Banca Transilvania S.A. (TLV) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Banca Transilvania conference call to present and discuss the first half 2025 financial results. Please note that the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Omer Tetik, CEO; Mr. George Calinescu, Deputy CEO, CFO; Mr. Catalin Caragea, Deputy CEO, Chief Risk Officer; and Mr. Aurel Bernat, Executive Director of Financial Institutions and Investor Relations. Mr. Tetik, you may now proceed.

So thank you for joining our call -- our earnings call. I hope that you managed to get a good summer vacation and now back to business or at least soon, you will have the chance to enjoy some couple of days off and join the business recharge. Romania had not only meteorologically, but also economically had a hot summer. After the establishment of the government, there was announcements about the changes to the fiscal code, new taxes had been introduced. Aurel will be giving you more insight on that. But indeed, these were necessary. And we have already seen that 2 out of 3 rating agencies reacted, I would say, positively accepting both the need and the direction of the changes. Definitely, the changes announced will create an environment where the burden will be shared by everyone, and it will not be an easy and quick fix. So we will not start seeing positive results immediately at the end of this quarter or next quarter. But on the other hand, the momentum is good. Also, as we always say, banking system, especially Banca Transilvania is the leader of banking sector in Romania. We are ready to support the continuous growth as we have done it in the last years and support with both liquidity lending and different products, the investments much needed. We have also news about -- brief news about the EU-wide stress test led by EBA where we had very good results, strong results. It was a first experience for us, but the outcome is confirming that in terms of capital planning and in terms of liquidity, BT is on the right track, and this encourages us also for our further plans for growth. Catalin will provide more details on this as well. We think that the first semester results of BT are quite robust, above banking sector average, although we had a slower first quarter, January to March, where our focus was on the integration of OTP. And also our bottom line had been hit by some one-off events which impacted cost of risk and provisioning. The second quarter, we have seen very strong growth. We have seen accelerated growth of loans, both on retail and company side, deposits started picking up. And we are happy to deliver a return on equity still at 25% with capital adequacy ratio well above the regulatory limits, but also at our, let's say, traditional standards. Our asset size has grown close to 16% and loans, especially with the support from OTP loans after the integration, but also higher growth in the second quarter. We have seen almost 28% growth in our net loans. Our loan-to-deposit ratio is slightly, let's say, positively impacted as OTP didn't have high liquidity as we had. But this is also bringing us to more normalized levels. We are also happy to see that in a very competitive environment, in a very, let's say, well-regulated environment on the fees and commissions, our net fee and commission income is still growing at a high pace, double-digit 12%. So the packages that we create for our customers or the subscription packages that we have been explaining, bringing back the returns that we had been aiming to. And I will let Aurel to give some insight about Romanian economy, about the fiscal changes that we know that they're already applicable. There are also more to discuss maybe with the second and third packages soon to be announced. And then we will come back to the business growth as well. Thank you.

Thank you very much, Omer, and welcome, everybody. I must start with a disclaimer because one that highlighted blue side of our presentation, we are always detailing some evergreen information because these are the information on which we develop our future perspective of growth and so on as a bank. So first of all, we remain and we are the second largest economy in Central Eastern Europe after Poland and having this 19 million investor base or customer base in Romania. On the other hand, we have the fastest-growing economy throughout -- one of the fastest-growing economy throughout Europe despite the fact that on the short term, we had a slowdown during the last couple of months from 2024 and also during '25. In the first half of '25, we have an increase in our GDP of 0.3% unadjusted series and with the seasonality adjustments, we have a plus 1.4%. The third relevant information, as I mentioned, evergreen one is the lower debt to GDP level compared to the European average. Despite the fact that it had quite an increase during the last couple of years, but still it remains well below 60% on a short run. In terms of deficits and what we are seeing in the economy, we are still facing twin deficits, government deficit and also the trade one. In terms of government deficit for the first half of the year, we had similar result as in 2024, which is -- might be considered as a good sign because for the remaining of this year, there will be also the impact of fiscal measure implementation starting with August onward. It's not only about the fiscal measures. We can also talk about foreign direct investments, which had an increase compared to the previous period of 17%. And also until 2025 December this year, we'll have approximately EUR 3 billion extra revenues from the resilience fund. Going back to trade deficit, it also shows some improvements still on the deficit side, but with a slower pace, it's 10.7% this year compared with last year's 16%. Inflation, it was more volatile during this year due to some obvious reasons, which I will detail. Nevertheless, we -- at the end of April, we had 4.9%, and it increased to 6.6% year-over-year in July 2025, being impacted by the cancellation of the price capping in energy. And also most probably during this year, we'll see a spike in September and later on this year of higher single digits, also due to some fiscal measures among which there is also the VAT impact. In terms of wealth in the CEE region, this is also something that we presented to you in previous meetings. We are closing the gap for GDP per capita. We are at 78% from the European average. The dynamics of the GDP for the last 9 or 10 years put us also in bold position alongside with Poland and other countries, which have, let's say, a more positive impact from the financial investment side. Relatively lower debt-to-GDP ratios and inflation, as I already mentioned, these are something that will also shape the future in a more positive manner. For the banking sector, as an evolution, what we are seeing is that on both lending side and the deposit side, the evolution was good. Usually, the growth is higher than the European average. On the corporate loan side, we saw more than 8% increase in lending. And on the households, we talk even about lower double digits, reaching 10%. On the deposit side, the pace of increase slowed. Nevertheless, for the corporate, it's good that we are seeing a return in terms of increases after 2024 when it was a year of more standing by mood from their side and most probably corporates were using their own cash at hand in order to make investments. But now we are seeing a more bullish market from this point of view. Household deposits as well, 10.2%, which is a strong figure. And also, we might add that during the last year, we had good impact on overall investment fund usage in Romania and also for the capital markets. So all the 3 of them contribute to quite a strong willingness to increase deposits from both corporate and households as well. The strong asset quality and robust capital, you can see it as well. The NPL ratio at the system level is 2.81% and the Tier 1 is 21.4%, which are relevant, reasonable and positive details of the sector. In terms of competition, as you already saw in our earlier presentations as well, the top 5 players have approximately 70% market share. Banca Transilvania has a 22% market share, which includes also OTP. It still remains a very vivid market with a large number of banks, approximately 30 banks in the sector. Key highlights. I won't be going through them, just touching them as details in terms of resilience, asset quality, buffers and also profitability at the banking sector. You can as well see the final details. An extra information that it is extremely relevant, especially during these periods of time is the sovereign rating, which was reaffirmed or affirmed by S&P and Fitch as well. Romania having an investment grade with a negative outlook. But on the other hand, it's good to know that the fiscal package is -- was well received by investors and also by the rating agencies. The first fiscal package, which was enforced or approved refers to the VAT, which was increased from 19% to 21%. And also it impacted the reduced rates of VAT from 5% to 9%, which went to 11%. The turnover tax in addition to the corporate income tax, dividend tax, which had an increase to 16%. Social and health insurance, this impacts especially the pension side, which will be paying these contributions for every pension, which reaches the level of approximately EUR 600, RON 3,000. Road tax as well, public expenditure for 2026, which will come as a second package. They are all in debate. So we won't be making official statements regarding any future package. But this estimated impact, nevertheless, RON 425 is a little bit less because it is applied only for half of this year. It means between 0.6% and 1.1% to GDP, but it will have a much larger impact during next year. First of all, we will be talking about 12 months. And also, we'll be talking about some fiscal packages, extra fiscal packages that are on the table right now and somehow covered by the media. Going towards the business performance, George, you have the floor, and thank you very much. I will be returning soon.

Thank you very much, Aurel. So we go into the performance of the first half of the year, where both the bank and the group presents very good pre-provision operating profits. For the first time since we present this type of information, we put in Annex more information in terms of quarterly results because as we mentioned in the first quarter, we think that the first quarter had some one-offs and related primarily to the integration with OTP. And therefore, we wanted to separate the evolution in the first quarter, which you have seen before versus the evolution in the second quarter which presents a more normalized view on the evolution of the bank and what we expect to happen in the next quarters, especially related to the fact that we see more revenues coming in and then less cost because we don't have in the P&L costs related to the integration. So coming back to the evolution overall at the level of the first half of the year, as I mentioned, pre-provision operating profits increased year-on-year by 15.8% at the level of the consolidated results and by 14% at the level of the individual results. This is driven primarily by a very nice growth in terms of net interest income, net fees and commissions and by a very tight control over operating expenses, as you will see in the pages of the presentation. And here, from the point of view of analysis, we can see that the growth in net interest income at the level of the first half of the year at the consolidated level, we get to 25.3%, which is higher than last year growth for the same period where we had 23% increase. And this is at consolidated level, while at the level of individual results, net interest income increased by 19.4%. From the point of view of net fees and commissions income, we do have an increase of 14% at the level of consolidated results and 12% at the level of individual results. The 14% for this year is very similar to the one last year, whereas from the point of view of an increase in terms of individual results, we do have a slower increase this year, 12% versus 15% last year in terms of net fees and commissions income. From the point of view of operating expenses. We do have an increase at the level of the bank of 15.5%. And consolidated, we talk about 22.9% increase. We'll go into more detail in the next pages. But I want to mention that if you take a look at the information that we presented in [indiscernible], you will see that in the second quarter of the year, while revenues increased quite nicely, both at consolidated and at an individual level, costs are decreasing quarter-on-quarter. So we do see the synergies on the cost side being reflected and represented in the P&L, and that will follow on in the next quarters. In terms of cost-income ratio, the bank presents a cost-income ratio overall, including the turnover -- tax on turnover around 45% at the individual level and 47.9% at the group level. And if we didn't have this turnover tax, that would have been less than 42% at the individual level for the bank. I mean, you've seen the numbers presented above. This is significantly level than the average for the banking system, which is above 51% in terms of cost-to-income ratio. Overall, in terms of asset quality, cost of risk with 0.84%. We do have an increase versus the same period of last year, but this is driven primarily, as we mentioned, in the first quarter by some one-offs that were reflected in the first 3 months. And I'm sure Catalin will go a little bit more into details in his part of the presentation. What I want to point out is that the bank continues to have an NPL ratio that is substantially below the average for the system with 2.6%, whereas you've seen in the previous pages presented by Aurel that the system has an average of 2.81% NPL ratio. From the point of view of profitability, as I mentioned, some details in terms of net profit with RON 1.77 billion on an individual level, we show a small decrease versus the same period of last year, driven primarily by provision expense, which were higher in the first part of the year than in the same period of last year. While at the level of the consolidated results with almost RON 2 billion, we were less than what we had for the same period of last year. But then again, in the first half of the previous year, we did have some one-offs related to the fact that we closed the deal with [indiscernible], and that presented some bargaining gain that was booked in the first part of the year 2024. Overall, if you move to the balance sheet evolution, assets increased at an individual level by 6.2% to almost RON 196 billion and by 0.5% at the consolidated level. Loans increased when you compare with the amounts at the end of December at individual level by 18% driven at the individual level, primarily by the inclusion of the OTP exposures; however, we do have increases -- organic increases at the individual level as well in the first half of the year. You see this at the level of the consolidated results. Consolidated results have grown by 5% in terms of gross loans. While in terms of deposit from customers, we do have a 5% increase in terms of deposit at the individual level and a decrease at the level of the consolidated results with RON 158.5 billion at individual level and RON 164.4 billion at the level of the consolidated results. We do see an improvement in terms of gross loans-to-deposit ratio, as we were mentioning in the previous discussions that we had, Individual level increased by 7 percentage points to 64%. And at the level of the consolidated results, the improvement is of 4.3 percentage points to 65.09% gross loans to deposits. And here, this is primarily due to the acquisition of the OTP business. In terms of capital, very good capital ratios above the minimum requirements. I will not go into details because Catalin has dedicated pages on this topic in the next part of the presentation. But let me go a little bit more in details in terms of income and expenses, both at individual and at group level. And let's start by net interest income, where we are at consolidated level at almost RON 4 billion in terms of net interest income recorded in the first part of the year, a 25.3% increase versus the same period of last year, as I was mentioning a little bit earlier. If you look at the structure at the individual level with almost RON 3.2 billion in terms of net interest income, 19.4% increase versus the same period of last year. We do have a strong net interest income evolution. And if you look at the margins, both at the individual and also at group level, with 3.45% and 3.95%, we are well above 300 basis points that we are mentioning as an absolute minimum for the next period. And you will see that the bank was able to maintain this level irrespective of the fluctuations of the base interest rate being it ECB or NBR policy rate. Net interest income is also the largest contributor to overall income in the bank with 70.4% contribution at the level of the bank and 21.8% in terms of group. If you look at the next element that has grown nicely is the net fees and commission. And as I mentioned before, these 2 were the main contributors to revenues in the period. We do have increase both at individual and at group level, and this is driven primarily on the one hand, by the increase of the number of transactions that we have on the current customers. But on the other hand, also by the fact that we do have an increase in the number of new customers in the bank. And in the first half of the year, this was an increase of 40,000 clients at the level of the bank, both retail and companies. They increased in double digits, as I mentioned, 12% at the level of individual results and 14% at the level of consolidated results. In terms of the other components of income, net trading income and both individual and consolidated is growing nicely, driven primarily by FX results. And the good evolution was driven by the, let's say, volatility in terms of FX rate, foreign exchange rate volatility allowed us to take advantage and to have very good revenues in the first half of the year. And then in terms of net gains or losses from financial assets, this is primarily driven by the evaluation of the -- related to fair valuation through OCI. And here, we do have lower results than last year, again, on the background of the volatility related to interest rates in the first part of the year. We have RON 100 million at the level of the bank and the RON 96 million at the level of the consolidated results. In terms of trends in operating expenses, the biggest contributor to operating expenses, both at the bank and also at the group level is personnel expenses. And here, I would like to mention that in terms of personnel expenses, we do see some increases in the first part of the year with 13.9% at the level of the bank and 16.4% at the rest of the group. Part of it is related to the new people coming in from OTP. And later on, you will see a little bit more details on this OTP integration in terms of its contribution to the overall, let's say, balance sheet and P&L KPIs on the bank level. What I want to point out is that from the point of view of increases in expenses, we do have -- if you take a look at the appendix where we presented quarter-on-quarter analysis, you will see that staff expenses in the second quarter of the year versus the first quarter of the year are presenting a decreasing evolution, meaning that we did have some one-offs related to staff expenses in the first quarter of the year. And we have nearly 10% at the BT level and 12% at the level of group. Other operating expenses is the second main contributor in terms of operating expenses. And here, we include also the tax on turnover which is the biggest single item that we have there presented with RON 163 million at the level of the bank. And here, again, we have an increase of 20% in the year 2025 versus the same period of last year and 35% in the first half of the year versus last year at the level of the group. Again, the main type of costs that we have here and that are with the exception of the tax on turnover are related to the fact that we did have some maintenance and preparation of the network related to the OTP transfer of the units in the branches and also some of the marketing and sponsorship expenses related to also the activity in the first half of the year. Overall, if you take a look on quarter-on-quarter basis, these expenses decreased by almost 5% in the second quarter versus the first quarter, both at group and individual level, reflecting the fact that we did have one-offs in the first part of the year. And as I was mentioning, if you take a look at the individual level, overall quarter-on-quarter increase in revenues is of 13% whereas increase in expenses is actually a decrease of 0.8%, whereas at group level, the income increases by 5%, whereas expenses decreased by 5%. If you take a look at the efficiency of the staff, and we've put here an analysis comparing the number of staff increase in the last almost 5 years, 5.5 years, which is almost 24% and the total assets per number of active employees. You see that whereas the number of staff increases by 24% almost, the increase in the efficiency of the staff, it's of 52.4%, reflecting and increase efficiency of the staff that we use at the level of the organization. In terms of cost-income ratio, as I was mentioning a little bit earlier, if you take away the turnover tax, this is 41.7% at the level of the bank. And including this turnover tax, we do have comfortable levels below the market average with 45% and 48% at the individual and group level, respectively. As I mentioned, I will go a little bit more in details on OTP when we talk about the group. But for now, I will let Omer to continue with the business evolution.

Thank you. As I said, the first quarter, as we mentioned, was more focused on the OTP integration, which was, let's say, a record time even for us where we do like [indiscernible] work our integrations. That impacted also a bit of our business growth. But in the second quarter, we have well recovered. So our total loan growth for the first semester is at around 18%. And if we exclude actually OTP integration, still with 7.4% growth in retail banking and also 5.2% growth in corporate banking, we are well above the banking sector average on both segments, also definitely much higher than the GDP growth. We are always mentioning this also the fact that in Romania, financial inclusion, the banking sector weight in the total GDP is low. So we see good potential of growth even at the slow growth environment. In total growth of loans have been around RON 16 billion, RON 15.5 billion year-to-date. And if you take OTP integration out, it's around RON 5.2 billion, which means around RON 1 billion. We have seen an increase in retail loans from our customers, especially in the second quarter. And this, let's say, increased interest is also continuing, I could say, without being able to give you numbers before September call, also in the third quarter. And we are also comfortable seeing that our portfolio growth also offers a quite, let's say, balanced approach and kind of a hedged environment as 65% of our retail loans are floating rate and 93% of our corporate loans are floating rate with the currency distribution between loans and deposits also quite well distributed. Our deposit base is continuously growing. In the first semester, we knew the amount of deposits, which will come from OTP. So we weren't aggressive in terms of pricing. And with our very comfortable liquidity ratios, we do not see, let's say, high pressure on ourselves to increase interest rates. So without OTP, our deposits have been almost flat in the first semester, which, as we mentioned, helped us to improve our loan-to-deposit ratio towards 64%. And one thing that we also enjoy seeing is that as prior to pandemic and war time economy, I would say, our current accounts and savings accounts have reached also in retail banking, 43%. These are, I'll say, this is funding, we consider our core funding, actually part of our core funding at 0 or very low interest rates regardless of the interest environment or monetary policy. And this gives us also a very cheap funding possibility. In retail banking, we had RON 7.1 billion new production. This is organic growth. And out of the new loans granted, around 47% were mortgage loans, 53% were consumer loans, short-term maturities. And just during the first 6 months of 2025, 11,000 households have purchased a new house, a new home with loans from BT. And we are also seeing that the trend, the demand is quite visible also in the third quarter. We see growth of our active customers, growth of cards and payments is a business segment that we are by far market leader. We are investing a lot, and we see also customers prefer more and more using our products, be it on cards or online applications on this segment. In corporate banking, our focus on health care, agriculture, infrastructure investments continues. We had RON 9.7 billion organic growth. There were also government-led programs like Credit to [indiscernible], the farmers credit, women entrepreneurs, which will start soon. While we are taking active role in all these programs, our -- our large corporate business, our mid-corporate business is also being an active creditor of the investments in infrastructure and investments in Romania. I will switch to Catalin for the rest. We have seen some questions already in the platform with regard to the business growth or potential of business growth. I will come back to that on the Q&A. Thank you.

Thank you, Omer. Going on the slide, we will start with the capital position of the group. We can observe the same situation that we are also targeting the fact that we are able to happily maintain the capital adequacy ratio above the targeted level of 20%, which is also including more than comfortable buffer on top of the minimum regulatory requirement, which is for the group is at the level of 17%, 84%. We can also highlight the very high loss absorbing composition of the own funds. And if you are looking to the bottom left slide, you will also observe that we -- as of June 25, we increased the share of Tier 1 own funds through the inclusion of the profit for half year. And this is also concluded in an increase in the capital available capital or available own funds up to 19.5% at the group level. And if we are looking at BT individual or stand-alone level, up to 17.8%. What we also like to highlight, which is the RWA density, which on credit risk slightly increased in 2025. We would like to mention here that this is due to the fading out of the regulatory transitional provisions. Here, namely we are talking about the euro-denominated sovereign exposures, which in 2024 benefited from 0 risk weight and starting in 2025 and successfully -- sequentially for the upcoming years, it will fade out the transition provisions up to the regulated level of the Romanian state RWAs or risk weights. This being said, we can move forward to the asset quality. We can see in 2025, indeed a slight increase in the NPL ratio; however, on the positive side, we can also see that because for this time in the slides, we are showing also the market average. We can see that BT continuously stays below the market average. So for June, the market average is at 2.8% in terms of NPL according to EBA definition, whereas the bank -- so the market system is at 2.8%, whereas the bank is at 2.65%. The increase from 2.07% at the year-end up to 2.65% can be sliced, I would say, in 3 levels. The first one, the first impact, which is around half of the impact is coming from the OTP integration. OTP coming, as I explained also in Q1, coming with a slightly worse portfolio quality than BT. And this basically brought around between 20 and 30 basis points uplift in the NPL ratio. Another significant share from this is due to the one-off -- due to the one-off effects from the first quarter, the corporate exposures, a few corporate exposures where we observed -- where we encountered a default. And the rest is the normal evolution that we have seen also in 2024. In the second part of the first half, so basically Q2, we observed a normalized NPL inflow. This was visible also in terms of risk cost. The risk cost going down from the 1% level which we have seen at Q1 2025 to 84 basis points stand-alone and 89% group level. So basically, in the second part of the first half of the year, we saw a normalized evolution of the portfolio quality. I would say that this is also in line with the economic environment, nothing unexpected in this second part of the first half of the year. What is also to be noted is the share of -- I observed also a question, hopefully, I will answer the question about the share of Stage 2 provisions. Here, we can observe that we are keeping the same share of Stage 2 provisions and Stage 2 -- Stage 2 exposure, sorry, Stage 2 exposures. Of course, if you look in absolute terms because the portfolio is growing, you might see in absolute terms an increase in the Stage 2 exposures. But this, I wouldn't say that this is outside of a normal evolution. Going to liquidity and MREL strategy. Liquidity position proved to still be high. This you will see it also on the next slide. As always, we are above the -- much above the market average with both ratios, LCR and NSFR. If we are looking to the loan-to-deposit ratio here, we are also seeing an improvement. We are seeing an improvement, also George said about an improvement because we consider that we were too low up until now. And now we are basically going slightly up. This is also due to the OTP integration in the bank. So currently, witnessing a 65% [ LTV. ] On the MREL strategy, yes, comparing 2024, December 2024 with June, -- and looking to the minimum requirement, here, we see that the minimum requirement for the group, just to mention one more time that the MREL strategy is always done at the group level increased from 30.1% to 31.7%. This is due to updates of the minimum levels imposed by the National Bank, mainly driven by increase of the size of the bank because the -- and here, mainly coming from the buffers that we -- that the bank has to hold because these buffers are strongly correlated with the size of the bank. So basically, through -- via a mechanical calculation, the bank has to hold more eligible liabilities to -- more minimum requirement. However, what we are managing here, we are managing to keep our targeted buffer on top of the regulatory requirement. As mentioned, we have a targeted buffer of 50 basis points to be kept on a continuous basis as a capital management strategy. Looking to the composition of the balance sheet and filtering this through the liquidity profile, we -- this is the explanation for the high liquidity levels of BT given by both assets and liabilities on the asset side, given by the high liquid assets through the sovereign bonds and on the liability side due to our very good customer base. And here, we are talking, of course, about the deposits. As also Omer mentioned at the beginning, BT went through a journey this year. In fact, we started at the end of last year being the first Romanian bank, which is engaged in EBA or EBA stress test exercise. I will give -- before going in the figures, I will give a bit of a few coordinates about this exercise. In general, this exercise is run at the European level every second year and is covering the largest banks of Europe. The exercise has some very strict and plain vanilla methodological constraints. Here to mention the most important one being the static balance sheet, basically assuming that there are no business developments over the balance sheet of the bank or of the group, and there are no strategic considerations when running the exercise. The exercise is run for a 3 years horizon and having as a starting point, a fixed point. In this exercise, the starting point was year-end 2024 and the horizon was 3 years. So basically stress testing the balance sheet and the P&L of the banks until year-end 2027. Another particularity for this year was the fact that CRR3 was implemented and all the banks had to do a restatement of year-end figures, bringing them to a common denominator of CRR3. This being said, I would like to guide you a bit through the main figures and especially because Romania is a specific case, specific case being the first, as I said at the beginning, the first -- BT being the first Romanian bank. So Romania being for the first time engaged in the exercise. If you look, for example, to the EBA's website when the countries are presented, you will see that the result for the country equals the result of BT because it's just BT from Romania. And of course, not being an EU -- euro -- sorry, euro country, then you have some particularities corroborated with the fact that we have a particular balance sheet with our sovereign bond share in our assets. So if we will be to look to the figures and starting from the beginning, we are seeing that the starting point when coming about CET1 ratio, just to mention that the exercise it's judged in terms of CET1 ratio from a capital perspective. We are starting with 19.5% capital ratio, which is when compared with all the banks that have been participating in this exercise, we are part of the first quartile. Being -- having such a high starting point in the capital ratio, it's attributed to 2 factors. One is the specificity of the Romanian sector and another one is the fact that we are keeping high levels because we have to also create buffers for the transitional effects that I explained immediately. So basically, if we are looking forward in the slides from left to right, we will see that we have a depletion, which is also one of -- when you're looking -- comparing with other banks, you will not see this very commonly in other banks. We have the transitional effect that we are showing here as a starting point with around up to 6% in the capital ratio. This being given by the next years where we will have to fade out all the transitional effects that the bank benefited from in 2024. And these are attributed to the sovereign exposures on 2 sides. One is the euro-denominated exposures, which will gradually increase the risk weight until 2027. And another effect is given by the reserves triggered by the fair valuation to other comprehensive income, which are going as an impact in the capital. So if we exclude the transitional effect, then the starting point of BT becomes 13.6%. Now looking solely to the -- and purely to the stress test impact, the bank will encounter in this scenario, in this adverse scenario, which is quite a strict scenario, if I will give you a few coordinates, minus 4% in GDP depletion, the strongest impact -- 12% unemployment rate. There are also other effects, of course, assets -- real estate assets, pricing increase and so on and so forth. We will see that BT registers in this adverse scenario, 139 basis point shock in the capital ratio. If we compare with the market -- with the EU average, which was more than 300 basis points, we can see that we -- that BT balance sheet is showing a very strong resilience facing a severe economic downturn. This being said, this was an experience for BT. And yes, we are looking forward for the next exercise, which will come in 2 years where we are confident that we will still keep our resilience in front of such severe macroeconomic shocks, which we hope that to not happen, of course. Last but not least, on the risk presentation, the credit ratings here are not. There are no changes. What we -- however, we should mention that the rating agencies kept their view over BT standing with Moody's keeping the positive outcome and not changing or not adjusting the -- or maintaining the rating that was granted or reconfirmed in 2024 and Fitch still maintaining our investment grade, of course, with an adjustment on the outlook to negative, which is, of course, linked with the sovereign rating. Thank you. Next is sustainability for Aurel.

Thank you, Catalin. Just scratching the surface in respect of sustainability, I will go through very briefly. We had our second impact and allocation report, which was published in June. 40% to 60% went between green and social eligible projects. And what is most important is that 100% of the proceeds out of that EUR 1.2 billion were allocated to loans for eligible projects. You have the breakdown in case you are interested between green and social categories. On the other hand, we also made some computations regarding the impact for EUR 1 million lending also based on the green and the social one. Impacting numbers, we will let you read them and make computations if necessary, both for the green and also for the social one. And in terms of reporting, in March '25, we had our first sustainability statement. And in June '25, we had our fifth sustainability report. Our main ESG targets can be seen in the lower left-hand side. What I would highlight is our sectorial focus between agriculture and health care. We talk for both of them with more than 30,000 customers and market shares between 27% and 41%, which makes us a leading bank in both areas. In terms of ESG ratings, just some mentionings about them. Refinitiv places us in the top 6% companies worldwide, while FTSE Russell gives us scores above the average from the Romanian market and also from a worldwide sector. Going further to digital, Omer, you have the floor, and thank you for watching and having me.

Thank you. This year, we are indeed in a very transformational period because BT Pay and BT GO are 2 main applications will become soon also our only applications. We are very happy based on the experience of BT Pay for our retail customers, we can develop also BT GO. These are also our systems developed by us for the needs of Romanian customers, our customers. BT Pay already reached 4.2 million active users, and we have more than 150 million transactions performed in the first 6 months of this year where BT GO, which is aiming at companies, which is the mobile banking application, the wallet application for companies, small size or big ones has already more than 380,000 active users with more than 11 million transactions and the numbers are growing exponentially as we are switching from other applications to BT GO. I would say that, as we mentioned many times, even today, in cards, payments, mobile banking, we become -- we maintain our ambition to remain the leader and also the pioneer of Romanian markets as we did with a couple of new products in the cards, be it special cards for festivals or a joint, let's say, a cooperation with McLaren launching McLaren cars in Romania. Also, BT Go is becoming from a payments and account management application to it's going towards a partner for businesses of our customers, offering also accounting services, invoice management services, new features being added as we speak. On the, if we give a very, let's say, brief snapshot about recent developments. Definitely, we are happy that INNO Investments, former OTP Asset Management is now fully functional. We have plans to develop through INNO Investments, different alternative funds and develop our contribution to financial markets more. Beta Asset Management reached already over RON 7 billion assets under management. BT Capital Partners is the leader in brokerage services and intermediation in Romania. Our small boutique of investment banking became actually the Investment Bank of Romania already. And BT Micro lending has surpassed 35,000 customers. And we are continuously offering not only lending products, but also consultancy to our micro customers to the start-ups who want to start their journey through BT [indiscernible]. Better Brokerage is also one of the active segments that we are looking to develop because we think that besides our bancassurance activity, which contributes a lot to our bottom line, brokerage is with our customer base and subsidiary network, it's a huge opportunity. And BT Pensii, we have finished the first phase of our integration BT Pensii. Now for the Pillar 2, we will continue our project and assets under management is already close to RON 700 million. And BT Leasing this year reached a performance that if I can make a comparison, BT Leasing now on every month is having new production equal to total production of 2008, 2009. And we see still a great growth opportunity in their business line, signing new partnerships with both customers and also dealers or intermediaries. And Victoria Bank in a small economy challenged economy continues its growth. It is already part of SEPA. It offers different digital banking, mobile banking alternatives also inspired and supported by us. And also, we have finalized, the contractual part of the Microinvest acquisition, now expecting the authorities' final answer on that why we don't see much challenges, but definitely with a lot of bureaucracy going on there. I would let George to say a few words about synergies. There are -- as I said also, there are some questions, and then we will switch to quick Q&A. Thank you.

Thank you, Omer. As I mentioned, we have put together this individual slide where we break down some synergies that we see from the integration with OTP. And then the main point that we want to put together is the fact that this portfolio that we transfer from OTP reflects a more optimized balance sheet for the bank. And we see that the loan-to-deposit ratio contribution improvement from the portfolio of OTP is of 4 percentage points in addition to what organically BT sold in terms of loans in the first half of the year. And if you see the ratio of loans and deposits between the BT and the OTP contribution, you see that actually, even though we transferred the same amount approximately in terms of loans and deposits at the level of the merger, while on the loan side, OTP contribution is 10% out of the 100% on the deposit side, the OTP contribution remains at 5% at the end of June, reflecting the fact, as Omer mentioned at the beginning of our discussion that we didn't chase pricing on the OTP deposits. And whatever was not priced according to our price strategy we didn't chase it in terms of deposits, resulting in a small decrease in terms of the amounts that we're taking at the level of the merger. Improved weight in terms of loans into total assets by 5 percentage points. And also, if you take a look on the other side on the revenues, you see that we have a positive contribution in terms of interest income by almost 6%. And then the OTP business improved the cost-to-income ratio by almost 1 percentage point when you take a look at what the cost-income ratio for the combined entity is versus what would have been without this entity. The bargaining gain added 1 percentage point to capital adequacy ratio because we could use it following the merger in terms of retained earnings available to include the capital of the bank. And also, we have added 600 new colleagues that bring enhanced competencies at the level of the staff in the bank in the year 2025. I will not go into more details then we have the details of the annexes where we present the bank and the group broken by quarters, as I mentioned, and also individual and consolidated balance sheet and P&L. And then I think we can move to Q&A.

[Operator Instructions]

First set of questions comes from Andrea [indiscernible] for Mirova. Can you provide a view on the expected impact on the performance of retail loans and the residential house market following the loss of purchasing power from higher taxes, lower income for -- and public sector. And the second question, please explain the evolution of the Stage 2 gross loans, which are growing both quarter-on-quarter and on a year-to-date basis.

Thank you, Andrea. Definitely, the impact -- I mean, is to be seen and calculated. But as compared to 2008, 2009, we see loan-to-deposit ratio at a different level. This -- all the conversations about how say, crisis or fiscal code changes, new taxes, potential restructurings had been quite active in the public space for the last couple of years. So we don't see a huge impact. When we speak about decreasing the power of consumption of the retail customers of households, I guess there are more ways and we will probably see that soon because Romanians had been the largest spender as per their disposable income, had been the largest spender proportionally of their incomes to travel abroad to vacations, to luxury items. I guess that will be the first case, especially in the mortgage loans, we don't expect a big change. And coming -- I mean, there might be some pressure on the cost of risk on the nonperforming loan formation, but we don't see this in terms of jumps. As Catalin had been presenting also, our capital and liquidity ratios are quite comfortable to sustain that. Coming back, also seeing some of the questions here, plus what we have presented, despite one-offs in the first quarter and what may happen in the months ahead, we are still considering that the budget, which had been presented and approved by the shareholders in April is our target, and we are comfortable delivering it. When we look at the business growth numbers and revenue numbers, we are comfortable that we will be delivering the figures with hard work, but still comfortably. Coming back to the residential house market, the market had been quite impacted by several things. First, it was the higher interest rates when mortgage loans were not very accessible, but then high salary inflation, not only in BT or in banking, but all around Romania and all sectors had been a supporting factor that the loans become accessible again, the interest rates have been decreasing. Then with the new fiscal code changes, there is also pressure on the VAT side, a couple of percentages, but still important. So we have seen transactions have been accelerated at the beginning of the summer. So now when you look at the third quarter numbers when we will be presenting them, numbers will be still solid, but actually mostly delivered in the first quarter. Still, we think that both the households and the market will adapt to the new conditions to the new reality. On the other hand, in the last couple of years, because of the salary inflation and because of the high demand, prices and margins have been increasing a lot for developers. So I guess there will be more competition, although we might not see the same numbers as the last couple of years, we see housing market quite active going forward. So -- and we don't see with all the, let's say, measures taken by also regulatory bodies, including National Bank of Romania, indebtedness ratios are quite low. So we don't see the, let's say, risk of a big housing stock to hit the market through recoveries.

Second set of questions comes from Christian Petre for NN Pensii. Can you make some comments on OpEx increase? And what are your expectations for the next quarters? What actions do you plan to take to control the increase? Why net fee and commissions are growing much lower than interest income. And lastly, cost of risk, what is a reasonable level going forward.