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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the 2Q 2018 IFRS Financial Results Investor Call. [Operator Instructions]I would now like to hand the conference over to your speakers today, Oliver Hughes, CEO; Ilya Pisemsky, CFO; and Sergei Pirogov, Head of Corporate Finance. Oliver, please go ahead.
Thank you, and good afternoon to everybody. Today, I'm going to present the group's financial results for the second quarter and the first half of 2018. 2018 will be a year of evolution, as we have new services to our core credit and fee and commission income businesses to move beyond the scope of services usually associated with banks. We call this lifestyle banking. Each of these 3 elements, consumer lending, fee and commission businesses and lifestyle services are fundamentally important to growth of the Tinkoff ecosystem.I'll therefore start with a brief update of significant business developments in these areas, and then Ilya will give you more details on the financial results in his presentation.Our credit business lines are growing steadily and continue to be a major revenue growth driver. In the first half of the year, total credit portfolio grew by 13.7% to RUB 189.5 billion. We continue to expand our credit product range to better cater to the needs of our broader customer base. As a result, the share of cash and points of sale loans is increasing steadily and has now reached 13% of the total loan book. The cash loan portfolio, mainly sold to existing customers, will be well over RUB 20 billion by the end of the year. The tests of home equity loans and car loans that we announced earlier this year are underway. We'll have more color to share with you by the end of this year. Meanwhile, in the existing portfolio, the credit card book, asset quality remains very good, with cost of risk down to 6.6% in the second quarter from 7.5% in the previous quarter. Cost of borrowing further improved to 6.3% in the second quarter. This all means that the economics of our growing credit business are right where we want them to be.Our transactional and servicing business lines are growing nicely and brought a solid RUB 14.19 billion -- sorry, let me start this again, RUB 14.9 billion or 29% total revenue in the first half of the year. Tinkoff Black, Tinkoff Business and Tinkoff Insurance are the main drivers of this growth with acquiring Tinkoff Mortgage and Tinkoff Investments also making a mark. There was plenty of news on these business lines in the first half of the year. In May, Tinkoff Business concluded a partnership with states owned SME Bank for lending to Tinkoff small business customers, thus basically using SME Bank's balance sheet. And just a month ago, we announced our own small business lending solution deploying Tinkoff's own balance sheet. By the end of June, our SME customer base booked over 304,000 accounts opened. This is a great result, but the competition is by no means asleep and the regulator is stepping up his activity in this space.Since the launch of our own brokerage platform in May, Tinkoff Investments added 24,000 new accounts in the second quarter, thereby doubling its monthly growth rate by a number of accounts as we started to actively advertise for the first time. We're proud with our achievements in this area. We're acknowledged by experts from Global Finance when they recognized Tinkoff Investments as the best investment service in Central and Eastern Europe. At the end of June, the Tinkoff Black business line had 3.5 million accounts opened. We continue to ramp up Tinkoff Black as a major source of new customers into our ecosystem. We now have a rate of over 120,000 new Tinkoff Black cards per month. This drives our volume growth, where we're now a top 4 Mastercard player by card spend and growing rapidly. It's also worth noting that we're #2 in Russia by share of contactless payments.Another award from Global Finance went to Tinkoff Mortgage for the best digital mortgage service in Central and Eastern Europe. Our mortgage platform is gradually becoming a one-stop shop, not only for homebuyers and mortgage lenders, but also property developers, realty agencies and classifieds. We're now originating comfortably over RUB 2 billion per month through this platform for our partners. Tinkoff Insurance and Tinkoff Acquiring performed very well, making a steady contribution to non-credit revenue with RUB 1.4 billion and RUB 1.0 billion, respectively, in the second quarter.As I just mentioned, we believe that customer experience is the cornerstone of Tinkoff's success and is one of the things that differentiates us from the competition. However, these days, customer experience is not just about service and interface, it's also about providing a wider range of services in one place and the ability to switch between those services with minimum friction. This enables us to attract more customers and extend the lifetime value of existing loans.In this regard, I'm pleased to announce that in July, we acquired a stake in Kassir.ru, Russia's biggest online ticket company. Kassir now adds significantly to Tinkoff's growing suite of digital lifestyle services, encompassing restaurant bookings, travel, mobile services and content. Another noteworthy event in July was the launch of a joint initiative with Sberbank to allow our customers to make P2P money transfers using a mobile phone number. To do this, Sberbank integrated Tinkoff into its mobile app and vice versa.While the credit business revenue growth was relatively flat from the first quarter to the second quarter, for reasons that Ilya will explain in a minute, the growing contribution of our non-credit business lines to our performance enabled the group to grow its net income for the first half of 2018 to RUB 11.7 billion. This represents a year-on-year increase of 55% and an ROE of 69.3%.There is still much to do, as we execute on our plan in a slightly tougher business environment, but the year is panning out well.On that note, I'll hand over to Ilya, who'll go through the results in detail.
Thank you, Oliver. Hello, everyone. As you can see, on Slide 4, in the second quarter of 2018, our assets grew by 8% due to 2 things: strong net credit portfolio growth in the amount of RUB 12 billion; and increasing liquid assets, which includes cash, cash equivalents and investment portfolio in the amount of RUB 9 million. The composition of assets did not change from the end of the previous quarter, with the net credit portfolio representing 53% of total assets. Net loans increased by 9% during the quarter and by 17% during the first half of the year and amounted to RUB 152 billion.Moving to Slide 5. Our gross retail loan book added 7.4% in the second quarter and 13.7% year-to-date, adjusted for IFRS 9. This time, growth comes not so much from the credit card portfolio, which added RUB 4.8 billion, but more from the increase in the cash loan portfolio, which added RUB 6.9 billion and represented around 10% of total assets -- of total loans. We issued 43,000 cash loans, mostly through cross sell to our existing customers, with an average size of RUB 220,000 and an average tenure of 2 years.Going back to credit card, we issued 500,000 credit cards during the second quarter, with an average limit of RUB 44,000, of which 368,000 cards were activated. In the first half of 2018, the issuance and activation business line was a similar period last year. With the addition of POS lending car loans, where we are already getting some traction and other tests, such as home equity and this new lending, we believe we will be comfortably fulfill our goal of 25% plus net portfolio growth in 2018.The NPL ratio reduced from 13.4% at 1st of January to 12.1% on 1st of July. Loan loss provision coverage stayed at over 100 -- 1.6x nonperforming loans. And please bear in mind that 8.4% of NPLs are loans in courts. Without this portfolio, our NPLs would be less than 4% of the total book.The quality of our portfolio is shown on Slide 6 in great detail in accordance with the new IFRS 9 methodology. You can see that the current portion of the loan portfolio in first stage dominates the overall portfolio and grew in the first half from 77% to 79%, simultaneously with the reduction of the more problematic second and third stage loans.The group's funding structure can be seen on Slide 8 (sic) [ Slide 7 ]. Individual customer accounts increased by 13% quarter-on-quarter, with both current accounts and deposits showing strong growth. SME customer accounts increased by almost 19% from year-end after a seasonal slowdown in the first quarter as we continue to actually acquire SME customers. In the second quarter, we fully repaid our Tier 2 subordinated debt issued back in 2012. The total amount of this was $200 million, but we -- in reality, over half of it was returned just a year ago.On Slide 9 (sic) [ Slide 8 ], you can see that shareholders' equity stayed flat in the second quarter in the amount of RUB 34.7 billion. There were 2 reasons for our equity not showing growth despite solid profile build-out. First the repurchase of some GDRs of the market in order to prefund our long-term equity incentive program in the amount of RUB 1.9 billion and some negative regulation of the securities portfolio held available-for-sale in the amount of RUB 1.6 billion.Our Basel ratios went down 0.5 percentage points to 16.5%. As for the statutory capital adequacy ratios, they moved in different directions and 1 went down a bit, but stayed above 16%, while -- and 1 went up to 11.4%.Now some comments on our profit and loss statement beginning on Slide 10 (sic) [ Slide 9 ]. Compared to the first half of 2017, revenue grew 49% to RUB 51.6 billion, while the share of interest income from the loan portfolio went down in the revenue composition from 82% to 71%. This trajectory will continue into the second half of the year. Interest income for the first half of 2018 grew by 32% year-on-year to RUB 35.7 billion. This growth corresponded to the growth in the loan book and securities portfolio. Gross interest yield on the credit portfolio went down from 39% -- 40% a year ago to 36% due to 2 main reasons: one is a change in the loan portfolio composition to less yield and less risky cash and POS loans; while another is taking place in the credit subportfolio -- credit card subportfolio. And it is, A, changing behavior of customer, while more transact, less borrowings and preserving less cash; B, customers are being more disciplined and paying less penalty; and C, the repricing that we did a year ago had finally played out in the yield dynamics. As a result, interest income remained relatively flat quarter-on-quarter this year due to the factors already mentioned, but restarted its growth in the third quarter, which we see from July, of 36%. The cost of borrowing is going down along with the gross yield from 8% a year ago to 6.3%, as we have more and more cheap funding from retail and SME current accounts. Interest expense for the first half of 2018 grew by 17% year-on-year to RUB 7 billion.On Slide 12 (sic) [ Slide 11 ], you can see that net interest income grew by 36% in the first half to RUB 28.2 billion. Net interest margin went down to 24%. And our risk adjusted net interest margin went down to 18.8% for the second quarter. Our cost of risk went down to 6.6% in the second quarter after the usual seasonal spike in the first quarter and remained flat year-on-year despite the introduction of IFRS 9. Our vintages and customer behavior generally has never been so good.Our fee and commission income on Slide 13 (sic) [ Slide 12 ], doubled year-on-year and amounting to over RUB 12 billion for the first half of 2018. All sources of fee and commission income showed growth, with SME being the most rapidly growing segment. You can see flat numbers in some of the credit-related commissions. This is coming from the reduction of credit protection commission in May as now a bigger portion of it goes directly to Tinkoff Insurance in exchange for better coverage for our customers, including employment protection in certain circumstances. The effect of this shift was RUB 300 million in second quarter of 2018.Now speaking about insurance. On the same slide, you can see that Tinkoff Insurance is also growing very fast, sweeping year-on-year, both in total premiums and in auto insurance. Auto insurance alone is a breakeven, and we expect it to contribute positively to the bottom line in 2019.Our current account business is evolving at a pace as we acquire more and more customers, as you can see on Slide 14 (sic) [ Slide 13 ]. At the end of first half 2018, we had about 3.5 million current accounts opened, with almost RUB 93 billion of balances. The continuous growth of customers and balances allowed us to build up fee income, which amounted to RUB 2.7 billion in the first half of 2018, net of cash back paid to customers. The current account business is hovering around breakeven taking into account positive margin contribution from our treasury portfolio into which we deploy cash that customers hold on their accounts. Subsequently to the end of second quarter, we reduced our rate on savings accounts from 6% to 5%. And so far, we do not see any reduction in debit card issuance, which was about 130,000 cards in July. Our SME business is developing rapidly, which can be seen on Slide 15 (sic) [ Slide 14 ]. As of the end of the first half, we had 340,000 accounts, with almost RUB 29 billion in balances. In the absence of a credit component in the SME business, all the cash was deployed into treasury operations. We earned more than RUB 3 billion in fees in the first half of the year, in addition to treasury income. And recently, we launched a series of credit in SME. We continue to develop our mortgage broker platform. At the end of first half of 2018, we had 11 partner banks and originated around RUB 10 billion of mortgage loans through the platform in the first half of the year. The bottom line contribution from Tinkoff Mortgage was a small minus in both of the quarters of the year, in the first quarter due to seasonality, and in the second quarter due to the serious ramp up of the business. We are expecting the mortgage business to be above 0 in second half of the year.On Slide 17 (sic) [ Slide 16 ], you can see some operating statistics on our service Tinkoff Investments, which is now on our own platform and brokerage licenses starting from April. We see strong customer interest in this product, which plays out in growing number of customers, which is now over 116,000 people at the end of the first half. We gave our customers introductory rate in May/June, which helped to migrate them from BCS. You can see on the chart on the right that it reduced our commission, which did not grow quarter-on-quarter despite growing deal volumes. But this tendency will be reversed in the third quarter of the year, as we return our normal commissions after the end of the customer migration process. Tinkoff Investments expectedly went below breakeven during the second quarter, but hopefully, for a very short time. Similar to other businesses, we have a lot to do to enhance our product range and profitability. One of the cool features we are testing right now is robo-advising, and another is personal managers for wealthy customers and some other initiatives are underway.Now turning to Slide 18 (sic) [ Slide 17 ] for some comments on operating expenses. In the second half of the year, expenses grew significantly, as we were ramping up our marketing activity and hiring a lot of people, both in the headquarters and in operating divisions. Since then, for the last 3 quarters, we are able to hold the growth of our cost -- costs with total quarterly admin expenses flat at around RUB 8.2 billion, RUB 8.6 billion. There is still a 53% growth in costs year-on-year from RUB 11 billion to RUB 16.9 billion. The cost-to-income ratio is more or less flat between 42% and 43% year-on-year. We are working on ways to reduce these costs. Certain businesses contribute differently to the cost-to-income ratio, with credit businesses being well below 40% and transactional businesses above 40%. Growth of such businesses from low base outpaces the grow of the credit business and puts additional pressure on the cost-to-income ratio. For example, cost to income in the current account business is somewhere over 100%, while its cost now gives 12% of total costs of the group. Similar situation is in the mortgage business. All that said, our ambition is to bring our cost-to-income ratio to below 40% in the next few quarters.Overall, we were able to show a quarterly profit of RUB 6 billion and almost RUB 12 billion for the first half of the year, which is 55% growth year-on-year. Our return on equity increased over 69%, as total equity did not grow in the second quarter of the year. This, again, allows us to distribute part of our retained earnings according to our dividend guidance.Now back to Oliver.
Thanks, Ilya. So in conclusion, a couple of words on recent moves by the regulator on the current market volatility. The Central Bank recently has come out with 2 major pieces of news. The first relates to implementation of PTI, or payment to income, regulation, which they've postponed until autumn 2019. The second was another increase in risk weights starting from 1st of September this year. As previously communicated, we estimate the impact of this change on our statutory capital core ratio and we'll want to be around 1.5% by the end of 2019. As usual, this will require some adaptation by us. But we still see this as a medium-term positive because it slows competition in what is once again becoming a more crowded market with some less rational behaviors evident from competitors. Obviously, this call takes place against the backdrop of increased macro uncertainty, driven primarily by the anticipation of steeper sanctions. However, I'd like to assure you that at the moment, we see absolutely no direct impact on Tinkoff operations. The group is on track to deliver its 2018 targets, and I reiterate our guidance for this year. Net income of at least RUB 24 billion, and here, I can add that we're confident of a healthy beat to this guidance. Net loan growth of at least 25%. Cost of risk on an IFRS 9 basis in the 7% area, and cost of borrowing of around 6% to 7%.To wrap up, I'd like to announce that group's board has approved a quarterly gross dividend of $0.24 per GDR or a total of $43.9 million based on the company's existing dividend policy.Thank you very much. And we're happy to move over to questions now.
[Operator Instructions] Our first question comes from Elena Tsareva from BCS Global Markets.
My question is about cost of funding. Given what we hear from other banks, it seems that cost of funding should stop to decelerate -- to decrease than what is shown in your results. So what do you see in terms of deposit rates and cost of funding dynamics so far and for the rest of the year?
I'll probably answer this question. I would agree with other banks in the market who tells you about the cost of funds, which is not going to decrease and will probably stay flat for some period in time. And we see that our -- the deposit rates in the market are not going down anymore. And we are actually going to keep our deposits rate at around the levels where they are right now. But at the same time, total cost of funds will be decreasing for Tinkoff simply for the reason that we are getting more and more funding from Tinkoff Black and especially from SME, where it's significantly lower than the cost of deposits.
Just to answer that maybe, we -- Elena, sorry, just quickly, we're seeing a very strong inflow of deposits, and so we have over liquid situation. And so obviously, we'll see what happens in the market over the next few months, and we know why you're asking the question. But right now, we have a very strong situation in terms of deposit inflows and current account inflows.
And one more question from me on STO. How much of the STO decrease is coming from the new Central Bank regulation, if any?
Where yield decrease then -- you mean the regulation that stepped in April last year?
I mean, the regulation on high-risk weight, which somehow shift rates for...
There were several ways. And I guess, you're talking about the one that happened in April '17. And of course, it's all blended in, but I think it's -- it is approximately 1%, maybe more, 1.5%, let's say like this.
And do you expect more -- sorry, do you expect more to come?
We expect that our gross yield for overall portfolio will be going down in the next upcoming quarters, but the effect coming from Central Bank regulation will be somewhat limited. It will come more from the change of portfolio composition towards less yieldy products.
And also just to add to that, we have the ongoing long-term trend in the changes in behavior of our customers -- our credit card customers, particularly the larger weight now in our existing portfolio of mass-affluent customers who have different transaction rates, different repayment rates. If the repayment rate from our portfolio on a monthly basis, even a few years ago, used to be 13%, now it's nearly 20%. We've got lots -- a lot less cash withdrawals. So these customers have a very different behavioral profile. The more transactional, the less risky, but also less yieldy. So as we've been communicating consistently over the last few years, our yield will go down, the risks go down, the economics stay very solid.
Our next question comes from Ravi Vish from Limiar.
Quick question. The cost of wholesale deposits seem to have ticked up from 9.5% to 10.1% over the quarter. Can you amplify on the reasons for that?
Are you talking about the wholesale debt, i.e., the bond, Ravi -- hi, Ravi, sorry. Are you talking about deposits, retail deposits? Or are you talking about the bond?
I'm talking about the wholesale deposit, cost of borrowing for wholesale on Slide #10 went from 9.5% to 10.1%.
That's a mathematical effect. Basically, it -- the cost of wholesale includes interest on the old subordinated debt that we repaid in June. But as we repaid it, it basically decreased the denominator in the formula. So it's not in the balances, but is in the costs. So it's technical.
Okay. All right.
Ravi, just to reiterate, we do not attract wholesale deposits. So the number you see on that slide refers solely to the eurobonds, dollar denominated eurobonds.
[Operator Instructions] Our next question comes from Mikhail Ganelin from Aton.
I have 1 question regarding your cost of risk expectations. As I understand, you expect the same cost of risk in the second half of this year around 7%. At the same time, we see that in general situation, the requirement is going worse, bonds are going down. And am I right that according to IFRS 9, you have to act proactive in creating your provisions. So what's [Technical Difficulty] or not? So do you see the risk that cost of risk may be higher in the second half?
So we'll break -- thanks, Mikhail. We'll break our answer down into 2 parts. I'll take the first and Ilya will take the second on IFRS 9 and how it behaves. So we do indeed reiterate our expectation that they will be in the 7% area for cost of risk across the whole portfolio for the year. We don't see contrary to maybe some of the headlines scares and some of the things that you're seeing and maybe the -- some, let's say, leading indicators, bond markets and what not, we don't see anything changing fundamentally in consumer. So consumer behavior hasn't changed one iota. Unemployment hasn't deteriorated, so employment levels haven't degraded. Repayments and customer behavior in terms of delinquencies hasn't changed at all. If anything, our delinquency rates are still ticking down ever so slightly. All of our leading indicators in terms of risk, first payment default, second payment default, delinquency rates, collections rates, they're all excellent. We're not seeing any change anywhere. So obviously, there is lots of headlines and speculation flying around. But in terms of the business fundamentals, we haven't seen any move whatsoever. Now handing over to Ilya for the technical piece of the answer.
Right. The IFRS 9 is somewhat uncharted area. And of course, worsening economic situation may play out in some increase in cost of risk simply for -- because we have to account for macro factors in our model. But at the same time, we know that we, right now, issuing cash loans and POS loans, which are generally less risker than credit cards, which may drag us in opposite direction towards the reduction in cost of risk. We also know that fourth quarter is usually seasonally better cost of risk -- best cost of risk in the year, so it could generally move in -- a notch in every direction. And therefore, we think that the current situation is the best predictor of the risk for the year. That's why we're guiding for around 7%.
Okay. And my second question is about your mobile business. How is it doing? Could you give us some picture?
Yes, yes. So Tinkoff Mobile, we haven't actually mentioned much in our presentation materials is true. So we built the platform. The guys in the Tinkoff Mobile team did a great job of building it quickly and launching. That happened at the back end of last year. We started bringing on board our first real market customers from basically end of December/January. We now have, if I'm not mistaken, around 60,000 customers, live customers, and it's growing in some channels quite quickly, so we're ramping up. At the moment, we're still very much in pilot phase insofar as we don't have anything particularly to talk about regarding economics because we're still seeing the vintages is almost like credit cards. The behavioral patterns of customers only settle down over a period of time. It depends on the channel, it depends on the segment that we going to. So it's very difficult to give you some kind of meaningful numbers at this stage. By the end of the year, we'll have more to talk about. But just to reiterate kind of high level. This is a very important ecosystem product. We believe that lending products, financial services in terms of current accounts, small business, investments, lifestyle services and mobile services are very important and they fit very well nicely together. So we see this as an important part of the ecosystem going forward. In terms of the underlying business and the business metrics, we believe that this is a long-term project. It's not going to breakeven in a year or 2 as you see with other business lines. This is a 3, 4-year horizon. So when we have more details to release, then we will.
The next question comes from Andrey Pavlov-Rusinov from Goldman Sachs.
I've got several questions. Probably, the first one is a follow-up on the -- on your loan yield dynamics. Basically, first of all, I just would like to understand better why the decline in the yield on credit card was such a strong -- there was such a strong decline in the second quarter, particularly given that the regulator changes actually happened and your tariff changes as a response to those happened a year ago? And also, on just net debt, basically, we have seen that the cash yield on your cash loans have actually increased in the second quarter. And I don't know whether it was a part of the -- part of the reason was in the high growth during the quarter or that you have changed your tariffs or anything like that? And also would be -- just help me to understand the profile of your cash loan customers.
Okay. So the answer on first one is, well, as you probably remember during my previous calls, for example, a year ago, half year ago, we were talking about fast growth of the portfolio, which masks the reduction of the gross yield in credit cards because newly acquired customers, they're usually more yieldy than our old seasoned portfolio. And as the speed of growth in credit card portfolio reduced in second quarter of 2018, you basically -- you saw the change in yield much faster. So basically, it was building up over time without any steps quite steadily, but was masked by a faster growth. And when the growth reduced -- went down a little bit, you saw the results in the credit card portfolio yields, it's kind of went down a little bit faster. On the second question on cash loans, basically, our cash loan portfolio is growing quite fast. And when you calculate the yield wise, basically, it's taking an average portfolio in the denominator. The denominator in the second quarter, they -- basically, the difference between the beginning and end of the quarter was less than for the first quarter where it came from a very small base. And therefore, without changing any tariffs, we did not change anything without any changes in yields. The effect in yield on cash loans was a little bit better. So it's purely mathematical. And the opposite goes on the cost of risk on cash loans because it was abnormally high in first quarter, lower in the second quarter and will basically stabilize, however, within several quarters because -- and sometimes, it's skewed simply because of the front loading. On the -- basically, on the composition of our -- on our customer profile and cash loans, so these are more sort of mass-affluent customers around mass market in credit cards in the gold, platinum. So they are closer to our -- all the lines and co-brands customer profile. And statistic shows that approximately 1/3 of our cash loan portfolio maybe a bit more comes from Tinkoff Black customers, another 1/3 roughly comes from other products, including core brands and all the lines, including POS loans, the cross-sell from POS loans and approximately 25 to 1/3 -- 25% to 1/3 comes from the market, these are genuine customers. So the customer profile is more upscale. And that is why we see that the expected probability of default is lower. We see that cost of risk eventually will be lower than in the credit card portfolio. The yield will be lower, and therefore, we are able to issue a large -- larger tickets to these customers. So if you see the average on credit cards is not changing for 4 quarters in a row, it's around RUB 44,000, RUB 45,000. And here, we are able to issue loans over RUB 200,000. In fact, the average for the second quarter was RUB 222,000. Did I answer everything?
Yes. Very comprehensive answer. What I would just like to understand a little bit better, so basically, on the credit card loan yield, does this mean that going forward, we should you see a lower effect of -- basically, lower effect of this regulation of the both old regulation and new regulation given that you don't expect any more tariff changes, and so it will be more gradual decline in the loan yield on credit cards given that your customer behavior probably will continue to change?
Well, I won't bet everything on this, but it seems to be right assumption there.
Okay. I just have another question on your fee income. Basically, on the SME fee income, we have seen a very strong quarterly growth and would like to better understand what was driving it given that it doesn't -- the increase in the number of customers did not fully explain that...
No, no, it's not only the increase in number of customers. The reason actually is seasonality of the business because in the first quarter, there was a decline in certain fees, especially transactional fees. So customers keep paying monthly fees on the same pace, but the transaction volume is going down in the first quarter, especially in January/February. And therefore, you are getting less transactional fees in the first quarter. So basically, in the second quarter of the year, we are back to -- into the trajectory, which was set in the third/fourth quarter last year. That's it.
That's helpful. And finally, a question on the -- your insurance income. Do I understand correctly that part of the insurance went from the credit protection fees into the -- your insurance income and whether the effect in the P&L was basically neutral or not?
The effect on P&L of the group is absolutely neutral. It's just a small shift from the bank to the insurance company.
And can I understand what part of your income from insurance is actually now coming from those -- the basically, credit protection?
It's -- in the insurance business?
Yes.
It's more than 50%. So you see that in the...
Slide 12.
On 12, on the second quarter, the blue part, which is auto, is RUB 0.6 billion and yellow is RUB 0.9 billion, but there are other parts, of course, of insurance business, including property and travel insurance, but they are not so material I'd say. So it's more than 50% still, probably 55% to 60%.
But still it looks that including the credit protection fee, here, it looks like the total -- your total income from credit protection is growing, and what's driving that?
It's not growing on a -- if you divide it by an average active customer, but it's growing alongside with a growth of the portfolio. A bit -- basically, the growth in insurance premiums is a bit slower than the growth in loan portfolio because of course, the rate -- there is certain attrition rate from insurance. That's it.
The next question comes from Neri Tollardo from Morgan Stanley.
Just a couple of follow-up questions on some things that you're saying. On the SME, you mentioned regulation and competition stepping up, if I heard correctly. Can you maybe just elaborate a little bit on what you're seeing and how you're reacting? And then, on the asset quality of the existing portfolio, I don't have any questions and it seems to be performing better than anybody expected. But in terms of new customers, are you noticing anything different? Are your approval rates changing anything on that front?
Sure. Just -- sorry, just on the second question, so you're talking about the existing credit card loan book?
New credit card.
New customers coming in.
New customers and your general approval rates for your loans, whether those are changed at all over the last few months.
Sure. So on the first question regarding Tinkoff Business, I did carefully signpost my comments. So we see increased competition. You see the new, let's call them, digital players. So there is [ module ] Tochka have been around for a few years, but basically, more or less similar times launched, similar to Tinkoff. And you also see renewed competition from, let's call them, the incumbents. Sberbank built a digital platform for small business, Alfa-Bank, who are going great guns, Raiffeisen and various other players. So it was a competitive space. It's becoming an even more competitive space, specifically in the smaller end of SME, which is obviously our main target segment, so there's competition. It's a healthy competition. And we're, obviously, able with our model, our product, our service platform to compete effective as you can see by the numbers of accounts opened. But alongside the steeper competition, which will be a continuing trend as we've warned over the years, that you know this is not a complete blue ocean. There's increased regulation. So what is this? This is a separate division in the Central Bank or the financial monitoring division, who are waging, let's call it, war on businesses across Russia in terms of tax evasion, in terms of various schemes that small business is sometime -- well, on large business, unfortunately, are sometimes engaged in. And rather than having a very finely tuned approach using surgical tactics, they drop nuclear bombs on different parts of market at different times and everybody gets caught up. So this is a market-wide thing, but from time-to-time, the Central Bank really let's it rip, and this is something which makes it a lot more difficult to operate in because obviously, we always want to be on the right side of the Central Bank, as I'm sure the other players who I have just mentioned. But sometimes, it makes a little bit more difficult to find the right line, the right balance. So I also want to mention in terms of SME. Absolutely, great segment, fantastic business, but it has its operational challenges, as do all businesses. In terms of new customers coming into the loan book or the credit card side, so 2016 was really just a clear runway for us. It was very low leverage, still decreasing at that time, low competition with a tougher regulator environment, so it's kind of blind sailing. 2017, you saw more competition coming back into the market. And from mid- to late-2017, you saw leverage going back up. 2018, you're in really quite a competitive market. Again, basically, midyear, we can see lots of competition. And when I say -- when I'm talking about competition, it's not just credit card -- direct credit card competition, although there's that as well from a number of different players, but also competition from cash loans and various other lending products. And so you're seeing some signs of slightly higher levered customers or customers who've sent more inquiries to the bureau, i.e., they've been looking, going to different institutions try and seek a loan or customers who've got a larger number of loans outstanding or who may have issues with delinquency in other institutions, obviously, we see this predominantly through the Bureau. So our approval rates peaked at around 30% to 32% of incoming applicants around 1.5 years ago. And then just ticked down gradually over the quarters. Until today, they're around 20% to 23%. It moves around a bit month to month. So they kind of ticked down automatically as we see some customers on the periphery -- applicants on the periphery, I should say, having a slightly worse credit quality. In terms of the customers coming into our book, do we actually approve, so we're approving slightly less customers because of slightly lower approval rates that are stable. Customers that come in as good as they have been ever. So our FPD, SPD rates are very low. Delinquency rates, as I mentioned little bit earlier, was still coming down ever so slightly. So the delinquency rate is around kind of 6.5%, 7%, sometimes goes even a little bit lower, and that's a record for us. So in terms of customers in the book, absolutely excellent. Customer applications coming in just a slight deterioration, which is kind of what you'd expect to see over time as competition starts coming back in and customer starts to take more credit.
As there are no further questions from the phone, I will now turn the call back to your host for any additional or closing remarks.
And so thank you very much, in deed, everybody. Looks, like we got another question. A late comer, Nitin. We're happy to take Nitin's question, if it's not too late.
Certainly. We will now take the next question from Nitin Saigal from Kora.
I have a question about how you think about the balance sheet? I think, historically, you guys have said you think about the current accounts as sort of distinct. You invested in low risk treasuries and keep it in cash. And I'm curious as you've got a longer history and as you said, a lot of deposits coming in and excess liquidity, and as you get on the asset side into perhaps lower risk -- lower yield, but lower risk segments, is that always sort of going to be the case? Or at some point, do you feel comfortable increasing the share of credit on the balance sheet and reducing the amount you take from that and put it into sort of low yield investment portfolio securities?
Yes. That's a debatable question within our core finance comp in the group. You're right. Historically, we've been dividing vigorously our balance sheet into 2 parts: longer-term funding for loan portfolio and short-term funding from current accounts into treasury portfolio. And of course, the treasury portfolio now -- well, not, of course, but now you can see the treasury -- this treasury balance sheet is same level with the lending balance sheet more or less, and we'll continue growing. And of course, it is -- would be probably some strange nuclear devastating situation when all current account customers with all SMEs coming at once and withdrawing their cash 1 day. So probably, we should think, and we're already thinking about deploying some of the current account money into the lending business. And the first parts where we feel safe deploying it is POS lending where the duration of portfolio is very low. And second transactional part of credit card portfolio, people who in sit in grace period, and basically, turnaround their balance within month, within 30 days. So basically, the duration of these asset is very short. And right now, the overlap in our balance sheet is approximately around 10%. And we think of growing -- if it grows to 20%, it still will be safe and will probably won't affect our liquidity position and our mismatch on maturities of assets and liabilities. And of course, one of the problems for us is the investing universe in Russia is not that big as I would want it to be. And we always invested into the names which have credit rating better than us and this state, quasi-state, large corporates, blue -- Russian blue chips, but -- well, we already invested in every corner of this small universe. So basically, we are -- yes, of course, thinking also about growing the -- this portfolio, but also should be very cautious on this. So investing into the shorter duration parts of our loan portfolio is the thing which we are open right now.
Thank you very much everyone, then. That concludes our call. And if you have any questions, then please don't hesitate to fire them off by e-mail. Bye now.
That will conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.