Q2 2026 ProCredit Holding AG Earnings Call
Speaker #1: Of 2026. My name is Ariola Biboli. I'm the chairperson of the management board of ProCredit Holding, and I'm joined today once again by Christiane D'Agrosa, our Chief Financial Officer.
Speaker #1: 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.
Speaker #1: Before we begin, let me draw also your attention to the customer disclaimer regarding forward-looking statements which is included at the end of the presentation.
Speaker #1: 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 roadmap.
Speaker #1: Christiane 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.
Speaker #1: 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 $8 billion mark for the first time in the group's history.
Speaker #1: 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%.
Speaker #1: 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.
Speaker #1: 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 38.5 million, with a cost-income ratio at 71.2%.
Speaker #1: Finally, our inaugural $81 issuance of $150 million in May was an important step in supporting the group's capital structure optimization, delivering on a strategic objective that we first outlined at our capital market day 2 years ago.
Speaker #1: 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.
Speaker #1: Of course, one 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 $20 million, Christiane will walk you through the key drivers in more detail shortly.
Speaker #1: Lastly, let me remark that due to our $81 issuance, we will report return on tangible equity going forward, which takes into account the accrual for the $81 coupon.
Speaker #1: For the first half of 2026, return on tangible equity stood at 7.3%. Also, let me note that 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.
Speaker #1: 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.
Speaker #1: 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 I'll not dwell as most relevant geopolitical risk factors are widely known and reported on.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: While the direct impact on our markets and clients has remained rather limited so far, indirect adverse effects are becoming increasingly more apparent through higher energy costs, persistent inflationary pressures, and weaker external demand.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: Our rollout enhances scalability and the efficiency of our operations, they strengthen customer experience and support our ability to acquire, serve, and retain customers through digital channels.
Speaker #1: 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.
Speaker #1: Our digital banking apps 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.
Speaker #1: Although the rollouts are still progressing across our markets, the initial customer responses have been very positive. We are seeing encouraging engagement levels and a willingness among customers to incorporate the app into their everyday banking activities.
Speaker #1: While there remain 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.
Speaker #1: Moving to another strategically important project, in May we successfully completed the inaugural issuance of additional Tier 1 capital instruments with a volume of around $115 million.
Speaker #1: The transaction was met with strong investor demand, with the order book more than 3 times oversubscribed. It resulted in a broadly diversified investor base and pricing below the respective benchmark.
Speaker #1: The initial coupon rate is 8% 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.
Speaker #1: 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.
Speaker #1: 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.
Speaker #1: We continue to expect long 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.
Speaker #1: We confirm our outlook for a 7% return on equity this year, which includes the developments mentioned earlier, particularly income growth, costs from investments in digitalization, and capital optimization measures, and a number of short-term effects including the impact 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.
Speaker #1: In the medium term, our objective remains to grow the loan portfolio beyond $10 billion, while significantly increasing the number of customers across all segments.
Speaker #1: 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, with higher average rates on assets and a more efficient refinancing structure.
Speaker #1: Operationally, this should translate in a structural improvement in the cost efficiency, with the cost-income ratio moving towards the 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 Christiana will provide further details.
Speaker #2: Thank you, Ariola. And good afternoon now also from my side. Let us start, as always, with a closer view on the development of loans and deposits.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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, an 8 percentage point since the end of 2023, which marks the starting point of our updated business strategy.
Speaker #2: As I should now 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 Ariola already highlighted.
Speaker #2: Moving to deposits, our deposit base grew by 2.2% in the first half of '26, micro enterprises were a key driver of this growth, contributing around one-third to this increase, predominantly in the form of site deposits.
Speaker #2: Expanding our retail and micro client 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%, while deposits from micro enterprises grew by a strong 37%.
Speaker #2: And we also continue to focus on improving the overall funding mix, nearly 70% of the more than $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.
Speaker #2: Operating income showed a robust increase in the first half, 14 million euros, 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.
Speaker #2: Net fee and commission income declined year on year, as expected, reflecting the effects from the euro introduction in Bulgaria, as well as the growing adoption of SEPA payments across many of our markets.
Speaker #2: Operating costs increased by around 10.6 million euros, with the 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.
Speaker #2: 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.
Speaker #2: 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 in total loans, that support higher-weighted average interest rates on assets.
Speaker #2: 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 99 million euros, that is 12.6 million euros, or almost 15% higher than in the second quarter of 2025.
Speaker #2: For the first half of the year, net interest income grew by 20 million euros, or 11.6%, as already highlighted earlier. This reflects strong volume effects across the group, partly offset by a mixed pricing environment across our basis points year on year, supported in particular by the margin recovery in Ecuador.
Speaker #2: 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.
Speaker #2: Moving on. Net fee and commission income amounted to 22.4 million euros in the second quarter. This represents a modest increase compared to the first quarter, reflecting client number growth and a favorable calendar effect.
Speaker #2: However, it remained below the second quarter of the previous year. And on a year-on-year basis, net fee and commission income declined, 3 million euros, broadly in line with the expectations communicated at the beginning of the year.
Speaker #2: The decrease was primarily driven by the introduction of the euro in Bulgaria, as already mentioned, which reduces and has reduced the any income opportunities for foreign exchange transactions.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: Moving on. Personal and administrative expenses amounted to 83 million euros in the second quarter, personal expenses increased moderately, while administrative expenses rose a bit more strongly, mainly due to higher expenses for software and marketing.
Speaker #2: For the first half, the 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.
Speaker #2: Depreciation also increased due to IT and software investments made in prior periods. As outlined earlier, the quarter one and quarter two cost-income ratios include new underlying hedging expenses, as well as the negative effects from lower net fee income following euro introduction in Bulgaria.
Speaker #2: The stable cost-income ratio demonstrates that the aggregate mid to high single-digit million euro headwind from these two factors has been fully absorbed through underlying revenue growth and disciplined cost management.
Speaker #2: Moving on to loss allowances. In quarter two '26, loss allowances amounted to 6.4 million euros, corresponding to a cost of risk of 31 basis points.
Speaker #2: This figure includes additional portfolio-level provisions in the amount of 2.7 million euros, reflecting the more challenging global macroeconomic environment driven by the continued war of aggression against Ukraine and the prolonged conflict in the Middle East.
Speaker #2: 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.
Speaker #2: 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 reassess risks on an ongoing basis.
Speaker #2: For 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 remained broadly steady at around 48.8 million euros, accounting for approximately 25% of the total stock of provisions.
Speaker #2: 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%, broadly returning to pre-war levels.
Speaker #2: I will not dwell on credit risk indicators as they remain broadly stable year to date. We have some increase in stage two, as we cautiously transferred exposures of around 115 million euros related to SMEs operating in sectors with high sensitivity to oil and gas prices.
Speaker #2: As a 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%.
Speaker #2: Turning very briefly to segment performance, I would highlight only the improved result of ProCredit Bank Ecuador, which has returned to positive contribution after prolonged period of underperformance.
Speaker #2: 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%.
Speaker #2: 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.
Speaker #2: Our risk-weighted assets increased in the first six months, mainly due to an increase in credit risk, reflecting the strong loan growth, as well as an updated treatment of guarantees.
Speaker #2: As of June 30, our CT1 ratio stood at 12.7%. Our Tier 1 ratio positively impacted by the inaugural 81 issuance, now stands at a comfortable 14.7%, and total capital at 17.8%, all well above regulatory requirements.
Speaker #2: And with that, let me conclude today's presentation and open the floor to your questions.
Speaker #1: Ladies and gentlemen, we will now begin the question-and-answer session. And the first question comes from Milos Paps from Edison Group. Please go ahead.
Speaker #3: Yes, hi. Thank you for the presentation and taking my questions. I have three, if I may. The first one is on your deposit growth.
Speaker #3: Do you consider double-digit deposit growth as achievable in FY26, 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?
Speaker #4: Thank you, Milos. 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: Instead, what we are already implementing, it is a customer-focused acquisition strategy, that it is built around, let's say, four value streams that would drive customer growth and customer engagement.
Speaker #4: That 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.
Speaker #4: 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 to a higher number already.
Speaker #4: 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 income from the daily transaction banking.
Speaker #4: 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 customer are going to go down moving forward.
Speaker #4: 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.
Speaker #4: So we don't foresee per customer or per euro deposit fund an increase in marketing costs.
Speaker #3: Perfect. Thank you. That's very detailed and helpful. Now, so the related questions were not near the side, let's say, of the balance sheets. What loan-to-deposit ratio do we expect over the medium term compared to current levels?
Speaker #3: And is there any particular upper level you have in mind which you would accept at an individual bank level to facilitate loan book growth?
Speaker #2: I'm going to take this one Milos. 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: In addition, we benefit from long-standing relationships, both with international financial institutions as well as established access to the capital markets, and we're wholesale funding represents the economically more attractive option compared with raising additional term deposits we are prepared to act rather opportunistically.
Speaker #2: 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.
Speaker #3: Okay. Great. Thank you. And my last question would be on your on liabilities repricing the second half of the year. Do you expect any meaningful negative effects with respect because of base rate hikes in some countries like Ukraine or countries directly influenced by the ECB policy?
Speaker #3: Or maybe competition for deposits? Or do you expect no significant impact from liabilities pricing in the second half?
Speaker #2: 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 two years has not disappeared.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: And we believe that this is reflected in the continued business in 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.
Speaker #3: Perfect. Thank you. Then the next question comes from Marius Vorberg from Wernberg. Please go ahead.
Speaker #5: Yeah. Hi. Thanks for taking the question. Someone from AA. First one on the 81 usage. With the tier one now at 14.7% after the 81 issuance, does this change your appetite for loan growth towards the top end of the 12 to 15 percent range?
Speaker #5: Also in light of the 8% already achieved after H1, I think the top range here should be more realistic scenario. Is that correct? And with regards to the buffer, is this also earmarked for the loan growth primarily, or is it earmarked differently?
Speaker #5: The second on the net. Interest margin, which improved 18 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.
Speaker #5: Is this is the reason for this the elevated tax effect from Ukraine? Or is that we're realizing Q2, or is it stemming from something different?
Speaker #5: Yeah. That's basically it for me.
Speaker #4: Thank you very much, Marius. Let me say that the 81 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.
Speaker #4: 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 12, 15 percent, which would be in part higher than market averages in our market of operation and delivering on our planned target.
Speaker #4: And the successful placement of the 81 simply 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%.
Speaker #2: I will take the other two questions. Marius, on the net interest margin. Indeed. I mean, the improvements are structural. And as I mentioned, they are on a highly granular basis.
Speaker #2: We are making on a quarter-on-quarter basis we are achieving improvements in essentially all markets. And we are continuing to roll out very focused efforts to continue to optimize structurally net interest margin on both sides of the balance sheet.
Speaker #2: And therefore, this trajectory that we see now as of now, we see it sustainable to be upheld in half year two. On the tax rate, it's indeed a Ukraine is a significant factor.
Speaker #2: The profit before tax in Ukraine was higher in quarter two. Then in quarter one, as we had higher loan loss provisions in quarter one, this is indeed the major driver for the higher calculated tax rate in quarter two.
Speaker #5: Thank you very much.
Speaker #3: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Iriola Biboli for any closing remarks.
Speaker #4: Thank you very much to the analysts for the 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.
Speaker #4: 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 12th for the Q3 results.
