OTP Bank Nyrt. (OTP) Earnings Call Transcript

Ladies and gentlemen, welcome to the OTP Bank Third Quarter 2026 Results Conference Call. Please be advised that this event is being recorded. [Operator Instructions] At this point, I would like to hand over the floor to Mr. Laszlo Bencsik, Chief Financial and Strategic Officer.

Thank you. Good morning and good afternoon, depending where you are, and thank you so much for joining the third quarter interim report [indiscernible]. As usual, we -- you have the presentation available on the website, and we are sharing it as well online as I speak. I'm going to give you, hopefully, not too long overview of the most important kind of headline news and on explanations around on the third quarter results, and then we will have time for questions and answers. So I suggest we start on Page 3, which shows -- tries to summarize the performance of this year in the third quarter, but mostly the first 9 months to the year-to-date performance. So let's start on the right side with the key performance indicators and the ones on which we made our guidance. So the first one, organic loan growth, 12% in 9 months. It's not annualized. It's 9 months growth. And we indicated at the beginning of the year that we expected around the level of last year, which was 15%. Now the kind of proportional growth has been somewhat higher than last year. So if you annualize it, you get somewhat higher than 15%, and this is actually quite strong. Net interest margin better than last year. We changed the guidance, in fact, after the second quarter results presentation and said that instead of similar to last year, net interest margin may actually be higher this year than last year. And indeed, this is what we see. First 9 months, more than 4.6%, and it seems to stabilize that level. So I think it's fair to expect to remain higher than last year for the remaining of the year. Now these two together, strong organic growth, mid-teens and improving net interest margin resulted in 19% growth in net interest income year-on-year. Bear in mind that this is an FX adjusted growth, taking out the impact of the currency change rate changes, especially the -- here, the most important being the Hungarian foreign appreciation, which has been considerable, especially if you compare the first 9 months last year and this year. So this is adjusted with the impact of the half exchange rate change all the P&L lines you see here in the middle of this chart. So this kind of add interest income, I think underlines and captures the organic growth momentum of the group close to 20% in terms of revenues coming from this loan growth and a somewhat improved interest margin. Cost-to-income ratio slightly better than the first 9 months last year, and this seems to be so far better than what we indicated because our original indication was that it might be higher than last year. We still keep that indication being on the safe side and being conservative. The risk cost ratio is not very different from last year. But bear in mind that this year, we had two big one-offs hitting. There is cost line. And you also see them on this slide in the middle part. The first one, we already reported in the second quarter, and that was the modification loss due to the rate cap extension under Infinite -- until Infinity, so kind of turn rate cap for the variable mortgages in Hungary. And we booked that the total negative potential impact in the second quarter. Now in the third quarter, there was another kind of one-off loss hitting us in Slovenia, you're probably aware of this kind of litigation regarding the old Swiss franc lines. These are loans which were issued by the banks that we acquired before we acquired them. So this is a kind of inheritance we have to deal with on the past before the acquisitions. And there has been some special interpretations of the law put this way in the Slovenian legal decisions of the courts. And that led us to a conclusion that the best course of action is to try to capture the potential total loss from these low suits, the litigations and create a one-off provision. So the number you see here is what is the entire expectation for these litigation cases, including potential future litigation cases. This is a loss estimate. So it's not a -- so basically, there's equal probability of ending up after a couple of years with a lower level of loss and with the higher level of loss. So this is our expected number. And we hope that with this, we put the financial impact of this problem behind us also in Slovenia, similar to other countries in the region. So Actually, these risk cost ratios include these two one-off negatives, which we had to incur during the second and third quarters. I mean, we put the third quarter number with that on the first 9 months number, we had the rate cap impact. And that was kind of slightly -- only slightly higher than last year with that Russia, Ukraine and Uzbekistan. There was another one-off, which was positive surprisingly in a way. But it's good to have some positive surprises as well. And that is a tax shield while we recognize after kind of simplifying the internal ownership structure of the group. When we acquired [ NKPM ] in Slovenia, we acquired a holding company, an [ SPV ], which earned and [ NKPM ] and there were various reasons for the transactions being such, namely that there was some, for instance, some government guarantees related to this holding company, those expired. And it was time to simplify the group structure, the internal ownership structure. So now the entire Slovenian bank is owned directly by OTP Hungary, it was sold from the Luxembourg holding company. Now this transaction resulted in a tax shield and a tax kind of saving on a negative one-off impact on earnings in Hungary according to Hungarian tax legislations. And that actually counterbalance the also Slovenia related cost of provisioning for the Swiss franc loans. Including all these effects, the kind of year-on-year growth with that the FX impact for 6% profit before tax. And if we have -- if you adjust that with these elements that we listed here, then the annual offered before [ PBT ] growth was, in fact, 11%. Now taxes went up, and I will elaborate on that, and that's the nonfactor in Hungary and also in Ukraine, by the way, and therefore, we have a somewhat higher tax burden this year. And altogether, this resulted in kind of 6% or if with all these adjustments 8% year-on-year growth. The quarterly numbers, again, there were some noise in the quarterly numbers coming from these kind of one-offs, and there were other kind of quarterly change explaining not so much one-offs, but recurring items either on an annual or a quarterly basis, which impacted this quarter-on-quarter change. But fundamentally, on the underlying business performance level, there wasn't so much difference between the second and the third quarters as such. But these details will talk about a little bit in this of the Hungarian business. The next slide is just a technical slide, and this shows this kind of modification of what we apply when we smooth out the impact of the taxes in Hungary, specifically the excess taxes and some other kind of regulatory burdens in countries and in a way, accrue need to be comparable between quarters. And then we can go to Page 5, which describes the development of the major KPIs and the profit after tax in Hungary in the core activities. And here as well, you can see if you look at the quarter-on-quarter results, you can see quite a -- well, first of all, there was a drop in the second quarter from the first, and that is a strong increase from the second to the third. And we kind of listed the items, which had a substantial impact, and some of them are actually recurring, but again, more tactical nature and one was this kind of fair value adjustment we have to book for this more than EUR 2 trillion. It's getting closer to EUR 2.5 trillion subsidized loans in Hungary, which we have to mark-to-market fair value adjusted according to the changes in the yield curve. And that in the third quarter, it was actually positive 9%, and the second quarter, it was negative [ 7% ], it explains EUR 27 billion from the quarterly change. And then we had the negative rate cap provisioning in the second quarter. We didn't have that in the third quarter. So again, this explains EUR 26 billion positive. And then we -- in the second quarter, there was some negative revaluation result from the portfolio investments in [indiscernible] plus we had a positive impact from the dividends and share swap regarding the OTP Mall share swap transaction in the second quarter, which did not appear in the third quarter. So these are other technicalities. But kind of explain most of the quarterly change in the Hungarian business. And by the way, most of the quarterly change on a group level as well. Net interest margin again, better than last year and seems to stabilize. Cost to income, again, somewhat better than last year. Risk cost not so much different from the first 9 months last year. And here on this slide, you can also see the extra charges we have to pay in Hungary, which are substantial, obviously. You know the '26 numbers already, they have not changed, and the news is that we actually know now what we are going to pay for '27. It's rather unfortunate that despite with hindsight rather optimistic and humble expectation is that there might be a material decline next year, it's not happening. So we have to delay our expectations to '28. Apparently regarding a material decrease in the sector charges falling on the financial sector and we see other sectors as well, but the banking and insurance sector are the kind of the biggest burden carriers in this respect. And the only line where we don't expect further charges is the rate cap, right? We provisioned the maximum potential loss from the rate cap. And we also launched the appropriate legal actions. So we turn to the constitutional port for remediation because we believe that all these rate caps are unconstitutional, at least since the very special high rate environment ceased to exist in Hungary. So we are not saying that we expect a positive number here next year, but it could happen. I mean, in case the ruling is in favor of us, we may see a positive number if negative, then this then 0. Yes. Okay. Going forward, and elaborating a bit more on the Hungarian situation. The -- in terms of the banking sector, the largest kind of event or the most interesting event for the last year has been including the end of the last year has been the subsidized home start program, which resulted in a surge of demand in housing loans in Hungary. And I think we kind of took our share of the opportunity rather successfully, as you can see, our market share from us from mortgage generation increased during this period. These are -- the profitability of these products are attractive. So we are happy to be able to take part in these programs. They're all -- now you probably heard that the program has -- is being changed. So this is -- this week is actually the last one. or until next week when clients can apply for the subsidized structures. So the fourth quarter, and we have a huge but tsunami of applications. So our colleagues are working extremely hard to fulfill all client demand and we are going to do that. So we are going to fulfill all the applications, which satisfy the criteria. So that means that the fourth quarter this year will be potentially quite strong as well in terms of loan growth or new applications. But starting from next year, and that's the following slide where we put some data around the comparison of the old or the existing subsidized structure and the new ones. So if you go to Page 7, we can see the changes. So there will be more limitation on the eligibility of the new program. And in case of used residential property transactions, the subsidized scale is going to be lower for the clients instead of -- sorry, higher, so the subsidies will be less, but the rate is higher for clients. So instead of 3%, it's 5%. For the new, it remains 3, but there will be more limitations on the usage of property, especially and the eligibility of the buyers. So therefore, we expect the program to shrink some of the eligible demand. And therefore, compared to this year's extraordinarily high loan growth in Hungarian mortgages next year, we may see moderation more back to the kind of normal summer in between because this is still a meaningful and potentially interesting structure for a number of our clients. Looking at the other market segment, retail segment in Hungary, consumer loans, there hasn't been such a dramatic shift there. We continue to be strong. And Interestingly, if you look at on this chart and the market share in retail deposits, you see a slight drop. Now that drop is actually a technical effect. One of the neo bank, which is active across many countries in Europe, moved its Hungarian retail deposit volumes from their kind of outside Hungary accounts to their Hungarian accounts. So [indiscernible] are part of the Hungarian statistics provided by the national bank for the whole market. So this decline is actually due to that. And the market itself at least statistically increase. However, it's rather kind of muted impact, and this shows the -- now the -- I think the full and realistic picture of the market shares of different players, including the one which used to be kind of offshore from the perspective of statistics at least. In terms of corporate growth on Page 9, I mean, we were an outlier is planning because we started to grow our corporate volumes already in '25 when the market was not growing much. And this trend actually continued into '26. So we have, I would say, healthy meaningful volume growth in corporates in Hungary, most importantly in micro and small, which are really the core of Hungarian kind of client base here. Now Subsequently, the result of that growth was that our market share increased to levels where we have not been before, right? At the end of September, our market share from loans to Hungarian corporates increased to 22.3%. And me is that in -- I mean, this is something, I believe, remarkable, and we are certainly proud of this development. It means that in less than 20 years organically because we have -- obviously, we haven't done any acquisition, which involved corporate loans in Hungary. In 18 years, basically, we tripled the market share, and it took like roughly 10 years to double it in another way to increase it again once more and therefore, we are at this level. And now we are a clear leader in corporate lending as well in Hungary, not just in retail products, which is very important for us. On Page 10, you have an overview of the performance of the outside Hungary parts of the group, the banks. And it's pretty, I think, steady performance, except one-offs in -- I mean, or technical impacts and a result of technical impacts, let's say, in Slovenia. Organic Slovenia went down because we had to book these provisions for the Swiss and mortgages. And if we hadn't done that, then [ Reto ] be same as last year. The other country where we had kind of regulatory change was Ukraine, where the corporate tax doubled from 25% to 50%. And again, you can see that if we had on the same corporate tax rate as last year. And we would have a 3% only slightly lower than last year ROE. And then where we had improvement, it's Uzbekistan. Uzbekistan, as you can see, margins improved considerably. That was the first step. And hopefully, starting from the second half of this year and going into next year, we will see a much more dynamism in terms of loan growth as well. The third quarter this year was already 3% and 8% in consumer loans, it started to accelerate. Now we hope that this is going to continue into next year. And then the country where return on equity declines in Russia. And this is a normal kind of a result of the lower level of basically trade activity between Europe and Russia, where we take a smaller part. But the total transaction volume is going down. So our clients' transactional volume is going down as well trend like, and this is what the financial impact of that can we see here as well. Okay. Margin, quarter-on-quarter margin was relatively stable. And what you see here is a kind of more of a noise, just a kind of fluctuation. But more meaningful is the year-on-year change, which is -- which shows improvement almost in every aspect. So having said that, on a forward-looking basis, we don't expect so much trend-like change unless there are major moves in the rate environment in the different countries where we operate, which we don't so much expect to happen for the foreseeable future in for the next year or so. Now talking a little bit about volumes and organic growth, on Page 12, you see the cross section, the cross country and cross segment -- product segment numbers. The overall 12% and the kind of different numbers show that we are accelerating in Ukraine. So we started -- we restarted lending basically beginning of last year, and we continue with that. Obviously, the base is still low. But strategically, we believe that we understand the environment and we know how to start to grow our lending activity in a profitable way in the current still, albeit it's very difficult environment given the war and the rather escalation and the escalation of the of this situation. But we are always hopeful that this is just an escalation before major deescalation, which we very much hope is going to happen soon. In terms of volumes, obviously, the two biggest are in Hungary and Bulgaria. And the good thing is that both of these countries are growing quite fast and quite strong. In Bulgaria, this is primarily fueled by just the fundamental macro environment and the positive impact from joining the Eurozone. And in Hungary, admittedly, it's also positively impacted by the mortgage subsidy scheme, which is running strong still. But hopefully, Hungary will take a similar path trajectory as the other Central Eastern European countries to join the Eurozone during the next couple of years, and that should translate into higher -- structurally higher loan demand and obviously structurally lower and decreasing rate environment and pressure on therefore, on margins, but in a good scenario, that should be compensated by the additional volume we generate in terms of earnings. Okay. deposits grew 8% in the first 9 months and given our 80% loan-to-deposit ratio that it doesn't totally provide the liquidity and the funding for the longer, but it's not far from it. So it's keeping up strong, especially Hungarian retail and Bulgarian retail, which, again, in terms of volumes, are the biggest chunks of this picture. And also in terms of profit contribution are obviously the biggest part. So the whole group, these two segments. Other details, portfolio quality seems to continue to be stable, provisioning strong. So there's not no major development here. In terms of capital, also not much surprises. We are -- as you can see, in 9 months, we generated 2.9 percentage points of [indiscernible] equity tier 1 equivalent of regulatory capital. Roughly half of that is somewhat less than half of that has been consumed was consumed by the organic growth and then some dividend deductions according to the regulations because we don't have a fixed payout ratio policy as such. And we continued to buy back shares. We had a EUR 60 billion contingent in the first half of the year. And then we also ask for the increase of the general purpose treasury share kind of quota from the Central Bank. So that's another EUR 30 billion increase. And then not in the third quarter. So it's not in the numbers, but recently in October, we got another permission to buy EUR 50 billion more, and this is going to be reflected in the fourth quarter capital ratios. So we continue to buy back and easy, sorry, buyback shares. And this 17.8% in terms of common equity ratio -- it's one slide forward, please. Yes, yes. So I mean, we are -- I think compared to others and also compared to regulatory requirements, I would say it's clearly bad about requirements and peers. But in Tier 1 ratio level, we are still above but not as much above as in common equity to an issue terms. Here, obviously, we are working on closing the deal in the Baltics buying Luminor and that transaction is going to comfortably reduce somewhat the Tier 1 and common equity Tier 1 ratios. And on -- at least on a Tier 1 issuer level, get us closer to our kind of relative target level, which is to be at the kind of higher part of the group of comparable banks, which are on this chart on a Tier 1 ratio level. In terms of wholesale funding, we continued in the third quarter our efforts to provide the group with -- primarily with the MREL eligible funding. So we did senior prefer, and we also started basically last year to issue covered bonds because of this very strong growth of the mortgage book in Hungary and because this is the cheapest source of funding for wholesale funding for the group. And we continue to diversify our investor base. So we made a small issuance in Swiss franc, and we continued our bilateral funding structures with in Chinese Euro. Wasn't much development and the rating on Page 18. So that I mean here, we very much hope that the new economic policies and the more sustainable trajectory of the fiscal situation in Hungary and the intention to join the Eurozone and in general, the improvement in the overall rule of law and governance of the country, I would say, hopefully, there will be -- it will be reflected at some point in the ratings of the sovereign as well, which might have an impact on our rating as well, but it has not happened yet. Page 19, some kind of marketing slides, I would say but these things we are quite proud of. I mean, we are coming from a small country from a kind of small background and it's always good to feel we get step-by-step recognized more globally as well. So we are in a [ cordless ] then 400 I don't think you actually get down to that level of list if you start eating, but nevertheless, we got then we found ourselves, so that's a good news. And the other usual slides regarding the Standard & Poor's global market. Intelligence Ranking, #2 this year and the somewhat updated but still very relevant stress test, which was done in '25. There will be another, I guess, next year and then Well, we fair, we hope we fail very well. In terms of efforts to promote and support especially environment and the climate change reduction, so to say, we continue on green lending. This is -- we believe this is our potential meaning most meaningful contribution to these cars, and it's also profitable. So we are quite happy to continue to do this. In terms of expectations, it's not yet time to talk about them so much for next year. What we know is in Hungary are I think two important factors. One is the special taxes, the level of which we already know and we show in this presentation and the other one, we now understand how and to what extent the subsidized mortgage scheme changes. So in a way, we have the potentially most important regulatory factors we already know. In terms of macro development in most of the countries where we operate, we expect kind of similar or slightly better environment next year than this year. So that should be supportive. The biggest improvement is in Hungary. Hungary has been a laggard for many years, unfortunately, compared to other countries in the region. GDP started to grow this year, and we expect 1.7%, but that is still kind of structurally lower than in all -- in each of the neighboring countries around us. Now next year, we expect that difference to close and Hungary to catch up in terms of growth rate, at least with the region. And that should be overall positive. And at the same time, I think it's quite credible, the budget, the fiscal target being lower than 5% it could have been much more aggressive and that would potentially result in somewhat earlier fulfilling the mass split criteria, but that was the decision of the government to take a somewhat more gradual path, maybe the right one. And they targeted 4.9%, which we believe is quite doable and possible. So that's more or less the environment. And in terms of the guidance for this year, we don't feel that -- we didn't feel necessary to change it. So it remains as it was after the second quarter. And regarding next year performance, we will share our views on that if you join us on the next con call when we present the annual figures on the 5th of March. So I hope you can keep your curiosity and interest high, and you will join us as well. So that was the presentation as much as I could shorten it. And then please ask your very pertinent and good questions, and we will try to answer that.

[Operator Instructions] First question is from Simon...

Two things. Firstly, just on the Slovenian Swiss franc provisions. Can you give us a view on the outlook going forward? I mean do you think you'll have to top up provisions? Is it -- what are the main assumptions behind that? I guess you moved to a portfolio approach to building these provisions. So a little more commentary there would be helpful. And then my second question would really be on fee income. It seems that fees kind of went down quarter-on-quarter in a number of markets. My understanding was that you were constrained up until June in Hungary as to how much retail fee increases you could do. I guess I thought in the third quarter, you were able to push through some fee increases, but it doesn't seem to be yet impacting positively the fees. So just a little more color on fees, particularly in Hungary would be helpful on the outlook going into next year.

The provisions what we made in Slovenia reflect our best estimate of the total potential loss we may have from the legal cases, which are current and which can be expected in the future, but it's model based. So I mean, expectations -- I mean, it's unlikely that it's going to be 100% precise, and it will take next 5, whatever more years for everything to kind of feeder out. But this is our best estimate of the total expected loss. It might be lower, it might be higher. This is our best estimate. In terms of fee income, we may go to -- I mean, we have a slide in the appendix, which is -- yes. So we try to kind of give a rather detailed explanation because indeed, this is fee income is a line where we don't perform according to the kind of usual growth rate compared to the overall fundamental growth of the business, right? And as you can see on this slide, year-on-year underperformance is in Russia and in Hungary, right? Now Russia is obviously that trend like and it's just explained by this lower transactional transfer activity, which is okay. So this is not something we want to turn around. This is what we follow, and we are not proactively trying to promote this business. So this is going to continue, and that's kind of okay. Now Hungary, you have this kind of longer explanation here where we try to explain the most important factors, which impacted the first 9 months and also which had only a specific impact in the third quarter. So indeed, from the 1st of July, we increased the fees to some extent. But -- and there's another impact, which is more technical. There's EUR 3 billion commission income on quarter-on-quarter, which is rather -- it appears based securities that's related to our retail securities commissions to our coming from activities or services to our retail clients. And this is usually not so strong during the summer, and there's also a delayed kind of accounting or settlement of these revenues. So that is typically fluctuating between quarter-on-quarter. So the fourth quarter will be structurally higher in that sense. So yes, I mean, it was lower in the third quarter than in the second, and it came from this factor and the other fee increases, I mean, we have to take into account and the market conditions as well and the pricing movements of other -- or our competitors. Hopefully, starting next year, we will not be distorted activity in the market, neither from the regular rate or from competitors and the expectation is that the normal kind of inflation-related changes which are allowed by -- specifically allowed by the legislation in Hungary, we can implement those from the starting of next year. We underline transaction of volumes driving this net fee income remain strong. So there's no difference in that. There's one impact here, which we may -- I'm not sure whether we highlighted it so much in previous calls. And that is related to this on a year-on-year basis, this difference of EUR 9.4 billion in terms of commission expenses, which we are paying to commission fees we are paying to third-party sellers. And that is related to the surge of housing loan activity compared to the first 9 months of last year. So this is again -- going forward, this is going to have less and less impact compared to the base because it's going to become part of the batches in that sense. Other than that, there are no big news or structural change here than what we kind of explained on this chart.

The next question comes from the analyst of Morgan Stanley Gulnara Saitkulova.

So my first question is on Russia. Following the recent headlines about the potential sale of your Russian subsidiary, could you update us on the progress of the strategic review? And what are the main execution hurdles and the prospects for completing a sale? And if a transaction proves to be difficult to execute, will you consider stopping new lending and pursuing an orderly runoff in Russia? And regardless of the outcome, would you consider publishing financial targets and the metrics, excluding Russia to give investors a clearer view on the underlying momentum for the rest of the group?

Well, indeed, we made that announcement that when we review the strategy in Russia, which is due to two factors: one, that the previously regular dividend payments were stopped in the fourth quarter last year. And since then, we have not been able to take dividends out, and that somewhat colors the picture, so makes it more dark from our perspective. . And the other one is obviously our efforts to conclude the transaction buying Luminor in the Baltics, which where our position in Russia is certainly quite sensitive, and we take that sensitivity quite seriously to -- and we are in the process of reviewing it. And therefore -- and we -- I think we explicitly said that this will take until the end of the year. So I think the new course of time when we communicate about that, we all read the annual presentation when I believe Peter as well here, our CEO, and then I'm sure we can share with you if we came to a different conclusion than before. Unless we find a buyer in meantime, which -- I mean in terms of transaction, doing a successful transaction seems to be extremely difficult and we don't see that situation changing so much. And that criteria is remain the same. We are not willing to take any compliance risk counterpart is during a potential transaction, and we may be willing to suffer some discount compared to our perceived market value of the asset, but certainly not too much. So I'm not -- so I -- that hasn't changed. Nevertheless, part of the strategic review is that we seriously and honestly look at potentials and look at market and the market and potential counterparties, and we explore -- we make a strong effort to explore this scenario as well. So this is what I can tell you at this stage, that we are making considerable effort to explore potential alternative scenarios. Whether we can find one, that I don't know.

And another question on the...

Sorry, I didn't answer the second part of the question. Publishing figures without Russia, I mean, yes, I mean that's -- we may do that, yes. Certainly, if we come to a different conclusion regarding strategy, we can start -- it's not that difficult. The most important number is we talk about anyway, namely the volumes and the profit is technically 0 intergroup activity between our Russian bank and all the other parts of the group. So it's -- you can just easily take out the profits that we generate there and this is this volumes likewise, there's not no intrigue funding to Russia. And then the other important factor is the potential impact on the -- on our capital ratios. Assuming the most negative disaster scenario, if we had to deconsolidate the whole -- the entire asset. And that number at the end of the third quarter was 40 basis points positive. So if we -- for any reason, we had to, which is completely unlikely and we don't certainly do not at all expect that to happen. But in theoretical scenario, if we had to deconsolidate the entire asset without any compensation, the impact which have been positive or would be positive on our capital ratios by 40 basis points, so upward, not downward.

And can I also ask on the costs and the operating leverage. So if you look at the 9 months, operating expenses increased 15% and against the revenue growth of 10%, how much of that cost growth is recurring? And what are the key moving parts we need to consider for the next year, particularly for the rate translation IT investments? And what do you expect this efficiency gains from these investments to become visible? And what scope is there to restore the positive operating leverage in 2027? And what could be the key levers to drive the positive operating leverage?

Yes. You kind of highlighted our most important management focus at the moment. So we are -- so this will certainly identify as a problem. We don't want to have negative operating leverage or negative Joe. And we want a positive one, and this is something we are working on hard to repeat or a man in a short period of time. So that's certainly strongly in the focus of the management. How much we can do next year, we will elaborate on the next con call. When we talk about '27 expectations.

The next question is from an attendee joined via phone. I open the line. [Operator Instructions].

Good afternoon. It's Jovan Sikimic from ODDO. I hope you hear me.

Loud and clear, yes.

Great. So I have a question on Serbia and Create. I mean given what has been happening in Serbia is similar to kind of what happened in Hungary in April. There were some smaller kind of banking, I would not call it a crisis, but kind of some local players stumbling smaller ones. So have experienced anything unusual when it comes to deposit outflows? And how do you see your corporate loan book in terms of quality and maybe if you have some public loans in your portfolio in Serbia, do you see any potential risks coming from that angle? . And on Kresa, I mean, the margin was a bit, I think, tried to development of other euro area countries, maybe you can explain the reason and also higher cost of risk, is it like a single case? Or was it anything kind of or you revised models and you simply just increased the overlays going forward? That would be my question.

Indeed, Serbia, there has been a land slide, change and the leadership of the country. And indeed, this is similar to Hungary. At least in terms of the outgoing administration features, the incoming is not different. In Hungary, we have -- or we had an opposition, which was led by a very strong political figure, whereas in Serbia, this is a very different organization and movement in -- and it's much less clear what economic policy and in general policy kind of plans they have or indeed, the leaders of this -- of the new political regime will be in Serbia. So what clear is that in terms of rule of law and kind of strengthening the judiciary and the independence of the judiciary and in that sense and fighting against graft. In that sense, they seem to be on the same side as in Hungary. And we have already seen actually more rapidly than in Hungary, a long string of events in terms of making people accountable in Serbia. So that is very interesting to see. And in general, we believe that the rule of law and is both positive for market activities. But specifically, what policies do expect in Serbia, there's very little we can tell. We are optimistic, but we don't know much, and I think not much known is No. We haven't seen irregular deposit activities. So that is reassuring I mean, it's a country where we are well-established rather large banks. So if anything, this is -- usually these disruptive events tend to be positive for us, right? But no major events. In terms of portfolio risk, we don't see -- we have not been able to identify any meaningful changes in risk of exposures. But again, we don't know much about the intentions of the new government or the new government itself. Fundamentally, we are expecting improvements and we are -- and assuming that they can establish kind of management of government, which is in control of all the policy questions, but why wouldn't they be able to? So this is -- this can be a positive turnaround in Serbia, but there's very little known so far. For Croatia, there hasn't been any specific development, meaning last year, risk cost was EUR 3 billion. Now it's EUR 5 billion. Okay. Third quarter was somewhat higher. We -- there was one corporate exposure where we created EUR 1.7 billion other risk cost, and that's -- yes. And we released provisions in the second quarter related to previous litigation cases, which we created years ago. So these were the two kind of events in the second quarter and the third quarter, which resulted in a somewhat bigger difference between the quarters in Croatia, but nothing extraordinary happens and that seems to be change in the -- I mean -- and that [indiscernible] seems to be quite stable and well around countries, so to say. And suddenly, the summary was strong. I mean the tourist season was quite strong. So we are doing well. The problem we have there is our size. We are only #4 in Croatia, right? And that is not ideal. Croatia is not a huge country. It's a -- it's obviously for us, is very important and big. But in terms of -- this is not Croatia as a banking market is not ideal to be #4, right? In some markets, which are large enough, #4 is okay. In Croatia, this is not. So this is our kind of other strategic pain point that in some of the countries, we have not managed to grow our market shares to be #1 or #2. I mean, which would be the ideal situation, which we have achieved in Slovenia, in Serbia, in Montenegro obviously, in Bulgaria and Hungary, but not in Croatia are in Albania and [indiscernible] in all of us in these three countries, we don't have the optimal size. And that shows in the -- on the returns. I mean, Croatia return on equity somewhat lower -- is lower than the group and lower than in Slovenia and in Bulgaria. But this is unfortunately a size problem. And it's also Yes. So there's no quick fix to that.