trade tensions ease. Let's move to page ten, analyzing the performance of our retail business in the first quarter.
Overall, retail loan growth continued to be encouraging at 1.6% year-to-date. Both housing and consumer loans made good contributions. Consumer demand was supported by lower rates. Consumer loans at Erste Bank Austria were a bright spot, while business at the savings banks remained sluggish. The opposite can be said about Central and Eastern Europe, where, with the expansion of Romania, retail loan business started strongly into 2025. At the same time, the risk profile of our retail portfolio remained excellent. On the liability side, retail customer deposits grew only a bit quarter on quarter. Our success story in promoting regular retail security savings plans as a means of building long-term wealth also continued. The stock of such savings plans exceeded EUR 1.7 million, supporting long-term fee growth in our asset management business.
George, our market-leading digital retail platform, also contributed to this success by making it easy and convenient for clients to manage their savings plans. We have onboarded 11 million customers to George, which was instrumental in pushing our digital sales ratio in the retail business to more than 60%. To be precise, it reached 61.4%, roughly two-thirds of consumer loans and more than half of insurance products were sold digitally. It's our clear target to build on this success by further developing this platform so that we can provide meaningful financial advice to even more customers. George Invest is a case point. It was launched so far in Austria and Czech Republic and helps us to attract younger clients. Accordingly, we also plan to make this new offering available in our other markets. In the corporate business, I'm on page 11 now.
Loans were up 5.5% year-on-year and 0.7% quarter on quarter. The driver of this development was the large-cap business, mainly attributable to investment activities in Austria, while the other subsegments like SME were either flat or slightly down in the first quarter. Another highlight in the corporate business is the continuation of a strong fee income performance, confirming our strategy of focusing on recurring services. The market business started strongly into the year. Nonetheless, the performance was lower than in previous year, which was attributable to lower central bank rates. Our customer business, on the other hand, posted another excellent quarter, both in equity capital markets and debt capital markets activities. We are talking about a total of 75 executed deals across all asset classes. Our asset management business always showed a very solid first quarter. Assets under management rose to a new all-time high of EUR 92.5 billion.
This performance was supported by retail sales and M&A activities. With this, I hand over to Stefan for the presentation of the quarterly operating trends.
Thank you very much. Good morning, everyone. Let's move to page 13. In addition to the comments Peter already made on retail and corporate loan volumes, I would like to provide you with a couple of geographic highlights. Our Czech business continues to be the best performer, both in relation to balance between retail and corporate loan growth, but also in terms of delivery consistency. We saw healthy demand from private customers for mortgages, and at the same time, our SME business also did well. In Romania, growth came to a halt in the first quarter after retail demand lost steam following a strong bout of consumer loan growth earlier in 2024. Corporate business also slowed down noticeably in the first quarter.
This was possibly related to increased political uncertainty and to fiscal tightening measures put in place by the new government to address the budget situation. Finally, in Austria, after a slight recovery in the second half of last year, loan growth in the first quarter of 2025 slowed down again. This was true for both Erste Bank Österreich and the savings banks and attributable to continued economic weakness. The other Austria segment, which encompasses our large corporate and CRE business booked in the holding company, experienced some consolidation, not a surprise, after an exceptionally strong finish to 2024. All the other countries, think of Croatia, Slovakia, Hungary, or Serbia, started the year well, and consequently, we expect that loan growth will be more evenly distributed through 2025 as opposed to the back-end heavy performance in 2024.
With this, we are also well on track for delivering our full-year growth guidance of about 5%. Customer deposits, and I'm on page 14 already, also enjoyed a satisfactory first quarter of the year. While core deposits moved sideways in the first quarter, they still were the growth driver year-on-year, advancing by a respectable 5.8%. The good thing with our business is that if one business line moves a little slower for a quarter, there is practically always another business line to step in. This quarter was the turn of public sector and financial institutions deposits, which lifted overall year-to-date deposit growth to 1.9%. In terms of notable segment developments, maybe a couple of comments on Croatia, Romania, and also other Austria. While Croatia posted strong deposit inflows year-on-year, deposit outflows from more volatile public sector accounts explained the quarter-on-quarter decline.
In Romania, the situation was quite similar: strong year-on-year performance, but small retail and corporate outflows quarter-on-quarter. Finally, in the other Austria segment, we are used to significant quarter-on-quarter and even year-on-year volatility. Let me move to net interest income on page five. If I had to summarize our NII performance for the first quarter of 2025 in one sentence, I would probably say we are moving along our plateau. Sometimes a little up, sometimes a little down, but a plateau it still is. What I want to say with this is that the first quarter print fully matches our expectations. NII was up by about 1% year-on-year, despite a quite hefty step-down in Austrian retail and SME entities, as our key CEE operations, most notably the Czech, Slovak, and Romanian business, continued to perform well, all supported by good year-on-year volume growth.
In Austria, the decline was effectively driven by four factors. Firstly, a higher share of variable-rate loans that are tied to short-term rates. This, of course, resulted in downward repricing as the ECB cut rates and corresponding lower interest income. Secondly, lower income from liquidity placements, also a result of lower ECB rates. Thirdly, a certain time lag in cutting deposit interest rates. Number four, as already discussed, limited support from volume growth in the first quarter. If we look at NII development quarter-on-quarter, the decline we saw in Austria was compounded by the day-count effect that cost us about EUR 40 million across all geographies.
I think, if anything, the performance of the first quarter confirms that our guidance for the full year was the right one, and consequently, we stick to our outlook of keeping NII in the flattish zone in 2025, essentially because tailwinds and headwinds will most likely cancel each other out. We have discussed the drivers in the past, but let me just remind everyone. On the positive side of the equation, we have loan growth, higher interest income from our bond book, lower deposit costs, as well as limited overall sensitivity to rate cuts, unchanged, by the way, at about EUR 200 million for 100 basis points instant downward rate shock. On the negative side of the equation, we have the rate cuts in all our countries, with diverging impact in different countries very much dependent on the structure of assets and liabilities. Let us now turn to page 16.
Net fee income rose by a healthy 9.5% year-on-year. Having in mind that the fourth quarter usually benefits from seasonally stronger fee income, a first-quarter fee total that matches Q4 is all the more impressive. The year-on-year drivers were by and large the same as in previous quarters, namely payments and securities, again most visible in the Czech Republic. The jump in the other Austria segment resulted from asset management fees attributable to the integration of new companies, by the way, also representing a confirmation of our strategic pillar asset management for inorganic growth. Looking specifically at the quarter-on-quarter drivers, let me point out that the development of payment-related fees was impacted by shifting some EUR 12 million to lending fees, which in turn is the main reason for the jump in lending fees.
Securities fees benefited from higher assets under management and a solid market performance still in the first quarter. Based on the strong first-quarter performance, we have decided to upgrade our full-year guidance. We now expect fees to grow by more than 5%. Let me turn to operating expenses on slide 17. Cost inflation at 4.8% year-on-year was in line with our guidance, as personnel expenses remained the main driver for costs going up. Lower deposit insurance contributions compared to last year mitigated cost growth a little, but this was restricted to the Austrian segment, with EBU and the savings banks benefiting by about EUR 12 million and EUR 14 million, respectively. In all other markets, deposit insurance contributions were either flat or even slightly up, resulting in a total upfront booking for the full year of 2025 of EUR 54 million compared to EUR 76 million in the first quarter of 2024.
Quarter-on-quarter, we saw a significant decline in expenses, effectively cost normalizations, following a very high print in the fourth quarter of 2024, despite the booking of deposit insurance contribution, as just mentioned. Based on the first-quarter performance, we therefore confirm our 2025 cost outlook of 5% year-on-year. Moving to page 18 now, summarizing our operating performance briefly, some remarks on two further operating income lines. Firstly, trading and fair value. With EUR 97 million in Q1, we are kind of back to a solid run rate, however trailing lower than last year for the start, when the trading and fair value result with EUR 139 million was higher by EUR 42 million in Q1. Secondly, rental income and other operating leases. Here we registered a EUR 30 million one-off in Q1 2024. Some of you might remember this was about our aircraft leasing, which obviously was not reoccurring this year.
Going forward, we expect very much comparable income quarterly as in last year's further quarters. All in all, revenues were just marginally up year-on-year, but showed a much better quality mix, which makes us optimistic for the rest of the year. For Q1, this did not fully offset higher operating expenses, resulting in a 48% cost income ratio, two percentage points higher than in Q1 2024, still very strong historically. Hence, our cost income ratio guidance for the full year 2025 of less than 50% remains unchanged. With this, I hand over to Alexandra for details on credit risk.
Thank you, Stefan, and good morning from Vienna, also from my end. We are on page 19 now. In the first quarter of 2025, we posted risk costs of EUR 85 million or 15 basis points.
As Peter has already outlined, this was better than a year ago, better than in the previous quarter, and well inside our guidance for the full year 2025. It is also important to note again that this figure did not include any FLI or overlay releases yet, so it's a very fairly clean figure. The reason for this solid performance is twofold. Firstly, our Austrian businesses saw fewer defaults and correspondingly lower risk costs. Secondly, our CE operations, also, as Peter has already mentioned, continued to do very well. The improvement in Austria is particularly encouraging because it's in line with our expectations. The defaults in Austria have peaked in 2024 and will start to normalize towards 2026.
As far as FLI and overlay provisions are concerned, we will still hold a stock of almost EUR 500 million, of which two-thirds are related to FLI provisions and the remainder to industry overlays. Given the more volatile macro environment, it may be the case that we release less of these provisions than we have indicated a quarter ago. Back then, you might remember, or you surely remember, we projected a release of about EUR 190 million. Now I would fine-tune this to a maximum of EUR 190 million. We will have a better idea about this in the second quarter when we do our regular FLI review. Despite this very good start to the year, we decided to remain prudent and confirm our 2025 risk cost guidance unchanged at about 25 basis points, not least because there is a lot of uncertainty out there that impairs visibility.
Having said that, should these concerns fade away as the year passes and our credit risk performance stays healthy, we will certainly revisit the outlook. Let's now turn to asset quality on the following page, page 20. Overall, we have seen some positive developments in the first quarter, also regarding NPL. The consolidated NPL ratio improved slightly to 2.5%. NPL coverage ratio edged up by two percentage points. As already mentioned in the context of risk costs, the main driver of asset quality deterioration in 2024, namely Austria, showed signs of improvement as default seems to have peaked. At the same time, Central and Eastern Europe proves its asset quality resilience quarter by quarter. I have to, or I can mention this every quarter because it runs counter to popular belief that CEE is a dangerous and volatile place when it comes to credit risk.
This may have been the case in one or the other decade, in one of the other markets in the early days of convergence, but it's no longer the case today, following two decades of enormous economic development. In fact, in our Austrian entities, NPL ratios, while still at benign levels, are now mostly higher than in any of our CEE countries. In terms of projections for the full year 2025, we expect that the group NPL ratio will stay more or less at current levels. Similarly, coverage is expected to remain broadly unchanged, of course, depending on the structure of new defaults and the magnitude of further FLI and overlay releases. With this, I hand back to Stefan. Thanks, Alexandra.
If we look at other results on page 21, we see that it was broadly flat quarter on quarter, but quite a bit weaker than last year in the first quarter. There are basically three key reasons for the latter. Firstly, we have to pay higher banking taxes in Austria this year. Next, and let's see what happens thereafter, that's a plus of EUR 20 million per quarter. Secondly, we have to pay higher financial transaction tax in Hungary. That's a plus of about EUR 10 million per quarter. Thirdly, we booked a one-off legal provision in the amount of EUR 40 million in Austria, quite equally distributed between savings banks and Erste Bank Österreich. On a quarter-on-quarter comparison, one-offs and seasonalities effectively canceled each other out, which explains the similarly high prints in both quarters.
In addition, in every first quarter, it's worth noting that there are a number of upfront bookings for the full year, including the banking taxes in Hungary in the amount of EUR 50 million and the resolution fund contributions in the CEE countries, which this year amounted to EUR 15 million, EUR 15, and were only payable in the non-Euro core countries. You should not at all think of the first quarter figure as a quarterly run rate, please. Summing all of this up on page 22 and looking at net result, earnings per share, and return on tangible equity, there's not too much to say at this time of the year, other than that we, of course, can confirm our full year 2025 return on tangible equity guidance of about 15%. Now let's move on to wholesale funding and capital, turning to page 24.
Wholesale funding volumes decreased year to date as higher stock of debt securities was more than offset by decline in interbank deposits, concretely repos. The stock of debt securities was pushed up primarily by issuance of covered bonds and senior preferred bonds, i.e., we were already very active in 2025. Hence, let's turn to page 25 and look in more detail at our long-term wholesale funding activities. We started quickly out of the gates at the start of the new year by issuing three benchmark transactions: two EUR 750 million Euro Green senior preferred bonds and a covered bond in the volume of EUR 1 billion. In total for 2025, please expect a similar funding volume of about EUR 5 billion and a similar mix as was the case in 2024. Page 26. Let's move to the regulatory world, and let me start with a housekeeping note.
Until now, we presented to you our regulatory capital and [RWA] figures in a fully loaded or final format. It was our attempt to show you our regulatory capital ratios once all regulations are implemented. With the partial implementation of Basel IV, uncertainty as to the full implementation, lack of market standards as to the exact definition of what is fully loaded, and seemingly endless phase-in periods, we have now opted to switch to phased-in presentation with the start of 2025, as many of our peers are already doing. In our case, the difference is anyway very minor, as you will see on the following page. Before looking at equity ratios, I will give you the most important details on the development of the numerator and denominator, i.e., capital and RWAs.
Reported regulatory capital did not move much, but this has little to do with Basel IV and all to do with the first quarter profit not being included. Other than that, there was a minor positive Basel IV impact related to the non-recurrence of the IRB shortfall deduction, which you see in the tier two, but that's about it. What pushed the needle quite a bit was the net impact of Basel IV credit and operational risk implementation. With lower credit risk RWAs perfectly fitting our projections, the negative effect from operational risk was actually lower, not the least due to some mitigation measures on our end. This led to a net decline in RWAs quarter on quarter of almost EUR 6 billion. This already includes a business growth updrift of EUR 2.4 billion for the quarter. How does all of this translate into CET1 ratios and basis points?
Let's switch to page 27 to look at it. It means that the net effect from Basel IV implementation amounts to a positive 83 basis points as opposed to our indication of 60 basis points a quarter ago. Together with first quarter profit inclusion and the pro rata dividend deduction of the midpoint of our dividend policy, as always, we end up with a pro forma CET1 ratio of 16.2%, quite a step up from a quarter ago, which significantly enlarges our capital deployment options. Let me be clear here and repeat very explicitly what Peter already said.
We will not operate our business with a CET1 capital ratio in excess of 16% beyond the end of this year, which in turn means that we either find an adequate M&A opportunity in Central Eastern Europe, the 49% Santander Bank Polska being a potential option inside this year, or we will go significantly more aggressive on distributions, be it in the form of dividends or buybacks or both. The hurdle to cross is the same for both deployment options. It has to create shareholder value in the short as well as in the long term. With this, Peter, I hand back to you for the outlook.
Thank you very much, Stefan. I am concluding this presentation with our detailed financial outlook for 2025 on page 29. We started well into 2025 with overall revenue up year on year and, importantly, revenue mix being significantly better than a year ago.
Fees performed particularly well, and consequently, we decided to upgrade the fee growth guidance to higher than 5% rather than only about 5%. All other targets for 2025 that we have communicated a quarter ago are confirmed. We continue to project net interest income in the flattish zone. With all the uncertainties out there, this is the most prudent course of action. Operating expenses should increase by about 5% in 2025, mainly due to investments into strategic initiatives that should yield top line and cost benefits in the future. The cost income ratio will therefore likely slip somewhat compared to our record performance in 2024, but based on the first quarter performance, should come in comfortably below 50%. Risk costs are forecasted at about 25 basis points. At graded risk performance in CEE, it is said to remain excellent.
While banking levies will be higher in 2025, especially on account of an increase in Austria, we are confident to deliver a healthy return on tangible equity of about 15%, all the more as we are already above this level the first quarter, a quarter that is burdened by a number of upfront bookings of regulatory costs. When it comes to capital deployment, we are currently examining Polish market entry, as already discussed. Beyond this, we will enjoy increased flexibility thanks to our strong capital print in the first quarter. This, ladies and gentlemen, concludes our presentation remarks. Thank you very much for your attention, and we are now ready to take your questions.
Thank you, sir. As a reminder, to ask a question, please signal by pressing Star one. If you wish to cancel your request, please press Star two. Our first question is from Benoît Pétrarque from Kepler Cheuvreux. Please go ahead.
Yes, good morning, everybody. The first question is on Santander Bank Polska. Obviously, you have a very strong capital ratio at the end of Q1. There are a few questions around that. The first question is, why are you looking into buying only 49% and not potentially more than that? Also, you know, are you still thinking about, are you thinking about a capital increase to finance the deal, or do you think you could absorb the deal with no or a very marginal, very marginal one? That will be the question. The last question around the deal will be if you have any type of synergies in mind.
Obviously, there are no big cost synergies involved in that scenario, but is there any thinking around IT optimization along the line, any type of synergies also potentially on the revenue side? That would be extremely useful. The next question will be on the CET1 ratio. You move to phased-in instead of fully loaded. Now, I appreciate the first-time application of Basel IV is a large positive, but could you disclose the phased-in impact from Basel IV over 2026, 2033? I think some banks are disclosing some ramp-up of risk-related assets, and I wanted to check that there is no kind of pipeline of risk-related assets growth going forward. Thank you very much.
May I start to take the first question about the 49% of the potential purchase of Santander Bank Polska? I mean, the main rationale for going for 49% is twofold.
First, it would provide a controlling stake resulting in consolidation. Second, we avoid a full tender offer for 100%, which, based on current Polish practice, would have to be sold down and listed again. This simply does not make sense. 49% for us is the smartest option. In concrete terms, the way it would work is that we consolidate the full pro rata capital for 49% as well as capital up to the minimum requirement for the remaining 51% and, of course, the full risk-weighted assets. About your question about a capital increase, please understand that we cannot comment on that today in detail. There is no transaction, so the status is unchanged. We are planning to execute the EUR 700 million share buyback as announced, and we are accruing dividends as we are always doing.
If a transaction were to materialize, our main focus will be to maximize shareholder value in terms of EPA secretion and return uplift, and at the same time, to also show a return on investment that is broadly in line with the return of alternative capital deployment options. About your questions about synergies, I think it's quite obvious that there are no cost synergies. The way how we look at it, that we think we can add revenue synergies in a way that, given our experience, especially in asset management and digital banking, I think we are a market leader in our region, and we strongly believe that we definitely can add value in these two areas. Capital ratio would hand over to Stefan.
Thanks, Benoit, for this question because it gives me the opportunity to be in more detail on it.
Maybe you can follow me on the first part of the explanation to page 27 once more. I was explaining the capital flow, but what I did not explain in detail was the step, so to say, for the readjusted end of year, end of year phased-in adjustment. You see that 15.09 was exactly the CET1 ratio that we were informing you about on the 28th of February, and that corresponds exactly to 15.26. The effect is 17 basis points. How does this come along? I can explain it on page 26 because there you see that the risk-weighted assets on the end of the year are now shown at the level of EUR 157.2 billion, contrary to EUR 159 something that we showed you in the end of year presentation. That is explaining the lion's share of the 17 basis points.
What is very important, and thanks very much for this question, with regards to your future fully loaded impact and any kind of concerns that we will be hit from the back, so to say, later on, nothing material at all. Full stop. We are doing nothing else than showing on phased-in. If you flip to former presentations that you will see in the pages after the ones we present, you always also have a phased-in explanation. Actually, you can also have a continuous spreadsheet on that. Thomas is, of course, ready to send you all of that if you don't have it at hand. No jump in the future to be concerned about. It's simply adapting to what the market has been doing already, not to look, to be very honest, not to look worse than others. Thank you.
I can say that the phased-in ratio is basically equal to the fully loaded one.
Sorry, once again?
That's correct. Can I say that the phased-in ratio is actually in line with the fully loaded ratio?
Let me answer with a question, Benoit. What would be fully loaded in your definition these days? That's the big problem, yeah? The answer is, in principle, yes, because the difference is very minor, very, very minor. The problem is, and if you ask around under the experts on RWAs and Basel IV, you will find out that the fully loaded definition, which is a consensus, does not exist because some people incorporate a slower or faster implementation of FRTP. Some people have considerations on the credit side, what will come, operation, [dot, dot, dot, dot, dot, dot]. In other words, the short answer, superficially, is yes.
The detailed answer would be a two-day seminar.
Yeah, great. Thank you very much.
Thank you. Our next question is from Gabor Kemeny from Bernstein Autonomous . Please go ahead.
Good morning. Thank you for your thoughts around capital deployment. I would first like to ask about the funding of a potential deal. You had the 14% CET1 ratio target. How do you think about the option of potentially dropping below that for the sake of completing a deal? That's the first question. The other question I had was on the likely or the possibility of raising capital. Can you confirm that you can raise, that you can issue up to 10% of your capital in new shares without EGM approval? And to what extent does it reduce your willingness to go for a deal if you went above that level? Yeah, that's the second question from me.
Just finally, I have another topic. If you could elaborate a little bit on any repricing lags in the Austrian business. I mean, to what extent shall we expect some kind of NII decline in the coming quarters at the Austrian real and SME business or other Austria, similar to what we saw at the savings banks in Q1? Thank you.
All right, Gabor. I take all the three very, very quickly and very swiftly. First one, kind of what you're asking about is, do we have flexibility? Do we have flexibility to go below 14% and this and that? Look, we have some temporary flexibility, as we believe, but certainly not as much as was implied in some of your pieces that you were writing about to be realistic.
The way it works is that we have a management buffer of about 150 basis points above the minimum requirement, and about a third of that is reserved for corporate development. In a nutshell, yes, there is some temporary flexibility, and it would also be our expectation in case a concrete deal occurs that we might use some part of that, but we will definitely have the goal to move up above 40% again very quickly. That is on your first question. On the second question, just fact-based the answers. We have an HEM approval for a 10% of the outstanding shares to be, so to say, without a further additional approval to be additionally raised if there is a need for that. The third question was about repricing lens on Austria.
Look, it's very clear that from the peak in 2023, the direction for the Austrian market, generally speaking, independent now from the details on savings banks and the SB Bank Österreich, is for, let me say, two-three years downwards. We always said that. I personally expect in the very low double-digit area if I compare 2024, 2025, depending on the further path of the ECB cuts. If we land in the area of 2%, which was the consensus in the market maybe a couple of weeks ago still, I think it could be even better than what I just said. If we go directly and very fast to 1.5% in case of such a scenario, the Austrian market, in particular the savings banks, will suffer more. We have been reducing our sensitivities to a large extent, as you know, but that's about the sensitivity I would indicate.
We are optimistic very much to add that to mitigate pretty much all of that with our C entities to end up on a flattish or a very good NII at the end.
Thank you, Stefan. Just a small follow-up from me. Were you suggesting that you have flexibility up to two-thirds of your management buffer?
One-third, I said. Thanks for checking. One-third is always the dialogue about what is reserved for corporate development of the 150 basis points. That is just an indication. This is not nailed in stone. It is just to give you a feeling of what kind of flexibility we might possibly have.
Got it. Thank you.
We will now take our next question from Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Just following up on the acquisition, given the size of the potential deal, can you clarify on the updated capital trajectory and how it might affect your capital return plans for 2026 and 2027? In particular, should we expect the buybacks to continue to be reduced or fully post for the coming couple of years? A question on the integration costs. Beyond the purchase price, should we expect any material integration costs or investments needed to align Santander Bank Polska with your broader group standards? Thank you.
Thank you very much, Gunnar, for the question. Look, the only thing I can say, and that is a clear message here, the only thing I can say is no matter what happens with regards to our proposal for the 2024 dividend, there will not be whatsoever changes. Assuming an approval in the HEM, the 2024 dividend at EUR 3 will remain unchanged.
Everything else completely depends on whether there will be a transaction or not. At this point in time, there is no transaction. Our application for the EUR 700 million share buyback is out. We are accruing, as you saw in our performance statement, for a normal, very good dividend in 2025. That is all about to say. Obviously, I cannot make any statements for further years in that context. Thank you.
If I may jump on the topic of integration, because it is much too early to come up with any kind of precise answer. I mean, the way how we look at it in general is Santander Bank Polska is now a part of a network group, right? Of a very successful group. I think it is very obvious that there are APIs that can report to Madrid.
I think it's not too much in front of us when it comes to integration in general.
Thank you.
Thank you. We will now take our next question from Johannes Thormann from HSBC. Please go ahead.
Good morning, everybody. I'm sorry, HSBC. Some questions on my side as well. First of all, on the M&A topic again, probably slight different direction. You always talked about that you're not willing to change the risk profile of the group dramatically, but adding such a big bank in Poland would surely change the risk profile to a large extent. Why are you changing your opinion on this? And then also, why are you changing the previously held company policy of mostly owning up to 100% in a bank and now relying on some, yeah, accounting logic to control it, but not owning it really to full extent?
Why have you changed your opinions on this? Secondly, just on an I follow-up on the Q1 level, this is basically, if we do it by interest days, the level of seen last year. Can we expect some similar NII per day in the next quarters so you can meet your flattish NII guidance despite the rate cuts? Last but not least, on George, you talked about 11 million customers now. Where's the saturation level? If you get to 100% of your group, or do you think you can't get a certain portion of your customers? If we look at the consumer loans you mentioned, do they have the same size if you sell them online like in a branch? What kind of insurances are you selling? Thank you.
May I take the first part of the question related to change of our risk profile? Point number one, I think entering the Polish market, of course, is adding something to our risk profile, but the way how we look at it, it's adding, so to say, additional diversification in terms of income streams. Polish economy is doing very well, has been doing very well over the last 30 years. When you look at future development, we also believe that this is a very positive development in the Polish economic situation. The 49%, from our perspective, there is no way around it, given Polish capital market practice, where all the Polish banks are stock listed with around 30%. The 49% give us, in terms of company law, but also in terms of accounting and consolidation opportunities, everything we need and we are used to.
Therefore, we don't look at it as a huge change to our risk profile. Let me jump on the George question before I hand over to Stefan about your NII question. We will never be at 100% of our clients using our online application because, for example, in the Czech Republic, we still have, from historical reasons or point of view, we still have clients which are just having a passbook with Cesca. There is no added value for them to use George. In terms of digital sales ratio, I mean, this is something which was constantly improving. The quality of products sold digitally and in the branch network, when it comes to consumer lending, there is no difference related to it, neither in size or in risk profile of our clients. In the insurance part, these products which are sold digitally are non-life insurances.
Yes, I take the NII question. The short answer is, to your assumption, absolutely a clear yes. The overall guidance of flattish also indicates very much that your assumption around the quarterly run rate is correct. I would just add a little bit of flavor to it in so far that the mix will be different due to probably a weakening nature of NII in Austria, as I explained before answering Gabor's question. In the same moment, we are very optimistic on the back of good loan growth, but also, let me say, more stable interest rates in some of our C countries to perform well there. Let me just remind you, giving you the opportunity to remind me to give you more detail on the NII sensitivity.
I already said it's EUR 200 million roundabout for the group, out of which, yeah, the lion's share, two-thirds is in the savings banks, i.e., from a pure balance sheet positioning, of course, there are dots in the curve, there are dots in the Czech curve and the Euro curve and the Romanian curve, which are very specifically also moving the NII. From an overall positioning, you can say that the core group is kind of neutral. It all depends on two major factors. The one, obviously, how the curve and the respective key rates will develop since this is moving some key parts, but also very much the loan growth development and whether our business performs well. I hope this helps you, but the guidance is very clear. NII flattish for 2025.
Okay, thanks.
Our next question is from Riccardo Rovere from Mediobanca. Go ahead.
Thanks for taking my question. Good morning, everybody. Three or four, if I may, again on Poland. Just to be clear for me to understand, from an accounting standpoint, Peter, if I understood correctly what you said in the beginning, if you bought 49% of Santander Bank Polska, you would consolidate it pro rata, so line by line, but pro quota, not pro rata, if I understand it correctly. 49% of loans, 49% of NII and blah, blah, blah, if I understand it correctly. From a regulatory standpoint, the 51% that you would not hold, would it be treated as a minority? Would the 49% stake you own be treated as a relevant financial stake? The two things follow different regulatory adjustments, let's put it this way. This is the first thing.
The second question I have is, when we talk about the Sun Poland, are we talking about the consolidated entity or the disclosure that we see in Santander? Because they are not exactly the same. One, in Santander Poland, when you look at their disclosure, it is a bit smaller than the group. I was wondering, also the equity base is different, honestly. I was wondering which one of the two are we talking about? The other thing I wanted to ask you is, you clearly stated that a decision on all of that, how to use the capital, is going to be taken by year end, if I understand it correctly. Do you really believe that it is going to take so long to take a final decision on whether you want to buy into Poland or not?
Because to be sincere, I think all this uncertainty is weighing on, is burdening the share price. I guess this is the reason also today. Last but not least, just to be completely sure of what I'm saying, the 16.2% common equity tier one ratio, that excludes already the docs, the share buyback that you plan to execute throughout 2025, right? Thanks.
Ricardo, I take the liberty and have the allowance of Peter to take all the questions, because for number two and number three, it is very simple. There cannot be a comment at this point in time. There is no deal. Obviously, we cannot comment on any details of the nature of the deal. However, I can answer number one on the accounting and then, of course, also number four on the capital. Accounting, very simply, your first version is exactly the way it works.
It is a full consolidation, a line-by-line consolidation, and the 51% in case the deal happens in that form would be a deduction in the minorities. That's number one. On the capital, it's a clear yes. Of course, everything that you know from the end of the year with regards to what is a part of our waterfall on CET1 remains unchanged. It is a full deduction of our EUR 700 million planned share buyback.
Okay, so Stefan, 51% would be the minority. It would be treated as a minority?
Absolutely, yes.
From a regulatory standpoint?
Correct.
Okay. Right. You will have kind of control, a big minority, but kind of controlled by minority. It follows the minority rules. Okay, fine. Thank you.
Thank you.
We will now take our next question from Mate Nemes from UBS. Please go ahead.
Yes, good morning and thanks for taking my questions. The first question would still be on the potential transaction. I think, Peter, you've been quite clear saying that the transaction needs to create value for shareholders short and long term. I was wondering if you can be a bit more specific on this and share your broader financial criteria. Is this, let's say, at least mid-single digit EPS increase? Is it better ROI versus share buybacks? Is it a clear uplift in ROEs? All of this. Obviously, does the transaction need to meet all these burdens in order for you to feel comfortable moving ahead? That's the first one. The second one would be still on Poland. Do you see any other potential targets outside of Santander Bank Polska? If the transaction does not materialize, does that probably mean no entry into Poland? Finally, a question on risk.
I think you mentioned growth estimates were trimmed, but there's no change to FLIs and there's no new overlays. Does that mean you feel comfortable with listing stock? Also in this context, if you could help us understand what magnitude of further GDP growth cuts would trigger perhaps further pondering? How should we think about that? Thank you.
I try to be precise as possible in this stage of development. When it comes to financials, I mean, if there were a transaction where there to materialize, our main focus, to be very clear on that, will be to maximize shareholder value in terms of EPS equation and return uplift, and at the same time, to also be somehow comparable and show a return on investment that is broadly in line with other alternative capital deployment options, mainly a share buyback, right?
When it comes to other potential targets in Poland, of course, there are also other potential targets there. We would expect some kind of movement in the market, most probably after the presidential elections in May, right? Because there were already some discussions internally, obviously, in Poland about ADIO and all these things. Of course, we look at it that there are also other potential targets and risk. I would ask, of course, Alexandra.
Thank you for the questions, Mate. On the stage, two overlays. If I understood you correctly, overall management overlays, whether we feel comfortable. Yes, we do feel comfortable. As you may remember, we have introduced our systematic on-stage two overlays, also connected with [PD] some time ago, and we have fine-tuned this methodology.
At the current stage, we would not expect any additional stage overlays, also not due to the uncertain tariff situation, because this is already well included in our current methodology. On the second one, on the deterioration of the macro environment and GDP, yes, you are right. Of course, this is impacting also the FLI, and this is exactly the reason why I said in the introduction that the EUR 190 million overall release that we previously guided for the full year 2025, and of which we have not yet released anything, might be lower. Fine-tune to maximum EUR 190 million, exactly given the impacts from a potential additional GDP deterioration on the FLI. That is very helpful. Thank you very much. Also, this should not, and this does not change the current overall guidance on risk costs. Understood.
Thank you, Alexandra.
Thank you.
Our next question is from Ben Meyer from KBW. Please go ahead.
Hi, I'd like to take my question for the presentation. I just have two quick ones. I was wondering what the legal charge in Austria relates to. Was it the legal fee issue that we've seen from your peers? Apologies if Stefan already mentioned this, but should we expect further charges related to this in coming quarters? Finally, a quick clarification on capital. Is the Basel IV benefit expected to be offset by the regulatory impact at some point this year or next year? Thank you.
On the first, the loan processing fees, I would just repeat what Stefan said in his presentation, that roughly EUR 40 million provisions have been booked for this topic, for the Austrian perimeter.
I think, Ben, if I'm not mistaken, I'm just looking at Thomas, your second question was on Basel IV, if there will be further effects or whatsoever. Is that right? If this was the question, I can tell you for the time being, no. That's where we are. Obviously, it depends on the further implementation, right? This is true for every bank. How exactly and when the remaining features will be implemented will also have an impact on our speed, on the trading risk, the RWA speed on others. That's nothing special idiosyncratic for us. It depends on the others. For the time being, we don't expect further impacts. I hope I got your question right. Please otherwise repeat it.
I was going to say, do you not expect any reversal of this uplift anytime soon?
Absolutely no reversal. No. Absolutely no reversal expected.
This is simply where we are now. I think if you scroll back a little bit in time, you will see that everything that we have been saying about credit risk RWAs, but also operational risk RWAs, so to say, in quality is exactly what now happens. The only thing that was that the dimension, and that in combination with us changing to phased in, plus good profitability, which is reflected in the pro rata, made a bigger jump. If you go into the details, you will see that nothing unexpected in terms of what happened was there. Absolutely no reversal expected anytime soon. The only thing is what regulation might do in the very, very future is absolutely not in our hand.
Just a compliment for the reason of completeness, everyone. Stefan has mentioned it.
Of course, FRTB implementation, but this is exactly what Stefan said. This is true for the whole market. We do not know when and to which extent. Yeah.
Okay, perfect.
Thank you very much. Bottom line is capital will remain strong and we will make sure that we use it in the interest of our investors. That is the message.
Great. Thank you.
Our next question is from Robert Brzoza from PKO Securities. Please go ahead.
Good morning, everyone. Thanks for the presentation. I have a follow-up question on the net interest income development, and namely on the liability side in several locations, most notably the Czech Republic and Romania. It appears that there is some emerging change in the competitive dynamics, particularly regarding deposits, right? First of all, on a quarter-to-quarter basis, deposits developed, I mean, momentum slowed down.
Second, also looking at today's results of BRG, there appears to be some potentially upward pressure on pricing. Third, on the Czech market, yourself and Raiffeisen appear to be holding up the headline rate for savings deposit above the market average. My question is, at the current junction, given the perceived maybe temporary slowdown in the deposit gathering pace, do you think this poses some risk? I mean, is the competitive dynamics changing here? Do you consider any upward changes or adjustments in your pricing strategies here? Why, after all, are you still continuing to maintain a relatively high rate offered for savings deposits accounts in the Czech Republic, for example? Thank you.
Yeah, thanks, Robert, for the very interesting and important question.
First of all, what is embedded in our NII outlook overall and our guidance is not an aggressive assumption on us, so to say, benefiting beyond average on repricings of deposits and so on. To the contrary, we are assuming a very, I would say, base case in what we project for the full NII of the year. That is just as a general statement. I cannot comment on results and statements of friendly competitors, but what I can tell you for sure is that we are typically repricing in Ceska, for example, very much in line with the Czech National Bank cuts. We have been repricing very, very thoroughly depending on client segments. That means depending on also the client relationship with the bank, we are repricing according to the overall client profitability.
Last but not least, I do not agree with your statement that we see a slowdown in general in deposit inflows. That is certainly not the case. I was commenting on the first quarter with regards to a shift in the segments a little bit. Overall, we are very confident with our liability strength and positioning. To cut a long story short, your observations are well received. We are watching the markets in important markets like Romania and Czech Republic as closely as you do. We do not expect any particular increasing pressure on our profitability when it comes to liability NII. Thanks very much.
Thank you.
Thank you. Our next question is from Simon Nellis from Citi. Please go ahead.
Thanks for the opportunity. One quick one from me. Just on the dividend deduction for this year, it seems to be a 45% payout.
Can you confirm that if that's the case? I mean, if a transaction did go forward, is there ability to kind of say that you will not pay the dividend next year and generate capital that way for a transaction? I guess also on your appetite to potentially cancel buybacks to fund the transaction, if you can comment on that. Thank you.
Thanks, Simon, for the obvious question. I will give you the obvious answer. There will be no comments in that direction as of today. There is no deal. If there is a deal, we will then react and comment on it. Dividend 2024, as I said, 100% confirmed with EUR 3, subject to approval of the AGM. Everything else is depending on the events of the next weeks and months. Absolutely no change in the plan so far.
I think you were asking about the 45%. Yeah, that's just the mid-range that we have been accruing of this. No whatsoever indication what will be in the end, because obviously, as you rightly probably identified, this is something which, if the things are going in a good direction, if we have substantial excess capital, we can change the dividend policy and raise the dividend to a different level. It's just the indication how we pro rata account for it in the first quarter so that you have a proper picture.
Understood. I mean, just from a technical point of view, if a transaction does occur, I think there's a regulatory requirement to deduct the equivalent amount of last year's dividend, right, from your regulatory capital, something like that.
Could you make a statement that you will not be paying out a dividend and then effectively create some extra capital for a transaction? Is that technically possible? Not asking me if you're going to do it or not, just if that's how it works.
Not 100% sure whether I understand you correctly. I'll give it a try. If you mean 2024 dividend, that's history. That's going to be paid, I think I'm looking at almost 28th of May or something like that. A couple of days after the AGM, which takes place on the 21st of May. Then it's done and dusted.
No, no. I mean, next year's dividend that you're deducting. 2025 dividend.
Good try, Simon. Good try. No answer.
We are not accounting for it in a formal accounting.
I'm actually talking about the next year's dividend, yeah, that you've already deducted partially.
No, no, no, no. We have just approved. That's, of course, a good point technically. Sorry, Simon. This is, of course, clear. Independent from this transaction, which is in discussion, or any other transaction, of course, if I accrue over the year and have not approved and decided for it, theoretically, yeah, there's a technical comment, theoretically, of course, you can still change it to the up, to the downside. Only once you announce something, there's also an agreement, a very clear agreement with the regulator. Once you communicate or indicate something to the market in terms of percentage of profit, or even further in an absolute amount, then you are also obliged to immediately deduct it in your capital. That's very important. Thanks for this clarification.
In case we announce a number, you know, like Q3 last year or so, or a percentage, then you deduct it. That's the logic how we have been communicating this. That's not true for just an accrual of a pro rata as we do it for now. This is just indicating that, of course, we are not showing the full, full profit as we are planning to pay a dividend. That's on the technical side, yeah?
Thanks. Thanks very much. That's all I needed.
Thank you. We will now take our next question from Jovan Sikimic from Odo. Please go ahead.
Yes, good morning. Thanks for the call. I also have one follow-up on Santander. Maybe it's too detailed, but at this stage, maybe you could tell us how would you address the topic of Swiss franc there? Because it's definitely not off the table.
I think Banco Santander was not, let's say, the most prudent one in terms of provisioning. Hello?
Yeah, sorry. Let me answer it in a way. We are very much aware about all the risks related to such a kind of potential transaction. Especially, I think it is very clear that the Swiss franc topic is the most important topic when it comes to regulatory risk in Poland. It is much too early that we can comment how we definitely would approach this topic.
3CX kann die von Ihnen angerufene Nummer nicht erreichen. 3CX kann die von. 3CX kann die von Ihnen.
Okay. It seems that we had a little bit of an abrupt end to our call, for which I apologize. There seemed to be some technical issues across Europe in terms of power, etc., and telephone lines. I think we basically handled all the questions.
We answered all the questions, so there was nothing outstanding. If there is anybody who has still questions, you know my number. Please feel free to contact IR. With this, I hand over to Peter for final words.
Yeah, thank you very much for participating in our call and coming up with all the questions. Let me just mention that our annual general meeting will take place on the 21st of May. Thank you very much.