ProCredit Stock

Ladies and gentlemen, welcome to the Pro Credit Holding AG H1 Q2 2026 Results Conference Call. I'm Atheros Call operator. [Operator Instructions]

At this time, it's my pleasure to hand over to AriolaBiboli. Please go ahead, ma'am.

Good afternoon from Frankfurt and welcome to our call to discuss ProCredit Group's results for the first half and second quarter of 2026. My name is Eli Gadiboli. I'm the Chairperson of the Management Board of ProCredit Holding, and I'm joined today once again by Christian DaGrosa, our Chief Financial Officer. The slide deck accompanying this presentation is available on our website, and a recording of this call will be made available in the coming days.

Before we begin, let me draw also your attention to the customary disclaimer regarding forward-looking statements, which is included at the end of the presentation. We expect today's earnings call to last approximately 30 minutes. Following our presentation, we will, as always, be happy to take your questions. I will focus on the key developments of the first half of 2026 and provide an update on the progress we are making against our strategic road map. Christian will then take you through the group's business and financial results in greater detail, and he will provide an overview of the key risk and capital indicators.

Overall, our business performance over the first 6 months was in line with our expectations. Our loan portfolio grew by a strong rate of 8%, crossing the EUR 8 billion mark for the first time in the group's history. At the same time, our active client base increased by around 27,000 customers. This development was particularly strong in the micro customer segment, where our active clients went up by nearly 18%. And in retail, active client numbers increased by 8%.

Growth in both loan and deposit volume as well as number of active clients is increasingly supported by ongoing improvements in our operating model and the early benefits of our digital initiatives. Operating income has shown an overall encouraging development, increasing by 7%, driven in particular by higher net interest income. The profit of the period amounted to EUR 38.5 million with a cost income ratio at 71.2%.

Finally, our inaugural AT1 issuance of EUR 150 million in May was an important step in supporting the group's capital structure optimization, delivering on the strategic objectives that we first outlined at our Capital Market Day 2 years ago. This slide rather serves as a snapshot of our most important KPIs, most of which I just covered. Let me just add that loan portfolio quality remained broadly steady compared to the beginning of the year. Of course, 1 of our main objectives remains to strengthen net interest income through volume and margin expansion.

In this regard, we recorded an encouraging increase of net interest income by 11.6% year-on-year equivalent to almost EUR 20 million. Christian will walk you through the key drivers in more detail shortly.

Lastly, let me remark that due to our AT1 issuance, we will report return on tangible equity going forward, which takes into account the accrual for the AT1 coupon. For the first half of 2026 return on tangible equity stood at 7.3%. Also let me know at this point, we have not yet performed the IFRS 5 reclassification of Ecuador. We expect this to happen in the second half of this year.

Turning now to our geographical footprint and recent developments across our markets. Loan growth in the first half of the year was broad-based across our network, particularly strong in Georgia, Kosovo, Bosnia, Bulgaria, Romania and Ukraine. This confirms the strength of our local franchises amid overall favorable market conditions and the increasing relevance of our retail banking value proposition.

Moving on to the broader economic outlook, though or not well as the most relevant geopolitical risk factors are widely known and reported on. Overall, the macroeconomic outlook for our region remains more favorable than for the euro area with GDP growth expected to average around 3% per annum compared with just over 1% in the euro area. However, as the war in Ukraine and the tensions in the Middle East continue, downside risks have certainly increased since the beginning of the year. While the direct impact on our markets and clients has remained rather limited so far, indirect adverse effects are becoming increasingly more parent through higher energy costs, persistent inflationary pressures and weaker external demand.

These challenges are not confined to energy-intensive sectors, as supply chain disruptions can affect businesses across the economic landscape. We monitor these developments closely. We remain close to our clients, and we regularly assess potential implications for the customers for our portfolio and for our markets.

Let me now turn to the progress we are making on strategy execution. As mentioned earlier, one of the highlights in the first 6 months of this year has been the strong dynamic in client acquisition, reflecting a sharpened growth focus in micro and retail client segments. This development is supported by the continued rollout of our new mobile banking platform. During the first 6 months of this year, we launched our new retail banking apps in North Macedonia, Albania and Romania bringing the total number of banks offering new apps to 7 out of 10 banks.

In addition, we developed and launched a dedicated mobile banking app for legal entities, tailored in particular to the needs of micro and small businesses. The solution is already live in North Macedonia and Bosnia and Herzegovina. And in North Macedonia, we onboarded nearly 60% of micro clients in the new mobile banking app in the first 2 months of the rollout. Further, we introduced end-to-end digital client onboarding in Ukraine, Albania and Romania, meaning that this important functionality is now available in 8 banks.

Overall, we remain firmly on track of our digital agenda. Our rollout enhance scalability and the efficiency of our operations, a strengthen customer experience and support our ability to acquire, serve and retain customers through digital channels. The new digital banking apps are a core building block of our mobile-first retail banking strategy. Today, customers expect to be able to manage their finances conveniently through digital channels. Our focus is, therefore, on providing a reliable and intuitive mobile banking experience that enables customers to complete their most common banking activities quickly, efficiently and securely.

Our digital banking app support the key customer journeys from account opening and payments to savings, personal finance management. By making these services easily accessible through a seamless digital experience, we aim to meet customers' evolving expectations and make ProCredit a natural choice for their everyday banking needs. Although the rollout are still progressing across our markets, the initial customer expenses have been very positive. We are seeing encouraging engagement levels and willingness among customers to incorporate the app into their everyday banking activities.

While there remains significant potential ahead of us, these early trends reinforce our confidence that the new mobile retail banking apps will play an increasingly important role in expanding our retail customer base deepening customer relationships and supporting operational efficiency and medium-term profitability.

Moving to another strategically important projects. In May, we successfully completed the inaugural issuance of additional Tier 1 capital instruments with a volume of around EUR 116 million. The transaction was met with strong investor demand with an order book more than 3x oversubscribed. It resulted in a broadly diversified investor base and pricing below the respective benchmark. The initial coupon rate is 8% and and will reset a 5-year intervals starting in December 2031.

As a result of the transaction, the group's Tier 1 capital ratio increased by around 2 percentage points pro forma as of March 2026. The transaction was an important milestone in supporting group's capital structure optimization. Once again, we would like to thank all investors for their commitment and for the trust they placed and continue to place in us.

Finally, let me briefly reiterate our outlook for 2026. The first 6 months of this year provided a solid base for our ambitious plans for business expansion. We continue to expect loan growth in the range of 12% to 15% in our core markets, where we continue to see attractive profitable growth opportunities despite the global challenges. We confirm our outlook for a 7% return on equity this year, which includes the developments mentioned earlier, particularly income growth, cost from investments in digitalization and capital optimization measures and the number of short-term effects, including the impacts related to the anticipated divestment of our subsidiary in Ecuador, elevated tax rates in Ukraine and Romania as well as reduced fee income due to the euro introduction in Bulgaria.

In the medium term, our objective remains to grow the loan portfolio beyond EUR 10 billion was significantly increasing the number of customers across all segments. At the same time, we aim to improve profitability to an ROE of around 13% to 14%, supported by the scale digitalization and a more granular balance sheet with higher average rates on assets and a more efficient refinancing structure. Operationally, this should translate in a structural improvement in the cost efficiency with the cost-income ratio moving towards 57% mark.

The first half provides further confirmation that we are on the right path with accelerated client growth, continued balance sheet transformation, steady progress in our digital rollouts and most importantly, with key line items in the P&L improving strongly to which Christian will provide further details.

Thank you, Ayela, and good afternoon also from my side. Let us start, as always, with a closer view on the development of loans and deposits. Our loan portfolio grew strongly in the first half of the year, particularly within the targeted higher-yielding segments, retail, micro and small. Loans to small enterprises grew by almost 10%, while our micro client portfolio grew strong 23%, contributing now very visibly to the top line growth figure. Retail loans, which grew by 14.5%, also added around 25% to total growth, especially in the form of higher-yielding non-purpose loans. .

Year-on-year, we have now achieved a 17% growth in small enterprise loans, 29% in retail loans and a very strong 46% in loans to micro enterprises. The share of these higher yield segments in total loans which is our key metric for balance sheet transformation on the asset side has consequently grown now by 3 percentage points year-on-year and 8 percentage points since the end of 2023, which marks the starting point of our updated business strategy retonow stand at 49%.

More importantly, this balance sheet transformation is now materializing more and more into meaningful earnings effects visible above all in the positive development of net interest income that you already highlighted.

Moving to deposits. Our deposit base grew by 2.2% in the first half of micro enterprises were a key driver of this growth, contributing around 1/3 to this increase, predominantly in the form of site deposits. expanding our retail and micro clients deposit base remains a strategic priority as these segments provide a stable and attractive source of funding. Year-on-year, retail deposits increased by more than 13% and while deposits from micro enterprises grew by a strong 37%.

And we also continue to focus on improving the overall funding mix. Nearly 70% of the more than EUR 1.1 billion increase in deposits over the last 12 months came from site and savings deposits supporting lower refinancing costs and reducing the share of more costly term funding. Operating income showed a robust increase in the first half EUR 14 million, supported mainly by the expansion of net interest income. Net interest income grew by 11.6% year-on-year driven by the gradual margin consolidation efforts we are undertaking and of course, the consistent business expansion that helps drive meaningful volume effects.

Net fee and commission income declined year-on-year as expected, reflecting the effects from the year introduction in Bulgaria as well as the growing adoption of SEPA payments across many of our markets. Operating costs increased by around EUR 10.6 million with a cost income ratio at the expected level of the previous year. All in all, the underlying earnings trajectory is improving with profit before tax and loan loss provisions increasing by almost 6% year-on-year.

Let us now take a more closer look at net interest income in the second quarter of this year, the net interest margin improved visibly by 18 basis points with respect to the first quarter and now stands at 3.4% on a quarterly basis. This is, in part, driven by a favorable day count effect, of course, but it also reflects the gradual margin consolidation, especially through the increased share of higher-yielding segments and total loans that support higher weighted average interest rates on assets.

As a result, net interest income grew visibly by more than 7% with respect to the first quarter and now stands at a new high of EUR 99 million that is EUR 12.6 million or almost 15% higher than in the second quarter of 2025. For the first half of the year, net interest income grew by EUR 20 million or 11.6%, as already highlighted earlier. This reflects strong volume effects across the group partly offset by a mixed pricing environment across our markets. The net interest margin increased by 6 basis points year-on-year, supported, in particular, by the margin recovery in Ecuador.

More importantly, however, the underlying quarter-on-quarter margin trend is broadly consistent, both including and excluding Ecuador, indicating that the improvements now are driven rather granularly by developments across our entire Eastern Europe and Southeastern Europe region.

Moving on. Net fee and commission income amounted to EUR 22.4 million in the second quarter. This represents a modest increase compared to the first quarter, reflecting client number growth and a favorable calendar effect. However, it remained below the second quarter of the previous year. And on a year-on-year basis, net fee and commission income declined EUR 3 million, broadly in line with the expectations communicated at the beginning of the year.

The decrease was primarily driven by the introduction of the Euro in Bulgaria, as already mentioned, which reduces and has reduced any income opportunity for foreign exchange transactions. In addition, the continued rollout and adoption of SEPA across several of our markets in '25 and '26 has lowered fee income from international payment transactions. While these developments create headwinds for fee income, they also reflect the ongoing integration of our markets into the European payments infrastructure and the associated benefits for our clients.

Moving on, personnel and administrative expenses amounted to EUR 83 million in the second quarter. Personnel expenses increased moderately while administrative expenses rose more strongly mainly due to higher expenses for software and marketing. For the first half of the year, the cost base increased by 7% year-on-year. This increase was primarily driven by higher personnel expenses, including staff increases in central functions in Germany related to the execution of our retail and digital transformation strategy, which is driven centrally.

Depreciation also increased due to IT and software investments made in prior periods. As outlined earlier, the quarter 1 and quarter 2 cost income ratios include new underlying hedging expenses as well as the negative effects from lower net fee income following your introduction in Bulgaria. The stable cost/income ratio demonstrates that the aggregate mid- to high single-digit million euro headwind from these 2 factors has been fully absorbed to underlying revenue growth and disciplined cost management.

Moving on to loss allowances. In quarter 2 '26, loss allowances amounted to EUR 6.4 million, corresponding to a cost of risk of 31 basis points. This figure includes additional portfolio level provisions in the amount of EUR 2.7 million, reflecting the more challenging global macroeconomic environment driven by the continued wall progression against Ukraine and the prolonged conflict in the Middle East, especially higher energy prices weigh on the growth outlook of our markets and across all economies of the world.

To date, our clients have continued to demonstrate a high degree of resilience, which has through the cycle always been a key strength of our group. At the same time, we remain mindful that potential disruptions to supply chains, trade flows and energy markets could adversely affect certain client segments. Given the uncertainty around the duration and intensity of these conflicts, we continue to monitor developments closely and we assess risks on an ongoing basis or hypothetical downside risks from a further escalation of the war against Ukraine, we maintain a very prudent approach to provisions.

The total stock of management overlays to address these risks remain broadly steady at around EUR 48.8 million, accounting for approximately 25% of the total stock of provisions. In this context, and despite this exceptionally challenging environment, our Ukrainian portfolio continues to demonstrate strong resilience. The default rate as of June 30, '26 stood at a low 2% and broadly returning to prewar levels? I will not dwell on credit risk indicators as they remain broadly stable. Year-to-date, we have some increase in Stage 2 as we cautiously transferred exposures of around EUR 115 million related to SMEs operating in sectors with high sensitivity to oil and gas prices.

As the risk profile of these exposures has not changed the impact on provisions of these transfers was largely immaterial. The share of defaulted loans reduced slightly from 3% to 2.9%.

Turning very briefly to segment performance, I would highlight only the improved results of ProCredit Bank Ecuador, which has returned to positive contribution after a prolonged period of underperformance. For the segment Southeastern Europe, the ROE was 10.6% and the growth of the loan portfolio more than 7%. Similarly, we see positive dynamics in Eastern Europe with an ROE of 12.2% and of course, affected negatively by the higher tax rate in Ukraine as well as a strong loan growth of 11.7%.

And finally, let me say a few words on our capital position. Our risk-weighted assets increased in the first 6 months, mainly due to an increase in credit risk, reflecting the strong loan growth as well as an updated treatment of guarantees. As of June 30, our CET1 ratio stood at 12.7%. Our Tier 1 ratio positively impacted by the inaugural AT1 issuance, now stands at a comfortable 14.7% and and total capital at 17.8%, all well above regulatory requirements. And with that, let me conclude today's presentation and open the floor to your questions.

[Operator Instructions] And the first question comes from Miles parts from Edison Group.

I have 3, if I may. The first 1 is on your deposit growth. Do you consider double-digit deposit growth as achievable in FY '26, given that H2 tends to be seasonally stronger and maybe a little bit in this context, do you plan to increase your marketing budget to attract deposits at a faster pace to facilitate stronger medium-term loan book growth. .

Thank you, Miles. Yes, we are confident we will achieve double-digit growth in the customer deposit volume in the second half of the year. We see typically much stronger growth in the second half from SME customer funds, which reflects to their cyclicality of the business. And at the same time, we have seen an exceptionally strong growth in the customer deposit base from micro customers exceeding our target for the year, and we anticipate a much stronger growth in the second half of the year as well. And we see the planned targeted volume growth from retail customer deposits as well across the group. So we stay optimistic that we will achieve the target.

With regards to the marketing budget, let me say that we are more and more diverting for product-driven marketing-driven strategy to acquire customer deposits and, in particular, costly customer deposits instead what we are already implementing. It is a customer-focused acquisition strategy that it is built around, let's say, 4 value streams that would drive customer growth and customer engagement. But at the end of the day, we have seen already in the first half of the year that we were able to grow a number of retail customers by 8% which translates to 8,000 retail customers.

And already with the rollout of the new mobile banking applications, we are able to progress in the monthly active users, which is more than half of our customer base, and it is progressing higher numbers already. And I repeat that our strategy forward would be staying centered in retail banking in particular, around a funding-driven digital-first retail banking strategy that has a very clear customer focus, which is mass and mass affluent payroll customers around which we are deploying now the value proposition, where we aim primary relationships based on which we can build both revenue streams from balance sheet and from the fee income from the data transaction banking.

And then we don't depend on a direct deposit focused marketing strategy further on. To then summarize what does it mean in terms of trends. The marketing cost per retail customers are going to go down moving forward. Marketing cost per every euro of retail deposit funds are going again slightly to go down and then stabilize and normalize in the years to come. So we don't foresee per customer or per euro deposit fund an increase in marketing costs.

Perfect. That's very detailed helpful. Now sort of related questions on the other side, let's say, if the balance sheet. What loan-to-deposit ratio do we expect over the medium term compared to current levels? And is there any particular upper level you have in mind which would accept at the individual bank level to facilitate loan book growth? .

I wanted to take this one, Mirosh. Look, as a general principle, we seek to fund our lending activities predominantly through local customer deposits as this remains the most stable and strategically attractive funding source for our business model. But that said, we do not manage the group against a specific loan-to-deposit ratio target nor do we have a predefined upper threshold that automatically would constrain growth on the asset side. .

Our focus is increasingly on the quality and structure of funding rather than on a single nominal amount or ratio amount. And particularly, we continue to work on improving our funding mix by increasing the share of operational current accounts, savings deposits while reducing our reliance on the more expensive term deposits. In addition, we benefit from long-standing relationships, both with international financial institutions so as established access to the capital markets and where wholesale funding represents the economically more attractive option compared with raising additional term deposits we are prepared to act rather opportunistically.

Ultimately, our objective is to optimize the overall funding structure while maintaining a conservative liquidity profile and supporting the continued growth of our loan portfolio.

Okay. Great. And my last question would be on your on liabilities repricing in the second half of the year. Do you expect any meaningful negative effect with this respect because of base rate hikes in some countries like crane or countries directly influenced by the ECB policy or maybe competition for deposits? Or do you expect no significant impact from from liability pricing in the second half?

Well, I think directly related to the ECB policy at this stage, we do not expect a material increase. But clearly, the competitive environment for term deposits that emerged over the past 2 years has not disappeared, and it is likely to remain a feature of our market that we simply have to affect. However, this is something that we have been managing successfully now for some time. It has been a headwind. But nonetheless, we are seeing improvements in our key indicators.

Our funding costs have developed broadly in line with expectations, and we continue to make progress in improving the composition of our deposit base towards greater share of current account and savings, balances, as I mentioned earlier. But more importantly, the profitability does not solely depend on the liability side of the balance sheet. Our lending strategy currently remains focused on attractive higher-yielding business opportunities and we believe that this is reflected in the continued business -- the continued trajectory of both net interest income and net interest margin.

Based on the trends we see today, we are confident that we can continue building on this momentum in the coming quarters.

And the next question comes from Mario Bubeck from Berenberg.

Someone for me. First 1 on the AT1 usage with the Tier 1 now at 14.7% after the AT1 issuance. Does this change your appetite for loan growth towards the top end of the 12% to 15% range also in light of the 8% already achieved after AT1 I think the top range here should be more in the scenario. Is that correct? And with regards to the buffer is this also earmarked for the loan growth primarily or is it year differently?

The second on the net interest margin, which improved 8 basis points to 3.3%. Is this also sustainable into H2? And the third question would be on the tax rate in Q2, which had been quite higher than Q1. Is this -- is the reason for this, the elevated tax effect from Ukraine? Or is that that were realized in Q2? Or is it coming from something different? Yes, that's basically for me.

Thank you very much, Mario. Let me say that the AT1 issuance was already one of the assumptions while building our capital management forecast for the year 2026 based on which we have developed our appetite for loan growth and for the ROE guidance that we have shared already with the capital markets and clearly, the successful placement of the transaction of the instruments helped us to safely continue with our loan growth ambition, which is exactly what I confirmed, we expect by year-end to grow in the range of 12%, 15%, which would be in part higher than market averages in our market of operation and delivering on our planned target. And the successful placement of the AT1 simply give gives us the necessary capital in order to fulfill on this growth target. While on the ROE target, I mentioned our guidance stays, as I mentioned, 7%.

I will take the other 2 questions. Mario, on the net interest margin. Indeed, I mean, the improvements are structural. And as I mentioned, they are on a highly granular basis, we we are making on a quarter-on-quarter basis, we are achieving improvements in essentially all the markets. And we are we are continuing to roll out very focused efforts to continue to optimize structurally net interest margin on both sides of the balance sheet and therefore, this trajectory that we see now, as of now, we see it sustainable to be upheld in half year to.

On the tax rate, it's indeed a Ukraine is a significant factor. The profit before tax in Ukraine was higher in quarter 2 than in quarter 1 as we had higher loan loss provisions in quarter 1, this is indeed the major driver for the higher calculated tax rate in quarter 2.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Erin Bible for any closing remarks.

Thank you very much to the analysts for engaging questions and always and for their continued coverage of our group. If there are any further questions following the call, please feel free to reach out to our Investor Relations team. Nadine and her colleagues will, of course, be happy to assist you. We look forward to speaking with you again at our next results presentations on November 12 for the Q3 results. Thank you, and have a good day.

Ladies and gentlemen, welcome to the ProCredit Holding Q1 2026 Results Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The replay of the conference will be published on the ProCredit Holding website in the Investor Relations section. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Eriola Bibolli. Please go ahead.

Good afternoon from Frankfurt, and welcome to our call to discuss ProCredit Group's results for the first quarter 2026. My name is Eriola Bibolli. I am the Chairperson of the Management Board of ProCredit Holding, and I'm joined today by Christian Dagrosa, our Chief Financial Officer.

The slide deck accompanying this presentation is available on our website, and a recording of this call will be made available in the coming days. Before we begin, let me draw your attention to the customary disclaimer regarding forward-looking statements, which is included at the end of the presentation. We expect today's earnings call to last approximately 30 minutes. Following our presentation, we will, as always, be happy to take your questions. I will focus on the key developments of the first quarter, provide an update on the progress we are making against our strategic road map and offer some broader context on the macroeconomic environment. Christian will then take you through the group business and financial results in greater detail, including the key drivers of our performance in the first quarter.

Overall, we see a solid start to the year, very much in line with our expectations, confirming the trajectory outlined at our Q4 earnings call in March. Loan growth has continued at a healthy pace with particularly strong momentum in our micro and retail segments, which remain central to our strategic positioning. This growth is increasingly supported by ongoing improvements in our operating model and the early benefits of our digital initiatives, which are gradually translating into stronger underlying business dynamics.

Operating income has shown a promising development, increasing by approximately 5%, driven in particular by positive trajectory of net interest income by now. One of the most encouraging developments is the continued acceleration in client growth across all segments, which serves as a key leading indicator for our franchise. The expansion of our client base, especially in retail and micro is fundamental to building a more granular, scalable and profitable banking platform over the medium term. In particular, our micro enterprise client base grew by a strong 10% in just 1 quarter, more than 3x as much as in the first quarter of last year, supported by a clear strategic focus in the segment across our network. At the bottom line, the group results broadly reflect these dynamics, solid operational performance, continued investments in our strategic transformation and the usual seasonal effects observed in the first quarter.

Overall, profitability is developing as expected with a return on equity of 8% and a cost income ratio of 71.2%. Finally, as previously communicated in our last earnings call, we remain fully committed to our dividend policy. We propose a dividend of EUR 0.47 per share, in line with that framework. This slide now rather serves as a snapshot of all KPIs, most of which I just covered. Let me just add that loan portfolio quality remained broadly steady compared to the beginning of the year.

Capitalization remains at a solid level of 12.9% CET1, although slightly reduced year-to-date. Also, let me note at this point that we have not yet performed the IFRS 5 reclassification of ProCredit Bank Ecuador. We rather expect this to happen later in the year. Let me now turn to our geographic footprint and recent developments across our markets. We have delivered solid growth dynamics across markets and segments with particularly strong performances in Ukraine, Kosovo, Bulgaria, Bosnia and Albania.

Overall, market conditions remain supportive for further expansion and deeper segment penetration. We continue to benefit from rising income levels in our markets, resilient private consumption and sustained flow of foreign direct investments. In addition, structural convergence towards the EU, ongoing infrastructure investments and improving financial inclusion are further underpinning demand for banking services across our region. While the outlook for our region remains positive, we continue to operate in an environment of elevated geopolitical uncertainty.

The war in Ukraine remains the most significant source of risk for the region with ongoing attacks on energy infrastructure, which continue to affect both households and businesses. Christian will come back to this point. At the same time, while the human tragedy continues to unfold, we and our colleagues in Ukraine have welcomed the approval of the EU financing package of approximately EUR 90 billion, which provides important funding support to the country through 2027.

The recent escalation in the Middle East adds another layer of global uncertainty, particularly with respect to energy markets and overall investor sentiment. At this stage, however, we do not see any direct material impact on our clients nor operations. Historically, our micro and SME clients have demonstrated a high degree of resilience to external shocks, including energy price volatility and supply chain disruptions as seen during COVID-19 period and the disruption of Russian gas supplies.

While we do not currently observe any structural deterioration in the operating environment in our markets, we continue to monitor these developments very closely, and we assess any potential indirect effects on our markets. As mentioned earlier, one of the highlights of this quarter is the emergence of a new dynamic in client acquisition, reflecting stronger business focus on micro and retail client segments, supported by increasing automation of our front-end solutions and processes as well as important improvements in the internal frameworks and workflows.

In the micro segment, we onboarded approximately 3,500 active clients in the first quarter, averaging more than 1,000 customers per month, representing an increase of around 2,600 compared to the first quarter of 2025. These clients are already contributing meaningfully to the growth in both loan and deposit volume while enhancing the granularity and the resilience on both sides of the balance sheet. Our retail client base increased by around 8,600 active clients, which represents a solid start, but it is still well below our ambition. We expect a more pronounced acceleration over the course of the year as we further roll out our retail value proposition in all subsidiaries across the group.

In this context, we successfully launched our new mobile banking application in North Macedonia and Albania during the first quarter, making another important step in scaling up our digital retail banking platform. Let me then briefly reiterate our outlook for 2026. The first quarter provided a solid base for our ambitious plans for business expansion in this year. We continue to expect loan growth in the range of 12% to 15% in our core markets, where we continue to see attractive profitable growth opportunities despite the turbulences in the global energy markets and supply chains.

Our approximately 7% return on investment expectation is based on several drivers like income growth, continued costs from investments in digitalization and a number of one-off effects, including impacts related to the anticipated Ecuador divestment and the temporary elevated tax measures in Ukraine and Romania. It also reflects new run rate costs from the euro introduction in Bulgaria and the RWA efficiency measures, which we expect to fully materialize in the course of the year.

Christian will give you an update later on. We expect the cost-income ratio to remain on the level of 2025. In the medium term, our objective remains to grow the loan portfolio below -- beyond EUR 10 billion, while significantly increasing the number of clients across all segments. At the same time, we aim to improve profitability to an ROE of around 13% to 14%, supported by scale, digitalization and a more granular balance sheet. Operationally, this should translate into a material improvement in cost efficiency with the cost-income ratio moving towards the 57% mark. The first quarter provided further confirmation that we are on the right path with accelerated client growth, continued balance sheet transformation and steady progress in our digital rollout. With this, let me pass the word to Christian for further details.

Thank you, Eriola, and good afternoon also from my side. In terms of loan growth, we continue to maintain the high pace of the last 2 years and accelerate particularly in the lower volume segments, micro and retail that provide higher yields and greater scaling potential. Our micro client portfolio grew a strong 10.5%, adding more than 15% to the top line growth figure. And retail loans added almost 30% to total growth, growing by 5.4%, both in housing and consumer loans.

Year-on-year, we have grown 43% in micro and 25% in retail, which has helped to grow the share of these segments in total loans by 3 percentage points to now 19%. Considering the contribution of the small segment, which also shows for structurally better yields than medium clients, some 86% of the first quarter growth came from higher-yielding segments and their share in total loans grew by 7 percentage points over the last 2 years since the inception of our new strategy.

It is encouraging that these dynamics are increasingly more accelerating across our network as they move the balance sheet transformation forward. On deposits, the key takeaways are similar. Our growing focus on the micro segment has brought good deposit growth from micro enterprises, which has helped absorb the seasonal outflow from SME accounts that is typical for the first quarter.

More importantly, micro enterprise deposits add granularity and are typically held on current accounts. Increasing the share of sight and savings deposits remains a strategic priority for the group as it supports a structurally stronger net interest margin profile. More than 60% of the year-on-year deposit growth of almost EUR 900 million came in the form of these deposits, marking a significant turnaround from prior year growth dynamics.

Operating income developed positively, increasing 4.7% year-on-year, supported by solid net interest income growth of 8.6%. This marks an important inflection point compared with the previous year when operating income was still declining due to pronounced repricing effects from lower policy rates. With these effects now largely absorbed, underlying volume growth is beginning to translate more clearly into earnings momentum.

The anticipated impact of the euro introduction in Bulgaria and the RWA efficiency measures outlined in our annual outlook during the previous call explain why the income growth has not been more pronounced. These effects add approximately 2 percentage points to the run rate cost income ratio, which has, therefore, remained broadly stable year-on-year.

Now looking more closely at net interest income. Year-on-year growth of EUR 7.3 million or 8.6% was strong and reflects the solid business momentum achieved over the last 12 months. As illustrated in the graph below, negative repricing effects have now become relatively modest, allowing underlying volume growth to translate more clearly into meaningful income gains. Volume effects contributed more than EUR 13 million to the asset side, while the impact on the liability side remained limited to approximately EUR 3.5 million. The net interest margin remained stable year-on-year despite higher levels of subordinated debt and structural wholesale funding, demonstrating that these effects have been effectively absorbed.

Quarter-on-quarter, net interest margin was approximately 7 basis points lower than in quarter 4, primarily due to adverse day count effects corresponding to a low single-digit million euro impact on net interest income. Move on. Net fee income declined year-on-year by EUR 1 million as expected and in line with the explanations provided in our outlook for the year. The introduction of the euro in Bulgaria on January 1, 2026, is expected to support higher trade volumes and enhance the country's attractiveness for foreign direct investment, creating meaningful medium-term opportunities for the group. In the near term, however, the transition has reduced fee and commission income potential, particularly in foreign exchange transactions, which had a low single-digit million euro impact in the quarter.

In addition, the introduction of SEPA in several of our markets has led to lower margins on international hard currency payments. Fee expenses also include costs related to loan guarantee and insurance programs for which there is no corresponding income. These expenses increased by EUR 300,000 year-on-year, primarily driven by the expansion of the MIGA framework and a synthetic securitization transaction in Bulgaria, both of which contributed to improved RWA efficiency.

Operationally, we continue to see steady growth in fee-generating transaction volumes, supported by our focus on expanding the client base and further enhancing our product offering, including trade finance. At the same time, we are focused on strengthening the House Bank concept by deploying a structured cross-selling strategy to deepen client engagement and increase wallet share.

Costs increased moderately by approximately 5%, primarily driven by personnel and IT expenses. While headcount remained broadly stable since quarter 1 '25, the increase in staff costs reflects higher average wage levels. IT-related expenditures also rose alongside higher depreciation charges, which are mainly attributable to increased amortization of internally developed software assets.

The cost income ratio remained stable year-on-year. As previously highlighted, this reflects the inclusion of new underlying hedging-related expenses supporting RWA efficiency as well as the impact of the euro introduction in Bulgaria. Together, these factors contribute approximately 2 percentage points to the run rate cost income ratio.

Moving on to loss allowances, which remained well contained at 14 basis points on an annualized basis. This represents an increase compared to the first quarter of 2025 when we still benefited from a net release of provisions. In the current quarter, roughly half of the additional loss allowances were recognized at the level of our Ukrainian subsidiary, reflecting emerging risks associated with intensified attacks on the country's energy infrastructure and their impact on certain clients.

Despite this, our Ukrainian portfolio continues to demonstrate strong resilience in an exceptionally challenging environment. The default rate as of March 31, 2026, stood at a low 2.3%, broadly returning to pre-war levels.

The ongoing conflict in the Middle East represents an additional emerging risk factor for the global economy and international supply chains. We have conducted a preliminary portfolio assessment to identify clients with more direct exposure to the region. These exposures amounting to approximately EUR 10 million have been added to our watch list, although they're currently showing no signs of underperformance.

I will not repeat Eriola Bibolli's comments on client resilience in periods of global volatility, but they are very relevant as this resilience has consistently been a key strength of our group. At the same time, we remain mindful that potential disruptions to supply chains and energy prices may have some impact on some of our clients down the road. Given the inherent uncertainty around the duration and intensity of the conflict, this will continue to be closely monitored and assessed on an ongoing basis.

Moving on to portfolio quality. I will not dwell on these credit risk indicators as they remain broadly stable. We have some increase in Stage 2 as we cautiously transferred exposures of around EUR 130 million related to SMEs operating in sectors with high sensitivity to oil and gas prices. As the risk profile of these exposures has not changed, the impact on provisions of these transfers was largely immaterial.

Now turning briefly to segment performance. I would also highlight the improved results at ProCredit Bank Ecuador, which has returned to breakeven after a prolonged period of underperformance. For the 2 core segments, ROE was around 11% and cost-income ratio around 60% with portfolio growth rate of 2% to 3%.

And finally, on our capital position, our regulatory capital remains broadly stable in quarter 1, while RWA show an increase by around EUR 140 million. This figure reflects quarter 1 business growth as well as an EUR 80 million increase in operational risk-weighted assets due to the annual recalibration of this indicator.

Worth mentioning, we continue the execution of RWA optimization measures, which led in quarter 1 to a decrease in market risk RWA. Including quarter 4 profit attribution, the CET1 ratio at the end of the quarter stood at 12.9%. And on a pro forma basis, that is, including also quarter 1 profits, 2/3 of it, CET1 ratio stands at 13.1%.

And now to conclude, coming back to the messages at the beginning of the call. Let me summarize a solid start to this year with accelerated growth in the higher-yielding lower volume client segments, micro and retail. Financially, we start to see emerging structural improvements, particularly in our net interest income that led to an increase in operating income by 5% year-on-year. On the expense side, we remain disciplined, but of course, continue to invest, particularly in IT and our digital product rollouts. We continue to monitor the situation in the Middle East very closely and assess the potential impact on our clients on an ongoing basis.

Our guidance for the year of around 7% ROE is confirmed and also concludes the anticipated effects from the planned divestiture of our bank in Ecuador. And finally, we also remain committed to our medium-term outlook and see potential for around 13% to 14% ROE plus upside from Ukraine. And with that, I conclude the presentation and open the floor to your questions.

[Operator Instructions]

The first question comes from the line of Milosz Papst from Edison Group.

I have 2, if I may. Firstly, can you tell us maybe more about the current interest rate ceilings in Bosnia and Kosovo and to what extent does this affect your business? And secondly, do you have any expectations in terms of the magnitude of the positive impact on your loan growth in Bulgaria from the adoption? You've mentioned possibility of higher FDIs. And do you have any particular expectations in terms of the extent of loan growth acceleration?

For your questions. On the interest rate ceilings in Bosnia and Kosovo, let me remark that the ceilings, first of all, they're integrated in our broader interest rate risk management framework. I don't have the exact effects now at hand. What we are doing in many of our markets does not only include Bosnia and Kosovo is we do not necessarily pass on the entire Euribor on to clients. There is always a delta that we maintain to effectively manage interest rate risk.

So for example, if the Euribor is right now 2% at this point, probably it's an amount somewhere between 1% and 1.5% that is passed on to clients in the case of Kosovo, which allows flexibility in case deposit rates were to increase, but that's just as an example.

On Bulgaria, the more immediate impact on loan growth in Bulgaria for now remains to be seen; to be honest, we have grown strongly in Bulgaria in the first quarter. It's around 3.5%. We don't want to attribute everything to the euro introduction since the underlying dynamics in this bank have been strong before. But naturally, we do expect continued or increased foreign direct investment in the country, which will drive business growth and increase the demand for financing, especially in SMEs.

The next question comes from the line of Marius Fuhrberg from Berenberg.

First one would be on the net interest margin. When do you expect the higher share of the higher-yielding segments to reflect in an improving net interest margin? As of now, it looks or it is quite stable right now?

Second question on cost side. How much of the announced one-off costs that you mentioned in Q4 were already included in Q1? And should we expect a significant step-up of costs through the remainder of the year?

And the last question on Ecuador. Do you expect any changes with regards to the purchase price? Or is that fixed as agreed in March following that Ecuador turned positive in profitability? So -- and finally, will the planned costs regarding the Ecuador strip off come in as expected?

Thank you, Marius. On the net interest margin, let me remark that we essentially already see improvements now because what we managed is to absorb structurally higher interest expenses on the holding due to additional subordinated debt and additional wholesale funding that was taken in the course of 2025 without a reduction in the net interest margin.

So it is already driving margin stabilization. Of course, we foresee that the net interest margin would start growing as the balance sheet transformation moves. Let's be clear, the balance sheet transformation is a process that doesn't happen overnight. We have now increased the share of the higher-yield segments since the end of 2023 by 7 percentage points.

We believe that especially in this year, we will find a new growth dynamic, especially in the micro segment that will further enhance this dynamic. And on retail, the growth pattern is still mixed between consumer lending and housing, obviously, with very different interest rate profiles. So we expect the dynamic to intensify that will -- that should translate in a higher net interest margin, supported obviously by the initiatives on the deposit side where we want to attract more site deposits.

Also let us be reminded here that here only in 2025, we have begun showing the dynamic we wanted to see, meaning growing predominantly in site deposits as opposed to TDAs, which was the case in '22, '23 and '24. So this on that point. On the costs, indeed, quarter 1 is always relatively slow in terms of costs because some of the initiatives that drive the business, I would specifically think of marketing costs, but there are many others. They typically materialize in the second and third quarter.

Besides, obviously, we continue to drive important IT initiatives. So I would, at this point, not expect a stagnation at this level, but of course, for costs to increase, not excessively, but somewhat steadily in the coming quarters. However, we do count on operating income to grow faster and so that we see gradual improvements, structural improvements in the P&L.

On Ecuador, all statements that were made at the beginning of the year remain valid. So there's no changes expected. The agreements that were made, they need to be formalized going forward, but there are no changes in that. So everything that we said in our outlook report remains valid.

The next question comes from the line of Andreas Pläsier from Warburg Research.

Firstly, on the loan growth, should we expect here an acceleration of the loan growth, which could support the NIM? And second question is regarding the NCI development. You have some headwinds in Q1 due to the effect from Bulgaria and SEPA introduction. Should we already expect a positive development in Q3 and Q4 year-on-year? Would be my questions.

Thank you very much for your questions. Regarding the loan growth expectation, I support that the structure of loan growth, it is of utmost importance for this year and for the medium term. And this is one of the main levers to support not just sustaining but increasing the net interest margin. I can report that in the first quarter, 80% of loan growth came from granular segments, micro, retail, non-purpose, and small loans, which is precisely what we have targeted as a structure. And this was a strong contribution to the stability of the net interest margin on the asset side perspective. And we have targeted a similar structure of growth for the remainder of the year, which is expected to further accelerate the more we advance with process simplification in the lower-end segments and the further rollout of the loan origination tool in the subsidiaries as we speak.

Regarding the second question on the impact on the Bulgarian euro conversion and the introduction and implementation of SEPA payments, in 5 of our countries, including the expected migration to SEPA in Serbia this month. The impact, I would say, is mixed. In particular, in Bulgaria, we reported that we lost significantly fee income, in particular, FX-related fee income, which was in a rather severe magnitude.

At the same time, SEPA payments already has a negative impact on the fee income for the group because it's a reduction on the euro payments across Eurozone, and we felt already in all the countries where SEPA has been introduced rather a reduction in the fee income with a few markets, in particular, North Macedonia that remains rather neutral.

Whether we have a positive or negative impact on the SEPA payment depends sometimes on the floors that the domestic regulators impose on SEPA payment fees based on which the picture of what the impact is country by country varies and, aggregated on the group, as I said, the impact of these 2 developments was negative. At the same time, we have mentioned in the call in March that we have a strong focus on stabilizing the net fee income as a potential pool of diversifying our revenue. And the key focus there is on accelerating trade finance facilities. And at the same time, we have introduced a project of launching investment and insurance services to our retail and SME customers. With insurance, we are already in the feasibility phase, and we hope we can roll out the services that can start yielding fee income in the second half of the year.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Eriola Bibolli for any closing remarks.

Thank you very much to analysts for the engaging questions and for their continued coverage of our group. If there are any further questions following the call, please feel free to reach out to our Investor Relations team. Adena and her colleagues will, of course, be happy to assist you.

We look forward to speaking with you again at our next results presentation on August 13 for the quarter 2 results. We hope to welcome many of our investors at our AGM on June 3. Thank you very much, and have a good day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line.

Goodbye.

Ladies and gentlemen, welcome to the Full Year 2025 Results Conference Call. I'm Sargen, the Chorus Call Operator.

[Operator Instructions]

The conference is being recorded. The replay of the conference will be published on the ProCredit Holding website in the Investor Relations section. The presentation will be followed by a Q&A session.

[Operator Instructions]

The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Eriola Bibolli. Please go ahead.

Good afternoon from Frankfurt, and welcome to our call to discuss ProCredit Group's results for the Fourth Quarter and Full Year 2025. My name is Eriola Bibolli, and since the beginning of this month, I am the Chair of the Management Board of ProCredit Holding. This is the first time I'm speaking in this setting, and I want to take the opportunity to introduce myself. I joined the Group more than 20 years ago. And in many ways, my entire professional life has been shaped by ProCredit. Over these 2 decades, I have had the privilege of witnessing, firsthand, the very important role our Group has played in the development of the countries we operate. Since its inception, our Group has been dedicated to building strong, transparent and well governing banking institutions in countries and markets that were, in many cases, still in transition.

In Kosovo where I worked for 2 decades. ProCredit Bank played an instrumental role in the reconstruction of the country, laying the foundations of the financial system architecture that was being established as well as to supporting largely the economic and private sector development through dedicated commitment to SMEs. At a time when the country had begun to rebuild its institutions and economic foundations. ProCredit Bank in Kosovo has consistently promoted transparency, responsibility, robust corporate governance, helping to build trust among clients, regulators and international investors, values that were not common in the market at the time.

Equally important has been the Group's long-standing investment in people through extensive trainings and a strong institutional identity and culture. Over the years, thousands of finance professionals have grown and developed within the ProCredit environment. Today, many of them continue to shape financial systems across our markets by holding leading positions in financial institutions, international organizations and government entities. Taken together, the Group's impact in our markets extends beyond banking. It has contributed to institutional building, to sustainable economic development and help lay the foundations for more professional, more stable and more inclusive financial markets in the region.

We have been part of that journey it has been both inspiring and deeply rewarding. And it is now privileged to take on this role at a time when the Group is entering the next stage of its development.

Joining me today is Christian Dagrosa, our Chief Financial Officer, who I'm sure does not need an introduction. We expect today's presentation to take slightly longer than usual as we will provide a more detailed update on the execution of our business strategy, a journey that began 2 years ago. The slide deck accompanying our discourse today has been made available on our website. After our presentation, as usual, we will allow sufficient time for questions. Before we begin, let me also draw your attention to the customary disclaimer regarding forward-looking statements, which is included at the end of the presentation.

Let me briefly walk you through today's agenda. I will start by outlining the key developments in 2025 and where we stand today in the execution of our strategic roadmap. Over the past year, we have made strong operational progress, while advancing our strategic transition and we'll provide some context around both. Christian will then take you through the Group's financial results in greater detail, including the key drivers behind our performance in 2025. Finally, I'll come back to the Group's outlook, both short and medium term, and share some broader context on the opportunities ahead.

2025 has been a year in which our strategy has firmly moved into execution mode. Loan and deposit growth was strong at around 13% without currency effects, driven primarily by the continued expansion of our core customer segments. This reflects both strong demand in our markets and the strengthening of our position with SMEs, micro enterprises and increasingly retail banking clients. 2025 showed a particularly encouraging progress in terms of the structural growth with more than 60% of new deposits coming from site and savings deposits compared to the previous year. We are now beginning to deliver on the greater granularity in our funding structure which will support stronger net margins over time.

From a financial perspective, our results are in line with the updated guidance we communicated in Q4 last year. Return on equity is 7.8%, within the expected range of around 7% to 8%, but below our initial outlook for the year. Christian will cover the details, but the broader context of these results is shaped by the substantial investments in digital infrastructure, operating model transformation and the scaling of our retail banking franchise. The transformation of our technology and digital capabilities, which will shape, not only our retail banking, is progressing at an accelerated pace. Core digital service solutions have now been fully rolled out in ProCredit Bank Kosovo, which effectively serves as a blueprint for other banks in the Group. Launches in several additional banks are already underway, and we expect the majority of implementations to be completed during 2026.

It is worth noting that we confirm our interest to divest our operations in Ecuador. We are confident progressing with these efforts, and we expect to finalize the divestiture during 2026. The transaction is anticipated to have a financial impact in the profitability of the group, which is reflected in the ROE for 2026. Overall, we view 2025 as a year in which the foundations of our strategic transition have been firmly laid, while the medium-term trajectory we outlined 2 years ago particularly the ROE target of 13% to 14% remains fully on track. And of course, we firmly intend to deliver on our dividend policy this year as well, and we plan to propose a dividend of EUR 0.47 per share to the AGM in June this year.

This slide rather complements my summary on the performance, so I would note well. Loans grew at a solid pace, around 13% adjusted for currency effects, while deposits expanded at a comparable rate driven largely by retail customers and mainly inside and saving accounts. Asset quality is robust, even though our Stage 3 ratio increased and Christian will provide more insights. And our capital position remains strong with a CET1 ratio comfortably above regulatory requirements at around 13.1%. Taken together, these results reflect the banking group that is ambitiously growing its business, while making significant investments in its future operating platform, positioning itself to unlock substantial value for its shareholders.

One of the most encouraging development since the launch of our updated business strategy in early 2024 has been the strong loan growth in the low volume segments. Micro business lending and smaller volume loan exposures have expanded particularly strong with volumes increasing by roughly 43% in the last 2 years. This segment is strategically important for us. It broadens the base of our SME ecosystem, creates a more granular portfolio structure and supports lending margins. In parallel, we have seen a clear acceleration in retail client deposits, which have grown by 40% since the end of 2023, reflecting our increased focus on this segment.

Notably, much of this growth has been achieved without the full supporting infrastructure progress place, highlighting the significant upside for that potential as we accelerate these developments in 2026 and 2027. We are seeing clear evidence that the ecosystem approach we are developing across SMEs, micro enterprises and retail customers is beginning to gain traction. Our growth momentum is visible across the entire region we operate. All ProCredit banks is Southeastern and Eastern Europe are currently expanding their client base and loan portfolios are healthy, supported by favorable macroeconomic conditions and our strong positioning in the MSME segment.

During the year, we surpassed an important milestone, more than 80,000 SME customers across the region. This underscores the strength of our SME franchise, where our ability to build and maintain trust-based long-term client relationships, combined with the high quality of our holistic banking services, creates a differentiated value proposition and high barriers to replication. At the same time, we are beginning to see the early impact of our renewed focus on digital retail banking. In the Group's early years, Retail Banking was actually an important part of our business model.

Over time, the focus shifted more towards SMEs. Today, with the digital capabilities we are building, we believe we have a unique opportunity to reestablish a strong position in retail, this time as a modern digital-first bank. The macroeconomic outlook for our region continues to be favorable. Growth prospects in Southeastern and Eastern Europe remain significantly stronger than in Euro area. Many of our countries continue to benefit from structural convergence dynamics, strong domestic demand and ongoing foreign direct investment. Inflation levels have stabilized and remained comparatively moderate, while consumption and investment continue to support economic expansion.

Another important structural factor is the continued momentum around EU accession processes in several countries. In Bulgaria, the adoption of the euro, which came into effect in January this year represents a particularly significant step which is expected to further stimulate investments, tourism and cross-border trade, while eliminating foreign exchange risk for business and financial institutions. The war in Ukraine unfortunately remains an ongoing human catastrophe, a major factor of uncertainty for the region and the continent as a whole.

However, International institutions continue to show strong commitment to support the country and the entire Eastern flank and economic resilience has been notable. Regarding the impact of global development, the discussions around the new tariff system has had limited direct impact on our countries so far due to the limited interconnectedness of the economies of our countries with the U.S. economy. Notably, broader geopolitical tensions, particularly the recent escalations in the Middle East are creating a new wave of uncertainty for the global economy. While we are monitoring these developments closely, at this stage, we do not see direct specific vulnerabilities for our region nor for our core customer segments.

As mentioned, I want to spend some time on strategic priorities in today's call to provide transparency on where we stand today and on what we plan to execute in 2026. Our strategy is built around 3 core priorities: profitability; growth; and positioning. Our focus on profitability is about unlocking the value that remains untapped in our business model. By expanding the balance sheet through a modern, scalable digital banking infrastructure, we can realize the full growth potential of our business. We can achieve stronger volume growth, while simultaneously restructuring our balance sheet into more granular and diversified positions, which will help improve margins on both sides.

Additionally, deepening client engagements and improving strategic cross-selling will boost noninterest income across both current and future clients. Our growth focus is on scaling operations and attracting more new-to-bank clients. Over the medium term, we aim to grow the loan portfolio beyond EUR 10 billion and reach a critical size in each market as well as the critical size for the Group, overall. And finally, positioning. We aim to further strengthen our position as a leading bank for MSMEs by deepening the house bank relationships with our clients. At the same time, we are establishing a new identity as a regional digital attacker in retail banking, aiming to deliver a highly convenient and a trusted mobile-first daily banking experience.

At the heart of this strategy is a triple-engine ecosystem created through the interaction of our SME, micro and retail customers. SME clients remain the cornerstone of our franchise. They form the backbone of our competitive advantage, our strong brand and the defining relationships in our markets. Through these connections, we gained deep insights into local business networks, including owners, employees, suppliers, their own social networks, all of whom represent potential retail clients. Micro businesses are often directly embedded in these supply chains with a highly automated operating model and the digital lending capabilities we are building, this segment can scale significantly and efficiently.

We currently serve roughly 30,000 micro customers, and we see substantial room for further expansion. Retail Banking provides a strong foundation for our funding model. By tapping local markets, we are building a broad and diversified deposit base made up of granular low-cost balances. This does not only strengthens the stability of our balance sheet, but also creates opportunities to scale our lending, support SMEs and micro businesses and deepen our relationship with communities.

In short, a retail-driven funding model allows us to grow sustainably, while unlocking long-term value. The strength of our triple-engine business model, SME, micro and retail lies in its ability to create both value and profitability. By working together, these segments create a mutually reinforcing ecosystem that allows ProCredit franchise to reach its full potential. The transformation of our digital capabilities is one of the most important initiatives currently underway, and it goes well beyond establishing a just strong retail banking franchise.

At its core, we are building a scalable digital banking platform while maintaining full technological sovereignty and alignment with our responsible banking model. For clients, this means a fundamentally improved banking experience. A new mobile banking application for retail clients was launched in mid-2025, representing a major infrastructure milestone. It enables fully digital onboarding, seamless account opening and increasingly also straight through digital lending journeys for retail and micro clients.

At the same time, new features are continuously being rolled out across markets for both MSME and retail clients. But more importantly, we are also transforming the way we operate. Our delivery model is increasingly organized around agile squads and product-oriented teams. AI-supported development tools and automation will help us accelerate increasingly more software life cycle and reduce time to market. From a technology perspective, we are modernizing the core banking platform and introducing micro service architecture with expanded APIs and a stronger data foundation.

This will allow us to truly scale the business over the coming years. At last, let's have a look where we stand today. Over the past 2 years, we have focused heavily on building the capabilities and infrastructure required for digital scale. We have modernized large part of the core banking architecture and launched our new mobile banking application in 4 banks. Digital onboarding for retail clients has already been introduced and the first steps towards automated consumer lending have been implemented. ProCredit Bank Kosovo, as mentioned earlier, has effectively become the full implementation of this model, and it is our first bank with a mobile-first retail banking model in place.

In 2026, our focus shifts to large-scale rollouts across the group. For retail banking, this includes deploying the new mobile app, digital onboarding and digital lending capabilities across the remaining banks. For MSMEs, we will launch end-to-end digital loan origination processes for micro customers, and we will introduce new Internet banking capabilities for SMEs. The remaining solution rollouts in 2027 include credit card functionalities and advanced CRM capabilities. Beyond the timeline, Digital innovation will continue to be a core focus for the group. It would be an illusion to think of digitalization as a one-off transformation with a defined end point.

Rather, it is an ongoing process that requires constant refinement of our technology platform, operating model and customer experience. New technologies, evolving client expectations and regulatory developments, will continue to shape the way banking services are delivered. Our objective, therefore, is not to simply complete a set of rollouts and developments, but to establish the capabilities and organizational structures within our Group that will allow us to innovate continuously and to adapt quickly as the digital landscape evolves. Looking ahead, our ambition is to transform ProCredit into a Banking Group capable of generating returns on equity of approximately 13% to 14% and with potential upside. Several drivers will support this trajectory.

First, scale, automation and operational efficiency as we expand the client base and reach critical size in each market. Second, we will deepen the SME house bank model, while scaling micro segment through automated processes. Third, we are building our retail banking into a regional digital banking franchise with a seamless mobile-first experience. Digital excellence will be the foundation for faster execution. Greater efficiency and more effective capital deployment. Meanwhile, our balance sheet will become increasingly granular as micro and retail exposures expand.

From an operational perspective, our medium-term KPIs are clear. Grow the number of active clients across all segments, increase the share of micro and consumer loans, increase the share of retail customer deposits to 50%, mainly in current and savings accounts, drive digital usage above 90% among retail clients and ensure more sales are executed digitally. And finally, we continue to focus on capital efficiency, including reducing the Group's RWA density to below 60%. We have made good progress on this in Q4 2025, and Christian will share more details shortly.

With that overview of our strategic progress and operating environment. I will now hand over to Christian. He will take you through the business and financial performance for 2025 in more detail.

Thank you, Eriola, and good afternoon, everyone, also from my side. Let me begin straight away with the development of our loan portfolio. We recorded strong loan portfolio growth during the year, with expansion across all markets and client segments. On an FX-adjusted basis, the loan book increased by 13.1%.

Importantly, about 80% of that growth came from the lower volume segments that are central to the strategic repositioning Eriola just described. Micro lending expanded particularly strongly with volumes increasing by around 42% year-on-year. Retail lending also developed very dynamically growing by approximately 29%. As a result, the share of lower volume exposures in the total loan portfolio continues to increase meaningfully since the introduction of the new strategy in early 2024, the share has risen by 6 percentage points and now stands at around 48%.

This reflects the increase in granularity of the balance sheet and demonstrates clear progress in executing the strategic shift towards a broader and more diversified client base. We also saw strong deposit growth during the year, essentially mirroring the strong development on the lending side. Retail client deposits increased their share of total deposits by roughly 1 percentage point during 2025. And and by about 3 percentage points since the start of the strategic transition.

But the more important development concerns the structure of deposit growth. In 2024, the vast majority of deposit inflows still came in the form of term deposits which are relatively expensive, especially given the prevailing interest rate environment. This was one of the key reasons why refinancing costs were higher than initially expected, which in turn put pressure on margins and the cost income ratio. In 2025, this picture changed significantly. More than 60% of deposits came from site and savings deposits. This represents a clear improvement in the quality of funding growth and reflects the strengthening of our transactional banking relationships with clients.

In our view, this is a tangible sign that the strategic transformation of our retail franchise is beginning to translate into funding benefits, which has already resulted in slight but steady expansion of the net interest margin in recent quarters. Looking at the income statement more broadly. Operating income declined slightly by about 1.1% year-on-year. The main driver was a decline in policy rates during the year, which has led to a reduction in net interest income despite the meaningful volume effects. Lower rates, particularly affected the return on liquidity holdings, especially balances held at central banks, while market deposit rates for customer funding remained comparatively elevated.

This goes in particular for term deposits, which as just explained, were the major source of refinancing in 2024. On the positive side, interest income from customer loans increased by more than EUR 21 million or 5%, which would have been enough to offset the EUR 11 million increase in interest expenses. Also positive is that net fee and commission income continued to grow, increasing by around EUR 5 million year-on-year. This was primarily driven by higher transaction volumes and stronger foreign exchange business.

This, too, is a sign of ongoing strategic execution and progress as client wallet shares are increasing, and we're expanding in areas that were previously largely underdeveloped such as trade finance. The cost income ratio remains clearly elevated at around 73%, reflecting 3 major factors.

First, the strategic investments undertaken in the last 2 years, which from the basis of the ongoing transformation of the Group. Second, the persistently high deposit rates in the market environment, which drive higher interest expenses. And lastly, the continued big earnings performance of ProCredit Bank Ecuador, which accounted for a cost-income ratio of 135% in 2025. Let's move to interest income. In the fourth quarter, net interest income amounted to EUR 92.2 million, corresponding to a net interest margin of 3.3%. Compared with the previous quarter, net interest income increased by EUR 2.7 million, an improvement mainly driven by continued business expansion and increasingly stabilizing weighted average interest rates on assets.

On the liability side, market deposit rates remained relatively elevated, which continues to influence funding costs. However, steady structural improvements in our refinancing has helped stabilize interest expenses to some extent. For the full year, net interest income declined by EUR 5.3 million or about 1.5% year-on-year with net interest margin at around 3.2%. The underlying dynamics are relatively straight forward. Strong loan growth drove a significant increase in interest income, but this was offset by repricing effect on assets and persistently higher pricing on the liability side.

In addition, higher volumes of term deposits and subordinated debt led to volume-driven increase in interest expenses. While market headwinds are likely to remain, the quarter-on-quarter trends seen in 2025 are encouraging, and we are actively reinforcing the fundamental drivers of this progress. Let's turn to net fee and commission income. In the fourth quarter, net fees amounted to EUR 25.6 million. This represents an increase of nearly 7% compared with the previous quarter, and roughly 5% compared with the same quarter last year.

The improvement was broad-based with payments, account maintenance fees, documentary business, car transactions and foreign exchange services, all contributing to the increase. For the full year, net fee and commission income grew by EUR 5.1 million or about 5.5%. Payment Services were the largest contributor, increasing by around EUR 2.4 million. Higher transaction volumes more than compensated for the slightly negative effect from the introduction of Saber payments in some of our markets. Foreign exchange transactions also continued their steady upward trend, contributing roughly EUR 2.8 million in additional income. And lastly, income from Documentary business increased by around EUR 1.3 million which represents a strong growth of 17% and reflects the progress we are making in deepening client relationships within the SME segment.

The only area showing a decline was card services with a net contribution decreased by around EUR 1.5 million, mainly due to higher fees charged by card providers. Moving on. Personnel and administrative expenses in the fourth quarter amounted to EUR 91.6 million. This quarter included several seasonal and one-off items. For example, we recognized an impairment of around EUR 2.8 million related to certain internally developed IT assets that are now being replaced by new technology as part of the broader digital transformation. Marketing expenses also increased by around EUR 1.7 million, mainly reflecting targeted campaigns accompanying product rollouts, and IT expenses increased by approximately EUR 1.1 million as the rollout of new digital systems continues across the Group at an accelerated pace.

Personnel costs rose around -- rose by around EUR 1.2 million in the fourth quarter, largely due to onetime effects like the recognition of provisions for untaken vacation as well as an increase in severance payments. Looking at the full year more broadly, personnel and administrative expenses increased by EUR 19.7 million or 6.5%. The largest component of this increase relates to personnel expenses, which rose by EUR 12.8 million, largely as a consequence of the significant recruitment efforts in 2024 when the Group added more than 700 employees.

The remaining increases mainly reflect higher IT spending and depreciation associated with our investments in technology as well as branches. Turning to credit risk. In the fourth quarter, we recorded a net release of provisions of approximately EUR 5.7 million following the regular year-end update of risk parameters, offsetting some of the extraordinary provisions of quarter 3. Total balance sheet loss allowance now stand around EUR 188 million. The overall level of provisions increased during the year, primarily as a result of strong loan growth and certain credit risk developments.

These increases were partly offset by write-offs and some currency-related effects. Management overlays are now at around EUR 50 million, post-parameter review, representing about 27% of total provisions. These overlays continue to provide a prudent buffer against macroeconomic uncertainty and potential credit risk developments. Now let's have a look at portfolio quality.

Overall, portfolio quality indicators remain solid. However, the share of impaired loans increased in 2025 to around 3%. This development is largely related to several project finance exposures that we already discussed during our quarter 3 call. These exposures have now migrated from Stage 2 to Stage 3 which also explains the increase in the default ratio as well as the corresponding reduction in Stage 2 exposures. Importantly, this transition has not resulted in a material increase in provisions.

Most of these projects related to renewable energy developments, the construction progress has been slower than originally anticipated. The main challenge has been delayed in implementation rather than fundamental project liability. Based on our current assessment, we continue to believe that these projects will remain economically sound once construction and electrification are fully completed. Now looking briefly at the regional distribution of results, the Southeastern European segment continues to represent the largest contribution to the Group's performance, adding almost EUR 100 million to Group profit.

Strong loan growth and stable asset quality supported solid profitability across the region. Eastern Europe also delivered positive contributions also thanks to a strong FX adjusted loan growth of close to 20%, including strong business expansion in Ukraine. In both segments, ROEs are between 12% and 15% with cost income ratios at around 60%. Ecuador contributed negatively to the Group result, EUR 10.7 million for the full year. The defining deficiencies remain the same as in 2024, high refinancing costs, cap lending rates and a difficult market environment and with a deteriorated security situation.

On a positive note, results have significantly stabilized in the second half of the year, and we expect the bank to breakeven in quarter 1 this year. We expect that stabilized earnings situation will provide a solid off ramp to achieve regulatory approval for the planned divestment. And finally, let me briefly address capital and risk-weighted assets. The CET1 ratio remained stable at around 13.1%. This figure already reflects the recognition of the results for the first 3 quarters of 2025.

Capital levels, therefore, remains solidly above the regulatory requirements of 10.3% for CET1, 12.5% for Tier 1 and 15.6% for total capital. The total capital ratio increased slightly to 16.3% compared with the year-end level, mainly due to the issuance of additional subordinated debt. Risk-weighted assets increased in the area of credit risk, reflecting the strong organic growth in MSME and retail lending, and therefore, the continued execution of the Group's strategy.

Basel IV impacts are already incorporated in the reported RWA numbers. Market risk-weighted assets declined by around EUR 200 million, primarily due to a new framework for open currency position hedging adopted by ProCredit Holding in late 2025. In essence, the holding acquires hedges for local currencies in its markets of operation to steer the maximum impact of FX changes to its regulatory capital positions.

As a result of the first hedges acquired in December, RWA density decreased by around 3.5 percentage points to 62.9%. Looking ahead, we plan further reductions in market risk RWA, pending regulatory approval to recognize the remaining open currency position as structurally hedged. This structural hedge reflects the natural offset between capital held in foreign currency and RWA is denominated in the same currencies. While this hedging framework will have a negative effect on the P&L going forward, assuming regulatory approval, it is a capital measure with an attractive cost of capital for shareholders.

To summarize, 2025 was characterized by strong portfolio expansion, particularly in the strategically important lower volume segments, continued growth in transaction-driven fee income and tangible progress in improving the structure of our funding base. At the same time, profitability remains influenced by the elevated interest rate environment for deposits and the substantial investments we are undertaking to transform the Group's digital capabilities and operating platform.

With that, I will hand the call back to Eriola, who will provide some perspectives on the outlook for the Group going forward.

Thank you, Christian. Let me conclude then with our expectations for 2026 and the medium-term trajectory of the Group. In 2026, we expect our strong business expansion to continue driving meaningful income growth and net interest margin stability. Our balance sheet transformation will support this through faster loan growth in high-yield segments, micro, small and retail and a more cost-efficient deposit structure focused on current and savings accounts. In addition, the focus of this year remains on the following strategic developments.

Number one, progress in digitalization transformation; and number two, implementation of the capital optimization initiatives, laying both the foundation for scalable growth and income generation in 2026 and beyond. On digitalization, I want to highlight again that our digital and technology transformation is central to strengthening our position as a leading bank for MSMEs and it is critical to our ambition to become a convenient, trusted, mobile-first retail bank across our markets.

But this transformation will continue to require significant investment in 2026 and will influence our cost base in the years ahead. On capital optimization, Christian outlined our updated hedging framework. This initiative alone is expected to significantly reduce the market risk-weighted assets and enhance our capital efficiency essential to asset growth, but the estimated cost for this transaction are around EUR 6 million in 2026. Hence, these investments in digitalization and capital optimization, will weigh on return on equity this year, but we consider them essential to enable ambitious growth and long-term value creation in the years to come.

In addition to that, the profitability of 2026 will be affected by a number of one-offs, but I won't go into detail. They are covered and quantified on a separate page in the appendix. In short, they include the expected P&L impact from the planned divestiture of our ProCredit Bank in Ecuador and headwinds from temporary tax increases in Ukraine and Romania. Overall, we expect profitability and cost efficiency to stay broadly in line with 2025.

For ROE, we cautiously guide for a level of around 7%. Although, we estimate higher net interest income, stronger business expansion and progress in balance sheet transformation, factoring in the effects mentioned above, the level of ROE remains at 7% in 2026. What is important to us, though, we target strong loan growth of 12% to 15% for continued operations, assuming market conditions remain stable despite global uncertainties, including tensions in the Middle East. Currently, we do not see direct impact in our region. Our capital position remains strong with the CET1 ratio projected at approximately 13%.

Let me conclude today's presentation by reaffirming our medium-term outlook and expressing our confidence in our ability to achieve our strategic targets by 2029. The progress we made during 2025 has been particularly important in this regard. During the year, we established the key foundations for the Group's transformation. We accelerated growth in our strategic client segments, made tangible progress in reshaping the balance sheet and importantly, advanced our digital banking capabilities at a pace that has already significantly strengthened our future operating model.

With rollouts taking place across our network through 2026, we are eager to leverage these new capabilities. Looking ahead, we aim to grow the loan portfolio beyond EUR 10 billion, an important milestone but by no means the end point. As we continue to scale our SME, micro and retail ecosystems across our markets, we believe our franchise has the potential to grow well beyond this level. We also aim to substantially increase profitability, targeting ROE of 13% to 14% with further upside potential from Ukraine.

The operational advantages of scale, digitalization and a more granular balance sheet should enable us to bring the cost income ratio down to roughly 57% over the medium term. We pursue these targets from a position of strengthened capabilities. The Group has now more advanced digital infrastructure, more efficient processes and greater organizational capabilities than ever before. We continue to invest in our people who remain the key drivers of our success.

With committed teams across all markets and a clear strategic direction. We are well positioned to unlock the full potential of the ProCredit Group and deliver sustainable shareholder value in the years ahead. And with that, I conclude the presentation, and I open the floor for your questions.

[Operator Instructions]

You have the first question coming from Milosz Papst from Edison Group.

Let me start with discussing your cost base in 2026. I think previously, the base case was that the extensive investments in the implementation of your new strategy were gradually coming to an end, which would have a stabilizing effect on the cost base, basically. Now the question is what do you expect for next year? Are there any incremental costs on top of what you expected, previously in terms of digitalization spend and headcount growth. Maybe you can also give us an update on the expansion of the branch network. And then you've mentioned that you've recognized impairment on internally developed IT. Does it mean that there will be incremental costs from some IT developments, which are done externally now. Maybe I'll stop there.

Thank you, Milosz. I will take this and see if Eriola has anything to add beyond that. Indeed, the messaging last year was that some of the really most radical investment programs were flattening out. This includes, obviously, the increase in staff as well as the expansion of the branch network. Both is true because in 2024, we added some 700, 800 people to our network. We significantly grew the branch network. These investments had visibly come to an end in 2025. Goes without saying that going forward, costs will continue to grow specifically on IT. That is clear.

And on staff, we will have to increase on a need basis, right? But this does not mean another increase, such as we have seen in 2024. So this just to contextualize a bit the assertions we made in 2025 with going forward, costs will continue to grow. But we are much more focused on developing income side, structurally improving net interest margins, scaling the operations and therefore, having a healthy income growth that more than offsets the cost basis.

And on the IT developments, we can share that the write-off that we undertook now, they are obviously also cleaning the way from an accounting perspective moving forward. We have developed new new systems internally. These are largely internally developed. But they're replacing the old ones, hence, the onetime write-off in 2025.

Okay, perfect. And then maybe the next question would be on how much of the increase in cost next year will be recurring versus one-off? I'm not expecting you to quantify it in detail, but I remember that you previously guided, I think, for the EUR 27 million increase, a EUR 27 million increase in additional network costs from office rent, depreciation, IT costs and marketing expenses, which were meant to be recurring. So can you give us some background on that as well?

Well, we have included a slide in the annex that covers in more detail the the one-off expenses that we expect for 2026. These include, of course, the divestiture from ProCredit Bank Ecuador, which we expect to be in a high single-digit to low double-digit million amount. We already covered the hedging framework, which will add approximately EUR 5 million to EUR 6 million in additional costs. We have -- the fact that Bulgaria adopted the euro, we will -- which is obviously beneficial for the country for financial institutions, for SMEs as a whole, the benefits that are reflected. It comes with an expected decline in net fee income in a mid single-digit million amount. And we have headwinds from the tax environment, specifically in Ukraine, which we once again introduced an income tax of 50% as well as Romania, which introduced a revenue tax of 4% here, we expect high single-digit to low double-digit million impact.

So these effects alone, they -- yes, they can be added up to a sizable amount, and they're mostly onetime in nature or when they're not a onetime in nature, such as the hedging framework, then they provide tangible long-term added value and shareholder value. Then on the operating costs, I don't want to say too much. We will continue to invest in IT. This is, as Eriola said, not a onetime rollout of individual systems that once implemented, will stay forever. We have to continue investing in digitalization in the years to come. And on the other expenses, we will see moderate growth that is reflecting also the fact that we have ambitious expansion plans.

Okay. And understood. Yes. So I was smartly asking about potential one-off costs on digital -- on rolling out the digital infrastructure. So I understand that there will be no major one-off, let's say, product costs, which will not reoccur in the final years. It's more about continuous investments in the infrastructure, right?

Is more about continuous investments. Certainly, IT will be the area where costs will be increasing more visibly, while in most other cases, we expect moderate increases and what will not explicitly taking into account, which is rather a medium-term benefit is once digitalization projects are fully completed, our potential upside effect from efficiency measures that can be leveraged throughout the Group. This is not explicitly discussed and mentioned here, we don't foresee this to be happening in '26 or '27, but simply see this as a long-term upside and reflect this in our medium-term expectations.

I can add here announced to -- in part of your question, we do not plan further increase of the branch network. We have already achieved an optimum size of the branch network and the focus is now on the rollout of digital initiatives and the full utilization of the existing branch network, which complements the delivery channel for the customers and on staff increases, it is a moderate increase more on strengthening new capabilities on the digital product development side, retail banking side. But we do not see structural investments and increase in costs on the traditional banking channel.

Okay. Perfect. That's very helpful. And my last question would be on the sale of the Ecuadorian Bank. I know that you can't go into details, but can you give us a very broad sense of what initial buyers' interest you see for this asset? or is it too early to say?

Well, Milosz, at this point, we have agreed economic terms with a -- we have received an offer with specific economic terms to which we agreed in an informal way. We are now at a stage where we need to engage with the regulators. So all of this transaction remains pending regulatory approval. What we can say at this stage is that starting quarter 1, the entity will be classified as held for sale under IFRS 5.

Next question comes from Knud Hinkel from Pareto Securities.

First things first. Mr. Bibolli very nice to meet you for the first time. Now coming to my question, you say...

Mr. Hinkel your line quality was not good. Can you speak again?

Hello?

Now we can hear you again.

Okay. Probably because I am on traveling, that's probably the reason why the connection is not super good.

Nevertheless, on my questions. On Page 11, there was a number that caught my eye that was that digital sales share should go up from 70% to 90%. Is my reading correct that this is one of your central initiatives going forward as new CEO, this is my first question. Are there additional strategic initiatives that you plan -- that you would outline here in this call. That would be my second question. Then thirdly, can you confirm, I mean, the return on equity will remain at the same level in '26 as in '25. But this is entirely due to higher investments as opposed to higher risk costs that were impacting the result at the [ five ] that would be my fourth question. And my fifth question is ProCredit was a little bit special always, a special bank in my view, will ProCredit keep it's ESG-focused approach to banking under your office, Mr. Bibolli. So that would be my five question.

Thank you very much for your questions. I confirm our ambition to continue with the digital transformation of the Group and the building of our new retail banking mobile-first model. And at the heart of such a model, we confirm that we aim to achieve a digital usage above 90%, meaning our value proposition is tailored around a convenient daily banking, and we expect our customers to transact digitally, up to 90% of the volume of transactions without reliance on other channels of distribution. And at the same time, we expect most of sales to be conducted digitally, which is a different dimension of digital retail banking. And this is a central initiative.

At the same time, we commit that, up to 50%, 55% of our loan origination for granular lending in micro and in consumer loans to be done digitally in the next 2 years. And these are, for us, the key initiatives that we'll be focusing on going forward. There are other associated or related transformational initiatives. But in terms of capturing operational KPIs, these 2 would be the most important one, supporting the main objective to achieve and improve the medium-term ROE of the Group in the range of 13% to 14%.

Then I would answer on your last question on the ESG focus. Clearly, ProCredit Group will continue to be an impact driven and sustainability-driven banking Group. We are anchored the way we do business is responsible, ethical, and we are committed to the ESG agenda and ought not change anything in the identity and the focus of the Group. Nevertheless, while we remain focused on sustainability, we are focused on the sustainability of our business model first, and this is why I underscored my priorities into strengthening the profitability of the Group, ensuring that the Group can achieve growth, and it's a fit for the future institution, and we achieve the positioning required in each market and as a small Banking Group. All of this anchored in an impactful and sustainability-driven business model. Can you please repeat the second question Mr. Hinkel.

Yes. My second question was on the ROE. So in '25 I think the ROE was impacted by higher risk costs. For the next year, you pointed to higher investment to digitalization and a number of special items. Can you confirm that this low higher risk costs resulting from portfolio issues or something in this area. So that was in my question.

Indeed you are right. Part of the ROE in 2025 was affected by the increased cost of risk that we already informed the capital markets in our disclosure in November 2025. The estimation for 2026 is that the cost of risk could remain at rather moderate levels. We do not see -- we do not foresee any one-off effect or increase enhancement risks. At the same time, the main drivers of the ROE this year would remain, I repeat, we would see growth in net interest income, and we'll see an increasing trend in the net interest margin. However, this would not be in the magnitude high enough to compensate for still required investments in the digital and technology transformation and the accelerated rollout that we plan to conduct in 2026 that would continue to weigh the OpEx in 2026.

Then as Christian explained, we are undertaking measures to strengthen our capital base, which from the P&L perspective, they have material costs that in the short term that would affect the P&L, but they are essential and required to support the growth potential of the Group forward. And last, it is a combination of the other effect, as Christian explained, the planned divestiture of Ecuador, combined with the depleted fee income from Bulgaria and the introduction of SEPA payments in 2 of our countries and the increased tax rates in Ukraine and in Romania aggregated together are sizable, and they come at a time when we are still push to continue with our investments in digitalization because that's strategically and critically important for the Group.

As a result, increased in net interest income would not be high enough to absorb and compensate for all these effects aggregated together. But we do not foresee in this picture an elevated cost of risk for 2026.

The next question comes from Marius Fuhrberg back from Berenberg.

Once again, on the cost side, please. The extraordinary effect that you mentioned on Page 28 of your presentation. Am I right to assume that basically all the effects above the tax effects are included in the cost income ratio. So when I deduct all those extraordinary effects, your cost/income ratio for 2026 would probably be more in ballpark area of like 68%, 69%.

And a second question with regard to your NPL ratio, that jumped quite significantly in Q4 to 3%, while the cost of risk showed in that release of provisions. Was this all connected to the project delays, so the Stage 3 increase to project delays in, I think, it was Bulgaria. And how should we expect the further development of these positions? So when would these NPL result in effective cost increases? Or do you expect a recovery? So what are your thoughts on this?

Thank you, Marius, for the questions for joining today's call. On the cost side, we -- on purpose, we did not create a normalized ROE in cost income ratio. So I don't want to confirm this roundabout figure. But obviously, from a technical perspective, you're right, the tax expenses -- the income tax expense from Ukraine would not go into the cost income ratio. The Romanian tax in Romania is not an income tax per se.

So this is booked in the administrative expenses, the revenue tax. But in principle, it's right also what Eriola said in this year, we plan to significantly increase core revenues from net interest income above all in structurally also from net fees, but there is the offsetting factor from Bulgaria, which is why net fees will likely not grow significantly, but the driver is, of course, net interest income.

Then we have the increases in the cost base that are more strategic in IT, less on personnel, but some close to nothing in terms of the network and then the one-off effects that are the reason why both cost/income ratio and ROE are a bit stagnant. Obviously, without the one-off effect, we would see an improvement in both ratios.

On the NPL it's exactly, as I said, the cost of risk impact was largely already absorbed in quarter 3 when we -- when these exposures that were already in Stage 2 were transferred into a higher risk class, and we provisioned prudently in this instance, and had already communicated then that should these exposures transfer into Stage 3, we would not expect any additional significant P&L effect, and this is exactly what happened in quarter 4, we transferred them into Stage 3 as the delays -- the construction continued not to be resolved.

Now I cannot speak really about the expectation of further development of these projects. As I mentioned, fundamentally, the economically sound projects, how they will be dealt with going forward. We will have to see. We are right now focused on moving forward with electrification and construction. That is our focus. Otherwise, the NPL ratio without these projects is closer to 2.0%, which is as you know, for our market, is an extremely strong figure, and we don't expect any significant development from this year cautious, nonetheless, about the broader geopolitical environment and the tensions that broke out in the Middle East, naturally, this can have very broad global economic implications, which are not really specific to our markets, but our markets are part of the global ecosystem. But at this point, we don't see a significant shift here.

There are no more questions at this time. I would now like to turn the conference back over to Eriola Bibolli for any closing remarks.

Thank you very much to the analysts for the thoughtful and engaging questions. Today's call...

Sorry to interrupt you, Ms. Bibolli . We have a last note question coming from Andreas Pläsier from Warburg Research.

Only 2 questions left. Firstly, coming to your return on equity target in 2029. Should we here expect a more hockey stick development until 2029 or can we already expect a substantial improvement into the double-digit return on equity range next year? That would be the first one.

And the second one is regarding your NII development. We have a positive development already in last year. Do you expect a strong contribution to your revenues in this year? Should we expect here also an improvement of the NII margin in 2026?

Thank you very much for your question. We do not foresee a further hockey stick on the ROE going forward to 2029. We have already indicated that the year 2025 and 2026 have been the years of the acceleration of our digital transformation and the rollout of the digital initiatives across the Group, which largely are expected to be implemented by the end of 2026, beginning of 2027.

And as a result, the significant weight of the costs required to undertake these investments, it is already reflected in these 2 years. From the year 2027 onwards, we foresee further investments and improvement in the digital infrastructure, but we will see a stronger magnitude of growth in the net interest income and fee income, simply being able to scale a different level of growth and increasing not only the volume, but further improving the structure of growth towards high yield, low volume loans and further improving the cost of deposits, that would hopefully decrease the interest expenses on the deposit side. As a result, the expectation is to see further on a gradual improve of ROE reaching hopefully, 13%, 14% to 2029.

And similarly, the answer to your second question on the development of the net interest income, we see further incremental improvements and increase in the net interest income and the net interest margin as a result of our successful progress with the balance sheet transformation and achievement of the targeted volume of growth in the right structure in the granular segments on both sides of the balance sheet that would enable the Group to just show a steady incremental increase, net interest margin, net interest income and ROE.

There are no more questions at this time. I would now like to turn the conference back over to Eriola Bibolli for any closing remarks.

Thank you very much again to the analysts for all your thoughtful and engaging questions today. Today's call, as said, was somewhat longer than our usual sessions, but we felt it was an important moment to take the time to provide a more comprehensive update on the progress we are making in the strategic transformation of the Group. We appreciate your interest and your continued engagement with ProCredit.

If there are any further questions following this call, please feel free to reach out to our Investor Relations team. Nadine and her colleagues will, of course, be happy to assist you. We look forward to speaking with you again at our next results presentations on May 13 for the Q1 '26 results. Thank you very much, and you have a good day.

Ladies and gentlemen, the conference is now over and you may now disconnect your lines. Goodbye.