Addiko Bank AG

VSE:ADKO

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Addiko Bank AG Q3 Results 2023. Throughout today's recorded presentation or participants will be listen only mode. [Operator Instructions] I will now like to hand the conference over to Herbert Juranek, CEO.

[Herbert Juranek, executive]

Good afternoon, ladies and gentlemen. Welcome to our presentation of the third quarter results 2023, of Addiko Bank. On behalf of my colleagues, Ganesh, Tadej, Edgar and Constantin. Let me guide you through the agenda. I will start with the executive summary of the highlights of the third quarter and then pass on to Ganesh, who will inform you about our achievements on the business side. In the second chapter, Edger will give you more insights on our financial performance. And today, we report about our progress in the risk area. At the end, I will do a short wrap up based on our current outlook for 2023. And finally, we will move on to Q&A. So let's begin with the highlights. The result of the third quarter were pretty positive. We were able to increase our net profit by 53% year-on-year from EUR 19.6 million to EUR 30.1 million. This leads to EUR 1.55 earnings per share until the end of the third quarter. The return on average tangible equity increased to 5.5% after 3.4% in Q3 2022. Our operating results jumped by 40% year-on-year to EUR 78.1 million despite inflationary impacts on the expense side and increasing funding costs. The operative result is based on a double-digit year-on-year growth in our focus business and the solid cost management in the given environment. The net interest income development is an important pillar in this context as we were able to improve it by 29.5% year-on-year based on the program made in our consumer and SME business as well as on our liquidity management income. An important driver in this regard, are our continuous repricing activities, which led to a substantial increase of our yields in new business. Our acceleration program is supporting these developments. I will come back to that on the next page. But before, let's talk about the risk aspects, funding and capital. Our cost of risk stayed at low 27 basis points or EUR 9.5 million. EMP volume went further down to EUR 153 million and consequently, results into an again reduced NPE ratio of on balance loans of 3.1%. On top, our NPE coverage ratio also improved from 75.4% at the year-end to 79.2%. The funding situation is strong with EUR 5.1 billion deposits and a loan to deposit ratio of 69%. Our liquidity coverage ratio stands at 331% at the end of Q3. And last but not least, our capital position remains also strong with 19.5% fully loaded CET1 ratio. Unfortunately, the third quarter surprised us with a few unpleasant events. Slovenia is planning to introduce a windfall tax for our banks. Serbia imposed an interest rate cap for housing loans. And in Croatia, the number of court cases coming in after having reached the statute of limitations are elevated. However, the second 2 subjects are already reflected in our Q3 results. Overall, we do not expect an impact on our midterm targets from these external factors. Edgar will give you more background on these topics in his part of the presentation. Now let me share our expectations concerning the supervisory review and evaluation process. We expect the P2G to decrease by 25 basis points to 3%, and we expect no changes in P2R. The final results of the SREP 2023 are scheduled to be received before the year the end of this year to become valid as of 1st of January 2024. Let's continue with the status of the acceleration program. I'm happy to share with you that we are making good progress in all 3 pillars of our acceleration program. The business part of the program was strong. It was a strong enabler to achieve our growth rates in the third quarter. In this regard, I would like to mention 2 topics. First, we reached a double-digit focus for growth already in September and at the same time, increased our customer deposit base. Second, we were able to further extend our partnership network to 520 partners. Ganesh will give more background later on. Moreover, the assessment of our expansion in Romania is well underway according to the time plan. The same is true for ESG action plan as all projects are on track. But Dave will provide you with more insights later and you will get a detailed report on all our ESG activities with year-end information in March 2024. Our initiatives of the second pillar are also progressing quite well. The preparation of our end-to-end enabling initiatives is according to the plans as well as the other operational excellence measures based on the Kaizen methodology. Therefore, we expect to build limited restructuring provisions for the projected restructurings and platform improvements in the fourth quarter. In addition, together with our total customer base, our digital users grew by more than 10% year-on-year. In our third area, namely risk management, we successfully launched a new risk reporting platform across the group, which will further improve our capabilities to steer and manage our risks on a group-wide basis. Furthermore, we started a project on collection efficiency to explore additional enhancement potential in the collection area. And last but not least, our NPA reduction initiative brought our nonperforming exposure to an all-time low. So altogether, I believe that we are right on track with our acceleration program to get closer to our goal to become the best specialist bank for consumers and SMEs in Southeast Europe. Now let's take a look to our business development. As you can see on this page, we managed to grow our focus portfolio by 11% year-on-year. If we exclude the medium SME business, our growth rate was even plus 14% year-on-year. The consumer book increased by 9% year-on-year, influenced by a tightened risk criteria in the first half of the year and by lower demand.Nevertheless, we are confident that we will be able to meet our guidance to achieve a double-digit growth in our focused book in the full year 2023, especially as we are assertive that based on our work, we will find sweet spots for profitable business activities. Our confidence is also supported by the fact that we were successful in driving our new business generation up by 14% year-on-year and at the same time, increased our focus yield to 6.2%. New business yields in consumer reached 7.6% and in SME, 5.6%. Our total focus book increased to 86% of gross performing loans. This development is in the earlier based on the continued strong growth of our SME book, which went up by 13% year-on-year, while the low-yielding larger tickets in medium SME were decreased by 16%. The micro and small SME business even grew by 23% year-on-year. These growth rates were achieved, although our risk management is continuously calibrating the underwriting criteria to the given environment. In this context, I would like to mention that we will continue with our approach to strive for ambitious business growth, while at the same time, respecting our prudent risk criteria. With that, I would like to hand over to Ganesh to give you a deeper insight into our business activities.

[GaneshKumar Krishnamoorthi, executive]

Thank you, Herbert. Good afternoon, everyone. Moving to Page 6. I'm delighted to share that despite the challenging landscape with rising deposit costs and persistent inflation, we consistently delivered strong results in the past 3 quarters. Our strategic approach in USPs, have allowed us to navigate tough market conditions, resulting in impressive 14% year-over-year new business lending growth at a premium increase of price over 120 basis points in both the segments. Unfortunately, our competition has not followed our price increase yet. Going deeper into the consumer segment, our hope focus has been on driving incremental growth by lowering ticket loans to the emerging digital save customer base and point-of-sale customer segments. Over the last 9 months, we have concentrated our efforts on 4 main areas. Firstly, we have extended our lending reach through strong partnerships, totalling 523 and our presence in over 1,000 locations in our region. This move has allowed us to tap into new customer segment that appreciate financing at point of sales transaction. As a result, our partnership lending business has more than doubled. Furthermore, our cross-selling team is well prepared to offer these customers a larger consumer loans after understanding their payment behaviour. Secondly, we are upgrading our existing branch-based digital solution to offer an end-to-end digital customer experience that eliminates the need for customers to visit physical branches. This exciting upgrade, has been launched already in Croatia and will be soon introduced in other countries. Thirdly, we are working on growing non-lending product revenue streams with a particular focus on cards and insurance. In fact, our innovations in Card led to remarkable 94% year-over-year increase in cards commission income. This in turn will help us to compensate the NCI loss occurred due to the implementation of Euro and Croatia. Finally, we have launched a pilot program for buy now pay later services in Romania, and this pilot not only serves as an opportunity to provide our customers with a new financial offering, but also allows us to gain valuable insights and risk dynamics associated with lending and aiding our assessment for larger expansion to various other products. Overall, we have achieved a strong 51% growth in new customer acquisition, accommodated by 124 basis point increase in yields and a 10% year-over-year development in gross disbursement along with increase in deposits. Shifting our focus to SME front. We focused on delivering lower ticket loans and a mandatory account packages to underserved micro and small segments through our digital agent platform, where speed is a prominent USP. Over the past 9 months, we have focused on 3 key topics: firstly, process enhancement. Through a relentless pursuit of improvement, we have successfully streamed our loan application process in resulting our time to cash reduction and also a corresponding increase in USB. And this, in turn, has enabled us to implement price increases. Secondly, introduction of new online channel. Our commitment to convenience has led us to introduce a new online channel, which employs SMEs clients to apply for loans online, eliminating the need for direct interaction with sales staff. This innovation sets us apart as for the only bank offering this service in key countries in Croatia, Slovenia and most recently, in Serbia. Lastly, product expansion. As part of our aspiration program, we are diligently working on new products that will further enhance our SME ecosystem and revenue stream. On to the results. Our micro business segment has seen an increasive growth rate of 44% year-on-year, underscoring the scale of our reach and our commitment to underserved segments. Additionally, across a small and micro landscape, we achieved 22% growth in new business. Most notably, we attained a substantial increase of 157 basis points in pricing year-over-year. To summarize, we remain optimistic about the future as we forge ahead with innovation and strengthen our position in consumer and SME space, not only in lending but also in other fee-driven products. Our USPs are meticulously designed to resonate with customer needs have not only acted as a buffer against of challenging marketing dynamics but also fuelled growth. With that, please let me hand over to Edgar for financials.

[Edgar Flaggl, executive]

Thank you, Ganesh. Starting on Page 8, where we printed the composition of our result for the first 9 months of 2023. Net interest income continued to improve significantly and is up 6.1% compared to the previous quarter and almost up 30%, so 30% year-over-year. The quarterly improvement is starting to slow down given the natural increase in deposit funding costs. Overall, our key revenue driver, the interest income, so excluding interest expenses, improved by 41% year-over-year. This is driven by higher yields from our premium loan pricing, repricing of the verbal back book and the contribution from treasury and liquidity management. The steady progress on increasing the share in higher-yielding focused loans to now 86% in our book supports this positive development. As in the previous quarter, the treasury and liquidity management income also significantly increased year-over-year and still overcompensated the steady increase in deposit costs. Interest expenses, as mentioned last time continue to inch up. On the one hand, this is the natural increase we have been expecting. On the other hand, it's also driven by our planned shift from on and or Avista to more term deposits. We have achieved a healthier composition with 63% Avista share compared to 68% at year-end 2022, while at the same time increasing deposit volumes. For 2024, we expect deposit costs to further increase to roughly 120 basis points from approximately 80 basis points for the full year 2023. The second main income driver, the net commission income continued to be down year-over-year due to, as mentioned many times, the lost FX TCC business in Croatia as a direct consequence of Croatia joining the euro. However, NCI came in strong once again also in the third quarter with another 4.1% quarter-over-quarter increase on top of the already strong Q2 this year. In summary, the continued improvement on net banking income with an increase of 5.6% compared to the last quarter and almost 18% year. Now to the other income, which comprises the net result of the financial instruments and the other operating result and which is mainly driven by deposit guarantee costs and regulatory charges. If you compare the third quarter with Q2, please be reminded that we had positive one-offs amounting to altogether $1.6 million in the second quarter. Now as Herbert already pointed out, we are expecting a special banking tax in Slovenia. Tax would require a charge of roughly EUR 3 million per year in this position. Based on the latest news from a few years ago, this new tax will not affect the fourth quarter 2023, but start with 2024. However, as of today, it's also not certain if this will be changed back again to 2023. In any case, we do not expect and not worth the impact on our midterm guidance out of this. Down to operating expenses, which have continued the upward trend in the given environment and are now up almost 6% year-over-year due to significantly elevated inflation. The main driver is and remains high wage pressure and cost increases from service agreements, led by standard are tied to an inflation index, such as for IT. We stick to our challenging guidance on OpEx to land below EUR 179 million in 2023 despite these increasing headwinds. And I'm confident we will achieve this. The next year will be more challenging on that front. If you take it all together, we have delivered very positive improvements of our earnings capabilities, which are reflected in a 40% year-over-year increase of the operating results. The next item is the other result, which includes costs for legal claims as well as for operational banking risks following our prudent approach. As you can see, quite a large charge here with EUR 16.1 million in the third quarter, which is mainly driven by 2 topics: first, Swiss franc legal claims in Croatia. During September, we have been getting more and more transparency on the potential final number of legal cases to be expected, following the deadline for filing new claims expired on June 14. We are now expecting the final number of cases to be a couple of hundred cases above our previous estimates. On a positive note, though, this now puts the lid on the topic in terms of number of cases that we can expect and provides us with the opportunity to launch a settlement strategy and work on resolving the cases. The second main topic here is related to an interest rate cap of 4.08%. That was introduced for housing loans in Serbia until the end of the year 2024, which led to a modification loss of EUR 2 million. Now the credit loss expenses, which continued to remain benign, today, we'll provide insights on this very positive development in a moment. So altogether, a solid result on the back of a strong momentum in the top line, successful cost containment and sound risk management, which allowed us to achieve the unaudited net profit of EUR 30.1 million, which is up more than 50% versus the EUR 19.6 million the year before. Just a quick summary on the right-hand side of the page. What you see here illustrated quite nicely is our positive trend in NII continued despite higher funding costs, our NIM improved further, and the cost income ratio remained below the 60% mark also for the third quarter. To conclude, a solid result with improving operational performance, while at the same time, digesting quite a bit of legacy that originated more than a decade ago. Over to Page 9, which illustrates our strong capital position. At the end of the first 9 months 2023, our capital ratio remained strong at 19.5% fully loaded and all of that in CET1. Just as a reminder, this excludes interim profit and accrued dividends. If you would add interim profit and deduct accrued dividend based on our current guidance, our CET1 ratio would be flat in comparison to year-end 2022 at 19.9% fully loaded. As you can see in the chart on that page, our OCI also continued the trend of recovery, while the main change compared to the second quarter is an increase in RWAs as a consequence of strong growth in our focus book. Now briefly on SREP. As already mentioned by Herbert, based on the draft rep for 2024, we're currently expecting no change in P2R and a reduction of P2G by 25 basis points. To summarize, continued strong capital position with substantial buffers. And now over to Tadej on risk management and our good progress on ESG.

[Tadej Krašovec, executive]

Thank you, Edgar, and good afternoon, everyone. We go to the Slide 10 first. In the third quarter of 2023, the quality of our credit portfolio continued to be as expected. We can observe higher credit risk indications in one country. However, the overall situation remains stable. As you can see on the slide, we continue to decrease nonperforming portfolio, reaching EUR 100 billion of NPEs, which represents an NPE ratio of 3.1%, all-time lows. Right-hand side chart also shows that NPE formation stagnates and is more than compensated by successful NPE decrease strategy. To keep portfolio quality under control, we are diligently monitoring portfolio and new disbursements, while implementing more stringent risk schools to exclude subsegments where credit risk performance is not up to our expectations. I'll continue on the next slide. Credit on expenses in the first 3 quarters of 2023 came in at EUR 9.5 million, resulting in a cost of risk of low minus 0.27% on a net loan basis. Quality of consumer and SME behaviour that resulted in minus EUR 0.48 and minus 0.43% cost of risk, respectively, was better than expected. Relatively low cost of risk was driven by lower-than-anticipated net migrations to Stage 2 and Stage 3, [ in NPE], further supported by a few larger successfully resolved cases. The post model adjustments recognized at the level of EUR 18.5 million remained unchanged from midyear 2023. I can conclude, that the current macroeconomic situation in our region supports the stable credit risk situation of the bank with indication of a slight negative trend in one country and some other segments. Nevertheless, those trends were overcompensated with a generally very stable portfolio. Let's go on to Slide 12 to inform you regarding our development in ESG. We take ESG topic very seriously by finding internal energy strategy, creating governance around the topic and executing and regularly improving risk identification and materiality assessment. These pillars led us to exit some highly impacted industries and set more limits for others. We have also introduced upgrades on the credit process to identify clients that could be more impacted by climate changes enacted by limiting exposure or not financing some of them at all. Some extraordinary events in our region, for example, the severe floods in Slovenia in August, prove that such approach is needed, even though our materiality assessment shows our business model and our clients would be less impacted overall. The minimal impact of the floods in Slovenia gives us some confirmation that we are on the right track. However, we are not only focused on how climate changes can impact us or our clients but also how we can have a positive impact from the inside our perspective. Over the next 3 slides, I would like to give you a taste of our approach, while not going into the details of each slide. On Slide 13. Environmental impact is our first priority and first point. We want to become more climate-neutral to replacing our car fleet, reducing office space after significant reductions that we already had in previous years and reducing consumption through digitalization and operating as branches. While Addiko Holding in Austria, already switched to 100% renewable energy, we have the same ambition for all other countries. However, we see the transformation will take more time due to local specifics and lower focus of the local governments. To promote green products and services, we have established already 4 new partnerships surpassing our initial goal for this year. On the next slide, in the social aspect of the ESG, we are promoting diversity and inclusion. Throughout the group, the share of women in executive and middle management position is already at 48%. We work extensively on improving life-for-work balance of our employees on creating a culture of opa-communication, which we believe will positively impact bank results in the long term, and we're actively supporting communities in which we offer. In the rest part on the next slide, we believe in a strong interest-bearing governance. While we constantly improve governance inside the bank, we have a specific focus on governance around ESG topic inside this program. This year, we are focused on building ESG governance bodies, participating in Cap Association. This is the partnership for carbon accounting financials to you the best practices and to educate also our clients. On top, we extend our impact to external partners to increase supply chain ESG appliance. Due to our size, but especially our specialized business focus, we know our impact on ESG topics is limited. However, we continue to improve in small steps and do our product by using opportunities for ESG to have a positive impact on our business and dollars. With that, I hand back to Herbert.

[Herbert Juranek, executive]

Let's go to the outlook and wrap up. Unfortunately, in addition to the ongoing board in the Ukraine, a new word came up in the Middle East after the terrorist attack by Hamas, altogether increasing global uncertainty in an already stumbling economic environment. Inflation is already below its peak, but still on an elevated level and therefore, continues to exert pressure on our operating expenses. Therefore, we will strive to develop countermeasures to manage the consequences. Furthermore, we believe that we are already around the top of the Central Bank interest rate development. And finally, the deposit prices in our markets are also going up. In some countries, this trend is promoted and influenced by the respective government. Moreover, incumbent banks still continue to hesitate about increasing loan prices and regulators keep up with their intentions to curb loan interest and fee increases. However, despite those challenging circumstances, we are assertive that we will find ways to counterbalance those negative influences and that we are able to keep our premium positioning in pricing. Therefore, I would like to state that the Management Board of Addiko confirms the outlook of 2023, which was upgraded together with the announcement of the half year results. In order to provide you with full transparency, we have added the current status of achievements to the respective category. To sum it up, we, the management team of Addiko, are very confident in our business model and that we will use the opportunities in our markets to be able to achieve our goals. We are also positive for the remaining part of the year. Now we will continue to work with full energy to improve the bank further to create value for our clients and for our shareholders. With that, I would like to conclude the presentation. I would like to thank you for your attention. We are now ready for questions.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]. The first question is from Mladen Dodig.

[Mladen Dodig, analyst]

I wish to congratulate you on the great results. I just wanted to double check a couple of times. You mentioned the yields for the consumer loans, new production, 7.6%, while there is 7.8% on the Slide 30. Is there a difference between those 2 numbers or 7.6% for the 9 months, some average?

[Herbert Juranek, executive]

One is the quarter-to-date figure in the additional materials in the back has mentioned is the year-to-date figure.

[Mladen Dodig, analyst]

I wanted also to ask you about this online SME disbursement in Serbia. I didn't quite understand the one of the biggest advantages has to do something with documentation. So if you could be so kind to explain a little bit more.

[GaneshKumar Krishnamoorthi, executive]

We have launched recently in Serbia, an opportunity with where were actually our SME clients can apply online in Serbia. Actually, this would mean also they can understand see also the decision if we take the loan or not. So it's a very convenient feature for SME clients where they can apply and get the decision online. This is the feature we have launched. We are also working with the authorities to get it completely end-to-end, but we are working on the contracts, [ mish-process ], et cetera, where things can happen next year also.

[Mladen Dodig, analyst]

And Edgar, you mentioned at one point of time you expect the deposit funding cost for 2024 at 120 basis points did I understood that correctly?

[Edgar Flaggl, executive]

So the full year average for 2024, what we are currently expecting on the back of our planning that is currently in progress. We expect 120 basis points. This year, you have seen inching up quarter-over-quarter, naturally and we expect for the full year this year, roughly 80 basis points, so that you see a bit of a difference.

[Mladen Dodig, analyst]

I think Tadej mentioned one point of time, there is a small deterioration in one of the countries. Can you reveal where do you see this deterioration or not?

[Tadej Krašovec, executive]

Yes. We see that in Serbia, but current numbers are not far from what we have expected. And we have already produced mitigation actions curbing the risk in that part. Still, even though that we see the peroration in the overall from a cost of risk perspective, we are very much inside the expectations for this year.

[Mladen Dodig, analyst]

I noticed that from the certain position in the so-called entrepreneur position. So that's something that stood from other categories, right?

[Tadej Krašovec, executive]

No, I would not say so. I will more say micro segments, small segment, Entrepreneurs are not important subsegment in Serbia.

[Mladen Dodig, analyst]

Thank you once again and congratulations.

[Operator]

The next question from the phone is from Hugo Da Cruz with KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I wanted to ask a bit about NII, if you could talk about the trends you're seeing at the different moving parts in Q4 and potentially looking into next year. And also, the rate outlook is a bit concerned. Are you thinking about managing your interest rate exposure for next year? Are you doing anything around your hedges or your Addiko portfolio? Are you starting to position that to mitigate potential rate next year? That would be great if you could clarify that. And then finally on capital. I hear your guidance, you have the 60% dividend payout target and so on, but you're still not accruing earnings. So can you tell us, give a bit of comfort that there is no issues with the dividend.

[Herbert Juranek, executive]

Maybe I'll start with the dividend question. and then hand to Edgar maybe you cover the others. Look, as you see from our material, we have management but we are fully committed to the payout ratio of 60% but we also know from previous conversations with the regulator that our regulator is a bit concerned about payout ratios overall and considers everything what is above 40% to 50% as aggressive, that's how the regulator cost. Nevertheless, we will again be in conversation with the regulator, and we will try to defend our position out the clear commitment of the management board is, in any case, to have a dividend where there is one in front. The one is the euro, at least EUR 1 is our clear ambitions. And from today's perspective, we stick to the 60%.

[Edgar Flaggl, executive]

So if I understood it correctly, you want to understand a bit the momentum towards the end of the year 2023 and then what we expect going forward in terms of rate environment as well as a question on hedging strategies, correct?

[Hugo Moniz Marques Da Cruz, analyst]

Yes, that's correct.

[Edgar Flaggl, executive]

So overall, we are, I would say, relatively prudent in our forecast when it comes to the fourth quarter, also because of the topics that Tadej mentioned before, we're observing, of course, the developments in the market and are not shying away from being more restrictive in underwriting. So in the fourth quarter, usually, we take a bit of a lower approach in terms of growth also because we want to make sure we have the starting point right for the next year. So that's on the one hand, when it comes to volumes. Deposit pricing, what you see quarter-by-quarter increase, of course, in the fourth quarter, it's going to be a higher cost. That's why I mentioned the quarterly improvement in terms of NII is slowing down simply for that reason. We don't expect any development on rates until the year-end, also to make that different rate environment. Now when it comes to next year, what we expect and we base our assumptions very often and to a large extent, on the Vienna Institute for International Economic Studies. We are currently expecting 2 small rate cuts, which should happen towards the end of the next year. Of course, this is going to happen or not. At the end of the day, no one knows it will very much depend on what inflation is doing. Right now, it goes in the right direction. Also, when you hear what the ECB has been saying on that front of i.e., having reached a peak and inflation going in the right direction, it's not an unrealistic picture. But of course, the conflict in the middle east influence on fuel prices, et cetera, could change the picture, no one knows that. So we have, I would say, a more prudent view here assuming 2 rate cuts. Now when it comes to your question on interest rate hedging, I think we said in previous calls, we are not doing hedge accounting. So we have not implemented that. We're also not planning of implementing that. So we are more running a natural hedge on that sense. On the asset side, we are predominantly in fixed rate loans. And when it comes to natural hedge, those are one of the reasons why we have strategically pushed for more term deposits, even though in the short-term view, they're more expensive than a long-term view, it's a healthier composition. Hope that helps.

[Operator]

At the moment, we have no further questions on the telephone lines.

[Herbert Juranek, executive]

I have one question on the webcast from Wolfgang [ Tecan partner ]. Having in mind that the European banking sector is facing an increasing stress factor coming from real estate collaterals, so financing and construction costs, valuation linked collateral issues, how or is affecting your business as well. Thanks, and being congrats for your results.

[Edgar Flaggl, executive]

Maybe I start with a general comment and then I would ask Tadej to give a more explicit answer to that. So the general answer is no, there is no big impact to that given our business model and give them also and give most of the portfolio we have in the countries. But maybe Tadej, you want to give more intent to that.

[Tadej Krašovec, executive]

I would just confirm that we haven't seen so far any impact. There are at least 2 reasons. One is our business strategy where we have all our tickets that are usually uncollateralized. But we also don't go in the investments that would be depending on the value of the real estate or would be big and complex. On the other side, we also take into account in our internal values, collateral value that has a high discount on the market value of collateral. So already in that respect, we have buffer even in the real estate various go down. In the mortgage portfolio, we see that since we started doing mortgage several years ago, we see that the loan-to-value ratio is very low. So our loans are more than in average, more than double time covered with the value of collateral. Any changes in those values would not have any material impact on us.

[Herbert Juranek, executive]

I have no more questions on the webcast. Operator, anything on the telephone line?

[Operator]

At the moment, we have no questions. [Operator Instructions]

[Herbert Juranek, executive]

So if there are no more questions, I would like to thank the audience in the name of the management Board. We thank you for your attention, and we go back to the work. Thanks so much.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.