OTP Bank Nyrt

BET:OTP

Earnings Call Transcript 2022-Q4

[Operator]

Dear, ladies and gentlemen, welcome to the OTP Bank Fourth Quarter and Full-Year 2022 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 question.

May I now hand you over to Laszlo Bencsik, Chief Financial and Strategic Officer. Laszlo, please go ahead.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you. Good morning or good afternoon, depending where you are, and thank you for joining us today on OTP's Group 2022 fourth quarter conference call. Special thank you to join us when markets are in such turbulent mood, certainly yesterday was currently quite a difficult day for banking stocks, especially in the U.S. the markets we own and have calmed down. But special thanks that in this situation, you devote your time to us and listen to this conference call.

So as usual, we have this presentation, which is available on the website and also we are sharing with you on this video conference and I'm going through the slides and then we'll have a Q&A session. So Page 2, you see the annual results and the quarterly results. Overall, profit after tax, so the bottom line dropped 24% compared to 21% and that drop was driven by quite a large amount of adjustment. So '22 was unfortunately again a year where we had a long list of negative adjustments and you can see that on this page.

The biggest one was the bank tax and the extra profit tax in Hungary, imposed by Hungarian government and the other Hungary related kind of bigger hit was this rate cap -- interest rate cap on variable mortgages and variable asset [indiscernible]. Other than that, we had kind of directly related one-offs to the Russian Ukrainian war, namely, we had to make goodwill impairments related to our investments, especially in Russia and also the road of our bond exposure to Russian sovereign ones we created a sizable provisioning on that.

In the fourth quarter, we had also some one-offs, one was this 26 billion, which was the extension of the interest rate cap for another six months till the end of June this year. and also the inclusion of the SME loans. And you can see a HUF3.2 billion special tax on financial institutions. This is related to Croatia, Croatia introduced an extra profit tax, which is not specific to banks. It covers all the kind of mid-large corporates and this is the amount that was booked there. If we -- without these adjustments, profit after tax increased 19%, including Russia and Ukraine as well. And while looking at the quarterly profit, there was again, somewhat less adjustment. But nevertheless, the adjusted profit dropped as well 19%.

On Page 3, you can see the kind of more detailed P&L numbers and they pretty much explain this quarterly decline in earnings on a group level. So while income was relatively flat as usual, last year, we had some seasonality in costs and in risk cost as well. So costs, operating expenses were higher and total risk cost was also somewhat higher, revenues were flat and that resulted in a somewhat lower profit level. If we look at the ratios, again, this is the entire group adjusted ROE close to 19%, the unadjusted so just profit after tax related ROE was 11%. Margin flat year-on-year and even kind of within the quarters, there was quite a small difference last year.

So as you can see, net interest margin was rather flat on quarter-on-quarter basis across the group. Cost efficiency improved despite high inflation and the risk cost ratio increased, where that is entirely due to Russia and Ukraine. Because in the coming pages, you can see the performance without Russia and Ukraine.

And as you can see, overall, the two countries had a positive contribution, especially in foreign terms. It's -- I will explain it later that despite the Russian operation in ruble terms, more than 50% decline in profitability. Actually, in half terms, there is an improvement, but maybe we go back to the previous page, just a few words. So our original guidance was based on this view of the group with Russia and Ukraine. The war started in February last year and we made the guidance early March.

And at that time, we had very little clarity on the potential impact on the war, direct impact in Russia and Ukraine, therefore we kind of phrased our expectations with that Russia and Ukraine and the expectations, which we kind of modified during the year, the latest versions were 50% performing loan growth that was what we achieved improving adjusted ROE that actually improved year-on-year. Net interest margin stable. There was 4 basis point decline, so close to stable, improving cost income, I mean, cost efficiency that improved and we kind of suggested similar to '21 risk profile that was actually better. So overall, without Russia and Ukraine, risk cost was actually quite small.

So now going to -- sorry, a bit more detail on Russia and Ukraine. In Russia, after the war, sorry, we changed the course of the bank. We adjusted the strategy. We pretty much stopped entirely corporate lending. And as you can see, corporate loans, which by the way was even at the beginning of the year last year a rather small portion of the portfolio. They declined 75%. The total loan book declined 12% and deposits increased by 19%. Profit in ruble terms declined by 57%, so less than half of the '21 profits.

In half terms, it's actually a different picture because we had losses in the first half of the year when the ruble was weak and we had kind of positive results in the second half of the year when the ruble was strong. So in half denomination, actually, we see some year-on-year improvement, but the underlying profitability in local currency declined substantially.

Now a few more important notes here. First of all, we managed to repay the funding or get back the funding, what we had outstanding to Russian entity RUB11 billion, RUB6 billion half was paid back by Russian bank to OTP Hungary, so the funding group funding is now today is zero. We still have a sub-debt outstanding, which has a longer maturity.

And then we -- you can also see on this slide the capital, so we have RUB60 billion capital in our Russian entities and roughly -- I mean, close to half of it is about the regulatory requirements. And that means that only half of it is needed for the operations. And obviously, that's the kind of mid to long-term target to replace some of this equity to the group. The potential impact of writing off the entire operation in Russia declined a lot in line with reduced level of group funding, so now it's just 71 basis points at year end.

In Ukraine, the profit was negative, so we made losses. However, I think if you compare the magnitude, the severity and the drama of the situation in Ukraine to the level of the financial loss that we incurred, I think the loss is relatively moderate and that reflects the kind of resilience of the operation and the loan book what we built over the last couple of years. So this is really kind of not shockproof, but at least quite a resilient bank now.

And I think this is very clear in the numbers that we booked during the course of last year, we tripled the provision levels. So total provision coverage on gross loans, so Stage 1, 2, 3 together is 22%. And that's an increase, it's kind of 3x increase during last year and we plan to percentage seem to be missing from this slide, but it is our percentage is close to 22% coverage. And the expectation -- our expectation for this year is that this is going to grow higher than 30% during the course of this year while we keep making profits in Ukraine.

There is a decline in portfolio volumes coming from kind of subdued lending activity, deposits increased and we kept all the outstanding group funding in Ukraine. We continue to support Ukraine as much as we can through every means. And obviously, equity somewhat declined due to the losses in the provisioning. But nevertheless, we are far about the regulatory requirements and the kind of potential worst-case scenario of writing of the bank, which we don't sign any material probability is actually very low, so it's like 1 basis points.

This was a heroic year for our colleagues and I try to use every opportunity to thank all of our colleagues there and to all of our clients who stayed by us. And I think we -- our colleagues started to do everything in Ukraine to provide high level of banking services despite a very difficult work situation in the country and we will continue to do that in the future.

Page 7 and the good news is that, if you look around the other -- outside Hungary countries, other than Russia, Ukraine, the performance of these countries have been quite spectacular, almost everywhere we had improvement in profits, in profitability, decent growth rates. So in Bulgaria, we had 56% increase in profits, Croatia 30%, Serbia 15%, Slovenia 41%, Albania 66%, Montenegro 2.5 times higher profits, although a 50% increase and well, Moldova is not in an easy economic and geopolitical situation. But even in this environment, we managed to increase our profits and it's only Romania, where there's no visible improvement yet and we are quite hopeful that this year performance will be much better and the kind of efforts over the last couple of years to kind of increase the size of the bank will bear fruits soon.

So overall, very strong performance in the CEE countries. And I think this -- I mean, obviously, that kind of contributed very positively last year to the overall group performance. And the reason that kind of total bottom line profit only declined by 24% year-on-year is due to the very good performance of these countries and that very good performance somewhat counterbalance the huge negative one-offs we had to suffer or incur in Hungary. There's a very recent positive event in the group.

Finally, after a very, very long process, we received the approval of the Slovenian competition authorities to buy the bank. It was a long, but very thorough process and now at least we can be absolutely sure that this is -- there's no issue left to open and it's objectively strongly supported the transaction. So on the 6th of February, we closed the transaction. So when we report the first quarter results, you will already see the NKBM bank being included in the consolidated group, the February P&L results and also the one-off positive impact.

We estimate the one-off positive impact to be around EUR230 million after tax, so that's a potential one-off positive, which is actually very similar to the amount that we have to book in the first quarter related to the Hungarian bank tax and the Hungarian extra profit tax. So both of these one-off items will be booked in the first quarter and they seem there is few coincidence where they seem to be quite close to each other and cancel each other out almost entirely.

Now this is a very good quality asset, what we managed to acquire and we are extremely happy, very well run, managed bank with exceptionally good client base and profit generating potential. So we are very excited. We have already started working on the merger with full effort, so we are doing the detailed planning of the process and we are going to go through the normal for us quite well known process of merging banks.

It will probably take 15, 18 months to complete the legal and operational and IT merge on the same day. So it's expected to happen somewhere mid-next year. By assets, we are going to be number two and by net loss number one in Slovenia. In the meantime, NLB acquired the last over of the Sberbank Group in Slovenia. So they are also growing through an acquisition. So if we kind of present the pro forma numbers here by total assets, they are going to be number one or continue to be a number rather.

Looking at the kind of last six years, we have been extremely active in acquisitions and in fact, the full group, net low volumes grew 3.4 times. So has been an extraordinary strong growth period for us. Organic growth was on kind of average annual growth rate was above 15%. And on top of that, we were growing through acquisitions. So the average CAGR of customer loans for the last six year was actually 25%, including acquisitions and 15% without acquisitions, organic only growth. And I think that's -- if you compare this to the other regional active banking groups, this is -- even the organic growth part is probably twice 3 times or 4 times bigger than what they have growth rate.

And this fast growth actually changed the group structure. As you can see on this slide, the share of the Hungarian business declined. And here, you can see pro forma numbers that including NKBM which was closed -- the deal, the transaction in February and also including Ipoteka Bank, Uzbek bank which we expect to close this transaction in the second quarter this year. So pro forma, including these two banks, year-end '22, the share of the Hungarian business from that customer loss went down to 30%.

And the share of the Eurozone and ERM II countries increased to more than 40%, I mean and that's kind of land slide change. And in fact, the 6%, which we used to have in 2016 was related to Slovakia and we saw Slovakia. So we got to this 41% despite selling the 6% what we used to have, right? And this is due to Croatia joining the Eurozone in January this year and our first acquisition in Slovenia, SocGen and our second recent acquisition in Slovenia NKBM, plus Bulgaria, which is in ERM II and it was meant to originally to join the Eurozone beginning of next year, but they kind of postponed this date due to them not meeting the in inflation criteria.

We expect this problem to be overcome soon and early as '26, but very likely '27, we hope they will join eventually the Eurozone and then they will be able to also benefit from the Eurozone's benefits, not just complying with all the requirements in order together. And the share of our Russian and Ukrainian portfolios declined by half. So it used to be 10% of the group in '16, today it's only 5%. So these are actually quite big structural changes again. And I think this is -- this matters from the risk profile point of view, a lot that the organic Eurozone or Kriza Eurozone countries share increased drastically and there's another positive effect here. So recently, the Eurozone rate environment also increased. And typically, these operations benefit from higher rates, higher euro rate, so that's an additional kind of bonus on this one.

Maybe a few words about the net interest income because I'm sure you have noticed the quite big drop in OTP core in Hungary. So despite quarter-on-quarter 2% increase in net interest income, in Hungary we had 20% decline and that certainly require some explanation. So the net interest margin was quite stable up until the end of the second quarter last year. So in '21, it was 2.85%, in '22 first quarter, it was 2.76%. And in second quarter last year, it was 2.84%, but that has started to decline. Third quarter was 2.61%, in the fourth quarter 2.11%. And during the second half of last year, starting somewhere in July, the Hungarian rate environment started to diverge substantially from the surrounding countries. So around June, July, we had 7%, 7.5% base rate. And then starting a rather steep and abrupt increase and we ended the year with 18%, so more than 10 percentage point.

Actually, the increase was -- I mean the big hike was in mid-October. So in three months, the rate environment increased more than 10 percentage point. And I mean, this -- and at the same time, the compulsory reserves requirements increased from 2% to 5%. And the Central Bank only pays 13% on these reserves. So we kind of follow the reserves, we lose 5% or we lost 5% starting from October last year. Plus, this is repricing speed difference.

Again, when rates are growing so fast, corporate deposits reprice actually almost immediately very, very rapidly. And corporate loans, pretty much the only kind of variable assets what we have, reprice with a three to six months’ time lag according to their own repricing schedule. So that created kind of temporarily drop in NII just because of the kind of time difference of corporate loan and deposit repricing. And this alone had a HUF6 billion negative, HUF6 billion negative impact during the fourth quarter and this is temporary, so this is going to come back and improve from the first quarter.

So this big decline is partially explained by this kind of temporarily situation and already going to be here by the first quarter, but the majority of this decline is actually more structural and is related to the higher reserve requirements and the kind of fixed asset surplus in our asset liability balance. Therefore, we have kind of above a kind of 7%, 8% rate environment, we are losing when the rate increases and we are gaining when the rate goes down.

The current kind of current point sensitivity to the rate is roughly HUF15 billion, 1 percentage points annualized. So that's a difference between an 18% and the 17% rate ceteris paribus in Hungary, it's roughly HUF15 billion annual NII difference. So it's -- we are very sensitive to the rate environment. And obviously, when the rate increased, we experienced a negative impact and whilst the rates will go down, we will experience a positive effect, in fact, where everything else being equal.

Now the problem is that not everything else is equal, since recently, Central Bank announced the increase -- the reserve requirement from 5% to 10%, plus we are not going to pay anything for 2.5%. So the effective rate of the -- on the reserves assuming 13% base rate is 975. And that is obviously negative for us. Even if rates moderate this negative, these two negative factors, the increase in the reserve requirements and the lower even lower effective rate that we received on the reserves is going to have a negative impact in the second quarter.

So the big question of this year, which one is going to be bigger, how fast the rate decline will be in Hungary because if it's very fast and it can, in a way, counterbalance this negative impact to a great extent. But if rates the kind of 18% rate level continues for a longer period, then that's going to put additional pressure on our Hungarian NII. Our expectation is that rates will moderate and that moderation will start soon. Obviously, this is related to inflation.

Now Hungarian inflation, unfortunately quite high levels, much higher than in the neighboring countries. The peak was at 25.7% in January. The good news is that the recent February data, which came out is already lower, 25.4% and it's a small improvement, but at least it shows that, hopefully, we are over the inflection point. And most importantly, the monthly repricing dropped from the kind of previous 2-plus percent down to 1.3% in February.

So I think we have every reason to expect a rather swift moderation of the inflation in Hungary. We already see food prices dropping, well, in general, consumption dropped and retail trade dropped year-on-year, actually 5%. And the exchange rate appreciated compared to the kind of weakest points last year around 24, 25. The last week, we had 370, 380 levels of exchange rate, that's another strong boost to inflation decline.

And most importantly, energy prices and specifically gas prices on European market level dropped more than -- actually more than 85% compared to the peak last year, which again is going to have a positive impact on inflation in Hungary and not just on inflation, but also very importantly on the current account balance, which we expect to be only 3%, maybe 4% negative this year, which is pretty much in a kind of manageable level. So therefore, this kind of longer deliberation on this point, but probably this is the most kind of visible or important event or number in the fourth quarter and I'm sure you had couple of questions in your mind related to this kind of start -- spend some more time explaining this.

Other than that, I mean, all the other countries is better and that actually all the other countries improvement in Hungarian foreign terms, especially, but also in local currency was more than enough to counterbalance this negative impact. So in fact, quarter-on-quarter, we had a 2% increase in NII on the group level, it was only 100 which went down.

Margin on Page 12, again not surprisingly, Hungary was negative after this story, which I just explained and all the other countries was positive. So I mean, group level, it was almost flat. It's the same story underlying the difference. And then volume dynamics changed drastically in the fourth quarter across all the countries where we operate pretty much, except Russia, where we had an increase in the fourth quarter, I mean, that's the usual seasonality in consumer lending.

But all the other countries slowed down and it's not just our numbers, but in case of Slovenia, Serbia, the market was also contracting in terms of loan volumes. So we see a quite rapid reaction by loan demand and more supply also in most of the countries in this kind of higher inflation and higher rate environment quite rapidly moderated loan growth. So we had only kind of 1% FX adjusted loan growth across the group. And in Hungary, you can already see that mortgage loans are negative and I think this is something, again, pleasure not very surprising that in this very high rate environment, mortgages which are in local currency are quite slow and there's very, very more of a demand in that.

Now if you look at the whole year, the picture looks much better. So group level, we had 12% growth. If we exclude Russia and Ukraine, which was negative, you see in Ukraine 27%, in Russia 16%. Then I think these are kind of strong numbers, especially Croatia 19%, Hungary 15%, Bulgaria 16%. I think it's important to note and draw your attention to the corporate growth. Corporate was exceptionally strong in most of the countries. Again, this is related -- it was more a kind of one-off in the third quarter when inflation kind of peak went up and corporate started to increase their inventory levels when inflation was rising and that actually resulted in much bigger working capital loan demand.

Deposits, on the last quarter, we had 2% growth and this was not uniform in the group, we had quite strong deposit growth and all of the countries except Hungary, where it was negative. What happened in Hungary was that with this, I mean, 25% inflation reduces savings. So people -- especially retail savings started to decline, retail clients started to use their savings to kind of smooth their consumption and somewhat counter balance the negative impact of inflation on their kind of living standards or spending profile.

It hasn't happened for a very, very long time to have a negative retail deposit growth in Hungary and it did happen last year. In fact, last quarter, sorry, because the whole year was still overall positive. Now I think it's important to note here that while volumes declined, our market share from household deposits increased. So during the whole year, it decreased from 37.8% to 39.3%. And even during the last quarter, fourth quarter last year, it increased by 20 basis points.

So it's not -- it's actually the market declined more than we did. So overall, retail deposits declined and are the decline in the case of OTP was less than what the market managed to achieve. So one thing is that people -- more of their savings to compensate for higher inflation impact on their spending profile. But also the -- especially the sovereign, retail sovereign bonds and the rate with which retail clients can achieve it with the retail sovereign bonds, which are inflation index or adjusted. This is obviously very, very difficult to compete with bank deposits, they had a kind of people kind of reallocated their savings more to sovereign papers and to bank deposit.

But overall, if we look at the whole year, again, Hungary was 9% positive or the group was 14% positive. In fact, we kind of flown to that versus GAAP, we've not saying changed so much. And our net loan-to-deposit ratio remained clear to much flat at 74%. So the liquidity situation of the group did not change.

Fee income, I don't think there's so much to deliberate here. Other income also, I think the only kind of quarter-on-quarter difference is actually coming from the one-offs in the third quarter. We had kind of big gains on selling some of the private equity fund investments. So there was a big result there in the third quarter and that did not repeat itself in the fourth quarter. So that's more a kind of base effect, the quarter-on-quarter decline.

And then maybe cost is something where we might spend some more time. So it's a high inflation environment everywhere where we operate and especially so in Hungary. And it's not just high inflation, but also the currency weakened and we have many of our specially IT services, the contracts are in local currencies.

So in Hungary, you see this kind of 19%, quite high increase in costs, but it's not personnel expenses, personnel expenses grew 10%, amortization increased 10% and kind of this excessive high growth came from other costs and that's utility costs a huge increase in supervisory fees, weaker currency which translated into higher IT services costs in local currency and much higher real estate cost because we opened a new kind of headquarter building. And we are in the process of consolidating the office space what we have in Hungary. And for a kind of limited period, that means that we're actually running the much bigger office capacities than needed.

In terms of capital and liquidity, well, given the events of yesterday and maybe today on the global kind of banking markets, it probably deserves somewhat more detail than usual. Our liquidity position is -- continues to be quite stable and robust. The net loan-to-deposit ratio in the group level is 74%. In fact, year-on-year, it declined somewhat. So it means that we have kind of one-third in work deposits and loans. So there's a big deposit surplus in the group, especially so in Hungary, where the ratio is below 55%. So in Hungary, specifically, we are even more liquid than on a group level in terms of the kind of loan-to-deposit gap.

The LCR ratio, the liquidity coverage ratio, which is the -- in the European standard for measuring kind of short-term liquidity position, it's 172%, 100% is the minimum. So we are way above that. In nominal terms, it means that we have almost EUR8 billion above the LCR, liquidity coverage ratio minimum and our high-quality liquid asset portfolio is more than EUR18 billion equivalent and this is at market value.

So all these numbers are at market value to -- are calculated on the basis -- on the reportable basis of securities as they are reportable. So that's after a kind of haircut or adjusted to market value or adjust it to reportable kind of value all these numbers, so that's the situation. And it has been quite stable for a number of years. Plus, we don't have external. I mean, we issued couple of bonds recently in order to fulfill the MREL requirements. As you can see, even this year, first quarter, we did it a Tier 2. And then last quarter, so the fourth quarter last year, we did a senior preferred 650 million.

So we are quite active primarily to reach the MREL targets, which kind of kick in from January next year. And we are going to be continuing to continue our activity on the DCM market. We plan to do another two or three bench, at least 500 million benchmark size transaction during this year in order to get to this required level of MREL funds available on a group level.

The next page is about the coverage ratios, there's not much happening there. I mean the group level Stage 3 ratio declined below 5%. So for some reason, this seems to be an important kind of level 5%. I think it's well as symbolic. But anyway, we drop below that on a group level, including Russia and Ukraine, without Russia and Ukraine, we are down to 4.1% on the group level and there will be a further drop down once we include the NKBM portfolio in the first quarter. So I think this is -- we are getting closer and closer to kind of low NPL level situation overall, while we keep coverage somewhat more conservative than some of our regional competitors.

A few usual detailed information about Hungarian business. I mean, in general, we see a very strong slowdown in mortgage lending. In fact, kind of consumer loan activity in Hungary also slowed down, but not as much as mortgage lending. So it seems that mortgage lending is not very attractive mortgage loans at this rate levels, but consumer loans, there's some decline, but not drastic and we remain very active in selling the subsidized structures, especially if you go to the next page, you can see that the kind of most popular retail mortgage product was this kind of green housing loan, which is a subsidized structure and our market share was almost 60% from the disbursement of this type of loan last year.

And in corporate, again, in corporate, we remain quite active last year, up until kind of the end of the third quarter, fourth quarter. It also slowed down, but kind of over the whole year, we had 33% growth in performing corporate volumes in Hungary. And that's, I think this is highest ever annual growth rate and our market share increased accordingly. So we are 20% and again, we were last year extremely active in distributing the subsidized product, the Szechenyi Card Go! structure with 32% market share from this disbursement.

We continue to be very active on the ESG front and I think we now -- few years ago, we laid down the strategy and the organics that we set up the organization and allocated strong resources. And now we're starting to see the results and they seem to be more and more measurable also and setup a green loan framework, a sustainable finance framework, green investments or green finance is quite active and we have made substantial developments in our methodology to capture and measure ESG risks and that reflected in the improvements on our sustainability ratings as well. So it seems measurable and it's a group-wide effort. So we try to share best practices across the group and make -- definitely make every country focus strongly on ESG dimension, while especially CEE countries where we operate.

Now few words about expectations. Macro environment, I mean, we believe that despite previous fears, we don't see recession coming to Europe or to the countries where we operate. The only country where we expect negative longer GDP growth this year is Moldova, even in Russia and Ukraine we expect positive, even in Hungary, we expect positive. And in the other countries, there might be some slowdown compared to '22, but still okay growth levels. And so that's one important factor.

The other very important factor is inflation, especially in Hungary, where it has switched, I think quite extraordinary high levels even compared to the countries around us in the region. And here, we have a very clear expectation that the moderation of inflation is going to be fast. And by year-end, it's going to drop below 10%. Actually, we expect below 9% year-on-year end of period year-on-year inflation by the end of the year. And that is crucially important for us, while, inflation is bad. So at this level, so -- every part of the economy should do much better in a more moderated inflationary environment.

But specifically, as I explained before, our earnings, our net interest income is very sensitive to rate levels and obviously the lower the inflation, the lower the rate environment expectation and we're definitely in line with the inflation decline, we expect especially in the second half of the year a strong and fast decline in the rate environment from which we should benefit in terms of our NII in Hungary.

Now with this context, a few words about expectation. As usual, we'll try to kind of carefully raise these expectations. First of all, the war continues in Ukraine and we are very hopeful that it end soon and there will be a quick resolution and suffering will end. But we still don't see that happening and we don't know when it's going to happen and that poses a much higher than usual level of risks on all the operations that we have in Russia, Ukraine and outside Russia, Ukraine. So this is still a very kind of high uncertainty environment and situation. So please take our kind of guidance or our expectations in that light. So there's a higher than usual uncertainty here.

Now with that remark, we don't expect deterioration in our -- in the operating environment of our banks in Russia and Ukraine. And if they don't deteriorate, then in both countries, we expect better performance financially than last year. And in Ukraine, that better performance, meaning positive result should be coupled with a further steep increase of provision coverage on the entire loan portfolio.

Regarding Hungary and again because of the -- this rate sensitivity in Hungary and the size of the business in Hungary, this is potentially the most important factor for the whole kind of group performance, how fast and how much the currently 18% rate will moderate during the year. And the faster and more the better the results will be in Hungary. Certainly, in the kind of market scenarios, if you just take the implied rate levels in market instruments, then we should have an improvement compared to last year, fourth quarter.

So if you kind of take the fourth quarter 2022 level compared to that, we expect improvement in NIM and in NII over the course of this year, over each quarter. And again, the lower the rates, the higher the improvement might be. And that -- but there's also kind of negative impact coming from the second quarter due to the recent increase of the reserve rate and the decrease of the interest on the reserve.

So it's an unlikely scenario we believe, but it can happen if the zero rate decrease or rates go up, then obviously, this is what we wrote here may not be true. Now the one-offs in Hungary, we know that we are going to pay again this extra profit tax despite the fact that actually our profits, our after-tax profits in Hungary without dividends from group members dropped 84% year-on-year last year. So despite of this, we will pay HUF69 billion ex profit tax this year plus the usual bank tax. So this is all together, the two are HUF88 billion after tax. And this is -- these items we are going to book in the first quarter.

When I talk to the -- now the good news is on the next page. So at least this kind of extra tax one-off, which we book in the first quarter, we are most probably expected to be fund balanced by the one-off positive impact of consolidating NKBM, Nova KBM bank in Slovenia. As a bad will associated with this purging price allocation, initial risk cost, so everything altogether, it's not a final number yet, but we are already quite progressed with the calculations.

And actually, it was our auditor's suggestion to kind of announce that the expected demand will be around this EUR230 million after tax because it's quite a substantial number and there's already a quite level, high level of certainty that is going to be booked indeed with this amount in the first quarter. So I think -- I mean, this is important just to make it clear. So it can -- so the expectation is, I mean, this positive one-off effect will pretty much entirely counterbalance the negative one-off effect of booking the entire normal bank tax and extra profit bank tax in Hungary during the first quarter this year.

Other than that, in terms of loan growth, we expect slowdown. That slowdown already happened during the fourth quarter last year. So there's -- I don't think there's anything surprising there. Rate levels are higher and in higher rate environment less loan demand and we already started to see that last year. So the expectation is that we're going to have probably low single digit, not more than 5% growth across the whole group in terms of performing loans. And there will be certainly bigger differences between countries and also bigger differences between portfolios than usual.

Net interest margin, again, with all the story behind it in Hungary, where it's the most uncertain, but if you just take the market expectations regarding the Hungarian rate development, then together with positive effects across the group due to higher euro rate environment, we probably could end up similar levels than last year. Portfolio quality levels seem to be stable. So we don't expect deterioration there, but we are facing strong cost inflation and cost pressure. So it might happen that our cost efficiency ratios may not improve this year.

On the contrary, they might somewhat worsen. But again, we try to do everything to mitigate and minimize that factor. All in, adjusted ROE might be kind of at a similar level than last year, around 18%. Now, and that is probably not surprising if the ratios and the long roads goes like this. And the big question is probably what one-offs -- how much one-offs we are going to have or unforeseen one-offs because the foreseen one-offs again might be close to -- I mean, might be a low level given that the big bank tax in Hungary are just about as much as this kind of one-off positive from NKBM. And we are not aware of any big other one-off items. There will be -- if we close the Ipoteka transaction in the second quarter, there may or may not be a positive one-off we will see. And we don't know whether the rate cap will be extended for the second half of the year. And we certainly don't know -- probably they won’t.

So I think if I want to be honest and they do want to be honest, I have to admit that it's quite probable that they will be. But the big question is at what conditions, where the cap will be and most importantly, where the rate environment will be, because again, the lower the rate, the less we lose on these interest rate caps. There's -- the expected level of dividends is HUF300 per share.

The Board of OTP will make a decision on the 21st of March about the demand they propose [Technical Difficulty] to the general meeting, and it will be published on the 6th of April, but our preliminary assumption is that the proposal will be HUF300 per share, and that's HUF84 billion. And I already mentioned this that we plan to continue our issuances of market instruments in order to meet the MREL requirements by the beginning of next year.

So that was the formal part of the presentation. And please, if you have questions, ask them.

[Operator]

Thank you, ladies and gentlemen. We will now begin our question-and-answer session. [Operator Instructions] The first question is from the analyst of Concorde Securities, Hai Thanh Le Phuong.

[Hai Thanh Le Phuong, Concorde Securities]

Hi. Thanks for the presentation. I have questions on three topics. The first one would be on your risk profile, and you stated in your guidance, you -- that you do not expect material deterioration under this line. So shall I think about the cost of risk to be similar compared to the previous year. And also because you said on group level, there shouldn't be any material change. But I was wondering, since I guess from your talk, it seems that Russia and Ukraine should recover significantly. So is there any segment that would counterbalance this positive improvement?

And my second question would be on the cost efficiency. So I know it's pretty hard to say now. But with regards to cost income, do you have a number in mind, maybe should you stay below 50%? Or maybe we should think about even larger worsening of the cost-to-income ratio. And my last question would be on shareholder remuneration because HUF300 is quite good per share. But I was wondering if you have considered or would you consider share buybacks besides or instead of dividends, maybe not this year, but maybe in the longer term. Thanks.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Yes. So risk profile. My comment is related to the whole group, right? And I mean, last year, the whole group -- I mean, the risk cost rate was 73 basis points. And this was a result of a much higher level of risk cost rate in Russia and Ukraine and actually a positive risk cost rate on loans, at least for the rest of the group. So there was a provision release overall. So provision for impairment and loan losses, as you can see on Page 4 of this presentation outside Russia and Ukraine was actually positive.

Page 4, you see plus HUF7 billion. So the '22 provision for impairment on loan losses was plus HUF7 billion. And on the previous page, you can see the overall, it was minus HUF135 billion and the minus is coming from Russia, Ukraine. So I think the expectation is that gas in Russia, Ukraine, there will be less risk cost, but further as per the group, there will be more. And that doesn't mean that we are going to see a kind of worsening of portfolio [indiscernible], I mean it was a special year for the rest of the group, because if you remember -- and I'm sure you do.

In 2020, we -- then probably, we created these extra provisions. And we have not really, upon -- and during the course of '20 and '21, we did not release these extra provisions, COVID-related provisions. Actually, COVID officially lasted until the war broke out '22 February. So we started to release part of this COVID-related extra provisioning which we did back to 2020 in 2022. And we partially released them, partially we reallocated them to provisions related to the kind of worsening economic situation and GDP trajectories across the group.

So part of this kind of COVID-related extra provisions, which created in 2020, we released part of them, we reallocated to kind of worsening economic environment related ones. And the result of this was that actually the risk cost was positive for outside Russia, Ukraine. This is not going to repeat this year. So we just expect a kind of normal level of risk costs in -- also Russia and Ukraine. But -- and that -- and then in Russia and Ukraine, we expect lower level of risk costs than in 2022. And these two effects may result overall in a similar level of group level risk cost what we have in '22, so round is kind of 70 basis points. At least that's our kind of best estimate at the moment.

We are trying to counterbalance the impact of the inflationary environment, and we are working hard to moderate that impact. So I hope the cost-to-income kind of, if any, worsening will be rather small. But we cannot deny that the situation is quite tight on that front, especially because labor markets remain strong. So unemployment is not growing, which is wonderful, right? So loan demand and from long quality point of view, but -- it means that high inflation is coupled with high nominal wage inflation as well. We don't want to lose good people. We are -- I mean, and we are still focusing on growth, right, on organic and inorganic growth. So I think the likely direction is probably up, but we hope to contain that growth as much as we can.

And regarding costs, I usually don't like to make very forward-looking nominal expectations because it's better to show results and expectations on that front. But the pressure is there. Buybacks, we would love to do buybacks with this level of share price. Now, the thing is that we are buying two big banks during the course of six months, first half of this year. So we -- our biggest ever acquisition we did in Feb, just last month in Slovenia. And then, its biggest sign (ph) is coming, and they are quite -- I mean, they are sizable tickets, right? And they do have an impact on our capital ratio. So it's a kind of unfortunate situation that this low share price and very -- I mean, at least from our point of view, attractive entry point potentially is coupled with a situation where we are just paying out the price of these banks.

So I mean, -- we'd like to do share buybacks, but due to the timing of the acquisitions, now we focus on paying for these banks, which will create, we believe, even more value than buying back shares. And then once we are done and we accumulate some earnings, but probably by that time, the share price will be at a different level, at least I hope. But if not -- yes, this will come. If not, then certainly, we will consider that.

[Hai Thanh Le Phuong, Concorde Securities]

Okay. Thanks very much.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you.

[Operator]

Thank you. The next question is from Gabor Kemeny, Autonomous Research.

[Gabor Kemeny, Autonomous Research]

Yes. Hi. Thanks, Laszlo for being upfront about the uncertainties in the environment. My question is around NII and deposits. Firstly, on the Central Bank reserve rules you pointed out. Would you be able to quantify the impact on your NII under your baseline rate trajectory in Q1 and Q2? And then just on the broader NII outlook, would you be able to give us a steer for the next couple of quarters, what you expect? I understand Hungary, had faced some headwinds.

And on the other hand, the rising euro rates, the uplift from the rising euro rates has been playing through pretty nicely. So would you expect to be able to grow your NII or shall we expect some kind of stabilization in Q1 and Q2? And finally, probably inevitable question today on deposits. Would you be able to comment on your liquidity situation in Hungary? I'm asking this in the context of you indicating a largely fixed rate asset structure in Hungary. So I guess how far would you be comfortable with a declining trend in deposits there. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Yeah. Okay. So yes, I mean, the NII impact, I mean, if you look at the kind of markets rate expectations for the Hungarian rate environment, then the total cost of reserves for the year is roughly HUF50 billion. So that's the difference between the Central Bank paying the markets rate on reserves as opposed to paying the rate what they asked to pay. Part of the difference we already suffered during the fourth quarter, and we were suffering during the first quarter. But there will be a step up in the second quarter when the reserve requirement doubles. And when for 25% of the return requirement, they don't pay anything.

So overall, the rate what they pay on the reserves drops down from 13% to 9.75% on average. So the difference between this scenario, what we expect and from a very good scenario in which the Central Bank paid the market rate for the reserves is HUF50 billion. And this is already included in our kind of NII and NIM expectations. So this is not an extra kind of negative. This be included when -- in our expectations, and this leads to your second question, if you go back to maybe the page where we had our guidance.

Second page, the next one. So we are saying that maybe we can go on. Yes, this is. So again, let's say that the net interest margin may remain stable in 2023. So with all these factors considered together, we expect the group level net interest margin to be similar to last year, right? And -- so that's -- I hope it answers your question. So yes, I mean, in euro rates, we are -- that's positive. And this will have a positive impact in -- also in Hungary, because we have euro variable assets in Hungary. And obviously, in countries like Slovenia, very big positive Bulgaria, Croatia, even Montenegro.

But again, the kind of rest of the group members also have some positive NIM dynamics. So it's only Hungary where we had these very substantial and fast change and fast increasing extraordinary negative measures put it this way, which push our NIM levels lower. But again, compared to the very low fourth quarter level, we expect improvement during this year, including the new known Central Bank reserve policies and assuming the kind of market expectations regarding the rate environment change during the course of this year.

I mean in terms of our kind of liquidity in Hungary and across the group, again, loan-to-deposit ratio in Hungary 55%. We do have fixed kind of sovereign portfolio. But when we calculate the LCR ratios and when I -- kind of during the presentation, I told you that kind of we have close to EUR8 billion surplus over the LCR requirement, and we have altogether close to EUR19 billion high-quality liquid assets portfolio.

And these numbers are after -- so these numbers include and assume the market value of the sovereign bonds what we have in Hungary and elsewhere. So this is the market value. This is the collateral value when we do a repo with these bonds. So there's no additional kind of haircut or market value adjustment when we talk about these liquid assets portfolio. These portfolios already include the decline in the reportable value of these assets due to the change in the rate environment.

[Gabor Kemeny, Autonomous Research]

Okay. Thank you. That's all useful. Just to recap on the full year NII outlook. So what you said on the NIM, I would assume it's largely applicable to NII as well because you are not assuming meaningful volume growth this year. So shall we expect the Hungary and NII to be down a bit, which is then counterbalanced by growing NII elsewhere in the euro-linked countries. Is this a fair statement or are there any other moving parts?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Average volumes are growing, right? So last year, overall, we had 12% loan growth. And this year, we expect kind of less than 5%. So in last year growth already implies an average year-on-year growth in volumes, right? So volumes are growing, but the growth rate is slowing down. So I would put it this way, NII growth, will slow down. Sales average volumes expected to grow plus the NIM is expected to be more or less similar to last year. I think it's logical to expect some growth.

And very important, the group is growing through acquisitions. And the NKBM is a big bank and a very profitable one. So that will be a quite sizable and material additional contribution from this new acquisition, which we closed in the second quarter. And this is in the form of a one-off. But more importantly, the contribution of NKBM will be visibly strong during the course of this year.

[Gabor Kemeny, Autonomous Research]

Would you be able to comment on the magnitude of the earnings contribution from Nova KBM?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

We have not yet finalized the appliance. So I don't want to kind of yes, but we have a strong view, but we have not officially approved their kind of update to their budget compared to what they originally budgeted for this year, and they used to be with Apollo. So I would rather not do that now, but maybe when we talk about the first quarter results, I will because already you will see the results for February and March, and I hope you will be impressed. And we are very impressed. I mean this is a very good bank.

And then there's Ipoteka coming, hopefully, the transaction will be closed second quarter and then it means that they will be contributing to group earnings starting from the third quarter, at least according to current expectations. And that's not as profitable as NKBM, but also meaningful profit contribution is expected from Ipoteka Bank already this year. Yeah.

[Gabor Kemeny, Autonomous Research]

Okay. That’s very nice. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you.

[Operator]

Thank you. The next question is from Mate Nemes, UBS.

[Mate Nemes, UBS]

Yes. Good afternoon. Thanks for the presentation and all the details on net interest margin, in particular. I had three questions, please. The first one is on volume growth. You obviously mentioned that you would expect around up to 5% growth in 2023. I was wondering if you could give us a sense of the major operating countries in the portfolio, presumably in Hungary, somewhat more muted growth and perhaps somewhat better in countries like Bulgaria, Serbia and so on?

The second question would be on the fixed asset repricing cadence or repricing schedule, specifically in the government securities portfolio, how much of the portfolio is perhaps maturing next year, 2024? And then these amounts can be rolled into short-term assets. This should surely help, I suppose, with NII. And the last question would be on the Ipoteka Bank acquisition, specifically the funding plan, if I just look at the gross loan book versus deposits, I see more than HUF700 billion of higher loans. Could you talk about how you intend to fund the gap? Is that supposed to come from intragroup funding or you have other solutions? Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

For the first question, you just gave the perfect answer. So probably somewhat muted growth more muted in Hungary and maybe somewhat higher or better growth in countries like Bulgaria, Slovenia, Croatia, Serbia. So we actually gave the perfect answer to your question. Maturity profile, I mean, the total half sovereign book is HUF3,200 billion half. Average duration -- adjusted duration is three years. This year, there's like HUF400 billion (ph) maturing next year, HUF300 billion.

And yes, this is certainly helping as the time goes by, the NII, but this has already been kind of counted in when I took in our expectations regarding the Hungarian, NIM kind of trajectory or the group level kind of NIM trajectory. So this kind of improvements due to maturing portfolios in Hungarian sovereign bonds and the reinvestment rate being -- or I mean just the spot rate being so much higher than the current year. So yes that's positive. But the biggest even much bigger maturities will happen in '25, '26.

People take a funding, yes. I mean, the bank is funded by refinanced state kind of loans, right. These are subsidized behind the mortgage book, most of the mortgage book is kind of subsidized and there's a refinancing provided by various state institutions. And they will continue. So we don't have to kind of replace these funds.

So there's no expectation to provide, I mean, additional kind of funding other than funding additional growth if you decided to do so. So there's no kind of immediate funding need to replace current funding to do this way. So we -- the state refinancing structures are going to continue to be there. And this is obviously one of the -- that's part of the deal and the agreement that we have with the government, with the seller that they will continue to be there.

[Mate Nemes, UBS]

Okay. Can I ask the -- about the remaining maturity of these state subsidized loans? Is that well beyond 12, 18, 24 months?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

I don't have the exact number. But yes, I mean, it's certainly well beyond 12 months that I can say. I mean I don't know to whom I have the exact numbers, but these are longer-term structures, yes.

[Mate Nemes, UBS]

Okay. Thank you very much.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you.

[Operator]

Thank you. The next question is from an attendee joined via phone. [Operator Instructions]

[Unidentified Participant]

Hello. Good afternoon. I have two quick questions. One is on the speed of -- on the take-up of term deposits in Hungary, because currently, it's about 20% of the total, whereas in the past, it used to be in the range of 50%. What are the most recent trends Q4 versus third Q? Do you see any acceleration in the behavior of savers? So that's number one question. And number two is on the cost of risk. You've mentioned that actually the 4Q and winter wasn't so bad in economic terms, then why is that in a number of countries, you have modified your model parameters resulting in a somewhat higher provisioning charges. This seems sort of some inconsistency between those two observations. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Deposits. I mean, in corporate deposits, as I said, we experienced a very fast repricing and corporate deposit rates on average are close to 14%. So that -- and they already repriced during the second half of last year in a very fast manner, and that was this kind of repricing gap, which I mentioned in my presentation that one of the reason the NII dropped so much in the fourth quarter as this kind of discontinuity between the speed of deposit repricing, corporate deposits repricing and corporate lending pricing.

Retail, there's not so much repricing in retail deposits because the alternative investment opportunities are so much higher yield that it is extremely difficult to compete with them in terms of term deposit rates. So what happens is that people who have longer-term savings and want to -- and are you looking for high yield, they either for money market structures or money market funds or sovereign retail bonds, which are quite liquid and provide inflation plus percent yield.

Now it's -- no one wants to compete with deposit rates with those rates, right? It's just impossible. So it's a unique situation in Hungary. And this high-yield retail investment opportunities into retail bonds have been there for, I think five, six years. So people are used to that, that they can -- that if they want to go for a high yield, they invest into retail government securities, right? And that, that continued.

So therefore, retail deposit rates and volumes are not moving so much other than because this kind of -- I mean, the volumes move because people live up their savings in a, b, because they don't -- if they want to kind of invest into a high-yield structure, they don't go for a term because they go for a retail government bond. So I think that's the reason why we don't see so much increase in term deposit volumes, right? It does exist. So we have those and they have higher rates. But overall, this is as we just stated, it's a small percentage. And I think these are the factors behind this situation.

And then your other question was related to cost of risk for first quarter. Yes. Again, I mean, we continue to try to be as conservative as possible with provisioning, and we usually make another push each year-end, and we did that this year end as well. So I acknowledge your point that there's some optical inconsistency here. But if you look back to our previous track record, we -- hereon, we always try to -- despite we are always quite conservative, I think, hereon, we try to be extra conservative, and this was just reflected here. But I think that's a fair point what you said. Hello?

[Operator]

[indiscernible] are you still available?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Maybe we can go to the next question.

[Operator]

The next question is from an attendee joined via phone, again. [Operator Instructions]

[Unidentified Participant]

Hi. [indiscernible]. Thank you for call. Just a technical question. I mean you include now in your guidance, in ROE guidance for this year, Nova KBM and something from Ipoteka Bank upon, of course, depending on the timing of consolidation. Is it correct?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Yes.

[Unidentified Participant]

Okay. And would you be able also to provide a kind of compared to the 2022 kind of like-for-like ROE guidance compared to the kind of the group structure that we saw by the end of 2022.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Yes. It's somewhat lower.

[Unidentified Participant]

Okay. Based, of course, on the adjusted numbers, right?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

These are adjusted numbers, yes. Total [Technical Difficulty].

[Unidentified Participant]

Okay. Thanks. And my last one, I think government -- some government representatives yesterday or the day before mentioned the extension of windfall profit tax. So not being specific on which industry it might be negatively or positively impacted. Do you have any kind of idea where the journey might go beyond 2023 on that front?

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Yeah. We are also disserved by these comments. And we certainly don't have any further information other than this scattered in March from various representatives of the government. When they introduced this tax last year, we promised that this was worked for two years. And then it's one of the -- also one of the EU requirements to kind of eliminate them starting from next year. So that's one of the kind of 27 points, which we prerequisite for the EU funds to be made available for Hungary. So what I say, I don't know. I mean this is certainly another good news for us, and I don't have any more detail on this. We are not aware of any specifics. We don't exactly understand what it means. So unfortunately, I cannot comment fully on this one.

[Unidentified Participant]

Okay. Fair enough. Okay. Thanks a lot. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you.

[Operator]

Thank you. The next question is from Alan Webborn, Societe Generale.

[Alan Webborn, Societe Generale]

Hi and thanks for the call today. On mortgages in Hungary, could you just sort of update us a little bit about how you're managing that market in the current environment? And with your assumption that inflation is going to come down, and therefore, rates are going to come down as we go through the year. I mean, do you see that being an inflection point at some point or is this year simply going to be continually downward in terms of volumes? I would just be interested in your view of that market.

And I guess the sort of the other side of that is clearly, at the moment, it's working capital loans in Hungary that have been giving you the volumes as inflation comes down, do you think the sort of the longer-term investment type loans will come in to offset or do you think there's going to be some pressure there as well. And then in terms of your overall NII guidance, I mean, can we sort of apply that to some extent to fees as well or do you think there are other elements at play there as well. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

As I already mentioned, and there was some -- one question related to this Hungarian growth expectations between the countries. And it was rightly said that probably Hungary going to be even relative to the other countries of our portfolio more muted. Certainly, that's what true for mortgages. So I think it's quite clear that at this rate level demand is very thin. And I think even if rates go much lower, I mean, first of all, we -- I don't expect a very big pickup in mortgage lending during the course of this year. I think this is going to be relatively at low level for all year.

We actually started on lending or issuing mortgage variable mortgages after the rate cap. I mean, if you cannot trust in your -- in the contracts that you have with your client. And if the kind of regulation overrides these contracts, then the only thing you can do is to provide tier maturity fixed loans. So that's what we do. So we only provide now fixed loans until maturity. And that allows still around the kind of 10% rate for mortgages kind of tier maturity fixed. And even if the kind of short-term rate integrates very fast, this kind of tier maturity rate is not. So it kind of short-term reference rate comes down to -- from 18% to 10%. It doesn't mean that we can -- I mean, the kind of long end of the yield curve is not going to decline so much, right?

So the actual kind of yield of this fixed maturity mortgages is not going to decline as much during the course of this year as the base rate will or expect it to decline. So therefore, I think this is going to be for the over course of the year in Hungary. And hopefully, kind of next year, if inflation and rates continue to abate and kind of risk and the kind of all inflationary and rate environment turns around maybe next year, whatever, I don't know when, then there might be a stronger pickup. But I don't think it's quite -- it's likely this year.

Corporate Planning, I mean, yes, it's already slowed down during the fourth quarter last year so true. And the inflation goes down, I don't think maybe will reduce the inventory -- the working capital is so much because that -- I mean, inflation going down doesn't mean that there's deflation, right? It means the rate of inflation slows down, but it's still a lot, right? I mean we are going down from 25%. But if you go down to 10%, it's still kind of high inflation, right?

And it's certainly not deflation. So I think corporate can -- I mean it will be less than -- I mean, compared to last year, when we grew 33% this year will be less. But maybe, I mean, it can easily happen that corporate will be higher than 5%. I mean even closer to 10% this year, for instance in Hungary. So corporate is not so much directly defined by the rate environment and some of them benefit from inflation and they can -- and some of them can take FX loans, which the retail clients cannot. So that's -- there are different dynamics there.

Our fees, in general, we think -- I mean, fees tend to grow in nominal GDP growth, right? Now when inflation is so high then fees don't grow so much because transactional volumes decline, right, as consumption declines, retail trade declines, actually, there's advance of kind of more transactional volumes due to inflation and the decline in the number of transactions due to less retail, less consumption. But I think fee dynamics is going to continue to be strong. And I mean the rule -- the kind of general rule is that actually high inflation is relatively good for a fee increase. So I am more optimistic on the fee side here.

[Alan Webborn, Societe Generale]

Okay. That’s very helpful. Thank you.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] As there are no further questions, I hand back to the speaker.

[Laszlo Bencsik, Chief Financial and Strategic Officer]

So, thank you again. Thank you for your time and for your attention. I hope this was useful and thank you for the very good questions you asked. I hope we were reasonably able to answer them. And please come to our next kind of meeting or we see when we present the first quarter results. I think they are going to be quite interesting to see, especially because we will already see the addition of NKBM to the group, which is a big step for us. A lot to be seen there as well. So in early May, I hope to have you back and till then all the best for you and have a very nice weekend, and goodbye.

[Operator]

Thank you for your participation. The fourth quarter and full year 2022 conference call is closed now.