Good day, dear investors. Welcome to Artea Bankas' webinar of the Q1 of 2025. As you see in the presentation, we already have marked it with our new name there. I am both a bit sentimental, but much, much more excited about the change. The next webinar will be with a new name. Let's get started. Let's move on to the key financial and strategic highlights. I would like to mention that our Net Profit generated during the Q1 is EUR 17.7 million. If we take adjusted Net Profit, it would be closer to EUR 20 million, Return On Equity 12.4% and 13.6% respectively. The quarterly performance is in line with the bank's budget expectation, and we are iterating the full-year guidance, as we presented earlier this year.
Long-term portfolio is picking up, 2% on a quarterly growth, slightly lower than we were expecting at the beginning. As I mentioned before, we are expecting the growth to catch up, and we will be in line with our budgeted growth for 2025. Net fee commission income performed well, 17% year-on-year growth. As well, asset quality remains strong, having the lowest NPL ratio in five years. The underwriting is strong of our loan portfolio. Also, a strong achievement during the turbulent times. We have raised EUR 300 million senior preferred notes with very high oversubscription. Also, as promised, we made our dividend payment to the shareholders last week of EUR 0.061 per share . This is the largest highest dividend payout in that history as well. Artea Bankas' program we expect to resume shortly.
We will have discussions in the management board regarding that as well in the nearest future. We also have an expansion of our equity research. Two additional coverage houses are also starting to initiate our share performance updates. A new person in our supervisory council, my experienced colleague John Michael Denhof, has joined our supervisory council as an independent member. Last but not least, our rebranding starts at May 5th for next month. Please change the records at your site with the new ticker of our bank to ROE1L. Let's move on to a bit more information about our rebranding. Šiaulių Bankas , as I mentioned, rebranded to the new name Artea. This is our dedication and commitment to Lithuanian people and businesses with this new name. Another key investments into our technological platform.
With that, we expect to grow our customer base significantly and become even more known and well-branded in our country. T he sounding of the name Artea in Lithuanian language is meaning getting closer. And that's why we say, "Artea, the bank is closer to you." Okay, let's move on to our previous developments with dividends and buybacks. Just a short recap on the recent developments. Just to remind that in the last quarter of 2024, we updated our dividend policy with a minimum of 50% payout of previous year's net earnings. We executed that during the cycle for 2024. As you know, shareholders' meetings approved allocation. On April 25th, Artea paid out, already mentioned, dividends as we had promised. We're still having the new buyback limit of 2.65 million shares, which was approved by the ECB last year.
We, as I mentioned, are expecting to come back to the market with this buyback program. As I said, we will have discussions on that in the management board and how to start to apply that again. We also approached the ECB for the next phase of the buyback program. Our guesstimate is we should have received, we will receive permission in August 2025, subject to all the requirements approved by the ECB that we are allowed to do that. Also, perhaps below you see our development in the total shareholder return yield, also the dividend yield. We are showing with the recent years a nice trend of growth of those parameters. With that, I will pass the word to a colleague to define and describe in detail my economical view.
Good morning, ladies and gentlemen. I was invited here today to make a short briefing about the Lithuanian macroeconomic situation, given the changed external environment, given the turbulent international trade situation resulting from Donald Trump's policies. To start with, it should be noted that Lithuania has learned its recent crisis lessons. During several decades of external shocks and crises, Lithuania has managed to develop a proper formula of resilience related to its balanced and sustainable growth, which could be illustrated by the current account balance developments. You can see from the diagram on the left-hand side of the slide that Lithuania's current account balance is positive, and that reflects the strong external position. That shows that Lithuania is living within its means. By exporting, working, and investing, the country earns enough to cover its imports.
Moreover, Lithuania has developed a pretty well-diversified exports orientation because it's a really open economy. In recent decades, it managed to increase the share of services exports. Those exported services are not only low-value-added transportation services, but the weight of higher-value-added services, such as information, business services, and technologies, has been increasing significantly. Moreover, Lithuania is well-prepared because it has a strong fiscal position. As you can see from the lower left diagram, Lithuania stands in the green territory regarding its fiscal debt. It is one of the lowest in the European Union, and its recent fiscal balance developments were also pretty strong, despite the external shocks related to the COVID tests. Later, we experienced external shocks coming from the energy prices increases and Russia's invasion in Ukraine spillover effects.
Despite all these external turbulences, Lithuania managed to sustain a strong fiscal position and is well-prepared to, well, it has enough room for maneuver in upcoming challenges and has enough room to increase funding for defense purposes. The final diagram points to the strong financial sector, low indebtedness of the private sector, together with the strong, profitable, and well-capitalized banking sector, are the cornerstones of the financial resilience of the country. Lithuania is really good prepared for the upcoming chapter and for the external turbulences triggered by Donald Trump's policies. Now, let's look to the direct connections between Lithuania and the U.S. Here you can see that those ties are pretty, are not really close because Lithuania's local origin export share going to the U.S. accounts only less than 7%. Only three product groups are more tightly related to the U.S. market.
Those groups are chemicals, also mineral products, and a small product group related to precision measuring optical cinematography and photographic instruments. All those product groups are of small elasticity to the tariff barriers. They managed to find a way to the U.S. market. They also managed to find buyers in the other markets. Moreover, Lithuania might be also affected by the not direct, but second-round effects given the trade war escalation. However, a very thorough analysis by Bruegel Think Tank points that the whole Europe is relatively resilient to those trade war escalation and effects. The GDP growth because of the trade war effects might be reduced only by 0.5 percentage points. This effect fails strongly against the recent crisis of the pandemic or energy crisis in Europe. Moreover, European exports are pretty unique.
The possible inflows from the rest of the world, especially from China, the risks are also pretty limited because those exports are pretty different. The competitiveness, those exports which go from China to the U.S., are pretty different from the products produced here in our region. The effects also will be limited. Only the positive effects for the consumption and for the deflationary pressures could be seen here in the region. The positive note is that Lithuania looks pretty resilient according to Bruegel's vulnerability score. Its key export markets look resilient also. That strengthens our position and adds to the resilient outlook ahead. The final touch of my presentation would be the short-term outlook, which currently looks pretty good because Lithuania started the year on a strong note.
Exporting sectors were really resilient as manufacturing production has expanded by more than 8% year on year. Also, consumption pillar looks pretty tough given the increasing purchasing power as wages rose faster than the inflation here in Lithuania this year. Expansionary fiscal policies will also strengthen the cyclical recovery because of the planned bigger investments in both defense sectors, defense infrastructure, and also planned EU structural fund influxes. Despite the increased external environment, Lithuania stands on a strong footing and is expected to sustain one of the strongest macroeconomic performances among the other Baltic economies and compares to the other Central and Eastern Europe countries.
Thank you, Indrė. Good morning, everyone. We had a decent quarter and delivered a Net Profit of EUR 17.7 million on a reported basis, EUR 19.4 million on an adjusted basis, excluding one-off non-recurring items. Our Return On Equity expanded sequentially and reached 12.4% on a reported basis and 13.6% on an adjusted basis. This is broadly my overall guiding the market for the full year of 2025 as we continue executing our transformational initiatives. Although the revenues declined as expected, given declining Net Interest Income, which was partially offset by increasing fees and commission income. Specifically, fees and commission increased 17% year over year. On expense side, we maintained a disciplined approach.
However, our OpEx, excluding insurance-related activities, increased this quarter. That is mainly driven by increasing headcounts, inflationary pressures, and one-off items in relation to our transformational activities. Our growth performance remains very strong, as evidenced by stable provisioning levels and the declining NPL ratio. Specifically, NPL ratio is the lowest over the last five years. Overall, I think it was a good quarter as we continue strengthening our balance sheet, diversifying our revenues, and continue executing our strategic initiatives. Net Interest Income.
I'm not going to spend too much time on this slide, but I already mentioned that NII has decreased, and that's mainly driven by changing interest rate environment. We should see the cost of funding continue to decline as we are pricing our deposits, which remains the main source of income for our bank. In terms of NIM guidance, we should start seeing it stabilizing in the next quarter. Full portfolio. I'll start by saying that we have a very well-diversified book of business.
53% of our businesses are looking at corporate clients, 27% through mortgages, and 10% with the consumer. That is the strength of resilience of our business model. Year over year, loans have increased by 15%, and that has been visible across most of the segments. Sequentially, the loan portfolio increased only by 2%. As a reminder, we had a similar level of growth last year. This seasonal effect comes as no surprise to us. The demand for loans was low at the beginning of the year, but we are seeing a notable uptick in March, which is continuing in April, especially in our corporate loan book. On loan yields, we have observed a meaningful contraction over the past year, but it is important to notice that the Euribor has increased even more over the same period. We are maintaining a little bit of the pricing power.
Consumer credit, as a reminder, is a fixed-rate product, therefore less sensitive to fluctuations in base rate. Moving on to slide 14. Net fees and commissions, as I mentioned, increased by 17% year over year. It is now accounting for 16% of total revenues, further strengthening our business model and resilience. What is good is that this growth was broad-based and seen across different lines of the business. Asset management fees, growth of the fees was driven mainly by AUM on the back of the market performance, strong client inflows in Pillar III Pension Funds.
Our mutual funds and alternative investment funds continue to perform well and attracting new client funds. Capital markets were maintaining strong momentum and leading to DCM positions in Lithuania with bond placements. The renovation fees increased materially as we continue to disperse our latest fund. Daily banking activities also delivered a mild increase. Now, I will hand it over to my colleague, Tomas.
Good morning, everyone. It's Tomas Varenbergas, and pleasure to continue today's webinar, starting with operating expenses. We keep our focus on controlling the operating expenses. During the last year, the salaries increased mainly by EUR 2.6 million. It was mainly driven by inflation rate in a country, which is still pretty high, and by the headcount, which is needed by the bank for rapid growth and executing the strategic initiatives. IT expenses, marketing, buildings, or other expenses are being flat year on year, which is good. We spent EUR 2.2 million on one-offs. Just to remind that we have communicated that during this year, we will expend up to EUR 15 million for one-offs. During the Q1, we expensed for rebranding and for our core banking platform that amount.
Moving forward to the asset quality, we are growing fast, but keeping very good quality of our loan portfolio. It has been improving for several quarters already. We have reached the NPL ratio, which is lowest during the last five years. That was driven by closure of non-performing loans the last quarter. The ratio itself is in the area of 2%. The coverage ratio stands at very comfortable 77%. With the Cost Of Risk, we are below our communicated long-term over-the-cycle ratio. During the last quarter, it stood at 22 basis points, which was mainly driven by private clients' methodology changes in calculating the impairments. What is good to note is that on corporate loans portfolio side, we had loan impairments reversals. On funding, our highlight of the last quarter is our successful comeback to the international debt markets.
We have issued again EUR 300 million of senior preferred bonds. That was our second issuance during the last six months. We again attracted massive investors' demand for our debt with more than three times oversubscription. We have reached better pricing than we had by issuing our debut bonds. By this transaction, we have secured almost all wholesale funding which is needed for us during this year. We will still have one issuance planned over late this year. On the deposit side, we are cutting the rates because by having issued new bonds and having a good liquidity position, we can optimize our cost of funding on the deposit side. What is seen is that the cost of funding itself started to decrease. We do see that this decline will accelerate further in the next several quarters.
Going to the capital, we will not spend much time here because we have a good and strong capital position, which is enough for the bank to keep growing fast and to commit to a new dividend policy which we have approved last year. As what was planned, we have received ECB permission to redeem our Tier 2 notes. The tax redemption took place last week. Again, just to remind that we have one bond transaction planned for this year. We are not doing that now because we are in good position with our capital ratios. That new issuance is more needed for us going for the next cycles of our growth for the next year. The last slide of our webinar's presentation before going to a Q&A session. As already mentioned by Vytautas, we are keeping our outlook for this year in place.
Even Q1 was weaker on loan origination. We do see already that this operating business line is picking up, and we are catching up with our planned numbers. We are keeping what was communicated during the last webinar, and the management is committed to deliver the guidance that we have presented. Passing the word to Vytautas to conclude our presentation.
Thank you, Tomas. This concludes our prepared remarks. I'd like to use a moment briefly to mention that we're planning to attend multiple investor conferences, both retail and institutional investor-related, as you can see from the business schedule we're depicting on the right-hand side of the slide. If you happen to be attending one of those conferences, please reach out to us.
We'd love to meet with you and have one-on-one meetings. Now we'll switch to the Q&A session. First question comes from Epstead, good morning Thomas. The question is, what development do you anticipate for Net Interest Income in the coming years? Could you please indicate what levels and when we'll stabilize that? Unless my colleague Tomas takes this question on.
Sure. Hello, Thomas. As we do see that the NNI is bottoming out, and we do expect that during Q2 we will reach that level. The reason behind that is our cost of funding is decreasing and it is accelerating to decrease further. That will eliminate negative impact on our loan book contraction in terms of interest in asset yield.
By picking up in loan originations during the last month and coming months, what we have already noticed, we will be able to increase our NNI during this year further. In terms of net interest margins, we have reached in a 3% area. We do expect that that level could be expected for the bank to deliver during this year.
Thank you. We have one more question from Ersin. How does the recent market turbulence affect the asset management business? What do you expect for the AUM in the coming quarters? Tomas, maybe you can also take this question.
Yeah, very good, interesting question. Our revenues depend on asset management from clients' inflows and outflows and from the market performance. What is good regarding the clients, the sticky ones, because our main assets are in pension funds that are not a very client-migrating product, we are more vulnerable to financial markets performance. In case we have very volatile or decreasing markets, our revenue stream will be affected by that. By looking to the Q1 performance and the beginning of the Q2 performance, we do expect that PN commission income from this business line should more or less stay at the same level during this year.
Thank you. The next few questions come from people from the morning Latin. How much will you spend on the rebranding, and is that process going to be completed in 2025? I'll ask Vytautas to comment on this.
Yes , thank you. Thank you, Alan, for the question. Yeah, it's an important project and a big period in Artea Bankas' history changing the bank's name. We treat that as not as a cost, but maybe as investments because we're projecting that for the longer period of time, despite that we are expensing that throughout P&L. We're expecting that the costs related with that will be in the range of EUR 5 million. The lion's share will be expensed during this year. The most of activities starting here is from the main.
The largest part will be communication, marketing expenses as well, the IT costs related with the change in our IT systems as well, some real estate-related things that we need to change our logos on the branch network. That is how we treat as our main investments needed to well communicate and to reach the current awareness of the Insurance Bankers' group, brand names, and of course, to become even more well-known and beloved brand, as I mentioned earlier, in the country.
Thank you. The next question is, what is your Cost Of Risk guidance for the remainder of 2025? Tomas, do you want to comment on that?
Yeah, absolutely. I can take this one. Just again to repeat our communication on Cost Of Risk, that over the cycle, we do expect up to 50 basis points of Cost Of Risk. Given strongly in an economy and macro performance, and by looking in performance on our clients during the last year, we do expect that Cost Of Risk should be between 20 and 30 basis points this year.
Thank you. The next question comes from Swedbank. Good morning, Andrew . The question is, are you witnessing increased competition from local incumbents as well as fintechs like Revolut? I'll ask Vytautas to take this question.
Yes, thank you as well. Good question. Overall, I would describe that the competition in the market is pretty healthy in mainly all business areas. The macroeconomic situation in Lithuania shows quite a positive environment to grow for the bank. That has been happening during the last year, including ourselves and other banks. The market is active. Clients are able to choose offers from the bank. I think each of the banks is finding very market position, how it competes, how the value is created. We are confident in our position, and we are able to provide additional value for the clients and additionally charge for that. I think the competition is intense. It is healthy. Each player finds their role of both incumbent and the newcomers in the market.
The next few questions come from Wood & Company. Good morning, Miguel. The question, how is the Temenos project going? Are you still on schedule and within the budget? Vytautas, do you want to take that?
No problem, of course. It is from our strategies development. I think this is the most active period when we are investing into our transformation, both from the brand perspective as well as from the technological platform. This period, I was quite critical running those two projects in parallel. We took this challenge. I am really thankful for the team, for the colleagues and partners who are very well planning all endeavors, how to manage both those changes since, as I said, they are running in parallel. The project is running well. We have entered the implementation phase after the previous phase, which was the diagnosis phase. We have identified the gaps, and we are now finding solutions how to efficiently cover those gaps, whether it is with the Temenos support or with the other third-party solutions.
We're contracting with the project of Temenos and some other partners that are developing together without seeing all the changes needed to upgrade the technological platform to the new one. Expectations have remained the same. The midst of 2026, that's our target to deliver with a new change, with a new platform. So far, everything well according to the budget and time.
The next question is about the PN commission income. NFCI development seems to be ahead of your guidance. What can we expect for the next few quarters? Tom, you want to take that one?
Sure. We are very delighted with our net commission income performance. It is very good that it comes not from one business line, but from different segments. Capital markets are doing well. Renovation is doing well. Asset management is doing well. That kind of outperformance is really seen during the last quarters. By the whole period after acquiring the retail business, asset management, life insurance business, looking forward one or two quarters, it should be expected some fluctuations in our net commission income by taking asset management business, which is vulnerable to the financial market performance. There could be some fluctuations, but we would be happy if we could finish this year with a positive single high-digit change in our net commission income revenues.
The next question is about the consumer credit. Can you please provide some help on your consumer loans interest spike in Q1 2025? I can take this question. When it comes to consumer credit, we have the second largest book in Lithuania. We've been growing steadily and winning market share over the last few years. We think we have a really good product. We're able to underwrite loan in less than four, three minutes for the customer. We have a ton of sales financing. We reached the scale, and we have a product where we think we no longer need to compete on the price. We can start playing and trying to combine the growth as well as use a little bit of the margin from the customer. That's what we're going to do in the future.
The next phase of consumer credit line is to play with the dynamic pricing, try to balance those two effects so that we achieve the highest possible Net Interest Income. The next question comes from Signet. Good m orning , Valters. What does the impairment expense model adjustment already include and the potential impact from the U.S. tariffs? Tomas, maybe you want to comment on that?
No. The current stance of our models doesn't take into account these kind of potential impacts that could be in the future.
Okay. The next question comes from Thomas Destano. How do you see non-performing assets in the near term? Tomas, maybe you can help with that as well.
As I said, given the fair macro situation, our performance recently, we do see that we can end up at 20-30 basis points Cost Of Risk. Again, what could be some fluctuations in case some of the logical changes will be implemented into our calculations. Looking at the longer-term period, let's say four quarters period, 20-30 basis points expectation is a good choice.
Thank you. The other question from Thomas Destano is, in spite of the wonderful performance, why should a bank stock remain underpriced. Happy to take this question. It is no secret that bank stocks do trade on profitability and dividend yield. What we are trying to do here in Lithuania is we are trying to achieve growth and win market share, which would not necessarily be what the stock market is rewarding. Over the next couple of years, our ROE will be depressed. If you take the medium or long-term view, you will see the ROE expanding. That is why we are changing our ticker. We expect that people who take the current price levels will win and will be happy in the medium term. That is our answer. I do not see any additional questions. I think this concludes our Q&A session.
If you do have additional questions, please reach out to the investor relation team, and we will get back to you as soon as possible. We are always happy to take one-on-one calls. Thank you, and have a wonderful day.