U.S. Markets closed

Edited Transcript of TLV.BX earnings conference call or presentation 19-Aug-19 1:00pm GMT

Half Year 2019 Banca Transilvania SA Earnings Call

Cluj Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Banca Transilvania SA earnings conference call or presentation Monday, August 19, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* George Razvan Calinescu

Banca Transilvania S.A. - Deputy CEO & CFO

* Laura Petrehus

Banca Transilvania S.A. - Head of Public Relations

* Ömer Tetik

Banca Transilvania S.A. - CEO

================================================================================

Conference Call Participants

================================================================================

* Catalin Diaconu

Raiffeisen Bank SA, Research Division - Analyst

* Daniela Mandru

Swiss Capital S.A., Research Division - Research Analyst

* Simon Nellis

Citigroup Inc, Research Division - MD and Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to Banca Transilvania Results First Semester Conference Call. I'll now hand over to your host, Mr. Ömer Tetik, the CEO. Sir, please go ahead.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [2]

--------------------------------------------------------------------------------

Hello. Good afternoon. Thank you very much for joining us. I hope the sound quality is also okay that you hear me. We are glad meeting you over this teleconference presenting our first semester results, first 6 months results of Banca Transilvania, the Financial Group of Banca Transilvania. It was indeed a very interesting year at the start because we were just after the integration of Bancpost, which we, as you know already, successfully finalized operationally and technically at the end of last year. And then there was this long debate about the banking tax. We had to review, revise our budget and our estimations. But on the other hand, with the, let's say, developing a good communication, a good dialogue with all the parties involved with the finalization of tax, debate about the banking tax, we could focus on our own business. And thanks to the network of Banca Transilvania and with the power of our people, we managed to deliver very good results, proving that we have organic growth plus capacity shortage in Romania.

In between, although we didn't manage to discuss financial results, we had been discussing strategy with several investors and our cash objective about Romania, our standing in Romania. And the first semester results proved that our prudent optimism proves to be correct and true because in the first 6 months of the year, we managed to grow our assets almost 5% just organically. That brings strong capital adequacy and liquidity ratios. Definitely, the increase in several income statement items will not be comparable outright because last year, in the first 6 months, we were consolidating Bancpost in the group structure. But this year, they're in the individual balance sheet of the bank, so no more consolidation.

However, even if you look at the income items beyond the integration of Bancpost, beyond the impact of Bancpost, we see 10%, 12% increase in standalone organic numbers and almost 30% increase in net interest income together with Bancpost portfolio and almost 15% increase in net fee and commission income, again, together with Bancpost portfolio.

The first 6 months, we -- was also, again, in line with our last couple of years cost of risk, a very low level of cost of risk. This was basically related with some -- with the improvements with the economic conditions that is payment capacity of our customers and also some adjustments related to IFRS 9. But on the other hand, we maintain our view that our -- how the normalized cost of risk should be around 100 basis points. The improved -- the grow -- let's say, therefore, reaching a new level of economies of scale and improvements that with in terms of automation, in terms of network restructuring, helped us to reach a 45.8%, slightly below 46% cost/income ratio. So far this year, we will be sticking to our ambitious target of keeping it as low as possible with the next year's targets below 45%.

Generally, the banking system -- the ecosystem that -- of the environment that we are active had been benefiting from a positive sentiment and good numbers. We see that the banking system in Romania is posting historically record profits, a good growth rate and beyond -- above GDP growth. And the main driver of the economy continues to be the retail and SME segments, which will also reflect in our balance sheet. The total assets of banking system reached RON 452 billion in the first quarter. And then profit, we see also, while growing the balance sheet, the bank continues to improve their loan quality and the NPE ratio that's 4.8%.

I will just make a parenthesis, the presentation that we are following now is also in our website that you can reach. But in case if you have definitive questions, we will have a Q&A session. And later, we can also take questions by e-mail to be able to clarify any remaining issues.

The -- in the first part, I would say in the first 6 months, or actually, mainly in the second quarter of this year, corporate lending activity had been growing faster. This is related with the increased activity and investments in infrastructure and government-supported policies in terms of passing of state aid to industrial productive investments. And we see that this -- we see this as a good sign for the development of the economy further.

We are trying to understand as well the impact of the global trade war. The, let's say, the quiet hostile debate between U.S., China, which may include also European Union, and we see that, let's say, some of the industrial sectors of Romania might be slowing down in the next couple of months. But our general portfolio, mainly for local -- production for local markets of European Union-related markets will be less affected or unaffected in general.

I would switch to Banca Transilvania's numbers. And if you have any macroeconomic questions, we can answer it later. But in the first 6 months, as I mentioned, the individual net interest income, BT's net interest income, reached RON 1.3 billion with fee and commission income at RON 350 million. These growth rates are slightly above our budgeted numbers. But also, operating expenses, despite being slightly impacted by the deposit guarantee funds booking of some first quarter's delayed payments of expenses related to Bancpost had been -- operating expenses had been growing less than our income growth. That helped us definitely to deliver a better cost/income ratio. And in the first 6 months of the year, we have delivered almost RON 850 million net profit, definitely as I mentioned already, posted impacted by also a very low cost of risk.

As further discussions between auditors' supervisory body and ministry of finance, the impact of the banking tax will be booked, registered at the end of the year, although the payment is going to be done on 25th of August. So just bear in mind that our -- the impact of the banking tax, as we calculate, but we didn't reflect in the numbers that you see, would be RON 90 million, if you would have booked it in the first 6 months of the year for the whole year.

Our gross loans to customers went above RON 40 billion thresholds. We are at RON 40.1 billion. And deposits from customers also grew almost 4% to RON 64.9 billion, which kept our loan-to-deposit ratio at 62%, with the total equity of RON 7.7 billion. That means that commerce into a Tier 1 capital ratio is included in the profit as well. It is around 17% and total capital ratio of 20.5%, which has NPL of PAR 90, nonperforming loan ratio of 3.1%.

As I mentioned, our pre-provision operating profits grew 42.2% to RON 1 billion from RON 716 million from last year over the same period. This is partially impacted by the successful acquisition and integration of Bancpost partially due to the organic growth because we have seen, as compared to the numbers in the first quarter, that our market share is slightly increased. We estimate the -- as to have market loan, which, although we don't have those final numbers, our market shares -- the market share grew further, mainly thanks to stronger SME and retail lending, where we are also trying to be active. Our loan structure, almost slightly above 50% of our loans are for retail segment. That remaining part is for corporate segment, including micro, SME and corporate customers.

And if you look at the European Union definition of SMEs, actually, RON 16 billion, almost 40% of our lending is in the SME segment. So it's like -- our balance sheet is like 55% retail lending, 40% SME lending and the rest is for mid and large corporate lending. And our positive balance sheet structure in terms of foreign currency and leu in lending activities didn't change much. 78% of our loans are in local currency and 22% of our loans are in local -- or in foreign currency, sorry.

The loan cost is quite stable at 3.1% for PAR 90, and the European Union, NPE ratio, nonperforming exposures ratio is at 4.65%. Our NPL coverage ratio is at 126%, including mortgage collaterals, and if you look at the NPE ratio, our NPE coverage is at 96%.

Our strong presence with our network allows activity in the digitalization of banking helped us also to grow our number of accounts, number of transaction and also deposits. Customers are using more and more bank accounts in their main bank, and our total deposits at the end of the first half were composed of 55% leu, 45% foreign currency loans, coming mainly from retail customers. But we are also benefiting from a very good core stable deposit base from SME customers as well.

In the retail banking, our loan portfolio reached almost RON 22 billion, with 2.8 million active customers. And only in the first half of the year, we had been granting 53,000 non-card retail loans.

This is a very good production number for an event in Southwestern Europe. And then our card was just having almost 22% market shares in terms of number of plastics and slightly over 25% market share in terms of spending. Total cards reached 3.9 million.

We are very proud that after launching BT Pay, Apple Pay also entered into the portfolio. We were one of the first banks launching Apple Pay. And we see that -- coming from definitely very low numbers initially, we see exponential growth. And if you look at the last 3 weeks numbers, we see the wallet application, Apple Pay and BT Pay are becoming very focused among our customers, which do not only do money transfers but also payments in our -- in the -- in our load network, payments in other bank's POS networks and also cash withdrawals contacted from ATM. We are also in the internal testing phase of Neo, our online banking platform, which we think that it will be quite revolutionary in Romania. And towards the end of this month, we will be having the better launch. We will be inviting batches of 10,000 customers on a weekly basis. Then it will be fully rolled out towards the end of September for all our existing or new customers.

In SME banking, we have reached 300,000 active customers. And when I speak about SME banking, it's the definition of BT, up to EUR 2 million turnover per year. And we have granted 8,500 new loans in SME segment this year, besides granting almost 800 new loans in the corporate segment as well, where we have 10,000 customers. Our group has been running -- on top of BT's quite strong financial and operational performance, our group has been also quite active when we look at the numbers delivered by better leasing, better micro lending, better capital partners. We are present in main transactions in Romania. Our market share growth, our new production, had been above most of our peers, and we had been growing our market share in all the segments. As you know, better asset management is also one of the market leaders and offering a good alternative for the savings of Romanian households and customers.

I would, I'll say, leave time maybe for questions further because being the 6 months results, you may have more questions. And if we cannot answer your questions on this post, we'll try to come back either detailing it in our presentation or directly to you. So thank you very much for listening, and we are ready for the questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We have a question ending with 1229.

--------------------------------------------------------------------------------

Catalin Diaconu, Raiffeisen Bank SA, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Yes. So this is Catalin Diaconu from Raiffeisen Bank. So I have several questions. I'll put them up front. So the first one would be we saw some volatility in the cost of risk. So a big positive number in the first quarter and the -- a negative number in the second quarter. Could you please give us a bit more details on what was behind this volatility and also how should we expect the cost of risk to behave in the coming quarters? That would be the first quarter -- the first question.

The second one would be what is the current outlook for loan growth? So it was a very interesting loan growth in the first half. And how does it compare to your initial guidance of around 7%? Also, another question would be related to OpEx. So we saw staff costs rising quarter-on-quarter. And so what kind of guidance should we expect for the coming quarters considering that you mentioned that your cost to income should decrease by the end of the year? And that's about it from me.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [3]

--------------------------------------------------------------------------------

Thank you, Catalin. I just noted 3 questions. In terms of cost of risk, it was quite conjecturally it's -- both the economic improvement and growth, better payment capacities, increased selling, let's say, improved performance of our customers to pay. Our SME customers are selling more of what they produced services of products. Their cash flows are much more relax. But on the other hand, also, we had been having some adjustments related to IFRS 9.

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [4]

--------------------------------------------------------------------------------

Yes. And Catalin, I would like to jump in with some additional, let's say, details, which we are repeating. In fact, they were also mentioned during our first quarter conf call. Meaning that in the first quarter, as we do have the audit going on, several of the provisions, which should be booked, were booked for the end of the year financials. That was an explanation, as I mentioned, already provided. This is why in the first quarter, the level of provisions on a yearly basis looks slightly better than in the quarters to come.

Also, we were having as, let's say, budget for this year, a significantly higher number in terms of cost of risk. We are not really anticipating to reach that number, but on the other hand, we are also not expecting that the cost of risk is going to stay at this very low level. That was, again, also mentioned by us in the previous conferences as well. So...

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [5]

--------------------------------------------------------------------------------

So the volatility that you mentioned, most probably will persist this year. We are expecting -- we are not expecting to go beyond what we have budgeted. But most probably, the cost of risk will stabilize -- it will be stabilized around 70, 80 basis points for this year. And then forward-looking, we are maintaining our position at relevant normal 100 basis points per year, because also, we are discussing a lot of changes in the macroeconomic conditions, global trade, I'll say, all the, let's say, one-offs being digested by BT, accepted by our auditors. So this is one.

Second, there's loan growth indeed. I mean this was -- we were very happy to see that after a very tiring year and a quite bad start to 2019, our delivery channels, our network, managed to deliver a very strong growth. That's why our market share is also increasing further. And I'll say, we managed almost 3.5% loan growth in the first half. As you know, most of the emerging markets, including Romania, 60% to 70% of the loan growth is happening in the second half of the year, mainly in the last quarter of the year. So I mean there are chances that we might be slightly over our 7% loan growth, but we will not be very aggressive.

Also coming back to another question related to this, which has been asked. If you want to accelerate the loan growth to benefit from decreased incentive at the banking tax because if it's -- if the growth is over 8%, we should be benefiting. We said that if the markets will allow and we will find eligible customers within our risk appetite, we will not be focusing on an incentive, but we will grow as much as the markets will allow and our financial statements can guide us. But otherwise, I -- we are not expecting a huge jump, a leap forward in terms of loan growth. Most probably it will be plus/minus 7%.

And in terms of staff cost, also positive. Most of the change -- definitely if you compare quarter-to-quarter or half a year, half a year, now we are discussing about plus 6%. The bank with almost 500 employees, more coming from Bancpost and supporting our individual growth. The numbers are within our budgeted levels, and we don't expect, obviously, the increase in the staff cost or operational expenses to create any bottlenecks, any challenge for us in the second half of the year or the years to come.

Cost/income ratio, we are not -- cost/income ratio, we will not be able to decrease to our target level of 43% within this year. This is our target for 2021. But this year, our main aim is to maintain it between 45%, 46%, next year, to bring it lower than 45% and reaching in 2025, 43%, excluding taxes.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

We have another question. Number ending with 0618.

--------------------------------------------------------------------------------

Unidentified Analyst, [7]

--------------------------------------------------------------------------------

This is from [Tsun Dai] from Harding Loevner. Three questions for me, please. The first is can you please clarify what sort of assumptions went into the calculation of your banking asset tax? The number you gave in your press release was about RON 91 million. And my understanding before that is you're expecting something by RON 130 million. So what led to that variance? If you can please shed more light on that, that would be very helpful.

The second question is the contribution to deposit guarantee fund jumped significantly year-on-year. Was there any change in the way that was computed? Or why did we have that huge jump on a year-on-year basis?

And the last question for me, if you don't mind is if you can give Victoriabank's profit contribution in second quarter, that would be very helpful.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [8]

--------------------------------------------------------------------------------

So in terms of contribution to deposit guarantee fund, it is a quite complex metrics calculation based on the number of payments. These big payments done by our banks, the total deposit amount. So the percentage because of the transactions and volumes has changed, so we had been -- the key impact as compared to our deposits had been higher than as previous year. And we have all the debates in the first month, in the first quarters of this year.

In terms of Victoriabank contribution, it is RON 60 million, which is something like 7.5% of our reported numbers.

And coming back to banking asset tax, I will let our CFO to give you more detailed information.

--------------------------------------------------------------------------------

George Razvan Calinescu, Banca Transilvania S.A. - Deputy CEO & CFO [9]

--------------------------------------------------------------------------------

Okay. So on the banking asset tax, we were giving some information in terms of the expected impact in the absence of any details related to the actual computation of the tax because we didn't have the norms, which detailed the computation of the asset tax until July this year.

Now we have the detailed computation norms on the asset tax. And based on those details, the impact is what we mentioned, a little bit below RON 91 million gross before tax. After tax, it would be around RON 76 million when we'll end the year. However, I would like to mention that this is a year which is computed at -- based on the reported balance sheet at the end of June, and the number will be adjusted at the year-end, taking into consideration the increase in assets, both in terms of asset calculation base for the 6 months until the end of the year and also from the point of view of the deduction that will take place at the final computation.

So having said that, we don't expect actually the end of year computation to be higher than the one that we're going to pay really now at -- in August because we expect -- while we expect the asset size to increase, we also expect the deduction to increase because we are increasing our loan book.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [10]

--------------------------------------------------------------------------------

Yes. I mean there is a mistake we have seen in terms of calculations. The banking tax for the first 6 months, you don't have to, let's say, multiply it just -- multiply it by 2 to calculate the full year because it is based on that. And so we have calculated, which is around RON 90 million and after tax grew RON 76 million. The healthy increase in the banking tax for the second half of the year will be incremental on the assets that we add up on our balance sheet. So it will be quite minimal. That's why the number will be -- probably be much below our budgeted RON 130 million. We were estimating RON 130 million, but we didn't have the, let's say, methodology and details of calculation. So, so far, we see that it is lower.

In terms of Victoriabank's profitability, I'm coming back because Mihaela was just reminding me to mention it. In the first half of this year, we had a couple of, let's say, good one-offs in recoveries so that the results of Victoriabank are beyond their business as usual. That's why, I'll say, we do not expect the same amount of contribution in the second half of early next year. From now on, we need to generate assets there, but we are not considering that positive. Geopolitical and economic situation, we are not very aggressive on growing that.

--------------------------------------------------------------------------------

Unidentified Analyst, [11]

--------------------------------------------------------------------------------

Okay. And the RON 60 million you mentioned for Victoriabank is for the first 6 months, right, of the year?

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [12]

--------------------------------------------------------------------------------

Yes. Indeed. Yes.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

(Operator Instructions) We have another question ending with 64012.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [14]

--------------------------------------------------------------------------------

It's Simon Nellis from Citibank. Actually, most of my questions have been answered. But just to clarify in the bank tax, so the RON 90 million, that's a full year figure, right? So -- and you're saying it will be recalculated at the end of the year, and you don't expect it to be much higher. If you do hit over, like, let's say, 80% loan growth target, how much could that go down by? And then my second question -- yes. Sorry, go ahead.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [15]

--------------------------------------------------------------------------------

Yes. Please.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [16]

--------------------------------------------------------------------------------

My second question is just on this -- the beta launch of Neo. Can you just elaborate a bit on what that is? That's the first time I've heard of this new initiative.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [17]

--------------------------------------------------------------------------------

Okay. For the first question on the banking tax, just in the very unlikely event that we stop growing our banks, we don't do anything, this is the -- RON 90 million is the total amount of tax we will pay for this year. So we will -- it will not grow. So if you -- based on our assets growth, loan portfolio growth, there will be some incremental additions on it, very small -- definitely as compared to the RON 90 million, very significant. And I'll say if the markets will allow us and well, we'll grow over 8% our loan book, there is this 50% incentive. That's the net off will be 50% of the fund amounts. If it's RON 90 million, it will be RON 45 million. But yes, it's not that straightforward. I mean...

--------------------------------------------------------------------------------

George Razvan Calinescu, Banca Transilvania S.A. - Deputy CEO & CFO [18]

--------------------------------------------------------------------------------

Deduction also will be taken into consideration for the half-year computation. So actually, what happened is that we looked at the number of increase, which is around 3%, and it's less than 4%, which is half of 8%, so we don't get the full deduction. We get the -- a large deduction of the tax already. And that's why I said that when we estimated our computation, we didn't know all these details. I mean all the details for the calculation of the tax are public. They're out there. So if you want details, we can direct you to some official sources on explaining how to compute the tax because this is not something that we invented.

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [19]

--------------------------------------------------------------------------------

It is not straightforward by really applying a percentage on a certain of other...

--------------------------------------------------------------------------------

George Razvan Calinescu, Banca Transilvania S.A. - Deputy CEO & CFO [20]

--------------------------------------------------------------------------------

Or you can take the financial assets, you deduct certain classes of assets and then on what you have left, you compute the tax. And then you deduct the amount of tax based on increase of assets, so on the note.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [21]

--------------------------------------------------------------------------------

Okay. But what you're saying is that if you hit a 7% loan growth target, then your tax is around RON 90 million.

--------------------------------------------------------------------------------

George Razvan Calinescu, Banca Transilvania S.A. - Deputy CEO & CFO [22]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [23]

--------------------------------------------------------------------------------

But If you go over 8%, I mean will there be a material reduction? Or has it already kind of been calculated? I know it's not a moving scale.

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [24]

--------------------------------------------------------------------------------

It's around 30% reduction.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [25]

--------------------------------------------------------------------------------

If you look at significant reductions, it will be in terms of tens of millions of leu, around 30% of this amount. And in regard to Neo, actually, last year, we have started, together with the external partners, developing of online banking portal. I'm saying portal because it's, I'll say, a real omnichannel experience, both online banking, mobile banking and network level banking. It's (inaudible) compliant and also, if we have different APIs or widgets that the customers can activate or deactivate or utilize, it has personal finance manager, it has certain biometrics, let's say, login/logoff and also security measures. We think that -- I'll say it will be best-in-class in Romania for a while. Definitely, this is the first iteration of Neo that we are launching this year, which is slight delay as we were planning to launch it in the first quarter of this year. But we want -- we decided to add up more features to the existing platform.

And then on, let's say, every 3 to 6 months, most probably there will be new iterations. We will add new features to layout in -- for an account opening in some, I'll say, credit cards, consumer on application. It gives full online on-boarding capacity and a different type of communication, accommodation with our customers. It is also compliant or, let's say, functioning together with our wallet application. So it's almost, as we were saying, we are going to put a small bank branch in everyone's pocket.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [26]

--------------------------------------------------------------------------------

I see. Okay. And then maybe since I have you on the line, just can you give us an outlook for fee income? That was quite robust in the first half. Is that growth sustainable and what's driving that?

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [27]

--------------------------------------------------------------------------------

Part of the increase definitely is coming from the -- adding Bancpost portfolio because comparing last year's first 6 months versus this year's 6 months, the difference is mainly coming from Bancpost portfolio. But on the other hand, we had been always very vocal and ourselves -- criticizing ourselves to increase our fee and commission income. We are now, I'll say, largest bank, the most popular bank in Romania, and customers are using our banking services besides just simple deposits and payment services. So we do perform very well in bank insurance. We do perform very well in foreign exchange transactions, foreign payment and so on. That's why we think that we will be maintaining our fee and commission income growth for the next few years to come between 8% to 10%. Until 2017, we had been growing almost 15%, above 5% every year. But now we have a different balance sheet, and this high double-digit growth is quite difficult.

And this deal, all are happening while we are also decreasing our commissions per transaction, per service. We have chosen to apply mainly very simple to state kind of a telco approach. We are offering packages to our customers. So they bring more of their transactions to us and then, I'll say, they know how much the banking relationship will cost them on a monthly basis. This is good predictability and transparency for them. But this increases our number of active accounts, both in retail and SME banking.

--------------------------------------------------------------------------------

Simon Nellis, Citigroup Inc, Research Division - MD and Director [28]

--------------------------------------------------------------------------------

Okay. But there was 13% growth quarter-on-quarter. Were there any one-offs? Or is that just all part of the strategy that you just described?

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [29]

--------------------------------------------------------------------------------

So this is actually, I would say that this is strategy, the plan that we have been applying. Also, last year, we have been -- while we started launching packages, there were several great years for the packages for the customers to understand. So most of those packages are entering into payment period now. That's why we see the growth as well.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

(Operator Instructions) We have no further questions.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [31]

--------------------------------------------------------------------------------

Maybe we'll take one last question. And then if you need any detail you can contact our team anytime.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

We have 2 further questions come through right now. So our next question, ending with 1647.

--------------------------------------------------------------------------------

Unidentified Analyst, [33]

--------------------------------------------------------------------------------

My name is [Daniel Gabriel], (inaudible). Can we expect the same, let's say, payout ratio for 2019?

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [34]

--------------------------------------------------------------------------------

I mean we know that our dividend policy is not obviously very clear. But under that, there had been lots of changes, acquisitions, one-offs, changes to IFRS 9, new banking regulations kicking in. That's why I'll say, what we are thinking, but don't take it as a certain guidance but just as an idea that as long as we can deliver the results that we delivered in the last 2, 3 years, more than half of our profitability, we will be able to distribute in cash dividends.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Our final question comes from -- ending with 4216.

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [36]

--------------------------------------------------------------------------------

This is Daniela Mandru from Swiss Capital. Can you tell us what is the loans portfolio regarding the first homes loans because I would like to compute the asset tax, so I need the first home loans portfolio value.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [37]

--------------------------------------------------------------------------------

I don't know up to the decimal, but it is around RON 3 billion.

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [38]

--------------------------------------------------------------------------------

RON 3 billion?

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [39]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [40]

--------------------------------------------------------------------------------

RON 3 billion. And now from where you are talking about these asset tax? You are speaking about deductions. Those deductions are related to what, to the way of computation of this asset tax or -- because I do not understand.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [41]

--------------------------------------------------------------------------------

So the deductions are related to the increase in loan book. And in the law, there is a provision that if we increase the loan book by 8%, we get a 50% decrease in the tax level. But the maturity account for increases are up to 8% pro rata sort of. What we will do, although I mean we are not in a position to interpret it, we will try to make it, I'll say, a short summary, including the deductions or the calculation methodology both in English and in Romania, and we will post it in our investors website. We taught that at least most of our Romanian analysts have read it already. But we will try to be, let's say, we will try to offer some clarity on that.

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [42]

--------------------------------------------------------------------------------

Yes. But these deductions are referring to the full year results, not to the half year results.

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [43]

--------------------------------------------------------------------------------

Yes, Daniela. But here, we are speaking about a balance sheet level, and the tax is at balance sheet level. And if we look at the balance sheet level, this is the tax because there are percentages linked to how big the balance sheet is. And then with regards to the end of the year results, then we are going to come to compare end of 2019 with end of 2018 and see if the growth was as according to those deductions, which are eligible according to this methodology. So first of all, we have a tax based on how big the assets are. And then we are comparing what we have done in 2019, and the deductions are going to be applied and then compensated during the next year.

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [44]

--------------------------------------------------------------------------------

Okay. Understood. And regarding the net interest margin level, can you give us some guidance going further in this for the second half and for the next year?

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [45]

--------------------------------------------------------------------------------

More or less...

--------------------------------------------------------------------------------

Daniela Mandru, Swiss Capital S.A., Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

Is it relatively sustainable?

--------------------------------------------------------------------------------

Laura Petrehus, Banca Transilvania S.A. - Head of Public Relations [47]

--------------------------------------------------------------------------------

Yes. It's relatively sustainable. If you are looking at half year results where both last year and this year, we were not having any kind of one-offs in terms of accounting things, we are at 3.50-something. And this is a sustainable level going forward considering the risk profile and the strategic approach in terms of -- in which sectors we continue to do our lending and to have our growth from.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

We have no further questions. Please, speakers, back to you for the conclusion.

--------------------------------------------------------------------------------

Ömer Tetik, Banca Transilvania S.A. - CEO [49]

--------------------------------------------------------------------------------

Thank you very much for joining us and listening to us. We hope that we managed to clarify most of your questions. As I said several times, if you have any further information needed or clarifications required, please do not hesitate to contact us. And also, as I said, we will try to post a short summary of the banking tax calculation and the mechanism. So that's not only for us but maybe also for banking system in general, we will have a better understanding.

We will hear each other probably at the beginning of November when we will be announcing our third quarter results. Up till then, for the ones who have vacations, I hope that you will enjoy your vacations. So our bank's office wish you good luck and success. See you soon.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

This concludes today's conference call. Thank you all for your participation. You may now disconnect.