Good afternoon, ladies and gentlemen. My name is Vytautas Sinius, and I'm CEO of Šiaulių Bankas. Very much welcome to presentation of our new strategy, and thank you for your time allocating for that, and, your continuous interest into Šiaulių Bankas and its developing story. Today I will not present alone. There will be the team of colleagues that has joined me, to this presentation. Some colleagues will, go together with me through the presentation, so that's Tomas and Laura. Other colleagues will support us in our Q, Q&A session, so that's Donatas, Indrė, and Algimantas. Please, prepare your questions, and we'll be happy to answer them during our Q&A sessions. Let's get started. Today we're gonna cover several things, so we have, three goals, today.
Firstly, to give a better understanding of who we are and what differentiates us from the other market players. The other part is our journey ahead, our exciting and compelling story that we're willing to share with you. And also our roadmap of becoming the best bank in Lithuania by 2029. And last part is about opportunity, about opportunity for investors, to consider us as a option of in... For to invest. So let's move on to the who we-- Before we move to who we are, I want to be blunt and clear, and we want to state immediately that our aim, our ambition, is to become the best bank in Lithuania by 2029. And this ambition is supported by renewed mission and vision of the bank.
And we consider that Šiaulių Bankas will deliver banking that truly empowers, and we want to add our strong features that we used to have as a Šiaulių Bankas with additional ones, such as being progressive, being even more customer-centric, and remaining caring and close to the clients. Our vision is to be the bank you choose to grow with, and that goes for the clients, that goes for the employees, that goes for the investors, the ones who want to grow and the ones who want to choose a partner to link the either business or the private financial life to help to grow. Talking about ambition, stating that to be the best bank is not enough, we decided that we will make the ways how we'll measure that, how we'll define our success.
So firstly, for the clients, we want to be the giving the exceptional customer experience, to be the number one in the country on the client experience, through the services, through the products, through the total experience that customers can feel working with us. The other one is we want to continue our growth, and we're committed to grow faster than the market. The next one is about recognition of being top of mind for our customers in Lithuania, top of mind player and beloved brand. And for the investors, definitely to be and to continue to be interesting investment, providing superior returns. And by that, I believe that we can be defined as the best bank in Lithuania, and we'll measure that during the period of our strategy.
So just to remind and to give some more information for those who are not that much familiar with Šiaulių Bankas, so who we are. Firstly, we are largest independently owned bank in the country with the largest network of branches. We have 55 branches in the 36 towns, with expanded team to more than 1,000 professionals after the merger with colleagues from Invalda. And also, we are already, for almost 30 years, listed on the exchange, currently on Nasdaq Baltic stock exchange. And going forward, so our market capitalization, close to EUR 500 million. We have a diversified business model. We provide different type of services. Our historical focus is on lending products, but now we're growing and expanding our business model and becoming more and more universal.
On the right-hand side, you can see key investment highlights, and I will go through them one by one to explain a bit more why we are interesting investment even today. Talking where we are, we are in Lithuania, our country where we operate, which is dynamic, robust, and structurally attractive market. I would say timely memberships into the NATO, EU, Eurozone, OECD helped us to converge and to grow faster than some other peers. And by that, we have reached level of already developed nations, so our GDP per capita is already close to 90% of EU average. So we are Western-oriented, diversified economy, and that's one of our key successes, even growing in such a periods like a pandemic, like a war in Ukraine.
So in even those periods, we overperformed other countries in EU, and our dynamic offer growth remains strong. The next part is about banking, how we look among other countries. So again, we have both currently fast growth. It's approximately 15% growth over the last five years, and also still not matured banking assets ratio to GDP. That shows that our potential to grow further truly exist, and time—it's a question of time, how and when we'll converge to the right-hand side group of countries. With that, we maintain high profitability. Lithuania is close to 11% of return on equity for the last three years, compared to the average in EU, about 5%. Quality of credits is also high, so we're close to 0.8% over the last three years, while the EU is much higher.
So even with those parameters, we show that Lithuanian banking sector is strong and developing well. Our historic focus is on the lending products, as I said, and we have established strong position there. We started with SME, now we expanded to SME and mid-cap financing, and we're doing that well with a flexible, tailor-made, fast decision for the clients, and we have reached 13% market share. We added later products that supporting private individuals and expanded into three directions. So one is the consumer financing, another is the mortgages, and another one is renovation projects, which rather specific product for Lithuania, where we are having leading position.
So renovation is the product where we stand at the two-thirds of the market, while the mortgage lending, which we started rather recently, I would say, six or seven years, we became more active, now we reached already more than 6%. Consumer financing is another area where we feel the strong position and leading position in the market, with a full coverage of consumer lending products to the private individuals. We never competed on price. The price is important element, but expertise, consultancy, fast decisions, good service, all those elements allowed us to be above the market with the interest margin, and that stands approximately about 1.5%, our net interest margin above the market. And with the cost of risk also quite moderate, that allows to generate additional profitability for Šiaulių Bankas compared to the peers.
Another area is to demonstrate our growth about our reached scale. The scale of more than EUR four billion that has been reached in 2022 and continues to grow shows our potential to reach the level when we can grow our business model further and to do needed investments. We managed to combine two things. One thing is the organic growth and M&A transactions, and the last decade was very important for us in that field as well. And we expanded our business during the four M&A transactions from 2013 to the latest which we completed last year. And all of them were in different areas, and I would say we managed them very successfully, and they were stepping stones for our organic growth moving forward.
That is represented in our net interest income growth, which is on average about 20%, and on our return on equity, which is close to 17% during the presented period of time. So that we can state the key takeaways, that we've reached potential scope, that we can do, as I mentioned, needed investments and to grow further on that scale. We're able to deal with M&A transactions swiftly and to use that as a growth potential for us in the future. And we demonstrated that during the long period of time, we're generating mid to high teens of return on equity. I will not go very deep into the balance sheet analysis, but several things wanted to be mentioned.
That we are deposit-funded institution, so our core liquidity comes from the deposits, and we are—they are predominantly local deposits, but we have an infrastructure that allows us to access the European Union countries, and in case of need, we can access liquidity there. But our focus and our clients are in Lithuania. We have robust capital level, even comparing with the peers, so we have a strong capability of growing further. And also strong liquidity position is also important those days. We need to have additional liquidity for the growth, and we always try to manage that to having sufficient safety and also efficiency. The current situation in Lithuania shows that the country is providing us the growth, momentum, and opportunity to expand in this country through the private, individual, and corporate client needs.
The other element, which is important, is that the trends in the market, in the society, the growing wealth in a country, as well as demographic shifts, shows that we need to focus even more on the saving and investment products. So we're ready for that after the transaction with Invalda. So we've have a, I would say, the best offer now in the market, and we'll develop it further on the saving and investment product, palette. The other part is important is the shareholder structure and the recent changes in there demonstrated belief in the new players, new anchor investors, who've chosen to be closer to Šiaulių Bankas and to invest significantly and support our, our support our bank in a, in a growth story. I'm talking mainly about Invalda, who increased their stake up to 20% with the current transaction.
Also, Willgrow, Tesonet, also naming such long-term partners as the European Bank for Reconstruction and Development, which is our investor from 2005, and not even naming the founders or early-stage investors, who are, even after the entrance of new investments, remain and believe in Šiaulių Bankas story after the period when we, when they were more active in the bank. And the last element in our belief of the future for Šiaulių Bankas growth is that our merger with Invalda, which has give another stimulus for us to gain expertise in asset management business. Also, we see the operational synergies and ability to create even more competition for the major banks in Lithuania.
So with that, we've started our journey for Šiaulių Bankas strategy, new strategy for 2024-2029, and let's go there. Just to remind that what I've started with is the new mission, new vision, and few things that are important for us internally to make able our journey smooth is the being even more customer centric. And I would say we have an exclusive opportunity in the market of looking to our roots, looking to our history of Šiaulių Bankas, and the proximity to the clients, that we are the ones who are potentially the best understand client needs. So we will base our customer centricity on that.
On the other hand, we have compliance and risk management, and for the long term, Šiaulių Bankas has been able to cope with all the challenges that, Lithuania and the banking sector went through, and we've managed to be compliant and risk, good risk managers to support sustainable growth. And those two element for me is like a balancing factors when we need to, to develop both, both client centricity and our practices in a compliance and risk management that would support a sustainable growth. As I mentioned earlier, that talking about being the best bank in Lithuania by 2029, we've chosen several stakeholder groups where we want to be the best, and we want to be a bit measured, since the ambition needs to be measured. It's not not enough to declare that you want to be the best bank.
So firstly, just to remind, as I mentioned, on a client perspective, we want to be giving the best service and best experience for the clients. So through the products, through our dealing with the clients, through our technology, that the clients would have the best experience dealing with us. For the employees, which is also critical to maintain and attract new talent, to be the top three best employer in the market and giving the possibility for potential professional development. And we differentiate ourselves from the market, the way that we the only bank from the larger ones in the country that provides the 100% of possibilities to develop everything here in Lithuania. Whether it's a product development, client service, risk management, all things are done here by the colleagues in Lithuania.
From communities or social aspect, we want to be the best-known and most beloved brand in Lithuania, in the banking sector by 2029. That's another our aim, to be emotionally attached to this country even more, and that each Lithuanian, either person or business, should be proud that the country has such a bank. And last but not least, the investor side, that we want to guarantee at least two things. So one is the return on equity, which is 15%, or if we say, look at broader, we want 20% rate of return for investors, and also to guarantee the growth that we want to not be only the selected client bank, but also the bank on a larger scale, both in a corporate lending, in a corporate client segment, but also in a private individuals.
We basically, we base our strategy with strategic priorities. During 2023, we worked hard on several things. So one thing is the strategy development. We thought and considered what is important and what is not for us. So the strategy, the M&A transaction with Invalda, that took also our efforts to make it happen and to start the first December as a one team, what we did. And also important element, which was not communicated at that time, and now we clear state it clear during our strategy presentation, is the technological upgrade. So one of the strategic priorities, as you can see, is a new core banking platform, and we consider that as a one key enabler in order for us to expand bank the way we want to do, the way we want to grow.
So this is very hard to do without that. We've worked with our current system for very long time, but we see as a limiting factor for us to make this leap, and we made you know some movements to that direction. The other areas, like a rebranding, commitment to Phygital, customer-centric, and also compliance and ESG, are other priorities that we will focus during our strategy course. So let's get deeper to the technology side now, and I would like to present why we need this platform. So the one thing is the growing business needs.
We see the speed of development and broad coverage of the different type of products that we have, so we need a system that will be more flexible and able to be in time with the changes. Flexibility is also needed, so that's another element. Higher resilience in this unstable world is also critical to have top-notch service providers in that field. When we added all those things during the last year's discussions about strategy, about a transaction, we've seen that to go to this direction is critical, is important. I know that those transformations are not easy, but we have an experience. We've from a different people in the team, we know how to do that, so our external and internal resources are prepared for this journey with a technological platform.
So approximately, it will take about two years. We're expecting that to do in that period of time, and we are committed to this development. So there are more information about benefits that we can gain from the new platform. And yeah, mentioning several, so as I said, this accelerating the growth, so we could be much more innovative and innovative in new way. More new products, which are critical for especially retail banking when you want to cover all the client needs and become fully universal. Faster time to market, which is, as I mentioned already, very critical nowadays. Another part is the scalability.
The company that we are decided to work with, they're able to serve clients from, you know, 500 clients up to EUR 150 million. So the system itself, it's very scalable. Other elements like resilience, data and IT, and artificial intelligence possibilities are also there, so we also will gain a new stuff from that system. And definitely, that will be one of the key elements for top-notch client experience. So with that system, I would say we could gain a new competitive advantage, because in the region, this company does not provide any new generation solutions that we are going to acquire.
So this company, as you can see, is the Temenos. So the also 30 years history in a business experience, but also innovative. So I believe that this is the right partner for us to deal with, and we'll make a great franchise together of providing our clients with our service through their system. Another area which is going very close to that, at least for us, when we consider how to go forward, is rebranding. And the transaction with Invalda, also the new core banking investment and the new strategy very nicely aligns to consideration of a new brand. And we believe that we can bring the one that will give us as our mission statement, the bank that empowers. So the brand would be progressive, customer-centric, and caring.
We want to make a link between our brand and our current and our new clients for the future. Our goal is to develop the most beloved brand in Lithuania in banking sector by 2029, and we will work on that in a short period of time, starting now. Another area which is important in a strategy is the compliance and risk management. In the business, we already for 32 years, and during the ups and downs in the markets, we have built a robust risk and compliance management framework. On that, we base our decisions, our business development.
An additional element is our supervision by European Central Bank and Bank of Lithuania, and those two institutions put a very high bar on our risk management and compliance culture, and I believe that we fully comply with all the requirements that come today and will come tomorrow. So our focus there is absolutely clear. Other partners like Moody's, like our external auditor, KPMG and Nasdaq gives us the willingness to be at the top-notch, being very strong in that field. Talking about ESG, we have a ESG strategy which is fully aligned with the bank's strategy, and it is based on United Nations sustainable development. We've chosen five goals with 15 targets, which are listed on the screen.
The key focus is definitely these days on E, and also we work very closely with the European Central Bank, which puts ambitious goals for all banks, but mostly for those who are supervised directly. Well, that we will present the best practices of ESG to our clients. So we're fully committed and in line with expectation from the regulator. But we also focused on the S-side initiatives and just like a simple things, our physical branch network and our accessibility of services to the private individuals, to the corporate clients, closer to where they are in the smaller towns, is paramount, and we consider that as a part of our business model.
Also, we want to be practical as much as possible on our ESG side, and we're driving other initiatives like our renovation projects where we are already for the 10 years committed to that field. Projects related with energy efficiency are both generating change in the country, change in the country's buildings, but also they are very important part of our business. It becomes integrated part of our offering to the clients. So being practical on renovation projects, we continuously growing with our financial engineering and our proposition to the clients with a new structure. So each year in this 10 years history has been updating our proposition and becoming more complex.
And with that, we already distributed about EUR 1 billion in lending and have reached 2,700 multi-apartment buildings. So that's a huge number, but still, this is relatively small part what is needed for Lithuania looking forward. But also worth mentioning that from a client centricity perspective, we reviewed our organizational structure, and we prepared ourselves for the strategy to be well structured internally. So we've created three client groups, so corporate, private, investment, and we will through that, we will deliver even more value to those clients. So we'll go now deeper to each of the segments and describe both the initiatives and also the targets. So I'll start with the corporate clients. So historically, we were strong in that field, and our strengths remain to be focused on that business.
So this is a income generating and well-positioned, Šiaulių Bankas in that field. As I mentioned, we started to grow to the bigger clients. We're serving also mid-cap clients, not only SMEs. So we've committed to our quick decisions, so that's one of the core. Also tailor-made decisions for the larger clients, and that field is our, the area that where we will continue our business to strengthen. With that, we also consider growing into the additionally new sectors, like, renewable energy, to become more, to gain more expertise in, manufacturing, agriculture, wholesale, and retail business, so that would expand our portfolio, diversify even more.
To add on, there's additional new products needed for the clients from the treasury side, the ones which are not only lending-related, so that field will be also strengthened during the strategy period. And with that, we're committed to achieve higher numbers of our clients, ambitiously growing from 20,000 to 40,000 in 2029, and reaching our market share up to 20% in the country. So with that, I'll pass the word to our colleague, Laura, who will describe further our ambitious growth in the private client sector.
Thank you, Vytautas. Good afternoon, everyone. As it was stated, Šiaulių Bankas is established universal bank in Lithuania, which with a rich product offering and with a very great, successful track record. But after the merger with Invalda, we even more strengthened this product offering because really competitive in investment services, pension funds, insurance services were added to the whole bunch of other products that we already had. So Šiaulių Bankas became a one-stop shop for the client, for the all financial needs that our clients has. So when we talk about our strengths, we also want to mention that we are having really strong omni-channel presence and a deep commitment to external client services.
If you are somewhere in Lithuania, I don't know, any point, choose any point, it's more than likely that you have, I don't know, maximum 70 km to drive to our point of service. So that means that no other bank has so close relation to their clients. And, this local presence is also coupled with our very, intuitive, app for the banking services, with a call center, with, with all the expertise that we have, and this already makes a good client experience today. Also, what we are proud of is really huge commitment of our staff for exceptional client services. What that means, that means that we are really dedicated to deliver best expertise and best experience for our clients. And, actually, all the secret shoppers that we have proves that, we are successful at this advantage as well.
But of course, we are not stopping here. As Vytautas mentioned, we are looking at a very ambitious journey going forward, and we look at our journey in three major stages. If we talk about first stage, that means transformation. If we talk what was then and what is now, up till now, this group worked more like in silos. That has good advantages and bad advantages, bad things. Because when we work in silos, we have very dedicated team for certain product. Every single company developed its own products, developed its own strategies for pricing, developed its own strategies for client acquisition. This dedication ensures that we have really competitive products to offer to all our clients.
On the other, on the other hand, this fragmentation actually was the obstacle to improve our client experience and to offer seamless journey for our clients through all the banking services and through all the stages of our client lives. So this is why we entered into this transformation stage. It's already... We are already there. At first, we divided our service, our company into, like, three business lines and dedicated divisions to corporates, private, and investment clients. Further, what we did, we centralized all the coordination of the sales and client acquisition and new acquisition models of retail clients across all the group.
This is how we expect that we can contribute to our client experience, to make this journey even more smooth and to prepare us for the next stage, which also we already started, which is maximization. Maximization is the potential that we want to explore until we are ready for a growth stage. Because Temenos will open us possibilities to approach new clients and approach new client segments, and offer them even more advanced services and IT solutions. But now we already have 500,000 people that already trusted our company. They already use at least one product within our company, our group of companies, and there is a huge potential to offer them next best service and next best product that we have.
So this is mutually beneficial because clients, they get the one source provider for all, or at least two free, potentially usable financial services. And on the other hand, we as a company have a potential for revenue growth in the future. So this stage will last until we complete the Temenos project, which is really very ambitious, and after we complete the Temenos project, we expect to become a financial solution center that offers clients the widest selection of the financial products.
Of course, we will be combining our own products together with those of strategic partners, and also we expect to deliver best personalized client experience through our advanced IT solutions, through flexible pricing, through a variety of different product bundles that will be tailored to distinct market segments and distinct client segments through all different stages of their life. So you might say, "Okay, so what's in it for investors?" So we expect that by ensuring best customer experience, we will be capable to double our unique client base, and to grow faster than the market, and reach 1 million customers by the end of 2029. Yes, this strategy might seem very familiar, as this is very high-level presentation.
We don't have time for more, more, more, detailed presentation, but, we want to stress a couple of unique advantages. Yes, we are very local. We know our client best. We understand their needs, and while being local, we are capable to have quick decisions, adapt to client needs quickly, and move fast. On the other side, we really have a global mindset and global expertise. This makes us believe that this strategy can be executed going forward. I already touched a bit on this omni-channel approach, but I want to elaborate a bit why we've chosen that. Yes, there are trends that say that digital is the future, and everything is about digital, but in our opinion, the future of banking is neither digital, neither physical.
Actually, it's a blend of both, and internally, we call it phygital. So phygital is the strategy that we've chosen. It's the way that we decided to go, and we commit to remain phygital bank. And actually, it's not just a trend chasing or something. We all the time do the research about the needs of our current and potential clients. And what research shows that actually for very straightforward, very simple, like daily banking or other products, they need very quick, user-friendly, interactive, and easy-to-understand digital services. But actually, for more important services, like that influence all their life, like mortgages, pension plans, personal finance planning, or other things, they actually expect to have close relation. This is the services of trust. They want to meet their consultants, get the personalized advice, and only then make a decision.
So this is why we are now committing to develop both areas, so digital and physical. So phygital is the future of our bank. You might say, "Okay, but how about costs?" So let the numbers talk. So as you see, up till now, we were very, very strict on cost management, and we are sure that this is the priority that we will have going forward as well. So we think that it's possible to have strict, while having a strict cost management, to achieve results in both area and not to compromise our P&L. So to finalize, we've chosen the strategy to remain phygital. We're sure that this will contribute to our growth in the future, and this will help us to achieve our goals.
And now, I would like to introduce my colleague, Tomas Varenbergas, who is Head of Investment Management Division, and he will proceed with the presentation and introduction of our strategy. Thank you.
Thank you, Laura.
... Yeah, so the third group of clients that we put our focus on is investment clients. Currently, actually, we are strong in debt capital solutions for SMEs in Lithuania, and we are recognized as a market leader here. Going forward, we do see that we can be even more active here and to provide such kind of origination services for all the client segments. We raise a goal to help business to raise capital in the amount of EUR 500 million by 2029. So currently, we are doing in the area of EUR 100 million of origination transactions. So we do see that step by step, we can increase five times this amount.
Our trading or brokerage services, I would say, unique in the market in that sense that we do provide customer-tailored repo transactions. So in that field, we do see that we can by employing third-party solutions or partners integrations or white label solutions to grow our business further. And our goal is to increase actively investing clients by three times. And the third, our strong footprint in the market is that we are leader in issuers registration and related services, including custodian services for the mutual funds. So again, we do see potential to expand services to all the client mutual fund segments, including open-ended funds, in order to provide universal depository services.
So in that sense, that could be another good push in order to increase our fee and commission income from the securities operations that we are targeting 20% compounded annual growth rate going forward. We have covered the strategy slides. The next part or the next section of our presentation is about the financials. And let's take a look how does financial projections supports the strategy that you just have heard. So our key focus areas are growth, efficiency, and profitability. Just to remind that the bank positions itself as a growth and profitability story, so we are going to deliver that in the future as well.
We are going to grow in double-digit area, and together with that, we are going to earn return in mid-teens area in the long term. Of course, we do see that in the coming next two years, our cost to income and return on equity ratios will be slightly negatively impacted, but that's mainly due to additional investments into our new technological platform. Nevertheless, just to remind that the bank has a dividend policy, which is a backbone document for the organization. Going forward, minimum 25% of the dividend of profit should be distributed for the investors in the form of dividends. Just summarizing what is value for the investors.
So we do see that currently the bank is a good entry point for the investors as the bank stock is trading on discount. Looking to the track record, so the bank does have, I would say, a proven track record of creating shareholder value. And the book value per share, plus dividends, has compounded by nearly 20% since 2015. And I would say that going forward together with 15%+ return on equity the bank will be able to deliver 20%+ return for the shareholder. So additionally to the return on equity, capital returns in the form of dividends and particularly in the share buybacks.
So the instrument that the bank didn't use actively in the past is an instrument that the bank will employ very actively. And looking to the valuation that the bank is trading is very useful tool to return value for the investors. And of course, the valuation uplift is definitely is a part of a potential return that the bank stock could return for the shareholder. So we do believe that the bank has high potential growth opportunity. And well, we believe that we'll deliver superior and sustainable returns going forward. I will invite Vytautas for concluding remarks before our Q&A session.
Thank you, Tomas. I hope he had a clear view for investors about our targets for the forthcoming years. So with that, I would like to give few more comments. So firstly is the milestones, how we see the strategy to be implemented. So the best thing is to start a bit with the past and with the current moment, we worked hard on the preparing new strategy to making all things work together. I hope we did it well, and we see it, it working. At least on the paper, we have a clear view how to make the next steps. All the transactions with Invalda, which was a part of this new strategy development, has been concluded successfully. We're working as a one team after the merging businesses in on last month of 2023.
As I mentioned, new organizational structure has been prepared, and we're ready with the colleagues that already for many years with Šiaulių Bankas and the ones who've joined the group very recently. So we definitely feel, strong team working together, to prepare the, the strategy and, very much willing to, to start working on that. And also, as I mentioned earlier and also here, that, we have a supervisory council and the shareholders, anchor shareholders, support moving forward a growing bank to the bigger franchise in the country. So the next period of time, when we talk about a strategy period, so we've chosen to take, 3 + 3 years as a strategy, so totally six years up to 2029. But we're splitting that into two periods. One is for two years period, from 2024 to 20...
end of 2025, when we'll need to make some soft and hard investments into the preparation for our leap forward. So, as I mentioned, the core one and the most we committed and strongly believe that that's one of enablers for us to grow forward, is a core banking platform. Another one is leading this change and other things that has been happening with the bank before is rebranding. So we, as I mentioned, will work hard to make a perfect fit with our new mission and vision. And those two years will be the things that we can work as low-hanging fruits, to work on those things that are possible to do without major investments, because we will be focused on the several mentioned ones.
But afterwards, those four years will be the very accelerated work, both on the new product development, on the new client acquisition, on the cross-sell and upsell to the historic or new Šiaulių Bankas clients. So I'm very much looking forward to this journey to continue and to see how we can perform, and definitely, I believe that Šiaulių Bankas could be hub and center of the best solutions for the clients in Lithuania. And fully to wrap up our presentation, just to remind maybe those who are starting not from the beginning, what we've covered. So we've covered who we are. So just to remind that we are profitably growing Lithuanian banking franchise with a already proven track record with a growth and sustainable results.
Our journey part was described as our ambition to be the best bank in Lithuania by 2029, in particular stakeholder groups. I believe that we have a unique proximity to the clients compared to the other peers, and our roots with the country truly strongly motivates us to perform and grow forwards. The opportunity mainly is opportunity for investors to consider this momentum as a possibility to join us and to embark on our transformative journey, journey ahead. Our current valuation, I would say, is the offers that we are in an attractive moment to enter, and we, as a team, will try to do our best to bring this great opportunity to transform that to superior and sustainable returns. So I'm welcome to become the part of this exciting journey.
So with that, I would like to finish our presentation, but not to end our session, since we're after a very short break, we'll come back to the Q&A session. So looking forward. Thank you.
Good afternoon, dear listeners. Welcome back to Šiaulių Bankas Studio, and I'm Paulius from Nasdaq Vilnius, and I am pleased to join the management of Šiaulių Bankas on this very monumental day. I'll be moderating today's Q&A session. Before starting with the questions, I'd like to remind everyone that you can submit them in the Slido box at the right-hand side of the screen. Thus, let's get right into it. Let's start with the first question that talks a bit more about the economy of Lithuania, and I'll ask that question to Indrė. Lithuania slipped into recession last year. Can you please discuss the prospects for 2024?
Yeah. Good afternoon, everybody. I'm really pleased to be here, and, thanks for the question. Yes, definitely, we expect that, being an economy has slipped, to the recession last year. However, the reasons behind that are, trailing, in recent years because of a very good performance during the COVID crisis. Resilience against the, geopolitical effects, formed the base effect for the, for the economic development. And, yeah, last year, our exports, markets were weak, due to the, interest rates, effects feeding into the macroeconomics of our target markets.
However, this year, we expect our economy to recover to the growth path again because, first of all, the inflationary pressures are easing, and we have programmed wage growth to persist further and to rebuild purchasing power of our consumers. So the consumption will be one of the prominent growth pillars in the beginning of the year, in the H1 of the year. In the H2 of the year, we believe, well, the more dovish monetary policy will affect our export markets and, well, that will hopefully feed in through to our external demand and provide positive impulse for our exporters.
Thank you. The next question goes out to Laura. You mentioned the extensive cross-selling potential in this presentation a number of times. What are some of the specific plans and initiatives you have developed to capitalize on this potential?
Okay, thank you for the question. What needs to be emphasized before we talk about the potential is that now less than 30% of 500,000 clients that we have in the group has two or more products developed by a different group company. And this accounts for about, like, insurance, asset management, consumer credits, and the banking services, and so on. So that means that we can increase this number significantly in next 2 years if we do some activities, of course. And these activities are investments into, I could say, four key areas. So of course, developing cross-sell, up-sell processes, which is very ordinary. Increasing the competencies, because now certain people are more dedicated to one or couple of products, and the plan is to have extended competencies across all the group.
Of course, in investing into product bundles, which is also very ordinary. Finally, of course, investing into data, because we don't want to spam our clients. We want to understand their needs and offer the product that they actually need, and which, and the product that actually fits best, for their needs. So this is the activities that we have planned for the closer future, but of course, with Temenos, these possibilities will be, will be largely, largely, increased.
Thank you. And now, let's proceed with the next one, which goes out to Algimantas. What are the bank's risk appetite and tolerance levels currently?
Thank you for the question. So in certain risk appetite, we apply the principle of keeping the promises to the investors to generate sufficient returns while being a safe bank and complying with all the requirements that are applicable to us. So, talking about safety, I can firmly say that we have a good capitalization and sound liquidity buffers, which include internal buffers that we need for such cases when there are unplanned adverse movements in the economy, in the environment, so that we did not have to suspend our ordinary activity and focus on recovering capital or liquidity on the institution, but rather we could go on.
From the risk side, I would say that we are consciously taking the risks, especially credit risk, where we see that we have expertise in the market. We know our customers, especially in certain segments, and we need to have higher growth than the general market in order to achieve our objectives. We are trying to achieve all of our risks at agreed level.
Thank you for the answer. So a lot of investors are interested in dividends, and we've received a number of questions about them, and we'll try to summarize them. In case we don't cover the key points that you want to ask, please send your questions afterwards after the presentation. Now, I'll ask Donatas about the dividends. Growing loan portfolio at the rate of 8% requires capital. How would it affect dividends? Do you plan any changes on the dividend policy during the discussed period of five years? Can we expect large buybacks?
Good afternoon, dear investors. Dividends is very popular question during our quarterly webinars, and, Of course, I'm not in position right now to disclose the plans for the coming year. It will be done in the due time and to all investors together. But keeping our dividend policy, which currently states that at least 25% of previous year profits will be distributed in the forms of dividends, it's very important for us, and we promising this as a minimum. But if the situation is favorable and we see no better opportunities, we will happily share the profits with our investors.
Of course, we have to keep balance between ensuring that the remaining capital will allow to grow our assets, including loan portfolio and generate further profits. But if to keep permanent and steady flow of dividends and other forms, such as buybacks, it's we'll keep that in mind. And in the coming years, the importance of buybacks will be increased, and we see that it's it gives a very positive impact to the market. And we think that this form of distribution of profits will be used more in the future, especially when the share price is in the low range what we expected. That's probably summary of topic as dividends.
Okay.
Thank you.
Thank you. Thank you, Donatas. And just to clarify and summarize the points made during the presentation, a question to Vytautas: What does it mean to be the best bank in Lithuania? How do you measure it? And, becoming the best bank in Lithuania arguably implies taking market share from the bigger peers. Do you have a target on any particular bank that should be a bit wary of your strategy?
Right. Yeah, thank you for the questions, very interesting ones. I would say being the best bank in Lithuania is, firstly the mindset. It's the mindset of, considering that internally in organization and externally acting the way. And, that's one of elements, in a strategy, that, to have an ambition and to grow with that ambition. But we also asked ourselves, what... When we say the best bank in Lithuania, how to evaluate that? That's why I've tried to describe, that in the presentation, that there are several stakeholders and several targets that we're emphasizing to ourselves, in order to be treated that in the country.... Yeah, so firstly, it's a client perspective, as I already mentioned, so I will not dig deeper to that, but it's a client experience.
So in that field, we already have a good benchmark, a good being as a good benchmark in the market even, but we need to expand that and to broaden our good service culture, which historically was to expand that to the products, technology, blend to the clients, especially in the current modern years, when service happens everywhere, in physical, in digital, in contact centers. So that part needs to be increased, and we focused on that. So the other area, which is also critical and important to become strong employer, to attract new talent, to remain the current ones, and to grow professionally for people here, and that would be the, you know, dream to work at Šiaulių Bankas. So we say that we need to be in the top three financial institutions in that respect.
Probably the hardest way of achieving the best of the bank, best bank in Lithuania is through the top of mind, which we mentioned that we want to be, you know, top choice and beloved brand in the country. That's really ambitious goal, but we're committed to that, and we want to move towards that. Also, last but not least, as I mentioned, to remain with all this business model interesting for investors and to generate 20+ return. Talking about competitors, so we respect all of them. They have their own business models and franchise in our country.
But as I mentioned, we feel the uniqueness of Šiaulių Bankas of being local brand, and, definitely we see potential growing both for the new clients that emerge in the country, like corporate, SME clients that appear here, so to be the partner for them here. And also for private individuals, whether they are young or older, to choose, local brand to deal with, receiving all they need, from financial services. So that's it. Thanks.
Thank you. We've also received a number of questions about the banking platform, Temenos. So I'm also going to group them, and this question as well goes out to Vytautas. Any practical examples regarding the change Temenos partnership brings, compared to your current operation services? Are you going to change the current user interface? What are the key risks and expected timeline for core banking platforms change?
Yeah. So summarize, not to expanding too much on, on the answer, I would say we're moving from more local provider to the global, with all benefits and risks also involved with that. But as we measured selecting the vendors, we've seen the huge potential using their platform as a competitive advantage, not operating on the system, but giving the new features, new propositions to the clients. And that system is strong in that they have a good experience with different type of financial institutions in different geographies. So if we will bring at least part of those functionalities to the Lithuanian market, that will be really beneficial. And with the current system, it's functioning well, it's solid. For more than 20 years we have used that.
But in order to make that leap, in the strategy and in our growth direction, especially in the retail banking, we need a, you know, substantial upgrade. So we are aware of the risks and, you know, focus working on that type of investments, therefore, we already drafting the plan how to implement it. As I mentioned, it's approximately two years program. I hope we'll manage to do that, because sometimes it is hard to deliver in this period of time. But we... I believe in the team. I believe in external partners, where we already started our selection process, and the commitment is high.
So we need those investments, and as Tomas presented the figures for our projections on nearest future, are those investments not that critical and not hinder our financial result that much. So it's a good momentum, especially, obviously, momentum is critical in the story.
Thank you. Now, let's talk a bit about the reviewing of the strategic alternatives during the period of the strategy. Would you consider renewing it, and would you be open for any mergers and acquisitions, or rather remain on a organic growth path to hit your targets, Tomas?
Thank you for the question. Just to put a note that the bank has grown organically and successfully completed several M&A transactions.
So, well, the bank is active in the market always, I would say, and in case there are opportunities, we are considering them. Just to emphasize that, our strategic operating location is Lithuanian market, but we do have some operations, life insurance operations in Latvia and Estonia. So we are not locking ourselves in Lithuania, so we are opening our eyes throughout the Baltics. So in case there will be opportunities to consider, we will do that.
Thank you. Another question goes out to Donatas. You're earning a higher return on equity today than your medium-term projections. With more fee income and cross-selling, why won't a return on equity be higher in the medium term?
Okay, this year, return on equity is, I would say, significantly affected by a one-off positive impact due to the sudden increase of base rate, which affect our loan portfolio profitability rather than the cost of funding. So we see the cost of funding now approaching the peak, where the cost of, from, not cost, but yield from the loans reach a peak earlier. Therefore, we should not consider this year return on equity as a benchmark. And in addition, positive thing to impact what my colleagues presented today and will be achieved not immediately from the first year. It will come gradually, and in the first period of implementation of Temenos, that Vytautas just mentioned, so this will be affected negatively.
Therefore, the next two years will be, how to say, in the range, slightly below this benchmark, but later in the medium course of years, we see that it's possible to achieve a average return on equity 15% or more.
Thank you, Donatas. Let's stay with you for the next question as well. Are there some initiatives planned to lower the bank's cost of money, prime cost?
Okay, we frankly speaking, we're quite happy with the current cost of funding, because I remember times when Šiaulių Bankas has to pay significant premium above the market rates compared to the Scandinavian peers. But now, due to the increase of bank rating and the... We have different alternatives to attract funding, this premium almost disappears. So we are paying as much as our competitors and partners pay as well. So the cost of funding will change depending on the change in the market. And the regulatory requirements requires us to have hybrid cost hybrid instruments, such as subordinated loans, MREL-eligible funding, which is more expensive compared to the normal funding as term of deposit.
I would not see any possibilities to make our funding cheaper, and the change of funding will depend on the market changes.
Thank you for the answer. Let's turn back to Vytautas and talk about the brand name. Are there any plans to change it?
Okay, we've gave some flavor to that in the presentation, that this topic is important in this journey. But we want to make a decision clearly and with evaluation. So definitely, this version is one, as one of the working versions, for us. But, as I said, the branding is critical, and they're much important to become top-of-mind bank in Lithuania. So we'll work hard on that. But just to remark that we see that in complex also with core banking project, because we want to align those two initiatives to streamline and to be most cost-effective working with those two initiatives. Yeah.
Thank you. Let's stay with you for the next question. Does the management have a long-term incentive scheme aligned with the shareholders' interest?
Oh, yeah. This is the way banking works now, and it is linked. It is linked both from the risk management perspective and from the value that the bank generates, mainly through the share price development. So the management board has a option scheme, and that's incentive structure, mainly 100% related on the share performance, I mean, as a benefit for the management. So yes, we have.
Thank you.... And Laura, a long-awaited question to you. Why are you maintaining the branch network in this size and this extra cost, especially if you're going cloud-based?
Okay, thank you for the question. When we talk about phygital, we see that this is important competitive advantage for current customers. And, as you, as, Vytautas mentioned, Temenos will take at least two years. So now we want to adapt to current our clients. From others, from other perspective, of course, we will revise how we look phys- in physical data, in physical areas. I mean, is, is it, purely physical, or is it a semi, semi-digital with physical? How, how much interactions client can have digitally there, and, and so on and so forth. How... What the size should be? But this is- we don't want to right away just make a quick moves and see what happens, and how our clients react.
Vice versa, we want to make sure that current our clients are really satisfied with, with the services we have, and also prepare properly for the future, and, then make decisions when we know how we finished with Temenos, what new services or what new, offers we have, what clients are entering our bank, and what are their needs. So this is very complex, decision. This is why I cannot right away answer, this size or that size.
Thank you. Thank you for the answer. Question goes out to Donatas. Are you able to clarify what is the average annual tech investment cost with Temenos over the upcoming two years in euro terms? What share of the cost is expensed?
Very specific question in euro terms, so what I can say that these expenses and all costs of this project is included in our budgeted figures for the next three years period. And it's bearable, and as you see, and we mentioned that it only affect our profitability marginally and not significantly. And regarding the last part of question, what share of the cost is expensed, so we've considering that one third will go through prof P&L, and the remaining will be, what you say, as a material, as a... It will be depreciated during the
Period of time.
... finish of the project.
Thank you, Donatas, for the answer. It looks like we've, we've neared the end, and the last question for today's session, to wrap it up on a higher note, put the i's, put the dots on the i's and, cross the t's, goes out to Vytautas. Why do you think, you will succeed and become the best bank in Lithuania?
It's really great question, worth EUR 1 billion. First of all, I would say the Šiaulių Bankas history is strong. I mean, surviving those, as I mentioned, turbulent years during the regained independence in 1990 and established in 1992, so there's a kind of gene of growth and development of a bank. And myself and the team, I believe, truly proud of being at least part of a journey, some of longer, some shorter, but still developing very good things in a country. Also, with this moment, feel necessity to thank to the clients and investors who believed in the bank for many years. As being listed company, we have different type of investors who supported in different periods of bank's development with M&A transactions and with organic growth.
So that part is, I think, very critical as a base for us to succeed, is the history, is the development, in critical situations, in tough situations. So that's one. The other thing is the ambition itself, ambition that we're raising to ourselves and declaring that publicly. The strategy itself, I would say the strategy has been developed as internal document, also very detailed, compared to the previous ones. So we've focused on bringing much more focus to the steps and to the plan that, and we'll check ourselves how we'll work with the strategy, you know, constantly. So that's second. The third I would say is the committed team.
I truly believe that we have excellent team and the strength and with the recent merger also have a brilliant people to deliver and to work passionate and enjoy the journey ahead. Again, last but not least, the current base of investors and shareholders that supports and will have a will to see the bank growing forward. And I would say Šiaulių Bankas could be the story of other countries that have national champions that provide majority of services to the clients in that country. So I think this is our journey ahead.
Thank you, Vytautas. As all of the questions are now answered, on behalf of Nasdaq Vilnius and Šiaulių Bankas, thank you, everyone, for listening in. For me, it was a huge pleasure to join you today, and I wish all of the luck in achieving those strategic goals. The recording of this presentation will be available on Nasdaq Baltic YouTube channel. Thank you, everyone, for the informative conference and for tuning in to this session. Have a great day.