Otp Bank S/Adr R

Dear ladies and gentlemen, welcome to the OTP Bank Force Quarter 2023 conference call. This conference will be recorded. As a reminder, during the presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Laszlo Bencik, Chief Financial and Strategic Officer. Laszlo, please go ahead.

Thank you. Good morning or good afternoon, depending where you are. Thank you for joining us today on OTP Group's 2023 full year results presentation. As usual, the presentation, what I'm going to use is available on the website for you to download, but we are also kind of projecting it parallel to the discussion where we have on my presentation. As usual, we go through. First, I try to go through rather quickly this presentation, which is in the kind of usual structure. And then we can have Q&A. So the highlights of the group. We had a good year last year. in Hungary and outside Hungary. And in general, I mean, this is probably not a surprise because most of the banks had a quite good year in 23. But nevertheless, in terms of OTP history, I think this is a kind of major milestone. What we reached, we exceeded 100 billion euro balance sheet and exceeded 2.5 billion euro profit after tax. And we kind of solidified our position in the region as one of the dominant multinational banking groups. And certainly we have a unique position in a sense that we are pretty much the only one of the banking groups across the region who actually originated from the region, come from the region. So we have strong positions in five countries, which was strengthened last year, especially with the acquisition in Slovenia, our second acquisition, and we entered a new country in case of Uzbekistan. And not last year, but at the end of January, early February this year, we signed an agreement to sell our Romanian businesses, which is also kind of, it hasn't been a big part of the group, but strategically, it was a kind of difficult decision to make, but I think we made the right decision. And certainly the financial impact of that decision has already been reflected in the 23 Profitability was quite good, I think, 27% all in compared to the around 14, 15% expected return level and somewhat declining expected return level given the, especially in half rates, there has been a strong decline. in the risk free rates. There's some normalization in the cost of capital as well. And very stable kind of foundations in terms of liquidity, in terms of capital, both of these positions strengthened considerably last year. Liquidity coverage ratio, around 250%. That's 2.5 times higher than the requirement. And we managed to strengthen our capital position despite doing these two rather sizable acquisitions in Slovenia and Uzbekistan. So the year-end common equity to our ratio was 16.6%. And that means 20 bps improvement year on year, including the acquisitions that we have made. And we managed to meet and somewhat exceed the MRAL requirements as well. So the year-end ratio was 25.1%. And from January 1st, the new increased requirement was or has been 24%. So this has been a quite costly exercise because we had to issue a lot of bonds, which we didn't need for our kind of normal business activities or from a liquidity point of view, but only for this purpose to meet these new type of capital requirements when we have met them. And Pro40 quality remained quite stable with decent coverage levels and low risk costs. So I think overall, this is a pretty strong picture and we remain committed strategically to ESG targets. Now let's look at a bit into the numbers themselves in the group level. First of all, if you just look at the bottom line, headline number 990 billion of after-tax profit, that's almost three times as much as in 2022. Now on this page on the right lower corner, you can see the so-called adjustments. And these items changed a lot from one year to another, whereas in 22, we had like minus 245, 23, it was minus 18. So the big difference in these so-called adjustments contributed most of the difference between the two years, or it was a major contribution, it wasn't most, but there was a major contributor to the difference. And if you go line by line, the effect of acquisitions was positive in 23, and that's coming from the NKBM and Ipoteka acquisition bed wheels, which were both positive, and the Romanian bank sale, which had a negative impact on our acquisition. P&L, we kind of reported this when we signed the deal early February. So the impact here is minus 29.5 billion, and that's included in this 64.9 billion positive number on the acquisition line. The bank taxes, primarily in Hungary, declined. And that's a good thing. And then we expect further decline next year. Sorry, this year in 24. Interest rate cap was extended into the end of June this year for variable mortgages until the end of March for SMEs. So that ever still these extensions cost us including the last one in the fourth quarter last year. Not just Hungary, but the Serbian cap was also accounted for. And the other line where there's a considerable change year on year is the effect of the Russian-Ukraine war. In 22, we had big losses here and in 23, it was close to zero. And on the other line, we had a positive number, and that's this last year, 15 billion. Most of this, like 10 billion, was related to the reversal of the provisions that we made due to the kind of reversal of the losses that we had, what we booked in 22 due to the Sberbank default and the subsequent resolution actions, we booked the loss in 22 and we reversed that in 23 because it did not manifest at the end. Now, if you look at the kind of bid at one of, with that adjustment items numbers on the left lower corner, it's still quite a strong growth, 70% year on year growth, which was while driven by various factors. Number one, we included the P&L contribution of the two acquisitions, what we made last year, and their combined contribution was 74 billion. 96 was positive, was NKPM, and minus 22 was IPOTECA. And overall, if you look at the ratios, And then in the rest margin improved from 3.5 to almost 4%. And that came primarily from outside Hungary countries, especially those in the Eurozone or quasi Eurozone countries. And we clearly benefited from the higher EUR rates, whereas we did not benefit. It's quite contrary. The extremely, extremely high rates in Hungary actually were negative marginally for us in Hungary. And the credit risk-cost rate was quite low in general, but especially compared to 22. 22 was the year when the war started and we provisioned kind of excessively, especially in Russia and Ukraine, but in all the other countries as well, because we had to increase coverage ratios for the other countries as well, given the worsening economic expectations. So that resulted in 178 billion risk costs in 22. And these factors did not manifest in 23. In fact, the whole risk cost was 39 billion negative. And that included the 22, sorry, the 52 billion risk cost, what we booked during the second half of the year in Uzbekistan in an input take. I'm going to talk about this in more detail later. Looking at the consolidated P&L, I think maybe if you I mean, if you highlight the 28% without acquisitions and FX adjusted, full income growth, I think that's that's quite good, growing organically 28%. And that resulted in actually 37% growth in operating profits. So in just in one year, we grew operating profits more than one-third organically. And maybe the quarter-on-quarter comparison, I think, is the net interest income growth, which is quite prominent and important. Looking at the lower growth trend on page five, We love this chart, apparently. It keeps coming back, but I think this is important and it keeps reminding us how much we have grown over the kind of last period, the last seven years. We tripled the size of the group in terms of total assets and in terms of loan volumes, it was even higher growth. And we kind of reached this above 100 billion euro level. put it in this into another context 10 years ago in 2003 uh the group was 10 billion euro all together so it's like 10 times growth in 20 years any other very important change in the structure of the group that now kind of two-thirds of the the group is coming from outside hungary uh both in terms of profits and in terms of exposures. On page six, we start few pages detailing the Hungarian performance. Again, if you just look at the bottom line number, then it is kind of 10 times improvement compared to 22. And here, I think it's safe to say that most of the changes come from this so-called adjustment So just going through them one by one. The windfall tax, the extra profit tax declined, as you can see here. The special bank tax increased. That keeps increasing. By the way, this is the tax which have been with us since 2010. So you could argue why we put it into the adjustments and the one-offs, and we are kind of reconsidering this and just to I don't want to scare you but starting from 24 we are going to substantially reduce this one of these adjustment items and we will reserve this category all into items which are related to the actual buying or selling of of of assets of banks or other assets and everything else will go into the normal kind of profit. So we are not going to show this as special items, but more about this when we present the first quarter. So the kind of special bank tax, which this is the one which was introduced in 2010, that keeps increasing because this is, here the tax base is related to the sub consolidated Hungarian assets, what we have. And since those are growing, this number is growing and will continue to grow in the future. For this year, we expect around kind of close to 30 billion. Whereas for the windfall tax, which was introduced in 22, and already decreased from the 22 level to this 36 billion in 23, it is going to decrease, and this is in the legislation actually, further down to possibly around 6.5, 6 billion off, assuming that we are going to buy the necessary government bonds, and we intend to reduce it down to this level. Now the interest rate cap appeared, we talked about that. There was no effect coming, negative effect coming from the Russian war or the Ukrainian war, the war in Ukraine, between Russia and Ukraine. But on the other hand, in the others line, we had a big plus. Now this is somewhat confusing because this is actually, these are items which don't appear typically on the consolidated level. 80 billion of this is specific to the standalone view of the Hungarian bank. And this is related to the investments into the subsidiaries and the value of these investments and the impairment reversals on these investments into subsidiaries, including the reverser of impairment on the or the kind of revaluation impact on the Romanian bank. So when, I mean, on the consolidated level, the sale of the Romanian bank had a negative P&L impact because we sold it at 0.7 time book, local book, right? And the value below the local book, which we, book value what we had in Romania. in the Hungarian books, the book value, the asset, the value of investment of the Romanian subsidiary was much less, was already impaired compared to the book value of the Romanian bank. So actually, and therefore, the sales price was actually higher than the value of the Romanian bank in our books in Hungary. So actually we had to book on the Hungarian standalone level, bank level 37 billion plus. And there were other impairment reversals on investments to subsidiaries, including our Serbian bank, 21 billion. So all these together added up to 80 billion plus. which only appears on the Hungarian numbers and not in the consolidated ones. So that's somewhat confusing, but I hope it was clear. And there's another kind of technical element, which we talk about when we detail the other income development in the group. but maybe it's worth talking about here. The accounting treatment of the subsidized retail structures like the baby shower loan and the subsidized mortgage structure is such that we have to fair value adjust them. So when there are kind of strong movements in the in the rate environment and or they change the uh subsidy structure of the new newly issued learns we have to revalue the existing book and the existing book is quite big so this revaluation positive revaluation last year was 87 billion half and uh After tax, it was 79. So out of this 303 billion half adjusted profit in Hungary, which grew 18% compared to 22, actually that was 79 billion related to this. So that was a kind of one of boost. This is not unique to OTP. I mean, Erste Bank a few days ago, published their numbers and they reported that they booked 43 billion plus due to this fair value adjustment evaluation of subsidized loans. So just these two banks together, OTP and Airsta in Hungary, booked 130 billion of subsidized loans. kind of one-off accounting policy related positive number. So we estimate that maybe the whole banking sector might have booked around 200 billion positive last year. And this is actually a very substantial boost to the earnings of the Hungarian banking sector. Bernhard Neum?rker- And this is, I mean obviously i'm unlikely to be repeated put it this way, this year. Bernhard Neum?rker- On a more kind of fundamental level, the improvement. compared to 22 happened in our case, in basically in the kind of yearly, if you look at the quarterly development of the NIM, there's a strong improvement here. Year on year, the NIM actually declined because in this very high rate environment, this is not what we optimize our balance sheet for. And you can see that after the rate, the environment started to fall, starting from the second quarter in 23, there has been a strong, I mean, reasonably strong improvement in the net interest margin. Part of the improvement in the fourth quarter was technical. We also talk about this in this presentation later on. So basically 26 basis point out of this 60 basis point improvement in the fourth quarter was related to kind of one of technicals. But even if you exclude them, the net interest margin in one quarter improves from 2.2 to 2.55%. And this improvement is structural. So this is going to stay with us. it's not going to go away. So I think this was the kind of most exciting part of the fourth quarter result in Hungary. This is one of the two, three most exciting developments that really the Hungarian net interest margin started to react positively to the changing rate environment. A few more words about Hungary, volumes and and kind of business trends on page seven. Looking at the mortgage market, there was a big decline in overall disbursements. So the overall, on a market level, disbursements declined by 50%. They went down from 1.2 trillion and a half to 600 billion and a half in 23. And our newly disbursed volumes also declined, but only by 31%. So the decline in our case was much less than the decline on the market. Therefore, not surprisingly, our market share in new production has grown, did grow last year. And our kind of volume growth, stock volume growth, in our case of 4% compared to the market growth of 1.3. So we kind of outgrew the market last year. Now there's even bigger outperformance of the market of OTP last year as in consumer loans. So if you look at cash loan disbursement, our market share has increased even more considerably. And by the end of the year, in the fourth quarter, we reached 45% market share, which is quite in this kind of not subsidized market-based cash loan annuity disbursement. And in terms of volume growth overall, stock volume growth grew 16%, whereas the market was growing by 7%. Now, the other kind of exciting retail segment, the retail deposits. This was quite problematic last year and very painful for us actually, because current account volumes on the entire market declined by 1 trillion half in the first 10 months. And this was given our kind of above 40% market share in retail current accounts. This was and particularly hurting our profitability. And this was one of the reasons why our margins went so low in the first half of the year. And the good news is that in the last two months, in November and December, there was 500 billion increase. So this decrease in retail current account volume stirred around at the end of the year. And that was one of the kind of reasons behind the improving net interest margin in Hungary next to the lower interest rate environment. Now, this was, again, a specific market situation in Hungary. There was a very strong reallocation of funds by retail clients and retail government bonds. and mutual funds increased considerably while bank deposits declined. But nevertheless, in this kind of declining retail deposit market, we managed to increase our market share year on year last year slightly. Corporate story is somewhat different in our case. Our corporate volumes, in fact, declined last year. But if you... have a closer look at previous year's growth. So in 22, we grew 32%. And most of this growth was in the second half of 22. The market in 22 grew by 15. So our growth rate was more than twice more than the market. So what happened was that basically our clients pre-financed their loan demands. And we were willing to do that. So we provided them with the loans that they demanded. And therefore, there's a kind of timing of these loans. Much more was done in the later part of 22 than on the market level. And therefore, less was left for 23. And obviously the GDP decline and the high rate environment contributed to the overall kind of slow growth of the market. And this is clearly an item where we expect improvement this year. So we are very much hopeful that long growth is going to come back. And this is what we prepare for in terms of corporate. Despite the overall decline in volumes in our case, we have been quite active in distributing the subsidized structures, which kept existing. So we had kind of more than 40% market share in the disbursement of subsidized volumes. The next page is our kind of usual decomposition of the and NII and net interest margin development. There's no new item here. So that's basically just an update on the information, what we shared in the previous two quarters. I don't think there's much to say about this here. On page 10, we have details about the performance of part of the group, which is outside Hungary. And that was really a success story last year. With the exception of hypotheca new acquisition, all these banks were contributing quite strongly to overall profitability, you can see the ROE numbers and the nominal kind of volumes as well. I think quite impressive, especially Bulgaria, exceeding the 200 billion Half profit after tax level, very good improvement year and year. Slovenia with NKBM on board, 130 billion. And Serbia was also very strong. A few years ago, Serbia was tiny, right, in our case. But having done these successful acquisitions, it's one of the strongest contributions to our overall group of profits. And And Russia, Ukraine, after the less good performance in 22, both of these countries were strong profit contributors in 23. In case of Ukraine, actually a 50% corporate tax was introduced at the end of the year. So the fourth quarter was, loss-making because it was retrospectively applied. So we had to pay taxes 50% on profits for the whole year. And we had to account for these additional taxes for the entire year in the first quarter. But even after this 50% corporate tax, the profit after tax remained 45 billion half, which is, I think, quite remarkable given the situation, the war. in the country. Now, the good news is that this 50% is not going to stay with us. In 24, it's going to be 25%. So this was a kind of one-off high rate. I mean, we are usually quite critical of these bank levies and additional bank taxes. But if there's, I think, ever a situation where Extra bank tax is warranted. It's the case of Ukraine. I think it is quite understandable that they tax the banks somewhat higher in these difficult times. And then maybe I talk a bit about the situation in Uzbekistan. So we have two slides detailing that. Now we are learning this country and the banks. So we, quarter by quarter, we have more information. So hopefully we can give you better and better picture of what is going on and maybe more intelligent answers to your questions. So where we stand now, just... showing you the performance of the second half of last year. So in terms of volumes, corporate volumes declined by 38% in six months. This was due to the fact that the migration to stage three. So these are performing loans. Performing stage one and two loan volumes declined by 38%. due to migration to state three, and obviously due to the fact that we really, I mean, we seriously kind of strengthened and made more conservative the lending standards as well. So not much new lending was done in corporate. Now quite in contrast to that, in retail, we were going quite fast. Mortgages grew 15% in six months and consumer loans by 120, more than doubled. I mean, these are not annualized growth rates. This is actual period-on-period growth in six months. And And that's actually the core of our strategy in the country. Just to remind you, the reason we brought this bank was not to grow so much in corporate, but we wanted to capture the opportunity in the retail segment in Uzbekistan. That's why we brought Ipoteka Banka. Ipoteka actually means mortgage. So it's a primary mortgage bank. And they have like 20 plus market share, 25-ish percentage. market share in the country. So the core focus of our strategy or the real focus of our strategy, the retail segment was actually growing quite fast. And it continues to be, I mean, from the levels, from the volume levels, what we have there, potential quality demand is, is almost unlimited and continues to grow. The only limitation to growth is really local currency liquidity. Unfortunately, the monetary policy environment is extremely tight. I mean, the base rate is 15%, the inflation is much lower than 10, and there's just not enough. There's a very tight local currency liquidity level in the system. And that's the biggest impediment to growth. And swap markets are not available in the local currency. Not that we would want to do that, but it's not quite possible to finance any local currency growth from injecting liquidity into the country. The only kind of limitation to growth on the retail loan side is really the deposit development. And the good news is that we actually managed to grow deposits relatively strongly in the second half of last year. So corporate deposits grew 23% and household deposits 15%. Again, these numbers are not annualized. These are just end of period growth rates. So, I mean, what's happening here? I mean, we are obviously improving the activities and the sales techniques and tools of the bank. and there's very strong digital share of the new flow. For instance, out of the consumer loan sales, so the cash loan is worth when, as you can see, in the fourth quarter, we actually sold 77% of the cash loans digitally. And when we brought the bank in the second quarter, it was only 40%. So a much larger volume was sold and a much larger share of those were actually sold through digital channels. And this is without actually replacing the app, what they originally had. We made some tweaks and quick fixes, but a big kind of step up in the quality of the digital services what we provide will come when we completely replace the current digital front end and that's going to happen somewhere at the end of this year. So this is kind of even working progress on the developments. Now, what happened in the corporate portfolio and quality? First of all, it's clear that the state's overall increase was coming from or was the result of the corporate portfolio deterioration. The retail portfolio remained quite stable as you can see on this chart. So the retail stage three ratio hardly changed or even kind of declined. But the big increase was it was corporate and micro small. Now on this slide, you can actually see the industry split. So most of the state's three ratios. So that's of the state's three loans. So this is like the most, more than half of these loans, which defaulted, are in the cotton textile industry segment. There's another big share in fisheries and in the agro sector. And actually the others are quite small. Now, what happened? I mean, apparently cotton prices collapsed. I mean, if you compare the peak in 22 second quarter to the low in second quarter 23, then the price difference was actually not 30%, but 50. So cotton prices fall by 50% in one year. And on top of that, they had a very cold winter. The winter of 22, 23 was the coldest in the last 50 years in Uzbekistan. And this situation was exacerbated by the fact that there was not enough gas supply and gas subsidies were reduced. So they could not eat these kind of fish lakes or ponds where they grow the fishes and they could not eat the kind of these greenhouse, these where they grow fruits and vegetables and things like that. So the weather and the kind of limited supply of gas and more expensive gas and therefore no possibility to provide the right heating for what they needed in the fisheries and the agro sector and the cotton prices and also the weather conditions in the cotton industry resulted in unprecedented losses. So in a way, it turns out that we seem to be unlucky with the timing of this acquisition, because we just managed to buy this bank in a best in the worst kind of external conditions here. So now and our understanding is improving day by day of what's happening exactly with these clients and what and And this is where we are at the moment. So these are probably the strongest drivers. Now, the other side of the coin, obviously, is that if we look at the bank's ability to monitor and collect and do work out of corporate loans, and we compare that to the levels that we have in the other parts of the group, there's a huge difference. So there's an enormous improvement opportunity and potential in kind of basic risk management and portfolio management practices of the bank. And we have started to do that improvement since we took over the bank, but it takes some time. So we are making progress on that side and hopefully there will be visible results of these improvements in the policies, procedures, people, everything basically related to managing existing problematic portfolios, but it takes some time. And unfortunately, the relatively low level of this preparedness during last year and these negative external environmental factors resulted in this iteration. Now, if you look at coverage ratios, what you can see, the reported ones are not fully providing they don't provide you the full picture because when we buy something, we have to net provisions to gross loans. So the beginning balance sheet, the opening balance sheet at the end of the second quarter last year, In that, provisions were already netted out. So what you can see in the balance sheet of the bank is the kind of net amount of these non-performing loans. And therefore, the previously created provisions disappeared. Therefore, there's a difference between the reported netted out coverage level and the actual coverage which compares the provisions to the kind of gross total provisions on the loan to the total exposure of the loan. And the latter one is adjusted is higher. So in fact, provisioning level is 56% on these stage three corporate loans, which is in line with the kind of other levels in the group. And if all goes well, we are actually hopeful that there might be some revisions or provisions later on from these, if all goes well. Okay, so that was about Uzbekistan and Ipoteka. Now, maybe a few thoughts, but not much about kind of the P&I Alliance in a cross-section view. So NII, I already talked about this. I already talked about the one-off technical Francesco D' items in in the in the half in in Hungary in the fourth quarter, which kind of was part of this, the story of this fight grow strong quarter and quarter gross in an eye eye. Francesco D' In in a particular we had a reclassification which caused the decline on a quarter on quarter basis in an eye eye without this reclassification actually. the NII would have improved by 3%. Net interest margins, next page, 14, reflect the same story. Again, part of this large improvement in Hungary was related to one-offs, but even without one-offs, it was strong. And otherwise, across other frontiers, typically improvement in margins due to the rate environment. Page 15 quarter on quarter long growth. I mean, the kind of previous momentum was was kept to 1%. And if you look at the year on year growth, 6% organic and 20% including acquisitions. I think the most remarkable number said a number here is Bulgaria 20% growth. And especially mortgages, 23% growth. And this is not just OTP Hungary. So overall, the market is growing fast. And that's coming from two factors. One is that the country is doing well. Actually, three. The country is doing well. Penetration ratios are low. But there's an interesting third factor, and this is something we could learn from in other countries. In Bulgaria, interestingly, retail loans are all variable. But the benchmark of these variable retail loans is a benchmark which is officially published by the central bank, and it is the average rate of the retail deposits. And this structure, industrial structure there resulted in an interesting situation that, okay, deposit beta was close to zero. So the deposit rates did not increase despite the much higher rate environment. Therefore, the variable stock rates, consumer and mortgage did not increase. and also the new production rates did not increase. So probably we have one of the lowest mortgage rates in Bulgaria across Europe. And the margins are quite strong and we are not, we don't have to be afraid that if deposit pricing happens, then we lose margins or lose NII because the the the the the benchmark of the variable retailers is the average deposit rate retail deposit rate on the bulgarian market so i think this is a kind kind of i'm not sure whether this was designed with purpose but it has been served for quite a long time for last 10 15 years and and basically all the banks have this these structures and this specific uh feature actually resulted in much higher growth in Bulgaria, which is a quasi Eurozone country, right? They are joining the Eurozone January next year. They are already in ERM2. So it's basically interest rate-wise. It's just a kind of Euro rate environment. Well, that's just a kind of small flavor on the situation there. Deposits. Again, there was a very, very important development in the force on a quarter on quarter numbers. And as the Hungarian retail deposits, they went up by 2%. The previous three quarters last year, they were negative. And that for us, that was extremely painful. So that's a very welcome development. I hope this is going to continue. Otherwise, we're now kind of year on year Change level, next page, 18. Sorry, 17. I'm sorry. No, 18. Yeah, 18. Yeah. Overall growth was 7% without acquisitions. So kind of higher growth rate than loans. And therefore, actually, loan to depositation group level slightly declined. and kind of general strong growth, except Hungary. And as you can see, on a yearly comparison basis, the retail growth in Hungary was, deposits was negative, despite the fact that in the fourth quarter, there was 2% increase. For income, despite low volume growth in Hungary in loans, and then the and also negative deposit growth, retail deposit growth, and actually declining GDP. We had 11% growth in fee income and that's due to inflation. So, I mean, obviously despite a recession and declining GDP, nominal GDP obviously increased, and fee income tend to grow with nominal GDP growth. The other two, I mean, growth, strong growth rates in Russia, that's related to the deposit volume increase. And in Hungarian fund management, a huge increase happened in assets under management. where retail deposits were negatively affected by the very high rate environment and the very high yield on the retail government bonds and money market funds. Obviously, fund management and fund managers benefited a lot. A lot of retail savings moved from bank deposits to mutual funds, and therefore, our fund management company, which is largest in the country, had a pretty good year. Other income. Again, on this other income line, you see this strong growth in case of Hungary, 74 billion year-on-year growth. As you can see, as we wrote it down in the comment section here on this page, and I already talked about this, In 23, we had 87 billion plus revaluation result related to these loans, fair value adjustment. And yeah, and in Russia, the conversions kind of revenue was strong. So that was strong for the future as well. Operating costs. I mean, unfortunately not just revenues increase, but costs as well. quite considerably. And not surprisingly, Hungary was quite high in terms of operating expenses growth, driven primarily by personal expenses, 30% year on year growth. That was due to the high inflation and high wage inflation. I mean, we had to keep pace with the with a very tight job market last year. There seem to be, from our perspective, some improvements. I think this very tight labor market is getting a bit relaxed, and hopefully we can much better control in the future the increase of personal expenses, especially in Hungary. The Albanian strong growth year on year is due to the new acquisitions that includes the acquisition. Risk cost. Typically positive or small negative numbers, writebacks, except hypotheca. I already talked about that when I talked about the bank there. So that was due to this corporate deterioration, stage three growth. Overall portfolio quality, page 23. Again, I mean, pretty stable year on year, actually strong improvement in terms of the stage three ratio and the growth in the second half, Actually, that's due to Uzbekistan and in particular states ratio going up quite a lot. And we keep our kind of general high provision levels we kept last year. Capital kind of decomposition of the change of the common equity tier one ratio. Again, it increased last year by 20 bps. and there was a strong positive contribution from earnings and 1.3 percentage point was used for the acquisitions. In fact, here you have a negative kind of number for the Romanian bank, but once we actually close the transaction, the all-in number will be positive on a common equity deal, one of those 43 bps and the kind of capital adequacy ratio that was 52. In terms of capital adequacy ratios, I mean, again, quite much higher than requirements, page 25, maybe we can go, yes. There's nothing new here. Page 26 shows the MREL requirement and the year end number. So we met the requirements. And in order to meet the requirements, we obviously issued a lot of bonds and did some bilateral deals, as you can see on page 27. So more than 2 billion euro equivalent was issued last year, including the the bilateral deals. And the coupons, what we see here, I mean, these are decent and good levels compared to the market and the market environment, but from our kind of internal management point of view, these are very high rates and very high costs of funds. So this whole MREL exercise is really expensive for us and hurting us actually a lot because our cost of funding related the MREL instruments is probably higher than some of the Western European banks. Page 28, I mean, there's not much change on this page, improving ratings, continuously improving ratings on ESG. dimension, which is in line with our strategy. Now a few words about what we expect for this year. Now obviously, in most of the countries where we operate, we expect a better operating environment. In fact, we expect a better operating environment everywhere. It's just that the growth rate might slow down somewhere in certain countries like Montenegro or Ukraine, Russia, but marginally they are also improving. But in the kind of biggest countries from our perspective, especially in Hungary, where after the recession last year, we expect GDP growth to come back. Our expectation is like 2.5%. The government expects, I think more than 4%. they are right then there's a big upside risk here but bulgaria strong slovenia accelerating croatia extremely strong the last quarter last year was very promising so i think there's some upside potential in that growth rate serbia doing very well albania extremely well i mean montenegro good uzbekistan about five percent growth and in russia ukraine in in our forecast we we We did not expect much change in the operating environment. If we are lucky, we can, or I hope that the war ends sooner than later, and then if that happens, or at least freezes the actual military activity, and then we could expect a much, much higher growth, especially in Ukraine than this. Romania improving, but that's hardly, more relevant for us given that we sell the bank. We expect the transaction to close actually quite soon. The buyer is Bank of Transylvania and they seem to be strongly supported by the local supervisors. We don't expect any and we expect a quite swift closing of this transaction. Moldova speeding up. It's amazing how fast they brought down inflation from an extremely high level and also the rate environment, how it collapsed. So that's in itself a very interesting story. So before going into the expectations of this year just a quick look at what we uh indicated for last year i mean we all we we kind of delivered what we indicated so all these uh points which were included in our guidance last year developed according to the guidance so that's good and then looking at what we uh indicate for this year. Low volume growth. I mean, given that the whole operating environment improves, GDP growth improves in most of the countries where we operate. We expect a lower rate environment, much lower in Hungary than last year. And certainly, especially in the second half of the year, a decreasing rate environment in the Eurozone and Eurozone-related countries, lower inflation. So we are hopeful that this is going to translate into somewhat higher loan demand. I think it's unlikely that we return in one year to the kind of 21, 22 levels, or the 21 level, So it will take probably more than one year to do that, but hopefully we can improve on the last year growth rate, which was 6%. Now interest margin, we indicated here, maybe flat compared to last year. And this is the line where there's considerable positive risk. So there's an upside potential in this, given that rates seem to, kind of stays somewhat higher, somewhat longer, and also the very favorable developments in the Hungarian retail deposit current account numbers. So there might be some upside here, but we remain cautious with the guidance, I mean, to be around last year. Cost-to-income ratio of 45%, around 45%. Portfolio risk profile similar to last year. So here I think that we are reasonably convinced is that the operating environment improves and the the current quality of the portfolio is quite stable and good. So if there's further improvement, we don't see why the underlying portfolio quality should deteriorate. And overall in Uzbekistan, we also expect improvement. The exact risk-cost rate is more difficult to kind of project. It might be somewhat higher than last year, but the important factor is that the underlying portfolio quality, we don't expect it to be different from what we have had recently, and that's quite a strong performance. Now, as we keep on accumulating earnings and increase Bernhard Neum?rker & capital, the leverage is going to be lower this year than last year and that's going to have a negative impact on our ways, maybe our ways really are we will be lower some of them last year dividends. Bernhard Neum?rker & The current indication is hundred and 50 billion, and this is the likely number, which is going to be decided on the board on the 20th of March and then. suggested to the general management meeting. We already started to buy back our own shares. Early February, the National Bank approved a program of 60 billion, half equivalent of share purchase, share buyback. So far we have done, I mean, by the end of yesterday, we brought back less than 6 billion. So there's kind of 90% of this is still coming and we are doing this gradually. So I think when you look at the return to shareholders this year, you probably want to kind of add the two together, the 150 and the 60. And I mean, I cannot exclude and I don't want to exclude the probability that there will be other phases of this share buyback. So our internal decision was on this 60 billion and we received approval for 60 billion. But once we buy back this stock, we will obviously kind of revisit the capital situation of the group and make a decision accordingly on potential future buybacks. There are some future MREL, at least, I mean, we did one MREL, additional MREL bond in late January this year, already 600 million. And probably there will be one more and maybe two more during the year that also depends on our kind of volume growth in new loans. So that was pretty much the presentation I wanted to make. The disclaimers are also important, so please have a look at them. And then I would like to open the floor for questions, so please ask your questions.

Thank you, ladies and gentlemen. We will now begin our question and answer session. If you have a question for our speaker, please click on the raise hand icon to indicate or press star 9 on your phone's dial pad. The first question is from the analyst of Goldman Sachs, Mikhail Butkov.