BG.VIBG.VIVIE
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Operator: Good day, and thank you for standing by. Welcome to the BAWAG Group Full Year 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. There will also be a transcript on the company's website. I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO of the company. Please go ahead.
Anas Abuzaakouk: Thank you, operator. Good morning, everyone. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. So we have a lot to cover. Let's jump right into it with a summary of full year 2025 results on Slide 3. For the full year 2025, we delivered a record net profit of EUR 860 million earnings per share of EUR 10.87 and a return on tangible common equity of 27%. The underlying operating performance of our business was very strong with pre-provision profits of EUR 1.42 billion, up 31% versus prior year and a cost-to-income ratio of 36%. Total risk costs were EUR 228 million with an NPL ratio of 80 basis points. The fourth quarter was particularly strong with a net profit of EUR 230 million, a return on tangible common equity of 28% and a strong springboard as we entered 2026. We exceeded all of our 2025 targets and distributed EUR 607 million to shareholders, EUR 432 million in dividends, which was equal to EUR 5.50 per share and EUR 175 million share buyback, translating into a cancellation of 1.6 million shares or 2% of shares outstanding. Since our IPO in October 2017, we have reduced shares outstanding by 23% with 77 million shares outstanding as of year-end 2025. We closed the year with a pro forma CET1 ratio of 14.6% after setting aside EUR 481 million for dividends, equal to EUR 6.25 per share, which we will propose at our Annual Shareholder Meeting in April as well as deducting the EUR 75 million share buyback that we completed earlier this year. The recent buyback was used to fund employee stock and remuneration programs as we are keen to avoid diluting our shareholders. Our liquidity position is robust with cash of EUR 14 billion, equal to 19% of our balance sheet. Organic customer loan growth was strong, up 3% year-over-year when excluding the Barclays acquisition, including the Barclays Consumer Bank Europe acquisition, customer loans were up 12%. Net interest margin for the business was 329 basis points, up 22 basis points from prior year and reflecting the positive impact from the German credit cards and strong growth in consumer and SME. Despite our record performance in 2025 and an EPS CAGR of 14% over the last 3 years, our best years lie ahead. Our strategy has been consistent since 2012, one focused on being patient, disciplined, cutting through the noise and embracing a continuous improvement mindset. Our resilience is proven by our ability to consistently deliver results and improve each year. On the back of strong customer loan growth in 2025 and the integrations delivering ahead of plan, we are updating our targets and introducing a new 3-year rolling outlook. We are now targeting net profit of over EUR 960 million in 2026, over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028, excluding any potential acquisitions. This translates into a net profit CAGR of 12% over the next 3 years from 2025 through 2028. We also continue to build up excess capital with over EUR 1.1 billion projected from 2026 through 2028, leaving us with over EUR 1.5 billion of excess capital, which includes our pro forma excess capital of EUR 468 million to earmark towards M&A, capital distributions or potential new growth opportunities above our stated plans. It's important to note this excess capital is incremental to the capital underpinning our updated 3-year targets and post our 55% dividend payout ratio. Through the cycle, we are targeting an ROTCE over 20% and cost-income ratio under 33% as the franchise continues to reap the benefits of long-term investments and scale as we build out a pan-European and U.S. banking group. When we refer to through the cycle, there will be years we deliver higher returns given the current rate environment and benign credit cycle with our targets representing a more conservative floor. However, our goal is to consistently deliver results and be prudent in how we run the bank, accounting for the cyclical nature of markets and lending. Our CET1 target remains at 12.5%, 227 basis points above our minimum regulatory capital requirements. Going forward, we plan to provide a rolling 3-year outlook with full year earnings allowing for a more dynamic outlook that captures internal as well as external developments more real time. Moving to Slide 4, our capital development. At year-end 2025, our reported CET1 ratio landed at 14.2%. We generated 417 basis points of gross capital from earnings. Closed on the Barclays Consumer Bank Europe acquisition using 180 basis points when compared against year-end RWAs and made or earmarked capital distributions equal to 350 basis points which comprised of earmarked dividends of EUR 481 million as well as EUR 250 million of share buybacks completed across 2 tranches. We also completed 3 SRT transactions, which funded the underlying business growth and provided a net capital relief of approximately 60 basis points. On a pro forma basis, our CET1 ratio was 14.6% equal to EUR 468 million of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025 and is expected to close in the first half of this year. This excess capital starting point provides us with a significant amount of dry powder to capitalize on unique organic and inorganic opportunities should they arise. It is important to note that both the Knab and Barclays Consumer Bank Europe acquisitions were fully self-funded. As our owner operators, we strive to be good stewards of capital, prudent and disciplined in how we allocate capital with a strong aversion to diluting shareholders. However, this is only made possible because of a very strong earnings and capital generation as we are positioned to deliver a through-the-cycle return on tangible common equity of over 20%. Slide 5. Positioning our balance sheet for growth while staying conservative. A key pillar to our strategy is maintaining a conservative balance sheet that is positioned for growth, ensuring we have excess capital and liquidity and always focusing on risk-adjusted returns taking a proactive approach to risk management. As we look ahead to 2026 and beyond, we have positioned our balance sheet in a few ways. We have purposely kept an excess cash position providing us with dry powder from a liquidity standpoint. We have EUR 14 billion of cash equal to 19% of our balance sheet, and our securities portfolio remains underinvested at EUR 3 billion, equal to 5% of our balance sheet, while we target more of a long-term range of 15% to 20% in a more attractive spread environment. We continue to be patient and disciplined and we'll be ready to deploy into customer lending as well as adding to our securities portfolio when the right opportunities present themselves that meet our risk-adjusted returns. As far as customer loans, we are focused on secured and public sector lending with an inherently low risk profile as well as providing us with a source of long-term funding. Over 80% of our customer book is secured or public sector lending that is conservatively underwritten and well collateralized. Housing loans account for over 50% of our customer loans with an average LTV of 55% on the nonguaranteed mortgages. In total, 60% of the mortgage portfolio has NHG government guarantees, insurance or risk transfers. Additionally, we have EUR 13 billion of covered bond funding relative to approximately EUR 40 billion of mortgages, commercial real estate and public sector assets with significant potential for further long-term covered bond funding. Over the years, we have deployed various risk management tools to proactively mitigate credit risk and free up capital to fund growth using CDS direct insurance and significant risk transfers or SRTs, in the form of cash and/or guarantees. We use SRT specifically to free up capital to fund growth and as a loss mitigation tool with an emphasis on unsecured lending. Today, SRTs have become quite prevalent, but our focus over the years was risk mitigation accounting for through-the-cycle losses and ensuring we stay competitive from a risk-adjusted return standpoint. This has become more pronounced across mortgage lending as we transition to the standardized approach in 2024. Today, SRTs cover EUR 9 billion of assets on the balance sheet, of which EUR 6 billion or 2/3 are tied to mortgages on the standardized approach. SRTs on mortgages improve capital efficiency on a low-risk asset class, allowing us to fund growth and better compete with IRB banks and nonbank lenders. SRTs on unsecured and specialty finance assets, which account for EUR 3 billion, primarily consumer loans, credit cards and corporate loans, mitigate risk of unexpected losses and work more as an insurance policy, specifically against volatility of macro sensitive assets. In terms of lending activity, 2025 was another year defined by being patient and disciplined. Although we saw a pickup in lending activity across consumer and SME, the pricing environment is still challenging across mortgages and corporate lending. We have strategically avoided chasing growth as credit markets remain frothy given the number of players driving down margins and foregoing loan protections. We believe credit risk in general is mispriced given geopolitical risks, the fiscal situation of many sovereigns and a flawed short-term focus on aggressively pushing lending volume given the perpetual need to deploy capital as incentives have decoupled from performance. On the flip side, our commercial real estate business continues to perform well, and we are finding pockets of opportunity. This is a result of our conservative underwriting over the years and underlying exposure to residential, industrial and logistics assets. which make up approximately 80% of the portfolio. The U.S. office sector overall remains distressed. However, we are now seeing pockets of opportunity in select idiosyncratic transactions across the capital structure. Moving to Slide 6. Building a pan-European and U.S. banking group. Our success over the years is a result of embracing a continuous improvement mindset, one that allows the company to constantly adapt. This past year was no different. Even though our company is in great shape, we must adapt from a position of strength and not fall victim to complacency. The recent acquisitions have been a catalyst for building the operating framework for a pan-European and U.S. banking group. As we look to the future, we must challenge the status quo we reimagined the company. In the face of shifting demographics, changing customer behavior and transformative technologies, we need to ensure that we stay competitive and relevant for the long term. Over the years, we have transformed from a branch-heavy business with limited digital capabilities to a digital-first bank complemented by a high-quality advisory branch network. We self-funded 14 acquisitions, expanded into 6 new countries and built a strong leadership team with a deep bench in an owner-operator mindset. Today, our business is 90% retail and SME, 90% digital originations and 90% tied to the euro countries of Austria, Germany, the Netherlands and Ireland. With the integrations of our 2 recent acquisitions largely complete, we are positioning ourselves for future growth, both organic and inorganic. We have redesigned the company to reflect both the broader footprint as well as capture new opportunities. We are starting to see the benefits of greater scale and efficiencies, greater digital engagement, a wider geographic footprint and more opportunities to pursue. Most importantly, our transformation over the years has been anchored to our culture. We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenging the status quo. Our senior leadership team embodies stability and dedication with the Management Board and senior leaders collectively owning approximately 5% of the company. This reflects our owner-operator culture and commitment to long-term success of the franchise. This group has an average tenure of 12 years. 25% of our current leadership team joined through prior acquisitions, and we continue to build a deep bench of leaders cultivated through internal development programs, mentoring, strategic recruitment and acquisitions. This is vital as we expand into a pan-European and U.S. banking group, ensuring we have the proper bandwidth and skill set to grow the business and address the many challenges and opportunities ahead. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve. Moving to Slide 7. Technology underpinning our transformation, AI is the next leg. Despite our achievements over the years, we recognize that ongoing technological disruption, specifically the rapid advance of artificial intelligence, demands that we proactively redesign our company. This era of innovation and disruption will fundamentally reshape how we serve our customers, structure our organization and define the very nature of work. As a result, some technologies and processes will quickly become obsolete, requiring us to rethink traditional roles and create entirely new ones. The economic landscape is evolving in ways that are hard to understand or predict. Our goal is to proactively navigate these changes and ensure the long-term success of our franchise. We plan to incorporate AI into our operating framework. We will significantly enhance customer service making this a true competitive advantage as we reduce friction in our processes, enable immediate and effective first touch resolution. While we have already made significant strides in driving operational efficiency, we must remain focused on continuing to eliminate unnecessary bureaucracy, freeing up our people to engage in more impactful and rewarding work that requires more creativity, problem-solving and critical thinking. Our goal is to free up advisers to spend more quality time with customers, enable our operations and call center teams to focus on more complex cases and portfolio management and streamline central functions to play a more strategic role across the group. Central to our AI strategy is building the right technical infrastructure and fostering institutional expertise to remove friction for both customer journeys and internal operations. Our TechOps investments over the years have enabled us to fully migrate to the public cloud, enhance our data architecture and adopt standardized workflow and reporting tools. This technical foundation will be the foundation for building an AI operating framework, one that seamlessly integrates technology, supports robust governance and drives impactful use cases. To support this, we have set up a dedicated team of business process engineers within our TechOps Group combining process know-how with technical skills to lead AI initiatives in close partnership with functional experts. However, we believe that before AI can be properly implemented, there needs to be NI or natural intelligence around the process. This means team members with deep process and institutional knowledge working closely with business process engineers to redesign processes through simplification measures, basic workflow automation and ultimately, AI. We believe AI will ultimately enhance our operational excellence and best-in-class efficiency in the coming years, a true differentiator for BAWAG and our competitive advantage. With that, I'll hand over to Enver.
Enver Sirucic: Thank you, Anas. I will continue on Slide 9. In terms of our balance sheet and capital, customer loans were up 2% and customer deposits were up 4% quarter-over-quarter. Organic customer loan growth was 3% year-over-year when excluding the Barclays acquisition, including the Barclays acquisition, customer loans were up 12%. Tangible common equity is up 9% year-over-year after setting aside a EUR 6.25 dividend per share or EUR 481 million in absolute terms, which we will propose at our Annual Shareholder Meeting in April. We maintained a fortress balance sheet with EUR 14.1 billion in cash equal to 19% of our balance sheet and LCR of 204% and overall strong asset quality with a loan NPL ratio of 80 basis points. Moving to Slide 10, a strong last quarter with net profit of EUR 230 million and a return on tangible common equity of 28%. Core revenues were up 3% versus prior quarter with net interest income up 3% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost income ratio stood below 34%. Risk costs were EUR 64 million or 45 basis points in the quarter, including provisions for a single name default. On Slide 11, our core revenues. Strong performance, net interest income was up 3% in the quarter, driven by robust customer loan growth of 2%, with strong momentum in real estate and public sector, solid consumer business and stable mortgage lending. Net interest margin at 332 basis points improved on back of better asset mix, while deposit beta improved by 1 percentage point to 37% in Q4. Net commission income was up 4% with continued strong momentum across business lines, particularly in credit cards and payments. For 2026, we anticipate a continued positive trend with net interest income and core revenues expected to grow by 6%. On Page 12, operating expenses at EUR 194 million, a 3% decrease for the quarter with the cost income ratio at 33.8%, similar to levels before both acquisitions. To date, more than 80% of the acquisitions have been successfully integrated as planned and cost synergies have increased particularly after the branchification of Knab last November. We continue to drive operational initiatives designed to streamline processes and enhance long-term productivity across our business lines. Combined with the completion of integration efforts, these measures are expected to improve our operational efficiency. We expect a reduction in operational expenses by more than 5% in 2026. Regulatory charges are projected to increase by EUR 9 million to EUR 48 million in 2026 due to increased size of our balance sheet. Moving to Page 13. Risk costs were EUR 64 million in the quarter, driven by a provision for a single name default and higher share of retail consumer lending. Asset quality remains solid with an NPL ratio of 80 basis points. We expect continued strong asset quality in 2026 with a risk cost ratio of around 45 basis points mainly reflecting a higher share of consumer lending and otherwise strong credit quality. Slide 14. Our retail SME business delivered a quarterly net profit of EUR 210 million, a very strong return on tangible common equity of 39% and a cost income ratio of 31%. Pre-provision profits were EUR 343 million, up 10% compared to prior quarter with core revenues 4% stronger versus prior quarter, while operating expenses were down 8% in the quarter. The retail risk costs were EUR 58 million, with a risk cost ratio of 60 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. Average customer loans and deposits grew by 1% in the quarter, and we expect continued growth across the retail SME franchise in 2026 driven by solid growth in consumer and SME with mortgage originations slowly starting to pick up. On Slide 15, our corporate real estate and public sector business delivered fourth quarter net profit of EUR 37 million and generating a strong return on tangible common equity of 29% and a cost income ratio of 23%. Pre-provision profits were EUR 58 million, while risk costs were at EUR 6.5 million, mainly tied to provisions for a single name default. Average assets were up 4% in the quarter, with strong momentum in real estate and public sector while corporate lending remained muted. We'll continue with our current approach in 2026 and stay patient, focus on disciplined underwriting, risk-adjusted returns and not blindly chase volume growth. Slide 16, our updated targets. Following strong customer loan growth in 2025 and progress on integrations being ahead of plan, we are revising our targets and the 3-year outlook. We are targeting net profit exceeding EUR 960 million in 2026 over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028 with a 12% CAGR from 2025 to 2028, excluding any acquisitions. Our strategy focuses on improving operating leverage by increasing core revenues and consistently reducing expenses. Top line growth will come from 3% to 4% annual loan growth a higher asset margin due to an improved asset mix and positive effects from deposit hedge roll off. Following integrations, we aim for annual net cost reductions through 2028. These efforts will drive ongoing improvement as we continue investing in advisory, tech infrastructure and data assets. Looking ahead, with continued mix shifts and effective underwriting, we expect risk costs to remain at 45 basis points for the next few years. In addition to our profit targets, we plan to generate over EUR 1.1 billion in incremental excess capital by 2028, following a dividend payout of 55%. The resulting excess capital of more than EUR 1.5 billion by 2028 may be allocated towards organic growth initiatives, further M&A or capital distributions. Our through-the-cycle targets remain unchanged with a return on tangible common equity of above 20%, cost income ratio of below 33% and a CET1 ratio target at 12.5%. And with that, operator, let's open up the call for Q&A. Thank you.
Operator: [Operator Instructions] The question comes from the line of Gabe Kemeny from Autonomous Research.
Gabor Kemeny: My first question is on the 2027 guidance that you upgraded by around EUR 100 million. I understand this is primarily NII driven. And can you confirm it's mostly the asset mix as you are shifting more towards consumer to remember about the hedges, how the hedge positions have become more -- or expected to become more profitable? And specifically, on consumer, you pointed out that it's growing nicely. Can you speak a bit about the drivers and the growth outlook in this segment? My other question will be on capital. I mean you ended the year at EUR 0.5 billion of excess capital, but not doing a share buyback for now. Yes, I understand you are working on -- you are looking at various capital deployment options. But when do you think you will be able to decide on whether you do a share buyback this year or not? And my final question is a broader one. I understand you can't comment on transactions. But can you share your views on the Irish banking market and the performance of your local business there?
Anas Abuzaakouk: Okay. Gabor, let's -- I'll start with the capital allocation question 2 and 3, Ireland and then Enver will take the 2027 guidance, some of the specifics. So all good questions, Gabor. Thanks for submitting. As far as capital allocation, we always say as part of our capital allocation framework, we will assess at year-end given our excess capital position. This is really no different this year. The only difference is we're assessing a number of market opportunities, and we'll be in a better position to communicate what we're going to do with our excess capital and overall capital allocation, hopefully, by the first quarter results. I think we're going to be in a good position. As to your general question of Ireland, we entered Ireland 2 years ago through MoCo and that was on the back of having studied the market and having went into Ireland for a number of years. We bought DEPO, which was a wind-down platform. We think Ireland is one of the most robust banking markets across the European Union. But that's not a development today. That's been our belief over the past few years. So we think it's structurally a really good retail banking market. But that's one of our core 7 markets that we've defined in 1 of the 4 core European markets. So I will pass it over to Enver on the '27 guidance.
Enver Sirucic: So Gabor, on your question, I think, related to the NII development. Yes, there are 3 factors that we laid out. The first one is we assume loan growth of 3% to 4%. And if you look back, this is consistent with the performance that we have seen, especially over the last 12 months. The second one is better asset mix. The overall balance sheet structure will not change significantly. When we say we have 80-20, like 80% secured public sector lending, then 20% unsecured, that's going to be the same mix in the future. The only difference, if you look at the front book NIM, the asset mix is healthier in terms of NIM improvement, mainly driven by consumer lending and the credit card business that we acquired, obviously, last year. And the third element is the deposit hedge roll, which is more a technical effect given the duration of our structural hedge that is on the long tail 10 years rolling or 5 years effective. And that effect is coming through now in '26, '27 and '28. I hope that helps.
Operator: Your next question comes from the line of Hugo Cruz from KBW.
Hugo Moniz Marques Da Cruz: So yes, could you give a little bit more detail on those NII dynamics? So where do you expect loan growth to -- I mean, you said it was a bit in line with the current trends. But if you could kind of give us a bit more granular expectations of loan growth by country or by key products? And also, can you quantify the benefit from the deposit hedging in each year, so like kind of where is the kind of the front book yields and size of the portfolio, so we can try to model it, please? And final question on M&A, can you remind us like what is your ROI and EPS accretion thresholds for any deals that you might announce?
Anas Abuzaakouk: Okay. Thanks, Hugo. All good questions as well. Let me start with the easy one, the last one. When we do M&A, consistent with the 14 acquisitions that we've done over the past decade, we have the defined return threshold requirement. That for us is kind of our franchise through the cycle return on tangible common equity of over 20%. And I think if you look at prior deals, we've obviously had, I think, really strong performance and outperformed a particular threshold. But you should think of that as kind of the floor. And then when we look at just M&A and just inorganic opportunities more generally, we measure that against potential share buyback. And I think if you look at not that we focus on the share price or valuations that we don't make strategic decisions based off of that. But if you look at where the business is trading on a price to earnings basis, and take a 2-year 4 PE multiple, I think share buybacks are still very attractive. It's a good return for our investors given that we, I think, trade at or slightly below the European bank index in terms of PE multiples. Okay. So that was M&A return thresholds. What was the...
Enver Sirucic: Loan trends.
Anas Abuzaakouk: So loan trends. More broadly, Hugo, I tried to give some color during the presentation and Enver can add more specifics. But if you look at the different asset classes, so within consumer and SME, the credit card business actually has performed better than we had underwritten after making the acquisition. And that I think that trend will continue in the years to come. That's specific to Germany, but also potentially Austria and adjacent countries, but that's really not in the numbers. Specialty finance which is leasing, in particular, both auto and equipment leasing, I think that's been a positive development as well as our factoring business, and that's a mix of NII and NCI. The mortgages, I'd say, has been from a consumer standpoint or retail and SME standpoint has been probably the one challenged area, not so much because the volume is there, but I made a comment around just overall margins. And when you look at kind of risk-adjusted returns, I think there's certain levels that for us, we think, have become irrational as far as pricing. So we're pretty conservative on that front. I think when you think about overall mortgages. Now that obviously varies between different countries. I think it's more challenged in Austria and Germany. We see good opportunities in the Netherlands and Ireland from a mortgage standpoint. Just to answer your question about specific geographies. And then when you look at the nonretail and SME business, I would say don't have much expectations for us, at least in our planning for corporate lending. Obviously, there's pockets of opportunities but the general comment about credit risk being mispriced really is focused on corporate lending and corporate credit risk. And it just feels like there's an irrational exuberance and a real strong focus on volumes because a lot of capital has been -- what's the right way of saying this? There's been a lot of capital that has been raised across different platforms, public and private. And when you raise that much capital, you're incentivized, I think, to deploy that capital and to grow AUM and that was my comment about decoupling of performance in a lending environment. So that's one where I think we'll just continue to be conservative. Public sector, we see good opportunities. More broadly, not just in Austria but across kind of the core markets that we're in. And then commercial real estate, which is really residential in one form or another. Industrial logistics also to a certain extent, but it's been really focused on residential. That has been robust and we see a good pipeline on the back of a strong fourth quarter. So when you put all of that together, Hugo, that I think, gives you a good perspective and why the team, we feel pretty confident. We usually don't give loan volume targets but this is 1 to 2 points above kind of blended GDP growth in the markets that we're in, which translates to about 3% to 4% loan growth. And hopefully, we'll be able to execute and hopefully even over-deliver.
Enver Sirucic: I think there was a question on the contribution of the deposit hedge to the overall NOI and the trends. We try to provide the details on that target page, but probably I would phrase it is -- if you think about 2026, we are saying the NII will grow by more than 6%. And if you want to break it down by asset or loan growth on the one side and the liability side on the other side, I would probably say 2/3 is coming from loan growth and asset margin improvement and 1/3 is coming from the deposit side. So if you like, 2 points around about deposits and 4 points plus is on the asset side. And I would assume a very similar trend for the other years. Obviously, there's always some nuance to that. But directionally, this is the formula for the NII growth in '26 and the other years.
Operator: The question comes from the line of Jeremy Sigee from BNP Paribas.
Jeremy Sigee: You've got about EUR 0.5 billion surplus capital as of now with the pro forma numbers. Just continuing the discussion about capital deployment and investment opportunities, could you talk about your attitude to -- so I mean, you could already afford to do another Knab or Barclays Germany. But could you talk about your attitude to potentially larger transactions if something came up in the EUR 1 billion, EUR 2 billion range. Would that be manageable? How would you see the risk reward? And what would be your attitude to potential share issuance or other financing options for that?
Anas Abuzaakouk: Thanks, Jeremy. Good question. I would say, look, if you look at our history of deals that we've done, 14 acquisitions, right, and that's some portfolios as well. It's ranged from as small as EUR 0.5 billion to as large as almost EUR 20 billion we do not discriminate in terms of size. I would say the one thing that we're probably more sensitive to now given just the position of the franchise is a small deal takes as much time as a large deal. So we have no aversion towards going after larger deals, and that varies in size. I think you mentioned EUR 1 billion to EUR 2 billion in terms of acquisition price. I wouldn't even look at it through that lens. I think from our standpoint, when you look at it through [indiscernible] can we actually create value when we think about what makes BAWAG unique in terms of our culture, our focus on operational excellence, managing the balance sheet, focusing on conservative markets. I think 50% of our balance sheet today is in -- our customer loans is in mortgages. We have a -- how much can you lose as opposed to how much can you make the type mindset when we think about risk management. And all of that kind of factors into our overall decision. And I would say an important intangible element is do we have the bandwidth and I kind of alluded to it during the presentation, which was I think we have a deep bench of senior leaders. We'vd worked together for over a decade. And I think we have the bandwidth to be able to take on larger acquisitions. And given that the 2 acquisitions are largely complete, Knab and Barclays Consumer Bank Europe, I think we have the bandwidth to be able to address larger acquisitions going forward. Was there another question we were seeing? I think that was in the M&A.
Jeremy Sigee: Just about also financing. We just have financing as well. I mean, that would imply if it was bigger than the surplus capital so you had to issue some shares as part of the transaction, what would be your attitude to that?
Anas Abuzaakouk: Jeremy, we're not averse to issuing shares. But if you look again at the 14 deals that we've done, you saw the 2 deals that we did concurrently the more recent ones, we've self-funded everything. We generate over 400 basis points of gross capital through earnings. As you rightly stated, we have about EUR 0.5 billion. We're talking about making almost EUR 1 billion this year. I mean if you kind of put all this stuff together, I think we're in a really fortunate position where we generate a significant amount of capital that to the extent that we can avoid ever diluting shareholders, that's our default position. Yes, we're not [indiscernible]
Operator: The next question comes from the line of Borja Ramirez from Citi.
Borja Ramirez Segura: A couple of questions on the NII, please. So the NII guidance includes 6% annual growth includes 4% from the asset side and on the deposit side, if I understood. From the asset side, are you assuming any redeployment of your excess cash into bonds in your target? And then on the deposit side, are you assuming deposit beta remains stable? And also, could you please remind me the notional and the yield of the hedge and the duration, please?
Enver Sirucic: So Borja, I think it's easy to answer. Yes, the split is plus 4% and plus 2%, as I mentioned previously. We do not assume any redeployment of the excess cash into bond investments. So that's not in our numbers. We'd like to do, yes, we have a lot of excess cash to deploy. But if you look at the current market trends, we do not expect any widening of the credit spreads at the current stage. I think the other question was around the structure of the deposit hedge, I guess. So 40% of our nonmaturity deposits, so which oscillates between EUR 35 billion and EUR 40 billion. So 40% of that directionally, we put on a structured hedge, which is 10 years rolling monthly. So on average duration, you have 5 years on that part. And that's the main driver then for the NII uptick in the outer years.
Operator: Your next question comes from the line of Amit Ranjan.
Amit Ranjan: The first one is on the slide on AI, Slide 7. How should we think about the investments versus the savings? Are these gross cost savings initiatives, which are then invested in the business? And at one point, midterm, we should think about some net cost savings from this?
Anas Abuzaakouk: Amit, good question. The way you should think about the AI is, look, AI is built into kind of our technological transformation. It's just one component of many components. If you're asking specifically around where is the cost out, it's -- everything is within kind of the mixture of under 33%. And I'd mentioned also like the -- through-the-cycle targets, those are more floors and obviously, hopefully, we look to overdeliver. But for us, AI in terms of like reinvestments, we've continuously made technology investments over the years. It's not a one thing comes out and one thing goes up. We look at it at a macro level in terms of are we making the right technology investments? Are we building up our tech ops capabilities? And I think that's more was my comment around we will always be best-in-class when it comes to operational excellence as well as efficiency, and that's a true competitive advantage. So we don't go into this kind of change the bank, run the bank. These are like the monikers that we just don't look at it that way, so.
Amit Ranjan: And just one clarification on the NII, are you using the forward curve for '26 and beyond?
Enver Sirucic: Sorry, could you say that again?
Anas Abuzaakouk: Are using the forward curve?
Enver Sirucic: Yes, we always update the numbers based on the most recent forward curve.
Operator: There are no further questions in the queue. I will now hand back to Anas Abuzaakouk for closing remarks.
Anas Abuzaakouk: Thank you, operator. Thanks, everyone, for joining this morning. Sorry for the slight delay to get started, but we look forward to catching up with you during first quarter results. Take care, everybody. Have a nice day.
Operator: This concludes today's conference. Thank you for participating. You may now disconnect.