Good afternoon, dear listeners. Welcome to Šiaulių Bankas Investor Relations Conference. I'm Paulius from Nasdaq Vilnius, and I'll be moderating today's event. We will start with the presentation from the management, which will be followed by the Q&A session. Please be informed that this webinar is being recorded and will be available for a rewatch on Nasdaq YouTube channel. As always, I encourage every one of you to share your questions in the Q&A section at the bottom of your screen, and you can submit them either anonymously or with your name. With that said, I am pleased to introduce today's presenters, the Chief Executive Officer of Šiaulių Bankas, Vytautas Sinius, and the Chief Financial Officer, Donatas Savickas. Vytautas, please, the floor is yours, and good luck.
Thank you, and good afternoon, dear investors. It's a pleasure to welcome you into the webinar of Šiaulių Bankas for the third quarter. So the results have been announced today, so we have the same day webinar as the results announced. So we will add on some notes and additional information to the already press releases made earlier this morning. And together with Donatas, we will lead you through the presentation. So let's get started. So mainly, let's move on to the macroeconomic highlights. So probably we'll keep short and condense information about macro. The topic could be very broad, but I'd like to mention the key points of that. So I would say overall, we're living through a rather challenging chapter.
The good thing that the previous years, mainly 2021 and 2022, helped Lithuanian economy to prepare for the current geopolitical and cyclical changes. So I would say, compared to the worst-case scenario, we are performing really well, even taking into account a bit weaker results in 2023, including also the third quarter results of -0.5% of GDP in the third quarter. But still, I would say it's rather in the range of our expectations. And the reasoning. Well, one of the reasoning is a rather strong performance in the previous year. As you can see in the chart, we still have an expectation that 2024, 2025 will be bounced back in a positive level, close to 2.7, 2.6% GDP growth.
Inflation, it used to be quite a big issue as a worldwide, and Lithuania in particular, with close to 20% inflation in 2022. Now we see the trend downwards, and this issue becomes less impactful to our economy, but still it's higher compared to the EU. Unemployment and economic sentiment of Lithuanian people is, I would say, rather strong and compared to the other peers, like the neighborhood countries and the euro area, I'll say we have pretty strong labor and sentiment elements compared to the markets. So I would say with a weaker 2023 result, we still have a strong fundamental flexibility and resilience of economy to perform better next year.
Most likely, Lithuania will avoid social strengths and prolonged recession in the years to come. Those three pillars of resilience that we are standing on, I would say mainly due to the low debts, good financial reserves that the country has made during the previous years, and as already mentioned, labor markets, which also performs well. So in the graphs you can see and compare Lithuania's performance with the comparable countries, mainly that's the Baltic States. And I would say it's good to know that industrial and retail trade indexes as well as construction is performing, calculating from 2019 in Lithuania, much stronger.
So I would say our economy is, much more balanced structure compared to the other Baltic States, really pays off and, that's a solid background for us to continue to grow, as I mentioned, in the years to come. Okay, let's move on to Šiaulių Bankas and to give some highlights of the results. So financial performance of the bank, I would say, rather strong in the third quarter as well. So we continue to maintain a strong return on equity, close to 19%. Cost -of -income ratio, you know, low compared to the historic performance, stands at a 34% level. So net profit generated is close to EUR 66 million, and operating income EUR 144 million.
On the balance sheet, the highlights, I would say, is that, loan portfolio is coming close to EUR 3 billion. So yearly, year-on-year growth is 15%, and quarterly is a little bit diminishing, stands at 4% growth. And deposits also, reached EUR 3 billion level with 11% year-on-year and 5% quarter-to-quarter growth. Some more news on the capital and some also important elements such as dividends. So, today we also announced about our expected dividend payout ratio, that we consider that it will not exceed 43% of the annual growth profits of this year.
So this figure is announced due to the fact that we included the first half year results into our capital base, and we needed to present our intentions, expectations on the expected dividend payout ratio. That decision has been made mainly looking to the current bank's performance, as well as historical payout ratios that we experienced previous years, including the COVID years, and also our expectations of the growth, that we will have sufficient room to grow in 2024. So that's the guidance for the dividends. And other ratios, I would say capital adequacy ratio , due to the inclusion of the first half result, has reached 21.3%.
Another element also expected this year in the fourth quarter, MREL bonds issue of EUR 50 million. That is also important from one of the regulatory requirements to meet. So that's our key financial highlights, and let's move on to the next slide with some initial targets and review targets. Just before, probably just to fix that, the net profit growth was 32%. The operating profit growth was 49%, as you can see on the right-hand chart. And the income taxes that we have paid in three quarters is EUR 90 million, including also solidarity tax, which is in the range of EUR 2.1 million in that figure. And talking about some guidance on the targets.
So we see that, most likely we'll reach more than 16% return on equity for 2023. It's slightly lower than the previous quarters, since we are expecting the share issue due to the transaction that we are doing with INVL, merging the retail businesses, and this transaction has to be closed on the first of December. Therefore, some base increase would be expected in the fourth quarter. The cost-to-income ratio is below 40%, capital adequacy ratio above 20%, and cost of risk in range of 0.5%, slightly higher than our initial expectations. But I would say uncertainty and still volatile markets gives us more considerations to increase provisioning, being more prudent and forward-looking.
And also due to the results that the bank performs really well and has a good profitability level. Okay, from the targets, let's move on to the development of loan portfolio. So overall, I would say, taking into account all the environment that we are performing quite well. Remaining the growth rates not that aggressive as we used to be, but I would say overall macroeconomic environment gives that too much extreme on the growth is, it could be too aggressive. Therefore, we're growing due to the different reason in different business sectors, not that aggressive as we used to be. Therefore, now we're mainly on a one figure digits compare year-on-year growth. Despite that, on a year-to-year growth, we still remain double digits figure.
So it's good to know that all elements of the key growth, like corporate, consumer mortgage, and other loans, continues to grow. So in all the sectors, we added additional to our loan portfolio. And the most increased element is under the other loans, so mainly that's a renovation product related lending. And also that's, I would say, rather good compared to the current environment, and knowing that those loans are very low, very good credit quality. Right. So let's move to the particular segments, like corporate financing. So with that, we have 2% quarterly growth, and on a year basis, we still maintain 10% growth.
The new loans agreement that has been signed is close to EUR 600 million, so still quite a lot, but slightly less than in 2022, 5% less than 2022. And still yields, yields are increasing, probably on a not, not that pace as it used to be. So you can see on a new agreement signed, the interest rate stands at 7.11% compared to 7% in second quarter. The quality of the portfolio remains stable, and also due to the previous growth, we're still gaining the market share, and the market share of the corporate financing, it has increased by 0.8 percentage points to 13.2 in the second, according to the second quarter data that we have compared to the market.
Mortgages and consumer financing, two products, individual products, that we are actively providing to our customers. So I would say rather moderate growth in our mortgage lending, compared to the previous quarters. But still, I would say, taking into account the current environment, is pretty strong at close to EUR 38 million new loans granted in the third quarter. The interest rate also has increased to 5.9%. But, as I said, that the curve is getting more flat, so we're reaching probably the peak of interest rates. If EURIBOR mainly stay at the current level or, you know, officially start to decline, then this curve definitely move a bit downwards.
Also, the corporate lending due to the previous growth, we've gained market share. I would say rather significantly, so in the quarter, +1.1 percentage points, and now we have 6.3% market share in mortgage lending. On consumer financing, yes, I would say it's the most resilient in the current macroeconomic environment. I would treat as a rather higher sales with yearly growth of 31%, and on the quarterly growth by 7%. So also the consumer financing still performs very strong. The yields obviously rather flat on a portfolio level stands at 9.7%, and new sales has increased from 10% to 10.5%.
The market share increase is also, say, pretty substantial, 1.7 percentage points to the 13.3% of the market. Next, information on the retail banking, so commission income generating services. So, one of the key factors I would say worth mentioning is the growth of new private clients. We've experienced 23.5 new private clients during the three quarters of this year, so year-to-date figure. I'll say it's a good generation of new clients, and that also represents on the service plans. So, totally, we have 190,000, an increase by 4% of service plans, and that's also pretty well shows on our current administration fees. Cards also growing rather stably, I would say.
Number of the clients has reached to 35,000, and grew by 6% only in the third quarter. A bit of other story on the cash transaction. We already mentioned the strength few quarters in a row, that due to overall trends and also our internal decisions and some limitations that we have introduced, the cash-related transactions are declining. And currently, we'll see that trend. Probably it will stop on some lower level, but to expect a significant increase in cash operations , we don't see the ground. Therefore, we're working on the compensation of other fee and commission income, including like renovation projects.
So that also worth mentioning, that we're already finalizing our usage of modernization fund that has been created for modernization project purpose, so EUR 275 million. Now we are working on the establishment of a new fund, since the renovation projects in Lithuania runs really well, and additional financing is definitely needed. So ourselves and also other banks are participating in that, so I'm really happy that in the country, we have a strong focus on working with renovation projects, and we are part of it, with a strong market share in this product. Also strongly performing business area is corporate bond placement.
So, only in the third quarter of this year, we've managed 11 corporate bond placements in an amount of EUR 14 million. And also, as a base of our client service online, we are continuously improving our internet bank and mobile application as our core service channels to serve clients online. So with that, I would pass word to Donatas to continue with funding and liquidity.
Good afternoon, dear investors and everyone who is interested in activity of Šiaulių Bankas. As you know, I will continue starting from funding and liquidity and commenting with the information presented on the slide. The main message would be that the structure of funding is changing, and we see increase in term deposits and decrease in demand deposits. Demand deposits are shifting to term deposits. This is understandable due to the significant interest rates for term deposits, which became attractive to, for the depositors. And that shift affects the cost of funding. You see in the chart in the bottom of the slide, the cost of deposits, including insurance, increased up to 0.83%.
Probably this trend will continue for some while, because it's not all deposits repriced, which are normally one year duration. The shift of increasing interest rates began probably one year ago, and it still continues because competition is quite significant, and Šiaulių Bankas is playing active role and not afraid to be a market maker in certain term deposits. Loan to deposit ratio decreased slightly, but it still are in the very healthy level, close to balanced level. We already, t his year, we made several steps that change a little bit diversify the source of funding.
Vytautas already mentioned, I will repeat once again that in the last few months of this year, we are going to issue additional MREL-eligible bond issue in the amount of EUR 50 million. That will diversify our portfolio and help to meet the regulatory requirements set by regulatory authorities. And this is possible, and the fact that we get upgrade from Moody's in June, we get Baa1 stable outlook rating, helps us to attract more institutional investors, and our risk profile is acceptable for them. We can move on to the next slide. And talking about operating expenses, nothing unusual is here. Growth is noticed in both parts of operating expense segments. Salary increased by 10%, and actually it follows our budget forecast, what we made last year.
Talking about growth of other operating expenses, which grew by 19%, we noticed some slightly tracking slightly below the target, and this is mainly caused due to the carry forward of budgeted projects, what was planned to execute in this year. And this delay mainly caused this huge workload that we are busy with related with preparation to this transaction with INVL, what we are planning to complete in the first of December. Despite of growing expenses, but operational efficiency is maintained at very good level of below 35%, which is our long-term target. We can move on. And this slide summarizes main metrics from capital and risk management issues. Some of them already touched by Vytautas, but the-
I will start from the fact that, with the inclusion of part of six-month result of profit into the capital, the pressure on the capital and equity ratio and MREL subordinated requirement ratio decreased. Obviously, we are ready to meet tightening requirements, which is anticipated from the beginning of next year. And measuring carefully what capital level would be optimal in order to meet the expectations from investors, we issue this maximum payout ratio percentage that Vytautas already mentioned. So this figure of 43% of annual profit as anticipated payout ratio for results of 2023 is not obviously just a wishful thinking, but we think that if situation will be more or less what it is now-
We are ready to follow our dividend policy with saying that not less than 25% of group profit will be distributed as a dividends. And taking into account all factors from earlier developments and taking into account what possibilities we see to grow in coming years. So this figure is highly reliable, with the disclaimer that situation will be more or less as it is now. Cost of risk, it's higher than previous year, and Vytas just mentioned main factors, but when we see the NPE loan dynamics, nothing warning signals is noticed. Even last quarter, the level of NPE loans decreased due to the fact that some of net loans were managed and sold. Liquidity position remains safe, but it's more on healthy levels.
LCR ratio is 183%, but it is, how to say, well above the regulatory requirements, but not on healthy levels of 30% or so. Yes, we can move on. This slide traditionally ends our presentation. Probably it will be not the case this time, but commenting about the main parameters of this information. So what was to be mentioned, that number of shareholders increased, and we are approaching to the magic figure of 20,000 shareholders. And also what we anticipate, I already mentioned that with this closing of retail business merge with Invalda, so a new share issue will be made. It will be designated especially for Invalda.
And, after that, taking into account coming acquisition from EBRD, so Invalda stake will approach to the level of 20%, what is mentioned in this slide. But it, it's on the way, but several steps remains to be done in order to reach this level of shareholding. Yeah, and, yeah, probably that's it. I saw, already saw, some questions from, from you, and probably I will take opportunity to answer and elaborate them more when we will come to Q&A session. And now I pass on word now to Vytas.
Okay, so you can notice some questions that are coming, and I will continue with some extra information that we also have present, prepared for today. So, some highlights on changes that where the bank is going through the current days. And, so the first thing I would have to mention that we are obviously in a final phase of closing transaction with Invalda. So M&A transaction, just to remind, on acquisitions on retail business, mainly investments. On the next, on the next slide, I will show and remind more. But first of all, yeah, the due date is first of December, as we call Day One, when we need to close the transaction. So, so far, we don't see any major issues to complete on the transactions. The team is working hard.
That type of transaction's not an easy one, but I'm very thankful and grateful for the team, not counting hours and completing needed tasks to make this transaction completed. So truly, using the opportunity, I'm really thankful for the team and relatives who supports us in this transaction. So most of the needed permissions, licenses has been received, including as asset management and also recent permission by the Bank of Lithuania on increase of capital of SB Draudimas . So another element that, establishment of the branches in Latvia and Estonia for SB Asset Management business. So all those technical but time-consuming and resource-consuming exercises have been executed.
But nevertheless, we're also doing extra mile in preparing our organization for the future. So we also already reviewed our organizational structure. And also, I'm glad to present several colleagues that already are showed in this slide, who will already in the team or joining the team and strengthening that. So that's three new business division heads, Laura Bučelytė, Private Clients Division, Corporate Client Division, and Tomas, Investment Management Business. So all people with deep knowledge of the business for many years in the industry, so I'm happy having those colleagues on the board with you know, strong, strong commitment and ambition to grow in those business areas.
Of course, there will be more changes in the structure since the organizations are merging, but I would say those are key, and we are already not waiting for the closure of the transaction, starting to be prepared. Of course, that would be related that sales networks will be integrated of Šiaulių Bankas and INVL . Private individuals and corporate clients will be served in the bank branches, also on the call center and online. So yeah, there's many integration stuff is happening also on a technical level. And we see this opportunity for our new strategy as a springboard to expand business model and to do much more that we've been able to do and achieve alone, Šiaulių Bankas and Inval retail business.
So combined business we see as a strong platform for the growth. So with the new strategy, we will come later next year, and give more information and more messages related with the renewed strategy of the bank. And the next slide will be just to remind you about the merger of the retail banking businesses of the bank and INVL. Mainly that comes from asset management part, so its second, third pillar pension funds, retail investment funds, on the life side, that's life insurance products in Lithuania and Latvia and Estonia. So in total, that would be in the range of 230,000 new clients for the group.
EUR 1.1 billion of assets under management and strong 160 experts with a strong know-how joining the team. So with that, we will be the player with 12% and 33% market share on the second and the third pillar, respectively. And with that transaction, we'll have approximately 8% market share in the life insurance business and in Latvia, in Estonia, 1% and 9%. So with that, I would stop with the presentation, and we'll be happy to answer your questions. So thank you. Thank you for your attention.
Thank you, Vytautas and Donatas, for the comprehensive presentation. Now, we will proceed with the questions. Let's start with the first one. How will the windfall tax impact the bank's profitability in the second half of 2023 and 2024?
I will take that. Thank you. And I see there are quite a good number of questions, so I will try to be short answering the straightforward questions. So all negative impact from windfall tax is already shown in our financial statements of six months this year. So we put into our first second quarter, we put into expenses EUR 2.2 million, and we adjusted by EUR 100,000 to the opposite side in third quarter, and that we expect that will be sufficient for this year. And for the next year, we don't see any negative impact from windfall tax, and mainly due to that, we share good interest rates with depositors. We offer good interest rates for depositors that decrease our tax base.
Also, we continue new lending, which also exemption from the tax base. That's it. Thank you.
Thank you for the answer. Could you explain the decision on setting the maximum limit on dividend payout ratio? Is it correct to think that the payout range will be between 25%-43%?
Yeah, we touched this topic already several times, but, answering precisely to this question: So yes, I believe that the range will be between these two figures, and of course, we hope that the circumstances will be favorable to be closer to the maximum level of that range.
Thank you for the answer. Proceeding with the next one. Looking to the current, share price trading level, does the management consider activating share buyback process?
Yes. Short answer would be yes, and of course, the situation is favorable, but this buyback process is not so easy to implement it. We need to, first, we need to make certain budget decisions, plans, and then when we decide that the situation is favorable to that, we must get approval from the European Central Bank a nd for that level that we planned to make in 2023, we are awaiting this approval from ECB. And talking about future, we are making plans in our budget that this practice will be continued and even increased in levels in the following year.
Thank you for the answer. What is the split of total loan portfolio between fixed rate loans and variable rate-based loans?
Main principle is that, except from consumer loan portfolio, which is in the range of close to EUR 200 million, slightly below, they're all, or majority or 90%, 95% of remaining portfolio is on the floating interest rate, mainly based on the six-month EURIBOR. So, so the answer would be the, the majority is variable rate loans.
Thanks for the answer. Now, we'll try to merge the two following questions. On what is the average deposit beta, and what is the average effective time lag pass-through in repricing variable rate-based loans when the market rate changes?
Okay. Regarding deposits, we are not noticing or following any relation with the short-term interest rate, base rate, for short-term durations. Our change in interest rate for deposits is mainly driven by the competition and how our competitors act. In order to reach level of our funding that we need, we have to monitor more what other banks are offering, and act accordingly. And so far, this relationship between base rate and deposit rates were not very high, as beta was low. But the competition increases, and this more and more becoming closer to the one. And the second part of questions about the time lag pass-through.
So I mentioned in my previous answer that six-month EURIBOR, that means that in six months, we reprice almost all our portfolio that is repriced, therefore all positive impact from asset side, we probably have already in our books.
Thank you for the answers. Now, the next question is concerning why the bank has not been performing well, even though the interest rates are at the highest level so far?
Yeah, thanks for the question. Yeah, I would say that's a structural issue. I would say that our strategy is to be more balanced on deposit and loan ratio. So historically, we were attracting as much deposits as we can see or able to, to lend. Therefore, our loan to deposit ratio, taking today's situation, stands at the level of 96%. Therefore, there is no extra liquidity that is not needed for our growth. So that strategy that we used to keep for quite a long time, in some periods of time we're providing, you know, efficient results, but not providing the additional income that some other banks experience in the current phase, when the current liquidity could be employed even on the ECB deposits and generate additional income.
So in our situation, we are more dependent on our client-generated interest than, compared to the other banks that are placing those extra liquidity funds on a city level and generating additional income. So I would say that's the main answer, that structurally we are different with some peers, and that's why in some periods of time, we are gaining, and sometimes we are not gaining as much as those banks do on this period.
Thank you. Thank you for the answer. Now, let's proceed with the next ones. Congrats on solid results. SEB plans to present its new strategy early next year. Could you please elaborate what early means? And also, regarding the sneak peek of the new strategy, will it be fine-tuning of the current one or a complete makeover that is bigger and with bolder goals? Thank you.
Thank you for the question, and jumping a bit to the future. But, answering the first part, so the current date is not, the particular date is not yet fixed, but, as we see, most likely, so it should be first quarter, as we mentioned, the beginning of next year. So we're planning to do that, as early as possible next year. So once we're ready, and once we have all improvements, then we'll proceed with the particular date, and definitely all of you will be invited there. On strategy, I would say that it's bold enough, and we see a possibility of ambitious goals.
And, as already mentioned, that we see this transaction as not only the technical transaction to merge businesses into one entity, but to see as a trampoline, as a springboard for the future growth of the bank. We treat ourselves a bit differently than the other banks, from the sense of being local and close to the clients. So definitely we'll keep DNA and efficiency of working with the clients, and even strengthening that, both on our side and INVL that is joining the retail side. So also some technological improvements we also foresee as a part of the strategy. So I would say that would be the most developed and most ambitious strategy that the bank used to have.
Thank you for the answers. Proceeding with the next one: The bank's lending grew by 3.7% quarter-on-quarter, or by EUR 104 million from EUR 104 million to EUR 4.85895 million in the third quarter. Do I understand correctly that it was strongly held by the surge renovation loans?
To be precise, I would say that all, as already mentioned in the presentation, that all business areas, lending business areas, like the corporate, consumer mortgage, and renovation, they gave a share in the growth of the portfolio. But renovation was probably the one that was more visible in a size. But I would say that's comparable. Corporate consumer mortgages, they also provided more than 20%—20 million each to the portfolio during the third quarter. Renovation and some extra lending that is under the other loans provided slightly more. So yes, the renovation part is essential; it's important, but other areas have also increased their portfolios.
Thank you for the answer. In terms of loan growth, could you please share an outlook for loan growth in 2024? If possible, done by segment: business, mortgage, consumer, or other loans. Obviously, we are in for a tangible slowdown.
Yes. Currently, we are in the phase of finishing our strategic plan for the period of next three years, and we will present it to supervisory council in order to get their approval. But before that, I would not like to disclose exact figures. But I can promise that in the coming years, we are going to be more transparent regarding our targets in both profitability and portfolios as well. But for today, I could say that despite this slowdown, we are planning to grow portfolio in the range of mid-teens figure in percentage terms. So some of portfolio we have separated three of our priority portfolios: business, consumer lending, and mortgages.
They all grow in the range of 10%-20%. And of course, they're smaller portfolios, and it is easier to grow, to achieve higher percentage growth. But this growth rate of, let's say, 15%, more or less, is what we see as healthy growth, and possible to achieve growth without taking too risky loans, which probably in this volatile environment will be more and more in the market for asking for new finance. So we might be careful, but it's possible to balance this growth rate with a good loan portfolio for the future.
Thank you for the answer. Do you think that one can reasonably say that quarterly net interest income has arguably peaked in the cycle? Net interest income in this quarter was EUR 40.6 million, versus EUR 40 million in the second quarter.
Yeah, probably I would partially agree with the person who asked this question. And we reached, obviously, peak in asset repricing, and it's still the fund repricing effect is still coming, and it will be negative. But I think that this negative effect will be outweighed by this loan portfolio increase I mentioned just in the previous question. Therefore, it will be not hard to see a more stable phase is coming rather than this significant increase that we noticed in the last few quarters.
Thank you for the answer. The next one is in terms of the dividends. It's the first time the bank announced some form of guidance on upcoming dividends. Reason being, you had to include the interim profit for the first half in the own funds. Why it was necessary to include the first half results into capital base?
Okay, I'll take that. We decided to include the first half result into capital base in order to go fluently through this period in the beginning of next year, when our annual profit will be not audited and therefore not eligible for inclusion into the capital. But we have regulatory requirements still, and they come into force from the first of January. In order to have smooth transition, we decided to apply for permission to include profits. And, European Central Bank, in order to include part of the profit, asked what is the maximum dividend level. And therefore we had to take the decision of this 43% maximum level. This part of profit from six months is not included in our capital base.
Yeah, Paul, I hope that, that answers your question.
Thank you for the answer. Proceeding with the next one: As of January 2024, the bank will increase a part of its fees. What would be your estimates in absolute terms on potential increase in commission fees next year?
Again, this question relates with the budget, which is, obviously waiting for approval. But also, next year, we will have, we'll face significant changes in the structure of our income and expenses because this part of INVL will join, and the part of the incomes will be, allocated to fee and commission income. And therefore. So we expect quite, significant increase in net fee and commission income, and it was not, only or not mainly by the fact that, increase, since first of January, part of its fees, but mainly driven by the fact that, our group, increases and, sources of income diversifies, and we have broader base for, profit. And therefore, this is the one of the reason why we are going through this strategy change.
Thanks for the answer. Now, could you please disclose the average yield and maturity of the Treasury's portfolio?
Okay. Probably, I'm trying to find the question. Which is number?
Yeah, it's, it starts with: "Thank you for the presentation-
Ah.
Congratulations on the results.
Yes, yes. Just a moment, I will. The average duration of whole collection of portfolio is 1.5 years. It's quite short. Therefore, we intentionally made certain decisions in the past and made the duration shorter. And yield is about 1%, and we still have room for higher yield when we will reinvest this fund after they will be repurchased by issuer.
Thank you. And are you planning to obtain a bond rating as well, or deposit rating fully covers your operational needs?
Yes. We are planning to obtain bond rating. So, short answer would be yes, we are considering and we are seriously planning to obtain bond rating as well.
Thank you. Will the anticipated EUR 50 million of the bond issue satisfy the capital requirements, regulatory capital requirements for next year?
It's a moving situation, so some issues obviously will be repurchased, and we are planning to issue new ones. Also, the INVL bonds will be there probably every year topic. So, one year before repurchase, these bonds are not eligible for MREL requirement, therefore sometimes it's better to repurchase them earlier and issue new ones. And the short answer will be that probably if you are interested for potential investors, so you have to follow announcement from Šiaulių Bankas in order to invest.
Thank you for the answer. And can you give some more details in regards of the planned issuance, bond issuance, term timing of the issue, and in particular, we have another question: why was this interest rate chosen if other banks are going with 8%-9% interest rates?
I'm sorry, I'm trying to find these questions, and what I'm hearing from you is more than I see on the screen.
Yeah. So let's start, one by one. Can you give more details in regards of the planned MREL issue, term, timing of the issue?
So regarding this current plans, EUR 50 million, the plan is November. Let's say plus minus November, but we will follow closely to the market situation. And interest probably will be again dependent on the supply-demand. So we are interested to borrow as cheap as possible. Of course, investors have opposite expectations.
Thank you for the answer. Proceeding with the next one. Can you give how much ROE dilution do you expect the Invalda merger to cause in the fourth quarter?
Capital dilution is 9.4%. So from that, probably it's easy to calculate the ROE dilution. But it was obviously calculated before the announcement of this issue, design for MREL.
Thank you for the answer. Why did you issue MREL bonds with 10.75%, while other similar banks are issuing similar MREL bonds with 8%-9% interest rates?
So it depends on the type of MREL bonds. Some of them are subordinated, some of them are not, and the timing, because the situation, market environment is changing. And so, for example, last year, similar MREL bonds were issued at 7% interest rate. And we will see what we will have for this year. And to compare with our bonds, 10.75, it's not good because it's different type of bonds, and the prices also should be different. The subordinated MREL bonds should be more expensive than similar MREL bonds.
Thank you for the answer. Proceeding with the next one. Could you please hint at possible effect from the Invalda acquisition in December, on Q4 2023 figures? Net effect on the bottom line would do. Many thanks, many thanks.
So one month duration is very short, and probably we will have some expenses, such as staff expenses, but also we will have some incomes. Therefore, for this year, remaining one month, we do not expect any significant visible impact, either positive or negative, to the our bottom line. So what changes we anticipate, it starts from January next year.
Thank you for the answer. Proceeding with the next one. Instead of dividend payment or part of dividends payment, have you considered an option to issue and give free shares to shareholders and support the share price with share purchases in the market? What were cons and pros of this alternative compared to dividend payments?
Well, that's a good and broad question, so firstly, I would say that would not be right to treat that giving new free shares to shareholders is an alternative to dividends. And we want to be in the current phase, to be more focused on the dividend policy execution. And that's one of our core stepping stones to fulfill as much as possible from the dividend policy point of view. So that's one. Another thing is the buyback program, so that's the another area we want to explore and to have much more predictable and prepared for execution framework to do that. The buyback's a bit more complicated than dividends, because additional decisions are needed from regulator.
Therefore, we are now working on that, and some of dividend, some of the buybacks is expected on the permission from the regulator. And we want to make it as a more cyclical, the same as dividends have a yearly cycle, so to have more cyclical approach to the buybacks as well. And free shares, yes, we used to have that in the but previous history of the bank, but currently we see more focus on the dividends and buybacks use as a capital planning of Šiaulių Bankas and sharing benefits with our shareholders. So thank you.
Thank you for the answer. Proceeding with the next one: Could we see Šiaulių Bankas paying back the TLTRO loan before September of next year?
Technically, we could repay this loan even today, but we have it for in case situation will change negatively, and keeping them in our balance sheet is not how to say giving negative effect to our P&L. Therefore, we like to have such room for maneuver in case of bad situation. But the answer is yes, and it depends. We will see. But the deadline is September 2024.
Thank you for the answer. Proceeding with the last question of today's session: Is the treasury portfolio with 1.5-year duration in government bonds predominantly?
I'm happy to say the short answer, yes. I see it is the last question for this session.
Yes. So thank you for all of the questions and all of the with this last question, it seems that we're ending our today's Q&A session. So on behalf of Šiaulių Bankas and Nasdaq Vilnius, thank you, everyone. It was a pleasure being with you today. The recording of this presentation and the Q&A section will be available on Nasdaq Baltic YouTube channel. Vytautas and Donatas, thank you for a very informative conference, and have a good day.