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Good day, and welcome to the TCS Group Holding PLC First Quarter 2019 IFRS Financial Results Investors Call. Today's conference is being recorded. Presenting on today's call is Oliver Hughes, CEO; Ilya Pisemsky, CFO; Sergei Pirogov, Head of Corporate Finance. At this time, I'd like to turn the conference over to Mr. Oliver Hughes. Please go ahead, sir.
Thank you, and good afternoon, everybody. Today, we'll give you an overview of the group's financial results for the first quarter of 2019. Seeing this is the only the first quarter, we're well on track for our guidance. I'm going to keep my piece brief.While the first quarter is always slow for seasonal reasons, the year is gathering pace on both the credit and fee and commissions fronts. Firstly, the total loan book grew by 19.2% to RUB 279.7 billion. This was a thumping start to the year, with strong growth in both credit cards under the credit business lines, such as personal loans, point-of-sale loans, home equity and car loans. As a result, we brought 1.1 million new customers into the credit portfolio in the first quarter.Our home equity loans and car loans now make up 6.2% of the book at the end of the first quarter. And as you've already gathered, we made almost half of our full year loan growth guidance in just 1 quarter. Secondly, our transactional and servicing business lines posted over RUB 10.8 billion or 32% of total revenue in the first quarter despite the usual post-New Year seasonal low.We have more than 450,000 Tinkoff Business accounts opened by the end of March, and Tinkoff Investments at 450,000 brokerage accounts opened by the end of first quarter, with 300,000 of them opened in just the last 2 quarters alone.We acquired over 600,000 new Tinkoff Black customers in the first quarter, bringing the total number of current account customers to 5.1 million. We continue to actively invest in customer acquisition to grow the Tinkoff ecosystem, and just recently launched another 10% teaser rate campaign to further boost Tinkoff Black customer acquisition.Tinkoff Insurance and Acquiring, both made steady contributions to noncredit revenue, showing RUB 2.3 billion and RUB 1.5 billion, respectively, in the first quarter. The Tinkoff Mortgage platform remains a valuable ecosystem service for our existing customers, although we now know that we'll not be able to produce a meaningful bottom line result from it due to the structure of the market.As a result, the group made a net income of RUB 7.2 billion. This represents a year-on-year increase of 25% and an ROE of 64.4%. As you know from previous years, our quarterly profit generation will pick up over the coming quarters. We're confident that our strong high-quality credit growth and good executional noncredit business lines will take us to our guidance target of at least RUB 35 billion.Touch on the credit environment briefly. We're going through the best phase of the cycle, and while our risk metrics are no longer improving, they've stabilized at current levels, and tight regulation coupled with smart competition sets the stage for longer duration of this phase. We're of course cognizant of the cyclicality of our core credit business lines. And the 1/3 of our revenue stream derived from our noncredit business lines will give our P&L a structural advantage in the next turn of the credit cycle due to their lower volatility.Among other noteworthy events, I'd like to mention Tinkoff built its own supercomputer, the Kolmogorov cluster, as part of our strategy to develop a platform for AI. It will significantly reduce time required for machine learning, data crunching related tasks. We also announced a further expansion and deepening of our long-term management incentive and retention plan, or MLTIP, and welcomed another 10 new participants. As previously announced, the target total size of the MLTIP pool will be nearly 5.6% of the group's current share capital.Tinkoff Mobile continues its expansion and is now available in 53 regions in Russia. Our new co-branded card with Yandex launched in April, offering a cash back of up to 10% for one of its 15 services available through the subscription service Yandex.Plus, such as Music, Drive, Afisha, Taxi and other services.I'm also pleased to announce that Tinkoff returns as a St. Petersburg International Economic Forum general partner for the second year in a row. This time around, our team led by Oleg Tinkov, plans to play an even bigger role in the firm's business and cultural program.On that note, I will hand over to Ilya who will go through the results in detail.
Thank you, Oliver. Let's go to Slide 4. In first quarter of 2019, our assets grew by a healthy pace of almost 9%, maintaining the pace from two previous quarters. So solid growth of gross loan portfolio changed the composition of the assets with the net loan growing to 59% of assets and investments decreasing to 23% of the total.On Slide 5, you can see that the gross loan portfolio increased by 19% or RUB 45 billion. Half of this growth came from the credit card part of the loan book, with 700,000 new credit cards activated. In that a 28% or RUB 12 billion came from personal loans, and 14% or RUB 6 billion from home equity loans, and the rest from point-of-sale and auto loans.We're very pleased with the initial results of the home equity lending pilot. But still have to redirect that it takes time to absorb the risk weightages in this business. As of 1st of April, for example, we have issued 8,500 of these loans, and only 5 of them have gone into 90 days plus delinquency through mid-May.Talking about risks, they were elevated in the first quarter due to seasonality, but were at the same level as in the first quarter of 2018. At the same time, NPL went down significantly to 8.1% on a total basis and below 3% for noncore part of these nonperforming loans. Thanks to the volume of the new vintages.The parameters of issued loans are following: the average limit size of a newly issued credit card is about RUB 57,000, and the average limit across the existing portfolio is RUB 87,000 on average and average balance is RUB 67,000, yield is about 32%, 33%.The average size of our personal loan is RUB 240,000 and duration is 2.53 years, yielding 25%, 26%. Average size of our point-of-sale loan is much low, is RUB 28,000 and duration is 12 months, yielding approximately 25%. Car loan average size is RUB 530,000 and contractual duration is 5 years, yielding about 20%. While the average size of our home equity loan is about RUB 1 million and contractual duration is long as expected to be 10 years, and yield is low as 17%, 18% and LTV is less than 50%.The group's funding strategy can be seen on Slide 7. Total quarterly growth of the group's funding was 7%, and most of the growth came from retail term deposits and wholesale, while our current account balances of our SMEs and retail were flat for seasonal reasons. Nevertheless, customer acquisition in these businesses have not stopped as you will see in the following slides. We entered the repo market to fund the growth of the assets and trimmed our bond portfolio leaner. As already mentioned, we also issued a RUB 10 billion bond with a call option of 3 years and 9.25% coupon rate while cash on these bond physically came in the beginning of April.On Slide 8, you can see that shareholder's equity grew by 11% quarter-on-quarter, while capital adequacy ratio decreased due to the fast growth of assets. Basel III capital adequacy ratio went down to 14%, and statutory total capital adequacy N1.0 to 13%. The step 3 core capital adequacy ratio N1.1 stabilized at 9.5%.Now some comments on our profit and loss statement starting on Slide 9, where we show the distribution of our revenue by major types and the growth dynamics. You can see that total revenue increased 35% year-on-year and 6% quarter-on-quarter.Interest income grew by 29% to RUB 22.8 billion on a year-on-year basis and 10% quarter-on-quarter. This growth corresponded to the growth of the loan book. Gross interest yield on loans decreased to 32.6% due to growth of the non-credit card part of the loan book.Interest expense increased by 26% to RUB 3.4 billion (sic) [ RUB 4.3 billion ] on a year-on-year basis and was flat quarter-on-quarter. Cost of borrowing reduced to 5.3% in the first quarter.On Slide 11, you can see that net interest income grew by 29% year-on-year to RUB 18 billion and 13% quarter-on-quarter. Net interest margin went down 4% year-on-year to 21.5%, and was relatively flat on the first quarter. While our risk-adjusted net interest margin decreased to 15.8% due to risk seasonality effect.It's worth mentioning again that historically, we observed certain seasonality in our cost of risk, where our risk go down in December of each year and climb back up in January, February of the next year as a result of longer holidays and shorter collection periods.Our fee and commission income on Slide 12 grew 34% year-on-year and amounted to RUB 7.8 billion for the first quarter. Quarter-on-quarter, fees were down by RUB 0.5 billion due to the low season for SME and other transactional businesses.Tinkoff Insurance portfolio doubled year-on-year and amounting to RUB 2.3 billion for the first quarter of the year. We observed a good growth dynamic both in credit-related insurance, as the lending business is growing, and in auto insurance, which gives 35% of insurance premiums.Our current account business is growing steadily as we acquire more and more customers, as you can see on Slide 13. At the end of first quarter, we had over 5 million current account customers, with over RUB 130 billion of balances. Seasonal reasons, there was a slight decline in balances and transactions, which caused the fee and commission income also to stay flat, except for the interchange category. It's blue box on the fees chart. Interchange theory is strong net of cash back, and we offered quite generous cash back through our customers during the Christmas and New Year holidays. And later on as well, specifically for cinema tickets and concerts.Our SME business is also growing well, which can be seen on Slide 14, but showed some seasonal decrease in account balances and transaction fees. As at the end of the first quarter, we had 450,000 customers with over RUB 37 billion in balances on accounts. We earned RUB 2 billion in fees in the first quarter, in addition to treasury income. Lending to SMEs is still in the tough mode with only a 1,000 small loans issued and only 20 cases of nonperformance.On Slide 15, you can see operating statistics on Tinkoff Investments. It is a year since we received the brokerage license and have been doing this business in-house. You can see that the number of customers grew five-fold since then to 450,000. The potential for making this business a very solid franchise in terms of fees is there, but right now we are focused on client base growth.Now turning to Slide 17 for some comments on operating expenses, which crosses the RUB 10 billion level in the fourth quarter of last year on the back of increased acquisition expenses and salary review, head office. And stayed there as we kept our acquisition level high. Speaking about our cost-to-income level, total cost-to-income is around 43%, while cost-to-income, excluding acquisition, the yellow line, went below 25%.Overall, we were able to show a quarterly profit of RUB 7.2 billion, which is 25% higher compared to the first quarter profit last year. There was a decrease in net income quarter-on-quarter, which is explained by the usual seasonal effect in credit risk and low season for some fee businesses. Our return on equity is about 46 -- 64%. Our return on assets went down to 7.3% because of the fast growth of the assets there isn't average, in fact.And now back to Oliver.
Thanks, Ilya. So to wrap up our call today, I'd like to confirm our guidance 2019 with just one small refinement to net loan growth. We expect net income to be at least RUB 35 billion, so no change.We expect net loan growth of 40%-plus. It's too early in the year for us to change this guidance because we don't have enough visibility on how the year is going to pan out, but we are signaling here a possible upgrade later in the year to growth guidance by adding a plus sign at this stage. We expect cost of risk to be 6% to 7%, and we expect cost of borrowing about 6% to 7% as well. So no change to last 2 lines.To conclude, I'd like to announce that the group's Board has approved a quarterly gross dividend of $0.17 for quarter 1 based on the company's new dividend policy from the 1st of April 2019.Thanks very much for your attention. And we'd like to take any questions that you have.
[Operator Instructions] We will now take our first question from Elena from BCS Global Markets.
My first question is about your interim growth in credit cards. So there is like very few choice, strong 12% quarter-over-quarter growth, which I think is like highest for several years. So is it mostly driven by the equation tightening which is effective April 2017 or there are some other reasons to why there is a few shortage months there?
Elena, yes, so we had a very strong quarter in terms of credit card growth, you're right. This is less to do with the fact that we have the new risk rates coming in from the 1st of April, and although that is a factor, but it's much more to do the fact that we've been ramping up our customer acquisition on all fronts. And so we've tapped into new scenes of demand. And our multi-channel approach, mainly digital channels, they're giving us very strong inflows of applicants. We've been ramping up new channels for customer acquisition. And so this is more a function of the Tinkoff customer acquisition machine, revving up than is of anything else.
Okay. And I have another question on fees and commission from SMEs. So if you explain there are some less seasonality with outflows with current -- from current account. But just doesn't look there was like previous year situation. So are there any some other reasons of outflows of corporate accounts and decline of SME fees? And what do you expect second quarter this kind of business?
Elena, maybe that I'll answer this question. So it's purely mathematical. So last year, the client base was smaller. So the growth was much faster. I mean average growth for the year. And therefore the -- that was enough to not to fall in fees due to seasonality. This time, we are already -- coming into 2019, we have a higher client base, a big client base, and therefore, it could not offset for the decrease in the activity of the existing SMEs. So they're basically sort of in a sleep mode in January, so therefore there is a decrease. And going forward, we're looking -- we're very optimistic on this business as we always were. So you will see good results from us.
Maybe just to add a little bit more color on SME in general. So as you recall, the last -- the second half of 2018, so a regulatory, let's call it, an attack on small business and some of the malpractice in terms of tax evasion that we're seeing. So it's had an impact on the whole market, also included any other disproportionate impact on micro and small business, which is our main segment in SME as it currently stands in our business line. So there's obviously other bit of an impact on our growth rates, on mostly growth rates and also on our retention rates. That's not why you see this decline in balances from the fourth quarter to the first quarter as Ilya explained of some off seasonal. But it did make a little bit more difficult to grow. That continues market wide. So this if you like cleanup going on. That applies to all players in the market. So it's just a phenomenon everybody has to deal with. We are being busy building out our ecosystem of SME services. Cloud accounting services are going very well. Tax declarations, various web toolkits for small business. And so they're all helping us to acquire and retain and monetize customers. But we've also been doing a lot more in the M space. So let's say, the lower end of medium-size business. So larger small and smaller medium. And we'll be doing a lot more in that area during this year where you have a different profile of customer.
We will now take our next question from Andrzej Nowaczek from HSBC.
Thank you for the presentation. I have a couple of questions on fee income. First, the payment systems fee expense, is this where you book cash backs?
No. It's not, that's what we paid to the international payment systems, or local payment system for using payment networks, so Visa, Master Card, et cetera.
Sure, sure.
The cash backs are netted with interchange.
Okay. But why did the payment system fees increased so much in Q1? There is a huge increase year-on-year. Will that be volume-driven or something else?
That's basically corresponds to the growth of our acquiring business.
Okay. And the second question is on credit protection fees. They were flat year-on-year, any information for it?
Yes. So the credit protection fees are basically split within the bank fees and insurance. So we are -- you can see that the insurance part is growing because last year, we've changed -- our insurance company changed tariff and are giving more protection to the borrowers, including the protection of unemployment. And therefore, that's basically -- that shifted a little bit from the bank side to the insurer side.
Okay. But looking at fee income on a net basis, if you continue offering those generous cash backs, the net fee income growth is going to have to slow compared to previous quarters. Is that a correct assessment of things?
These are one-off. So basically what we did in the ultimate last year was a campaign where we offered 10% on -- which is interest on current account funds for new customers for a certain period of time, basically teaser rate as opposed to the usual 6%, and additional cash backs, particularly related to promoting our lifestyle services. So for example, cinema tickets, theater that kind of stuff in the mobile app. So these are one-offs. So when we're doing a big promotion, a big push to get customers on to these services, so either into the Tinkoff ecosystem as a current account customer to whom we then cross-sell all those stuff. Or once an existing current account customer in order to get them to use services in the mobile app, we're doing these promotions, teasers with additional cash back kicker for them. So these are things that show up on a month-by-month basis, but it's not something that has a longer term effect on our fee income generation capacity.
We will now take our next question from Andrew Keeley from Sberbank.
A couple of questions. On your loans, -- can you hear me?
Yes. Hi, Andrew.
Yes, on your loan view, the drop was quite strong in the first quarter, I think, about 150 bps. Obviously in quite a -- to quite a large degree, I guess, from the kind of changing, the trough changing kind of mainly. I'm just wondering, whether it's kind of level causing decline, I mean, is it more or less what you would have been expecting? And do you think that this kind of pace of decline [Technical Difficulty] is the same that what you would think, whether any particular reason why it's been down quite strongly in the first quarter?
Yes. I'll take this one. You're absolutely right that it's change of the product mix causing our yield to go down to this extent that you see. So the yield on credit cards did not change from the previous quarter. Well, when we talk about the expectancy of this decline, we, of course, are cautious on the growth of lower yielding home equity loans. But they came out strong. And therefore, we're very pleased with the results regardless of the fact that when you average the yield on these part of our loan portfolio with credit cards with other parts of loan portfolio, it gives a decline in trend in gross yields. So it's, again, I have to reiterate that it's not that important because over the lifetime of the loan, we are, of course, getting much more in -- hopefully because it still have to be proved on the risk side. But hopefully, we're getting much more on NPV basis than from a credit card loan, single loan, which is -- gives a higher yield but have shorter duration and uncomparably higher cost of acquisition and service. And the important thing here is that our net interest yield after loan loss provisions is -- will be more stable. It went down a little bit for seasonal reasons, but still it will be more stable. But again, there is a story, which is difficult to show in the framework of the presentation, where basically the other costs of this business, which are equally important like servicing and acquisition over these type of -- types of loan are relatively lower. So again, let's say that on an NPV basis, we are winning regardless of the drop in gross yield.
Okay. Ilya, and then I guess on the other side of the balance sheet, the funding cost seems to me to come in quite a bit below expectation. And some way below where you're guiding for the year. Just wondering, if you could give a little bit color on either why there was such a sharp decline in the first quarter? And you see the outlook on the funding cost side in the next couple of quarters maybe what you are thinking in terms to your interest rates, good to know.
Andrew, there were some tactical things. Now, for example, we tapped the repo market. And the repo is a cheap source of funds. That's one thing. Another thing is that we thought that we'll get the wholesale piece of our funding a little bit earlier. It's not in the books at 1st of April. So that schematically changes things a little bit. But we still want to reiterate our guidance on cost of funds because we will be opportunistically looking into the debt capital market, for example. And we don't know what the Central Bank will do with the rate and how it will affect deposit rates. Because you saw that the banks were increasing deposit rates recently.
So maybe just to shore up what Ilya has just said. We gave guidance of 6% to 7% for our cost of borrowing for the year. And we still -- we reconfirm our guidance. And so on the one hand you have a dilution happening because of the increasing share of current account funding from SME accounts and from individual current accounts, which brings down the cost of funds on the one hand because that brings down the blended rate, obviously. But on the other hand, we're going to be doing more on the capital markets side. So we did a Ruble bond of RUB 10 billion, initially I referred to. The cash came in April. It didn't fall in the first quarter results. And we're looking at other stuff, maybe even a Eurobond, which would increase our cost of funding annually. So these will balance each other out. And as we say, we believe we'll be in the corridor of 6% to 7%. So why we're doing this? We want to balance our fundings. So we got the short-dated stuff, which goes into fund short-dated assets. So these are either short-dated loans. So it could be point-of-sale loans or transactional customers in the credit card book, for example, or treasury.And on the other side, we've got now longer loans, which we didn't have a few years ago. So we have got cash loans; personal loans, which are 2.5 years average duration give or take; we got home equity loans, which tend to be 5 to 10 years; we got car loans, which are 3 to 5 years. And they're taking up an increasing share of our asset side. And so in order to maintain our match, we're going to be doing longer dating fund -- longer dated funding as well in addition to the deposits which we have. So deposits tend to be annual, and the Eurobonds, Ruble bonds will have obviously 3 to 5 years.
That's very helpful. Oliver, and just finally, a quick question on your loan growth. Just wondering if you could tell us a little bit about how your approval rate has been changing, I mean, given this kind of phenomenal pace of growth. And now you're basically taking on more risk increasing your approval rates. And I think you said your approval rates from a credit cards before, but can you give us any comments on [Technical Difficulty] that's offered in other products segment that would be helpful.
Sure. So we have obviously a very dynamic situation. So I want to footnote my comment before I answer your question by saying that we have new channels coming on board, some channels basically wear out or come to the end of their lifespan, other channels are in test. Other channels were ramping up. And so in terms of acquisition channels, we've always got a lot going on, and a lot to test happening as a result our first payment, second payment defaults move around not just month-by-month or quarter-by-quarter, but weekly as well. In terms of approval rates and using that as a window on our risk appetite, so we did make a few tweaks over the last couple of years. Yes, we went into ramp-up mode and as we started acquiring more and more customers. I'm talking more specifically about credit cards and personal loan say and less about the new stuff, which is in pilot. But we kept our cutoffs and our risk policy pretty stable. And we always said that you would see lead indicators move once things start to change in the external environment. So when there was less competition, our customers were deleveraging. That was one situation that was what we saw a couple of years ago, obviously in terms of where we are on cycle. We believe we're around kind of mid-cycle now. As I made -- referred to in my comments during my opening speech, which means that you won't risk numbers improving. But you are seeing a stabilization of all of our numbers, with the exception of approval rate. So approval rates have come down a little bit.So during the bottom of the crisis, it went down to around 12%, 15%. Then once we came out of the crisis, it went up to about 27%, 30%, and then went down to about 25% broadly speaking last year on aggregate. And now, it has come down to about 22%, 20%. So 20% to 22% corridor, which is where we are. So this is kind of like an automatically self-adjusting thing. We have a certain level of cutoff. We have a certain level of an expected NPV. And so we're only brining customers into the portfolio, which meet those requirements. We're not taking on extra risk in order to maintain growth rates. So we retain a very strict underwriting approach. Everything is dictated or let's say subjugated to NPV. And we will continue to grow once we -- as long as we see good quality customers with the right NPV. If we see less then that's automatically dealt with by our approval rate, which is won't bring them into the portfolio. So that's how it works.
We'll now take our next question from Mikhail Shlemov from VTB Capital.
Thank you very much for presentation. I actually wanted to continue to liberate on your loan growth appetite and the growth rates, which you have seen. I remember that for many years you were saying that you actually didn't like the high ticket loan products similar to cash loans or home equity loans, and just like it seems that a very significant chunk of growth is now coming from those products and that would continue to be the case into the remainder of the year. Could you please elaborate on what drivers you saw changing for those products, what that actually made to change your mind in terms of how profitable those products are for you?
Sure. So here you have to do draw a distinction between collateralized and non-collateralized, yes. So if we take out of this picture, out of this part of the discussion collateralized loans, car loans and the home equity loans, which have a very different profile, obviously, different loan size, different duration and different economics. And they are in pilot. We're still testing this. We have more data. We don't have enough data and we certainly don't have enough vintage data to give you any authoritative answers on that. So we're talking about the non-collateralized cash loans basically. So personal and student loans are already a relatively well-established part of our business. That is still relatively small. So we didn't surpass the RUB 50 billion mark until quite recently. But we have been doing a certain amounts of volume. So I'll remind you that a large proportion of that volume is cross-sell to our existing customers in the existing Tinkoff ecosystem. So we have a lot more information on them. We have more information on their salary, their behavioral profile, their transactional profile. And that gives us a lot deeper understanding about those customers in terms of their creditworthiness and their likely behavior in the future. And we have been doing some volume to customers who are new to bank. There we approach our -- the underwriting and risk management in a similar way. So we keep the ticket sizes low. We make sure return, so the average loan size is RUB 220,000, RUB 230,000, which is lower than market. We make sure that these customers are not levered up and don't lever up further down the line. So we look obviously at the detail on the PTI on the veins part of our scoring. And make sure they don't have too many of their loans outstanding. So we're careful about this. We -- our instinct is to prefer lower loan sizes for sure. We haven't departed from that radically, but we like the personal installment loan business that we've been booking. I think, Ilya, do you want to add anything to it?
No. It is the same comments from me.
Thank you, Oliver, for that. Just like -- just if we can take it a little bit more forward and actually, expanding this topic to the whole of the market. You have been hinting out in your opening remarks, the loan growth dynamics which you have been telling is, basically is, weren't a pretty much stronger loan growth volume this year. But if we look at that the other banks performance in the Q1, it seems like that a number of them are also moving significantly ahead of their own business plan. Actually the whole market is moving too much faster. To what extent you think it is general concern in terms of changing consumer leverage on the borrower? And to what extent is the concern of the regulator who has been already worried of the pretty much faster growth in the segment?
So I didn't quite get the second part, the very last part of your question. Sorry, Mikhail.
Sorry, Oliver, I was saying that to what extent you think that also a worry for the regulator that as number of players like yourself are actually becoming more aggressive volumes wise?
Sure. So if you look at the market, different players do different things at different times. And there were a couple of banks who were doing really quite a lot of volume on a monthly basis last year. And this is something that has been pretty well discussed by ourselves with you guys. And so there's -- and so they change over time. But there is a group, let's say, 10 banks or so maybe 8 banks who are pumping out most of that volume. Of those 8 banks also, most of them are state-owned banks. And they are probably doing 70% of the volume in unsecured lending. The number is better than they -- in some areas, we've seen just the first signs of some irrational behavior. We thought maybe that would be, let's say, medium-term feature of the landscape, but those guys seem to cope adjust a little bit over the last few months, which is good. And so we've been seeing fairly strong growth of the market overall, driven by these 8 or 10 players. But there is no major signs of irrational competition, which is very important for us. And irrational competition for us is where customers who have a large number of existing loans or high level of DTI are beginning -- being issued new loans basically, which they're used to service existing loans and build up a personal pyramid. And obviously, we don't like that and that's what led to the blow up in -- to a large degree in 2014.We do not see any changes, generally speaking, in the risk profile of our customers. So yes, leverage is going up. It always is going up on a macro level. It's going up in our customer base obviously for this stage in the cycle. But we're not seeing any deterioration in the risk profile with these customers. And unemployment is at a good level. And the average number, which is bandied around for household incomes, the fact, they've been growing recently, there's probably that's the average. So if you look at different parts of consumer segments across Russia, they're doing different things in different places. So regional customers tend to be not doing as well. Urban customers are doing better, depends on the region in which you live and the city. So we make sure that we're doing more in the cities these days as opposed to the regions where we were doing business before the crisis. And doing more in the mass-affluent segments, the higher income segments.Does this worry the regulator? For sure. So the job, they certainly don't want to see a repeat of 2014 where you have struggling banks on an individual level and problems for the consumer and causing -- whereby causing macro problems for the economy in a wider sense. So that's why they're being very interventionist. The chosen instrument is being risk weights, but have been doing other stuff as well. And as we know, we got the PTI regulation coming in by ground regulation from the 1st of October, then from the 1st of January it will be probably become hard regulation. We're in obviously in close dialogue with the Central Bank and other players about that. So they've been very keen to cool down the market where they can, work with banks individually, work to protect the consumer and make sure that the consumer lending market is overheating.I think you will see the ways of regulation that puts in place over the last 2 years will have an increasing effect, because obviously, there's a lag between introduction of these measures and the actual effect that they have on growth rates and the quality of that growth over time. So we're pretty sanguine about it. The regulator makes concerned noises as they should do from time to time. Let's see how it plays itself out.
Okay. And if there are any updates which you could share in terms of this PTI regulation introduction? If anything new has popped up since the last call?
No. There is no updates. We're basically status quo at the moment. So there's no news on what the actual thresholds will be. There is a lot of work going on behind the scenes in terms of the mechanism for establishing the income of an applicant. The infrastructure that's available in terms of access to databases and credit bureau, et cetera, et cetera. So there's a lot of stuff going on in terms of -- in a logistical sense, but there is no news to communicate to you guys.
[Operator Instructions] We will now take our next question from Andrey Pavlov-Rusinov from Goldman Sachs.
It's Andrey Pavlov-Rusinov from Goldman. Thanks for the presentation. I have got several questions. Maybe first of all, just on follow-up on the loan growth that was pretty strong during the first quarter. Basically, you've already discussed about where it was coming from and it was more of a customer acquisition. But if you could just share a bit more color on how are these customers looking relative to your legacy credit card portfolio? Are they basically better in terms of the PTIs or DTIs or a bit worse? And also are you feeling like you are winning from the competition in this particular borrowers? Or are you just basically leveraging them together with some other competitors?
Maybe I'll answer that. So in the new segment, the customers, those that we usually refer as mass-affluent segment. So they have a higher monthly income as a typical credit card customer. And they basically are in the same category as our older lines credit card customer, our premium segment. They are in the same trenches with our Tinkoff Black customers. And it goes for both personal loans and home equity loans. As for the credit card customer, our main segment platinum credit card. These are still mass market. There is not much of a change there. So its monthly income is on average 2x lower than mass-affluent. So just over RUB 50,000. And it was more or less the same at the end of last year. But, of course, over recent few years, it has increased. So this is higher than average across the country. So there is also a positive selection there. And as you know, positive selection in mass business comes from big volumes, from the wide acquisition funnel. So no surprise here.
And in terms of leverage of customers when they're in our portfolio. So before they come into our portfolio, obviously, they will be screened out by our underwriting algorithms when we check them in the bureau. So obviously, there is all the usual behavior and financial information that we get as part of our underwriting verification that we do. But we also check in the credit bureau and if we see, have a high level of leverage, all problems with payments or servicing debt with other institutions then obviously we either park them or we decline them. Once they're in the portfolio, we do what we call behavioral scoring. We run them through a bureau on a regular basis and certainly before we give them a credit line increase. And if they've levered up, then they won't get a credit line increase. So we bring them into our portfolio on lower -- on a lower limit as possible. And before we build the balance through a credit line increase program, we'll run them through the bureau. If there is any problems, then we believe that not give them a credit line increase or we'll reduce their credit line. So it's basically the same know-how and approach that we've been using since time immemorial in order to manage their risks that you're talking about.
That's pretty helpful. And then my next question is about your secured loan portfolio, basically home equity loans. Essentially, you already said that they are still in a test mode, in a pilot mode. But at the same time, you've been adding quite strongly in terms of the portfolio like RUB 6 billion net increase in this portfolio during the first quarter. So should we expect a similar pace on a quarterly basis to essentially your kind of flow this through in a test and learn mode and then maybe some acceleration. So kind of essentially should this portfolio exhibit still quite strong growth on a quarterly basis throughout the year?
Sure. So you'll see strong quarterly growth for sure. And there's 3 different reasons for this. The first is that we need to get the product fine-tuned. We need to get the technology, the onboarding process, our integration with Goodman services such our SLAs and all the rest of it. We need to get that finally honed. And in order to do that we need volume. So it's basically like greasing the wheels of the machine. Yes, so you need to pull-through volume in order to get the whole machine working. Once the machine is purring, then you get all sorts of beneficial side effects because you start attracting better customers, you get positive selection. You get high NPS, which serves as a recommendation instrument and then it drives better risk in the longer run, number one. Number two, it's a sub fact of life in lending that you need to issue to lose and you need to lose to learn. And unfortunately, we're not losing much on this product line because it's, a, long product. And so it's a long incubation period. And b, people don't tend to default when it's flattened while it's collateral. Certainly, it's a very different beast to uncollateralized loans as you can imagine. And so we need to do more volume in order to lose loans in order to go through the full cycle through all delinquency stages than into collections, than into legal enforcement, et cetera. And there's a number of very good reasons we need to do that, not least of all in order to collect data in order to build the scoring models.And the third reason is that it's a blue ocean. So there are products out there, there are banks doing this, there's some volume being done now, but it's still very much scratching the surface. And we believe this is going to be a very strong market. And so we need to be a player. In order to be a player, we need volume. So you will see us growing that volume for sure. But we are in pilot phase, we have to be carefully really to take that.
Yes, just maybe to add a little bit of math to that. So you see our -- as I said, our average size is RUB 1 million. And basically it's only about 2,000 loans, 2,000 new customers a month. So by our standard, these are not big volumes. They might seem big in terms of rubles, but again, with an LTV of at least 50%, it's -- we are playing on the safe side. And as Oliver rightly had mentioned, we need to see some NPLs here just to basically to test the full cycle of -- life cycle of these loans.
It's again pretty helpful. My next question is about some kind of flow up on the yields front, essentially on the new products, relatively new products. Like on the cash loans, your yields have been staying for about -- at about 20%, 21% on average for about several quarters in a row. At the same time, you mentioned that your rates there are about a bit higher like 25%, 26%. So do you expect the yields there to go up or essentially there are just some difference with your front rates and what we're seeing in the overall portfolio? And also similar on the new products, like car loans and home equity loans, the yields there are also a bit lower than what you mentioned, but I guess, maybe it's because of just the balance is not yet relevant for calculation of the yields?
Well, for the personal loans, there are -- of course, different things are playing here. So a lot of them is when the portfolio grows, the mathematical yields falls behind a little bit. Second thing is, there is full focus of credit as you guys will know, and there is a total gross yield. So there is a little bit of a difference there as well. And of course, the range is wider. So I'm saying it's 25%, but it could be wider. And we, of course, price for the risks, we give different tariffs to different customers.
I'm sorry, your second question, Andrey?
Was regarding the car loans and secured loans, the yields there also are a bit lower. But I guess, this might be the reason just way of clearing new product.
Yes, it is new and they are growing faster.
Exactly. So it's partially growth and partially just the difference between PSK and gross yield.
But on the -- say on the cash loans and installment loans, the yields are more or less stabilized now, right? Or there could be some variation going forward?
Well, on cash loans, more or less stabilized. But we do things we do test -- our goal, obviously, longer term is to make sure we're pricing correctly for risk, as this goes back to the Mikhail's question about our instinct to have lower amount loans, lower small ticket loans, which is why we like credit cards because credit cards have a -- gives us smaller exposure on these customers, but they also give us a high yield, which means you will never go into a negative jaw territory, which is why everybody else went into consumer lending in 2014, 2015. We've cut with personal loans, you have less flexibility. And obviously the loan size has to be a bit higher because people don't need RUB 30,000, RUB 50,000. They need a RUB 100,000, RUB 150,000, RUB 200,000, maybe more thousand rubles, but you have to price for that risk, you have to price appropriately. So you never want a portfolio which is going dip into a territory. So we're doing all sorts of stuff in terms of testing new tariff plans, new combinations, new approaches, which means that your numbers do move around some times.
As we have no further questions in the queue, I'd like to turn the call back for any additional or closing remarks.
I think that's it. Thank you very much indeed for your engagement, your questions and your support. Have a good day. Bye now.
Thank you. That will conclude conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.